Fred Wilson's latest blog post about "grinding" tells the story of how Twitter solved the infamous "fail whale" problem that plagued its platform in the early days. I remember that whale, as I'm sure many of you do as well. It was a problem and, according to Fred, it was a real threat to the business. The solution wasn't all that sexy; though sexy solutions were attempted. The team just rebuilt everything, piece by piece. And eventually the fail whale problem went away.
The lessons here go well beyond just this Twitter example (or at least, it triggers something for me). Here's how Fred ends his post:
If given a choice between a flashy operator or a grinder, I will take a grinder every time. It is a much higher percentage bet. It requires faith and patience and the results are sometimes hard to see. But if you look at the results from grinding it out over a long enough time frame, you can see the power of that approach.
This kind of long-term patient thinking can be difficult, especially in an increasingly instantaneous world. We are all drawn to magic solutions, hot stock tips, and new condos that are destined to double in value over the next year. I suppose that's partially why so many people enjoy playing the lottery, even though the odds of winning big can be as low as 1 in a million.
Being a grinder is largely a higher percentage bet because you're taking a longer, more disciplined, view. Warren Buffet has, admittedly, no idea how stocks will behave over the next week or year, just as I have no idea how condo prices in Toronto will behave over the next week or year. Instead, Warren chooses to bet on "The American Tailwind" and I choose to bet on the role of Toronto as a global city.
Warren first invested in an American business in 1942. He was 11. Over the next 77 years, the S&P 500 would go on to return an average of 11.8% annually. Had he invested in a no-fee index fund and reinvested all dividends, his gain would have been 5,288 for 1. In other words, a $1 million investment would have grown to $5.3 billion on a pre-tax basis. (See: The compound effect.)
77 years is, of course, a long time. But I am sure you get the point: faith. patience, and tenacity -- even when, sometimes, the results can be hard to see. Real estate development is very much that kind of business.
The below chart from this morning's Wall Street Journal is perhaps a good example of our ongoing transformation from an industrial economy to an information economy. Just four stocks -- namely Microsoft, Apple, Amazon, and Facebook -- have accounted for 19% of the S&P 500's total return this year. All of them are "tech."
And this is not new to 2019. Similar contributions were made by tech last year and in 2018. I have been used to hearing about the 4 horsemen of tech. But apparently there's even now something called the "FAANG stocks," which refers to Facebook, Amazon, Apple, Netflix, and Google (Alphabet).
This shift is, of course, one of the reasons why every city is trying to establish a strong tech ecosystem. I saw that first-hand in Lisbon this past week. And frankly I think the city has many of the same characteristics that made Berlin a great place for tech. It's affordable. It's filled with young and smart people. And it's a fun place to be.
There's a reason that Lisbon now hosts the annual Web Summit, which is generally considered to be the largest tech conference in the world. (The North American offshoot, called Collision, relocated to Toronto this year in order to be in a more global city.)
Portugal only has a population of about 10 million people. There are some 3 million people in the metropolitan area of Lisbon. But that doesn't really matter because most startups today are immediately targeting a global customer base.
I learned more about Portugal and Spain's colonial pasts on this trip and I found it fascinating. In many ways, it was the start of globalization. But that was the Age of Discovery. Those centuries are over and done with. Our century is the Information Age. The above chart is part of that story.