More Thoughts for the January 2014 Strategy Letter

Here are some thoughts that didn’t make it into our January Strategy Letter but that I wanted to clean off the plate for the New Year:

  • Becoming a celebrity investor as a result of being a serial presenter on the investment conference trail is clearly a cool thing for the investor. Whether the clients benefit commensurately from that point onward is an entirely different question. Sub-text: there is no correlation between the length of a power-point presentation and the likelihood of investment success.
  • Buy the drug war, sell the flamboyant billionaire. Betting on Mexico has been a better investment than wagering on Brazil over the past five years. You would never know it by the financial press.
  • Bitcoin and public entities associated with Elon Musk are likely to experience a number of eventual disasters. Even if you can’t “value” gold, it at least has been around for 5000 years and still brings smiles when offered in a small blue box with a ribbon. Bitcoin is simply another spelling for tulip and represents a neat fulfillment of a libertarian instinct. The fact remains that betting on the end of the world as we mostly know it has generally proven to be unrewarding (at least as of this writing). Additionally, even if you are right, collecting is likely to prove problematic.
  • As cool as the Tesla S may be—and as much as you have to love an American visionary—the valuation of the company is absurd in relation to anything but complete global auto domination. I see a magnificent but declining financial arbitrage of what could very well be temporary regulatory policies that do not justify a rapid buildup of fixed costs. In addition, Mr. Musk has committed what seems to be to be the cardinal error: guaranteeing the residual value of three year leases—on a product for which the battery cost represents a huge and utterly unguessable value given the money being presently spent on developing a better mousetrap. I am only glad I do not run a short fund where I would inevitably be tempted to be terribly early.
  • When your work speaks for itself, don’t interrupt.
  • The way to come to terms with economic inequality is to recognize that the market system is not something that governments either create or effectively manipulate. Markets revolve around sets of unplanned, spontaneous exchanges and thus nobody scripted in inequality and no one is responsible for it. It is simply the price we pay for a general level of prosperity that is unimaginable in any other economic system.
  • People are buying not what is cheap but what is “working,” a sad fact that means equities are in weaker hands and thus are likely to be more volatile. The same risks are always there but currently more people—en masse—are choosing to underweight/ignore them.

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