Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, broccoli, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

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In today’s post: hacking's potential to drive a Y2K-like IT spending wave and force crypto regulation; Q2 update from NZS; TikTok > YouTube; electric airplanes; AI programming cobots; digital tech taking over restaurants; nondual quantum mechanics; the bullshit of books; how to do tech regulation right; and lots more below...

Stuff about Innovation and Technology
TikTok Piledrives Competition
Chipotle, Shopify, and Target are some of the companies accepting video resumes for open jobs via social networking app TikTok. You can even apply to become a WWE Superstar wrestler. In other TikTok news, the app has beat out YouTube, Netflix, and Facebook among US Android users, with an average of 24.5 hours usage per month. TikTok has rapidly outgrown other forms of phone-based entertainment over the last couple of years.

Adventures in Electric Aviation
Eviation is an electric commuter jet company with a prototype, Alice, that can travel around 500 miles at a speed of 250 mph carrying nine passengers and two pilots and has a max takeoff weight of 16,500 lbs. The company has not yet released battery details, so it’s not clear if they have overcome the 400 Wh/kg battery density long thought to be necessary to enable electric flight. Tesla currently achieves 250-300 Wh/kg in its EVs. Eviation’s first test flight could come later this year, with commercial flights starting sometime after 2024.

Gambling with Dominos
Domino’s partnered with DraftKings to let curbside pickup customers bet on whether their hot ‘za will make it to their car in less than two minutes from when they arrive. It’s a cute promotion; yet, I can’t help but imagine a future where we are using our phones to bet on every digital transaction...

Advertising’s Power Law
Five Internet platforms now account for 46% of all global ad revenues, according to GroupM. The big players today – Google, Facebook, Alibaba, ByteDance (TikTok), and Amazon – have 2.7x the share of 2010’s top five – Google, ViacomCBS, News Corp, Comcast, and Disney. This stark trend is a classic Information Age power law where market share follows data and value creation as an industry shifts from analog to digital. The outcome isn’t necessarily bad for consumers or the ecosystem as long as there is open access to the data (see more on tech regulation in the final section).

AI-Enhanced Coding
A collaboration between Microsoft-owned GitHub, Microsoft-backed OpenAI, and Microsoft’s Visual Studio programming tool has yielded an AI programming “copilot”: “GitHub Copilot understands significantly more context than most code assistants. So, whether it’s in a docstring, comment, function name, or the code itself, GitHub Copilot uses the context you’ve provided and synthesizes code to match.” Instagram co-founder Mike Krieger commented: “This is the single most mind-blowing application of ML I’ve ever seen.”

Digital Tech Fills Restaurant Labor Gap
I have fond memories of the 'Round the Corner' burger chain (a restaurant that other 90s-era Denverites might recognize!). The company expanded to over thirty locations in four states before going bankrupt (the parent company at the time was focused on growing their other brand, Good Times). The gimmick at Round the Corner was each table had a phone. You would call in your order to the kitchen, and the phone would ring when it was ready. You’d then go grab your order from the counter and pay up front when you were done. With the rise of QR codes at tables in restaurants, it seems like Round the Corner had the right idea with their nascent automation – it was a great example of using technology to work alongside/replace people, while giving the consumer a better experience. The WSJ recently reviewed the rise of table-top technology in casual restaurants. The NYT also covered the rise of digital tech in restaurants and how it may lead to a jobless productivity gain. In related news, more people are quitting their jobs than ever according to the Bureau of Labor Statistics.

Crypto Regulation Could Buy Time for Mass Cloud Migration
Supply chain hackers that exploit widely used tools, hardware, or managed service providers represent a new type of broad threat against a multitude of companies and government organizations. It’s worrisome that criminal gangs are increasingly leveraging advanced tactics previously only accessible to nation-states. The situation is a crisis, and cyber security insurance is being priced out of existence. The likely solution is to rapidly accelerate the shift to the cloud. Any company with software running on on-site servers (i.e., units you can physically walk up to and turn on/off) should migrate to modern architectures as soon as possible. The cloud is not immune to hacking, but shifting to the cloud and implementing zero-trust security – focused on identity and encryption – solves many problems of legacy, on-prem systems. Migrating to the cloud also shifts the blame, which many boards will be keen to do given the lack of insurance available and the existential threat posed by hacks. In many ways, I believe we could see the next five years mirror the IT spending frenzy of the late 1990’s Y2K software overhaul. It also would not surprise me if we see large companies ask Western governments for help with crypto currency regulation to slow down the primary vector hackers are using to monetize their crimes. It may be necessary to regulate crypto to buy companies time to shift to the cloud.

On-Cloud Hardware Spend Now Bigger than Off-Cloud
A new report from IDC shows that spending on hardware for cloud computing crossed over 50% of all enterprise computing hardware spend in 2020. That is not necessarily indicative of where enterprises are spending their overall IT budgets, especially since cloud platforms host many dedicated consumer apps, but it’s a milestone nonetheless. If we see an accelerated shift to the cloud due to security motivations, it could place an even bigger burden on semiconductor demand in a time of short supply.

Miscellaneous Stuff
Exploring the Heliosphere
We are constantly subject to bombardment by cosmic rays; yet, thanks to Earth’s magnetic field and our Sun’s heliosphere, only a minute fraction of the harmful ionizing radiation reaches our planet’s surface. The heliosphere is a massive, ribbon-like “bubble” composed of energetic neutral atoms (ENAs) surrounding our solar system. It’s created by charged solar wind particles (expelled by our Sun) colliding with electrons in the interstellar medium. The collisions strip the particles of their charge to form ENAs, which can then absorb cosmic radiation before it reaches our solar system. Understanding our own heliosphere might yield insights into the local environment of exoplanets throughout the galaxy, each of which is cocooned within their own astrosphere (formed by the stellar winds emitted by the star around which they orbit) and guide safer interplanetary travel.

Toxo’s Daredevil Influence
Toxoplasma gondii is a parasite that reproduces within the intestinal tract of feline hosts, with multiple animals (including humans) serving as carriers. For example, house cats typically acquire the parasite via ingestion of infected rodents or birds. Interestingly, the bugs can facilitate their spread to their intended host by making prey animals less fearful. Recently, scientists in Kenya noted that the parasite caused baby hyenas to act more recklessly around lions. While uninfected cubs stayed 300 feet away from their feline predators, Toxo carriers approached to within an average of 142 feet – which translated to a four-fold increase in predation – according to National Geographic. Toxo has also infected around one-third of humans and is thought to change our behavior as well. For example, humans carrying the parasite are more than twice as likely to be in car accidents.

Neuralink’s Brain-Machine Interface
Here’s an interesting interview with the head of the brain signals team at Neuralink. The company is aiming to create a neural interface that gives keyboard and mouse control to paralyzed people. The interview covers the bit rates and important feedback loops in training that create a better overall user experience.

B. rapa’s Rad Genes 🥦
We at NZS Capital are rather fond of broccoli...from a mathematical standpoint. Indeed, a variety of B. oleracea known as Romanesco broccoli, which has a natural fractal form, graced the cover of our very first slide deck. It turns out that broccoli’s close relative, B. rapa, is one of the most widespread plant species in the world – thanks to its triple genome. The excess genetic material essentially enlarges the landscape for experimentation and adaptability, allowing its descendants to do “some really cool, wacky things”. Adaptability is a defining characteristic not only of successful organisms, but of successful organizations, and is thus a key characteristic of any company in which we invest. So, go forth and prosper, B. rapa, and may your offspring be tastier than your photogenic cousin.

Books, Bullshit, and Buddhist Interpretation of QM
One of the great puzzles of modern physics is that we do not yet have a correct interpretation of quantum mechanics. While we understand a great deal about the model and its ability to accurately predict/explain real-world phenomena, we only have conjecture as to its actual, physical meaning. I recently read with interest Carlo Rovelli’s latest book Adventures in Helgoland. The book is Rovelli’s attempt to stitch together a Buddhist interpretation of quantum mechanics, and, indeed, the relationship between all things in the universe. By Buddhist I mean non-dualistic, e.g., not relying on a difference between the observer and the observed (aka the subject and the object). This analysis is in contrast to several Western, dualistic interpretations of QM, such as the many-worlds interpretation (which I am admittedly still fond of). The heart of Rovelli’s idea, as I understand it, is that you cannot make sense of any one thing in the universe if you don’t consider its relationship to everything else. It’s a nice idea, and nondualism is a theme I frequently look for in the world around me – I find it’s often much more correct than the dualistic viewpoint (which has been cemented in the minds of us Westerners going back thousands of years to ancient Greece – this is the heart of the tension in Pirsig’s Zen and the Art of Motorcycle Maintenance).

I get frequent requests for book recommendations (here is a list of books that influenced in part our investing philosophy), but I don’t read a lot of non-fiction books cover to cover. I liked the short book from Rovelli quite a bit, but I always keep in mind that books are a very effective way for bullshit to replicate itself. Someone has an idea, part of which is probably true, but most of which is just their own bullshit – so they write a book. Others read and reference the book, and bullshit propagates! The vast majority of books, like their digital cousins, aren’t bound by truth, reality, or peer review; yet, we tend to accord the ideas contained within more weight simply because they have been committed to ink (or pixels). My strategy for avoiding BS-traps is to tease out anything that appears objective and ignore the rest. Pop-science books almost never hold up (most of behavioral economics cannot even be replicated, and yet people still believe in the ideas put forth in Thinking Fast and Slow!). Business books are amusing because very rarely do any of their purportedly successful corporate examples/strategies persist long term. Diet advice books are the worst – as Mark Twain said: “Be careful about reading health books. You may die of a misprint.” Rarely do you come across a book that is startlingly objective or contains enough interesting theories or explanatory power to merit reading the entire thing. Biographies are a peculiar type of fiction – no one can ever know someone else truly, and no one can accurately recall details of their own life (here I am reminded of another Twain quote: “Biographies are but the clothes and buttons of the man – the biography of the man himself cannot be written.”). Of course, you can read non-fiction books by treating them as fiction or by directly recognizing that they are largely perspective, some of which may stand the test of time. Books about people's journey to uncover the truth, even if they don't find it, are perhaps special exceptions. In seeing someone else's path through time and information, it can often shed light on an unrelated truth you are seeking to uncover yourself.

Stuff about Geopolitics, Economics, and the Finance Industry
Tortoise and Hare Story of Regulation and Innovation
Tech regulation in the US and China has been in the news a lot lately. Here is a portion of my spot on CNBC last week discussing tech regulation and tech more broadly (and the full clip is available to CNBC pro subscribers). This newsletter by Matt Stoller covers some of the important recent developments in the US Congress, particularly regarding breaking up big tech platforms. We’ve written several papers on this topic which can be found here. There are a few points worth reiterating: 1) Historically, there’s been a long tug of war between innovation and regulation, and regulation always catches up; 2) When regulation does catch up, it tends to create regulatory capture – the rising cost of doing business paradoxically ends up shutting out rivals to the establishment; 3) Monopolies in the Information Age, if regulated correctly, could be a net positive (e.g., legislating open access to data collected by internet platforms would foster competition and innovation while preserving the monopoly-derived network-effect benefits for consumers).

Opioid Overdoses Underpin Rising YA Mortality
Young adults aged 25-34 in the US are caught in a rising wave of mortality due to drug – namely opioid – usage, the third such event since the 1950s. In the 1960s, cars and guns were at the root of surging mortality in this age bracket, followed by HIV in the 1980s/early 90s. I haven’t yet read Michael Pollan’s new book, Your Mind on Plants, (note: see above for my 2c on books, but I do like Pollan’s writing strategy of taking the reader along his journey of discovery), but I think he has compellingly argued that the war on drugs has led to the abuse of opioids, and that many now illegal drugs would be far safer than the Rx pills foisted on unwitting patients by Purdue Pharma and others. Pollan also discussed the ideas in detail in this Joe Rogan podcast. As Kurt Vonnegut once said, having a war on drugs is "certainly better then no drugs at all."

NZS Capital Q2 2021 Report
Our Q2 2021 letter to clients is available here.

DBJ Spotlights NZS
The Denver Business Journal recently highlighted our investing process here at NZS Capital, as well as our good fortune drawing investors since we launched 18 months ago. Here are a few excerpts (and, here is a PDF of full article):
“The Denver-based boutique investment company — which already has $1 billion in assets under
management — was born in 2020 from a team that worked together at Janus Henderson. NZS Capital uses a set of guidelines for the types of companies they’re investing in. One of those guidelines is to construct a portfolio with a mix of companies that are resilient and have optionality.”

“‘We think about the multiverse’...Johns will be the first to say that this line of thinking is geeky. But it’s the type of thorough consideration that he and his partner Brad Slingerlend built NZS Capital around. For almost 20 years, the two worked together at Janus Henderson in Denver.”

“Their non-zero-sum investing strategy essentially says that the secret to successful investing is to create more value than you take.”

“‘I hope that we’re all doing something we really love, and that’s investing. I hope we’re doing it together with people that would really make us better at the craft,’ Johns said. ‘And I hope we’re doing it for clients that really understand us, that we can really make a difference in their portfolio.’”

Time Travel to Make Better Decisions
With many folks on vacation last week, in case you missed my new essay on leveraging time travel and various tactics to improve decision making, you can read it here.

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Disclaimers:

The content of this newsletter is my personal opinion as of the date published and is subject to change without notice and may not reflect the opinion of NZS Capital, LLC.  This newsletter is simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.