Weird Nerds and Seductive Stories

Correlation is rarely causation.

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Elon Musk is a weird nerd.

He offered to buy a flight attendant a horse in exchange for a sexual massage, he was charged with securities fraud after tweeting that he had secured funding to take Tesla private at $420 (a marijuana reference), he joked about having Asperger's while hosting Saturday Night Live, and he regularly crashes on his friends' couches because he doesn't own a home.

Elon Musk is also worth $200B because he founded (acquired by PayPal), SpaceX, and the Boring Company, cofounded Neuralink and OpenAI, and transformed Tesla from an electric vehicle pipe dream into the world's most valuable automotive manufacturer.

Mark Zuckerberg is also a weird nerd.

As a college student at Harvard, he hacked the university's directory to create Facemash, a website that allowed male students to rate their female counterparts by attractiveness. In 2011, Zuckerberg announced that he would only eat animals whose lives he had personally taken, and he once served Twitter founder Jack Dorsey a goat that he had raised and killed. Most importantly, every time Zuck goes on television he looks more like an alien impersonating a human than a human itself.

Mark Zuckerberg is also worth $50B, because he forever changed how humans connect online.

The last 20 years have been the Golden Age of weird nerds like Musk and Zuckerberg.

As the internet evolved, weird nerds moved west to Silicon Valley to turn their weird business ideas into weird businesses. And thanks to technological advancements, some of these weird businesses became multi-billion dollar enterprises like Facebook, Uber, and Airbnb.

Hoodies and sneakers replaced suits and ties, as the new billionaire class of weird nerd founders didn't *need* to conform to Wall Street's norms.

And the ones who benefited the most from these weird nerds, besides the nerds themselves, were the investors who invested early in these weird nerds' companies. Naturally, more investors began looking for the next era of weird nerds who would build the next Facebooks and Teslas.

Sam Bankman-Fried is a weird nerd.

His entire wardrobe fits in his backpack, he sleeps on beanbags on his office floor, and his conversations are interrupted by stutters, broken eye contact, and incessant tinkering with fidget spinners. He studied physics and math at MIT, the nerdiest possible fields at the country's leading nerds-per-capita university.

His initial wealth came from arbitrage trading Bitcoin in foreign markets, and he subscribed to effective altruism: a social movement that dictated he make as much money as possible to help as many people as possible by giving away as much as possible.

SBF founded Alameda Research to trade the crypto markets, and then he built FTX to be the best exchange for crypto derivatives. Sam Bankman-Fried was the most well-known nerd in a field dominated by weird nerds: crypto.

The weird nerds that came before SBF built their fortunes by turning pipe dreams and fantasies such as online payments, mass-produced electric cars, privatized space travel, social networks, and music streaming into realities.

Crypto was supposed to be the next success story.

So what if you didn't understand DeFi, NFTs, web3, yield farming, bitcoin, ethereum, and decentralization? A weird nerd was building a massive platform with millions of users, and he was raising money. Did you really want to miss out on the next Facebook?

And as Sam Bankman-Fried sat there playing League of Legends, feigning interest in the fundraising conversations at hand, investors fell for him hook, line, and sinker.

In finance, we like to pretend that valuation is a science, and decisions are based on logic. But that has never been true, especially not right now. CFOs use hard data to create EBITDA projections for Q3 2023, but founders use stories to seduce investors with grand images of changing the world.

Sure, you could purchase some self-storage units that will generate $150,000 in free cash flows. Or you could invest in the seed round of a crypto startup that will revolutionize finance.

In films and novels, screenwriters and authors often employ "The Hero's Journey" to construct their plots. Joseph Campbell breaks The Hero's Journey into three stages: departure, initiation, and return.

Departure:The hero, often of humble means, receives a call to action, but they refuse this call. A supernatural guide appears, either externally or in their mind, that pushes them toward this action, before the protagonist finally crosses the first threshold, fully immersing himself in the mysterious task at hand.

Initiation:The hero then faces a series of trials and tribulations. They are defeated by the enemy in their initial conflicts, and they often lose friends and family along the way. The hero then receives some sort of aid, ranging from physical tools and weapons to advice and knowledge, to help in their quest, before they face a temptress. Perhaps this temptress is a dangerous love interest, or maybe it is an internal struggle with greed or envy. This stage climaxes with the hero pursuing atonement from a higher power, often a god, boss, or father-figure. After this atonement, the hero is ready to pursue and accomplish their goal.

Return:After accomplishing their goal, the hero, enamored with bliss, initially refuses to return to the "normal world." However, these feelings fade, and they embark on a perilous journey back to whence they come. They do successfully make it home, often with the aid of a companion or two. The Hero's Journey concludes with our protagonist, now armed with a higher knowledge, free to live in their elevated state of being.

The Hero's Journey sounds cliché, oversimplified. But it is omnipresent across film and literature. Harry Potter exhibits the Hero's Journey, as does James Bond. The original Halo trilogy, Prison Break, and The Lord of the Rings are all examples of the Hero's Journey as well.

In our own lives, we view our careers through the lens of a Hero's Journey as well. We set off to school, or we embark on the first steps of our career, knowing that we'll face a tough, arduous path. The pay will be low, and the hours will suck, but we'll encounter mentors along the way to guide our journeys. If we succeed, we will accumulate vast wealth and once again gain control of our time.

The Hero's Journey is effective because we humans suffer from a 10,000-year thirst for stories to help us understand the world around us. From Homer's Iliad to Harry Potter, we can't escape this fascination. We yearn for patterns.

Sam Bankman-Fried fit a pattern.

If you simply look at the data and numbers surrounding FTX, it never made sense. An unregulated, unaudited exchange in the Bahamas whose CEO and founder is also the majority owner of a crypto-trading firm operating on said platform should be a red flag.

A founder who can't step away from a very-mid League of Legends career to take investor calls is a red flag.

An entire business predicated on the derivative trading of assets that have no underlying value is a red flag.

A CEO who quite literally told Bloomberg's Matt Levine that yield farming is nothing more than a ponzi scheme is a red flag.

A company with a seemingly-blank checkbook to bail out other imploding crypto firms is a red flag.

But no one looked at the data and numbers, because they were enamored by the story. The pattern. The Hero's Journey. Or, in this case, The Nerd's Journey.

Take a young, wunderkind founder with autistic tendencies and poor communication skills, let him talk about farfetched ideas and eccentric life philosophies, let him tell you about his ambitious plans to dominate a nascent industry that no one understands, and you just might have the next trillion-dollar company.

As Morgan Housel often says, "The best story wins." But while a good story may capture attention in the short-term, the truth always comes out in the long-term.

Elizabeth Holmes's story worked, until it didn't.

Trevor Milton's story worked, until it didn't.

And most recently, Sam Bankman-Fried's story worked, until it didn't.

Sometimes, weird nerds build the world's most impressive companies. Other times, they're just weird nerds committing white collar crimes.

- Jack

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Jack's Picks

  • This @Jomaoppa video about "how the FTX collapse actually happened" is the funniest video I've seen all week.

  • Aaron Tang wrote a great piece on "choosing the right game."

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