Summation

Now is the Last Bubble

2013-04-17T19:44:46-07:00

We’re in midst of the last bubble. This bubble will likely go on for longer than previous bubbles and crash much harder. This current bubble is fueled by being the last chance for baby boomers to strike it rich.

Here is a recap of recent bubbles:

1990s – tech bubble
2000s – real estate bubble
2010s – govt spending and cheap money bubble

Discuss...

my reading list

2013-03-20T11:26:36-07:00

The following are a list of books that I think about regularly. These are the books I have read since college that have most impacted me. I highly recommend all of them:

Ultimate Auren Hoffman Reading List:

Adventure Capitalist: The Ultimate Road Trip 
by Jim Rogers

Against the Gods
The Remarkable Story of Risk
by Peter L. Bernstein

Authentically Black: Essays for the Black Silent Majority 
by John McWhorter

The Cash Nexus: Money and Power in the Modern World, 1700-2000 
by Niall Ferguson

Coming Apart
by Charles Murray

Churchill: A life
by Martin Gilbert

Difficult Conversations
by Douglas Stone, Bruce Patton, and Sheila Heen 

Economics Facts and Fallacies
by Thomas Sowell

The Effective Executive
by Peter F. Drucker

Exodus
by Leon Uris
(fiction)

Fooled by Randomness 
by Nassim Taleb

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything 
by Steven D. Levitt, Stephen J. Dubner

Generations: The History of America's Future, 1584 to 2069
by William Strauss & Neil Howe

Genghis Khan and the Making of the Modern World
Jack Weatherford

Good Book
The Bizarre, Hilarious, Disturbing, Marvelous, and Inspiring Things I Learned When I Read Every Single Word of the Bible 
by David Plotz

How the Mind Works 
by Steven Pinker

Influence: The Psychology of Persuasion
by Robert B. Cialdini 

John J. McCloy: Chairman of the Establishment
by Kai Bird

Just and Unjust Wars 
by Michael Walzer

Justice
by Mike Sandel

The Man Who Mistook His Wife For A Hat : And Other Clinical Tales
by Oliver Sacks

The Moral Animal : Why We Are, the Way We Are: The New Science of Evolutionary Psychology 
by Robert Wright

The Next 100 Years: A Forecast for the 21st Century
by George Friedman

Night 
by Elie Wiesel

The Nurture Assumption
by Judith Rich Harris

Outliers
by Malcolm Gladwell

Path to Power: Early Life of Lyndon Johnson
by Robert A. Caro

A Piece of the Action
How the Middle Class Became the Money
by Joseph Nocera

The Prize
The Epic Quest for Oil, Money, and Power
by Daniel Yergin

Revolution 1989
Victor Sebestyen

The Signal and the Noise
by Nate Silver

Social Animal
by David Brooks

Stumbling on Happiness 
by Daniel Gilbert

Surely You're Joking Mr. Feynman!: Adventures of a Curious Character 
by Richard P. Feynman

Thinking Fast and Slow
by Daniel Kahneman

Too Big to Fail
Andrew Ross Sorkin

We Wish to Inform You That Tomorrow We Will be Killed With Our Families: Stories from Rwanda 
by Philip Gourevitch 

We the Living
Ayn Rand
(fiction)

Why We Buy: The Science Of Shopping 
by Paco Underhill

A World Lit Only by Fire : The Medieval Mind and the Renaissance - Portrait of an Age 
by William Manchester

Cre-8-TVT will trump systems thinking

2013-02-05T15:58:53-08:00

The Right Brain Revolution

Over the next 100 years, the importance of creativity will trump systems thinking due to the rapidly escalating power of computers.

No, I’m not talking about an apocalyptic “Rise of the Machines,” but rather about the future ascent of people who excel in creativity, intuition, and the marshaling of original solutions, things that computers won’t be able to do for a long time. Tomorrow’s rewards will be won by creative people who contribute new ideas. Call it the Right Brain Revolution.

For the past few centuries, society has richly rewarded strong systems thinkers, logical, analytical, objective people such as computer programmers who build software, engineers who build bridges, lawyers who write contracts, and MBAs who crunch numbers. But as computers take over more of the pure systems thinking, people with only this skill set will find their importance decline. There are about 4 to 5 million engineers and computer scientists employed today in the US and few will be automated out of existence. But in the next 50 years, those that excel in creativity-- big picture thinkers, artists, inventors, designers -- will rise to the top. It could be as big a paradigm shift in labor market history as when tools made physical strength irrelevant, or assembly lines replaced the cottage industry. The illiterates of the future will not be those who cannot read and write or code, but those who cannot connect the dots and imagine a constellation.

From 1975 to 1994 only 0.5% of psychological studies concerned creativity, but now it’s a flourishing field complemented by an entire industry of self-help books on how to become more creative. A recent IBM poll of 1,500 CEOs from 60 countries and 33 industries identified creativity as the No. 1 “leadership competency” of the future (more than rigor, management discipline, integrity and even vision).

In the United States, the key predictive score to spot a good systems thinker-- our future leaders-- has been the SAT and IQ tests. Our universities have, for the most part, outsourced their admissions decisions to these tests. And that was probably a good thing. In the last few hundred years, systems thinking trumped all other talents. We needed to build bridges and understand complex matters. While creativity, emotional intelligence, and other talents have been important, they were relegated to second place in predicting a person’s success. But while high IQ is important, it isn’t very correlated to creativity.

That is going to change.

Over the next 30 years, we are going to see a big societal shift that will give outsized rewards to creativity. Systems thinking, while still important, will move to second-fiddle in the talent hierarchy.

And here’s why...

Computers are becoming better and better systems thinkers every day. Besides beating us at chess and at Jeopardy, computers will soon be able to provide important functions such as medical diagnoses and designing structures. Every day computers are taking over more systems tasks once done by humans. The number of computer chip designers, for example, has stagnated due to powerful software programs that replace the work once done by logic designers and draftsmen.

The legal profession is already feeling the effects. There are some aspects of legal work that will always need the personal touch and top lawyers will always make the big bucks, but today many young lawyers are struggling to pay back their student loans.

It cost $2.2 million for a platoon of lawyers and legal assistants to examine six million documents in a 1978 Justice Department antitrust lawsuit against CBS. In a recent case, Blackstone Discovery of Palo Alto, Calif., an e-discovery and litigation support firm, helped analyze 1.5 million documents for less than $100,000. [see article on this in the NY Times]

Those contemplating becoming lawyers will want to pick a concentration where they can uniquely excel or one which will expect reduced competition from a computer. A good specialty to pick is one that is always changing and makes no logical sense – like international tax -- no human or computer will ever be able to figure that one out. But no one should feel overly secure. Systems thinking will attack any area of perceived inefficiency with automation and likely deliver an automated solution over time.

So what to do?

In a world where you need to be awesome or be outsourced, you should plan on a career where you can be awesome.

Education and parenting should aim to provide the conventional skills (math, problem solving, and test taking skills) while also encouraging creative, out-of-the-box type thinking. Computers are no match for the average fourth-grader when it comes to creativity.

Instead of making a resolution to learn how to code in 2013, you might make a resolution to learn how to draw. After a few months of lessons you might begin to observe the world differently seeing details, light and shadows, shapes, proportions, perspective and negative space.

Instead of encouraging your child to major in engineering, you might encourage her to study philosophy, ask smart unsettling questions and practice making unusual and unexpected mental associations.

Albert Einstein said; “I have no special gift. I am only passionately curious.”

Abe Lincoln will have 1 million children by 2033

2013-01-09T12:26:08-08:00

Prediction: Twenty years from now, by 2033, Abraham Lincoln will have over one million children.

Starting in 2023, scientists will have mastered creating and manufacturing sperm from DNA. This will be a godsend for men unable to have kids and for female same-sex couples who want children genetically related to both parents.

Some B-list stars will start successfully selling their DNA and this will quickly start a black market for stolen DNA from movie and sports stars. Stealing DNA will become a capital crime but that will not stop paparazzi thieves from following around famous people grabbing stray hairs, skin, etc. to determine DNA. This will lead to celebrities always travelling with bags of remnant hairs gathered from barbershops to throw off the scent of those trying to steal their DNA. In fact, there will be four different DNA sequences on the market all claiming to be those of Justin Bieber.

Because of the confusion around whether a purported DNA strand actually belonged to the claimed person, few people will trust the designer DNA on the market. But a government FOIA request will make public the DNA of all former Presidents of the U.S. that are no longer alive. Millions of mothers all around the world will pay top-dollar for the sperm derived from the DNA of Lincoln, Washington, Jefferson, Reagan, Teddy Roosevelt, Kennedy, and (oddly) Fillmore.

Former President Lincoln, who had only one child who lived past 18, will quickly become the most popular designer “father” in the world. Over one million genetically related offspring will be born between 2023 and 2033 which will make him the most important contributor to the world’s gene pool since Genghis Khan.

Personalization: The Store Clerk vs. The Machine

2012-12-18T10:59:37-08:00

Try this offline experiment this holiday season:
Walk into a Tiffany’s with a bag from JC Penney’s and see if anyone will talk to you. Next, go to JC Penney’s with a bag from Tiffany’s and watch the staff fawn over you.

Online personalization is an evolving and very dynamic space. The algorithms behind personalization sift through reams of data and supply us with tailored recommendations, advertisements and the most personally relevant and appealing results.

Because online personalization is on the cutting edge, we sometimes forget that we have been targeted for decades while shopping in the brick and mortar stores. Old-school targeting faces a similar set of problems. Old-school retail targeting is about visually sizing up customers:

Vivian, played by Julia Roberts in the movie, “Pretty Woman,” enters the posh shop where a day earlier, dressed in her “working girl” clothes, she was snubbed by the shop assistant. Now, wearing a beige dress, black hat and white gloves--the very image of elegance--she is loaded with shopping bags. The shop assistant smiles and asks if she needs help.

Vivian: I was in here yesterday, you wouldn't wait on me.
Shop assistant: Oh.
Vivian: You people work on commission, right?

Shop assistant: Yeah.
Vivian: Big mistake. Big. Huge. I have to go shopping now.

The shopkeeper’s targeting mistake was fictional. But every day, millions of dollars hang on sellers properly sizing up their prospects.

Never in my life have I been referred to the women’s department when entering a clothing store. The employees quickly surmise that I’m not looking for a dress. They might be wrong. I could like wearing dresses, or, I may be buying a gift for my wife, mother, or daughter. But they play the odds and refer me to the men’s section. Additionally, because I’ll never be confused with a fashionista, they are likely to recommend a new pair of khakis rather than the luxury cashmere hoodie made from the soft wool of Mongolian goats.

Online personalization is similar. When you visit that same clothing retailer’s online site, the algorithms attempt to determine something about you and customize the content. It’s all about probabilities – the better the data and the better the algorithm, the better the chance they will hit the mark and show you something you like.

Of course, just as I can cloak my identity online using a cookie blocker, I could also cloak my identity offline. If I do not want a store clerk to know I am a man, I could wear a large parka and mask (though they might call security to escort me out). If I cloak my identity online, I’ll get a less interesting experience or just be ignored.

Old school targeting happens everywhere. I know a single woman who wears a wedding ring when she travels because she gets better service from the airline and the hotel. Sadly, society still discriminates based on appearance. In old-school targeting, we sometimes receive wonderfully customized service, but are also vulnerable to unpleasant experiences due to our looks, what we wear, our gender, or the color of our skin.

Humans naturally react to others based on many factors – some legitimate and some not. Store clerks need a filter to triage purchase intent because they can’t spend equal time with everyone who walks into the store. They need to allocate time to people they believe are going to buy, so they develop heuristics, based on their own biases, to help them interact with customers. If you walk into Tiffany’s with a JC Penney’s bag, you might be a billionaire, but my guess is that the store clerk isn’t going to take the time to find out (unless it’s a great sales clerk who notices your brand of shoes or the wristwatch you are wearing).

Old-school personalization is supposition based on our five senses. When practiced well, it can be accurate. Online personalization lacks many of the cues one gets in the offline world, and, like store clerks, there are good and bad online systems. Good systems unify online and offline data and work on enhancing the experience of the customer.

Computers, like humans, have the same potential to do great good or cause harm. But unlike humans, computers can quickly digest millions of different interactions to make decisions. For instance, BestBuy.com can query its database to check if you are an existing customer and what you purchased in your last visit. It would be impossible for a store clerk to remember the faces and purchases of millions of customers.

Stores, both brick-and-mortar and online, want our business and try to seduce us for it. Except now, in the age of “Big Data,” it’s easier for the ones online to be masters of seduction. One hundred years ago, John Henry beat the machine at a severely high cost. Today, he wouldn’t even stand a chance.

Vivian tells Edward: “The stores are not nice to people — I don't like it.”
This is after she was snubbed.
Edward responds: “Stores are never nice to people. They're nice to credit cards.”

Special thanks to Ken Treske, John Battelle, Caitlin MacDonald, Brad Justus, and others for their inspiration and advice on this piece.

tale of two haircuts: does price correlate with looks?

2012-12-03T08:41:02-08:00

Haircuts are interesting.

Before last week, I'd never spent more than $22 for a haircut. When I got married, I went to my go-to local barber (then it was $12) and got a good cut because I didn't want to trust my hair to a newcomer.

When I'm in San Francisco (where I live) I now go to a place that is one block from my house and open on Sundays. I got there primarily for the convenience and that the cut takes approx 10 minutes. Also, the price is $5 ... and even with a 60% tip, the final price only sets you back $8. I get more joy bragging about the bargain than from the haircut itself.

This week I was in New York, had an hour, and needed to get a haircut. I chose a place for convience (it was directly across the street from where I was staying) but it wasn't a place I typically would go to. They gave me a robe when I walked in. And they had a different person give a shampoo both before and after the cut. The total time was 45 minutes (was expecting it to be a lot longer) -- much longer than my normal 10 minutes in-and-out. And the price was $106 ($86 with a $20 tip) which is almost 5 times the price I have ever paid for a haircut.

Now objectively, the more expensive haircut is probably better. But because I paid so much for the hair cut (they call it a "salon"), I actually feel better. Which leads me to a theory:

The more you pay for your haircut, the better you think you look.

After doing an informal poll, there seems to be a direct correlation with how much you pay and how good you think you look (now how good you actually look). This seems to be the reason people pay so much for things. And it seems to be a good investment if it makes you more confident and happier.

For me, I enjoyed the experience of going to a higher-end "salon" but next time, I'm going back to my $5 regular.

The “Pretty Girl” Paradox

2012-11-19T17:32:58-08:00

A fast friend heuristic to determine who to marry, hire, or even invest in

The “pretty girl” is the object of desire, rare and easy to spot. For our purposes, the “pretty girl” (gender neutral here) can be a potential mate, a company where you may want to work, someone you may want to hire, or an entrepreneur in whose start-up you may want to invest.

But to weed out the great from the good takes rigorous due diligence, so, here is a simple friend heuristic that could make it easier to do the sorting.

Finding a soul mate

When looking for a mate, everyone wants that “pretty girl.” For some, that means good looks, for others it might mean wealth, and still for others, an Ivy League education. Most people looking for a mate are influenced by one overriding and particular trait over the rest. In fact, even if the other traits are negative, a person will likely go on at least one date with someone if that key trait is positive. And so, perhaps fairly or unfairly, these Pretty Girls have opportunities not available to the rest waiting behind the red velvet ropes.

But as experience dictates, not all “pretty girls” are created equal. Some beautiful people are ugly on the inside. Some rich people are vapid. Some erudites are emotionally stunted and Ivy League schools have their share of the lazy and entitled.

Uncovering those deal-breaking faults takes time and effort.

We are hardwired for friendships. Given the importance we place and energy we expend tracking and communicating with a particular set of close friends, the social web we weave says quite a bit about us as a potential mate (or hire, candidate, etc.).

So here is a fast and frugal “friend heuristic” to determine whom you might want to marry:

If all their close friends are also “pretty”, birds of a feather and all that, you don’t want to marry them. They are likely too worried about their image and trying to be “cool.”
If all their close friends are not “pretty,” you don’t want to marry them. They have a “Queen Bee” complex and need to be the center of attention.
However, if their friend group is more diverse on that particular dimension, they’re a much better bet.

In my unscientific survey, this is true whether the overriding trait you’re searching for is looks, wealth, education, or some other quality.

Hiring and the “Friend Heuristic”

Hiring, like dating, is fraught with (frequently costly) errors. Depending on their culture, companies over-optimize one single trait: intelligence, hard work, hustle, experience, friendliness, pedigree, etc.

And that trait, like all pretty girls, is usually easy to spot. But, of course, you don’t want to hire someone that only has that trait and miss major flaws.

Just like dating, take a look at their close friends. If all, or none, of their friends are “pretty,” there is probably something wrong with this person. If they live in San Francisco and all their friends go to Burning Man, they might be living in a bubble. If they live in SF and none of their friends go to Burning Man, they might also be living in a bubble. Having diverse set of friends leads to out-of-the-box thinking and an ability to branch out of one's comfort zone.

This is also a good exercise when investing in a company

When meeting the founders of a company, it is really hard to assess if they are a non-linear thinkers. Can they go against the grain?

Again, here, the “friend heuristic” works well. If all their friends are of the same race, political party, religious group, shop at the same grocery store, read the same books, have the same phone, listen to the same music, laugh at the same jokes -- then stay away. These people are likely to be followers, not leaders. They might be smart, accomplished, and hard-working ... but they might be so worried about being popular that they are unlikely to do something which requires major risk.

Given a choice, most people will make friends with people who most closely resemble themselves. A recent study by researchers Angela Bahns, Kate Pickett, and Christian Crandall shows that students at large universities have less diverse friends than people at smaller colleges. The authors reason “when opportunity abounds, people are free to pursue more narrow selection criteria [in forming friendships], but when fewer choices are available, they must find satisfaction using broader criteria.”

This strengthens the efficacy of the “friend heuristic.” It takes a contrarian to have a diverse set of friends.

Charles Darwin, a contrarian of his time, apparently practiced a form of the “friend heuristic.” He said: “a man’s friendships are one of the best measures of his worth.”

2012-11-09T15:23:26-08:00

There is an interesting discussion about taxes (yes, they have a lot of emotion) on my Facebook page which includes luminaries like Tim Draper, Eli Pariser, Russ Fradin, Peter Pham, Marc Cenedella, Michael Baum, Paul Santinelli, Scott Banister, George Garrick, Alex Slusky, Scott Lynn, and others.

check out:

https://www.facebook.com/aurenh/posts/10101653062077153

"What You Know" now beats "Who You Know"

2012-10-01T13:15:39-07:00

This article originally appeared in Forbes on Oct 1, 2012.

The old adage that “it’s not what you know but who you know” is so entrenched that we don’t question the premise. Undoubtedly, who you know has been important throughout history, whether in the trade networks of ancient Greece, or in the dense web of high tech companies in Silicon Valley. A good network is especially important when capital is scarce, information hoarded, and when finding the appropriate contacts is difficult. For most of history, knowing the right people was crucial if you wanted cash and cache.

In a Harvard Business Review article entitled “How to Build Your Network,” Brian Uzzi and Shannon Dunlap contend that “Networks determine which ideas become breakthroughs, which new drugs are prescribed, which farmers cultivate pest-resistant crops and which R&D engineers make the most high-impact discoveries.” They cite the 1998 work of University of Pennsylvania sociologist Randall Collins who showed that breakthroughs from icons such as Freud, Picasso, Watson, Crick, and Pythagoras were the consequence of a particular type of personalnetwork that prompted exceptional individual creativity.

But with tools such as LinkedIn and Facebook, the ability to network is becoming more democratized. If before it was difficult to ferret out the perfect contact, today finding a right marine biologist in New Zealand or the genetic researcher in Norway is as easy as a Google search. And social media has made it even easier to connect with that person. As for capital, today it is relatively plentiful and accessible, and it is much easier than ever to get access to people who have it (accessing capital can be as easy as sending an email).

Information, too, has been democratized. It used to be that if you wanted to get access to cutting-edge ideas in technology, you needed an invitation to an exclusive conference like TED, or to attend a university like MIT. Today, TED lectures and MIT courses are offered free online. The only barrier to most of the world’s best information is knowing English. Because it is so accessible, public information offers less competitive advantage than previously.

Given our hyper-connected world, could it be that “who you know,” while still important, matters a little less than in the past? Could it be that “what you know” carries more weight?

My intuition is that “what you know” has now crossed the line to be more important ... and possibly even MUCH MORE important ... than “who you know.” Like Kurt Vonnegut said in Breakfast for Champions; “new knowledge is the most valuable commodity on earth. The more truth we have to work with, the richer we become.”

In today’s world, if you know something really compelling, you will be sought out ... and sought out directly. Dorothy will follow the World Wide Web equivalent of the Yellow Brick Road to come to you. In the past, the people with connections were gatekeepers who controlled access to the elite circle and got paid handsomely for that. Today, people that invent interesting things (the true What-You-Know people) will reap many more rewards than the brokers who make introductions.

Even professions such as banking and law are becoming more specialized. The lawyer that understands the intricate tax implications of U.S.-Brazil joint ventures is now much more valuable than the generalist lawyer that introduces you to that person.

I’m not saying your network isn’t important – it will just be less important than it has been in the past. Even the Wizard of Oz was looking to network: just before he leaves the Emerald City he tells Dorothy that he is off “to confer, converse and otherwise hobnob with my brother wizards.”

In the new world of abundant capital, easy access to information and people with knowledge, it’s what you know rather than who you know.

Follow Auren Hoffman on Twitter (@auren) and Facebook (aurenh).

2012-08-28T13:53:48-07:00

“I don’t have time" is an odd statement. we all have 24 hours in the day, we just allocate our time differently

Uber saved me (and my car) - thank you Monty

2012-07-18T14:54:47-07:00

This morning, my car died.

It started out fine. I moved the car out of my garage and into the street, turned it off real quick, tried to turn it on and wham ... everything died. I wasn't sure what happened (car is only two years old) but I have not driven this car for over 2 months.

I was blocking traffic, causing mayhem. I couldn't start the car and couldn't even put it in neutral to push it. I was stuck.

I called a tow truck. They said they would be at my location within 30 minutes. I waited ... but I did not want to wait 30 more minutes (or potentially longer) and I had no visibilitiy into when the tow truck would actually arrive

I probably just need a battery jump ... that would likely do the trick. So I tried to flag down passing cars to give me a jump. But this is San Francisco and they probably thought I was trying to ask them for spare change ... so they all sped away.

So I did what any Internet-phile would do, I used the interwebs...

I ordered a car on Uber. Sure enough, there was a car driven by Monty a few blocks away and it arrived in 2 minutes. Yes, 2 minutes.

He manuevered his Lincoln Town Car next to my little hybrid and we hooked up the jumper cables and whammo -- my car was back in business!

First thing I did was jump out of the car and I gave Monty a great big hug. Not sure what possessed me (I'm not normally a hugger of strongers) but Monty was just so helpful.

Unfortunately, there was no way to pay him on Uber (the official trip was 0.00 miles) but I gave him 5 stars and $40 in cash (and the hug). I definitely owe Uber CEO Travis Kalanick a drink to make up for the lost Uber commission.

Thank you Uber and thank you Monty!

Read Year Zero by Rob Reid

2012-07-10T09:00:18-07:00

Rob Reid wrote a great new great new book (came out today but I read it a few months back) called Year Zero. my recommendation: Read this book.

Here is the five-star review I wrote on Amazon:

If you grew up loving Hitchhikers' Guide to the Galaxy, you'll love this book. If you are not from planet earth or your brain was somehow rewired to dislike Douglas Adams, you'll probably not like this book.

Rob Reid is the heir to Douglas Adams' snarky humor, fun adventure, and serious space travel.

Two additional things I liked about this book:
1. It is also a wonderfully written overview of how the music industry works.
2. It has powerful male and female characters and is a good read for all genders (my wife, not someone who generally likes science fiction, loved this book as well)

The theme of this book is that aliens have been listening to our rock music for 30 years and then, one day, the music industry finds out about it and sends the aliens a bill for more money then there is in the galaxy. hilarity ensues. highly recommend this book.

TPQ – Thought Provoking Questions

2012-05-04T12:59:30-07:00

The best conversations are about non-obvious ideas. Whether it be a dinner party, an interview, catching up with an old friend, family outing, etc. We learn more, engage our mind, and are more drawn into conversations about ideas.

Unfortunately, most conversations are about something other than ideas. They might be about others we know (gossip), others we don’t know (celebrities/sports), ourselves, logistics, business talk, etc. And once a conversation moves, it often takes its own path (and often it is a banal and uninteresting path).

I have found that the best way to reinvigorate a conversation is to lob in a TPQ – a Thought Provoking Question.

The goal of the TPQ is to get everyone engaged and thinking about something bigger than the group. Depending on the intellectual firepower of the discussants, your goal should be to come out of the discussion with a new take on a problem, issue, etc.

The best TPQs are ones where there is no obvious answer and, extra bonus, where you don’t feel you know the answer.

Four examples Thought Provoking Questions (TPQs) that you can try:

1. To get people talking and really thinking, one of my favorite questions is:
When is it OK to lie?
This is a very interesting and difficult question. It attacks the core of who we are and people will get to discussing omission, what is the best way to love another (white lie or tell the truth), and more.

2. Peter Thiel’s favorite TPQ is:
What is something you believe that most people you know thinks is crazy?
This is a great question (especially for an interview or a dinner party) because it gets people thinking about how to think for themselves. Encouraging non-conformity is really important in a TPQ.

3. If you are in a really nerdy group of engineers (which is often the group I am a part of), a question I like is:
When will computers beat humans at soccer?
I like this question because it often starts people thinking and takes the conversation to a new level.

4. If you are with entrepreneurs, you can borrow a question my friend Dan Rosenthal recently asked at a dinner party:
Do you think Steve Jobs would have been as successful if he was a nice person?
There is obviously no right answer and it gets people talking about management styles, creativity, passion, and being good to others.

What are some TPQs that have worked for you?

Bad Bosses are Your Fault

2012-04-14T15:01:01-07:00

Yes, bad bosses are the fault of their subordinates.

Before we begin, I know this post is going to be controversial and that many will disagree. I’d love your comments and feedback.

There are a lot of bad bosses in this world. I don’t know the percentage of bosses that are “bad,” but it should be close to zero and it is not. First, let me define a bad boss. A bad boss isn’t someone that is imperfect or has flaws (we all do). A bad boss is someone that is not growing their subordinates and does not have the respect from most of their subordinates.

In a perfect world, bad bosses shouldn’t exist. It is a market failure. Most people think bad bosses exist because they suck-up to their supervisors. That’s not entirely true. The main reason bad bosses exist is because their subordinates tolerate them.

While “toleration” is often a good thing, we should be intolerant of bad bosses. They are destructive on organizations, on people’s happiness, and they can sap creativity and productivity.

If you have a bad boss, it is your duty to make sure that he or she is either no longer bad or no longer a boss. This is because most people who are not a subordinate will rarely be able to judge if someone is a bad boss. As the subordinate, it is your job to make the change: for the good of the organization and the good of society.

Bad bosses shouldn’t exist.

If you have a bad boss, you should follow these three steps:

Try to make them a better boss. Work with the boss to make him/her better. Give them feedback and try to change them. This is hard and most bad bosses are bad because they cannot improve (and likely do not take feedback well).
Get them demoted, reallocated, or fired. Many bad bosses are bad because they are in over their head. They got promoted to a role they should not have and they don’t feel comfortable there. You should let a bad boss know they are in the wrong position and you are going to work within the organization to change their role.
Quit. If you cannot change them or move them, your only remaining option is to quit. That doesn’t mean you need to quit the company entirely (it could mean you get yourself transferred to a new boss), but you should never work for a bad boss (it will stifle your development). And if everyone who works for a bad boss leaves, the bad boss would eventually get replaced.

Why I Don’t Invest in the U.S. Stock Market

2012-03-21T16:58:44-07:00

Note: this article was originally written for Forbes

It has been common wisdom for the last 50 years that if you are a long-term investor, your best return will be in stocks. Almost every financial advisor will tell a 30-year-old to put upwards of 90% of their portfolio in stocks.

Most people above median wealth have a substantial allocation of their liquid portfolio in stocks. Some people pick stocks (Apple, GE, Wal-Mart, etc.) and some invest in managed mutual funds (Fidelity), while others invest in index funds (the S&P 500 from Vanguard).

Stocks are less than 10% of my portfolio. This is a long article (read time is going to be at least 12 minutes) but I implore you to read it in full.

“Never invest in a business you cannot understand.”- Warren Buffett

That’s great advice from the Sage of Omaha. But we should take it a step further: Never invest in a security you do not understand.

So the question is: do you actually understand the stock market?

Prices of stocks seem to be a mystery to even the most experienced investor. There are often market swings of over 1% per day.

Supply and demand.

Most investors argue that fundamentals (like expected earnings) drive price. That doesn’t seem to be a complete explanation as we have had a market which has basically remained flat since the late 1990s.

The best explanation, beyond “fundamentals,” for long-term market movements: supply and demand. In this case, “supply” is the number of total stocks for sale and “demand” is the total dollars looking to buy these securities.

The key factor here is the demand. While supply (investible stocks) does change, its change is very small relative to the demand (amount of money looking to invest in the market). So as more money goes into the market, the market goes up. If money is coming out of the market, then the market goes down. It is basically that simple.

To properly be a long-term stock market investor you need to read the mind of the public. You should only put your money in the stock market if you think everyone else will keep money there. So to inform your portfolio allocation, we want to figure out if money is going to flow into the market or leave the market over the next thirty years.

Let’s examine the six key factors why money might be leaving the U.S. stock market:

Retirement Savings
Globalization
Technology companies
Taxes
Interest Rates
You're over-correlated to the stock market

1. Retirement Savings

One of the biggest investors in public stocks is people through their retirement funds (401ks) or through pension funds. One of the big reasons the market has been flat over the last 15 years (and not collapsed), is because so much retirement money has come into the market. Most of that money is held by people who are close to retiring and will likely be coming out of the market, albeit slowly, over the next 30 years.

Asset allocation would suggest that people should allocate away from equities as they get closer to retirement. I don’t have data on this, but I would guess that most boomers still have over 50% of their portfolio (excluding real estate) in equities (even after the 2000 and 2008 crashes). This is way too high. Since many of these people are counting on the retirement income to live, they might flee from the volatility of the stock market and move to safer investments.

Robert Arnott, chairman of Research Affilitates (and an asset manager at PIMCO), recently said: “the ratio of retirees to active workers in the U.S. will balloon. As retirees sell stocks and then bonds to support themselves, there will be fewer younger investors to buy those securities, keeping a lid on prices.”

2. Globalization

Globalization has been a huge boom to the market over the last 30 years. Today it is easy for anyone in the world to buy stocks in America, and America has historically been the safest place to put your money. Because of this, we’ve seen a massive influx of capital from all over the world, and especially from oil rich nations that need to invest their profits in an historically safe environment.

But globalization is a two-way street. While the U.S. stock market has been a huge beneficiary of globalization over the last 30 years, it could be its biggest loser in the next 30. Today, it is becoming much easier for Western investors to invest in high-growth countries like Brazil, China, South Africa, and India. And while I personally don’t invest in emerging markets funds (save that for another article), millions of investors will be drawn to the potential returns of these high-growth countries.

Globalization also means increased competition from old entrants as well as start-ups. New companies are disrupting old but profitable businesses – sometimes by giving away core products for free. We see that time and time again, the top companies are getting their lunch handed to them by new entrants. In every major field (including software, computers, energy, retail, media, defense, and pharma), established players (those that had the highest market maps) are getting squeezed by the little guy. All this means that the average time a company will be a member of the S&P 500 should drop significantly.

All indications is as the world gets more interconnected, it is also getting much more volatile. We should see many more bubbles and more ups and downs as capital can zip around the world in nanoseconds. This volatility could be the enemy of the buy-and-hold index investor who is at the whim of much more sophisticated global banks.

3. Technology companies

In the 80s, 90s, and 2000s, tech companies drove a lot of the market growth. Microsoft and Dell went public while they still were extremely fast-growing companies and public market investors were able to ride the growth upwards. Even recent IPOs like Google, Salesforce, and Amazon went public early enough so that investors were able to participate in substantial gains as the companies grew. Remember that Amazon went public in 1997 but it wasn’t profitable until 2001.

Today, because of the abundance of private equity capital and regulations like Sarbanes-Oxley, tech companies are going public much later in their development. Companies like LinkedIn and Facebook were able to delay their IPO by 2-3 years because they had access to late-stage private equity. And while biotech firms are still going public before they are profitable, we will likely see more and more companies waiting to list. In today’s world, public market investors do not get as much of the benefit of the company rise (most of that benefit will be going to private equity funds). So one of the biggest growth drivers of the market, hot tech companies, is being substantially reduced.

4. Taxes

Stocks have been a very favorable investment because gains held over a year are taxed at the lower cap-gains rates and the taxable event only happens when you sell a stock (and many people can do tax arbitrage by selling their losers).

Long term capital gains taxes in the U.S. are near an all-time low. In the 1990s and 2000s, we saw a substantial decrease in the rate of capital gains taxes while taxes on ordinary income have remained basically flat on upper-earners.

One prediction we can confidently make: cap gains taxes are not going to go down further in the next 30 years (even though many of us would like them to). More than likely, we will see a rise in taxes on cap gains – especially on the upper-earners who control most of the money in the market. When this happens, stock gains will look less favorable and it will be another reason for people to rebalance their portfolio away from public stocks.

5. Interest rates

Can interest rates be near zero forever?

Clearly the answer is “no.” At some point, the U.S. federal government will need to inflate itself out of its massive debt. In any scenario, interest rates can’t get any lower. When interest rates rise, future earnings of companies will suffer (and if that is not already factored into the price, stocks will fall).

6. You are already over-correlated to the stock market

If you are reading this article (and you have gotten this far), you are probably part of the population whose job is over-correlated with the stock market. If you are in technology, finance, real estate, law, consulting, or in most of the other top-earning professions, then your future income and job security is probably very tied to the stock market.

If you do invest in the stock market, you need to have the ability to ride it out for the long haul (ride the ups and downs). If you are in a profession that is over-correlated with the stock market, you’ll have extra income (you’ll want to buy) mainly when the market is really high and you’ll need income (you’ll want to sell) mainly when the market is down. You won’t be in a position to take advantage of the long-term market trends (and likely that others in the market will take advantage of you).

All this is not to say that you can’t make money in the stock market.

Some professional traders will be incredibly successful. But the traditional “buy and hold” strategy seems like it is going be “hold and lose.” When the stock market fails or remains flat over the next 30 years, our entire society’s savings strategy will need to be recalibrated.
You should only put your money in the stock market if you think everyone else will keep money there. If you think some people are going to start fleeing the market, then you should make sure you flee first.

But I want to make out-sized returns

The best way to get massive returns is to invest in yourself. Start a business, join a fast-growing company, or become the newest singing sensation. If you believe in yourself and your talents, focus on things you can control rather than things, like the stock market, that you can’t.

While Auren Hoffman is CEO of Rapleaf and a Venture Partner at Founders Fund, his opinions are his own. Follow him on Twitter (@auren) and Facebook (aurenh).

Special thanks to Stephen Dodson, Jeremy Lizt, Travis May, Patrick McKenna, Ken Sawyer, and Michael Solana for their willingness to debate me on this issue.