Wednesday, May 27, 2020
Volume 1, Issue 23


In Today’s Issue:

  • 75th Anniversary of the End of World War II
  • Bundling as a Business Strategy
  • The Three Sides of Risk

To read last week’s newsletter please click here.


75th Anniversary of the End of World War II

Memorial Day carried a special significance this year as the world marks the 75th anniversary of the end of World War II. Germany surrendered on May 8, 1945 and Japan surrendered three months later on August 15. The bloodiest military conflict in history was finally over.

To mark the anniversary of the end of the war, I decided to read William Shirer’s epic 1,147 page tome, The Rise and Fall of the Third Reich. This became my primary reading project for the month of April, a task that could be broken down into reading approximately 40 pages per day, usually in the early morning hours. This book was all I had hoped it would be. It provided a sweeping view of Adolf Hitler’s rise to power, the horrific events of the war itself, and the decisions that doomed his campaign to eventual defeat. 

The problem with reading a book like Shirer’s is that one comes away from it still asking the unanswerable question of Why? We know what Hitler did, we know how he did it, and we know the racial animus and hatred that was the reason behind what he did, but what in the human condition creates monsters like Hitler in the first place and is there any sense we can make of it?

A book such as Shirer’s cannot be expected to fully answer such questions because they are questions of an existential nature beyond the scope of what a historian can possibly deliver. Additionally, Shirer’s treatment of the victims of the war was necessarily kept at a high level. We see statistics where there is a need to learn more about the individuals who lived through the worst of it.

Viktor Frankl’s time in four concentration camps, documented in Man’s Search for Meaning, provides the highly personal account that a book like Shirer’s necessarily lacks. However, Frankl’s book is more than one man’s personal account of emerging from a terrible ordeal. Frankl was a neurologist and psychiatrist prior to the war and continued development of his theory of Logotherapy while imprisoned. 

When I decided to read these books, it was not based on an intent to “review” them or even to mention them in this newsletter or on The Rational Walk. However, Memorial Day weekend provided an opportunity to reflect on the war and its aftermath so I posted a relatively long article on The Rational Walk yesterday which explores these topics in more depth.

Click here to read the article on The Rational Walk


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Bundling as a Business Strategy

Patrick O’Shaughnessy’s latest podcast is an interview with Shishir Mehrotra, an expert on the subject of bundling. There are many types of products and services that are commonly offered in bundled form, but the example that most people immediately think of is the much derided traditional cable bundle. Many attempts have been made to unbundle cable in recent years.

“Cord-cutters” have advocated the benefits of dropping the traditional cable bundle in favor of buying content à la carte, saving money in the process. The availability of internet services selling granular bits of content has made unbundling possible in many instances. However, is the move toward cord-cutting wise for the typical consumer in the long run?

Mehrotra worked at YouTube for many years and currently sits on the Spotify board of directors. In the interview, he discusses the “four myths of bundling”, providing compelling reasons to believe that bundling may deliver substantial benefits to consumers. The podcast references an article Mehrotra wrote, Four Myths of Bundling.  

Of course, the concept of bundling goes far beyond the cable bundle. Another famous bundle is Amazon Prime, a collection of services that has grown steadily over the years while its price to consumers, although higher than when it was initially introduced, has remained relatively reasonable in light of the value provided.

The concepts that Mehrotra discusses are fascinating, especially his take on serving “SuperFans” and “CasualFans” in a way that maximizes value. He also introduces a concept called “Marginal Churn Contribution” that he believes ought to govern how much revenue is distributed to providers. The following table from his article summarizes the four myths and four thesis statements responding to the myths.

It is rare to find content that causes you to rethink a fundamental business strategy such as bundling. Like many consumers, I had long viewed most examples of bundling negatively. Mehrotra’s interview and article have raised points that would lead me to evaluate business models involving bundling differently in the future.

Click here to listen to the podcast interview


The Three Sides of Risk

In The Three Sides of Risk, Morgan Housel relates a searingly personal account of a tragic ski accident that took the lives of two of his friends when they were teenagers. Housel’s view of the nature of risk was shaped by that event and it has influenced his degree of risk aversion in multiple facets of life.

Being cognizant of tail risks, also referred to as the risk of ruin, is critical because one often gets no second chance to recover. When dealing with life and death matters, extreme caution is warranted. Of course, the same is true for taking financial risks even though no financial ruin can compare to the loss of many decades for someone whose life was cut short at age seventeen.

Housel concludes his essay by tying what he has learned about risk to the current investing landscape:

In investing, the average consequences of risk make up most of the daily news headlines. But the tail-end consequences of risk – like pandemics, and depressions – are what make the pages of history books. They’re all that matter. They’re all you should focus on. We spent the last decade debating whether economic risk meant the Federal Reserve set interest rates at 0.25% or 0.5%. Then 36 million people lost their jobs in two months because of a virus. It’s absurd.

Tail-end events are all that matter.

Once you experience it, you’ll never think otherwise.

Click here to read The Three Sides of Risk


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75th Anniversary of WWII, Bundling Business Strategy, Three Sides of Risk
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