Roundup: Space updates, Progress studies, New World’s Fair, Web3, DAOs, and “The First Tycoon”

Greetings FutureBlind readers!

It’s been a while. Although I have 3 or so posts outlined and in various states of completion, life has gotten in the way. My wife and I’s first child is due in a few months (Are we in the thick of a post-Covid baby boom?) and in an act of complete lunacy this summer we started a major home renovation. This has, to put it mildly, put a damper on my free time.

Nonetheless I really wanted to write a bit and put something out there. So instead of the typical focused post, I’m doing it roundup style. Each section below is an area I follow or find interesting.

Here’s an outline of the roundup so you can jump to whichever section sounds interesting:

  • 🚀 Space updates
  • Progress Storytelling & a New World’s Fair
  • Web3, tokens, and the future of governance
  • Solving big problems
  • What I’ve been reading
  • Quotes from “The First Tycoon”
Continue reading “Roundup: Space updates, Progress studies, New World’s Fair, Web3, DAOs, and “The First Tycoon””

Passages from “The First Tycoon”

The following are passages from the book The First Tycoon by T.J. Stiles. The book is a biography of Cornelius Vanderbilt, who built a steamship and railroad empire in the mid-1800s.

More than that, it’s a history of the early corporation and the beginning of the era of modern business. This is the subject of the quotes below. While reading them, I was constantly reminded of recent (and ongoing) innovations in blockchain tokenization, corporate governance, and new financial mechanisms.

There are a ton of other interesting stories in the book — one epic business battle after another — so I highly recommend it.

On the birth of the corporate structure:

This was the birth of a kind of abstract thinking never before required in everyday life. It sparked a fierce resistance. On a daily basis, most Americans rarely interacted with corporations; they still lived in a society of farms, small businesses, and independent proprietors. Jacksonians viewed corporations in much the same way that the evangelists of the Second Great Awakening saw the Masons or popery: as a corrupt conspiracy, a mysterious encrustation on the beautiful simplicity of the true religion. As artificial beings, Gouge intoned, “corporations have neither bodies to be kicked, nor souls to be damned.”

If ever corporations were necessary, it was now, for railways were far more costly and far more complex than textile mills (almost all of which were owned by individual proprietors or partnerships).

On what stock/equity ownership represented:

They placed great emphasis on the “par value” of stock, usually set at $100 per share. This represented the original investment in a company; it was expected that the total value of all its shares would equal the cost of the physical capital—land, buildings, machinery, livestock. A stock certificate might be a slip of paper, but it was thought to represent something real, much as paper currency represented cold, hard gold that could be retrieved on demand from a bank’s vault.

On the intangible nature of corporations and the tokens that represent them:

Vanderbilt and Drew’s business careers, coming in the first half of the nineteenth century, were acts of imagination. In this age of the corporation’s infancy, they and their conspirators created a world of the mind, a world that would last into the twenty-first century. At a time when even many businessmen could not see beyond the physical, the tangible, they embraced abstractions never known before in daily life. They saw that a group of men sitting around a table could conjure “an artificial being, invisible, intangible,” that could outlive them all. They saw how stocks could be driven up or dropped in value, how they could be played like a flute to command more capital than the incorporators could muster on their own. They saw that everything in the economy could be further abstracted into a substanceless something that might be bought or sold, that a banknote or promissory note or the right to buy a share of stock at a certain price could all be traded at prices that varied from day to day. The subtle eye of the boorish boatman saw this invisible architecture, and grasped its innumerable possibilities. [. . .]

At fifty-four, Vanderbilt could look back on a career of breathtaking leaps of imagination. Steamboats and railroads, fare wars, market-division agreements, and corporations: all were virtually unknown in America when he mastered them. He understood the emerging invisible world far better than those who condescended to him. And this knowledge was about to serve him better than he could have dreamed. He was about to imagine a work of global significance—to create a channel of commerce that would help make the United States a truly continental nation. [. . .]

By 1859, he operated almost entirely through corporations; he proved himself an expert at using the stock market to concentrate capital or avenge himself on his enemies, and emerged as a master of corporate structure. He saw the corporation as just another type of business organization.

Vanderbilt split the stock of his company, doubling its par value (which was ~equivalent to equity value back then). This wasn’t accepted at the time as there was no concept of goodwill or intangibles. So Vanderbilt had someone re-value the assets to make the claim the stock dividend would still account for “real” value.

EVEN BEFORE THE COMMODORE assumed control of the New York Central, his historical legacy as a railroad king began to take shape. He would be no Leland Stanford, no James J. Hill, building transcontinental lines through thousands of miles of unsettled plains and mountains; rather, he would be a creator of the invisible world, a conjurer in the financial ether. What made him powerful—and controversial—was not his riches alone, but his mastery of the corporate golem.

For his first magic trick, he took what was one and made it two. On March 30, 1867, the Hudson River shareholders (himself foremost among them) approved his plan to nearly double the stock by issuing new shares worth $6,963,900 at par value. Called a stock dividend, it was similar to a stock split, an operation that would become common in the twentieth century. In the nineteenth century, it sparked outrage. [. . .]

Stock that did not reflect construction costs was derided as “fictitious capital,” to use the formal term—or, more commonly, “watered stock,” which called up the image of livestock encouraged to gorge on water before weighing and sale at the market. By contrast, new stock was not seen as diluting share value if it reflected actual construction or additional real estate.

On Vanderbilt’s “invisible” world of abstractions of business, money, and markets. It can be hard to imagine what life was like before these abstractions, and how big of a change it truly was to have something as conceptual as a corporation controlling so much of the economy. Tokenization of these concepts created markets where they couldn’t exist before.

For such was the world that swallowed Billy Vanderbilt: a netherworld populated by those artificial persons called corporations that masked the real persons behind them; by paper money, that masked real gold and silver; by whispered rumors, that masked the manipulations of self-serving men. [. . .]

[Vanderbilt] may have left his most lasting mark in the invisible world, by creating an unseen architecture which later generations of Americans would take for granted. The modern economic mind began to emerge in Vanderbilt’s lifetime, amid fierce debate, confusion, and intense resistance. The imagined devices of commerce gradually abstracted the tangible into mere tokens, and then less than tokens. Money transformed from gold coin to gold-backed banknotes to legal-tender slips of paper and ledger entries of bank accounts. Property migrated from physical objects to the shares of partnerships to par-value stock to securities that fluctuated according to the market, that could be increased in number at will [emphasis mine]. Like a ghost, the business enterprise departed the body of the individual proprietor and became a being in itself, a corporation with its own identity, its own character, its own personhood.

[. . .] Vanderbilt lived out the history of this abstraction, the invention of this imagined world. More than that, he took it to a new level by pioneering the giant corporation. By consolidating his New York lines into the New York Central & Hudson River Railroad, he constructed something larger than himself, not to mention virtually every other enterprise that had ever existed. It was a massive organization, one that served to depersonalize, to institutionalize, American business and life. It helped to lead the way to a future dominated by large enterprises possessing wealth and power that changed not only the economic landscape, but the political one as well.

A lot of parallels to our current situation.

Over the next 20 years — What effects will DeFi have on finance and markets? How much of the economy will be run by DAOs and how will this be exploited by the next Vanderbilts? How far can tokenization go and how will having a market in everything change our behavior?

Book Notes: Why We Get Sick

Back in December I read the book “Why We Get Sick” (1992) by Randolph Nesse and George Williams. While some of the information was outdated due to its age, overall I loved the book as it took a more wholistic, evolutionary approach to explaining sickness.

Given the global pandemic of 2019-nCoV (novel coronavirus) underway and the timely nature of my read, here are my brief notes I took from the book.


Why We Get Sick

Two kinds of explanations for disease:

  1. Proximate explanations — Answer “what” and “how” questions about structure and mechanism. Address how the body works and why some people get a disease and other’s don’t. A proximate explanation describes a trait — its anatomy, physiology, and biochemistry, as well as its development from the genetic instructions provided by DNA.
  2. Evolutionary explanations — Answer “why” questions about origins and functions. Show why humans, in general, are susceptible to some diseases and not to others. (Or why some parts of the body are so prone to failure.) An evolutionary explanation is about why the DNA encodes for one kind of structure and not some other.

Defenses. Mechanisms our body and immune systems designed specifically to combat an issue. A protective response to a problem. Coughing is a defense. The distinction between defenses and defects is important — defects are not preprogrammed responses, they are results of a problem. Skin turning blue from lack of oxygen is a defect.

Causes of disease:

  • Infection. External agents such as bacteria and viruses.
  • Novel environments. Environments our evolved bodies aren’t used to handling. A mismatch between our design and our environment.
  • Genes. Some of our genes are perpetuated despite the fact the cause disease. In the environments we evolved in, they didn’t harm us enough not to be selected out. DNA can also be mutated and create new bad genes.
  • Design compromises. There are costs associated with every major structural change preserved by natural selection.
  • Evolutionary legacies. Evolution is incremental and can’t make major changes quickly. Many of the design choices are not optimal and carry on anyway.

Signs and symptoms of infectious diseases

Symptoms of colds and other sicknesses and diseases can be unpleasant. But most of them are useful. It is an adaptation shaped by natural selection specifically to fight infection.

Fever is an adaptation to raise body temperature enough to assist with fighting infection. Body temperature is carefully regulated even during fever; the thermostat is just set a bit higher. Children who take Acetaminophen take about a day longer to recover from chicken pox. There are costs of a fever, of course. Otherwise the body would just always stay at 103F at all times. It depletes nutrient reserves 20% faster and causes temporary male sterility. Still higher fevers can cause delirium and lasting tissue damage. And because regulatory precision is limited, fever will sometimes rise too much and at other times not enough.

Books: 2017 Reading List

Competing Against Luck — finally a full writeup on “Jobs Theory”, and required reading for anyone involved in product strategy & UX design (i.e. all startups).

The Change Function — good, simple model to think about how valuable a new innovation is (all about UX, or if (perceived crisis > cost of adoption)).

Marketing High Technology — best book on distribution you can find, for technology or otherwise.

Shoe Dog — Great story; wish he would have spent more time in the later years of Nike’s growth.

Doing the Impossible — too dense overall, but I loved hearing the story of the moon mission from the inside, especially from such a talented project manager that made it happen.

Scale — not as good as hoped, but a good “skim” with lots of interesting ideas around a theme.

21 Irrefutable Laws of Leadership — great leadership advice + stories to go along with, Dale Carnegie style (but could have been much shorter).

Hard Drive — 3rd reading of the best bio of Bill Gates & Microsoft’s early years.

The Elements of Computing Systems — I never had formal CS education so this was a great practical explainer, from translating binary to assembly, to how an OS works.

A Mind at Play — always been a huge fan of Claude Shannon’s work, mind, and humility.

Turing’s Cathedral — a little long in places, but great overall history of computing & early people who shaped it.

Softwar — Reading now. Interesting insights about early Oracle, also gives me new appreciation for Ellison. [Update: I would not recommend this book. First part is good but last half rambles on, fawning over Ellison with random stories. “The Difference Between God and Larry Ellison” is much better.]

Berkshire Hathaway Letters to Shareholders

Berkshire Letters CoverI’m excited to announce the release of a book I’ve been working on for about 6 months now, and first started in 2010.

It’s a compilation of every letter Warren Buffett wrote to the shareholders of Berkshire Hathaway. I first created it a few years ago for myself and friends. Last year I got Buffett’s endorsement — plus a few non-public letters — to publish the book for the benefit of fans and shareholders of Berkshire.

Here is the official page with all the details. There you can find a more detailed description, plus some sample pages and a chart detailing the performance of Berkshire’s insurance operations. (For any programmers out there, the chart was created with D3. You can check out the development version on GitHub.)

Features of the book:

  • Berkshire Hathaway annual shareholder letters from 1965 to 2012 (706 pages), including the 11 earliest letters not available on Berkshire’s website
  • Tabulated letter years so you can easily flip to the desired letter
  • Topics index
  • Company index
  • Person index
  • Charts of:
    • The growth in Berkshire’s book value and market price relative to benchmarks
    • Insurance float and performance
    • The operating businesses of Berkshire

The entire book is paginated, and has easy-to-flip-to labels for each letter’s year.

It is available for pre-order now. The first batch will be sold at the Berkshire Hathaway Annual Meeting on May 4 in the convention center. The rest of the copies will be available on Amazon on May 7.

Future projects

  • The obvious next step is to publish a digital version, easily readable on iPads or potentially Kindles. This is normally an easy transfer, but that’s not the case with this book due to the many tables that have to be converted. So no timeline on this but it will be forthcoming.
  • A book of letters to the partners of Buffett Partnership, Ltd., Buffett’s hedge fund he ran from 1957 to 1970. This will be a similar format to the Berkshire book, with indexes, page numbers, etc.

How to separate luck and skill

These are some of my notes from the book “The Success Equation” by Michael Mauboussin. This book was spotted on Warren Buffett’s desk in this tour of his office. There’s lots more interesting stuff in the book, but these notes in particular answer the question “How do you separate luck and skill?” We’ll start off with some definitions:

Luck is a chance occurrence that affects a person or a group (e.g., a sports team or a company). Luck can be good or bad. Furthermore, if it is reasonable to assume that another outcome was possible, then a certain amount of luck is involved. In this sense, luck is out of one’s control and unpredictable. Randomness and luck are related, but there is a useful distinction between the two. You can think of randomness as operating at the level of a system and luck operating at the level of the individual. Luck is a residual: it’s what is left over after you’ve subtracted skill from an outcome.

The definition of skill depends on how much luck there is in the activity. In activities allowing little luck, you acquire skill through practice of physical or cognitive tasks. In activities incorporating a large dose of luck, skill is best defined as a process of making decisions. Here, a good process will have a good outcome but only over time. Patience, persistence, and resilience are all elements of skill.

Separating luck and skill

Luck-Skill Continuum
At the heart of making this distinction lays the issue of feedback. On the skill side, feedback is clear and accurate, because there is a close relationship between cause and effect. Feedback on the luck side is often misleading because cause and effect are poorly correlated in the short run.

In most cases, characterizing what’s going on at the extremes is not too hard. As an example, you can’t predict the outcome of a specific fair coin toss or payoff from a slot machine. They are entirely dependent on chance. On the other hand, the fastest swimmer will almost always win the race. The outcome is determined by skill, with luck playing only a vanishingly small role.

Continue reading “How to separate luck and skill”

Book Notes: The Visible Hand

The Visible Hand: The Managerial Revolution in American Business was written by Alfred Chandler and released in 1977. It’s a great history and study on business and why it exists the way it does today. For some books I read, I transcribe and summarize my highlights/notes in order to better learn the material and for future reference. Below you’ll find my (very long) summary of The Visible Hand. Some passages are direct quotes and others are my own paraphrasing/summaries. So if you’re interested in this sort of topic, send this baby to Instapaper, plop down on the couch, and enjoy.

The Visible Hand

Modern business enterprise is easily defined, having two specific characteristics: (1) it contains many distinct operating units and (2) it is managed by a hierarchy of salaried executives. Each unit has its own administrative office, set of books and accounts. Each could theoretically operate as an independent business enterprise. Such enterprises did not exist in the U.S. in 1840. By World War I this type of firm had become the dominant business institution. It was the institutional response to the rapid pace of technological innovation and increasing consumer demand.

This study is a history, moving chronologically. Before entering the historical experience, here is a list of general propositions to make more precise the primary concerns of the study:

The initial appearance of modern business enterprise:

  1. Modern multiunit business enterprise replaced small traditional enterprise when administrative coordination permitted greater productivity, lower costs, and higher profits than coordination by marker mechanisms. [This was due to both corporate efficiency and economies of scale.]
  2. The advantages of internalizing the activities of many business units within a single enterprise could not be realized until a managerial hierarchy had been created. An enterprise without such managers remains little more than a federation of autonomous offices.
  3. Modern business enterprise appeared for the first time in history when the volume of economic activities reached a level that made administrative coordination more efficient and more profitable than market coordination. It came with new technology and expanding markets.

Growth of the modern business enterprise:

  1. The hierarchy itself became a source of permanence, power, and continued growth.
  2. The careers of the salaried managers who directed these hierarchies became increasingly technical and professional. Training became longer and more formalized.
  3. The management of the enterprise became separated from its ownership. Stockholders didn’t have the influence, knowledge, experience, or commitment to take part in the high command.
  4. Career managers preferred policies that favored the long-term stability and growth of their enterprises to those that maximized current profits. For salaried managers the continuing existence of their enterprises was essential to their lifetime careers.
  5. As the large enterprises grew and dominated major sectors of the economy, they altered the basic structure of these sectors and of the economy as a whole.

Continue reading “Book Notes: The Visible Hand”

My favorite books on business, management, investing and design

Out of the many books I’ve read in different subjects, below is a list of some of my favorites with some brief commentary for some of them. There are a few other “Mental Model” categories (psychology, history, economics, ecology, etc.) that I left out — hopefull they’ll be the subject of another post.

Business theory

  • The Origin and Evolution of New Businesses, Amar Bhide — extensive study of startups of all kinds, how they grow, what makes them successful (this is not a “help” book it is mainly observational)
  • Innovation & Entrepreneurship, Peter Drucker — how companies should systematically innovate — lots of good startup/innovation strategies (it’s not random)
  • The Innovator’s Dilemma, Clayton Christensen — every businessperson or investor needs to read this (and the one below) — every industry’s value chain is disrupted at some point
  • The Innovator’s Solution, Clayton Christensen — expands on “Dilemma” with better explanations and examples — I think the “jobs to be done” concept is one of the most important in business
  • Competition Demystified, Greenwald + Kahn — how businesses capture value by building a moat, and what strategies to use if you have or don’t have one
  • The Halo Effect, Phil Rosonzweig — the anti-business-book — but still has great insights on how businesses work and how best to run them
  • Built to Last, Jim Collins — read this with The Halo Effect in mind — lots of good advice & stories (I like this much better than “Good to Great”)
  • The Strategy Paradox, Michael Raynor — dense at times but a great theory on why strategy is so hard
  • Hidden Champions, Hermann Simon

Continue reading “My favorite books on business, management, investing and design”

An Early Christmas for Value Investors

Christmas comes but once a year.

This year, it comes three months early for those in the world of value investing. The following two books will be released at the end of September:

September 26 — ::amazon(“0071592539″,”Security Analysis: Sixth Edition”)::

After a 20 year hiatus, McGraw-Hill is releasing the latest updated edition of Ben Graham’s original Security Analysis. The update includes: a forward by Warren Buffett; a chapter by James Grant; introductions by Howard Marks, Bruce Berkowitz, and Bruce Greenwald; and commentary from Seth Klarman, Roger Lowenstein, and Glenn Greenberg. An impressive lineup. New subjects will include international investing, hedge funds, absolute return strategies, and the efficient market hypothesis.

September 30 — ::amazon(“0553805096″,”The Snowball: Warren Buffett and the Business of Life”)::

The definitive, nearly 1,000 page biography on Warren Buffett. Written by Alice Schroeder, the insurance analyst who caught Buffett’s eye after her report on Berkshire Hathaway. Much has been written about Buffett’s life, but never from his perspective. My guess is that many details will emerge about Buffett’s personality and the mindset that makes him the greatest investor of all time.

Flight of the Black Swan

The cover story of the May edition of the Bloomberg Markets magazine discusses Nassim Nicholas Taleb’s affect on Wall Street:

On a freezing day in March 2007, Nassim Taleb walked into a conference room at Morgan Stanley’s Manhattan offices on 47th Street and Broadway to address a group of the firm’s risk managers. His message: Your models don’t work.

Using a whiteboard to scribble out his calculations, Taleb, now 48, began one of his rants, this time against stress tests–Wall Street lingo for examining how a market rout will play out. Stress tests are inherently risky because they ignore rare but potentially devastating events, Taleb said.

See the Full Article here

It’s always interesting to see what other investors or thinkers have on their bookshelf. In the introduction to the article, there’s a picture of Nassim Taleb in his library. Using the hard copy, I picked out a few books that Taleb has read (or hasn’t read, by Umberto Eco standards). These should be useful for expanding one’s network of mental models:

On another note, I have joined the team of authors at Reflections on Value Investing. If you haven’t already, head over and subscribe to the RSS feed. It’s a must for any value investor. Although this was posted at both sites, for the most part, my occasional posts at Reflections will have different content than FutureBlind.