May 1, 2010

Good Bubble, Bad Bubble

In the future, historians will stop using the word “bubble,” because it refers to two opposite phenomena:

• In an equity bubble, investors have limitless optimism about the future. They expect many of the companies they invest in to fail, but believe that the 95th- or 99th-percentile performers will more than make up for this.

• In a credit bubble, investors have limitless faith in the status quo. They expect volatility to decrease, and they believe they can estimate returns with increasing accuracy. If they want higher returns, they know they can use leverage—but for the most part, investors celebrate the middle of the bell curve, and expect the tails to cancel each other out.
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April 5, 2010

The Economics of Advertising: Why Advertising Agencies Used to Be the Best Business in the World (And Why They Never Will Be Again)

There’s only one notably successful business personality who made his money in the ad agency business. He’s an accountant, and that should tell you something. The ad business is simply not a great place for making money.

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April 4, 2010

Beliefs, Not Companies, are “Too Big to Fail”

What makes a company “too big to fail”? The traditional answer is “size”: if a company as big as Bear Stearns or AIG suddenly needs to liquidate, the market will miss their unique role in clearing transactions or making a market. Then, as they dump their extra-special assets, it will cause widespread panic and needless disruption.

I believe that this is entirely wrong. A company becomes too big to fail when it’s a leveraged bet on a universally agreed-upon belief that happens to be false. Read the rest of this entry »

September 23, 2009

A Better Stimulus Plan: Drug Dollar Amnesty

Now that Fortune, Time, NPR, and New York Magazine are all talking up marijuana, it’s time to answer the eternal question: why are illegal drugs recession-proof? The answer isn’t just physiology (since marijuana is not physically addictive, any argument about inelastic demand is going to have to hold true for, say, Starbucks or Hagen-Dasz).

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August 25, 2009

Why SEO and Not…

Advertising is a competitive business. Budgets are tight, and still tightening. When I persuade someone to use search engine optimization as a strategy, I have to persuade them to use SEO instead of:

  • Pay per click advertising.
  • Banner ads.
  • Social media marketing.
  • Traditional Media
  • PR
  • Cash under a mattress
  • Shotguns next to the canned goods under a mattress that doubles as an all-weather escape raft / emergency shelter.

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