Scott Galloway On China; Year Of The Unicorn

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Scott Galloway On China; Year Of The Unicorn
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Whitney Tilson’s email to investors discussing seeing red (Scott Galloway on China); year of the unicorn; start-up boom in the pandemic is growing stronger; inside a Silicon Valley billionaire’s divorce; MacKenzie Scott’s money bombs are single handedly reshaping America.

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Q2 2021 hedge fund letters, conferences and more

Scott Galloway On China

1) One of the reasons I'm such a fan of NYU marketing professor Scott Galloway is that he writes compellingly about many different topics – he's the opposite of a one-trick pony.

Mohnish Pabrai On Value Investing, Missed Opportunities and Autobiographies

Mohnish PabraiIn August, Mohnish Pabrai took part in Brown University's Value Investing Speaker Series, answering a series of questions from students. Q3 2021 hedge fund letters, conferences and more One of the topics he covered was the issue of finding cheap equities, a process the value investor has plenty of experience with. Cheap Stocks In the Read More

A good example is his recent essay about China, Seeing Red, which is both broad and deep, yet also concise... and utterly fascinating. Excerpt:

... we have returned to a bipolar world, and a superpower duopoly will again be the organizing principle. This time the countervailing force against the U.S. is China.

21st-Century China

Every nation's progress is dwarfed by China's march in the post-Cold War era. In 1990, its GDP was roughly $400 billion in current dollars. Today, it stands at $15 trillion, an annual growth rate of 13%. By comparison, the U.S. economy, which has done well during this period, grew at 4.35% per year. According to World Bank data, 750 million Chinese were living below the international poverty line of $1.90 per day in 1990; that number has fallen below 10 million. There are more households with wealth over $110,000 in China than in the United States: 100 million vs. 99 million. Read that last sentence again.

Though the U.S. economy remains larger and more efficient than China's, both tower over every other country.

Galloway is right that there is much we can learn from China:

As well as being interconnected, we face many of the same challenges. In both countries, powerful corporate interests suppress competition and skirt regulatory control. Both countries wrestle with the corrupt influence of social media on education, productivity, and happiness. Both countries have birthed an economic elite that's looking to pull up the ladder and ensconce its descendants in dynastic wealth. More than a few issues of this newsletter could have been written in Chinese without much amendment.

The government facing these challenges in Beijing is profoundly different from the one in Washington. A one-party state can't be voted out of office, only overthrown. If you lose reelection in a democracy, you can procure a speaking agent and sleep through board meetings. If you get ousted in a one-party state, you usually get shot. Chinese leaders, with singular control and no exit strategy, have the ability and motivation to think long term. China has been playing the long game for generations, and it shows. The U.S. has been governing via Twitter (TWTR) and also, it shows.

This is not a post defending China's system of government. Mass surveillance, genocide, and shitty vaccines are not an acceptable trade for economic success. But you don't have to like a competitor to learn from it. And some of China's recent actions are worth considering as we begin to repair/improve our system.

Lastly, I think Galloway's conclusion is spot-on:

My view: This is a rare moment when beachfront property is going on sale. Xi may have rapped the knuckles of Jack Ma and the tech entrepreneur class, but it's difficult to imagine he'll cut off their fingers. Xi needs the engine of economic growth to keep humming, as there are still 300 million people living on less than $5.50 a day in China. This economic miracle is only half complete.

Whatever Xi does, there's the real possibility that the Chinese system, as morally flawed as it is, might produce greater prosperity than the U.S. model. And shareholder returns are a product of opportunity and execution. If China in 2040 is the dominant power and a 2-billion-person economic success story, all the regulatory overhang in the world won't cut into the wealth its corporate shareholders will enjoy.

Who can say? My money is still on the U.S., as I'm hopeful we will look east and learn.

P.S. I have a China e-mail list to which I send roughly one e-mail per week. To receive it, simply send a blank email to: [email protected]

Year Of The Unicorn

2) Galloway also posts a weekly Chart of the Week. Here's a one-minute video about the latest, Year of the Unicorn, which shows that there were more new unicorns (private companies valued at more than $1 billion) in the second quarter of this year than in all of 2020 combined:

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Start-Up Boom in the Pandemic Is Growing Stronger

3) Importantly, the economic boom isn't limited to unicorns, as this New York Times article highlights: Start-Up Boom in the Pandemic Is Growing Stronger. Excerpt:

The coronavirus pandemic appears to have unleashed a tidal wave of entrepreneurial activity, breaking the United States – at least temporarily – out of a decades-long start-up slump.

Americans filed paperwork to start 4.3 million businesses last year, according to data from the Census Bureau, a 24% increase from the year before and by far the most in the decade and a half that the government has kept track. Applications are on a pace to be even higher this year.

Nonfarm Job Openings

4) Speaking of the economic boom, check out this chart of nonfarm job openings (source) – WOW!

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Inside A Silicon Valley Billionaire's Divorce

5) Divorce is usually a total disaster for everyone involved, which is why I spend a full chapter of my new book, The Art of Playing Defense, on how to avoid it (briefly: marry the right person – see: The 12 Questions to Ask Before You Marry Someone – and don't let a good marriage go bad).

Few divorces are as ugly as this one... Who Gets the L.L.C.? Inside a Silicon Valley Billionaire's Divorce. Excerpt:

In 2014, Scott Hassan, known by some as the third Google founder, sent Allison Huynh, his wife of 13 years, a text message that their marriage was over and that he was moving out of their home.

Nearly seven years later, the pair are still locked in litigation over how to divide an estate with tech investments and prime California properties estimated to be worth billions of dollars.

But sometimes the miserable, wasted period prior to the divorce is the real calamity – the divorce, therefore, is an escape hatch/release valve.

MacKenzie Scott's Money Bombs Are Single Handedly Reshaping America

For example, it appears that Amazon (AMZN) founder Jeff Bezos and his ex-wife MacKenzie Scott are much happier now than they were in the last years of their marriage – and Scott is using her share of their fortune to really make a difference in the world, as this Bloomberg article notes: MacKenzie Scott's Money Bombs Are Single Handedly Reshaping America. Excerpt:

One email about a $15 million gift, suspected of phishing, sat unopened for a month. Several others about a $20 million pledge went ignored by an assistant, who thought the nondescript sender was fake. The recipient of another memo, promising millions more, turned to their lawyer, who said it was likely a scam.

All of those big-fortune messages, and hundreds more like them, were not only legitimate, they came from the same source: a team working on behalf of MacKenzie Scott, fourth richest woman in the world – and, increasingly, the most powerful and mysterious force in philanthropy today.

Best regards,

Whitney

P.S. I welcome your feedback at [email protected].

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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