Read on Twitter
Simple minded backward looking VCs look at this chart of US e-commerce penetration and think its bullish, but I couldn't find a better example of "first order thinking" or sell-the-news than this. 1/n https://twitter.com/DavidSchawel/status/1295155676063256579
First of all, what the hell did you expect would happen to e-commerce penetration when the government forcible shut down all analog competition?
Second, how much of these pandemic caused market share increase will stick? 2/n
Second, how much of these pandemic caused market share increase will stick? 2/n
Instead of spending time thinking about growth has been pulled forward from the future (instead of expanding TAM), public and private market investors in today's go-go momentum stocks blindly extrapolate growth during this unusual time in a linear fashion over next 10 years 3/n
while humans are wired to think linearly and extrapolate near-term trends to the foreseeable future, in reality markets are complex adaptive systems where trends are cyclical, not secular. The hardest part is differentiating between an up cycle v/s sustainble growth 4/n
This is why you see investors enter cyclical like O&G at the top, when their historical financials look most attractive, and exit at the bottom. While e-commerce and tech bulls look savvy/smart for picking what is undoubtedly the strongest secular trend of our times 5/n
the same could be said for bulls on Exxon Mobil at the top in 2008 as they painted a narrative of endless growth into the foreseeable future powered by EM middle class growth, spurring trillions of dollars to enter the sector and compete returns down to 0/negative 6/n
this is likely what will happen to bulls left holding shiny e-commerce names like $SHOP or $AMZN trading at historically elevated multiples of sales that are likely inflated by an artificial shut down of brick and mortar competition 7/n
as VCs fund "new-age" competitors, each claiming to be the next $UBER, competing away the excess returns that drove investors to the sector in the first place. Ironically, investing in the most innovative companies of 2020 is taking an implicit bet against more innovation 8/n
as the zero cost of capital, pension under funding/increasing PE/VC allocation, and proliferation of tools like AI, AWS and Slack make it easier and faster than ever to scale and disrupt incumbents, spurred on by the dream of trillions of dollars in market cap 9/9
