R.I.P Steve Jobs

In honor of the life Steve Jobs lived, here is an inspiring commencement speech he gave to Stanford in 2005. Text below the video.


I am honored to be with you today at your commencement from one of the finest universities in the world. I never graduated from college. Truth be told, this is the closest I’ve ever gotten to a college graduation. Today I want to tell you three stories from my life. That’s it. No big deal. Just three stories.

The first story is about connecting the dots.

I dropped out of Reed College after the first 6 months, but then stayed around as a drop-in for another 18 months or so before I really quit. So why did I drop out?

It started before I was born. My biological mother was a young, unwed college graduate student, and she decided to put me up for adoption. She felt very strongly that I should be adopted by college graduates, so everything was all set for me to be adopted at birth by a lawyer and his wife. Except that when I popped out they decided at the last minute that they really wanted a girl. So my parents, who were on a waiting list, got a call in the middle of the night asking: “We have an unexpected baby boy; do you want him?” They said: “Of course.” My biological mother later found out that my mother had never graduated from college and that my father had never graduated from high school. She refused to sign the final adoption papers. She only relented a few months later when my parents promised that I would someday go to college.

And 17 years later I did go to college. But I naively chose a college that was almost as expensive as Stanford, and all of my working-class parents’ savings were being spent on my college tuition. After six months, I couldn’t see the value in it. I had no idea what I wanted to do with my life and no idea how college was going to help me figure it out. And here I was spending all of the money my parents had saved their entire life. So I decided to drop out and trust that it would all work out OK. It was pretty scary at the time, but looking back it was one of the best decisions I ever made. The minute I dropped out I could stop taking the required classes that didn’t interest me, and begin dropping in on the ones that looked interesting.

It wasn’t all romantic. I didn’t have a dorm room, so I slept on the floor in friends’ rooms, I returned coke bottles for the 5¢ deposits to buy food with, and I would walk the 7 miles across town every Sunday night to get one good meal a week at the Hare Krishna temple. I loved it. And much of what I stumbled into by following my curiosity and intuition turned out to be priceless later on. Let me give you one example:

Reed College at that time offered perhaps the best calligraphy instruction in the country. Throughout the campus every poster, every label on every drawer, was beautifully hand calligraphed. Because I had dropped out and didn’t have to take the normal classes, I decided to take a calligraphy class to learn how to do this. I learned about serif and san serif typefaces, about varying the amount of space between different letter combinations, about what makes great typography great. It was beautiful, historical, artistically subtle in a way that science can’t capture, and I found it fascinating.

None of this had even a hope of any practical application in my life. But ten years later, when we were designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography. If I had never dropped in on that single course in college, the Mac would have never had multiple typefaces or proportionally spaced fonts. And since Windows just copied the Mac, it’s likely that no personal computer would have them. If I had never dropped out, I would have never dropped in on this calligraphy class, and personal computers might not have the wonderful typography that they do. Of course it was impossible to connect the dots looking forward when I was in college. But it was very, very clear looking backwards ten years later.

Again, you can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

My second story is about love and loss.

I was lucky — I found what I loved to do early in life. Woz and I started Apple in my parents garage when I was 20. We worked hard, and in 10 years Apple had grown from just the two of us in a garage into a $2 billion company with over 4000 employees. We had just released our finest creation — the Macintosh — a year earlier, and I had just turned 30. And then I got fired. How can you get fired from a company you started? Well, as Apple grew we hired someone who I thought was very talented to run the company with me, and for the first year or so things went well. But then our visions of the future began to diverge and eventually we had a falling out. When we did, our Board of Directors sided with him. So at 30 I was out. And very publicly out. What had been the focus of my entire adult life was gone, and it was devastating.

I really didn’t know what to do for a few months. I felt that I had let the previous generation of entrepreneurs down – that I had dropped the baton as it was being passed to me. I met with David Packard and Bob Noyce and tried to apologize for screwing up so badly. I was a very public failure, and I even thought about running away from the valley. But something slowly began to dawn on me — I still loved what I did. The turn of events at Apple had not changed that one bit. I had been rejected, but I was still in love. And so I decided to start over.

I didn’t see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.

During the next five years, I started a company named NeXT, another company named Pixar, and fell in love with an amazing woman who would become my wife. Pixar went on to create the worlds first computer animated feature film, Toy Story, and is now the most successful animation studio in the world. In a remarkable turn of events, Apple bought NeXT, I returned to Apple, and the technology we developed at NeXT is at the heart of Apple’s current renaissance. And Laurene and I have a wonderful family together.

I’m pretty sure none of this would have happened if I hadn’t been fired from Apple. It was awful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don’t lose faith. I’m convinced that the only thing that kept me going was that I loved what I did. You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don’t settle.

My third story is about death.

When I was 17, I read a quote that went something like: “If you live each day as if it was your last, someday you’ll most certainly be right.” It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: “If today were the last day of my life, would I want to do what I am about to do today?” And whenever the answer has been “No” for too many days in a row, I know I need to change something.

Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure – these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

About a year ago I was diagnosed with cancer. I had a scan at 7:30 in the morning, and it clearly showed a tumor on my pancreas. I didn’t even know what a pancreas was. The doctors told me this was almost certainly a type of cancer that is incurable, and that I should expect to live no longer than three to six months. My doctor advised me to go home and get my affairs in order, which is doctor’s code for prepare to die. It means to try to tell your kids everything you thought you’d have the next 10 years to tell them in just a few months. It means to make sure everything is buttoned up so that it will be as easy as possible for your family. It means to say your goodbyes.

I lived with that diagnosis all day. Later that evening I had a biopsy, where they stuck an endoscope down my throat, through my stomach and into my intestines, put a needle into my pancreas and got a few cells from the tumor. I was sedated, but my wife, who was there, told me that when they viewed the cells under a microscope the doctors started crying because it turned out to be a very rare form of pancreatic cancer that is curable with surgery. I had the surgery and I’m fine now.

This was the closest I’ve been to facing death, and I hope it’s the closest I get for a few more decades. Having lived through it, I can now say this to you with a bit more certainty than when death was a useful but purely intellectual concept:

No one wants to die. Even people who want to go to heaven don’t want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life’s change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.

Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

When I was young, there was an amazing publication called The Whole Earth Catalog, which was one of the bibles of my generation. It was created by a fellow named Stewart Brand not far from here in Menlo Park, and he brought it to life with his poetic touch. This was in the late 1960’s, before personal computers and desktop publishing, so it was all made with typewriters, scissors, and polaroid cameras. It was sort of like Google in paperback form, 35 years before Google came along: it was idealistic, and overflowing with neat tools and great notions.

Stewart and his team put out several issues of The Whole Earth Catalog, and then when it had run its course, they put out a final issue. It was the mid-1970s, and I was your age. On the back cover of their final issue was a photograph of an early morning country road, the kind you might find yourself hitchhiking on if you were so adventurous. Beneath it were the words: “Stay Hungry. Stay Foolish.” It was their farewell message as they signed off. Stay Hungry. Stay Foolish. And I have always wished that for myself. And now, as you graduate to begin anew, I wish that for you.

Stay Hungry. Stay Foolish.

Thank you all very much

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Dow down 500 – 2008 part deux?

The Dow Jones Industrial Average fell more than 500 points today. It’s now down more than 10% over the last 10 days. Looking at your 401(k) or IRA will make you feel like you just lost hundreds, thousands, or, if you are very wealthy, millions of dollars. It feels like a punch in the gut.

Humans naturally feel like they need to take action when threatened. For many, if not most, the first instinct is to go into protection mode – “How do I keep from losing what I have left?” Fund flows show retail investors exiting the equity markets over the last few weeks, and doubtless many more flew out in a panic today.

Let’s think about it logically for a moment. People selling equities today were making a decision to own either cash or bonds. Money market yields are so low that companies are actually beginning to charge clients to hold their cash. Even at a 0.06% yield, investors who sit in cash for a year are guaranteeing themselves a 2%-3% loss in purchasing power to inflation. One could make an argument that bonds are even worse.

And what are investors giving up for this “safety?” Stocks like BP, which is still hurting from the oil spill and trades at less than 6 times next year’s estimated earnings.  After today’s 6% plunge, the stock sports a dividend yield of over 4%. Even if you agreed to loan out your money to the U.S. government for 30 years, you wouldn’t get a 4% yield, and you wouldn’t have the price appreciation upside that equities offer. And BP is just one example.

Warren Buffett wrote some wise words in the NYT in 2008:

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

Those who have had the guts to buy in times of panic selling, when most investors are running for the exits, have historically been rewarded. Are you being greedy or fearful?

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CFA Level II Results

That whooshing sound you heard this morning was the collective exhaling (in either relief or despair) of around 50,000 Level I and Level II CFA candidates as everyone received the fateful email containing the results from June’s exam. Level III candidates have another couple of weeks of limbo, as they don’t get their results until August 16th.

The pass rates were:

Level I: 39%

Level II: 43%

Fortunately, my email started with “Congratulations,” and I’m on to Level III. It was a difficult exam, and I’m very pleased that I won’t be sitting for it again next year. Good luck to everyone else receiving their results today.

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5 Reasons to Hate the Bond Market

Many experts have been saying “Interest rates have to start going up” for more than two years now. Some have advised clients to wait in cash until rates provide a better return, only to see rates drop further still. Those who held their noses and bought have been rewarded with income that is multiples of money market funds (admittedly, 10x the average money market yield of 0.08% is still not very exciting), as well as rising bond prices. Still, the bond market party has to come to an end at some point. Here are five reasons to think twice before loaning your money at low interest rates:

1. Rates are artificially low

Had the government not intervened in 2008, many more financial institutions would have failed. It would have been a world of higher interest rates and much tighter credit. Not good for business creation, but good for savers. Instead, the government bailed out most of the failing financial institutions and drove interest rates lower through a combination of taking the Fed Funds rate to 0% and offering emergency lending to “banks” at very low rates.


In addition to the lending at low rates, the Federal Reserve has intervened in the markets by buying up huge amounts of Treasury and U.S. Agency bonds. The effect of all the government intervention is that rates are much lower than they would be in a market free of Uncle Sam’s not-so-invisible hand.

2. It’s been a 30-year bull market

Note the 30-year bull market in 10-year U.S. Treasurys from 1980-2011

In  the fall of 1981, the yield on a 10-year Treasury bond was above 15%. Since then, the rate has marched fairly steadily down to its current yield of around 3%. Investors have been rewarded by both relatively high income from coupon payments as well as price appreciation from declining interest rates for a very long time. But with coupon payments now near historical lows, there is not nearly as much “cushion” in terms of interest income as there has been in the past. For example, a holder of a 3% coupon 10-year Treasury bought at par will suffer around an 8% decline if interest rates move up to 4%. It’s not difficult math to figure out that a person buying the 10-year bond in early 2000 at nearly 7% has a lot better chance of making money than someone accepting a 3% coupon payment today.

Because it’s hard to imagine a scenario where the 10-year can go much below 2.5%, the best case scenario is a slight price increase and income of 3% a year. The worst case scenario is high inflation that sends rates much higher, leaving bond holders in the uncomfortable position of holding an asset worth around 80% of what they paid for it and producing less income than is necessary to keep up with inflation.

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The Debt Ceiling: Armageddon or No Big Deal?

The United States faces technical default on some of its obligations if it does not reach an agreement to raise the debt ceiling by August 2nd. Several clients and others have told me they are getting increasingly worried about what will happen. Some have even suggested selling out of the equity market until after the issue has been resolved. Let’s look at what the markets are telling us.

Equity Markets

While June got off to a weak start, the S&P 500 staged a strong rally the last week of the month that continued into early July. Month over month, the S&P is up 3.6%. With strong corporate earnings expected to come out starting this week, the equity markets seem to be focused much more on company fundamentals than the political debate in Washington.

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Fight of the Century: Keynes vs. Hayek, Round Two

Great stuff from the folks at http://econstories.tv/. If you haven’t seen the first round, you can find it after the jump.

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Swimming with Black Swans

I just finished rereading “The Black Swan: The Impact of the Highly Improbable"",” by Nassim Nicholas Taleb. It’s a great book, and should be required reading for everyone in investment management, among other professions. Fair warning: the book is fairly academic in nature, though Taleb’s unique mixture of arrogance and acerbity keep it entertaining. For a lighter and more investment focused book, check out Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets.

For the uninitiated, the term “Black Swan” comes from the fact that everyone who had any common sense in 1696 knew that there were only white swans. Millions of white swans had been observed, and zero black swans had ever been observed. One would have to be a fool to expect that in 1697, a black swan would be discovered in Australia. But that is exactly what happened. It took just one black swan to disprove the accepted convention that all swans were white.

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