Consider disconfirming information; The bull case for Uber; Robinhood Users Come Under Attack; Short report on Hyzon Motors; Charity poker tournament tomorrow night
1) To be a successful investor, you need to have the courage of your convictions. But equally important is the willingness to accept and unemotionally consider disconfirming information and arguments and, if necessary, change your mind.
This may sound obvious, but it doesn't come naturally to most people, who tend to be very set in their opinions, especially if they have money riding on the outcome. (I'll be discussing this topic in future e-mails in a series on behavioral finance.)
I remember interviewing Rich Pzena, the founder and CEO of Pzena Investment Management (PZN), long ago and he told me that when he and his team are considering adding a new stock to their portfolio, he designates one analyst to research the bear case and make the strongest argument possible against making the investment. I think this is really smart.
With this in mind, I'd like to share two arguments that contradict what I've written in previous e-mails...
2) First, my colleagues and I have been bearish on ride-sharing giant Uber (UBER). But there is a bull case, which is articulated by Ricky Sandler of hedge fund Eminence Capital in this series of tweets:
Sandler makes some good arguments, but I still think Uber is a stock to avoid.
3) The second example of a counter-argument I want to share is this op-ed by Vlad Tenev, the CEO and co-founder of Robinhood (HOOD), in yesterday's Wall Street Journal: Robinhood Users Come Under Attack. Excerpt:
Amid the turmoil caused by the global pandemic, people who had been left behind by Wall Street started investing and creating wealth like never before. But now market gadflies, academics, and out-of-touch investors are attacking commission-free, no-minimum brokerages, potentially limiting access to capital markets.
The democratization of investing is no accident. Following Robinhood's lead, many brokerages across the industry dropped commissions in late 2019 after charging them for decades. By one estimate, this put about $13 billion back in the hands of retail investors. We've helped a generation of digitally savvy customers engage with and understand investing.
Our business has come under attack by critics who insist that our platform is "gamified." They point to features such as lists of stocks and exchange-traded funds that help people discover investments and notifications about stock movements that help them stay informed. We designed these features, many of which are common in our industry, to make it easier and more delightful for users to stay informed. Investing isn't a game, but must it be grim and difficult to understand?
Meanwhile, some critics decry not only modern investing platforms, but also the people who use them, suggesting that new investors are uninformed gamblers looking to get rich quick. Not only are these stereotypes offensive, but the data tell a far different story. According to the Finra Foundation, many new investors in 2020 began saving for retirement with a small amount of money. Robinhood's own surveys indicate that our customers – about half of whom tell us at sign-up that they are new to investing – are more racially diverse than those at traditional brokerages.
His article is sophistry at its worst. Nobody is attacking Robinhood's users – it's many things the company is doing that I and many others object to.
The reason investing legend Charlie Munger calls Robinhood a "gambling parlor" that is "beneath contempt" is that the company's entire business model depends on encouraging its users to speculate madly by day-trading options and worthless garbage that I've nicknamed Doggycoin (DOGE-USD) and GameStink (GME).
4) My old friend Soren Aandahl of Blue Orca Capital, who does excellent work, released a short report yesterday on hydrogen vehicle company Hyzon Motors (HYZN), which crashed 28%. Excerpt:
We are short Hyzon Motors, a zero-revenue hydrogen EV SPAC which we liken to a Chinese Lordstown Motors (RIDE). In our opinion, Hyzon's supposed major customers are a fake-looking Chinese shell company incorporated three days before the deal announcement and a tiny New Zealand startup which told us they are not really a customer.
Hyzon is just a repackaging of a flailing Chinese parent company which has been trying to sell the same hydrogen fuel cells without much success for 17 years. The parent entity was delisted from the Chinese OTC exchange in early 2021 at an enterprise value of sub $200 million. Hyzon is just a worse version of this same business in SPAC form, yet trades at 10x the valuation. We think Chinese investors obviously knew best.
Notably for a zero revenue SPAC banking on the future value of its technology to save its business, two of Hyzon's chief technology officers have resigned in the past 15 months. The Company is only 20 months old. Ultimately, we think Hyzon's parent has taken advantage of the general suspension of disbelief in financial markets to enrich insiders by repackaging an old technology in a fig leaf of misleading deal announcements and illusory customer contracts.
For more on this, you can watch Carson Block of Muddy Waters Capital interview Aandahl about Hyzon Motors here (19 minutes).
5) A final reminder...
I am once again co-hosting the 11th annual Take 'em to School Charity Poker Tournament at Gotham Hall in New York City tomorrow night at 6 p.m. Eastern time. The event is almost at capacity, but there are still some tables and tickets available for poker players and cocktail guests – you can sign up here: https://takeemtoschool.org. I hope you can make it!
The event will benefit Education Reform Now, a nonprofit organization that I co-founded, which is committed to ensuring all children have access to a high-quality public education. In particular, because of COVID-19, children in poverty have lost almost a year of learning. Your generous support allows us to address this generational crisis. Thanks to the generosity of one of our donors, all proceeds from this year's event will be matched dollar for dollar.
This year's event will feature poker players battling for prizes that in past years have included two courtside tickets to a Milwaukee Bucks home game with the owner, Marc Lasry (with private air transportation to the game), a Sebonack golf trip with a one-night cottage stay, a table at Rao's, power lunches with some of the world's top investors, and a set visit for The Walking Dead.
For those attending as cocktail guests, there will be a variety of casino games and entertainment.
Here are pictures from the event in past years:
Again, you can sign up here: https://takeemtoschool.org.
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.