Digital Assets

Recent Lecture – Digital Assets: Innovation, Opportunity, and Nonsense

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Recently, I gave a lecture at a graduate program focused on innovation, technological disruption, and the impact on global industries and investment opportunities. My lecture focused on digital assets and attempted to draw distinctions between disruptive and substantial opportunities and hype, nonsense, and unsustainable business models. This is a quiz given to the students that reflects the main points raised in this lecture. For fun, I am including it here because it makes a series of fundamental points that I think are especially important, and the true-false construct conveys those points with clarity.

Disruption and Nonsense

Disruption and Nonsense

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Transformation, or euphemistically, “disruption,” creates great opportunities to capture newly created wealth. But, as industries are transforming and strategic disruption is occurring, quite a lot of absurdity and certainly enough terror are associated with some of these extraordinary opportunities to require much greater analysis and understanding. There are extraordinary risks associated with anything disruptive and transformational. The first disruptor isn’t always the one who creates the most value or is even a sustainable competitive entity. Innovation does not mean competitive sustainability. Digital platforms, ranging from the internet to digital assets and cryptocurrency are transforming industries globally. But, along with that comes a lot of hyperbole and typically that is followed by very little substance. Great companies use technological disruption, innovation, and transformation to establish themselves and thrive. But they rarely last. Every company, even the most valuable companies such as Apple, Apple, Amazon, Facebook, Netflix, etc. must dynamically transform to stay competitive and valuable. Transformations are certain. New entities will become very valuable, legacy companies will diminish, and a handful will transform and thrive. Transformation and sustainability create and capture great wealth, but are far more challenging to identify, and even more challenging to sustain.

Arcadia Capital

Podcast Channel

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The show analyzes emerging economic and social developments, identifying the most critical issues impacting investment success. It looks at globally disruptive changes and strategies to profit from these new market forces. Innovation, advanced technologies, geopolitics, and new interrelated factors are essential components of future investment success. Investment success combines predicting the future, the confidence to make bold choices, and the fortitude to stay with those choices. Today’s volatile and uncertain world requires new knowledge and perspective and assembling relevant facts from many diverse sources to make better decisions and achieve superior returns. Some of the world’s most important industries are being profoundly impacted by new technological innovations and platforms, such as artificial intelligence, digital assets, blockchain-based businesses, gene editing, and DNA sequencing, enabling unprecedented disruption to business and economic models. Stable predictability is increasingly anachronistic. Every company or industry will either be a disrupter or disrupted. The leading growth companies of today stand an excellent chance to be memories tomorrow.

Irrationality, Exuberance, and Bad Decisions

Irrationality, Exuberance, and Bad Decisions

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The world may appear to be a rational, deductive place if you are a scientist. But not if you are an investor attempting to understand how markets work. Financial markets are human creations, and humans are irrational. Economics, a truly dismal social science, is an attempt to look backward and create explanatory algorithms about what happened and why. They may have some success with this. But as predictive models, they are mostly useless. More often, they destroy value versus conveying any understanding about economic and business functions, and therefore, give not only useless but awful and typically value-destroying predictions. Participating in the markets requires a broader, more methodical and disciplined approach. Since irrationality pervades most activity, markets move dramatically with uncertainty, and investors react with dramatic moves based on even more uncertainty and lack a reasonable level of understanding and longer-term perspective about what is going on. The world now is more dynamic, volatile, uncertain, and unpredictable. Irrationality drives most market decisions and rising above the noise to be more thoughtful, think deeply and slowly to understand what’s going on, and identify the handful of factors (typically very few) that make all the difference to investment success is the true challenge we face today. That challenge takes work and thoughtful strategies in our irrational world. That world will remain fundamentally irrational from now on, and thoughtful strategies are the only way to succeed in this irrational environment.

The Crypto Revolution

The Crypto Revolution

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Super lofty ideas get attention and publicity, but they are not real. Narrow, specific applications are where true foundational value is created. The financial revolution will certainly not be based on a process where someone buys coins or tokens and simply waits for them to increase in value. On top of that, despite the belief that there will be frictionless peer-to-peer transactions, purchasing any cryptocurrency requires a crypto exchange like Coinbase or FTX that charge high trading fees and have questionable security. Blockchain is an evolution for businesses, it is not a disruption or a new infrastructure. It will improve user experiences, regulatory clarity, and interoperability. Crypto proved that digital transfers and settlements were possible, it is the blockchain platform that enables this efficiently and securely. It may be boring and we’re not going to have any stadiums or arenas named after a technology platform, but real change will be driven by a blockchain. The rest is a noisy sideshow.

Transformation and Investing

Podcast: Transformation, Opportunity, and Absurdity

Transformative Businesses

Some of the world’s most important industries are being profoundly impacted by new technological innovations and platforms, such as artificial intelligence, digital assets, blockchain-based businesses, gene editing, and DNA sequencing, enabling unprecedented disruption to business and economic models.

Stable predictability is increasingly anachronistic. Every company or industry will either be a disrupter or disrupted. The leading growth companies of today stand an excellent chance to be memories tomorrow.

Investment Strategies

Podcast: Investment Strategies and Irrationality

Investment Strategy

Investment success combines predicting the future, the confidence to make bold choices, and the fortitude to stay with those choices. Today’s volatile and uncertain world requires new knowledge and perspective and assembling relevant facts from many diverse sources to make better decisions and achieve superior returns.

There is no simple formula. Thoughtful observation of complex factors, understanding their interrelation, and predicting the outcome of their interaction is challenging. Media-based quips are usually misguided, superficial, and potentially catastrophic.

Transformation and Investing : Nicholas Mitsakos

Transformation and Investing: Disruption, Opportunity, and Absurdity

Book

Transformational Investing: Opportunity, Absurdity, and Terror highlights the extraordinary opportunities and risks associated with disruptive technologies and the global transformation they are causing. Instead of headline-grabbing hyperbole, I attempt to create a context to understand these developments – a broader, methodical, and disciplined way to think about disruption and transformation.

Some of the world’s most important industries are being profoundly impacted by new technological innovation and platforms, such as artificial intelligence, digital assets, blockchain-based businesses, gene editing, and DNA sequencing, enabling unprecedented disruption to business and economic models.

Investment success requires not only understanding these impacts but also grasping many other economic forces and elements ranging from global economics, game theory, competitive and microlevel analysis, as well as human behavior and emotions.

Stable predictability is increasingly anachronistic. Every company or industry will either be a disrupter or disrupted. The leading growth companies of today stand an excellent chance to be memories tomorrow.

Inflation

Folly and the Fed

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The average prices of food and fuel rose more than 16% in February from a year earlier and are expected to rise further by the war in Ukraine. Consumers are paying much more for meat, bread, milk, shelter, gas, and utilities. Only a small amount of food consumed in the U.S. is imported, and most of that is from Mexico and Canada. But Russia provides 15% of the world’s fertilizer and other agricultural chemicals that are now in short supply as planting season approaches. Wheat futures are up 29% since Feb. 25 and corn is up 15%. There is no shortage of wheat in the U.S., but global supply was the tightest in 14 years before the conflict, and dramatic shortages and price spikes are expected. What data is the Fed looking at, and how is it assessing inflationary risks? It’s hard to feel confident that the right hands are on the wheel because the combination of extraordinary factors, such as extremely tight labor markets and wage inflation (at over 6% annually and accelerating) showed inflation was already a significant risk. Yet interest rates were left unaltered. This is even before the crisis in Ukraine. The Fed should do whatever is necessary with interest rates to bring down inflation, including movements of more than a quarter-point, and a rapid reduction of its balance sheet. It also means recognizing that unemployment is likely to rise over the next couple of years. Paul Volcker would not have had to take extraordinary steps, driving the economy into a recession to crush runaway inflation, if his predecessors had not lost their focus on inflation. To avoid stagflation and the associated loss of public confidence in our economy today, the Fed has to do more than merely adjust its policy dials — it will have to head in a dramatically different direction.