Correct Predictions, Part 2

Not much going on again. Some time ago NRx and rationalism began running out of ideas. Too many open threads and link round-ups. ‘Echo chamber’ does seem like an apt description, but it’s a chamber where stale ideas are reverberated, not new ideas. Everything has become so predictable, expected (the inevitability of everything) that even mass shootings like in Orlando, the worst domestic terrorist attack since 911, only arouse us of days, before the holiness signalling wears off and everything returns to baseline.

Over and over again I keep being right: Bitcoin keeps going up, now at $630 on its way to $1,200 again, and even higher. Been telling readers to buy since $100 in 2013.

Also Snapchat, now valued above $16 billion, up from $13 billion last year on its way to $40+ billion soon. I was right to ignore the doom and gloom: it really is different this time. These valuations are sustainable and will keep rising even if few can understand why. That’s why this blog exists: to help explain.

A lot of pundits get hung-up on profitability, not realizing that userbase expansion is more important than immediately making money. In Part One, I explain how the ‘profit switch’ once flicked ‘on’ will allow web 2.0 companies like Snapchat to fill their high valuations:

As for web 2.0 unicorns, profitability right now is less important than the demonstrable ability to generate profits down the road, when the timing is right. Many successful web 2.0 companies, like Snapchat, are intentionally delaying revenue to build their userbases, but inventors are confident that should Snapchat ‘flip’ the switch and go ‘live’ with their ad platform, Snapchat will succeed at mobile advertising as Facebook and Instagram have.

Snapchat’s ad platform will be the second biggest after Instagram/Facebook. Major bands like Nike already have promotional offers.

Tesla is another example: many on the left argue the cars are too expensive and Tesla is unprofitable: yes Tesla cars are expensive, but it’s still a huge niche (the high-end car market is a multi-billion dollar industry), and also Tesla is cash flow positive. Tesla makes 20-30% profit margins on each car sold.

The luxury car market is growing faster than economy and is a $300 billion dollar industry:

And Tesla has greater salves volume and growth than its competitors:

A common retort is that a large company with very deep pockets (Apple, Microsoft, Sony, etc.) can overwhelm a smaller successful company and steal its market share, by simply spending a lot of money to put the smaller company out of business. But just as Jeb Bush could not buy victory in 2015, it often doesn’t work that way in consumer technology, some examples being:

People said the same thing about Google in 2004 ‘Anyone can make a search engine; Microsoft has so much money they can crush Google’

Same thing about Facebook in 2010 ‘Anyone can built a social network’

Same thing about Apple in 2003-08 ‘Sony/Microsoft/ etc can make a music player/phone’

n the 80’s would have guessed Microsoft, decades later, would still be the dominant player in operating systems? Apple and Linux never got above a couple percent.

On the subject of predictions, as for Brexit, I have no idea haw the vote is going to turn out. The bookies favor ‘remain’ winning, but I’m not so optimistic. Again and again, whether it’s multi-billion dollar funds lagging the S&P 500, billionaire hedge fund manger George Soros in 2013 buying puts in a bull market and losing his investment as the market kept going up, wealthy politicians failing to win (Jeb Bush), or huge companies failing to displace smaller more nimble competitors, more money does not mean smarter money. In many instances, the rich are just as clueless, if not more, as everyone else at many things. But if the S&P 500 falls a lot due to ‘exit’ winning, it will be a great buying opportunity. That I do know with certainty.

Part of the reason I am almost always right (especially about finance, web 2.0, and economics) has to do with the fact I have a fundamental understanding of how the world works, which took about ten years and reading hundreds of books and articles to acquire this understanding. ‘Understanding’ is a lot like a martial art – you have to practice and get in the right ‘mindset’, and eventually you get better. Also a lot of observation and basic pattern recognition, to understand why some trends and companies persist and succeed (web 2.0, Bay Area real estate, Bitcoin, stocks) and others fail (jawbone, fitbit, etc.). Most people don’t understand anything, don’t know how to do anything, and keep making the same mistakes over and over. Once you have a better understanding, it is like having a 6th sense, the clouds parted and the path to enlightenment.