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

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL

In today’s post: the overlap between investors, magicians, and comedians; creepy VR tech; hosted desktops evolve; GoPuff; the IOC and NBC's attempts to kill the Olympics; AI drug seeking; and, the case for optimism.

Stuff about Innovation and Technology
Hollow HoloEyes
Facebook is working on technology to project a live shot of your eyes on the outside of a VR headset. The reverse pass-through VR is just a project out of Facebook’s research group, but the images of the prototype...well, who knows, maybe this is our future. Sigh. What seems painfully obvious is that this "solution" proves just how awkward the entire concept of full VR is for human interaction in real life.

The Network is Finally the Computer
Microsoft’s new virtual desktop service has launched for business customers. In beta, the service was so popular the company had to close trials to new users. Since Sun Microsystems trademarked "the network is the computer" in the mid-1980's, we’ve had a range of attempts to virtualize the desktop with thin clients, VMWare’s VDI, Citrix, etc. And, Amazon and Microsoft have offered hosted versions of Windows desktop for quite a while, but at fairly steep prices. The new Windows 365 desktop service on Azure starts at $20-30 a month for a fairly basic machine. With rising cyber security threats, this might finally be the time for the virtual desktop to gain traction. If we do ultimately move more processing to the cloud from laptops, phones, etc., it will put ever increasing demand on the network and ultimately alter the nature of processors and the duties they split between the cloud and the device.

Gopuff Goes Hot, Vertical
I continue to be impressed with the Gopuff playbook of vertical integration in convenience/food delivery as they target higher margin product segments. The company, which recently raised an additional $1B, seems to be built around the Bezos philosophy of focusing on what won’t change: people will always get the munchies. In addition to integrating micro-fulfillment centers within regional alcohol shops like BevMo! (which they purchased last year), Gopuff is also experimenting with hot meals by adding kitchens to their locations.

Olympics Flubs Social Media Engagement
Last week, I mentioned the dismal ratings for this year’s Olympics (down 40-50% vs. the 2016 Rio Summer games) – in part due to fans viewing clips of key moments ahead of time on social media. One tactic would be for the Olympics to embrace new media to engage an entire generation of young athletes as potential future Olympians and life-long fans. Another tactic would be to destroy the Olympics entirely by banning social media sharing by athletes/fans and issuing take-down notices for anyone sharing content in order to protect a contract with NBC, who is at fault for poor ratings by not engaging social media enough with its Olympics coverage. The IOC chose the latter, effectively killing the future of the Olympic games by ensuring that they take place in a vacuum. Sports spectating is half tribalism and half storytelling, and both behaviors thrive in the domain of social media.

YouTube Shorts Throws Long with New Content Spend
Last Sunday, I walked through the math on how YouTube could rival Netflix and other streaming platforms in content spending. Since then, YouTube announced a plan to pay $100M over the next year to creators of original short videos, up to $10,000 per month.

Miscellaneous Stuff
Powerful, Poetic Case for Optimism
Kevin Kelly details his case for optimism, both short and long term. I’ve often said, the cynic is never right in the long term, a statement I believe more with each passing day. Kevin comments on the asymmetry of the future in his beautiful case for optimism: “Every question answered by science generates at least two new questions, two new territories of unknown things that we now know we don’t know. In this way our ignorance expands faster than our knowledge, which is healthy. Because behind this expansion there is a great asymmetry: what is knowable but still unknown will always be larger than what we already know, meaning there are more possibilities waiting to be discovered than have already been discovered. This asymmetry in knowledge is reason to be optimistic, because it means there are no limits to our improvement.” And he addresses the importance of compounding: “The solutions to most problems will create new problems. But if we can create 1% more solutions than problems, that 1% compounded over decades equals civilization. However 1% of almost anything is invisible in the now, lost in the noise. Such a small differential is really only visible in accumulation and seen in retrospect.” Kelly also details seven reasons for being optimistic right now: urbanization, connectivity, AI/robots (liberating humans from unwanted jobs), green energy, accelerating pace of innovation, bio-engineering, and the rise of a more optimistic younger generation. For investors, I believe it always pays to be optimistic in the long run. Some businesses' success hinges on a cynical outlook – perhaps they rely on customers not knowing better or assume that quality doesn’t matter. Rarely are these going to be good long-term investments because they typically have some sort of vulnerability that an optimist will inevitably target to start syphoning their customers away.

AI Uncovers Treatment Options for Orphan Diseases
MediKanren, a new effort to use AI to uncover novel treatments for rare diseases is proving fruitful: “the program works to harvest biomedical data from diverse sources, structure it, and connect the dots. It’s looking for what Might calls 'unknown knowns': drug interactions that have already been revealed by science but remain buried deep in millions of data points.” STAT News reports on the AI’s success in finding ketamine as a potential treatment for a neurodevelopmental syndrome called ADNP.

Stuff about Geopolitics, Economics, and the Finance Industry
Of Investors, Comedians, and Magicians
The following is an excerpt from a shareholder letter I wrote back in Q3 2014 (the full letter is in the public domain in this filing). The heart of the argument is that being a good investor means paying attention to the obvious, which is often much more difficult than it sounds. It’s a concept related to cultivating awareness in the present, which I covered in my essay Time Travel to Make Better Decisions.

Here is a question you might not have thought about before: what does investing have to do with standup comedy and magic?
September 30th, 2014

There are a couple characteristics that all three disciplines have in common. To begin with, all of these fields require a passion for perfection. It requires an enormous amount of dedication and focus to constantly learn and hone the art of investing, delivering a knee-slapping, hilarious standup show, or a mesmerizingly, mind-boggling magic performance. All of these skills require a near obsession in order to transform a passion into an art form. The second thing all three art forms require is presence – the ability to step outside one’s self-centered world and really focus on what matters – a sort of vigilance that is hard to develop, and even harder to perfect. In standup comedy, the comedian must be ever focused on the vibe of the audience, empathically sensing their emotions and reactions in order to work the crowd and involve the audience in the narrative. Magicians must also focus deeply on their subjects and surroundings in order to create a convincing alternative reality. Similarly, investors must be vigilantly focused on every piece of available information in order to construct the proper circumstances for winning long term investments and portfolio construction. All three require an intense observational skill in order to achieve successful performances over and over again.

Standup comedy specifically shares an attribute with investing that we call nonlinear thinking. Comedians, at their core, observe human behavior. In fact, many comics consider themselves “observational” performers. They are constantly on the hunt for patterns and correlations that are not obvious to folks as they go through their everyday life. Then, in pointing out a non-obvious connection between two things that initially seem unrelated or glossed over by conventional wisdom, they create a spark – a spark that turns into a big laugh as the audience says to themselves, “That’s so funny because it’s so true!”

Investors likewise are always trying to connect nonobvious dots – we use the acronym ABCD for “always be connecting dots.” We see the world as a giant puzzle ready to be solved if only we can discern which pieces fit together. Then, when we connect a few seemingly disparate pieces of information, we find insight which informs our investing. The things a standup comedian points out, and the ideas we connect for investment themes are worlds apart, but when we draw those connections they start to become obvious.

Magicians also share a specific attribute with investing – leveraging cognitive bias. Cognitive bias is a term for the way our brains try to trick us. Over time we’ve been wired for simpler worlds – wake up, hunt and gather, secure shelter, and enjoy ourselves. But, the world has become increasingly complex, and our brains have developed impulsive shortcuts that make us believe one thing is true, when in fact something completely different explains the situation. Magicians are the kings at exploiting this misfiring of the brain – they take advantage of vulnerabilities in our ability to accurately perceive the world around us.

Likewise, as investors we fall victim to many biases of impulsive or emotional thinking. For example, we anchor on a prior cost basis, or we over-emphasize recent information above more relevant data points. All of these shortcuts work against superior long-term performance. So while magicians exploit bias, investors must remain vigilant to never be fooled by impulsive thinking.

This comparison of the three seemingly unrelated fields largely comes back to the idea of presence – the hardest thing we do every day is to simply be in the moment, 100% focused with vigilance and attention. This is an obsession that all great investors, standups and magicians are constantly perfecting. If a standup isn’t paying attention all the time, they will miss their next great joke opportunity – and if they fail to follow cues from the audience, they will lose the reaction. If a magician fails to pull off a trick leveraging the brain’s built-in biases, the illusion is revealed and the mystery is lost. The standup and the magician lose their audiences if they lose focus, much like the investor loses long-term performance if they fail to connect dots, avoid cognitive bias, and pay attention. Technology investing is a dynamic environment with a rising pace of change – this creates an even higher burden for presence and the ability to connect unrelated dots. Using these methods, we are able to focus on finding the signal in the noise of data points.

✌

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.