What I would invest in if I was swimming in moulah Scrooge McDuck style. I’m no expert, but these are the areas I think about when I think about the near future of business and the economy.
A Disclaimer
I’m 23, I don’t have a degree, and I haven’t worked in very many industries. I’m not an analyst or a consultant, and I definitely don’t know much about economics or business. But these are the things that keep me awake when I think about investing. You’d do me an honor to read it, and I’d appreciate any feedback you might offer.
Throughout this post I also generalize and make lots of very strong assertions. Nobody can see the future, and I don’t want to pretend like anything is certain. And a lot of this will of course be proven wrong in time. But sometimes I enjoy writing hyperbolically about things that I think are obvious, to compensate for the lack of their acknowledgement by the world around me.
Why Did I Write This?
I wrote this because I want feedback on my ideas about the future of business and the economy. These are the trends that I often think about when I’m falling asleep, in the shower, or on the subway, and I want to see what other people have to say. I also want to look back at this every few years and see how it compares to reality.
What I Would Do Before Investing
I don’t really like investing. I don’t like the idea of taking money that I could spend to make my life better now, and instead putting it somewhere and waiting. I would rather buy a $10 slice of cake from that expensive bakery down the street now, not wait and maybe be able to buy a whole cake later.
Thus, the premise here is that I would have more than enough money to buy all the cool things I could think of in the moment, and then invest the rest because I didn’t even know what to spend it on. The things I would spend it on first are:
- A big house with every ergonomic and time-saving design, feature, and appliance imaginable.
- A complimentary second house that’s just a bare cabin on a mountain in the woods somewhere.
- A Tesla Model X, because it’s the coolest thing ever. You guys, I went into the store, and the doors on the Model X close themselves when you sit in the driver’s seat.
- A trip to Japan, the last place I really want to visit and haven’t yet.
- Every available VR system and game, with every available haptic feedback peripheral.
- Pay people to work on things I want to invent (I have a list of these, but that’s for another post).
What I Would Invest In
- AI and Machine Learning
- VR and AR
- The End of Manufacturing and Distribution
- Blockchains and Ethereum
- A Cryptocurrency ETF
- Prediction Markets
- Short Private Higher Education
- Bonus: Whatever Elon Musk is Doing
I’ve omitted several categories that I believe are going to grow, but which I know nothing about. Take a hard look at these if you know anything about them:
- Genetics.
- Healthcare, starting with better Electronic Medical Records systems and using sensors for preventative medicine
- Cold fusion or “muon-catalyzed fusion”
- Quantum computing and whatever else will replace silicon (think graphene and carbon nanotubes)
- Nutrition and the sustainable production of food
It’s also important to note that very few of these are optimistic investments in a specific company. In my zero years of trading experience, I’ve found that when you bet on a company, you don’t bet on the company, you bet on the people who run the company, and the probability that some catastrophe or miracle will happen to them. There are very few people running companies who I would entrust my money to, and I don’t like betting on the probabilities of miracles and catastrophes.
As Steve Eisman said, “…making investment decisions by looking solely at the fundamentals of individual companies is no longer a viable investment philosophy.”
So instead, I like to try to look into the future and bet on big obvious trends. Here’s more detail on each one:
AI and Machine Learning
All of our jobs, including the “hard, skilled, human ones that require education” like doctors, lawyers, and engineers, are going away. In a decade whole departments will be one head doctor supervising an AI or machine learning (ML) system like Watson, one head lawyer checking that lawyer AI/ML is correctly assigning blame, and AI/ML designing bridges with a head engineer to verify load simulations.
If you want to become unemployed last, become someone who works on AI/ML or someone who does a thing that humans with lots of money will still want to be done by a human, like therapy or food or handmade goods. Here’s a good introduction to this concept that gets most of the important stuff right; brace yourself.
Some good signals of this are:
- A non-profit doing AI research who is giving away all the stuff they discover for free, called OpenAI, just got $1 Billion in funding.
- Google is “Remaking Itself as a ‘Machine Learning First’ Company” and hiring every good ML grad they can get their grubby little paws on.
What I would do:
- Invest in established AI/ML companies.
- Seed all AI/ML-related startups because Google or someone else might buy them, or they might take over the world on their own.
VR and AR
In recent news, you’ve most likely heard about AR in terms of Pokemon GO, and VR in terms of the Rift, the Vive, or Google Cardboard. While some of these may make big news, this is just the beginning. Oculus (Facebook), HTC, Valve, Google, Samsung, Magic Leap. Everyone is pouring money into making the VR and AR experience better and cheaper.
Big companies, small companies, and individuals alike are exploring what’s next after responsive, high resolution, cheap VR headsets are here. This means everything from haptic suits to omnidirectional treadmills. People are working on haptics, high-resolution movement sensors like the Perception Neuron by Noitom, force-feedback gloves, suspended motion setups that hang you in the air and make you feel any movement in any direction, etc.
We’re all going to be floating in tanks with nutrient IVs in our arms and jacked into the Matrix. Don’t you want to be a part of that future?
What I would do:
- Invest in the big players above.
- Seed anyone doing compelling fringe VR-related stuff.
The End of Manufacturing and Distribution
This one is a bit tough for me to articulate, and I think it is a very long play (read: decades), but I’m going to try.
Manufacturing custom items is becoming cheaper. The current forefront of manufacturing is somewhere between 3D printing and the magic “replicators” from Star Trek that materialize anything you ask for. So I’m going to call the 3D printers of the future replicators.
I would like to assert that within a decade or two, choosing from a million backpack designs online and clicking “print” will be only marginally more expensive than a mass-marketed backpack from a store, and eventually cheaper.
This doesn’t mean we’ll all have a replicator and bunch of raw materials in our houses, at least not at first. But there are already warehouses full of printers, ready to print whatever you want for cheap and ship it to you.
Currently, a company has to market their product to a mass-market audience in order to ensure that they’ll reach an economy of scale to justify the cost of a large production run at a factory. But that becomes irrelevant once you can print whatever you want for cheap.
Amazon won’t be shipping you a best-selling toothbrush made in Indonesia, they’ll be replicating and sending you a copy of the most popular toothbrush blueprint that someone uploaded, made in whichever of their replicator-filled warehouses is closest to your house. And soon after that, as the price and size of replicators drops, they’ll just be a distributor of home replicators and the raw materials they use, and a platform for sharing product blueprints.
To summarize:
- Manufacturing one of something at will is going to be just as cheap as buying a mass-produced product.
- Which means the effect of economies of scale on manufacturing costs won’t be as large.
- Which means companies won’t have to market a product to a large audience to justify manufacturing.
- Which means there won’t be as many big manufacturing runs of products.
- Which means not much is going to be mass-produced in factories anymore.
- Which means not much needs to be shipped anymore (aside from raw materials used by the replicators).
In combination with the AI and Machine Learning stuff above, the remaining factory manufacturing will also be much less human labor-cost dependent, because almost everything (even the complicated stuff) will be automated. That means less long distance shipping from places with low labor costs to places that buy them.
There are also many niche suppliers that support current and future 3D printing-related industries. Materials, parts makers, social networks and software for creating and sharing blueprints…buy these too.
What I would do:
- Invest in a variety of top 3D printing companies.
- Short manufacturers that make money by exploiting the low labor costs of certain countries.
- Short companies that ship manufactured goods around on boats.
Blockchains and Ethereum
If you don’t know what either of these things are, some research is in order, because they are going to change your life. Here are some short videos to explain:
If you skipped those videos: A blockchain is a history of everything that’s ever happened. It means if I have $1, and I send you $1, I can’t also send someone else $1, because the blockchain knows that now I have $0. And if I try to lie about it, the blockchain doesn’t let me, because it knows everything, forever. It won’t let me steal your land because I bribed the local government, it won’t let me steal your money, and it won’t let me make fake votes in an election.
Bitcoin and Ethereum both use blockchains. But if Bitcoin is like digital gold, Ethereum is like digital silicon you can make computers out of. Blockchains are going to change everything from how you pay for things to how you vote, and Ethereum is the best current blockchain implementation.
Competitors like Zcash might try to steal Ethereum’s thunder by having features like being 100% anonymous. But Ethereum is keeping up. In the anonymity example, Ethereum is using something called Hawk, which employs the Zcash protocol to obscure Ethereum transactions.
Tons of cool new projects built on Ethereum will be released in 2 weeks at their yearly party, Devcon, in Shanghai, China. Expect a big jump in price.
What I would do:
- Buy Ether (the name of Ethereum’s currency).
- Buy sub-currencies (called tokens) of applications built using Ethereum, like Augur REP, Plutons, and Steem.
A Cryptocurrency ETF
We need a way for people to easily invest in cryptocurrencies generally. Without having to set up wallets, register on exchanges, live somewhere besides New York State, or even understand what all the coins do and how they’re different.
I’m not talking about the Winkelvoss’ Bitcoin-only ETF. I want an ETF that owns equal parts of the top 20 coins by market cap or something. This doesn’t exist yet, so maybe I would just make one.
Based on history, in the next year some of these cryptocurrencies will disappear forever, and some will go up by 1000%, so it’s worth buying a bit of each of them.
There is more fintech innovation happening in the $12 billion market cap of the top 100 coins (and ones that aren’t public yet) than in the entire rest of the $16 trillion in the US banking industry. Trust me. I got a D in college calculus.What I would do:
- Wait for a cryptocurrency ETF to be made and invest in it.
- Create my own ETF.
- If that’s too hard, then just do it on my own. Take a some money and spend 5% of it on each of the top 20 cryptocurrencies by market cap.
Prediction Markets
What are you good at? What do you know a lot about? What is interesting to you? If you have an answer to any of these questions, then decentralized prediction markets are for you.
Bet on stocks going up or down, bet on how many YouTube subscribers Casey Neistat will have by the end of the year, bet on Trump buying Fox News after he loses the election, bet on how long it will be until the FBI tries to shut down a decentralized prediction market…
What I would do:
- Wait for decentralized prediction markets like Augur and Gnosis to come out.
- Bet on whatever I want.
Bet Against Private Higher Education
Did you watch the movie The Big Short? Just like subprime mortgages failed and affected prime mortgages, subprime higher education will fail and affect prime higher education. Just like the former crashed the economy, so will the latter.
Student debt is hard to short (bet against) directly, mostly because all the big loaners like Sallie Mae are either backed up by the government who will never let them fail, or are highly diversified into other industries since the last decade or two to mitigate risk (hm, I wonder if they see it coming?). For example, Navient, a Sallie Mae spinoff, has 97% of their bonds guaranteed by the government anyway.
So instead we short the colleges that we don’t think are worth the money people pay to attend them, and the umbrella organizations that run them. Just check Wikipedia, some of them are already failing.Learn more here:
- Moody’s predicts that 3x more colleges will close, and 2x more colleges will merge by 2017.
- Steve Eisman gave a talk on this called “Subprime Goes to College” which basically explains how the same thing that happened to the housing market in 2008 is going to happen to higher education.
- If you want to watch a super depressing preview of what expensive yet worthless private higher education might do to the US as prices keep increasing, check out this Chinese documentary called “Education, Education.” The factors are different, but I think the results will be the similar.
What I would do:
- Short shady, for-profit higher education schools and conglomerates.
Bonus: Whatever Elon Musk is Doing
That stuff I said at the beginning about not wanting to rely on a person to run a company? Well there’s one exception to that rule. In an interview Elon Musk once said “I just want to be useful”. He’s older now, he’s worth $12 Billion, his companies are less fragile, and he has a family, but his employees will still walk into a boardroom in the morning and find him asleep on the floor after an all-nighter.
Larry Page, CEO of Google worth $25 billion, wants to give his money to Elon. I don’t like betting on people, but if I’m going to bet on a person, it’s him.
A few upcoming things for his companies are:
- Solarcity integrating solar panels with roofing materials and replacing the roofs of 5 million US homes with it
- Tesla releasing their (relatively) cheaper car, the Model 3.
- SpaceX wants to send humans to Mars by 2024.
What I would do:
- Invest in all of his companies. You can’t buy SpaceX yet, so I’d bet on its success using the prediction markets above.
- Invest in companies that support his companies, like Lithium ETFs of companies supplying Lithium for Tesla batteries. (At least until 2020 when new battery prices and demand drop because of recycling)
- Invest in companies he might acquire or buy from in the future, like anyone working on flow cells to replace Lithium batteries.
That’s it!
Did I miss something super cool or super obvious? Did I get something wrong? What would you do with your money? Let me know in the comments!
Special thanks to Li, Raine Rupert Revere, and Rose Matsa for their awesome feedback on my drafts.