Pot bubble; I met Alex Honnold; Shane Parrish; Secrets in Earnings Reports; Jim Pattison; Deal-Master Debbane

By Whitney Tilson

Sunday, January 13, 2019
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1. I’m heading to the airport to fly to Orlando for the ICR Conference tomorrow and Tuesday. They’re hosting an “inaugural dedicated cannabis track” with a panel on “Cannabis Investing: Capitalizing on a New Global Asset Class.” Oh please – sure sign of a bubble!

2. You know how you never forget the first time you meet one of your heroes? I for sure remember the handful of times I’ve met Buffett and Munger, for example. Well, I had one of those experiences yesterday when I – totally unexpectedly – had the chance to meet and briefly chat with the world’s most famous rock climber, Alex Honnold. You can read about it on my Facebook post here and here’s a picture of us:

3. In my last email, I had a link to an excellent interview by Shane Parrish of the Farnam Street blog on How Not To Be Stupid. Following up on that, here’s a podcast interview that my friend Dan Ferris, who publishes the Extreme Value newsletter at Stansberry Research, did with Shane: click here to listen to it (it starts at 20:00; the first part is a follow-up to Dan’s discussion with Mark Spiegel on Tesla the previous week).

4. Some VERY interesting research and findings: How Companies Like Apple Sprinkle Secrets in Earnings Reports. Excerpt:

    1. Three economists — Lauren Cohen and Christopher Malloy of the Harvard Business School, and Quoc Nguyen of DePaul University — downloaded every quarterly and annual corporate report of every publicly traded American company from 1995 to 2014.

      They then sifted through thousands of reports, using a text analysis program. “We filtered out the reports that made a lot of wording changes over the previous year’s version,” Mr. Cohen said in an interview. “It turned out that when there are a lot of changes, there’s a good chance that something important is going on, and most of the time, it’s negative.”

      Among the reports that included many such changes, the researchers found a high probability that the companies’ share prices would decline several months after the reports appeared.

      Textual changes in the “risk factors” section were most likely to predict subsequent moves in share prices. (Corporate earnings reports are rigidly formatted to comply with Securities and Exchange Commission requirements and are divided into predictable sections.) When the researchers refined the analysis further, differentiating between textual changes that were positive and negative, the results were even more striking.

      The overwhelming majority — 86 percent — of reports with substantial wording changes were primarily negative in tone. But the minority that contained primarily positive language generally correlated with increases in share prices later.

      That brings up another important point: The stock market rarely responded to the subtle hints in the reports immediately. In fact, it typically took several months for whatever good or bad news was embedded in the reports to be widely understood — and to move the stock market.

      This delay means that there is a profit opportunity for those able to exploit it, the researchers said.

    5. I’d never heard of this guy until I read this article (though I’m told he’s a legend in Canada) – what a story! ‘Canada’s Warren Buffett’ Drives His Own Pickup Truck. Excerpt:

    It’s here in Canada’s vast breadbasket that Pattison was born and where, at age 90, he’s overseeing one of the newest arms of his C$10 billion ($7.4 billion) empire: Pattison Agriculture, a string of John Deere equipment dealerships serving 21 million acres of farmland.

    “We’re seeing more opportunities than we ever have,” says Pattison, steering confidently, his diminutive frame overwhelmed by the cavernous, black leather seats of his Ram 1500 Laramie truck. “There are still lots of opportunities with all the changes going on in the world.”

    The road trip offers a rare glimpse of the intensely private Pattison, Canada’s third-richest man, who created his iconic business group in seeming defiance of modern empire-building. He eschews emails, carries a cell phone but barely checks it, and can count on one hand the number of times his group has used an investment bank in recent memory.

    Pattison is often dubbed Canada’s Warren Buffett—a trope that underscores how relatively unknown he remains outside Canada despite a conglomerate that operates in 85 countries across a dizzying array of industries: supermarkets, lumber, fisheries, disposable packaging for KFC, billboards across Canada and ownership of the No. 1 copyrighted best-seller of all time, the “Guinness World Records.” Believe it or not, he even owns the Ripley Entertainment Inc. empire.

    “Back in Omaha, I’m known as the Jim Pattison of the United States,” Buffett quipped this month when he surprised Pattison onstage in Toronto as the Canadian billionaire was inducted into the country’s Walk of Fame. Pattison dismisses the comparison. “Warren Buffett is in a class all by himself,” he insists.

    Whitney Tilson

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    About Whitney Tilson

    Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

    Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

    Click here for the full bio.