Juan Enriquez at SFI

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"Are Humans Optimal?"

 

  • Historically on the planet there have been several hominins existing at a time. Right now humans are the only species of hominins.
    • Typically when there is only one species, that is a sign of impending extinction.
  • The difference between humans and Neanderthals is less than 0.004% on the genomic level.
    • Differences are in sperm, testes, smell and skin
  • There was an experiment in Russia to try and breed domesticated wild foxes. They took only the friendliest foxes and bred them amongst each other. Within a few generations they got tame and were worthy of being pets (more on that here).
  • We can now sequence and acquire genetic data 3x quicker than our capacity to store it. We’ve sequenced about 10,000 human genes today. We will start to find more differences soon.
  • Life is imperfectly transmitted code.
  • We can now build just mouth teeth (or human teeth with stem cells from a lost tooth). We can build an ear, a bladder, a trachea.
  • Homo evolutis:
    • For better or worse, we’re beginning to control our own evolution
    • This is “unnatural selection or actual intelligent design”
    • We have to live with the consequences, whether they be good or bad.
    • So far, using these technologies we have taken ourselves out of the food chain and doubled lifespans. In this respect, it’s been good for us so far.
  • While we conventionally speak about how great the digital revolution has been, the revolution in life sciences is and will be magnitudes greater.
  • Co-founded Synthetic Genomics with J. Craig Venter (One of the first to have sequenced the human genome)
    • Synthetic Genomics has developed a cell built that can operate like a computer system. It’s a cell that executes life code.
    • It may be possible to reprogram a species to become another species.
    • It’s like a software that makes its own hardware.
    • Algae is the best scalable production systems for energy development in a constrained world.
  • “We are evolving ourselves.” In science, “there are decades when nothing happens and weeks when everything happens.” (a questioner in the audience pointed out this quote comes from Lenin).
  • Q: “Do we have secular stagnation?”
    • Enriquez: A resounding no. Today there are people who are smart, creative, with scale and ambition. Lots of great things are happening in the sciences. We are as advanced as ever, and increasingly so. 1 problem is that with technology, our interest in sex different than it used to be, and sex is not keeping the developed world population moving upwards fast enough.

 

Do You Believe in Evolution? (S&P 500 Edition)

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With equity markets breaking out to multi-year highs, amidst a persistent spate of negativity, there are all kinds of stories designed to scare people into thinking there is something sinister behind the rally.  Some argue that without Apple, the S&P 500 would be going nowhere, some argue that profit margins are too high and must regress, while others argue that the cyclically adjusted P/E  (CAPE) remains elevated and inconsistent with a longer-term bottom).  All of these arguments have some merit, but none of them measure a key point: today’s S&P 500 is not yesterday’s S&P 500. 

What do I mean by this?  Well quite simply, there is some serious Darwinism going on in the indices, with the outcome being that survival of the fittest has a strong upward bias.  Since the market peaked in October of 2007, exactly 100 companies have been added, and 100 removed from the S&P, with the vast majority of the change having happened during the 2008-09 collapse.  I don’t have the long-term data, but I would surmise a guess that this was the period of the highest turnover in our most prominent benchmark index EVER.  If anyone has the data necessary to confirm this, I would greatly appreciate it.  Regardless, I think it’s safe to say that at the very least, over these last few years we have witnessed one of the largest shakeups in the constituent holdings of the S&P since the Index’s inception.

This is consequential for many reasons.  One particularly important reason, and the inspiration behind my digging into the numbers is the fact that while reading numerous comparisons of the S&P 500 pre and post-2007, not a single analysis I have seen has mentioned or attempted to dig into the composition of the index.  Meanwhile every day I read something that tries to assert Apple is skewing the index.  After looking at the data, it’s become clear that while Apple is a large force, the turnover in the constituent holdings has had a much bigger impact.  Just from the turnover alone, the S&P has been tilted away from financials and old sluggish companies with little to no growth, towards technology and innovative, young companies with rapid expansion.

Out of the 100 companies removed from the S&P 500, 20 were financials that either went bust, were bought out while in distress, or their market caps shrunk so much they were no longer relevant.  Another 7 companies either went bankrupt, or were near bankrupt due to their exposure to the debt crisis, or the rapid disruption of their business model during the crash. 

Here’s a selective list of some notable removals from the S&P 500 since October, 2007 (this list is not comprehensive, but rather just some notable departures):

  • Circuit Cities
  • Ambac Financial Group
  • Countrywide Financial Corp.
  • Federal Home Loan Mortgage Corp (aka Freddie Mac)
  • Federal National Mortgage Association (aka Fannie Mae)
  • Lehman Brothers
  • Washington Mutual
  • Merrill Lynch
  • General Motors
  • CIT Group
  • MBIA
  • KB Home
  • RadioShack
  • Eastman Kodak
  • The New York Times

Some Notable Additions (again, not a comprehensive list):

  • Intuitive Surgical
  • MasterCard
  • Salesforce.com
  • Life Technologies
  • Red Hat
  • Priceline.com
  • Visa
  • Ross Stores
  • Urban Outfitters
  • Berkshire Hathaway
  • TripAdvisor
  • Chipotle
  • Blackrock
  • F5 Networks
  • Netflix

Note how the list of removals is populated with many very old companies, with a heavy concentration of financials and other legacy US businesses that have either gone, are near, or were on the brink of bankruptcy.  Meanwhile, the list of newcomers includes many of the hottest “new” economy companies that are core components of today’s thriving digital age.  Berkshire Hathaway stands out like a sore thumb on the list of newbies, as the company entered the S&P 500 upon completion of its acquisition of Burlington Northern and splitting the “B” shares.  Berkshire “replaced” BNI in the index, thus finally bringing one of America’s largest, most profitable businesses into the composite that is designed to represent American business.  This is a big change, as Berkshire is now one of index’ 10 largest holdings.

This all has a meaningful impact on the intrinsic metrics of the S&P, including earnings, growth, and most importantly, performance.  Priceline is the best performer on the list of newcomers, and it alone is up 779% since the market bottomed in March of 2009.  That is pretty remarkable compared to Lehman Brothers, which only this month “emerged” from bankruptcy as a nearly worthless entity for equity holders.    

Not that these facts alone mean the market should be moving higher, but it is very important to contextualize what we mean when we say “the S&P 500 is making new multi-year highs” and conduct any analysis that relies on index-wide metrics.  Had these changes not transpired, one can reasonably guess that the S&P 500 would be closer to 1,000 than 1,400 today.  And that is a good thing!  Evolution is a powerful, natural force that drives things forward and helps to overcome yesterday’s vulnerabilities.  It is progress, hence it is a more valuable total index.

TED Talk with Barry Schuler on Genomics 101

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Genomics today is one of those fields where we can witness the Innovator's Dilemma unfold in realtime.  I am particularly intrigued by genetic sequencing for a number of reasons.  The idea that we are simply complex programs with a coding system that has double the inputs of a binary computer system has major consequences in terms of religion, philosophy, and most visibly, health.  This is heavy stuff for a former philosophy major!  Further, the "anti-evolutionists" have a big problem with this reality, because it willingly confirms and implies we are of the same fiber as every living substance on Earth, have thus evolved from the Great Apes, and are already developing the capacity to manipulate the structure of our internal code.  Can we once again call this "debate" over?

In reality, this is a good, not bad thing!  With the understanding of how our most basic system works, we can officially launch into an entirely new era of medical diagnostics and treatment.  While medical costs have been soaring in the United States to the tune of a decade and a half of double-digit growth, genomics, once wildly expensive, holds the key to generating enormous cost and treatment efficiencies.  With knowledge of an individual's genome, we can came up with better treatments for each individual, skip many of the painfully unnecessary diagnostics, and develop a personalized course of action, all at a lower total cost.  

Plus, as an added bonus, we can refine our Pinot Noir grapes to taste as we want it, grow where we want it, how we want it.  I'll let Barry Schuler take over from here on what genomics is doing for us today, and what we can expect to see tomorrow (here's the link in case the embed doesn't work):