198: Bezos' Inner Bill Gates, Unintended Consequences, Crowdstrike, Bored Apes, Zillow, Grown Meat, Picking Poker Tables, Orbital Banana, and Mad Men Sociology

"it’s not because something is a good strategy on paper that it’s easy"

To think is easy.

To act is hard.

But the hardest thing in the world is to act in accordance with your thinking.

—Johann von Goethe

🛀 On Monday, I had an almost two-hour long video call with my friend MBI (💎 🐕), and interestingly, we almost didn’t talk about anything related to investing/business. Always fun to realize that you made a friend because of one thing, and then realize that you get along outside of that thing too…

One point kind of related to investing that we discussed, though, is that if you look deeply enough at something, you can probably find something interesting about it. Or from another angle, you may have to learn to be interested by it.

He gave as example Otis, an elevator company that he did a deep-dive on; at first, it may seem like a “boring” business to most, but there was still some treasure buried in there, about the business itself, and about this machinery that we take for granted, but that makes the modern city possible. Elevators used to be high-tech at one point!

This made me think about how:

Interest is in your mind, not in the thing itself

There’s not a little meta-data file attached to each thing out in the world, with a numerical ranking for how interesting it is. It’s all happening on the perception side, inside your own 🧠.

This both means that how interesting something is isn’t fixed, and that it doesn’t really matter what others find interesting, at least when it comes to your own curiosity and learning.

As I told MBI, a lot of what we find interesting would be the height of boring (say it in a blasé teenager voice) to most people.

I mean, oh, Constellation Software makes back-office software for municipal governments and mini-golf courses and trucking companies? *yawn* What’s an ee-bee-daa margin? Before depreciation and what? 😴

Sometimes when I explain my idea of investment style as lifestyle design, as I did in edition #44, I’ll use the example that I don’t want to spend my days reading and thinking about boring things, so even if it feels like higher returns may be found in businesses I don’t like, I’ll refrain from going there for the non-monetary benefits of avoiding filling my life with things I dislike.

So I’ll say something like “I’d rather read about digital infrastructure companies than a mining or an oil company..”

But that’s short-hand. I’m not even saying that mining and oil companies are inherently boring (though they’re probably worse business than a lot of what I look at, but that’s a different question — good businesses can be boring and bad businesses can be interesting — and everything can be a good investment at the right price).

What I really mean is that I’m less interested by these in comparison with other things. Life is trade-offs, there’s an opportunity cost to every move we make, so gotta use those precious 24 hours in the best way possible.

But I’m sure there’s lots of cool stuff to learn about mining. The specifics of how they separate minerals from raw ores, test for various things, how the geophysics of finding deposits works, the structural elements of building a mine shaft that won’t come crashing down, or of designing the architecture of a large mine to maximize a bunch of variables, the specialized machinery, how they’re using digital models now… Any good applications of machine learning yet in mining?

I’m sure there’s interesting stuff in there, and same for oil exploration and exploitation (I’ve read Frackers and The Prize — most interesting thing is probably the crazy characters attracted by a boom & bust, quick riches & quick bankruptcy business…).

Anyway, my point is that you should be careful about being too quick to filter out topics because you quickly judge them as boring. Don’t have a fixed mindset about it. There’s interesting stuff everywhere — make choices, but make them consciously, not unthinkingly or based on what others think.

What used to be boring to you years ago may not be today, so be careful about applying permanent labels to things in your mind.

I feel like the shoreline of what’s potentially interesting grows with the surface area of your knowledge, so keep on exploring, Fernão de Magalhães.

🤔♦️♥️♠️♣️ One of the most important choices in life is picking the poker table where you’re going to play.

The game remains probabilistic and you can lose at a favorable table or win at a tough one, but it’s still better when the odds are in your favor.

What makes it harder is there’s a push & pull. Talented people want to be surrounded by talented people, in some prestigious field, with attention given to what they do.

But it’s a lot harder to be in the top 10% or the top 1% in a field where everybody else is great and motivated than in a field largely ignored by most talented people…

If your goal is to make a difference, there’s a better chance of doing that where what you bring to the table will move the needle than where the concentration of talent is so high that you could be hit by a bus and someone else will be sitting at your desk doing pretty much the same thing 5 minutes later.

But it’s not because something is a good strategy on paper that it’s easy. Lots of people make a great living and are important to their fields… and they don’t get nearly as much social status and recognition as others because they’re flying under the radar.

The meta-game here is probably to cultivate your ability to not care so much about what other people think, and figure out what you actually want, what would make you happiest.

It doesn’t *have* to be the unglamorous & uncompetitive field… But maybe it is? Maybe you were avoiding it for the wrong reasons..?

💾 Had an almost-two-hour-long video call with friend-of-the-show Muji.

What a gentleman and a scholar.

There’s not that many people I can reminisce about BBSes and installing ethernet networking cards on DOS PCs to run a Doom or Quake 2 CTF LAN…

Muji is another example of someone I’ve been chatting with online for a long time, but had never talked to until now, and probably would never have found in a world without the interest graph.

The internet village is big and small at the same time.

💚 🥃 Update on the subs, free & paid:

Getting close to 6,000 total subs, which is half my arbitrary milestone of ‘Where Byrne Hobart’s newsletter was when I started mine’ (˜12,000 subs). I remember thinking at the time that this was an impossibly large number, so half-of-impossibly-large is still more than enough to impress me.

I did the math, and 4.51% of subs are paid supporters, and 95.49% aren’t paying anything. If you do become a paid supporter, it really moves the needle. I can’t continue this project if it doesn’t also help pay some bills, it’s a large opportunity cost. Thank you:

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Investing & Business

Bezos Pledging $2bn from his Earth Fund for ‘conservation, restoration and food transformation’

Glad to see Bezos find his inner Bill Gates and start to focus more on the kind of collective problems that are very hard to solve by anyone (governments get stuck, get captured by special interests, move too slowly, constantly change course from one election to the next, etc — companies don’t have proper market signals and incentives, because so many bad things are externalized on society and have no price signals, etc).

I happen to believe that these huge companies that are constantly in the spotlight have been large net positives for society, despite all their flaws and problems. Don’t get me wrong, these problems shouldn’t be shoved under the rug; I think we should strive for a nuanced and well-calibrated view of things rather than go to extremes and see everything as great or throw the baby out with the bathwater.

These behemoths like Amazon, Microsoft, Google, etc… They’ve created products and services that have provided a lot of value to their customers, they’ve put pressure on their industry that made their competitors get better, they’ve invested untold billions in innovation, R&D, massive logistics and digital infrastructure, cutting edge machine learning and all that.. Not sure who else would be doing it to that scale, and we saw during the pandemic how important they were to society at large. So lots of good stuff.

But if the founders of these then turn around and use the massive wealth they earned to then also do valuable things that few others will (or can) do, that’s a nice double-whammy and deserves praise, as long as they do it in a way that is effective and not just as an ego boost (but I don’t even really care about that — if someone does great things because it feels good to their ego, so what? I’ll take it. Better that than stupid, destructive things that feel good to their ego…)

I also like that Bezos specifically mentioned “food transformation”, along with the more general conservation & restoration. I hope this means some investments into synthetic/grown meat (we still need a good name for this). More on that in the science section…

Ryan Peterson, Flexport CEO, Unintended Consequences Edition

Peterson wrote a thread on the supply chain SNAFUs that we’re all hearing about so much right now. There’s a lot of interesting stuff in there. My highlights:

To show great ROE almost every CEO stripped their company of all but the bare minimum of assets. Just in time everything. No excess capacity. No strategic reserves. No cash on the balance sheet. Minimal R&D.

We stripped the shock absorbers out of the economy in pursuit of better short term metrics.

That’s so true. It’s extremely attractive to finance-focused people to want to cut everything to the bone because the numbers look better, but the numbers don’t make things happen, the actual business does, and if you make the actual business too brittle…

Big businesses are supposed to be more stable and resilient than small ones. And economy built around giant corporations like America's should be more resilient to shock. However the obsession with ROE means that no company was prepared for the inevitable hundred year storms.

Now as we're facing a hundred year storm of demand, our infrastructure simply can't keep up.

The global logistics companies have no excess capacity, there are no reserves of chassis (trailers for hauling containers), no extra shipping containers, no extra yard space, no extra warehouse capacity.

The brands have no extra inventory. Manufacturers have no extra components or raw materials on hand.

He also wrote into the unintended consequences of something like the proposed law on unrealized capital gains (that probably won’t get anywhere, but it sure got a lot of people talking about it):

Few will have the courage. CEOs hired by committees can never have the security required to challenge dogma of an entire generation of finance professionals, including all the people who hired them.

The feedback mechanisms of modern finance work too well for the bureaucrats to resist--you go asset light, strip the companies of operating capital, cut R&D, make employees peripheral and bam, your ROE surges, your stock price follows, and your performance bonuses pay out big.

So you’re a hired CEO who doesn't run that playbook, who starts to plan for the hundred year flood? Sorry, your ROE metric sucks, we're replacing you with someone who will run the playbook and cash in on the rewards we're holding out.

Only founder led companies and family owned businesses can stand up to the immense pressure from the dogmas of modern finance.

The proposed tax on unrealized capital gains will force founders to sell larger and larger pieces of their companies to pay the tax, until eventually they lose control of their businesses and turn them over to the Wall Street sharks to run their disastrous playbook. [...]

Washington must protect and nurture these engines of competitive dynamism, but instead they're conspiring to kill the golden goose.

We need more systems thinkers. So what if you raise X billions more in taxes if you change the system in a way that reduces value creation and future tax collection by multiples of X?

Crowdstrike to Acquire SecureCircle (more Zero Trust goodies, for data protection)

Deal is all-cash for undisclosed amount.

With this acquisition, CrowdStrike will extend its industry leading Zero Trust endpoint security device and identity capabilities to include data. [...]

With SecureCircle’s technology, CrowdStrike plans to reimagine data protection - by enforcing encryption on data in all three states (in transit, at rest and in use), customers will be able to protect data on, from and to the endpoint. Combined with CrowdStrike Zero Trust Assessment, customers will also be able to control data access and usage policies for each user based on their Zero Trust score, enabling dynamic risk mitigation.

Crowdstrike’s CTO wrote a blog post with more technical details. If you’re hungry for more, there’s also this video by the company giving a 101 demo of what they do (NOM NOM NOM).

Matt Levine On Bored Apes Heist

Yesterday Twitter very much enjoyed the saga of a multilevel marketer who (1) bought three Bored Ape non-fungible tokens for a ton of money, (2) was easily tricked by some scammers into giving them his crypto wallet password, allowing them to take his Apes, (3) claimed to still own the Apes despite the blockchain saying otherwise, (4) complained about it a lot on Twitter and (5) eventually got various NFT trading platforms to restrict trading in those three Apes, making them worthless to the scammers (or to whoever bought the Apes from the scammers in subsequent legitimate transfers). Basically the moral of the story is that crypto makes irreversible transactions on a decentralized blockchain through immutable and auditable code, unless you complain a lot on Twitter, in which case the transactions will be reversed on a somewhat arbitrary basis. (Source)

I guess things aren’t that decentralized and unshackled from gatekeepers after all..

‘Zillow Shuts Home-Flipping Business’ 🏡🏚🏠

Zillow Group Inc. is pulling the plug on its tech-powered home-flipping operation after deciding that its pricing algorithms weren’t accurate enough to build a stable business.
The company plans to take writedowns of as much as $569 million and reduce its workforce by 25% as it winds down the business in coming months [...]

“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated, and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,” Chief Executive Officer Rich Barton said in the company’s earnings statement.

I don’t know enough about this business to really comment, but I know just enough to go 😯

Inspiration

Eugene Wei @eugenewei

If you want to build a ship today, don’t drum up people with a job offer and an options package, but rather teach them to long for your immensely priced NFT on OpenSea 💀💀💀

Venkatesh Rao @vgr

Wonder how true this is these days… “If you want to build a ship, don't drum up people to collect wood and don't assign them tasks and work, but rather teach them to long for the endless immensity of the sea.”

More Inspiration

Mostly Borrowed Ideas @borrowed_ideas

If humans are the true "capex" in software driven world, and all the "Einsteins" of world have a relatively decent shot to get discovered, AND they could talk to each other on a daily basis, great things must happen. This is one of the reasons I feel very optimistic LT.

There’s always a very large delta between the human potential that is being actively used vs the potential that isn’t. Hopefully the world keeps moving in a direction that reduces this gap…

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Science & Technology

🐮 ‘The Cow That Could Feed the Planet’ 👩‍🔬🧫🥩

Speaking of food transformation (back to Bezos), perfect timing, Durga Sadan shared with me a new Time feature on lab-grown meat (we really need a good name for this):

That final product, identical to the ground beef you are used to buying in the grocery store in every way but for the fact that it was grown in a reactor instead of coming from a butchered cow, is the result of years of research, and could help solve one of the biggest conundrums of our era: how to feed a growing global population without increasing the greenhouse-gas emissions that are heating our planet past the point of sustainability. “What we do to cows, it’s terrible,” says Melke, shaking her head. “What cows do to the planet when we farm them for meat? It’s even worse. But people want to eat meat. This is how we solve the problem.” [...]

“For 50 years, climate activists, global health experts and animal-welfare groups have been begging people to eat less meat, but per capita consumption is higher than ever,” says Bruce Friedrich, head of the Good Food Institute [...] “Our bodies are programmed to crave the dense calories. Unfortunately, current production methods are devastating for our climate and biodiversity, so it’s a steep price we’re paying for these cravings.” The best solution, says Friedrich, is meat alternatives that cost the same or less, and taste the same or better. Melke and her fellow scientists at Mosa say they are getting very close. [...]

Here’s a good line, the kind of striking image that makes people pay attention:

one half-gram biopsy of cow muscle could in theory create up to 4.4 billion lb. of beef—more than what Mexico consumes in a year.

The scale of the problem, and of the possible benefits?

Cultivated-meat production could have as much impact on the climate crisis as solar power and wind energy, he argues. “Just like renewable energy and electric vehicles have been successful because of government policies, we need the same government support for cultivated meat.”

How’s the cost curve doing?

eight years ago [t]hat burger cost $330,000 to produce [...]

At the moment, the cost to produce cultivated meat hovers around $50 a pound, according to Michael Dent, a senior technology analyst at market-research company IDTechEx. Eat Just’s three-nugget portion costs about $17, or 10 times as much as the local McDonald’s equivalent. [...]

So what’s the next step? Scaling up:

The biggest obstacle to getting the cost per pound of cell-cultivated meat below that of chicken, beef or pork, says Tetrick, is the physical equipment. GOOD Meat is currently using 1,200- and 5,000-liter bio-reactors, enough to produce a few hundred pounds of meat at a time. To go large scale, which Tetrick identifies as “somewhere north of 10 million lb. per facility per year, where my mom could buy it at Walmart and my dad could pick it up at a fast-food chain,” would require 100,000-liter bioreactors, which currently do not exist. Vessels that big, he says, are an engineering challenge that may take as long as five years to solve.

Simulation of Giant Banana Orbiting the Earth on ISS Orbit

🍌

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The Arts & History

Dune Messiah?

I was watching this French-language interview with Denis Villeneuve (thanks to my friend JPV for sending it). Asked about the rest of the series, Villeneuve sounded very interested in doing Dune Messiah (book #2) to complete Paul’s character arc.

It may never happen, and a lot rests on how Part 2 does and on whether by then Villeneuve still feels like he wants to do it, but the way he answered the question made it seem like it was a real possibility.

The Social Dynamics of Mad Men 🚬 🥃

Rob Hendersen has a good thread on the social dynamics of Mad Men.

I’m still in the process of a rewatching the series, now in the middle of season 5, so this is all very fresh to my mind. Lots of nice little details, little touches that make the world richer and more real.

Really good writing on that show — even when you don’t consciously notice these things, it would probably not ring as true if a lot of these details were removed from the script.