Surf Report: The trouble with root causes
Issue 12: 12.20.2020 (Free Version)
INTRODUCTION
December 20, 2020
Hey everyone—I’m so glad to have you here. What a week.
Hedge fund analyst turned software developer Shawn Wang convinced me that a very popular problem-solving strategy in the world of business has some defects.
That strategy is 'the 5 Whys," first introduced to popular culture by Sakichi Toyoda, founder of Toyota Industries, back in the 1930's. It grew in popularity in the '70's and '80's, and Toyota still uses it to solve problems today. It works like this: if something goes wrong, you first ask a person close to the issue why it happened. Their answer is not likely the root cause though, so you need to ask again: "Well why did *that* happen?" And so on. Like a child incessantly questioning the nature of everything to the frustration of mom or dad, after about 5 'why's' you'll probably have found the true root cause of the problem, not just a downstream symptom.
The reason this is problematic is because for any complex system... there is no root cause:
"Failures in complex systems require multiple contributing causes, each necessary but only jointly sufficient."
Not only are outcomes the result of a number of interacting causes and knock-on effects, but often the root cause is so foundational and ingrained that for practical problem-solving purposes it's useless to try to change it. Shawn talks about it in terms of software development: if you run into a software bug and you ‘5 whys’ your way to an answer of: "Because it's built in this programming language, not that one," then you can't very well just rebuild the thing from the ground up. At least not without losing funding, customers, employees, or all 3 along the way.
Humans are constantly expected to make sensible decisions in a world that is opaque, complicated, and unpredictable. No easy feat!
There are at least two lessons to take from this, the first being: never stop questioning things, and always be open to the idea that even great advice that works for a lot of people can be improved upon, or may not work for you in a particular situation. As another example: one of the most unpopular opinions I hold is that the Golden Rule is broken.
You heard me.
“Treat others as you would like to be treated” assumes other people want the same things you do. I’ve since added a patch to the Golden Rule that upgrades it to be: “Treat others as they would like to be treated.” Projecting my own wants onto them is not empathy, though it is close. I find this variation works better.
The second lesson to take from the ‘5 whys’ story is simply: the world is opaque, complicated, and unpredictable. Appreciating how little you know about pretty much everything keeps you from assigning motives, causes, or reasons where there are none, and instead operating under laws of probability where strategies of risk mitigation and upside potential reign supreme.
This whole idea was serendipitously echoed recently by Dan McMurtrie on my new favorite podcast, Business Brew: “Any framework or mental model you have can become an excuse to stop thinking or decide that the problem is unsolvable.”
You don’t know as much as you think you do, and even good rules of thumb aren’t always good.
“What you should learn when you make a mistake because you did not anticipate something is that the world is difficult to anticipate. That’s the correct lesson to learn from surprises: that the world is surprising.” —Daniel Kahneman
Until next week,
—Mark
🎁Real quick!🎁 This 12th issue of Surf Report has fallen on 12/20/20, and while I’m not one to read into things I am also absolutely one to read into things.
In light of this auspicious date I have a small favor to ask that would mean the world to me: if you’re enjoying Surf Report so far, consider sharing with someone you know who might enjoy it too! You can use this button or just forward this e-mail.
My goal is to 10x your return on time spent skimming it, and help as many people as I can along the way. Thanks so much for trusting me in your inbox!
Now, on with the 🏄♂️…
“To find fault is easy; to do better may be difficult.” —Plutarch
Breaking 🌊
Microsoft announced it is working on manufacturing its own chips in-house, for use in the servers that run the company’s cloud services as well as Surface PCs. So What?: Apple made a similar move recently with its M1 chip, which puts both firms now in the semiconductor sector… much to the dismay of entrenched stalwarts like Intel (whose stock tumbled dramatically on the news) which supplies chips to both companies.
Robinhood settled with the SEC over charges of misleading customers by paying a $65 Million fine, neither admitting nor denying guilt. One of the charges claims Robinhood chose to send customer orders to whichever Wall Street firm paid it the biggest fees at the time (rather than the ones that offered customers the best trading prices) while “gamifying” the experience to encourage frequent trading, including high-risk options. So What?: The charges came at a bad time, as Robinhood is considering an IPO in 2021. It also erodes brand trust and reputation overall (Robinhood” suggests a hero transferring value from rich to poor—not a villain doing the reverse.)
Public just raised $65M in Series C funding to "change the culture of the stock market," most recently by celeb investors like The Chainsmokers & skateboard pro/legend/mogul Tony Hawk. So What?: The social investing platform (that everyone and their grandmother seems to have a stake in) is attempting to do for responsible investing what Robinhood did for short-term trading. The sheer number of investors in the mix only makes sense if Public has massive IPO aspirations down the road.
Bitcoin price soared past several all-time highs reaching $24K on Saturday as on-chain analyst says $55K is the ‘next landmark.’ In the same week, leading crypto exchange Coinbase announced plans to go public. So What?: The influx of institutional investors + mainstream acceptance by conservative banks has lent major credibility to what was once dismissed as “worthless.” Now it’s taking the place of gold as the leading inflation hedge asset option amidst rampant government money printing.
From The Tweetbox 🐦
🔗 The happiest people are those who spend time with people who are not like them and not their age.
🔗 There is too much emphasis placed on “knowing your audience”
🔗 More mainstream coverage of the crypto revolution, this time on CNN. "Invest 5% of your net worth in #bitcoin"
I wonder how this story will end…
For The Pros 😎
The trick to writing stuff people want to read: 🔗 (Link available to Pro subscribers)
Why an IPO "pop" might be completely normal: 🔗 (Link available to Pro subscribers)
A thread about how Nintendo played a 130 year long game, and won: 🔗 (Link available to Pro subscribers)
Worthwhile Read ☕️
Amazon’s Twitch is known as the streaming video game platform, but Google’s YouTube is drinking its milkshake.
2020 is YouTube Gaming's biggest year, ever: 100B watch time hours
The folks at Master the Meta helped put this into perspective:
“Over the past year, viewers watched over 100 billion hours of gaming content across 40+ million active gaming channels. Put into perspective, watch time doubled in only two years, and growth is happening across the globe. The top viewed games of 2020 were: Minecraft: 201B views, Roblox: 75B views, Garena Free Fire: 72B views, Grand Theft Auto V: 70B views, Fortnite: 67B views
Note that the most popular game being streamed on YouTube by a massive margin was Microsoft’s Mincraft, which was released 11 years ago! GTA 5 came out 7 years ago. To me, this speaks to the power of compounding when you continue investing in one thing over long periods of time. Interest accumulates and begets new interest.
3 reasons why YouTube is besting Twitch:
“One, YouTube is far more global than Twitch will ever be (only one of YouTube’s top 10 live streamers from 2020 presents in English) […]
Two, because of YouTube’s mega-distribution (2+ billion users), it’s easier for them to become more of a one-stop video shop for both creators and viewers.
Three, YouTube’s technical execution far exceeds Twitch’s; for example, Twitch recently told most streamers to delete their entire Twitch VOD libraries because of music copyright issues (uff!).”
Insight 💡
Everyone thinks of precious metals, treasury notes, and real estate, and (now) Bitcoin when it comes to inflation hedges, but investing in payment transaction companies (e.g. Paypal, Square, Discover, Visa…) is also a valid approach to protect your portfolio from the continually-devalued dollar. Why?
The revurring revenue of payment transaction companies include a percentage of all merchant/consumer transactions… even as prices go up ✨
The reason a house might be the best investment most people ever make: people can’t easily panic-sell it:
“It’s not that housing provides great returns – it does not. It’s not even the leverage. It’s that people are more likely to buy a house and sit on it without interruption for years or decades than any other asset. It’s the one asset people give compounding a fighting chance to work.”
Check This Out 👀
"While Moana is a fun, kid-friendly, music-laden animated movie – it is also an allegory about big business at a crossroad between mature market and massive market disruption”
PNG 🖼
“Don’t tell me what you think, tell me what you have in your portfolio.” —Nassim Nicholas Taleb
Drop Ins 🏄
My latest investments & trades
Buy & Hold Investments (I will hold these forever)
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!
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: $PROG, skimmed off some profits for a 45% return (most of the trade is still 🚀)
Pods & Schools 🐬🐠
(I clip all my favorite podcasts excerpts on the Bitcast.fm app. Give it a try! You can follow me @markmulvey)
🔊 How Combat Shaped My Thinking About Life: An interview with Preston Pysh on the Once BITten podcast.Preston Pysh is a West Point grad and former helicopter pilot & company Commander of the 101st Airborne Division of the U.S. Army. Currently he’s known more as a value investor, creator of the Investor’s Podcast Network, and a prominent Bitcoin advocate. This pod covers it all, including a very approachable explanation of how debt markets work, and I gave it a re-listen straight away.
More pod clips: (Click through for the full snippet of dialogue)
🔊 Alex Danco on the value of Twitter (FinTwit) for business and investing: “The best analysts on stocks is kids on the internet.”
🔊 Dan McMurtrie on how common it is to pivot, and how people overcomplicate things: “Don’t make things harder to feel smarter” & “What works is usually very different from what was pitched”
🔊 Tim Urban on why it’s not too late to be a creator today: “There’s plenty of room for more excellent content out there, and the algorithms will push it”
🔊 Gary Vaynerchuk in defense of optimism and positivity: “Keeping it real is keeping it real cynical.”
📚 Grabbed this book recently for $4.50 at a local used bookstore. It’s probably the best primer on investing you’ll ever find: A Random Walk down Wall Street: The Time-tested Strategy for Successful Investing, by Burton G. Malkiel
“It is not hard to make money in the market. What is hard to avoid is the alluring temptation to throw your money away on short, get-rich-quick speculative binges. It is an obvious lesson, but one frequently ignored.”
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.
Cointracker. Track your coins like you track your stocks.
Hypefury. Easily the best tool out their for growing a quality Twitter following.
Validate Your Business Idea: Includes everything from researching, writing, getting attention, and engaging with people, plus a spreadsheet template for tracking subs. Surf Report subscribers get $5 off with the code: surfreport
Disclaimer
Nothing in this email is intended to serve as financial advice. Do your own research.