|
Liz Hecht, January 2025 |
|
|
“I’ve met hundreds, perhaps thousands of entrepreneurs, and I’m convinced the majority did not start companies because they could, but because they had no other options.” ―From The Algebra of Wealth Once upon a time long ago, I was hunkered down at my desk generating some last-minute edits for the Wall Street trade publication I worked for when suddenly I detected a presence by my side: My boss. My boss was not there to say, “Hey Liz, good job for scooping the Wall Street Journal!” Oh no. He wanted to request that I dress more formally at the office. Having been on deadline without a break for close to 17 hours, I was in no mood for this. “Well gee,” I said. “I would like to dress more formally, too, but unfortunately I do not have enough money to pick up my dry cleaning this week. Maybe if this company paid me a living wage, I’d dress better.” Thus an entrepreneur is born.
Scott Galloway, a professor of marketing at NYU Stern School of Business and a serial entrepreneur, published The Algebra of Wealth in 2024. I wish he had written this book decades ago when I was first cutting my teeth in the world of work.
Early in Algebra, Professor Galloway notes that “this is not a typical personal finance book.” Happily, it’s not. The word “algebra” in the title promises the certainty of a formula applied to changing, often unknown quantities. And this book does indeed deliver a formula that pleasingly integrates quantitative and qualitative variables. The quantitative part is simple: ECONOMIC SECURITY = Passive income > Burn rate “Economic security,” Professor Galloway writes, “is control. … It is knowing that you can plan for the future, commit your time as you see fit, and provide for those who depend on you.” Economic security means “acquiring sufficient assets—not income, but assets—such that the passive income they generate exceeds the level of spending you choose for yourself—your burn rate.” The Algebra of Wealth proceeds to address in depth the qualitative ingredients—Stoicism, Focus and Time—that will help readers turn income into assets and labor into capital. A final section entitled Diversification offers a concise tutorial on the economy and the financial markets. Professor Galloway describes the financial markets as “the phone booth in which money changes into its superhero outfit to become capital” and advises which investments to emphasize (ETFs, a cost-effective way to achieve portfolio diversification via a single security) and what to avoid (day trading, “like gambling but with worse odds and no free drinks”). Different readers will respond to this book in different ways. I personally am grateful for the following wealth-building life lessons: Find Your Talent versus Follow Your Passion. “Passion careers suck,” the author observes. “Follow your passion” is Latin for “Prepare to be exploited.” This is good advice for most people, particularly as most people don’t necessarily start with a passion but find one through experience. Professor Galloway describes how he discovered a passion for writing through the discipline of writing a weekly newsletter: No Mercy/No Malice. “For most, the kind of passion that guides us, a lodestar-on-the-horizon kind of passion, is not a birthright. It’s something we find through work.” In an excellent chapter on the ROI of various professions (“be careful what wave you’re paddling into”), Algebra describes media (publishing, television, journalism), for example, as “a volatile business that can feel exploitative.” Don’t Worry, Do Prepare. On the road to building income that becomes capital, the author recommends turning expense management into a “rational obsession.” “Maintain focused attention on your income, spending and investments, without letting yourself become emotionally engaged,” he counsels. “The trick is to keep it an intellectual exercise, to give yourself the feeling of control, not increase your anxiety.” He cites a survey of senior citizens finding that their biggest regret was worrying too much.1 Remember Inflation. Inflation, writes Professor Galloway, is “a rodent gnawing at the pillars of wealth, the rot in your foundation, a rising tide that never ebbs.” I tend to think of compounding with respect to the power of long-term investing. But Algebra has intensified my focus on the reality that inflation, too, compounds and should be considered when making financial life choices such as how much cash to hold. In an introductory chapter entitled “Two Jackets and a Glove,” readers learn that the author comes by his approach to money through a difficult financial situation as a child. This somehow makes the lessons learned from the book all the more affecting and indelible. Professor Galloway dedicates The Algebra of Wealth to his sons: “For Alec and Nolan. Please read this book, and take care of your old man.” And while Algebra is a great read for anyone—old or young, already set financially or just trying to survive—the book is particularly relevant for young people just starting to define their path toward wealth. |
|
|
The Algebra of Wealth
The Money Trap
Lost Illusions Inside the Tech Bubble By Alok Sama
|
Liz Hecht, October 2024 |
|
|
“When you give people too much money, they tend to spend it.” ―From The Money Trap The Money Trap is a page-turner that starts strong: “Someone wants me out of the way. Someone desperately wants me out of the way. I don’t know who and I don’t know why, but I am about to find out.” Author Alok Sama left his position as president and CFO of SoftBank Group International after a frightening smear campaign involving protracted surveillance of him and his family. One part whodunit, one part autobiography and one part exposé of the fantasies and foibles of tech industry investing, The Money Trap explores several important themes in venture capital investing:
This book is particularly relevant when investment banking revenue is rising and, according to the Wall Street Journal, “lower interest rates are stirring animal spirits in U.S. boardrooms.”1
Aside from Sama himself, the central Money Trap character is Masayoshi Son, CEO of SoftBank Group and mastermind of SoftBank’s Vision Fund, one of the largest-ever technology venture funds. Sama writes that many of the fund’s individual investments were “bigger than the average technology fund.” Equally notable, however, was the speed of investment. “Capital was deployed with the frequency of politicians making promises, creating a self-fulfillingly euphoric environment.” SoftBank Vision Fund can be credited with many of what Sama describes as “unimpeachable” and truly visionary investments in companies such as ByteDance, Nvidia and Arm. The fund also invested in companies that did not work out such as Wag, a dog-walking service, Zume, a company using robots to make pizza and WeWork, the inspiration for the Apple TV series WeCrashed. SoftBank’s CEO also was an early investor in Alibaba, turning a $20 million stake into more than $100 billion. After less than 20 minutes,2 Masayoshi Son promised $4.4 billion to Adam Neumann of WeWork, which likely prompted Sama’s description of Neumann’s tongue as “a weapon of mass seduction.” The Money Trap offers several cautionary examples of non-technology companies such as WeWork being valued as technology companies. Elevation Partners Founder Roger McNamee has observed that “every use case isn’t useful.3 In the same vein, every company using technology isn’t a technology company. When in February of 2020 the Wall Street Journal ran a story about the alleged source of the “dark arts campaign of personal sabotage” against the author, Alok and his wife were able to share a joke about certain aspects of the story. And early in the book, Alok laughs out loud when thinking about “the mastermind who commissioned this stakeout being presented with pictures of my dog chasing squirrels.” Every story has a moral and different readers will ascribe different morals to The Money Trap. A key takeaway for me is the importance of maintaining a sense of humor. Read this book if you or someone you care about is considering or already engaged in investment banking. Read it if you want an inside look at the highs and lows of venture investing. And read it if you simply want a ripping good story. The book jacket says this is Mr. Sama’s first book. I hope he will write another one soon. |
|
|
The Coming Wave: Technology, Power,
and the 21st Century’s Greatest Dilemma By Mustafa Suleyman with Michael Bhaskar
|
Liz Hecht, August 2024 |
|
|
“AI is far deeper and more powerful than just another technology. The risk isn’t in overhyping it; it’s rather in missing the magnitude of the coming wave … We really are at a turning point in the history of humanity.” ―From The Coming Wave The “21st century’s greatest dilemma” in this book’s subtitle is how we humans can allow new technology such as AI to realize its vast potential for good while not being destroyed by its vast potential for evil. On the good side of the ledger, The Coming Wave notes new medical advances and clean energy breakthroughs, expedited drug discovery, faster and more accurate medical diagnoses, farm robots maximizing yield while minimizing waste, an enzyme that can break down ocean-clogging plastics, drones that allow countries like Ukraine to defend against an aggressor such as Russia and adaptive education systems building bespoke curricula for individual students. In sum, exponential improvements in human life. On the evil side of the ledger, the book describes innumerable “tail risks on a deeply concerning scale.” Things like disinformation as a surgical strike, election tampering via deep fake videos, Russian bots designed to intensify pandemics, large numbers of people with populist leanings out of work and wars that “might be sparked accidentally for reasons that forever remain unclear.” Oh and one also might add: the potential for intellectual property theft on a grand scale,1 the outsized energy requirements of AI2 and the human cost of building AI systems.3
This book sends a starkly simple message: AI and other new technologies represent a tsunami of change with potential for great good but also great evil. Fully containing the tsunami is not desirable (or even possible), but we still must do everything in our power to avoid all that can go wrong. A highly valuable part of The Coming Wave is the summary of 10 interrelated, reinforcing steps toward containment―from technical safety and audits to a more proactive role for government and a stronger culture of learning from mistakes.
Mustafa Suleyman is the co-founder of two AI companies, DeepMind and Inflection, and now serves as the CEO of Microsoft AI. He knows the world of technology―its potential and its perils―from the inside out. And he is worried. He is worried about what he calls “pessimism aversion,” or “the tendency for people, particularly elites, to ignore, downplay, or reject narratives they see as overly negative.” Why “particularly elites”? Because elites―CEOs of companies, heads of state, leaders in their field―are used to being in control. But the coming wave is not easily susceptible to control. “Properly addressing this wave,” Suleyman writes, “containing technology, and ensuring that it always serves humanity means overcoming pessimism aversion. It means facing head-on the reality of what’s coming.” As Suleyman sees it, to confront this 21st century dilemma successfully requires navigating “a narrow path” between “techno-authoritarian dystopia on the one hand” and “openness-induced catastrophe on the other.” Think China’s hyper surveillance of all its citizens versus a misanthropic loner in his parents’ basement engineering a global cyberattack. Lessons for Investment Marketing Professionals The concept of investment marketing seems mundane in light of futuristic, existential concerns of this nature. The Coming Wave nonetheless inspired me to think about how investment marketers can excel in the complex world of AI. A few important lessons emerge: Encourage the use of case studies and examples. Financial journalists and potential investors are increasingly pressing AI company executives and investment managers for specific examples of how AI works. I have listened to many interviews with CEOs of AI companies and come away with zero sense of what problem the company solves or even what they’re selling. The same is often true of companies supposedly using AI to enhance their product offerings. And advertisements for AI companies often are similarly opaque. Many companies unworthy of the acronym now boast about being “powered by AI” without bothering to define what this might mean. Marketers can help their companies stand out with a few specific examples (or “use cases,” in the lingo of this world). What exactly is the product being put in customers’ hands? How does it make people’s lives better? What is the AI component, precisely? Without such information, companies are vulnerable to accusations of “AI washing.” Counter perceptions of AI washing. Technopedia offers an excellent and comprehensive definition of AI washing. Essentially, AI washing is similar to greenwashing―i.e., falsely claiming to invest for the public good so as to capitalize on investors’ social and environmental concerns. Technopedia provides guidance on how to avoid companies engaged in AI washing, including a short list of pointed questions designed to understand precisely how a company defines AI. Get ready for challenging questions. In a market that is often skeptical yet hungry for knowledge, investment company professionals should be prepared to answer a number of defining questions about the role of AI in their own businesses and portfolios:
All the acronyms (AI, AGI, LLMs). Million- and billion-dollar funding rounds. Trading performed mainly by algorithms … The world of AI is still complex and confusing to many asset allocators. Investment company professionals who help navigate the complexity likely will find favor with audiences starved for specificity and clarity. |
|
|
The Devil Never Sleeps
By Juliette Kayyem
|
Liz Hecht, February 2024 |
|
|
“The devil never sleeps. But he only wins if we don’t do better next time.” ―Jane Cage, Tornado Survivor1 I worry about everything all the time. I often worry that I’m not worrying enough. So of course I had to read The Devil Never Sleeps: Learning to Live in an Age of Disasters.
The premise of this book makes a complex, frightening topic blazingly simple: The devil is here to stay. Bad things―extreme weather, pandemics, cyberattacks—have happened before and will happen again. Systems will fail and humans as well as robots will malfunction. While there isn’t always a fail-safe, The Devil provides vital lessons in how to fail safer.
A leader in crisis management, disaster response and homeland security, Ms. Kayyem is on the faculty of Harvard’s Kennedy School of Government and serves as an advisor to governors, mayors and corporations. The Devil is based on fieldwork, interviews with experts and practitioners, reports, commission findings and the legacy/lessons of past disasters. Black Swans and Gray Rhinos Ms. Kayyem writes early in the book, “So much of our discourse about disasters focuses on the past and why we didn’t prevent them or on the future and how to prevent them from happening again. But we need to stop being surprised. If we can structure ourselves around the probability, not the mere possibility of disasters, then we will better invest in the skills that can minimize harm.” Unlike black swans (surprising, low-probability, high-consequence events), disasters have become gray rhinos (obvious, high-probability events that are always looming).2 The Devil Never Sleeps provides a clear-eyed look at how governments, companies and individuals can minimize the harm caused by disasters. The Devil covers eight lessons about how to limit negative effects during and after a disaster. Here is a brief summary of three key lessons:3 Lesson #1: Learn from Near Misses How companies learn from potential disasters says a lot about how they will respond when confronted with a real disaster. Near misses should be considered a blessing―a wakeup call to improve disaster response. “Since the disaster didn’t happen,” the author writes, it affords a bit of luxury. Why squander it?” Consider the fast food company Chipotle. Chipotle had always treated every customer complaint or sick employee as a potential catastrophic incident. So when the company confronted a real, potentially reputation-ruining challenge, it was ready. In 2015, a significant number of E. coli cases were linked to Chipotle’s lettuce. But while Chipotle tripped, it did not fall. The company made massive changes to its food safety protocols and went public with those changes while addressing past vulnerabilities. Before losing 30% of its value in 2015, Chipotle’s market cap was nearly $24 billion. As of this writing, it is $72 billion. Chipotle protected its brand by learning from near misses and by communicating rigorously during the crisis. Lesson #2: Spread the Word Communicating rigorously is critical. Sometimes the powers that be seek to prevent panic by hiding vital information. But without clear communications, the consequences during and after a disaster can worsen dramatically. Information should be shared with everyone and welcome from anyone (not subject to “need-to-know” restrictions or dismissed without consideration based on the source). During a 1702-1703 smallpox outbreak in Boston, the city leaders prohibited churches from ringing bells to memorialize the dead. As the death count steadily rose, the city continued to forbid the bells. Several centuries later, under similar circumstances, denial led to delay that exponentially magnified the consequences of COVID-19. The Devil provides many such examples of situations where the results of a tragedy are made much worse by a gap in communications. Ms. Kayyem takes care to note, however, that sometimes vital intelligence is available and communicated yet not acted on, as was the case during the September 11, 2001 terrorist attack, the Capitol riot on January 6, 2021―and, most recently, the October 6, 2023 Hamas attack on Israel. Lesson #3: Avoid the Last Line of Defense Trap BP’s Deepwater Horizon oil rig explosion in early 2010 caused the death of 11 workers and an oil spill from Texas to the Florida panhandle, impacting the ecosystem, tourism and the food supply chain for the entire U.S. How had BP planned to prevent such an outcome? While capturing oil beneath the seabed, if anything went wrong, a single blowout preventer (BOP) was supposed to take charge, automatically shutting down the system. In other words, one last line of defense was supposed to save the day. Ms. Kayyem details three reasons why the last line of defense concept is a dangerous myth: (1) people blindly rely on it as some form of guarantee, (2) too much pressure is put on one defense and (3) as a result, organizations fail to create “layered responses” to prevent/limit the impact of a catastrophic event. She urges readers to consider the BP scenario differently given reliance on more than one defense mechanism: “Imagine a ten-day spill, not one that lasts more than a hundred days. The most obvious investment would be a second on-hand BOP. It would have been expensive, but not $68 billion expensive … The offshore oil industry fought backup blowout preventers as a condition of drilling. The blowout preventers don’t always work, but you increase your chances a lot by having more than one.” The author often uses the word “layered” in describing disaster prevention/mitigation responses that build in multiple prevention mechanisms as opposed to relying on just one. But she notes that it’s not only about “one device or instrument but a series of investments, procedures and training” and also pays deference to a culture of preparedness in mitigating negative consequences. Investment Company Implications The Devil Never Sleeps compels consideration of important questions affecting investment companies:
And, perhaps most important, do the people in charge worry enough? After reading this book, the next time I hear a company leader or politician saying, in effect, “We’ll cross that bridge when we come to it,” I will wonder what happens when there is no more bridge. When the last line of defense fails and the latest in a series of near misses becomes a full-fledged disaster. Fortunately, for a book about the inevitability of disaster, The Devil is weirdly hopeful because it provides a clear, inspired blueprint for “doing better next time.”1 |
|
|
