Investing, Mobile, Psychology

[VIC – 124] Do less…

by

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.

Nike, Stoicism, Voice, Writing

[VIC – 123] A few more reasons I like writing… ✍️

by

Business & Money

Nike is back at all-time highs after earnings.

Howard Lindzon calls Nike one of his 8-80 stocks. That is, a stock you can hold for your entire life with confidence that it will increase in value over the long term.

Howard also refers to Nike as a “fashology” (fashion + technology) stock because people where Nike as much for fashion as they do for its athletic utility/function. I like the term fashology. He also puts Apple and Lululemon in that category.

Some people underestimate the value of a strong brand. It feels squishy and amorphous. But it matters so much in business. For Nike, it means millions or billions of people wearing your stuff in their Facebook and Instagram posts. It means all the 16-year-olds at the park playing basketball are wearing Nike. It means that anyone across the globe immediately recognizes your logo, whether or not the brand name appears alongside it.

When you don’t know something, you don’t “Bing it,” you Google it. I’ve never heard someone say they were planning to “Hulu and chill” tonight. You Netflix and chill. When you need to get somewhere, you call an Uber.

In marketing/advertising land, we call this earned media. Unlike paid media, where you pay to promote your brand on TV or the internet, earned media is purely organic. People are promoting your brand for you. Your brand becomes synonymous with the entire category.

It’s not a bad place to be.

Human Progress

Many are convinced that voice represents the next big paradigm shift in computing. Amazon got out to an early lead shipping millions of echo devices, but Google quickly rushed with their own offering, and now the Chinese giants are following suit.

I’ve been thinking about what brought this about and I can think of two big reasons.

First, voice now “works.” By that I mean that error rates are now sub 5% when they were above 30% five or six years ago. We can easily transcribe voice to text and then turn that text into a structured query.

Second, the smartphone supply chain has made it possible to solve this problem at scale. Anyone can assemble a small box with a CPU, microphones, speakers, sensors, plug it up to an internet connection to tap into voice recognition and natural language processing capabilities from a whole host of companies.

But there’s a big question: what’s the killer app? Why do many voice services still suck (I’m looking at you Siri)?

Here’s a list of things voice assistants are fairly competent at:

Playing music and podcasts

Setting alarms and timers

Checking the weather

Dictating and sending messages

Reordering previously purchased items

Listing random shower thoughts (if you haven’t tried this one, ask Alexa to play “random shower thoughts” right now)

I’m probably missing a few, but that’s about it. If I really put my mind to it, I might be able to make a list of 20 or 30 simple and discrete tasks. It’s pretty pathetic. Or is it?

So there are actually over 30,000 things that Alexa can do. But this presents a massive problem. There’s no way a human being can remember a list of 30K discrete skills.

So there’s a ton of things it can do, but there’s no easy way to know what it can and can’t do. That’s a massive UX problem.

For this reason, as it stands today, voice services (similar to other areas of machine learning and AI), serve best when the exists as a part of a particular domain. Alexa on my TV works great to search for content. Switching apps and using the remote to type in a search query sucks. Now I can say, find “The Fast and The Furious, Tokyo Drift” (fantastic movie… don’t you dare say otherwise).

Hotel rooms offer another narrow domain in which the list of possible things you might ask for is fairly constrained.

For broader applications, it remains to be seen whether voice will have the transformational impact that many are hoping for.

Philosophy

Many of you will have received handwritten letters or obnoxiously long emails from me (it probably won’t be the last). It is on purpose.

One of my favorite books is How To Win Friends and Influence People. It’s fantastic! One of the core principles is that all people have a desire to feel important.

Writing longer-form content is inconvenient. Social media and media outlets in general have trained us to like stackable content. It’s easier to consume and takes less time. So when you write something a bit longer it conveys a sense of importance. It says, “I care enough about this topic enough to spend more than a few moments composing it.” And conveying that to important people in my life is, well, important to me.

And interrupting people is a great way to communicate that they’re NOT important. It says “I care about what I have to say far more than what you have to say.” So taking the time to write something down and flesh our your thoughts ensures that, if you give that writing to someone else, there is no chance of being interrupted. For this reason, the wife and I have adopted the practice of sometimes writing letters to each other when we get frustrated about something.

And finally, writing things down seems to me like a great way to separate yourself from your thoughts and ideas. When thoughts are in your mind, they’re inextricable from you as a person. Inextricable from your identity. You might say you are your thoughts. But writing them down changes that. You can look back on your writings to analyze how your thinking has changed and identify weak points in your perspective. It’s the reason why, at the end of each quarter I go back to read the VIC issues of the last 3 months, and at the end of the year I read through my journal entries for that year.

From that angle, it becomes easy to see that your thoughts and ideas are just that, thoughts and ideas. And that they can, and often should, change and evolve or time.

My Latest Discovery

I’ve written here many times about Stoicism. If you’re a fan, perhaps you want to try subscribing to The Daily Stoic, a short daily email with timeless words of wisdom from this 2,0000 year old philosophy.

Thanks to a good friend for forwarding this one along last week!

Investing, Meditation

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

by

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…

Internet 2 Comments

[VIC – 121] Mary had a little… internet 🐑 🐑

by

Mary Meeker put out her annual internet trends report a few weeks ago. It’s a whopping 294 slides, but I’ll do my best to pull out a few nuggets I found interesting.

Business & Money

This is one of my favorite slides…

It makes me think about a few things.

With time spent on digital media going up, the explosion of mobile video and streaming, I find it hard to imagine that mobile networks can handle the increased usage. As such, it seems logical that more traffic will have to be offloaded to wifi.

A stock of I like a lot in this regard and have held for quite some time is Boingo Wireless (WIFI). They’ve taken their airport model and replicated it successfully at stadiums, military bases, and many other places.

That said, there will, of course, need to be heavy investments in mobile data infrastructure in parallel. This is evidenced by the big telcos making heavy investments in 5G, and you can also see it reflected Trump’s desire to beat out China in this area.

So I’ve also been tracking the large REITs that own the market for cell towers. Those are Crown Castle (CCI), SBA Communications (SBAC), and American Tower (AMT). I haven’t made any moves on these 3, but they’re on the watch list.

If the following slide is any indicator, I may look for international exposure.

Human Progress

If there’s one slide that scared me, it was this one:

If that doesn’t make you uneasy, then I don’t know what will.

Your personal savings rate is the ratio of the amount of money that you put aside for savings divided by your disposable income.

Your debt-to-income ratio is calculated by taking the sum total of annual debt payments (credit cards, mortgage, etc) and dividing that by your annual income.

My personal savings rate sits around 12%, while debt-to income sits around 21%.

Can’t hurt to spend a little time thinking about where you sit vs these benchmarks.

Philosophy

I think I may have figured something out about what’s motivating Donald Trump.

Take a look at slide 214…

It won’t be long before those lines meet.

Are you familiar with Thucydides’ Trap? It’s the pattern of stress that arises from a rising power threatening to displace the incumbent power. Thucydides was an Athenian General and is well known for his writings about the Peloponnesian Wars fought between the two leading powers of Ancient Greece, Sparta and Athens. He suggested that, despite many flashpoints and disagreements between the two sides, the primary reason for conflict was fear from the established power, Sparta, about the rapidly growing strength of Athens.

That dynamic seems to describe US-Sino relations to a tee.

Trump is terrified of China, and everyone else for that matter. Trade wars, America first, anti-immigration. You know the story.

Xi Jinping is reducing China’s dependence on foreign goods.

He’s making heavy investments in AI & technology sectors (USA winning 11-to-9 today, vs 9-to-2 five years ago).

He’s flexing his muscles in the South China Sea.

If you were casting a movie called “The Return of Thucydides,” you’d be hard-pressed to cast better than Trump vs Xi. This one should be a thriller!

My Latest Discovery

I knew we were operating at a loss, but I didn’t know it was this bad…

Which statement is more true:

1 We’re doing a terrible job.

2 Money isn’t a real thing (when operating at scale).

Hope, Investing 2 Comments

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

by

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!

Uncategorized

[VIC – 119] Keeping up with the Joneses

by

Business & Money

There’s this saying in life that goes “perception is reality.” It basically reflects the idea that truth is often less important than perceived truth.

However, in investing that’s not the case. You might say it’s all about finding gaps between perception and reality. If you can find an asset where the intrinsic value is higher than the value prescribed by the market, you have an opportunity to profit from that gap.

If you think of it this way, there are really only 2 strategies for making money.

You can be better than other people at assessing reality. Or you can be good at spotting goofy perception.

Human Progress

You know that phrase “keeping up with the Joneses”? It describes the tendency for people to use the socioeconomic position of one’s neighbors to measure their own success.

I think the incarnation of the phrase has changed over time. Back in the day, I believe it was about buying houses and cars in response to those bought by other people in the neighborhood.

Now, you hear that millennials are more included to by experiences, as opposed to expensive things. So keeping up with the Joneses is all about going to nice restaurants or traveling to expensive destinations (and of course posting everything to social media).

But there’s an important difference between the old and the new. Houses and cars have some residual value, while experiences do not.

Philosophy

I was reading an article earlier this week when I came across a word that sounded cool, but I didn’t know the meaning. The word was “mendacity.”

The gut reaction was to open another tab and look up the word on Google. But I caught myself before the query results showed up and quickly switched tabs back to the article.

Before we were all trained to turn to Google with every question, we had to use good old context clues to ascertain the meaning of words. Here’s the sentence the word appeared in:

“I just can’t abide the mendacity and the pleasant little lies and the outright raccoonery that I perceive as infesting the investment world.”

The article was about how many investors behave like sheep with a herd mentality, following the whims of financial media outlets. So, coming back to mendacity, I read it to mean lunacy or outright stupidity that conforms with the crowd.

When I looked up the word, Merriam Webster pointed me to “mendacious,” which means “given to or characterized by deception or falsehood or divergence from absolute truth.”

I wasn’t absolutely correct, but not too far off. And I understood the meaning of the sentence just fine. Plus, there’s the added benefit of the mental exercise of figuring something out. You’re far more likely to remember something that you’ve worked out yourself rather than just being given the answer.

My Latest Discovery

Many people automatically associate partying with drinking or other illicit substances. They think of late nights and weird subcultures. But that’s not always the case.

A friend recently invited me to Daybreaker, which is an early morning dance movement in 22 cities across the US. They host occasional 7 am parties where you meet tons of interesting people while dancing to the sunrise. It’s a pretty unbelievable experience!

Asking Questions, Investing, Mindfulness, Retail

[VIC – 118] Experts don’t know s**t!!

by

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!

artificial intelligence, BTFD, Facebook, Investing

[VIC – 117] Buy the fu*!#$ dip

by

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!

Biotechnology, Healthcare

[VIC – 116] Buy my ETF! 💵 💵

by

Business & Money

20 years ago, in 1998, the largest 5 companies in the world by market cap were:

1 Microsoft ($271B)
2 GE ($258B)
3 Exxon Mobil ($172B)
4 Royal Dutch Shell ($164B)
5 Merck ($154B)

So that’s one tech company, one conglomerate, 2 energy, and one healthcare.

At the beginning of 2018, that picture looked very different:

1 Apple ($851B)
2 Alphabet/Google ($717B)
3 Microsoft ($702B)
4 Amazon ($700B)
5 Tencent ($507B)

All tech (no surprise). I hold 4 of the 5 (sorry MSFT), and will likely do so for the foreseeable future.
But we all know the saying. You have to skate to where the puck is going, not where it is now. So I’m thinking about what that might look like 20 years from now.

While I believe tech will persist (that is, every company and industry will be heavily influenced by software and the internet), I don’t think the 2038 top 5 will be pure play internet & technology firms.

I’d say there’s a non-zero chance that biotechnology might take the crown. The things I see at the intersection of computation and biology are astounding.

So, I’ve begun creating my own ETF weighted by market cap. It’s basically centered around two things: CRISPR (clustered regularly interspaced short palindromic repeats) and genetic sequencing.
CRISPR sounds a lot like an industrial additive to potato chips, but in reality, might be the most revolutionary discovery of our life times (take that blockchain!). It basically allows us to edit DNA and reprogram the genetic makeup of living things.

DNA sequencing is the process of determining the precise order of nucleotides within a DNA molecule. So if you’re going to edit the DNA, you need to know precisely what and where to snip. 
I’ll likely add to my ETF in the future, but right now it consists of:

Illumina (ILMN) – basically the only game in town for genetic sequencing

Intellia Therapeutics (NTLA) – Dr. Jennifer Doudna and Emmanuelle Charpentier discovered the CRISPR-Cas9 genome editing technique. Though the discovery was made in an academic setting, Doudna decided to try her hand in the private sector and co-found Intellia.

Editas Medicine (EDIT) – Feng Zhang of the Broad Institute discovered how to use CRISPR-Cas9 technology in eukaryotic cells (and thus, humans). And for some reason, despite filing patents seven months after Doudna and Charpentier, The Broad Institute was awarded a patent first.

Crispr Therapeutics (CRSP) – and who do we have to thank for my last pick? Doudna’s co-discoverer Emmanuelle Charpentier of course. She couldn’t sit idly by and let Doudna get all the glory, so she decided to license her IP to Crispr Therapeutics.

I have no idea who will win the CRISPR race, so I’ll bet a few horses (it’s Derby weekend after all). 🐎 🐎

Human progress

When the human genome was first mapped in the year 2000 it was a big deal. Bill Clinton went on national television to make the announcement as the dawn of a new day for disease prevention. But then nothing happened.

For one, data was limited. It was incredibly expensive to sequence a human genome so there wasn’t much information to work with. That’s no longer the case.

More importantly though, even with the discovery of CRISPR in 2012, the problem was completely solved. As it turns out, editing one specific gene in one specific location is not all that helpful. Most diseases that we care about, like Alzheimers, heart disease, and diabetes, are polygenetic. In other words, they involve tons of different genetic markers all across the genome.

With tons of data and cheap sequencing, we’re now just now starting to make robust discoveries. So we’re still in the first inning of this revolution.

Philosophy

Of course, there are tons of ethical and philosophical questions to address.

If you remember eugenics (the science of improving human fitness through selective reproduction to achieve desired characteristics), it basically lead to Nazism and the extermination of millions of people deemed genetically inferior.

The important distinction to make here is between two different types of gene editing.

Somatic cell editing means making changes to DNA in cells of a particular organism that is fully formed (one person). These changes are not heritable; they cannot be passed on to the next generation.

The contrast to that is changes to the germline, or changes to the DNA of embryos, eggs, or sperm. That is, changes that are inherited by offspring and thus become permanent fixtures in the genome going forward, future mutations notwithstanding.

There’s a profound difference between making a change that affects one person, and making a change that affects all of their children, and their children’s children. The latter has an impact on the arch of human evolution.

If you are worried about the philosophical machinery and motivation behind today’s tech luminaries, what happens if the next wave of companies at the top literally controls our genetic makeup.

Filter bubbles will be the least of our concerns.

My Latest Discovery

If you’re at all into biotech and healthcare more broadly, check out the Industry Focus podcast from the folks at Motley Fool. It covers a different sector of the stock market every day, Wednesday being healthcare.

Amazon

[VIC – 115] Want to see Jeff Bezos do a handstand?!? 🤸 🤸

by

A handstand is the perfect balance of strength, balance, focus, and discipline. And while I, unfortunately, don’t have a funny video for you, a free-standing handstand captures well many ideas inherent in Amazon’s culture (which is why Bezos mentioned them in his latest letter to shareholders). And given that Amazon is my largest public equity position, I thought it prudent to spend time this week reflecting on the letter.

Business & Money

Looking at the “Marketplace” section, I think it’s worth pointing out a common misconception. Many people I speak with seem to have this idea that Amazon is “killing the little guy.” In other words, making it incredibly hard for small businesses to compete. But I think reality says the exact opposite. In 2017, over 300,000 SMBs started selling on Amazon Marketplace. In just one day, Prime Day 2017 to be specific, SMBs sold 40 million items on Amazon, an increase of 60% YOY. 140,000 of the SMBs selling on Amazon surpassed $100,000 in sales last year.

The fact of the matter is that Amazon enables SMB merchants in a way that the world has never seen (of course Alibaba and JD have quickly followed suit for the Chines market, Mercado Libre in Latin America, etc).

If you want to defend main street, or point fingers at big companies, you’re better served looking at Walmart or Costco.

Now whether those SMBs will ever reach meaningful scale is another question. The definition of meaningful is, of course, completely subjective. But I’m talking about tens or hundreds of millions in revenue. For any SMB starting to reach serious scale, I think it’s fairly obvious that you have to go direct to consumer. Because if you don’t, Amazon will be ruthless about creating a private label version of whatever you sell and trying to take the market.

Human Progress & Philosophy

In software development, you have the concepts of features and bugs.

A feature is something deliberately built into the product that adds value to the user. Filters on Instagram are a feature that allow users to post better pictures.

Bugs are mistakes; a flaw in the code that detracts from the user experience. When we first released DogsterApp, pictures posted to the feed were often stretched and distorted depending on dimensions of the picture. Clearly a bug.

But sometimes it’s less clear whether something is a feature or a bug. Take this section from the shareholder letter:

One thing I love about customers is that they are divinely discontent. Their expectations are never static – they go up. It’s human nature. We didn’t ascend from our hunter-gatherer days by being satisfied. People have a voracious appetite for a better way, and yesterday’s ‘wow’ quickly becomes today’s ‘ordinary’.

In high growth technology companies, the rapid rate of development, deployment, and iteration is a feature. You have to move fast if you want to stay ahead of the market and keep up with customer expectations.

In life more broadly, the process by which ‘yesterday’s wow becomes tomorrow’s ordinary’ might be considered a bug. It’s often referred to as the hedonic treadmill, or the tendency for humans to remain at a relatively stable level of happiness despite positive or negative events or circumstances. So when you get that big promotion, you get a momentary spike in happiness, but then you return to your normal baseline.

You might think of it in terms of happiness vs pleasure.

I’ve always thought of pleasure as fleeting and temporary. There’s an element of striving, an element of hedonism. Scientifically, you might think of it in terms of increased dopamine levels.

While happiness is more persistent, a satisfaction or contentment with what you already have, vs striving for more.

And while business and commerce might always be driven by an element of pleasure-seeking, it feels like living a good life might reside on the other side of that equation.

My Latest Discovery

I absolutely love Career Choice!

For hourly associates with more than one year of tenure, we pre-pay 95% of tuition, fees, and textbooks (up to $12,000) for certificates and associate degrees in high-demand occupations such as aircraft mechanics, computer-aided design, machine tool technologies, medical lab technologies, and nursing. We fund education in areas that are in high demand and do so regardless of whether those skills are relevant to a career at Amazon.

Especially that part about “regardless of whether those skills are relevant to a career at Amazon.” You’re all fully aware of my stance on continual learning, and I think more companies would be served by adopting a similar approach.

I think some executives might say “what is the return on investment, particularly if those employees leave and apply those skills elsewhere?” And it’s a reasonable critique. But it seems that having employees with a natural thirst for learning is better than not.