05.31.15

Book Review: Before the Industrial Revolution

It’s a pretty strange historical coincidence that medieval Europe was a fairly backwards place (and England especially so), but that Europe led global economic growth from about 1750-1913 (and England especially so). That’s a giant transition, and Carlo Cipolla’s Before the Industrial Revolution explains this—as, oddly enough, a combination of good luck and the obscure upside of bad luck. Read the rest of this entry »

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05.24.15

Go Read Seveneves

I recommend reading Neal Stephenson’s new novel, Seveneves. Moreover, I recommend doing it right now.

Science Fiction, broadly defined, means thinking hard about reality, tweaking a few variables, then running it in fast-forward to see if anything interest happens. Defined that way, it’s not merely influenced by current tech trends—startup pitches and internal strategy emails in fact are a sub-genre of applied science fiction. As long as software is eating the world, the easiest science fiction to write is all about the implications of newer and cooler software. It’s easy to just assume that hardware will keep advancing, too. That assumption used to be merely simplifying, but now it’s been explored thoroughly, so it’s boring, too.

Seveneves is not boring.

Read the rest of this entry »

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05.2.15

Why Are Middlebrow Dismissals So Tempting?

A “Middlebrow dismissal” is a Hacker News-ism that refers to a response to an idea that’s both a) popular, and b) uninformative. You’d think these would be rare, but they are incredibly common. Below, a couple objections you can write down for use the next time someone tells you about something new and cool:

  • This is a feature, not a product.
  • Google/Facebook/Amazon could easily do this.
  • It’s not scalable. It won’t catch on. (These go on the same line because anything that is scalable and hasn’t caught on yet might be something that will never catch on, and anything that is catching on is not scalable in its current form.)
  • They’ll never justify that valuation. Their business model must be terrible if that’s all they’re worth. (Another good matched set.)
  • That’s not secure.

Read the rest of this entry »

04.23.15

Moving the Valuable Bits

Two startup founders, Bill and Henry, notice that they’re each in a pretty similar line of business, and that they get along too well to remain competitors. They’re in a new and cutting-edge field—why compete with each other when they can build something together? So they merge, and raise some funding while they’re at it. Read the rest of this entry »

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04.13.15

Discussing Politics is a Vice—I’m Trying to Quit

I have decided to take a hiatus from arguing about news and politics on the Internet. My plan is to take six months off, then reassess. I’m mostly doing this so I have more time for work. But also because arguing about the news and politics is a colossal waste of time. It’s fun, of course, and probably a better intellectual exercise than watching TV or something, but it’s a time sink and not a great way to make progress.

Political questions get resolved by technology more often than they get resolved by debates (and anything that seems to be eternally worth debating is probably impossible to figure out). So, I consider debating politics, and holding political views, a vice worth avoiding.

I’m not abandoning you, though! Below, a quick summary of the couple mental models that carry 90%+ of my politically argumentative mental freight. Read the rest of this entry »

02.19.15

The High-Information Jerk

It prevails upon you to forswear censoring others but not yourself. One test of tolerance is provocation. When you sit down to dinner with your disagreeable relations, or comrades who bask in their rectitude and compassion, you have a civic duty to annoy them.”

- Wendy Kaminer, A Civic Duty to Annoy

“Trolling is a art.”

-Anonymous

People argue to learn, and people argue to win. You can’t separate the two: when you win, you learn that your views were persuasive. When you lose, you either learn that you’re wrong or learn what counterarguments to address. And either way, arguing combines a personal good (the feeling of being right) with a public good (other people are less wrong, or at least less willing to spread their incorrect views). Read the rest of this entry »

11.12.14

Questioning the Signaling Model of Education

I was an early adopter of the Higher Ed Bubble thesis. Like all early adopters, I’ve gotten skeptical now that it’s popular. I recently attended a talk by Bryan Caplan where he discussed his thesis that higher education is about signaling good qualities, not about attaining them. This explains lots of puzzles in the education market, from “will this be on the final exam?” to choosing English Lit over Computer Science to 40% absentee rate in typical college classrooms. One of the most compelling pieces of evidence for the signaling model: on average, one more year of education predicts 10% higher income for an individual. But it predicts 2% higher GDP for a country. [Citation needed: Caplan mentions it in his talk, but it is surprisingly hard to Google for.]

The trouble with signaling is that it’s too good. Signaling is always a possible explanation for phenomena that are visible but don’t have an obvious cause, but like lots of other powerful explanations (“market price” or “survival of the fittest”) it’s also strong enough to explain counterfactuals. It’s still valid and meaningful, but signaling is not necessarily a comprehensive model. And in this case there’s another model that can explain some of the gains: accumulating lots of knowledge is disproportionately useful in fields where a) winners win big, and b) growth in that field is has an unusually small impact on GDP growth. Read the rest of this entry »

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11.10.14

Snapchat as a Value Investment: A Mild but Timely Tweak to Discounted Cash Flow

Snapchat most recently raised money at a rumored $10bn valuation. All good MBAs know that the current value of a company is the value of all of its future cashflows, discounted back to the present. So all good MBAs consider these VCs completely insane. Or they would, except that implicitly people use two valuation frameworks: either they think of an investment in terms of discounted cash flows, or they think of it as a “strategic” investment. “Strategic,” in practice, means “clearly not the result of anyone’s realistic estimate of Snapchat Inc.’s free cash flow generation circa 2029, but not strictly crazy, either.”

But there is a fairly trivial way to square that circle. A company’s current value is the net present value of all future cash flows it can generate, or the amount of cash flow it can cause a single prospective purchaser to lose, discounted to the present. Read the rest of this entry »

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10.30.14

In Search of Negative Carry

One working definition of a professional investor is: somebody who needs to care about “carry.” The classic carry trade is the mid-90’s best against the Yen (I’m going to borrow from this Mark Dow writeup, because I am a macro tourist—literally, my main macro trade is that I avoid traveling to Europe when the Euro is strong). The Yen bet: the BOJ intended to keep rates low; rates in the US were high. So a smart person could borrow Yen, invest in USD, and pocket the difference. A smart person with risk tolerance could do this several times over, and make a very nice return indeed.

As it turns out, one risk of carry trades in FX is that they are a pretty good deal most of the time, so lots of hedge funds get involved, so when something else blows up, they unwind their carry trades, too. So at any given time: a) the carry trade is earning a positive return from the interest rate differential, b) the trade also has a tailwind from more people making the trade (ie every new “borrow Yen / short USD” transaction, but c) at any given time, there’s a possibility of a sudden and painful reversal.

Fortunately for anyone involved in such a trade, you earn your 2 and 20 on performance at a specific time, not on the expected contours of future performance. So for someone who wants pretty good odds of a pretty good return, a carry trade is a pretty good bet. Read the rest of this entry »

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10.29.14

Chicken-and-Egg Disruption: Misunderstanding YouTube, Uber, and AirBNB

AirBNB offers ubiquitous illegal rentals, says New York’s Attorney General. Uber gets shut down or hobbled in new markets around the world. Viacom’s legal department could have wiped out YouTube for ripping off their content.

At one level, you have to ask why somebody would build a business that’s either always illegal or probably going to be used illegally. If you want to be really contrarian, you could try asking that but not rhetorically. Read the rest of this entry »

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