Business

  • Here Are Some Links For Your Weekly Reading – September 12th, 2020

    243251

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

    Lighter Links:

     

    Trading Links:

  • Innovator Mindsets

    To some, new technology is a good thing.  To others, less is more.

    Most people simply "tolerate" technology transitions, some people drive them, and others crave them and use them as a catalyst for growth or strategic advantage.

    640px-Diffusionofideas
    In the image, above, the blue line represents consumer adoption (taken from Geoffrey Moore's "Crossing the Chasm", while the yellow line represents market share. 

    As you can see, only 2.5% of the population drive innovation (or adopt it early enough to help drive the Alpha & Beta versions of emerging technologies). 13.5% make up the Early adopters, who help get it ready for the mainstream.  Then the early and late majorities are the groups that ultimately consume (or use) the mature product. Meanwhile, Laggards are often forced kicking and screaming into “new” technologies as the early adopters are well on their way to subsequent iterations. 

    Even if you are not an innovator, here are a few Innovator Mindsets that I find useful. 

    1. You Believe There’s A Better Way
      • Wherever you are, you know that there is a best next step and you are eager to find it and take it.
      • You recognize that the opportunity for more (or better) often lies just beyond the constraints or problems of the current way.
      • The bigger future fuels your efforts. When initial excitement fades, understanding what the bigger future can bring helps you power through.
    2. You Are Comfortable Being Uncomfortable
      • You understand that Pioneers sometimes take arrows in the back.
      • When creating a new reality, you expect some resistance as a result of the law of averages. Escaping the status quo takes a lot of momentum, but it’s worth it. 
      • You recognize when victory is near.  In a quirk of human nature, too many people quit just before they would have won. Don’t make that mistake.
    3. You Know Where You're Going, Even If You Are Not Sure How You're Going To Get There
      • Your goal should be your North Star. A clear direction is important to ensure that activity leads to progress.
      • Measure progress and momentum rather than the distance from your goal.
      • It is easier to course-correct while in motion.
      • If you’re too committed to a path that isn’t leading in the right direction, you might find what Blockbuster, RadioShack, and Kodak found.
    4. You Are Married To Questions (Not Necessarily Answers)
      • Everything works until it doesn’t; and nothing works forever.
      • It’s easy to find an answer and think it’s the right one, but there’s always a best next step or a better way.
      • Figure out what you want and how to get it. This is much more empowering than focusing on what you don’t want or why you can’t get it.
      • Ask questions that focus on opportunities or possibilities rather than challenges or what you want to avoid.
      • Energy flows where focus goes.
      • Commit to finding a way!

    I plan on sharing more Innovator Mindsets.  Let me know what you think.

  • Feast on This: The Big Mac Index

    In the past, I've shared various "indicators" for markets that just don't make sense — like the Superbowl Indicator. The lesson to learn from those indicators is that we crave order, and look for signs that make markets seem a little bit more predictable even where there are none. 

    Wall Street is, unfortunately, inundated with theories that attempt to predict the performance of the stock market and the economy. More people than you would hope, or guess,  attempt to forecast the market based on gut, ancient wisdom, and prayers.

    While hope and prayer are good things … they aren’t good trading strategies.

    Today, I want to talk about a still "out there" index, but one that's a bit more practical from an economics standpoint (remember economics ≠ markets). I don't believe it should influence trading decisions, but I do believe it can teach you something about the practical realities of economies. 

    The Economist's Big Mac index seeks to make exchange-rate theory more digestible.  They say it is arguably the world's most accurate financial indicator (based on a fast-food item).

    The Big Mac index is based on the theory of purchasing-power parity (PPP), according to which exchange rates should adjust to equalize the price of a basket of goods and services around the world. For them, the basket is a burger … a McDonald’s Big Mac. The difference the disparity in price between Big Macs, and the actual exchange rate lets you know whether the currency is over or undervalued. 

    According to this measure (as of July 15th, 2020), the most overvalued currency is the Swiss Franc at 20.9% above it's PPP rate. In Switzerland a Big Mac costs 6.50 francs. In the U.S. a Big Mac costs $5.71. The implied exchange rate is 1.14, and the actual exchange rate is 0.94 — thus 20.9% overvalued. For contrast, South Africa Rands are the most undervalued (67%) with a Big Mac costing 31 rand and an actual exchange rate of 16.67. 

    Click the image below to see the interactive graphic.

    Screen Shot 2020-09-06 at 11.19.19 AM2via The Economist

    The index is supposed to be a guide to the direction in which currencies should, in theory, head in the long run. It is only a rough guide, because its price reflects non-tradable elements ­such as rent and labor. For that reason, it is probably least rough when comparing countries at roughly the same stage of development.

    It is not meant to be the most precise gauge, but it works as a global standard because Big Macs are global and it's lighthearted enough to be a good introduction for college students learning more about economics. 

    You can read more about the Big Mac index here or read the methodology behind the index here.

  • I Can’t Believe It’s Not Steak! (Yes, I Can)

    Last week we talked about emerging technologies … not mentioned were emerging technologies in the meat space. 

    Most of us have seen the meat alternatives grow in popularity with vegan sausages, hamburgers & more. In fact, the meat substitute industry is valued at around $5 Billion, and is expected to grow to 8.1 billion by 2026.

    I've tried an impossible burger, and while it's certainly not as good as a hamburger yet – it's better than I expected. 

    The most recent innovation is 3d-printed meat. Yes, you can print steak. Now, 3D bioprinting is still very early in its lifecycle and is primarily being used for medical purposes. Theoretically, down the line, it could be used to create meat that didn't come from a true living animal. 

    Today, however, an Israeli start-up is printing plant-based steaks that supposedly match the taste and texture of steak better than alternatives. 

    5f50f7be7ed0ee001e25d397via Reuters

    Supposedly, 3D printing allows you to better capture the muscle, blood, and fat that characterizes real meat. 

    These steaks are expected to be available at high-end European restaurants before the end of the year … Would you try one?

    Perhaps the most important question, if you could eat a steak that didn't come from a cow, but you couldn't taste the difference, would you be willing to switch?

    At some point, I think it is likely for practical sustainability issues.

    We live in interesting times!

  • Gartner’s 2020 Hype Cycle For Emerging Technologies

    Each year, I share an article about Gartner's Hype Cycle for Emerging Technologies. It's one of the few reports that I make sure to track every year. It does a good job of explaining what technologies are reaching maturity, but which technologies are being supported by the cultural zeitgeist. 

    Technology has become cultural. It influences almost every aspect of every-day life, and it's also a massive differentiator in today's competitive landscape. 

    Sorting through which technologies are making real waves (and will impact the world) and which technologies are a flash in the pan, can be a monumental task. Gartner's report is a great benchmark to compare reality against. 

    2019's trends lead nicely into 2020's trends. While there have been a lot of innovations, the industry movers have stayed the same – advanced AI and analytics, post-classical computing and communication, and the increasing ubiquity of technology (sensors, augmentation, IoT, etc.). 

    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 attempts to tell us which technologies will survive the hype and 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 and contextually understandable snapshot of where various emerging technologies sit in their 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?"

    That being said – it's worth acknowledging that the hype cycle can't predict which technologies will survive the trough of disillusionment and which ones will fade into obscurity. 

    What's exciting this year?

    Before I focus on this year, it's important to remember that last year Gartner shifted towards introducing new technologies at the expense of technologies that would normally persist through multiple iterations of the cycle. This points toward more innovation and more technologies being introduced than in the genesis of this report. Many of the technologies from last year (like Augmented Intelligence, 5G, biochips, the decentralized web, etc.) are represented within newer modalities. 

    It's also worth noting the impact of the pandemic on the prevalent technologies. 

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

    Zz1lNWZiNWRjMmRlNWIxMWVhYjFjMjBlNjhjZDJlOWEzMw==

    via Gartner

    This year's ~30 key technologies were selected from over 2000 technologies and bucketed into 5 major trends:

    • Composite Architectures represent the organizational shift to agile and responsive architectures due to decentralization and increased volatility. Emphasis is on modularity, continuous improvement, and adaptive innovation to respond to changing market conditions (like in trading, or in businesses rapidly shifting to remote). Sample technologies include embedded AI and private 5G
    • Algorithmic Trust is a direct result of increasing data exposure, fake news, and biased algorithms. As a result, technologies have been built to "ensure" identities, privacy, and security. A great example is more technologies being created on the blockchain. Other examples include explainable AI and authenticated provenance
    • Beyond Silicon is in its infancy, but represents the limitations of Moore's law and the physical of silicon. This has led to new advanced materials with enhanced capabilities being used, and other simple materials being used. Examples of this technology can be seen in  DNA computing and storage, quantum computing, and biodegradable sensors. 
    • Formative AI is the shift towards more responsive AI; models that adapt over time and models that can create novel solutions to solve specific problems. Sample technologies include generative AI, self-supervising learning, and composite AI. 
    • Digital me represents the integration of technology with people, both in reality and virtual reality. Past hype cycles have introduced implants and wearables, but the potential applications of the technology are growing, especially in response to social distancing.  Examples are health passports, Two-way BMI, and social distancing technologies. 

    I'm always most interested in the intersection of AI and advanced analytics. This year, it looks like many of the fledgling AI technologies have become integrated and more advanced. Much like the formative years for children, formative AI represents a new era in AI maturity. Models are becoming more generalized, and able to attack more problems. They're becoming integrated with human behavior (and even with humans as seen in digital me). 

    As we reach new echelons of AI, it's actually more likely that you'll see over-hype and short-term failures. As you reach for new heights, you often miss a rung on the ladder… but it doesn't mean you stop climbing. More importantly, it doesn't mean failure or even a lack of progress.  Challenges and practical realities act as force functions that forge better, stronger, more resilient, and adaptable solutions that do what you wanted (or something better).  It just takes longer than you initially wanted or hoped.

    To paraphrase a quote I have up on the wall in my office from Rudiger Dornbusch … Things often take longer to happen than you think they will, and then they happen faster than you thought they could. 

    Many of these technologies have been hyped for years – but the hype cycle is different than the adoption cycle. We often overestimate a year and underestimate 10. 

    Which technologies do you think will survive the hype?

  • Turning Thoughts Into Things

    Well done is better than well said – Benjamin Franklin

    Turning thoughts into things is an important skill set to understand.

    Visionaries tend to spend a lot of their time exploring the future. In and of itself, this is neither good nor bad.

    If you generate a lot of ideas (but don't properly cultivate and structure them) those ideas can easily become a distraction to you and your team. 

    When properly managed and pursued methodically and purposefully – those same ideas become the catalyst for massive progress. 

    There are three main ways, I believe you can make thoughts into things:

    • Focus Your Energy – People often focus more on what they don't want, rather than on what they do want. By directing your energy and focus toward opportunities and possibilities, it becomes a lot more likely that you will recognize and take advantage of opportunities and possibilities when they appear or occur. 
    • Imagine Your Future – One of my favorite quotes is " the best way to predict the future is to create it." Abraham Lincoln originally said it, but I've thought or said it enough it feels like mine to me.  By deeply imagining the future you want to call into existence, and thinking about it with that end in mind, it becomes easier to imagine the intermediary goals or milestones needed to reach your desired goals.  The basic outline brings order to the chaos … and the strategies and tactics needed come from the finer distinctions you make thinking about each part (or what is needed to reach the next milestone).
    • Make It Tangible – Name it!  Naming something is powerful. Whether it's a product in your business, a concept, or a goal. Making it tangible solidifies it in your mind, and in the mind of others.  Think about what happens if you reach it (and what would happen if you fail).  Come up with the criteria that provides evidence of success.  What would it look like?  How would it perform?  What does it make possible? What would it prevent? How would it impact key measures of efficiency, effectiveness, or certainty?  What can you do about it now?

    Ultimately, each of these ideas is entirely dependent on the actions you're willing to take. And how decisive you can be. 

    M6zyTYfcKJFsqfF6greXuJz06z1BfnK6ezqB0USWAwU

    What aren't you doing because you're overthinking it? Are there opportunities you are missing simply because you aren't looking for them?

    Onwards!

  • Data Really Is Beautiful

    I think most data scientists or traders would agree that some charts are just prettier than others.

    Whether it's due to the artistry of the creator, the results shown, or an insight or perspective illuminated … I am sometimes surprised by the beauty of a chart. 

    After looking at thousands of charts, some really do look "pretty" and others look "ugly" to the trader.  Perhaps this stems from an intuition honed through many trials of separating luck from skill?

    Taking a different approach is Stoxart, created by a visual designer at Nike named Gladys Orteza.  She has been turning stock charts into landscape artworks related to the company they reference.  All that's missing is the warning that past performance doesn't guarantee future results.

    Here is an example of her art inspired by Ford's performance in the last year.  Maybe she should have titled it "Sunset".

    Rbdvb8qjsog51via LLMoonJ

     Another fun one is a year of Tesla performance. 

    Bl7sl41e7ff51via LLMoonJ

    Here's a link to see more Stoxart. 

  • A Look At The USPS

    The USPS postal service has been major news in recent weeks with mail-in voting being discussed, President Trump making clear he believes there will be corruption if he allows it, and the Postmaster-General removing hundreds of sorting machines. Then, a few days ago, the House voted to block recent changes and to allocate $25 billion to the postal service. 

    The goal of this article is to highlight the issues with as little politics as possible. This will not consider the timing of the President's actions or the claims that these actions were designed to limit a portion of the electorate's impact on the outcome of the election.

    To start, a United States postal service is mentioned in the constitution – but it doesn't state that the federal government has the exclusive power to deliver mail,  nor does it require the mail be delivered by the federal government to every home in the country, six days a week. The U.S. Constitution, in 1789, authorized Congress to establish “Post Offices and post Roads” but, unlike the Articles of Confederation, did not explicitly establish an exclusive monopoly.

    The USPS has been in a "financial crisis" for a long time, as more volume goes to competitors like UPS or FedEx. It's worth acknowledging that like many other governmental agencies (i.e. the military, the CDC, the weather service, NASA) it costs more to run than it makes. It's also worth acknowledging that the post office doesn't cost tax dollars, but survives primarily off of postage sold. 

    Mail_volumevia CATO

    Much of what the USPS offered to the general public is now done by private companies – and it could be argued, without the USPS's legal monopoly over letters and mailboxes, they could fill in some of those roles. The main people who benefit from the USPS are small businesses and rural communities. 

    While the USPS isn't profitable, many other delivery services are (look at UPS). Part of this is because UPS will not deliver to places that don't have the volume for bundling. And, when they do ship to remote places, they charge more to justify the effort. 

    A federal mail service currently provides stable costs across volume and distance (for the most part) but is that a reason to keep it?

    As a practical matter, public services can't be held to the same standards of profitability as private industry, but we have to be cognizant of the point of diminishing returns on public services.

    Absentee Voting Versus Universal "Vote by Mail"

    Absentee voting requires you to request a ballot ahead of time, meaning it's associated with a specific voter request. Vote by mail sends a ballot to all registered voters within a jurisdiction. 

    In America, we don't have to vote by mail, but most states allow absentee voting without the need for a valid excuse. 

    Vote_by_mailvia Brookings Institute

    In 2016, nearly one-quarter of U.S. votes were cast by mail. A Stanford study shows no partisan effect on absentee voting, and similar levels of voter fraud to in-person voting (though there are cases of fraud) but as we know in trading, past performance does not guarantee future results. 

    As with in-person voting, the main issue ultimately comes down to the integrity of the results. We've had numerous issues with flawed voting machines, ballot box stuffing, unregistered voters casting ballots, hanging chads, gerrymandering, and a host of issues.  For a fair election, the goal is to minimize (or eliminate) election fraud, election manipulation, or vote-rigging.  The rules, regulations (and even the process) should discourage or prevent illegal interference with the process of an election, either by increasing the vote share of the favored candidate, depressing the vote share of the rival candidates, or both.

    November should be interesting. 

  • My Talk With The Sustainable Family Wealth Summit

    I recently had the chance to speak at a wealth summit helping to educate family offices on the different opportunities available to them. Because of my work around the hedge fund space – and with emerging technologies like AI – I was brought in to focus on both topics for their audience.

    The financial industry is intimidating – especially to newcomers – and while this summit is targeted towards family offices with $5MM+ in liquid assets, the lessons are accessible to any level of wealth. 

    The presentation was somewhat of a departure from my normal talking points because it was more focused on the basics of hedge funds & trading in general.  Nonetheless, I think it's worth watching.  This clip shows my response to the moderator's previous presentation.  The presentation provides an introduction to hedge funds and alpha generation now and into the future.  We also talk about Madoff, performance fees, the 2008 crash, "why a hedge fund?" and a lot more. 

     

     

    Hope that helped.  Let me know what you think.

     

  • It’s Not About The Nail…

    Apparently, a lot of wisdom can be learned from nails. I've shared the story about the Nail in the Fence in the past. 

    This week a funny video called "It's Not About The Nail" recycled through my inbox again. 

    Have you seen it yet? It has had 20+ million views across various social media and syndication sites.  So, you've likely run across it even if you haven't watched it.
     
     

    via Jason Headley

    The short version is that a woman tries to communicate with her significant other about her headache, which he quickly identifies as (literally) a nail in her forehead, with a seemingly obvious solution: Let’s get rid of that nail. She insists that that is absolutely NOT the problem, and if he would just listen to her, that would be clear to him. She explains, clarifies, objects, etc. Eventually, he does see the light … and gives her not the solution he found so (literally) painfully obvious, but the solution she asked for.
     
    "Don't try to fix it. I just need you to listen." It's obvious.
     
    Good for a laugh, but, also good as a reminder. Simply put, a problem that may seem apparent to you may not be so obvious to the person with a problem … and that might be the real problem.

    Whether your takeaway is that we often miss the answer right in front of our face, or that we have to be aware of what other people need, or that you can't help people that don't want to be helped … you're right.