What We’re Reading

A few good articles the Collab team came across this week …


A good piece on averages:

We think it is worth pointing out that with [investment] outlooks, expected is just another way of saying average. What they are really saying is, “of the infinite potential futures that could unfold, we believe the average result is X.” … Of course, we do not experience infinite potential futures. We realize just a single one of those future paths. With expected returns for dozens of asset classes, we have to ask: what are the odds that future actually looks average? … there is an 85% chance that 50% of the asset returns won’t look average at all.

Content is hard

FoxSports witched to video content, and its audience vanished:

SI’s Richard Deitsch reports that traffic dropped an astounding 88% since the “pivot to video.” Their traffic has gone from over 143 million in a monthly period to just under 17 million.


A good piece on Aldi grocery stores:

The younger Mr. Albrecht asked employees to turn the lights off when the sun was out, took notes on scrap paper and asked store managers to set bathroom hand dryers not to blow for one second too long.

Former executives say he saw every cent of waste in a single store as an existential threat that, if multiplied across his growing empire, could put his fortune at risk.


Netflix’s void:

In the vast world of Netflix streaming, 1960 doesn’t exist. There’s one movie from 1961 available to watch (the originalParent Trap) and one selection from 1959 (Compulsion), but not a single film from 1960. It’s like it never happened. There aren’t any movies from 1963 either. Or 1968, 1955 or 1948. There are no Hitchcock films on Netflix. No classics from Sergio Leone or François Truffaut. When Debbie Reynolds died last Christmas week, grieving fans had to turn to Amazon Video forSingin’ in the RainandSusan Slept Here. You could fill a large film studies textbook with what’s not available on Netflix.

Burn rates

Rules of thumb:

Let’s say you are a $10mm annual revenue company in 2017 growing to $18mm in 2018. And let’s say that you look around at public comps and companies similar to your are trading at 6x revenues. So you can estimate that your business is worth $60mm this year and $110mm next year. So there will be $50mm of value creation in 2018. If you want a 5x return on your burn, you should not burn more than $10mm in 2018. If you are willing to accept as little as 3x, you should not burn more than $16mm in 2018.

Efficient markets

Good discussion:

The efficient-markets hypothesis remains the standard. That’s true of all economic models, but people don’t make decisions that way. In my managerial-decision-making class, I give [the students] rules at the end of class. One is, “Ignore sunk costs; assume everyone else doesn’t.” That’s my philosophy of life. I believe the rational model, and I think that a lot of people screw it up, and that we can build richer models with a better predictive power if we include the way people actually behave as opposed to [the behavior of] fictional “Econs” that are super smart and have no self-control problems. I don’t know anybody like that.

Have a good weekend.