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A Few Things: The Turning Point For the Dollar?, Investing In The Industrial Economy, The Power Law, Zero To One, Competition is for Losers....
March 5, 2022
“The unthinkable can always happen, and you have to run your affairs accordingly.”
- Peter Bernstein
“People change and forget to tell each other.”
- Lillian Hellman
“The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts.”
- Bertrand Russell
A. A Few Things Worth Checking Out:
1. Even before Russia's attack on Ukraine, the global economy was facing an extraordinary moment. In the last week, Western governments have unveiled sanctions against Russia. What are the immediate and long term ramifications?
On this Bloomberg Odd Lots episode, Zoltan Pozsar (Credit Suisse short-term interest rate strategist) discussed what all this means, how the Fed will react, why gold is important again, and how could this mark a turning point for the global dominance of the US dollar.
One of the things I worry about are the knock-on effects and the collateral damage from shutting off a G-8 country from the global economy.
What are the domino effects that will fall in March?
2. The geo-political strategist that has best understood what’s happening in Ukraine / Russia and it’s market impact is Marko Papic at Clocktower Group. He was on the Ted Seides Capital Allocators show discussing market opportunities.
One of the ideas Marko has been talking about is the move of US foreign policy towards something more Machiavellian. A multi-polar world means the US can just focus on what is good for America, rather than try to create global order.
3. Russia is by far the world’s largest wheat exporter. And over the past decade, Ukraine has become a rising, global grain-powerhouse. Russia and Ukraine together produce nearly a quarter of the world’s wheat, a fifth of its corn trade, and almost 80% of its sunflower oil production. They produce 12% of all calories traded globally.
What happens to countries—indeed, to entire regions—that depend on Ukraine for food when these vital shipments get choked off, as is already happening?
Borrowing from WILTW:
First round impact—will be nearly impossible for food businesses to maintain their margins.
Second round impact—discretionary income will take an even bigger hit.
Third round impact—the Fed is in a corner. Rising rates will not produce more commodities or energy, only reduce demand to the level of supply, otherwise known as recession, or worse.Collateral damage to present value formulas.
4. Eric Mandelblatt, founder and CIO of Soroban Capital was on the Invest Like The Best podcast discussing the Industrial Economy. Given what is happening in the economy, this podcast is timely because they discuss why energy and materials represent such a small share of the market today and how the global push towards decarbonization could have massive impacts on the industrial economy moving forward.
Eric evaluates the opportunity set and deep dives into a bunch of businesses.
5. Mark Zuckerberg was on the Lex Fridman podcast. The questions posed to Zuckerberg in this interview are really good. We are primed to thinking negatively about Zuckerberg given the negative press, so it is easy to forget that this is a man who created one of the greatest companies of all time and that he is still not even 40 years old.
The best question (and answer) was when Lex asked him what he thinks of the fact that 54% of people surveyed disliked him compared to Elon Musk with just 23% disliking him.
I decided to watch (rather than listen) so that I could see his body language and the interplay between him and Lex. Simply superb interview.
6. Started watching Searching For Italy with Stanley Tucci.
It’s a simple format: it’s Tucci wandering around Italy eating the best food that the best country for food on earth has to offer. Like so much Italian food, the series is simple and thoroughly enjoyable, especially the episodes in Tuscany and Bologna.
B. The Power Law
Finished Sebastian Mallaby’s Power Law this week. The book is based on five years of research, on venture capital.
The book is part chronological history of the venture market and part analysis of what works in venture. They cover everything from its start with Arthur Rock and Don Valentine, to China, India, WeWork, Benchmark, Tiger and Sequoia. Some of the best parts are the fly on wall accounts of deals we have all read about.
The most interesting bit for me was Sebastian’s thoughts on the Ingredients of Success to be a successful venture firm (as both an angel investor and an LP in a bunch of VC firms this resonated with me):
1. Deliberate, systematic networks to find the best opportunities, ie the Sequoia Capital scouts programme, which incentivises entrepreneurs to refer other entrepreneurs in their networks to VCs.
2. The prepared mind: a grand label given to the process of thinking through the implications of emerging technology trends on industries, behaviours and the economy.
3. Having an understand of how big something could become if it really works - this is after all a Power Law game.
4. Delivering service to the entrepreneur over the lifetime of the investment.
5. Investing in the VC partnership: to manage generational transitions to maximise continuity and minimise disruption and defections.
Is your local VC firm doing all of this?
Sebastian did a great job on the HBR Exponential View podcast discussing: How Venture Capital Made the Modern World.
C. Zero To One
One of the ideas I think about often is Peter Thiel’s concept of Zero to One, which he outlined in this book.
The book is the summary of a class Peter taught at Stanford titled: CS183 - Startup.
The idea behind the concept of Zero to One is that most of the things we do in life and investing is about 1 to n. Something already exists and we work to make it bigger, more efficient.…Most of us work on just doing more of what already exists.
But Peter believes that what matters more are ideas and startups that are 0 to 1. Taking something that doesn’t exist, something that can’t be done, something that hasn’t been done, and then doing it.
The key lectures notes that are worth reading:
Which ends with some great questions to think about if you are interested in doing something that is Zero To One.
Where to Start?
The path from 0 to 1 might start with asking and answering three questions. First, what is valuable? Second, what can I do? And third, what is nobody else doing?
The questions themselves are straightforward. Question one illustrates the difference between business and academia; in academia, the number one sin is plagiarism, not triviality. So much of the innovation is esoteric and not at all useful. No one cares about a firm’s eccentric, non-valuable output. The second question ensures that you can actually execute on a problem; if not, talk is just that. Finally, and often overlooked, is the importance of being novel. Forget that and we’re just copying.
The intellectual rephrasing of these questions is: What important truth do very few people agree with you on?
The business version is: What valuable company is nobody building?
Goes deep into finding these secrets and what to do when you find them.
The last lecture is probably the most interesting and brings the Zero To One idea full circle - your existence is a Zero To One event. You are a Singularity. The only one of its kind ever in the entire existence of the Universe.
This course has largely been about going from 0 to 1. We’ve talked a lot about how to create new technology, and how radically better technology may build toward singularity. But we can apply the 0 to 1 framework more broadly than that. There is something importantly singular about each new thing in the world. There is a mini singularity whenever you start a company or make a key life decision. In a very real sense, the life of every person is a singularity.
The obvious question is what you should do with your singularity. The obvious answer, unfortunately, has been to follow the well-trodden path. You are constantly encouraged to play it safe and be conventional. The future, we are told, is just probabilities and statistics. You are a statistic.
But the obvious answer is wrong. That is selling yourself short. Statistical processes, the law of large numbers, and globalization—these things are timeless, probabilistic, and maybe random. But, like technology, your life is a story of one-time events.
By their nature, singular events are hard to teach or generalize about. But the big secret is that there are many secrets left to uncover. There are still many large white spaces on the map of human knowledge. You can go discover them. So do it. Get out there and fill in the blank spaces. Every single moment is a possibility to go to these new places and explore them.
There is perhaps no specific time that is necessarily right to start your company or start your life. But some times and some moments seem more auspicious than others. Now is such a moment. If we don’t take charge and usher in the future—if you don’t take charge of your life—there is the sense that no one else will.
So go find a frontier and go for it. Choose to do something important and different. Don’t be deterred by notions of luck, impossibility, or futility. Use your power to shape your own life and go and do new things.
“What is it you plan to do with your one wild and precious life?”
- Mary Oliver.
D. The Tech and Crypto Section:
1. Ken Griffin, founder of Citadel says fair to assume that Citadel Securities will be market making in crypto in months to come.
According to Citadel, their equities platform is responsible for 25% of US equities volume. Ken Griffin has always been early on new markets. For those that missed it, Citadel took in $1.15 billion in investment from Sequoia and Paradigm (two tech venture firms) in Jan 2022.
Are they intending on riding the growth of crypto the same way they rode equities over the last two decades?
2. All the Peter Thiel talk reminded of this great lecture he gave at Stanford: Competition is for Losers in 2014.