[VIC – 152] To infinity and… Bed, Bath, & BEYOND!!!

Business & Money

4 years ago, Fred Wilson said,

“The lesson I’ve learned in my career is to invest into the post-crash cycle. When you do that, and do it intelligently, you are rewarded greatly.”

Let’s point to a few things that are crashing or in the post-crash phase:

Retail

Bitcoin

China

Today, let’s talk about retail.

Thing one, retail is not going away. It will undoubtedly change and evolve (those that stagnate will die), but brick and mortar retail is here to stay.

One retail stock I’ve added to my watch list is Bed, Bath, & Beyond (BBBY). To be clear, I have not purchased any shares to date. It’s impossible to time the bottom on any out-of-favor asset and, as such, I like to see positive momentum before making any purchases. But there are a few reasons I find BBBY interesting.

The first thing is that, while the stock has lost 77% in the last 5 years and profits have decreased by a similar percentage, revenue is slightly up over the same period. And when I read the earnings releases and annual reports, that decrease in profits seems to be due to an increase in SG&A expenses. So you have to dig a bit deeper.

Second, the balance sheet looks fantastic and seems to be getting better still. Inventories are down. They’re closing underperforming stores. The cash position is up to over $1B (market cap of $2.3B). And management is buying back shares at the right time, when the price is low (as opposed to tons of companies buying back stock these days at astronomical valuations).

Third, the company is making strategic investments in its future. Capital investments are up and the bulk of that is related to technology and digital transformation. They’re releasing private label brands. They’re redesigning stores and rethinking merchandising strategies.

Now, don’t get me wrong. This is not a high growth business and will likely never be. But the company appears to undervalued, and perhaps significantly so.

Human Progress

A few weeks ago, while I was in Vegas, I enjoyed a few Impossible tacos at a restaurant. They were Impossible because the “meat” is produced by Impossible Foods (I wrote about them in VIC 100).

What I found interesting was that the Impossible tacos were more expensive than all the other tacos on the menu. So in my head, I’m like, “why is that?”

Think about it. Beef is generally more expensive than chicken becomes it’s more expensive to produce. Cows require more land, more food, more water, and basically more everything as compared to chickens. So the cost difference makes perfect sense.

If Impossible Foods claims to require far fewer inputs to make their meat substitute products, why the higher price?

It could be the fact that they’re far smaller than the big meat producers and thus not operating at scale. Or, this could have more to do with marketing (price as a signaling mechanism).

But if the claims are true about production, intuition and market mechanisms would say prices should come way down over time. And that’s important because they won’t win on moral grounds. People may claim to care about animal welfare and environmental impact, but history says they care more about price and other tangible benefits. So the products will need to be cheaper or taste better, or some combination of the two.

It reminds me a bit of whales (bear with me for a moment 😂).

We used to kill tons of whales for blubber and fuel. And there was always a small contingent of people that said this was morally wrong. But that didn’t matter. Whales kept dying. We didn’t stop murdering the whales until we found an alternative fuel source, namely kerosene.

Products always need to compete on their own merits. And if you can sprinkle a bit of morality on top, all the better.

Philosophy

On Thursday, I enjoyed my monthly meeting with Excelsior (a Latin word translated as “ever upward). It’s a group of 8 great friends wherein we choose a book to read together for the month and spend the time to dive into the text and how it relates to our lives.

We kick off every meeting with life updates, wherein each person spends 5-10 minutes updating the rest of the group on something important to them (sometimes these go a good bit longer, but we’re intentional to let these run when it feels right). Sometimes people recount a compelling line of poetry, sometimes people celebrate a promotion or moving on to a new opportunity, sometimes we talk of the women in our lives, and other times about interesting investment ideas that have captured our attention.

One update this past Thursday included the mention of one member enjoying a sober February. He described how he didn’t miss the drunken nights out one bit and felt refreshed.

On my Uber ride home, I was thinking about what he said when a new phrase popped into my mind (turns out it wasn’t so new). You often hear about FOMO, or the “fear of missing out.” But the phrase that popped into my mind was JOMO, or the “joy of missing out.”

I then did a quick Google search and it turns out that I wasn’t the first to come up with JOMO. One search result yielded a beautiful poem that I thought I’d share with you all this evening:

JOMO (The Joy of Missing Out)

–By Michael Leunig

Oh the joy of missing out.

When the world begins to shout

And rush towards that shining thing;

The latest bit of mental bling–

Trying to have it, see it, do it,

You simply know you won’t go through it;

The anxious clamoring and need

This restless hungry thing to feed.

Instead, you feel the loveliness;

The pleasure of your emptiness.

You spurn the treasure on the shelf

In favor of your peaceful self;

Without regret, without a doubt.

Oh the joy of missing out.

My Latest Discovery

A few weeks ago my wife and I were roaming around the Midtown East area of New York City. When it came time for her 3 pm doctor’s appointment, I was left alone with about an hour and a half to kill.

I stumbled across a jazz bar called Fine & Rare and decided to check it out. And I’m so happy I did! The music was somehow relaxing and energizing at the same time, and the whiskey selection was exquisite.

So I sat down at the bar, ordered a Lagavulin 16, and enjoyed about 50 pages of a book called The Social Singularity.

Quite a lovely afternoon!

[VIC – 149] Mountain climbing 🧗

Business & Money

Gold (and other precious metals by extension) is an interesting asset. Normally, when I make an investment, I want to make money from that investment. And that can happen in a number of ways.
A stock might appreciate if the company experiences earnings growth or perhaps you’ll make income from dividend payouts.
If investing in debt, I hope for yield in the form of interest payments.
With real estate, the income comes in the form of rent.
None of the above is true for gold. You might say it is a nonproductive or non-income producing asset. You only make money if someone is willing to pay more for it at a later date.
That said, there is a flip side to this story, and a powerful one to boot.
Gold is often referred to as a safe haven asset in that people flee to it in times of uncertainty. I imagine this is due to a long history of gold as a store of value. We no longer have the gold standard, yet every central bank on the planet stores hordes of it in their vaults.
I think this story points to investor behavior and investor psychology more than anything else. When people are afraid, they buy gold because it feels safe. And behavior/psychology is likely the most powerful force at play in markets.
I say all of this because I’ve been steadily increasing a gold position in recent months (this is not investment advice). And that’s largely because it seems to be that people are afraid and uncertain. I myself have a hard time not being an optimist. But the masses seem less optimistic about the future. So it feels like a solid trade for now.
The last thing I’ll say here to ensure that you all understand that I’m a novice when it comes to gold and precious metals, is that I’m a novice when it comes to gold and precious metals. This trade is purely based on a mental model wherein human beings are largely irrational actors in the market (perhaps also on the fact that a few people I follow closely share my belief). So given my lack of experience in this realm, I have a stop loss order that will automatically sell the gold (GLD) if it crosses a certain threshold in order to cap my downside risk in what is broadly a poor performing and very volatile asset class.

Human Progress

When I woke up on Saturday morning, I decided to kick off the day by reading the Axios China weekly newsletter. You can see a screenshot below of the beginning of this week’s edition.
I find the bottom portion of the intro (beginning with “And, if you want a daily…”) to be very interesting.
Axios is a media and entertainment startup that launched a couple years ago with a unique strategy centered around email newsletters (I love the email newsletter medium, in case that was unclear). At launch, they brought together many of the top email newsletter publishers (individuals, not companies) into one organization. The first was Dan Primack of former Term Sheet fame, then quickly followed by Bill Bishop who writes the acclaimed Sinocism China newsletter.
The interesting thing to me is that Bill didn’t stop writing his own newsletter when he joined Axios. So he continues to publish Sinocism China daily, in addition to his duties publishing Axios China every week.
This is an interesting and unique strategy. Axios allows Bill to promote his own newsletter at the top of Axios China, and I’m assuming Axios China gets additional reach from Bill’s existing readership.
This is in contrast to the way that most publishers operate. Typically a publisher cares about the promotion of its own brand above that of any individual contributor. But Axios empowers Bill, Dan, and many others to continue building their own brand in parallel to helping to build Axios. I love that idea.
If you think about the rest of the media and entertainment business, this approach runs in direct opposition to the way things normally work. Take musicians for example. The big labels control the industry and take most of the profits, while individual artists are often taken advantage of and spit out by the system. Can you imagine a world wherein an artist could use the resources of a label to promote their own music without a label getting a cut of those sales? Unfathomable!
The same is true in sports wherein most athletes shortly go broke shortly after their careers while owners and GMs continue to clean up.
How fantastic would it be if Axios represents the beginning of a trend toward decentralization in media and entertainment, if creators were fully empowered to flourish without having their legs cut out from under them by corporate interests?
I’d love to live in that world!

Philosophy

I was at dinner with my great friend and business partner a few months ago when he posed an interesting question.
“How many mountains do you think there are in the world that have never been climbed?”
It was less a literal question and more a philosophical one. He was pointing out the fact that it seems that there are so many people interested in climbing Mount Everest or Kilimanjaro, mountains that have already been climbed by tons of people. Meanwhile, there must be hundreds, or thousands, or perhaps tens of thousands of peaks that have yet to be conquered.
It’s a difficult question and one that likely lacks a definitive answer. To my knowledge, there is no centralized database which catalogs all of the peaks in the world and a record of which ones have been climbed and those that have not.
But more importantly, the conversation surfaced what I think is one of the key reasons that we work well together and invigorate each other so. We both have a burning desire to climb mountains that have yet to be climbed. We want to place a flag atop a summit as the first visitors. And we will not rest until we do so, or at least die trying.

My Latest Discovery

There are a lot of interesting things going on in the financial technology space. One that I want to learn more about, but haven’t yet gotten the chance to read up on, is the prepaid debit card space. Companies like Green Dot are killing it (up 223% in 5 years). I imagine they are leveraging technology to serve a massive and historically under-served market in those that have poor credit scores and limited access to lines of credit. But more to come on this (perhaps a dedicated business & money segment in the near future).

[VIC – 148] An orgasmic mouth explosion of deliciousness

Business & Money

One of the things I like to do when I become sufficiently curious about a company is to buy a few shares. Nothing material, but perhaps $50 or so. I feel more compelled to do research when I have a tiny bit of skin in the game, so you might think of it as a sort of forcing function or education tax. (this wasn’t possible before companies like Robinhood because every trade cost you $4 – $7)
One of the companies that I did this with a while back was Lending Club (LC). I like marketplaces in general, specifically wants where demand regularly outstrips supply. And it seems consumer credit would fit that bill.
But when I started to dive in, I couldn’t find anything special about the business. They don’t appear to have access to any proprietary data that might allow them to recover loans at a higher than average rate. In fact, they seem to have less data than other financial institutions would. And marketplaces are all about the use of data to increase the value to both the demand and supply side of the value exchange.
And more importantly no network effects. I guess you might say their ability to asses risk gets better over time, but it feels like we’re squinting here.
So I unloaded the shares. And I’m glad I did. The company has performed abysmally.
But speaking of access to proprietary data, one company that I am excited about is Square (SQ). Yep, the company that started out making those little white card readers that would plug into a smartphone allowing anyone to accept mobile credit payments.
A while back I bought a few shares and started down the research path. After scaling the card reader business, the company moved into creating a simple POS system (both hardware & software) for small businesses that you often see in coffee shops and retail boutiques. And that meant they now had access to proprietary transaction data (😍) for tons of small businesses. So the logical next step from there was to launch a new segment of the business called Square Capital wherein the would make small business loans to their customers.
So when the stock recently took a 50% haircut,
it felt like a great entry point for me and I decided to increase my position size. And to be clear, the shares are still fantastically expensive by traditional valuation standards, but companies like Square will always be expensive.
Gotta love that proprietary data!

Human Progress

I imagine that Google must have the largest repository of data and information on the planet. That is, of course, a very profitable position to be in. But also a seemingly precarious one.
In the west, we enjoy an open and largely unregulated internet. And I think that, for the most part, that is a good thing. It allows for free speech, the unfettered flow of information, and permissionless innovation. But it is also a significant attack vector.
The US enjoys a dominant (though perhaps shrinking) position on the global stage in many ways. Economically and militarily, we are unmatched. But due to the nature of the open internet, our opponents can walk in the front door and basically do whatever they want.
So coming back to Google, they must be square in the crosshairs of any bad actors. They hold the keys to the kingdom.
I bring this up because we are hearing a lot of late about the “tech-lash.” That is the cultural, social, and political backlash against the large technology companies that control the consumer internet. But much of the conversation seems, to me, to be focused on the wrong things.
Sure, “fake news” and bots are problems. Sure, algorithms can be gamed to get more distribution of divisive content. Sure, Google should pay more taxes and avoid anti-competitive behavior. And from a regulatory perspective, perhaps breaking up Google and forcing the different business lines to operate as standalone businesses might bring some small benefit to the technology industry broadly. But again, I’m not sure we’re focusing on the right things.
What worries me is thinking about an aggressive cyber attack against Google. That could take many forms, but if something like that were even remotely successful, I’m not sure we can even fathom the implications.
So we have one company controlled by a small group of people, with a couple hundred thousand employees and finite resources, that is likely under constant attack by all sorts of adversaries (both state and non-state).
So I think the thinking here needs to be completely orthogonal to traditional models of corporate governance and regulation. It’s less about monopolistic tendencies or consumer welfare, and more about protecting the most valuable resource known to man.
And as usual, I have far more questions than I do answers. Should Google just become a 4th branch of government, the information & technology branch? Should they be subsumed into the executive branch with the full backing of the Department of Defense? Do Google services just become utilities? (is that not already the case, for all intents and purposes)
I’m not sure, but one thing is clear. You know that saying that goes “this time is different,” when in fact this time is never actually different? Well, THIS time is different. I don’t believe the internet is just another technology like electricity or the internal combustion engine. The rules are fundamentally different. And therefore, we may need some fundamental changes to the way we organize and govern ourselves.

Philosophy

I was recently doing some reading about cliches and how they are often inadequate descriptors of what they describe. When you use the same word or phrase over and over to describe a wide variety of occurrences, those occurrences lose their unicity and any special character.
So I began to think about what words or phrases I use most and one that came to mind is the word “dirty.” When listening to trance or deep house, subsets within electronic dance music, I will often refer to a song as dirty. But if so many songs are dirty, how is one any different from the last?
Another way to describe the meaning of dirty is to think about the word disgusting. Think about a time when you tried a new dish or food item that you strongly disliked. You might say it was disgusting and you may have also made a grimacing face as you encountered the off-putting taste or texture. Now imagine that same reaction but with the emotion flowing in the opposite direction. Imagine you try a new dish and you grimace harshly and sit back at the sheer goodness of it. It’s almost unfair to other foods that something could be this good.
That’s what I mean when I say a song is dirty. It’s just disgustingly good. But I might be better served in the description to describe it slightly differently each time to best convey the emotion or feeling and that particular moment.
More broadly, there are so many other cliches that we regularly use that rob human expression and experience of its vitality. So I’ll be making a small effort to bring some of it back, at least in my own small corner of existence.

My Latest Discovery

If you’ve ever made cookies at home, you know you have to eat a bit of the cookie dough when you finish with the mixing bowl. After all, it’s simply the right thing to do. But if you’re anything like me, you’ve likely gone overboard on a few occasions and ended up with a stomach ache from the raw eggs. If only there was another way.
For a long time, the only other way was chocolate chip cookie dough ice cream (nom nom 😍). It’s maybe 90% vanilla ice cream, 8% cookie dough, and 2% chocolate chips. So not bad, but doesn’t quite get you all the way to cookie dough heaven.
Well, a couple weeks ago Hana and I were wandering around (ok maybe we were hunting down yummy treats) West Village when we stumbled upon DŌ, Cookie Dough Confections. It’s a desert spot where the cookie dough is completely edible. You can enjoy a variety of flavors of cookie dough on their own, or have it mixed into ice cream or other treats. I had one scoop of chocolate chip cookie dough and one scoop of sugar cookie dough and both were magical. You might think about all of those tiny one-off moments when you’ve had a small morsel of cookie dough, and roll them all into one orgasmic mouth explosion of deliciousness.

[VIC – 147] You have got to be kidding me!

Business & Money

When you buy a stock, or take a long position, your maximum downside is your initial investment. So if you buy a share of stock for $10, you can lose a maximum of $10 if it somehow goes to zero.
By contrast, when you sell a stock short, the downside is unlimited. So it’s far more risky to take short positions when compared to taking long positions.
I’ll give you a simple example to demonstrate in case anyone is confused about what it means to sell short. When you sell a stock short, you are borrowing shares in hopes the price will go down.
So let’s use that same $10 share of stock. If I borrow 1 share of stock today from Jack, I can then sell that share to Susan for $10. If the price then goes down to $5 tomorrow, I can buy a share for $5 and return it to Jack. So I sold the stock yesterday for $10, bought it back for $5 today to return it to Jack, and pocketed the $5 difference as my profit (in reality there is also a borrowing fee, essentially interest you are paying on the loan).
But, if the stock instead doubled to $20, I would have lost $10. Or if it tripled, I would lose $20. So the more the stock goes up, the more I stand to lose.
So, due to the risky nature of shorting stocks, and my limited knowledge and experience trading, I have never shorted a stock. (I got pretty close with SnapChat – should have pulled the trigger)
That changed a few weeks ago. Well, I guess you would say it kind of changed, given that I shorted the overall market as opposed to an individual stock. And I did it in a way that I didn’t realize was possible. Specifically, I came across the concept of an inverse ETF. That is, there are inverse exchange-traded funds that seek to provide -100% of the return of the target fund.
So you can buy SPY, which is an ETF that seeks to match the return of the S&P 500. Or you can buy SH, which is an inverse ETF that seeks to provide the inverse return of the S&P 500. (the goal is for SH to go down the same amount that SPY goes up – you can see the 2-year chart of SPY vs SH below)
So you are basically shorting the overall market, but the risk profile is similar to that of a long position given that you can only lose the amount of your initial investment.

Human Progress

If you have minor stomach pain, you might head to WebMD to do a bit of homework before perhaps taking a trip to Rite Aid. If you feel a throbbing pain in your head and blurred vision, you might want to head to the doctor, or better yet a neurologist.
Similarly, if you are establishing an LLC on the side to do a bit of consulting, you might be ok using LegalZoom and TurboTax for your legal and tax requirements. If you are leading a 1,000 person company with offices in 3 countries, you need a group of lawyers, accountants, and a CFO to ensure that all your bases are covered.
In other words, when complexity and the stakes are low, you can handle things yourself with the help of software. When complexity and the stakes are high, you need people, or better yet professionals.
I point this out because I keep getting the same question over and over from lots of different people.
How do you feel about robo-advisors? (automated software to handle passive investing)
If you’re opening up your first brokerage account and want to get your investing feet wet with a couple hundred or a couple thousand dollars, that equals low complexity and low stakes. So sure, tools like WealthFront and Betterment might be great options to “set it and forget it.”
If you have tens or hundreds of thousands of dollars laying around, the stakes are higher. And if you also have considerations like having kids or purchasing property, that adds significant complexity. So it might be time to speak to the professionals (all of which are not created equal).

Philosophy

Perhaps we’ll continue on this same thread as we move into the philosophy section.
Want to know what else is high stakes and high complexity? How about human choice and free will?
I read a fantastic article recently wherein the author had this to say of Google,
The search engine is no longer a model of human knowledge, it is human knowledge. What began as a mapping of human meaning now defines human meaning, and has begun to control, rather than simply catalog or index, human thought. No one is at the controls.
While it’s easy to focus on the internet giants given their massive scale and pervasiveness, the underlying fact is that more and more of our decisions are being made for us, and often when the stakes are high. Spotify wants to decide what we listen to. Seamless and Yelp want to decide where and what we eat. YouTube and Netflix want to decide what we watch. Robo advisors want to decide how we invest.
Perhaps this is just nature’s response to the havoc that humanity has reeked on the planet. Give us the tools we need to build machines that we ultimately lose control over, which eventually leads to some massive shock to the system in order to press reset.

My Latest Discovery

You have got to be kidding me! I know have a total of 4 GREY HAIRS in my beard!!

[VIC – 134] Different strokes…

Business & Money

Buffet founded numerous investment partnerships focused on value investing and fundamental analysis. He then moved to investing directly in businesses hitting it big with companies like American Express and Geico.
Dalio pioneered a risk parity approach serving institutional clients.
Howard Lindzon seeds financial technology startups while Fred Wilson likes marketplace businesses and network effects.
At work, my team hunts down deals with medium to large advertising agencies and advertising technology companies, while my colleague manages and grows the large advertising holding companies. We’ve both done well.
Investors, salespeople, and anyone in business have a plethora of strategies to choose from.
In simple terms, it’s about figuring out what works for you and taking tips and cues from wherever you can find them.

Human Progress

I read this post from Sarah Newton of The Delusional Trader blog over the weekend. Sarah isn’t some big shot investment banker or associate on Wall Street.
I’m still just an average Jill, but previously shut and completely unknown doors are beginning to open. My mind is continuing to expand and my personal “Wall of Worry” is coming down like it’s June 1990. For now, I’m just a girl on a Greyhound bus, but maybe next year I will be writing to you from the Acela Express.
I especially liked it because I was reading the post from the Acela Express to Cape Cod.
It reminded me of the first post from Fred Wilson on his blog AVC 15 years ago.
I read blogs a lot. And I think they are great. So I am starting a blog. I have no idea if I’ll write a lot in my blog or rarely. I hope it’s a lot, because I have a lot to say. But we’ll see about that.
We did see about that. Fred’s blog has hundreds of thousands of readers and he’s arguably one of the greatest venture capitalists of all time.
A few weeks ago I got lunch with a friend. He’s starting an e-commerce company. It will be really hard to break through the noise of all the e-commerce companies starting these days, but I love his idea and am happy to see him going for it.
What’s interesting to me is that I hear echoes of Fred’s first post in my friend’s voice and in Sarah’s writing. Just people taking chances and starting something new. Regardless of what that looks like 15 years from now, I think that’s awesome.
And the Internet makes that a possibility. Despite all of the bad things that come with it, it’s a key reason I’m long-term bullish on the Internet and think we’re still in inning one of a very long game.
So start your blog or your company. Take a class. Buy your first stock.
Whatever you do, just get started.

Philosophy

So here’s a question: would you hire someone as a personal trainer if they themselves were not in shape?
A couple weeks ago, I came across this very situation at the gym. The trainer seemed to be in worse shape than the trainee. And worse, the trainer was in jeans and an oversized polo shirt.
But then I realized I was being judgmental for no reason. The trainer was up early making a living and the trainee was a the gym at 6 am. The last thing either of them wanted or needed was my judgment or opinion.
Perhaps I wouldn’t want to be trained by that person, but perhaps it’s less intimidating for someone just starting out at the gym or someone with poor self-esteem. Or perhaps the trainer was actually just a friend helping out another friend in need of extra motivation.
Who knows what the actual scenario was, but harboring negative judgmental thoughts didn’t serve anyone.
Thank you to mindfulness for cutting those thoughts short.

My Latest Discovery

A friend mentioned the Moment app a few weeks ago, so I decided to download it and give it a shot. It tracks your screen time and also which apps you spend the most time using.
Let’s just say it was a rude awakening. I would have guessed my screen time was at around an hour per day, but it’s double that (and occasionally more).
Since downloading the app, I’ve trimmed that to closer to 1 hour and feel like I’ve discovered more time out of thin air. Further, my mind feels clearer and less cluttered. I’d highly recommend that each and every one of you download it!

[VIC – 124] Do less…

Business & Money

What do you do when your sink is broken? Stupid question; you try to fix it. You might need to pick up a new part at the hardware store or tighten a few bolts.

How about your car? What do you do when one of those little lights on the dashboard turn on? If it’s something simple, like oil, you might be able to do it yourself. But for anything more complicated, you take it in to get serviced.

This simple logic applies to almost everything in life. Something breaks or stops working, you start twisting knobs, replacing parts, and doing whatever is necessary to rectify the situation.

But investing is different. What do you do when your investment strategy stops working? Or worse, starts producing negative returns? Is the strategy broken? Temporarily out of favor? Just experiencing normal volatility? Has a change in tax laws affected how the companies report earnings?

If you look at the following chart of Amazon (AMZN), all looks great!

But what would you have done when the stock went from $110 in December of 1999, down to $8 in October of 2001. Don’t answer. The overwhelming majority would shit their pants and sell on the way down. And it would have cost you some of the best returns in stock market history.

The same could be said for Berkshire Hathaway today. Buffet & Munger have regularly underperformed the S&P 500 for the better part of two decades. Is their value investing strategy broken? They would say no. They’re hoarding cash waiting for the next correction.

Don’t get me wrong, I’m not saying that a single strategy will work forever or that there aren’t times to change course. But the vast majority of people make far too many buy and sell decisions when the best strategy would actually be to do nothing.

And when you fiddle with things too much, you get in the way of compounding, one of the most powerful forces known to man.

Human Progress

There’s something interesting happening in mobile. Smartphone shipments are basically flat YOY.

So, everyone who wants (or can afford) a smartphone, basically has one.

Combine that with the fact that global internet users sit at about 3.6 billion people, growing at roughly 7% per year.

And if the world population is around 7.6 billion, minus roughly 2 billion that are under 14 years of age according to the World Bank, that would mean that there are a remaining 2 billion people above the age of 14 that are not connected to the internet.

ISPs, telcos, and internet companies see that as a massive opportunity. But there’s a problem. Roughly 20% of the world’s population (1.6 billion) subsist on $1.25 per day or less. So these people won’t be buying smartphones any time soon (average selling prices hover around $300).

So this brings me to an interesting point. Here in the US, and other developed nations, the feature phone market is all but dead. You might find a few luddites holding on to feature phones, and there are certain models designed for children, but pretty much everyone has a smartphone. However, this is not the case in emerging markets.

Take India for example, where smartphone shipments were again flat YOY, but feature phone shipments grew by 48% in the same period.

I don’t have the data for Africa at my fingertips, but I’d imagine it would show similar numbers.

Google recently invested $22 million in KaiOS, a company that has created an operating system with the same name that comes with native apps and other smartphone-like services. (Of course, Google’s interest is self-serving in that the invest comes with the requirement that these phones come with Google Search, Maps, assistant, and other Google services built-in).

So, while the growth of internet users is now in single digits, and smartphone shipments are flat, there’s still a ton of work to get our fellow humans connected to the web, and tons of services to build on top of those connections for entrepreneurs across the globe.

Philosophy

How often do you unpack why you do the things that you do? I mean really unpack them to get at the true underlying causes.

Recently I sat down to journal about why I work out. Today, at age 29, it’s easy for me to say that I work out to stay healthy. I believe that operating at peak mental capacity means that the physical correlate must also be true. I believe that physical activity is important to maintain cardiovascular health, good circulation, and a healthy immune system. All things backed by lots of science.

But I was working out long before I cared about any of those things. When I really think about it, I land on a different reason altogether.

Standing at 5’8’’, I will always be one of the shorter men (and often people) in the room. And I’m perfectly ok with that fact now, but I’m not sure that was always the case. When I was younger, I think that being fast, strong, and muscular was a compensation strategy to fill in for height. I think the same can be said for my assertive personality. Better to not give anyone an inch psychologically or emotionally, given that they likely already had a few inches physically.

There are a whole host of other motivations and behaviors that I’m thinking about, but I thought I’d share this one with you guys this week. Perhaps it will be a catalyst for you to consider your own.

My Latest Discovery

My wife is constantly suffering from neck and back pain. So I constantly have to squeeze this one specific area on her neck/shoulders to temporarily relieve the pain (and I now suffer from hand pain as a result 😜).

So when I stumbled on the Body Back Buddy, I thought I would order it for her to see if it helped.

She’s a bit tiny for it (should have ordered the junior version – didn’t know about it at the time), but so far it seems to be getting the job done. Well worth the $30 on Amazon.

[VIC – 122] Are you a pro or an amateur?

Business & Money

There’s a great book called Extraordinary Tennis Ordinary Players. In it, Simon Ramo writes about how tennis can be subdivided into two categories: professional and amateur.

“In expert tennis, about 80 percent of the points are won; in amateur tennis, about 80 percent of the points are lost.”

In other words, professional tennis is a winners game. It’s about power, spin, and angles. Players have to hit incredible shots that are un-returnable by their opponents.

By contrast, amateur tennis is a loser’s game. Players are constantly hitting the ball into the net, hitting out of bounds, and double faulting. Here, the best strategy is simply to put the ball in play and allow the other guy to beat himself.

I think the same is true of investing. In professional circles, you get complex valuation models, quant funds, and other esoteric strategies. But the vast majority of people are better served just putting money into low-cost index funds and ETFs.

Human Progress

This brings about an obvious question though for the future of markets. What percentage of funds would need to be invested in index funds for this hypothesis to fail?

Let’s back up a second. Investing in index funds is known as passive investing. It’s passive because you aren’t analyzing the fundamentals of the companies in the index. You’re not looking at balance sheets, income statements, measuring return on invested capital, or any of that. Weightings are simply calculated based on the market capitalizations of the companies in the index.

But how are those market caps determined? Prices are set by all of the active managers buying and selling stocks. So, in reality, passive investing is reliant on active investors setting prices.

So coming back to my question, if all (or most) money was invested passively, with no one doing their homework related to the underlying companies, wouldn’t that produce more opportunities for active investors? Wouldn’t that allow prices to stray further from intrinsic value?

Philosophy

This past week, the wife and I went to a meditation workshop at the Shambhala Meditation Center here in NYC. It was a great experience! It started with a 30-minute guided meditation, followed by a short video, and then an open discussion lead by two of the center’s instructors.

The video was this one…

I loved the part about sidewalk cuts and physical accessibility in cities. For able-bodied people, sidewalks cuts are not something we often think about. We simply go about our day stepping on or off of curbs and sidewalks without much consideration. It’s not until you need to push a stroller or move heavy things do these questions of accessibility then jump to the fore of our minds.

A point made in the video is that a lack of physical accessibility measures often comes with an associated lack of mental and emotional accessibility. It’s not just the fact that sidewalk cuts might be missing in certain places, but the thought process that it reflects. It means that there was no consideration given to how disabled people might traverse the environment. It means that disability is not seen as “normal,” and thus physical accommodations are not important or necessary.

A good analogy here might be the separation of bathrooms, water fountains, and other facilities during Jim Crow America. Forcing black people and white people to use different facilities precludes physical closeness. And that in turns precludes mental and emotional closeness.

I think this idea also has something to do with why I find mediation to be such a valuable use of time. In the same way that sidewalk cuts create an onramp from the street to the sidewalk, you might say that meditation creates an onramp to our mental, emotional, and psychological inner-workings.

My Latest Discovery

I’ve recently started following Suhail Doshi, the founder of Mixpanel, on Twitter. I’d highly recommend doing the same for anyone with interest in early-stage companies.

He regularly publishes “tweetstorms” where he rifts on various subjects. Take this one for example about the first 18 months of starting a company.

I loved this one…

And this one…

[VIC – 120] Now is not the time to despair

Business & Money

I was recently listening to Steve Jurvetson’s interview on Tim Ferris’ podcast (sorry Android friends) when Steve said something interesting. He said that he NEVER sells shares in a company that he invests in. At first, it sounded ludicrous. How can you make money if you never get liquid?

Of course, there’s one big caveat. That is when Steve and his previous firm DFJ don’t have control of the decision to sell (e.g. an acquisition).

If a company IPOs, most of the shares are distributed to the LPs, with the VC firm keeping some small amount of those as carry. Regarding these, Steve never sells.

He doesn’t sell shares in secondary offerings, he doesn’t sell shares on the public markets. He just doesn’t sell. Instead, he claims to bet on his companies “in perpetuity.”

There are a few reasons I love this.

First, it’s an incredibly liberating approach. Once you place a bet, it removes all of the cognitive dissonance that might arise when sell opportunities present themselves. There are no internal mental battles about the long-term viability of the business. It removes any short-termism and completely aligns you with the founders and the mission of the company.

Second, investing has power law dynamics. The big winners will erase all of the mistakes along the way. One big winner accounts for every loser combined. When I look at my portfolio, Amazon, Facebook, and Tencent are the big winners. The returns there trump everything else. If I had held on to Netflix and Nvidia, they would also be in that camp. And to make up for those boneheaded sell decisions, I’ll have to hope I get lucky with another big winner. Better to hold the winners in perpetuity and avoid all of the psychological biases associated with being human.

(For Steve it is, of course, much easier to adhere to this philosophy after you’ve already made a boatload of money)

Human Progress

There are moments in today’s world when it becomes hard to be optimistic.

Anthony Bourdain. Kate Spade. Tim Bergling (Avicii). Verne Troyer (Mini-me). Many of the people closest to us. Suicide and depression are ravaging our generation.

The opioid epidemic is salient and severe.

Foreign policy. Trade wars. Xenophobia. Populism.

At times, we all need warm and uplifting reminders of why we must keep working; why we must never stop pushing forward.

One such example comes from Valeria Kaur, a Sikh woman, lawyer, and civil rights activist. Shortly after Trump’s 2016 victory, she gave the following six-minute address at the Metropolitan AME Church in Washington.

In case you’re too busy to watch, here’s my favorite section:

What if this darkness is not the darkness of the tomb, but the darkness of the womb?

What if our America is not dead but a country still waiting to be born? What if the story of America is one long labor?

What if all the mothers who came before us, who survived genocide and occupation, slavery and Jim Crow, racism and xenophobia and Islamophobia, political oppression and sexual assault, are standing behind us now, whispering in our ear: “You are brave?” What if this is our great contraction before we birth a new future?

Remember the wisdom of the midwife: “Breathe,” she says. Then: “Push.”

Now it is time to breathe. But soon it will be time to push; soon it will be time to fight — for those we love — Muslim father, Sikh son, trans daughter, indigenous brother, immigrant sister, white worker, the poor and forgotten, and the ones who cast their vote out of resentment and fear.

Despite what you might hear from the media, now is not the time to despair.

Philosophy

A couple weeks ago I was hanging out on my rooftop. There was a dad playing softball with his daughter. He was tossing her pitches from maybe 10 feet away and she was whiffing left and right. Of 20 or 30 pitches, she might have hit the ball maybe 2 or 3 times. The interesting thing, though, was that her dad kept saying “great swing” every time. And I’m no baseball expert, but her swing really was pretty good. It was fundamentally sound and her form looked like she knew what she was doing.

There’s an important point there. Irrespective of outcome, I think it’s always important to pay attention to process. You might say analyzing process might help you discover potential. You often hear people talk about this in relation to Tiger Woods as a golfer when he was only 4 or 5 years old. He wasn’t hitting the ball very far, but his form was perfect and his shots were perfectly straight.

What’s more, if you have a really hard problem to solve, you likely want your best people working on it. But because of the nature of the problem, the probability of success is low. So for a long time, you don’t have any good outcomes or output by which to measure success. But if you can effectively analyze the process, you don’t have to focus all of the attention on the outcome.

In other words, if the best people are working on the hardest problems, they might look like that little girl whiffing at the ball over and over. But when they make contact that 2 or 3 times, the results are unprecedented.

My Latest Discovery

If you’re a Delta SkyMiles member, you can link your SkyMiles and Lyft accounts to get miles for every ride. You get 1 mile for every dollar you spend and 2x miles on airport rides. Link your accounts by clicking here.

Happy travels!

[VIC – 118] Experts don’t know s**t!!

Business & Money

I continue to look for opportunities in retail. I’m convinced there must be a few diamonds in the rough that might offer considerable investment returns.

One thing in retail that is apparent and difficult to refute is the shift from brick-and-mortar to e-commerce. Assuming you accept that at face value, I’ll offer up a few observations.

There’s a new service imperative in e-commerce. Consumers want faster delivery, free shipping, and speedy no-hassle returns. This means e-commerce retailers need to make significant investments in supply chain logistics that are close to consumers. This is in stark contrast to centralized distribution models of yesteryear that pooled inventories and managed distribution across wide geographies.

This change not only affects e-commerce retailers. Traditional brick-and-mortar retailers that want to remain relevant are forced to invest in their online operations, forcing similar investments in consumption-end supply chains.

Also, consumers are increasingly located in dense urban environments. Thus, potential sites for logistics centers close to consumers are a finite resource. So, for companies that invest in logistics real estate assets in these locations should enjoy rising rents and high occupancies.

All this to say that I believe there might be a great investment opportunity in REITs that focus on consumption-end supply chain logistics assets. The best example of this that I’ve been able to find is Prologis (PLD). And I love the fact that Amazon is its largest tenant.

You can rest assured that this one has been added to the watch list!

Human Progress

In settings where innovation is important, it’s often said that it’s best to approach things from first principles. That is to say that people should approach questions or challenges from a fresh perspective, without preconceived notions or ideas about the right solution.

In thinking about what types of people are best at this sort of thinking, it would appear that children might have an obvious advantage. Due to a simple lack of experience, they have no other option but to approach most things they encounter from first principles. So they ask ‘why this’ and ‘why that’ in an attempt to gain an understanding of the world.

But as we age, this sort of questioning falls off a cliff. The more we learn, the more we’re supposed to know and the less we tend to ask.

This leads to a sort of paradox wherein expertise is inversely correlated with one’s ability to ask good questions. Experts have gone so far down the knowing path, that there’s no longer a perceived need to ask questions. Of course, that opens one up to vulnerability as you might be operating with information that is out of date or simply wrong. It’s the proverbial situation where everything looks like a nail to the hammer-wielding individual.

So it seems that outsiders to a specific problem or industry might often be those best positioned to ask good questions and approach things from first principles.

Philosophy

This past Thursday I woke up to pouring rain. When I went outside to walk the dog, the cold drops felt refreshing on my skin.

After the walk, I jumped on the treadmill at the gym for a quick 1-mile run to warm up before my workout. In our gym, many of the treadmills are lined up against floor to ceiling windows, overlooking the 7th-floor terrace and the east river in the distance. As I ran, I noticed something interesting. If I focused my forward gaze, I could see a small green shrub on a hill outside the window. However, if I didn’t focus my gaze, I would instead see my reflection staring back at me while running on the treadmill.

It was a great reminder of a simple idea. You have a choice of what you see. Or rather, you have a choice of what you perceive or where you decide to focus your attention.

The rain outside during the walk that morning reflected the same. When I looked out the window when I woke up, I thought “damn, walking Dutch in the rain sucks.” But when I got outside, I was pleasantly surprised by the feeling of cold water making contact with my skin.

There’s so much wrapped up in everyday sensory experience!

My Latest Discovery

A friend sent me this Anjunabeats set earlier this week. It’s unbelievable!

[VIC – 117] Buy the fu*!#$ dip

Business & Money

BTFD, or “buy the fu*!#$ dip,” is a term used in investing when you buy a stock that has precipitously dropped in value, believing it will soon bounce back. I think it was coined by the team at StockTwits (Twitter for investors).

Take Facebook for example:

The stock fell off a cliff recently, falling 20% on the Cambridge Analytica news. That said, as I wrote in VIC 113, the business is stronger than ever (posting gangbuster growth, margin expansion, etc). So I bought the fu$!*#$ dip, and the stock has already recovered all of the losses.

Match Group (MTCH) is another BFTD I recently made.

It dropped 26% on the news that Facebook would be launching a competing dating product. I believe that to be a dramatic overreaction. Match owns Match.com, Tinder, OkCupid, PlentyOfFish, BlackPeopleMeet, and a whole host of other demographically targeted dating services. From a technology perspective, they have a 23-year head start in online dating and their algorithms are trained for one thing, matching people (as opposed to surfacing content that drives engagement and feeds into confirmation bias). As such, I’d imagine it will take a long time for Facebook to get this right (they’ve tried before).

From the chart above, you can see the stock has already regained 17% of the losses and I’d say there’s more room to run. That is to say that, in the near-to-medium term, I don’t believe that Facebook poses a material threat.

Now Facebook is a fierce competitor (SnapChat currently in the crosshairs) so it would be foolish to write them off in the long term.

Yea yea I know, I always write on VIC about being a long-term buy-and-hold investor. But I also believe that you cannot hold beliefs so strongly as to miss out on fantastic short-term opportunities. And this feels like one to me. Time will tell.

Human Progress

Around 40 years ago, the Voyager spacecraft took off from Earth carrying a golden record. The record holds an amalgamation of artifacts representing life on earth. It contains hit songs, a recording of a kiss, greetings in 55 languages, a map of our interstellar position, a diagram of DNA, and many other things.

Everything about the golden record is mesmerizing.

Humanity is equally mesmerizing. You might think of your physical self as your window to the universe. Everything that you ever perceive is in relation to you.

It took 13.8 billion years for a group of atoms to come together to form your window to the universe. If you go all the way back to the beginning, you have this immense explosion of energy. That eventually leads to simple matter, and over time, you got increasing levels of complexity.

Then 4.5 billion years ago you get earth, and eventually microbes. Then you have perhaps the most important event in the history of life on earth, the merger of a bacteria and an archaea to form a eucaryote, which eventually leads to us (and the rest of the complex life forms we see today).

That picture and its sheer impossibility is astounding. And now we have spacecraft zooming through space some 13 billion miles away carrying all of our greatest discoveries and creations. And while the chance of the Golden Record being discovered by some other intelligent life form is some fraction of a fraction of a fraction of a percent, it’s no more or less likely than the probability that you are sitting there reading this newsletter.

It’s all simply amazing!

Philosophy

I briefly referenced the Church of AI in VIC 98. The tone was a bit facetious, but perhaps I should return to the subject from a more serious perspective.

Atheism is not a word I subscribe to. It feels a bit stubborn and dogmatic. That said, I don’t subscribe to any particular religion.

All the while, I work at a software company where machine learning lies at the core of everything we do. We use various ML techniques to model marketing/advertising data and surface insights therein.

ML is a set of techniques from within the larger field of AI. Today we have narrow AI that works well within specific domains. But the goal seems to be a more general purpose AI; one that will match the flexibility and plasticity of the human mind (and eventually surpass it).

Another way to say that would be to say that we’re trying to create life. And if we do that, one might say that we’re playing the celestial role of a “god.” And you don’t have to use words like faith and religion, but this seems to be a religious pursuit in everything, but name.

My Latest Discovery

While I’ve heard great things, I’ve yet to read Ray Dalio’s recent book Principles. But he’s done us a solid and distilled the 600-page book down into a mini-series of short videos totaling 30 minutes.

Definitely worth the watch!