Discover more from Nicholas Vardy's The Global Guru
Week #36: The Power of 20 Punches; China’s Road of Ruin; "The Mississippi of the North"
Immigrants and Unicorns; Ethnic America
Today at a Glance:
· One Quote: The Power of 20 Punches
· One Strategic Failure: China’s Road to Ruin
· One Country: The Mississippi of the North
· One Table: Immigrant Founders of Unicorns
· One Book: Ethnic America
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The Power of 20 Punches
“I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches—representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”
Source: Compounding Quality
The year was 1972. While Wall Street buzzed with big mergers and acquisitions, Buffett quietly plucked See's Candies for $25 million. For a budding investor, it was an unassuming choice. To critics, even pedestrian.
After all, See’s no sprawling corporate empire or household brand name. It's just a modest confectionery shop rooted in California. And confectionery businesses rarely top the list of high-growth industries.
But Buffett has always knack for finding diamonds where others see grit.
See's never became a global phenomenon. Yet what it lacked in reach, it made up for in reputation. For over 50 years, it honed its craft to perfection. It resisted the temptation of rapid expansion in favor of regional dominance. It turned down quick profits for steady returns.
Critics called it small-minded.
But Buffett recognized this restraint as wisdom.
By 2019, See’s Candy had generated Berkshire Hathaway pre-tax profits of over $2 billion.
The See’s story highlights Buffett's focus on the power of selectivity.
Every day brings a cacophony of choices. See's succeeds by tuning out the noise and zeroing in on what counts.
Buffett does the same. He sifts through bargains but rarely bites. In a year, if one golden chance appears, that year is well spent.
Both See's and Buffett exemplify the wisdom of restraint. Patience in waiting for the right moment. Conviction to stay the course. Focus on resisting distraction. And mastery to become the best in class.
One Strategic Failure
China’s Road of Ruin
Francis Fukuyama is one of today's most influential political scientists. He is best known for his timely book The End of History.
Fukuyama and Stanford colleague Michael Bennon recently published a piece in Foreign Affairs on China's Belt and Road Initiative (BRI).
BRI’s objective was to project Beijing's power by funding infrastructure projects throughout the developing world.
Source: Fox News
Ten years later, reckless lending practices have imperiled the emerging markets Beijing ostensibly sought to help.
China's Belt and Road Initiative has saddled its victims with white elephant projects and catastrophic debt.
Ironically, these countries have turned to the hated demand IMF to prevent this collapse.
How did we get to this place?
First, the majority of BRI projects have failed to generate adequate returns. This left countries like Zambia and Kenya unable to service their debts. Due to its Chinese-financed highway, Tiny Montenegro's debt-to-GDP ratio has surged to 89%. Such failed investments have sparked resentment among the same countries it purported to help.
Second, China's opaque lending processes concealed the true scale of BRI debts. Half of China's loans were "hidden," evading traditional debt statistics. This accounting sleight of hand has prevented accurate risk assessments, multiplied defaults, and shattered creditor trust.
Finally, China's insistence on bilateral renegotiation has stymied coordinated solutions like the G20 Common Framework. Distressed nations have suffered as a result. Meanwhile, the IMF is culturally ill-equipped to referee conflicts between Big Bad China and its tiny creditors.
Far from a strategic masterstroke, the BRI has proved a liability for China. Both its balance sheet and reputation have suffered.
Bloated debts, opacity, and China’s unilateral coercion have damaged developing economies and Beijing's standing with them.
Fukuyama and colleagues argue that the IMF can mitigate the crisis. But it can only do so by taking on Chinese pressure directly.
Highly unlikely, I’d bet.
My view? China's BRI was born of hubris. It will cost the country trillions of dollars, with little to show.
But before you indulge in American schadenfreude, don't forget that America also wasted trillions trying to remake Iraq and Afghanistan in its image.
No, the Chinese aren’t supermen. But hyperpower hubris cuts both ways.
“The Mississippi of the North"
“Oh, Canada,” the land of Justine Bieber, poutine, and Jordan Peterson. A vast frontier brimming with natural resources. An icy utopia offering free healthcare and legal weed.
Yet behind this northern Arcadia lurks economic mediocrity.
If Canada were the 51st state, its per capita GDP would rank it 50th- ahead only of Mississippi.
Despite its abundant advantages, Canada lags as an economic powerhouse. Blame Canada's lackluster economic performance on poor productivity.
Canada's productivity has tumbled compared to other advanced economies. Today, a Canadian worker produces just 70% of his American counterpart. That's below not just the U.S. but the E.U. and U.K. Boosting productivity must be a priority.
Internal barriers also stifle Canada's competitiveness. Baffling interprovincial trade barriers are equivalent to a 6.9% tariff hindering trade. Red tape and regulations also hamper the growth potential of natural resources and manufacturing. Cutting red tape and internal barriers could kickstart much-needed productivity.
Finally, Canada's demographics are a millstone around its economic neck. An aging population and declining fertility rates equals stagnant growth. Still, Canada retains its appeal as a destination for immigrants. Managing immigration more strategically to fill labor shortage help battle demographic headwinds.
Lifting productivity, removing internal barriers, and leveraging immigration could help Canada regain its economic mojo.
With focused policies and reforms, Canada can propel its economy into the top tier globally.
Until then, the Mississippi of the North will remain sluggish and meek.
Immigrant Founders of Unicorns
The United States attracts the best and brightest entrepreneurs across the globe. Fully two-thirds of billion-dollar startups in America count at least one immigrant among their founding team.
Analyzing the origins of immigrant founders in U.S. unicorns unveils the outsized contributions of just a handful of countries.
Source: Visual Capitalist
· The majority of U.S. unicorns have at least one immigrant founder. There are 382 immigrant founders from 319 companies out of 582 unicorns.
· India has the most founders, with 66, followed by Israel with 54. Together, India and Israel account for 31% of immigrant unicorn founders.
· The top 6 countries (India, Israel, UK, Canada, China, and France) account for over half of the immigrant founders.
· Well-known unicorns founded by immigrants include SpaceX (Elon Musk from South Africa), Stripe (Collison brothers from Ireland), Instacart (Apoorva Mehta from India), and Databricks (founders from Iran, Romania, and China).
· Many founders immigrated as children or international students, not already as successful business people.
· Immigrants were founders of more established ventures as well. Procter & Gamble emigrated from England and Ireland in the early 1800s. And today, the founder of NVIDIA, which recently breached a trillion-dollar market cap, is from Taiwan.
Thomas Sowell may be the single most underrated intellectual of his generation.
Now 92 years old and based at Stanford's Hoover Institution, Sowell has written about various topics, including economics, race, ideology, late-talking children, and immigration.
Sowell's scholarship is vast; his thinking is clear as a bell; his writing is compelling and persuasive.
Americans rarely study immigration. Yet immigrants have shaped America’s history far more than the latest Marxist intellectual fad migrating from the Ivory Tower to the mainstream media.
Sowell's classic Ethnic America details major immigrant groups' culture, behavior, and values of nine ethnic groups: The Irish, Germans, Jews, Blacks, Mexicans, Indians, Japanese, Chinese, and Puerto Ricans.
Published in 1980, the book is a bit dated. But its conclusions are timeless:
Culture and values make all the difference.
Do yourself a favor. Read Ethnic America. It will help put the noisy arguments of today in a historical perspective.
You'll never look at America the same way again.