Thursday, December 5, 2019

Alphabet Is Google Again; An Academic Wrecking Ball Aims at Hedge Funds; Reason No. 4 why getting rich increases the odds that your marriage goes bad

By Whitney Tilson

1) Bloomberg columnist Matt Levine had some interesting comments on Alphabet's (GOOGL) announcement that Sundar Pichai is being promoted from CEO of Google to CEO of the entire holding company. I agree with him that this is bullish for the stock. Alphabet Is Google Again. Excerpt:

Google might be run more as a business, or more as the business, or more as a public company. One aspect of the Alphabet structure was that Google, one of the biggest and most profitable companies in the world, is sort of a black box from a public disclosure perspective. We have talked about this fact a couple of times, and it is specifically linked to the fact that Page and Brin don't want to hear anything about how Google operates.

Take YouTube. YouTube is an advertising behemoth, an important social network, its own entertainment and celebrity industry, a vector of political radicalization, and by all indications a gigantic business, probably bigger than most U.S. public companies. Google owns it. It is hardly mentioned in Alphabet's annual report, which does not break out any operational or financial results for YouTube – they're just swept up into "Google segment"...

Now Pichai is the CEO of the whole public company. Presumably – who knows! – he will devote more of his time to YouTube, which is both a huge cash generator and a political lightning rod, than he does to, like, Moonshot Number 13 or whatever. Perhaps this will change Alphabet's disclosure; perhaps they'll find a way to keep things vague. But surely it will change Alphabet's business. Having the CEO involved in the money-generating business is different from having a CEO who isn't. It feels weird to type that. Usually it's just a given. Most public-company CEOs spend a lot of their time working on the parts of the business that make the money! Alphabet was an unusual experiment in not doing that, but now it seems to be over.

I enjoy Levine's daily e-mail, which you can sign up for here.

2) Here's a Bloomberg article covering some interesting research on short selling: An Academic Wrecking Ball Aims at Hedge Funds. Excerpt:

This research shows that using factors to identify short candidates the same way that we identify stocks to buy isn't a good way to deploy capital. For those who don't want to expose themselves to the overall direction of the market, it is far cheaper and easier, and no less effective, just to take a short position in the index.

All of this implies that a lot of hedge funds and quants are wasting their time and money, so we can expect this paper to face a robust response. But the outline of the argument looks clear and persuasive.

These findings are certainly consistent with my experience. I went back and looked at my short book at the end of 2011 and, collectively, the dozens of stocks I sold short performed almost exactly in line with the S&P 500 Index. In other words, had I simply shorted the same amount of the index, the headwind to my performance would have been about the same – and I would have saved myself enormous amounts of time, expense, and brain damage!

3) Reason No. 4 why making a lot of money can actually increase the odds that your marriage goes bad: If one person makes enough money that the spouse can stop working, it can eventually lead to deep unhappiness for the non-working spouse.

(Careful readers may notice that I changed the above wording slightly from "increase the odds of divorce" to "increase the odds that your marriage goes bad." This is because the true calamity isn't divorce – in fact, that's often the relief valve. It's the many years of misery prior to the divorce – or worse yet, no divorce. Being in a terrible marriage for the rest of your life – that's the real calamity.)

I'll acknowledge up front that this is a high-class problem that pretty much only affects one-percenters – but that's my world.

I have never shared these thoughts publicly because some people will no doubt view them as sexist. And I have no data to back this up – they're just my anecdotal observations. But I'm telling you, I've seen what I describe below happen to not one, but multiple friends of mine.

Let me start by making the politically incorrect observation that, in most cases I've seen, it's the husband who starts making big money and the wife who stops working, usually when kids arrive.

Initially, everything is wonderful. She throws herself into motherhood, which is a full-time job with one or more little children who need constant attention.

But then the kids start school, which results in large blocks of free time during the day. How is she supposed to occupy this time? Keep in mind that these are highly educated, capable women who, five to 15 years earlier, had great jobs. But good luck getting back on the career track, given the long absence from the workforce and the inability to work full-time or travel.

From the outside, the wife appears to have a wonderful life: perfect children, a perfect home, perfect fitness, perfect vacations, and perfect charitable engagements.

But in reality, boredom creeps in... And, consciously or subconsciously, she feels a lack of meaning in her life. Over time, this can lead to deep unhappiness, depression, and a severe midlife crisis that can blow up a marriage.

To make sure I wasn't completely off the mark, perhaps because I've mostly heard the husbands' side of the story, I called a straight-shooting female friend of mine. Here's what she had to say...

Most of my acquaintances married to uber-rich guys still work. I never understood why women would get multiple Ivy League degrees to retire at 33.

The ones who don't are often CEOs of their house, compulsive shoppers, and causing misery – bossing people around at the private schools their children attend or the charities they volunteer at.

There are plenty of miserable "ladies who lunch" for sure. I usually see them at boutique fitness classes, yoga, etc. Most aren't divorced (yet), but a lot of sexless marriages for sure.

Of those who have gotten divorced, their husbands often cheated on them.

The wives are much happier now. They've had to go back to work, but typically not at their old law firm or Wall Street jobs – they're working at schools or other nonprofits, doing social work, therapy, or interior design, etc.

The periods when I have not worked in a fulfilling job have been the most challenging ones for my marriage. I am at my best as a wife (and mom and person!) when I'm happy at work.

My observation is that the husband is often largely (or completely) oblivious to what is happening. He has a fulfilling career in which he works with and meets lots of engaging people, travels regularly to new places, and solves interesting challenges at work. And things seem fine at home – the kids are thriving, and there are no big spousal conflicts. Maybe the spark is gone and sex has dwindled but, hey, that's just what happens after you've been married for a long time, right?

Maybe... but maybe not. In some cases, before they know it, tick... tick... BOOM! Welcome to divorce, which always sucks, but is an especially big nightmare when real money and kids are involved...

In conclusion, forgive me if what I've written here offends you. But maybe it will help at least one of my readers, who may say, "Wow, this hit awfully close to home. Maybe I should have a conversation with my spouse..."

Best regards,


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Empire Financial Research

Whitney Tilson

Empire Financial Research founder and CEO Whitney Tilson is the editor of the Empire Investment Report, a monthly investment advisory that focuses on cheap, high-quality stock ideas.

Whitney graduated with honors from Harvard University and Harvard Business School, where he earned an MBA and was named a Baker Scholar. Whitney spent nearly 20 years on Wall Street, during which time he founded and ran Kase Capital Management, growing assets under management from $1 million at inception to a peak of $200 million.

Once dubbed "The Prophet" by CNBC, Whitney predicted the dot-com crash, the housing bust, the 2009 stock bottom, and more. Now, he's sharing his secrets and strategies with followers of his latest endeavor, Empire Financial Research.

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