The Diff - Longreads + Open Thread

This issue of The Diff is brought to you by our sponsors, Brex.

Longreads

• Jeremy Stern profiles Palmer Luckey in Tablet. Luckey has managed to time his career in a way that preserves his wunderkind status for a weirdly long time—he was an unusually young hardware hobbyist, which led to Oculus, and then pivoted to being even more unusually young for a senior executive at a major defense contractor. It's a long piece with many fun digressions, from anime’s expansive artistic license to ICBM base decommissioning to Luckey's highly idiosyncratic parenting strategies. Worthwhile throughout; the world has plenty of agency but it's not evenly distributed.
• Scott Alexander on who really follows a Nietzschean moral framework. Delightful throughout: you can sometimes bootstrap from one moral system straight into another ("Maximizing utility is a worthy goal, but it's so hard to know what makes people happy—the best way to do it is probably to cultivate personal virtue.")
• Judge Glock looks at overbroad data regulations. It's a piece with an agenda, but it's a generally good agenda: yes, companies track vast amounts of personal data, but they aren't interested in you as an individual—they're interested in you as a member of some group with a high propensity to make particular purchases. A particularly fun bit here is the argument that the FTC itself recognizes the utility of being able to gather lots of information without oversight: "Any single member of the Commission can issue subpoenas, outside of a court process, to compel testimony and documents from private citizens. In 1994, the FTC received the power to issue “civil investigative demands,” which require people not only to answer questions but to provide data on any issue that the FTC demands. The FTC does allow a recipient to fight these demands, but the FTC itself then determines whether it made a mistake."
• Ben Pomeranz on hacking reward systems, whether that means getting your cat to pay attention to you by sounding like prey or using prediction markets to financial engineer incentives for your own good behavior. One way to look at the latter is that we are all subject to systems, some opt-in and some mandatory, that give us incentives to behave in certain ways. There are laws, of course, but there are also social norms, and those norms vary a lot between groups. If you're finding a peer group online, you can find people who have very specific and peculiar social norms, and they'll pressure you to live up to them.
• Kristin de Montfort has a great piece on how Alex Karp's philosophy informs Palantir, and how that philosophy is itself heavily informed by Germany's struggle to have a coherent and positive identity after the Second World War. One thing I hadn't considered: "I think it is somewhat difficult from our distance to appreciate the strangeness for the cultural and political development of the people of Germany to have assembled an imperial government, suffered the loss of the First World War, formed a very liberal-libertine Weimar Republic, watch that be seized by this very novel, occult-tinged grand concept of a Third Reich, quickly lost that in a great shame, and then had half the country, including the capital city, literally walled off from the other with completely opposing ideological stances, only to be fused back together again four decades later. To say whiplash of an identity crisis is an understatement."
• In this week's Capital Gains, we're back to exploring economic concepts, in this case elasticity. Prices are a signal to buyers and sellers, but they respond at different rates. And those rates also vary depending on the circumstances—oil supply was highly elastic when the US was the dominant producer and oil production was deliberately throttled, and then turned very inelastic indeed after that. And elasticity is a useful concept even when it's at extremes: the supply curve for digital goods is almost a nonsense concept, but it does exist, and sometimes it matters.
• In this week's episode of The Riff, we talk about open source economics, managing the Strategic Petroleum Reserve, culture drift, and AI model specialization. Listen with Twitter/Spotify/Apple/YouTube.

Books

Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism: This book is a fun tour through the history of shareholder activism. Like plenty of other phenomena, it goes back further than one might expect, and it includes cameos fromm people famous for other things. The first story in the book is about Ben Graham's 1926 campaign to get an oil pipeline company to distribute the excessive financial assets on its balance sheet. Graham is better-known as a passive value investor, but early in his career he was apparently more inclined to be his own catalyst by yelling at management. (Also in the department of things-that-are-older-than-they-seem, he used what one might call alternative data ($, Diff)—Northern Pipeline didn't present detailed financial data to investors, but shared more with regulators, so Graham had an information advantage.

The boo also talks about a spate of activist campaigns in the 1950s. These were a big deal at the time, and were one element of the market structure of the 1950s: US equities had been more or less left for dead by investors. Half of them seemed to think that the market was still as scammy as it had gotten in the 20s, and the other half apparently thought that stricter post-Depression regulation meant that the party was over forever. Plenty of people didn't think about the market at all (in a different book, Robert Sobel claims that a poll in the late 1940s revealed that a sizable chunk of the population thought that the "stock market" was a place to buy and sell cattle). Meanwhile, the economy kept on growing, so eventually there was a gap between companies' economic value and their share price. But the environment of the 1930s had selected pretty ruthlessly against CEOs who focused on share prices, while the military mobilization of the Second World War, followed by the GI Bill, meant that there was a long gap where young people weren't entering the workforce.

There's been an evolution towards formalizing shareholder activism over time. The fights in the 1950s were sometimes over companies that were trading at half the value of readily-measurable assets, but in an environment where information was scarce, these were hard to find, and getting shareholders on board was harder still. (Some of the other deals made less sense; Robert Young's fight for the New York Central looked more like an ego trip than anything, and didn't work out especially well.)

The modern version of shareholder activism is almost an inversion of the previous setup. There's much more information, and the market is more liquid so it's easier to buy 5% of a company's stock and start making noise. It's also easier to find other shareholders who agree with the activist, and to wage an attention-getting public campaign. But that also means that activism is a more competitive field, and the proposed changes are more incremental. It's less about cleaning up a massively undervalued company and getting rid of corporate dead weight, and more about debatable differences in strategy and capital allocation. Modern activist fights, like the one covered in The Diff here ($), involve larger numbers in dollars but typically smaller numbers in percentage gains.

Open Thread

• Drop in any links or comments of interest to Diff readers.
• It's 13F season, when investors disclose what their holdings were at the end of June. As always, we honor this by talking about why it's hard to get much information from these disclosures, but: are there any surprisingly good use cases for perusing 13Fs?

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Diff Jobs

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• Growing pod at a multi-manager firm is looking for new quantitative researchers, 250k+ (NYC)
• A well funded early stage startup founded by two SpaceX engineers is building the software stack for hardware companies, and is looking for a senior data engineer (LA)
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• A startup building a new financial market within a multi-trillion dollar asset class is looking for a data scientist with actuarial experience. (NYC)
• A company building ML-powered tools to make software bug-less is looking for a senior software engineer with a passion for Nix. (Washington D.C)
• A new data startup that's seeing early traction bringing transparency to a $1.5tr asset class is looking for an experienced founding engineer. This is a full-stack role; Python, React experience a plus (West Palm Beach, FL)

Even if you don't see an exact match for your skills and interests right now, we're happy to talk early so we can let you know if a good opportunity comes up.

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