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456: Hairy Charts & Moore's Law, David Senra, Post-Inflation Pricing Power, Industry Inflection Points, Collison Brothers, Visa + Mastercard, Malaria, and Martin Scorsese
"David Senra is like the David Goggins of biographies!"
Man is made by his belief. As he believes, so he is.
—Johann Wolfgang von Goethe
📝📑📑📑📑📑😱 The hardest Editions to write are not the ones where I have *too little* to write about.
That’s an easy fix.
I can dig through my notes for evergreen things — I have hundreds of items in cold storage because I ran out of time/space and couldn’t fit them in a previous Edition.
No, the most difficult are those where I have *too much* stuff I want to share with you.
It’s overwhelming, I don’t know where to start!
🗓️🥃📚💡🗣️🗣️🗣️🍴🌳 Last week was one of the best and most memorable weeks of my life!
The first ever OSV retreat took place from Monday to Wednesday. I got to meet the people I’ve been working with since late February in person. Because we’re a remote company and the team is sprinkled around the world, of the whole group I had only ever met Jim and Nick IRL, and that was in September at TIFF (as I wrote about in Edition #446).
It was another case of meeting old friends for the first time, a pretty uniquely 21st-century situation.
The setting was wonderful — Jim has great taste, and the Mayflower Inn in Connecticut exceeded all expectations. The staff was great, every room had personality. Thanks to the logistics work of Ena G, Nick T, and Claudia S (and others, I’m sure!), it was super well organized and things went smoothly.
On the second day, we got to meet the recipients of OSV Fellowships from around the world (Tony M from Australia shared a screenshot of his flight-tracking app — he spent 42 hours in the air for this trip! 😳).
It was great to see what they’re working on, but it was also a reminder that behind the names and little avatars we see on computer screens are real people somewhere out there. It’s one thing to know this intellectually, but it’s another to be in a room full of switched-on people. 🌐
The funniest moment of the week came during dinner the second night.
A stand-up comic (🎤) from NYC was invited, and during crowd work he started asking people what they did. Someone said “books”, another “aerospace and satellite engineering”, another one “social media”, someone else “medical devices”, etc.
You could see his mind explode in real-time. Like, WTF does this company do? Books in space?!?
And you’re all meeting each other for the first time?!?!
Curiosity got the best of him. He didn’t want to go back to his own material and instead kept asking us questions to solve the puzzle, haha.
I had some conversations with colleagues that lasted for 5+ hours and went late in the night. I went to bed at 3 AM a couple of times and only because I knew I’d be dragging my old bones the next day, not because I ran out of things to say.
As someone put it, of all the people assembled there, there’s no one I’d be worried about being in a 6-hour car ride with. A very good sign!
I like how the head of OSV Infinite Adventures Chris D-B put it: We had a ‘camaraderie of joy’!
And then, after the 3-day retreat was over, I got to make the week even better by spending two days hanging out with Jim (💚 🥃 🎩). Spoiler klaxon: If you prefer to keep picturing me as a sentient radio-telescope dish, don’t look at this photo of me that Jim took (it’s a “science & engineering” logo on my hoodie ⚙️🧪).
I also got to meet another old friend for the first time: Jimmy Soni (✍️📚) came over and we had a great 2-hour conversation that felt like 20 minutes.
Spending time with Jim was great: I loved the group setting at the Inn, but my natural element is still the 1-on-1 conversation in a quiet room.
We got to nerd out on so many topics, and I feel like I learned a lot just by being around someone who is uber-curious and can speak intelligently about almost any topic. There are some sentences he said that I’m still pondering days later — sometimes a few bits of information contain a lot of wisdom!
The ur-vertical at OSV is clearly ‘Infinite Curiosity’. 🕵️♂️
🏦 💰 Liberty Capital 💳 💴
🔮 Hairy Charts & Moore’s Law 📈📉📈📉🐜
I love these hairy charts.
They’re a great reminder that we’re terrible at forecasting the future, and most “sophisticated” forecasts are just expecting things to revert to the mean soon — basically taking a sharpie and extrapolating things back to whatever level you got used to in recent times.
The one above shows interest rates, but there are other examples. Here’s one that isn’t quite as hairy, but shows actual solar PV deployment in the early 2000s-2010s vs World Energy Outlook forecasts:
The funny thing is, by the time we catch up to the way we’re wrong, there’s a good chance that some inflection will mean that we start missing in a *different* way.
For example, a lot of people realized in recent years that solar was going down in cost and being deployed much much faster than they expected in the years shown above.
Right in time for geopolitics, supply chain, and inflation issues to make that trend more difficult…
Moore’s Law is such an extraordinary phenomenon — whenever someone talks about the “Moore’s Law for XYZ”, be *very* careful.
It’s possible to drive down the costs for many things through scale and better tech, but semiconductors have some pretty unique attributes (ie. a chip the size of a fingernail can be worth thousands of dollars and generate a ton of value over years — a fingernail-sized piece of solar panels isn’t worth much).
And even with Moore’s Law, while we’re still moving to new nodes, we’re not getting the cost benefits of shrinking things the way we used to anymore…
Interview: David Senra on The Art of Investing 📚🎙️
This looks like a great new podcast, but I didn’t have a chance to listen to any episode until two days ago.
I saw Todd Combs and thought: great! I enjoyed his Nebraska Furniture Mart interview, and would love to hear more from him!
Then Ben and David from Acquired — Amazing! They’re always great, David always has a smile in his voice, that puts me in a good mood.
Ho Nam! Another friend of the show (I did an interview with him back in 2021)!
And then David’s episode popped up on my feed while I was lifting weights (yes, I’ve kept that up. I’ll write about my journey at some point..). I *had* to put it on, I knew it would be like 5 shots of espresso and really pump me up. ☕️☕️☕️☕️☕️
David Senra is like the David Goggins of biographies!
It didn’t disappoint! Check it out:
I’ll have to go back and listen to the first three, but this one was excellent. I had no idea young David thought he would be a lawyer. I went through that path and thankfully escaped after getting a J.D. to do things that I find more interesting!
📈💸 1980s Bull Market Driven by Post-Inflation Pricing Power
I wasn’t familiar with this theory:
I tend to think that a lot of the bull market in the 80’s was driven by large corporations’ ability to hike prices to increase profit margins. People were trained to accept inflation during the 70’s, so mid-single digit price hikes became acceptable compared to the inflation they saw in the recent past (again, anchoring at work!).
The opposite seemed to happen in the 2000’s where a long period of low inflation took away pricing power from the big companies (well, increasing buying power of the large discount / big box retailers (WMT etc.) and competition from private labels / internet were probably big factors, but low inflation certainly didn’t help).
It makes some intuitive sense. Via Brooklyn Investor.
📈 Industry Inflection Points (throw away the old base rates)
Good piece by friend-of-the-show and supporter Andrew Walker (💚 🥃 ) on industry inflection points:
Consider one of my favorite industries, cable. In the 1990s and 2000s, cable was mainly used to deliver video. Cable was a “meh” (though stable!) business; most of your revenue got eaten up by your suppliers (the ESPNs and ABCs of the world), and in a lot of markets you competed with satellite TV, who actually had a cost advantage as their larger (nationwide) scale let them negotiate better prices with suppliers. In that world, a simple rule of thumb was a cable company was worth ~8x EBITDA. Why? EBITDA margins ran ~30%, and capital intensity ran ~15% of sales. So if you bought a cable company for ~8x EBITDA, you were paying a fair multiple (~16x free cash flow) for a stable, low growth business. […]
What happened next explains why John Malone named his new cable entity Liberty Broadband:
That started to change in the late 2000s and early 2010s. Suddenly, cable was used more to provide broadband. Broadband is a much higher margin business than video; in video, ESPN and ABC get a huge cut of every dollar, and there are no corresponding costs in broadband (the gross margin of providing broadband is ~95%; once the system is in place, you basically just need to pay for some electricity to deliver light down some fiber cables). Margins went way up; today CABO is pushing ~55% EBITDA margins and they could very well hit 60% in the near future! Broadband is also a much “moat-ier” business than video; satellite had some real advantages when it came to video, but they were drawing dead to the superior infrastructure of cable when it came to the ever rising need for speed / capacity that broadband presented.
So you had a sudden change where cable’s margins went up substantially and the business got better as they suddenly leapfrogged a competitor…. and that’s not to mention that the video business didn’t just go away, so the broadband business didn’t just increase margins but it also accelerated growth. So here you have a change that increases growth, increases free cash flow, and decreases competition intensity. That’s quite an inflection!
Andrew gives the example of Buffett identifying such inflections in railroads (lead to the BNSF acquisition) and airlines (still early to see how consolidation will change things, but there’s a good argument to be made that without the pandemic we’d have seen that play out).
The obvious follow-up question is: What other industries are hitting inflection points like that right now? What about negative inflection points where economics suddenly become much worse, and so old base rates should be thrown out (for example: Local newspapers after the rise of the internet)?
Interview: The Collison Brothers, Co-Founders of Stripe 💳
You probably know all about them, so there’s little need for context:
I love this part about how it’s rational to like beautiful things:
downstream of the fact that people like beautiful things and for rational reasons. Because what does a beautiful thing tell you?
Well, it tells you the person who made it really cared, and you can observe some superficial details, but probably they didn't only care about those and then everything else in a very slapdash way. And so if you care about the infrastructure being holistically good, indexing on the superficial characteristics that you can actually observe is not an irrational thing to do.
The auteur theory, in a business context:
I don't pretend to be an expert in Hollywood, you also can't just spend $500 million to make a good movie. [...]
You really need the auteur. The whole thing is pointless unless someone has a vision.
So often at Stripe, we're discussing something and maybe, yes, in theory, we should do something in this space. But the real question is, is there a specific person who has a vision here? And there's a hundred things that we would love to go fund tomorrow if there was a specific person with a vision. Of course, as Hollywood shows, and as is intuitively obvious, the vision is not enough.
You have some degree of execution ability and whatever skills are required in the domain and so on. There's an illegible trace of, do they have the vision? I guess, is the vision a good one? Where if absent, the whole thing is just somehow going to be a failure. There's something about the unquantifiability of taste and judgment and how that makes, generally, I think that's tough for organizations to deal with because you can't build robust processes around that, but at least in Hollywood…
💳 Visa + Mastercard 💳 💰💰💰💰💰
Look at those tiny numbers on the left.
What’s crazy is how dominant and ubiquitous V and MA already were 20 years ago, yet they still had that explosion of cashflow in front of them!
🧪🔬 Liberty Labs 🧬 🔭
Québec considering building more hydro 💧🔌⚡️
I missed this when it first came out earlier this year, but glad to see it:
Legault’s government wants to make Quebec carbon-neutral by 2050 and that will require more non-oil power for the green economy; battery plants, green hydrogen, electric cars, trucks and buses. To generate all the power, Legault has said he needs to increase Hydro-Québec’s generating capacity by 50 per cent. [...]
Quebec will need to build four or five new dams to meet future power demands, but won’t say which rivers are being targeted to avoid panicking any communities.
Quebec has over half a million lakes and endless rivers over its vast territory (three times the size of France but with only 8.5m population).
It has a lot of untapped hydro-power potential:
The province’s geography is uniquely suitable: a single dam complex can harness watersheds that drain hundreds of thousands of square kilometres. A 1992 journal article said that of 50,000 megawatts of unharnessed hydroelectric potential remaining within the province at that time, nearly 19,000 megawatts were commercially exploitable
As usual with big projects these days, costs are an issue:
Hydro-Québec’s legacy dams generate power for 3 cents per kilowatt-hour, but new dams face costs at least four times greater.
I bet if we took a rational look at some of the reasons why costs have increased so much, we could cut some red tape and increase efficiency a lot. Some of what makes it so expensive are the endless delays and paperwork that don’t add much value…
We also could do a much better job explaining to citizens that plentiful cheap clean energy is an incredible resource that makes everyone wealthier because of all the second-order effects (grid stability, exports, attracting good jobs, data centers, etc) and will be necessary if we want to transition transportation to EVs and natural gas heating to heat pumps.
Interview: Jason Crawford on Progress and the History of Technology 🚀
A good recent interview with Jason:
Malaria vaccine! 🦟💉
The World Health Organization (WHO) has endorsed a new vaccine, R21/Matrix-M, as a preventive measure against malaria in children:
The R21 vaccine is the second malaria vaccine recommended by WHO, following the RTS,S/AS01 vaccine, which received a WHO recommendation in 2021. Both vaccines are shown to be safe and effective in preventing malaria in children. Malaria, a mosquito-borne disease, places a particularly high burden on children in the African Region, where nearly half a million children die from the disease each year.
After decades during which it seemed like it may be impossible to develop vaccines against this terrible disease that causes so much suffering around the world, we’ve got not one, but two vaccines within a few years!
the R21 vaccine was shown to reduce symptomatic cases of malaria by 75% during the 12 months following a 3-dose series
And at US$2 to $4 per dose, it’s relatively affordable. Science FTW!
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🎬 Martin Scorsese and Timothée Chalamet talk Shop 🎞️
It’s always more special when it’s two practitioners talking than when it’s someone from the media asking questions.