12/16 - What's Next
|Jordan Gonen||Dec 16, 2019|
Hey there, Happy Monday!
Enjoy the newsletter.
If you enjoy the newsletter, you can Venmo me a tip: @jordangonen or paypal. Really appreciate the support! - Jordan
Articles to Read.
Since 1916, the Dow has made new all-time highs less than 5% of all days, but over that time it’s up 25,568%.
The Dow has compounded at less than 3 basis points a day since 1970. Since then its up more than 3,000%.
Gold and the Dow were both 800 in 1980. Today Gold is $1,300/ounce, the Dow is near 26k.
If you had invested from 1960-1980 and beaten the market by 5% each year, you would have made less money than if you had invested from 1980-2000 and underperformed the market by 5% a year.
There is a difference between an expert, whose talent should always be celebrated, and a guru, whose bad ideas should never be questioned.
With few exceptions we should praise experts but be terrified of gurus.
This problem afflicts tech, where several one-time god-like leaders have been revealed to be something between showmen and fraudsters. Or even the innocent version: normal people susceptible to incentives and the desire to maintain a narrative.
Destruction becomes self-fulfilling. Scott Galloway put it: “I speak from some experience as a CEO in the ‘90s internet days: If you tell a 30-year-old male he’s Jesus Christ, he’s inclined to believe you.” Smart people who know their limits are happy to abandon those limits if enough people tell them to. Then, unshackled, they run off a cliff. Losing competitive paranoia – the idea that you’re nothing special and someone else can take your spot tomorrow – is probably worse than losing intelligence or vision, because the end result is so certain.
What the world overlooks about building consumer products loved by millions, is that it starts with building a toy. Essentially you play with a bunch of lego pieces in search of making something delightful.
Big things start indirectly.
They start by building something VERY small…something almost inconsequential-seeming at the time of inception…something overlooked by most of the world as a toy…something that feels embarrassingly trivial to be working on…yet something that somehow grabs people emotionally: FaceMash, Picaboo, AirBedAndBreakfast, Twttr etc.
Watch this June 2005 day-drinking Mark Zuckerberg pitching his *grand* vision for Facebook.
Photographer: “How ’bout we do the shoot in a hot tub?”
Larry and Sergey: “Sure!”
Never such innocence again.
Larry Page and Sergey Brin spent the first fifteen years of their careers building the greatest information network the world has ever known and the last five trying to escape it. Having made everything visible, they made themselves invisible. Larry has even managed to keep the names of his two kids secret, an act of paternal love that is also, given Google’s mission “to organize the world’s information and make it universally accessible and useful,” an act of corporate treason.
They were prophets, Larry and Sergey. When, in their famous 1998 grad-school paper “The Anatomy of a Large-Scale Hypertextual Web Search Engine,” they introduced Google to the world, they warned that if the search engine were ever to leave the “academic realm” and become a business, it would be corrupted. It would become “a black art” and “be advertising oriented.” That’s exactly what happened — not just to Google but to the internet as a whole. The white-robed wizards of Silicon Valley now ply the black arts of algorithmic witchcraft for power and money. They wanted most of all to be Gandalf, but they became Saruman.
The United States engaged in roughly $608 billion worth of research and development in 2018. That figure includes R&D by all entities in the US, from universities to private and public corporations. During the same year, corporations in the S&P 500 spent $806 billion buying back their own stock. In other words, the 500 largest companies in the US are now spending 33% more on their stock buyback programs than the entire country is investing in R&D. Cumulatively, buybacks have now outpaced R&D investment for the last five years. From 2014 through 2018, total R&D investment in the US was roughly $2.736 trillion whereas S&P 500 buybacks totaled $2.978 trillion.
As we have recently noted, the accelerating pace of stock buybacks has made corporations the largest and only significant net purchaser of stocks for the last five years. Furthermore, S&P 500 dividends and buybacks have exceeded total reported earnings for the S&P 500 over the last five years and even exceeded the total increase in S&P 500 market capitalization.
Governor John Hickenlooper, writing in The Wall Street Journal, repeats a misleading interpretation of one answer to a Federal Reserve poll question that is frequently used to suggest many Americans are in dire financial straits: “Forty percent of Americans in 2017 didn’t have enough savings to cover a $400 medical emergency or car repair, according to the Federal Reserve.”
But that is not the question that was asked, and it certainly is not the answer.
The question was about how people would choose to pay a $400 “emergency expense” — not whether or not they could pay it out of savings (or checking) if they wanted to. Respondents were also free to choose more than one way of paying the extra $400 (“please selects all that apply”), so the answers add up 143% rather than 100%. Even if 100% said they could pay an extra $400 with cash, there could still be more than 40% who would choose a different method.
There are many credible ways to measure economic well-being (such as real after-tax income and/or wealth), but giving a few thousand people a multiple-choice exam about how they might prefer to pay an unexpected $400 expense is not one of them.
Dilbert's "Salary Theorem" states: "Scientists and Engineers can never earn as much as administrators and sales people."
More to Check Out:
- Tuition at the University of California (1970)
- Don’t Learn to Code. Learn to Automate.
- Income Share Agreements
- How the Tech Press Forces a Narrative on Companies it Covers
- Google’s Year in Search
Athena Kan is working on Ladder.
Byrne Hobart writes a great newsletter on “things that don’t mean revert.”
Jordan Singer is a product designer at Cash App.
Jarred Kotzin is an investment banker.
Books I read:
Charles Schwab: How One Company Beat Wall Street and Reinvented the Brokerage Industry
Work has been really productive/interesting/fun lately. Excited.
I am hiring for all kinds of roles. Reach out if you/friends are interested.
Will be in NY over New Years. Let me know if you are around.
How can I make this newsletter better? What parts do you like/don’t like?
If you enjoy the newsletter, you can Venmo me a tip: @jordangonen or on the web here. Really appreciate the support! - Jordan