WSJ – Bubbles


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Here’s a great article on bubbles from Friday’s WSJ. I think this is a great definition of just exactly what a bubble is, whether tulip bubble or dotcom bubble:

Bubbles emerge at times when investors profoundly disagree about the significance of a big economic development, such as the birth of the Internet. Because it’s so much harder to bet on prices going down than up, the bullish investors dominate.

So you need uncertainty, but more of the talk needs to be optimistic than pessimistic.  The optimists  really play on the uncertainty as a reason for the valuations, and the pessimists are silenced by the lack of evidence.

Once they get going, financial bubbles are marked by huge increases in trading, making them easier to identify.


“The two most important characteristics of a bubble,” says Wei Xiong, are: “People pay a crazy price and people trade like crazy.”

I don’t think anyone watching the dotcom’s in the 90’s, china in the 03-06, and dare I say commodities in the last few years would deny this. I would argue that bubbles are easier to spot than we think.  If you are removed from greed, and able to stay somewhat rational, bubbles are usually very obvious.  Was it really reasonable to say that the value of your home would never go down? Of course not.  Was it reasonable to say that was worth $10B with no revenues? No way.  But the problem is no one wants to be left behind.  When your cab driver tells you about how much money he made in internet stocks, it’s officially a bubble. So if people are able to call a bubble, why can’t they trade it effectively?

Manias can persist even though many smart people suspect a bubble, because no one of them has the firepower to successfully attack it. Only when skeptical investors act simultaneously — a moment impossible to predict — does the bubble pop

It is only when prices start to fall heavily that bears can really start to come out and play, further accelerating the sell-off.  This, according to the article, explains why things seem to go down so much faster than they go up.  It’s really a rapid switch from greed to fear.  People start looking to get out at any cost because the fear of losing their money is overwhelming.  So are there any bubbles today?

I think so, although nothing is quite at that mania level…yet.  I do believe that for the moment some commodities have gotten ahead of themselves in terms of price.  I think that oil, for example, seems to fit the definition of a bubble…solid fundamentals (can anyone really argue the fact that there is dramatically increased demand on a finite supply?), rapid trading, and incredible gains.  On top of all that it seems just about every “expert” out there will tell you that oil is going higher.  Based on the little I know, this seems like a bubble to me.  The article says:

Today, there’s disagreement over commodity prices: to what extent do they reflect fundamentals like Chinese demand, and to what extent investment mania? Trading points toward a bubble: Daily volume on crude-oil contracts is running 50% above last year. Yet the initial findings of work Mr. Hong has done with Motohiro Yogo of the Wharton School — comparing cash prices and futures prices — suggest that “prices for commodities are expensive,” but not a bubble, Mr. Hong says.

I guess another bit of evidence that suggests a bubble is that there some bears out there who would like to short oil (at least in the short term…myself included) but are simply afraid.  They (we) believe the price is a little ahead of itself and is due for a pullback, but the bulls are just piling on to quickly.  It really seems to be running out of control.

Anyway, for me the most the interesting thing about all of this is that you can talk numbers, charts, pe’s, trends, etc all you want but at the end of the day the market moves because of people, and people act in a very predictable, yet irrational, way.  The stocks change, the success metrics change, the valuations change, and the businesses change, but people still are people…driven by greed and fear.   If you can figure out how to read these signals objectively in the market, you can really become an expert investor.  I’m trying to develop a better system here.

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It’s never the right time…

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A friend of mine called me the other day to discuss his plans to leave his job and start a business in a year. I could feel his excitement, and supported his decision. But the truth is I didn’t really believe in his plan, and I don’t really think he did either. We’ve had this discussion before, many times, and nothing has really come of it. I realized I’ve also had the same conversation with myself, many times, over the last few years but always stopped short of doing it. The problem with the plans we made was they relied on one event that never happens: the eureka moment that tells you it’s time.

There are a lot of scary things in life..getting married, starting a business, having kid, buying a house, heck even getting a dog. These are all times where we can feel the fear inside of us, attempting to hold us back and keep us safe. Sometimes that fear says it’s not time yet (and sometimes it’s not), but the truth is it’s never the time. It will always be scary, it will always require a leap of faith to do any of these things. I look to my sister as living proof of this.

Andrea is really a great mother. She’s loving, she’s supportive, she takes amazing care of her 9 month old while continuing to take amazing care of herself (one of the more difficult and important parts of being a good parent…from what she tells me). She certainly doesn’t look and act like a person who wasn’t ready to be a mother, but she’ll tell you otherwise. Up to the point when she and her husband decided to have a baby they did not feel it was time. They still wanted to enjoy their pre-adulthood (Andrea classifies anyone who graduated from college but has not yet had a baby as a pre-adult), wanted to travel, to go out at night, to sleep in on weekends, to still just be with themselves. But they felt equally strong about entering a new phase of their life, the responsibility and excitement of parenthood. It didn’t feel like “the time,” but they did it anyway…and it ended up it was after all.

The more exciting and rewarding things in life, often look scary from the outside. My sister had to wonder “how could I, an accomplished pre-adult, possibly be a good mother?” Just as I wonder sometimes “how could I, also an accomplished pre-adult, possibly be ready to start my own business, a real business?” Well, the bad news is that if you’re waiting for the right time to take a big step, as I have, it will never come. The good news is whenever you do take that big step, the time will be right.


Brazen Careerist: “Bad career advice: Do what you love”

I don’t know how I stumbled on to this post, but it was really thought provoking for me. At first I wanted to get defensive, think about why she was wrong and point out that she had contradicted this post many times in the past both in one of her books and in other blog posts (as pointed out by several readers in the comments). Apparently she even ended one of her books with the statement: “People will choose to work because they love what they do. ” – Penelope Trunk, in ‘The end of work as we know it.’

But in the end I really enjoyed this post because it end challenged my beliefs, and expanded my perspective. Anyway instead of rewriting a blog post, I’m just going to copy from an email conversation I had with my friend on this post (note: these are from several emails, and I realize a lot of rambling):

It seems like there are a lot of people in the comments that felt really good after reading this post. It, at least momentarily, squashed all their doubts about their lives. They weren’t missing out on something great after all. Maybe they feel relieved because they can point to this and say: “Whew, see…it’s not my fault.” I feel like the strong reaction shows an underlying doubt. There is a part of them that still believes in this fairytale.

Why do such a high % of people in their 20’s believe in this notion, while a very low % in their 40s+ say that it is garbage and that “reality has set in.”

Maybe the reason why most people think this advice is BS is because they stopped thinking about what they loved the second “reality set in..” ie, bills. Dreams can’t pay bills, and paying bills requires you make money, and generally the most accepted way to make money is to get a job. Job takes up time and dreams are pushed aside, before long you don’t really know what you love but you know how to make money, and that can feel good too. Perhaps the key to finding what you love is to KEEP looking. Not waiting, but looking.

I think there are other issues at play here… Most don’t know what they really would love to do. Think about all the people who think they want to be entrepreneurs, movie stars, singers, actors…do you think that the would all LOVE to do these things? Or are most just looking at what others have and thinking that is something they would like to have. I would imagine that a lot of the commenters on that site fit in this category. Look at early stages of American idol…most of those people really believe they would like to be singers, but I’m willing to bet that only a very small percentage of them actually would love to sing. 99% of them are there because they want to get famous and rich.

maybe another issue is that people are too specific when looking to do what they love. They define things too tightly. For example, what my friend Jerry has discovered he loves to do connect with people at a very deep level (as he calls it: “connections of the heart.”) He’s had 3-4 careers in his life that he has loved, but they all have this underlying theme. But what if he had confused an activity that involves connections of the heart with “his calling?” What if he thought that what he loved to do was be an actor (without realizing that what he loved about acting was it allowed him to have connections of the heart with the characters and audience)…so he went out and tried to be an actor, and it didn’t work. Does this mean he can’t do what he loves? No, it means he was too narrow in his focus. Keep trying things that interest and excite you, or in Jerry’s case that appealed to his interest in connecting with people… you will probably end up in another position where you can be excited, and in fact end up doing what you love….

I agree with the notion that believing in and seeking “the perfect job,” is quite a heavy burden. It’s not going to get you anywhere. So sitting around and hoping to see the perfect job hit the classifieds for you will not ever amount to anything. I also do believe that no matter how much you love what you do, it will always have moments that feel like work. It’s never all happiness…life is always great for anyone, nor should it be. As my mom said: “You need contrast.” So I think people are mislead there as well.

I actually believe people are completely confused as to what doing what you love means. It doesn’t mean there is a job out there just waiting for you to snatch it. It doesn’t mean that everything you enjoy doing should and can be a job or career path for you. I It means you continually move towards, experiment with, try things that interest or excite you, and you follow those feelings to new things. You do things that make you nervous (in a safe, structured way…no drugs, etc). You do things without worrying about what they may or may lead to in the future, you just do them because they excite you.

I think this pursuit of purpose is very similar to choosing a spouse. You certainly can’t ever know beforehand who is “the one.” You have to get in there and spend time with them. You have to experiment. Some people are “lucky” and know what they want, and get it. Others try and try and try, always bailing because it’s never just right. And others still never really believe they can find “the one,” so the settle for the one who will settle for them. But the truth is there is no perfect spouse, no perfect relationship. It takes a good fit and hard work to make a great relationship. But if you love someone, deep down, you want to work on it, you want to make it the best it can be.

perhaps again the issue isn’t about the end result, about finding and doing that thing you love…it’s about the seeking. If you are willing to seek and continue to seek throughout your life, then I’m willing to bet you’ll have a lot more exciting days than boring ones. Doing a lot of experimenting, a lot of “seeking,” inevitably means you’ll try a lot of things that don’t work.

just like an athlete…they are never in good shape, it’s not a place you ever get…it’s always just in front of you. So they try new training techniques, new machines, new supplements, new routines, new diets..constantly tweaking…and finding those that don’t work, those that fail, that is what ultimately makes them better.

Perhaps the “secret” to life then is: fail big and often. Failing is aliveness. Failure is a teacher. Failure paves the way for growth, and growth is living. So maybe the goal isn’t to try and find what you love, maybe it’s to try lots of things you might.

“How to Do what you Love”

Continuing with my blog theme for the last weeks (or years) I wanted to post some quotes after reading Paul Graham’s long (but very good) essay on the subject of doing what you love. I found this quote particularly interesting based on what I wrote about last week in terms of not knowing what doing what you love really means:

Once, when I was about 9 or 10, my father told me I could be whatever I wanted when I grew up, so long as I enjoyed it. I remember that precisely because it seemed so anomalous. It was like being told to use dry water. Whatever I thought he meant, I didn’t think he meant work could literally be fun—fun like playing. It took me years to grasp that.

I think I still struggle with this, even though I believe it in. I’ve only had flashes in my short work life where the work I was doing was actually fun, where I couldn’t believe that anyone, anywhere, could categorize it as “work.” I guess this is something that takes time to absorb and live… old habits and beliefs die hard.

By the time they reach an age to think about what they’d like to do, most kids have been thoroughly misled about the idea of loving one’s work. School has trained them to regard work as an unpleasant duty. Having a job is said to be even more onerous than schoolwork. And yet all the adults claim to like what they do. You can’t blame kids for thinking “I am not like these people; I am not suited to this world.”

Actually they’ve been told three lies: the stuff they’ve been taught to regard as work in school is not real work; grownup work is not (necessarily) worse than schoolwork; and many of the adults around them are lying when they say they like what they do.

I wonder if this is true? Do most people genuinely not like what they do? I realize that no matter what you do, there are always going to be parts you don’t like or get stressed over, or people you can’t stand, but I’m hopeful that we all have the possibility of spending most of our time doing something we generally enjoy. So what separates the few who do love what they do? How did they get there? I really like this:

It was not till I was in college that the idea of work finally broke free from the idea of making a living. Then the important question became not how to make money, but what to work on. Ideally these coincided, but some spectacular boundary cases (like Einstein in the patent office) proved they weren’t identical.

The definition of work was now to make some original contribution to the world, and in the process not to starve. But after the habit of so many years my idea of work still included a large component of pain. Work still seemed to require discipline, because only hard problems yielded grand results, and hard problems couldn’t literally be fun. Surely one had to force oneself to work on them.

If you think something’s supposed to hurt, you’re less likely to notice if you’re doing it wrong. That about sums up my experience of graduate school.


Most people are doomed in childhood by accepting the axiom that work = pain. Those who escape this are nearly all lured onto the rocks by prestige or money. How many even discover something they love to work on? A few hundred thousand, perhaps, out of billions.

I still struggle with this. I feel like anything great worth doing will come with quite a bit of pain. I feel like on some level that doing what you love is like getting your body in shape after a long break from exercise. It’s going to take discipline, it’s going to hurt, and you’re going to hate it some, if not a lot of the time, at least to start. But after you break through the habits and your muscles begin to build, things get easier. I can see this approach will not get me anywhere, or at least the places I’m trying to go. Perhaps part of my problem has been I’ve been pushing so hard on doors that are meant to be easily pulled open…pushing harder does not get me any closer to opening it. That reminds me of this:


It’s really hard to let go of what I’ve been taught, and what I’ve told myself. Part of finding what you love to do, is not pushing through the pain but instead noticing it and reacting to it. More good quotes:

How much are you supposed to like what you do? Unless you know that, you don’t know when to stop searching. And if, like most people, you underestimate it, you’ll tend to stop searching too early. You’ll end up doing something chosen for you by your parents, or the desire to make money, or prestige—or sheer inertia.

I struggle with this as well. As I’ve said, I don’t think I’ve ever done anything that just felt so great, that felt like it was my “calling.” I’m not really looking for that because I don’t think I ever will. But I will give myself a pat on the back for continuing my search, seeking out new opportunities when the current one doesn’t at least feel right. Or as Paul later describes… I’ve never found something that I enjoyed enough that the concept of “spare time” seems mistaken. It seems that I continually put myself in work situations where I can’t wait to do something other than what I’m doing. Not exactly practicing what I preach. What you should do:

To be happy I think you have to be doing something you not only enjoy, but admire. You have to be able to say, at the end, wow, that’s pretty cool. This doesn’t mean you have to make something. If you learn how to hang glide, or to speak a foreign language fluently, that will be enough to make you say, for a while at least, wow, that’s pretty cool. What there has to be is a test.

What you should not do:

What you should not do, I think, is worry about the opinion of anyone beyond your friends. You shouldn’t worry about prestige. Prestige is the opinion of the rest of the world. When you can ask the opinions of people whose judgement you respect, what does it add to consider the opinions of people you don’t even know?

It’s really amazing how greatly this impacts people’s lives, including my own. How crazy is it that we could put ourselves in a position to do something we don’t like or hate, potentially for the rest of our lives, in hopes we look good to others? At the end of your life are you going to look back and say “Whew, I’m glad that I lived the way all those people thought I should?” I doubt it.

The other big force leading people astray is money. Money by itself is not that dangerous. When something pays well but is regarded with contempt, like telemarketing, or prostitution, or personal injury litigation, ambitious people aren’t tempted by it. That kind of work ends up being done by people who are “just trying to make a living.” (Tip: avoid any field whose practitioners say this.) The danger is when money is combined with prestige, as in, say, corporate law, or medicine. A comparatively safe and prosperous career with some automatic baseline prestige is dangerously tempting to someone young, who hasn’t thought much about what they really like.

The test of whether people love what they do is whether they’d do it even if they weren’t paid for it—even if they had to work at another job to make a living. How many corporate lawyers would do their current work if they had to do it for free, in their spare time, and take day jobs as waiters to support themselves?

This is something I think we’ve all heard at some point in our lives: “What would you do if you had 10 million dollars?” I think most people would say they would quit their jobs, retire to some beach house, and live happily ever after. We know this isn’t true. Spend some time and read about past lottery winners. They learn the hard way (yes, it’s hard) that money is not the answer. They often find themselves lost and completely unhappy. I think most people believe deep down there is some dollar amount that would make them happy for the rest of their lives. If they could just hit that, either through lottery winnings or their 401k or being an entrepreneur who sells their company, they think they will live happily ever after. These expectations are so high, that when some of the few actually hit this number they are usually overwhelmed and saddened. It’s hard not to think: “I made it, but is that all there is?”

This is why it makes so much sense to fill up your days doing something you enjoy, something you care about. Because if you can end the day generally feeling good about what you do, about your life, your loved ones, your path…then you can end the week feeling the same way, and then the month, and then the year, and then year after year..all feeling pretty good. You don’t need to hit the lottery or sell your company, because at the end of the day you feel good.

Finally, words of encouragement:

It’s hard to find work you love; it must be, if so few do. So don’t underestimate this task. And don’t feel bad if you haven’t succeeded yet. In fact, if you admit to yourself that you’re discontented, you’re a step ahead of most people, who are still in denial. If you’re surrounded by colleagues who claim to enjoy work that you find contemptible, odds are they’re lying to themselves. Not necessarily, but probably.

I guess I’m a step ahead, but that doesn’t mean I feel any closer getting somewhere. Whew, patience. Go read the article, it’s worth your time.

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“If at first you don’t succeed, you’re in good company” – WSJ

I loved this piece in yesterday’s WSJ about failure. I think we’ve all been inspired or excited by some of the many, many stories of people overcoming obstacles in their lives on their way to success. Thomas Edison’s 1,000 failed attempts at creating the light bulb is a famous one (“I didn’t fail 1,000 times,” he told a reporter. “The light bulb was an invention with 1,000 steps.”), but what really drives someone through these troubled times? Is it a grand vision? Confidence? The article says “self-efficacy.”:

Psychologists call it “self-efficacy,” the unshakable belief some people have that they have what it takes to succeed.

Self-efficacy it seems is different than self esteem:

Self-efficacy differs from self-esteem in that it’s a judgment of specific capabilities rather than a general feeling of self-worth. “It’s easy to have high self-esteem — just aim low,” says Prof. Bandura, who is still teaching at Stanford at age 82. On the other hand, he notes, there are people with high self-efficacy who “drive themselves hard but have low self-esteem because their performance always falls short of their high standards.”

I had to wonder, where does self-efficacy come from, how does one develop a strong sense of it:

In some cases it’s inborn optimism — akin to the kind of resilience that enables some children to emerge unscathed from extreme poverty, tragedy or abuse. Self-efficacy can also be acquired by mastering a task; by modeling the behavior of others who have succeeded; and from what Prof. Bandura calls “verbal persuasion” — getting effective encouragement that is tied to achievement, rather than empty praise.

Perhaps this is why we are all so interested in seeing, reading, hearing stories of people, especially “ordinary people,” who overcome great obstacles because we hope that somehow we can learn from what they’ve done, and apply it to our own lives. Bottom line is we all experience failures in our lives. Some see the failures as proof they are no good or their idea was all wrong,. While others take the failures as an opportunity to learn. I think I”ll opt for the latter.

More great stories from the article:

J.K. Rowling’s book about a boy wizard was rejected by 12 publishers before a small London house picked up “Harry Potter and the Philosopher’s Stone.” Decca Records turned down a contract with the Beatles, saying “We don’t like their sound.” Walt Disney was fired by a newspaper editor who said he “lacked imagination.” Michael Jordan was cut from his high-school varsity basketball team sophomore year.

And of course I couldn’t write about this without showing one of my favorite commercials of all time.

Venture Voice show 48 – Frank Addante on Time

Great quote from the most recent Venture Voice by serial entrepreneur Frank Addante:

The biggest asset that I have is my time. I have to think about how to best invest my time. As a VC you can always raise more money. you can always get more money, hire more people…But you can never get back your time. I look at time as an investor having a finite asset….I’m not going to take my time and waste it.

I have to admit that time really does not enter the equation for me when making a decision all that often. I more or less think of it and treat it like an infinite, not finite resource. The truth is it is our most precious and most limited resource. I need to value my time more.

Venture Voice – podcast on entrepreneurship, venture capital, business

Vote for Best Warren Buffett Bite of All Time

Yes, I love Buffett and I especially love Buffett quotes.  Some his best:

  • “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
  • “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
  • “Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1”
  • “Never ask a barber if you need a haircut.”
  • “Only when the tide goes out do you discover who’s been swimming naked.”

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