Tag Archive for: markets

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Long Time Coming

It’s not that I’m so smart, it’s just that I stay with problems longer.
Albert Einstein

There’s something deeply affecting about staying with a problem for over 30 years. Once you get some resolution, part of you wonders why it took so long to get answers. A more forgiving part of you thanks Einstein for the inspiration to carry on. One can only be happy when that ah-ha moment finally arrives.

Such is the case with Hypernomics. After first entertaining the idea at 14, somewhere around 49, I saw the first hints of the practical applications of Hypernomics. 18 years later, we have evidence of its practicability in one of the most complicated markets, that of securities.

In Feb 2020, we made our first investments based entirely on Hypernomics. Far from being perfect, tests suggested that given a market downturn, we would suffer losses. Figure A shows we’ve endured setbacks in 2022. But backtesting supported the idea we would lose less than the competition.

In the longer run, in Figure B, the theory has had a chance to shine. Note the Hypernomics fund is doing more than 2X as well as Berkshire Hathaway and over 3X what the other major indices are doing.

#innovation #markets #investments #hypernomics

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Call Off the Panic

“Present fears are less than horrible imaginings.”—William Shakespeare

The FAA recently made clear it will impose more stringent requirements on Urban Air Mobility (UAM) vehicles.  In response, pundits started screaming about the end of that market even before it began.  They think the added costs are insurmountable.

Who told them that?

Yes, there will be significant costs in the added requirements.  But many companies have managed to work themselves through FAA regulations and come out with safe and profitable models.

Profitability, of course, is the key.  To clear development and certification costs, UAM manufacturers need to know if they can make money with their products.  All should note the United Airlines (UA) order from Archer.  UA will spend $5M for five-seat Archers, which are only slightly faster than five-seater Robinson R66s, which sell for $1.1M.  Oh, and the Archer has about a seventh the range of the R66.  The difference is the decibels.  Lower noise widens the market for UAMs, which should have comparable or lower costs than traditional helicopters (due to fewer parts) and higher prices.

Next time someone tells you the sky (or UAM market) is falling, see what they’ve shorted.

#urbanairmobility #UAM #markets #innovation #FAA

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Abiding By Minimums

One bourbon, one scotch, one beer – George Thorogood

In addition to all the great music he made, George Thorogood knew when he wasn’t drinking alone, he could move it on over to his local tavern and abide by their two-drink minimum.

Bar owners found enforcing that requirement necessary to keep them in business when they had entertainment. Who wants free riders when you can find those who will pay?

Hypernomics knows that minimum requirements are just as crucial as those dealing with maximums. Businesses go under if they don’t make enough sales – we’ll have more on that in the future.

Military forces have similar considerations. The United States Air Force found that spreading their aircraft around gave them more flexibility to fly to distal locations. They typically group aircraft into squadrons of 12 or 24 planes. But, when it came to the B-2, they found themselves at a loss.

As its price soared past the $330M/unit limit backing the 132 bombers they wanted, they got 21 B-2s at $1.2B each instead. With so few, they put them all at a single site, Missouri’s Whiteman Air Force Base, losing flexibility and response time in the process.

Too often, as we try to get everything we want, we lose sight of what we need.

#hypernomics #minimum #markets

The Value And Demand For Taxpayer Dollars

Don’t Worry, Be Happy – Bobby McFerrin

In May 2020, CA Gov. Gavin Newsom said he wasn’t worried about Tesla leaving the state.  Last month, when Elon Musk announced he was moving Tesla to TX, the Gov. changed his tune.  It seems he felt he helped create the company, citing the tax breaks he gave them.

Hypernomics has seen this argument before.  Breaks in CA usually amount to slight and temporary reductions in the business-crushing tax rates CA has compared to other states.  That’s why companies by the thousands have been leaving CA.  A legislative “solution” to lost tax revenue is to have CA tax requirements follow businesses and individuals once they leave the state.  But that 1) denies some tax monies to other jurisdictions and 2) makes it less likely for new companies to enter CA.

CA has the best weather in the US, but the Tax Foundation ranks it next to last in its business climate.  As hypothesized below, the Value to taxpayers increases with the physical and business environments. Increasing the latter’s Value makes it more appealing to taxpayers – if they are attracted enough to come into the state, they offer more Ways for CA to get needed tax dollars.  At the same time, all mature markets have Demand Frontiers, which deliver the Means by which they must abide.  It’d take lots of work to learn these forces in detail. But avoiding that effort leads to unpleasant surprises.

And worry.

#hypernomics #innovation #taxpayer #taxanalysis #markets #economics

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Details Depict Markets

If you don’t understand the details of your business, you are going to fail – Jeff Bezos

You’ve heard about people getting lost in the details.  What if the opposite is true?

Hypernomics finds that diving into details is the only way to comprehend a market.

Paul Samuelson wrote, “the equilibrium price…the only price that can last, must be at the intersection point of supply and demand curves.” (Economics, 4th Edition, p. 63).  While he won the Nobel Memorial Prize in Economic Sciences, he never worked in aerospace.  If he had, he would have discovered that no solitary “equilibrium price” lives there.

But there is even more to it.  As A reveals, the new aircraft market splits into those for Civil and Military submarkets.  Within the former, there are five sub-submarkets, and all of those have their Demand Curves which combine to form a collective Aggregate Demand Curve, B.

Helicopters perform missions, and each of the eight has its Demand properties, C.  With 75 models, there are hundreds of sustainable prices, all held up by the Value of their models’ features (not shown), as limited by their available funds (Demand).

Dig deep into the data and pay attention to the details.

You’ll find they’ll pay off.

#hypernomics #innovation #marketanalysis #markets

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Hypernomics: 3rd in a Series

Perfect is the enemy of good – Voltaire

Suppose you have the task that fell to Cristina (C): Find the Demand Frontier slope for flat-screen TVs. Her sister, Sheila, charged with estimating their value, had it easier, as she found the features and prices for these devices on many sites (see the post three months ago).

In a perfect world, Cristina would have receipts for all models sold, forming a complete database. But no one has that. How can she discover a work-around? She gets an idea.

She finds a nearly perfect world for stocks. In studying the S&P 500, she sees all outstanding shares and prices (A, less Amazon and Google). When she charts their Demand Frontier in blue, she finds their slope is -0.413, a statistically significant result with a P-value of 7.9E-06. She hypothesizes that the Demand Frontier slope of the market’s daily volume will mimic all shares. She plots volume against price and finds its slope of -0.398 (P-Value 8.16E-04), which varies less than 4% from the total.

Excited, she maps the number of ratings for TVs against their prices and finds that they too form a viable Demand Frontier (B) at their limit (P-Value 1.99E-05).

It’s not perfect.

But it’s good.

#hypernomics #innovation #markets #marketanalysis

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Simplify Results For Management

“Simple can be harder than complex.” – Steve Jobs

Suppose you analyze a market and find four features that help describe a product’s value or sustainable price. Your power form equation reads Price = constant * feature 1^a * feature 2^b…feature 4^d. How can you simplify each expression so that more people can grasp its meaning?

Helicopters (A-C) come in many designs and sizes. You suspect their useful loads, cruise speeds, and the number of engines support their prices. Analysis confirms that, but the resulting equation is complicated. You want to know how noise, or its lack, contributes to prices too. You find data on cabin and sideline decibel levels, but it’s spotty.

You want to be both simpler and more thorough. What to do?

Poring over the data, you find that pound for useful load pound, helicopters with more main blades fetch more money. That’s because rotor systems with more and smaller blades disturb the air less and create less noise. In D, you can take that expression, Blades^d, and depict the projected Value increase as you add blades. Combining D (and like tables for features a-c) with Demand analysis (see the last post) permits fine-tuning against the market’s needs.

#hypernomics #markets #marketanalysis #innovation #future #futurism

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Don’t Leave Money On The Table

“The more you learn, the more you earn” – Warren Buffett

In this true story, we hide the names to protect the players and don’t tell you the venue, either.

In 2014 (A), we ran three market Y value equations (not shown).  All showed that Project X was under-priced.  We find validation of these projections in 2021, as used X versions sell for more than their original $1M price (also not shown).  X sold amply, with 300 units in the market by 2021, and if C’s assumptions were correct, it made a profit, too (D).  Joy in Mudville!  But wait a minute.

Had X’s producers studied Y’s Demand Frontier (B), they might have noticed its negative slope of -1.24.  That means that at the limiting slope, had X’s price been raised to $1.34M, it would have made more revenue, despite the sales drop.  Also, with fewer units, recurring costs fall (C).

The overall effect in D is that selling Project X too cheaply costs Y both revenue and profit.

Hypernomics notes it’s easy to think that if a project makes a profit, it is doing well. But if we learn about all the market forces at work, often we’ll find well isn’t well enough.  Don’t leave money on the table because you didn’t study your market thoroughly.

#hypernomics #innovation #markets #marketanalysis #pricing #analytics

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How To Lose $1B

Irony is wasted on the stupid.
Oscar Wilde

In his 9/1/2021 article, Jon Hemmerdinger discovered Aerion, a company tied to its AS-2 supersonic business jet (C), was going to put its assets up for sale (E).  He further found Aerion had hired Development Specialists (DS) to manage the process, and DS had “not set a sale price, saying, ‘The market will tell them what their assets are worth.’”

I nearly choked on the irony – Now they knew market reactions counted.  They sure didn’t previously.

Had they studied their Demand Frontier (D) before they started, they would have known while there was a possibility of hitting their targeted sale figure of 300 units in a decade, those chances were slim.

The US Presidential Helicopter program had a similar fate, failing to realize its Demand limits (A, B), and lost over $4B. The USG sold it for parts at four cents on each dollar spent.

Aerion will sell intellectual property; its AS2 didn’t go into production.  Maybe they can get a dime on the dollar.  Based on their $4B development cost estimate, they likely spent $1B by the time they stopped.

Next time, model the market first.  It costs a tiny fraction of the losses suffered forgoing market analysis.

#hypernomics #innovation #technology #management #markets

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Hypernomics, Missing Dimensions, & Price Determination: 2nd in a Series

“Everything must be made as simple as possible. But not simpler.” ― Albert Einstein

In the last post, Paul Samuelson said equilibrium prices exist where supply meets demand.

While prices for simple products work that way, Value analyst Sheila (A) suspects markets for more complicated products behave differently.  She knows she can account for mountaintops using latitude, longitude, and altitude referencing the equator, prime meridian, and sea level, respectively (B).

With each of the 44 dots representing a unique flat screen tv’s features and price, she finds she can plot the model’s size (C) or cycles per second (D) against prices and get significant but mediocre R2s.  She works to improve her prediction.

In E, she discovers she can plot Price (Dim 3) against the tv’s refresh rate (Hz, Dim 1) and its size (Diag. “, Dim 2) as ordered triples, using an origin of (0,0,0) as a starting point.  With Hz and Diag. “ as Valued Features 1 and 2, respectively, she predicts flat-screen Value (as sustainable prices) with an R2 of 97.0% and a P-Value of 4.85E-32.  She accounts for other features as needed.

All multi-attribute markets have similar “lost dimensions.”

#markets #innovation #hypernomics #prices #dimensions #wsu