4-yr stock portfolio

After some heated discussions with some friends of mine we made the following bet.

If you were to put a fix amount of $ and you can spread it as you want buing amazon, apple, google and facebook, knowing that your stock will be illiquid til 4 yrs from now at which point all shares would be sold at the the then price... how exactly would you spread your money?

Here are the choices:
ot
AMZN - 64%
GOOG - 27%
FB - 9%
AAPL - 0%

sk (amzn:aapl 6:1)
AMZN : 85%
AAPL : 15%

ia
AAPL: 50%
FB: 20%
GOOG: 20%
AMZN: 10%

pp
GOOG :50%
AMZN : 50%

Since this is my blog let me add my own explanations for my choices:
I think amzn at about $150B is still has lots of room to grow within the retail segment. walmarts and targets etc.. hold comparable valuations and in my view amzn has a more efficient model which means that it can produce more profits (in spite of its profitless history) when it it will end up devouring these companies. So I can easily see amzn being > $500B  within 4yrs and being the worlds mega retailer (as opposed to the worlds biggest etailer). I think that its profitless history is related to its 10+ yr bets (see its efforts into content, into infrastructiure (aws), content delivery and such. I think these efforts while aspirational they are mired with tremendous competition so it may very well be the case that another company would be the leader in (content delivery infrastructure enablement (aws) etc.. , ie I wouldn't bet on these. Nobody comes even close to challenge amzn status as the worlds best retailer.

Google is a much less clear story. (Unfortunately I don't seem to have captured somewhere my thoughts of what is the achilles tendon of each one of these 4 companies... should do so shortly..)
I see its ads dominance having reached a plateau and I see it being challenges in two very different ways from platforms that own the transcaction (amzn) and social platforms that know the user (facebook). The reason that I believe however that google is with us to stay in the long term (as a $300-$500B company) - is because it has attracted 10s of thousands of great engineers and has created a an extremely efficient software generating machine - probably one of the most efficient such "machines". The only comparable company is Microsoft.... so I think that Google is with us to stay for the same reason that I would (should) have said the same for microsoft. 10yrs ago when Bill Gates was about to leave.

The reason I put Apple at the bottom, is because I think that Apple at $650B is currently the most overvalued company in spite of its rock bottom p/e. My primary concern with Apple is that they have trained the market to expect a high profit margin company - which ties their hands. All it takes is one market timing miscalculation and their still great-selling products can become low margin ones.
I-watch is an example. In smartphones, Apple has 40% of the market and 90% if the profits (I am not being accurate). In smartwatches, msft's Band and LG's G may very well tilt the market and force apple to sell its watch at a price point that is consumer success but not a wall street one. And for manufacturing companies the value diff between DELL and APPLE (or GM v TESLA  etc etc) can be orders of magnitude..

FB is where it is because I don't really understand it. While it seems that FB eventually should be able to become a consumer decision influenter comparable to Google.. so a comparable valuation is meaningful, On the other hand the internal culture of FB is in from my few interactions with them less healthy than google. And looking at its consumers, it appears to be losing the youth audience (and the early adopter one) (and gets it back with increasingly expensive acquisitions...). So I really can't tell what is the future for FB..

Oil, feeling vindicated

Even though the current price swing is not related to the long term decline of the demand side in developed countries... the fact that I was bearish at oil 3 months ago

when oil was doing pretty well (at around $95) makes me feel vindicated.

I also find it surprising that most of the discussion in the article is centered around short term issues (like what russia does, what iran does etc). You can even make the case the even the shale oil boom is short term. The only true macro trends are: 

1. There will be many more people that consume lots of energy going forward (e.g. china/india becoming developed countries)

2. Oil is going to become increasingly more expensive to get at ( colorary : there is much more oil at higher prices)
3. The energy consumption of the avg person in developed countries is (contrary to what was expected 10 yrs) going to decline (mostly due to transportation efficiencies related to hybrid/electric cars)
3. Battery technology is going to improve (price and efficiencies) enabling more and more uses of electric power instead of gas.

Of course to be accurate I should mention that I was bearish on the oil companies - not the oil prices...and the stock price of oil companies have dropped much less (just 5%) since when the article was published..

On minimum wage jobs

The last couple weeks I have found myself defending a seemingly impossible to defend position.
That a person earning a minimum wage can be a happy person that actually enjoys their life.
I found that in almost every case I am surrounded by people (typically my friends) that
- assume that everyone wants a highly rewarding day-job that makes a difference, challenges them, gives them the opportuinity to use their creativity etc etc.  However, I have found (typically outside my highly selected circle of friends that there are many people that actually want a job that is steady, not really challenging, that they can put aside at 5 or 6 oclock and live a rewarding life by investing in their lifestyle, be it friends, hobbies, vacations outside of a job. (I bet they also sit with their own friends talking about the soul-less (my new favorite word from this) work-aholics... and possibly just one person there is hopelessly trying to persuade for the opposite... just to make things symmetric)
- they assume that when someone doesn't follow the latest trends in organics, anti-carb (essentially what a constant diet) from farmers markets and whole foods would get you) is living a rather unhealthy life style.
- they assume that unless someone has true variety in their daily "joys" be it food or evenning entertainment.. they are practically zobbies. (a good chunk of the teenagers I know would belong in this category, "they can eat safeway or chipotle or panda express or in an out every single day and play xbox every evenning/weekend and spend all their "free" moments looking at funny vines and snapchats.

All the above drives down hard their conclusion that living on a minimum wage is a life that nobody would enjoy living.
I disagree. Against all the tear-breaking stories of all the media and all the congressmen that take the minimum-wage challenge.
Lets first clear a few points.
1. You obviously cannot support a family - not even a single dependent as a single parent making minimum wage.
2. Starting from nothing, ie no savings, no car, no bank account, no credit card, no support system, no friends to live with, to carpool with, to hang around with would make for a very unpleasant and harsh and probably impossible life.

But thats not what is the norm is.

and 3. You probably need to work in multiple places. Most of the minimum wage employers prefer part time relationships which means that you cannot do 40hrs @ a safeway or a mcdonalds easily. You need to have multiple jobs - which does add some complexity and/or variety in your life




Here is what is my typical argument for the life of a $10/hr 40hr/week person.
First lets build the profile:
This is a person that lives together with their friends, possibly sharing a room in an appartment.
Think 4 people in a 2 bedroom home. Thats the privacy level my daughter has at her dorm and I had for 40 of my 49 years leaving in a 2 bedroom appt and growing up in a 5-member family, then with the family of my own again 5 member and until recently living in a 3 bedroom home.
When I said thats a $300/person housing costs in the bay area everybody considered me crazy...
but the truth is that $1200/mo is rather typical rent for low end of san jose appt.

This person either takes the bus or commutes to their job carpooling with friends that go in similar places. At worse (bus) this would mean $70/mo for the pass - at best , it can be less than that if carpooling etc.

So thats about housing and transportation. Now lets move to the most contentious topic : eating.

Lets add a bit to our profile. Like my daughter in her dorm, lets assume that in the appt, possibly room you have 1) a mini fridge and 2) a microwave.

Now I won't go into details but I would like to argue that today you can live with a healthy diet @ $10/day, while still getting your 2K calories and the recommended food pyramid - by just taking the typical economy meals from fast food places, be it the $1 mcdonald menues, $5 footlongs @ subway etc. My simple calculation is based on a combination diet - [1K calorie - $5 footlong from subway 

and assortment of $1 McDonald items, a venti morning home-prepared iced latte) . (would probably avoid buying drinks in fast foods and get iced water and pour in brought-from-home country-lemonade powder) (The above diet would make me happy ( and with the right choice of dollar menus, sandwich choices .. healthy as well) diff people would make diff choices.

So, that adds another $300 (30x10) cost per month. 

To see where we are so far (we have spent $700 for housing, food and transportation out of a budget of 176hrs x $10/hr => 1760. Lets chop 15% of the salary for taxes/ => thats $1500 left over.

Ok... we are not doing that bad :-).

Let me jump now :

a $10/hr person working 40hrs a week makes 20K/yr (thats the person we assumed above)

a person that works 60hrs a week (like most people I know do) woud make $30K/yr

a person that moves up the minimum wage rank (let say after years of having the job and showing 

responsibility/reliability etc, e.g. moving from $10->$15/hr woul make $45K

And yes that implies a hardworking person shuffling multiple jobs to rake in 60 hrs of work every week.  But thats a life that I and most people in my circle have followed and they are happy with that.

And we have assumed an appt -=> minimum maintainance, eating out every day no cooking cleaning.

Now a couple, ie 2 married people with the profile above would make $90K/yr!!!

More than enough to save a for a few years and buy a home create savings and then switch to a

more part-time life to allow them to grow a family.

....

ok ... need to go to my job now

And before that a link to employers like chipottle that build their org from  their "minimally educated " minimum wage folks 

(I think that enterprise rent a car is similar too)

allowing individuals that start as $9/hr crew member to grow into 6-figure salaries.

When do we really want marketplaces

I had a realization this morning.
Marketplaces only make sense when humans (the customer) really need/want the variety.
Examples of cases where we want variety
 - when we are looking for someone to date
 - when we are looking for book to read
 - when we looking for a fun thing to buy
 - when we are looking to hire our next great engineer in our team
 - when we are looking where to go to dine-out.
 - when we are looking for where to go for our vacation

These are cases where we want to experience the variety, and we believe that we have a rather unique (as opposed to commoditized) need that we want to personally spend time looking and choosing for.
Now what are examples of cases where we don't want marketplaces
 - Need to find a driver to take me somewhere
 - Need to fix sth broken in the house
 - Need to eat
 - Need to make reservations for my  business trip
 - Need to hire 5 more agents to make our support team 24x7
 - Need to buy my sons textbooks
All these are examples where I would be happier not spend any time in the selection process and someone else would do it for me. well, healthy,cheaply fast.
I go to in n out or panda express for lunch - I don't go to anjie list ... hoping that one day some property mgmt like service will fix my broken thing in the house for me, I am really happy when someone else in the company makes the reservations for me and I am upset when I have to spend 1hr in an error prone process every year copying titles from teachers syllabus and pasting them in amzn...

In the definition I use above for "marketplace" the amzn bookstore is a marketplace, it exposes 100s of 100s of "vendors" (the authors) that sell their stories and yelp is a marketoplace (even though no trx happen in it) and uber is not a marketplace for me (even though it runs internally one to allow internally to select the right driver for me)

Related articles I read.. the perils of care.com 

Shouldn't Uber and Lyft be employers of the drivers

I was surpised to find out that UPS pays its drivers about $28/hr + excellent benefits . Looking around in forums to understand the rate, given that it would appear to me that the requirements for a UPS driver aren't very different from a Lyft $15/hr driver (and the lyft has to pay his car out of that...) ... and the only good explanation I found what that UPS is an employer of  300K drivers the drivers have union-ized and the union has significant leverage to negotiate a great package for what appears to me (based on the Lyft comparison) a profession that someone with minimal training (like the uberx/lyft drivers can do). (I may be doing a mistake here : even though lyft driver carries a human (with all the responsibilities that this entails while UPS carries "boxes".... the issue here is that the UPS driver carries 100s or 1000s of boxes... which multiplies the responsibility in the same sense a bus driver should be paid more than a taxi driver and a train driver should be paid more than the bus driver even his role on the train is much simpler than the bus driver..... ).
Anyway my realization here is that Lyft and Uber have a significant challenge in the future to avoid having their drivers be independent contractors as opposed to employees (which could result in the potential union-effects...). The problem here is that uber and lyft want/need to control the experience , ie how the work is performed. They are telling the drivers when to work, where to go, they are training the drivers, they are training drivers to become trainers they are giving them tools ( apps , mustaches for now, maybe more later) the provide insurrance for them... and with each one of these efforts they check more and more of the checkboxes that when checked risk making a relationship be considered employee-one instead of a contractor one...

My view about the unions is that (in todays world and in US) they are not bad and they are not good either just like a company is not good or bad. There is nothing wrong with a group of vendors or customers or contractors or employees group together to create an new entity to create economies of skale, share risk obtain negotiation leverage. What is questionable (p.c. word for wrong) is that most countries/states have laws consider unions as "good" and they protect them. These laws were meant for the time that unions played an essential"good" role as an equalizing force (against all-too-powerfull employers) to fill the gap of then missing or unenforced laws and govermental protection.

Someone (not me :-) ) could make the more militant argument that we need to start thinking of applying anti-monopoly laws to limit the power of unions.
If all the fork-lift operators in a country unite into a union (think company) and goverment requires fork-operator licenses to operate a fork lift then the fork-lift operators inc has a monopoly ... and will most probably abuse it to benefit its members/owners so the goverment has to intervene and "regulate" that union or break it up all together, and if the broken up unions talk among thesmelves to keep rates up , the price fixing laws can be applied.

On collaborative consumption

As I am trying to figure out which sector is ripe to be disrupted i go back and forth in circles around the essence of collaborative consumption (c.c.) ..
I typically use airbnb and lyft as prime examples of companies that leveraged c.c. Airbnb people share their "underutilized" home, in lyft share their under utilized car. Of course other people even throw in taskrabbit or etsy or fiverr (people sharing their under utilized time or skill or hobby etc..).

However,  looking at these example in more detail I don't see c.c. as being the primary lever.
Lets take airbnb for example. I would make the case that their business model is (and will be more and more) supported primarily by independent-unit rentals and even more independent unit rentals that are primarily used for renting out. (This was the evolution of the "rooms to let" industry in the greek islands were locals in the 80s would undercut hotels by renting out rooms with rooms--to-let signs placed practically outside most homes and rooms to let sign holders awaiting the arriving tourists in every port. The problem there was that the majority of the tourists wanted their own bathroom (as opposed to a shared one) so rooms with own bathroom used would get much better prices/utilization - by the 1990s in most islands most locals had expanded their main house with extra units that were custom fit the tourist industry. Soon after that regulation came in allowing this new sector (which became the primary way to stay at an greek island) to exist while paying taxes as well as obeying certain rules.. So for most greeks, airbnb was "first invented in greece"... but forgeting that the point here is that for airbnb the model of enabling people to rent out rooms of their home (or their full home ) when they are out in vacation is very different than the model of someone that lists their vrbo, their a vacation property for rent and also a bit different from someone that creates multiple independent units that are exclusively used for renting. The latter has no c.c. in it - and I would argue that even the second has very little c.c. in it.

The case for lyft is different: If we were to look in classifieds for the last decades we would find tons of people wanted ads that require someone to have own car or bicycle or motorcycle.
Why is this different? Is it the part-time aspect? But part time by itself is the default for most of the youth-employment options today be it safeway and mcdonalds - they can make extra money by leveraging some extra time in evennings, weekends or vacation time...

I would make the case that in all the above cases the primary element is (will be) sth different than c.c.

It is about replacing relatively higher paid self employed/small business owners with a small crew/staff with.. a mega corporation that is able to provide cheaper/better/faster/more reliable local service relying (excluding HQ) on a minimum wage workforce, automation, replicable processes, consolidated vendor relationships and global marketing.
And that is not collaborative consumption. It is what every big (primarily retail) chain does, has been doing for decades be it walmart or starbucks or mcdonalds. The primary cost benefit is not in uber/lyft the avoidance of an exclusive commercial car that stays unused most of the day (this does have a ~$5/hr benefit). It is the fact that we eliminate all the money made by
 - taxi drivers that make $20/hr or more
 - taxi owners that make $30/hr or more owning a taxi and having other people driving it
 - taxi business that own multiple taxis have an operator and do some local yellow page marketing
 - local-towns/cities that make money selling medalions/licenses
Most of the above ecosystem is being replaced with a few global companies + essentially unexperienced minimum-hourly paid workers that via scalable processes and computer-aided operation provide better/cheaper/more reliable service  that the whole ecosystem used to do before. Again this is more like walmart replacing downtown local shops than collaborative consumption.

Airbnb and regulations - one year later

This is a continuation to this post from last November.

So it seems that time has run out for airbnb.

The last couple quarters have shown a swell of cases where cities and various municipalities have actually started issuing citations against airbnb tenants.
Even cases that have been celebrated as wins for Airbnb like Amsterdam and Portland are actually major losses for airbnb.
The problem is that the highest growth most lucrative and representing the biggest market rents are those renting an independent unit - something that gives to the visitors the equivalent of a hotel room or suite. For example in NY  more than 60% of all airbnb rentals in for full appartment units.
Airbnb's 10B valuation has been predicated in its ability to disrupt the hotel industry.

At this point even the most liberal city is staying away from allowing full unit airbnb round the year rentals. I think it is clear that within residential zones at best what may be expected is occassional rent of probably just a room or two.

Even though I am huge proponent of the "sharing/collaborative" economy, I feel a bit vindicated about this. Not because I was predicting that it would happen but because in my view Airbnb, even though it is one of the earliest success stories it is one of the last ones to attempt to find a balance between disrupting and (possibly violating) antiquated laws and regulations while going above and beyond those regulations that make sense - and by doing so have a defensible line.
There are many ways that highway motels regulatory discipline is inadequate - be it cleaning-ness or safety or noise or false advertising of amenities not there. Airbnb could come up with innovative ways to bring these elements of quality (and process and self regulation) in the marketplace similar to the way it practically forced "professional photos" for its listings and did its breakthrough.
Airbnb could have put efforts in tax-collection on behalf of it listers - even though it would imply a 10-20% increase in the cost of its listings and would definitely affect its total volume.
Today lyft and uber (in much less time since launched) have done more than any taxi/medalion licensing union or regulation has done to make sure that all the safety rules are obeyed and they bring better service (in all aspects of quality and safety) than typical taxis do - they are not just cheaper.

If airbnb had done the things I mentioned I believe it would end up having a thiner gross margin,  but it would have a better chance to fight the eventual regulatory battle for its true target big market - for the hearts of the hotel-staying customers. My guess about what happens next is that an increasing # of cities will start enforcing the zoning rules, airbnb would have to add 10% hotel taxes in most remaining listings and the company will need to accept a future that is not valuing it as a $10-20B company but something much less exciting than that.