The long-term view

First principles and fundamentals

TLDR: Fundamentals compound and prevail

One of the reasons I write about frameworks and first principles is because of the confidence it provides in decision making and the solace it creates during turbulence.

We all knew interest rates could go up. We all knew our $7 latte was feeling pretty expensive.

Founders and investors who are scrambling in this market, in my opinion, are the emotional ones, not the structured and first principled thinkers.

They got caught up in the hype of pet rock jpegs and meme coins. They got opportunistic. And many became rich overnight.

But many are left holding the bag too.

If you’ve been with me long enough, you know my stance on this stuff usually comes down to “what would have to be true…?”

In the case of NFT’s, I’ve written before that there is real potential when the use case is identity, access, or art. Those are all fundamentally sound markets with real opportunities for innovation.

However, like most art, it’s near impossible to be Pacaso, or the one who discovers his work. That doesn’t mean Board Apes are doomed, it just means creating and identifying long-term value in this market will be rare.

That’s why my Twitter avatar was made by me, for free.

That’s also why Ethereum is 97% of the crypto I own.

But this isn’t a post about NFT’s and crypto, or $UST imploding.

This is a post about appreciating fundamentals.

Layoffs don’t mean the economy is tanking, it more likely means business leaders are taking action to slow their burn and grow into their valuations so that their companies can survive and so that they can realize the potential of the business they’ve poured their hearts and souls into.

For companies with world-class burn multiples and growth rates, now is the time to step on the gas and gain market share while others double back to make sure they turned the stove off before leaving the house.

The reason so many aren’t fundamentally sound is because cash was cheap—low interest rates—and they raised enough of it to act emotionally and opportunistically, rather than on first principles.

For real wealth and value to be created, capital needs to be patient, ideas need to be sustainable, and habits need to compound.

This is the same economy, with the same companies, and the same buyers and sellers as it’s always been. The variables adjust, jobs change, and things evolve.

Queue memories of the emotional rollercoaster that was the beginning of the pandemic. It was temporary, then we were doomed to a new normal, there were layoffs, then a talent shortage, we wanted to go back to the office, then we didn’t, then the social and political unrest, then a bull market. We all got swept up in it.

Rewind even further. Remember when Amazon lost >90% of its market cap in the dot com bubble and then became one of the world’s first trillion-dollar companies?

That’s because winners are defined by their values and long-term thinking.

And down markets allow those winners to acquire talent and build with greater capital efficiency.

That’s why winners are born in down economies, not crowned.

See you Monday.