Precedents for Lost Decades, Critiquing Market Efficiency, The Anatomy of a Bubble, & Thoughts on Meta's Quest Pro
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Precedents for Lost Decades, Critiquing Market Efficiency, The Anatomy of a Bubble, & Thoughts on Meta's Quest Pro
Market Talk, Edition 61, October 23rd 2022
Market Talk is a bi-weekly Sunday issue, where I curate the best things I have consumed during the last two weeks. Every second Sunday I will share the following segments:
• 6x Must-Reads: The 6 readings I found most insightful, with commentary.
• Other Items of Interest: A collection of other readings I found enjoyable from stock write-ups to macro.
• Great Listens: Podcasts, interviews, or videos I enjoyed.
• Something Interesting: A palate cleanser to round off the issue.
Comments from Me
British Airways will love me because I have extended my trip to India…for a second time. This time, for an additional week so I can be here for Diwali. Being here has given me a deeper sense of appreciation for being able to work remotely, it has also helped me realise how expensive the UK is, but I will be back home this coming week.
As you might have noticed, I was fairly active in posting memos this week. Some macro commentary, a short write-up on Tortilla Mexican Grill, some commentary on the direction of the newsletter now it has doubled in size and opening up a reader support function, as well as one incredible interview that I dug up from 1987 featuring Phil Fisher.
Recent Publications: Memos I have shared since the last Market Talk.
• US Economy: Key Macro Events This Week
• MEX: “A Recession is an Ideal Time for Expansion”
• Investment Talk will never have a Paywall
• A Rare Interview with Phil Fisher Following the 1987 Crash
Investment Talk is a read-supported newsletter, and there will never be paywalls. If you enjoy the content and would like to support the newsletter you can do so here.
6x Must Reads
In every edition of Market Talk, I share a sizeable number of readings that I have consumed over the past two weeks. Here are the 6 that I found particularly enjoyable or insightful. Note, that these articles are not listed in order of perceived value.
To access the suggested article, click the purple link after the source subheading.
1) Return on Invested Capital How to Calculate ROIC and Handle Common Issues
Length: Dense
Source: (Counterpoint Global)
Back in 2014 Michael Mauboussin and Dan Callahan wrote a fabulous paper on calculating return on invested capital (ROIC) and handling common issues associated with the said calculation. This was a paper that I frequently revisited to refresh my understanding of ROIC, and I have shared it in Market Talk before. I was delighted to see that the duo recently updated & extended their work to 2022, and feel this is a must-have resource for any investor.
“A company creates value when the present value of the cash flows from its investments are greater than the cost of the investments. In other words, one dollar invested in the business becomes worth more than one dollar in the market. Discounting future cash flows makes sure the investment is attractive relative to the capital’s opportunity cost, the return on the next best alternative.”
This is known as the one-dollar test, and as you can see from the graphic below, when companies invest successfully, as reflected on the x-axis in a positive spread between ROIC and WACC, the market tends to recognise that with an enterprise value that is at a premium to the amount of invested capital.
The paper covers how to calculate ROIC, how it is connected to free cash flow, economic profit, and growth, as well as working through some of the practical challenges in estimating the metric correctly, demonstrated via empirical data, and reviews how the introduction of intangible investments can reshape the figures. The duo also highlight the metric’s shortcomings in addition to several other important lessons when conducting fundamental analysis; a true masterclass.
“ROIC is a snapshot in time. But investors should care a great deal about how ROIC will change over time. We can use the tools we have to measure return on incremental invested capital (ROIIC). Rising ROIICs pull aggregate ROICs up. That said, a study of base rates shows that ROIC is, in the aggregate, subject to regression toward the mean. That implies that extreme good or bad outcomes will be followed by outcomes with an expected value closer to the average. Investors should always keep both ideas in mind. Look for increasing returns while understanding that achieving and sustaining high returns is rare.”
2) Soros on Financial Markets & Bubble Spotting
Length: Moderate
Source: (George Soros)
Over the past couple of weeks, I have been reading a great deal of commentary from before, during, and post the great financial crisis in 2008. It’s fascinating to read back with the benefit of hindsight and see just how clueless most people are; some not knowing the bottom had hit until almost a year later (not that I expect anyone to know when a bottom is set). There were a few that had chilling foresight. Bull markets tend to climb walls of worry and are met with pessimism and scepticism. I stumbled across one interview with George Soros from 2009 when the S&P was up ~40% from the (unknown at the time) bottom that had been set 7 months earlier. The commentary on the Fed’s passion for liquidity made for a nice slice of foreshadowing.
I also came across this article from a slightly earlier period following the crash (November 2008) that I found to be an enjoyable read. My trawl through history naturally led me to find a lot of Soros-related content. The one I share today is not explicitly related to the GFC but is a transcript of a lecture Soros gave at the Central European University on October 27th, 2009. In the lecture, he discusses his theory of reflexivity, as well as an engaging theory about the boom and bust process of financial markets and how bubbles are formed and deflated.
He continues to discuss the relative length and speed of each stage in a bubble, using a range of prior bubbles as examples; some revolving around the relaxation of credit (Real estate boom 2000s), others catalysed by equity leveraging (conglomerate boom 1960s, the tech bubble 1990s). In this paper he coins the now famous term sentence; “When I see a bubble forming I rush in to buy, adding fuel to the fire. That is not irrational. And that is why we need regulators to counteract the market when a bubble is threatening to grow too big, because we cannot rely on market participants, however well informed and rational they are”. After the bubble of 2020 winds down, I prescribe this as required reading.
“Let me state the two cardinal principles of my conceptual framework as it applies to the financial markets. First, market prices always distort the underlying fundamentals. The degree of distortion may range from the negligible to the significant. This is in direct contradiction to the efficient market hypothesis, which maintains that market prices accurately reflect all the available information. Second, instead of playing a purely passive role in reflecting an underlying reality, financial markets also have an active role: they can affect the so-called fundamentals they are supposed to reflect. That is the point that behavioral economics is missing. It focuses only on one half of a reflexive process: the mispricing of financial assets; it does not concern itself with the impact of the mispricing on the so-called fundamentals.”
3) A Critique of Efficient Market Theory
Length: Light
Source: (Seth Klarman)
In this 2015 paper, Seth Klarman describes the efficient market theory (the idea that share prices reflect all known information) as an “elegant hypothesis that bears quite limited resemblance to the real world”. He makes the argument that because the academics who believe in this theory have had such prominent influence over the decades, it has led to a generation (or two) of investors who believe beating the market is near-impossible over the long term. The result; investors either call it a day and buy the index, settling for average, or they employ strategies that are overly risk-seeking.
“Because so many have been taught that outperforming the market is impossible and that stocks are always fairly and efficiently priced, investors have increasingly adopted strategies that eventually will prove both riskier and far less rewarding than they are currently able to comprehend.”
So the question begs, what if the market is not efficient? Today, there is a healthy school of agreement and disbelief in the matter, but it still appears the theory’s status amongst the broader populous is relatively unchallenged. In this concise 5-page paper, Klarman provides some exquisite food for thought on the matter, from the perspective of a man who does not agree with the idea that markets price in all known information. As for my own opinion, I am a non-believer, but I do believe the theory has some merit, merely as a demonstrative idea as to how the market functions.
The theory would suggest there exist differing strengths of efficiency; strong, semi-strong, and weak, each governed by the variables within those markets (note, the difference between strong and semi-strong is that strong assumes all private information is baked into pricing). For instance, assume we have two markets, A and B, and A is a market with lighting fast internet and 100% of the adult population with internet access, while B is a market where there is no internet and adults receive their news via print. I would assume market A, ceteris paribus, is more efficient on the assumption that it’s more likely prices absorb all known information due to the latency that information is able to spread across the market. In market B, I would assume that any individual with access to the following day’s paper before the rest of the population, has an advantageous position as far as it concerns the stock market. Variables such as; the extent of market infrastructure, the speed information travels, levels of corruption, and hundreds more will influence the level of efficiency.
I believe the level of efficiency in developed markets tends to oscillate between weak & semi-strong; with the caveat that I am sceptical, they ever achieve full semi-efficiency. If there was a percentage between a weak and semi-strong market, then I would guess efficiency (broadly and for individual stocks) tends to exist within a range of 5% to 90%. In markets where we can assume a semi-strong level of efficiency, there will still be periods when the market overreacts, as it so often does, to both the upside and the downside. We saw this in 2020, when the market plunged into the depths of a bear market at record speed after the outbreak of covid, before retracing all of those losses at record speed within a quarter. It then continued to overcorrect to the upside for quite some time. On the whole, the market is a forward-pricing mechanism, pricing out the next 12-24 months in the present day. What happens when there is overzealous fear or optimism, is that the forward-looking range becomes much shorter; the market begins to price in the next 1-6 months based on whatever trepidation or equanimity it faces. I tend to visualise this as a pendulum which swings back and forth.
So as much as I think the efficient market theory is great for understanding the varying levels of efficiency and how that impacts stock prices, I don’t think there is ever a time when the market is actually fully efficient. Instead, I view the market as something which is constantly calibrating itself, attempting to find that sweet equilibrium where assets are priced “correctly”, but will never do so. As long as there is a human behind a trading screen, there will never be an efficient market. Ben Graham said a market is a voting machine in the short term, and a weighing machine in the long term; I prefer to think about market efficiency using this simplification, as well as my own pendulum analogy.
“If academics espousing the efficient market theory had no influence, their flawed views would make little difference. But, in fact, their thinking is mainstream and millions of investors make their decisions based on the supposition that owning stocks, regardless of valuation and analysis, is safe and reasonable. Academics train hundreds of thousands of students each year, many of whom go to Wall Street and corporate suites espousing these beliefs. Because so many have been taught that outperforming the market is impossible and that stocks are always fairly and efficiently priced, investors have increasingly adopted strategies that eventually will prove both riskier and far less rewarding than they are currently able to comprehend.”
4) Market Share: Understanding Competitive Advantage Through Market Power
Length: Dense
Source: (Counterpoint Global)
Another masterclass from Mauboussin & Callahan that I eventually got around to reading. This paper tackles the nuances of understanding and identification of competitive advantage; a company’s ability to generate returns on investment above the cost of capital, and higher than its competitors, for an extended period. Often labelled a ‘moat’, competitive advantages can be derived from numerous sources, have an array of different benefits, and generally take various forms.
They can also materialise and fade at different stages of a business’s lifecycle, influenced by both internal and external factors. Michael Porter, the author of Competitive Strategy, is the godfather of this topic and is rightly referenced throughout. The paper includes several case studies to demonstrate the learnings in practice. A solid dollop of knowledge. I wish I had discovered the work of the two authors during my university days, but am grateful I have discovered them at this stage in my life.
“Sustainable competitive advantage is pertinent for executives and investors. We define sustainable competitive advantage as a company’s ability to generate returns on investment above the cost of capital, and higher than its competitors, for an extended period. Executives seek to position their companies strategically to attain a competitive advantage. In the process, they have to consider industry dynamics, including barriers to entry, and figure out how to perform activities differently, or perform different activities, than their competitors. Companies can also create shareholder value by allocating capital judiciously. These companies are often said to be surrounded by an economic moat that preserves profitability and keeps competitors at bay. Of course, investors need to be sensitive about the price they pay. But businesses with a sustainable competitive advantage can be attractive because their value grows over time. Investors often treat analysis of competitive advantage and valuation as separate tasks. But they should be done together”
5) There Is Zero Precedent For a 'Lost Decade' In the Stock Market
Length: Light
Source: (Fisher Investments)
The Son of the well-known Philip Fisher, Ken Fisher, brings up a question that I have seen percolating around the interwebs lately; will the US face a ‘lost decade’, similar to that which is supposed to have taken place during the tech bubble crash of 2000? I have long had some issues with that style of thought. For one, this period, which is taken from the very peak of the tech bubble includes two significant bear markets. It took ~7 years for the S&P 500 to break even before another crash came in 2008 which extended the break-even point to ~2013. While not disregarding it entirely, I find fault in this argument because it (a) cherry-picks the top; (b) assumes that investors bought the top and never utilised capital during the bear market and; (c) assumes investors only earn price returns. Moreover, it just lacks nuance. Fisher offers an alternative perspective, stating “there is no precedent—zero, zilch—for stocks falling and remaining “flat” for 10 years straight” as well as outlining why investors can’t forecast tens years out. Often paying lip service to the demand side of the equation, they forget about the equally important long-term driver; supply (IPOs, bankruptcies, buybacks, mergers, regulatory shifts, & other factors). He goes so far as to say that increasing fears of lost decades are bullish. You may not agree with Fisher’s conclusions in this opinion piece, but I find that reading a varied set of perspectives both stimulates curiosity, and helps keep my mind open.
“Why can’t anyone forecast a decade out? The effort overlooks markets’ nature. Stocks move on supply and demand, like any asset. Far-ahead forecasts typically focus exclusively on demand, ignoring stocks’ more crucial long-term driver: supply. IPOs, bankruptcies, buybacks, mergers—all these influence supply, and hinge on regulatory shifts, future sentiment and myriad other factors. Those aren’t predictable far in advance—I’ve never seen anyone even try. That is a key reason stocks move on factors mainly impacting businesses over the next 3-30 months. Anything beyond is too murky. Maybe the next decade is subpar—but you can’t know it now—or how. History shows the journey won’t be “flat” anyway. Hence, opportunities will abound.”
6) My Thoughts on Meta Quest Pro & Other Commentary
Length: Varying
Source: (WSJ, Stratechery, Platformer, The Verge, NYT)
Meta’s recent Connect event unveiled a much anticipated Pro line-up to their range of mixed reality headsets. The majority of the lip service was paid to the new headset, but executives did spend some time attempting to demonstrate that there are early innings of adoption within the mixed reality economy. They revealed that over $1.5 billion has been spent so far on games & apps within the Quest store and that there are 400+ titles with over $1 million in sales; and 33 titles that have generated more than $10 million in sales. This is contrary to the narrative that the media paints. A recent WSJ article uncovered some harsh realities at Horizon Worlds, Meta’s flagship social platform in the Quest Store. Previously targeting 500,000 MAUs by year-end, the WSJ reports that Meta’s internal target was revised down to 280,000 with current MAUs hovering around 200,000. This came weeks after the Verge released a similarly scathing article highlighting evidence that Horizon Worlds struggled to be dogfooded by employees because they barely use it. Meta’s VP of Metaverse, Vishal Shah would send an internal memo that noted “everyone in this organization should make it their mission to fall in love with Horizon Worlds.”
This is just one app in the OS that Meta owns.. and I too find it unlikely that this becomes one of their “breakout” apps on the platform, but given the extent of the investment Dollars Meta is pouring into this, and the seeming absurdity of the vision they are trying to accomplish, it’s only natural the media scrutinise their every move. You may notice that, to this day, many publishers continue to share their articles using outdated avatar images of Mark Zuckerberg instead of highlighting the improvements made in this area; the codec avatars look particularly sharp and can be scanned within minutes using a phone, and complete within hours. The technology we have today is impressive but still nascent and many believe this to be a decade-long pursuit. But media still has to generate clicks, and they are incentivised to be opinionated. Fair game.
And then you have boomers like Dave Troy that simply think Zuckerberg is delusional. I disagree with this tweet because few consumers outside of the investment world consider apps like Beat Saber, Superhot, Population One, VR Chat, etc, as “Meta social spaces”, they just think of them as great games or applications within the Quest store. But it's still possible that Zuckerberg is delusional. This is something only time and the consumer will decide, not the peanut gallery of Twitter (including myself). I find that the public discourse of AR/AR is often contorted into a discussion about whether or not someone likes Meta. The conversation is rarely an informed debate about whether mixed reality will succeed; instead, it’s a conversation about whether Meta will succeed.
First, let me say this, I am a nerd. When I share my thoughts on VR and AR, it comes from excitement about what this space might accomplish over the next decade. It just so happens that Meta is at the forefront of that presently. As such, absorb my commentary from the perspective of a technology enthusiast, not a Meta shareholder. Ignore your preconceptions about the “metaverse”; that is just a marketing term. Like the smartphone (pioneered by iPhone), I believe this technology has the potential to alter our relationship with tech in an entirely new way; primarily in the application of AR (see video of Marquest Brownlee augmenting a desk set-up). But the technology is not quite there for mass adoption. Someone once told me that for a product to replace to status quo, it has to be 10x better than the existing preference of consumers. If something is not 10x better than what they are currently using, they will be hesitant to try it out and switch. Is any variation of mixed reality 10x better than a traditional computer desktop right now? The answer is a big fat no. Does it have the potential to be? Certainly.
The above video is pretty neat, and that’s the angle that Meta has taken with this new headset, that it’s not for everyone; a niche segment compared to the Quest 2 that is designed for work, collaboration, and creativity. It comes with some improved optical specs (but still not as quality as the screens we are used to), a more ergonomic design (with the battery at the back of the head as opposed to the front), some strong accessories (such as a charging dock for desk use and vastly improved haptic controllers), but what most differentiates this product is the aspect of mixed reality, it can be both a VR & AR headset. The battery life still sucks at between 1-2 hours. Readers looking for a complete breakdown should watch Connect or read Platformer. Here’s my opinion.
I don’t think this headset will sell many units. To date, the Meta has sold somewhere between 17 and 20 million units of hardware, most of which are the Quest 2 models. Being at such a nascent stage of adoption, few will shell out for this exploratory Pro model.
Quest Pro feels like a beta. The potential is incredible, and the technology has come a long way, but it’s still somewhat underwhelming. Remember the original Quest headset? Few do. It was only Quest 2 that created waves and shifted major units, and I believe the same will be true for the first iteration of Pro. Buyers of this product are likely corporations who are keen to waste money, journalists in the VR space, and keen VR enthusiasts with $1,500 to throw away. That’s a pretty small market, all things considered. Even the vastly more popular Quest 2 still has retention issues.
Quest & Quest Pro Makes Sense. Similar to Apple’s base and Pro lineups, it makes sense to develop the muscle of manufacturing a higher-end device with superior technology. At present, a smaller base of users will dog food the product, after which Meta can learn, iterate, and eventually bleed that technology into the base Quest models for the broader population.
One thing I did not have on my Bingo card was the partnership with Microsoft; which announced they would be bringing their portfolio of office services (Slack, Word, Excel, etc) to the Quest experience. I suppose this is a smart move by Microsoft. With a reasonable amount of adoption, Microsoft can ride on the coattails of Meta’s CapEx and take a punt at being the go-to office software for mixed reality. Ben Thompson landed a brilliant interview with both Zuckerberg (Meta CEO) and Nadella (Microsoft CEO) on the day of the event, which is another item I would recommend this week.
I don’t think anyone knows how this will pan out, I certainly don’t. At present, I believe that as impressive as their progress in the space has been, it’s hard to imagine that Meta will be the one to ultimately “win”. Large incumbents often fail to catch the next wave of disruption because they still have an existing business entrenched in the past that they must not neglect. That said, it’s not like Meta is being timorous in their spending and intent. It’s clear to see they are desperate to replicate what Google & Apple have in the supposed next computing platform. Meta wishes to be the OS and the hardware that powers mixed reality. Whilst a company like Meta can divert a significant amount of resources towards this new project, as adoptions increases, there will come a spate of fresh young companies whose sole mission is to focus on this market. Or perhaps someone will just create a superior product. Myspace ushered in the adoption of social media, but Facebook mastered it and took it to the next level. Apple didn’t spark the adoption of mobile phones, but it poured lighter fluid over the market and shifted the paradigm of what a mobile device could be. If we go by academia and history, the odds don’t look great for Meta. As Herman Peretscheck said: “The mouse used to be stupid and the Blackberry used to be irreplaceable. Tech is hard to predict but easy to narrate.” There now exists a variety of schools of thought on the matter.
Those who remain invested and are bullish about FRL.
Those who remain invested and are cautious about FRL.
Those who feel Meta is a victim of thesis creep and is no longer investable, whether because of weakness in FOA, FRL, or both.
Those who feel Meta is now more attractive because of their bet on mixed reality, previously not being as interested in the business.
I belong to the second bullet point. I feel that FOA concerns are somewhat overblown. However, whilst I was aware of the optionality of FRL at the inception of my ownership of Meta, I am aware the size of that bet and its relative risk/reward profile have ballooned. I don’t believe there is a great deal of merit in dissecting the minutiae of their progress in the short term as it’s quite clear this is a bet with a long feedback loop. At present, there is enough evidence out there to show both promise and concern, but neither overwhelmingly so, in my mind. Despite not selling any shares of Meta, I have not allocated new capital to the position in quite some time, allowing it to naturally dilute in weight as I input fresh cash to other areas (the share price decline helped in this respect too). That is how I have chosen to demonstrate my position on the matter, and I reserve the right to be wrong as well as change my mind. One last food for thought. I stumbled across this tweet whilst editing the final draft of Market Talk, where in 1993 AT&T forecasted the development of a range of technology we all take for granted today from smartwatches to translation software. If you take a look at the total return from 1993 to today, it’s not been great, and worse still AT&T clearly failed to capitalise on their foresight.
Company Related Write-Ups
• Stock Opine (POOL): Pool Corp Write-up
• Invariant (CARR): Carrier Write-up
• Vestrule (EDR): eDreams ODIGEO Write-Up
• Punch Card (NVDA): Nvidia Write-up
• SLT Research (NVDA): From Chip Player to Computing Platform
• Rational Reflections (COST): Observations of a New Costco Member
• Stratechery (MSFT): Microsoft Full Circle
• Starbucks News Room (SBUX): Starbucks enters into an agreement to sell Seattle’s Best Coffee brand to Nestlé
• Mostly Borrowed Ideas (ABDE): Adobe Q3 Earnings Commentary
Other Items of Interest
• McKinsey: Four Keys to Merger Integration Success
• Aikya: The Power of Organisational Culture
• Neckar: The Complete Financial History of Berkshire Hathaway
• Oakmark Funds: Bill Nygren Q3 Market Commentary
• The Last Bear Standing: Covariance and Convexity in Financial Models
• Wedgewood Partners: Q3 Shareholder Letter
• Kenneth Fisher: There Is Zero Precedent For a 'Lost Decade' In the Stock Market
• Intelligent Investor: Masterclass, Phil Fisher
• 01Core: Will China's lockdowns have a lasting impact?
• Ensemble Capital: Q3 Shareholder Letter
• Behind the Numbers: Mad Med Accounting
• Edelweiss Capital: Disruption gets too much attention
Macro
• Apricitas Economics: America's Shrinking Pile of Savings
• Apricitas Economics: Europe’s Long Winter
• Banking on the Market: China is a Wildcard
• The Macro Compass: The Pension Funds Drama Explained
• Concoda: The U.S Dollar Endgame Could Take Centuries to Play Out
• Macro Compass: A Chat With The Top Macro Hedge Funds
• Kyla’s Newsletter: The Fed’s Goal? Getting the Economy on a Sustainable Path
Great Listens
Here, I will share some audio/video materials I listened to during the last two weeks, that I feel are worth your time.
(1) Ensemble Capital Third Quarter 2022
Ensemble Capital
Put simply, I like Sean Stannard Stockon and Ensemble Capital’s approach to investing. As such, their Q3 2022 video presentation was enjoyable & informative viewing. Plenty of discussion on macro, processes for LT investors, as well as on a select few of their holdings such as Nike, Alphabet, ServiceNow, Netflix, & more. I also shared the letter in ‘Other Items of Interest’.
Guest: N/A
(2) Intuit: An Operating System for Small Businesses
Business Breakdowns
Intuit is a business I’ve been meaning to study in depth for some time. I first discovered it as a consumer, having used Quickbooks for a number of years. Intuit is arguably the world’s largest personal & professional accounting software, has been running for almost 40 years, and has been a durable compounder since its debut on the stock market in the early 1990s.
This episode of Business Breakdowns stood as a fine introduction to the business, as well as provided an engaging conversation.
Guest: John Feeley
Something Interesting
A controversial one this week. Someone recently sent me a link to a service called 2ft, a site which allows individuals to plug in a URL and remove the paywall from the article they wish to read. Is it a contradiction that I personally think independent creators should be rewarded for their hard work, yet don’t really care about bypassing the paywalls of larger institutions? Probably, but I am not here to act as my reader’s moral compass. It doesn’t work for everything (Substack for instance, not that I’d personally attempt to bypass a substack paywall for reasons stated above), but I have found it allows for the bypassing of certain weekly article limits on some unnamed financial websites.
How does it work? Here’s what the owner of the site has to say on that front:
“The idea is pretty simple, news sites want Google to index their content so it shows up in search results. So they don't show a paywall to the Google crawler. We benefit from this because the Google crawler will cache a copy of the site every time it crawls it. All we do is show you that cached, un-paywalled version of the page.”
I figured this was a pretty useful tool, but then I reflected on my initial, almost automated, opinion that it was “okay” to do this. So I asked for the opinions of fellow investors and creators on Commonstock. One response in particular, from a fellow investor that I respect, Edmund Simms, the author of Valuabl, caused me to pause as he responded in a humorous, yet thoughtful, fashion (I have come to expect this).
“Here's my view, caveated by my acknowledgement that I am just one man with an opinion and economic privilege. Bypassing paywalls, unless at the permission of the owner, is theft. It is no different from walking into Gregg's, pocketing some sausage rolls, and bypassing the cashier.
If you don't pay for what you read, someone else is. Whether it's the journalist risking their life to report from the shelled-out hollows of the Donbas, the editor working sleeplessly to slice thousands of words into bite-sized pieces, or the investors betting their retirement to finance the operation. If you don't pay, who would you ask instead? The journalist and her family? The editor and her children? Or the pensioner relying on a dividend to pay the heating bill? I will now extricate myself from my own ass and climb down from my high-and-mighty morality soapbox.” - Edmund Simms
This feels like the correct position to take from the perspective of a moral and good-standing citizen and made me rethink my loosely held opinion. Brushing the act of bypassing a paywall off as “Oh, one won’t hurt {insert media company}” ignores the plethora of other stakeholders that exist underneath the umbrella of an organisation; the editors, writers, fellow employees, advertisers, their families, and so forth. It might appear to be hyperbole to consider an unlikely sequence of consequences stemming from some mass-orchestrated rebellion against paywalls, but to me, this isn’t about that. It’s more so a question of the character of humans. Suppose I was a litterbug because I thought that my own filthy habit wouldn’t dirty the streets of my city. Now suppose a majority of the population in the city shared that view; there would be litter everywhere. I find that attitudes can be infectious. Earlier this year, I experienced a month-long strike from garbage collectors in my city (I wrote about it in the intro to this edition of Market Talk). As the bins began to overflow, I noticed that people began to litter more frequently in areas where there were no bins, or simply place trash near a bin despite it already spilling out onto the pavement. Because the streets were so laden with trash, residents assumed that one more piece wouldn’t hurt and so littered more frequently than they did before. As a creator myself, perhaps I should object more to the idea of bypassing paywalls or risk being a walking contradiction. Anyway, I wanted to see what my readers think about the topic. If you have read this far, congratulations. I think it would be cool to run a poll and see what a broader base of individuals think about the topic.
Thanks for reading.
Conor,
Author of Investment Talk
Investment Talk is a read-supported newsletter, and there will never be paywalls. If you’d like to support the newsletter you can do so here.
Disclaimer
These are opinions only of the individual author. The contents of this piece do not contain investment advice and the information provided is for educational purposes only and no discussions constitute an offer to sell or the solicitation of an offer to buy any securities of any company. All content is purely subjective and you should do your own due diligence.
Occasio Capital Ltd makes no representation, warranty or undertaking, express or implied, as to the accuracy, reliability, completeness or reasonableness of the information contained in the piece. Any assumptions, opinions and estimates expressed in the piece constitute judgments of the author as of the date thereof and are subject to change without notice. Any projections contained in the Information are based on a number of assumptions as to market conditions and there can be no guarantee that any projected outcomes will be achieved. Occasio Capital Ltd does not accept any liability for any direct, consequential or other loss arising from reliance on the contents of this presentation. Occasio Capital Ltd is not acting as your financial, legal, accounting, tax or other adviser or in any fiduciary capacity.
Tickers mentioned in this issue: POOL 0.00%↑ CARR 0.00%↑ EDR 0.00%↑ META 0.00%↑ GOOGL 0.00%↑ MSFT 0.00%↑ INTU 0.00%↑ NKE 0.00%↑ NOW 0.00%↑ NFLX 0.00%↑
Precedents for Lost Decades, Critiquing Market Efficiency, The Anatomy of a Bubble, & Thoughts on Meta's Quest Pro
Imo the fact there is there is much privacy on web articles is a signal of a business model problem like it was with music piracy before Spotify.
For instance, I would be much happier to pay even 3$ for an article I really want to read (with a click) rather than having to subscribe at 3$/month to read and then unsubscribe.
Great reading, thanks for sharing Conor!
It's my privilege to be mentioned here. Thank you. I am curious to see how your readers feel about paywalls and bypassing them.
Another great piece, Conor.