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The Executive in Residence (EIR) Series

It’s hard to believe, but it is now exactly six months since I left my role as an Executive in Residence at Greylock Partners, and joined Weathfront as COO.

Diving into a startup is all encompassing, but over the past few months quite a few people have asked me questions about the Executive in Residence (EIR) role.  Some of these people have had offers to become EIRs, others are curious about the role and whether they should pursue it as a career option.  For most, however, it’s just genuine curiosity  the EIR role is largely a low volume, undocumented role that is very unique to the private equity & venture capital ecosystems.

One of the guide posts for this blog has been a dedicated effort to take the questions that I receive regularly, and translate them into thoughtful and useful content to be broadly shared.  So before my experiences of 2012 fade into the shrouds of history, I’ve decided to write a quick series about my experience as an EIR, and the most common questions I’ve received.

The series will cover the following questions:

  1. What is an Executive in Residence (EIR)?
  2. Should I be an Executive in Residence (EIR)?
  3. How do you get an Executive in Residence (EIR) role?
  4. Challenges of being an Executive in Residence (EIR)
  5. Did you like being an Executive in Residence (EIR)?

As always, I’m hopeful that the information will be both interesting and even useful.

Home Storage & Network Topology (2013)

In 2011, I wrote a fairly popular blog post outlining my home solution for storage & backup:

Since it has been almost two years, I thought I’d update the information with some improvements.

Updated Network Topology

In 2012, I had a chance to update our network infrastructure, and as a result we have a slightly different home network topology than the one I diagrammed in 2011.  The following image shows the current, high level structure (note: I haven’t documented all devices or switches on the network)

home_storage_topology_20132013 Home Network Topology

Enhancement: Comcast 105Mbps Service

In March 2013, Comcast announced doubling it’s internet connectivity speeds in the San Francisco Bay Area for no additional cost.  This proved to be enough of an improvement to get me to face the reality that AT&T Uverse was never, ever going to get any faster than 24Mbps.

As a result, my order is in to convert to Comcast.  I’ll post here if the experience is anything but what’s expected – a massive increase in download speeds.  With multiple people in our household now hitting Netflix streaming up to four at once, I think the upgrade is perfectly timed.

Enhancement: WD 6TB Thunderbolt Duo for iTunes

Last month, tragedy struck.  The 4TB USB 3.0 hard drive I had been using for the main iTunes library crashed.  Fortunately, thanks to the backup solution in place, all files were recovered.

The only problem was recovery time.  It was slow.  It turns out, restoring about 3.5 TB from the Synology box to a USB hard drive took over 38 hours.  Now, granted, Time Machine isn’t the fastest recovery software, but it’s what I’ve been using reliably.

At 3.5TB, I realized I was going to max out the Seagate 4TB drives soon anyway.  After some research, I decided to get the 6TB Western Digital Thunderbolt Duo.  With two 3TB drives striped with RAID 0, combined with the 10Gbps Thunderbolt bus, I was hoping for significant speed improvements.

Restoring 3.5TB via Time Machine from my Synology box to the Thunderbolt Duo took less than 16 hours, a huge improvement over the previous experience with the Seagate USB drive.  Most of this benefit is likely due to Thunderbolt bus (I gave the drive a dedicated port on the iMac.)  Regardless, I’m thrilled to have a solution that will continue to scale through the year until larger single disk drives are available. (As a caveat, I’m now at double the risk of failure on the main iTunes drive, since if either drive fails, the whole drive will fail.)

Last Note: Stagnation in Hard Drives

It’s worth noting that it has been over 18 months since we’ve seen a larger single 3.5″ hard drive size.  We’ve been promised 6TB drives later this year, with headroom to 60TB for a 3.5″ drive on the upcoming technology, but it’s clear that single disk storage isn’t really keeping up with the increasingly large file sizes of HD video storage.  Imagine the strain when files go to 3D and Ultra HD formats.

For those of you who are interested in these type of technical details, I hope you find the above useful.

Behavioral Finance Explains Bubbles

Note: This post ran originally in TechCrunch on April 20.  As a courtesy to regular followers of my blog, I’ve reposted the content here to ensure that longtime readers have access to it.

“Bubbles are beautiful, fun and fascinating, but do you know what they are and how they work? Here’s a look at the science behind bubbles.” – About.com Chemistry, “Bubble Science

“Double, double toil and trouble
Fire burn, and cauldron bubble.” – Macbeth, Act 4, Scene 1

Given the incredible volatility we’ve seen lately in the Bitcoin and gold markets, there has been a resurgence in discussion about bubbles. This topic is always top of mind in Silicon Valley, especially given that the two favorite local topics of conversation are technology companies and housing.

Defining a market bubble is actually a bit trickier than it might first appear. After all, what differentiates the inevitable booms and busts involved in almost any business and industry from a “bubble”?

The most common definition of a speculative or market bubble is when a broad-based, surging euphoria or wave of optimism carries asset prices well beyond supportable value. The canonical bubble was the tulip mania of the 1630s, but it extends across history and countries all the way up to the Internet bubble of the late 1990s and the housing bubbles in the past decade.

WHAT DO BUBBLES LOOK LIKE?

Not surprisingly, there are a number of great frameworks for thinking about this problem.

In 2011, Steve Blank and Ben Horowitz debated in The Economist whether or not technology was in a new bubble. In those posts, Steve cited the research of Jean-Paul Rodrigue denoting four phases of a bubble: stealth, awareness, mania and blow-off.

bubble chart

(Source: Wikipedia)

HOW DO BUBBLES HAPPEN?

In 2000, Edward Chancellor published an excellent history and analysis of market bubbles over four centuries and a wide variety of countries called “Devil Take the Hindmost: A History of Financial Speculation.” In his book, he finds at least two consistent ingredients.

  • Uncertainty. In almost every bubble, there seems to be some form of innovation or insight that forces people to rapidly debate the creation of new economic value. (Yes, even tulip bulbs were once an innovation, and the product was incredibly unpredictable.) This uncertainty is typically compounded by some form of lottery effect, exacerbating early pay-offs for the first actors. Think back to stories about buying a condo in Las Vegas and flipping it in months for amazing gains. This creates the inevitable upside/downside imbalance that Henry Blodget recently framed as: “If you lose your bet, you lose 100%. If you win your bet, you make 1000%.” Inevitably, this innovation always leads to a shockingly large assessment of how much value could be created by this market.
  • Leverage/Liquidity. In every bubble, there is some form of financial innovation that broadly increases both leverage and liquidity. This is critical, because the expansion of leverage not only provides massive liquidity to fund the expansion of the bubble, but the leverage also sets up the covenants that inevitably unwind when the bubble turns aggressively to the downside. In some ways, it’s also inevitable. When a large number of people believe they’ve found a sure thing, logic dictates they should borrow cheap money to maximize their returns. In fact, the belief it may be a bubble can make them even greedier to lever up their investment so they can “cash out” the most before the inevitable break.

BEHAVIORAL FINANCE LESSONS IN BUBBLES

Bubbles clearly have an emotional component, and to paraphrase Dan Ariely, humans may be irrational, but they are predictably irrational.

There are five obvious attributes of components of bubble psychology that play into market manias:

  1. Anchoring. We hear a number, and when asked a value-based question, even unrelated to the number, they gravitate to the value that was suggested. We hear gold at $1,500, and immediately in the aggregate we start thinking that $1,000 is cheap and $2,000 might be expensive.
  2. Hindsight Bias. We overestimate our ability to predict the future based on the recent past. We tend to over-emphasize recent performance in our thinking. We see a short-term trend in Bitcoin, and we extend that forward in the future with higher confidence than the data would mathematically support.
  3. Confirmation Bias. We selectively seek information that supports existing theories, and we ignore/dispute information that disproves those theories. (This also tends to explain most political issue blogs and comment threads.)
  4. Herd Behavior. We are biologically wired to mimic the actions of the larger group. While this behavior allows us to quickly absorb and react based on the intelligence of others around us, it also can lead to self-reinforcing cycles of aggregate behavior.
  5. Overconfidence. We tend to over-estimate our intelligence and capabilities relative to others. Seventy-four percent of professional fund managers in the 2006 study “Behaving Badly”believed they had delivered above-average job performance.

The greater fool theory posits that rational people will buy into valuations that they don’t necessarily believe, as long as they believe there is someone else more foolish who will buy it for an even higher value. The human tendencies described above lead to a fairly predictable outcome: After an innovation is introduced and a market is formed, people believe both that they are among the few who have spotted the trend early, and that they will be smart enough to pull out at the right time.

Ironically, the combination of these traits predictably leads to these four words: “It’s different this time.”

IT’S DIFFERENT THIS TIME

After two massive bubbles in the U.S. in less than a decade, many people question spotting bubbles ahead of time is so difficult. In every bubble, a number of people do correctly identify the bubble. As in the story of the boy who cried wolf, however, the truth is apt to be disbelieved. The problem is that in every market, there are always people claiming that prices are too high. That’s what makes a market. As a result, the cry of “bubble” is far more often proven wrong than right.

Every potential bubble, however, provides an incredibly valuable frame for deepening and debating the role of human psychology in financial markets. Honestly and thoughtfully examining your own behavior through a bubble, and comparing it to the insights provided by behavioral finance, can be one of the most valuable tools an investor has to learning about themselves.

Home Media / AV Configuration (2013)

From time to time, friends and family will ask me how I configure the devices in my house for media.  Since I just got this question again last week, I thought I’d take a moment to document it here.  In the past, I’ve documented my storage & backup solution, my time machine setup, as well the configuration of my old wireless network.

Basic Assumptions

Since there are an incredible number of technology and service choices that can affect a home media solution, it’s best I put some of the basic decisions that my household currently has made around media technology:

    Comcast HD is our HD television service

  • iTunes HD is our standard movie purchase format
  • Netflix is used for movie rental
  • Tivo is our DVR of choice

Of all of these choices, the ones that are most material are the choice of Comcast HD / Tivo, as Comcast is the best HD service for modern Tivo DVRs, and the standardization on iTunes HD, not Blu-Ray, for HD movie purchases.

Office Configuration

Our home media solution is grounded in the home office, but really has become fairly distributed between the cloud and local devices. In fact, at this point, the home office solution is really used more for backup and legacy purposes.

Home Office Media

The key elements of the configuration are as follows:

  • The iMac is really the “source of truth” for the media library in the house
  • The media library is large (each HD movie is about 4GB), so it sits on its own 4TB USB HD
  • The iMac backups up to the Synology box via Time Machine
  • Wireless devices (laptops, iPads, iPhones) connect via 802.11N
  • The Gigabit Ethernet switch is connected to the central home network

Living Room Configuration

The consumption solution in any room with a television is largely the same.  Here is a diagram of it’s fundamental components:

Living Room Media

The key elements of the configuration are as follows:

  • The Gigabit Ethernet switch connects all the devices to the central home network
  • The AppleTV is used to watch purchased HD movies from iTunes, Netflix for streaming, and access the home media library on the iMac
  • The Tivo is used to watch live / recorded television (from Comcast)
  • The Blu-Ray is there theoretically if we wanted to watch a Blu Ray, which almost never happens

A Few Caveats

This solution currently has the notable sub-optimal elements:

    • I didn’t include an A/V receiver or surround sound solution in the above description, because that actually varies room to room.  In some rooms we have an AV receiver, in others we utilize a surround sound bar or just use TV audio.

Input switching.  We almost never use the Blu-Ray, but this solution does require switching inputs between AppleTV & Tivo, which is a bit annoying since the Tivo remote can’t control the AppleTV and vice-versa.

While I’m sure this solution will not impress any cinephile out there, hopefully it will be useful to a few of you thinking through how to setup or reconfigure your home media solution.

I’ll try to do a follow up post with what I’m hoping to see in 2013 to make this even better.

Is the “Tesla Clause” a Good Idea?

models_coldweathertesting10

Todays’ news is filled with discussion and analysis of Elon Musk’s aggressive response to the negative review of the Model S sedan in the New York Times.

What makes Tesla’s response so ground breaking is that it involves releasing data, and lots of it.  There is some debate about the efficacy of Tesla’s response, and even more interest in the level of data collection that Tesla employs.

However, what I find most fascinating is the position Tesla is taking, in general, around data privacy for it’s users.

When is it OK to share user data?

Most modern websites and social networks have clear, articulated terms around the privacy protection they provide their users.  In general, these are encoded in both the user agreement that customers accept when they join the site, and the privacy policy that is provided for the site.

Tesla has, to my knowledge, staked out a new and interesting position around user data privacy:

After a negative experience several years ago with Top Gear, a popular automotive show, where they pretended that our car ran out of energy and had to be pushed back to the garage, we always carefully data log media drives.

The Tesla Privacy Policy has this to say about information sharing:

…we may share such information in any of the following circumstances:

* We have your consent.

* We provide such information to trusted businesses or persons for the sole purpose of processing personally identifying information on our behalf. When this is done, it is subject to agreements that oblige those parties to process such information only on our instructions and in compliance with this Privacy Policy and appropriate confidentiality and security measures.

* We conclude that we are required by law or have a good faith belief that access, preservation or disclosure of such information is reasonably necessary to protect the rights, property or safety of Tesla Motors, its users or the public.

So the question to be asked here, is which term is being used to justify the sharing of the journalist’s driving data?  I’m not a lawyer, but my guess is that Tesla would argue the third term covers this as necessary to protect Tesla Motors.

The Tesla Clause

Typically, the more specific and transparent a privacy policy is, the better.  Elon Musk is on the record as stating:

“While the vast majority of journalists are honest, some believe the facts shouldn’t get in the way of a salacious story.”

So the next question is, should web services reserve this right more generally?  Should it be explicit that the company reserves the right to reveal user data if deemed necessary to directly refute claims published publicly about the user’s experience with the product?

Will other web services implement the equivalent of a “Tesla Clause” in their privacy policies?

Keep Journalists Honest, Dampen Critique, or both?

If justified, this would dramatically increase the risk that journalists would take when publishing a product review of a web service.  For example:

  • How aggressive would you be reviewing Google vs. Bing if you knew either company could reveal how your past browsing history affected your results?
  • Would you critique Facebook’s new photo features aggressively if there was a risk that your photos might be included in a public response?
  • Is it fair game to respond to a review criticizing the battery life of the iPhone 4 by publishing the the specific apps and services that journalist had running?

Alternatively, the “Tesla Clause” could prove extremely valuable:

  • Forces journalists to more thoughtfully consider how their own usage patterns affected their results, and report that openly and honestly when applicable.
  • Prevent journalists from cherry picking data and screenshots to support a pre-determined conclusion (or more likely, headline).
  • Sets a marginally higher bar for web services to justify their rebuttals to negative product reviews.

Blackberry’s Impossible Mission

Today, Research in Motion Blackberry announced with great fanfare their new Blackberry 10 operating system and devices.  Unfortunately, the market has shifted so radically in the past few years, it’s not clear to me what path exists for any meaningful success for Blackberry.

Blackberry is on an impossible mission.

Why Blackberry?

I used a Blackberry for over seven years.  In fact, I didn’t move to the iPhone until the 3G came out with the native application platform.  Like many, I was addicted to the perceived and actual productivity of messaging on the Blackberry and the physical keyboard.

Like most people who make the switch, it took me a few weeks to get to be “good enough” to type and message effectively on the iPhone.  The millions who are still on the Blackberry tend to focus on exactly one issue: the Blackberry is an amazing messaging device, thanks to the keyboard & software optimization.

The Victory of the Touch Screen

I remember, in 2009, making a Blackberry my temporary “full time” mobile device for a few days.  It was amazing – in just a year, I had completely lost all the muscle memory that made me so productive on the Blackberry.  The iPhone had won.

The reason is simple: a fast, modern device that offers the full richness of the modern web, combined with a vibrant and high quality native application market dominates the marginal efficiency in messaging.  Whether you use iOS or Android, minor productivity improvements in SMS & Email are swamped by access to applications, games, web services, cloud platforms and a myriad of other capabilities.  The smartphone itself has now evolved into a variety of form factors and niches, with phablets and tablets eating an increasing share of our attention and computing.

Blackberry’s Impossible Mission

Right now, it seems like Blackberry has no viable path as a third platform.

Yes, the ardent users of the platform can buy the new devices for their hardware keyboards.  But there aren’t enough of them (h/t to Daring Fireball), and it’s hard to imagine that this market won’t get eaten by the flexibility provided by the Android platform in time.

Yes, there are IT departments that continue to have their companies locked down on the Blackberry, but it’s unlikely the the new operating system won’t create sufficient migration issues that they won’t move to either iOS, Android or both as supported platforms.

The real problem is that their touchscreen product cannot possibly provide enough unique functionality to justify the choice over the iPhone or Android at the medium to high end.  At the low end, they cannot possibly underprice the Android ecosystem.

Damned if they do, Damned if they don’t

In other words, if they abandon their customer-defined differentiator (keyboard), they’ll lose all differentiation in the market.  If they don’t, they are left with an eroding, minority share of a market that is likely insufficient in size and economics to fund their continued development and support of a competitive mobile ecosystem.  As a developer, spending precious resources on this, at best, stagnant minority pool of potential users is tough to justify.

Microsoft can play this game, for a while, because they (still) have relatively unlimited free cash flow and a desktop platform that still boasts hundreds of millions of users.  Blackberry doesn’t.

First Day at Wealthfront & Disclosures

Tomorrow is my first day at Wealthfront, and I couldn’t be more excited.

WF Logo New

As many long time readers know, personal finance has always been a passion of mine.  However, now that I’m moving from this being a personal passion to a professional role, there are some important disclosures that have to be made.

First, it needs to be stated that Psychohistory is my personal blog and is not written in my capacity as COO of Wealthfront Inc.  Nothing on this blog should be construed as, nor is it intended to be, personal investment advice.  The content of this blog represents my own views and/or opinions and does not represent the views and/or opinions of Wealthfront Inc.

Second, I’ve added a Disclosure tab to this blog, to ensure that at any time, any new visitor will have quick access to this information.

Third, none of the historical content of this blog is being modified from its original.  Those articles were written for purely personal reasons, and are appropriate for the time they were published.  That being said, going forward, I’m only going to publish content related to personal finance and investing through the official Wealthfront blog.  Wealthfront has published a fantastic series of articles on a wide range of topics, and I feel privileged to be added as one of the contributing authors there.

I will continue to blog here about personal topics of interest, including product management, design, software development, Silicon Valley, startups, tech tips, science, and of course coins.

Can’t wait to get started tomorrow.

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