Authentic contrarians vs consensus contrarians
A true contrarian endures not just being misunderstood but also being disliked
Relevant for
People interested in covid predictions, frontier technology, and the search for meaning
Josh Wolfe on what the future holds
Josh Wolfe is a venture capitalist (VC) at Lux Capital, which invests in early-stage ventures "at the outermost edges of what is possible". Examples include drone sentry security systems, brain machine interfaces, and 3D data platforms [1]. Josh has become more well known the past few years due to his less conventional way of thinking and his public posting of those ideas.
Josh was recently interviewed here by Michael Milstein, founder of Company, a curated community of NYC startups and entrepreneurs. I was going to do a summary of that talk, but realised Josh was also separately interviewed here by Eric Weinstein, managing director at Thiel Capital, the investment firm founded by Peter Thiel [2].
As such, I’ve synthesised the notes from the combined three hours of audio, and grouped them into the five categories below [3]. I’ve also added highlights at the start, and more links on Josh to check out at the end. The things I do for you all [4].
I was also originally going to send this to paid subs only, but ended up writing so much that I figured I should share it with everyone. Paid subs, I’ll send another post to make up for it. This is a 5,000 word post, so feel free to jump to whichever section strikes you.
The talks covered:
Description of the current covid situation
Predictions on covid related consequences
Predictions on general future state of the world
How he thinks of the VC space and what he looks for
The search for meaning and how context matters
Highlights include:
The interaction of multiple layers creates a complex system for covid that's difficult to understand
Cities are likely to experience a pendulum effect in density increasing and decreasing
Two types of companies might dominate post crisis: semi state-owned companies and those that are rolling up supply chains
We need to pay more attention to events happening that are overlooked due to Covid, such as China’s moves, Africa, and space
AI isn't as dangerous as people are thinking since it'll be constrained by the system it is in
Increasing value will be placed on tools that can detect truthfulness
Chips on shoulders put chips in pockets
Being an authentic contrarian vs a consensus contrarian requires not only the ability to be misunderstood, but also disliked
Great artistic expression comes from people finally finding a medium to express themselves after not feeling understood
The worst terrorist attack would involve revealing your texts
Full notes from the talks
1. The crisis is strengthening our sense of community
The social impact from the disruption to education is terrible
As most of us have come to realise, teaching is underappreciated. It's not just hard to do, from the individual to the classroom level, but also a form of daycare
The hardest thing for most people to deal with now are their kids. It's easier for adults to adjust, but harder for kids who are missing out on the social structure of school
The impact from students being out of school, missing graduations, and jobs lost is tragic
The absurd has become the new normal. We all laughed at the funny BBC interview where a parent had their kids stroll in the room, but that's become the norm now
LL - For more thoughts on how education could change, see my recent recap of Megan O'Connor's views.
One upside from this situation is that it's strengthened our community bonds
It's the one time in our lives where we can be with each other [for an extended amount of time]
For example, we're isolating together with friends, and are using the time to do nightly dinners, classes, and debates with everyone [5]
LL - An interesting obvious consequence of the isolation is how companies and celebrities are becoming more inclusive and trying to reach their audience directly. Conferences and social clubs that used to limit in person attendance to paid members only are opening them up, often for free. Celebrities are doing interactive fan events, such as KT Tunstall's youtube live stream, the Doctor Who cast live tweeting while rewatching an episode, to even Obama doing a Class of 2020 commencement address [6]
Will this last? People would still pay to network in person, so I can see some hybrid approach of a conference charging for in person attendees and streaming it for free. Celebrities could potentially do that for concerts as well, and then get tips via live streamers. They're already trying to monetise direct relationships through Cameo. In person events become even more prestigious, and you get additional reach via the virtualisation. We'll see if the industries feel it cannibalises in person attendance
Another possible upside is that necessity is the mother of invention
My experience is that a lot of entrepreneurs have to hack things together. They have limited resources and are trying to cobble something together [despite the difficulty]
Scarcity is a virtue since it leads them to be resourceful and creative
Contrast this to a large, well resourced company that can get what they need by just calling a department or assistant.
LL- There's a saying that constraints cause creativity, which is what Josh is implying here. Some supporting evidence for that is how "startup in a big company" types never seem to succeed
The current situation is complex, with many different layers reacting to each other
The Santa Fe institute has put out great material on the current situation
Transmission of the virus is a biological fact, independent of beliefs
Transmission of information, on the other hand, has both fact and fiction, being subject to what people believe
The interaction of these biological, informational, political, economical, social and more layers result in a complex system [that's difficult to understand]
LL - The Santa Fe institute is a research institute dedicated to studying complex systems and how they interact. Notable members include Bill Gurley, Michael Mauboussin, and Pierre Omidyar. We like to believe in simple direct cause and effects, when usually there are multiple causes and secondary effects all interacting at once. We’re not built for complexity.
For a framework on how layers interact with each other, check out my pace layer summary. It's the idea by Stewart Brand that civilisations consist of multiple layers, each moving at their own speed while interacting with other layers above and below them.
2. Semi state-owned companies could be the dominant force emerging from the crisis
There's a huge disconnect between the real economy and what the market believes
The amount of permanent economic destruction isn’t fully appreciated
Big businesses will be fine, but small and medium businesses will take a long time to rebuild
We've lost so many jobs so quickly compared to how long we took in creating them
The ripple effects so far have been masked by massive federal intervention. They've been buying at the very top of the stack and all the way down
What's underappreciated is that the economy is asymmetric in crashing vs being built up
LL - I'm having trouble understanding this as well. The bull case is that all of this job loss was priced in, which is why we saw such a large drop in the market initially. The Fed giving a backstop to everything might be reducing risk. Also, if everyone thinks that things are too good to be true, it implies they're being cautious and not irrationally exuberant.
The bear case is that this is going to be similar to Jan/Feb, where we all knew covid was happening in China but the market still kept going up
The extremes of a complete lockdown and complete normalcy are both unlikely
The state we're in as of Apr 30 is a temporarily tolerable, intolerable situation. We might last perhaps 4 weeks?
How dense cities react is going to be different vs how other areas react. The difference in this reaction will frustrate people in cities
The greatest economic centers are also the ones most hard hit; when you're in a city you get far more of the good during normal times but also more of the bad
An optimistic scenario I have for dense cities, using NYC as a proxy, is for NYC to be "open at 30% of normal density by Jun 1.
Subways might be another story but on average we'll be at 30% density
By Jun 15 there'll be reports that NYC is at a lower density, inducing people to come back
That causes a pendulum effect of density going up and down
I think NYC can be at 50% density in the fall. We'll have preparedness plans in place then, and it'll be less bad than people think
College towns [and places similar to them] will start to open earlier
There'll be a difference between the haves and have-nots
College towns will be testing everyone, not having large classes, and holding small classes in large spaces
An interesting thing about college towns is that they have the cultural vibrancy of cities but without the density concerns
We could see a migration of older people and retirees around college towns, to be around that vibrancy
Separately, I also see some percentage of colleges disappearing in the next five years. There'll be a repurposing of assets that die out around them
LL - That pendulum effect is somewhat similar to what Tyler Cowen believes, and how I'm currently thinking as well. Because of the amount of competing concerns, I don't think locking down for extended periods of time will last. We'll get frustrated and loosen up, as is already happening in most of the US. Things will get worse and we'll tighten up again. I hope to be proven wrong on this.
I can see two kinds of companies emerging from this that dominate
Semi state-owned companies, similar to what happened in 1980's Europe with Total in France, BP in UK etc.
It feels like we could see a large public company become a sacrifice here, leading to wave of semi-nationalisation
Such companies could do well with the implicit government support and access to cheap capital
Rollups of supply chain, logistics, "rebuild the economy" types of businesses
If you continue to see the Fed support public markets, inefficiencies are more likely to happen in private markets.
There'll be less tourist capital in private markets
LL - Josh is also likely drawing on how Fannie and Freddie, the two large US mortgage securitisation companies, were taken over by the government in the financial crisis.
I'm unsure I fully understand Josh's second example, since those rollup types of companies also exist as large publicly traded ones
We'll sacrifice efficiency to get more slack in the system
Technological onshoring will be critical and I'm bullish on it
It'll become more popular due to the security and geopolitical perspective
We'll have more redundancy, greater distribution, more onshoring
LL - People usually criticise the lack of slack in the system without realising that it was a direct result of the efficiency that allowed lower prices. Companies are also threatening to move supply chains in response to the crisis. I'm less interested in what people are saying, and more interested in what they actually end up doing. I'm less certain that companies will move, unless they can get cost savings through the move
There's a tradeoff between liberty and public health in the short term
Even John Stuart Mill did not believe that a sick person under quarantine should have freedom to go out
Given there's no antiviral, we have to tradeoff liberty in the short term for the benefit of broader society
We'll have to be cautious, since some small liberties once given away don't come back e.g. security screenings post 9-11
What do you think would be different had this crisis occurred 10 years in the future?
Distributed healthcare
Many companies are experimenting with distributed in person medicine, where you won't have to go to a physical center and can get healthcare remotely instead
For example, what is a high end image diagnostic tool now will become more distributed; everyone will have one the way we all have a thermometer
Distributed logistics
Robots and automation will increase effectiveness in routing of physical goods, like how routers route digital bits
It's about how you solve the last 100 feet problem in delivery, not just the last mile. Every home is a different case, we might still need humans [and have a hybrid system]
Something like Latch could let you trust people to enter your house and place things
LL - Latch is an app that allows you to unlock doors and share access with others, including generating temporary access codes. Due to the cost, fulfilling the last mile of delivery is still a big problem for any logistics company. Drones have been floated as an alternative to human couriers, though most of those are still in the testing phase and it's uncertain how that would scale in a crowded city.
3. Tools that can detect truth will becoming increasingly important in the future
Technological displacement is real in the short term. In the long term it creates all sorts of jobs people can't imagine
There's no way you'd have imagined web designers, youtubers, or vloggers 30 years ago
Even Facebook, Netflix, etc didn't exist in their current iterations a decade ago
I have no idea what my kids are going to want to do, and no idea what the most important jobs are going to be
[As a result], individuals have a moral responsibility to learn and level themselves up. Conveniently it's also never been easier for them to do that.
LL - I'd agree that both the amount of things to learn and the convenience to learn them have increased. However, I'm more skeptical that people will do so. There has always been more than enough material for people to spend the rest of their lives learning, but we always run into other priorities. I say this on my third attempt to learn python... [7]
How should we think about welfare and Universal Basic Income (UBI) in the modern world?
Media is doing a good job at bringing spotlight on some of the worst hit people who do not have resources
Disproportionate effect on less well off communities; action is needed to provide a safety net. This is the most urgent social program that needs to be put in place by cities
The big question is how are you going to pay for it? Maybe some of it is repurposed from Medicare, Social Security
There's a moral obligation to society to provide basic foundational support. Some 80% of people live paycheck to paycheck.
Beyond moral, there's also a logical, purely academic and draconian reason. If you don't provide support now there'll be costs later, whether that's chronic illness, jails, or rehabilitation
If there was a time politically palatable to try it, it would be now
I think it's an experiment worth trying
Stuff happening outside of covid is being overlooked, and that is what will define the rest of the year
The spotlight of the world's attention now is on covid, [resulting in ignorance of everything else]
In a heist movie the robbers will do a test to gauge the initial response
If you're a bad actor you've seen what the first response from the world is and can now work around it
The three things I would look at seriously are
Who's coming in to help the many emerging markets that are struggling. That's usually China.
Africa is becoming similar to the Middle East; the next breeding ground of dissatisfied and unemployed youth. Countries pulling out from there will create a power vacuum
Space
The gap between reality and simulation is shrinking
Humans have a model of reality.
[I like the] memory prediction argument for consciousness by Jeff Hawkins. For example, if you see my shoes, you'll associate that with me. If you see my shoes and then see someone else, you'll get an emotional surprise. You'll adjust the mental model you have, updating your model of reality
Humans hold this model of reality that interacts with the real world and is getting continuous feedback
Robots and technology navigate reality use models, just as humans do
Those models are increasing in resolution as we've kept improving the technology in modeling and measuring the world
A machine does not know the difference between a game simulation that is teaching it to drive, and actually driving on the road. [From its point of view, those two things are the same]
It's similar to how fiction can invoke authentic emotions and reactions in you, despite coming from something fake
LL - It's an interesting point that machines react the same way whether you feed them "fake" or "real" data. Humans also react to stimulus, whether fake or real. Sometimes we might even have a stronger reaction to fiction than fact, such as when a movie makes us cry but a news story about a death doesn't phase us. Humans are narrative driven creatures.
What happens when real and fake are indistinguishable? Will we all prefer to stay in the fake world? How do power dynamics change if everyone prefers living in Fortnite vs irl?
AI isn't as dangerous as people are thinking
I'm not in the Nick Bostrom or Sam Harris camp for artificial general intelligence. I'm more in David Deutsch's camp
Bostrom, along with other very smart people, is concerned about us becoming paper clip factories and being harvested by sentient machines that have run amok
We are indeed approaching high accuracy in some tasks, such as being able to construct text from machines that would fool most people, beat humans at games etc
Deutsch makes the argument that the more dangerous thing is not AI run amok but the average teenager
Inside a simulation, the simulation can have all the tools that you give it. However, it won't have tools that are outside the simulation and it can't create tools outside of the system
Even when AI can create something that would pass a Turing Test and be able to fool most people into thinking it was created by a human, it will still constrained by the system
If you accept the premise that the AI is within a simulation, they can't come out of the simulation's constraints
LL - This might be a reference to Godel's incompleteness theorem, which states that within a complete system, there are statements that are unprovable if you only use the logic of the system itself [8]. Josh is making the argument that AI will be limited in scope to whatever system it is running in. Because we control the systems a layer of reality above the AI, AI will not be able to have more power than we do.
Increasing weight of value will be placed on tools that can detect veracity
You want to find the opportunity between abundance and scarcity
In the late 90s everyone was producing blogs and providing information online. The scarce thing was being able to find that needle in the haystack, hence leading to the creation of Google
Today, we have an abundance of editing tools, and the gap between simulacrum and reality keeps shrinking. The scarce thing will be being able to detect veracity e.g. in deepfakes
It's a continuous race between deception and detection
LL - You want to find the rate determining step of the time period you're in. Power lies in the technologies and institutions that can gatekeep.
4. True contrarians experience pain
How has your investment thesis evolved, and has it changed due to covid?
About 20 out of the 130 or so Lux companies are directly impacted by covid, whether they're 3D printing swabs or scanning physical spaces
All of that has been totally unintentional, there's nothing we're purposely doing for covid
The vast majority of VC will be investing in telepresence space, so I'm not interested in that
VC is a less transactional business than other one off businesses
There's a game theoretic approach here
I'm only as good as the last deal I did. I have to maintain my long term reputation, which will be compromised if I exploit someone
The payback of an investor exploiting someone naive would be pretty swift. e.g. news would travel quickly if a founder got screwed over on terms
LL - I'm less certain on this. There are VC firms that have given tough deals, fired founders, or backed competitors, and they've all still managed to survive so far. If you're able to write large checks regardless of the situation, seems like there'll always be a company that seeks you out. Whether that leads to a positive outcome for both of you is a separate issue.
We say that we like to believe before someone else understands
I'm psychotically obsessed about competitive advantage, and that requires looking at things where nobody else is there
The best way to predict the future is to invent it.
Those people inventing the future are the scientists and engineers, often inspired by science fiction, that say they want that thing to be real and make it so. From sci fi to sci fact.
Our job is to find these people before others and take an asymmetric view on them
We look for these people and see if they're full of shit or not. It's hard to tell at inception of the company between a visionary vs someone trying to defraud you
When I meet somebody, I assume "there's daggers behind smiles". Someone smiles and I assume there's an alternative motive. It's partially due to how I grew up in Coney Island
LL - Another thing that Lux did was to also go to universities beyond Stanford and MIT, where most VCs already were at. Josh also mentioned that he's a natural skeptic, vs his partner who's a natural optimist
Chips on shoulders put chips in pockets
When I look for entrepreneurs I look for a common trait, that chip on their shoulder
Could be that they are a minority, grew up in broken family, or something else
There's something they have to prove, an inextinguishable flame that compels them forward regardless of the money or fame they get
Often in the face of some adversity they suffered where [they were an outcast]
LL - Josh might be biased here due to his own tough upbringing. Having something to drive you when all else fails definitely helps with motivation, such as Lincoln, Rowling, or Jim Carrey. There are also plenty of successful people that had an easier start, such as Gates, Bezos, or Zuckerberg. Everyone likes to say they're an underdog.
Entrepreneurship requires understanding what consensus is
[Being a good entrepreneur isn't just about ignoring reality], it requires understanding of consensus. You have to understand shared realities and break through that shared reality
Entrepreneurship is arrogance of the highest order. It requires you knowing what everyone else believes, and then having the confidence to say you're going in a different direction
That's the status seeking, identity creating thing I think we call creativity
LL - Similar to the principle of Chesterton's fence, that you shouldn't change something until you understand the reason behind the current state, it's usually worth understanding why your proposed business doesn't yet exist. Sometimes ideas that sound great at first (group coupons, meal kits, DTC) don't work because the market is too small, customer acquisition is too expensive, or the unit economics don't make sense.
Being an authentic contrarian vs a consensus contrarian is painful
Peter Thiel is an example of an authentic contrarian, compared to everyone who says they are contrarian but aren't really. To do so, he has a good understanding of what everyone else believes
It's not just the ability to withstand being misunderstood, but also being disliked. You need to still have comfort in discomfort
The most painful feeling is to be socially ostracised. It's why people trying to leave any sect experience so much pain from the tribal exclusion
There are elements of truth in the Asch conformity, Milgram Shock, and Zimbardo prison experiments, though some results are being questioned
These experiments show that due to social pressure, many people will feel it's not worth pursuing truth. They'd rather have the comfort of being accepted
They also show that having an ally helps. You need to not be the only lunatic
Similarly, if you can get just one person's support as an entrepreneur it can lead to great things
If you're an entrepreneur that hasn't had someone believe in them, and then you get someone that agrees with your vision, that sets a chain reaction off
LL - I've written about the replicability issues with the Stanford prison experiment before here. I do agree that people will agree with options that are not optimal due to social pressure. There are also cases such as the Abilene paradox where the group decides on an action that is counter to the preferences of most of the group. The nuance though is whether people do so for decisions of consequence or not.
I'm bullish on investing in startups in areas that haven't raised pricing and likely will.
There's latent pricing power in some companies e.g. Spectrum, Fios that could have raised prices but didn't due to fear of backlash.
When they do, that'll create whitespace for new companies to come in with disruptive solutions
LL - Unsure if I entirely understand Josh's last point here. It seems he advocates for investing in the startup rather than the incumbent, which would be opposite to how Buffett or perhaps a value investor would think. They'd prefer to invest in the incumbent that can take prices up but hasn't needed to yet, since that demonstrates latent customer value.
5. The worst terrorist attack would be revealing our hidden selves in other contexts
There's something really powerful about exploring the meaning of meaning
Thinking about the objects around us, the meaning they might hold for others that is lost on us.
Stories can inject meaning into an object e.g. a brick on a street might have significance for someone, but we'll walk past it without knowing.
Situations like this happen all the time and yet we're unaware. There's something really powerful there to explore
Objects also have many uses, and require context to be understood. In one case it can be dangerous, in another nobody cares. That meta labeling of this happens is complicated
Many ideas and concepts require context to be understood, and there's nuance in everything
We each have lots of hidden selves, depending on the context
The way I am with you vs an entrepreneur vs a board meeting is all different. There's different power dynamics and expectations
Some of these groups don't even know about each other
I don't think these selves are overtly hidden, they're just not relevant for different contexts
I've always thought that the worst terrorist attack would be if we just released everyone's emails and texts for the past year, since that would reveal private thoughts about others
Great artistic expression comes because somebody wants to communicate and finds their medium to do so
I like the thought experiment of imagining a world where a person existed but the technology didn't e.g. Mozart without the harpsicle, Gates without the PC, Hendrix without the electric guitar
Creatives often feel that there's something broken inside, they don't feel understood
You want to find the instrument to express yourself
Comedians reveal great truths about human nature
Cancel culture is resulting in virtually nil tolerance if someone makes one footfall
People that have great contributions to society are being shut down. They are being advised to stay low, out of the limelight. [This is not ideal for society, and often there are inconvenient truths]
Comedians are an entire class of people we pay to reveal uncomfortable truths.
They're the social scientists of human nature, given permission to say the things people might be thinking but are afraid to say
They reveal great truths. Probably so many of them are depressed because they see truths and are burdened by them
It's also an interesting phenomenon on figuring out what is the shared collective temperature [of what is acceptable] and who gets to set that
LL - If you want crazy outcomes you'll likely be dealing with crazy people. There is no line between genius and madness, the only thing that distinguishes them is whether consensus comes around to agree with you. We all admire Newton now, and conveniently forget he spent a good amount of time on alchemy. That made sense for this time, but is a crazy idea in hindsight. What is brilliant now might have, and likely would have, failed in the past
Can you separate the idea from the person? Should you? Given the crazy genius hypothesis above, should we expect unpalatable statements from our idols every now and then? I try to evaluate ideas on their own merit, but it's impossible to do without bias.
Thanks to Polina Marinova for reviewing a draft of this post
For more on Josh Wolfe check out these links
His interviews with Polina Marinova in 2020 and 2018
Futura, the youtube series by Lux Capital showcasing portfolio companies.
Footnotes
Other investment areas include "3D printing; machine learning; artificial intelligence; flying robots; surgical robots; synthetic biology; genomics; satellites; space; drones; computational imaging and recognition; new materials; holograms; “fixers” for the future; the internet of things; connected hardware; the smart home and virtual reality." I've previously done a short response to Lux Capital's 2019 annual video here
Eric's podcast included a good amount of him talking as well. Since I want this post to focus on Josh, I'll be excluding Eric’s points. He has a segment at the start where he talks about how idealism is a cover story for wealth or power transfers e.g. feminism for companies to get more labour, free access to information for companies to gather data moats, patriotism to dilute the power of labour. It's an interesting theory, and I think it's hard to separate people who are genuine believers of the cause vs people who are trying to exploit the cause. Separately, Peter Thiel is a famous entrepreneur and VC known for his provocative statements. He cofounded Paypal, Palantir, and is a partner at Founders Fund, a VC firm.
As always, I’ll be paraphrasing for clarity sometimes
Don’t get full of yourselves, I wrote this mostly for myself to consolidate notes. You can't increase playback speed on the vimeo video; the horror.
Josh talks about how they make people take the opposite view of what they believe in the debates, which is good practice in my opinion.
That speaker list is crazy, just saying. Could you have imagined such a line up for any one school's graduation?
Now that I've mentioned this publicly, I'm never going to succeed am I.
I'm not a mathematician, and apparently Godel's theorem is frequently misunderstood, so feel free to correct me here if I'm wrong
Credit @anbuteau