I think it's important that people understand what drives labor strategy within industry.
First of all, you should understand how your salary gets paid, as a tech worker. Much of the tech industry is unprofitable, so where does the money come from? It comes from the investments into the company. That money comes from venture capitalists, but not out of their actual pockets. Their money comes from their limited partners -- pension funds, sovereign wealth funds, family offices, insurance companies, etc. Even when it comes to profitable companies, like Microsoft, folks should understand that the people who pull the strings in the industry are the investors. AKA the owners of the company. Yesterday's investors generally get paid by tomorrow's. When there's uncertainty of future investment, things change real quick.
For a long period of time, we were in a zero-interest rate regime, and the investor class was obsessed with growth, over all else. Capital is easy to come by when interest rates are low, so the game they are playing is to try to pick sectoral winners, and worry about profitability in the long run. You can't win in the market without the best talent, and so there was an arms race to acquire that talent. Investors will endure dilution from employee stock grants as long as the growth makes up for it.
When interest rates started increasing, to combat inflation, everything changed. Capital was no longer cheap and businesses needed to be able to become self-sustaining, or risk going bankrupt. It's hard to overstate how sharp a change this was from years of declining interest rates.
Some leaders of companies are sociopaths, and others are great humans. In the end, both types of leaders need to be responsive to three forces: capital markets, supply chain markets, and customer markets. The latter two are peculiar to each business, but the macro capital market dynamics are pretty much shared. And that's why it seems like we've seen herd behavior among investors and executives.
But I think it's important to be able to parse between what behaviors is vicious/selfish/exploitative vs. that which responding to changing market forces. I do think that when it's all said and done, we'll see which CEOs are actually able to guide their companies to produce value, and which CEOs just know how to do well with a tailwind.
Buffet's "When the tide goes out" line is something I thought of often during our Bull Decade. It guided my choices of employers. I missed out on some sexy trends by only ever choosing to go with extremely profitable monopolists, and within those companies I always try to be a key player on a project that leadership knows is what funds the crew on their yachts. It's my own insurance policy.
I started my career in 2008, and I talked to a lot of guys who started theirs in 2000. I have played defensively since then. It's worked out pretty well to be conservative.
I think it's important that people understand what drives labor strategy within industry.
First of all, you should understand how your salary gets paid, as a tech worker. Much of the tech industry is unprofitable, so where does the money come from? It comes from the investments into the company. That money comes from venture capitalists, but not out of their actual pockets. Their money comes from their limited partners -- pension funds, sovereign wealth funds, family offices, insurance companies, etc. Even when it comes to profitable companies, like Microsoft, folks should understand that the people who pull the strings in the industry are the investors. AKA the owners of the company. Yesterday's investors generally get paid by tomorrow's. When there's uncertainty of future investment, things change real quick.
For a long period of time, we were in a zero-interest rate regime, and the investor class was obsessed with growth, over all else. Capital is easy to come by when interest rates are low, so the game they are playing is to try to pick sectoral winners, and worry about profitability in the long run. You can't win in the market without the best talent, and so there was an arms race to acquire that talent. Investors will endure dilution from employee stock grants as long as the growth makes up for it.
When interest rates started increasing, to combat inflation, everything changed. Capital was no longer cheap and businesses needed to be able to become self-sustaining, or risk going bankrupt. It's hard to overstate how sharp a change this was from years of declining interest rates.
Some leaders of companies are sociopaths, and others are great humans. In the end, both types of leaders need to be responsive to three forces: capital markets, supply chain markets, and customer markets. The latter two are peculiar to each business, but the macro capital market dynamics are pretty much shared. And that's why it seems like we've seen herd behavior among investors and executives.
But I think it's important to be able to parse between what behaviors is vicious/selfish/exploitative vs. that which responding to changing market forces. I do think that when it's all said and done, we'll see which CEOs are actually able to guide their companies to produce value, and which CEOs just know how to do well with a tailwind.