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: “Life can only be understood backwards; but it must be lived forwards.” — Søren Kierkegaard
From the archives: price vs. value
One new section I’ll be adding to The Nightcrawler going forward is an article or essay “from the archives”—a timeless piece of investing writing worth revisiting.
For the inaugural archival essay, I’ve selected a piece by our very own founder/CIO, Arne Alsin, who wrote this essay for the Financial Times back in 2007. The piece—”The rational investor looks beyond price”—frames public equity investing through the lens of two simple questions: what does it cost? and what is it worth? “If you can look up a stock quote, you can answer the first question,” Arne wrote. “But the answer, by itself, is meaningless.” He continues:
- Key quote: “To attribute meaning to the $50 quote, a frame of reference is required. This is provided by the answer to the second question: what is it worth? As all sophisticated investors recognise, answering the second question is the nexus around which proper decision-making revolves. If value exceeds price by a wide margin, consider buying. If price exceeds value, consider selling. If you do not calculate value you are, in effect, a blind investor. These investors base decisions on something other than a comparison of price and value. Because they do not have a frame of reference, they make decisions based on criteria that are almost always irrational.”
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Physical realities of the clean energy revolution
Some readers may be familiar with Vaclav Smil, the acclaimed environmental scientist who The New Yorker recently called a “ruthless dissector of unwarranted assumptions.” Smil is particularly well-known for his more sober analysis around how quickly (or, in reality, slowly) global energy markets can de-carbonize.
In a recent new paper—Halfway Between Kyoto and 2050: Zero Carbon Is a Highly Unlikely Outcome—Smil makes a cogent argument about the many challenges facing a speedy energy transition. It’s a smart read for investors and executives alike, regardless of one’s direct involvement in the energy field.
“The current energy networks are complex, their establishment and operation require constant maintenance and upgrading, and their costs are considerable,” Vaclav writes. “Yet, they are only one of many parts that make up the vastly more complex global energy system. That is why global energy transitions are complicated, multifaceted, protracted, and in their details rather unpredictable.” He continues:
- Key quote: “They require system changes that involve mass-scale development, adoption, and massive scaling-up of new techniques (be they large-scale “green” hydrogen electrolysis or extensive multiplication of small modular fission reactors). They also require the construction of new extraction, processing, and distribution networks (to produce large quantities of basic materials, metals, synthetic compounds and automated controls). All of these changes require decades of steady, high-level investments and political commitments in to yield major economic and social changes.”
A few more links I enjoyed:
Quiet Compounding – via Morgan Housel
- Key quote: “Long-term investing is about being able to absorb manageable damage; if you can’t do that, you’re pushed into the much harder trick of attempting to avoid short-term volatility. You’re only durable when you care more about surviving volatility than you do looking dumb for getting hit by it in the first place. Instead of trying to look smarter than everyone else, you make a quiet bet that things will slowly get better over time. You’re not in a hurry, yet everything is accomplished.”
Apple Intelligence is Right On Time – via Stratechery
- Key quote: “In other words, any analysis of Apple’s prospects in an AI world should start with the assumption that AI is a complement to Apple’s business, not disruptive. That doesn’t mean that Apple is guaranteed to succeed, of course: AI is the only foreseeable technological advancement that could provide sufficient differentiation to actually drive switching, but even there, the number of potential competitors is limited — there may only be one (more on this in a moment).”
To Hell With Herd Mentality – Broyhill Asset Management
- Key quote: “We think the current setup could be a once—or twice—in-a-generation opportunity to rebalance portfolios. Just as in the wake of the Internet bubble, what part of the market you own could mean the difference between a lost decade for crowded, expensive assets or very attractive returns on assets where capital is truly scarce. The years following 2000 were banner years for value managers. This was an era when lots of stocks were undervalued, and good stock-picking was rewarded. As a result, even after accounting for the massive run in growth stocks leading up to the tech bubble peak, value outperformed by a wide margin over the full period. We think the decade that follows will look very similar. As the market becomes less concentrated—which is our assumption—active value managers are poised to have a decade for the record books. This would be a welcomed change!”
Lessons from The Warren Buffett Way – via Todd Wenning
- Key quote: “Economic goodwill is an intangible asset that doesn’t show up on the balance sheet or require much capital to sustain. Firms with economic goodwill therefore tend to generate high returns on invested capital. An uptick in the cost of capital will not eliminate their ability to create shareholder value.”
