Two talks by Yen Liow; Jeff Bezos' 2020 annual letter; How Amazon Strong-Arms Partners Using Its Power Across Multiple Businesses; New Investors Discover Tax Pitfalls of Robinhood; MA regulators seek to revoke Robinhood's license; Pictures from Cape Town
1) My friend Yen Liow, the founder of hedge fund Aravt Global, is one of the smartest guys I know and articulates his investment approach better than anyone I've ever seen. He recently did two interviews that are absolute must-watches for any serious investor – trust me.
The first is an 83-minute podcast with Ted Seides on his Capital Allocators podcast, which you can listen to here or watch on YouTube here.
The second is a 30-minute conversation Yen had with my friend and former partner John Heins at the University of Alabama Capstone Student Investment Conference earlier this month, which you can watch here. In it, he shares his favorite stock idea: Swedish gaming company Evolution Gaming (EVO.ST).
2) Amazon (AMZN) CEO Jeff Bezos just released his 2020 annual letter. I've compiled a PDF of every one of his letters going back to 1997, which you can download and read here.
Though Amazon's stock is near its all-time high, I continue to think it's a buy... I see few companies better positioned for long-term growth and rising profitability.
3) Though I greatly admire Amazon overall, I worry about its enormous power – and how it wields it – so I applaud articles like this one in the Wall Street Journal that do in-depth investigations of the company with a critical eye: How Amazon Strong-Arms Partners Using Its Power Across Multiple Businesses. Excerpt:
Amazon's tactic of leveraging dominance in one business to compel partners to accept terms from another is a familiar one, said former Amazon executives and officials at companies on the receiving end. Amazon's tactics, they said, go beyond typical product bundling and tough negotiating in part because the company threatens punitive action on vital services it offers, such as its retail platform.
Partners often acquiesce to Amazon's demands, the executives and officials said, because of its power in a range of market sectors...
David Barnett, chief executive officer of PopSockets, maker of cellphone accessories, said Amazon employees can make these kinds of threats because the company is so powerful. "Their employees are going to try to hit their goals by whatever means they can, including these asymmetric relationships," he said.
Mr. Barnett, who testified before the U.S. House Antitrust Subcommittee last year, said Amazon used its retail-platform power and a promise to rid its marketplace of counterfeit PopSockets products to compel PopSockets to spend more on Amazon's ad service.
In his testimony, he said: "One has to ask, 'How is it that such a successful business maintains partnerships with so many companies while bullying them?'" Because of Amazon's power, he said, "they have to tolerate it."
4) I was stunned to read that Robinhood and certain other trading apps don't allow tax lot allocation – this makes a huge difference when it comes to minimizing taxes on capital gains.
Let me be clear: If you're trading in a taxable account via Robinhood or any other app with this bug, you're likely making a very expensive mistake! New Investors Discover Tax Pitfalls of Robinhood and Other Trading Apps. Excerpt:
"Robinhood puts all shares of a stock into one big bucket," says Mr. Leong, age 43, who lives in Berkeley Heights, N.J., and also works as a property manager. "I'm haunted by my 2020 capital-gains tax."
With 2020 tax bills coming due, a wave of new retail traders are waking up to the fact that it can be difficult, and often impossible, to make tax-minimizing moves on new brokerage platforms such as Robinhood, Webull, SoFi, Uphold and Public.com. Some don't allow trading within tax-favored retirement accounts such as IRAs. Traders can also find it hard to track their "wash sales" that reduce tax benefits if they buy a stock within 30 days of selling the same stock at a loss.
Most vexing for investors like Mr. Leong is that despite the new platforms' sophisticated technology they don't make it easy to deploy a tax-wise technique known as "specific-lot identification." Investors use it to lower their taxes, sometimes significantly, by choosing which shares to sell if they have lots bought at different prices and aren't selling all of them.
Here's why this issue matters. Tax laws allow investors with taxable accounts to use the losses they incur when they sell a stock that's dropped to offset the taxes on gains from the sales of stocks that have climbed. The losses can also offset up to $3,000 of other income, such as wages, each year. Unused losses carry forward for use against future gains and other income.
5) My main beef with Robinhood, however, is the "gamification" of investing, which lures newbies into things that are likely to blow them up: buying the most speculative stocks, trading them furiously, and worst of all, using options excessively. So I was glad to see at least one regulator holding the company's feet to the fire: Massachusetts regulators seek to revoke Robinhood's license. Excerpt:
Massachusetts regulators on Thursday sought the revocation of Robinhood's broker-dealer license after charging that it encourages inexperienced investors to place risky trades without limits, while the online brokerage sued to invalidate a new rule underlying the case...
Robinhood, which is seeking to go public through an initial public offering, in a blog post called the regulator "elitist" and said it was seeking to "reinstate the financial barriers that Robinhood was founded to break down"...
He alleged the app-based service used strategies that treated trading like a game to lure young, inexperienced customers, including by having confetti rain down for each trade made on its app.
6) My parents and I are having a ball in Cape Town with our splendid host, David Berman. (For those of you on the fence about whether to get vaccinated, once you've done so, this is the kind of trip you can take!)
In the five days I've been here, I've hiked three peaks, been kiteboarding twice (I've never had so much seawater up my nose!), played tennis and golf, and gone shark cage diving.
Here are a few pictures, and I've posted more details and pictures on Facebook here:
Best regards,
Whitney