Patrick Johnson: “I love yesterday’s recommendation, Thinking Fast and Slow! I also wish you great success with Borealis but I’m in Chris Brown’s camp on this one. I want to share an aspect of investing I learned while at a valuation firm working with clients who invested in startups. I don’t like startups that have been going 5 years and definitely avoid startups that have been in ‘start up’ mode for more than 10 years. I think human nature lets the people involved get too comfortable in their roles if things drag on that long. If the startup doesn’t have to produce tangible results in that time I don’t think they ever do. But both the investors and the entrepreneurs/workers have their egos or their livelihood tied up in the startup at that point so they don’t make objective decisions. I have observed this phenomenon many times.
“I sincerely hope I am wrong in this case. But one more thing to keep in mind, if I am wrong: When betting a lot on something with spectacular all-or-nothing payoffs, what is the marginal utility of the money you stand to gain? Certainly it would be nice to get rich but how truly useful is that 10th or 50th or 1000th million dollars?”
☞ The marginal utility of those extra millions is extremely high to the organization/s I’d be jazzed to give them away to. With $1 million, BuildOn can create something like 20 more Third World school houses, to take just one of countless thrilling examples. But I hear you. See the item below about the young man disgruntled by his $3.6 million bonus, if you missed it a couple of Sundays ago in the New York Times.
(But note that neither Chris nor Patrick addressed why they think it’s unlikely e-taxi will become a reality or, if it does — as seems highly probably to me — why they think WheelTug, light, proven, patented, and in demand by airlines that are signing up for it, has virtually no chance of success.)
Here’s a chunk of that story, by Sam Polk; but it’s well worth reading the whole thing:
. . . I wanted a billion dollars. It’s staggering to think that in the course of five years, I’d gone from being thrilled at my first bonus — $40,000 — to being disappointed when, my second year at the hedge fund, I was paid “only” $1.5 million. . . .
. . . But in the end, it was actually my absurdly wealthy bosses who helped me see the limitations of unlimited wealth. I was in a meeting with one of them, and a few other traders, and they were talking about the new hedge-fund regulations. Most everyone on Wall Street thought they were a bad idea. “But isn’t it better for the system as a whole?” I asked. The room went quiet, and my boss shot me a withering look. I remember his saying, “I don’t have the brain capacity to think about the system as a whole. All I’m concerned with is how this affects our company.”
I felt as if I’d been punched in the gut. He was afraid of losing money, despite all that he had.
From that moment on, I started to see Wall Street with new eyes. I noticed the vitriol that traders directed at the government for limiting bonuses after the crash. I heard the fury in their voices at the mention of higher taxes. These traders despised anything or anyone that threatened their bonuses. Ever see what a drug addict is like when he’s used up his junk? He’ll do anything — walk 20 miles in the snow, rob a grandma — to get a fix. Wall Street was like that. In the months before bonuses were handed out, the trading floor started to feel like a neighborhood in “The Wire” when the heroin runs out.
I’d always looked enviously at the people who earned more than I did; now, for the first time, I was embarrassed for them, and for me. I made in a single year more than my mom made her whole life. I knew that wasn’t fair; that wasn’t right. Yes, I was sharp, good with numbers. I had marketable talents. But in the end I didn’t really do anything. I was a derivatives trader, and it occurred to me the world would hardly change at all if credit derivatives ceased to exist. Not so nurse practitioners. What had seemed normal now seemed deeply distorted. . . .
. . . Wealth addiction was described by the late sociologist and playwright Philip Slater in a 1980 book, but addiction researchers have paid the concept little attention. Like alcoholics driving drunk, wealth addiction imperils everyone. Wealth addicts are, more than anybody, specifically responsible for the ever widening rift that is tearing apart our once great country. Wealth addicts are responsible for the vast and toxic disparity between the rich and the poor and the annihilation of the middle class. Only a wealth addict would feel justified in receiving $14 million in compensation — including an $8.5 million bonus — as the McDonald’s C.E.O., Don Thompson, did in 2012, while his company then published a brochure for its work force on how to survive on their low wages. Only a wealth addict would earn hundreds of millions as a hedge-fund manager, and then lobby to maintain a tax loophole that gave him a lower tax rate than his secretary. . . .
Well, I want a billion dollars, too — or at least wouldn’t kick it out of bed — but I’m not going to have it, and I don’t lose sleep over not having it in bed with me, and I just now successfully installed the new toilet seat hinge I told you I ordered last week, and the feeling of power that gave me will just have to do. Later this week, thanks to one of you who was kind enough to forward an instructive YouTube, I plan to take a stab at the numeric keypad on my microwave; the one that only does “7.”
Quote of the Day
Market economics as currently practiced often ... includes only what's countable, not what counts.~Rocky Mountain Institute
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