Forbes / Wolfe Emerging Tech Blog

Weekly Insider (Dependence, Independence, Outliers & Energy)

noreply@blogger.com (Josh Wolfe) — Thu, 03 Jul 2008 14:00:00 +0000

It’s said that the pen is mightier than the sword (or “S” Words if you’re Sean Connery being mocked on Saturday Night Live), that words can be weapons and that words can make a deeper scar than silence can heal. Yet Mark Twain also said: the right word may be effective but no word was ever as effective as a rightly timed…pause.

And so I pause to share the power of words, put to music, that moved a private group last night to help fight poverty. Eddie Vedder of Pearl Jam led an exclusive 3-hour show put on by the Robin Hood Foundation that raised $3 million in one night. Every single dollar goes directly to benefit the portfolio of deeply-diligenced charities held to the highest standards of accountability—as all the costs are underwritten personally by the prominent board of Robin Hood.

Now as we go into the 4th, I trade my own independence for the dependence of the pen and words of others. First: Daniel Gross captures brilliantly the zeitgeist of the energy bubble. Then a blogger captures the essence of Macolm Gladwell’s forthcoming best-seller er, book. I predict he underestimates the amount of luck in life. And finally we end with words from Bill Kristol on Jefferson and the Declaration of Independence—remember no matter how bad life may seem today, in the fullness of history how incredibly lucky we are.

DANIEL GROSS: “All the talk about the bad oil bubble obscures the potentially good bubble still inflating in the realm of alternative energy. Wind turbine installations more than doubled last year. Ethanol production capacity will nearly double once all the plants under construction are completed. Investors have given SunPower, a solar panel spinoff from Cypress Semiconductor, a market value much larger than that of its former parent.

Such exuberance is characteristic of bubbles that periodically inflate. Some, like the one we’ve had in housing, end in losses and Congressional investigations. Others, like the dot-com boom, leave behind something useful.

During a bubble, investment is spurred by technological progress and new economic assumptions — in this case about the price of oil, climate change and the desire to curb carbon emissions. Government does its part by using subsidies and the tax code to encourage the new industry. Just as in the 19th century the federal government offered land grants to inspire a railroad boom, Congress today is pushing an alternative energy boom by mandating ethanol use and giving generous tax credits for solar and wind-based energy. The investment has already led to more efficient solar panels, wind turbines and storage batteries.

Many of the new alternative energy companies will fail. But that’s when the fun will begin. Think about what happened after the dot-com bust. The commercial infrastructure laid down in the 1990s — fiber-optic cables, servers, payment systems — was put to use by new companies like Google, YouTube and Facebook.

Bubbles also leave behind mental infrastructure. People didn’t stop buying books online or sending e-mail messages when pioneering Internet firms failed. Since concerns about global energy demand, emissions and climate change are likely to survive the oil bubble, the market for alternative energy won’t evaporate.

It’s hard to say what we’ll be left with after this bubble. But a few years from now, as ethanol companies linger in bankruptcy and the stocks of alternative energy firms wallow in the single digits, I’ll pick you up in my plug-in hybrid, which I’ve just recharged using the wind turbine in my driveway, and we can discuss it.

A BLOGGER: “Malcolm Gladwell’s new book is about success and the special characteristics of people who are successful. Speaking of success, Gladwell’s massive book sales appear to follow a simple formula. Step 1: Tell stories about special people with magic powers. Step 2: Explain how the magic powers can make you rich or popular or smart with almost no effort. I like to call it the “superheros and free lunch” strategy — just reach the tipping point or blink and your problems are solved. Gladwell’s first two books were brilliant examples of the appeal of free lunches, each with subtitles about getting something for nothing: “How Little Things Can Make A Big Difference” and “The Power of Thinking Without Thinking”. Outliers is more focused on superheros or “Why Some People Succeed and Some Don’t”. Tip to would-be authors: superheros + free lunches = book sales!!!

WILLIAM KRISTOL: With regret, the 83-year-old Jefferson wrote that his ill health compelled him to decline the invitation to travel to Washington for the celebration of the 50th anniversary of American independence. But then, perhaps knowing this would be his final word, Jefferson sets forth in stirring prose his faith in the universal significance of the Declaration of Independence:

“May it be to the world, what I believe it will be, (to some parts sooner, to others later, but finally to all,) the signal of arousing men to burst the chains, under which monkish ignorance and superstition had persuaded them to bind themselves, and to assume the blessings & security of self-government.”

Jefferson claims his faith is based on the progress of enlightenment. He is confident that “all eyes are opened, or opening, to the rights of man.” Indeed, “The general spread of the light of science has already laid open to every view, the palpable truth, that the mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred, ready to ride them legitimately, by the grace of god.”

Jefferson may have been overly sanguine that the spread of the light of science would necessarily strengthen the cause of human rights. But even the optimistic Jefferson was well aware that the enemies of liberty and equality could regroup and resist — certainly abroad, perhaps even at home.

That’s one reason he trusted that “the annual return of this day” would “forever refresh our recollections of these rights, and an undiminished devotion to them.” Our devotion — and the sacrifices inspired by that devotion — are needed to make effectual the palpable truth of human equality.

The fate of equality, Jefferson makes clear, also depends on those who see further than, and act first on behalf of, their fellow citizens. In the letter, Jefferson pays tribute to his fellow signers — “that host of worthies, who joined with us on that day, in the bold and doubtful election we were to make for our country, between submission or the sword.” He wishes he could meet with the few of that band who still survived “to have enjoyed with them the consolatory fact, that our fellow citizens, after half a century of experience and prosperity, continue to approve the choice we made.”

So the signers of the declaration made the bold and doubtful choice for independence. Their fellow citizens ratified the choice. But they might have been slow to act if the worthies had not moved first.

For, as the declaration itself notes, “all experience hath shown, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed.” The people are conservative. Liberty sometimes requires the bold leadership of a few individuals.

Weekly Insider (Certainty, Gossip & The Big Sort)

noreply@blogger.com (Josh Wolfe) — Fri, 27 Jun 2008 14:00:00 +0000

How exciting! An extra-meaty column to make up for all those terrible Friday’s I’ve traveled. Let’s dive in.

First off: in our monthly premium issue soon to be released to subscribers, I sit down for an exclusive interview with Dr. Patrick Moore. And WOW does he let it rip! Moore is notable for being a founder of Greenpeace; more notable for eschewing it a decade-plus later (after its members traded scientific sanity and environmental ethos for political propaganda)—and most notable for turning from opponent to proponent of nuclear power.

John Maynard Keynes said, “When the facts change, I change my mind. What do you do, sir?” Woe for Havianas—it’s unfortunate that today’s short sound-bites and shorter attention spans throw “flip-flop” as an epithet at people who change their mind. We’re advised it’s better to be wrong with conviction than to harbor any doubt. This only serves to encourage in others a projection of confidence—and reduces my own confidence in their projections.

Dr. Moore was also brilliantly quoted by skeptical magician Penn Jillette on the topic of Global Warming: “It's become so complicated, there's so much snake oil around the whole subject... the best comment that was ever made was by Michael Crichton in his book State of Fear: 'I am certain there is too much certainty in the world'. And I am certain that he is right.”

Consider this. Technology has made it easier than ever to access every imaginable viewpoint—especially the ones that differ from yours. Oh the diversity! But wait! It’s also made it easier than ever to never encounter an opinion—especially the ones that differ from yours. Scott Stossel of the New York Times reviewed Bill Bishop’s book, “The Big Sort”. Here’s what he said, “The three-network era of mass media, which helped create a national hearth of shared references and values, is long gone, displaced by a new media landscape that has splintered us into thousands of insular tribes. We can no longer even agree on what used to be called facts: Conservatives watch Fox; liberals watch MSNBC. Blogs and RSS feeds now make it easy to produce and inhabit a cultural universe tailored to fit your social values, your musical preferences, your view on every single political issue. We’re bowling alone—or at least only with people who resemble us, and agree with us, in nearly every conceivable way. This separation into solipsistic blocs would perhaps not be so complete if people of different political views or cultural values at least lived within hailing distance, and encountered one another on the street or in the store from time to time. But, increasingly, they don’t. Over the last decade, as 100 million Americans have moved from one place to another, they’ve clustered in increasingly homogeneous communities….Congress is split right down the middle, or nearly so; the last two presidential elections have been achingly close; half the nation, almost by definition, must disagree with you politically—and yet you have probably met very few of your antagonists…. ‘“Mixed company moderates; like-minded company polarizes. Heterogeneous communities restrain group excesses; homogeneous communities march toward the extremes.’ “

Here’s the thing: When you get diversity breakdowns in markets, you get bubbles and crashes. When you get diversity breakdowns in societies, it’s ideologically similar. As Scott Page has shown, diversity (markets, ideas, ecologies) is a key to stability and growth.

Here’s what Warren Buffett’s partner Charlie Munger said in a speech last year, “When you’re young it’s easy to drift into loyalties and when you announce that you’re a loyal member and you start shouting the orthodox ideology out, what you’re doing is pounding it in, pounding it in, and you’re gradually ruining your mind. So you want to be very, very careful of this ideology. It’s a big danger. In my mind, I have a little example I use whenever I think about ideology. The example is these Scandinavia canoeists who succeeded in taming all the rapids of Scandinavia and they thought they would tackle the whirlpools of the Aron Rapids here in the United States. The death rate was 100%. A big whirlpool is not something you want to go into, and I think the same is true about a really deep ideology. I have what I call an iron prescription that helps me keep sane when I naturally drift toward preferring one ideology over another and that is: I say that I’m not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people who support it. I think only when I’ve reached that state am I qualified to speak. This business of not drifting into extreme ideology is a very, very important thing in life.”

And here’s a reprint of what I wrote over four years ago in this Forbes column:

“We gush over gossip (whether of the local water-cooler or celebrity trade rag kinds): it's got a special place in our hearts. Harvard's evolutionary psych guru, Steve Pinker, said it best: "Gossip is a favorite pastime in all human societies because knowledge is power. Knowing who needs a favor and who is in a position to offer one, who is trustworthy and who is a liar, who is available and who is under the protection of a jealous spouse—all give obvious strategic advantages in the games of life. That is especially true when the information is not yet widely known and one can be the first to exploit an opportunity, the social equivalent of insider trading."

Forget Marx. Media is the opiate of the masses. In part, because we all want to keep up. We’re afraid of what we’ll miss if we tune out.

UBS’s Tech Strategist Pip Coburn shared an interesting point. Most people, especially the throngs on Wall Street, thirst for new things. And if a sector doesn’t develop immediately, they’re on to the next—never mind that the tipping point for the technology or market hasn’t hit yet.

In the market, there’s evidence of more and more firm-specific volatility, but one has to wonder if it’s because technology is changing at a faster and faster rate (it is) or is because investors have shorter and shorter attention spans (they do).

Like Buffett said, “companies get the shareholders they deserve”. Conversely, shareholders get the companies they deserve. Impatient, restless investors will leap like lemmings from fad to fad. In the long run, their thighs might be stronger, but the pockets will be emptier. As has been said, the only safe way to double your money is to fold it over once and put it in your pocket.

If you pay even remote attention to the media (and escapist attempts require a serious expenditure of energy)—the latest rages are “podcasting” and personalized media. The former is really a subset of the latter. (Someone asked me to start a nanotech podcast of this weekly letter. But my prediction on the fate of podcasting is this: hundreds of thousands of people will post audio files for the world to hear. Like a power law, a few voices (“podcasts”)--that wouldn’t have left their full-time jobs for radio or would’ve otherwise never been heard—will percolate to the top with very large audiences, benefit from positive feedback effects and early lock-in of listener loyalty and bite into the Satellite radio players. Simultaneously a few very rare casts, like “cooking hour for lactose intolerant dog-lovers” will find a loyal very, very small niche audience.

I’ m wrestling with the controversial idea that perhaps all this personalization has a downside. 10 years ago, MIT’s Nicholas Negroponte theorized a newspaper that pulled together all the things you’re interested in and delivered it --“The Daily Me.”

It’s here now and it’s not just to news via up-to-the-minute blogs or news-feeds. You’ve got Tivo for your shows, iPod for music you desire, Netflix for movies you want, and Sirius (or XM) for the radio you want. Empowering? Sure. But the downside seems to be isolation. All those music listeners walking about NYC with dangling white headphones are independent tribes of one, perhaps literally in an “I”-“Pod”.

People who follow nanotechnology closely recognize that the most dramatic changes will come at the boundaries (as all change does—whether in population ecologies, nation-states or on-campus quads). The biologist that bucks the border of his discipline is more likely to stumble upon a breakthrough than his colleague who keeps caged.

But it requires pressing up against the boundaries, not creating a bubble around one’s self. Perhaps the irony is this: many of our new technologies with rapid adoption rates from network effects actually making it easier to opt-out and isolate in personalized cocoons.

I for one, like listening to the radio or watching live TV, knowing there’s a network of people listening or watching to the same thing I am, having the same or opposite emotional response that I am at the same time. Sometimes popular TV shows aren’t necessarily popular because they are good. Sometimes they’re popular because they’re popular. (Just as people can be famous for being famous).

My last media quip for this week: the blockbuster movie business has morphed into a late 90s investment bank, churning out low quality offerings and relying on pre-marketing to pack them in and make their money. Contrast Oscar-nominated Sideways with blockbuster-bomb Elektra. Sideways opened on about 350 screens and took 10 weeks to gross about $25 million. Elektra opened on 10x as many screens and grossed $25 million in 1/10th of the time. The logic for the studios has become simple: spend big on advertising then pack people in, before they find out it sucks. Many investment banks used the same strategy.

Here’s my friendly reminder to disconnect tonight. Take the weekend and if you have spare time, maybe use it to read. As my childhood friends twisted the old library slogan to make fun of me, “reading is fun-for-mentals”. Or as Voltaire said, “You despise books; you whose lives are absorbed in the vanities of ambition, the pursuit of pleasure or indolence; but remember that all the known world, excepting only savage nations, is governed by books.”

Weekly Insider (Laughter, Smokers & Dam Breakers)

noreply@blogger.com (Josh Wolfe) — Fri, 20 Jun 2008 14:00:00 +0000

Regular readers of these weekly words know my penchant for mental models drawn liberally from diverse disciplines.

Competitive edge comes from two sources: you’re either undeniably better than others at some thing or you’re undeniably skilled at combining lots of things others excel at. Like Isaiah Berlin or Phil Tetlock have noted: it’s Hedgehogs or Foxes. Willful practice or worldy-wisdom—and it’s often a combination of the two.

Combinations explain much: including (at least partially) laughter. It’s called “incongruity theory”: take two things that normally aren’t thought of together, mix them in a surprising way and voila: humor. It could be a dangerous threat that proves benign (like when your friend trips and falls but gets up safely or when your friend jumps startled at an air horn you sounded behind him). Author Jim Holt quoted Immanuel Kant as describing as “the sudden transformation of a strained expectation into nothing.”

Imagine yourself an alien witnessing an earthling human laughing for the first time: chest heaving, odd syncopated sounds and grunted breaths. Objectively viewed, laughing is actually pretty bizarre biologically. The closer you study human behavior the more you realize what curious creatures we are.

Consider an extreme case of mistaken cause and effect. We are pattern seeking animals, but consider the recently reported boy with an obsessive compulsive condition who thought himself responsible for the attacks on 9/11. Turns out the boy had a daily ritual including walking on a specific white mark on the road. When he broke habit one time, he ended up believing the disaster was the resulting consequence and his fault.

Other times, we think we know the effect we want and we think we know how to cause it. Instead all we get is unintended consequences. In a soon to be published book on risk and the science of fear, it was found that 1,595 road deaths were from people who refused to fly and chose to drive out of fear of flying after 9/11. This is more than 6x the number of people on board the 9/11 airplanes and about half of the total fatalities.

In a different example from a recent study: banning smoking resulted in drunk-driving deaths. Huh? Here’s how. Researchers found that the 120 countries with smoking bans in bars have higher drunk-driving and deadly car crashes due to alcohol--than the 2,000 countries that don’t—by over 13%. Why? One reason is that smokers drive farther to find a place they can go to drink and smoke. Sure enough accident rates were highest when residents jumped across borders to get to bars where they could smoke.

Consider another study where bees, rats and humans all responded the same way to risk and reward—an evolved and innate sense of odds—depending on whether the payoff is known. The “certainty effect” arises when animals are repeatedly faced with choice of getting a big reward infrequently or a small but more certain reward infrequently. Most choose the latter even though it can be less profitable over time. Then there’s the “reverse certainty effect” where animals don’t know the payoffs (they don’t know the underlying distribution) and they go for the bigger pay-off (swing for the fences) even though it’s far less probable. When we don’t know: we go for the bigger less certain prize. When we do: we opt for the smaller more certain prize.

As George Bernard Shaw noted, it is the unreasonable man upon which all progress depends. Sounds like a certain class of people I utterly love: entrepreneurs. Here I quote Eric Beinhocker on Joseph Schumpeter: “…for growth to occur there must be ‘a source of energy within the economic system which would of itself disrupt any equilibrium that might be attained’. For Schumpeter, that source of energy was the figure of the entrepreneur, whom he wrote about in almost heroic terms…technological progress occurred in a random stream of discoveries. The commercialization of new technologies, however, faced numerous barriers, ranging from the need for financing to the intransigence of old habits and mind-sets. Thus, like water behind a dam, the random rain of discoveries built up over time. In Schumpeter’s theory, entrepreneurs played the role of dam breakers, unleashing a flood of innovation into the marketplace. In this way, growth comes to the economy not in a steady stream, but as Schumpeter famously put it, in ‘gales of creative destruction’. The origin of wealth—lies in the heroic efforts of individual entrepreneurs. Wealth creation occurs when people like Henry Ford, Thomas Alva Edison, Steve Jobs battle the odds to turn the technologies of their time into successful commercial enterprises.” Well said.

Now to put some numbers behind all this, consider that just two years ago, tech transfer offices filed 16,000 new patent applications, licensees launched 697 products and spun out 553 companies.

Weekly Insider (Introducing EverSpin)

noreply@blogger.com (Josh Wolfe) — Fri, 13 Jun 2008 14:00:00 +0000

As has been said, the future is here it’s just unevenly distributed. I couldn’t be more excited to distribute a bit of the future to you: a historic deal around a cutting-edge memory technology and one of the crown jewels of one of the largest semiconductor companies in the world. Freescale Semiconductor was taken private by Blackstone, Carlyle and Texas Pacific Group. Now, my Lux Capital partners Peter Hebert and Herb Goronkin, (himself former head of Motorola Physical Labs) just led a $20 million spinout from Freescale Semiconductor of an exciting new company called EverSpin. Our partner investors included New Venture Partners (Stephen Socolof and David Tennenhouse; ex-Director of Research at Intel), the brilliant Steve Jurvetson of Draper Fisher Jurvetson, as well as Sigma Partners and Epic Ventures. Here’s the breaking news from the New York Times:

Chip Maker to Announce It Will Spin Off Memory Unit (By MICHAEL J. de la MERCED)

Freescale Semiconductor, the chip manufacturer taken private in 2006, is expected to announce Monday that it will join with several venture capital firms to spin off a unit that focuses on a newer kind of computer memory.

The new entity, EverSpin Technologies, comes as Freescale seeks to pare its product line.

Freescale will give its portfolio of a memory technology called MRAM to EverSpin and hold a stake in the new company, the companies involved said. A group of outside firms, including New Venture Partners, Sigma Partners, Lux Capital, Draper Fisher Jurvetson and Epic Ventures, will invest a total of about $20 million, they said.

MRAM, which stands for magnetoresistive random access memory and has been in development since the 1990s, is intended to improve on current memory technology because it uses less power than conventional designs and is considered more stable. But it is not widely used yet.

“MRAM technology is one of our crown jewel technologies,” Lisa T. Su, Freescale’s chief technology officer, said.

Plans for the spinoff began about six months ago, as Freescale began talking with Lux Capital about a way to commercialize its MRAM technology. Memory technology is not Freescale’s core business, Ms. Su said, and while the company had not considered selling the MRAM unit outright, it and Lux had hit upon the spinoff as a possible solution.

But it also comes amid a tougher time for the chip maker, which was acquired for $17.6 billion in 2006 by a consortium of private equity firms. Since then, demand for its products from Motorola, its onetime parent company, and from automakers has fallen, and it is coping with the debt added after its leveraged buyout.

Ms. Su said the new venture was not linked to financial troubles at Freescale: “We’re not doing this for financial reasons, not for cash or anything like that.”

Stephen Socolof, a managing partner of New Venture, said his firm and others in the investor group would join in the manufacturing of MRAM and develop other uses for the technology.

Weekly Insider (Developing Rackets & Evolving Kudos)

noreply@blogger.com (Josh Wolfe) — Fri, 06 Jun 2008 14:00:00 +0000

This week there are many kudos and congratulations to go around to friends of Lux. Last week, I quoted Lux Capital friend Bob Metcalfe, inventor of Ethernet, founder of networking giant 3Com and partner at Polaris Ventures. You can hear Bob speak at our annual Lux Executive Summit in October off Harvard Square (other speakers include famed inventor Dean Kamen and Sen. John Kerry). Here’s what Bob said, "I call it the global warming bubble. What bubbles do is they're an accelerator in technological investments to be made; they cause the status quo to be questioned. The trick of course...is to have a chair when the music stops."

Speaking of networking, scientist Albert-Lazio Barabasi published a paper this week (conducted in another country as such research would be illegal in the U.S.) that tracked 100,000 cell phone users’ behaviors. Over a six month period, they found that 50% of the people stayed within a 6-mile radius, 75% stayed within 20 miles of home and 83% stayed within 37 miles. The researchers noted: "individuals display significant regularity because they return to a few highly frequented locations, such as home or work.”

Yep, we are creatures of habit. But the really interesting implication is for using these patterns to predict and react to the spread of disease and epidemics.

Speaking of epidemics (and contagious success)—congrats this week go to Lux Venture Partner David Sinclair, PhD. As most know, David had a successful IPO and then sold his company Sirtris last month for nearly $750 million to Glaxo. David’s new startup Genocea, this week announced a major partnership with PATH and Children’s Hospital. As my Lux partner and Genocea co-founder Rob Paull said, “Genocea believes it’s important to address both the needs of the developed world and geographies where poverty, socio-economic challenges, and disease prevalence require public/private partnerships to bring innovative approaches to help those most in need."

Like Bob Metcalfe’s quote above, I’ve also spilled a lot of ink on the foolhardy behavior in chasing moonshine and sunbeams (ethanol and solar). As Eric Hoffer said, “Every great cause beings as a movement, becomes a business and eventually degenerates into a racket.” Or as 18th century French philosopher Voltaire said, “It is dangerous to be right in matters on which the established authorities are wrong”.

But here’s something on which the established authorities are clearly right about. Big congrats go to the team at the NanoBusiness Alliance, a group I co-founded nearly seven years ago. Executive Chairman Sean Murdock worked tirelessly and today he commended the House of Representatives for passing the National Nanotechnology Initiative Amendments Act of 2008. The bill reauthorizes and updates the successful federal interagency nanotechnology R&D program and it passed by an overwhelming bipartisan margin. "We are pleased that Congress continues to recognize the importance of nanotechnology," said Murdock. "It is imperative that the U.S. maintain its lead in the global nanotechnology race, and this bill will help make that happen." The bill updates the National Nanotechnology Initiative, first authorized in 2003, and adds new provisions in several key areas: addressing environmental, health, and safety (EHS) issues associated with nanotechnology; improving nanotechnology education; ensuring that new technology moves from the laboratory to the marketplace; focusing research efforts in areas of national importance such as electronics, energy efficiency, health care, and water remediation; and research into nanomanufacturing.

Monthly subscribers will find out which companies will be big beneficiaries and who stands to lose.

Weekly Insider (Victory Pose & Energy Storage)

noreply@blogger.com (Josh Wolfe) — Fri, 30 May 2008 14:00:00 +0000

My ever curious and thoughtful Lux Capital partner Adam Kalish posed a great question: Yankee games, political rallies. Why do nearly all fans (sports or other) exhibit the physical display of arms thrust up in the air in victory pose? Across cultures, rhyming (stanzas) stances of clenched fists arms extended upright in victory stance.

An explanation from evolutionary psychology explanation is that it may be a display of flaunting victory/power/dominance. In other animals: pigeons puff up against other pigeons, lions and horses on all fours rear back on their hind two legs to make themselves bigger. Monkeys and gorillas that walk on all fours will display dominance by standing up-right, raising their hands wave their arms, beating their chest. Since we're primates, like monkeys, it's a predisposed behavior. Alpha men that displayed dominance and power by thrusting their arms upward, displaying their muscles, puffing their chest and even inviting attack to the vulnerable body-center. Why? Because they were confident they were dominant. These men that scared off others survived, passing the behavior on. Men that didn't successfully scare off attackers with displays of dominance invited more attacks more often and died. This explains why the behavior of the victory pose might have been adaptive and selected for.

Speaking of selections—here’s a selection from a just released Lux Research report on the $41 billion energy storage market. Subscribers will get a valuable inside look. Here’s a sneak peak:

From the mobile phones carried by 3.3 billion people to the half a million hybrid electric vehicles sold last year, the world runs on energy storage technologies - the batteries, capacitors, and other devices that play a hidden, vital role in the energy economy. Energy storage is poised as the next big energy investment field: Venture capital in the field grew 74% to $709 million in 2007. But a complex market with many competing technologies will challenge firms that seek simple routes to success, according to a new report from Lux Research entitled "Alternative Power and Energy Storage State of the Market Q2 2008: Making Sense of the Next Big Thing."

"Energy storage is fragmented because it covers a vast range of technologies - from batteries to flywheels to compressed air systems - that play into multiple market segments," said Ying Wu, Senior Analyst at Lux Research and principal author of the report. "But the prize for companies that succeed is tremendous: The market will grow by 55% over the next five years."

To make sense of the energy storage opportunity, Lux Research studied the field from two perspectives - analyzing seven energy storage markets, like "transportation" and "consumer electronics," on one hand, and five technology variations - from batteries to energy harvesting devices - on the other. The team's methodology combined expert interviews with exhaustive secondary research and rigorous quantitative modeling. Report highlights include:

-- The transportation energy storage market will grow from $12.9 billion last year to $19.9 billion in 2012, the greatest growth of all seven markets studied - principally driven by light electric vehicle shipments rising from about 500,000 to nearly three million as new plug-in hybrid and pure electric vehicles emerge. NiMH and Li-ion batteries will take center stage in this market, benefiting companies like Matsushita Electric and LG Chem.

-- Fuel cells will return from the dead. Commercial sales will rise from $92 million in 2007 to $1.8 billion in 2012, driven almost entirely by new applications in residential combined heat and power systems and distributed generation deployments - not transportation or consumer electronics. Adoption of both polymer electrolyte membrane fuel cells (PEMFCs) and solid oxide fuel cells (SOFCs) will drive growth for leaders like Ballard Power Systems and Ceramic Fuel Cells.

-- Bulk energy storage for utilities - shifting large amounts of energy from excess production times to peak usage times - presents the biggest potential opportunity of all markets studied: If even 10% of installed wind power plants adopted large-scale energy storage, the market would hit $50 billion. However, utility companies' risk aversion and long planning cycles will sharply limit market size through 2012 to only $600 million.

-- After conquering the consumer electronics market, lithium-ion batteries will make similar inroads in the portable and transportation markets - going from $6.8 billion in 2007 sales to $16.9 billion in 2012. Nickel metal hydride and nickel cadmium technologies will be almost completely wiped out in consumer electronics.

-- Financing activities have swelled in energy storage: 2007 saw the greatest level of venture capital spending to date and a resurgence of IPOs. Expected IPOs from companies like A123Systems will drive venture capital, M&A, and IPO activity further upward in the next two years.

"The energy storage landscape will change over the next five years as new technologies enter in earnest from 2011 onward," said Wu. "Flywheels will branch out from datacenter backup power to grid frequency regulation; fuel cells will finally achieve scale in stationary applications; and new battery types including zinc-bromide and vanadium redox flow batteries, silver-zinc batteries, and zinc-air rechargeables will stake out valuable niches. Opportunities abound for investors to take a portfolio approach to the market and for corporations to partner with start-ups for market development, system integration, and large-scale manufacturing."

"Alternative Power and Energy Storage State of the Market Q2 2008: Making Sense of the Next Big Thing" is part of the LR Alternative Power and Energy Storage Intelligence service. Clients receive: 1) State of the Market reports every six months; 2) ongoing technology scouting reports and proprietary data points in the weekly Lux Research Power Journal; and 3) on-demand inquiry with Lux Research analysts. For information on how to become a client, contact John Schwartz at john.schwartz@luxresearchinc.com or (646) 649-9582.

Weekly Insider: (Power, Politics, Energy & Editorials)

noreply@blogger.com (Josh Wolfe) — Fri, 23 May 2008 14:00:00 +0000

As we head into Memorial Day, I’m choosing to share a few selections from a flurry of fascinating media this week. The topics: power, politics, energy and editorials.

First, in a recent article, science writer Ivan Amato covered science comedian Brian Malow. Some nerd jokes: “a superconductor goes into and some helium gas drifts into a bar. The bartender says: ‘we don’t serve noble gases here’. The helium doesn't react. And the superconductor leaves the bar, putting up no resistance.” Bahdumpbum. Marlow is also quoted on his love life saying, “I find myself drawn to her, with a force that is inversely proportional to the square of the distance between us” and “Women have passed through my life like exotic particles through a cloud chamber, leaving only vapor trails for me to study clues to their nature.”

Next, in what I thought was a terrible joke, but proved true—(see YouTube as I can’t convey in words that which will pass your spam filter)—former chess champ Gary Kasparov became a ‘pawn star’. While giving a speech last week in Moscow, let’s just say the substance of his speech was trumped by a memorable interruption. As Marshall McLuhan said, the medium is the message—and the message was a brilliant move from his opponents (Putin & Co) who trivialized any possibly newsworthy remarks in Kasparov’s content and made certain the headlines were instead remarkable and absurd. Quite clever.

Thirdly, the WSJ attacks on Vinod Khosla have sparked a noteworthy debate. They mocked his advocacy of ethanol and biofuels and new technologies to produce them. Khosla took the defensive arguing that cellulosic or other advanced biofuels are the way to go, that UN officials are misinformed and that drought, not biofuel, is to blame for high food prices and resulting food riots. It’s sure to get heated as the worthwhile debate unfolds.

And finally also in the WSJ was Bjorn Lomberg’s op-ed. Consider what I wrote over seven months ago: “Histrionics and the awarding of (now two) shiny trophies have shown how media and emotion can galvanize a nation and a globe—yet my cynicism and my reason contend we’re rallying ‘round miscalculated priorities. For straight talk and the Gore-y details, seek out Bjorn Lomborg and his Copenhagen Consensus. But alas reason is so seductive and I’m a hopeless romantic to think we might stop and think. One activist group is calling for 70% reduction in carbon emissions. Am I so cold and callous to stack rank the probabilities, costs and expected outcomes and prefer a 70% reduction in cancer, heart disease, malaria, Alzheimer’s, traffic deaths, suicides, HIV/AIDS?”

Now before we get to Lomborg’s WSJ op-ed, consider this: If you had $1 would you prefer over the next year getting a 25x return or 90 cents on your invested dollar. The answer is clear, but faced with different situations we fall victim to pernicious mental accounting. We silo our situations. Further consider: you might go shopping in a store when a flat screen TV is on sale and the price is lower. Most people buy when things get cheaper. But in the stock market, a different situation silo, most people sell when things get cheaper! Why? You panic. You look at others. When you don't know what to do, you assume they do. As Abigail Adams recounted (roughly) to John Adams, “When men know not what to do, they ought not to do what they know-not.”

So, here’s the point: why should we silo our use of reasoned judgment when it comes to public policy? The government is your ultimate limited partner, spending its cut of your money on your behalf. Shouldn’t reason prevail?

Lomborg’s op-ed, “How to Think About the World’s Problems” notes: “The pain caused by the global food crisis has led many people to belatedly realize that we have prioritized growing crops to feed cars instead of people. That is only a small part of the real problem. This crisis demonstrates what happens when we focus doggedly on one specific – and inefficient – solution to one particular global challenge. A reduction in carbon emissions has become an end in itself. The fortune spent on this exercise could achieve an astounding amount of good in areas that we hear a lot less about.”

He goes on suggesting better more rational prioritization: “…$60 million spent on providing Vitamin A capsules and therapeutic Zinc supplements for under-2-year-olds would reach 80% of the infants in Sub-Saharan Africa and South Asia, with annual economic benefits (from lower mortality and improved health) of more than $1 billion. …doing $17 worth of good for each dollar spent. Spending $1 billion on tuberculosis would avert an astonishing one million deaths, with annual benefits adding up to $30 billion. This gives $30 back on the dollar.

Lomborg shows that heart disease accounts for over 25% of the death toll in poor countries, while the developed world treats heart attacks with cheap drugs. His prescription: spend $200 million getting cheap drugs to poor countries to prevent 300,000 deaths. $1 yields $25 worth of good.

Lomborg lambasts “Operation Enduring Freedom, which Copenhagen Consensus research found in the two years after 2001 returned 9 cents for each dollar spent. Or with the 90 cents Copenhagen Consensus research shows is returned for every $1 spent on carbon mitigation policies.…Acknowledging that some investments shouldn't be our top priority isn't the same as saying that the challenges don't exist. It simply means working out how to do the most good with our limited resources.”

Amen.

Weekly Insider: (New Findings & Curious Dogs Revisited)

noreply@blogger.com (Josh Wolfe) — Fri, 16 May 2008 14:00:00 +0000

A flood of stuff for you this week: This week’s longer column has two parts. First an exciting announcement: famed inventor Dean Kamen, famed entrepreneur and venture capitalist Bob Metcalfe and U.S. Senator John Kerry are amongst the lineup for this year’s Lux Executive Summit in October. Stay tuned! Second, I share an exclusive look at the new intensive findings from Lux Research on where the smart money (or dumb money) is putting theirs, with an exclusive inside look at the findings. Then third, an older column, I wrote one year ago on the eve of getting married and now our first anniversary. Time flies!

Here it is: Venture capital (VC) firms invested $702 million in nanotechnology start-ups last year across 61 deals, slightly down from $738 million across 73 deals in 2006. But this VC spending is sharply out of sync with investment returns. Although application-oriented life-sciences companies have delivered the majority of VC returns in nanotech, VC firms consistently devote most of their funding to companies in other areas, according to a new report from Lux Research entitled "How Venture Capitalists Are Misplaying Nanotech."

"Historical trends in nanotech exit returns are out of sync with VC spending," said Jacob Grose, Analyst at Lux Research and lead author of the report. "While alternative energy is hot right now, healthcare and life sciences companies have accounted for a staggering $1.68 billion of the $2.57 billion total valuation of nanotech start-ups at IPO. Correspondingly, revenue multiples at IPO have been an order of magnitude higher for the healthcare segment (206.2x on average) than in the four other segments we track, yet last year more nanotech VC deals closed in manufacturing and materials (16) than in healthcare and life sciences (15)."

To uncover the latest trends in nanotech VC, Lux Research took a snapshot of its ongoing, comprehensive database of the field, which contains every round of institutional VC funding in companies that are commercializing nanoscale structures with size-dependent properties. The report concludes that:

VC spending remains highly concentrated. The top 5% of venture-backed nanotech start-ups as measured by cumulative capital invested have received $1.24 billion since 1991, equal to 32% of cumulative VC funding through 2007. The top three: 1) optical equipment manufacturer, NeoPhotonics, at $205 million, 2) lithium-ion battery producer, A123Systems, at $133.8 million, and 3) drug developer, Acusphere, at $104.1 million.

In 2007, the energy and environment segment attracted the most nanotech venture capital, with 17 deals (up from 13 in 2006) worth a total of $227.2 million. Notable firms receiving funding included aforementioned battery specialist, A123Systems, with $70 million in two rounds, nanocrystalline solar ink developer, Innovalight, with a $28 million Series C, and organic photovoltaic developer, Konarka, with a $45 million Series F.

U.S. domination became even more pronounced in 2007, accounting for 90% of total VC activity by value. The tiny state of New Hampshire alone accounted for more funding in 2007 ($76.5 million in two companies, Finetex Technology and Nanocomp Technologies) than all countries outside the U.S. combined ($70 million).

Many nanotech start-ups are showing their age. While VC firms have told Lux that they expect their nanotech VC deals to deliver returns in six years (longer than they expect in other investment domains), of the 66 nanotech start-ups which received their first institutional VC funding in 2001 or earlier, 58% continue to operate - implying that most nanotech start-ups are taking longer to exit than VCs had expected.

"Nanotech start-ups with technologies that are tailored to target one or two specific applications tend to be much more successful than companies who develop a broad technology platform with no clear purpose. However, the latter platform technology companies still generate valuable intellectual property," noted Jurron Bradley, Senior Analyst and head of Lux Research's nanomaterials practice. "Large corporations should roll up materials and platform technology companies that have already had their R&D and pilot-stage manufacturing paid for by VC firms, buying into hard-built technologies on the cheap."

"How Venture Capitalists Are Misplaying Nanotech" is part of the LR Nanomaterials Intelligence service. Clients receive: 1) State of the Market reports every six months; 2) ongoing technology scouting reports and proprietary data points in the weekly Lux Research Nanomaterials Journal; and 3) on-demand inquiry with Lux Research analysts. For information on how to become a client, contact John Schwartz at john.schwartz@luxresearchinc.com or (646) 649-9582.

Now, my column from last year:

Like the periodic table, the lessons of Sherlock Holmes are “elementary”, my dear reader.

In one story Holmes asked Watson, “Do you recall a conversation with Inspector Gregory during our celebrated search for Silver Blaze? I drew his attention then to the curious incident of the dog in the night-time. 'The dog did nothing in the night-time,' the Inspector responded. That, I told him, was the curious incident.” We’ll return to Holmes in a few moments and I’ll tell you about what I call the ‘curious incident of the dog in the blur.’

So, I done got hitched. Before our wedding I was tasked by my wife to do something my cynical nature is particularly well suited for: to imagine all the abstract low-probability things that might happen that could wreck havoc on our wedding. Torrential downpours, grandparents passing, groomsmen with lost clothing, passport mishaps, pest infestation, guest with a persistent and disruptive cough during our exchange of vows, muddied wedding dress.

Predicting a circumstance can sometimes help prevent its occurrence--if it’s controllable. And most dramatic changes in life, markets and science often occur from circumstances that couldn’t be predicted. And even if they could be predicted, they might not be controllable (earthquakes, torrential downpours). But that doesn’t stop the circumstances’ actors, 24-hour cable pundits or policy makers from explaining pretty much everything away. This is natural, part of our biology. We seek causation. We seek confirming evidence.

I’ve learned there are three words we don’t say enough and you almost surely never hear from newscasters, CEOs or most institutional investors. As Stevie Wonder sang, “These three words/ Sweet and simple/ These three words/ Short and kind/These three words/ Always kindles”.

No, not “I Love You”…but “I Don’t Know”

As Nassim Taleb has said, “We favor the visible, the embedded, the personal, the narrated, the tangible. We scorn the abstract.”

But it is the abstract that gets us. As I’ve written before and as Bill Miller of Legg Mason tells his analysts, 100% of the information we have (data and all the patterns we see in it) comes from the past. But 100% of the value of any decision (around an investment or life choice) comes from the future. And even the best scenario analyses can miss the very low-probability, low-frequency, high-impact events.

Here’s what I wrote quoting Taleb in this column nearly three years ago: "I have just completed a thorough statistical examination of the life of President Bush. For 55 years, close to 16,000 observations, he did not die once. I can hence pronounce him as immortal, with a high degree of statistical significance."

When we assume models are linear when they're not, we also increase the odds that we will pick the wrong model from which to make predictions. And as Keynes said, “It is better to be roughly right than precisely wrong”.

This cognitive bias and kind of reasoning made sense in our primitive ancestral past. If you don’t see a lion or an elephant, you’re pretty safe. But in our modern non-primitive environment, there are far more random, unpredictable low-probability events.

The point Taleb was making was our inability to deal with probabilities accurately and our tendency to reason inductively and incorrectly while presuming the future will continue linearly as the past (side note: this was something Ray Kurzweil drilled upon at MIT yesterday as he illustrated in example after example how technology improves at exponential—not linear--rates). People are horrible with probability and horrible with predicting risk. We just didn't evolve to weigh all the factors involved. Why? The logic is simple. In our ancestral environments, the people that acted quickly on emotions, ran away and survived. The people that sat around and over-analyzed situations got eaten by tigers. We don't have to run from tigers today, but our brains haven't changed much
since then.

And many people get confused over the difference between risk and uncertainty. Risk is when there's a *known* but *undesired* outcome. Uncertainty is having no clue and getting struck completely by surprise. Uncertainty is not knowing the underlying distribution. And as many find out the hard way, markets and much of life are uncertain.

This is when you're most vulnerable. These very, very low probability but high magnitude events. September 11th was such an event, so were the major historic stock crashes and bursting of tech bubbles. We call these: "Black Swans." Why
black swans? It comes from a philosophical thought experiment demonstrating the problem we have with inductive reasoning by asking this simple question: "How many white swans do you need to see to conclude that all swans are white?" The answer is infinite.

Because all you need to observe is just one black swan and the prior conclusion is false. Or try this admittedly silly thought experiment. Pretend you're a turkey born on January 1st, 2005. For the next 11 months, up through Thanksgiving, life is good. Actually, life is great. You (the turkey) wake up, get fed and walk around all day. Just in time to go to sleep and do it all over again the next day. And with each new day you become conditioned to assume that the next day will be just like the one before it. And this logic works all the way up till Thanksgiving. When suddenly--boom! Off with your head! The irony is that the closer the turkey is to death, the more confident it becomes. And so it is with many investors. We're not good at preparing for these low probability events--even though their magnitude could spell devastating consequences.

Now let me take you to two make-believe countries invented by Taleb. Mediocristan and Extremistan. First, we’re in Mediocristan and we take a random sample of 1,000 people. And we weigh them all. Next we take the fattest person we can find and we throw him or her in the mix. As a percentage, even that fattest of fat people won’t skew the groupvery much and they will represent a very miniscule percentage of the total. In Mediocristan, no single instance can influence the total: the exceptional in inconsequential

But in Extremistan, things are different. Instead of weight, think: income. Unlike weight, income is not normally distributed on a bell curve. If Warren Buffett walks into a bar, the average wealth just skyrocketed. The exceptional is consequential.

You can scorn the abstract in Mediocristan, but not in Extremistan. Harry Potter, Google, September 11, Long-Term Capital Management all live in Extremistan.

Back to Sherlock Holmes. So what is ‘the curious incident of the dog in the blur’? It has to do with confirmation bias and also illustrates the danger of watching too much CNBC, sucking up too much information (and why Buffett prospers in the quiet poise of Omaha).

Imagine this: You’re looking at a very blurry picture with a hidden dog and you can’t make it out. Meanwhile, my hand is on a dial that can increase the resolution.

If I turn the dial gradually and increase the resolution slowly, you don’t see the dog. But if I turn the dial more quickly, thus increasing the resolution quickly, you will see the dog more easily. Why? In the first case you are receiving more information (let’s say I turn the dial 10 notches each one increasing the resolution gradually; ie. once every 6 seconds for 60 seconds) and forming theory after theory of what you are seeing. In this case, you produce 9 theories.

If I instead turn the dial in 5 steps instead of 10, you are more likely to see the dog. In this case you produce only 4 theories of what you’re seeing. Instead of confirming theory after theory with consistency and confirmation bias, you have better odds of seeing something new.

This invokes the boiling frog syndrome. Throw a frog in boiling water it will jump out. But put it in room temperature water and gradually turn up the heat and it’ll get cooked. The danger of gradualism and information creep is ever present in markets with sell-side equity analysts who incrementally adjust their earnings figures and cluster like a herd.

Don’t be the frog. Be ware of blurry dogs. Listen for the ones that don’t bark. And watch for black swans—especially the kind that might derail a wedding!

Weekly Insider (Biofools, Commodidiots & Invitation)

noreply@blogger.com (Josh Wolfe) — Fri, 02 May 2008 14:00:00 +0000

Special Invitation: Join Steve Forbes, Josh Wolfe, Robert Kiyosaki and a lineup of investing experts in Forbes.com's Investor iConference, "All-Weather Portfolio Strategies." Click here for details.

I’m rushing back from travels to be in New York because from this Sunday until Tuesday (May 4-May 6)—you’re invited to join me, Senator John Kerry, Congressman Bart Gordon and the who’s who of the nanotech sector 7th Annual NanoBusiness Alliance Conference www.nanobusiness2008.com Thanks to the tireless and tremendous efforts of my friend Vince Caprio and Sean Murdock this is one of the must-attend nanotech/cleantech events. Hope to see you there….

Meanwhile as I’ve been tirelessly quipping, the “biofools” and “commodidiots” are starting to feel pain. I’m hearing claims of biofool boondogglers having committing crimes against humanity for the poorly thought out unintended consequences and the resulting food crises their swindle has caused. And the latter have startups and investors chasing commodity markets that they mistook for technology problems (when they’re simply just US dollar problems). Most of the so-called ‘drivers’ justifying crazy startup valuations aren’t really a technology thing—it’s a dollar thing. The US government’s plan is clear: inflate our way out of debt crises. When you owe a fixed number of dollars to someone, that lender loses when those dollars become worth less in real terms. But be sure by year end 2008 interest rates will be higher. And remember the flood of speculative and easy money that's flown into 'green' could just as easily go from ‘green with envy’ to ‘green with nausea’. As I wrote three months ago:

“…So, what disasters loom? Start with what everyone takes as granted? What would take people by surprise? Will Gold, oil and every other commodity you can name continue their ascent? Is it more likely the Chindia demand narrative and gospel keeps people in the pews? Or do already high expectations and fewer incremental buyers on the margin mean vulnerability for surprise? Why is their virtually no media coverage of the rise in Oil as primarily a function of dollar decline and speculation? Over time, commodities approach their marginal cost of extraction. And being commodities: they’re undifferentiated and compete on price. When have VCs ever in history made money chasing ways to produce a commodity? Why do people keep insisting that solar is attractive when Oil is at $100 when we barely produce any electricity from oil? 50 years ago, sure—but oil is a declining piece of our energy pie as more and more things become electrified. What effect would an “unexpected” decline in commodity prices have on emerging markets?...”

Famed hedge fund manger Julian Robertson has a protégé Dwight Anderson who manages a commodity hedge fund. He’s baffled by the prices in the commodities market. Why? Because commodities are basically supply and demand. And the to-date accelerating price trends assume accelerating demand without a corresponding supply response. It’s shocking to me how the correlation between the dollar decline and commodities ascent is woefully (and soon to be painfully) underappreciated. Tread carefully and be sure to read this month’s premium issue and cover story that answer the question: How many environmentally friendly companies does it take to screw in a compact fluorescent light bulb? If the sheer (growing) number of TV & magazine ads--proclaiming how every company is now or has always been "green"--isn't enough to make you suspicious of "green washing", than you're just a sustainability-sucker for sad Polar bears adrift on floating ice. Accounting and accountability is what matters. Find out how it really is hitting the bottom line and ‘double bottom line’….

Weekly Insider (Senate, Solar & The World's Greatest Gift)

noreply@blogger.com (Josh Wolfe) — Fri, 25 Apr 2008 14:00:00 +0000

First: Matthew Nordan, President of Lux Research, gave a captivating testimony on nanotech yesterday in front of the Senate about the National Nanotech Initiative. Quoting Matthew, “The NNI has funded prodigious research in areas ranging from noninvasive cancer therapies to high-efficiency solar panels. But moreover, it’s spurred a renaissance of materials science development in the private sector. U.S. corporations like GE and Motorola spent $2.4 billion on nanotech R&D last year – 23% more than government spending at the federal and state levels combined – and venture capitalists put $632 million into U.S.-based nanotech start-ups, four times the annual figure before the NNI began.”

Second: Take this with a grain of salt. Recent conversations and scuttlebutt revealed that an alarming number of my hedge fund friends are short solar or looking at putting puts on. Of course, they know that markets can stay irrational longer than they can stay solvent, but they are calling the solar boom, “watt-coms” and seeing lots of patterns in common with the dot.com debacle. One CEO of a public solar company apparently told his audience he’d be raising new money every year. When an investor questioned him about dilution, the CEO snapped back: all my investors rent my stock anyway (meaning they were speculators not long-term holders).

From a technology view, let me be clear: solar is Occam's razor—it simply makes sense. But from an investors view, it’s the razor’s edge—good luck. Here's my controversial view: solar will end up as the Global Crossing of energy. Whereas the unintended consequences of biofools, er-biofuels are now being deemed "crimes against humanity"...the unintended consequences of solar will eventually be the exact opposite, what I’ll call "a gift for mankind".

When I say gift: it’s not what you think. Unfortunately the mass of VCs and public market investors flocking like Icarus to the sun will experience how cynically true the wisdom of 17th century French writer Pierre Corneille’s words are: “The manner of giving is worth more than the gift.”

Worth—as in billions of dollars being lost to give it. Startups are already marketing to municipalities and city bureaucrats to buy panels that people and recessionary roofs (corporations) aren't. Here's my prediction: The big winner? Africa.

Solar is to Africa as Global Crossing was to the world a decade ago. The latter helped do a great public good, connecting the world—by laying massive fiber with cheap capital provided on flawed (or fraudulent) assumptions. It was an invisible emerging market tax on speculators—that is: speculators subsidized massive infrastructure buildout. The local people in foreign lands ended up being the real winners. Solar too, at great expense to its private investors is doing a great good for the public. I predict Africa, with low or no baseload power will be the biggest beneficiary.

As William Wordsworth wrote: “Pleasure is spread through the earth; In stray gifts to be claimed by whoever shall find.” Eventually, some years from now, some opportunistic entrepreneur will buy up excess panels and capacity and distribute distressed solar power assets to a distributed population (in Africa). As I’m so found of quoting so often from Jim Surowiecki: in greed and avarice lies the hope of progress.

Weekly Insider (Timeless Space & the Mismeasure of Risk)

noreply@blogger.com (Josh Wolfe) — Fri, 18 Apr 2008 14:00:00 +0000

Some may cry cynicism at the suggestion, but skepticism is a choice filter through which the assertions of anyone with authority should be passed—lest the credulous, gullible and unsuspecting be easily duped. Ask yourself: how might this person benefit by telling me this? Is their appeal one to prevent my loss or to enable their gain?

Astronomer Martin Rees was quoted this week, saying “As in all explorations of uncharted domains, there may be a risk but there is a hidden cost of saying no." I liked that quote, but abhorred his book written a few years back. Interestingly, in the U.K. the book was called, “Our Final Century”. While in the US—where fear has become Pavlov’s bell, conditioning the masses to a call to action—the book was called: “Our Final Hour: A Scientist's Warning: How Terror, Error, and Environmental Disaster Threaten Humankind's Future In This Century - On Earth and Beyond.”

In short the book says this: the odds we’re all going to die this century are about 50%--from the effects of destructive technology.

Of course, were you an astronomer, like Reese you too would follow the wisdom of Ben Franklin, “would you persuade: speak of Interest not of Reason”. And what greater appeal to interest is there, than not dying? Viewed through the lens of incentive-caused bias (Rees’ own self-interest), his proposed answer to this “crisis” serves any astronomer whose advice would need seeking and whose field needs funding. His answer: Go to outer-space!

In his own words: "Once the threshold is crossed when there is a self-sustaining level of life in space, then life's long-range future will be secure irrespective of any of the risks on Earth (with the single exception of the catastrophic destruction of space itself). Will this happen before our technical civilization disintegrates, leaving this as a might-have-been? Will the self-sustaining space communities be established before a catastrophe sets back the prospect of any such enterprise, perhaps foreclosing it for ever? We live at what could be a defining moment for the cosmos, not just for our Earth."

Our credulity always amazes me. Consider that according to the Journal of Consumer Research, U.S. businesses lose nearly $1 Billion every Friday 13th because some people are superstitious and won’t come to work, travel or make decisions on the date. Or consider that last month N.Y. State lotto officials had to shut down betting on the number combo “871” because too many people bet on it. Why that number? It was the hotel room Spitzer used. Talk about recency-bias and availability-bias!

Of course we have terrible innate grasps of very low probability things, vastly over inflating the salient and available and under appreciating the unimagined.

Consider in markets what I’ve now dubbed “The Mismeasure of Risk”: volatility. Price movement isn’t risk (the real risk is that you don’t have money when you need it). Volatility is opportunity. And it allows for more rapid transfer between people with vastly different expectations of the future. The wilder the price swings, the more likely you are to bump into someone who completely disagrees with you and is willing to trade their claims on the future for yours. And this overreaction of counterparties allows you to either buy pieces of businesses (which are in your opinion attractively priced with even higher expected returns—from someone with the precisely opposite view) or conversely sell pieces of business you already own at much higher prices to people with much higher expectations. Volatility increases the odds you can do both.

Time is what matters most. Just as time is the friend of the great business and the enemy of the not-so great business, so to time, like volatility, makes friends with the long-term investor and antagonizes the short-term one.

I predict (nay, hope) lots of things will change in investment management in the coming years. The way risk is measured for one. Just because everyone else uses the same wrong measure doesn’t mean it’s worth anything. Sharpe Ratios and Beta are the opposite of fax machines. The more people that use them, the worse the system is. I enjoy taunting my friends at hedge funds and fund-of-funds who report monthly numbers or allow their investors to withdraw every month. How can you possibly make long-term decisions when your investors expect and demand steady linear performance? Expecting the implausible leads to attaining the inevitable—blow-ups and permanent loss of money. And that is the real risk.

Consider this; diners don't demand from a chef, Le Cirque quality in McDonald’s minutes. Those that want McDonalds go and get it. Should not investor-chefs and their LP-patrons be the same? Imagine star chef Jean-Gorges quickly ladling out his concoction to his clients, spoon by uncooked spoon, for fear of his clientele uprooting and walking out the door before their palate could rebel. The patient investor like that patient patron is rewarded with a much more fulfilling experience.

Asset managers without long-term lock-ups (or with impatient clientele) are surely more likely to be asset gatherers—appealing to the poorer judgment of their clients who want instant returns and low volatility. Those asset managers are no different than politicians—winning votes with popular short-term promises at the expense of long-term consequences. Politicians figure the next guy will be left holding the bag and have to deal with the mess. Short-term money managers, figure their clients will.

As in every recession, some self-help author will come along and console the masses (surely rocketed by Oprah’s help) telling them to stop and smell the roses, slow-down and remember that there’s more to life than money and all is not lost when money is. Of course during frenzied boom times, a different incarnation of the self-help guru peddles the paradigm of the uber-productive, (“5 minute meetings”, “getting stuff done”, “seize every second”). As George Carlin said, “It’s never just a game when you’re winning.”

But I will say this: there’s something to be said—about time and permanence, the lasting business, the lasting building, the lasting idea, the timeless principle—those timeless things. Walk through Old Europe or New York and contrast the details of the Flatiron Building with the flat iron buildings erected in weeks. Detailed architecture, like detailed literature or detailed letters or conversations used to matter more and people had the time to appreciate it. In a world of twitters, texts, six-second sound bites and finger-popping food bites, the universal lament is “we just don’t have the time.” Like I said earlier, perhaps its time that matters most. Perhaps, in fairness, it’s because those all those less appreciated timeless things are also lifeless. They’ll still be there when we won’t. Perhaps seizing every moment of life is just the way some of us cope with the fight against entropy and time’s arrow. But this weekend take the time to appreciate something or someone you take for granted.

Weekly Insider (Frequencies, Complexity & Fleeced Flocks)

noreply@blogger.com (Josh Wolfe) — Fri, 11 Apr 2008 15:23:00 +0000

While traveling late last night, from MIT to Cornell for entrepreneurship events, the radio station in the car seemed to get caught between two different FM transmissions from two neighboring cities. With a crackling of static, the song I had been listening to was being slowly replaced by a different new song. I liked the new song better, but it faded in and out. So I tuned it in—by stepping on the gas, accelerating towards a conjured image of a bleeping radio tower shooting out lightning bolt waves—just like those old black and white ads just before they say “we interrupt this broadcast…”

My point is this: new and persuasive ideas can take hold of you just as that song did. They draw you in and make you accelerate towards the people originating the signal—and away from some old idea you held. For some short period of time, the two ideas might intersect, amplify or cancel each other, leaving you confused, despite F. Scott Fitzgerald’s claim that the test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function. Eventually old ideas like old songs get replaced by new ones.

And remember all new ideas are just combinations (usually with mutations) of old ideas, just as all new molecules are different combinations of atoms pulled from the periodic table of elements.

Here’s something interesting to consider on the complex interaction of old things. As you increase the number of components you have in a system, the possible ways those components can interact grows even more quickly. Imagine you have two subsystems, let’s call them X and Y. Let’s also say each is made up of 5 parts. If you only consider two-way interaction between the parts, there are 55 determinants. (Here’s the math; 5 X-parts, 5 Y-parts, 10 interactions between the X-parts, 10 interactions between the Y-parts and 25 interactions between X-parts and Y-parts).

Now consider this: Only 18% (10 out of 55) of the determinants of the system come from the individual effects of parts in X and Y while 82% (45 out of 55) come from their interactions. Remember: this is a system with only two subsystems each with 5 parts. Now imagine having a system where two subsystems X and Y are each made up of 100 parts. Now 99% of what happens occurs because of the interactions between the parts. Here’s the math: (100 X-parts, 100 y-parts, 4,950 interactions of X-parts, 4,950 interactions of Y-parts and 10,000 interactions between X-parts and Y-parts).

Think about this: this is a mildly complex system with only 100 variables and already the individual inputs are less relevant than the output of their interactions! Now remember this when you scratch your head at even far more complex systems that test the credibility—(of weather forecasters, stocks market pundits and anyone else who lays claim to predict the future of complex systems like weather or markets)--and the credulity of those who flock. Remember, eventually flocks get fleeced.

Weekly Insider (Lightning, Thunder & TV)

noreply@blogger.com (Josh Wolfe) — Fri, 04 Apr 2008 15:02:00 +0000

As I noted recently, forget the debate and deliberations over recession. We’re in one, just by virtue that suspicion of recession gives people pause and they slow their spending. The truth is this: by the time we get data, we’re in the next quarter and reacting to prior data. And remember this: 100% of the information you have is from the past, yet 100% of the value of the decisions you make and actions you take (based on that data) lies in the future—which is, as yet, unknown.

Biology, physics and astronomy offer analogies for reflection. Light travels faster than sound. About five times faster. We first see the lightning bolt dance followed by the thunder clap’s applause. And there’s information in the silence—as the duration of delay gives us rough information as to the distance from downpours. Count the seconds between flash and boom and divide by 5 and it’s roughly how far in miles the lightning struck. (And remember at any time there are 2,000 thunderstorms happening somewhere on the earth, each producing over 100 lightning strikes a second—that’s over 8 million lightning bolts every day).

Our brain processes sights quicker than sounds yet we’re still always reacting visually to the (nearer) past. When we see, we see light bouncing off an object. Yet split milliseconds pass between the lightning bolts of light striking our eye and the maelstrom of neural activity that processes it. We are observing the past.

Consider the sun. Light travels at about 186,300 miles per second. A beam of light from the sun takes about 480 seconds or 8 minutes to reach Earth. Our closest star, Alpha Centauri is 4.35 light years away (how far light travels in one year). If we saddled up and rode that light beam it would take 4.35 years to reach the star. So when we see it, we see the past: the star as it was 4.35 years ago. Shakespeare might’ve been remiss to know his star-crossed lovers were wishing upon a future by looking upon the past.

Speaking of a ray of light, my Lux Capital partner Larry Bock is doing something remarkable and admirable. He’s pulling together a huge science festival for middle school kids to be held next year 2009 in San Diego. The people supporting it: Nobel Laureates, CTOs, and some of the most prominent scientists and entrepreneurs. It’s called the San Diego Science Festival and if you want to get involved early: email Jeremy at jbabendure@ucsd.edu

There are two things young kids need to have: first, the right heroes and second, a deep desire to learn. The former can help inspire the latter. But there’s no replacement for either.

According to Science magazine, nearly half of Americans cannot name a “role model” scientist, living or dead. And only 11% can come up with the name of a living one.

Scientists are not seen as role models. When asked who today's youth look to as role models, most named an entertainer (31%), athlete (19%) or parent (17%). But when asked about science role models, 44% could not identify one.

When they can name someone, Bill Gates and Al Gore are the most cited—6% of the sample—the same percentage as Albert Einstein. Al Gore as scientist! Talk about availability bias.

There’s also a study (from Pew Research) that found for every 5 hours of US cable TV news, only 1 minute is devoted to science. Over 10 minutes are spent on celebrity news and nearly 30 minutes on crime. Here are the stats:

In the average five hours of cable news:

* 35 minutes about campaigns and elections
* 36 minutes about the debate over U.S. foreign policy
* 26 minutes or more of crime
* 12 minutes of accidents and disasters
* 10 minutes of celebrity and entertainment

On the other hand, one would have seen:

* 1 minute and 25 seconds about the environment
* 1 minute and 22 seconds about education
* 1 minute about science and technology
* 3 minutes and 34 seconds about the economy
* 3 minutes and 46 seconds about health and health care

Think about this! We spend 10 times more attention celebrating celebrities than inspiring a new generation of innovators and entrepreneurs.

Other studies suggest our national high-school graduation rate is worsening. I’m sure the statistics are debatable but I continue to observe (anecdotally) this troubling trend. If you’ve got 100 students in a school and only 60 graduate, what happens to the other 40? Do they have your trust to manage your money? Would you give them your tax dollars to make national decisions on your behalf? Would you get in an airplane designed by their hands? If this trend continues, the rank of the skill-less swell and the future intellectual deficit widens. We’ve just sold off another piece of our future.

And that means more people with less competitive education, less differentiated skills, less money (for the absence of both) and less opportunity. Think of it like this: in a competitive game with one of the best home field advantages in the world, a growing number of players on-deck seem to be mediocre and ill-equipped to compete. If our home team is weak, we’ll need to import players with star talent. Who would’ve thought a 7-foot-6 Chinese player would be the tallest player in the NBA and the center of the Houston Rockets. Or that a Japanese player would be an all-star on the Yankees. Why won’t the CEOs, scientists and entrepreneurs of the future be the same?

Remember this: if we don’t value something, someone else will. Communist Russia and China tried to hold all as equal—but one group was clearly more equal than others: the scientists. They were always held in high esteem, whereas US scientists have not been and I see a rising trend of US scientists increasingly consulting for foreign companies. Again: if we don’t value something, someone else will.

What I worry about is this: we celebrate those that make noise (and divert our attention like a cymbal-clapping simian) instead of those that make cures (scientists). We divert our attention and our time to a nation of performers, models and “adults” who compete to see if they are smarter than fifth graders.

To spend four hours being entertained is to spend 25% of your waking life and your day staring at flickering radiation that tickles your visual cortex. Don’t get me wrong: I love TV and I watch a lot of it. But I read deeply and widely. And I’m competitive. I love playing sports, but tire of watching them. Years ago I calculated that while my primate peers watched 6-8 hours of football on Sundays, and another 6-8 hours of basketball during the week, I could be learning something they weren’t. They were celebrating the competitive talents of others—I wanted to develop my own. I was a bigger fan of my own future (and my own future family) than I was of the all-star (and his family) on TV who could bounce a ball better or run in tights faster.

The most valuable investment you can make is in yourself. To trade learning or creating something new today for idle (or Idol) entertainment tonight will have consequences you feel tomorrow. In this, tequila shots and TV shows share something. The monarchy of centuries past sat imbibing on food and drink while being entertained by jesters. We’re all kings now. And a future dethroning for many of us will surely, but should not, come as a surprise.

We hyperbolically discount the future, a vestige of our evolutionary ancestors. We choose $100 today over $110 tomorrow (yet $110 a year and one day from now over $100 a year from now). And in so doing, we push up the value of the trivial, the wasteful, the bacchanal, and the debauched; and we devalue and discard the long-term patient diligent and highly contributory.

In education, most prescriptions look at the supply side: more teachers, more school supplies. I believe it’s a demand problem and kids need to want to learn, like they need to want to eat healthy foods. Putting more apples in front of them doesn’t make them pick apples over candy.

Too often we act on symptoms and mistake effects for causes. Consider the anecdote of the man by the river. He sees a girl floating by yelling for help. He jumps in and saves her. Minutes later, another girl goes by. The man jumps in again, saving the second girl and then another passes by. It turns out some villain is throwing girls off a bridge up the river. The man fixed the symptoms but not the root problem.

I implore you to learn something new and interesting this week--and even better, inspire someone else to.

Weekly Insider (Jungle, Munger, Nobel & Sneezing)

noreply@blogger.com (Josh Wolfe) — Fri, 28 Mar 2008 14:00:00 +0000

Firstly, as noted in our quote of the week below from Ted Sullivan of research firm, Lux Research: there’s a massive solar shakeout coming. Efficiency this and dollar per watt that--absent cessation of the laws of economics: all those vaunts vaporize in vacuums—no technology is developed in isolation without competition. The lone jungle tree, (like the lone solar entrepreneur) seeks to grow its stalk taller and leaves wider than all others. But the crowded competition (for sunlight) leaves a twisted tangled thicket—and eventually Mr. Market sees the jungle for the trees and comes marching through with his machete. May the strongest and most adaptable survive…

If I gave a weekly prize, I’d give it this week to a scientist at Sun Microsystems: Ron Ho. Not because of any tech breakthrough, but because of how he spoke with the media. I think it’s irresponsible to give predictions without probabilities and time frames. But this scientist, in describing a silicon photonics effort (to connect chips with light) said, “This is a high-risk program. We expect a 50% chance of failure, but if we win we can have as much as a thousand times increase in performance.” While his assessment of success (1-p) was probably too high and he didn’t give a time frame, he did give an expected outcome. If more politicians and corporate leaders spoke like this, them and their constituents would have better judgment under uncertainty and make better decisions.

On prizes, William James said, “he who refuses to embrace a unique opportunity loses the prize as surely as if he had failed.” Then again comedian Steven Wright said, “I’d kill for a Nobel Peace Prize.”

Speaking of Nobel prizes, a few weeks ago I heard Charlie Munger give a talk (Warren Buffet’s partner at Berkshire Hathaway) while at Caltech. A story was recounted of Nobel Laureate William Shockley (he who co-invented the transistor). Shockley known for outrageous antics allegedly wanted to start a sperm bank of Nobel Prize winners, offering would-be clients prodigy progeny. As he went from fellow Nobel colleague to colleague, one of them said, “Shockley, you’ve got it all wrong. I’m a Nobel Prize winner and both my sons play guitar. What you want is the poor illiterate immigrant tailors like my parents were!”

Speaking of Munger, he’s fond of a phrase capturing a phenomenon called, “lollapalooza”. The first time I heard the word was actually 15 years ago, when I used to go to an annual rock concert called Lollapalooza (eating Red Hot Chili Peppers with Pearl Jam while Raging against the Machine).

But the lollapalooza to which Munger refers isn’t a concert, but instead when all kinds of psychological biases are working in concert. Take global warming hysteria. You’ve got at least three effects I’ve identified; availability bias, social proof and authority bias

1. Availability Bias, arising from the prevalence of a major [and inconvenient] movie and from incentive-caused bias of all kinds of media from cable TV to every magazine’s requisite Green Issue to every advertisement having a “Green” theme—after all, “if it bleeds it leads” has become “if it’s green it’s seen”;

2. Social Proof, arising from information cascades, seeing and imitating others who are imitating others and not wanting to be apart from the tribe. Recall my prior writings on a single individual pointing at nothing in particular on a corner, whereupon a crowd will form and grow exponentially all staring at precisely nothing. Going along with the crowd has been mostly adaptive for most of humanity and failing to do so can lead to being ostracized (or at least lead to fear of being ostracized, an emotionally motivating state to avoid). As Keynes noted begrudgingly, “It is better to fail conventionally than to succeed unconventionally". The tribal imperative is a powerful part of our genetic makeup. It’s the same reason by Brooklyn grandmother used to go temple though she knew not about religion.

3. Authority Bias and Halo Effect, men with Oscars and Nobels are the white lab-coat equivalents of Stanley Milgram’s shock experiment. We revere the rich, famous and infamous. But the faithful flocks have followed many a charlatan, hypocrite or huckster: Jim Jones, Jim Swaggart, Jim Cramer. I started with the J’s but am an equal opportunity quipping and whipping cynic, “On Prancer!…on Spitzer!…on Haggart!…on Clemens!”

Speaking of Authority Bias, consider the marketing tactics (now settled in lawsuits) of Airborne—that fashionably packaged over the counter hoax taken on the onset of sneeze. “But”, my friends would say as I cringed at their credulity, “it was created by a school teacher!” And I cringe tighter still knowing nowhere is the appeal to authority more penetratingly persuasive than in venture capital. Cringing upon news of the latest deal priced to the doctor and dentist crowd and groaning in vane as the sheep flock to the haloed shepherds, “But,” they appeal “it was created by a famous rich person!”

And speaking of sneezes, most quietly seethe at the thoughtless brute who doesn’t yield a “bless you” when in the presence of another’s flying germs--or worse yet, fails to offer a “thank you” upon receiving such a salutation—unsolicited though it may be. Why do we bless sneezes, but not coughs—which are far more probable to lead to death (whether from choking or critical pulmonary issues).In the Middle Ages, it was believed one’s breath interrupted could cause death—so a sneeze was believed to be fatal. Like countless others, the cultural anachronism remains.

Back to Munger: What I’ve observed is that Munger has three key factors to his success (not including knowing Buffett): being rational, inverting and collecting inanities. The first requires training and genetic luck to have the right disposition. The second draws from the mathematician Carl Jacobi, “invert, always invert”. And the third from Johnny Carson—who once returned to his high school to give a commencement speech called “How to Guarantee Misery” and tongue-in-cheek instructed listeners to have envy, resentment and ingest chemicals to alter mood and perception.. Anyway: the combination of these factors had me thinking of a corollary to Tolstoy’s famous opening of Anna Karenina ("Happy families are all alike, every unhappy family is unhappy in its own way").

So here’s an inverse corollary in business and politics. There are thousands of ways to fail and far fewer to succeed. Those who fall impale themselves upon the same sharp stakes of folly as those before them. But every ascending icon rich person got rich or lucky (or both) in their own way. The point is this: you can’t read biographies or playbooks and hope to copycat Bill Gates, Larry Ellison, Larry or Sergey, Richard Branson, Barry Diller or Michael Dell. Whatever they did through skill or happened upon by luck at the particular circumstance at that particular time was unique to them—it’s not repeatable. And the laws of capitalism (and profits reverting to the mean) insure that copycatting someone else won’t yield you success. But be sure, if they ever fall from grace it will be for the same fraud or vice or sin as many before them. See: Spitzer, Elliot. As Legg Mason’s Bill Miller quotes of securities, so too with reputations, “Many shall be restored that now are fallen and many shall fall that now are in honor.” It appears that throughout history, though the octaves may change, folly and ruin rhyme and resonate in key. And as someone said, every time history repeats itself, the price goes up.

Munger said he was a collector of inanities: of the foolhardiness and mistakes of others. The newspaper and the gossip pages, though in today’s times they’re indistinguishable are a rolling archive from which to study not for traits of success as much as avoidance of idiocy and failure.

Nanotech's impact on cell phones

noreply@blogger.com (Josh Wolfe) — Fri, 21 Mar 2008 14:00:00 +0000

Instead of reading my thoughts this week, enjoy the video below from Nokia on nanotech’s impact on their future phone designs. And have a wonderful Easter holiday…

http://youtube.com/watch?v=Zto6aTZM9t0