Naturally our Twitter feed drops hints towards the topic of our next post, in this case we’re focused on predicting the future. We’ll always disclose our sports/political bets before we place them so no worries there. Instead. This post is going to act as a framework for predicting the future. This is important for anyone who wants to start a Company since you need to start the product when the market is hot and if you start too early you might be wasting your time. It’ll get interesting fast and we’ll start with the biggest way to predict the future and work backward in time.
Using Imagination to Form the Base Layer
People say they are not able to imagine the future and we disagree. It really isn’t difficult to predict the future on a 100 year or 200 year basis. Why do we say that? You can make the comments and people will agree since a lot of the answers are obvious. Remember, since this is the starting point, we’re using the future to represent many years forward. Imagine an episode of the Jetsons for example, that is a good way to think about the starting point.
If we project out that far a lot of things no longer seem to be viable. We’ll name a few: cash transactions, credit cards, driving in old vehicles, taking public transportation that goes 60mph at max speed, gasoline based cars, multiple business day delivery times, vast majority of manual task such as manufacturing, rooftops not being used for solar energy, so on an so forth. The funny thing is smart and the regular people will have to acknowledge the vast majority of the items on this quick list are true. That’s why we think it’s actually quite easy to predict far out in the future. To be more specific we’ll even tie all the items above into how it will work going forward.
Transactions: It is actually quite crazy that we have to pay 10% or so just to use a different currency. Sure there are some cheaper ways to do it but you’re still going to have to pay a nice chunk. In the future, no matter what it is called, there should be a global standard currency to get rid of all of this inefficiency. To make sure we are talking about many years in the future it could be a crypto currency or we may call it something else. Essentially though, in the future the transaction costs need to go away first. After that we’ll see how it shakes out. This alone will improve our lives in many ways because anyone who has done a cross border transaction knows it can take several days for the recipient to receive payment.
Cash and Credit Cards: This is a ridiculous system. First of all the money can be faked and transaction fees on credit cards of 1-3% or so is an enormous drag on efficiency. Just can’t see it many years in the future. Maybe we use cell phones and we don’t use crypto currencies, but there is just no way we will be using these antiquated items. Every time we have to pay with cash or credit cards we laugh since we know it’s eventually going to go away. The “security chip” actually made everyone lose time and the only value in using cash is when you’re trying to get out of a crowded bar quickly (ideally every transaction in the future is done with a digital tap/send even if it’s done using credit!). Don’t even get us started on physically changing paper into another type of paper, at maximum a digital currency would be used and that would be the only transfer into paper (and it would be done only once with practically no costs).
Delivery: Look around at the insane amount of traffic (major cities such as LA are big eye sores). This is largely because we have a lot of vehicles with a single driver going to the exact same location. It is also because people make a ton of mistakes and you have a pretty high chance of dying every time you get into a car. Unsurprisingly people are not good drivers! Self-driving taxis, rapid speed trains, etc. will be developed. This will create less congestion and allow for faster delivery times. Then you have the use of drones and other small flying objects to help aid in delivery.
Robots Over Child Labor: One of the biggest complaints is that “China has all the manufacturing jobs”. Well realistically it is child/cheap labor putting together those $1,100 iPhones (no one really wants to be putting together iPhones). Once we can get robots to do the entire process we’re going be in much better shape since you won’t need to manufacture in China anymore. You can put the robots practically anywhere (they won’t complain). All of these low quality manual tasks will go away (improving society long-term). We can see the removal of manual tasks when we look at Amazon’s new stores that allow for zero checkouts (simply pick up the product and walk out). This is yet another example of removing manual tasks that were inefficient. The workers should move on to higher level positions.
Energy: While we may use some oil here and there, it just doesn’t make sense to waste all of the energy we currently have. Imagine if all the rooftops in Miami were set with solar panels… Yeah we would exclude the roof top night-life of course! That said the amount of additional energy we have would be enormous. Ideally you won’t need to be paying PG&E bills ever again, as alternative energy resources eventually solve the problem and improve efficiency as well.
Vertical Farms: Putting all of these items together it would also make sense that we see vertical farming in the future. If you have the ability to create farms that are no longer limited by the square footage of the land, your upside is enormous. Drones could easily harvest the food 200+ feet up from the ground, robots could help organize all of it and the entire process is fueled by solar energy. Again. While this may not be the exact way that it works, the point is still clear. In the future, solutions will be found.
Work Backward a Few Decades
Now that the base-layer is set, we have a good idea of what the future will look like. Now all we have to do is work backward. If this is what the future will look like then we need to ask ourselves, “how do we get there”. Imaging a world where you don’t have to drive, don’t have to worry about exchange rates and don’t have to worry about energy consumption is quite a leap forward. Take a step back and ask “what is the first shoe to drop”. This is the best way to explain it. All you’re looking for is the first step in the process that gets us all the way to the extreme end.
Similar to the prior section we’ll lay out some clear predictions on some of the first shoes to drop. This has much more variability of being wrong than the prior one since predicting the first shoe is not easy. For fun lets go with all of these items: 1) removal of pure payment services such as Money Gram, 2) self-driving taxi services, 3) removal of digital advertising positions, 4) removal of human manufacturing processes, 5) removal of branch bank offices, 6) decrease in need for human military soldiers/personnel and 7) infused technology and humans.
Payment Services Removal: When you look at the ability to send payments the most egregious fees and costs come from international and cross border transactions. They are ripe for disruption since there is no real operating costs but computer entry and a signed piece of paper (which will eventually be digital signatures by the way). Naturally this would be the first shoe to drop when compared to low transaction fees of a point or two (credit cards). For fun we’re pretty confident in this one being the first shoe to drop from a transaction perspective since you can calculate the profit margins. The highest profit margin arena has the biggest target on its back (this is a generalization, yet useful when trying to figure out where to look).
Self Driving Taxis: This one is difficult. We’re going with this as the first shoe to drop from a driving perspective because we essentially have a “global” taxi system called Uber at this point in time. This directly contradicts our point on profit margins since Uber is losing money. And. We’d call it a scale game issue. In the past, new tech would be reserved for the rich (such as the first cell phone) and that would be the starting point. In this case we think there are huge hurdles to overcome from a regulatory perspective (need to prove it is safe), once that hurdle is jumped the winner would likely prefer a taxi service over a one time sale. After all, wouldn’t you prefer to own all of the trips in the future versus single one time item sales to rich people buying a self-driving car (we know we would!). In this situation we’re betting on the business model over the margins.
Removal of Digital Advertising: We’re biased since we’re plugged in here but it also makes sense. People are making a lot of money by creating ads tailored to specific groups of people (age ranges, genders, ethnicities etc.). It actually falls into both categories: high margin and high scale. As soon as deep learning (AI – insert buzzword), is accurate these positions will no longer be useful. Imagine an interactive sales page that adjusts based on who is reading it. That’s the future. You’ll see increased engagement, sales numbers and decreased costs since “costs” walk on two legs. We wouldn’t be trying to build a career working for someone as a digital marketer, instead learn how it works and get ready to use programming to do it for you. Besides. If you can recognize good ads you’ll know which software/AI service to buy.
Removal of Manufacturing: To be clear here, we still think white collar positions that can be automated (Digital marketing example) is going to be first. This is because of margins again. The second one will likely be low end manufacturing due to scale. No reason to hire thousands upon thousands of people to do a manual task. Since this was highlighted up front we’ll end here.
Bank Branch Offices: In an ideal world there wouldn’t be ATMs. But. We think the bank branch office goes first. Assuming the way this develops is a digital payment system that automatically can be pulled out for money (like an ATM) then it wouldn’t be the first shoe to drop. The first shoe to drop would be branch offices since there is practically no need for them. You’ll be able to do the following from your home in your pajamas: 1) send wire transfers, 2) apply for mortgages, 3) deposit anything that isn’t physical cash, 4) open accounts and more. Essentially there is no real reason for a bank branch office, it has high overhead (ding ding margins!) and it has a lot of employees doing redundant tasks (ding ding similar to digital advertising/manufacturing). This should be one of the first shoes to drop.
Decrease in Military Personnel: As we move forward, robots and drones will be used to fight our battles. There is no reason to line a bunch of humans up and use them to fight our wars. It’s dangerous and it will be inefficient as well in the future. We’re a long way from this but we should see a decline in the need for “front line” type individuals in the future. It’s a good thing from that standpoint and also a bad thing from a terrorist attack standpoint. The bad news is that attacks in the future could be fast and brutal with limited abilities to defend ourselves. Nonetheless, we’ll be using bleeding edge technology to help save lives and this would certainly be on that list.
Infused Humans: It sounds like science fiction but it already exists. It is possible to install chips into a human being and have the chip control the person’s physical movements. This is an insane development. Essentially you could be able to talk to another person using “brain waves” in the future. This also means we’ll be alerted when we may have a heart attack or a stroke as well. The sky is really the limit but it is coming. Infused humans will have polarizing effects that are both positive and negative.
Pausing for a Second: When looking at all the paragraphs above our suggestion in an overarching step by step is as follows: 1) find the high margin businesses, 2) find the most scalable way the change would show up, 3) target high expense items – like bank branches and 4) focus on life saving items. If you follow these four items you’ll usually find the end-game for a new technology breakthrough. While people believe that Companies are always looking to “cut the little guy” they are really looking for the best way to improve margins and efficiencies at scale (ever notice middle level managers always get fired in recessions, now you know why). This isn’t a guarantee in terms of finding a good answer but it’s a good starting point. Also. We skipped the energy efficiency piece. This is because we really can’t figure out how it’s going to develop, we just know that relying on one single massive company for all energy is a bit ludicrous as it stands today. Maybe it’s solar maybe it isn’t we’ll see (hopefully Elon Musk figures this out soon!)
Work Backward to the Next Decade
If it was 2008 it would not have been controversial to say that marijuana would be legalized in many states. In fact, practically everyone knew this which led to people moving to Las Vegas for example. This was simply a well-known “future” opportunity. At this point (2018) we’d say the most obvious one is socioeconomic disparity. If were to choose anything that has nothing to do with AI, machine learning, crypto currencies, blockchain, drones, marijuana, avocado toast etc. it would be “socioeconomic disparity”. That’s probably the biggest item to be aware of when we look at the coming decade. We’re not going to say that this is “good or bad” we’re simply saying that it is likely to happen. You have a student debt bubble with inflation adjusted wages going down while technology eats away at their jobs/careers (naturally technology is making the most money as this happens). If you’re interested in how to profit off this future, you can look at our book Triangle Investing.
This Brings Us To Today
Welcome to 2018. Since we can’t give away our paid stuff for free what we can do is give away the steps to ensure your future. Yes the classic tacky retirement type tagline “Are you on target to reach your retirement goals (ominous background music followed by plug for a Company)”. In all seriousness, there are quite a few things you can do to create a bright future even if you won’t be an amazing technology expert in the future. Here are the basic plans we’ve talked about.
Real Estate: This is the most common option since people need to live somewhere. Not going to change that any time soon. Also, if you know that income disparity will increase you should have a good idea of where to get started. You can either sell the expensive stuff (high priced real estate) or you have to make bets on demographic migration (like Texas and Florida) as the people in high expense cities get shoved out (NYC, San Jose, Los Angeles, San Francisco etc.). There is a big opportunity here and we mean today. All of our readers already know how we’re involved in this (more hands off) from an investment perspective.
Selling Experiences: This is another easy one, people are moving away from material goods and into spending on “experiences”. This is evident to anyone looking at Instagram. There are so many ways to “play” this side if you’re young and hungry that we don’t even know where to start. You could even create differentiated food companies where people go for the vibe and experience, see vegan fad, the fancy desert fad, the juicing fad and more. Another example would be crazy events like burning man, the outdoor EDM concert fad and extreme sports. This opens up an enormous market since you can make practically anything seem “cool”. All you have to do is put a new spin on it since that is where the disposable income will go.
Selling Only to the Ultra High-end: This is incredibly difficult (creating a new product in this market) so we assume you want to work for a Company. In that case if you get a choice only sell the high end item since it’s not going to go anywhere. The ultra-rich in our socioeconomic example are not going to care about a few extra thousand dollars on anything. This also creates job stability since ultra-rich people still buy this stuff when times are rough. Why? No one else can do it so it actually makes them stand out even more (goal of these items is to get attention).
Get Ready for the Shoes: As you’re doing one of the three above to make you money, you want to have an extremely good pulse on the shoes dropping. This is a way to significantly accelerate your net worth and future. For those that were working since 2004 or so, can you imagine being able to simply avoid (not even short sell) the 2008-2009 crash? You’d be worth a lot more since avoiding massive declines is even more valuable than your standard returns. At this point it is no longer “optional” to know nothing about technology and demographic changes. These two factors are going to drive large amounts of money to flow benefitting a small subset of the population (those that take the time to follow it).
Putting it Together: Every Q&A we get the same question “what would you do differently today”. It’s kind of odd because not much has changed and it has quite a while. The same strategy we used (Investment banking à sling items online à quit career when massively profitable) still works. You can replace investment banking and selling online and use any of the high level items we used above, the result will likely be similar (big difference being luck, timing and execution). The only thing we really would change is how we tried to scale. Your ability to scale is essentially tied to your knowledge and ability to execute which was lacking many years ago. Therefore, there isn’t much we’d change that worked 15-20 years ago but doesn’t work today. People just need to be more careful about which “sub-set” they specialize in (if you read the first section of this post it gives the answers to the sub-segments to avoid).
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