Andy Kessler

WSJ: Stock Picking Is Like Time Travel

https://www.wsj.com/articles/stock-picking-is-like-time-travel-11547412001

Tesla stock—bam! Apple —kapow! That sound you hear amid the market tremors is the future screeching back to the present, like the wail of the flux capacitor in Marty McFly and Doc’s DeLorean. Wall Street perfected this sort of time travel long ago: Successful investing is mostly about looking into the future and deciding what to pay for it today. But how do investors know where to look?

The equities side of Wall Street, including me, always writes off bond investors as automatons. Their business is straightforward: Bonds have a face value, maturity date and coupon. That’s it. The rest is math such as Macaulay duration, which is basically how long it takes to get paid back. Investors just guess future interest rates and the risk of default. How hard is that?

If only it were that simple for stocks. At its most basic level, the value of a company is the sum of all its future profits discounted back to today. But it’s tricky to pin down this value because the variables are all loosey-goosey: earnings, growth rate and a theoretical discount rate. Future earnings are at the whim of management, growth depends on the economy and industry trends, and the discount rate is based on inflation and that fuzzy thing called risk. In other words, every input to the value of stocks is elusive. That’s why stocks rise and fall by the minute.

It helps to think of stocks as having a focal length, like the lens of a camera, which is the point in the future investors are looking at. Stocks with long focal lengths have an area of high magnification, a smaller angle of view, and fewer things in focus. Amazon’s investors were willing to overlook low margins in the short term in exchange for a bountiful prize out there somewhere. A short focal length means investors don’t look too far and can see everything all in focus, warts and all, like General Electric . Stocks have a duration, but you can’t really measure it—you have to sense it, or feel how far out the market is willing to look. It’s the most confusing part of investing.

How far should you look? Typically—though things are rarely typical in investing—investors look between 18 and 24 months into the future and apply a price-to-earnings ratio on future profits. Today the market multiple is 16 times 2019 earnings, which is close to the average for the past several decades. Since 1990, forward-earnings multiples have been as low as 10 at the 2009 market bottom and as high as 26 in the 2000 dot-com boom.

But P/E multiples aren’t buy or sell signals.

Read the rest here.

WSJ: Where in the World Is Larry Page?

https://www.wsj.com/articles/where-in-the-world-is-larry-page-11546199677

Has anyone seen Google founder Larry Page? Me neither. He’s in the witness protection program of his own doing. Brilliant.

As you chill the champagne ending 2018, the only thing worse this year than owning bitcoin was being the visible face of corporate America, especially technology. It’s the year of the beleaguered CEO, with Facebook ’s Mark Zuckerberg being the poster child under the caption “Mamas, don’t let your babies grow up to be CEOs.”

Whenever I meet chief executives, whether they’re fresh-faced startup founders or grizzled managers of public companies, I remind them there are only two rules for being successful. The first is pretty easy: Don’t run out of money. Ever. Former General Electric CEO John Flannery now knows this. Elon Musk might be whistling past this graveyard again as Tesla’s batteries run low.

And the often neglected second rule of CEO success? Hire a solid No. 2—but not for the reason you think. Sure, a competent operating person would be nice, to offload some of the drudge work. But the real purpose is to serve as a heat shield—someone to roll out front when the villagers with torches and pitchforks show up at your door. Bluntly, someone to take the blame when things go sideways, or even fire so your board doesn’t fire you. What could be more important?

In October 2015, Sundar Pichai became CEO of Google. But really, he is CEO in name only. Mr. Pichai runs a division of Alphabet, a holding company that contains Google (which accounts for 99.6% of Alphabet’s revenue) and a bunch of hemorrhaging “Other Bets.” Mr. Page is CEO of Alphabet, a heat shield between himself and trouble.

It was Mr. Pichai who fired James Damore in 2017 for writing the “Google’s Ideological Echo Chamber” memo.

Read the rest here.

WSJ: Inner Peace Is a Booming Business

https://www.wsj.com/articles/inner-peace-is-a-booming-business-11544991939

California is weird—and full of contradictions. On the one hand, California as a country would have the world’s fifth-largest economy. On the other hand, state Senate leader Toni G. Atkins is doing her best to diminish that wealth by pushing a campaign to ban fossil fuels. Despite the drama, a 2017 WalletHub survey concludes that 12 of the 20 happiest American cities are in California. Hmmm. Maybe it’s because California is home to an endless expanse of spiritual retreats—a booming enlightenment industry.

You may know of such places, promoting harmony among mind, spirit, body and earth. They have rooms filled with crystals to tune your vibrational frequency, Himalayan-salt therapies high in negatively charged ions, and meditation mazes with a speaker blasting “Ommmm” from its center. On your way to happiness are large doses of xylophonic-oboe-harpy new-age music, root-vegetable dining, cozy chakra chambers and, of course, handwritten signs with Eckhart Tolle-like spiritualist scribblings everywhere. “You have only one life to live, but if you do it right, you’ll only need one.” Insightful! And “Let go of your material possessions.” Conveniently, the Ranch at Live Oak Malibu takes care of that for you. One week starts at $7,800 a person—I hope that includes bottomless cups of bearberry herbal tea.

The famous Esalen Institute, left over from the culty ’70s, offers more than 400 workshops on topics from cosmology to other shams—er, I mean “shamanic rituals.” In 2013 Esalen brought in almost $18 million in revenue with margins rivaling some software companies.

Follow the money. According to Marketdata Enterprises, meditation is a more than billion-dollar business. Deepak Chopra is the meditation master and mogul, offering books, seminars, videos and several California-based “Perfect Health Retreats” where you can get instruction in primordial-sound meditation.

I heard Mr. Chopra pitch one of his more than 100 books at a conference I attended. His spiel was something about “your cosmic self.” He went on about the vastness of time and space and then stopped and asked attendees, “Shall I teach you how to meditate?” “Yes!” they roared. “OK, close your eyes, relax,” he said—then launched into a bunch of stuff about rotating galaxies and interstellar motion and karma. I started chuckling, because all I could think about was my favorite bathroom-stall graffito, “My karma ran over your dogma.” I opened my eyes and saw a room in a trance. Then Mr. Chopra caught my eye and I thought I saw him crack a tiny smirk. Maybe that’s how he achieves his own moments of zen.

Read the rest here.

WSJ: Life as We Know It Turns 50

https://www.wsj.com/articles/life-as-we-know-it-turns-50-1543786471

San Francisco in 1968 was littered with flower children, free love and dreams of utopia encapsulated in Timothy Leary’s exhortation: “Turn on, tune in, drop out.” How wrong that was! But out of this purple haze rose that year’s Joint Computer Conference, where an assembly of geniuses wearing white short-sleeved shirts and pocket protectors convened 50 years ago this week. The event shined a guiding light on the path to personal computing and set the modern world in motion.

On Dec. 9, 1968, Doug Engelbart of the Stanford Research Institute presented what’s now known as “The Mother of All Demos.” Using a homemade modem, a video feed from Menlo Park, and a quirky hand-operated device, Engelbart gave a 90-minute demonstration of hypertext, videoconferencing, teleconferencing and a networked operating system. Oh, and graphical user interface, display editing, multiple windows, shared documents, context-sensitive help and a digital library. Mother of all demos is right. That quirky device later became known as the computer mouse. The audience felt as if it had stepped into Oz, watching the world transform from black-and-white to color. But it was no hallucination.

At the time, the data line Engelbart used for the demo probably cost more than 10 grand a month. And he needed an amazing amount of not-yet-invented science to back up his vision: The first internet transmission wasn’t sent until the next year, when a message was sent from a UCLA lab to a terminal at the Stanford Research Institute. The integrated circuit was invented 10 years earlier, but Engelbart would be considered a false prophet today if the microprocessor hadn’t come along a few years later. He saw where the technology was headed and helped to hurry it up.

The coolest thing about this story is that, starting 20 years ago, Doug Engelbart was my next-door neighbor. We would invite him to our parties and get invited to his. At his place I got to meet the tech hall of fame: In the living room I met Ted Nelson, who conceptualized hypertext, and I met the inventor of the disk drive in his kitchen.

One of Engelbart’s biggest influences was Vannevar Bush’s 1945 essay, “As We May Think,” which envisioned a “memex” machine—a portmanteau of “memory” and “index”—that would enhance human cognition. While I chased my kids’ errant basketballs in his backyard, Doug would tell me about this sort of “human augmentation,” arguing that computer science was developing in ways that would aid humans, not replace them. Networks of humans and computers would create a “collective IQ.” He would interlock his fingers to make sure I got the point.

So what have we learned in 50 years?

WSJ: Anything Good Takes Exactly Five Meetings

 https://www.wsj.com/articles/anything-good-takes-exactly-five-meetings-1542578334

I was headed out of the office with a stack of papers I spent all week preparing. My boss stopped me at the door and asked, “What are you doing with all that junk?” I was trying to sell a company. “It’s the first meeting, right?” Yeah. “Don’t be an idiot. Leave all that stuff here.” But . . . “Don’t dump it all now. You need something to talk about the next few times you meet.” I looked confused. “Listen,” he told me, “everything good takes five meetings.”

I was mad, but he was right. Everything—and I mean everything—takes five meetings or at least five touch points. Deals, interviews, promotions, club membership, dating.

They have something you want, and you have something they want. But you can’t just come out and ask for it. Like poker, you never lay all your cards on the table. Reveal them slowly. Sadly, no one has the patience anymore.

We were all taught by Blake, Alec Baldwin’s character in “Glengarry Glen Ross”: “A-B-C. Always be closing.” As he berates an entire Chicago real-estate office, he brags, “I can go out there tonight with the materials you got, make myself fifteen thousand dollars! Tonight! In two hours! Can you? Can you? Go and do likewise!”

Two hours? That’s so 1992. A recent Comscore study shows millennials have an attention span of five seconds. That’s less than goldfish. (Sounds about right.) Everyone’s in such a hurry these days. Likes, 1-click buying, retweets, Amazon Dash order buttons, binge watching, keyless ignition.

Slow down!

WSJ: Big Brother Isn't Watching You

https://www.wsj.com/articles/big-brother-isnt-watching-you-1541361909

Hardly a week goes by that I don’t run into people who, when I ask how they are doing, tell me they’re worried about authoritarianism. Living in California, my impulse is to ask if they’re worried about the state’s one-party rule. But before I can get that out, the complaints begin: Trump, Facebook , Google, police state. Uh boy. Pot-dispensary paranoia?

This fascist-behind-every-tree thinking isn’t helped by the tech industry. Apple CEO Tim Cook told privacy commissioners in Brussels last month that personal information “is being weaponized against us with military efficiency. Today, that trade has exploded into a data-industrial complex.” Mr. Cook was poking at Facebook and Google and calling for more regulation.

In high Silicon Valley style, former Facebook security executive Alex Stamos took to Twitter to criticize Mr. Cook’s hypocrisy: “Apple uses hardware-rooted [digital rights management] to deny Chinese users the ability to install” virtual private networks. That means iPhone users in China can’t avoid their government’s censorship and surveillance. Fear mongers in the U.S. worry about authoritarianism, but in China it’s real. Anyone caught resisting there gets a mark on his not-so-proverbial permanent record.

In 2014 China began rolling out a Social Credit System, aiming for nationwide implementation by 2020. Like the FICO financial-credit system in the U.S., scores come from hundreds of data sources, but in this case those sources include more than 200 million cameras that monitor citizens’ behavior. Debtors end up on blacklists, unable to take trains or stay in luxury hotels. Some who have refused to join the military have been locked out of universities.

There are also “red lists” of good citizens, who are entitled to perks like skipping lines at ferries and not paying a deposit to rent bikes. Every man, woman and child must adapt to the government’s social pressure—or else. As the Dead Kennedys sang in 1979: “It’s the Suede-Denim secret police / They have come for your uncool niece.”

Is authoritarianism a rational fear in the U.S.?

WSJ: A Universally Bad Idea

https://www.wsj.com/articles/a-universally-bad-idea-1540147422

Bad ideas just won’t die. Ronald Reagan’s goal was to “leave Marxism and Leninism on the ash heap of history.” But they keep coming back, albeit in different forms. Of today’s bad ideas—from net neutrality to open curriculum and living wages—the most dangerous is the universal basic income.

For twisted reasons, Silicon Valley, the embodiment of meritocracy and incentives, thinks universal basic income will be the next great economic force. Facebook co-founder Chris Hughes is helping to fund a UBI pilot program in Stockton, Calif. He even wrote a book about the idea—something about 1%-ers paying money via tax credits—hardly original.

He’s not alone. Barack Obama has recently expressed interest in the idea. So have Bill Gates, Richard Branson, Mark Zuckerberg, Elon Musk, Marc Benioff and others in Silicon Valley. Why? I figure it’s their misplaced guilt about patriarchal dominance over workers displaced by automation. That’s a triple crown of bad excuses.

The enthusiasm seems infectious. In July, Chicago Alderman Ameya Pawar told the Intercept, “We need to start having a conversation about automation and a regulatory framework so that if jobs simply go away, what are we going to do with the workforce?” It wasn’t a long chat. This summer, Mr. Pawar introduced legislation for a pilot program that would give $500 a month to 1,000 families. Think of it as a new version of walking-around money. Never mind that Chicago can’t even afford to fund its public-employee pensions.

It sounds eerily similar to startup incubator Y Combinator’s Basic Income Project Proposal. It’s the harebrained idea of the organization’s president, Sam Altman. A thousand lucky folks would receive $1,000 a month for as long as five years. Another 2,000 would form a control group and might get $50 a month for their troubles.

WSJ: Think You’re Smarter Than Your Boss?

 https://www.wsj.com/articles/think-youre-smarter-than-your-boss-1539546566

Oct. 16 is National Boss Day, a Hallmark holiday if there ever was one. It’s a funny holiday, because almost all employees hate their bosses or at a minimum think they can do the job better. CEOs are especially reviled—slightly above cable installers and just below lawyers on the Rodney Dangerfield “no respect” totem pole.

Popular opinion insists that chief executives are greedy: CBS’s Les Moonves paid himself $69 million each of the last few years to air “NCIS” reruns. Or heartless: Amazon’s Jeff Bezos paid meager wages until a tight labor market forced him to raise them. Or scheming: Mark Zuckerberg and Facebook know our wants and desires. Or truth-challenged: Investors in Elizabeth Holmes’s Theranos learned that the hard way. Or plain clueless, like Lehman’s Dick Fuld and just about every other CEO.

But where would we be without them? Despite an industry of business schools, management books and seminars, nobody can teach you how to be an effective boss, leader or entrepreneur. They’re all self-taught. I’m always impressed when one is actually successful.

Most of investing is analyzing management. When I ran an investment fund, my partner and I would visit a dozen-plus CEOs a week in their offices. One rule of thumb was that if they closed their door, it was because they didn’t want their staff to catch them lying to us. Silly, I know, but it worked more often than you’d think. We’d grill them on their organization—how many people report to them directly, how soon after the quarter closes do they get accounting numbers, who signs off on contracts? The answers didn’t mean much; we were more interested in how the CEOs answered—confused, confident or hubristic—and seeing how good a handle they had on their teams.

We learned that running a company is like driving a tank down the middle of the road, except there are no windows so you can’t see the road. There are dozens of levers and knobs to adjust the tank’s direction. Your team works together to drive this machine as efficiently as possible with the fuel (capital) on hand. You’re doing fine until you sense a giant tree right in your path, and you make a million small decisions in short succession as your team scrambles to adjust the levers and knobs to get around it safely. Oh, and unknown to you, a few members are plotting a mutiny to oust you.

It’s not easy.

WSJ: Lessons From an ’80s Trade War

https://www.wsj.com/articles/lessons-from-an-80s-trade-war-1538950192

An extra two grand for a Harley Hog because of steel tariffs? We can’t be wimps in the world of trade, but tariff wars are never good. I would know: I was in the middle of one. In the mid-1980s, when Donald Trump was in casino mode and hosting prizefights, the Japanese were knocking out U.S. memory-chip makers.Hitachi instructed salesmen to “quote 10% below their price. If they requote, go 10% again. Don’t quit until you win.” The company later claimed it was never official policy, but the Japanese controlled 90% of the market for some crucial chips. Something had to be done, right? Well, no. Bear with me.

In early 1986, President Reagan’s Commerce Department cited Section 301 of the Trade Act of 1974 and ruled that the Japanese were selling chips below cost. The administration threatened dumping duties of up to 146% on Japanese memory chips. Never mind the oversupply and industry recession. To avoid duties, Japan came to the table and signed an agreement to limit exports and increase U.S. market share in Japan. Sounds like the current tariff tiff with China?

Here’s where things got weird. The chip recession continued, and the Japanese didn’t live up to the agreement. At the time, I was a 20-something Wall Street analyst, way over my head, running around the world tracking all this. In early 1987, I figured out the U.S. government was going to do something big: impose duties on computers, TVs and other products that use chips. I alerted every investor who would listen, but no one seemed to care. At a boxing match I met a reporter from the New York Times. I laid out the whole story to him. (Sorry, I didn’t know anyone from the Journal at the time.) He told me it wasn’t his beat but he’d look into it.

Sure enough, the Times ran a front-page story quoting me. And another the next day. I was sitting in my office, probably playing Tetris on my computer, when a producer from Ted Koppel’s “Nightline” called. I remember it went something like this: “I know you are very busy, but I was hoping we could send over a camera crew to talk about dumping.” I didn’t know much, but I was the expert! I thought of a good quote before they came. The interview lasted 30 minutes, but one line made it to national TV: “We can’t be wimps in the world of trade.”

I still believe that’s true, but duties and tariffs are a fool’s game. Memory chips are a notoriously low-margin commodity business. Intel got out of the memory business. So did AT&T . I’m still not sure why it was making chips in the first place.

Getting out of the dynamic random-access memory market, which Japan was dominating, was the best thing that ever happened to U.S. semiconductor industry.

WSJ: The Company Implosion Pageant

https://www.wsj.com/articles/the-company-implosion-pageant-1537724159

Minimal sales, an unproven business model, huge losses—and a multibillion-dollar valuation amid a booming stock market. Sound familiar? Dozens of companies could fit this description today. But I’m thinking about Webvan, the online grocery company that went public in November 1999. Its leaders scaled a flawed business until it failed, blowing through $830 million and declaring bankruptcy less than two years after its initial public offering.

Webvan wasn’t alone. Who can forget Naveen Jain, CEO of directory company Infospace? He declared in 2000: “The nonbelievers will be converted when we become a trillion-dollar company.” The stock peaked at around $1,300 a share in March 2000. It then fell to about $3 two years later as investors soured on the company amid accounting irregularities.

There are plenty of great companies being created today, but it’s late in the cycle. Venture capitalists are funding questionable businesses they pray will scale. It’s hard to call the absolute peak, but the brew is frothy. As Groucho Marx in “The Cocoanuts” said of Florida real estate: “You can have any kind of a home you want. You can even get stucco. Oh, how you can get stuck-oh!” Who will be this cycle’s Webvan, eToys, Pets.com?

Honorable mention: Tesla. Forget Elon Musk’s $420-a-share buyout tweet. Unlike Google or Facebook —which deliver virtually zero-marginal-cost services—Mr. Musk actually has to make cars. Many Teslas still appear to be made by hand. Tesla lost $718 million last quarter and had negative $1.8 billion in cash flow through June, with debt due soon. Cash is available, but at what cost?

Harry Lange, who ran Fidelity’s Magellan Fund, once told me his rule of thumb for valuation: Divide a company’s market value by 10 and see if it eventually can make that in annual net income. Tesla is worth around $50 billion. To make $5 billion, it has to produce and sell a million cars a year with a $5,000 after-tax profit. That’s a stretch, especially with hundreds of competing electric-car models already announced.

First runner up: WeWork. 

WSJ: Lehman: Political and Personal

https://www.wsj.com/articles/lehman-political-and-personal-1536524375

Lehman Brothers filed for bankruptcy on Sept. 15, 2008—left to twist in the wind by Treasury Secretary Hank Paulson. Ten years after, is Wall Street safe from another financial meltdown? Banks, pulling in record profits, appear to be in pretty good shape. But something seems wrong, as if the lessons of the financial crisis already have faded.

That’s only an intuition, so I called someone who would know—the former CEO of Lehman Brothers. No, not Dick Fuld, one of the public faces of Wall Street’s collapse. Instead, I talked last month with Bryan Marsal, of Alvarez & Marsal, who led Lehman for the three years after its bankruptcy. 

I asked Mr. Marsal why Lehman was allowed to fail and what lessons were learned. He responded with two words: political and personal. What made business or economic sense wasn’t considered. Mr. Marsal explained that Mr. Paulson “had no standing in the Lehman bailout decision but seemed to dominate the entire process.” The Bush administration already had bailed out Bear Stearns five months earlier, and Fannie Mae and Freddie Mac the week before. Using taxpayer money to bail out perceived Wall Street fat cats had become very unpopular.

Why was Mr. Paulson channeling Ralph Kramden? The Treasury secretary, Mr. Marsal thought, “should have taken a back seat and let the pros from the Federal Reserve drive the bus.” Plus, as a formerGoldman Sachs CEO, “Paulson simply didn’t like Dick Fuld, and he had run out of patience.” It didn’t help that in 1998, when Long-Term Capital Management needed bailing out, Wall Street got together and everyone kicked in, except Mr. Fuld’s Lehman.

On Sept. 9, Mr. Paulson told a group of CEOs about Lehman, “There’s no government money here.” Shortly thereafter, taxpayer money went into Goldman Sachs, Morgan Stanley , Citigroup and others. It seems Fed Chairman Ben Bernanke grabbed control of the bus from Mr. Paulson after the almost instant contagion and carnage from the Lehman bankruptcy. Withholding a bailout was a mistake. A subsidized merger or an orderly bankruptcy would have made more sense. 

Why is this so important? Today there is nothing stopping the political and the personal from trumping rational economic decision-making in the next crisis. 

WSJ: The Chip That Changed the World

 

https://www.wsj.com/articles/the-chip-that-changed-the-world-1535311622

Sixty years. But how much longer? In 1958 Jack St. Clair Kilby —from Great Bend, Kan.—created one of the greatest inventions, a great bend, in the history of mankind. Kilby recently had started at Texas Instruments as an electrical engineer. Most everyone left on a mandated summer break, but he stayed in the lab and worked on combining a transistor, capacitor and three resistors on a single piece of germanium. On Sept. 12, he showed his boss his integrated circuit. At a half-inch long and not very wide, it had ugly wires sticking out, resembling an upside-down cockroach glued to a glass slide.

In January 1959 Bob Noyce, another Midwesterner, was keeping busy at Fairchild Semiconductor in Palo Alto, Calif. He deployed a photographic printing technique—the planar process, which uses glass as insulation—to deposit aluminum wires above silicon transistors. Without the messy cockroach-leg wires, the integrated circuit, or chip, became manufacturable.

In March 1960, TI introduced the Type 502 Flip Flop—basically one bit of memory for $450. A few weeks later, Fairchild announced its own. The U.S. Air Force used them in 1961. So did new computer companies and even NASA in its Apollo rockets. One bit turned into four, then 16, then 64. This started the shrink, integrate, shrink, integrate, rinse, repeat motion that’s still going strong today. This relentless cost decline creates new markets out of nothing.

In 1965 Fairchild research chief Gordon Moore wrote a now-famous article for Electronics magazine, “Cramming More Components Onto Integrated Circuits.” Today known as Moore’s Law, the article’s thesis was that chips would double in density every 18 to 24 months. By 1969, the 3101 64-bit memory chip shipped at $1 a bit. We’ve come a long way. Your iPhone probably has a trillion bits at picocents a bit. Kilby received the Nobel Physics Prize in 2000 and credited Noyce, who had died a decade earlier, in his acceptance speech. You have to wonder what took the Nobel Committee so long.

Integrated circuits are the greatest invention since fire—or maybe indoor plumbing. The world would be unrecognizable without them. They have bent the curve of history, influencing the economy, government and general human flourishing. The productivity unleashed from silicon computing power disrupted or destroyed everything in its path: retail, music, finance, advertising, travel, manufacturing, health care, energy. It’s hard to find anything Kilby’s invention hasn’t changed.

Now what?

WSJ: Warner’s Plan to Ruin the Internet

https://www.wsj.com/articles/warners-plan-to-ruin-the-internet-1534110172

Virginia Sen. Mark Warner made millions in the murky world of government-issued cellular licensing. He parlayed his riches into a governorship and U.S. Senate seat. Today, from his perch as vice chairman of the Senate Intelligence Committee, Mr. Warner has produced a 20-point plan to take on Facebook ,Google and other tech giants with “potentially insuperable competitive advantages over new entrants.” Insuperable! Of course most of his proposals would end up locking the big guys in place while freezing innovation.

No matter. The shallow-analysis pundit class jubilated. Mr. Warner and Democrats could “crack down on Big Tech,” “tame social media,” and “knock Silicon Valley into shape.” Woo-hoo. The cheerleaders’ only complaint is the lack of a 21st proposal: breaking up the tech giants. Still, Mr. Warner wants to show that techland has gotten too big for its breeches and that the center of power radiates from the Hill—not the Valley. But he forgets that there’s one market to rule them all.

Good luck getting through Mr. Warner’s 23-page report. It’s filled with impossible-to-implement mandates (identify bots), silly bromides (addressing the safety and security of at-risk individuals), and dangerous power grabs (updating Section 230 of the Communications Decency Act). If even a handful of these proposals become law, faceless bureaucrats would control the internet instead of energetic entrepreneurs. No one would win under this new internet. And compliance costs would be so massive that no new startups would emerge.

Mr. Warner appears to have a John Kerry-like admiration for the power of European Union regulators. Europe’s stringent General Data Protection Regulation was one of the biggest power grabs in recent history and has lighted a fire under U.S. legislators hoping to emulate it. It would be a huge mistake. GDPR almost assures that no new innovations will come out of Europe.

And the Continent is already feeble—of the top 100 global technology companies, only 13 are in Europe. Bet you can’t name three. Heck, half are local consulting companies that shouldn’t even count. Why set up a company in Europe when the rules are so bent toward excess expense and certain failure? An American GDPR would turn the U.S. into Europe, making America’s technology industry french toast. But that’s one of Mr. Warner’s goals.

Consider the sop to lawyers.

WSJ: Google’s Anti-Pentagon Decision Will Kill More People

https://www.wsj.com/articles/googles-anti-pentagon-decision-will-kill-more-people-1532889656

Earlier this year more than 3,000 Google employees signed a letter to chief executive Sundar Pichai demanding the company halt work on the Defense Department’s Project Maven, which applies algorithms to warfare. The disgruntled employees also wanted their boss to pledge “that neither Google nor its contractors will ever build warfare technology.” In June the company announced it would not renew its Project Maven contract. This is incredibly shortsighted and will increase the likelihood of war and civilian deaths.

Past warfare was described primarily by tonnage and throw weights, because precision was almost nonexistent. But ever since humans started dropping bombs out of airplanes, they’ve been aiming for more precision.

On June 15, 1944, a squadron of 75 American Superfortress B-29s left China to destroy the Imperial Iron and Steel Works in Yawata, Japan. The site manufactured about a quarter of Japanese steel at the time. The 47 bombers that made it to Yawata dropped more than 365 bombs. One accidentally destroyed a power house more than a kilometer away from the complex. The rest missed.

It wasn’t for lack of trying. In 1943, behavioral scientist B.F. Skinner demonstrated new guidance technology to track simulated Japanese destroyers. He then revealed that inside the nose cone of the bomb were three pigeons trained to peck away at silhouettes of Japanese warships. But real technology advances. Wartime news reports claimed the highly complex Norden bombsight could hit a pickle barrel from 20,000 feet above. But in 1944 bombardiers recorded that “75% of Norden bombsights fell short of specifications,” missing by more than 300 feet.

For the rest of the war, the city of Yawata was firebombed in an unsuccessful campaign to destroy the iron and steel works. Notably, it was a target on Aug. 9, 1945, three days after Little Boy was dropped on Hiroshima. A B-29 carrying the atomic bomb Fat Man made runs over Yawata, but thick smoke from the ground made targeting impossible, and the bombers headed to the next target on the list, the Mitsubishi Steel and Arms Works in Nagasaki. The bombardier, Capt. Kermit Beahan, used a Norden bombsight to target the factory. He wasn’t even close—off by almost two miles. Horseshoes and hand grenades!

WSJ: Will Bitcoin Save Us From Google?

https://www.wsj.com/articles/will-bitcoin-save-us-from-google-1531680720

The hardest part of investing is knowing when to sell a stock. When you do buy one, always have an exit strategy—not for right away, this quarter, this year or even the next few years. But constantly question how soon the seeds of destruction will bloom at your company. I guarantee they’ve been planted already.

Let’s probe Apple , Facebook , Amazon and Google, because they make up about 12% of the S&P 500—while representing almost all of the stock-market’s gains this year. Yes, calls to break them up persist. But that actually could increase their enterprise value based on the sum of the parts. Beyond rambunctious regulators, what could go wrong?

Apple’s problems already have become visible. Smartphones are now like radial tires. Everyone has one and they don’t wear out. Phone franchises are fickle. Ask Motorola or Nokia , if you can find them. One near-term sign of distress: Marketing tech products with splashy colors, as Steve Jobs did with tangerine iMacs almost 20 years ago, means the fun part is almost over. Apple hopes to make it up in services, but Google leads in maps, Netflix in video, and Uber in transportation. Apple is falling behind in most other growth segments. The company’s destructive seed is its desperate need for a new product category. It won’t be watches.

You might think Facebook’s biggest problems are privacy concerns, which have shown up everywhere but the company’s finances. The media cares about privacy. Users? Not so much. Facebook stock is hitting all-time highs. I think Facebook’s bad seed is population. The site has 2.2 billion monthly active users, a number that has roughly doubled in the past five years. Yet the growth rate is necessarily slowing. User count probably won’t double again, and most growth comes from the less wealthy developing world. Investors won’t like it when growth stalls.

Amazon’s biggest benefit, and problem, is its hall pass from Wall Street. It’s allowed to show very little in profits while inventing the future. That’s great, but the business of selling stuff—that is, the company’s main business—is notoriously low-margin. Retail stores never had high margins. Buying Whole Foods was fascinating, but supermarkets often squeeze out profits of only 1% of sales. Now Amazon is bursting into the health-care industry with its purchase of online pharmacy PillPack—right into the teeth of regulators. Eventually Wall Street will demand high margins after years of investment. I wouldn’t want to be around when that happens.

The bad seeds at Alphabet, Google’s parent company, are more elusive. 

WSJ: Look Out, Bitcoin Has Lost Its Tether

https://www.wsj.com/articles/look-out-bitcoin-has-lost-its-tether-1530477448

Would Isaac Newton have fallen for bitcoin? By the spring of 1720, Newton was one of the most famous scientists in the world—and a very wealthy man. He decided to sell his shares in the South Sea Co., earning a 100% profit. The physicist, said to be worried the market was getting out of hand, supposedly quipped that he “can calculate the motions of the heavenly bodies, but not the madness of the people.” Yet a few months later, as he watched the stock trade ever higher, he let his own madness get the best of him. Newton got back in, and he eventually lost the equivalent of millions in today’s dollars when the price crashed. Sound familiar?

Investment bubbles are almost always created the same way: Someone takes money—maybe cash or debt—from the balance sheet and moves it to the income side of the ledger. This transformation makes profit prospects seem better than they truly are, and the perceived value goes up. The bubble bursts when the balance sheet has no more to give.

Britain gave the South Sea Co., founded in 1711, a monopoly on trade with South America. The company was part of a clever scheme to finance government debt, which could be converted into South Sea shares. As the stock rose, South Sea’s profit would come from the difference between the share price and the value of the underlying debt.

There was a government slush fund buying up South Sea shares, making it easier to get rid of more government debt. The company would even lend money to those buying its shares. In 1720 government and company balance-sheet cash sent the stock from £100 to £1,000. When there weren’t any more buyers, the bubble burst and financial gravity took hold.

It wasn’t so different from the 1636-37 Dutch tulip mania. That bubble had little to do with bulbs. Instead wealthy traders used their balance sheets to manipulate tulip futures and derivative contracts. The flowers might as well have been condos in Fresno. The bubble popped, though there’s some debate today about how severe it was.

Fast forward to 1999. If your dot-com company was eyeing an initial public offering, Goldman Sachs and Morgan Stanley wouldn’t do it unless your website had a marketing distribution deal. What that meant is you’d go to AOL and ask for the IPO special.

WSJ: General Electric’s Long Unwinding

https://www.wsj.com/articles/general-electrics-long-unwinding-1529862757

I had only one question after seeing General Electric tossed from the Dow Jones Industrial Average: What took so long? Yes, GE used to be revered by Wall Street. Investors would explain to each other that GE was 1% of the U.S. economy. As the company went, so did the U.S. But its stock peaked in 2000, and GE has been a failing industrial giant ever since. This underlying reality was hard to see through the smokescreen of its finance business, GE Capital.

I remember when HarperCollins, which had published a book of mine, announced it would be publishing a book by former GE CEO Jack Welch and his wife. I immediately called my publisher and complained in mock horror, “I thought I was your hedge fund guy.” He didn’t get it. I explained that he should forget about turbines and locomotives. GE was basically a giant hedge fund—a bet on its finance unit, which contributed half of GE’s profits.

Jack Welch played Wall Street like a fiddle with his decadeslong record of consistent earnings. His CFO, Dennis Dammerman, even told Fortune magazine in 1997, “We have a lot of diverse businesses, and when you put them all together they produce consistent, reliable earnings growth.” Wall Street believed it. A colleague once told me that Mr. Welch would get up in front of Wall Street analysts and toy with them. He’d joke, “Well, you guys are saying that ‘we might not meet our earnings estimates this quarter because of this or that.’ Wait, why are you writing that down? I’m telling you what you are saying, only write down what I am saying, which is that we deliver consistent earnings growth.”

Dammerman further admitted, “We’re going to take these large gains and offset them with discretionary decisions, with restructurings.” I’ve seen it. I invested in technology companies only to see GE Capital come in and write big checks. It’s an old corporate accounting trick—some called it a honey pot, others a cookie jar. When the investments went public, GE could time the sale of stock for when it needed to book additional profits to make up for a shortfall elsewhere. Jeffrey Immelt took over as CEO at the end of 2001 and kept the Welch legacy going, growing assets at GE Capital to more than $500 billion for a globally expanding business of loans, leasing, factoring, equity finance and insurance.

Mr. Welch had a famous leadership lesson—be No. 1 or No. 2 in any business, or get out. Sadly, as a hedge fund, it was dead last. During the 2008-09 financial crisis, its honey pot was destroyed. GE even took $3 billion from Warren Buffett to meet short-term obligations. Mr. Immelt and GE have been unwinding this hedge fund ever since.

WSJ: The Art of the Brushoff

 https://www.wsj.com/articles/the-art-of-the-brushoff-1529258628

While watching the Washington Capitals hoist the Stanley Cup, I had to chuckle. I was reminded of an old boss. When I first started at his small brokerage firm, I was told that if he didn’t like someone in a meeting, he would pick up the person’s business card and pick his teeth with it. The meeting would end soon thereafter. A lot of people don’t want to say no, nor do they know how to. It’s an art.

Some people have brushoffs down pat. A decade ago, I heard activist Ward Connerly explain Bill Clinton’s premeditated move. Headed to the White House in 1997, Mr. Connerly learned that Mr. Clinton’s signal that he didn’t like someone—so his staff shouldn’t bother—was to compliment his tie. Mr. Connerly was amused until Mr. Clinton approached him to tell him how much he liked his tie.

I’ve been brushed and hushed. In the mid-1990s, after much hassle, my colleagues and I landed a meeting with Jeff Berg, who ran one of Hollywood’s top talent agencies. We were in his lavish office pitching him on getting his clients to invest in our fund. Technology was disrupting music, television and movies, and we were the perfect hedge. I thought the meeting was going pretty well until his secretary walked in saying John F. Kennedy Jr. was on the line. Mr. Berg gave us the eyebrow lift and took the call. As we were ushered out, we heard him yelling, “Yes, I know everything in this town.” Great theater—no deal.

Maybe a year later, I was on a panel at an investment conference with Mike Milken. We had a great discussion about finding value, which ended with him saying he was extremely interested in our fund. Could we please send him materials and follow up? I’m still waiting for his call back. Countless others have used this tactic.

Earlier in my career, I was in Houston pitching chip stocks to a famous but rather elderly money manager. About 20 minutes into the meeting, he fell fast asleep. I didn’t know what to do. Naturally, I kept talking. He eventually woke up, thanked me for visiting, and quickly showed me out.

At a conference in downtown Manhattan, I met the founder of the famous though usually pointless series of talks—it rhymes with “zed”—and we had a great discussion. We continued the chat on the sidewalk as we were heading to the same Midtown restaurant for an event. A limousine pulled up. The driver jumped out and opened the door. The founder got in, alone, leaving me stranded—and with a clear message.

WSJ: The Canard About Falling Incomes

 https://www.wsj.com/articles/the-canard-about-falling-incomes-1528054223

As election season approaches, chants about the hollowed-out middle class predictably grow louder. Wages have been flat for decades, we’re told. “In 1973, the inflation-adjusted median income of men working full time was $54,030. In 2016, it was $51,640,” the New York Times breathlessly reported last year. Sounds awful. Except it’s nonsense. Cast a leery eye on anyone who uses 1973 as a base—it was a high-water mark before a deep recession. But the real red flag—what makes this argument totally bogus—is the phrase “inflation-adjusted.”

The odoriferous offender is the manufacturer of inflation data, the Bureau of Labor Statistics. After the creation of Social Security in 1935, Congress would occasionally bestow vote-winning gifts on retirees in the form of benefit increases. In 1975 Congress switched to automatic cost-of-living adjustments based on a consumer-price index, or changes for “a market basket of consumer goods and services.” That’s food, rent, electricity, T-Mobile,Netflix .

Forget for a moment that some of that didn’t exist in 1975. As consumer items got more feature-rich and complex, the BLS simply couldn’t note the absolute price of, say, a microwave oven. So the bureau came up with the indulgently named hedonic quality adjustment, defined as “decomposing an item into its constituent characteristics, obtaining estimates of the value of the utility derived from each characteristic, and using those value estimates to adjust prices when the quality of a good changes.”

It’s a better measurement but still inaccurate. Here’s a thought experiment: Think about your car’s automatic emergency braking, sometimes known as precrash or collision avoidance. It has been an increasingly popular option in recent years. By 2022, it will be standard on most cars. Some silicon sensors and a few pieces of code—today it costs maybe $50 to produce. But what’s it worth?

Let’s do a little hedonic decomposing of our own. Before these sensors, you would have had to hire a person to ride shotgun and constantly watch for potential collisions and slam on the brakes for you. In 2016 the AAA Foundation for Traffic Safety estimated the average driver spends almost 300 hours a year in the car, logging more than 10,000 miles. Paying someone even $10 an hour to stare into traffic means that over five years, collision avoidance is worth nearly $15,000. Double if you want someone to look out the back window, too.

Does this show up anywhere in the consumer-price index? Of course not. Of course not. One of the most lifesaving features has dropped in cost by three orders of magnitude in less than a decade. To the BLS, it’s practically nonexistent.

WSJ: Advice to New Grads: Scale or Bail

 https://www.wsj.com/articles/advice-to-new-grads-scale-or-bail-1526841165

Dear Grads: How can you make an impact on this world? Michael Keaton told Kent State students, “I’m Batman.” Ronan Farrow encouraged Loyola Marymount’s class of 2018 to “trust that inner voice.” Human-rights lawyer Amal Clooney told Vanderbilt grads last week, “Courage is needed more than ever.”

Maybe you’re looking for something less vacuous than warmed over “Wizard of Oz” themes? If so, put down your JUUL vape pen, unplug from “Fortnite,” tuck in your “I Am the Change” shirt, and listen up. Scale or bail.

Many of you graduates think you want socially conscious careers—giving back, fighting injustice and making a difference. “Well, you know, we all want to change the world.” You want to reduce inequality, end poverty, comfort the homeless, expand human dignity. Guess what? Me too! But you’re going about it the wrong way.

Some 44% of millennials believe they do more to support social causes than the rest of their family, according to the 2017 Millennial Impact report. If you’re volunteering at shelters or working for most nonprofits, that’s all very nice, but it’s one-off. You’re one of the privileged few who have the education to create lasting change. It may feel good to ladle soup to the hungry, but you’re wasting valuable brain waves that could be spent ushering in a future in which no one is hungry to begin with.

There’s a word that was probably never mentioned by your professors: Scale. No, not the stuff on the bottom of your bong or bathtub. It’s the concept of taking a small idea and finding ways to implement it for thousands, or millions, or even billions. Without scale, ideas are no more than hot air. Stop doing the one-off two-step. It’s time to scale up.

I hear you talking about food deserts and the need for urban eco-farms to enable food justice. You certainly have the jargon down.

WSJ: Columbus Discovers the Amazon

https://www.wsj.com/articles/columbus-discovers-the-amazon-1525635011

Jeff Bezos is the world’s richest person. Amazon is on a tear—sales grew 43% last quarter—and may soon pass Apple as the world’s most valuable company. Amazon has ruptured retail, floated in the cloud, and even made superhero TV shows like “The Tick.” But what makes Mr. Bezos tick?

Sure, he sells everything from books to the TubShroom drain protector/hair catcher. That’s why Amazon owns close to half the American e-commerce market. And its 100 million Prime customers will shrug off the recently announced 20% fee hike. But retail is a low-margin business. That can’t be Amazon’s endgame. The prize is much bigger.

Like Warren Buffett, Mr. Bezos likes to write rambling annual shareholder letters. Most are about Amazon’s fanatical devotion to the customer. This year he labels them “divinely discontent.” Don’t be fooled—his customer focus, referred to as the “Bezos Way,” is only marketing fluff, not a strategy. And think about it: Mr. Bezos got us to read books on pieces of plastic and to query an imaginary woman residing in a cylindrical speaker. We weren’t discontented. We were amazed.

Years ago, I took a stab at understanding Bill Gates’s strategy for Microsoft . I likened him to James Monroe. As with the Monroe Doctrine, Mr. Gates defended to the death his hemisphere—that is, basically anything that touched his Windows operating system. His dominance of compression, word processors and spreadsheets forced others to play in markets away from Microsoft. But Mr. Gates fenced himself in. He was Microstuck as innovation happened in other worlds: the Palm Pilot organizer, Netscape browser, Google search, Apple iPhone.

Is there a Bezos Doctrine? I suspect he learned the Gates lesson well. Too well, as Mr. Bezos is now channeling pioneers, be they Columbus or James T. Kirk, exploring strange new worlds. His strategy is that he doesn’t let business models get in his way while exploring on the edge. He started selling books with no real endgame in sight. He squeezed prices and didn’t make much money. But Amazon shareholders gave Mr. Bezos a long runway, as they anticipated long-term riches. He was forced to create an infrastructure—digital clicks and analog bricks—to move merchandise. Amazon pops up distribution centers in new cities in mere months. With same-day delivery, it is a logistics beast. But making a ton of money wasn’t immediately important.

WSJ: Three Cheers for Internships

https://www.wsj.com/articles/three-cheers-for-internships-1524420970

It’s that time of year. Students hoping to land summer internships are flooding inboxes with their résumés. Managers should hire as many as possible. It’s good for the company but even better for the student—and for society. Pay them? Don’t pay them? It doesn’t matter. Just let them in the door.

In my junior year of college, I got an internship at Hewlett-Packard . It was way across the country in Cupertino, Calif., where Apple ’s spaceship headquarters is today. To save money, since I had little, I got an apartment with no furniture, slept on the floor, used a shopping cart for a dresser, and borrowed a friend’s bike to get to work.

HP was a fun place, with a pretty loose work culture and beer bashes most Fridays. I coded math functions in what’s known as microcode for a future minicomputer, because they didn’t trust the guy designing the chip to do it. I learned a lot about deep technology but nothing about business, marketing or sales. It was a big company, so I also missed a peek into the startup culture then bubbling up in the Bay Area. A shame.

Still, I can’t think of anything better for college students than plopping them in the middle of some exciting enterprise. It almost doesn’t matter what the company does; good interns absorb it all. I call it learning by osmosis. Lessons about your industry, trends, pricing and profits can’t help but work their way into the pores and brains of hungry students bored from endless reading assignments and seminars.

Put them at the center of whatever a company does—not in the copy room. I can almost guarantee that they’ll be a net positive. The payback usually comes in the form of a single good idea, one productive change that fresh eyes will see while others, especially those sucking up for a promotion, won’t.

A few years ago a nasty controversy erupted over intern pay. The Atlantic ran a story, “Why Free Internships Are Immoral.” Unpaid interns for the movie “Black Swan” won a suit against Fox for back pay, later reversed and eventually settled. Sheryl Sandberg’s Lean In organization even caught flak when an editor put out a request for an editorial intern, “part-time, unpaid.”

WSJ: A Better Way to Make Facebook Pay

https://www.wsj.com/articles/a-better-way-to-make-facebook-pay-1523209483

Facebook has been on fire lately—but not in the way it usually is. Its stock is melting and congressional grandstanding (i.e., hearings) about privacy and security begins Tuesday. Facebook is a threat to democracy and society, critics now argue. I’ve lost track of how many professors are demanding the feds regulate or even break up the social-media giant. Don’t they teach classes anymore?

Apple CEO Tim Cook joined the pile-on last month: “I think that this certain situation is so dire and has become so large that probably some well-crafted regulation is necessary.” Be careful what you wish for. Sure, no one wants Russian bots controlling their minds, but targeting consumers’ minds based on detailed demographic information isn’t new. Bud Light has perfected it. Dilly dilly.

Techies have an expression for Facebook’s model. It’s “free as in beer”—in the sense of costing no money. You pay in other ways. I propose a simple fix. Let’s flip the whole thing—make it about property rights, 21st-century style. America was built on property rights. Congress can deliberate for 90 seconds and then pass the Make the Internet Great Again Act. The bill would contain five words: “Users own their private data.” Finis.

Contrast this with the European Union, which adopted its General Data Protection Regulation in 2016. It is more than 250 pages of confusing rules, exceptions and fines. But it doesn’t change the flawed model of today. It only adds regulations that make the situation even more confusing.

WSJ: Don’t Be Too Eager to Make a Deal

 https://www.wsj.com/articles/dont-be-too-eager-to-make-a-deal-1522005036

If talk is cheap, advice is cheaper. I sprinkle advice out like salt on french fries, not knowing if it works or not. You’re probably thinking: typical newspaper columnist. But hear me out.

About a decade ago, I met my friend Andrew for lunch at Henry’s Hunan Restaurant in San Francisco—hot and spicy. He was from Washington, knew everybody and had worked at a policy-strategy shop. He had even done business with T. Boone Pickens, the legendary wildcatter.

“I owe you,” Andrew insisted, “for the advice you gave me.” I had no idea what he was talking about, and my face must have shown it. “The ‘put it in the corner of your desk’ trick,” he reminded me. It all flooded back.

I once had a boss who would never sign anything, at least not right away. Instead, he told me, he would put the document in the corner of his desk. He would see it every day—and not forget about it—but not sign it. Eventually, a series of people would call until the person in charge got on the phone in a huff. Then my boss would say, “Hey, I’m happy to sign this, but what do I get?” At that point, he could ask for almost anything.

It works because it makes the impersonal personal. In 1999 one of our fund’s private investments was going public. The bankers at Goldman Sachs sent over a standard 180-day lockup agreement. I hated lockups. I’d rather sell into the frenzy, like Dropbox last week. What the heck, I thought, I’ll just put it in the upper right corner of my desk. Over the next few weeks, I got a series of calls and voice-mail messages asking me to sign the lockup. I ignored them, and eventually the head of tech banking called.

“You’re holding up the deal. We can’t proceed with the IPO without your signed agreement,” he told me. “Well, I doubt that,” I replied matter-of-factly, “but what’s in it for me?” After a pregnant pause, he asked what I wanted. Bingo. I was ready: “How about an allocation of 30,000 shares for my investors. It would beat the 1,000 shares we normally get.” Another pause. “OK. Agreed. Fax the signed pages within the hour.”

WSJ: AT&T’s ‘South Park’ Argument

 https://www.wsj.com/articles/at-ts-south-park-argument-1521397501

The biggest antitrust trial since U.S. v. Microsoft begins Monday in a federal court in Washington. The Justice Department seeks to block the $108 billion merger between AT&T and Time Warner. But the government doesn’t stand a chance—like Wile E. Coyote chasing Road Runner off a cliff and ending up suspended in midair.

What may have started as a Trumpian jab at #FakeNewsCNN has tragically turned into a serious antitrust action. The Justice Department’s case stands on such modern foundations as Section 7 of the Clayton Antitrust Act of 1914, which can block mergers whose effect “may be substantially to lessen competition.”

The crux of the case is that AT&T’s subsidiary DirecTV, with its 21 million U.S. subscribers (about a fifth of the cable and satellite market), should not be combined with Time Warner’s HBO, with its 54 million U.S. subscribers. The result would be a “vertically integrated programmer” with the alleged ability to raise prices at will on other cable operators. It could even (horrors) withhold HBO’s “Game of Thrones” from DirecTV’s competitors.

I’ve got to admit, even four or five years ago, I might have agreed. The cable industry has abused geographic monopolies to raise prices almost since the first coaxial cables were strung on telephone poles. Comcast ’s 2011 merger with NBCUniversal was potentially anticompetitive, which is why the government imposed 150 different conditions on it. But the landscape has changed since then. A lot.

If I were AT&T’s attorney, I’d introduce as evidence a clip from the “Franchise Prequel” episode of “South Park,” which makes fun of Netflix for funding so many new TV series. A Netflix employee answers the phone saying: “Netflix, you’re greenlit. Who am I speaking with? . . . Would you like a pilot or just go straight to an order of six episodes?”

WSJ: George Costanza’s Investment Tips

 https://www.wsj.com/articles/george-costanzas-investment-tips-1520800111

I’m frequently asked what it takes to run a hedge fund. Translation: “If a dope like you can run one, I certainly can too.” Fair enough. A lot of hedge funds are getting killed in a huge upmarket: Brevan Howard’s Master Fund shrank 5.4% in 2017, while David Einhorn’s Greenlight was down 12% in the first two months of 2018. It’s time for a new batch of fund managers. Think you can do better?

First, let’s see if you’re up to it. Right now, go out and buy a 60-inch flat-screen TV. Easy, right? As soon as it arrives, return it for a 75-inch model. Then, when that shows up, return it and get the 42-inch version. Still having fun? It’s a royal pain. As soon as you’re comfortable with something, it’s probably time to sell it. This self-qualifying exercise will show if you can turn on a dime when, say, tariffs tank the economy.

Next, visit all the people you know and ask them to take out their wallets and give you a slug of their money. Do the same for a bunch of strangers, too. Then promise that you’ll return triple the money in a decade, minus your modest 20% of the upside fees.

Ready to invest? What’s your style, your edge? Macro, distressed debt, long-short, dollar-event-driven, cryptocurrency arbitrage? Actually, there’s only one way to invest, especially in today’s environment. It works for everyone, from $20 billion hedge funds to individual retirement accounts worth a few thousand bucks: Take the pulse of the market and figure out how everyone is wrong.

Easier said than done. It isn’t hard to get caught up in the emotion of the market. It’s euphoria when stocks are booming and you’re getting crypto tips from Uber drivers—and despair when everyone is dumping stocks and swearing never to own them ever again. You’ve got to zig when everyone else zags. “Serpentine, Shel, serpentine!”

How do you know what’s right? It almost always feels wrong. There’s an old saying on Wall Street: “Your hand should be shaking when you place your order.” You can learn from George Costanza of “Seinfeld.”

 He once lamented, “Every decision I’ve ever made, in my entire life, has been wrong. My life is the opposite of everything I want it to be.” When Jerry Seinfeld opines, “If every instinct you have is wrong, then the opposite would have to be right,” George gets it. “Yes, I will do the opposite. I used to sit here and do nothing, and regret it for the rest of the day, so now I will do the opposite, and I will do something!”

WSJ: Elon Musk’s Uncontested 3-Pointers

https://www.wsj.com/articles/elon-musks-uncontested-3-pointers-1519595032

I have a suspicion that Stephen Curry and Elon Musk are the same person. First, as was said of Michael Jackson and Diana Ross, you never see them in the same room together. More important, they both dislike crowded spaces.

Mr. Curry, a two-time NBA most valuable player with the Golden State Warriors, has mastered the art and science of shooting 3-pointers. But a closer look at his stats reveals that he really likes to shoot uncontested 3s. Who wouldn’t? Making uncontested baskets is a lot easier.

Mr. Curry often takes shots from several feet behind the 3-point line. Defenders, figuring no one would be stupid enough to shoot from that far away, leave him open. And he makes baskets with surprising accuracy. At one point in 2016, he made 35 out of 52 shots from between 28 and 50 feet. Uncontested indeed.

Elon Musk’s business strategy isn’t so different: Go far enough into the future that there are no other competitors. Mr. Musk’s first success was X.com, an email payment company. It merged with Peter Thiel’s Confinity to form PayPal —and avoid competition. They had the market to themselves for a long time because fraud, especially from Eastern Europe, was so rampant on early internet payment platforms. They solved the fraud problem and enjoyed an uncontested market, eventually selling for $1.5 billion to eBay.

Then Mr. Musk headed further into the future. He took the nine-figure payout from PayPal and pushed ahead with SpaceX, Tesla and Solar City. Literally his last $20 million went to Tesla in 2008. “I was tapped out. I had to borrow money for rent after that,” he later recalled. Private space launches, electric cars and rooftop-solar financing were all huge Muskian pushes into the future, where no one else dared play. Today, Tesla is worth around $60 billion. SpaceX raised money last summer at a $21 billion valuation. Mr. Musk is no longer borrowing to pay his rent.

Quite impressive, even though I find all the handouts offensive. When I see someone driving a Tesla I greet him with, “You’re welcome.” When he inevitably asks for what, I roll out the long list of subsidies: a $465 million Energy Department loan in 2009, a $7,500-a-car income-tax credit from the feds, $1.3 billion in incentives from Nevada for a factory, and more. Removing competition by racing to the future is one thing. Seeking special treatment to boost your advantage is cheating.

Mr. Musk still pushes the boundaries.

WSJ: What Does Facebook Do Now?

https://www.wsj.com/articles/what-does-facebook-do-now-1517776963

I have a confession: The day I started on Wall Street, my boss handed me a yellowing copy of Benjamin Graham and David Dodd’s 1934 book, “Security Analysis.” He told me Warren Buffett swears by it! I read maybe three pages before the section on valuing railroad bonds put me to sleep. I still have the book, which is now a doorstop. What I quickly realized was that only three things matter when investing in technology: growth, growth and growth.

Last week Facebook announced that its quarterly earnings grew 61% year over year, amazing for a company with $40 billion in revenue. The stock is up a similar amount since the start of 2017, but some cracks are showing in user engagement and growth. Is Facebook really worth $553 billion? Has it peaked?

The company certainly is under fire. Too many people falsely believe that fake news on Facebook got Donald Trump elected. Like cockroaches, critics calling for regulation are scurrying out of the woodwork. Salesforce CEO Marc Benioff thinks Facebook is so addictive that it should be controlled like cigarettes. George Soros told the Davos crowd that Facebook and Google are a “menace, and it falls to the regulatory authorities to protect society against them.”

Some critics even think Facebook is too successful and should be broken up, though the Federal Trade Commission would have to search far and wide to find consumer harm. Now there is a call, led by News Corp ’s Rupert Murdoch, for Facebook to pay publishers like this newspaper for their content. (News Corp is the parent company of Dow Jones, which publishes The Wall Street Journal.)

Under pressure last month, founder Mark Zuckerberg announced changes to Facebook’s “news feed” that would emphasize posts from family and friends rather than outside publishers. Considered as a business proposition, this is a loser. Will more of grandma’s fruitcake recipes keep Facebook users clicking? It almost answers itself. “In total, we made changes that reduced time spent on Facebook by roughly 50 million hours every day,” Mr. Zuckerberg said last week. Yet investors yawned, and the stock rose 4%.

The company’s biggest threat is simple: Facebook is running out of people. In March 2007, when I sat down with Mr. Zuckerberg for a Journal interview, he bragged about having 16 million users. In its early years, Facebook was limited to college students, and critics suggested he would soon run out of them. They were right! Which is why the requirement to have an email address ending in .edu was soon dropped. Today 2.14 billion people use Facebook at least once a month.

Chew on these numbers: There are about 3.5 billion internet users today—less than half of the world’s population. It might seem like that leaves plenty of room for growth, except that about 750 million internet users are in China, where Facebook is blocked. Another 110 million or so are in Russia, where most use the homegrown social network VKontakte. That leaves Facebook with only a few hundred million potential recruits, mostly in India, Japan and Africa. Its reach is amazing, but this doesn’t leave much room to grow. In the lucrative U.S. and Europe, user growth is basically flat.

WSJ: Stocks Weren’t Made for Social Climbing

https://www.wsj.com/articles/stocks-werent-made-for-social-climbing-1516565984

Wall Street considers it a truism that money sloshes around the globe seeking the highest return. But there are countless investors, believe it or not, who are willing to accept lower returns. P.T. Barnum supposedly said there’s a sucker born every minute. Many of them go into so-called socially responsible investing. Laurence Fink of BlackRock , which manages $6 trillion in assets, is only the latest to evangelize this fad. But the basic idea is to throw money away. In reality there is no trade-off of Vice vs. Nice. There are only returns.

“Corporate social responsibility” fails under the same halo. Reread Milton Friedman’s 1970 article “The Social Responsibility of Business Is to Increase Its Profits.” For stockholders to push their view of social responsibility, Friedman wrote, is simply to force others “to contribute against their will to ‘social’ causes favored by the activists.”

Profits are the best measure of a business’s value to consumers—and to society. No one holds a gun to the customer’s head. If the buyer weren’t glad to pay the free-market price, he would make the product or perform the service himself. Yet this idea is questioned all the time.

A case in point is Amazon, currently worth $625 billion based on expectations for Amazon-size profits to come. A Seattle Times headline in 2012 lamented that the company was “a virtual no-show in hometown philanthropy.” Sally Jewell of the retailer REI told the newspaper: “I’m not aware of what Amazon does in the community.” Really? Besides offer low prices, huge variety and quick delivery, along with jobs not only in Seattle but around the world, as manufacturers leverage Amazon’s platform to reach global customers? But the company didn’t sponsor concerts in the park! Gimme a break.

A counterexample is Etsy , which for years proudly touted that it was a “B Corp,” one “certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance.” Sounds a bit wishy-washy, but maybe it was supposed to attract social-impact investors. How’s it going? After Etsy went public in 2015, it opened at $31 a share, bottomed out in 2016 around $7, and now trades at $19. That’s worse than dead money, given that the overall market is up a third since Etsy’s IPO. Little surprise, Etsy is no longer interested in being a B Corp.

WSJ: Unicorns Need IPOs

https://www.wsj.com/articles/unicorns-need-ipos-1515361043

Get ready for the Unicorn Jailbreak. Tech stocks have taken off this year like a bat out of hell. But several hundred startups valued at over $1 billion, so-called unicorns, are watching with envy. Sure, 57 startups became unicorns in 2017, according to Recode. Their valuations are rising with venture-capital money, but what’s the fun in that? Liquidity is where it’s at.

This market is dominated by investors suffering from split personality disorder, rotating between risk-on and risk-off modes. Risk off means uncertainty and caution—and investors avoid risk like they’re retiring next week. Today the market is definitely risk on. Heck, the Cboe Volatility Index, or “fear gauge,” briefly hit an all-time low last week.

It’s time for the whole blessing of unicorns—look it up—to break out, hit the public markets and trade every day like real companies. Spotify has done a confidential filing for a direct listing on the New York Stock Exchange. It’s a great start, but others will need a bigger splash.

I’ve rarely seen a frothier market. Fed-driven low interest rates mean investors are begging for things to buy. They’re chasing mirages like cryptocurrencies and initial coin offerings. Calpers just raised its equity allocation, more as a magic wand to stave off municipalities actually kicking in more dough. But no matter, they need stock. As they say on Wall Street, when the ducks are quacking, feed them.

Where are all the IPOs? One problem is that SoftBank’s $93 billion Vision Fund is bagging unicorns like Teddy Roosevelt shooting wild buffalo from his train. It put $4.4 billion into office-space provider WeWork, $2.5 billion into the Indian online retailer Flipkart, and $1 billion into Fanatics, which sells football jerseys. And don’t forget the $7 billion it just invested in Uber, shrinking the ride-sharing giant’s valuation to $45 billion from $68 billion at the previous round. Only public markets can judge whether these valuations are right. For now, it’s shoot and wish.

WSJ: 2018: You Read It Here First

https://www.wsj.com/articles/2018-you-read-it-here-first-1513538788

It’s that time again: Get ready for lists of year-end predictions. My prediction? You hate them. Me too. The old game on Wall Street and Silicon Valley is for members of the bloviating class to polish their crystal balls and tout their brilliance by predicting how the next 12 months will unfold.

The worst predictors are those who hedge. They produce lists of worthless predictions that can be considered correct no matter what happens. You know them: “Unless there are exogenous economic shocks, stocks will rise next year.” Or, “Outside of OPEC intervention or tight supplies, oil prices are headed down.” Then a year later, these prognosticators will claim their predictions are uncannily correct, while they roll out new hedged mush for the next year.

I want in on this game too. Here are mine:

1. Interest rates will go up in 2018. I’m already 1-0.
2. The stock market will underperform 2017’s returns. See what I did there? Stocks are up around 24% this year. Even if they are up again by 23.99%, I’m right.
3. Tesla will miss production forecasts again. This is easy. Put another correct prediction in the book for me.
4. Bitcoin appreciation will slow. The cryptocurrency is up around 1,700% this year. Again in 2018? Store canned goods if it does. Cryptobulls claim bitcoin is a store of value, and to handle the world economy, it must be valued in the trillions. That’s a leap of faith wider than the Grand Canyon. Currencies were once backed by gold but now derive value from faith in governments and their ability to tax citizens and boost the economy. This became evident during the 2009 financial crisis, when bank bailouts in dollars didn’t crater the currency. Remember Zimbabwe’s $100 trillion note? I’ve calculated bitcoin being worth no more than a few hundred dollars. I’ll stick with that.
5. No, 2018 will not be the year of augmented reality. Techies salivate over the facial-recognition sensors in the iPhone X. But animoji karaoke is just not that big a deal. Augmented reality will come of age when I can go to Gettysburg, look through glasses toward Cemetery Ridge, and watch Pickett’s Charge play out in real time. Wake me when that happens.
6. Donald Trump and Vladimir Putin will still be in power.The Russian will rig the system, and the Russia investigation won’t stop the Trump Train© from rolling over the resistance.
7. The best-performing market in 2018 will be out of Africa. No real insight here. Some downtrodden market, most likely in sub-Saharan Africa, will come out of its slumber and double in value. Maybe Zimbabwe.
8. Net-neutrality regulations will be repealed, customers will be happy, and the internet won’t collapse. George Orwell would chuckle at neutrality proponents who doublethink a free and open internet through regulations. In reality, net neutrality comes free with competition and without regulators. I hope the same energy can be instead harnessed promoting fiber and 5G and any other competition-expanding technologies. As soon as the regulations go away, watch providers offer new discounted plans. Free internet with Amazon Prime?
9. China will experience financial indigestion. The International Monetary Fund is nervous about China. So am I. Property prices are inflated. Debt has become a bad drug. I’ve heard of consumer-goods companies that don’t pay their suppliers for a year, but then offer them financing so they can get cash. They then sell that supplier debt to the public—the same customers that buy the consumer goods. What could go wrong? Even a small glitch becomes a disaster.
10. The U.S. economy will do better than expected in 2018. Bit of a low hurdle here. After years of Obama -burdened 2% growth, a combo of regulatory reform and corporate tax cuts will unleash the animal spirits. I can see GDP growth over 3% each quarter in 2018, perhaps even surpassing the naysayer 4% barrier. And it’s exactly why interest rates will rise—see prediction No. 1.
11. The first disease will be cured with Crispr technology. Gene editing is very cool, and Crispr tools will reshape health care over time. But all I need is one disease to be cured. Heck, I’ll settle for canine flatulence or even colorblindness.
12. Two self-driving cars will collide with each other. It’s inevitable. Why not predict it?

    There you have it. I’m already batting .500 and it’s still 2017.

WSJ: The Expense-Account Racket

https://www.wsj.com/articles/the-expense-account-racket-1512338252

It was almost a rite of passage. Soon after I started on Wall Street in the 1980s, sales folks from the trading floor invited me to dinner. We met at one of those fancy New York steakhouses where French wines flow like tap water. I felt part of a new fun group.

Until, that is, the bill came. Everyone looked at me and another new guy. “You know about the tradition, right?” I recall the senior salesman asking. “Last one in, pays.” At 26, I wasn’t sure my credit-card limit would be high enough. I sheepishly asked how to expense the enormous bill. Simple, I was told: Mark it down as a couple of cab rides a week. Oh, and welcome to Wall Street.

This story came to mind last month after Navnoor Kang, a manager at New York’s state pension fund, pleaded guilty to fraud. He had been bribed to direct bond business to the trading firms Sterne Agee and FTN Financial. This included vacations, drugs and prostitutes. I kept thinking: How the heck did the salespeople at these firms write off all this stuff on their expense accounts?

Wall Street was supposed to have been cleaned up by now. In 2006 the investment-banking firm Jefferies paid nearly $10 million in fines after lavishing gifts on Fidelity traders. These included “a booze-fueled bachelor party replete with strippers and dwarves,” according to the New York Post.

Two years later the Securities and Exchange Commission charged Fidelity for “improperly accepting more than $1.6 million in travel, entertainment, and other gifts paid for by outside brokers courting [its] massive trading business.” The perks included “premium sports tickets to events including Wimbledon, the Super Bowl, and the Ryder Cup golf tournament.” Fidelity cleaned house.

Who hasn’t fudged expenses? 

WSJ: Quit Modifying Capitalism

https://www.wsj.com/articles/quit-modifying-capitalism-1511071712 

After the calamitous century between Russia’s October Revolution and Venezuela’s debt default last week, you might think socialism would be dead and buried. You’d be wrong: It’s capitalism that is back on the rack, being tortured and refitted according to the ideologies of its detractors. But be warned, when you modify the word “capitalism,” you are by definition misallocating capital. I call this fill-in-the-blank capitalism.

Bernie Sanders offers a fine place to start. “Do I consider myself,” he asked at an October 2015 rally, “part of the casino capitalist process by which so few have so much and so many have so little?” (Emphasis mine.) Never mind that it was a progressive hero, Barney Frank, who said in 2003 that he wanted to “roll the dice a little bit more in this situation toward subsidized housing”— which helped lead to the financial crisis. Now Mr. Sanders wants to load the dice: Free college for all. Free Medicare for all. Free rations for all?

Al Gore, an ostensible environmentalist who made millions dealing with oil-rich Qatar, is no stranger to ideological modifications. On these pages in 2011, Mr. Gore co-wrote “A Manifesto for Sustainable Capitalism,” which demanded that markets integrate “environmental, social and governance (ESG) metrics throughout the decision-making process.” Yet messing with critical price signals through “ESG metrics” is exactly what would make capitalism unsustainable. See: Frank, Barney.

A 2014 Huffington Post headline declared “Let’s Make Capitalism a Dirty Word.” This was right around the time that “Capital in the Twenty-First Century,” the French economist Thomas Piketty’s now largely discredited book, was published in English. Mr. Piketty called for a tax on dynastic wealth because of “a strong comeback of private capital in the rich countries since 1970, or, to put it another way, the emergence of a new patrimonial capitalism.” Tell that to Mark Zuckerberg and Larry Page, self-made billionaires who weren’t even alive in 1970.

Nobel Prize winner Joseph Stiglitz tried to one-up Mr. Piketty, complaining in a 2014 article for Harper’s magazine about “phony capitalism.” But he offered a remedy! “A well-designed tax system can do more than just raise money—it can be used to improve economic efficiency and reduce inequality.” Messrs. Stiglitz and Piketty and all the modern-day central planners will no doubt gladly make the economic decisions needed to right the ship after they have sunk it.

WSJ: The Future Is Dodgeball

https://www.wsj.com/articles/the-future-is-dodgeball-1509907777

The past may be a Shakespearean prologue, but the future is dodgeball.

Ben Rosen, chairman of Compaq Computer Corp. and an early investor in Lotus Development, was the semiconductor analyst at Morgan Stanley eight years before me. In the late ’80s an embarrassingly lame online service named Prodigy was state-of-the-art, but I had visions of a multimedia world with text, pictures and eventually videos delivered through vast networks. Crazy, right? I asked Morgan Stanley’s uber-strategist, Barton Biggs, for advice, and he suggested we have lunch with Ben Rosen.

I was all of 30 and way out of my league, but we still trucked over to the Pan Am Building for a New York power lunch. I explained this multimedia thing. Mr. Rosen waved his hand and said in the nicest way, “I really don’t know anything about that.” I looked at Biggs, gulped, and asked Mr. Rosen for advice in general. He told me about building his venture-capital firm and running into investors on Sixth Avenue.

Then he rambled on about getting in the middle of things at events, conferences and seminars. He said that at first nothing will make sense and all these balls will be flying across the room out of your reach. But eventually you’ll find yourself in the middle of the room and balls will start hitting you. Then you’ll know you’re inside. As we walked out the door, I remember thinking, “That’s it? Gee, thanks for nothing.” Biggs agreed it was a waste of time. Turns out it was the best advice I would ever receive.

The thing about the future is that, as William Goldman wrote about screenwriting, “Nobody knows anything.” Everyone is an outsider, and it’s all up for grabs. Someone might have an opinion, but there are few facts. What you need are your own opinions about where the world is headed in any given industry: artificial intelligence, gene editing, autonomous trucks, marine salvage—whatever.

You need to go to places where the future is discussed. Every industry has these events. Make the time to go. And not only to hear keynoters billow hot air, but for the panel discussions where people disagree. The conversation spills out into the hallways between talks. There will be all sorts. The smug ponytailed guy who talks about his Phish tribute band and insists he knows everything. The woman you see at every event but only in the hallways chatting and who never makes eye contact to let you into a conversation. Barge in anyway. Remember, there are no facts, only opinions.

WSJ: The High-Tech Playing Field

 https://www.wsj.com/articles/the-high-tech-playing-field-1508703758

Forget fall foliage. I know only three seasons—baseball, basketball and football—and for the next week or so they coexist. They bring with them virtual strike zones, on-field stats, rotating 360-degree views, and yellow first-down lines. Technology has changed sports—but not always as intended.

Green Bay Packers return specialist Desmond Howard admitted after his 99-yard kickoff return in the 1997 Super Bowl that he’d had a technological assist: “You can use the jumbotron almost like a rearview mirror, and so that’s what I did.” Twenty years later, the Boston Red Sox got caught stealing Yankee catchers’ signs, relayed to the dugout via an Apple Watch. At least someone found a real use for the device. These examples are nothing compared with the benefits to fans from all the gizmos packed into stadiums and arenas. From pylon-cams to sensors capturing launch angles and exit velocities, the games are wired.

Gerard J. Hall runs SMT, a North Carolina-based company that provides broadcasters with much of the tech that enhances the viewing experience. He told me that “baseball actually uses our technology to train umpires.” To display an ESPN K-zone, every pitch is tracked for speed, location and path, and run through algorithmic filtering for accuracy. If you watch enough baseball, you know it’s way more accurate than human umpires. Will this technology replace the ump? “Assuming people want to get it right, it’s available,” says Mr. Hall.

Since 2015, the National Football League has placed chips under shoulder pads to track exactly where players move. Fans can’t get this data, but teams can. Mr. Hall tells me it can provide “instant analysis to coaches.” Real-time analytics and machine learning might someday even call for specific plays, like former coach Jon Gruden’s “Spider 2 Y Banana,” in certain scenarios. SMT is also working with Duke football on a system called Oasis, which will use biomedical sensors to track players’ heart rates, body temperatures and hydration—as if they’re astronauts.

So many of the changes in sports rules have been to attract fans and jam in more Chevy Silverado and Dr Pepper commercials. In football, illegal contact and downfield chuck regulations from 1994 favor quarterbacks and receivers, who run up scores. The National Basketball Association’s 3-point line, added in 1979, and its 2001 defensive three-second rule also favor offenses and more points. Even baseball has been accused of juicing the balls and lowered the pitching mound from 15 inches to 10 inches in 1969. More runs, more razors sold—up to a point.

I’m a techno-optimist, but even I can see the downside. With commercials and replay challenges, games have become painfully long. In the 1960s and ’70s, the Cardinals’ Bob Gibson pitched wins in under two hours. A Cubs-Nationals playoff game this month lasted 4 hours and 37 minutes. Long games also contribute to the NFL’s ratings problem, which began before the national anthem protests. Many fans care more about fantasy-football stats for individual players than about which team wins. “NFL players,” Mr. Hall says, “have become the random-number generators for people’s fantasy-football games.”

WSJ: ‘Saving Face’ Has a New Meaning

https://www.wsj.com/articles/saving-face-has-a-new-meaning-1507488194 

Stop me if you’ve heard this one: A horse walks into a Genius bar and buys an iPhone X. Siri asks, “Why the long face?”

Apple’s newest iPhone includes a 3-D facial recognition system that floods your face with 30,000 infrared dots. The A11 Bionic Chip, which runs 600 billion operations a second, analyzes the data. This enables Face ID to unlock the phone or create animated emojis in your likeness.

This is already pretty cool, but it doesn’t take much imagination to envision apps way beyond this. By recognizing a long face, or an otherwise troubled one, it could help diagnose and treat the millions of Americans who suffer from depression or bipolar disorder. It could even be part of the treatment, reminding them to take medication or to reduce stress. And this is only scratching the surface of what the new iPhone could do for health care—if allowed.

Facial recognition has other fascinating uses. Last month, Stanford professors Michal Kosinski and Yilun Wang published a study involving 35,000 dating-site images of white people between 18 and 40, all of whom had disclosed their sexual orientation. They ran these through a recognition program called Face++ and came up with a model that accurately predicted whether a man in a photo was straight or gay 81% of the time. They could do the same for 71% of females.

Right on cue, the hyperventilation began. A Bloomberg headline screamed, “ ‘Gaydar’ Shows How Creepy Algorithms Can Get.” The Verge fretted, “The invention of AI ‘gaydar’ could be the start of something much worse.” But is this even new? Jewish mothers have deployed J-Dar for centuries.

My bedrock rule of innovation: Every new technology instantly inspires dystopian fever dreams. Television encourages passivity and square eyeballs. Social networks cause anxiety disorder. Videogames create violent deviants, much as Tipper Gore claimed of explicit music lyrics. Alexander Graham Bell even worried about interruptions from phones! All these fears proved hysterical.

WSJ: Ray Dalio and the Market’s Pulse

 https://www.wsj.com/articles/ray-dalio-and-the-markets-pulse-1506290859

Has Ray Dalio lost the pulse? The founder of the $160 billion hedge fund Bridgewater Associates is all over the place spouting his management philosophy of radical transparency. He has been making TV appearances, attending conferences, and whenever possible plugging his new book, “Principles.” There’s even a TED talk touting his “believability-weighted idea meritocracy”—whatever that means. And now Mr. Dalio is trying to bust into China to manage even more money.

The investment whiz lives and manages by a set of principles that employees have to memorize. The list is filled with gems you might encounter at a silent yoga retreat. “Most problems are potential improvements screaming at you.” Or this reworked cliché: “While most others seem to believe that pain is bad, I believe that pain is required to become stronger.”

Speaking of pain, Bridgewater is losing money this year. Through July its flagship fund is down 3%, while the market is up more than 10%. Does this transparency stuff even work? Bridgewater videotapes every meeting and arms workers with iPads filled with apps like the emotion-relief Pain Button and the co-worker-rating Dot Collector. Mr. Dalio must figure that only under these conditions will employees tell the truth instead of what he wants to hear. Maybe this is all a distraction. But you’ve got to be a little cuckoo to run a giant hedge fund, and I think Mr. Dalio is crazy like a fox.

The core of investing is quite simple: Determine what everyone else thinks, and then figure out in which direction they are wrong. That’s it. No one tells you what they think. You’ve got to feel it. That’s why Wall Streeters say things like, “We are lowering our above consensus expectations earnings estimates.” It’s all about figuring out what is priced into a stock right now. That’s the pulse of the market, the collective mind meld aggregated into stock prices. I know from experience this is the hardest part of running a hedge fund. You can find the greatest story ever, but if everyone already knows it, there’s no money to be made.

And the pulse changes with each government statistic, each daily ringing of cash registers and satellite images taken of parking lots. That’s why stocks trade every day. Real-world inputs and the drifting pulse drive the psychotic tick of the stock market tape. Once you feel the pulse, then and only then can you figure out how everyone’s wrong about tomorrow, next month or next year. And believe me, they’re always wrong. Stocks rarely tread water.

How do you find that pulse? It’s hard enough to invest your IRA. Can you image managing $160 billion? Wall Street analysts have earnings estimates that no one trusts. There are whisper numbers and the chaos of message boards and tweets.

WSJ: Can New York Reinvent Itself Again?

https://www.wsj.com/articles/can-new-york-reinvent-itself-again-1505073464

New York is a hell of a town, but technology is threatening its leadership in almost every category. High-speed trading and shadow banking threaten its strongholds in finance. Digital publishing and social media continue to disrupt magazines and newspapers. Streaming is upending television broadcasting, while enterprise software is displacing lawyers and accountants. New York’s public services—from schools to subways—are antiquated.

For centuries New York has evolved. With its deep port, the city dominated U.S. trade through the late 1800s. But that wasn’t enough to employ the swarms of immigrants coming through Ellis Island. So the city transformed, creating higher-paying jobs. By 1910 some 40% of all New York workers were employed in manufacturing—the garment industry, sugar refining, publishing and even bread making. My grandfather was in the millinery business. Manufacturing lasted even through the 1960s. I remember seeing shirts made in the Empire State Building. Total employment in the city peaked in 1969.

As post-World War II technology drove transportation costs down, manufacturing moved to the suburbs (and eventually Asia). Most large American cities stagnated. But New York transformed itself again, this time into a service economy with high-paying jobs in finance, media, fashion, law, accounting and health care. It also remained home to the most important stock market in the world. Today well over 90% of New York employment is in services, according to the New York state government.

But the city has arrived at a nasty inflection point again. New York risks becoming another Detroit. New York needs to embrace entrepreneurs, not repel them. No more Zuckerbergs heading west.

What form of transformation lies ahead? Some suggest New York must become the next Silicon Valley, a mecca for geeks to create the new multiprotocol routers and alternative energy processes. That’s been tried before and always fails (see Research Triangle, Bangalore, Cambridge, England, or Skolkovo, Russia). Instead New York needs to build on the technology that comes out of Silicon Valley and elsewhere, especially artificial intelligence and fintech, and use these advances to transform New York’s businesses.

Understanding these trends, then-Mayor Michael Bloomberg in 2011 launched an “applied science” competition, offering city land for a new campus. Stanford and Cornell wanted in, with the latter focused “on digital technology and its transformation of individuals, society and the economy.” This week one of the first new urban campuses in generations, Cornell Tech, opens on Roosevelt Island. As a Brooklyn-born Cornell engineer, I played a tiny role.

WSJ: The Bitcoin Valuation Bubble

https://www.wsj.com/articles/the-bitcoin-valuation-bubble-1503868225

The price of a Bitcoin broke $4,000 this month. It’s up 400% in 2017, and only two years ago it stood at around $230. With 16.5 million Bitcoins in “circulation,” and the potential for 4.5 million more, the market value of Bitcoin is now a whopping $72 billion. Sister currency Ethereum is worth another $32 billion.

Early Snapchat investor Jeremy Liew thinks Bitcoin will reach $500,000 by 2030. Tech eccentric John McAfee believes it’ll take only three years. That’s $1 trillion of digital coins. Now companies with an idea for applications built on top of these currencies are raising hundreds of millions through initial coin offerings. Is Bitcoin the greatest rocket ship ever or will it end up a giant smoking hole in the ground?

In its simplest form, Bitcoin enables financial-transaction services on a peer-to-peer network that no one controls. Decentralized and anonymous, it uses an innovative software structure known as the blockchain to store a public ledger across an ever-growing network of servers. Unlike Visa or Mastercard , no single company buys computers. Instead, an ingenious incentive system pays entrepreneurs fees and rewards in a made-up currency to add servers to run the intense math of cryptography algorithms. Many sit in places where electricity is cheap, like Iceland, to minimize operating costs. This blockchain is the future and the path for decentralized innovation to roll out on the cheap.

And how does one value Bitcoins? Those who own them believe they are a currency or an asset like gold, valued for its scarcity. Others like the Securities and Exchange Commission and the Internal Revenue Service view them as a security to be regulated and taxed.

But Bitcoin is actually a business. It’s software as a service—transactions for a price, like credit cards. To record a transaction on the blockchain, a customer pays an average recommended fee of 450 satoshi per byte. (A satoshi is one hundred millionth of a bitcoin.) Miners also get bitcoin rewards for adding blocks to expand capacity. Around 1,700 bitcoins are paid daily in rewards. But business-wise, this is more like being paid in equity. Each day sees about $1 million in fees and $7 million in rewards.

WSJ: Studies Are Usually Bunk, Study Shows

https://www.wsj.com/articles/studies-are-usually-bunk-study-shows-1502660991

An interesting detail went overlooked in the fury over fired Google engineer James Damore’s “diversity memo.” At the end of the document he calls for an end to mandatory “Unconscious Bias training.” Large corporations often force employees into re-education classes, this one a dull, hourlong, 41-slide seminar supported by study after study. Can these studies be trusted? Doubtful. Hands down, the two most dangerous words in the English language today are “studies show.”

The world is inundated with the manipulation of flighty studies to prove some larger point about mankind in the name of behavioral science. Pop psychologists have churned out mountains of books proving some intuitive point that turns out to be wrong. It’s “sciencey,” with a whiff of (false) authenticity.

Malcolm Gladwell is the master. In his 2008 book, “Outlier,” he argues that studies show no one is born better than anyone else. Instead success comes to those who put in 10,000 hours of practice. That does sound right, but maybe Steph Curry shoots hoops for 10,000 hours because he is better than everyone at basketball in the first place. Meanwhile I watch 10,000 hours of TV. Facing criticism, Mr. Gladwell somewhat recanted: “In cognitively demanding fields, there are no naturals.” News alert: Professional sports are cognitively demanding.

When reading people like Mr. Gladwell, you’re probably thinking many of the studies’ conclusions sound right but don’t really reflect your own experience. That’s probably because you’re not a hung-over grad student. Andrew Ferguson of the Weekly Standard studied behavioral economic studies and discovered many are done by grad students observing their peers doing trivial tasks. Then researchers draw hard conclusions from this. Rather than a study of human nature, behavioral science is, Mr. Ferguson observes, “the study of college kids in psych labs.”

Many of the studies quoted in newspaper articles and pop-psychology books are one-offs anyway. In August 2015, the Center for Open Science published a study in which 270 researchers spent four years trying to reproduce 100 leading psychology experiments. They successfully replicated only 39. Yes, I see the irony of a study debunking a study but add to this a Nature survey of 1,576 scientists published last year. “More than 70% of researchers have tried and failed to reproduce another scientist’s experiments,” the survey report concludes. “And more than half have failed to reproduce their own experiments.”.

WSJ: The High Cost of Raising Prices

https://www.wsj.com/articles/the-high-cost-of-raising-prices-1501446630

Most investors love companies with pricing power. Me? Not so much. Consider the life of a wealthy expat who asked a broker to show him the most expensive apartments in Rome. The first, at €20,000 a month, was a dump. So was the second, at €18,000. Yet the third apartment, at €16,000, was well-maintained, with gorgeous views of the Italian capital. Sensing confusion, the broker explained that the first two apartments had sat empty for months—and the owners kept raising prices to make up for the lost rent.

Sound familiar? The U.S. Postal Service has seen first-class mail volume drop from a peak of 103.7 billion letters in 2001 to 61.2 billion last year. It raised rates from 34 cents to 49 cents to make up the difference. Movie tickets sold in the U.S. peaked at nearly 1.6 billion in 2002. Last year only 1.3 billion were sold. Meantime, average ticket prices jumped from $5.81 to $8.65.

The more prices rise, the more customers bolt. It’s like running up a down escalator and never getting to the top. With the stock market hitting highs just about every day, investors need to be wary of companies that raise prices to make their numbers. These stocks make for spectacular sell-offs on even the slightest earnings miss. Case in point:Starbucks , the $4.65 macchiato maker, slid nearly 10% on Friday.

Disney ’s stock has been stuck around $100 for the past few years as investors bite their nails over cord-cutters. ESPN and cable networks were over half of Disney profits in 2012. Figuring the party would rage on, ESPN signed multibillion-dollar TV deals with the National Football League and the National Basketball Association. The Oakland Raiders’ Derek Carr makes $25 million a year? Thanks, ESPN.

Yet the sports channel’s subscribers have dropped from 100 million in 2011 to 89 million today. So ESPN raised prices, from $4.69 per sub a month to $7.21 today, a fee five times as high as any other channel. This newspaper reported earlier this month that Disney is in talks with cable operator Altice USA to raise prices again by perhaps 6% a year and institute “minimum penetration guarantees” to make up the difference. We’ve seen this movie before: ESPN may be a few price increases away from losing another 11 million subscribers.

WSJ: Learn a Language, but Not a Human One

https://www.wsj.com/articles/learn-a-language-but-not-a-human-one-1500229654

Donald Trump, whose wife speaks five languages, just wrapped up a pair of trips to Europe during which he spoke only English. Good for him. If Mr. Trump studied a language in college or high school, as most of us were required to, it was a complete waste of his time. I took five years of French and can’t even talk to a French poodle.

Maybe there’s a better way for students to spend their time. Last month Apple CEO Tim Cook urged the president: “Coding should be a requirement in every public school.” I propose we do a swap.

Why do American schools still require foreign languages? Translating at the United Nations is not a growth industry. In the 1960s and ’70s everyone suggested studying German, as most scientific papers were in that language. Or at least that’s what they told me. In the ’80s it was Japanese, since they ruled manufacturing and would soon rule computers. In the ’90s a fountain of wealth was supposed to spout from post-Communist Moscow, so we all needed to learn Russian. Now parents elbow each other getting their children into immersive Mandarin programs starting in kindergarten.

Don’t they know that the Tower of Babel has been torn down? On your average smartphone, apps like Google Translate can do real-time voice translation. No one ever has to say worthless phrases like la plume de ma tante anymore. The app Waygo lets you point your phone at signs in Chinese, Japanese or Korean and get translations in English. Sometime in the next few years you’ll be able to buy a Bluetooth-based universal translator for your ear.

Yet students still need to take at least two years of foreign-language classes in high school to attend most four-year colleges. Three if they want to impress the admissions officer. Four if they’re masochists. Then they need to show language competency to graduate most liberal-arts programs. We tried to get my son out of a college language requirement. He pointed to his computer skills and argued that the internet is in English. (It’s true. As of March, 51.6% of websites were in English. Just 2% were Chinese.) We lost the argument. He took Japanese and has fun ordering sushi.

It’s not as if learning another language comes with a big payday. In 2002 the Federal Reserve and Harvard put out a study showing those who speak a foreign language earn 2% more than those who don’t.

High schools tend to follow colleges’ lead, but maybe that’s beginning to change. I read through all 50 states’ language requirements and only one requires either two years of a foreign language or two years of “computer technology approved for college admission requirements.” Wow. Is that California? No. New York? No. Would you believe Oklahoma? South Dakota and Maryland also have flexible language skill laws. Foolishly, the Common Core state standards are silent on coding.

WSJ: No one rings a bell...

 https://www.wsj.com/articles/for-whom-the-bell-tolls-sell-1499029457

You think this market’s crazy? One day in early 1987, with Wall Street humming, a meeting after trading closed involved several cases of champagne. The Dow Jones Industrial Average had breached 2000 that day, a cause for celebration. A week and a half later, more champagne was ordered when the average passed 2100. Then again a few weeks later for 2200. Eventually my boss stopped buying bubbly when breaking records became the norm. Japanese insurance companies would show up at the brokerage firm where I was a securities analyst and ask for a list of our five favorite stocks, then hand it to their salesman and say “buy 50,000 of each.”

On Friday, Oct. 16, 1987, the average dropped 108 points. Rumors swirled that we’d celebrate with cases of Bud Light. No matter: I was with some traders and a client in a stretch limo, headed to watch Mike Tyson fight Tyrell Biggs for the heavyweight championship—an event staged by Donald Trump in Atlantic City, N.J. Man, I miss the 1980s.

The market truly crashed the next Monday, dropping 508 points, or 22.6%. In retrospect, there had been signs all over the place. How did everyone miss them? Well, as the old Wall Street adage goes, no one rings a bell at the top (or bottom) of the market.

So here we are in 2017. The stock market is supposed to be the great humbler, but the records are coming fast and easy. The Dow Jones Industrial Average is up 8% for the year and flirts with a record practically every day. Some of this is structural: Bonds are no fun, since the yield curve is flattening and three-month Treasurys are 1%. So money flows to stocks—and other weird things.

A friend of mine used to run a large-growth mutual fund. In the dot-com mania of 1999, he told me that tens of millions of new capital would flow in every single day. Trying to figure out where to put it, he would consider the new batch of initial public offerings—and then inevitably he just would buy more Yahoo or America Online or Cisco or, what the heck, Yahoo again.

Today, money is flowing into exchange-traded funds. But because ETFs are weighted by market cap, that money flows into the biggest names: Facebook , Amazon, Apple, Microsoft , Google. Classic momos, or momentum stocks. The church of what’s working now. What could possibly go wrong?

WSJ: Universal Basic Income - Zuckerberg’s Opiate for the Masses

 https://www.wsj.com/articles/zuckerbergs-opiate-for-the-masses-1497821885

At Harvard’s commencement last month, dropout Mark Zuckerberg told eager graduates to create a new social contract for their generation: “We should have a society that measures progress not just by economic metrics like GDP, but by how many of us have a role we find meaningful.” He then said to applause: “We should explore ideas like universal basic income to give everyone a cushion to try new things.” Who wouldn’t like three grand a month?

Having the government provide citizens with a universal basic income is the most bankrupt idea since socialism, but others in Silicon Valley still have been proselytizing money for nothing. “There will be fewer and fewer jobs that a robot cannot do better,” Tesla CEO Elon Musk said at the World Government Summit in Dubai earlier this year. “I think some kind of universal basic income is going to be necessary.”

Robert Reich, President Clinton’s labor secretary, summed up the wrongheaded thinking a few months ago: “We will get to a point, all our societies, where technology is displacing so many jobs, not just menial jobs but also professional jobs, that we’re going to have to take seriously the notion of a universal basic income.”

This is a false premise. All through history, automation has created more jobs than it destroyed. Washboards and wringers were replaced by increasingly inexpensive washing machines, while more women entered the workforce. Automated manufacturing and one-click buying has upended retail, yet throughout the U.S. millions of jobs go unfilled. With Amazon’s proposed purchase of Whole Foods , the online giant is primed finally to bring efficiency to the last mile of grocery shopping—but don’t count on all grocery jobs to disappear.

The economics, which they apparently stopped teaching at Harvard, are straightforward: Lowering the cost of goods and services through automation allows capital—financial and human—to attack even harder problems. Wake me up when we run out of problems.

These kinds of predictions aren’t new, and they’ve been wrong almost always. In 1930 John Maynard Keynes envisioned that his grandchildren would have a 15-hour workweek. Sam Altman, who runs the startup incubator Y Combinator, dabbles in similarly bold but meaningless statements. “We think everyone should have enough money to meet their basic needs—no matter what, especially if there are enough resources to make it possible,” he wrote last year, while admitting he has no idea “how it should look or how to pay for it.”

WSJ: The Radial Tire Lesson for Silicon Valley

 https://www.wsj.com/articles/the-radial-tire-lesson-for-silicon-valley-1496604821

(updated to reflect iPhone X naming convention)

Want to know what scares tech executives? It’s not competition from China, WannaCry ransomware attacks, or being coded out of existence by Mark Zuckerberg clones. It’s radial tires.

Until around 1970, almost all cars and trucks rolled on bias-ply tires. Under the rubber treads, nylon belts ran diagonally, at 30 or 45 degrees, forming a crosshatch. This allowed for stronger sidewalls and cheaper manufacturing. The problem was that bias-ply tires needed to be changed every 12,000 miles.

Then along came radial tires. Introduced in 1949 by Michelin, radials have steel belts inside that run across the tread at a 90-degree angle. They are wider, better at dissipating heat, and safer. Although radials cost a little more to manufacture, they last at least 40,000 miles.

The first American car that came with radials was the 1970 Lincoln Continental. Four years later, Goodyear was making only radial tires. Other companies missed out and paid dearly. By the end of the decade, radials effectively had 100% market share for cars.

Which brings us back to Silicon Valley. In the 1980s and ’90s, technology was changing so fast that a new computer was almost disposable. You upgraded every few years. But as innovation slowed, they lasted longer, which meant fewer people buying computers.

Bill Gates was worried about this all the way back in 1991. “When radial tires were invented,” he said in an interview, “people didn’t start driving their cars a lot more, and so that means the need for production capacity went way down, and things got all messed up. The tire industry is still messed up.”

During the dot-com boom, Mr. Gates invoked the analogy again. “Every time I read about optic fibers or wireless, I say to myself, ‘Wow, that sounds like radial tires,’ ” he said. “When they got radial tires did people drive four times as much just because the tires lasted longer? No, the industry shrank.”

WSJ: The Market’s Tough Love Delivers

https://www.wsj.com/articles/the-markets-tough-love-delivers-1495403585

Foot Locker’s stock imploded on Friday—crashing down $12, or 17%. It happens all the time, one of the great features of the stock market. A week earlier, Snap, which went public two months ago, saw a chunk of value disappear. It dropped almost 25% overnight after the social-media firm revealed that sales were up only 5% and the number of users was a little light—oh, and that it had lost $2.2 billion. That’s billion with a “b.” Even if you take out one-time costs, the company lost $200 million on $150 million in sales. Impressive.

Did I mention CEO Evan Spiegel got a $750 million bonus for taking the company public? Investors who bought the stock didn’t want to ruin the party, figuring it was going turn into the next Facebook. Snap’s stock was selling at 44 times future sales, on the expectation that growth and profits were coming. Or not. After lousy earnings, investors basically shouted, “Enough!”

No one sits around and says, “we need to teach Snap a lesson.” Rather, it’s the collective selling that sends the message. That same day, CEO Travis Kalanick of Uber, another company with gargantuan losses and personnel issues, tweeted and then deleted, “Thank God we’re not public.” But Uber should be public. If only for the discipline of the public markets that its board of directors refused to impose.

Many people think the stock market is a cesspool of Wall Street greed. I look at it differently. To me, the stock market is the greatest enforcer ever invented. No person controls the market. Investors separately make decisions every day to buy and sell. But collectively they enforce discipline on corporations.

WSJ: How Deadheads Sped Ahead...5-8-77

 https://www.wsj.com/articles/how-deadheads-sped-ahead-1494187483

Forty years ago Monday the Grateful Dead played in upstate New York at Cornell University’s Barton Hall. Memorialized as “5-8-77” on a million cassette tapes, it is considered their best, a legendary show, the band’s Holy Grail. A good friend ran the concert commission and assigned me, a lowly freshman, to turn on the house lights when the show ended. Things have changed over the past 40 years, but it took time to make out what was illuminated that night.

The Grateful Dead began playing in 1965 as the Warlocks, right before the flower-power era they ushered in. Their opening gig was a Wednesday night at a pizza joint named Magoo’s in downtown Menlo Park, Calif. I’d be surprised if more than 20 people showed up, but they still planted seeds of what you’ll recognize as modern innovation in the heart of what is now Silicon Valley.

Eventually a vast army of fans known as Deadheads arose. Though not me, as I didn’t look good in tie-dye. Deadheads were nonconformists but amazing trendsetters. As they trucked into the show, I noticed many clumsily hobbling on crutches. It wasn’t until the concert started that the audience turned these crutches into makeshift microphone stands, rising high above the crowd to tape the performance. Most of the band’s more than 2,000 shows were pirated. From this emerged a peer-to-peer network: bootleg cassettes passed between fans, an early sharing economy.

Networks were a powerful thing, but the recording technology was rudimentary. When a cassette was duplicated, the sound of the tape moving over the playback head would end up on the recorded copy as an annoying hiss. The further from the original, the worse the hiss. I used to walk into friends’ rooms and snark, “Is this Cow Palace ’74? Man, the hiss player was really on that night.” I haven’t changed much since then.

The Grateful Dead could have put a stop to it all, frisking concertgoers as they entered, but the band accepted piracy. A viral marketing campaign started. Free music lured new fans, who practically toured with the band and bought tickets, shirts and posters. They then made more cassettes, enchanting even more fans. This is the power of free that Facebook and Google have since perfected. Also, I’m pretty sure the band’s fans invented virtual reality. I heard many at shows say they could see things that weren’t really there.

WSJ: Bad Intelligence Behind the Wheel

https://www.wsj.com/articles/bad-intelligence-behind-the-wheel-1492983234

This month Apple became the 30th company to receive a permit to test autonomous vehicles on the mean streets of California. I can’t wait to have that ponytail guy at the Apple Store Genius Bar check my oil. Beyond a $150 permit fee, the Department of Motor Vehicles requires these businesses to report all traffic accidents involving their self-driving cars. I read all the reports, and they’re mostly minor fender-benders.

Self-driving cars exist only because of artificial intelligence and machine learning. They aren’t so much programmed; rather, their sophisticated pattern-recognition-systems identify oncoming traffic, road stripes and stop signs. Autonomous cars will eventually be safer than what we have today. A time of fewer accidents and saved lives is coming.

But these cars still have a lot to learn. Most of the posted accidents involve Google’s cars, which have clocked some two million street miles. Impressive, but it’s still only the equivalent of what 200 normal drivers put on their vehicles in a year. That’s statistically insignificant given there are more than 250 million cars and trucks on American roads. Artificial intelligence needs lots more data.

Google Photos, which uses similar machine learning for facial recognition, hosts billions, maybe even trillions, of pictures. It is wicked smart, a window into a fantastic, if not slightly creepy, future. You tag a face with a name. It then correctly finds that face in other photos—even if they’re a decade old and have 30 other people in them. If you ask Google how it works, the company will say machine learning. But no one really knows exactly.

WSJ: When to Sell? Look at the HQ.

https://www.wsj.com/articles/when-to-sell-look-at-the-hq-1491768486

Rising above the San Francisco skyline, a few short blocks from where Mel Brooks filmed the Hitchcock “Vertigo” spoof “High Anxiety,” is the 1.6-million-square-foot Salesforce Tower, soon to be the company’s new headquarters and the second-tallest building west of the Mississippi. As the stock market reaches dizzying heights, my thoughts turn to the toughest decision for investors: when to sell a stock.

Wall Street’s most successful players get ahead of the news, understand a CEO’s mind, and figure out where the company is going. To do this, I often use what I call the “HQ Indicator.” It’s for those playing long ball, not day traders, but it is simple. When a company announces it is moving its executives into a lavish palace, it’s often time to get out.

Consider the Frank Gehry-designed IAC Building in Manhattan, completed in 2007. It’s the deconstructivist-style headquarters for InterActiveCorp , owners of CollegeHumor and Tinder. I find it ugly. And IAC stock deconstructed itself, going from around $40 in 2007 to under $15 two years later, though it has since rebounded.

Or the $1.7 billion Time Warner Center overlooking New York’s Central Park. Opened in October 2003, it’s a “city within a building.” Time Warner’s stock was $45 at the time, hit $68 in January 2007 and then dropped to $17 two years later. It didn’t get above $45 again until 2012.

Why does the HQ Indicator work? Investors in public companies have no control and are at the whims of management. Are a company’s leaders frugal, or do they spend shareholders’ money like drunken sailors? Are they modest or do they have the hubris that leads to an edifice in honor of the CEO’s greatness and legacy? Will management be tempted to rush to fill the huge swaths of new empty headquarters space, often taking on questionable businesses?

WSJ: Bill Gates vs. the Robots

https://www.wsj.com/articles/bill-gates-vs-the-robots-1490559460

Bill Gates, meet Ned Ludd. Ned, meet Bill.

Ludd was the 18th-century folk hero of anti-industrialists. As the possibly apocryphal story goes, in the 1770s he busted up a few stocking frames—knitting machines used to make socks and other clothing—to protest the labor-saving devices. Taking up his cause a few decades later, a band of self-described “Luddites” rebelled by smashing some of the machines that powered the Industrial Revolution.

Apparently this is the sort of behavior that would make Mr. Gates proud. Last month in an interview with the website Quartz, the Microsoft founder and richest man alive said it would be OK to tax job-killing robots. If a $50,000 worker was replaced by a robot, the government would lose income-tax revenue. Therefore, Mr. Gates suggested, the feds can make up their loss with “some type of robot tax.”

This is the dumbest idea since Messrs. Smoot and Hawley rampaged through the U.S. Capitol in 1930. It’s a shame, especially since Bill Gates is one of my heroes.

When I started working on Wall Street, I was taken into rooms with giant sheets of paper spread across huge tables. People milled about armed with rulers, pencils and X-Acto Knives, creating financial models and earnings estimates.

Spreadsheets, get it? This all disappeared quickly when VisiCalc, Lotus 1-2-3 and eventually Microsoft Excel automated the calculations. Some fine motor-skill workers and maybe a few math majors lost jobs, but hundreds of thousands more were hired to model the world. Should we have taxed software because it killed jobs? Put levies on spell checkers because copy editors are out of work?

Mr. Gates killed as many jobs as anyone: secretaries, typesetters, tax accountants—the list doesn’t end. It’s almost indiscriminate destruction. But he’s my hero because he made the world productive, rolling over mundane and often grueling jobs with automation. The American Dream is not sorting airline tickets, setting type or counting $20 bills. Better jobs emerged.

Mr. Gates may be worth $86 billion—who’s counting?—but the rest of the world made multiples of his fortune using his tools. Society as a whole is better off. In August 1981, when Microsoft’s operating system first began to ship, U.S. employment stood at 91 million jobs. The economy has since added 53 million jobs, outpacing the rate of population growth.