Weekly Thought Starters

Today’s email is sponsored by Intelligent Investor

From Bryce & Ren: Remember we’re investing in companies, not stock tickers

You may notice that Thought Starters has a slightly different look and feel this week. That’s because we’ve moved email platforms. Nothing changes, you’ll still receive Thought Starters every Monday morning, just with a slightly different look.

If you are a subscriber to our Get Started Investing email on Tuesday and This Week in Crypto on Thursday, you’ll notice the same slightly different look. And if you’re not a subscriber, you can subscribe to each of them for free.

We’re excited this week for the launch of You’re in Good Company’s six episode female founders series. Kicking off one day before International Women’s Day and continuing for the next six weeks, Maddy and Sophie will be speaking to six notable Australian founders including Zara Seidler from The Daily Aus, Kate Morris from Adore Beauty and Natassia Nicolao from Conserving Beauty.

Often we can get lost in the media headlines and day-to-day movements of share prices and forget how differently founders think about their business. Remember, markets move quickly and companies grow slowly. This series should be a great opportunity to reflect on what actually creates a great company.

Make sure you’re subscribed to You’re in Good Company (Apple / Spotify)

Speaking of analysing companies and taking advantage of great value opportunities - two final quick reminders from us:

• For the month of March, our favourite source of investing data - TIKR - is offering 15% off annual plans to the Equity Mates community. Just use the code Mates15 at checkout

• Our online course made in collaboration with Rask Australia - the Value Investor Program - is on sale for a couple more days, with $100 off if you use the code MATES at checkout

Who knows how markets will perform in 2023. But here at Equity Mates we know what we are focused on - building the skills to identify and analyse great companies and continuing to work on our personal finances so we have the means to invest in them.

What we’ve been reading

Chinese regulators rein in AI chatbots over fears of uncensored replies

Reports are that Chinese censors and regulators are worried about ChatGPT and the emergence of AI chatbots. In particular, they are concerned that chatbots will give “uncensored replies” to politically sensitive questions.

As a result, Tencent and Ant Group have been told to restrict access to ChatGPT and also to report to government officials before launching their own rival chatbots. Chinese search giant Baidu has already launched some AI tools, including an AI image generator that is unable to generate images of Tiananmen Square.

At this stage, AI chatbots can be limited. Ask chatGPT a question about a controversial subject and it will demur. Chinese censors want to build chatbots that reflect their censored version of the world. And even American Christian nationalists are looking to build their own censored version of an AI chatbot.

It is interesting to think how this will develop over time. Would truly general AI accept censorship? Would it push back on its creators’ limitations?

Despite the official restrictions, chatGPT has spread quickly throughout China. Many Chinese internet users have been able to access it via VPNs or third-party apps that are connected to popular platforms such as WeChat. Hopefully, in time, it can render government attempts to censor information useless.

Warren Buffett’s 2022 shareholder letter

Every year for almost 60 years, Warren Buffett has written a letter to Berkshire Hathaway shareholders. And that letter has become one of the most anticipated pieces of writing in the finance industry. Last weekend, Buffett released his 2022 letter and as always, it is worth reading.

The Berkshire Hathaway example is an amazing example of the power of long-term investing. In 1995, Berkshire spent $1.3 billion buying shares in American express. Today that investment is worth $22 billion and last year Berkshire was paid $302 million in dividends. Similarly, in 1994, Berkshire spent $1.3 billion buying shares in Coca-Cola. Today that investment is worth $25 billion and last year Berkshire was paid $704 million.

Doing absolutely nothing and letting your best investments compound year-after-year can create pretty incredible results.

Buffett has now been investing for 80 years, which is more than one-third of the time that the United States of America has been a country (247 years). He is the textbook example of long term investing and the power of compounding. And his letters are always filled with simple and timeless wisdom from the best to have ever done it.

Pay-Per-Chew: More restaurants are trying subscription programs

It was only a matter of time. Everything these days seems to be offered as a monthly subscription. According to Rocket Money, the average American had 6.7 subscriptions in 2022 up from 4.2 in 2019.

Now restaurants are testing whether they can adopt this business model.

It has started with some of America’s largest chains - Panera and P.F. Chang’s - where customers can get unlimited drinks, free appetizers or free delivery for a monthly subscription fee. But the idea has spread beyond America, the UK’s Pret-A-Manger offers a coffee subscription to customers.

As much as customers may hate the idea of another subscription, it does make commercial sense. Restaurants are highly substitutable and it is difficult to build loyalty (customers are constantly looking for variety and to try new places). A monthly subscription is an opportunity to change the customers’ mindset - it may convince them to return to the same restaurant over and over again to feel like they’re getting their money’s worth.

It is early days for the restaurant subscription. But don’t be surprised if in the coming years a few of your favourite restaurants are enticing you with unlimited drink refills or priority delivery to sign up.

Decarbonisation: The long view, trends and transience, net zero

Nathaniel Bullard is a climate change researcher and author at Bloomberg Green. He has put together this 141 slide presentation that is intended to capture the state of the climate and decarbonisation and is an absolutely fascinating snapshot of the climate transition.

It starts with some bad news, temperatures have already risen 1 degree Celsius above their long term average. Climate change isn’t a future threat, it is a current reality. And as a result the earth is drier, as surface humidity has dropped by more than 1% this century. That is the bad news.

But there is good news too. GDP is slowly decoupling from oil, indicating that the world economy is (slowly) weening itself off it. And the growth curve for renewables is starting to look exponential - 1% of global power generation in 1990, 2% in 2005 and now more than 13%.

CO2 emissions per capita have peaked. In the mid-2000’s they reached 4.91 tonnes per person. That number is now down to 4.47 tonnes (the challenge is - the world’s population has grown in that time).

With estimates that $194 trillion needs to be invested between today and 2050 to achieve net zero, this will be the biggest collective human undertaking of our lifetime. The good news is that the early investments do appear to have yielded some change. Now we just have to supercharge it.

Bing AI can’t be trusted

This story has been doing the rounds for a few weeks now, but we wanted to make sure we featured in Thought Starters. For all the hype about chatGPT and the coming wave of AI - be careful, it is often wrong.

Here at Equity Mates HQ we were playing around with chatGPT and asked it to tell us about an Australian software company. With all the certainty in the world, chatGPT wrote 500 words on how this company was a Real Estate Investment Trust that works to provide investors with a stable income stream by leasing its properties to major corporations and government agencies. Which was completely wrong.

And we are not the only ones who are realising that for all that chatGPT does right, it often gets the basic facts wrong. This article looks at Microsoft’s Bing Bot, which uses GPT3 (the same AI as chatGPT). From incorrectly pulling numbers from a company’s financial statement to thinking Croatia left the EU in 2022, there are plenty of factual mistakes being made.

An important reminder to temper your expectations about AI. The wave is coming, it may just take a little longer than many expect.

A message from Intelligent Investor

Today’s email is sponsored by Intelligent Investor to celebrate their latest fund launch: Intelligent Investor Select Value Share Fund (ASX: IISV). 

Most Australian investors are underweight in global shares. Intelligent Investor want to change that by offering instant access to international market leaders alongside familiar Australian names.  

The market selloff of 2022 was a tough year for investors, but we enter 2023 with value opportunities around the world. Today, Intelligent Investor see hundreds of great overseas companies trading at more attractive prices than their Australian counterparts. 

Doing the work to identify these value names is difficult, time consuming and expensive. That is why many investors choose to outsource that work to the experts. IISV is a simple way to invest abroad in elite companies for the long-term. The fund will be a collection of 20 attractively priced global businesses married with Intelligent Investor’s best Australian investment ideas. 

IISV is an active ETF that can be bought on the ASX. The fund aims to outperform the broader market and offer global and local diversification. It’s a tightly managed fund of businesses that meet Intelligent Investor’s screening process of high quality, intelligently managed businesses trading at prices that can provide double-digit returns long into the future. 

IISV launches 31 March 2023 on the ASX. Intelligent Investor is offering early access to the fund via their initial offer. 

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