At its core, Antonio says, a pro-entropic business is one that is simply “good at chaos.” Given that we’re hurtling into a more chaotic, complex world, identifying these companies offers speculators an asymmetric risk/reward opportunity. “That, for us, is the holy grail of investing,” he says. “A company that gets better no matter what—just by virtue of what it’s actually doing.”
“We can pick companies like SpaceX, right? Huge, ambitious goals. I can tell you, I know that Elon believes what he was telling people, because I believed it. I was there. I saw the data, and I know that for some people on the outside it sounded so incredible, it can’t be true. I’m on the audit committee, I’m telling you it’s true. But I think sometimes the brain can’t process the idea that this thing that’s so strange to them, could be true. That’s one of the hallmarks of greatness, someone who sees something that no one else sees and can realize that goal and that ambition in reality and galvanize people to do it. I find that, at least in our case, it’s always been people that are really trying to make the world better. It’s hard to galvanize people to work super hard, to dedicate their lives to a mission, that’s just about, say making money, it doesn’t sustain.”
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Worm Theory, making big bets, working with Arne, and getting into position
Daniel Scrivner was kind enough to have me on Outlier Academy, an excellent podcast he hosts with guests far more impressive than myself (Kevin Kelly, Sir Ronald Cohen, Scott Belsky… just to name a few.) Daniel, himself an accomplished VC who previously ran the design team at Square, got me to talk (pontificate?) about a range of subjects—everything from working with our founder/CIO Arne Alsin, our views on concentration/risk, our firm’s approach to research, how we’re drawn to complexity, attempting to ignore the hellish news cycle, what we call Worm Theory, the importance of capturing upside from a winning business… and lots more. It was a fun conversation. I encourage you to subscribe to his show.
“We tend to believe that there are certain businesses that are hitting exponential, or near exponential, growth curves. This just goes back to getting into position… For us, we just need to own these businesses because the upside is so high, and the level of conviction that we’ve developed over a period of years just lets us totally relax. And we’re not trying to get fancy with timing or anything. Something that we often get asked about is like, ‘Well, when do you sell? Do you take profits along the way?’ It’s a case by case basis obviously, but if the stock’s at $10, for example, and we think the stock could be at $1,000 in a few years from now, and it goes up to $50, we’re probably not going to take too many profits! Because that just would not be the best way to capture upside for our partners… This is a humbling business, but I think one of the most humbling aspects is selling something too soon. You talk to any investor who does this professionally for many years, ask them what their biggest mistake is… it’s mostly like, ‘Oh, I owned Apple in 1998 and I sold it for 2X.'”
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It turns out making stuff is hard
I enjoyed this recent FT article that comes to a humorous, if somewhat simple, conclusion: Making electric vehicles, at scale, is very, very hard to do—especially if you want to make a profit. “A plethora of electric vehicle maker wannabes — some opening factories for the first time, and many with steep valuations — are facing their biggest challenge yet: making vehicles,” the article notes. “From China’s Nio to the Amazon-backed, one-time Wall Street darling Rivian, almost every one of the auto world’s feisty new entrants has stumbled at this stage.” It continues:
“The industry’s shift to electric cars was always expected to lead to a deluge of new entrants, because the barriers to entry are so much lower on battery vehicles than on their engine-powered forebears. But the combination of Tesla’s helium-filled valuation and the market tolerance for lightly scrutinised reverse takeovers led to a stampede of EV businesses listing their shares. As a result, companies with neither profit, nor in many cases even revenues, found themselves on public markets, squinting into the full glare of the world’s investment community. Canoo, Lucid, Nikola, Lordstown, Fisker, Arrival and Rivian were all among businesses that went public before shipping a single completed vehicle to a customer.”
“Hamish Corlett is an investor at TDM Growth Partners. We cover the common threads that have enabled Block to organically build two major ecosystems in Square and Cash App, how the recent Afterpay acquisition can strengthen the connective tissue between those businesses, and the competitive frontiers Block faces.”
“At Bireme, we seek to exploit errors in valuation made by other investors, which we believe are driven by cognitive biases. Biases make humans think less rationally about all things, including stocks. A common one is extrapolation bias, which occurs when we make long-term assumptions about data that is short-term in nature. Humans extrapolate far more often than we should. The reasons for this bias, like in all features of our lizard brain, lie in our evolutionary environment. On the savannah, it is safer to assume that two lion sightings indicate a trend. The cost of a spurious correlation — perhaps having to avoid a given area — is small relative to getting eaten. Being quick to extrapolate lowered the risk of deaths for our ancestors, and this is the brain we inherited.”
This information should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the investments or strategies referenced were or will be profitable, or that investment recommendations or decisions we make in the future will be profitable. This article contains links to 3rd party websites and is used for informational purposes only. This does not constitute as an endorsement of any kind. While Nightview uses sources it considers to be reliable, no guarantee is made regarding the accuracy of information or data provided by third-party sources. Nightview Capital Management, LLC (Nightview Capital) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Nightview Capital including our investment strategies and objectives can be found in our ADV Part 2, which is available upon request.
Welcome to The Nightcrawler, a weekly collection of thought-provoking articles and analysis on technology, innovation, and long-term investing. The Nightcrawler is published every Friday evening by Eric Markowitz, Nightview Capital’s Director of Research. Subscribe below. In this evening’s email… Quote of the week: “Doubt is not a pleasant condition, but certainty is absurd.” Voltaire Embracing uncertainty as a competitive edge In …
