First, some common wisdom to set the stage for this, my most recent rant about the ‘Investor Inteligentsia Club’. I used to call it ‘Class’ but, I am now trying to avoid culture war accusations from my vast reader audience...
The ‘Club’ sells investment opinions, and those who report on those opinions are members. I aspire to be known as a non-member, but for some unfathomable reason, they are capable of torturing me for periods.
Below, is as true for war as most things in life, and it’s the beautiful truth and humbleness that is of most value:
“As we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know.”
US Secretary of Defense Donald Rumsfeld during a Pentagon briefing.
Next, my favorite quote from Mark Twain: “It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.” Again, pure truth and deeply humbling simplicity, something Wall Street and many other professions seem to have trouble navigating in their complex ecosystem.
Recently, there has been great gnashing of teeth about a new, great epic disaster brewing. It’s about ‘Big Tech’ investing billions of dollars building data centers willy nilly, blissfully, and increasingly recklessly, blasting these massive refrigerators full of ridiculously complex computer chips, purchased (mostly) from Nvidia. It’s much like my incessant proclivity of putting large quantities of cheap popsicles in my freezer with alarming pace. Somehow, and mysteriously there are never enough. It’s a great and age-old story. The most recent story line has been playing in theaters for quite sometime. It will eventually get diminishing returns as per gravity- eventually.
Anyway, this great new ‘concern’ was first birthed when Zuckerberg was spending billions on the ‘Metaverse’ in 2021, and peaked with abject horror as that dunce, Zuckerberg kept spending (some call this investing) as the stock fell to $90, down 75% on the year. That precise time saw Chat GPT first released, and Nvidia had just collapsed 50% in value. Guess what Zuck did? Ignored the Club’s admonishments and bought all of Nvidia’s excess and unwanted inventory. Since ‘Peak Panic Zuckerberg’, his wealth and owners of Meta like Davis Rea clients are up 5X and Nvidia is up 10X on their ownership of Meta. ‘Zuck’ keeps spending, but today the Club thinks it’s a great idea.
I know, it’s a confused club.
Now however, the Club’s masters of ‘investor insight’ are concerned that Amazon, Google and Microsoft are spending too much money, buying and doing much the same as what ‘Zuck’ has been buying. To be fair, most of the big guns were already doing mostly the same in stuff in 2022, it’s just that no one cared or was paying attention.
In the past week Amazon, Google and Microsoft have announced record profits, even AFTER having spent vast pots of money on ‘chips and stuff’. As a result of this tomfoolery, all the stocks have fallen in excess of 10%. In a day. The vicious culprit? Wild CEOs gone mad—uncontrolled spending. It’s captivating content in the middle of summer; these idiots are building the infrastructure of the future! The Club’s choir, the ‘Excel Masters’, having parsed the past 90 day’s activities, and now brilliantly, and in unison, are thinking about the next 90 days, and are once again indignant and petrified. The most profitable companies in the world are all being dumb—again!
Imagine the pressure of being asked, when building the St Lawrence Seaway in 1955, what the return on invested (ROI) was going to be. If you answered ‘trillions’ back then, they would have shipped you off to the ‘House’ for a lobotomy. Now, they would have been completely wrong, and you right, but not a very satisfying outcome for you. Thankfully today we are more progressed…?
What will be the ROI the ‘choir’ sings in unison? Pity the CEOs and CFOs of the world’s largest businesses, as they listen and are ‘instructed’ at the altar of Wall Street to such piercing questions. No wonder they get paid so much. These patient souls respond that they see demand for what they have and are about to commit to in the future during the confessional, but alas cannot give precise numbers, nor times to these high nabobs of finance. The numbers are not forthcoming presently for input into the Club’s tidy spreadsheets (hymn book) which spit out target prices (Heaven) for the companies. Panic ensues. Like clockwork, those investors with timeframes that slightly exceed the lifetime of a mosquito jump ship, looking for fresher bodies with which to suck blood.
This is a Club ritual which we must all watch and endure. It’s the equivalent of being forced to watch CNN or Fox for 6 months prior to election, and the station you must watch is your most disliked. If you’re smart, you pay us to endure this, and you go about your busy days. If we’re smart, we ignore the noise. I have concluded that at my age I have the right to pretend I don’t hear stuff.
Anyway, this is all excellent news! We are getting to a point where a lot of people are saying the same dumb things. This is what we have been waiting for. A large group of people dumping great companies for dumb reasons. This is confirmation that we are indeed doing the right thing; owning companies that invest—not cater to a class of speculators, tasked with pinning the tail on the donkey every 90 days.
When one makes investment decisions, particularly when running a large business, you want to be thinking in years or decades not days, much less quarters of a year. The quicker you can get rid of speculators and have investors as shareholders the better. As I said recently in a previous rant, ‘investing is simple, it’s just not easy”. It’s simple because you just must find wise allocators of capital, at massive scale, and see them earn high returns on those investments. History is a good guide, and Amazon, Google, Meta and Microsoft have very long-term track records of success. For the Club to be worried about what these companies are doing, and to know the club has a fantastic record of being wrong, is a very strong signal to get ready to BUY!
You see, the Club want status quo, that’s where they hide. They want certainty, they want to be told, RIGHT NOW how its going to be. Well, you can’t always get what you want -as Mick Jagger says. In business you are paid to invest with the future in mind, not the past. That entails taking risk. It involves acknowledging that there are “known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know.” That is the essence of investing. Be humble. Make calculated decisions. Rinse repeat. We stick with the managers who understand that and continue to prove it by executing. That’s what makes them the most profitable companies in the world. Period. Full stop. That’s the ‘club’ you want into as a member.
Membership in the winner’s club is free, but its hard to stay as a member. There’s always some Casandra saying dumb things, singing you lullaby songs of promise or heavy metal tunes of death and distruction.
Now it’s true, these mighty warriors of global dominance might waste some billions of dollars in the next few years, but, as they have all said recently, the risk of not investing right now is too great. Besides, they can easily afford to ‘burn money’. Their massive previous amazing investments are more than paying for all of it.
Careful the armchair quarterback preaching short-term plays and not investing in the future
Intel, which fell 30% this past week, and just ruined 15,000 employees’ summers is in palliative care. Intel is a chronic under-investor in the future. To boost short-term profit for the Club’s hymn book, and thus predicably, has been a long-standing doghouse member, is a sad lesson of Inverted Investment Thinking. Intel is not an investment, it’s a speculation.
Anyway, if you can sense my disdain for the ‘Club’, mission accomplished, but there is a wider message. When I feel this way it’s always good long-term. If lots of people are saying dumb things and it’s making our investments fall, that’s what makes for great future returns, buying great companies cheap. There is a summer sale going on right now. Finally!
