466: DuPont’s 1919 Chart Room, Ford F-150 EV, Google, US Oil, Investing Wisdom, Rockets, Asset Bubbles, and Back to the Future
"Most of investing is psychology"
Prediction depends on events outside your control.
Creation depends on events within your control.
Don’t guess about the future. Shape it.
🛀💭🌳 Old trees are more interesting. Young trees mostly all look the same.
It’s the accidents, the mutations, and the impact of extreme weather patterns over the years that give them personality.
A lot of the same applies to humans.
🤪 🤔 Paul Graham tweeted this:
It can sometimes be worthwhile to say things that are obvious. By explicitly stating something that no reasonable person would disagree with, you can smoke out the unreasonable ones.
Scammers and spammers do the opposite of this.
By saying stuff that is obviously BS, they weed out the non-gullible, saving time and achieving a higher ROI.
⚛️ A classic XKCD comic titled ‘Log scale’:
🤝 In one of the Richard Feynman biographies, it’s mentioned that he exchanged knowledge with one of his artist friends, teaching him some physics in exchange for drawing lessons (I seem to remember the friend not going very far in physics, but Feynman continued sketching for a long time).
Skill bartering is a neat concept. I think more people should explore it with people who have very different backgrounds and skills than they do. It doesn’t have to be a major undertaking — thanks to the 80/20 rule, a relatively small time investment can give you significant results.
This practice was probably more powerful in the pre-internet world, when it was much harder to find information. Now you can go on YouTube and have a “virtual friend” explain things to you.
But there’s real value to spending time with friends, sharing things, learning together, etc. I see this less as an optimal learning strategy and more as a “touch grass” type of practice to spend time in the real world and form real connections with people.
💚 🥃 🐇 I know you’ve been sitting on the fence for a while, meaning to support this project but putting it off to a later time.
Well, *now* is the time! Your support makes a big difference and every new signup makes my day (I email each one individually):
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📊 DuPont’s Chart Room in the Pre-PowerPoint Era 📈📋
We rarely think about it these days, but PowerPoint and other digital visualization tools are the modern successors to once cutting-edge techniques.
DuPont pioneered the use of graphs and other visual aids to help manage its complex and rapidly growing businesses, an approach that was emulated by many of their customers:
In 1919, DuPont created a room specifically for maintaining large charts that showed important financial statistics for its explosives business and emerging chemical ventures.
The room was located on the renowned ninth floor of the DuPont Building in Wilmington, a few steps from the offices of Executive Committee members.
Multiple charts for each business tracked sales, expenses, earnings, assets and ROI for the current year and ten years of history. Additional charts also tracked the information by month and included forecasts.
While today it’s common to complain about how PowerPoint is dumbing things down (because it’s overused), the previous extreme, when most data was only available in raw numerical form, was far from ideal for getting a good overview of things and a gestalt of a business.
The chart room was fairly straightforward in the beginning but became more complex over time.
A photo in Hagley’s collection from about 1920 shows the first system was a single rack of charts mounted in hinged frames, like pages in a notebook, which could be flipped from right to left as the presentation progressed [This is the photo above. -Lib].
Managers sat in front of the display on rolling chairs so they could shift as the presentation moved down the line. In some respects, the room was more useful as a data library than as an effective presentation vehicle. Either way, the idea was advanced for its day.
But over time, things got more complex:
As DuPont added new businesses in the 1930s and 40s, the number of charts increased substantially. Not surprisingly, the challenges of presenting them also grew.
The end result was a monorail system that suspended the charts on wheeled frames which allowed them to be rolled in front of committee members.
As the attached photo from 1950 shows, it was a fairly ingenious solution for getting lots of information in front of an audience in a limited amount of space. Sometime later, a small amphitheater with tiered seating was added that allowed departmental managers to also participate in the reviews, which were delivered by the chart room supervisor.
The chart room remained operational from 1919 until the early 1970s.
It was replaced by a series of information booklets that were distributed to the Executive Committee and Board of Directors. Innovations in printing and reproduction technologies, like the Xerox copier, made that more efficient than maintaining a dedicated team for the continuous update of paper posters.
Another big factor was the widespread adoption of overhead projectors by the late 1970s.
💵 Investing Wisdom Nuggets 💸
I re-stumbled on an interesting thread by Aaron Bush that I first saw in 2020, and thought I’d share some highlights with you:
1) Companies with deep competitive advantages are less interesting than companies whose advantages are only starting to shape up.
This is similar to the insight by WCM (and others) that it’s the direction of a moat that should be measured rather than its static width.
A company with a large but secularly shrinking moat can be a bad investment (or a less good one than expected), while one with a smaller but expanding moat can be great as Mr. Market notices the improvement and continually re-rates the stock.
The ideal scenario is where you get to double-dip with two tailwinds: Improving fundamentals and valuation.
Similarly, companies with strong cash flows are less interesting than companies whose cash flows are held back by high-returning reinvestment.
This is the Amazon thesis, which used to be non-obvious but is now well-known (which *doesn’t* mean people apply it correctly — people see a lot more “Amazons” out there than there actually are…).
2) There’s no prescription to becoming a masterful investor. No regiment of books, filings, podcasts, or checklists will bring greatness. They may help as tools but true greatness is found by pairing the right DNA with an internal battle for clarity and truth.
In a world where most good investors have read the same things and have the same heroes, what makes the very best stand out are their differences, not their similarities.
It can be temperament, unusual life experiences, unusual cognitive wiring, or a fairly unique skill stack.
4) One or two incredible pros can make up for a long list of cons... and one or two brutal cons can make a long list of pros meaningless.
Either way, usually only a couple key points determine 99% of an outcome. Don’t overanalyze.
This seems to be the superpower of the very best and most experienced investors.
Buffett can decide on a deal quickly both because he has been studying most industries and companies for decades, but also because he’ll focus on just a few aspects that will make or break an investment rather than get lost in the weeds, missing the forest for the trees (not to mix botanical metaphors).
7) Sticky note valuations are more useful than spreadsheet valuations. Stick to what’s obvious. Besides, the most successful companies are the ones that will break your models anyway.
Almost by definition, if something *looks* amazing and cheap, everyone will notice it.
I’m not saying the market is perfectly efficient, but you shouldn’t count on it being *that* inefficient either.
What usually happens is that things seem obvious in hindsight, but at the time there were plenty of reasons to convince people that it made sense for, say, Apple to sell for 11x earnings or whatever (“It’s a hardware company with little growth left and Samsung and Google and Xiaomi will soon crush it anyway and what if they get cut off from China”).
The real opportunities tend to be with things that look expensive but are actually cheap, or that look a little undervalued but are actually very undervalued for reasons that don’t fit neatly in a spreadsheet.
8) Contrarianism isn’t always binary. It’s often more useful when disagreement is about the magnitude of upside, not whether the idea is fundamentally good or bad.
I think this one is really good.
It’s a good reminder to never fall into binary thinking, even as you drill down levels into an idea.
14) Don't pretend risk and reward are always correlated. High risk, low reward scenarios abound... and low risk, high reward scenarios occasionally pop up.
People may not explicitly say this, but it often seems to be an implicit assumption that taking more risk inherently means increasing reward expectations.
There are plenty of really risky things that have little or no upside! Avoid those like the plague. 🏃♂️
16) Spotting — and reacting to — patterns in human behavior is just as useful as spotting patterns in what makes a great investment.
Most of investing is psychology (especially psychology of the self — Know Thyself!).
As a friend of mine often says, human nature is one of the last things left to arbitrage. That includes time horizon.
I encourage you to check out the whole thread — I don’t agree 100% with each item, but they are thought-provoking.
✂️🔌🛻🔋🔋 Ford Cuts F-150 Lightning EV Production in Half
Production of F-150 Lightnings at Ford’s Rouge Electric Vehicle Center in Dearborn, MI, is set to reach around 1,600 units per week starting next month, instead of the 3,200 originally planned.
Ford spent six weeks earlier this year to increase capacity of the F-150 Lightning at the Michigan plant, which was expected to be capable of producing 150,000 of the all-electric trucks, three times its initial planned output.
Sales of the F-150 Lightning have steadily increased in 2023, notching a monthly record of roughly 4,400 sold in November. The company has only sold 20,365 of the trucks this year through November, up 54% from a year earlier.
Inflation, higher prices, and higher interest rates certainly didn’t help, but I also think Ford extrapolated 2021’s demand too much (they had 200,000 Lightning reservations at the end of 2021).
EVs are *great*, but they won’t automatically take over. Auto manufacturers need to focus on making vehicles people want to buy (like my Kia EV6 — that’s a great one!) and offer them at competitive prices. Ford’s July 2023 price cuts were a step in the right direction, after increasing prices multiple times in 2022.
Asset Bubble: Internal Structure Dynamics
This is a good explanation of what goes on inside a bubble, as those who do best are by definition the most reckless participants:
At the peak of any asset bubble, it is guaranteed that most of the richest and most successful participants are hugely irresponsible, overleveraged, and under hedged. There’s no way for a responsible investor to keep up, because they just can’t take as much risk.
The irresponsible ones usually blow up at the top, but not before they become widely lauded as geniuses and influence many who believe they must really have a great system! No, they’re just going all-in over and over and haven’t been bluff called yet.
Of course some really really smart responsible investors who are also lucky will also be up there at the top. But it can be hard to tell them apart until things turn around for a moment.
h/t Emmett Shear (now best-known for briefly being OpenAI’s CEO)
🇺🇸🛢️🛢️🛢️ US crude oil production in millions of barrels per day
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🚀💥 U.S. Space Rockets Reliability 🚀🚀🚀🚀🚀
Note: It looks like the first three failed Falcon tests aren’t on the chart.
SpaceX’s reliability is impressive given how quickly they went from nothing to dominant, and how many innovations they incorporated (re-usability, vertically integrating the production of most parts rather than using experienced (aka expensive and slow) aerospace suppliers, driving costs down by adapting consumer/commodity technologies, etc).
The green dots tell the tragic story of the Space Shuttle, with a long pause every time an accident happened.
I wish I had the same chart, but with rockets from everywhere in the world.
Source: Edgar Zapata
👩🔬 Is Science accelerating? How can we make it even faster? 🔬
Friend-of-the-show Jason Crawford published a great essay about ‘the acceleration of science through evolvable institutions’.
My highlights below, but I recommend the whole thing:
What drives acceleration in science? Many factors, including:
Funding. Once, scientists had to seek patronage, or be independently wealthy. Now there is grant money available, and the total amount of funding has increased significantly in the last several decades
People. More scientists (all else being equal) means science moves faster, and the number of scientists has grown dramatically [...]
Instruments. Better tools means we can do more and better science. Galileo had a simple telescope; now we have JWST and LIGO.
Computation. More computing power means more and better ways to process data.
Communication. The faster and better that ideas can spread, the more efficient and effective scientific communication can be. [...]
Method. Better methods make for better science, from Baconian empiricism to Koch’s postulates to the RCT (and really, all of statistics).
Institutions. Laboratories, universities, journals, funding agencies, etc. all make up an ecosystem that enables modern science.
Social status. The more science carries respect and prestige, the more people and money flow into it.
What are the biggest hurdles, risks, and problems?
Speed. It can easily take 12–18 months to get a grant (if you’re lucky)
Overhead. Researchers typically spend 30–50% of their time on grants
Patience. Researchers feel they need to show results regularly and can’t pursue a path that might take many years to get to an outcome
Risk tolerance. Grant funding favors conservative, incremental proposals rather than bold, “high-risk, high-reward” programs (despite efforts to the contrary)
Consensus. A field can converge on a hypothesis and prune alternate branches of study too quickly
Researcher age. The trend over time is for grant money to go to older, more established researchers
Freedom. Scientists lack the freedom to direct their research fully autonomously; grant funding has too many strings attached
The leverage on removing barriers, increasing the supply of scientists, or improving R&D capital allocation is incredible for humanity.
It’s a lot sexier to focus on a specific project, but we need people who will try to improve things upstream; by improving the process by which resources are allocated to *all* projects, or by removing a stupid law or regulation that slows down *all* project, you can get tremendous positive impact on the world.
Perhaps we need to create a Nobel Prize for “the person who has helped science as a whole the most” or “meta-science improvements” or something like that 🤔
✉️🔍🤖 Google improves spam filtering with a novel text vectorizer 📬
Google has to filter through *a lot* of spam every day, not just in GMail, but also across its properties like YouTube and the Play Store.
Spammers try to disguise their crap and evade filters using all kinds of techniques that can be hard to detect (aka adversarial text manipulations).
To stay one step ahead, Google created RETVec (Resilient & Efficient Text Vectorizer):
Over the past year, we battle-tested RETVec extensively inside Google to evaluate its usefulness and found it to be highly effective for security and anti-abuse applications. In particular, replacing the Gmail spam classifier’s previous text vectorizer with RETVec allowed us to improve the spam detection rate over the baseline by 38% and reduce the false positive rate by 19.4%.
Additionally, using RETVec reduced the TPU usage of the model by 83%, making the RETVec deployment one of the largest defense upgrades in recent years. RETVec achieves these improvements by sporting a very lightweight word embedding model (~200k parameters), allowing us to reduce the Transformer model’s size at equal or better performance, and having the ability to split the computation between the host and TPU in a network and memory efficient manner.
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🦺 Watching Back to the Future I, II, III with my kids 🍿
Over the past couple of weeks, I watched these with my kids. It was fun to see them experience these films that feel like they’ve always been with me, and see their surprise at the various plot twists.
Not everything about these films has aged perfectly, but overall, they still work!
Some of the acting feels a bit heavy-handed and the script isn’t very subtle, spelling everything out to make sure that nobody misses anything. However, the big set pieces and action sequences had my kids at the edge of their seats, and the score by Alan Silvestri takes everything up a few notches (at first, I thought it must be John Williams because a few of the themes and motifs are so iconic).
It was interesting having to explain to my kids that in the “2015” section of the second film, the big flat TVs on the walls were seen as extremely cool and futuristic at the time — as we watched the film on our large flat screen hanging on the wall.
The middle section of Part II was a bit dark for my kids, with Robocop-like drive-by gang shootings and a Trump-inspired Biff running the local mafia. but the third act gets back to the first film’s lighter settings. I think we forget how dark some of those 1980s films were — we saw E.T. (1982) a few months ago, and I had forgotten it mostly takes place in a very dark house and when guys in hazmats burst through the windows, it almost feels like a zombie film for a moment.
The third film was a big hit with my kids. I think they enjoyed it more than the second one. I mean, cowboys are cool, right? 🤠
As a kid, I just accepted that in every film most things that happen are a repeat of what happened in the first film, with the same actors reprising their roles. As an adult, I kind of wish they had been a bit more creative and explored the new settings a bit more rather than constantly having Biff get manure’d.
Oh well ¯\_(ツ)_/¯
Still, these are very fun rides, worth watching with your kids if they’re old enough!