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Hello,
Greetings from the Curious Cat.
We are back after a week’s break with some interesting articles and a book summary.
In today’s edition, we look at -
Explaining Our Obsession With The Unexplained
Science Behind Honey’s Shelf Life
Key Ideas From Warren Buffett’s letter to Berkshire Hathaway Shareholders - 1982
Summary of The Inevitable by Kevin Kelly
Explaining Our Obsession With The Unexplained
Read the article here (Read Time ~ 9 mins)
The past few years, and especially the current moments, have revealed that fringe beliefs and conspiracy theories are becoming more prevalent and consequential. We are experiencing a resurgence in ideas mostly dismissed by science and history. Often, the genesis and evolution of these beliefs follows a standard, almost predictable, pattern. Something genuinely anomalous or difficult to explain happens, followed by increasingly elaborate explanations that resist positive or negative confirmation. Much of this is driven by what’s sometimes called apophenia, the tendency to see shapes and patterns where none exist—the idea that everything is, one way or another, connected.
A fringe belief system is an endless work in progress, an ever-expanding grand scheme, an associative process of connecting the dots. Stonehenge, Easter Island, the Nazca lines, Maya iconography—all are mysteries “solved” by a single thesis that encompasses all of ancient religion, art, architecture, and mythology. It is a theory seductive in its simplicity, but built on cultural chauvinism. Trying to disprove any of these beliefs—or really, any conspiracy—is frustrating and foolhardy; it soon becomes apparent that what matters is not what a person believes but that a person believes, and that satisfaction is more important than truth or falsity.
Rather than debunking these theories, it may be more important to understand their genealogy and development.
The Science Behind Honey’s Eternal Shelf Life
Read the article here (Read Time ~ 5 mins)
Modern archaeologists, excavating ancient Egyptian tombs, have found something unexpected among the tombs’ artifacts: pots of honey, thousands of years old, and yet still preserved. Honey can remain preserved in a completely edible form for many years. Moreover, honey’s longevity lends it other properties–mainly medicinal–that other resilient foods don’t have.
The longevity of honey comes from the chemical make-up. Honey is a type of sugar. Sugars are hygroscopic - that means they contain very little water in their natural state but can readily suck in moisture if left unsealed. There is a special alchemy that goes in making honey. In the process of making honey, the bees play a large part in removing moisture by flapping their wings to literally dry out the nectar. On top of behavior, the chemical makeup of a bees stomach also plays a large part in honey’s resilience. Bees have an enzyme in their stomachs called glucose oxidase. When the bees regurgitate the nectar from their mouths into the combs to make honey, this enzyme mixes with the nectar, breaking it down into two by-products: gluconic acid and hydrogen peroxide. Hydrogen peroxide is the next thing that goes into work against all these other bad things that could possibly grow.
If you buy your honey from the supermarket, that little plastic bottle of golden nectar has been heated, strained and processed so that it contains zero particulates, meaning that there’s nothing in the liquid for molecules to crystallize on, and your supermarket honey will look the same for almost forever.
Key Ideas from Buffett’s letter to shareholders - 1982
We summarized few ideas expressed in the letter written in 1981. While we summarize the key ideas in the letter, we encourage the readers to read the entire letter to capture the context in which the thoughts were expressed by Buffett.
On building a perspective towards analyzing an industry - Within this gigantic auction arena, it is our job to select businesses with economic characteristics allowing each dollar of retained earnings to be translated eventually into at least a dollar of market value. Despite a lot of mistakes, we have so far achieved this goal.
Our partial-ownership approach can be continued soundly only as long as portions of attractive businesses can be acquired at attractive prices. We need a moderately-priced stock market to assist us in this endeavor. The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do. For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.
In many industries, differentiation simply can’t be made meaningful. A few producers in such industries may consistently do well if they have a cost advantage that is both wide and sustainable. By definition such exceptions are few, and, in many industries, are non-existent. For the great majority of companies selling “commodity”products, a depressing equation of business economics prevails: persistent over-capacity without administered prices (or costs) equals poor profitability.
Of course, over-capacity may eventually self-correct, either as capacity shrinks or demand expands. Unfortunately for the participants, such corrections often are long delayed. When they finally occur, the rebound to prosperity frequently produces a pervasive enthusiasm for expansion that, within a few years, again creates over-capacity and a new profitless environment.
In other words, nothing fails like success. What finally determines levels of long-term profitability in such industries is the ratio of supply-tight to supply-ample years. Frequently that ratio is dismal. (It seems as if the most recent supply-tight period in our textile business - it occurred some years back - lasted the better part of a morning.)
Future profitability of the industry will be determined by current competitive characteristics, not past ones. Many managers have been slow to recognize this. It’s not only generals that prefer to fight the last war. Most business and investment analysis also comes from the rear-view mirror. It seems clear to us, however, that only one condition will allow the insurance industry to achieve significantly improved underwriting results. That is the same condition that will allow better results for the aluminum, copper, or corn producer - a major narrowing of the gap between demand and supply.
On mergers: There are three ways to avoid destruction of value for old owners when shares are issued for acquisitions. One is to have a true business-value-for-business-value merger, such as the Berkshire-Blue Chip combination is intended to be. Such a merger attempts to be fair to shareholders of both parties, with each receiving just as much as it gives in terms of intrinsic business value.
The second route presents itself when the acquirer’s stock sells at or above its intrinsic business value. In that situation, the use of stock as currency actually may enhance the wealth of the acquiring company’s owners. Many mergers were accomplished on this basis in the 1965-69 period. The results were the converse of most of the activity since 1970: the shareholders of the acquired company received very inflated currency (frequently pumped up by dubious accounting and promotional techniques) and were the losers of wealth through such transactions. During recent years the second solution has been available to very few large companies. The exceptions have primarily been those companies in glamorous or promotional businesses to which the market temporarily attaches valuations at or above intrinsic business valuation.
The third solution is for the acquirer to go ahead with the acquisition, but then subsequently repurchase a quantity of shares equal to the number issued in the merger. In this manner, what originally was a stock-for-stock merger can be converted, effectively, into a cash-for-stock acquisition. Repurchases of this kind are damage-repair moves. Regular readers will correctly guess that we much prefer repurchases that directly enhance the wealth of owners instead of repurchases that merely repair previous damage. Scoring touchdowns is more exhilarating than recovering one’s fumbles. But, when a fumble has occurred, recovery is important and we heartily recommend damage-repair repurchases that turn a bad stock deal into a fair cash deal
Book Summary - The Inevitable By Kevin Kelly
This book by Kevin Kelly explains about the impact of twelve technological forces by uncovering the roots of digital change. According to Kelly, there are twelve forces of emerging technology - Becoming, Cognifying, Flowing, Screening, Accessing, Sharing, Filtering, Remixing, Interacting, Tracking, Questioning and then Beginning.
Becoming - The internet is still at the beginning of its beginning, it is only becoming. It is the best moment to invent something as there has never been a time with more opportunities, more openings, lower barriers, higher benefit/risk ratios, better returns, greater upside than now.
Cognifying - Cheap, powerful, ubiquitous artificially intelligent systems empowered through Big Data, better algorithms, cloud computing will ensure there are smarter and efficient machines. In order to complement well with the machines, humans will have to optimise and reskill themselves to welcome themselves in the human - machine symbiotic world.
Flowing - In order to operate everything in real time, everything has to flow. Success in the new technological world would require mastering the new liquidity as technological infrastructure has to liquefy as zillion of streams flow into each other in the cloud.
Screening - The world is divided into People of the Book and People of the Screen with the screen at the centre in a world of constant flux, endless sound bites, quick cuts and half-baked ideas. Screens will be the place we will look for answers, friends, news, meaning and to understand who we are and who we can be.
Accessing - Possession and ownership is not as important as it was. Technology accelerates dematerialization (using fewer materials to make better stuff) by hastening the migration from products to services. A liquid nature of service means they need not be bound to materials.
Sharing - Social action is what connected websites generate when they harness input from their audience. The shift from hierarchy to networks, from centralized heads to decentralized webs, the power of community and bottom-up will take us further.
Filtering - There has never been a better time to be a reader, watcher, listener or a participant of human expression. Our only choice is filtering by seeking assistance to make better choices.
Remixing - We are in a period of productive remixing as all modern technologies are combinations of earlier primitive technologies that have been rearranged and remixed.
Interacting - Virtual reality is a fake world that seems authentic. With a convergence of maximum interaction with maximum presence under surveillance, the VR world will gamify human behavior.
Tracking - Ubiquitous surveillance is inevitable and privacy will be paramount, we need to make symmetric systems to civilize coveillance and make choices that are fair on all parties.
Questioning - The modern system of culture and technology is accelerating the creation of new impossibilities by continuing to invent social organizations. As society moves towards the fluidity of decentralization from a rigid structure, the engine of human values moves towards uncertainties posed by questions from the previous certainties given by answers. Questioning will be more powerful than answering.
Beginning - The large scale omniscient interconnection of a new platform seems like a natural extension of our traditional society. This moment is the new Beginning.
This book will scare you as well as help you envision a new perspective towards technology and its connected future. Hope it helps you answer a vital question - what are we looking for in a hyper-connected utopia ?
Afterthought
“For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled"
-Richard Feynman
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