CDOQ

When we listen to stories we have the tendency to suspend disbelief in order to be entertained, says Paulos [John Allen]. But when we evaluate statistics, we are less willing to suspend disbelief in order that we are not duped.  Storytelling vs. Statistics  Paulos goes on to describe the two types of errors in formal statistics. Type I error occurs when we observe something that is not really there. A Type II error occurs when we fail to observe something that is actually there. According to Paulos, those who like to be entertained and wish to avoid making Type II error are more likely to prefer stories over statistics. Those who do not necessarily yearn for entertainment but are desperate to avoid Type I errors are apt to prefer statistics to stories.  - From the book: Investing - The last liberal art  

The length of the cigar butt is influenced by how many cigars remain in the humidor.

Last week, I attended the Bay Area IPO Summit , hosted by the Connor Group . The process of going public is a complex ecosystem involving a wide range of specialized participants. Below are my key insights from the summit, shedding light on the current dynamics of the IPO market. IPO: A milestone in a company's journey (image credit DALL-E) Current State  1. Improving Market Conditions : The IPO market is showing signs of recovery. Year-to-date, 2024 has seen 30% more IPOs than the entirety of 2023. Additionally, over $300 billion in venture capital "dry powder" remains available for investment in the US. 2. Revised Definitions: Investment bankers now define "high growth" as achieving over 30% year-over-year revenue growth, while "profitability" is simply a business generating more than break-even profits. 3. Supply Constraints: Contrary to popular belief, there is no shortage of investor demand for IPOs. The real issue lies on the supply side—few hi...

"Travelling comfortably dominates people's thinking when they should be thinking about destinations."  -Nick Sleep 

Last weekend, I finished reading - What I learned about investing from Darwin . It is a fascinating book that shows how evolution theory can be used to create an investment strategy. I might be biased towards liking the book because I used evolution theory to explain how Silicon Valley works . I found the following two concepts particularly interesting: 1. One selected behavioral trait of animals can trigger many physical changes in animals over generations. Following edited excerpt clarifies the idea: A sixty-year-long study focused on selecting silver foxes for only one trait: their willingness to be tamed. The researchers were not interested in body size, coat color, skull shape, ear stiffness, or any other physical characteristics. They took great care to ensure that selection was based solely on tameness. However, this single behavioral characteristic triggered many physical changes in the animals.  This principle is applied at Nalanda Capital (NC), the investment firm ...

In a business, revenue is the effect of solving problems for customers. Companies that focus on revenue and don't continuously improve the causes of revenue tend not to build enduring businesses. 

Investment finance, as taught by business schools, is a study of sophistication and precision applied to guesswork. 

Around three years ago, I started a podcast, Valley Nordic , with a Norwegian venture capitalist, Arne Tonning , as an experiment. Arne and I think differently about the the world. He has a Nordic and a venture capitalist perspective on technology companies and I have a silicon valley perspective on business. Hence, the podcast is titled Valley Nordic. We started as an experiment to see if we record our conversations and post them online, would anybody listen. A few days after our first episode was released, we got feedback that we needed topics for our episodes:) In essence, the podcast is a free flowing conversation between Arne and I on business, culture, and technology with our diverse perspectives as they relate to selected topics.  Thanks to our listeners, we published our 100th episode last week.  We looked into 27 companies and we were right about their growth challenges and their valuations. See the complete podcast episodes index:   Episode T...

The fundamental idea of a business is to convert a dollar into more than a dollar. Generally, how well a business is doing that is measured by net earnings or free cash flow. I am not clear on how one values a business as a multiple of revenue which seems to be a new norm for the new tech businesses. 

I am writing this post to internalize the lessons learned from my investing (in public companies) mistakes over twenty years.   Chapter 1 (2000 - 2003) My journey of investing in public companies began around year 2000, at the peak of the  dotcom bubble . At the time, all I remembered about investing from my recent MBA was that companies trading over a  P/E  (Price Earnings Ratio i.e. price of the stock divided by earnings per share) of 15 were overpriced. People were very excited about investing at the time, stocks were what everyone talked about in social gatherings. I worked with people I liked and respected. They were making money every day in the market and how much money everyone was making was the lunch topic every day. I brought up P/E ratios in the conversations and they all laughed and said it was a new economy, old rules didn't apply. I thought this is why people say that reality is different from school. I was applying what I learned in sch...