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In the post, Hariharan makes the case that there is a big difference between “investing for retirement” and “investing for sport.”
Robinhood isn’t competing with Interactive Brokers and Charles Schwab. It is competing with Netflix and TikTok. DeFi has built an even better casino than Robinhood and Wall Street. Besides the profits and the novelty, people are attracted to DeFi because it is entertaining. DeFi is an e-sport.
Hariharan makes a super point.
Real investing is about accumulating new capital very slowly. It is about using the power of compound interest. As Charlie Munger reminds us, when he was younger his goal was to get rich SLOWLY. Real investing is very, very boring.
In fact, the best strategies for real investing start with the word “passive.” Even the best funds for retirement investing are called “passive” funds. It is about getting low fees so you can get rich … but get rich slowly.
But now-a-days, many people don’t want to be passive. They want to be part of the story.
Watching a movie, while incredibly rewarding, is very passive. And people that like watching movies or curling up with a long book are likely highly correlated with people that engage in long-term passive investing.
By contrast, playing video games is very active. You are part of the story. Sometimes, you ARE the story. And people that play video games are likely highly correlated with people that want to be more part of the story when investing.
When you are part of the story, then you are very likely betting and not investing.
Most people bet on sports because they want to be part of the story. It is really fun. Very few of us will ever get to hang out with LeBron James, but we all can bet on basketball games. We even can run a fancy parlay bet and make watching the NBA finals even more fun.
Super fans love to bet … because they are now no longer just passive spectators … betting transforms them to active participants. And that is what more people that play video games regularly want to be. Being passive is boring.
This is why people even bet on the Academy Awards or the Grammys … the primary goal is not to make money but to be part of the broader story.
Which brings us back to Hariharan’s astute point … betting on stocks is fun. It is entertaining. Yes, some people do get rich by betting on stocks but most just do it because it is fun. They get to be part of the action. They might never get to hang out with Elon Musk in person but they can buy an option in him.
Most people don’t choose the right major in college.
This isn’t because it’s hard to do (it’s not). It’s because they don’t have any kind of decision-making framework to follow.
Your college major should be:
Something that you are passionate about (and hopefully good at).
Something under-indexed in your preferred industries.
Something unpopular at your institution.
Some of these may seem counterintuitive, but there are good reasons to find a major that incorporates all three.
Before we get into the framework, here are 4 things you should NOT do when choosing a major:
Choose based entirely on emotion.
Have your parents decide for you.
Choose the popular majors in your university.
Choose the major you think your preferred employer is looking for.
And here’s what you SHOULD do when choosing your college major:
1. Finding something you are passionate about.
Think of what you might want to do after college. You don’t need to pick what you want to do exactly, but it is helpful to narrow down to a group of things you might want to do.
These should be industries for which you have an affinity. Ones that you enjoy learning about in your free time.
If you’re not sure what you’re passionate about, look at what you’re good at. We often get excited about the things we are good at and are good at the stuff we get excited about (because we spend a lot of time doing them and thinking about them).
Take a look at your hobbies and the things you would do for free. Those will point you in the right direction.
Exorbitant Salaries don’t make for Exorbitant Lifestyles
Here is an interesting paradox: the world is experiencing the largest bull market in history, but fewer than one out of five Americans feel like they’re living the American Dream. Many of these people have incomes ranging well above six figures, in the vicinity of $200-400k, and still worry about making ends meet.
In 2018, the Department of Housing found that a salary of $117,000 is considered low income in San Francisco. Effectively, making six figures puts one into poverty in SF (if you are taking care of a family). Sadly, this is not a trend isolated to the Bay Area. There is a financial disparity amongst people who are in the top 2% of earners in the U.S. who live in expensive areas, and not because they can’t afford a yacht.
All-together, these families are earning a tremendous salary by any standard (often more than $300k per year), attending the most prestigious graduate schools and coming from upper-middle-class backgrounds. The scariest part is that these are not people you’d expect to be struggling. In fact, if you took and average U.S. family of four and told them that a family who made $300k/yr – the top 2% of income in the U.S. – was struggling, they would laugh hysterically. They would never believe you because the median US salary is $62k. It would be called fake news.
Unfortunately, this story is playing out across the country. Of course, it is not happening everywhere nor is it happening to everyone. It is primarily happening to secular people that have kids and live in ultra-expensive places like New York City, DC suburbs, Bay Area, etc. The inflation rate in those cities for core goods (housing, healthcare, and education) have been growing at a rate of more than 10% a year for the last 10 years. How do these elites manage to keep afloat? The short answer is that they’re not able to and the consequences could have a drastic impact on the future of our nation’s democracy.
Sisyphus’ Hedonic Treadmill
The Elite With No Savings (TEWNS)
A necessary piece of the puzzle requires imagining what these people look like; how fanciful are their lives that they feel like they are working class on $300k a year? People have a tough time believing this because on the surface, The Elite With No Savings (or TEWNS) are doing well. To paint the picture, these are families with two college educated parents, perhaps they met at an Ivy League school, with young kids. They live in expensive cities, far from their parents, while paying off a mortgage. Daycare and expensive schools are a must for these families, eating into their bottom-line and leaving almost nothing for savings.
For the top 2%, life should be different; they played the game well by delaying gratification and they went to a top school while knocking their academic careers out of the park. They passed the Marshmallow Test. Still, many are financially underwater after learning that there’s more to life than just academics.
Greenland is very strategic territory and becoming more strategic by the day (due to global warming). It is one of most important locations for a military presence. And it would be extremely undesirable (to the U.S.) if a rival country had a significant military presence on Greenland.
But Greenland needs a lot of development. Its 56,000 inhabitants need better resources. While the average Greenlander has an income of $35,000 (more than half of what an average American makes), it takes a lot of resources to live in a place that has such extreme weather.
So here is a modest proposal: Greenland sells itself to the United States.
Yes, the first reaction might be that I’m a jingoistic crazy. But this could be good for every Greenlander.
Imagine selling Greenland to the U.S. for $120 billion (assuming the Danish allow the Greenlanders to make that self-determination). That means that each Greenlander will be worth $2 million — including every adult and child. They could even set up a trust for kids (so the kids, not their parents, have access to the money.
Let’s say you are investing money in something, what is the rate you want to be scammed?
You could, of course, say that rate should be zero. That you will tolerate no loss due to scams, unethical practices, etc. But that puts an extreme due diligence burden on you before you make an investment. You can’t be 100% on BOTH precision and recall. If you have fewer false positives, you will inevitably have fewer false negatives.
Being skeptical of everything will allow you to avoid investing with Madoff, but it will also have you miss that angel investment in Facebook and Airbnb. Many ideas seem very crazy (until they aren’t).
This is also true in life.
You can distrust every taxi driver and every construction contractor … but that might lead do you distrusting most people which could lead to a lot of unhappiness.
Or … or … or … you can accept that you will have some rate that you will be scammed.
You should have a rate you want to be scammed.
A good rate is likely 1-3% of your interactions. This can be on taxi cab drivers, investments, hires, etc. If your scam rate is under 1%, you are likely not taking enough chances. If your scam rate starts approaching 10%, you might lose all your money.
If you never get into a car, you will never die in an auto accident. But you will also have a lot of trouble living life. So you need to have some guide-rails (wear a seat belt, don’t get in a car with a drunk (or sleepy) driver, etc.). The same is true for investing or doing anything else in life.
Also, the tax rates can change substantially between regions and cities. The top income tax rate in California is 13.3%. The top income tax rate in the State of Washington is zero (the seven states with zero income tax are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming). So even though Seattle is getting really expensive, you can save a lot of money by taking a job there instead of San Francisco.
So what would happen in there was a law that stated that all salaries need to be quoted in post-tax PPP-adjusted dollars?
Imagine that there was a law that forced every employer to quote both the absolute salary (like $120,000 in SF) and the after-tax PPP-adjusted salary (would transform to probably $50,000 in SF).
What would happen?
First thing that would happen is that many fewer people would want to work in places like San Francisco and New York City. While everyone intuitive knows that these places are high-tax and high-price, seeing the stark different on the job offer would make a significant number of people pause before taking a job.
The second think thing that would happen is that many employers would need to react to this. One way to react is to increase salaries. But the salaries in places like San Francisco are already much higher than most places and would likely need to go up another 50%+ to compensate. The more likely reaction is for employers to hire more people outside high-tax and high-PPP areas.
Long term, more people are going to start thinking about their income in “real” dollars — which means the dollars they have left over after living their life.
Summation: Older people (over 50) are getting more advantages from computers than younger ones. We should expect to see a huge renaissance the productivity of older business people in the future.
In business, there are advantages of being younger and advantages at being older. And historically there has been tensions between the two.
Many advantages of Being Younger
Fearlessness: Youngers people have less fear of older ones. They have less to lose, less social status, no mortgage. If they fail, they will not be lower on the status ring. The best soldiers are usually those in their 20s.
Older people have much more to lose and that means they are often quite poor at calculating risks.
More time: The older you are, the more time commitments you gather. You eventually get married and have kids. You volunteer at a non-profit. You get involved in your church. You pick up golf as a hobby. You go to the Sundance Film Festival and Burning Man every year.
When you’re younger, you have not yet accumulated the debt of these commitments. That allows you to spend more time working. Of course, not every young person spends a great deal of time working (many spend an equal amount of time socializing) … but those that do concentrate on work have a massive advantage because working hours compound. Almost all super-successful people worked insane hours in their 20s. In fact, people who do not work insane hours in their 20s are at a massive disadvantage for the rest of their lives.
More raw brainpower: Younger people have better working memory, they have more stamina, and they have more calculations per second. They have a much faster CPU. It seems unlikely that we will have a 55 year old chess champion. And most Physics Nobel prizes went to work that was done by people in their 20s or early 30s.
More ignorance of “what works”: Older people are more likely to get stuck in their ways. They have a hard time seeing that the Emperor really has no clothes. So they are more likely to do things the way they have been done before. The old saying “science advances one funeral at a time” applies to business innovation as well.
But there are also many advantages of Being Older
Money: Older people are a lot richer than younger ones. Many older people gain leverage by hiring younger people and telling them what to do. They are often able to rent the time, fearlessness, and brainpower of younger people.
Cunning: Cunning is the ability to work with people and also work against people. It is something one gets better at over time. It is not something people are just born with. A 55-year-old can often play two 25-year-olds against each other.
Wisdom: While young people benefit from ignorance, older people benefit from wisdom (which is the opposite side of the coin). Older people have had more time to read, learn, and compound knowledge.
Connections: While “What-You-Know” is now more important than “Who-You-Know”, who-you-know is still important. Older people have had more time to develop meaningful connections. And many of those connections will be other very successful people. I did not know any major CEOs, U.S. Senators, world-renowned authors, etc. when I was 22 (but many of the people I met when I was 22 turned into these people).
Stature: Older people have a history and a brand. And while that history can work against them (like a voting record for a member of Congress), it gives comfort for others to work with them. People with a brand have an advantage in recruiting talent, raising money, etc. If an entrepreneur sold their last company for $300 million, it will be a lot easier for her to recruit people to her next company than a first-time entrepreneur.
Less competition: Weirdly, older entrepreneurs have a lot less competition than younger entrepreneurs. At least in Silicon Valley, it seems there are 100 times more entrepreneurs in their 20s than entrepreneurs in their 50s. Most successful people in their 50s have no desire to go through the rigor of starting a company again. They usually opt for less stressful lives (like deciding to be a venture capitalist or running a winery). That means that those 50+ people that do decide to start companies have a pretty big advantage because there are a not a lot of wise, well-connected, monied people who they are competing with.
Young vs Old: Who Wins?
To summarize the post thus far:
Ability to buy brainpower and time
The advantages of being young seems to equal the advantages of being old … at least when it comes to starting companies.
Historically young people have a way higher failure rate … but they also have a much higher rate of creating an iconic company (Google, Facebook, Microsoft, Apple, etc.).
In the past there was a tension between young and old. The young having big advantages in some societies and the old having big advantages in others. If I had to pull a number out of my butt, I would say that the best age to start a company has been 34 (not exactly “young” but definitely not old).
The best age to start a company will get much higher as computers are becoming a bigger part of our lives …
How the age advantages shift with computers: advantage to the older
Computers significantly change the advantage calculation.
Computers give younger people more access to wisdom through easy access to knowledge. The compounding advantage that older people have had in the past is going to be less important in the future. Computers also make it easier to find people and get in touch with them — so the Who-You-Knows are going to be less valuable in the future — and younger people, while still having less access to connections, are at less of a disadvantage here.
But computers help older people IMMENSELY.
Computers are the world’s best way to get access to raw brainpower. And as more brainpower tasks are getting taken over by computers, people with money (older people) will have a significant advantage over those that don’t (younger folks).
The proliferation of tech services also advantage older people. You can get access to the best APIs and services with dollars. Of course, most people (especially older people) will have trouble selecting and managing vendors. Most people (especially old people) are going to be trapped in the 20th century paradigm (one that rewards hiring and growing people). The most important business skill in the 21st century is the ability to select and manage vendors. But the older people that can successful navigate the new world will have an advantage.
As computers get stronger, it gets easier and easier to buy time and brainpower. We already have compute-on-demand (AWS) and people-on-demand (UpWork).
The biggest disadvantage that remains for older people is being trapped in an old way of thinking. If science really advances one funeral at a time, innovation could be significantly slowed as older people have more advantages (and are living longer).
One of the advantages that older people have that seems to be not going away is lack of competition. It used to be that very few 24 year olds ever thought about starting a company (especially those that had lots of opportunities). Even when I started an Internet company in college in the 1990s, it was really strange to have a student entrepreneur. Today it is becoming easier and easier to for 24 year olds to start companies — easier to get training, knowledge, and seed capital. YCombinator and other institutions have significantly promoted entrepreneurism among the young. My guess is that the number of amazing twenty-somethings starting companies has gone up at least 5 times in the last decade … and that trend is happening all over the world.
But people over 50 are still not starting companies in large numbers. It never was big, and I see no anecdotal evidence that it is growing. People that have been successful in the 30s and 40s are rarely opting to get back “in it” in their 50s. Instead, they are opting for easier and less stressful lives. So the few 50-somethings that do start companies could have increasing advantages. Especially those that still put in the long hours. (Even Bill Gates, one of the best entrepreneurs ever, hung up his business cleats before he turned 50).
More people in their 50s SHOULD start companies. It is actually a great time to start a company. Many people in their 50s are empty nesters (or at least no longer have super young kids). They can actually travel more and work harder than those in their 40s because they have fewer family obligations. They are usually more financially secure (maybe have paid off their mortgage already) and potentially more willing to take some sort of financial risk. And people in their 50s have so much more energy today than in years past — people live healthier, are more active, etc.
What are the societal implications of computers giving older people advantages?
The most obvious implication is wealth inequality. If older people get more advantages as they age, their wealth will compound faster. Coupled with living longer (and being active longer) means more wealth inequality.
Since the person in their 50s is more likely to build a one-to-N business than a zero-to-one business … it could mean less innovation for society and more incrementalism.
But it also could give hope to millions of people who are over the age of 50 and still have big dreams and ambitions. Ambition shouldn’t end at 45. Computers can keep ambition going way longer than in the past.
This also means that MORE 50-year-olds should start companies. However, I don’t think they will. So the few 50-year-olds that do should see very big advantages.
Summation: They advantage of getting older is growing. Computers are getting better at doing what young people do.
For the last 2000 years, one of the most important skills someone could have was the ability to plan ahead. Those that could plan ahead would reap massive awards, those that didn’t would starve in the winter.
But there has always been a tension between the forgetful creative genius (the absent-minded professor type) and the Planner. Of course, the most successful people were the combination of the Planner AND the Creative Genius (like Bill Gates and like Warren Buffett) … but that is a real rarity. For the last 2000 years, you were MUCH better off being the planner than the creative-type unless you were the BEST creative in your field. The 1,000,000th best planner still did very well.
The Planner is typically someone who is really good at seeing the likely future and making plans to address it. For instance, 2000 years ago, it was really important to plan for winter. Things did not grow in the winter so one needed to store food. In fact, thinking about food was extremely important because harvests were not certain so you would need to save grain from a good harvest to cover an eventual shortfall year.
The forgetful creative genius (the absent-minded professor) was at a big disadvantage in society because of their lack of planning skills. At the same time, the Planner (less creative but very good at logistics for the future) was needed for most tasks.
While both skills (planning and creativity) are important, the future will need more creatives types and less planners.
A history of the Planner advantage
Being a Planner 25,000 years ago (as a hunter gatherer), while important, did not pay huge dividends. You mostly wanted to avoid being eaten by lions or bitten by poisonous snakes. And you had a limit to how much you could succeed because humans where generally confined to small tribes of people.
But as the farming revolution spread and we domesticated, planning became more and more important. By the time the Renaissance and (later) Enlightenment hit, Planners could rule vast lands or get very wealthy.
Then came the industrial revolution and Planners became even more in demand. Alfred Sloan, the famous CEO of General Motors, was an incredible planner.
But planning was not just important in becoming a successful business person. Planning was ESSENTIAL in every-day life.
In 1990, the people with great social lives were the planners. If you did not not plan to meet your friends, you might not be able to meet them. In the pre-mobile phone era, you needed to be constantly planing ahead. The rewards, both economic and social, went to the planners.
And yes, there were still some extremely successful forgetful creative geniuses like Einstein. But Einstein had a brain like Einstein. He was an exception.
Even the most famous 20th Century artists were Planners
People think that “creative geniuses” are not planners. But in the 20th Century (the century were planning mattered most), most of the great artists were planners.
Warhol was a planner. Picasso was a super Planner. And other “artists” are planning machines. The successful comics like Seinfeld and Chris Rock were always planning. Most of the best actors, musicians, etc. have been Planners. Planning was how you got ahead.
In fact, we’ve reached Peak Planner.
Today, it is easier than ever to do something in the last minute.
Want to watch a TV show? Not that long ago you’d have to plan to watch it. Seinfeld was available to watch only on Thursday at 9p. Later, when DVRs came, you’d still have to plan by setting up your DVR. Non-planners often had to resort to watching infomercials. Today, you just go watch the great show whenever you want.
Want to go on a good vacation? It is actually possible to plan the whole thing that day.
Need a ride to the airport? You can call a Lyft or Uber a minute before.
Want food? The biggest problem is picking from one of the 400 apps that help you do that.
Want to meet a special someone? Swipe right on Tinder.
Even businesses need less planning. When I stated LiveRamp in 2006 I had to plan ahead to buy servers. I remember the day when we moved our colo to a new host and we had a checklist of over 250 items. I fondly remember the celebration when we completed the move. But need more compute power for your application today? Simple to spin up more instances on Amazon Web Services.
You don’t even need to plan for office space — WeWork gives you office space on demand.
And you can even get workers on demand through UpWork and Mechanical Turk.
On-demand services are built by Planners to give non-Planners an advantage
The best planners are working themselves out of a societal advantage because they are spending their time planning logistical companies that give small benefits to other planners … but very large benefits to the absent-minded professors.
Coordination is getting easier and easier
Coordination … especially between 2–10 people … is getting easier and easier. Not that long ago, if you wanted to meet someone you’d have to spend a lot of time coordinating it. You’d break out a map and plan your route. You’d call them a few days ahead of time and meticulously plan where to meet.
Today your mobile phone takes care of all of this in real-time. No need to coordinate. It is Planning for Dummies.
The Marshmallow Test will not be as important 50 years from now
The famous Marshmallow Test predicted that people who were good at delaying gratification would be more successful. These are people who better appreciated the value of compound interest. But in a future world where planning is not as needed as today’s world, delaying gratification may not be as important.
I’m a planner and I benefitted from it.
And yes, you can still get big economic benefits if you plan. I pay half price when I buy my GoGoAir Pass on the ground instead of in-the-air. I can save a lot of money by packing a chocolate bar rather than buying one at the airport. But the benefits to planning, while significant, ain’t what they used to be.
Yeah, I plan meticulously to queue up my reading so that I always have something good to read. I save book and movie recommendations from people. But while this lack of spontaneity has generally served this Generation Xer well, it is likely not a core skill that someone born in the last decade should be focusing on.
Summation: While people that do well on the Marshmallow Test will still have an advantage … that advantage will be much smaller 50 years from now as it was 50 years ago.
ABC: Always Be Charging Whenever you have a chance to charge your devices (phone, laptop, etc), always do it. You never know when you will lack access to reliable power.
Always Be Reading Long-form Read at least 7 hours a week of long-form. Read books. But also read well-written articles longer than 3 pages. Save time to go down reading rabbit holes. Feel free to cut out short-form reading (like clickbait articles) to make time for long-form. The airplane is a fantastic place to read.
Always Go to the Bathroom Whenever you have a chance to go to the bathroom, take it. Never “hold it in.” Just makes you very uncomfortable and unproductive.
Always Be Listening Long-Form We are in a podcast revolution — take advantage of it. You also can get many books (but unfortunately only 20% of good books) on audio.
Always Love Email Email is the best form of communication ever invented. All new communications methods in the last 20 years are inferior to email. Email is the greatest asynchronous communication tool. For synchronous communication: meet in-person, by live video, or talk on the phone. Slack and Facebook Messenger can be productivity killers.
Always be Writing Try to write something over 500 words a few times per week … even if the only person who reads it is yourself. This will help you collect your thoughts.
Sometimes Change your Mind At least once a year, challenge yourself to change your mind about a deeply held belief (business, family, political, societal, etc.).
When self-driving cars come (and I’m skeptical they will come in mass in the next 20 years … but that is for another post), everyone’s commute will be much faster. That is because cars will be able to coordinate with each other and rarely need to go below 80 miles/hour on highways (even during the busiest of times).
But once self-driving cars happen, the next thing is to allow cars to pay up to go EVEN faster. There is no reason a car can’t go 160 miles per hour and get you there in half the time.
Cars that don’t pay up for the privilege will be forced to yield to cars that do. Essentially expect to see surge pricing to get to places faster.
Would you pay an extra $100 to get from San Francisco to Los Angeles in 100 minutes by car? An extra $300?
Note: I’ve been thinking a LOT about transportation recently because of all the transportation-related companies that use SafeGraph Places.
Summation: while self-driving cars will be good for everyone, they will be GREAT for people with lots of money (especially in capitalist societies like the U.S. and China).