One Step Up Issue #19
This week, we look at BlackRock's Aladdin, the curator economy, on getting promoted, the browsing e-commerce market, portfolio turnover and some lessons on leadership and learning + more
At Blackrock he (Larry Fink) developed a risk management system that would be fully integrated with the investment process. He called it Aladdin, short for the less snazzy “Asset, Liability, Debt and Derivative Investment Network”. Aladdin’s job was to provide a comprehensive risk overview of the firm’s portfolios. It became the central system for the firm’s position-keeping, record-keeping and risk control.
Like many software systems, the platform is quite sticky. Implementation can take 12-18 months, but once the client's on board, they’re on board—renewal rates are in the high 90’s of percent. Fees are based on criteria such as the value of positions, number of users or accomplishment of specific deliverables. JPMorgan became a client in 2016, paying $1.5 million for integration, plus annual fees that grew to $5.3 million last year.
With more creators, more content, and more choice than ever before, consumers are now being consumed by a state of analysis paralysis. The real scarcity isn’t content anymore. It’s attention. When it’s impossible to absorb everything from the flood of information, the best we can do is pick and choose what matters to us most — or, better yet, find the people who can do the curating for us.
Browsing e-commerce: An untapped $250B+ opportunity
Platforms that can combine both entertainment and e-commerce will win this category. As proven in China, entertainment could be in the form of social network, live streaming, user videos, product build videos or influencer content. On the e-commerce side, categories such as apparel, home products or electronic accessories should be relevant. SKUs that are low intent, low price and non-branded would be more likely to succeed.
How A Drugmaker Gamed The System To Keep Generic Competition Away
The Stock Market Is Less Disconnected From the “Real Economy” Than You Think
Amp It Up! - Frank Slootman, Chairman-CEO, Snowflake
Mediocrity is the silent killer. Organizations are not getting killed by their C players. Everybody knows who they are, and performance eventually is addressed. The people who kill organizations are your B players. It’s the scourge of the enterprise because there are many and they are generally accepted. Often, they are seen as not bad enough to fire, but not good enough to keep. They are the ultimate passengers.
Portfolio Turnover is the Price of Progress
With the rise of private equity and venture capital, everyone is trying to invest in public markets with the same permanent capital mantra. The lower the turnover, the more cerebral and thoughtful you appear to be with initial investment decisions. Nothing looks better than being right from the very beginning. More often than not, a low turnover is shown as a badge of honor. Many investors feel great pride and joy being a loyal shareholder of a company. It feels good to say you’ve held a company for 5-10-20 years. But in reality, what really matters is performance.
Peter Lynch had 300% turnover per year in the early years of the Magellan Fund. Joel Greenblatt had similar turnover at Gotham Capital. Even Warren Buffett’s public company portfolio ranged between 50-100% turnover per year during his first three decades. In fact, contrary to what most believe, many of the greatest long-only investors had their best performance when they had higher rates of turnover in their portfolios. And these were investors that invested in larger, more established businesses where low turnover is much more achievable.
A big part of what made these investors great was spotting when they were wrong quicker. Successful stock picking isn’t just picking winners. It also means picking out the losers in your portfolio. The greatest advantage in public markets is “You can sell”. But you have to know when to sell.
Daniel Ek’s (Founder, Spotify) interview: The Observer Effect
I've always been a really, really insatiable, curious person. It really starts with that. It started when I was a five year-old kid getting my first computer when my family couldn't really afford that kind of purchase. It broke down and I didn't know what to do with it. So, I decided to try to fix it myself. For a while, I couldn't figure it out. When I finally did figure it out, the liberation and the empowerment I felt was incredible. I remember it vividly.
It's been one of those things that has stuck with me throughout my life. I realized at a young age that even for problems that are messy and complicated, if you put enough direction, energy, and focus into solving them, it’s very possible to figure them out.
Till next time.
