You will now be directed to a separate site for WCM Investment Management Mutual Funds.
Cancel Ok
WCM Investment Management | Insight | Beach Reads - 5 - 27 | Welcome to Beach Reads. I hope everyone who had Monday off enjoyed the long weekend. A lot of fantastic content was published over the past two weeks. I've tried to include only the best articles, but there are a couple more links than usual.

Beach Reads

May 27, 2020

Welcome to Beach Reads. I hope everyone who had Monday off enjoyed the long weekend. A lot of fantastic content was published over the past two weeks. I've tried to include only the best articles, but there are a couple more links than usual. My personal favorites are the Scale and Loyalty piece by Gavin Baker, the article about how COVID-19 nearly broke the financial markets, the entire Investing Philosophy section, and the first link in "Reflections" (about submarines). Below, I outline the themes covered in this edition of Beach Reads. Enjoy!

  • Deep dives into Epic Games (publisher of Fortnite), DoorDash, and SaaS companies; and what these businesses might look like in the future
  • How changes in social media and advertising impact online and offline businesses, advertisers, and podcasts. Plus TikTok has a new CEO
  • A story about how close financial markets were to imploding during the depths of the COVID-19 crisis
  • Important traits to have as an investor and attributes to look for in management teams (courtesy of Oakmark and Giverny)
  • Eclectic reflections: submarines, web pages, and RVs
Conor Deveney



ABOUT Beach Reads

Welcome to Beach Reads, a collection of interesting links that we at WCM have come across and want to share. The goal of this publication is to engage with a broader audience in order to better ourselves and others. Feel free to email us at with any thoughts or feedback, and click here to subscribe!

01. Business Model Analysis

The Epic Games Primer

You've probably heard of Fortnite. Maybe you play it, or your kids do. Regardless, the name is more recognizable than the publisher's: Epic Games. The company does a lot more than Fortnite, and this epic Epic Games primer is an excellent overview of the business. Buckle up, though: this is a lot of reading (six installments). My favorite section was the final one (6), as it tied together the previous pieces and painted a picture of what Epic's role in the creation of the metaverse may be. From the intro: "if Epic is successful in building out its 'flywheel', it will even more dramatically reshape the digital world - from data and privacy rights, to emergent technical standards, the distribution of profits, and the very ways in which humans work and relax. And all of this is critical to [Epic Founder and CEO Tim] Sweeney's long-term vision of society's future: the Metaverse."

Doordash and Pizza Arbitrage

Past Beach Reads have touched on the trials and tribulations of recent startups - especially those of the direct to consumer (DTC) variety. This article looks at a different kind of "DTC" startup: those that bring food direct to consumers. Like the other DTC companies, food delivery platforms seem to have some critics as well. Specifically, the author of this article sees the massive sums of money food delivery platforms lose and questions the viability of these businesses. He also highlights some unsavory tactics employed by these companies, some of which he decided to arbitrage: "If someone could pay Doordash $16 a pizza, and Doordash would pay his restaurant $24 a pizza, then he should clearly just order pizzas himself via Doordash, all day long. You'd net a clean $8 profit per pizza [insert nerdy economics joke about there is such a thing as a free lunch]." A key consideration in better understanding food delivery platforms lies in knowing what consolidation will look like. While currently a money-losing industry, density and limited competition may prove to be the way this industry survives. If so, then lighting money on fire in the short term may make sense.

Don't hate the playa, hate the game

In the April 28 edition of Beach Reads I included an article by Marc Andreessen called "It's Time to Build." Recently, a Substack blog called Tech Learnings featured a response (of sorts) that challenges the idea that tech companies are a panacea to social and economic difficulties. Instead, the author focuses on "lousy" businesses, such as airlines, pointing to the fact that despite low returns on assets, etc., these business employ massive numbers of people and support other ancillary industries. The article then challenges software as a service (SaaS) employment numbers and puts SaaS margins in perspective by comparing them to a lender with extortive APRs: "discussions around SaaS margins or platform take rates should make us feel the same way. It is unrealistic to expect consumers to lead this fight as most aren't close to these issues. Regulators need to lead the way here. We need a new paradigm beyond discussions of Herfindahl-Hirschman index and definitions of market power. We need a better way to incentivize hardware businesses. We need a way to discourage asset-light business models and a way to cap the rents charged by marketplace platforms." As an investor, these are hard theoretical truths to swallow. To a certain extent, this quote, especially regarding the Herfindahl-Hirschman index, reminds me of the work of Columbia Law School professor Tim Wu, who argues for a redefinition of what constitutes a monopoly. I'm also reminded of some of management consultant Peter Drucker's work on entrepreneurship, which is in some cases key to disrupting extractive industries. What do you all think?

02. The Evolving Social Media and Advertising Landscapes

Scale and Loyalty are more important online than offline

This medium post from Atreides Management Chief Investment Officer Gavin Baker highlights the differences between online and offline businesses - specifically, that scale begets scale more for internet-based companies than for traditional brick and mortar retailers. "Perhaps the most elegant way to say all of this is that 'variable' costs per unit generally decline online along with fixed costs per unit with increasing scale [online] which is very different vs. the offline world where generally only fixed costs per unit decline with increasing scale." Baker believes that one way smaller companies can compete with large online companies is by operating an omni-channel business model. We've seen many DTC companies go this way, previously highlighted in Beach Reads. Using brick-and-mortar stores is an interesting advertising exercise - one that sometimes comes with a lower customer acquisition cost than just advertising online. This works for physical retailers, but I wonder if it is as effective for companies that sell services. 

From PepsiCo to GM, Big Advertisers Set to Cancel Commitments to TV Networks

While Gavin Baker's article above details the difficulties in online advertising and scale, it appears that spending on TV ads is increasingly unpopular in a COVID-19 world. Specifically, large advertisers are looking to cut linear media advertising spend given better engagement with other channels, questions surrounding future TV content, and spending cuts across the board. "The first real opportunity since the pandemic struck for advertisers to cut back future spending commitments began May 1. Companies now have the option to cancel up to 50% of their third-quarter ad spending." Instead of plowing linear ad spend into online channels, perhaps some companies could follow the omni-channel advice given above to get the best return on investment.

The open podcast ecosystem is dying - here's how to save it

Spotify made a significant move this month with a deal to bring Joe Rogan's podcast onto the platform as an exclusive. With this move, the idea of open podcasting might be dying: "Years from now, we'll look back on this week's exclusivity agreement between Spotify and Joe Rogan as a turning point for podcasting. Most likely, this deal will come to symbolize the moment when the open, RSS-based podcast ecosystem began to collapse." Despite this negativity, there is a future where podcasts remain open - which is likely necessary for creators to remain interested and for the audience to grow. I'm not convinced that existing podcasting companies will come together to help defend the open podcasting ecosystem (as the author suggests). However, given the growing appeal of podcasts, I'm curious if Spotify will figure out some open-hybrid on its own (perhaps keeping small podcasts open while making the most popular ones exclusive).

Disney's Head of Streaming Is New TikTok CEO

While typically eschewing "news," I've included a fair number of articles on Disney in past Beach Reads, so thought this deserved mention. In case you didn't see it, Disney's head of streaming, who many thought would have gotten the CEO position at Disney after Bob Igor stepped down, is now leaving to run TikTok. When speaking with the NYT, Kevin Mayer "cited gaming and music as two expansion possibilities." Another interesting tidbit: "Mr. Mayer is best known as Disney's longtime deals maven. Before running the direct-to-consumer and international division for the past two years, he served as Disney's chief strategy officer, helping to orchestrate the purchases of Pixar, Marvel, Lucasfilm, most of 21st Century Fox and BamTech, a technology company that specializes in streaming video." Putting one and one together, I'm curious if TikTok will pursue any transformative M&A, especially in gaming and music.

03. At the Edge

The Day Coronavirus Nearly Broke the Financial Markets

Sometimes, when living through history, it is hard to remember exactly that: we are currently living through history. This article from the WSJ reminded me of that fact, and, that, just two short months ago the US fixed income market nearly imploded, partly because of the rules put in place after the last financial crisis that were intended to help prevent a repeat. I remember reading about the system beginning to freeze, watching related stocks tank, and trying to make sense of it all. It feels like years ago. "For those few days in March, investors lost faith in America's public infrastructure. As schools and universities shut down and airports and public transit systems emptied out, the market began to question what had been previously considered gold-plated bets on the core institutions that make up community life in the country." The story suggests that the US was brought to the edge, once again, and saved by the bell, or rather, the fed. Banks were unable to step up to the plate: "There was no room to buy bonds and other assets and still remain in compliance with tougher guidelines imposed by regulators after the previous financial crisis. In other words, capital rules intended to make the financial system safer were, at least in this instance, draining liquidity from the markets."

04. Investing Philosophy


I've featured a number of Howard Marks' memos in Beach Reads, and today we have another from the Oaktree Capital founder, this one focused on uncertainty, confidence, and the future. As the title suggests, Marks calls into question how much we can really understand in an incredibly dynamic world, especially the circumstances we find ourselves in today. As investors are in the business of making predictions, knowing what we know, and more importantly, what we don't know, seems to be a key message of this memo. To learn more about uncertainty, or perhaps complexity, I recommend checking out the work of W. Brian Arthur of the Santa Fe Institute, who writes a lot about complexity theory and economics. At the end of the article, Marks talks about intellectual humility: "To put it simply, intellectual humility means saying 'I'm not sure,' 'The other person could be right,' or even 'I might be wrong.' I think it's an essential trait for investors; I know it is in the people I like to associate with." When trying to forecast what companies will do over years, especially in uncertain times, intellectual humility is absolutely critical.

Giverny Capital Letter: David Poppe

This letter by Giverny Capital Asset Management's (GCAM) David Poppe offers a peak under the hood of how to approach investment philosophy, portfolio construction, and stock picking. "Businesses that get underestimated often have quirky business models, good management and positive employee cultures. Often, though not always, that management team is headed by a founder or has a founder still involved. These companies aren't mispriced because the market doesn't appreciate quality. Rather, it is very hard for the market to assign a future value to the likelihood of consistently superior execution and decision-making over many years." Having come up inside of Ruane, Cunniff & Goldfarb, Poppe has some big shoes to fill. It'll be fun to watch his product with GCAM.

05. Reflections

Thirty-six Thousand Feet Under the Sea

This was a wild read detailing the mission of a wealthy man and team of misfits to the deepest depths of the world. To help frame the absurdity of the situation, read this description of the submarine engineer: "Ramsay, who works out of a spare bedroom in the wilds of southwest England, has never read a book about submarines. 'You would just end up totally tainted in the way you think,' he said. 'I just work out what it's got to do, and then come up with a solution to it.' The success or the failure of Vescovo's mission would rest largely in his hands." With literal jumper cables helping run electronics in the submarine and the crew sailing around the world in a ship with holes in it, the success the team had is a testament to the vision of driven individuals, the mentality of outsiders, and the luck required to pull anything like this off.

Remember "Blanding"? Well, Websites Are All Starting to Look the Same Now, Too

A number of articles I've come across in the past highlight "blanding" as an issue occurring in a wide variety of industries. Perhaps the most obvious is the Airbnb aesthetic, described in this fantastic article from 2016. I recently came across a new, but perhaps related version of the Airbnb aesthetic - this one for websites. According to a study done by PhD students at Indiana University, webpages have gotten more similar looking since the peak of visual difference around 2009. Who cares? Well, "the internet is a shared cultural artifact, and its distributed, decentralized nature is what makes it unique. As home pages and fully customizable platforms like NeoPets and MySpace fade into memory, web design may lose much of its power as a form of creative expression. The Mozilla Foundation has argued that consolidation is bad for the 'health' of the internet, and the aesthetics of the web could be seen as one element of its well-being." The author argues that the "blanding" of the internet is in part reflective of consolidating tech power - what do you think?

RV Vacations: The Safest Way to Travel This Summer

How does one vacation in summer 2020? If you want to stay distanced, but still travel, hitting the road in #vanlife style is an option. And, according to this WSJ article, those companies that offer RV-style vehicle rentals are doing well. "Jon Gray, the CEO of RVShare, a similar peer-to-peer platform boasting more than 100,000 recreational vehicles among its nationwide listings, has noticed that a lot of people don't want to risk hopping on airplanes to get where they're going:...the site has seen a 650% rise in RV rental bookings since early April." I have to admit it, I've looked into a similar escape. Behind the wheel on the open road, maybe this is the summer to experience a slice of Americana.


Disclaimer: To the extent that Beach Reads discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. The companies and or securities referenced and discussed do not constitute an offer nor recommendation to buy, sell or hold such security, and the information may not be current. The companies identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the companies identified was or will be profitable. Beach Reads does not constitute a recommendation or a statement of opinion, or a report of either of those things and does not, and is not intended, to take into account the particular investment objectives, financial conditions, or needs of individual clients.

Expand All