ContrariLand

1. What will remain the same?

As we come to the end of the decade, it is popular to make lists of all the things that exist today but didn’t in 2010 (AirPods! Alexa!). With so many things changing, everybody is in a rush to predict the future. But really, that’s wrong. Look at your life in 2010. Your car was probably very similar, so were your clothes, the types of movies and books you consumed. Most things will be the same in five years, in ten years, even longer. So rather than guessing what will change, the better approach is to identify what is likely to remain the same in the future and work backwards.

Example: In my world of real estate investing, most investors are fearful of investing in retail centers, believing that people are going to continue to evolve towards online shopping and fulfillment. Is that likely to be true? While online shopping has grown tremendously, it still only accounts for about 10% of all shopping. It is a good bet that in 10 years at least 80% of shopping will be done in a physical format. Is there anything in your world that people are scared of, but could be wrong?

2. What would Jeff Bezos do?

No need to recreate the wheel, let a better brain attack your problem! Attempting to put somebody’s body else’s mental model into your current situation can be helpful way to reframe the issue. Other people I like to use as mental models are Warren Buffet for investing, Jocko Willink for fitness.

Example: When building residential housing, developers consider a number of factors such as location, size of units and amenities (e.g. pool, co-working space, fitness center). The instinct is to look at the competition and match them, or do just slightly better. But going into Bezos’ head allows you to step back and say “assume no competition, what do the customers value?” This can take you to a very different answer, and quite often lead you to do LESS — fewer amenities and smaller units, recognizing that your customers have different consumption curves than we (developers and investors) do. How would Bezos do your job?

3. What is out of whack?

Years ago I read (I think in his autobiography) that when Sam Zell reads the newspapers he doesn’t read so much for facts but to try to recognize which things don’t make sense. Things that are out of balance are the most likely to correct (for good and bad) and as an investor identifying imbalances is crucial.

Example: I just flipped through today’s paper to find an example. There is a story about Comcast looking to buy a streaming company. This isn’t surprising. However, there is also an article on concert ticket prices, which have increased by 55% in nine years. Nine of the 10 tours in 2019 had average ticket prices greater than $100. This seems noteworthy, when conventional wisdom has people staying in their home watching Netflix and Disney+, there is more demand than ever for in-person events. Maybe you can only stretch a rubber band so far before it recoils with more force. This disconnect between reality and conventional wisdom could create opportunities. What is out of whack in your world?

4. How would you do 100x more of this?

We (or I, at least) often find ourselves heads-down on the thing in front of us. And that is important, as clicking through today’s tasks matters to forward progress. Maybe quarterly or annually we will step back to determine progress towards the larger goal. But usually these goals aren’t big enough. And if the goal were bigger the tasks would be different. Not necessarily harder, but different.

Example: Say you found a piece of land. After doing some analysis, you decide you think there is a business opportunity in dividing it up and creating 10 lots, building a home on each lot and selling each house. This will require a lot of work, such as working with the town to get water and sewer to each lot, and finding a homebuilder to construct the houses. What if you were going to do 100x this? I think you would really dig into the process to figure out where the margins truly are in this business. Where are the leverage points in the value chain that are most important? It might lead you to decide to become the builder yourself, because you could buy materials in bulk. Or it might lead you to simply sell the lots and not build the homes. Putting things under a microscope is helpful, but looking at them through a telescope is as well. The trick is getting the mixture right!

5. What is getting cheaper?

Usually investors want to find areas of pricing power and invest in companies that possess it. In Andy Kessler’s book “The End of Medicine” he discusses his investment thesis of doing the opposite: identifying areas of falling prices and investing in companies that are springing up from that catalyst. The most obvious example is in transistors and processing power, prices for which have been falling for decades. This decrease in price has opened up tons of applications, from desktops to laptops to iPhones, and hundreds more. In this scenario, we don’t necessarily want to invest in the microprocessor company, but in the companies that are derivative from that technology.

Example: Some of the most obvious examples today are microprocessors (Moore’s Law), DNA sequencing (pricing has gone from $1 million to < $1 thousand in 20 years), Bandwidth, solar cells, and TVs. Kevin Kelly’s very interesting book What Technology Wants discusses some of these technologies. Most things increase in price, so falling prices are usually indicative of a powerful underlying force. What is getting cheaper in your world?