Risky Borrowing is Making a Comeback
As the title suggests, leveraged loans (one of the riskiest types of corporate debt) have made a comeback. Today, more than 85% of them are defined as “covenant-lite” with many investors suggesting that investor protections have concurrently hit an all-time low. This steady decline in underwriting standards reminds us of one of Warren Buffett’s famous quotes, “the less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.”
An excellent long form read on past paradigmsrsquo; in investing and the potential next big shift. With investorsrsquo; being pushed into stocks and risky assets over the last ten years, Ray is of the opinion that most asset classes offer diminishing returns going forward. Predictions aren’t our business, but there are some excellent lessons from history here if you have the time.
“Identify the paradigm you’re in, examine if and how it is unsustainable, and visualize how the paradigm shift will transpire when that which is unsustainable stops.”
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A piece on platforms and aggregators – seemingly all the rage in today’s business world. As defined by Bill Gates:
“This is ultimately the most important distinction between platforms and Aggregators: platforms are powerful because they facilitate a relationship between third-party suppliers and end users; Aggregators, on the other hand, intermediate and control it.”
Amazon and Shopify provide an example of how even disruptors can be disrupted:
“At first glance, Shopify isn’t an Amazon competitor at all: after all, there is nothing to buy on Shopify.com. And yet, there were 218 million people that bought products from Shopify without even knowing the company existed.”
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If you want others to follow, learn to be alone with your thoughts – so starts William Deresieciwcz’s speech to the United States Military Academy at West Point in October 2009. The lecture itself is about leadership and the importance of moral courage:
“We have a crisis of leadership in America because our overwhelming power and wealth, earned under earlier generations of leaders, made us complacent, and for too long we have been training leaders who only know how to keep the routine going. Who can answer questions, but don’t know how to ask them. Who can fulfill goals, but don’t know how to set them. Who think about how to get things done, but not whether they’re worth doing in the first place. What we have now are the greatest technocrats the world has ever seen, people who have been trained to be incredibly good at one specific thing, but who have no interest in anything beyond their area of expertise. What we don’t have are leaders.”
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A quick read that is much more about measuring what matters and general health than push-ups. Measurements commonly used to predict mortality such as the body mass index (BMI) prove far less predictive than simple metrics like how fast someone walks or grip strength. The world is full of spurious correlations though. The simpler metrics are likely more related to many other behaviours that are linked to outcomes like walking speed (e.g. overall fitness, diet).
We found this helpful in thinking through how to approach measurement in business. It’s often tempting to go deep into nuanced data when simple outcomes would suffice.
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