Welcome to The Nightcrawler, a weekly collection of thought-provoking articles and analysis on technology, innovation, and long-term investing. The Nightcrawler is published every Friday evening by Eric Markowitz, Nightview Capital’s Director of Research.

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In this evening’s email… 

Quote of the week: “The problem with fiction, it has to be plausible. That’s not true with non-fiction.” ― Tom Wolfe 

Time arbitrage—and the importance of compounding

Michael J. Cordaro, an advisor with Alliance Wealth Advisors, recently published a four-part “Foundations” series exploring the “dos and don’ts” of long-term investing. I particularly enjoyed his final installment, “Everything Compounds,” which examines the behavioral traits necessary for long-term outperformance. “Here is the part that often gets forgotten when it comes to compounding: it is always happening; the only question is whether its working for you or against you,” Michael writes. “What determines that is two things: our actions (or inactions) and the amount of time that passes.” He continues:  

• Key quote: “The best investors in the world all share two traits regardless of their investment approach: temperament and discipline. That is because it is our repeated behaviors—regardless of what they are—that will have the biggest impact on our outcomes. If we choose to panic when markets sell-off, wait for ‘the perfect time,’ or ignore our finances altogether, these choices will compound. While we may not notice the impact of these choices in the short-term, they will dictate how things turn out in the long-term. What is funny about compounding, is that is not just a force that applies to investing. It touches every single part of our lives. James Clear wrote in his book Atomic Habits: ‘Time magnifies the margin between success and failure. It will multiply whatever you feed it. Good habits make time your ally. Bad habits make time your enemy.'”

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The revenge of the stock picker

Right now there are two interesting dynamics at play in the market: one, the indices are at all-time highs. And two, the top 5 stocks in the S&P 500 make up a staggering 30% of the entire index, meaning that the market is seeing one of its highest levels of concentration in history.

For Bob Robotti, founder and CIO of Robotti & Co., this environment is setting up an epic decade ahead for active managers. (I’m biased, of course, but I certainly agree.) “I think the next decade is going to belong to stock pickers,” Bob said in a recent longform conversation with the investing bard William Green. “And I don’t care if that’s technology companies, growth companies, industrials, or financials.” He continues: 

• Key quote: “The indices will not outperform selecting stocks. And the ability to identify, do research, select companies that are well-positioned and have valuations that are attractive—that is something that can be done today. And there are many fewer people doing that. That is not a productive effort out there today. And therefore, that means the competitive landscape is extremely limited. And that’s where the differentiation is going to be. It’s not going to be in owning the index; it’s going to be owning stocks. And so that’s what I’m saying. It’s the restoration of the fall of stock pickers… I’ll be shocked if they don’t outperform indices.”

A few more links I enjoyed: 

“Accelerating Wisdom” Episode 1: How to Accelerate Expertise – via Tom Morgan + Cedric Chin

• Key quote: “In order to understand what experts get right, you need to first understand what novices get wrong. We are drowning in blogs, threads, listicles and books that are focused on revealing the ’10 universal principles of success.’ And yet, the most significant mistake Cedric sees people make is applying a small number of abstract principles to highly complex domains. When these mental models remain too rigid, you can’t update them quickly enough to reflect new information. You get left behind. Surprisingly, wisdom doesn’t correlate that strongly with either age or intelligence. While our intelligence tends to peak in our early twenties, the pursuit of wisdom has no upper limits. If we choose to focus on it, wisdom and expertise can even be accelerated.”

The Last 72 Hours of Archegos – via Bloomberg

• Key quote: “Wall Street’s trial of the decade has offered vivid glimpses of the 72 hours that obliterated Hwang’s $36 billion fortune. One after another, Wall Streeters told a New York jury their version of how his secretive family office — and its pileup of wild wagers on jerry-rigged spreadsheets — ultimately crumbled and saddled banks with more than $10 billion in losses.”

Scale’s Alex Wang on the US-China AI Race – via ChinaTalk

• Key quote: “If you were to just zoom all the way out on how AI progress has happened, it’s been through basically three steady exponential curves all stacked on top of one another. First is the compute curve, both with Moore’s law as well as just the ability to scale such that we can use way more compute than we have in the past. The second is data. Starting in the early 2010s with the original use of deep learning and neural networks, the amount of data that is used for these algorithms has grown pretty smoothly in an exponential curve… The current models are very data-hungry. The third curve is obviously algorithms, which is the progress of innovation.”

From the archives:

Transcript of Peter Lynch’s 1994 Lecture to the National Press Club

• Key quote: “The important thing is you can’t get too attached to a stock. You have to understand there’s a company behind it. You can’t treat this like your grandchildren. You have to deal with the stock and say, ‘I understand the company.’ If it deteriorates, if the fundamentals slip, you have to say goodbye to it. One rule you want to remember: the stock does not know you own it. This is a breakthrough. You have to  understand it and say, they’re doing well and as long as they’re doing well I’ll keep my position. My best stocks have been the stocks I owned in my fifth, sixth, and seventh years I own then, not my fifth, sixth, or seventh day. So, you have to understand that and stay with it.'”