Greg Moritz

Anyone who touches public market investing sings endless praise for Warren Buffett. But how many public market investors invest like Buffett — that is, actually employ the same strategy to generate superior returns? Remarkably few, it seems.

The Mutual Fund Observer recently profiled the Bretton Fund and interviewed its manager Stephen Dodson:

In imagining that firm and its discipline, [Dodson] was struck by a paradox: almost all investment professionals worshipped Warren Buffett, but almost none attempted to invest like him.  Stephen’s estimate is that there are “a ton” of concentrated long-term value hedge funds, but fewer than 20 mutual funds (most visibly The Cook and Bynum Fund COBYX) that follow Buffett’s discipline: he invests in “a small number of good business he believes that he understands and that are trading at a significant discount to what they believe they’re worth.”    He seemed particularly struck by his interviews of managers who run successful, conventional equity funds: 50-100 stocks and a portfolio sensitive to the sector-weightings in some index.

Stephen says:

I asked each of them, “How would you invest if it was only your money and you never had to report to outside shareholders but you needed to sort of protect and grow this capital at an attractive rate for the rest of your life, how would you invest.  Would you invest in the same approach, 50-100 stocks across all sectors.”  And they said, “absolutely not.  I’d only invest in my 10-20 best ideas.” 

The obvious question is why this is. There are various incentives that distort fund managers’ behavior, certainly. But my guess is that a large number of public market investors think they’re investing like Buffett, but they’re actually not disciplined enough to follow the value strategy all the way. It’s no wonder the average returns from actively managed mutual funds (versus index funds) are so disappointing.

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I should note that Steve is one of my closest friends. And not just because he’s made me money from my being an investor in the Bretton Fund.

How badly do Americans overspend on college? Look at it this way: We devote more of our economy to postsecondary education than any other developed country (except South Korea, with whom we're tied), according to a new report by the Georgetown Center on Education and the Workforce. But we're rated near the bottom of the 20 countries included by college spending "efficiency"—or, degrees earned per percentage point of GDP spent.*

This certainly isn't the only way to measure the quality or effectiveness of a higher ed system. Nor does it capture all the benefits of our higher education spending. At least some of our costs are driven by elite colleges, for instance, which are still the most admired in the world. We pay a lot for them, and we get a lot from them.

But some much these costs are driven by the low end of U.S. higher ed, the colleges that are functionally dropout factories. Unlike, say, Germany with its renowned apprenticeship systems, there aren't really great alternatives to college if you want a middle-class life in the United States. So ill-prepared young adults flood into degree programs they never finish, leaving the U.S. with some of the lowest completion rates in the developed world. 

In other words, what makes this chart truly galling isn't that we're spending extraordinary amounts of money to produce college graduates. It's that we're spending extraordinary amounts of money to produce college dropouts. 

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*The weighted measure gives more credit to countries for graduating students from four-year, rather than two-year, colleges, which benefits the United States. 

The fine folks who manage Harvard's ginormous endowment have reported their latest annual results, and thus reminded the world that Cambridge's favorite color is not in fact crimson, but green. Last year, the University's cash pile grew by 11.3 percent to $32.7 billion. As Hamilton Nolan wrote it over at Gawker, the school "made Fortune 500 money last year. More profit than Target, and just less than AIG."

Harvard is by far the most richly endowed U.S. university. But institutions like the University of Pennsylvania and Yale actually posted even more resplendent returns on their investments. And yet, most of these schools, which are nominally nonprofits mind you, will probably spend somewhere just south of 5 percent of their total endowments this year on things like financial aid and infrastructure. 

College administrators justify that gap between profits and spending in a number of ways. But one of their big points is that endowments are rainy day funds — which is why I've found myself staring at this chart of Harvard's endowment growth over the past 20 years. It's sort of a rorschach test. The University's investments lost 27 percent of their value during the recession, and still haven't made it back to their previous highs. I can easily imagine a college administrator pointing at this and shouting: "See, we need all the cushion we can get!"

On the other hand, what an odd cushion. It turns out, the school did face a serious cash squeeze. But that had everything to do with some boneheaded investments in assets that couldn't really be sold quickly — think timberland — not the size of their portfolio, which was never anything short of enormous.  In general, schools turned out to be surprisingly unwilling to spend down their endowments during the recession, largely choosing to raise tuition or cut spending rather than touch their nest eggs. That would seem to undermine the whole premise letting them sit there and grow with the help of tax-deductible donations. 

Every so often, Congress contemplates the idea of forcing the richest colleges to spend a certain percentage of their endowments, the same way non-profit foundations are. Maybe it's time to have one those conversations again. 

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Ever wanted to play Pac-Man in the style of a first person shooter? Well tear your shirt off and start waving it around like you're at a Kid Rock concert, because this is your lucky day. 'FPS-Man' was created by game designer Tom Davies and available for free play over at Kongregate. It has creepy music, a map to show you were the remaining pellets and power pellets are, and...that's about it. I just played for ten minutes while I had a client on hold, during which time I actually forgot I had him on hold, then picked up the phone and tried to order a pizza from him. Thanks to Ed and FrozenCookieDough (OMG, love your stuff), who want to play Donkey Kong as a first person shooter.

Should you launch at Launch? (Or TechCrunch Disrupt? Or Demo? They’re all pretty similar).

This year I launched two major new products at conferences: Careers 2.0 and Trello, and both times, it was totally worth it.

First, a little background. There are three popular conferences where you can launch new products: Launch, TechCrunch Disrupt, and Demo. They all work the same way:

• You apply. If you have a half-decent product that is genuinely new, you’re likely to get a spot. That said, hundreds of companies apply for these conferences with unbearably awful products, so there’s always a risk that you’ll get lost in the noise.
  
• If you get in, you will have a chance to give a demo on stage for exactly six minutes. There will be some celebrity judges who will give you a few sentences of honest feedback about your startup. (Here’s how our demo went down).
  
• Even if you don’t get a slot presenting, you may have a chance to set up at a little table in the conference area where you can show off your product to passers-by.
  
• The official promise is that you’ll get exposure to a lot of journalists and VCs, and this will launch your startup on the way to huge success. The truth is, well, complicated, but I’ll get into that in a minute.
  
• At the end there is a “winner.” For example at Disrupt the winner (chosen by a panel of utterly uncorruptable, gazillionaire judges) receives a check for $50,000. There are between 30 and 50 startups presenting at each conference, and the politics behind who “wins” are murky enough that you should basically assume that the chance of winning is zero. There’s always going to be a “Netflix for Cabbage” or a “Second Life for Facebook” that the judges fall in love with. So the benefits of winning, which is vanishingly unlikely, should never factor into your decision as to whether to go or not.

So, are these conferences worth it?

Let’s look, individually, at the two big promises of the conferences: exposure to VCs and exposure to the press.

Are VCs at these conferences? Absolutely. Does going to one of these conferences get you funded? It’s complicated.

• If you have a brilliant product, a great team, and you’re eminently fundable, but you don’t know any VCs yet, and you launch at one of these conferences, you will meet a bunch of VCs—even some top notch ones—and the conference may actually get you funded. At the last TechCrunch Disrupt, the finalist judging panel consisted of some of the best investors in Silicon Valley. If you made it to the finals, these folks now know who you are and what your product does, and if your company is fundable, they’ll all take your call.
  
• That said, if there’s some reason your product is not fundable, all the conferences in the world can’t help you. Yeah, you may have a chance to present to a bunch of unknown VCs wandering around looking for investment ideas, but most of them won’t actually invest in you and those that will may be more trouble than they’re worth.

I’ve been tossing around the word fundable without defining it. Every entrepreneur thinks their “Mint.com for Laundry Tickets” is the most fundable idea ever, and all VCs should be dying to invest, if they would only sit still for the brief 62 minute demo!

No. Technically, whether you’re fundable has to do with things like traction, the total size of the opportunity, the quality of the team, whether you build moats (?), and a bunch of other gibberish that VCs like to tell themselves in their heads so that they don’t think they’re just spinning bottles.

But it’s too hard for an entrepreneur to evaluate their own fundability. So here’s a working definition of fundable which is all that matters for you as an entrepreneur:

• If you’re knocking on VC’s doors and they all seem to be opening, you’re fundable. If you keep getting more meetings, more introductions, and good vibes, keep going. You’ll get funded.
  
• If you’re knocking on VC’s doors and they all seem to be closed, you’re not fundable. These days most VCs will just tell you why. If you can’t get a second meeting with anyone, just stop. You’re beautiful, you’re smart, and you’re going to change the world, but you happen to be non-fundable, so just stop. Either change the company or the product, or find a way to make your product popular and successful without investors. 

So, that said, if you don’t know any VCs and think you might have a fundable company, a conference like Launch or Disrupt will get you your first intros.

Now, on to the other promise: Press and publicity.

It is possible, nay, common, to launch at one of these conferences and get NO press whatsoever. Zero. Nada. At Disrupt you’re guaranteed at least one mention in TechCrunch, but you’ll soon discover that TechCrunch’s tech-industry insiders may not really be the audience you need.

Yes, there are a lot of journalists at these conferences. Disrupt probably had about 200. When we launched Trello this week, you know how much press we got?

Four stories.

And every one of those stories came because I knew the reporter and emailed them before we launched, and pre-briefed them on our product under embargo.

Yep. There was not a single reporter, from the 200 that were registered, at Disrupt who saw our presentation and said, “Oh cool, I’m going to write about that.”

You know why? Because there were dozens of companies launching in two days, and reporters usually file one or two stories a day, so they all focus on one or two companies they find interesting (and at this last conference, they mostly wanted to talk about Arringtongate).

That said, you can get exactly the burst of publicity you need from launching at one of these conferences, if you do it right. You have to:

• Prebrief friendly media (under embargo)
• Get the bloggers in your area to write about you
• Have a sensational demo that gets retweeted
• And do this all at exactly the same moment when it’s newsworthy.

We did all that and leveraged 6 minutes of fame into 130,000 eyeballs.

The thing entrepreneurs often forget about news media: It’s supposed to be news. They want new things. As a startup, you are only going to have two or three new things that happen, ever:

1. Launching your product
2. Raising money from a VC
3. Reporting insane traffic or revenue (optional)

That’s it. Those are your chances to get news. Under no circumstances can you expect to be covered because you take a walk in the woods with potential employees... you’re not Mark Zuckerberg. (Unless you are, in which case, Hi Mark!) You’re not getting font changes on the home page covered, unless you used to work for Mark Zuckerberg.

In short, you only have two or at most three chances to got coverage unless there’s Mark Zuckerberg involvement.

Well, wait, there’s one more way. If you are very lucky, you will have some famous people involved in your company, and some of them will have tawdry affairs with prostitutes that are captured on video. That will get you a fourth story. Otherwise, you’re not news. Get over it.

Also important: the news cycle is 12 hours, tops. If you call journalists the day after you release your product, it’s not news. They won’t care. You have to call them two days before you launch, tell them you’re going to launch in two days, and offer to pre-brief them, so that they can run their story when it’s actually newsworthy. The bottom line is that you have to get all your coverage within a period of a few hours which means you have to plan ahead and work hard. This is not the time for incrementalism. Don’t worry about DDOSing your own server. There’s no choice: you can’t spread out the newsworthiness of your launch.

Because there are so few opportunities for a startup to get press, you have to make the most out of each one. That’s why I am still a big believer in “the big launch” even though the Lean Startup ethic today is all about trickling things out to your users bit by bit and pivoting a million times.

Here’s the story of Trello. We wrote the first line of code last January. By the time we hit 700 lines of code, the product was useful, and we immediately started dogfooding it in-house. We probably could have brought it to market after three months. That would have been ever so lean. There was a strong temptation just to dump it on the world super-early and spend the next year iterating and improving.

We didn’t do that. We worked for nine months, and then launched.

I couldn’t stop thinking that you never have a second chance to make a first impression. We got 131,000 eyeballs on 9-month-old Trello when we launched, and it was AWESOME, so 22% of them signed up. If we had launched 3-month-old Trello, it would have been NOT SO AWESOME. Maybe even MEH. I don’t want 131,000 eyeballs on MEH.

Still, I do, firmly, believe that a completely new product has to go through what Steve Blank calls customer development to find “product/customer fit.” I.e., you have to get real people really using your product and you have to watch them and listen to them and make changes to make your product better, and you have to do this very, very early.

How did we reconcile this? Through the old fashioned method of a closed beta. We got a hundred of our best friends to use Trello and tell us what they thought while we iterated and polished and improved.

So the thing we launched, nine-month-old Trello, is really kind of slick. And we got a little initial bit of publicity for it, but then that publicity became massively viral. So those four news stories caused a few people to check out the product, and they liked it, because it was AWESOME NINE-MONTH-OLD TRELLO, and they wrote amazingly nice tweets. Thousands of amazingly nice tweets.

So, the story so far: if your product is really good, launching at one of these conferences is an incredible catalyst. If your product is “meh,” it won’t help.

But wait—there’s one important, bonus reason to launch at a conference, and it’s a good enough reason to do it even if you don’t need the publicity or the VC at all.

It’s all about your team.

When you launch at a conference, you have an incredible hard deadline. This deadline forces you to ship. It forces you to make decisions about what has to be in version 1.0. It's actually an incredible team-building exercise to work your butt off, together, for the weeks leading up to the conference.

The morale boost you’ll get will be incredible. After months of toiling away, the feeling you get from seeing real-world people actually start using your product is the best feeling you will ever get as a software programmer in your professional life. These are the great moments that make it all worthwhile. We *made* something. People used it. It matters.

It's like sex, with clothes on.

The members of our team who came out to San Francisco for Disrupt (including two summer interns who skipped a week of classes to join us) had a blast. It was the best week, ever. The members of the team who stayed back in the office, watching the conference piped in over the Internet, had a blast. It was the best week, ever.

Work has to matter.

The stuff we create can’t just be bits on a hard drive.

Brett, Daniel, Bobby, Justin, Ian, and Aaron built something with their bare hands that will be a part of how the future works.

One company that just launched at Disrupt is trying to fix medical bills. Another wants to bring fresh produce from farmers direct to households. Another company built the universal translator from Star Trek. Good software developers invent the future.

This is what matters: launching products, getting them in the hands of users, and hearing them get value out of it. That’s why we stay up late, ruin our wrists and our eyesight, and drive our families crazy. It’s all about shipping.

Need to hire a really great programmer? Want a job that doesn't drive you crazy? Visit the Joel on Software Job Board: Great software jobs, great people.

The fastest growing industry in the US right now, even during this time of slow economic growth, is probably the patent troll protection racket industry. Lawsuits surrounding software patents have more than tripled since 1999.

It’s a great business model.

Step one: buy a software patent. There are millions of them, and they’re all quite vague and impossible to understand.

Step two: FedEx a carefully crafted letter to a few thousand small software companies, iPhone app developers, and Internet startups. This is where it gets a tiny bit tricky, because the recipients of the letter need to think that it’s a threat to sue if they don’t pay up, but in court, the letter has to look like an invitation to license some exciting new technology. In other words it has to be just on this side of extortion.

Step three: wait patiently while a few thousand small software companies call their lawyers, and learn that it’s probably better just to pay off the troll, because even beginning to fight the thing using the legal system is going to cost a million dollars.

Step four: Profit!

What does this sound like? Yes, it’s a textbook case of a protection racket. It is organized crime, plain and simple. It is an abuse of the legal system, an abuse of the patent system, and a moral affront.

In the face of organized crime, civilized people don’t pay up. When you pay up, you’re funding the criminals, which makes you complicit in their next attacks. I know, you’re just trying to write a little app for the iPhone with in-app purchases, and you didn’t ask for this fight to be yours, but if you pay the trolls, giving them money and comfort to go after the next round of indie developers, you’re not just being “pragmatic,” you have actually gone over to the dark side. Sorry. Life is a bit hard sometimes, and sometimes you have to step up and fight fights that you never signed up for.

Civilized people don’t pay up. They band together, and fight, and eliminate the problem. The EFF is launching a major initiative to reform the patent system. At Stack Exchange, we’re trying to help with Ask Patents, which will hopefully block a few bad patents before they get issued.

The Application Developers Alliance (of which I am currently serving as the chairman of the board) is also getting involved with a series of Developer Patent Summits, a nationwide tour of 15 cities, which will kick off a long term program to band together to fight patent trolls. Come to the summit in your city—I’ll be at the San Francisco event on April 9th—and find out what you can do to help.

Need to hire a really great programmer? Want a job that doesn't drive you crazy? Visit the Joel on Software Job Board: Great software jobs, great people.

This is a series of Disney princesses reimagined as scantily armored warriors by artist Mike Roshuk. Why all the bare midriffs? Because they're so badass they don't NEED armor there. Somebody shoots an arrow at you? Deflect it with a blade. Don't have a blade? FLEX THOSE ABS. Hit the jump for individual shots of Ariel, Cinderella, Pocahontas, Snow White and Jasmine. Thanks to Kerssica, who expressed an interest in becoming Ariel but refuses to make a deal with an evil sea witch.

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Jennifer Senior wrote a great piece in New York magazine a couple months ago titled “Why You Truly Never Leave High School.” It’s about the formative and lasting nature of the American high school experience. Excerpts below.

Our brain is primed to remember what happens during adolescence:

But for most of us adults, the adolescent years occupy a privileged place in our memories, which to some degree is even quantifiable: Give a grown adult a series of random prompts and cues, and odds are he or she will recall a disproportionate number of memories from adolescence. This phenomenon even has a name—the “reminiscence bump”—and it’s been found over and over in large population samples, with most studies suggesting that memories from the ages of 15 to 25 are most vividly retained.

On the adhesiveness of our self-image from those days:

Our self-image from those years, in other words, is especially adhesive. So, too, are our preferences. “There’s no reason why, at the age of 60, I should still be listening to the Allman Brothers,” Steinberg says. “Yet no matter how old you are, the music you listen to for the rest of your life is probably what you listened to when you were an adolescent.” Only extremely recent advances in neuroscience have begun to help explain why.

It turns out that just before adolescence, the prefrontal cortex—the part of the brain that governs our ability to reason, grasp abstractions, control impulses, and self-­reflect—undergoes a huge flurry of activity, giving young adults the intellectual capacity to form an identity, to develop the notion of a self. Any cultural stimuli we are exposed to during puberty can, therefore, make more of an impression, because we’re now perceiving them discerningly and metacognitively as things to sweep into our self-concepts or reject (I am the kind of person who likes the Allman Brothers). “During times when your identity is in transition,” says Steinberg, “it’s possible you store memories better than you do in times of stability.”

An adolescent subculture is a new phenomenon; teens don’t spend much time with adults anymore:

Until the Great Depression, the majority of American adolescents didn’t even graduate from high school. Once kids hit their teen years, they did a variety of things: farmed, helped run the home, earned a regular wage. Before the banning of child labor, they worked in factories and textile mills and mines. All were different roads to adulthood; many were undesirable, if not outright Dickensian. But these disparate paths did arguably have one virtue in common: They placed adolescent children alongside adults. They were not sequestered as they matured. Now teens live in a biosphere of their own. In their recent book Escaping the Endless Adolescence, psychologists Joseph and Claudia Worrell Allen note that teenagers today spend just 16 hours per week interacting with adults and 60 with their cohort. One century ago, it was almost exactly the reverse.

Something happens when children spend so much time apart from adult company. They start to generate a culture with independent values and priorities.

Guilt can be useful, whereas shame is not:

The academic interest in shame and other emotions of self-consciousness (guilt, embarrassment) is relatively recent. It’s part of a broader effort on the part of psychologists to think systematically about resilience—which emotions serve us well in the long run, which ones hobble and shrink us. Those who’ve spent a lot of time thinking about guilt, for example, have come to the surprising conclusion that it’s pretty useful and adaptive, because it tends to center on a specific event (I cannot believe I did that) and is therefore narrowly focused enough to be constructive (I will apologize, and I will not do that again).

Shame, on the other hand, is a much more global, crippling sensation. Those who feel it aren’t energized by it but isolated. They feel unworthy of acceptance and fellowship; they labor under the impression that their awfulness is something to hide. “And this incredibly painful feeling that you’re not lovable or worthy of belonging?” asks Brown. “You’re navigating that feeling every day in high school.”

We’re all in high school, all the time:

Today, we also live in an age when our reputation is at the mercy of people we barely know, just as it was back in high school, for the simple reason that we lead much more public, interconnected lives. The prospect of sudden humiliation once again trails us, now in the form of unflattering photographs of ourselves or unwanted gossip, virally reproduced. The whole world has become a box of interacting strangers.

Reid Hoffman’s new essay If, Why, and How Founders Should Hire a “Professional” CEO is worth reading for any entrepreneur or any executive thinking about joining a high growth startup. It’s a very personal topic for Reid, and an important one for everyone in the industry to think about. The concluding paragraphs:

20 years ago, venture capitalists were in a hurry to bring in professional CEOs.  Today, many of the same VC firms are busy touting their support for long-term Founder-CEOs.  Both approaches can work, which means that as an entrepreneur, you should focus less on what’s fashionable, and more on what’s right for you.  This is a highly personal decision, and the right answer depends on you and your team—including your co-founders and your VCs.  You might be a Steve Jobs, or you might be a Pierre Omidyar.  As an investor, I’m willing to back you, even if you’re not sure which one you are yet.  In every investment we make, we hope that the Founder-CEO will be able to lead the company to success, but if not, and if you realize as I did that you want to bring in a professional CEO, we’ll work with you to find someone who is a true partner.

So as it turns out, Ben Horowitz was right.  You always do want a Founder-CEO.  But that person doesn’t always have to be the Founding CEO.  Being there at the start isn’t the only path to being a founder.  “Founder” is a state of mind, not a job description, and if done right, even CEOs who join after day 1 can become Founders.