MacBooks vs Wristwatches

Malt Liquidity 83

A Dose of Reality

It’s a slight understatement to say that Elon is not the “Techno-King” of ZIRP that he was just a year ago. It’s also a slight understatement to say that Elon can be a bit of a jackass at times and doesn’t really seem to understand how “mergers” or “the law” work. At the same time, the current narrative is so oversold on him right now, I feel obligated to be a bit of a contrarian here.

The loudest critics of Elon tend to be the people who are plugged in to the events that go on around him rather than the people who buy in to the stories he tells them (ignoring the cultists — let’s assume that the following classes are filled with at least the semblance of rationality). I refer to this group of critics as the “MacBook class” — journalists and tech types who have the bandwidth, time and intelligence to have a lot of opinions on things, feel valid having them because they’ve reached a certain tier of society, and who tend to be the type of people whose opinions spread across the internet and the mainstream media. On the other side of things, we have a group I call the “wristwatch” class — the investors who aren’t concerned about what’s going on day to day, but rather what you can do to make them money.

There are a lot of quotes from Elon’s latest legal situation, but I want to focus on one in particular

Mr. Musk also indicated there were other financing options and touted his fundraising prowess. “I believe every financing round I’ve ever done has been oversubscribed,” he said in response to a question from one of his lawyers.

which, in all honesty, completely undersells what he has actually done. No matter what you think of Paypal, SpaceX, or Tesla and his roles in founding them, he’s undeniably returned more capital to the members of the wristwatch class who bought in to his vision than probably anyone in history while playing a role in creating 3 separate trillion-dollar TAM industries: payments, space, and electric cars. Do people really not understand why he feels like he can get away with anything? To a rational observer, of course, his claims as to what the future will bring, his exaggerations of forward guidance and deliverables, and what, say, FSD is capable of seem like “habitual lies”. At the same time, when you are selling a vision of this level of abstraction and this level of complexity and opaqueness, I’m sure Elon doesn’t see it as lying, but rather the reality he deludes himself into thinking he’s creating until, somehow, it happens. Did a single other person see the EV industry and private space industry developing in the direction it did as clearly? (All great big businesses involve some degree of regulatory capture, “chipping off the ol’ infinite liquidity block”.)

The MacBook class in particular doesn’t realize that the time they have to hem-and-haw about Elon’s mistakes is a privilege in and of itself. People who haven’t raised money or built a product from scratch in their life screeched about how Mastodon was going to zero out twitter. These people have left that platform faster than everyone forgot about Luke Cage, and are probably back prolifically tweeting after proudly declaring that Twitter was “imminently doomed". Maybe the guy who runs multiple multi-billion dollar businesses at the same time understands more about business than people who wouldn’t be able to manage a McDonald’s. Sure, he overpaid for Twitter, misfired a few times (he’s clearly adjusting to not being the golden boy of society that he was when TSLA was over a trillion dollar market cap), and clearly overestimated his capacity to sell a vision to retain employees to build an ad business rather than electric cars or rockets. At the same time, I would be willing to bet — as would any member of the wristwatch class — that he manages to pull something off because he always has.

(Note: I’m not shitting on McDonald’s managers at all. I certainly wouldn’t be able to do the job. Not only do you have to know every role, interview people for them, fill in when needed, and manage inventory, but you need to be able to put out fires on demand because, well, you’re in charge. I 100% would not be able to handle the logistics of a McDonald’s, let alone a billion dollar company. People who understand logistics and managing teams have my utmost respect.)

The MacBook class fails to understand that what the wristwatch class values is the people who can delude themselves into thinking they can change reality and are willing to spend all their time and effort working towards it. It’s so hard to sell a vision and raise money. I’ve probably met 50x the amount of people with good ideas than I’ve seen able to raise money. It’s so hard to find the right people, get out of their way, and make the executive decisions when they come up. Sure, the “genius engineer” thing is a meme, but he doesn’t need to be the guy designing or building the rocket, but rather visualizing how it all fits in to a business strategy and turns into a stable company 5 to 10 years down the line. It’s why, despite how much I despise this happening, it’s perversely understandable why Adam Neumann was able to raise money again. That particular group of the wristwatch class — venture capitalists — understands that it’s about setting money on fire 90% of the time. Someone who has at least shown the ability to scale could at least be somewhat argued to have “learned” from the last time they incinerated all the capital vs an unknown quantity. Given all that money for leases, you or I would be haggling over getting a deal, not buying the market top, worrying about finances, and more. All good instincts to have! At the same time, when you’re given the license to grow, you have to go for it as much as you can. Adam Neumann was human vaporware, but his ability to understand that building a lucrative business requires denying reality to a certain extent was pretty sophisticated.

Don’t get me wrong, I totally think TSLA’s pandemic run up was fueled by ZIRP and other nonsense. At the same time, all of his companies were founded pre-ZIRP, so Elon does in fact know how to deal with non easy-money regimes. Just the bandwidth to run not one, not two, but three multi-billion dollar companies and still attempt to meme around (albeit in a normie-repostie manner) is just astounding to me. His Twitter adventure is totally unnecessary, already fiscally troubled, and is probably his most challenging turnaround project yet. Yet I’m sure that tons of the wristwatch class would buy in if he tried to raise money, because his track record is simply that good. I genuinely don’t understand why he’s going out of his way on this one to insert himself directly into the middle of the one of the most toxic aspects of internet culture other than him truly believing that he can fix it. Reality indicates he probably won’t pull it off and Twitter will disappear into the internet ether — then again, maybe I’m learning to deny reality a bit myself, because somehow, I think he’ll pull it off.

(Postscript: the reason why I call the investor class “wristwatches” is twofold. One is because mechanical watch owners aren’t really concerned with efficiency, are they? The nicest Lange is less accurate than a $10 quartz Mickey Mouse watch. The other is due to how watches appreciate in value — take the Paul Newman Daytona for example. Functionally, it’s the same as any other Daytona — a watch that retails for around mid 5 figures — but due to the story behind the watch, it sells for roughly $18 million. The story itself multiplies the value of the same watch by 360x, which I think highlights the essence of how you understand the wristwatch class and, consequently, how you raise money from them.)