Berkshire’s largest investment in 2020 was itself


  • Berkshire Hathaway’s 2020 Annual Report was released on March 1st 2021.
  • Buffett did not make any big sales or acquisitions in 2020, so the business is little changed from 2019.
  • Operating earnings, which excludes stock gains/losses, were down close to 10% in 2020 compared to 2019.
  • Berkshire continues to accelerate the rate at which it is buying back its own stock, spending $24.7 billion on buybacks in 2020, compared to $5 billion in 2019.
  • Buffett notes that Berkshire’s insurance businesses are at a particular advantage over competitors because Berkshire can invest the float in equities instead of low yielding bonds.
  • Buffett breaks down the ownership in Berkshire into five groups: Himself, index funds, money managers, individuals who dip in and out of Berkshire shares, and individuals who invest in Berkshire for the long haul.
  • Buffett presents, for the first time, the business as a combination of four jewels: A 5.4% stake in Apple, Berkshire Hathaway Energy, BNSF Railway, and GEICO.

Why I own Berkshire and why you might not want to:

Being known as the most famous investor in the world sets a high bar for what to write in your annual report. The 2020 report is not Buffett’s finest, but he does provide new perspectives on where value lies in the business, and how he breaks down Berkshire shareholders into different groups.

If you’ve read about how I invest my money, you’ll know I hold 30% of my liquid net worth in Berkshire stock, primarily because I believe in Berkshire’s investing principles – documented in Buffett’s long history of annual reports.

That said, tread carefully before making an investment in Berkshire because i) it is likely that Buffett’s successors will not perform as well as he did, ii) Berkshire is now very large, which makes it harder to find good investments, iii) if you do what I’m doing, you’re putting a lot of eggs in one basket – it’s always possible for a company to be hit by fraud or a scandal that takes it down, iv) Berkshire doesn’t do a lot of “tech”, so maybe the business will fall behind the rest of the economy, and v) cybersecurity risks could impact the business – it’s an under-appreciated risk but listed as the first risk in Berkshire’s annual report!

Berkshire in 2020 in Brief:

Excluding any gains and losses from investments, Berkshire’s operating earnings dropped from roughly $24 billion in 2019 down to $22 billion in 2020. This is nothing remarkable – good or bad – given the COVID background.

Berkshire bought and sold some equities in 2020, but nothing accounting for more than a few percent of the overall business’s value*. The largest line item to report was the repurchase of its own shares, with Berkshire buying almost $25 billion worth of its own stock in 2020 (getting close to 5% of outstanding shares).

Compare this to 2019, when Berkshire repurchased only $5 billion of its own stock, and you can see that Berkshire is very likely to become a large net purchaser of its own stock over time. This is exactly what Charlie Munger – Buffett’s sidekick – has said in annual meetings.

I wouldn’t be surprised to hear that Berkshire buys back even $50 billion in 2021 if the stock price remains in the $200-$250 range (B shares).

A Note on a Moat

Buffett loves to talk up the businesses that Berkshire owns, and that can become fatiguing. One good point he makes this year, given interest rates have reached near zero, is that Berkshire’s insurance business – which includes GEICO – is at a particular advantage over competitors. Pure-play insurance businesses can be restricted – for regulatory reasons – to investing the premiums they receive primarily in bonds (currently earning close to zero income). Berkshire – as a diversified company in many businesses – is able to weight the investment of the insurance premiums it holds much more towards equities.

Note: Buffett isn’t earning a whole lot on the ~$130 billion in cash on the company’s balance sheet. Ironically, the amount of cash he has is very close to the size of the insurance float ($138 billion) where he is emphasising his competitive advantage 😂.

Investor Groups

Buffett didn’t get deep into politics in this year’s report (no surprise there), but he did split up Berkshire shareholders into different groups for the purpose of emphasising his admiration for group 5:

  1. Himself – a shareholder group with a limited lifespan.
  2. Index funds – interesting that he would break out index funds as a category. Buffett has written favourably of the index investing approach in the past. However, the language in this report seems a bit more mixed: “Index funds, it should be emphasized, own Berkshire shares simply because they are required to do so”. Maybe I’m reading too much into it this as a slight on index funds – or maybe I want to read too much into it!
  3. Money managers. An “honourable but difficult occupation”, Buffett says in the report. Maybe because it’s his own occupation too 😂? (A bit harsh from me there. In fairness the whole thing about Buffett is that he has all his net worth behind what he invests in – that’s very different from most money managers.)
  4. Individuals who dip in and out of Berkshire. Enough said.
  5. Long term individual shareholders in Berkshire. Clearly, this group is important to Buffett. He didn’t mention it in this annual report, but he has previously emphasised how many individuals invest their life savings in Berkshire, and this greatly influences Buffett in how he runs the business.

The most notable thing about this breakdown for me is that #1 won’t be around for ever, and, in a few decades time, we’ll look back at this as evidence of how index funds became a class of shareholder.

The Crown Jewels

Buffett highlights that the Berkshire business rests on four crown jewels:

  • Berkshire’s stake in Apple (#1) – valued at $120 billion at 2020 year end.
  • BNSF Railway (#2) and Berkshire Hathaway Energy (#3): Generating a combined $8.3 billion in earnings in 2020. [Conservatively, applying an earnings multiple of 15, that would value #2 and #3 at about $125 billion.]
  • Insurance businesses including GEICO (#4): Worth $138 billion, if you value it purely off of float. [actually, Berkshire often runs a profit on insurance so it’s likely worth more, although you could argue the float is worth less than cash because it cannot be invested quite as freely].

So, roughly speaking, the four crown jewels are worth around $360 billion in today’s market.

Add to that about $130 billion in cash, $160 billion in stock holdings excluding Apple, and another $6 billion in operating earnings (worth $90 billion at a 15X multiple) excluding BHE, BNSF and investment income. This brings Berkshire towards a $740 billion market cap, which is equivalent to a price per B share of roughly $330.

At the time of writing, Berkshire is at a price of $250 per B share and a market cap of around $560 billion, so you can see why Buffett and Munger have been buying back the stock from 2020 lows of around $162 all the way up to the present time.

To be clear, I’m not saying it’s obvious that Berkshire’s stock price will go up soon. You could pretty much have done the same calculation as above for the past five years and gotten the same favourable result – but Berkshire stock prices have not seen strong growth over the last decade.

*Rough calculation: $6 billion = $22 billion in operating income less $8 billion from BHE+BNSF less $8 billion in investment income (e.g. dividends from equity holdings).

A note on the annual shareholder meeting:

I’m not really sure why, but the Berkshire annual meeting on May 1st will be streamed from Los Angeles rather than Omaha this year. The good news is that Charlie Munger will be back on stage to share a few zingers. Ajit Jain will also be on stage, which I’m looking forward to because I haven’t really heard him speak much before. He heads up insurance operations for Berkshire.

*Quite awkwardly, Berkshire sold it’s positions in JPMorgan (Todd Combs, who works for Buffett, is on the JPMorgan board) and also in CostCo (Charlie Munger is on the board). Neither positions were large, but the board connection struck me as awkward – certainly for the CEOs of JPMorgan and Costco to have board members who are selling all of their shares. Ouch! 🤯


How to Legally Offer Cheap Antigen Testing within your Company or Organisation (non-US)


  • Antigen tests give results in 15 mins and are 10X cheaper than PCR tests.
  • There are antigen tests available that are EU approved for clinical use.
  • As an employer or organisation, you can legally do antigen testing if you contract a clinical work to oversee the tests.


Employers/organisations currently have three options to avoid the spread of COVID-19:

  1. Use social distancing and improve workplace ventilation = good idea, not perfect but should be continued.
  2. Monitor symptoms, i.e. give employees questionnaires for symptoms (fever, cough etc.) = inaccurate because i) infected people can spread before showing symptoms, ii) not everyone shows symptoms.
  3. Do PCR testing = $100+ per test and slow to get results.

In the European Union, there is now a fourth option that is legal, which is antigen testing with clinical supervision. This blog provides some ideas on how employers/organisations could implement this approach to make their workplace safer.

The benefits of antigen testing

  1. You can test cheaply (<10 euro per test) and therefore frequently.
  2. Test results are immediate (<15 mins).
  3. Tests are quite accurate at detecting contagiousness (>95% sensitivity).

Here is my demo of taking an antigen test.

Here is a great resource for antigen tests in general – www.rapidtests.org – built by a Harvard professor.

The one caveat is that antigen tests are currently only approved in the EU for clinical use for symptomatic patients. However, you can comply with this requirement as an organisation or employer by contracting a nurse/doctor to oversee testing. You could maybe even get creative and do this by video.

How to implement this in your workplace or organisation:

  1. Get some antigen tests:

The test with the highest sensitivity I can find is the Flowflex Antigen test (EU approved but not approved in the US yet). These can be purchased in bulk for less than 10 euro per test. Comment below or contact me and I can connect you to a bulk supplier (minimum order is 800 tests) if that would be of help.

2. Hire a nurse or doctor to oversee testing:

I’m a bit green on this front but I think it should be possible – potentially via locum nurse/doctor hiring services. There may also be insurance matters to consider.

Please contact me if you know how to hire nurses/doctors on contract. I think the ideal would be to contract with a locum agency that can provide a nurse’s or doctor’s services for a certain number of hours per week.

3. Get the nurse/doctor in once or twice per week

Either send antigen tests to people’s homes and then have the nurse/doctor instruct them by video call OR have people tested as they arrive at work.

Some caveats:

  1. Testing is not a replacement for social distancing, masks and good ventilation. Good practises should continue.
  2. If there is a positive test, the person should go for a confirmatory PCR test, if possible.

What is the benefit for you – an employer or organisation?

  1. Simple – you’re going to catch more people early on that are spreading the virus but don’t show symptoms.

Comment below with other thoughts OR if you would be interested in this kind of service as an employer or organisation. The service could be: a) remote video antigen testing for your employees – probably could work for even small organisations, b) on site testing, probably only makes sense for sites with 50+ employees/people.

Lastly, my view remains that the Irish government should provide emergency approval for rapid antigen tests (that are already allowed for clinical use) be allowed for self testing. This would be much better than people relying on symptoms for diagnosis. Here is my analysis of why.


Two things to Try for Twenty Twenty One


Journaling and Planning

For four to five years – when I was about 17 to 21 – I kept a daily journal. It was too much effort and I wasn’t enjoying it, so I stopped for almost ten years.

Over the last year, I just keep a few notes roughly once a week about things that happened and intentions I have for the next day/month or year. A few of my short learnings on making journaling easier:

  1. Pick out a dense book and read a page when you do a diary entry. If there’s a quote I like, I write it down in my journal. So far, I’ve used Letters from a Stoic (Seneca) and Meditations (Aurelius) for this.
  2. Buy a nice little diary. I’ve spent a more than just buying a cheap book. It put more love/soul into it. Splash out and get a wooden cover or something.
  3. I write down a few things that happened and how I feel about them.
  4. I write down a few intentions. I try to avoid setting myself up for failure with things outside of my control (e.g. do a fundraise for $X) in favour of things I can control (e.g. remain calm in handling upcoming difficult conversation y).

Even all of this stuff can be boring and/or not enjoyable. An alternative option is to just write once a year or once every few years.

You can do that on futureme.org for free and have the letter e-mailed to you in 1, 3 or 5 years (or whatever). It can be nice to do it with a friend or a partner/spouse. Hat tip to my brother for this idea.

Improve the News

A lot of people are always harping on about how X is so divided or polarized (and it’s getting worse). X can be people, the country, the world… insert your word of choice.

My favorite question to ask back (actually I usually just stay quiet) is: Well, what are you doing to make things less divided, if you think that’s a goal?

There’s a dude at MIT (Max Tegmark) who actually is doing something on this front with www.improvethenews.org – it’s a website that allows you to move sliders between left and right to see the news change. Try it for yourself.

Sliders set to “Left” and “Pro Establishment”
Sliders set to Right and Anti-Establishment

Lastly, my favourite tab settings:

Sliders to the middle

Might save me a bit of time compared to alt-tabbing between CNN and Fox…

Lastly – my January newsletter will be coming out later this week for subscribers. Sign up to get ahead on new business ideas:

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DeFi Mini Course: Part 4, Decentralized Hedge Funds

Before You Get Started on Part 4.

In this part, you’ll learn how to buy tokens in a decentralized hedge fund and then stake those tokens so you can vote as well as earn rewards. If you’ve missed Parts 1 – 3 of this course, here are the links – all prerequisites for this Part 4:

  1. Part 1, Wallet Setup for DeFi.
  2. Part 2, Uniswap, a Decentralized Currency Exchange.
  3. Part 3, Lending Platforms.

At a minimum, you’ll need a MetaMask wallet with about $50 worth of Ether to do this part of the course. Skip back to Part 1 for guidance on how to add to your wallet.

This course is priced at $9.99. If you find the course helpful – but don’t have the money to spend right now – I’d appreciate if you could instead share the course on social media or with two friends.

Disclaimer: Crypto is still in its infancy and very high risk. I recommend setting the expectation that you will lose all of the money you invest as you’re learning and treat it as an education. Throughout the mini-course, I will indicate the cryptos I hold myself, so at least – if you do copy me – I’ll lose money if you do! This course is not investing advice, it is intended to teach you how DeFi works! You are reading these materials and taking any guided steps at your own risk. Crypto is technical and funds are easily lost if you are not careful with passwords as well as sending and receiving money to/from the right wallet addresses – not to mind bugs in nascent software platforms or bad actors. Learn with small amounts to minimise your risk.

Part 4, Decentralised Hedge Funds

The problem of fees when earning crypto income

You’ll recall from Parts 2 and 3 that transaction costs for moving, exchanging or lending cryptos are high. As of Jan 2021, it can cost $20 per transaction just to move crypto from one wallet to another. Here are two the two basic transaction costs in DeFi – through the lens of a lending example:

  1. Depositing crypto into smart contracts. You’ll recall, from Part 3, lending out some USDC on Compound or Aave. Depositing the crypto will have cost you Ether to pay for gas.
  2. Withdrawing crypto from smart contracts. Once done lending, you’ll have to withdraw your crypto from the lending platform, again costing you gas.

Unfortunately, it’s worse than that because currently – in the early stages of DeFi – significant returns are earned not only through interest but also by receiving platform tokens as rewards. As a specific example, lenders and borrowers on the Compound platform earn Compound tokens for their participation, in proportion to interest earned/paid. This leads to a third transaction cost:

3. Rewards token withdrawals/conversions. You earn Compound tokens as you lend on the platform. At some point, you’ll want to convert these compound tokens into another crypto – likely back into USDC if you are engaged in a USDC strategy.

So you have this cycle where you earn Compound and then have to pay to convert it into USDC and then pay again to lend that USDC out.

Decentralized hedge funds as aggregators

Given the high cost of gas (transaction fees – which are largely flat fees per transaction), it makes sense that individuals might pool their funds together in order to reduce gas costs as a percentage of their funds. This is where platforms like harvest.finance and yearn.finance emerged.

A group of yield “farmers” pull together and write some smart contracts that allow them to invest in strategies (such as lending on Compound) together. Here is how one such strategy might work:

  1. A USDC lending strategy is set up that invests USDC on Compound.
  2. Compound tokens that are earned are automatically converted – using Uniswap or similar – for more USDC tokens, and this USDC is then reinvested in the USDC strategy.

This is called auto-compounding. The Harvest smart contracts automatically do the work of reinvesting profits. If you want to withdraw your funds from the pool, you get back your initial asset plus your proportional share of compounded profits.

The fees charged by Harvest

In return for this smart contract service, Harvest takes 30% of any profits made by investments (liquidity pools) on the platform.

That might seem like a lot! It is! However, gas fees are so high that investors still find it cheaper and easier to invest via Harvest and pay that 30% fee. As of Jan 2021 there is over $500M invested on the harvest.finance platform.

Where do the Harvest fees go?

They go to… yet another governance token – called FARM!

So the owners of FARM earn 30% of all profits earned by the liquidity pools on the Harvest platform.

Now, the harvest.finance platform offers all sorts of earning opportunities (lending, exchange pools etc.), so by owning FARM you own 30% of the profits across a wide variety of diversified yield farming strategies. Tasty! (also Risky!)

Now, before diving in with a DIY step, some risks with diversified hedge funds:

Risks of diversified hedge funds like Harvest.finance

As with any DeFi initiative, there is smart contract risk involved in diversified hedge funds, only this time you’re taking on multiple layers of smart contract risk. There are the smart contracts for the earning platforms (e.g. Compound or Aave), but now you’re taking on a further layer of risk by investing via the harvest.finance layer of smart contract. There’s actually a third layer of smart contracts as well, if you’re to earn FARM rewards, which we’ll get into in the DIY section below.

Things can go very wrong indeed on DeFi platforms. Take a look at when the Harvest platform itself was subjected to an attack in October 2020 with over $30M made by the attacker at the expense of the platform. In understanding the attack, it may be of help for you to read on further and then come back to this section where I’ll give a high level overview.

In October 2020, the USDC and USDT pools on Harvest were attacked. Each pool was investing assets on the Curve.fi platform. Essentially, the attacker used a large amount of money (~17M) to move the price of USDC vs USDT on Curve, and then swooped in and out of the USDC pool on Harvest with ~$50M – taking advantage of the price mismatch cause on Curve.fi . The attacker made over $500k each time doing this and repeated the attack over ten times on the USDC pool in Harvest, and then on the USDT pool – sucking out over $30M in value from Harvest in the process.

Why did this happen and how could it be stopped? At a high level, this happened because the attacker was able to do a lot of transactions very quickly. Flash loans (where you simultaneously buy and sell at the same time) were allowed. Flash loans were subsequently disabled on Harvest, and the Harvest smart contracts broken down into more steps – which increases transaction costs (gas) – but improves security.

Harvest even then pulled together a reparations program for those who lost money and created a token called Grain to work towards making them whole. Still, FARM trades at a huge discount (over 10X) to Yearn – a competing hedge fund platform that has a similar level of assets invested.

When it comes to DeFi – particularly multi layered contracts – Caveat Emptor!

Investing with FARM and in FARM

There are two different ways to make money with or in Harvest.

  1. Investing in liquidity pools – which is just pooling your money with other investors into third party strategies (e.g. on Compound or Aave or Uniswap liquidity pools).
  2. Investing in FARM token itself – which is like taking ownership in a hedge fund and earning a share of the platform’s profits.
  1. *Investing in Liquidity Pools

*Navigate to app.uniswap.org, connect your Metamask wallet and swap $10 worth of Ether for $10 worth of USDC (you’ll have to pay for gas as usual using additional Ether in your wallet).

*Navigate to Harvest.Finance and hook up your metamask wallet.

*Scroll down to “Stablecoins”, click the dropdown and seek out USDC.

You can see USDC at the bottom, put 10 in the USDC box. Notice, to the right of the USDC symbol you can see the annualised return on the asset (based on recent returns – not guaranteed annual returns!). You can also see how much USDC is in the pool ($18.71M here), and you can see how much you’ve already deposited (I’ve got 20.227… deposited). You can also see some symbols for Compound, Idle, and Farm – the cryptos involved in the strategy.

So what’s happening here? In this USDC strategy, your USDC is going into a pool of $18.71 worth of USDC and invested into an Idle smart contract. Idle is a platform that moves money between lending platforms (like Compound and Aave) depending on where the best interest rate can be received. Idle has a platform token called Idle that you earn for using the platform. So Idle then takes the USDC and further invests it – in this case – using Compound’s platform, where the USDC earns interest but also Compound tokens

It’s a very multi layered strategy, the overall effect of which is that you lend USDC and receive interest (paid in USDC), Compound and Idle in return. Furthermore, the smart contracts sell off any Compound and Idle tokens earned and use the proceeds to buy more USDC. This means you are auto-compounding USDC to the tune of 28.56% on an annualised basis (measured based on recent returns, not a guaranteed return!).

*Scroll down and click “Deposit and Stake”:

“Deposit and Stake” button at the bottom right

Which leads to the question – what’s the difference between Deposit and “Deposit and Stake”?

Well, by depositing, you are simply pooling your USDC and investing in the strategy as described above. Technically, what happens here is that you lock your USDC into a smart contract, and the Harvest platform gives you back a fUSDC token in return. (if you locked in USDT instead, you could get back fUSDT). This fUSDC token just serves as your receipt for your investment.

However! You can take that receipt (the fUSDC) and further entrust that to a Harvest contract in return for earning some FARM rewards. This is called staking, and means you trust the platform in holding your receipt.

Actually, the 28.56% return mentioned above includes all forms of return – interest, Compound, Idle and FARM. So if you don’t stake your fAssets (the collective term for assets like fUSDC, fTUSD etc) then you won’t get quite as high of a return.

2. Investing in FARM itself

Alright, so we’ve seen above how you can earn auto-compounding interest on specific assets using harvest.finance. You can alternatively get exposure to the whole platform of assets on harvest by buying the FARM token – which earns 30% of any profits made on the platform. This is a different kind of risk profile than providing liquidity to pools – as described with USDC above – in particular because there are no assets underlying FARM tokens. Specifically, if you invest USDC in a liquidity pool, you are entitled to withdraw that USDC at any time (absent any smart contract issues). By buying FARM you are not committing assets to a smart contract that earns a return, but rather just buying an asset.

*Navigate to app.uniswap.org, connect with Metamask, and convert $10 worth of Ether for $10 worth of FARM (you’ll need to do some back of the envelope maths to figure this exchange rate out.

*Navigate to https://harvest.finance/earn and click on FARM Profit Sharing.

*Now enter the number of FARM that you have and click stake:

Use the bottom fields to stake farm. At the top, you can see that I have 10.6 FARM staked at the moment.

A recap on what you get from staking FARM

  1. The ability to vote on FARM governance matters
  2. Profitshare of 30% of liquidity pools (you get this indirectly because the platform uses those profits to buy FARM on the open market).
  3. Emissions! Yes, Harvest is still in the early phases and they are giving out FARM tokens every week to different groups, including those who have staked FARM (and USDC as in the last example).

Some Parting Technical Thoughts

Where do platform rewards come from – such as Compound or FARM? As mentioned above, by using certain platforms you can earn rewards (e.g. FARM tokens earned for using Harvest.Finance). When a platform is getting set up, those initiating the platform often decide to mint platform tokens and distribute them in certain amounts over a certain period of time. The total supply of tokens to be printed may be limited (such as Celo Gold, CGLD), or may be at the discretion of a majority vote of the platform tokens (also known as governance tokens). The ways in which tokens are distributed also varies widely, but often is designed to reward the platform founders and/or incentivise the use of the platform by early adopters. In short, platform tokens serve at least two purposes:

  1. Governance – with a majority vote of the tokens allowing changes to be made to the smart contracts.
  2. Rewards – to incentivise certain behaviours on the platform.

Interestingly – some of these tokens have no intrinsic value in themselves, other than the ability to govern the platform. Some examples:

The Farm token is entitled to 30% of the profits from liquidity pools on the platform.

The Uniswap token is not entitled to any profits, but there is a provision that 0.05% of the 0.3% transaction fee can be redirected to the protocol at some point in the future.

The Compound token does not earn anything at the moment, but it does govern the platform, so its value accrues from the right to divert earnings to the token at some point in the future. Yes, interesting…

Where do the 30% of profits actually flow – are they directly paid to FARM holders? Actually, no. Profits are used to buy FARM tokens on the open market, which puts an upward effect on the price of FARM – it’s kind of like a company buying back its own stock.

Almost done with Part 4 on Decentralized Hedge Funds!

So you now have a way to invest in liquidity pools and strategies while mitigating fees and automating the selling and reinvestment of any platform tokens received.

You also have a way to earn a share of profits from a diversified range of strategies.

That brings us to the Part 4 quiz and the end of this introductory DeFi course. If you enjoyed it, consider letting one or two more friends know about it, and also signing up for my monthly newsletter so you don’t miss out on any more DeFi updates from me.

Once you’ve clicked Submit on the quiz, scroll up to see your answers!


DeFi Mini Course: Part 3, Lending and Borrowing

Before You Get Started on Part 3.

In this part, you’ll learn how to lending and borrowing works on COMPOUND or AAVE, and lend out some USDC for yourself.

You’ll need a MetaMask wallet with about $30 worth of Ether and $10 of USDC (from Part 2) to get part 3. Skip back to Part 1 for guidance on how to fill up a wallet.

This course is priced at $9.99. If you’re new to crypto, you’ll need to read through Part 1 and buy some crypto before clicking the Buy button. If you find the course helpful – but don’t have the money to spend right now – I’d appreciate if you could instead share the course on social media or with two friends.

Disclaimer: Crypto is still in its infancy and very high risk. I recommend setting the expectation that you will lose all of the money you invest as you’re learning and treat it as an education. Throughout the mini-course, I will indicate the cryptos I hold myself, so at least – if you do copy me – I’ll lose money if you do! This course is not investing advice, it is intended to teach you how DeFi works! You are reading these materials and taking any guided steps at your own risk. Crypto is technical and funds are easily lost if you are not careful with passwords as well as sending and receiving money to/from the right wallet addresses – not to mind bugs in nascent software platforms or bad actors. Learn with small amounts to minimise your risk.

Part 3, Lending and Borrowing

DeFi is like a bank, but you can participate in being the bank 🙂

When you borrow from a bank, there is collateral involved. If you borrow for a house, you promise them the house to secure the loan. Same if you borrow for a car.

As far as I know, you can’t yet borrow for a house or for a car on DeFi. Right now, you can only borrow to buy a different crypto, e.g. you can borrow Ether , but you have to offer some other crypto as collateral, say Bitcoin.

Now, this might seem pointless for day to day life and… It largely is! Bear with me…

The current reasons for borrowing and lending are – primarily – for financial engineering. I’m going to cover these financial examples because I want to provide a sense of the full range of DeFi services to further my point that DeFi is like a bank, but you can be served by the bank or being part of the bank yourself… for better or worse!

Borrowing on a DeFi platform

Let’s look at a hypothetical example where you start with 10 Ether, each Ether worth 1,000 USDC:

Grandad Mick goes to a DeFi lending platform (like Aave or Compound) and uses his Ether to borrow USDC. Using 10 Ether as collateral (together worth 10,000 USDC), the platform allows Mick to borrow 8,000 USDC (80% of your collateral). They won’t allow Mick to borrow the full amount of his collateral, just as most banks won’t allow you to buy a house without a deposit – unless it’s 2008…

You take that 8,000 USDC and you buy 8 more Ether. Now you have 18 Ether in total.

Let’s say Ether doubles to a price of 2,000 USDC – so you know have 36,000 USDC worth of Ether. Grandad Mick is in good shape! He pays back his loan of 8,000 USDC (plus interest – which we’ll ignore for now) and now has 28,000 USDC (or 14 Ether) – a tidy profit of 4 Ether.

Now, let’s look at the downside scenario. Let’s say that Ether priced in USDC drops by just 10% down to 900 USDC per Ether. Mick’s collateral of 10 Ether is now worth only 9,000 USDC, and his lending limit (80% of collateral) is now only 7,200 USDC – which is now less than your loan of 8,000 USDC. Here’s what happens next – and I’ll use the AAVE example.

The Aave protocol now allows great-aunt Mary – sitting over there in the armchair – to swoop in and repay up to 50% of borrowed amount (at the new cheaper price) and get a 5% bonus from Mick! She repays 50% of the borrowed 8,000 USDC = 4,000 USDC for 4.44 Ether (4,000 / 900), plus gets a bonus of 0.22 Ether – for a tidy packet of 4.66 Ether. Fair play to you great aunt Mary!

Off of 10 Ether of initial collateral, Mick has now lost 4.66 Ether – pretty harsh for a 10% drop in the price of Ether per USDC. Ouch!

So, what’s happening here? Basically, the platform (Aave) is making it highly punitive for borrowers to go below their borrowing limit and incentivising them to have a lot of collateral behind their borrowings in case prices fall. This mechanism is designed to make it safer for lenders to lend, but it’s not entirely safe!

Sudden and large price movements

Let’s say Ether drops to 200 USDC. Mary can now repay 50% of Mick’s borrowed 8,000 USDC for 40 Ether – but there isn’t 40 Ether of collateral for her to take – there is only 10!!! There is insufficient collateral backing borrowings!

What happens next depends on the lending platform. Some platforms – like Aave – use a governance token to provide reserves, or partial reserves, against this kind of a scenario. Depending on the severity of price movements, those reserves may or may not be enough to save the day. Ultimately, if there is not enough collateral or reserves, it’s the lenders that lose out – that’s the risk they are getting paid for.

So now that you see one of the risks of lending (and remember there is always smart contract risk as well – the risk that the code makes a mistake) – let’s try out some lending.

*Lending on a DeFi Platform

*Navigate to https://app.aave.com/deposit or to https://app.compound.finance/ and connect with your MetaMask wallet. Note that you can use Aave with a Coinbase wallet – Aave’s documentation is also more clear.

*Select USDC (USD Coin) and then deposit/supply $10 of USDC.

*You’ll be prompted to select your transaction speed (duration). If gas fees are very high ($20+), you may wish to come back another time and hope they are lower. Yes, gas is very expensive right now.

*You’ll now start to earn interest on the USDC that you have supplied. (On Aave, you’ll be given aUSDC in return, on COMPOUND you’ll receive cUSDC).

One last question then…

How are interest rates set?

As a concrete example. Let’s consider that there are lenders lending 100 Ether and borrowers borrowing 50 Ether. That ratio – of borrowing to lending – is called the Utilisation Factor.

The platform (Aave or Compound) puts together an algorithm that aims to increase the Utilisation factor to a certain level (a level that is different for each crypto). They do that with an interest rate curve that pays more interest as the utilisation increases – which encourages more lenders to come onto the platform. Here is an borrow rate curve for USDC and USDT – both US dollar stablecoins:

Note that there are variable and fixed rates – we won’t get into the details for that.

One last point on interest rates – you’ll see that borrowing rates are always higher than lending rates. Check out the comparison for yourself here: https://app.aave.com/markets .

The reason for this is the Utilisation Factor being less than one, i.e. only a portion of assets loaned to the platform are borrowed out by borrowers – and the interest paid by borrowers is shared out among all lenders to the platform (regardless of whether none, part or all of their lendings to the platform are being used by borrowers).

Almost done with Part 3 on Lending Platforms!

So, with DeFi, where there is a service (e.g. currency exchange or borrowing), there is also a complementary earning opportunity (e.g. providing liquidity to exchanges or lending). These earning strategies are also known as farming or yield farming.

Taking this a level further, you can imagine a platform that splits money between different earning strategies – somewhat like what a hedge fund does in traditional finance. That’s what harvest.finance and yearn.finance do – and we’ll cover those in Part 4.

First, take a look at the quiz below before moving on to Part 4.

Once you’ve clicked Submit on the quiz, scroll up to see your answers!


DeFi Mini Course: Part 2, Currency Exchange

Before You Get Started on Part 2.

In this part, you’ll learn how to swap one crypto for another on Uniswap so you can lend it out on the COMPOUND or AAVE platform in Part 3 of this course.

You’ll need a MetaMask wallet with $100 worth of Ether. Skip back to Part 1 for guidance on this.

This course is priced at $9.99 for a four part series. If you find the course helpful, but don’t have the money to spend right now, I’d appreciate if you could instead share the course on social media or with two friends. If you’re new to crypto, you’ll need to read through Part 1 and buy some crypto before clicking the Buy button.

Disclaimer: Crypto is still in its infancy and very high risk. I recommend setting the expectation that you will lose all of the money you invest as you’re learning and treat it as an education. Throughout the mini-course, I will indicate the cryptos I hold myself, so at least – if you do copy me – I’ll lose money if you do! This course is not investing advice, it is intended to teach you how DeFi works! You are reading these materials and taking any guided steps at your own risk. Crypto is technical and funds are easily lost if you are not careful with passwords as well as sending and receiving money to/from the right wallet addresses – not to mind bugs in nascent software platforms or bad actors. Learn with small amounts to minimise your risk.

Part 2, Currency Exchange

DeFi is like a bank, but you can participate in being the bank 🙂

In the same way that banks make money by offering currency exchange and lending services, you can participate in DeFi and earn money just as a bank does.

This part of the mini-course will walk you through a currency change platform (UniSwap) where you can either exchange currency OR earn crypto by supporting the currency exchange mechanism.

Exchanging Currency on UniSwap

You will exchange some of your Ether for USDC (US Dollar Coin), so that you can later lend it out on Compound or Aave in Part 3 of this course.

US Dollar Coin (USDC) is what’s known as a stable coin. Each USDC has it’s value backed by a real US dollar that is held in reserve. Stable coins make it easier to transact with crypto because – unlike with Bitcoin – their value is fixed relative to a real/fiat currency and does not fluctuate. USDC is one of the more popular stable coins (others include Tether or Celo USD) and it is one that is supported for lending on Compound, as well as earning a good interest rate, which is why we will choose it for now.

*Swap $10 worth of Ether for USDC

*Navigate to app.uniswap.org and connect in using your Metamask wallet.

*Select Ether and USDC and adjust the amount of Ether you’ll swap until it gives you an output of about $10 of USDC. It should look a bit like this:

There are a few costs to keep in mind before you press Swap:

  1. Transaction costs (gas) – which will depend on how busy the network is. Probably will cost you a between $3-$15. Yes, expensive! We’ll discover a partial solution to that in Part 4 of the course!
  2. Liquidity Provider Fee of 0.3% – paid to those facilitating this exchange (learn how to earn that in the next section!).
  3. Price impact – the larger your trade, the bigger the difference between the exchange rate you get and the current exchange rate. For trades as small as we are doing here, this will be small.

*Click Swap and you’ll be directed to choose your transaction speed, which affects your gas price. There’ll be a link to Etherscan where you can see your transaction status.

You now have USDC that you’ll be able to lend out on Compound or Aave in Part 3 of this course.

How can you be the bank with UniSwap?

Alright, so you’ve seen how to use UniSwap to exchange crypto. You can alternately make money by facilitating this exchange. As a concrete example, let’s think about how you could facilitate (as the bank) the EtherUSDC trade that you just did – known as “being a liquidity provider”.

At the time I did the transaction above, the price of USDC was 0.0008 Ether. The way Uniswap works for liquidity providers is that you contribute both Ether and USDC to a pool of funds (known as a liquidity pool) in the same ratio as the current exchange rate between the two cryptos. For example, you could contribute 0.0008 Ether and 1 USDC to a an Ether-USDC pair liquidity pool. [We won’t actually do this because we’ll waste too much gas for these small amounts invested, but you can do so using your Metamask wall here: https://app.uniswap.org/#/pool].

The reward the liquidity pool gets for providing that liquidity is 0.3% of each transaction submitted to that pair’s liquidity pool, distributed among pool providers according to the value they provide. That’s how you make money as the bank!

A few further notes on that 0.3%. This is 0.3% of each transaction submitted to the pool – not 0.3% of the pool. To figure out what your return is on lending to the pool you have to divide the daily transaction fees received by the pool by the total amount of funds in the pool – and then annualize that ratio to get an annual rate. UniSwap does that for you, and you can see the instantaneous interest rates being earned on different pair pools here: https://info.uniswap.org/pairs .

Which leaves us with one more key question – how is the exchange rate determined and updated on Uniswap? The answer is market forces… read on.

Calculating Exchange Rates on UniSwap

During a transaction on a UniSwap liquidity pool, the ratio between the two cryptos must obey the relationship x * y = constant, where x is one crypto and y is the second.

For example, in an ETH-USDC pool, the product of the number of Ether times the number of USDC must be constant during a transaction. What does that mean?

Well, lets say there are 8 units of Ether and 10,000 units of USDC in a liquidity pool. Now, I – as someone who wants to exchange Ether for USDC come along with 11 Ether. The formula the exchange must follow is:

8 * 10,000 = (8 + 1) * (10,000 – z), where z is the amount of USDC I get for my 1 Ether.

Solving for z, I get back $1,111 USDC.

There’s a subtle but beautiful point here, the more of a currency I need to exchange, the worse of an exchange rate that I get from the pool. This is by design because it makes it expensive to manipulate/attack the price of the pool by doing sudden exchanges. I realise I’m not giving a precise explanation of an attack here, but hopefully you can grasp the high level point that the system is designed to make attacks expensive.

How exchange rates are maintained on UniSwap

The question you should now be asking yourself is how – if someone can swap one currency for another using a pool – the pool doesn’t get imbalanced and move away from the exchange rate in the broader crypto market. For example, could someone buy up all of the Ether using USDC?

In fact, the exchange rate does move! But, market forces move it back to equilibrium. For example, if the pool moves to 1,100 USDC per Ether on Uniswap but you can find an exchange rate of 1,200 USDC per Ether on another exchange platform (e.g. Sushiswap), then an arbitrage opportunity opens up and participants will buy Ether on Uniswap and then sell it on Sushiswap. Yes, the platform names are hilarious.

The bad news – and yes there is bad news for liquidity providers – is that this process of arbitrage is a cost to the liquidity pool. According to the x*y=constant formula, the larger the value of the constant (i.e. the size of the liquidity pool), the less the effect on exchange rate of a transaction of fixed size. This loss to the pool is called impermanent loss, and is a risk of providing liquidity to pools. Generally, the larger the pool and the less volatile the cryptos being exchange in the pool, ,the lower the impermanent loss. As a concrete example, exchange pools involving stable coins like USDC will generally have less impermanent loss than exchange pools involving Bitcoin or Ether (not stable coins).

My perspective on Uniswap

I don’t own any Uniswap governance token. I’m not an expert on Uniswap but my initial sense is that I like the platform and the incentives are community driven. There is the option for 0.05% out of the 0.3% liquidity provider fee to be redirected to the protocol at some point in the future, so potentially the UniSwap token might accrue value from that in the future. For now, the token seems focused on governance and I think Uniswap is providing a useful exchange service to the crypto community.

Further Technical Notes – for the Quiz Bonus Section!

Uniswap Pool Formula – Actually, it’s not x * y = constant. The constant increases slightly on each transaction because there is a transaction fee of 0.3% of the transaction amount.

GOVERNANCE – Many DeFi platforms, such as UniSwap and Compound, have what’s called a governance token – often named after the platform (e.g. UNI and COMP). This governance token often has a form of voting associated with it that allows the platform to propose, accept and reject changes to itself. Sometimes the token purely serves as governance. Sometimes the token also earns a share of transaction fees on the platform and/or is issued to participants in the platform to incentivise certain behaviours (e.g. providing liquidity to a certain pool). We won’t delve too much into this until Part 4 of this course where I’ll cover Harvest.Finance and the FARM governance token.

A note on fees – What we are doing here buying small amounts of crypto (e.g. $10) doesn’t make financial sense because any return that might be earned lending out this small amount is easily be dwarfed by the cost of gas. With improvements to the Ethereum protocol, gas prices should go down over the next years. For now – it’s necessary to invest larger sums of money in DeFi to get a return beyond gas fees. There is a partial solution to that – pooling resources with other market participants – and we’ll get to that in Part 4 of this course.

Almost done with Part 2!

You now understand how exchanges work on DeFi…and you have some USDC ready in your wallet. Take the quiz below! If you pass, you’re ready to move to Part 3 and lend out your USDC on Aave or COMPOUND!

Once you’ve clicked Submit on the quiz, scroll up to see your answers!


Wifi that stretches for miles


  • Helium provides a communication network using hotspots that people install in their homes.
  • As a hotspot owner you earn helium tokens – a cryptocurrency – for providing coverage.
  • There are now about 5,000 hotspots in the world, providing full coverage in most major US cities.
  • So far, the Helium network has been used for tagging/tracking devices and also smart water meters, among other applications.

What is the Helium Network?

The easiest way to think of Helium.com is as a communications network – just like for mobile phones, but with two key differences:

  1. There are no phone/internet masts providing coverage. Coverage is provided by regular people plugging a device (called a hotspot) into their standard internet router.
  2. Each hotspot can cover miles in distance. This is less than radio, but a lot longer than wifi.

People like you and me (yes, I did buy one) buy a hotspot, plug it in at home, and then are providing coverage to the network. At the time of writing, there are about 5,000 hotspots active in the world:

4,995 Helium Hotspots on January 11th 2021

Why would you run a hotspot?

If you have a hotspot you get paid for providing coverage and also for transactions that happen on the network. Surprise surprise, you get paid in cryptocurrency – called Helium – worth around $1.25 at the time of writing.

I myself bought a hotspot for $349 back around October 2020 and have had it running since then. Right now, I’ve earned roughly 450 Helium tokens, so I’ve made about $600 by now providing coverage. If you’re interested, you can track how many tokens each hotspot is making at https://www.sitebot.com/helium/hotspots/. Some of these hotspots are making absolute coin (over 20,000 Helium tokens from one hotspot in Cambridge, MA that got in early on the platform) – particularly in places where there enough hotspots to communicate with a few others but not so many that the rewards start to get shared too much.

These high returns are temporary and will reduce as more people buy hotspots. Right now, hotspots seem to be back ordered as far as the end of March 2021 or later.

Furthermore, much of the Helium tokens being earned are due to what is called “Emissions” – the euphemism for printing money! Like Bitcoin, there is a specific schedule during which Helium (HNT) tokens are minted over time and given to those who provide coverage. Over time this reduces, and hotspot owners become more reliant on users of the network paying them for transactions. Which brings us to the next important question:

Why would anyone use the Helium network?

The Helium network is low bandwidth, which means you can use it to send something like a text message, but not video content. This makes the network good for small devices that need to be low cost and use low amounts of battery. The best example is tracking devices (could be for lost items, or dogs) or passive devices like weather stations or water flow meters – particularly those at a low price point that need to run on very low battery.

Many of you may know Tile.com – a trackable tag you can put on anything and then find using Bluetooth. Well, Helium have developed their own device called Helium Tabs, which is basically the same thing, but not limited by bluetooth. Looks pretty good on paper (I haven’t tried them):

Features of Helium Tabs

Is the Future Bright for Helium?

The Amazon Risk

The biggest risk I see with Helium is someone like Amazon competing with them. How? Amazon already sells doorbells and Alexa devices to homes that are connected to internet. Simply by adding additional frequency bands to the hardware, Amazon could very quickly build a network across pretty much all cities in the world… Amazon is already doing this in a way via their Sidewalk program.

Why would Helium succeed?

Helium founders (e.g. Amir Haleem – an eSports guru, Sean Fanning – Napster founder, and Sean Carey) and investors (Khosla, Google Ventures) are experienced, so that’s a plus.

The other angle Helium is pushing is the decentralised or “The People’s Network” benefit over Amazon (where Amazon would control it’s hotspots, even if it’s your device). There are a few points worth noting on this:

  1. It is always a delicate balance between allowing a network to be decentralised and also being a for profit business involved in that business. Facebook had a challenge building the Libra cryptocurrency, where it tried to set up a quasi-autonomous governing body.
  2. There is a risk that companies will start to buy up networks of Helium hotspots. There are chat groups already about putting together larger and wider spanning hotspots. Ensuring incentives are aligned towards growth and sustenance of the network is challenging.

All of this said, I am glad that Helium are doing what they are. It is a very interesting example of a network, and of using a decentralised and crypto approach to running the network. I’ll certainly be hodling my helium tokens and keeping my hotspot running.

Parting Questions to Keep in Mind

  • How will Helium Tabs perform versus Tile?
  • What impact will Amazon sidewalk (or similar) have on Helium?
  • How will the price of Helium tokens evolve over time (so far, it has been reasonably steady)?
  • Will hotspot ownership continue to be distributed or will it get concentrated into the hands of fewer people/groups?

P.S. www.Fleetspace.com is also worth a read and they combine low power wide area communication with a satellite approach.

If you enjoyed reading about this project, and would like to follow more projects that you can try out for yourself, you might be interested in subscribing to the newsletter:


DeFi Mini Course: Part 1, Wallet Setup for DeFi

About the Mini-Course

This is a learn-by-doing mini-course in decentralised finance (DeFi). The idea is to let you explore how decentralised finance works and how to make (or lose!) money in decentralised finance. Each part of the course will include:

  1. A short introduction to the theme.
  2. DIY sections – marked with a (*).
  3. A short quiz to test your learning.

Course duration: 4 X 1 hour sessions (including DIY activities & quizes).

What is DeFi? Decentralized finance (commonly referred to as DeFi) is an experimental form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks, and instead utilizes smart contracts on blockchains, the most common being Ethereum.

Who is the course for? If you already have some Bitcoin, this course is probably about at the right level. You don’t need to know code, but this course is somewhat technical and hits an intermediate level. You’ll also need to be willing to spend $100 on this course in order to complete the transaction costs in the DIY steps.

Mini-Course Outline:

  1. Part 1, Wallet Setup for DeFi.
  2. Part 2, Uniswap, a Decentralized Currency Exchange.
  3. Part 3, Lending Platforms.
  4. Part 4, Harvest.Finance, a Decentralized Hedge Fund.

Course Pricing:

I’ve priced this course at $9.99 for a four part series. If you find the course helpful, but don’t have the money to spend right now, I’d appreciate if you could instead share the course on social media or with two friends. If you’re new to crypto, you’ll need to read through Part 1 and buy some crypto before clicking the Buy button.

Disclaimer: Crypto is still in its infancy and very high risk. I recommend setting the expectation that you will lose all of the money you invest as you’re learning and treat it as an education. Throughout the mini-course, I will indicate the cryptos I hold myself, so at least – if you do copy me – I’ll lose money if you do! This course is not investing advice, it is intended to teach you how DeFi works! You are reading these materials and taking any guided steps at your own risk. Crypto is technical and funds are easily lost if you are not careful with passwords as well as sending and receiving money to/from the right wallet addresses – not to mind bugs in nascent software platforms or bad actors. Learn with small amounts to minimise your risk.

Part 1, Wallet and MetaMask Setup

DeFi is built on Ethereum. What is Ethereum? What is Ether?

As of January 2021, most decentralised finance (DeFi) is done on Ethereum, which you can think of as a software platform. You may think that Ethereum is a cryptocurrency, so saying “on Ethereum” may be somewhat confusing to you. In fact, you can think of Ethereum as a software platform (kind of like windows for cryptocurrencies), and Ether is the native cryptocurrency of the Ethereum platform.

In order to do operations on the Ethereum platform – for example, move crypto from one wallet to another – you need to pay for those operations in what is called “gas”. The currency that you pay gas in is called Ether, which is why Ether is considered the “native” crypto currency of Ethereum.

The units of gas needed depend on the transaction complexity. For example, a simple transaction might use 21,000 gas, while a complex transaction might use over 1,000,000 gas.

Finally, because one Ether is worth quite a lot, it is common to use the unit of gigawei or gwei, which is one billionth of one Ether. The price per gas at the time of writing (Jan 2021) is about 40 gwei. It depends on the price of Ether and also on how busy the Ethereum network is. Users of the network (you!) set the price per gas you are willing to pay, and miners are incentivised to choose transactions that pay more per gas. So,

  • If the price of Ether (in USD) goes up – then the gwei is more valuable to miners, so price per gas goes down.
  • If the network is being used heavily, then price per gas gets bid up.

You can check instantaneous gas prices here: https://etherscan.io/gasTracker.

It’s all a bit confusing, but this calculation helps out for a sample transaction cost:

= 100,000 gas * 40 gwei per gas * 1e-9 gwei per Ether * 1 Ether per $1,200

=$4.8 in cost for the transaction

So, to do operations in Decentralized Finance, you need to have some Ether (or gwei), let’s buy some now!

*Set up MetaMask and Buy Some Ether.

To buy some Ether, you need to have somewhere to keep it aka, a wallet. What is most handy is to use a wallet that can interact with a browser. In blunt terms, you will run DeFi software in a browser tab, and need to be able for the browser to push and pull money from your wallet. One easy to use wallet that can do that is MetaMask.io , which is what I use.

*Head over to MetaMask and set up a wallet (either on your phone or browser). Make sure to keep your password and your wallet seed phrase in a password manager and/or written down safely.

*Buy $100 worth of Ethereum. Metamask will allow you to do that. I recommend a very minimum of $100 to get through this mini-course because you’ll need to cover gas costs to try out the DeFi platforms. Note: I hold a similar level of Ether to pay for gas costs. I don’t hold Ether as a long term asset. [If you experience issues using Metamask to buy crypto from a UK or Irish bank account, an alternative option is to create an account on Coinbase, purchase Ether, and then transfer that Ether into your Metamask wallet.].

*If you still need to pay for the mini-course, you can do that using Metamask to send crypto to the wallet address presented when you press the Buy button above.

*Lastly, in your browser (I use the Brave browser, but Chrome will also work), go to Extensions (brave://extensions/ or chrome://extensions) and then find & install the Metamask extension. This is what will allow you a browser tab to interact with your wallet.

Cryptos that are Built on the Ethereum Platform.

Ether is the native crypto of the Ethereum software platform. However, it is possible to build other cryptos using Ethereum. In fact, there are many such cryptos, including the following cryptos that we’ll take a look at in this mini-course:

  • Uniswap, a governance token for the Uniswap decentralized crypto exchange platform, i.e. you can swap one crypto for another (more on that in Part 2).
  • Aave or Compound, governance (and reward) platforms allowing you to loan or borrow cryptocurrencies to others (more on that in Part 3).
  • FARM, a governance (and profit share) token for a crypto hedge fund (more on that in Part 4).

Back to Metamask for a brief moment… Metamask is a wallet that allows you to hold Ethereum based cryptos (e.g. Ether, Compound, Farm, Uniswap). Bitcoin is not built on Ethereum so you cannot buy or hold Bitcoin using metamask.

Further Technical Notes – for the Quiz Bonus Section!

wBTC – There is actually a way to use Bitcoin on the Ethereum platform, and that’s called wrapped Bitcoin. The idea behind wBTC is to have an Ethereum based token that is backed by one Bitcoin for every wBTC token that is in existence. This allows you to transact in Bitcoin using Ethereum software. [Technically, wBTC is an ERC-20 based token – which you can think of as a software subset of the Ethereum platform.]

Buying non-Ethereum based tokens – If you do want to buy non-Ethereum cryptos like Bitcoin, you can use a service like Coinbase (my referral link earning you $10 if you sign up and invest $100 in crypto). You could even use Coinbase to buy Ether and then transfer it to your Metamask wallet. You may get a better exchange rate using Coinbase than Metamask (using Wyre) but you’ll then have to pay for gas to get your crypto from Coinbase to a Metamask wallet. For a $100 purchase, it’s probably easier to buy in MetaMask – unless you trust Coinbase more.

You’re now ready to engage in Decentralised Finance!

You now have a suitable browser (Brave or Chrome), you have a wallet that can engage with browser apps (Metamask) and you have $100 worth of Ether, which we will use to buy other Ethereum based cryptos, and also to pay for gas (sigh….) as we move crypto around.

Take the quiz below! If you pass, you’re ready to move to Part 2:

Once you’ve clicked Submit on the quiz, scroll up to see your answers!


A Simple Explanation of Why Home Antigen Testing is Effective


  • Isolation based on COVID symptoms is helpful and important, but far from perfect.
  • Contagion can happen before symptoms or without symptoms.
  • An inaccurate test (say, 30% false negatives) is likely more accurate than isolating based on symptoms.
  • Cheap quick (15 min) antigen tests accurately detect contagiousness (often 95%+).
  • Governments should make emergency allowance for antigen tests that are authorised for clinical use to be used at home. This would be much better than isolation solely based on symptoms.

The Problem:

Government policy is for people to isolate at home if they have symptoms. However:

1. People are contagious before the onset of symptoms.

2. Not everyone isolates because not everyone gets strong enough symptoms.The isolation based on symptoms policy is helpful, but far from perfect. For every person isolating, there is likely at least one other person unknowingly spreading.

A Solution:

> Cheap (less than 10 euro each) antigen tests are already available that are already EU approved for clinical use.

> These tests are effective at detecting contagion and can catch cases that are missed if you wait for symptoms.

> These tests could easily be self administered to give a result within 15 minutes – you can see my demo video here: https://ronanmcgovern.com/2021/01/08/i-tried-out-a-covid-antigen-test-for-myself/.

Simply by issuing an emergency authorisation for self-use – the government could allow these tests to be sold and used in Ireland. This would be a big improvement over isolation based on symptoms.

Research backs this up. There are US studies from Harvard and Colorado Boulder (here) showing that cheap and quick home antigen tests can greatly slow down the spread of covid in a population.


Test sensitivity is secondary to frequency and turnaround time for COVID-19 screening. https://advances.sciencemag.org/content/7/1/eabd5393/tab-pdf

Further Reading and Reference: www.RapidTests.org .

If you have concerns with the accuracy of any statements or arguments in this article, please e-mail me (you can do so by replying to my email when you subscribe) or by commenting below.


Alfa Laval Acquires Sandymount Technologies

As of December 31st 2020, Alfa Laval has acquired Sandymount Technologies.

The full press release is available here: https://www.alfalaval.com/media/news/investors/2021/alfa-laval-acquires-unique-technology-to-strengthen-its-position-in-sustainable-beer-production/

I have been able to work with many people since the idea for Sandymount started in a lab at MIT back in 2014. Thank you very much to:

  • The Sandymount Team – past and present, including advisors and board members, including those who helped formally and informally.
  • MIT – Prof. Lienhard’s laboratory, the Technology Licensing Office, the Translational Fellows Program, The Trust Center and MIT VMS – including mentors.
  • Our Clients at Sandymount who supported us through this journey – financially and through learning. I think that Alfa Laval will be able to provide you with even higher quality, more complete and better supported Revos solutions and I am very happy about this.
  • Our Suppliers and Service Providers, who helped us to scale from lab systems to commercial solutions.
  • Sandymount’s Investors, who believed in the vision for more sustainable beverage supply chains.
  • My Family and Friends who lived the startup experience with me.

I’m looking forward to helping Alfa Laval take advantage of the full potential of Sandymount’s technology, and – in time – to new business adventures.

SlĂĄinte = Wishing you all good health!


What alternatives to Facebook and Twitter?


  • Whether you think Twitter/Facebook should ban users or not, the crux of the matter is that Facebook/Twitter have a lot of influence.
  • Mastodon.online provides a more decentralised version of Twitter.
  • The most robust option is for everyone to have their own website and to link websites together in feeds. This isn’t fully slick, but it’s a smart step from a business or audience building standpoint.

Are there good reasons to get off Facebook and Twitter?

Let me go through a few angles and philosophies that I see on this question. Hat tip to my friends Ste and Greg for discussions and ideas on the below.

A. Getting de-platformed.

If you’ve built up a big following (which I haven’t!), then getting thrown off Twitter is pretty annoying. Personally, I don’t think that I’ll get thrown off Twitter or Facebook, nor will many others. Although maybe I’m being complacent…

Clearly Trump getting thrown off Twitter is not arbitrary given his contribution to the US State Capitol being over-run by a violent mob. At the same time, it’s hard to find a rule – consistently applied across the Twitter platform – describing why Trump was thrown off. It is sad, but a reality, that there are many Twitter accounts inciting violence – including accounts of major national figures and governments.

My position – and maybe it is a naive and hopeless position, although I think not – is that the problem is in having a small number of platforms (aka Twitter, Facebook) with large reach. The pragmatic solution I see is in having more platforms. This is my review of some alternatives to Twitter/Facebook.

B. Having to pay for ads

From a business angle (my experience running http://www.Point5Brewing.com as an eCommerce business), the power that platforms like Facebook have, is huge. Even if you build up a large following, Facebook completely controls who sees your posts, and has the system set up to encourage you to pay for ads.

As a business, if you can develop your own distribution channel/audience, that’s always going to be better and lower risk.

Alternatives to Facebook and Twitter:

1. Social Media as a Public Utility

There is a substantial Wikipedia article on the topic. I won’t dwell further on the idea because I think that social media is too dynamic and amorphous to make a public utility. Myspace fell apart and was replaced by Facebook. Facebook is now increasingly driven (at least economically) by Instagram. In ten years time, who knows what the landscape will be. The landscape is changing too fast to make it a public utility.

2. A Slightly More Decentralised Version of Twitter

One candidate here is Mastodon.online . Mastodon (terrible name btw) is decentralised in the sense that there are different servers hosting Mastodon (think Twitter) accounts. You can join a server and, if they kick you off, you can go to another server and keep your data and followers (more or less).

I created an account here (https://mastodon.online/@RonanMcGovern) if you’d like to check it out.

One criticism of Mastodon is that the servers/hosts can still be targeted, so you can get shut down temporarily before you move to another server/host (if someone will accept you).

The larger issue with Mastodon seems to be that it’s too similar to Twitter. For a new platform to succeed, it needs to be substantially more unique than what is already out there.

3. A domain based approach to social media

Another approach is that everyone has their own website, and they only use that website to send out blogs or tweets and/or a newsletter. You can see how I’ve set mine up in this way at www.RonanMcGovern.com .

Balaji Srinivasan (www.balajis.com – you see how I did that!) is a big advocate of this approach and even has a guide on how to leave Twitter and bring your followers with you (start by putting your Twitter username as your website).

The benefit of each person having their own website is that it can be fully decentralised. You can control your own hosting of your website and you control distribution (your e-mail list) – you can make it very hard to be taken down. People can also subscribe to your content using your RSS feed (e.g. www.RonanMcGovern.com/feed/ ) using a feed reader (like this one – https://www.feedreader.com/) – so you can also control your distribution. A bit old school – but sometimes old is the new new.

My reservation with everybody having their own domain (read: website) is that it seems a bit clunky and not as slick as Facebook and Twitter. Perhaps if it was attached to a phone number instead of a website, it would be easier.

Conclusion – having your own personal website is a smart business decision.

If you’re worried about Facebook/Twitter having a lot of influence, I think creating and spending time on your own website and e-mail list is the way to go. Tools like wordpress.org make it easier to do this. That said, it’s not a fully slick approach.

If you’re not that worried about Facebook and Twitter, I understand that too. Still, it can be worth checking out personal websites from your friends who do have them and signing up to their feeds/newsletters.

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DIY Self Driving Cars


  • My 2019 Honda CR-V offers limited self driving via adaptive cruise control and lane assist.
  • The adaptive cruise is good – it controls speed while keeping you a fixed distance from a car in front.
  • Honda’s lane assist is pretty terrible, it’s supposed to keep you within the lane on a motorway.
  • For ~$1k, Comma.ai offer a plug and play dash camera that integrates into 92+ cars and provides much improved lane assist, plus a driver facing safety camera.
  • I bought and installed it. Here’s what I found.

The Basics – Adaptive Cruise and Lane Assist

Most new cars now have some level of self driving. For years, cars – especially automatic drive shaft cars in the US – have had cruise control, which allows you to fix the speed at which you drive. That’s a big help, but annoying if there is a car in front changing speed that forces you to disengage and control speed manually.

Adaptive cruise uses radar to detect objects in front of the car and thereby keeps your car at a fixed distance from the car in front. I’ve driven this feature on my Honda CR-V, but also on a Toyota Corolla, and it works very well. It makes motorway driving a lot less tiring.

Lane Assist is a different kettle of fish. For lane assist, there is a forward facing camera in the car that sees lanes on the road, and keep you within the lanes. Honda Sensing does this on the CR-V, but it really only works well on motorways. Annoyingly, it requires you to touch the steering wheel every 5 or so seconds or else it disengages. Moreover, if there is much bend at all in the road, the system loses track and you have to steer the car manually. In all, the benefit of lane assist is very minor with Honda (or Toyota’s) current capability (this article was written on Jan 1 2021).

Comma.ai – the next level

Now comes the DIY approach, which allows you to keep adaptive cruise, improve lane control greatly, plus add some safety features. The solution is a dash camera (the Comma 2), that adds a front facing camera and also a driver facing camera to your car. The Comma 2 also draws from the car’s native front facing camera and radar systems. Lastly, Comma 2 provides input to your car via the OB-II service port under the driver’s steering wheel so that it can control your accelerator, brake and steering wheel.

For regulatory reasons the Comma 2 is not a self driving product. It is “merely” a driver dash cam allowing you to record your journeys. However, by downloading some open source code (Open Pilot), you have the option – entirely at your own risk – of using it to run some pretty sophisticated self driving.

A quick review of the features of Comma.ai (comparing to Honda Sensing as the benchmark):

  1. Adaptive Cruise (adjusting your speed to cars in front) – Comma behaves largely the same as Honda Sensing. At some points Comma is smoother than Honda Sensing in slowing down, at other times it’s the inverse. One slick feature with Comma is that, when your cars slows all the way down behind another car at a stop, Comma will have the car take off again once the car in front moves, whereas Honda requires a prompt by pushing the accelerator.
  2. Lane Keeping – Comma is streets ahead of Honda Sensing on lane keeping. While Honda’s lane keeping frequently shuts off, Comma can take you along street roads – avoiding obstacles – and does very well on motorways. A big advantage for Comma is the driver facing camera – that starts beeping if you look away from the road. This means you can drive for long distances (at least on the motorway) without having your hands on the steering wheel at all.
  3. Safety – I’m repeating myself here a bit, but the driver facing camera adds a layer of safety that isn’t there in Hondas (or in Teslas). George Hotz (founder of Comma) is of the opinion that all cars will need to include a driver facing camera to achieve full self driving safely.

BTW, Lex Fridman’s two podcast with George Hotz of Comma are phenomenal – one and two – the best podcasts I listened to in 2020.

Some worked examples on Comma.ai !

Highway Driving

Here is a video of Comma 2 on motorway driving (not me, someone else on youtube). The one caveat I would give, at least for the Honda CR-V, is that the motorway needs to be quite straight in order for the system not to require you to touch the wheel. It’s not as bad as the Honda Sensing’s native system, which disengages very easily, but Comma Ai does disengage if there is a turn of roughly 20 degrees. I’m not sure if it’s an issue with insufficient steering wheel torque (the self driving system uses power steering to turn the wheel) OR whether the field of vision of cameras is not good enough when there is more bend in the road.

Street Driving in the Honda CR-V with my friend

This video gives a sense of what the car can do on streets from driving with my friend. Note that Open Pilot can definitely not turn around corners, but it can move the car side to side in order to avoid obstacles when driving along a straight street. For most of this video, I have my hands ready to intervene, but I don’t touch the wheel.

Comma.ai vs Tesla

I have driven a model 3 once, but I didn’t use much of the self driving. A few key differences, as far as I understand, between Tesla and Comma’s Open Pilot:

  • Tesla self driving costs $7,500, Comma costs $1,200 (including a connecting cable).
  • Tesla – from a regulatory standpoint – is likely a safer bet. As I said above, Comma is technically only selling a dashcam that you can add your own software to.
  • Comma is limited by the cameras and radar that the average new car has. Teslas have many more cameras – and so they can do things like parallel parking automatically, that Comma can’t do for hardware reasons.
  • As I gather from George Hotz of Comma, Tesla is more advanced (Elon Musk reckons they will have fully autonomous driving in 2021), but they obviously have spent tens of billions more than Comma, which has probably only spent a few million to get where they are.

That’s it for this week. Next week will be a technical review of Helium.com Long-fi systems – long distance wi-fi systems that you can set up in your home, and earn money on for providing the service. You can sign up for my Engineering Business newsletter if you’d like to get an update:

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I tried out a COVID antigen test for myself


  • Cheap COVID antigen tests are available with high specificity and sensitivity.
  • They are easy to use and give results in 15 mins.
  • In the EU, they are only approved for clinical use.
  • Government could greatly expand testing simply by allowing people to test at home.

I tried a test for myself (skip to 7 mins)

Demo of a simple antigen test

A few notes on these tests

Performance: Relative specificity of this test is 97.1% and 99.5% sensitivity in a lab setting.

Cost: About 7 euro per test. Could be much cheaper if purchased at scale.

Result: You get the result within 15 mins.

Approval status: Approved for clinical use in the EU. Not allowed for home use.

Why antigen testing makes sense

Read more on RapidTests.org

What are the public health benefits of home antigen testing?

  • Antigen tests are cheap and quick and good accuracy. This allows for widespread testing and earlier detection than having to wait for PCR tests.
  • Antigen tests are sensitive during contagiousness. This means you are less likely to keep testing positive after being contagious (as can be the case with a PCR test).

What are the risks of allowing home testing?

  • Not every test is 100% perfect. There will be a small number of false negatives (i.e. you test negative but are actually positive). We have to balance this against many more people currently not knowing they are positive and spreading the virus. Also, if people test positive at home, that frees up PCR testing (which is currently under too much pressure).

What can you do to help out?

  • Talk to your friends about antigen testing as a way to reduce spread.
  • Get in touch with your local politicians and ask them to push for emergency authorisation for home use.

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Review: Sun Tzu – The Art of War

The Art of War by Sun Tzu

My rating: 4 of 5 stars

In this quick read, Sun Tzu shares advice on how to approach and prevail in conflict. Though this book is focused on a time where war was hand to hand, I can see how Tzu’s advice is seen as timeless. Weapons have advanced but human nature remains.

“Humble words and increased preparations are signs that the enemy is about to advance. Violent language and driving forward as if to the attack are signs that he will retreat.”

“If it is to your advantage, make a forward move; if not stay where you are.”

A worthwhile read, if only for the knowledge that a battle should be fought from where it is high, dry and sunny!

View all my reviews on Good Reads


Newsletters are all the rage.


  • Newsletters are in vogue, particularly as companies like Substack have made it easy to set up a newsletter on a freemium model.
  • Many journalists have left traditional media companies in favour of running their own newsletter.
  • Although e-mails are a “basic” format and quite old by internet standards, e-mail remains a highly valuable format for growing and reaching an audience.

My Subscriptions

To cut to the chase, here are the newsletters that I actually read every week:

Lorem Ipsum. This one comes out a few times a week and is a quick read – and free. Written by Margot, it covers food, tech and culture. She has a good take.

Talk Money with Mesh Lakhani. Free and roughly weekly, this one gives a summary of topics and links to click on. Good for pulling out nuggets of money/finance news.

The Diff. Written by Byrne Hobart, this one is a very very deep dive into tech companies and trends. It’s $20/month (aside from a few free articles) and it publishes a few times a week. The content is savage, and very well worth the $20.

Weekend Briefing. Kyle Westaway curates a summary of key news happenings, with a decent level of business focus. The newsletter is weekly. It’s a reasonably long read – which is good – and Kyle tends to pull out some worthwhile rabbit hole stories to go down. It’s free.

Default Friend. Another substack newsletter – this one focused on relationships and publishing a few times a week. No fear in this author to tackle out uncomfortable questions. I know what you’re thinking – like a newspaper advice column. No, not really, this deserves more credit than that. And it’s free.

Contrarian Thinking. Codie Sanchez has this substack and it publishes a few times a week. Codie always has some mad ideas on how to make money through hustling – like buying small businesses or pulling together paid networks. Also, it’s free.

Newsletters allow authors to control access to their audience

In a world of Facebook and Google and Instagram, the good old fashioned e-mail is one of the few ways to build an audience where you can control distribution.

At the simplest level, you can keep a list of e-mails and send them from gmail. You can also set up a mailing list using Mailchimp or MailerLite or many more.

I can’t emphasise this enough, but with an e-mail list you have free access to distributing to your audience as many times as you want! Once someone subscribes (and assuming you don’t piss them off and they unsubscribe), you control that communication channel. I know this is obvious, but compare that to Facebook:

  • You build up followers on your page, but, Facebook controls how many of your followers see your posts.
  • You can pay for ads on facebook, but you have to pay Facebook each time you distribute.

This is why e-mail (and text messages) are huge for eCommerce businesses and for anyone trying to grow a following. (Codie Sanchez above talks about buying and selling mailing lists and newsletters – a potentially lucrative business if done well and without spamming subscribers).

Newsletters as a Software Company

Then there’s Substack.com – they’ve taken the hassle out of getting a newsletter layout and landing page right, and replaced that with a slick ready-to-go package to set up your newsletter – with Substack taking a 10% cut of any monthly subscription that you charge.

As you can see, some folks writing these newsletters are making some serious coin, with thousands of subscribers paying $5-50/month, a very nice side-gig or gig indeed:

Substack top Business Writers

And here are some folks that have ditched larger traditional media (like Rolling Stone (Glenn Greenwald) and The Intercept (Taibbi). Ok, I’ve no idea what the Intercept is, but there was a big fanfare when Glenn Greenwald left it for substack. Who is Gleen Greenwald…?

Some substack folks, including some that ditched traditional media

And of course, to cap it off, if you’d like to sign up for a meta newsletter (actually mostly a newsletter about random stuff, with emphasis on business and technology), here I am:

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COVID Notes: Ventilation & Anyone know where to buy home test strips?


  • Vaccines are welcome, but viruses can mutate.
  • Quick and cheap home COVID tests should be a priority for individuals and governments as a complement to vaccines.
  • COVID likely spreads through air – ventilation is critical.

Quick and Cheap Home Tests

It’s good that vaccines are progressing. However, it is possible COVID will mutate, and the vaccine will become less effective. While the vaccine is rolling out, the higher number of infections, the easier for the vaccine to mutate. I see widespread home testing as more socially acceptable than lockdowns, and better for the economy.

It is already possible to make home COVID tests for cheap. They are also accurate – not quite as accurate as a lab – but much cheaper and quicker.

If everyone could test themselves at home each week for a few euro per test, that would allow for early detection and significantly slow the spread – even if the strips tests aren’t perfect (btw, they aren’t far from perfect!).

Please comment below if you have information on:

  1. The regulatory status of home strips tests in Ireland, UK or EU.
  2. Where I could buy home test strips.

Lastly, on this point – a podcast I highly recommend from Lex Fridman with Michael Mina.

The Importance of Ventilation.

There is not full consensus on whether COVID is transmitted through the air or through surfaces. However, it seems likely that transport through the air is dominant.

There is a worthwhile podcast with Dr. Martin Bazant of MIT covering transport of the virus through the air, and you can listen here. I still pay attention to washing my hands, but here are a few other takeaways from this podcast:

  1. If you are outside, your breath typically rises and the air is well mixed, making transmission more difficult.
  2. If you are in a room, the virus will accumulate in the room as people spend time in there.
  3. Masks help (not just to stop spit/spray) but in slowing the rate at which you release the virus from your mouth/nose into the room.
  4. The air in a room is generally well mixed, so staying on the opposite room is not likely to help as much as you would like. Consider someone smoking in the corner of the room – you’re still going to smell the smoke from anywhere in the room.
  5. What will help reduce the amount of virus in the air of a room are: having windows/doors open, good ventilation, or an air filter.

Sometimes it’s too cold to open the windows, so I got a small standup HEPA filter (Amazon affiliate link) (that can filter viruses), with a UV lamp on it. This small unit can change out the air about a few times per hour. It’s not perfect, but I think it’s better than just sitting at the opposite side of the room to someone. I don’t understand why more people aren’t buying air filtration units for their homes.

Comment below if you bought a filter, or if you see things differently on why a filter would/wouldn’t help.

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What is affiliate marketing and how to use it to make money or increase sales?


  • Affiliate marketing allows you to get paid a commission when you link products from your website or social media accounts.
  • Many companies have an affiliate program, including Amazon, that is easy to sign up for. Companies – like Amazon – use affiliate programs as a form of advertising.
  • I set up an Amazon affiliate account and made videos for two products I like to see how affiliate marketing works. Here is what I learned.

Getting set up

Signing up for Amazon’s affiliate program is easy. You go to https://affiliate-program.amazon.com and put in your details. You can then generate custom links to any product on their website and put that link on your website or social media. You also need to put somewhere on your site (I did it on my about page) that you get paid for links to Amazon if there is a purchase. The amount you get paid depends on the category the product is in – it typically varies from 1% to 10%.

Where to share/put the link

This depends on where you are getting traffic. I have a personal blog (that you are reading now), and I also like to make videos. So I have created a web page specifically for my favourite products with a short Youtube video for each of my favourite products.


  • Do provide links to products that you already use and like.
  • Do put links in places that naturally make sense – like in a blog article where you are referecing a book, or in the description of a video where you are doing a review.


  • Don’t link link to random products that you don’t use or don’t like – that will hurt your reputation.
  • Don’t spam people with links in e-mails or by plastering links all over your website.

Example #1 – My video for a Dyson Cordless Vaccuum Cleaner

Example #2 – Bose Headphones

Example #3 – My Favourite Books

  1. Zero to One by Peter Thiel
  2. Risk Savvy by Gerd Gigerenzer
  3. Antifragile by Nassim Taleb
  4. What they Don’t Teach you at Harvard Business School by Mark McCormack
  5. Blue Ocean Strategy by Kim and Mauborgne

How to use an affiliate program to boost sales?

This is relevant if you are a product owner that wants to boost sales. A few options:
1. If you are on Amazon with your product (e.g. Point 5 Non-alcoholic Beer), then Amazon affiliates are already able to promote your product by default.

2. You can join an affiliate network like http://www.ShareaSale.com (I haven’t used this yet but plan to explore it in early 2021) that allows you to get in front of people that might want to promote/market your product.

From a product owner standpoint, the nice aspect of affiliate marketing is that you can set the commission rate so that it is less than your gross profit. This means you can generate added sales that are net profit generators – i.e. no marginal cost! Beautiful.

Let me know if you have any questions on affiliate marketing by commenting below, and consider signing up to my newsletter if you enjoyed this piece. Cheers.

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Why Digital Advertising Sucks


  • I have spent thousands of dollars on Facebook, Instagram and Snapchat ads. In some cases they resulted in zero sales, in other cases the cost per sale far outweighed my profit per sale.
  • The effectiveness of digital ads is impossible to measure because there is no way to conduct a randomised trial. AB tests that platforms promote are not statistically valid.
  • Digital ads are presented as having the superpower of “targeting”. It is hard to prove that targeting delivers a lower cost of customer acquisition. It is much more likely that targeting results in prices being bid upwards.
  • The concept of customer life time value is being used to encourage startups to spend more on customer acquisition via ad spending. Credit Jaffer Ali.
  • Where digital ads appear to generate a return, you have to ask the question of whether you would have had those same sales without doing any ads.
  • Many of my ads have been trolled in the comments. Others have annoyed would-be customers who feel they are being spammed. This hurts sales long term.
  • A healthier approach to advertising is a breakeven approach, whereby you breakeven on marketing costs on your first sale.
  • With digital ads it is very hard to break even on your first sale. For now, I believe it is best to consider other forms of advertising such as e-mail advertising.


The following three references are central to my discussion below and I highly recommend each of them:

  • Rory Sutherland’s Alchemy – An entertaining read covering the physchological aspects of marketing. To quote David Ogilvy – ” The trouble with market research is that people don’t think what they feel, they don’t say what they thing, and they don’t do what they say”.
  • Jaffer Ali’s interview on Risky Conversations. Jaffer has an eluminating perspective on the drawbacks of digital ads and typical eCommerce businesses, as well as unique approaches of his own on marketing.
  • Freakonomics multi part series on whether advertising works. Some may find portions of the series too academic, but the questions raised around the value of advertising are good ones.

I believe advertising works, but there may be a bubble in digital ads

As Rory Sutherland likes to say: “A flower is a weed with an advertising budget”. Our emotions can certainly be controlled by what we see and hear. Our emotions affect our purchasing patterns. I accept this and I accept that people would not be spending so much money on advertising if it was useless.

However, it is entirely possible that advertising works, but digital advertising is in a bubble. My direct experience with paid advertising, and my reading of the references above, have brought this to light for me, although I am far from the first.

My Experience with Digital Advertising

To date, I have spent a few thousand dollars, maybe even ten thousand dollars – through hand sanitizer and non-alcoholic beer businesses – on paid ads. I have:

  • Tried Snapchat ads for non alcoholic beer – yielding zero sales for hundreds of dollars in spend.
  • Tried Facebook ads – yielding some sales, but at a cost of over $30 per sale – way higher than the profit per sale.
  • Tried Google ads – yielding no sales for non-alcoholic beer and yielding some hand sanitizer sales (back when sanitizer was scarce) at a huge cost.

Digital Advertising as a Black Box

First off, you may argue that I am not doing it right. I accept that argument, but I am not going to address my own incompetence in this article!

By trying paid ads, it has become clear to me that here are aspects of paid advertising that fundamentally make it hard for advertisers to generate a strong financial return:

  1. The advertiser only has the appearance of having control over how ads are shown. Actual control is in the hands of the platform.

The problem is – you have no visibility into exactly how those targets are being chosen behind the scenes. One week you may hit a certain 10,000 users. Another week you may hit another 10,000 users. I have never run the same campaign twice and achieve similar results. I was like a lab scientist running tests but with no control over the test parameters to make things a fair comparison. Even with the AB tests that digital platforms allow, you can run the same AB test multiple times with different results.

When I go into Facebook (or other platforms), I select a group of people to target. I have access to parameters such as geography or job title or age. Based on these settings, I can define a target group – let’s say of 100,000 people. I then set an advertising budget (say $100 per day). That advertising budget determines how many people – within my target group – the advertisements will hit. The problem is, I don’t decide exactly how these groups are defined, and who within the group will be hit with my ads. The system is a black box that gives the appareance of control but can easily be designed on the back end to optimise for the advertising platform’s revenue.

2. The complexity of the domain in which advertising occurs is vastly underappreciated and is misrepresented.

My second criticism is a statistical one. It is very difficult in a complex system to obtain meaningful comparisons in performance between ad sets. Measuring the performance of a single campaign is easy. Comparing one campaign to another is – in most cases – statistically impossible. Platforms like Facebook are accidentally or deliberately giving the appearance of a measurable process by offering AB testing systems that give the appearance of control over the advertising process. The reality is that there are far too many variables involved in ad performance that cannot be held constant in conducting a comparison.

Targeting does more to increase the price than the effectiveness of ads

Precise targeting of ads creates discrete markets that allow advertising platforms to have advertisers bid against each other and drive up process. This is a clear benefit to the platform

Much less clear is whether a high level of targeting can generate a strong financial return for advertisers. The more I target, the smaller my audience and the higher my advertising costs per sale (especially if I have competition). I need to think more about this but, as I do more targeting, I see myself going up a price curve that is progressively steeper. In other words, I’m getting less bang for my buck in terms of advertising dollars as I do more targetting.

Furthermore, I think targeting is over valued because it is easy to measure performance based on the acquisition costs of your final target audience, but forget about the advertising costs you had to pay for in order to test and find what your proper target audience should be.

Lastly, from the perspective of the advertising platform, they love that I am spending money to find out who my target audience should be – because – once I get to my “target”, they are still the ones in control and can still charge me up to my gross profit in order to give my access to that target! Any advertising monies spent on testing is a sunk cost to me and a sunk profit to them! It’s not like I can have a preagreed arrangement where I say, “I’ll pay $100 to find my target audience but then you’ll agree not to screw me over on pricing once I get to that target. Ok?”. “No”.

Life time customer value as a business school philosphy to drive advertising spending

As Jaffer Ali points out, the “razor – razorblade” narrative pervades business school, corporate and startup thinking. Every investor is looking for the recurring revenue model where – yes, you may have to sell a razor upfront for cheap – but you’ll make it back selling razorblades. Ironically, for the original razorblade company (e.g. Gillette) this hasn’t worked out so well recently given Dollar Shave Club and Harry’s getting on the scene with their cheaper blades.

Lifetime Value or LTV is where you take all of the future value of a customer and discount it back to a present day number. As modern textbook thinking goes, so long as the lifetime value of a customer is signficantly in excess of advertising (customer acquisition costs, CAC), then you are golden. The problem with this narrative, is risk. Summing up the future value of a customer often assumes that the future will look like the present, and it often does not.

For advertising platforms, it is convenient to set risk aside as a real parameter. All that is needed is to push the narrative that their ads provide you with customers with great future value. If you have a customer worth $100 over the next three years – why wouldn’t you spend $50 on Google ads to acquire them today? Easy! Why not even pay $99?

Sometimes no ads are just as good as ads

It’s a very hard argument for a marketing department to completely turn off their advertising. However, without doing this, it is tricky to know whether ads make a difference. In many cases (for example, buying google ads when you are already ranking highly organically in searches), it turns out that you are paying to advertise to customers that would anyway have found you. It’s like giving people a discount after they have already checked out!

Rory Sutherland likes to make a similar point in Alchemy.

Advertising can lose you customers

When I was doing Facebook ads, there was a certain percentage (maybe 20%) that would get trolled in the comments. For example, for Point 5 Non-alcoholic beer, there would be comments asking “What’s the point?” or emoji symbols of puking down a toilet. (The first one I found funny, the second I didn’t like for obvious reasons). At best I might say that “there is no such thing as bad publicity”. At worst, I worry this damages my brand.

Add to that the fact that many people hate ads and use ad blockers. I use mozilla firefox with privacy badger in order to block ads. I also tend to use DuckDuckGo, even though it’s not as good as google. People often don’t like digital ads and tracking, and I feel that some of that sentiment rubs off onto my brand if I use paid ads.

A better approach to advertising

I think it makes sense to think about customers in a long term kind of way when it comes to branding, mission and service. However, when it comes to advertising spend, I’m coming around to the view that it pays to be short sighted. In other words, if an advertising strategy doesn’t pay off very quickly – and it involves spending cash upfront – then I don’t do it. Here’s how I think about it:

  • If I want a long term effect, then spend the money on making great content (videos, art, podcasts) where it isn’t possible to easily calculate a financial return.
  • If I want a shorter term effect, only spend money on advertising to the extent it is breakeven within a short timeframe (30 days).

I take the view that paid digital advertising is overpriced at present and best avoided. I’m glad that I don’t own any Facebook or Snapchat stock any more. Unfortunately I don’t have any easy alternatives other than creating good content, cross promoting with others (businesses, influencers) that are drawn to my brands, and building up a database/sales channel that I can control fully (like an e-mail list).

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What’s the story with Bitcoin?


  • Bitcoin recently passed the $20,000 price mark for a brief moment.
  • The value of all circulating bitcoin is about $371B (at a price of $20,000 per bitcoin).
  • The value of all gold above ground is about $11.5T (at a price of $1,800 per oz.), a factor of ~30X more than bitcoin.
  • If bitcoin even got to $200,000 (ten times the recent price) – approximately half of all billionaires in the world would owe their wealth to bitcoin.


Bitcoin provokes strong reactions – positive and negative. Warren Buffett thinks Bitcoin is a bubble (“rat poison squared”). Meanwhile, large public companies are starting to get on board with Bitcoin – Square recently bought $50M worth and Paypal are planning to add Bitcoin to Venmo in 2021.

Personally, I think Bitcoin could go to zero, but it could also go much higher. As I’ve written before, I hold ~5% of my liquid net worth in Bitcoin.

Passing $20,000

Bitcoin jumps around in price a lot and – like any speculative asset – people just love when it crosses a good round number, like $20,000! $20,000 is roughly the mark that Bitcoin hit in 2017. This past week, bitcoin went slightly beyond its 2017 record and reached an all time high.

How much Bitcoin is in the world?

There is a maximum supply of 21 million bitcoin. These have now almost all been released into circulation. At the time of writing, there are about 18.5 million bitcoin in circulation. At a price of $20,000, that implies that the value of all bitcoin (known as the market capitalisation or market cap) is about $370 billion.

How much gold is in the world?

Given gold is a financial store of value that is not profit generating in itself (in the same way that a business or real estate is), it provides one comparison for bitcoin, which is – like gold – limited in supply and not profit generating in itself.

As of the end of 2019, about 200,000 tonnes of gold are above ground. At a price of $1,800 per Troy ounce, that implies a market cap for gold of about $11.6 trillion.

So, the price of bitcoin would have to rise by a factor of about 30 in order for the value of all bitcoin to be about equal to the value of all gold. That’s a tall ask, but I think it is at least conceivable that bitcoin could increase more in value. [It’s also conceivable that it could go to zero.]

What if Bitcoin went up by 10X in price (say, to $200,000)?

Interestingly, as Balaji Srinivasan (@balajis on Twitter) points out, half of the billionaires in the world would be “Bitcoin Billionaires”. That’s kind of crazy to think that Bitcoin could re-write the wealth hierarchy of the world.


People love a good round number, hence the recent hype. Expect the same hype to play out again multiple times in the future.

My recommendation is to learn about Bitcoin and how it works for yourself. Then you can make your own decision. Nataniel Popper’s Digital Gold is an ok place to start, as is Wences Casares’ episode on Econtalk.

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Who are You?

“Hi, my name is, what? My name is, who?
My name is, chka-chka Slim Shady”

Eminem / Slim Shady


  • Bio-metric verification (iris, face scans etc.) is one (likely) direction for the future of security and passwords.
  • There are risks around being identifiable by personal traits, and some of these risks may be mitigated by an increased use of pseudonyms.
  • Pseudonyms allow accountability but can be tossed if your data gets hacked or profile gets cancelled.
  • Pseudonyms are already common on Reddit, Twitter and on eBay – and (loosely interpreted) with Bitcoin. Perhaps they will become more common in the future as a form of protection of identity while allowing for accountability at some level.

Yourself as a form of verification:

It is ludicrous that we still use credit cards, passports and social security numbers as forms of verification. Why not use bio-metric information, such as iris scans or facial recognition? Why are these not more widespread?

Countries like China are going in this direction, as are companies like Clear – previously for expedited airport security clearance, but now more generally to replace your credit card. You don’t bring a credit card, you bring yourself!

While the benefits for convenience are there, bio-metric approaches raise the obvious concern of data security. Once someone has your iris scan, it’s not as though you can change your iris scan as easily as you can change your social security number. Having a data breach like Equifax is bad enough, imagine how much worse it could be to have a data breach of bio-metric data – especially as the data being recorded gets more and more detailled.

Accountability and risks in being yourself

Having people be accountable for their actions is something that I feel strongly about. There are few things more frustrating to me than working with an anonymous “Simon B.” at Amazon, who gives a half answer to my first question, knowing that it will be “Mary P.” who will be on the hook for the next follow-up.

Putting your name on the line in business and in life is something that I see as admirable – and that can be seen in many of the great brands today that are called after their founder or inventor, such as Wolfram Mathematica – after Stephen Wolfram.

Conversely, when you do put your name on the line, there is the risk that your character can be torn down. This disincentivises bad behavior, but assumes that the mob is always wise in deciding who to tear down. We know that truth is not always the victor on the battleground of social media, so putting your name out is not always wise – particularly if wading into politicized battlegrounds.

Pseudonyms as an alternative

What then, might be a solution that allows for accountability while also providing some protection against hacking of personal information and against bad actors/mobs?

The answer might lie in pseudonyms, where you hold a secondary name for public activities. That secondary name or identity can develop a brand and reputation of its own, and even an income of its own, but – if it is torn down or hacked – damage can be limited to that secondary level by starting a new pseudonym. Painful but not life ending.

Pseudonyms are already widely used on Twitter and have huge followings without their underlying account owners necessarily being known:

@mathtick @rudyhavenstein and @wrathofgnon are some examples of pseudonymous tweeters

However, the vision for pseudonyms can be much wider, with these pseudonymous characters earning income and taking on much fuller personalities than before. Credit to Balaji Srinivasan for this thinking and here is a great video exploring the concept:

Pseudonyms – back to the future

I suppose – to some degree – the reason we still have credit cards is because they are somewhat pseudonymous. The number of each card is a secondary identity you can have, and you can cancel and throw it away if there is fraud. That part works well – it’s just that hauling around a physical card is annoying.

Centralised or decentralised?

A credit card – while it is a pseudonym of sorts – is a centralised pseudonym because the card issuer defines the card numbers and . A decentralised pseudonyn could be a bitcoin wallet or password, where you generate these numbers yourself (with the wallet address publicly visible and the password/key private to you alone). So, pseudonyms can be centralised or decentralised in how they are used.

The question of centralised or decentralized is important because it affects how the information could be used for law enforcement and also how vulnerable the information is to hacking. In a centralised system, all of the information can be used to identify bad actors. With a centralised system, there is also the benefit of having a lot of information – so this information can be used to better understand the system – call it “artificial intelligence” or “machine learning”.

On the other hand, a centralised system is more vulnerable to hacking, i.e. you just need to break into one point to get all information (very roughly speaking). Plus, if law enforcement is a bad actor, that presents a risk too. So decentralised systems can be better for privacy and protect against abuse of power.

Bio metrics are communist while pseudonyms are libertarian?

To get this paragraph title, I’ve hacked up Peter Thiel’s view that “artificial intelligence (centralised deep information) is communist while crypto (decentralised, pseudonymous) is libertarian”. (Parentheses are my own)

An increased use of biometrics means putting personal (permanent) information in the hands of large organizations (governments or tech companies) with centralised control. Pseudonyms can be centralised, but they can also be decentralised and they can be self generated – so they can be more libertarian.

My view is that the increased sharing of personal information is inevitable and may have some benefits, but we should be looking at alternatives – where possible – that allow for accountability but provide better protection from data breaches, bad actors and cancelling.

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Quotes from “Up from Slavery” by Booker T. Washington


  • Around the anniversary of Emancipation Day earlier this year, I was wondering what it was like to live as a slave in the USA at that time. I went looking for a book written by someone in that position and this is the book I found.
  • After being freed, Booker T. Washington dedicated his life to building schools, notably Tuskegee University, and this book covers his approach to education and work, the institutions he built, his travel to raise funds for these projects and the wide respect he came to command among all races.
  • While his autobiography is a bit repetitive (he just couldn’t stop building schools!), there are a lot of quotes and insights that helped me to understand a bit more about life at that time and in his position.
  • The book is a 130 page read and I recommend it to get better context than just these quotes, which will just give you some flavour.

Life before freedom:

Here I draw attention to a quote from the very end of the civil war, when word of freedom was spreading throughout the south, and the freedom in songs began to take on a new meaning:

“As the great day drew nearer, there was more singing in the slave quarters than usual. It was bolder, had more ring, and lasted later into the night. Most of the verses of the plantation songs had some references to freedom. True, they had sung those same verses before, but they had been careful to explain that the “freedom” in those songs referred to the next world, and had no connection with life in this world. Now they gradually threw off the mask, and were not afraid to let it be known that the “freedom” in their songs meant freedom of the body in this world.”

The transition into freedom:

This is a quote about his name – Booker T. Washington, how it came about, and how he takes a slight and turns it into a privilege:

“My second difficulty was with regard to my name, or rather A name. From the time when I could remember anything, I had been simply “Booker”. Before going to school it had never occurred to me that it was needful or appropriate to have an additional name. When I heard the school-roll called, I noticed that all of the children had at least two names… An idea occurred to me which I thought would make me equal to the situation and so, when the teacher asked me what my full name was, I calmly told him “Booker Washington”… Later in life I found that my mother had given me the name of “Booker Taliaferro” soon after I was born… I revived it, and made my full name “Booker Taliaferro Washington”. I think there are not many men in our country who have had the privilege of naming themselves in the way that I have.”

Booker T. sees freedom as a responsibility, remarking on the feelings of the former slaves – just freed – returning to their cabins:

“The great responsibility of being free, of having charge of themselves, of having to think and plan for themselves and their children, seemed to take possession of them.”

Booker T’s Outlook

Throughout the book, it is clear that Booker T. has a bright outlook on life, seeing the positive aspects – as when he compares life in the USA and in other parts of the world at that time:

“we must acknowledge that, notwithstanding the cruelty and moral wrong of slavery, the ten million Negroes inhabiting this country, who themselves or whose ancestors went through the school of American slavery, are in a stronger and more hopeful condition, materially, intellectually, morally and religiously, than is true of an equal number of black people in any other portion of the globe.”

At many points in his career, people would refer to Booker T. as “Reverend”, but Booker T. would humbly point out that he was not a reverend. Still, his language and his actions remind me of those with a vocation to serve others. For example, this phrase that pops up in a number of forms, here in reference to his first year at Hampton university:

“Before the end of the year, I think I began learning that those who are the happiest are those who do the most for others.”

Here, from chapter XIIV, is a quote showing what I see is the integrity he valued not to speak behind people’s backs:

“As a rule, the place to criticize the South, when criticism is necessary, is in the South – not in Boston. A Boston man who came to Alabama to criticise Boston would not effect so much good, I think, as one who had his word of criticism to say in Boston.”

In Chapter XIV, the reader learns of Booker T’s trust in others – via a parable:

“A ship lost at sea for many days suddenly sighted a friendly vessel. From the mast of the unfortunate vessel was seen a signal, “Water, water; we die of thirst!” The answer from the friendly vessel at once came back, “Cast down your bucket where you are.” A second time the signal, “Water, water; send us water!” ran up from the distressed vessel, and was answered, “Cast down your bucket where you are.” The captain of the distressed vessel, at last heading the injunction, cast down his bucket, and it came up full of fresh, sparkling water from the mouth of the Amazon River.”

Men, Women, Black, White, Education

Booker T. Washington lived from 1856 to 1915. I don’t know a lot about that time, but I would have assumed that education was mostly for men. So, interestingly for me, was how women were present at many (if not all, I don’t know) schools and initiatives Booker T. seems to have been involved in – although the type of labor (building vs sewing) that students pursued – for example at Tuskegee – differed for men vs women.

Education is absolutely central in Booker T.’s autobiography and he see its role as central in turning the corner from the past of slavery:

“I had the feeling that it was cruelly wrong for the central government, at the beginning of our freedom, to fail to make some provision for the general education of our people in addition to what the states might do, so that the people would be the better prepared for the duties of citizenship.”

He goes further, to a point where today’s society would feel uncomfortable (and repeats a very similar point later in chapter XIV):

“I cannot help feeling that it would have been wiser if some plan could have been put in operation which would have made the possession of a certain amount of education or property, or both, a test for the exercise of the franchise, and a way provided by which this test should be made to apply honestly and squarely to both the white and black races.”

I should point out that Booker T.’s vision of education was not heavily academic. He expected students at Tuskegee to do physical work to earn a way to pay for tuition, and he saw that a central to education and to character building.

On Racism

Chapter VI of Booker T.’s book is called “Black Race and Red Race”. In it, he talks about enrolling the first Native Indian students into a school with white and black students:

“I knew that the average Indian felt himself above the white man, and, of course, he felt himself far above the Negro, largely on account of the fact of the Negro having submitted to slavery – a thing which the Indian would never do.”

Booker T. goes on to talk about how he was able to have students of all races study and learn together, which brings me back to a quote from an earlier chapter outlining his view on racism:

“I have always been made sad when I have heard members of any race claiming rights or privileges, or certain badges of distinction, on the ground simply that they were members of this or that race, regardless of their own individual worth or attainments.”

Raising Money

Booker T. was prodigious at raising funds – from donors and from local communities – for his work to bring projects like Tuskegee University to life. Chapter XII is called “Raising Money” and here he makes a sympathetic and supportive case for wealthy donors, that perhaps would be seen as too sympathetic with wealthy people, and for which I understand Booker T.’s legacy has received criticism.

“My experience in getting money for Tuskegee has taught me to have no patience with those people who are always condemning the rich because they are rich, and because they do not give more to objects of charity. In the first place, those who are guilty of such sweeping criticisms do not know how many people would be made poor, and how much suffering would result, if wealthy people were to part all at once with any large proportion of their wealth in a way to disorganize and cripple great business enterprises. Then very few persons have any idea of the large number of applications for help that rich people are constantly being flooded with.”

In Europe

Eventually, after decades of building and helping others – someone finally got the guy (and his wife) a holiday! He went off to Europe for while. One interesting perspective he shares is that of servants in Europe, contrasting the experience with that of slaves in the USA:

“I was impressed, too, with the deference that the servants show to their “masters” and “mistresses”, – terms which I suppose would not be tolerated in America. The English servant expects, as a rule, to be nothing but a servant, and so he perfects himself in the art to a degree that no class of servants in America has yet reached. In our country the servant expects to become, in a few years, a “master” himself. Which system is preferable? I will not venture an answer.”

Have you heard of Booker T. Washington? What similar books do you recommend? Let me know in the comments below.

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those who are the happiest are those who do the most for others” – Booker T. Washington. Read more: https://ronanmcgovern.com/2020/10/17/quotes-from-up-from-slavery-by-booker-t-washington/


More Passive Investing without Index Funds


  • I have moved all of my investments to a more passive approach so I can divert more time to building businesses instead of stock picking/reading about markets.
  • My liquid holdings are now 30% equity, 30% REIT (real estate investment trust), 30% cash, 5% Bitcoin and 5% Gold.
  • All of my equity is in Berkshire Hathaway.
  • All of my real estate is in Store Capital.
  • Even though I am taking a passive approach I am trying to avoid index funds because I am concerned with conflicts of interest, a herd mentality and financialization.

Why am I going more passive?

I was stock picking because it provided motivation for me to learn about certain businesses (e.g. learning about REITs through Store Capital, learning about airlines through Ryanair and Southwest). I also thought that, over time, I would become good enough to get an edge over the market.

I still think that investing in individual stocks and reading quarterly reports is a decent way to learn about businesses. However, I was looking at the Seeking Alpha app on my phone too much and found that distracting. At the start of September I uninstalled the app. Since then, I’ve decided that building my own businesses is a more worthwhile use of my time. I would also like to read less news and read more books. News changes a lot day to day, whereas good books tend to have learnings that are more lasting.

Lastly, having seen stocks move through COVID, I have a greater appreciation for the difficulty of stock picking. I felt a need to take a simpler approach with my investments.

Side note: I heard a quote from Elon Musk talking about how Warren Buffett’s job is to “figure out, does Coke or Pepsi deserve more capital?“. That made me think a lot.

Why 30-30-30-5-5 in Equity, REIT, Cash, Bitcoin, Gold?

I like a little Bitcoin and gold as a hedge against inflation. I may lose all of the money in Bitcoin, but I think it’s worth the upside. For what it’s worth, I’ve had roughly 5% gold and Bitcoin for a number of years, so this isn’t a recent change.

I’ve talked before about the Benjamin Graham 50-50 split between stocks and bonds. The 30-30-30 split in Equity, Real Estate and Cash/Bonds is from Gerd Gigerenzer in the book Risk Savvy (technically, his recommendation is 33-33-33). Given how much money is being printed by the fed, the size of the US debt, and the weakening of the US dollar, I think that having some real estate is likely wise. Real estate is also a huge asset class and is similar in size to the US equities market, so it seems to me that having exposure there is probably smart.

Side note: A nice comment from Nassim Taleb given recent federal reserve money printing was something to the effect of “you can’t afford to be in stocks, but you can’t afford not to be in stocks”.

Why not use broad market index funds?

I think it is likely a reasonable approach to use a broad market index fund for stocks and maybe also for REITs. However, I am seeing herd mentality in the market with index funds and, while I can’t describe what might go wrong, I have a gut feeling that is not good.

Everyone is ploughing into index funds offered by companies like Vanguard, Schwab, Statestreet and Blackrock. The benefits of these funds are i) diversification and ii) low management fees and commissions. However, I have these concerns:

  1. Conflicts of interest. While index funds now have near-zero management fees and commissions on trades, the index fund managers are receiving payments from exchanges (the companies that execute the buying and selling of stocks for them). Vanguard, Robin Hood, Public and many other companies are getting paid by the people that are doing the buying and selling stocks for them. It’s called receiving “payments for order flow”. Where is that money is coming from? The only place I see it coming from is me – the consumer – getting a bad price on trades.
  2. Herd mentality. People are piling into index funds. Back in 2019, passive index funds got as large as managed funds, when measured by total assets under management. I have yet to find a market where you do well over the long run by piling in late to the same strategy as everyone else. Maybe if you get in early you have a chance, but index funds are no longer early.
  3. Financialization. With everyone jumping into index funds, it means more people are spreading their money in the widest way possible into companies they have largely not heard of. With index funds, my concern is that we are outsourcing and diluting our ability to influence our investments and instead calling for governments and rating agencies to be responsible for how companies are managed. Here is my view: 1) I see a role for government is setting ground rules, 2) I don’t see a role for rating agencies (how can you have a rating agency that is paid by a customer to give that customer a rating? surely a conflict of interest but somehow pervasive in our financial system), 3) People/investors also have to take responsibility at the grass roots level and put in the effort to follow, support and influence the companies they invest in. We need less diversification into index funds and more focused investments with investors taking an interest in their businesses (which is where the term “taking an interest” comes from, I imagine).

Side note: There are companies emerging that offer services to track corporate social responsibility metrics (environment, diversity etc.). If they are being paid by the same clients that they are providing reports on, I see them as having the same problems as credit rating agencies.

If not an index fund, then what?

If I’m not going to use an index fund for equity and REITs, then what am I going to use? The answer is something that lets me sleep at night and has a) has a track record, b) has managers with skin in the game (they have a majority of their net worth in the asset), c) something diversified.

For equity, I have Berkshire Hathaway (Buffett’s company), with a long track record, managers who have nearly all of their net worth in stock of the company, and with reasonable diversification across insurance, industrial businesses and a large share in Apple. I have owned Berkshire for a number of years and have now increased my stake.

For REITs, I have Store Capital. Store Capital is a holding of Berkshire Hathaway (they own about 10% as of the time of writing) and is run by an industry veteran, Chris Volk, who is a big shareholder. I was impressed with their monthly updates during COVID-19 – you can listen to their updates or read about them here. Store Capital is also pretty well diversified because they have property in nearly all states and their largest client is no more than about 2% of their portfolio, so they aren’t vulnerable to a single large client (which is a good think because AMC cinema is a client of theirs!). As a caveat though, Store (as is the case with Berkshire) is not as diversified as the broad market. Store is focused on triple net leases to moderate-to-large businesses, so you are not getting diversification across things like residential real estate or cell towers. Side note: I have owned Store Capital for six months now and added to my stake with cash and with proceeds from other stocks that I exited entirely (Facebook, Ryanair, Southwest, JetBlue, JPMorgan + a small holding in StoneCo).

For cash/bonds, I have US dollars. Maybe at some point I’ll consider holding some other currencies. If interest rates were higher, I would have the money in short term treasury bills. There are probably other better options too, but I don’t know a lot about bond portfolios.

Last Remarks

I plan to re-balance my portfolio at the start of every quarter, to avoid the temptation of trying to time the market.

I’ll be looking to find a long term option for the 30% cash/bonds portion. Maybe it will have to be an index fund, but maybe I can find something else I’m comfortable in.

My main concern with the portfolio is CEO succession at Berkshire and Store Capital. I’m hoping Chris Volk stays on for quite a while at Store Capital, and that Todd Combs (currently running Geico) or someone else with a strong track record and equity in Berkshire is the one to take on the mantle at Berkshire some day.

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“We need less diversification into index funds and more focused investments with investors taking an interest in their businesses”


By how much did the US economy shrink because of the coronavirus?

Before you read any further, stop and make a guess of how much you think US GDP fell by in the second quarter of 2020 versus the second quarter of 2019:

  1. Less than 10%
  2. Between 10 and 30%
  3. More than 30%

The answer – based on data reported so far – is 9%. On the one hand, it may give some comfort that a country could go through significant shutdowns with output dropping by only 9%. On the other hand, this 9% is an average number over the entire economy and hides the big hit to certain service sectors including healthcare, transport, recreation, food services & accommodation – where output fell by double digit percentages.

The contraction in GDP was dominated by a a fall in services

Just under half of US economic output involves the provision of services (about $8.7 trillion out of $19.5 trillion for the second quarter of 2020). Services reduced by about $1.3 trillion year on year in the second quarter, accounting for over two thirds of the total decrease in GDP of the economy (a $1.8 trillion decrease) for the period year on year.

Breakdown of second quarter GDP according to main categories, adapted from the US Bureau of Economic Analysis

Personal consumption of goods was robust, down just 3% year on year

While clothing and footwear, as well as gasoline and other energy goods fell very significantly (29% and 45%, respectively), these large decreases were significantly offset by an increase in food and beverages for off-premises consumption (up 11% year on year for the quarter).

Breakdown of second quarter GDP within the personal consumption of goods, adapted from the US Bureau of Economic Analysis

Personal consumption of services plummeted, particularly health, transport, recreation and food/accommodation services

The largest sub-category within personal consumption of services is Housing/Utilities which increased slightly year on year for the quarter, partly hiding the severe drop off in other sub-sectors within services. Healthcare, Transportation, Recreation and Food services/accommodations dropped by 18%, 39%, 53% and 39%, respectively for the quarter year on year, showing how severe people and businesses were affected in those sectors.

Breakdown of second quarter GDP within the personal consumption of services, adapted from the US Bureau of Economic Analysis

In summary, the US economy was quite resilient to the COVID-19 pandemic on aggregate, but the effects on specific sectors – notably services – was severe.

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Hand Sanitizer, Startups and Still Waiting for $120,000 from Amazon

Update Jan 10th 2020: As of December 2020, all funds had been received from Amazon. Additionally, the total amount donated to charities was increased from $500k to $750k.

In March 2020 when COVID-19 struck, I was sitting at home in Cambridge thinking through how I would continue to make payroll and keep my teams busy at Sandymount Technologies and Point 5 Brewing. Inspired by a photograph in the Financial Times of a distillery in Europe that had converted to producing hand sanitizer, I thought about how I might quickly build a supply chain to sell hand sanitizer.

I had been shopping at Trader Joe’s and they had no hand sanitizer on the shelves. Any shops I called – Wholefoods, Target, CVS – were out of stock. If I could make it – I thought – I could sell it. It didn’t turn out to be that easy! I got onto social media and drew up a post on LinkedIn and Facebook asking friends if they would be interested in setting up a supply chain. Friends from MIT, Anton Hunt found a supply for alcohol, and Gina Brooks-Zak found a manufacturer that could convert to filling bottles. Together, our initial team drafted fliers touting the product and started to circulate them online and through connections. It was a chicken and egg problem. We would have the bottles and labels lined up, and then our alcohol supplier would suddenly sell the alcohol off to someone who could pay in cash. Conversely, at times we would have a large order lined up, but we would be scrambling to secure the alcohol.

Revenue started to come in with orders from homeless shelters, car washes, golf clubs and fire stations. At one point we cleared $100k in purchase orders and we started to take payment. The problem was, once we started to get in that money, we were on a clock to hit our promised delivery date, but we couldn’t start producing until we had $200k to buy all of the materials. Every day we couldn’t get to $200k in sales was another day of delay, another day where our supply chain of bottles and alcohol might fall apart because we didn’t have the cash to secure it in place. I didn’t want to spend any of the money we had received until we had the full $200k – it wouldn’t have been responsible to buy everything and then not be able to deliver.

It was a Friday towards the end of March. Anton, Gina and now Adam Weiner and Dana Hemmert from Sandymount, as well as my cousins John and Barry McGovern were doing everything to try and find a large buyer that would make the cashflow work. Chris Lazarte, who works with me at Sandymount helped me to set up an LLC for the operation because we didn’t have the time (never mind the expense) to set up a non-profit. Everything was ready to go, but large buyers kept on dropping out. Anton was offering all kinds of discounts to get a big buyer to jump but we couldn’t do it. I had to pull the plug. We refunded the money and e-mailed clients and suppliers apologizing. It was pretty bad – I had gained the trust of these buyers only to disappoint them. I didn’t want a situation where we were holding people’s money and not delivering the product.

The next day, Saturday morning, Anton Hunt gave me a call. One of his partners in a separate business had a huge demand for sanitizer but didn’t have a supply chain in place. Importantly, they had the funds to get the project rolling. A hastily pulled together deal over the weekend reignited the whole project. Anton and I were joking how this is the project that just wouldn’t die. For the next two months, our team held an online meeting every morning at 7.45 am. We would go over the logistics for the day, the orders of ethanol, tracking down bottles and bottle caps that were delayed, getting boxes, labels, hydrogen peroxide and glycerin ordered. It took us three weeks to get the production lines up to full speed – making over 40,000 bottles per day when we had two sites on-boarded. It was never plain sailing, there would always be some shortage of ethanol, some bottle caps that had been delivered without seals, or some federal alcohol permit that we had to start calling senators about to help us get it through – which they did!

Over the three-month period, the business was involved in producing over 1.2M bottles of hand sanitizer, selling primarily through Aero Healthcare in New York, partnering with SPEC Engineering in Chicago, Califormulations in Georgia, and then – towards the end – selling to Amazon for them to resell online. In June, it became pretty clear that the market was getting back to normal. We found it increasingly hard to find buyers of large quantities and it was time to wind the business down and direct efforts towards donations. The sign to move on was when Amazon decided not to place a further order beyond the 200,000 bottles they had purchased. We barely got in that order with Amazon before there was a surge of supply. I think we were the last supplier to be approved for 7-day payment terms, compared with the 90-day payment terms Amazon normally offers suppliers.

Over the next months, our team wound down operations, sold off any remaining bottles and alcohol, and started to direct donations to charities, with $500,000 donated as of the end of August, split between five charities: Fathers Uplift Inc.; Y2Y Network; Fresno Barrios Unidos; My Stuff Bags Foundation; and Urban Revival Inc., as well as 6,500 boxes donated to the Food Bank of Northern Indiana. The only thing we are waiting for now is for Amazon to pay out the remainder of their purchase order, which is for a bit over $120,000. It has been a real challenge working with the supplier portal on Amazon. Our last payment is now overdue by over two months and it isn’t clear how you resolve this kind of issue with a company like Amazon. We tried their dispute procedure, but it hasn’t worked to date. The company is very large, and it is hard to connect with a person who has the authority to fix the problem. Absent any other clear way to communicate with Amazon, I’ve pulled together a letter and sent it to Jeff@Amazon.com , sending hard copies to both him and also Jeffrey Wilke – who runs Global Consumer. $120,000 seems like a lot of money for us, but at least our team isn’t reliant on that money for income – it is destined for charity. I can imagine there are a lot of suppliers in a lot worse of a position than us.

I’m hopeful that the issue will be resolved because it’s a good outcome to have been able to provide hand sanitizer when it was needed, it’s a good outcome to have helped the charities, and I think it can be a good story for Amazon too. For the team involved, I think we’re lucky to have had this opportunity and that our skills and connections came together in a way that made the project work. It has been a huge highlight being able to work with Anton, Gina, Adam, Dana, Barry, Chris and John this year – and I hope I get to do many more projects with this level of excitement during the rest of my life.

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Warren Buffett’s Well Worked Will


  • A flood of BRK shares to the market would put downward pressure on price.
  • Buffett’s donation program is spread out over time ensuring liquidity to the market is smoothed over time.
  • Buffett has been donating shares since 2007, so there should be no abrupt change in shares entering the market over time due to donations.

As a Berkshire Hathaway shareholder, my top concern is for the future of the company after Warren Buffett’s time. While the greatest loss to Berkshire will undoubtedly be Mr. Buffett’s business acumen, there is also the question of how the distribution of Berkshire shares in his will would affect the supply and demand – and hence the price – of Berkshire shares in the market. Fortunately, Mr. Buffett has thought through this issue carefully and, I believe, largely mitigated associated risks by i) spreading out the donation of shares over time and ii) gradually reducing the amount of shares donated each year so that the dollar value of shares entering the market via share sales by foundations is somewhat stabilised.

Background on Mr. Buffett’s donation structure

In 2006, Mr. Buffett announced that the vast majority of his shares in Berkshire would be donated to five foundations. The announced donation amounts, expressed as BRK.A shares, were as follows:

Recipient | Announcement Date >20062012Total
Bill and Melinda Gates Foundation333,333333,333
Susan Thompson Buffett Foundation33,33333,333
Howard G. Buffett Foundation11,6668,14719,813
The Sherwood Foundation (formerly Susan A. Buffett Foundation)11,6668,14719,813
NoVo Foundation (Peter A. Buffett)11,6668,14719,813
Total BRK.A Shares401,66424,441426,105

As per the above table, Mr. Buffett committed to donating the equivalent of approximately 426,105 of his A shares to these charities. In total, Mr. Buffett originally owned 474,998 BRK.A shares, meaning that about 90% of his Berkshire shares will be donated to these organisations.

Warren Buffett’s donation strategy

US charities by their nature are required (subject to certain allowances) to spend funds they receive within a relatively short space of time after receiving donations. Had Mr. Buffett decided to make the above donations in one fell swoop, that would have resulted in a huge surge of shares becoming available on the market. As an illustrative example: Considering the July 31st 2020 closing BRK.A price of about $300k per share, there would be about $128B of liquidity entering the market at once.

To avoid this issue, Mr. Buffett has spread out the donation of shares as follows:

  1. For many decades, Mr. Buffett pledge not to make any donations until the settlement of his estate. In 2006, he announced a change of course and started donating shares in 2007. By steadily donating shares through the rest of his life and then beyond, the potential for a sudden inflection point upon his passing was removed.
  2. The shares listed in the above table have been donated at a rate of 5% per year since the year following each announcement. Importantly, donations are made at the rate of 5% of the remaining balance after the previous year’s donation – not 5% of the originally pledged amount. This ensures that – while the stock price grows on average – the number of stocks donated per year falls. The result is that the dollar value of donations per year is somewhat stabilised – smoothening liquidity  which means that liquidity to the market is tempered, and, donations received per year by the charities too.

As of July 2020, Mr. Buffett has already donated 248,734 BRK.A shares – constituting just over half of his original stake. The donation of the rest of his shares will occur smoothly over time as per the plan described above. For further context, the amounts of shares being donated per year (about $2B per year in market value as of July 2020) are reasonable relative to the overall market capitalisation of the business (~$475B as of July 31st 2020) and relative to the total amount of shares being bought back by Berkshire Hathaway itself (on the order of single billions of dollars per year in recent years), which serves as one source of demand to mop up the supply of foundations selling.

Rest assured, Mr. Buffett has well planned the distribution of his shares to charities before and after his time.

Notes & Materials:

Buffett originally made a pledge measured in 2006 B shares, when 30 B shares were equal to 1 A share. Subsequently, B shares were split 50:1, resulting in a B to A relationship of 1,500:1 .

Spreadsheet formulated using Berkshire Hathaway information: BRK_donation_schedule.xlsx

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How hard is it to create an eCommerce store?

Over the weekend, I set up a new website for Point 5 non-alcoholic beer using Shopify. Previously, I had been using wordpress/woocommerce in a way that was taking a lot of time and money. Using Shopify made me realise and appreciate how web tools are now at a level where someone like me – without web coding experience – can get a fully functional online store up and running. The fact that Shopify offers a full service platform makes things very easy (e.g. hosting your website, providing a simple interface to design the website, providing payment solutions, providing integration with Google, Facebook, Amazon and Walmart shops).

Being able to easily build an eCommerce store like this is a very beautiful thing because:
1. Instead of spending time or money on coding a website, I can spend that time and money on improving the product and marketing the product.

2. Since I built the website myself, if there are things that need to be fixed, I can easily do them myself. Making quick changes like this is very valuable in the early stage of a business.

If any of you are thinking of doing an online store – even just for fun – I highly recommend it. The technology that is available nowadays is amazing and allows anyone to go from zero to store in less than a day.

Now on to the harder challenge of marketing and driving sales 🙂


Things I’m thinking about in July 2020

1. Sandymount Draft

You might remember seeing a video last year of Sandymount’s draft dispense technology, allowing beer or non-alcoholic beer to be dispensed at a bar from a tiny keg of concentrate, by adding CO2 and filtered water. Over the last months the Sandymount team has been working hard to develop a user interface that allows operators (and soon also consumers) to see the temperature, alcohol % and carbonation of the beer (or non-alcoholic beer) being poured in real time. Stay tuned for a video update.

2. Point5Brewing.com – Non-alcoholic Beer
Point 5 continues to sell online for home delivery – and now at a significantly reduced price point. Point 5 non-alcoholic beer is designed for an easy-drinking real beer taste and, if it is to make a dent in people’s lives as regular refreshment, it became clear that a lower price point was necessary. Much of what will allow this price improvement is a move to a canned format in the autumn, which will significantly reduce the weight and size of packages to be delivered. Until then, we’ve dropped the prices on bottles anyway, so pricing should stay consistent through the transition. www.Point5Brewing.com/shop is where you can find it.

3. ShopRespond.com – Hand Sanitizer Business
From the end of March until the end of June, the ShopRespond team managed to pull together a supply chain from scratch and produce over 1.5 million bottles of hand sanitizer. Over the last weeks, we have been winding down operations and are almost done with donating the proceeds from this initiative. Well done to Anton Hunt, Adam Weiner, Dana Hemmert, Gina Brooks-Zak, Chris Lazarte, John McGovern & Barry McGovern. Press release to follow shortly.

4. Risk Savvy – A book by Gerd Gigerenzer

A practical book on the benefits of keeping things simple when making complicated decisions.

5. You can now use a Quantum Computer

Why would you want to do this? Quantum computing is apparently still in its early days in terms of being useful for anything, so the best reason to do it is probably for the craic. IBM is making available a few quantum computers to mess around on (remotely). I’ll let ye know how trying it out goes. You can too here: https://quantum-computing.ibm.com/docs/guide/iqx/the-quantum-world

6. Rockets look like fun

Lovely technical video here on rocket design from Tim the everyday astronaut.

7. Internet may come from the sky instead of cables?

SpaceX and OneWeb are lobbing satellites into low orbit – low meaning close enough that they could send internet down to earth without it being too slow. One of the problems right now is how to cost effectively build receivers. There’s a decent article from CNBC.

What does this mean for Ireland’s broadband plan? Could we end up laying a ton of fibre only to find internet will come to us from the sky?

As per usual, I’m keen to chat or learn more on all of the above, reach out. Cheers.

Footnote: What happened to the Desalination Barge Concept? It’s still there lurking in the background for right opportunity/timing – and may continue to do so for years 😉


Point 5 Brewing on Futurized Podcast

Thanks to Trond Undheim for inviting me on his podcast earlier this week to talk about the future of beverages. Link here: https://www.futurized.co/e/future_beverages/ .



Selling half gallon sanitizer jugs with pumps

Hi folks, to better serve businesses, we are now selling half gallon jugs on ShopRespond.com – they come in four packs with one pump, so you basically have one pump unit and three refills.

Best, Ronan


Making it easier for you to try non-alcoholic beer

Over the last few months, the Point 5 team has been selling on a third party online store. As of today, Point 5 is now also selling directly on our website at http://www.PointFiveBrewing.com . By selling on our own website this gives flexibility in a few ways:

We felt it was too expensive for new fans to taste Point 5

Many of you are tasting a non-alcoholic beer for the first time. Until now, it was $36 (when you include shipping) to buy a 12-pack. This is a steep price to try for the first time. To tackle that, we’ve done two things:

1. We’re making available a Starter Pack (3 bottles) for $9.99 – including shipping.

2. We’re making it a flat price of $29.99 for our 12-pack – including shipping.

Basically, we found it’s annoying to see the price of a product and then have to pay for shipping on top, so we’re simplifying to all-in pricing, with just state sales tax that would be added on top.

For those of you who do order the Starter Pack, you’ll also be getting a welcome note with a discount on your first 12-pack order. Keep an eye out for that.

Let me know your suggestions for how we can keep improving the website, and make the Point 5 experience more fun and enjoyable. Cheers, Ronan (+Dana + Ad!)

P.S. You can reach our “Make it a Point 5” campaign launch blog here.


Twitter thread on investing in large tech companies


A brief story about selling hand sanitizer online.

When the COVID-19 Response team (Anton, Ad, Dana, Gina, John, Barry) got together, one of the issues in getting hand sanitizer production started was finding the money to pay for all of the ingredients and bottles upfront. Thanks to a distribution partner we were able to get funds to kick production off. Selling online was hard at that point though because – for online sales – you more or less have to have the product ready (or ready soon) to be able to sell.

Now that we’ve been up and running a while, we’re in a position to start selling online and are doing that in 32 packs of 8 oz bottles on our new website http://www.ShopRespond.com . The thinking is that businesses will need these quantities as things start to open up again.

Right now we’re just selling to 48 states in the US and have 8 oz bottles. The hope is to expand out to doing other supplies soon – likely starting with 64 oz sanitizer bottles. Here is a quick video on the product.


Your ideas for making a lot of simple fabric masks

By now, many of us are wearing masks when outdoors. I’ve found it tricky to get a comfortable fabric mask, and I’ve been lucky that my housemate’s girlfriend made me one. It was much appreciated.

Some thoughts:

Not everyone’s head/face is the same size.

I imagine it’s tricky finding smaller masks to fit kids.

Wearing a mask is tricky because I wear glasses. They make the glasses wobbly and can lead them to fogging up.

It’s nice to have a mask that is a decent fit but also is loose enough to be able to talk – say, on a phone call.

Many masks squash my nose.

Some questions:

Have you any ideas on companies (maybe clothing companies?) that could make a large amount of simple fabric masks of different sizes? Say between 10,000 and 100,000 per week?

Are there simple fabric mask designs I should look at that address some of the issues above?

Let me know if you’d like to help finding out how to get a lot of masks made. If so, I should be able to get them on an online store that should open soon with the COVID-19 initiative I’ve been working on.


My Preview of the Berkshire Hathaway Annual Meeting – REPLAY

Replay video here.


Ronan’s Live Pre-Stream to the Berkshire Hathaway Annual Meeting (Warren Buffett’s Company)

Warren Buffett is likely the world’s most famous living investor. Each year, his company (Berkshire) holds a meeting with over 40,000 people where he takes questions for about six hours. This year, that meeting takes place at 4 pm Boston time (9 pm Irish time) on Saturday May 2nd and will all be compressed into a one hour meeting by video.

Right before the meeting, I’ll be doing a 30 min pre-stream – starting at 3.30 pm Boston time and 8.30 pm Irish time – to cover:

A little background on how Berkshire/Buffett makes money, including a very rough tour of the company’s cash flow and balance sheet.

Some comments/reaction to Berkshire’s results from the first quarter of 2020 (which likely reveal what Buffett did (or didn’t do) with his money during the market crash due to COVID). Note that these will only be realised early morning on May 2nd.

A preview of a few questions that Buffett is likely to get asked during the 45 min Q&A session.

Some links that may be of interest:

  1. A warm-up video if you’d like to hear the latest on Berkshire and from Buffett.
  2. A the link to the actual live stream of the meeting – starting at 4 pm Boston time (9 pm Irish).
  3. A link to my live pre-stream commentary – starting at 3.30 pm Boston time (8.30 pm Irish).

Has your business got PPE for when the economy reopens?

It’s a thought that dawned on me when chatting with my mother today. I feel that people are so focused on figuring out when the economy will reopen that we haven’t started to plan yet for what will happen when things do reopen. Are we planning for what will be needed to go about daily life and work?

I’m not saying we should reopen soon. I’m just thinking that once some dates are announced around reopening, there might be another big rush to get masks, sanitizer etc.

I’m not sure how this will play out, but it’s something I’m thinking about as I plan for continued production of hand sanitizer. Will all businesses initially recommend wearing masks? Will there be guidance around hand washing or sanitizing? It seems like there is a good chance the answer is yes.


Taking large orders for 8oz hand sanitizer

Hi folks, Covid-19 Response LLC is taking orders for order sizes of 200,000 to 1,200,000 bottles of 8oz hand sanitizer.

The next available batch will ship on Friday May 8th.

Please e-mail StopCorona@Sandymount.com for inquiries.

Respond Hand Sanitizer ready for packing – 8 oz fliptop bottles


Respond Hand Sanitizer – 8 oz fliptop bottles


Boolavogue – recorded using loops

…worth googling the lyrics. It’s about 1798 in Ireland.


Can you help me with a short video on Point 5?

Point 5 has started to do some online ads for our non-alcoholic beer.

Ping me if you have bought some online and would be willing to shoot a very short video on your phone while you open and taste a bottle.

Free re-order for the first five in line!

Cheers, Ronan


Some ideas I use for investing. Part 3.


Price matters to me when I am investing. The lower the price the more I invest. To get the best return, I don’t want to be too diversified. I want to have my eggs in a small number of baskets. Lastly, I buy and hold because this reduces the tax penalty of selling/buying stocks.

The Kelly Criterion.

The more I diversify across a wide range of stocks, the more I get the return of the market. To beat the stock market, I need to have an opinion on the price of specific stocks. To maximise my returns, I need to bet more when I am confident in my opinion, and bet less (or not at all) when I am not confident. Mathematically, this betting pattern is described by the Kelly criterion. This is what card counters use when playing blackjack. This is is how Warren Buffett invests. It is true that Berkshire is more diversified now than it was in the past, but Berkshire has a very large percentage of it’s assets in a small number of companies (like Geico, BNSF and, more recently, Apple). Berkshire has outperformed the market in the past – not by copying the market – but by making big bets on companies that massively outperformed the market.

I am still working on better ways to implement this kind of behaviour in buying stocks and I am not yet fully systematic. Take Facebook for example, which I consider good value at $178 per share. When the stock falls below this value (it has) I put a certain percent (say 3%) of my liquid assets in this stock. If the stock falls below 75% of this value – $134 per share, I would put in another 3% – and so on. It is important for me to be disciplined about setting rules and sticking to them. Stock prices jump around and I’m not able to predict whether stocks will go up or down at any given time. This approach is very conservative, so I’m not buying stocks very often.

Note: I also set limits and won’t put more than 10% of liquid assets into one stock (although I won’t sell if a stock appreciates by itself and goes above that threshold). I am considering loosening that.

Buy and Hold.

In the US, I pay capital gains tax (~15% + state tax) on profits when I sell a stock that I have held for more than one year. If I sell in less than one year, I pay ordinary income tax (more than double). Clearly this is a reason to hold for at least one year, although I plan to hold for much longer.

Capital gains tax is paid when I sell a stock after holding for one year. There is a critical mathematical point (well described in Charlie Munger’s Almanac) that as I delay selling, the impact of the tax penalty on my annual return becomes smaller and smaller. Take the example of a stock that grows in value by 10% each year, and pays no dividend. Consider a capital gains tax rate of 15%. If I sell the stock after one year, the capital gains tax will reduce my after tax annual return from 10% down to 8.5%. However, if I hold on to the stock for 30 years, the effect of tax is to take my annual return down from 10% to 9.44% instead. If I held the stock for ever, the effect of the tax would tend towards zero – this is effectively what Berkshire does with most of the major stocks it owns. That is Warren Buffett’s claimed holding period – forever. One last point from Buffett – I think about what stocks I would buy if I could only buy ten over my whole life – that forces me to be selective!

After tax annualised returns assuming 10% annual stock growth and 15% capital gains tax. Spreadsheet here.

Technical note on Berkshire: On the surface, the Berkshire structure looks very inefficient tax-wise. For example, Berkshire owns a large stake in Coca-Cola. Coca-Cola pays corporate tax (22% headline rate) on any profits it makes. Of those profits, it distributes dividends to its shareholders (Berkshire). Berkshire then pays tax on those dividends – so there is a double tax. However, the reality is not as bad than this. Yes, Coca-Cola pays tax on its profits, however, it only redistributes a portion of those profits as dividends – with much of the rest being reinvested in ways that grow the value of the stock. Berkshire may never sell its Coca-Cola stock, so the impact of the tax of selling that stock is largely mitigated. Other Berkshire stock investments (like Apple) spend most of their profits after tax on reinvestment or on stock buybacks – both of which increase the Apple stock price. Again, Berkshire doesn’t get impacted much by a double tax here because they are long term holders of stock. In short, for Berkshire, holding stocks reduces the disadvantage of being double taxed. For me, holding stocks provides an advantage that reduces the impact of capital gains tax.

Side note on tax policy: I think it is good that capital gains tax is set up in a way that discourages short term holding of shares because I think long-term thinking is healthy for the market.



Some ideas that I use for investing. Part 2.


I pick stocks using rules that select for companies that have a low levels of debt, that have a trusted CEO and are priced at a level that is cheap relative to how much cash they generate. The lower I feel the price is, the more money I invest. Lastly, I stick with my bets by buying and holding, which reduces the tax penalty of selling/buying. I’ll cover these last two points in Part 3. My strategy is more an exploration and learning process than a refined process and I expect will continue to evolve.

Low debt:

I don’t want to lose money. I especially don’t want to lose money when most people and businesses are losing money. To the extent I can lose less money than the average person during a downturn, I can take advantage of lower prices when others are selling. Mark Spitznagel provides mathematical reasons why losing money is bad, not just in itself, but also for average returns. I think about protecting the downside in buying stocks as well as finding good upside for the long run.

Companies with high debt tend to have stock prices that fall drastically if the economy takes a downturn. Debt seems sustainable when the market is doing well – in such times the market often values companies based on profits or even just revenue. In bad times, companies with high debt struggle. Compare Exxon Mobil and Occidental Petroleum – both hit by the recent market and oil price falls. The two companies have different market exposures, but a big cause of Occidental’s stock price is – in my opinion – the high level of debt that Occidental has (as a result of its recent acquisition of Anadarko). Occidental’s level of long term debt was about $39B at the end of 2019. The combined revenue of Occidental and Anadarko for 2019 was about $29B. For comparison, Exxon had about $26B in debt (less than Occidental) at the end of 2019, but is a company with revenue of $256B (almost ten times the size of Occidental).

Chart of Exxon Mobil and Occidental Stock Prices
Chart of Exxon Mobil and Occidental Stock Stock Prices during Coronavirus and the Oil slump in early 2020

Picking an “acceptable” level of debt is subjective. I screen out any companies that have a ratio of long term debt to adjusted cash-flow that is below five. In simple terms, if a company doesn’t generate enough cash annually to pay off it’s debt in five years (without compromising on necessary capital investment), I don’t want it. I find the long term debt on the company’s balance sheet. I calculate adjusted cash-flow by looking at cash flow from operations (on the statement of cash flows) and subtracting off depreciation (on the P&L or statement of cash flows). For software companies like Google, there isn’t much depreciation. For industrial companies, depreciation is a real cost because companies need to invest capital into equipment/land/assets in order to generate that operating cash flow. In other words, a portion of the operating cash flow is needed to pay for new equipment just to keep the business going as is, so I have to make an estimate of how to subtract that out. Note: I could subtract out capital spending, but that tends to fluctuate more year on year. Also, if the company is growing, capital spending will outstrip depreciation – so I would be subtracting out too much. Mature companies that are growing more slowly will have annual capital spending and depreciation that are closer in value – compare Southwest airlines with comparable capital spending and depreciation to Ryanair (more growth and more capital spending in 2019).

Of course, there is subjectivity in how you pick the adjusted cash flow and how many years you want to average over. Some companies that I considered passing this screen at the end of 2019 were: Ryanair, Southwest, Berkshire Hathaway, Amazon, Apple, Facebook, Google, Spotify, JetBlue.

Trusted CEO

My heuristic for a trusted CEO is simple. Either the CEO has to have a majority of their net worth in stock of the company (not options) OR Warren Buffet has to have invested in the company. This is a strict rule, but I think a good one to ensure alignment with stockholders. Of the list above this would leave the following as qualifying: Ryanair, Southwest (via Berkshire), Berkshire Hathaway, Amazon, Apple (via Berkshire), Facebook Spotify, (I include JetBlue as well because I think Buffett would own it but the market cap is too small for him to be able to invest).

There are other companies that could be in there, but I haven’t had enough time to read the annual reports of a lot more qualifying companies. I prefer to learn about a few companies at a time even if it limits me on the pool I’m picking from.

Low price relative to cash generated

Over the long run, I believe that cash generation matters. Quite simply, if a company is generating cashflow from operations, they can fund growth without having to issues shares or debt. If they are generating a lot of cash, they can either support fast growth, or they can distribute that cash (via dividends or stock buybacks). The decision of what is done with the cash is important, which is why a trusted CEO is important. The level of cash generated is also important.

For mature companies (with less than 20% year on year revenue growth), I screen for companies that have adjusted cash flow (see above) equaling 10% or more of the stock price. For example, if a stock is $50 per share, I want to see $5 per share of adjusted free cash flow. For growth companies (ones growing revenue by 20%+ per year), I screen for companies with adjusted free cash flow equaling about 7% or more of the stock price.

Note: This cash flow based screening is just one approach and it misses a lot of companies that could be good. For example – Amazon is at a high price relative to its cash flow, but could still be a good investment. I haven’t figured out a strategy for low cashflow companies that I’m comfortable with.

Summary and stock holdings

As of now (April 2020) the main stock holdings I have are Berkshire (10% of total assets), Southwest (5%), Ryanair (5%), Facebook (3.5%), JetBlue (2%). I have been holding Berkshire, Southwest and Ryanair for quite some time, and picked up Facebook and JetBlue recently as their prices fell. I’m not confident that aviation will come out well out of this (although low fuel prices and reduced competition due to bankruptcies may help), but I am staying the course. For clarity, this is about 25% in stocks at present. 6% gold index. 6% Bitcoin. The rest (63%) I hold in cash (since TBills went to zero).

Note on Berkshire Hathaway. It is a bit of work to figure out cash flow for Berkshire because it owns significant stakes in other companies whose cashflows are not reported in Berkshire’s consolidated financials. I have to go in to those companies (Apple, American Express, etc.) and figure out what share of cashflow can be attributed to Berkshire.


Some ideas that I use for investing. Part 1.


A simple way to invest is to split my money 50-50 between stocks and bonds – that is what I do with my 401k (retirement plan). For my other savings, I loosely stick to this 50-50 split, but I do pick specific stocks and I do that following certain rules.

Overall, there are two goals to how I am investing. My main goal is to avoid losing money. This is the majority of my strategy. My secondary goal is to invest in things that, in the long term, I think will do well. I use certain rules to identify what I think will be safe and will do well.

In short here is why I think it is very important not to lose money:

When things are going well with the economy, it is nice if my investments are doing well. However, I am more likely to have a job and so are my family. So getting a good return on my investments is nice but not essential.

When things are going badly with the economy, it is pretty annoying to lose money. On top of losing money, I have a bigger chance of losing my job and I need the money more than when the economy is going well.

In short, it is often better for me to avoid losing money when things are going badly then to make a lot of money when things are going well. Furthermore, if the economy is doing badly then many things gets cheaper to buy (e.g. houses, stocks), so if I haven’t lost too much money, I am in a good position to buy things.

The Ben Graham 50-50.

Ben Graham wrote a book called The Intelligent Investor. One of the investing strategies discussed is to invest 50% of money in stocks and 50% in bonds. Here is why I think this is a reasonable thing for me to do:

  1. Why not put more in stocks? Many people recommend putting much more in stocks. For example, Warren Buffett has suggested putting 90% in stocks (the S&P500 and 10% in bonds (although he doesn’t do that with his company’s money). I think that is a bad idea. With 90% of my money in stocks, the stock market could very well fall right before I need the money (say, for a mortgage down-payment or for a wedding or for retirement). Is it really worth rolling that dice to get some upside?
  2. Why not put more in bonds – wouldn’t that be safer? Keeping money all in bonds (or cash) also has risks, such as inflation or an increase in interest rates. If I had all of my money in bonds (especially of mixed or long durations) right now when the interest rates are near zero, the value of those bonds would plummet if interest rates rise to even 3 or 4%, never mind 10 or 15%. I’m not saying that will happen, it’s just a risk I don’t want to take.

When I look through the last 150 years, pure stock and pure bond portfolios have each had large falls. With a 50-50 portfolio, there are significant dips, but not nearly as bad. The other nice thing about holding a constant split of 50-50 is that when stocks down up relative to bonds, I’m buying more stocks. If bonds go down relative to stocks, I’m buying more bonds. By definition, I’m buying low and selling high.

Technical note: For stocks, a simple approach I use is to buy an index fund like SPY. For bonds, a simple approach I use is to buy a broad based bond index fund (that has bonds of different durations/lifetimes). This means I don’t have to think about what specific stock or bond to buy (and risk being wrong).

Avoiding risks I may not be able to avoid with just stocks and bonds.

There are things that can happen that are bad for both stocks and bonds. For example, very strong inflation of the US dollar might be bad for US stocks and US bonds. These are the kinds of things that are quite unlikely to happen, but if they do happen they are possibly very very bad for stocks and bonds. Gold, since it is limited in supply, tends not to devalue when there is inflation, so I have a small amount of gold (via an index fund) – roughly 5% of assets. The reason for just holding a small amount is that the risk of needing the gold is low, but it’s good to have a bit.

Side note: I also have about 5% bitcoin. This is maybe crazy. However, I see some analogy to gold in that the supply of bitcoin is limited and it takes work/money to increase that supply.

Other side note: I have considered investing in a real estate (REIT) index fund. I don’t consider that I understand them much and I don’t have any at the moment.

Loose 50-50

With non-retirement savings, I am a bit loose on the 50-50 rule. When I feel that equities are expensive I move towards holding more cash or bonds. When I feel equities are cheaper, I move more towards equities. This is subjective and I need a few more decades of experience. Interested readers may wish to Google the “Buffett Indicator” and also “Tobin’s Q” to read about some other indicators of whether stocks are expensive. One indicator that I look at is how much profit US corporations are making relative to their value. For example, in 2019, US non-financial corporate business made about $1 trillion dollars of profits after tax. At the end of 2019, those corporations were valued at about $34 trillion dollars. That return is about 3% when I look at profits divided by value. I don’t like 3% per year. I didn’t think that was a lot of compensation considering that the stock market can fall by a lot more than 3% (especially back in mid 2019 when I could get ~2% return on short term bonds).

As a side note, the market has fallen now since the onset of COVID-19. That has reduced the market value somewhat, but corporate profits are going to fall as well. Discussion question: Is the stock market really much better value right now than at the end of 2019?


Simple Ben is 50% stocks, 50% bonds.

A little more complicated is adding in a little gold, (or bitcoin because I’m a little crazy).

A little more complicated again is increasing stocks versus bonds when I feel stocks are cheap and reducing stocks when I feel they are expensive.



Some things I’m working on – Monday April 13th 2020

Howdy folks, about time for me to knock the cobwebs off of this blog. Here are a few things I’ve been working on lately that you may be interested in. Or, you may just want to find out why the featured image is an aardvark.

1: Non-alcoholic Beer – Growing Point 5’s online sales.

Some background: As you may know, Point 5 is a non-alcoholic beer brand that the Sandymount team launched recently (I’m just finishing off my second bottle for tonight right now). While it’s been a hard time with COVID for most businesses, beverage sales is one area that has been holding up strong – with people keeping well hydrated or entertained at home. A lot of big companies are reducing their marketing spending to save on cash, so the price of online advertising has gone down (apparently, I’m just learning about this). This means it’s a good time to get some online advertising going for Point 5 on Facebook and Instagram – so I’ve been learning how that all works.

Where I need help: I’m an engineer and so are the folks at Sandymount, so we’re fairly grand in terms of figuring out production. We’ve also now got a handle on distribution and fulfillment. With a bit of help from some friends and connections, I think we’re starting to figure out the digital marketing as well. The main challenge for me right now is finding someone that will – over time – run the Point 5 business as a GM. It’s a new and growing market – the non-alcoholic beer – so if you’re entrepreneurial (and especially if I already know you!) give me a shout to chat some more.

2. COVID-19 Stuff:

As you might have seen on social media I’ve been in and out (and in again) on pulling together some hand sanitizer production. Just as the project got shut down, Anton Hunt – a friend of mine from days at MIT – pulled it out of the grave by finding a distribution partner. We (a few engineering friends) are just producing the first bottles right now, so stay tuned for some updates (website here). In some more detail, here are a few things I’ve been thinking about on this front:

1. Moisturizer hand sanitizer. If anyone has good ideas for simple recipes that sanitize and also moisturize (I’m getting soft), that would be of interest. It’s easier said than done because when you change the recipe then you have to get approval from the FDA. Still, worth thinking about because the hand sanitizer market has probably increased not just in the short term but also as a medium term trend that will continue.

2. Other stuff to start supplying. One area to think about is simple masks because people are probably going to wear masks a lot more in the near and medium-term future. When I needed one, I looked on Amazon but it’s hard to find a comfortable one with good ratings. My aunt was telling me yesterday that Etsy was a decent source for handmade ones. Here is a simple open source design, albeit one that makes you look like an aardvark (shared with me by Anton – the design, not the aardvark). Let me know if there are other designs to consider (I think the key things to optimise for near term are comfort and high throughput manufacturing).

3. Random – Desalination on a Big Massive Barge:

One of the biggest costs of doing seawater desalination in countries like the US is planning permission. Projects can take ten years to get approval and can take many turns and redesigns along the way – all adding to cost. Why? To desalinate water you need to build large pipes to pull water in from the sea to your system. The system then turns that water into roughly half pure water and roughly half concentrated salt water (at roughly twice the concentration of the sea). That concentrated salt water then needs to be piped back out to sea and dispersed/diluted. All of this pipework, and also care to avoid sucking in fish, or gushing out the salt water on sensitive habitats, takes time and planning. Time is money and this tends to be a huge driver in the final cost of desalinated water.

Anyway, one option here is to build a barge at sea that has a desalination plant on it. You can read more about a concept from Mobile Offshore Desalination here. Good idea, I think! You put the barge a few kilometers out at sea and you pipe the water in – and hopefully save spondulix on planning permission and save a lot of time on getting a new water supply operational.

I’ve heard of a few companies working to put this kind of project together in the past. So, what’s the problem? The problem is not technical, I think – with the right people, you can build the barge with pretty low risk. The problem is that you have to find a buyer – either someone to commit to buy the water, or someone to pay for the whole thing. It’s the perfect kind of thing people/governments would like to have right when they need it, but generally won’t want to or be able to commit to in advance (without some long tendering process).

I’ve only started learning about this, so I might be missing something major. Still, it seems worth it for me to explore a bit more because offshore desalination does seem to have environmental and cost benefits over the usual gig on land.

Areas where you could help:

If you’re in government/organisation and are looking at a long term water supply option bigger than 100,000 m3/day.

If you are a big company with coastal operations that needs to secure a future water supply.

If you bought bitcoin ten years ago and want to turn it into a physical asset that can water the earth.

Let me know and we’ll see where it goes.


Sapiens: My review of a book about humans

The cover of Harari’s book reads “Sapiens: A Brief History of Humankind”. In fact, the book is more a philosophical meditation on the past, present and future of humans than a historical account. The author takes questions including: what is a human?, and, what makes humans happy?, and explores them through the lens of hunter-gatherer, agricultural, empire and modern/scientific societies. If there is an answer, it is perhaps that these questions will remain just as difficult, if not more difficult, for homo sapien societies of the future than those of the present or past.

1. Humankind has made incredible progress, but, progress in the name of what?

Just because we are technologically advanced doesn’t mean we are happier. People today may not be happy living in a hunter gatherer society, but that doesn’t mean that hunter gatherers were less happy or satisfied than we are today. Indeed, objective happiness – measured via surveys – seems to suggest that a state of happiness is driven by genetics and by environment, but a good environment doesn’t seem to require technology. Perhaps, Harari reluctantly suggests, “happiness is synchronising one’s personal delusions of meaning with the prevailing collective delusions”. Yes, sounds cynical, but interesting. Maybe this is why we don’t put the meaning of life into words…

Also interesting is Harari’s perspective on how societal or technical progress has not always been good for well being. Looking at the agricultural revolution where people moved from diverse hunter gatherer tasks to monotonous specialisation as peasants (where conditions were often worse), Harari argues the agriculturalisation of society is perhaps one of history’s greatest frauds. It is a lesson worth keeping in mind as we push for the vague notions of “science”, “technology” and “progress”. Today, our world has more technological capability and we have greater ability, through communications, to be aware of that capability. Today we benchmark ourselves not against our communities but against our world. We have greater visibility into inequality than ever before, and we have tools to create greater inequality than before. As society advances, forgetting that human happiness is relative, will perhaps be to our peril.

2. Are animal rights and human rights two sides of the same coin?

Harari begins the book highlighting how homo sapiens may well have established ourselves by eliminating neanderthals. The very question of who is considered to be human has been and will be tenuous. In the past, homo sapiens have eliminated one another on the basis of much smaller genetic differences (e.g. skin colour, gender, language etc.) than those between neanderthals and homo sapiens. In the future, genetic technology may bring us back to tensions between human species, perhaps homo-sapiens versus homo-futurus (that is made up, I can’t speak Latin, much less predict the future).

3. What is the future of mankind?

Harari finishes the book on a topic that is to the fore as of 2016, with much news around the development of artificial intelligence. Harari, at least in my opinion, breaks down, in a nice way, how humans might now evolve via technology: a) we modify our genes with biology b) we build robots that think for themselves, or c) we combine smart robots/computers with humans to increase our powers.

In some ways, as many (like Elon Musk) have pointed out, we already have AI – it’s in our mobile phones and computers. With our phones (notwithstanding the productivity sink of Candy Crush) we are already superhumans. Elon Musk seems to think that the best outcome is for some kind of option c) where humans are part of the AI rather than replaced by it. Seems like a good option to me (if this is a choice).

4. Some caveats

Covering the history of humankind in one book is definitely an endeavour that requires the sparing of some detail. That being said, I have to say my faith in the historical accuracy was occasionally shaken. One chapter recounts how St. Brigid is the most revered saint in Ireland, when it seems to me that would be St. Patrick. Along similar lines, Harari’s chapter “On the Scent of Money” recounts how money arose as a replacement for barter. I’m not an anthropologist, but I did read David Graeber’s book “Debt: The First 5,000 Years“, and it seems there is a strong case against barter having being the precursor of money [Graeber argues money (currency) arose as a means of kings to collect taxes or pay soldiers and civil servants]. These aren’t major points, but I am left wondering to what extent some other historical claims might need to be double checked.

Sapiens, it’s a good read. On a scale of yes or no, I would give it a yes.



Death by bcc

(Metaphorical) Death by bcc is the ultimate of all e-mail deaths. It ranks at the very top, above the basic e-mail blunder, and above the dreaded “reply-all”.

For those that are too sensible to have fallen foul of these errors, let’s kick off with a baseline example of death by “reply-all”: You get an e-mail, from a friend, to a group of your friends, inviting you to go go-kart racing. You want to go, but you’re worried one of your friends (cc’d on the list) may not be able to join because their head is too big to wear a helmet [Note: I may or may not have been that friend]. Moments later, after you have pressed the send button (and after the 10 seconds to “undo send” have elapsed on gmail) you realise you pressed “reply-all”…..

Death by “bcc” is sometimes just a compounded version of death by “reply-all”. Imagine the same scenario as described above, but where you, initially, were bcc’d while everyone else was cc’d. Now, not only are you replying all, telling them someone has a big head; you are hurling an insult that is coming completely out of nowhere…..

For the record, who ever the person is who used bcc, should be responsible for at least 100% of the blame if the situation escalates into the dreaded “bcc-followed-by-the-dreaded-reply-all”.

I don’t usually have morals of the story, but here is the moral of this story: Don’t use bcc. Ever. Either leave the person off, or else do them a favour and upgrade them (or downgrade them, depending on the case) to a standard, straightforward, tried and tested “carbon copy” or “cc”.

I don’t advocate having the death penalty, but if one were to optimise for sadism, I would recommend death by bcc.


Pure Decent Books About How the World Works – May 2016

1. Debt: The First 5,000 Years, By David Graeber.

Great book because it gets us out of our very modern and restricted understanding of how money and debt work. Perhaps, most interestingly, it debunks the idea that financial crises are a modern phenomenon – rather, they have existed for millennia. The book also suggests that money didn’t come about as a result of barter. The title sounds like an economics or finance book but is really more of a history or anthropology book.

Caveats: Definitely written in a pretty non-sequitur style, with webs of ideas rather than a linear train of thought. Sometimes this is frustrating, but more often entertaining – such as when recounting ancient trade customs involving elaborate sequences of feasting, trading and copulation. On a more serous note, the book does draw attention to the tight relationship between money, debt, enslavement and brutality throughout history, arguing that this is often overlooked in modern financial discourse.

2. Thinking Fast and Slow, By Daniel Kahneman

Clearly I’m one of many recommending this book, which sheds light on how we humans aren’t always logical when it comes to decision making. This book exposes the biases to which we humans are vulnerable and offers us a language to describe these biases. The book is incredibly non-anecdotal, very concise and well written.

Caveats: The first few chapters drag quite a bit, you’ve got to persevere until when the gold comes from chapters four and onwards.

3. Anti-fragility, By Nassim Taleb

Taleb, in this book, provides observations and advice on how we should handle uncertainties in this world, protect ourselves from risks and even leverage uncertainty to our advantage. Anti-fragility is about things that get stronger with uncertainty, volatility or in environments with fluctuating stresses. A good example is the human body, which strengthens when subjected to moderate exertion. Optionality – the possession of multiple choices – is also anti-fragile because it’s good to have options when the future is uncertain. The way I say it, it sounds trivial, but this book is deep. You may not agree with Taleb and you’ll certainly find him to be eccentric (which, in my opinion, adds to the entertainment factor). However, the way Taleb sees the world so differently really opens your eyes and makes you question how much of what we accept in politics, in finance, in business, in education and beyond, is shallow group-think.

Caveat: Taleb’s book is like an incredible piece of abstract art; it is beautiful but there is no continuous narrative and with every answer provided, there are at least two new questions.

P.S. I’d highly recommend this book above Black Swan, another book by Taleb, which emphasises how our world is shaped by rare and unpredictable, but highly impactful events. Anti-fragility has more concepts and teaches much more and is probably a bit better written.

4. What Money Can’t Buy: The Moral Limits of Markets, By Michael Sandel

While the world is seeing more and more markets emerge, not just online, but also in healthcare and education, this book takes a look at what that means in ethical terms. One simple conclusion emerges that the more markets there are, the more power is gained by those who have what it takes to engage in those markets (often money). This book argues that there are often complex and important questions that arise when markets are created and designed, but we often prefer to ignore that we are in fact taken ethics based decisions.

Caveats: Probably would be good to read this in book in tandem with “Justice” by Sandel. Also, heavy enough subject matter, but a very good read because it talks about markets in a way that is not seen in broad discourse.



Part 9: Entrepreneurship = Luck + Talent + Wisdom

Based on what I know today today, I estimate that entrepreneurship is one third talent, one third luck and one third wisdom. Talent is not teachable and, at present, is very hard to identify in first time entrepreneurs. Luck cannot be taught nor bought but plays an important role in success, and, unfortunately, is often misinterpreted as talent or wisdom. Finally, wisdom is teachable but we must be incredibly careful about following only guidelines that are borne out by data and not just a series of anecdotes.clover

Entrepreneurship is one third luck

We all love to believe in superstars, and superstars there are, but there is strong evidence to suggest that luck plays a big role in startup success. The best evidence I see is that entrepreneurs who are successful with their first venture have only a 30% chance of success on their subsequent venture. If luck played a weak role, then there’s no reason why previously successful entrepreneurs should continue to be successful from there-on*.

Entrepreneurship is one third talent

Data show that talent has a big influence on success. I believe this because the success rate of previously successful entrepreneurs is much higher than average. If talent wasn’t a thing then it wouldn’t matter whether your founding team had persistently been successful in the past – this simply isn’t borne out in the data. You might argue that having past-entrepreneurs on your team helps simply because they have experience. However, I don’t think this is the case, because then entrepreneurs who failed in the past would also be useful to have on your team, which isn’t true when you look at the data [in fact, their performance is very close to average].

Entrepreneurship is one third wisdom

There is also one important aspect of entrepreneurship that can be thought, which might be thought of as wisdom, rules of thumb, or, more formally, heuristics.

One way to develop rules of thumb is by carefully thinking through the fundamentals of a successful startup. Peter Thiel’s rules provide one such example. Sustainable profits are achieved by finding a way to achieve a durable competitive advantage, which, in its strongest form, is, by definition, a monopoly. A monopoly can come about as a result of enforceable patents, trade secrets, economies of scale or network effects; by optimizing for such characteristics, it seems one could improve the startups chances of success.

A second way to develop rules of thumb is to look at broad datasets but, unfortunately, there are few. Furthermore, amongst the few studies that exist, few, if any, characteristics of a startup that can be measured early in its life have been proven to lead to greater success in its later stages. Setting team composition aside, the only real correlator with success seems to be revenue, but there aren’t even enough data to prove this for startups at an early stage, and, what’s more, we know that many early stage startups simply don’t have any revenue – meaning we could really do with other new metrics.

Putting it all together

Taking the insights I have gleaned from the research and thinking of others, I have compiled a model to estimate the future success of early stage startups. For sure this model is at best weak and at worst wrong. However, I include it because I think the approach to building the model is a useful tool for others.

The model I propose has three pieces: team, traction and fundamentals – each piece worth one point, giving a maximum score of three. Importantly, the model is quantitative and relies only on information that is measurable:

1st Piece: Team (Maximum points = 1 pt.)

Raw talent – If at least founder has previously founded a startup that was acquired or went public, assign 1/2 point. Failing the above test, if at least one founder has founded a startup with current annual revenue of above $10 million, assign 1/4 a point.

Founding team size – Assign 1/6 of a point for each of the following roles on the starting team – up to a maximum of 1/2 point in total: a CEO type role; a lead technical role; a sales and marketing type role; some other distinct role.

2nd Piece: Traction (Maximum points = 1 pt.)

Sum up the total revenue earned by the startup to date. Include only revenue that has been received. Assign 1/6 pt for $0-100, 1/3 pt for $100-1,000, 1/2 pt for $1,000-10,000, 2/3 pt for $10,000-100,000, 5/6 pt for $100,000-$100,0000, and, 1 pt for above $1,000,000.

3rd Piece: Fundamentals (Maximum points = 1 pt.)

Intellectual property – Companies with chemistry or pharma based patents or trade secrets – ones that are either very hard to copy or else are really obvious if someone copies the patent so you can sue them; 1/3 pt. Companies with patents that are easy to copy but somewhat possible to track if other people copy; 1/6 pt. Other companies fitting neither previous description; 0 pts.

Economy of scale – Software; 1/3 pt. Hardware or infrastructure; 1/6 pt. Companies fitting neither of the two previous descriptions; 0 pts.

Network effects. 1/3 pt for any marketplace or communications company and 0 pts for all other companies.

Parting words – Can entrepreneurship be taught?

Before concluding, I want to point out that I’ve taken for granted the assumption that every entrepreneur wishes to optimize for success. Indeed, as an entrepreneur, you really only get to make one bet; you’re betting on the success of your own company, not a portfolio of companies. In this regard it makes sense to optimise for success. However, I really think that, while we should largely optimize for success, there must be limits. If we were all to follow the framework I have outlined above everyone would end up building a communications or marketplace based software startup. Indeed, half joking, that’s more or less what has happened. Importantly, though, not all problems we face in this world are addressed via marketplace based software startups and that, I think, is where the assumption that we should solely optimize for success might just fall down. Mission plays an important role.

Now, to conclude on whether entrepreneurship can be taught. Luck and talent each play a huge role in startup success and, by definition almost, neither is easy to teach. However, we can teach aspiring entrepreneurs to be smarter about how they build their founding team. By following the right rules of thumb – for example, focusing on building a startup with strong intellectual property, economies of scale and network effects – entrepreneurs can likely improve their chances of success. Unfortunately, as things stand today, there are relatively few good rules for entrepreneurs to follow that have been rigorously established. In my view, this stems from a lack of publicly available datasets on startups, insufficient focus on relating measurable characteristics of early stage companies (such as revenue or number of patent applications) to success, and an over-emphasis on hard to measure characteristics (like market size). With a focus on relating measurable startup characteristics to their future success, I believe there are many more rules of thumb that can be established to the benefit of future entrepreneurial generations.

*This isn’t strictly true. For example, it is possible that entrepreneurs who are successful first time round aren’t necessarily successful the second time because they fail to follow certain rules of thumb – e.g. they didn’t opt for a startup that had economies of scale and strong intellectual property – indeed there are many alternate ways of thinking about this. However, to me, it seems that a big reason is simply that luck plays a strong role, so if you’re successful first time around, there’s no guarantee of being successful the next time.