Interning at Samsung

I interned at Samsung America the summer after my freshman year.  It was my first experience with a real corporation, so I showed up dressed in college-kid slacks and tie,  excited about having this super important official job.

Now this super important official job was located in Samsung America’s headquarters in La Mirada, off the 5 freeway.  From the freeway, the building looked so tall!  It had to have been at least 10 to 15 stories.  It was with pride that I pulled into the parking lot.

Super excited about this super important official job I was there to do, I walked in and promptly discovered that the facade was literally that, an optical illusion.  The actual building was only two stories high, but achieved the look of verticality from glass panes that were stacked in ten rows atop each other, 3-5 panes per floor.

This was in the early 2000s, when Samsung’s primary products were televisions, printers, video players, CD-R’s, etc., before a single phone.  It was a prestigious company back then, but not at the level of the past 10 years.  And I became very intimately acquainted with all these primary products over my time there, not because I helped market them or do analysis on them, but because I spent most of my time there in the storage closet, which was a repository of old hardware.

My immediate supervisor was a short, bespectacled senior manager whose eyes were blurry behind his frames, and whose own ambivalence about his role in the company caused my summer to be a pretty unproductive, although amusing one.

Let’s just call him Mr. Lee, because I have a 20% chance of being right anyway.  Mr. Lee was well-meaning and honest, but maybe too honest.

After a two-day period of being introduced to people around the office, and being feted with lunches, I asked for work to do, to which he responded that there was nothing to do.

Dumbfounded, I asked what he meant.  I’m here on an internship, I said.

So, he said.  We have people to do everything already, he replied, casting a hand around the office.  You’re here to learn.

And what I discovered the learning was, was life lessons imparted in 3-hour lecture form, in Korean, by this man on an overseas posting.  They usually took place after lunch, in the storage closet.  More on the significance of this storage closet later.

I came into work three days a week.  In the mornings I was unsupervised and free.  One day I walked into another intern’s office (a guy from Harvard), and discovered him watching footage of a Korean pop star’s sex tape scandal with his own immediate supervisor, a man likely in his 30s.  His supervisor excitedly asked him to make a copy for him.

Sometimes I tried to do work.  This consisted of organizing files, and going out to get coffee.  When I asked for real work, I was waved off by everyone in the office, as if instructed by an invisible set of orders on high.

They can do it better than you, Mr. Lee said to me.

His lectures to me usually started right after lunch and sometimes lasted until 3 or 4pm.  And I’m embarrassed to admit, I remember almost nothing about them.  My Korean wasn’t as good as it is now, so even at the time, I understood maybe ~30%.  Add the effect of heavy lunch-induced food comas, so that the most distinct thing I remember is repeatedly dozing off right in front of Mr. Lee’s face and feeling bad about it, but as I blinked my eyes wide open with superhuman effort, him not even pausing, missing a beat, or commenting on my slumber, and instead continuing in his rapid, undulating, quite dramatic exhortations about working hard and being an immigrant and being loyal.

At home, I looked up ways to stay awake through food comas, and came across such tactics as biting your tongue and pinching yourself hard.  Neither worked for me.  I was too tired to summon the effort.

Mr. Lee himself had been sent by HQ on this overseas posting, and while he wasn’t the head of the office, he was a powerful #2.  Not so powerful that he could do anything he wanted, but still – three hour storage closet breaks can only be administered by someone with some clout.

The #1, boss of bosses, was an even older gentleman who was also bespectacled, and who Mr. Lee tried to avoid at all costs using various tactics and techniques.  If, in the parking lot, Mr. Lee spotted the Boss, he would instruct me and other underlings to duck inside the car so that we were not visible.  He himself would recline the seat back all the way so as to avoid detection.  More than once as we made our way up to the executive floor (the second floor of the 2-story building), he instructed me to crouch under the cubicles and commando-style, move towards the back while keeping out of the Boss’ line of sight.  This was way easier for him, because he didn’t have much crouching to do.  Our destination during these crawls was the storage closet, where the Boss never seemed to think to check.

The other staff in the office saw us and knew exactly what we were doing, but never said anything.  After all, Mr. Lee was the #2.

During our lectures, Mr. Lee became more animated and passionate than I ever saw him.  It’s like he could finally be the person he wanted to be, through his words.  By the way, I am not exaggerating about the duration of his lectures.  Directly after lunch, I knew I would be tied up until it was time to leave.

It was almost as if Mr. Lee didn’t want me to work.  A lot of it was defined by the fact that he resented the corporate hierarchy and his place in it, but looking back on it now, I wonder if in some way he was looking out for me.

It’s your job to learn, he had said.  To be a student.  Not to engage in the mindless drudgery that his staff was buried in.  The subtext: not so fast.

And you can’t give 3 hour lectures imparting the entirety of your life experience to someone you don’t like.  Probably the opposite.

I realize in retrospect that in many ways, without explicitly meaning to be, he was quite kind.

What Gary Taught Me

I never thought I was going to write a second post with Gary in it.  But he was killed two weeks ago in a tragic boat accident, aged 64.  When I went to his funeral yesterday, I saw that the latest entry in the guest book was, ‘so young!’  Overwhelmed, I didn’t know what to write after that, so I didn’t.

I also didn’t stay for the celebration of life part, where everyone gets together and talks about the recently deceased.  I just didn’t know what to say.  But now I think I do.

I met Gary during what was probably the roughest time during the last 20 years of his life.  He was going through an acrimonious divorce and everyone who worked with him, the 9 of us, stuffed in that two bedroom apartment off Manhattan Beach Blvd, knew it.

Sometimes his soon-to-be-ex-wife would drive up, shower us with abuses, and drive off.  One time we had a counterintelligence expert show up and do a thorough sweep of the apartment for bugs.  For whatever reason, this ‘expert’ thought I was working with the enemy, and kept turning away from me when I tried to listen.

They tried to sabotage each other, they maligned each other, they were each lawyered up to the gills, and part of my unofficial job description was to sort through his bank statements and files from the last decade in an effort to make the lawyers’ lives easier, because they were high-priced idiots who couldn’t see the outlines of the case.  I just remember the attorneys sitting there in the conference room, clearly exposing their ignorance about basic details, as the paralegals chimed in with what the paid-by-the-hour idiots should have known.  I don’t remember the firm’s name, but they were based out of Torrance.

Anyway.  Throughout this, Gary worked like a fiend.  I joined in 2010; in 2008 and 2009 he saw his net worth get destroyed by half, and the combination of this and the divorce made him feel like he was up against a wall.

Every morning he did 5 am yoga.  Then at noon he went out again for a spin class.  Then sometimes he did another yoga session in the evening, calling all the rest of us lazy wusses[not this exactly but something similar] for not being able – or unwilling – to keep up with him, who was twice our age.

He was working with a manic, crazy energy.  You could sometimes see his eyes go vapid from the exhaustion and anxiety.  Files were strewn all over his room as if TNT had exploded in it, but he knew where every single thing was.  Sometimes while he was talking, he would drift off, his mind wanting to be somewhere else.

Gary was my single ‘professional’ mentor.  Actually, he was more of a life mentor.  During that time, Gary was going through a period of intense reflection.  Mixed in with a simmering bitterness about the divorce, and intense anxiety about…everything, he rambled on about events in his life, thinking out loud about what had happened, and the majority of it revolved around the theme of Not Trusting the System.

He railed against everything – his ex-wife, against bankers, against people who spent too much on their cars and houses, against all the people in Manhattan Beach trying to be big fish in small ponds, against county assessors, against dishonorable clients who didn’t pay, against people who had full time jobs they didn’t enjoy.  The IRS.  The federal government.  Lawyers.  Accountants (he was formerly one).  Mostly against people who he thought spent too much on anything, and people who ‘bought’ into the system, the (former) American Dream, who tried to be like other people.  Son of a mailman, a boy from Hawthorne, Gary had a huge chip on his shoulder even while from the outside, you would see him as a millionaire and as part of the establishment.

Of course, a lot of it went too far.  Walking into hotel lobbies to enjoy their free continental breakfasts.  Withholding our checks while trying to convince us it was better for tax purposes.  Driving thirty minutes out of the way because gas was cheaper somewhere else.  Not wanting to go to lunch anywhere unless it had a lunch special that was at least a double-digit percentage cheaper than regular price.  Taking his son to LA Kings games but arriving purposely late, and then ‘teaching’ him about the bargaining advantage against scalpers when one arrives after the game has started.  Spending more time trying to rack up miles than on the details of his divorce (which we had to handle).

And the combination of his own personality and his circumstances made him bitter.  He did spend a lot of time badmouthing his ex-wife.  This spilled over into a judgmental attitude about other people too.  His neighbors who tried to keep up appearances.  County assessors and their work ethic.  And his relationship with his brother was not the greatest either.

But despite it all, he walked the walk.  He was frugal to a fault, even though he had become a millionaire many times over.  He said what he thought.  And I absorbed it all.  Because in most ways, he was right.  And for that, I was always grateful.

And that’s what I thought I knew about Gary.  Based on his cynicism and sometimes-pettiness, I didn’t expect to see the entire hall-full of people come to pay their respects.  I saw how much he was loved by his children.  I even saw his ex-wife sitting in the first row, and who read a poem about forgiveness, which had layers upon layers of meaning on it, since the boat accident was another’s fault.

One of his friends gave a moving speech full of fondness and affection.  More than once I heard him described as fun-loving, generous, big-hearted, friendly.

And then it got me thinking, as I stood there in the back of the room.  I thought I had known Gary.  But it seemed like actually, there was another side to him that I had never known.

Perhaps, just maybe, who I had seen was a man at his worst.

And that man at his worst, had still never raised his voice, was ready to greet us with a smile, and lived every day through that dark period with desperate, almost superhuman energy.  And come to think of it, I hadn’t made much of it at the time, but I do remember he had talked incessantly about his kids – about their nature, about their accomplishments, even when I hadn’t thought they were so great – with exceeding pride and love.  That man at his worst, was still better than many people at their best.

Rest in peace Gary.

1%

Of the places I’ve been to, there’s one entire city that I think would singularly defy explanation to an ancient visitor.  It isn’t one based on manufacturing, like Shenzhen, or trade, like Dubai,  or a port, like Antwerp, or a capital seat of power, like Washington D.C.  It’s not even a city based on mirages, like Los Angeles, or tourism, like Orlando.  Because it wouldn’t be that hard to explain these places.

Buildings are a concentration of energy and resources, and a reflection of our values and culture.  An ancient Egyptian looking up at the skyline, would see the Pyramid of Khufu, the deity-king, and go about his business, knowing that in his world, the link between the afterlife and this life was sound.  An ancient European, looking at the nearest castle or church, would have similarly seen the relationship between herself, the powers that be, and the powers that govern the ever after.

Even in our modern world, you can pretty much look at any building and identify its reason for being.  Office towers – a clustering of service-industry companies.  Malls – our consumerist economy at work, and/or modern town centers.  Residential towers – lack of space in a city where people want to live.

But.  There’s an island in the middle of the South China Sea with some of the largest buildings in the world.  Likely, 99% of the population of the world will never go there, nor have a reason to.  And I’m not so sure an ancient visitor would have any idea what they were for, nor understand how they were built.  They aren’t residences, marketplaces, nor granaries, offices buildings, warehouses, or anything that could have existed a few hundred years ago.

Because these buildings?  They’re a type of factory built on a single mathematical probability, and that is the probability that over hundreds of thousands of games played, it will lead to a convergence towards a single number – 1%.  It is an island built on our modern world’s triumph of risk management.

I’m talking about Macau.

Now there are a lot of different directions we can go here, but I want to start with the sheer size of these buildings.

Ancient descriptions of splendor always interest me.  For example, Marco Polo, arriving at the court of Kublai Khan, marveled at the “greatest palace that ever was”, with gilded walls and a main hall so large that it could seat 6,000 dinner guests.  The Khan’s palace, like many other palaces, were built to awe, stupefy, and impress power upon their subjects and vassals.

Now of course, this kind of breathless praise is subjective, and dependent on the eye of the observer.  What if we applied this kind of writing to modern buildings?  How’s this one:

A massive pleasure ground filled with all sorts of marvels and luxuries, boasting 30 restaurants of cuisines from all around the world, accessible to guests by means of a gondola crossing a lake, nearly 6 football fields in size, activated with fountains that explode into the sky in a synchronized dance.  At the end of the voyage, guests are greeted by attendants who show them into a staggering hall accommodating nearly 10,000 pleasure-seekers at once.  Above them, more than 1,000 stately rooms await, bedecked in lavish gold leaf and precious metal furnishings.  Plush carpeting create a serene environment for these guests of honor, who arrive at their rooms passing carousels and ferris wheels arranged throughout the lobby, made entirely of floral arrangements.  Artwork carefully selected from around the world and across the span of history, with priceless Qing Dynasty treasures and more than $120 million worth of contemporary paintings alike, greet these visitors.  Costing a staggering sum of more than $4 billion dollars, constructed over a 2-year period with a city’s worth of laborers, this pleasure palace is…the Wynn Palace in Macau.

Located in Cotai, the Wynn Palace is one of twelve casino resorts built with a similar level of stupefying investment.  At 400,000 square meters (4.5 million square feet), its gross area is larger than most buildings in North America, including the Mall of America (the largest mall in America) and the One World Trade Center (the tallest building on the entire continent), and larger than Disneyland or Disney World Magic Kingdom, including parking lots.  It’s larger than airports.

To build the Palace, Wynn invested more money than went into the One World Trade Center, a building whose reason for being, in Manhattan, is more or less crystal clear.

The Wynn’s neighbor, the Venetian Macau, ranks among the top 5 largest buildings in the world.  At over 1,000,000 square meters (250 acres), the single casino resort is more or less the size of Hudson Yards’ East Yard (home of 4 skyscrapers each over 900 feet tall, a retail mall, hotel, 2 million square feet of residential properties).

And on the Cotai Strip alone, there are ten more like them!

Returning to our ancient visitor.  No doubt he would be astounded to step foot inside one of these palaces, although he would have no idea what people were doing inside of them.  He probably would have been even more astounded by the fact that unlike ancient tombs, palaces, temples, or castles, stepping inside one of these modern palaces is completely free of charge.

Now imagine you’re the ancient visitor, entering a casino in Macau.  The casino floor sprawls out for, literally, acres.  There are people with their eyes glazed over the slot machines, seemingly engaged in some sort of modern-day temple offering.  They insert tokens of monetary value into a metallic, neon offering jar.  Capriciously, it offers some back.  Other times it swallows the tokens, as if appeased.

If you walk a little further, out to the open expanse of the tables, then you might see something that you can relate to.  No machines here.  Just a simple exchange between two humans, and a crowd of people surrounding them.  The two humans seem engaged in some sort of rite.  One of them wildly gesticulating, engaged in all sorts of rituals of extreme concentration: blowing on some pieces of paper, mumbling what seem to be incantations, shouting words as they flip them over, peeking slyly under them, slamming the side of a hand down and pretending to ‘chop’ the paper in half.

This is baccarat in Macau.  

This is a game where the house edge is slight, and the actual decision-making made by players is almost nonexistent.  Add to that the influence of native Chinese superstitions, and you get a game where paradox of the illusion of control looms large.

In baccarat, or punto cano, one plays the game by betting on one of three outcomes: whether the “banker”, usually the dealer, or the “player”, usually another player, will  win.  Or that they will tie.  The two sides are dealt cards, and these two players then flip them, nothing else.  Then they are issued new cards according to strict rules.  Literally, after you bet on one of these three outcomes you have nothing else to decide.  

And for the player herself, she does nothing else but flip the cards or draw them according to preset rules.  There is literally nothing to stop casinos from replacing the “players” and dealers with robot arms.  But perhaps for this simple reason, an elaborate edifice of rationalizations in the form of rituals and superstitions, arises.

Gambling has a rich mythology. From the earliest days of human society, casting lots —often by drawing straws or tossing dice made from the knuckle bones of sheep—was a way to ask the gods for answers. The high priest who wanted influence soon learned to become a “sharper,” positioning the straws just right, shaving the dice, or even devising elaborate rules to ensure that more than random chance would determine the outcome. In many societies, it was a serious crime for anyone but the high priest to touch the instruments used to divine the will of the gods. This imbued the dice with a sacred quality. It also made sure no one could tell if they were loaded.

A screen by the table displays whether the banker or player has won previous rounds, in alternating colors.  What is this screen even for?  The result of a previous hand has literally nothing to do with the next round of play.  

But when a player gets hot, you see the player’s marker blazoned in blue or red, curling back down and around, like an improbable banner, a dragon’s tail.  You see players in states of concentration, chain-smoking, guzzling tea by the gallon, “cutting” their cards with a big fist, pounding it down on the table, then chopping it in half before taking the edge of the card, like it weighs a ton and he’s struggling against the weight of his fight against fate, peeling it back with the force of the spirits unleashed in his hands.  Then you see tables erupting in pandemonium as players go on streaks, crowds gathering around the table four deep, jostling for position to bet, often through reps located closer to the action, chips flying above and through the crowd and landing all over the table, and then ladies of the night creeping up and slipping their phone numbers to the big winners.

The energy is intense, and it makes you start believing it, this thing called luck.

And on second thought, maybe it’s not so far-fetched to believe that an ancient visitor would have related to what goes on there.

*******

Gambling is 90%+ of revenues in Macau.  In Las Vegas, that percentage is closer to 40%.  Baccarat alone accounts for 80% of revenues in Macanese casinos.  And of this 80% of revenues, most of it is from VIP gaming, where the minimum bet size is $5,000 US dollars.  

By some estimates, the actual count of these VIPs is in the thousands or tens of thousands, meaning that it is the population of a small town driving the revenues of a small country’s GDP.

The mechanics of the baccarat game are worth reiterating.  

When you play baccarat, unlike most casino games, where there is no strategy or decision making.  You do not decide to draw or stand, like blackjack.  You do not have dozens of options, like in roulette.  You do not look at the other players’ cards or try to read their faces.  You can try to card count, but the consensus among the best card counters alive, including Ed Thorpe, are that “despite the resemblances between baccarat and blackjack, the favorable situations detected by perfect card counting methods are not sufficient to make the game favorable.”  

A more appropriate analogy might be to think of it as a team-based version of casino war.  There is no winning strategy.  The odds are given.  The “banker” will win 45.9% of the time, and the “player” will have the upper hand 44.6% of the time.  And you can bet on either.  Less than 1% of the time, they will tie.

The net of these three outcomes results in a 1% advantage for the casino.  It’s the slimmest of odds, and it’s the statistical substrate on which nearly billions of dollars in buildings have been built.  

Take some time to think about whether you would build a business on a 1% margin.  Does that sound appealing?

You might be saying that if it’s a sure thing, then of course!  

But the problem is that probabilities are not sure things.  In fact, because the house edge is so slim, in short games, small volumes, and large hands, baccarat players can go on inexplicable streaks that wreck holes in casino vaults.

Bill Zender, former Nevada Gaming Control Agent, sums it up: “your risk is 100 times your average bet.  So if a guy is betting $10,000 a hand, he could conceivably win $1 million from you.  That’s within two standard deviations, so it can happen.”

And in a game where VIP regularly wager half a million dollars a hand, the casino can lose tens of millions of dollars in minutes.  If this sounds theoretical, let’s take a trip back to 1990.

This was the era of one of the greatest bubble eras in human history, with its epicenter in Japan.  Residential land in Tokyo was worth $6,000/sqm.  That’s more than $60,000 a square foot!!!  The Nikkei stock index had quadrupled in less than 10 years.  The appraised value of the Imperial Palace was reportedly higher than the land value in California.  Reeling from the heights of their stock market, Japanese banks, companies, and businessmen were on a shopping spree, snapping up properties in Manhattan and London and “priceless” artworks the world over.  It was, for many Japanese companies and businessmen, the height of their arrogance.   

It was in this milieu that two real estate tycoons met.  One was a shadowy Japanese businessman named Akio Kashiwagi.  Rumored to have ties to the yakuza, Kashiwagi was known among casino owners to be a whale, one who would wager hundreds of thousands of dollars a hand.  And for this reason, he was widely courted.

His game of choice was baccarat, and he was the type of player to play big hands and have the ability to walk away with profits.  Exactly the type of player that casinos both love and fear.  In effect, because of the even nature of the game, a casino owner inviting a whale to play is himself making a gamble – that the combination of circumstances, custom rules, and setting will induce the player to stay as long as possible to let the slim 1% odds play out.

The second tycoon?

None other than our current president, Donald Trump.

This was their second meeting.  In their first meeting, Kashiwagi walked away with $6 million of the Trump Plaza’s money.  Earlier in the year, he had blown a $20 million hole in the vaults of the Diamond Beach casino in Australia, almost bankrupting it.  In other words, he was a fearless and skilled(?) gambler.

Now in their second encounter, Kashiwagi wagered $18 million an hour, playing a hand every 50 seconds.  At one point he had looted Trump’s vaults of that amount, $18 million.  The RAND consultant/mathematician that Trump had hired, along with Trump himself, watched in confoundment and extreme anxiety as the pile of $5,000 chips overflowed off the felt onto the carpet.

It was more money than the entire rest of the casino had lost or even wagered that weekend, meaning that this single chain-smoking businessman was single-handedly wrecking the hotel’s profits for the year.

As the marathon gambling session went on, the grindstone of the ever-present 1% odds began to work in Trump’s favor.  Kashiwagi started giving back his winnings, millions at a time.  He was down $10 million with every intent to continue playing when Trump decided to call it quits, reportedly against the terms of the $12 million freeze-out agreement that had been negotiated.

The point is not what happened.

It’s that the house edge of 1% is not assured.  A casino’s very fortunes can swing on the volatility of one player.  It takes time for probabilities to play out.  The probabilities also play out over multiple players.  Getting as many people to play, and staying as long as possible, is the only way to ensure that the probabilities work out in the long run.

Returning to our ancient visitor again.  By this time, having explained the workings of the casinos to him or her, perhaps explaining the game as a battle of spirits or gods, what would the game look like?

Macau, as a machine that crunches half a trillion dollars in rolling chips, the clay tokens thrown or carefully slid across the felt tables by players, making countless glances into the edges of their cards.  Millions of cards folded beyond recognition, thrown across the table, billions of dollars exchanged into chips, and as the probabilities roll on across millions of plays spanning thousands of hours, a residue.  A layer at the top, the 1% that is the house take, resulting in the gross revenues that drive the entire place.  A place where the vagaries of superstition, fortune-telling meet the caprices of probabilities and fortune, and have largely been…controlled.  

Essentially, a factory where thousands of hands transform money into revenues for the casino.  And that, is the reason for Macau’s very existence.  

The Ways You Are Rich

Young people, you want to be rich, but you already are beyond your imagination.

You measure wealth in currencies, cryptocurrencies, investments and things that are interchangeable into such currencies: stock, timberland, bonds, real estate, art, cars, etc.  This is what people typically default to when they think about wealth.

But money is a currency, which is something that can purchase or exchange other stuff.  And there are a lot of things that the older you get, the more money you would spend to exchange into: while young people have these things in abundance.

Time:

The younger you are, the richer in time you are.  And the phrase “time is money” is literally true, as people willingly pay to free up time, whether in the form of time-saving devices, freelancers, gig economy workers, etc.

This is such a trite phrase that I hesitate to start with it, but when you consider that people like billionaire Nike founder Phil Knight, in the closing pages of his autobiography states that he would give everything up to do it over again, or when Warren Buffett, speaking to students, says, “you want to be me, I want to be you,” then you begin to realize to a very rich old man, a young person’s life could be valued in the billions of dollars.

As you grow older, the price you’re willing to pay for time increases exponentially.  Although I’m not as rich as the aforementioned gentlemen, what I would give to go back 10 years.  Even 5 years.  Probably in the tens of thousands, if not hundreds of thousands of dollars.

Out of all the “alternative” sources of wealth I’m about to list in this post, time is the only thing that can’t be purchased or created.  It can only be utilized where it exists, or exchanged into, by money or financial instruments – i.e., spending money to use time that you already have, but are burning every second.  Maybe this makes it the most precious.

Time also has the characteristic that by default, adding time to money causes money to grow.  This is why when you’re young you might hear the phrase “time is on your side”.  Well, it really is.  Someone who’s 27 literally has 10 more years for their investments to compound and grow than I do.

Options:

This is a source of wealth that is often overlooked, because it is really hard to measure, unlike money or time.

Options, or opportunities, are a form of wealth that work in the background, and do not manifest themselves until they’re exercised.  And young people have an almost infinite array of Options at their disposal, as a function of having more time, energy, boldness, less responsibilities/lifestyle drag, than older people.

This is hard to explain, but when I say they do not manifest themselves until they’re exercised, it’s because it’s hard to know how they will create value to you until you actually use them.

But, consider that us older people – well, all people, spend a lot of money to travel, read, learn languages, move to different cities, obtain knowledge, attend educational institutes, physically train, etc. etc., all of which create Options, which at the opportune time or place, can create money or jobs, or be exchanged for time and other higher-level forms of wealth, like relationships, wisdom, love, happiness, and so on.

The younger you are, the easier you can pick up these invisible options.  You can learn things quicker when you’re young.  You have less opportunity costs and responsibilities.  You have more energy.  You likely have a larger social network than someone whose been working for, say 20 years in the same industry and town.  

Many people who appear lucky, are in fact just awash in the wealth of invisible options.  This is not a great example, but say someone buys 80% of the lottery tickets, and wins.  Was he lucky?  Or did he buy a lot of options?  This is kind of a bad example because the cost of buying that much will likely be higher than the payout, but I hope you get the idea.

More thoughts on why options are really hard to quantify and measure, but are still there in the background.  When people say “right place at the right time”, they are ignoring the fact that you can engineer this kind of ‘luck’ by picking up a whole bunch of invisible options.

Two college graduates with the same intelligence level and achievements: one job is in a stable, blue-chip company, the other in a fast-growing startup.  The first job is located in an old, industrial city.  The second is in a coastal, high-priced one.  The two jobs pay the same.

Right now, I would bet that the competition for the second job is higher, despite it being more expensive to live in the coastal city.  I would even wager that possibly, college graduates would accept a slightly lower salary to take the second one.

This is because the value of the myriad options embedded in the second job is enormous, hard to quantify, but still intuitively there.  As you get older, the cost of those options becomes so astronomical that it is hard to justify their potential value.  I would like to think I could take an opportunity like that, given the same scenario.  But I might not.  Ten years ago, I definitely would have.

Energy:

This is the raw stuff from which both options and money/financial instruments are created.  Energy is costly to obtain and generate, but as with all of the aforementioned, way more abundant when you’re young.

Without energy, one cannot create or have created, money or financial instruments.  Even in the case of generational wealth, someone in the distant past had to have exerted such energies to create a fortune.

Energy diminishes over time, both within a lifetime as well as within the span of a day.  But similarly to time and options, its value increases as a person ages.  Younger people are awash in it.  In the case of my young daughter and others her age (4), it is perpetually pumping through their veins, requires no warm-up, and is converted without any entropic loss into sheer joy and full speed runs at the crack of dawn.  Again, what I would give to have that kind of energy again: tens of thousands, maybe even hundreds of thousands of dollars.

Look at the number of ultra wealthy people buying blood transplants or other fountain of youth-type stuff.  Energy is undoubtedly a form of wealth, and young people are awash in it.

Summary:

The thing about these forms of wealth, is that they are all interchangeable with each other.  When money is exchangeable into time, options, and energy, then the obsession that people have with accumulating only money at the expense of energy, time, and options is probably a little misguided.

You can cultivate energy and knowledge to create other forms of wealth.  You can use money to purchase options in the form of more options, energy, knowledge, to create other forms of wealth. 

And above all, time must be utilized wisely as this is the only thing that can’t be created or purchased.  

In this way are young people bestowed with wealth beyond their measurement or imagination.  And lacking knowledge or wisdom, so are they also dismissive of them.

Of course, there are higher-levels of wealth that cannot be strictly exchanged into or purchased using money, time, options, or energy.  The previous sources of wealth are necessary, but not sufficient to gain things like relationships, love, wisdom, happiness.  But I’m concentrating only on those sources of wealth that act almost as interchangeable currencies with each other.

At the end of it, I would wager that both Warren Buffett and Phil Knight would consider me a young(er) man.  And that’s why I’m writing this down, so as not to forget..

What I Learned in the Jungle

 

Last week, a client called me to join him for a site visit in the jungles of Southeast Asia.  It was the first time I had ever been sent a packing list that included things like: emergency rations, waterproof boots, first aid kit, and “materials for showering in the river”.

One thing I learned was that unlike later models, iPhone 5’s are not waterproof, especially when your kayak tips over in a tributary to the Mekong River.

Another thing I learned was that fire ants blend in really well to tree branches, and that ignoring the packing list’s suggestion for “hiking gloves” was not a good idea.  And that no matter how many times you dunk your hands in the river, fire ants do not wash off.

Now, one cool thing I learned was that inside caves, you can be surrounded by total darkness, and if there’s a hole at the top of the cave, the sun really does shine like a light beam through the blackness, in almost a straight line.  Kind of like a movie effect, Indiana Jones-style.

One last thing.  We toured a number of rice paddies with other members of the team, who were Malaysian farmers.

What I had assumed about agricultural practices in not only Southeast Asia, but around the world, was that if generations of farmers had been farming rice for about 10,000 years, it must be pretty optimized, right?

But no.  The consultants pointed out seed spacing problems.  They pointed out the use of inferior fertilizers.  They pointed out the fact that despite an abundance of water, many of the fields were not irrigated properly, if at all.  They basically said that yields could be increased by 50% to 300%, easily.

In many places in Southeast Asia, farmers often ‘forget’ the practices of their grandparents.  Exacerbating this is that use of GMO crops make them indebted and dependent on large companies for their livelihood, as GMO crops do not seed.

It strikes me that something so fundamental and as ancient a technology as farming can be forgotten in just a few decades.

I don’t have any profound realizations related to this except just a reminder that life, on all fronts, is subject to entropy and decay: what things in my own life, and what practices or values in our society are we forgetting?

XIAOYI

XIAOYI

XIAOYI

A Real Estate Career: Lessons Learned (2014-2015)

In 2014, my tax business was winding down, and during the summer I was getting anxious again.

As these things tend to happen, while randomly talking to a friend, he asked me if I wanted to join his hedge fund as an analyst.

Completely putting aside the fact the position was in Hong Kong, I accepted.  And for the next 18 months, I helped them analyze real estate and Korean stocks.

This was my first real job in finance.

When you work in finance, you get spoiled – especially if you’re on the buyside, and you have all sorts of service providers working for you.

Finance draws hard-charging, intelligent, and driven types, and when you have Ivy Leaguers and graduates of Asia/Europe’s top 10 universities as your service providers – your bankers, brokers, traders, accountants, and researchers, well, I’m not sure I’ll ever have that level of service again.  Emails were written to me in clear prose.  If there was a problem, I received a phone call explanation within seconds.  Things got scheduled, presentations were efficient, full of information, and if I asked for anything, things just got done.  No one passed the buck, and if they did, it was to actually find the person who could solve the problem, and these problems got solved in hours, if not minutes.

Sigh.  Maybe this is the daily reality for many people, but for me it was new.  This meant that literally all I had to do was focus on the thing I had been hired to do, which was to stay plugged into the markets, pore through financials and industry reports, think, and analyze.

Never before in my life had I woken up so early, before 6, to catch the bus into Central to start fielding the calls and get work done before the Korean and Japanese markets opened at 8am.  Never had I had so much energy as when I was plugged into the information flow and market chatter every day, hearing from analysts, companies, and brokers spanning Tokyo to Mumbai.  The financial markets are an arena where the biggest game in the world – the exchange of capital – is played out on a daily basis, against some of the smartest people, with huge sums of money at stake.

And looking back at that time, that’s what I miss the most.  There’s no feeling or job quite like working in the financial markets – the pace, the energy.  It’s like being plugged into an IV of chatter and information and raw sentiment.  You can actually feel, around town, when the markets are up or down.

Now onto the actual job.

Our fund had a value bent, which meant that we were looking for undervalued or overvalued companies to buy or sell.  Before joining, I had a romanticized notion that it was all about digging through data and research, coming up with some sort of brilliant, deviant opinion and using that to make money.

There is that.  But I learned I was quite naive, because identifying the stock to buy/sell is only a fraction of the job.

Being good at analysis, and picking the right name, is only one leg of the stool.  It doesn’t matter if you’re good at analysis if you buy in at the wrong time or sell at the wrong time.  It also doesn’t matter if you buy/sell too much or too little of it, or if you can’t or don’t have the conviction to hold during the hard times.  Also, since you’re never going to be 100% right, 100% of the time, you have to be constantly evaluating your own decisions, your decision-making process, your own thoughts, in context with the present and history of the market.

In short, not only do you have to be brilliantly analytical, you have to have the instincts of a gambler to size and time the bet, the temperament of a stoic to not let gains or losses affect you, and the introspection of a monk.

Only by getting all four of those things right, can you succeed in the job, and it’s why investing is so hard.

It’s always been my opinion that investing is the best interdisciplinary exercise you could ever conduct, or learn.  And one of the biggest reasons is for the last point above.

Constantly evaluating your own thinking and process for making decisions will serve you well not only in investing, but in life in general, and is the foundation for success in general.

At the fund, though, I found myself teetering on the edge of this.  If you’re not careful, endless introspection can lead you to have massive self-doubt all the time, and start going down epistemological rabbit holes, like ‘how do I know I know this’, or ‘am I sure that I know this, and with what probability, and how do I know this probability is even correct’.

In my job, I found a lot of parallels to surfing.  The financial markets do not have sympathy or other human sentiments, just like the ocean.  You can’t fight them, just as you can’t fight or force a wave to do anything.  You can only react to what’s given to you.  You can’t argue about rightness or wrongness.  The markets, and the ocean alike, do not care about you.

Working in the markets is one of the most humility-inducing jobs you can have, and those who get arrogant get crushed.

In many ways, the job gave me an appreciation for knowledge in general.  When you can sit in a room with extremely intelligent people discussing a company, and everyone has extremely divergent, completely opposite viewpoints and opinions on the company’s prospects, you begin to see that it’s hard to purport to ‘know’ or declare anything with certitude.

And that states of the world are best expressed in probabilities, and the smartest people are always questioning and changing their minds.  They’re comfortable with uncertainty, and don’t let it paralyze them.

I learned a lot on the job, but that might have been the greatest lesson for me.

What I’ve Seen in China

Spending time in China is enough to convince you that you know nothing about it.

  • There is no architecture quite like the public architecture of the Communist Party.  Roads and sidewalks are massive, supposedly wide enough to drive tanks through.  The railroad stations are simply just the largest buildings I’ve ever seen or been in, looking like you could fly an A380 through them.  Government buildings are fronted by sidewalks that are like stadiums.  It communicates authority.  The scale is hard to comprehend if you’ve never been there.
  • The power of the state, in terms of it being manifested, is intermittent but ubiquitous.  After 950 AQI readings (~20 is healthy) on the air quality scale in Beijing, you can count on the next day being completely crystal blue.  How does this happen, is there a natural way?  It’s as if the air itself was reprimanded by the inner sanctum of the CCCP and told about the errors of its ways.
  • Blue skies are not taken for granted.  I once had a taxi driver take me from the airport in Chongqing to my hotel, and for the entire thirty minutes he was exclaiming loudly about how clear and blue the skies were, sticking his head out of the window, looking up, and yes – all while driving.  The air is indeed noxious, and during days when the readings are, say, above 300, visibility on the streets are as if you’re driving through fog.  Above 500, heavy fog.  Above 700, like you’re in a cloud.  The romantic side of me, on these days, can’t help but imagine myself back in London during the Industrial Revolution, or Chicago during the age of the railroads.  It must be what those cities were like: swarming seas of people, raucous roads, barely contained chaos, buildings rising impossibly fast, out of nowhere.
  • Is there another economy that has so many feverish booms and busts, in so compressed a timeframe?  Bubbles roil through the property market, then stock market, then private wealth products market, not necessarily in that order, but predictably every few years.  Technology companies are the same.  Two years ago, I started noticing a lot of green, orange, and yellow bikes on the road, with bike-sharing becoming huge there, way before it did anywhere else in the world.  A few months later, I saw entire sidewalks become parking lots for these bikes.  They were everywhere, the streets were filled with them.  A few months later still, I saw empty lots full of these bikes, rusting and old, unattended.  A few months later, I came back and saw nearly all of the bikes gone, and read that a lot of the companies had gone bankrupt.
  • Parts of the large cities – Shanghai, Shenzhen, Beijing – are more expensive, posh, and futuristic than equivalent places in London, Hong Kong, or New York.  And I will assume that they will only get even more so.
  • The line cutting is maddening and annoying.
  • But I can emphathize with some of it, as it is less a personal act of discourtesy, and more a symptom of an everyone-for-themselves, distrust of rules and the state that leads people to have this interesting mentality that there are rules and laws, there are taboos, and there are absolutely forbidden things that you must never do, and the intersection of those three things are like a Venn diagram – they are not one and the same.  I.e., everyone seems to use a VPN to access all the ‘forbidden’ websites, even at work, no one actually uses the metal detector machines in the subways, queues are optional, and most confoundingly to foreigners – contracts really don’t mean anything.
  • People are honest and straightforward.  They will tell you to your face that you look tired or if you’re fat, or if you need to eat.  In restaurants, you can regularly ask for things not on the menu.  You can ask and talk about anything, and people will tell you, as long as you avoid the subjects of Tibet and Taiwan.  Sometimes when we do market research, we literally go to our competitors and ask their frontline staff about stuff.  For a North/East Asian country, refreshingly informal and with a language devoid of hierarchy and formality.
  • When I first went to China, back in the winter of 2010, there was barely even a smartphone market.  I remember buying a used Nokia with a monochrome screen and using that.  Now just 7 years later, almost the entire population is on WeChat, which is a portal for everything from taxis, medical services, banking, and other payments.  Merchants in the middle of rural villages in China will prefer taking your cash over your credit card, but WeChat payments trump all.  In 2010, I remember my classmates telling me there was a huge difference between kids born in the late 80s and kids born in the 90s.  It was a seven-year difference we were talking about.  Now, you could probably feasibly move those endpoints to the 90s and aughts, and there would be even more of a generation gap still – think about it, two degrees of a generation gap in 20 years.
  • The resultant optimism, though, is refreshing.  This is a country that hasn’t had a major recession in twenty years – economic growth has always rounded to 10%.  Can you imagine that?  It means that everyone is down to try new things.  They’re figuring it out.  There’s no established tradition that needs to be followed, but nor are there established best practices.  In my field, it means that clients sometimes ask for – and expect – insane things that have never worked in the history of the world.  I’ve driven through 2nd and 3rd tier cities to the edge of the city, through rural villages, and then come face to face with resorts on the scale of Dubai.  I’ve driven deep into the mountains and seen waterslides and retail malls that wouldn’t be out of place in Orlando.  I’ve spelunked through entire cities where they built something, and no one showed up – yet.  To be clear, many of these insane projects and endeavors are destined for the dust-bin of history, but the risk-taking and dice-rolling is something to marvel at.
  • There seems to be no established dress code at most of the offices I visit.  Women wear skirts that are shorter than sexy nurse Halloween costumes, and tops that look like bright foliage.  Men wear business casual, loosely interpreted, like rocker boots and hawaiian shirts and whatever it is, it’s untucked.  Everyone is on their own phone during meetings.  Sometimes people answer their own phone during meetings and whisper into it without any repercussions from others.  Business cards were a thing for a few years, but it’s gone straight to WeChat.  Government officials will add you as contacts on WeChat and then send you funny memes.
  • It’s changing rapidly.  And on this note, a lot of the criticisms leveled against Chinese tourists abroad – rude, dismissive of lines, loud and obnoxious, pushy – I recall as things I thought about Koreans about 20 years ago.  Koreans of a certain age, say 50s, will fit this stereotype.  Social norms change and I can see them changing in China too.  Younger people have been abroad, studied abroad, and bring mores and expectations back home.

Basically, it’s growing at an exponential pace and everything you know about it now, will be wrong tomorrow.

If you are interested in the evolution of cultures, the study of cities, if you’re interested in seeing an economy and society change, if you’re interested in history or curious about what the future might look like, visit China.  Don’t miss it.