The Power of Accelerating Growth; Beyond Meat is today's Tilray; Equinox Energy Fund down 85%; Facebook Connected Her to a Tattooed Soldier in Iraq. Or So She Thought.

By Whitney Tilson

Tuesday, July 30, 2019
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1) Twice a week for the next few months, I’ll be posting and sharing videos from the Q&A my friend Glenn Tongue and I did with our students last year when we taught our Lessons From the Trenches: Value Investing Bootcamp.

The first video – one of the longest at 28 minutes – is on The Power of Accelerating Growth. In it, we show how companies that can increase their rates of revenue growth can drive incredible stock performance. Some of the case studies we teach include Salesforce (CRM), Microsoft (MSFT), Netflix (NFLX), Adobe (ADBE), Alphabet (GOOGL), and Facebook (FB).

2) If you’ve been speculating in the stock of plant-based meat producer Beyond Meat (BYND), well, congratulations… but don’t ever do that again. Speculating in the stocks of recent IPOs is a sure way to lose a lot of money, fast…

“But wait,” you might say. “I just made a lot of money here!” To that, I reply with this story I recall Charlie Munger telling long ago: “If you run through a dynamite factory with an open torch and happen to get to the other side without blowing yourself sky high, that doesn’t mean it was a good idea.”

If you still hold Beyond Meat’s stock, yesterday’s announcement that insiders are dumping 3 million shares means that it’s time to get out, even on a down day like today.

The setup here reminds me of cannabis company Tilray (TLRY) last September, when it briefly hit $300. At that very hour on live TV, I predicted that it would be down by 90% within a year… It closed yesterday at $40.64, down 86% since that call.

Both Tilray and Beyond Meat are real companies, not frauds, in exciting sectors that are sure to see tremendous growth. But trading at over 100 times trailing revenues, their stocks were or are caught up in obvious bubbles. The Beyond Meat one today isn’t quite as extreme as Tilray’s was at its peak, so I’ll make a somewhat more conservative forecast: The stock will be cut in half – below $100 – by the end of the year.

3) I feel badly for Sean Fieler of the Equinox Energy Fund, who’s going through every money manager’s worst nightmare: losing 75% of your investors’ capital in one year and closing the fund. I respect his succinct, contrite final letter. Excerpt:

Our incredibly bad performance over the past four and a half years is a result of several factors. Bad stock picking, a bear market in E&P companies, a bear market in Western Canadian energy prices, and a bear market in the smaller cap energy companies upon which we focused…

More broadly, we wish to express our deep regret for having launched this fund in January of 2015. At the time, we were confident that energy prices would rebound to more sustainable levels. That turned out to be correct. But, we failed to anticipate all of the additional factors that cumulatively would lead to such a sizable loss of your capital. We are humbled by this experience and have sought to incorporate the difficult lessons learned in the management of our other funds.

4) This broke my heart and made my blood boil at the same time. Facebook Connected Her to a Tattooed Soldier in Iraq. Or So She Thought. Excerpt:

Ms. Holland and Mr. Anonsen represent two sides of a fraud that has flourished on Facebook and Instagram, where scammers impersonate real American service members to cheat vulnerable and lonely women out of their money. The deception has entangled the United States military, defrauded thousands of victims and smeared the reputations of soldiers, airmen, sailors and Marines. It has also sometimes led to tragedy.

The scheme stands out for its audacity. While fraud has proliferated on Facebook for years, those running the military romance scams are taking on not only one of the world’s most influential companies, but also the most powerful military — and succeeding. Many scammers operate from their phones in Nigeria and other African nations, working several victims at the same time. In interviews in Nigeria, six men told The New York Times that the love hoaxes were lucrative and low risk…

The Hollands lost $26,000 to $30,000. To start afresh, they moved to Fort Pierce last year.

But the strains remained. Mr. Holland was arrested on domestic violence charges in August 2018, according to a police report. Ms. Holland dropped the charges. She said in an interview last year that there had been another incident in 2017.

On Dec. 23, 2018, Mr. Holland shot and killed Ms. Holland and her father at their new home. Mr. Holland then turned the gun on himself.

I confidently predict nothing will happen unless and until social media companies are made financially liable for damages when they’re used to scam or hurt people.

Best regards,

Whitney

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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