I heard Taleb actually run a portfolio called 'the Black Swan fund.' I didn't really think of it before but that pretty much what YC is.
Black Swan Farming
291–300 of 321 posts
Re: Black Swan Farming
#292Earlier quoted context omitted.
Any multi-person consultancy in our industry can easily be doing $1MM. Most companies that build and ship product can easily consult, so, any of those companies that continue to ship product for multiple years should cause you to ask how much more than $1MM they must be making. "Salaries and profits" is an awfully weird metric, since salary is the #1 cost factor both for consultancies and product companies. Maybe you…
Maybe my English is causing problems here (I'm not a native speaker). Of course there is a huge amount of lifestyle companies doing millions in revenue. But that's not what founders themselves earn. Founder's personal salary and a slice of pure profits that are not reinvested to company growth can be considered a total that founders "earn" in lifestyle businesses. Even with this metric, of course there is a lot of li…
If the founders are smart, they will personally earn very little, and funnel as many of their expenses through the business as possible, for tax reasons.
I worked for consultant who had a lifestyle business. He pulled in nearly half a million dollars in revenue per year, but I got paid a higher salary than he did. But I drove my own car, and he drove a company car. He didn't own a computer, but the company had a fiber connection, a server room and several very nice recent laptops. He didn't own a cell phone or a camera, but the company supplied him with a nice world smart phone and multiples of the latest cameras. He rarely took vacations, but the company paid for him to travel the world to visit clients and trade shows. Etc.
It's for this reason that revenue is often a better gauge of success for a lifestyle business, than profit or salary.
Re: Black Swan Farming
#293Earlier quoted context omitted.
They do something similar with equity trades. They get professionals and public entrants to select stocks and include a 'dartboard'. From my limited reading experience the dartboard rarely wins implying people do add value, but it would be interesting if someone could find a history (I didn't with a quick Google). In Australia one news paper includes an Astrologer which I find amusing. With start-ups I think it would…
"From my limited reading experience the dartboard rarely wins implying people do add value" This is wrong. If the dartboard consistently underperformed most stockpickers (i.e. say it ranked around the 30th percentile year over year) then you could make the case that (some) people add value. If, on the other hand, the dartboard is near the mean of the distribution of outcomes, you could make a case that it's all luck.
You're right. The dartboard experiment would be better (faster) if you had just as many dartboards as investors. Then you could compare the distribution and not just a single result.
Re: Black Swan Farming
#294Earlier quoted context omitted.
As best I can tell, success = luck * skill. The big successes that I've seen all have exceptional founders, but that's clearly not enough. Timing is a huge component as well. Often a good idea will fail simply because the market or technology isn't ready. My own experience with Gmail reflects some of that. When we decided to write the whole frontend in JS, everyone said that it was a bad idea doomed to failure. It ha…
"As best I can tell, success = luck * skill." The actual formula that academics use is Performance = AMO, ability * motivation * opportunity. I think there are a couple of modified versions but I can't remember what they are off the top of my head.
I've found that in instances where my ability is 7 and motivation is 34 but opportunity is something like, say, 23, I've had better performance than when my ability is 22 and my motivation is 12 compared with a 13 opportunity.
This is to say that my experience confirms that there probably is some completely subjective formula that will fool people into thinking there is some reason behind my good luck. :-)
Re: Black Swan Farming
#295Earlier quoted context omitted.
Interesting. That's completely the opposite of what I was taking away from PG's essay; My takeaway from the essay was that investors want you to swing for the fences; in my mind, that means not worrying about profitability early on. I mean, twitter didn't introduce advertising at all until they were absolutely huge. I had the impression that facebook was similar (though I could be off; I'm not a regular user of faceb…
I get the feeling from PG's other essays that he regards Google, Facebook, Twitter, etc. as the extreme outliers that succeeded in defiance of the "rule of revenue," not because of it.
huh... but wasn't he saying, in this, that he was looking for the extreme outliers? I thought that's what a 'black swan' was.
Re: Black Swan Farming
#296Earlier quoted context omitted.
And how has that worked out for you? Have you ever experimented with an opposing strategy? (Funding "non-technical" founders with "weak" personalities.) Probably not, lest you would risk your reputation. Hence, you might not have evidence to show that this approach would not yield suffcient numbers of "big winners" to justify the investments. For example, if someone sugested the hypothesis that from a set of a given…
I don't recall arguing that our criteria are the only criteria one could use. I would love for someone to start the venture firm that focuses on non-technical founders with weak personalities! It would either be highly profitable or highly entertaining to watch...
We've seen a quadrant close to this space thoroughly explored: Non-technical founders with strong personalities. MBAs were the most heavily funded during the first bubble in the 90s, far more so than technical people.
Re: Black Swan Farming
#297Earlier quoted context omitted.
You're not making any sense whatsoever and your points are far from clear. For starters, as an asset class, sand hill returns are probably as high as it gets so "sucks" is definitely the wrong description. The DoD comparisons are just weird.
You are not reading and are just angry for no good reason. And what you are saying is total nonsense. For the venture capital asset class, average returns over the past 10 years have been poor, including on Sand Hill Road. For the returns, there are many good sources; one of these I mentioned here is an old post of Mark Suster. Some of Suster's data shows that in the last ten years roughly half of venture partners ar…
You're calling _me_ angry?
Re: Black Swan Farming
#298So it seems for investors, the big winners are simply based on luck, there is no logical factor that you can easily pick out that will give you a better chance of winning accept for possibly experience over a number of years that allows you to pick the features of a successful startup that initially doesn't look like they are going to be successful (maybe a glimmer in the founders eyes, something that isn't completel…
I think there is a way to improve your chance of winning big - don't invest in startups that serve niche markets. Look at this list of YC companies from last summer: http://www.quora.com/Who-are-the-Summer-2011-Y-Combinator-co... Don't you think you can you pick out some that had zero chance of becoming massive-scale homeruns, because they served sort of a niche market? There are none that were obviously (to me, or a…
> but if you want the next Facebook, you're not going to get it by investing in, say, Codecademy, which, as laudable as its goals are, only appeals to newbie coders, who are a tiny slice of the population
Well you would just never know. Computer science and software engineering could become part of the basic school curriculum in the next few years. In the news you see that "the 14 year old boy developed an X for the iPhone and is now a millionaire". Enough of these stories could prompt the education system to deem coding as a basic skill like math, english and science. Code academy could end up being the platform that schools use to teach it.
But i guess the chances are slim because as it stands now the population is small though the possibility is there.
Re: Black Swan Farming
#299Re: Black Swan Farming
#300Earlier quoted context omitted.
Peter Thiel recently talked a little about this[1] counter-intutive phenomena (that pg states as that effectively all the returns are concentrated in a few big winners ): One intuition is that people do not believe in a power law distribution. They intuitively don’t believe that returns could be that uneven. So when you have an up round with a big increase in valuation, many or even most VCs tend to believe that the…
That actually makes a lot of sense. Ive been having some of the same thoughts, as almost all the profits from my own portfolio is from Apple stock, even though i also own, Amazon, Tesla, Arm and so on. Perhaps thats why index investing is so succesfull, because you get the benefit of the outliers.. the bad ideas, or long shots, that suddenly skyrocket..
all the profits from my own portfolio is from Apple stock, even though i also own, Amazon, Tesla, Arm and so on.
No! That is different.
These are public companies, and the fact you are seeing amazing share price growth from Apple is an exception.
Usually[1] on the public share market you'll see growth rates of ~8% pa, with some slightly above that and some below that.
The continued rapid rise in Apple's share price in exceptional, and is having an effect on your portfolio that is unlikely to be seen again in our lifetime.
That is completely different to pre-A-round investing, where it is expected to see (say) 1% of companies return 1000%.
TLDR; Apple is an exception. Don't think PG's essay applies to public markets.
[1] "Usually" in the sense of the pre-2008 sharemarket.