Dear subscriber,

Welcome, and thank you for joining Empire Financial Research.

We live in a world where we’re all drowning in e-mails, ideas, and information. At Empire Financial Research, my goal is to separate the signal from the noise and provide something that will entertain, educate, and enrich my readers.

Before we embark on this journey together, I’d like to tell you a bit about myself. So here is my story and how I came to be a value investor…

My parents were among the first couples to meet and marry in the Peace Corps in 1962. They’ve dedicated their lives to international education, so I spent most of my childhood in Tanzania and Nicaragua – plus two stints at Stanford University, where my dad earned his doctorate in education.

In nursery school, I was one of roughly 600 children tested as part of the famous Stanford Marshmallow Experiment. (They’ve been following me ever since and even tested my oldest child.)

From sixth grade through high school, I lived in a small town in western Massachusetts on the campus of Northfield Mount Hermon School, where my dad was the academic dean. Then, I then attended Harvard University and Harvard Business School (HBS), earning high honors at both.

In between, I helped start Teach for America and then had the only “real” job of my life: two years as an associate at the Boston Consulting Group. It was a great learning experience, but I knew early on that I wanted to be an entrepreneur.

During my time at HBS, I teamed up with the school’s most famous professor, Michael Porter, the guru of competitive strategy… In the aftermath of the Los Angeles riots, we studied the economies of inner cities and developed new thinking about how to revitalize these distressed urban areas. When I graduated in 1994, we created a nonprofit organization to continue our work, the Initiative for a Competitive Inner City, which I led for four years. (It’s still going strong to this day.)

“What does all this have to do with investing?” you might ask. Good question.

I’m so fortunate to have the best parents anyone could possibly wish for, but they were teachers and knew nothing about business or investing. I still remember sitting in on a class at Harvard Business School during my sophomore year of college and knew immediately that I wanted to go there. But my interest was in entrepreneurship, not investing. I was so clueless that when Warren Buffett came to speak on campus, I didn’t even go!

It wasn’t until a few years after business school, when I was nearly 30 years old, that I first started to take an interest in investing – for the simple reason that I had the first savings of my life.

My wife and I got married in 1993. Even though I was earning little at my job with Professor Porter, she had a good salary as a lawyer, and we lived frugally. So after a few years, we finally paid off my business school debt and saved our first $10,000. I thought I was rich!

I wanted to invest this money, so I called my college buddy Bill Ackman. Back then, he was running his first hedge fund, Pershing Square. I asked for his advice and still remember his exact words: “Read everything Warren Buffett’s ever written… and you can stop there. That’s all you need to know.”

I took his advice – and was quickly hooked. For someone raised by parents who knew how to squeeze a dollar until it screamed – we almost never ate out and only bought used cars and clothes – the investment approach of trying to buy dollar bills for 50 cents immediately resonated with me (though not without a few painful lessons buying speculative stocks based on hot stock tips!).

I read everything I could by and about Buffett and started going to every Berkshire Hathaway annual meeting. Soon, I felt confident enough to start investing our savings. And a bit later, I started managing some of my parents’ retirement savings.

To my delight, most of the stocks I picked went up – some by a lot! I remember investing the entire $20,000 in my wife’s retirement account in AOL stock in late 1997 and watching it turn into $120,000 a year later. Making $100,000 on one stock so quickly was mind-blowing to me. Then I sold it and bought two Berkshire Hathaway Series A shares at $60,000 each – one of my best trades ever!

I soon came to believe that I was God’s gift to investing. That’s what making some quick money will do. (Plus, I was pretty full of myself, with my fancy Harvard degrees and all.)

But in truth, I now realize that I was little more than a bull market genius…

I’m sure you know the saying, “Don’t confuse brains with a bull market.” Well, I sure did: I had gotten lucky and stumbled into the last blow-off phase of the long bull market that started in 1982 and ended with the insanity of the Internet bubble 17 years later.

But I didn’t realize it. So, filled with hubris, I decided to launch my own hedge fund in November 1998 and opened for business on January 1, 1999 with $1.1 million from 10 friends and family, including my parents, my in-laws, and Bill Ackman’s dad.

Today, I tell every young person not to do what I did – start managing other peoples’ money without having spent a day in the financial industry, much less at a hedge fund.

This is an apprenticeship business and I hadn’t gotten the training, experience, and mentorship everyone should have before launching a fund. So by all rights, I should have fallen on my face and failed.

But the opposite happened…

I learned fast and started putting up good numbers. I recognized the Internet bubble for what it was and sold my tech stocks, largely escaping the meltdown of the sector from 2000-2002 (during which the Nasdaq fell 80%). In my first dozen years, I nearly tripled my investors’ money in a flat market. My assets swelled to $200 million.

Looking back, I see that I was lucky… It was a good decade for value investors, and hedge funds were the hot new thing. But I also created my own luck by working hard and becoming an investing learning machine, sucking up knowledge and experience.

You can only get experience in two ways: Doing things yourself (which inevitably means making mistakes, of which I made plenty!) and learning from others (a method I highly recommend).

So I sat in on Joel Greenblatt’s class at Columbia Business School, read voraciously, went to every Berkshire Hathaway meeting, and cultivated incredible mentors like Buffett, Ackman, Greenblatt, Munger, Klarman, and many others.

I learned a lot, but not enough…

Eventually, my lack of experience led to a series of mistakes. A business partnership didn’t work. I did too much trading… used too much leverage… and got hooked on short-selling. That got me in a big hole in 2011… And it resulted in the dissolution of my partnership in 2012.

I cleaned up the portfolio and relaunched on my own in 2013. But I made one big mistake…

At pretty much every point during this long bull market, I felt like the market was ahead of the fundamentals. So I invested conservatively… holding a lot of cash, maintaining a good-sized short book, and quickly trimming or exiting my winners.

I owned some great stocks. For example, I bought Netflix (NFLX) at the bottom – a potential 37-bagger! But I started trimming my position after it doubled and exited entirely after it rose seven times.

Of course, my defensive positioning was exactly wrong. It led to year after year of trailing the market, which was immensely frustrating for both me and my investors. I felt like I was out of sync with the market, had lost my mojo, and was letting my investors down. That made me increasingly miserable, so I finally decided to close my funds and return capital in late 2017.

I spent a few months reflecting on my nearly two decades of managing money. Once I felt I had learned the right lessons, I started teaching them to the next generation of investors via a series of advanced investing seminars throughout 2018.

As the year came to a close, I was preparing to get back into money management, but then I happened to speak with my old friend Porter Stansberry. He persuaded me to partner with him and his team at Stansberry Research to launch a new venture, Empire Financial Research. We aim to provide advice, commentary, and in-depth research and analysis to help people around the world become better investors.

I am delighted to be partnering with Porter, who founded his eponymous firm 20 years ago and has built it into an extraordinarily successful business, with dozens of newsletters and half a million customers in more than 150 countries. Nearly 100,000 of them like and have benefited from Stansberry Research’s work so much that they decided to become lifetime subscribers.

I’m tremendously excited about this next chapter of my career…

There’s an ethos in the value investing community of giving back and paying it forward. I’ve always embraced this premise wholeheartedly and have done my best to teach others over the years through my e-mails, co-authoring three books, and more.

My goal is to continue that at Empire Financial Research in the years to come.

Best regards,

Whitney Tilson

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