The disgrace of Robinhood; You've Never Heard of the Biggest Digital Media Company in America; How data can mislead; Simpson's Paradox
1) Trading app Robinhood (HOOD) reported earnings after the close on Wednesday and the stock tumbled more than 10% yesterday.
On July 29, I wrote:
It's a sad day in the investing world as stock trading app Robinhood goes public. As I've written many times before, I think this company is an absolute disgrace and agree wholeheartedly with Charlie Munger, who said it's "beneath contempt."
Robinhood belongs in the Hall of Shame alongside e-cigarette company Juul and Oxycontin maker Purdue Pharma for pushing products that hurt people.
Robinhood's entire business model depends on further turning our markets into, as Munger put it, "gambling parlors" – encouraging people to speculate madly by day-trading options and worthless garbage that I've nicknamed Doggycoin (DOGE-USD) and GameStink (GME).
Robinhood's earnings report only reinforced my view. To understand what a "gambling parlor" the app is, look no further than this chart:
Ripping your customers' faces off can, sadly, be a very good business – just look at most multilevel marketers like Herbalife Nutrition (HLF) and predatory lenders like World Acceptance (WRLD). But nevertheless, I'd avoid Robinhood's stock...
2) I was so happy to read this story in the New York Times about my old friend and business school classmate Ric Elias: You've Never Heard of the Biggest Digital Media Company in America. What an incredible story! Excerpt:
Lindsey Turrentine first heard of Red Ventures last fall, when it bought the venerable tech news site CNET, where she is the senior vice president in charge of content. She sat down at her kitchen table in Berkeley, Calif., and frantically started Googling to find out what it was.
Her experience wasn't uncommon. People working at the tourism guide Lonely Planet, the travel site The Points Guy and the health and medical information site Healthline were similarly blindsided in recent years, when Red Ventures bought up special interest publications in a multibillion-dollar shopping spree.
Their Googling and mandatory corporate retreats led them to the company's South Carolina headquarters, a 180-acre campus with a cluster of modern buildings, a fire pit, a six-lane bowling alley, spin room, pickle ball courts, and 264 residences for employees who choose to live where they work.
Red Ventures, which started as a digital marketing company, has attracted serious investments from private equity firms. Its location has helped obscure what is perhaps the biggest digital publisher in America, a 4,500-employee juggernaut that says it has roughly $2 billion in annual revenues, a conservative valuation earlier this year of more than $11 billion, and more readers, as measured by Comscore, than any media brand you've ever heard of – an average of 751 million visits a month.
3) I sent another missive to the 7,500 folks on my coronavirus e-mail list yesterday, which you can read here (to be added to it, simply send a blank e-mail to: cv-subscribe@mailer.kasecapital.com). The first item I discussed actually has some relevance to investing, as it relates to a statistical phenomenon called "Simpson's Paradox," so I'm including it here:
This is super interesting. For those of you who aren't quant geeks, all you need to understand is that the vaccine efficacy data from the U.K. and Israel are much better than they appear.
For you geeks who want to understand why, let's first start with the data. Here's the U.K. (source):
And here's Israel (source):
The first thing to notice is that, among those age 50 and older in both countries, 63% of those who are suffering severe cases (are hospitalized) are fully vaccinated, which leads anti-vaxxers to gleefully report that the vaccines don't work.
But, as always, they are completely wrong. In the U.K., 97% of people 50+ are vaccinated, so that means that the 3% of unvaxxed older folks account for 37% of the severe cases! Ditto for Israel, where only 7.9% of those 50-plus aren't vaxxed.
Thus, when you calculate the "efficacy" of the vaccine, it's a remarkable 94% in the U.K. and 85% in Israel (the lower number in Israel is likely due to the fact that it vaccinated its older citizens a month or two earlier, so the vaccine's protection may be fading – hence the need for booster shots, which I discussed in my second e-mail yesterday: Pfizer's COVID-19 Booster Shot Improves Immunity, Israeli Study Suggests).
But eagle-eyed readers may notice something even more interesting: in the U.K., the vaccine efficacy is 94% for those 50-plus and 87% for those under 50, but the efficacy for the entire population is only 75%. The numbers are similar in Israel: 85% efficacy for those 50-plus and 92% for those under 50, but only 67.5% overall.
How is it possible that the efficacy for the total population in both countries is lower than both cohorts?!
The answer is a statistical phenomenon that is explained well in this article: Simpson's Paradox: How to Prove Opposite Arguments With the Same Data. Here's a tweet that gives a good example:
In summary, when you see data for cases, hospitalizations, and deaths for vaxxed and unvaxxed folks in a particular state or country, it's critical that you break this down by age group (if there's a big difference in vaccination rates – as there usually is). Otherwise, you'll likely be misled.
Best regards,
Whitney