What happens when everything—and everyone—is connected?
A decade ago, the economist W. Brian Arthur wrote about how the Internet revolution could be most aptly compared to the introduction of the railroads in the late 1800s—”a body of technology comes along and over several decades, quietly, almost unnoticeably, transforms the economy.” I thought about that essay this week while reading Baillie Gifford’s latest, “Hyper-connected Networks: Seedbeds of Growth,” which explores the profound implications (and potential outcomes) of an economy that is increasingly connected via trillions of touch-points on the internet and cloud. The author, Dave Bujnowski, argues that we’re still so early in the growth curve of the Internet’s influence on the economy that even the large-cap tech firms of today might actually still be in their infancy of growth. (And I agree.) “The arrival of these new infrastructures causes profound knock-on effects which are impossible to fully grasp, and which are set to play out for decades,” Bujnowski writes. “Because disruption begets more disruption.” (H/T Rishi Gosalia)
“Most exciting of all: as more and more humans are exposed to these tools, we – the network nodes – will change. With each new breakthrough innovation, the impossible will seem a bit more possible. Our imaginations will be fed. Just as Google trained us to ask more questions by giving us access to any question imaginable, these tools will inspire more and more of us to identify the next problem to solve –and work on creating the solution. As a growth investor, it’s (still) hard not to be excited about the opportunities ahead.”
***
Can company culture be predictive of stock market returns?
“While everyone knows culture is important, nobody knows how to measure it.” So begins an excellent analysis from Sparkline Capital this week that addresses a curious hypothesis: can an intangible asset like “company culture” be a causative predictor of stock market outperformance? It’s a thoughtful deep-dive that uses a broad mix of qualitative and quantitative analyses and real company examples to come up with some pretty stark conclusions. Conclusively, the authors write, “firms with toxic cultures have dramatically underperformed” the broader index.
“The primacy of company culture is a sacred truth. Business leaders from diverse backgrounds glorify culture, ascribing to it their companies’ triumphs and filling our bookshelves with bestsellers on the subject. Culture forms a central part of the narrative of successful companies. There is just one problem. While everyone knows culture is important, nobody knows how to measure it. Culture is a fuzzy concept, whose many facets cannot be reduced to a single number. Moreover, there is no consensus around what exactly is a ‘good’ culture. Amazon’s culture is held up as a paragon of both innovation and brutality. In the face of these challenges, few researchers have dared attempt to quantify culture and its impact on performance. Most of the evidence we do have is anecdotal or biased, derived from cherry-picked case studies or opt-in surveys with tiny sample sizes. Culture is an orthodoxy, revered by business leaders without empirical question.”
***
Scott Malpass on identifying winners, dealing with ego vs. curiosity, and long-term investing [podcast]
Over 32 years, Scott Malpass grew Notre Dame’s endowment from $400 million in assets to over $12 billion. As Patrick O’Shaughnessy introduced him in a recent podcast conversation, Scott is “clearly on the Mount Rushmore of institutional investors.” The hour-long conversation dives into lots of interesting areas, including how Scott views the qualities of great investors, recruiting top talent, and some of the structural problems inherent in asset allocation.
“Well, I’d want to understand more about their hobbies and life, what they do outside of work, how they spend their time, what kind of family lives they have, how they think about ethics, what are some of the things they’re most interested in the world. You wanted people who are very curious, always learning, reading a lot, but always learning, curious, adaptable, resilient. Trying to get to know them better. Just getting to know them better, so I could understand all of that about their personality. So you have to ask questions that probe at that. It’s funny, early on in my tenure, back in the late ’80s and early ’90s, those kinds of questions weren’t typical.”
“Everyone in the business of building and managing organizations should study Tyler’s performance and process. For entrepreneurs in today’s environment, talent, not capital, is the limiting factor in company building. Finding and recruiting talent is also the core task of venture capital investing, building a research lab, or managing a university. Tyler’s distribution strategy, application design, intellectual tastes, and influence on awardees all interplay to explain his success as a talent curator. As a whole, it is incredibly difficult to replicate directly because each component is so dependent on the others. However, there are some general principles one can apply.”
“I can only speculate what the reason for this excessive pessimism is but suspect it is primarily a function of the way media works in general. The news tends to focus on rare and sensational events as opposed to small, incremental improvements. A tycoon being dressed down gets more airplay than a new hospital being opened. I also suspect that cognitive dissonance, i.e., the difficulty of keeping two contradictory thoughts in mind at once, is at play. There is considerable antipathy in the West to a political system that is based on single party rule. This leads people to either downplay or ignore the achievements of said system. To my mind, it is possible to disagree with the system and acknowledge its achievements. In fact, to make a coherent argument against the system, you must account for its achievements.”
“The other name of the coast redwood is Sequoia sempervirens. The second word in Latin means ‘evergreen.’ Its tactics are legendary. Knock over a redwood and it is not dead. A circle of new redwoods, called a fairy ring, will grow around its wide base. The tree has cloned itself, and Big Basin is full of redwoods formed in rings, starting life in the ruins of death. Scientists are only beginning to penetrate the genetic mysteries of the coast redwood. Take its chromosomes. Humans have two sets of chromosomes; some plants have three. Coast redwoods have six. Scientists don’t know why, or what the purpose is of the plant’s colossal genome. It is made up of 27 billion base pairs, nine times that of a human. Only one organism on Earth, an endangered Mexican salamander called the axolotl, has more.”
“Introspection is key to rationality. A rational person must practice what the neuroscientist Stephen Fleming, in ‘Know Thyself: The Science of Self-Awareness’ (Basic Books), calls ‘metacognition,’ or ‘the ability to think about our own thinking’… Metacognition emerges early in life, when we are still struggling to make our movements match our plans. (‘Why did I do that?’ my toddler asked me recently, after accidentally knocking his cup off the breakfast table.) Later, it allows a golfer to notice small differences between her first swing and her second, and then to fine-tune her third. It can also help us track our mental actions. A successful student uses metacognition to know when he needs to study more and when he’s studied enough: essentially, parts of his brain are monitoring other parts.” [H/T Ben Jacobs]
This information should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the investments or strategies referenced were or will be profitable, or that investment recommendations or decisions we make in the future will be profitable. This article contains links to 3rd party websites and is used for informational purposes only. This does not constitute as an endorsement of any kind. While Nightview uses sources it considers to be reliable, no guarantee is made regarding the accuracy of information or data provided by third-party sources. Nightview Capital Management, LLC (Nightview Capital) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Nightview Capital including our investment strategies and objectives can be found in our ADV Part 2, which is available upon request.
Reflection doesn’t come naturally to me, but writing—especially for others—makes it non-negotiable. These aren’t just lessons. They’re pieces of a year that shaped me.
