October 25, 2020: Be Good at Destroying Your Best Ideas

Hello Interconnected Readers:

I’m trying something new starting this week. In addition to the six stories summary that you’ve been getting, I will open this weekly issue with a more raw, personal, and reflective letter to you about something I thought about last week that stuck with me.

It’s part of my ongoing effort to feel more comfortable learning and living in public. I also hope this change triggers more responses from you! I always enjoy and learn from your replies and feedback.

[If you’d like to skip ahead to the six news stories and commentaries – three from English language sources, three from Chinese language sources -- here are this issue’s items:

• “Don’t be blind to China’s rise in a changing world” (English Source: Financial Times Op-Ed)
• “Introducing the Microsoft Azure Modular Datacenter” (English Source: Microsoft Azure Blog)
• “The first AI model that translates 100 languages without relying on English data” (English Source: Facebook AI)
• “Lufax updates IPO prospectus for US, expects to land on NYSE on October 30, sprinting to become the biggest fintech IPO in US” (Chinese Source: iponews)
• “New Oriental Sprints to HK Stock Exchange, Ahead of TAL Education, Becomes First Education Company to Return to HK Exchange” (Chinese Source: Sina Financial News)
• “Chip Madness: Institutionals fight for deals, valuations soar, whose bet will be China's future chip giant?” (Chinese Source: Interface News)]

A few days ago, I stumbled upon the transcript of an extended interview that Charlie Munger did with the Wall Street Journal in May 2019. Now, I’ve read most of Munger’s speeches and annual meetings over the years (many multiple times), so I was somewhat disappointed in myself for missing this one. It’s unique because Munger was loquacious, which is unlike the curt reputation he developed from years of Berkshire’s annual meetings, where he would usually follow Warren’s answers with “I have nothing to add.”

Whether you agree or like Munger or not, he always tosses out thought-provoking observations every time he speaks. The one that stuck with me from this interview is this passage:

“Part of the reason I’ve been a little more successful than most people is I’m good at destroying my own best-loved ideas. I knew early in life that that would be a useful knack and I’ve honed it all these years, so I’m pleased when I can destroy an idea that I’ve worked very hard on over a long period of time. And most people aren’t.”

He was speaking in the context of his architectural obsession designing college dormitories -- an experience where he self-admittedly realized after a year and a half that “every student ought to have his own bedroom.” (He subsequently called himself dumb for not realizing it for so long.)

I am a brief beneficiary of this obsession of his, having lived in Stanford's graduate student dorm that was also designed by Munger, where I got not only my own bedroom but bathroom too! Sadly, I didn’t benefit from thinking about the power of “destroying your own best-loved ideas” until now.

Being able to creatively destroy our own idea is rare, because it’s uncomfortable, if not downright against the inertia of human nature. Confirmation bias, sunk cost fallacy, and sheer delusion is everywhere and the default. Of course, if you can train yourself to do it, then you will stand out and be asymmetrically rewarded.

Everyone wants asymmetric rewards, but the number of people who can destroy their own best-ideas and develop a habit to do so regularly is probably a rounding error. That’s also why the reward is so asymmetrical, I guess. If lots of people can do it, the reward eventually evens out.

What are some of your best ideas recently? Tell me, and let’s see if we should destroy them!

Kevin

The summary below covers the period between October 19 - 25, 2020 of six news stories – three from English language sources, three from Chinese language sources. Disclaimer: all translated article titles are done by me, not official translations from the media outlets.

Before you go on, please check out last week's deep dive post: "iPhone: 'Made in China -> India?'"

“Don’t be blind to China’s rise in a changing world” (English Source: Financial Times Op-Ed)

My Thoughts: This Ray Dalio op-ed has stirred up a lot of discussions, and will surely be translated into Chinese soon. It is unabashedly pro-China, or at least not anti-China, which is bound to piss off many people. Dalio’s business and personal connection with China goes back more than three decades and has profited handsomely from that long period of engagement. While I don’t agree with the entirety of his views, I do think his general mindset to see China for what it is, not what others want it to be, is important whenever we think about US-China relations. At the end of the day, Dalio is an investor and wealthy investors' perspectives on subjects outside of investing tend to have more influence than they should. An investor’s job is to raise money from rich clients and (hopefully) return more money than they raised. Investors should not be tasked with making foreign policy, and foreign policy wonks would usually make bad investors. As Charlie Munger often admits, and did so again in his interview I cited above, he should never be tasked with doing brain surgery.

“Introducing the Microsoft Azure Modular Datacenter” (English Source: Microsoft Azure Blog)

My Thoughts: As long time readers of Interconnected know, I write a lot about the cloud industry and can be a bit of a data center geek, so much so that I’ve written posts tracking the data center locations of all the major cloud platforms. Needless to say, I got really excited reading this Azure announcement of a modular data center the size of a trailer, with the same compute, storage, and networking (via satellites) functionalities of a standard cloud data center. Currently, building a data center takes a lot of land, access to cheap power, and fast underground or undersea fiber optic cables. These physical constraints mean accessibility to cloud computing is still limited. In fact, when I wrote “Is the Cloud Recession-Proof?” a few months ago, I called the cloud “part utilities, part commercial real estate, part railroad, and part something new.” If this modular data center works, it’ll increase access to technology for some of the most remote and harsh environments in the world. I’m personally excited for that future.

“The first AI model that translates 100 languages without relying on English data” (English Source: Facebook AI)

My Thoughts: This multilingual machine translation (MMT) model released by Facebook’s AI research team last week is super cool. If it works as advertised, it’d be a huge step forward in not just AI but cross-cultural communication generally. The current state-of-the-art machine translation models are almost all English-centric, e.g. to go from Chinese to Spanish, the model goes from Chinese to English to Spanish. That reliance introduces accuracy problems and inherent biases in the English language. This new model is “many to many”, directly from one language to another without English. And as with most AI models, it is open-sourced! The current state of this model is still in research and not yet productionized in Facebook’s own product; getting there will take some more time. But I’m hopeful that by year 5 of writing Interconnected, I can expand to more languages and reach more people who don’t speak English or Chinese with the model!

“Lufax updates IPO prospectus for US, expects to land on NYSE on October 30, sprinting to become the biggest fintech IPO in US” (Chinese Source: iponews)

My thoughts: Another week, another Chinese company plans to go public in New York. This time it’s Lufax, the fintech arm of PingAn Insurance, a Fortune 500 financial services conglomerate. According to Lufax’s prospectus, PingAn owns 42.3% while some of the other major shareholders are separate investment vehicles controlled by PingAn executives. Lufax’s core business is micro-loans and credits targeting SMBs and individuals, with approximately 13.4 million users so far. This IPO is not only significant in that it counters the narrative of “delisting”, its size may also make it the largest fintech IPO in US history, with its high-end fundraising target at $2.36 billion USD. The most analogous IPO would be Square’s back in 2015, when it raised $243 million USD.

“New Oriental Sprints to HK Stock Exchange, Ahead of TAL Education, Becomes First Education Company to Return to HK Exchange” (Chinese Source: Sina Financial News)

My thoughts: And another week, another second listing in Hong Kong by a New York-listed Chinese company. This time it’s New Oriental, one of the OG education companies and one of the first to go public in the US back in 2006. This is now one of many second listings, after Alibaba, JD, and Netease. As we discussed a couple of weeks ago, BiliBili plans to do the same next year. There’s also rumor that Baidu may do the same later this year. (For readers interested in keeping track of HK secondary listings, here’s the search result on the exchange’s official website.) The US-China tension is definitely a factor contributing to this trend, but having a backup capital market access, while raising more capital in a world full of cheap capital in the more friendly APAC region, is just solid business opportunism. New Oriental could certainly use the capital to fuel new growth directions -- its so-called OMO (online merge offline) strategy -- as education becomes increasingly virtual. One last interesting note is the term that Chinese media uses to frame these second listings as “return” or “reunification” (回归) to the motherland -- the same term that was used to describe Hong Kong and Macau, when their colonial rules expired.

“Chip Madness: Institutionals fight for deals, valuations soar, whose bet will be China's future chip giant?” (Chinese Source: Interface News)

My thoughts: This trend of private capital, both large institutional investors and VCs, flowing to any startup in China that has the word “chip” or “semiconductor” in its pitch deck is unsurprising. As China’s lack of good domestic chip technologies becomes evident and with the central government fully committed to changing that, there’s a cascading effect of private capital falling in line (or in lane) with what the government wants to see happen. But as I have written in “RISC-V, China, Nightingales” and “China’s Semiconductor Future: What Can $1.4 Trillion Buy?” (paywall; The Wire China), money itself can’t buy much in the world of semiconductor, if spent on the wrong people, doing the wrong thing, with the wrong timeline. As this article revealed, a lot of the money piling in are from VCs who’ve made money from China’s consumer tech growth and barely have enough patience for even B2B enterprise tech startups, let alone chip startups. That is an example of the wrong people, doing the wrong thing, with the wrong timeline.

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