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The Attention Span. "Flamin’ Hot Cheetos."

Happy Saturday, I hope you had a great week. It’s time for a short one, courtesy of one of corporate America’s great Cinderella stories.

Flamin’ Hot Cheetos

[6 minute Read].

In the late 1980s, Richard Montañez was working as a janitor at Frito Lay. The CEO, Roger Enrico, circulated a company-wide video urging his employees to “act like an owner.” As part of an underserved Latino community, Montañez correctly anticipated the appeal of a spicier product to his demographic. He combined the elote spices popular in his neighborhood with a batch of plain Cheetos. He called the CEO directly and was given 2 weeks to pitch to management. His presentation, the first of his life, was a hit.

“Flamin’ Hot Cheetos” was one of the most successful launches in the company’s history. Monañez himself has become incredibly wealthy.

With the benefit of hindsight, it’s easy to see what Frito Lay did so well:

  1. They created an environment that encouraged the direct flow of information, even from the lowest levels.
  2. They then listened to that input.
  3. They acted on it.

The other obvious conclusion is that they benefited from incorporating greater diversity of thought. A study published this year found that hedge fund management teams with heterogeneous education backgrounds, experiences, and nationalities outperformed homogenous teams by a remarkable 3.6%-6.2% a year, after adjusting for risk. Diverse teams identified more opportunities, were more aware of biases and more prudent when managing risks.

Farnham Street’s Shane Parrish has conducted hundreds of interviews for his Knowledge Project podcast. The episode he credits with teaching him the most was with Hedge Fund strategist Adam Robinson (flagged to me via the wonderful Alex Barrow at Macro Ops). Robinson’s Hall of Fame ranking of traders- with reference to forecasting interest rates is:

  1. Metal Traders.
  2. Bond Traders
  3. Equity Traders
  4. Oil traders
  5. Currency Traders
  6. Economists. “Economists are literally always wrong. If you have a group of economists, and they’re in 100% consensus about the direction of interest rates, I’m going to take the other side of the trade, for sure.”
  7. Central Bankers. “They’re not in touch with the economy at all”

Why are metals traders first? According to Robinson:

“The first is, they are the Forrest Gumps of the investing world. Their view of the world is very simplistic. Are people buying copper? And if they are, thumbs up. All’s good in the world’s economy. Great. I guess interest rates are going higher. That’s the way metal traders view the world. And if people are buying less copper, they go, ‘Oh, that’s bad. Economic slowdown’.” Secondly, “People buy and sell copper. It’s used — it’s a thing. It’s not just a number on a screen, which is all currency traders look at. Right?” And third is timeframe, “Commercial metal traders look months to years ahead. Because if you want to take copper out of the earth, it’s going to take years to open that mine, right? So, metal traders are the most farsighted. They have the simplest model of the world, and they are actually in touch with the world economy….. Metal traders have not been wrong once, in the last 18 years, in regards to the direction of interest rates.”

The point here is not necessarily to provide you with a hard-and-fast path to macro riches, but to illustrate that the more you move towards abstraction, then more the original message can get lost. In Dancing with Systems, Donella Meadows wrote:

“A decision maker can’t respond to information he or she doesn’t have, can’t respond accurately to information that is inaccurate, can’t respond in a timely way to information that is late. I would guess that 99 percent of what goes wrong in systems goes wrong because of faulty or missing information.”

Within companies, politics or misaligned incentives mean that information gets altered or blocked on its way up the chain. More broadly, in today’s information tsunami, accurate, diverse, on-the-ground intelligence is even more important. The incentives now skew MASSIVELY towards distorting the message. If I can make a factual observation more emotionally engaging in some way, I gain attentional currency on the internet. A timely new study [from Sacerdote, Ranjan and Cook] found that 87% of U.S. media coverage of COVID-19 has been negative in tone, relative to 50% for non-U.S. major sources and 64% for scientific journals. Moreover, media negativity was largely unresponsive to trends in new cases. There are obviously a lot of other factors at play, but in such a competitive media market, that may be a demand response. Readers in the U.S. and U.K. showed strong preferences for negative news.

One of the core tenets of systems thinking is to correctly identify the boundary of the system you’re in. Since every complex system in the entire universe is interdependent it’s never going to be a perfect science. The boundary of your bodily system is your skin. Robinson thinks metals traders are the boundary of the rates market. As the most junior employee, Montañez was the boundary at Frito Lay. The boundary touches the world. If you can identify the farthest edge of the system, it means you’re getting the most accurate information available. If you then rapidly adjust to that information, you have a formula for the kind of dynamic evolution today’s environment requires.

Interesting Things This Week:

  • Read: Media guru Matthew Ball’s most popular article of 2020: 7 Reasons Why Video Games Will Take Over. (42 Minute Read)
  • Why read: The attention economy is the biggest trend in megacap tech and therefore markets. Video games are perpetually at the vanguard. To relate back to this week’s concept- Video Games are a key boundary for technological developments: they have one of the biggest A/B audiences in human history, as well as an insanely rapid feedback loop.
    • "The most popular video site in the world is YouTube - and it’s most watched content is recorded video game clips.”
    • “Americans spend six to seven hours a day on “media-related” leisure after de-duplication [i.e. not double counting listening to music while drawing, playing mobile games while watching TV, etc.]. This represents 2.1B hours of US media time per day. Roughly 75% of this time is controlled by TV and half of this time comes from those 50+. Seniors alone represent 15% of the population but close to a third of TV time. This dynamic means that not only is the share of Americans who game growing, but many gamers are aging into life stages where their media diets increase overall.”
    • “Pokémon has now generated more revenue than any other franchise, including Marvel, Star Wars and Mickey Mouse, and amassed more than 1,000 consecutive episodes of television and more than two dozen films.” (GTA V is now the highest-grossing entertainment product ever).
  • Listen: Winning at the Great Game – Farnham Street with Adam Robinson (2 parts, 2 hours and 1 hour)
  • Why Listen: This is fun stuff. Professional investors probably won’t likely learn much that’s groundbreaking from Robinson’s investment insights, but he is interesting across a broad range of topics.
    • "One of the problems with self-help books is they rivet your attention on exactly the one thing it ought not to be focused on: yourself. You look at any of the great religious traditions, and the great philosophers, and the great poets, they all had the same message of focusing on others, and being of service to others. I think the people who are going on search to ‘find themselves,’ will never find themselves. You find yourself only in the midst of others.”
    • “Here’s a clue that you’ve tapped into Truth with a capital T, and that your unconscious is speaking — it’s that the answer will surprise you. You’ll be startled by it.”
    • “When someone says, ‘It makes no sense that…’ really what they’re saying is this: ‘I have a dozen logical reasons why gold should be going higher but it keeps going lower, therefore that makes no sense.’ But really, what makes no sense is their model of the world, right? So I know when that happens, that there’s some other very powerful reason why gold keeps going lower that trumps all the ‘logical reasons.’”
    • “In America, we’ve deified ‘intelligence.’ And the problem with ‘intelligence’ is that it works against you. If you’re intelligent, you shouldn’t have to work too hard. Things should come pretty quickly, and if you aren’t intelligent, what’s the point? The better belief is that your success is determined by how hard you work. Then, it’s just a matter of choice. If you want something, work for it, and you will if you want it.”

  • Read: Welcome to the Decade of Concern by The Scholar’s Stage (30 minute read)
  • Why read: Tom Pence flagged the potential geopolitical risks surrounding Taiwan in his annual letter this year, and the volume has only grown. This piece is for geopolitical and military enthusiasts who want a deeper dive on the severe structural constraints and game theory facing the U.S. military in the 2020s.
    • “Commander Salamander’s “Terrible ‘20s” and Captain Fanell’s “Decade of Concern” are the same decade. In the mid-2020s the United States will be struggling to pay the Pentagon’s “modernization crunch.” The Navy, Marine Corps, and Air Force will be midway through a transition to a new, counter-China force structure. The number of attack submarines and stealth bombers that the United States can put in the field will be at an absolute low.”
    • “It is at this moment we project the PLA will be capable of executing a cross straits invasion.”
    • “This does not make conflict inevitable. But if the Chinese have concluded that military means are the only way to bring about Taiwan’s integration into the People’s Republic of China, Beijing's leaders will soon face powerful pressure to escalate towards war. Waiting until the 2030s or 2040s to sabre rattle is to wait for the U.S. military’s counter-China modernization and procurement programs to run their course. There will be a terrific temptation to "resolve" the problem before these programs have been implemented.”

  • Read: Lost in Thought by Harpers (46 minute Read).
  • Why Read: A tricky topic. The co-opting of spiritual practice as productivity tools is always somewhat disquieting. Extreme or excessive meditation seems harmful for a number of people, with the open question being whether it causes or triggers adverse psychological events. My personal stance [as someone far from an expert] is that meditation used as a tool to gain comfort with your inner narrative is healthier than trying to repress it. Similarly, it’s best used as a tool to enhance your engagement with life, rather than spiritual bypassing.

Have a great weekend!


Tom Morgan
Director of Communications and Content
The Knall/Cohen/Pence Group

Work (317) 571-4525

Cell (917) 656-2742

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