Questions from the year gone by

“The test of first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function. One should, for example, be able to see that things are hopeless yet be determined to make them otherwise.” Read these lines by Fitzgerald over a decade ago but it took several years and several more miscalculations before the idea really started making sense. And living with these questions now — as quasi-lenses through which to view the world — the hope is that with enough context, the rule engines will start to reveal themselves. Without much ado, here’s what kept me up in 2022:

1. Judgment vs volume: From short videos to fast fashion to recruitment, in a world where the cost of trial is extremely low, do tech platforms slowly erode the premium accorded to ‘human judgment’? Think 100 users watching a 10-second video on TikTok, 10 units ordered for a new shirt design on Shein, low-cost acquisition of 1000s of new engineers every month for an on-demand tech talent marketplace. All these examples enable the ‘right’ answers to surface to the top eliminating the need to have a ‘best hypothesis’ before the event. In what ways does it expand markets, dissolve moats, reduce wastage, and most importantly — change consumer behavior? Interestingly, this is also the standard advice on ‘getting lucky’ — increasing your surface area of interactions with the world!
2. Manufacturing vs distribution: Acquire -> build trust -> cross-sell has been the go-to playbook for a variety of industries including FMCG and financial services, in an era where moats of brand and physical presence were very strong. Think back to 25 years ago when your neighborhood ICICI bank branch was your family’s first savings account and then by virtue of that relationship, also became your salary account, mortgage provider, first credit card, first mutual fund investment, and so on. But as tech platforms lower the cost of customer acquisition and trial (impacting brand loyalty) and increase access to both — a continuous stream of new products, as well as the information required to make the right choice — would distribution continue to be as valuable, or would most distribution-first platforms need to move to manufacturing to create a ‘product’ moat?
3. Centralization vs decentralization: While ‘power to the people’ is a compelling rallying cry and ‘trustless business models’ make a lot of theoretical sense, I’m still unable to reconcile this utopian future with the historical evidence of how humans have organized themselves. Everyone wants the upside, but very few are ok with taking risks. Everyone wants authority, but very few are comfortable with the accountability and responsibility that comes with it. Concentrated economic gains have existed to compensate for this concentrated cost of potential failure. How do decentralized organizations work in the face of varying risk-reward calculus-es (calculi?) and the impossibility of attaining consensus in the early stages of building a company? Why would long-term incentives i.e. tokens gain higher traction than short-term ones i.e. cashbacks with a majority of the population? This is likely an overtly simplistic representation but these are pretty fundamental questions that I find hard to wrap my head around.

These aren’t questions that will have clear answers anytime in the near future. While my current leanings might seem apparent, my conclusions are anything but. If there’s one thing I’ve learned about investing^^, it is to challenge the ‘obvious’ narrative, to ruthlessly double-click every assumption until you find a commonly accepted belief that simply isn’t true. Every ‘universal’ truth is only valid within the confines of its context and it’s really the edge cases where history (and a lot of $$$) is to be made. Here’s to more questions in 2023!

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^^ It’s a toss-up actually, between what is written above and the fact that intellect without a risk appetite is worth very little.