In today’s Exponential Investor:

  • Chicken but not as you know it
  • A game changer for our food
  • Blowing $95 million in an asymmetric investment

Why did the chicken cross the road?

It was because he wasn’t a chicken at all, but a bioengineered drumstick the US Food and Drug Administration (FDA) said was perfectly safe to eat!

That is a crude “joke”, I know. But the punchy punchline is factual.

Late last week the FDA completed the, “first pre-market consultation for human food made using animal cell culture technology.”

That’s their wording. But it means that the FDA has effectively cleared the way for lab grown meat made from animal cells to hit the shelves.

UPSIDE (sic) potential

The authorisation was given to a company called UPSIDE Foods. The company takes cells from real chickens, grows them in a controlled environment and makes chicken.

Ok, this may sound a little bizarre maybe, but the potential of this approach to food production is game changing.

Let me ask you this, when you go down the meat aisle at your local supermarket and pick up a pack of chicken breast, what’s going through your mind at that very moment?

Are you considering the life of the feathery friend you’re planning to consume? Are you even thinking about that pack of breast as a “real” creature at all? Or are you simply thinking about whether to cook it tonight with hoisin or sweet & sour sauce?

I’d argue that most people don’t think about it. They just want to know that it’s chicken, it’s not exorbitantly priced and that it’s going to taste good.

Now if that chicken breast was never actually a chicken at all, but the breast you picked up out of the fridge section looked, tasted, cost and biologically was the same… would you care?

I wouldn’t. And I’d hazard a guess that most people wouldn’t care.

Make no mistake, though, that this is the first step forwards in a significant disruption to farming and agriculture. There’s positives and negatives longer term about it. But, overall – if the cost can be kept down, the quality can be kept up and the supply can be easily met – this may be one of the most exciting stories of the entire year.

And for companies that are developing animal cell based foods, this could be the first big catalyst to set their industry on a game-changing trajectory.

Buyer beware

The fallout from the crypto exchange collapse continues to reverberate around the industry.

The multi-billion-dollar exchange is in the process of trying to find assets to pay back creditors, to meet the claim on assets from customers, and to just unwind what is an incredibly complex situation.

The man who was brought in as the new CEO/administrator is the same person who helped unwind and clean up Enron, the massive energy distribution, trading and investment company that collapsed spectacularly in late 2001. Considering his experience, it’s quite telling when he says he’s never seen anything like the mess of FTX.

But the collapse has other ramifications that spread beyond customers and creditors. The Ontario Teachers’ Pension Fund has invested around $95 million into a funding round of FTX. At the time, it would have seemed like a genius move, as the exchange was growing fast and the valuation continued to rise…

… until it imploded.

Asymmetric investing

Now the pension fund is writing off its entire $95 million investment. Now, to the average person, $95 million is a huge amount of money. And you’d think that writing that down to $0 would be crippling.

Well, the truth is that  it’s not actually such a big deal. Without being too flippant about it, the $95 million represented around 0.05% of the pension fund’s assets under management (AUM). With over $250 billion in AUM $95 million hurts, but just not that much.

It was very much an asymmetric call on the part of the pension fund. A small investment into a potential star, had FTX not been an utter shambles, would have made the pension fund a fortune. Unfortunately, it played out the other way around.

But an important lesson can be learnt from the pension fund’s misfortune. As I say it represented just 0.05% of their AUM. While they wouldn’t have liked, or anticipated this outcome, the loss is the sort that one would expect in the proverbial “normal day in the office”.

They placed an asymmetric investment, meaning the small amount put in had the potential to deliver multiple times over in the long run. But if it didn’t and it did go to zero, which it did, it also wouldn’t really cause any harm.

This is what you call smart capital management. And individual investors can take a lesson from it. Investing in any risky market has its ups and downs. The ups in the crypto market can be addictively high. But the downs can be terrifyingly low. If you’re appropriately prepared for both outcomes, then you can invest and sleep at night when playing in this market.

Until next time…

Sam Volkering
Editor, Exponential Investor