Smith’s letter starts with a lengthy explanation of why the shift was necessary, citing the rise of index funds, which now own 60% of the stock market. These have vastly outperformed active managers over the last five years, with the U.K. index trackers up 66% vs. the active managers’ 32%. As the trackers’ lower fees would only explain a few percent of underperformance, not 34%, Smith addresses what else it could be.

Noting that active managers now represent only 10% of trading volume, he writes that what drives prices is “the momentum feedback loop of funds moving from active to passive and reweighting within passive funds.” Smith is right that this has become a momentum market, but in attributing that to the passive funds, he seems to be pointing at the tail rather than the dog. As my partner Steve Gorelik has observed, the “dog” would be retail investors, who have become extremely active, including via mobile apps like Robinhood, which have “gamified” investing.

It seems that the retail traders, not the active fund managers, are now determining market weights and, as in a kindergarten soccer game, clustering around a small group of stocks. Moreover, many juice their positions with options and leverage freely available to them, and with 3x ETFs on stocks like Nvidia and SpaceX. The passive funds quickly follow, becoming more concentrated in the hottest names, while the active managers lag way behind.

Whatever the actual reason for the shift to momentum, there’s no doubt that it has outperformed in recent years and no sign it’s letting up. In such an environment, Smith’s traditional strategy of “buying shares in companies which have hit a glitch is like trying to catch the proverbial falling knife. All we are getting is cut fingers as their downward share price spiral is exacerbated by the index momentum enhancement effect.”

Fundsmith might even try to tough it out until the trend reversed, but they “run open-ended funds, and you can and increasingly have been taking money out, we suspect mostly to join the exodus from active to passive ….” (A bit “passive” aggressive there.) Having already referenced the falling knife that gave this Substack its name, Smith drops another truism: “Sticking to our current approach may well fall foul of the adage that the market can remain illogical longer than we can remain in business.”

Dragging Smith

On X, What’s App, and whatever other corners value investors lurk, Smith has been accused of “throwing in the towel” or “style drift.” Comparisons are made to the dotcom bubble, when foolish managers chased the trend while Buffett remained steadfast, reaping the rewards when value rose again post-crash. Indeed, with the valuation gap between “growth” and “value” among the widest ever, it may be just the wrong time to bail on the latter. Some mock Smith’s fear of “going out of business” when he still runs $30 billion, even if that’s half his peak. (I’d ask the mockers, have you ever had to sell $30 billion of stocks? How do you think it would feel?) Also, at Smith’s fund size, sales can impact even very liquid stocks, as the market knows what he has to unload and avoids it, while traders short it, driving the stocks ever lower.

In an appendix, Smith gives examples of companies he’s sold and bought since the strategy shift. At first glance, the sight of Otis Elevator replaced with Applovin may induce nausea in value people, but Smith assures investors that he’s buying only stocks with solid free cash flow (FCF), and that the FCF yield on his new portfolio still exceeds the S&P’s. Plus, a momentum cherry on top. What he writes makes sense, but unlike the quality stocks with a temporary glitch, where he presumably had a differentiated view, nothing he says about his new stocks indicates any analytical edge. Therefore, if he retains any hope of outperforming those relentless indices, it rests mainly on his portfolio’s higher FCF yield — a rather thin reed.1

That said, Smith did what he thought he had to do and I credit him for saying it as opposed to changing stealthily, stock by stock, as many managers do. I’ve written about my investment in Clarium, Peter Thiel’s hedge fund, which without notice changed from a global macro strategy to venture with one 90% holding. I called to see what was going on and the IR lady said Thiel had decided that global macro wouldn’t work in an era of central bank intervention. I asked what if investors wanted their money back and she said, “Oh, Peter will buy them out.” I wound up adding to the fund, not redeeming, which was smart because the big private holding was Palantir.2

Changing and Evolving

Sometimes it’s right to quickly throw in the towel on a strategy, as Thiel did; whether Terry Smith will be vindicated remains to be seen. Other times, a shift happens but it looks more like evolution. When I was ten years into managing money, in the mid-00s, I found myself adapting to big changes in my target markets.

My basic ideas about investing came from Benjamin Graham, but my first experience managing money was in Russian voucher privatizations, where we knew little about the companies beyond the size of their oil reserves or the kilometers of their power lines. Revenues? Earnings? Forget it. We were making a top-down bet that the future blue chips in a bull market would no longer trade at a 99% discount to foreign comps. From 1994-2004 we deployed mainly this top-down approach across a series of markets, including in the Baltic States, Central Asia, Romania, and Georgia. They didn’t all work, though we learned as much from the failures as the successes.

In the mid-00s things changed, as some of our markets began to look less “frontier” and more “emerging.” While among the former Soviet republics only the Baltics had IFRS financials, companies seeking higher valuations or listing GDRs began hiring Western-trained CFOs who knew what real financials looked like and how to speak to foreign investors. I was finally able to revert to my original Ben Graham value principles, and to make the shift properly my partner and I brought in three younger people who were better at the bottom-up analysis than us.

Since then, our investing has been fundamentals-based, with the macro overlay necessary in emerging markets, but frontier is still in our DNA. If a new country in transition from a mess to a market economy were to come along and we envisioned a bull market, we could still put on our top-down hats and invest based on franchises or assets, with little in the way of reliable financials. Our OTC purchases of Nebius in Q3 2024, when it was still called Yandex, looked like a frontier trade, based as it was mainly on the assets’ cheapness relative to comps. When I mention a winner, my CCO likes me to balance it with a loser, so I’ll say that one time we bought a gold mining stock that was in reality a hole in the ground with a liar standing at the top.

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Besides the adaptation from frontier to emerging (and back again), there’s another kind that we haven’t been as good at. I’ve often said that in emerging markets sometimes you have to be Warren Buffett and sometimes you have to be George Soros. Being a Buffett-esque buy-and-hold investor from 2003-07 worked very well, but in 2008 what you needed to be was a Soros-like trader, able to cold-bloodedly take your favorite stocks out back and shoot them. A similar predicament arose with Russia in 2022, and in neither case did I rise to the challenge. Maybe next time.

This communication does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any fund or investment vehicle managed by Firebird Management LLC (the “Adviser”). Any such offer will only be made pursuant to confidential private placement memoranda and related offering documents, which should be reviewed carefully before making any investment decision.

Information regarding specific investments is provided solely for illustrative purposes and reflects selected examples of investments considered or made by the Adviser. Such examples are not a complete list of investments made by the Adviser and are not intended to be representative of the performance of any fund, account, or investment strategy managed by the Adviser. Past investment decisions, including those discussed herein, are not necessarily indicative of future investment decisions or results. Nothing herein should be construed as investment advice, a recommendation, or an offer to buy or sell any security. All investments involve risk, including the possible loss of principal.

When Abbey used to say this, with a chuckle, who was he speaking to? Well, someone with the education, basic smarts, or connections, to get ahead, if they only pushed a little. I don’t think he was picturing people born with disadvantages, whether due to lack of education or skin color; being Jewish closed doors too in those days, but for us there were plenty of side doors, windows, and air conditioning vents to climb through.

Abbey was the child of working-class Ukrainian immigrants, served in the Navy, attended NYU on the G.I. Bill, then built a garment business. Though he was, according to his daughter, barely upper middle class, he owned a house in Great Neck and had three kids who all went to Ivy League schools. He was satisfied with his financial situation and would exclaim, say over the lunch buffet at the Boca Raton Hotel after tennis, “It’s a great America!” His word “need” in the featured quote was freighted — it didn’t mean basic needs like food and shelter, but the psychological needs of a hypothetical neighbor who coveted a bigger house, fancier car, etc.

Abbey’s perceptions were shaped in the postwar decades, when comfortable middle-class life was available to most (white) Americans, as was the upward mobility that seemed only to require the determination. But America isn’t the same anymore, and what it takes to be even “barely upper middle class” is much greater than in Abbey’s time. Nor is it simple to make more money just by “needing” to, which may be what leads people into get-rich-quick activities like online gambling and crypto speculation.

I’m not qualified to write about the State of the American Dream, timely as that would be on this independence weekend, but a recent New Yorker article by Bard professor Hua Hsu covers this very subject.1 He starts with James Truslow Adams, a historian who coined the phrase in 1931, during the Depression. Hsu traces it through its heyday in the 1950s and 60s, and its decline starting in the 1970s. As industrial routes to middle class prosperity were closed off by globalization and the related weakening of labor unions, Americans’ expectations changed from upward mobility to what Barbara Ehrenreich calls “the fear of falling.” No one wants their children to live worse than they did, but it’s now common.

And yet the American Dream survives, Hsu writes, in a more flexible version that encompasses varied conditions ranging from “modest” first-generation college success to billionaire “megalomania.” Polls of Gen Z show that their American Dream is no more than “a kind of bare bones stability … a debt-free life rather than one filled with riches.”

I Didn’t Need More Money

Hsu’s description of the Gen Z dream sounds like what I always wanted. Having grown up first generation in a rent-controlled Upper West Side apartment, the son of a union man and a secretary, my dream was to afford an apartment in my own neighborhood, ideally overlooking Riverside Park. (I have it.) In my mind this place would’ve been rented, since no one I knew ever imagined owning an apartment. My wife, who’s been with me since 1986, confirms that, although on our early dates I tried to impress her with cool things we could do once I started my lawyer job, I never expressed an ambition to be rich.

She also confirms that in all our years together I never said, “I need more money.” And this isn’t because I was always well-compensated: my first job paid $9,000; my second, as a judicial clerk, paid $28,000; and it was only when I started at the law firm that I qualified as (maybe) upper middle class. The reason I never needed more money is that at every stage I lived according to my then-income, or lower. When I made $9,000, I was back with my parents, enjoying free meals and laundry service, and when I made $28,000, I was in a fourth-floor walkup studio with no A/C (possibly the happiest year of my life).

Even as a corporate lawyer, I stayed well within my means, saving money in case I wanted to change careers — which was good, because I eventually did. I was lucky to have a wife who, as the child of two Depression Babies, was frugal like me, never arguing that we should spend commensurate with my lawyer salary. My choices contrasted with those of a fellow associate and friend who leveraged himself to the hilt, buying an apartment overlooking Riverside Park twenty years earlier than I did, then upgrading to a townhouse, all before making partner. When I’d question his spending, he’d laugh and call me “such a schnorrer.”2 (His bet on his future earnings did pan out and the townhouse was a great buy, though he lost it in the divorce, so there you go.)

I didn’t envy him, nor have I ever envied anyone for their money or lifestyle, only for their accomplishments and/or public recognition. While my friend stretched himself, my wife and I schlepped along in our small rental, and it wasn’t until our mid-30s, when we had a baby and were sure we could afford an apartment that we bought one, putting down half in cash. We paid off the mortgage the minute we could and have been debt-free ever since. Friends who took out home equity loans a few years ago at 3% and invested the money at higher yields advised me that it was a no-brainer trade, but they just don’t think the way I do.

I have to say I’ve been very lucky, never having had a medical or other catastrophe uncovered by insurance. It just shouldn’t be that in this country, one major illness can wipe out a lifetime of saving. Also, my parents were well-fixed for retirement, and I never had to bail them or any other relatives out, though I now subsidize two young underpaid ones, as I’ve argued rich Boomers should with their own struggling relatives.3 And while I always lived within my means more or less contentedly, I never had to go backwards, which would’ve been and would be very tough to accept.

My American Dream

My dreams never centered on wealth, but on financial stability and personal freedom, a big part of which is freedom from debt. As a Baby Boomer, I was part of the generation enjoying the economic tailwinds that enabled us to “make more money” Abbey-style, if we wanted to. But my own ambitions more resembled those of Gen Z today, and I don’t see what’s so wrong with that.

When I’ve had no choice but to fire people (not many over three decades), more than half the time it hasn’t been about performance, but that horrible word “redundancy” — as if a person were an extraneous adverb. When we moved to a co-working space, for example, our office manager had to go. I dreaded these meetings, but turned out to be good at them, maybe because the employees saw it was genuinely hurting me too.

As for firings that were performance-related, in every case I had considered doing it earlier, put it off, and wound up with a more painful and costly outcome. And none of these terminated employees appreciated, or even knew, that they’d had a reprieve. On top of it, despite our generous severance, we had to deal with a few lawyers, somehow always representing employees who’d deserved to be fired, not ones who didn’t. I’ve never made a termination decision that I later regretted; in performance cases, in fact, the remaining employees usually thanked me, surprised only that I’d waited so long.

Now, my company is too small to create a reliable sample, and there must be many cases where struggling employees turned things around. I think particularly of cases where the employee is having personal problems that an employer wants to, and should, accommodate. This too can create a dilemma for an employer who hopes a condition is temporary and comes to realize that it’s not. We had an employee, “Thomas,” who seemed the most “normal” member of our investment team — a low bar — and one day began behaving very strangely around the office and with clients.

We made excuses for him for weeks, giving every benefit of the doubt. Even when he claimed in real distress that he was being followed by Swedish government spies, we called in a private investigator to check if our office was bugged. Fifteen minutes into the meeting, the P.I. said it wasn’t Sweden that we needed to worry about, but Thomas. If not for this delusional episode, which triggered us to fire him, we would’ve continued to waver and risk more damage to our company. (As we figured he’d be unemployable in the near-term, we gave him a settlement he could live on for years.)

There’s a utilitarian argument for acting quickly upon a serious thought of firing someone. While it’s possible an employee who underperforms, or just isn’t the right fit, could eventually make things work, the opportunity cost of losing a good one seems less than the harm to the business from keeping a bad one, plus the higher payout in a later termination.

Wait, Should I Have Been Fired?

I was editing the above and thinking it sounded pretty smart when it occurred to me that I myself was once an employee that superiors had doubts about. In my first year as a corporate associate at Wachtell, Lipton, the partner I worked for — let’s call him Larry, since it’s his real name — more than once said that my work wasn’t satisfactory.

I was also exhibiting my chronic irreverence, which was the exact wrong tone for that firm.1 Whereas a young law partner I interviewed for my last post told me that Gen Z associates now insist on bringing their “whole selves” to work, in the 80s this wasn’t cool. At elite M&A firms especially, representing serious executives in the most serious moments of their careers, you were expected to maintain a businesslike mien. I recall Larry telling me that people “[T]hink you’re a funny guy, but don’t see you as a leader.” I let this ominous heads up roll right off me, so clueless was I.2

Did it ever cross Larry or other partners’ minds to tell me I was in the wrong job and should leave?3 That would’ve woken me up, but it’s not what big law firms do. At big firms, where it’s assumed that associates enter with the minds of children and must be taught The Way — and where “warm bodies” are usually needed — an associate who handles his work well enough and doesn’t shoot anyone will likely be kept on until the natural exit in 8-10 years, when he comes up for partner and fails. (To be fair, Wachtell wasn’t a large firm that needed warm bodies, but was slow to fire for other reasons.)

Law firms couldn’t be more different from tech companies, where the guiding principle of creative destruction is also applied to a workforce that is periodically decimated (literally: it’s often a 10% cull). As one example, I heard that Meta told staff that by the end of this year they have to show how they’re incorporating AI into their jobs; the ones who did it well would get a $300k bonus, while the others would get fired. Shades of Alec Baldwin in Glengarry Glen Ross. Tech companies get bad press for this stuff, but maybe they’re ultimately being more merciful than the law firms?

Anyway, Larry cut me slack, and with some experience and a more mature attitude, I improved in my second year. After that, my success at Wachtell fluctuated depending on which partner I was working for and whether we got along. Underpinning it all was my ambivalence about the job, leading me sometime in my fifth year to decide that I didn’t want to give it much more of my life if it was only to find out in the end that I wouldn’t make partner. In a kamikaze move, I asked to be considered early. I knew, or should’ve known, that the response was unlikely to be positive, and at the decisive meeting, partners who’d had doubts about me along the way voiced them.

When they called me with the bad news, I felt at once crushed and an overwhelming sense of relief. Within two months I’d left the firm and begun a journey of career self-discovery that could not have been more unpredictable.

It Worked Out

Going back to my first year at Wachtell, let’s say Larry had not only thought but told me honestly that I’d never succeed there and was better off quitting right away. That would’ve been harsh, maybe premature, but it would’ve saved me five tough years that led to a dead end. On the other hand, I was well-compensated the whole way, and the savings I accrued were what enabled me to launch a hedge fund on no pay, so who knows?

I remember saying to my wife not long after the bad news call, in a paraphrase of what host Peter Marshall used to tell contestants on the old Hollywood Squares when they picked a wrong square: “It would’ve been better to make partner at Wachtell, but this may work out.”

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What also has been puzzling me is that I know law associates work as long hours as I did back then, and if half of what I did has been computerized, what the hell are they doing all day? Well, I finally satisfied my curiosity by speaking to a couple of young lawyers, and what I learned also tells me why U.S. GDP has grown 7x since 1986, when I started at Wachtell.

The Dark Ages

First, I’ll go back to 1982 and Grey, where the assistant planners, all in our early-to-mid 20s, inhabited a windowless warren, doing a lot of bullshitting and lodging of pencils in the ceiling tile. The males all wore suits, in a sad echo of the Mad Men era when ad people were important, which was over already by then.

The highlight of the assistants’ year was when the fat, red-faced Daily News rep took us to Smith & Wollensky steakhouse for lunch. I thought about this constantly for months ahead, deciding what I would order. Today I could eat a meal every day on someone else’s dime and all I want to do is stay home — funny and a little tragic, you know, for me.

As I said, 80-90% of what I did at Grey would today be done by a computer in seconds. Grey had some kind of ENIAC that took up half a room, but it wasn’t available to peons. So I had to create by hand, with pencils and ruler, campaign graphs for my clients Canada Dry and Warner Bros. These had to be whited-out and recopied if there was a change, so I spent much of my day waiting in line for the Xerox machine.

Moving on to Wachtell, when I started there in 1986 lawyers still didn’t have computers, and email and the Internet were dreamt of only at places like CERN and Stanford. I went to meetings and took phone calls, as lawyers do now, but it was when it got down to the actual associate work that it was radically different.

The firm had forms to use for contracts, merger agreements, prospectuses, etc., that you’d get printed out, then mark up by hand and send to the word processing center. I’d wait for hours until midnight for them to come back, then check bleary-eyed that all changes had been made: there was no “find and replace.” For offering documents, we’d go down to the financial printers on Hudson Street (now a would-be residential district named Hudson Square) and work all night until they were proofed, printed and bound, after which they’d be messengered to Washington for filing with the SEC.2

If you had to find a precedent to incorporate into the form document, you could visit the firm’s library, or ask a senior lawyer who might remember a similar situation. Then you’d go looking through “bound volumes” of past deals on the partners’ shelves until you found the elusive provision. Now, when all deal history is searchable with a click, associates have less need for oral history, which I think is a shame. When I used to go to the Wachtell elders who had all the deals in their heads, they’d impart not just the facts but the lore behind them that deepens understanding.

In the same way, when I tell my investing war stories, it may be in the background color where the difference lies between success and failure. These are the details an AI search would never turn up, such as that the Russian CEO who later screwed us came to our first meeting in two-tone shoes and brought his mistress.

Documents in the Computer Age

Today, the form contracts are all online and can be “marked up” on the associate’s computer, easily cutting and pasting provisions from other deals and using global replace to change names. Right off, that cuts hours from my old workday. But here’s the catch: the contracts are much longer now, as a purchase agreement that might’ve been 30 pages in the 1980s now can run to 150.

Like ship hulls with barnacles, form contracts have a way of becoming encrusted with more and more provisions; it’s a one-way ratchet. And since lawyers can search the web for anything that has ever gone wrong in the kind of deal being negotiated, things that used to be left implicit now tend to be spelled out. If the “material adverse change” clause that lets a buyer out of a contract formerly listed fifteen contingencies, now it may be two or three times more, with an absurd level of specificity,

Lifestyle Issues

Tech-enabled lawyers of the 2020s can handle more matters than my generation of red-pen scriveners. I used to work on one big deal at a time, with two or three smaller things percolating. Now they may have two or three main projects and several more on the back burner. So, while lawyers I spoke to bill the same number of hours I did, they must be two or three times as productive.

Email and Zoom have changed their lives. I often ate dinner at my desk, burping in a sick halogen glow while I awaited a document from word processing. Now lawyers can leave, have a meal with family or friends, and get the document by email to work on from home. For meetings, I was chained to the Wachtell office and conference rooms nationwide, whereas now many are done from the comfort of lawyers’ homes. They can even wear a dress shirt on camera and boxers out of range below, as I do.

There’s a downside, though. When I went on vacation in the 80s, I was really on vacation, unreachable without a big effort. Now there’s no escape anywhere with cellphone coverage; I’m sure every lawyer has a story about taking a meeting on a mountaintop in the Rockies or an Indian backwater. Even at home, in my time you could let your machine pick up a ringing landline that you suspected was your boss (not that I ever did such a thing), but there’s no hiding from an email or a text.

On the other hand, if you had pending business or were the business owner, you could spend your trip wondering whether things were under control at the office and worrying they were trying to reach you. Having vacationed prior to and since the always-available era, I think the latter is preferable for anyone in a leadership role. Any vacation buzzkill emanating from my email is better than the nagging anxiety I used to experience. And with the miracle called DocuSign, you no longer have to return from, say, dinner at a Helsinki steakhouse, having yourself consumed an entire bottle of Barolo, and stumble to a Business Center to sign and return a fax.

Overall, I give a strong advantage to the lives of young lawyers today. I even think if I’d had email and the Internet to relieve the drudgery, I’d still be a lawyer. So thank you, tech geniuses, for inventing them after I’d quit.

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What About AI?

The new timesaver for lawyers is AI, which can draft contracts and briefs. The problem, as we know, is that LLMs are unreliable. One lawyer I spoke to told me that 12 of 13 quotes Co-Pilot gave her were found to be fabricated. AI reminds me of Russian brokers I’ve worked with, who preferred to make things up rather than admit they didn’t know.

Some elite law firms are trying to hold the line on AI, but it’s inevitable that it will be used by them all, while being carefully fact-checked. One junior partner I spoke to had an interesting perspective, saying that after supervising younger lawyers for years, she can spot half-assed work. She’s concerned that if AI were allowed to do the first drafts, with all its tricks, she might not recognize a shoddy effort. Anyway, while AI will undoubtedly take over many functions, what I’ve learned is that legal work is like gas: it expands to fill any space.

And what about my work now? 40 years hence, when I’m gone and sentient robots are managing the money, will the way I spent my day look as absurd to them as the Grey Advertising Xerox waiting line does to me today? Will your job? Probably, yet we have no choice but to get up every morning and give it our best.

Another commenter, “Old Lady,” also has a large collection acquired over many years from local artists and galleries. While a few pieces have grown in value, there’s no market for most of it and after donating some, she now needs to figure out what to do with the rest. But as Old Lady says, “We never saw it as an investment. It was all about enhancing our lives….” This healthy approach to art buying is, I’d suspect, less prevalent among my possession-hoarding Baby Boomer peers than among the “experience-oriented” Millennial and Gen Z art lovers, as I’ll explain later.

I realize now that my previous post discussed art as an investment without specifying what kind of art is “investable.” While there’s no fixed answer, as a rule of thumb, I’d say any work bought for less than five figures is unlikely to appreciate much, if it is resaleable at all. There are exceptions, like the Basquiat a friend of mine bought for $7,500 that’s probably worth $10m today (sadly, he sold it in 1988 for $75,000; his first advice to me as a collector was “never sell anything”). Also, I mentioned in the last post that a George Condo multiple I bought in 2024 for $6,500 was resold in 2025 by a non-profit at a 50% gain. The buyer was a Knick who for confidentiality reasons I won’t name, except to say he’s 7 feet and a good foul-shooter. (One of that Condo series is now offered on Artsy, an art-trading app, for £13,000.)

Although there are cases like those, art purchases at a four-figure price point or less should be bought for love of the work and to support galleries and artists; because from a financial perspective, they are merely optionlike. As Old Lady found, out of 50 works maybe one will go up materially in value, and that’s if you know what you’re doing and/or are well-advised. My friend was put into the Basquiat by his mother, a seasoned collector who later became my art advisor; and I was confident about the resale value of a limited edition signed Condo print, especially one of that quality.

Given the state of the dollar today — this isn’t 1954, when Jackson Pollocks went for $5,000 — mid-five figures is where investment becomes a bigger part of the art buying decision. My view is that unless a new collector has an art history background or a lot of in-the-know artist or gallery friends (as Keynes had, when building his great collection), they shouldn’t spend that much money without an advisor. Art advisors offer various arrangements, some retainer-based, others commission-based, or a combination. If you’re reluctant to sign up, a lot of them will be willing to take a prospective client around the galleries for free, which is how I started working with mine.

It’s six-figures-and-up where the investment aspect of art becomes critical, and where comparison is invited to other asset classes. Katya Kazakina, the artnet journalist referenced in my last post, suggested that Si Newhouse made a financial mistake spending $32 million on a Jackson Pollock vs. what that money would’ve earned in an S&P index fund. Using her logic, if the value of Newhouse’s apartment didn’t keep up with the S&P, he should’ve rented it instead. And why did he buy bespoke Tom Ford evening wear when he could’ve gone to Rent-a-Tux and put the $10,000 or whatever he saved into the S&P? You see my point.

Newhouse isn’t with us anymore, but if he were what I think he’d say to Kazakina is, “The Pollock was a brilliant acquisition that gave me joy for years, and my estate sold it for $180 million. Also, mind your own business.”

The New Gen Collectors

Avant Arte (AA) has just published a study based on interviews with 2,000 “collectors, enthusiasts, and professionals,” that upended my assumptions about young people and their relation to art. I’d been under the impression that the under-45s didn’t care a lot about art, which may have resulted from the oft-heard complaints around arts institutions that rich techies have shown no interest in supporting them.1 Even if that’s true, it turns out they’re not representative of their age cohort.

90% of the AA interviewees said art is as important to them as music, fashion, or design; 80% want to decorate their homes with it; and 70% buy it specifically to support artists. “Barely a third cite investment as a motivation,” AA says. Young collectors use art to show who they are, and they are more interested than older ones in the stories behind the art. One said, “I buy art to express myself through someone else’s work, when I’m not able to do it myself.” I’m an “older” collector (the actuaries tell me I’m old, though I don’t believe it) who does care about the story, which is why I’m more likely to buy a current piece when I’ve met the artist.

Collectors are starting younger and prioritizing art higher than I’d thought. More than half of the survey respondents already spend more on art than they do on clothes, and 40% would spend over a month’s salary on a single work. Despite inflation pressure, AA reports that “[o]nly 8% of current buyers plan to decrease their spending next year, and the new generation are 65% more likely to plan an increase.”

What the new gen wants from arts institutions is a feeling of connection and community. AA’s survey shows they’re 70% more likely to go to museums to meet friends, and the strongest draw for them isn’t a special exhibition but an artist talk, or a participatory event.2 Two arts institutions I’m involved with, Public Art Fund and The Church Sag Harbor, have community engagement as part of their mission statements and both are making it a bigger focus.

Conclusion

I found the Avant Arte survey heartening. Not only is there a bright future for art buying and so for fine artists, but the new gen is approaching it the right way: as an enhancement to their lives rather than an investment. My Boomer generation, for whom amassing possessions was a central theme for most of our days, is now wondering, like the commenter on my last post, what the point was in collecting art when there may be no one ultimately to sell or even donate it to.

The new generation of art lovers will be less likely to feel this way when they’re old, because the sense of community and self-expression they achieve in the process of buying and appreciating art is itself the point.

While I agree with Kazakina that collectors should only buy art that they love, leaving speculation to gallerists and professional flippers, her methodology here leads to an overbroad conclusion. There are numerous scholarly studies of art as an investment, which do support the thesis that buying expensive masterpieces underperforms the stock market — so keep that in mind before going wild on the Van Goghs.2

But there are few collectors who only buy expensive masterpieces. For her verdict on Newhouse to be valuable, Kazakina would have to know what his estate realized from all the art it sold, and what he originally paid for it. For one, she fails to mention that another Newhouse lot, Jeff Koons’ “Rabbit,” sold in 2019 for $91m, a 9000% return on Si’s purchase price in 1992. His 18.9% annualized return on it trounced the S&P, so does that “prove” art is better than stocks?

As for the works Kazakina cites that sold at last month’s auctions for less than they were worth a few years ago, my response is, “So what?” As in any other market, art prices fluctuate, and if you become a forced seller, not everything will necessarily be at its highest-ever price. Many great artists, including Basquiat, Yayoi Kusama, and Joan Mitchell, have had steep corrections in their markets but blasted off in the long run. Does Kazakina know why the sellers of these underperforming works chose these May auctions to sell at, besides the sellers who’d died?

Another strike against art as an investment, writes Kazakina, is that it’s illiquid, whereas Newhouse could’ve sold an S&P index fund any day. But it’s also the very fact that art is sticky that has helped to build valuable collections over time. I’ve written before about J.M. Keynes’ collection, which he gave to Cambridge University in 1940, has been kept intact since, and has matched the performance of the U.K. stock market with dividends reinvested. But 25% of its value is attributable to one Cezanne, which couldn’t be “trimmed” to raise cash, the way an index fund can.

Kazakina also notes that unlike stocks and bonds, art generates no income, like dividends and interest. Neither do SpaceX, Berkshire Hathaway, Tesla, Amazon, or gold, yet people seem to think they’re good to have. Anyway, no one is advocating that a person should invest their entire net worth into art — although it did work for gallerists like Heinz Berggruen and Ernest Beyeler, whose collections grew into the billions. And Kazakina is also right that not only doesn’t art generate income, but it has a carrying cost, in the form of storage and insurance. That’s why I own Chubb stock, to get a tiny fraction of my premiums back.

Why Collect?

To many people, asking “Why collect?” is like asking “Why breathe?” For me, it started at age 7 with stamps, then baseball cards, then comics, then coins, and art was the last in a long series of collections, most of which are crumbling in my basement, having been saved from women in my life (mother, wife) who’d have loved to throw them out. I’ve often said, show me a fund manager adult and I’ll show you a collector kid.3

Those who want to invest in art — by that I mean spending five figures on an individual work — should, besides buying what they love, do their homework, not less than in buying a car. For those thinking of spending mid-five figures and up, it may make sense to use an art advisor, who will educate them. Keynes was advised by his friends in the Bloomsbury Circle, otherwise his collection might not have become valuable at all. An advisor will also initiate a new collector into the art world, which has its own norms and customs that are very different from Wall Street’s or Silicon Valley’s. You don’t want to start off your collecting career by offending people.

A collector without a big budget might consider prints and multiples. Avant Arte (AA) offers moderately priced, beautifully produced multiples by artists ranging from emerging ones to masters like George Condo, Cindy Sherman, and Alex Katz. As multiples, they’re not investment quality like unique works, though a market has developed in some AA prints by artists who became well-known since their initial drops.4 I’m biased, as an investor in the company, but I’m also a happy customer.

Turning back to Si Newhouse, let’s stipulate with Kazakina that he could’ve grown more wealth in a stock index fund than in Jackson Pollock’s “Number 7a.” Unless you’re like Scrooge McDuck swimming in gold coins, you’ll get no pleasure from looking at SPY all day. But to have lived with one of the masterpieces of our time, seeing it as he went past with his coffee and morning newspaper, must have given Si great pleasure. Plus, I’m pretty sure his heirs will be okay.

It happened that one morning a few days before the dinner, in the liminal state between sleeping and waking, two verses of a poem about photographers came into my head. That was how Paul McCartney had written “Yesterday,” I recalled, and decided to expand the lines into a poem that could be my dinner speech.

In the course of writing the rest, and not having composed verse since I was 15 and created some heartfelt (very bad) poems, I thought of two lyricists I might draw on: Stephen Sondheim and my friend David Yazbek (composer of Dirty Rotten Scoundrels and other musicals). I also thought of Adam Sandler and his classic “Hanukkah Song.” Given these sources, a couple of my verses came out funny, and I realized I should go back and make them all funny, if I could.

There were some points I wanted to touch on for this group of attendees. One was the challenge and cost of buying important photography now, and how the department’s director, Jeff Rosenheim, enlists the Society to help acquire things. The Met recently got a huge promised gift of Man Ray photos from a Pritzker, so I wanted to work that in. The dinner’s special guest was Michael Wilson, who owns a great 19th century photography collection (and also co-owned James Bond for decades), so I also needed a shout-out to him and his trove.

After much tinkering, I finished this poem, which I read at the dinner:

The Collector

To speak to all of you in con-der
I’d like to buy an August Sander [nb: it’s pronounced “Sonder”]

Or maybe at Le Grand Palais [nb: where the Paris Photo fair is held]
An Irving Penn pâtissier

A theater or seascape photo
By Hiroshi Sugimoto

A Diane Arbus if we can
Jeff, I know it’s pronounced Dee-Ann

For collage or photomontage
Laszlo fucking Moholy Nagy [nb: it’s pronounced “Nage”]

Or if we want to spend a mint
An Edward Steichen Flatiron print

Or if we want to break the bank
An “Americans” by Robert Frank

Man Ray is hard to afford today
Unless you’re a Pritzker, John, Penny or Jay

So is Julia Margaret Cameron
Michael Wilson can you give us one?

Atget, Marville and Cartier Bresson
Most of the best ones are already gone

Eggleston, Winogrand, Friedlander, Shore
The Stieglitz Society should always buy more

A Thomas Struth or Ruff or Gursky
It’s easy, just open your purse-ky

And any masterpieces we get
Jeff says we must promise them all to the Met.

From my lyricist models, I learned the delight of an unexpected rhyme, e.g., Sondheim’s “The problem with poet, is how do you know it’s deceased/Try the priest” or Yazbek’s rhyme of “Balzac” and “Tupac” in his underrated recent musical Dead Outlaw. I’ve always remembered Sandler’s rhyme of “Fonzarelli” (Henry Winkler’s character in Happy Days) with “Carnegie Deli.” I came up with “Grand Palais” and “pâtissier,” and “photomontage” and “Nagy.”

Also from Sandler, I saw that it’s funny, like an inside joke with the audience, when a lyric strains to rhyme, as with “Hanukkah” and “marijuana-kah.” I did it with “Gursky” and “purse-ky,” which got my biggest laugh. I realized I could extract a chuckle from my effort to keep the meter in the line about Laszlo Moholy Nagy, adding “fucking” to get enough syllables.

The poem killed in the room, and as I sat down to applause one of my tablemates said, “AI must’ve helped you with that.” I was offended, saying there was no way AI could’ve written it. I found myself still stewing over his accusation the next day, and my wife suggested that I prove my point by giving AI a chance. So I did, leading to this post.

AI Is a Nerd

I prompted ChatGPT with the same points mentioned above, and here’s an excerpt from its first try (I omitted some verses, which are no better):

I chased an Alfred Stieglitz print,
My banker gave a tiny hint.

I priced a grand Edward Steichen,
My pulse grew weak, my smile frighten’d.

A Diane Arbus crossed the floor,
I sold my cufflinks by the door.

A Robert Frank came into view,
I checked if kidneys still sold new.

One Irving Penn looked crisp and tall,
I tried to mortgage City Hall.

A Richard Avedon appeared,
My tax attorney disappeared.

Michael Wilson, hear our plea:
Donate a Cameron to the Met, please.

And Jeff, our wise department chief,
Wants every gift by signed bequest beneath.

ChatGPT was incapable of writing anything funny. It reminds me of a lawyer I knew who always tried to be a wit, but never could be, because everything he came up with was too logical — you saw the gears working behind his jokes.1 Or think of poor Elon Musk: the one thing in the world he wants most, to be funny, is the thing he cannot have.

I gave ChatGPT another shot, prompting, “Can it be funnier and not just about how they’re expensive, but rare? Think Noel Coward or Cole Porter.” The result was even worse, as it now focused 100% on the rarity prompt, as if unable to hold both themes simultaneously in its mind. It also pathetically used a more “elegant” tone, as in its verse: “I courted one grand Gustave Le Gray/He vanished neatly to Qatar-way.” It even tried and failed to do the Sandler strained-rhyme thing: “A Weston pepper, dark and slick/Went to a prince in Lichtenstik.”

In both ChatGPT drafts, there were verses that made no sense at all, like: “A Diane Arbus, strange and sweet/Was snapped up by a vegan fleet.” Huh? Also, while I wasn’t expecting it to create all perfect rhymes like Sondheim, in the Michael Wilson verse it rhymes “plea” with “please”? Maybe if I paid for ChatGPT, it wouldn’t assault me with garbage. Given that it solves Einstein-level math problems, I’d have thought it could at least keep the correct meter, but it couldn’t even do that.

I really wanted to give AI a chance to show it could be artistic, so I switched to Claude and used a more specific prompt, mentioning lyricists it should look at before writing the poem. What emerged was 10% better than ChatGPT, but still unfunny and sure to flop if I’d read it at the dinner. Both AIs seemed to be trying, but felt to me basically like two nerds from high school you feel sorry for. “Hey, why doesn’t someone take their lunch over and sit with Chat and Claude? They look sad.”

I could’ve tried again with more and more elaborate prompts, but at some point I’d just have been writing the poem myself anyway.

AI Is Also a Hack Artist

A couple of months ago, someone told me that a 70-something wealthy woman we both know is looking for a young woman to be her driver/companion for the summer in the Hamptons, an ideal job for a grad student writing her thesis. I said I didn’t have anyone, but I could cast the movie: I wanted Streep for the older woman and Florence Pugh for the companion.

For fun, I asked Perplexity its casting suggestions, and it came up with pairings that included Emma Thompson/Rachel Sennott and Candice Bergen/Hailee Steinfeld. It wanted to know if we were going for a “quiet, character driven drama, or something close to a witty Nancy Meyers-style dramedy.” And “do you see their relationship ultimately becoming a genuine emotional bond, or staying more transactional and spiky right through the end?”

Perplexity seemed to be really getting into the project, as if it was finally being asked to do something cool! It was happily mining all the movies it knew for storylines, but of course, owing to its process, these must all be cliched. On the other hand, isn’t that what most successful screenplay writers do? There aren’t many Charlie Kaufman-type geniuses, and those that do exist live lives of utter frustration. Working screenwriters probably use AI to fill in certain scenes, to save time.

The problem, I’d guess, is that once a writer starts using AI at all, they must be tempted to let it do all the work and come in later for a little polish. I can’t spot AI writing, but people who can feel certain that, for example, the current, very lousy Elizabeth Banks TV series The Miniature Wife is 90% AI-generated. I know there was an episode of Family Guy this season written fully by AI, but that doesn’t surprise me, given how formulaic the show and its jokes have become after so many seasons.

Actually, I’m pretty sure that Perplexity and I, with it doing most of the work, could come up with a perfectly reasonable screenplay for our Driving Miss Daisy-in-the-Hamptons knockoff — it could even be optioned. But it would probably never get made, because as it moved through the studio process, people would slowly realize its fundamental hackiness. And even if it did get to the screen, it would be a real piece of crap. I’d add “and would flop,” but The Devil Wears Prada 2 is a hit, so who knows?

One thing that hasn’t changed at Anthropic is their (lack of) profitability. They are estimated to have lost $4b last year, and they’re not yet making it up on volume, as the projected loss for 2026 is $11b. Management says they have a “path to profit,” which is credible given how useful Claude Cowork is to enterprises, more and more of whom are willing to pay for it (possibly soon to include my own enterprise).

But wasn’t it just recently that Gemini had the best AI model? And right before that, wasn’t it Open AI? This March, Open AI raised $122b at an $852b valuation, so a lot of smart people are betting big money that they haven’t lost the race yet. Microsoft’s Copilot has already been counted out, though just today my colleague decided to click on the ubiquitous icon in Office and give it the task of translating a document into Polish.1 He liked Copilot’s integration and found it competent, until it quit the job halfway through, claiming it was “too busy.” This teenager said it would finish today, if we paid extra, otherwise it might get around to it tomorrow. Nice.

And what of Meta AI? xAI? Amazon? Remember DeepSeek, the Chinese AI? Some say there will be enough profit for all the AI developers to justify their current valuations. I have no idea, but what I do think is even if that turns out to be true, the current crop of private megadeals won’t reward outside investors with the big payoff as quickly as they imagine. As for the AI juniors and startups raising private capital at eye-popping valuations, their anticipated IPOs or strategic exits may wind up bridges to nowhere, if something goes wrong with the overall AI story.2

I speak from experience. Twenty years ago at this time I was happily participating in an emerging markets bubble, and within two years was stranded on several bridges to nowhere. Last October I wrote a post about this, which I’ve shared below in a shortened version. That post ended with a mention of my cockapoo Teddy, who was at the time hanging in at 18-1/2 years old. Last week we had to say goodbye to him, a month before his 19th birthday. I won’t write a sentimental tribute to Teddy — there are plenty like those out there — but will just tell you that he wasn’t a dog, he was a boy, and the most popular member of our family.

It was summer 2007 and emerging market stocks were in a full-blown bubble. The MSCI EM Index had quadrupled over the preceding 3-1/2 years, and it seemed as if any would-be EM fund manager could hang out a shingle and raise a pot of money. Our Eastern Europe funds had posted three years of average 40% net gains and were in the middle of another up year, with no sign enthusiasm was waning. We were so hot that I could’ve launched a vehicle dedicated to Fredonia, the made-up country in the Marx Brothers’ Duck Soup, and raised $50 million.

I didn’t, but the inflows into our real offerings were so large that they dwarfed anything we’d seen before (or since). By August, our assets under management had reached $3.4 billion, up $1 billion over the trailing 12 months. More than half of that was in our Eastern Europe funds, where only Russia’s stock market was liquid enough to comfortably accommodate it all.

It’s the rare manager who recognizes that he or she is the beneficiary of a bubble. Most will interpret their great performance and inflows the way I did, as only just and proper. Still, I had doubts, in part because of cracks that were evident in the U.S. real estate market. A mortgage-backed securities manager friend called one evening to warn me that within the year big banks could fail.

The next night, at dinner with friends also in finance, two martinis in and my eyes glazing over, I said, “We’re all dead.” That flash of clarity — maybe Baron de Rothschild speaking through me from the spirit world — had passed by morning, and I continued on as if everything was fine.

Two Big Mistakes

My partner and I were conscious that our markets were getting pricey. The Moscow Stock Exchange had risen to an all-time high P/E ratio of 12, with Eastern Europe overall around 15x. We took comfort that Russia still traded cheaper than Brazil at 15x, India at 20x, and China over 30x. We realized later that these were all peak multiples and that Russia, dominated by resource stocks, would always trade at a discount to growth-oriented Asian markets.

Even though we believed that Russian stocks were not terribly overvalued, it felt wrong to stick all our inflows into the same blue chips that had already gone up five or ten times. Meanwhile, the other markets we were in, like Romania and Estonia, were too small and thinly traded to absorb the size of cash we had to deploy. Given this dilemma, our Big Mistake #1 was to (a) keep accepting all those inflows and (b) feel pressure to invest them quickly, so as not to fall behind a trending bull market.

This pressure was increased by what we saw other managers doing. One Swiss bank had an Eastern Europe mutual fund that was buying every listed stock in Bulgaria at any price until they pushed such beauties as a barely profitable particle-board maker and the DeWalt tools of Bulgaria up as much as 20x. This so-called “buy and buy strategy” drove the Swiss fund to great performance, leading to more inflows, leading to more buying — all in a vehicle with daily liquidity. That was insane, and of course it ended in tears.

My team and I decided that the way to adhere to our value philosophy while also deploying lots of cash quickly was via private placements and pre-IPOs, which were offered to us at discounts to publicly traded comps. A number of these came from Ukraine, where entrepreneurs with ethics ranging from potentially honest to outright thieving mobilized to feed the ducks that were quacking. Our doomed Ukrainian investments included real estate developers, agribusiness, and a vodka company. With the vodka, we stupidly relied on the due diligence done by a well-known hedge fund; this fund and its British law firm, with their fancy contracts governed under U.K. law, proved no match for an asset-stripping Ukrainian.

Getting more illiquid was Big Mistake #2. These not yet cash-generative private companies hit a wall as the 2008 crisis unfolded, and the pre-IPOs had no market to IPO in. Meanwhile, our inflows suddenly became large outflows, forcing us to use up our cash reserve and then sell quality liquid stocks, thus making the troubled private holdings bigger weightings. By the end of 2008 we had to suspend fund redemptions to protect all investors, including those who wanted to stay and ride out the correction.

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Lessons and a Dog’s Dream

Emerging markets in 2007 were unquestionably a bubble, in which the right move for an investor was to get more liquid, not less. What about everyone’s favorite topic, AI?

Investors just arriving to the AI party will be tempted not to buy stocks like Nvidia that are already up many times, but instead to look for a listed junior or private company that might be “the next Nvidia.” Thinking Machines, a startup by some ex-Open AI executives, has just raised $2 billion at a $12 billion valuation, most of which I’d guess came from funds using other people’s money. Those “other people” will, believe it or not, expect to be paid back at some not-distant point in the future.

If AI is in the early stages of a long bull market, then these privates and juniors could work out great. But if AI is a bubble, then investors should be avoiding illiquidity and sticking with blue chips that can be sold if the wave crests. I don’t know which is true, but what I am pretty sure of is that if a real AI bubble does form, 95% of the fund managers participating in it will do the wrong things. This will leave it to the “other people” to act and protect themselves.

As for emerging markets, it happens that when the index peaked in 2007, I was heading to LaGuardia to pick up a cockapoo puppy that had been air-shipped from an Ohio breeder. Teddy has, through sheer force of will (and great love of food), lived to see his dream realized as the EM index has at last taken out its old high, 18 years later.3

She doesn’t like me writing about her, but I’ve always said that anyone who causes distress to a writer should expect to be written about. I’d imagine the same is true for any artist, whether their response comes in prose, song lyrics (Taylor Swift has made an industry of that), or images. There are probably even modern dance pieces whose inspiration was, say, lingering rage over the choreographer’s bad table assignment at a Bat Mitzvah. My one published novel settled scores, some old and all petty, against various people and institutions … and I’ve always thought that I was also the target of payback, in a novel.

I could use a fake name here but I doubt the writer will see this, and if he does, he’ll just laugh. After I’d finished editing my novel, in 1993, and was waiting for it to come out, I used to play tennis with a author named Jonathan Dee. Jon had just published a terrific book, The Liberty Campaign, which was set in the 1960s Madison Avenue ad world — 15 years before Mad Men — and was thinking about his next one.

Meanwhile, I was trying to figure out how to afford living comfortably (not wealthily, comfortably) in New York as a full-time writer, and to that end had started doing spec scripts for TV shows like Law and Order. Screenwriting might be a way, but for your average novelist, it seemed that only selling their book to the movies would earn decent money. So, a couple of times after our tennis I asked Jon — a writer of serious literary fiction — whether he could make his next novel suitable for a film. I may have even thrown out some plot ideas, oblivious to his growing discomfort, until he finally snapped at me, saying he wasn’t interested in writing for the movies.

My writing career ended when Firebird launched in 1994, but Jon’s next book came out in 1995 (as did mine, with zero fanfare in my case). His St. Famous concerns an author named Paul Soloway, married with kids and broke, who’s been working for years on a laughably uncommercial opus called Son of Mind. Soloway stumbles into a neighborhood riot, emerges a hero, and then is offered six figures to fictionalize the event. As he agonizes over whether to compromise his artistic values, he’s urged to go for the money by his friend, an “abrasive,” “self-centered” poet named Martin. The main scene where Martin harangues Soloway is set in a playground next to the tennis courts where Jon and I used to play, and where I’d made a similar argument. If Martin was based in part on me, I guess I deserved it.1

Getting back to my conflict-avoidance with the beloved wife the other night, it reminded me of my second-ever Substack post. As I had 41 subscribers then, few people have seen it, so here it is:

I once got as a gift a wind-up bird that chirped as it hopped around any flat surface. Oddly, this little thing came with a troubleshooting guide, in Japanese and English, describing only two kinds of “trouble”: 1) the bird will not chirp and 2) the bird will not stop chirping. Upon reflection, I decided that the latter problem was worse than the former. (I long ago misplaced this toy, which now rests chirplessly in a storage box somewhere.)

A few weeks ago, my wife and I went to dinner with a couple who have been married for decades. While they were always close, since becoming empty nesters they’ve grown even more so. Though they live in a large apartment, the now-retired husband has his desk in a central location, where he and his wife can keep eyes on each other.

My wife and I have been together almost as long as they have, but we follow a very different plan. Since the pandemic shifted me to working from home, I’ve stayed at the opposite end of our apartment all day, popping into her sightline only briefly, like an elusive warbler, to get water or a snack. I barely speak to her except to convey time-sensitive info or unless spoken to first. I go to my office twice a week, whether I need to or not. On those days, if I’m late getting moving, she’ll ask, “You’re going to the office, right?” When I nod, she visibly relaxes.

So commonly accepted that it’s become a cliché is the view that successful couples quickly and honestly address whatever conflicts arise — but that may not be true at all. A 2013 study by the NIH listed the top eleven reasons for divorce, none of which was “Poor communication.” One of the top three, however, was “Too much conflict and arguing.”

In this regard, a tip always given to newlyweds — “Don’t go to bed mad” — is, I’m sure after 35+ years of marriage, terrible advice. The thing to do is sleep on your issue, which will seem less important in daylight, and to avoid saying the things you might with your nerves exposed at 2 A.M. The long-married are experts on the foibles, vices, and specific vulnerabilities of their mates, which should rarely if ever be spoken of, even in the form of “jokes.”

All this isn’t to utterly reject the importance of communication among couples. It would be unrealistic, especially in the hyperverbal, analytical culture of Substack readers, to expect reticence in relationships. We can all probably think of a couple who split partly because one of them wasn’t expressive enough. Adjusting to an empty nest is a particular strain, and both remaining birds will need to chirp more to offset the new quiet. The challenge is to find the right balance between closeness and personal space, and to know when to stop chirping.

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Stories like that aren’t unusual in New York real estate — I’ve heard similar ones from friends, and lived one personally. In the mid-00s, I was an initial buyer in the condo conversion of a rent-controlled 1920s-era building. I had toured the apartment when it was under construction and, seeing that the dining room overlooked a playground where I’d seesawed as a kid, I was immediately sold.

I joined the Board along with one of the other first buyers, as well as two from the development company, who still owned some of the apartments. I’ll call the developer Copperfield Inc., after the magician, since they both could make things disappear, in this case our condo’s reserve fund. Continuing with the Dickens motif, I’ll call the developer himself Tarquin Slickbottom. The building’s daily affairs were handled by the managing agent Copperfield Management, an affiliate of the developer — a conflict and red flag I was too inexperienced to recognize.

In the first years, the building went along smoothly, and Copperfield Inc. continued to sell the rest of the apartments they still owned. The common charges (a condo’s equivalent of maintenance) hadn’t been raised much since the conversion, but the Board didn’t think it was needed, as the finances were solid — at least they appeared to be, in the annual audits we got from the accounting firm of Sniff, Grease & Crump (not their real name).

Strange Letters and a Discovery

At some point, Board members started getting letters from the building’s plumbing and heating vendors, saying their bills were well in arrears and that Copperfield Management was avoiding them. Again, we didn’t recognize the extremely red flag of a direct appeal to us, and accepted the explanation of our manager rep, a working stiff I’ll call Jack Dunk. He said, first, that it was an administrative screwup, then that he needed surgery and would do it after, and finally that we were short on operating cash.

The non-Copperfield Board members called a meeting to ask why we couldn’t use some of our reserve of $300k, a healthy amount for a building of our size, to clear the payables. That’s when Dunk admitted that there was no reserve, broke into tears and apologized — we still didn’t know exactly what for. We hired a forensic accountant to find out who had misappropriated our reserve. Slickbottom reached out to say that we were wasting our time and that no money had been stolen, but wouldn’t explain any further.

In the audit, we learned what Slickbottom had hinted at: from day one, our common charges were insufficient. The same, I heard, was true of Copperfield’s 10 other buildings. It was set up like this because higher common charges would’ve reduced the selling prices of the apartments. The financial statements the Board saw were false, and it seemed that our “reserve” was really one pot of money that was moved around Copperfield’s buildings just in time 1) to keep vendors from suing and 2) to be in the relevant bank account when the auditors came for their annual review. As Sniff, Grease & Crump had all the Copperfield accounting work (one more red flag we missed), they were incentivized not to look too closely.

By the time the truth came out in 2016, Copperfield had already sold almost all the condos, and the large common charge increases now needed wouldn’t fall much on them. Moreover, it would be hard for people who’d bought their apartments based on the fake financials to sue, because they’d have to prove what the prices should’ve been if the common charges were right, the kind of counterfactual judges hate. Also, the post-2008 buyers had gains on their purchases, making them less sympathetic.

My Board, filled with determined truth-seekers — having worked in Russia and Ukraine, I like to find out exactly how I’ve been cheated — was the only one of the 11 to pursue Copperfield. Maybe the other Boards were right, because although we got a settlement, it just covered the fees of our litigator and forensic accountant.

Now, the part of the story that amazed me. Anyone in real estate I asked about Tarquin Slickbottom would say, “Oh, he’s a gentleman. It’s his brothers that are bad.” He’s a gentleman, and his brothers were worse?

Who Are the New York Developers?

Colored by my condo experience, I’ve assumed that New York developers are always pulling something to make more money. I’m told by people who actually know the industry that this view is overbroad and that the prominent families who have dominated Manhattan real estate for decades, like the Rudins and Tishman Speyer, are highly reputable.1 Meanwhile, the big REITs, e.g., Vornado, Boston Properties, and S.L. Green, are publicly traded and must avoid any hint of scandal.

And yet, my impression that real estate gets into the sleaze more than any other industry in NYC (except maybe restaurants) isn’t lessened by the frequent news stories about bad behavior, from the low end — rodents and heating violations — to the high end — shoddy construction of luxury buildings, like 432 Park Avenue.2 The Robert A.M. Stern-designed 15 Central Park West and 220 Central Park South were coveted in part because word went around that, for once, no corners had been cut.

To view things from the developers’ perspective for a second, we must consider the pay-to-playing and quid-pro-quoing that all of them have to do in NYC. Real estate in the center of the world, with limited space left to build on, will inevitably be political. As they navigate zoning, tax abatements, landmark commission, affordable housing incentives, etc., it’s hard to see how they could operate totally pristinely. Things won’t be any cleaner under Mayor Mamdani, just compromised in a different way.

And because everyone knows this, the developers are cut a lot of slack: even when they bend or break the rules to squeeze extra profit, punishments are mild. No one has ever gone to jail for building five stories higher than approved, though I occasionally wish they would.3 The Queen of Mean, Leona Helmsley, went upstate for tax evasion, not for any of her business practices, like stiffing contractors.

One more thing about NYC real estate guys, at least the ones I knew in the 1980s/90s through my late brother-in-law, who represented a few as a lawyer. They had a macho culture, swinging for the fences in deals while accepting high risk, often via personal guarantees. It was said that they all expected once in their careers to go bankrupt, as the price of launching multiyear projects into an unpredictable business and rate cycle. Nothing to be ashamed of. An unfortunate aspect of this macho culture was sexism: boasting about their conquests, “rating” and harassing women. I don’t know how it is now, but back then it was pretty gross. It helps to understand our president when you realize that this is the world he came out of.

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Developers as Politicians

To be clear, I have nothing against New York real estate guys, the entrepreneurs who have built much of this great city. I serve with some on the boards of non-profits that benefit from their generosity. I do question, however, whether they’re suitable as political leaders. Some amount of quid-pro-quo and pay-to-play has always been a part of lawmaking, but I’ve never seen a president wield them as brazenly as Trump, maybe because this was how he learned to get things done, in his first career.

Or take America’s top emissaries, ex-New York developers Jared Kushner and Steve Witkoff. Their diplomacy-by-deal may work in certain Gulf countries, but not when they’re negotiating with people who think in absolutes instead of contingencies — the Iranian mullahs are not the Department of City Planning, and Vladimir Putin is not Mike Bloomberg.

If you had to have a New York real estate guy as your leader, you’d hope at least he’d be a “gentleman” who only occasionally got into the sleaze, not a Leona-like, litigation-loving offender. Who knows what the latter kind would get up to, especially if he somehow obtained unchecked power?

After a quick perusal, I suspected that this group of receipts could yield a real-life example of the “Cézanne Stock” heuristic that I’ve posted about. (The in-laws probably bought more stocks whose receipts are missing, but it wouldn’t affect my analysis, as I’ll show.)

It would be good to read my older post first, but to summarize, it concerns J.M. Keynes’ art collection, which he assembled in 1918 and donated to Cambridge in 1940. It has generated 10%+ annualized returns, in line with U.K. stocks with dividends reinvested. This great performance is due to just five paintings, which have grown to 75% of the collection’s value, with one Cézanne being 25%. If any of those five had been sold, the return on the whole collection would’ve been much lower.

As I thought, my in-laws’ 1960s trade receipts lead to a similar result. Before I dig into them, let me give a snapshot of Andrea’s late father Bert.

Bert

He was eccentric in a lot of ways; if he were a kid today, he’d be quickly diagnosed as “on the spectrum” and put right into the “fix him” system. Bert was obsessed with data and statistics, especially about politics. His papers included handwritten county-by-county results from every U.S. presidential election since 1944, which he’d extracted from his collection of almanacs and World Books.1 He was Nate Silver before Nate Silver was born.

Since “celebrity pollster” wasn’t a profession then, Bert worked for the department store chain Montgomery Ward in a suitable job: gathering sales data, as a computer would today. (He was in fact an early computer user, seeing quickly that they’d be transformative and carving out a role as interpreter between the business and computer guys.) His hobby, politics, was in part expressed through his campaign button collection, thousands of which were displayed on pegboards in his foyer. The most valuable ones, like a McKinley button, were sold to a dealer, and I have a bag of the common ones — in campaigns from Eisenhower to Clinton — that I give to friends as a fun present.

Bert and Eda’s Stocks

My in-laws were careful, intelligent investors who saw the long-term potential of the market, buying stocks for their three children soon after they were born. Andrea inherited her third of the final portfolio, only one stock in which connects to the 1961-65 tickets, meaning the others were sold along the way, maybe to pay for college. For purposes of this analysis, I’m going to assume that the “trade receipt portfolio” was kept intact, including the shares received when a stock was merged or acquired.

To evaluate long-term performance, I’ll ignore dividends. They have a meaningful impact over time, especially if reinvested, but are hard to identify for each company going back 60 years. With that caveat, here are the companies and their returns:2

American Machine & Foundry

This started in 1900 as a producer of automated cigarette manufacturing machines and over the years diversified into a strange collection of assets, including a pretzel-bending machine, bicycles, scuba and golf equipment, and engine-powered toy airplanes. In 1952, the company introduced a pin-setting machine that fueled that decade’s bowling craze.

In the years after 1962, when Bert and Eda bought the stock, AMF (as it became known) added yet more businesses, including Harley Davidson and Head sports equipment, then somehow got into launching silos for ICBMs. AMF had valuable assets, but under poor management (seven presidents in one ten-year span), they seem always to have been sold in distress.

In the 1990s, AMF focused on bowling, expanding worldwide, but this led to losses, delisting by 2000, and Chapter 11. I have no idea when and if my in-laws got out, but given AMF’s bad long-term result, I’ll say their return on this was zero.

Federated Department Stores

At the time Bert and Eda bought FDS, it owned stores including A&S, Filene’s, I. Magnin, and Bloomingdales. A hostile raider, Canadian Robert Campeau, acquired FDS in 1988 in a leveraged buyout at a premium to its then-languishing stock price, and under his acquisition debt it went bankrupt two years later.

I remember all this, as I was then working at the firm Wachtell, Lipton, which in its takeover defenses used FDS as an example of what happens when a raider heaps debt onto a low-growth business with volatile revenues. Our idea, I guess, was that the incumbent managements were perfectly capable of running such companies into the ground themselves. FDS emerged from bankruptcy and eventually became Macy’s, not a great stock either.

If Bert and Eda still owned FDS when the LBO happened, they’d have gotten a good payout, but since I have no data on the stock’s return from 1962-88, I’ll omit it from the final calculation. Unless it was a big winner over those years, which I doubt, FDS wouldn’t affect the portfolio’s overall performance much, as I’ll explain later.

Great Basins Petroleum

Little information is available about GBR, apart from an article about its liquidation. It may have done okay for shareholders through the liquidation, but I’ll leave it out also as, like FDS, it didn’t do well enough to impact the overall return.

Spencer Shoe

A retailer of moderately priced footwear, Spencer was acquired by Genesco in 1967 in an all-stock deal. Genesco, known for Johnston & Murphy shoes, is still listed, but good stock data only goes back to 1973. The return since then, excluding dividends, is 1.5% per annum. Assuming Spencer was dead money from 1962, when Bert and Eda bought it, until 1973, and that they had kept it since then, their $1,462 cost would be worth only $3,158.

Now we get into the good ones.

Beech-Nut Life Savers

The in-laws bought this in 1962 after famously noting that little Andrea was “eating baby food like it was going out of style.” After a 1968 acquisition, they got shares of what was called Squibb Beech-Nut. The company from then on focused on pharma, selling Beech-Nut and renaming itself Squibb. In 1989, Squibb merged with Bristol-Myers, creating the company we know today.

We couldn’t find the return on Squibb stock from 1968 until the merger, but it must have been good because earnings grew throughout, as it dominated the market for hypertension drugs. Bristol-Myers’ return from 1989 to today is 4% annualized, excluding dividends (which isn’t really fair, as it always paid high dividends).

So, while performance since 1989 hasn’t been great, the long-term return on Bert and Eda’s original Beech-Nut buy would be a lot higher, given Squibb’s earnings growth in the 20 years from 1968 until the merger. With that asterisk, I’ve saved the clear winners for last.

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Montgomery Ward

It seems there wasn’t much return on Montgomery Ward stock from 1965 through 1976, when it was acquired by Mobil (don’t ask me why Mobil needed department stores). Mobil stock generated 12.5% annualized returns from 1976 until it merged with Exxon in 1999. ExxonMobil hasn’t done as well as Mobil did standalone, which lowers the return on the whole 50-year period (1976-2026) to 8.4% per annum. Still, that makes the original $936.73 purchase of Ward on 4/21/61 worth $52,876 today.

Bert also had Montgomery Ward→Mobil→ExxonMobil stock in his pension plan and must have held onto it, as Andrea has inherited some.

PepsiCo

This was the easiest return to calculate, as PepsiCo has been in continuous existence since 1966, with many splits along the way. Still, because Bloomberg data only goes back to 1980, I had to ask my AI friend Claude for help with the prior period. Claude believes that PepsiCo’s annualized return since 1966, without dividends, has been 8%. In addition, in 1997 shareholders got a spinoff of Yum Brands, which has annualized since then above 12%, and raises the overall return to 8.7%. This means that Bert and Eda’s $418 investment in 5 PepsiCo shares on 12/31/65 would if kept, and excluding dividends, be worth around $66,000.

In fact, Andrea’s sister, for whom the stock was bought, needed to sell it in 1987, realizing a 16x gain. Great as that was, PepsiCo had by then created the conditions for equally impressive returns in the decades ahead. It had expanded to 150 countries, including pioneering in Russia and China; created the category of sodas with a small amount of fruit juice; entered fast food with KFC and Taco Bell; and was growing the highly profitable snack-chip business. The differing fates of PepsiCo and AMF speak to the value of solid management that sticks to a consistent vision and corporate culture.

Conclusion

Over 25+ years, the return on a portfolio almost fully converges with the return on the top-performing quintile — that’s just math.3 So, even with four losers out of seven, my in-laws’ 1960s trade receipt portfolio would, if it had been kept intact, have returned 8% per annum, well above the S&P 500 return of 7.3%. Inflation-adjusted, the return is much lower, but still twice as good as on bonds.

Amazingly, it would still be 8% even if they did buy ten other stocks in 1965, and all of them went to zero. This is because the return could’ve been generated entirely by the top quintile: the Cézanne, PepsiCo; the Matisse, Montgomery Ward; and a little Degas, Beech-Nut Life Savers. But if any of those three were sold or even trimmed, the overall performance wouldn’t have come close to the index, much less beaten it.

A final note: Bert would have loved, loved, this analysis (but corrected it 20 ways).

Much has been written about Giant, so it’s not a spoiler if I say that it centers on a book review Dahl wrote in 1982, in which he tore into Israel’s war in Lebanon, and the “Jewish race” generally. In Act I, Dahl engages his two Jewish publishers in a sort-of debate about Israel, all the while maintaining a charming surface. In Act II his charms dissipate, leaving him by the end shouting antisemitic screeds.

I loved the play, but the people I went with were mixed-to-negative. One thought the Israel debate was too facile. The New York Times’ reviewer, Helen Shaw, had a similar criticism, writing that none of the other characters is three-dimensional enough to be an effective opponent against Dahl’s often insightful attacks. The tendency of everyone to defer to him, Shaw writes, is partly what has made him a monster.

I agree with that point, and would take it further. While it’s true that the author, Mark Rosenblatt, hasn’t created any sophisticated debaters to match Dahl, I think his play isn’t actually “about” Israel or even antisemitism. As Dahl’s character unfolds in Lithgow’s great performance, we see that he is childlike and needs constant attention, which he’s found he can attract by being “naughty,” saying the unsayable. He does so on a variety of subjects, though with two Jews onstage (and more in the audience), it’s commenting about Israel and Judaism that shocks the most — so that’s where he goes.

By the climax, when Lithgow/Dahl explodes in what the Times calls “merry, almost gleeful bigotry,” the final shock is delivered. For me, the shock wasn’t just that Dahl could say vile antisemitic things, but that he has a very serious personality disorder. Though he’s shown throughout the play to be highly dependent on others, like his fiancee, at the end he chooses the one course that will hurt them most, alienating his publishers, readers, and the press with an anti-Jewish tirade of the worst insults.

On this view, Dahl’s antisemitism is a way his mental illness expresses itself — as is all vicious racism. Think about Kanye West, or whoever invented the lie that Haitian immigrants eat their neighbors’ cats and dogs, or lots of other people — even Federal officials — we see on the news. Their arguments usually make no sense, because they originate not in the rational brain but in a deeper well of dark, half-formed feelings.

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As for Dahl, he’s not cancelled in my book — in fact, the day after seeing Giant I ordered The Best of Roald Dahl. I remember, as a teenager, reading and loving his short stories in Playboy, whenever I could get my dirty little hands on a copy. I’m an advocate of separating the artist from the art, even when my people are the target of their prejudice — but I’m still not going to play the new Ye album.

At HBS I know I’ll get questions about how Firebird started, how we’ve chosen which emerging markets to invest in, and how we value companies when financial statements are unreliable. I have ready answers to all of these, with specific examples, but there are also general messages I want to be sure to work into a short hour, ones that can apply whether or not the students end up going into fund management.

I’ve narrowed it down to two, both of which I’ve discussed in previous Substacks. The first, which originally appeared in More Investing Truisms, is you’ll never get rich playing another man’s game.

Someone once said that we’re all either natural longs (optimists) or shorts (pessimists) and that if you want to be an investor, you have to decide which you are and go with that. I’ve always been an optimist, a foolish one at times, but overall it has worked — because capitalism works. And the adage doesn’t just apply to investing, but any profession at all.

That’s a lesson I learned over five years at the law firm Wachtell, Lipton, where I worked pre-Firebird. I’d come out of a clerkship with a Federal appellate judge, a job I was great at because it drew upon my best skills: legal reasoning (Talmud parsing is in my DNA) and writing. It would’ve been logical for me then to join Wachtell as a litigator, which was actually the firm’s preference, but I decided on the corporate department. It offered more non-law paths and I wanted to keep my options open.

Unfortunately, corporate law never really suited me. I liked writing, not negotiating over points in contractual clauses until the middle of the night, which was something the hardcore corporate Wachtellians just loved to do. Despite some good stretches, in the end I didn’t succeed as a corporate associate and had to move on. In litigation, I think I could’ve made partner — but don’t worry, I did well financially anyway and also got to see my kids grow up. So I have to say this worked out.1

As an investor, to the extent I have a talent, it has been in analyzing emerging markets and their stocks. We don’t do bonds, we don’t sell short, and we don’t use derivatives. For decades brokers have approached me with option ideas that are “guaranteed” to enhance returns, and I’ve always turned them down, noting that the person on the other side usually was a math genius at M.I.T., whereas I was an English major. I could beat them in a trade if it was about British Restoration Literature or Ulysses, but I know of no markets in those.

Having realized my strengths and weaknesses as an investor early on, I’ve always played to the former. Not everyone does. In Shame, Guilt, and Fund Management, I wrote that style drift has doomed many a hedge fund. The common scenario is that a manager who is mainly a stock picker or an arb makes one successful macro call and now believes himself a top-down savant. Not only does it turn out that his next few big macro trades — long gold, short the Hong Kong dollar, etc. — fail, but his investors start redeeming, because this wasn’t what they signed up for.

The second message starts with a famous quote from Mike Tyson: “Everyone has a plan until they get punched in the mouth.” You must learn this mantra if you want to build any kind of business, because nothing goes as expected and everything takes longer than you want. Firebird launched in 1994 and had to endure two ruble devaluations and an EM crisis before we made any real money, ten years later.

Sometimes a whole business model has to be scrapped and a new direction taken, as I recently saw happen to a tech company I have a venture investment in, which started as a rideshare alternative to Uber and, when regulation and taxes ruined that, pivoted to offering on-demand mobility to municipalities. AI now presents the company with another challenge, but fortunately the management is not just smart, but flexible.

To illustrate how this plays out in the hedge fund world, in my post You Want It To Be One Way, But It's the Other Way, I created the parable of a young Goldman Sachs trader, let’s call him Kyle or Ash or – wait, Beau. Beau Vandelay. Beau has generated solid returns over the last few years trading grapefruit juice futures, getting salary and bonus of $3 million, but he’s not satisfied because he has ex-B school friends getting rich in Silicon Valley or at funds.

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Beau decides to quit and start his own hedge fund, called Culbertson Partners after his UVA dorm, seeding it with his family’s and friends’ money, plus an investment from Goldman. After months of setup work, Beau launches with $100 million, but just as Culbertson’s trading begins, a grapefruit blight breaks out, which changes everything about making profits in citrus. His fund is down 2% in the first month.

To go on his own, Beau had to take a 90% pay cut, which he was willing to do in pursuit of great wealth — oops, “financial independence.” With this cut and no performance fees, he starts to have trouble covering the nut of apartment, garage, insurance, Hamptons summer rental, and daughter Maeve’s $60,000 preschool tuition (his wife quit her job to stay with the baby, Liam). After two years, down 5% from inception, Beau gives back all the capital and returns to Goldman. His strategy might’ve paid off eventually, but his investors will never know, because he gave up.

When Firebird started, even though I’d been a Park Avenue lawyer for five years, I was still living in an inexpensive rental, had a working (underpaid) wife, no kids in school, and barely knew what the Hamptons were. My weekend fun was drinking cheap beer at Spring Lounge in Soho, now bro-y but then a total dive, with my funny friends, including two other Firebird co-founders. They were in similar financial situations, so we all had plenty of time before we needed to start making much money. If, while at Goldman, Beau had kept as modest a nut as I had while at Wachtell, maybe he’d have been able to tough out his fund until grapefruit trading was back.

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It isn’t necessary to be as cheap as Warren Buffett who, when he was young, measured even the smallest expenditures against his expected compounding (30-50% a year — he had an ego even then); i.e., $1,000 spent in 1950 would “cost” minimum $1 million by 1975. I never thought like that, or had any reason to. Nor do I agree with Charlie Munger that the secret to a happy life is low expectations, though they don’t hurt.

But the message I will give to the students is that whatever career path they choose, living well within your means gives you the freedom to pursue your passions.

In the service of escapism, here are my top ten rock concerts. These aren’t necessarily the best shows I’ve seen, but the ones that combined great music with how into them I was. This means they’re skewed to my younger years, when it all mattered more. For example, laughable as it may sound, when I saw Billy Joel at Nassau Coliseum soon after The Stranger dropped in 1977, I stood on my seat screaming like a Beatles fan at Shea Stadium. I know — but I was 17.

Elton John, Madison Square Garden (1976): This has to be on the list because it was my first concert, not counting The Four Seasons at Monticello Raceway. Elton was already well into his cocaine era that led to his decline (by 1980 I couldn’t give away extra tickets to a show), but in 1975 he was still a live powerhouse. A few years ago I saw Elton’s “Farewell” tour, a word I put in quotes as I suspect that, like Cher, he may do a couple more farewell tours, even if they have to bring him out on a gurney.

Billy Joel, Nassau Coliseum (1977): A few months before this show, I had participated in a focus group at Columbia Records, where they’d played for a conference table of longhaired teens (yes I had hair, long hair!) three of their new acts. I didn’t like any of them, and none wound up going anywhere. On the way out, I mentioned to the A&R guy that Columbia did have an artist I loved named Billy Joel. “Oh yeah,” he said, with faint interest. “He has a new album coming out (yawn).” If Billy was a stock, I’d have bought him then and had a hundred-bagger.

Bruce Springsteen, The Palladium (1978): I paid a scalper an exorbitant $17 for an orchestra seat, with money I’d made as a subject in psychological experiments up at Columbia. I’ve forgotten these, except one because it employed Freudian concepts that seem ridiculous now. I had to shoot ten foul shots, then watch a screen on which subliminal messages were flashed, either “It’s OK to Beat Dad” or the control message “People Are Walking,” then shoot more fouls. Their theory was that if my Oedipus Complex was relieved, it would improve my performance. The Psych Department may have hoped to license this brilliant process to pro teams for a lot of money, but unfortunately for their data, I stunk both before and after the soothing message.

As for Springsteen, I’ve seen him at least 20 times since and plan to again on his current tour. I’ve heard Bruce’s relationship with his fans described as the biggest irony-free zone in entertainment. It was on the 1978 tour that he and his audience were together finding out the potential for what an E Street Band concert could be. This was thrilling to experience, especially in a smaller theater like the old Palladium (long ago demolished to make way for a Whole Foods or something).

The Who, MSG (1979): Keith Moon had just died, which only inspired the surviving members to play an incendiary show. I remember 20,000 fans waving their arms and singing along to “Listening to You” from Tommy, the album that changed my whole perspective on music and culture. It was the summer when I was nine, an older kid played it for me, and in one listen I was ruined forever for The Archies and Alvin and the Chipmunks.

Pete Townshend is rarely recognized for what he is, one of the most original thinkers of our time. A fascinating part of Townshend’s great memoir1 concerns Lifehouse, his attempt in 1971 to create a globally connected community that was conceptually an early version of the Internet. He rented out a theater in London where people lived, slept, and made music; while the utopian experiment failed, the music that came out of it led to Who’s Next, one of the albums of the decade.

Talking Heads, Dr. Pepper Festival (1980): At a small venue inside Central Park, I saw shows by up-and-coming bands like Blondie and the B-52s, but no one used the space better than Talking Heads. To support Remain in Light, the album that introduced African polyrhythms and funk to their sound, they started the show as a foursome playing their old songs, then filled the stage with extra musicians, while David Byrne triumphantly yelled, “We’re not the same as we used to be!” If I had to pick a concert as #1 on this list, it’s this one.

The Clash, Bonds Disco (1981): This was the legendary stand at a Times Square men’s clothing store-turned-disco, when the promoter sold twice as many tickets as the fire code allowed, forcing the band to expand to 17 shows from 8. They chose an eclectic group of opening acts, one of whom was Grandmaster Flash. The all-white audience, few of whom had ever heard rap before, booed him off the stage, sparking an angry lecture from Joe Strummer. Everything about this run of shows was peak punk.

R.E.M., Fox Theater (1985): I was involved for a year with a Southern blonde, which, for a New York Jewish man, is (for reasons a psychologist might explain) a galvanizing experience. So much so that they often have to write about it, as I did in my novel Rick Green, Esquire. This young woman was then an au pair to a family in Atlanta, I visited and we saw R.E.M., mutual love for which had originally brought us together, on their home turf.

I’ve often thought that if Firebird were a band, I would want it to be R.E.M. They’ve gone in and out of favor, as we have, and even had their moment of superstardom, as we did, in both cases never to be repeated — but that’s okay. I’ve always admired the way they stayed true to their musical principles, letting the audience come to them instead of chasing trends. Integrity is another word for it, enabled by humility. And however R.E.M. organized their business deal, they avoided Beatles-like disputes and stayed together for decades until they decided to call it quits, still friends.

Bob Dylan, The Beacon (1995): I’d seen Dylan before, in 1978 at MSG, looking disco in a white leisure suit. He was sick of performing by then and it showed. So I had limited hopes for this show, in the midst of his time in the wilderness, his popularity at an all-time low. But to my amazement, he had again become the performer of yore, serving classic after classic, with their original melodies, mostly. At the end, very un-Bob-like, he walked back and forth shaking the front-row fans’ hands, smiling like Wayne Newton.

Dylan wrote about this period, when it was being half-forgotten that allowed him to re-learn to perform, in his memoir.2 30 years later, he’s still on the same “never-ending” tour, and still great. He “can’t sing anymore”? Who cares? That’s living legend Bob Dylan up there.

Brian Wilson, Carnegie Hall (2004): The ex-Beach Boy premiered Smile with his band. This was the rare concert with a dramatic narrative around it, as Wilson had finally finished the long-bootlegged album that mental illness forced him to abandon 35 years earlier. His joy in performing it in its entirety was clear and infectious, and to top it off I was sitting behind the lyricist Van Dyke Parks, whose reaction I can only describe as pure ecstasy.

Paul McCartney, MSG (2005): Not only was this my first time seeing a Beatle, but I brought my then 11-year-old son Leo, who’d been a Beatles obsessive since he could talk. He used to sing their songs loudly on the crosstown bus when my wife or I took him to preschool, to the delight, or perhaps not, of the other commuters. (He’s a good singer at least — check out his latest single, below.)

That Leo loves the classic rock I played for him, and is himself a talented songwriter who draws on the geniuses of that era, makes me happy. I’ve written before that I’m with Harvard psychology professor Steven Pinker in his view that parents heavily overestimate the influence they have on their children, and that efforts to mold them into particular kinds of adults usually fail.3

What we can do is introduce them to our cultural tastes and hope some stick. My parents’ generation didn’t bother trying to get Boomer children interested in the music of the 1930s and 40s, but my generation has been able to do it with their kids, and for one simple reason: because Rock and Roll will Never Die.

Question for the Comments: What’s the greatest rock concert you’ve ever seen?

Kazakh Big Business

This concerns Kazakhstan, and to understand how power works there, you need to know about the clans. Virtually every member of the business or political elite identifies as belonging to one of three clans, each claiming to represent a branch of the descendants of Genghis Khan. The three clans emerged from the one Mongol Golden Horde that conquered what is present-day Kazakhstan.

When I started investing there, it seemed that the businessmen all knew each other, maybe had gone to school together, but membership in different clans often set them in competition. When we considered a new investment, we’d search the internet for old group photos to see who the CEO/owner might be connected to that could give political support. I remember triumphantly discovering that one CEO had been best man at the Prime Minister’s wedding. (We never made a “wall of crazy” though.)

In the late 90s, two banks emerged as leaders: Halyk Savings and Kazkommertsbank (KKB), a privately-owned commercial bank. KKB’s founder, Nurzhan Subkhanberdin, was an “insider/outsider” in that he was linked to President Nursultan Nazarbayev’s family but was also independent of them and a leader of his own clan. Halyk was state-owned, but by 2001 a majority had been acquired by Nazarbayev’s daughter and son-in-law.

It didn’t bother us that Subkhanberdin wasn’t in Nazarbayev’s clan, as we knew that clan competition was expected, and that his bank was providing sophisticated services to the economy that Halyk wasn’t yet capable of. In 1997, KKB listed GDRs in London, and we started buying them in 1999. The bank and its stock did extremely well over the subsequent years as Kazakhstan’s economy accelerated and frontier markets came into favor. As we had inflows, we added to the position.

The Facts Changed

Nazarbayev, who had led Kazakhstan since the breakup of the Soviet Union, accumulated power throughout the 1990s and by the early 00s his family (known, uncreatively, as “The Family”) owned or controlled large chunks of the economy. They exercised much of this control through a sovereign wealth fund.1 Corruption related to The Family got worse, causing other leading businessmen to bristle. In 2001 a group of them formed a movement, Democratic Choice of Kazakhstan (DCK), whose stated purpose was to promote liberalization and push back against the monopoly.2

KKB’s CEO Subkhanberdin was an early supporter of DCK, along with the founder of the third big bank, Mukhtar Ablyazov. President Nazarbayev didn’t take kindly to the challenge, pressuring DCK’s leaders to fall in line and prosecuting a number of recalcitrant ones, including Ablyazov. After time in and out of jail, Ablyazov lost his bank (which was going to collapse under bad loans anyway) and fled Kazakhstan. Having seen the fate of Ablyazov and others, and himself publicly accused, Subkhanberdin made up with Nazarbayev and got to keep KKB.

From the beginning there had been red flags with KKB, including its practice of funding deals by a holding company with common ownership, like a purchase of 30% of Kazakhtelecom. We tended to look at these risks and justify them, turning a negative into a positive: “Well, their political connections enhance their lending opportunities.” Um, okay.

A sign that bemused us at the time and in hindsight looks telling came in 2004, when Subkhanberdin bought a penthouse in the new Time Warner building overlooking Central Park. Not a strong vote of confidence in his Kazakh position. In my experience, an elite’s belief or lack of it in their country’s future may be the key determinant of their proclivity to conduct honest business. For example, from 2000-2020, Russia’s strong sense of nationhood made it a safer investment than Ukraine, with its perpetual identity crisis. (This may have flipped now, thanks to Putin.)

I have no idea whether Subkhanberdin’s brush with jail changed his attitudes — KKB’s growing aggressiveness may have just been typical bubble behavior. The Kazakh bubble, as elsewhere in the former Soviet Union, was in real estate. KKB’s loan book became more exposed to office space, way ahead of the need for it in a frontier economy. I’d seen myself that the fancy new buildings were mostly empty, yet I chose to ignore that fact.

KKB also commissioned a new headquarters, usually a danger sign. When I visited, alarm bells should’ve been screaming in my ears as management explained that the cement was a special earthquake-proof kind imported from Germany, and the marble and windows came from who-knows-where.

On the surface, KKB was doing well, with a story good enough for UBS and J.P. Morgan to raise $840m via London GDRs in 2006. But the financials also began to contain clues, the most telling being the cash collection of interest.3 This figure should normally be close to 100%, but at KKB it dropped below 90%, indicating that loans were going bad, and they had started extending and pretending. One analyst highlighted this in research that I remember was called “Mind the Gap,” but I looked away. I was hesitant to rethink a star performer that was still making all-time highs.

The Tide Goes Out

When cracks in the global financial system emerged in 2007, markets that had paid little attention to the quality of bank balance sheets suddenly cared a lot, punishing stocks of the ones who, in Warren Buffett’s phrase, were swimming naked. KKB GDRs took a quick 25% leg down and, in a flash of clarity, I tried to sell some — but seemed unable to find buyers. (I found out years later that the brokerage I gave the order to, which had a reputation for front-running clients, was front-running us.)

The stock cratered over the next year, at which point, my flash of clarity gone and in denial that there was anything fundamentally wrong with the bank, I decided I’d just ride out the financial crisis. By mid-2008, the stock had more than halved and KKB needed a state capital injection to stay afloat. The British founder of a Russian bank rating agency whom I knew visited and reported back that, despite the efforts to prop it up, KKB seemed “sick.” (What does a sick bank look like? Do the bankers walk around averting their eyes and nervously shuffling papers if you ask a question?)

Worse, like banks throughout EM, KKB had funded its rapid pre-crisis real estate loan growth with external borrowing in FX, a risky practice in case of a devaluation. Guess what happened in 2009 and again in 2014? In 2014, the EBRD,4 which had held KKB shares for a decade, may have given up, as they were bought out. In that same year, Subkhanberdin bought a second penthouse in Time Warner, by then a Mandarin Oriental, adjacent to the first. (He sold them both in 2019 for a combined $20m.)

After the EBRD exit, KKB made a tender offer for the GDRs which, while at a premium to market, was 80% below the 2007 peak I was still anchored on. Our team discussed selling, but this would’ve meant realizing our loss and admitting we’d been wrong for years, so we constructed a theory that KKB was buying out foreigners before a turnaround. One risk in being clever and working with clever people is your ability to rationalize anything you need to — we held on even then.

In 2015, a new Kazakh owner came in, bringing a foreign CEO whose main task was resolving bad loans to repay the state support, which had little hope of benefitting minority investors. Two years later, what was left of KKB was acquired by Halyk, which required a further government infusion to take on the mess. Halyk, in which we were also shareholders, bought us out as a favor, at a price 95% below the peak.

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Epilogue

Keynes famously said: “When the facts change, I change my mind. What do you do, sir?” I’ve found that our failure to sell formerly successful holdings that are going bad has rarely been because we didn’t see the problems, but rather because we chose to ignore or explain them away. Starting in the mid-00s, we had signals that KKB’s risk was rising, but no matter how many new facts beat us over the head, we refused to sell until we finally had to limp to the exit. (The better news is that Halyk Bank has gone on to great success.)

Nursultan Nazarbayev (semi)retired in 2019, succeeded by Kassym-Jomart Tokayev. As Tokayev gained power, he began extracting The Family — its younger generation now — from various parts of the economy where they were entrenched rent-seekers. They pushed back, culminating in a 2022 coup attempt. Tokayev prevailed, then arrested a couple of the leaders, including Nazarbayev’s nephew. Nazarbayev gave up his remaining positions, and the Kazakh capital, Astana, which had been renamed Nur-Sultan, was re-renamed Astana. I should note that even with the corruption, Kazakh per capita GDP growth during the Nazarbayev years outpaced every other Central Asian state’s (but only half of Poland’s).

President Tokayev has embarked on a reform program, with a newly amended constitution, and despite everything I’ve written above, I’m bullish on Kazakhstan — but then I usually am, until I’m proven wrong. It helps that, until I dredged it up to write this piece, I’d forgotten about Kazkommertsbank. Well, mostly — one problem with living in the big city is that my pleasant strolls can be marred by the sight of an unwanted ticker symbol.5

Usually I find time for writing on Thursday or Friday, but some weeks don’t permit the hours needed for a totally new post. This past week, like all fund managers, I was preoccupied with Iran and Trump, gaming out scenarios with my team and scouring the news and prediction markets for any crumb of a useful insight. This exercise reminded me of an observation Garry Kasparov once made about autocrats: they’re hard to predict because they’ll think of things you yourself never could.1

Today (Sunday) I don’t have much time either, as I’m heading down soon to Flannery’s Bar on 14th Street, Tottenham Hotspur New York headquarters, to watch them play Nottingham Forest in a match to avoid relegation.2 How I came to support Spurs is a story for another day, but in short I blame a British woman who lured me in like some soccer Mata Hari. It would be as if an Englishman told me he was interested in baseball and I tricked him into being a Mets fan.

Finally, yesterday was my wife Andrea’s birthday and I was busy trying to give her a fun time. We started at Soul Cycle, where I had secretly told our instructor about the birthday and she’d played Andrea’s favorite music: early R.E.M., new wave, and currently the band Wet Leg. Later, we walked around the Chelsea art galleries, had lunch with wine at an Italian restaurant where evening reservations are tough, and stopped at Eataly to pick up food for what Andrea called a “girl dinner” (i.e., you can eat it standing at a counter). Then we streamed Bugonia (I loved it and thought Jesse Plemons deserved an Oscar nomination), and the day was over.

All this detail isn’t superfluous, but relates to the piece reposted below about long marriages. Andrea and I don’t enjoy all the same things — definitely not Tottenham, for example, or Jim Cramer — but there are enough to have sustained us for 40 years. As she says, multi-decade marriages were never supposed to happen — in the old days, you wed at 18, had four kids in your 20s, then by age 40 one of you would get a splinter and die from it. Game over.

A couple of years ago, an old friend complained to me that he and his wife of 25 years liked none of the same activities. “Do you have a TV show you can watch together?” I asked, and he said no. “Not even Succession?” “No.” They’re in trouble, I thought, and within months they were separated.

As an addendum, the couple mentioned in the post below whose marriage was on the rocks did divorce, and within a year both had found new partners. In the case of the husband, it’s someone I’d never have expected, as different from his ex as could be. Now the original (short) piece:

Carrie Fisher once commented on the song “Hearts and Bones,” which Paul Simon wrote about their one-year marriage. She said that her gut wrenched when she heard the lyrics:

She said … Tell me why won't you love me
For who I am
Where I am

He said
'Cause that's not the way the world is baby

(In her memoir, Fisher said that when Simon wrote songs about her, “Even when he’s insulting me, I like it very much.”)

I was talking the other day with a friend whose marriage is on the rocks. His wife has asked him to change certain behaviors, but his problem is knowing which ones are changeable and which are not behaviors at all but fundamental aspects of his character. While most people are willing to make some adjustments for their mate, most are also comfortable with their whole selves and want to be accepted as they are, “warts and all.”

A couple of hours after this talk, in a proud flex of its AI capabilities, Facebook popped a Guardian story into my feed entitled, “The secret to good relationships? Accept family and friends for who they really are.” The author writes that part of growing up is recognizing that the world will never meet your exact requirements and accepting reality. This means giving up the idea of perfection in a friend or mate and focusing on the positives; to acknowledge the individuality of others and choose to build a relationship above and around them is liberating for the one who chooses.

I would go even farther and argue that some qualities that can become irritating over a long relationship are the very ones that attracted you in the first place. Let’s say very hypothetically you married a salty person, who excited you more than sweeter sorts you had dated previously. You might find yourself at some point in the marriage thinking, “Why does she have to be so salty?” It is at this point that you should check for hypocrisy and remember that this may have been one of the traits that you specifically liked.

Acceptance, as the Guardian author advises, seems easy enough when it comes to a friendship. “Okay, he never calls, I’m always the one who makes plans — still, it’s worth it because we have so much fun.” Or “She’s a gossip, so I won’t tell her my biggest secrets (and I do enjoy her gossip about others).” In some cases, the compromises become too hard and giving up the friendship seems the only way, but these would be the rarer ones.

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Unlike friendship, however, marriage is a 24/7 marathon encounter in which the irritations and required accommodations can become continual. In addition, our mate’s behavior impacts us more than our friends’, affecting how both spouses are perceived by the world. Pile on the stresses of career, family, and the thousand natural shocks of incorrect insurance bills and broken appliances, and “getting on with it” starts to look daunting. Complete acceptance from a mate would be nice, but as Paul Simon wrote, that’s not the way the world is.

There may be a way out of the dilemma, especially for longer-term couples who’ve had years to learn about each other and their relationship. Each spouse probably knows which of their behaviors are most liked and disliked by the other; to put it another way, in which situations they get along the best and in which the worst. My wife and I probably get along best when we go to good movies together, and worst when I watch “Mad Money” on CNBC while she is trying to tell me something over Jim Cramer’s braying.

Each spouse then emphasizes the preferred behaviors and de-emphasizes the unwanted ones, at least in the presence of the other. And together, in full awareness, they do their best to create the positive situations in which the marriage flourishes.

See you at the movies.

The Masters ran simulations to test their thesis that Opportunity Cost is what most hurts investors, as its effects compound over time. Their data showed that selling “psychological winners” — positions currently trading above their average purchase price — leads to a much higher opportunity cost than buy-and-hold, whereas selling “psychological losers” leads to the opposite result. I recommend reading the whole post, because it’s more complicated than that, but I can summarize it in the truism, “Sell Your Losers, Let Your Winners Run.”

Now, it may be hard to believe that some Substack you’ve never heard of has just figured out investing, and I’m sure hundreds of area experts could produce their own data to contradict it. But I don’t care. It dovetails too perfectly with what I like to do, and is too consistent with what’s worked for me.

My very first Substack post was about this subject, and I reposted it last summer under the title To Grow Wealth, Don’t Sell Your Cezanne Stocks. (In fact I joined Substack just to share the piece, which originally had run in a newsletter, buried behind a long boring article.) In it, I used Keynes’ art collection to show why selling winners is dangerous and why annual rebalancing is a shitty practice.

Keynes assembled his collection in 1918 and later donated it to Cambridge, where it has been kept intact. It’s now worth about £80m, with one Cézanne representing 25% of the value and the top five works 75%. If any of those had been sold — they couldn’t be “rebalanced” because there was no way to sell 2% of a painting — the collection’s compounding would’ve been wrecked.

In managing funds, it turns out in the end that my superpower has been patience and a stubborn refusal to sell our best stocks just because “they already went up a lot.” 20- and 30-year holding periods are common for us. Tolerance for psychic pain is another element of my superpower, as we’ve had to ride out horrible corrections along the way — but so have Microsoft and Amazon shareholders, yet here they are. Holding fast to big winners can present other problems for a fund, like overconcentration that makes outside investors nervous, or excess volatility. In a personal account, where there’s no one to justify things to, optics don’t matter.

Still it was in my personal account, where I don’t care about becoming too overweight a winner, that my costliest sale by far occurred. This leads into my Peter Thiel story.

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My Brush with Thiel

In the early 2000s, after Thiel had sold PayPal and before his fame via Facebook, he had a global macro hedge fund, Clarium. I learned of it when he was profiled in Barron’s, thought he sounded brilliant, and requested information. I invested after reading a few of Clarium’s quarterly letters, which were smart and beautifully written. I’m a sucker for managers who write and explain well, as it indicates clarity of process.

Sometime in the mid-00s I met Thiel for brunch in the then-Time Warner building on Columbus Circle.1 All I remember about the meeting was that without comment he set on the table a paper plate covered with pills in a rainbow of colors, and every minute he’d take one until they were gone. Obviously these were supplements and he was already “doing” longevity, but at the time I was bemused. (Does this now have a name, something like Healthmaxxing?)

I had no more interactions with Thiel, and to my regret failed to glom onto him and his future deals. I did keep Clarium, which didn’t perform for the next few years, by the end of the decade standing in contrast to the fortune Thiel was making through Facebook.

A Surprising Email

Clarium’s quarterly fact sheet one day popped into my Gmail, showing that the fund was now 98% private tech investments. Evidently, they’d abandoned global macro and changed strategies, with no notice to investors.

I called my IR contact, who confirmed my reading. Pointing out that Clarium had quarterly liquidity, I asked how redeeming investors would be paid if the assets were all in a private company? “Oh, Peter will pay it personally,” she said. Clarium was down to about $150 million, with Thiel’s own capital much of that, so paying out investors would be within his Facebook-enriched means. She said I should let her know if I wanted to redeem.

After my initial annoyance passed, I did what I’ve learned to do over decades investing in opaque emerging markets: I paused to consider Thiel’s motivation. I recalled a comment he’d made that global macro could no longer work in a world of interventionist central banks. Clarium’s pivot was just implementing a necessary strategy change (the performance of macro funds since then has proven him right).

I called back to ask what the private deal was that we were in, and the IR woman said it was a company called Palantir. After Googling it, I thought, in these exact words, “This looks fucking cool.” It occurred to me then that Thiel, feeling bad about the hedge fund’s returns, was making it up to investors who had stuck around by getting us into the best thing he had access to. And that he did it without notice, I chose to view as bespeaking a level of confidence/arrogance that only made me more positive.

It gets better, because not only was I in this cool company, but I could sell out any time I wanted — by redeeming from Clarium — something no investor in venture can do. I called back the IR woman and said, “Let me ask you this, instead of leaving the fund, can I invest more?” She said yes, I could replace people redeeming, instead of Peter having to. So that’s what I did.

Within a few years, Palantir’s private valuation had tripled to $20 billion, making it the biggest venture company ever, and my Clarium account had grown to the several million. Contrary to my usual practice of holding winners forever, I felt maybe for once I should be disciplined and exit with my profits. As you do when you want to sell, I began looking for things wrong with the company. I seized on an article about disgruntled employees tired of waiting for an IPO and a comment by someone in the Pentagon that Palantir had not located Osama Bin Laden, as they were implying.

I fully redeemed from Clarium, feeling good about myself. Palantir’s IPO a couple of years later was priced not much above where I’d sold, confirming my seemingly wise decision. I would’ve even had a chance to buy it back cheaper when it crashed to $7, though I’d never have bought back nearly the amount I had redeemed from Clarium.

Now it’s at $150, my “opportunity cost” is well into the eight figures, and every time I see the ticker going by on CNBC I die a little inside. The truth is that even if I’d kept it through the IPO, I’d probably have sold it years ago based on its sky-high valuation and CEO Alex Karp’s bizarre interviews. (Ironically, by all accounts Thiel himself would be way richer if he hadn’t sold 5% of Facebook in 2009 to fund his other things.)

Lessons

What’s the point of this story, other than to boast that I was once with Peter Thiel and that I made a good trade? It is both of those, but there’s a sub-lesson here: I overcame my initial reaction to Clarium’s pivot and considered Thiel’s motives. By inverting the situation (as Charlie Munger would’ve called it), I proceeded from the assumption that he wasn’t trying to hurt investors but, like all managers, wanted a positive experience for us so was giving the best thing he had. I didn’t even need to speak to him to figure it out.

The other, more important lesson is that, by selling Clarium/Palantir mainly because it had gone up, I missed out on a huge compounder. Fortunately, I’ve had others over those same years — Mag 7s as well as stocks in my funds — but what if Palantir had been the only Cézanne stock I’d owned? My compounding would’ve been as dead as Bin Laden.

Kalshi is regulated by the CFTC, which bans insider trading not under classic SEC laws but via antifraud-antimanipulation rules of the Commodity Exchange Act. Polymarket operates outside the U.S. but is soon onshoring, where it will also come under the CFTC. Kalshi is serious about it and has antifraud rules with penalties ranging from suspension to disgorgement; it also backs a proposed law specifically barring federal officials, their families, and similar insiders from trading on information. Clearly the company worries that if a widespread view arose that prediction markets are rigged, bettors could abandon them.1 Polymarket also disapproves of insider trading, but in their case, it’s been more words than action.

As I’ve written here, there’s a bipartisan tradition of trading by public officials, most famously by Nancy “Jesse Livermore Jr.” Pelosi. Under Trump II it’s gotten more brazen. Remember last April 8 when someone bought S&P call options minutes before his tariff pause announcement, making an estimated $21 million? Trump’s “Truth” that same morning, “TIME TO BUY,” signed with his ticker symbol DJT, looks in hindsight like a tip to all, but first to his followers.

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It’s likely that market shenanigans will continue and SEC and DOJ enforcement will be rare, with Trump’s allies essentially immune. Given prediction markets’ even looser regulation, some are arguing that they should be banned entirely. They see little social good in them, especially since many of the propositions are for degenerate gamblers: e.g., Bitcoin up or down in the next five minutes. Defenders, however, have noted that there are also markets in politics, economics, and public health, that predicting these is a form of expression, and that restraining them would raise first amendment issues.

Also, because these markets tend to outperform polls, they’re helpful to policymakers, companies, and investors. I remember in early 2016 Predict It had Trump winning all the GOP primaries, while all the Nate Silvers were still calling him a flash in the pan. Prediction markets have informed my investing, for example bettors’ skepticism about a Russia-Ukraine ceasefire even while the pundits were highly optimistic.2 I’ve heard of fund managers using these markets to hedge positions and I might try it, if I ever learn to hedge (after 32 years it’s looking doubtful).

As fund managers navigate what’s being called the Iran “special military operation,”3 they’re watching the prediction markets for clues. There are U.S. federal regulations against markets in war or assassination, but offshore Polymarket has it at 64% that U.S. troops will enter Iran by the end of 2026. This can be interpreted in different ways. Are they fighting there? Have they been sent to peacekeep after a ceasefire? I don’t know, but it’s interesting.

Finally, like crypto, the prediction market operators have thought about political support. Donald Trump, Jr., is an investor in Polymarket and an advisor to Kalshi.

Definitional Problem

So, assuming these markets will never be banned, the cheating must be dealt with. One issue in doing it is that “insider trading” has never been defined in any statute. The SEC has developed “Misappropriation” doctrine, i.e., a condition that the tipper had a fiduciary duty to the company/source of information. Because the tippee may not be sure about the tipper’s fiduciary status, the SEC has also created a “willful blindness” standard, whatever that is. And what if the tipper is the President of the U.S.? To whom does he owe a fiduciary duty?

The CFTC has indicated they will focus first on manipulation in prediction markets, e.g., cases where someone bets on an event and then makes it happen, like sports fixing. (Now do you see why you can’t bet on death?) Polymarket has withdrawn a market about a nuclear detonation and, after complaints, changed the wording of a market on whether the space launch Artemis II would “blow up.”

As for normal insider trading, while the CFTC has referred a few prediction cases, they’ll be mostly sidelined by the challenge of applying the misappropriation standard. If this is a hard thing to prove in traditional markets, it raises even tougher questions when applied to prediction markets and public officials.

Say you work for the Treasury Department. It seems clear that you can’t trade on advance knowledge of economic data — but what if you work in the Department of Agriculture and you heard a rumor about the data that’s merely consistent with data you have from your job? Or say five State Department employees are meeting with the Secretary of State and he divulges confidential information about a planned action: it seems clear that they can’t trade on it. But what if there were 20 staffers in the room? What if there were 100 people there, including non-officials?

Maybe all federal and state employees, and their relatives, should be banned from trading in any prediction market that might be impacted by information they may have access to? Or any prediction market? Seems unfair while Congressmen and Senators still are basically free to trade stocks on inside information. Or — hear me out, this sounds crazy — public officeholders shouldn’t trade any individual security, or in any prediction market.

Since this won’t happen, it falls to the operators to self-regulate by strict onboarding rules; and suspending, reversing trades by, or fining the cheaters. Kalshi says it’s already doing that, Polymarket less so, but even if they both become committed to stopping fraud, participants should assume it will continue.

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Trading Insider Markets

So, what happens in such markets? I’ve seen Eastern European exchanges where insider trading laws went totally unenforced, and while we are quite a bit away from that here, the class of people who can get away with it is growing. What does that mean for non-insider investors and event predictors?

Markets are like ecosystems: they adapt to conditions. I always assumed when investing in Russia that some traders had inside information, and I acted accordingly. If a stock began to run up for no obvious reason and brokers called looking for shares, the odds were high that good news was coming. You could buy some yourself, to speculate, but you’d at least hold onto what you had, until the truth came out. Already people are regularly scouring the prediction markets, posting on X that a “new wallet” has bought large amounts of a longshot proposition.

The reverse was also true, and catching a falling knife — buying a falling stock — was especially unwise. I’ve heard of investors whose main strategy was to buy stock breakouts and sell breakdowns. This can work in emerging markets, which move dumbly on inside info, but not in developed ones. In the latter, insider trading is less common, but chart manipulation, now done automatically by algorithmic and high-frequency traders, is much more so. Illiquid prediction markets will be even easier to manipulate.

Another lesson I learned is that an outsider shouldn’t trade right before earnings. In the rare case when I may have had inside information, I couldn’t use it as I’m arguably subject to U.S. laws even when overseas. In all other cases, I assumed that the person on the other side of a trade did have info and was free to use it. By analogy, anyone betting on imminent events like a military action or economic release should know that there are people out there who are 99% sure what will happen.

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Insider markets aren’t all the same. In Russia, there were so many stocks and so many participants thinking they had information that much of what “insiders” were trading on was misconstrued or false. In that kind of market, even a schmuck like me could do well. In emerging markets where inside information is tightly controlled, it’s hard for an outsider to win. Turkey comes to mind. Prediction markets on sports look like the former, where there are vastly more traders without special information than with it, whereas markets on political events look more “insider-y.”4

The presence of inside traders in prediction markets should be seen as another form of “house take” that lowers the odds of winning, like an additional 00 on a roulette wheel. Interactive Brokers is running a commercial for their prediction markets that ends with the caveat that you have to be right 50.5% of the time to win. This may be technically true, but most people will underestimate what it’s going to take to meet that hurdle.

As it happens, my wife is on the board of an arts organization that meets in my old firm’s office. The other day she texted me photos of portraits of the two founders, which she’d seen in the firm’s reception area. Immediately, I had ChatGPT turn one into a 1970s punk rocker and the other into an 18^th century British fop, then texted the images back to her.1

Now, plenty of people would go for a juvenile laugh like that, but on reflection I wondered why I’d been instantly compelled to travesty my authority figures from decades before. What occurred to me next was that, if they’d hung these paintings back when I was working at the firm, and AI had existed, I’d have done it then too. Even worse, I don’t think I’d have had the restraint/good sense to keep the images to myself but would’ve flashed them to my fellow associates. So the question: what’s wrong with me?

Growing Up Wiseass

I’ve mentioned before that my childhood friend is the famous comedy writer Robert Smigel. Starting in elementary school, we used to get in trouble with teachers for fooling around and clowning. Fortunately, we were good students, so they couldn’t punish us through bad grades.

Robert went on to the perfect career for him, as an SNL writer, starting in the 80s. He mocked the great and good of that era, from Reagan to Johnny Carson. Later, on Conan O’Brien’s show, he created Triumph the Insult Comic Dog, which he performs as to this day and whose job is to mock everyone in his path.

Since I’m not half as funny as Robert, it was probably lucky that I didn’t follow him into comedy. The issue for me was that while Robert was able to deploy his inner wiseass for professional success, mine was strait-jacketed in a serious job at a serious law firm whose clients, facing hostile takeovers, were in no mood for levity.

Thinking about it now, I didn’t know that I was a wiseass, much less its psychological underpinnings. This only came out later, in sessions with a very perceptive therapist.

Counseling

I spent the two years after leaving the law firm as a writer. Besides TV spec scripts that didn’t get me work, my main output was a novel that harshly satirized the legal profession and my (barely disguised) ex-firm. By the end of 1993, as I was waiting for the novel to come out, I needed to get a paying job, especially since my wife and I had our first child on the way. The sensible move was to find a new law position, and I duly went to see a headhunter.

The picture was complicated, however, by something else I’d done in 1993: co-creating a friends-and-family investment partnership for emerging markets. In January 1994, we went into Russia and it quickly seemed that we’d hit on something. Soon we had rich outsiders asking us to manage money, meaning it would become my full-time occupation if I pursued it.

So career path two, the investment business, was an all-in bet on 1990s Russia, a country that could still go back to communism, or split into pieces. I agonized, lost sleep, and was feeling stalemated when I learned that the health plan at my wife’s job included sessions with a career counselor.

When I saw the counselor’s framed diploma, I realized that I was talking to a psychotherapist, for the first time in my life. I’d always thought I understood myself well enough not to need professional help — in fact if the benefit had been called Psychotherapy instead of Career Counseling, I might not have gone. My own parents, depressed Holocaust survivors, never sought mental health care: my mother took “tranquilizers” prescribed by her regular doctor, and my father would just say, “I’m my own therapist.”

Treatment began with me laying out the two possible career paths. The lawyer path was straightforward enough, whereas a fund for Russian stocks took some explaining. Since the insurance covered only five sessions, the counselor, Dr. Jerry Pecker, had to get right in gear, saying in rapid succession, “Tell me about your mother,” “Tell me about your father,” “Tell me about your childhood.” He soon focused on my father. I described his oscillation between childlike optimism and wracking guilt, and his autotherapy, which mainly consisted of what he called “kicking himself” for his mistakes.

His fundamental “mistake” was escaping Poland to Russia in 1939 at age 17, leaving his family behind. He’d thought he’d go back for them but couldn’t re-cross the border, and they later died in Auschwitz. His guilt over this was the frame through which all his later mistakes, personal or financial, were viewed. Dr. Pecker commented that my first image of a man was therefore someone highly self-critical, whose fear of error caused him to avoid risk.2

In session two, he took me through my law firm experience, unpacking why I’d been so unhappy. He noted that my rejection of the law must have been deeply emotional, given that my anger had had to be poured out in a novel. His ears pricked up when I mentioned that I’d occasionally wised off to partners at the firm, turning a few against me. I added that the wising off problem had begun even in my first job out of college.3 He asked if I had a theory about why I would do that, and I did not.

He observed that a child of Holocaust survivors would naturally be pushed by his parents toward the safest career. A father who dwelled on his past mistakes would add to the child’s risk aversion, lest he also err, and have to lament later. However, if this person felt he’d been maneuvered into the wrong job, he might undermine himself, for example by making “jokes” to his superiors.

In open-ended therapy, this would’ve been just the starting point for further investigations (and billing). But Dr. Pecker, on the insurance company’s schedule, flipped over all the cards, saying he already felt sure I’d be happier working for myself, so I should “do the Russian stock thing.” Leaving his office, I remember thinking, “I’m cured.” I didn’t even go back for the other three sessions.

My wife, who unlike the counselor has had 40 long years to study me, had a different take when I summarized this post for her. She said that it would’ve been hard for me to work out my Oedipal feelings against my father, who was so sweet and emotionally vulnerable, so I had to do it with my big bosses. An interesting theory, but I don’t know — as Freud himself might agree, a wiseass sometimes is just a wiseass.

Epilogue

Jerry Pecker, who died a few years ago, was spot on about being my own boss — there’s never been any superior for me to rebel against except my investors, and I love them with all my heart.

The lesson I take from this story is that no matter how well we think we know ourselves, sometimes we need a trained observer to figure out what’s really going on. And it should be a Pecker-like human, not an AI “assistant,” which might advise you to end it all — or run for higher office, where you can impose your psychological trauma on everyone else.

A little wisdom from the man who put me on the right path:

I went to say Kaddish for him at my synagogue in Gramercy Park, where there was a guest speaker, our fellow congregant Representative Daniel Goldman. Goldman’s talk focused on the upsurge of antisemitism and the House committee he co-chairs to fight it. He noted that Jewish issues weren’t even a small part of his campaign for Congress in 2022, but he was forced into them after October 7, 2023. What shocked him to action then was the condemnation of Israel that began on that very same day, as if they’d been the attacker, not the attacked. He realized that something had been bubbling under the surface and October 7 had just released it.

In his work since then, Goldman has found that most Americans under 30 have no knowledge of the history of Israel, including the wars Arab neighbors have launched against it and its past offers of two-state solutions that were rejected by Palestinian leaders. Younger Americans have known Israel not under any of its more liberal PMs but only Netanyahu, during whose time the country has changed in ways that even the most ardent Zionist must admit have lost it much of the international support it had. This was the “bubbling under” problem that Goldman mentioned, and some reactions to October 7, shocking to people like him and me, should be viewed in this context.

Young Americans may be uninformed about the recent history of Israel, but surely they know about the Holocaust? Sadly, not even that: a 2020 study showed that 63% of Gen Z and millennials were unaware that 6 million Jews were killed, with 36% saying it was 2 million or less; and 11% thought the Jews caused the Holocaust. Another study showed that 10% of Americans under 40 believe the Holocaust is a myth. Hopefully there’s overlap between the “myth” and “Jews’ fault” people, and they couldn’t decide which offensive answer to give, otherwise we have a 21% problem. (That’s one bright side I thought of when I saw the Proud Boys t-shirt 6MWE, i.e.,“6 Million Weren’t Enough” — at least they admit it happened. I’m a glass-half-full kind of guy, I guess.)

When hate crimes are perpetrated against American Jews, or protests held outside synagogues or Hillel houses, no one stops first to ask the targeted Jews’ stance on the Netanyahu government. It’s assumed that they’re part of the problem. This means that Rep. Goldman is going to have a difficult task reversing antisemitism as long as Gaza continues to flare up. His job is made that much harder by young people’s ignorance about the Holocaust, arguably the key fact explaining the need for a Jewish state.

Buying Super Bowl time for commercials about antisemitism is fine, but spending of that size would be much more usefully directed to educating young Americans about the modern history of the Jews, especially the Holocaust. There are numerous fictional and non-fictional accounts of Jews’ experiences during World War II, many that are suitable for younger readers. My father wrote one of those, To “Paradise” and Back, which my sister and I published and is available for 99 cents on Kindle.1

The memoir covers his flight at age 17 from Poland to the Soviet Union; his futile attempts to go back; his survival in the USSR, including his time in labor camps; his postwar discovery of the extermination of his family; and final relocation to Israel.

Below is my foreword to the book, followed by a short excerpt.

The stories my father has told in this book fascinated me throughout my childhood, when I would often ask, “Tell me more,” meaning more about the dramatic incidents that filled the six war years of his life. When I heard the tales as a child, they were in random order, so it is revealing to see them placed in sequence and proper context. This way, it becomes clearer how turns of fate, moments of good luck alternating with disaster, created in my father a sense of a world unhinged, devoid of pattern or justice.

Had he grown up in a religious home, he might have spent those years and the years since wondering what sort of plan God was implementing; indeed his Christian friends the Carlsons, who inspired this book, argued that his survival by trial proved God’s love for him. Of course, as the book shows, a God who could be credited with saving my father would also have to answer for the senseless deaths of almost everyone dear to him in a ten-year span. Notably, the only other survivor from his closest circle, “Meshuggeneh Moishe,” appears to have the fewest virtues worthy of saving. What he does have are the animal instincts needed to obtain food, and in this sense arguably did more to save my father than any higher power.

On the other hand, the conclusion that all of my father’s suffering was random, just his bad luck to have been born at the wrong time, is too awful to accept ... which inevitably brings us back to the quest for God. This tension is best depicted in the moving chapter “The Power of Kol Nidre,” in which a barracks full of starving labor camp inmates, and even their tough female commandant, are raised briefly out of misery one Yom Kippur by the sound of prayer in a darkened corner. This feeling — that there must be meaning, if one searches enough — is, in the end, a human instinct as hardwired as that for physical survival.

One final irony: two of the labor camps mentioned in the book, a sawmill in the Archangelsk region of Russia and the fearsome coal mines of Vorkuta where my father surely would have perished, are today owned by Russian corporations in which a fund I co-manage is a large shareholder. Is this purely coincidence? Or is it part of some bizarre pattern of fate, invisible to us mortals? You can decide that for yourself.

This excerpt picks up when my father, his childhood friend Moishe, and other Polish Jews are trying to get back to Poland, after the Soviet border has been closed:

We took a river boat to Kiev. It was a very pleasant trip. There were young people on the boat and some were singing and playing musical instruments. We met two young women that lived in Kiev. It was a day before the Socialist holiday of May 1st. They invited us to stay with them and celebrate the holiday. We stayed and slept with them. The next day we went to watch the May 1^st parade and spent some time in the park. We said goodbye to the two young women and we went to the railroad station. Hundreds of Polish citizens were sitting on benches or on the floor, waiting to buy tickets, and we joined them. After three days at the station we finally got tickets to Bialystok.

On the second day after arriving in Bialystok we started to walk toward the Russian-German border. On the road we met people coming back telling us that it is impossible to cross the border.

We turned back. We heard rumors that there will be an exchange of Polish citizens between the Russian and German parts of Poland. We settled in an abandoned empty summer cottage near the city and found temporary work. Many Polish citizens filled out applications to participate in the exchange to be reunited with their families in the parts of Poland occupied by the Germans. At that time we had no idea what the Germans were planning to do to the Jews.

LABOR CAMP # 16

All the people who expressed the wish to participate in the exchange were arrested. The announcement and the application were a Russian trick. In the fall of 1940 I ended up in a labor-camp located in the northern part of Russia. I was in a group of over 500 Jews.

From the time of my arrest until we came to the labor-camp, I went through hell: four weeks in a prison cell for twenty men, packed with 85 people; I slept on the cement floor; one week in a cattle wagon by railroad; one week in a camp overrun inside and outside the barracks with bedbugs; two weeks at the bottom of a barge packed like sardines; two days walking and one night sleeping on the snowy ground. Most of the time, we got salty raw fish and very little water and bread. Finally we came to the camp where more hardships awaited us.

Labor-camp #16 was newly built and surrounded by a tall fence with two watchtowers. Except for the camp Director and guards, everyone was an inmate. Most facilities and the staff to run the camp were in place. All they were missing was a labor force and that’s where our group came in. One of the staff members was a tough young woman named Vera. She was in charge of the small bathhouse and the girlfriend of the camp Commandant. She wore a head-kerchief like the criminal women, her forehead was completely covered.

There were a few barracks in the camp but our group of over 500 men was assigned to one big tent with three levels of platforms for sleeping. No mattresses or blankets were given to us.

From the day we started working, we got caught in a vicious cycle. Camp management assigned us to work as lumberjacks. Our designated work area was six miles from the camp and we came to our work area exhausted from walking. It was manual work. When we could not cut down the number of trees our quota called for, we received less food. Because we ate less, we became weaker and produced less, and so on, until some men received only a small slice of bread with water. Many got sick and several men died. The camp Director did not hide his anti-Semitism and openly vowed to destroy us. He forbade the doctor to excuse our sick men from going to work.

THE POWER OF KOL NIDRE

In the three months after my arrest I, like most in our group, experienced human cruelty, but mostly we suffered from hunger. To add to our woes, three N.K.V.D. officers arrived in our camp and conducted the farce of a trial. It took only one minute to sentence each man of our group to five years of slave labor. This was a sad day and a terrible shock to me because I felt that under the prevailing conditions I would not survive five years in this camp. In the evening of that depressing day almost everyone was resting on the platforms. I was exhausted and hungry. I did not feel like talking. I guess most felt the same way, because it was unusually quiet in the tent.

Suddenly, we heard the singing of Kol Nidre and all the men as one person started crying very loudly. We climbed down from the platforms and started crowding toward the far end of the tent where a small group of religious Jews were conducting the Yom Kippur Services. The cries grew louder as if we wanted them to be heard in the heavens and we were heard in every corner of the camp.

When the camp Commandant, who was supposed to keep order, heard the loud crying he thought that some kind of uprising was taking place. He came running with his three assistants and started pushing and shoving to get to the far end of the tent to the leaders of the “uprising.” Suddenly the Commandant’s girlfriend, Vera, appeared in the tent and with a crying voice began to scream, “Leave them alone, they are singing a religious song — Kol Nidre. I know because I am Jewish.” The Commandant looked at her with disbelief and left. The services continued.

I did not believe my ears. Who could have imagined that tough Vera who used mostly curse words when she spoke or screamed at everybody and of whom people were afraid and did not want to get in her way, was Jewish ... and why did she jeopardize her standing in the labor-camp where the Director and most of the staff were Jew haters?

It must have been the power of Kol Nidre and her Jewish heart that made her do it.