How City high-flyer dodged COVID to end up top of the stocks; In the COVID Economy, Laid-Off Employees Become New Entrepreneurs; SEC Pursues Plan Requiring Chinese Firms to Use Auditors Overseen by U.S.; Store Accused of Fat Shaming; Your Worst One Percent

By Whitney Tilson

Friday, November 20, 2020

1) Following up on Wednesday’s e-mail, in which I highlighted the top investors who trade the least – a strategy that I wholeheartedly endorse – here’s an article about a British fund manager who takes it to an extreme – and has had extraordinary success: How City high-flyer dodged COVID to end up top of the stocks. Excerpt:

The golden rule is “Buy good companies. Don’t overpay. Do nothing.” At launch, he said other fund managers bought too many stocks, and traded in and out of them too frequently, paying excessive fees to brokers. He promised to buy a core of 20 or so (other funds typically hold about 60) and hold them for the long term, keeping turnover below 5%.

Ten years on, his average portfolio turnover has, indeed, kept below 5%, and the dealing costs – of buying and selling shares – are a miniscule 0.014% per annum. “The fund still holds 10 of the original stocks,” says Smith.

Despite the fact that his current top three holdings (Microsoft, PayPal, and Facebook) are tech giants, Smith insists his returns come from a broad base of companies.

The best-performing stock over 10 years, in terms of contribution, has been Microsoft. Followed by Stryker, the U.S. medical devices company, and then Domino’s Pizza, which rather gives the lie to the suggestion that the performance is “down to a few stellar tech stocks.” The next two are Unilever and Becton Dickinson, the world’s largest maker of syringes.

2) I love Americans’ entrepreneurial spirit, which this front-page story in yesterday’s Wall Street Journal captures well: In the COVID Economy, Laid-Off Employees Become New Entrepreneurs. Excerpt:

The coronavirus destroyed jobs. It also created entrepreneurs.

To adapt to the pandemic and the job loss it unleashed, more Americans are becoming their own bosses, setting up tiny businesses to work as traveling hair stylists, in-home personal trainers, boutique mask designers and chefs. A man in Maryland started a mobile car-washing business.

Many new entrepreneurs previously worked at salons, gyms and restaurants, in the kind of face-to-face jobs erased when state orders closed swaths of the economy in the spring. The economy has since mounted a split recovery, with some Americans thriving while many others continue to struggle. A cohort of the laid-off, stuck on the descending arm of that recovery, are using their ingenuity to get off it.

“As horrible as [the pandemic] is, and as badly as it has affected so many people, it has pushed people to come up with new ideas and products and services,” said Steven Hamilton, an economist at George Washington University…

This emerging group of entrepreneurs has pushed into a wide array of service businesses, including home improvement, food, beauty and health. They have one thing in common: figuring out how to connect with those in the upper layers of the economy who have managed a speedier recovery or never lost income.

The phenomenon is somewhat different from the gig economy, in which workers tap into online platforms such as Uber often to supplement another form of income. Many in this newer group are working to build direct relationships with repeat customers and are using their skills as their primary source of income; some say they see their shift as permanent.

3) I’ve been calling for this for years: SEC Pursues Plan Requiring Chinese Firms to Use Auditors Overseen by U.S. Excerpt:

Chinese companies with shares traded in America would be required to use auditors overseen by U.S. regulators or face being kicked off exchanges under a plan being drafted by regulators, according to people familiar with the matter.

The proposal, which is likely to be issued for public comment in December, would address the disparate treatment that applies to Chinese companies going public in the U.S. The firms have long been able to sell shares here, yet their auditors violate a key investor protection: China hasn’t allowed their work to be inspected.

Better yet, as punishment for the outrageously high number of Chinese firms that have listed on U.S. exchanges and turned out to be total frauds, I would simply ban all of them.

I’m serious… Allowing these companies to list here is all upside for them and all downside for us. If Americans want to invest in Chinese companies – and assume the associated risks – they can simply buy shares traded on Chinese exchanges.

4) This is unbelievable… Store Accused of Fat Shaming for Calling Large-Size Women’s Clothing ‘Rotten.’ Excerpt:

“Slim.” “Beautiful.” “Rotten.” “Extra Rotten.” “Rotten to the Core.”

Those were the size descriptions for women’s clothing, ranging from small to XXL, that a Taiwanese chain, RT-Mart, slapped on chart measurements in one of its superstores in China.

It set off a furor this past week in a country where fat shaming is common on the internet and in advertising, and institutionalized definitions of beauty and femininity are narrow.

My colleague Berna Barshay comments: “It’s like when Lululemon Athletica’s (LULU) founder said some women shouldn’t wear the company’s yoga pants… times 1,000!”

5) Following up on yesterday’s e-mail about the calamity of losing your reputation, here’s another related excerpt from my upcoming book, The Art of Playing Defense:

Your Worst One Percent

It’s important to understand that you aren’t judged for the way you behave 90% or even 95% of the time, but rather on your worst 1% – or even 0.01%.

To my knowledge, David Sokol, a senior executive at Berkshire Hathaway (BRK-B), had never done anything unethical in his long career before his fateful purchase of Lubrizol’s stock – just before he recommended that CEO Warren Buffett buy the company, which he did – ruined him. That’s all it took.

In my two decades as a hedge fund manager, I made thousands of trades. To my knowledge, all were ethical and proper, but if even one hadn’t been, I could have been ruined as well.

One misjudgment is all it takes, so avoid gray areas. Never go near the line. Be ultra-conservative when it comes to your integrity and reputation.

This applies in every area of life. You can be a kind and generous person almost all of the time, but if you make one blatantly racist or sexist remark (even if you’re not racist or sexist), that’s what you will be remembered for.

Even if you’ve been faithful to your spouse for decades, if you go to Vegas one weekend, get drunk, and have a one-night stand, you’ve likely permanently ruined your marriage.

The implications of the worst-one-percent reality are sobering. Everyone makes mistakes, but in some areas, you simply can’t afford to make any.

There are many things you can do to avoid this kind of calamity. First, mistakes are far more likely if you’re sleep deprived or under physical, mental or financial duress, so if at all possible, avoid taking important actions or making big decisions under these conditions.

Be careful who you associate with, both personally and professionally. Their behavior and reputation will rub off on you and vice versa.

And never assume that something is private or off the record. Other than perhaps the most intimate conversations with your closest friends and family, assume that everything you write and say is being recorded and could be made public. E-mails, in particular, live forever, so it’s best to assume that someday they will be read by a hostile journalist, regulator, investigator, or lawyer. It’s happened to me a few times and it’s no fun.

Best regards,


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.

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