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What We're Reading This Week: Part II

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November 07, 2017

What We're Reading This Week: Part II

Author: Thad Schlaud

Topics: News, The Market, Industry Ideas

New Philanthropy Initiatives

Historically, having more money than you could spend meant giving a lot of it away when you died – think Rockefeller, Carnegie, Ford. Titans of industry were the big names in gifting. Now, titans of Silicon Valley are giving more, and differently, than their predecessors.

In the past, large donors typically made gifts in the form of stewardship, i.e. donating a building on a college campus. The philanthropist of today is much more interested in solving the world’s problems. The two largest foundations in the world are owned by Bill and Melinda Gates and George Soros, respectively. Both donors are still living. In 2010 Bill Gates created the Giving Pledge 2010. It’s an initiative for ultra-wealthy families to leave the majority of their wealth to philanthropic efforts. As of 2016, 154 individuals and families have joined the cause.

While generally aimed at eradicating disease and poverty, these private endowments, foundations and companies (the Chan Zuckerberg Initiative) give ultra-wealthy families incredible influence over major parts of the global economy. It’s hard to predict what the implications of that influence will be, but it’s safe to say there will be an impact.

 

Thad’s Email

I don’t normally write about things people email me, and don’t get excited – this isn’t going to become a regular feature – but I had to take a moment to discuss Amazon’s Key In-Home Kit. As a Prime member I was invited to check out the new…I don’t know…potential crime?

For a small fee of $250.00, you can allow complete strangers to have access to your home. All in the name of delivering packages. The home key kit includes an electronic doorknob and camera that you mount in your house to monitor the comings and goings of Amazon package deliveries. People will generally feel one of two ways when reading that and your reaction suggests a lot about your generation. Sure, there will be younger people disturbed by this concept, but generally speaking there is a higher tolerance for this sort of thing in younger consumers. Some people will be ok with strangers entering their home as long as their packages don’t get wet. Others, well, won’t be ok with it.

I’ll make an analogy from the banking world. As security decreases, convenience increases. For instance, I can access my bank accounts on my phone, without a password. I can make transactions with my phone even if I don’t have my cards with me. I have sacrificed aspects of personal security for convenience. Why? Ultimately, to me, it comes down to a simple concept. Some percentage of the population (this tends to be older persons) are concerned about having their identity stolen, while the rest of the population (generally younger people) expect to have their identity stolen. You read that right – I expect someone to steal my information and I believe that no matter what I do, I am exposed.

Therefore, it makes sense for me to lean into it so to speak. I will enjoy the convenience that comes with that exposure. The Equifax data breach is a perfect example of this. Regardless of how closely you keep track of your information, it can still be compromised because it’s out there in cyberspace.

That brings us back to Amazon. This concept is…troubling. However, Amazon is not the first company to play in this space. Walmart, for instance, is piloting a program that allows grocery delivery persons to put things away in your fridge. All of this requires an incredible amount of trust in technology. Trust that is building over time but not quite there yet. Besides, my wife and I can’t agree on where things should go in the fridge, I can’t imagine bringing a third party into that equation.

 

Algorithms

I’m fond of writing about how computers impact investing and generally, when doing so, I’m writing about how computers analyzing numbers are impacting investing. I’m also fond of saying that once all the computers are analyzing all the data, the data (or analysis) will be less meaningful.

These ambitious little machines are no longer content to look at P/E ratios or economic data. Now they want to listen in to our phone calls. S&P Global Market Intelligence is working to discover what correlations exist between the spoken word and stock performance:

“According to research by S&P Global Market Intelligence, earnings calls that feature more complicated, long-winded and polysyllabic language tend to presage stock declines.”

Put differently, when there is good news people will just tell you. When there is bad news, they tend to avoid being direct. This isn’t news to most people but it is news to computers.

According to research at Goldman Sachs, if a majority of analysts say “great quarter,” then the quarter will have indeed been good and will likely signal target price updates in the future. This is a great example of my thesis. Once we start to measure and quantify it, and eventually trade on it, people will begin to game the system and the data will be meaningless. Once all the computers have all the data, we will have to go back to the “old days” and the best asset managers will ride on a horse to New York and trade certificates under a buttonwood tree.

Elsewhere:

Captains of Finance poo poo Bitcoin

The theory of maybes

How Airbnb affects home prices and rents

Tech giants are paying huge salaries for AI

China’s glaciers are disappearing

Mark Zuckerberg has bigger plans than the White House

Why the government goes easy on corporate crime

Overcoming a hard-wired bias for loss aversion

 

 

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