Client Portals

Week 10: Russia, Patience and The Future4 min read

Mar 9, 2022 - Max Osbon ( 5 mins to read)

Briefing: Managing risk for Russia & Ukraine | Patience pays when waiting for bear markets to end. | David Friedberg’s new product Cana has the potential to turn the beverage industry into a decentralized platform business.

Russia & Ukraine

Today marks two weeks into the Russian invasion of Ukraine. It’s been helpful to me to consider this under a framework of expectations. It appears that Russia’s military is vastly underperforming expectations while Ukraine’s is outperforming. Western unification against Russia’s attack is also exceeding expectations. Putin has thrown out the “nuclear” word, collectively startling the world. While the media is often portraying Putin as a crazy person, historical context can show us that Putin is acting rationally according to his primary goal of reestablishing the old USSR borders, including Ukraine. He is a risk-taker, and it’s clear that he bit off more than he can chew in this case

Putin’s power is defined by strength, which includes reminding the world that he has nuclear weapons. No one knows what will happen next. Still, it’s helpful not to let worst-case scenario thinking take over as there are many other scenarios to consider, including the positive ones. It’s not practical to protect investments against all potential cataclysmic events. You can always hold a certain amount of cash, gold and/or bitcoin for worst-case scenarios. The Ukraine invasion could end in days or decades, and it’s simply not possible to predict the outcome. Best practices for risk management include always having a buffer in place for periodic black swan events.

Patience

Markets are still in their downward trend for now. In recent articles, we’ve mentioned many times that valuations among leading innovation companies are getting very cheap by historical standards. It’s essential to be patient. Don’t buy on the way down. Wait for the numbers to flip back into an upward trend before you allocate. As the saying goes, don’t try to catch a falling knife. One day of performance up or down doesn’t make a trend, no matter how large the move. If you want to see examples of how to track the trend, we are happy to show you. With valuations this low and market fear high, the end of this trend has to be coming soon. You can be sure that we will highlight it when the trend reverses.

Decentralized beverages

Billionaire Silicon Valley veteran David Friedberg, nicknamed the Sultan of Science, is an impact investor focused on reinventing how we collectively harvest and consume resources at scale. To quote David, “The Industrial Revolutions generally did not develop radically new technologies, rather they simply scaled up ancient technologies.”

In 2018 David was inspired by a proof of concept study by the Technical University of Munich where researchers combined thirty-five base compounds to sufficiently simulate the taste and feel of a real glass of wine. Launched this year, Cana is a molecular beverage printer that aims to produce cold brew, wine, juice, seltzers on-premise. The machine accomplishes this by combining water, sugar, alcohol and flavor compounds. The implications are significant as it would decentralize production and reduce the environmental impact of production, bottling and transportation.

The current financial model puts the machine at $499, the cartridges are free, and each beverage costs a specific amount based on complexity. For example, a flavored seltzer would cost $.25, while a craft cocktail would cost $2.99. Cartridges ship automatically when they run low. The idea is that brand managers can launch beverages on Cana and earn a royalty on each sale, while each drink can be tailored to the user’s preference – a first in the beverage industry.

Technology is a deflationary force that continuously improves quality while reducing prices. I recommend reading the Philosophy page of David’s holding company. It’s a good overview of the collective successes, challenges, and opportunities we face today. I wanted to cover Cana not as an investment thesis but as an example of how our world will continue to innovate and evolve in surprising ways. It’s not a good time for skepticism and cynicism – see the Pessimists Archive. If Cana is successful, it will dramatically reduce the beverage industry’s complexity, cost, and overall environmental footprint. Given David’s track record and the proof of concept, I wouldn’t bet against this becoming a reality in the next few years.

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