Facebook, Pricing

[VIC – 104] Pricing power. Take control. Learning to unlearn. Zuck’s 2018 challenge.

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Business & Money

In business, there are basically two ways to increase revenues. You can raise prices or sell more volume.

It seems that selling more volume generally incurs an incremental cost/investment. If we’re talking about manufacturing, the machines need to stay on longer or you need to invest in better equipment. With services, you require more time and/or human capital. I guess the notable exception to this rule would be software and platforms where the idea is to drive marginal cost to 0.

On the pricing side, if you can manage it, raising prices seems to be the superior of the two options. If you can raise the price, and don’t suffer any loss in volume, revenue goes up without changing anything else. No incremental capital or cost required.

The archetypical example of this is Berkshire Hathaway’s acquisition of See’s Candies. When Buffett purchased the company in 1972, there were doing about 17 million pounds per year. A decade later, that total grew to 24 million pounds for a compound annual growth rate (CAGR) of 3.5%. Nothing special. However, revenues grew from $31 million to $124 million over the same period for a CAGR of 15%! All they did, in spite of meager volume growth, was simply boost prices by 10% every year. And because See’s had built a strong brand, they didn’t suffer any loss in volume.

I’m thinking about this due to 2 contemporary examples of the same idea.

The first is Netflix. Over the last 4 years, we’ve seen pricing go from $7.99 per month to $13.99 per month for the premium tier. And we haven’t seen any negative impact on subscriber growth. Netflix has pricing power, so much so that I wouldn’t be at all surprised to see more price hikes. I won’t be canceling any time soon.

The second example is Amazon, who just last week boosted the monthly subscription price of its Prime service by 18% (the $99 annual subscription option remains unchanged). I don’t see this having any negative impact on the company, and again probably won’t be the last hike. If anyone has pricing Power, Amazon Prime definitely has it.

Human Progress

On Thursday, HuffPo announced that they’re shutting down their contributor network. I don’t even read HuffPo, but this news caught my attention nonetheless. Specifically, if you are a contributor (or were at any point), you are basically SOL.

I say that because, if you post exclusively on HuffPo, or any platform owned by a third party (Medium, LinkedIn, Forbes, etc), then you do not own your own destiny. You don’t own your content, your archives, your audience, or anything else. You are completely at the mercy of the platform. Incentives will never be aligned.

This is the primary reason that I now blog from my own domain using open source software on a shared server that I can move if I’d like to. It’s a bit more complicated than simply posting something on Medium, but the autonomy and agency is well worth the effort.

And this is part of a much larger storyline, one that centers around the battle between open and closed systems. The battle between the open source protocols from the early days of the internet and the closed centralized platforms of today’s internet giants.

The only way to chip away at that dominance is to start taking back control of ourselves.

Philosophy

I’ve written here many times about how much I value reading and continual learning. It appears, to me at least, that their benefits are self-evident.

However, the opposite is equally, if not more important. The capacity to unlearn or adapt in the face of new information is critical.

When I was in high school, my basketball coach told me that the form of my jump shot was all wrong and should be corrected. After a few weeks of practice and a few games where I couldn’t make a shot, I went back to the old form. I wasn’t willing to put in the hard work and deal with downsides of short-term frustration.

While I spend a good amount of time thinking about what subjects to go deeper on and what sources of information warrant my attention, I likely don’t spend enough time on the opposite. I plan to change that.

My Latest Discovery

Every year Mark Zuckerberg announces a personal challenge to learn something new. Here’s his challenge for 2018.

I’m not sure Facebook can be fixed because the necessary fixes would most likely run perpendicular to the core business model.
That said, Zuck has done a lot of things right and there’s a fair amount of evidence pointing to him being pretty competent, so I’m not sure I’d bet against him at this point.

Investing, Uncategorized

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

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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!

Attention, Healthcare, Taxes

[VIC – 102] Offshore war chests. Moore vs Eroom. Original thinking. When to scroll.

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Business & Money

There’s been a lot of talk lately about how much money US companies have parked in offshore accounts. This is especially apparent in tech with Apple holding something like $250 billion offshore, Microsoft holding $100B, and Oracle, Cisco, and Alphabet all sitting on around $50B.
But how can you blame them? I’d leave my money sitting there as well if 35% of it immediately evaporates upon repatriation. You might even make the argument that it’s irresponsible to bring it home. Perhaps even against the fiduciary duty of the executive team.
That’s especially the case when you think about ridiculously low interest rates. It’s cheaper to borrow money at home and leave the cash parked where it is.
The downside, though, of these companies leaving the cash abroad is that they are incentivized to invest abroad rather than at home. They’re building new factories and creating jobs in other jurisdictions. Maybe those investments wouldn’t really be enough to move the needle, but you’d likely get share buybacks or dividends at the very least.
In any case, here we are in the present moment. I imagine these companies have continued to build these war chests to force the hand of regulators to make a change. And it looks like it’s working.

Human Progress

I’ve written about Moore’s Law here on VIC many times. The fundamental idea is that technology gets exponentially better over time, while the costs get cheaper.
For all intents and purposes, it’s a truism that applies across most markets and industries. But the one painfully obvious exception is healthcare. In fact, it’s so untrue in healthcare, people have coined the term Eroom’s Law (Moore’s backward) to capture the idea that drug discovery actually gets more expensive over time, despite our improving technological capabilities.
So I’ve been thinking about this over the past few weeks and decided it was worth writing about.
The first thing I set out to understand is why drug discovery is so expensive. And the simple answer I landed on is that it’s so damn hard and involves a ton of different stakeholders.
First scientists or companies need to hypothesize about what might be a good point for disease intervention. Then, tons of tests and experiments hopefully lead to some fundamental discovery (which takes a lot of time and $).
Then you need to test/prove that the drug is safe and effective via multiple stages of clinical trials (a lot more time and $).
Then you need to convince people to use by dealing with regulators and educating providers and healthcare systems (time + $).
And finally, you need an effective go-to-market strategy that gets it into patients hands.
All of that takes about $2.5 billion dollars and 10-15 years on average to for a new FDA approved drug (not to mention all of the drugs that fail along the way).
So that entire process is really long and messy, and probably too much to tackle for one post, but I do want to go back to that first step about making the discovery. And I want to do that because I believe we’re at a really interesting inflection point (take a look at biotech stock charts over the last few years).
To really innovate in healthcare via making a new discovery, there seem to be a few key steps.
1. You need to determine what outcome are you trying to achieve.
If we think about Sickle Cell Anemia, you want to eliminate the extreme pain that results from the disease, and the subsequent impact on patients’ lives, their families, and the economic impact on our healthcare system.
2. You need to have a pretty good understanding of the underlying disease biology that will enable you to achieve the desired outcome.
Following the same example, we know that patients’ have an error in their hemoglobin gene that causes red blood cells to fold or sickle.
3. You need to know, with a lot of specificity, what you’re going to target to get that outcome.
Here, the best way to address the disease is to repair/replace faulty hemoglobin.
4. You have to be confident that you can make a medicine to hit that target effectively.
We know that gene therapy has a pretty high probability of being able to repair the cells in question and a lot of people are working on that problem.
If you think about Alzheimers, in contrast to Sickle Cell Anemia, it’s a very different picture.
Following the same process, we don’t know the desired outcome. Can we reverse the effects? Should we just aim to halt progression? Or maybe just improve memory recall?
We don’t understand (very well at least) the underlying biology. Is it the plaques in the brain or neural tangles that we should focus on, or are those only symptoms of a larger problem?
And because we don’t understand the biology, we have no idea what to target.
And as a result, most of the recent attempts to discover new treatments have been failures, sometimes in late-stage clinical trials.
So why are we at an inflection point?
First off, we’re doing biology at a speed and scale that is unprecedented. For example, think about what Illumina has done in genomics by making it possible to sequence a genome faster, better, and way cheaper than was previously possible.
Secondly, we can now understand things at a single cell resolution. Scientists at the Broad Institute of MIT and Harvard have created an atlas of various cell types which greatly improves our ability to understand biology with increased granularity.
And thirdly, all of this generates a ton data that’s far too complex for the human mind. But lucky for us, AI and machine learning have reached a point where these tools can aid us in deriving real insights from the data.
I hope all of this can help rid of us of dyslexia and return to Mr. Moore.

Philosophy

A while back I read Zen and The Art of Motorcycle Maintenance. At one point the main character is teaching a rhetoric student suffering from writer’s block. He instructs her to write about her home town and she cannot think of anything to write. He then changes the assignment and tells her to write about the front of an opera house on a specific street in a specific part of that town. He tells her to start writing about the uppermost brick on the right side of the facade. The student begins to write and unleashes a torrent of creativity. The next day she shows up to close with 20 inspired pages of beautiful prose.
Similarly, in The Art of Learning, the author writes about making smaller circles. That is, when trying to master something it’s necessary to simplify practice into the smallest actions. Master the simple techniques. Depth over breadth. He talks about how winning championships is accomplished by complete mastery of fundamentals, as supposed to varied or sophisticated forms.
In The River of Consciousness, there’s an essay about Hellen Keller and her run-in with plagiarism. But the person whom she’s accused of copying doesn’t get angry. She wrote to Keller saying that everything in creative endeavors comes from other sources of inspiration.
I point these example about because I’m thinking about a specific question. Is there really such a thing as original thought? I’m not sure there is. I’m not sure there should be so much cultural stigma tied to plagiarism. Of course, you can’t just copy someone else’s work and submit it as your own, but digesting the ideas of others, then combining them with yet more ideas and some of your own, is really the only way to create anything.
Perhaps this is yet another reason I write here each week. None of the ideas here are entirely new. They are derivations and imitations of things I’ve read, listened to, and experienced. After consuming things in various forms, I spend some time thinking things through and mulling them over, then through the writing process, attempt to reorganize, combine, and pull things apart until I form something unique and personally refreshing.

My Latest Discovery

A few weeks ago I made a small change that has been very refreshing.
When you read an article or piece of content on your phone or computer screen, do you constantly scroll as you go, or only scroll when you get to the bottom? I had always done the former, scrolling little by little after every few sentences. I’m not sure why.
But now I do the opposite. I read everything that’s on the screen, then scroll to reveal the next section.
It’s a small change, but helps me feel more relaxed and less anxious as I read.
With social media and so much content at our fingertips, our digital overlords are trying their best to cultivate a degree of ADD in all of us. So I think small changes like these can go a long way.

Bitcoin, Blockchain, Cryptocurrency

[VIC – 101] A look back…

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When thinking about 2017, the most obvious trend to talk about is cryptocurrency and the blockchain. And it’s really interesting because regular people are making tons of money by way of a transformational technology, yet most people have no idea what it is or why it’s important. I’ve written about it here on VIC a number of times, but many of you have told me you still don’t get it. So with this year-end post, I will attempt to rectify my mistake and start at square one.

Business & Money

So what is bitcoin and what is the blockchain? I’ll stay away from technical details because it honestly is just not that important for everyone to understand (plus I don’t understand it in great detail). Similarly, I’d bet that many of you have no idea how the internet works from a technical perspective, but you have no problem understanding why it is so important. So let’s start there.
The central idea to understand here is trust. If you think back to the origin of trade and “money,” you basically start out with a barter system. If you live in a small tribe or group of just a handful of individuals, it’s easy to acquire some milk by trading some grain. You give me a few gallons and I’ll trade you a few bushels from my harvest. Pretty straight forward and no need for much trust and security. I know who you are and I can look at the milk and smell it to make sure if’s not spoiled. In order to keep track of these “transactions,” I can just write them down in a notebook that says on such and such date, we traded such and such items. Everything is listed there in one neat column.
When the groups started getting larger, and the items being traded more numerous, the simple barter system started to break. If my farm has grown in size and I want to sell grain to the entire village, it doesn’t make sense to trade different items with everyone and write it all in a notebook. You need a means of exchange, or “money,” in order to transact in an efficient manner. Everyone can use the same beads, shells, or coins to buy and sell whatever they need. Additionally, with a much larger number of transactions to keep track of, my simple one-column notebook entries would be hard to manage. So now I start to keep track of things in two columns, credits and debits. In the milk example, I would add a debit for the cash spent, then a credit for my new gallons of milk (enter double-entry bookkeeping).
Another word for my notebook in the above examples would be “ledger,” the record of all transactions. And that system worked great for a long time, until it didn’t. The glaring problem was that it wasn’t very hard to cheat the system. With only one party holding the ledger, it’s easy to cheat. Simply erase an entry here, or add a 0 there, and there’s no way to prove that something’s amiss.
So as things continued to grow and get more complex, our answer to this was independent 3rd parties that would manage the ledgers for everyone else. Enter banks, brokerages, insurers, accounting firms, and the like. But when you think about it, the problem still persists. A bank is just one company, so you still have the trust issue and the single point of failure, albeit a bigger one.
So what if, instead of one bank tracking credits & debits to your account, what if all of your transactions could be independently verified by 5,000 different parties all across the globe. And for a transaction to be verified, there would need to be a majority consensus across the entire network. Even if you bribed one party to erase an entry, that ledger would be out of sync with the other 4,999, so the majority consensus would remain accurate. It becomes much harder to manipulate this system when the ledger is distributed across so many independent participants.
That’s what bitcoin and the Bitcoin blockchain bring to the table. A distributed ledger system that allows for transactions between non-trusted parties, without the need for anything to be verified by financial institutions or 3rd parties. There are lots of independent parties holding copies of the same digital ledger, and it’s a lot harder to compromise a large number of parties than it is to compromise one.
Hopefully that makes some sense without getting into the weeds.

Human Progress

So why is this technology so transformative and so important for the progress of humanity? Using the US dollar and banking institutions seems to work fairly well. You can easily open an account, transfer funds, transact with merchants, and do basically anything else you need to do with your FDIC insured dollars. However, you have to realize that as one of 300 million Americans, you’re thinking is incredibly biased. As the most privileged 5% of the world’s population, you’re completely insulated from things that most people experience.
If you want to think about the average consumer in the world, that’s probably closer to a Chinese male in his mid-twenties. And in China you have communism, corrupt governments, dictators, totalitarian rule, and serious capital controls. That’s a very different picture.
Or maybe you hail from Greece. In 2013, they had FDIC insurance for banks deposits as well. Then one day the banks closed on a Wednesday (not sure if that was the actual day), and reopened on the following Monday to a different version of reality. 20% of money had evaporated while the banks were closed, and even when the banks reopened there were withdrawal limits. What about the FDIC insurance? What insurance? Never happened. Let’s not talk about that.
Or what about what happened with Julian Assange and WikiLeaks in the same year. Because the US government was not in agreement with what Assange and his crew were up to, they basically coerced Visa, MasterCard, Amex, PayPal and all of the major payment providers to cut off WikiLeaks from the global financial system. In other words, WikiLeaks was basically deemed guilty until proven otherwise without any conviction or due process. This was a complete perversion of our judicial system. Ironically, WikiLeaks moved to bitcoin as a result and has now made a 50,000x return on their investment.
Global financial crisis anyone? How many examples do you need of financial institutions and governments behaving badly and betraying our trust before you realize that the current system is broken?
The reality is that 90% of the world’s population doesn’t have access to the financial system in the way that US citizens do. 2.5 billion people have no access to banking at all. Another 4 billion are what we refer to as “under-banked.”
What we need is a system where governments and large financial insinuations can’t rig the game. Can’t print money whenever it suits them.
What we basically need is the separation of state and money in the same way that we currently have a separation of church and state. It’s a no brainer why the separation of church and state makes sense. The Crusades, WWII, Islamic Terrorism…. examples of religion perverting politics and politics perverting religion are innumerable.
We’ve arrived at a point where the same is true of money. It has become a system of mass surveillance and control. Financial institutions, payment processors, clearing houses, all of these are political by nature. In order to operate, these companies have made a bargain with governments that they must do whatever they say if they wish to continue operations. It’s not that these institutions can be manipulated or coerced, it is that they MUST.
And what’s really exciting is that we all get to witness this tipping point during our lifetimes. I can’t see how this technology doesn’t fundamentally change things. There’s no turning back.

Philosophy

Of course, it can’t all be rainbows and butterflies. Blockchain technology is far from perfect in its current instantiation, and will surely undergo many iterations before we get it right. Again, I’ll stay away from the technical limitations, in favor of touching on the philosophical.
The one I’m thinking most about of late is the issue of anonymity. People behave poorly when they’re anonymous. The fact is simple and true.
Social networking is a great example. Some of you may have heard of the anonymous and localized social network called Yik Yak back in 2013. It was largely used at high schools and universities and exploded to 1.8 million downloads in a few months. But the dirty underbelly of the app quickly took center stage. Because there was no real identity tied to profiles, the app quickly went from friendly social network to ground zero for bullying, hate space, and threats of violence. This is a big reason why Facebook requires real names and real pictures to create a profile.
When large groups of people congregate together for protests, to celebrate big wins in sports, or any other reason, these events often turn violent and unruly because people lose the sense of individual identity in favor of the crowd’s.
When people rob banks or commit other crimes, they often wear masks. The feeling of anonymity empowers people to do things that they wouldn’t otherwise do.
India’s president, Narendra Modi, recently removed the largest bills from circulation to cut down on tax evasion and to eliminate payments to fund terrorism & government bribes.
When people buy drugs, guns, or other people, they use cash because it’s anonymous and untraceable.
It’s an ugly fact, but a true one. Anonymity breeds bad behavior. Not from everyone, but from a lot of people and organizations.
If we move money to a truly private and untraceable protocol (e.g. Monero), I’m not so sure about the future of that system. Would you pay your taxes if there was no way to prove how much money you made or no way to enforce it?
Don’t answer that.

My Latest Discovery

Shortcomings aside, these are exciting times. There’s ton’s of noise and coverage about the leading protocols (Bitcoin, Ethereum, LiteCoin, Ripple, ZCash, etc), but there are tons of other really exciting projects out there.
One that I find especially interesting is Augur. Augur is a decentralized prediction market that’s built on top of the Ethereum network. The most obvious application is betting. You can make a wager on any future event, as long as someone in the world is willing to take the other side of that bet and the outcome is publicly verifiable. Now gambling is fun, exciting, and there’s a big market (~$240 billion in the US), but this application is also somewhat short-sighted.
With Augur, you could basically create a futures market for anything. Today we have future’s markets for commodities and financial instruments. For example, if you grow corn, and you sell a pound of corn for $10 to your customers, you’ll want that revenue to remain flat and predictable. So you could buy a futures contract that says if the price goes to $5, you will still get your $10 and the investor pays the difference. If the price goes to $15, then you would only get the $10 and the investor would keep the additional profits. So it’s pretty obvious and straightforward why futures contracts make sense.
But for many things, there are no futures markets. For example, what if you decide to work for the Trump Whitehouse. If he stays in office, your future is pretty bright. But if he’s impeached, your political career might be over. So perhaps you might want to hedge that bet by wagering some amount that he’ll be impeached. And of course, no one would know about it.
What about foreign stock markets? Currently, as an American, I have no exposure to foreign markets (unless there is an American Depository Receipt [ADR] or something similar). With Augur, you might bet on the appreciation of a foreign security.
Or what about access to private markets. If you have a ton of conviction, you might bet on monthly active users, revenue numbers, or the IPO price for Uber.
So think Vegas + DraftKings/FanDuel + futures markets + anything else you can imagine.
I’ll say it again. These are exciting times!!

It’s a Wrap!

I hope this issue was somewhat useful and that 2017 was good to you. I urge you to spend some time in deep reflection about the past year. I imagine there were a few things that didn’t go as planned, people you grew apart from, and less than ideal circumstances. I imagine there were also a ton of reasons to smile and be grateful. In your reflections, look at those two categories, and think about the actions or events that brought both about. You don’t always have control over outcomes, but you do have control over inputs. Focus on the areas you have control over, and that’s all you can really do. Falcon speed in 2018! (Falcon’s are the fastest creatures on the planet and their existence is provable)

Amazon, Food

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

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Business & Money

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

Human Progress

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

Philosophy

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

My Latest Discovery

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

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

Apple, Education, Investing, iPhone, Meditation

[VIC – 99] I met Nostradamus 🔮. I present to you, 2U 😏 . Unguided meditation. iPhone X 📱

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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.

Uncategorized 3 Comments

Thankful 🙏 🙏

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Business & Money

I’m thankful for this bull market. We’re currently enjoying one of the longest economic expansions in the post-war era.
I’m thankful for equity markets. As an individual, markets allow you to do your own research and due diligence on massive companies, small companies, companies across industries and geographies. And when you’ve decided where the opportunities are, markets allow you to place whatever sized bet is comfortable for you with a real chance to improve your lot in the world.
I’m thankful for compound interest. Like Einstein said, “compound interest is the eighth wonder of the world.”
I’m also thankful for crypto markets. Not because bitcoin is up over 800% for the year or Ethereum up 1000% (not complaining), but because of what the blockchain means for the future of the decentralized internet. It means you won’t have to manage username & password combinations across tons of sites and applications. It means frictionless payments and money transfer will be a real thing. It means we’ll have a store of wealth that lies outside of government controls and geographic restrictions. It means a few large companies won’t control your online identity. It means these things and so many more.
I’m thankful for marketplace business models that have brought lower prices, greater transparency, and more liquidity to so many verticals including transportation, travel, publishing, e-commerce, lending, and so many more.

Human Progress

I’m thankful that technology continues to deliver answers to some of our most vexing questions.
In an era when net neutrality seems in jeopardy, I’m thankful for companies like Tucows (TCX) and Pilot fiber for providing alternatives to the last mile monopolies (disclosure, I hold shares in TCX).
In an era of more frequent super storms, I’m thankful for mesh networks bringing connectivity to Puerto Ricans and others who have lost traditional cellular connectivity.
I’m thankful that genetic testing costs a few hundred to a few thousand dollars and not $1 million.
I’m thankful that genetic disorders like Down Syndrome, Tay-Sachs Disease, and Sickle Cell Anemia will be things of the past due to gene editing techniques.
I’m thankful that plant-based proteins and lab-designed meat might eradicate the wholesale slaughter of animals and factory farming. Similar to the way we think of slavery, genocide, fascism, and torture as demonstrable injustices that we’d rather delete from history, I believe the mass incarceration and destruction of farm animals might take a similar position in the history books for future generations.
I’m thankful for countries like China that are leading the charge to demand a sustainable energy future. Following their lead, renewable energy will continue to grow and displace carbon-based energy sources.
I’m thankful that the Trump white house has failed to enact many of their promises from the campaign trail. They stand no chance, in the long term, against free trade, globalization, and basic respect for other humans (women, immigrants, Muslims, etc).
I’m thankful that cars will soon drive themselves and I will be able to make productive use of time stuck in Thanksgiving traffic.
I’m thankful that there is a new religion on the block: the church of artificial intelligence. (jk, not thankful for this)
I’m thankful that robots can do backflips.

Philosophy

I’m thankful for the phrase “agree to disagree.” In a world of growing polarities, this might be the most important phrase in circulation. It’s an understanding that you can approach an opposing viewpoint without the expectation that you will necessarily change your mind. Simultaneously, however, it is also the expectation that you will approach that conversation with an open mind and a genuine desire to grow your understanding of the other side.
It is a genuine acceptance of your own ignorance to the perspectives of others. It’s admitting that you may not be aware of all of the facts and that your own experience in the world is that of just one individual in a sea of others.
It’s admitting that the more you learn about a subject, the more you realize just how much you don’t know.

My Latest Discovery

Lastly, but certainly not least, I’m thankful for discovering this newsletter as a channel to grow the depth of my relationship with all of you beautiful readers.
Thank you for sending me emails every week to share your thoughts on various topics (though I wish you would use the comments section ;).
Thank you for sending me recommendations and interesting pieces of content as you discover them.
Thank you for forwarding the newsletter to other incredible people and helping to grow the community. VIC would simply be shouting into the void without you.

It’s A Wrap!

Oh wait, I forgot one thing.
I’m thankful that Philly sports are back on the map! Let’s gooooooooo!

Lyft, Uber

[VIC – 97] Uber’s valuation 💸 . Food stamps. Intellectual fitness 💪 . The Paradise Papers 📝.

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Business & Money

Here’s some interesting math:
Per the reporting, Lyft booked about $1 billion in revenue in the second quarter of 2017. So annualized revenue would be roughly $4 billion.
Lyft recently raised $1 billion in funding led by Capital G, Alphabet’s (Google’s) venture arm. The round valued Lyft at $10 billion pre-money.
That would give the valuation a 2.5X multiple to annualized revenue.
Uber reportedly had gross revenues of $8.7 billion in Q2. So annualized that would be $34.8 billion.
If we apply the same 2.5X multiple that Lyft received, that would mean Uber is worth $87 billion (perhaps less if you factor in litigation risk, management turnover, and PR chaos).
Do you think Uber is worth $87 billion?

Human Progress

Peter Theil has this famous line, “We wanted flying cars, instead we got 140 characters.” It basically reflects that, while technological progress could yield an incredible future, many of today’s smartest people are working on the wrong things, a la creating a microblogging service like Twitter.
But there are a group of people that are definitely working on the right things. They’re working on big problems that have a real chance of changing the world. If you look at the Founders Fund (Thiel’s VC firm) portfolio, you’ll find companies working on space exploration (SpaceX), international freight logistics (Flexport), the future of education (AltSchool), and a long list of others.
Another example I recently stumbled upon is a company called Propel. The team is working on a $70 billion dollar problem that impacts 45 million Americans. Food stamps. If you know anyone that has ever applied for food stamps, or most other government support services for that matter, you know that the process sucks. You have to stand in long lines for hours to sign up, go through a lengthy process to prove eligibility, and call 1-800 numbers for simple things like checking your account balance.
Propel digitizes the entire process. You can check your balance in seconds via their mobile app, find stores that accept food stamps, and even check your spending and transaction history.
And what I find really exciting about Propel is that the market is massive. While 45 million Americans use food stamps, Propel will be in an incredible position to collect data on these users and eventually provide other financial services to these unbanked/under-banked citizens. If they can reach scale, I can’t see a reason why they then couldn’t move up market to start providing services to higher-income Americans as well.
While most fintech startups focused on this customer segment have decided to focus on developing markets, Propel has realized that the problem is just as relevant right here at home.

Philosophy

There was a time when you had to go to a library if you wanted to research a specific topic. You would first find the library card catalog which listed information about the books (author, title, subject) on little cards, all filed in alphabetical order within a small cabinet. Once you found what you were looking for, the card would direct you the appropriate shelf to locate the book.
While seemingly inefficient compared to today’s process of finding information, I think there were advantages as well. Specifically, you were forced to scan the shelves and adjacent titles in order to locate your specific book. This process sometimes resulted in finding other equally, if not more interesting titles and authors that you hadn’t initially set out for. It was an amazingly serendipitous process that could sometimes lead to unintentionally spending hours lost in Socratic dialogues or stories of conquest.
In contrast, the process of finding information today is very precise and specific. You type a query into Google, and it returns exactly what you want, usually with the first result (after they monetize your eyeballs with ads, of course). No more exploration or serendipity.
I would almost liken it to a process of destroying evolution. If you think about evolution in a biological sense, you have organisms competing for the opportunity to reproduce and thus pass on their genes to the next generation. At each step along the journey, you get these small genetic mutations that make the offspring slightly different from the parent. Maybe their coloration is slightly different or their eyes are a tiny bit bigger. And sometimes these small changes actually benefit the offspring by adding to their evolutionary fitness. It’s this process of mutation and adding “noise” to the system that allows for creatures to better respond to changes in the environment. If it weren’t for mutations, all members of a species would likely die in the event of a drought, ice age, or another catastrophe.
The precision of today’s algorithms essentially removes the opportunity for these chance mutations. You have a very limited opportunity to stumble upon that other thing that might actually be better or more interesting than what you were originally searching for. And like my evolutionary example, I think a little noise or chance variation might actually be a good thing for our intellectual fitness.

My Latest Discovery

The Vice News special on the Paradise Papers is incredible and scary at the same. While there doesn’t seem to be an obvious “smoking gun,” the links between Russia and top US political officials seem far too apparent to mere coincidence. I’d encourage everyone to check it out, though it might leave you a bit disillusioned about the state of our democracy.

Marriage

[VIC – 96] Wedding Edition ❤️ 💍 😁 🎉

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Business & Money

Most big decisions in business are made via a methodical cost-benefit analysis. You way the risks, opportunity costs, your chance of success, and much more.
By all of the traditional measures, a wedding is a poor investment. We’re comfortable, but by no means wealthy (not just yet at least ;). It’s a poor financial decision to spend the amount of money that we did for what basically amounts to a big party.
But then you realize that it’s not every day that you get to celebrate the love you share with the women of your dreams. It’s not every day that you get to feast your eyes on your prize and listen to her explain why she has, for some unknown reason, picked you (yes, that’s me crying like a baby during her vows).

When I look back on last Saturday, I would do it all again in a heartbeat. In fact, I would spend twice as much. There is literally no price you can put on the best day of your life. I got to marry the dopest person on planet earth, then celebrate with all of the people in our lives that deeply care about us. And it was LIT!!
I hate to be cliche, but some things in life are simply priceless. For everything else there’s Master Card (or more accurately Chase Sapphire Reserve).

Human Progress

This section usually talks about the progress of technology, knowledge, or the human condition in some sense. But as you’re already aware, my thoughts are otherwise occupied at the present moment.
As an individual, when I think about my own progress, it’s hard not to think about all of the teachers that have helped me along the way. I could very easily talk about the teacher that helped me fall in love with mathematics as a child, I could talk about friend’s dads who helped me understand the role of a man in a family, neighbors that taught me about community… the list is pretty long (for that I am very thankful).
But when I really think about it, one teacher stands above the rest. I wrote about her in my vows this past weekend. Here they are:

I don’t love you because you’re beautiful.
I don’t love you because you’re weird or because you do these weird dances every morning when you wake up.
I don’t love you because you buy me a blueberry scone every Sunday after your workout class.
I don’t love you because you hide cute post-it notes all over the house whenever you go on a trip.
I love you because you have been, and continue to be, my greatest teacher.
You’ve taught me about the importance of balance in one’s life.
You have taught me that it doesn’t matter what you meant, but how you made someone else feel.
You’ve taught me how to apologize.
You’ve taught me that caring for the people you love is more important than going to work or sticking to a schedule.
You’ve taught me that the small things matter far more than the big things.
You’ve taught me that it’s ok not to be perfect, as long as you’re willing to commit to improving.
Most importantly, you’ve taught me that love is too simple a word to describe how I feel about you.
I adore you.
I am infatuated with you.
I am memorized by everything that you are.
And lastly, I am truly grateful that you’ve agreed to put up with me for the rest of your life.
From this day forward, I promise to try my best
to be everything for you, that you are for me.

Philosophy

When I was in the fourth grade, a new kid came to my school. We were both type A people so we immediately clashed. I wasn’t a big fan of someone trying to encroach on my territory. Turns out he was a great guy and would become one of my best friends. I look up to him with so much respect and admiration. And this past weekend, 20 years after the day we met, he stood by my side as I took the plunge into the next chapter of my life.
When I was trying to decide where to go to college, there were a lot to choose from. But when I went on my visit to NYU, it just felt right. More than the school, New York City just felt right. It’s the only time I’ve ever had love at first sight (sorry babe). And this was another time where cost-benefit analysis went out the window. There were other options offering a full ride, some wanted to pay me to come, some would have offered an opportunity to prolong my basketball career, and of course the Ivy League option was pretty attractive. But despite all that I went with my gut. And I’m so happy I did. I’ve met so many incredible friends, started a career I’m excited about, discovered passions, and oh yea, met the woman that I now call my wife.
Speaking of my wife, I met her randomly on valentines day in 2009. I was sitting in my dorm with friends, and was convinced to go out with one of the homies as his wing man. He was actually interested in my future wife, but got pretty drunk and lost his focus (aka had a few too many at the bar and left with someone else). Of course, I had to capitalize on his mistake. Actually, nothing really happened that night of significance, but it would become the seedling of what quickly became a relationship a few weeks later (she completely ignored me for 2 weeks, probably because I was sending the 1 AM text “what are you up to?” lol).
The common thread in the list above is that all of these things just happened. I point this out because I think there are many times in life when we overthink things. We spend a lot of time making that two column pro and con list trying to figure out which decision is right. And that is not a bad exercise, in and of itself. But it seems that many of the most important things in life just happen and sometimes is best to just see where it goes.

My Latest Discovery

My wife and I have discovered the best photographer in the game. When my wife wanted to fly her out from Seattle for our wedding, I thought that was a stupid decision and an unnecessary expense. Boy was I wrong (I’ve received advice from many married people that this trend will persist). Halfway through the wedding, she had somehow found the time to compile a slideshow of her work to that point, and showed us a glimpse while we ate dinner.
We haven’t received the final photos yet, but she just dropped this video preview of her trip to NYC and our wedding (the wedding starts at 0:30).

If you have a wedding, engagement, or any other important event coming up, I’d highly highly highly recommend Julianna J Photography.

Amazon, Apple, Investing, Netflix 2 Comments

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

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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.