Columns

Bitcoin Traders’ Ship Came in … Then it Was Sold for Scrap

Some very interesting characters who advocate building homes on the world’s oceans tried to make lemonade out of lemons, but it went pear-shaped. They picked up a cruise ship cheaply since the industry is still idled by the Covid-19 pandemic and began auctioning cabins off to cryptocurrency enthusiasts — in dollars of course — to use as a floating base off the coast of Panama. The group rechristened the former Pacific Dawn the MS Satoshi.

Always do your research before an impulse purchase! As I wrote in a brief “Overheard,” the normal maritime laws still applied, even in a country known for its flags of convenience. The insurance requirements proved ruinous.

“Unfortunately, we will not be able to proceed because of archaic big insurance companies that cannot adapt to innovative new ideas,” wrote Ocean Builders Chief Executive Grant Romundt in an email to investors.

According to a Facebook fan page, MS Satoshi was sold for scrap and was last reported to be steaming to a yard in India to be broken up.

Columns · investing

The Curse of Star Managers

I edit more and write less these days, but even when I do write I often forget to link to it here. I’ll try to be better in 2021.

One thing I wrote recently generated an unusual amount of reader email, split about 40-60 between congratulatory and outraged. I said that star fund managers are to be avoided and I used the example of Cathie Wood, whose main exchange traded fund at ARK Invest grew assets by 1,000% last year and gained nearly 160%. She bet big and won on hot stocks like Tesla and biotechs that benefitted from Covid-19 speculation.

I am apparently a misogynist or don’t understand her genius or both. Anyway, the evidence is pretty strong that jumping on the bandwagon once a fund manager graces magazine covers isn’t a great idea whether that manager has a “Y” chromosome or not. You can read more about managers like Ken Heebner and Bill Miller in my book.

The column starts out with a “famous last words” puff piece from The Motley Fool titles “Move Over, Warren Buffett : This Is the Star Investor You Should Be Following.”

So read the headline on a year-end article from retail investing advice site Motley Fool touting the performance of fund manager Cathie Wood. Variations on the “Buffett is done” theme have been around since at least the tech bubble, while the cult of star mutual-fund managers goes back to the 1960s. Such commentators have eventually eaten their words.

Ms. Wood is a savvy businesswoman, but is she a savvy investor? Stock picking skill is very rare and even harder to discern when the manager is riding a hot category. In a bull market propelled by dumb retail money, everyone is a genius. It takes many years to establish whether success is random. And, as I point out, star manager’s performance is often worse than random on the downside. The most promising active funds are those that lagged their peers recently or got a low rating from a firm like Morningstar.

Fund managers are often compared with dart-throwing monkeys. That might be too flattering for those who get the most attention. Hot funds’ performance is often worse than random on the downside. A regularly updated study on the persistence of investor performance from S&P Dow Jones Indices shows that just 0.18% of domestic equity funds in the top quartile of performance in 2015 maintained that through each of the next four years—less than half what one would have expected by pure chance. And of course most actively managed funds lag behind the index to which they are benchmarked because of fees and taxes.

Anyway, the tone of the emails has made me more convinced that some investors in “disruptive innovators” have lost touch with reality. Congrats if you were early — the fund’s performance is pretty impressive (see chart below) — and be careful if you were late.

Columns · investing

Bear Markets

With apologies to Stanley Kubrick, I titled my latest Heard essay “How I Learned to Stop Worrying and Love the Bear Market.

It sounds a bit flippant at a time when so many people are seeing their nest eggs melt down on paper, but the message is important. Retail investors lag the market significantly because of timing errors and the biggest mistakes are made at junctures like these. If the 20% bounce from the coronavirus-fueled low turns out to be a dead cat bounce then it will stoke further pessimism and cause people to either sell or to have less of their wealth in risky assets such as stocks once the eventual turn comes.

I’d love to tell you when that turn will be, but I can’t and neither can anyone else. The important thing to remember, though, is that if you were comfortable having, say, 70% of your nest egg in stocks when the Dow was knocking on the door of 30,000 then you should feel the same way at 20,000 or (gulp) 15,000. The richest gains of the next bull market (no, I don’t think this recent bounce was the start of one) probably will come early on. They always have before.

For example, if you put $100,000 into a plain vanilla U.S. index fund at the very start of the last bull market in March 2009 and had sold at last month’s peak then you’d have $630,000 including dividends. If you had decided to wait three months to make sure it wasn’t another false alarm then you’d have just $450,000.

Bad times are surprisingly good. If you could go back in a time machine and buy stocks at the bottom of every bear market of the past 90 years but had to sell as soon as a recession had officially ended then your annualized return would be a whopping 64%. You would never have lagged the market’s long-run return.

And what if you really can’t sleep at night? Well that’s okay – Covid-19 is enough to worry about! But then you should do one of two things. One would be to dial back the risk you take permanently – no cheating the next time everyone around you is getting rich on pot stocks or whatever the next fad will be. You’ll be that much older and closer to retirement then anyway. The other would be to entrust your money to someone else like a reputable fee-only adviser or a robo-advisor like Betterment or Wealthfront and just check it as infrequently as possible.

Why should you (sort of) like bear markets? Because they’re the time when your attitude can make you a superior investor. Everyone is a genius in a bull market, but tough times are when your mettle matters – no finance degree or superior IQ required. When those glossy brochures from a brokerage firm tell you that the long run return of stocks is 9.6% or whatever, those returns include bear markets that have seen portfolios cut in half or worse.

That’s my usual spiel, which you can read about at length in my book as well, but it’s when I finish giving it and emphasize that nobody on Wall Street knows anything that someone inevitably asks what I think about the market anyway.

I used to get paid a lot to tell people which stocks to buy. Now I get paid a more modest sum to write and edit articles about the same thing. It doesn’t mean you should listen to me about what or when to buy. But, for whatever you may think it’s worth, I’m pretty pessimistic at the moment. If I hold to form then I’ll still be pessimistic when the turning point is reached and we all should be buying stock funds like crazy.

Columns

Paging Mr. Whipple!

I hear that toilet paper in Hong Kong is worth its weight in gold. Well it isn’t – I checked.

You hear it all the time when people talk about a luxury good or one temporarily in short supply: “It’s worth its weight in gold!”

Very few literally make the grade, though—particularly something an ordinary person might legally buy or consume. Rhodium and heroin don’t count. The latest product to attract the inaccurate label is humble toilet paper courtesy of the coronavirus epidemic, or rather the public reaction to it. A rumor in Hong Kong that supplies would be disrupted set off panic buying and shelves are empty. Supermarket chain Wellcome has instituted a purchase quota.

When shortages emerge bad guys soon sense an opportunity, and it was no different in the relatively crime-free city. Thieves stole 600 rolls with a retail value of $218.

Crime usually doesn’t pay, and it didn’t in this case, either. The thieves were apprehended. Had the rolls been literally worth their weight in gold, at least the effort may have been worth the risk. A typical 227-gram two-ply roll would have to be fenced for $11,895, though.

At that price, even a premium newspaper like this one would present an irresistible arbitrage opportunity for a bathroom-goer—and you could even read it first.

Columns

Cruise Companies Will Get Decked

I wrote about the cruise industry. There are often disasters or mishaps like the 2012 Costa Concordia accident or the Carnival “poop ship” in 2013 that produce temporary bargains for people brave enough to pounce on a cheap vacation deal or stock. The latest scary quarantines may be different, though.

There are threats aside from the immediate epidemic. The fact that the quarantines have occurred in Asia may do permanent damage to China’s embrace of cruising in what Carnival management has said it believes will grow into the world’s largest cruise market. About 4.24 million, or 15% of cruise passengers, came from Asia in 2018 according to the Cruise Lines International Association.When cruising was in its infancy in the U.S. it received a warmhearted P.R. boost from “The Love Boat” TV show that ran from 1977 to 1986. To would-be cruisers from China’s emerging middle class, scenes of ambulances and quarantines are leaving a far less heartwarming image than jolly Captain Stubing.

Columns

Oil and Coronavirus: Will There Be Blood?

I wrote about the tough times in America’s oil patch and how much tougher they have become since the coronavirus knocked about a fifth off of crude prices.

The oil market is more accustomed to dealing with supply shocks than collapses in demand. While strategic reserves can ease shortages, even the most eager Fed chairman or Treasury secretary can’t create demand for a million barrels of oil a day by pushing a button—not that they would agitate for higher pump prices anyway.

Columns · journalism

This is not a spoof

It sounds like a spoof, but a New Jersey company that says it values “your privacy” is suing to thwart an effort to end a costly and invasive practice: calls from strangers using faked numbers made to appear familiar or even official.

Earlier this year, North Dakota made it a crime to “transmit misleading or inaccurate caller identification information with the intent to defraud or cause harm.” The company, called SpoofCall, argues the law is unconstitutional according to a report by The Bismarck Tribune.

Ironically, SpoofCard was until last year part of a company that also offered a service to “find out who’s calling from blocked numbers.” IAC bought the parent last year but says SpoofCard wasn’t part of the deal.

Chief Executive Officer Amanda Pietrocola says the company only objects to provisions punishing callers for “defrauding people of their time.” “Our goal is to find a happy medium here.” She says SpoofCard doesn’t do business with robocallers but won’t disclose how many calls it enables daily.

Tracking down the company’s attorney was straightforward, but contacting Ms. Pietrocola through her company’s own public website took more effort: It doesn’t list a phone number.

Columns · investing

The Oracle of Qaqortoq

On his 89th birthday, I asked a question that the Oracle of Omaha is well-equipped to answer: How would we value Greenland?

Warren Buffett ’s 89th birthday is a good occasion to revisit a question that has been weighing on financial minds lately—what price to put on Greenland.
As far as we know, President Trump hasn’t contacted the Oracle of Omaha on the question of valuation, much less negotiating tips. But one of Mr. Buffett’s earliest letters to investors has an interesting way to think about such outlays. He quipped that Queen Isabella of Spain, who gave Christopher Columbus the equivalent of $30,000 to find the New World, could have instead invested it at 4% interest and had $2 trillion by 1963—nearly $18 trillion today.
Denmark spurned an offer from President Harry Truman of $100 million in 1946 to sell Greenland. It is unlikely that a then-17-year-old Buffett, already a budding value investor, would have made the offer. The same sum invested in the S&P 500 would have compounded since then, with dividends reinvested, to a whopping $163 billion.

Denmark may have missed a huge opportunity, but don’t judge too harshly—the future author of “The Art of the Deal” was only born that year.

Columns · journalism

Airlines Could Charge Us Even More

No, it isn’t by installing a credit card reader in the lavatory or making us stand (but let’s not give them any ideas). Airlines already have charged extra for “preferred seating” as in I would prefer not to sit way in the back of the plane next to a screaming baby. Apparently, though, those seats (which I often seem to get) make it far more likely that you’ll survive. I wrote about this at work.

“Ladies and gentlemen, we are now ready for general boarding. Our diamond preferred ‘more likely to survive a crash’ passengers are welcome to come to the gate.”

You won’t be hearing an announcement like this at the airport any time soon, but it is a fact that some of the most and especially the least expensive seats on an aircraft give you better odds of living should tragedy strike. KLM India came under fire for spelling this out in a since-deleted tweet.

Discussing air travel fatalities isn’t only in bad taste but is believed to be bad for business. Or is it? U.S. airlines have found an additional source of income in recent years in charging for preferred seating—generally those that might have some extra legroom or let you deplane more quickly.

Seats at the back of the plane are therefore less likely to command a premium above the advertised fare, but perhaps they should according to KLM India’s tweet. Already-expensive ones near the front are slightly safer, but the fatality rate “is least for seats at the rear third of a plane.”