Michael Olenick’s latest essay, Idealistic Innovation, offers a reflective take what’s happening in the stock market: “Historically, the most interesting businesses tend to come to life during downturns,” Michael writes. In the piece, Michael explores how a bloated tech industry drove an era of “well-funded but dull copycat businesses” that were light on actual innovation. He argues we may be crossing a natural turning point, where the market rewards companies that offer “genuine value” with self-sustaining unit economics—and a return to the idea that technology will be used to materially improve the world around us.
“We’re entering a new, challenging, and exciting time. There is no mistaking the destruction in the financial markets. Countless businesses are likely to be shuttered or acquired for pennies by the time it’s over. But, historically, the most interesting businesses tend to come to life during downturns. Everything from GE, HP, and McKinsey to Electronic Arts, Google, Uber, and Airbnb either started or gained steam during wretched economic times. The lack of capital seems to focus the mind away from the trivial, forcing a pivot from me-too red oceans to new blue oceans.”
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Being a long-term investor at 89 years old
I loved this entire Tim Ferriss interview with Edward O. Thorp, but my favorite section comes about 45 minutes in when Tim asks about how Thorp thinks about long-term investing. (“Eighty-nine may not be all that old at this point,” Thorpe says.) For the uninitiated, Ed Thorpe is a true multi-hyphenate—a math professor, former hedge fund manager, blackjack theorist, and author.
“I know somebody, for example, she has saved about a million and a half and she is in her mid-50s. I think she’ll be fine. So I’ve explained to her: ‘Pile it all in equities and let it rip.’ She gets scared every so often when there’s a downturn and she calls me and I tell her, ‘Just hold fast,’ and then it goes back up. She said, ‘I’m really glad I held fast.’ A lot of people are what I call scared rabbits. And when the market goes up, they get confident and they start buying. And then it drops, and then they get really scared at the bottom and they sell out and then it goes back up and they buy again and it drops and they get really scared at the bottom and they go back out again. So they seem to have the worst of it all the time.”
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The pruning cycle of modern capitalism
Counterpoint Global’s latest piece—New Business Boom and Bust—makes the case that the electric vehicle industry is the perfect example of an industry in the midst of a surging boom: Massive amounts of investor capital have flowed in to finance a surge of new business formation. But, inevitably, most of these new companies will fail, creating an equally massive bust. I completely agree. The piece, by Michael J. Mauboussin and Dan Callahan, gives a smart framework for investors to think about allocating capital at various stages in these cycles. (H/T Cam Tierney)
“Understanding this pattern of innovation can help investors in a number of ways. To begin, it is very useful to understand which phase an industry is in. One straightforward way to do this is by measuring the number of entries, exits, and total number of firms in the industry. This fits with the first of Klepper’s stylized facts. Failure rates are high in the early phase and drop substantially once the process is largely complete. Exits are the result of going out of business, which is bad for shareholders, or of being acquired by another company, which is often not as bad.”
“Concern is mounting over another potential vulnerability in the crypto market: Tether, a company whose namesake currency is a linchpin of crypto trading worldwide. Long one of the most scrutinized companies in the industry, Tether is facing heightened pressure from regulators, investors, economists and growing legions of skeptics, who argue it could be another domino to fall in an even bigger crash.”
“People are often enthusiastic about greater use of nuclear power as a potential strategy for decarbonizing electricity production, as well as its theoretical potential for being able to produce electricity extremely cheaply. (Nuclear power also has some other attractive qualities, such as less risk of disruption due to fuel-supply issues, which for instance can impact natural gas plants during periods of cold.) But increased use of nuclear power has been hampered by the fact that nuclear power plant construction cost has steadily, dramatically increased over time, frequently over the life of a single project.”
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