💡 CONVERSATION WITH PAUL SINGER
This conversation with activist legend Paul Singer is full of nuggets — from losing his mother’s savings in the 1974 bear market and buying distressed Argentinian debt to his current view of the markets and crypto.
Given the sharp down moves we saw in many assets in recent days, the following bit about the 2008 crash (more on that in a second) and the resulting emotional rollercoaster is as appropriate as ever:
Along the way, what I observed was that when people have losses, meaningful losses, they tend to lose their minds. They tend to lose their judgments. Their sloppiness in accepting the state of play of the world when the skies are blue turns into a clutching darkness when the headlines and the stories and their friends are in trouble and suffering terrible losses.
So I knew that judgment is impaired. I also knew that if you could keep, not only your head and your judgment intact, but your capital intact, these rare periods of time when there are special opportunities. Those last few weeks in ’08… unbelievable. Everything got cheap, and then they collapsed. If you had the constitution, as well as the ability by permission, as well as the excess capital to take advantage of those opportunities — that’s a pretty cool thing to do.
So if you don’t lose large amounts of money, the capital is like a ratchet effect. You make a buck, you keep it, you try to make another one.
📺 WHAT A DIFFERENCE 15 YEARS MAKE
While on the topic of media appearances…
Insider member Javi dug up an old clip of our very own Brad on Australia’s Sky News from back in 2011.
What’s perhaps most fascinating about the whole exchange (other than the fact that Brad hasn’t aged one bit in nearly 15 years) is how radically different investor sentiment was back then. With wounds from the 2008 crisis still fresh, the average investor wouldn’t touch US stocks with a barge pole — even though they were dirt cheap by any conventional metric, as Brad argued.
But the host suggests that in the post-GFC world, the traditional way of looking at stocks (things like P/E rations, etc.) might no longer be relevant. In other words, this time is different.
Was it really different, though? Well, you probably know the answer to that…
US stocks more than quadrupled since that interview, and most people forgot just how hated they were not that long ago. In fact, it’s somewhat ironic how market sentiment today is a complete 180 from the systemic skepticism in the early days of the bull run.
The average investor can’t get enough of US stocks, especially the Mag 7 (while completely ignoring the opportunities elsewhere), and the Sir John Templeton quote that Brad referenced in that clip is just as true as it was back then…
Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.
The only difference is that today we’re in the much later stage of the market cycle — somewhere between optimism and a full-blown euphoria.
🔭 WATCH OUT FOR CONTRARIAN INDICATORS
We covered a variety of contrarian indicators in these missives before. Magazine covers, new sector/asset class ETF being launched (or ETFs shutting down), out-of-favor stocks getting booted out of indices (or investor darlings added), etc.
But there’s one that we haven’t discussed yet here (though we did in the Insider Newsletter on a number of occasions): spin offs. More specifically, we’re referring to companies spinning off out-of-favor segments of the business into a new publicly traded entity.
Frequently, these spinoffs happen at the worst possible time, at the bottom of a cycle (conversely, big mergers or takeovers tend to happen at the top of a cycle). That’s why it’s not uncommon to see those unwanted spinoffs then outperform their “parents” (or former parents, rather).
One of such “unbundlings” we’ve been keeping our beady eyes on is an oil and gas company called TechnipFMC. To get you up to speed with the story, here’s what we wrote in an Insider Newsletter issue back in 2022:
Some 18 months ago TechnipFTI decided to spin-off its out of favour oil and gas subsea engineering business (FTI:NYSE) from its in vogue LNG refinery construction and engineering as well as bio-conversion, carbon capture, and hydrogen business (TE:Paris).
Industry publications called it a “bold move,” which — considering how universally hated offshore oil and gas was at the time — shouldn’t come as a surprise.
But four years down the track now, and look at who has performed better…
It played out just like how we said it would — with the unloved business handily outperforming the former parent. It pays to watch out for these kinds of spin offs as they are a great contrary sign (and often a great buying opportunity).
💀 ANOTHER ONE BITES THE DUST
Not a week goes by without another poster child of the zero-rate era going tits belly up. The most recent casualty is EV maker Nikola.
Whowudathunkit?! In a world littered with green energy hogwash, Nikola might just be the most egregious example. It was a giant fraud with a side of tomfoolery and extra deception. Chris singled it out as such many moons ago (back in June 2020) in the Insider Newsletter:
And don’t look now, but Nikola has a market cap comparable to Ford and not far off Daimler!
Nikola, I will remind you, has no trucks or no anything in production yet. Never has. Which means there are not only no profits but no revenues. Cool huh.
In hindsight, he couldn’t have timed it better. It was only downhill for Nikola (more on that in a second) and their shareholders from there on.
At the peak, Nikola’s market value was more than $28 billion, even more than Ford. Except that Ford actually sold 2 million cars that year.
Meanwhile, Nikola literally sent a prototype truck down a hill (and filmed it)… you know, to make it seem like they actually have a functioning product.
Here’s from the subsequent SEC complaining against Nikola’s founder, Trevor Milton,
For the commercial shoot, the non-functioning Nikola One prototype truck was hauled to the shooting location by a lowboy semi-truck trailer. At this time, and more than a year after the unveiling event, the Nikola One still could not run under its own power. It was towed to the top of an inclined stretch of road and then filmed rolling down the incline. This towing-and-rolling process was repeated three times to have sufficient footage for Company 1’s commercial.
You really can’t make this isht up! And yet, despite all this, they were able to raise billions of dollars from VCs and blue chips like General Motors. Time and again, we are amazed at how (supposedly) sophisticated investors get so readily swept up in hype.
💩 BECAUSE SOMETIMES YOU JUST GOTTA CALL IT…
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Have a great weekend!
