Tuesday, July 29, 2014

Innosight 2012 Briefing: Creative Destruction Whips through Corporate America

Link to: Creative Destruction Whips through Corporate America
Lifespans of top companies are shrinking, according to an Innosight study of the S&P 500 Index:
  • 61-year tenure for average firm in 1958 narrowed to 25 years in 1980—to 18 years now.
  • A warning to execs: At current churn rate, 75% of the S&P 500 will be replaced by 2027.
  • To survive and thrive, leaders must "create, operate and trade" their business units without losing control of their company.

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Related books:

Creative Destruction: Why Companies That Are Built to Last Underperform the Market--And How to Successfully Transform Them

And all of Clayton Christensen's books, which you can find HERE.

Monday, July 28, 2014

Sam Altman on EconTalk

Link to: Sam Altman on Start-ups, Venture Capital, and the Y Combinator
Sam Altman, president of startup accelerating firm Y Combinator, talks to EconTalk host Russ Roberts about Y Combinator's innovative strategy for discovering, funding, and coaching groundbreaking startups, what the company looks for in a potential startup, and Silicon Valley's attitude toward entrenched firms. The two also discuss Altman's thoughts on sectors of the economy that are ripe for innovation and how new firms are revolutionizing operations in these industries. 
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Related books (venture capital, start-ups):

Zero to One: Notes on Startups, or How to Build the Future

Venture Deals

The Hard Thing About Hard Things

Links

California Powerhouse: Munger Tolles & Olson (LINK)

Burger King Is Run by Children (LINK)

Aswath Damodaran: Investment Advice from the Federal Reserve: Unusual, unwise and unseemly! (LINK)

Barry Ritholtz interviews Arthur Levitt (LINK)

Fruits and Vegetables Are Trying to Kill You (LINK)

2012 Solar Storm Could Have Cost $20 Trillion (LINK)

Nicholas Kristof's coolest places on Earth (LINK....and a few more suggestions HERE)

The Disruption Debate - What's Missing? (LINK)
Related books: Clayton Christensen's books, which you can find HERE.

Robert Sapolsky interview with Nautilus

Link to interview: Ingenious: Robert Sapolsky
What I’ve been thinking might actually be going on is that adolescence is something unavoidable that emerges not because it’s so cool and adaptive, but because the adaptive thing is wait a long, long time before you have fully wired up your frontal cortex. Why might that be the case? Alright, so we’re born with our genome, the combination of your mother and father’s genes, that wind up in that first fertilized egg and that’s it. That’s your genetic legacy. Every cell in your body is destined to have that exact same genome. That turns out not to be true in all sorts of interesting ways, but what that also means is that when you’re thinking about what genes have to do with the brain behavior, by definition critically, if the frontal cortex is the last part of the brain to develop it’s the part of the brain least shaped by genes, and most sculpted by the environment and experience. And I think basically the only way you can have a species that is as complex and socially resilient and socially context dependent and all those amazing things we do, the only way you can pull that off is to have a frontal cortex whose development just bears the imprint of everything you experienced along the way—in effect, that’s been freed from whatever extent the genes are deterministic, which is not very. I think ironically what the evolution of the frontal cortex has been about is genetic evolution to free it as much as possible from the straight jacket of genes. 
What’s the purpose of breaking free of our genes? 
Well, when you look at the sociology of humans, of primate species, when you look at evolution, when you look at anthropology, cross-cultural differences, etcetera—being smart is a useful thing evolutionarily. Primates definitely have an advantage over stickleback fish in terms of the size of their nervous systems. Having a good memory is good, learning a lot, motoric coordination. When you look at the really fancy stuff about social behavior and what determines “success” in sort of the broadest sense of the term, what it’s got to do is appropriate social behavior. You know in the human realm that’s that whole world of your social intelligence is a better predictor of how you’re going to do by all sorts of measures in life than your IQ. You look at a baboon and you ask, “Okay, a male baboon. What determines whether or not you wind up being the alpha in your troop?” Mostly, your muscle mass, how sharp your canines are, how aggressive of a son of a bitch you are. Okay, that’s got tons to do with whether you attain alpha-ship.  What’s the predictor of who maintains it for a long time? It’s all social intelligence. It’s who you can intimidate without actually getting into a fight.  It’s which coalitions you form and which ones you don’t go anywhere near. It’s which provocations you walk away from. It’s all about impulse control. And when you look at the really complex primates, success is really not about remembering that, “Oh four valleys over there’s a tree that’s going to be fruiting at this time of year; let’s go there this morning.” It’s the social intelligence stuff and what that’s all about is the frontal cortex. If you don’t have a frontal cortex that has been shaped by the subtleties and the idiosyncrasies of your immediate social world, you’re not going to be anywhere near successful of a primate. And I think that’s why it’s got to be the part of the brain that’s the last to develop. It’s got to be shaped by all that contextual stuff.
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Related books:

A Primate's Memoir: A Neuroscientist's Unconventional Life Among the Baboons

Why Zebras Don't Get Ulcers

The Trouble With Testosterone: And Other Essays On The Biology Of The Human Predicament

Monkeyluv: And Other Essays on Our Lives as Animals

Related previous posts:




Richard Duncan: How Capitalism Died & Where That Leaves Us


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Related book: The New Depression

Related previous post: Richard Duncan interview

Hussman Weekly Market Comment: Yes, This Is An Equity Bubble

Now, as we observed in periods like 1973-74, 1987, and 2000-2002, severe equity market losses do not necessarily produce credit crises in themselves. The holder of the security takes the loss, and that’s about it. There may be some economic effects from reduced spending and investment, but there is no need for systemic consequences. In contrast, the 2007-2009 episode turned into a profound credit crisis because the owners of the vulnerable securities – banks and Wall Street institutions – had highly leveraged exposure to them, so losing even a moderate percentage of their total assets was enough to wipe out their capital and make those institutions insolvent or nearly-so. 
At present, the major risk to economic stability is not that the stock market is strenuously overvalued, but that so much low-quality debt has been issued, and so many of the assets that support that debt are based on either equities, or corporate profits that rely on record profit margins to be sustained permanently. In short, equity losses are just losses, even if prices fall in half. But credit strains can produce a chain of bankruptcies when the holders are each highly leveraged. That risk has not been removed from the economy by recent Fed policies. If anything, it is being amplified by the day as the volume of low quality credit issuance has again spun out of control.

Saturday, July 26, 2014

Links

Greenlight Capital Q2 Letter (LINK)

Steve Romick's Q2 Letter (LINK)

Jim Chanos on Charlie Rose (LINK)

Lawrence Cunningham on whether or not Berkshire, post Buffett, should go private [H/T Linc] (LINK)
Related book: Berkshire Beyond Buffett: The Enduring Value of Values
Billion-Dollar Billy Beane (LINK)
Related book: Moneyball

Enjoy the present hour, be mindful of the past; And neither fear nor wish the approaches of the last. 
Ben Franklin

Friday, July 25, 2014

The secretive billionaire who built Silicon Valley

Link to article: The secretive billionaire who built Silicon Valley
How John Arrillaga Sr. transformed California fruit orchards into high-priced office space for the likes of Google, Apple, Hewlett-Packard, and Cisco.
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I knew Charlie Munger had mentioned Arrillaga somewhere. It appears it was at the 2006 Wesco Meeting (the excerpt below is from page 36 of THIS compilation...and it's in the context of Munger  warning that at that time in 2006, "...every asset class I see is priced on a fairly rich basis."):
Let me give you a different example, a different construct. I know a man, John Arrillaga, who was a star athlete at Stanford in a different generation. He got out of Stanford and started building little buildings around Stanford. He kept doing it and was good at it and of course there was no better market. In due time, he and his family had 15 million square feet, and the rents had gone up and up and up.

The interesting thing was that instead of doing the normal thing real estate developers do, which is borrow, borrow, borrow, so that money earned goes up and up and up, John gradually paid off 100% of the debt on his buildings so that when the great Silicon Valley crash hit and three million square feet of his buildings went vacant, it was a total non-event – and, in fact, he could start buying buildings from others [who were distressed]. He now likes to build buildings for Stanford – and doesn’t take any compensation for it; he takes a loss. This has been a wonderful thing.

Here’s a man who deliberately took some risk out of his life. He has no regrets in his life. He was damn glad. I think there’s a lot to be said when the world is going a little crazy around you, to at least put yourself in a position that if something really unpleasant happens, that it might be unpleasant but will be a non-event in terms of changing your life. We all might consider imitating John Arrillaga as things get crazier and crazier.

Links

Paul Craven TEDx Talk: "The Mind, Markets and Magic" [H/T ValueWalk] (LINK)

US railways: Back on track [H/T Will] (LINK)

Is T.J. Maxx the best retail store in the land? (LINK)

Andrew Smithers: The fallacy of the Fed model (LINK)

Google's New Moonshot Project: the Human Body [H/T Andrew] (LINK)

Why Are We Ignoring a New Ebola Outbreak? (LINK)

Another Bill Gates book recommendation: The Sixth Extinction: An Unnatural History (LINK)

Wednesday, July 23, 2014

Generalizing the Kelly Criterion

Below is a link to a 3-page excerpt from the Boyles Q2 2014 letter relating to the Kelly Criterion, a topic I’ve mentioned before, but not quite given as full of a discussion as there is here.