Podcast Summary
Discussing financial scams and focusing on risk-adjusted returns: Stay vigilant against financial scams by focusing on risk-adjusted returns and avoiding maximizing expected value.
In the world of finance and investments, it's important to focus on risk-adjusted returns rather than expected returns. Maximizing expected value can lead to falling into traps and potential scams. This was highlighted during the Unhedgies awards show where Robert Armstrong and Katie Martin discussed the scams of the year. While FTX was nominated for its scandal in 2022, Binance took the award due to the extensive list of regulatory violations and involvement in illegal activities, making it a more thorough example of a financial scam. The deal of the year category was also challenging due to the lack of significant deals, but it serves as a reminder to stay vigilant against potential scams and focus on risk management.
Notable deals emerged in 2022 despite a lackluster IPO market: Michael Dell's 10-fold return from Broadcom VMware deal, Microsoft's Blizzard acquisition, and Hunterbrook's newsroom-hedge fund merger showcased the significance of strategic acquisitions and partnerships in 2022.
That despite a lackluster IPO market, notable deals still emerged in 2022. Michael Dell's contribution to the Broadcom VMware deal, which netted him a 10-fold return on his investment, was a standout. Additionally, Microsoft's acquisition of Blizzard, though finalized in October 2021, received regulatory approval this year and created a significant merger in the gaming industry. Despite a low deal flow in M&A, the Hunterbrook startup's ambitious plan to merge a newsroom and hedge fund stood out for its sheer weirdness and intrigue. Overall, these deals showcased the continued importance of strategic acquisitions and partnerships in various industries.
Michael Dell's surprising recognition for selling 'least attractive computers': Central bankers' accomplishments recognized, Michael Dell's Dell Technologies' sale of less-than-ideal computers generates buzz as potential deal of the year, impact of central bankers' actions still uncertain
The discussion revolved around the unexpected news of Michael Dell being recognized for his business acumen, specifically for selling the "least attractive computers of all time" and potentially earning the title of the deal of the year. This news caused a stir among journalists, leading to a flurry of excitement, confusion, and even jealousy. Central bankers were also recognized for their accomplishments, with Jay Powell and Hafizah Gayer Ercan being mentioned as potential nominees for their respective roles in stabilizing their economies. Despite the challenges, these central bankers have been trying to maintain stability in their economies, and the impact of their actions is still uncertain. Overall, the conversation highlighted the intrigue and complexity of business and economics, with the potential for both significant successes and challenges.
Surprising Central Banker of the Year and Disappointing IPOs: The Turkish Central Bank's Hafizah Gaya Ercan was an unexpected choice due to Erdogan's influence, while the NFT Gaming Company's IPO and CAB Payments' listing were notable disappointments in the IPO market.
The Turkish Central Bank, headed by Hafizah Gaya Ercan, was an unexpected choice for Central Banker of the Year, not because of her abilities, but due to the influence of Turkish President Erdogan. Elsewhere, the NFT Gaming Company's IPO was a clear standout for its disappointing performance, with the stock plummeting from its debut price. Despite the UK's reputation for successful IPOs, CAB Payments' listing was a notable failure, leading to significant revenue losses and investor dissatisfaction. Overall, the nominations highlighted a challenging year for the IPO market, with many disappointing performances.
Predictions in the Financial Markets: Some financial market predictions were accurate, while others were not. Successful prediction: buying long bonds before the 10-year treasury peak. Acknowledged wrong prediction: rate cuts in Q1 of next year. Importance of real money commitments in financial markets discussed in 'Trade of the Year'.
Key takeaway from this podcast episode is that the hosts, Katie and the speaker, made some predictions throughout the year regarding the financial markets, and while some were accurate, others were not. One successful prediction was made on October 23rd, where they suggested buying long bonds due to the high duration on the 10-year treasury. This call was made just before the peak in the 10-year treasury, and although it was not financial advice, it was one of their least dangerous predictions. The speaker also acknowledged one of his own predictions, that the Fed would not start cutting rates until the Q3 of next year, which currently seems to be holding true. Conversely, he admitted to being wrong about his prediction for rate cuts in Q1 of next year. The hosts also discussed the "Trade of the Year," which was the Basis Trade, a pricing exploitation between treasuries and treasury futures, emphasizing the importance of real money commitments in financial markets.
Identifying undervalued assets during market instability: Stay calm and confident, identify undervalued assets, and profit from market instability and crisis
Even in times of market instability and crisis, there are opportunities for significant gains. During the SVB banking crisis, some investors saw an overreaction in the market and took the opposite side, ultimately reaping huge rewards. The best performing stocks in the S&P 500 in 2023, Royal Caribbean Cruises and Carnival Cruise Lines, were counterintuitive bets against a recession. These discretionary companies, which serve the middle class, took on massive debt during the year and defied expectations despite economic uncertainty. Even when faced with personal setbacks, such as getting sick on a Royal Caribbean cruise, the stocks continued to perform well. This illustrates the importance of staying calm and confident in the face of market volatility and having the ability to identify undervalued assets.
Cruise Liners Surprise as Top Performers in 2023 despite Health Concerns: Despite causing illnesses and negative health consequences, cruise liners in the S&P 500 have been top performers in 2023, making them the unexpected trade of the year. However, the financial gains come with ethical concerns.
Key takeaway from this episode of Unhedged is that despite causing illnesses and negative health consequences, the cruise liners in the S&P 500 have been some of the best performing stocks outside of the tech industry in 2023. This unexpected trend led to the cruise liners being named the trade of the year. While the Unhedges team is excited about this discovery, they acknowledge that the financial gains come with ethical concerns. Additionally, the team shared that the production of Unhedged comes with expenses, such as the cost of prizes and the Unhedged House Band. They thanked their team and sponsors for their support and encouraged listeners to sign up for the free unhedged newsletter with a 30-day free trial. In closing, the Unhedges team, led by Ethan Wu, reminded listeners that while investing can bring financial gains, it's important to consider the ethical implications and potential consequences of the investments made. They look forward to continuing the conversation on Unhedged in the upcoming year. Unhedged is produced by Jake Harper, edited by Bryant Erstat, and executive produced by Jacob Goldstein, with additional help from Topa Forges. Cheryl Brumley is the Feet's global head of audio. Special thanks to Laura Clark, Alastair Mackey, Jacob Weisberg, and Jess Trulia. For more information and to sign up for the free unhedged newsletter, visit ft.com/unhedged offer.
