I believe the world order—geopolitically, technologically, economically—will change noticeably within the next ten years. Making ambitious business and investment decisions ahead of these changes requires good information.
The challenge we all face is confirmation bias. We choose our sources of information starting with our innate beliefs.
The New Year is a good time to start a more effective reading strategy: one that extends past our biases and to gain insights beyond that of the crowd.
One framework is to have very knowledgeable sources for the current state of affairs to serve as a baseline, and then seek out emerging pockets of expert capability that is advancing novel thinking to new frontiers in our field of interest.
To demonstrate this approach, I will share some examples of what I did last year, and I will also share how I will change it up for 2021. I have to be opaque about my specific fields. I will focus on economics and finance examples. These are foundational to all technological areas because the economic climate affects investments in new technologies.
Those at the top present the establishment view, but offer no new bold ideas
When it comes to business economics, for a baseline, I took note of what Mohamed El-Erian and Ray Dalio had to say.
Mohamed El-Erain was CEO of Harvard University’s endowment fund, then co-CEO of PIMCO, the world’s premier fixed income investment firm managing $2 trillion in assets. He is currently chief economic adviser at Allianz.
Ray Dalio is founder and Chairman of Bridgewater Associates, the world’s largest hedge fund. Their trades are based on algorithms derived from decades of market observations, and by studying policy and history to predict investment strategies. He is currently studying the economic history of the world to understand the present “Changing World Order” and publishing this work as a multi-part series on LinkedIn with over 150,000 subscribers.
Both are extremely well-connected to business leaders worldwide, both have investing experience approaching 40 and 60 years respectively, and both are able to explain their analyses articulately.
However, I would never follow their advice. I use them as starting points to look for alternative directions. Their perspective is that of the establishment. When the world is changing, the establishment view is a waning mindset. Indeed, the investment performance of the flagship funds under their recent tenures have been poor.
But those with the same tenure of experience and still in the game can offer new starting points
Now let’s look at two others in the same demographic that I have found more insightful about the future, and note why.
Professor Paul Krugman of the City University of New York was awarded the 2008 Nobel Prize in Economics for his work on the effect of free trade on worldwide economic geography. What makes his writing relevant is that he has deep expertise in international trade.
Here is his recent (Nov 2020) insight which I feel is noteworthy:
“The great surge in world trade from the mid-1980s until around 2008 turns out to have been a one-time event. We haven’t seen anything like a collapse in world trade, but the share of trade in world production has on average been flat since 2008.”
“There’s no law saying that world trade must grow as a share of the world economy. Globalization is driven by a race between the technology of transportation and the technology of domestic production… Rising globalization requires more than technological progress in transportation; it requires progress in transportation that is faster than technological progress in domestic production.”
There have only been two periods when world trade grew hugely: the late 19th century to early 20th century, and the hyper-globalization of the mid-1980’s to 2008. For the rest of all industrial history, technological progress in domestic production advanced faster than progress in transportation technology. This means, as Krugman notes: “the world economy isn’t destined to become ever more integrated.”
If Krugman’s thesis is valid—and I believe it is—this has profound implications on strategy for the next generation of manufacturing (which has begun already) and on the continuing evolution of supply chains. Indeed, certain companies are already making operating decisions with this new mindset. I expect these to be the leaders of tomorrow.
John Authers is a senior editor covering financial markets for Bloomberg, a business media firm. Prior to that, he spent 29 years at the Financial Times.
He writes a daily newsletter full of market analyses. It is useful for traders and for anyone making investment decisions.
What makes this source relevant is his extensive use of data analyses and charting of current market activity combined with interpretations based on 30 years of observing these financial markets. Furthermore, he has amassed an important network of investment professionals and finance professors who also provide him with insights for his newsletter.
To show how he gets to the point of what matters, compare what he has chosen to highlight and interpret from a massive Bank of America Securities report on Generation Z (which is not accessible to the general public), versus what other sources have chosen to highlight (which you can find through a web search). These points are from his November 20 newsletter:
Millennials get too much attention. Demographers are now looking at the generation that succeeds them, Generation Z, currently aged 24 or less. BofA Securities Inc. last week published a massive report headed OK Zoomer. Once the pandemic is behind us, it will seem very relevant.
First, the future may well be Indian. In India, Generation Z has almost half a billion members.
What is intriguing is the stickiness of books. Generation Z is now more likely to read a book than to listen to radio or watch a traditional sport.
More intriguingly, Generation Z doesn’t feel the need to have its own wheels, or even to learn how to drive. This is true even in a country as deeply in love with the automobile as the U.S. Self-driving cars have a future. So does investment in better public transit.
One other fascinating finding is that this is the least nationalistic generation yet born. A slight majority of Gen Z are happy to consider themselves [a citizen of the world or not a citizen of their country].
This generation’s priorities are very different, and they could soon have a big political impact. In another decade, when all of Generation Z has the vote, things might be different. The generational strife caused by the coronavirus won’t, we can be sure, go away.
While Krugman’s thesis suggests global integration has peaked and may decline, this adds a layer on how the new order will be shaped globally.
Now let’s look at emerging pockets of capability and see how they are acting differently.
Pay attention to the surprising talent and capabilities of the next generation
Nathan Tankus is 28 years old and doesn’t have any university degree.
In high school, he mastered foundational works like the 888-page A Monetary History of the United States by Milton Friedman and Anna Schwartz and The General Theory of Employment, Interest and Money by John Maynard Keynes.
Financial problems prevented him from finishing university. His aim is to eventually get a Ph.D. in law, because according to Bloomberg, he “realized these debates about the origins of money couldn’t be settled within economics. There are legal and historical questions.” That’s perspicacity.
When the pandemic started, he launched a newsletter called “Notes on the Crisis” to explain the emergency actions taken by the U.S. Federal Reserve to combat the Covid-19 recession. He wrote 21 longform notes in a month. According to Bloomberg News, ‘in September he diagnosed the dislocations in the secured lending market that forced the Fed to resume buying Treasury bonds on a massive scale.’
His newsletter is followed by members of the Fed, the Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the Department of the Treasury.
What makes his writing relevant is that he not only understands the foundational concepts of monetary theory, but he also understands the mechanics of the monetary system (how central banks work).
By explaining how policy is translated into detailed central bank actions, a reader of his newsletter gains visibility to real paths that economies can take. The alternative is reading the rehashed soundbites on mainstream media, leaving one no wiser on how national economies will unfold.
Furthermore, his writing is valuable because there is a paucity of in-depth economics journalism.
Where there is a paucity of in-depth writing in any important domain is where I suggest looking for new information sources to build insights that are rare and valuable.
For example, there is no shortage of writings about venture capital and entrepreneurship.
Shortages in detailed explanations abound elsewhere, particularly in topics on how technology is advancing capabilities in manufacturing, supply chains and R&D. These are among the forces changing the world today.
Pay attention to what the next generation is learning and how they are applying what they learn
Imagine a high schooler who grew up in Singapore. He gets accepted to the University of Cambridge. He defers admission for two years to complete his military service.
At Cambridge, he studies Physical Natural Sciences. He chooses courses in physics, computer science, mathematics, and materials science.
The path I took in “materials science” in my time was specialized by comparison. Today, that path would be like the one above: multidisciplinary, include mathematics and computer science, and seeking applications from the very start.
This student, now in his final year at Cambridge, is Robert Martin. He has applied his mathematics and computer science skills towards internships at a number of investment firms and as a blockchain consultant. In his first year at Cambridge, he was also co-founder of a blockchain startup. I would call it a learning project rather than a real startup.
Another of his projects at Cambridge was to build PyPortfolioOpt, software for investment portfolio optimization. He claims, “it is used by several investment managers and has been cited in textbooks and journal articles and has over 140,000 downloads.”
To me, this is one example of how the education of entrepreneurship is changing: by doing projects.
His personal website and blog is called Reasonable Deviations. He describes concepts that are already known. What makes his writings informative is how he considers problems using the latest tools being taught today.
For example, his post on March 25, 2020 was about “Understanding the market’s expectations of COVID-19.” This was two days after the S&P 500 index hit its lowest point of the year. While students don’t have the experience of working professionals, the best students make information compelling by drawing on their mastery of fundamental concepts. He describes discounted cash flow, the valuation of the S&P 500 index, then he uses Python programming to create a model of expected valuation of the S&P 500 index.
When we are seeking rare and profound insights in technical fields, sources that understand the underlying science and have taken the time to think through them are valuable.
Finally, take a look at how he has visualized the data for the S&P 500 index of companies here. He has even included the source code. This is far more engaging and useful than using a stock photo or gif to headline a blog post. This is the future of excellent technical content.
Substack is a better resource than Medium
Medium and Substack are publishing platforms for writers to make money. They have different business models.
Medium has an algorithm to show posts to the readers that are likely to read the article. The more readers who read an article, the more money the author makes. One writer on Medium summarized it as such: he felt he was writing for the algorithm, to maximize his placement, rather than to write what he truly wanted. He has since moved to Substack.
Substack has readers subscribe to the writer’s email list. The writer can charge a subscription fee and also offer free articles.
Topics that trend well on social media do better on Medium. What works better on Substack are niche topics with content that readers want to read regularly for their quality and focus.
Furthermore, writers own their content that they put on Substack. Medium requires a nonexclusive, royalty-free, worldwide, fully paid, and sublicensable license.
Topics that rely on expertise discussing technical details favors publishing on Substack. Here are some examples.
Nathan Tankus publishes his “Notes on the Crises” on Substack.
Doug O’Laughlin has an email newsletter about the semiconductor industry under “Mule’s Musings” on Substack.
There is a revolution underway that is changing the technology and business order of semiconductors. Intel, a CPU manufacturer, is losing its industry dominance to Nvidia, a GPU manufacturer. Furthermore, Apple has started to power its own computers with its in-house designed M1 chip that has received impressive reviews, while Microsoft is also rumored to be designing its own chips.
As Doug’s posts detail so well, the dominance of Intel’s x86 architecture is losing ground to the ARM architecture. ARM has been dominant in mobile devices (smart phones and tablets), but a paradigm shift in the thinking of chip architecture has enabled specialized semiconductors based on the ARM technology, good at performing specific tasks, to become dominant now across many more computing applications.
This changing order in semiconductors is but one example in the changing world order. This one will directly accelerate the shifts underway in the computerization and automation of manufacturing across industries as well as across functions such as supply chain and R&D.
Doug’s writing quality resembles top tier capital markets research reports or look like strategy reports from tier 1 semiconductor companies. Yet he is in his mid-twenties, just 4 years out of college with a bachelors in finance. After spending his short career at an investment firm, he is taking time off before starting something else. For now, he is sharing his insights on Substack.
Finally, I must mention Ben Thompson’s email newsletter, Stratechery: “Stratechery provides analysis of the strategy and business side of technology and media, and the impact of technology on society. Weekly Articles are free, while three Daily Updates a week are for subscribers.”
His newsletter is so influential that it is rumored to have over 10,000 paying subscribers, which grosses annual revenue of over $1 million.
Ben Thompson is not on Substack. He launched his email newsletter in 2013, pioneering the publishing model that inspired the formation of Substack.
One reader notes, Stratechery “is single-handedly the best content in the whole industry. Reading the short Stratechery updates each weekday has allowed me to drop dozens of other news sources and still come away with a better understanding of what’s happening in technology and why.”
Revise the reading strategy constantly
This may seem like a lot of reading, but it takes no longer than the amount of time people spend on social media. The objective is to discern the state-of-the-art and get to the companies and expertise to engage in whatever one’s goal is at the outset.
For myself, I am resetting the baseline. That means eliminating sources such as Mohamed El-Erian and Ray Dalio.
I am going to look at Cathie Wood’s research team. She is founder and CEO of Ark Investment Management, which invests solely in companies that have the potential to shape the future through disruptive innovation.
Her actively managed Exchange Traded Funds, ARK Genomic Revolution ETF, ARK Innovation ETF and ARK Next Generation Internet ETF had 2020 net returns of 180%, 152%, and 157% respectively.
I don’t need to agree on their trades, but reading their newsletters, white papers, monthly market updates, and big ideas report will be worthwhile. These are all accessible on her firm’s research center website.
Ben Thompson’s Stratechery will remain a continuing read.
As for which individuals are advancing thinking at the frontiers, all sources will be replaced within the next month.
Because the world is changing, to continue at the frontier of these changes, the reading strategy also has to change over time to stay ahead. If I am using the same sources one year later, I will not be making progress.