Pendulum Swings
The pendulum always swings back and forth
Paul Tudor Jones teaches a class at UVA where he shares the most important lessons gleaned from his time investing.
My number one bullet point is you’re going to make your money by riding a trend for the very, very longest time.
There are many different ways to achieve it. You can own a company like Bill Gates or Steve Jobs, or you can be like Warren Buffett.
The whole point is, you need to pick the trend and ride it.
On the surface it’s an idea that barely even registers. “Duh”. Doesn’t take a genius to come up with that! Thanks, Paul.
Simplicity often has its own wisdom and genius, though. We can miss a lot when we are trying to be smart. The reality is compounding doesn’t care how smart you are. Don’t turn down great opportunities because the winning path is too straightforward or easy to understand.
We think about this a lot at Cantos. What are the trends that we want to ride for a very long time? We call them Deep Currents:
Luke Gromen has this great example on the Grant Williams Podcast of how he examines big trends and their narratives. He evaluates the strength of a narrative based on whether the average person on Wall Street would be confident enough to go to their boss or client and pitch the story. You want the narrative to be easy to say, highly digestible, and importantly — directionally accurate. Those are the three magic ingredients.
To put in another way: it should be easy to sell, easy to buy, and right.
You want the narrative simple enough so that the speaker is confident sharing it; you want the narrative straightforward enough that the listener can easily understand it; and the narrative also needs to be supported by a mountain of nuanced debate and discussion that often happens behind the scenes.
That's how I think about Deep Currents — the deep trends driving serious change, similar in strength to the movement of our oceans and the tectonic plates. It rightfully invokes feelings of overwhelming power and inevitability. They're the things you can't stop once they start.
These are powerful because they compound. In an asset class like venture, you have the least amount of influence, and the longest time horizon, so you need to believe in a path that compounds in your favor.
One of the best ways to identify Deep Currents is to look at the natural ebbs and flows of the world. Things that take us from one extreme to another. Nature often has a tick-tock component to it: seasons, lunar and solar cycles, and booms and busts. These are perpetual pendulum swings that take us from one side to another.
They exist in the rest of the world too. Jim Barksdale, the former Netscape CEO, famously said: There are only two ways to make money in business: bundling and unbundling.
That’s a great example of a pendulum swing. You start on one extreme and over time you swing to the other side. And then at some point the swing starts to turn back. Back and forth, back and forth.
These swings take a lot of time. Often decades. Which is another way of saying they are very durable trends to follow.
Here are some examples of pendulum theses:
Bundling and unbundling
Offshoring and reshoring
Scale and modularity
Centralization and decentralization
Generalization and specialization (compute, tools, vertical/horizontal integration)
Regulation and deregulation
Political movements
There are definitely more. The key is identifying things that have a natural cadence, and recognizing when the swing is turning back.
Some trends aren’t pendulums. The automobile isn’t swinging back towards a horse and buggy. Customers don’t want longer shipping times. Those fall under the “What's not going to change in the next 10 years?” question that Jeff Bezos asks. You should be able to distinguish the difference between those categories, though.
This is all a long way of laying out what we believe is one of the most durable, powerful pendulum swings: reindustrialization. You can put any term you want to use for it, the core insight is the same. After WWII, the world began a march towards becoming more globalized, more connected and interwoven. Just-in-time manufacturing came to dominate manufacturing, as did offshoring, hyper-specialization, and rigorous cost and efficiency optimizations.
Together they hollowed out the industrial commons, and made a hyper-efficient, yet quite brittle supply chain. Whether through COVID, climate, or geopolitical conflict, that system is now shifting. The pendulum swung all the way to one extreme and now it’s coming back.
It’s easy in venture land to think we’re steadily in the midst of this new industrial movement, but the reality is the world moves at different speeds. This trend is just beginning. You can verify that by seeing all the larger, more legacy institutions starting to devote their own practice areas around this. We’re just getting started.
At some point, this pendulum will hit its apex and return to where we are now. But in the meantime we will see decades of change, capital flows, and industrial growth. This is the Deep Current we’re riding, and we are excited to find and partner with all the new industrial giants that will emerge and grow.
Software ate most of the world the last few decades. Our bet, in the simplest sense, is atoms are striking back.
