From Whitney Tilson’s latest email to investors – also see our prior article on that topic here
1) My email six days ago, which was headlined “I’m calling the top of the bitcoin/cryptocurrency madness”, is looking pretty good right now: the price peaked the moment I wrote that, at nearly $20,000, and since then the price is down nearly 40% (22% today!) $12,200 (it’s in total freefall).
This is what I wrote last Saturday:
In the past week, I’ve been asked about bitcoin by a parade of the least-knowledgeable investors imaginable – and the only times such foolishness has happened before in my 18-year career were at the peak of the internet and housing bubbles, so I’m calling a top right now.
Blockchain technology is real in the same way that the internet was real back in 1999 and housing prices tend to go up in the mid-2000s – in other words, a good idea taken to absurd extremes is NOT a good idea!
That said, the greed and speculative nature of humans is inherently unpredictable, so for all I know bitcoin could go to $1 million.
But I do know the ultimate outcome: smoldering rubble, a lot of finger-pointing (where were the regulators?!), and a lot of tears and empty bank accounts, especially among those who can least afford it.
I don’t often quote our Malignant Narcissist in Chief, but I will here: “Sad…”
Mark my words: this is the beginning of the end of one of the stupidest bubbles ever – one that will be marveled at by future generations, in the hall of shame along with tulip bulbs and the dot-com bubble. There will no doubt be plenty of bounces in the price (one of my wise friends calls it The Law of Doubles and Triples: “Every stock, on its way to zero, doubles at least three times and triples at least twice.”), but the endgame is clear: at least an 80% decline, probably 90% (meaning my target is $2,000-$4,000).
Doug Kass has been so right on the bitcoin bubble, so run, don’t walk, to read his missive this morning (below). Excerpt:
“Bitcoin will ultimately assume a permanent place in the Speculative Hall of Fame, along with tulips (1636-37), the dot.com bust (1999-2000), the housing bubble (2005-07) and the South Sea Bubble (1711-20), as traders and investors learn the lesson, once again, that an asset class founded on the notion that there is a greater fool who will be willing to buy that asset for more than the previous fool paid, almost always ends in disaster.
The year 2018 will be one in which investors come to understand that blockchain technology — a distributed database of records of transactions that are executed and shared among participating parties and are validated by a network of users, called “miners,” who contribute computing power in exchange for the chance to garner coins using a shared database and distributed processing — is real (each transaction is encrypted and can’t be replicated or altered), but that bitcoin is a mirage and becomes, like many past schemes, a byword for Ponzi-like nostalgia. “
My last email triggered many responses and links to articles, so if you’re interested in reading more, see:
- Seth Klarman calls bitcoin a “trading sardine”, CNBC
- The VERY simple bear case for bitcoin, Savneet Singh
- The Value Investor’s Case for… Bitcoin?!, Bill Miller
- Certitude is not the test of certainty, Bill Miller
- A Twist, Joshua Brown (rebuts scarcity argument)
Here are some background materials someone sent me:
- Bitcoin: A Peer-to-Peer Electronic Cash System, Bitcoin.org
- Bitcoin for Beginners, a talk by Andreas Antonopoulos
- Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond, by Chris Burniske
- Three books by Andreas Antonopoulos: Mastering Bitcoin: Programming the Open Blockchain, The Internet of Money (volume one), The Internet of Money (volume two),
2) My long-time partner and co-founder, John Heins, continues to crank out exceptionally high quality issues of Value Investor Insight every month. It’s a must-read (in my totally unbiased opinion!) for both learning and great stock ideas. You can sign up for a free one-month trial here: www.valueinvestorinsight.com/freetrial. Here’s a blurb John just sent me:
In the Rotation
Market strategists pay attention to stock-market “rotation,” which is when stocks don’t move in lock-step and sectors that have been performing well start to lag and sectors that haven’t been doing well start to pick up. Rotation tends to help bull markets persist, but it also plays right into the hands of value investors who mine out-of-favor stocks for bargains.
That’s how the investors featured in Value Investor Insight invest, and the evidence indicates that 2017’s investing environment has been quite conducive to such an approach. To test that, we looked at all of the “focus” investment ideas detailed in the first six issues of VII in 2017, assuming $10,000 was invested in each of the 58 ideas at the issue date and still held as of the first week of December. Led by big winners such as Dollar Tree, Builders FirstSource, Fiat Chrysler and EnviroStar, this portfolio would have returned 18.0% so far, versus 10.9% if the same amounts of money were invested at the same times in Vanguard’s Total Stock Market Index.
Subscribe now and see for yourself the outstanding value delivered in every issue of Value Investor Insight. The just-published issue features insight and ideas from Fidelity Investments’ value-investing legend Joel Tillinghast, newly independent First Eagle Funds alumnus Abhay Desphpande, micro-cap bargain hunters Forager Capital and Sweetbay Capital’s Ted Crawford.
3) Michelle Celarier with a well-done article about John Griffin closing his fund. John is an investing legend and a gem of a human being – one of the handful of people I look up to most in the world. In nearly two decades, I’ve never heard anyone say anything but glowing things about him. End of an Era: Tiger Cub John Griffin Bows Out. Full story below – here’s an excerpt:
Hard times for value investing and short selling have led Griffin to shutter Blue Ridge Capital Management in a move reminiscent of his mentor’s 2000 closure.
Hedge fund veteran John Griffin’s decision to shut down his $6 billion Blue Ridge Capital Management made few ripples in the investment world when it was announced last week, the news having been overshadowed by the Bitcoin craze and the massive corporate tax cut winding its way through Congress.
Yet for more than two decades Griffin, an early proteìgeì of hedge fund titan Julian Robertson, was viewed as hedge fund royalty, with returns to match. He eschewed the media spotlight, had been closed to new investors for years, and was known for being an exceptionally nice person in an industry full of sharp elbows and big egos.
“He is one of the most beloved people in the hedge fund world,” said one hedge fund manager, whose sentiment was shared by several others interviewed for this story. “He’s just a nice guy. He’s not full of himself in any way.”
With the current bull market showing no end in sight and technology companies leading the rally until very recently, some of Griffin’s peers said the closure of Blue Ridge seems to signify the end of an era. It is, they say, an eerie reminder of another era in finance: the time when Griffin’s former boss shuttered Tiger Management.
