One Step Up Issue #3
This week, we look at how Coca-Cola makes money, the 'why' behind the market rally, Owner Earnings and why they're a better source of understanding a company's value, Pinduoduo and Shopify
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Three Reasons Stocks Are Rising
The darkest two months in modern American history have coincided with the greatest 50-day rally in S&P 500 history.
Few people could have predicted any of this given the doom and gloom commentary we’re surrounded by non-stop, but the S&P 500 is almost back at where it was on Jan 1 this year and the Nasdaq has already turned positive year to date. So much for listening to the “experts”. Covid related deaths surpassed 100k and this was the result.
Owner Earnings and Warren Buffett:
A metric Warren Buffett helped popularize among many investors (highlighted first in the 1986 annual letter to Berkshire’s shareholders) , Owner Earnings, represents not how much cash the business has. It's how much cash the owner of the business can safely withdraw each year without hurting the business's current earning power or long-term prospects.
Pinduoduo and The Rise of Social E-Commerce
Anu Hariharan, a partner at Y Combinator, one of the world’s premier seed stage startup accelerators and Nic Dardenne , analyze what makes Pinduoduo (PDD) so unique and special.
Founded in 2015, PDD is not just another e-commerce platform. It’s a social commerce marketplace.
Pinduoduo found room in e-commerce, not as a competitor to search-based websites like JD, but as a new e-commerce platform focused on interactive and social shopping experiences online. Social shopping may seem like a new concept, but the reality is that in the physical world, shopping is meant to be “interactive and fun” and purchases are regularly informed by friends and family. Consider how much harder it feels to purchase a new clothing item without immediate feedback from friends. e-commerce platforms like JD, Alibaba, and Amazon don’t account for this.
Instead, they optimize for efficiency, funnel conversion, and purchase rates. Pinduoduo, on the other hand, has tried to mimic the offline shopping experience online by building community via their team purchase model, driving engagement via fun and interactive games and rewards, and offering personalized experiences and value via recommendations.
Shopify: A StarCraft Inspired Business Strategy
This is an unbelievably good article highlighting a few things I truly believe in:
Multidisciplinary learning is very beneficial
How to adapt to changing circumstances and deal with uncertainty
StarCraft is a sci-fi warfare video game primarily known for its 1 vs. 1 gameplay where you and your opponent start on opposite sides of a map with each player given one base and equal access to resources.
StarCraft is like a constantly evolving game of chess with incomplete information about the opponent’s layout, pieces, and attack/defense strategies. You must continually “read and adjust” your go-to-battle strategy as you learn more about your opponent’s positioning, buildings, and army composition. It’s an iterative loop.
Ending this issue on a different kind of high - Robin Williams on Wall Street:
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Till next time.
Free education is abundant, all over the Internet.
It’s the desire to learn that’s scarce.