
Chapter Two of Peter Thiel's New Book - sama
I asked Peter if I could post some of his new book on HN.  Here is Chapter Two, which I think will be interesting to people here.<p>Party Like It’s 1999<p>Our contrarian question—What important truth do very few people agree with you on?—is difficult to answer directly. It may be easier to start with a preliminary: what does everybody agree on? “Madness is rare in individuals—but in groups, parties, nations, and ages it is the rule,” Nietzsche wrote (before he went mad). If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth.<p>Consider an elementary proposition: companies exist to make money, not to lose it. This should be obvious to any thinking person. But it wasn’t so obvious to many in the late1990s, when no loss was too big to be described as an investment in an even bigger, brighter future. The conventional wisdom of the “New Economy” accepted page views as a more authoritative, forward‐looking financial metric than something as pedestrian as profit.<p>Conventional beliefs only ever come to appear arbitrary and wrong in retrospect; whenever one collapses, we call the old belief a bubble. But the distortions caused by bubbles don’t disappear when they pop. The internet bubble of the ’90s was the biggest of the last eight decades, and the lessons learned afterward define and distort almost all thinking about technology today. The first step to thinking clearly is to question what we think we know about the past.<p>A Quick History of the ’90s<p>The 1990s have a good image. We tend to remember them as a prosperous, optimistic decade that happened to end with the internet boom and bust. But many of those years were not as cheerful as our nostalgia holds. We’ve long since forgotten the global
context for the 18 months of dot‐com mania at decade’s end.<p>CONTINUE HERE: http:&#x2F;&#x2F;pastebin.com&#x2F;NuxLFmW4
======
tlb
I highly recommend the whole book.

The biggest danger with this line of thinking is picking a straw man version
of what everyone else believes. Or of underestimating the difference between
belief and execution.

In this case, few sophisticated investors truly believed that page views were
the ultimate metric. But those were one of the few publicly available metrics
you could compare between websites. Their problem was in execution (getting
better engagement and monetization metrics) rather than mistaken beliefs.

Straw men are common in startup pitches: "Our software will be powerful and
easy to use", as if their competitors had a different goal.

So before proceeding on the assumption that everyone else believes something
silly, think hard about reasons why it might only appear that way.

------
Anderkent
> Consider an elementary proposition: companies exist to make money, not to
> lose it.

I'm not sure I agree with that proposition, at least in the general form in
which it's stated.

Yes, the objective of any particular company is to make money. But is that why
companies exist? We support the concept of a company, build laws and systems
that allow one to be created. And clearly the reason we have those laws and
system isn't so that the company can make money.

So the _instrumental_ goal of a company is to make money, but the _terminal_
value of companies existing is something different. Perhaps it's that they
help us collaborate on issues that outscale any particular mind (though in
that we have to be mindful of the Moloch [1] and keep in mind that
corporations think in alien ways [2])...

If so, corporations exist to solve human issues primarily; and making money is
only a measure of how successful they are at that.

1: [http://slatestarcodex.com/2014/07/30/meditations-on-
moloch/](http://slatestarcodex.com/2014/07/30/meditations-on-moloch/)

2: [http://www.antipope.org/charlie/blog-
static/2010/12/invaders...](http://www.antipope.org/charlie/blog-
static/2010/12/invaders-from-mars.html)

~~~
cubetime
I model people's motivations (and systems made out of their motivations, to a
lesser extent) as tangly, illegible, time-varying weighted directed graphs of
weighted goals, where none of the nodes seems to actually persistently have
indegree == 0 or outdegree == 0. The use of "terminal" and "instrumental" here
isn't very clear to me.
[[http://lesswrong.com/lw/l3/thou_art_godshatter/](http://lesswrong.com/lw/l3/thou_art_godshatter/)]

But, to me, "company" usually means something like "an organization with
higher-level goals that include selling things to customers and making money
for its other stakeholders". When that's not the case, I think of words like
"charity", "non-profit", and "club".

~~~
Anderkent
Well, "non-profit" is just shorthand for "non-profit company", right? At least
that's what I'm used to, though googling now seems to bring up "non-profit
organisation" as the more popular term...

Regarding 'terminal' and 'instrumental', perhaps the better descriptors would
be 'direct' and... uh, not sure, let's take indirect by symmetry.

The direct goals of a company is to make money. The _reason_ we want to have
organisations that focus on making money is because .. (we believe that
organisations with larger positive impact are better posed to make more money,
we want to harness the self-interest to improve efficiency, etc etc). The
point is just having a company that makes a lot of money but doesn't improve
the world is counterproductive.

------
rcamera
Thank you for talking to Peter and sharing this.

For those interested in more, Blake (the co-author from the book) took Peter
Thiel's CS183 class in Stanford, and has class notes freely available on his
blog (the notes generated the idea for the book, from my understanding):

[http://blakemasters.com/peter-thiels-
cs183-startup](http://blakemasters.com/peter-thiels-cs183-startup)

I highly recommend the book.

~~~
csdrane
I wait with bated breath that this will be more than just a recapitulation of
Blake's existing notes.

~~~
rattray
Time to exhale. Thiel has publicly stated that this is largely a
recapitulation of Blake's existing notes. Just better-organized and refined.
If you want free, his notes will be fine. Personally, having followed along
with the notes, I'm planning to get the book as well.

------
staunch
VCs in the dot com bubble were not confused about whether companies should
make money or not. VCs knew exactly what they were doing: making money for
themselves. They were raking in millions by pumping up companies and dumping
them on the public market. A classic ponzi scheme. Eventually the public
market realized what was going on and the party stopped.

~~~
nerfhammer
a pump-and-dump scheme is not a ponzi scheme

~~~
staunch
Fair enough. I knew it was wrong when I said it but I said it anyway!

------
graycat
It seems to me that Peter describes a lot of mistakes and then proposes mostly
some new ones.

After the initial dust settles, what we want is a valuable, defensible, first
good or a much better, must have and not just nice to have solution to a
problem where such a solution can be the crucial, nearly sufficient means of a
valuable new company.

Okay, now for the lesson: However we come up with such a solution, we have to
evaluate it. Well, we can look around just a little and see that some parts of
our society are very good at technical evaluations of such solutions. With
everything else being assumed, a successful technical evaluation is supposed
to be able to remove about all doubt about the business success. E.g., the
ideal solution would be a one pill, safe, effective, cheap cure for any
cancer. Big company? Sure. Done. And we should expect such solutions in other
areas.

In particular, we are able to plan, propose, and have evaluated just on paper
solutions for major problems. Examples: Hoover Dam. The new World Trade
Center. The Erie Canal. Powered, controlled flight as the Wright brothers were
on the way to Kitty Hawk. The SR-71. GPS. Many more. Evaluated just on paper,
and then executed as planned. Sand Hill Road needs to be able to do much the
same, and that is much of what Peter is missing.

Instead of such solid history of project evaluation, Peter goes off on various
emotional reactions to various irrational flights of triviality in various
headlines, etc.

Peter, friendly advice: Learn how to evaluate research results and their
applications to valuable, practical projects. E.g., borrow from evaluations of
GPS, the SR-71, Hoover Dam, etc.

------
sama
clickable: [http://pastebin.com/NuxLFmW4](http://pastebin.com/NuxLFmW4)

~~~
nicklovescode
What is the benefit of not allowing links in a post? Is it a purposeful
decision or or is it just that no one has bothered to implement it.

~~~
gojomo
When allowed, some then stop submitting primary links, and instead wrap even
more commentary around the (now in-text) link than is possible in an
editorialized headline. This also effectively reserves for the submitter a
permanent "top comment".

------
minimaxir
Another excerpt was posted on Business Insider:
[http://www.businessinsider.com/peter-thiel-how-to-create-
inn...](http://www.businessinsider.com/peter-thiel-how-to-create-innovative-
companies-2014-9)

------
clairity
the yc app has a form of this as one of it's questions: "what do you
understand about your business that other companies in it just don't get?"

one of thiel's general business examples is "capitalism and competition are
opposites". although his point is sound (business schools explicitly teach you
to look for ways to avoid/eliminate competition), his definition of capitalism
is a bit distorted to make this phrase work. capitalism is a decentralized
economic system for deploying capital efficiently based on supply and demand,
not simply for accumulating/concentrating capital (which is how thiel sees
it).

~~~
jlangenauer
"Efficiently", in this case, means deploying capital where it will accumulate
the most profit. Not where it does the most good, or solves the most pressing
or important problems.

~~~
clairity
at a game theoretic level of you vs. the competition, that's true. you're
trying to maximize profit because profit is used as a proxy for solving the
most pressing problems (or desires) of a set of people (i don't believe profit
is a perfect proxy, but that's another discussion).

but if you want a stable and efficient economic (and political) system, you
want capital to continuously flow through the system, not accumulate.

------
samirmenon
"Conventional beliefs only ever come to appear arbitrary and wrong in
retrospect; whenever one collapses, we call the old belief a bubble."

I couldn't help but feel that, in 10 years, Silicon Valley's current bubble
(which Peter Thiel buys into) will seem this way.

~~~
adventured
Thiel goes so far as to reference Twitter in a recent article as an example of
how the eyeballs / users / etc. type metrics aren't always wrong (he also used
Facebook).

Which falls flat when you consider that Twitter has proven itself to be
anything but a successful business the past seven years or so. It's currently
bleeding money at an epic rate, and if you assume a $30 to $35 billion market
cap, there is almost no scenario in which it can ever justify that by earning
a profit (even if revenue were profit today, they'd still be fairly valued;
best case scenario possible is in ten years they're worth about what they are
now, assuming non-stop growth and that they eventually have a $5b sales /
$1.xb profit business)).

On the downside of this stock market bubble, when cash is harder to come by,
Twitter is still bleeding out, and their growth trails off, the company is
worth maybe 15% of what it's currently trading for. Thiel will of course no
longer be discussing Twitter as a good example at that point (he'll then stick
to only Facebook as the example).

------
iand
I haven't read the book but I'm interested in other people's opinions on how
much predictive power is in his ideas. It's clear he, like many other
entrepreneur writers, has presented something with good descriptive power. He
can describe why something was a good investment or why something else failed,
but does he provide any kind of framework for predicting success?

~~~
analog31
I wish I remember who said this: If you could predict business success
correctly 51% of the time, and acted on your findings, you'd soon be the
richest person ever.

------
olalonde
"Our contrarian question—What important truth do very few people agree with
you on?—is difficult to answer directly."

Didn't this question originate from Peter himself? I recall he claimed so in
an interview from Pando but I can't find the link.

~~~
foobarqux
Did you actually try or that some kind of weird figure of speech?

It's the very first result on Youtube for "Pando Thiel", 6 minutes in.

[http://youtu.be/p6taTMa4nls?t=5m44s](http://youtu.be/p6taTMa4nls?t=5m44s)

~~~
olalonde
I didn't try... was on my mobile phone and crappy 2g connection. Thanks for
linking :) I'm a big fan of Peter Thiel, hope my comment didn't come across as
negative.

------
quartzmo
Thanks for the excerpt. It's not long, but I enjoyed the writing, it's crisp,
fast-paced, and covers a lot of ground. (I imagine Peter's lectures to be
similar!) This gave me the confidence to order the book.

------
uladzislau
The course (CS183) which this book is based on was outstanding and the authors
claim that they extended and improved on the course. I'm looking forward to
the book.

------
eXpl0it3r
Can someone explain to the people that don't understand who "Peter Thiel" is
and what this new book is about? I hope, I don't offend anyone by not knowing,
I usually just use Hacker News to get some News articles and am not too much
involved with YC and the whole community behind HN...

~~~
gorkemyurt
Facebook made him really rich
[http://money.cnn.com/2012/08/20/technology/facebook-peter-
th...](http://money.cnn.com/2012/08/20/technology/facebook-peter-thiel/)

~~~
skizm
Damn he sold all those shares at the bottom of the dip. $19 - $20... facebook
is now at $74. His shares would be worth more than $3.5 billion now if he held
on to them. Of course the market could behave differently if he holds, but
still fun to imagine.

~~~
staunch
He also managed a $8 billion dollar hedge fund that failed spectacularly.

[http://en.wikipedia.org/wiki/Clarium_Capital](http://en.wikipedia.org/wiki/Clarium_Capital)

~~~
eruditely
So what? It's a few big ones that matter. Why all this negativity?

~~~
staunch
He claimed to know things about the economy and raised $8 billion to
capitalize on his ideas. Turns out he was full of shit. He had no idea what he
was doing and lost huge amounts of money over years. He wasn't just bad he was
arrogantly clueless.

Now he's claiming to know things about the economy again.

~~~
DaniFong
Ok, so usually I really like your posts, and I understand how you can believe
this because it is written across the internet in some difficult to assess
ways, but I believe you are very mistaken about this.

During and after the liquidity crunch of 2008 and the recession, Clarium
reduced in capital dramatically primarily because people were withdrawing
their capital, not due to losses. _He did not lose $8 billion,_ instead, most
of the capital under management was drawn down, as it was with many hedge
funds.

The annual returns of Clarium were volatile, but overall, impressive. Here is
a list for the returns pre 2011 (after which reporting was kept to the
remaining investors -- rumor is that it has done well but this is not public).

2002: 29.4%

2003: 65.6%

2004: 5.6%

2005: 57.1%

2006: -7.8%

2007: 40.3%

2008: -4.5%

2009: -25%

2010: -23%

From:

[http://3.bp.blogspot.com/_-M95ijQ3Mq0/Sw0Tax_AoTI/AAAAAAAAAC...](http://3.bp.blogspot.com/_-M95ijQ3Mq0/Sw0Tax_AoTI/AAAAAAAAACU/kZslYccJB4c/s1600/Clarium+3.jpg)

[http://www.hedgefundinsight.org/the-limits-to-fundamental-
co...](http://www.hedgefundinsight.org/the-limits-to-fundamental-conviction-
clarium-capital)

and from:

[http://www.bloomberg.com/news/2011-01-12/clarium-hedge-
fund-...](http://www.bloomberg.com/news/2011-01-12/clarium-hedge-fund-
shrinks-90-as-thiel-has-third-losing-year.html)

Here is a good chart, for pre-2010 data.

[http://www.marketfolly.com/2009/02/peter-thiels-clarium-
capi...](http://www.marketfolly.com/2009/02/peter-thiels-clarium-capital-
ken.html)

Even despite the tough losses sustained through 2008, 2009 and 2010, the fund
returned, net, from October 2002 (fund start date) to the end of 2010, 2.53x.

That's an 8.25 year, aggregated annual return of 11.9%.

[http://www.wolframalpha.com/input/?i=%281.294+*+1.656+*+1.05...](http://www.wolframalpha.com/input/?i=%281.294+*+1.656+*+1.056+*+1.571+*+%281+-+0.078%29+*+1.403+*+%281+-+0.045%29+*+%281+-+0.25%29+*+%281+-+0.23%29%29%5E%281%2F8.25%29)

For comparison, the S&P 500 over the same time period rose from a deep dip of
about 800 to about 1260, a rise of 57%, for an aggregate annual return of
about 5.6%.

It was volatile too, without the strong gains to buffer the losses. If you had
your money in Clarium the entire time, you'd be well ahead, even net of fees
-- you would have more than doubled your money (2.14x return net). Comparing
the two cases, if you held Clarium vs S&P 500, you'd have 36% more capital.

Hardly a fund that's full of it, and has no idea what it's doing.

The tragedy of Clarium is that money flooded in in 2007 and early 2008, and
then largely exited during 2009 and 2010, forcing a major unwind at the worst
time. Macro-economically, Clarium was correct about the recovery being slow
and drawn out. But the financial world, in particular their bets against the
dollar, were not born out in that timeframe.

~~~
staunch
Financial results are the objective test of an investment firm but I'm not
sure you're factoring in the risk involved in what Clarium was doing. Or how
wrong their bets were.

And I do know that Clarium is probably one of the better hedge funds by any
measure. Peter Theil seems like an ethical and good person. That's so rare in
that world it's probably the reason he was able to raise money without any
expertise in trading.

------
icpmacdo
Awesome I really want to read this book but it is sadly over 30$ up here in
Canada.

~~~
porter
My god man, this guy just put everything he knows about startups into a book.
Years of hard-earned experience wrapped up in a neat little package just for
you. And all for only $30. If you get just one insight out of this book it
will pay for itself a thousand times over. Stop complaining about the price
and just buy it.

~~~
JetSpiegel
I have some Kool-Aid for sale, do you want to buy it too?

~~~
porter
If you can show me how your kool-aid will help me or why your kool-aid matters
to anybody, then yes, I'd be happy to buy your kool-aid. Welcome to
capitalism.

