Curated Insights 2020.03.20

Spotify: The ambient media company

We believe the market that we’re going after is going to be at least a billion, probably two or three billion people around the world. And if we are going to win that market, I think we’d have to be at least a third of that market. So we’re talking about somewhere between 10x – 15x of opportunity left.

The battle for sustained success in the ambient media landscape will come down, in many ways, to balance. Balancing long term vision with the ability to react nimbly to near term developments. Balancing the need to address users at scale with the importance of the human element in creation and curation. And, for many companies, balancing commitment and investment to audio with broader business initiatives. On all three counts, Spotify comes out ahead.

If it takes a number of months or potentially years to make your money back, that gives investors time to take advantage of higher expected returns. For those who are net savers, this means plenty of time to deploy capital at lower prices than we were being offered in recent months. For those with diversified portfolios who won’t be making new contributions, this means opportunities to slowly rebalance into the pain.

Curated Insights 2019.09.20

The financial Turing test

Imagine we could simulate the universe where each time you are born to different set of parents with a different genetic makeup. Sometimes you are born a man. Sometimes you are born a woman. Sometimes black. Sometimes white. Sometimes smart. Sometimes not. Etcetera etcetera. What would you do to have the highest probability of becoming financially secure regardless of your background?

If you wanted to re-state this question more simply, it is: How do you get rich without getting lucky?


Product-user fit comes before product-market fit

The jump from product-user fit to product-market fit is no trivial leap. Skipping what to focus on during the product-user fit stage and prematurely racing to spark the market adoption can actually decelerate your path to product-market fit. Forcing growth on a product that isn’t yet ready for broader adoption will not ultimately convert to a market of highly retained, happy users. And if you don’t listen to the early power users closely enough, you may never discover the insights that get you to a world-class product.

Power users are the biggest sign of product-user fit. Making the leap from product-user fit to product-market fit is about listening to these users to evolve your product to attract more users. When exploring products that have only been in market for a short amount of time, the behavior of power users is often more interesting and important than any aggregate metrics. If the goal is to “make something people want,” then continuously talking to and observing early power users is the only way to really understand what drives both user retention and non-user activation.

5 reasons to consider buying Berkshire Hathaway

First, we think Berkshire’s broad diversification provides the company with additional opportunities and helps to minimize losses during market and/or economic downturns. Berkshire remains a broadly diversified conglomerate run on a completely decentralized basis, with a collection of moaty businesses operating in industries ranging from property-casualty insurance to railroad transportation, utilities and pipelines, and manufacturing, service, and retailing. The economic moats of these operating subsidiaries are built primarily on cost advantage, efficient scale, and intangible assets, with some of these businesses being uniquely advantaged as well by their ability to essentially operate as private companies under the Berkshire umbrella. The operating subsidiaries also benefit from being part of the parent company’s strong balance sheet, diverse income statement, and larger consolidated tax return.

Berkshire’s unique business model has historically allowed the company to–without incurring taxes or much in the way of other costs–move large amounts of capital from businesses that have limited incremental investment opportunities into other subsidiaries that potentially have more advantageous investment options (or put the capital to work in publicly traded securities). The managers of Berkshire’s operating subsidiaries are encouraged to make decisions based on the long-term health and success of the business, rather than adhering to the short-termism that tends to prevail among many publicly traded companies. Another big advantage that comes from operating under the Berkshire umbrella is the benefit that comes with diversification not only within the company’s insurance operations, but also within the organization as a whole. In most periods, it is not unusual to see weakness in one aspect of Berkshire’s operations being offset by the results from another or from the rest of the organization.


We can be weird, or it can be public

WeWork seems to be facing the traditional tradeoff: Stay private, keep control, but lose access to billions of dollars of funding, or go public, raise unlimited money, and have to act normal. If it does either of those things, that will mark a sort of end of an era. At the height of the unicorn boom, big tech companies could stay private without giving up the benefits of being public, or they could go public without taking on the burdens of being public. Now they might have to make hard choices again.

Shopify is now a major player in e-commerce. Here’s how it happened, according to the COO

Over the years, we’ve also realized as we grow bigger, we have incredible economy of scale. If you were to aggregate all our U.S. stores [customers’ sales volume] we would be the third-largest online retailer in the U.S. Amazon is first, eBay second, and Shopify is a very close third. What that means is when we go to the payment companies, when we go to the shipping companies or go to anyone, we negotiate on behalf of more than 800,000 merchants. Instead of keeping the economies of scale for ourselves, we distribute [the benefits] to the small businesses. I think that’s why we have been really successful.


The foodoo economics of meal delivery

The newbies, born more recently, have turned a once-tidy business into a food fight. They include listed firms such as Meituan of China and Delivery Hero of Germany, Uber Eats (part of Uber), Ele.me (owned by China’s Alibaba), and privately held DoorDash, based in San Francisco, and Deliveroo, from London. For most of them, delivery is their core business, so they share their cut of the bill with riders as well as restaurants. This substantially broadens the market to restaurants offering everything from steak to Hawaiian poké bowls. But margins suffer. Funded largely by venture capital, they have thrown subsidies at customers, forcing their veteran rivals onto the defensive. To catch up, the veterans are investing in advertising and delivery networks—at a big cost. This week Grubhub and Just Eat reported slumping earnings, and Takeaway mounting losses, as they spent heavily to fend off the upstarts.

The only mouthwatering aspect of the delivery business is its potential size. According to Bernstein, a brokerage, almost a third of the global restaurant industry is made up of home delivery, takeaway and drive-throughs, which could be worth $1trn by 2023. In 2018 delivery amounted to $161bn, leaving plenty of room for online firms to expand; the seven largest increased revenues by an average of 58%. Their businesses support the trend of 20- and 30-somethings to live alone or in shared accommodation, with less time and inclination to cook. In China, by far the biggest market for food delivery, one-third of people told a survey that they would be prepared to rent a flat without a kitchen because of the convenience of delivery. Delivery also fits neatly with the gig-economy zeitgeist, alongside ride-hailing firms such as Uber, Lyft and China’s Didi.

Moreover, potential growth may be overstated. Subsidies make true demand hard to gauge. When delivery charges and service fees eventually rise, which they will have to if profits are to materialise, some customers may flee. In the meantime, cheap money lets firms undercut rivals but distorts incentives. The war of attrition could get even worse if giants like Amazon muscle in, as it has tried to do by buying a stake in Deliveroo (the deal is stalled at present because of antitrust concerns). Alibaba, Amazon’s Chinese counterpart, uses Ele.me as a loss leader helping drive traffic to its profitable e-commerce sites.

Untangling the threads: Stitch Fix is a bargain

There have been numerous ecommerce 2.0 flameouts over the past decade (e.g. Gilt Groupe, Fab.com, Birchbox, Shoedazzle, Beachmint, One Kings Lane). Venture capitalists flocked to these businesses due to large addressable markets and strong top-line growth. To be fair, there have been some big winners (e.g. Wayfair) which can justify the VC game. But as Bill Gurley points out, innovations around pricing or distribution — think flash sales and subscriptions in a box — don’t represent core differentiation or sustainable competitive advantages. Additionally, these startups had access to hundreds of millions of VC funding and therefore weren’t forced to prove out the unit economics before scaling rapidly.

Are Airbnb investors destroying Europe’s cultural capitals?

The definitive story of how a controversial Florida businessman blew up MoviePass and burned hundreds of millions

Farnsworth’s pitch to MoviePass: $25 million for 51% of the company, two seats on the five-member board, and a promise to drop the monthly subscription price, temporarily, from $50 to $9.95, with the goal of hitting 100,000 subscribers. If all went well, the next step would be taking MoviePass public. But Farnsworth’s plan worried Spikes; to him, $10 a month was too low. At that price MoviePass would start losing money when a subscriber used the service more than once a month.

In the US, the average price for a movie ticket is about $9; if a customer ordered a ticket every day for a month (the maximum the MoviePass plan allowed), it would cost MoviePass about $270, of which the subscriber’s fee would cover just $10. But in July 2017, the MoviePass board agreed to the deal. And on August 15, the price drop went into effect. Thanks to word-of-mouth buzz and press attention, within two days subscriptions jumped from about 20,000 to 100,000. MoviePass had transformed from a scrappy startup trying to keep the lights on to a disrupter in the making.

But Spikes saw a looming disaster. The company was overwhelmed by its overnight success and couldn’t keep up with demand. A quarter-million new subscribers were signing up every month, and MoviePass customer-service lines were flooded with complaints from people who had been waiting weeks for their cards. MoviePass had lowballed the number of cards it would need after the price drop. It got to a point where the vendor making the MoviePass cards didn’t have enough plastic and had to call on its competitors to fulfill all the card orders. “We all knew we were selling something we couldn’t deliver on,” one former staffer said.

Pat Dorsey: Never put any moat on a pedestal

The same way you evaluate any other business, which is trying to think about the present value of future cash flows. This is an area where the world has changed pretty significantly over the past couple of decades because, 30 years ago, most investments were done via the balance sheet. They were investments in buildings, in factories, in railroads, in locomotives and all those came out of the balance sheet. Today, a lot of investment happens out of the income statement. If you are a software company, and you are acquiring new customers, who might have a nine to 10-year lifespan with the business, that comes out of sales and marketing, and so that depresses your current margins.

But it seems insensible to me to argue that I should not invest in a customer who could be with me for 10 years and who will pay me 3% more every year as I raise prices. Why is that not just as valuable an investment as a machine that will wear out in 10 years? One is an appreciating asset and the other is a depreciating asset. The former — the customer — comes by way of investing through the income statement and depresses current margins. As for buying the machine, it is just a capital expenditure. If you have a business that is re-investing heavily today, a software company or an Amazon for example, you have to think about the incremental unit economics. How much does it cost to acquire each customer and how much value do they deliver over some span of time, and then try to think about what does this business look like at steady state, say in a five or 10-year timeframe. You know what margins it will have once the investment slows down and then you discount those cash flows back to the present.

So far, Uber and Lyft have competed very heavily on price. That was evident in both of their IPO filings, they have been trying to undercut each other on price, which is not the sign of a healthy competitive dynamic that’s going to result in great return for shareholders. Maybe that will change, I don’t know. But, when I see two big companies trying to basically undercut each other on price and, it’s not really clear who is going to win, I’d rather just stay on the sidelines and watch. One of the most important things for an investor to do is to maximise return on time. By analysing Uber and Lyft, we probably aren’t going to get a lot of advantage, because everybody and their mother is trying to have an opinion on these things, and it’s just not clear how the competitive dynamics will pan out long term. So we’ve spent literally zero time on them!

A lot of it comes down to the unit economics of the business. Boeing and Airbus need to absorb a lot of fixed costs. Building an aircraft factory, investing and designing a new aircraft, requires a lot of very high fixed costs, and so they need to absorb that. And so, each incremental plane sold is very important to both companies. So they need to take market share from each other. Whereas for Visa and Mastercard, their fixed cost for the payment networks, those costs were sunk decades ago. Their network is there. It exists. So there’s no incentive to compete on price, because they don’t have the same economics of cost absorption.

When to sell and when a moat is weakening are really two different questions. But I would say, the biggest signal that a moat is weakening is the lack of pricing power. If a business historically had been able to raise prices and is no longer able to raise prices, that generally indicates that its competitive advantage is weakening or disappearing.

Howard Stern is getting ripped off

Take a look at Joe Rogan, who currently has the most popular talk show podcast with over 200 million downloads per month. This number comes from Joe himself¹, but let’s assume he was exaggerating and it’s only 100 million downloads per month.

Assuming he sells ads at a low $18 CPM (cost per thousand listeners) and sells out his ad spots, he’s making approximately $64mm in annual revenue. If he’s on the higher end, at $50 CPM, he could be making as much as $240mm per year². The only factor that would change this is how many free ads Joe gives to companies that he has a personal equity stake in (like Onnit, the supplement brand he co-owns).

That means that Joe makes somewhere between $64-$240 million per year in revenue from his podcast advertising alone—and that’s handicapping his audience by half what he claims to have. That number also doesn’t include any additional revenue generated from his wildly popular YouTube channel, which has over 6 million subscribers.

Based on existing advertising revenues alone, Joe Rogan could easily be worth over a billion dollars, even if he doesn’t realize it. If estimates are correct, he owns a business that produces somewhere in the neighborhood of $60-$235 million/year in profit and is likely growing at 30–50% annually (assuming his audience is growing alongside the podcast ecosystem)³. If it were publicly traded, his podcasting business could easily fetch a valuation in the billions.

Even the small stresses of daily life can hurt your health, but attitude can make a difference

When people talk about harmful stress — the kind that can affect health — they usually point to big, life-changing events, such as the death of a loved one. A growing body of research suggests that minor, everyday stress — caused by flight delays, traffic jams, cellphones that run out of battery during an important call, etc. — can harm health, too, and even shorten life spans.

Curated Insights 2018.08.17

Not enough people are paying attention to this economic trend

Haskel and Westlake outline four reasons why intangible investment behaves differently:

  • It’s a sunk cost. If your investment doesn’t pan out, you don’t have physical assets like machinery that you can sell off to recoup some of your money.
  • It tends to create spillovers that can be taken advantage of by rival companies. Uber’s biggest strength is its network of drivers, but it’s not uncommon to meet an Uber driver who also picks up rides for Lyft.
  • It’s more scalable than a physical asset. After the initial expense of the first unit, products can be replicated ad infinitum for next to nothing.
  • It’s more likely to have valuable synergies with other intangible assets. Haskel and Westlake use the iPod as an example: it combined Apple’s MP3 protocol, miniaturized hard disk design, design skills, and licensing agreements with record labels.

For example, the tools many countries use to measure intangible assets are behind the times, so they’re getting an incomplete picture of the economy. The U.S. didn’t include software in GDP calculations until 1999. Even today, GDP doesn’t count investment in things like market research, branding, and training—intangible assets that companies are spending huge amounts of money on.


How Box conquered the enterprise and became a $1.7 billion company in a decade

However, what most people failed to understand—and continue to misunderstand to this day—is that Dropbox was never launched as a competitor to Box. The use cases were completely different. Box.net and Dropbox may have shared some similar underlying technologies (and an uncomfortably similar name), but the focus of Dropbox was cloud-based file management for the consumer market. Box was focused on file sharing. By the time Dropbox launched in 2007, Box.net had already largely abandoned the consumer market in favor of the enterprise. There were other key differences between the two products, such as the necessity of installing a dedicated Dropbox directory on a user’s local machine versus Box.net’s entirely cloud-based interface. Additionally, the two companies’ target markets and business models couldn’t have been more different.

Levie knew SharePoint was Box’s biggest competitor, so he did what any inventive, irreverent entrepreneur would do—he took out a billboard advertisement on a stretch of highway on Route 101 between San Francisco and Silicon Valley. The ad promised SharePoint users that Box would pay for three months of SharePoint access if they didn’t prefer Box. In February 2009, Box went one step further in its media assault on Microsoft by erecting another billboard, this one highlighting the many aspects of SharePoint that were most unpopular among its user base.

While the enterprise market represented a unique chance for Box to pivot away from the increasingly competitive consumer market, essentially shifting the focus of the entire company was no small undertaking. Until that point, Box had used a freemium business model. This worked fine for the consumer market, but it was completely unsuitable for the enterprise. This meant Box would not only have to radically redesign its product from the ground up but also restructure its entire business model.

By acquiring Increo, Box immediately gained access to Increo’s innovative document collaboration tools. This was crucial. It wasn’t enough for Box to offer cloud-based storage or integrations with Salesforce and Office. It had to offer additional value as competing tools vied for dominance.

The consumerization of enterprise IT driven by Box and other forward-thinking companies wasn’t merely an attempt to cultivate a unique value proposition or drive adoption. It reflected much broader shifts in computing in general. The advent of Web 2.0 apps created a new design paradigm that placed emphasis on ease of use and accessibility across multiple devices over complex file management tools. Smartphones fundamentally changed the way we think of computing. For an enterprise software company like Box to be at the forefront of trends in usability was impressive.

OneCloud was an excellent example of how consumer-focused design informed Box’s broader strategy. The company had built a platform for developers in 2011 known as the Box Innovation Network, which functioned similarly to an app marketplace. OneCloud was an extension of this idea, only it was intended exclusively for mobile devices. This would later become a predictable cycle in Box’s development. New features were added to the product to meet emerging needs, and those features were presented to users in ways that directly mirrored those of consumer apps and sites.

What’s more important, however, is how well Box converted its free users to paid subscribers. Consumer apps like Evernote convert free users to paid plans at a rate of approximately 3%. Box was converting free users to paid plans at a rate closer to 8%, including major corporate customers such as Bank of New York and ambient advertising powerhouse Clear Channel. As a result, Box achieved revenues of more than $11M in 2011.

Because most of Box’s sales calls came from companies that had already been using the product, Box’s sales teams were typically able to close 60% of those deals within two weeks—an impressive figure, especially considering the often months-long sales cycles typically associated with the enterprise market.

Box has done an excellent job of not only carving out its own niche in an increasingly competitive space but also by applying design and UX principles of consumer-focused SaaS products to redefine how enterprise software looks, feels, and works. With its keen focus on usability, ease, and simplicity, Box has become a leading force in the consumerization of the enterprise and has shaped how other enterprise software companies approach their products.

Ad tech firm poised to surge 50%

Bid factoring is essentially a linear equation that enables marketers to apply multipliers to different targeting parameters. This approach makes it easier to value each user individually and dynamically, allowing marketers to more easily reach their target users. Bid factoring saved time for marketers through automation and removed the need to store tons of line item permutations, therefore lowering data storage costs.

When Green started The Trade Desk, his goal was to “build a company for the next 100 years.” He did not want to follow the same mistakes that other companies in the space made such as having a conflict of interest by being on both the buy and sell side. Green decided to build a demand side platform because he believed the demand side of the advertising transaction will always have the advantage. In advertising it will always be a buyer’s market because it is easy to add supply by having an extra impression on a web page or additional 30-second spot to a commercial break to meet increased demand. This basic economic reality means advertising supply is more elastic than demand and will forever put the buy side in the power position.

The Trade Desk would also be transparent and not charge unsustainable take rates. Green believed once the digital advertising industry matures, total transaction costs to purchase a digital ad would be $0.20-$0.30 for every $1.00 spent, with roughly $0.15-$0.20 going to the DSP and $0.05-$0.10 being split between the SSP and the ad exchange. The Trade Desk could have charged much higher take rates but decided to charge customers what it believed would be the fair end-state price for their services. While take rates could become lower as competition potentially increases, similar to what happened with discount stock brokerages, barriers to entry and the DSP’s ability to provide increasing value to advertisers overtime should preserve prices.

As the ad market has grown, the number of auctions has increased exponentially. In order for a DSP to win an auction, it now takes many more looks. For each ad campaign, costs have increased while revenues remained fairly flat, increasing operating leverage. DSPs that have half the ad spend as The Trade Desk will struggle because they will incur the same amount of expense per ad campaign but monetize less, making it much more difficult to be profitable if you are a smaller player and don’t have the scale.

Every day The Trade Desk’s customers log into their platform to use the data and analysis to value ad inventory and run marketing campaigns. Advertisers provide their customer data and publishers provide their user data, which The Trade Desk uses to help advertisers value media for their specific needs. As The Trade Desk accumulates more data over time, its insight and analysis add more value to its customers, creating a self-reinforcing virtuous cycle.


Nvidia’s new Turing architecture is all about real-time ray tracing and AI

Nvidia describes the new Turing architecture as “the greatest leap since the invention of the CUDA GPU in 2006.”

“Hybrid rendering will change the industry, opening up amazing possibilities that enhance our lives with more beautiful designs, richer entertainment and more interactive experiences,” said Nvidia CEO Jensen Huang. “The arrival of real-time ray tracing is the Holy Grail of our industry.”

The new RT cores can accelerate ray tracing by up to 25 times compared to Nvidia’s Pascal architecture, and Nvidia claims 10 GigaRays a second for the maximum performance.

With NGX, Nvidia today also launched a new platform that aims to bring AI into the graphics pipelines. “NGX technology brings capabilities such as taking a standard camera feed and creating super slow motion like you’d get from a $100,000+ specialized camera,” the company explains, and also notes that filmmakers could use this technology to easily remove wires from photographs or replace missing pixels with the right background.


Tesla’s autonomous opportunity is severely underappreciated

We estimate that net revenue for autonomous platform providers – those companies that own the software technology stack for autonomous ride-hailing services – should exceed $2 trillion by 2030, roughly equal to our expectations for automaker revenue at that time. Unlike their auto-manufacturing peers, however, autonomous platform providers should see software-like margins, be less capital-intensive, and enjoy network-effect-driven regional competitive dominance. So, while autonomous platform providers may generate the same revenue as automotive manufacturers, ARK believes these providers will generate six times the operating earnings and consequently will prove to be substantially more valuable. In fact, ARK estimates autonomous platforms will be worth more than the entire $4 trillion global energy sector.

An enhanced Autopilot package with the ability to self-drive costs $5,000 upfront or $6,000 for customers who choose to wait and buy later. Payment for this feature alone can be thought of as nearly pure profit on every Tesla sold. In addition, once Tesla launches the Tesla Network, its autonomous ride-hailing network, it could collect platform fees, similar to Uber’s model today, from every autonomous ride charged to the consumer. Given a rate of $1 per mile to the end consumer and over 100,000 miles per year per vehicle, Tesla could benefit from $20,000 in high-margin platform fees per car per year. Over a five-year lifetime, a single Model 3 could generate $40,000 in net cash flow. Even investors optimistic about Tesla’s prospects project the Model 3 cash flow at $4,000 and one-time in nature. In effect, each Model 3 sale could generate 10 times more cash flow than investors currently understand.

Google’s targeted ads are coming to a billboard near you

Digital outdoor ad spending is growing at 15 percent annually, and will overtake traditional outdoor outlays by 2020, according to PwC. But Google is the 800-pound gorilla that’s not yet in the room. It would give the company another major edge over Facebook, which doesn’t have the same access to location-based mobile data.


Alibaba tweaks a controversial legal structure

There are three problems with VIEs. First, key-man risk. If the people with nominal title die, divorce or disappear, it is not certain that their heirs and successors can be bound to follow the same contracts. Second, it is not clear if the structure is even legal. China’s courts have set few reliable precedents on VIEs and the official position is one of toleration rather than approval. Third, VIEs allow China’s leading tech firms to be listed abroad, preventing mainlanders from easily owning their shares and participating in their success.

Alibaba’s proposed change is aimed at tackling the first problem, key-man risk. At the moment four of its five VIEs are nominally owned by Jack Ma, the firm’s leader, and Simon Xie, a co-founder and former employee. After the restructuring, the two men will no longer be the dominant counterparties. Instead the VIEs will be owned by two layers of holding companies, which will sign contracts with Alibaba. These holding companies will ultimately be nominally owned by a broader group of Alibaba’s senior Chinese staff. The idea is that if anyone gets run over by a bus, then the scheme will not be disrupted, because nominal control is spread among a wider group of people. The new approach is far from perfect but it is an improvement. If all goes to plan it will be completed by 2019. Other tech firms may feel pressure to follow.

$1b+ market map: The world’s 260 unicorn companies in one infographic
60+ startups disrupting IKEA in one market map

SoftBank’s Son says WeWork is his ‘next Alibaba’

It is rare for Son, who casts a wide net with his startup investments, to commit so much resources to a single company. But he said WeWork is more than just a renter of office space: it is “something completely new that uses technology to build and network communities.”

The use of shared space to forge connections is not unique to WeWork. The company’s edge lies in the steady flow of data it collects on members, which is shared with other locations and can be accessed by users of the WeWork app around the world. The idea is that more data means more innovation — a model that underlies Son’s excitement about the company.

What MoviePass can teach us about the future of subscription businesses

Pricing is so powerful that playing with it requires great skill and precision. MoviePass should have done its price experimentation at the outset and on a local basis. It could have optimized the price points and tested alternative pricing models quietly, instead of jerking millions of customers around. Even a slight tweak — such as moving to a club pricing model like Costco’s — might have solved its cash-flow problems.

These kinds of tweaks could also have enabled the company to consider regional pricing strategies, given that its cost of goods (the full price of movie tickets, which it pays theater operators) varies from $8 in Nebraska to over $15 in New York. This case is also a good reminder that the United States has local profit pools. It is silly to think that a one-size-fits-all national strategy is the right approach for a market as ethnically and economically diverse as the United States.

MoviePass failed to recognize how the behavior of superconsumers, customers who are highly engaged with a category and a brand, differs from that of average consumers — and how, if not anticipated, this difference can create problems for a company’s cost model. It can especially be a problem if the company uses a “buffet” model of fixed price and unlimited quantities, as MoviePass did.

Quantum computers today aren’t very useful. That could change

Quantum computers are, however, far more prone to errors than binary machines. Instead of using electric signals to generate a series of zeros and ones like a conventional computer, quantum computers rely on the real-world, mechanical behavior of photons, which are packets of microwave energy. The machines require a complex, multi-layered refrigeration process that brings quantum chips to a temperature just above absolute zero. By eliminating certain particles and other potential interference, the remaining photons are used to solve computational problems. The true magic of this system is how photons can become entangled and produce different but related results. Scientists only partially understand why it works the way it does.

A quantum chip doesn’t look like much with the naked eye. Through an optical microscope, though, you can see the quantum logic gate that makes everything possible. The team here is working on a process of stringing together 16-qubit chips to execute on the 128-qubit design. Essential to this is a new kind of quantum chip that communicates results in three dimensions instead of the current two, which allows Rigetti to fit the chips together like puzzle pieces and turn them into a single, more powerful computer. “What we’re working on next is something that can be scaled and tiled indefinitely,” Bestwick said.

Why the future belongs to ‘challenge-driven leaders’

The consensus view of Mr. Marchionne, relayed by hundreds of tributes, is that he possessed an unusual blend of vision, technical expertise, analytical rigor, open-mindedness and candor. The remembrances also agreed on something else: he was a bona fide eccentric. “God bless you, Sergio,” Morgan Stanley analyst Adam Jonas told Mr. Marchionne during a January conference call. “We’re never going to see anyone like you again.”

The trajectory of great ideas

“Being right is the enemy of staying right because it leads you to forget the way the world works.” – Jason Zweig. Buddhism has a concept called beginner’s mind, which is an active openness to trying new things and studying new ideas, unburdened by past preconceptions, like a beginner would. Knowing you have a competitive advantage is often the enemy of beginner’s mind, because doing well reduces the incentive to explore other ideas, especially when those ideas conflict with your proven strategy. Which is dangerous. Being locked into a single view is fatal in an economy where reversion to the mean and competition constantly dismantles old strategies.

Survivorship bias on wheels

One last thing: When it was introduced as new in 1984, the 1985 Testarossa listed for $90,000 (but dealers charged huge premiums over list due to “Ferrari fever.”) You can still find Testarossas for that original list price — meaning the net returns over 43 years has been precisely zero — before maintenance, storage and repair costs.

As a comparison, in 1985, the benchmark S&P500 was about 200, and it closed yesterday at 2,821.93. That generated an average annual return of about 8.5%, returning 1,400% price appreciation since then, and, with dividends reinvested, over 3,000% total return (in nominal terms, like the chart above, neither is adjusted for inflation).

Selecting investments after the fact is easy; ask yourself this question: What car do you want to buy as an investment for the next 34 years to be sold in 2052?


Curated Insights 2018.06.29

75% of bull markets are nothing but multiple expansion

Hedge funds’ best ideas? Those are just stocks they’re dumping

“This suggests that the pitched stocks were their ‘best ideas’ but not likely any longer. Returns of pitched stocks diverged from market immediately after the pitches—long pitches spike up and short pitches spike down. These results suggest that these investment conferences are closely followed by other investors and have high market impacts. The majority of the outperformance occurs before the pitches. Outperformance after the pitches are likely driven by inflows from other investors that follow these investment conferences.”

Amazon’s scale in Japan challenges rivals and regulators

In the wake of Amazon’s rise, Rakuten, its largest Japanese rival, which operates the country’s biggest online marketplace, has expanded aggressively into financial technology, mobile phones and home-sharing. Still, to compete better against Amazon, the company is aiming to create its own logistics and delivery network within two years. Unlike its US rival, it had left warehouse and inventory management to the retailers that use its marketplace rather than building its own proprietary systems.

Amazon held a 23 per cent share in Japan’s internet retail market compared with Rakuten’s 18.5 per cent share last year, after overtaking its Japanese rival in 2016, according to Euromonitor. Other industry data shows the two rivals in a tight race.

“There is no way rivals can compete against Amazon. They invest in the best-in-class technology with little regard for profits so that they can create a sophisticated logistics operation,” said Shinichiro Nishino, a former Amazon executive who was hired by Mr Bezos to launch the business in Japan.


Amazon wants the whole package in delivery

Amazon plans to provide entrepreneurs known as “Delivery Service Partners” with guaranteed delivery volume, use of Amazon’s logistics technology, and discounts on Amazon-branded delivery van leases, vehicle insurance, Amazon uniforms, and even fuel. The company envisions hundreds of owners operating fleets of 20 to 40 vehicles and eventually having “tens of thousands of delivery drivers across the U.S.,” Amazon trumpeted in its press release.

The independent contractor owner-operator model is similar to how FedEx handles its last-mile deliveries, while UPS delivery trucks are staffed by unionized employees, Blackledge writes. Amazon has been steadily encroaching on all parts of the traditional delivery firms’ turf in recent years, with initiatives including a delivery service for small businesses, building its own air cargo hub, and even expanding into ocean freight shipping. Amazon already boasts a fleet of 7,500 trucks, 35 aircraft, and over 70 delivery centers. This pales in comparison, however, to FedEx’s stated world-wide armada of 650 planes, 150,000 delivery trucks, 400,000 employees, and 4,800 fulfillment facilities.

Danny Meyer’s recipe for success

Rather than rolling out replicas of USC in other cities, as is a common tactic for ambitious restaurant empire builders, Meyer employed a different strategy. Sticking close to home, Meyer expanded by replicating his enlightened hospitality, cultivating regulars, and stimulating buzz by endowing each new restaurant with its own memorable menu and décor.

“The fact that Danny has been so successful translating the culture across so many different restaurant brands, and engaging a lot of people to help him, is key to understanding the quality and influence of the culture he inspired. He happens to be in the restaurant business, but if he had been a university president, you would have a different kind of college. When he looks at you, he sees you. He’s not playing the role of an executive. He’s a hugger. He trusts his gut, and his gut is always working.”

Meyer never set out to be a business mogul. He simply wanted to create a homey, unpretentious, and affordable Michelin star–quality restaurant that did not exist in New York in the 1980s. Unlike the dominant, ultra-expensive, and exclusive French haute cuisine establishments, such as Le Pavillon and Lutèce, which oozed effeteness, Meyer wanted USC customers to feel comfortable asking their server, or even the sommelier, to explain and pronounce menu items. He wanted people walking in without a reservation to feel welcome ordering a full-course meal at the bar.

Stewarding the culture in association with every business decision is the main responsibility and passion for Meyer, who recently turned 60, and is not slowing down. Also on his agenda? Creating a few more fine casual brands, such as Shake Shack and Tender Greens, and making them all as essential to millennials as McDonald’s once was to boomers.

All the questions you wanted answered about Bird Scooters and their recent $300 million funding

Capital. Because Bird was first to market, extremely innovative, quick to hire talented leadership and an experienced founder it was able to raise $125 million in an extraordinarily short period of time. That has allowed the company to launch in many markets, build amazing applications, design future versions of the scooter and monetize while many companies are still just drawing up their go-to-market plans. This allowed Bird to then raise $300 million from some of the top VCs in the country. Capital of course drives scale advantages and when you have “winner take most” markets it also has a way of scaring away some investors from investing in the 3–5th “me too” competitors. You can expect some strong competition, but it’s unlikely that there will be 5 great scooter companies.

Density. One huge advantage the early-movers have is “density.” A dockless eScooter solution is only compelling if you believe that you’ll always be able to find a scooter in a relatively short walking distance or it defeats the purpose. If Bird has thousands of scooters in a neighborhood (and if it can acquire these scooters at cheaper prices due to scale advantages) then it’s significantly more difficult for new entrants to launch without serious capital and it’s hard to get serious capital from investors who perceive you’re late to the game.

Data. Bird already has an enormous lead in data collection. What appears as just an electric-powered scooter is really a computer with wheels. Between our on-board CPUs and your mobile phone companions we have an enormous amount of data on transportation routes, where riders want to pick up scooters in the morning and where they leave them in the evening. This not only allows Bird to have advantages in right-sizing city inventory levels and proper placement to maximize yield, but the company has already been providing this data to cities to help them better plan their cities of the future. We clearly need a world in which gas cars don’t dominate dense city environments and providing this data to cities is a great start in that direction.

Mechanics. What is even more remarkable than “chargers” is how Bird has build out local teams of mechanics in each market, providing large legions of skilled labor the ability to earn meaningful dollars for repairs to wheels, brakes, cables, batteries, electronics, etc. Local politicians wanting to see local job creation rather than jobs at tech firms all migrating to San Francisco should be heartened. Because each market won’t have unlimited labor suppliers of repair people and because the largest services can pay the best, there is inherent advantage in capturing the early pools of mechanics.


How WeWork’s revenue-sharing leases could affect property investors

Both WeWork and THRE are keeping details of the revenue-sharing lease under wraps but, broadly, it means that WeWork does not have to pay a fixed amount of rent. If it is doing badly and cannot attract tenants, it pays less — or nothing — to its landlords, THRE and PFAE. Conversely, if it does well, it can pay more.

This has implications for property investors. By offering an uneven and potentially volatile income stream in place of a steady and fixed one, a lease of this kind changes the bond-like nature of property as an asset class into something closer to an equity.


The business of death has a bright future in Japan

The funeral business has a bright future in Japan, where deaths have outpaced births every year since 2007. Almost 30 percent of the population is 65 or older. And this year is a tipping-point of sorts. After 2018, the number of Japanese women of child-bearing age will decline so sharply that by 2025 the population is forecast to drop by four million people, equivalent to the population of Los Angeles.

Trump tariffs would be bad for the entire global auto industry, says Moody’s

Daimler AG, BMW and Volkswagen AG all import more than half the vehicles they sell in the U.S. from other countries. The breakdown is 50% for Daimler, 70% for BMW and above 80% for VW. “However, these imports represent only about 12% of BMW’s total annual unit sales, about 8% of Daimler’s global light vehicle sales, and around 3% of VW group sales (figures include sales from Chinese joint ventures),” said Clark. “On the other hand, BMW and Daimler export more than half the vehicles they produce at their U.S. assembly plants. Fiat Chrysler Automobiles NV produces about half its vehicles in the U.S., with the remaining units imported mainly from Mexico and Canada.”

Moody’s estimates that Toyota exports roughly 22% of cars produced in Japan to the U.S., while Nissan exports about 31% of its domestic production to the U.S. market. Honda has the most diversified production of the three and a low ratio of exports to the U.S. but is planning to increase exports in 2018. Korean car makers Hyundai Motor Co. and Kia Motors Corp. import a bit more than half their vehicles sold in the U.S., mostly from Korea but also from Mexico. Both were planning to produce more SUVs and crossovers in the U.S. in the next two years.

Mexico would be hurt more than other markets as many big car makers have assembly plants there to serve the U.S. market. Mexico produced 3.8 million vehicles in 2017, 82% of which were exported. Of that total, 84% went to the U.S. and Canada. In the first quarter of 2018, the car industry accounted for 2.9% of Mexico’s GDP, meaning tariffs would hurt more than the car manufacturers and auto-parts suppliers.

One group that will be especially hard hit is U.S. car dealers, which rely heavily on imports. “These companies have minimal U.S.-produced vehicle penetration to offset reduced sales from price increases on imported vehicles,” said the report.

Where 3 million electric vehicle batteries will go when they retire

By 2030, there will be a 25-fold surge in battery demand for EVs. Automobiles have overtaken consumer electronics as the biggest users of lithium-ion batteries, according to Paris-based Avicenne Energy. By 2040, more than half of new-car sales and a third of the global fleet –- equal to 559 million vehicles — will be electric. By 2050, companies will have invested about $550 billion in home, industrial and grid-scale battery storage, according to BNEF.

Introducing a16z crypto

Trust is a new software primitive from which other components can be constructed.

The new primitive of trust also means that 3rd-party developers, entrepreneurs, and creators can build on top of crypto-powered platforms without worrying about whether the rules of the game will change later on. In an era in which the internet is increasingly controlled by a handful of large tech incumbents, it’s more important than ever to create the right economic conditions for developers, creators, and entrepreneurs. Trust also enables new kinds of governance where communities collectively make important decisions about how networks evolve, what behaviors are permitted, and how economic benefits are distributed.

Cryptogoods can unlock new experiences and business models for games and other forms of media.


Ten lessons from Michael Batnick’s book ‘Big Mistakes’

Ben Graham understood that no approach works all the time. There are time and place for everything. Markets evolve and some concepts stop working. A margin of safety doesn’t matter during periods of forced liquidation, especially when you are leveraged to the hill.

A high IQ guarantees you nothing! This is one of the hardest things for newer investors to come to grips with, that markets don’t compensate you just for being smart.” and “Intelligence in investing is not absolute; it’s relative. In other words, it doesn’t just matter how smart you are, it matters how smart your competition is.

The most disciplined investors are intimately aware of how they’ll behave in different market environments, so they hold a portfolio that is suited to their personality. They don’t kill themselves trying to build a perfect portfolio because they know that it doesn’t exist.

Curated Insights 2018.05.20

The spectacular power of Big Lens

There is a good chance, meanwhile, that your frames are made by Luxottica, an Italian company with an unparalleled combination of factories, designer labels and retail outlets. Luxottica pioneered the use of luxury brands in the optical business, and one of the many powerful functions of names such as Ray-Ban (which is owned by Luxottica) or Vogue (which is owned by Luxottica) or Prada (whose glasses are made by Luxottica) or Oliver Peoples (which is owned by Luxottica) or high-street outlets such as LensCrafters, the largest optical retailer in the US (which is owned by Luxottica), or John Lewis Opticians in the UK (which is run by Luxottica), or Sunglass Hut (which is owned by Luxottica) is to make the marketplace feel more varied than it actually is.

Now they are becoming one. On 1 March, regulators in the EU and the US gave permission for the world’s largest optical companies to form a single corporation, which will be known as EssilorLuxottica. The new firm will not technically be a monopoly: Essilor currently has around 45% of the prescription lenses market, and Luxottica 25% of the frames. But in seven centuries of spectacles, there has never been anything like it. The new entity will be worth around $50bn (£37bn), sell close to a billion pairs of lenses and frames every year, and have a workforce of more than 140,000 people. EssilorLuxottica intends to dominate what its executives call “the visual experience” for decades to come.

For a long time, scientists thought myopia was primarily determined by our genes. But about 10 years ago, it became clear that the way children were growing up was harming their eyesight, too. The effect is starkest in east Asia, where myopia has always been more common, but the rate of increase has been uniform, more or less, across the world. In the 1950s, between 10% and 20% of Chinese people were shortsighted. Now, among teenagers and young adults, the proportion is more like 90%. In Seoul, 95% of 19-year-old men are myopic, many of them severely, and at risk of blindness later in life.

Del Vecchio paid $645m (£476m) for Ray-Ban. During the negotiations, he promised to protect thousands of jobs at four factories in the US and Ireland. Three months later, he closed the plants and shifted production to China and Italy. Over the next year and a half, Luxottica withdrew Ray-Ban from 13,000 retail outlets, hiked their prices and radically improved the quality: increasing the layers of lacquer on a pair of Wayfarers from two to 31. In 2004, to the disbelief of many of his subordinates, del Vecchio decided that Ray-Ban, which had been invented for American pilots in the 1930s, should branch out from sunglasses into optical lenses, too. “A lot of us were sceptical. Really? Ray. Ban. Banning rays from the sun?” the former manager said. “But he was right.” Ray-Ban is now the most valuable optical brand in the world. It generates more than $2bn (£1.5bn) in sales for Luxottica each year, and is thought to account for as much as 40% of its profits.

The Moat Map

Facebook has completely internalized its network and commoditized its content supplier base, and has no motivation to, for example, share its advertising proceeds. Google similarly has internalized its network effects and commoditized its supplier base; however, given that its supply is from 3rd parties, the company does have more of a motivation to sustain those third parties (this helps explain, for example, why Google’s off-sites advertising products have always been far superior to Facebook’s).

Netflix and Amazon’s network effects are partially internalized and partially externalized, and similarly, both have differentiated suppliers that remain very much subordinate to the Amazon and Netflix customer relationship.

Apple and Microsoft, meanwhile, have the most differentiated suppliers on their platform, which makes sense given that both depend on largely externalized network effects. “Must-have” apps ultimately accrue to the platform’s benefit.

Apple’s developer ecosystem is plenty strong enough to allow the company’s product chops to come to the fore. I continue to believe, though, that Apple’s moat could be even deeper had the company considered the above Moat Map: the network effects of a platform like iOS are mostly externalized, which means that highly differentiated suppliers are the best means to deepen the moat; unfortunately Apple for too long didn’t allow for suitable business models.

Uber’s suppliers are completely commoditized. This might seem like a good thing! The problem, though, is that Uber’s network effects are completely externalized: drivers come on to the platform to serve riders, which in turn makes the network more attractive to riders. This leaves Uber outside the Moat Map. The result is that Uber’s position is very difficult to defend; it is easier to imagine a successful company that has internalized large parts of its network (by owning its own fleet, for example), or done more to differentiate its suppliers. The company may very well succeed thanks to the power from owning the customer relationship, but it will be a slog.

How much would you pay to keep using Google?

Part of the problem is that GDP as a measure only takes into account goods and services that people pay money for. Internet firms like Google and Facebook do not charge consumers for access, which means that national-income statistics will underestimate how much consumers have benefitted from their rise.

Survey respondents said that they would have to be paid $3,600 to give up internet maps for a year, and $8,400 to give up e-mail. Search engines appear to be especially valuable: consumers surveyed said that they would have to be paid $17,500 to forgo their use for a year.


There is another

Spotify has better technology, merchandising (like discovery playlists), and brand. Unlike Apple Music, being a pure-play (as opposed to being owned by a tech giant) gives Spotify more cred among purists, young people, and influencers. The instinct / T Algorithm cocktail has resulted in a firm with 170M users, 75M of whom are premium subscribers. The firm registered €1B this quarter, representing 37% growth. Spotify accounted for 36% of premium music subscribers globally.

What takes Spotify to $300B, and true horseman status? They launch video, and become the most successful streaming entertainment firm, full stop. Netflix’s legacy is on the second most important screen, TV. Spotify was raised on the most important – mobile. Netflix needs to become Spotify before Spotify becomes Netflix. Nobody has cracked social and TV, and as half of young people no longer watch cable TV, if Spotify were to launch video and captured any reasonable share and engagement via unique playlists, then cable and Netflix would begin ceding market cap to Spotify.


Subscriptions for the 1%

The problem with these minuscule conversion rates is that it dramatically raises the cost of acquiring a customer (CAC). When only 1% of people convert, it concentrates all of that sales and marketing spend on a very small sliver of customers. That forces subscription prices to rise so that the CAC:LTV ratios make rational sense. Before you know it, what once might have been $1 a month by 20% of a site’s audience is now $20 a month for the 1%.

There is a class of exceptions around Netflix, Spotify, and Amazon Prime. Spotify, for instance, had 170 million monthly actives in the first quarter this year, and 75 million of those are paid, for an implied conversion of 44%. What’s unique about these products — and why they shouldn’t be used as an example — is that they own the entirety of a content domain. Netflix owns video and Spotify owns music in a way that the New York Times can never hope to own news or your podcast app developer can never hope to own the audio content market.

The Apple Services machine

It is this hardware dependency that makes it impossible to look at Apple Services as a stand-alone business. The Services narrative isn’t compelling if it excludes Apple hardware from the equation. Apple’s future isn’t about selling services. Rather, it’s about developing tools for people. These tools will consist of a combination of hardware, software, and services.

Apple currently has more than 270 million paid subscriptions across its services, up over 100 million year-over-year. Apple is in a good position to benefit from growing momentum for video streaming services including Netflix, HBO, and Hulu. It is not a stretch to claim that Apple will one day have 500 million paid subscriptions across its services. Apple isn’t becoming a services company. Instead, Apple is building a leading paid content distribution platform.

Tencent Holdings Ltd. delivered two major milestones when it reported its earnings Wednesday: record quarterly profits and more than one billion monthly active users on its WeChat platform. The social media and gaming giant, which has been leery of barraging its users with ads, also declared it had raised the maximum number of ads that customers see on WeChat Moments from one a day to two. The app has become China’s most popular messaging service and is integral to driving everything from gaming and payments to advertising for Tencent.

MoviePass: the unicorn that jumped into Wall Street too soon

“The growth-at-all-costs strategy is being funded these days by the venture community, not the public market. The last time we saw the public markets fund a growth-at-all-costs strategy was the 1999 internet bubble, and we all know how that ended.”

The prospect of steep declines in a company’s valuations once it hits the public markets is one reason why U.S. companies are waiting longer to go public. Overall, U.S. companies that have gone public this year have done so at an average market capitalization of $1.1 billion, according to Thomson Reuters data, a 44 percent increase from the average market cap during the height of the dot com craze in 1999. At the same time, companies are now going public 6.5 years after receiving their first venture capital backing on average, more than double the three years between initial funding and going public in 1999.

Cerebras: The AI of cheetahs and hyenas

The specialist starts out with a technology optimized for one specific task. Take the graphics-processing unit. As its name denotes, this was a specialist technology focused on a single task–processing graphics for display. And for the task of graphics, graphics-processing units are phenomenal. Nvidia built a great company on graphics-processing. But over time, the makers of graphics-processing units, AMD and Nvidia, have tried to bring their graphics devices to markets with different requirements, to continue the analogy to hunt things that aren’t gazelle. In these markets, what was once a benefit, finely tuned technology for graphics (or gazelle-hunting), is now a burden. If you hunt up close like a leopard and never have to run fast, having your nose smooshed into your face is not an advantage and may well be a disadvantage. When you hunt things you were no longer designed to hunt, the very things that made you optimized and specialized are no longer assets.

Intel is the classic example of a generalist. For more than 30 years the x86 CPU they pioneered was the answer to every compute problem. And they gobbled up everything and built an amazing company. But then there emerged compute problems that specialists were better at, and were big enough to support specialist companies—such as cell phones, graphics and we believe AI. In each of these domains specialist architectures dominate.

We are specialists, designing technology for a much more focused purpose than the big companies burdened with multiple markets to serve and legacy architectures to carry forward. Specialists are always better at their target task. They do not carry the burden of trying to do many different things well, nor the architectural deadweight of optimizations for other markets. We focus and are dedicated to a single purpose. The question of whether we—and every other specialist– will be successful rests on whether the market is large enough to support that specialist approach. Whether, in other words, there are enough gazelle to pursue. In every market large enough, specialists win. It is in collections of many modest markets, that the generalist wins. We believe that the AI compute market will be one of the largest markets in all of infrastructure. It will be the domain of specialists.


This $2 billion AI startup aims to teach factory robots to think

What sets Preferred Networks apart from the hundreds of other AI startups is its ties to Japan’s manufacturing might. Deep learning algorithms depend on data and the startup is plugging into some of the rarest anywhere. Its deals with Toyota and Fanuc Corp., the world’s biggest maker of industrial robots, give it access to the world’s top factories. While Google used its search engine to become an AI superpower, and Facebook Inc. mined its social network, Preferred Networks has an opportunity to analyze and potentially improve how just about everything is made.

At an expo in Japan a few months later, another demo showed how the tech might one day be used to turn factory robots into something closer to skilled craftsmen. Programming a Fanuc bin-picking robot to grab items out of a tangled mass might take a human engineer several days. Nishikawa and Okanohara showed that machines could teach themselves overnight. Working together, a team of eight could master the task in an hour. If thousands — or millions — were linked together, the learning would be exponentially faster. “It takes 10 years to train a skilled machinist, and that knowledge can’t just be downloaded to another person” Fanuc’s Inaba explained. “But once you have a robot expert, you can multiply it infinitely.”

China buys up flying schools as pilot demand rises

In September Ryanair axed 20,000 flights due to a rostering mess-up made worse by pilot shortages. This forced the low-cost carrier to reverse a longstanding policy and recognise trade unions and agree new pay deals — a move that it said would cost it €100m ($120m) a year from 2019.

China is on course to overtake the US as the world’s largest air travel market by 2022, according to the International Air Transport Association.

US aircraft maker Boeing predicts China will need 110,000 new pilots in the years through to 2035, and its airlines are expected to purchase 7,000 commercial aircraft over the next two decades.

China’s aviation market grew by 13 per cent last year, with 549m passengers taking to the skies, double the number who flew in 2010. Growth is being driven by the rising middle class, an expansion of routes by Chinese airlines and the easing of visa restrictions by foreign governments keen to attract Chinese tourists.

California will require solar power for new homes

Long a leader and trendsetter in its clean-energy goals, California took a giant step on Wednesday, becoming the first state to require all new homes to have solar power.

The new requirement, to take effect in two years, brings solar power into the mainstream in a way it has never been until now. It will add thousands of dollars to the cost of home when a shortage of affordable housing is one of California’s most pressing issues.

Just half a percent

If you save $5,000 a year for 40 years and make only 8% (the “small” mistake), you’ll retire with about $1.46 million. But if you earn 8.5% instead, you’ll retire with nearly $1.7 million. The additional $230,000 or so may not seem like enough to change your life, but that additional portfolio value is worth more than all of the money you invested over the years. Result: You retire with 16% more.

Your gains don’t stop there. Assume you continue earning either 8% or 8.5% while you withdraw 4% of your portfolio each year and that you live for 25 years after retirement. If your lifetime return is 8%, your total retirement withdrawals are just shy of $2.5 million. If your lifetime return is 8.5% instead, you withdraw about $3.1 million. That’s an extra $600,000 for your “golden years,” a bonus of three times the total dollars you originally saved.

Your heirs will also have plenty of reasons to be grateful for your 0.5% boost in return. If your lifetime return was 8%, your estate will be worth about $3.9 million. If you earned 8.5% instead, your estate is worth more than $5.1 million.

Keep your investment costs low.
Slowly increasing your savings rate over time.
Consistently saving while treating investment contributions like a periodic bill payment.
Bettering your career prospects to increase your income over time.
Avoiding behavioral investment mistakes which can act as a counterweight to the benefits of compounding.