January 2025
IN THIS ISSUE
If it was easy...
UPDATE: Pessimism is costly
One way to become legendary in the investing world is to make a big, bold, pessimistic call that actually happens. You know, like Michael Burry for calling the subprime mortgage crisis, David Einhorn for shorting Lehman Brothers, Jim Chanos for shorting Enron, and George Soros for shorting the British pound.
Hindenburg Research recently announced they are closing their doors after a noteworthy run of activist short-selling calls and allegations of corporate fraud since 2017. For all the pain that founder Nate Anderson gave to corporate leaders, his Personal Note From Our Founder is wonderfully humble and compassionate.
Even if you don’t have big money to back your big, bold, pessimistic calls, you can still generate attention by out-bolding the most bold calls of the day.
There’s Jack Dorsey’s 'Hyperinflation' will soon 'change everything' call. CPI inflation increased of course, but peaked at an annualized 9.1% in June of 2022 and within a year was back below 4%. Not exactly the 50% per month inflation typically associated with “hyperinflation” of course.
There’s Robert Kiyosaki who continues to get attention for years and years of sky-is-falling calls like The Biggest Crash In History Is Coming and Kiyosaki Says Historic Crash Is Here. Requires a dubious definition of “historic”.
Fortunately for managers who aspire to short-selling fame, our 24 hour news cycle produces evermore short-lived content that makes it easy for folks to forget all of their wrong calls.
But forgetting wrong calls in the past makes it easier to be influenced by Likely-to-be-wrong calls in the future.
As Likelyhoods readers know well, every January (2021, 2022, 2023, 2024) I revisit the “bold contrarian call” by KCI Research in January 2021 that It's Time To Go To Cash For The Next 7 Years, and to leave no doubt about their conviction, wrote that “Most Investors Would Be Better Off Taking A Seven-Year Vacation”. One year later KCI stood by their call, so this is not some one-off claim to be easily dismissed.
So how would investors be doing that actually acted on KCI’s call? Take a look:
Source: Likely Capital Management
Starting in January 21, 2021, placing $1,000 in VOO versus in a 7 year Treasury at the prevailing rate of 0.79% annually, and now 4 years into the 7 year call, VOO would be at a healthy $1,603.50 whereas the T-note would be at $1,031.60. That’s a 35.67% performance gap for believing KCI’s call.
I always make the necessary disclaimer that past performance may not be indicative of future results, and anything can happen that could reverse this gap. That said, the Likelyhoods are not in KCI’s favor, and with only 3 years left, time is running out for an increasingly large crash to materialize to pull this bet out of the red.
That’s the real, performance-sapping cost of big bold pessimism.
ONE MORE THING…
If it was easy... If a policy consequence is objectively evident, it’s Likely evident to many other forward-looking investors also. That’s why profiting from policy changes is hard. Don't make this investing mistake going into the Trump years, says strategist: 'A lot of investors who think this is easy' are wrong
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