SITALWeek #374
Welcome to Stuff I Thought About Last Week, a personal collection of topics on tech, innovation, science, the digital economic transition, the finance industry, and whatever else made me think last week.
Click HERE to SIGN UP for SITALWeek’s Sunday Email.
In today’s post: I explore lessons from the magician's "force", alongside a key mechanism of standup comedy, to inform decision making; a robot that can paint; aging and de-aging software and the future of personal identity; a close look at the single-family rental market over the last few years reveals some inconvenient truths about the digital transition of the economy; more companies no longer require college degrees; living and spending time alone is trending with several ramifications; and, much more below...
Stuff about Innovation and Technology
Painting Companion
PACO is a painting robot from French company Les Companions. About the size of a large commercial floor polisher, the robot (video) can operate on flat surfaces, applying paint using an airless sprayer on an articulating arm as it moves around a room. Designed to help painters focus on less repetitive tasks, the robot is guided by a 3D model of the rooms it will be painting. The FT reports that the company is partnering with Akzo Nobel’s Dulux paint brand to potentially commercialize the robot to help ease the labor shortage from the growing scarcity of painters. This proof-of-concept will be even more exciting once it can negotiate ladders and scaffolding, or paint happy little trees.
Indiana Jones and the Engine of FRAN
Disney’s new age-altering AI engine FRAN (Face Re-aging Network) can automatically age or de-age an actor in video footage, which may come in handy if recently returned CEO Bob Iger wants to stay on another twenty years. Harrison Ford is de-aged in the upcoming fifth Indian Jones movie (Disney has not yet disclosed whether they used FRAN or another tool for that). While there is still a bit of an uncanny valley to these types of techniques, we should get used to seeing more such altered videos. In Nathan Fielder’s The Rehearsal (see Analog VR in #363), he replaces the mirrors in his house with rather jarring screens that automatically age his “reflection” as he attempts to create a detailed, real-world simulation of aging. Mirror, mirror on the wall... And, as AR glasses become mainstream later this decade and FRAN-like technology is perfected, we can all appear as whatever age we want. Of course, it’s not just age, we can simply appear as anyone (or anything) in real-time AR/video given the current stage of AI tools, and we can even make ourselves sound like anyone else. Artist Holly Herndon created an AI model of her voice that is able to sing anything in her exact style, in part to highlight the Pandora’s Box of legal implications when precise models of you are in the wild for anyone to use. If you want to explore a particularly provocative representation of these trends, I recommend the 2013 movie The Congress (currently streaming on Hulu in the US). In the film, Robin Wright plays a version of herself who sells her digital rights away, which contractually forbids her from acting in person. The film's digital representations of the celebrities eventually allow people to feel what it’s like to actually be the actors when combined with a specially designed, pharmaceutical grade hallucinogenic drug.
“Alexa, Make Me a Story”
Amazon has a new Alexa-based app for kids that allows them to create their own animated stories. Available on Amazon’s Echo Show device, “Create with Alexa” asks a child a series of questions and then creates an animated video, complete with narration and soundtrack. The app is somewhat basic, but the extremely rapid advances in large language models and generative AI could result in high quality productions, or even complete virtual worlds, with a simple prompt in the very near future.
Digital Landlords
Investors bought a record number of homes to rent out during the pandemic, but, for the last two quarters, their real estate purchases have significantly declined, according to Redfin. The vast majority of investor-owners of residential real estate are mom-and-pop landlords, but, during the pandemic, large companies leveraged data and tactics to buy homes faster – in many cases edging out would-be first-time homeowners. Meanwhile, the industry of owning large rental portfolios is fast adopting technology to replace various jobs previously performed by humans. One example, Imagine Homes, uses automation and tech tools of various types to lease 1,500 homes with very few employees or physical offices, according to Vice. The app scans your face to check your identity to allow you access to see a potential rental, and paperwork and other interactions are all automated. This digitalization of home buying and renting is an example of the technologically driven advantage of scale creating a power law. This results in a small number of large companies with robust technology tools and more selection (e.g., renters can stay with the same agency as they upgrade/downsize or move locations) and a long tail of “boutique” landlords. Large investors also enjoy the benefits of scale by borrowing at lower rates than individual buyers. Leveraging data in the pandemic may have contributed to the real estate bubble in two ways. First, a growing number of institutional buyers were using similar pools of information to drive purchasing decisions, which may have put them in competition with each other. Second, rental pricing software used by many apartment building operators may have driven up rents, which would have then impacted regional rents, as well as single-family home prices, to some degree. The artificially higher rents, combined with low cost to borrow and the shared trove of data, were all likely factors in the prices investors were willing to pay – or, rather, overpay – for homes. The DoJ has opened an investigation into the Thoma-Bravo-owned RealPage apartment pricing tool, which may be a form of collusion (for more on that topic, along with the amplified impact of algorithms on the economy, see Algorithmic Distortion of Apartment Rents Fuels Interest Rate Hikes). And, investor withdrawals could potentially swing the market the other way, forcing the sale of single-family homes at reduced prices. Last week, the giant $69B Blackstone Real Estate Income Trust, which owns a portion of its assets in single-family home rentals, restricted investor redemptions because they hit the monthly limit of 2% of the fund’s value. What’s happening to the single-family home markets seems to represent a darker undercurrent in the analog-to-digital transition of the economy that merits a more thoughtful approach, including better regulation as industries are transformed by technology and power laws award outsized scale, and impact, to the winners.
Miscellaneous Stuff
Art – and Science – of Magic Tricks
Investors have a lot to learn from professional magicians and their skilled manipulation of our built-in cognitive biases (see also: Of Investors, Comedians, and Magicians). Even the most incomprehensible magic tricks are always explainable. Sometimes they rely on incredibly complex mechanisms that took years to master; but, more often, the magician uses obvious techniques right in front of our eyes. That’s the simple lesson from magic: if you train yourself to ignore misdirection and pay attention to the key inputs, you have a better shot at seeing the truth. But, if you are distracted by misdirection, you’ll be left puzzled, often not even realizing that you have been fooled. Dani DaOrtiz is a Spanish magician known primarily as a master teacher of other magicians. DaOrtiz recently appeared on the ninth season of Penn & Teller Fool Us (a fantastic show if you like magic and learning a little about how some of it is done). I was blown away by the routine, as were P&T, who were also officially fooled. You can see the ten-minute clip on YouTube. I purchased DaOrtiz’s class on the trick, and, as usual, I was amazed by how simple some of the seemingly impossible illusions were. Simple doesn’t mean easy – quite the opposite: tricks that are simple yet convincing often take decades of practice to perfect. One of the most ubiquitous ways to be fooled is by a “force”. Forces use the illusion of free choice/agency while directing the outcome toward the magician’s goal. In order to be fooled by a force, you need to have convinced yourself that you are in control; however, when you are told “pick a card, it’s a completely free choice”, and you end up selecting the three of clubs, it was most certainly not your free decision! There is a great paper (PDF) on the various types of forces exploited by magicians, which I recently came across thanks to Wharton professor Ethan Mollick. (A quick note of caution: if you love the feeling of being fooled by magic tricks, that paper will ruin many basic tricks for you; however, I think the real beauty of a trick lies in understanding just how much goes into making it work). Section two of the paper on reasoning biases has various elements germane to investing, e.g., Wegner’s exclusivity principle – whereby we think we know what caused something only because we cannot imagine what actually caused it. Forces are a rich area to explore to gain insight into what might be impacting your own decision-making processes as you go about your daily life or evaluate complex choices. The one thing I know for sure is that I am always being fooled, often by myself, but I never know which piece of information right in front of me, or hiding up a sleeve, is responsible. If you can get just a little better at identifying key elements and misdirection, the skill of unmasking hidden forces will compound generously.
Edit Everything
The other profession I find highly relevant to investing is stand-up comedy, as comedians are also very skilled at seeing the overlooked obvious (see also above-linked short essay). Jerry Seinfeld recently did a great spot on The Tonight Show Starring Jimmy Fallon, and he made a comment contrasting his highly edited and curated hit show Comedians in Cars Getting Coffee with long-form podcast interviews: “Why don’t we just cut to the jokes? I don’t understand the two-hour podcast explosion. Cut everything. Cut it.” What’s funny about that Seinfeld spot on Fallon is that the aired version on NBC was six minutes, but the actual segment, which you can see in full on YouTube, was eleven minutes. The five minutes that were edited out were by far the weakest segments (a couple of old bits on Chinese restaurants and card games along with an unfunny bit on Seinfeld appearing in a magazine). So, their editing cut right to the jokes, making the broadcast version far funnier than the actual interview. Seinfeld went on to say: “It’s a standup thing. Standup comedy is: ‘I have a lot of funny ideas.’ Just give us the funniest ones, we don’t want to hear anything else...edit your closet, edit your life, edit everything down.” This call to edit resonated with me. Maybe it’s because I’ve been writing ad nauseam about the proliferation of infinite content across streaming apps, music, social, and gaming, all created by professionals, users, and, now, generative AI, where content is essentially creating itself. The most important skill in a world drowning in content and information will increasingly be the ability to cut and edit everything down. This ties directly to magic and forces: you have to focus your observation where it needs to be, not where the magician is misdirecting it, and you have to edit out all the noise of your visual and auditory systems (not to mention your brain’s spurious storytelling and reactionary emotions) to see it clearly. There are narratives in the world around us (or the companies we are analyzing) that are continuations of prior stories that serve as misdirection for where the real story is headed next. I welcome the obvious jokes that SITALWeek runs a little long sometimes or could be more clear, but we actually edit it heavily. Good editing can take longer than the time it took to create the material itself. Whenever someone tells me they are thinking about writing a newsletter or paper, I give two bits of advice: write only for yourself – an audience of one – and, for the love of all things decent, please get an editor. What does Jerry Seinfeld think about magic? Well, he has a perfect 30-second bit on magic from 1979.
Stuff about Geopolitics, Economics, and the Finance Industry
Degree Not Required
College admissions have been declining steadily, especially for men. I covered this topic in Giving Up on the Old College Try, adding a layer of speculation that there may be broader trends at play as technological advances impact our sense of usefulness (I mostly agreed with the sentiment then, but I am not sure where I’d stand on that theory today). Giving up on college is a trend set to accelerate. Not only were admissions declining already, but demographics and a lack of immigration have set up another vector that’s contracting enrollment. The WSJ reports that myriad employers are dropping college degree requirements for a growing number of positions in the tight labor market. The labor pool is further evaporating as the aging workforce retires. Since the slow trickle of younger workers and new immigrants can’t fill all the vacancies, the trend of dropping degree requirements will likely accelerate. College tuition costs have paradoxically ballooned despite these countervailing forces of supply and demand. If tuition costs don’t sufficiently deflate for the ROI of obtaining a degree to make economic sense, the only solution will likely be a wave of college closures in the coming decade as revenues decline and endowments erode.
Solitude
The NYT reports that the fastest growing demographic segment in the US is people over 50 years old living alone. This group of Boomers and Gen Xers has gone from 15M in the year 2000 to nearly 26M today (this number should plateau for the next four to five years due to the lull in Gen X births from ~1971-1977 before rapidly accelerating again). As I am fond of exploring lateral implications of demographics, a few things came to mind as a result of this growing trend: 1) it might be a tailwind for pet ownership as a surrogate for human companionship; 2) eldercare could become an even larger labor force problem for the US as individuals age by themselves (likely placing more emphasis on automation and caretaker/companion robots for home use); and 3) while the current, aggregate stock of housing is ample for the stagnating US population growth, the size and location of those houses may increasingly be out of balance. On the latter point, specially designed communities with age-restricted covenants may be in increasing demand. Solitude is part of a broader trend, and not just for those individuals who live alone. An op-ed in the WaPo suggests that, over the last ten years, we’ve shifted around ten hours per week previously spent with friends or significant others to being alone. As Kurt Vonnegut wrote in Palm Sunday: “What should young people do with their lives today? Many things, obviously. But the most daring thing is to create stable communities in which the terrible disease of loneliness can be cured.”
✌️-Brad
Disclaimers:
The content of this newsletter is my personal opinion as of the date published and is subject to change without notice and may not reflect the opinion of NZS Capital, LLC. This newsletter is an informal gathering of topics I’ve recently read and thought about. I will sometimes state things in the newsletter that contradict my own views in order to provoke debate. Often I try to make jokes, and they aren’t very funny – sorry.
I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.
Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results.
Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.