2021 Market musings and predictions

Whew, 2020 what a year. I’m glad that it is behind us. What does the future hold for 2021?

TLDR:

2021 most likely a strong bull market – think roaring 20’s.
Violent inflation overshoot is the most visible risk, however, black swans are a key risk and nobody can predict them.
I’m a reluctant bull – willing to invest in pre-tax accounts, but staying out of the markets in taxable accounts. Wheel option strategy to enhance cash on cash returns.

Let us take a deeper dive. What is going to make markets melt-up in 2021?

One interface to rule them all | The next frontier in fintech? Part 2

In the last post, we explored what drives an economy (spending) and the levers that a government can use to restart the economy after a crisis (monetary and fiscal). Since 2008 monetary policy has paid the dominant role, but in 2020 fiscal policy is finally making a comeback. Fiscal policy has a direct impact on consumers’ lives as the main objective is to get cash into consumers’ hands so that spending continues unabated.

How to get cash to citizens?

It is logistically impossible for a government entity to show up at every citizen’s doorstep with a truckload of physical cash. Besides the obvious problem of logistics, there are also problems with confirming identities and physical record-keeping. Especially when governments are handing out money, they want to be very particular that only their citizens are getting the cash and there are no cases of freeloading (via fraud, etc). Direct transfers are a politically charged issue – there are always allegations of a slippery slope, nanny state, and communism that get thrown around! You have to get this part right.

Continue reading →

Jedi or Empire | Buy Now Pay Later competitive dynamics

We’ve been taking a journey through the BNPL space, we looked at the history, the product, and the go-to-market. I’d like to close the series with a view on the competition and where I think the industry is headed. Warning speculative discussions and opinions ahead.

Continue reading →

To market to market | How do BNPL players go-to-market?

Continuing the deep dive on the BNPL players, the next thing I wanted to look at is their go-to-market strategies. How do they get their customers? Links to Part 1 and Part 2. A word of caution, all the research and numbers are from an outside in perspective and based on publicly available information. There is a possibility that I’m completely wrong in my analysis!

My simple mental model for go to market is,

Who is the target customer? Are there many target customers?
What is the narrow sub-segment of target customers?
What is the value proposition and positioning for this customer?
What are the channels that are used to reach out to this customer? Is there a low-cost acquisition channel in the mix?

Continue reading →

Optimistic PM, Pessimistic PM

“I’ve never seen a monument erected to a pessimist.” – Paul Harvey

We live in interesting times, the world around us seems to be constantly on fire – physically and metaphorically. It’s gloom and doom all around. Morgan Housel touches on this extensively in his latest book, The psychology of money. He makes a convincing argument on why pessimism appeals to our emotions more than optimism. We tend to be more fearful than optimistic as losses hurt more than happiness from gains.

Continue reading →

Old ideas, new packaging – is embedded finance worth the hype?

Sooner or later, everything old is new again
– Stephen King

The thesis expressed today is that financial services are no longer a separate vertical component in consumers’ life. Consumers are going to be better served where they already hang out. So the natural extension for business with a large number of customers is to start offering financial services to their user base. In this model, financial services transition from a vertical component to a horizontal capability that all businesses will offer to their users. Hence the popularity of the term embedded finance.

Is this thesis valid? I’ve been thinking about this for a few years and this post is an attempt to work out a mental model and answer this question.

Short answer – this thesis is wrong. Long answer- it’s nuanced.

Continue reading →

Premature optimization is the root of all evil

An antipattern that I see in startups constantly is Senioritis. This normally happens when the startup finds some success and wants to upgrade its product and engineering teams. Typically at this stage, new leaders are hired and there is a we need to grow up vibe. These new leaders typically are hired from established companies/startups and bring with them their approaches. Continue reading “Premature optimization is the root of all evil” →

Brand Delusions – SMB Fintech edition

We need to have a great brand

– Every startup

Tell me if this sounds familiar. It always begins with a workshop. We all gather in a room and talk about the mission of the company. We talk about who we want to be when we grow up as a company. We discuss how we want our customers to feel when they interact with us, we talk about how we want to feel. There are brainstorming exercises, discussions with word-clouds, and visceral debates on logo design. What is our brand identity? what is our company identity? – deep deep discussions. This culminates with a big fat book with detailed instructions on how the logo should look, what type of font you should use, what type of words to use, and the approved color palette.

Does the customer care?

Continue reading “Brand Delusions – SMB Fintech edition” →

A seismic shift in product management | GPT3 is the abstraction we deserve

In the last few weeks, the tech world has been abuzz with GPT3. There has been a Cambrian explosion in demos that look super cool. A16Z has a great podcast that goes through the details that is a must-listen.

How GPT3 works. A visual thread.

A trained language model generates text.

We can optionally pass it some text as input, which influences its output.

The output is generated from what the model "learned" during its training period where it scanned vast amounts of text.

1/n pic.twitter.com/imM66oyTIC

— Jay Alammar (@JayAlammar) July 21, 2020

You start by providing GPT3 a few example questions and answers that prime the model. After priming you can ask it questions and it correctly (mostly) predicts and generates the right answer. You could think about GPT3 as a super generalized inference model for text. You now how a generalized text-based interface that can understand what you are trying to ask/do well! Continue reading “A seismic shift in product management | GPT3 is the abstraction we deserve” →

Adventures in underwriting, competitive advantage edition

Every business will eventually have to get into the financing business. Financing is a fancy word for lending and it has been around since the dawn of civilization. In this post, I will attempt to describe a simplified mental model for lending.

What is lending at its core?

Lending is a contractual relationship between two parties. One of them has something that the other needs. The lender, who has the thing and the borrower, who wants the thing. Since the dawn of mankind, the thing to want is productive assets. You start with borrowing a plow, borrowing some land, borrowing some seeds – you get the idea. As mankind progressed and the next abstraction of money came into being, money is the asset that everybody wants. Money is the path to get to productive assets. The lender of money wants to get compensated for giving his asset to the borrower. He is giving up the use of the asset and needs an incentive to compensate for the lost opportunity cost – this is the interest. Every contractual relationship has to have a time frame specified. In lending, this construct is described by the repayment term i.e over what period of time does the lender get their money back.

Continue reading “Adventures in underwriting, competitive advantage edition” →