Special event next Wednesday; More on Charlie Munger; Elon Musk curses out advertisers; Nate Anderson's review of the new book on Ray Dalio; Leon Black's downfall confounds the legacy of #MeToo on Wall Street; A Top Mutual Fund Executive Made Millions for Himself Trading the Same Stocks His Giant Fund Was Trading
1) Longtime readers might recognize Joel Litman – the founder and chief investment strategist over at our corporate affiliate Altimetry...
I first met Joel back in 2019. He's a forensic accountant and CPA who has lectured at Harvard Business School, Wharton, and the world's top CFA societies. He's also a regular consultant for the FBI and the Pentagon.
At Altimetry, instead of using traditional Wall Street analyses, Joel and his team use their "Uniform Accounting" methodology for analyzing companies' financial statements – making dozens of adjustments to uncover a company's true earnings and financial health.
Then, Joel and his team combine Uniform Accounting with deep forensic analysis to find mispriced companies poised for massive growth.
For example, he called the recession and market crash in 2020... and issued a string of 16 recommendations that went on to double or more.
Now, Joel is getting ready to unveil a new opportunity...
Mark your calendar for December 6, at 8 p.m. Eastern time – that's when Joel is going on camera to share the financial story no one else is telling... and he'll share the exact steps he says to take with your money to prepare.
This event is 100% free to attend – you just need to reserve your spot in advance. You can do so right here.
2) CNBC has done a nice job putting together some highlights of the incomparable Charlie Munger:
First up is this: Charlie Munger: These 'basic rules' made me successful in life – 'with Warren Buffett, I had all 3'. Excerpt:
I have three basic rules for career satisfaction that have always helped me. I believe they can help any young person evaluating a career decision. While meeting all three is nearly impossible, you should try anyway.
- Don't sell anything you wouldn't buy yourself.
- Don't work for anyone you don't respect and admire.
- Work only with people you enjoy.
(No. 2 reminds me of a funny story Warren Buffett told when he spoke at Harvard Business School when I was a student there in 1993. He said, "When I was last here, someone asked for career advice and I said, 'Go work for someone you really respect and admire,' and now I come back and everyone is working for themselves!")
Part of Munger's appeal was his blunt honesty – he would say what he really thought of something or someone, which sometimes caused Buffett discomfort.
After one such moment at the 2015 Berkshire Hathaway (BRK-B) annual meeting, Buffett chuckled and gently chided Munger to "praise by name, criticize by category." Here's a collection of some of Munger's best zingers: Charlie Munger's sharp wit turned Berkshire meetings into uproarious affairs. Here's a sample. Excerpt:
- "What you don't want to be is like the man who, when they had his funeral, the minister said 'now's the time for someone to say something nice about the deceased.' And nobody came forward... He said 'surely somebody [has] something nice to say about the deceased.' And nobody came forward. And finally one man came up and said, 'Well, his brother was worse.'"
- "Sometimes when I am especially wistful, I think 'Oh, to be 90 again.'"
- "If you mix the mathematics of the chain letter or the Ponzi scheme with some legitimate development like the development of the internet, you are mixing something which is wretched or irrational or has bad consequences with something that has very good consequences. But you know, if you mix raisins with turds, they're still turds."
- "You particularly want to avoid evil or seriously irrational people, particularly if they are attractive members of the opposite sex. That can lead to a lot of trouble."
- "You don't have a lot of envy, you don't have a lot of resentment, you don't overspend your income, you stay cheerful in spite of your troubles. You deal with reliable people and you do what you're supposed to do. And all these simple rules work so well to make your life better. And they're so trite."
- "So far, I've had plenty of decline, but I'm pretty shrewd about the way I handle it. And so far the results have not been that bad in my old age. Now, my sex life would be a different subject." [Here's the video of this last hilarious comment.]
Finally, here's a video of Munger's final interview: Munger in final interview describes how he and Buffett turned Berkshire Hathaway into such a success. Excerpt:
Today, Berkshire Hathaway is [a] massive conglomerate worth north of $785 billion with businesses and investments all around the world. This exceeded Charlie Munger's wildest dreams.
"I did not think we'd ever have... so many hundreds of billions in Berkshire," Munger, the former vice chairman of Berkshire, said in his final interview with CNBC's Becky Quick just a few weeks before passing away at the age of 99. "I did not anticipate... we would ever get to $100 billion, much less several hundred billion."
"It was an amazing occurrence," said Munger in bits of the interview aired by CNBC on Tuesday evening.
3) It's so easy to look at Buffett and Munger and think that the way they have lived their lives is easy and obvious – it's just common sense, right?
But every day the media has stories of people whose wealth and fame turned them into egomaniacs at best and despicable cretins at worst.
Exhibit A is Tesla (TSLA) CEO Elon Musk, one of the greatest visionaries and entrepreneurs of all time.
His brain has possibly turned to mush due to his X (formerly known as Twitter) addiction – to the point that yesterday he cursed out the advertisers that the business depends on. Here's the story from Reuters: Elon Musk curses out advertisers who left X over antisemitic content. Excerpt:
The Tesla CEO bristled at the idea that he was antisemitic and said that advertisers who left X... should not think they could blackmail him.
"If somebody's gonna try to blackmail me with advertising, blackmail me with money? Go f--- yourself," he said.
"Go. F---. Yourself. Is that clear? I hope it is. Hey, Bob, if you're in the audience," he added, in an apparent reference to Robert Iger, chief executive of Disney (DIS), which pulled ads on X. Iger spoke earlier at the event and said that Disney felt the association with X following Musk's move "was not a positive one for us."
4) There are so many more examples...
Consider Ray Dalio, who helms the largest hedge fund in the world, Bridgewater. I think activist investor Nate Anderson's Amazon review of Rob Copeland's new biography, The Fund: Ray Dalio, Bridgewater Associates, and the Unraveling of a Wall Street Legend, is spot on:
It is as though Ray Dalio is an abusive father who took a philosophy class that resulted in zero self-awareness and instead helped him rationalize a "belief system" that justifies the horrific mistreatment of people around him.
The book is beautifully written, entertaining, witty, and clearly deeply sourced. For all the griping Dalio has made publicly about the book's contents and despite the team of lawyers he sicced on the author to stop its publication, the lawyer's comments (in footnotes throughout the book) all seem to tacitly acknowledge the truth of the accusations.
The book is filled with jaw-dropping moments that highlight just how bizarre the mind of a billionaire can get when those around him become more and more sycophantic, reinforcing his worst tendencies.
Kudos to author Rob Copeland for taking on such an ambitious and scary project – it is no easy task to write about the reality of one of the most powerful men in the country, who to date has enjoyed a well-manicured and essentially fraudulent reputation. This is especially so given Dalio's lack of cooperation and overt resistance to the project.
Of all the book's exposed contradictions, one of the key things Dalio seems to get correct in principle, if not in practice, is that a runaway ego can be among the most dangerous and harmful of personal shortcomings.
This book may be an absolute humiliation of Ray Dalio and everything he thinks he stands for, but according to Dalio's own claimed principles, the author's disassembling of Dalio's ego has done him a huge favor.
I doubt Dalio will be sending the author a thank you note, but for everyone else it is well worth a read both for the constant flurry of ridiculous stories as well as the profile of a unique, toxic personality who still enjoys a position of incredible power and influence.
5) Speaking of billionaires who have utterly destroyed their reputations by their own reckless actions...
Here's an in-depth Financial Times story about Leon Black, the co-founder and former CEO of private-equity giant Apollo Global Management (APO), who, like innumerable men before him, got into trouble thanks to his inability to keep his pants up: Leon Black's downfall confounds the legacy of #MeToo on Wall Street. Excerpt:
The third act of [Guzel] Ganieva and Black's relationship began at expensive restaurants in New York and London, where they negotiated a deal to purchase Ganieva's silence. Black's opening offer was $5 [million]; she envisaged an amount 20 times higher.
In August 2015, the steel columns of the Seagram building sliced through the sunlight and confined several dozen power lunchers at the Four Seasons restaurant inside a bronze cube. Black asked for consommé; Ganieva chose the watermelon salad. The room was noisy. On the recording that Black secretly made of their encounter, which was played to the FT by someone who asked not to be identified, fragments of speech are obscured by the clatter of porcelain. Their voices are unmistakable: his nasal drawl, her mis-stressed vowels. But the conversation is not easy for an outsider to follow. Someone who merely overhears the words cannot understand them as those two would, in light of whatever history they share.
At one point in the roughly 40-minute recording, excerpted transcripts of which Black later filed in court, Ganieva claims his friends are making her life "impossible." She wonders whether he wants to "get rid of" her.
"You were scared that I would go public," she says.
"Go public with what? With our relationship? That I had an affair, that I treated you well?"
"That you sexually harassed me."
"How did I sexually harass you?" Black asks, denying the allegation.
If an answer was visible in Ganieva's eyes, or her gestures, the audio did not record it.
The plates are cleared away, and they begin to discuss money. Black would later claim in court that he was being extorted. A brief filed on behalf of Ganieva states that "in reality, it was Black who was heavy-handedly trying to force [her] to keep silent," staging the conversation to make it sound as though she was demanding an extortionate payout.
"Guzel, $5 [million] is a lot of money," says Black.
"It's not about the money for me."
"And yet you talk about $100 [million], and then you say it's not about money. Which one is it?"
"I think that is what would be fair."
6) ProPublica is back with another story rooted in its access to trading records of some of the richest Americans (see my comments on the organization's story about Warren Buffett here)...
The optics of this one are much worse: A Top Mutual Fund Executive Made Millions for Himself Trading the Same Stocks His Giant Fund Was Trading. Excerpt:
In late 2015, Dodge & Cox, one of the nation's largest mutual fund managers, began buying large quantities of shares of a cloud-computing company called VMware. Over three quarters, Dodge & Cox amassed almost $700 million in shares. That was good news for anyone who already owned shares of VMware, since big purchases tend to push a stock price upward.
One such shareholder was David Hoeft, a member of the Dodge & Cox committee that made the decision to buy the shares and an advocate for investing in technology companies. Hoeft, who has spent 30 years at Dodge & Cox, is now the company's chief investment officer.
For decades, regulators have tried to clamp down on front-running, the term for when investment professionals make personal purchases or sales of securities when they know that their employers or clients are about to buy or sell the same securities. But a massive assemblage of confidential stock trading data obtained by ProPublica reveals that the practice may be continuing on a notable scale.
Hoeft is one of dozens of investment managers at hedge funds and mutual funds who personally traded the same securities that their organizations were buying and selling, ProPublica found. He stood out in this group for the volume and fortuitous timing of such trades. From 2011 to 2019, Hoeft traded stocks on at least 31 days in the same quarter or the quarter before Dodge & Cox traded the same securities. The transactions were worth nearly $50 million. (All told, Hoeft's personal trades, most of them in stocks his employer was not trading, totaled more than $725 million during the period.)
I confidently predict that not only Dodge & Cox, but many other fund managers will meaningfully tighten up their policies regarding trading by employees.
This is why Stansberry Research has a clear policy: Editors (like me) cannot own or trade any stocks they are writing about or have as open recommendations.
It costs me a lot of money, but even a policy that allowed me to only trade after a certain number of days after I had shared my best advice with my subscribers would present too many conflicts of interest.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.