When people ask me what I do for work I always find that I need to force myself to be mindful of how I answer because that answer might open or close doors.

I’ve learned to be more honest with how I answer, revealing where I am and what I’m striving for, altogether:

“I currently work in the logistics space, but I’m focused on two portfolios of work: I’m working on standing up a private equity business of my own, but because I lack experience in finance I’m also running a research-based financial media project called Self-Taught MBA, where I’m mastering skills and topics that top capital allocators possess, and I test my understanding of those ideas by writing about them and sharing them in the form of letters to investors.”

That’s almost always my answer word-for-word.

Whenever I answer that way I get a blank stare, with a subtle nod of bewilderment, making me feel like an alien. Nevertheless, I understand what I’m doing, and it makes sense to me at my core, and the fruits of this effort will pay off soon.

The most important lesson I’ve learned in 2025, and continue to reflect on, is that while making something of yourself is hard, it’s also painful, but it’s important to wear that pain as a badge of honour. In a world where nobody is excited about anything anymore, I’m grateful that I get to wake up and think about Self-Taught MBA. I’m far from perfect, but believe me when I tell you that I work hard, I take shit, and have a high pain tolerance. Of course I complain about things as we all do, but I’ll never make a decision that will force the people that care about me to pick up the pieces of my inability to persevere through tough situations.

Don’t quit that job with no prospects because you hate your boss, don’t start a fight with a stranger in the streets. Men, don’t get aggressive towards a lady because you feel emasculated. Ladies; don’t throw shade at another lady because she carries herself with more self-respect than you do. These types of negative reactions attract terrible karma to your life.

Another realisation I came to is that there are too few good people out there. A good person is someone who makes the right choices even when it’s extremely difficult, and even if it might get you in trouble according to the standard societal expectations. A good person makes their loved ones feel safe. A good person wants to make a positive impact on someone’s life even if it is an inconvenience in their own life. A good person is someone who chooses to take shit and bear pain now, in pursuit of a bigger goal. A good person also doesn’t drag down the people that love them by giving up when things are hard.

Choosing to be good is hard, that’s why in the truest sense of the word, good people are few and far between.

My emotional rants are now done. Let’s talk about business…

What happened in 2025?

Let’s start with an update about Self-Taught MBA:

In 2025 my subscribers on the primary Substack platform grew more than 100% and crossed over 100 for the first time since starting this effort in 2021 – an effort I started from the bottom with zero skill or background related to writing, research, business and economic analysis. Thank you to all the existing supporters who’ve been there for a couple of years now, and thank you to new supporters.

According to Grok, the average open rate for content similar to mine should be between 40% and 50% for competitive newsletters.

The average open rate for letters to investors from Self-Taught MBA averaged 41% in 2025.

In June I started a podcast so that I can make more friends that care about similar things that I care about. It’s only been 6 months so it would be premature to report any statistics at this stage.

Early in 2025, two very high level capital allocators were gracious enough to write a guest post each for Self-Taught MBA. To me that was a huge vote of support for what I’m trying to achieve, and I’m grateful to Ross and Sakhile for those posts.

(Items 1 & 2 in the appendix).

Towards the end of the year I added a paid membership tier for Self-Taught MBA on a platform called Patreon. Although the free newsletter on Substack (where you’re reading this now) is not going anywhere, I’m excited about what I’ll be able to do on Patreon, starting with sharing high quality deep dives and investment information for selected insiders.

Here’s a link to the Self-Taught MBA Patreon account: Self-Taught MBA.

In 2026 I’ll parlay all my bets on Self-Taught MBA. Better content, more relationships, and levelling up for my career.

Over the long term my efforts will morph into standing up a capital allocation vehicle in line with the patterns and ideas that I see, and would like to see exist in the world.

But first, I must be great at pattern recognition.

Pattern Recognition

Two ideas that all of the great capital allocators compete on is who is better at pattern recognition, and then who can determine the best way to capitalise on that pattern. An example is how in 2022 Stan Druckenmiller realised that because AI investment into infrastructure and startups was beginning to heat up, the best way to capitalise on that pattern was to buy shares of Nvidia because Nvidia controls close to 80% of the global market for AI semiconductor infrastructure.

Throughout 2025 I was also able to identify a few ideas and companies that I thought were ripe to outperform given where the world was going. What’s the latest on those?

Coinbase

In 2025, Coinbase achieved several landmark milestones that solidified its position as a leading digital asset exchange and broadened its appeal to investors. The company joined the S&P 500 in May, marking a significant validation of crypto’s integration into traditional finance.

Coinbase reported robust financial performance, including $1.9 billion in Q3 revenue and $433 million in profit, driven by stablecoin yields and diversification beyond trading.

Coinbase also expanded globally through key acquisitions, regulatory wins in Europe, and the launch of innovative products like tokenised stocks, aiming to create an “everything exchange.”

(Item 3: Coinbase memo in the appendix)

Bitcoin

Bitcoin continued its maturation as an inflation hedge asset. The price of bitcoin reached a record $126,000 per bitcoin, contributing to the total digital asset market capitalisation exceeding $4 trillion for the first time, with Bitcoin maintaining over half of that dominance despite a volatile October crash that saw it dip to $84,000, triggering billions of dollars in liquidations. However, the game is long, right?

On the regulatory side, the U.S. established a Strategic Bitcoin Reserve through President Trump’s March Executive Order and the proposed BITCOIN Act, aiming to hold 5% of Bitcoin’s supply as a sovereign asset.

Digital assets continued to receive regulatory support through the GENIUS Act passed in the U.S. to create a federal stablecoin framework, alongside the CLARITY Act.

In light of the regulatory clarity, institutional interest surged, with exchange-traded products (ETPs) amassing over $175 billion in Bitcoin and Ethereum holdings – a 169% increase from January 2024 – while 172 publicly traded companies adopted Bitcoin as a treasury asset, collectively controlling about 4% of its circulating supply.

Back in South Africa, Altvest Capital, a multi-million rand private investment firm officially launched its rebrand to Africa Bitcoin Corporation, listing on the JSE and the Namibia Stock Exchange, creating Africa’s first bitcoin treasury company.

(Item 4 in the appendix)

Now before we continue, I’d be remiss not to explain why digital assets like bitcoin, crypto currencies, stablecoins, and the infrastructure that they operate on are seminal.

We’re heading into a new way of life that revolves around autonomous activity and transactions. Autonomous vehicles, artificial intelligence chatbots and other execution models. The base layer of this autonomy is digital and internet-native. This means that all transaction settlements will also need to be digital and internet-native – which is where bitcoin and digital assets come in.

We instruct models to conduct activities for us (drive for us, do our research, connect dots for us, perform other work for us, and eventually, settle transactions for us). Once that activity has reached a seamless state, where we don’t need to intervene as much, we would have entered my interpretation of what’s referred to as the Singularity. In its simplest form, removing the woohaa around it, the Singularity is where autonomous systems function in the world with little to no human intervention.

During this journey and especially when we can all agree we’re firmly in this new way of life, the best way to capitalise on this for investors is to support the exchanges that are most trusted by institutions and retail participators (Coinbase is leading the pack here), and be a part of the most trusted monetary system used to preserve wealth (bitcoin). The rails used to settle transactions and maintain records will also be intertwined with the most trusted service and platform provider (Coinbase).

MP Materials

Earlier in 2025 I talked about how rare earth element producer MP Materials was going to be one of the biggest winners from the U.S. policy shift towards nationalism. (Item 5 in the appendix).

MP Materials kicked off with a strong first quarter, achieving record Neodymium Praseodymium (NdPr) oxide production of 563 metric tons, which was a 36% sequential increase, while revenue climbed 25% year-over-year to $60.8 million. This momentum continued into the third quarter with another NdPr record at 721 metric tons (up 51% year-over-year) and the second-highest quarterly rare earth oxide output at 13,254 metric tons. This against the backdrop of increasing Chinese hostility towards global markets with respect to rare earth exports, noting China’s 90% market stranglehold on rare earth elements.

Understanding this pattern, in July the U.S. Department of Defense announced a multibillion-dollar public-private partnership with MP Materials, aimed at accelerating domestic rare earth magnet production and reducing reliance on foreign supplies, which closed shortly after and fuelled an 85% stock surge that month alone. Overall, MP’s shares rallied nearly 250% for the year.

On the operational front, the firm advanced its magnetics initiatives, highlighting progress in heavy rare earth separation and gearing up for commercial-scale permanent magnet production that’s set to take off early in 2026, targeting an initial annual capacity of ~1,000 metric tons of permanent magnets to support clean energy and defense applications.

Renergen

In 2025 I also made investors aware of how a company based in South Africa named Renergen had the makings of a national champion. (Item 6 in the appendix)

Renergen Limited, listed on the Johannesburg Stock Exchange (JSE: REN) and Australian Securities Exchange (ASX: RLT), is South Africa’s sole onshore producer of liquefied natural gas (LNG) and liquid helium. Operating through its flagship Virginia Gas Project in the Free State, Renergen taps into the Witwatersrand Supergroup – a geological minerals formation packed with high-purity methane (over 90%) and reportedly one of the world’s largest onshore helium reserves. This dual-resource play sets Renergen apart – making the company a key supplier of clean energy as well as a key supplier of a critical material that is in high global demand (liquid helium).

In 2025 Renergen successfully completed its first commercial sale of liquid helium (LHe), officially making South Africa one of only eight countries globally with this capability.

On the corporate front, the year culminated in a definitive merger with Nasdaq-listed ASP Isotopes (ASPI); receiving full regulatory approval by the end of December. Additionally, LNG production soared by 70% year-on-year. The merger with ASPI will propel Renergen definitively into national champion status especially if additional policy support is received from the national sphere of influence. This would go a long way to providing LNG as an additional clean source of energy for South Africa, and would put South Africa firmly in the conversation on the technological front through Renergen’s liquid helium supplies.

A Glitch in the Matrix

We’re heading into a long overdue era of hyper individualism in South Africa. A period where it’s becoming more apparent to young Millennials and Gen Z’s that to make it in this climate, really anywhere in the world, you need to be unique and not rely on or be shaped in any way by South Africa’s political traumas.

Overall, we’re seeing fatigue for race-based and survivalist rhetoric, and more enthusiasm for growth and returns.

This is evident in the loss of political influence for the historically popular African National Congress (ANC) political party — a political party which has continued to show incompetence and inability to drive economic growth and improve the lives of consumers. A lot of this party’s rhetoric is unfortunately out of touch with how younger South Africans are feeling. I expect that the fragmentation of political power and influence will continue through the local elections in 2026.

Additionally, young millennials that were born near or at the end of apartheid are at a crossroads — continue supporting divisive politics or start to drive economic empowerment movements, in the tone of hyper individualism with the aim of creating a capable, entrepreneurial and ambitious collective culture for all South Africans.

I would urge this group to pick their values carefully.

The reason being that there is approximately R6 trillion in retirement fund assets in South Africa, representing a significant potential multi-trillion rand intergenerational wealth transfer currently underway. Traditional business owners who accumulated assets over decades prior to 1994, along with those who benefited from Black Economic Empowerment (BEE) policies and gained access to asset-building opportunities following the democratic transition, are now entering a consolidation phase in their lives. This stage emphasises wealth preservation, with the goal of maximising the assets passed on to heirs as the post-apartheid economic era (1994–2024) concludes its primary growth and accumulation cycle.

Who will inherit this wealth? If it falls to younger South Africans who remain entrenched in race-based ideologies shaped by the nation’s historical political traumas, South Africa’s progress could be severely undermined. Such mindsets often prioritise division and resource extraction over constructive development, yet with limited resources left to extract, the focus must now turn to building, innovation, and empowerment through individual initiative – what can be described as a true growth-oriented approach.

Conversely, if the wealth is inherited by those with a growth-oriented mindset, they must be equipped and ready to identify emerging economic patterns and allocate capital strategically to drive sustainable development and innovation in South Africa.

Closing note…

It’s very freeing to finally accept who you are and that you’re different. Freeing, but it can be lonely. That loneliness sadly compels most people to give up and melt into their surrounding environment — then they start to behave like someone else. When that happens, you’ve lost your way, and deep down you know you’ve lost your way but somehow can’t seem to pinpoint what the hell is going on with you. For those that can’t make it out, that confusion manifests in a string of self destructive behaviour. For those that can make it out, it feels like glory.

I can say this because I’ve been there. And I feel that I made it out of that gutter.

How did I make it out?

This excerpt from Jeff Bezos’s last annual shareholder letter in 2020 is how I try to live my life every day, since the day I first read it in 2020:

“In what ways does the world pull at you in an attempt to make you normal? How much work does it take to maintain your distinctiveness? To keep alive the thing or things that make you special?

We all know that distinctiveness – originality – is valuable. We are all taught to “be yourself.” What I’m really asking you to do is to embrace and be realistic about how much energy it takes to maintain that distinctiveness. The world wants you to be typical – in a thousand ways, it pulls at you. Don’t let it happen.

You have to pay a price for your distinctiveness, and it’s worth it. The fairy tale version of “be yourself” is that all the pain stops as soon as you allow your distinctiveness to shine. That version is misleading. Being yourself is worth it, but don’t expect it to be easy or free. You’ll have to put energy into it continuously.”

Very few people in life can endure that pain to maintain that distinctiveness. You will recognise who those people are when you meet them. Don’t ridicule them; keep them close and support them.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Wishing you all a prosperous 2026!

- Mansa Wandile Sithole

Founder and Chief, Self-Taught MBA

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Appendix

Item 1:

Item 2:

Item 3:

Item 4:

Item 5:

Item 6:

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The Democratic Republic of Congo (DRC), which supplies ~75% of global cobalt according to the US geological survey, may be scoring an own goal as they persist with aggressive export controls on cobalt.

Facing a 2024 oversupply glut that drove prices from over $80 000 a ton to near 10-year lows at around $21 000 a ton, the DRC imposed an export ban on cobalt starting in February this year – initially 4 months, and ended up extending the export ban twice to ~8 months total.

This OPEC-style supply control raised cobalt prices by 67% into March this year, and prices have continued to rise, now reaching $48 000 a ton.

In September the DRCs minerals regulator, ARECOMS, decided to end the complete export ban, in favour of annual quotas.

For Q4 2024 the amount of cobalt that can be shipped out of the DRC was set at 18125 MT.

The quota for 2026 - 2027 is 96 000 MT/year. This is well below the 220 000+ MT exported from the DRC in 2024.

So the plan seems to have worked (maybe).

Today, the largest end-use of cobalt – accounting for more than half of global demand – is the electric vehicle battery sector.

DRC regulators felt the country wasn’t capturing the perceived true value of cobalt amid rising demand for cobalt used in Nickel-Cobalt-Manganese (NCM) and Nickel-Cobalt-Aluminium (NCA) electric vehicle battery chemistries. Export controls reduce supply, and raise prices – a perfect short-term fix.

However this isn’t the oil markets circa early 2000s.

A battery chemistry consisting of Lithium, Iron ,and Phosphate (LFP) is also prevalent in the electric vehicle industry.

According to Grok, the world’s leading electric vehicle (EV) producers, Tesla and BYD, are aggressively investing on internal LFP-based battery manufacturing capabilities, moving away from cobalt entirely, with Tesla’s proprietary LFP and BYD’s Blade Battery containing zero cobalt in the cathode.

This move eliminates cobalt for three primary reasons: 1) cobalt is expensive and subject to severe price volatility (peaking close to $90,000/ton in 2022), 2) its mining is concentrated in the politically unstable Democratic Republic of Congo (∼75% of global supply) and is frequently linked to human-rights abuses including child labor, and 3) cobalt-free LFP chemistries now deliver competitive energy density, dramatically better thermal safety, and far longer cycle life than older battery generations of cobalt-containing NMC or NCA formulations.

By removing cobalt, Tesla and BYD achieve lower and more predictable cell costs, reduced supply-chain risk, improved ESG credentials, and batteries that can be charged to 100% daily without significant degradation, making LFP the chemistry of choice for mass-market, high-volume EVs.

Now I’m not a battery expert and while I’m still learning to recognise technological patterns, history suggests that when tech-heavy companies repeatedly disrupt established norms — whether it’s Apple with smartphones, Hitachi or Kawasaki Heavy Industries with high-speed rail, or Waymo with autonomous vehicles — truly transformative shifts often follow.

When two of the most influential and well-capitalised players in the electric vehicle space (Tesla and BYD) are collectively committing tens of billions of dollars to expand LFP (lithium iron phosphate) production capacity, it is reasonable to interpret this as more than short-term cost optimisation. It signals a strong industry bet that LFP is poised to become the new mainstream chemistry for EV batteries.

This potential transition would mark a significant departure from today’s heavy reliance on nickel- and cobalt-based chemistries (NMC, NCA), primarily because, for reasons mentioned earlier, LFP chemistry appears to offer superior benefits for mass scale EV producers. If production scale and energy-density improvements continue, LFP could reset the default standard for a large portion of the global EV battery market over the next 5-10 years.

And that is the DRC’s own goal.

Instead of projecting strength through willingness to work with global partners, the technologically competent players have grown tired of the same political and supply chain risks, and these recent cobalt bans (now export quotas) may be the last straw for the DRC.

It will take time to be able to tell who’s right and to allow market trends to play out, but this will be interesting to watch unfold.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great weekend

-Mansa

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South Africa’s Credit Rating Is Up. Here’s Why You Should Care 👇🏾

I created a quick video to update you that South Africa’s government bonds received a quality upgrade from global ratings agency S&P, and why that matters to investors and to all South Africans.

My Youtube is up and I’m excited to be expanding and adding more awesome content. Please subscribe to my page above and like and share!

Over the past 5-10 years we’ve seen a lot of strategic mergers and acquisitions in the logistics and warehousing space. I think there’s something deeper at play.

A logistics and warehousing company is an intermediary services provider, meaning the companies generally don’t own the intellectual property driving revenue. They acquire services from another provider, sell to a client, then live off of the difference. This is a business that, if not run well, falls prey to a race to the bottom.

Let’s consider a few examples of some of the most recent strategic mergers and acquisitions in the space:

MSC Group acquired Bolloré Africa Logistics for $6.3 billion in December 2022, bolstering its end-to-end supply chain presence across Africa including key South African ports.

DP World acquired Imperial Logistics for R22.3 billion, completed in February 2022, marking a massive entry into South Africa’s integrated logistics market with port-to-door services.

Fr. Meyer’s Sohn (FMS) acquired GAC Laser International Logistics in July 2025, expanding the German firm’s multimodal freight forwarding footprint in South Africa.

A consortium led by Africa Infrastructure Investment Managers (AIIM) acquired 74% of The Logistics Group for R1.6 billion (~$110 million) in March 2022, enhancing Southern African road, rail, and port logistics capacity.

AIIM (via Commercial Cold Holdings) acquired 100% of Sequence Logistics (date closed circa 2024), adding 46,000 pallets of temperature-controlled warehousing and distribution across Johannesburg, Cape Town, and Durban facilities.

Kuehne + Nagel acquired Morgan Cargo in June 2023, strengthening its air and ocean freight forwarding operations in Johannesburg.

Kerry Logistics Network acquired S.A.S. Freight International’s air and ocean entities in 2018, expanding freight forwarding services throughout South Africa.

Vanguard Logistics Services acquired International Liner Agencies (ILA) in January 2016, adding NVOCC offices in Johannesburg, Durban, and Cape Town to its global network.

Commercial Cold Holdings (AIIM) acquired CCS Logistics in 2022, its first step in building a temperature-controlled warehousing platform in South Africa and Namibia.

So what do I mean when I mention a race to the bottom?

Let’s use battery maker Panasonic as a simple example.

For Panasonic to produce batteries the company needs to source refined raw material commodities including cobalt from suppliers.

In this example let’s say that Glencore is able to supply unrefined cobalt to Panasonic, through a refinery based in China, but there are a lot of moving parts in that process. If Glencore wants to move cobalt from a mine in the DRC, the typical flow would be as per the illustration below:

Then you would consider who is providing the truck transportation services, who is doing the customs clearances as the cargo moves from the DRC, through Zambia, through Zimbabwe, and finally into South Africa? When in South Africa, the cargo needs to then be stored in a warehouse (Which warehouse will store the cargo?; Which agent will provide the customs clearances?) before being shipped via ocean transport to China for refining.

So in our example, let’s say a well-known logistics company named C. Steinweg Bridge (Bridge) has a relationship with Glencore and is willing to assist with moving this cobalt.

Bridge doesn’t own trucks but can request trucks from ABC Trucking to transport the cargo. Bridge will charge Glencore for the transport service, and pay ABC Trucking for that service. Bridge pockets the difference.

Bridge is also a licensed customs clearing broker and offers that service to Glencore as the cargo moves through different countries.

Bridge then offers to store Glencore’s cobalt in one of Bridge’s warehouses in South Africa, which Bridge is currently renting from an industrial park property owner.

Once ready, Bridge will request an ocean cargo carrier like Maersk or MSC, to assist with shipping the cobalt from South Africa to China.

Notice that during this whole process, Bridge is providing intermediary services and they don’t own any of the assets used to move and store the cobalt. Nor are they offering any services that have huge barriers to entry to create any competitive advantages.

The problem is that there are a number of companies like Bridge. Because most of these logistics and warehousing businesses offer similar services, they end up competing mostly on price alone, to maintain and hopefully attract more clients. But you can’t lower your prices forever because you’ll run yourself out of business — and that’s the race to the bottom. So the logistics company needs to avoid this race to the bottom by tapping into more of the supply chain though three avenues:

1. Consolidation:

   • Commercial Cold Holdings acquires Sequence Logistics to consolidate market share in the logistics and cold-storage space by eliminating competition.

2. Strategic merger/bolt-on transaction

   • An ocean freight carrier like MSC acquires a logistics and warehousing business like Bolloré to offer traders a vertically integrated shipping solution.

3. Revenue diversification

• C. Steinweg Bridge offers the following services:

  • Ocean freight shipping agent

  • Stevedoring/Terminal Operations

  • Value added services (Sorting, crushing, cleaning, blending, etc)

  • Warehousing solutions

  • Rail operations

  • Freight transportation via trucking

• Grindrod offers the following services, among many others:

  • Ocean freight shipping agent

  • Warehousing solutions

  • Rail operations

  • Freight transportation via trucking

  • Port operations

If you wanted to enter the logistics and warehousing space as a new company, it would be extremely difficult to compete because the industry runs mostly on relationships. Once you bag a commercial contract with a commodity trader like Glencore or Trafigura, and have them agree to allocate a majority of their cargo logistics needs to your business, it’s generally difficult to lose that allocation as long as the quality of service is maintained and continues to improve. However the threat to lose that allocation remains as the trader will always remind you that other players in the market have lower rates than you, which forces you to play into the race to the bottom.

However, because production at mines and manufacturing facilities is growing globally, there continues to be more demand for capacity like additional warehousing space or more transportation services via truck, rail, or sea shipping. Because of this growing demand more money is entering the logistics and warehousing space. For example Adenia Partners acquired Courier Guy in March 2024, to consolidate last-mile delivery and e-commerce logistics in South Africa, and Africa Infrastructure Investment Managers continues to pour billions into the logistics space to box out competition (see above examples).

So for existing companies to protect their client base, some are attempting to offer a vertically integrated solution (mine, to warehouse, to ocean freight — through a single service provider), or complementary services if one company wants to expand their footprint after they’ve found a streamlined operational process. Other logistics services providers may choose to branch out into adjacent markets like energy or finance.

Similar company structures exist in Japan, called Keiretsu structures – where a company expands into adjacent or vertical markets and the decentralised businesses units supply mutual support to each other, making the whole too-big-to-fail, or too-big-to-compete-with.

In a market like South Africa, where the Transportation and Storage sector is continually growing, now contributing 7% of GDP at over R500 billion; consolidation, strategic merger/bolt-on transaction, and revenue diversification may be the best way to ensure your logistics and warehousing business competes and grows long term.

I hope you enjoyed reading this letter

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great day

-Mansa

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I was on a deep dive learning how to understand one particular business for a project I’m working on, and I came across the concept of Value Chain Analysis. A value chain is all of the business activities and processes involved in creating a product or performing a service.

Things like shipping raw materials, manufacturing, advertising, distribution, etc.

The idea is that understanding each of these activities through a Value Chain Analysis framework will help you determine whether your business has a competitive advantage or not.

If your business does have a competitive advantage, you’ll know where to double down to keep winning. If your business does not have a competitive advantage, you’ll understand the activities you need to target to develop one.

The value chain framework was conceptualised by Michael Porter (you may remember him from the famous “Porter’s Five Forces” framework).

A value chain consists of primary activities and processes: these are the elements that are essential to running your business; and they include Inbound Logistics, Operations, Outbound Logistics, Marketing, and After-Sales Services.

On top of that are your secondary activities and processes: these are elements stacked on to improve your primary activities; including Procurement, Technological Development, Human Resource Management, and Infrastructure.

What you charge your customer for your product or service, less what you pay to acquire the primary and secondary activities, is your Margin.

Your ability to effectively identify the activities to improve or cut back on to maximise either your margin or your quantities sold (and therefore your revenue), or both; is where your competitive advantage lies.

Here' s a great visual of the Value Chain Framework

Once you’ve identified the primary and secondary activities to your business, and put a cost to each of them, you can now decide how you want to either gain, maintain, or juice up your competitive advantage.

For example if your strategy is to cut expenses, you’ll find it easier to do that because through this framework you can identify in which areas you can cut costs.

Through a cost-cutting strategy, simply cutting your expenses and keeping the same selling price increases your margin. Sustain that and you have an edge because you have more money left over to invest in whatever you want, to maintain your competitive advantage.

If you want product differentiation, again after looking at your business through the lens of this Value Chain framework, it will be easier for you to identify which areas you can invest more in, to realise that additional value that would make your customers choose your product.

With product differentiation you can buy better materials, higher quality ingredients, streamline your operations through technology enhancements, exceptional brand positioning, etc. The idea in this example is that you do it so well that it allows you to either increase your selling price because your customer believes that they get more value from your product or service, so they’re fine with paying the higher price, or the customer chooses your product at the same price. If executed well, you can gain a higher margin in this scenario as well. And again you can build and maintain a competitive advantage.

A perfect example is why we choose to buy an expensive iPhone over similarly capable, less expensive, smartphones.

But let’s run through two simplified examples…

Let’s say you’re running a small business selling t-shirts.

For your Primary Activities per t-shirt you would have:

• Inbound Logistics: Bringing clothes from suppliers = R200

• Operations: Sorting, tagging, warehouse storage = R100

• Outbound Logistics: Delivering to stores = R50

• Marketing & Sales: Advertising, promotions, staff salaries = R300

• Services: Customer support, returns handling = R50

Total cost = R700 per t-shirt.

Selling price = R900 per t-shirt.

Margin = R900 - R700 = R200

To gain a competitive advantage you could either source a new supplier who charges you R100. So your new margin would be R300 (R900 - R600).

Or you could pay an additional R50 for target instagram ads showing why your product is better. Your new margin would be R150 (R900 - R750). But your conversion is higher (meaning you’re selling more t-shirts), and over time you can slowly raise your selling price.

Again, these are simplified examples, but the ideas are clear.

Understanding this framework was important for me to help me understand how any business operates, by removing the jargon, emotional reactions, and complexities that come with any business, no matter how big or how small.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

I hope you all have a great start to your week

-Mansa

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Out of curiosity I decided to compare LVMH and Shopify as platform businesses, to understand what it takes to build a successful platform business.

One way to define a platform business is that it's an economy, which in turn enables smaller ecosystems to thrive in that economy.

In other words, a platform business is a foundation upon which countless other businesses, or even entire industries are built and/or empowered to thrive.

Shopify and LVMH share this fundamental concept. Both companies operate in the retail space yet their approaches are slightly different in that LVMH takes a more meticulous process-driven approach to empowering luxury brands under one umbrella, vs Shopify’s digital-first approach to empowering e-commerce businesses.

Shopify: Empowering E-Commerce Excellence

Shopify is a leading provider of essential internet infrastructure for e-commerce, offering tools to start, grow, market, and manage a retail business of any size.

The Shopify platform offers front-end software which enables merchants to easily display, manage, market and sell their products across multiple different sales channels; and an integrated backend to support the sales channels.

In and around that core software, Shopify ensures end to end support for the online seller, which also includes fulfilment through a partnership with Flexport (Shopify owns 13% of Flexport), Advertising and promotion of the seller’s offerings, Payments infrastructure, and a Loan facility for its online sellers.

We’ll use an e-commerce company called Drake Related as an example of how Shopify benefits online sellers…

Challenge

Drake Related wanted to collaborate with independent brands and artists for unique product launches. However, managing these partnerships, handling logistics, and shipping goods to customers presented challenges and was time-consuming.

Solution

To simplify their brand collaborations, Drake Related turned to Shopify Collective, a tool that enables them to discover, source, and sell products from independent brands on Shopify without dealing with logistics and inventory management.

Benefits of Shopify Collective

• Simplified Partnerships: Drake Related found it easier to connect with like-minded brands.

• Fast Deployment: They could set up brand collaborations on their website in just 20 minutes.

• Efficient Audience Growth: a reported 72% of sales involving products sourced through Collective came from first-time customers of the partner brands.

• Streamlined Operations: Shopify Collective reduced the technical and logistical hurdles associated with adding new products to the website, coordinating orders, and handling packaging and fulfilment.

• Expanding Product Offerings: Drake Related was able to select five brands for collaboration, adding unique products to those brands’ online stores, and creating an immersive shopping experience.

• Automated Order Fulfilment: Orders placed on Drake Related's website are automatically sent to the supplier brands for fulfilment and shipping, streamlining the process further.

LVMH: The Luxury Ecosystem

LVMH on the other hand, is a well crafted ecosystem of independent luxury brands that share information and know-how. Each brand retains its unique identity and autonomy while enjoying the immense support provided by LVMH through a carefully curated supply chain, from sourcing to distribution.

Here are a few points that paint a picture of the value that LVMH provides to its brands:

Lessons learned

4 key principles for building a successful platform business are apparent.

1. Build a core foundational product that solves an essential-system problem.

   • For Shopify this meant providing software to power an e-commerce platform - providing a one-stop shop for building, maintaining, and scaling an e-commerce business.

   • For LVMH this is putting processes in place that enable luxury brands to continue providing high quality luxury products, independent of “competition” or economic forces.

2. Cross-sell complementary products to entrench switching costs for platform participants.

   • For Shopify the complementary products are payments, fulfilment infrastructure, an advertising and marketing machine to promote sites on the Shopify platform, capital procurement for sellers, a money management tool for sellers, and additional admin and business management tools.

   • For LVMH the complementary products are 1) the acquisition of digital tools, acquiring additional brands, and trade names; and 2) the acquisition of vineyard land for production and other production & logistics infrastructure - all of which combine to create an ecosystem that facilitates success, without which the luxury brands may not have the global reach that they have.

3. Protect your core system architecture and intellectual property to protect the core revenue stream.

   • For Shopify their core revenue is the their subscription revenues for on-boarding sellers and enabling them to build retail websites; and it protects this core offering by a) offering Merchant solutions (cross-selling products) which enable an e-commerce business to go from existing to thriving; b) spending heavily on product development, sales and marketing; and c) offering additional infrastructure which is available on a tiered basis - basically as the size of your business grows you unlock more solutions that will help you continue to scale.

   • For LVMH their core revenue is actually the revenue generated by all of the luxury brands under its umbrella, which come as a result of LVMH acquiring nearly ALL of the major luxury brands on a global scale, and cornering the market to where “competition” isn't really a thing.

The idea being that, again, you need to entrench switching costs for users of your platform.

Can any of the brands under LVMH really operate independently? Why would they even want to be independent?

Can any of the online sellers using Shopify really operate independently? Why would they even want to try?

4. Maintain high investment towards fast iteration and product improvements.

   • I’ve mentioned the investments LVMH has made for its business groups above. Additionally, since 2018 LVMH has on average spent 37% of its revenues on Sales and Marketing.

   • Since 2018, on average Shopify has spent 25% of its revenues on Sales and Marketing, and 22% of its revenues on Research and Development.

Benefits and Challenges

Building a successful platform is no small feat, but it offers numerous advantages:

• Data Advantage: As the platform owner you can see everything that the platform users are doing, which enables you to anticipate trends and develop unique products that can improve the platform - and if you do a good job you can establish switching costs amongst your users. A major competitive advantage.

• Network effects: As more users come on the platform, the platform becomes more valuable because you enable synergies - promoting innovation and information sharing.

• Creating a new normal: Tobi Lutke said that he founded Shopify because he saw that when he was trying to build an e-commerce store to sell surfboards, all the digital tools he needed were difficult to find, and time consuming to put together.

• Diverse revenue streams:

  • As an investment holding company, LVMH has a majority stake in all of the brands under its umbrella, so all of the revenues from all of these brands combine under LVMH.

  • With Shopify, as they see the e-commerce businesses grow on the Shopify Platform, over time Shopify can create and promote products built in-house, instead of paying third-party service providers.

A few examples are Shopify Payments (payment processing), an internal Advertising engine, Shopify Capital (merchant cash advance/loan service), Shopify Balance (money management), and Shop Pay (buy-now-pay-later).

The in-house versions can run on a leaner team because they only have to service users on Shopify at first, but as more users onboard onto these in-house solutions, you can branch these out and make them available on other platforms.

However, even with all the promise of those advantages, to build a successful platform, you will have to spend heavily to drive adoption, and create and maintain value and trustworthiness. See the following charts, the first showing that as mentioned above, LVMH and Shopify spend more than 20% of their revenues on Sales and Marketing; and the second chart shows that Shopify spends another 20%+ on Product Development. LVMH spends next-to-nothing on Product Development because remember that LVMH is a holding company and that each brand under the LVMH umbrella maintains its operational independence — LVMH only provides the necessary ecosystem for those brands to scale.

Considering the above charts, it's important to note that the true value of a platform lies in the value of the ecosystem that it creates.

For Shopify, we can use the Gross Merchandise Value (GMV) to measure value. The chart below shows how GVM in the U.S. alone for Spotify more than doubled to $146 billion between 2020 and 2024.

For LVMH we can use the company’s worldwide revenues to measure value. The chart below shows that total worldwide revenue for LVMH grew 4x to $80 billion between 2008 and 2022.

So, while trying to understand platform businesses, it was important to compare two functionally different businesses that operate in the same industry — and note that “platform” does not equal digital only. Through understanding how LVMH and Shopify work, key principles on how to build a successful platform business were highlighted. Platforms are hard, but if done correctly and with focused aggression, a successful platform can unlock a colossal amount of value.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great day

-Mansa

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I wanted to understand, in my own words, the current state of Transnet Freight Rail, the performance of the freight rail industry in South Africa, and the efforts under way to improve operational performance.

I put together a memo that helped me formulate a thesis regarding logistics and particularly rail in this instance, in South Africa. For ease of reading and consumption the memo is in slide form.

If I’ve done my job well, after reading this memo you’ll be able to understand:

• How the freight rail system works broadly

• Which are the key freight rail corridors and networks in South Africa

• Where Transnet Freight Rail stands financially

• The state of rail logistics in South Africa and its impact on the economy

• The efforts under way to revive South African freight rail logistics and the importance of these efforts.

Access this memo from my Patreon account below

Download Memo

A while ago I searched for the highest performing South African asset management company, and Fairtree Group popped up as having multiple funds that consistently beat their respective benchmarks.

Here are 4 of Fairtree’s most popular funds and a quick summary of some interesting notes I made for each.

Fairtree SA Equity Prescient Fund

A R30.1 billion fund which focuses on South African equities. This fund is rated “Aggressive”, classically indexed to the South African economy. In South Africa the largest economic sectors are Financial Services and Real Estate, then the Resources economy. SA Equity Prescient has a 33% allocation to Financial Services, and a 24% allocation to Basic Materials. Sprinkle in Prosus as a high growth name, and you get a fund that since inception in 2011 has outperformed its benchmark FTSE/JSE Capped SWIX All Share Total Return by +4 points.

Sharpe Ratio: 0.51

Measures the additional return you get on an investment for the risk you take. The Sharpe ratio compares the returns on an investment to a “risk-free” asset such as government bonds, then considers positive and negative volatility. So, the higher the Sharpe ratio, the more reward you’re getting for each unit of risk you take.

Sortino Ratio: 0.93

Similar to the Sharpe ratio, however, the Sortino ratio only focuses on negative volatility. Sortino only considers the amount of times your investment goes below a certain target, ignoring upside swings. A higher Sortino means you’re being rewarded more for the risk of losses.

Fairtree Balanced Prescient Fund

This fund is rated “Moderately Aggressive”. At R4.1 billion, the Balanced Prescient Fund is also heavily concentrated at 34% to the Financial Services sector, however it has a slightly higher allocation to Technology at 18%, and 14% towards Basic Materials.

Since inception in 2017, this fund has outperformed the benchmark South African Multi Asset High Equity Category Average by +3 points.

Why is it moderately aggressive?

Because it has a slightly lower Sharpe Ratio (0.42) and Sortino Ratio (0.77) than the SA Equity Prescient Fund above, meaning you’re getting slightly lower rewards for your risk. Perfect for those who are slightly risk averse.

Fairtree Global Equity Prescient Feeder Fund

Rated as “Aggressive”, this fund is heavily geared towards United States equities at 54% – and concentrated at 35% towards U.S. technology companies. At R1.6 billion the fund also allocates to Consumer Discretionary holdings at 23%, adding more volatility because the “consumer discretionary” label refers to companies that sell products that people don’t need, but are nice to have, such as cars, household durables, certain e-commerce retail purchases, high-end apparel, and spending on travel and hospitality.

To balance that risk, the fund allocates to blue chip companies, meaning that even though those companies sell products that may be nice-to-haves, during a financial pinch consumers may choose to cut back on those expenditures only as a last resort, and financial markets and other funds are unlikely to sell those holdings because the names are “safe” – for example Microsoft, Alphabet, Alibaba, Amazon, Nvidia, Apple, TSMC, to name a few popular examples.

Since inception in 2017 this fund has lagged behind the benchmark S&P Global 1200 Total Return (ZAR) by a little over -1 point, but outperformed a secondary benchmark, Asia Global EQ General, by +3 points.

Sharpe Ratio: 0.57

Sortino Ratio: 1.12

Fairtree Global Emerging Markets Prescient Fund

Labelled as "Aggressive". This fund focuses on global emerging market equities. The most obvious country to weigh heavily towards is therefore China. This fund, at R755 million has a 25% exposure to China, with a 39% exposure towards Financials, and 25% exposure to Technology.

Since inception in 2020 this fund has outperformed the benchmark MSCI Emerging Markets Index TR (ZAR) by a little over +2 points.

Sharpe Ratio: 0.25

Sortino Ratio: 0.46

Fairtree Group has a number of local and offshore funds, including Real Estate, Private Equity, Hedge Fund, and Infrastructure Debt Fund assets.

What’s one thing they are missing? … A dedicated digital asset fund for exposure to bitcoin.

I’m bringing this up because retail investors generally think about how high an asset can go, but more sophisticated investors (like fund managers) think about how much return they are getting for every unit of risk they take.

Look at this chart from Matt Hougan, showing that the risk-return profile for bitcoin decimates that of gold, the S&P 500, and any other asset class included below.

I’ve noted the Sharpe ratios for the four Fairtree funds above, but bitcoin’s Sharpe ratio blows all of those off the map. According to Case Bitcoin, bitcoin’s 5-year Sharpe ratio is 1.34. Compare this to the Fairtree SA Equity Prescient Fund (0.51), the Fairtree Balanced Prescient Fund (0.42), the Fairtree Global Equity Prescient Feeder Fund (0.57), and the Fairtree Global Emerging Markets Prescient Fund (0.25). All due respect to Fairtree, but those performances don’t hold a candle to bitcoin.

That said, Fairtree isn’t oblivious to the activity in the digital assets space. The firm bought a minority equity stake in MidSquare, a cryptocurrency and decentralised finance asset management business.

We’re starting to see more institutional capital flowing into the bitcoin and digital assets space as evidenced by the billions of dollars flowing into bitcoin ETFs, the political and regulatory support in the U.S. around the GENIUS Act, as well as the United States government (among other sovereigns) deciding to create a bitcoin strategic reserve.

It will be interesting to see how Fairtree grows its exposure towards bitcoin and the broader digital asset market.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great day.

-Mansa

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A week ago, President Trump sent a letter to President Ramaphosa informing him that South Africa was going to be faced with 30% import tariffs starting on the 1st of August this year.

Imports on goods brought in from South Africa are part of a broader economic agenda that President Trump is pushing; to reduce trade deficits with all U.S. trade partners, address “unfair” trade policies identified in a particular country, and to reduce U.S. dependencies on foreign goods by reshoring manufacturing capabilities broadly, to the United States.

Double-clicking into which South African exports will be hit with tariffs, according to a summary from Perplexity, the 30% tariff will replace previous preferential access under the African Growth and Opportunity Act (AGOA). This includes manufactured goods, agricultural products, and vehicles, but with notable exceptions for certain raw materials like platinum and titanium.

According to a report by Trade-Knowledge; “South Africa has been one of AGOA’s biggest beneficiaries, with key industries thriving under its framework. For example, the automotive sector has flourished, with major brands like Ford and BMW assembling vehicles in South Africa for export to the US, with exports reaching up to $2.7 billion as of 2023. Also, the mining industry benefited, as essential minerals such as platinum and manganese—critical to US manufacturing—are sourced from South Africa.”

A report from the Trade and Industrial Policy Strategies (TIPS), however, noted that it appears that these tariffs are trying to hurt South Africa’s manufacturing sector as the tariffs exempt minerals produced in South Africa and consumed for American manufacturing. But this isn’t news. Earlier this year I wrote a letter to this group explaining the broader objective of trade tariffs — which I also summarised above.

Economists also cried that the 30% tariffs against South Africa are not economically motivated since South Africa only has a relatively minor trade surplus of ~$1.23 billion against the U.S., so these tariffs rather seem politically motivated. Remember the stern talking-to that Trump had with Ramaphosa and his team in the U.S.?

Well, what if these tariffs are in fact politically motivated? Doesn’t mean they’re incorrect. In Trump’s view, South Africa has unfair ownership laws in reference to BEE policy; the land expropriation bill announced earlier this year directly challenges ownership rights and is obviously worrying when thinking about fundamental property rights; farm killings are still an unclear issue (do they exist systematically, if so are they politically driven, are they being ignored, what’s the real story?).

This is a great moment to test Ramaphosa’s strategic thinking and execution.

The South African president has historically shown characteristics of a person with pride, and a fighter’s mentality. That’s awesome to have as a leader, but remember that saying “pride always comes before the fall”? In this instance I’d suggest a more measured and diplomatic approach.

I have no idea how this will play out, but one option could be for President Ramaphosa to triple-down on the BRICS partnership, and toss up a dismissive hand to the U.S. What could that look like?

• A stronger partnership with China, our largest trading partner

• A reposition of the automotive industry in South Africa. Because China is flooding global vehicle markets, other manufacturers may find it hard to compete. So, is it possible for Chinese manufacturers to allow some production to happen in South Africa?

But then what happens to the rest of the products that South Africa exports to the U.S. Will those industries survive cutting out the largest economy in the world? So maybe going that route is not a good idea, and Ramaphosa and his team should rather call the Trump administration to hash out a trade deal.

I’m a person of logic, I dislike blindly following the status quo, and I question everything. Those who’ve spent any amount of time with me know that well.

Is it wrong for South Africa to reopen the genesis of BEE policy and do a deep analysis of what’s working and what isn’t with regards to that policy? Is it wrong to explain clearly to the public why there needs to be a land expropriation bill that grants the government the right to seize land? Is it wrong for a President of a country (Trump) to act how he sees fit to protect his own country and its people?

Instead of crying victim, I call on President Ramaphosa to get his business hat on and go to work. Sithuma wena (we’re sending you).

Those with access to Ramaphosa should do the same. Since President Trump started his current term in January this year, every country that’s faced tariffs has approached the Trump administration to try to put together some sort of trade deal to avoid or significantly reduce tariffs. It would behove Ramaphosa to do the same. Less committee formation, more business-focused negotiation.

Anyway, it’s back to work for me. I’m working feverishly on some exciting projects that I can’t wait to share with everyone and hopefully attract more people that I can work with on those projects. It’s still early days so more on that later.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great day,

-Mansa

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When experienced investors like Stan Druckenmiller, Buffet, Paul Tudor Jones, and the like, advise us to keep our emotions out of our investment decisions, they actually mean we should study reflexivity and stick to our thesis.

No capital allocator worth their weight will allocate capital to an idea or a project without having a coherent thesis.

That said, there’s also a difference between a day trader and an investor. Investors have a longer time horizon over which they allocate capital and bet that that initial capital will grow into something larger over that horizon. Day traders inject and extract money in the financial markets based on more frequent price moves.

If you’re an investor, the concept of reflexivity will help you make sense of what’s happening in the financial markets during times of volatility so that you don’t abandon your thesis.

Reflexivity refers to behaviours in financial markets that drive prices up or down.

“Reflexivity can lead to self-reinforcing cycles where positive market sentiment or expectations cause prices to rise, attracting more buyers and further driving up prices. Conversely, negative sentiment or pessimism can lead to price declines, further discouraging buyers and intensifying the downward trend”

Charlie Bilello of Creative Planning gave a good example when he wrote: “After a 22% rally from the April 7 lows, the S&P 500 is now up on the year. One of the biggest short-term comebacks in market history.”

Another example is Tesla.

Tesla is constantly reported as the most shorted U.S. security. I’m sure each short-seller has their reasons, but my guess is that many people are short Tesla because it's near impossible to model the future outlook of the company. Tesla was early on EVs, they were early on battery energy storage systems and residential/industrial solar, they were early on autonomous vehicles, they were early on humanoid robots, and they were early on AI. So if you don’t have a solid thesis on Tesla, every news headline that causes day traders to swing the price up and down will make you anxious, force you to sell, and cost your portfolio.

Look at this Tesla chart below. From June 2024 to today, Tesla’s stock price went down 28% in one month; then up 38% the next month; down 20% the month after that; then up 127% in the two months after that; down 54% three months later and has continued to act wild since March of this year.

On top of that, price has remained flat over the last four years.

The only thing that would cause the price of Tesla to be volatile this way is most likely because people aren’t investing in Tesla, they are trading the company’s stock. In other words news cycles are causing the price to rocket up, then plummet so often.

Now it would be normal for anyone to sell their Tesla holdings if they didn't understand reflexivity, and didn't have a thesis they strongly believed in. Understanding reflexivity is like calming tea, and the work you’ve done to put together a coherent thesis is like the meditation techniques you learn to keep yourself above the noise.

Obviously we’re human and we all get emotional and get anxious from time to time, but what I’ve shared today is a great addition to the tools I’m developing on my journey to becoming a master capital allocator. And on that journey, one lesson down, a billion more to go.

Hope you all have a great day

-Mansa

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John Haslett, COO at Graphite Asset Advisory, recently posted that the JSE All Share Index (ALSI), in U.S dollar terms, outperformed the S&P 500 over the last 5 years.

Generally speaking, the expectation would be that U.S. stocks and indices would outperform South African stocks over longer time horizons, but within a shorter time frame of five years for example, things get a little trickier.

There are 6 key factors that should be considered when comparing performance of indexes in different countries and with assets denominated in different currencies.

Valuation Gap

The first factor is the valuation. The S&P 500 has historically traded at higher Price to Earnings (PE) multiples compared to JSE stocks. Over the last five years, it could be possible that investors allocated capital to JSE listed companies over U.S. based companies to take advantage of a valuation gap that would lead to outperformance.

For example the current PE ratio of the JSE is around 11.71, and the PE ratio of the S&P 500 is around 26.20. A lower PE ratio tells us that investors pay less for every dollar of earnings, which could make JSE listed companies more attractive over U.S. based companies in the S&P 500, pushing the JSE ALSI higher within a certain period.

ZAR Strength

The next factor to consider would be the strength of the rand over that same five years. Over the last five years, the ZAR weakened 3% but strengthened in 2024 (see highlighted area below). In terms of currency returns, for the JSE to outperform the S&P 500 the ZAR would have needed to sustain its strengthening throughout this 5 year period, because a stronger rand means that investors would get more dollars per rand when they convert their earnings back to U.S. dollars. Again, in this scenario the JSE would move higher as more capital enters the market.

Commodity Cycles

Being a largely resources-driven economy, commodity cycles are another important consideration. After Financial Services and Real Estate, the next largest contributor to GDP in South Africa is the Industrial Resources sector (or Metals and Mining). South Africa is one of the largest global producers of platinum group metals and holds one of the largest gold deposits in the world. We also can’t forget that the Resources sector dominates American Depository Receipts for South African stocks, therefore large global investors have direct access to the South African resources economy when they want to trade commodity cycles.

One example is gold. The price of gold has gone from ~$1700 an ounce to $3200 in the last 5 years. Take a look at the chart below showing how in the first half of 2024, South African gold stocks took off when the price of gold started to rise. This type of action would again drive the JSE ALSI higher.

Mean Reversion After U.S. Outperformance

One theoretical theme that we can also look at is mean reversion. Mean reversion refers to the price of something moving back towards its historical average after a long period of deviation from that average. Theoretically speaking, after a decade of U.S. stock outperformance vs the JSE, a mean reversion could have played a role in the JSE beating out the S&P, but I think we should rather look at this section another way. It's important to re-iterate that we should pay attention to the time scales for which we’re doing this comparison of the S&P 500 to the JSE ALSI.

If you adjust your reporting dates, a large correction for the S&P 500 may have been a large contributing factor to the JSE outperforming the S&P. Not necessarily a mean reversion, but still a type of correction. See the highlighted section below which shows a 20% drop in the S&P between February and April of this year, which allowed the JSE to sneak past the S&P.

However, as I mentioned previously, on a longer horizon the story is different with the S&P 500 dominating the JSE ALSI, looking at the chart below.

Higher Dividend Yields

What about dividend yields?

Well, according to Perplexity, my favorite search engine, the average dividend yield for the S&P 500 is currently around 1.27%, with a long term average of ~1.82%. For the JSE ALSI, the dividend yield is significantly higher, at ~7.7%. A higher dividend yield may attract investors who value a more disciplined and mellow capital allocation approach by companies. In other words, for an uncertain economy like South Africa’s, companies are more likely to attract capital if they pay their shareholders more via dividends, instead of allocating to riskier growth projects.

If you remember the dividend yield formula (Annual Dividend Per Share/Price Per Share), JSE stocks may have a higher dividend yield mainly because of their lower price to earnings ratio — as mentioned earlier — or because they pay a higher dividend per share.

Emerging Market Catch-Up

And the last factor to consider when looking at the reasons for how the JSE ALSI may have outperformed the S&P 500 is whether emerging market stocks have increasingly become more attractive for investors, and this brings in two of the themes that I mentioned above – valuation gap, and higher dividend yields. As investors consider allocating to more emerging market stocks they would also pick safer names to hold. One example would be Naspers, which hit an all time high last month. Another example would be Remgro, a company with global exposure and whose price approached an all time high in May this year. And then obviously Prosus, which reached an all time high in June as well. The performance of these companies massively contributed to the JSE ALSI outperforming the S&P 500.

So what was it exactly? How did the JSE All Share Index beat out the S&P 500 over the last five years? I won’t pretend to know the answer, but it's probably a combination of all of the factors above. That’s why asset management firms make the big bucks. Portfolio building is tricky, and it's why professional investment managers get paid what they do. Well done to the investment managers who saw this and were able to make a good return for their clients.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great day

-Mansa

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With Warren Buffett having announced his retirement at the last Berkshire Hathaway annual shareholder meeting, I started wondering which company will be the next Berkshire Hathaway.

What I mean by that is, who’s the next up and coming investor who may be able to compound growth of his/her investment company’s performance by 20% annually for 60 years, or 5.5 million percent?

This is an important question becasue, noting Berkshire Hathaway’s diverse holdings in GEICO, Coca Cola, Apple, Occidental, BNSF Railway, Chevron, and American Express, among many other names in different industries over the years; individuals, investment firms, and institutions were using Berkshire Hathaway stock as a proxy bet for being long the growth of the American economy (and later “diversification” as Berkshire bought Japanese trading firms and increased international exposure) and as the safest “non-index” investment. But since Buffett has sold a lot of his company’s holding recently, where will investors turn?

There’s a lot to learn from Buffett – how he deciphered information, and how he ran Berkshire Hathaway over the years. I would have loved to see the news headlines and study the trades as he made them, and have the capacity to opine on the decision as I grow my experience and involvement in the capital allocation business. So I don’t want to miss the opportunity to see the “next Berkshire”, because I promise that it's being built right now, and I’ve seen a few examples which I’d like to share today.

I decided to evaluate these companies on 3 very basic criteria:

1. Company Structure and Public Listing: Whether the company is publicly listed, noting that it should not run a fund structure, rather an operating business model similar to Berkshire Hathaway.

2. Leadership Communication: Whether the leadership regularly writes investor letters and/or otherwise communicates publicly. The willingness to share ideas publicly indicates conviction.

3. Current Size by Market Cap, and past performance of their stock price vs the S&P 500.

Of the publicly listed companies the following names pop up as companies that may be the next Berkshire Hathaway:

Brookfield Corporation (NYSE, TSX: BN)

CEO: Bruce Flatt (Chairman & Chief Executive Officer), 60 years old

Brookfield is a global investment firm that uses discretionary capital to invest across three platforms: “asset management, wealth solutions, and operating businesses”. Brookfield has over $1 trillion of assets under management (AUM) according to their 2025 report, across these core businesses.

Brookfield Corporation shares notable similarities with Berkshire Hathaway due to its business model and investment philosophy. Like Berkshire, Brookfield is structured as a holding company that owns and operates a diverse portfolio of high-quality assets across sectors such as real estate, infrastructure, renewable energy, and private equity, including significant insurance operations through subsidiaries like Brookfield Reinsurance. Sound familiar?

Markel Group (NYSE: MKL)

Thomas S. Gayner (CEO), 64 years old

Markel is a diversified financial holding company anchored by insurance underwriting and by its investments in public equities and Markel Ventures. Markel Ventures is the firm’s investment arm which acquires and operates small companies across industries such as manufacturing, services, consumer products, and software – aiming for long-term cash generation.

Like Berkshire, Markel operates a robust specialty insurance business, which serves as a cornerstone for generating float (low-cost capital from insurance premiums) that it reinvests into a diversified portfolio of businesses and investments.

Naspers (JSE: NPN)

Ervin Tu, estimated 47-52 years old

Naspers is a South African multinational that is structured as a holding company that strategically invests in and operates a diverse portfolio of businesses spanning e-commerce, media, and technology. Through Prosus, Naspers’ Dutch-listed subsidiary and the largest listed consumer internet company by asset value in Europe, Naspers also has broad international reach in internet and technology businesses. Naspers maintains concentrated bets in high growth companies such as takealot.com, media24, Mr D Food, Autotrader, Property 24, and of course Tencent.

Fairfax financial (TSX: FFH)

Prem Watsa (Chairman and CEO), 75 years old

Fairfax Financial Holdings Limited is a Canadian financial holding company that essentially rolls up property and casualty insurance and reinsurance globally. The firm invests its earnings across a diverse set of industries including maritime through a company called Poseidon; banking through Eurobank; steel through Cleveland-Cliffs; energy though Waterous Energy Fund (oil) and EXCO (natural gas and oil); hospitality through Grivalia Hospitality; among a stack of other industries.

Fairfax also owns Bryte Insurance, a leading South African business risk management and commercial insurance company.

The company's float has grown from $10 million in 1985, to $36 billion as of 2024.

Constellation Software (TSX: CSU)

Mark Leonard (President), estimated 68-70 years old

Constellation Software is a Canadian technology holding company focused on acquiring vertical market software businesses that serve niche industries, such as healthcare, public sector services, and financial services, among a whole host of other markets. See the list below

Based on stock performance alone, Constellation Software, Naspers, and Brookfield, and Fairfax have outperformed Berkshire Hathaway over the longer term.

The leaders mentioned above are also all ~20+ years younger than Warren Buffett, so they still have a lot of great years ahead. Let’s see how they do.

Do you think that one of these investors will be the next Warren Buffett, and that perhaps one of these companies is the next Berkshire?

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great day

-Mansa

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Last week, while looking at NVIDIA’s financials as well as listening to industry experts on NVIDIA and NVIDIA’s position in the AI space, I was made aware that NVIDIA’s accounts receivable has grown from $2.3 billion in 2021 to $26 billion in 2024. That's a 9.5x increase. In the same period, NVIDIA’s revenues went up 7.8x to $130 billion in FY 2025.

While it's normal for a company to have accounts receivables (AR), it's also important to keep on eye on that figure and to ensure that all measures possible are put in place so that that AR can be recognised as revenue not too far into the future. Also, one of the main reasons that any company has credit terms with any supplier is to optimise its cash conversion cycle. A longer accounts payable term means a shorter cash conversion cycle. But today we’re specifically noting the size increase in NVIDIA’s AR within a short space of time, and trying to make sense of why.

So, does NVIDIA have an accounts receivable problem? Maybe, but unlikely. Here's why…

For starters, NVIDIA has an approximately 90% market share of AI-specific GPUs and AI architecture. This dominance is driven by their superior products built specifically for AI workloads. You may have heard people talk about H100 and H200 GPUs, as well as the related networking infrastructure that allows companies to build supercomputers for AI training–well that's NVIDIA’s Hopper platform for AI. In late 2024 however, NVIDIA officially released a new platform called Blackwell which offers 30 times greater performance, at an energy consumption that's 25 times lower than Hopper. I asked Perplexity to create a table that shows a comparison between NVIDIA’s Hopper and Blackwell platforms:

I think there are two factors at play that are making NVIDIA’s accounts receivables grow significantly.

One factor at play is that every company in the world that thinks they should, is trying to get their hands on NVIDIA GPUs to build their own AI training infrastructure. xAI set a new standard for the amount of money it costs to build a supercomputer for AI training, that will provide a significant competitive edge. According to Grok “xAI's Colossus supercomputer, initially launched with 100,000 NVIDIA H100 GPUs in 2024, likely cost between $3 billion and $4 billion to establish, according to industry estimates. This figure encompasses the GPUs—priced at $25,000-$40,000 each—plus the extensive infrastructure, including a 750,000-square-foot data center in Memphis, advanced cooling systems, and a robust power setup with a $24 million substation.”

Doubled to 200,000 GPUs by December 2024, that's an additional $3 billion for the cost of GPUs alone, at an estimated $30 000 per unit.

The second factor at play is that there are very few companies that can afford to spend that type of money for an uncertain outcome. On top of just providing GPUs, NVIDIA offers computing solutions which include suggestions on the best architecture to build compute power, so it's fair to say that those customers that can, will negotiate a term where they only pay once the solution is up and running.

At the same time, towards the end of FY 2025 NVIDIA started shipping Blackwell, which led to “billions of dollars in sales” according to Jensen. That's a very new product, which we can assume was made available to certain customers before it was released publicly. The point is NVIDIA is constantly innovating, and if they want to get their expensive and unproven products into the market quickly, they’ll need to put together special terms that feed into accounts receivables with certain customers.

In a note in NVIDIA’s latest annual report the company mentions that “Two direct customers accounted for 17% and 16% of [NVIDIA’s] accounts receivable balance as of January 26, 2025. Two direct customers accounted for 24% and 11% of [NVIDIA’s] accounts receivable balance as of January 28, 2024”

So to allow a customer to buy on account the customer needs to have a great relationship with the seller, and the customer must also be creditworthy.

Who could these companies be that are responsible for a third of NVIDIA’s accounts receivables?

Grok suggested that we consider the following options, which are also NVIDIA partners in cloud services and data centres:

1. Distributors (e.g., Ingram Micro, Synnex/TD Synnex, or Arrow Electronics):

   NVIDIA relies on distributors to sell its GPUs to smaller OEMs, system integrators, and retailers. Companies like Ingram Micro or TD Synnex are major players in the electronics distribution space and could account for significant receivable balances due to the volume of GeForce GPUs or data center products they handle.

2. OEMs/System Builders (e.g., Dell, HP, or Super Micro Computer):

   Large OEMs integrate NVIDIA GPUs into their servers, workstations, and gaming PCs. Dell and HP, for example, are key partners for NVIDIA’s data center and professional visualisation products, while Super Micro Computer is a major player in AI and high-performance computing servers.

3. Hyperscale Cloud Providers (e.g., Amazon Web Services, Microsoft Azure, Google Cloud):

   NVIDIA’s data center business, driven by products like the A100 and H100 GPUs, caters to cloud giants building AI and machine learning infrastructure. These companies could represent substantial accounts receivable if they purchase directly from NVIDIA rather than through intermediaries.

4. Consumer Electronics Retailers or Partners (e.g., Best Buy, ASUS, MSI):

   For the gaming segment (GeForce GPUs), NVIDIA sells to partners like ASUS or MSI (who produce graphics cards) or large retailers like Best Buy. These could be significant debtors, especially during high-demand periods like new product launches.

5. I added a fifth, which is that the companies driving up NVIDIA’s AR are repeat customers who’ve built goodwill, like xAI as Elon has built a relationship with NVIDIA over the years through Tesla. This would also make sense because xAI is a startup with little revenue, therefore through a bespoke contract they could be purchasing from NVIDIA on account.

The companies mentioned above are large and mostly financially stable businesses, which means 1) they can afford to negotiate a contract where they agree to buy NVIDIA’s products and solutions, and only pay once they prove the product can work as preferred, and 2) the companies are creditworthy.

So while you should keep an eye on NVIDIA’s accounts receivables as a capital allocator, you should also try to piece together the entire story–and that should help you determine whether NVIDIA has an accounts receivable problem or not. I’m still learning and I don’t know enough to definitively say whether there is a problem or not, but I would like to note that apparently NVIDIA has so much demand for their products that they are struggling to fulfil orders. A classic example is how Tesla decided to build their own GPUs for a Tesla specific cluster called Dojo because they felt NVIDIA couldn’t meet their demand.

The point is that NVIDIA doesn’t need to sell GPUs and other products on account to anyone. My guess is that NVIDIA wants to get their products out in the market as quickly as possible, especially if it's a new product like Blackwell, so NVIDIA is using every reasonable method to get there. One way to do that is to sell on account to credit worthy customers, and the other is to invest in the ecosystem so that there are customers to take on your products, but that second method is something I’ll discuss in another letter.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go

Hope you all have a great day

-Mansa

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To Investors,

A few days ago it was announced that X (formerly Twitter) raised an additional $1 billion in finance, and organised a secondary equity offering that valued the company at around $44 billion, the same amount Elon Musk originally paid for the company. This is great news for him and his team given that since he purchased the company there were many “analysts” from big firms like Fidelity, Wedbush, and the like who claimed the company lost nearly 72% of its value since Elon bought it. I think their valuation method was wrong, and even now with the company reportedly back at $44 billion, I think that the valuation method is still wrong.

Full disclaimer that since X is a private company, they don’t release a lot of data publicly like revenues and user numbers, so a lot of the data I’ll share now is from various sources which include subtle leaks and estimates in some cases. I’ll list the sources at the end of this letter.

Let’s get into it…

It's very tempting to compare X to other social media platforms because X (formerly twitter) is primarily a social network.

Generally to model the valuation of a company like X you would forecast the earnings potential of X based on advertising revenue as the main driver. That's fair, and it's also important to note that even though a number of advertisers initially stopped advertising on X for political reasons, many have come back according to reports, they will all come back, and then some; because X is now the number one news app in 140 countries. That was not the case when X was still Twitter because we all got our news from mainstream TV media. So it's fair to say that advertisers won’t want to miss the opportunity to reach 650 million estimated X users—almost 2x more users than the year before Elon purchased the company.

I’d like to put that valuation method to the side and use a method I learned from a very successful capital allocator; who said that instead of valuing a company from a model led perspective, it's sometimes best to value certain types of companies from a product led perspective–and I think that's appropriate for X.

Since buying Twitter, the product has significantly transformed. A stronger and more supportive creator economy including subscriptions to creators, increased usage of Spaces, long form written posts, long form video posts, and creator channels.

According to Grok, YouTube has approximately 5 billion video views per day, equating to over 1.8 trillion views annually, with Shorts contributing significantly, and X has around 2 billion video views per day, projecting to roughly 730 billion views annually. The video features are still new but improving everyday, so we can expect engagement on X to eventually approach YouTube numbers because X has better network effects than YouTube since creators reach and interact with their audience in real time.

But there’s a bigger story to tell.

I think X worth a multiple of the $44 billion current estimate, the problem is it's near impossible to model how, because we’ve never seen anything like this before.

Before OpenAI released GPT-3.5 in 2022, the first version of ChatGPT that went mainstream, companies primarily used data for simplified analytics, such as predictive modelling, trend identification, and operational efficiency improvements. Data analytics was a cornerstone for decision-making, with businesses leveraging structured and unstructured data to optimise processes and boost productivity.

Since the widespread adoption of GPT-3.5 and other large language models (LLMs), there has been a shift in perspective toward using data as input for training and fine-tuning LLMs. Organisations now recognise the potential of "AI-ready data" to enhance LLM performance through methods like embedding, vectorisation, and retrieval-augmented generation. This shift has expanded the role of data from traditional analytics to powering advanced AI applications, enabling more dynamic and context-aware systems.

So if we zoom out from looking at X as a social media platform or a news app, what do we see?

It seems like every month there’s a breakthrough in a new artificial intelligence capability. But one thing that many smart allocators have mentioned is that all of these models are trained on the same data. ChatGPT, Meta AI, Claude, Gemini, etc, are all trained initially on publicly available data from the internet. That data is finite so all the models will initially get to the same level of functionality.

The only differentiator will be if a company pays for data that's behind a paywall or is otherwise protected. For example OpenAI and Google have signed deals to license data from Reddit; Open AI also signed deals to license data from news sources such as The Associated Press, The Financial Times, Vox Media, and more; and there are many similar deals signed by Meta, Google, and Anthropic.

In 2024 a group of the best engineers in the world built Colossus, the largest AI training supercomputer in the world in just 122 days, where it was supposed to take 24 months according to “experts”. Then they doubled it in 92 days to 200k GPUs.

That supercomputer has allowed xAI and its latest iteration of Grok to surpass competitors, but while OpenAI, Anthropic, Google, and Meta had a head start, what got xAI on the same level and set up to surpass the other players was data from X—the differentiator.

So X (formerly twitter) is not a social media company, it's a well organised digital town square that provides proprietary data to xAI from a broad range of the world's smartest people across 140 countries.

How do you value that?

We don't know.

But we do know we can safely bank on the X / xAI team to build an outstanding AI assistant and developer base.

Here’s the management case:

It's extremely capital intensive to build a proprietary LLM. Including its initial funding injection of around $13 billion from Microsoft, OpenAI has raised an additional $6 billion in funding, with talks for an additional $40 billion. That’s $59 billion.

xAI has raised a total of $18 billion, but the leader of xAI is famous for finding the least costly way to build something (e.g. Tesla, SpaceX, The Boring Company). Again, with less funding he led a team to build the largest and most powerful supercomputer in the world for AI training.

Training data will also become more expensive as LLM builders race to sign licensing deals in an effort to beat out competitors by training their models on a unique data set. And it appears that additional infrastructure (a larger supercomputer) is necessary to improve an AI model’s performance as shown with Colossus.

xAI is already valued at $75 billion and was built off the back of X data. xAI is also able to attract the world’s best talent because the leader of the company has built a reputation for building great products. When you have that you have the ability to vertically integrate the critical components of your company (think Tesla, think SpaceX).

So altogether, proprietary (and real time) data from X feeding into Colossus, spitting out Grok (xAI’s LLM to compete with ChatGPT, Claude, and Meta AI) and giving Grok a competitive advantage.

In contrast, OpenAI relies on infrastructure provided by Microsoft, and Anthropic relies on resources from Amazon Web Services. The only real competitors are Gemini (largest global resources) and Meta (also a proprietary data set but leveraging learnings from Llama), but even those companies are struggling to compete with xAI because Google is a large corporation and they tend to iterate very slowly, and Meta arguably doesn’t have a data set that’s a collection of works from the smartest people globally. Right now, Grok is outperforming competitors in math, diamond Q&A, multimodal understanding, and code generation.

So I’m suggesting that even though X is a separate company under X Corp, X shouldn't’ be considered a standalone company, but should rather be looked at in the context of xAI—the bigger play.

It’s been reported that “in November 2023, Elon Musk indicated that equity investors in X (formerly Twitter) were granted a 25% ownership stake in his artificial intelligence startup, xAI”. So my take is not a hot take.

xAI is valued at $75 billion, off the back of Grok, which was and continues to be trained on data from X—a unique and proprietary data set that’s evolving and improving by the hour, every day.

The next question to answer, and that I’ve heard many capital allocators ask is: what will be the returns on investment for all of the capital that’s gone into AI.

Again, we don’t know. We’re betting on the team, and their leader. The same leader who built the first ever successful private space freight transportation company from scratch; who built the first U.S. car company to not go bankrupt since Ford; who built a tunnel underneath a part of Las Vegas to help people beat road traffic.

If you’ve used Grok 3 and you’ve watched Iron Man, you’ll notice that Grok 3 feels like Jarvis—your personal AI assistant that can tutor you, read your medical information, and help you think and synthesise information extremely efficiently and effectively.

What does distribution for Grok look like?

Grok works tightly together with X. You can use Grok now to get context on posts on X.

You can use Grok as a separate app as a personal assistant. Access is currently free but there’s a subscription option for a more powerful version of Grok.

If you dare to imagine…

Where do you think the language model that will be used in Tesla Optimus robots will come from?

If you have a Neuralink device imagine being able to interact with one of the smartest AI systems directly into your brain.

It all sounds like science fiction, but if you think about it, it's not really fiction because these are all real products. X is not a standalone social media company, X is a well organised proprietary data source for xAI. Valuing X as a standalone company may be important to pay the bills at investment firm “pick-your-name”, but the valuation methods they use I think will become outdated very soon as we start to be able to make better sense of AI, the role that data plays in AI, and the returns on AI investment.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great day.

-Mansa

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Sources:

https://grok.com/?referrer=website

https://www.reuters.com/technology/inside-big-techs-underground-race-buy-ai-training-data-2024-04-05/

https://grok.com/chat/40295c18-dbae-4670-b12f-c1a6c7a0b399

https://www.ft.com/content/d61eed58-65ef-4fea-978a-b0915fc740f4

https://seo.ai/blog/how-many-users-on-x

https://x.ai/news/grok-3

https://techcrunch.com/2025/03/19/elon-musks-x-reportedly-bounces-back-to-44b-valuation/

https://www.ft.com/content/d4616dec-c4c7-417f-8549-134710bbc5b1

I may have found the real reason why Warren Buffett invested in Japanese trading companies starting in 2020. I had written about how he executed the trades in a previous letter, but today I want to talk about the why.

The other day I came across a post on X from which I used Grok 3 to learn about a corporate term called cross ownership (where companies own pieces of each other and support each other during economic downturns). Through further research I found out that if applied effectively, cross ownership can make an organisation in the private markets too-big-to-fail during economic slumps, and support continuous successful economic productivity.

So, Japan has this corporate structure called keiretsu, which has been around for decades. All of the trading companies that Warren Buffett invested in—Mitsubishi Corporation, Mitsui & Co., Sumitomo Corporation, Itochu Corporation, and Marubeni Corporation—have either historically operated through a keiretsu structure and still maintain loose ties, or they currently operate under this structure.

Before World War II, Japanese companies were largely structured as zaibatsu or family-controlled conglomerates. Mitsubishi, Mitsui, and Sumitomo started out as family owned companies in Japan; but since World War II, the structure of these companies evolved to the keiretsu. Unlike the zaibatsu, which were centralised under family control, keiretsu are decentralised networks of companies bound by cross-ownership, long-term relationships, and mutual support.

There are two main types:

• Horizontal Keiretsu: These have broad alliances spanning multiple industries like manufacturing, insurance, shipping, etc; centred around a major bank and a trading company (called a sogo shosha). Examples include Mitsubishi, Mitsui, and Sumitomo. The ties and responsibilities are very complex and I encourage anyone interested to dive deeper on their own, but as a simplified example of how the horizontal keiretsu works; Mitsubishi Financial Group may own a 1-5% piece of Mitsubishi Heavy Industries, which owns part of Mitsubishi Motors, which owns a similar stake in Mitsubishi Chemical Corporation, and so on.

  The bank provides financing, coordinates strategy, and acts as a safety net—holding voting rights across the network. The trading company handles logistics, procurement, and global trade, sewing together the group’s operations into a cohesive whole.

• Vertical Keiretsu: Industry-specific hierarchies, often led by a dominant manufacturer like Toyota, with layers of suppliers and subcontractors. The lead firm owns partial stakes in its key suppliers, who might own stakes in smaller subcontractors. The parent company coordinates production and suppliers are locked into long term contracts - cementing loyalty. The smaller companies rely on the lead company for business, while the lead firm ensures a reliable supply chain.

These networks prioritise stability, loyalty, and collective growth over short-term profits, creating a fortress of interdependence.

Buffett’s Bet on Japan’s Trading Giants

In 2020, Berkshire Hathaway acquired stakes in five Japanese trading companies: Mitsubishi Corporation, Mitsui & Co., Sumitomo Corporation, Itochu Corporation, and Marubeni Corporation. These firms are the trading arms of their respective keiretsu (or, in the case of Itochu and Marubeni, operate with looser ties). As sogo shosha, they handle procurement, logistics, and global trade, acting as the glue that binds their networks together.

Why did Buffett choose these companies? Two factors likely stood out: stability and financial performance.

1. Stability Through Keiretsu: The keiretsu model is built for endurance. Cross-ownership creates a web of mutual support. If one firm falters, others step in, reducing volatility. This aligns with Buffett’s preference for businesses with durable competitive advantages, or “moats.” The keiretsu structure provides a unique moat: a safety net woven from shared ownership and loyalty.

2. Financial Performance: Their keiretsu ties have historically delivered steady cash flows and resilience, making them quintessential Buffett picks.

The Pros and Cons of the Keiretsu Structure

The keiretsu model offers unique advantages, but it’s not without flaws:

Pros

• Stability and Risk Mitigation: Cross-ownership spreads risk across the network. If one company struggles, others provide support, making the system resilient, this is a trait Buffett values.

• Long-Term Focus: Keiretsu prioritise endurance over quarterly profits, fostering innovation and growth. This mirrors Buffett’s “hold forever” philosophy.

• Access to Resources: A central bank (e.g., MUFG for Mitsubishi) provides financing, while the trading company opens global markets, creating a powerful ecosystem.

Cons

• Opacity: The web of cross-ownership can obscure financial health, challenging outside investors to assess risk accurately.

• Inefficiency: Propping up weaker firms can drain resources from stronger ones, reducing overall agility.

• Resistance to Change: Loyalty can slow adaptation to new technologies or market shifts, which is a potential liability in today’s economy.

According to Perplexity, here’s a snapshot of operating cash flows and free cash flows for each of the trading companies that Buffett purchased.

On top of the cash-generating power of these companies, I think the tipping scale that made Buffett invest was the stability that the keiretsu structure empowers because it gives these companies a significant competitive advantage and strength during economic downturns.

According to Grok 3, no South African companies have a similar corporate structure, and that may be a problem. Are South African companies missing out on a monumental opportunity for growth by not cross collaborating like Japanese powerhouses? What are your thoughts on the keiretsu system?

I hope you enjoyed reading this letter

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great day

-Mansa

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Some of the smartest capital allocators that I follow are continuously talking about stablecoins and how this is a space to keep a close eye on. In the past I’ve vaguely paid attention to cryptocurrencies but I’ve increasingly started to understand the market in my own words. That's why I’ve been talking about bitcoin in different use cases more recently. As a capital allocator it's important to map new innovations to real world situations and use first principles thinking if you want to understand anything. Additionally, I think this letter is perfectly timed as President Trump just announced a United States crypto reserve. But today I want to talk more about stablecoins.

First, it's important to understand two concepts about money. One is that money is a man-made construct that has taken different forms since human beings began exchanging goods and services; and the second concept is that money only has value because enough of us agree that it has value.

“Money” has ranged from trade and barter (where we exchange any items that we feel have similar value), to silver and gold coins, to gold bullion depository receipts, to promissory notes, to fiat currencies, and now to digital currencies (money that is cryptographically constructed and protected).

The benefits of cryptocurrencies are that they run outside of the traditional payments system.

As a simple example, let’s say I want to buy a pair of Jordan 1 sneakers from a retailer/trader in the Netherlands, priced in euros. Here’s what happens behind the scenes in the traditional system:

1. I initiate a payment through my South African bank (FNB).

2. FNB converts my rands to euros at the current exchange rate (I pay conversion fees, and if the rand is weak, I pay even more).

3. FNB sends the euros to an international clearing network, which processes and records the transaction (I pay processing fees).

4. The clearing house transfers the money to a Nike trader’s local bank (the trader also pays processing fees).

5. The trader’s bank settles the transaction with Nike’s account (Nike incurs additional fees).

By the time my payment reaches Nike, multiple intermediaries have taken their cut, adding costs and delays. What’s worse, these fees are often pre-bundled into the product price, meaning I indirectly pay extra even before I hit “buy.”

Cryptocurrencies are the current iteration of money—and are a technology that significantly improves the burdens of traction settlements described above.

Cryptocurrencies (e.g., Bitcoin) eliminate many intermediaries but introduce volatility. In that case, what if the price fluctuates before Nike receives the funds?

As an alternative, stablecoins offer the best of both worlds: fast, low-cost transactions without currency risk, making international payments seamless and predictable. Stablecoins are the cousins of cryptocurrencies and they’re called “stable” because they generally experience less volatility since stablecoins are backed 1 for 1 by another asset.

The most popular stablecoins are those backed by US dollars such as USDC (a stablecoin provided by a company called Circle) and USDT (a stablecoin provided by a company called Tether). These stablecoins are used for international payments because they are less volatile.

But stablecoins can come in different flavours:

• Fiat-backed stablecoins: Backed by mainstream money, like dollars, rands, or any traditional currencies.

• US Treasury backed stablecoins: Backed by US treasury bonds. Chainalysis explains: “U.S. Treasury-backed stablecoins such as Ondo’s USDY and Hashnote’s USYC are different from traditional fiat backed stablecoins that are backed by cash reserves or liquid assets. Supported by U.S. treasuries and repurchase agreements, they offer yield directly to holders essentially functioning as tokenised money market funds and appealing to investors seeking secure, passive income with regulatory alignment.”

• Crypto-backed stablecoins: Supported by other digital currencies.

• Algorithmic stablecoins: Supported and adjusted by computer rules to balance supply and demand, with no physical backing needed.

Stablecoins are also becoming less of a niche instrument for transaction settlements. I recently found out that SpaceX uses stablecoins primarily to mitigate foreign exchange (FX) risks and simplify cross-border transactions. Here are the main reasons why as listed by Perplexity:

• Hedging Against Currency Volatility: Stablecoins, which are pegged to stable assets like the U.S. dollar, help SpaceX avoid losses caused by fluctuations in foreign currencies. For example, payments from Starlink customers in countries with unstable currencies can be converted into stablecoins, reducing exposure to rapid exchange-rate changes.

• Efficient Cross-Border Payments: Stablecoins streamline international payments by bypassing traditional banking systems, which often involve high fees and delays. This is particularly useful in "long-tail countries" where financial systems are less developed. Payments collected in stablecoins are later converted back to U.S. dollars in the U.S., simplifying financial operations.

• Cost Savings: By avoiding wire transfers and reducing reliance on traditional banking infrastructure, SpaceX lowers transaction costs and complexity. This approach also eliminates intermediaries that might charge additional fees.

• Global Accessibility: In regions with limited access to traditional payment networks, stablecoins provide a digital alternative for transactions, enabling SpaceX to serve customers more effectively.

So how would stablecoins reduce trading costs in our Nike example above?

Simple. Instead of paying for my sneakers in the Netherlands from my FNB account using ZAR, I will pay using my stablecoin wallet using a stablecoin like USDC—keeping in line with the US dollar as the global trade currency. The USDC goes straight from my wallet to the Nike retailer’s crypto wallet—instantly and with near-zero transaction costs because there are less intermediaries, and I also avoid ZAR currency fluctuations.

So individuals and businesses can both use stablecoins. In countries with volatile currencies like South Africa, India, Brazil, and Nigeria; this could mean avoiding high or fluctuating import costs and could lead to lower related inflation.

There are already a number of interesting companies I’ve come across that are working on expanding stablecoin adoption and usage:

• Tether (USDT): Pegged to the dollar. Has an estimated $112 billion market cap.

• USD Coin (USDC): Backed by Circle and Coinbase, worth ~$35 billion, it’s collateralised with dollar and US Treasury reserves.

• Binance USD (BUSD): From Paxos and Binance, pegged to USD, with an estimated $3 billion market cap.

• Yellow Card: Spanning 17 countries like South Africa and Nigeria, it’s a hub for trading USDT and USDC, easing remittances and payments.

• Bitmama: Big in Nigeria to help Nigerians dodge inflation.

I felt I needed to add some charts to add context to show the size of the stablecoin market:

1. Stablecoin usage has grown to an almost 45% share of all on-chain weekly transaction volume.

2. Stablecoin service providers are collectively now a top 20 holder of US Treasury bonds.

3. In South Africa, local exchanges receive tens of millions of dollars in stablecoins monthly.

4. Stablecoin usage is a multi billion dollar market in Africa.

5. One of the largest use cases for stablecoins in Africa seems to be remittances due to their lower transaction costs.

When it’s all said and done, we need this space to be widely regulated and embraced on a global stage. That way more players can enter the space and stablecoin service providers can compete on quality and price, further benefiting all of us as economic participants. Already a multi billion dollar space, stablecoin usage will continue to increase the more people learn about them and their benefits. The regulation part is also taking shape in many countries, but I’m keeping an eye on South Africa, the U.S., India, and Nigeria especially.

I encourage everyone to read the sources below from Chainalysis to understand more about the crypto industry and particularly stablecoins.

I hope you enjoyed reading this letter.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great day

-Mansa

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Sources:

• Sub-Saharan Africa: Nigeria Takes #2 Spot in Global Adoption, South Africa Grows Crypto-TradFi Nexus

• The 2024 Global Adoption Index: Central & Southern Asia and Oceania (CSAO) Region Leads the World in Terms of Global Cryptocurrency Adoption

• Stablecoins 101: Behind crypto’s most popular asset

On Monday Elon Musk posted a meme on X that jokingly suggested that the U.S. treasury’s gold stored in Fort Knox may be missing. The Department of Government Efficiency (DOGE), which Elon heads, was asked to audit Fort Knox because the last audit was apparently in 1953. For context, DOGE has been auditing different parts of the United States government at the direction of President Trump. It's been less than a month but already billions of dollars in waste have been identified by this department. So it's natural that DOGE would get requests to look into other parts of the government which haven’t been scrutinised in decades. But what if the gold at Fort Knox isn’t there, or is significantly understated?

Fort Knox reportedly holds about half of the U.S.’s gold reserves. That's approximately 4066 tons, or ~$386 billion worth of gold.

I asked ChatGPT: “What would happen to markets if it turned out that the U.S. 's gold stored in Fort Knox was actually not there?”

Here’s a link to Chat GPT’s response. But in summary, ChatGPT said there would be turmoil in markets because the U.S. dollar is (not directly) backed by gold. I wanted to talk about this topic in my own words because it requires some nuance.

The U.S. dollar is backed by gold but not in the way most would expect.

Yes, gold is still a major reserve asset that almost all country’s hold in their reserves, including large financial institutions such as the IMF. However, the U.S. dollar is not backed by gold. Not officially since President Nixon announced in 1971 that the U.S. dollar would no longer be convertible to gold. To use a practical example, the United States household savings amount was ~$1.2 trillion in 2024. Let's say all of the U.S.’s gold was in fact accounted for, and if there was a bank run where U.S. households needed to be reimbursed for their savings in gold, that would only make 65% of savers whole. What about the rest of them?

In another example (a worst-case scenario), if the U.S. dollar suddenly fell out of favour with world markets, was no longer the preferred reserve currency and global trade currency, and the United States economy fell into ruins as it became unproductive and U.S. domestic businesses were unable to trade internationally - all at the same time; the value of U.S. government bonds would plummet. There are many ways to estimate the damage but to drive this point home let's look at the $4.5 trillion in treasury and agency securities that commercial banks in the United States own. As liquidity providers, if commercial banks needed to liquidate that $4.5 trillion dollars, the U.S. treasury wouldn’t be able to make bond holders whole if the treasury sold all of its ~$772 billion in gold reserves.

That dilemma is exactly why since 1971 U.S. dollars have not been redeemable for gold, and why it's false to state that the U.S. dollar is backed by gold.

If it turned out that the gold that is reported to be stored at Fort Knox is in fact missing, there would indeed be market turmoil initially because many people don’t understand that whether the U.S. has gold reserves or not is more symbolic than it is a measure of actual solvency–because any country has historically shown value to the world based on its gold reserves. How long that turmoil lasts would only be driven by the breakdown of other financial instrument agreements (mortgage backed securities pricing, credit default insurance pricing and claims, commodity futures contract volatility, etc). Since the collapse of the gold standard, a country's economic might (whether there will be significant incremental gross domestic productivity) and military might (whether they can successfully withstand attempts to disrupt their economy) have been the most important factors that we consider when deciding to allocate capital in that country.

This is actually a good test to run for all countries that produce their own currencies. The conclusion you would draw is that no currency is really backed by gold assets—but rather by global confidence in the economy that issues the currency. Think about why countries that are rich in gold deposits such as Australia, Russia, and South Africa (in that order) aren’t even close to being the richest economies in the world.

It will be very fascinating to see what DOGE finds if it is allowed to audit Fort Knox. All of this may even turn out to be a nothing-burger. But if an organisation hasn’t been audited since 1953, there’s something weird going on. Where there’s smoke there’s fire… but let’s see!

I hope you enjoyed reading this letter.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great day

-Mansa

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Last week the South African Reserve Bank cut interest rates by 25 basis points, down to 7.5%. This was mostly expected given lower trending inflation in South Africa over the second half of 2024—where annual inflation has come in below the 4.5% central bank target for 5 months in a row. Some feel rates are still too high and others feel the central bank should be considering more economic data when setting interest rate policy. I’ve also had similar thoughts but honestly, understanding the economy is tricky and it's hard to tell who’s right and who’s wrong when you listen to different takes, because there are a lot of moving parts in an economy. That said, I think that the South African Reserve Bank is doing a good job, given their mandate.

Before I explain why I think that, I encourage everyone to read the short essay that I published about the South African Reserve Bank, looking at critical historic moments in its mandate. Like it did for me, that essay will help ground your thinking about the role of the South African Reserve Bank (SARB).

So yes, in my opinion, the SARB is doing a good job because before they were officially tasked through the constitution in 1996 to focus on “protecting the value of the currency in the interest of balanced and sustainable economic growth”; since it opened its doors in 1921 the SARB has had to play an intense role to manage capital flows while dealing with a volatile South African economy. Over the years, once a floating exchange rate system was put in place for the Rand (ZAR), the central bank was tasked with managing this exchange rate predominantly with the U.S. dollar through various mechanisms which you can read more about in my essay that I mentioned earlier. The SARB struggled to manage the exchange rate in the early years of that mandate as they had to contend with relatively low economic productivity, the economic fallout from apartheid policies locally and from resulting global sanctions, as well as the economic/political transition post 1994. For context, the rand went from ~77 cents to the dollar to over R7 to $1 between 1980 and 2000.

But let’s double-click on what it means to “protect the value of the currency in the interest of balanced and sustainable economic growth”.

First and foremost, the SARB must manage inflation— which it does through interest rate policy. Inflation is a crucial indicator of purchasing power within an economy because it affects spending, and spending drives an economy because one person’s spending is another person’s income (H/T to Ray Dalio).

Looking at the chart below, the SARB has done a pretty good job to manage inflation between a band of 3%-6% (white block), and more recently to keep inflation around 4.5% specifically (purple block). You’ll also note that they’ve managed inflation well against the backdrop of an ever-depreciating rand.

The SARB also plays in an environment where the ZAR floats freely against other currencies, which may not necessarily be the best policy for a developing economy. For example China and India operate under a managed floating exchange rate system for their respective currencies. This policy has likely played a significant role in propelling China into a global economic superpower, and India is up next according to many smart capital allocators. Unless it can be countered by rising export activity, a depreciating rand means imports (which are denominated in U.S. dollars) are more expensive, which again will fuel inflation and this can become a never-ending cycle. This is why the SARB cannot take its eye off of inflation.

A free floating currency is extremely vulnerable to macroeconomic volatility, and we’ve seen how the rand has taken a hit during volatile macroeconomic events such as the dotcom bust, the global financial crisis, and more recently with the covid pandemic. I’ve often said that the rand is a global proxy for global sentiment towards emerging markets because it floats freely.

Should the SARB consider broader economic data when setting interest rate policy?

I don't know the answer to that question. But I can posit a few ideas for debate…

For starters, it's important to remember that interest rates set by the central bank can play a role in both influencing borrowing, spending, and inflation for consumers; but interest rates also determine the interest rate that an investor will get if they allocate capital to an investment. Keep this in mind as you read on.

Looking at the chart below, interest rates are still near the lowest they’ve been going back to the early 2000s, barring times of economic shocks. Developing economies generally experience volatile inflationary periods, and the SARB has done well to manage inflation in South Africa through interest rate policy as the country experiences inflation spikes.

Another idea for thought is that, looking at this next chart, there has been a correlation between falling interest rates and rising GDP since the early 2000s to today. While it would require a more nuanced discussion, I would suggest that rising GDP has allowed interest rates to come down in South Africa, because investors have accepted lower interest rates as economic productivity has increased in South Africa—suggesting that the investment environment has become less risky over the years.

When assessed in a global context, however, there has relatively been little to no growth in GDP for South Africa (red line) when compared to the United States (blue line), China (orange), and the UK (yellow).

Therefore, while interest rates are near historic lows, on a global scale the lack of productivity in South Africa manifests in things like high unemployment, low business and consumer confidence, and a weak currency. Unemployment (or job creation trends) and GDP data are some of the most important economic data points that the Federal Reserve Bank considers for example, but it's difficult for the South African Reserve Bank to consider these same points because South Africa and the United States are at opposite ends of the productivity spectrum.

So when people suggest that the SARB should consider more economic data when setting policy, I would say that they do consider economic data, but they can’t be compared to a developed nation’s central bank. My suggestion is that we should rather direct our attention towards government supported initiatives, and focus on building and driving economic productivity in South Africa.

Interesting developments that I’m digging into are how state owned companies such as Transnet and Eskom continue to open up to allowing private businesses to operate or play a significant role in state owned infrastructure and strategic assets. These are the policies that will ignite economic growth in South Africa.

Next we need positive small/emerging business policies such as a Startup Act and even significant tax breaks and subsidies to support small and emerging businesses in their earlier stages—which will enable these businesses to create jobs locally, and eventually grow to compete on an international level.

I’d love to hear any thoughtful comments regarding this letter and any additional insights you may have on the role of the central bank. Please feel free to comment below, reply to this email, or message me directly.

I hope you enjoyed reading this letter.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

I hope you all have a great day

-Mansa

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By chance I came across a Daily Investor article that mentioned comments that South African Reserve Bank governor Lesetja Kganyago made about bitcoin during a panel discussion at the World Economic Forum in Davos. Brian Armstrong was also there, and was reportedly advocating for a bitcoin strategic reserve for countries.

In his own words according to the article, governor Kganyago said about bitcoin: “But, if we now say that we should add Bitcoin to our reserves, what about platinum? What about coal?... Why don’t we hold strategic beef reserves? Or mutton reserves? Or apple reserves? Why Bitcoin?”

In my opinion those comments show a lack of intellectual rigour from the governor.

Firstly, a strategic reserve can take on a slightly different definition based on the context of the term.

The United States has had a national petroleum strategic reserve since 1975, which they’ve used at various times in history to stabilise oil supply disruptions. Most notably, in 2022 after the Ukraine war broke out the United States government used this reserve to alleviate inflationary pressures on consumers. In this example a strategic reserve is a commodity that can be introduced into a market in times of supply disruptions.

In 1931, after Britain abandoned the gold standard, volatility in gold markets increased. At the time, the South African pound was still linked to the British pound, and when the South African Reserve Bank (SARB) initially tried to maintain the gold standard, South Africa experienced large capital outflows due to falling investor confidence. In response, the SARB sold large volumes of gold reserves to defend the local currency. However, in December 1932, South Africa also abandoned the gold standard, leading to a devaluation of the South African pound.

In this case (although other factors were at play and the strategy was unsuccessful), gold reserves functioned as a strategic financial asset, used to support the financial capacity of the economy and maintain investor confidence.

What market participants are suggesting when they mention a Bitcoin strategic reserve is something similar to the second example - a financial asset that could be added to a country's sovereign reserves to enable the country to benefit from the upside of the asset, as well as being able to use the asset to attract external capital.

As “gold 2.0”, bitcoin will play the same role that gold plays for national treasuries. It's been nicknamed gold 2.0 because bitcoin has a predictable, transparent and stable monetary policy in that we know that there will only ever be 21 million bitcoins mined. We know how many bitcoins there are in circulation. We can accurately track bitcoin flows globally. Bitcoin can be distributed more efficiently amongst institutions and individuals at any scale required. And no one can “game” the system. Can’t really say that about gold.

Remember also that something is only ever called an asset and deemed to have value because there’s a market for it. In other words an asset only ever has value, and can be called an asset, because enough people agree that it’s valuable. As influential capital allocators, BlackRock, Fidelity, and some of the world's smartest minds like Ray Dalio and Paul Tudor Jones have agreed that bitcoin has value. We now need to escalate the intellectual debates so that reserve bank governors can engage more meaningfully as well.

It’s clear that the U.S. and President Donald Trump are advocating for a bitcoin strategic reserve for America because they believe it will help them address their ballooning national debt. It’s clear that largely because of bitcoin, President Nayib Bukele announced that for the first time in the country’s history, El Salvador will no longer need to finance its national budget through foreign loans. Even the head of the Czech National Bank responded that they are looking into bitcoin to diversify their reserves.

I would expect the governor of the South African Reserve Bank, one of the most storied central banks in the world, to also be able to engage accordingly regarding Bitcoin.

It can only be a net positive to have a market-beating asset in your reserves. Seriously diving into a technology like bitcoin as a national project will also likely unlock further innovation as South Africa signals technological prowess to the world.

I’m looking forward to seeing if there will be more debate on a national scale about innovative projects like this. South Africa needs it.

I hope you enjoyed reading this letter.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great day

-Mansa

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I’m writing this letter about 3 hours after the Kobeissi Letter’s X account tweeted: “If DeepSeek supposedly has 50, 000 Nvidia, $NVDA, H100 chips, then why is the stock down -13%? This would be bullish for Nvidia, let alone a decline. Something doesn’t add up here.”

(By the way Nvidia is down 20% at the time of writing this letter!)

For those who are unclear, last week a Chinese company called DeepSeek released an AI model that was apparently as good as OpenAI’s o1 model and DeepSeek did that at reportedly 1-3% of the cost it took OpenAI to build their model.

I wasn’t sure what to make of this announcement, except to affirm the thought that market participants have made me aware of, which is that AI is being commoditised and is a race to the bottom in terms of cost and revenue that you can generate (I’ll come back to this point shortly). However while driving, a rush of thoughts came to my head, and a lot of content I had consumed started fitting together like puzzle pieces.

Everyone always mentions that we’re early in this “new” AI wave and that it's hard to value companies such as OpenAI, xAI, Anthropic, and the like which are producing extraordinary AI models. I’ve also wrestled in the past with how best to value companies in this space. Because of the lack of clarity regarding who will be the winners, smart capital allocators like Stan Druckenmiller bought a ton of Nvidia stock, which is up 1900% since 2020 because Nvidia today has a market share of 90%+ for GPUs used in training AI models.

The first thing that should raise your eyebrows is that the American government set strict controls on American companies selling powerful computing infrastructure to non-allied countries like China. So if Nvidia GPUs are essential for building a powerful AI model, how did a Chinese company build one that is as powerful as one of OpenAI’s most powerful models?

The selloff in Nvidia stock I think echoes this line of thinking. Perhaps Nvidia isn’t as essential a pillar for AI as everyone initially thought. In that case, we should question whether we are valuing the right things and are asking the right questions. But this is what startups do. They shake the status quo. Convention says things must be done one way, the startup (usually with less resources than incumbents) says no ways, there’s another way. And that's innovation.

As a capital allocator I wouldn't yet touch anything in the AI space (except Perplexity, I wish I was heavily involved in that company because they are outstanding!).

One idea that I would like to see solved however is monetising open source projects. Essentially open source projects in software are where a company produces a software model and they share their methods with the market, and allow innovators access to their models so that developers can build on them. The catch though is that the developers basically “copy and paste” the model, then build from there, which makes it difficult for the original developer to really monetise the new developments. But if the original software model producer can anchor developers (like how a real estate developer builds on a piece of land) they would make a lot of money.

The point I mentioned above about AI being a race to the bottom is rooted in the premise that newer and better versions of models are coming out, and are costing these innovators a fraction of the cost, and at the same time revenues are somewhat challenged because of open source movements like DeepSeek and others.

It's fascinating to see all of this innovation in AI which seems to be happening at breakneck speeds. I also think we should be putting more value on companies that can report to be using AI heavily in their systems and processes to reduce costs and/or drive productivity and revenue gains.

How are you using AI in your personal or business life? Please let me know in the comments or reply to this email.

I hope you enjoyed reading this letter.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great day.

-Mansa

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Yesterday was Donald Trump’s inauguration as the 47th president of the United States, beginning his second term in office. Exciting times ahead because I think this time around he’s a more skilled player. I encourage everyone to follow his plans for the United States in his second term. One standout for me in his campaign trail was his pro-crypto stance, leading to him promising to implement a national bitcoin strategic reserve for the United States, and culminating in him launching the $TRUMP memecoin, which reportedly peaked at over $68 billion dollars.

But today I want to talk about an oversight that the BRICS nations are showing.

It’s been reported that last year the BRICS nations significantly ramped up their gold purchases for plans of creating a new gold-backed BRICS currency, and apparently top BRICS members including Russia, India, China, Brazil, South Africa, and Egypt now collectively hold approximately 20% of all the gold held in the world’s central banks. In past years these events would have led to wars and economic hostilities, but again, Trump 2.0 seems like a more skilled player.

While BRICS buys gold, the U.S. government is discussing dumping some of its gold for bitcoin.

This will destabilise what BRICS is trying to achieve.

According to the recently proposed BITCOIN Act within the U.S. parliament, this proposed Act suggests that the U.S government should purchase 200 000 bitcoins annually for the next 5 years (eventually holding 4.7% of all bitcoins at last mine), and that these bitcoin purchases be funded largely by existing U.S. gold reserves. The aim is to take this bold leap as an economic tool to work down the United States national debt and reinforce the U.S. dollar.

Quick summary:

In the 1930s, the United States issued gold certificates, which were paper documents representing a specific amount of gold held by the U.S. Treasury at a certain price. These certificates facilitated transactions between the Treasury and the Federal Reserve. In 1934, the Gold Reserve Act required that all gold and gold certificates held by the Federal Reserve be surrendered to the U.S. Treasury. By 1973 the statutory price of gold was set at $42 an ounce and has remained unchanged since then.

This valuation significantly undervalues the U.S. gold reserves compared to current market prices, which are currently approximately $2 700 an ounce. The proposed BITCOIN Act suggests that the U.S. adjust this outdated accounting system by revaluing the gold certificates to reflect the current market price of gold. This revaluation would result in a substantial accounting gain for the Treasury, which could be used to fund the establishment of a Strategic Bitcoin Reserve. By marking the U.S. gold reserves to the current market price, the Treasury could unlock billions of dollars in additional value.

- -

Yes it seems iffy but it’s all legal and makes sense because since the U.S. ended their U.S. dollar peg to gold in 1971, they haven’t had much use for gold because the U.S. dollar became the world reserve asset, because it was the global trade currency.

But now a new asset is in the game: Bitcoin.

Bitcoin has a more robust store of value system because you can at all times tell how many bitcoins there are in the market, who owns them, where they moved them to and when, and you know that there will only ever be 21 million bitcoins mined. You can’t accurately determine how much gold there is, who owns it, what they did with it, and how much more can be mined. Also gold is clunky and is a mission to move around.

The U.S. recognises the importance of bitcoin as an asset today, and if the BRICS nations are serious about creating a viable counter-balance to the United States hegemony, they need to sharpen up and read the room.

Again, the proposed BITCOIN Act in the U.S. suggests revaluing the U.S.’s gold reserves (creating more buying power for the U.S.) so they can purchase Bitcoin without it costing them anything.

If the most powerful nation in the world is selling off an asset the value of that asset will go down. And if that same nation is buying another asset the value of that asset will go up.

To put it more bluntly, the BRICS nations' gold reserves will lose value over time, destabilising their plans, and they will also miss out on benefiting from bitcoin’s price appreciation if they don’t take bitcoin seriously.

I had suggested in a previous letter that South Africa should add a national bitcoin reserve, and I suggested in another letter that Nigeria adopt a similar strategy. In both letters the point was that bitcoin has the ability to lift an economy out of troubled times, which is why the U.S. believes it will help solve their ballooning national debt, and why I’m suggesting bitcoin could create similar economic power for BRICS.

I want to leave this chart here, which shows how the U.S. national debt has grown at 177% since 2010 vs gold which is up 146%, vs bitcoin which is up over 28 million %. Even though past performance is not an indicator of future returns, there are clearly smart players who believe there’s still tremendous value in bitcoin.

I’d love to hear other ideas on this topic. Do you agree or disagree with this letter? And am I missing anything? Please reply in the comments or reply to this email with your thoughts.

I hope you enjoyed reading this letter.

On my journey to becoming a master capital allocator, one lesson down, a billion more to go.

Hope you all have a great day

-Mansa

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