Whitney Tilson’s email to investors discussing energy consumption of bitcoin vs. the banking system; decline in oil consumption; Adam Neumann pockets another $245 million; Adam Wyden’s reckless tweets; calamity no. 1: loss of reputation and/or wealth.
Q1 2021 hedge fund letters, conferences and more
The Energy Consumption Of Bitcoin Vs. Banking System
1) Here's Andrew Ross Sorkin of the New York Times with a spot-on tweet:
Decline In Oil Consumption
2) Speaking of energy consumption, here's a fascinating chart (source) showing that "the U.S. economy uses 70% less oil than 50 years ago to produce the same amount of national output":
3) What a total disgrace! Former WeWork Chief's Gargantuan Exit Package Gets New Sweetener. Excerpt:
Nearly two years ago, SoftBank sought to part ways with WeWork co-founder Adam Neumann when it bailed out the shared-office company. It hasn't been an easy divorce.
Securities filings from earlier this month show WeWork in February gave Mr. Neumann an enhanced stock award worth roughly $245 million, a benefit that wasn't extended to other early shareholders and hasn't been previously reported.
The deal was part of a renegotiation of the former chief executive's giant 2019 exit package meant to end a long-running dispute between him and SoftBank and help clear the way for a public listing for WeWork, according to people familiar with the matter.
Adam Neumann Pockets Another $245 Million And Adam Wyden's Reckless Tweets
4) I do a lot of risky activities: climb hairy peaks like El Capitan and the Eiger, run 24-hour obstacle course races, ride my bike every day in the streets of Manhattan, etc.
My greatest fear isn't that I come to physical harm, but rather that I destroy my reputation by saying or doing something foolish. I've come close to the line on a few (scary) occasions, and I see others crossing the line almost every day.
The latest example of hedge fund manager Adam Wyden, the son of Oregon Senator Ron Wyden. He's been very successful over the past decade and was recently the subject of a glowing Forbes article: How This Democratic Senator's Son Made $100 Million In Stocks And Why He Fled To Low Tax Florida. Excerpt:
Over the past decade, the younger Wyden, 37, has grown his bar mitzvah money and personal savings into a $350 million hedge fund in which his share is now worth $100 million. Through his Miami-based ADW Capital Partners, Wyden has proven his mettle as a deep value investor buying companies full of underappreciated assets.
He hunts far from the picked-over S&P 500, preferring micro- and small-cap stocks mostly ignored by analysts and large hedge funds. Since inception in January 2011, Wyden's ADW has returned nearly 28% annualized after fees, roughly double the S&P 500, making investors about 11 times their money in a decade.
The article must have gone to his head, or maybe he was suffering from heat stroke in the Florida sun... because there is no rational explanation for his unhinged, vicious tweet-storm against Joel Cohen, a veteran emerging managers investor on behalf of MIT's endowment. I met Joel a few times long ago when I was running a hedge fund, so I know how decent, smart, and well-respected he is.
But he hasn't invested in ADW Capital Partners, so Wyden took to Twitter to vent. He's since deleted his tweets... But of course, everything on the Internet lives forever, so here are screenshots of all of them, and here are excerpts:
Cohen, to his credit, replied in a classy – yet devastating – way:
To be clear, there are much worse mistakes Wyden could have made: He isn't going to be imprisoned or lose his business.
But he will forever be known for this unprovoked attack, which is going to cost him at least $100 million – and perhaps far more. Here's why: He's currently managing $350 million ($100 million of which is his). With 28% compounded returns since inception, he should be on track to grow to $1 billion or more, which – with even one or two good years – would make him another $100 million.
But he can now kiss that goodbye because no institutional – or any sophisticated – investor would allocate money to someone who behaves like this, even once.
The Art of Playing Defense
4) I wrote about this in my new book, The Art of Playing Defense: How to Get Ahead by Not Falling Behind. Here's the excerpt:
Calamity No. 1: Loss of Reputation and/or Wealth
If you're in the professional world – if you are, for example, a doctor, lawyer, or businessperson – your greatest asset other than your brain is your reputation, for how hard you work, your sense of decency, and most importantly, your integrity.
Cherish and protect it because, as [Warren] Buffett once said:
It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.
I want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front of their local paper, to be read by their spouses, children, and friends, with the reporting done by an informed and critical reporter.
You need to be especially careful of your reputation if you're a public figure, on whom the scrutiny is greater. I am extremely sensitive to this danger because I send an investing-related email to more than 125,000 people every weekday, an education-related one to 7,500 folks every week or two, a coronavirus-related one to more than 5,000 people every week, and a few every day to 250-1,000 recipients on various subjects, ranging from politics to adventure sports to what my family and I are up to. In addition, I regularly speak on live television, at conferences, and to reporters.
Thus, multiple times a day, I run the risk that I will write or say something off the cuff that goes viral and ruins my reputation. I've made some small mistakes that have really scared me.
Right out of college, as I was helping Wendy Kopp launch Teach for America, I was interviewed by a reporter for the Harvard Crimson. In making a point about teacher shortages in low-income communities, I said, "Many school districts just need warm bodies."
This crude and foolish comment was, of course, featured prominently in the article.
Wendy was so mad at me – deservedly so – that she never let me speak to the media again.
Years later, I sent an email to my school-reform email list in which I commented on the then-Mayor of Newark, New Jersey, Sharpe James, who was facing corruption charges. Being certain of his guilt (he was later convicted and served time in prison), I sent around an article about his indictment with the comment, "Hang him high!"
A few minutes later, someone emailed me back saying, "Whitney, did you really mean to use language related to lynching when referring to a black man?"
Of course not! I was horrified by what I'd written and immediately sent an apologetic follow-up email.
Another time, I was on Bloomberg TV talking about Taser, a stock I was betting against (it's since been renamed Axon). In explaining why, I said that the company had no patents or valuable intellectual property.
About a week later, I received an email from Taser's law firm saying I had defamed the company because it did, in fact, hold numerous patents and demanded a retraction.
I had screwed up again. By not being careful with my words, I had exposed myself to substantial legal costs at the very least.
Fortunately, I was able to resolve the issue by replying with a letter apologizing for my mistake, pledging never to speak publicly about the stock again, and pointing out that if they forced me to publicly issue a retraction, it would only draw attention to an otherwise obscure interview that almost no one had seen. I never heard from them again, so it ended up being a low-cost lesson early in my career to be very careful when publicly criticizing a company.
Almost every day, I see a public figure in trouble for something they said or wrote (usually an off-the-cuff remark).
I don't want this to happen to me, so now I proofread every mass email before I send it and always try to be well-prepared when I speak on television, in front of an audience, or to a reporter.
Another way to ruin your reputation is to do something unethical or illegal (which can lead to a loss of freedom – i.e., going to prison).
Consider the fate of David Sokol, a former top executive at Berkshire Hathaway (BKR-B) who was once rumored to be Buffett's successor. He discovered a publicly traded chemical company called Lubrizol that he thought would be a great acquisition candidate for Berkshire Hathaway, so he brought this idea to Buffett, who agreed and eventually acquired the company.
However, inexplicably, Sokol had personally bought Lubrizol stock beforehand, thereby profiting from Berkshire Hathaway's acquisition. As soon as Buffett found out what Sokol had done, he had no choice but to immediately fire him and report what had happened to the US Securities and Exchange Commission ("SEC"). The SEC ultimately took no action, but it didn't matter – Sokol's reputation was destroyed, and his career was over, all for an insignificant profit. For a single moment, he let greed overshadow his integrity, and he was ruined.
It's critical to be disciplined and thoughtful about ethical gray areas and never engage in borderline (much less illegal) behavior. It's simple in concept but can be tricky in practice, and there's no room for error. One mistake can ruin your life.
Over the nearly two decades that I ran a hedge fund, there were so many opportunities to break the law and/or ruin my reputation. Most of these situations were pretty clear, but some weren't.
For example, what if I talk to the CEO of a small company, and I suspect (but am not sure) he might have given me material nonpublic information? Or if I talk to a reporter who I think (but am not sure) is writing an article that might cause a stock to move sharply? Or if I'm preparing an in-depth presentation of a stock idea at a major conference that I think (but am not sure) could move the stock materially?
Can I trade these stocks? To this day, I don't know the answer. So I just didn't.
Here's an example related to the stock for which I'm perhaps best known, Lumber Liquidators. I bet against the stock and pitched it at the Robin Hood Investors Conference in late 2013. Then, in early 2014, I heard from someone in the industry that the company was sourcing and selling Chinese-made laminate flooring tainted with formaldehyde, a health hazard and clear violation of US environmental regulations. Once I'd tested the product and verified my source's story, I wanted to bring attention to what this company was doing, both to protect American consumers and because I thought it might crush the stock (and therefore benefit my short position).
"Who better," I thought, "than 60 Minutes to break this story?" So I contacted a producer I knew there and, to make a long story short, they agreed it was an important story and started working on it.
At that point, I didn't know for sure if 60 Minutes was going to run the story, what it would say, or when it might air. But by December 2014, when Anderson Cooper interviewed me at length, I was pretty sure that they were going to do a major story that could devastate the stock (which is exactly what happened in March 2015), so I could have made millions of dollars had I further increased my short position.
But I didn't. I worried that the knowledge I had about 60 Minutes working on the story constituted inside information. To this day, I'm not sure if it did, but I didn't want to find out the hard way, and to me, it didn't pass the front-page-of-the-newspaper test. So I didn't trade the stock at all until after the story aired.
I can't emphasize strongly enough that no amount of money is worth jeopardizing your reputation.
Best regards,
Whitney
