October 26, 2016 - Comments Off on Fact Sheet #0001

Fact Sheet #0001

Corals derive their astonishing colors, and much of their nourishment, from symbiotic algae that live on their surfaces. The algae photosynthesize and make sugars, which the corals feed on. But when temperatures rise too high, the algae produce too much oxygen, which is toxic in high concentrations, and the corals must eject their algae to survive. Without the algae, the corals turn bone white and begin to starve. If water temperatures soon return to normal, the corals can recruit new algae and recover, but if not, they will die in months.

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Guns arrived in Japan around 1543 with two Portuguese adventurers who stepped ashore, pulled out a gun, and shot a duck on the wings. A Japanese nobleman happened to be there, was very impressed, bought these two guns for $10,000, and had his sword-maker imitate them. Within a decade, Japan had more guns per capita than any other country in the world, and by the year 1600 Japan had the best guns of any country in the world. And then, over the course of the next century, Japan gradually abandoned guns. What happened was that the Samurai, the warrior class in Japan, had been used to fighting by standing up in front of their armies and making a graceful speech, the other opposing Samurai made an answering graceful speech, and then they had one-on-one combat. The Samurai discovered that the peasants with their guns would shoot the Samurai while the Samurai were making their graceful speeches. So the Samurai realized that guns were a danger because they were such an equalizer. The Samurai first restricted the licensing of gun factories to a hundred factories, and then they licensed fewer factories, and then they said that only three factories could repair guns, and then they said that those three factories could make only a hundred guns a year, then ten guns a year, then three guns a year, until by the 1840s when Commodore Perry came to Japan, Japan no longer had any guns. The banning of the guns could work only in isolated Japan, where there were no neighbors as a threat, and where there were no neighbors from whom to reacquire the technology.

As of the year 1400, China had by far the best, the biggest, and the largest number of, ocean-going ships in the world. Between 1405 and 1432 the Chinese sent 7 ocean-going fleets, the so-called treasure fleets, out from China. Those fleets comprised hundreds of ships; they had total crews of 20,000 men; each of those ships dwarfed the tiny ships of Columbus; and those gigantic fleets sailed from China to Indonesia, to India, to Arabia, to the east coast of Africa, and down the east coast of Africa. It looked as if the Chinese were on the verge of rounding the Cape of Good Hope, coming up the west side of Africa, and colonizing Europe. There was a new emperor in China in 1432. In China there had been a Navy faction and an anti-Navy faction. In 1432, with the new emperor, the anti-Navy faction gained ascendancy. The new emperor decided that spending all this money on ships is a waste of money. Okay, there's nothing unusual about that in China; there was also isolationism in the United States in the 1930's, and Britain did not want anything to do with electric lighting until the 1920s. The difference, though, is that this abandoning of fleets in China was final, because China was unified under one emperor. When that one emperor gave the order to dismantle the shipyards and stop sending out the ships, that order applied to all of China, and China's tradition of building ocean-going ships was lost because of the decision by one person. China was a virtual gigantic island, like Tasmania. Now contrast that with what happened with ocean-going fleets in Europe.

October 26, 2016 - Comments Off on Commonplace #0031

Commonplace #0031

Dear Sugar,

I read your column religiously. I’m twenty-two. From what I can tell by your writing, you’re in your early forties. My question is short and sweet: What would you tell your twenty-something self if you could talk to her now?

Love, Seeking Wisdom

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Dear Seeking Wisdom,

Stop worrying about whether you’re fat. You’re not fat. Or rather, you’re sometimes a little bit fat, but who gives a shit? There is nothing more boring and fruitless than a woman lamenting the fact that her stomach is round. Feed yourself. Literally. The sort of people worthy of your love will love you more for this, sweet pea.

In the middle of the night in the middle of your twenties when your best woman friend crawls naked into your bed, straddles you, and says, You should run away from me before I devour you, believe her.

You are not a terrible person for wanting to break up with someone you love. You don’t need a reason to leave. Wanting to leave is enough. Leaving doesn’t mean you’re incapable of real love or that you’ll never love anyone else again. It doesn’t mean you’re morally bankrupt or psychologically demented or a nymphomaniac. It means you wish to change the terms of one particular relationship. That’s all. Be brave enough to break your own heart.

When that really sweet but fucked-up gay couple invites you over to their cool apartment to do Ecstasy with them, say no.

There are some things you can’t understand yet. Your life will be a great and continuous unfolding. It’s good you’ve worked hard to resolve childhood issues while in your twenties, but understand that what you resolve will need to be resolved again. And again. You will come to know things that can only be known with the wisdom of age and the grace of years. Most of those things will have to do with forgiveness.

One evening you will be rolling around on the wooden floor of your apartment with a man who will tell you he doesn’t have a condom. You will smile in this spunky way that you think is hot and tell him to fuck you anyway. This will be a mistake for which you alone will pay.

Don’t lament so much about how your career is going to turn out. You don’t have a career. You have a life. Do the work. Keep the faith. Be true blue. You are a writer because you write. Keep writing and quit your bitching. Your book has a birthday. You don’t know what it is yet.

You cannot convince people to love you. This is an absolute rule. No one will ever give you love because you want him or her to give it. Real love moves freely in both directions. Don’t waste your time on anything else.

Most things will be okay eventually, but not everything will be. Sometimes you’ll put up a good fight and lose. Sometimes you’ll hold on really hard and realize there is no choice but to let go. Acceptance is a small, quiet room.

One hot afternoon during the era in which you’ve gotten yourself ridiculously tangled up with heroin, you will be riding the bus and thinking what a worthless piece of crap you are when a little girl will get on the bus holding the strings of two purple balloons. She’ll offer you one of the balloons, but you won’t take it because you believe you no longer have a right to such tiny beautiful things. You’re wrong. You do.

Your assumptions about the lives of others are in direct relation to your naïve pomposity. Many people you believe to be rich are not rich. Many people you think have it easy worked hard for what they got. Many people who seem to be gliding right along have suffered and are suffering. Many people who appear to you to be old and stupidly saddled down with kids and cars and houses were once every bit as hip and pompous as you.

When you meet a man in the doorway of a Mexican restaurant who later kisses you while explaining that this kiss doesn’t “mean anything” because, much as he likes you, he is not interested in having a relationship with you or anyone right now, just laugh and kiss him back. Your daughter will have his sense of humor. Your son will have his eyes.

The useless days will add up to something. The shitty waitressing jobs. The hours writing in your journal. The long meandering walks. The hours reading poetry and story collections and novels and dead people’s diaries and wondering about sex and God and whether you should shave under your arms or not. These things are your becoming.

One Christmas at the very beginning of your twenties when your mother gives you a warm coat that she saved for months to buy, don’t look at her skeptically after she tells you she thought the coat was perfect for you. Don’t hold it up and say it’s longer than you like your coats to be and too puffy and possibly even too warm. Your mother will be dead by spring. That coat will be the last gift she gave you. You will regret the small thing you didn’t say for the rest of your life.

Say thank you.

Yours,
Sugar

October 26, 2016 - Comments Off on Commonplace #0030

Commonplace #0030

Dear Hume,

You ask advice: ah, what a very human and very dangerous thing to do! For to give advice to a man who asks what to do with his life implies something very close to egomania. To presume to point a man to the right and ultimate goal— to point with a trembling finger in the RIGHT direction is something only a fool would take upon himself.

I am not a fool, but I respect your sincerity in asking my advice. I ask you though, in listening to what I say, to remember that all advice can only be a product of the man who gives it. What is truth to one may be disaster to another. I do not see life through your eyes, nor you through mine. If I were to attempt to give you specific advice, it would be too much like the blind leading the blind.

“To be, or not to be: that is the question: Whether ’tis nobler in the mind to suffer the slings and arrows of outrageous fortune, or to take arms against a sea of troubles … ” (Shakespeare)

And indeed, that IS the question: whether to float with the tide, or to swim for a goal. It is a choice we must all make consciously or unconsciously at one time in our lives. So few people understand this! Think of any decision you’ve ever made which had a bearing on your future: I may be wrong, but I don’t see how it could have been anything but a choice however indirect— between the two things I’ve mentioned: the floating or the swimming.
But why not float if you have no goal? That is another question. It is unquestionably better to enjoy the floating than to swim in uncertainty. So how does a man find a goal? Not a castle in the stars, but a real and tangible thing. How can a man be sure he’s not after the “big rock candy mountain,” the enticing sugar-candy goal that has little taste and no substance?

The answer— and, in a sense, the tragedy of life— is that we seek to understand the goal and not the man. We set up a goal which demands of us certain things: and we do these things. We adjust to the demands of a concept which CANNOT be valid. When you were young, let us say that you wanted to be a fireman. I feel reasonably safe in saying that you no longer want to be a fireman. Why? Because your perspective has changed. It’s not the fireman who has changed, but you. Every man is the sum total of his reactions to experience. As your experiences differ and multiply, you become a different man, and hence your perspective changes. This goes on and on. Every reaction is a learning process; every significant experience alters your perspective.

So it would seem foolish, would it not, to adjust our lives to the demands of a goal we see from a different angle every day? How could we ever hope to accomplish anything other than galloping neurosis?

The answer, then, must not deal with goals at all, or not with tangible goals, anyway. It would take reams of paper to develop this subject to fulfillment. God only knows how many books have been written on “the meaning of man” and that sort of thing, and god only knows how many people have pondered the subject. (I use the term “god only knows” purely as an expression.) There’s very little sense in my trying to give it up to you in the proverbial nutshell, because I’m the first to admit my absolute lack of qualifications for reducing the meaning of life to one or two paragraphs.

I’m going to steer clear of the word “existentialism,” but you might keep it in mind as a key of sorts. You might also try something called Being and Nothingness by Jean-Paul Sartre, and another little thing called Existentialism: From Dostoyevsky to Sartre. These are merely suggestions. If you’re genuinely satisfied with what you are and what you’re doing, then give those books a wide berth. (Let sleeping dogs lie.) But back to the answer. As I said, to put our faith in tangible goals would seem to be, at best, unwise. So we do not strive to be firemen, we do not strive to be bankers, nor policemen, nor doctors. WE STRIVE TO BE OURSELVES.

But don’t misunderstand me. I don’t mean that we can’t BE firemen, bankers, or doctors— but that we must make the goal conform to the individual, rather than make the individual conform to the goal. In every man, heredity and environment have combined to produce a creature of certain abilities and desires— including a deeply ingrained need to function in such a way that his life will be MEANINGFUL. A man has to BE something; he has to matter.
As I see it then, the formula runs something like this: a man must choose a path which will let his ABILITIES function at maximum efficiency toward the gratification of his DESIRES. In doing this, he is fulfilling a need (giving himself identity by functioning in a set pattern toward a set goal), he avoids frustrating his potential (choosing a path which puts no limit on his self-development), and he avoids the terror of seeing his goal wilt or lose its charm as he draws closer to it (rather than bending himself to meet the demands of that which he seeks, he has bent his goal to conform to his own abilities and desires).

In short, he has not dedicated his life to reaching a pre-defined goal, but he has rather chosen a way of life he KNOWS he will enjoy. The goal is absolutely secondary: it is the functioning toward the goal which is important. And it seems almost ridiculous to say that a man MUST function in a pattern of his own choosing; for to let another man define your own goals is to give up one of the most meaningful aspects of life— the definitive act of will which makes a man an individual.

Let’s assume that you think you have a choice of eight paths to follow (all pre-defined paths, of course). And let’s assume that you can’t see any real purpose in any of the eight. THEN— and here is the essence of all I’ve said— you MUST FIND A NINTH PATH.

Naturally, it isn’t as easy as it sounds. You’ve lived a relatively narrow life, a vertical rather than a horizontal existence. So it isn’t any too difficult to understand why you seem to feel the way you do. But a man who procrastinates in his CHOOSING will inevitably have his choice made for him by circumstance.

So if you now number yourself among the disenchanted, then you have no choice but to accept things as they are, or to seriously seek something else. But beware of looking for goals: look for a way of life. Decide how you want to live and then see what you can do to make a living WITHIN that way of life. But you say, “I don’t know where to look; I don’t know what to look for.”

And there’s the crux. Is it worth giving up what I have to look for something better? I don’t know— is it? Who can make that decision but you? But even by DECIDING TO LOOK, you go a long way toward making the choice.

If I don’t call this to a halt, I’m going to find myself writing a book. I hope it’s not as confusing as it looks at first glance. Keep in mind, of course, that this is MY WAY of looking at things. I happen to think that it’s pretty generally applicable, but you may not. Each of us has to create our own credo— this merely happens to be mine.

If any part of it doesn’t seem to make sense, by all means call it to my attention. I’m not trying to send you out “on the road” in search of Valhalla, but merely pointing out that it is not necessary to accept the choices handed down to you by life as you know it. There is more to it than that— no one HAS to do something he doesn’t want to do for the rest of his life. But then again, if that’s what you wind up doing, by all means convince yourself that you HAD to do it. You’ll have lots of company.

And that’s it for now. Until I hear from you again, I remain, your friend,
 Hunter
April 22, 1958
57 Perry Street
 New York City

October 26, 2016 - Comments Off on Commonplace #0029

Commonplace #0029

He wrote this letter to his wife sixteen months after her death.

D’Arline,

I adore you, sweetheart.

I know how much you like to hear that — but I don’t only write it because you like it — I write it because it makes me warm all over inside to write it to you.

It is such a terribly long time since I last wrote to you — almost two years but I know you’ll excuse me because you understand how I am, stubborn and realistic; and I thought there was no sense to writing.

But now I know my darling wife that it is right to do what I have delayed in doing, and that I have done so much in the past. I want to tell you I love you. I want to love you. I always will love you.

I find it hard to understand in my mind what it means to love you after you are dead — but I still want to comfort and take care of you — and I want you to love me and care for me. I want to have problems to discuss with you — I want to do little projects with you. I never thought until just now that we can do that. What should we do. We started to learn to make clothes together — or learn Chinese — or getting a movie projector. Can’t I do something now? No. I am alone without you and you were the “idea-woman” and general instigator of all our wild adventures.

When you were sick you worried because you could not give me something that you wanted to and thought I needed. You needn’t have worried. Just as I told you then there was no real need because I loved you in so many ways so much. And now it is clearly even more true — you can give me nothing now yet I love you so that you stand in my way of loving anyone else — but I want you to stand there. You, dead, are so much better than anyone else alive.

I know you will assure me that I am foolish and that you want me to have full happiness and don’t want to be in my way. I’ll bet you are surprised that I don’t even have a girlfriend (except you, sweetheart) after two years. But you can’t help it, darling, nor can I — I don’t understand it, for I have met many girls and very nice ones and I don’t want to remain alone — but in two or three meetings they all seem ashes. You only are left to me. You are real.

My darling wife, I do adore you.

I love my wife. My wife is dead.

Rich.

PS Please excuse my not mailing this — but I don’t know your new address.

October 9, 2016 - Comments Off on Commonplace #0028

Commonplace #0028

True beauty is the highest currency.

Necessity is what compels man to take action.

If risky investments could be counted on to deliver high returns, then they wouldn’t be risky

The wealth of humanity is limited by our ability to produce goods and services of value. The production of goods and services of value increasingly rests on the collection, processing and management of information. There is no value without the knowledge of what can be produced, what ought to be produced, and how it can be produced most effectively. It is the information-processing structures of firms, cities, nations, and other institutions of human society that gather that information, and sort it, and turn it into the production that enriches people around the world. The wealth of humans is societal. But the distribution of that wealth doesn’t rest on markets or on social perceptions of who deserves what but on the ability of the powerful to use their power to retain whatever of the value society generates that they can. That is not a radical statement. People take what they can take, and it is only the interplay of countervailing forces and the tolerance of the masses that limits that impulse – that works to create institutions that limit that impulse.

People, essentially, do not create their own fortunes. They inherit them, come to them through the occupation of some state-protected niche, or, if they are very brilliant and very lucky, through infusing a particular group of men and women with the germ of an idea, which, in time and with just the right environment, allows that group to evolve into an organism suited to the creation of economic value, a very large chunk of which the founder can then capture for himself.

Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favor, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer … It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

Everything in this world is magic, except to that of the magician.

October 9, 2016 - Comments Off on Commonplace #0027

Commonplace #0027

It is always the simple that produces the marvelous.

The world gives to the givers and takes from the takers.

Whether truth emerges from a scientific laboratory or through revelation, all truth emanates from God.

If you want lasting change, you’ve got to give up this idea of ‘trying something.’You’ve got to decide you’re going to commit-to-mastery. Most people dabble. They say, ‘I’d like to change my body,’ or ‘I’d like to make my relationship better.’ These people don’t have enough detail to follow-through.

When the student is ready the teacher will appear. When the student is truly ready, the teacher will disappear.

Knowledge is only potential power. It becomes power only when, and if, it is organized into definite plans of action.

Be known for who you are, not what you accomplish; find respect through it, not by it. See yourself in the light of your presence in each and every moment, not relying on the things of the past, but on the very character you possess now. Let people form their opinions based on the way you act, speak and think in the moment. Refrain from any attempts to shape their opinion by relying on past accolades and accomplishments. This approach will move your own opinion of yourself array from a prideful and arrogant character.

Honor God. Love family. Support friends.

Necessity is what compels man to take action.

The more we concentrate on smaller-picture things, the more it’s possible to gain a knowledge advantage. With hard work and skill, we can consistently know more than the next person about individual companies and securities, but that’s much less likely with regard to markets and economies.  Thus, I suggest people try to ‘know the knowable.

A philosophy has to be the sum of many ideas accumulated over a long period of time from a variety of sources.  One cannot develop an effective philosophy without having been exposed to life’s lessons.

Intelligent people make decisions based on opportunity costs — in other words, it’s your alternatives that matter.

One mans terrorist is another mans freedom fighter.

I have a sense of my own destiny.

September 24, 2016 - Comments Off on Commonplace #0026

Commonplace #0026

A person with something to prove can move mountains.

The longer you can look back, the farther you can look forward.

We have a strong instinct to belong to small groups defined by clear purpose and understanding.

True leadership — the kind that lives depend on — may require powerful people to put themselves last.Everyone has a plan until they get punched in the mouth.

Everyone has a plan until they get punched in the mouth.

September 6, 2016 - Comments Off on Commonplace #0025

Commonplace #0025

I believe that you have to understand the microeconomics of a business before you have a strategy, and you have to understand your strategy before you have a structure. If you get these in the wrong order, you will probably fail.

Strategy is about making choices, trade-offs; it’s about deliberately choosing to be different. The essence of strategy is choosing what not to do. Operational effectiveness is about things that you really shouldn’t have to make choices on; it’s about what’s good for everybody and about what every business should be doing.”

From a corporate perspective, the best measure of fitness is return on invested capital (ROIC). This measure matters most because over the long haul, capital flows toward investment opportunities with a high ROIC. Inefficient companies, on the other hand, are eventually starved of the cash they need to survive. To understand just how indispensable technology has become, you have to follow the basic math of return on invested capital. To get ROIC, you divide EBIT, or earnings before interest and taxes, by invested capital. Now let’s divide the numerator and the denominator by annual sales. This restates ROIC as operating margin multiplied by asset turnover. In other words, the two components that define a company’s fitness are the ability to charge a high spread between price and actual cost, and the ability to generate sales from a small base of invested capital.

Percentage margins are not one of the things we are seeking to optimize. It’s the absolute dollar free cash flow per share that you want to maximize, and if you can do that by lowering margins, we would do that. So if you could take the free cash flow, that’s something that investors can spend. Investors can’t spend percentage margins.vWhat matters always is dollar margins: the actual dollar amount. Companies are valued not on their percentage margins, but on how many dollars they actually make, and a multiple of that. When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows. With free cash flow what counts is when the money actually changes hands. So if you have a business where your customers pay you quickly, you manage your inventory well, and you’re able to take your time in paying your suppliers, your free cash flow can be consistently positive even when your net income is not.

You have to understand what it is that you are better at than anybody else and mercilessly focus your efforts on it.

September 6, 2016 - Comments Off on Commonplace #0024

Commonplace #0024

It’s just as hard to build a large company as it is a small company, so you might as well build a big company. It’s roughly the same effort.

Criteria for assessing the Team: Intelligence, Integrity and Energy. You want someone who is really smart, very hard working and trustworthy. A lot of people forget the integrity part, because if you don’t have that, then you have a really hard working crook and they will find a way to cheat you. Intelligence and energy are easier to measure. Integrity is the most important factor.

Companies only fail for two reasons: The founder gives up or they run out money. Don’t be proud. Get the cash wherever you can. Cash is everything. Raise twice as much and make it last four times as long. Pretend that you don’t have the money in the bank, run lean. Assuming your unit economics are at least breakeven, keep your headcount low, raise money and stay in it for the long haul. It takes a decade to build a great company. There’s no shortcuts.

The only unforgivable sin in business is to run out of cash. What does cash give a business? Options. What do options create? Convexity!

To achieve superior investment results, your insight into value has to be superior. Thus you must learn things others don’t, see things differently or do a better job of analyzing them – ideally all three.

September 6, 2016 - Comments Off on Commonplace #0023

Commonplace #0023

Try never to be the smartest person in the room. And if you are, I suggest you invite smarter people… or find a different room.

Acknowledging what you don’t know is the dawning of wisdom. I believe in the discipline of mastering the best that other people have figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.

Any return stream can be broken down into its component parts and analyzed more accurately by first examining the drivers of those individual parts.

Learning how to build a sustainable business is the outcome of experiments which follow a three step process. Build, measure, learn.

Why is experimentation so important in an economy? The answer is that experimentation is the best way to deal with one of nature’s solutions to dealing with risk, uncertainty and ignorance: a complex adaptive system. An economy is a complex system in that it is networked and therefore adaptive in ways that a simple formalism, such as used in physics, will fail to predict.

In the case of complex adaptive systems like an economy or a business, the correct approach is to discover solutions via trial and error rather than try to predict.

All a founder or venture capitalist can lose is 100% of what they invest in a startup and yet what they can potentially gain is potentially many multiples of that investment.

Knowing what you can’t predict is one of the most valuable things you can know. Discovery which happens via experimentation via trial and error is a vastly superior way to deal with unpredictability than trying to predict what can’t be predicted.

  1. Some startups are an attempt to create entirely new categories of businesses at global scale (e.g., Uber, Salesforce, or Airbnb).
  2. Some startups are about incremental or local innovation, such as a new frozen yogurt shop or sushi restaurant.