123: Madoff F***-off Plaque, Constellation Software, TSMC's Founder Speaks, ROIC, Alex Danco, Macs, Box-Picking Robots, Snooping on Military Websites, and Pfizer

"A dish best served cold. Very cold."

To be interesting, be interested.

Kevin Kelly

✨ I’ve written before about sins of omission vs commission, about the value of not only doing good, but also preventing bad things, and how the human brain seems to give a lot more weight to one side of the equation than to the other, even if the practical result of both kinds of actions can be equally beneficial.

Because everybody loves shitty graphics, I made the matrix above.

In short: Stay in the starry quadrants, and try to give as much attention / praise / rewards / encouragement to the bottom right as to the top left (incentives matter, and we’ll get more of it if we recognize it more).

Here’s a good example of exactly this in action:

🍻 I think it’s important to thank your influences, your teachers, your mentors, etc, once in a while. They may not even know they helped you, so if you don’t say anything, how are they to know?

HoosierInvestor recently asked me about “similar notes that you enjoy?” and it made me think about who I was thinking of when I decided to give this writing thing a try on a whim on July 17, 2020 (first edition came out July 20).

The thing that pushed me over the edge was this post by Balaji S. Srinivasan:

I had been watching others set up Substack for a while, and I had been a paid sub to Ben Thompson since 2015, but I had never thought this was ‘my thing’, because ‘what have I got to say?’

But Balaji’s post — which is more about setting up the whole stack, which I decided against because it wasn’t worth the trouble for a fun hobby — combined with the thought that “hey, wait a minute, I don’t have to do it the way most others do it, I don’t have to stick to just one topic, or try to pitch stocks, etc, I can do whatever I want and optimize for what’s fun rather than what fits in an existing niche” provided the initial spark.

So anyway, I gave it a try, and here we are.

The people that most inspired me are:

(though I’m not nearly as technical as those last two, but I dig how they obviously love to learn about tech, and find clear ways to explain it to their readers)

When I look at a lot of financial or tech writing, it’s bone-dry, it’s bland, it’s boring, it could almost have been written by a computer program (and not even a fancy one like GPT-3, that’d be better than a lot of that stuff). I have no interest in doing that.

But these guys above have personality. You can tell they’re interested by what they write about, and the best way to be interesting is to be interested (as per Kevin Kelly a the top). And they put themselves in their writing, I feel like I know a lot about their personalities, unlike many writers.

Escape competition through authenticity.

I’ve always liked that saying. It doesn’t mean that I’ll be any good, but at least, I’ll be me, and nobody can compete with me on being more me than me.

So I’ve got that going for me ¯\_(ツ)_/¯

🔢 I think people built intuitions about "the law of large numbers" (which isn’t really a law, and is more about diminishing returns, but by now people know what you mean when you say it) in a world that was quite different from today's world. That's why they keep getting surprised.

I remember when public companies first broke the $100bn market cap barrier (well, rebroke it because there was plenty of it in the dot-com bubble) a few years ago, and they seemed just too big to be sustainable. Then you started seeing $200bn, $300bn.. Then 𝖙𝖗𝖎𝖑𝖑𝖎𝖔𝖓 market caps, and now we’re hitting the multiple-T range…

Same with how big markets are for search, cloud computing, software, e-comm, social networks, or whatever.

There used to be really strong forces that pulled things down as they got bigger. Capital needs, coordination problems, distribution challenges as you grew out of your home market, marketing across the globe was terribly hard and costly, etc.

But now, it’s all bits flowing through underground or underwater light pipes (right? cool when you think about it) and commodity servers stacked in big warehouses where the laminar breeze blows, and this allows some companies to generate tens of billions in free cash flow.

Don’t get me wrong, there’s nothing easy about this, you still need tens of thousands of engineers and billions in equipment, but that’s nothing compared to what you’d have needed to build a similar globally scaled enterprise in the pre-internet world.

(h/t 10-K Diver for DM’ing me about something that made me think of all this)

💉 Learned yesterday that in my area, for my age bracket, vaccine appointments will open on May 7th. Having a date makes it feel a lot more real than just a vague "at some point soon". Based on supply, it’s likely to be the Pfizer, but at this point, I’d take the Sputnik.

I just hope the appointment itself won't be too far in the future…

🦖 🦜 When I see a tiny bird like this run really fast on the ground, it makes me a little more terrified of raptors (dinosaurs, not Toronto basketball players).

These things must've really booked it.

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💰 & 🏭

ROIC Thoughts

There was an interesting discussion on Twitter (hey Zay and Willis cap!) about screening for ROIC, and how you can miss great businesses (like Amazon) because they don’t screen well, and what the screen says about the businesses that *do* screen well (a high number doesn’t always tell the whole story either).

Looking at this, my reflection was that:

Understanding ROIC is more important than screening for it.

I mean that if you understand how value is created, you should be able to use this as an analytical tool to better understand companies that create a lot of it regardless of what the current numbers show

ie. there’s plenty of fast-growing companies that have terrible ROIC numbers on a screen, but if you understand the dynamics of their competitive position, you can make informed bets on the unit economics, which may be great, and that at maturity, the number will look very different than during the growth phase.

"Mac sales went from $5.4B to a record $9.1B year-over-year. Not bad for a 37-year-old platform."

Source: John Gruber

The World According to Danco

Great essay by Alex Danco:

You should read the whole thing because it’s all interlocked together pretty tightly, but here’s a few highlights:

The more complex or valuable is whatever you’re trying to sell, the more important it is for you to build a world around that idea, where other people can walk in, explore, and hang out – without you having to be there with them the whole time. You need to build a world so rich and captivating that others will want to spend time in it, even if you’re not there. [...]

the actually hard problems in the world worth working on are system problems. [...]

System problems cannot be fixed in one step, nor can they be fixed in a sequence of linear steps. Why not? Because when systems find a steady state – which is probably where you’re encountering them, if you’re setting out to change something – they’re “steady” not because they’re static, but because they’re dynamically held in place by feedback loops. If you try to change one variable, you can apply as much effort as you like, but the minute you let go, the system will just snap right back to its original configuration.

What you need is parallel effort: you need several different things to happen, all at the same time, for the system to actually move in the direction that you want and stay there. [...]

It’s not enough to tell one good story; you have to create an entire world that people can step into, familiarize themselves with, and spend time getting to know. Initially you’ll have to walk them around and show them what’s in your world, but your goal is to familiarize them with your world sufficiently, and motivate them to participate, to the point that they can spend time in your world and build stuff in it without you having to be there all the time. 

The world will include many things, but it needs one in particular: purpose.

Interview: John Bathgate

Co-hosts Brett Schafer and Ryan Henderson did a good podcast interview of Jon Bathgate of NZS Capital:

They cover his investing journey, some of NZS’ complexity investing philosophy (the resilient + optionality barbell, market is complex adaptive system that creates power laws, not normal distributions, moats are going away, more important to be adaptive and innovative and create lots of excess value for customers/employees/society/etc).

And of course, there’s a 🔥 section on the semiconductor industry, where he does a tour-de-force 7-minute overview of something where you could spend 7 minutes on just the metallurgy of a pin’s physical interface.

Good stuff, thanks for recording it, guys.

Morris Chang Speaks (TSMC Founder)

Speaking of semiconductors, the 89-year-old founder of the leading chip manufacturer in the world gave a rare talk, and had a few interesting things to say:

“Mainland China has given out subsidies to the tune of tens of billions of US dollars over the past 20 years but it is still five years behind TSMC,” Chang said. “Its logic chip design capability is still one to two years behind the US and Taiwan. The mainland is still not yet a competitor.”

That sounds closer than I expected based on some of what I’ve heard on SMIC elsewhere, but hard to get a more authoritative source than Chang on this.

In his speech, Chang also took a swipe at US chip giant Intel, describing its recent decision to enter the contract chip making market as “very ironic” because it turned down an opportunity to invest in TSMC more than three decades ago. [...]

Chang said he was rejected by Intel when he approached it for funding in 1985. “In the past, Intel was the alpha sneering at us and thought that we would never get big,” he said. “They never thought the business of [outsourced] wafer fabrication would become so important today.”

A dish best served cold. Very cold.

Chang said the US is also at a disadvantage compared with Taiwan because it lacks engineers dedicated to the semiconductor manufacturing sector, adding that the “US level of dedication to manufacturing was absolutely no match for that of Taiwan”.  [...]

“In the US, doing manufacturing isn’t popular. It hasn’t been popular for decades.” (Source)

Constellation Software 2017 Annual Meeting

Friend-of-the-show MBB was reminiscing about the 2017 Constellation AGM (where she and I first met — note that she has the lowest cost basis on CSU of anyone I know that doesn’t have “Leonard” as a last name).

I mentioned, “That was a fun AGM. I was sitting in the center of the front row” and C.J. Oppel said “Liberty, photo of you and Mark or it didn't happen!”

Well well well. It just so happens that I have one. What a great moment that was:

🔬 & 💻

Box-Picking Robot

Today at ProMat, a company called Pickle Robots is announcing Dill, a robot that can unload boxes from the back of a trailer at places like ecommerce fulfillment warehouses at very high speeds. With a peak box unloading rate of 1800 boxes [at peak, average 1600] per hour and a payload of up to 25 kg, Dill can substantially outperform even an expert human, and it can keep going pretty much forever as long as you have it plugged into the wall.

Ok, first, I have to point out the obvious: The company is called Picked and the robot is called Dill. I don’t even like pickles that much (and I hate olives — had to get that off my chest), but this is awesome. Life should be fun!

based around a Kuka arm with up to 30 kg of payload. It uses two Intel L515s (Lidar-based RGB-D cameras) for box detection. The system is mounted on a wheeled base, and after getting positioned at the back of a trailer by a human operator, it’ll crawl forward by itself as it picks its way into the trailer. (Source)

That’s about twice as fast as a “top form” human, who can do about 800 boxes per hour (but not 24 hours per day).

h/t Brad Slingerlend

‘Your security is so crappy, even an 11-year-old can break it’

Security researcher Daniel Kaminsky, well known for discovering an important flaw in the DNS protocol in 2008, among other things, recently died from a complication of diabetes at the young age of 42. His obituary has this great anecdote (his mother is awesome too):

His childhood paralleled the 1983 movie “War Games,” in which a teenager, played by Matthew Broderick, unwittingly accesses a U.S. military supercomputer. When Mr. Kaminsky was 11, his mother said, she received an angry phone call from someone who identified himself as a network administrator for the Western United States. The administrator said someone at her residence was “monkeying around in territories where he shouldn’t be monkeying around.”

Without her knowledge, Mr. Kaminsky had been examining military websites. The administrator vowed to “punish” him by cutting off the family’s internet access. Mrs. Maurer warned the administrator that if he made good on his threat, she would take out an advertisement in The San Francisco Chronicle denouncing the Pentagon’s security.

“I will take out an ad that says, ‘Your security is so crappy, even an 11-year-old can break it,’” Mrs. Maurer recalled telling the administrator

They settled on a compromise punishment: three days without internet.

h/t John Gruber

How Pfizer Makes its Vaccine

Good feature piece with lots of short videos and graphics showing the process through with Pfizer makes its mRNA vaccine in such large quantities:

🎨 & 📜

Alfa Mist - Bring Backs

Discovered this album last week, didn’t know anything about the artist and still don’t know much, but after listening to it a few times, I like it enough to recommend it.

A few things to know: It’s kind of jazzy, mostly mellow, with some hip hop influences (rap vocals on a few track, pretty laid back flow). It’s mostly instrumental or with guest female vocalists.

The production is lush, great arrangements, lots of warm textures to the sound.

You can tell this is a musician’s musician, who just throws everything that he likes into the mix and doesn’t try to fit in any genre.

Even song-by-song, you get a lot of variety; there’s not a single style that runs through everything, but rather each track is kind of its own adventure. I like that.

Anyway, if you want to give it a try, here are some convenient links: