Weekend Reads for Investors: Highly Caffeinated Edition

As I write this edition of Weekend Reads for Investors, Hurricane Irma is hurtling toward my home in southwest Florida. I bring this up not for sympathy, but because my family and I are anxious about whether to evacuate.

This decision is similar to those made by investment managers each day. How? Because it involves a blend of facts, interpolation, extrapolation, intuition, and preferences around desired outcomes.

Much of my decision is sensitive to predictions about the hurricane’s path through the tropics and sub-tropics. Computer-generated models are fed data, which is used to calculate the most probable path. But just like in investment management, models cannot make decisions for us. So, my wife and I are experiencing sleeplessness as we try to decide — hence the reference to caffeine.

But there is another reason for the reference. The last story of this post has nice health-related things to say about that treasured caffeinated beverage — the one that I am drinking right now — coffee.

Investing

Finance is agog about fintech.

My colleagues and I at CFA Institute recently conducted some intelligence gathering from our members, where we sought out the topics of most interest for their continuing professional development efforts. The only subject with global interest was fintech. The reason for this is pure behavioral finance, in my mind. Fintech promises to change or destroy business models and, of course, we feel the pain of losses twice as acutely as we do the pleasure from gains. But this piece argues that the “Fintech Barbarians Aren’t at Investment Bank Gates (Yet).” (FinanceAsia)

While on the subject of fintech, let me draw your attention to this graphic showing the effect of blockchain technology on various industries, courtesy of one of my favorite publications. (NewCo Shift).

If you follow my writing here on Enterprising Investor, you will know that I occasionally write pieces about accounting. I still believe that there is good information in financial statements for active investors to parse. However, many of us are overwhelmed and need help keeping up with changes to accounting standards. That is why I appreciated this piece from Calcbench about the effects of the new revenue recognition standard for the software sector.

Next is a fact that also causes me some anxiety (in addition to the hurricane). Namely, that “Over $9 Trillion of Bonds Trade with Negative Yields.” This reminded me to mention a point raised by James Grant that the current level of interest rates is the lowest in human history, even going back thousands of years. Grant mentioned that this action on the part of central banks was in response to a perceived catastrophe. He asked rhetorically, “If these are the first sub-zero interest rates in 5,000 years, is this not the worst economy since 3,000 BC?” I think not. (Financial Times, Enterprising Investor)

Finally, here is a nice piece from McKinsey & Company about the fact that companies with a long-term view outperform those that do not.

Economics

I found this next article fascinating as it charts out different choke points in the global food supply transport chain. This study is not just about economics, but also about geopolitics and risk management. (South China Morning Post)

Behavioral Finance

I am a supporter of behavioral finance/economics, but a critic of one of its fundamental statements: Specifically, the idea proffered but not supported by research that our biases are hardwired. Here is yet another piece that shows that our “Brains Are More Plastic Than We Thought.” (Enterprising Investor, R&D Magazine)

Environmental, Social, and Governance (ESG)

In July, a firestorm swept through ESG circles about a piece in New York Magazine entitled, “The Uninhabitable Earth.” The article predicts an inevitable environmental catastrophe that will result in an unlivable planet. The scientific community, even the environmentalists, responded by questioning some of the article’s stark environmental conclusions. I present the original article, along with a response from New Scientist. (New York Magazine, New Scientist)

Technology

Just when you thought science was zeroing in on certainty comes more evidence that in the hard sciences, math is a good explanation for what occurs. But when more free will is introduced, as in biological systems, certainty seems to diminish. Here, scientists found that “DNA Copying Is More Random Than We Thought.” (R&D Magazine)

Fun Stuff

Now to my favorite category.

Here is a brief video about the first object ever teleported from Earth into orbit. I feature this story because the idea of teleportation is cool, right? But also because teleportation is not what is really being discussed by these researchers. Instead, they are explaining quantum entanglement, an entirely different phenomenon that nonetheless has huge ramifications for those hard sciences I mentioned previously. (BBC)

Specifically, when two particles are entangled, whatever is done to one automatically and simultaneously affects its entangled brethren; even in defiance of the speed of light. There is no communication between the two since, as you physicists know, the speed of light is the maximum speed in the universe. So there is no explanation or theory for this behavior. I also find this piece interesting because you can see how the media has sensationalized it, obscured its meaning, and seemingly not understood its real profundity.

Next is a piece that keeps me laughing. Namely, a catalog of the worst corporate lingo sins. C’mon, you know that you have used some of this language, finance is rife with this garbage. Me? I prefer talking forthrightly and directly. (Financial Times)

Finally, the article that is the inspiration for the title of this Weekend Reads for Investors. Scientists have found that higher consumption of coffee is associated with a lower risk of death. Imagine that! I think I am going to go pour my second cup. (R&D Magazine)

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Jason Voss, CFA

Jason Voss, CFA, tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor and the CEO of Active Investment Management (AIM) Consulting. Previously, he was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund to noteworthy returns. Voss holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

Ethics Statement

My statement of ethics is very simple, really: I treat others as I would like to be treated. In my opinion, all systems of ethics distill to this simple statement. If you believe I have deviated from this standard, I would love to hear from you: [email protected]