Ideas

  • Spotting a Bubble

    I spend a lot of time doing research … not the way data scientists do, but I enjoy keeping an eye on the pulse of things. 

    Recently, I've noticed increasing talk about bubbles. One of the most obvious potential "bubbles" being the relatively stable bullish performance of the markets, despite the lack of a full economic recovery. 

    Interestingly, Ray Dalio's bubble indicator says that stocks aren't at dangerous levels, though it does say the top 5% of the top 1,000 US companies are in an extreme bubble. Many of those companies are emerging technology companies. 

    1614002629495via Ray Dalio

    So, without making a prediction, caution is probably fair, but recognize that people aren't blaring sirens and running with their arms flailing in the air. 

    Instead of focusing as much on today's bubbles, I thought I'd share a great summary on "how to spot a bubble" by Barry Ritholz. 

    He suggests 10 elements: 

    1. Standard Deviations of Valuation: Look at traditional metrics –  valuations, P/E, price to sales, etc. — to rise two or even three standard deviations away from the historical mean.

    2. Significantly elevated returns:  The S&P500 returns in the 1990s were far beyond what one could reasonably expect on a sustainable basis. The years around Greenspan’s “Irrational Exuberance” speech suggest that a bubble was forming:

    1995    37.58
    1996    22.96
    1997    33.36
    1998    28.58
    1999    21.04

    And the Nasdaq numbers were even better.

    3. Excess leverage: Every great financial bubble has at its root easy money and rampant speculation. Find the leverage, and speculation won’t be too far behind.

    4. New financial products: This is not a sufficient condition for bubble, but it does seems that each major bubble has new products somewhere in the mix. It may be Index funds, derivatives, tulips, 2/28 Arms.

    5. Expansion of Credit:  This is beyond mere speculative leverage. With lots of money floating around, we eventually get around to funding the public to help inflate the bubble. From Credit cards to HELOCs, the 20th century was when the public was invited to leverage up.

    6. Trading Volumes Spike: We saw it in equities, we saw it in derivatives, and we’ve seen it in houses: The transaction volumes in every major boom and bust, almost by definition, rises dramatically.

    7. Perverse Incentives: Where you have unaligned incentives between corporate employees and shareholders, you get perverse results — like 300 mortgage companies blowing themselves up.

    8. Tortured rationalizations: Look for absurd explanations for the new paradigm: Price to Clicks ratio, aggregating eyeballs, Dow 36,000.

    9. Unintended Consequences: All legislation has unexpected and unwanted side effects. What recent (or not so recent) laws may have created an unexpected and bizarre result?

    10. Employment trends:  A big increase in a given field — real estate brokers, day traders, etc. — may be a clue as to a developing bubble.

    11. Credit Spreads: Look for a very low spread between legitimately AAA bonds and higher yielding junk can be indicative of fixed income risk appetites running too hot.

    12. Credit Standards: Low and falling lending standards are always a forward indicator of credit trouble ahead. This can be part of a bubble psychology.

    13. Default Rates: Very low default rates on corporate and high yield bonds can indicates the ease with which even poorly run companies can refinance. This suggests excess liquidity and creates false sense of security.

    14. Unusually Low Volatility: Low equity volatility readings over an extended period indicates equity investor complacency.

    via Barry Ritholz, June 9th, 2011

    There are many ways to make money trading … and even more ways to lose money trading.  If it were easy, everyone could do it.  There is a mix of art and science combined with hard-to-quantify factors at play.

    But, survivorship bias is big in trading because hindsight is 20/20. It's easy to look at a popped bubble and say "oh, obviously that was a bubble" … but if it was that easy, trading wouldn't be so hard.

    Trends continue until they don't … but at some point, they don't, and that's where people get hurt. 

    My gut tells me it is time to pay closer attention.

    Onwards!

     
     

  • The Gap and The Gain: A Different View of my TEDx Talk

    Sometimes I write posts about business ideas I've found to be particularly helpful. Today, I am writing about a concept that I would call "foundational," called the Gap and the Gain (which was created by Dan Sullivan of Strategic Coach). The base concept is simple – nonetheless, understanding and applying it can have transformative effects. The central concept is that you can be successful and happy or successful and unhappy … and the difference between the two is likely how you choose to measure your results. 

    Are you focused on the gap (all the things you still don't have) or the gain (all the things you already have)? 

    As an entrepreneur whose business is based on innovation, one of my unique abilities is being able to think about what's possible … and then find the golden thread from where we are to where we want to be. It's why I believe one of the "secrets to success" is to become comfortable being uncomfortable. Why? Because almost anything you want is beyond your current capabilities (otherwise, you'd already have them). Being able to transform the goal into a directional compass leading you in the right direction is easy for me, and gives me energy.

    But, that unique ability comes with a pretty obvious drawback … I'm never where I want to be (because I'm constantly looking at the horizon, and as I move towards it, the horizon continues moving). This is the curse of many entrepreneurs. They live and die without a fulfilling sense of accomplishment because they're always focused on the next mountain. The progress that they've made getting to here, and the confidence they built getting to here, raise the bar of what's possible.  Instead of focusing on the progress and wins that got them where they are, they monomaniacally focus on the gap between the current reality and their new shiny goal.

    The distance between where you currently are and where you want to go should be motivating. In fact, I'd argue that the ability to stretch your vision further is a skill you should reward rather than punish. It is simply a matter of perspective. Measure from where you started, but don't lose sight of the bigger future. One pushes you from behind, and the other pulls you forward. 

    That's the gap and the gain, and it's a great lesson that is useful in businesses and life in general. Ultimately, you're in control. You get to decide what you focus on, what it means, and what you choose to do.

    Personally, probably the most important way this lesson has impacted me was in making more of the time left with my dad while he was dying. 

     

     

    That video is about a year that brought my Dad's death, the forced sale of my company by venture capitalists, and a divorce (in that order).  In many respects, it was a horrible year …  a year where it would have been easy to focus on the gap rather than the gain. 

    Luckily, sometimes, life's darkest days bring the greatest gifts … if you are willing to look for them.

    One of my biggest takeaways from that struggle was about the time value of life.

    In finance, the "time value of money" refers to the principle that money's purchasing power varies over time (meaning, money today has more purchasing power than money later). In part, this is because the value of money at a future point in time might be calculated by accounting for other variables (like interest earned, or inflation accrued, etc.).

    It occurred to me that a similar calculation applied to life … or living.

    During the last part of my dad's life, it was easy to focus on what we were lacking … time … we would have done almost anything for a little more time. 

     

    Howard & Jake at the beach

     

    In his last year, things that used to be unimportant, or even mildly irritating, took on increased importance. For example, a dinner together became almost a sacred event; a kiss goodnight was truly heartfelt, and saying goodbye meant something … because it could be the last time.

    Because of that focus, he took more "life" out of that time. Necessity is often the mother of invention.  While I wouldn't have chosen the situation, it changed his mindset (frankly, it changed our mindset), and as a result, we increased the amount of life we squeezed out of that little bit of time. 

    Obviously, the choice to make more of life shouldn't wait for the death of a loved one or a similar crisis. 

    We can choose to focus on what we want and what we gained to make the most life out of whatever time we're given. 

    I spent a lot of that year moving away from pain when I could have been moving toward opportunity. I'm grateful I learned that lesson before he passed. 

    To close, I want to leave you with a lesson from my dad that really stuck with me. 

    The difference between good and great is infinitesimal. People who are good take advantage of opportunities … but people who are great create them.   ~ Jacob Getson

    It's a conscious choice we can all make.

    Hope that helps. 

    If you want to learn more about the specifics of the "Gap and the Gain," Ben Hardy wrote a great article on the subject. 

     
     
     

  • Streaming Wars

    Streaming services were big winners during the pandemic.  While that wasn't surprising, their subscriber growth and usage surge are impressive.

    VisualCapitalist put together an infographic highlighting the numbers. 

     

    Streaming-Service-Subscriptions-2020

    via VisualCapitalist

    I enjoyed the chart, and had a couple of different takeaways: 

    • Many companies tried to capitalize on the streaming wave by launching half-baked streaming services, but it's clear that the pioneers are still extending their lead on the fast followers. 
    • Despite Netflix already being the industry leader, they saw a 34% increase in 2020. 
    • China's largest provider – Tencent Video – only has 120M users, which is about 8% of China's population. In contrast, Netflix has 74M US users, which is about 23% of the population. 
    • The New York times is the only News subscription source big enough to make the list, yet it's at the very bottom with 6M users. Though, it did see a 61% increase in 2020. 
    • Disney+ grew 95M in its inaugural year, which is a credit to the brand recognition Disney holds.

    Interesting stuff and large numbers!

    How will the world re-opening impact those numbers?  How about 5 years from now? What do you think?

    Will virtual reality and augmented reality start to impact these numbers?

    With that much money and on the line, I expect this to remain an industry segment primed for innovation, growth … and a few surprises.

     
     

  • The Power of Naming Things

    I remember when my son finally got smarter than our dog. For the record, it took longer than I thought it would.

    With respect to human intelligence, language is likely the first domino. It allows "chunking" and makes learning new things more efficient, effective, and certain.

    Language is powerful in-and-of-itself. Using language consciously is a multiplier. Today, I want to focus on one such use of language – the power of naming things. 

    The Power Of Naming Things

    “I read in a book once that a rose by any other name would smell as sweet, but I've never been able to believe it. I don't believe a rose WOULD be as nice if it was called a thistle or a skunk cabbage.” – L.M. Montgomery, Anne of Green Gables

    Before I go into detail, I shot a video on the subject, with a few examples from our business. 

     

    Having a shared language allows you to communicate, coordinate and collaborate more efficiently. But it's hard to have a shared language when you're discussing something intangible. 

    That's where naming comes in. When you name something, you make the "invisible" visible (for you, your team, and anyone else who might care). 

    I've often said the first step is to bring order to chaos. Then, wisdom comes from finer distinctions. Naming is a great way to create a natural taxonomy that helps people understand where they are – and where they are going.

    I like thinking of it in comparison to value ladders in marketing. 

    Value-ladder

    Each stage of the value ladder is meant to bring you to the next level. By the time someone gets to the top of the value ladder, they're your ideal customer. In other words, you create a natural pathway for a stranger (meaning someone who doesn't know you well) to follow, to gain value, trust, and momentum onwards … ultimately, ascending to become someone who believes in, and supports, what you offer and who you are. 

    Ultimately, successful collaboration relies on common language. That is part of the reason naming is so important.  The act of naming something makes it real, defines its boundaries and potentialities, and is often the first step towards understanding, adoption, and support. 

    Creating "Amplified Intelligence"

    There are always answers. We just have to be smart enough. – John Green

    Here is an example from our business.  When we first started building trading systems, all we had was an idea. Then we figured out an equation (and more of them). Next, we figured out some methods or techniques … which became recipes for success.  As we progressed, we figured out a growing collection of useful and reliable ways to test, validate, automate and execute the things we wanted to do (or to filter … or prevent).

    For someone who didn't understand the organizing principles, it probably seemed like a mess.  Compounding the problem is that fear, uncertainty, and doubt are inhibitors to potential customers and stakeholders (like the employees working in a business).

    Coming up with the right organizing principle (and name) makes it easier to understand, accept, and adopt. For example, many traders and trading firms want to amplify intelligence – meaning they were looking to make better decisions, take smarter actions, and ultimately to perform better (which might mean making and keeping more money).  To help firms amplify intelligence, we created the Capitalogix Insight Engine (which is a platform of equations, algorithms, methods, testing tools, automations, and execution capabilities).  Within that platform, we have functional components (or modules) that focus on ideas like portfolio construction, sensible diversification, alpha generation, risk management, and allocation strategies.  Some of those words may not mean much to you, if you're not a trader, but if you are it creates an order that makes sense and a path from the beginning to the end of the process.

    It makes sense. It explains where we are – while informing what might come later.

    The point is that naming things creates order, structure, and a contextual map of understanding.

    It a compass heading that we can use to navigate and guide in uncertain territory.

    Hope that helps.

     
     
     
     
     

  • Here Are Some Links For Your Weekly Reading – March 7th, 2021

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

    Lighter Links:

     

    Trading Links:

     
     

  • Top 20 Most Visited Websites (In The US)

    I saw a chart looking at the top 20 most visited websites in the U.S. last month. It's only mildly helpful, but it is interesting and a little funny. 

     

    Luuuf1mif0l61SEMRush via Reddit

    From a functional perspective, the most interesting data point to me is that Zoom has cracked the top 20 … but only barely. I would be interested to see this broken up into time-per-visit to see how that tips the scales. 

    From a humorous perspective, only three sites weren't US-based … and they're all porn sites. 

    As an aside, one of my more popular posts has been on how much time people spend on Pornhub. I don't know what this says about society, but it certainly says something.

    Have fun … and safe surfing.

     

  • Reflecting on The Time Value of Time

    I have always believed that you can predict a lot about your future, based on the quality of the people you spend the present with.

    That is why I think participation in quality peer groups is critical. 

    Over the years, I joined several business-leader peer groups like Strategic Coach,  Abundance 360, or Vistage. These groups are a great way to meet people and learn things … and they also provide you with access to the benefits of feedback from a group of trusted advisors, perspectives you might otherwise get from a counselor, and a flow of ideas and opportunities that wouldn't have crossed your mind or your desk. They allow participants to see, hear, and discuss things they don't normally think about, talk about, or even notice.

    Peer groups are also great at bringing blind spots to your attention and connecting you to trends transforming industries and the world.

    In these meetings, you often find a "nugget" in the discussion. Sometimes it stems from what is happening in the world.  Sometimes it alerts you to potentially useful relationships, opportunities, or gadgets.  And sometimes, the nugget comes from discussing a common problem or constraint (like the pandemic) with your peers. 

    This week, several of these groups prompted me to think about time (e.g., not wanting to sell time for money, wanting to live past 100, the "strangeness" of time during the past year, etc.). 

    Time is funny. Sometimes it seems to fly by … other times, it seems to stand still. Dan Sullivan uses the example of 10 minutes with a dying loved one compared to holding your hand on a stove for 10 minutes. One seems excruciatingly short, and the other seems excruciatingly long. 

     

    zefrank via YouTube

    The average life expectancy for men in the U.S. is 76.

    How many amazing vacations do you have left? How many jaw-dropping moments? How many fantastic meals? How many Super Bowls?

    What about time with your parents or older relatives? It's easy to forget to call or miss an important event because "life happens" – but if you realize you may have already used 95% of your in-person time with that person … doesn't it become more special?

    For contrast:

    • Would you rather spend that time dwelling on a mistake?
    • What about being angry at something out of your control?
    • What about doing work that drains you mentally and emotionally?

    In my TEDx talk, I mentioned "living like you only have a year left" and how much more "life" we got out of the last part of my dad's life. 

    That is just an example, but clearly, it is worth taking the concept further. 

    To start, think of some of the activities you do, places you go, experiences you have that are special and make you feel like your best self. 

    • Hitting Flow-state and creating something new and exciting;
    • Taking an amazing vacation and experiencing something completely new;
    • Having a moment with someone you love that makes you stop and say – "Wow!"
    • Making a difference in someone's day or giving back to your community;
    • Experiencing peace and relaxation;
    • Feeling pure joy.

    It's easy to get lost and take for granted these moments when they happen, but when you think about how much time you have left … they take a whole new meaning. 

    TimeisrelativeHow can you maximize the time you have left?  Fill it with the best experiences, activities, and people you can.

    To start, think about different time frames:

    • What activities could you commit to doing at least once a year?
    • What activities could you commit to doing at least once a month?
    • What activities could you commit to doing at least once a week?
    • What activities could you commit to doing at least once a day?

     Make those lists … it is a simple way to get a better return on the time value of your life.

    Seriously, try it.  

    Let me know how it worked for you – and what you chose! 

     
     

  • Here Are Some Links For Your Weekly Reading – February 28th, 2021

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

    Lighter Links:

     

    Trading Links:

     

  • What The Perseverance Rover Reminded Me About

    Last week, the Perseverance rover landed on Mars. It's not the first time we've landed a rover on Mars, but it's still incredible to see. 

    via NASA Jet Propulsion Laboratory 

    It's a feat of engineering and human will. It's also a good reminder. 

    History is littered with tales of once-rare resources made plentiful by innovation. The reason is pretty straightforward … scarcity is often contextual.

    Imagine a giant orange tree packed with fruit. If you pluck all the oranges from the lower branches, you are effectively out of accessible fruit. From that limited perspective, oranges are now scarce. But once someone invents a piece of technology called a ladder, the problem is solved.

    When we first went to the moon, calculators referred to people charged with doing the complex math needed for the Rocket to make it into Space (rather than the device that could do the math instantly with no errors) and the computing power it took to get to the moon took up many rooms at NASA. 

    In comparison, you now have dramatically more computing power in your pocket than NASA used to get to the moon. 

    Likewise, we now have people living in space, posting videos from the ISS, and the ability to stream high-resolution images (and even movies) of space and galaxies near and far. 

    What was once scarce and unobtainable has become abundant and accessible.   It is a story repeated countless times.

    Still, as humans, we're wired to think locally and linearly. We evolved to live our lives in small groups, to fear outsiders, and to stay in a general region until we die. We're not wired to think about the billions and billions of individuals on our planet, or the rate of technological growth – or the minuteness of all that in contrast to the expanse of space. 

    Nonetheless, we have created better and faster ways to travel, we've created instantaneous communication networks across vast distances, and we've created megacities. Our tribes have gotten much bigger – and with that, our ability to envision and enact massive change has grown as well. 

    Our quest to conquer Space became the poster child for a type of innovation we now call "moon shots".  While 'moon shot' originally meant "long shot," it's increasingly being used to describe a monumental effort towards a lofty goal — in other words, a "giant leap."

    Today, with technology as a catalyst, we see those leaps happen in many areas (like A.I., medicine, longevity, space exploration, etc.). 

    It's hard to comprehend the scale of the universe or the scale of our potential … but that's what makes it worth exploring.

    Pretty cool!

    Onwards!!

     
     

  • Who Can You Trust?

    Information is Power.

    Consequently, your choice of information source heavily contributes to your perceptions, ideas, and worldview.

    Coincidently, news sources are a lightning rod for vitriol and polemic.

    I am still a little surprised by the abject hatred I hear expressed towards a particular news source by those who hold an opposing bias.  This often leads to claims of fake news, delusion, and partisan press. Likewise, it is common to hear derision toward anyone who consumes that news source.

    Perhaps the reality is that that most sources are flawed – and the goal should simply be to find information that sucks less?

    It's to the point where if you watch the news, you're misinformed; and if you don't watch the news, you're uninformed. News sources aren't just reporting the news, they're creating opinions and arguments that become the news.  And many don't care enough to think for themselves – or to extract the facts from the opinion.

    Here's a chart that shows where news sources rank on various scales. You can click the image to go to an interactive version with more details.

     Adfontes

    via Ad Fontes Media

    I once spent fifteen minutes in an argument about how you know whether the information in this chart is true.  If you're curious about their methods, click here. 

    Distrust toward news agencies, big companies, the government, and basically anyone with a particularly large reach is the "new normal." 

    Perhaps even more dangerous is the amount of fake news and haphazard research shared on social media. Willful misrepresentations of complex issues are now a too common communication tactic now on both sides … and the fair and unbiased consideration of issues suffers.  

    Social media spreads like wildfire, and by the time it has been debunked (or proven to be an oversimplification) the damage is done. People are convinced … and some will never go beyond that. 

    The reality isn't as bleak.  People agree on a lot more than they say they do.  It is often easier to focus on "us" versus "them" rather than what we agree upon jointly.  This is true on a global scale.  We agree on a lot.  Most Democrats aren't socialists, and most Republicans aren't fascists … and the fact that our conversation has drifted there is intellectually lazy.

    This idea that either side is trying to destroy the country is clearly untrue (OK, mostly untrue). There are loonies on the fringes of any group, but the average Democrat is not that unlike the average Republican. You don't have to agree with their opinions, but you should be able to trust that they want our country to succeed. 

    I don't know that we have a solution. But there is one common "fake news" fallacy I want to explain at least a little. 

    It's called the Motte and Bailey fallacy. It's named after a style of medieval castle prioritizing military defense.

    Launceston_Castle_-_geograph.org.uk_-_22242

    Launceston Castle via Chris Shaw, CC BY-SA 2.0

    On the left is a Motte, an artificial mound often topped with a stone structure, and on the right is a Bailey, the enclosed courtyard. The Motte serves to protect not only itself but also the Bailey. 

    As a form of argument, an arguer conflates two positions that share similarities. One of the positions is easy to defend (the motte) and the other is controversial (the bailey).  The arguer advances the controversial position, but when challenged insists they're only advancing the moderate position. Upon retreating the arguer can claim that the bailey hasn't been refuted, or that the critic is unreasonable by equating an attack on the bailey with an attack on the motte. 

    It's a common method used by newscasters, politicians, and social media posters alike. And it's easy to get caught in it if you don't do your research. 

    Conclusion

    As a society, we're fairly vulnerable to groupthink, advertisements, and confirmation bias. 

    We believe what we want to believe … so it can be very hard to change a belief, even in the face of contrary evidence. 

    But, hopefully, in learning about these fallacies, and being aware, we do better. 

    I will caution that blind distrust is dangerous – because it feels like critical thought without forcing you to critically think.

    Distrust is good … but too much of a good thing is a bad thing. 

    Not everything is a conspiracy theory or a false flag.

    Do research, give more credence to experts in a field – but don't blindly trust them either.  How well do you think you're really thinking for yourself?

    It's a complicated world, and it's only getting more complicated.  But, hopefully, it encourages you to get outside your bubble and learn more about those you disagree with.