Circle of Competence Issue #102

QUOTE OF THE WEEK

"Every saint has a past and every sinner has a future." - Oscar Wilde

FOOD FOR THOUGHT

The human mind doesn't comprehend exponential processes very well. We tend to project exponential processes as linear in the short term, but underestimate the long term effects of exponential growth rates. And the COVID-19 viral outbreak falls into the latter category.

There are 4 primary variables that will control the overall impact of the virus:

1. Daily growth rate of outstanding cases (first derivative of # outstanding cases, currently running around ~50% growth from last week)

2. Growth rate decay (second order derivative, # outstanding cases) - this is the most important variable

3. Starting # of present cases

4. Death rate, % of total cases

Bottom line, this is serious, and it would be better to overreact to ensure that the second derivative (#2, decay of the growth rate) is as negative as possible.

Said another way, we need to take coordinated action as a society so that the number of infections will grow by less and less each week.

Some believe that this is a massive media/crowd overreaction. But based on simple exponential math, it is not hard to see how this outbreak becomes truly unmanageable in size if not appropriately handled.

I am not an alarmist. I am a realist, driven by data, not opinions. This too shall pass, as long as we remain calm and take appropriate measures.

More data on COVID-19:

Johns Hopkin's real time database

Andrzej Leszkiewicz's COVID-19 database

The math behind exponential growth and infection rates of COVID-19

LINKS

Investing

The oil price war and its implications with Deep Basin (Invest like the best)

Will the coronavirus trigger a corporate debt crisis? (Financial Times)

A preview of what's coming in the stock market (Woodlock Family Capital)

Social Capital 2019 letter to shareholders (Social Capital)

Market panics in hindsight (Saber Capital)

Why all the Warby Parker clones are now imploding (Marker Media)

Markel 2019 letter to shareholders (Markel)

Sardar Biglari's 2019 letter to shareholders (Biglari Holdings)

Kerrisdale Capital's short thesis on Match Group and IAC (Kerrisdale Capital)

Horizon Kinetics' Q4 2019 letter (Horizon Kinetics')

Turtle Creek Capital's 2019 Annual letter to investors (Turtle Creek Capital)

Technology

Mike Maples on living in the future (Farnam Street)

Professor Galloway on Twitter (Scott Galloway)

How Shopify is leading the online resistance to Amazon (Fast Company)

Stripe teardown: how the $35B payments company plans to supercharge online retail (CB Insights)

An update on corporate and enterprise venture capital with Bill Gurley (Invest like the Best)

Geopolitics

Why democracy is on the decline in the USA (The New Yorker)

One big idea (David Perrell)