The Art of Playing Defense; Your Worst One Percent

The Art of Playing Defense; Your Worst One Percent

Whitney Tilson’s email to investors discussing The Art of Playing Defense is no. 1 in happiness; reviews; a hard bargain for Apple in China; Activist short reports; Bill Gates and ‘Your Worst One Percent’.

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Q1 2021 hedge fund letters, conferences and more

The Art of Playing Defense

1) My new book, The Art of Playing Defense: How to Get Ahead by Not Falling Behind, is now No. 1 in another Kindle category, Happiness, yesterday (the e-book is still available for only $0.99 here).

Staying Unemotional with Your Investments with RichLife’s Beau Henderson

Yarra Square Investing Greenhaven Road CapitalValueWalk’s Raul Panganiban interviews Beau Henderson, RICP, CLTC, founder of RichLife Advisors and discusses the risk tolerance and staying unemotional about investing. Q4 2020 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with RichLife Advisors’ Beau Henderson

It’s getting nice reviews on Amazon, which you can read here. And one of my friends texted me yesterday:

I finished your book in the past 12 hours since I bought it and I loved it! I think it has the highest density trove of valuable wisdom anyone could read! I will give it five stars in a good review and look forward to recommending it to all my extended family members. I have already recommended it to my kids.

Another texted:

Wonderful book! Perhaps, your best one yet. Required reading for my kids and wife…

I’ve included another excerpt from it below, and here is a link (audio and transcript) to a 30-minute interview I did about it. Here’s my favorite part:

One of the wisest things I have ever heard Warren Buffett say [is], “The chains of habit are too light to be felt until they are too heavy to be broken.” What he means is, we, all human beings are sort of defined by their habits, the little things they do.

What they eat, do they regularly exercise, how do they treat other people, do they get a decent amount of sleep? Do they have a habit of regularly reading the New York Times or Washington Post or the Wall Street Journal and reading good books?

Conversely, have they developed bad habits around drinking, smoking, wasting eight hours a day on video games? What’s interesting about these habits is, you can eat cotton candy and guzzle soda for a day and it’s not going to affect you. You can be sort of grouchy and unpleasant toward other people and you’re still going to have friends if you just do it for a day.

The problem is if you do it every day, if it becomes a habit, good habits feed on themselves, bad habits also feed on themselves, and over time, these little insignificant habits define everything about your life.

Speaking as a 54-year-old, I can tell you it’s sort of hard to change habits when you’re middle-aged or older-aged. It’s much better to develop good habits when you’re young. That said, I’d like to think that I’m capable of improvement, at age 54.

I think that my book is full of good advice for people at any age. But no question, I’m glad I’m writing this book now when my daughters are in their late teens to mid-20s as opposed to getting around to writing it 10 years from now because by then, certain things may be too late – they may have married the wrong guy for example.

A Hard Bargain for Apple in China

2) Here’s an interesting article on the front page of the New York Times on Wednesday about the ethical dilemmas Apple (AAPL) must confront to do business in China. There are no easy answers here – for Apple or another other company: Censorship, Surveillance and Profits: A Hard Bargain for Apple in China. Excerpt:

Internal Apple documents reviewed by the New York Times, interviews with 17 current and former Apple employees and four security experts, and new filings made in a court case in the United States last week provide rare insight into the compromises Mr. Cook has made to do business in China. They offer an extensive inside look – many aspects of which have never been reported before – at how Apple has given in to escalating demands from the Chinese authorities.

Two decades ago, as Apple’s operations chief, Mr. Cook spearheaded the company’s entrance into China, a move that helped make Apple the most valuable company in the world and made him the heir apparent to Steve Jobs. Apple now assembles nearly all of its products and earns a fifth of its revenue in the China region. But just as Mr. Cook figured out how to make China work for Apple, China is making Apple work for the Chinese government.

Mr. Cook often talks about Apple’s commitment to civil liberties and privacy. But to stay on the right side of Chinese regulators, his company has put the data of its Chinese customers at risk and has aided government censorship in the Chinese version of its App Store. After Chinese employees complained, it even dropped the “Designed by Apple in California” slogan from the backs of iPhones.

Activist Short Reports

3) In recent days, I fell so far behind in sharing a number of activist short reports, mostly by guys I know well. Here are links to them:

  • HUMBL (HMBL): Illusions of Grandeur, Collapsing International Deals, and Lurking Dilution, Hindenburg Research
  • PureCycle (PCT): The Latest Zero-Revenue ESG SPAC Charade, Sponsored by the Worst of Wall Street, Hindenburg Research (here’s another bearish article on PCT: PureCycle Technologies: I’ll Pass on the Next Nikola)
  • Open Letter to Lemonade (LMND): Egregious Security Vulnerability, Muddy Waters Research (more on the bear case here)
  • Tweet thread on Nano Dimensions (NNDM), Kerrisdale Capital
  • Problems at Yalla Group (YALA), The Bear Cave (requires subscription)
  • Blue Orca Is Short So-Young International Inc. (SY)
  • Foresight Autonomous (FRSX): A Minefield of Criminals, Self-dealing, Fake Sales, and Old Technology, Fuzzy Panda Research

Your Worst One Percent

4) It pains me to see Bill Gates taking such a beating in the press for his infidelity and unfortunate relationship with Jeffrey Epstein.

He was an incredible entrepreneur and business builder, is one of the greatest philanthropists of all time (both directly and, along with Berkshire Hathaway (BRK-B) CEO Warren Buffett, indirectly via The Giving Pledge), and by all accounts, is in almost every respect an exceptionally high-grade individual.

But, as I wrote in my new book, people are often judged and remembered not for how they behaved 99% of the time, but by their “worst one percent.”

Here’s an excerpt about this from my book (I especially want to highlight this: “Be careful who you associate with, both personally and professionally. Their behavior and reputation will rub off on you and vice versa.”):

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 had never done anything unethical in his long career before his fateful purchase of Lubrizol’s stock 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 ultraconservative when it comes to your integrity and reputation.

This applies to 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. Emails, 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

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