Top Reads, Listens, Follows & Takeaways of the week
Illiquidity & Twitter
Takeaways from my top two:
-Conventional wisdom in finance is that when an investor bears illiquidity, as they do when investing in Private Equity, they deserve a premium for it. Returns of top quartile PE funds going back two decades bolster this narrative. Cliff Asness of AQR flips this conventional wisdom on its head by asking, what if there is an illiquidity discount? Perhaps investors are willing to pay more for the illiquidity (thus lowering expected return) in order to have the lack of pricing transparency? Research demonstrates that PE returns could be replicated with liquid small cap value stocks - with one key difference - the real time painful pricing that tempts investors to make a bad decision at a bad time. During the Great Financial Crisis small cap value stocks had a 60% drawdown compared to a reported 28% drawdown for PE indices. Similar reports of oddly low drawdowns are being reported this year from illiquid investment vehicles. As with many things in human behavior, it’s all about the lies we tell ourselves, but if these “smooth” returns help investors stick to their investments and refrain from panicking, then the illiquidity may be worth the money!
-Josh Brown wrote an article last week titled “Twitter is Cigarettes”. It’s a great read in his humorous and refreshingly honest style. Social media at large has engineered algorithms to exploit our behavioral biases, it’s equal parts genius and disturbing. Josh says, “Addiction is one of the great investment themes and is undefeated over the long-term. It’s why Peloton’s stock is worth almost zero but McDonalds is valued at a quarter of a trillion dollars. You want to bet on that reversing?”. He goes on, “That’s why there’s not going to be any mass exodus or platform renaissance at Twitter. Because in the end, we all get what we want out of it. It does the trick. It’s a cigarette behind the gym between 3rd and 4th period.” While he rightfully points out the dark sides of Twitter, I’ve found it to be an incredibly beneficial tool. Where else can you get real time thoughtful insights from leaders across subjects and industries? I’ve been surprised at how engaged and responsive esteemed people are to comments and questions. Carefully curating who I follow has made Twitter a place where I’ve learned a lot and get great value from. It’s something I’d pay for.
Reads:
Three Arrests, Two Superpowers and a Secret Prisoner Swap (here)
The mastermind behind Apple’s most iconic products on life after Apple (here)
RIP, FTX (here) & Sam Bankman-Fried in his own words (here)
Twitter is cigarettes (here)
The volatility laundering, return manipulation and ‘phoney happiness’ of private equity (here)
Clifford Asness on the illiquidity discount (here)
What Moneyball-for-Everything Has Done to American Culture (here)
Aswath Damodaran on Free Cash Flow (here)
Listens:
Doomberg on Energy Scarcity, Nuclear Power and Failure of Energy Transition Policies (here)
Macro Masterclass with Bob Elliot, former Bridgewater deputy CIO (here)
John Stewart with Hillary Clinton and Condoleezza Rice (here)
All In: FTX collapse w/ Coinbase CEO Brian Armstrong + election results, macro update (here)
Follow, Watch & Other great content:
60 minutes: Surfside condo collapse one year later (here)
Ken Griffin on Midterms, semiconductors, and the FTX implosion (here)
Chamath & Lex (here)
The Lincoln Project on ShowTime or Amazon Prime Video (here)
The current state of gerrymandering (here)