A few months ago, my girlfriend showed me videos of a Chinese influencer named Austin Li. The fellow was trying on different lipsticks and critiquing the shade and color. But Mr. Li was no run-of-the-mill cosmetics Vlogger. Within a few minutes, he had sold more than a thousand sticks of lipstick. After a few minutes more, his inventory was all sold out, and he moved on to the next product, instant milk tea. After a few more minutes, all the milk tea was sold out too.

“What the heck just happened?” I wondered.

Being unfamiliar with Chinese social networks and its e-commerce landscape, I thought of the Home Shopping Network (the most obviously similar U.S. business). But this was so much more, it was like the Home Shopping Network on steroids. People were buying boxes of lipstick, way more than they needed, not because they loved the product, but rather because they loved Mr. …

It seems like today’s high flyers keep rising higher and higher (both in terms of revenues and share price) putting more and more distance between themselves and their more ground-bound competition.

We can observe this via the nosebleed valuations of leading tech companies, the hype around hot IPOs, and the massive outperformance of growth stocks over value stocks. Why is this happening?

Network Effects

Many of today’s best performing companies (like Google, Facebook, Snapchat, Square, Apple, Amazon, Zillow, etc.) own global marketplaces that benefit from network effects. This means that the bigger they get, the more competitive and profitable they become. Think of a two-sided marketplace — more buyers attract more sellers, which attracts more buyers, which in turn attracts even more sellers. …

Happy 2021! I’ve been thinking a lot about investment bubbles lately, so the featured articles in this newsletter primarily revolve around bubbles. The biggest bubble is of course Bitcoin (discussed in depth in the featured posts).

Bubbles are especially fascinating in realtime because we can’t be sure whether something is truly a bubble or when it will finally burst. As an investor, there are two approaches to bubbles:

1. The trader approach where you embrace the bubble and trust that your instincts and trading skill will get you out unscathed with profits intact.
2. The value investor approach where you either avoid it completely (which is very tough emotionally) or you allocate a moderate portion of your portfolio to bubble stocks (with hedges). …

Why did the world go off the gold standard? It’s a long story but the gist of it is that shackling a nation’s economy to the amount of gold in its treasury was much too painful and unstable.

Under the gold standard there was a fixed price with which currencies could be converted into gold. One implication of how the gold standard worked was that the more gold a nation owned, the larger its money supply (and the higher its inflation rate). Thus, large inflows of gold either from trade, war, or a productive mine would cause high inflation. And outflows of gold would cause deflation. …