16 | Investor Fears, Airline Economics, and Jenny Lee

Being enthusiastic is worth 25 IQ points


G’day! Issue #16. Keen to share what I’ve been reading, learning, and compressing. But first, I’ve been thinking lately about doing things that I may not be around to benefit from, so a quote from Carl Sagan to start:

There are a lot of things in society that only go one way. Socrates talks to us, we don’t talk to Socrates

Here’s the format of today’s email:

  • Part 1: Investor Fears

  • Part 2: Airline Economics

  • Part 3: Under the Spotlight: Jenny Lee

  • Part 4: Bonus Quirky Content - Something to Read, Watch, and Listen.

Investor Fears

What are the best investors scared of? What keeps them up at night? Talking about investor fears might give others comfort knowing they worry about similar things. My belief? If people much smarter than me are worried about certain things, chances are I should be too. This was a super hard topic to google. So if you have anything to add, hit me up on my Twitter, @ScarrottKalani.

Charlie Munger - Money Printer going Brrrr

I am so afraid of a democracy getting the idea that you can just print money to solve all problems. Eventually I know that will fail. […]
In the end, if you end up printing too much, you end up like Venezuela.
- Source: CNBC Interview

Howard Marks - Permanent Loss

I don’t think most investors fear volatility. In fact, I’ve never heard anyone say, ‘the prospective return isn’t high enough to warrant bearing all that volatility.’ What they fear is the possibility of permanent loss.


The possibility of permanent loss is the risk I worry about, Oaktree worry about and every practical investor I know worries about.

Seth Klarman

We are big fans of fear, and in investing it is clearly better to be scared than sorry.

Seth mentions doing productive vs unproductive worrying:

While we believe it is crucial to worry about what can go wrong, unproductive worrying will not and cannot make a difference. Worrying that your favorite team will lose is obviously unproductive. Worrying that you might have an ulcer could even prove counterproductive. Productive worrying, on the other hand, enables you to identify action that reduces or eliminates the source of concern, often at little or no cost. Concerned that it might rain? Pack a raincoat and umbrella. Worried you will be late? Leave earlier than originally planned.
- Source: Baupost’s 2004 Year End Letter

David Einhorn - The Death of Value Investing?

What if equity value has nothing to do with current or future profits and instead is derived from a company’s ability to be disruptive, to provide social change, or to advance new beneficial technologies, even when doing so results in current and future economic loss?
- Source: CNBC (Originally from one of Einhorn’s investor letters)

Phil Fisher

I can’t pinpoint exactly what Phil Fisher fears. But seems like he worries a lot. Ken Fisher (Phil’s son) mentions this about his father in the intro of Common Stocks and Uncommon Profits:

He could worry about anything. It made him feel safe in some way. It was as if he somehow believed if he worried enough, he would have covered all the risks and nothing bad could hap-pen to him. He would worry about the same things over and over and over.

In the garden, my father could sit and worry about all the things he cared about, and that made him feel better. It may well have contributed to why he made fewer investment mistakes than most investors do. He worried everything over until he had worried it to death. Maybe he had reduced risk that way. But that also may well have contributed to why he wasn’t richer than he was. He wasn’t willing to take risks on things for which he hadn’t worried the mistakes down to marginality. In that way, he was never a big risk taker, and those who get really rich take bigger calculated risks than he was ever willing to take.

Airline Economics

Thought I’d try something a little different and do a mini dive on an industry. This dive will be very brief, and not all-encompassing. I’m just highlighting and summarizing information that I found interesting and useful.

The Economics of Airline Class

Basically, the majority of revenue (around two-thirds) comes from the minority of passengers (those in premium economy, business and first-class).

More and more airlines are taking out their first class to just put in more business class, it just makes more money. If an airline could fill an plane full of business-class passengers it would--its been tried--but pretty much no route has the premium demand to fill a plane-full of business class. Everyone in economy, in the end, is just there to fill the plane.

Hub-and-Spoke vs Point-to-Point1

Hub-and-Spoke Advantages? Going Anywhere to everywhere

  1. Able to serve a network with the fewest number of routes (and the fewest number of aircraft), so therefore can offer the greatest number of flights and more convenient schedules.

  2. Competitive advantage from being able to serve many cities of varying sizes.

  3. Adding a new city only requires one additional route but potentially can provide access to every city in the network.

  4. Major carriers can dominate operations at their hub cities, creating a barrier of entry for new entrants.

Hub-and-Spoke Disadvantages? The Cost and Complexity

  1. At hubs, extensive facilities and substantial personnel are needed to accommodate connecting passengers.

  2. Connections at the hub incur additional takeoff and landing fees and facility charges.

  3. Cites vary greatly in size and demand, so the carrier needs several aircraft models to match capacity to traffic, which makes aircraft and crew scheduling more difficult.

  4. Highly susceptible to delays, which can propagate quickly through the network.

Point-to-Point Advantages? Fast and Cheap

  1. Non-stop flights are the least expensive means to serve markets where demand is sufficient to support mainline aircraft.

  2. Eliminating connecting stop provides an average savings of about 30%.

  3. Reduces total travel time for passengers.

  4. Aircraft turnaround times can be minimized, allowing increased aircraft utilization.

Point-to-Point Disadvantages? Limited to the largest markets

  1. Limited to the number of city pairs that can be economically operated.

  2. Only the biggest markets generate enough traffic to support a non-stop service, and these tend to be the most competitive.

  3. Margins in the largest markets tend to be low given the high levels of competition.

  4. It is harder to match capacity with changes in demand than in a hub-and-spoke system where a carrier can offset a drop in demand in one city pair with higher demand in others.

Future of the Airline Industry 2035 [Link]

Found this section in the report timely. Insert iCarly interesting meme.

Implications: Airlines may be asked to take on more responsibility for monitoring and mitigating the spread of pandemics, despite the fact that responsibility usually lies with governments. The industry may benefit from working with WHO to ensure governments are aware of their role in pandemic response. The role of airlines as a strategic asset supporting governments’ public health objectives for both detection and containment of diseases could also be highlighted.

Under the Spotlight: Jenny Lee

Each week I provide a little spotlight on an investor or operator I admire.
Jenny Lee is this weeks focus, in a nutshell:

  • Born in Singapore to a schoolteacher father and a stay at home mother.

  • Grows up in Singapore. Studies at Cornell in the US. Goes back to Singapore as an electrical engineer in the electronic warfare division of Singapore Technologies Aerospace (Essentially a jet engineer for four-and-a-half years).

  • Then Jenny packs up and heads to China. She had no relationships there, no friends there, and limited mandarin. Now? Jenny is now a leading VC based in Shanghai.

Being a VC in China [Link] [Apple Link]

I think that not being born in China, not having grown up in China, really gave me a healthy respect for the country, for the people, from day one. You go in fighting, you go in scared, knowing that you are starting at ground zero, at the base.

I think what that does is allows me to be very open to the people that I am meeting, to constantly be learning about what’s new, what’s normal, what’s local. To always have respect for the people around me, because any one of them can be a teacher, whether it’s in a certain trend, whether it is in a specific area as simple as hiring. How do you hire in China? How do you set up a company in China? How do you talk to entrepreneurs while he is smoking in your face?

Those are all the different local situations that we have to deal with. But having an open mind, going in knowing that there is only upside, because that’s what you’re learning. Knowing that you don’t have guanxi (关系) and so there’s really nothing that you can rely on your back end means that you have to work harder. You have to work a longer time. You just have to make yourself better compared to everybody else.

Interesting comparison of due diligence in the US vs. China. Dollar Bill Stearn’s secret family wouldn’t even last a week in China!

So I think that here when we think about VCs doing due diligence, it’s financial due diligence, business due diligence, maybe some technical diligence, and of course legal due diligence. You will have other third-party consultants and advisors to come in and give it a second look.

In China though, we’ve had very interesting due diligence techniques that we may have to develop. [..] most of the entrepreneurs we meet, they are first-time entrepreneurs. There’s really no one to ask how they did in their previous job, there are no references that you can get.

And so early days, I actually hired private investigators for some of our portfolio companies. And it’s interesting, because you don’t really do that here in the U.S. anymore. And so we actually worked with third-party investigators to look through the records of entrepreneurs, to see if they have violated any laws, and in the process some of the reports we found out, we actually found out interesting things like he has a second wife or third wife, multiple properties.

Also, these working hours and lifestyle mentioned by Hans Tung (@hanstung) on the podcast are too crazy not to include.

I think China is just super competitive. Talking about our podcast called 996, 9 a.m. to 9 p.m. six days a week, but as a VC, it pretty much is 007, 12 a.m. to 12 a.m., seven days a week, always thinking about work, always thinking about how to win and if needed, go to an entrepreneur’s office, don’t leave until he or she signs on the term sheet or the dotted line. Some people will wire money before the term sheet is signed, just to make sure they lock up the deal. That kind of crazy stuff would never work in the U.S., but in China it’s what it takes to get stuff done.

Unicorn Traits [Link]

This interview is a goldmine of thoughts on Jenny Lee’s investment process, thoughts on a range of topics, and advice for others.

Characteristics of Unicorns?

  1. Great founder-product-market fit.

  2. Driven by CEO and founders who can clearly articulate [their] vision, passion and unique advantage.

  3. Great founder-VC fit; small startups need to accumulate the right ecosystem network from Day 1, leveraging the right angels/investor resources is key.

  4. Founders who are open to listening, learning and adapting to market conditions.

On how Lee makes investment decisions:

I remind myself daily to “suspend disbelief” and listen carefully to the founder, to changing consumer and market needs and to view the world from the target customers’ perspective, not mine.
I educate myself on all interesting new technologies across different disciplines, different industries. The best disruption comes from cross-discipline innovation.
I look beyond current market sizes, shut out other VC hot areas to avoid being unduly influenced and extrapolate if the startup being pitched has a chance to be a “moonshot” success. 
I determine if this is the CEO I can work with for the next 10 years.
Final investment decisions are made after they pass the “brain-test” (qualitative due diligence like the market, tech, returns analysis) AND the “heart” test, which means chemistry with CEO, the CEO’s passion, my conviction around their business etc.

Trends to be excited about:

  1. Startups leveraging AI and machine learning algorithms to model and personalize large datasets in verticals like education, finance, healthcare, business processes, retail/e-commerce.

  2. Startups leveraging data online to deliver better services offline– more integrated online and offline services, particularly in the retail storefront areas.

  3. Startups with cross-border models, leveraging learnings from one region expanding to the next, eg, Exporting successful business models from China to Southeast Asia, from the US to South America or Europe.

  4. New disruptive products and services made possible by computer vision, robotics automation and integration of machines with a human – the sci-fi stuff.

I love Jenny’s thoughts on expanding your horizons and being multi-disciplinary

My advice to entrepreneurs is to expand your horizon and challenge yourself to read something different from your usual reading list.

The best ideas come from outside your industry, the best inspirations from people you don’t usually hang out with.The best biographies are from experts in other sectors. If you are a nonfiction reader, pick up a book that is sci-fi or fantasy. If you are a tech reader, pick up a book that is about genetics or healthcare. If you are in the enterprise space, read about innovation and new monetization models in the consumer space. If you are a startup in e-commerce, learn all about online gaming and social apps.

I think a nice way to tie this up is with the below quote. But remember, be interesting by being interested!

Lastly, before you become a great investor or a great entrepreneur, first become an interesting and thoughtful person that people want to spend time with and work with. It’s what makes us different from the bots.

Bonus Quirky Content

Something to read: 68 Bits of Unsolicited Advice [Link]

*Spoiler Alert* Here are 6 of my favourite bits of advice

  1. Don’t be afraid to ask a question that may sound stupid because 99% of the time everyone else is thinking of the same question and is too embarrassed to ask it.

  2. A worthy goal for a year is to learn enough about a subject so that you can’t believe how ignorant you were a year earlier.

  3. Gratitude will unlock all other virtues and is something you can get better at.

  4. Following your bliss is a recipe for paralysis if you don’t know what you are passionate about. A better motto for most youth is “master something, anything”. Through mastery of one thing, you can drift towards extensions of that mastery that bring you more joy, and eventually discover where your bliss is.

  5. Being enthusiastic is worth 25 IQ points.

Something to watch: How To Be Creative: How an Artist Turns Pro [12 mins] [Link]

Resistance can be helpful. Resistance points us to our true calling. It can be felt when we fear starting a creative project. This fear means that it is something we need to do. Something we have a deep love for. If you didn’t love a project that’s terrifying you, you wouldn’t feel anything at all.

The more resistance you feel towards a project, the more fulfilled you will be when you finish it.
Resistance always points us to our true north.

There’s a quote from Steven Pressfield which I really liked in the video:

The amateur waits for inspiration; the professional knows that it will come after he starts.

and further along:

An amateur dreams of stardom and glory.
The professional has no use for this. He knows that success is merely a byproduct of work. He does the work and lets the rewards come or not come as they may. By doing this the pro avoids dissapointment.

Something to listen to: Listen to Wikipedia [Link]

Something different again. Listen to the sound of Wikipedia's recent changes feed. You see which articles are edited and can click through to read them. Talk about serendipity!

Bells indicate additions and string plucks indicate subtractions. Pitch changes according to the size of the edit; the larger the edit, the deeper the note.

Final thought for the week:

Until this time next week, have a good one!
- Kalani

You can find previous issues of Curated by Kalani here. I’m on the web at kscarrott.com and on Twitter @scarrottkalani.

Liked this post? Why not sign up.


The Hub-and-Spoke vs Point-to-Point topic was largely pulled from Bank of America’s US Airlines primer from 2018. If you can’t find a copy online hit me up and I might be able to point you in the right direction.