48. The Greater Fool Theory is something to be cherished, not maligned. Playing it opens up a whole new world of opportunities where psychology is a competitive advantage. But if you never try, you’ll never get better.
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59. According to a presentation by Leon Cooperman, Teledyne engaged in three separate tender offers from 1974 through 1975, repurchasing from between ~10% and ~20% of its outstanding shares in each of them Amazing, considering Teledyne’s troubles at the time.
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60. But just how bad off was Teledyne? Although Argonaut shored up its malpractice reserves, some of the company’s losses in 1974 came from its investment portfolio. There was more to the story than poor underwriting results, the seriousness of which MAY have been embellished.pic.twitter.com/QfUhWkGzSY
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61. For example, when talking to Congress about its NY biz, the CEO of Argonaut admitted that of $69 million of malpractice reserves, Argonaut had only paid out about $24k on its policies. An analysis by an outside firm estimated Argonaut was actually about 2.6x overreserved.pic.twitter.com/wNZBk6O451
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62. Funny thing about increasing your loss reserves as an insurer. Doing so lowers reported earnings, and can make a business look less profitable than it actually is. Maybe it’s a coincidence that so many of Teledyne’s massive tender offers happened around this time.pic.twitter.com/gN0jrVBHhT
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63. Or maybe it wasn’t a coincidence, and Singleton knew what he was doing. At the same time Teledyne was reporting losses from its insurance businesses, its other businesses continued to grow. But it was able to buy in shares at a discount to what it paid a few years earlier.
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64. After insurance results turned in ‘75, the stock soared and became a multibagger from the tender offer prices. With the Argonaut losses, Teledyne had time to do big tenders at low prices. That’s why sequencing and narrative management are important to capital allocation.
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65. A good CEO will try to position the company to perform optimally in the next part of the sequence OR alter the sequence to optimize current reality.
$TSLA would be dead now if Musk failed at this, which is why it’s wrong to chastise him for issuing shares at $243.Show this thread -
66. Because if he didn’t issue shares at $243, the stock would not be at $404 now. It would be at $0, or close to. The future is not independent of the past. It is dependent on it. By altering narrative, we alter the current “reality,” which in turn alters the future.
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67. Singleton altering perceptions of Teledyne’s profitability to buy back shares on the cheap and Musk performing elaborate
games to issue equity at high prices are two sides of the same coin.
Both are legendary to me for seeing narrative & sequence as capital to allocate.Show this thread -
68.
$L is ALLEGED to have used a similar trick on Boardwalk Pipeline, by deliberately tanking the units to exercise its call on them at lower prices. Capital is not just cash and assets. It is perception, ideas, and time. Alter those and the rational uses of cash also change.Show this thread -
69. Of course, I cannot prove any of this was done intentionally. I’m not suggesting it’s a matter of fact. But from the info I have been able to piece together, and noting Singleton’s genius in using reflexivity to build Teledyne, it’s an idea that makes sense to me.
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Sources for those who care: https://www.valuewalk.com/wp-content/uploads/2014/11/leon-cooperman-value-investing-congress-henry-singleton.pdf … https://www.nytimes.com/1975/06/17/archives/argonauts-malpractice-premiums-in-74-amounted-to-35million-claims.html … https://www.nytimes.com/1975/06/08/archives/for-argonaut-profits-proved-illusory.html … https://www.milbank.org/wp-content/uploads/mq/volume-55/issue-02/55-2-The-Malpractice-Controversy-and-the-Quality-of-Patient-Care.pdf … https://news.bloomberglaw.com/mergers-and-antitrust/loews-must-face-suit-alleging-pipeline-stock-option-gamesmanship …
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70. Ken Fisher shouldn’t be shamed for discussing the use of LSD. Investing is a creative field more than a scientific one, and certain drugs do boost creativity by helping you make unique connections. I wish more investors would talk about how drugs influence their investing.
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71. If you pay up to invest in moats you should be careful not to drown in them. If a company’s moat begins to degrade, you can get a deadly combination of decreased earnings power and multiple compression. All of a sudden the sure thing becomes a sure loser.
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Screwed up my chaining. Thread continues here. https://twitter.com/laforeverhall/status/1207885870843318272?s=21 …https://twitter.com/LAForeverHall/status/1207885870843318272 …
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End of conversation
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