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Buffett’s big bet on Japan, explained

Big Hit Entertainment -- the parent company of South Korea’s massive boy band BTS -- went public yesterday with a value of >$4B. Collectively, the 7 band members are worth $50m+… which means they’re kind of getting screwed.According to Wikipedia, the mini-economy around BTS was responsible for 0.3% of South Korea’s economy in 2019 -- for perspective, that would be like Kanye adding ~$600B to the US economy (eh, maybe he does).

PLUS: The secret sauce behind TikTok’s algorithm.
September 29, 2020
The Hustle
Climate Pledge Friendly

Big Hit Entertainment — the parent company of South Korea’s massive boy band BTS — went public yesterday with a value of >$4B. Collectively, the 7 band members are worth $50m+… which means they’re kind of getting screwed.

According to Wikipedia, the mini-economy around BTS was responsible for 0.3% of South Korea’s economy in 2019 — for perspective, that would be like Kanye adding ~$600B to the US economy (eh, maybe he does).

The Big Idea

Why did Warren Buffett invest $6B+ in centuries-old Japanese trading houses?

One of Warren Buffett’s key rules is to invest in what you know or — as he calls it — the “circle of competence.”

For decades, Buffett avoided tech stocks because he didn’t understand them. To be sure, his 2016 bet on $AAPL and pre-IPO stake in $SNOW have paid off handsomely (let’s not talk about $IBM, though).

For many, Berkshire Hathaway stepped far out of its circle of competence when it invested $6.7B across 5 Japanese trading houses in August.

It’s Buffett’s biggest bet outside of America

The $510B Berkshire acquired 5% stakes each in Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo.

As highlighted by The Economist, Japanese trading houses are notoriously complicated.

Dating back to the 19th century, these de facto conglomerates have opaque shareholder structures and operate in dozens of unrelated businesses (mining, energy, convenience stores, cable providers, etc.).

Besides being hard to understand, the trading houses break 2 other Buffett investing maxims: reliable returns and business moats.

Their performances in recent years have been spotty, and the business lines for each trading house fiercely compete against one another.

Could it be a value play?

As a famed value investor, Buffett may have targeted these Japanese firms for their relative cheapness (AKA the market value is below the book value of the net assets).

However, one analyst tells The Economist the trading houses are cheap for a reason: Their complicated businesses increase the perception of risk.

The actual reasons could be long-term bullish for Japan

There are 2 other explanations for Buffett’s investment:

  • Japan has seen shareholder-friendly reforms in recent years, leading to better corporate governance, increased productivity, higher dividends, and stronger cash positions
  • The trading houses all have energy businesses, which dovetails with Buffett’s affinity for the industry (think Berkshire Hathaway Energy)

These bets can pay off if Japan’s new Prime Minister Yoshihide Suga continues his predecessor’s corporate reforms and if a post-COVID recovery drives the country’s energy demand.

A final aspect yet to be mentioned and firmly within Buffett’s “circle of competence”: Berkshire itself is a sprawling conglomerate.

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  • Amazon Prime Day will take place Oct. 13-14 this year, instead of the usual summer date. Analysts believe its closer proximity to Xmas will boost sales. #6-DChess
  • MSCHF joined forces with Otis for a new drop. This time, the art collective turned three medical bills into oil paintings and auctioned them to pay off the debt. BOOM!
  • Things you can learn about Quibi’s failure, including the company’s focus on traditional Hollywood talent (instead of more social-friendly influencers).
  • Halloween isn’t happening this year, but the candy lobby — via the National Confectioners Association — has convinced people to buy tons of candy anyway.
  • Beauty brand Estée Lauder is paying NASA $128k to bring its serum to space — all for a 4.5-hour photoshoot.
  • Bonus: While most of its mall-brand peers crash and burn, American Eagle is actually doing well, thanks to Gen Z.
How It Works

The secret sauce behind TikTok’s recommendation algorithm

Eugene Wei — a former product exec at Amazon and Oculus — has penned the most concise explanation of what makes TikTok tick (sorry).

His 2nd entry in a 3-part series on the video app is a must-read for anyone trying to understand TikTok’s recommendation engine (AKA the For Your Page [FYP]).

The secret?

An “algorithm-friendly” design.

Here are some key takeaways:

  1. TikTok’s actual machine learning (ML) recommendation algorithm isn’t out of the ordinary
  2. However, the data inputs into TikTok’s algorithm are differentiated and — all things equal — better data inputs create better algorithms
  3. To get the most valuable inputs possible for its algorithm, TikTok’s design is very unique: It is only one video at a time with a number of indicators as to whether or not the user likes it (length of viewing, re-watches, likes, comments, song choice, video subject, shares)
  4. Typically, UX design is meant to be user-friendly. However, to improve its algorithm, TikTok has made its product a bit less user-friendly (users scrolling through multiple pieces of content is a more frictionless experience than just a single video view)
  5. Eugene calls this product decision an “algorithm-friendly” design
  6. Compare this with a traditional social feed (Twitter, Facebook), both of which offer an endless scroll of content. The user inputs are less clear (“liking” something doesn’t transmit a ton of information)
  7. With such clear signals — whether positive or negative — TikTok can quickly understand a user’s preference and serve up more similar content
  8. This creates a tight feedback loop and kicks off the flywheel that continually improves TikTok’s recommendations and data inputs

P.S. If you prefer audio, listen to his explanation on the a16z podcast.

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This new Amazon program lets you shop for more sustainable products

Amazon just launched Climate Pledge Friendly – a new program that highlights products for customers that meet sustainability standards and help preserve the natural world.

Here’s how to shop more sustainably starting today:

  1. Visit Climate Pledge Friendly 
  2. Browse by category, including groceries, household goods, fashion, beauty, and even electronics
  3. Click the label on any of the 25,000+ items to learn more about what makes each product sustainable

The Climate Pledge Friendly label signifies that the products have one or more of 19 different sustainability certifications that help preserve the natural world, such as reducing the carbon footprint of shipments to customers.

Next time you shop, check for a sustainable version of the product first. Learn more here:

Climate Pledge Friendly →
Mask Up

The hottest campus job is ‘COVID influencer’

It’s a rough time to be in college PR.

For schools that have returned to in-person classes, every day seems to bring new headlines about COVID-19 outbreaks.

Colleges are terrified of a reputational nosedive. So some — like Temple University, the University of Missouri, and the University of Maryland — are paying or have plans to pay student influencers to encourage safety protocols on social media.

Influencers want to reach everyone

One Mizzou influencer, Caleb Poorman, reminds other students to use hand sanitizer and wear a mask on Instagram.

Other influencers are more focused on future applicants.

The popular Insta twins Brooklyn and Bailey have for years had a paid partnership with Baylor University to make the school look “cool” to high school students.

When the twins contracted the virus, they emphasized that Baylor has “taken every precaution, including mandating masks, requiring students to test negative before coming back to school, and many, many more precautions.”

But influencing for your college isn’t going to pay your tuition

At the University of Maryland, which plans to hire student influencers soon, one social post will be worth the equivalent of 15-30 minutes of work at the school’s hourly wage — meaning, probably, just a few dollars.

Other influencing salaries might be a notch higher. The University of Missouri gave an influencer marketing firm $10.3k to hire 6 students.

It’s not clear how much cash each student is getting, but it probably can’t top room-and-board charges.

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Show me the money →

So you think you can write?

2020 has been the year of many things, including the year where everyone (and their dogs) is creating an online publication. With so much competition, we’re looking to the experts to help us differentiate. That’s why, over the next few weeks, we’ll be bringing in two prolific writers for exclusive Q&As: Polina Marinova and David Perell

  • Polina is the writer of The Profile, a paid publication featuring the best long-form stories on people and companies in business, tech, and more. She’s also well-known for her work at Fortune magazine and will be sharing with us how to improve your content diet, how to build trust with your customer, and what reporters are looking for in stories.
  • David is the founder of Write of Passage, a course that has taught hundreds of successful writers, with numerous success stories like Packy McCormick. He’ll be talking about how to improve your ideas, the myths of writing education, how to build an audience, and much more!

By trying Trends today, you’ll get access to these two sessions and many more. You’ll also get access to a 5k word preview of our very own Steph Smith’s new book, Doing Content Right, along with a coupon code for Trends members.

Get access for $1 → JOBS

Global Head of SEO, Etsy:

Calling all crafty keyword kings and queens: Etsy needs your skills.

Business Development Manager, CodeScience:

This gig’ll have you developing and selling services to C-level clients on the Salesforce AppExchange. 

Diversity, Equity, and Inclusion Program Manager, Stripe:

Do you know how to foster community and empower people to advocate for organizational policy change? Stripe wants to chat.

Paid Media Strategist, SmartBug:

Does Bing make you sing? Can you go long on Amazon? You know what to do.

Technical Editor, Semaphore:

Word whiz needed to help software engineers write technical articles for the developer community.

See more →

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Today’s email was brought to you by Michael Waters, Caroline Dohack, and Trung Phan.
Editing by: Zachary “Circle of competence” Crockett, Mohammed Ahamana Hamana (Ralph Kramden Impersonator).

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