Discovery, Invention, and Stocks

There is a difference between discovery and invention. A discovery brings to light what existed before, but what was not known; an invention is the contrivance of something that did not exist before.
Sir William Ramsay

There was a hidden discipline lying about, unseen from view. I unearthed it. When I did, I discovered HypernomicsTM. Its foundation, the Law of Value and Demand, states that

  1. Features determine Value
  2. Value drives Price
  3. Price limits Quantity Sold
  4. Quantity Sold is a Feature.

Useful by itself, it needed an invention to get results quickly.

That came as HypernomicaTM (formerly MEE4DTM) software, built by Shad Torgerson, Kent Joris, and me. It speeds up the analysis of complex markets.

Just over 44 months ago, we set it on the most complicated market we could find — that of stocks. Using only stocks from the S&P 500, our HypernomicsTM Fund (private, not open to the public) managed to beat it by 2.35X. The likelihood of that happening by chance is very much less than one in a trillion. At the same time, our fund outperformed Berkshire Hathaway A by a factor of 1.39X.

HypernomicaTM is available now; soon, we will begin classes on it. Be among the first to benefit from this discovery and its companion invention.

There’s a preferred way to compare the means of two groups and verify if their differences came about randomly.That is the Student’s t-test. William Sealy Gosset conceived it in 1908 (published under the pen name “Student”). That test (the two-tailed version) reveals that the likelihood that HypernomicsTM beat the S&P 500 by 2.35X over 44+ months was due to chance was 2.01 E-237.That test for HypernomicsTM against Berkshire Hathaway A, where we beat it by 1.39X in the same period, calculates the probability that the result was due to chance as 1.57E-152. In short, our algorithm, built using the HypernomicaTM Software, works. It will work for you, too, whatever your market might be.

Ants, Airbus, And Avoidance

Hit ’em where they ain’t.
Wee Willie Keeler

I finished a run the other day and stretched at the trail’s end. I looked down, and an ant caught my eye. Starting from position A1, it reached A2 and seemed to be going in a circle for a moment. But then, as its path widened to A3, A4, and A5, I realized it was doing reconnaissance! I raced home and found out that ants do that to “avoid hostile conspecific neighbours,” when considering where to set up camp, they use “a weighted additive strategy, the most comprehensive of consumer evaluations, to choose nests with the best combination of attributes.”*

People, of course, do the same thing.

In B, during 2009-2018, the business jet market had a lot of competitors offering various cabin and price combinations. Noticeably, though, there were a few prominent gaps in the market, akin to how the ants saw regions away from their neighbors. In Q1 of 2019, Airbus launched its A220-100 business jet in the most prominent open region (C). Along with the base airliner from which it came, this vehicle has several hundred orders, helping ensure its long-term viability.

When considering where to place your next product, work to avoid local opposition.

My Book Is Coming: What’s In It For You

It’s not what you look at that matters; it’s what you see
Henry David Thoreau

Many of you asked about it; now I can tell you: I’ve signed a deal with Wiley to publish my book, Using Hidden Dimensions to Solve Unseen Problems: Hypernomics and Markets.

It studies market phenomena we haven’t been able to examine previously, mainly because no one invented the techniques to do so.

Until now.

The book’s theme of finding the location and direction of market competitors mirrors the development of radar and has a like effect.
In the years between WWI and WWII, many countries sought to discover opposing planes’ positions and headings. Several had acoustic detectors like that in (A) but found they could only provide broad direction of incoming aircraft. It took the development of the Chain Home Radar (B) to reveal the value of having a much finer granularity of approaching enemy warplanes.

Modern economics gives us simple 2D charts such as (C), showing the intersection of iron supply and demand curves. But planes use iron, and to characterize them thoroughly, we need the 4D arrangements the book offers, as (D). The book’s readers will gain ways to see more clearly for themselves, improving bottom lines.

Dude, Where’s My Geometry?

Let me tell you how it will be/There’s one for you, nineteen for me
The Beatles, Taxman

Hypernomics loves geometry. It touches markets in many ways, including the Demand Frontiers, notably as they mature. Ignoring market geometry can lead to unwelcome multimillion-dollar surprises.

In 2014, CO and WA legalized recreational marijuana. CO taxed it 30%. Seeking vast riches from this new revenue source, WA taxed it about 108% (it varied by county). At years-end, WA, with a third more people than CO, made $51.7M in recreational pot tax monies. CO made $375.4M.

What WA didn’t understand because they didn’t study it was the cannabis demand curve slope. While we don’t have the WA pot data on hand (they do), we have a like curve for cars. If we apply another 100% tax on vehicles, the number sold, given the demand slope, falls by about 70%-80%. As steep as these reductions are, they still don’t match the WA experience in 2014, suggesting the actual slope for recreational cannabis in that year was even flatter than that for automobiles.

But there is no need to guess about this. If you study it, within statistical bounds, market geometry will “tell you how it will be.”

#innovation #hypernomics #business #technology #management

Problem? What Problem?

A mathematical problem should be difficult to entice us, yet not completely inaccessible. It should be a guidepost on the mazy paths to hidden truths. – David Hilbert

In a space-limited outdoor diner we visited a while ago, we observed the seating arrangement in A. They had two tables for two and ten for four. Seven of the four-place tables had parties of two. So, I wondered – is the setup they had the best for the crowd they faced?

A report I found (see below) noted that restaurant parties of two outnumber four-person parties by over two to one. On average, there should be more tables set up for couples than for larger groups.

But the average condition may not be the usual one. Or the one they faced.

What to do?

Suppose the four left-most tables were modular. The establishment could separate them into eight two-place setups. Then they could seat all seven of their two-person parties and put a two-top in storage. Their capacity would go down by two (at least temporarily), but, in the case shown, occupancy could go up by 30%, as we see in B.

Restaurants make money through occupancy, not capacity. It’s important to know what problem you need to solve.

#sales #demand #restaurants #business #success #management #problemsolving

Restaurant Math – Thin Odds

You spend your life waiting for a moment that just don’t come/Well, don’t waste your time waiting – Bruce Springsteen, Badlands

You know the feeling you get when you walk up to a roulette wheel in a casino, place a $100 on 00, it comes up, you win $3,500, and then you let it ride on 00, hit it again, and walk out with $122,500? No? Me either.

The reason I don’t is that while it’s possible to come up with that combination, the chance of that happening on a 38-pocket wheel is 1/38 * 1/38 = 1/1,444 = 0.00069, about 7 times in 10,000 tries.

But that is more than twice as likely as the probability of a restaurant result I recently witnessed.

As we left a brewery, it had four open tables; each sat eight, B. Four parties waited, C, held in place by their policy not to seat parties of four or fewer in tables for eight. But, the chance of filling them up according to their plan and the data, A, is 0.13^4 = 0.00028, less than half that of our roulette gambit.

Meanwhile, those people stayed hungry. They and the restaurant both suffered.

We are, all of us, always playing games of chance. It pays to know the odds. Anybody up for blackjack?

#business #success #management #probability #sales #restaurant

A Sufficient Condition

For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled
Richard P. Feynman

Feynman’s observation about truth is one that can move past physics, where he won the Nobel prize.

It happens that in all markets, we collectively form relationships about how we respond to product features and prices. It is our Nature.

As we build, say, a helicopter for the President of the United States (A), we might be inclined to keep adding to it: unprecedented speed, a larger cabin, extra defensive systems. After all, we might tell ourselves; there won’t be a more important thing in the sky. It is a necessary condition to protect it and everyone inside.

The bonus features drive an increase in Value – and Price.
But at a group-induced limit we call the Demand Frontier, sales stop. We do not have any more monies to buy more of the product in question past the points on that line. Trying to exceed the Demand Frontier is a sufficient condition to stop any program.

In the case of the VH-71, USG requirements creep let it become untenable. All of that could have been avoided by analyzing the market as in B.

Doing a market analysis is hard.

Losing $4.2 billion is harder.

#innovation #demand #marketanalysis #business


Finding Your Niche

Wee Willie Keeler knew a thing or two about baseball. The Hall of Famer still holds the National League hitting streak record, 45 games over two seasons. He summed up his approach with “Hit ‘em where they ain’t.” It turns out that’s sound advice for entering a market, too.

In the early 1970s, the airline industry embraced the then-new Boeing 747 wide-body. Lockheed and McDonnell Douglas both wanted some twin-aisle profits as well. They came up with the L-1011 and DC-10, respectively. While they had obvious design differences, from the standpoint of their customer airlines, they were virtually identical, with highly similar specifications and prices. Neither had a corner in the market – they shared the same spot, and would have to split the sales.

Lockheed only sold 250 L-1011s; its break-even point was 500 units. With a lower target, McDonnell-Douglas managed to squeak past its break-even value of 438 planes, as it sold 446 DC-10s, eventually offering engine options and added range to distinguish it from the L-1011.

But neither model was a financial triumph.

Nothing guarantees success in the market.

But mimicking the competition reduces your chances.

#innovation #newproduct #business #success #branding #competition #entrepreneurship

Bounding Problems

In countless games, the parameters, once set, never vary. There are only a given number of spaces on the chessboard. American football always uses an elliptical spheroid built to strict specifications. All NBA basketball rims are the same diameter, ten feet in the air.

Markets seem different. They don’t have instruction manuals. At first glance, it would seem you could do anything you want in them.

Still, they have rules. Not understanding them can sink a project.

In addition to DeLorean not understanding the value of horsepower (see the last post), they also failed to appreciate the Demand Frontier they faced in 1981. As A shows us, DeLorean thought they could exceed that limit by nearly two standard deviations, despite no one else beating it by half that much.

In this and many other markets, Product Market Demand Curves form. Always flatter than the overall Demand Frontier they build, they describe the product price limits as quantities sold increase. These curves set boundaries producers must consider before they enter any market. Ignoring them can have disastrous consequences.

How do Product Market Demand Curves compare to their Learning Curves? Look to the next post for answers.

#markets #demand #pricing #boundary #innovation #business


Helicopters are highly versatile machines able to take off and land in tiny areas. They’re perfect for landing on buildings in dense urban areas. But since they beat the air to death with thunderous rotors turned by noisy jet fuel turboshaft engines, they’ve been banned from many a city. What to do?

Let’s go electric.

Nine years since the first manned all-electric helicopter flew,, there’s a race to build versions that can take passengers. With battery energy densities tripling since 2010 and prices falling simultaneously, there’s a vast potential market. Several firms are in it.

Perhaps the one closest to putting an electric rotorcraft up for sale is newcomer Volocopter, with its 2X (in A). It uses 16 motors, one to a rotor, and carries a pilot and one passenger.

Longtime manufacturer Bell offers its Nexus 4EX (B). More capable, it transports four passengers and a pilot. An entirely different configuration, it has four ducted, rotating propellers mounted atop wings.

If flights in these new machines are substitutes for cab rides, given Yellow Cab data for NYC in January 2017 (C & D), which part of the market would you address first?

#innovation #technology #entrepreneurship #travel #business