Tilson: “I Haven’t Covered My Lumber Liquidators Short – In Fact, I Added To It”

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Whitney Tilson says, “I haven’t covered my LL short — in fact, I added to it” and discusses More evidence that Lumber Liquidators is rotten to the core; Audible.Com; Superforecasting; Theranos has struggled with blood tests; Bill Gross, the bong king.

Whitney Tilson: More evidence that Lumber Liquidators is rotten to the core

This rumor has apparently been circulating:

Lumber Liquidators: Just passing along but some chatter about Tilson closing out his short; Stock pops approx 50 cents in reaction  (17.32 +0.61)

Thursday, October 15, 2015 10:31:56 AM ET

  • It was only a matter of time before this rumor started as stock has been squeezing since it announced a settlement (on a separate issue DoJ).
  • Tilson has been quiet on the issue but has said that the sees the stock going to zero in the past.
  • Look for this rumor to persist until Tilson makes a comment.

My comment: the idiocy and market manipulation of the Wall St. rumor mill never ceases to amaze and disgust me.

10 days ago, I published a story entitled More Evidence That Lumber Liquidators Is Rotten To The Core (see below) and now I’m covering because the stock is up a few bucks??? HA! In fact, I shorted more – and sent this email to my Lumber Liquidators email list last Friday:

What a gift today’s short-squeeze rally in Lumber Liquidators was.

The settlement with the DOJ, while it removed a tiny bit of uncertainty, also imposed substantial compliance costs for the next five years, so at best it was a push. Yet, at today’s peak, the stock had ripped 56% in less than four days.

I figured something like this might happen in light of the high short interest and lack of news until the Q3 earnings report at the end of this month, so I covered ~20% of my short position about a month ago at $12.90 and hoped for something like this to put a bigger short back on. Today, I got it and added to my position at nearly $20/share.

Even putting aside all of the unresolved and potentially crippling regulatory and legal risks related to Lumber Liquidators poisoning its customers (certainly negligently, probably knowingly), who knows when this company is going to get back to breakeven, much less make steady profits again? (It lost $0.29/share in Q1 and $0.75/share in Q2.) Analysts have it making $0.29 in 2016 and maybe getting to $1.50 in 2017, so I struggle to understand who (other than shorts covering) is buying this at $20…

My best intel is that the just-completed Q3 was another disastrous one, so I think it’s likely that today’s buyers are going to get crushed in just a few weeks.

Whitney Tilson on Audible.com

Since discovering Audible.com in June (especially listening to books at 3x speed), I’ve listened to 25 full-length books – going from reading ~1 book/month to ~1/week has literally changed my life. The latest one I finished was Superforecasting: The Art and Science of Prediction. In my email 10 days ago, I included an article about it by Jason Zweig (below) – here’s an excerpt:

I think Philip Tetlock’s “Superforecasting: The Art and Science of Prediction,” co-written with the journalist Dan Gardner, is the most important book on decision making since Daniel Kahneman’s “Thinking, Fast and Slow.” (I helped write and edit the Kahneman book but receive no royalties from it.) Prof. Kahneman agrees. “It’s a manual to systematic thinking in the real world,” he told me. “This book shows that under the right conditions regular people are capable of improving their judgment enough to beat the professionals at their own game.”

The book is so powerful because Prof. Tetlock, a psychologist and professor of management at the University of Pennsylvania’s Wharton School, has a remarkable trove of data. He has just concluded the first stage of what he calls the Good Judgment Project, which pitted some 20,000 amateur forecasters against some of the most knowledgeable experts in the world.

The amateurs won—hands down. Their forecasts were more accurate more often, and the confidence they had in their forecasts—as measured by the odds they set on being right—was more accurately tuned.

The top 2%, whom Prof. Tetlock dubs “superforecasters,” have above-average—but rarely genius-level intelligence. Many are mathematicians, scientists or software engineers; but among the others are a pharmacist, a Pilates instructor, a caseworker for the Pennsylvania state welfare department and a Canadian underwater-hockey coach.

The forecasters competed online against four other teams and against government intelligence experts to answer nearly 500 questions over the course of four years: Will the president of Tunisia go into exile in the next month? Will the gold price exceed $1,850 on Sept. 30, 2011? Will OPEC agree to cut its oil output at or before its November 2014 meeting?

It turned out that, after rigorous statistical controls, the elite amateurs were on average about 30% more accurate than the experts with access to classified information. What’s more, the full pool of amateurs also outperformed the experts.

The most careful, curious, open-minded, persistent and self-critical—as measured by a battery of psychological tests—did the best.

“What you think is much less important than how you think,” says Prof. Tetlock; superforecasters regard their views “as hypotheses to be tested, not treasures to be guarded.”

Most experts—like most people—“are too quick to make up their minds and too slow to change them,” he says. And experts are paid not just to be right, but to sound right: cocksure even when the evidence is sparse or ambiguous.

So the project was designed to force the forecasters “to be ruthlessly honest about why they think what they do,” says Prof. Tetlock.

Since then, I’ve read (listened to) the book and it didn’t disappoint. To be a successful investor, you must be a superforecaster (in the area of business), meaning you can accurately assess multiple possible scenarios and assign roughly correctly probabilities to each. It’s not easy, so reading about the extensive research Tetlock and Gardner have done was fascinating.

One of my big takeaways is that superforecasters are constantly tweaking their forecasts – this was a better predictor than raw intelligence. For example, to the question, “Will Assad still be President of Syria 12 months from now?”, regular forecasters studied the available information and made a reasonable guess regarding the probability – and then did little/nothing for the next 12 months. In contrast, while the superforecasters initial estimates weren’t materially better than other forecasters, they followed developing news closely and, when merited, regularly updated their forecasts, generally with small tweaks (but occasionally with large ones), which greatly improved their accuracy.

They key here, of course, is “when merited.” We’re all drowning in information, so it’s easy to over-react to recent, vivid news and change our assessments in ways that REDUCE our accuracy. But Superforecasters were able to separate the important information from the noise – which is exactly what successful investors do as well.

Most investors trade way too much. That’s not my problem – in fact, I probably trade a bit too little. I sometimes have taken pride in being a “genuine value investor” and not making a single trade in months. That’s dumb. In a portfolio of nearly 20 longs and 10 shorts, over, say, a month, it’s mathematically certain that important news will come out that should warrant, at the very least, trimming or adding to a few positions, and it’s my job to figure this out.

Whitney Tilson on Thernos

This cover story in today’s WSJ about Thernos, which, at $9 billion, is one of the most highly valued “unicorns” in history, is: a) a great piece of journalism; b) unbelievably damning (after reading this, I think there’s a decent chance that this company is worthless and will go bankrupt); and c) raises questions about the kind of due diligence being done in Silicon Valley, which is both the most remarkable locus of innovation and entrepreneurship in the world, yet also filled with froth and foolishness (take Jet.com, for example, which I blasted in an earlier email).

On Theranos Inc.’s website, company founder Elizabeth Holmes holds up a tiny vial to show how the startup’s “breakthrough advancements have made it possible to quickly process the full range of laboratory tests from a few drops of blood.”

The company offers more than 240 tests, ranging from cholesterol to cancer. It claims its technology can work with just a finger prick. Investors have poured more than $400 million into Theranos, valuing it at $9 billion and her majority stake at more than half that. The 31-year-old Ms. Holmes’s bold talk and black turtlenecks draw comparisons to Apple Inc. cofounder Steve Jobs.

But Theranos has struggled behind the scenes to turn the excitement over its technology into reality. At the end of 2014, the lab instrument developed as the linchpin of its strategy handled just a small fraction of the tests then sold to consumers, according to four former employees.

One former senior employee says Theranos was routinely using the device, named Edison after the prolific inventor, for only 15 tests in December 2014. Some employees were leery about the machine’s accuracy, according to the former employees and emails reviewed by The Wall Street Journal.

In a complaint to regulators, one Theranos employee accused the company of failing to report test results that raised questions about the precision of the Edison system. Such a failure could be a violation of federal rules for laboratories, the former employee said.

Theranos also hasn’t disclosed publicly that it does the vast majority of its tests with traditional machines bought from companies like Siemens AG .

The Palo Alto, Calif., company says it abides by all applicable federal lab regulations and hasn’t exaggerated its achievements. It disputes that its device could do just 15 tests, declining to say how many tests it now handles or to respond to some questions about its lab procedures, citing “trade secrets.”

But Theranos’s outside lawyer, David Boies, acknowledges that the company isn’t yet using the device for all the tests Theranos offers. The transition to doing every test with the device is “a journey,” he says.

CEO Daily referred to Bill Gross as a “bong king”

Hilarious! From Fortune’s CEO Daily:

Correction: Yesterday’s CEO Daily referred to Bill Gross as a “bong king.” He is, of course, a bond king. File under “epic autocorrect errors.”

(For more wet-your-pants-funny autocorrects, see: www.damnyouautocorrect.com)

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