Q4 2022 Quarterly Review
Demon Copperhead, Enron's Fatal Flaw, Ken Burns, The Fatal Mistake of History
Hi 👋- Happy New Year. I hope that you and your family had a nice holiday season. In 2023, I’ll be pulling back a bit on my publishing cadence. Going forward, you can expect a post more than monthly, but less than weekly. I’m also hoping to experiment with collaborations and guest posts. Feedback is always appreciated. With the logistics out of that way, below are a few favorite reads and listens from the fourth quarter. As always, thanks for reading.
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Book: Demon Copperhead by Barbara Kingsolver
I read too many business books and too much non-fiction. Because a great business book often equates to a mediocre novel, a 2023 resolution is to change this. Demon Copperhead by Barbara Kingsolver was the best thing I read all year (Kurt Vonnegut’s Slaughterhouse Five wins silver). I didn’t want to put it down. Once it made me miss my subway stop. The book is full of sex, drugs, and rock and roll. But it’s not glamorous. The sex involves truckstop hookers and the drug is OxyContin, initially prescribed after a nasty highschool football injury. Dopesick meets David Cooperfield, the novel follows a boy from birth through adulthood as he bounces in and out of foster homes, schools, jobs, and sobriety in rural Virginia. One of the few constants is that there’s never enough to eat. The book touches on grief, homelessness, addiction, belonging, community, and America's urban-rural divide, as well as art, hope, and love. The topics are heavy, but the writing is light and witty. There’s an element of watching a slow speed train wreck, and not being able to look away. But despite, or possibly because of his flaws, you can’t help but root for Demon.
If you’ve not known the dragon we were chasing, words may not help. People talk of getting high, this blast you get, not so much what you feel as what you don’t: the sadness and dread in your gut, all the people that have judged you useless. The pain of an exploded leg. This tether that’s meant to attach you to something all your life, be it home or parents or safety, has been flailing around unfastened all this time, tearing at your brain’s roots, whipping around so hard it might take out an eye. All at once, that tether goes still on the floor, and you’re at rest. You start out trying to get back there, and pretty soon you’re just trying to get out of bed. It becomes your job, staving off the dopesickness for another day. Then it becomes your God.
Podcast: The Complete History & Strategy of Enron, Acquired FM
As a rule of thumb, Acquired podcasts are delightful. Hosts Ben Gilbert and David Rosenthal deeply research a company and then spend a few hours nerding out on its history, strategy, and competitive advantages (while sprinkling in dad jokes and puns). This episode on Enron came in the wake of FTX’s implosion and is a case study for Charlie Munger’s aphorism, “show me the incentive, I'll show you the outcome.” For example, Enron’s executive incentive compensation was tied to stock performance, as opposed to something fundamental like net income or free cash flow. Aggressive use of mark-to-market accounting and special purpose entities incentivized deal volume over deal quality (a similar situation with mortgage backed securities helped precipitate the Great Financial Crisis). Conflicts of interest were rife. For example, Enron was Arthur Anderson’s largest client, paying them about $50 million per year. While the stock was rising and money was flowing, there was little incentive to ask questions and challenge the status quo. While there was no shortage of fraudulent behavior, much of Enron’s con (mark-to-market accounting, special purpose entities) was legal. The company’s strength was exploiting loopholes. One of the lessons of Enron is simple, but often overlooked during bull markets: without free cash flow, there is no value.
Enron's fatal flaw is that they borrowed from the future until there was no future left to borrow from. They squeezed everything by doing mark-to-market accounting out of the next 20 years in any given deal that they did, and then they got into a bunch of markets, and they recognize all the potential upside for every deal and every single one of those markets around the world in every category today.
Podcast: Ken Burns on the Complications of History, Conversations with Tyler
Ken Burns is the Michael Jordan of historical documentaries. This conversation provides insights into his views on history, creative process, and path to stardom. Burns’ sees the past as malleable, not fixed. As our context and perspectives change, so does our understanding of historical events. Turning to the creative process, for every minute of film that makes it into the final cut, 40 minutes are left on the cutting room floor. When you only see the finished product, it’s easy to forget about how difficult the sausage making is. Lastly, Burns’ current success was decades in the making. He has two three-ring binders full of rejections for his film on the Brooklyn Bridge. Starting out, Burns earned about $0.02 an hour – a few thousand dollars for a film that was years of work. Practice, perseverance, and good luck are traits of many successful people. Burns is no exception.
We tend to think of the past, understandably, as fixed, but it’s not. It’s incredibly malleable, not just as new information arises but as our perspectives change. I like to tell people with our Vietnam film, if I’d made it 10 years after the fall of Saigon, in 1985 — America was in a recession. Japan was ascendant; we are talking about everything shifting over to the Pacific Rim — Vietnam would be the symbol of our decline. If I’d waited 20 years, to 1995, when America was the lone superpower, we’re in the middle of what was then the biggest peacetime expansion in the history of the United States. We had just won the First Gulf War with one arm tied behind our back with a coalition of dozens of other countries — we were in clover. Vietnam would have significance, but would no longer be the symbol of our decline. You wait 30 years, to 2005: we’re bogged down in both Afghanistan and Iraq, and comparisons are being made to Vietnam. All of a sudden Vietnam has a new centrality. Nothing about the Vietnam War has changed. It’s only we’re on a different mountaintop.
Podcast: Niall Ferguson, Historian – The Coming Cold War II, Visible and Invisible Geopolitics, Why Even Atheists Should Study Religion, Masters of Paradox, Fatherhood, Fear, and More, The Tim Ferriss Show
This conversation with historian Niall Ferguson is a helpful reminder that history isn’t predetermined. What happened wasn’t destined to occur. If a butterfly flapped its wings differently or a car turned left instead of right, things could have gone differently. For example, there was a moment during the Cuban Missile Crisis when a Soviet submarine commander gave the order to fire a nuclear-tipped torpedo at a US ship. Similarly, Stanislav Petrov, the commander of a Soviet early-warning facility decided that radar reports of a missile attack on September 26, 1983 were a technical glitch and not the real thing. In both cases, World War III was a hair away. Ferguson argues that the key to history is having a sense of what didn’t happen, but nearly did.
The fatal mistake is to write history as if it was bound to happen the way it happened. And this, of course, is the mistake that a great majority of historians make. Forgetting that, we don’t know at the time, at the moment, we didn’t know the morning of the 24th of February that Zelenskyy would stand his ground. Nobody knew that. I wonder if even Zelenskyy at that moment knew what it was that he was going to do.
Most Popular on Below the Line in Q4 2022
Poshmark Throws In The Towel, a look at how Apple’s ATT policy likely spurred Naver’s acquisition of Poshmark, generated the most new subscribers. Wayfair went public at $29 per share on October 2, 2014. On October 14, 2022, it closed at $28.52. Wayfair’s Lost Decade, which evaluates the company’s performance over this time period, got the most views. Diminishing Returns, which compared big tech headcount growth to revenue growth, was the shared piece. Thanks for sharing!
Past quarterly reviews: Q3 2022, Q2 2022, Q1 2022, Q4 2021, Q3 2021, Q2 2021, and Q1 2021.
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