plus/minus epsilon

In my last post, I discussed Income Share Agreements (ISAs), including their many downsides and how they’re prone to being more expensive than traditional loans. In this post, I wanted to discuss something that I think is a much safer solution to the same problem: Income-Based Repayments (IBR) for a loan.

Income Share Agreements, or ISAs, are contracts where a borrower receives something of value, and in exchange they give the lender a percentage of their income every year for a fixed number of years. A lot of people have been proposing them as an alternative to traditional student loans.

Recently I was asked about the possibility of using MLS in groups with “hidden members”. That is, groups where the creator is known to all participants but the participants don’t know each other. This is the use-case of broadcast TV, private Twitter accounts, Instagram stories. The answer is no, MLS doesn’t work here.

The main issue is that MLS isn’t secure against malicious insiders, and therefore isn't suitable for most broadcast use-cases. A lesser issue is that MLS is designed for homogeneous groups, and would be wasteful to use in a scenario where one member has special authority.

The conclusion of my previous post was that whether to rent or buy in my area likely comes down more to individual factors rather than financial ones. But what was interesting to me while doing that analysis, is that I realized I honestly had no interest in buying a condo that’s roughly equivalent to my current apartment.

A while ago, I tweeted that “it’s essentially always cheaper to rent in urban areas than it is to buy property.” I believe this is conventional wisdom called the Rule of 16, where you divide the price of a house by the yearly rent of a similar apartment. If the ratio is over 16, it’s “better” to rent in that area than it is to buy and vice versa. I’m not sure where that rule came from and I’ll try to derive it later, but I decided to check this assumption by modeling it.

The only financial skill I have that I haven’t seen other people do better than me is DuPont analysis. DuPont analysis tries to find the drivers of a company’s Return on Equity by factoring it into three parts:

1. Profitability as measured by Net Profit Margin, or how much profit a company is able to keep from its revenue.
2. Efficiency as measured by Asset Turnover, or how much revenue a company is able to produce from its assets.
3. Financial Leverage which is how much the company relies on debt as a funding source.

The natural question that comes up when thinking about disruptive innovation is: How can incumbent companies successfully navigate the transition to a disruptive technology?

The answer I’m familiar with is basically that managers invest in the new technology, and let the old and new compete. This acknowledges the risk that the new technology might fail, and also captures the upside if it succeeds. As the previous company/department begins to decline, the other starts growing just as quickly and you already have an ownership stake in it.

I thought it would be fun to write down my thoughts on how offices could be setup better for long-term post-COVID reopening.

Serverless is powerful because:

• It’s often cheaper than running the same application on a VPS. Right now, this may be mostly because it’s under-priced. But it does actually require fewer physical resources, since applications scale on-demand and many applications can share the same physical host more efficiently.

• Possibly also falling under “cheaper,” it has a lower operational burden. Developers simply upload their code and the cloud provider handles process management and scaling.

• Applications that run on serverless platforms are faster because they’re always hosted near the end-user.

E2E encryption possibly fits into the model for disruptive technology:

1. It’s disproportionately valued by a small set of people.
2. Established companies are unable to effectively deploy it because they either consider plaintext data valuable, or they’ve built a product which is technically unable to be offered in an end-to-end encrypted fashion.

However, it’s not clear that sufficiently developed E2E encryption is able to provide the same service better than an unencrypted alternative would be able to.