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Running Money

Over the weekend I had a chance to read the outstanding book Running Money by former hedge fund manager Andy Kessler.

Kessler describes a theory of investing that closely ties to Kurzweil's Law of Accelerating Returns. He refers to 'the growth of growth', is consumed with the idea of 'scale' and ultimately comes to the conclusion that economic growth will always be driven by the process of 'augmenting humans'.

The value of intellectual property is Kessler's primary concern. His motto is 'we think, they sweat'. As an example, Kessler describes the obscenely high-margin IP of US companies Microsoft and Intel who sell their products together to Japanese companies like Toshiba. The Japanese OEM is stuck with the inglorious task of actually slapping together some plastic and an LCD screen around the American components and building a physical product. The OEM then sells their product back to us here in the States for a razor-thin profit -- while the American companies rake in pure-profit royalties from mass adoption of their IP. It is easy to imagine how royalties for the use of Microvision's MEMS scanner designs and driving algorithims could take the place of payments to Wintel in this example, for cell phones, digital cameras, camcorders, gaming glasses, laser printers, and on and on.

There is a lot of info here -- for me it's a real thrill to see someone put millions of dollars to work who seems to have the same kinds of concepts about how value is created and how the rate of change is constantly accelerating. It's interesting to revisit some of the points over the last several years, like October 1998, when Long Term Capital Management imploded and the immediate, ugly aftermath of that -- the year and a half long run to Nasdaq 5000 that started right then, and the long slide back down, where Kessler and his partner saved themselves and their investors with the decision to force liquidations of their positions in 2000 and 2001.

Kessler's ideas about 'horizontal slices' of new technology and processes, in which numerous companies each provide high-margin components that enable new capabilities for people tie directly to the emergence of new applications like augmented reality. It's easy to see how Microvision's technology can enable a new 'waterfall' where US companies like Qualcomm, RFMD, Verizon and Oracle can augment humans by augmenting our perceptions of the world.

Reading this book as a Microvision investor, I felt a really wonderful sense of confirmation. Kessler reiterates several times the importance of confidence in what you're doing -- and that there is no limit to what is possible in an economy driven by the power of intellectual property, and the goal of augmenting humans.

Microvision's MEMS scanner designs and scanner/light-source driving algorithims will enable a see-through world of pop-up information that populates the real world and brings previously unattainable capabilities to you and me. The value these inventions can create for MVIS shareholders, as well as for investors in other companies that can play a role in bringing augmented reality to consumers, is unlimited.

Interestingly, Kessler will be at the Telecosm conference along with Microvision CEO Rick Rutkowski on October 19 and 20.


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