[VIC - 131] Steps 👣 hands 🖐️ and dots ⚫

Business & Money

I coined this formula a couple years ago: MD = CI + NE. [Market dominance] equals [critical infrastructure] + [network effects]. For companies that are covered by this formula, they make it on to my “high conviction list.”

One of the companies on the list is Chinese internet giant Tencent. The companies lead offering, WeChat, is the definition of critical infrastructure. WeChat is Facebook (social) + WhatsApp (messaging) + Venmo (payments) + Apple/Google (mobile operating system and app distribution) + Activision Blizzard (game publisher) for 1 out of 1.4 billion Chinese citizens. That’s 🍌🍌🍌!

On the network effect side, the more people that join and the more services available via WeChat makes it more valuable for all of the existing users. Add to that the data network effect that powers the machine learning flywheel… what more could you ask for.

So why bring this up? The stock is down 30% from its high in January. And I have a rule about high conviction stocks. When they drop 20%, I add to my position. When they drop 30%, I add even more. So you can guess what I’m currently doing with TCEHY.

That’s not to say there aren’t risks. People like to bring up trade wars and geopolitical risk. But Tencent largely operates in China and only deals with intellectual property, as opposed to commodities like steel or soybeans. So I don’t see why tariffs and trade wars should be a big deal (please share if you feel differently).

Then you have censorship risk from the Chinese government, which feels like a more serious headwind. Censorship has definitely hit profitability in recent quarters. That said, given China’s desire to compete head-to-head with US technology and AI supremacy, it would seem counterintuitive to seriously hamstring one of your own tech darlings.

All things considered, TCEHY feels as “high conviction” as it ever has.

Human Progress

I’ve written here before about the power of compounding. I believe all previous mentions were in monetary terms, but the concept applies equally to other areas. Here’s a great example:

It’s no secret that venture capital is not a very diverse industry. Take race for instance:

The tally went from 2% black to 3% in two years. And while that seems meager, a 50% growth rate over two years is actually high. Following the logic of compounding, over 1/3 of all VC will be black by 2030.

What if we look at gender:

That’s an even higher 2-year rate of growth at 64%. Carry that forward and we’re at gender parity in VC by 2022.

I’m not trying to be literal here. You’d have to take into account the demographics of the overall population, the law of large numbers (becomes harder to maintain growth rates when starting from a higher base), and many other factors to attempt an accurate forecast.

But that’s not the point. The point is to say that compounding is a powerful force. If there is some area of your life, or of life more broadly, where you’d like to see progress, starting small can yield massive results over time.

Philosophy

I went on a gorgeous hike this morning near Lake Tahoe. It traversed 2,100 feet of elevation, 3.6 miles of trails, and just over 2 hours. It was a great time to think and I thought I’d share a couple thought bubbles with all of you.

There were numerous occasions when you were forced to travel downhill for 40 or 50 yards before heading back uphill. And each time, it felt counterintuitive. When hiking to a peak, it feels like a waste of time and energy if you’re not going up. But after a couple times, you realize that the downhill stretches are important elements in the overall journey and, better yet, a great opportunity to catch your breath. I think there are many moments in life where things don’t feel right and it seems you’re wasting time, but those are just parts of the journey.

Certain people out on the trail seemed focused on finishing quickly. But then we passed them around mile 2 and they looked spent. They had attempted the proverbial sprint in the midst of a marathon.

Similarly, we underestimated the amount of water that we would need. There were a couple times when it felt right to crush what was left in the water bottles. But remembering the marathon, we conserved the little remaining and made it last. It’s so important not to deplete resources too quickly.

When scaling 50 and 60-degree cliff faces, presence takes on a new meaning. Each step needs to test the rocks before planting and the same goes for each hand grab. You’re paying close attention to your center of gravity and ensuring that, if you slip, you want to fall forward and not backward. This level of presence and focus is scarce in modern life. If only we could approach every task with something similar.

As we progressed up the mountain, there would be an occasional spray-painted dot on a rock or tree trunk. These would remind you that you were headed in the right direction. Occasionally you would head off in a direction and fail to find any dots. At those points, you head back to the last one and try to rechart the course. Or sometimes you momentarily split up and communicate by voice to see if one or another person can find the next dot.

So, during the steep parts, you’re focused on the next step and the next hand grab. When things are more stable, you’re on the lookout for the next dot. But never much further than that.

I often hear people talk about their 5 and 10-year plans. And I think planning is all good and well. But, in reality, it seems that much of what happens 10 years from now is completely out of our hands. So, for me, I try to stay focused on the steps, hand grabs, and dots.