Progress Requires Innovation, Innovation Requires Freedom; No Freedom, No Progress, That’s Government (#seasteading, #anarchy)

Joe Quirk on seasteading:

Benjamin Franklin participated in several major innovations in his day. He helped discover and control electricity, and he helped design the US Constitution. The control of electricity set off a cascade of innovations, driving almost every modern technology we can name. Yet the instrument of government he helped invent has not progressed.

Consider that Franklin’s many inventions have advanced beyond his wildest imagination: the Franklin stove, bifocal glasses, refrigeration, the flexibile urinary catheter (my favorite). Yet, the methods of government he helped invent have not evolved. And why?

Because inventors and entrepreneurs had the freedom to experiment with Franklin’s technological ideas, but not his political ideas. More importantly, as Patri [Friedman] says, customers had power to choose amongst gadgets competing to please them, while citizens are captive to the political system they inherit.

One day, people will laugh at the idea of government (legitimized, institutional theft and murder) just as today people laugh at the idea of monarchy as a system of government.

Government is a technology– it is a means for achieving particular ends. What people don’t understand right now is that

  1. government is a means, not an end and
  2. government is an inappropriate and contradictory means for the end of “living in a harmonious, civilized and prosperous human society”

Government reduces human relationships to the Laws of the Jungle, the very thing we all claim to be striving so mightily to avoid.

As Allen Thornton wrote in the early 1980s,

And just what is this government? It’s a man-made invention. It’s not some natural phenomenon or a special creation of God. Government’s an invention, just like the light bulb or the radio.

The state was invented for me, to make me happier, but a funny thing has happened: If I don’t want this invention, people are outraged. No one calls me unpatriotic for refusing to buy a light bulb. If I don’t choose to spend my money on a radio, no one says that I’m immoral. Why should anarchy upset everyone?

Anarchists are ahead of their time, even though the truth they speak is itself timeless– conservatively, probably 200-300 years ahead of their time. The gradual evolution of the “human collective social consciousness” over time has been away from absolutism and toward individualism, with various depressing but ultimately temporary and regional setbacks along the way. Most visionaries DO look like kooks to their neighbors and countrymen before their vision is realized.

But it is the “market purists” who will have the last laugh, and ultimately deliver every one into the closest thing to a perfect society that one can get while still remaining firmly in the grips of reality in this universe.

They’ll be naysayed and boohooed and shouted at quite a bit along the way, though. Good thing most of us are of stout heart and strong mind.

Review – Hey Whipple, Squeeze This! (#advertising)

Hey Whipple, Squeeze This! (buy on

by Luke Sullivan, published 1998, 2012 (4ed)

Sullivan’s appeal

Not just a thoughtful introduction to the basics of creating advertisement and marketing campaigns, Luke Sullivan’s “Hey Whipple!” is also an argument for aesthetic sense in advertising– in essence, you can sell a lot of things a lot of ways, but not all those ways are artful. Using the eponymous “Mr. Whipple” campaign for Charmin toilet paper in the 1970s as his example, Sullivan laments:

In 1975, a survey listed Whipple’s as the second-most-recognized face in America, right behind Richard Nixon… To those who defend the campaign based on sales, I ask, would you also spit on the table to get my attention? It would work, but would you?

His point is arbitrary, it is an opinion on the state of advertising, but it’s worth considering. If you could get sales by getting on people’s nerves, or by pleasing them, wouldn’t you have to be a lazy or annoying person to do it the first way instead of the second? If you’re passionate about life in all its forms, why not fill the world with advertising art?

Evolution in advertising

The era of modern advertising began in the 1950s, when a person could go on a major television variety show and count on everyone who was watching the show (which was nearly everyone in the country) seeing your product message. Soon, with multiple brands available for each product type, advertising men had to come up with a reason to convince people their product was the best in category.

This gave rise to the unique selling proposition: “Buy this product, and you will get this specific benefit.” This was quickly followed by the Creative Revolution, whose motto was, “It’s not just what you say that stirs people. It’s the way you say it.”

Then came the idea of product positioning: the notion that the consumers head had finite space for categorizing products; you must deposition a competitor for another product to take its place.

Learning the art of advertising

The author himself went on a journey as he learned the ins and outs of advertising. He read the One Show and Communication Arts award annuals as a “graduate education in advertising.” He also quickly learned that there were no points for originality, at least not until you knew how to properly execute on the basics. Essentially, “Until you’ve got a better answer, you copy.” Then, once you learn all the rules, you break them.

Copywriting basics

Developing good copy in an ad requires mindfulness about the value of brands:

  • brand equity: all the baggage, good and bad, that is associated with and comes with the brand
  • a brand is the sum total of all emotions, thoughts, images, history, possibilities and gossip that exist in the marketplace about a certain company
  • in categories where products are essentially all-alike (commodities), the best brand wins; example, most light beers are essentially identical, so people are drinking the advertising, the advertising is the brand
  • “if you systematically dismantled the entire operation of the Coca-Cola Company and left them with only their brand name, management could rebuild the company within five years. Remove the brand name and the company would die within five years”; some companies, like $KO, are nothing but a brand

Next, comes the creative process, which has an element of Underpants Gnomery to it:

  1. Gather info about the brand, company, campaign
  2. Do something else
  3. Generate an idea

The point is that you can’t force creativity, and often distracting yourself with unrelated activities during the process can allow the subconscious time to integrate various thoughts and ideas into a usable idea. In fact, sometimes a process can be deleterious to creativity, “If you want to be ordinary then, yes, use a process.”

Getting the reader’s attention is all about dramatization, finding a way to capture the value of your product in a unique, provocative, compelling and memorable way. More importantly, it must be clear to the reader what they get out of the deal:

How to write an interesting ad? Try this: “Hello. I want to tell you something important or interesting or useful or funny. It’s about you. I won’t take very long and there’s a prize if you stay till the very end.”

Find a “thing” that will keep the reader pondering long after they finish the ad. That thing usually comes from the problem (that the product solves) itself, out of the product or the realities of the buying situation.

Consider brands as verbs or adjectives:

  • Sony dreams
  • Nike exhorts
  • IBM solves
  • Coca-Cola refreshes; refresh
  • Gatorade quenches; quench

Keep in mind the theory of positioning; you’re not just competing with brands in your industry or category, you’re competing with the entire universe of brands for real estate in people’s minds. And it’s a cluttered, confusing world. So wouldn’t it make sense that the solution is– simplicity? Look at $AAPL’s ad campaign; they’ve built an entire brand around simplicity.

Never settle for second best; instead, try the polar opposite. Keep searching, the right adjective tends to come out of the product or your customers. Once you find an adjective, stick to it (continually changing means giving up the brand equity you build each time):

A brand is the most valuable piece of real estate in the world: a corner of someone’s mind

Guard it well. And before you begin your campaign, consider the current positioning of your product. It will inform your strategy and create a context for what’s appropriate as you go forward.

Then, try to get inside the target customer’s head.

How does it feel to be this person? Find the emotion

Know your audience. And know the history of your brand; what has been tried, what has worked, what has not. Eavesdrop on your customers. Learning what customers think can give you huge insight into your brand.

Study the award books. See what is already working. Examine the cliches that are already being used by others and avoid them. Even more importantly, perhaps, pay attention to what is not working and what not to do if you seek to be original.

Ultimately, good copywriting comes down to strategy (what your selling point is) and execution (the creativity you employ in communicating the point).

You’re looking for the central human truth of your product:

write down the truest thing you can say about the brand or the product

When you understand this, you can identify and leverage the central conflicts within your company or product category. You should always be looking for polarities. Additionally,

Underpromising and overdelivering is perhaps another way to disarm distrust. Even self-depreciation can help establish authenticity

You also want to examine the central truths of your competitor’s products. In the vein of Charlie Munger’s “invert, always invert”,

Find a weakness in the leader’s strength and attack at that point

Try to get behind the problem. Ask yourself, “What would make me want to buy this product?” Use sales techniques, “the benefit of the benefit”. Keep in mind that “People don’t buy quarter-inch drill bits. They buy quarter-inch holes.” Focus your efforts on speaking to basic needs that are part of human nature and are unchanging.

Remember that advertising is an argument on behalf of a brand so you want to bring an argument that’s good enough to end any further argument.

If you can think of a comeback [that would shut up the annoying guy in the bar], you should consider a campaign based on this argument.

If you’re stumped, try just writing out what you want to say in plain language, first. You can make it memorable, different or new later. Start with, “This is an ad about…” Ultimately, as you add creative elements, the interesting part of an ad should be the sales message itself, not a device pointing to the sales message. In advertising, form often rules over substance (how you say, not what you say).

emotion usually trumps rational thought when it comes to buying something

So, pick an emotion to characterize your campaign. What do you want your customers to feel when they come across your ad? It might help if you got yourself into the right emotional frame of mind.

Another technique to utilize is to create a list of categorical words related to your product. Try picking two at random and combining them to see what kind of images or ideas they cook up.

Don’t try to come up with a perfect idea right away. It’s okay to write down terrible ideas– you can always discard them or revise them later. Just try to get big ideas down, then go back later to work out the details. And when you’re on a roll, stay on it. Don’t take a break or allow yourself to be interrupted so long as you’re in that creative zone. Ask yourself, “What is good about this idea?” and keep coaxing it along and encouraging it.

It’s okay to be provacative, just be sure it stems from your product.

If you’re about to spend advertising dollars on a campaign and you can’t imagine that anybody is going to write about it or talk about it, you might want to rethink it. It means you probably missed injecting a truth or social tension into it.

Find creative ways to integrate the medium into the message. Also, avoid being an ad as much as possible.

Visuals work fast.

If you can reduce your idea to one simple thing that gets customers to lean in, your ad is a resounding success.

Learn what kind of visual cliches are common in your category and avoid them.

Show, don’t tell. Give your audience some credit, give them an opportunity to figure out how witty you are without you spelling it out for them. “It is far more impressive when others discover your good qualities without your help.”

Try on other people’s shoes, think about how different people will interpret or appreciate your ad.

Use metaphors– they’re conceptually efficient.

Focus your efforts by employing simplicity. Reduce to the essential. Simple is easier to remember.

Every item you subtract raises the visibility and importance of what’s left

Questions to ask to judge the “size of your idea”:

  1. What is the press release of my idea?
  2. Is my idea cool enough that people would seek it out and watch it on demand?

Creating an ad

Start by breaking down the product elements into idea categories and work them one at a time. Don’t be frustrated by dead-ends and don’t think you can get a winning idea after a few tries:

We cannot seriously believe we’ll have crafted a ticket-selling, brand-building, One Show-winning ad after 22 stinking tries… the wastepaper basket is the writer’s best friend

To create an authentic ad experience,

Avoid fake people. Avoid fake names.

Similarly, don’t treat the ad target like an idiot by being too obvious.

Never show what you’re saying and never say what you’re showing

Write like you talk.

And keep an actual individual in mind as you write ad copy… think about the qualities of the kind of person whose attention you’re trying to get.

Put your most interesting, surprising or persuasive point in the first line if you can.

When you’ve done it well, you shouldn’t be able to take out any sentence without disrupting the flow and structure of the entire piece. Test your piece for congruency by reading it aloud.

An ad needs a boss. There needs to be an overall visual hierarchy.

Own something visual.

Social media advertising

Keep the following guidelines in mind:

  • Inspire; give them something beautiful or emotive
  • Provoke; give them something that makes them think
  • Entertain; give them something that’s fun to do
  • Status; give them something that confers kudos among their community
  • Utility; give them something that makes their life easier
  • Access; give them something they couldn’t otherwise get

The human brain is wired to hunger for story. Discover the stories behind a brand and tell them in a way that will get people’s attention.

Social should run through all other formats and efforts like a thread.

“What does this brand stand for? What can we do for these people?”

Five types of social media users:

  1. joiners
  2. spectators
  3. creators
  4. critics
  5. collectors

Design content that’s appropriate for the type of people following you

The objective with your social media efforts is to create an “all-volunteer marketing department” that work for your brand without being paid. Brand ambassadors. However, these users must feel rewarded for participating in your community.

“Is it useful, beautiful, entertaining, incredible, participatory and interactive?”

Facebook-savvy brands:

  • Skittles
  • Starbucks
  • Target

Twitter tips:

  • listening tool
  • research platform
  • service center
  • lead generator
  • promotion device
  • community builder
  • use hastags to make tweets searchable and for making groups
  • frequent $100 prizes beat one big $500 prize
  • keep messages 20 chars short of 140 limit to allow for retweeting

Mobile is where everything is headed, so develop a mobile-ready ad and social media presence.

Useful phone apps: schedule a test drive, service appontment, meet w/ salesman

Putting it all together

Adjust advertising efforts to customer habits– how does a typical customer spend their day?

Don’t buy media without researching customer habits and don’t use the same media buy plan for every audience; you risk diluting efficacy, inceasing media competition.

Think through how a customer decides to buy your product, visualize what happens as they move toward actually buying your product, think about “contact points” along the way.

Generate ideas worth advertising.

How would you tell your brand’s story around the campfire?

What works in outdoor may suck in print.

Pull stunts to multiply ad effectiveness and get news coverage which is free publicity.

“Create one world and then look at it through the eyes of another.”

Viral is a result, not a strategy.

Telling stories visually

“Don’t talk at customers. Tell them a story with pictures. Start with images. Stay with images.”

“The eye will remember what the ear forgets.”

Don’t worry too much about production values, worry about the idea.

The most important part of any television advertisement is its conclusion, the last five seconds.


Radio is “theater of the mind.”

Radio lets you do impossible things– things way too expensive to make into TV commercials.

Radio ad thought process:

  1. Figure out what you want your listeners to feel
  2. What do you want them to do?
  3. Base it partly on your product, partly on what the competition is doing and partly on what you know about the customer

You want your listener to immediately get what’s going on, within the first 5 seconds.

Overwriting is the most common mistake people make in radio. Be a genius. Underwrite.

Write exactly as people speak.

Let a straight voice-over do the heavy lifting.

Make sure it sounds like everyday speech. Read it aloud.

Avoid the formula of “schtick–serious sales part–schtick reprise.”

Avoid jingles as you would a poisonous toad.

Minute subtleties are going to be lost.

Cut into a scene as late as you possibly can, in media res, “in the middle of things.”

Let the sound effects tell your story for you.

Keep cacophony out.

A flat read is almost always best.

“You cannot logic your way to an audience’s heart.”


Thoughts On Diversification & Ideal Portfolio Management: A Reply (#diversification)

I’ve been having a constructive conversation on the topic of diversification fellow value investor Nate Tobik of

Now, this conversation all started because of an e-mail I sent entitled “why isn’t AAPL cheap?”, the point of which was to discuss the reasons why a company that looks like it is cheap statistically (AAPL has a low P/E, outstanding balance sheet, huge FCF generation, etc.) still might not be. The diversification discussion arose organically and orthogonally. I mention this only because reading Nate’s comments is kind of like jumping into the middle of a conversation– that’s not his fault.

Below, I reproduce several of his e-mails (with his permission) and add my own commentary as well:

The other thing is most companies I end up investing in are small caps and they do one thing. So I can look at a OPST or MPAD and read the annual report in 20m. Keeping up with them probably requires 45m a year and I can explain them quickly. So having a stable of companies like this isn’t really a big deal at all. Contrast that with how much time it would take to look at BAC or AIG, it’s crazy. I can probably look at 15 small caps in the same amount of time as I’d spend looking at AIG.

My comment: In this first quote, Nate is explaining why he feels comfortable having a diversified portfolio. While I am worrying about scaling the number of positions in my portfolio down, Nate admits he is looking forward to celebrating his 50th pick one day.

I think Nate raises a valid point here. A company like BAC or AIG is so incredibly complicated, it’s hard to imagine how you’d have time to analyze anything else you might want to add to your portfolio after researching and fully understanding the risks of one of them. On the other hand, a lot of these net-nets we look at are simple businesses and while they have risks, the risks are easy to understand and keep track of for the most part. This is a fair response to the challenge I raised in my first post in which I suggested that diversification may add risk to a portfolio by creating confusion and dividing the attention of the portfolio manager.

Yeah, I’m not married to the idea of a single best idea, I mean what is that? Well America Movil has grown the most for me so is that my best idea? What about Mastercard a 10-bagger since 2006. Here’s the problem, when I purchased both of those I had no idea they’d do as well as they would, I just figured they were worth more than I paid.


In my view as long as every position I buy meets my return characteristics buying one more position doesn’t diworsify me because that next stock added has the same potential return as all the others. So holding 200 stocks that I think are all worth 50-100% more, or are compounding at 10-15% a year is fine, I would be happy with that. The reality is that many probably don’t exist.

My comment: This is probably true. But at the same time, there is nothing being added by diversification. The free lunch remains elusive. If you have 20 positions that all have a 15% per annum return potential with similar risk, you really just have 1 position with a 15% per annum return potential.

So if I looked and had to tell you what had the best prospects I really don’t know, and that’s not because I question my judgement, it’s because in my experience it’s impossible to tell. I could tell you what is growing on my basis the quickest, or what is the cheapest, but absolute best idea, I don’t know. I don’t think that’s in my investor DNA.

I’ll say though when I see something crazy cheap I will try to keep buying up to a limit, I’ll usually max out at 5% or so.

My comment: Nate is responding to my argument in the previous post that, instead of diversifying, you should put everything into your “best idea”, whatever that may be at the time (best defined as highest return potential for lowest risk out of all alternatives being considered). And he’s definitely correct that you can’t know ahead of time which investment out of a “crop” will realize the highest “yield” ahead of time. I agree there.

But my point was slightly different– that if you’ve got three different plants, say, and one of them looks the healthiest of the other two, water that one, a lot. Don’t water all three, a little, and see what happens.

I think this is where Nate’s comments on the subject are weakest. I think he’s essentially making my point (one of my points, anyway), for me. In contrast, where I think his comments are strongest are just below.

So here’s my thinking on ‘best idea’ and diversification. There is merit to it with a big “BUT.” So for you, say you take over the business, you have the ability to affect change, to run it as you like. You can only own the one business and nothing else and that’s fine, plenty of business owners do that. In a classic sense you have no diversification but it doesn’t matter because you have control.

I don’t control anything I own, and there is a limited amount someone can know about a business from the outside. So if your business sent me the financial statements I could learn a lot, but I would never know as much as you because you’re inside. Even if you don’t have statements you know more, you see salesmen walking around, you know if they’re selling a lot or not by their attitude. You know if the carpet has been replaced recently or if the furniture is getting old. All those little intangibles add up. I could go visit every company I invest in and try to learn this, some people do. That is the point of the sleuth investor, he gets to know the customers, sleuths the company, gets to know the employees. he basically gets to know everything you can know without being an insider, then he loads up. So the idea has merit.

I don’t do any of that, I’m reading statements from my basement and even when I get involved in a company all I get back is a nice letter saying thanks they’ll look into it. So I need to diversify my ignorance, I have a 5% rule because I initially don’t want to go crazy on a new position. I let positions run, at one point Mastercard and America Movil were 50% of my portfolio. I know the companies, I didn’t care, I’ve sold them down so they’re about 25% now, but still. I like to scale into something as I get to know it better. A company I’ve owned for five years I know a lot better than a company I just researched no matter how much reading I did on it.

My comment: This makes sense. Essentially what Nate is saying is that you’re taking an undue risk putting 100% into a non-control situation. There are probably few and rare opportunities where the situation is so clear cut and the risks of total concentration so minimal that you can get away with full concentration (zero diversification, or “non-portfolioization” as I put it before).

This has me “stumped.” I don’t have a great response for this (not that I need to… this is an argument about being right, it’s a discussion about merits and lack thereof). Intuitively it makes sense because my belief all along has been that the more information you have and the more conviction you have about an idea, the more you should be concentrated in it, with the extreme being 100%. But Nate is pointing out that the only place where you can be “certain” or have full knowledge of the business itself, have full conviction about what the world looks like from the business’s perspective, is if you have control of the business. So, outside of that condition, you should not concentrate 100% in normal circumstances.

As Nate mentioned later in an e-mail, he is a “serial investor”, meaning, he is looking at ideas one at a time and evaluating if that investment meets his hurdle. He is not usually comparing multiple investment ideas at once and then picking the “best idea” of the bunch.

This reminds me of a section from early in The Snowball where Schroeder says that Buffett was typically fully invested but, for the first time in his life in the mid-1960s, he was finding the bargain pool to be dried up and felt forced to sit in cash as opposed to deploying his capital.

I think in that situation, you’re forgiven for “diversifying” into cash. But short of that, this “I am holding some cash ‘just in case'”, where the “just in case” is interpreted as “just in case I come across a great bargain or the market crashes” doesn’t hold water. What if that crash never comes, or the bargains you see right now are as good as they’ll get?

Why be “diversified” in cash at that point?