[VIC – 100] Don’t talk 💩 . Heeeeeem (heme). The right questions. Samsung soundbar.

Business & Money

I was listening to an episode of a podcast called Industry Focus this week about Fedex (FDX) and UPS (ticker is the same). Basically the conversation was about whether or not these two stocks might offer attractive return profiles in light of the explosion in global shipping volumes (grew by 48% from 2014 to 2016 across 13 major global markets).
During the 30-minute conversation, the following question was posed, “With Amazon entering the shipping and fulfillment market, do you think they pose a threat to FedEx and UPS?”
One of the analysts on the line responded with, “FedEx and UPS have pretty big moats in terms of the sorting centers they have and fleets they operate. That’s not to say that Amazon couldn’t enter the business. They’ve shown over the years that they’re willing to spend billions when Bezos decides to enter a new market. But I think that FedEx and UPS have massive moats nonetheless, and not too much to worry about.”
I literally laughed out loud as I was walking on the sidewalk.
First off, to doubt Bezos is to dig your own grave. When all is said and done, he may be in the running for the greatest business person of all time.
Secondly, we’ve seen this movie before. Analysts and incumbents making foot-in-mouth statements about startup competitors, only to later fall into obscurity at the hands of those same companies.
In fact, here is FedEx’s Executive VP Mike Glenn talking about Amazon:
“While recent stories and reports of a new entity competing with the three major carriers in the United States grabs headlines, the reality is it would be a daunting task requiring tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like FedEx.”
Or remember back when Siebel was the king of CRM. Thomas Siebel of Siebel Systems told Bloomberg in 2003, “Microsoft will roll [Salesforce] over. They get Zambonied.” I used Siebel when I was AT&T, before adopting Salesforce when I moved to AdRoll. It’s unfathomable to me how Siebel owned that market.
And we can’t forget about Blockbuster CEO Jim Keyes when he said “Neither RedBox nor Netflix are even on the radar screen in terms of competition. It’s more Wal-Mart and Apple.”
You almost wince at the incredible hubris coming from these guys and gals. The lesson is simple. Stop talking shit and heed the lessons of history!

Human Progress

All animals either eat other animals, plant matter, or a mixture of the two. As you move down the food chain, it’s primarily plants for food, and perhaps bugs. And same goes for bugs. They either it other bugs, plant matter, or a mixture of the two. So it’s fair to say, if you follow the chain, all of the nutrients start with plants.
It’s a pretty basic idea when you really think about it. So there really shouldn’t be anything that we can’t get from plants, from a nutritional standpoint.
But then why is meat consumption so pervasive? First off, it’s been culturally baked in. Our food pyramids have it, our holidays and celebrations are centered around it, you usually have to call ahead to ask about vegetarian options at restaurants. It’s just the default.
Secondly, and more importantly for most people, it’s delicious! But if we go back to our core idea, there shouldn’t be any reason we can’t recreate that taste with plans. If the cows are consuming a purely vegetarian diet, then it’s only the chemical reactions and bacteria throughout their digestive systems that’s responsible for converting the plant matter into meat. I’m not a biology major so I’m just trying to oversimply this matter for sake of conversation.
In any case, it turns out that a specific molecule called heme is a key catalyst in the chemical reactions that take simple nutrients (fats, amino acids, etc) and turn them into the unique explosion of flavor, aroma, and juicy-ness that is the meat we love. This fact was discovered by Patrick Brown and his team from Impossible Foods, a startup making burgers that look, feel, and taste like the real things, but are made solely from plants.
Patrick recently spoke at Stanford about what they’re up to and thought you guys might like to check it out:

Philosophy

I recently had a friend ask me whether I was for or against net neutrality. Easy answer. I’m for net neutrality. A fair and open internet is a no-brainer. It’s key to innovation, economic growth, fair markets, and much more.
But that’s not really the right question. What’s really at issue is how internet companies (ISPs, tech giants, etc) should be regulated and whether Title II of the Communications Act is the right approach. That’s a much harder question to answer with tons of grey areas. And I don’t want to get into that here, but rather to point out that it’s important to focus on the right question.
Let’s frame it differently. Are you for or against killing human beings? Stupid question. Killing people is wrong. But then again, you could get into tons of conversations about capital punishment, assisted suicide, and self-defense. Another poorly framed question.
The framing of questions is so immensely important, and often not given enough attention. I’d even venture to say that this might be one of the most important challenges we face in everyday life.
Are you a democrat or republican?
What religion are you?
Are you for or against Black Lives Matter?
These simple and surface-level questions often lead to equally simple and surface-level responses, that then result in snap judgments, misunderstanding, and polarization. If only people could spend more time asking thoughtful and well-framed questions.

My Latest Discovery

I was recently in market for a soundbar + subwoofer combination for my living room. The speakers on the TV seemed to be on the fritz, but it’s a great TV and not yet ready to be replaced. After a bit of searching, I landed on this one:

It has far exceeded my expectations and I would highly recommend it! Great bang for not so many bucks.

[VIC – 95] Coughing on the froth. (Lack of) progress in corporate taxation. It seems to me. AirPods are dope!

Business & Money

Netflix is an incredible company. I don’t spend much time in front of the TV these days, but when I do, Netflix is often what I’m using. From an equity perspective, the stock has also been good to me. Very good.
BUT.
I sold my entire position this week. Let me explain why.
In 2007, Abbey (the UK’s 2nd largest mortgage lender) increased the amount that it was willing to lend homeowners to 5X their annual salary. The historical benchmark was 3.5X.
Just this past June, Argentina issued $2.75 billion of century bonds at an interest rate of 8%. And this was just as it was coming out of default. Actually, Argentina has defaulted on its debt 5 times in the last century, and 8 times in the last 2 centuries. What’s more, this most recent bond issue was heavily oversubscribed.
I point out these 2 examples because we are in the “this time is different” phase of the current bull market. People are forgetting what happens when debt markets get frothy. And right now, the froth is so deep you can swim in it.
To bring it back to Netflix, they’ve just announced a new (junk) bond issue to raise $1.6 billion to fuel its content spending machine (planning to spend $7 – $8 billion on content next year). COUGH COUGH. Please excuse me, I was chocking on the froth for a moment.
And the new debt sits on top many other concerning facts. The company burns cash faster than a California wildfire and has had negative free cash flow forever. The cost per subscriber is climbing faster than the revenue per subscriber. If there’s one company that might overcome all of this, it’s Netflix. But I’m not willing to make that bet, especially in this market climate.
It’s possible that we have a ways to go in this bull market. And perhaps I will miss out on a solid portion of the upside for Netflix in the near term. But those that rise the highest during bull markets will fall the farthest in bear markets. And that is exacerbated when you have shaky fundamentals.
And don’t forget, there’s nothing stopping me from getting back in when things come back down to earth.
I’ll remind you, THIS TIME IS NOT DIFFERENT!

Human Progress

Amazon has made nearly $470 billion in revenues over the last 5 years. They’ve paid $2.4 billion in corporate income taxes over the same period. That doesn’t seem right.
Bezos and his executive team are getting incredibly rich, they’re creating a ton of shareholder value, but it seems society should see some of this value creation. We have public schools, infrastructure, social security, and many other things that we’ve agreed as a population are important.
Amazon has been making incredible progress over the years in cloud computing, automation, machine learning, and e-commerce. But their business model has also revealed a glaring lack of progress in how we look at corporate income tax. It doesn’t seem right that you can run a business at break even and avoid paying taxes, while also enjoying cheap access to capital like it has never been seen before.
And I’m not at all proposing that there exists an easy solution. But I think we need to start getting creative and trying new things. Perhaps businesses above a certain market cap could be taxed based on a percentage of revenues. Perhaps that percentage could change based on industry and/or fixed vs variable cost structures. Perhaps taxation could show up higher on the income statement before R&D expenses are taken out.
Who knows.
But I do believe that there are tons of people way smarter than I am that could spend a bit more time with this one.

Philosophy

I came upon a quote this week that read “great musicians know when they are out of tune. Poor musicians do not.” To use different language, I read it as “it’s easy for smart people to say ‘I don’t know.’ Stupid people think they know everything.”
I once read an article from Albert Einstein from the time when he was first formulating his ideas that would lead to the birth of quantum theory. The article begins,
“It seems to me that the observations associated with blackbody radiation, fluorescence, the production of cathode rays by ultraviolet light, and other related phenomena connected with the emission or transformation of light are more readily understood if one assumes that the energy of light is discontinuously distributed in space.”
I love the way that it begins with “it seems to me.” Here is one of the most brilliant minds to ever grace the earth stumbling upon one of THE transformative ideas in modern science, and he hesitates with the humility that only a great man can have.
I think this happens because the more one reads and learns about the world, the more apparent it becomes how little we actually know and understand about how things work.
Further, there’s this concept in science known as an “effective theory”. That is, a theory that applies in practice and is observable in everyday life. Since we’ve mentioned quantum theory, we can stay on this subject. Before quantum theory, Newton’s laws were the end-all-be-all in terms of describing the motion of objects. But if you zoom in enough, these laws will start to break down, and quantum mechanics takes over. That, however, doesn’t make Newton’s laws any less true. These laws make up an “effective theory” in that they work well to describe reality with regards to human experience. Quantum mechanics is simply more fundamental, more granular if you will.
Personally, I believe it makes sense to approach everything I know as an effective theory. Here is what I’ve learned and here is how it applies. But, at some future juncture, it’s likely that I’ll learn a new piece of information or idea that allows for a more precise understanding of how things work. And that new knowledge will allow me to go beyond my previous limitations, and thus should be welcomed when it arrives.

My Latest Discovery

Apple AirPods are incredible for so many reasons.
First off, no more dealing with a tangled cord after retrieving them from my backpack.
Second, the pairing with my watch, phone, and computer are seamless. I no longer have to pair and un-pair multiple times per day.
Third, the AirPods themselves hold a great charge and, given you toss them in the case when you’re not using them, they’re constantly being recharged (though constant charging is generally not great for long-term battery life, so we’ll see where this one nets out).
With AirPods, you can really start to see a future where you don’t need to bring a phone every time you leave the house.

[VIC – 68] Amazon vs the 🌎. Mnuchin off his 💊💊. Let her finish. Via 🚙.. Which identity comes first❓❓

Business & Money

Amazon has an incredible business model. Start by building an e-commerce platform to sell books. Once at scale, allow anyone selling anything to leverage that platform to sell their own goods for a nominal fee. In the process of building this massive marketplace, create a powerhouse of a logistics network (warehouses, software, supply chain expertise, etc) to facilitate all of this activity. Once at scale, allow manufacturers and retailers to leverage these same logistics services and facilities for a nominal fee. In the process thereof, build out world-class cloud infrastructure for all of your own storage, processing, and computing needs. Once at scale with these efforts, allow any other company to leverage these same cloud services for a nominal fee.
It’s an absolutely genius model that continues to pour more and more gasoline on the fire that fuels growth. One hell of a flywheel!
This model shows no signs of slowing down. You may have read about how Amazon is experimenting with physical grocery stores where customers can simply walk in, grab what they want, and leave without stopping at a cash register. Or perhaps you’ve come across the fact that they’re leasing planes and investing in their own cargo hub in Kentucky. I’d say it’s pretty safe to assume that, once they figure out the model, the self-checkout technology will be offered to other retailers and the cargo hub will service the other logistics companies (of course for that not so nominal fee).
So, despite Amazon shares being crazy expensive (P/E ratio of 180.56), it may yet be undervalued. The company accounts for only 5% of retail sales (half the share of Walmart) and e-commerce still accounts for a single-digit percentage of all retail sales.
If you couldn’t tell, I am looooong Amazon!

Human Progress

Steve Mnuchin, the Treasury Secretary of the US, might be off his 💊💊.
“I think that is so far in the future – in terms of artificial intelligence taking over American jobs – I think we’re like so far away from that, that uh [it’s] not even on my radar screen. Far enough that it’s 50 or 100 years away.”
Are you f*&%$* kidding me??? I don’t think I’ve ever disagreed more with a single statement. This guy must be off his rocker.
Now, I don’t want to spend valuable time deriding this guy, but let’s focus on the crux of the issue. Why is artificial intelligence, or machine learning (ML) more specifically, important? Computer scientists have been touting its power and potential for decades and we have nothing to show for it except for movie recommendation algorithms and autonomous vacuum cleaners. Why is this time different?
I’ll tell you why this time is different. It has to do with something very fundamental to where we are with regards to this technology.
First, a definition. Now, I’m no engineer or machine learning expert, so I won’t even attempt to get technical here. In my own laymen terms, ML involves computers learning from lots and lots of data. You’ve likely taken a basic statistics class at some point. Do you remember covering probability? Simply calculating the likelihood of a future event based on historical data points? For all intents and purposes, that’s ML. Whether you want to talk about facial recognition, translation, product recommendations, self-driving cars, or anything else. It’s just looking at a bunch of data and past events, and using that to predict the future.
With that out of the way, we can get back to why this time is different. Throughout the history of technology, we’ve been building machines to work for us. Steam engines, the printing press, cars… All of these things burn fuel to do work so that we don’t have to and faster than we would be able to on our own. But, as wonderful as they all are, these machines are not “creators.” By that I mean, they have no ability to create anything outside of what is hard coded by human beings. Once you turn on the printing press, it will continually print things exactly the same way over and over again until the energy source is depleted or the machine breaks down. At no point will the machine figure out a better way to print something. Only a human being can design a better machine to replace the old one. This has been the model for technology since time immemorial.
With machine learning this changes. Take speech translation for example. When early translation programs were developed, the software was very simple. Here is the English dictionary. Here is the Spanish dictionary. Replace each word with its equivalent in the opposite language and voila. Translation! Of course, this fails because that is not how translation works. It isn’t a word for word type of thing. Different languages have different ways of conveying tone, capturing tense, etc. With the latest incarnation of Google translate, however, we have a whole separate ball game. The algorithm can look the entire library of books, articles, speeches, web pages, etc that have been translated into another language and start to predict how a sentence should be translated. What’s more, as the system takes in more translation examples and receives feedback, the algorithm can actually learn and improve mid-flight. That is, without human intervention, the translation service actually improves over time. That’s bananas!! 🍌🍌🍌🍌🍌
This is what Mr. Mnuchin is not understanding. This is not like other technologies where we invented something new that was better at doing a job. We have computers getting “smarter” by themselves.
Now I don’t want to overstate this. The capabilities are still very narrow. Each ML system is very good at one specific thing, but completely incompetent with regards to every other domain. None the less, this is a big deal.
Further, in addition to the fundamental difference just described, the speed of proliferation will be unprecedented. If we go back to the printing press and steam engine example, once these technologies were developed, it might take years or decades for the technology to spread across the globe. In the digital era, this is not the case. When talking about software and other digital goods, things can spread instantaneously, the cost of distribution is 0, and the marginal cost of creating another unit, also 0. When a new algorithm or application is created, you click a button and it is available in every corner of the globe. Again, 🍌🍌🍌🍌🍌!!
With these two fundamental differences, that is the machines playing the “creator” role and the speed at which these things can spread, we’re in uncharted territory.

Philosophy

A few days ago my fiancé made Tteok-bokki (pronounced “duck-bogi”). It’s a stir-fried Korean dish with fish cakes, rice cakes, boiled eggs, onions, and red pepper paste (among other things).

While she was cooking, she was multitasking with a few other things, so asked me to stir the pan. As I began to stir, the dish seemed overly watery. I opened my mouth to ask the question, “It’s a bit watery, no?” But then I paused. There was a slight a fear of being punched in the face, but more so, a realization that I should wait to ask the question. She’s made this dish countless times and perhaps it congeals as it cooks.
That’s exactly what happened. it was absolutely perfect. In fact, probably the best she has ever made!
This got me thinking about asking questions more generally. There are many times when I’m in a meeting at work or having a discussion with a friend and something that’s said doesn’t sit well with me. I either don’t fully understand or I simply disagree. But, usually, it serves me well to let someone fully articulate an idea or complete a thought before butting in with a question. Often times the idea makes a lot more sense in the full context of what’s being said, or at least you can see the other’s perspective with more clarity.

My Latest Discovery

I’ve been using the Via ride sharing app as of late. It’s essentially Uber Pool or Lyft Line, without the option to take a ride by yourself. It’s “ride sharing” in it’s purest form. They operate a fleet of Mercedes vans that seat up to 6 passengers. Due to the purely “shared” model, prices are far lower than they are with Uber & Lyft. It cost me $8 for a ride from Long Island City to the Flatiron district. The only downside is that you occasionally have to walk a few blocks for pickup in order to best optimize routing. Not a big deal if you ask me. If you’d like $10 in free ride credit and want to help me out as well 😊, my referral code is “jeremy2e7”.

Question Of The Week

We all have so many identities. I myself am a friend, soon-to-be husband, dog parent, salesperson, black, American (purposely separated those 2), student, NYC resident, etc.
How do you prioritize your various identities? Is there a rank order? What happens when two of these are in conflict?

 

Looking forward to hearing your thoughts! Onwards and upwards amigos(as)!