good guess Facebook.
incredible. Wall Street J. Great newspaper, opinion page is absolutely deranged.
some Shiite theology of the 13th century. from a paper by Shafique N. Virani, Hierohistory in “Qādî-I-Numan’s Foundation of Symbolic Interpretation (Asas al-Ta’wil): the birth of Jesus. ” I was trying to learn more about al-Tusi saving 200,000 books from the House of Wisdom and brought them to Maragheh and as usual got more than I bargained for.
somewhat grim headline in Bloomberg. If I had all the time in the world I might compose a history and exploration of the meanings and suggestions of the phrase “want fries with that?” My conclusion would be “French” fries are distinctly American, that “fry culture” is both good and bad, reflecting both our mobility and freedom and some our shortcomings, and that the economics of fries represent both the best of the capitalist system (cheap tasty calories distributed with efficiency) and the worst (exploitative labor system, nasty and unpriced effects on health and environment).
from a Martin Anderson oral history over at the Miller Center. Anderson was an aide to Reagan and wrote a very illuminating book on the man and the movement, one of the most revealing books on Reagan, in my opinion: Revolution. He’s a believer.
“I volunteered for a number of reasons,” he wrote in “We Seven,” a book of reflections by the original astronauts published in 1962. “One of these, quite frankly, was that I thought this was a chance for immortality. Pioneering in space was something I would willingly give my life for.”
(photo from NY Times / Associated Press)
Reagan not only had the sense of humor, the great jokes. I remember one time in the Oval Office he was looking out and there was a bunch of people chopping things and the forest rangers standing out on the South Lawn, and Clark says, Mr. President, Ken’s here to take you to the Situation Room or something. We were getting ready for the next round or summit or whatever it was. Reagan keeps looking out and this sound gets louder and he says, I hear you, Bill. Just wish I was doing what those fellows are doing instead of going to all these stupid meetings hours at a time.
I thought to myself, in the history of the United States, 200 years, we’ve had forest rangers who imagined themselves as President, but I can’t imagine a President imagining himself as a forest ranger before. Here he was, dying to be a forest ranger. Reagan was like that.
This reminded me of when I’d be sitting in my office on the 11th floor above the Ed Sullivan Theater grinding out some comedy for The Late Show with David Letterman, a cushy if psychologically taxing job, and find myself staring out the window and fantasizing about being a guy on one of the tugboats going up the Hudson.
Adelman seems to suggest this idea was unique to Reagan, but I bet almost every president has felt this way at one time or another. Although maybe not, maybe Nixon or LBJ would’ve been sick at the idea of falling to the state of a powerless treecutter.
One thing led to another and I read a long oral history with mining entrepreneur Stanley Dempsey. Here are some li’l nuggets of mild interest. On pursuing claims in Nicaragua:
on the mining boom towns of Colorado:
Sometimes, not being an expert is an advantage:
The 1872 Mining Law, which creates self-initiated rights, kind of unique to the United States, seems very important to this country’s development.
First, there’s mathematics. Obviously, you’ve got to be able to handle numbers and quantities—basic arithmetic. And the great useful model, after compound interest, is the elementary math of permutations and combinations. And that was taught in my day in the sophomore year in high school. I suppose by now in great private schools, it’s probably down to the eighth grade or so.
It’s very simple algebra. It was all worked out in the course of about one year between Pascal and Fermat. They worked it out casually in a series of letters.
so says Charlie Munger in his 1994 speech, “A Lesson on Elementary Worldly Wisdom as it Relates To Investment Management & Business.”
These letters between Pascal and Fermat sounded worth a read, so I went to check them out. The year in question was 1654. Up until that time, no one* had really worked out and set down the math of probability. You can’t blame them, if you think about it. Even in 1654 it was probably pretty hard to even get your hands on enough paper for working out math problems.
Struggling to really wrap my head around the contents of the letters (on top of everything, the first letter is now lost), I picked up The Unfinished Game: Pascal, Fermat, and the Seventeenth-Century Letter that Made the World Modern: A Tale of How Mathematics is Really Done by Keith Devlin. An interesting book and a great introduction to the mental blocks that had kept people from working out probability before these two weirdos started corresponding.
An even clearer articulation of the problem of points that set Pascal and Fermat to work can be found in Peter Bernstein’s Against The Gods: The Remarkable Story of Risk:
In 1654, a time when the Renaissance was in full flower, the Chevalier de Méré, a French nobleman with a taste for both gambling and mathematics, challenged the famed French mathematician Blaise Pascal to solve a puzzle. The question was how to divide the stakes of an unfinished game of chance between two players when one of them is ahead. The puzzle had confounded mathematicians since it was posed some two hundred years earlier by the monk Luca Paccioli. This was the man who brought double-entry bookkeeping to the attention of the business managers of the day, and tutored Leonardo da Vinci in the multiplication tables. Pascal turned for help to Pierre de Fermat, a lawyer who was also a brilliant mathematician. The outcome of their collaboration was intellectual dynamite. What might appear to have been a seventeenth century game of Trivial Pursuit led to the discovery of the theory of probability, the mathematical heart of the concept of risk.
Their solution to Paccioli’s puzzle meant that people could for the first time make decisions and forecast the future with the help of numbers.
Bernstein helpfully restates the problem of points in the form of a World Series situation. What is the probability your team will win the best of seven series after it has lost the first game? (assume the teams are, as in a game of chance, evenly matched)
Well, Pascal pointed out that we just need to list all the possible outcomes of the remaining six games, and calculate from there. There are 22 combinations in which your team would come out on top after losing the first game, and 42 combinations in which the opposing team would win. As the result, the probability is 22/64 = .34375
As Bernstein points out, there’s something here that trips a lot of people up, even Fermat. There aren’t really 64 possible outcomes, because why would we include possibilities like your team goes win-win-win-win-win-win for the remaining six games? The World Series would’ve been over after that fourth win. W-W-W-W-W-W is not a possible outcome of the remaining six games.
As Pascal remarked in the correspondence with Fermat, the mathematical laws must dominate the wishes of the players themselves, who are only abstractions of a general principle. He declares that “it is absolutely equal and immaterial to them both whether they let the [game] take its natural course.
So there you go. Win-win-win-win-win-win-win is one of the forked paths off win-win-win-win. It must be accounted for, or we won’t count the potential possibilities correctly.
Naturally enough I got bored with the math part and wanted to know more about the Chevalier de Méré. Who was this fun loving gambling nobleman who put two all-time math geniuses to work helping him win at dice?
Turns out he was a guy, named Antoine Gombaud, who dubbed himself Chevalier de Méré in his writing. Much of his writing was obsessed with the idea of honnête, and how to be l’homme honnête, which included honesty but also modesty, elegance, appropriateness, excellence, sociability. You can read all about it here in what appears to be an excerpt of Manning The Margins: Masculinity and Writing in Seventeenth-Century France by Lewis Seifert, a professor at Brown.
But still, how did this cool guy hook up with Pascal? Devlin says that the Chevalier and Pascal met at a gambling table. Pascal would go back and forth between somewhat extreme religious periods. During an early one of these, when he was getting pretty hard core, a doctor warned him off:
His doctor advised him that for the sake of his health, he should abandon the Jansenist ways and lead a life more normal for a young man. Although he would remain strongly religious for the remainder of his all-too-short life, Pascal resumed normal activities. Indeed, he did so with vigor, adding regular visits to the gaming rooms to his earlier academic pursuits. It was at the gambling table that Pascal met the Chevalier de Méré
Looking into this question of how, exactly, the Chevalier and Pascal met, I found a different, more detailed, and funnier, version. Here is the Chevalier de Méré himself describing how he met Pascal:
“I once made a trip with the Duke of Roannez, who used to express himself with good and just sense and whom I found good company. Monsieur Mitton, whom you know and who is liked by all at court was also with us, and because that trip was supposed to be a promenade rather than a voyage, we only thought of entertaining ourselves and we discussed everything. The duke was interested in mathematics, and in order to relieve tedium on the way he had provided a middle-aged man, who was then very little known, but who later certainly has made people talk about him. He was a great mathematician who knew little but that. These sciences gave little sociable pleasure, and this man, who had neither taste nor sentiment, could not refrain from mingling into all we said, but he almost always surprised us and made us laugh.” De Méré goes on to tell that Pascal carried strips of paper which he brought forth from time to time to write down some observations. After a few days Pascal came to enjoy the company and talked no more of mathematics.
so reports Oystein Ore, writing in the May 1960 issue of The American Mathematical Monthly (vol 67, No. 5, “Pascal and the Invention of Probability Theory”). Oystein Ore says:
Pascal and Fermat never met in person, which is kind of sad. In 1660 Fermat proposed that they meet, but at the time they were both too sick and miserable to travel very far. Within a few years they were both dead.
Pascal invented a kind of calculator, the Pascaline, but it was too expensive to produce them:
Late in life, in another religious phase, Pascal reflected on gamblers:
And that’s the story of Pascal and Fermat!
* it wouldn’t blow my mind if one of the great mathematicians of the Arab world had worked some of this out, written it down, and put a copy in the House of Wisdom in Baghdad, but most of those books were destroyed when Hulagu, Genghis Khan’s grandson, destroyed that city in 1258. Bummer!
for leisure he would climb a nearby hill, Roseberry Topping.
Cooks’ Cottage, his parents’ last home, which he is likely to have visited, is now in Melbourne, Australia, having been moved from England and reassembled, brick by brick, in 1934.
In 1745, when he was 16, Cook moved 20 miles to the fishing village of Staithes, to be apprenticed as a shop boy to grocer and haberdasher William Sanderson. Historians have speculated that this is where Cook first felt the lure of the sea while gazing out of the shop window.
Fantasizing about a trip to Hawaii, I was reading up on Captain Cook. This led me to the poem Five Visions of Captain Cook, by Kenneth Slessor. An excerpt:
Cook was a captain of the powder-days
When captains, you might have said, if you had been
Fixed by their glittering stare, half-down the side,
Or gaping at them up companionways,
Were more like warlocks than a humble man—
And men were humble then who gazed at them,
Poor horn-eyed sailors, bullied by devils’ fists
Of wind or water, or the want of both,
Childlike and trusting, filled with eager trust—
Cook was a captain of the sailing days
When sea-captains were kings like this,
Not cold executives of company-rules
Cracking their boilers for a dividend
Or bidding their engineers go wink
At bells and telegraphs, so plates would hold
Another pound. Those captains drove their ships
By their own blood, no laws of schoolbook steam,
Till yards were sprung, and masts went overboard—
Daemons in periwigs, doling magic out,
Who read fair alphabets in stars
Where humbler men found but a mess of sparks,
Who steered their crews by mysteries
And strange, half-dreadful sortilege with books,
Used medicines that only gods could know
The sense of, but sailors drank
In simple faith. That was the captain
Cook was when he came to the Coral Sea
And chose a passage into the dark.
Kenneth Slessor seems interesting; how many poets wrote about rugby for Smith’s Weekly? Maybe when I head to Hawaii I’ll bring a copy of Slessor’s 100 Poems.
I come back to pictures of Roseberry Topping. You picture Cook in the Pacific, encountering these wild exotic landscapes, but on the other hand this hill in north Yorkshire, doesn’t it look like it could be some outcropping in the South Seas?
That is Walter Hines Page. In the 1920s, two different Pulitzer Prizes in biography were awarded for books about him. He was a writer, editor, and publisher, his main historical distinction seems to have been helping bring the USA into World War I:
Page was appointed U.S. ambassador to the United Kingdom by President Woodrow Wilson, whom Page had befriended in 1882 when Wilson was a young lawyer starting out in Atlanta. Page was one of the key figures involved in bringing the United States into World War I on the Allied side. A proud Southerner, he admired his British roots and believed that the United Kingdom was fighting a war for democracy. As ambassador to Britain, he defended British policies to Wilson and helped to shape a pro-Allied slant in the President and in the United States as a whole. One month after Page sent a message to Wilson, the U.S. Congress declared war on Germany.
So far in the 2020s the only subject for a Pulitzer Prize-winning biography has been Susan Sontag.
George in Pennsylvania writes:
Steve, will you be doing another look at the coaches for this year’s Super Bowl, as you have in years past?
Yes! It’s not really my beat, but I find NFL coaches kind of interesting. Coaching at that level requires such a wild combination of skills: football strategy, time management, personnel management, and the best characters in the field have produced their own mini-pile of literature that’s worth review.
As noted last year, it’s great to have an LA guy, Andy Reid, in the Super Bowl.
Born in Los Angeles, California, Reid attended John Marshall High School and worked as a vendor at Dodger Stadium as a teenager. He also played youth sports in East Hollywood at Lemon Grove Recreation Center
John Marshall High School has a remarkable collection of alums, from Leo DiCaprio to Judge Lance Ito to Doctor David Ho. This ESPN profile / oral history begins with a nine year old Reid messing around on Holly Knoll Drive in the Franklin Hills of LA, familiar to anyone who frequents the nearby Trader Joe’s.
While attending BYU Reid did something most Americans have at least pondered at some point: converted to Mormonism. His career and life, not untouched by pain, is worth study.
This year, my attention turned to Tampa Bay’s Bruce Arians.
I took a look at Arians’ book, The Quarterback Whisperer.
Two themes really pop in the book: Arians’ “no risk it no biscuit” philosophy, and his belief in empowering his quarterbacks. A former quarterback and quarterbacks coach, he’s thinking from that position.
Arians mentions that he has about 300 plays in his book that he’s developed over about thirty years. (How much of a variation is necessary for a play to be truly distinct from another? Good question for the football Jesuits out there).
The need for the quarterback to maintain his psychological steadiness, even a steady appearance:
You don’t need to look far to find visuals of Tom Brady expressing frustration, but I believe they’re fairly rare.
If I read between the lines of Arians’ book, I suspect Brady will have a great deal of leeway to call the plays and control the game as he sees fit.
Denis Leary’s quote on the cover notwithstanding, I have to say Arians’ book is closer to Nick Saban’s book (a fairly straightforward set of inspirational mottos and somewhat generic success reflections, of not much use beyond football) than to Pete Carroll’s book (an entertaining and idiosyncratic attempt at forging a philosophy of life).
Arians has two women on his staff, assistant defensive line coach Lori Locust and assistant strength and conditioning coach Maral Javadifar, here’s a short NFL Films segment where they talk to Billie Jean King.
Both coaches are noted for their aggressive style, which will we hope make for an exciting and volatile game.
The Chiefs are favored by 3.5, if I were wagering I guess I’d have to bet on Brady, but sports wagering is not currently legal in California.
Lol it’s so typical of me to try and engage with sports by reading the books of the coaches!
Some of the behavior going on at WSB sounds more jihadist than speculative. The idea that there are some investors who are ‘good’ and others who are ‘bad’, or that there is an ‘establishment’ is BS. Everyone has the same goal: I have a pile of money, I’m trying to make it bigger, fuck your pile–I don’t care about it. Anything other goal is contrived, foolish and won’t help you win. You can’t ‘fight the rich’ by trying to become one of them. Don’t you see the irony? A related thought experiment: what if this trade continued to work really well? And another, and another? Then some WSBers are billionaires. Aren’t they the new ‘enemy/establishment?’
Who do you think hedge fund managers are? They’re typically the anti-establishment. Things have changed a bit, but the most successful HFMs are actually the WSBers of the past. These are guys who didn’t fit in well at i-banks, often got kicked out for having big mouths or not wearing the right ties, or just wanting to wear jeans at work and not fill out TPS reports. When they started their firms, people like Soros, Icahn, Steinhardt, Robertson, Cohen, Griffin, Loeb (who has posted anonymously on boards), Samberg, even Cramer were fish out of water and had very tiny amounts of capital, often begging for investors.
That’s from Martin Skreli’s blog, in prison.
Why has this story so gripped Hollywood? As far as I can tell no two characters in it were ever in the same room, or even ever spoke to each other out loud. What about it is cinematic? Then again, maybe you could say that about the origin of Facebook.
This is Amos Alcott, Louisa May’s father, fictionalized as Bob Odenkirk in the latest Little Women film:
from The Flowering of New England by Van Wyck Brooks, a vivid read. Imagine this man chowing down on strawberry potatoes:
One reason to be interested in the stock market is it can become a storytelling contest. Take the story of GameStop. There was a prevailing story, a sad story, that GameStop was Blockbuster all over again. Old mall stores, a dying dinosaur selling product that’s now online.
But then, people stood up and said, that’s not the story of GameStop. The story of GameStop is that yeah, it might need to change, but it’s not dying. It’s healthy. GameStop can live a long time. What’s more, it has real advantages, it just demonstrated some of them last Christmas. With clever thinking and fast action GameStop could succeed. It could even be big.
Then, in a place where people gather and share stories, an even more riveting story arose. A bunch of cocky suits have made arrogant bets on the old story of GameStop. They’re planning to feast on the carcass, as if they don’t have enough to feast on. But guess what. They’re not as smart as they think. There’s something they didn’t plan on. They wrote a check their ass can’t cash. If someone calls ’em on it? They’ll be ruined.
The power of this story became so strong that by now everyone’s heard it. Robinhood (and what story are they trying to tell? You’re out here saying you’re as good as Robin Hood?! Robin Hood, played by Errol Flynn, a Disney fox, Kevin Costner, and Picard?!) whose ball everyone was using had to declare a sudden rule change. Which every child knows is bullshit behavior and unfair.
Is that story true? Does it matter?
At some level there is truth to be faced. There are debts with dates on them and courts and legal power that will enforce them. But the value of GameStop, we’ve now seen, is a story that can be changed very quickly by compelling storytellers. The idea that the correct story is somehow already embedded in the stock price has been proven many times to not always be the case, no matter how many Sveriges Riksbank Prizes in Economic Sciences in Memory of Alfred Nobel are given suggesting such. (Note who gives that prize, by the way: a central bank, which has a vested interest, in fact its only interest, in maintaining a a steady, stable, version of the story of economics).
Sverges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel winner Robert Schiller didn’t miss this, he wrote a book about the power of stories:
(I’m working my way through it).
Oh and by the way money itself is a kind of story. Ever since 1971 when Nixon took the US dollar off the gold standard, money “floats,” money is an act of language, money is based on the story that the US government will honor the words on paper dollars and accept those for debts (which are themselves stories).
So, where does that leave us?
No idea, I’m riveted by the story. Who would add a jot to the GameStop discourse, it’s overwhelming! I can’t even keep up with Matt Levine, a great storyteller about these matters.
That’s Van Wyck Brooks, going off in The Flowering of New England about the generation of the 1840s.
the gist of which is that Oprah, Bill Gates, Sheryl Sandberg, and Whole Foods’ John Mackey sort of perpetuate a new version of the capitalist gospel rather than advocate for real or systemic change. But, you already knew that, didn’t you? Would it be more worthwhile to explore why stories of hustle and self-determination and drive remain so appealing to people despite the seeming fact that we’re trapped by oppressive and exploitative systems full of unfairness? Maybe that’s art’s job, not sociology’s.
Sometimes, calls get called. When the stock market becomes real, it becomes very real.
Consider the naked short, explained in this medium post, “GameStop: Power To The Market Players,” by Nope, It’s Lily:
If you’ve been anywhere in the trading universe, it’s been partly a meme and partly a higher calling to long $GME since about July/August 2020, when everyone suddenly realized the short interest on $GME actually exceeded its available float. In English, this meant that there were more shares sold short (a strategy to benefit from the stock price going down, this involves borrowing a share to sell with the intent to repurchase it at a lower cost later) than actually available to buy. How does this happen exactly?
This can happen one of two ways:
Naked shorting — This is a mostly illegal practice in which an individual or institution first sells shares without locating that they well, actually exist. This is fairly sneaky, but works as long as they can find the shares before the settlement period (delivery date) of the shares actually occurs. If they find it before then, no one is the wiser (except the SEC, when it decides to do anything ever).
Despite what idiots online believe, naked shorting isn’t always illegal (hence the word mostly). In particular, the ban on naked short-selling (Regulation SHO) isn’t because the government thinks you’re a meanie for doing it, but because of its hypothesized connections to the 2008 financial crash (actual data on it is mixed). In general, the belief was that naked short sellers helped destabilize investor confidence in the banks, leading to that fun period best remember by watching The Big Short accompanied by a full handle of Svedka.
Naked shorting, however, is legal by bona-fide market makers, which according to our SEC friends means simply it is done to hedge an option position sold (as part of market making duties, to buy and sell a security at publicly stated prices) rather than for speculation. If you want to read boring legal stuff, here’s a link to Regulation SHO.
Similarly, despite what your favorite rocket-emoji’ing internet guru believes, causing an actual short squeeze is hard, and almost always mostly illegal. The last public short interest (the next one should be released on January 27th, per FINRA reporting) on GME was released on Dec 31st, 2020.
Second bold mine.
I can’t say I understand the article. My first experience with this journalist. I’ll be interested to see what happens on January 27th.
The GameStop story is very compelling. Matt Levine’s take as always definitive. Comparisons to what Trump and Trumpians did to the GOP (and then the country) in 2016: an ebullient Internet-centered group of trolls realize there are tricks they can use to mock and demolish the establishment players, moving faster than the other guys can say “hey, what a second, that isn’t how we play!” The end result of that gleeful message board based takeover was (glances at Washington) huh looks like establishment people with 40 plus year careers are back in control of all branches after a brief reign of chaos (though they are rattled by what happened).
The Vibes Speculator
You hear about two schools of investing. Value investing, and growth investing. First, value investing.
Value investing involves generating a number for what a company’s intrinsic worth might be, comparing that number to the price the company’s shares are trading for on the stock market, and buying when there’s a discount (plus a margin of safety to account for the risk). You want to buy stocks that are cheap, on sale, and wait for their prices to return to what they should be.
Howard Marks, in his new memo “Something of Value” for Oaktree Capital, has a great definition of value investing, and we’re taking that as our text today. We would quote it extensively, but there’s a stern disclaimer on it. After an email correspondence with Oaktree Capital, I appreciate their denial of my request for permission to use lots of quotes in this piece.
We encourage third parties that are interested in sharing Howard’s memos with an audience to write their own summary/article about the memo and then link to the memo in its entirety on our website. Howard’s memos are meant to be read/viewed in their entirety and removing specific quotes can lead to them being taken out of Howard’s intended context. Also, as we operate in a highly regulated business, we are required to include our legal disclosures to Howard’s writings, and removing portions of his writing without the disclosures attached goes against our internal policies.
as Leia Vincent of Oaktree put it to me in an email. I see their point.
Check out Marks summary of value investing, paragraph four.
investing was pioneered by Benjamin Graham, whose teachings were transcribed by David Dodd, Graham taught Warren Buffett. There’s a lot to love about value investing. It’s bargain hunting. It almost feels virtuous. You must be rational to be a value investor. You must have emotional discipline as the market goes up and down.
Value investing is widely preached. Aswath Damodaran of NYU, who wrote a little book on the topic, will teach you on YouTube. Shawn Badlani spoke about his training as a value investor on episode 8 of my podcast, Stocks: Let’s Talk.
Value investing thinking has served Shawn pretty well. Every investor would be wise to study valuation.
As Marks acknowledges though, value investing has significant downsides. You’ve got to do a lot of calculating of discounted cash flow for one thing. Math, which is maybe not that hard, but tedious. There are computers, which can help you with the math. I like Guru Focus (you gotta pay to be a member) which can do shorthand estimates for you, like this one for Tesla:
but that can only get you so far, and it also reveals another problem. Value investing has imbedded in it both an attraction for the rational and a torture for them: stocks aren’t always trading for what they should be worth.
That is, their price isn’t always what it “should” be. That’s supposed to be an advantage, if you buy them when they’re cheap, and wait for the equilibrium that must come, when their true value will be revealed.
But what if that never happens? Consider the angst of Value Stock Geek, a smart writer on this subject. How long do you wait for the stock to achieve the correct price?
Not only that, but for all that math, you’re still just guessing! All your calculations are only as good as your inputs, some of which are guesses!
Plus, you’re competing against Warren Buffett, Munger, Aswath Damodaran, Shawn, Value Stock Geek, and literally one million other people. Wall Street has been sucking off physicists, computer scientists, “quants” of all kinds, taking them away from useful work and putting them into complex valuation shops. Their computers are faster, more powerful, and more expensive than yours, I guarantee. Their computers blow your puny computer out of the water. They’ve got an Alienware Aurora R11 with Intel Core i9 10900KF and an Nvidia GTX 1650 Super – RTX 3090, with 2TB M.2 PCIe SSD + 2TB SATA HDD and you’ve got an Epson 512K with 5.25 inch floppy disc. Who’s gonna kill if you’re playing Red Baron?
So much for value investing.
Then there’s growth investing.
The story of Marks’ memo is of how spending time during the pandemic with his son Andrew has opened his eyes to the second major school: growth investing. Marks memo describes how now he has his son Andrew living with him, and Andrew is opening his eyes to the thinking of a growth investor.
Growth investing is about assigning a valuation to a company that may not yet have shown its value, but whose growth, as measured by one metric or another, has a potential to grow into cash flows of great value.
Recently, growth chasing has worked out very well. The one quote I’ll lift from Marks:
the performance of value investing lagged that of growth investing over the past decade-plus (and massively so in 2020)
It’s easy to understand why that might be. The speed at which the fast growing companies grow is almost incomprehensible. In 2002 the so-called facebook at Harvard was a physical book the college handed out with pictures of faces in it. In 2020, eighteen years later, one young person’s lifetime, $FB has two point five billion people using it every month. Facebook has swallowed up billions of dollars in advertising, helped wipe out at least two thousand local newspapers, and influences world events, from elections in the USA to ethno-religious violence in Burma.
Scary stuff, if you’re an innocent citizen. Groovy if you’re a shareholder of Facebook (I am not).
Or take Amazon:
For a sense of scale, it took Amazon more than 14 years—58 quarters after its May 1997 initial public offering—to make, cumulatively, as much profit as it produced in the latest quarter alone. Keep in mind that Amazon consistently lost money for its first several years as a public company.
(first article when I Google “when did Amazon finally make a profit?” ) From Wikipedia:
The company finally turned its first profit in the fourth quarter of 2001: $0.01 (i.e., 1¢ per share), on revenues of more than $1 billion.
A traditional value investor would not have been into Amazon in 2001.
The endgame for growth investing is you grow so big you’re the biggest animal in the pond and you have no competitors, only, in this pond example, small frogs to amuse you, and minnows to tickle your feet, and perhaps birds, and someone (local villagers? customers?) just keeps bringing you food because they have to. Or even want to? Or because of a curse? The example fails at this point but you get the idea.
Picking those winners can be hard. You need to choose what metrics of growth to focus on. The important metric may not be how much money you’re making. This seems to defy logic and economics and years of Wall Street lore, but that is how the market has reacted. The word is out that even if a company is not only not making money but is losing more and more money, that can in some cases be fine, that can still be fine, as long as they’re swallowing market share.
(This has created some funny wins for the consumer, like MoviePass).
So: value and growth. Marks’ memo is lucid well-expressed thinking on how his thinking is evolving about the blend of these two schools.
i just read the memo and agree, it is really good. love the idea that value investing just means buying something for less than it’s worth, even if that thing you’re buying is a fast growing company with a high current p/e multiple.
Now, there’s also technical investing, which seems to be people studying candlestick charts, and then trying to reverse-divine the algorithms that make automated trading decisions in Flash Boys style scenarios. I admire these folks, and there’s probably something to it, but it’s not for me.
There’s also momentum investing, where you chase where you think the herd is going, based on anything from complex systems of pattern recognition to just what people seem to be talking about and what’s in the headlines. I used to study this school, and it’s very fun.
What I’d like to propose is a new school.
Vibes Investing we discussed on episode 7 of Stocks: Let’s Talk, with the legend Liz Hall.
We believe Vibes Investing has a bright future.
Is vibes investing even investing? Is growth investing investing? Most definitions of investing say something about “an expectation of achieving a profit,” or “a reasonable expectation.” What we’re talking about here may be something more like speculating. A different and perhaps equally noble pursuit.
The vibes speculator would not compete against the quants and the computers. The vibes speculator would look for signals the computer couldn’t see, invisible, unquantifiable signals. The vibes speculator would look for growth, but not according to any metric that might be spotted by a million growth investors. The vibes speculator would feel the growth.
I’ll have more to say on the topic of vibes speculating. I’ve considered launching a prestigious and expensive newsletter, The Vibes Speculator. Or perhaps a small book on the topic. I’m not sure if the book would be in the category “business” or “humor.”
If you control a budget at a well-funded company I’d consider giving a talk on vibes speculating for an extravagent fee.
If you have thoughts on vibes speculating, get in touch. It’s an exciting conversation.
(Disclaimer: none of what I say is investment advice of any kind. These are the musings of an enthusiastic amateur. If anything the sign that amateurs are talking about the stock market is a classic signal of a market top.)
In my hometown the bank building had a plaque on it, honoring Forbes McLeod, a policeman killed on Friday, Feb 2, 1934 in a gunfight with men robbing the bank. This bank robbery was considered of minor historical note as it was one of the first to involve machine guns.
The robbing of banks with guns has formed a theme of American movies possibly culminating in Heat (1995). What was the last good bank robbery movie? Before The Devil Knows You’re Dead (2007)? The Town (2010)? Has there been a good bank robbery movie in the last ten years? Who knows, maybe there will be another one soon.
The bank as “the place where the money is” has become less and less true. The bank buildings aren’t even impressive anymore. The bank as a physical place has become less significant.
If you have extra money, you have a good problem. What should you do with it*? “Put it in the bank” used to be a good answer. The money would be safe there. Even if the robbers took it, it would be covered. Right around the time Patrolman McLeod was killed, the Federal Deposit Insurance Corporation, FDIC, was formed.
Your money would be safe at the bank, and not only that, it would grow as it gained interest. Compounding interest is a powerful force, and this would be good. It was certainly better to put your money in the bank than to, say, take it to the casino.
However, many changes have happened since I was a kid being taken to the bank on a round of errands. These changes have happened very fast.
One change is that interest rates went down. And kept going down. This begins with the Federal Reserve Bank, and trickles down to your bank. The Federal Reserve is keeping interest rates down because it adds fuel (money) to the economy. Keeping money in the bank is a less good option as interest rates go down, so people don’t put money there, so more money flows around.
Another change that happened is that banks got deregulated**.
Restrictions on the opening of bank branches in different states that had been in place since the McFadden Act of 1927 were removed under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
for instance. Conglomeration, mergers, big national and international banks could expand.
Deregulation also meant that banks got more and more freedom to take their deposit money and make all kinds of risky trades, hedges, and hedges of hedges with it. What the bank does now is bundle up money and take it over to the casino.
Sensibly enough, you may wonder if you should stop putting your extra money in the bank, and instead put it in the casino yourself.
Imagine a casino. Grand and intimidating. No one robs the casino, except Danny Ocean, and only when he has exactly the right ten for the crew, and that’s just in the movies. You don’t rob the casino because the casino is not screwing around. The casino might look funny on the outside, but that’s a trick. The casino is a machine to get as much money flowing through it as possible, and take some of the money.
The casino may look kind of appealing, especially when you keep seeing rich people walking out of it. But the casino is deadly serious. They wear suits in this casino. To even be allowed into the casino, you have to talk to a guy, maybe pay a fee.
Once you are inside, the casino is full of sharps. Some of the sharps are very, very rich. The players in the casino speak in sophisticated language that’s hard for you to understand. But if you can figure out the terms, you can place a bet on almost anything.
To place a bet in this casino is not free. The fee for a bet is about $8.95. Not only that, but many of the bets themselves are in significant amounts. There are bets you can make for a dollar or pennies (plus the fee). But some of the most popular bets are in minimum amounts of a hundred or even a thousand dollars.
These rules made this casino seem like something more serious and significant than like a casino casino, a Las Vegas casino. But just because this casino is on Wall Street doesn’t mean it’s not a casino.
Then, pretty rapidly, the rules of the casino change.
First, they get rid of the guy you need to talk to just to walk in. Now, you don’t need to talk to anybody. And there’s no cover. You don’t need to talk to anybody to place a bet. First they let you do that on your computer, and then when phones got good enough, they let you do it on your phone. There’s still a physical casino, but it’s sort of just for stock photos and background footage now. The casino is now totally online.
Next, the casino gets rid of the cost to place a bet. Now, there is no fee. Placing a bet is free.
Not only that, the casino starts marketing itself to young people, with colors and buttons. The online betting interface gets easier and easier. You can play in the casino as if it’s just another app on your phone, as easy to use as Instagram.
Just to eliminate one last hurdle the casino gets rid of the idea of minimum bet amounts. Now, you can do fractional bets, with however much money you have.
Very fast, the once grand and intimidating casino has changed, and now is more or less just an app where anybody place a bet on anything in any amount with no fee.
What happens to the casino, after these changes?
I don’t know, I’m trying to figure it out.
Are the old casino sharps inside happy? Or sad?
Maybe they’re happy at first – hey, lots of dumb money. But then they are overwhelmed. The dumb money changes the logic of the casino.
Do the sharps take their money to a new casino? Maybe even a secret casino? Do they band together and create alliances, even if this is technically against casino rules? Do they come up with new side games and bets?
I truly don’t know.
The friction that kept money from the casino and steered it to the bank has been eliminated. The safe and steady returns that lured money to the bank and away from the casino have been reduced. The bank and the casino are in business together now. Have the bank and the casino merged? They certainly flow together. Money is flowing from the bank to the casino, sure as sun follows moon.
It cannot be an accident that our outgoing president is a former casino operator. The president before him and the president before him and the president before him (who was raised in a casino town) were all surrounded, advised, and funded by leaders of the effort to merge the bank and the casino.
The incoming president was a senator from Delaware for almost forty years. Delaware is actually a real place: it has a population a little less than half that of San Bernardino County, 1/39th that of California. But legally what Delaware is is a jurisdiction for favorable rules for large-scale bank, casino, and bank-casino corporations.
Over half of publicly traded corporations listed in the New York Stock Exchange (including its owner, Intercontinental Exchange) and 60% of the Fortune 500 are incorporated (and therefore domiciled) in the state.
The bank and the casino may physically exist, somewhere, in a strip mall or a tall anonymous building, on Wall Street or in Delaware or in one of many downtown streets with big anonymous buildings, but it doesn’t matter. The bank and casino are all on your phone now.
What happens now?
I don’t know, I’m trying to figure it out.
My second-best speculation is to bet on the casino itself, because the federal government has revealed that one of its major goal if not its only true goal is keeping the bank-casino’s business growing.
My best speculation is that something totally unpredictable will happen. Rapidly growing complexity will have effects no one can predict, this is the lesson of both Jurassic Park and the Nicholas Nassem Taleb books. What happens when stuff like this starts happening?:
No one can predict, it cannot be modeled. After the fact there will be some sage identified who saw it all coming. If there are a million guesses, at least one will later appear kinda right. But it doesn’t really matter. No one can know with any confidence what will happen in such a system.
There could be a panic at the casino. Consider Larry McMurtry’s memory of a stampede he saw as a boy. He was helping to drive about one hundred cattle down an asphalt road:
Men, horses, and cattle were all drowsy, the herd just barely plodding along, until one cow happened to drag her hoof on the rough asphalt, making a loud rasping sound. In an instant that sleepy herd was in full flight, and our horses too. A single sound on a summer afternoon produced a short but violent stampede. The cattle and horses ran full-out for perhaps one hundred yards. It was the only stampede I was ever in, and a dragging hoof caused it.
A dragging hoof can cause a stampede, on a Texas farm-to-market road, or at the bank-casino. There doesn’t have to be a good reason.
Disclaimer: not investment advice, duh. I’m an amateur musing here.
* Jesus had a simple answer that solves this problem.
** in The Uprising: On Poetry and Finance, by Franco “Bifo” Berardi (semiotext(e), 2012) it’s claimed that the word deregulation was “first proposed by poet Arthur Rimbaud, and later reculced as a metaphor by neoliberal idealogues. Dérèglement des sens et des mots is the spiritual skyline of late modern poetry.”
You can read it for yourself.
In the assessment of medievalist Nora Chadwick, “the tale is told with brilliant narrative power”: its terseness, humour and laconic brevity is reminiscent of the best of the Icelandic sagas. The dialogue is particularly masterly in its “understatement and crisp repartee”, with “the utmost condensation and economy” in its choice of words. “[I]n the few remarks made by Mac Da Thó to his visitors, all his previous train of thought, all his cunning and address, are suggested in a few brief words intended by him to hide his true designs from his guests, while suggesting to ourselves his hidden intention.”
Maybe. In my reading it’s sorta like a Three Stooges episode but more violent? “a prankster amuses himself by screwing with guests at a barbecue,” might be the logline.
In “an imitable passage of compressed humour”, Mac Da Thó promises the dog to both parties, then feigns ignorance when both arrive on the same day. During the bragging contest, the heroes of the Ulaid are not merely shamed, but are made to look ridiculous. Hyperbole is used to humorous effect when Conall flings the head of Ánluan at his opponent Cet. Thurneysen notes that in the Harley 5280 manuscript “the mutual slaying of the guests” is referred to as “‘performing a good drinking round'” (so-imól) – a “somewhat coarse joke” that was revised or omitted in the other manuscripts because apparently the copyists did not understand it.
What I like about the story is the cauldrons:
There were seven doors in that hall, and seven passages through it, and seven hearths in it, and seven cauldrons, and an ox and a salted pig in each cauldron. Every man who came along the passage used to thrust the flesh-fork into a cauldron, and whatever he brought out at the first catch was his portion. If he did not obtain anything at the first attempt he did not have another.
Kind of a claw game/stew. There should be a restaurant that does this. After the pandemic, maybe.
A man worth study.
At which point I discovered that there was a war about to explode on the scene for control of TelePrompTer between Cooke and Irving, and so I passed on the opportunity and Hub Schlafly ended up getting stuffed into that job for a while. Then I got an inquiry from Steve Ross at Warner and did I want to go do that? And unfortunately, the first thing I would have had to have done is have a difficult posture with the fellow that they had just bought a big company from and I didn’t really like that too much. Plus, the other issue there was New York headquarters. And while Steve said, “Well, you can live in Connecticut and have a limo” and all that kind of stuff, I didn’t think that was the life I was looking forward to. And then the third guy was Bob Magness, who was out here in Denver and Bob was just an intriguing kind of a guy and TCI was my kind of a company. They were so broke at the time that Bob used to say, “We’re so broke we’ve go to look up to see bottom. Lower than whale shit.” Very colorful expressions, but it was the opportunity I thought, in my mind, to get the family out of the New York metro and into clear and clean and beautiful Colorado, and so that’s the direction that… Oh, I took a 50% pay cut and agreed to buy a bunch of stock, which turned out to be underwater, very quickly, before I even got on the scene, but that brought me out to Denver. But they were guys that I had gotten to know over the prior couple of years – Sparkman and Bill Brazile and Carter Paige and Larry Romrell, Donne Fisher and I kind of liked them. I liked the attitude, it was a laid back kind of group.
from this conversation with Trgyve Myhren at The Cable Center
The first thing you learn is, once you make a guy rich, don’t expect them to work hard. Very unusual people do that.
How about this, from a 2012 lecture at the University of Denver:
I think the best example of vertical integration is, for instance, I get a phone call from Rupert Murdoch. He says, “CNN exists. I’ve got a company called News Corporation. I would love to have a cable television news channel in the United States. What do you think?” I say to him, “There’s probably room for another one, but you got to come down in terms of your political posture, a little bit to the right of center because CNN is going a little bit to the left of the center.” In the opinion of certainly people on the right [inaudible 00:19:32]. He says, “I think that’s great. Will you help me? i.e., will you invest with me?” and so we say, “Yes. What do you want us to do?” He said, “Why don’t you A, agreed to distribute our channel. B, I want you to go see if you can recruit Rush Limbaugh to be on my channel because I know him. C, how about 20% of this thing if it works?”
We launched Fox News Channel. We own 20% of it. We distribute it. He programs it. We take relatively little risk because we don’t put any money up. What we agreed to do was carry the channel, pay a fee per customer, an affiliate fee. It depends on him to do a good job of promoting it and creating. We end up owning 20% of what turns out to be a valuable asset. That’s the most no-brainer of the things you can do.
There was a company called BlueMountain, traded for one and a half billion dollars, zero revenue. It was in the online greeting card business. You could go to BlueMountain and you could download a greeting card and you could send it off to your friends. It was free; had lots of traffic; never made the transition to economic viability. The Internet world was full of those bubble phenomenon, vaporware companies, we called them. They came and they went.
MCN: What about the threat of over-the-top players such as Netflix?
JM: I don’t know. I mean his (Netflix CEO Reed Hastings’) business model, of course, was to buy flat into the future and hope he grows into it. And if he doesn’t grow he’s got serious cash flow problems facing him. His stock has reflected debt, to some degree. I mean he’s got what, a couple-billion-dollar market cap? But that’s pretty low for 24 million subs.
I don’t see how Reed gets scale. That’s the curse for him. I mean he needs 40 million to 50 million households. I don’t see how he gets it if it’s split four ways.
MCN: Do you think Netflix, or any over-the-top player for that matter, can be a true competitor to cable?
JM: It all has to do with access to content. It really is about access to content.
The content that people care about, the content that will really move people, is pretty much controlled by big programmers like Disney, who are not about to shoot themselves in the foot. And so they are going to exploit it across all platforms in a very orderly and well thought through way. You know, right now cable has been a very effective monetization scheme for cable networks …
I was screaming at the Discovery [Communications] guys and the Starz guys about don’t shoot yourself in the foot with your Netflix thing. And ultimately, of course, Starz pulled back and Discovery was able to do a limited extension. Reed’s money is good, but I don’t know if he’s got a business model that really works for him.