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The core problem in politics

Most fields have a specific core problem that needs to be repeatedly solved. In surfing it’s the bottom turn. In investing it’s valuation.

In politics it’s this: how do you speak to a nation of people who don’t care politics and certainly don’t care about you?

Every successful (democratic) politician has to solve this their own way, and a lot of strange behaviour can be explained by it.

Why did Tony Abbott, a roads scholar, define himself by the infantile phrase ‘Stop the Boats’? It’s perhaps clearer why Obama stood for ‘Hope’. We all know Trump is here to Make America Great.

These are far more than slogans, they penetrated the community psyche allowing tens or hundreds of millions of people to know who these people stand for. This then becomes authenticity and then support.

Gleeful articles grading and deriding the simplicity of the childlike language used by many politicians miss the point somewhat.

Wannabe politicains hoping to rise through party ranks should study this problem carefully. In almost every situation it’s best to build public profile, and should learn the elusive simple messaging that can pierce the zeitgeist.

A parallel problem is how to get your name out, which leads to the conclusion that all publicity counts. Unfortunately we are all too often witness to leadership challenges by absolute nobodies that haven’t managed to do anything of public note, yet aspire to public leadership. Profile must come first.

This was something Trump has understood for years.

Boris Johnson says it well.. Putin is also a master. Even my grandmother in Darwin has strong opinions on this Russian man on the other side of the world. In this case it’s his theatrics that penetrates, the tiger shooting, the hockey game winning and so on. (I just came across the tiger bear eating).

The wrong lessons

Over the past 12 months Trump has learned some terrible lessons. Hitler and fascist analogies are tedious (if not overdone) right now, but there is one part I find particularly compelling.

Hitler repeatedly moved aggressively against the views of all those around him, even his supporters. By the time the 1930s were finished he learned that the opinions of diplomats, politicians and generals stood for nothing against his own intellect.

These ‘experts’ got the core questions of the day wrong, or so they appeared. Hitler repeatedly outmanouvred the allies of the previous conflict in ways that seemed genius. Ofcourse, his strength was weakness, and the apparent weakness of the allies hid their true strength.

With the destruction of Germany’s old cities, mass rape of her women and lethal destruction of her armies, the experts were vindicated far too late. Remembering how proud Prussia was dismembered and absorbed into Russia, and only mentioned now in history lessons, the Brexiteers and Trumpsters should temper their gloating.

On election to the highest office, Trump has the ultimate proof of his own intelligence. Noone else has a handle on truth, save for those with him at the start, who he has now elevated above all others. Expect no respect from Trump for any advisor now.

More worryingly, his tactics were vindicated too. He lied repeatedly, got away with blatant racism (Obama’s birth certificate), sexism, and general piggishness in every way. There will be some rough times ahead.

His election is no proof of wisdom or intelligence, nor has any bearing on future orthogonal challenges. As investment advisors constantly declare: past performance does not suggest anything about the future.


Start 1

The startup atmosphere is not what it was six months ago.

Even the flagship successes are going to have to make tough decisions and gamble their existence.


It came out last year that Uber is losing a billion dollars on 1.7 billion of revenue. So they are spending $2.7 billion.


They raised a total of US$8.8 billion most recently at a valuation above $60 billion. These investors need over 60 billion in profits to break even on an absolute basis.


Uber is clearly the best taxi company ever. It’s a relief not to spend hours waiting for a taxi driver in a smelly car who insists on being paid in cash and refuses to drive to Bondi.


VCs and other investors dumped cash on Uber’s balance sheet that is now being used to ‘invest’ in growth. But when Uber says invest they don’t mean set up offices in new countries and buy plant and equipment, though there is some of that.


What they really mean is they’ll cut prices below profitability to keep Uber cheaper than taxis and anyone else who dares to compete.


To make a decent economic return on current revenue they would need to lift their fee by, say, 60%.


Soon enough there will be a point where it makes sense for every driver to be on a  congregation app. An app that out-platforms Uber.


Anyone looking for an idea?


“I prefer building rather than fundraising,” Kalanick added in the interview with Betakit. “But if I don’t participate in the fundraising bonanza, I’ll get squeezed out by others buying market share.”


Fintech is hot right now. No-one has more money than the banks. I mean the banking system literally has all our money. This was always going to attract attention from the startup community.


But finance is a poor candidate for start-ups. I do wonder how many of the kids setting up a ‘new kind bank’ would have the stomach to take a home off a family in default.*


 A few guys and girls in a room can build a world-changing app – there’s no doubt about it. But picture sharing is very different to lending someone amounts that might take a lifetime to pay back.


Some parts of fintech are incredibly promising (and proven): crowdfunding of all shapes and sizes, data analytics, security, wealth management.


But some revolutionary start-up thinkers manage to do full circles of logic, such as in P2P lending, where anyone can borrow and anyone can lend. We are all banks now.


The idea was that:


– the borrowers would be able to find cheaper loans
– the lenders would have access to new markets that were previously closed to individuals.


It quickly became too complicated to have individuals lending to people. Too risky and painful to see innocents lending at 8% to someone who won’t pay back. Default rates are still low, but we are at the very end of the credit cycle, precisely when you’d expect financial innovation and new people coming to the market. A bad time to be picking up pennies. So the P2Ps started  dividing the borrowers into tranches according to secret credit rating profiles with uniform default rates and returns.



The next step most P2P lenders have taken was to gather all the loans together and sell them to institutions.


So now we have exactly what we’ve always had – a provider who pools the lending of large amounts of money to different people. This is basically a bank, only without the infrastructure and experience of bankers.


The attempt to revolutionise lending ended up at securitised mortgages with all those hazards familiar to Americans who let mortgage brokers in Florida determine credit. Round of applause.


Still, the volumes are trivial compared to the trillions of dollars on the lending books of major banks and it’s certainly something new. Good luck to them.


The first time I heard about bitcoin I was fascinated for at least three months.


But somehow I – and anyone you hear talking about bitcoin – managed to overlook these incredible flaws:


1. It takes 10 minutes to process a transaction


2. If one mining pool controls 50% of the computing power, they have total control to reverse transactions and cause mischief. This has happened before.


3. There are two groups of chatroom bandits debating how to progress. So instead of having a regulator appointed by politicians, who at least have to win votes every now and then, the bitcoin community is dependent on an indefinite group of anonymous, amorphous, and unelected hackers.


4. Immense amounts of electricity is required to process the transactions. The system is literally designed to require increasing amounts of energy, the more energy you put in. So this will get worse rather than better.


The economics encourage miners en masse to operate at a loss. There will always be a student with access to a university’s computing power, or punters ready to miscalculate and/or ignore electricity costs.


The amount of power used to verify bitcoin transactions is obscene. This is all totally wasted of course – there are no benefits to the broader system of spending huge amounts of energy calculating something that only needed to be calculated because so many other people were trying at the same time.


5.The bitcoin merchants are mostly crooks and fools. It turns out that – like normal money –  you have to use providers to store and convert your bitcoin. These people promise to store your bitcoin strings and charge to do so. More than banks ever would. So how, exactly, is this a step forward?


But the problem is not just high costs, though it still surprises me to hear intelligent people talk about costless transactions in bitcoin, when the exchange margins would make American Express blush. The issue is these firms are juicy targets for all sorts of crime.


Often the owners just spend the bitcoin they were supposed to protect, but usually they just go bust and you lose everything. Trusting your spending power to these kinds of startups is a very poor decision.


You’re not just up against backroom hackers but entire states. I wouldn’t bet on a commercial security team against North Korea’s cybercrime unit.
Finally the whole thing is kind of absurd.


I mean, we already have electronic, instant money that is extremely secure and backed by all kinds of insurance, as well as implicit and explicit government guarantees, and we can transfer it for free – certainly within countries.


Anyway, I’m sure some people made a bundle out of this particular mining boom by selling shovels, however.


The good stuff: Data analytics


A better example data analytics – there will always be ways to fine-tune and improve credit ratings of individuals and companies.


But even this is dodgy territory: most of us would be very uneasy if we knew that the bank was monitoring our purchases and developing comprehensive character profiles of us. Banks could easily delve deep into your purchases and get an extremely good idea of how likely you are to pay a loan.


This might be fine if it means extending credit to people who would otherwise be cut off, but it gets a lot muddier if you’re only lending to certain types of people because they are more likely to pay it back.


Banks already could already figure out if you’re gay or straight, and have a good idea of your national background. How would you feel about this information being used to adjust your credit score and deny you a home loan? What if Chinese immigrants prove better borrowers than the Greeks? What if a bank used that information?


But despite the pitfalls this is definitely an area where the tech genii should be playing.


User interface
I have bank accounts in the UK and Australia. Using UK banks is like surfing web pages from 1995 – they are ugly, slow and the whole thing looks like it was put together by a child. (Don’t ever sign up with HSBC).


Australian banks seem decades ahead. I doubt any startup has the billions to match CBA’s or any of the other banks investment in technology.


The major Australian banks each spend about as much on tech as Uber loses in a year. Competition will be stiff, but it’s more likely to happen between these firms than from new outsiders. Could be wrong. But if I wanted to compete with these guys I’d do it be starting a bank, not building an app.


Wealth Management


There are companies like Wealthfront that will do well. They use generic portfolios of stocks and bonds to replicate the asset management of the ultra wealthy – the ones who hold on to their wealth anyway.


There are very few ways to make money in the market and this is one of them.


Asset allocation works by holding fixed percentages of different assets.


A lot of ink has been spilled on this kind of thing – all about volatility and efficient markets. I studied it once, it’s dry, even as far as these things go.


But that whole branch of academia kind of misses the point. Turns out efficient horizons are orthogonal to what we actually want our investment portfolios to do: make money and not lose it.


It’s actually the fixed percentages that do the magic.


Say you have 50% cash and 50% stocks. As the stocks fall, the percentage drops, so you use some of your cash to buy shares. As stocks rise, their percentage increases, so you sell some stock and increase your cash holdings.


The total effect is what basically defeats everyone who tries their hand at it: Buying low and selling high.


This isn’t just stock and bond portfolios. It’s highly effective in currencies. In my own portfolio I ramp this up by betting against markets, while holding a core portfolio of stocks. It’s the above dynamic on steriods. I wouldn’t recommend trying it unless you want to spend a few painful years losing money learning how to do so.


My favourite aspect of the miserable euro crisis was that all the horrible hedge funds who had massive bets against the euro largely lost out, while those with fixed currency ratios (sovereign wealth funds) made fortunes.


Similarly, at the peak of the crisis when financiers were collectively losing their minds and their shirts, pretty much every Australian was buying at the lows. Why? Because we all have compulsory investment portfolios that almost all work on fixed percentages. We were all selling bonds and buying stocks right at the bottom.


This is perfect for fintech . Managing simple portfolios at low cost is a totally realistic goal for a small number of tech-minded people.


Wealthfront, Betterment and their ilk have a rich future – but not for their investors. They will all have to compete on price though, so don’t invest in the companies themselves. But definitely take a look at their products.


Interestingly the people running these programs generally misunderstand why they work.
Hedgeable is an example. The CEO claims to have a “proprietary investing technology called the ‘Dynamic Advisor’ “. If you ever find yourself reading something like this, run for the hills! These people always choose almost exactly the same name and never work out.


In this case they just move client portfolios to cash when volatility rises. So just when the fixed-percentage portfolios tell investors to load up on stocks and buy low / sell high, Hedgeable will step in and do the reverse, selling low after buying hi.


Congratulations Hedgeable ! In a different way you have also done a full circle of logic and are going to do the exact opposite of what you should be doing.


A similar sort of mathematical inevitability means you should put all your money in property, but that’s for another blog post.


Stock trading: Everyone loves a punt


Punting shares is a national pastime in most Western countries. You’d be hard pressed to find a red blooded male who hasn’t tried his hand.


This is a rich, fat market, desperate for research, desperate for someone to tell them what to do.


Have some ideas on this, but this post is already too long, so, you’ll have to read about it next time.


ps I haven’t actually seen uber financials so don’t quote me quoting random pages on the internet.



Earlier this year an expedition of climate scientists went to Antarctica to find evidence of global warming. Their boat was trapped in the ice.*

If you give it some thought, most of the climate predictions haven’t actually played out.

Not the details or minor aspects, but those at the very core. The icecaps are growing, weather is less extreme, polar bear populations are up and no coastal maps have been redrawn.

Are we just not going to talk about this?

Al Gore’s An Inconvenient Truth came out in 2006 and completely changed climate politics. It was an intensely political project.* He made the case for dramatic change and the redirection of trillions of dollars of investment.

I actually did do a science degree. In our second year we derived the classical heat capacity equations by applying statistical methods to a handful of threadbare assumptions about the quantum world.

The equations were developed hundreds of years ago by the first real scientists, using equipment invented by the misplaced energies of the alchemists before them. They are the undeniable, rock-solid scientific basis of climate science.

Climate politics has very little to do with this. The ever-reliable physical science behind planes and televisions cannot be compared with multi-decade weather forecasts and has even less to do with the effect of those weather forecasts.

At some point journalists and politicians have been allowed to associate the rigour of physical chemistry to the alchemy of long term prediction pseudoscience.

I could go into how experts in most fields are wrong when they make forecasts, but that would just be opinion. Plus it’s been said better before and frankly it would make me too angry. Instead I’m going to try something different.

An Inconvenient Truth  came out about ten years ago. Al Gore beat this deserving woman and won a Nobel Peace prize, sparking a highly lucrative speaking career for him and his pals.

I thought now would be a good time to watch the film and compare the expert’s ten year predictions with what actually happened. I did this yesterday so you don’t have to. The first section is Al Gore being applauded in slow motion by enraptured audiences.**

Climate articles often start with ‘modelling predicts in X many years that Y horror will happen and doom us all’. Without wading into the swamp of poor logic and muddled thinking behind these models. But you don’t need a science degree to see whether  predictions came true.

You are as qualified as the next punter to judge the following:

1. Al Gore : Polar bears are going to drown

In the film Mr Gore emotively narrates a cartoon of a polar bear sinking, and states polar bears have already started drowning. This is the latest data:


2. Al Gore: Weather will be more extreme

This really irked me because Mr Gore interspersed the destitution of Hurricane Katrina with political arguments that have nothing to do with it.

I wouldn’t show pictures of people dying of cold to make the point that a global ice age would be far worse than temperatures rising by a few degrees (it would).
On viewing I did note he didn’t actually say climate change caused Hurricane Katrina. But I’m calling bullshit. He was totally associating the two and making a  point and his comments stand.
As it turns out the US is in the longest hurricane drought in recorded history.
Tropical cyclone records tell a similar story:
tropical cyclone frequency.png
The same is true on a global basis:
global hurricane frequency.png

It’s possible to argue that statistically this data is compatible with a worsening.

But that is not what climate politicians have been saying. The clear forecast from Mr Gore was that we’re in for disastrous extreme weather in the near future and we need to incur dramatic costs to avoid it.

3. Al Gore: Icecaps are going to melt


This is my favourite because Mr Gore predicted on record on an almost annual  that by 2015 the Arctic would be ice free in Summer. Not even close.

In the movie he showed New York, Bangladesh, Beijing and other population centres being swamped, implying catastrophic loss of life and property.

In 2009 he  stated publicly that computer modelling predicted the Arctic would be ice free by 2014, and  it was our last chance to avoid catastrophic climate change.

Umm.. the ice is still there.

 global ice.png

The point is not that Al Gore is lying, but that that the models are very wrong. This has nothing to do with the science I spent years studying.***

In line with the Antarctic expedition mentioned previously, the a group of scientists on a 115 day expedition to the Arctic this year had to reroute their journey. Because the ice was too thick, according to the Canadian Coast Guard who actually live and work there.

The Antarctic, by the way, has a record amount of ice right now. Read this from NASA in 2014 and note the scientists twisting themselves into arguing that this is somehow proof of global warming, or irrelevant:


Again even if record sea ice is not statistically significant, this is the exact opposite of what climate politicians predicted.  The forecast was melting ice caps, unstable Antarctic ice shelfs and catastrophe. Al Gore went into much detail on this. Too often predictions of drought that end in flood are used as evidence of climate change or vice versa.

As it so happens, the NASA article was written in 2014, so we can judge it with the benefit of knowing what happened a year later. In 2015 there another year of record ice.antarctic sea ice.png

I could go on. He points to Mt Kilimanjaro and says it will be ice free in ten years. He points at the Himalayas and ten years ago implied the ice would shortly be gone.

Is anyone allowed to point out these very specific predictions have not played out? The global environmental movement was based on such predictions. Almost every Government just signed agreements on the basis of these forecasts!

How many years of data on how many different issues would it take to convince you that the consensus in climate politics is wrong?

Al Gore, 2014: ‘‘All the predictions of the scientists have come true in spades’

To refocus back home, if you’re Australian you’ve probably heard the name Tim Flannery, though he’s not quite a celebrity. Until recently I had only thought positive things of the guy.

There’s something quasi-religious about the modern environmental movement. People who disagree are ‘heretics’. I had no idea it was this bad though. Tim is a climate science thought leader of Australia and was until recently paid $175,000 a year to advise the Government part time on climate science. He said the following:

‘For the first time, this global super-organism, this global intelligence will be able to send a signal, a strong and clear signal to the earth. And what that means in a sense is that we can, we will be a regulating intelligence for the planet, I’m sure, in the future … And lead to a stronger Gaia, if you will, a stronger earth system.This planet, this Gaia, will have acquired a brain and a nervous system. That will make it act as a living animal, as a living organism, at some sort of level.’

I didn’t alienate myself from half my highly religious family to put up with this kind of crap at the highest levels of Australian policy. His list of failed predictions is longer than Gore’s. Perth is supposed to be a wasteland and by now, the major cities of Australia are supposed to have run out of water.

For those of my Facebook friends who have read this far you can now hate me more: I am stoked that Tony Abbott sacked this guy and feel like I owe him one.

Interestingly enough, it looks like the silent majority got climate change right. The public was correct to calmly and correctly refuse to make the dramatic changes demanded by climate politicians.

Here are my ten year predictions that you can hold me to. In 2026 I wager that:

1. Polar bears will still be around.
2. The Antarctic and Arctic will still be icy.
3. The map will be basically the same as it is now. Pacific islands will still be there.
4. Storms will vary in frequency. There will be some fierce ones and some long lulls.
5. To the extent there is warming, those who live there will appreciate the icy permafrost turning into soil
6. The world stays well below the 2 degree warming target, but this has nothing to do with expensive action undertaken by governments, as they will all cheat their targets anyway.

Finally, I have no doubt Al Gore will take all the credit despite getting everything wrong.


p.s. I told a friend I was going to write this and he said, with pain (dare I say tears) in his eyes, that he missed the optimistic vegetarian Mike, and wondered when I became a right-wing asshole. I think I’m actually the optimist here.
Climate politicians enrich themselves politically and financially by arguing we’re all screwed.
They casually make sinister arguments about population, when in reality the world could handle far more people. Our technology, art, poetry, music and film would be so much richer if there were more of us on this planet, as would our broader social, sexual, financial and political lives.
Al Gore even made this ridiculous point while referring to booming developing economies, echoing that old, mischievous trope that the poor breed too fast.
p.s.s. I can remember when the ability of weather forecasts to stuff up even the weekend forecast was a well-worn joke. When were these people put in charge of policy?
p.s.s.s. I’ve written about dodgy charts before. If we have real global warming or cooling, you will know about it.
* An icebreaker was sent out to rescue them and it too, got stuck the ice.
** The whistfully narrated slow motion clips of Al losing the election are more fun.
***  I spent a year proving that something that an enzyme catalysed fuel cell that worked on a fingerprint-sized surface worked on a finger-sized surface. It involved daily use of gas equipment. The long term aim was to replace heavy metal electrodes with friendly sustainable enzymes. As it turns out platinum is actually an extremely good electrode, while enzymes are impractical and fundamentally expensive. But that’s another story.


Former IPCC chairman Robert Watson has said “The mistakes all appear to have gone in the direction of making it seem like climate change is more serious by overstating the impact. That is worrying. The IPCC needs to look at this trend in the errors and ask why it happened”.


You probably haven’t heard of Valeant but you should, because it’s important. It’s a great example of how one person can really make a difference.

In this case an ex-McKinsey guy called Michael Pearson totally messed up the global pharmaceutical industry.

Mr Pearson became CEO of Valeant a few years ago. After careful analysis he figured that medical research was a waste of money. So he cancelled all programs and decided on a strategy of mergers and acquisitions instead.

Mr Pearson
Mr Pearson: classic old white man causing trouble in the business world
As he must well have known, acquisitions almost invariably destroy economic value. They go ahead due to the incredible ’strategic’ advantages they have for the decision makers – the CEOs that run the company. Dealmaking is fantastic for executives but almost always horrible for shareholders and often enough for society at large.

As an example of how consistent this is, 90% of the deals made by major mining companies since 2007 have been written down to zero.*

Tens of thousands of mining executives, bankers and advisers have spent the past 8 years burning capital. If they did the opposite of what their thinking told them, they would have done better. Their entire approach was flawed, all their work was a waste of time, and they’ve demonstrated a total lack of understanding of their business.

Almost without exception.

If you were a mining executive or banker since 2007 you should have stayed in bed.

If only Michael Pearson made his mistakes in mining rather than Corporate Chemistry.

His strategy was to buy any pharmaceutical company he could get his hands on. He then immediately jacked the prices of the drugs as high as he could, while gutting research expenditure to as close to zero as possible. Thousands of highly skilled jobs were destroyed and fruitful avenues of inquiry abandoned because of his work.

To see why this is so appealing to the likes of Pearson, consider that if you cut $100 million of R&D costs it’s $100 million of earnings, which means you get it every year. This has a value of anywhere to $1 billion to $2 billion, or in the ridiculous valuation mathematics that still applies to Valeant, much, much more than that.

You can use this extra value in the debt or equity markets to buy another company, rinse, and repeat.**

When you gut a research lab all the institutional memory disappears. The equipment is sold at liquidation prices and the teams disbanded. It’s an entropy thing.. a house that took a year to build can burn to ash in under an hour. The same principle applies to labs full of bespectacled researchers, only we’re all depending on these labs to treat the diseases that will kill us.

There’s an argument that the presence of a player willing to pay top dollar for new drugs encourages that development and helps fund start-ups by giving them a clear exit route. I’m somewhat open to this view. Most drug development occurs in the US precisely because they’ve let a million business models flourish, creating a market large enough to literally pull these miracle treatments out of thin air.

I would take the US Facebook, Amazon, Google or Apple over any tech company Europe has produced over the same period, and Europe has more than twice as many people. Just because something emetic like Valeant turns up every now and then doesn’t mean that it should be killed because on the surface it seems to be up to no good.

In line with this thinking, Forbes argued that spending $16 billion on research or buying a research company for $16 billion is exactly the same.

Umm, no. They are completely different. Valeant is a truly repulsive beast that needs to be put down.

The cuts that justify the deals (‘synergies’) invariably involve the destruction of real networks, business links, knowledge and whatever that invisible stuff is that actually makes up a firm.

This kind of strategy needs an ever higher multiple on your shares and an endless supply of new prey.

The impact of this kind of strategy is far broader than it seems at first. Once one company starts this game all the others either follow suit or are bought themselves by that very company kicked things off.

The simple presence of a player like Valeant caused the entire US pharmaceutical sector to boot valuable researchers onto the streets, where they are unable to help you, me and our families beat the incurable cancers, heart conditions and other diseases that will kill us.

A notorious example of Valeant’s broader impact is that Martin Shkreli twat who cottoned on to Valeant’s idea that you could buy drugs, jack up their prices, then claim with a straight face that this was all a good thing. Fortunately he’s about to get his own punishment.

I’m also particularly irritated by Martin Shkreli as his interests (hedge funds and chemistry) overlap with mine, but that’s another story.***

Anyway Valeant gets worse. Aside from some of the most blatant tax structuring on the planet (it pays an effective tax rate of something like 3%) Valeant has been screwing pharmacies and insurance companies by manipulating them into buying their own overpriced and less effective drugs instead of cheap generics.

This looks illegal and mildly fraudulent, but probably not Enron-like.

From an investment perspective, however, the good news is that Michael Pearson will probably still lose the cheeky billion or so he paid himself recently.

The company’s market cap is $40 billion, with debt of $30 billion, for a total business value of $70 billion (excuse the rounding).

Valeant’s revenue is $10 billion – earnings are $0.6 billion and they’re now going to have to reduce the price gouging on their drugs. Due to the fall in share price and loss of confidence, the equity and debt capital markets will be closed to them. They will not achieve the growth required to justify a 7x sales multiple. M&A is now impossible.

Did I mention their research pipeline is empty?

I hate getting into anything late. Much better to build positions early and slowly in which case you invariably put in some capital at the top (or bottom when buying). This might be an exception.

My favourite part of this story is that Bill Ackman, one of my least favourite hedge fund managers, has around a third of his fund invested in this monster.

A couple of years ago Bill tried to get a company called Herbalife nailed for fraud and was proven conclusively wrong, after extensive and damaging investigations, after he spent a small fortune blown on private investigators and the like.

More recently he made a pile of coin by finding a way to legally insider trade.

He teamed up with Valeant and bought a huge stake in a company Valeant was about to bid for before the news became public. If a banker did this he would be jailed for years, but Ackman found a way and was the toast of the financial town.

In summary, if ever someone deserved to get burned in the markets, it’s this investor, on this stock, with this CEO. Both of these men are about to get Valeantly f*cked.

*To be clear, this isn’t 90% of mergers and acquisitions that made less than they hoped or destroyed ‘economic value’, it’s 90% of the total purchase price paid that subsequently vanished.

In these M&A roll-ups nothing of value is actually created. No matter where or over what time period you look at, M&A is a loss-making proposition.

**Ofcourse you need a high earnings multiple to make this work, and if there’s one carnivore doing this all the target companies tend to rise in price themselves.. which is all you need to know to realise this kind of strategy could never run forever.

There was an entire boom and bust in the 60s based on this kind of thing.

***At least I feel like less of a mercenary!

ps I think I went easy on these guys. According to the excellent work done by John Hempton of Bronte fame, Valeant sells vitamin A cream for $400 a tube. They sell another drug for $400 that’s available for ~$10. They sell a treatment for athlete’s foot with 20% success rate for $8,000 – a better one costs maybe $20. And it looks like they’ve done it by buying pharmacies, sending the drugs to people and getting insurance companies to pay the bill.

pss I trade this stock (advise you don’t) and change my mind all the time


I finally cracked 100% on the trading performance – a private goal for the past few years. Purple is me, blue line is Australian stocks, yellow and green are the US and the UK.

27 month performance Michael Frazis

It’s been a bad period for a number of hedge fund heroes. Einhorn hasn’t made money in about a decade, despite his fresh-faced appearances boldly plugging such uniquely intelligent trades as long dated call options on Greek banks (lol). Ackman’s arrogance (‘I’ll donate all the profits on this trade to charity’) was justly and rightly punished. Paulson got everything wrong for maybe the fifth year in a row.

Since he paid himself a 3.5 billion dollar bonus one year he’s got almost everything wrong. Gold, oil, pharma, stock picks… You could have made a fortune just taking the opposite side of his bets. It’s incredible bad these guys really are at picking stocks. And these are the good ones.
As in most parts of life it’s better to be known as a brilliant investor than to actually be one.

Nobody has any business investing in hedge funds, though I’m about to set one up so I should probably stop saying that.

Anyway, pride goeth etc, though I like to think I’ve been sufficiently chastened by the market to last a lifetime. I’ve lost every cent to my name twice, and nearly everything a third time.

At least now in dollar terms I am very much ahead. It took four years to make back everything I lost in 2011 when all my option trades went sour a couple of weeks before finals.

Then I had a fraction of the capital and my trades were more than ten times the size they are now. The good news is I haven’t worried about the markets since and don’t even check them most days so it was probably worth it. Back then, most of the stocks I picked went fantastically but I lost money. These days I can’t catch a trick on the stock selection but the portfolio has been printing coin. Go figure.

Time to put more cash behind these trades.