• The Unified Field Theory of Elon Musk
  • A Word on the WannaCry attack
Here’s the agenda…

1. Colonise Mars.
2. Decarbonise planet earth with solar powered electric vehicles and an ‘enernet’ of storage batteries,3. See off the prospect of algorithmic apocalypse.

Welcome to the world of Elon Musk…a world of SpaceX, Tesla, Solar City and a $1 billion campaign to find ways to counter the threat of take-over by aliens – more on the specifics of that plan shortly.Musk was been called a combination of Steve Jobs and Jules Verne, a Sci-fi PT Barnun. He has also been called a braggart, a loud mouthed bully and an epic over-promiser.

As Professor Aswath Damodaran of NYU’s Stern School – dubbed in some circles as the ‘Dean of Valuation’ – Tesla is the “ultimate story stock”, amped up by possibly the world’s greatest salesman.

On the back of nearly $1 billion in losses over the last 4 quarters, the stock market has driven up Tesla shares by over 40% this year and has valued Tesla at $50 billion, which eclipses the individual market caps of Ford and GM.

Damodaran calculates that Tesla needs to generate revenues of $100 billion on tech company rather than auto company margins within the next decade.

Here’s the punch line. Despite the umpteen missed deadlines and insane stretch goals, Damodaran says he wouldn’t “put it past Musk to pull it off”.

The Unified Field Theory
of Elon Musk

It’s important to dig into the psyche of people like this. The likes of Bezos, Page, Musk have the freedom and messianic will to try and reshape society.

So what, to use a chapter heading of Ashlee Vance’s highly readable and often critical Musk biography, is the Unified Field Theory of Musk?

What’s the secret of the brilliant and gawky teenager, who had deep problems with his step-father and emigrated from South Africa to Canada alone at the age of 17?

1. “Passion and Purpose”

Says Musk: “I didn’t go into the rocket business, the car business or the solar business thinking this is a great opportunity…I just wanted to make a difference…to have an impact…to create something substantially better that what came before.”And he might have added to save humanity in the process.

Reminds me somewhat of what Jeff Bezos said at TED in 2014: “position yourself  with something that captures your curiosity, something you’re missionary about…one of the great paradoxes is that the missionaries end up making more money than the mercenaries anyway…than the companies that build a product or service so they can flip the company and make money.”

2. First Principles

Start with first principles, a lesson Musk learned from Physics. “Physics forces you to boil things down to their most fundamental truths and then connect those truths in a way that let’s you understand reality…I think it’s critical to use this framework for reasoning when you’re trying to create a new product of service…so, first principles, when developing new batteries <key to the success of Tesla and Solar City>…What are the material constituents? What is their spot market value? It has carbon, nickel, aluminium and some polymers for separation, and a steel can…but wow if we bought these things on the LME the cost could be $80 per kilowatt-hour….clearly you need to think of clever ways to combine these materials into the shape of a battery cell to give you batteries that are much cheaper than anybody realizes..”

3. Think in Probabilities

As Musk puts it: “outcomes are usually not deterministic. They’re probabilistic. But we don’t think that way. The popular definition of insanity – doing the same thing over and over and expecting a different result – that’s only true in a highly deterministic situation…in a probabilistic situation it can be quite reasonable to expect a different result if you do the same thing twice…”

Musk deploys the sophisticated and unexpected argument that such an approach “guards against the brain’s inherent laziness…the brain is an energy hog <2 per cent of our mass but uses 25% of our energy> so it’s always looking to conserve…to see things in black and white when the future is not certain and is really a set of branching probability streams.”

“Even if the probability for success is low, if the objective is really important, it’s still worth doing…I decide according to the probability multiplied by the importance of the objective.”

So when Musk started SpaceX and Tesla he thought their probabilities of success were “a fair bit less than 50%” but, he says, “they needed to get done. So even if the money was lost – his own, shareholders’ and governments’ – it was still worth trying.”

When you look at the incredible range of Musk’s endeavours, although they are all internally and intrinsically linked, only one person compares in the annals of recent business: serial disrupter Steve Jobs.

Vance argues that the key to Musk’s success is that he adapted the Silicon Valley start up culture to industries that have been insulated from serial disrupters.

Musk sets outrageous goals and leans on staff until he gets performance. With little money to play with his companies relied on moving fast and releasing products in rudimentary form, and perfecting later.

He also changes the economic model of every industry he enters.

  • Previous electric car models failed because of power limitations. Musk assessed the improved state of battery technology, improved, and built marketable product.
  • Musk developed a new model for solar in which the installer took on the cost of up-front investment, reaping the rebate benefits later and making it financially painless for end users to go solar.
  • Boeing, Lockheed-Martin and other aerospace incumbents were tangled up in red tape and inflated costs. SpaceX showed you could gut expenses by as much as 90% and still get the job done.
There are a great many industries yet to be exposed to this disruption.  And many of the best brains in automotive, software, energy, rail and aerospace willing to jump ship to work with Musk and his kind…no matter how the reckless they are.

The Next Moonshot

Musk has been a close friend for years of Google’s Larry Page  – another moon shooter.Page and the Google artificial intelligentsia see humans as ‘biological boot-loaders for digital super-intelligence’.

Musk sees Google as the place where ‘evil AI will light up first’ and reckons to reverse matters with his concept of a ‘neural lace.’

Musk has often tweeted cryptic messages referring to the lace, a science-fictional concept invented by novelist Iain M. Banks, that is, in essence, a machine interface woven onto the brain.

Ever since the first computers started flashing its ring counters in 1946, human beings and machines have been a course of deep integration. PCs entered our homes in 1980, then migrated onto laps, into pockets and around our wrists.

The next step is to implant chips and nets under the skin and eventually, close to the decision making apparatus itself.

By overlaying the brain with a ‘neural lace’ to human brains could communicate directly, wirelessly, with digital devices – shades of what’s being researched in Facebook’s Building 8 under ex DARPA chief Regina Dugan!

It is wildly speculative. But what it’s throwing off is highly relevant to investors – more on that story in coming weeks.

WannaCry could have been
a lot worse

Before I go…a word on WannaCry.

You may have heard: a globe-spanning ransomware attack known as WannaCry (and “WannaCrypt” and “WannaDecryptor”) started on Friday, ultimately encompassing some 200,000 computers in 150 countries.

There are a number of problems at work here.

The internet was designed by a small number of engineers for speed and openness, rather than security, but with the explosion in connected devices there is now a vast attack space for hackers. And as the WannaCry episode shows, there seems to be very little friction in the system, with relatively small networks of devices and computers being used to flood key parts of the infrastructure.

In fact, WannaCry shows that it’s human factors all the way….Microsoft not supporting old versions of Windows means that there are 70 million XP PCs out there with companies and governments not upgrading their s/w or downloading patches for fear of losing files.

With Disney, who are refusing to pay a ransom to hackers who stole the latest edition of Pirates of the Caribbean, it’s probably such problems as people not changing their passwords often enough — it should be daily! And there is an obvious lack of understanding and leadership at the top.

The Dyn attack last October was down to the likes of Panasonic, Samsung, Xerox failing to install security at the firmware level thus enabling insecure DVDs, cameras, printers to be turned into a bot net army of devices sending massive waves of junk requests to bring down Dyn’s domain name server, thus taking Netflix and Twitter off the air.

This is a virtually intractable problem unless or until corporate and government cyber hygiene vastly improves, but by then we will all be Morris dancing in hell.

Second issue: as Tech Titans continue their project to modernise and repurpose society, we are connecting networks from vastly different domains. We are only just realising how much chaos this is going to create.

In his recent book Overcomplicated, Sam Arbesman quotes engineers who believe that code and algorithms are already mutating beyond our control. Complex programs, they say, contain fragments of dark code that nobody programmed, running applications in ways that nobody expects.

This is the reason why Delta and American Airlines have had to ground their planes for significant periods of time in the last year. And it’s why we are seeing a spate of flash crashes in markets – many of them unexplained – and why the big banks are becoming so reliant on dark pools.

Just as Lehman exposed the networked complexity of the financial system, there is now a serious risk of a systemic event due to a cyber attack, with one network knocking out a number at once — the grid, banking, aviation — causing immense damage to the economy and our trust in the stability of the internet.

The solution?  We need to leave this to AI.

I’ve been talking to some of my Signum group about the emerging cyber companies that are using AI to supervise and protect systems. There may be three companies that will increasingly dominate on the grounds that the more the system is used, the more data that’s streamed the smarter it gets. Many of the most promising companies on this frontier are not listed of course.

But as always, I’d be happy to exchange notes if you get in touch. Drop me a message here if you’d like to discuss how this affects your portfolio.

Until next time

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