Whitney Tilson’s email discussing Olson on Buffett & Munger; Buffett Seminar; Honest Co. detergent contains ingredient it pledged to avoid; jailed in a Chinese hellhole, a short-seller strikes back; king of coal; predatory bank overdraft fees; fixer-uppers trap low-income buyers; Norwegian Air.
Whitney Tilson – Ron Olson on Buffett & Munger
1) An interesting, short interview:
Charlie and Warren have known each other for the past 56 years and there are very few who have inhaled the same air, personally and professionally. Ron Olson is not only a name partner at Munger, Tolles and Olson LLP, the Los Angeles law firm founded by Charlie, he is also a director on the board of Berkshire Hathaway. If Berkshire or its subsidiaries are working on a deal, it is likely that Olson and another iconic MTO partner Robert Denham are among the first to know.
In his first-quarter letter to investors of Greenlight Capital, David Einhorn lashed out at regulators. He claimed that the market is "fractured and possibly in the process of breaking completely." Q1 2021 hedge fund letters, conferences and more Einhorn claimed that many market participants and policymakers have effectively succeeded in "defunding the regulators." He pointed Read More
Charlie and Warren have been together for over 50 years. What is the glue that holds them together? You’ve seen them at close quarters.
Honesty, rationality, mutual admiration and respect. They are probably two of the most rational people I have ever met. The result is that their thinking dominates their relationship and how they analyse problems and people. But in the end, it is mutual respect.
So, what works?
Shared values and different roles; Charlie sees Warren’s wide set of abilities that he brings to bear for Berkshire’s benefit. His analytical skills with numbers, financial analysis, ability to assess people, to inspire people, to see around corners, to know that tomorrow’s headline will be based on today’s actions and his desire to be out front. Charlie admires all that about Warren. He has a lot of qualities and values like Warren but he doesn’t want to be out front.
He doesn’t see himself as especially appealing to others. In fact, at a DJCO meeting he said something to the effect that, ‘when people bore me, as they often do at a big gathering, I just ignore them and talk to myself’. He recognises that he can be brutally honest in a way that people don’t like. Warren is charming, his role at Berkshire is different from Charlie’s. If they were both trying to do the same thing, it wouldn’t have worked as well but it works very well the way it is.
Whitney Tilson - Buffett Seminar
2) Attached is an interesting bit of trivia: a four-page course outline for “Course 329: Buffett Seminar 5/5/78 at Stanford Graduate Business School-Prof. Jack McDonald”
Whitney Tilson - Honest Co. Detergent Contains Ingredient It Pledged To Avoid
3) This is very different than what happened at Lumber Liquidators, but there are a few interesting parallels…
In less than four years, the Honest Company Inc. surged to a $1.7 billion private valuation thanks to its marketing of cleaning supplies, diapers and other consumer products that it says are safer and more ecologically friendly than other brands.
The company, co-founded by actress Jessica Alba, is challenging giants such as Procter & Gamble Co. and Clorox Co. with a guarantee that its offerings don’t contain what it says are harsh chemicals found in many mainstream products. One of the primary ingredients Honest tells consumers to avoid is a cleaning agent called sodium lauryl sulfate, or SLS, which can be found in everyday household items from Colgate toothpaste to Tide detergent and Honest says can irritate skin. The company lists SLS first in the “Honestly free of” label of verboten ingredients it puts on bottles of its laundry detergent, one of Honest’s first and most popular products.
But two independent lab tests commissioned by The Wall Street Journal determined Honest’s liquid laundry detergent contains SLS.
I think it’s a healthy thing when outsiders (whether journalists, regulators, customers, or – egads! – short sellers) test companies’ products to verify if they contain (or don’t contain) what companies say.
Whitney Tilson - Kun Huang Is Suing Silvercorp Metals, A Short-Seller Strikes Back
4) Good for Huang – I hope he wins!
Huang is suing a Vancouver-based mining company for damages over what he alleges is an extraordinary corporate conspiracy. The main events played out in China, but they could have been conceived in Hollywood.
Nick Procaylo/Postmedia News - Kun Huang is suing Silvercorp Metals Inc., a Vancouver-based mining company, for damages over what he alleges is an extraordinary corporate conspiracy.
He claims Silvercorp Metals Inc. worked with Chinese authorities to have him arrested, imprisoned and falsely convicted for “impairing” its “business credibility and product reputation.” In China, that’s a crime, serious enough that it put Huang, a Canadian citizen, inside a crowded prison cell in Henan province for almost two years.
The University of British Columbia graduate says he was forced to manufacture Christmas lights while in Chinese detention, and to scrub a prison sick bay with his bare hands — in effect, to work like a slave.
Huang was convicted by a panel of Chinese judges after a swift, one-day trial that was closed to the public. He served out his sentence and was deported back to Canada in 2014. He is barred from returning to China, the country of his birth. He’s been diagnosed with post-traumatic stress disorder, or PTSD, according to a psychologist’s report filed in B.C. Supreme Court.
The emotional scarring is plain: Huang is angry, and he blames Silvercorp.
He alleges the company, though a Chinese subsidiary, directed and encouraged Chinese police in their investigation of him, leading to his lengthy incarceration and conviction. He claims the company even paid for travel expenses incurred by police, and he insists he can prove everything.
“I want them to be made accountable for what was done to me,” Huang says. “What they did was wrong.”
Whitney Tilson - King Of Coal
5) An outstanding segment by Anderson Cooper on 60 Minutes about how Don Blankenship, the CEO of Massey Energy, was convicted of a workplace safety crime related to an explosion in one of Massey’s mines that killed 29 miners. The transcript is below and you can watch the 14-minute segment here: www.cbsnews.com/news/60-minutes-massey-coal-don-blankenship-king-of-coal
In December, for the first time in U.S. history, a CEO of a major company was convicted of a workplace safety crime. His name is Don Blankenship and he was once known as the "King of Coal." The company he ran, Massey Energy, owned more than 40 mines in central Appalachia, including the Upper Big Branch mine, located in Montcoal, West Virginia, a state where coal is the dominant industry.
In 2010, the Upper Big Branch Mine was the site of the worst mining disaster in the U.S. in 40 years -- the kind of accident that isn't supposed to happen anymore. It was just after 3 o'clock on April 5, when a massive explosion tore through miles of underground tunnels, killing 29 miners. Prosecutors accused Don Blankenship of ignoring mine safety laws and fostering a corporate mentality that allowed the disaster to occur.
For those who believe the US businesses are over-regulated, I’d ask this question: how would you address the problem of over-regulation, while at the same time dealing with under-regulation in other areas (like this)?
Whitney Tilson - Predatory Bank Overdraft Fees
6) Yet another way in which our financial system exploits and preys on our most vulnerable citizens:
Ms. Lemus is one of millions of Americans tripped up by overdraft practices, a murky corner of consumer banking that, despite a lot of hand-wringing in Washington, costly litigation and customer rancor, remains largely untouched by financial regulation.
In a push for transparency since the 2008 financial crisis, regulators require banks to clearly disclose and explain the terms of just about every financial product, including credit cards and mortgages. But overdraft practices still come with hidden costs and confusing terms, bank customers, lawyers and consumer advocates say.
…It is by no means a new problem. In a series of class-action lawsuits beginning in 2009 against more than a dozen big banks, customers accused banks of hiding a practice known as reordering. The practice, the lawsuits revealed, involved deliberately processing large transactions like mortgage payments first before taking out smaller charges, like a purchase of coffee — even if customers bought the coffee first. By arranging the order of transactions, the banks could maximize the number of overdrafts they charged. At the time, some banks defended the practice, arguing it ensured that large, important bills were covered.
The lawsuits resulted in the banks paying more than $1.1 billion in settlements. Among them was TD Bank, which agreed to pay $62 million.
…The total number of overdraft fees has declined since the financial crisis, but their persistence reflects a reality of the banking industry: Regulations have crimped profits from once-profitable activities like lending.
It turns out that overdraft fees are the banks’ version of cigarette smoking, a habit that is tough to break.
The nation’s big consumer banks collected about $11 billion in overdraft fees last year, which accounted for 8 percent of their profits, according to a report by the Consumer Financial Protection Bureau.
Whitney Tilson - Fixer-Uppers Trap Low-income Buyers
7) And another example:
Hundreds of broken-down houses still dot the streets of this onetime tire capital of the world, a scar from the financial crisis and housing bust.
The wood has rotted in some; others have black mold, broken windows or failing foundations. Many lack working electrical systems or are missing water pipes and furnaces. The unpaid property taxes mount.
Dozens of these houses were scooped up after the financial crisis by investors, who then make deals with low-income home buyers unable to get traditional mortgages. The arrangement is something like buying a home on an installment plan, with a high-interest, long-term loan called a contract for deed, or land contract.
But for buyers lured by the dream of homeownership, these seller-financed transactions can become a money trap that ends with a quick eviction by the seller, who can flip the home again. Before the housing crisis, low-income buyers got too much of a house that they couldn’t afford. Now, they are getting too little of a house that they can’t afford to repair.
It is a scene playing out across the Midwest and the South, where many of the derelict houses have been sold to private investors by government mortgage firms at knockdown prices.
Nationwide, more than three million people are estimated to have bought a home through a contract for deed. After the financial crisis, as banks retreated from lending to those with poor credit, this odd corner of the housing market began to draw interest from deep-pocketed investors who sometimes sell the homes for four times the price they paid.
“There is this whole other way that people buy homes. It is very much under the radar and hidden,” said Heather K. Way, a professor of law at the University of Texas. “Homeowners go into this without knowing that this is such a high-risk contract fraught with perils.”
Now, complaints are piling up in cities across the country, according to dozens of court records reviewed by The New York Times, as well as interviews with housing lawyers and home buyers in Ohio, Michigan and Minnesota.
Whitney Tilson - Norwegian Air
8) I’ve flown Norwegian Air Shuttle round-trip JFK-Gatwick twice (on new 787 Dreamliners), had great experiences both times – and paid only HALF of what it would have cost on any other airline!
First there was Laker Airways. Then there was People Express. Both airlines shared a similar, if ultimately unsuccessful, goal: to bring low fares to the trans-Atlantic market.
Now, there is Norwegian Air Shuttle.
In the past three years, Norwegian, one of Europe’s biggest low-cost airlines, has quietly established a beachhead in the trans-Atlantic market by offering low-fare, no-frills service on long-haul flights.
Thanks to a small but expanding fleet of fuel-efficient planes combined with deeply discounted ticket prices, Norwegian Air Shuttle has attracted a growing number of leisure travelers looking for cheap flights.
It is all part of the vision of Norwegian’s outspoken chief executive, Bjorn Kjos, who is determined to force the same kind of low-fare competition on international routes that has been so successful in domestic markets for airlines like Southwest and Spirit, and Ryanair in Europe.
That is not currently happening on long-haul routes, particularly in the North Atlantic market, which is essentially locked up by three global airline alliances.
Whitney Tilson - Fundamental Analyst vs Technical Analyst
A fundamental analyst and a technical analyst are in the kitchen. The fundamental analyst is cutting something and drops the knife. It lands and sticks right into his foot. He screamed out in pain and then said to the technical analyst "Why didn't you catch that?" to which the technical analyst replied "I am not in the business of catching falling knives. Why didn't you move your foot out of the way?" to which the fundamental analyst replied "Honestly, I didn't think it would fall that far..."