30 Jul 2019
I recently learned about this python package called Pandas Profiling, which has proved to be useful for exploratory data analysis.
It can be utilized on a dataset to provide: overview information, warnings about potential issues, counts and descriptive statistics about each variables, shows correlations among variables, details about missing values, and the head and tail of the dataset.
It is useful because rather than having to go through and analyzing each of the variables yourself, this package can give you a summary enabling you to get a broader picture faster. Letting you spend more time on other parts of your analysis. You can read more at the package’s GitHub page. You can also see a sample that they provide on the Titanic Dataset Here.
31 May 2018
Spotify is the current leader in the music streaming wars. The real question is will they be able to fend off their competition (mainly Apple Music) as more and more people adopt music streaming. Here are a couple challenges that they are going to face.
Apple looks poised to catch them. Spotify currently has approximately 71 million paying subscribers and where Apple has 40 million paying subscribers. In addition to that, the Wall Street Journal reported earlier this year that Apple’s monthly user subscription growth rate was about 5% and Spotify’s was about 2%. This amounts to Apple acquiring about 500k more users per month. This shows that the subscriber base is converging and Apple is looking like they will eventually catch or surpass Spotify.
Apple has the ability to operate Apple Music at a lower margin. Spotify generates its revenue from two sources. One is its paid subscribers and the second is advertising revenue, which is used to support their free tier. Apple Music on the other hand represents a small portion of their revenues. In their 10-Q, Apple Music is included in their Services business line, which accounts for 15% of their business. The services line also includes: AppleCare, Apple Pay, Digital Content and Services, licensing and other services. What this means is that Apple would get an edge if they ever start to compete on price. The price competition scenario is unlikely, but the threat still stands. A solution to this issue could be for Spotify to branch out and use their relationships to build other revenue streams within the music industry. Examples could include: publishing, merchandising or getting into the ticketing game.
Spotify’s advantages on product could shrink away or could become irrelevant. When it comes to the product, the key aspect for their success is music discovery and curated playlists (algorithmically or user generated). This is something that Apple Music is currently working on bettering. They’ve been investing in improving their music curation and also acquired Shazam last year. As it stands now, this is Spotify’s killer feature and they do it very well. When you move past that, the products are similar feature-wise, the main difference you could say is the amount of content provided and available for offline download. Furthermore, music consumption is becoming a more complementary activity, as people are listening primarily whilst they are doing other activities. This brings up the question of whether subtle differences to the product are really going to build loyalty amongst the average person. If the music you want is available on both services, and the music quality is the same, does it really make a difference if you are using Apple Music or Spotify? Spotify can and is building loyalty with their excellence at music discovery now and Apple has a loyal ecosystem which they can leverage to get more people onto their service. The ability to build loyalty from the customers will be central to the stickiness of their product.
Overall, Spotify right now is in a good position. They are the leaders and it feels like no one is really close to competing with them in music discovery. That being said, there are threats looming and it will be interesting to see how this race shakes out.
07 Sep 2017
This book has got some really good points about entrepreneurship, startups, and guidance on how to build a great business. It looks at a number of topics including: recruiting, sales, creating monopolies, role of technology, and ideas of progress. It is a mixture of his thoughts and experiences, and is a useful read to anyone who wants to be in technology or venture capital.
Quick Takeaways:
Technology as any new and better way of doing something.
Vertical progress is the idea of going from 0 to 1 and building something new. Horizontal progress is going from 1 to n, and is more of a copy of something that already exists.
Sales are critical. You can have a great product but if you don’t have sales, you won’t have a business. You should be capturing some of the value that you create.
Recruiting the right people at the start is critical. If you are not aligned and on the same mission, you will fail. It is very hard to fix once you have started.
Contrarian approach can be useful. Think for yourself, question the status quo, does it make sense? Unorthodox ideas can lead to incredible discoveries.
Build a monopoly. Competition decreases profits, because everyone wants a piece. Not escaping competition will lead to failure. Trying to grab a small percentage of the global market is a bad strategy.
Investors tend to make most of their money on one or few of their investments. Therefore, they have got to invest in those businesses that have a vast scale. Most of their time is going to be sucked up by investments that are not so good. Diversifying and hedging as an investing strategy in venture capital is like playing the lottery, you’re preparing yourself to lose. Two rules: only invest in companies that can return entire fund, and there are no other rules.
Owning a small portion of something great is better than owning 100% of something than nothing. Sometimes better to work somewhere great than try to build it.
Humans and technology are complements. It works best when technology is used to empower humans.
If you are building proprietary technology and are trying to get a monopoly you have to be at least 10x better than what exists.
30 Aug 2017
IPOs (initial public offerings) are when a company first sells its shares to the public. Here, the goal of the company is to sell its shares in order to raise capital or present an exit opportunity. While some IPOs tend to be interesting, I am personally not a fan of investing in companies whose stock has just hit the market; the reason for this is that it is in the company’s interest for you to pay the highest amount, and that odds are you won’t “win” the trade.
Stocks have this zero-sum aspect when you are trading. If you take a simplified look at it, when a trade occurs, one party wins and the other party loses. If the price of the stock goes up, then the buyer would in a way win the trade, and if the price of the stock goes down, the seller would win. Now, in reality, it is more complex than that due to investors or traders having different motivations or strategies, or sellers could be trying to deliberately take a loss (for something like tax loss harvesting). Generally, if you are taking a position, either you or the person you traded with will end up better off by profiting or avoiding loss.
When a company IPOs, the people who would be on the other side of the trade from you are either the company, or earlier investors (those who invested prior to the stock opening on the market) in the company. Both of these parties are interested in getting the highest amount possible for the shares they sell. For a company in an IPO setting, they are trying to sell each share for as much as possible while maintaining high demand (a lack of demand is a negative indicator about the desirability of the company). They will typically do this when there is a lot of hype around their company, and they can easily sell the idea of them being a profitable investment. It is in their interest to maximize the price, so they make the most money. In this case, if you were buying from the company, your interests are directly in odds with them. Seeing as they hold the power over the supply and price, and based off of their motivations, the odds are that you are going to be paying more than the intrinsic value for the share. This means that it is likely that you are going to lose the trade. For earlier investors, their goal is also to make as much as possible and typically exit their investments. These investors will then sell shares when the company opens on the exchange, typically at a premium to what they paid for it. In this case, if you buy as the stock opens, you would be paying above the intrinsic value (company price + premium added). In this case, you would also lose the trade. In both cases, odds are that you are going to be paying above the intrinsic value for the company. Any trade where you pay above the intrinsic value is one you are almost always going to lose. Here, the search for a greater fool should start by looking in the mirror.
This is not a good situation for a retail investor to be in. Unless they have good reason to believe that the stock price will not dip and will just keep growing from the initial price, they are better off waiting until the market cools off and they can buy shares at a better price, preferably one that is below the intrinsic value. If you take a general look at stocks after they IPO, you tend to see a pop in the share price, and then they tend to cool off and dip to a lower level. The only stock I can think of off the top of my head that has not followed this trend is Microsoft. The rarity of winning a trade of an IPO from the start, and the fact that your interests are at odds with the company and early investors, is one of the fundamental reasons that I believe IPOs are overvalued and why I avoid them.
30 Jul 2017
A savings account is a bank account in which your balance earns interest. This is good in comparison to a chequing account, where generally you would not earn any interest. However, keeping a high balance in your savings account may not be a good thing. The main reason for this is that over time the value of your deposits in a savings account actually decreases due to inflation.
In Canada, the average inflation rate for the last 10 years was 1.54%. This means that on average, every year you are paying 1.54% more for the goods and services you consume. For your money to have the same value from one year to the next, it needs to grow at the same rate. The problem is that most savings accounts in Canada do not have an interest rate that matches the rate of inflation. In fact, none of the top five banks in Canada are close to giving you an interest rate close to the inflation rate. They all tend to range, excluding any promotions or additional conditions, between 0.5% - 0.7% (TD 0.5%, BMO 0.55%, RBC 0.65%, CIBC 0.65%, Scotiabank 0.7%). This means that every year, the value of the money in your savings account could be decreasing, depending on the interest rates that your bank provides, between 0.8-1%. The magic of compounding interest is working against you! It is important that you pay attention to both the interest rate you are getting and the inflation rate to see whether or not your money is actually decreasing in value over time.
This concept is not only applicable to Canada. Wherever you may live, if your money is growing at a rate that is lower than inflation for your country, you are losing value. This can be prevent by investing or ensuring that your money is growing more than inflation.
Notes:
1) There are in fact some banks (generally smaller or online banks) that will have an interest rate that is equal or higher to the inflation rate.
2) The 1.54% average inflation for the last 10 years was from the Bank of Canada’s Inflation Calculator tool. http://www.bankofcanada.ca/rates/related/inflation-calculator/