Wednesday, January 12, 2022

Digital World Acquisition up 22%; Weird Rivian news; Bill Miller puts 50% of net worth in Bitcoin; Another easy 72%

By Whitney Tilson

1) It's been little more than a week and seven of my Dirty Dozen stocks to avoid are already down 10% to 15%.

But there's one outlier I want to highlight: while Trump SPAC Digital World Acquisition (DWAC) is down 32% since I first warned my readers about it on October 22, it's up 22% since I named it as my No. 1 stock to avoid eight days ago.

That's OK – I don't always get the timing of every stock exactly right (to say the least!).

Mark my words: the SEC is going to block this deal and the stock will trade down to its cash value of $10, an 84% decline...

2) My timing was better on electric-truck maker Rivian Automotive (RIVN), which is down 32% since I wrote on November 18 that it was one of the two stocks in the sector I'd be shorting if I were running a hedge fund, along with Lucid (LCID), which is down 3%.

The Wall Street Journal reported yesterday that Rivian's Chief Operating Officer left a month ago, but the company didn't report it and still listed him as COO on its website on Monday. That's weird – and another reason to avoid the stock...

3) When I was starting out as an investor in the mid-1990s, there were few bigger names than Bill Miller, who famously beat the S&P 500 Index 15 years in a row, from 1991 to 2005, when he was managing the Legg Mason Capital Management Value Trust mutual fund.

I had the pleasure of meeting him a few times and learned a lot from him. He's a great guy and was incredibly generous with his time. He had some tough years, but has come back with his own firm, Miller Value Partners.

I was thinking of Miller yesterday when I saw this headline: Billionaire investor Bill Miller puts 50% of net worth in bitcoin.

It reminds me of his early days, when he made a fortune by being one of the few folks who was willing to break with the traditional orthodoxy that no self-respecting value investor would own a tech stock, and piled into AOL, Dell Technologies (DELL), and Google – now Alphabet (GOOGL) – among others, which is how he did so well for so long.

I think it would be crazy for the average person to put anything like 50% of their net worth into bitcoin – I wouldn't suggest more than 1% to 2% – but keep in mind that Miller is a billionaire, so if bitcoin goes to zero, he's still going to be just fine. And I admire his conviction and willingness to make big bets...

4) Speaking of betting...

To repeat what I wrote in Monday's e-mail about online sports gambling, I think it's a sucker's game and a terrible temptation that costs a lot of folks a lot of money, so I wish 14 states (including New York, as of Saturday) hadn't legalized it online.

That said, if companies in this sector want to hand me free money, I'm happy to take it... Heck, let's drive their marketing costs through the roof!

On Monday, I explained exactly how I turned $950 in wagers into $4,743 – a 399% return – by taking advantage of promotional offers associated with opening new accounts with the four websites operating in New York that I signed up for: DraftKings (DKNG), Caesars Entertainment (CZR), FanDuel, and BetRiver.

I was, of course, quite happy with this outcome and was planning to withdraw my winnings and walk away – but instead made 13 additional bets on Sunday and Monday.

When I told my wife this, she freaked out, convinced I was becoming a sports-gambling degenerate – but trust me, I'm not! Allow me to explain how I made another low-risk 72%...

It turns out that the companies don't just offer incredible deals to get you to sign up – they continue to do so to get you to start betting.

Normally, I would have no interest in doing so because I understand how much the odds are stacked against me. For example, the typical 50/50 bet only pays $86 for every $100 wagered – that's a 14% headwind, worse than almost any other casino game. Over time, you are sure to lose if those are the odds.

But if the companies offer promotions that shift the odds heavily in your favor, then you are sure to make money if you're clever and disciplined in taking advantage (and, most important, don't get hooked, which is, of course, what they're hoping will happen)!

Once I opened my accounts, all four companies sent me a total of 10 offers of enhanced-profit bets, each of which was a statistical no-brainer, so I maxed out on each.

For example, DraftKings sent me two offers for the Jets versus Bills NFL game on Sunday and the Georgia versus Alabama national championship football game on Monday, in which I could bet a maximum of $25 and double my money if either team scored a touchdown. Since that happens in nearly all games, those two bets earned me the easiest $50 of my life.

More typical was Caesars' offer, in which I could bet a maximum of $50 on the winner of the college football championship (versus the spread... Alabama was favored by 2.5 points). I had no opinion on the game, but took the bet because if I won, instead of paying me $43.48, they'd pay me an extra $50, turning an expected loss of 14% into an expected gain of 86%. Sure, I could have lost $50... but I'll take 186% expected value bets all day long!

I won't bore you with the details of all 10 enhanced-profit bets, but in each case the offer shifted the odds by at least 50 percentage points in my favor.

In addition, I earned $10, $20, and $100 free bets on three of the sites thanks to two promotions and referring a friend.

So, in total, I made 13 bets, 10 with real money, for a total of $425 (seven bets were capped at $50, with the other three at $25). While my money was technically at risk, the odds were so heavily in my favor on all 13 bets that I was virtually certain to win – the only question was how much.

Unlike my bets on Saturday (outlined in Monday's e-mail), in which I had a strong opinion on one NBA game (that the Celtics would beat the Knicks by more than seven points), I had no opinion on any of the bets I made on Sunday and Monday. To me, it was as if someone offered to flip a coin and if heads came up, I'd lose $50, but if tails, they'd pay me $100. Those are my kind of odds!

Excluding the two either-team-scores-a-touchdown gimme bets, I ended up about where one would expect, winning six and losing five. Normally, that would result in roughly breaking even, but because of all the profit enhancements, I instead earned a profit of $306 – a 72% return in two days, virtually risk-free.

In conclusion, I've adjusted my plans somewhat...

Rather than closing out my accounts entirely, I'm going to withdraw nearly all of my winnings, but keep $100 or so in each of them to take advantage of exceptionally attractive offers. My guess is that they'll slow to a trickle if the companies are smart – but, hey, maybe they're not! If I see a $100 bill on the sidewalk, I'm not too proud to bend over and pick it up. As long as these companies want to keep on giving, I'm happy to keep on taking!

That said, I want to end where I started: in general, this is a sucker's game... so if you choose to play, do not get hooked on it!

No matter how many times I say this, however, one of my friends thinks I shouldn't even discuss how to profit from online sports gambling because of the risk that some – even just one – of my readers might get hooked. It's a fair point and I considered it carefully, but ultimately rejected it – and it wasn't a close call. Here's what I wrote to him:

I just made over $4,000 in a few days, with very low risk. That's not a material amount to you or me, but I can assure you that it's real money to the vast majority of my 139,000 readers, who are average folks all over the country.

Just look at the massive impact of the three rounds of pandemic stimulus checks, which were $1,200, $600, and $1,400 – $3,200 total – per individual.

So the real question is: in what universe would I not share this opportunity with my readers???

Best regards,


P.S. I welcome your feedback at [email protected].

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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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