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Some things and ideas: July 2021
Some random thoughts on articles that caught my attention in the last month. Note that I try to write notes on articles immediately after reading them, so there can be a little overlap in themes if an article grabs my attention early in the month and is similar to an article that I like later in the month.
My monthly overview
I'm going to start putting this piece in at the start of every month. I just want to highlight two things
I do four things publicly: this blog / substack (the free side), the premium side of this blog, my podcast (Spotify, iTunes, or YouTube), and my twitter account. You can see my vision for the podcast here, and my vision for the blog and premium site here. If you like the blog / free site, I'd encourage you to check out the pod, follow me on twitter, and maybe even subscribe to the premium site!
I try to be as helpful as humanly possible to anyone whose research / writing I enjoy. In almost every post I do, you'll notice I link to other subscription services or investors who I like. I don't get referral fees or anything for that; these are almost always organic links and highlights that I do not because I was asked to but because one of my goals with the (very small) platform I have is to shine light on other people who are doing good work and make sure they have a platform big enough to encourage them to keep doing good work!
If you're launching a subscription service, or a new blog, or you're an investor who has done some really good research and wants to get some more eyeballs on it, please drop me a line and let me know. If the quality is there, I would love to link to your blog post or subscription service or research (and if the quality isn't there, I'm happy to provide feedback! I have done so with several services and I think my advice is good / appreciated / helpful!), and I'd love to have you on the podcast to talk about all of it. I can't promise anything, but most podcast guests / people I've linked to have been very happy about the reception / feedback they've gotten (I've even been called the king of the sub bumps / almost as good as Twitter, and I've generally heard from investors with LPs who come on the podcast that they're delighted by the response). My DMs are always open, so feel free to slide into them if I can be helpful!
Friend of the podcast Aaron Edelhiet is running a campaign for Children’s Hospital of Los Angeles (CHLA). It’s a great cause, and the story behind why Aaron chose CHLA is incredible. I’d encourage you to read it and join me in donating (if you can)!
Joey Chestnut and Renaissance Tech’s returns
Ok, weird association, I know. But bear with me for a second:
Joey Chestnut (or JC, as my wife calls him) won the Nathan’s hot dog competition this year, as he has for the past six years and 14 times overall. It’s an unbelievable performance; he now owns all ten of the records for “most dogs eaten.” That record is even more impressive when you consider the rule changes; the contest used to be how many dogs you could eat in 12 minutes, and in 2008 they cut it down to 10 minutes. His tenth best performance came in 2007, when he ate 66 hots dogs in 12 minutes. He’s now beat that number 9 times with just ten minutes.
It’s honestly tough to understate how dominant JC is. He was a 1-50 favorite to defend his title, and he ate 76 hot dogs during the contest; second place ate 50 dogs and third place ate 44. The gap between JC and second place was more than 4x as wide as the gap between second and third, and he’s within spitting distance of doubling the third place finisher. In sports, making small progress is massive (i.e. a professional runner would do anything to shave a tenth of a second off their 100 meter time, even though it doesn’t seem like much), so to be this far ahead of the field is just mind blowing.
So how does Renaissance factor into this segment? Well, I asked online if there was anyone as dominant / far ahead of their field as JC in hot dog eating. One person responded Katie Ledecky, which I think is a really interesting comp (I’ve previously suggested Brandon Sanderson in fantasy is leaps ahead of everyone else there too!). But another account responded with Jim Simons of Renaissance fame as lapping the field in investing. And it’s true: the Renaissance Medallion funds results are so far ahead of everyone else results that it’s laughable. So yeah, maybe they qualify. But I’ve always had a lingering question on Renaissance, so I figured I’d through it out here: how is Medallion consistently crushing the market while their other funds are getting rocked?
Some background might be helpful: Medallion is Renaissance’s “internal money only” fund, and it delivers some of the most incredible results you’ve ever seen. The other funds are Renaissance’s “external money” funds, as Medallion long ago closed to external money.
Look, I’m just some small time blogger / fund manager. I haven’t seen any of Renaissance’s docs or anything. Apparently the SEC has spent lots of times in Renaissance offices and came away satisfied that nothing crazy is going on here; it’s just that Medallion’s strategy is more short term focused while the other funds use “longer-term aberrations.”
All that said, I’m know I’m not the only surprised by the divergence in the returns (and note this is not a one time divergence; Medallion has been crushing the markets while the external funds trail for years). But I wonder how investors in the “external money” / less successful funds get comfortable that:
Medallion isn’t generating market beating returns simply by front running the external funds (this is what long time Madoff investors thought he was doing; of course, that was a complete ponzi)
Given the incredible returns for the internal money funds, that Renaissance really cares about the external money funds.
Anyway, I don’t know. But it seems pretty strange to me the same firm can run two separate funds with one managing internal only money and producing literally world beating returns while the other manages external money to “bleh” results.
I was prepping for a pod on BUR, and I stumbled on the quote from their CEO below
And I think you -- and you can see from like small things that are nonetheless significant in the employee population of that belief. You see quite a number of employees investing in the business, whether it's by investing in the funds or whether it's by taking excess -- converting bonus cash dollars into stock plan dollars, things like that, that we offer. Those are all, to my mind, pretty strong indicators that it's not just my own view, but it's the view of what is clearly the market-leading team in the industry.
BUR is a battleground stock. Some people think it will collapse in epic fashion; others think it’s the next big alternative asset manager and will compound at crazy rates for years. The quote got my mind turning because you could see elements of both in it. As a shareholder, who wouldn’t want a company where the insiders (and not just high level insiders, but rank and file!) are so convicted in the mission that they’re buying stock aggressively???? '
Well, it sounds great…. but talk to former employees at Lehman or Enron. Both had company cultures that encouraged employees to take their bonus, invest it all in the company’s stock, and then #neversell.
No real point here. It’s just another example of how the line between the far left tail of companies (i.e. dramatic frauds) and the far right tail (compounders that demolish the indices and change the world for decades) is pretty small!
Didi and Clover
I know this section makes me sound like a grumpy old man, but bear with me:
Didi IPO’d in late June. Two days later, China blocked the app from accepting new users, and subsequent reporting made clear that Didi knew about this before they IPO’d / regulators had suggested they shouldn’t IPO (Matt Levine had a good overview / take on the situation).
This reminds me a little of Clover, which went public through a SPAC and didn’t feel the need to disclose a DOJ investigation (I mentioned it here).
There’s been plenty of ink spilled on how what’s happening with Didi shows the risk of investing in Chinese ADRs / VIEs from a U.S. investor perspective. But I’m not sure how the SEC can let companies continue to go public without disclosing federal investigations / regulatory overhang. At some point, doesn’t that break faith in markets?
My solution would probably be to start hitting the underwriting banks with big fines if a company goes public and it turns out they had some big undisclosed regulatory overhang. But I’m not an expert! It just seems like having the banks on the hook would stop a lot of those shenanigans.
I’m also curious by the recent report that Didi is considering going private now that the IPO busted. What a weird idea! “Hey, lots of investors lost money on our IPO…. so we’re going to go private again. We’ll pay a premium to make sure investors are whole…. even though there’s no reason that our shareholders now are the same ones who lost money on the IPO.”
Follow up on event driven newsletters
Last month I included some event driven newsletter recs and asked if there were any I was missing.
Unfortunately, I didn’t get a ton of recs. However, I will highlight one newsletter that I forgot: Special Situation Investments (SSI). I’m honestly embarrassed I forgot this one; I’ve been a subscriber for over a year and they’re fantastic. They tend to focus on smaller situations like odd lot tenders or very small cap arbitrage, but they do cover larger things. Anyway, the ideas are quirky and (in my experience) excellent. Highly recommend.
I didn’t recommend it in the first batch because posts are pretty rare, but Clark Street Value is one of the best blogs out there and worth an instant follow.
I recently discovered Inflexio; that’s newer, but I’ve really enjoyed their first two articles.
Recently discovered two and twenty, which I also enjoyed!
And this isn’t event driven, but I enjoyed pommelhorse’s take on ANGI
Since we’re opening it up to non-event driven blogs, I’m going to give two more favorites:
Also, last month I mentioned KEDM, which was getting ready to go from free to paywall. I can say that they’ve definitely kept the quality up post paywall; in addition, I don’t really participate yet, but I cannot believe how active the member chat it. Literally hundreds of people swapping event thoughts. If you are just looking for event driven ideas, you will like KEDM. If you are looking to aggressively research / chat about / trade event ideas, you will love KEDM.
I did a podcast last month on Ethereum. I wanted to highlight some extra stuff on it I found interest
SPACS SPACS SPACS
Palantir is obviously a data focused business, and they seem to be signing these deals as business development (they sign LT contracts alongside the PIPE). So I wonder: do they view the PIPE as an expense that they won’t get a real return on, or do they have some type of data that suggests their PIPE investments will pay off as well?
The headline undersells just how misleading those claims were…
Seems like pretty expensive financing. Good for the sponsor, good for the lender, probably good for the company…. but seems awful for anyone who doesn’t redeem and the PIPE shareholders.
Work and interruption
I hate to get interrupted when I'm working. Just absolutely hate it. It's one of the reasons I generally work with my phone on silent and logged out of twitter.
But that can create some issues. For example, if I know a phone call is coming, I'll work with my phone off mute and then my anxiety is a little up with every ping and buzz.
But the main thing it creates issues with is in the home life, especially post COVID since I'm always working at home. When I'm reading/writing/thinking about something and my wife pops in to ask a quick question, I get kind of annoyed by the distraction and sometimes I'll tell her I need to focus.... but then if I'm working for a few hours and she doesn't interrupt, I'll get a little annoyed / miss the distraction and want her to come distract me..... but then if she distracts me, I'll get annoyed.......
Anyway, no real purpose to putting this down except (I guess) to see if anyone else has this problem / has any solutions to it.
I launched the Yet Another Value Podcast in August 2020 and provided a longer piece on my vision for the podcast at the start of 2021. They've been a blast so far. You can follow on Spotify, iTunes, or YouTube (and please be sure to subscribe and rate them if you enjoy them!). This month's pods:
As always, if there’s a company you’d like highlighted on the podcast or a guest you’d like featured, I’m always open to suggestions (even if that suggestion is “I would be a great guest!).
Other things I liked
Deep dive into Kura Sushi (really enjoyed!)