Peter Thiel is a billionaire American entrepreneur, venture capitalist, angel investor and hedge fund manager. In a wealth and status obsessed world, that is something many would want. He cofounded PayPal, and then later on Palantir Technologies. He also started his own venture capital firm Founders Fund, which focuses on technology startups. remains the holder of the most successful investment, investing $500,000 into Facebook for 10% of the company in 2004. This went up 200,000x at IPO, or 20 million percent. This is an astronomical gain that can only be dreamed of. Given his contrarian mindset, and the contrarian results he’s gotten, thinking the way everyone else thinks isn’t going to lead to substantially amazing results. In the book Zero to One, notes are taken on Peter Thiel’s thinking that could challenge us to think differently and by extension become better investors.
-notes on startups, or how to build the future
-today’s best paths lead to dead ends; the best paths are new and untried; by definition, one must be contrarian when investing in startups given, they are trying to disrupt either an existing market with a better product, or, get into a new untapped industry.
-successful people find value in unexpected places, and are the ones writing the plans, not having them dictated to them. The standard setters are the ones who end up making things happen, they don’t wait around for permission. Uber practically forced themselves into different markets, then begged for forgiveness afterwards after already establishing a presence. Had they waited for regulations to be completely set, who knows how long it would have taken for governments and bureaucracy for conditions to be right, if ever.
-Prefer venturing with audacity over settling for triviality; a faulty plan trumps having none, competitive markets erode profitability, and the significance of sales is tantamount to that of the product.
-“what important truth do very few people agree with you on?” This is how a significant gain is made, rather than average gains.
-Y axis, vertical growth, innovators, new things, technology, US (currently); innovators drive the market and as a result get an unfair premium
-X axis, horizontal growth, copying old ways that work, China, globalization; copycats only exist if they can do it cheaper, better or faster.
-since the late 1970s, innovation has slowed except in technology. We need innovation for the future, not globalization else we will die of environmental problems or even the disease situation right now. As the world becomes more singular from technology, people are ironically producing more homogenized ideas rather than different ideas.
-startups are the most likely to come up with new ideas, and thus gain the value of the world
-a rapid increase in the market occurred from 1998 to 2000, followed by a rapid fall from March 2000 to 2002.
-Pursue gradual advancements, maintain agility and efficiency, enhance upon your competitors, and center your attention on refining the product, not sales
-buy companies that operate in monopolies, preferably differentiated companies with pricing power
-companies essentially fall into either extreme, towards a competitive market (restaurants) or a monopoly (google). However, both sides will lie to try and be in the middle or look in the middle; restaurants so losers can look amazing or better (in spite of the odds), and monopolies try to avoid looking like monopolies to continue free dominance with no regulatory oversight
-in a perfect competition or highly competitive environment, the businesses are fighting survival and people involved become ruthless, desperate. Restaurants employing grandparents and children to do free work. Only escaping survival with monopolistic profits can a company care about something outside profits. When people are competitive, they make money everything. When people have money, it is still important. Money is either important or everything in business. For the people who say money doesn’t matter at all, why does almost everything in life have a price tag to it?
-Monopolies drive the world and are good incentives. Old monopolies pave way to new monopolies. All good businesses are different and solved a unique problem, earning a monopoly. All failed businesses failed to escape competition. Ironically, in capitalism, getting away from the competition is the way to win. Competition leads to a red ocean with no real winners.
-Equilibrium is stasis, and stasis is death. If you aren’t growing, you are dying.
-our society, going from school to work to sports to grades to mating, is obsessed with competition, both between others and with ourselves. The more we compete, the less we gain
-those most academically inclined are arrogant about their grades and typically do worse in life. They have a closed mindset and act as if they are experts, despite having not accomplished anything. This stubbornness and rigidity lead to extreme mistakes in life and a refusal to change or adapt to circumstances. All Rhode scholars had a great future in their past
-competition is a destructive force. Don’t focus on competitors, focus on consumers. There is no middle ground in fighting. Either don’t fight at all, or fight all the way and win. People who think competitively are losers filled with envy and lack of success.
-buy businesses with strong future cash flow generating abilities, or technology companies as they have initial high fixed cost but soaring revenue gains, meaning high cashflow yet low costs due to low or even no variable costs. These are the qualities of a monopoly
1- 10x better than competition or entirely new market without competition (google, amazon)
2-network effect (Facebook)
3-economies of scale
4-branding (Apple)
-start small
-scale up slowly, master one at a time
-don’t disrupt the sleeping bear and bring competition
-the last will be first; it’s much better to be last to move and to have dominated a small niche before enjoying monopoly profits
-it’s better to be definite about the future and concentrate on one thing than when young try many things becoming mediocre at everything and pretending to be “well-rounded”, resultant from indefinite future
-about the future: definite (led by firm convictions) or indefinite (dysfunctional, lack of plans to carry out, future is uncontrollable and unpredictable)
-optimists welcome the future, pessimists are scared or anxious about the future
-indefinite pessimism; Europe
-definite pessimism: China
-definite optimism: US in the 1950s and 60s; big bold plans worked on
-indefinite optimism; things happen by chance, good things, many baby boomers thought this way, particularly the successful ones
-we are living in an indefinite optimistic world. Everyone wants resumes or degrees to keep their options open, but no one knows what to do, even in finance, believing in things like random walks or efficient markets.
-society everywhere has shifted from old age pessimism, to indefinite optimism and now to indefinite pessimism (lacking concrete, definite plans, deferring to the future)
-the last will be first
-rivalry causes us to overemphasize old opportunities, to practise dogma by copying what worked in the past
-the current indefinite optimism of the west is leading to no concrete plans, beliefs, or timelines, and additionally, low savings by consumers and low investment by companies (and only doing buybacks and dividends)
-definite optimism: build towards a future you have envisioned
-definite pessimism: building what can be copied without expecting anything new
-indefinite pessimism; do not work as there is no point to the future
-indefinite optimism cannot last forever, things are happening without people knowing
-long term planning is undervalued and necessary in our indefinite short-term world
-you are not a random lottery ticket; you can and must control and work towards shaping an envisioned future. Our western world is in need of a cultural revolution
-Follow the money; Pareto’s principle is evident in the world, both in the natural and the social world. We live under that power law, not an equal world
-most startups and most venture funds fail. For the ones that do succeed, they are actually J shaped, ironically, instead of succeeding right away
-diversification leads to an extreme downward slope of returns rather than a linear downward curve
-bet big, and the one investment should return the entire fund combined, 5–7 they focus on at founders fund
-if you think life or investing is like a lottery ticket or gambling or luck, you are psychologically prepared to lose
-The Power Law, Pareto’s principle, is important to everybody in every decision of life
-the career, people, investments and decisions we choose we believe in providing immense value decades from now and still existent
-Life is not a portfolio; for those that understand Pareto’s principle, the key is actually to invest in as less companies and less decisions in life as possible. You cannot “hedge” life by keeping all options open forever, that is a stupid way to do life as you are in stand still. What you want to do is to pick a meaningful path and people that are well thought out for the long term, and then bet the farm on those paths. Otherwise, you just get mediocrity by being “stuck in the middle”. It’s better to make a decision believing in a future than none at all having no idea, believing in a luck based, random future. Education and society now teach the opposite, to be balanced and multi versed, homogenized.
-further examples of the Pareto principle; one market is better than all others, one strategy better than all others. Even time and decision making follows the power law; some moments in life and decisions will be of 80% importance.
-easy, hard, impossible (conventional, secret, mystery). Without something hard to do, people become depressed (as they are now). Many conventional knowledge (easy) about life has already been figured out (e.g. Pythagoras theorem). In fact many hard things in life are being figured out too, so society comes to believe hard things are figured out (not true, only by some people, such as marriage, wealth). Another reason is people find it hard to be lonely and right, and even worse to be lonely and wrong. That’s why most people are in company and wrong. To be in company and right is the golden arc. Complacency and globalization are other reasons. Thus, harder to start cults now, as people are less intellectually curious and less curious about other people, less wondering in general.
-many people give up on believing there are hard things to accomplish, or that they can be accomplished. Belief in secrets is an effective truth, and only those who believe they can do it will try. If they think it is impossible, they will not even try. E.g. simple ideas as the sharing economy and social media are secrets capitalized on. Often, simple ideas can be capitalized on.
-the best place to look for secrets is where no one else is looking. Do not tell others your secrets, or reveal your whole heart on show or feelings to the whole crowd; you will be crucified and burned.
-get the foundation right and it has to be right; crucial mistakes in crucial parts leads to disaster and pain in the long run. Examples; choosing the wrong people, including the wrong partners or hiring the wrong people
-founders should share a good prehistory before starting a business
-your either on the bus or off the bus, nothing in the middle, the half pregnant situation is the worst
-look for companies where CEO pay is low and equity rewards are high
-having the hard conversations early on tends to lead to better relationships
-work with people you like, otherwise things become cold and transactional, people are viewed as temporary seat fillers
-startups should have similar staff
-left side are consultants, nihilistic; far right is cults, dogmatic
-advertisements exist to make you buy a product later based on subtle impressions
-Salesmen priority is persuasion, not sincerity. Thus, don’t marry a salesperson, sales work best when hidden (politicians, investment bankers, account executives, business development). Though sales is important, the people in it are typically shady.
-don’t sell anything you wouldn’t buy yourself. Ask others would they buy something that they were selling?
-there’s no wisdom of crowds, only ferocious competition
-product differentiation is not enough: sales are actually more important. Customer lifetime value must exceed customer acquisition cost. Companies that spend more money to advertise or provide discounts to get new customers than profit are no good. There should be organic traffic, those are good businesses.
-The first entity to establish dominance over the pivotal segment of a market with viral potential will ultimately become the final participant to enter the entire market
-sales do not try and catch all or be a friend to all. Be tailored, using 80/20 rule and only catch a few that will provide greater long-term purchases
-in today’s world, selling to the media is a smart strategy as it can lead to free press time
-Nerds might wish that distribution could be ignored and salesmen banished to another planet, but everyone sells. If you don’t see a salesperson, you are the salesperson. Sales works for short term success, but the product is what leads to long term success.
-the most valuable future businesses are the ones that empower people with technology rather than replace people
-people’s natures of progress and wanting more means the Chinese will be huge consumers in the future; they will want American lives, which means huge demand coming and capitalistic narcissism from China
-the differences between man and machine mean that gains from working with computers are higher than gains with trade with other people. Your expected EV is consistently positive with technology, but may or may not be positive with people. Technology helps us escape competition in a globalized world. Seek rational logical gains from technology, emotional and other gains from people where technology can not replace people. Knowledge from technology and efficiency, interpersonal and emotional from people
-people have become addicted to and enchanted by technology. Big data is usually dumb data.
-The concern about being replaced by computers is a matter for the 22nd century not ours in the 21st
-investing in renewable energy companies was a bust. Don’t invest in fads, focus on the business in a sustainable trend
-one should not use the if I get 1% of a large market as a reason for the business to succeed, as it has nothing to do with the business itself.
-the best sales are hidden. If someone has to sell or looks like a salesperson, they have no substance
-social entrepreneurs who try to be both doing good and doing well usually end up doing neither
-founders are different people
-you either die a hero in the media, or live long enough to become the villain. The good is noticed first, and leave before the bad comes out. Unusual individuals lead to big results, whether good or bad. So, you want to invest in unusual individuals.
-the future: economic plateau once all countries go towards developed countries. Or as Masayoshi Son said it, singularity, a unified world by technology.
-Think for yourself and build every day in all aspects of life in a positive manner.
Disclaimer
This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.