[VIC – 113] Long Facebook 📈. The internet is always about cats đŸ˜ș. Pole dancing đŸ•șđŸœ. Honey 🍯 .

Business & Money

Facebook is the 2nd largest position in my portfolio. And as such, I spend a lot of time thinking about it.

FB has been in the news a lot of late and, as a result of the negative press, the stock is down about 15% since it’s peak in February. The negative press centers on a recent revelation that Cambridge Analytica had gotten its hands on data related to about 50 million user profiles, and they subsequently used that data for targeting purposes during the 2016 elections.

The problem relates to a product offering called Facebook Connect, which I believe launched in 2012 and was shut down in 2015. The product allowed other app developers to use a “log in with Facebook” option within their own apps, allowing a faster signup/login process and also, more importantly, allowed those apps to collect user data related to that person and all of their connections on Facebook. FB was giving away a lot, but in return incentivized more developers to build apps on top of its platform. So, to put it simply, for a non-trivial amount of time, FB was being incredibly cavalier about user data and giving it away in droves. This didn’t come to an end until they realized that it was far more lucrative for them to focus on being a digital advertising behemoth as opposed to a platform for developers.
So yes, the above looks pretty bad and plays well into the Facebook undermining democracy narrative.

And while we’re at it, let’s add a couple extra points to the bear case.

FB recently experienced declines in active users within the younger demographic (though they saw growth overall).

There also seems to be more research surfacing every day about how there is an inverse correlation between happiness and time spent on social media platforms.

But, and a very big but, almost everything above is about perception and sentiment. If you flip to the numbers and the fundamentals of the business, it’s hard not to be a bull. The business has never been better.

You have accelerating return on equity over the last 5 years, largely due to constant margin expansion.

When looking at Q417, daily active users and monthly active users were both up 14% YOY.

And what’s interesting to me when I think about Facebook in my own life is that, despite the fact that their losing younger users in the US, it seems my aunts, uncles, and other family members are joining in increasing numbers and posting non stop.

It also allows me to be connected with anyone who has ever mattered in my life. I’m connected with a bunch of friends in Mexico due to an exchange program in 7th grade. I’m connected with my 5th grade math teacher. My dog Dutch was one in a litter of 7. I’m connected with the families who adopted his siblings. And without a phone number or email address, I can reach out to any of those people on a moments notice. Facebook has essentially become a utility.

So, all in all, nothing has changed about my investment thesis. I am long FB and will remain so (unless, of course, it crosses the stop I have in place at $140).

Human Progress

Back in 2010, Paul Graham wrote one of his famous essays called Organic Startup Ideas. In it he wrote,

Don’t be discouraged if what you produce initially is something other people dismiss as a toy. In fact, that’s a good sign. That’s probably why everyone else has been overlooking the idea. The first microcomputers were dismissed as toys. And the first planes, and the first cars. At this point, when someone comes to us with something that users like but that we could envision forum trolls dismissing as a toy, it makes us especially likely to invest.

I’m thinking about this essay in relation to CryptoKitties, a platform that allows people to collect and breed digital cats on the blockchain. Now you’re probably thinking, “why the hell would anyone want to collect and breed digital cats?” Well maybe you’re smarter than I am, but that’s what I was thinking at first read. But this starts to get interesting when you really think about it.

First, we’ve all know collectors. Over the years, I’ve known people that collected beanie babies, stamps, coins, Magic The Gathering playing cards, Jordans, vinyl records, and many other things. For me, it was little model cars. My favorite was a red 1995 BMW Z3.

Whatever the item, it seems that it’s a fundamental human desire to own things that are rare and desirable by other people.

Second, it’s important to note that CryptoKitties runs on an open network with open standards (the ERC721 standard – a standard on the Ethereum Blockchain dedicated to the creation and exchange of non-fungible tokens). That means other developers can build their own digital assets and collectibles using the same standards.

Let me give an example that helps explain this second point. Today, you might be playing Grand Theft Auto (GTA) where you complete missions to buy things in the game (additional maps, guns, etc). But those digital assets are only valuable in GTA. If you switch over to World of Warcraft (WoW), those assets are nontransferable. But what if, instead of each game using proprietary standards to create their own digital assets, both used a set of common standards allowing assets to be transferable between games? Or what if you could sell those GTA maps and guns for Ethereum, then use that to purchase weapons in WoW.

Or think about Amazon and eBay. As a seller, you attain ratings and reviews over time as you sell more things. But there’s no way to transfer that reputation to another platform. What if the reviews and stars were a digital asset built on open standards that could be transferred to any other digital platform?

So, coming back to CryptoKitties, it’s likely that blockchain-based collectibles might be one of those things that initially gets dismissed as a toy (but not by Andreessen Horowitz and USV).

Philosophy

One day this week I was taking a ride on the 1 train. When I got on, there was this guy strangely rubbing his arm against the pole that’s supposed to be for balancing yourself while the train was in motion. I proceeded to walk to the other end of the car to give the crazy guy adequate space for his crazy antics. Once a safe distance away, I glanced back to see if the strange pole grinding was still taking place. At that point. I noticed something that I had originally missed. The guy only has one arm. From this angle, it became clear that he had some sort of itch or discomfort that, in the absence of a second arm, was incredibly difficult to reach. So he was forced to use the pole.

I wonder how many other moments exist where I jump to snap judgments without really understanding the situation at hand, how often I think one thing because I fail to pay close enough attention. It’s probably more often than I’d like it to be.

Still much work to be done on being present and aware of what’s real and true.

My Latest Discovery

Whenever shopping online, I used to check Retailmenot.com and/or coupons.com for discount codes before checking out. Luckily, that’s no longer necessary. If you download the chrome extension for Honey, it automatically applies discount codes across 20,000+ e-commerce sites as you shop so you don’t have to. They’re even integrated with Amazon so that, for any product, they are constantly checking to see if it might be on sale for cheaper from a different merchant. Go download it now!

[VIC – 110] Prediction. Convenience. Religion & science. HIIT-ing the road.

Business & Money

There’s this classic idea from behavioral psychology about our ability to make predictions (popularized by Philip Tetlock and Daniel Kahneman I believe). It’s the basic idea that more information increases our confidence about a prediction, without a concomitant increase in the accuracy of those predictions.

Take an example: there’s a woman called Monica. She studied English literature at Columbia University. She also wears glasses and greatly enjoys Dickens novels.

Is Monica more likely to a nurse or a librarian?

Any reasonable person might say all the signals point to her being a librarian. However, there are about 1,000 nurses to every librarian. So it’s far more likely that she’s a nurse.

This idea seems incredibly relevant to investing. The more you learn about a given company, the more you think you know and understand it. Biotech takes this to the extreme. It’s easy to get excited about partnerships and early success with clinical trials. But I always have to remind myself, I don’t really understand anything about the underlying technology, the regulatory environment, or much else for that matter.

Buffet would remind me to stay within my circle of competence.

Human Progress

A couple weeks ago, I wrote that “free speech is merely a means to other more important ends
 To protect free speech for its own sake is to not understand what is intended to bring about.”

Since I wrote that, I’ve been thinking about what else might fall victim to the same phenomena. It appears convenience might be in the crosshairs.

Convenience is often a great thing.

Airplanes are convenient. I can jump on a six-hour flight to California for a conference, and also get a lot done during the flight. That’s far more convenient and productive than driving cross-country for a week, or riding by horseback.

Washing machines are convenient. I toss a bunch of clothes into a machine with a little detergent and voila, clean clothes 45 minutes later. It’s wonderful!

Convenience even beats out free on occasion. There are ton’s of ways to pirate music for free on the internet. But I can pay $9.99 per month for unlimited streams & downloads on as many devices as I own. It’s just so easy that it’s not worth the trouble downloading pirated files from sketchy websites (not to mention the legality).

But convenience isn’t always a good thing.

The fact that you can trade stocks for free from a smartphone is not a good thing. It encourages terrible investor behavior and psychological tendencies. It’s really hard to take a long-term perspective when you get push notifications about every minor fluctuation.

Fast food sure is convenient, but it’s terrible for you. Convenience shouldn’t out way the damage people do to their bodies from all of the added sugars, salts, and other less than desirable ingredients.

Returning back to the idea of free speech for it’s own sake, convenience for it’s own sake is equally detestable. And it seems so many innovators and technologists have this strange obsession with convenience as if it, in and of itself, should be the ultimate objective in every arena of existence.

In my opinion, convenience is often too focused on outcomes and not enough on the journey. You can drive 26 miles or you can run a marathon. One is more convenient and you end up in the same place with either option, but the two methods are worlds apart.

In fact, it appears to me that those areas of life that require the most patience and concerted effort are those where we find real meaning and fulfillment.

Philosophy

On the one hand, there are billions of people on the planet that practice a religion in some form or another.

On the other hand, you have science which lies at the center of our advancement as a species.

Does not the fact that these concepts exist simultaneously and at incredible scale say something about their relationship with one another. Perhaps these two are not as diametrically opposed as some would have you believe.

But there does appear to be a fundamental conflict. That is, in science, there is this “thoroughly conscious ignorance,” a closeness with uncertainty that must be maintained in order to fuel more hypotheses and experimentation. And that seems incompatible with the unconditional faith that is required in religion.

Thoughts?

My Latest Discovery

My job requires a fair bit of travel, but I hate missing days in the gym. I also don’t like packing a bunch of extra gym clothes and shoes because checking baggage is the worst. As such, I’ve been searching for quick HIIT (high-intensity interval training) workouts I can do in my hotel room when I wake up. This one is great and is sure to give you a good burn.

I recommend clicking the link (as opposed to just glancing at the picture below) and reading through the descriptions of each exercise because there is some added complexity that makes for a tougher circuit (e.g. the decline push-up has two parts, a regular decline push up and pike push-up).

[VIC – 109] Check out my triple axel. Times tables are stupid! Can you weigh human suffering? There’s hope for hipsters.

Business & Money

Over the last couple of weeks, I’ve caught a few glimpses of figure staking as part of the 2018 Winter Olympics. The interesting thing to me about figure skating is that you get style points and better scores for higher levels of difficulty. 3 spins in the air is better than two and higher elevation during jumps is better than lower.

Investing is not like figure skating. You get no extra points for degree of difficulty. If our portfolios are both up the same percentage over the course of the year, it doesn’t matter if you found some obscure value play while I just held Apple or Amazon.

All you have to do is maximize returns with the lowest possible risk. It’s really that simple.

Human Progress

Times tables are stupid! Or so some people think.

I was recently speaking to my fifth-grade math teacher, and she mentioned an interesting debate happening in educational circles. With a tool like a calculator, which, of course, exists as an app on any smartphone, why would any child need to memorize their times tables? It’s an interesting question.

On the one hand, the calculator is computationally superior to a human being in every way. We’ve built tools as such to augment our own abilities and thus can reallocate our energy to things better suited to us.

On the other, the inability to do simple multiplication in one’s head might lead to problems. The example my teacher gave was, if a student doesn’t know that 5 x 11 = 55, then they might struggle with more complex equations. If for example they were faced with the problem “50 x 11”, they might incorrectly key in 50 x 12 on the calculator yielding an answer of 600. And without the baseline level of knowledge about the simpler equation, they might not immediately know they did something wrong.

The above example is fairly rudimentary, but it points to a larger idea. Having a baseline level of knowledge and understanding seems crucial to higher order thinking. And what’s more important than simply memorizing the answer of 5 x 11, is the process by which students might learn to memorize that result. Back when I was learning my times tables, the easiest way for me was to learn by combinations. 5 x 10 is easy, and 5 x 1 is easy, so I developed the ability to just learn the most basic equations, and quickly sum the totals to arrive at more complex answers.

What I just described is the process of “learning how to learn.” I imagine other students had different methods and approaches to learning various subjects that worked best for them.

With the speed at which we’re developing new tools and technologies to augment our own abilities, it’s so crucial to learn how to learn.

Philosophy

I was recently listening to an episode of Waking Up with Sam Harris. Sam was being interviewed by Russell Brand (yes, THE Russell Brand, the English comedian and actor from “Get Him To The Greek,” interviewing the renowned public intellectual Sam Harris who’s most known as an outspoken atheist).

One particularly intriguing segment had to do with the treatment of women in the Muslim world. Sam, being an atheist and particularly outspoken against the Islamic faith, spoke about how women are “forced to wear bags on their heads” (presumably referring to the hijab) as a result of religious dogmatism.

Brand then comes back with an interesting point of his own. He points out that Sam, having 2 daughters, might be focusing on the wrong issues facing women in today’s society. Issues that are much closer to home.

“Why are you not more concerned by the continual objectification of women and the commodification of female sexuality, the advertising industry using females purely as props?
 Which one is more prominent? Which one is more likely to happen to your daughters? That she’s going to be whisked off to Afghanistan to be wife number 5, or that she’s going to have sex with some dickhead because she’s got daddy issues.”

I believe this to be a critically important question (and one that I don’t pretend to know the answer to). It’s basically the question of, “can you weigh human suffering?” Is the suffering faced by women in America more or less important than that faced by women in other parts of the world?

Would it make you cold-blooded or apathetic if you chose to focus on one problem over the other?

My Latest Discovery

If you live in Brooklyn along the L train, you’re fully aware of the impending shutdown coming in spring 2019. But, perhaps all hope is not lost. Check out this Kickstarter.

[VIC – 103] Managing losers. You don’t look so good. New affordances. Check out this lamp.

Before we start, it’s impossible to proceed without giving thanks to the late and great Martin Luther King Jr. Dr King said that “we must forever conduct our struggle on the high plane of dignity and discipline.” He was talking about non-violent protest, but the sentence is oh so relevant today. I don’t mean to reference physical violence (while there is, of course, plenty of that), but instead, the verbal, emotional, and spiritual violence happening on a daily basis in this country. Intelligent discourse and dialogue are falling by the wayside in favor of identity politics and pejorative verbosity.

Let’s observe a moment of silence together, or perhaps a few moments, to really think about what Dr. King would do today and how he might approach the situation we find ourselves in…

Business & Money

I recently read an essay about achromatopsia (color blindness that results from a brain injury or lesion). The condition was first happened upon by a neurologist around 1888. But scientific thought of the time considered vision to be one continuous and seamless thing. Color, depth, movement, contrast, all were supposedly just parts of one “seeing.” So the research paper published about this new condition were basically disregarded and ignored for 75 years until the anatomy of the visual cortex was revealed in greater detail.
For whatever reason, this essay got me thinking about investing. If you make an investment, being early is basically the same thing as being wrong. In order to make money, you not only need to be right, but you need to be right at the right time. If your right at the wrong time, you either lose money, or wait around long enough to become right. And that waiting can be really hard and painful.
I don’t think most people have the stomach for it.
I’m feeling that right now with Ctrip.com (CTRP). I bought it back in July and it’s now down 20%. But the thing is, I’m still just as confident that I’m right. 20% is often stop-loss territory for me, but I plan to hold it. Perhaps I will be sorry later.
When you’re dealing with a loser, you really have 3 options.
You can sell some/all of the position.
Do nothing.
Or buy more, if you really have a ton of conviction that you’re right.
I choose option 2. For now


Human Progress

A few weeks ago I celebrated New Years Eve with a bunch of friends. It was great. Leading up to that evening, my best friend was recovering from a long bout with the flu. Selfishly, I hoped that he was feeling well enough to make an appearance, at least for a little bit (in hindsight, probably a terrible idea during an intense flu season). In the end, he came out for a bit and made the night better than it would have otherwise been.

The thing that I wanted to point out though, is that when he showed up, he was visibly under the weather. It’s tough to pinpoint exactly what it was, but you could tell he wasn’t himself. The first thing I might point to was that he seemed to be moving at perhaps 60% of his normal speed. Almost like a movie in slow motion. Secondly, his complexion seemed a bit off. Can’t quite remember if it was more pale or flush than normal, but noticeable none the less. Lastly, I’d say there was less expression/emotion in his interactions. None of these things were a surprise given what he’d told me via phone/text over the preceding few days, but I simply thought they were interesting.

I spent the next few days thinking about how that information might be used in interesting ways. Of course, Google beat me to it. After a bit of digging, turns out that just submitted a patent application last week about using “optical sensors [machine vision] to sense hemodynamics [forces and dynamics of blood flow], such as skin color and skin and other organ displacement [I understand that as inflammation].” In other words, they are hoping to use physical appearance to look for signs of cardiovascular conditions.

Another recent paper I read suggests there are also other signs such as “paler lips and skin, a more swollen face, droopier corners of the mouth, more hanging eyelids, redder eyes, and less glossy and patchy skin, as well as appearing more tired.”

And given that the iPhone X + Face ID will soon bring regular facial scanning to scale, it’s not difficult to imagine a day when you wake up in the morning, glance over at your phone to turn off the alarm, and suddenly get a notification that you may want to head to the doctor or load up on certain vitamins/nutrients.

Philosophy

I was sitting at work one day this week when a colleague asked if I had heard of the “squatty potty.”
“The squatty what,” I replied. Apparently one of these things is now in our bathroom at work.

My first reaction was to laugh at the utter hilarity and ridiculousness of anything called a squatty potty. I don’t have any problems going number 2, and that likely applies to most people (assumption based on no data), so why would that even be a thing.

But as I thought about it more, I realized something important. Animals, including humans, basically think by intuiting things from their environment and the affordances it presents. And new affordances only really show up by luck or chance. For example, for ancient people living near the ocean, the water was basically a barrier that was impossible to cross. You wouldn’t simply think I could build a boat to cross to the other side, because you have no conception of a “boat” or “another side.” Then maybe one day someone saw a log floating in the water and realized that pieces of dead trees can float. Or perhaps they fell in the water one day and were lucky enough to grab on to a piece of wood floating by. Then over time you got rafts, then canoes, then sailboats, then motor boats, then submarines, cruise ships, and the like.

So given I’ve never seen or heard of anything similar to a squatty potty, there’s no reason to conceive of its affordances. But it turns out there’s a sort of natural kink in your colon which keeps things backed up while your standing and sitting, and squatting naturally opens things up for evacuation. I’ll need to poke into the science behind this before coming to any conclusions, but seems logical.

This concept of considering and exploring new ideas is so SO important. I’ll lean on Mr. Oliver Sacks as his words are far more eloquent than mine:

My Latest Discovery

Amazon has oh so quietly snuck computer vision and augmented really into their consumer app without anyone realizing. If you open the Amazon app, click the camera, then click “AR view” you can test new pieces of furniture or decorations in your apartment before buying them. Check out this three-headed lamp!

[VIC – 99] I met Nostradamus 🔼. I present to you, 2U 😏 . Unguided meditation. iPhone X đŸ“±

Business & Money

I was talking with someone over the weekend that said “tech stocks are about to crash.” I wanted to pin a gold star on his/her chest emblazoned with word “Nostradamus.”
Predicting what’s going to happen in the market is easy. I mean seriously easy. Here are a few other predictions that you can take to the bank:
Retail, as a category, will recover from the current slump.
Crypto will see a serious correction.
Facebook will fail, or at least become a shadow of its current form.
All dips in the market eventually bounce, and all high flyers eventually lose steam. The prediction isn’t the hard part. Investing is all about timing. Whether you make or lose money is all about when you buy and sell.
So going back to the person I mentioned at the top of this section, what I’d be really curious to understand is that person’s definition of “about to.” Because I agree, tech stocks are “about to” crash. Valuations ARE quite lofty and I wouldn’t be surprised to see a bit of a correction in the short term. However, if I think about Amazon as an example, I plan to hold that stock for the next decade at the very least. And when the inevitable correction comes, I will likely add to my position to take advantage of the short-term drawdown.

Human Progress

Education is one vertical that hasn’t benefitted from digital transformation in the same way that other verticals have. Classrooms and the education system more broadly look much as they did 100 years ago. And it really sucks that this is the case because higher education is likely the best way for an individual to achieve upward mobility.
The most frustrating part of this story is that we have all of the tools to make digital education a reality. Students all walk around with supercomputers in their pockets. We have cloud computing and cheap internet access. There’s no shortage of students thirsty for knowledge and and no shortage of educational resources to quench that thirst.
Now it isn’t all doom and gloom. For years now we’ve seen glimmers of hope from online learning platforms like Udemy and EdX. Their user numbers have grown exponentially and they power the ability for continuous learning in a way that wasn’t previously possible. Then there are companies like General Assembly and Hack Reactor that have built immersive certificate programs allowing people to quickly gain new skills and jump-start careers.
Many colleges and universities are even offering their courses online in the form of MOOCs, or massive open online courses. And while this is a great thing, too many are simply uploading lectures and coursework to the internet thinking that will be enough. But it won’t. True digital education at scale will require an approach from first principles.
I’m happy to say that I recently became aware of a company called 2U that is taking such an approach. 2U takes the engineering prowess and agility of a Silicon Valley upstart, and combines it with the centuries-old knowledge and faculty of top universities. In other words, they’ve built a software platform and suite of services that work to accelerate digital transformation at some of the best universities in existence, including Harvard, Northwestern, NYU, and Georgetown. Take a read of the CEO letter from 2U’s 2016 annual report.
And do you want to know what makes me really gitty about 2U, this is marketplace business with serious network effects. The more degree programs offered by 2U, the more students will be attracted to online education. And more students will attract more schools to participate and more degree programs from existing partners. And to sprinkle a cherry on top, 2U will be collecting tons of data along the way about what markets need what programs, which programs are doing well, which degrees lead to job placements, etc. If Google, Facebook, Amazon, and all the platform businesses have taught us anything, it’s that network effects combined with massive datasets pave the way for machine learning to speed up the flywheel.
And the flywheel has only begun. Founded only 9 years ago, 2U has about $200 million in revenue across 24 degree programs from 18 university partners. Revenue growth has been insane and that degree program number will more than triple by 2020.
Ps this isn’t some small scrappy startup. TWOU is a public company and you can come along for the ride! (disclosure: long TWOU)

Philosophy

I’ve gotten the question a few times recently that asks how to transition from guided to unguided meditation. That is, to transition from wearing headphones and listening to instructions, to simply sitting down in silence left to your own devices. The guided sort are great, but the challenge there becomes the fact that you are reliant on the guide and/or the instructions. So then if your phone dies or you forget your headphones, your meditation practice suffers.
So in response to those questions, I’ll outline my process here (I’m no meditation expert – I’ve simply borrowed bits and pieces from things I’ve read and/or guided meditations I’ve done):
First, I usually just sit down to a few deep breaths to relax my mind and body. I tend to do these loudly enough so that someone could hear them if they were sitting close by. For me, these breaths help to release any built up tension and get settled.
Next, I move to checking in with all of the sounds in the room. Those sounds usually consist of buzzing appliances, vehicles outside, my dog walking around, plumbing, and many other things. But the point is not to identify each sound and it’s source, but simply to notice them. It’s pretty remarkable how many sounds there are at any given moment that we are generally oblivious to during the course of regular life.
Next, I check in with my body. I can usually feel the pressure of the floor on my ankle bones more so than any other point of contact. Sometimes there is soreness in my lower back. I can feel my chest and lungs expanding and contracting with each breath. If I pay especially close attention to my breath, the expanding feeling can even be felt in my shoulders and my back. In fact, you can almost feel it throughout your entire body.
Finally, I move to checking in with my mind. Sometimes it’s restless and thoughts about the coming day try to creep into awareness. Sometimes there’s fatigue and a feeling that I haven’t fully woken up yet. Other times a bit of apprehension if I know my schedule is jam packed. On the best days, there’s just an overwhelming sense of calm, relaxation, and simple presence.
What you’ll notice from reading the above is that there aren’t any special tricks. It’s mostly just noticing what’s happening and being present. Checking in with the sounds, physical discomforts, and the movements of the mind simply point your awareness at the here and now. And with each new sounds or sensation, the idea is to simply notice it and move on. A great meditation session is not the absence of all of those things that creep up, but simply the ability to notice them for what they are, without allowing any fixation, emotional connotation, or the like.
I hope this helps.

My Latest Discovery

The new iPhone is pretty magical. My favorite part is FaceID. Before the haters jump in, Yes, Apple was NOT first to market with this technology. But as usual, they’ve done it perfectly and made it magical. An example of this is when you get those notifications that pop up on your lock screen. I just got a pop-up for an upcoming calendar event, and when I glanced at my phone, it automatically unlocked to reveal the true content of the calendar notification. That feels like magic.
With so many things being awesome, there are also a few things that suck. One of those is that the control panel is in the top right corner. With the added screen real estate, it’s a pretty far journey for my thumb to make it to the top right corner of the screen. I’m hoping one of you kind readers has a trick for me to get around this.

[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 – 92] Naked people in the streets. Individual sovereignty. Go with the flow. Golden Week.

Business & Money

I’ve been working through Howard Marks’ Memos over the last few weeks, and I couldn’t be more thankful for the recommendation from a close friend. The memos are wonderful.
As a result of reading a few, I realize that I have been falling into one of the traps that so many investors fall in to, getting far too confident during a bull cycle. You start making bets than you otherwise wouldn’t. It’s so easy to fall into this trap thinking everything that you touch will turn to gold. Luckily I read a few of these memos before anything bad happened.
And hey, who knows? Maybe the market continues to rally for another year. Or maybe 5 or 10 years.
But I also know the law of large numbers. I know that over long periods of time, things will regress to the mean. I know that this time is NOT different.
So here’s what I’m doing to protect my downside:
There are a group of stocks known as the dividend aristocrats. These are stocks that return money to shareholders on a consistent basis in the form of dividends. And the great thing is that these stocks generally perform better than the market during a downturn as compared to the S&P 500. I’m shifting a higher percentage to these assets.
I’m decreasing my positions in companies that are not profitable and shifting towards those with extremely healthy balance sheets and lots of cash on the books.
I’m selling off some crypto to rebalance the portfolio and reduce risk.
I’m tightening up some of my stop losses.
I’m planning to keep 10-15% of the portfolio in cash to be opportunistic.
Buffet always says you have to be greedy when others are fearful and fearful when others are greedy. Let’s just say I see a lot of greedy MFers running around naked in the streets!

Human Progress

I regularly read a blog called Stratechery. It’s author, Ben Thompson, is an incredible journalist, business strategist, and technologist. He goes deep into the companies and topics he writes about. I have no idea how much money he makes, but at $100 per year for the annual subscription, I’d imagine he makes a few hundred thousand dollars per year just with the blog, if not more.
I’ve also recently kicked off a virtual meditation retreat led by David Cohn. David writes another of my favorite blogs called Raptitude. He built a significant following on the blog writing about meditation and mindfulness, then parlayed that into running these virtual retreats. Again, no idea about his financial success, but Imagine he does well. After day 3 of the retreat, there are hundreds of comments and likes on the meditation forum. At $67 for the 30-day retreat, it only takes 1500 participants to crack $100,000 in revenue.
I’m currently reading a book called The Sovereign Individual (highly highly recommend it). It’s about how individuals will have increasing sovereignty as we transition into the information age, and old paradigms of power and control (i.e. nations, corporations, political affiliations, financial institutions, etc) will have less control over us.
The internet is an incredible means to individual sovereignty. A single person with a passion, a WordPress site, and a bit of work ethic have the ability to make a life for themselves. And a good life. And it doesn’t matter where you live, what you look like, or who you choose to have sex with. There is absolutely nothing holding you back and no reason you shouldn’t exercise your sovereignty.

Philosophy

I’ve noticed this thing I sometimes do when reading content online. I quickly scroll to the bottom of the page to get a sense of the length of the article. I basically refuse to start reading, if I cannot first set my expectations about length and duration.
The interesting thing is that I even do this when reading my favorite authors and blogs. Despite the fact that I’ve already established a fondness for the writer and subject matter, I still have to set proper expectations before diving in.
I’m not sure if this is a good thing or a bad thing. Or perhaps it’s just a thing. But I noticed it. And I think it’s worth thinking about.
I think a lot of “suffering” in life is due to this constant expectation setting. You often hear about how someone is so disappointed about the outcome of a particular situation. But, of course, there would be no disappointment were it not for expectations.
Don’t get me wrong. Setting goals and having aspirations is an important exercise. After all, without a target, how does one set their aim?
But sometimes it’s also important to just dive in, to stop asking questions, and go with the flow. To try something new. To step outside of your comfort zone.

My Latest Discovery

Apparently this past week was “Golden Week” in China. It’s a 7-day national holiday to celebrate the founding of the PRC.
It’s estimated that nearly 700 million people were traveling this year during Golden Week, which is a 10% increase over last year. 700 million?!?!? That’s half of China’s population and 10% of all humans on the planet. That’s 🍌🍌🍌🍌!! (been a while since the 🍌s made an appearance here on VIC – feels good to bring em back 😉 )
Apologies, for bringing this one full circle back to the finance section, but I can’t help it. Everyone’s already aware of the rapidly growing middle class in China, which means the traveler numbers will likely keep going up. And most of these people are booking their flights and accommodations on Ctrip.com (CTRP). Ctrip is basically the Priceline of China. Have you seen the Priceline stock chart over the last 10 years? I’ve owned CTRP for a while now, and will likely keep adding to the position. Don’t sleep!
Of course, the health of the markets will have an impact on discretionary spending in the short term, but from a long-term perspective, China appears to be going up and to the right.

[VIC – 91] Overvalued is horse shit. ICO 101. Damn millennials. Don’t close your apps.

Business & Money

Early this year I sold my Tesla (TSLA) stock. It had gone up a bunch over the years and the markets were (are) feeling frothy, so I decided to cash in and walk away with the gains. Of course, it has gone up an additional 20% this year and I’m sitting here feeling like an idiot. That said, I’ve noticed a couple other things that I thought were worth sharing.
The first is that there are a couple of foundational pieces of technology that are large drivers of success for Tesla, one being the lithium-ion battery pack.

There are 7,000 individual batteries in one battery pack. And now, given Tesla’s success and a growing global consciousness about climate change, you have every other major car company saying that they will switch all models to electric, and thus lithium-ion battery packs, in the next 5-10 years (unless some other breakthrough comes from left field). So lithium will be in very high demand. If TSLA feels too risky for you as an individual stock, I’d recommend the Lithium ETF (LIT) which gives you exposure to the entire category (lithium miners, battery manufacturers, EV companies, etc) as a hedge against any one specific bet.
The other key factor I was referring to driving Tesla’s success is, of course, artificial intelligence, but I write ad nauseum on that subject here on VIC so I’ll leave it alone today.
The other thing I’ve noticed as a result of selling TSLA is that there is a lot of talk about the market and individual companies being overvalued. And in some respects that is true. If you use traditional valuation metrics like P/E, EV/EBITDA, and the like to compare a company to historic multiples in the category, then yes, the market is expensive. But what I’m realizing more and more is that there are a lot of things that aren’t captured in ratios and financial statements. If you look at Amazon’s filings, where is Jeff Bezos. He’s not on there. There’s no entry for “visionary CEO” on an income statement or balance sheet. There are no entries for durable competitive advantage or strong network effects. I believe it’s far more important to think about the fundamentals of the business, rather than a simple mathematical exercise, and why it will be successful in the long run. Most of the great companies of our day are always “overvalued.” My thinking has shifted considerably to take “overvalued” as a strong buy signal. Perhaps the term is just horseshit altogether.

Human Progress

I’ve gotten the question about how to participate in ICOs a bunch of times, so I figured it was time to write a quick blurb. For the uninitiated, ICOs (initial coin offerings) are a means by which startups and blockchain-based projects raise capital. In short, the company initiates a crowd sale of tokens (think Bitcoin or Ether, but specific to that company or project) to the public. This year ICOs have raised over $1 billion, with the largest individual sales raising over $200 million (Filecoin and Tezos have been the largest and most talked about).
So how to participate.
First, you have to acquire Bitcoin or Ether. The easiest way to do so is via Coinbase, the leading crypto exchange and wallet. You just open an account, connect a bank account, and purchase your token of choice. Keep in mind that, because this purchase happens via a traditional bank, the transaction will take a few days to settle. So if you want to participate in an ICO, you’ll want to purchase Bitcoin/Ether a week in advance.
Second, you’ll need to transfer your Bitcoin/Ether to a wallet you control. With Coinbase, you don’t own your private keys, so that won’t work. The way ICOs work is that you send tokens to a specified address, then a smart contract is executed and your desired tokens are sent back to your address. You need your private key in order to access those tokens. I use My Ether Wallet for this.
Third, participate in the ICO by sending your Bitcoin/Ether to the appropriate address. The company hosting the sale will provide the address where the funds are being collected during a specified window of time. Be careful here, though, because hackers and scammers will try to replace the correct address with their own, stealing any funds sent to their address, with no recourse. They’ve been successful to the tune of millions of dollars.
Last, and especially if we’re talking about considerable sums of money, you’ll want to store your tokens in a cold wallet, aka one this isn’t connected to the internet. Hardware wallets are best for this, with Trezor and Ledger being the most popular.
Hopefully this helped. Be careful out there!

Philosophy

I often write here on VIC about the positive effects of the internet and technology. But one not-so-positive side effect is that we increasingly live in a world of instant gratification. If you want to go on a date, just swipe right and viola! One date coming right up! Hold the awkward meandering up to a group of strangers in the park. Hungry? Not for long with Seamless or GrubHub at your fingertips. Feeling down, just post a picture to Instagram so everyone can like it and stroke your ego.
At every turn, it seems, every need can be met in an instant. The problem is, when it comes to important things like meaningful relationships or fulfillment at work, there’s no quick fix. Substantive interpersonal connections require a sustained and genuine interest in another person’s affairs. If you want to find meaning at work, there will likely be a ton of long hours, frustrating conversations, and uncomfortable situations. And while none of these are fun in the moment, I’d say they’re almost a requirement for anything worthwhile.
This might be the primary reason that people ascribe laziness and entitlement to millennials. You have an entire generation of people that are expertly trained in instant gratification. How you can you blame them (us) for expecting to get exactly what they want when they want it.
And what’s more, many of the needs currently met by technology were previously met by other people. Individuals look to social media for their self-esteem and their sense of well-being, instead of relying on friends and family. This likely leads to underdevelopment in communication faculties and an inability to cope with stress in effective ways.
What you have here is the perfect recipe for what I’ll call the millennial psychosis. And given that the pervasiveness of technology in our lives is sure to increase over time, the future looks rather bleak.
I wish there was some easy answer or magical cure, but there isn’t one in sight. That said, I AM a firm believer that making space in your life to be free of technology and instant gratification is a good start.

My Latest Discovery

I was recently speaking to a friend who happens to be an iOS engineer. As we were walking side by side, he noticed that I had pulled my phone out of my pocket, and was in the process of force quitting a bunch of apps to conserve battery life. He proceeded to tell me that this was futile. He claimed that the power required to reboot an app from scratch was likely equal to, if not greater than, the power used by an app sitting idle in the background.
I’ll have to fact check this one, but an interesting insight none the less.

[VIC – 88] Stop losses are for suckers. There’s Moore where that came from. Magnify your spirit. Narcoooos!

Business & Money

I once had someone say to me “stop losses are for suckers” (a stop loss is when, after buying a certain stock, you set a lower limit on how far it can fall in price before being automatically sold. So if you buy a stock at $100, you might set a stop loss at $80, which means if the stock reaches that point it will automatically sell to protect your down side).
That sentence stuck with me for a long time, probably because I aint no sucker! 😂 But seriously, I had just kind of accepted it at face value without giving it much thought. When you really think about it though, it’s a load of crap for a whole host of reasons, including:
1) Stop losses take emotions out of the equation. Emotions are the investors worst enemy leading her to do incredibly stupid things.
2) Stop losses free up money to pursue other ideas. You obviously want to make your money back, but it might be easier to do so on other companies.
3) Stop losses give you flexibility. The great thing about the stock market is that you can make money whether the market is going up or down. If something important has changed, you need the flexibility to act on that new information. No reason to stay trapped in a losing position.
Now I know what some of you are probably thinking. There are always major drawdowns, even in the market leaders. Amazon, Apple, Google, Facebook, all have seen huge drawdowns and one time or another. Getting stopped out of those means you would have lost out on the incredible gains to come. Fair point. But there’s a far longer list of stocks that have tanked and never came back. Don’t anchor on the outliers. Plus, a stop loss does not mean you can’t come back in at a later point.

Human Progress

These days you often see people writing about the end of Moore’s law (Moore’s law, named after Gordon Moore of Intel, being the principle that computing power, or the number of transistors on a chip, doubles roughly every two years). But, while the pace of improvements to this paradigm are definitely slowing down, to say that Moore’s law is coming to an end is to miss the larger point.
Before integrated circuits (chips), early computers relied on punch cards and vacuum tubes to handle the heavy lifting. It wasn’t until the 1950s when transistors came on the scene.
So, I believe the real idea of Moore’s law is to say that we will continually find ways to improve computing power at an exponential rate, regardless of whether the underlying technology is a transistor moving around electrons on a slab of silicon.
Take quantum computing for example. Once, these are generally available for regular applications, we will see a sudden step increase in computational power. Modern encryption might become obsolete in an instant.
The human brain example of another form factor. Instead of transistors, we have this biological blob inside our heads with about 100 billion neurons layered on top of one another firing in incredibly complex patterns. This is why computer scientists have taken this idea and abstracted it to build what they refer to as neural networks loosely modeled on the structure of the human brain. However, while neural nets are incredibly powerful and this area of research fascinating, we should be wary to spend too much time aiming to replicate the biological version. This was the line of thinking when inventors tried to replicate bird flight by building machines with flapping wings. Then we figured out that a fixed wing system was far more practical and efficient for our purposes.
All this is to say that we’re in the early innings of our computational journey. Regardless of the substrate, we will continue to see exponential improvements with the potentiality of recreating the notion of intelligence altogether.

Philosophy

I often return to this “10 learnings” list by Maria Popova. She published it on the 10 year anniversary of starting her blog. It’s one of my favorites.
The one I love most from this list is “seek out what magnifies your spirit.” The language is simply beautiful and the idea even more so. I’d say it serves any human being well to make sure you find space in your life for whatever it is that magnifies your spirit.

My Latest Discovery

Narcos is back babyyyyy!! (no spoilers please!)

[VIC 86] Waiting for your pitch. Digital health. Free will. Trouble sleeping.

Business & Money

A few weeks ago I went to a baseball game in Chicago for a friend’s bachelor party. It was a ton of fun.


For whatever reason, I was looking at this picture the other night and started to think about investing in terms of baseball.
In baseball when you step up to bat, there’s this concept of the strike zone. If the pitcher throws the ball within that zone, it’s called a strike. If he throws it outside of the zone it’s called a ball. What makes baseball tough is that you can’t stand around waiting all day for a perfect pitch. If the pitcher throws three strikes (regardless of whether or not you swing), you’re out and you lose your turn at bat.
In some respects, investing is like baseball. Every time you analyze a stock, that’s a pitch barreling down toward home plate. If you decide to make a purchase, that’s analogous to a swing. You might get a single and make a little bit of money, or, you might hit a home run and make a ton of money. You also might whiff and lose money.
The difference with investing, however, is that you’re never forced to swing. There’s no 3 strike rule. You can stand at the plate all day long waiting for that perfect pitch. You can wait day after day, week after week, month after month, even year after year. Only when you see the perfect pitch, and you have a ton of conviction, do you swing.
I’d say that’s one of the hardest things about investing, being patient and waiting for your pitch.

Human Progress

I’m excited to see how digital health will transform our lives.
I already wrote about my Teladoc (TDOC) investment here and why I’m excited about what they’re up to.
I also invested in Care.com (CRCM), which is an online platform that helps people find various types of care (senior care, child care, etc). Seems like another perfect problem to solve with an online marketplace (platform + network effects).
I’m considering an investment in a company that makes surgical robots for spinal procedures. Spinal surgery seems much better suited for the machines. Plus, consumers don’t pay for surgeries, insurers do. Even when out of pocket expenses are huge, you will take out a loan or do what’s necessary if you need serious spine surgery.
Apple is working hard to turn the iPhone into digital health tracking powerhouse.
If you’re at all interested in this space, here’s an awesome newsletter I subscribe to to stay abreast of what’s happening.

Philosophy

I’ve been doing some thinking about free will of late. The question I’m mulling over is “does it really exist?”
On the surface, we all have free will. You can decide where to go for dinner, what clothes to wear to work, and whether or not you treat people with kindness.
But if you think about the concept of free will on a deeper level, even with respect to those simple examples I just provided, things start to fall apart.
Let’s take the “where to eat dinner” example. First, you get hungry, which is simply a physiological and biological reaction to a lack of energy and nutrients. Chemical signals in your brain drive you to eat. The types of food that you like are a product of cultural and social pressures from the environment in which you inhabit. The time at which you eat is based on a schedule that has been arbitrarily defined to meet the needs of humans where ever you live.
You can see how this plays out when you start to peel back the layers for any “decision” you make.
While this line of thinking may seem like a glass-half-empty type of exercise or philosophical circle jerk, there’s also a bright side. When people treat you poorly or things don’t work out, I think it may be easier to deal with if you understand that no one really had a choice to do anything differently. That guy that was rude to you this morning probably had coffee spilled in his lap on the subway. The homeless woman blocking the entrance to your building didn’t choose to be homeless. She’s probably a war veteran who’s seen some really fucked up shit and this country doesn’t do nearly enough to help vets successfully integrate back into civilian life.
No one is out to get you. Life is just one huge chain of cause and effect that doesn’t start or end with you. You’re just one random link in the chain. No reason to be upset about it.

My Latest Discovery

Sometimes I have a little trouble sleeping. Lucky for me, my fiance is super creative with natural solutions to this problem. Two of her ideas that have been a god send have been:
1) Apple cider vinegar tea. It’s simple, delicious, and effective. Just hot water, a tiny bit of raw unfiltered honey (this helps with seasonal allergies as well), and a couple table spoons of apple cider vinegar. It works wonders!
2) Avalon Organics Nourishing Lavender Shampoo. People often use lavender shampoos for babies, but it seems to work well for big people too.