From Whitney Tilson’s latest email to investors – also see this post (and chart related to Bitcoin updated), this post related to Hertz activism, and this post about the fund closure

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I feel like I’ve been drinking from a firehose since my decision to close my funds two days ago became public
Hundreds of people have emailed me and, while there were a couple of nasty gravedancers (haters gonna hate!), I’ve been overwhelmed by the kind words from so many people.

It’s been particularly heartening to hear from so many young investors I’ve tried to help over the years – I’ve received dozens of emails along the lines of what my friend Alex Rubalcava posted on Twitter: https://twitter.com/alexrubalcava/status/913428918526447619. I really enjoy meeting new people, especially those who share my passion for value investing, plus so many people have helped me over the years, especially when I was first starting out, that I’ve always felt the obligation to pay it forward. I want to give a special shout out to Warren Buffett, Charlie Munger, Seth Klarman, Bill Ackman and Joel Greenblatt (who allowed me to sit in the back of his class at Columbia Business School in the spring of 2000 as he taught value investing at the peak of the internet bubble) – and there are many others. Thank you! I stand on the shoulders of giants.

 

The press coverage has been about a kind as one could hope (see articles in the WSJ and NY Post here and here) – I even made the front page of the WSJ yesterday – I wish it had been for better news!

2) Speaking of bubbles, I don’t think we’re in one across the broad U.S. stock markets – but valuations are quite high, as this chart shows (hat tip: Doug Kass):

3) A very interesting article, Mass Psychology Supports the Pricey Stock Market, www.nytimes.com/2017/09/15/business/stock-market-mass-psychology.html. Excerpt:

Canny stock investors are like judges in a quirky beauty contest. They aren’t looking for real beauty but for qualities that other people believe still other people will find beautiful.

That was the observation of John Maynard Keynes, who suggested that investors do not actually make money by picking the best companies, but by picking stocks that waves of other traders will want to buy.

 

Investing, in other words, is an exercise in mass psychology.

 

I’ve spent decades studying it, and believe that one way to predict future market moves is to sort through the narratives that sweep through the population and influence decisions on whether to buy or sell. Such an analysis is a matter of art as much as science, however. Getting it right is crucial in the United States right now, because stock market valuations are already high enough to be worrisome.

 

But are investors primed psychologically for a major decline in the stock market, or are they likely to keep bidding up stocks for some time to come? Those are critical questions.

…So where are we today?

Mass psychology appears to be in a different, calmer place. Investors do not seem to have the concern they had in 1929 or 2000 that other investors might suddenly sell their holdings and get out of the stock market.

That said, speculation based on excessive lending is a worry, the newspaper database indicates, but less so than in the previous periods. References to tulipomania have been appearing from time to time, but widespread fear that we might already be immersed in a speculative orgy is simply not evident. And while there have been articles this year about the boom in so-called FAANG stocks (Facebook, Amazon, Apple, Netflix and Google), the database indicates that this issue is minimal compared with the attention given in the late 1990s to the dangers of dot.com stocks.

4) An insightful NYT article on how Best Buy was able to turn itself around and compete with Amazon (for now anyway – I think they get crushed eventually). Best Buy’s Secrets for Thriving in the Amazon Age, https://nyti.ms/2y9GNBv. Excerpt:

 

Many people, myself included, assumed that the entire big-box retail sector would eventually fall under Amazon’s steamroller. I knew Best Buy had spent the past several years playing defense against Amazon, finding some initial success by cutting costs and reducing prices to match its online rivals.

 

But Best Buy’s rebound has been surprisingly durable. Revenue figures have beaten Wall Street’s expectations in six of the last seven quarters. The company’s stock price has risen more than 50 percent in the past year. Workers are happy. And judging from several other visits I paid to Best Buy stores, the chain appears to have avoided the bleak fate of other big-box retailers.

 

How do they do it?

 

To find out, I called Hubert Joly, Best Buy’s chief executive.

 

An upbeat Frenchman who spent more than a decade at the consulting firm McKinsey & Company, Mr. Joly, 58, explained that Best Buy’s turnaround was years in the making, and that it involved reshaping nearly every piece of the business. It’s a fascinating playbook for companies

 

Here are the keys to Best Buy’s turnaround, according to Mr. Joly:

 

5) Roddy Boyd raises some good questions about DaVita – yet another medical/healthcare/pharma company scamming us all? DaVita Inc.: Warren and Charlie’s Excellent Insurance Gambit, http://sirf-online.org/2017/09/22/davita-inc-warren-and-charlies-excellent-insurance-gambit. Excerpt:

 

The company’s finances, according to a Southern Investigative Reporting Foundation accounting analysis, appear to be massively levered to an opaque non-profit, the American Kidney Fund, that may provide up to half of its operating profits. They should define HIPP as a “gravy train,” albeit one perhaps soon to be modified by the word “imperiled” as a combination of civil litigation and regulatory shift poses an existential threat to this cozy relationship.

 

6) John Oliver with a segment on how antitrust regulators have become toothless and allowed too much corporate consolidation: https://youtu.be/00wQYmvfhn4

 

7) What a sobering article on the front page of the NY Times – and it’s not just Brazil, nor just developing countries. The effects of this are particularly pernicious in America’s inner cities. How Big Business Got Brazil Hooked on Junk Food, www.nytimes.com/interactive/2017/09/16/health/brazil-obesity-nestle.html. Excerpt:

 

Nestlé’s direct-sales army in Brazil is part of a broader transformation of the food system that is delivering Western-style processed food and sugary drinks to the most isolated pockets of Latin America, Africa and Asia. As their growth slows in the wealthiest countries, multinational food companies like Nestlé, PepsiCo and General Mills have been aggressively expanding their presence in developing nations, unleashing a marketing juggernaut that is upending traditional diets from Brazil to Ghana to India.

 

A New York Times examination of corporate records, epidemiological studies and government reports — as well as interviews with scores of nutritionists and health experts around the world — reveals a sea change in the way food is produced, distributed and advertised across much of the globe. The shift, many public health experts say, is contributing to a new epidemic of diabetes and heart disease, chronic illnesses that are fed by soaring rates of obesity in places that struggled with hunger and malnutrition just a generation ago.

 

The new reality is captured by a single, stark fact: Across the world, more people are now obese than underweight. At the same time, scientists say, the growing availability of high-calorie, nutrient-poor foods is generating a new type of malnutrition, one in which a growing number of people are both overweight and undernourished.

 

“The prevailing story is that this is the best of all possible worlds — cheap food, widely available. If you don’t think about it too hard, it makes sense,” said Anthony Winson, who studies the political economics of nutrition at the University of Guelph in Ontario. A closer look, however, reveals a much different story, he said. “To put it in stark terms: The diet is killing us.”

 

…There are now more than 700 million obese people worldwide, 108 million of them children, according to research published recently in The New England Journal of Medicine. The prevalence of obesity has doubled in 73 countries since 1980, contributing to four million premature deaths, the study found.

 

The story is as much about economics as it is nutrition. As multinational companies push deeper into the developing world, they are transforming local agriculture, spurring farmers to abandon subsistence crops in favor of cash commodities like sugar cane, corn and soybeans — the building blocks for many industrial food products. It is this economic ecosystem that pulls in mom-and-pop stores, big box retailers, food manufacturers and distributors, and small vendors like Mrs. da Silva.

 

In places as distant as China, South Africa and Colombia, the rising clout of big food companies also translates into political influence, stymieing public health officials seeking soda taxes or legislation aimed at curbing the health impacts of processed food.

 

8) A funny Buffett quote I hadn’t heard before (hat tip: Doug Kass): "A bull market is like sex. It feels best just before it ends." (Speaking of Buffett, here’s a fun one-minute video of him doing a duet singing The Glory of Love with Stevie Wonder at a Forbes party: www.youtube.com/watch?v=QLabjHyHRok)

 

9) A friend of mine sent this, which finally prompted me to get off my a** and put a security freeze on my credit report. It took less than five minutes and the companies have waived their fees (for now) so there is no cost at all! [Update: apparently there is a cost ($5 or $10) charged by one or more of the three companies for residents of some states - grrrrrrr!]

 

As you may have read, credit reporting company Equifax reported a data breach that could affect 143 million U.S. consumers. Cybercrime is becoming more prolific every passing day so it is important to protect yourself. I am reaching out to suggest that you consider freezing your credit. To do so, go to the websites (or, if necessary, call) each of the nationwide credit reporting companies (to repeat, you must contact each of them individually):

 

Equifax (800-349-9960): https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp

 

Experian (888-397-3742): https://www.experian.com/freeze/center.html

 

TransUnion (888-909-8872): https://freeze.transunion.com/sf/securityFreeze/landingPage.jsp

 

You will need to provide your personal information.

 

After receiving your freeze request, each company will provide you with a unique PIN, which you will need to lift the freeze (for example, to refinance your mortgage or take out a new credit card).

 

By freezing your credit, it will block anyone from accessing your credit, which should, for example, prevent thieves from taking out credit cards in your name.

 

Precaution is the best way to approach these uncertain times and it is important to take control of what you can.

 

I hope you find this information to be helpful.

 

10) My middle daughter Emily started college at Wake Forest last month and everything so far has gone fabulously well – with one glaring exception: her experience with Zipcar. Her initial three experiences with the service were such total debacles that I helped her write a complaint letter to the company (see below), which she sent to the CEO of Avis (which owns Zipcar), the CEO of Zipcar, the head of customer service, and a few others – and all she got back was a form letter promising her a $50 credit, which, to cap it all off, she still hasn’t received three weeks later. You can’t make this stuff up!

 

September 8, 2017

 

Mr. Larry D. De Shon

CEO

Avis Budget Group

 

Dear Mr. De Shon:

 

I signed up for Zipcar last week when I started my freshman year at Wake Forest University in Winston-Salem, NC. Alas, my three first three experiences with your service this week have all been disastrous – so much so that I wanted to share it with you directly before I posted this to social media.

 

I booked a car for Monday afternoon to run some errands, but when I went to pick it up, it wasn’t there. When I called customer service, they weren’t able to help – the woman I spoke with had no idea where my car was, nor would she book another one for me. The best she could do was give me a $9 credit.

 

I tried again, booking a car for Tuesday afternoon. This time it was there, but when I got in and started it, I saw that the tank was completely empty and the indicator showed zero miles. I once again called customer service and the woman told me that this car had some electric charge left so I should drive it to a gas station to fill it up. She wasn’t sure how much charge was left, however, so it was with great trepidation that I drove to the nearest gas station more than a mile away (it was pouring rain and I had visions of being stuck by the side of the road).

 

Luckily, the car made it to the gas station, but when I went to fill the tank I discovered that your gas card didn’t work. Since your customer service rep had only extended my car time by 30 minutes, I didn’t have time to deal with the messed up card so I ended up paying with my personal credit card (I have attached an image of the receipt). At that point, the car ran fine and I was finally was able to complete my errands.

 

I tried your service yet again yesterday. This time, when I got to the car, the card wouldn’t unlock the vehicle (it made a beeping noise, but wouldn’t open). I called customer service again and was told to go to a new car in a different location on campus. This car initially worked fine, so I was able to run my errands and then returned to my dorm to unload my purchases, parking the car for no more than a few minutes.

 

Unfortunately, when I returned to the car the battery indicator and a few others were blinking red and it wouldn’t start. Yet again, I had to call your customer service, which called an auto shop for me, but said it would take up to an hour for them to come. While I waited, I called the campus police and when the officer showed up and checked out the car, he said it wasn’t a battery problem, but couldn’t fix it. Similarly, when the guy from the auto shop arrived, he couldn’t figure out what was wrong with the car either, so he towed it back to the Zipcar spot.

 

In summary, all three of my initial experiences with Zipcar have been total debacles, with five major failures (all of them new and different!). This wasted hours of my time and caused me great stress, which isn’t what I needed in my second week of college. Needless to say, I am extremely disappointed with Zipcar right now.

 

Sincerely yours,

 

Emily Tilson