Welcome to the Sunday Briefing newsletter where we share some of the interesting lessons in life, business, and investing that we’ve come across during the week.
What we’ve been reading
No social world ever went from an egalitarian community to an elite-dominated, state-structured society in one fell swoop. It’s a gradual movement towards inequality. The pathway to inequality leads through unequal, but still small-scale and stateless, communities, in which incipient elites lived with and among their neighbours, and without control of coercive state institutions.
Company on the week
Our company of the week is Taiwan Semiconductor Manufacturing Company.
TSMC is possibly the most important company in the world that few people have heard of. It’s the largest contract chipmaker in the world and no one can match its advanced level of production. The result is godly margins and returns on capital. I recommend reading this article.
TSMC has long gone largely unnoticed because the semiconductors it manufactures are designed and sold in products by branded vendors such as Apple, AMD or Qualcomm. Yet the company controls more than half of the world market for made-to-order chips.
[…] The transistor size in a 3nm node is just 1/20,000th of a human hair. The tweaks to machinery and chemicals needed to achieve this come more easily with the single-minded focus on this manufacturing technology, the large scale and broad range of applications that TSMC has developed.
TSMC is a good learning case as to how exceptional R&D coupled with scale and political intentions can create a behemoth critical to global supply chains. It’s remarkable yet incredibly fragile at the same time.
Quote of the week
Howard Marks on investment management incentives.
“If you put a manager on probation because he had a bad quarter, if he sells the stocks that are down and buys the stocks that are up, you have forced him into a poor decision. But it has happened, and now everybody wants to know how you did last quarter. Nobody says, ― how did you do in the last ten years? which is what matters. Every manager and every approach has times when he, she, or it is out of favor.”
On finance theory: What CAPM advocates and betaists mostly don’t understand is that your opportunity cost relies on your circle of competence.
On reacting to price panic: It’s only when you fully understand something that you can act with equanimity when quotes go down in panic.
Have a great coming week,