Sometimes Right, Sometimes Wrong, Never in Doubt
Friday, 17 April 2020
By James Woodburn
‘A man who follows a newsletter guru has no guarantee of making money…but a man who follows the great mass of conventional wisdom is practically guaranteed that he will not.’
Bill Bonner, Founder and President, The Agora Companies
Hi, James Woodburn here, Group Publisher of Port Phillip Publishing and Fat Tail Media.
Or, as everyone around here calls me, Woody.
You may have noticed the new look of The Insider. A new look for a new beginning…and in a way…going back to the beginning.
When we first published this e-letter back in 2012, we called it Scoops Lane. A cool name, we thought. It was a reference to the laneway behind our pokey first floor office in St Kilda.
You can see that building here:
Source: Google Maps
It fit around 13 people. Any more would have been a squeeze.
A normal day started by having to step over the drunk sleeping on the doorstep. Or…if you had a special key…you could use the entrance round the back on Scoops Lane. There were only two of these keys. I was one employee with access.
To get to the backdoor, you went up the metal steps and straight into the middle of the office. Looking around, you had Callum Newman to the left. A young Nick Hubble next to him. In the far-left corner, our old pal Kris would be tapping at his keyboard, big puffy headphones wrapped round his head.
Opposite him was Alex, the then resources guy, with Shae Russell to his right. If it were a Thursday, Murray Dawes would be on the opposite corner studying three screens of charts for trading opportunities. And down the corridor was our founder, Dan Denning.
We saw it as a backdoor into a hub of people all trying to figure out what the hell was going on in the world of economics and investing.
We’ve grown a lot since then. Not just in people and employees, but products too. When I say products, of course, I mean newsletters. But the really unique thing about these monthly publications — and this is as true today as it was back then — are the ideas inside them.
And it’s through exploring these ideas that we believe we play a different but extremely valuable role in the Australian investment research landscape.
For example, as far as I’m aware…
Ours were among the only analysts I know who recommended to sell ALL US-listed stocks in September 2007. Later that month, Lehman Brothers collapsed, triggering the global financial crisis. The newsletter was called Outstanding Investments. Here was the front cover:
Source: Port Phillip Publishing
It proved sound advice. US stocks and global markets wouldn’t start to recover until April 2009.
In 2012, while many in the mainstream financial press — and in truth, a good few of our editors! — were predicting an end to rising property prices, one of our analysts felt like a lone voice saying the opposite was more likely: that we were in fact on the verge of a huge boom. Property prices, most notably in Melbourne and Sydney, skyrocketed over the next eight years…
And what about the huge cryptocurrency boom in late 2017? Every pundit and his pony claimed to have called that one. But we really did…four years before…in August 2013. The report was called ‘‘There’s No Need to Sign for That, Sir…’ The Tech Future of Money’.
This is what makes us proudly different from every other publisher and news outlet out there. It’s our team’s job to stick out their necks and make big, bold calls, based on thorough research and sound analysis. We don’t pretend to get it right all the time. But we promise to think hard on your behalf…and give you ideas you will not find anywhere else.
That’s what our editors do every single day they come in (or login these days!) to work.
So, what are our editors and gurus making of today?
Vern Gowdie believes Australia’s 28-year ‘long boom’ has turned into the start of what he calls the ‘long bust’. COVID-19 may have been the surprise trigger, but it was coming regardless in his eyes.
Likewise, Jim Rickards saw this crisis coming nearly a decade ago. In fact, he’s been two steps ahead of the mainstream ever since we first met at a private talk that he gave to our Alliance members in Sydney in August 2012. He warned of currency wars when globalisation was the idea of the day…the destruction of the US dollar when QE was fuelling the bull market in stocks…and his bestseller The New Case for Gold came out at the start of gold’s latest rise in 2016. The next phase of this crisis? Jim says the only way out of the depression we’re in is for the IMF to step in.
Catherine Cashmore and Callum Newman on the other hand follow a different playbook…one that has repeated every 18 years, for the past 200 years. What we’re going through now, they say, is a ‘midcycle slowdown’, the other side of which will see the biggest land, property and stock market booms you’ll ever see in your lifetime.
Sam Volkering and Ryan Dinse both agree that while the government-enforced lockdown has caused a devastating downturn…the solution out of it lies in tech. It’s forcing the decentralisation of what we’re all calling ‘the 3Ms’ — money, medicine and manufacturing. It could cause a creative disruption the like of which we haven’t seen since the industrial revolution. The investment opportunities coming out of this — in cryptos, blockchain tech, biotech and a new ‘localisation of industry’ charged by new technologies — could be massive over the next 10 and 20 years.
Murray Dawes and Shae Russell are both using the current volatility to seek out trading opportunities. Murray’s using his experience to buy and sell stocks using ‘pivot points’ as signals, while Shae is using her network and gold market knowledge to attack a certain group of highly speculative gold stocks.
Meanwhile, your fellow Insider editor, Greg Canavan is busy collating a portfolio of deep value ‘COVID-Keeper’ stocks. He believes there are plenty of great companies to own for the long term, now selling at ridiculously cheap prices.
Those are just snapshots. Over the coming weeks, I’m going to have in-depth ‘strategy sessions’ with each of these experts in their field.
The original idea behind Scoops Lane was to give you, our paying subscriber, the virtual key into our office.
And so, it’s in this spirit Greg and I want to take The Insider back to the beginning. And we want you to be part of these conversations again.
To be honest, we don’t know where this journey will take us…or how it will evolve. But we know it will be fun. It will be interesting. And we’ll learn a lot.
As Greg said the other day, he’ll write to you two days a week, usually on a Monday and Wednesday, focusing on the markets and stocks. And you’ll hear from me each Friday. Sometimes you’ll hear from us more when the situation warrants it. But I’d like to think of my Friday notes as a way to connect you more with our business. Because without you, we don’t have a business.
As I said, over the coming weeks, I’ll use this time to record talks with our key editors and gurus. We don’t want this to be just another newsletter. Think of it as an ongoing communique…or company memo…to you, our paying customer. To bring you into the conversations we are having with each other on a daily basis.
But a conversation is a two-way street. So, we want to hear from you…
As well as commandeering the letter, we’ll be reading the virtual mailbag on a daily basis. In that way, it will proceed and develop based on your feedback.
So, what’s on your mind? What do you want us to explore? How you do see this crisis ending? In a deflationary bust? Or an inflationary melt-up? What answers are you looking for?
Send us your thoughts, comments and questions to firstname.lastname@example.org.
Good and bad. Crazy or sane. Give it to us. We may not reply directly to everyone, but I promise we’ll read every single one.
And if your letter is of interest to your fellow readers, we’ll publish it here to contribute to the discussion. We’ll only print your first name if we do. Or you can be anonymous. Just let us know.
In the meantime, I’d like to hand over to Bill Bonner, to remind us why we’re in good company, among likeminded friends…always questioning, always critical.
Glad you’re with us.
Confessions of a Newsletter Man
By Bill Bonner
We begin with a question: Was ever there a fairer métier than ours?
The poor carpenter risks cutting his fingers or banging his knee.
The used car salesman’s hearing goes bad as soon as he takes up his job: ‘No, I don’t hear any rattle,’ he says.
The foot-soldier gets sent to a Godforsaken hole like Afghanistan, where the women are covered up and the liquor stashed away.
But in our trade as newsletter publishers, hardly a day passes without a good laugh. Our only occupational hazard is a rupture of the midriff.
Most people, after all, read the news pages for information. They lack the proper training and perspective to fully enjoy them. The consequence is that they are always in danger of taking the humbug seriously, or worse, finding the people who populate the headlines important.
If you really want to appreciate the media, you have to get close enough to see how it works — like a prairie dog peering into a hay bailer — but not so close that you get caught up in it yourself.
The investment newsletter business is perfect; it is part of the media, but it wouldn’t be mistaken for a reputable part.
More than 40 years ago, we began our career publishing newsletters. Those were the days! They were even more fun than today. Years of television, heavy-handed regulation, and waiting in line for airport security have taken much of the light-heartedness out of American life.
In its place, a kind of earnest timidity has settled over the 50 states. Everything is forbidden, or else it is compulsory — especially in the financial markets. You can barely talk about an honest investment without some ambitious prosecutor wanting to make a federal case out of it.
But back in the 1970s, the folks you met in the newsletter trade were even wilder and more disreputable than those who are in it today. At one investment conference, we remember an investment advisor from East Germany. He had escaped the Soviets’ grip by stealing a small plane and flying to the West. This alone made him a bit of a hero back in the 1970s. But his talk to investors endeared him further. He gave the following discourse:
‘Take a look a zis chart’, he would begin, pointing to the bottom of what appeared to be a wave pattern. ‘Investing is reeelly very simple. You just buy at zee bottom. Heere! Zen, ven ze stock goes up, vat do ve do? Ve sell. Heere! [Pointing to the top of the wave pattern.] It is reeelly verrry simple.’
‘Well, what if the stock doesn’t go up?’ asked an investor, fresh off the Great Plains and not prepared for patterns or people that weren’t perfectly straight.
‘Ya… ve just keep our eyes on ze chart. If it doesn’t go up, ve don’t buy it.’
We don’t recall the man’s name. It was something like Dr Friederich Hasselbauer. We were always a bit suspicious of financial advisors who used the ‘Dr’ title, though many did. Especially when they spoke with thick German accents. We imagined that they had been conducting experiments on Jews before they entered the financial markets.
And then there was the Quack man. His name was ‘Red Robin’. As near as we could figure, he liked ducks. So he called his financial analysis ‘The Quack Report’. He had once made his money paving airport runways. Then, in his 50s or 60s, he decided to devote himself to financial analysis and to save the world from a small group of criminal conspirators known as the Bilderburgers, who were in cahoots with the English government.
Once, flying on the Concorde across the Atlantic, Ol’ ‘Red’ saw the UK Chancellor of the Exchequer, it must have been Lord Barber, on the same flight. He told us that he decided to confront his lordship right then and there, when he had the chance.
‘I just went up to him and I said, “I’m on to you… ol’ buddy…”’
It must have been quite a scene. Red Robin was a funny-looking fellow with a paunchy stomach who always dressed in orange coveralls, which made him look a little like a red-breasted sapsucker. Why he wore orange overalls, we don’t know; perhaps they were a holdover from his days working on airport runways when he didn’t want the cement trucks to run him down.
Red also had funny ideas about publishing investment advice. He offered readers a Lifetime Guarantee — they could have their money back anytime. But then, he added a caveat: ‘My life, not yours.’ As it turned out, the guarantee was less valuable than readers imagined — or Red himself had hoped. He was gunned down on a beach in Costa Rica, we were told.
But that was the strange milieu in which we decided to make our career. What was delightful about it were the nuts and kooks, the charlatans and dreamers, the brazen hucksters and earnest geniuses who made up the industry.
Here were thinkers whose thoughts were untainted by any trace of advanced doctrinaire theory, let alone rudimentary training of any sort. Here were mountebanks and scalawags galore…along with a few saints…dispensing market wisdom, stock recommendations, and macro-analysis so far reaching you needed a Hubble telescope to see where it came from.
And here, too, were the sort of men whom rich widows were warned about. And the sort of theorists who made you wonder about the limits of human reason itself.
Our friend, Gary North, somewhat of a legend in the business, began studying the possible consequences of the Y2K computer problem in the late 1990s. The more closely he looked, the more alarmed he became. He began writing about the subject, and the more he explored it…the more he thought about it…the more convinced he became that it would lead to a complete meltdown of modern society.
He looked and he saw commerce coming to a stop. He saw trains that couldn’t run without electronic instruction. He saw cash machines frozen up. He saw power plants idled by their computer brains. And what would happen to all that electronic information — bank accounts, trading records, inventories — on which the whole financial world depended? He saw millions of people with no money…and then no food. He saw riots in the streets…and worse.
Then, he looked around and saw that he and his family were as exposed to the menace as everyone else. He decided to take precautions, moving his family to an isolated rural area where they would be safe from the apocalypse he saw coming.
Maybe he would be wrong, he reasoned. But what if he were right? The cost of being right — and failing to protect himself — could be catastrophic. He moved to a mountain hollow, buried provisions, and began the countdown to the year 2000.
Of course, when the big day came…nothing happened. The clocks worked. The trains ran. The power was still on. Apparently, not a single cash machine failed.
People pointed and laughed. But was he wrong? What if the odds of a meltdown had been only 1 in 100 or 1 in a 1,000? Was he not right to give a warning in the strongest possible terms? And wasn’t it partly because of him and others like him that billions were spent to correct the problem before January 2000?
Colourful eccentrics, careful analysts, cheerful con men, and self-assured delusionals trying to figure out how things are put together — this is the world of investment gurus.
But guess what? The gurus are often right. True, some financial gurus have gone broke following their own advice. But many have gotten rich.
In the late 1970s we undertook a study — with a guy named Mark Hulbert — of how well these financial gurus actually perform. We wouldn’t presume to summarise Mark Hulbert’s nearly 30 years of work; we will just tell you what we took from it: there is no right way to invest.
Investment gurus are an original bunch. They come up with all sorts of systems, ideas, and approaches. Almost all of them are successful — sometimes. There are a lot of different ways to invest and to make money.
And often one that works spectacularly well in one period may collapse completely when the market changes course. So, too, an approach that often works poorly under certain market conditions will work poorly in other conditions.
But, generally, an investment adviser who works hard to develop and refine a system and who sticks with it can do reasonably well, sometimes. He can be a technical analyst, a chartist, a Graham and Dodd follower, even an astrologer. Almost any disciplined approach, pursued intelligently and steadily, can pay off.
We have a theory that explains why this is so. Investing is, when you get down to the basement of it, a competitive undertaking. If you do what everyone else does, you will get the same returns as everyone else. In order to get better returns, you have to do things differently.
Investment gurus seem to be favoured, in this regard, by their own originality and quirky self-reliance.
‘Sometimes right, sometimes wrong,’ they say. ‘But never in doubt.’
Taken together, they are probably the most independent and contrary professional class in the world. And this contrariness, alone, seems to put them at odds with the great mass of lumpen investors, allowing them to make more — or, often less — than the common results.
By contrast, what seems to doom the average investor is the same mushy quality that seems to be ruining the whole country. He will wait in line — without a word of protest — while guards frisk girl scouts and old ladies for dangerous weapons.
If the mob is large enough, he can’t wait to be a part of it and fears being isolated from it. And he will believe any line of guff — no matter how fantastic — as long as everyone else falls for it, too.
Dow 36,000? House prices always go up? Interest-only negative amortisation mortgage?
A man who follows a newsletter guru has no guarantee of making money…but a man who follows the great mass of conventional wisdom is practically guaranteed that he will not.