Curiosity Chronicle

Welcome to the 312 new members of the curiosity tribe who have joined us since Friday. Join the 37,845 others who are receiving high-signal, curiosity-inducing content every single week.Today’s newsletter is brought to you by Tegus!When I started to dive in on Disney, Tegus was my first destination—a cheat code for my research and learning process. Tegus is the leading platform for primary research—a searchable database of thousands of instantly-available, investor-led interviews with experts on a wide range of industries, companies, and topics. It’s fast and cost-effective, enabling you to do great primary research without breaking the bank.Special Offer: Tegus is offering a free 2-week trial to all Curiosity Chronicle subscribers—sign up below to level up your investment research game today!Today at a Glance:Storytelling is a foundational skill for supercharging all human endeavors.Disney was arguably the first company to prove that storytelling can create a durable competitive advantage that builds pricing power and a legitimate long-term business moat.The key principles of high-leverage storytelling: (1) Suspended Reality, (2) Multisensory Experience, (3) Details Matter, and (4) Make It Shareable.High-Leverage StorytellingStorytelling is a foundational skill.Humans are storytelling animals—our species developed around fires, telling tales of successes, failures, and fantasies, of hopes and dreams. It is woven into our DNA.If we study the lives of the greatest humans, we quickly find that the vast majority were exceptionally strong storytellers. This is no coincidence—effective, high-leverage storytelling is a supercharger for all human endeavors.The problem? We don’t study or teach storytelling in the same way we do other foundational skills.Therein lies an opportunity, however—with few understanding the principles of storytelling, those who do are likely to capture tremendous career and personal upside.In finance terms, it’s (basically) free alpha…So in today’s piece, I’d like to talk about the principles of high-leverage storytelling, brought to life by a real world example of these principles in action…Disney World.Disney WorldThe Walt Disney World Resort—Disney World for short—opened on October 1, 1971. It was the second major theme park under the Disney umbrella, following Disneyland, which was opened in Anaheim, California in 1955.Disney World celebrated its 50th anniversary on October 1, marking a major milestone on a historic run for the company, which now operates theme parks around the world.Importantly, Disney was arguably the first company to prove that storytelling can create a durable competitive advantage that builds pricing power and a legitimate long-term business moat.Storytelling is ingrained into the DNA of the company—its founder, Walt Disney, was history’s most obsessive storyteller.So it is no surprise that storytelling is a superpower that's on full display at Disney World. The park—which covers 43 square miles (or 2x the size of Manhattan!) and has 77,000+ employees—can teach us valuable principles for enhancing our own storytelling. This piece deconstructs the principles of high-leverage storytelling that make Disney World so magical (and that you can start using today):Principle 1: Suspended RealityWalt Disney was famous for his focus on suspending reality for his audiences—allowing them to fully experience a new reality he was creating while still being grounded in the safety of their own reality.It is a balancing act—too cold and you never capture the audience, too hot and people retreat to the safety of their reality and disappear.The Imagineers—a brilliant group of creatives, artists, and engineers in charge of designing the theme parks—have executed against this principle brilliantly.It’s on exhibit in several secrets of the park:The Tunnel NetworkAn intricate web of tunnels lies underneath the park, enabling characters to navigate to their respective “worlds” without ever appearing out of world or duplicative.This is critical, because an out of place character breaks the suspended reality for the guests, so Disney created an (expensive) solution.Further, the entire park is designed to create a separation of worlds and maintain the distinction within each domain. You cannot see into other worlds, which creates a legitimate immersion that reinforces the suspended reality.Forced PerspectiveForced perspective is a visual technique which uses optical illusions to make an object appear farther, closer, larger or smaller than it actually is. The technique manipulates our visual perception by using scaled objects and the relationship between them and the viewing point of the customer.Disney uses forced perspective throughout its parks to create optical illusions that make objects appear different than reality.A key example: Cinderella's Castle, which has smaller bricks and windows near the top, making the castle look farther away and taller than it is.Purple Traffic SignsThe departure from reality begins before you ever step into the park.Purple and red traffic signs replace the traditional green and yellow—just another detail that creates a clear separation from the real world.There are no coincidences in high-leverage storytelling. Everything is by design.Era-Appropriate BathroomsDisney takes the suspended reality to another level with its plumbing.Liberty Square—a colonial world—is notably lacking in one thing: bathrooms (other than in the restaurants, where they are legally required to exist).If colonists didn’t have bathrooms yet, neither do the guests of the colonial world!Principle 2: Multisensory ExperienceDisney knows that one of the key strategic advantages of its parks is the ability to create multisensory experiences for its fans. These experiences build relationship depth that is impossible to replicate.It’s also a durable competitive edge, as it’s almost unfathomable to imagine a competitor acquiring 40+ square miles of land to create a similar experience. The physical experience has become a business moat.A few examples of the multisensory experience at Disney World:“Smellitizers”The Imagineers recognized the human sense of smell is closely connected with our formation of memories, so they built a mechanism to reinforce this process:"Smellitizers”—hidden fans that blow scented air through vents in the park.The effect: strong, sticky, delicious memories made.Amplified SoundsSounds are a key part of the Disney World storytelling experience.Horses wear specially-designed horseshoes that make them louder when they walk down Main Street.The Tower of Terror plays a recording of real screams on hidden speakers for guests walking by.The splash sound at Splash Mountain is amplified by a splash machine.Principle 3: Details MatterTo create truly immersive stories, Disney’s Imagineers know that the details really, really matter. They might be difficult to spot—they hide in plain sight. But for the trained eye, they’re observable throughout the park.Here are a few examples:EPCOT RainwaterEPCOT—previously an acronym for Experimental Prototype Community of Tomorrow—is a theme park within Disney World. At its center is a large geodesic sphere called Spaceship Earth....

Welcome to the 924 new members of the curiosity tribe who have joined us since Friday. Join the 37,001 others who are receiving high-signal, curiosity-inducing content every single week.Today’s newsletter is brought to you by Tegus!When I started to dive in on the Chinese energy crisis, Tegus was yet again my first destination—a cheat code for my investment research and learning process. Tegus is the leading platform for primary research—a searchable database of thousands of instantly-available, investor-led interviews with experts on a wide range of industries, companies, and topics. It’s fast and cost-effective, enabling you to do great primary research without breaking the bank.Special Offer: Tegus is offering a free 2-week trial to all Curiosity Chronicle subscribers—sign up below to level up your investment research game today!Today at a Glance:China’s energy crisis is best understood through the simple, Econ 101 lens of supply and demand, with a particular focus on the coal market.Demand-side drivers primarily include a booming recovery from COVID-19 lows and a hotter-than-normal year that increased residential power usage. Supply-side drivers include coal shortages, import restrictions, utility price fixing, and CCP emissions targets.Net-net, we have demand up and supply down, leading to widespread shortages, rising costs, and a ripple effect that extends across the globe—the stage is set for what could be a long, cold winter.China’s Energy CrisisIn last week’s newsletter piece—the aptly named Supply Chain Apocalypse—I made brief reference to China’s burgeoning energy crisis as a supply dislocation further compounding our global supply chain woes.In the days since that piece was released, China’s energy crisis went from under-the-radar to front page news—hitting “above the fold” in the Wall Street Journal, Reuters, and Bloomberg, among others, as experts bemoaned its potential to hammer our weakened supply chains and derail the global recovery.I’ve always been fascinated by energy—it is, quite literally, what makes our world work—so yet again, I found myself going down the rabbit hole, exploring the crisis in detail and attempting to distill its key drivers and potential effects.Here’s a simple breakdown of what I learned.Spoiler Alert: This may be China’s Energy Crisis, but in an interconnected global economy, nobody is insulated from this disruption.BackgroundThe growing Chinese energy crisis had (mostly) happened outside the spotlight of the mainstream media.To be sure, among real energy market observers, it had been a key topic for months, alongside European natural gas price spikes, carbon credit markets, and the normal course OPEC debates—but the narrative accelerated meaningfully on the back of other China woes (Evergrande, supply chain disarray, etc.).China is most definitely feeling the pain, but we may be in the early innings (sorry, baseball analogies stick with you!), with the contagion likely poised to spread globally.The ImpactWhat are the visible impacts of China's energy crisis?More than half of China's mainland provinces have been forced to limit electricity usage due to shortages. According to a recent Bloomberg article, the Chinese microblogging site Weibo is filled with stories of people sharing how their daily lives are being impacted by the crunch—no tap water, no cell service, no traffic lights, and even a shortage of candles.In the industrial sector, the largest industrial provinces are facing significant cuts just as they try to dig their way out of the backlog that has been created by COVID restrictions and supply chain kinks.Looking outside of China, we see widespread concerns among politicians and energy market experts over rising coal and natural gas prices (the latter of which deserves its own piece in the future). Policymakers are expressing real angst over the ability of their countries to adequately heat homes as winter months approach.The price chart of European natural gas tells a pretty scary story—much of Europe could be in for a long, cold winter.Suffice to say, the impact of the energy crisis is already quite bad—but it has the potential to get much, much worse.The Drivers of China’s Energy CrisisIn attempting to understand the situation, it's important to understand that the economy is an interconnected web of activity. Nothing happens in a vacuum. This means that an energy crisis in China is not just about China—it has a complex set of causes and effects.In this situation, China's crisis is primarily related to coal. Why? Well, China is very reliant on coal—it has been the driving force of their economic growth. Here are two great visualizations of that reliance.While out of vogue due to its environmental impact, coal does remain a key source of electric power globally.The science is pretty simple (see the diagram below). Coal is burned, the heat released boils water, which produces steam, which drives a turbine, which produces electricity.To dissect the coal-driven crisis (and its ripple effects), we need a simple framework. Let's turn back to our Econ 101 classic: Supply & Demand.Note: In this framework, supply will refer to everything related to energy production, while demand will refer to everything related to energy consumption.Demand-Side DriversFirst, demand.This is relatively straightforward: demand for coal (and the electricity it produces) is very high (and rising). The robust global recovery from COVID—and the resulting impact on goods manufactured in China—is one key driver of the demand surge.Domestic residential coal-powered electricity demand is also up, with a hot summer and lower than normal hydroelectric production. This latter point is worth noting, as it's a supply constraint in one area (hydroelectric) creating a demand surge in another (coal electricity).As the chart below shows, China has never before seen single year growth in thermal power demand of this magnitude. That creates significant strain on the system.Supply-Side DriversNext, supply.This one is more complex, with several distinct—yet interconnected—dislocations. The main supply dislocations that I see here are:Coal ShortagesImport RestrictionsUtility Price FixingCCP Emissions Targets (*impacts both supply and demand*)Let’s cover each one in a bit more detail:Coal ShortagesGlobal coal supply has been seriously constrained due to a variety of factors.Coal mines globally have faced COVID-related shutdowns—with such closures hitting the news in the United States and Colombia, among others. In Colombia, energy giant Glencore walked away from its contra...

Welcome to the 1,016 new members (!!!) of the curiosity tribe who have joined us since Friday. Join the 35,181 others who are receiving high-signal, curiosity-inducing content every single week.Today’s newsletter is brought to you by Tegus!When I started to dive in on the global supply chain disruption, Tegus was my first destination—it’s a literal cheat code for my investment research and learning process. Tegus is the leading platform for primary research—a searchable database of thousands of instantly-available, investor-led interviews with experts on a wide range of industries, companies, and topics. It’s fast and cost-effective, enabling you to do great primary research without breaking the bank.Special Offer: Tegus is offering a free 2-week trial to all Curiosity Chronicle subscribers—sign up below to level up your investment research game today!Today at a Glance:The ongoing global supply chain crisis is best viewed through the simple, Econ 101 lens of supply and demand.Demand-side drivers primarily include unprecedented government support and economies roaring back to post-COVID life, both of which have driven up consumer spending on goods.Supply-side drivers include Labor Shortages, Factory Shutdowns, Port Shutdowns, Flight Reductions, Container Ship Challenges, Infrastructure Deficiencies, and the China Energy Crisis.Net-net, we have demand structurally higher and supply structurally lower, leading to delays, shortages, and rising costs across the value chain.Supply Chain ApocalypseBy now, you’ve probably heard that global supply chains are in a state of disarray. You’ve definitely felt it—from attempting to order a new bike or sofa, or just trying to get a McDonald’s milkshake—as delays and shortages have spread across the world.But if you’re like most people, you still have no idea how or why we got into this mess.In an effort to fix that, here's a simple breakdown of what’s causing our ongoing supply chain apocalypse:BackgroundThere's a lot of talk right now about the global supply chain crisis.To give you a sense of the drama here, consider the fact that Bloomberg—a traditionally less sensationalist media outlet—recently published an article subtitled “Inside the Brutal Realities of Supply Chain Hell”.Before we walk through the causes, let’s talk about the effects.What are some of the visible impacts of the crisis?Product Delays: Good luck getting furniture, appliances, cars, or Christmas gifts before 2022.Product Shortages: Many critical technology components (e.g. semiconductor chips) are in short supply.Port Buildups: The Los Angeles/Long Beach port has a historic backup that shows no signs of slowing down.Rampant Freight Costs: The cost of shipping a container from China to LA/Long Beach has risen from under $1,000 pre-COVID to over $20,000 at times in 2021.No exaggerations necessary—the effects are really quite bad.But what is causing all of this?Global supply chains are very complex. We live in a highly-interconnected world. A butterfly flaps its wings in Shenzhen and impacts when I receive my bike in New York.Ok, maybe not quite, but almost...To understand the drivers of the crisis, we need a simple framework. Let's break down what is happening using an Econ 101 classic: Supply and Demand.Note: In this framework, supply will refer to everything related to manufacturing, production, and transportation, while demand will refer to everything related to consumption.Demand-Side DriversFirst, demand.This one is pretty simple—it's through the roof. Unprecedented government support (yes, the money printer did go “brrrr”) and economies roaring back to post-COVID life have created a strong demand environment. Consumers are flush with cash and not afraid to spend. Furthermore, the early (and roving) lockdowns and restrictions have meant more spending on goods vs. services. The above chart of global exports shows the robust, sharp rebound from the COVID dip in 2020. Someone is buying all of these exported goods!Supply-Side DriversNext, supply.This one is more nuanced. The major supply drivers I see here:Labor ShortagesFactory ShutdownsPort ShutdownsFlight ReductionsContainer Ship ChallengesInfrastructure DeficienciesChina Energy CrisisLet’s walk through each one in a bit more detail…Labor ShortagesLabor shortages—at ports, in trucking and logistics, and in the manufacturing sector—are the first major supply disruption. Simply put, without efficient levels of labor in these areas, you have bottlenecks that start to slow the flow of goods through our global pipes.Truck driver shortages are all over the news as of late. The U.K. even began offering thousands of visas to foreign truckers in an attempt to ease the pain.COVID Factory ShutdownsFactories—particularly in Asia—have had a tough time managing and containing outbreaks of COVID, leading to sporadic closures and shutdowns.Nike and other large consumer brands have recently noted on earnings calls that they were forced to cut revenue forecasts and scramble to shift manufacturing due to shutdowns in Vietnam (an expanding manufacturing hub and beneficiary of Trump-era China tariffs).The shutdowns create delays and bottlenecks in production. If an upstream manufacturer is delayed, that impact cascades downstream and has an extensive impact.COVID Port ShutdownsPorts have experienced similar challenges to factories—many have had to shut down or artificially restrict labor to avoid outbreaks.In August, the Ningbo-Zhoushan port in China—one of the busiest container ports in the world—was forced to shut due to a COVID outbreak among the workers.If ports are closed, products can't flow smoothly through the supply chain. Yet another kink in the hose causing the pressure to build.Flight ReductionsIt's news to most people, but about 50% of air cargo flies on passenger flights. It's a significant revenue stream for passenger airlines (and actually what allows passenger airlines to offer tickets at the cost they do).But with travel—especially international travel—reduced by COVID, there was a significant reduction in air cargo capacity.Some got creative, converting passenger planes into full cargo planes, but the net impact was a sharp decrease in air cargo capacity and a correspondingly sharp increase in air cargo prices (3x+ prior rates).Container Ship ChallengesThe Ever Given clogged the Suez Canal in March, causing a backlog whose impact cascaded through global supply chains.There aren't enough large container ships to meet all of this demand and containers are in the wrong places at the wrong times.Infrastructure DeficienciesPhysical infrastructure constraints are limiting the ability to shuffle/shift shipmen...

Welcome to the 645 new members of the curiosity tribe who have joined us since Friday. Join the 33,832 others who are receiving high-signal, curiosity-inducing content every single week.Today’s newsletter is brought to you by Demand Curve!The Growth Newsletter by Demand Curve is my new favorite newsletter subscription.They interview hundreds of Y Combinator founders to find out what works. Then they pack each issue with actionable growth insights—so you can apply them to your startup or personal brand. It gives me new ideas every single week. I can’t recommend it more highly. Catch their next issue by signing up today.The Evergrande Train WreckThe calamity surrounding The Evergrande Group—the massively over-indebted Chinese property developer—is the train wreck that the world can’t help but watch.It’s fascinating—and carries a lot of interesting learnings on finance and business—so I wanted to share more about the situation with all of you curious folks out there!Here’s a breakdown on the business, background, and its rapid, very public demise:BackgroundThe Evergrande Group is a Fortune 500 real-estate developer with headquarters in Shenzhen, Guangdong, China. It was founded in 1996 by Hui Ka Yan in Guangzhou and scaled up over time from a small local player into a national behemoth.Today, it's big…very big. As recently as 2020, it had sales of >$100 billion and adjusted core profits of ~$5 billion. The below chart of its financials gives a perspective on its recent and rapid growth.At its core, it's a homebuilder business—developing from the ground up and selling properties to Chinese consumers. Its website states that it has over 1,300 projects across 280+ cities.But recently, it has pushed the boundaries of its homebuilding circle of competence, making investments in electric vehicles (Evergrande New Energy Auto), an internet and media production unit (HengTen Networks), a theme park (Evergrande Fairyland), a soccer team (Guangzhou F.C.) and a mineral water company (Evergrande Spring).The Business ChallengeAs a developer, Evergrande had to contend with a highly cash-consumptive growth profile.Why? Well, building a new development project may take many months (even years) and requires a lot of cash outflows along the way—you have to buy the land, pay for construction costs and permitting, etc. Meanwhile, with the exception of smaller upfront deposits, cash collections from buyers typically don’t come in until much later, after the project is completed.This creates a challenging cash conversion cycle (the time it takes to convert investments in inventory/resources into cash) that almost any property developer has to deal with. So how did Evergrande fund its impressive growth?Debt—it borrowed aggressively, even by real estate property development standards.It became the world's most heavily-indebted developer, with a debt load of over $100 billion and over $300 billion in outstanding liabilities.As is pointed out in the brilliant thread below (tip of the hat!), there is a bit of a moral hazard problem that was created along the way. Evergrande was largely indifferent to pricing on the land and properties it was purchasing and building, knowing that the risk would be passed off to banks or other financial institutions financing the purchases.The debt-fueled growth propelled Evergrande—and its now billionaire founder—into an elite class. It entered the Fortune 500 at #496 in 2016 and reached #122 by the latest ranking. As the company amassed an enormous debt burden, it also paid out handsome dividends, with Hui Ka Yan (its largest shareholder) reportedly receiving over $5 billion in dividends since 2018.The Debt SpiralBut debt is a double-edged sword—and Evergrande was overdue to catch the other edge.As its debt burden grew, so did the interest payments on that debt. This is (mostly) fine, so long as revenues and profits—with which you can make these payments—continue to grow. But if the growth or profitability slows (or government restricts borrowing!), it's...well…not fine.Imagine a metaphorical boa constrictor tightening its grip on its prey. You can try to resist—borrow more to make your payments—but that only fuels the snake. Moreover, the knowledge of your precarious position increases risk and makes that borrowing more challenging and costly.In Evergrande's case, the snake formally tightened its grip in 2020. It had its first major liquidity scare—a potential inability to meet its liabilities—sending a letter to the local provincial government warning that its upcoming payments could cause a crisis with systemic financial sector risks.In a cynical sense, sending a letter to the government warning that your collapse poses “systemic financial risk” is a pretty savvy tactic—hype up your importance to force the government’s hand. If you collapse and they did nothing, you can point to the letter and say “I told you so” and make them look bad. More likely, they act in advance and bail you out to save you.With most de-leveraging spirals, there are two sides:Technical: An inability to make payments.Psychological: The knowledge of instability impacting your market standing.Most financial reporting focuses on the technical, but the psychological is equally (if not more) damning. Reports of Evergrande’s letter sent its stock and bonds tumbling.The short-term crisis was avoided when an investor group waived its right to force a big repayment, but the long-term challenges and issues remained.Dornbusch's Law—a personal favorite that I need to write more about in the future—says that crises take longer to happen than you expect, but then happen faster than you ever could have imagined.This certainly proved true for Evergrande...The CrisisTo meet its ever growing obligations, Evergrande began tapping into "creative" financing strategies. It pushed employees to provide short-term loans to the company—which it called "high interest investments”—in order to ensure they received their year-end bonuses. If that sounds shady, it’s because it is.But the company quickly fell behind, missing payments earlier this month and leaving thousands of employees in a lurch. With over $7.4 billion of bond payments due in 2022, and large interest payments coming up as soon as this week, the crisis appears to be accelerating rapidly. Its stock dropped almost 20% on Monday.To reiterate the earlier point, the psychological side of a financial crisis can be just as impactful as the technical side. It was recently reported that Evergrande was offering to sell properties at a deep discount in order to pay off its vendors and liabilities—indicating a fire sale required to make its payments and sending further panic spiraling into the market.Protests have broken out at Evergrande offices in China—with up to 1.4 million homebuyers left in a devastating limbo, having paid deposits upfront for homes worth ~$200 billion that may never be built. The media narrative cycle of demise ramped up in earnest and further fueled the fire.Importantly—and yet another reason why the world is paying attention—the Evergrande situation does pose a potentially systemic risk to the Chinese economy. With deep ties to financial inst...

Welcome to the 574 new members of the curiosity tribe who have joined us since Friday. Join the 32,682 others who are receiving high-signal, curiosity-inducing content every single week. Share this on Twitter to help grow the tribe!Today’s newsletter is brought to you by Tegus!Tegus has been a complete game changer for my research and learning process. Tegus is the leading platform for primary research—it offers a searchable database of thousands of instantly-available, investor-led interviews with experts on a wide range of industries, companies, and topics. It’s fast and cost-effective, enabling you to do great primary research without breaking the bank.Special Offer: Tegus is offering a free 2-week trial to all Curiosity Chronicle subscribers—sign up below to level up your research game today!The Best Advice You’ve Ever ReceivedA few weeks ago, I asked my audience a simple question:In 24 hours, 2,000+ responses flooded in from all corners of the world (if you haven’t realized it already, the internet is absolutely amazing).The advice ran the spectrum—from serious to lighthearted, from inspiring to morbid.So today, I want to do something a bit different. I want to share the best advice you’ve ever received. Prolific Idea was kind enough to make simple, powerful visualizations for many of them, which are made to be shared and enjoyed.My hope is that you find one piece of advice below that resonates with you and changes your outlook.Without further ado…here’s the best advice you’ve ever received:Strong FoundationsPut good things between you and the earth. Buy a good bed, boots, and tires.Closed MouthsIf you don’t ask, you don’t get. Closed mouths don’t get fed.Thinking vs. DoingIn regards to doing something you don't want to do...Don't think about it, just start doing it. The more you think about it, the more reasons you'll give yourself to not do it.Walking TallWalk like you have 3000 ancestors behind you.Proud DecisionsMake decisions today that you'll be proud of tomorrow.Life Isn’t FairLife gets a lot easier when you just accept that life isn’t always fair.Birth & DeathWhen you were born, you cried, but the whole world smiled at you. Live a life such that when you die, the whole world cries, but you smile.Find Your PeopleThe world is cold and nasty but there are still a lot of good people. You just have to find 1 or 2 and you will start loving the world.NegotiationsIn life, you don’t get what you deserve, you get what you negotiate.The Two Most Important DecisionsThe two most important decisions that you make in life are what you do for a living and who you marry.You get these two correct and you'll have a nice life.Uncomfortable ConversationsYour success in life is largely dependent on how many uncomfortable conversations you’re willing to have.Invest in YourselfInvest in yourself before you invest in others.OptionsThere are always more options than you realize and things are never as bad as they seem.Anything & EverythingYou can have anything you want in life, but you can't have everything.Stupid & ToughIf you’re gonna be stupid, you’d better be tough.Come at the KingYou come at the King, you best not miss.The Juicy PitchWait for a juicy pitch.Life doesn’t reward you for the number of swings you take. Focus on identifying the juiciest pitch. When it comes, swing hard and don’t miss it.Simple is BeautifulThe best moments you’ll ever have in your life are the simplest.Slipping into clean sheets. Hiking right after a storm. A night talking with friends. Being there for others. Helping a friend.What you think of as painful will simply be erased in time.Behavior vs. WordsPay attention to people's patterns of behavior. They are better guides than their words.Experience PyramidExperience is like a pyramid.The broader the base, the higher you can build. So, diversify your experience early in your career.Learn vs. EarnParticipate to learn, not to earn. The latter will come with practice.Can vs. ShouldJust because you can, doesn’t mean you should.So there you have it. 20 pieces of the greatest advice you’ve ever received. I hope you found one piece of advice that inspired you or changed your outlook on the week.Special thank you to Prolific Idea for the incredible visualizations.The original thread can be found below:Sahil’s Job Board - Featured OpportunitiesSkio - Founding Engineer ($50K REFERRAL BOUNTY!)Hyper - Chief of StaffConsensus - Lead Software EngineerScaled - Direct of OperationsFairchain - Software Engineer, Full StackCommonstock: Community Manager, Social Media Manager, Marketing DesignerIncandescent - Operations AssociatePractice - Chief of StaffMaven - GM of Partnerships & OpsOlukai - VP of E-CommerceHatch - Senior PM, Senior Product Marketing ManagerAbstractOps - Head of EngineeringOn Deck - Forum Director, CFO Forum, VP FinanceMetafy - 

Welcome to the 716 new members of the curiosity tribe who have joined us since Friday. Join the 32,004 others who are receiving high-signal, curiosity-inducing content every single week. Share this on Twitter to help grow the tribe!Today’s newsletter is brought to you by Tegus!Tegus has been a complete game changer for my research and learning process. Tegus is the leading platform for primary research—it offers a searchable database of thousands of instantly-available, investor-led interviews with experts on a wide range of industries, companies, and topics. It’s fast and cost-effective, enabling you to do great primary research without breaking the bank.Special Offer: Tegus is offering a free 2-week trial to all Curiosity Chronicle subscribers—sign up below to level up your research game today!Today at a Glance:Incentives are everything—an uber-powerful force governing our interactions, organizations, and society.Unfortunately, humans are astonishingly bad at establishing incentives—we consistently create systems that invite manipulation and unintended consequences.The framework for better incentives involves six key pillars: Objectives, Metrics, Anti-Metrics, Stakes & Effects, Skin in the Game, and Clarity & Fluidity.Incentives: The Failure & The Fix“Show me the incentive and I will show you the outcome.” — Charlie MungerIncentives are everything—an uber-powerful force governing our interactions, organizations, and society.Well-designed incentives have the power to create great outcomes; poorly-designed incentives have the power to…well…create terrible outcomes.Unfortunately, humans are astonishingly bad at establishing incentives—we consistently create systems that invite manipulation and unintended consequences. More often than not, we wind up in the poorly-designed camp scrambling for answers and quick fixes.Let’s change that…In today’s piece, I will share a framework for establishing incentives (that actually create desired outcomes).Incentives: The FailureLet’s start with a basic definition of incentives:Incentives are anything that motivates, inspires, or drives an individual to act in a specific manner. They come in two forms: intrinsic and extrinsic.Intrinsic incentives are internal—created by self-interest or desire. Extrinsic incentives are external—created by outside factors, typically a reward (positive incentive) or punishment (negative incentive).For today, we'll be focusing on extrinsic incentives…In a (very) simple model, extrinsic incentives involve two key components:Measure: The metric that the individual or group will be judged upon. The measure can be quantitative (KPIs, metrics, etc.) or qualitative.Target: The level of the measure at which a reward or punishment will be initiated. The target can be specific (you receive your incentive if the KPI hits X level) or general (you receive your incentive if your manager is satisfied with your work).But there is a real problem here. This simple model of incentives—which will feel familiar if you have ever worked in the government, a large organization, or anywhere really—often leads to undesirable outcomes and unintended consequences.Goodhart’s LawGoodhart’s Law is quite simple: When a measure becomes a target, it ceases to be a good measure. If a measure of performance becomes a stated goal, humans tend to optimize for it, regardless of any associated consequences. The measure loses its value as a measure!Goodhart’s Law is named after British economist Charles Goodhart, who referenced the concept in a 1975 article on British monetary policy.“Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” — Charles GoodhartBut the concept was popularized by anthropologist Marilyn Strathern. In a 1997 paper, she generalized the thinking and called it Goodhart’s Law.“When a measure becomes a target, it ceases to be a good measure.” — Marilyn StrathernIt became a mental model with considerable practical relevance—a phenomenon that has been observed time and again throughout history.Let's look at a few examples and use them to build a mental model for where incentives go awry.The Cobra EffectThere were too many cobras in India. The British colonists—worried about the impact of these deadly creatures—started offering bounties for cobra heads.Locals excitedly began breeding cobras, chopping off their heads, and turning them in to earn the bounties. When the breeding got out of hand, some of the breeders were forced to release the cobras onto the streets, thereby increasing the population of cobras.Clearly not what the British had in mind…The British viewed cobra heads as a simple way to measure cobra elimination, so it gave the population an incentive to deliver cobra heads. The result? Locals gamed the system, breeding cobras to earn the bounties.An incentive designed to reduce the cobra population actually increased it!Soviet NailsIn order to meet their ambitious goals, the Soviets needed to produce more nails to fuel their industrial complex.First, Soviet factories established incentives based on the number of nails produced. What happened? The workers produced thousands of tiny nails.Nevertheless, they persisted, adjusting the incentives to be based on the weight of nails produced. That should fix the tiny nails problem! What happened? The workers produced a few massive nails.In both cases, the nails were useless.The Soviet factory managers had viewed nail quantity and nail weight as easy ways to measure production, so they gave their workers incentives based on these measures. The result? A bunch of useless nails.Amazon's "Hire-to-Fire" IssueAmazon believed employee turnover was healthy—from the early days, they had created a culture where the bottom 10% should be scrubbed annually in order to continue to upgrade the talent level of the organization.To incentivize healthy employee turnover rates, it gave its managers a target rate for annual turnover.The result? Media articles about a “hire-to-fire” practice emerged. Managers had allegedly hired employees they planned to fire in order to meet their turnover targets.Clearly not what Jeff Bezos had in mind...Wells Fargo Account OpeningsWells Fargo is a new inductee of the Unintended Consequences Hall of Fame. An instant classic.Senior leadership of the bank viewed new account openings as an easy way to track business growth, so it gave its junior employees target account opening goals. Employees would be pushed to hit these goals or risk punishment.The result? Employees opened millions of fake accounts to hit their targets and Wells Fargo was fined billions for the fraud.

Welcome to the 715 new members of the curiosity tribe who have joined us since Friday. Join the 30,964 others who are receiving high-signal, curiosity-inducing content every single week. Share this on Twitter to help grow the tribe!Today’s newsletter is brought to you by Tegus!Tegus is the leading platform for primary research—it offers a searchable database of thousands of instantly-available, investor-led interviews with industry experts on a wide range of industries, companies, and topics. It’s fast and cost-effective, enabling you to do great primary research without breaking the bank. I love the Tegus platform and am using it for my investment and general research purposes.Tegus is offering a free 2-week trial to all Curiosity Chronicle subscribers—sign up below to level up your research game today!Today at a Glance:Learning is a skill—but we need a new way to approach learning that is fast, nimble, and tailored for our ever-changing digital reality.The framework for learning anything: (1) Identify & Establish, (2) Research, (3) Skin in the Game, (4) Engage Community, (5) Teach, and (6) Reflect & Review.The New Way to LearnLearning is a skill—arguably the most important skill. But unfortunately, despite its importance to your career and life, it’s not one you’re ever explicitly taught how to approach.Let’s fix that.Today, I will share a tactical approach to learning anything.IntroductionCuriosity and inspiration are not predictable—they strike at random (and often inopportune!) times. But they must be acted on.Growth is a natural byproduct of acting on curiosity and inspiration.“Inspiration is perishable. When you have inspiration, act on it right then and there.” - NavalOk, so let’s assume you've been bit by the curiosity bug and are ready to act on it. Now what? You’re inspired and motivated to learn, but you don’t even know where to begin.All your years of school didn't really prepare you for this. The "old way" of researching and learning—reading textbooks cover-to-cover, checking books out of the library, scouring footnotes for primary and secondary sources—is slow, arduous, and a relic of our analog, industrial past. It may work for school (e.g. if you are writing a final thesis or research paper), but it fails spectacularly in the real world.You need a "new way"—a fast, dynamic, and nimble approach tailored to the new, ever-changing digital reality. I’d like to propose a “new way” for consideration.This learning framework involves six key steps:Identify & EstablishResearchSkin in the GameEngage CommunityTeachReflect & ReviewThe general structure is fixed, but its application is intended to be dynamic & iterative.Let's walk through the steps...Identify & EstablishThe framework begins with a blank page—one that you will progressively fill out as you work through the steps.Identify the topic and quickly write down everything you know about it. Put the topic at the top of the page and drop in the extent of your current knowledge below it. It’s ok if you know nothing about it. The goal is just to get something down on the page. There are very few things as intimidating as starting from zero, so we can use this quick blast to engage in some mental trickery to get going.Here’s a simple example of what this start might look like. Nothing fancy (other than my cool snake emoji icon).I use Notion for my notetaking—I like being able to pull in other links and resources—but anything works (including pen and paper if you are old fashioned).Paradoxically, starting by writing what you do know is the best way to highlight what you don't know. This first action highlights the gaps in your knowledge and understanding of the topic. The goal here is simply to set the stage—establish the holes before filling them.ResearchThis is where the real fun begins—it’s time to learn.The most effective strategy for research: start horizontal, then go vertical.Horizontal = BreadthVertical = DepthWith apologies for the poor artistry—though I might be able to sell this as an NFT for $2 million—this is a simple graphic of how to think about the time spent in each phase. The bulk of your time and learning will occur in the vertical research phase (red), but the horizontal research phase (green) is critical to foundation-setting.Allow me to elaborate:Horiztonal ResearchHorizontal research lays the foundation for your learning. When you start horizontal, you gather information across the full breadth of the topic area. This gives you the capacity to "see the entire field”—it draws a surface-level map of the topic.With horizontal research, it’s perfectly acceptable to keep it simple: Google and Wikipedia (sorry to all of my high school teachers!) are both great tools.Use your note-taking workspace to document the horizontal information. Take notes on the key pillars of a topic, add screenshots or links where relevant, and mark any particularly interesting areas for a deep-dive.Note the underlying sources that provided the horizontal information (i.e. look at the Wikipedia footnotes), which will come in handy as guideposts to focus your journey when you go vertical.Vertical ResearchVertical research is where you dive down the proverbial rabbit hole.Vertical research was historically much more challenging—it typically required hours of finding and reading long, dense books on a topic. But in the Information Age, we have a diverse array of tools that provide much higher time leverage.These tools include (but are not limited to):RedditTwitterNewslettersPodcastsExpert NetworksBooks (The New Way)A few ideas and perspectives on how to use each tool:RedditReddit is a treasure trove of interesting information. It’s great for finding inspiration and curiosity-inducing content, but it’s equally effective for diving deep on a single topic.Search your topic, find subreddits and threads, read the commentary, and click through to the links. Comment and ask questions where relevant.TwitterTwitter is an amazing source of information if you use it correctly.Spend some time searching around to find the authority figures on a given topic. Read what they are writing and commenting on, follow their content trail to any longer-form work they are producing.@ them or DM them if you are feeling ambitious and want to learn more.NewslettersTake advantage of the boom in individual newsletters.Thought leaders on most every topic are writing one, and most of them are free. You can typically use Twitter to find the newsletters quite efficiently.PodcastsPodcasts can be hit-or-miss.Focus on primary sources—discussions with founders, leaders, or experts—avoid low value podcasts with armchair experts commenting on a topic outside of their circle of competence. Look at the number of reviews or listeners to get a feel for the signal-richness of the cont...

Welcome to the 198 new members of the curiosity tribe who have joined us since Friday. Join the 29,071 others who are receiving high-signal, curiosity-inducing content every single week. Share this on Twitter to help grow the tribe!Today’s newsletter is brought to you by M1 Finance!M1 Finance is an all-in-one finance super app - allowing you to invest, borrow, and spend on one easy-to-use, technology-driven platform. I’m a huge fan of their smart dollar-cost averaging features, which take the emotions out of your investment process. M1 has low minimums and offers smart auto-invest, zero commission trades, and so much more. I love the platform and know you will too!Join thousands of other happy customers and open an M1 account today!Today at a Glance:Mental models and maps are representations of reality. They take the complexity of reality and reduce it down to something more manageable.“The map is not the territory” is a meta mental model for assessing and understanding the applicability of mental models. If you don’t understand and appreciate a model’s applicability (or lack thereof) to a given situation, you are certain to get lost.Humans have a tendency to over-apply mental models after we see them work. Awareness and constant reflection is the path to avoid this tendency (and avoid getting lost).When Mental Models AttackIf you’ve been following me on Twitter (or if you’re a long-time subscriber to this newsletter), you know that I enjoy writing about mental models.If you’re new to the term, mental models are simply representations of how the world works. The world is filled with complexity, so we constantly create mental models to help us simplify the complexity by reducing it down to a more manageable representation of fact.In most of my writing, I cover the many successes of mental models - they can be extremely useful tools when applied appropriately. But unfortunately, when misapplied, these "useful" models become anything but.My key point? Mental models are only as good as the soundness of their application. Knowing how and when to apply the different models in your toolkit is just as important as having them in your toolkit in the first place.Today, I’d like to talk about a mental model to help you understand the failings of mental models.Very meta, I know…“The Map is Not the Territory”"The Map is Not the Territory" is a core, foundational mental model for assessing and understanding the applicability of mental models. It's a critical addition to your decision-making toolkit. If you don’t understand and appreciate a model’s applicability (or lack thereof) to a given situation, you are certain to get lost.Let’s begin with some basics. First off, for the purposes of this piece, I will use the terms “map” and “mental model” interchangeably. Both terms can simply be thought of as representations of reality. They take the complexity of reality and reduce it down to something more manageable. Because of the reduction in complexity, they enable faster, higher-powered decision-making.But there are two potential problems:What if you are using the wrong map? Trying to navigate Ohio with a map of Mississippi seems…bad.What if the map is overly-simplified? Trying to navigate a 100-yard stretch of Amazon River rapids with a map of the entire 4,000+ mile river seems…bad.In both situations, the map (your mental model) is not an accurate, helpful representation of the territory (the problem you are looking to solve). Pushing forward in spite of this would be dangerous, perhaps even deadly (in the case of the Amazon rapids!).“The map is not the territory” can be thought of as a simple, intuitive reminder (or mantra?) to constantly understand, evaluate, and critique the validity and applicability of your mental models to a given scenario.HistoryWhere did this concept - of the map, the territory, and their potential mismatch - originate?Well, the general concern has been around for centuries. Explorers have long known about the dangers of over-reliance on maps when venturing into new territories. All were aware that early cartographers took certain...liberties. Claudius Ptolemy - the famed Roman mathematician, astronomer, and geographer - was known for filling in blanks on his maps with reckless artistic license. Basically, if he didn’t know what went into a blank area on a map, he just…made it up.As you can imagine, these maps had limited usefulness. They were not accurate representations of the territories they were intended to simplify.The concept was popularized as a mental model by Polish-American mathematician Alfred Korzybski in 1931.In a paper on mathematical semantics, he cemented the concept by dictating two related, critical points:"A map is not the territory.""A map may have a structure similar or dissimilar to the structure of the territory."In simple terms:Maps are representations of reality, not actual reality.The quality of this representation of reality can vary greatly. Korzybski was pointing out the risk of relying on maps too heavily and the importance of having awareness of their quality and limits.A Hypothetical ExampleSo we have covered the theory, but how does this apply to your life?The world is complex. To process this complexity, you create and use mental models and maps - simplified representations of complex reality. But if you're using a flawed map, you're going to get lost (or worse).Let's look at a fictional example to bring this to life.Imagine you are the CEO of a widget company. Everything is great. Your market is expanding, your business is growing and stealing share from competitors. Your stock price is soaring. Life is good. You’ve made it.But then, a crisis: the Consumer Product Safety Commission (a government agency) issues a formal report calling one of your widgets a safety hazard (seriously, this happens).You snap into action, ordering a halt of production and an immediate product recall. You launch an investigation into the safety risk. The investigation quickly finds the issue (which is relatively minor). You work with your team to correct it and begin production again. It's a hit to the financials, but not a debilitating one. The fast action minimized the damage.You’re lauded for your response. The financial media holds you up as a gold standard. You go on CNBC and tell the world how other CEOs can adopt your incredible crisis response strategy when they encounter their next crisis.Reflecting over a glass of wine, you pat yourself on the back for a job well done. Consciously or not, you've created a mental model of how to manage a product crisis.The model: If a product crisis hits, you have to act immediately. First, announce an immediate halt of production and issue a product recall. Next, investigate and fix the problem. Finally, restart production and start your victory lap!Simple, right? You settle back into your regular day-to-day as CEO, hoping you’ll never have to encounter a similar crisis, but knowing you are prepared if you do.Two years later, a blogger posts a piece accusing one of your widgets of being environmentally harmful. It starts to circulate on social media and makes its way onto your des...

Exploring the power of questioning and the Socratic Method in fostering creativity and critical thinking, challenging assumptions in investing and startups, and unlocking innovation in ambitious teams like Tesla and SpaceX.

Welcome to the 537 new members of the curiosity tribe who have joined us since Friday. Join the 27,544 others who are receiving high-signal, curiosity-inducing content every single week. Oh, and share this on Twitter to help grow the tribe!Today’s newsletter is brought to you by Morning Brew!Morning Brew is on my must-read list every single day. There's a reason over 3 million people start their day with Morning Brew — it’s a free daily email that delivers the latest news from Wall Street to Silicon Valley in an easy-to-digest format. Join millions of others and subscribe today!Today at a GlanceCognitive biases are systemic errors in thinking that negatively impact decision-making quality and outcomes.Combatting cognitive biases relies first and foremost on establishing a level of awareness of the biases, but each has its own specific combat strategies as well.Overview, examples, and combat tactics for common biases, including Loss Aversion, Endowment Effect, Ben Franklin Effect, Availability Bias, Survivorship Bias, Ikea Effect, Hindsight Bias, Plan Continuation Bias, Gambler’s Fallacy, and Curse of Knowledge.The Cognitive Bias Handbook - Part IICognitive biases are systemic errors in thinking that negatively impact decision-making quality and outcomes. I recently shared a Twitter thread covering the basics of 20 cognitive biases - but it was admittedly surface-level (280 characters only allows for so much depth and nuance on a topic!).Last week, I went deeper, with Part I of The Cognitive Bias Handbook, covering 10 common cognitive biases, including examples and ways to combat each. Today, I will cover the remaining 10. As a reminder, this two-part newsletter series was split as follows:Part I (last week) covered Fundamental Attribution Error, Bandwagon Effect, Egocentric Bias, Naïve Realism, Baader-Meinhof Phenomenon, Pygmalion Effect, Confirmation Bias, Backfire Effect, Anchoring, and Dunning-Kruger Effect.Part II (today) covers Loss Aversion, Endowment Effect, Ben Franklin Effect, Availability Bias, Survivorship Bias, Ikea Effect, Hindsight Bias, Plan Continuation Bias, Gambler’s Fallacy, and Curse of Knowledge.This handbook is designed to be a resource you can save and come back to whenever you need a refresher. Given the volume and importance of the information, I am considering working with an illustrator to convert it into a physical/digital book that you can reference as well. Stay tuned!Without further ado, let’s dive into Part II…Loss AversionWhat is it?The pain of losing something is more powerful than the pleasure of winning it.Loss aversion was first identified by famed behavioral scientists Amos Tversky and Daniel Kahneman, who found that humans had a tendency to prefer avoiding losses over acquiring equivalent gains. Accordingly, people were typically willing to take actions to avoid losses that they wouldn’t have taken to seek gains.Economists had previously assumed humans were rational actors - that $100 in losses would drive the same amount of pain as $100 in gains would create pleasure. Wrong. Humans are enigmatic creatures!ExamplesInvestors - professional and amateur alike - exhibit loss aversion. The pain and fear of realizing a loss often leads investors to hold onto losing positions much longer than they should.Gamblers who are in the red for a given night often risk much more to try to get back into the black (above breakeven) than they should.How do you combat it?Loss aversion is hardwired into our primate brains, but as always, awareness is the first step to fighting back against its influence.Avoid emotional connection to your possessions - whether they are investments, material items, or money. Attempt to distance your emotions from the decision-making process where possible.Ask questions:Am I being objective and rational in this decision?Am I letting my emotions influence my decision?Am I too connected emotionally to make a rational decision?If you are too connected to a given decision, you may need to outsource it to an objective third-party.The Endowment EffectWhat is it?A close relative of loss aversion, the endowment effect (sometimes called “divestiture aversion”) says that once we have something, we don't want to give it up.Specifically, we demand more to give up an object than we would be willing to pay to acquire it. In slightly more scientific terms, willingness to pay (“WTP”) to acquire an object is typically lower than willingness to accept (“WTA”) to give up an object.ExamplesIn a classic experiment performed by Richard Thaler, two groups of people were placed in a room and given either (a) a fancy pen or (b) a coffee mug. They were then asked if they would be willing to trade their item for the alternate item. Both groups expressed an unwillingness to trade their endowed item for the alternate item, even though they had similar objective values.In another study of NCAA Final Four ticket-holders, it was found that their WTA was ~10x+ higher than their WTP for the same tickets. Insane!How do you combat it?The path to fighting back against the endowment effect is, unsurprisingly, very similar to that of loss aversion.Force a level of hyper-awareness of the irrational gap between your WTA and your WTP on a possession. Use your imagination to distance yourself from the possession and think objectively about its value and utility.It’s never perfect, but it’s a start.The Ben Franklin EffectWhat is it?"He that has once done you a kindness will be more ready to do you another, than he whom you yourself have obliged." - Benjamin FranklinPut simply, doing one favor for a person makes you more likely to do another favor for that person than if you had received a favor from them.Humans love to reinforce our own self-perceptions. If we perform a favor for another person, we have become a “favor-giver” in our minds. We become more likely to reinforce this self-perception by performing another favor.The Ben Franklin Effect says that this reinforcing effect is more powerful than the desire to return a favor when one has been done for you.ExamplesThe best example of The Ben Franklin Effect is of how Ben Franklin’s eponymous effect was born.Early in his career, Benjamin Franklin once sought to convert a political adversary into a fan. He did so by requesting a favor from the adversary (he asked for a book from his personal library). Flattered by the request, the adversary quickly obliged and loaned Franklin the book.After he returned the book (with a nice thank you note!), Franklin noted that the adversary became a neutral supporter in all future interactions.By drawing out a favor from the hater, he turned him into a fan (or at least a neutral bystander).How do you combat it?With the Ben Franklin Effect, rather than focusing on how to combat it, it is perhaps more impactful to think about the best ways to use it to your advantage in your own life.As a brand or an individual, developing an awareness of this cognitive bias should allow you to think creatively about leveraging its power for converting haters into fans.Availability ...