Lessons From 15 Years Of Short Selling: How To Find Great Shorts; shorting conf; Buffett on Trump in 1991; Buffett Shares the Secrets to Wealth in America; 4 events I'm hosting in Omaha around the Berkshire Hathaway annual meeting
1. Yesterday I published my third in a series of four articles I'm writing on short selling: Lessons From 15 Years Of Short Selling: How To Find Great Shorts, https://seekingalpha.com/article/4164016-lessons-15-years-short-selling-find-great-shorts. Excerpt:
- Short selling is brutally difficult, but it can make sense for certain investors.
- I think now is an excellent time to be looking at short ideas, which is why I've organized a conference around this.
- The savviest short sellers focus on stocks valued on a multiple of earnings – and then correctly forecast an earnings collapse.
- I focus on eight primary reasons that can cause a company's earnings to collapse.
2. Speaking of short selling, my conference on The Art, Pain and Opportunity of Short Selling is coming up in less than two weeks on Thursday, May 3 (see attached for the latest list of speakers). I've now seen many of the speakers' presentations and they're AWESOME! Companies that will be discussed include Tesla, Disney, Kraft-Heinz and Stericycle. We've extended the early-bird rate of $3,000 through Sunday, and you can save 20% using my friends and family discount code, FF20, when you register here: http://bit.ly/Shortconf
3. Well over a decade ago, I made a 48-page transcript of Buffett's three lectures in 1991 to Notre Dame faculty, MBA students and undergraduate students and posted it here: https://www.tilsonfunds.com/BuffettNotreDame.pdf. Interestingly enough, it's been getting some attention recently because in it he criticizes Trump:
Replying to a student's question about Trump's business troubles in 1990, Warren Buffett exclaimed, "Where did Donald Trump go wrong? The big problem with Donald Trump was he never went right".
"He basically overpaid for properties, but he got people to lend him the money. He was terrific at borrowing money. If you look at his assets, and what he paid for them, and what he borrowed to get them, there was never any real equity there. He owes, perhaps, $3.5 billion now, and, if you had to pick a figure as to the value of the assets, it might be more like $2.5 billion," he said according to a transcript published by former hedge fund manager Whitney Tilson.
Buffett certainly is a wise man – and Trump hasn't changed a bit in nearly 30 years!
4. Speaking of Buffett's wisdom, I enjoyed this article he published in January: Warren Buffett Shares the Secrets to Wealth in America, http://time.com/5087360/warren-buffett-shares-the-secrets-to-wealth-in-america/. Excerpt:
I have good news. First, most American children are going to live far better than their parents did. Second, large gains in the living standards of Americans will continue for many generations to come.
Some years back, people generally agreed with my optimism. Today, however, pollsters find that most Americans are pessimistic about their children's future. Politicians, business leaders and the press constantly tell us that our economic machine is sputtering. Their evidence: GDP growth of only 2% or so in recent years.
Before we shed tears over that figure, let's do a little math, recognizing that GDP per capita is what counts. If, for example, the U.S. population were to grow 3% annually while GDP grew 2%, prospects would indeed be bleak for our children.
But that's not the case...
... I was born in 1930, when the symbol of American wealth was John D. Rockefeller Sr. Today my upper-middle-class neighbors enjoy options in travel, entertainment, medicine and education that were simply not available to Rockefeller and his family. With all of his riches, John D. couldn't buy the pleasures and conveniences we now take for granted.
Two words explain this miracle: innovation and productivity. Conversely, were today's Americans doing the same things in the same ways as they did in 1776, we would be leading the same sort of lives as our forebears.
... Let's think again about 1930. Imagine someone then predicting that real per capita GDP would increase sixfold during my lifetime. My parents would have immediately dismissed such a gain as impossible. If somehow, though, they could have imagined it actually transpiring, they would concurrently have predicted something close to universal prosperity.
Instead, another invention of the ensuing decades, the Forbes 400, paints a far different picture. Between the first computation in 1982 and today, the wealth of the 400 increased 29-fold–from $93 billion to $2.7 trillion–while many millions of hardworking citizens remained stuck on an economic treadmill. During this period, the tsunami of wealth didn't trickle down. It surged upward.
In 1776, America set off to unleash human potential by combining market economics, the rule of law and equality of opportunity. This foundation was an act of genius that in only 241 years converted our original villages and prairies into $96 trillion of wealth.
The market system, however, has also left many people hopelessly behind, particularly as it has become ever more specialized. These devastating side effects can be ameliorated: a rich family takes care of all its children, not just those with talents valued by the marketplace.
In the years of growth that certainly lie ahead, I have no doubt that America can both deliver riches to many and a decent life to all. We must not settle for less.
5. In case you're going to Omaha for the Berkshire meeting in 15 days and missed my earlier email about the our events Glenn and I are hosting, here it is again:
On May 5 (only three weeks from Saturday!) I will be attending my 21st consecutive Berkshire Hathaway annual meeting. If you're going to Omaha that weekend, I'd like to invite you to four events that Glenn and I are hosting on Friday evening, Saturday afternoon and Sunday morning/afternoon. They are free, open to all, and will take place in the St. Nicholas Room (2nd Floor) at the Hilton Omaha, right across the street from the CenturyLink Center where the meeting is held:
- Our annual cocktail party from 8pm-midnight on Friday, May 4th. No agenda, no speeches, no dress code – just come, enjoy the drinks and snacks, and meet other value investors.
- A casual get-together immediately following the annual meeting (~3:30pm) on Saturday, May 5th – just walk across the street or take the skybridge to the Hilton. It will end at 5:30pm.
- A breakfast from 8-10am on Sunday, May 6th during which we'll give a presentation and take questions about Kase Learning and our various programs: a three-day Lessons from the Trenches bootcamp; a one-day seminar on How to Launch and Build an Investment Fund; and two programs for high school and college students: An Introduction to Economics, Business, Finance and Investing and An Advanced Seminar on Finance and Investing.
- After the breakfast from 10am-3pm, we'll take questions and share additional case studies and materials, in particular those from my upcoming book (due out in August), Whitney's Worldly Wisdom: Life Lessons I've Learned from Warren Buffett and Charlie Munger.
To RSVP for any/all of these events, please go to: https://kaselearning-berkshire-events-2018.eventbrite.com
I look forward to seeing you!
PS – Hotel rooms in Omaha are hard to come by that weekend, but I always hear about a few rooms that become available because someone can't make the meeting, so if you: a) have an extra room or b) need a room, email me and I'll try to put people together.
PPS – To better understand why I go to the Berkshire meeting every year and host various events, read the chapter below that I wrote for Lawrence Cunningham's new book, The Warren Buffett Shareholder: Stories from inside the Berkshire Hathaway Annual Meeting:
Whitney Tilson, A Reception for All
I have attended Berkshire Hathaway annual meetings since 1998, a few months before I started managing money professionally. I don't have a strong recollection of that first meeting itself, but do recall that it was a lonely weekend. It seemed like everyone else knew each other and were going off to fun dinners on Friday and Saturday nights. But I didn't know anyone so I ate by myself and went back to my hotel room both evenings. I felt like a loser.
Thankfully, I didn't get discouraged and have had better experiences every year since. But I never forgot that feeling—and didn't want anyone else to ever feel the way I did that weekend in 1998—so a few years later I rented a ballroom on Friday evening, Saturday afternoon, and Sunday morning and extended an open invitation to all Berkshire shareholders to come meet and mingle with other shareholders. I continue to do this every year, so please join me!
Over the past 20 annual meetings, I have learned so much about investing from Buffett and Munger, who are truly gifted teachers, able to make even complex topics understandable. There is no doubt in my mind that I wouldn't have achieved anything close to the success I did—beating the market regularly my first decade and growing assets under management from $1 million to $200 million—had I not attended every annual meeting and absorbed their investing lessons.
But the non-investing lessons I learned at all of those meetings have had an even bigger impact on my life. The "worldly wisdom" they imparted has made me a much happier, better person—a better son, husband, father and friend—than I otherwise would have been.
Over more than two decades, I've come to realize that value investing is like a religion: it has a revered founder (Ben Graham), pope (Buffett), senior cardinal (Munger), Old Testament (Security Analysis), New Testament (The Intelligent Investor), a set of norms and values such as kindness and integrity, and thousands of passionate disciples (like me) who study all the historical texts and carefully analyze all the new teachings. I'm only sort of joking when I say that I pray in the church of Graham, Dodd, Buffett and Munger.
Viewed in this context, it's clear that the Berkshire annual meeting is a cross between a religious revival meeting and a pilgrimage, in the same way that Muslims go to Mecca and Jews to Jerusalem. For members of these religions, it's an obligation to do the pilgrimage at least once in their lives to deepen their faith, make new friends and reconnect with old ones. This is what the Berkshire meeting is for me and the worldwide community of value investors.
One reason some people come to the meeting is the opportunity to ask a question. In the old days, when only a few thousand people attended, anyone who wanted could ask one but that slowly changed as the crowds grew. In addition, as Buffett and Munger (and the meeting) became more famous, people who sought attention or had an ax to grind would rise at 4:00 a.m. to get in line first at the microphones. The result: an increasing number of dreadful, self-serving questions.
To address this, Buffett started a lottery system at each microphone, so there was no longer any benefit to getting there in the wee hours and, later, allowed a panel of analysts and reporters to ask questions. These steps greatly reduced the number of nutty questions – but also thoughtful questions from regular shareholders. Therefore, I had to come up with clever strategies to get my questions in – and they worked: I've asked eight questions in the past 15 years, which I'd guess is far more than anyone else.
In the first-to-the-mic days, it was easy: I went to the overflow room (in which Buffett and Munger were on a big screen rather than live) where there was no line at all. Most people wanted to be in the arena to feel the excitement, and the nutty people wanted to be seen by everyone so I was able to ask my question with no problem
Even after Buffett implemented the lottery system, the overflow room was still the place to go because only a half dozen or so people put their name in the lottery versus dozens at every mic in the main arena. Given that the first three people selected generally got to ask questions, my odds were good and I was often able to ask my question.
My partner, Glenn Tongue, would put his name in as well, so we doubled our chances that one of us would win. Once we knew that one of us was in the top three, we'd work together to come up with a great question.
In 2013 my wife Susan come to the meeting for the first time, so we put her name into the lottery too. She didn't want to ask a question, but I told her if she won, I'd take her spot. But, when she did win, the mic monitor said that no substitutions were allowed. She was very stressed, but came up with and asked a great question:
"I have three daughters and want them to be able to do anything, but in the business world there still seems to be a glass ceiling. Do you think this is a problem and what should be done about it?"
She didn't know it, but the timing of her question was perfect, as only two days earlier Buffett had published an essay in Fortune entitled, "Warren Buffett is bullish . . . on women." He leapt into the question and gave a long and thoughtful answer stressing points he made in the article, such as:
The closer that America comes to fully employing the talents of all its citizens, the greater its output of goods and services will be. We've seen what can be accomplished when we use 50 percent of our human capacity. If you visualize what 100 percent can do, you'll join me as an unbridled optimist about America's future.
So many people came up to Susan after the meeting and told her what a great question it was—she was walking on air for the rest of the weekend!
The final reason I always come to Omaha are the many side meetings, where I enhance my learning and meet interesting people. Many are exclusive affairs (like Munger's dinner Friday night or Buffett's dinner on Saturday night); some are invitation only but it's not too hard to get an invite (like the party Andy and Pat Kilpatrick used to host on Saturday nights); and some are open to all (like my events on all three days, the Yellow BRKer gathering on Friday afternoon, and the Markel meeting on Sunday).
The most valuable side meetings I attended were organized by my friend Phil Terry, founder and CEO of Collaborative Gain. In both 2016 and 2017, he invited a group of two dozen internet startup CEOs to come to the annual meeting so they could learn leadership lessons. At both gatherings, Phil invited me to give a presentation on Munger's worldly wisdom, which I was delighted to do. But the real treat both years was hearing the next speaker, Sam Taylor, the CEO of Berkshire's Oriental Trading subsidiary. Phil's account of Sam's remarks appears in his contribution to this book, so I will not repeat the story, but suffice it to say that they were magnificent and moving.
In conclusion, I am deeply grateful for all that Buffett and Munger have taught me – so much so, in fact, that I am writing a book about the worldly wisdom I've learned from them.
Whitney Tilson is the Founder and CEO of Kase Learning, through which he teaches seminars on value investing, entrepreneurship and worldly wisdom. He was a contributor to Poor Charlie's Almanack and co-authored two books, More Mortgage Meltdown and The Art of Value Investing.