It's well-known wisdom in the investing community that excess return
("beating the market") comes from doing things others can't or won't. Often,
this advice takes the form of "buying when everyone is selling" or something
So, sure, you have to do what others won't. But you also have to be right.
People sometimes forget that second part.
Coming out of college, I ended up in Seattle because it seemed the contrarian
thing to do vs. the consensus choice of moving to San Francisco. I still
think that choice wasn't entirely incorrect. California is an absurd place to
live with outrageous taxes, overpriced housing, and dysfunctional government.
But it's also where a lot of smart, driven people live, which makes its own
So any time you think you're outsmarting the herd, ask yourself, what do I
know that others don't?
A lot of what I've learned in the past few years is what a gigantic dunce I was
about things. It might be that I'm benchmarking myself against much more
accomplished and intelligent people. Or maybe I'm just growing up.
Either way, be careful when you decide to go your own way, that your choice
is founded on genuine insight, and not pig-headed stubbornness pursued for the
sake of "not following the crowd".
Caroline and I went to see her grandmother today. She retired a few years ago
and wanted some help optimizing her financial portfolio.
We got her set up with a bond ladder. One of the key questions when buying bonds
is which term you want: 1 year, 2 years, etc. Longer terms mean higher interest
rates (good) but more interest rate risk (bad) and your principal is locked up
longer (bad). The solution is a "ladder": you define a length, say three years,
and then buy equal amounts of bonds maturing in one, two and three years, reinvesting
the one-year into a new three-year bond in a year. When done properly, this gives you
a continuous flow of income at the long-term (three-year) rate, even though you get
income every year, and your
interest rate exposure is decently hedged;
all in all, a win.
It's surprising how much laddering comes up in non-financial contexts. I used a similar
"laddering" strategy when purchasing reserved compute capacity (RIs) for ops at
Crittercism: we built a ladder out of expiring reserved instance contracts, which provide
reserved compute capacity at discounted rates over a fixed term. The problem is similar
to bonds: you want the cheaper prices, but not the lock-in inherent in a multi-year contract.
The solution is to buy a set of multi-year RIs each year, so that they're constantly expiring,
giving you the option to renew (at lower rates, if your compute needs are the same) or
adjust things as needed.
I love cases like this where you can use ideas in one domain (cloud computing) that come
from anohter (finance). I suspect there are many other cases where a laddering-type
approach can reduce risk with a little bit of planning; feel free to write a comment
if you come across another.
ran a great article on China's "Belt and Road Initiative" two weeks ago. At $1.5
trillion dollars, the project plans to invest almost 10% of US GDP in foreign
infrastructure over the next few years. That's a lot of money!
With all the work I've done for my HOA (City Center Plaza), I can't help but wonder,
what will the maintenance cost be on all of this? It's one thing to build a bridge;
quite another to ensure it's maintained and kept up over its usable life.
I've come to believe there's some sort of inevitable cycle, where municipalities lurch
from new stuff to ruin over a span of about 30-40 years. Everything works well when it's
first built, especially given the jobs, politics, and aesthetics of "new". But the real
test is whether a new bridge, road, or park bench will make it over 30 years. That's long
enough that the newness wears off, and the quality of the planning, and whether it's long-term
sustainable, really becomes visible.
After I left Microsoft in 2010, I read a bunch about healthcare (Innovator's Prescription,
Health Care Turning Point, etc.). It seemed like big change was imminent and that healthcare
would be a good place to work. I came back to this topic recently—eight years later—and
it feels like things haven't moved an inch.
One thing that did change: about a year ago, I noticed all these new health tech
companies had popped up: Clover Health, Jif, Amino, now Oscar. It was pretty clear
the VC "money spigot" had turned on a year or two earlier, and research confirmed my hunch:
Benchmark (a noted VC firm) publicly declared they wanted to invest in health in 2015, right
on schedule for me to notice these companies starting to get publicity around 2017. Digging deeper,
I found an interview
between Benchmark's Bill Gurley and Ezra Klein. The interview is a great high-level overview of the issues
facing healthcare in the US. Klein and Gurley see the world pretty differently, but agree we
aren't on a good path.
A few things I've come to believe:
Whatever the solution, we can't afford the system we have today. Medical bankruptcy is
a big problem, and employers are trying like hell to wiggle out of paying insurance premiums,
which are eating wage growth. Per Catastrophic Care,
Americans spend almost 20% of their lifetime income on healthcare, but don't realize
it because it's paid by employers and through taxes, not by people themselves.
Healthcare is a huge laggard in IT investment because the forces that push other industries
toward that investment (demand for convenience, supply chain management, CRM) are absent.
The economic model of many healthcare offices is fee-for-service. Like other professional
services (law, architecture), doctors are pushed to spend as much time possible on things
that are "billable"—procedures—and less on charting and followup, which aren't
If you believe change is coming (I do), I think it will come in one of two flavors, and
which depends on politics. The hard-left Sanders/Ocasio-Cortez option would be pure single-payer,
which the AMA and other medical unions will fight, because they'd earn a lot less income. I
would prefer a market-oriented system with greater emphasis on price transparency and efficiency;
we might get this if the gig economy continues to take off, pushing more people to buy their
own insurance. Either is better than what we have today.
A parting note: this is the real damage of the Trump presidency; arguing over strippers and hush
money instead of reforming Medicare. What a waste.