Year-End Results & Five Rapidfire Book Reviews
Ian's Insider Corner aggressive portfolio +14% in 2022, +133% since inception (Jan '20). Also, some rapidfire investment book reviews.
Summary
The aggressive portfolio closed 2022 up 14.2% and is now up 133% over the past three years.
Needless to say, this is running well ahead of the market. I discuss what we got right and what went wrong in 2022.
Some thoughts on portfolio strategy for 2023, along with discussion of individual positions such as Lockheed Martin.
I go to the beach and read books for New Year's every year. Here's a whirlwind summary & investment takeaways from this year's readings.
Books reviewed include space, semiconductors, energy, WeWork's fall, and Andrew Carnegie.
For December, the aggressive portfolio fell 2.9%. That trimmed the portfolio's returns slightly. However, it still finished up more than 20% for the final quarter of the year as our holdings benefitted greatly from the rally in October and November.
With those Q4 returns, the portfolio ended full-year 2022 up 14.2%. This trounced the market, as the S&P 500 declined 18% (including dividends) and the Nasdaq lost 33% of its value. This marked 32% outperformance for us this year versus the main index, and nearly 50% outperformance versus the Nasdaq for the year.
On the one hand, 2020 and 2021 were better in absolute terms, as the portfolio gained 43% in both years, respectively, versus a 14% gain in 2022.
On the other hand, the vast majority of stocks went up in 2020 and 2021, and our relative outperformance versus the market was smaller. It didn't take any particular brilliance to make 25% or even 40% annually during the 2020-21 bull run.
To ride the bull wave in 2020 and 2021, however, and not lose money in 2022 was a significantly more challenging feat. Given the rapid changes we've seen with inflation, supply chains, and geopolitics, among other factors, the current investing environment demands constant flexibility. Any one fixed approach or strategy is bound to run into trouble as conditions rapidly change. In 2022, we saw investors that overly focused on growth, emerging technologies, and high valuation "compounders" suffer sizable losses.
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I was not without my own faults in 2022. As previously discussed, my decision to buy Salesforce (CRM) at $214 was a large unforced error. I viewed shares as reasonably priced since they were at 7.5x revenues, which had been near the bottom of the firm's valuation range for the past 15 years.
But, of course, that had been during an unceasing bull market for tech -- now CRM stock is going for less than 5x revenues. In a bear market, old valuation metrics stop working. Buy at 7.5x revenues, enjoy the 25% annual topline growth, and sell when shares pop back to 10x revenues was a great formula, but not one that worked forever.
Another error was in holding MVB Financial (MVBF), a regional bank that has enjoyed tremendous growth thanks to securing large amounts of interest-free online gaming and cryptocurrency deposits. The bank's operating strategy continues to perform and results have been good. Regardless, our position went from a 25% gain to a 30% loss thanks to investors pulling out of anything tangentially related to crypto. Given how much of an uber-bear I've been on cryptocurrency, this was an unforced error getting "cute" and overstaying my welcome in a cheap bank with crypto-related upside.
However, the good more than outweighed the bad. Our energy positions positively skyrocketed, such as with Suncor calls going from $3 to $17 and Canadian Natural calls surging from $6 to $26. While some of that came about due to the unfortunate developments in Russia, the underlying thesis around lack of supply and oil being a perfect inflation "fulcrum" vehicle were spot on. We also closed out those positions this fall, locking in profits before the recent dip in oil and gas prices.
A key -- particularly for this aggressive portfolio which targets higher returns -- will be to not get too married to any one thesis or intellectual dogma. The world economy is changing at as fast a rate as at any point in my lifetime. A thesis, like long oil, that was 100% surefire a year ago can turn into just an "okay" idea within months depending on what new developments come in. Staying flexible and open to contrary views will be vital in navigating the next year successfully.
One such example may be with defense contractors. Lockheed Martin (LMT) is one of the biggest positions and one of the biggest winners in the aggressive portfolio. It seems like an obvious pick. Shares are cheap, the company is an industry leader with good management, there are right tail demand drivers (like the fast-growing space unit) and the Russian aggression and China/Taiwan situation should drive military demand for years to come.
And yet, we just got this. Here's from the Wall Street Journal describing the concessions that holdout Republicans got in return for confirming House Speaker McCarthy in that recent stand-off:
[The McCarthy opponents] also won a pledge that the top-line budget figure for domestic discretionary spending in fiscal 2024 won’t exceed what it was in fiscal 2022. That includes defense spending, which would have to fall by $75 billion if the cuts are split with nondefense accounts.
Whatever happened to “regular order”? The holdouts have imposed their own budget policy here on the rest of the GOP House. The GOP’s defense hawks may be able to carve out more for the military than for social spending, but the pressure for defense cuts will be great.
That’s a terrible signal to send adversaries who are increasingly belligerent, as well as to defense contractors who need certainty about funding to make proper investments. The dovish House Republicans will find themselves allied with President Biden and the Democratic left, of all people. The Senate will have to save the day.
My confidence in the Senate to get much of anything done over the next two years is very low. As such, this is an incredible turn of events. At a time when inflation is running at 7% or so, somehow the U.S. may not spend more on discretionary goods in 2024 than it did in 2022. This may well axe $75 billion of defense spending -- a big chunk of which will come from the large contractors like Lockheed.
Based on what we knew three months ago -- dragged out war in Ukraine, rising odds of a hot war in Taiwan, and so on, the idea of cutting defense spending would have sounded positively ludicrous. And yet here we are. Stay alert folks, the world is highly unstable right now, and that makes for both promising and dangerous conditions as investors. I'm not selling LMT stock here, but I am keeping a much closer eye on the sector than before.
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What else won big for the portfolio in 2022? The airports continue to work. CAAP stock in particular is now up a stunning 377% on our aggressive portfolio's cost basis. And, as I've laid out, I think shares double again from here. Fortunately, nothing has come along that would disturb that thesis; all engines are a go for that one into 2023.
Even with the airports, I remain vigilant. As shares prices rise, I continue to talk to everyone interested in the sector, looking for any bearish points I may have missed. We did also close the Sureste Airports (ASR) position in late 2022, with the stock at record highs, to convert some of our paper gains into hard cash in the airport sector.
Finally there are the gains on recent portfolio addition such as Neogen (NEOG) +48% and First American Financial (FAF) +25%. Those came from buying square at the market lows this fall rather than any particular operating brilliance from either firm since then.
I hope and expect their subsequent business results will back up this performance, but so far, we've made money on those trades simply from buying stuff that was wildly and ludicrously oversold.
This market rewards holding some cash and keeping a clear mind, so that we can pounce on days when market liquidity dries up and unusually attractive prices are offered.
Some individual position comments:
I will be closing our long-running short position in the Dirextion Daily FTSE China Bear 3x ETF (YANG) this week. As a reminder, by shorting a Bear ETF, you are in effect taking a bullish position on the underlying product in question -- in this case, Chinese stocks.
The rationale for shorting a 3x ETF, rather than buying the normal stock or index you're thinking about, is that levered ETFs are designed to go down over time. In fact, their prospectuses say they will end up at zero, are not designed for long-term investment, and are for day traders. Even the product underwriters know the 3x ETFs exist for speculation, not because they are inherently a good asset.
To see an example of this, consider the value of the 2x levered bull and bear gold miners ETFs over the past two years:
Also, note that this is just 2x leverage, whereas the Chinese one we were short is 3x, which adds to the decaying effect.
Even with just 2x leverage, the gold mining ETFs both fell sharply, with the bearish one falling 34% and the bullish one losing 63% of its value. This is most interesting, as the actual product it is based on, Gold Mining Juniors, only fell 27%:
If you knew in January 2021 that gold miners were going to go down, then buying the bearish miners ETF might have made sense in theory, but in practice it actually lost 34%. And the 2x bull ETF dropped significantly more than twice as much as the underlying product.
Finally, for the coup de grace, I'd note that gold itself (purple line) was dead flat over this stretch. This is your periodic reminder that you should never buy gold miners. It's a terminally terrible industry, run by some of the worst management teams on earth. If you want to own gold, buy gold. End of rant.
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Back to China, though. I took the bullish China position (via short YANG) much too early, during one of the earlier scares around potential delisting of Chinese equities. This hasn't amounted to anything yet, however, China has continued to struggle amid continuing Covid-19 lockdowns, fading enthusiasm for manufacturing/trading with China, and worsening problems with their banking system and real estate construction sector.
While my suggested trade was early, it ended up working out, because 3x ETFs tend to grind to zero over a long enough time horizon.
Here's the one-year chart for both China (FXI) and YANG, the bearish China ETF:
Hilariously enough, despite Chinese equities actually falling 13% over the past year, the ETF that was supposed to profit from China's decline, YANG, is now down 60%. Our cost basis on the short position is $22/share, and YANG is currently going for less than $9. Good stuff.
Why doesn't everyone short 3x ETFs in large quantity if it's such an easy trade?
For one thing, they can go absolutely parabolic during illiquid markets. YANG shares, for example, rose more than 100% in a week in March. This was fine in our portfolio as it was a 1% position, but for people using far large position sizing, a 100% move is not acceptable -- and there were no guarantees it would have stopped there in the short-term either.
For another, there is significant borrow cost. Right now, it's only costing 10%/year to borrow YANG shares to sell short. However, this was much closer to 30% earlier in 2022. Overall, I will be closing the YANG short for a 61% gain in capital gains terms, however it will be closer to a 40% realized return after factoring in the borrowing costs for maintaining the short position.
This is obviously still a tremendous return on investment -- particularly when the underlying asset (Chinese stocks) was outright down over the same time period. However, I want to be clear that shorting 3x ETFs isn't quite a free lunch. Use very small position sizes and mind your borrow fees to make sure the returns are as good as you expect.
Why close the China position now? I'm bearish on China's longer-term prospects, and given their worst-in-the-world debt situation, I believe they are in uniquely bad position for handling the current inflation/higher rates shock. They also are massive commodity importers, meaning they face a heavy burden from higher metals/foods/energy prices going forward.
The Chinese tech sector is also significantly less profitable than people think. I'm not in the mood for another rant about Alibaba's baffling accounting, but rest assured, there are still significant questions about the quality of their and other Chinese firm's purported "earnings".
Chinese stocks rallied hard to end 2022, with the internet names in particular surging. Don't look now, but JD.com (JD), for example, is now up double-digits over the past year. Given the lack of any underlying economic drivers for such excitement, this seems as good a time as any to be locking in the profits on the YANG position. I expect there will be another panic out of Chinese stocks sooner or later, and we can run the same short YANG trade again, hopefully for an equally strong end result.
On Cash Holding & My Strategy For Deploying It In 2023
One housekeeping note: I added a small amount of capital at the end of the year, taking the total portfolio size from $45,679 to $50,000 to start 2023. This makes it easier to think about position sizes and gain/losses, as a 10% position, for example, is a clean round number ($5,000) rather than some messy amount ($4,567.90) and a 1% gain or loss is a square $500 rather than $456.79.
Finally, the portfolio is now up to 15% cash, thanks to both the recent cash addition and the variety of portfolio sales in October and November once the market bounced sharply. That's a significant change from September, when I had moved the portfolio to using a small amount of margin debt with the market offering up tremendous values at that point.
Over time, I intend to run the portfolio near 100% long (no cash, no margin debt) with the willingness to use significant margin debt during major market disruptions. That said, I see little reason to take too aggressive a bullish position at the moment, given the great deal of uncertainty around the pace of the Fed pivot and the seemingly likely recession later in 2023.
I believe we'll be in a rangebound market this year, and one which will reward stock purchases closer to S&P 3,500, with quick sales every time the market gets back over 4,000.
Rather than playing big breakouts or a meltdown, I believe 2023 will be won by riding the back-and-forth volatility around our current trading range. As such, I'm happy to sit on some cash for now in the aggressive portfolio and wait for the inevitable next correction. Holding cash also keeps options open for when idiosyncratic opportunities -- such as our recent Peruvian investment -- emerge.
Lightning Round Book Reviews: Investment Takeaways From Five New Year's Reads
A Quick Preamble On Digital Payments At The Beach
Every New Year's, my family goes to the same small Colombian beach town to celebrate. One of my wife's aunts has her birthday on the 31st and always has a big birthday/New Year's bash at her beachfront house. I intentionally go without any internet access either, and spend my days in the hammock there reading books to unwind a bit and get some fresh ideas and bigger picture stuff for the coming year.
Here's what I read during this New Year's break, along with some quick investment thoughts and conclusions from each book.
One note first, though. Since we go to the same place every year, I've seen it evolve pre- and post- pandemic. Interestingly, all the little beach shacks that sell fried fish and/or piña coladas have started taking digital wallet transfers for payment.
I'd guess that roughly a quarter of the transactions I saw -- for things as little as one $3 beverage -- are now being paid for via Nequi, which is Bancolombia's (CIB) mobile wallet/money transfer solution. Meanwhile, virtually none of these vendors accept credit cards. But, with the pandemic and needing a cashless solution, it seems, everyone -- all at once -- immediately jumped to the Bancolombia insta-pay digital wallet option instead of plastic. Also, consider that these are mom-and-pop operations largely run by Afro-Carribean vendors; we're not elaborate businesses here.
Like other such solutions, Bancolombia isn't hitting folks with fees for the instant transfer, rather it's more a play to get more frequent customers in their app universe so they will engage with other services that they can charge for. Nequi accounts, for example, can receive international remittances, on which there are much fatter fee possibilities. Also, of note, Nequi has been officially separated from Bancolombia (like with Yape and Credicorp (BAP) in Peru). However, make no mistake, the financial benefit still goes to the big Latin bank shareholders.
I won't ramble on too long here as the point of this section is book reviews. However, it's interesting noting that this particular beachfront went from virtually all cash four years ago to major penetration for digital wallets (yet no Visa or Mastercard) within a couple years, and the economics (surprise surprise) are going to Colombia's big bank rather than the countless horde of Fintech startups.
Chip War: The Fight For The World's Most Critical Technology
This book is a history of the semiconductor industry. It goes from the beginning, walking through the invention of the first integrated circuit and early applications such as portable calculators, transistor radios, and precision bombs.
From there, we see the rise of Silicon Valley, the emergence of Japanese semi manufacturers, and on through the more recent offshoring to Taiwan and South Korea. If you are curious about any of this, I absolutely recommend the book, it's a fantastic history.
I won't rehash the whole book here, as it is wide-ranging and entertaining throughout.
I will highlight some key investment-related points though. One, of the three primary types of chips, analog are best (for investors) whereas memory is lousy, and the high-power cutting edge ones (think PC, database, and smartphone chips) are highly volatile, competitive, and have uncertain returns on investment.
If you want consistent and reliable profitability, buy analog producers (hello there Texas Instruments). If you want more cutting-edge tech but with considerable longer-term risk, pick Intel or its rivals. If you want to not make money, buy memory (hi Micron).
Arguably, the most lucrative parts of semiconductors are either the analog players or the picks and shovels players that make the equipment necessary to make chips.
Speaking of the latter, it's mindblowing just how detailed, complicated, and hard-to-produce semiconductors are nowadays. Cutting-edge semiconductor printing tools now cost upwards of $100 million each. Just one piece of equipment! It can be a make-or-break decision for a semi firm which sort of production tools it will use to miniaturize its chips or further modernize the product.
This also gets to another point. Mainland China has been spectacularly, incredibly, profoundly impotent in developing a homegrown semiconductor industry. It's one thing to copy a foreign company's toaster or tablet design and China excels at that. It's quite another to figure out to mimic a $100 million tool to make atomic-scale semiconductor etching equipment.
Now that the U.S. and its allies have stopped exporting any sort of cutting-edge semiconductor chips and equipment to China, China's tech industry will likely die a slow death. You simply can't operate modern tech firms without access to this technology, and the U.S. and its allies absolutely hold all the cards when it comes to this relationship. China's advanced tech industry, like so much else about that command economy, is a paper tiger rather than a real competitor.
While China decidedly isn't the future of semiconductors, it's less certain what will be.
Japan was on top of the semiconductor world in the 1990s but has dramatically faded. The U.S. remains the leading innovator, but ceded most of its manufacturing capacity to South Korea and Taiwan. However, that may well change now that the U.S. is subsidizing domestic chip manufacturing again. There has also been some chatter toward trying to diversify semis into other emerging markets like Vietnam, India, or even Mexico.
The book is light on predictions, but offers a great overview of how we got to the present state of play for the industry.
The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion
There's not a whole lot to say about this one. If you enjoy biographies of corporate failures, this book is right up your alley. It's a great beach read -- a fast-moving romp through a crazy and debaucherous company/leadership team with an absolutely nonsensical business model.
Of most usefulness to investors is probably the discussions around how Neumann was able to convince folks WeWork was a technology company and not a real estate firm. This was, after all, the key deception that made everything else possible.
Real estate companies are traded at very low multiples based on cash flows. Tech companies (prior to 2022 anyway) were traded on stratospheric multiples based on imagined future revenue growth. To that end, Neumann had a concrete goal of doubling revenues every year (!) and would do literally anything to make this happen.
For awhile, doubling revenues every year at any cost was an effective strategy. for WeWork. The company also liberally talked of apps, highlighted its tech stack, and tried to give the impression of being a leading software-adjacent enterprise. Truth be told, WeWork's tech didn't work (couldn't even do things like bill tenants on time via phone) and several management team members weren't even computer literate.
The more an "old economy" company like WeWork touts its tech bonafides, the faster you should cover your wallet and run for the exit. This lesson also applies, in great effect, to the rash of financial services and banking companies that pretended to be tech firms and sold investors unicorn stories around AI and big data or whatever. Recent examples would include but hardly be limited to Square, Opendoor, Upstart, and SoFi.
I myself called out Square (aka Block) way back in mid-2020 for being an emperor with no clothes.
Combining a low-quality money-losing payments business with music streaming, bitcoin trading, and a bunch of other similar money-losing dreck does not a $200bn business make:
I was clearly a year early in calling out this nonsense as the FinTech bubble didn't peak until late 2021. But the signs were obvious for anyone that maintained a level head during the height of the delusion.
And, as a clear reading of the WeWork book shows, it was somewhat up to fate when these sorts of companies imploded. Why did WeWork fail in 2019 rather than 2022 like everyone else? Because the company's CEO was exceptionally vain, and also its long-awaited funding deal from SoftBank abruptly collapsed due to third-party forces. But, with a couple of events turning out differently, the WeWork grift could have continued for several more years before running out of money.
I could go on a rant here, but the growth-at-any-cost folks have suffered enough already. I'll just leave it here:
If you buy and sell houses, you aren't a tech company, you do real estate.
If you sell food, you're a restaurant, not a tech company.
If you lend money, you're a bank, not a tech company.
If you sell made-up digital currencies or photos of monkeys, you're not a tech company.
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The New Map: Energy, Climate, and the Clash of Nations
Author Daniel Yergin is an expert on the energy industry. He was the head of Cambridge Energy Research Analytics, which S&P Global acquired in 2004. Upon this, Yergin became a senior executive at S&P and he is vice chair of S&P Global today.
So, while he's an author, he's also an energy expert, and his previous books on the industry, such as The Prize, have won awards.
In The New Map, he offers a whirlwind tour of the world, as colored through energy. It starts with a discussion of North American shale and how that broke the global energy market in 2014. From there, we swing through China, the Middle East, Russia, and more. The book does a great job of walking through most of the major political and societal upheavals of the past 25 years or so, and directly explains how oil and gas helped provoke or influence these conflicts. If you want to understand how energy policy influenced events in countries such as Iraq or Ukraine, Yergin does a masterful job explaining things.
The final third or so of the book transitions from explaining recent developments to making projections for the future. He covers a variety of pressing concerns and opportunities such as climate change, green energy, material shortages, and so on.
His takeaway is not too shocking for anyone that takes a math and economics-based approach to energy planning (as opposed to the fantasy projections that many more imaginative folks come up with). Here's Yergin's bottom line:
"Oil will maintain a preeminent position as a global commodity, still the primary fuel that makes the world go round. Some will simply not want to hear that. But it is based on the reality of all the investment already made, lead times for new investment and innovation, supply chains, its central role in transportation, the need for plastics from building blocks of the modern world to hospital operating rooms, and the way the physical world is organized.
As a result, oil—along with natural gas, which now is also a global commodity—will not only continue to play a large role in the world economy, but will also be central in the debates over the environment and climate, and certainly in the strategies of nations and in the contention among them."
We've discussed much of Yergin's analysis before, as there is a consensus here among people who use math-based projections rather than wishcasting as it comes to energy. We are transitioning quickly away from coal, but far less quickly from oil and natural gas. Wind and solar, despite considerable gains, are nowhere near prime time for most of the world. And, even if they were, the lack of suitable copper, lithium, cobalt, etc. mines would make green adoption prohibitively costly at any reasonable adoption curve.
Can we fix these things? Sure. Better battery technology would help. Greater storage capacity would help a lot. Renewables are great if you can use all their output, but unfortunately wind and solar have a tendency to put out far more power than you need for a few hours a day and then zero power at all for the rest of the day. And our grid-scale storage is simply nowhere near cost effective for smoothing that out yet. Will it be in 2050? Probably. Will it be in 2025 or 2030? Oh goodness no.
The material shortages also loom -- and, as anyone familiar with mining knows, you're typically looking at at least five if not ten years from when you realize you need more metal to when you can actually get a mine permitted, built, and logistics set up for exporting materials.
It's great that you in London or New York decide you want more lithium, but now you have to convince an indigenous tribe in Bolivia to approve the mine, build a new highway through the Amazon to get there, upgrade a port for shipping it out, and then manage to keep the project afloat when the next political revolution in Bolivia inevitably causes your old contract to get ripped up.
Here's Yergin again on metal shortages:
"An electric vehicle uses six times more minerals than a conventional car; a wind turbine, nine times more minerals than a gas-powered plant. Demand for minerals will skyrocket—lithium by as much as 4300 percent, cobalt and nickel as much as 2500 percent.
This, says the IEA, points to potentially large shortfalls—a mine typically takes more than sixteen years from initial discovery to first production.
Moreover, the concentration in terms of producing countries is much higher for minerals than for oil. The top three oil producers in the world are responsible for about 30 percent of total liquids production. For lithium, the top three control over 80 percent of supply; China controls 60 percent of rare earths output needed for wind towers; the Democratic Republic of the Congo, 70 percent of the cobalt required for EV batteries."
Anyone thinking that we're going to be using majority EV cars or renewable power by 2035 is simply not operating in a fact-based model of reality.
There are far too many investment implications to take away from what I intended to be a quick breezy book review session. That said, there are some obvious points.
Countries like Chile that are loaded with resources will absolutely boom over the next 20 years as the West spends far more money and resources than expected desperately trying to build up lithium and copper capacity.
For another, major oil companies at 6-8x earnings and 15-20% FCF yields remain a tremendous value. There is no near-term obsoletion risk.
Even coal -- as bad for the environment and human health as it is -- is still holding on given the lack of other alternatives at sufficient scale, particularly in a Russia gone rogue world. Oil is far superior to coal, both in terms of utility (transportation, chemicals, etc.) and cleanliness. And natural gas, while not as flexible as oil, is exceptionally clean compared to other fossil fuels. There's simply no path to our renewable green future without another solid 20-25 years of heavy fossil (and nuclear) fuel usage as the bridge fuel.
The Space Barons: Elon Musk, Jeff Bezos, and the Quest To Colonize the Cosmos
I've been on a major learning campaign around the space industry over the past few months.
Space is a key part of the upside thesis for several large industrial and defense companies, such as Lockheed Martin. That alone makes it worth my attention.
On top of that, space is intriguing as it is one industry that will (probably) be a growth one through at least the end of my lifespan, if not a lot longer.
Just the obvious commercial applications, such as defense, satellites, communications, and remote monitoring offer a wide variety of growth avenues.
However, there are a lot more possibilities that are less likely -- at least on their own -- but would consume absolutely mindblowing sums of capital if pursued with any seriousness. These could include:
Zero-gravity space manufacturing
Asteroid or lunar mining
Permanent moon base
Mars colonization
Deep space exploration
Planetary-scale space-based solar power generation
We're talking hundreds of billions of dollars if not trillions to pursue any one of let alone several of these aims at once. Fascinating opportunities, and ones which will surely be pursued as folks look for "the next big thing" to invest in.
As for the book itself, it's a great history of the "outsiders" to the space industry, focusing on Space-X, Bezo's Blue Origin, and Richard Branson's Virgin Galactic (SPCE). These are cast as one group, competing against the legacy players like Boeing (BA) and Lockheed Martin which formed a united launch partnership to deter competition.
The newer players have had increasing success in lowering launch costs, which has opened the traditional government contracting market a crack. Still, the significant safety shortfalls for the outsiders, in comparison to the near flawless safety record for the older established companies, has proven to be a fairly strong moat.
My reading of the book suggested that Space-X has been significantly more successful than Blue Origin, at least through the point of the book's publication. That is the popular perception as well, but it's hard to tell from popular media how much hype around a Musk company is due to actual success and how much is from Musk's charisma. In this case, however, I'd probably rather bet on Space-X than Blue Origin if both were publicly-traded at similar valuations.
That said, I don't have a lot of specific investment takeaways from this book. It's very much a history of how these outsider space firms evolved, but offers little in the way of prognostication or prediction for the future. It's useful for understanding how we got to where we are today, but there's little to inform your view on how things will develop through, say, 2030.
Andrew Carnegie
I only got through about 60% of this before my vacation concluded. Even so, there was an overarching takeaway that is striking given the recent calamities we've seen such as the aforementioned WeWork or the FTX fiasco.
This is the topic of what we now know as "effective altruism". Sam Bankman-Fried of FTX popularized this idea of making as much money possible in order to donate it to more worthy causes such as, in his case, preventing future pandemics or protecting democratic values. Many Silicon Valley types have rushed to this view of cutthroat capitalism as an ethically good thing because it enables far greater charitabitable aims and endeavors. It's only fitting that people who believe they are the smartest folks around think they can deploy society's resources more efficiently as well.
The thing is, this idea isn't really new. Which brings us to Andrew Carnegie. He was, for those unfamiliar, a Scottish-born industrialist who immigrated to 1850s Pittsburgh as a youth and became an industrial baron. He built his fortunes in railroads, steel, and adjacent industries. By its peak, his steel business was one of America's largest enterprises. When Carnegie passed, he left a tremendous fortune to charity, founding universities, public libraries, and a whole host of public buildings named after him in Pittsburgh and surrounding areas.
The funny thing? Carnegie never seemed comfortable with his industrialist role. He was always unhappy with his direct peers both in Pittsburgh and in the capitalist class more broadly. He frequently (and awkwardly) tried to ingratiate himself with famous authors, philosophers, and socialites in New York and overseas. He was a self-proclaimed socialist and at one point bought up newspapers to preach his ideology.
In a way, the perfect analogy is to that of Elon Musk. Musk has bought up the means of distribution for political ideas today (Twitter) and has gotten distracted from running his real business (cars and rockets) to pursue a variety of other vanity projects.
In Carnegie's case, he never seemingly was able to achieve the aims or popularity he hoped to gain with the more enlightened/less monied crowd. In Musk's case, the outcome isn't certain yet, but it seems his aims to be a visionary leader of the popular discourse aren't going too well.
Ironically, while Carnegie preached socialism, strikes were frequent at his factories as the took a brutally hard line on employee wages and rights. Not surprisingly, it was rather difficult to reach Carnegie's level of wealth in 1880s American while actively practicing the socialist principles that Carnegie was then espousing.
What's the takeaway here? For one thing, be highly highly skeptical of billionaires telling you how ethical they are. Bankman-Fried and other "enlightened" thought leaders haven't come up with anything new. We've seen this book before. And, commonly, this appeal to ethics is used as a sleight to distract your focus from bad behavior or outright criminality going on somewhere else in that person's life.
Disclosure: I/we have a beneficial long position in the shares of CIB, TXN, INTC either through stock ownership, options, or other derivatives.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Long everything mentioned in the aggressive portfolio.
Happy New Year. Great call on BAP, especially as it dipped to mid $130s. Any thoughts on selling covered calls as we hit the top of ranges?
What broker do you use to short YANG or another bear ETF ? As I was curious I had a look in IB and they all seems to be "not shortable".