Why Are Toys Such a Bad Business?

This is the once-a-week free edition of The Diff, the newsletter about inflections in finance and technology. The free edition goes out to 8,221 subscribers, up 211 week-over-week. This week’s subscribers-only posts:

• The UK as a Science Hub is an update on Boris Johnson’s plan (or, if you prefer, Dominic Cumming’s scheme) to make Britain a scientific powerhouse. The outlines of the plan aren’t new, but the opportunity is.
• The Equity Risk Premium at 0% Interest looks at the implications of low real rates for tech companies. In equilibrium, low rates are good for equities because they raise the present value of future cash flows. But another way of saying this is that, in financial terms, low rates mean the future happens all at once.
• Globalization: A Toy Story) is a prequel to today’s note, discussing the history of Hong Kong’s toy industry. Hong Kong’s toy industry was basically nonexistent in 1945, the biggest in the world by 1972, and consistently lost share to China from the 80s onward. It’s a case study in how globalization works.
• The Depressing Bull Thesis for Rocket Mortgage is a writeup of Rocket, the largest mortgage originator in the US, which recently filed to go public. Fewer red flags than expected, but it’s partly driven by a dire financial bet.

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In this issue:

• Why Are Toys Such a Bad Business?
• V-Shaped Recovery is here… just not evenly distributed.
• Tech Sees Like a State: Indonesia Edition
• Clever Currency Games
• Treasuries: Bad Deal, No Alternatives
• China Equities Update
• Video Games and Pricing Power

Why Are Toys Such a Bad Business?

Early-stage investors sometimes use the heuristic that if a product gets derided as a toy, it’s worth investing in. That model would have gotten you into PCs in the 70s, the Internet in the early 90s, social networks when the good ones were privately-held, cryptocurrencies, and drones. The risk is investing in actual toy companies, which is usually a terrible decision. Hasbro stock hasn’t done anything for half a decade, and Mattel trades where it did in the early 90s. JAKKS Pacific has destroyed most of its shareholders’ wealth, and Funko is working on the same.