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The folks reading this are going to get the wrong message. They are going to believe that rising interest rates will magically make it so that the most highly v

The folks reading this are going to get the wrong message. They are going to believe that rising interest rates will magically make it so that the most highly valued companies are the ones that produce the most societal good. This may start to happen more to a certain extent, but it's a totally false assumption. The most valuable companies before and after this era of low interest rates were and continue to be monopolies. That's what Warren Buffet invests in (Davita Dialysis, Exxon, Apple, rail lines ---> all monopolies). That's what Peter Thiel tries to invest in (Zero to One). That's what successful Y Combinator companies ultimately strive to become. Societal value creation is not the same as value creation to shareholders. The latter can be achieved by the former, but the former is not a requirement for the latter. The question for many of the readers of HackerNews is whether their jobs (mostly as software engineers) ever needed to exist. The answer for many is going to be -- probably not. On the flip side of things, lowering wages for software engineers is going to enable many institutions and companies that do not operate as tech monopolies or startups to start to get some of the benefits of skilled software engineers!

huijzer 4y ago
> That's what Warren Buffet invests in (Davita Dialysis, Exxon, Apple, rail lines ---> all monopolies). That's what Peter Thiel tries to invest in (Zero to One). That's what successful Y Combinator companies ultimately strive to become. Buffett invests in companies with a durable competitive advantage which is also often called a "moat". A monopoly is a situation where there is no competition. As a counterexample, although I agree that Coca-Cola has unfair advantages, such as brand name and economies of scale, over new competitors, they do not have a monopoly. > The most valuable companies before and after this era of low interest rates were and continue to be monopolies. That's not necessarily true. The most valuable companies, that is, the companies with the highest valuations are those which make the most money. Or, as Joel Greenblatt puts it: "Price follows earnings." If you want to buy a barn which very likely earns 10 mln per year for now until 2032, then a fair price would be at least 10 x 10 million discounted for the fact that money today is worth more than money tomorrow. Then, after 10 years you still own a farm and any extra income that is produced by it. Of course, this value fluctuates a lot depending on all kinds of factors, but this is generally the process that value investors use to determine the fair value. In the long run, it works as you can see when looking at the net worth of value investors such as Buffett. The only thing that a monopoly "does" is that it makes it easier to predict what the future earnings are going to be. What is typically the case after bubbles is that people take actual earnings into account again. During speculative bubbles, it is very hard to buy things based on reasonable future earnings calculations. The price is driven purely by speculation. What historically has happened after bubbles is that prices become more reasonable again. That's why big companies with unreasonable valuations such as Tesla and Cloudflare have gone down respectively 55% and 62% in price in this year while big companies with more reasonable valuations such as Macy's, Citigroup, or JPMorgan have gone down only 20%. > Societal value creation is not the same as value creation to shareholders. The latter can be achieved by the former, but the former is not a requirement for the latter. Agreed. Capitalism is a ruthless and terrible system, but better than the alternatives. > On the flip side of things, lowering wages for software engineers is going to enable many institutions and companies that do not operate as tech monopolies or startups to start to get some of the benefits of skilled software engineers! Agreed!
- LarsDu88 4y ago
  Brands/Companies that Coca-Cola owns: - Sprite - Fanta - Dasani - Powerade - smartwater - Minute Maid - Fuze Tea - schweppes - Simply - Honest - innocent - fairlife - Georgia Coffee - Costa Coffee - Topo Chico - Aquarius - AdeS - Fresca - Barq's - Dogadan - Peace Tea The list goes on. Anti-trust makes it virtually impossible to actually have a real "monopoly". Coca Cola lives in duopoly with Pepsi and other major beverage conglomerates, but the idea is the same. Having a "moat" is no different from having a monopoly. New players get in the soft drink game with the goal to get acquired down the road, no different from silicon valley startups burning money to get acquired by Google or Amazon.
  - huijzer 4y ago
    A moat is really not a monopoly per se. Major laptop manufacturers all have a durable competitive advantage due to their brand name and economies of scale, but they are all not monopolies. Porsche is also another example. You could argue that any company with a moat is a something-poly but then why even mention the poly and not talk about a moat instead.
- LarsDu88 4y ago
  > the companies with the highest valuations are those which make the most money In a perfect competition landscape, the net profit of players goes to effectively near zero. It doesn't matter if you're making sweaters or jet engines, this virtually a law of economics. The companies which have the highest valuations are those which make the most money (by eliminating competition).
r_hoods_ghost 4y ago
I think a lot of HN adjacent engineers are going to have a rude shock over the next few years as there are several pressures working against them. The first is that companies that have been trading debt for growth are not sustainable in a high interest rate environment. The second is that the shift to working from home has meant that employing remote teams, be they in other areas of the states or overseas has become much more normalized. Why would you pay Bay area salaries when you can employ just as qualified people elsewhere for less?
- bagels 4y ago
  I completely agree with this. COVID + everyone refusing to go back to the office means nobody needs to be in a specific place anymore. I've changed my hiring strategy to cultivate talent elsewhere and pay 1/3 of what is paid in the US.
  - orev 4y ago
    This is the common logic since outsourcing was invented decades ago. Everyone eventually gets hit with the reality that large time zone and cultural differences lead to so much overhead on project management, not getting what you actually asked for, creative ways to game the metrics, and huge rework/bug fixes, that the 2/3 you saved gets eaten up by dealing with all of that, and anything leftover doesn’t pay for the stress of it all.
    - bagels 4y ago
      It's possible the experiment fails. The gap has narrowed significantly though since everyone is remote.
    - hotpotamus 4y ago
      A quick look at a globe can tell you there are a lot cheaper markets in the same/close timezones to the US at least. Culture is obviously more nebulous, but it seems like something the US is better at exporting than any country as well. It's why I've long cautioned people about remote work - the work might end up more remote than they'd like.
HenriTEL 4y ago
I'd argue that 1. Software continues to be critical in any part of the economy. 2. People continue to spend more and more time online. So maybe many of the existing companies we work at will require less workforce but I don't see how the software engineers market can reverse in terms of offers/demand ratios anytime soon.

huijzer 4y ago

> That's what Warren Buffet invests in (Davita Dialysis, Exxon, Apple, rail lines ---> all monopolies). That's what Peter Thiel tries to invest in (Zero to One). That's what successful Y Combinator companies ultimately strive to become. Buffett invests in companies with a durable competitive advantage which is also often called a "moat". A monopoly is a situation where there is no competition. As a counterexample, although I agree that Coca-Cola has unfair advantages, such as brand name and economies of scale, over new competitors, they do not have a monopoly. > The most valuable companies before and after this era of low interest rates were and continue to be monopolies. That's not necessarily true. The most valuable companies, that is, the companies with the highest valuations are those which make the most money. Or, as Joel Greenblatt puts it: "Price follows earnings." If you want to buy a barn which very likely earns 10 mln per year for now until 2032, then a fair price would be at least 10 x 10 million discounted for the fact that money today is worth more than money tomorrow. Then, after 10 years you still own a farm and any extra income that is produced by it. Of course, this value fluctuates a lot depending on all kinds of factors, but this is generally the process that value investors use to determine the fair value. In the long run, it works as you can see when looking at the net worth of value investors such as Buffett. The only thing that a monopoly "does" is that it makes it easier to predict what the future earnings are going to be. What is typically the case after bubbles is that people take actual earnings into account again. During speculative bubbles, it is very hard to buy things based on reasonable future earnings calculations. The price is driven purely by speculation. What historically has happened after bubbles is that prices become more reasonable again. That's why big companies with unreasonable valuations such as Tesla and Cloudflare have gone down respectively 55% and 62% in price in this year while big companies with more reasonable valuations such as Macy's, Citigroup, or JPMorgan have gone down only 20%. > Societal value creation is not the same as value creation to shareholders. The latter can be achieved by the former, but the former is not a requirement for the latter. Agreed. Capitalism is a ruthless and terrible system, but better than the alternatives. > On the flip side of things, lowering wages for software engineers is going to enable many institutions and companies that do not operate as tech monopolies or startups to start to get some of the benefits of skilled software engineers! Agreed!

LarsDu88 4y ago
Brands/Companies that Coca-Cola owns: - Sprite - Fanta - Dasani - Powerade - smartwater - Minute Maid - Fuze Tea - schweppes - Simply - Honest - innocent - fairlife - Georgia Coffee - Costa Coffee - Topo Chico - Aquarius - AdeS - Fresca - Barq's - Dogadan - Peace Tea The list goes on. Anti-trust makes it virtually impossible to actually have a real "monopoly". Coca Cola lives in duopoly with Pepsi and other major beverage conglomerates, but the idea is the same. Having a "moat" is no different from having a monopoly. New players get in the soft drink game with the goal to get acquired down the road, no different from silicon valley startups burning money to get acquired by Google or Amazon.
- huijzer 4y ago
  A moat is really not a monopoly per se. Major laptop manufacturers all have a durable competitive advantage due to their brand name and economies of scale, but they are all not monopolies. Porsche is also another example. You could argue that any company with a moat is a something-poly but then why even mention the poly and not talk about a moat instead.
LarsDu88 4y ago
> the companies with the highest valuations are those which make the most money In a perfect competition landscape, the net profit of players goes to effectively near zero. It doesn't matter if you're making sweaters or jet engines, this virtually a law of economics. The companies which have the highest valuations are those which make the most money (by eliminating competition).

r_hoods_ghost 4y ago

I think a lot of HN adjacent engineers are going to have a rude shock over the next few years as there are several pressures working against them. The first is that companies that have been trading debt for growth are not sustainable in a high interest rate environment. The second is that the shift to working from home has meant that employing remote teams, be they in other areas of the states or overseas has become much more normalized. Why would you pay Bay area salaries when you can employ just as qualified people elsewhere for less?

bagels 4y ago
I completely agree with this. COVID + everyone refusing to go back to the office means nobody needs to be in a specific place anymore. I've changed my hiring strategy to cultivate talent elsewhere and pay 1/3 of what is paid in the US.
- orev 4y ago
  This is the common logic since outsourcing was invented decades ago. Everyone eventually gets hit with the reality that large time zone and cultural differences lead to so much overhead on project management, not getting what you actually asked for, creative ways to game the metrics, and huge rework/bug fixes, that the 2/3 you saved gets eaten up by dealing with all of that, and anything leftover doesn’t pay for the stress of it all.
  - bagels 4y ago
    It's possible the experiment fails. The gap has narrowed significantly though since everyone is remote.
  - hotpotamus 4y ago
    A quick look at a globe can tell you there are a lot cheaper markets in the same/close timezones to the US at least. Culture is obviously more nebulous, but it seems like something the US is better at exporting than any country as well. It's why I've long cautioned people about remote work - the work might end up more remote than they'd like.

HenriTEL 4y ago

I'd argue that 1. Software continues to be critical in any part of the economy. 2. People continue to spend more and more time online. So maybe many of the existing companies we work at will require less workforce but I don't see how the software engineers market can reverse in terms of offers/demand ratios anytime soon.