Predictions usually end up being nonsense. We simply draw a trajectory from what we know today. But innovation is a discontinuity. Things are unpredictable because innovation does not come from consensus thinking. It comes from small groups and individuals with a spark of entrepreneurship, intelligence, and vision.
One of the fundamental tenets of predicting technology is that most forecasters get things spectacularly wrong.
The market is consensus thinking. Performing above average means being different. Simply being different doesn’t define success. Success means understanding what it takes to not only think differently but understand when consensus thinking is wrong and executing and implementing those choices effectively. Doing better (generating superior returns with less overall risk) is difficult. Understanding “what’s really going on” is not a simple formula. It requires different, deeper, and better thinking. Depart from the investment crowd, focus on the factors that are necessary and, in combination, sufficient to make a difference, sustain performance and manage risk. It’s not easy or obvious, but it is superior.
It has taken over 30 years for the overnight sensation of the Metaverse, but now hype, money, and large technology companies are charging in. Most obvious and conspicuous is Facebook’s maneuver to change its name to Meta Platforms and commit $10 billion. Microsoft is making a $70 billion acquisition of Activision to mostly focus on Metaverse platform development. Following on top of these two elephants is tens of billions of dollars of venture capital. The opportunity is considered comparable to the original iPhone. None of the iPhone’s component services – mobile phone, computer, camera, and operating system, were new or distinct. The iPhone revolution is the convergence into a single device (or platform) and, most importantly, the entrepreneurial spark that lit millions of application developers to create value from the iPhone platform. The Metaverse can best be thought of as the intersection of technologies and users. It combines virtual and augmented worlds, virtual assets, digital assets, and gaming into a single platform. However, there doesn’t seem to be anything too disruptive about the Metaverse or Web 3.0. It’s reasonable to be skeptical, and while there is an economic opportunity within the specific creation of Metaverse assets, the real opportunity remains with the infrastructure, intermediaries, picks, shovels, and “the arms dealers” of global digital war.
Let the data tell the story. Remove human bias. Intuitive investment ideas may seem compelling, but more often, these ideas are time-consuming, inefficient, and inferior.
Diverse thinking, innovative approaches, and a willingness to be wrong and start over typically bring superior results.
Trust the model. Data, discipline, and rigor win more often.
While most of Europe and the United States suffer sweltering heat, darkening economic skies and bitter winter of discontent are looming. Threats to the world economy are chilling. Rising interest rates are slowing activity for discretionary spending while rising prices for nondiscretionary spending are also slowing economic activity. It would be miraculous if the compounding of both effects would not lead to a recession in both Europe and the US. China’s growth has stalled. The Ukraine conflict will resolve itself to the West’s dramatic disadvantage and the West seems to be willing to let it happen – much to each economy’s long-term disadvantage. Don’t count on anything miraculous.
A new vision for artificial intelligence is using smaller more relevant data sets for dynamic learning generating more effective outcomes and better predictions.
This model uses cognitive architecture, learns, transfers learning, and retains knowledge – enabling more valuable and compelling artificial intelligence applications. This approach is more closely related to the brain’s actual structures and much more effective than “neural networks,” which is a catchy name but the similarity to the brain’s actual functioning is in name only. Real advancement in artificial intelligence must live in reality, not theoretical marketing.
The Fed’s latest projection was for annual inflation to fall from over 5% at the end of 2022 to about 2.5% by the end of 2023. At this point, we’re not taking the Fed’s projections seriously, and for good reason. They were spectacularly wrong when a depth of understanding and insight into critical future events was essential. In other words, the understanding of how the economy works, the Fed’s ability to predict the effects of economic shocks, and its policy actions have gotten no better over the last 50 years. More specifically, price stability doesn’t seem to be coming anytime soon because people simply don’t think it will. If we look at the combination of rising wages and inflation expectations for both consumers and businesses, it is these expectations that drive inflationary pressures more than central bank policy. Inflation levels will be stickier than first theorized by the Fed, and the time to resolution is likely longer. Expect more “surprises” that will be no surprise.
The illusion that one can either predict or get ahead of cycles, or predict when they will end is why most investors underperform the market. Markets are driven by human emotion, and it is human emotion combined with the supply and demand dynamic that determines price. Therefore, pricing is independent of anyone’s perspective about “intrinsic value.” Markets are based on price, price is based on supply and demand, and that dynamic is subject to abrupt changes based on the whims of small numbers, and sometimes exceptionally large numbers, of investors. Human behavior controls the markets. Optimism, pessimism, psychology, fear, conviction, and resignation all play a role in adding to volatility and uncertainty. Frequent and intense volatility is here to stay. Market movements really can’t be predicted unless they are at extremes when prices are at absurd highs or lows. But, picking the high or the low is a fool’s errand. Understanding and profiting from volatility, managing risk, and believing in a sustainable investment model is still the best strategy.
Cryptocurrency staying power has certainly been challenged these last few weeks. There is been a general market drop (even correction), but crypto has been collapsing in value and, to many, is in a death spiral. Of course, reality is more nuanced, and with more detailed analysis, a broad brush hardly seems appropriate. Certainly, the weakest and, honestly, craziest portions of the crypto world have been exposed to be nothing more than silliness. But some components remain resilient. The market is quite effective at sorting the specifics of an otherwise overgeneralized sector. There is no such thing as “crypto.” There are stable and valuable digital assets, globally exchangeable and disruptive. Others have nothing but fluff. Of course, government should insist on more reliable information, and institutions should guard more effectively against fraud. But, there is wheat among the chaff, and it continues to have the potential to be disruptive, create substantial value, and enhance global prosperity.
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.
