Black Friday spending confirms my views on the economy; Beautiful article on the 'Untold Story of Charlie Munger's Final Years'; Mike Burry on stock-based compensation; My positive experience with DonateStock
1) Consumer spending accounts for about 70% of our country's GDP. So it's something I keep an eye on to track the health of the economy...
And the day after Thanksgiving – Black Friday – is typically the biggest spending day of the year. So let's take a look at what happened...
The numbers were respectable, but not spectacular (especially considering that inflation has been running around 3%).
As the New York Times noted, folks spent more money than last year online and a bit more money in person:
Shoppers made an estimated $11.8 billion in online purchases on Friday, a 9.1% increase from last year, and spent $6.4 billion online on Thanksgiving, according to data from Adobe Analytics, a data collection and analysis platform.
Another metric from Mastercard SpendingPulse, which measures retail sales across cash, credit cards and digital payments, found that online sales on Black Friday rose by 10.4% and in-store sales increased 1.7% over last year [total retail sales rose 4.1%].
Meanwhile, CBS News reported on weaker in-person store traffic amid increased online shopping and longer promotional periods by retailers:
[In-store] traffic has continued to dwindle. Initial data from RetailNext, which measures real-time foot traffic in physical stores, found that U.S. Black Friday traffic fell 3.6% from 2024.
And CNN noted a "bifurcation in who's spending":
The Federal Reserve's most recent Beige Book, a collection of anecdotes about the economy, showed consumer spending among low- and middle-income consumers is on the decline. Meanwhile, the Fed found high-end consumers are continuing to spend – including on luxury items and travel.
The latest data confirms my long-held view that the U.S. economy is slowing but strong.
2) A recent Wall Street Journal article about the last years of my mentor, Charlie Munger, caught my eye...
It's a beautiful article. This opening excerpt helps show Munger's mindset:
Charlie Munger owned a house with spectacular ocean views in Montecito, Calif. The Berkshire Hathaway (BRK-B) vice chairman had designed the entire gated community, which locals called "Mungerville." At one point, he told a friend he expected to spend his last years there.
Instead, Munger chose to remain in his longtime home in Los Angeles. The place didn't even have air conditioning. During a heat wave three years ago, friends brought electric fans and bags of ice to cool his library.
Munger didn't care. The home was close to people he liked and projects he found stimulating. Rather than a quiet life by the sea, Munger spent his final years chasing gutsy investments, forging unlikely friendships and facing new challenges.
I've studied Munger to the point of obsession (and was one of the contributors to the definitive book about him, Poor Charlie's Almanack). But I didn't know most of the following about what the WSJ article calls the "unexpected last chapter of Munger's life":
In the year before his death, Munger made over $50 million from a bet on an out-of-favor industry he had shunned for 60 years. He revved up his real-estate activities, working with a young neighbor to place big, long-term wagers, unusual for a nonagenarian...
"Even a week or two before passing away, he was asking questions such as, 'Does Moore's Law apply in the age of AI?'" recalls his friend Jamie Montgomery, referring to whether artificial intelligence would see exponential gains like those experienced in computational power.
May we all be lucky enough to "age with grace, equanimity and purpose," as the article puts it.
3) In last Wednesday's e-mail, I covered part one and part two of my old friend Mike Burry's bear case on Nvidia (NVDA) and the other "hyperscalers" – Alphabet (GOOGL), Amazon (AMZN), Oracle (ORCL), Microsoft (MSFT), and Meta Platforms (META).
Yesterday, Burry released part three of his thesis: The Tragic Algebra of Stock-Based Compensation. (A paid subscription is required to read the whole thing, so I'll just share some excerpts today.)
As the title implies, the post is about stock-based compensation (which Burry abbreviates as "SBC":
Whereas equity compensation was once reserved for Board members and top management, the practice has spread throughout companies and even down to new college graduates, who often see equity compensation as a significant part of their total pay.
The last decade or so, this has resulted in an explosion in stock-based compensation costs that are not adequately captured under either Generally Accepted Accounting Principles (GAAP) expense guidelines or Wall Street's "adjusted" earnings and estimates.
And as he continues:
In fact, Wall Street analysts add back GAAP SBC costs, effectively eliminating SBC as an expense in their adjusted earnings and estimates. The companies themselves are no better – often presenting their own adjusted earnings in this manner. Media obliges, and disinformation is spread with bullish intent. If you learn nothing else in this note, remember not to add SBC back.
Burry goes through a lot of math and concludes that Nvidia's cumulative "owners' earnings" since 2018 are 44% lower than net income. Here's a breakdown he shared:
Tech companies diluting shareholders via stock-based compensation has been a problem – and catnip for short sellers (of which I was once one) – dating back more than a quarter century to the Internet bubble.
Burry is correct that the accounting is lousy and analysts and investors don't pay enough attention to this issue.
But when companies are as profitable and rapidly growing as the hyperscalers, it just doesn't matter. You want to own them.
That said, Burry throws well-deserved shade on two of my "Frightful Five" stocks to avoid: Tesla (TSLA) and Palantir Technologies (PLTR).
Here's more from his post – starting with Tesla:
Tesla dilutes its shareholders at about 3.6% per year, with no buybacks...
With recent news of Elon Musk's $1 trillion [pay package], dilution is certain to continue. Tesla's market capitalization is ridiculously overvalued today and has been for a good long time.
(As an aside, the Elon cult was all-in on electric cars until competition showed up, then all-in on autonomous driving until competition showed up, and now is all-in on robots – until competition shows up.)
And as Burry continues regarding Palantir (I also love his new metric, "billionaire:revenue ratio"!):
Another beauty is Palantir, which has been diluting shareholders at about a 4.6% annual rate despite buybacks. Palantir has no earnings after adjusting for stock-based compensation.
Palantir has the distinction of being the first billionaire:revenue ratio greater than one that I have seen. Five billionaires due to stock ownership, and less than four billion in annual revenue.
Through the most recent close, Tesla and Palantir are down 7% and 11%, respectively, since I warned about them in my October 29 e-mail.
4) A lot of people do their charitable giving this time of year. And I recently came across a free service called DonateStock that I just tried out myself...
It was a great experience. Put simply, DonateStock allows you to quickly and easily donate appreciated stock to the charity of your choice.
If you have a stock in a taxable account you've made a lot of money on and are thinking of trimming or selling the position, you can make a charitable donation in the form of appreciated stock to save yourself paying taxes on the gains when you sell (and, of course, the charity, as a nonprofit, doesn't have to pay taxes).
However, it can be a complex and difficult process to donate stock... which is where DonateStock comes in. (The company has a helpful breakdown here – including a short two-minute demo video. And here's a tax-savings calculator on the DonateStock site.)
A friend put me in touch with DonateStock's founder, Steve Latham, who was three years behind me at Harvard Business School (class of 1997). As Latham told me in some quick bullet points:
100 million Americans own tens of trillions in appreciated stocks, [exchange-traded funds ("ETFs")], and mutual funds
Each year 90 million people donate almost $600 billion to charities
Yet fewer than 250,000 (<0.3%) donate appreciated securities directly to charities
Among stocks gifted via our platform, the average appreciation is 400% with an average holding period of 8 years
I wanted to try DonateStock myself before telling my readers about my experience, and it took me less than five minutes to make my first donation (again, here's a two-minute video explaining how).
It was remarkably fast and easy!
(To be clear, I don't get any compensation or anything like that for mentioning DonateStock – I'm simply highlighting my own positive experience with it, since this kind of charitable giving is particularly relevant this time of year.)
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.