Growthink Blog

The Decade in Review: What Worked, What Didn't..


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Look to the right for a fantastic chart that tracks investment returns for various asset classes over the past 10 and 20 years.

A few points immediately jump off the page: 

  • Angel Investing Outpaced All Other Asset Classes. Obviously, at the top of the list is the gigantic gap between returns for angel, or early-stage private company investing, and all other asset classes. I will elaborate on this more below.
  • Gold Had a Very Good Decade. While I personally loathe gold as an investment (see my blog post from last month - "Gold is great - But It Is Not an Investment"), for better or for worse the "00's" were a very good decade for gold. Though I must add that gold's investment return since 1980, on an inflation-adjusted basis, is actually NEGATIVE
  • Inflation Was Consistently Low.  Inflation has been relatively consistent for the last 20 years, in the 2 and 1/2 percent annually range. 
  • The Stock Market Performed Awful. As discussed in my worst investing decade ever post last month, the U.S. stock market - the Dow Jones, the S & P, the NASDAQ - had a historically abysmal decade, with all major indices posting both real and inflation-adjusted NEGATIVE returns (first time that has EVER happened).
  • Real Estate - Same Old, Same Old. The great real estate collapse of 2007-2009 brought the decade's real estate returns into its long-term historical average, about 1% ahead of the rate of inflation.

So that is past.  What will the next 10 years hold?  Here are three predictions:

  • Cash is VERY Dangerous. Not shown on the chart but of interest is today's average money market fund yield of a comically bad 0.03% (that is $3/year of interest per $1,000 invested). When viewed against either the current inflation number (1.8%) or the massive risk of long-term inflation brought on by the unprecedented federal budget deficits, dollar-denominated cash deposits today offer a downwright frightening risk-reward ratio.
  • Only By Blind Luck Can One Expect To Beat the Averages in Public Stocks. The dirty little secret that the mutual fund and brokerage industry wants to hide is that there has been no scientifically valid study in the last 20 years that has demonstrated an actively managed stock portfolio offering better risk-return than simple index investing. And as global trading and real-time information-sharing continues to intensify, expect this trend to deepen. So for better or for worse if you're invested in U.S. public stocks in the decade to come, by far your most likely outcome is the market average.  
  • Angel Investing Returns - Too Good To Be True? Now the 1st line in the chart, showing 10 year angel investing returns of over 30% annually, just feels way, way too high. How on earth could any asset class so outperform all others over such an extended period of time? And more importantly can and will it continue?

My answer - yes but.  Yes - because the 2 key factors that drive angel investing outperformance remain the same. One, returns have to be very high as compensation for illiquidity - most angel investments are in private-held, small companies years away from a sale or an IPO. And two, returns are high as compensation for the EXTREME variance of the asset class.

Now for the but.  While the asset class returned an average of 30%+, it was attained via the sum of a very, very few winners (aka Google), and lots and lots of losers. 

Quite simply, a few investors made a killing, and a giant many got killed.

But here is where it gets interesting. The one thing that has and will continue to drive angel investing returns  - namely technology advancements - now allows investors, for the first time, access to smoothed-out returns (i.e. higher likelhood of hitting the 30% average versus the extreme highs and lows).

I look forward to your attendance and feedback.

Jay Turo
CEO
Growthink, Inc.

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The "00's" - WORST Investing Decade EVER


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Barring a massive rally between now and the end of the year, the "00's" will be the worst decade in the history of the stock market.  

As reported in the Wall Street Journal today, since the end of 1999 stocks traded on the New York Stock Exchange have lost an average of 0.5% per year.

Let's put this in historical perspective.

The 1990's were the best calendar decade in history for stocks, with an average investment return of 17.6% per year.

Even in the 1930's - the era of the Great Depression and usually considered the gold standard (pardon the pun) for bad markets, investors did better - with stocks "only" losing 0.2% per year.

And, as the Journal goes on, the news is even worst when we take into account inflation.  Since 1999, on a inflation-adjusted basis, the S & P 500  has lost an average of 3.3% per year.  

How bad is this? Given that the 1930's was a period of deflation, stock actually gained, in real terms, 1.8%  per year during that decade. Even the 1970's - a period of both a bear market AND inflation, did better than this last decade, with stocks only losing 1.4% after inflation.

So before moving to the "what does this mean" and "what do we do now" discussion, let's take a moment of pause to reflect on just how tough an investing decade this has been

Very, very tough. Trillions lost. Retirement plans delayed. Heartache and heartbreak.  

Perhaps most gallingly, while most suffered, there were those that did very well while really having no business doing so.  Hedge fund managersDerivatives tradersBank executives.

I think we can all agree on a hope for the new decade  - that the financial rewards in the next 10 years go more to the creators of value and less to the speculators on value.

Here are three more:

1. May Venture Capital Rise Again. Venture capital firms, for the first time in their history, lost money over a decade-long period.

Given the amazing and world-changing advances in human productivity and connectivity over the last 10 years, may the venture capital industry, and correspondingly the world of emerging technology - re-find its return footing.

2. May, on December 31, 2019, The NASDAQ and Dow be trading at, respectively, above 10,000 and above 30,000.  Even getting to these levels will mean a return of less than 5% annually from 1999 to 2019.

This falls into the category of the equity markets being "due" for a big returns decade. A simple, but defensible premise.  

3. May The Nation's Entrepreneurs Lead The Way.  Never has there been more productive, focused, mature, and cause-driven entrepreneurs alive in the world than there are today.

Take a look at the below list of the top performing stocks of the past 10 year (1999-2008): 

Symbol               Company                                             10 Yr. Cum. Return
GMCR..............Green Mountain Coffee Roasters................7,895.4%
HANS...............Hansen Natural........................................6,504.1%
BYI...................Bally Technologies..................................6,394.2%
SWN................Southwestern Energy.................................5,108.4%
CLH..................Clean Harbors.........................................4,456.0%
DECK...............Deckers Outdoor......................................3,669.5%
AMED...............Amedisys................................................3,669.2%
TNH.................Terra Nitrogen..........................................3,611.5%
BOOM..............Dynamic Materials......................................3,519.4%
QSII.................Quality Systems.......................................3,497.2%

As Tim Hanson points out, these companies have three qualities in common - they were mostly ignored and obscure when they began their meteoric rise, and they were SMALL.

And you know what?  Come 2019 there will be TEN DIFFERENT obscure and small companies that will make this list.

Noone knows who these companies will be. But to attain alpha, you MUST find them.

One thing is for sure - a few investors WILL find them.

The more interesting question of course is - will you be one of them? 

I look forward to your attendance and feedback.

Jay Turo
CEO
Growthink, Inc.

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Capital Gains Tax Breaks and The Coming Small Business Investment Boom


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Showing once again where our modern media priorities are, shoved off the front page last week by more lurid Tiger Woods talk, was the very under-reported but potentially game-changing proposal that President Obama made last week regarding eliminating all capital gains taxes on startup and small business investments.

There are so my ways that this is good for small business, for America, and for private company investing. Let me note three:

1. Simple Fairness. It has been a very tough couple of years for startups and small businesses. Unlike automakers and big banks, the nation's entrepreneurs were left to completely fend for themselves through the recent economic tsunami.

And, as befits a class of people that can only be described as modern-day action heroes, given their massive and unsung contributions to the American way of life, the entrepreneurs among us have handled their adversities as they always do - with stoicism, with grace, and with the simple coda that nothing is immutable to hard work.

But it is beyond time that someone lend them a hand. If, miracle of miracle, Congress follows the President's lead and makes this proposal law (and given how lower capital gains has been a Republican mantra since I was in high school, the probability is high that it will), it will unleash a huge investment bull market across the entrepreneurial landscape.

And let's not forget how overdue this is - for the 1st time in history this last decade will go down as the only one where more money was invested INTO venture capital than was earned out. While early-stage private equity investing did much better in the decade than VC's, it has still been a very rough go of it.

The hope here is that this tax break will be a catalyst for capital move from do-nothing and know-nothing investments like gold and into productive ones like technology startups and small businesses.

2. Startup and Small Business Tax Breaks Spur Innovation. The proposed capital gains tax break, when coupled with the proposed tax credits for small business hiring and investment, will provide a much-needed boost to entrepreneurial risk-taking and innovation.

Remember, this information age of ours is a story of "guys in garages." Gates and Allen, Jobs and Wozniak, Page and Brin.

Similarly, the big ideas of the coming "Energy Age" - in battery technology, in cold fusion, in greenhouse gas reversal, will NOT come from the federal government or big business.

Why? Because very simply the most creative people do NOT want to work within any kind of bureaucracy. Rather, they will come from the yet to-be-founded startup, that fluid and flexible small business about to break-out.

Anything that makes it easier for these innovators to have cheaper access to capital - which a waiver of the tax on capital gains effects - is a HUGE positive.

3. Let's Get the Best and Brightest to be More Entrepreneurial. Finally and tied to this point, the central economic and investment issue of our age is not inflation, it is not big bank bailouts, it is not health care reform, it is not Democrat versus Republican and it is not liberal versus conservative.

No, it is what can and needs to be done to spur the "best and brightest" among us to be more entrepreneurial and more successful when they are.

Why? Because entrepreneurs create the innovations that create the jobs that create the wealth that create our whole, cherished American way of life.

So we need everyone in positions of influence in our society - government, media, education, entertainment - to stand-up for the entrepreneurs.

The proposed capital gains tax break in this context is as important in what it signals as its direct stimulus effect.

And for you investors out there, the best thing is that if YOU do the best thing for the economy and the country and invest in entrepreneurs, well guess what?

If you do it right, you will make far more on your money that you could ever imagine.

This is called doing well while doing good. And it is highly recommended.

I look forward to your attendance and feedback.

Jay Turo
CEO
Growthink, Inc.

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Gold is Great - But It is NOT an Investment


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As many of you I am sure are aware, there has been a major gold bull run since the start of the year. While pulling back slightly in the last few days, the price of an ounce of gold touched a record $1,227.50 on Thursday, December 3rd.

Most of the rally has been driven by widespread inflation fears, which in turn are driven by the massive and unprecedented deficits that most of the major industrial governments (save China, of course) seem committed to running for as far as the eye can see.

Gold - say the wise men - is the ideal inflation hedge, which of course is another way of saying that it is the ideal hedge against governments acting badly and confiscating the well-earned wealth of its productive citizens.

Now I would never begrudge anyone that likes betting against government as an investment strategy, but by golly if there ever was an investment that just outright appeals to the uninformed (and those who prey on them), it is gold.

Let's take a step back here, folks, and think a bit about the word "investing," defined by Webster's as "the active redirection of resources/assets to creating benefits in the future."

Now can someone please explain to me how an asset that doesn't yield or produce ANYTHING, and costs money to store, could possibly be considered an investment?

The answer, quite simply, is that gold isn't an investment. Gold, as jewelry or decoration, or accoutrement, is beautiful. Gold as investment is a cult.

A cult of negativity and pessimism, to be more precise. And one in which it would be funny if it is wasn't so sad how many of the older generation in this great country of ours are caught up.

Spend a little time amongst the retired set talking about both investing and the future of America and the amount of fear, negativity, and of an all-consuming mindset of concern for one's own hide and to heck with everyone else falls somewhere between depressing and appalling.

And as for the hucksters that play on these fears - convincing Grandma and Grandpa that Obama is leading us down the path of Communism so better to take all of your money and not just buy gold but also bury it in your backyard - well there is a special corner reserved down under for these folks.

A particularly galling trick of the gold huckster industry (coming to a talk radio or billboard ad near you) is to first promote with great fury their "sky is falling" shtick, then suggest that the only solution is not to just buy gold (that would be bad enough), but to buy gold COINS versus the bullion itself (or far more efficiently, a gold ETF like State Street's Gold Spider (NYSE: GLD)).

What they don't tell you is that they mark these coins up as much as 30% - making almost as much money for themselves as the Pirates of old. And oh yes, if gold bullion and coins were regulated investment assets as they should be, they would call that amount of markup a crime.

How About Actually Investing?

Now let's look at the polar opposite of investing in gold - namely investing in the most productive, most effective, most wealth-building sector of our economy.

I am talking of course about investing in the modern-day action heroes that are the world's entrepreneurs. The men and women who right now are starting and building the Googles, the LinkedIns, the Facebooks, the Twitters, the Apples, the Microsofts, the Amazons, of the next 20 years.

They are passionately at work at the new and young companies where the ideas are freshest, where the work ethic is most profound, and where the innovation breakthroughs are most world-changing.

And unlike investors in gold, who have gotten a negative long-term return since 1980 (on an inflation adjusted-basis, gold's $599/ounce price peak in 1981 price translates in today's $ to $1,417/ounce, investors in entrepreneurial and small companies have killed it - earning a whopping 21.4% annually during that same time frame.

So this holiday season, buy that special someone a gold necklace, or earrings, or bracelet, or gold-plated watch, for sure.

But if you want to give yourself a gift, hang up on the gold hucksters and instead find and back the entrepreneurs in your midst.

They will TRULY be the gift that keeps on giving.

Jay Turo
CEO
Growthink, Inc.
800-506-5728
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Why Entrepreneurs Are Real Life, Modern Day Action Heroes


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A very, important study of U.S. Economic Census Data conducted by the Ewing Marion Kauffman Foundation, was published last week that statistically demonstrates who really creates jobs in the American economy.

Thanksgiving: The Spirit of America


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Thanksgiving is thequintessential American holiday.  It acknowledges the best qualities ofour blessed land - rewards for hard work, diversity as strength, andthe "attitude of gratitude" toward which all of us strive.

Asevery school boy and girl knows (or, in our 21st century world of videogames and politically correct education, should know), Thanksgivingtraces its origin from a 1621 Pilgrim harvest feast to celebrate a successfulgrowing season and survival after an extremely difficult first winterin the New World.

And at that harvest feast these Pilgrims from England and the original inhabitants of the area - the Wampanoag Indians - sat down and ate together in a spirit of friendship and camaraderie. The Pilgrims owed their survival to the goodwill of the Indians, whohad taught them how to grow corn and how to fish in the very unfamiliarNew England (now) soil and seas.

What a story. If it doesn't get you going, then you aren't even trying.  Let me help:

First, let's reflecton the incredible guts, tenacity, sense of adventure, and justunbelievable hard work and perseverance of the Pilgrims. It beyonddefies our modern, cushy-soft sensibilities.  Let's channel thetoughness of the Pilgrims when tackling the challenges of our modernday - health care, deficits, China, et al

Next, while thehistory of the white man's treatment of the native peoples of Americain the last 500 years has been mostly shameful, let's reflect onthat happy day of brotherhood.

Let's all be proud of thehistorically unique diversity of modern America.  Doubt me?  Spend theday as I did yesterday with my 2 and 3 - year old boys at LegoLandin Carlsbad.

As we sat building towers and cars and the kinds ofplanes that only fly in little boy's imaginations, I looked to my leftand I saw an intent Indian boy and his father hard at work. 

To myright, an African-American girl directing her Daddy how she we wantedit done.  Behind me, a family with Asiatic features happily building.

As for language, only me with my thick Massachusetts accent spokeanything but perfect English.

There is NOWHERE on Earth this scenerepeats itself as often and as peaceably and as productively as it doesin America.  Japan?  China? The Middle East? Europe?  Hah!Still mostly medieval in their perspectives on these matters, and inour information age America has a MASSIVE leg-up because of it.

And finally, let's give thanks. Iam not proud of it, but I am still addicted to reading the Sunday NewYork Times. And what a tale of woe it is. And while I know the #1 ruleof modern media - "if it bleeds, it leads," please just stop.

Betweenthe dire talk of global warming, global terrorism, and global finance,if you don't catch yourself you can't help but feel sorry for not justyou, but for all of humanity. 

It is 99% bunk. The world has NEVER offered more opportunities for a larger percentage of us tolive affluent lives, to do self-expressive, remunerative work, and tobe amazed daily by the wonders of modern technology and entertainment than it does right now.Be grateful for all that and more. 

Happy Thanksgiving to all.  May your holiday be blessed withthe rewards of hard work, of breaking bread with family and friends newand old, and with an attitude of gratitude for the bounties the futurewill most definitely hold.

Jay Turo
CEO
Growthink, Inc.
800-506-5728

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Bono and Fritz Henderson ARE Entrepreneurs


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At Growthink, our mission is "to serve the world's entrepreneurs."  When I share this with folks, they often come back to me with "Who are these entrepreneurs that are your mission to serve?"  Touché. 

So who is and who isn't an entrepreneur?

I like Professor Arthur O'Sullivan's definition, from "Economics: Principles in Action" the best - "An entrepreneur is a person who has possession of an new enterprise, venture or idea, and assumes significant accountability for the inherent risks and the outcome. He or she is an ambitious leader who combines land, labor, and capital to often create and market new goods or services."

Wow, this is good.  Let's list out individuals that obviously fit this description.  Then, let's dig deeper and talk about those who may not label themselves (nor may society) as entrepreneurs but by golly per Professor O'Sullivan's definition above they certainly are:

First, the "obvious" entrepreneurs:

Individuals STARTING New Companies.  New companies, startups of all shapes and forms, across all industries, all around the world.  The classic "man (or woman) with a plan" entrepreneur. 

In the U.S. alone, this represents the more than 6 million new businesses started every year, and the many, many millions more contemplated. The figure worldwide is a BIG multiple of this. 

Thank heavens for all of them - according to a famous M.I.T study new business starts account for more than 2/3 of all net new job creation.  Especially as by far the biggest economic issue facing America (and the world, for that matter) is job creation, these entrepreneurs truly hold the key to our nation's and the world's long-term prosperity more than any other group.

Individuals LEADING Small Companies.   Per that M.I.T study, the other 1/3 of net new job creation comes from the so-called "gazelles," - rapidly growing, emerging companies.  The most common statistical definition of these are the 641,000 U.S. firms with between 20 to 1,000 employees. They, along with startups, account for more than 62% of all private sector employment.

Anyone that has spent even a day at a gazelle can literally breathe the entrepreneurship in the air.  The best of them are led by deeply ambitious men and women walking the talk of American business.  The President, in his inaugural speech, described them best:

"Rather, it has been the risk-takers, the doers, the makers of things - some celebrated, but more often, men and women obscure in their labour, who have carried us up the long, rugged path towards prosperity and freedom."

Let us hope he and our Washington leaders think often of these inspirationally hard-working folks when crafting governmental policy in the months and years to come.

Now very importantly, not all small business people are entrepreneurs.  The key phrase in Professor O'Sullivan's definition when evaluating whether one is, or is not, is ambitious leader

All of us know small business men and women - that while certainly possessing of many wonderful attributes - for whom it would be a big stretch to describe them as "ambitious leaders." 

To best illustrate, I suggest you attend a meeting of your local chamber of commerce and hear how much of the debate is focused on problems and grievances versus vision and possibility. Sad, but true.

The "Non-obvious" Entrepreneurs

I find the startup and small business entrepreneurs worthy of great praise and respect.  In some ways, I am even MORE impressed with those that demonstrate strong, ambitious, principled entrepreneurial leadership in the contexts of bureaucracy, politics, and vexing social challenges. 

Here are a few:

Individuals that are Accountable for Change and Growth at BIG companies. Into this category falls Executives like General Motor's Interim CEO Fritz Henderson.  Now I know that GM maybe the last company that comes to mind when one thinks of entrepreneurship.  But given the beyond monumental challenges of making that elephant dance, Mr. Henderson certainly meets the criteria (whether he will make the grade only time will tell).  He is certainly an ambitious leader with very, very significant accountability for risks and outcomes - huge taxpayer subsidies, tens of thousands of manufacturing jobs, American pride, etc.  And his success will depend on his ability to lead GM to "combine labor, and capital to create and market new goods and services."  Yes, if Mr. Henderson is to succeed at GM, he will only do so by walking, talking, and quacking like an entrepreneur. 

Individuals With Leadership and Change Responsibility in Organizations of All Types.  The challenges of leadership and accountability exist in ANY organization taking on meaningful and challenging objectives. 

Bono, arguably the world's best known philanthropic celebrity, is an entrepreneur on two fronts.  First, via his commitment to world-class creative output as the leader of the mega-rock band U2.  And he is an entrepreneur, via his unique effectiveness as an activist and spokesperson and doer of big projects for causes close to his heart - human rights, third world debt relief, and AIDS and African development issues. If you think it is tough to get a city business permit, try getting governments of affluent nations to work together to solve global social challenges that barely garner a back-page sentence or two in the "it bleeds, it leads media" that voters back home call news.

In this vein, entrepreneurs exist in a wide host of non-profit and governmental institutions.  Gary McDougal, former Partner at McKinsey and Company, who later in his life re-engineered the broken Illinois welfare system and made it a model nation-wide.  Certainly an entrepreneur. 

Whatever you think about his politics, while governor of Massachusetts Mitt Romney's re-structuring of the state's health care system, absolutely required a "think outside the box" entrepreneurial approach.  Gail McGovern as President of the American The Red Cross, working to expand the branding of the organization beyond disaster relief, works entrepreneurially everyday to effect this transformation. 

Global Entrepreneurs.  Now more than ever ambitious individuals worldwide strive to not just be entrepreneurs per the American way, but to take the best of what we do and how we think and add to it and candidly, then to crush us.  And I say more power to them.

Because entrepreneurship as its essence is about creation, and the success of one entrepreneur ANYWHERE results in a better life for everyone EVERYWHERE.

I look forward to your attendance and feedback.

Jay Turo
CEO
Growthink, Inc.

 


Kim Kardashian, James Cameron's $500 Million Avatar, and Private Equity - A Parable


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Two pieces of startling news to consider when thinking about how money is really made in our brand-driven 21st century economy:

1. James Cameron's 3-D beyond blockbuster "Avatar" - reported by the New York Times' Michael Cieply to have a total budget - production and marketing - in excess of $500 million!

Director Cameron, of Titanic, is blowing away ALL movie cost records here. To give a feel of the size of the bet that Cameron, Fox, and private equity partners Dune Entertainment and Ingenious  Media, are taking on the film, Avatar may have to become one of the top-twenty grossing movies of ALL time just to break-even!

2. Ms. Kim Kardashian, kindly described by Wikipedia as "an American celebutante, socialite, model, actress, businesswoman, and television personality" is the 8th most followed person on Twitter. She trails only Ashton Kutcher, Britney Spears, Ellen Degeneres, Oprah Winfrey, and oh yes, the President of the United States.

This is relevant only because, whatever you think about the quality/lines of work and political leanings of others on the list, at least they have actually DONE SOMETHING to become famous.

Ms. Kardashian, for all of her obvious charms, is that particular modern phenomenon of seemingly being famous because she is, well, famous.

 

11-16 Blog Images


So You Say - So What?

Well, as any regular followers of mine can attest, at the core of my belief system and the Growthink investment strategy is the The Black Swan.

Popularized by the great Lebanese thinker and writer Nicholas Taleb in his New York Times bestseller of the same name, the idea of the black swan comes from the Enlightenment in Europe to describe a logical fallacy. In the 17th century, Europeans assumed that 'All swans must be white," because they had never seen a Black Swan. In the 18th Century, black swans were discovered in Australia. 

 

The logicians of the time - most prominently John Stuart Mill- associated the term "Black Swan" to the concept that a "previously perceived impossibility may actually come to pass."

Taleb describes it best:

"What we call here a Black Swan (and capitalize it) is an event with the following three attributes. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable."

Taleb continues, "I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not prospective) predictability. A small number of Black Swans explain almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives."

Bringing it to November 2009, man who would have thought that a) a movie featuring a love story between 2 ten-foot tall blue aliens and b) a 29-year old actress with no major film or television credits or awards would have far more brand and marketing dollars and reach behind them than every single technology startup in the United States combined?

The answer: Nobody. And more importantly, the phenomenons of Avatar and Ms. Khardashian CANNOT - I repeat CANNOT - be retroactively analyzed for guidance as to what the next new thing will be. As Kim might say - "just don't go there."

So the true Black Swan acolyte does not look for guidance from past, outlier events, he or she does seek lessons. Here are three:


1) Everybody loves to place on a pedestal (and I put myself in this category for sure) the "pure" paths to entrepreneurial riches.  It goes like this: Have a great idea, start a company, have venture capitalists back you, build the business with blood, sweat, tears, and brilliance, go IPO, be featured on the cover of Fortune, and everyone lives happily  ever after.

It is what getting rich in America SHOULD be about. But the statistics tell a far different story. 

Think about the size of Avatar's reach - a $300 million production budget? $200 million for marketing? There probably aren't 10 technology startups in the whole world with these kinds of numbers behind them.

And the nice thing about a movie versus a startup is that you can usually find out in real-time if you have something. Don't you think the VC's with their full portfolios of "waking dead" startups would like to find out as Fox will with Avatar, in like 2 weeks, if they have something?

2) "Vanilla" investment in business models, in corporations, LLCs and the like, are almost passing into the realm of quaintness. I come back to my good friend Rafe Furst and his brilliant idea of the personal investment contract.

Investing in any one of Ms. Kardashian's various companies (perfume, clothing, DVD projects) is highly risky and on the surface, not all that attractive. But being able to invest in the Kim Khardasian personality brand  itself - with her top 1,000 website and 2.8 million Twitter followers (put this in perspective - Jim Kramer's Mad  Money gets about 300,000 viewers/day) - is a sure-fire moneymaker.

3) Bet on the Unexpected. Check your ego firmly at the door when evaluating business models and investment strategies. Accept that you (and everyone) for that matter KNOWS NOTHING about what the future will hold other than the fact that we don't know what the future will hold.

That is philosophy - here is money-making: The big, big outlier events - the 1,000 to 1 shots and beyond - are always, always, always, UNDER-PRICED in the marketplace. 

Bet on them. 


I look forward to your attendance and feedback.

Jay Turo
CEO
Growthink, Inc.


November 9, 1989 - The Proper End of History


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Passing with surprisingly little fanfare, today is the 20th anniversary of the fall of the Berlin Wall.

One of my most enduring memories of my college days (I was an International Relations Major at Stanford, Class of 1990) was a class that I took from an extremely engaging and charismatic young professor on Soviet Foreign Policy.

One statement that my professor made stayed with me - that probably none of us in our lifetimes would see the Berlin Wall fall.

Her reasons:

a) The inevitable brain and talent drain that an opening of the wall would bring about

b) The more that people in the old Soviet republics and in Eastern Europe were allowed to see with their own eyes the freedom and prosperity that liberal capitalism creates, the more likely they would be to rebel against their masters.

Thus, the Soviet leadership, out of pure and obvious self-interest, would never allow it to happen.

Well, the rest is history.  Six months after this perhaps off-hand classroom statement, the Berlin Wall came down. And 15 years later, my young and charismatic professor - Condoleezza Rice - was named the 66th United States Secretary of State.

I am not exaggerating when I say that of all of my college experiences and memories (at least the ones I can remember..:), that that day and that class and Professor Rice's statement stayed with me.  Why?
1. It inculcated in me at a very early age that the future is very, very uncertain, and that there is often little correlation between the depth of one's understanding of a topic and the ability to PREDICT about it.  

Professor Rice KNEW the Soviet Union - even then she was considered one of the nation's most knowledgeable and versed thinkers and commentators on topic.  And yet she, like so many others, was wildly wrong here.

2. While I could not put it into words until last year when my good friend and perhaps best thinker on "systems of prediction" I know - Rafe Furst - introduced me to Nicholas Taleb's masterpiece "The Black Swan," I and many others intuitively felt that something VERY, VERY, VERY outside of the realm of prediction took place the day the wall fell.

3. And more deeply, BECAUSE it fell outside the realm of prediction, it MATTERED.  The "smell test" on these kinds of moments are simple - they are the ones we remember where we were when we first heard about them.

For my generation - The Space Shuttle Disaster (and Reagan's incredible speech that night), The 1987 Stock Market Crash, the fall of the Berlin Wall, Clinton's impeachment, September 11th, the capture of Saddam, and the fall of Lehman (for those of more business/financially-minded) fall into this category.

My friend Rafe and Taleb tie this core life insight to business and investing.

How? By only wagering on the unpredictable. Raynor in the Strategy Paradox makes the same point.  BIG success and BIG money are only made on the BIG outliers - everything else is just transom.

In a strange way, the fall of the Berlin Wall was a seminal event in my youth that pointed me to my life's work. It affirmed by belief in liberal capitalism and in the "way of the West" as the  right and proper end of history.
And in business, it led me to entrepreneurship and to private equity.

Why?  Because it is in the aspirations of the entrepreneur and of their backers  that the power of the unpredictable is made most real in business.

Those that grasp it - the Bezos, the Brins, the Pages, the Josh James of Omniture, the Aaron Patzers of Mint.com, the Kevin Planks of Under Armour, MAKE history. 
And hopefully take the rest of us along for the ride.

I look forward to your attendance and feedback.

Jay Turo
CEO
Growthink, Inc.

Google. Omniture. Mint.com - What Do They Have in Common?


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Google. Omniture. Mint.com. All massive private company investing success stories and all shared some critical characteristics:

1. They all took a while to blossom. In the case of Omniture, it was 13 long years from company founding to exit last week via sale to Adobe for $1.8 billion.

2. Those that made the most money by far were those that got in early. Sure, it would have been great to have owned Google at its 2004 IPO price of $85/share, but some of the FIRST investors in Google in 1998 bought their shares - on a split-adjusted basis - at eight CENTS/share.

3. All had/have great leaders. Josh James, founder and CEO of Omniture, has led his company through a failed acquisition, through having to lay off 3/4 of the company's employees a week before Christmas, an IPO, and attracting the best software talent far from Silicon Valley (in Omniture's case, suburban Utah).

4. Lady luck smiled on them. In the case of Mint.com, Intuit's inability to move their key personal financial software apps to the "cloud" (in spite of having 100 x more software developers working on it than Mint) was the key stroke of luck that led to Intuit buying them in September for $170 million.

The key question with luck, always, is how we can make it work for us. And the stories of Google's, Omniture's, and Mint.com's success point the way.

I look forward to your attendance and feedback.

Jay Turo
CEO
Growthink, Inc.


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