The core of all investing is, in certain ways, centered on a fundamental paradox: The future is unknowable, and yet we make decisions today that we believe will provide the most benefit in the future. In times of relative industrial stasis, looking at the past will be helpful to make those decisions. But in periods of innovation and non-linear growth, how do we create a framework to think about potential outcomes when things are so… chaotic? Many of these ideas—and more—are discussed in an essay this week by Brad Slingerlend, an investor at NZS Capital, who uses time travel movies as a launching-off point to discuss, among many things, how to best make investment decisions today about an ultimately unknowable future. “By cultivating awareness, trying to slow down time, and finding the right questions to ask (e.g., working backward, what won’t change, pre-mortem analysis) we can attempt to create a landscape for decision making that allows us to see good fortune when it comes knocking and take the next incremental step toward a better future,” he writes.
“One of the biggest inhibitors of good decision making is our brain’s inability to see things as nonlinear. We tend to think in an analog, incremental way, but the world itself is dominated by exponentials, power laws, and compounding – all of which we struggle to conceptualize. From an evolutionary perspective, linear thinking is likely a lot more energy efficient and less mentally overwhelming, which would be important for quick decision making to ensure day-by-day survival, as was required of our human ancestors for hundreds of thousands of years. Under such challenging circumstances, linear thinking apparently yielded a decent enough solution in a sufficient number of cases to let us wade through life (while the slower, more cerebrally-intensive thinkers were perhaps subject to a higher number of predation events). For those of us fortunate enough to exist in the modern world, however, we have the luxury (or perhaps the imperative) to become more cognizant of our path through time and the myriad possibilities/probabilities encompassed by our endlessly branching future.”
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Identifying “quality” companies is an under-appreciated element of company research
“I remember saying to a friend a long time ago, ‘Some companies have a soul, and others are just going through the motions,'” Josh Tarasoff, GP at Greenlea Lane Capital Partners, wrote in an essay published this month about Greenlea’s approach to public equity investing. “In retrospect, this was an early intuition about quality. Quality is something I have come to prize and insist upon in Greenlea Lane investments.” Tarasoff hits on something I’ve observed across the investment industry: Traditional analysis seldom focuses on an intangible, somewhat loose concept like “quality.” Generally, it’s understandable; “quality,” like all intangibles, is a sort of nebulous concept that’s hard to define. (What, really, is a high quality company?) And yet, perhaps ironically, it may be precisely this difficulty to define quality that creates a compelling time arbitrage opportunity for investors. In other words, those who can can successfully identify a “quality” company early in its growth may be able to benefit by identifying an opportunity that the market may be overlooking entirely.
“Quality is underappreciated. It cannot be modeled in Excel, it’s not on the balance sheet, nor does it make for an exciting investment pitch. Quality is not easy to pin down, because it often represents new ways of doing things that stretch or break old mental models. Investment ideas based on quality can be difficult for investment organizations to implement because deep appreciation of and conviction in quality is difficult to convey from one person to another. It seems common for quality to be dismissed in favor of so-called ‘structural’ advantages—things like a brand or a switching cost. These are important, too, but the more I have seen, the more I’m convinced that the difference between great and merely good is qualitative.”
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Deep into the vision-only approach to full-self-driving
This weekend, we’ll be anticipating a software roll-out of Tesla’s FSD Beta V9 (among early beta test users), which will implement an upgraded vision-only approach to autonomy. (Readers of the Nightcrawler may recall back in Issue #3, where I wrote a little about Tesla’s approach using vision, artificial intelligence, and neural nets.) On the eve of this rollout, I’d definitely recommend the latest video by Yannic Kilcher—a machine learning and AI expert—that details Tesla’s approach to auto-labelling the collection of data, detection of edge-cases, and the “massive benefits” of owning the entire pipeline. Tesla’s approach to autonomy is a highly complex, multi-modal system, but Kilcher’s video lays down the fundamentals for non-AI experts who are curious about the autonomous architecture behind Tesla’s FSD approach.
“Tesla is pushing the state-of-the-art in full self-driving, and interestingly, they explicitly switch from having multiple different sensors to a vision-only system. We discuss the highlights of Andrej Karpathy’s talk about Tesla’s FSD system, how to label petabytes of data, how to sample edge-cases, how to train a neural network that has to work in real-time, and why moving to having only cameras is superior to multi-sensor approaches.”
“Companies that provided surety bonds, often required by regulators for offshore operations to insure cleanup costs and other expenses, argued they could bear the brunt of the costs. Liberty Mutual Insurance Co., Hanover Insurance Group Inc., Travelers Cos. Inc. and XL Specialty Insurance Co. warned in court papers that approving Fieldwood’s plan could have a chilling effect on oil-and-gas insurance. ‘There is a high likelihood that sureties will exit the market altogether,’ the lawyers for the insurers said in court papers. ‘This would lead to a crumbling of the oil-and-gas industry, as bonds are required to operate.'”
“Humanity’s acquaintance with caffeine is surprisingly recent. But it is hardly an exaggeration to say that this molecule remade the world. The changes wrought by coffee and tea occurred at a fundamental level – the level of the human mind. Coffee and tea ushered in a shift in the mental weather, sharpening minds that had been fogged by alcohol, freeing people from the natural rhythms of the body and the sun, thus making possible whole new kinds of work and, arguably, new kinds of thought, too.”
“But start-ups in every sector of the space industry — including launch and satellite communications, human life support, supply chains and energy — have investors’ attention. Astranis, a satellite internet company, closed a $280 million deal in April. Axiom Space, which aims to build the first commercial space station, raised $130 million in February. ‘I’ve never seen a market like this, ever,’ said Gabe Dominocielo, a co-founder of Umbra, a start-up that develops satellites designed to take pictures regardless of weather or light conditions. ‘Since last year, the amount of phone calls I’ve received — as a start-up, typically, the start-up is typically making a phone call to an investor. Now it’s completely the reverse.'”
“One thing I know is that if you want to do great things, you’ll have to work very hard. I wasn’t sure of that as a kid. Schoolwork varied in difficulty; one didn’t always have to work super hard to do well. And some of the things famous adults did, they seemed to do almost effortlessly. Was there, perhaps, some way to evade hard work through sheer brilliance? Now I know the answer to that question. There isn’t. The reason some subjects seemed easy was that my school had low standards. And the reason famous adults seemed to do things effortlessly was years of practice; they made it look easy.”
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