This column is not intended to be investment advice.
Shorts will look for companies, and they bet that the price will fall, not rise. Look for subjects that encourage groupthink and don’t accept conventional wisdom. There are worms underneath every rock, but it is still fun to discover the difference between reality and fantasy.
The shorts and the sceptical were the winners last year. Marc Cohodes was a Wall Street legend who sold shorts on Wall Street. He started asking questions about FTX, founded by Sam Bankman Fried, from his California vineyard last May.
The 29-year-old founder was a wretched wreck who had lured Bill Clinton and Tony Blair to the Bahamas. He had also been sponsoring sports teams and had donated millions to good causes. He surgically targeted policy academics and think tank nerds or the children of the regulators he had to win.
Cohodes has been vindicated by the dramatic fall of FTX, and Bankman-Fried.
Short sellers who believed tech stocks were undervalued eventually cashed in and made a fortune from one of history’s biggest bubbles.
As I predicted in the summer of 2021, as interest rates rose, discounted cash flow models that were used to predict the long-term worth of high-growth companies became very unhealthy. Inflation rose for companies that had real assets, but not for those with pension deficits.
Six years ago, Bernstein analysts warned that “in a world where there is no risk at all then errors in such models explode.” It was.
Softbank, which is a prolific squanderer and investor in overvalued companies such as WeWork, and Klarna, and which it considered high-impact “game-changing” startups, suffered a $23 billion quarterly loss. Softbank’s collapse should not be a surprise when we learn that it once gave $300 million to a dog-walking company.
What clues are there for us in 2023, then? What Liz Truss said in her speech lauding “Uber-riding”, Deliveroo-eating and Airbnb-ing freedom fighters” would be my target.
We all love lemonade and we are sorry Liz. But these entrepreneurs were not the ones you thought they were. Without central bank money printing incontinent, they wouldn’t be here.
They discovered a loophole and called it a revolution. Recently, outside my local Mcdonald’s, I counted 21 bike couriers. Some will deliver a packet or two of chewing gum or crisps. Maybe there will be a small, profitable company in the “delivery industry” – Deliveroo or Just Eat might not be it. Each year, their debt gets more expensive.
Beyond Meat, a plant-based meat substitute company has reduced its staff and its sales forecasts amid a worsening economic climate
Substitute or fake products are another great arbitrage opportunity. Demand for substitute meats made from plant-based products has slowed, just like electric cars. Oatly sells an oily emulsion as a milk substitute. In June 2021, its share price peaked at nearly $29 per share. Last week, it was $1.56.
Beyond Meat, the poster child for meat has lowered its sales forecasts and laid off its staff. I believe lab-grown meat will also get its reality test this year. The sector has attracted big-name investors like Bill Gates and Richard Branson, but it’s still creating a product that no one really wants.
You may not know this, but vat-grown cells must be placed in small exercise machines to mimic natural muscle. This is not an affordable option, so you might as well raise a cow.
Autonowashing is the name given to today’s self-driving technology. Keep in mind, too, that much of today’s artificial intelligence is fake. Although clever algorithms can generate vast amounts of visual or textual effluent, they are not fulfilling their promise to improve real-world automation.
What about crypto finance? There were many other casualties, including the dramatic crash of Bankman-Fried’s FTX exchange.
This is one of the few places through which you can convert funny money into fiat currency.
Some of the more bizarre experiments in decentralised financial or “defi” were exposed. These included algorithmic stablecoins which are not backed up by anything. The crypto “winter,” was also created.
De-Fi is a mysterious shadow finance industry, which remains extremely difficult to regulate and tax. Regulators can feel some comfort knowing that money tends not to move around from one scheme to the next, instead of flowing in and out.
Natural sceptics are not guaranteed to make it big. Sometimes everyone is right, such as when it comes to picking long-term trends like digitisation or mobile services. But everyone can also lose their money if they get there too soon.
For the next ten years, government green subsidies will continue diluting the innovation sector and delaying the inevitable day that innovation must pass a market test.
Almost every hydrogen initiative that you hear about today will cease to be viable unless the hydrogen atom grows in the next few decades. There is a reason why we don’t have a hydrogen economy.
I wish you a prosperous and peaceful 2023, regardless of whether you are bullish or bearish in the year ahead.
