“From 2000, Microsoft added 18,000 employees as the stock went nowhere for 14 years. In fact headcount barely moved at Cisco, Dell, and Intel, despite big stock crashes. So I think it is the wrong variable. It tells us nothing about value creation, especially for cash-rich companies and companies in monopoly, duopoly, or oligopoly situations. I would track shareholder-based compensation’s (SBC) all-in cost before saying productivity is making a record run. The measure to beat all measures is return on invested capital (ROIC), and ROIC was very high at these software companies. Now that they are becoming capital-intensive hardware companies, ROIC is sure to fall, and this will pressure shares in the long run.” – Michael Burry
E.g., Google Analytics is provided by Google—understand their incentives.
Next:
- 5-2a0.1 There are things that cannot be measured
- 5-2a1 You get what you measure
- 5-2a2 What gets measured gets managed
Related:
- 2-1a0c1d1 Focus on the few variables
- 3-1a4a1 The whole must be evoked in explaining the parts
- 12-1e4 Nothing is objectively and independently good
- In headcount example above, more doesn’t necessarily mean better. It might be quite the opposite. But that—that less can be more—is contingent you have sustainable competitive advantages.develop
- At Nvidia, Burry calculated that roughly half of its profit is eliminated by compensation linked to stock that transferred value to those employees
- 3-1a4b4a Financial cycles ≠ Product cycles
- <> the Portfolio Structure gain ≠ the Plan Structure gain
- 3-1a4b4a Financial cycles ≠ Product cycles
- Return on invested capital—and, more importantly, its trend—is a measure of how much opportunity is left in the company. From Burry’s perspective, he has seen many roll-ups where companies got bigger primarily through buying other companies with debt. This brings ROIC into cold focus. If the return on those purchases ends up being less than the cost of debt, the company fails in a manner akin to WorldCom.
- 6-3a2.1 How you achieve something matters as much as what you achieve
- Warren Buffett: “Return on invested capital depends on sales, cost, and the amount of capital required”
- 13-8a2.1 Money is the present good par excellence
- See also Mark Spitznagel’s application of ROIC in his Austrian Investing II: Siegfrieddevelop
- I thinks the same applies at the level of individuals. Always ask—Where can I make the biggest difference?
- 2-1b2b0a Ask - What’s the correct very-long-term solution; How do I solve this using and committing the minimum amount of time possible; Does this really matter (almost always, no)
- 2-1c3 ‘Win and help win’ always outcompete
- Corporate equivalent of ‘synergy’
- 5-2a Check your growth rate of expectations vs circumstances. The former is hard to measure. But remember - you get what you measure.
- 7-1a2a1 絶対に勝てるところから勝っていく
- 7-1a5a Finding some distribution arbitrage in your time and place is also a great source for growth
- 6-3a2.1 How you achieve something matters as much as what you achieve
“Large Language Models, by putting language first, before the capacity for true reason, can never attain understanding. The original approach to AI was to generate a true capacity for reason first, but it was never realized, and the field pivoted to language first because it was easier. Language is the output of understanding, not the engine of reason” – Michael Burry
Current “parameter trap” of brute-force language processing on “zillions of power-hungry chips” is a bottleneck masquerading as progress
Related:
- 1-2g2s8 The unobserved parts of the wider phenomenon have in no way affected what we observe, yet they are essential to its explanation. Causation doesn’t exhaust explanation.
- 2-1a4c We don’t know how we create knowledge yet, but that doesn’t mean we can’t
- 5-1b1b1a1a Pareto principle (or law of the vital few) - 80% of the effects come from 20% of the causes
- 10-2e8 Reasoning about causes and effects is reasoning about variants of the causes and effects. What would’ve happened. How it could’ve been otherwise.
- 13-5g Do not confuse the effect for the cause—to explain the causality at play, you must explain what must have happened at first and what would have happened in the absence of change
- Judea Pearl
“In times of crisis, markets do more than inform on prices, of course. They also provide valuable information about what is most likely really occurring on the ground, backed by the hard-earned money of market participants. In this way, markets can help separate signal from noise on social media, currently saturated with all manner of psych-ops, disinformation, and outright fabrications.” – Doomberg
11-2.1 (fiat debases signal quality → bullshit gets cheaper) combined with 3-1a4b3 (Sowell on prices as information coordination) and 13-7.1a (prices reveal what words cannot) explains why we should be focused proportionally more on the US and USD narratives given its global reserve currency status.
Related:
- 3-1c1c You must build your own media for yourself
- Prices as information
- 3-1a4b2 Price can only convey so much
- 3-1a4b3 Thomas Sowell - ‘Prices are important not because money is considered paramount but because prices are a fast and effective conveyor of information through a vast society in which fragmented knowledge must be coordinated.‘
- 13-9a0 “The price is the first and most obvious indication of the nature of the alternatives” – Philip Wicksteed
- Fiat money and disinformation:
- Prices as action—and why skin in the game lets you extract signal over noise:
- 13-1a3a2e4 Money is demanded and considered useful because of its already existing money prices—prices bootstrap on prior prices, not narratives
- 13-4d4 Value is subjective: “The fundamental determinants of price are the value scales of all individuals”—prices reveal what people actually value, not
what they say - 13-5b4 Zones of indeterminacy between valuations and in pricing dwindle radically with money—money sharpens signals
- The multiverse-money connection: