Into the Metaverse and Assured Misery
The Difficulties of Stock Research
One of the important aspects of researching investments is boots on the ground investigation. You need to read the 10K, understand the firm’s strategies, get comfortable with the management team, and get a good grasp of where the firm sits in terms of its competitive space. Oh, and you HAVE to get make sure you understand the company’s products and vision. It’s hard work, but I’m not afraid of hard work and am determined to make sure I am evaluating my position in Facebook…I mean Meta properly.1 If they are serious enough about virtual reality and the metaverse to change their name, I had no choice other than to buy an Oculus Quest 2 to do some boots on the ground research. No, seriously, it’s RESEARCH!!! 🤣🤣
I grew up with as a video game kid. Remember the Odyssey? No? Who could forget the crowning achievement of a video game that was essentially pong with overlays that you put on your TV screen. Well, I had one as a kid. Yep, I was a nerd before nerds were cool (we are cool, right?)
We never had the Atari 2600, but the first video game system that I purchased on my own was an Intellivision and later we upgraded to a ColecoVision (what is it with the vision?)
Not exactly up to the level of graphics you’re used to in today’s video games. That said, as a kid, I’d spend hours playing what were then “state of the art” video games with my friends.
Now, I’ve largely been out of the video game universe over the past few decades. There was the time I lost about 3 weeks of Christmas break one year playing WAY too much Dungeons and Dragons The Elder Scrolls V: Skyrim and decided to sell the game back before it took over my life (seriously). I also spent a little time with Rock Band shortly after adopting our awesome daughter (who had just turned 14 and had been with us for a few months) where she would do the guitar and I proved that drumming was not in my skill set (and neither were the vocals).
However, since I’m retired now, I figured I had some time to do the necessary research (that’s my story and I’m sticking to it) on Meta’s foray into virtual reality. While I’ve only had it for a little over a week, I must admit that I’m pretty impressed. No one is going to mistake the games for a new release on the latest Xbox or PlayStation consoles, but it is a surprisingly immersive experience. Plus, the boxing and some other games provide a bit of a workout — I actually had to take a day or two off because my right arm was sore from a little too much boxing. We aren’t at Ready Player One level YET, but given the level that technology advances, I would be surprised if AR/VR is not a much bigger market going forward. Granted, I have zero expertise in the technological requirements, but things like the omni-directional treadmill, haptic vests and gloves are all either available now or coming soon. Have any thoughts on the state of VR and the metaverse? If so, drop a comment.
Assured Misery by Morgan Housel
One of the authors that I try to follow as much as possible is Morgan Housel. He currently writes a blog for Collaborative Fund and his latest issue was titled Assured Misery. The main point is that it can be hard to find happiness because we are often changing the definition of what makes us happy. On the other hand, there are some consistent factors which tend to make us unhappy. If you think of happiness as a balance of (a) doing things which make you happy and (b) avoiding things which make you unhappy, then focusing on (b) may be a pretty advantageous choice. There were 5 specific items mentioned in Morgan’s post:
The inability to deal with petty criticisms.
Envy of others’ success without having a full picture of their lives.
The inability to deal with hassle, delay, setback, and nonsense, caused by a desire to squeeze maximum efficiency out of everything we do.
Being persuaded by the advice of those who need or want something you don’t.
Expectations rise equal or faster than results, leading to constant disappointment no matter how much you’ve accomplished.
If you’ve been reading this newsletter for awhile, you know that brevity is not one of my strengths, so I’m going to discuss three of these…that said, if you haven’t done so yet, go read Morgan’s post.
Envy of Others’ Success Without Having a Full Picture of Their Lives
And neither are most people (shout out to Twin Peaks for the quote). This is especially true if we go by what we observe and we don’t actually live with and spend significant time with the person. Even then, there can be surprises. Now, consider this concept with people you work with, know casually, or even just know through social media. Or think from your own perspective…how many people KNOW your every thought and impulse?
If you are ever on Facebook and either have kids of your own or know someone with kids, you see this firsthand. Over the first couple years with our daughter in the house, we posted lots of positive experiences. We posted almost none of the times we made stupid parent mistakes (for those of you without kids…yes, it DOES happen) or she had issues (and again, I know this is shocking, but if you’ve spent any time around teenagers you might be surprised to find that they are not always positive bundles of joy…what’s that? You’re NOT surprised?).
With most people, you are seeing their successes at a disproportionate rate to their failures. In addition, the line between success and failure, may be closer than many realize and we are biased towards resulting. J.K. Rowling is one of the better known writers of our time. However, Harry Potter was rejected multiple times before being accepted. What if after the first five rejections, she decided that maybe the story wasn’t as good as she thought and decided to pursue another line of work? Universal Studios would be missing a major part of their theme park — The Wizarding World of Harry Potter!
Being Persuaded by the Advice of Those Who Need or Want Something You Don’t
What do these two athletes have in common? They are both among the best in the world at their respective sport. Hafthor Bjornsson (aka “The Mountain” from Game of Thrones) set the deadlifting record of 1104 pounds (YIKES!) in May 2020. Eliud Kipchoge is the world record holder for the marathon at 2:01:39 (also YIKES!) and unofficially ran 1:59:40 for the distance. That said, I’m guessing Hafthor would struggle immensely trying to run a marathon while Eliud would not be able to budge 1100 pounds. Their training program and nutrition plans are not in the same ballparks with each other. Which is all good because the sport they are competing in is entirely different. It would make no sense for them to adopt each other’s training or nutrition plans.
However, the flipside is that they probably have levels of mental discipline that are both off the charts. Their willingness to work and commitment to excellence are both exceptional. Their genetics are wired towards their discipline. Could either one compete in the other’s sport? Probably, but doubtfully at a world class level.
How does this translate to your life choices? Simple, make sure you choose specific advice that is tailored to what you are trying to accomplish. That said, big picture advice CAN translate across disciplines. Be open to both sets of information, but take care not to confuse the application of the two. Someone trying to identify investment opportunities needs to be aware of base rates. How many companies are able to grow revenues at 20%+ per year for 10 years? According to the Credit Suisse Base Rate Book, the probability of a company in the S&P 500 growing at 20%+ per year for 10 years is 3.8%.
However, that is not the probability for the company you are analyzing. As an investor, you need to consider the base rates. However, you also need to factor in reasons why (or why not) the company you are analyzing could grow at the rate you are forecasting. Both information about the general probability AND the specific situation are necessary to making good decisions. Know the game and use both strategies specific to YOUR game ALONG WITH broader knowledge to enhance your chance of success.
Expectations Rise Equal of Faster Than Results, Leading to Constant Disappointment no Matter How Much You’ve Accomplished
Morgan writes
All wealth, all success, all accomplishment, is a two-part equation: A result relative to expectations. What you have and what you expected to have.
When you realize that each part is equally important, you realize that the overwhelming attention we pay to getting more and the negligible attention we put on managing expectations makes little sense, especially because the expectations side is more in your control.
This is one of the more meaningful takeaways I have gained from reading Morgan’s writing over the years. The side benefit is that this lesson (value changes come from beating or missing expectations more than raw performance) fits in 100% with stuff I’ve been teaching about investing over the years. Unfortunately, it is a challenge for many people (including myself) to fully internalize. Every success we encounter does two things. One, it increases our reputation and standing in whatever field/activity that success occurred in. However, the second thing it does is raise expectations for future success.
The connection between what happens in our lives and our level of happiness is the well-known hedonic treadmill (slide 59).
This doesn’t mean that getting the next thingamajig isn’t going to spark an endorphin rush and make us feel like we are on top of the world for a brief moment. Instead, it says that the endorphin rush is not a permanent change, but a temporary one — after which we should anticipate falling back to our baseline. There has been lots of research on happiness. Unfortunately for those that find themselves less happy than average, there is likely a genetic reason for it (emphasis added by me):
In this twin study, published in the Journal of Neuroscience (De Neve, 2012) subjects with a higher presence of the number of longer alleles of the 5-HTTLPR gene (a serotonin transporter gene) self-reported higher levels of life satisfaction, aka happiness.
While the study did not define this gene as the happiness gene, it did equate 33% of subjective life satisfaction with genetic variation. Whereas environmental factor variation equated to not more than 3%.
A twin study of over 2,000 twins from the Minnesota Twin Registry found that approximately 50% of life satisfaction is due to genetics. This leaves 40% attributable to intentional activities and 10% attributable to external events. (Lyubomirsky, Sheldon, & Schkade, 2005) Being able to move a happiness “set point” with intentional activities makes levels of happiness variable.
The takeaway here is that being “happy” may not be entirely in our control (up to 50% may be genetic), but external events are also pretty small (3-10%). That means that we probably have at least 40% that we can influence. One strategy is to step off the hedonic treadmill. Instead, we can work on developing meaningful connections, being grateful, and stepping away from things that we know make us (to borrow from Morgan) miserable.
And yes, I realize that there are a LOT more companies than Meta Platforms (nope, does not just roll off the lips like Facebook) operating in the AR/VR space.