Surf Report: The gravity of all the things
Issue 17: 01.24.2021 (Free Version)
INTRODUCTION
January 24, 2020
Hey everyone—I’m so glad to have you here. What a week.
It's easy to get lost in the barrage of terminology that dominates whatever industry you happen to be a part of. Even when you understand the words it can still obscure the reality of what they are trying to describe. Of course, words do matter, and the right word can also offer precision. But if precision comes at the expense of inclusion then it's usually not the best trade off.
This is part of why Elon Musk has a strict no-jargon policy at his companies. ("In general, anything that requires an explanation inhibits communication.") Language can create barriers. The more accessible you make the words—the simpler and more common they are—the more people can contribute to solving problems and offering new ideas.
One thing I find helpful is to uncover the common thread among a collection of technical concepts, and make an effort to remember that one thread better than all the fancy words. This past week a bunch of fancy words came across my plate:
Nash equilibrium: a concept in game theory and economics (for which John Nash ultimately won the Nobel Prize) that describes the stable point at which two or more parties eventually come to an agreement without a distinct advantage of one over the other.
Schelling point: Another concept in game theory describing a solution that people tend to choose by default in the absence of communication with one another.
attractor: This is a key idea in the physics of Chaos theory that describes a single number value toward which a complex system tends to evolve, despite a huge variety of possible starting conditions.
regression to the mean: This is the now common idea in the field of statistics that individual measurements of a sample, no matter how extreme, will eventually converge on the average of all the measurements over time.
Benford's law: Also known as the "first-digit law." This is a well-documented observation that in many naturally occurring collections of numbers, the leading digit is likely to be small. Nature, it seems, prefers its numbers to begin with the digit 1, followed by numbers that begin with the digit 2, and so on.
So what is the one concept that all of these different terms is describing? Gravity. In many domains of life things appear to orbit other things. They are pulled toward a center of gravity for one reason or another, and tend to settle at the same shared level.
Benford's law is particularly interesting when it comes to markets and marketing. At first glance it seems to be a feature of nature like the Fibonacci sequence, but it also may reveal something about human psychology: the farther away a large number gets from a leading digit of 1, the stronger the psychological desire to get back to it. $100,000 is a bank balance threshold that feels more desirable the farther you get from $10,000. So for example: $81,000 wants to be $100,000, but $91,000 really wants to be $100,000. And people will tend to focus more on reaching that threshold than they will in going from, say, $51,000 to $60,000.
Much like our psychological bias involving round numbers (numbers that end in 0) that underlies the marketing trick of 99¢, Benford's law describes another kind of numerical gravity that tugs at our desire for stability. Look for it in company shares and cryptocurrency prices. You’ll often see buyers become more eager to pay a higher price if it means reaching the next leading digit of 1.
All this to say: don't let the appearance of math and numbers fool you into thinking you have removed human nature from the equation.
Until next time,
—Mark
“Most people use statistics as a drunk man uses lamp-posts — for support rather than for illumination.” —Andrew Lang
Breaking 🌊
Joe Biden and Kamala Harris were sworn is as U.S. president and vice-president on Wednesday. Biden quickly began rolling back Trump-era legislations such as revoking a permit for the Keystone XL oil pipeline, reversing a travel ban from several largely Muslim and African countries, halting construction of a Mexico border wall, and rejoining the Paris climate accord. So What?: The business-related implications of a Biden presidency remain unclear, but his economic to-do list reveals permanent infrastructure investments related to climate change and intends to pay for them with increased taxes. But reopening schools and businesses by way of expedited vaccine distribution is clearly the top priority, which might outweigh tax-related gripes on Wall Street and Main Street.
Newly-appointed U.S. Treasury secretary, Janet Yellen, is considering a number of new measures including limiting the use of cryptocurrencies, taxing unrealized capital gains, and creating a 50-year bond. So What?: Buying bitcoin, investing in stocks, and avoiding bonds altogether are what savvy citizens are currently doing to protect their life savings and avoid the inflationary impact of the Fed’s money-printing and cash giveaways, so these ideas are entirely opposed to that behavior. It’s doubtful these measures will ultimately pass given how unpopular they are, but it reveals the lengths the government is willing to go to mitigate the consequences a now-flooded money supply.
Firms such as Amazon and Honeywell have offered to assist the Biden administration in vaccine distribution and tracking. So What? The government could use the help, as vaccinations are lagging expectations since the initial Pfizer shipments in December. It’s not just altruism at work here though: corporations have direct incentive to get the economy back on track and avoid more consumer lockdowns.
Palantir stock popped 16% upon announcement of their first public demo day on January 26, while Netflix shares soared on a quarterly report that beat analyst expectations on revenue and net-new subscribers—they’re is “very close” to being free cash flow positive and is considering returning cash to shareholders through buybacks. So What?: Even conservative investors are suggesting that these two firms (among others) are still undervalued, and have a lot more room to grow. Netflix is included in the S&P 500, so owners of an S&P index fund already have exposure, but Palantir (ticker PLTR) just went public last year and is one to watch in the months and years ahead.
Bitcoin had a busy week: the price tumbled briefly upon fears of an alleged (later debunked) double-spend on the blockchain, as well as a copyright claim from a man named Craig Wright who repeatedly purports being the technology’s pseudonymous inventor, Satoshi Nakamoto. Yet Michael Saylor’s MicroStrategy poured in more money to “buy the dip” and famed investment firm BlackRock filed documents with the SEC that state for the first time that “certain funds may engage in futures contracts based on bitcoin." So What?: The price fluctuations are still consistent with a popular model projecting bitcoin’s movement and suggests we’re still at the beginning of a bull run. What we’re seeing is weak hands who are selling to large institutional investors that continue moving coins off of exchanges into the long-term storage of private wallets.
From The Tweetbox 🐦
🔗 Privacy is cool, check out DuckDuckGo’s numbers
🔗 Two stories: One success, one failure. Same lesson.
🔗 “If you’re following a thousand stocks… You’re following zero stocks well.”
For The Pros 😎
Productivity tips from a software developer and behavioral psychology enthusiast. (Link available to Pro subscribers)
Why Bitcoin is important, written from the perspective of a conservative, traditional investor. It’s an easy-to-understand read focusing on its role in the financial the financial system as an inflation hedge asset. (Link available to Pro subscribers)
A fantastic primer on the history of inflation vs deflation by Lyn Alden. (Link available to Pro subscribers)
A marketing expert’s new step-by-step guide to creating landing pages that convert. (Link available to Pro subscribers)
Why YouTube search will never be the same. Listen up SEO peeps! (Link available to Pro subscribers)
Worthwhile Reads ☕️
The latest from Shawn Wang (@swyx): Strategy Turns
“Real rockets don't go straight up. They go up, and then they turn.”
Rockets do this to transition from "mostly going up" to "mostly going sideways" in order to achieve orbit. This is known as a gravity turn (technically, they pitchover, but that's a less catchy title).
I see a lot of "turns" in life - when something makes sense to do at first, but becomes a bad idea once you're established, and you notice the "pros" do something else instead.
A profile of the founder of Visa and the ‘founder of Fintech,’ Dee Hock, and the details behind its chaordic org structure. Check out Hock’s original vision of a “global currency:”
Money would become nothing but alphanumeric data in the form of arranged energy impulses. It would move around the world at the speed of light at minuscule cost by infinitely diverse paths throughout the entire electromagnetic spectrum. Any institution that could move, manipulate, and guarantee alphanumeric data in the form of arranged energy in a manner that individuals customarily used and relied upon as a measure of equivalent value and medium of exchange was a bank. It went even beyond that. Inherent in all this might be the genesis of a new form of global currency.
If electronic technology continued to advance, and that seemed certain, two-hundred year old banking oligopolies controlling the custody, loan, and exchange of money would be irrecoverably shattered. Nation-state monopolies on the issuance and control of currency would erode.
Check This Out 👀
Letterboxd, a thriving social media platform for movie enthusiasts. (here’s a recent feature in the New York Times)
It was introduced in 2011 drawing mainly hardcore cinephiles and stats fanatics at first, but exploded in popularity in 2020. Their user base nearly doubled since the beginning of the pandemic, now at 3 million member accounts (up from 1.7 million at this time last year)
PNGs 🖼
3M is the most connected company in terms of shared board members [Source]
The 3M board has 12 members on it, including people like the retired CEOs of Kroger and UPS, and the current CFO of Microsoft.
As for board members in common, there are seven people on 3M’s board that have a connection to one of the other 50 large companies, including: Boeing, Coca-Cola, AbbVie, Proctor & Gamble, Amgen, Chevron, and IBM
“Don’t tell me what you think, tell me what you have in your portfolio.” —Nassim Nicholas Taleb
Drop Ins 🏄
My latest investments & trades
Swing Trades (1-3 month time horizon)
This section is only available for contributing subscribers. If you’d like to trade and invest along with me, consider one of the paid tiers!
Barrels 🎯
Portfolio Highlights
Winning Trade of the Week: $JE, scaled out profits for a 37% return
Pods & Schools 🐬🐠
(I clip all my favorite podcasts excerpts on the Bitcast.fm app. Give it a try! You can follow me @markmulvey)
📚 Against the Gods: The Remarkable Story of Risk, by Peter L. Bernstein (1996)
The word "risk" derives from the early Italian risicare, which me "to dare." In this sense, risk is a choice rather than a fate. The actions we dare to take, which depend on how free we are to make choices. are what the story of risk is all about. And that story helps define what it means to be a human being.
🔊 Polina Marinova Pompliano // The Evolution of DTC Media, Creative Process + Mental Frameworks (Creator Lab podcast episode)
Here’s a clip of her explaining the reason why it makes sense to work on independent projects — even for super risk-averse people.
There's a difference between a scary decision and a risky decision.
Tools of the Trade ⚒
Products I use to make money
Wealthfront. ~25% of my portfolio is in Wealthfront, which since 2016 has netted me a time-weighted return of ~53% (~50% money-weighted) at the time of this writing, all while harvesting tax losses like the pros do.
Use this special link to get your first $5,000 managed for free: https://wlth.fr/2ephpyb
StockCharts. I easily make back the small monthly subscription fee with the superpowers it gives me.
Carrd. Use this link or referral code 892PYX69 to start your own web empire.
Disclaimer
Nothing in this email is intended to serve as financial advice. Do your own research.