India recently banned TikTok and there are increasingly loud calls for the US to follow. One opinion on TikTok in the US was recently penned by Ben Thompson at Stratechery. He published a scalding review of how TikTok is an affront to western liberal values and an important way for China to gather information and influence the actions of broad populations outside of its own borders. From Thompson: "TikTok's algorithm, unmoored from the constraints of your social network or professional content creators, is free to promote whatever videos it likes, without anyone knowing the difference. TikTok could promote a particular candidate or a particular issue in a particular geography, without anyone — except perhaps the candidate, now indebted to a Chinese company — knowing. You may be skeptical this might happen, but again, China has already demonstrated a willingness to censor speech on a platform banned in China; how much of a leap is it to think that a Party committed to ideological dominance will forever leave a route directly into the hearts and minds of millions of Americans untouched?" While China has resisted western social media platforms for years, the rapid success of a Chinese social media platform outside its own borders is cause for concern and, according to Thompson, something that calls for action: "It is time to take China seriously and literally: the Communist Party is not only ideologically opposed to liberalism, it believes that only one of liberalism or Marxism can prevail. To that end it has been taking action for over 20 years to control information within its borders and, over the last several years, to control information outside of its borders. It is time for the U.S. to respond, both on the government level and corporate level, and it should do so in a multi-faceted fashion."

While Beach Reads often discusses high-level themes relating to video games (e.g. the metaverse), this link from Intrinsic Investing outlines an investment thesis on Nintendo. The four keys to unlocking the potential value of the company, according to Intrinsic, are 1) improving the multiplayer and digital experience, 2) increasing direct digital sales, 3) leveraging nostalgia by putting the company's back catalog online, and 4) getting more third party IP on the platform. One other interesting idea that Intrinsic has is that Nintendo can use the Switch, its gaming system, as a platform: "Iterating on the Switch hardware to higher and lower price points and maintaining a consistent software operating platform, much like Apple has done with the iPhone and iOS, strikes us as an intelligent break from the past boom-bust console cycle." The video game industry has long been plagued by booms and busts around different IP launches, and mitigating this cyclicality would be a positive. Following the platform route would likely be smart here, as we've seen the success that platforms have had in video games: just think of Fortnite. I'm curious to see if Nintendo pushes for the Switch to become more of a platform.

The internet has been abuzz lately with all manner of news related to GPT-3, OpenAI's language-generating AI. The software is available to certain individuals through a private beta, and those users have been posting some incredible feats that GPT-3 has accomplished. These range from writing entire blog posts to coding based off a simple English description of what a program should do. This MIT Technology Review article features some of GPT-3's pros and cons. The pros include "a blog post where [a beta tester] showed off short stories, songs, press releases, technical manuals and more that he had used the AI to generate. GPT-3 can also produce pastiches of particular writers. Mario Klingemann, an artist who works with machine learning, shared a short story called 'The importance of being on Twitter', written in the style of Jerome K Jerome... Klingemann says all he gave the AI was the title, the author's name and the initial 'It'. There is even a reasonably informative article about GPT-3 written entirely by GPT-3." However, the software also has an ugly side and is apparently "prone to spewing hateful sexist and racist language." I hope that GPT-3 can clean up its act and am excited about how the technology may be commercialized in the coming months.

This podcast, from Patrick O'Shaughnessy's "Invest Like the Best" series, features Charlie Songhurst, the former head of strategy at Microsoft and currently an active investor. Throughout the interview, I was blown away by the incredible number of topics that Songhurst can speak to in depth. These include motivators (money, power, and fame), productivity at startups, politics within businesses, and more. A couple of interesting highlights: Songhurst juxtaposes "East Coast" and "West Coast" investing around the 25:50 mark, furthers this concept around the 39:40 mark when discussing investing aesthetics, and talks about the importance of curation and idea sharing around the 59:30 mark. Additionally, towards the end of the podcast, Songhurst reflects on changes COVID-19 is having on hiring.

Pattern recognition is an important skill for an investor to develop. Determining which patterns are meaningful is difficult, but this piece from investment firm Seilern Funds highlights one pattern worth looking out for. Specifically, the author examines a unique class of companies: those that are mission critical to customers but represent a small percent of total cost (for the end product). Building on the work of Phil Fisher, the author writes that "the benefit of these characteristics is that, consequently, a customer looking to make moderate price reductions yields only very small savings relative to the risk of it changing suppliers. Indeed, what we have found in practice is that a company which is able to produce a true mission-critical, non-core product actually has stronger pricing power for this very reason. Why risk the quality and reliability of your product for a relatively small saving? It's highly unlikely to be worth it." As examples, the author details the firm's theses on West Pharmaceuticals and Christian Hansen. Investment firm AKO has a book called Quality Investing that highlights other similar company patterns or types that are worth keeping an eye out for. Does anyone have some patterns that they look out for that tend to be predictive?

This is an older piece, but one that is worth reflecting on given the incredible run in many "capital light compounder" and "reinvestment moat" stocks as of late. In the article, author Connor Leonard outlines a business type that he calls "capital light compounders," describing their key features as negative working capital, low fixed assets, and real pricing power. These are different from "reinvestment moat" businesses, which "deploy incremental capital at high rates within the current business." Leonard also gives his idea on which type of company is best, depending on the macro environment: "Are 'Capital-Light Compounders' superior businesses to 'Reinvestment Moats'? My current thought is that in an inflationary environment the Capital-Light Compounder is the preference because the lack of physical assets enables revenues to increase without the corresponding need for heavy capital expenditures at inflated rates." Without significant inflation in the US for years, it appears that both classes of companies have done very well.

One recurring theme in business analysis around COVID-19 impacts is that the big keep getting bigger. Consulting firm McKinsey recently published a report that reiterated this theme: "Our analysis reveals that the gap in economic profit between the top corporate performers and everyone else has widened dramatically. In effect, the crisis has accelerated a trend that was already present. Between December 2018 and May 2020, the top quintile of companies grew its total market-implied annual economic profit by $335 billion, while companies in the bottom quintile lost a staggering $303 billion. And while the specific numbers can fluctuate from day to day, the larger trend is unmistakable: a gap is opening up, and it's rapidly expanding." This phenomenon was occurring before COVID-19 but appears to have sped up as of late. The authors also highlighted the important role that speed plays in making sure businesses continue to succeed: "In times of crisis, however, the burning platform is clear, leaders are often in military-command mode, and precrisis budgets have become obsolete. Resources are easier to reallocate when no one needs to be convinced of the need for a rapid response and the individual targets set before the crisis no longer apply. Think of it as a big 'unfreeze'." Today, and going forward, businesses that have leaders and cultures that are adaptable and fast seem poised to continue to grow.