Don’t Get Rugged

June 2021—Be forewarned – we are going to empty the quote bin this quarter. Let’s start with one Robert Smith, the Financial Times reporter who is getting the credit and proper accolades for exposing the Wirecard fraud in Germany, a fiasco that burned billions as a public equity investment:

“Smart people often get conned, because they don’t like to admit they don’t understand something,” is Smith’s explanation. “The comparison to 2008 is often an overused cliché in finance, but it fits in this case.” Back then, another low-margin, “blocking-and-tackling” corner of finance—mortgage securitization—became a sexy profit center overnight, as sophisticated investors, afraid to admit to not following the logic of certain derivatives, sat mute through math-heavy presentations promising riskless returns in “real estate.” Then and now, a few key questions by a few key regulators would probably have burst the bubble early, but too many were too invested in the party. “It’s amazing how far a little common sense goes,” says Turner. “And it’s also amazing what happens when there’s no common sense at all.”

Yes, we like that last statement. And while we own businesses that happen to have publicly traded securities, representing our primary form of participation, we cannot help but be appalled at what is going on around us that seems to pass as day-to-day normality. (Unless of course you want to Stonk our portfolio for a few weeks.)

It is a fact that “we” come to work every day and see the doyens of the financial press: Bloomberg, The New York Times, and The Wall Street Journal (ok, throw in the CNBC blather too) matter-of-factly discuss Reddit-based meme stocks in a manner as commonplace as “bond prices went down as interest rates went up” statements. As Buffett (hasn’t that guy been canceled yet?) noted in the 2021 Berkshire Hathaway annual shareholders meeting, “The degree to which a very rich society can reward people who now know how to take advantage essentially of the gambling instincts of not only the American public but also the worldwide public, it’s not the most admirable [thing].” The retort from Robinhood, the arms dealer in stupid, followed as such: