This week’s readings/links include AVI Japan Opportunity Trust’s Q4 2019 letter and 2019 annual report, an excerpt from the book Killer High on the entwined history of war and opium in Asia, Gordo Byrn on how wealth endures, a podcast interview with Frontline’s CEO on the crude tanker markets and Asia Sentinel on a controversial hospital sale in Malaysia. 

• AJOT Q4 2019 letter: Link to 2019 annual report here. 
• For centuries, war and opium have been entwined in Asia – sometimes assisted by the US: Excerpt from the book Killer High.
• Gordo Byrn: How wealth endures.
• Frontline CEO Robert Hvide Macleod on crude tanker markets: Podcast transcript.
• Controversial hospital sale in Malaysia draws questions: Sovereign fund sells high-priced facility at huge loss.

I also enjoyed Khe Hy’s conversation with HBS finance professor Mihir Desai, who explains various concepts such as options, leverage, and herd behavior in simple terms and then extrapolates them into broader life lessons. For more, see his book The Wisdom of Finance.

Some brief highlights below (for personal reference only, any mistakes are my own):

• On the principal-agent problem: this is the defining problem of modern capitalism. ~150 years ago we mostly worked for ourselves, but today, enterprise is at a scale where you need to separate out management and ownership. Has become a daisy chain of principal-agent problems. The really hard thing in life is writing your own script. A lot of us find ourselves living out someone else’s idea of what a life is. We end up being an agent for some invisible principals in our heads. A lot of what life is about is becoming a principal and defining the nature of your life.
• On options: people in finance are obsessed with optionality. Options are meant to enable risk taking. But what he observes is that people have become addicted to buying options and safety nets. We want to enjoy the idea or potential of something without committing to it.
• On leverage: it allows you to do things you have no right to do. The way that works is you commit yourself to obligations. On average, people are under-levered. Avoid it and think it’s too complicated. But the people who embed themselves in a set of meaningful relationships and commit to each other are happiest and healthiest. These include the commitments made to family, friends, your employer, organizations. The thing to watch is that sometimes people become overlevered and it can become too much. You find yourself struggling under a set of claims that are unsustainable, which can be overwhelming.
• On the value of education: there is too much riding on credentialing, and not enough focus on adding value to students’ lives. Does he feel that the changes in the world are reflected in the syllabus of business schools? Cites the example of crypto – the right way to understand it is not to study bitcoin per se, but to understand the role of currencies. More valuable to think about what has worked as a currency in history (e.g. why store of value is so important). Same with digital marketing – there are a lot of basic marketing principles embedded in digital marketing. We don’t want to be slaves to new phenomena, we want to believe in ideas. New phenomena are just ways of enriching our ideas.
• His financial advice: the most obvious thing people get wrong is they do not live within their means. It is possible to save too much and deprive yourself of current experiences, but that is not the mistake 99% of people are making. Has to be a balance between the present and the future. Apart from that, he fundamentally believes in efficient markets. For the vast majority of people, their portfolio should be allocated in a low cost, tax efficient way. Focus on taxes, fees and transaction costs. You can also put aside a small amount of money to have fun with, use to learn about businesses etc.