M&Ms: Scraps
Sometimes the scraps are more useful than the main thing in the 99th edition.
Hey Team,
Warren Buffet and Charlie Munger said one of their worst investments ever was buying Blue Chip Stamps.
In a Berkshire Hathaway annual shareholder meeting in the 1990s, Buffet and Munger proudly displayed a chart that showed Blue Chip Stamps down 99% since they bought it in 1969. It was a reverse of the hockey stick we see when startups pitch investors; it was one of their worst investments ever. Munger is a big fan of touting up failures and hiding wins, the opposite of what entrepreneurs do today.
Blue Chip Stamps was a total loss, and yet it wasn't. There were scraps there that would prove useful.
When Munger started buying Blue Chip Stamps, which was basically a modern-day Rewards Program back in 69, he did it because of its float. For Blue Chip, the float was the money people left hanging in stamps for a considerable time without touching it.
But that float from Blue Chip Stamps proved to be incredibly valuable, even though the company itself wasn't. The float provided Buffet and Munger's cash to buy See's Candy. See's Candy is a company still around today and incredibly profitable. I bought my wife's valentines day chocolate from See's Candy, which was terrific.
See's Candy taught Buffet and Munger the power of buying good businesses. It taught them about the power of a brand and generated the cash they needed to buy other companies, including buying into Coca-Cola, one of their best investments ever in the 1990s.
But most important of all, Blue Chip Stamps taught Buffet and Munger about the power of float. That led them to buy Gieco and many other insurance companies just to use their float over the years. Float is just an advance from the customer that they won't need for a while, or maybe ever in the case of insurance. Float is like a 0% interest rate loan.
Buffet and Munger would've never figured out the power of float if it wasn't for Blue Chip Stamps, one of their worst investments ever. And they wouldn't have learned the value of buying good businesses that throw cash at you if it wasn't for its scraps.
I have seen the power of scraps myself.
A while back, my brother and I built an AI article reader called Articulu, an app for iOS and Android that scraped articles off websites and converted them to podcasts you could listen to.
Scraping is harder than it sounds since many websites have ads, and our scrapers skipped the ads.
We got about 1,500 total users and 15 paying users for Articulu. But to run the Text-to-Speech Models, the website scrapers, and the Stanford Core NLP models cost us way more than we were making in monthly subscriptions from those 15 paying users, so we shut it down.
We failed.
But we learned something about bots, scraping, and AI in the process. Those scraps are proving to be incredibly useful in 2023.
Recently my brother, Anton, went from less than 200 followers on Twitter to over 4,000, largely because of his expertise in AI. He was a staff engineer working on the search engine for Jet, then Walmart after the acquisition; if it weren't for our work in Articulu, he probably wouldn't have had all that exposure to AI he has now.
Today he can run many of the open-source Large Language Models and optimizes models in ways few other engineers can do because he has good experience.
And I, personally, have found a lot of use for the failed Articulu ideas in building bots for the Small Bets Community that are useful today:
The lesson from my personal experience, and from seasoned vets like Munger and Buffet, is that you never know; sometimes, the scraps are more valuable than the thing itself.
Five Shares: Gates on AI, Designers on AI, Dog life saved by AI, Tolkien and the slap.
This a nice thread summarizing Bill Gates's very optimistic views on AI.
A post from Reddit that highlights just how fast the changes from AI are hitting certain industries.
It’s becoming clear to everyone that there is real power in AI right now.
A non-ai but wonderful snippet by my friend from Small Bets, Benjamin Carlson, from J.R.R Tolkien, on what the most important human stories are about.
AI is getting so good that we can get a first-person view of the Will Smith slap from the oscars.
Three Memes: Aligning Text on Websites, Pay Attention
My Twitter friend Nat reminding us that aligning text is harder than it seems to the untrained eye. AI cant easily do it, either.
Bojan does it again; we will all have to pay more attention from now on unless we want to be fooled by AI.
Harry Potter in a Balenciaga commercial, thanks to AI.
As always, thank you for reading.
-Louie
P.S. you can reply to this email; it will get to me, and I will read it even if I cant always reply in a timely manner.
Haha loved how you tied scraps and scraping together. Speaking of the latter, I thought this was interesting (and your brother may like the AI angle too):
https://jamesturk.github.io/scrapeghost/
Good read. The effect of midway on design jobs is wonderful and scary at the same time.