Rockefeller and Rockets

One morning on a recent trip to Hawaii, I took my family for a drive through Hanalei and down to Haena Beach Park to check out the giant lava tube. At first, I was frustrated that a bunch of dreadlocked hippie kids got there right before we did. They were setting up for a drum circle deep within the cavernous tube, and the whole cave reeked of weed and patchouli oil. So, I lured my kids out of the tube by offering them shave ice. (News alert: it works every time.)

The shave ice truck across the street at the beach park has been there forever; it’s more kanaka than most of the island’s residents. Its owner spends his days hanging out on the beach and playing with his grandkids. One of them, a six year old, was ripping around the grassy area on a little Honda 80 as my daughters ordered their rainbow-colored treats-- so colored because two or even three syrups is not enough.

The girls got their order and headed down to the grass to play with the little local and check out his bike, and I struck up a conversation with the owner of the truck. We got to talking about the situation with coronavirus on the island, and he told me that Covid-19 isn’t real and that it’s a scheme being perpetrated upon the people of Hawaii to destroy their economy.

Intrigued and amused, I decided to broach more ridiculous topics and brought up the island’s three most infamous developers-- Steve Case (founder of AOL), Pierre Omidyar (founder of Ebay) and Mark Zuckerberg (founder of Facebook).

Shave Ice Guy: “Zuckerberg is really a Rockefeller, but he changed his name to hide his Jewishness.”

Me: “That wasn’t a very good way to do it.”

He went on to tell me that Rockefeller-Zuckerberg acquired those 700 acres of plantation property on the north shore so that he can build his own personal military complex.

Now, you’ve got to realize that I was there the week before the election. The contents of Hunter Biden’s computer had just been divulged with the photo of Malia Obama’s credit card next to several lines of cocaine.

If you do a Google search for “Malia Obama cocaine,” the first website that comes up is Snopes. Snopes contends that the photo is a fake for two reasons. 1.) The card says, “Member since 2011,” and Malia was only 13 years old then and therefore couldn’t have a bank account. 2.) Snopes doubts that the laptop in question was really Hunter Biden’s.

OK, well, my oldest daughter is twelve, and she’s had a bank account and a debit card for a couple of years. So, that argument’s out. As for the legitimacy of the laptop, Hunter’s lawyers sent multiple emails pleading for it back, and the authenticity of that correspondence has never been questioned.

For me, the point is that conspiracy theories abound-- coming from every which angle-- and yes, they’re frequently ridiculous. This last week, it became public knowledge that the CEO of Pfizer, Albert Bourla, sold $5.6 million of his company’s stock, and the accusations of insider trading followed almost immediately.

But why does everything have to be some crackpot conspiracy to be debated by competing media organizations? Why can’t Zuckerberg just buy a property on Kauai because it’s nice? Why is it so hard to believe that a crackhead spilled vodka on his computer and took it to the repair shop? And why would anyone doubt the integrity of an executive conducting normal risk management? The guy’s just trying to put his kids through college, for crying out loud.

Bourla's sale of Pfizer stock was part of a trading plan set months in advance. Known as 10b5-1 plans, they essentially put stock trades on automatic pilot. Executives are only allowed to adopt these plans when they are not in possession of material nonpublic information, and they’re extremely common. Extremely. Bourla authorized the sale of his shares back in February and then renewed that authorization in August with the same price and volume terms. There’s nothing even remotely fishy about it.

It’s demonstrative of how important it is to use one’s own eyes and ears. Back on October 19th, we recommended overweighting small- and mid-cap stocks, particularly semiconductors and biotechnology. Since then, the Invesco Dynamic Semiconductors ETF (PSI), which has an average market capitalization of less than $10 billion, is up more than 12%. On the other hand, PSI’s big brother, the VanEck Vectors Semiconductor ETF (SMH) and its market cap that’s more than seven times higher that PSI, is up just 7.5% over the same period. The Global X Genomics & Biotechnology ETF (GNOM), with its decidedly small average market cap of $4.6 billion, is up 3.3% in a month while the iShares Nasdaq Biotechnology ETF (IBB), GNOM's large cap counterpart with an average market cap more than three times as big, is up less than half as much.

Barron’s cover article this week was about small-cap value stocks. They’re hot on them, but I can’t help but think it sounds like-- wait for it-- another conspiracy theory. I mean, it’s not just Barron’s touting small-caps this week, and they’re doing it a whole month and about +7% after we (and many others) started doing it.

So, I’m a little skeptical. To be perfectly honest, I think the best way to make money by investing in a value stock is for that stock to become a growth stock; otherwise, you’re probably just investing in the next General Electric. I like this Barron’s angle of looking into small-cap stocks, but we continue to prefer growth industries like semiconductors and biotech as opposed to the value-style they espoused over the weekend. We still see lots of value traps out there, lots of stocks that are cheap for a reason.

Moral to the story: Just because it came from Snopes, Barron’s or the shave ice guy doesn’t mean that you have to buy it.

As always, we recommend sticking to your personal plan and managing your portfolio in such a way that being wrong won’t ever hurt you too badly. As we wrote back on January 6th and as 2020 has proven beyond any reasonable doubt, “Something will happen this year that doesn’t make any sense at all. Something is bound to defy expectations whether it involves geopolitics, irrational market movements, corporate takeovers, huge gainers, huge losers, or whatever. I’ve learned I’ll almost always be surprised by markets to some degree and that the trick is to not be surprised that you’re surprised.”

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