My favourite investment writing of 2021

Before we set up Marcellus’ shopfront three years ago, we studied the work that the wealth managers at Ritholtz had done in the United States. We learnt a lot from them and became avid readers of their blogs. This blog from their stable is worth reading in its entirety as it contains various pieces that Nick Maggiulli from the Ritholtz stable deems to be the best investment writing of 2021. From the various pieces highlighted by Nick, here are the three that we found to be the most interesting. Each of these pieces is worth reading in full as well!
“The new Fear & Greed” by Joshua Brown (https://thereformedbroker.com/2021/10/21/the-new-fear-and-greed/): Outstanding description of how social media has burnt the mental circuits of a generation of investors and made them: (a) take more risk in order to outdo others who are seemingly doing well in the market; and (b) pour abuse and vitriol on others because it feels good to abuse other people online.
“Livermore also said “There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.” And I think that’s still true, but with a twist. Livermore had a few dozen men playing alongside him in the bucket shops of Boston, or a few hundred men on the stock or commodities exchange, where everyone knew each other and saw each other in person each morning. You had rivals, and counterparties you saw as the enemy, but it was small and it was close quarters. A knife fight. This thing today is nuclear war. No survivors. It’s a Squid Game event on a global scale. Millions of nameless, faceless strangers in an online environment that literally knows no spatial or geographic limitations. It’s an environment in which the wealthiest, most successful players like Chamath and Steve Cohen can be publicly – daily – accosted by the mob throwing fistfuls of horseshit at them from the alleyways. I don’t know if the heuristics Livermore played the game by would be so easily applied now.”
“Other people’s money” by Marc Rubinstein (https://www.netinterest.co/p/other-peoples-money): This piece is an in-depth analysis of an issue which is of considerable interest to fund managers and their clients i.e. when does it make sense for a fund manager to STOP managing other people’s money. Rubinstein’s essay teases out two separate dimensions of this puzzle: (a) how much of the upside from great investment ideas is a fund manager willing to give away to his clients given that it is their money that he’s managing; (b) how can the fund manager lengthen the time horizon of his investments (and ideally manage ‘permanent capital’) so that he can capture the entire time value of compounding. The author points out that insurance companies deal with these two issues better than fund management companies.
“Buffett was neither the first nor would he be the last investment manager to wind up their fund. In March 2000, Julian Robertson announced that he was shutting Tiger after 20 years in the markets over which he had annualised 25% per year. In 2014, Nick Sleep and Qais Zakaria closed the Nomad Investment Partnership (20.8% per year, over twelve years). And in 2015, Bluecrest, once one of the world’s largest hedge funds, returned money to outside investors. The reasons for these fund closures are all different, but they have one feature in common: their managers didn’t stop actively investing after returning client money – they carried on, under a different structure.
The most glaring among this group is Bluecrest. At peak, the firm managed around $37 billion of assets, on which it earned 2-and-20 (2% management fee plus a 20% performance fee). Explaining its closure, the firm cited, “among other things, downward pressure on fee levels.” This gets to a key issue many managers face – if you’re really good at making money, what’s the right way to apportion the returns? Paying away 80% of the upside to outside investors may have been just about OK for Bluecrest; any more and it gets too expensive. When George Soros closed his own fund to outside investors in 2011, he approached Bluecrest to manage $1 billion of his money for 0.5% and a 10% performance fee; Bluecrest refused – giving away 90% of the upside was simply too much.”
“A Memo to Investors” by Drew Dickson (https://www.albertbridgecapital.com/post/a-memo-to-investors): This is a ‘The Emperor’s got no clothes” type piece which calls out the hocus pocus world of meme investing. Drew Dickson says that in the long term it is not flows which drive share prices, it is not fads or memes which drive value, it is good old fundamentals.
“This surely will sound quaint and stale to a few readers, but – and I’m sorry – the future value of a thing is ultimately based on the dividends the thing will eventually pay you, or someone to whom you are prepared to sell your shares.  Whether the proxies for those dividends are cash flows, earnings, margins, sales, or the dividends themselves, alpha happens when expectations of those future dividends change.
That’s it.  That’s the stock-picking game.  Stocks are not pieces of art.  They are not fiat money.  Cults of personality do not last forever in the stock market.  Narratives break.  Eventually, everyone figured out that Galileo was right.  Eventually, everyone will figure out that Cathie Wood isn’t. And it won’t take as long either.”

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