Carson Block’s Thoughts On GSX Techedu

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Carson Block’s Thoughts On GSX Techedu
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Whitney Tilson’s email to investor discussing Marijuana decriminalization just took a big step forward in Congress; the new science of psychedelics; Carson Block’s latest thoughts on GSX Techedu; Exxon under pressure from new activist fund; $210,000 lunch.

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Q3 2020 hedge fund letters, conferences and more

Marijuana Decriminalization Just Took A Big Step Forward In Congress

1) This article in the Washington Post, Marijuana decriminalization just took a big step forward in Congress, reminds me of one of the themes – a boom in the cannabis sector – of the webinar I hosted with my colleagues Enrique Abeyta and Berna Barshay in September.

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During the event, we shared our prediction that Joe Biden would win the election... and we recommended ways to profit from it.

In our accompanying issue of Empire Investment Report, we outlined the exact stocks to buy, one of which was a cannabis play. Since that issue, all of our "Biden Investment Blueprint" positions are up – by an average of 50% versus only 10% for the S&P 500 Index over the same time frame.

You can find out more about Empire Investment Report – and how to gain instant access to our entire portfolio beyond just these Biden Investment Blueprint positions – by clicking here.

The New Science Of Psychedelics

2) Speaking of drugs...

When I first heard about people taking psychedelic drugs earlier this year, I thought they'd lost their minds. It conjured up images of the 1960s, with hippies tripping out on LSD or magic mushrooms.

But as I did more research, I was surprised to learn from this 60 Minutes segment by Anderson Cooper that...

These powerful, mind-altering substances are now being studied seriously by scientists inside some of the country's foremost medical research centers. They're being used to treat depression, anxiety, and addiction.

The early results are impressive, as are the experiences of the studies' volunteers who go on a six-hour, sometimes terrifying, but often life-changing psychedelic journey deep into their own minds.

It's a fascinating and promising new area of research. As this Bloomberg article, Magic Mushrooms Pass First Hurdle as Depression Treatment, notes:

Scientists are seeking to enlist patients to test the chemical for ailments including addiction, Alzheimer's disease, anorexia, obsessive-compulsive disorder and migraines.

If you're interested in learning more, I suggest:

Last week, I had the opportunity to speak with Pollan, and I asked him for his latest thoughts. Overall, he's optimistic... He often speaks publicly about psychedelics and said he used to see people cringe when he discussed them, but no longer – an indication of more widespread popular acceptance.

He also cited the passage of the recent ballot initiative in Oregon, which legalized controlled, therapeutic use of psilocybin mushrooms. Lastly, he's very excited about more than 50 research studies on psychedelics that are currently underway.

While it might take some time to develop, I can easily see how this sector, from an investment standpoint, might become white-hot – as cannabis did – so my team and I are looking for the best ways to invest in this theme in the public markets (it's not easy, as most companies doing research in this area are private).

Carson Block's Latest Thoughts On GSX Techedu

3) I've written a few times (most recently in my November 23 e-mail) about Chinese online-education provider GSX Techedu (GSX), which famed short-seller Carson Block of Muddy Waters Research targeted earlier this year.

On Monday, the company announced that "certain investors have agreed to purchase through a private placement a total of $870 million of newly issued Class A ordinary shares of the Company, representing approximately 6.2% of the Company's total outstanding shares."

I e-mailed Carson to ask what he thought of this, and he replied:

I strongly suspect it's a variation of this scam they (at least used to) run in Brazil. There, the controlling shareholder lends his shares to a fund (often U.S.) and the fund shorts the stock. Then the company issues a bunch of stock to that fund at a discount, putting out a press release touting that a large U.S. smart money fund had enough faith in the company to invest.

I figure this version is a scumbag manager in Asia who's helped them engineer the squeeze on the way up who has already shorted and now gets to close (or box) it at a guaranteed profit.

On the whole, I think these guys know it's over and are intent on creating as many quick trades as possible on the way out, such as the gamma squeeze on earnings.

All of this gets into a topic that I think is very important. The SEC needs to seriously retool in order to deal with 21st century fraud and manipulation. Things like fake users and algorithm-driven manipulations are becoming increasingly common. The Chinese in particular have gone from market neophytes to masters of algo-driven manipulation over the past 10 years. Unfortunately, the SEC can't pay what's needed for this talent, and would never understand how to foster it. Maybe it's something the National Security Agency should add to its purview.

Exxon Under Pressure From New Activist Fund

4) In my February 3 and September 16 e-mails, I warned my readers that oil titan ExxonMobil (XOM) was "a classic value trap" and outlined the many reasons why. Sure enough, the stock has been a disaster, so I wasn't surprised to see this: Exxon Under Pressure From New Activist Fund. Excerpt:

ExxonMobil is facing the threat of a proxy fight from a newcomer activist investor with a sustainability bent that wants the beleaguered energy giant to act faster to remake itself.

Engine No. 1 LLC, an investment firm launched by Chris James last week, is preparing to send a letter to Exxon's board urging the Irving, Texas-based company to focus more on investments in clean energy while cutting costs elsewhere to preserve its dividend. The letter, a copy of which was viewed by the Wall Street Journal, identifies four people the firm plans to nominate to Exxon's 10-person board.

Here's a copy of Engine No. 1's letter: Engine No. 1 to Nominate Four Highly Qualified, Independent Director Candidates to ExxonMobil Board.

My take: until Exxon slashes its unsustainable dividend, avoid the stock at all costs!

5) The lunch to benefit charity with Pershing Square's Bill Ackman, which I wrote about yesterday, went for $210,000. Wow!

Best regards,

Whitney

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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