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  • MIKE GREEN: Well, you can tell by the smile on my face, I'm happy to be here.

  • I'm sitting down with one of my best friends, Josh Wolfe, so excited to be back here in

  • New York and chatting with you.

  • Welcome back to Real Vision.

  • JOSH WOLFE: Symmetrical happiness.

  • Always thrilled to be with you.

  • MIKE GREEN: Every time you come on the show, we get to talk about a new success.

  • Last time, we talked about the magic.

  • You were so excited about CTRL-labs, and pushed you on the idea that maybe you were falling

  • in love with something and where's my sales commission?

  • JOSH WOLFE: Man, we got to do these interviews more often.

  • It's been a streak of good luck.

  • MIKE GREEN: With CTRL-labs, now, you sold it to Facebook.

  • Remind people what CTRL-labs is, remind me why you're begrudging in the sale.

  • What do you think Facebook wants to do with something like this?

  • JOSH WOLFE: The thesis behind CTRL-labs which led to three nights of sleepless nights in

  • pursuit of this entrepreneur, Thomas Reardon and Patrick Kaifosh, his co-founder, was premised

  • with this intercepting phenomenon that I call these two arrows, one of inevitability, and

  • one of the perception of the impossibility.

  • Inevitability is this directional arrow of progress where it doesn't necessarily tell

  • you who the entrepreneur is or what the company is but there's this inevitable high probability

  • that this is the way that technology is trending.

  • The impossibility is when everybody else in the field, peer VCs, just don't see it.

  • They think, oh, that'll never work.

  • It's impossible.

  • Impossibility ends up dictating low prices or less competition and inevitability raises

  • our confidence and conviction.

  • In this case, the arrow of progress, the inevitable, was the idea that something we call the half-life

  • of technology intimacy.

  • This buzzword that we coined but basically 50 years ago, you had a giant ENIAC computer,

  • you physically went up and pulled some plugs and buttons.

  • First half-life, 25 years ago, you have a personal computer and you're tickling the

  • keys, you're touching the monitor, you're flipping the power switch on the back.

  • 12 and a quarter years ago, the next half-life, you have a laptop, physically touching your

  • thighs, becoming a little bit more intimate with you, you trade the mouse for a trackpad.

  • Six and a quarter years ago, now you've got your phone cradled in your hand.

  • First thing you touch in the morning, last thing you touch tonight, separated from your

  • body only by a thin film of fabric.

  • Three and a half years ago, your iWatch.

  • 24 hours a day on your hand or 18 hours a day.

  • A year and a half ago, AirPods with a computer inside for voice recognition.

  • That directional arrow of progress, the inevitability was computability was becoming more and more

  • intimate and close to you.

  • We shared that thesis with a lot of people and then we ended up meeting this researcher

  • at one of our other companies, Charles Zucker, who's a PhD neuroscientist.

  • He said you got to meet this guy, Reardon.

  • Reardon was the inventor of this technology that we use called Internet Explorer when

  • he was at Microsoft as a young guy.

  • He was one of 17 kids, 10 biological, seven adopted.

  • Just insane family situation.

  • Bill Gates taps him, he goes and works at Microsoft for a decade from '90 to 2000.

  • He's also Bill's right hand guy during the monopoly DOJ trial.

  • Then after making a lot of money and being technologically renowned and reasonably wealthy,

  • he does what anybody would do in his shoes, he starts another company, Openwave, which

  • ends up creating a mobile browser that we all use and then goes back to college and

  • gets a degree in Classics in Latin.

  • Then spends the next near decade getting a PhD in Neuroscience, where the thesis he was

  • working on is this myoelectric response.

  • The idea that you could detect from the surface of your skin, the roughly 15,000 neurons,

  • that innervate roughly 14 muscles in your hand, which is important because if I'm typing,

  • my brain is telling my fingers to do something.

  • If I am turning a knob or switch or a lever or doing anything, my brain is subconsciously

  • telling my hand to move.

  • He figured out how you could take that signal, detect it and map it to the technological

  • devices we use.

  • Instead of having to type on a keyboard, instead of having to type a switch, instead of having

  • to turn a thermostat, I could effectively either do that motion in free space, or, and

  • this was the crazy part, think about making that motion and I can control the devices.

  • MIKE GREEN: We talked about this last time.

  • You highlighted that even if we go back and look at the Tom Cruise film, Minority Report,

  • where he has this dynamic and he's moving this, he's wearing gloves, he's making the

  • gestures, et cetera, what Thomas Reardon figured out was that that subconscious thought was

  • actually sending a signal that they are then restricting and so the process of learning

  • how to type on Mavis Beacon is actually just your brain sending those signals to your fingers,

  • your fingers then figuring out how to do it, and you're training that interface back and

  • forth.

  • CTRL-labs basically shortcuts that process.

  • JOSH WOLFE: In fact, they had a maddening demo, which we may have talked about, where

  • you try to hit the button before the device knows that you intend to hit the button and

  • you can't do it.

  • MIKE GREEN: That's amazing.

  • JOSH WOLFE: It can detect your intention to fire your muscle and move it before you actually

  • move it, which makes that, because if you have 1000 neurons that are activating a single

  • muscle, if there's 100 of them, and if you were to do this now and you think about just

  • moving a finger, you get the sensation, this feeling of that finger, and it can detect

  • that.

  • I became obsessed with the entrepreneur, I lost sleep in pursuit of the deal for three

  • nights.

  • My wife, when she finally met Reardon was like you, you're responsible for this household

  • duress.

  • It was an amazing experience, but it was too short.

  • It was too short.

  • It was about a year and a half, almost two years and Facebook made an entry on the company,

  • which we rejected.

  • Zuckerberg came back and made a more persuasive entry.

  • These founders, some of whom, unlike Reardon, had never made money before.

  • It was very compelling, the amount of capital that Facebook was going to invest into the

  • company on an ongoing basis, as well as the liquidity that people were going to get now.

  • I wish we would have held it longer.

  • I truly think this would have been a $10 billion business instead of something a little under

  • a billion dollars, but it was a great outcome for our investors and a thrill to be part

  • of what I think is going to be a historic technology that we will all be using.

  • MIKE GREEN: Now, I want to come back to this but this also brings up another topic that

  • you and I've discussed before, which is basically the concentration of capability inside companies.

  • What we have very clearly seen are companies like Google and Facebook, Apple, Microsoft,

  • have become very acquisitive.

  • They have an extraordinarily low cost of capital and have been able to buy these.

  • Do you think for Thomas Reardon as he thinks about going inside Facebook, that that creates

  • a limitation or that that changes the trajectory of the technology versus its original vision?

  • JOSH WOLFE: I'll give you two answers because I tried the no answer.

  • I tried the moral suasion.

  • I tried-- and this was at a time when Zuck was in front of Congress being lambasted as

  • a poster child of technological excess and election meddling.

  • I'm trying to make the case, my God, you are going to take a technology that can capture

  • your neural intention and give it to Facebook?

  • You're going to spend the next two years in front of Congressional committees yourself.

  • I tried emotional suasion with my kids, saying don't sell, sending videos to the board.

  • We don't trust Facebook.

  • I tried financial suasion to do a secondary in capitalized business.

  • In the end, I think Reardon actually had a very rational view of this.

  • Again, he worked for Bill Gates at Microsoft when Microsoft was arguably the evil empire.

  • His view was back then, Bill Gates was a lot more powerful, and Microsoft was a lot more

  • powerful than Facebook is today.

  • Bill today is considered a president of the world in many ways.

  • He's curing malaria, he's taking on poverty, he's doing big global things in a way that

  • many of our other elected leaders are not and there's no reason that you couldn't imagine

  • a decade hence, as hard as it is, that XOC because of Chan Zuckerberg Initiative might

  • find a cure to Alzheimer's or something and suddenly be in that same position.

  • I think the idea that there's going to be the monopolistic power concentrated, he felt

  • was overblown.

  • The thing that I think was really appealing to him, when you get bit by the bug of taking

  • Internet Explorer from one person to a billion users, the idea that you could take this technology

  • and its ability to let humans express themselves and control the world around them, from one

  • person or in our case, a few dozen people to 8 billion people, which is his goal, you

  • want a platform like a Facebook.

  • I think that the world will be better off with this scaling and I think it will unleash

  • many technologies in almost this moral imperative case to invent so that genius can get unleashed

  • and unlocked, that a lot of genius will get unlocked as people start to use this and discover

  • what they can create with it.

  • Again, I just wish it was still in my hands for a few more years at a much higher multiple.

  • MIKE GREEN: I wish it was to actually, but you didn't try the physical violence approach,

  • which might have been my return.

  • Last time we got together, we had a similar discussion.

  • This time, it was John-- that time, it was Johnson and Johnson acquiring the robotic

  • surgical company-- JOSH WOLFE: Auris for just under 6 billion.

  • MIKE GREEN: Yes.

  • Exactly.

  • I haven't had a robot operate on me yet.

  • Do you keep tabs on how that progress is developing, how that technology is developing and what

  • the next stages are when you exit these vehicles or just the bandwidth that that would consume?

  • JOSH WOLFE: No, we continue to track that because again, the thesis is sound and the

  • idea that the skill of a human in the operating room is the rate limiting factor to be able

  • to scale surgeries, particularly if you are a highly skilled surgeon.

  • The ones that make the most money, they're the most sought after for the most sophisticated

  • procedures.

  • I think that that's going to start to go away and the sophistication of the surgeon will

  • be embedded in the machine.

  • We see that across the history of technology where somebody that has manual dexterity,

  • that has precision replicability, rather than that being the implicit knowledge of the surgeon

  • through many experiences, why should they not be able to effectively download that into

  • a machine so that that can scale and reach many?

  • MIKE GREEN: It's interesting.

  • Every time you and I talk, occasionally I get shivers down my back.

  • I'm reminded of a paper by Mark Koyama describing the innovations that actually led to the creation

  • of the Industrial Revolution.

  • One of those innovations was actually the transition from needlepoint in designs and

  • fabric to printed fabric can go.

  • What they did was they introduced variety into the consumption basket of young women

  • being courted by young men and that the young men had to enter into the labor force to obtain

  • dollars so that they could actually go buy stuff dramatically changed the work habits

  • of the world.

  • When you say something like that, and you highlight that type of technological development,

  • I can only see the number of opportunities that it expands in terms of the capability

  • to lower the costs, increase the ability of people to have the surgeries that they might

  • otherwise not have in the United States, the developing world, et cetera.

  • Really excited to see how that moves forward.

  • My next bet for the one though, that's going to be acquired, is one you just started talking

  • about, which is the Variant Pharma.

  • JOSH WOLFE: Yeah, this is early.

  • It's consistent with the theme which we follow, which is the decreasing gap between science

  • fiction and science fact.

  • In this case, the inspiration really came from X-Men and Professor X puts on this helmet

  • called Cerebro and is able, from a call crowd of mutants ridiculously, to spot the one in

  • a million person who can shoot lasers out of their eyes and conjure fire from their

  • fingers.

  • He got us thinking, okay, if there's a one in a billion chance of some super rare phenotype,

  • a trait, which has [indiscernible], seven people walking around that have extreme high

  • oxygen saturation at high altitudes, they get into an accident, their bones don't break,

  • they have extremely high metabolism, lots of interesting traits, and you just have to

  • go and find them.

  • Now, the other interesting thing, and here's where there's this arbitrage is the vast majority

  • of money and effort and research and talent has gone into sequencing, pale, male, stale

  • white Europeans, people like us.

  • Maybe not the stale part, but very few people have gone to the outer regions of the world

  • because those people don't have money to find these outlier traits in these outlier regions.

  • I think that there is an absolute genetic goldmine of these people who are quite literally

  • mutants whose traits, and it's really important because the team here, the fourth or fifth

  • person that they hired was a computational geneticist but the second and third was a

  • cultural anthropologist and an ethicist because they want to get benefit sharing and have

  • these people participate in both the economic profits but also the scientific progress that

  • comes from finding these unique individuals.

  • You will take a minority mutant population and end up helping find cures for the masses.

  • I think it's an area of medicine in genetics that has never been explored.

  • We started the company, filled a team, they have now gone and it's interesting we call

  • them at the moment Treks.

  • There's a lot of thought-- T-R-E-K, like a trek.

  • Which even they don't really love that, they killed the idea of a mission, because that

  • has a connotation of expertise of your [indiscernible].

  • Lots of consideration about that even just like how do we approach these populations

  • who are rightly skeptical from having been exploited in the past by big companies or

  • explorers, or whatever.

  • We don't call them explorations, we don't call expedition.

  • There's a lot of thought into the etymology of what we call these-- MIKE GREEN: Extreme

  • wokeness.

  • JOSH WOLFE: Yeah.

  • They've done a handful of different partnerships, the ones that have been publicly announced,

  • I've been with them, our recent New Zealand who have really interesting metabolic traits.

  • Pakistan, which is a genetic island population and that Pakistan is not an island geographically,

  • but there's a lot of interrelated marriages and cousins marrying cousins.

  • Because of that, you get interesting traits, which are likely or more likely to have a

  • monogenic condition, a similar gene that goes [indiscernible] and does something.

  • Then they just went to Nepal and were with the Sherpas and it was absolutely stunning.

  • They brought back some video.

  • They have a Nat Geo documentary person that's going around with them filming their treks.

  • These Sherpas are going up with hundred pounds on their back and they're completely not out

  • of breath and our team is dying and there is a genetic predisposition for that.

  • MIKE GREEN: You skipped one that actually caught my attention, was just the Samoan populations.

  • Very quickly, like from reading about the Varian Pharma website, resistance to diabetes

  • in the Samoan population run something like 30%.

  • As a result, the statistics was to replicate a Variant Pharma study that required only

  • 10,000 people in Samoa, would require roughly 10 million, if I got those numbers correct,

  • in Europe?

  • JOSH WOLFE: Yes.

  • Because you already have the traits manifest in the people.

  • You're not searching for all this needle in haystack, you have all the needles.

  • MIKE GREEN: It's just absolutely incredible.

  • I don't think people can fully appreciate the revolution that's in front of us from

  • this standpoint.

  • I have a number of friends that are in the biotech space.

  • One who is going to join us tonight to drink after this event.

  • They are highlighting that there's just this extraordinary advances coming in the biotech

  • space as people approach things from a standpoint of how do we change the way we study it, not

  • necessarily how do we change the tools?

  • The '80s and the '90s were largely about innovations in terms of what are the tools?

  • JOSH WOLFE: Sequencing.

  • MIKE GREEN: Right, exactly.

  • Now, you're talking about the redesign of the actual process of how do you think about

  • the problem?

  • JOSH WOLFE: Exactly.

  • In fact, the way that we think about it is search is really, arguably the first competitive

  • advantage because you're trying to find and identify these populations, some of which

  • they're not publicly disclosing.

  • I'll share one with you, not where it is but what the traits are.

  • Sequence, which is relatively as you point out, because the technological curves in this

  • are commodity, then you want to go and basically develop and you're either going to partner

  • with Big Pharma, or in some cases, develop your own clinical trials, and that's a lot

  • more money.

  • It's really the search of how do you partner and develop a competitive advantage.

  • Arguably, the most important competitive advantage is trust, with the reputation that you have,

  • how you're contracting with local researchers, how you're treating the local population,

  • how you're prioritizing them, how you're deprioritizing them, if that might be the case and what legacy

  • you leave.

  • One of the populations, South America, nine people were mean.

  • This is like a tiny group of people who have extremely high metabolic rate that spikes

  • at night.

  • Adaptation to the environment, temperature precipitously drops, they almost have like

  • a Heat Shock Protein that raises their body temperature.

  • Now, if you think about this, if that proved and I don't know if it is, but if it proved

  • to be a monogenic condition, the gene makes the protein that raises the body temperature

  • at night and that was a targetable drug, you're talking about a pill that you take a night--?

  • MIKE GREEN: Makes you skinny.

  • JOSH WOLFE: I don't know if it makes you skinny, but you're definitely burning fat while you're

  • sleeping and with the obesity epidemic in the US, it would be pretty interesting.

  • MIKE GREEN: That really is just fascinating, fascinating.

  • It is my bet for the next one by the way.

  • I don't know everything in your portfolio, but that is one that strikes me as just an

  • instantaneous.

  • JOSH WOLFE: Well, if we keep this pattern going, then the next time we sit down-- MIKE

  • GREEN: I know, who wants to talk about the sale of Variant Pharma?

  • You have been begging them not to sell.

  • One of the other companies you talked about that got away from you, and I think you actually

  • became involved, Zoox.

  • This is in the self-driving space.

  • There was big announcement from General Motors or Drive more accurately in the past-- JOSH

  • WOLFE: Cruise.

  • MIKE GREEN: Cruise, absolutely.

  • Correct.

  • Can you talk a little about what's going on in that space?

  • JOSH WOLFE: Cruise was actually the one that got away from us.

  • We had offered Kyle $20 million at a 40 million pre-money so 60 million post and somebody

  • else did it, another great VC, at 80 million.

  • We thought that was double the price that we were in.

  • We were being priced disciplined on this.

  • Then we introduced Kyle to GM.

  • GM bought them nominally $4 billion, a little bit less.

  • Yeah, so that would have been 11x in nine months or something.

  • That was a big error of omission in hindsight, and that is an amazing team.

  • I think that they are serious.

  • I think that Aurora, which is another competitor, is serious.

  • I think that Zoox is the most serious, obviously biased, we're invested but we only full stack

  • autonomous vehicle driving highway city in San Francisco, in Nevada, elsewhere, actually

  • doing robo taxi rides in Vegas.

  • Tesla, as you know, if you follow me on Twitter at all, that is mostly BS when it comes to

  • autopilot.

  • It's actually dangerous that this is even on the road but the level of sophistication

  • that you have on everything from solid state LiDAR to the software simulation to being

  • able to navigate double parked cars, pedestrians, right hand turn, left hand turns, multi-coordination,

  • intersections, it's really complex.

  • It's still going to take a very long time for all of these things to see the light of

  • day, billions of dollars will be invested.

  • My hand to my heart, I actually think that the first real application of this, which

  • is another interesting phenomenon and trend that I think is going to play into cities

  • in a big way and it's going to touch everything from Amazon to the smart home, I think you

  • will see self-driving cars first manifest in right hand turn lanes in certain city districts

  • where just like bike lanes, you are making multiple rights and doing a traveling salesman

  • problem trying to figure out how you navigate from neighborhood to neighborhood, 24 hours

  • a day delivering things, not people but things.

  • Even Zoox is focused on people and Cruise is focused on people.

  • There are some others that I think are thinking about commerce and goods.

  • Now, if you think about just the trend, again in a directional arrow progress, we are used

  • to our phone as a remote control where you press a button, you get your stuff.

  • Amazon Prime has primed us for one-hour delivery or two-hour delivery.

  • You press your button, something comes from a warehouse in New Jersey, using New York

  • as an example.

  • There is an autonomous vehicle that runs a route, gets to New York, has a human in there

  • to do the last mile delivery, which eventually might see robots that are people that are

  • trying to do that but I think it's too many variables situations coming out of a vehicle

  • into apartment buildings and others that you'll see that but human will come out like a FedEx

  • Delivery person.

  • Then the next thing that they will need in this value chain is access control.

  • I actually think that you're going to see a whole suite of industrial blocks and cameras,

  • some of which you're seeing early incarnations of, we have one called Latch Access, Amazon

  • bought a camera company called Ring.

  • There's going to be many others in the space, but the ability to give trusted access to

  • complete strangers to enter your home and treat your cupboard, your medicine cabinet,

  • your fridge or closets in the same way you might give somebody trusted access to access

  • or deposit a file into a box or Dropbox or Google Drive.

  • This idea of access control, I think it's this next phase.

  • From pressing a button on your remote control for the thing you want, to an autonomous vehicle

  • delivering at 24 hours a day, to a human entering your home, because you've given the trusted

  • access.

  • Again, this is almost like if I would say 10 years ago, you're going to get in cars

  • with strangers, you'd be like, no way.

  • Today, because you mostly trust the brand, and the accountability and the choke point

  • of an Uber or Lyft, you get into stranger's cars.

  • I think you're going to be letting strangers into your home to do this last quarter mile

  • of cars.

  • MIKE GREEN: I actually very much agree with that vision, that we are ultimately moving

  • to an environment in which trust becomes the underlying dynamic.

  • We've talked about this occasionally in the dynamic of crypto or various other things

  • that trust is becoming a feature that is embedded into the application layer.

  • JOSH WOLFE: It's actually the one feature that I've joked with Facebook Portal, is totally

  • absent.

  • I always said that.

  • Facebook Portal just got this great design, but it's missing the one feature which is

  • trust.

  • MIKE GREEN: Also my pushback on companies like Uber and Lyft actually has been the days

  • are going to suffer from a first mover disadvantage.

  • They have had to address the issue of how do I transport people by "hiring" millions

  • of people?

  • The process of shedding those employees is actually going to be far more difficult than

  • they think.

  • That actually sets up a dynamic in which a company like Zoox or and others who has built

  • themselves purposely, not to establish an app and get the app installed on the phone,

  • which is actually remarkably easy, although the trust layer becomes an important component

  • of it.

  • They've cut out the labor component that the separation there was going to create a bunch

  • of social anxiety and potentially lead to far more enforced regulations.

  • We're already seeing this in California, where they're being forced to treat them as employees

  • as compared to contractors.

  • JOSH WOLFE: They're trying to say, look, we are just layered to match a driver and rider

  • and we don't want to employ or be responsible, but you're right.

  • The regulatory aspect of this is going to apply pressure to labor.

  • MIKE GREEN: Yeah, I think that's ultimately right.

  • Now, you mentioned this idea that we're going to take things, so I understand what you're

  • saying.

  • I wonder if the challenge there is the person who has to be there to take the delivery.

  • JOSH WOLFE: I think that there will be a designated-- and I've actually seen privately some of the

  • apps that some of these companies have, that are almost like an augmented reality thing

  • that when, let's say a UPS delivery person, or if it was an Amazon Prime delivery person,

  • they look at their phone, they're given a provision code to enter the apartment.

  • It takes a picture so it knows who's there, knows what they've entered with.

  • They enter and they see this augmented reality thing of where they should-- it might literally

  • be X marks the spot that they're looking on the phone, put this here, or might be when

  • they go over the fridge, put this here.

  • They literally use that as a layer, which itself is another interesting thing I want

  • to talk about but the simulation layer to place things in certain places.

  • It may not be that you're trusting them to come into your bedroom yet, for your bathroom

  • yet.

  • People will trust an Amazon Prime to come in and load their fridge and put away all

  • their groceries.

  • We get fresh, direct delivered on a weekly basis, and what do they do?

  • They come into our home, and they lay down all the bags.

  • Then my wife and I and the kids put everything away.

  • There's no reason that I wouldn't pay another $5 during that delivery fee to have them put

  • everything away for us in a consistent predictable way.

  • MIKE GREEN: Yeah, that consistent predictable way is actually a great distinction.

  • We have people who help maintain our home and when they unload the dishwasher, I'm constantly

  • saying, where the hell did they put this?

  • The ability to actually have that enforced in a consistent manner, I completely agree

  • with you, and I actually share your-- JOSH WOLFE: We've read your head style, everything

  • in its right place.

  • MIKE GREEN: Everything in its right place, which sounds terrible in a lot of ways.

  • We all see those homes with the-- I think the condo stuff is what it's called, Marie

  • Kondo, where everything's labeled and it's got its own specific place.

  • I think you and I look at that, like, oh my God.

  • JOSH WOLFE: That stresses me out.

  • MIKE GREEN: That would drive me insane.

  • There is a component of predictability that you want to life hack, expend the minimal

  • amount of energy saying, hey, where's the rolling pin today?

  • Where is the measuring cup?

  • When I think about that question that we started to address in terms of this self-driving capability

  • and you referred to the Tesla solution as being dangerous, which I share your concerns.

  • The challenge of self-driving, as I understand it, there's certainly as it is presented is

  • this idea of miles on the ground.

  • How many miles do you have to travel to solve every possible permutation?

  • That seems like such a flawed model to me it, what's your reaction to that?

  • JOSH WOLFE: I think it's going to be a combination.

  • It's going to be a combination of simulation where you're trying to predict every scenario

  • from a human walking out, three humans walking out, old person, young person, ball coming

  • across, horse, dogs, different weather situations, potholes.

  • Why?

  • Because in any model, including what I would argue in human consciousness, you have this

  • prediction, memory prediction framework.

  • The computer basically has a memory based on either simulation or reality of what the

  • thing ought to be.

  • Then it experiences in real time what that reality is and maps it.

  • If it confirms to what the memory is, then the prediction, there's no surprise.

  • This is the same thing I think that we experience in human consciousness.

  • I see you, I see if you see my funky shoes, you predict, hey, that's Josh.

  • If you were looking at somebody else, and you saw this funky shoes and you-- hey, that's

  • Josh, but then it was Steve, you'd be like, oh, surprised.

  • Then you have this emotional salience that updates your prior, updates your model.

  • Computers are the same way.

  • These simulations in the self-driving cars and robots are the same way.

  • There's a prior, whether that is through experience for programming, and the programming could

  • be from simulation.

  • Then there's the actual experience.

  • Then when those map and conform, there's no surprise, you don't have to update the model.

  • If you think about all of the permutations that occur in reality, it's infinitely complex.

  • You're going to need a mix of models that are mapping onto the real world, and then

  • the ability to quickly discern.

  • In Zoox's case, when you watch some of these videos online of the situations that they're

  • able to navigate, in many of the cases, there's no programming of those situations.

  • Having a double parked car, followed by a biker coming out of nowhere and a pedestrian,

  • every one of those things has to be almost consciously recognizing objects, and then

  • classifying those objects as humans, as bikes, as cars, as static objects.

  • Then intuiting what an intention might be and making a prediction about that.

  • It's super complex, it's going to be years of iteration.

  • I do think that these things are still very dangerous.

  • The idea of putting cars out on the road and calling them autopilot and giving people this

  • false sense of confidence is super dangerous.

  • It's irresponsible.

  • It's an accounting trick being used to book revenue and pull it forward, but this will

  • happen.

  • We will be in autonomous vehicles.

  • MIKE GREEN: It's interesting, actually, because what you described as a very complex system

  • has features that I think are actually that overlay with some of the work that I'm doing

  • and I think you know this but I'm involved in some-- my first machine learning projects

  • and there's this issue of tractability, what can actually program.

  • Ironically, the transition to self-driving is the most difficult.

  • Because you have the unpredictability of human beings that may or may not conform to the

  • laws, that may or may not conform to these components.

  • Balls will always be there, children are always run out into the street.

  • The car driving itself, somebody double parking and behaving in a manner that's not consistent,

  • having no mechanism to communicate that to you other than the very rudimentary signals

  • that come from brake lights, hazard signals, turn signals, et cetera, that's ultimately

  • going to give way to a much more tractable problem as you have more and more machine-driven

  • vehicles on the road.

  • JOSH WOLFE: Well, especially as vehicle to vehicle protocols start to communicate the

  • intentions with each other.

  • Humans have this where if you and I are walking on the sidewalk in New York, and we come into

  • each other, you have that awkward Larry David like moment where you're going left, I'm going

  • right then we make a mistake and the coordination problem.

  • Coordination is a function of both prediction and communication.

  • I do agree with you that you will have all kinds of layers of protocols where self-driving

  • cars and other robot systems, autonomous systems will have this coordination communication

  • protocol.

  • MIKE GREEN: Well, and we tend to take for granted the human's capability to do that.

  • We all have the experience of making eye contact with a pedestrian crossing the crosswalk and--

  • JOSH WOLFE: You do a little dance and-- MIKE GREEN: Well, even a car driver.

  • It's just all it requires is that eye contact that allows people to be aware that you've

  • actually seen them then you can proceed under conditions.

  • It would be the rare assumption that you would make eye contact with the driver, enter the

  • crosswalk, and they would run you over.

  • We are very much programmed.

  • It's built into our capabilities to understand when somebody has actually seen us.

  • That flash of recognition of this is a human being like it's very much built in there.

  • We tend to take that for granted.

  • Machines don't have that capability yet, or they're developing it, as you're highlighting

  • the Zoox, but once they have, then they'll have their own native protocol as well that

  • makes this problem so much easier.

  • JOSH WOLFE: That, by the way, is one of the hallmarks just generally of human intelligence

  • and relevant entirely markets, which is I know that you know that I know.

  • Then it's how many layers is that?

  • One of my kids I think, is very savvy.

  • She knows that I know that she knows that she's like four layers whereas one of my other

  • kids is like, I know.

  • MIKE GREEN: Well, since we're now crossing over to the virtual world, you introduce your

  • Twitter handle.

  • My character is the Vizzini from The Princess Bride.

  • I always focus on that-- JOSH WOLFE: Inconceivable.

  • MIKE GREEN: Inconceivable, but the most important part for me of that character is actually

  • the iocane powder, where it's a game being played but people are actually not aware with

  • it.

  • He believes he's outsmarting somebody, but he doesn't actually know the game that's being

  • played involves poison in both cups.

  • It's like immunity condition.

  • Which brings us to actually a discussion of a game that I've had with a number of people,

  • and one of our mutual friends, Mike Mobizen.

  • We're going to transition into discussing public markets for a second here and Mike

  • has written several books and he's talked often about the dynamic of skill development

  • in markets and how markets are becoming more challenging.

  • The alpha degradation that we're seeing in public markets he attributes to an increase

  • in skill that is being accumulated in the market.

  • I think Michael actually misunderstands the game that's being played.

  • He uses the poker analogy.

  • He says, we saw this online, there was a game of poker.

  • As poker moved online, there's an explosion of players.

  • Initially, they were a bunch of Patsy's that decided that they had been good at their local

  • games, got online and the pros were able to basically fleece these players and take their

  • money away.

  • Eventually, you're left to the game in which only pros are playing pros.

  • JOSH WOLFE: Skill level has leveled up and a lot of the variance is more attributed to

  • luck.

  • MIKE GREEN: Correct.

  • The stock market is the extension of that analogy for him.

  • I think it's a flawed analogy, and I wanted to get your reaction to that.

  • The way I look at it is poker is a fixed game.

  • It's ergodic in nature.

  • We know at every point that the number of cards is going to be unchanged, there's the

  • probability of a hand is going to be unchanged.

  • The configuration of the river or what you have in your hand can influence your perception

  • of those probabilities, but the odds really don't change.

  • Stock markets or any form of market for that matter, is nonergodic.

  • We have no knowledge about what the distribution of the possible configurations are in the

  • future.

  • I actually think that he's improperly framing the question, I think he's using an ergodic

  • game to make an analogy to a non-ergodic game, in which the idea of skill development really

  • can't exist.

  • JOSH WOLFE: I think Michael would agree that markets are complex adaptive systems.

  • There's punctuated periods where there is a game, there's a recognition of how that

  • game is played, then people level up to that game.

  • Then at some point, they may not be aware that the game is changing, but I think during

  • the period where people understand what the game is, the skill level is rising and so

  • the variation between investors is increasingly attributed to luck, but then, like you say,

  • the undulating landscape changes and suddenly the game that you thought you were playing,

  • you're no longer playing.

  • You see this all the time.

  • Hedge fund guys before '07 didn't care about macro at all.

  • They were just bottoms up stock pickers, long short equity, short always overvalued, be

  • long, it was undervalued.

  • All of a sudden, everybody came, all the quarter letters, while the top value guys were suddenly

  • talking about macro.

  • They were pledging, oh, well, we didn't because the game changed, macro mattered.

  • I think that at any given point in time, now you could argue it's people that are getting

  • smart to the structure of the market as you are about passive indexation and inflows and

  • incremental flows and how that is changing the game.

  • I think Michael's point is markets are complex adaptive systems, people can get wise to what

  • the game is.

  • They may not realize that the game has changed, but as long as there's a general agreement

  • about the game, skill level rises and variance is more attributed to luck.

  • MIKE GREEN: That's fascinating insight in terms of the way I've been thinking about

  • it, because it resonates with me, a discussion I had recently with a legendary investor from

  • the 2000s who I'm not going to name, said to me, Mike, I was meant to invest in the

  • 2000s.

  • The game that is being played today, I don't understand.

  • I'm at this point too old and too rich to try to figure it out entirely.

  • It's really interesting to think about it in that context.

  • Because it becomes a question of are those who have been so successful and accumulated

  • the-- JOSH WOLFE: Half listening and half thinking about who I think it is, and I think

  • I know who I think it is.

  • MIKE GREEN: Do you think you know what I think I know?

  • JOSH WOLFE: Inconceivable.

  • MIKE GREEN: Exactly.

  • That actually becomes a really interesting question, though, because it then raises the

  • issue of have we allowed that concentration of wealth, have we allowed that to blind ourselves

  • to the potential that the game has completely changed, which certainly what my research

  • would lead, that the market is no longer the market as people think about it?

  • There are exploitable phenomenon, but it requires a complete rethinking of how you approach

  • the problems.

  • As phrased in those terms, I completely agree.

  • I think that will still lead me to say that it's actually not skill development.

  • That would be a cyclical phenomenon that would show up slightly differently, the tools that

  • were developed for how we manage markets, how we think about them were largely created

  • in that time period.

  • The assumptions that we make in the use of those tools, things like alpha, beta, Sharpe,

  • et cetera, I think are actually improperly suited for the current environment but that

  • brings us then into the general discussion of public markets, which is, let's talk about

  • how you see the world of public market's valuations, and how you think about how that is either

  • influencing or being influenced by the private markets as you primarily participate in.

  • JOSH WOLFE: I just had a dinner with also a very prominent and maybe the most prominent

  • CIO in the endowment world.

  • I asked him, do you see risks about liquidity and illiquidity in both public markets and

  • private markets?

  • In the public markets, is it a function of passive indexation and inflows and whether

  • it's Fed, algos, momentum, whatever it is, dollar and by everything rising, what happens

  • if there are withdrawals and everything comes down?

  • His view on that was with passive roughly 20% of market structure today?

  • MIKE GREEN: It's about 35%.

  • JOSH WOLFE: Okay with but I think you've made the point that something like 80% or 90% of

  • the incremental dollars are going into passive?

  • MIKE GREEN: Far more than 100%.

  • JOSH WOLFE: Okay.

  • His view was when it got to like 90%, he would be worried and I recalled and actually raised

  • you as an example, I said, I have a smart friend who mathematically has shown actually

  • when it gets around where we are now, 35%, I thought it was for, that's when you get

  • the structural runaway risk on liquidity side of passive indexation.

  • That was on the public side.

  • On the private side, he has done something interesting, which was, he never wants his

  • illiquid portfolio to be more than 50% of the endowment.

  • What he's done because of who he is, has gone to the underlying GPs and said, give me your

  • hand to the heart mark of what you think this is worth, not the fast 157 mark based on accounting

  • basis.

  • Historically, when he did this, in 2000 and in 2007, or '08, both saving them from substantial

  • drawdowns during the crisis.

  • It was somewhere between 25% and 30% discount to what any given company that ended up exiting

  • in that year, proved to exit at.

  • There was a level of conservatism that the managers expressed because they valued the

  • relationship with this particular CIO.

  • They said they were going to be super honest and ethical about what their hand to the heart

  • was because they wanted to continue to be hired as a manager.

  • Today, he says it's between zero and 10%, so elevated valuations on the private equity

  • side.

  • If you look at the total amount of PE money today-- MIKE GREEN: Well, just to be clear

  • what you're saying.

  • What they are saying is they see no discount to where they've marked it in the event that

  • they would have to sell under distress type conditions?

  • JOSH WOLFE: Correct.

  • MIKE GREEN: That's astonishing.

  • JOSH WOLFE: $1.5 trillion of PE assets are sitting on the sidelines right now, so there's

  • an enormous amount of dry powder.

  • Now if you're a public market investor, maybe that's a positive thing.

  • MIKE GREEN: Well, wait a second.

  • Again, I want to be clear, when you say PE assets are sitting on the sideline, this is

  • the cash that has been raised but not yet deployed?

  • JOSH WOLFE: Correct, by buyout funds and venture funds.

  • Venture is a mouse to the elephant here, but 1.5 trillion globally, 800 billion of that

  • is North America.

  • That's about two times the level of what it was 10, 11 years ago going into even then

  • a PE crisis 2007, '08, '09.

  • VC itself has raised about 50 billion across 250 funds in each of the last two years, which

  • is four times what it was 10 years ago.

  • Again, we've talked about this in the past, but the number one thing that is predictive

  • of returns is not the BCG McKinsey, whatever.

  • It's the amount of capital that's flooding in.

  • The amount of capital that's flooding in is undeniably high.

  • You look at some of the surveys for LPs, they will say 80% of them feel unequipped in a

  • downturn that they're well-positioned, yet two thirds of them are continuing to increase

  • their allocation to PE notwithstanding the numbers that I just gave you.

  • When there was a downturn, and you had this denominator effect, again, 10 years ago, two

  • thirds of those LPs were not making any new commitments to new funds on a private equity

  • side.

  • They anticipate that they're not quite there, but they can't help but continue to allocate

  • and I think that's setting up a problem.

  • You had public markets to your point up 32%, 33%?

  • MIKE GREEN: 31% last year.

  • JOSH WOLFE: Denominator effect.

  • If that were to continue, great, everybody's portfolio looks good.

  • You got high marks on these private equity for the other people that are not doing this

  • more conservatively.

  • If the public markets were to decline, you have a denominator effect, what are people

  • going to do with this PE portfolio?

  • There's going to be a race for secondaries and liquidity.

  • I think the secondary guys in the next few years are going to be really well-poised,

  • they might be sitting on cash for longer than people expect.

  • On the public market side, there's really interesting thing that Jim Grant had recently

  • shown, PE on the S&P is 21, 22.

  • The PE is of course market cap weighted on the S&P 500, but if you market cap weight

  • the E part, instead of just aggregating and averaging as it is, you actually have a 32

  • times multiple.

  • MIKE GREEN: Is the difference-- the way it's calculated on the public indices is what's

  • called the harmonic median.

  • Effectively, you are going through and it's almost like ignoring the outliers.

  • JOSH WOLFE: Because each of the cases aren't you're taking a multiple where you're taking

  • the PE of Apple times the weighting of Apple and the PE of GE and the weighting of GE and

  • just basically aggregating that.

  • MIKE GREEN: Not quite.

  • The details, we can walk through another point, so it's the calculation is actually what's

  • called the harmonic median.

  • If actually, you're going through the 50th percentile type dynamic.

  • You're 100% right.

  • The other point that I would raise is that we've never seen a larger gap between GAAP,

  • G-A-A-P, and the "operating earnings" that make up that 21, 22 PE that you're referring

  • to.

  • JOSH WOLFE: Well, and on top of this, you have something like 95% of companies that

  • are now reporting non-GAAP earnings.

  • They're making up funny metrics.

  • Now, we saw this in WeWork on the private side, when you had community adjusted EBITDA.

  • Tesla is like ground zero of like ridiculous terms like, what are delivery sales?

  • What does that actually mean?

  • There's a lot of companies that are just using funny language because in a bull market, people

  • are less scrutinizing.

  • I think that that's really a ripe situation where you have lots of non-GAAP accounting

  • terms that are signifiers of risk.

  • You have S&P growing revenue 3%, 4%, 2%, 3%, 4%?

  • MIKE GREEN: Somewhere in that range, yeah.

  • On per share basis, slightly higher, but yeah.

  • JOSH WOLFE: Most of the 31%, 32% return over the past year was mostly for multiple expansion

  • because I've had-- MIKE GREEN: More than 100% actually flat to slightly negative earnings.

  • JOSH WOLFE: For the past four quarters.

  • People are paying higher multiples for lower or negative growth.

  • One interesting thing and this is a forming hypothesis that is a little bit more wishful

  • thinking from the venture side.

  • If we are at peak earnings, and people have been talking about peak earnings forever,

  • but if we're at peak earnings, and corporates are looking and saying, okay, how do I actually

  • maintain margins at a time where 60% of COGS is labor, I think that there will be an increasing

  • turn to technology.

  • Now, I don't know the timeframe.

  • That's not going to be like, okay, let's quickly implement the system and lay off a bunch of

  • people and maintain our margins again.

  • I do think that some of the things that we're investing in, whether it's metal 3D printing

  • or certain technological systems for efficiency, you have the opportunity for at least margin

  • stability against a situation where revenues are declining, prices are coming down.

  • There's another question about what happens to input costs?

  • Well, a lot of smart people are-- and I don't know if you agree with this or not, but weak

  • dollar, long commodities, long gold, higher input prices, smaller margins.

  • MIKE GREEN: Not on that account.

  • JOSH WOLFE: You're in the higher dollar camp?

  • MIKE GREEN: I tend to think that we're going to have a higher dollar simply because the

  • global system is ultimately set up on a collateral basis and everything we're describing in terms

  • of high valuations and increasing risk is actually touching that collateral dynamic.

  • We're concerned about the risks that the collateral contracts.

  • If the collateral contracts and the debt actually becomes increasingly due, which means the

  • dollar is under demand.

  • I fall into the higher dollar camp, but-- JOSH WOLFE: Do you have a view on margin pressure?

  • MIKE GREEN: I think the margin pressure is likely to come actually from a couple of different

  • areas.

  • We've seen unequivocally the margin pressure.

  • We're allowing the system to increasingly run with tight labor, whether that shows up

  • in wages or not is heavily influenced by the composition.

  • When you have lots of old people, wages don't go up all that much because they tend not

  • to ask for raises and that tends to conceal the relatively rapid wage gains that we're

  • seeing in the younger generation.

  • There's a couple of good reports that I could send you on that stuff.

  • JOSH WOLFE: I do wonder if the wage gains are happening taking into account the amount

  • of new company formation.

  • When you have a flood of capital into any sector, if there's a lot of company formation,

  • those companies are competing with each other for talent and so wages are rising.

  • I do wonder if some of that capital inflow starts to abate, that you would actually see

  • more people consolidating, more supply of talent going into fewer companies, and wage

  • suppression.

  • MIKE GREEN: What we're seeing is actually more on the opposite side.

  • The rates cut-- while you're very active in the process of business formation, I actually

  • would suggest that many of the statistics that we receive from the Bureau of Labor Statistics,

  • the BLS, are inflated by the assumptions around business formation.

  • Actually, the data suggests that business formation has fallen dramatically, not your

  • type of business-- JOSH WOLFE: The mom and pop shops and independent contractors.

  • MIKE GREEN: That type of business formation has taken an extraordinary hit.

  • That, in turn, actually weirdly increases the potential for this to behave in a convex

  • fashion because what you're beginning to see, and you're seeing this very clearly in the

  • data is as the economy has slowed in this last cycle, we have seen overtime hours decline,

  • we have seen weekly hours decline, which has pressured some of the headline numbers in

  • terms of the average weekly compensation that people are receiving, you're beginning to

  • see this show up and stress in terms of credit cards, et cetera.

  • The early signs of some weakness are there.

  • The primary dynamic that we're actually seeing is this issue of hoarding of labor.

  • Companies are seeing decreased utilization of their labor but because of the headline,

  • finding new employees is so hard, they're resisting with every fiber of their being

  • letting go employees that they currently have.

  • We haven't yet seen that turn and we may not.

  • It's very hard to know how that plays, but the data actually suggested it's heading in

  • the opposite direction of the way that your hypothesis-- JOSH WOLFE: That wages will continue

  • to rise.

  • MIKE GREEN: We are at an inflection point in which that could continue to tighten.

  • That's one of the risks that the Federal Reserve may have created with reinforcing the cycle

  • with the interest rate cuts.

  • Only the future can actually tell us what actually ends up happening.

  • JOSH WOLFE: Demographics.

  • Let me ask you, because I always love your views.

  • MIKE GREEN: I'm interviewing you.

  • JOSH WOLFE: But your answers inform me.

  • MIKE GREEN: I understand that.

  • Nobody is interested in what I have to say on this topic.

  • We'll talk offline on the demographics.

  • I want to touch though on a topic that demographics does influence that you and I both care fairly

  • passionately about, which is politics, the election that's approaching.

  • You and I have publicly sparred, you have supported Bloomberg as a candidate, he wouldn't

  • be among my last choices.

  • I'm interested to hear how you're thinking about it.

  • I'm sure-- JOSH WOLFE: Mine is very simple.

  • These are debates that I used to get into with Lauren, my wife, that I never really

  • thought the president matter.

  • I thought that all you needed was a good figurehead, who mostly was the better looking person that

  • conveyed all the evolutionary psychology appeals of symmetry and dominance and that stuff.

  • I think, in this case, I want the candidate and this is something that Bill Gates who

  • I serve on a board with said to my friend, Andrew Sorkin at the [indiscernible] conference

  • earlier this year, I just want the most professional person that really resonated with me, I just

  • want the most professional person.

  • The rancor that I see, the debasement of the office that I see with the current individual,

  • maybe I have this false nostalgia of pining for somebody that can set a level of behavior

  • and that is presidential, one that I want my kids to look up to and say like that is

  • the way to behave.

  • That is the way to make decisions.

  • That's the way under pressure or criticism to react.

  • My preference for Bloomberg is really in actually thinking that unlike Trump, he's actually

  • a billionaire and he can't be bought and that the appeal that he has is more about legacy

  • than short term gratification.

  • I find him to be the most professional and the most rational, but tell me your counter

  • thesis.

  • MIKE GREEN: My counter thesis would be almost saying exactly what you're saying, which is

  • he perceives himself as the most professional but doesn't perceive himself as a statesman.

  • Someone who's meant to represent.

  • You can actually see it in what he is describing is his approach to the central office.

  • He's going to open it up, turn it into a bullpen, he's going to manage it.

  • He's going to manage the US economy like he's managed Bloomberg.

  • That, unfortunately, is not the job of the president.

  • My fear is, is that he very clearly doesn't know that.

  • JOSH WOLFE: Do you think with the management of New York, which is a vibrant, complex,

  • diverse economy, that he did a bad job?

  • MIKE GREEN: I don't I think that he did a bad job, but I think that he was handed a

  • gift.

  • The inflation that we saw through the 1990s created a revenue stream.

  • We, unfortunately, are going to run out of time here.

  • We didn't get to talk about China, which you've also become very vocal on.

  • You and I are both involved there.

  • Let's treat that for another time.

  • JOSH WOLFE: I will say, to your credit, this was something I was hyper bullish on in the

  • idea that there were two Chinas, an old China and a new China.

  • You would say, Josh, you're wrong, you're missing this.

  • I got to tell you, you changed my mind because I've come to see the evils and the skepticism

  • and there's an idealistic view about what China could be and there's a realist view

  • of what it is today, and I become much more in your camp.

  • It's a great example of something I've changed my mind on because of you.

  • MIKE GREEN: To your credit, you absolutely have done that.

  • I'm very excited to see that.

  • My guess is we'll get the same way with Bloomberg.

  • Hope we don't actually see the need for that to happen once he's in office.

  • Josh, as always, such an amazing time spending with you.

  • The time flies by and we've run out of it now.

  • Look forward to seeing you again.

  • Hopefully within a year.

  • JOSH WOLFE: Thank you, Mike.

  • Always good.

  • MIKE GREEN: Take care, Josh.

MIKE GREEN: Well, you can tell by the smile on my face, I'm happy to be here.

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科技投資,特斯拉,以及股票和風險投資的保麗龍(/邁克-格林和喬什-沃爾夫 (Tech Investing, Tesla, and the Bubble in Stocks & Venture Capital (w/ Mike Green & Josh Wolfe))

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    林宜悉 發佈於 2021 年 01 月 14 日
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