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
The Twenty Craziest Investing Facts Ever. Michael Batnick’s second “edition” of twenty striking facts in the peculiar world of finance. I especially liked number 15:
If you had invested from 1960-1980 and beaten the market by 5% each year, you would have made less money than if you had invested from 1980-2000 and underperformed the market by 5% a year. When you were born > almost everything else.
Why Books Don’t Work. A though-provoking (but mostly true) piece on why books aren’t the perfect medium for building knowledge they are acclaimed to be.
Like lectures, books have no carefully-considered cognitive model at their foundation, but the medium does have an implicit model. And like lectures, that model is transmissionism. Sequences of words in sequences of lines in sequences of pages, the form of a book suggests people absorb knowledge by reading sentences. In caricature: “The author describes an idea in words on the page; the reader reads the words; then the reader understands the idea. When the reader reaches the last page, they’ve finished the book.” Of course, most authors don’t believe that people learn things this way, but because the medium makes the assumption invisible, it’s hard to question.
Decomplication: How to Find Simple Solutions to “Hard” Problems. An old post by Nat Eliason which I have first gotten to read now. This one is highly recommended. Nat introduces two valuable mental models for tackling hard—but simple—problems.
The Law of Artificial Complexity: As the number of people experiencing a problem increases, so will the artificial complexity of the solution.
The Law of Decomplication: The more people that are experiencing a problem, the simpler the solution should be.
Business of the week
Our business of the week is the Chinese social and entertainment company Momo Inc. The company was brought to my attention by a good acquaintance of mine, Michael He (Hi Michael). I’ve since dug a little deeper into the business and it sure is interesting.
Founded in 2011, Momo connects people and facilitates interactions based on location and interests; and various recreational activities, including live talent shows, short videos, and social games, as well as other video- and audio-based interactive experiences, such as live chats and mobile karaoke experience.
The cash cow of the business is Momo as the main app platform in which the company makes the most of its money when users purchase and sent virtual items and gifts either to other nearby users or to broadcasters who do live performances on the app. The Momo segment has been highly profitable for years, generating net revenues of CNY15.74 billion in fiscal year 2019 and sporting an 32% operating margin.
The star of the business is the dating app Tantan—the Chinese version of Tinder—which Momo acquired in 2018. Currently unprofitable and at an early stage of monetization, Tantan generated revenues of CNY1.26 billion in fiscal year 2019. Like Tinder, Tantan operates on a freemium model where users can use the app for free but can pay for a monthly subscription, currently priced at CNY12 giving increased functionality in the pursuit of finding a match.
Through Momo and Tantan, Momo Inc. seems to hold a leading position in the Chinese online dating market. The balance sheet is solid and the company has a great founder culture. So far, I seem to like the business and its prospects for growth. The price of USD3.40 billion at a TTM 16.2% free cash flow yield could sure be alluring. Momo Inc. is going to be our next deep dive company note.
Quote of the week
Historian Will Durant from The Lessons of History:
History reports that the men who can manage men manage the men who can manage only things, and the men who can manage money manage all.
If a company pays too much in taxes, it’s a commercial risk. If it pays too little in taxes, it’s a reputational risk.
Have a great coming week,