Capitalogix

How Warren Buffet Got His Start

Warren Buffett is a legend for many reasons. Foremost among them might be that he's one of the few investors who clearly has an edge ... and has for a long time. From 1976 to 2017 his Sharpe ratio (excess return relative to risk) was approximately double the overall market. Berkshire Hathaway now has over $700 billion in assets – and is still performing well. 

While many people consider Buffett to be an investor,  I also consider him to be an entrepreneur.

At the age of six, he started selling gum door to door. Obviously, selling gum wasn't the key to his path to riches.  So, how did he make his first million?  Here's a video that explains it.

 

via Coolnimation

For context, he made his first million at age 30, which was in 1960. For context, a million dollars in 1960 would be worth about $8.5 million today.

Buffet has always been honest about his bread-and-butter "trick" ...  he buys quality companies at a discount and holds on to them.

It is fascinating to recognize how much the world has changed – and yet how much it stayed the same.

For extra viewing: Warren Buffett, Charlie Munger, and Bill Gates recently did a full 2-hour interview with CNBC. You can watch it here.

Here Are Some Links For Your Weekly Reading - April 12th, 2019

Here are some of the posts that caught my eye recently. Hope you find something interesting.

Lighter Links:

• Here's How Google Knows in Less Than 5 Minutes If Someone Is a Great Leader. (Inc)
• What Amazon Knows About You. (Axios)
• Julio Iglesias Has an Absolutely Massive Net Worth and Owns an Airport.(CNW)
• Scientist: Alien Life Now Seems Inevitable and Possibly Imminent. (Futurism)
• This Trick Helped 96% of WWII US Military Pilots Learn to Fall Asleep within 2 Minutes, Even After Drinking Coffee. (BusinessInsider)

 

Trading Links:

• One Out of Every 11,600 People in San Francisco is a Billionaire. (Vox)
• Here's Who Stands to Get Rich from Uber's IPO. (ComplianceX)
• Vegan-Friendly, Celeb-Backed Beyond Meat Has 2019'S Best U.S. IPO. (Time)
• If You Invested $1,000 in Apple in 2009, Here's How Much You'd Have Now. (CNBC)
• Man Credited With Calling the 2008 Crisis Says the Next 20 Years in the Stock Market Will Break a Lot of Hearts'. (MarketWatch)

Microsoft: Are They Where They Thought They'd Be in 2019?

 In 2009, Microsoft released a video anticipating the world in 2019. That was only 10 years ago. 

I recently showed you how much Social Media has changed in 10 years - so how close was Microsoft's guess?

Watch this video to find out: 

 

 

The answer is .... not as close as I would have thought.  Nonetheless, they just hit a Trillion Dollar market cap.  So, they must have gotten something right! 

It's interesting to think about which factors or missing innovations caused the difference between their imagined vision and reality.

They really bought into scaleable, HD, transparent, touch screen displays being not only available, but located in everything by now ... which suffice to say, isn't the case. 

The reality is ...

• A lot of these innovations actually have little use - Not every situation needs a transparent monitor - they're worse than standard monitors in almost every way. You end up using absurdly expensive screens to display a digital version of a post it note or handwriting. The desk/monitor hybrid would be covered in sheets of paper, office supplies, and your coffee. A boarding pass being a screen is highly inefficient for so many reasons - and so is a digital newspaper. We have those - they're called phones.  
• They assumed batteries would be way farther along - The thinner your monitor, the more transparent, the harder it is to create a high-performance high-fidelity battery to maintain it. Unfortunately, batteries haven't had nearly the boom like the rest of our tech (though they are getting better). 
• IoT Adoption/Security - One of the biggest problems with IoT is that the more these pieces communicate the harder it is to prevent hacks. A chain is only as strong as the weakest link - and a smart coffee maker isn't nearly secure as your computer. 
• Fingerprints (Glass) - I get this isn't a "real" concern - but every piece of technology they showed was transparent/glass. On top of being very breakable (see Samsungs new foldable phones) Could you imagine how smudged/dirty everywhere would appear? Imagine a New York subway with this technology.
• Expense v. Convenience - A lot of technologies are feasible - but aren't cost-effective. Look at the slow adoption of Solar cells as their efficiency per cost went up.

Making everything a device/screen means more opportunity for companies to serve you ads and retarget you ad infinitum. 

Ultimately, I find this perceived "modern digital office environment" very inefficient. A lot of these "innovations" are less dynamic and easy to use than their analog counterparts. Mechanical keyboards serve a purpose. 

In reality, a lot of the trends we've adopted to increase collaboration and sharing have been counterproductive. Not every office needs an open floor plan - not every team needs 15 subteams with 4 bosses - and using 20 different productivity tools actually decreases productivity. 

That being said, we've come a long way in 10 years. Think about the quality of your phone in 2009 or your desktop computer - whirring loudly as it tried to access the disk, or the internet, or anything really. 

What we have now isn't perfect - but it's leaps and bounds ahead of where we were. A lot of technology seems like science fiction - like the Babel fish from Hitchhikers Guide to the Galaxy.

Here Are Some Links For Your Weekly Reading - May 5th, 2019

 

Here are some of the posts that caught my eye recently. Hope you find something interesting.

Lighter Links:

• These are Amazon's 38 Rules for Success. (FastCompany)
• Amazon Used an AI to Automatically Fire Low-Productivity Workers. (Futurism)
• Cornell Scientists Create Living' Machines that Eat, Grow, and Evolve. (TheNextWeb)
• Drinking Tequila Could Help You Lose Weight. (Elle)
• Is It True that It's More Painful to Come Second Rather Than Third? New Insights from the 2016 Olympics. (Digest)

 

Trading Links:

• Making Sense of the Market in the Age of Algorithmic Trading. (Barrons)
• The next Gig Economy Will Be On-demand Knowledge.(WEForum)
• Central Banks Extraordinary Policies: What Could Go Wrong.(SeeItMarket)
• Super Rich Ditching Jet Ownership for a Portfolio of Aviation Options. (Bloomberg)
• If You Invested $1,000 in Microsoft in 2009, Here's How Much You'd Have Now. (CNBC)

 

 

Culture Eats Strategy For Breakfast: A Letter From Our COO

Culture is the character and personality of your organization. It's what makes your business unique and is the sum of its values, traditions, beliefs, interactions, behaviors, and attitudes.  - ERC website

Recently, one of the initial investors in Capitalogix became our chief operating officer. He's a man I respect a lot - and who has been a good friend since 2003. His name is Drew Blanchard. He spent 30 years at Accenture and rose into their lofty leadership ranks. 

As you might guess, he learned a few things.  Here are some of his thoughts about culture.

RE: Transforming Culture

There are thousands of articles on culture. Most of the themes are similar and I believe many of them can be and are very effective. Linked below are a few articles that I find valuable and their common themes:

Links:

• Stanford Social Innovation Review: 7 Articles to Improve Your Workplace Culture

• Deloitte Insights: From employee experience to human experience: Putting meaning back into work

• Grin.com: Importance of Vision, Mission, and Values in Strategic Direction

• Barret Values Centre: Why Values Are Important

• Barret Values Centre: Transforming Culture in Larger Organisations: Key learnings, exercises and case studies

• Stanford Social Innovation Review: When Organizational Change Fails

Themes:

• Culture always wins.
• Culture eats strategy for breakfast.
• Culture is a set of demonstrated beliefs and behaviors manifesting as attitudes and actions that determine customer satisfaction, and ultimately profitability. 
• Culture takes time to develop and must be reinforced to become the very fabric of a company.
• The best organizations in the world are fueled by their culture. It is who they are, not what they do.
• The most profitable companies put their employees and customers first, resulting in superior profits. HIGHLY ENGAGED EMPLOYEE + HIGHLY SATISFIED CUSTOMER = HIGH REWARD SHAREHOLDERS

There are entire teams within some of the largest consulting houses in the world specifically created to help organizations transform their cultures with the intent of increasing company performance at all levels and result in a sustainable competitive advantage.

I believe mastering the following steps will give you the biggest bang for your buck and the fastest return on investing in a winning culture.

 

1. Have a compelling mission, vision and strategy that capture the employees' mind, heart and soul that they can make personal and inclusive is at the very core of what makes a great culture – “I matter and what I do is both important and appreciated by both my company and my customers/clients.” Make sure they understand where they fit into the greater plan
2. Define the core values that make the strategy real and set the minimum standards for what is acceptable at the company as THE MUST HAVE WAY OF BEING.
3. Combine the previous two steps with daily action so culture becomes a part of their everyday realities.

 

Culture is the result of who you are as a company, fueled by the vision and mission of the company as it relates to the employees, the customers, and then the shareholders.

So, why listen to a guy like me? What experience do I have that might be relevant? How could I help, and would it matter? All this really depends on you and your management team’s level of desire to create a high-performance culture at the core of your company with the passion and accountability to accept nothing less!  

 

My Past

 

I spent 30 years working for a company that posted double-digit growth annually, from $10M to $35B in that timeframe. There were two halves of the business model – short term, higher margin work of about 90 days on average and long-term annuity work of 24 months or more with lower, more predictable margins.

Here’s an Accenture Timeline for context.

In the early part of the company’s development, our Mission was, “Helping our client change to be more successful!” Early on, our core values focused on the behaviors of the employees. The expected turnover was high due to perform or leave. The core values were: Integrity, Stewardship, Think Straight, Talk Straight, and Exceed Client Expectations. When we reached $10B we asked ourselves, what would have to happen to double in size and capture market share while maintaining what is already working? The answer was to upgrade the mission and values, focus on results over capabilities, and change the dynamic of performance standards from an individual deliverable to a team deliverable … the new Mission statement? “High Performance. Delivered.”

“High Performance. Delivered.”

Note the simplicity and the standard in three words. The first is High Performance with a period making it a complete standard. The second is linked to the results in that they are Delivered with a period as an expectation and no exceptions.

The values were upgraded to: Best People, Best Clients, Stewardship, Integrity, Teamwork and Innovation. Note that the shareholders are not even mentioned.

We invested in management training as we took on a new workforce – the middle market, not the gifted and driven as in the prior model. It was now up or out. In this Grow or Go model we wanted our best talent to expand and run our long-term business in a role that may last a decade. Our intent was to never leave a client or have a client want to leave us.

This was made possible by two absolute requirements – the first was leadership; putting people first over leaders’ bonuses, and at times taking lower pay to serve clients and grow the business. The second was living the values through how we worked, lived and served clients. No exceptions. If you gave lip service to the mission and/or values as a leader you were asked to leave and as an employee, if you violated our mission and/or values, you were terminated.

Each Managing Director was required to have a leadership presentation on their personal form of living the mission and values. They also had to share it with developing leaders. 

 

My Present and Future

 

Howard has done an exceptional job of placing culture at the center of Capitalogix as an engine for innovation and sustainable growth. Our mission statement? “Create Wealth That Matters”

It is again, impressive in its simplicity.  It implies that we’re not selfish in our endeavor for our own wealth. It means we want to do good by our employees, our shareholders, investors, and our community. It means we want to be a good corporate citizen and a lasting company.

Capitalogix values are also paramount in our day to business, and even play a role in the hiring process.  It does not matter how gifted a person is, if they do not embody our beliefs, the organization will eventually suffer. We live our values day in and day out. We hire by them, we fire by them, and they’re a part of our employees’ identity as Capitalogix family members. 

Core Values

Find A Way: There is always a best next step; it’s our mission to find it. An answer is not the answer.

Create Breakthroughs: “10x better” is often easier to achieve than “10% better.” It’s about seeing things differently, then making it a reality.

See The Bigger Picture: Scale matters and edges compound, so we always focus on how today’s work fits into tomorrow’s vision.

Raise The Standard: How you do one thing is how you do everything. We strive to continuously improve ourselves professionally and personally. We’re comfortable being uncomfortable.

Learn And Grow: Standing still is moving backward. We pride ourselves on self-evaluation and self-education so that we are better than we were yesterday.

Our business may be unique, but the success equation remains the same: 

HIGHLY ENGAGED EMPLOYEE + HIGHLY SATISFIED CUSTOMER = HIGH REWARD FOR SHAREHOLDERS

 

Here’s what I want you to think about:

• Does your mission espouse a calling greater than your own day-to-day activities?
• Do your core values create the standard of performance that every employee would be proud of and hold others to deliver on with them?
• Do you actively find ways to connect your employees to each other, and to a shared vision?
• Is the company’s leadership visibly passionate about continuously transforming the company, and are they good examples of your mission/vision/values that they would be inspired to follow?

A company’s mission, vision and core values when focused on the employee in a way that gives them purpose, pride and inspiration are unstoppable when it becomes the very fabric of the company the way leadership lives the brand promise.

Always my best,

Drew

Gartner's 2018 Hype Cycle for Emerging Technologies

With all the "fake news" and manufactured social buzz, it's hard to identify what technologies are reaching maturity and which ones are fads. Gartner's Hype Cycle attempts to solve that problem. 

What's a "Hype Cycle"?

As technology advances, it is human nature to get excited about the possibilities and to get disappointed when those expectations aren't met. 

At its core, the Hype Cycle tells us where in the product's timeline we are, and how long it will take the technology to hit maturity. It tells us which will survive the hype have the potential to become a part of our daily life. 

Gartner's Hype Cycle Report is a considered analysis of market excitement, maturity, and the benefit of various technologies.  It aggregates data and distills more than 2,000 technologies into a succinct, contextually understandable, snapshot of where various emerging technologies sit on the hype cycle.

Here are the five regions of Gartner's Hype Cycle framework:

1. Innovation Trigger (potential technology breakthrough kicks off),
2. Peak of Inflated Expectations (Success stories through early publicity),
3. Trough of Disillusionment (waning interest),
4. Slope of Enlightenment (2nd & 3rd generation products appear), and
5. Plateau of Productivity (Mainstream adoption starts). 

 

Understanding this hype cycle framework enables you to ask important questions like "How will these technologies impact my business?" and  "Which technologies can I trust to stay relevant in 5 years?"

What's exciting this year? 

Currently, people are probably "too" excited about IoT platforms, Deep Learning, and Virtual Assistants. The idea isn't they won't stand the test of the time, but there's an artificial influx of people inflating the adoption numbers. Once the chaff is separated from the wheat - you can expect these to succeed. Autonomous driving, connected homes, and mixed reality have matured past the hype phase. 

For comparison, here's my article from last year, and here's my article from 2015. Click the chart below to see a larger version of this year's Hype Cycle.

via Gartner

This year, Gartner organized the 17 highlighted technologies into 5 encompassing trends:

 

• Democratized AI (autonomous driving, conversational AI, deep neural nets, etc.) is one of the most disruptive classes of technology. It's becoming more readily available due to open source and cloud computing. There's a burgeoning field of "makers" inspired to push the boundaries of what's possible.  
• Digitalized Ecosystems ( blockchain, IoT) support emerging technologies by being the foundations for dynamic systems. There's a shift from discrete infrastructure systems to comprehensive ecosystems. Think of blockchains potential impact on tracking and communication.  
• Do-It-Yourself Biohacking (biotech, biochips, exoskeletons, AR) is something I've talked about before. Dave Asprey is a public face of this movement and we shot a video together last year. The future is bringing implants to extend humans past their perceived limits and increase our understanding of our bodies; biochips with the potential to detect diseases, synthetic muscles, and neural implants. 
• Transparently Immersive Experiences (connected home, smart dust, volumetric displays) represent the blending of where human stops, work starts, and things exist. Imagine a theoretical smart workspace where electronic whiteboards capture all your notes and disseminate them, sensors let you know where people are and what they're working on, and everything in your office interacts directly with your IT platform. This creates much more contextual and personalized experiences.  
• Ubiquitous Infrastructure (5G, carbon nanotubes, quantum computing) means that infrastructure is becoming a less competitive advantage. As infrastructure becomes cheaper, more ubiquitous, and faster, it becomes background noise.  

 

Looking at the overarching trends of this year, it's also fun to look at what technologies are just starting their hype cycle. 

• Artificial Tissue (Biotech) could be used to repair or replace portions of, or whole, tissues (cartilage, skin, muscle, etc.)
• Flying Autonomous Vehicles can be used as taxis, but also as transports for other things such as medical supplies, food delivery, etc. Amazon and Uber are likely excited about this development - and expect it in the next couple of years. 
• Smart Dust opens up the possibility of monitoring essentially everything by creating a vast network of minuscule sensors that can detect various inputs. 
• Artificial General Intelligence
• 4D Printing would theoretically allow us to print objects that reshape or self-assemble over time. 

 

Which technologies do you think will survive the hype?

Social Media Is Changing Everything: A Reprisal

I came across a post from 2009 about social media. 10 years later, with the knowledge of how much data we use today, it's quite a read.

Here it is in its full glory. 

Social Media Is Changing Everything: October 18th, 2009

My son won't use e-mail the way I did. So how will people communicate and collaborate in the next wave of communications?

Here is a peek into the difference that is taking hold.  I was looking at recent phone use.  The numbers you are about to see are from the first 20 days of our current billing cycle.

• • My wife, Jennifer, has used 21 text messages and 38 MB of data.
  • I have used 120 text messages and 29 MB of data.
  • My son, at college, used 420 text messages, and is on a WiFi campus so doesn't use 3G data.
  • My son, in high school, used 5,798 text messages and 472 MB of data.

How can that be?  That level of emotional sluttiness makes porn seem downright wholesome. 

But, of course, that isn't how he sees it.  He is holding many conversations at once.  Some are social; some are about the logistics of who, what, when, where and why ... some are even about homework.  Yet, most don't use full sentences, let alone paragraphs.  There is near instant gratification.  And, the next generation of business people will consider this normal.

Is social media a fad? Or is it the biggest shift since the Industrial Revolution?

Welcome to the World of Socialnomics.  This video has a bunch of interesting statistics ... and is fun to watch. 

 

 

Other Resources:

• • Here is a link to a short-version of this video.
  • This reminds me of the "Shift Happens!" video.
  • Worth Looking At ... Here are the Stats.

Social Media Is Changing Everything: April 20th, 2019 

Looking at the stats from 2009 is pretty funny

• My son was using 472 MB of data a month
• Hulu had grown from to 373 million total streams in April 2009
• Only 25% of Americans in the past month said they watched a short video on their phone

For some context, I looked up the comparative numbers for 2018. 

• I picked a random month in 2018 ... in August my son used 10.85 GB of data. He doesn't text as often - but has sent/received 282,000 snapchats since downloading it 5 years ago.
• Hulu has over 20 million subscribers who streamed more than 26 million hours a day in 2018 
• People spend over five hours a day on their smartphones on average. 70% of web traffic happens on a mobile device, and more than 50% of videos are watched on mobile (93% of twitter videos). 

Here's what happens every minute of every day on the internet

via Lori Lewis and Chadd Callahan

 

A little different than 2009 ...

Reinventing Hedge Funds

Two months ago, I spoke at IBM's Think 2019 Conference with iOLAP's Chris Jordan. Our talk was Gaining a Financial Edge through Fast Data and Analytics.

 

 

The crux of our presentation was that high-performance computing and advanced technology stacks are fundamental to today's trading strategies.

Earlier this week, IBM released a commercial we shot together about how IBM's Integrated Analytics System (IAS) is helping us re-invent hedge funds.  Check it out.

 

 

via IBM Analytics

Think of it this way: 

Each generation of traders finds new ways to play the game and to generate Alpha (the excess return generated by manager skill, rather than luck or excess risk). As soon as enough people adopt a strategy (or figure out a way to combat it), the edge begins to decay.

When computerized data became available, simply understanding how to download and use it generated Alpha. The same could be said for each later evolution: the adoption of complex algorithms, access to massive amounts of clean data, and the adoption of AI strategies.

Each time a new shift happens, traders pivot or fail – it's not that active trading stopped working – it's that the tools and styles necessary to play that game evolved.

We use a similar concept we call "Active Switching".  Instead of simply trying to pick stocks or markets, we use advanced technology and techniques to choose markets, techniques, risk levels, and allocation strategies. Further, we use Active Switching to make many decisions, great and small, that together allow us to build portfolios that adjust themselves to changing market conditions.

 

Playing a New Game

 

Confusion is the catalyst to most trades.  What that means is the ability to parse information ... to create a contextual map of meaning and figure out where there's signal and noise ... is the new table stakes for playing that game.   ~ Howard Getson

 

Historically, most active traders don't beat the S&P in any given year ... and even less beat it with any semblance of consistency.  But those that do – the ones that have been doing it for long enough that it's not chance ... exercise a willingness (and a skill) to adapt quickly. 

One of Charles Darwin's best-known concepts is: It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.

While computers have made information accessible to everyone, they've also created a massive asymmetric information advantage for those who have both the access and the skill to best use the massive amounts of data now available.  This is more complicated than it seems.  You need the information, the technology, the process, and the people.  There is so much data available now that figuring out what to ignore is probably more important than what to use.  Likewise, the ability to ingest, clean, validate and curate the data is a huge hurdle that most can't clear.

 

 

Even with those skills, it's harder than ever to take advantage of inefficiencies (edges) than ever before.  The edges are smaller, more fleeting, and surrounded by more volatility and noise.  It's like finding a needle in a haystack.  That being said - finding a needle in a haystack is easy when you have a metal detector. 

That's where A.I. has come in for us. We use A.I. to develop algorithms, to analyze markets, and to create meaning where humans can't find any. 

 

 

We live in exciting times.  Onwards!

Here Are Some Links For Your Weekly Reading - April 21st, 2019

Here are some of the posts that caught my eye recently. Hope you find something interesting.

Lighter Links:

• What are the Most Promising Uses for Blockchain We Haven't Seen Yet? (Forbes)
• Sperm and Sensibility: The Modern World of Designer Children. (TLS)
• Thousands of Amazon Workers are Listening in on Echo Audio, Report Says. (AppleInsider)
• Strength Training for the Lungs: Why Heavy Breathing Could Be a Shortcut to Improving Your Health. (Telegraph)
• Forecasting the Future: Can the Hive Mind Let Us Predict the Future? (Futurism)

 

Trading Links:

• NVIDIA AI Research Points to an Evolution of the Chip Business. (ZDNet)
• Philip Morris International is Sticking with E-Cigs, Not Marijuana. (Fool)
• This Simple Map Shows the Biggest Employers in Each State. (Good)
• Lyft's I.P.O. is Making the Same Circle of Men Rich, Again. (New York Times)
• The Future of Electric Cars is Happening Now in China. (Quartz)

 

 

Don't Miss The Forest For The Trees: Change Blindness

There are few certainties in life ... according to Benjamin Franklin:

"Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes."

According to the ancient Greek philosopher Heraclitus: 

"Change is the only constant in life" 

He's also quoted as saying "everything changes and nothing stands still."

Maybe he didn't pay his taxes. 

Change is a constant, yet, it's often hard to see the forest for the trees. 

It seems like just yesterday that my son, Zach, was making sand castles on the beach – or wearing silly t-shirts. Now, he's 26, the soft spot on his head has filled in enough to consider him an adult – and he is generally unrecognizable from that kid on the beach at the Jersey Shore. 

 

On a day-by-day basis, I rarely noticed the change. However, looking at old pictures makes it obvious that there was massive growth and progress. 

So, what did I notice?  Sometimes it was what a great kid, or how loving, he had been.  Other times, it was almost the opposite.  Or, perhaps, I noticed that he didn't eat vegetables, or that he drove with a heavy foot.  In any case, what I focused on is what my life seemed filled with, to me. And it was mostly about the moment.  The bigger picture was lost (or hidden) behind the small things that make up the fabric of our life (or at least our perception of our life).

It is human nature.  Survival of the fittest rewarded a focus on avoiding predators or other dangers ... as well as recognizing the opportunity to eat. 

Thousands of years later, fear and greed still drive more than we like to admit.  It is also a big part of the engine that drives our markets. 

It is all about perspective, isn't it? 

We are where we are. It doesn't really matter how or why we got there. We are here. And little-by-little we won't be here anymore.

If you are looking at the country or the economy, realize that it took years to get here. Simply changing a regime won't flip a switch.  Some changes happen in slow-motion. 

Or, perhaps from our perspective, some changes appear to happen in slow-motion ... but what others see as change, you see as symptoms of the root cause. 

From different vantage points, the rate of change can seem different.

 

The same can be said for changes in a person or changes in a business. It's easy to see the gap between where you are and where you'd like to be. Regardless, you will probably get there faster by building momentum and confidence by focusing on the improvements and progress you're making. If you change your perspective - you may realize you've made more progress than you thought. 

Tough times are great opportunities to discover character.  I'm often amazed at the innovation and insight that occurs at times like these!

Don't pay so much attention to what you think you have to do that you forget the reason you're doing it in the first place.