What mindsets for investing markets can help with COVID thinking

May 24, 2020 Ben Yeoh

What Markets can teach us

Markets are humbling.

As an intelligent - even extremely intelligent - young analyst. No matter how good she is. There will be decisions she misjudges.

There are many uncertainties in markets and as I’ve referred to in my aphorisms - and others - one of the only certainties are the uncertainties.

The mental mindset to deal with those uncertainties and still make decisions - that have great weight as measures in millions or billions of dollars - takes training. By the time a young person forms into an adult much of that mindset may already be settled although more can be trained and the mindset can be continually worked upon.

This resilience or even antifragility (where you thrive on the uncertainty) to deal with this in typical financial markets turns out to be useful for COVID.

There are uncertainties with COVID, tail (small but with large effects) risks, but decisions have to be made and may turn out to be wrong. Yet, you will have to make them.

Many analysts turn out not to be cut out for markets and investing as the strain on the mental mindset is too much. Unsurprisingly, COVID has caused strain on the mental health of many I know but there are lessons to be learnt for dealing with such risks.

Rely and assess the data. (see previous thoughts on forecasting and decision making).
Change mind if needed and reassess.
Don’t let the weight of the decision damage you.
You can control, what you can control.
What you can not control - you have to make peace with - as it is out of your control.

The same can be said for living with many aspects of special needs (disability) or other circumstances…

Here’s a piece on finding insights in the ordinary or even “boring” from travels with autism: Mindfulness and trains and here on what do you “see” when travelling on trains and buses

My book of aphorisms

Previous blogs on forecasting and decision making

Cliff Asness, Death of Value Investing

May 24, 2020 Ben Yeoh

Cliff Asness (billionaire systematic quant based fund manager/investors) defends systematic value investing taking on two arguments, amongst a few:

-Value investing is too well known a strategic and so it’s now efficiently priced

-Accounting metrics used by these strategies don’t reflect “value” - mostly as companies now own intangible assets both on balance sheet

and off balance sheet (eg human capital)

Asness does this by looking at different slices of the market:

-Value within industries

-The market excluding certain industry sectors

-The market excluding mega-cap size (largest companies)

Asness seems to argue that an important reason why this type of strategy works over time is the behaviour of humans - then tendency of humans to over/under react. (I would note practitioners still hotly argue over why this strategy has worked over time and why there are periods - like recent years when it fails) He argues:

“...Besides just an inherent discomfort with randomness, part of the issue is confusion about why value works at all. It does not depend on getting big events or trends right. It does not depend on having perfect accounting information.

Certainly, it does not require a lack of massive technological change over time. No matter what the situation, it simply needs investors to net overreact. Companies that are cheap need to tend to be a bit too cheap for whatever set of facts exists at that time, and expensive companies need to tend to be a bit too expensive.

For instance, it’s OK if there’s more monopoly power for a few firms today than before (or any other thing being different this time), as long as humans will still tend to overdo estimates of how powerful and long-lasting those monopolies will be, and vice versa for cheap stocks that lack these advantages. We see no evidence that humans are now much more rational and less error-prone than they used to be.

Furthermore, the systematic version of value almost always relies on extreme diversification. Therefore, stories that apply to a handful of stocks start out unlikely to be driving the overall factor performance or the cheapness of the factor we see today. But that is exactly what we need to prove or disprove below…”

The results are very much worth pondering.

Now many market participants end up with the view that well traded and contested markets (liquid markets as practitioners say) are mostly efficient, much of the time. But the flip side is that occasionally they are not efficient - or properly priced - and there may be liquidity, behaviour, structural and regulator reasons for this.

This view is in a way behind the saying “if the price looks too good to be true, it probably is”

A properly contested market has fairly efficient prices. And so too low a price must have a false (or maybe illegal factor) behind it or be false itself. The mispricing doesn’t hand around long otherwise.

It’s also a force behind the rise in “passive” investing where investors and savers simply buy a large diversified index of companies and benefit from the “market” rate of return in that asset. It’s typically the advice Warren Buffet gives for individual investors. He advises to buy america: (Ie a S&P 500 tracker index fund, and a little cash). If you don’t have time to professional dedicate hours a week at thinking about investing you are unlikely to beat the market and even then many professionals don’t beat the market either.

Back to Asness. He’s a very smart man with a whole team of super smart quantitative researchers along side him.This discussion on value has been noted by many investment people and is a known phenomena. This makes it intriguing as the more a feature such as “death of value” because established consensus - then if there is a behavioural element to the strategy - and it’s quite a big IF - then the greater a chance it may become true. Huh. ... Second - third order and beyond thinking….

A link to Cliff Asness’ paper: Is Value Investing Dead.

Here’s an item on what the mental mindset for ceiling with uncertainty of COVID can teach you.

Taboo Cognition, Tetlock

May 2, 2020 Ben Yeoh

From Philip Tetlock (2003) paper on Taboo Cognition: Thinking the unthinkable: sacred values and taboo cognitions.

Many people insist that their commitments to certainvalues (e.g. love, honor, justice) are absolute and inviol-able – in effect, sacred. They treat the mere thought oftrading off sacred values against secular ones (such as money) as transparently outrageous – in effect, taboo. Economists insist, however, that in a world of scarce resources, taboo trade-offs are unavoidable. Researchs hows that, although people do respond with moraloutrage to taboo trade-offs, they often acquiesce whensecular violations of sacred values are rhetorically reframed as routine or tragic trade-offs. The results reveal the peculiar character of moral boundaries onwhat is thinkable, alternately punitively rigid and forgivingly flexible.
This article summarizes an emerging body of research that explores how people cope – cognitively and emotionally –with a fundamental contradiction of social life. The contradiction can take diverse forms but its canonicalform can be stated simply.
On the one hand, as economistsfrequently remind us, we live in a world of scarce resources in which, like it or not, everything must ultimately take onan implicit or explicit price. Indeed, this austere insight prompted Oscar Wilde to define an economist as someonewho knows the price of everything and the value ofnothing.
On the other hand, sociological observers pointout that people often insist with apparently great conviction that certain commitments and relationships aresacred and that even to contemplate trade-offs with the secular values of money or convenience is anathema. In the social world inhabited by most readers of this journal, to be caught calculating the opportunity costs of one’s family or professional integrity or loyalty to one’s country is to reveal that one ‘just does not get it’ – that one simply does not understand what it means to participate in these rule-governed forms of social life in the roles of parent/spouse, scientist or citizen.
When economic necessity collides with cultural-identityand moral-religious imperatives, and in the modern world such collisions are common, the resulting dissonance can be excruciating.
Finite resources sometimes require placing at least implicit dollar valuations on a host of things that society at large, or vocal ideological sub-cultures, adamantly declare non-fungible: human life (what price access to medical care?), justice (what price access to legal representation?), preserving natural environments (what price endangered species?), and civilliberties and rights (can ethnic – religious profiling toidentify terrorists be justified on Bayesian and cost –benefit grounds?).
This article explores these issues in two sections. The first section offers a working definition ofsacred values and a set of hypotheses concerning howpeople cope with secular encroachments on such values. The second section sketches the principal lines of empiricalwork bearing on these hypotheses.
Conceptual backdrop
Political philosophers – from Aristotle to Marx and Nietzsche – have long speculated that citizens are morelikely to do what they are supposed to do if they believe themoral codes that regulate their lives are not arbitrarysocial constructions but rather are anchored in bedrock values that transcend the whims of mere mortals. ‘Don’t do x because I say so’ has less impact than ‘don’t do x because God says so’. By the middle of the 20th century, prominent anthropologists and sociologists had made the complementary observation that, although there is vast variation inwhat groups hold sacred, sacredness seems to qualify as afunctional universal across societies, both primitive and modern, and that moral communities erect a variety of psychological and institutional barriers to insulate sacredvalues from secular contamination.To jumpstart social-cognitive research on this topic,T etlocket al. defined sacred values as those values that a moral community treats as possessing transcendental significance that precludes comparisons, trade-offs, orindeed any mingling with secular values. Of course, the policy a community proclaims towards a sacred valuerepresents an expressed, not a revealed, preference. Our actual choices may belie our high-sounding proclamations that we have assigned infinite weight to the sacred value.
Tetlock et al. advanced a sacred value protectionmodel (SVPM) that asserted that, when sacred valuescome under secular assault, people struggle to protecttheir private selves and public identities from moral contamination by the impure thoughts and deeds impliedin the taboo proposals. The SVPM can be captured in three interrelated sets of propositions: moral-outrage hypotheses, moral-cleansing hypotheses, and reality-constraint hypotheses.

… to conclude:

…Intuitive theologians are suspicious, and unapologetically so, of the classic Enlightenment values of open-minded inquiry and free markets. Opportunity costs be damned, some trade-offs should never be proposed, some statistical truths never used, and some lines of causal/counterfactual inquiry never pursued.

More available here and Tetlock’s site here.

A blog on his Superforecasting ideas here and putting the ideas into practise on judging success of biopharma drugs here.

58 COVID predictions over the long-term

April 24, 2020 Ben Yeoh

58 speculative propositions and predictions about COVID effects in the long-term.

The relative standing of nations and areas with fewer deaths will rise.
1.1.These are South Korea, Taiwan, Singapore, Hong Kong.
1.2.Within areas eg. Germany rises relative to UK, Italy
1.3.Eg California bay area vs Manhattan
Part of this is intersectional with entire sectors. Technology (clusters eg in California) will rise relative. Tech ↑ vs non-Tech.
Tech-enabled businesses ↑ vs non-enable
3.1.Tech skills ↑ all types of coding, digital image manipulation etc.
Healthcare ↑ - all areas - innovation, infrastructure, jobs
Big Business ↑ vs SMEs.
And within sectors. eg On-line food retail vs Hotels
The China v US (and EU) relationship will continue to be tense.
7.1.US will turn more hawkish on China.
Many institutions have been damaged reputationally eg. CDC, WHO. They will not regain that lost reputation.
Boris Johnson status has risen. This is partly being incumbent in time of crisis (Rally Round the Flag, also Germany’s Merkel, France’s Macron). This is partly having survived COVID.
9.1.Trump, China more uncertain on this due to polarisation, but likely still Rally Round Flag effect. My tentative take is ↑ Trump, ↑ China.
Italy in the medium term will seriously debate leaving the EU.
10.1. This assumes Germany continues to resist “coronavirus bonds” which seems likely
10.2. South Korea is now permanently considered more advanced than Italy in most measures of human development. GDP / Capita as first obvious but in almost all areas of state capacity as well. While a known trend this is a significant Asian country overtaking an “old world” European country.
Northern Ireland in the medium term will seriously debate unification with Ireland (Republic)
11.1. Significant chance this happens post Queen dying as Charles is weaker reputation ally and rest of union cares less about NI. While not directly COVID, the virus has magnified those fractures to the interested stakeholders.
Scientists ↑ vs non-scientist.
12.1. This is mainly within biology/medical and engineering and hard sciences. This will not spillover into climate science nor into social science.
12.2. Behavioural scientists of complex systems may ↓ (cf. Taleb) as fail to add to real world debate over lab experiments.
Understanding of statistics ↑ vs Understanding of literature
13.1.Humanities continue to lose ground.
13.2. Certain creatives in lockdown will prove to be super-productive (cf Pushkin)
The young will ↑ dissatisfaction in subsidising the old.
14.1. Acceleration of trend. Trend was apparent before.
Arguments against immigration ↑ (and so immigration ↓)
15.1. except for hazard jobs (eg nursing), and,
15.2. Except unfavoured jobs (eg UK seasonal crop picking)
15.3. Acceleration of trend. See also ↓ Globalisation
15.4. This has complex second and third order effects for areas which continue to allow diversity of thinking and net migration which may ↑ long term (see also cities)
The pie is smaller in medium term.
16.1. More will go to healthcare ↑
16.2. Relative losses for ↓ disabled, minorities, climate, education.
16.3. Expansion of Carbon Tax (Fee or Dividend) is a No Go for at least 5 years for most, if not all, nations.
This relative loss will spur innovation in smaller clusters eg climate, education. As believers in those causes go above and beyond previous efforts.
We will discover transformational climate innovations due to this effect.
18.1.(Personally) I am not optimistic about education processed.
Healthcare spend ↑
19.1. GDP as % healthcare rises in every nation (also cf. Baumol)
19.1.1 US >20%, OECD average trends to 15% in medium term
19.2. Virology research ↑
19.3. Diagnostics ↑
19.4. Research overall ↑
19.4.1. Lab equipment and suppliers to innovation ↑
The cultural pie is smaller.
20.1. Choice will be less.
20.2. Cultural capital ↓ in short-medium term.
20.3. In medium-long term aspects of this recover as adversity spurs creative innovation.
20.3.1. It will be in new forms. Eg Viral Dance moves on Tik Tok.
20.3.2. Re-invention of old forms also likely.

21. Gender Identity battles ↓ (while young vs Old still ↑: see 14.)

21.1. Attention to concerns considered frivolous will fall

22. The sensible progressive left will need new rallying ideas

22.1. Fiscal ideas have been taken by many centre / right parties.

22.2. Most of green new deal ideas will fail at nation level

22.2.1. At state or city level some may survive (see cycling ↑)

23. On-line communities ↑: broad, elite and niche

23.1. Eg. BAP, InterIntellect, Transport Sparks, Facebook Groups

24. Esports ↑ (along with digital entertainment)

25. Divide ↑ between those with strong on-line identities vs not

25.1. Digital natives ↑

26. Social Media ↑ (Twitter ↑↑) vs Mainstream Media ↓

27. High Quality Webcam ↑ (vs embossed business card ↓)

28. Digital Vanity ↑

29. Surveillance ↑

30. FakeNews continues ↑

(eg see attacks on Bill Gates)

31. Small in-person events rise ↑ in status, but are fewer in number.

32. People - if able - will hold more cash.

32.1.This effect will last longer than many think.

33. Companies - if able - will hold more cash.

33.1. This will be a structural change for as long as senior executives have memory of the COVID crisis.

34. Supply chains will be shorter have more redundancy and resiliency, where able. This will make them more expensive and less financially efficient.

34.1. Overall absolute return on equity should fall

35. Knowledge of different cultures ↑ value. This will cross national, sector and company cultures.

35.1. Misunderstanding of culture continues and possibly ↑

36. Travel will be ↓

36.1. Public transport ↓ but cycling ↑ and walking ↑ in cities (cf. City design)

37. Second order travel items ↓ - snorkels, backpacks, luggage

38. Design changes in cities will accelerate.

39. Cooking skills value ↑

40. Attention to food waste ↑ and actual food waste ↓

41. A small but permanent shift to break making, fermenting and home growing skills (not all bread making sticks, but enough will find its a permanent change in habit)

42. Value of choice ↑ applies to food but more generally across all products + services

43. Value of clean air continues to ↑

43.1. Our ability to manage this does not ↑

44. Businesses that can work in all spaces ↑ value

45. People who can work in all spaces ↑ value (and in isolation)

45.1. Also see creative innovation

45.2. Some atypical thrive, some do not

46. An informative newsletter ↑ value

46.1. Applies to blogs by open minded thinkers

46.2. Open minded thinkers ↑ generally

46.3. This does not spur a new golden age of blogs or newsletters because there are not enough of the general population who are open minded cf. 18.1 on education

47. Those who can control the narrative and, or, understand the narrative ↑ value

47.1. Applies to those who understand culture

48. Acceleration of online adoption

48.1.eg Zoom, food delivery, prescription delivery, entertainment etc.

48.2. Short form video, image sharing

49. On demand services ↑ value (Slack, Teams ↑)

49.1.Curbside pick-up, Telemedicine, Webinars

50. Local community connection ↑ value

50.1. NextDoor App, Community Leaders

50.2. While Amazon is obv ↑, so are local shops that have served communities

51. Virtual exercise classes ↑

51.1. Not for everyone, but some of this will stick.

52. Commuting ↓

52.1. People re-evaluate long commute times

53. Health inequity ↑

53.1. Already apparent and rising. cf. Baumol. cf. Deaths of Despair - Deaton et al.

54. Average incomes ↓ but challenge of inequity and intergenerational social mobility remain

55. Income inequity ↑

55.1. We struggle to effectively grow the pie cf. productivity; let alone have fair methods free of “capture” for this

55.2. A pseudo-form of UBI eg easier to obtain disability benefits in some countries becomes a norm

55.3. Both the rise in health and income inequity produces pushback from low-income groups vs elites - forces already in action.

56. Globalisation ↓

56.1. Some off-shore jobs return

56.2. Food security ↑, Other “essentials” have increased localisation

57. Cities ↓ in short-medium term

57.1. This will spur innovation in a complex way over long-term

58. Gum sales continue to falter

58.1. Gum used for in person meeting for “nice” breath, this is ↓

58.2. Same for perfume

My microgrant programme here. More on COVID and climate here. And COVID and vaccine policy here.

COVID Fast Grants programme for researchers looking at COVID, 48 hour decisions. Need to a PI at an academic organisation, if not try Emergent Ventures.

Time to Build and why we are not…

April 24, 2020 Ben Yeoh

From legendary VC, founder and Silicon Valley pioneer Marc Andreessen in a viral essay with a simple call to arms: it’s time to build. Taking the moment turning in its head and flipping the VC critiques of “go fast breaks things” into why is everyone so slow.... thought provoking wherever you sit on investment or political spectrum. … Essay here.

And Ezra Klein on a commentary essay lays the blame not on ideas or ambition but on the log jams that are US institutions and politics. His companion commentary here.

Jeff Besos Annual Letter, price gouging, minimum wage and environment

April 18, 2020 Ben Yeoh

Jeff Besos’ annual letter 2019/2020 is out. A little like JP Morgan’s Jamie Dimon (out recently too) and Warren Buffet’s, this letter is a must read for those in business and investing but because Amazon is such a large part of people’s lives globally, I recommend it for all. Praise Amazon or critique Amazon, the business is a significant part of our world. This year’s letter is perhaps more “advertorial” than many recent letters but still worth digesting.

Two interesting economic debates embedded in the letter is around price gouging and minimum wages. Plus, some projects on the environment where arguably Amazon has in previous years been behind the curve (eg vs Microsoft) but is now innovating in this area.

On minimum wage:

Amazon’s jobs come with an industry-leading $15 minimum wage and comprehensive benefits. More than 40 million Americans—many making the federal minimum wage of $7.25 an hour—earn less than the lowest-paid Amazon associate. When we raised our starting minimum wage to $15 an hour in 2018, it had an immediateand meaningful impact on the hundreds of thousands of people working in our fulfillment centers. We want other big employers to join us by raising their own minimum pay rates, and we continue to lobby for a $15 federal minimum wage.

Economists are still arguing about this. There are some who argue that minimum wages provides for fewer jobs. While others argue that this impact is slight and offset by the welfare of higher wages. Two points in a well trodden debate.

From an Amazon point of view there is a possible competitiveness factor. If it can afford to attract good labour at these wages and if minimum wages cause more problems for its competitors, then this might be a policy it would pursue regardless of thinking about the welfare of labour.

Besos has a relatively complex view of where Amazon sits in human capital:

Over the last decade, no company has created more jobs than Amazon. Amazon directly employs 840,000 workers worldwide, including over 590,000 in the U.S., 115,000 in Europe, and 95,000 in Asia. In total, Amazon directly and indirectly supports 2 million jobs in the U.S., including 680,000-plus jobs created by Amazon’s investments in areas like construction, logistics, and professional services, plus another 830,000 jobs created by small and medium-sized businesses selling on Amazon. Globally, we support nearly 4 million jobs. We areespecially proud of the fact that many of these are entry-level jobs that give people their first opportunity toparticipate in the workforce

But, Besos it keen to train his entry-level workforce to a level, where they can leave Amazon for better jobs.

We want to improve workers’ lives beyond pay. Amazon provides every full-time employee with healthinsurance, a 401(k) plan, 20 weeks paid maternity leave, and other benefits. These are the same benefits that Amazon’s most senior executives receive. And with our rapidly changing economy, we see more clearly thanever the need for workers to evolve their skills continually to keep up with technology. That’s why we’respending $700 million to provide more than 100,000 Amazonians access to training programs, at their places ofwork, in high-demand fields such as healthcare, cloud computing, and machine learning. Since 2012, we haveoffered Career Choice, a pre-paid tuition program for fulfillment center associates looking to move into high-demand occupations. Amazon pays up to 95% of tuition and fees toward a certificate or diploma in qualifiedfields of study, leading to enhanced employment opportunities in high-demand jobs. Since its launch, more than 25,000 Amazonians have received training for in-demand occupations.

You can think of this as fighting for competitive human capital. I’ve heard Amazon speak of the fact that many immigrants are the ones that take up the Amazon offer both of training and moving on to better paid jobs. Or, you could think of this as an Amazon-world view of how it is training human capital.

Amazon has a Pay to Quit model (this from 2013/14 Letter), which is worth a whole blog about. But dwell on the cost of keeping disengaged employees, and the incentives for hiring the type of people you want.

The second program is called Pay to Quit. It was invented by the clever people at Zappos, and the Amazon fulfillment centers have been iterating on it. Pay to Quit is pretty simple. Once a year, we offer to pay ourassociates to quit. The first year the offer is made, it’s for $2,000. Then it goes up one thousand dollars a year until it reaches $5,000. The headline on the offer is “Please Don’t Take This Offer.” We hope they don’t take the offer; we want them to stay. Why do we make this offer? The goal is to encourage folks to take a moment and think about what they really want. In the long-run, an employee staying somewhere they don’t want to be isn’t healthy for the employee or the company

On to the unfortunately named “price gouging”. Many economists argue that price is “a signal wrapped up in an incentive”. That line of argument suggests for scarce products that the price signal is important. But, high prices in stressed times can cause “reputational” problems. People dislike Uber’s surge pricing even though it helps regulate supply/demand. If a local shop ramped up prices for snow shovels at a time of a snow storm, it may well lose custom once the snow has passed. (Related, See my blog on Nassim Taleb on the ethics of stuffing). As a large business, very much in the political and public eye, Amazon may well have more to gain in social-political capital than it does by letting high prices for scare products exist on its platforms. Besos writes:

Amazon is acting aggressively to protect our customers from bad actors looking to exploit the crisis. We’ve removed over half a million offers from our stores due to COVID-based price gouging, and we’ve suspended more than 6,000 selling accounts globally for violating our fair-pricing policies. Amazon turned over informationabout sellers we suspect engaged in price gouging of products related to COVID-19 to 42 state attorneys general offices. To accelerate our response to price-gouging incidents, we created a special communication channel for state attorneys general to quickly and easily escalate consumer complaints to us.

Besos is famously customer-obsessed. That signal on customer concerns on the environment (amongst other signals) is now being heard and acted upon:

Customers count on us to be there, and we are fortunate to be able to help. With our scale and ability to innovate quickly, Amazon can make a positive impact and be an organizingforce for progress.Last year, we co-founded The Climate Pledge with Christiana Figueres, the UN’s former climate change chiefand founder of Global Optimism, and became the first signatory to the pledge. The pledge commits Amazon tomeet the goals of the Paris Agreement 10 years early—and be net zero carbon by 2040.
Amazon faces significant challenges in achieving this goal because we don’t just move information around—we have extensive physical infrastructure and deliver more than 10 billion items worldwide a year. And we believe if Amazon can get to netzero carbon ten years early, any company can—and we want to work together with all companies to make it areality. To that end, we are recruiting other companies to sign The Climate Pledge.
Signatories agree to measure and report greenhouse gas emissions regularly, implement decarbonization strategies in line with the Paris Agreement, and achieve net zero annual carbon emissions by 2040. (We’ll be announcing new signatories soon.)We plan to meet the pledge, in part, by purchasing 100,000 electric delivery vans from Rivian—a Michigan-based producer of electric vehicles. Amazon aims to have 10,000 of Rivian’s new electric vans on the road asearly as 2022, and all 100,000 vehicles on the road by 2030. That’s good for the environment, but the promise is even greater. This type of investment sends a signal to the marketplace to start inventing and developing newtechnologies that large, global companies need to transition to a low-carbon economy.

And Besos hammers his environmental credentials even more:

We’ve also committed to reaching 80% renewable energy by 2024 and 100% renewable energy by 2030. (Theteam is actually pushing to get to 100% by 2025 and has a challenging but credible plan to pull that off.) Globally, Amazon has 86 solar and wind projects that have the capacity to generate over 2,300 MW and delivermore than 6.3 million MWh of energy annually—enough to power more than 580,000 U.S. homes.
We’ve made tremendous progress cutting packaging waste. More than a decade ago, we created the Frustration-Free Packaging program to encourage manufacturers to package their products in easy-to-open, 100% recyclable packaging that is ready to ship to customers without the need for an additional shipping box. Since 2008, thisprogram has saved more than 810,000 tons of packaging material and eliminated the use of 1.4 billion shipping boxes.
We are making these significant investments to drive our carbon footprint to zero despite the fact that shopping online is already inherently more carbon efficient than going to the store. Amazon’s sustainability scientists have spent more than three years developing the models, tools, and metrics to measure our carbon footprint. Their detailed analysis has found that shopping online consistently generates less carbon than driving to a store, since asingle delivery van trip can take approximately 100 roundtrip car journeys off the road on average. Our scientists developed a model to compare the carbon intensity of ordering Whole Foods Market groceries online versusdriving to your nearest Whole Foods Market store. The study found that, averaged across all basket sizes, onlinegrocery deliveries generate 43% lower carbon emissions per item compared to shopping in stores. Smaller basketsizes generate even greater carbon savings.
AWS is also inherently more efficient than the traditional in-house data center. That’s primarily due to twothings—higher utilization, and the fact that our servers and facilities are more efficient than what mostcompanies can achieve running their own data centers. Typical single-company data centers operate at roughly 18% server utilization. They need that excess capacity to handle large usage spikes. AWS benefits from multi-tenant usage patterns and operates at far higher server utilization rates. In addition, AWS has been successful inincreasing the energy efficiency of its facilities and equipment, for instance by using more efficient evaporativecooling in certain data centers instead of traditional air conditioning. A study by 451 Research found that AWS’s infrastructure is 3.6 times more energy efficient than the median U.S. enterprise data center surveyed. Along withour use of renewable energy, these factors enable AWS to do the same tasks as traditional data centers with an 88% lower carbon footprint. And don’t think we’re not going to get those last 12 points—we’ll make AWS 100% carbon free through more investments in renewable energy projects

So, these claims do need to put to scrutiny. However, it’s very easy to “Amazon-bash” and find problems in a 840,000 person organisation. But, when you find those reports - consider the other side of the ledger and then in the round consider is Amazon part of the solution or part of the problem ? (I’m not here to sway you one way or the other, but to ask you the question of if you’ve considered the issues in the round.)

Where you fall in answering that question should then inform much of your thinking about big business, the role of innovation and second order effects.

Much more in the letter especially on COVID response.

Link to Amazon annual letters here. (and some below)

Amazon Web Services is also playing an important role in this crisis. The ability for organizations to accessscalable, dependable, and highly secure computing power—whether for vital healthcare work, to help studentscontinue learning, or to keep unprecedented numbers of employees online and productive from home—is criticalin this situation. Hospital networks, pharmaceutical companies, and research labs are using AWS to care forpatients, explore treatments, and mitigate the impacts of COVID-19 in many other ways. Academic institutionsaround the world are transitioning from in-person to virtual classrooms and are running on AWS to help ensurecontinuity of learning. And governments are leveraging AWS as a secure platform to build out new capabilitiesin their efforts to end this pandemic.We are collaborating with the World Health Organization, supplying advanced cloud technologies and technicalexpertise to track the virus, understand the outbreak, and better contain its spread. WHO is leveraging our cloudto build large-scale data lakes, aggregate epidemiological country data, rapidly translate medical training videosinto different languages, and help global healthcare workers better treat patients.
We are separately making apublic AWS COVID-19 data lake available as a centralized repository for up-to-date and curated informationrelated to the spread and characteristics of the virus and its associated illness so experts can access and analyzethe latest data in their battle against the disease.We also launched the AWS Diagnostic Development Initiative, a program to support customers working to bringmore accurate diagnostic solutions to market for COVID-19. Better diagnostics help accelerate treatment andcontainment of this pandemic. We committed $20 million to accelerate this work and help our customers harnessthe cloud to tackle this challenge. While the program was established in response to COVID-19, we also arelooking toward the future, and we will fund diagnostic research projects that have the potential to blunt futureinfectious disease outbreaks.
Customers around the world have leveraged the cloud to scale up services and stand up responses to COVID-19.We joined the New York City COVID-19 Rapid Response Coalition to develop a conversational agent to enableat-risk and elderly New Yorkers to receive accurate, timely information about medical and other important needs.In response to a request from the Los Angeles Unified School District to transition 700,000 students to remotelearning, AWS helped establish a call center to field IT questions, provide remote support, and enable staff toanswer calls. We are providing cloud services to the CDC to help thousands of public health practitioners andclinicians gather data related to COVID-19 and inform response efforts. In the UK, AWS provides the cloudcomputing infrastructure for a project that analyzes hospital occupancy levels, emergency room capacity, andpatient wait times to help the country’s National Health Service decide where best to allocate resources. In Canada, OTN—one of the world’s largest virtual care networks—is scaling its AWS-powered video service toaccommodate a 4,000% spike in demand to support citizens as the pandemic continues. In Brazil, AWS willprovide the São Paulo State Government with cloud computing infrastructure to guarantee online classes to1 million students in public schools across the state.
Following CDC guidance, our Alexa health team built an experience that lets U.S. customers check their risklevel for COVID-19 at home. Customers can ask, “Alexa, what do I do if I think I have COVID-19?” or “Alexa,what do I do if I think I have coronavirus?” Alexa then asks a series of questions about the person’s symptomsand possible exposure. Based on those responses, Alexa then provides CDC-sourced guidance. We created asimilar service in Japan, based on guidance from the Japanese Ministry of Health, Labor, and Welfare.We’re making it easy for customers to use Amazon.com or Alexa to donate directly to charities on the front linesof the COVID-19 crisis, including Feeding America, the American Red Cross, and Save the Children. Echo usershave the option to say, “Alexa, make a donation to Feeding America COVID-19 Response Fund.” …

Grow The Pie, Alex Edmans, book review and webinar

April 17, 2020 Ben Yeoh

Professor Alex Edmans makes the case for a pie-growing mindset. Acknowledging the challenges and trade-offs in pie-splitting, Edmans argues that pie-growing creates the most welfare for the most people. Core ideas Edmans argues for (along with pie-growing) are: the importance of “omission errors”, the multiplication principles, the importance of materiality judgements and comparative advantage. If I were to pick out two other principles that weave throughout the densely argued book, they would be the ideas of personal agency and a reliance on fact-based evidence over ideology. (See link for Webinar where Alex and I discuss his book)

Interspersed with lively stories and backed by evidence, it makes for better reading than a dry academic text. However, it is still packed with references to studies and data that makes the book dense reading and above the one-shot idea business books that line airport bookshops.

Omission errors are harder to track, but might be more serious for creating value. Value creation, for Edmans, is not about firm value but about society value. Expressed on an individual level as a fear of failure, it may cause enterprises to avoid innovation development and the likely high failure rate that entails. Edmans further argues that omission errors may be caused by too strong a desire to avoid “commision errors”. An error of commission may be in overpaying a business leader but the larger omission error may be in that business funding an innovation project that the company is uniquely able to research and benefit society as a whole.

The pie-growing mentality with a focus on society then has firm profit as an oblique by-product of society value creation (cf. John Kay, Obliquity). Profit is a side effect of pursuing social value creation. This contrasts with some forms of the “Stakeholder” model or the “Enlightened Shareholder Value” model (ESV). Under ESV, a firm creates long-term value by positive relations with stakeholders (cf. Business Roundtable Statement, 2019) such as customers, suppliers, regulators and employees etc. ESV is an extension of Milton Friedman’s arguments on profit maximisation (cf. Freedom and Capitalism) but argues long-term firm profits are only maximised by good treatment of stakeholders. Under ESV, social value is a by-product of firms seeking to maximise profits.

ESV advocates argue long-term profit is concrete, measurable, focused and objective.

Edmans argues that growing social value may be less concrete but that it’s intrinsic rather than instrumental. Social value creation considers externalities better even at the cost of focus.

Edmans argues intrinsic motivations leads to more long-term profits. This is important where value increasingly arises from intangible value (cf. Haskel and Westlake, Capitalism without Capital). Accounting for externalities better is a way of tackling pollution and climate challenges that simple profit maximization is poor at handling.

I suspect both ESV advocates (eg Michael Jensen) and market libertarians (eg Cliff Asness) will still have concerns over the measurement difficulties of social value and the trade-offs involved. However, many economists agree that GDP is not an entire measure of a nation’s wealth, not accounting for environmental capital (cf. Tyler Cowen’s Stubborn Attachments) and social capital. Better environmental capital accounting would be helpful. Market libertarians argue that there are few examples of market failure (although response to pandemics might be one area, topical as of 2020, climate might be another). They may argue that Pieconomics still leaves unresolved where there are market failures over externalities. State capacity libertarians may argue that such externalities, for instance pandemics or climate, might be better handled by state or non-profit maximising entities (eg ARPA) focused on an aspect of social value (agreed by that society) rather than private firms - although the ideas are not mutually exclusive.

Edmans’ arguments are a counterpoint to the “Degrowth” economists or the Donut (cf Kate Raworth, Donut Economics). Under a degrowth framework, humans need to live within certain planetary boundaries. While both may agree circular growth is sustainable, pie-growth would account for externalities and for intangible growth. (Personally, I find Edmans arguments better backed up than Mazzucato’s book Value of Everything. I find Edmans’ arguments then sitting alongside Colin Mayer’s book, Prosperity.)

Edmans moves on from the theory to articulate three principles to use when judging value creation. These are:

Multiplication: An activity should have social benefits that exceed its private costs

Comparative Advantage: Social benefit should outweigh social costs

Materiality: Activity should benefit material stakeholders (a firm is not all things, to all people)

Edmans then provides evidence on the positive use of share buybacks and incentive schemes within his framework. His conclusions on share buybacks and incentives run counter to the narratives of some commentators who posit (often without evidence) that share buybacks do not enhance value. The arguments are that buybacks are made at the cost of value enhancing projects into, e.g., innovation. Edmans finds the situation much more nuanced. There is a limit to value enhancing projects. Similarly, Edmans has less concern (although not zero concern) on magnitude of pay for management but more concern about whether pay structure is aligned to long-term value creation - or pie growing. The amount management receives in pay is outweighed by the pie grown by all stakeholders in this model.

The last shorter chapters of the book cast the lens of pie-growing onto nations and individuals. Here the idea of personal agency comes through. Individuals have “voice” as well as “exit” as choices (cf. Hirschman’s Exit, Voice, Loyalty) can act upon business via choice and action. This area is less developed but touches on purpose and growth mindset. (Interested readers could see Dweck’s Mindset or Microsoft CEO, Satya Nadella’s Hit Refresh)

Suitable for a thoughtful lay reader as well as covering material useful to business leaders and investors in the field. This book is recommended on some of the latest thinking and evidence on how companies deliver both social value, purpose and profit.

Sources and notes:

Written in personal capacity, I did review an advanced draft of the book for free. Edmans sits on an advisory committee, which I chair. I paid for a Kindle copy and have been gifted a hard copy.

Alex Edmans site.

See Ray Dalio on analysis on pie-splitting and pie-growing. Dalio is concerned about the inequalities associated with pie-growing although Edman’s framework does partly address this.

John Kay’s book, Obliquity looks at why (traditional) share holder value is a by product.

Milton Friedman argues free markets and individual choices maximises welfare by seeking profit maximisation (within the rules of the game). See Capitalism and Freedom.

Albert Hirschman looks at the philosophy of choice and agency amongst other ideas in Voice, Exit and Loyalty.

Haskel and Westlake, Capitalism without Capital examines the rise of the intangible economy.

Kate Raworth argues for re-imagining economic growth and the boundaries humans should live within. Her book is Doughnut Economics.

Colin Mayer examines the responsibility of business and the history of the corporation, and where capitalism might go next in, Prosperity.

Tyler Cowen articulates State Capacity Libertarianism and lays out some of his philosophy in Stubborn Attachments, including why we undervalue the environment and future generations and inadequacy of GDP.

Michael Liebreich on climate post-COVID

April 5, 2020 Ben Yeoh

Michael Liebreich on climate post-COVID: "...Epidemics are not the only systemic risks to which we have been oblivious. In the run-up to the Great Financial Crisis we were oblivious to the systemic risks to our financial system posed by extreme levels of leverage and risky, opaque derivatives. And most people are still complacent about the systemic risks to our planetary environment posed by thoughtless economic development. Is it fanciful to hope that that as a result of Covid-19 the world pays a bit more attention to those urging us to respect our planetary boundaries, and a bit less to those pretending they do not exist?

In summary: Covid-19 is causing a massive drop in emissions this quarter, perhaps as much as 20%; after that, emissions will rebound, but remain significantly down until a vaccine enables a full recovery; even after that, they may well remain depressed for some years by an economy again hobbled by a colossal mountain of debt; and in the longer term, the stickiness of some of the new behavior, business models and technologies will certainly accelerate the transition to a low-carbon economy. Out of this terrible period, some good will come..." 4 min op-ed piece for BNEF here.