Entrepreneurship, Leadership and Life by Sam Huleatt

Notes from Peter Thiel’s Singularity Summit Talk (2009)

Today was the first time I’ve had a chance to hear Peter Thiel talk live and he did not disappoint.
I spent Saturday and Sunday at the 2009 Singularity Summit, held for the first time in New York. Michael Vassar, Singularity Institute’s president, did an exceptional job of assembling an all-star cast of speakers. Talks covered a variety of subjects ranging from quantum computing to radical life extension to venture capital. For those unfamiliar with singularity, a brief description is here. Also, WebMetricsGuru has great coverage of day one here.
The following is a brief synopsis of Peter’s talk (side note: I understand all videos will be available on the SI website soon).
Peter starts by taking an audience survey, asking which of seven doomsday scenarios people are most frightened by.
The audience sees two clear winners: a) runaway biotech, e.g. mutated diseases wipe out civilization and b) that the singularity takes too long to happen (title of the talk).
Peter suggests that the recent credit/financial crisis actually has to do with singularity. Our society is on shaky ground: millions of people have money invested in pension funds (and the like) which they expect to produce returns of ~8% per annum, even despite various period of volatility. What people forget is that the past returns we’ve come to expect have been generated during periods of compounding innovation; cutting-edge tech has bolstered all other lines of business that rely on technological gains to increase productivity, etc. Innovation is a necessary component of a healthy, upward market. Innovation has stalled.
Peter recently talked to an LP (endowment) who was thinking of  re-allocating its portfolio to hold less than 5% in venture capital as its recent returns had not matched expectations. Peter told the LP that they’re thinking is flawed: if their 5% allocated to vc eventually does not return a mega profit, the remaining 95% allocation is going to be worthless anyway.
Peter then asks: has recent technological progress really been slower than it should be? He cites as support the fact that a) wages have not increased in terms of real dollars since 1973 b) that California (the most innovate place in the world) can barely pay its bills and c) that VC’s haven’t seen good returns in 11 years.
The credit crisis was really a technology crisis. Credit really is ‘claims on the future’ and credit only works with a background of growth. Peter then suggests that the credit crisis was really an offshoot of the dotcom crash. The dotcom crash in his opinion, occurred because the ‘innovation story’ was not happening as quickly as people expected. People panicked and bailed. When stocks (i.e. those necessary 8% returns) tanked, housing and leverage swooped in to make-up the difference.
Peter states clearly: “the boom-bust cycle is overâ€�. There will now either be a long period of malaise, or we’ll see a great boom (he’s obviously betting on the former).
Peter slams the NASDAQ explaining that most listed companies are actually not technology companies, rather, they are zero-sum bets against technology (ex: investing in Google is feeding a monopoly on search, Microsoft doing well means linux suffers, etc). NASDAQ companies are more like banks than they are true innovators (Sun may be an exception).
The Madoff Scandal occurred because people assumed that even despite a drought of innovation, an 8% annual return with no risk was still “safe.� This is crazy. People need to dramatically adjust their return expectations; only great risk will produce great returns.
Peter talks a bit about his fund and where he sees opportunities. Suggests that an under-invested area is optimizing the division of labour between human and computers: it doesn’t need to be all or nothing. He provides an example of how PayPal only managed to save the company from fraud by dividing up the fraud protection process using a combination of humans and computers.
Society currently suffers from a “free riders� problem relating to science and technology. Everyone expects great innovation to manifest, but “someone else� will do it. Large companies have disincentive to think with a long time horizon; they need to make quarterly numbers. If China is to surpass the US (Thiel seems to think this may eventually) it will be due to this time dimension.
—Another point brought up in the QA is around whether competition is a good thing in terms of schooling and career choice? Why are so many brilliant people studying string theory? Due to competition the best and brightest tend to go into the same fields of study. Much bigger contributions can be made by attacking disciplines where little progress has been made, the stuff on the edges like AI.

peter_thiel

 

Today was the first time I’ve had a chance to hear Peter Thiel talk live and he did not disappoint!

I spent Saturday and Sunday at the 2009 Singularity Summit, held for the first time in New York. Michael Vassar, Singularity Institute’s president, did an exceptional job of assembling an all-star cast of speakers. Talks covered a variety of subjects ranging from quantum computing to radical life extension to venture capital. For those unfamiliar with singularity, a brief description is here. Also, WebMetricsGuru has great coverage of day one here.

The following is a brief synopsis of Peter’s talk (side note: I understand all videos will be available on the SI website soon).

Peter starts by taking an audience survey, asking which of seven doomsday scenarios people are most frightened by.

The audience sees two clear winners: a) runaway biotech, e.g. mutated diseases wipe out civilization and b) that the singularity takes too long to happen (title of the talk).

Peter suggests that the recent credit/financial crisis actually has to do with singularity. Our society is on shaky ground: millions of people have money invested in pension funds (and the like) which they expect to produce returns of ~8% per annum, even despite various period of volatility. What people forget is that the past returns we’ve come to expect have been generated during periods of compounding innovation; cutting-edge tech has bolstered all other lines of business that rely on technological gains to increase productivity, etc. Innovation is a necessary component of a healthy, upward market. Innovation has stalled.

Peter recently talked to an LP (endowment) who was thinking of re-allocating its portfolio to hold less than 5% in venture capital as its recent returns had not matched expectations. Peter told the LP that they’re thinking is flawed: if their 5% allocated to vc eventually does not return a mega profit, the remaining 95% allocation is going to be worthless anyway. “Investing in technology as a VC is like Pascal’s bet: if that isn’t going to work, nothing will.”

Peter then asks: has recent technological progress really been slower than it should be? He cites as support the fact that a) wages have not increased in terms of real dollars since 1973 b) that California (the most innovate place in the world) can barely pay its bills and c) that VC’s haven’t seen good returns in 11 years.

The credit crisis was really a technology crisis. Credit really is a ‘claim on the future’ and credit only works with a background of growth. Peter then suggests that the credit crisis was really an offshoot of the dotcom crash. The dotcom crash in his opinion, occurred because the ˜innovation story’ was not happening as quickly as people expected. People panicked and bailed. When stocks (i.e. those necessary 8% returns) tanked, housing and leverage swooped in to make-up the difference.

Peter states clearly: ‘the boom-bust cycle is over’. There will now either be a long period of malaise, or we’ll see a great boom (he’s obviously betting on the former).

Peter slams the NASDAQ explaining that most listed companies are actually not technology companies, rather, they are zero-sum bets against technology (ex: investing in Google is feeding a monopoly on search, Microsoft doing well means linux suffers, etc). NASDAQ companies are more like banks than they are true innovators (Sun may be an exception).

The Madoff scandal occurred because people assumed that even despite a drought of innovation, an 8% annual return with no risk was still safe. This is crazy. People need to dramatically adjust their return expectations; only great risk will produce great returns.

Peter talks a bit about his fund and where he sees opportunities. Suggests that an under-invested area is optimizing the division of labour between human and computers: it doesn’t need to be all or nothing. He provides an example of how PayPal only managed to save the company from fraud by dividing up the fraud protection process using a combination of humans and computers.

Society currently suffers from a free-rider problem relating to science and technology. Everyone expects great innovation to manifest, but someone else will do it. Large companies have disincentive to think with a long time horizon; they need to make quarterly numbers. If China is to surpass the US (Thiel seems to think this may eventually) it will be due to this time dimension.

—Another point brought up in the QA is around whether competition is a good thing in terms of schooling and career choice? Why are so many brilliant people studying string theory? Due to competition the best and brightest tend to go into the same fields of study. Much bigger contributions can be made by attacking disciplines where little progress has been made, the stuff on the edges like AI.

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  • http://www.leveragingideas.com Sam Huleatt

    Absolutely, or at least that's how it appears if you listen to CNBC
    all day long.

    IMO, the fundamentals of the economy are still in shambles and just
    because the market is trending up, doesn't mean there is not still
    much rotten at the core.

  • http://www.smartplaninfo.co.uk/ Business Laptop Leasing

    I agree, our society is on shaky ground. It seems like one month we are told we are coming out of this economic downfall, and then 2 months later, the statistics are released indicating we are actually worse than what was projected. Some stabilization is needed soon!

  • http://KevinVogelsang.com Kevin Vogelsang

    There are some interesting implications of these statements.
    Does Thiel propose that LP's be given incentives to invest in technology-driven opportunities (such as VC)? If the returns aren't there, I don't see how we can expect LPs to put their money on it (flawed thinking or not).
    However, it's possible (/likely) that the low returns are due to too many venture firms with too much money and not enough value creation. Thus, the dropping numbers of firms. In which case, LPs putting their money elsewhere is a necessary part of capitalism at work.

  • http://KevinVogelsang.com Kevin Vogelsang

    There are some interesting implications of these statements.
    Does Thiel propose that LP's be given incentives to invest in technology-driven opportunities (such as VC)? If the returns aren't there, I don't see how we can expect LPs to put their money on it (flawed thinking or not).
    However, it's possible (/likely) that the low returns are due to too many venture firms with too much money and not enough value creation. Thus, the dropping numbers of firms. In which case, LPs putting their money elsewhere is a necessary part of capitalism at work.

  • http://www.marketfolly.com marketfolly

    Hey thanks for your notes, enjoyed them. We track hedge funds on our blog and have covered Thiel's fund (Clarium) numerous times. What's interesting to note is that while he might have great ideas and be quite philosophical, these are not (at least not yet) realistic trading or investing strategies as evidenced by his fund's poor performance numbers. There is a big difference between an idea and its execution.

    While he is still up handsomely since inception, the past 2 years for his fund have been far from impressive and just thought I'd note that. I enjoy Peter and his thoughts, don't get me wrong, but just thought I'd toss that into the mix as well.

    @marketfolly

  • http://www.marketfolly.com marketfolly

    Hey thanks for your notes, enjoyed them. We track hedge funds on our blog and have covered Thiel's fund (Clarium) numerous times. What's interesting to note is that while he might have great ideas and be quite philosophical, these are not (at least not yet) realistic trading or investing strategies as evidenced by his fund's poor performance numbers. There is a big difference between an idea and its execution.

    While he is still up handsomely since inception, the past 2 years for his fund have been far from impressive and just thought I'd note that. I enjoy Peter and his thoughts, don't get me wrong, but just thought I'd toss that into the mix as well.

    @marketfolly