5 Mar 2023
When I talk of stupidity I do not refer to my own which, save in painful retrospect, is an unknown unknown. For better or worse I am limited to my own perception of the stupidity of others.
My proposition is that when some people are wrong, others can profit. Like all judgements, observations of stupidity need to be subjected to a probability test.
Warren Buffett says that sometimes prices are “foolish”, absolving people of some responsibility for the valuations of “Mister Market” but he is a kindly man and evidently much nicer than me.
One advantage of our publicly-traded segment is that – episodically – it becomes easy to buy pieces of wonderful businesses at wonderful prices. It’s crucial to understand that stocks often trade at truly foolish prices, both high and low. “Efficient” markets exist only in textbooks. In truth, marketable stocks and bonds are baffling, their behavior usually understandable only in retrospect
Warren Buffett, Berkshire Hathaway shareholder letter, February 2022
THE LONELINESS OF THE LONG DISTANCE INVESTOR
It makes sense that the greater the number of people that are wrong, the greater the potential rewards for those who know better. If you haven’t read The Big Short by Michael Lewis, or watched the film made of it, you should. It was a lonely life, defying consensus ahead of the great financial crisis of 2008 and it is never easy. As Keynes said, most investors would rather fail in the comfort of a crowd than risk standing out.
Holding a minority opinion can be worse than lonely. For some reason, rejecting consensus appears to provoke hostility, particularly at times of perceived emergency (see my last post). After Neville Chamberlain agreed to Hitler’s annexation of the Sudetenland in Munich in September 1938, Winston Churchill denounced the deal (“England…has chosen shame and will get war”). This may look like a historical footnote but Churchill’s own constituency party attempted to have him deselected and very nearly succeeded. The appeasers of 1938 were in a large majority and the idea that Hitler could be bought off was treated as believable because people wanted “peace in our time” so much.
Stupidity is surely the eager and dangerously loyal sibling of wishful thinking.
MAKING THE WEATHER
Saul Bellow wrote Henderson the Rain King in 1959. It concerns a man whose arrival in the land of an imaginary African state coincides with the end of a drought. The supposed power of summoning rain is conferred on him by the grateful natives. It is fair to say that this book was intended to be comical. Few could have foreseen that a few decades later the idea that humans cause the weather has become mainstream.
The man-made climate change message is highly coordinated across all kinds of media outlets. This is done in plain sight if you know where to look. You may have noticed the orchestrated terminology changes : global warming begat global heating (warming was considered too appealing) which morphed into climate change (it’s snowing in California) which in turn became the very bold claim of “man-made weather events” which takes us right back to Henderson – whatever the weather is, we did it.
There is a well established tendency for liberal people to adopt a self-scourging mindset while secretly blaming everyone but themselves. WS Gilbert knew about it in 1885.
Then the idiot who praises, with enthusiastic tone,
All centuries but this, and every country but his own
The Mikado (“I’ve got a little list”)
To such people the resolution that the human race is always to blame is obvious.
I don’t agree but I try to keep an open mind. We cannot help what we believe.
ZERO CHANCE
But stupidity kicked in with a vengeance when it was apparently agreed that we must return to the purer, nobler days of the 19th century in response to the “climate emergency”. Welcome to the simpleton world of net zero.
Wishful thinking is being delivered by the electric lorry load.
I have written before about the demonisation of oil and gas companies. It has at times been irritating to watch the likes of BP apologising for their own existence; it was downright annoying to see the arts world banning that company from subsidising tickets, thereby depriving children of access to the theatre. But mainly it was just stupid. In October 2020, admittedly during lockdown world, the share price of BP was beaten down to 200p. Today it is 550p and during this time it has paid 34p per share in dividends. That’s a 190% return.
The mindless pursuit of renewable solar and wind energy is perfect for the oil and gas industry. For the days when the sun does not shine and the wind does not blow, only gas can be used as an instant substitute. Unless there is a major commitment to investment in nuclear energy – and if there has been, I have missed it, and it’s certainly not being led by the oil companies – renewables will keep the oil and gas companies in business. Stupid, we thank you.
THE WASTE INDUSTRY
I have written elsewhere about the hapless world of ESG. Unless you are a consultant or a lobbyist, my main tip is to go nowhere near it, not least because it is the process of wasting money on a scale probably never seen before. Did you see the story about P&O’s hybrid ferries that can’t be charged at Dover or Calais? Did you see the rescue of Britishvolt the supposed automotive battery manufacturer? When investors just chase heavily subsidised industries, they are not entrepreneurs, they are just snufflers after public money.
These are news stories from the last few days.
Jaguar Land Rover owner Tata Motors is demanding more than £500mn of government aid for a new battery factory in Britain, in a decision set to be “pivotal” for the future of the UK car industry.
FT, 1 March 2023
An £8bn project to build the world’s biggest offshore wind farm in British waters will be shelved within months unless the government offers tax breaks to offset soaring costs, its developer has warned.
The Times, 2 March 2023
FOOD FROM THE MOUTHS OF BABES
Perhaps the most alarming target of the climate change squad is agriculture.
The government of Sri Lanka took its words literally and banned the use of imported chemical fertilisers. Sri Lanka is a famously fertile country but it turns out that its farmers could not go organic overnight and harvest yields collapsed leading to the remarkable spectacle of India providing it with food aid.
Now the Netherlands is turning its fire on its own farmers. Ironically they are being urged to cut the use of natural fertiliser. Science is a fickle thing, particularly when it serves idiots. The Netherlands is the world’s second biggest exporter of food but watch that space.
And now the EU is coming for Belgian farmers.
Aside from these egregious acts of self harm there is the question of the wastelands created by solar panels. Neither solar farms nor wind turbines are good for the environment. Aside from the aesthetics and the slaughter of wild life they take up a great deal of room. I have seen it said that a solar farm needs to use 450 times as much land as a nuclear power station to produce the same amount of energy.
Moreover the materials needed for solar panels and wind turbines and batteries are extensive and often in limited supply. The number of new mines that will be required is high but unknown (because, spoiler alert, it’s not going to happen). The new mines that do appear will not be in US National Parks or the Cotswolds; they will be in poor countries with poorly paid labour forces. More than half the world’s cobalt (needed for mobile phones and batteries) comes from the amusingly named Democratic Republic of Congo. Such is the enthusiasm of the population to satisfy the net zero-inspired demands of the righteous world that boys start ore picking at the age of three, allegedly.
I do not want to know if there is a way of investing in DRC cobalt production.
FOOD LEFTOVERS
If food production could be re-focused with the aim of helping us all eat a better diet that would be good. Unfortunately the seizure of land and the destruction of farmers is likely to result in yet more power to BIG FOOD which seems to be dedicated to stuffing us full of ultra-processed crap. Just take a look around you but whatever you do, don’t be sizeist.
I am not sure how to invest in the threat to food production. I have shares in Tate & Lyle which makes various food additives and I’m not sure I feel too good about that. Cranswick sells pork products and has diversified into breaded chicken. Yum, or should that be Hmmm.
If I could I would invest in agricultural land, as a diminishing resource, but that is very well bid by extremely rich people because it qualifies for inheritance tax relief. I am fortunate enough to own a garden and never plant anything inedible. I have fruit trees and a vegetable patch. But enough about me.
Following the example of BP – buy a business whose product is vital and vilified – it probably makes sense to invest in companies that mine potash or make fertilisers. Though the sad truth is that owning McDonalds or Greggs* is probably the way to play food consumption in 2023.
- full disclosure: I do