Capitalogix

Learning from What Pro Sports Teams Do Right

I am writing this while flying back from watching a Cincinnati Reds game in their Owner’s Box.

It was a great experience – and reminded me of how much you can learn from watching what professional sports teams do.  

Frankly, the whole business of professional sports fascinates me.  

They have to do so many things right … just to compete. This includes how they build and manage their team, cultivate their brand, support their communities and causes … as well as how well they handle the practical realities of the logistical, operational, and financial challenges they deal with constantly.  

It is more than a business.  For the most successful, it is a mission or stewardship.

Personally, I pay attention to football more than other sports.

In 2017, I lightheartedly questioned the future of the NFL as a result of bad press around concussions, crimes, and more.  I questioned it as a fan that's been a season ticket holder for as long as I can remember.  My Dad and I had season tickets to the Eagles when I was young, and to the Patriots when I was a teenager. Recently, I’ve been a Cowboys season ticket holder for over 30 years. I questioned it knowing that the NFL wasn't really at risk. To support that assessment of the NFL’s stability, consider that (despite quarantine) the league-wise Season Ticket renewal rate is at 92%… equaling a 5-yr high. 

Part of the stability stems from doing so many things right (or at least well).  Which takes us back to the point that you can learn a lot from how sports teams thrive. 

There's a lot to learn not only from the NFL's longevity, but from what it's like to be a part of a team, from the coaching, and the management side of things. 

Some of these lessons stem back to youth football ... which I’m reminded of each time I get to  watch a Dallas Cowboys practice at The Star.

Think about it, even in middle school, the coaches have a game plan. There are team practices and individual drills. They have a depth chart, which lists the first, second, and third choice to fill certain roles. In short, they focus on the fundamentals in a way that most businesses don't.

The picture, below, is of my brother's high school team way back in 1989.

 

Is it possible that most businesses are less prepared to win than an 8th-grade football team? At first, that may sound like hyperbole, but if you think about it ... it's likely true. 

Losing to an 8th-Grade Team

 

Even middle school and high school teams have a playbook for offense, defense, and special teams.  They scout opponents and create game plans.  They think about how to improve and coach the team … and each player.  They strategize and drill to perform well each game.  Meanwhile, they also work to string together wins to achieve a higher goal. 

Contrast that with many businesses.

Entrepreneurs often get myopic ... they get focused on today (or survival), and they often lose sight of the bigger picture and how all the pieces fit together. 

The amount of thought that goes into football - which is ultimately a game - is a valuable lesson for business. 

If an 8th-grade football team is equivalent to a normal business, what would happen to a business that operated similar to an NFL team?

Practice Makes Perfect

How you do one thing is how you do everything. So, they try to do everything right. 

Each time I've watched a Cowboys practice session, I've come away impressed by the amount of preparation, effort, and skill displayed.

During practice, there's a scheduled agenda. The practice is broken into chunks, and each chunk has a designed purpose and a desired intensity. There's a rhythm, even to the breaks.

Every minute is scripted. There's a long-term plan to handle the season ... but, there was also a focus on the short-term details and their current opponent.

They alternate between individual and group drills. Moreover, the drills run fast ... but for shorter time periods than you'd guess. It is bang-bang-bang – never longer than a millennial's attention span. And they move from drill to drill – working not just on plays, but the skillsets as well (where are you looking, which foot do you plant, how do you best use your hands, etc.).

They use advanced technology (including advanced player monitoring, biometric tracking, and medical recovery devices ... but also things like robotic tackling dummies and virtual reality headsets). 

They don't just film games, they film the practices ... and each individual drill. Coaches and players get a cut of the film on their tablets as soon as they leave. It is a process of constant feedback, constant improvement, or constant renewal. Everything has the potential to be a lesson. 

Beyond The Snap

The focus is not just internal, on the team. They focus on the competition as well. Before a game, the coaches prepare a game plan and have the team watch tape of their opponent in order to understand the tendencies and mentally prepare for what's going to happen.

During the game, changes in personnel groups and schemes keep competitors on their toes and allow the team to identify coverages and predict plays. If the offense realizes a play has been predicted, they call an audible based on what they see in front of them. Coaches from different hierarchies work in tandem to respond faster to new problems. 

After the game, the film is reviewed in detail. Each person gets a grade on each play, and the coaches make notes for each person about what they did well and what they could do better.

Think about it ... everyone knows what game they are playing ... and for the most part, everybody understands the rules, and how to keep score (and even where they are in the standings). Even the coaches get feedback based on performance, and they look to others for guidance. 

Imagine how easy that would be to do in business. Imagine how much better things could be if you did those things.

Challenge accepted!

Confirmation Bias 101

Echo chambers and confirmation bias aren't new.

Recently, however, it seems that we are increasingly presented with issues divided into polar opposite points of view, with little to no tolerance for disagreement. 

Nonetheless, not all topics need to be debated or negotiated. 

Sometimes, a fact is a fact.

Hopefully, this video won't step on any toes - but if you're a "flat earther," I wouldn't watch. 

Here's a clip from Behind The Curve (a documentary on the flat earth society) that I think perfectly shows confirmation bias. 

 

via Behind The Curve

Start with the evidence and then form a conclusion. Doing that in reverse doesn't tend to work out as well.

As a polite reminder, if a conspiracy relies on millions of people (as well as different countries and organizations) to all commit to the disinformation campaign ... it's not likely true.

As Occam's razor states, the simplest explanation is often the correct one. 

Thoughts on the 'Hindenburg Omen' and Market Instability.

There are many interesting 'indicators' of market movements out there ... from the Big Mac Index to the Super Bowl Indicator, and (of course) more common ones like rolling moving averages. 

One of the more supposedly nefarious indicators is the Hindenburg Omen, and the pattern has shown up twice recently.

 

What is it? 

It is a fairly obscure technical analysis pattern, which supposedly gives an early warning of unstable market conditions (and even potentially stock market crashes).

While the calculation is based on five factors, the primary conditions indicate a big disagreement about market conditions.

For example, two of the conditions are that a substantial number of stocks have to be at yearly highs, while a substantial number of stocks have to be at new annual lows.  Ultimately, it is hard for those two conditions to be met in a short period of time unless there's uncertainty in the market.  Moreover, after a rally, uncertainty is often a precursor to a decline.

In addition, technically (for the pattern to be complete), a second sighting of the five elements must occur within 36 days. Logically, lingering uncertainty is a momentum killer. 

Should I Be Worried?

This week, Cumberland Advisors' shared the following from Art Cashin, Director of Floor Operations for UBS Financial Services at the New York Stock Exchange. 

Art had this to say: 

“I had told Carl Quintanilla on CNBC’s Squawk on the Street in an interview about 10:20 that I thought the chatroom bears were turning a bit more aggressive. Several were trying to point out that we had had two Hindenburg Omens in a row. In case you had forgotten, a Hindenburg Omen is rather arcane indicator that takes as a measurement the ratio or relationship between the new 52-week highs and the new 52-week lows. It is quite unusual to have two days back-to-back with new Hindenburg Omens.

Now, you have to be a little bit careful about the Hindenburg Omen because, over the last 35 or 40 years, we haven’t had a market ‘crash’ without the presence of the Hindenburg Omen, and that is what chatroom bears were pushing. You have to remember the other part of that, which is while there has always been a Hindenburg Omen before a crash, there has not been a crash after every Hindenburg Omen. To use a rather poor analogy, it is almost like saying, we have never had a flood without rain. But, then again, every time it rains, it doesn’t mean it is going to flood.

So, it was, nevertheless, an effective tool among the chatroom types just to make people nervous. I am not sure how many have bought into the Hindenburg aspect, but it was one of those ‘Wait a minute – should I be aggressive on the buy-side or should I wait and hold back here?’ I think it had some of that effect.” - Art Cashin

 

From my perspective, while this pattern may have correctly predicted every big stock market swoon of the past two decades (including the October 2008 decline), not every Hindenburg Omen has been followed by a crash. Resorting to a geometry analogy: All rectangles are squares, but not all squares are rectangles.

Times are strange - and there's reason to be wary of the markets, but indicators like this are a reason to be cautious, not a basis for trading decisions. 

GPT-3: Boom or Bust?

GPT-3 was released by OpenAI in 2020 - and was considered by many a huge jump in natural language processing. 

GPT stands for Generative Pre-trained Transformer. It uses deep learning to generate text responses based on an input text. Even more simply, it's a bot that creates a quality of text so high that it can be difficult to tell whether it's written by a human or an AI.

GPT-3 is 100x bigger than any previous language AI model and comes pre-trained on 45TB of training text (499 billion words). It cost at least 4.6 million US dollars (some estimated as high as $12 million) to train on GPUs. The resulting model has 175 billion parameters. On top of that, it can be tuned to your specific use after the fact. 

via Towards Data Science

Here are some interesting GPT-3 based tools: 

• Frase - AI-Curated SEO Content 
• Emerson - AI Chatbot
• Viable - Customer Feedback Analytics Platform
• Sapling- Customer Service

Practically, GPT-3 was a huge milestone. It represents a huge jump in NLP's capabilities and a massive increase in scale. That being said, there was a frenzy in the community that may not match the results. To the general public, it felt like a discontinuity; like a big jump toward general intelligence.  

To me, and to others I know in the space, GPT-3 represents a preview of what's to come. It's a reminder that Artificial General Intelligence (AGI) is coming and that we need to be thinking about the rules of engagement and ethics of AI before we get there. 

Especially with Musk unveiling his intention to build 'friendly' robots this week. 

On the scale of AI's potential, GPT-3 was a relatively small step. It's profoundly intelligent in many ways - but it's also inconsistent and not cognitively concrete enough.

Take it from me, the fact that an algorithm can do something amazing isn't surprising to me anymore ... but neither is the fact that an amazing algorithm can do stupid things more often than you'd suspect.  It is all part of the promise and the peril of exponential technologies.

It's hard to measure the intelligence of tools like this because metrics like IQ don't work.  Really it comes down to utility.  Does it help you do things more efficiently, more effectively, or with more certainty? 

For the most part, these tools are early. They show great promise, and they do a small subset set of things surprisingly well. If I think about them simply as a tool, a backstop, or a catalyst to get me moving when I'm stuck ... the current set of tools is exciting.  On the other hand, if you compare current tools to your fantasy of artificial general intelligence, there are a lot of things to be improved upon. 

Clearly, we are making progress. Soon, GPT-4 will take us further. In the meantime, enjoy the progress and imagine what you will do with the capabilities, prototypes, products, and platforms you predict will exist for you soon.

Onwards. 

Camp Kotok 2021

Each year I look forward to Camp Kotok, or as I like to call it Economists in Nature. It's basically 5 days of canoeing, fishing, and dining with economists, wealth managers, traders, investors and more. 

One of few chances for people from these backgrounds to come together and talk about the world, big trends, investing, economics, politics, and more ... in an open and safe forum. The event goes by the Chatham House Rule - which basically means you can share the information you receive, but not who said it. 

This year we talked about everything from China, digital currencies, the pandemic, and the state of markets. 

Interestingly, for all the takeaways I could focus on, the main takeaway was uncertainty. 

For all the intelligent and "in-the-know" people in the room, very few people had clear opinions of what was going to happen. There were too many variables at play, and while they posited a lot of potential paths, it feels like the general census was we're at a crossroads with many potential futures in front of us. 

Despite the general uncertainty in the room, it wasn't fear-laden. The general mood was optimistic, and for the most part, everyone sees paths toward economic success post-COVID.

With that said, when and what "post-COVID" means is another issue.

One of the other key discussions that came up often was the new generation of workers and their changing relationship with work. It's plain to see the rate of quitting is higher, that wages are rising, and it's getting hard to fill minimum wage jobs. It's hard to get employees back in an office space, and many are willing to take pay cuts or switch to other companies to stay at home. 

The long-term impact on our economy (and our culture) is yet to be seen.

We live in interesting times. 

As a bonus, here's an interview I shot at Camp Kotok in 2018 with Bob Eisenbeis,  Cumberland Advisors' Vice Chairman & Chief Monetary Economist.  Check it out.  

 

Cumberland Advisors via YouTube

What Technologies Are Going To Most Impact The Next 5-10 Years?

At a mastermind meeting last week, Landon Downs from 1Qbit spoke on the state of technology.  Landon and I agree on a lot of things - and one of those things he emphasized heavily.  AI is in a period of massive innovation. It's a renaissance, or springtime, or whatever euphemism you want to use. But it's only springtime for AI if you can take advantage of it.

Adding to that, he explained that a current constraint might become a big short-term limitation to how widespread AI can grow. The constraint is that there is a global chip shortage (and it could be an issue until 2023).

The chip shortage is probably a bigger problem than you imagine because microchips are in everything from refrigerators to toothbrushes - not just high-tech computers. This has the potential to be a massive disruptor, especially in the tech industry. 

Building and running smart AI systems takes a lot of computing power, and as more competitors enter the scene, not only will the cost to play increase, but so will the potential you get turned away at the door. 

To a certain extent, the AI arms race becomes a chip arms race. 

As I thought about the chip shortage, and its impact on the next few years, it also made me brainstorm what else I thought would be the most influential shifts that would influence me and my business (and potentially the world). 

Here's my top 5, and I'd love to hear yours. 

1. Compute Power is going to increase, and the ability to brute force problems will create new possibilities. Quantum computing will become more important and likely available for commercial use. 
2. New and better AI platforms will transition AI from a tool for specialists to a commodity for everyday people - it won't just be Artificial Intelligence, it will be Amplified Intelligence (helping people make better decisions, take smarter actions, and continually measure and improve performance). 
3. Blockchain and authenticated provenance are going to become more important as the world becomes increasingly digital. Trust and transparency will be important as indelible logs are needed for finance, medical, armies, etc.
4. IoT will become more pervasive, enabling near digital omniscience as everything becomes a sensor that transmits data up the chain. 
5. Mass customization will become the norm instead of simple mass production as hardware, data, and AI continues to improve products, medicine, custom supplements, and just about everything else. 

 

What do you think?  I'd love to hear your list.

Elon Musk and His Self Driving Cars

While self-driving cars seem like a relatively new invention, the reality is that the earliest autonomous self-driving cars existed in the early 1980s (non-autonomous versions and semi-workable experiments have existed since the 1920s). 

Luckily, the standards and approach have gotten much better since then, and we continue to make massive strides. Recently, Elon Musk stated that he was confident that level 5 self-driving cars would exist by the end of this year. That would mean the need for a steering wheel or a driver's seat would be next to 0 - a luxury even. 

 

via Stein Law

According to many AI experts, this is exciting because level 5 autonomy is not just difficult - it's near impossible. 

Think of it from a human perspective. When we're driving, many minute decisions happen instantaneously and without much trouble. But some of those decisions are "subjective" and seemingly novel. We know the answer because we intuit the answer - not because it's following any specific rule. 

For a car to reach level 5 autonomy, it would have to be pre-trained for essentially every possible situation they could encounter - no matter how rare. 

Elon Musk is famous for his potentially antagonizing beliefs and predilection for extreme statements ... but will Tesla somehow solve these problems?

Is AI about to pass another hurdle already?

It's exciting stuff! As someone that hates long drives, I'm certainly ready for it. I can also envision a future where the norm is autonomous driving, and individuals that want the right to drive their cars themselves will have to pass extra tests, pay extra fees, and warn the autonomous cars that it's a human at the wheel. 

The History of Innovation Cycles

In today's environment of rapid change, innovation is a topic worthy of increased thought, action, and discussion

Here are some articles worth a look to get started:

• Can You Afford To Think Linearly In This Exponential Age? 
• Gartner's 2020 Hype Cycle For Emerging Technologies
• Getting To Next: How Thoughts Become Things

Too often, people view Innovation through the lens of today (meaning, they evaluate where things are in relation to their hype cycle or adoption model. While helpful, these methods focus on shorter-term trends.  Sometimes, a longer view helps too. 

Let's look at the pace of innovation, and how the long waves of innovation are truncating faster. 

 

via Visual Capitalist

The theory behind these long waves of innovation is based on creative destruction. To summarize a complex theory, as markets are disrupted, a few key clusters of industries have a major effect on the economy and the future structure of society.

An easy-to-understand example is that as railways proliferated, urban growth happened around stations. To a lesser extent, it happened with aviation as well.

The most recent example would be the transition of businesses online. I think it's likely that the COVID pandemic moved forward the timeline for the 6th wave considerably, as individuals get used to a new normal. 

Despite the pain and challenges of new technologies, each of these waves brought economic growth and improved living standards. 

ESG and green tech are becoming more important (and, perhaps, a driver of the 6th wave).  Nonetheless, I think the major movers will be AI and the decreasing divide between digital and physical.

In many respects, I believe AI will terraform the world similarly to how electricity (or the Internet) did - but in much less time. 

What do you think? 

Speaking At The 13th Annual Rocky Mountain Economic Summit

The Rocky Mountain Economic Summit is one of my favorite events to attend each year.  It is hosted by the Global Interdependence Center and the Bronze Buffalo Club just outside Jackson Hole, Wyoming. 

Major media outlets like Bloomberg, Forbes, and Reuters cover the event live.

This year, some of the key speakers included Paul Ryan, Megan Greene, David Kotok, John Silvia, and Paul McCulley. 

I had the pleasure of speaking during their session on Cybersecurity and AI. The Global Interdependence Center also recorded our session, so I'm thankful to share it with you here. Let me know what you think. 

 

The mood was pretty optimistic and bullish. As you might expect, there was a growing interest in crypto and blockchain … and a growing sense of “us versus them” directed at China and Russia. We live in interesting times!

If you want to download my presentation slides, you can do that here. 

Tracking Ransomware Attacks

At the beginning of July, a ransomware attack on IT management company Kaseya's VSA systems by REvil, became big news after influencing over 1500 companies and millions of devices. 

It took 19 days before they had a solution that they received from a "trusted third party." It's believed that Kaseya got the decryptor either from paying the ransom or from the US or Russian governments. 

Unfortunately, ransomware attacks are becoming more common. To see more data on various known attacks, Information is Beautiful put together a great interactive visualization. 

via Information Is Beautiful

It's impossible to protect yourself completely, but there are a lot of simple things you can likely be doing better. 

• Use better passwords... Even better, don't even know them.  You can't disclose what you don't know.  Consequently, I recommend a password manager like LastPass or 1Password who can also suggest complex passwords for you. 
• Keep all of your software up to date (to avoid extra vulnerabilities)
• Don't use public wifi if you can help it (and use a VPN if you can't)
• Have a firewall on your computer and a backup of all your important data
• Never share your personal information on an e-mail or a call that you did not initiate - if they legitimately need your information, you can call them back
• Don't trust strangers on the internet (no, a Nigerian Prince does not want to send you money)
• Hire a third-party security company like eSentire or Pegasus Technology Solutions to help monitor and protect your corporate systems

How many cybersecurity measures you take comes down to two simple questions ... First, how much pain and hassle are you willing to deal with to protect your data? And, second, how much pain is a hacker willing to go through to get to your data?