Here is an early interview of Eliz. Holmes: Could this finger prick blood test be the next “Game-Changer? Imagine if this company can change the cost and inconvenience of diagnostic care? Wow!
Why study this case of Theranos?
Whenever you study an investment, you should make notes on your thoughts at the time to go back and check your thinking and biases. How else can you improve as an analyst?
Now, unless you have been living in a cave, you know what happened. However, pretend that you didn’t know the outcome and you were reading the articles above for the first time and seeing the video. What RED FLAGS jump out at you. Or what would you need to prove in order to invest? And if you could not find the answer easily to the main question of the investment, what else would you scrutinize carefully? Think hard before reading on………..
I highly recommend the above book as a great read. You will also learn about investor manipulation, the will to believe and how it shuts off our critical thinking abilities, incompetent governance, employee abuse, EXTREMELY bad management, criminal actions, and a female sociopath. I could not put the book down–read it in a day.
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Next, a few years later, when Theranos, a private company with an estimated $9 billion value (!), faced a barrage of critics over the lack of transparency and no verification of the technology (“The Edison”), Cramer gives her a chance to rebut her critics.
Cramer asks Holmes about her Technology. What do you think of the answers? If you were an investor, what would be the first area to investigate?) Did Cramer ever follow-up specifically? No.
By the way, did you notice her deep (affected?) voice and her black uniform. Creepy.
As a former employee said Theranos product was like building a bus while driving down the highway with passengers. The problem is that people could get killed. This fraud hit home since I have amyloidosis. Not only did she and her accomplices hurt employees, investors, and–most importantly–PATIENTS! She and her CEO deserve a minimum 25-year sentence.
Note how SOCIAL PROOF euthanized investors critical thinking. Look at the prestigious board: George Schultz, General , etc. But note the lack of specific product/industry expertise to vet Holmes’ claims. She brilliantly piggybacked on the prestige of others. Any investor could have visited the Walgreen stores to check on the accuracy and completeness of the tests. Red flags would fly.
The employee turnover and secretiveness would have been other flags. What relevant experience to this field did she have? I am not knocking outsiders, but she and her CEO lacked any background in biochemistry. That isn’t enough to suspect problems, but it would place more urgency on verifying the efficacy of the technology.
Whether you are seeking to convince your neighbors and friends or asking an investor to act, throw out your TV and listen/read the great speeches in the last link below. Learn about persuasive rhetoric. How do you reach and convince people who DISAGREE with you.
Karl Pillemer of Cornell University interviewed 1200 people age 70 to 100+ for his book, 30 Lessons for Living,
asking them:
“If you look back over the course of your life, what are the most important lessons you learned that you would like to share with younger people?”
What was the #1 answer?
“Life is short.”
Seneca, in a beautifully worded passage, strongly disagrees:
“It is not that we have a short time to live, but that we waste a lot of it. Life is long enough, and a sufficiently generous amount has been given to us for the highest achievements if it were all well invested. But when it is wasted in heedless luxury and spent on no good activity, we are forced at last by death’s final constraint to realize that it has passed away before we knew it was passing. So it is: we are not given a short life but we make it short, and we are not ill-supplied but wasteful of it… Life is long if you know how to use it.”
No offense to Karl. He did a survey. So he didn’t necessarily get the right answer, he got the most common answer.
I’m with Seneca.
Life doesn’t have to be short.
We all have 24hrs in a day. Every single one of us.
You can use them to create something amazing, to visit that someone special who misses you desperately, to provide for your family, or to savor a great moment.
But don’t waste your hours.
Don’t end up wondering, “What have I been doing with my time?”
Leave a trail of accomplishments or smiles behind you.
– Andrew
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A Deep Value Investor’s Perspective: Kopernik vs, SPY and then FANGs
On April 11, 2018, the price of gold in US Dollars was $1,370. This morning on July 19th, the price was $1,2110.90 for a decline of $159 in 99 days. If current trends continue, then in 712 days or less than two years, the Gold price in USD terms will be about $0.00. The trend is your friend!
The single greatest mistake investors make is to extrapolate recent history out into the future. They take the financial returns of the past 5 days or 5 years or even 50 years and assume the next few days or years will look just the same without any consideration for the historical context or conditions that provided for those returns.
They forget that, while ‘history may rhyme, it doesn’t repeat itself’ (Twain). Or that, “the only thing that is constant is change” (Heraclitus). These two famous quotes apply to the financial markets as much as anything.
Ignoring these truths and instead simply extrapolating is why investors are suckered into pouring money into the stock market only after a run of great performance. They believe that the recent gains are about to repeat to their great benefit when they should be thinking about what conditions allowed for those gains to take place and analyzing whether they are still relevant or not.
This is also why they are suckered into selling only after a painful decline as they did at the lows made during the financial crisis. They believe that they are about to suffer another 50% decline on top of the one they just endured when they should really be reminding themselves that change is the only guarantee in life.
I believe this is one of the biggest problems with so-called “passive” investing. It is built upon the faulty premise that it is ‘impossible to forecast’ the future returns of any asset class over any period of time so we should just own all of them all the time. My response to this is that while ‘ignorance may be bliss’ it’s not a valid investment strategy.
In his 1992 letter to Berkshire Hathaway shareholders, Warren Buffett wrote:
We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children. However, it is clear that stocks cannot forever overperform their underlying businesses, as they have so dramatically done for some time, and that fact makes us quite confident of our forecast that the rewards from investing in stocks over the next decade will be significantly smaller than they were in the last.
Much can be learned from this short passage. First, short-term stock market forecasts are, indeed, nearly worthless – essentially a guessing game. Second, long-term forecasts, on the other hand, can be made with ‘confidence.’ “How?” you ask.
It’s actually very simple. Rather than fixate on recent history and extrapolate it into the future you must abandon this natural tendency. And as I said earlier you also need to analyze the conditions that allowed for those returns to see whether they are still relevant to today’s market.
In Buffett’s example he’s referring to the wonderful returns equity investors experienced from 1982-1992. During that span investors roughly quadrupled their money. Over the coming decade they merely doubled their money so Buffett was right that the decade beginning in 1993 would fall far short of the return of the prior decade even if they were still very good.
sc-22
But Buffett made another prescient forecast in November 1999 when he wrote:
Today, staring fixedly back at the road they just traveled, most investors have rosy expectations. A Paine Webber and Gallup Organization survey released in July shows that the least experienced investors–those who have invested for less than five years–expect annual returns over the next ten years of 22.6%. Even those who have invested for more than 20 years are expecting 12.9%. Now, I’d like to argue that we can’t come even remotely close to that 12.9%… you need to remember that future returns are always affected by current valuations and give some thought to what you’re getting for your money in the stock market right now.
You probably already know that stock market returns from 1999 to 2009 were not very kind to investors.
And Buffett tells us how he was so confident that this would be the case. He examined the conditions that allowed for returns to be so wonderful from 1982-1999 but were no longer present in 1999: wonderful valuations. Stocks were so cheap in 1982 that the coming decade was virtually guaranteed to be better than the decade that preceded it. (1972-1982 was another decade that was not fun for investors.) Then in 1999 valuations were so expensive that there was almost no possibility of decent returns going forward.
So let’s take a look at Buffett’s favorite valuation yardstick which he refers to on both of those prior writings. It tracks the total value of the stock market in relation to Gross National Product.
From the chart, it’s plain to see that valuations were extremely attractive back in the early 1980’s. This is why stocks performed so well over the next 20 years. However, I find it absolutely fascinating that stock market valuations today are essentially equivalent to valuations in November 1999 when he wrote that latter passage. Yeah, go back and read that last line again. It’s a doozy and it’s absolutely fact.
This is also why the past 5 years or even the past 50 years are totally irrelevant to equity investors in today’s market. There is almost zero possibility today of achieving a return anywhere close to what those historical returns represent. So shun forecasts if you want. Plead ignorance if it makes you feel blissful. But at today’s valuations you should at least be aware of the fact that it’s exceedingly dangerous to fall into the trap of extrapolating without analyzing.
What The Buy-And-Hold Cult Doesn’t Want You To Know
Buy-and-hold, and all of its related strategies like BTFD, garnered a cult following a long time ago and it’s only gotten even more popular in recent years. (There may be no better evidence of this than the StockTwits merch store – which I love, btw). And after one of the longest and strongest equity bull markets in history this should not come as any surprise. Investors are always influenced by recency bias and prone to extrapolation.
What is surprising, however, is that, despite that fact that it’s long-term (20-year) performance still crushes that of the broad stock market, gold has become so maligned among investors of all stripes, including gold bugs themselves. Yes, the past few years have favored equities over precious metals and I guess that’s where the recency bias kicks in again. But the truth is it has paid far better to be gold bug over the past two decades than to be an equity bull.
The point being to understand your time preference and time reference!
Update:
fred hickey @htsfhickey 20/July 2018 5 PM
Here’s Managed Money(mostly hedge funds) COT details: 134.2K short, 11% higher than highest level (gold’s bottom) seen in 2015, so likely a record.. Net short -26.5k contracts-essentially equal to Dec. 2015 gold bottom. For comparison, at gold’s mid-2016 top they were net 270K long ago
The setup: Gold bugs totally demoralized. Gold sentiment(DSI)down to just 7% with extreme dollar bullishness(92% DSI). Trump beginning to talk $ down (will continue). FY ’19 $1T+ budget deficit. Gold seasonal demand (starts now). Managed Money (hedge funds) net short& have to cover.
It’s likely these are record level shorts. That means there are more shorts than at the bottom in late-2015 – before gold exploded 30% & miners +160% in 6 months and more shorts than at late-2008 bottom before gold soared over 75% in 1 year. Perfect setup-assuming gold’s bottomed.
Whoa Nelly! Just as I suspected it was short traders driving gold down. Thru Tuesday (likely even worse now), a slight increase in longs& another massive 27.7K jump in large spec. futures shorts. In past 5 weeks +121% jump in short contracts to 161K -highest level in at least 11yrs.
BUT, ALWAYS STUDY THE OTHER SIDE–GOLD TO KEEP FALLING.
I am on my knees buying gold/silver/uranium miners with both hand this prior week (ouch!). Since the chart of the futures positions (COTS) is now more extreme–money managers are probably short now like back at end 2015/beginning 2016. I use the blog as a diary/bulletin board on occasion. I hate miners as a business but love the values. Note the vast underperformance of hard (read: miners) vs. financial assets (SPY). Not a recommendation, just a “diary” post.
Buying resource stocks has nearly nothing to do with the commodity. And near zero to do with management or country risk or interest rates or the dollar or what the DOW is doing. Those who are always wrong about markets spend a lot of time mumbling about all those things and they are just wasting ink.
Unbeknownst to GATA or the other PermaBulls who believe some munchkin at the Federal Reserve pulls the levers all of the time, markets go up and markets go down. They all do and they do it constantly. So if someone is telling you silver is the rarest mineral known to mankind and it should go up everyday of the week, forever, he’s lying to you in order to get you to pay for a subscription to his service. In short he’s like a bible thumping preacher or politician, he wants your support, and he specializes in telling you the lies you want to hear.
During the bull phase of the metals markets even the biggest piece of crap stocks go up. During the eventual bear phase of the metals markets even the best run with the most desired commodity in the safest jurisdiction goes down.
So investors in junior resource stocks need to keep two things in mind. You have to trade markets and take a profit when you can or the only alternative is to take a loss. I have had hundreds of investors tell me their biggest mistake was not taking a profit when they could. And given that something like 95% of investors in junior lottery tickets lose money, sell when you can, not when you have to.
You need to align yourself with the phase of the market you are in and let the wind be on your back. We had major lows in 2001 in gold and silver, again in 2008 and late in 2015. Don’t try to second-guess the market. If you were a buyer of anything from 2001 until 2008 you had a wonderful opportunity to profit. If you bought in 2009 or 2016, it was like shooting fish in a barrel. If you didn’t sell in March of 2008 or September of 2011, you got creamed regardless of the merits of the project or company. The phase of the market will either put money in your pocket or extract it regardless of what anyone says about a company.
Perhaps you should differentiate yourself by focusing on management’s character and skill. However, you will need to focus and work hard to make a difference in understanding who is unique.
Find founder-led companies who are mission driven–one place to start your search.
Imagine putting the numbers of Berkshire Hathaway during the early days of Buffett’s takeover into a spreadsheet–would ANYONE have bought Berkshire. Who would have focused on Buffett’s integrity and skills?
Short then is the time which every man lives, and small the nook of the earth where he lives; and even this only continues by a succession of poor human beings, who will very soon die, and who know not even themselves, much less him who died long ago. — Marcus Aurelius.
What upsets people is not things in themselves but their judgments about the things. -Epictetus.
The goal is not to eliminate or repress the emotions to become devoid of feeling, the goal is to attach the right judgments to them. We can find happiness, love, and beauty without desiring more than is within our control. We can enjoy music so long as we do not wish for it never to end. We can enjoy a cold drink in the sun if we do not at the same time wish for it never to pass. –Seneca.
While at all times Wall Street analysts try to justify the valuations, here is a fun quote (via Bloomberg) from 2002 looking back from Scott McNeely, the CEO of Sun Microsystems, one of the darlings of the 2000 tech bubble:
“At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes.
Ackman’s embattled Pershing Square hedge fund laid off 18 percent of its staff on Friday — a total of 10 pink slips that brought head count down to 46.
Investors have suffered in Pershing Square (PSHZF) vs. S&P 500:
He wants to hire an analyst who can THINK INDEPENDENTLY. You walk into his office and he asks you, “Can you think independently as an analyst?”
How do you reply. Be careful…………think for awhile before you reply. What proof can you give?
I only hear what I wanna hear and disregard the rest.
I have my righteous rage and pointless point of view–The Angry Young Man by Billy Joel
Often wrong but never in doubt–Chicago Slim
You will learn more about investing (or clear thinking) than weeks of hearing investment pundits, or I will send you a check. Without a point of view, just listen carefully to the above interview. If necessary stop the video and think after each question how you might respond in that situation. What techniques is the interviewer using? What is going on? There are many levels of psychology and level 1 and level 2 thinking exhibited here.
What did YOU learn? Even after multiple views, I need to review. Ignore politics and focus on the logic of the questions and answers. How does one’s psychological point of view and beliefs devastate a person’s ability to think critically?
Interviewer, Cathy Newman, “So what YOU are saying……………………….”
Jordan Peterson: “I DID NOT say THAT, because I am VERY, VERY, VERY CAREFUL with my words.”
If you only have two minutes to spare, then click on the 22 minute mark of the above video. Interviewer: “Why should YOUR right to FREEDOM of SPEECH trump a trans-person’s right not to be offended?” Remember that a “journalist” is asking this question in a Western liberal democracy.
