Evidence #7
Charts covering aging, color, geopolitics, work productivity, investing hold periods and returns, and Gen Z behavior.
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Evidence is a dinner series where guests each share a chart that is "evidence of a changing world.” Hosted by Damir and Dino and supported by Index Ventures.
This dinner was hosted in NY. We were joined by 1 private equity investor, 1 hedge fund founder, 2 venture capitalists, 2 senior bankers, 2 technology company operators, and 1 technology startup founder.
So much of healthcare is focused on reactive care. Aging is the biggest driver of all disease and requires proactive care. The system needs to be redesigned and consumers are starting to become aware (see the rise of influencers like the Stanford neuroscientist Andrew Huberman). 120 years is thought to be the maximum for human life, but science should be able to extend that. Existing behaviors that are shown to be correlated with longer life are getting appropriate sleep, caloric restriction / intermittent fasting (proven to increase lifespan by 20% in mice; drugs emerging to drive), and cold exposure / other methods of lowering body temperature. The body can be thought of as a combustion chamber. More breaths of oxygen, more combustion, more waste/entropy created. The issue is that changing human behavior is hard.
Many factors are driving this. 1) Industrial revolution: Previously all goods were locally made and hand-crafted. A lot of products made with wood. Now products are made in high-volume with standardized SKUs. More efficient to have less colors. 2) Cultural: Apple led movement towards monochromatic colors. Had influence on all other products. Corroborated by trends in interior design, architecture, etc. 3) Colors are becoming a status symbol - high-end cars like Lamborghinis have loud colors that stand out. Aston Martin leading into color personalization as well.
Saudi is the fastest changing society in the world under the leadership of MBS. Also has one of the youngest populations which MBS falls into (he’s 36 yo). Norms in the country aren’t what most people expect - rising consumption of alcohol, huge market for women’s fashion, and growing interest in Western media (Justin Bieber recently performed there). The country has a large economic surplus which will amount to >$1T over the next decade and a goal to reinvest 70% of it domestically in infrastructure and other efforts. There was skepticism over Saudi’s plans to build elaborate new cities which seems somewhat imprudent in terms of investment. The country also faces long-term risk as world moves towards renewables so is trying to figure out how to diversify away from oil. Part of this involves attracting expats - Saudi wants to mirror Dubai for this but wants to bring “first class” expats instead. The country is also encouraging its citizens abroad to come back. We discussed how hard it is to reshape a country’s economy which tends to be a result of amalgamation. Despite this, Saudi is including knowledge-sharing clauses in its investments and using compensation to try to attract brainpower. One notable quote: “You can’t sovereign wealth fund your way to a diversified and sustainable economy, especially given their size of population.”
Globalization led to diffuse gains -> higher real purchasing power for everyone. Also led to concentrated costs -> a select portion of the population was dramatically affected, economies killed, unemployment rampant. This led to 2016 and the election of Trump, who exploited this frustration. This political effect is the intangible cost of globalization. There is evidence that globalization is actually very cyclical - 40% drop between WWI and WWII. Other tradeoff of increased globalization is the creation of a single point of failure. You trade off resiliency for efficiency and purchasing power. Saw this during COVID and bears a massive cost in times of exogenous shock. Countries will likely seek to build in resiliency to their economies by in-sourcing certain critical supply chains.
The biggest event in past 20 years was China entering the WTO in 2004. China has a massive manufacturing surplus - even greater than 12% of GDP given costs of commodities import. China needs to invest this surplus. The US deficit is all driven by goods imports. This means that China is entirely reliant on others given the lack of a strong consumer-driven domestic economy. The employment of Chinese society is dependent on this. China domestic consumer spending is only 40% of economy, compared to 80% in the US. Unlikely to change - would require unwinding of state-owned enterprises which are owned by local politicians and CCP members. At the same time, the US is showing its ability to rapidly boot up domestic manufacturing. This has been led by things like the Chips Act and Inflation Reduction Act. The US can also bring in more workers as it invests more domestically. Immigration is more feasible as lower-classes see real wage growth and job opportunity. Ultimately, China is in a worse position than the US should a trade war or other war emerge. Taiwan is not as big of an issue from a semiconductor supply perspective. If China were to invade, the brainpower would flee to the west. The bigger issue of Taiwan is to put a line in the sand on authoritarianism. In many ways, the US should have stepped up in 2014 in Russia’s invasion of Crimea. The economic standoff between the West and Russia highlighted why China less likely to invade.
Discussion of tradeoff between remote work and in-person work. There is a lot of nuance to this discussion - for example, is a mom with young kids more productive if she works from home or goes to an office? Is in-office important for diffusion of knowledge and ideas but WFH better for execution work (ie. computer time)? Is the nature of work changing such that certain events (golfing, dinners) are work? More questions raised than answers. Most of the attendees at the dinner were back in office >=3 per week.
The argument was raised that some type of capital provider could step in to provide short-term liquidity for funds with long time to distributions. Smaller and newer funds especially have a need to realize returns to market newer vintages of funds - shifting the ownership of investments while still private could facilitate this. Is there a way to do this so that incentives are aligned? And what is the right hurdle for venture? Don’t average venture returns fall into the lower left quadrant of the table? We also zoomed out to the broader topic of LPs and how institutionalized the LP world has become. Most foundations, endowments, etc. would be better off having small teams that put all of the assets in the S&P 500.
Need to segment this chart by holders. If you exclude quants and retail, mutual fund holdings have held steady. Will this lead to more alpha or less? We also had discussion around belief in the efficient market hypothesis. A consensus formed that it is highly unlikely to be true as it requires: 1) perfect information, 2) perfect analysis, and 3) perfect ability to act on perfect info and analysis. What impacts does this have for founders who are considering IPO long-term? Executives increasingly need to control narrative. Especially true for companies with high SBC - largest cost - need to support stock price to keep costs down. This is a reflexive phenomenon.
Should the government intervene and prevent social media consumption below a certain age? Discipline is the greatest advantage for people in society - see Marshmallow test from Stanford. A parent’s responsibility to instill discipline in their kids. It’s also hard to regulate media now - it was easier when we lived in a broadcasting world with just a few pipes, now there are many. Generally everyone saw the internet/social media as a net positive as it creates access to education and development which outweigh the costs, but the costs have to be carefully managed.
One implication - fewer men are having more sex with more partners. Paralysis of choice problem - dating apps enable farther reach, but less connection. Men are less well-off - declining American dream - which may pressure their ability to date. Also women - who seek safety - have means to screen for best partners, creating a reinforcing loop. More women are college-educated and the ratio of college-educated women to men is rising quickly. Less compatible men for these women to partner with. Data suggests that more educated women are not compatible with less educated men.
Although more Gen Z are identifying as LGBTQ, >50% of these people identify as bi-sexual and the vast majority of them don't actually have sexual relations with their same-sex. So in some ways, this may be more of an expression of identity than a reflection of action. Is this just an aging effect - as the generation ages up, it’s likely to look more like past generations? Similar to everyone is a democrat until they get their first paycheck? Or is the internet, or some other factor, driving a significant change in sexual orientation or in willingness to admit sexual orientation? We didn’t get to the religion topic.