Welcome to The Nightcrawler, a weekly collection of thought-provoking articles and analysis on technology, innovation, and long-term investing. The Nightcrawler is published every Friday evening by Eric Markowitz, Nightview Capital’s Director of Research.

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    In this evening’s email… 

    Quote of the week: “Any fool can make a rule, and any fool will mind it.” — Henry David Thoreau 

    Inside the Rolex origin story

    In 1946, the founder of Rolex, Hans Wilsdorf, published the first volume in a book titled “Rolex Jubilee.” The book told the story of how Wilsdorf—born in 1881 and orphaned at age 12—would go on to disrupt an entire industry and build one of the most iconic luxury brands to ever exist.

    It’s a fascinating narrative, and one that David Senra, the podcaster behind Founders, unpacks in a recent episode. Senra chronicles Wilsdorf’s interest in language and travel, his early business misfires, and ultimately his genius approach towards specialization, craftsmanship, and marketing that led to the wristwatch “revolution.”

    Perhaps most compelling to me was how Wilsdorf structured the business to be guided by a north star of longevity. “He brilliantly set up the bylaws of his trust so Rolex could never be sold or made public,” Senra says. “So he would never have to worry about catering to anything but making timeless watches.” Senra continues: 

    • Key quote: “If you think about it… Hans’ vision is still very much alive and being executed on a daily basis despite the fact that he passed away more than half a century ago. How many people can you think of that built a world-class business, and 50 years after they pass away, the company keeps going as if they were still running it?”

    ***

    Market concentration vs. diversification

    Today, the top 10 companies in the S&P 500 comprise over 36% of the index’s total market capitalization—more than double the level of concentration from just 10 years ago. Regardless of the cause (e.g. power laws, network effects, scale advantages, etc.) the big just keep getting bigger. So what, exactly, does this means for investors?

    Michael J. Mauboussin and Dan Callahan explore this question in a new analysis for Counterpoint Global. Their research investigates historical levels of market concentration, diversification (or lack thereof) in other global equity markets, and what it means for active investors looking to beat the market over the long-term. 

    • Key quote: “Owning the stock of the largest company has historically been a poor investment relative to the market overall until about a decade ago. Owning the second and third largest stocks produced excess returns from 1950 to 2023. However, all three of the top stocks have provided stellar relative returns from 2014 to 2023. Where we go from here is anyone’s guess, but assessments of sustainable competitive advantage and growth will be central to determining that path.”

    A few more links I enjoyed: 

    The seduction of false promises – via Seth Godin

    • Key quote: “As our modern world becomes more informed and more rational, we see an increase (not the expected decrease) in scams, hustles, and chaos. There are Jokers and Riddlers on every corner, and our email box and mailbox are filled with schemes and manipulations. None of them would succeed if we didn’t support them. What’s the attraction of these shortcuts?”

    How to build an AI data center – via Brian Potter

    • Key quote: “We often think of software as having an entirely digital existence, a world of ‘bits; that’s entirely separate from the world of ‘atoms.’ We can download endless amounts of data onto our phones without them getting the least bit heavier; we can watch hundreds of movies without once touching a physical disk; we can collect hundreds of books without owning a single scrap of paper. But digital infrastructure ultimately requires physical infrastructure. All that software requires some sort of computer to run it. The more computing that is needed, the more physical infrastructure is required.”

    Situational awareness: the decade ahead – via Leopold Aschenbrenner 

    • Key quote: “AGI by 2027 is strikingly plausible. GPT-2 to GPT-4 took us from ~preschooler to ~smart high-schooler abilities in 4 years. Tracing trendlines in compute (~0.5 orders of magnitude or OOMs/year), algorithmic efficiencies (~0.5 OOMs/year), and ‘unhobbling’ gains (from chatbot to agent), we should expect another preschooler-to-high-schooler-sized qualitative jump by 2027.”

    The cleantech revolution – via Kingsmill Bond, Sam Butler Sloss, Daan Walter

    • Key quote: “The past decade has seen remarkable progress and growth in cleantech. Cleantech costs have fallen by up to 80 percent, while investment is up nearly 10 times and solar generation has risen 12 times. Meanwhile, electricity has grown to become the largest source of useful energy, and the deep force of efficiency has reduced energy demand by a fifth. As the drivers of change continue to overpower the barriers, cleantech will continue to grow up S-curves, pushing fossil fuel demand into terminal decline.”