Mon, Dec 13, 2021|Whitney Tilson

'Hard Money's Million Dollar Podcast'; My China e-mail list; Meet the Kidd Who Goes Toe-to-Toe With Warren Buffett; The Ultimate Superpower in Investing; My remarkable day yesterday

1) My colleagues Enrique Abeyta and Gabe Marshank's latest Hard Money's Million Dollar Podcast is particularly insightful. They only briefly discussed speculating in levered cryptocurrency options, which is the main way they turned $10,000 into $134,625 since the launch earlier this year. The rest of the time, they talked about a variety of other interesting topics:

Why they like Shopify (SHOP). (The stock is an open recommendation in Empire Stock Investor, which you can sign up for here; it's only $49 for the first year.)
Why they're certain that the market caps of electric vehicle makers Lucid (LCID) and Rivian Automotive (RIVN) will fall at least 50% – and likely 70% – from the current $163 billion combined (at which point, they both might be good long-term buys).
Why they're excited about the metaverse.
Why they don't recommend "buying the dip" in China.

You can listen to the podcast by clicking here.

2) Speaking of China, while I view the country as uninvestable for me (and most investors) because of the exceptionally high risk of getting defrauded or having the company you've invested in be expropriated (either directly or via sudden, onerous "regulations"), I think it's a fascinating country. I've visited so many times that I have a 10-year, unlimited-entry visa, read everything I can about it, and even have a dedicated e-mail list for it, similar to the ones I have for COVID and Tesla (TSLA). If you wish to be added to it, simply send a blank e-mail to: china-subscribe@mailer.kasecapital.com. Here are the latest articles I sent to this list:

3) I really enjoyed these two articles about the keys to long-term investment success. The first is by one of my favorite writers, Jason Zweig, who writes The Intelligent Investor column for the Wall Street Journal: Meet the Kidd Who Goes Toe to Toe With Warren Buffett. Excerpt:

The typical stock fund manager is a sheep in wolf's clothing: passively mimicking the market, with only a few small and timid active bets.

By taking the opposite approach, Wilmot H. Kidd III has racked up one of the greatest long-term track records in the history of investing.

Over the past 20 years, Mr. Kidd's Central Securities, a closed-end fund, has outperformed Warren Buffett's Berkshire Hathaway (BRK-B). Over the past 25, 30, 40 and even nearly 50 years under Mr. Kidd, Central Securities has resoundingly beaten the S&P 500 Index.

The keys to his success? Patience, concentration and courage.

On Dec. 31, Mr. Kidd, 80 years old, will step down as Central's chief executive, although he will remain chairman. The fund has $1.3 billion in assets.

Don't feel bad if you've never heard of Mr. Kidd. He has no LinkedIn page; barely even a photograph of him can be found online. He thinks my recent conversation with him is, at most, the fifth interview he has given in his half-century-long career.

But Mr. Kidd is a model for how to think about, and practice, intelligent investing.

In 1962, the business historian Alfred D. Chandler wrote that "unless structure follows strategy, inefficiency results."

At most asset managers, strategy follows structure instead. As a result, funds own too many stocks, trade too frequently and charge too much.

No wonder most active managers underperform market-tracking index funds that charge a fraction of their fees.

At Central Securities, Mr. Kidd ensured that structure has followed strategy – with astounding results.

If you had invested $10,000 in Central Securities at the end of March 1974, when Mr. Kidd officially took over, you would have had nearly $6.4 million by the end of this October, according to the Center for Research in Security Prices. The same amount put into the stocks in the S&P 500 would have grown to $1.9 million. Central Securities grew at 14.5% annualized with dividends reinvested, versus 11.7% for the S&P 500 stocks.

As Enrique often says, the only two investing strategies that make sense are to trade a lot... or not at all. I greatly prefer – and, for 99% of investors, highly recommend – the latter...

4) The other article, by Charlie Bilello of Compound Capital Advisors, highlights how even if you hold the greatest long-term stocks, you still must have the patience, courage, and conviction to weather some big drawdowns: The Ultimate Superpower in Investing. Excerpt:

Here's a list of the top 30 stocks in the S&P 500 over the past 30 years...

Source: Data via YCharts

What stands out? The unfathomable returns, a product of time and the magic of compounding.

What's lost in this graphic, however, are the many periods of excruciating pain that anyone invested in these companies would have experienced.

When thinking about big winners in the stock market, excruciating pain probably isn't the first thing that comes to mind. We focus instead on the final outcome (eye-popping long-term gains), ignoring the tremendous fortitude (holding through large drawdowns) and faith (believing it will come back) required to achieve that outcome.

5) Wow, yesterday was quite a day, even for me...

It started at midnight, as six of us plus three guides huddled in our sleeping bags, wearing every shred of our warmest clothes (for me, four layers on my legs, five on my body), in a yurt at 17,400 feet on Chimborazo, the tallest mountain in Ecuador. Though we were still 3,100 vertical feet from the summit, we were already 3,000 feet farther from the center of the earth (or 3,000 feet closer to the sun) than the top of Mt. Everest due to the greater width of the earth near the equator.

Earlier on Saturday, we had hiked two hours up 1,450 vertical feet from the parking lot to the upper base camp as snow and, worse yet, thunderstorms set in (lightning is bad news!). We had an early dinner and then tried to sleep until midnight, which was the ideal time to attempt the summit. (You want to climb at night because of increased avalanche and thunderstorm risk during the day.)

Unfortunately, during our departure window from midnight to 2 a.m., there were high winds and whipping snow/hail, so as much as we all wanted to summit, we knew it wasn't going to happen on this trip.

Once I recognized this, I decided to fly home early, so I checked flights (much to my surprise, I had good cell phone coverage) and found a 3:10 p.m. one from Quito through Miami to New York's JFK.

Nobody could sleep much, so we woke up at 5:15 a.m., packed up, and started hiking down at 6:00 a.m. It was very frustrating to see that the conditions had improved enough that, a mere four hours earlier, we would have gone for the summit. But that's mountaineering – you can't control, or play games with, Mother Nature... (This is a good example of why I only climb with professional guides – they keep me safe not only on the mountains, but also, when called for, keep me off the mountains!)

We got to the cars by 6:45 a.m. and drove to a lovely hacienda where my colleagues spent last night. I would have loved to stay for breakfast and a much-needed shower, but instead, I quickly unpacked and repacked, and one of the guides drove me four hours to the airport, getting me there by 1:00 p.m., just in time for my flight home!

From a blizzard on the slopes of Chimborazo at 12:01 a.m. to landing at JFK at 11:58 p.m. – that's quite a day!

Travel tip: When traveling internationally, carry a quick antigen test (you do not need a PCR test to reenter the U.S. – an antigen test is also accepted) so you can do what I did. Two hours before my flight, with a bag to check and without the COVID test I needed to board the flight, I sat in the terminal and did a self-test... 25 minutes later, I had an official negative test result that allowed me to reenter the U.S. Note, however, that you can't use any old generic test that you might buy in a drugstore – it must be one that gives you an official result, either printed or on your phone. I carry the BinaxNOW COVID-19 Ag Card Home Test Kit, made by Abbott Laboratories (ABT), which works in conjunction with the company's Navica app. (You can order tests using the app – it costs $25 plus taxes and shipping.) When you're ready to take the test, before you open it, you must go online with a Navica representative who guides you through the test process and then sends you official results. Note also that the U.S. government now requires that whatever test you take must be administered no earlier than the day (it used to be three days) before you travel (which could be more than 24 hours, e.g., a test taken at 9 a.m. on Thursday is good for travel at 10 p.m. on Friday). A final note: Antigen tests generally only work upon your return to the U.S. To enter most other countries, you need both proof of vaccination and a recent – typically three days – PCR test. They will not accept an antigen test.

Here are some pictures of us on the way up, in and outside the yurt, having dinner in a nearby yurt, and on the way down:

I posted more pictures and descriptions on Facebook here.

Best regards,

Whitney

P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.