Circle of Competence Issue #65

QUOTE OF THE WEEK

"All of humanity’s problems stem from man’s inability to sit quietly in a room alone." - Blaise Pascal (Naval Ravikant on Joe Rogan's podcast on the importance of meditation)

FOOD FOR THOUGHT

The Permian basin is booming - but at what cost to West Texans? (Texas Monthly)

I thoroughly enjoyed the story-like journalism in this piece that captured the Permian Basin in life-like detail. It highlights how quickly economics of a geographic area can change when they are attached to a rapid production increase in a commodity product. It is a real-life illustration of economics on the margin, when demand (for food, shelter, and entertainment) skyrockets and supply can't keep up. Huge real price increases due to the supply/demand imbalance. And what is tough from a political perspective is that it disproportionately affects the blue-collar side of the equation. For some people, these oil fields are just spreadsheet calculations, but for others, they are the only current opportunities for work and money.

Buffett always spoke about the importance of investing in companies where the economic ground was very stable, and on a personal finance level, this is probably good advice for most individuals as well - to find work in a field that offers growth opportunities and will still be around in 10+ years. These oil wells represent potential labor opportunities - but for how long? From a national energy independence standpoint, the boom in production from the Permian is a boon to consumers in the US. But make no mistake, there will be real human costs from the simple fact that the industry is as transient as the commodity that it produces and sells. I am not super knowledgeable about the economics of an oil well or fracking site, but it seems that these types of setups eventually run their course - with consumer demand from transient workers drying up in parallel with the oil wells, leaving a trail of dry oil-field-towns in its wake.

A study on 250+ companies details why platform companies failed (Harvard Business Review)

Here are the four main reasons sited in the article and a platform that failed because they did not get it right:

1. Get the incentives (pricing) right for all sides of the platform (Sidecar lost to Lyft & Uber).

2. Develop trust with your users (eBay in China lost to Alibaba).

3. Dismissing competition to early (Microsoft's Internet Explorer lost to Chrome).

4. Entering a market too late (Microsoft Windows Phone and Amazon Fire Phone lost to Samsung and Apple).

The author qualifies numerous times that Uber and Lyft have 'won' the transportation platform space, but that they are still struggling to produce an economic model that is viable long term. My biggest question would be whether a space has truly been 'won' at all if the economics are not yet self-sustaining. The last decade has been a decade of easy (private) money, but as times get tougher (as they often do in long term cycles), will these platforms be able to afford subsidizing rides for consumers? Or will they turn the screws on their drivers and consumers?

Five lessons from history (Morgan Housel)

Morgan Housel has a wonderful way of taking a specific lesson from history and generalizing it based on the basic tenets of human psychology. My two favorite lesson from this piece were #3 (unsustainable things can last longer than you anticipate). #3 deals directly with incentive biases that can easily capture people's attention through potential compensation (the pizza delivery man who became a subprime mortgage banker in 2004). Everyone was making money and the economy was on fire, so no one wanted to rock the boat - from the pizza delivery man to the realtors to the house flippers to the mortgage bankers to the CEO's to the politicians and central bankers. Housel masterfully shows how large groups of people can, through individual incentives and belief in a good story, work together in creating unsustainable situations that persist longer than most rational minds would predict.

WRITTEN WORD

TOP READ: Five lessons from history (Morgan Housel)

The permian basin is booming - but at what cost to West Texans? (Texas Monthly)

A study on 250+ companies details why platform companies failed (Harvard Business Review)

The rising cost of populism globally (Absolute Return Partners)

Trump's feud with Huawei could lead to the balkanization of tech (MIT Technology Review)

Discussions of modernization - US-Sino relations through the historic lens of human civilizations (Li Lu of Himalaya Capital)

Risks and and opportunities in the battery supply chain (Massif Capital)

The end of mobile (Benedict Evans)

Interview with Scott Kupor from Andreessen Horowitz on the VC funding process (Fortune)

SoftBank has trouble raising its second Vision Fund (WSJ)

SPOKEN WORD

TOP READ: Joe Rogan interviews Naval Ravikant on investing, happiness, wealth, and culture (The Joe Rogan Experience)

Brent Beshore on building a 'mini Berkshire' with Dr. Daniel Crosby (Standard Deviations)

Deep learning applied to biotech and life sciences (a16z podcast)

Julie Rice, founder of SoulCycle, with Tim Ferriss on anxiety, difficult conversations, and entrepreneur partnerships (Tim Ferriss Show)