Written by our Director of Equity Advisory, Jeremy McKeown, the HyperNormalTimes provides in-depth and considered long-term commentary on major macroeconomic and market-shaping themes.

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August 3, 2020

Resilience, Immunity, Skin in the Game & the End of Big Tech

Government Protection

It doesn’t seem that many people believe this, or even that it is their responsibility, but life is uncertain and unknowable and none of us can be protected from the impact of risk, whether known or unknown. This applies to our our own health and well being as well as the ability of our businesses to make an economic return. The government hasn’t outlawed death or economic failure, however much it increasingly appears that some people feel it should. I don’t want to delve too deeply into the politics of our current situation, but in the space of 6 months the expected mandate of our government now includes assuring us from catching viruses while also ensuring that the places where we are most likely to catch them (schools, pubs, theatres, restaurants, bowling alleys, aeroplanes) and the organisations that operate them, all remain solvent. By locking down, government has scared its electorate into believing that they now have a duty of care to prevent all future infections. Furthermore by introducing the well intentioned “emergency” measures to provide financial support for businesses impacted by the lock down, governments have also allowed expectations to be set for how they might support (now uneconomic) businesses in the future. Lock down is a lobster pot, easy to enter, but hellish to exit. Wouldn’t it be nice to hear a politician say, you know what? we are learning all this as we are going, we have and will make mistakes, but we want to level with you, there is no optimal solution here, people will die, and businesses will fail. We can do what we can do, we will learn from our mistakes but we can’t save everyone. You need to prepare for the worst, but let’s hope for the best. Unfortunately this speech will be filed away in the difficult honesty box, along with ones on the the real impact of drug laws, the true threat of terror, and the huge economic benefit of immigration.

Resilience is Unequally Distributed

The reality is that the resilience of people and companies to COVID19 and its implications is not evenly distributed through society. Elderly and obese people and indebted companies in travel and hospitality are all high risk categories, where resilience is impaired and risks are heightened. While it is clearly incumbent upon any government to offer protection for the vulnerable, the reality is, there is a limit to what can be done. It is incumbent upon all of us to build resilience and self immunity, people and businesses. As individuals if we catch the virus our own personal virology lab goes into action, our immune system. We adapt to its presence, and hopefully develop our own way of coping that doesn’t make us critically unwell. Unfortunately this hasn’t been the case for all of us, nor will it be in the future. Similarly companies have to try and adapt to the new regime of cautious socially distanced consumers, and armies of “working from home” employees. Some will be able to, others won’t. No matter how much government support they are given, they will eventually fail. Our economy’s capital is over allocated to retail, leisure and public transport. The hard truth is that populations of companies and people become more resilient and effective as a result of going through the process of adaptation, but some don’t make it. It is a hard reality to accept, but both capitalism and human existence benefit from existential threats. Taleb, who wrote about Black Swans, also talked about the benefits of having Skin in the Game when undertaking risk taking activities, he says that it reduces the asymmetry of returns, in other words, we become more aligned with the outcome of our own actions when we skin in the game. It is why founder led, or family owned businesses tend to produce higher and more prolonged returns to investors than other, non-owner managed businesses.


Interestingly last week saw the leaders of four of the most successfully resilient businesses on the planet be subjected to a show trial to explain to elected representatives how they have managed to achieve their status, scale and power, and via their questioning they gave us a few clues about the anti-trust remedies the politicians might have in store for them. The companies they represented also produced further evidence of just how “anti-fragile” their businesses are, when they all revealed their Q2 results. (See Taleb for the distinction between resilience and anti-fragility). It is staggering, but Amazon managed in the period to triple its grocery deliveries year on year, and incredibly accelerate the take up of Prime in ALL territories, (in the US it already has 82% household penetration)! Jeff Bezos, the founder behind this amazing feat unsurprisingly has a lot of skin in the game, as does Zuckerburg at Facebook and Brin and Page at Google. While it transpired that all these companies have been heavy handed in building their defensive moats as wide and deep as they could, the reason they did so is because they are also  highly attuned to the threats their successful strategies have faced along the way. As James Titcomb pointed out in the Daily Telegraph today, IBM was accused of holding a monopoly over punch-card processing and mainframe machines in the 1960s, this led to a 13 year anti-trust case, which by the time it was resolved mainframe computing had already become eclipsed by the ubiquity of the distributed PC. Similarly in due course Microsoft was attacked for its dominance of this market, and again by the time it was resolved, the dispute over bundling internet browsers had become a quaint side-show, as the web and the smartphone had already moved to centre stage.

Entropy Will Get You

Bezos has previously warned his stakeholders that to stand still is to die a slow but certain death, and Amazon, like everything else, will have a finite life. Taleb said, at his starkest best, that companies beyond the entrepreneur stage start to rot […] one of the reasons corporations have the mortality of cancer patients is the assignment of time-defined duties. It is no coincidence that these Big Tech companies have been built to be resilient and are seemingly immune from competition. However, the reality is that no matter what they do, they will tend towards inevitable entropy, with or without the assistance of anti-trust measure

Death of Big Tech

We tend to think that technological change happens in discrete linear increments, such as getting a new smart phone. We tend to be caught out by the reality that underlying technological change actually occurs geometrically and continuously. As an example there is a lot of buzz in tech circles currently about Open AI’s new iteration of its natural language AI called GPT-3, Generative Pre-trained Transformer. GPT-3 has 175 billion nodes (algorithms), 100x more than its predecessor, which is the level of sophistication that helps us compile our gmail replies or auto completes our search bar. An API version of GPT-3 has been released for software specialists to have a play with and it is worth taking a look at the reports on what this machine learning network is able to do. Suffice to say, it would appear capable of circumventing our current obsession with online search, among many other things. Of course it is early days and I might be wrong on this, and it could be something else entirely that ultimately disrupts Google’s core business. The main point is that for Google, as with Facebook, Apple and Amazon too, it won’t be anti-trust, it will be innovative competition and taking their eyes off the ball, that will be their downfall. I for one can’t wait for the political and legal due process to unfold, I want to see what the new, new thing is as soon as possible, and naturally, try and get a few shares early.

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