From Whitney Tilson‘s latest email to investors
I’m not the only guy to have gotten crushed this month on my short book – but my losses are your potential gains (and mine too, for putting on new short ideas). I’m currently looking hard at stocks trading at/near 52-week (or even all-time) highs, where the underlying business is likely long-term roadkill for Amazon – two examples are Restoration Hardware (RH) – how does it not get destroyed by a one-two punch of Wayfair and Amazon? – and Best Buy (BBY), yet the former is up 133% from its 52-week low and the latter hit an ALL-TIME high today after soaring 21.5%.
2) As I’ve speculated before, I think quant funds are driving many of the distortions in the market – and a WSJ series this week does an in-depth dive into this phenomenon. Below are three of the articles (The Quants Run Wall St. Now; This Old School Hedge Fund Is Going Quant; Wall Street’s Endangered Species: The Ivy League Jock) and five charts – here’s the first one:
Chilton Capital's REIT Composite was up 6.1% last month, compared to the MSCI U.S. REIT Index, which gained 4.4%. Year to date, Chilton is up 6.3% net and 6.5% gross, compared to the index's 8.8% return. The firm met virtually with almost 40 real estate investment trusts last month and released the highlights of those Read More
3) Yet more evidence of the power of computers/A.I. – yet, interestingly, “a human with a computer is still stronger than a computer”:
It’s all over for humanity — at least in the game of Go.
For the second game in a row, a Google computer program called AlphaGo beat the world’s best player of what many consider the world’s most sophisticated board game. AlphaGo is scheduled to play its human opponent, the 19-year-old Chinese prodigy Ke Jie, one more time on Saturday in the best-of-three contest.
…AlphaGo’s victory on Thursday simply reinforced the progress and power of artificial intelligence to handle specific but highly complex tasks. Because of the sheer number of possible moves in Go, computer scientists thought until recently that it would be a decade before a machine could play better than a human master.
A small consolation for Mr. Ke was that he played a near-perfect game for the first hundred moves, according to the scientists who designed AlphaGo.
Still, like a sprinter who can at first keep pace with a train, in the end Mr. Ke was left in the dust by the computer.
…AlphaGo of course has no heart and feels no nerves, and in the end that may have helped make the difference. Scientists and futurists have pointed to that cold focus as a major reason artificial intelligence may someday take over large numbers of white-collar jobs. Still, that detachment means AlphaGo lacks the human touch required to manage employees, counsel patients or adequately write flowing newspaper features about its own dominance over humans.
Tests of the technology in games like Go still mark an early step. Because the strategy options are limited to moves on a board, games like Go are particularly suited to the technology.
Computer scientists say that often the best use of artificial intelligence is not to pit it against humans, but to pair it with them.
To that end, two Go professionals, each teamed with AlphaGo, are scheduled to play against each other on Friday. Mr. Hassabis has said that top amateur Go players, with the help of AlphaGo, can generally manage to beat the software program in a match. In short, a human with a computer is still stronger than a computer.
4) I’ve been totally wrong on the Trump trade so far – but “he who laughs last, laughs best”:
You can bet, if you like, on the chances of a Trump impeachment. A bookmaker named PredictIt puts the odds at around 1 in 5. But some sharp minds on Wall Street are pondering a different bet — one that, unlike prediction markets, has real-world impact.
That bet is against the stock market, which is up about 15 percent since the election — despite the considerable turbulence that President Trump has wrought. Sooner or later, goes the thinking, a volatile president will mean volatility for markets — there was a brief burst of that last week before calm returned. If the trade that defined the crazy subprime mortgage era was the “Big Short” — the wager that bubbly house prices would ultimately succumb to gravity — today’s milder analogue may be the “Trump Short.”
5) What an absurd bubble!