Category: Thoughts On Investing

Apparent Coherence — A Source of Large Investment Mistakes

Jackson Zhu1 Comment

Studying human psychology, market history, and my own investment mistakes, I have increasingly come to believe that “Apparent Coherence” is a source of large investment mistakes. Stories that are so apparently coherent that they lead us to nod instinctively in agreement — that is often how large investment mistakes are born. It is not that coherent investment ideas are necessarily bad, but in fact, the logic goes the other way around. It appears to me that apparent coherence usually drives large investment mistakes. Below is a diagram I drew to illustrate what I mean.

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The Invisible Path

Jackson Zhu1 Comment

I observe myself and my investment activities and outcomes. I also observe other active investors and their investment activities and outcomes (this was actually my full-time job before). Something I noticed perplexes me: Despite almost all active investment managers being highly educated, well trained, and extraordinarily hardworking, almost all of them (at least in the U.S.) end up underperforming stock indexes.

For example, for the past 20 years, over 97% of “Large-Cap Growth Funds” in the U.S. underperformed the S&P 500 Growth Index; and the longer the measurement time window, the higher the percentage of underperformance (source: link). According to another source, losing funds’ underperformance is about 2x the size of winning funds’ outperformance (source: Figuring It Out, Ellis). To put it differently: Most investors end up underperforming, and when they underperform, they underperform by a wide margin. Clearly, investors’ hard work has largely failed to translate into good results. Why?

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DoorDash 2023 Q2 Results — Being Underestimated

Jackson Zhu1 Comment

[I own DoorDash stocks and I may change my opinions anytime. This is not investment advice and please do your own due diligence.]

DoorDash announced its 2023 Q2 results earlier this month. All-time high monthly active users, all-time high order frequency, all-time high market shares in the U.S. and across many international markets — and, all these “all-time high” metrics are still growing. Across business lines, unit economics are also improving. The company’s bottom line, measured by Adjusted EBITDA, has almost tripled from a year ago.

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Defense, Defense, Defense

Jackson Zhu1 Comment

In an environment where almost no active investment managers can outperform U.S. stock indexes, “risk management” as a serious subject has morphed into something different. Being able to tell a risk management story well does not mean being able to invest well. Unfortunately, for managers who cannot outperform stock indexes (almost all managers!), shifting investors’ focus away from investment performance and focusing instead on telling a risk management story has become business critical — managers need something to say in investor meetings. However, sensible investors should understand that excellent investment performance naturally lends itself to excellent risk management, but telling an excellent risk management story means almost nothing as to an investor’s ability to invest.

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A Few Stocks.  A Few Days.  What Is Going On?

Jackson Zhu3 Comments

The U.S. stock market, as represented by key indexes, has produced solid returns for investors over the long run.  This fact has led many investors to conclude that 1) most stocks go up in the long run, and 2) buy-and-hold is a sure-fire strategy. 

I would like to argue that, while the initial observation of strong index performance is correct, those secondary conclusions are misleading and have serious implications for successful investing.

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My Thoughts on DoorDash’s 2023 Q1 Results

Jackson ZhuLeave a comment

[I own DoorDash stocks.  This is not investment advice.  Please do your own due diligence.]

Earlier this month, DoorDash announced its 2023 Q1 financial results, which are generally robust.  I would like to share several pertinent points arising from those latest results.

Profitable Total Addressable Market (TAM)

Not all TAMs are created equal.   Some TAMs are profitable.   Some TAMs are unprofitable.  The profitability of TAMs varies considerably and typically cannot be easily discerned — because in most times, companies’ presentations tend to paint a rosy picture.

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Rousseau and Insights For Modern Investors

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In recent weeks, I had the chance to study the philosophy of Jean-Jacques Rousseau through a course offered by the Yale Alumni College (YACOL), an Yale alumni-run organization with which I am actively involved.

As I studied Rousseau’s ideas, I began to recognize connections between his perspectives and my own thoughts on investing, ultimately inspiring me to share these insights in this post.

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My Reactions to DoorDash’s 2022 Q4 Earnings

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[I own DoorDash stocks.  This is not investment advice.  Please do your own due diligence.]

DoorDash impressed investors by its continued strength in consumer engagement.  It continues to demonstrate strong growth, gaining market shares in most of the markets it operates, both within and outside of the U.S.  But DoorDash’s growing losses have raised concerns among investors. 

“Under-earning” As A Strategy

In contrast to other delivery services that have recently driven up consumer fees to improve platform profitability, DoorDash consistently drives down consumer fees.  I track the consumer fees on DoorDash, using publicly available data and my own algorithm.  The resulting chart shows a clear trend:  as time passes, consumers pay less and less for each order they place on DoorDash. 

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