Free crypto webinar next Wednesday; Big news for Lumber Liquidators; Jim Simons and Warren Buffett; Lost video from 1997 of Jeff Bezos; I'm running the World's Toughest Mudder this weekend
1) Following up on Tuesday's e-mail about meeting Eric Wade, the editor of Stansberry Research's Crypto Capital newsletter...
My scorn for cryptocurrencies is well known. I love Warren Buffett's comment that bitcoin is "probably rat poison squared." But I can't rule out the possibility that I'm wrong – it has happened many, many times in my career. (I can show you the scars on my back to prove it!)
So, even – or, perhaps, especially – when it comes to things about which I have the highest conviction, I'm always testing my thesis and trying to keep an open mind. There are a lot of smart people who have invested a small part of their portfolios in cryptocurrencies, so it only makes sense to invest some time and energy into learning about the sector – its history, the underlying technology, major backers, etc.
To do so, in addition to meeting with Eric and hearing him out (after all, his current open portfolio is showing an average gain of roughly 80%, and he has six 100%-plus positions), I regularly review articles about the sector and have read two interesting books about it: Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money and Bitcoin Billionaires: A True Story of Genius, Betrayal, and Redemption. Both are rollicking good stories with a very entertaining cast of characters.
If you want to learn more about cryptos, I highly recommend that you watch the free webinar Eric is hosting next week on Wednesday, November 20. During it, he'll share his latest thinking on the sector, reveal his latest crypto idea, and interview 12-term U.S. Congressman Ron Paul. You can save your spot for it right here. Again, it's totally free.
2) One of my favorite stocks, Lumber Liquidators (LL) has an attractive and profitable unit-level store model, but has endured a dismal streak of bad luck, which is why the stock is so depressed (in fact, it's at exactly the level is was when it went public 12 years ago, despite having four times the number of stores).
But maybe its luck is finally starting to turn... Just two weeks ago, the Office of the U.S. Trade Representative temporarily lifted tariffs – retroactive to September – on a big category of Lumber Liquidators' products imported from China, luxury vinyl tile ("LVT") flooring. According to a Piper Jaffray report out this morning...
The removal of tariffs on these categories is meaningful as (1) Tariffs have been quite disruptive to the Flooring industry due to heavy List 3 exposure (with tariffs at 25%); and (2) LVT and other engineered products have been the primary driver to industry growth in recent years. Our calculations suggest both FND and LL can each receive $10M-$12M in retroactive tariff refunds. And both should see improved pricing and margin profiles for both Q4 and 2020.
This is a big deal for a company that's really struggling. To put just the $10 million to $12 million tariff refund into perspective, it would turn year-to-date losses of $6.7 million into a healthy profit.
3) Some further thoughts on the new book I just finished and enjoyed: The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution...
I still don't really have a firm grasp on how Simons and his team generated such astonishing returns over such a long period of time: from 1988 to 2018, the Medallion Fund returned 66.1% annually (39.1% after the "5 and 44" fees), generating estimated trading profits of more than $100 billion!
As best as I can understand it, they collected massive amounts of historical data and programed supercomputers to find small anomalies in various markets (not just stocks). They didn't need to find sure things, just a tiny edge – a hair over 50% – and then made millions of such bets.
Very few people can pull this off, so it's certainly no coincidence that Simons is one of the world's most brilliant mathematicians. Just a handful of quant funds – Two Sigma, AQR, and Citadel come to mind – have really done well. The average one hasn't.
Two final thoughts occurred to me as I read the book. First, I think Buffett is equally brilliant – and one of the few people who can make a claim to have made as much money for his investors as Simons has over time.
But if you switched them and had Simons practice value investing and Buffett quant investing, I'm pretty sure they'd both fall flat on their faces! So it's important to figure out what you enjoy and what you're good at, and focus your attention there at an early age – as both of these wise men did.
Second, you can have all the money in the world – Simons is worth more than $15 billion – and have it not matter one iota. I have no doubt that Simons would give up every penny of his fortune to have two of his four children back (one son died at age 34 when he was struck by a car riding his bicycle on Long Island, and the other died at age 24 while free diving in Bali, Indonesia). So if you've been lucky enough to avoid this kind of unimaginable tragedy in your life, then be grateful and don't envy Jim Simons...
4) Hat tip to Scott Galloway for posting this lost video (two minutes) of Jeff Bezos in 1997 explaining how he got the idea for Amazon (AMZN).
5) Wish me luck this weekend – I may need it. I'm running my fourth annual World's Toughest Mudder on a horse farm outside Atlanta from noon Saturday to noon Sunday (with an extra 90 minutes to finish the last five-mile lap, so it's actually a 25-and-a-half hour race).
Last year, I won the 50-plus age group by completing around 250 obstacles (mostly walking) for 60 miles and overcoming temperatures that dropped to 26 degrees in the middle of the night. I barely avoided hypothermia, which knocked out 40% of the competitors. I could hardly walk for weeks and my toes have never fully recovered... You can read my race report, with dozens of pictures, right here. Below are a few pics...
At least it shouldn't be quite as bad this weekend, as the forecast for Saturday night is a low of "only" 37 degrees – balmy! Here's the link to track me during the race if you're interested.
Yes, this is what I do for fun! While the race itself is pretty much a total suffer-fest, I like testing myself, both physically and mentally... It feels good to have some success at it (I set the all-time 50-plus record three years ago – 75 miles in the desert outside Las Vegas in much warmer conditions)... it provides motivation to stay in shape... and, amidst the suffering, there's incredible beauty and clarity that I don't experience very often. At least I'm not stressing about my two unfinished books or the hundreds of unread e-mails in my inbox for 24 hours!
Best regards,
Whitney