Whitney Tilson’s email to investors discussing the college cheating scandal; JetBlue & Alaska airlines; Tesla; thoughts on rich kids.
1) In my last email on Friday, I got a lot of nice feedback on my reflections on the college cheating scandal (including vintage pictures of me with Bill Ackman and my wife), but it was buried at the end of the email, so if you missed it, check it out (I also posted it on Facebook here).
Q4 hedge fund letters, conference, scoops etc
In it, I included my favorite Harvard joke (How many Harvard guys does it take to screw in a lightbulb?), which led someone to send me another one: How can you tell that somebody went to Harvard? No need – he’ll tell you!
Ah, the best humor is rooted in truth – LOL!
As you can imagine, the late-night comics are having a field day with the scandal. This one from The Daily Show made me laugh out loud: Michael Kosta Makes the Case for College Bribery. This movie clip of Alec Baldwin did as well.
At the end of this email are further thoughts on rich kids…
2) I also discussed JetBlue in Friday’s email, but forgot to include the link to the five articles I wrote about the airline in 2003, which set me up to buy the stock a dozen years later and triple my money – here it is.
JetBlue is doing something smart that I haven’t seen on any other domestic airline: having a free open snack and drink bar. This is what it looks like:
It’s super customer friendly – just get up from your seat and take whatever you want, whenever you want.
3) I’m on an Alaska (ALK) flight right now to Baltimore from San Francisco, where I spent the weekend with my cousins, in what is becoming an annual tradition (I posted pictures on Facebook here).
I haven’t flown Alaska in years, but like what I see: comfortable leather seats, electric plugs and video screens at every seat, and good snacks – especially the barkTHINS chocolate, which I love. But I still give the edge to JetBlue due to its snack and drink bar and the free high-speed wifi (vs. $17.95 for slower Gogo, which I’m using right now). And for those of you lucky enough to fly first-class, JetBlue’s Mint crushes what I saw of the first-class cabin on this flight.
I took a quick glance at the stock. At 0.9x trailing revenue, 6.5x EBITDA and 15.8x P/E, ALK doesn’t look especially cheap – and you MUST buy airline stocks cheap.
I always keep in mind what the CEO of Mesa Airlines, Jonathan Ornstein, told me more than 15 years ago: “You can’t own airline stocks; you can only rent them.” (He went on to prove the truth of this, as Mesa later went bankrupt… Believe it or not, it’s now public again under the ticker MESA – and he’s still the CEO!)
4) Someone posted a well-articulated short thesis on Tesla on ValueInvestorsClub. It’s a private site, but someone posted it on Twitter here.
5) Anton Wahlman published a new article yesterday, Elon’s Last Days, on the SEC's increasing pressure on Tesla and its CEO Elon Musk. I have read plenty of letters from the SEC, and this one REALLY stands out for its angry tone. Summary:
- The SEC’s February 26 letter to Tesla’s lawyer is devastating.
- It says Tesla is not responsive to its previous questions.
- It also asks new probing questions, all pointing to new lines of attack and aggressiveness.
- The key going forward will be if the Tesla board of directors feel like they may be subject to personal liability.
- If that equation flips, they may have to force Elon Musk away from the Tesla CEO position -- or more.
6) Never let it be said that I don’t present the bull case on Tesla. Another friend wrote:
Critics are completely off base about Teslas being poorly built, in the shop all the time, etc... I've had mine for almost 4 years and 56,000 miles and it only goes in for regular (every 12,500 miles) maintenance and virtually zero issues.
I hardly recognize the Tesla your friend is describing. And living in Westport, CT, which I believe still holds the record (at least pre-Model 3) for the most Teslas per capita and knowing so many people who own them, love them and don't have any of the issues he described ... kind of wondering what his agenda is. BTW .. I know Jags no longer have their incredibly well deserved reputation for spending weeks/months in the service department and were so unreliable back in the day that many owners had corvette engines installed to replace the factory issued "engine" from Jag ... so I couldn't help but chuckle when he made reference to Teslas in the service department with a direct comparison to Jaguar.
Yes, there is a lot of competition coming and as you've accurately pointed out, Tesla has challenges that go beyond the car (balance sheet, etc.). The question is will the explosive growth predicted for EVs more than compensate for the additional competition. And I suspect that these new entries into the world of Electric vehicles will have their own bugs to work out. And that's coming from a multi-decade Audi owner (still have a Q7 for my wife) who has a lot of respect for the brand but remembers the struggles they had with their aluminum engines (the 100 series) .. and that little issue with the cars accelerating like the 737 MAX that almost put Audi out of business at one point. And then there's VW and their emission scandal ... etc., etc.
Tesla's charging network advantage is HUGE ... without it you simply can't take road trips in all the other EVs on the market unless you want to spend four or five hours on the side of the road charging (versus 35-60 minutes at a SuperCharger) ... and yes, eventually that will no longer be a competitive advantage. In fact, God forbid Tesla goes down, the consortium should make an offer to buy the SuperCharger network and convert it to work for all cars. That would be a huge jump start. In the meantime, building out that network (like the one they have in Europe) will take longer than they think. In the meantime, their EV's will be great "second cars" as long as you have something else in the garage to visit your ski house in Vermont or place on the Cape.
I could go on ... and believe me, if Tesla folds or is purchased by some company that screws it up, I'll be heartbroken. But no matter what happens they've changed the automotive business forever ... and having owned a lot of fun cars including my beloved Porsche 911 ... owning and enjoying my Tesla has been a great experience .. one I hope to enjoy for many years to come.
Thanks for all the ink on the topic.
This only scratches the surface of the great stuff I sent to my Tesla-only email list over the weekend. You can sign up for it by sending a blank email to [email protected].
7) Turning back to the college cheating scandal, I thought this Facebook post was thought-provoking, though mostly inaccurate. Excerpt:
I’m gathering from my feed that this whole college admissions scandal is really shocking to a lot of people.
Well, sit down, babies, because I’m about to deal you a hard blow.
This is nothing.
I think a lot of people seriously have no idea how thoroughly the system is rigged. I spent several years as a for-hire writer who couldn’t afford to turn work away. This means I accepted a lot of jobs I feel icky about now, but it also means that I’ve seen firsthand how this all shakes out.
…See, getting little A$shole McGloatyFace III into Harvard is just the first domino en route to prestige and pedigree. That’s why it’s so important; the first domino starts the chain. The richest of rich parents get him there by donating a library collection or buying a building. The middling rich, like those in today’s story, cheat (and don’t for a single second think the people indicted today are the only ones, because they are not, not, not).
The lowly rich hire people like me to write their kids’ essays and letters, pull together their resumes, and figure out how to make years of abject mediocrity sound good.
So are rich kids mostly spoiled, incompetent nitwits who don’t deserve the top colleges they attend and successful careers they have?
Based on my four decades of experience and observation, I don't think so.
Though I don’t come from money (my parents are teachers who were among the first couples to meet and marry in the Peace Corps in 1962), I have lived full-time in the world of big money and elite schools ever since I left public schools after sixth grade. We were living in rural western Massachusetts and my parents didn’t like what they saw at the local public high school, so they sacrificed to send me to a elite private school, Eaglebrook, for two years, before I continued on to Northfield Mt. Hermon (the prep school both my parents worked at), Harvard, Harvard Business School, the hedge-fund world, the Upper East Side of Manhattan, etc.
Among the thousands of privileged folks I’ve met over the years, there have for sure been a few undeserving bozos. But while it feels good to take shots at them, it would be wrong to assume that they are representative of the whole. In fact, I believe that the vast majority are the opposite: they have taken the gifts that their parents gave them (a secure, supportive loving environment every day of their lives, never a concern about money, the best private schools, trips to see the world, after-school enrichment programs, coaches/tutors, summer camps, etc.) and have taken full advantage. They have all three things that Warren Buffett talks about looking for in people: they are incredibly smart and competent, work super hard, and have very high integrity (as for the 33 parents indicted in the cheating scandal who obviously don’t have high integrity, keep in mind that the plural of anecdote is not data).
A friend of mine captures this well in an email he sent me:
What all the articles decrying the disproportionate amount of children of the very rich in Ivies misses is this: being rich actually can make a kid smarter.
Think about it. Long before some parents bribe the system to get underachieving Johnny or Sally into Harvard, wealthy families provide what everyone knows are the experiences that make kids smarter: the best preschools, elementary and high schools, mind-expanding travel, exposure to other bright people, growing up in an environment of high expectations.
So despite the "dirty 30" caught in the sting, the rich do get richer honestly. The vast majority of those rich kids rightfully earn their way into the top academic colleges.
Is it fair to those who come from disadvantaged backgrounds? Of course not because the luck of the draw had them landing in families who could not provide those advantages. But if a kid, having had all the advantages that growing up in a high-achieving, financially able family can provide, rightfully earns his/her place at the top universities, should we punish him or her?
Look, we all know that there are lots of ways to beat the system and get your kid into Harvard, and I am not defending those one bit. But I also don't want this scandal to cast a complete negative smear on the vast majority of rich kids who actually worked hard in school, studied, and earned their way into the best colleges.
