Foundations: My 1999 (and part of 2000)
I doubted if I should ever come back
Threading a theme I know, here is 1999 through my eyes at the time. I was 27 at the start.
When I wrote this Valuestocks.net article “Buffett Revisited” on April 28, 1999, I was a neurology resident physician at Stanford University Hospital in Palo Alto. I likely wrote this between 10PM and 2AM in one sitting, and then dialed in on my modem to upload it.
If you are not near there, you may not know the Stanford Hospital is on the infamous Sand Hill Road, the center of the venture capital universe in 1999.
As a resident physician making $33,000 a year, and owing about $150,000 in medical school debt, I saw the environment in Palo Alto then as crazy rich, fast-paced, electric. Kids younger than me were driving Porsches, the restaurants were always full, people everywhere were clearly happy and living well. It was nice. I was not too jealous.
At Stanford’s clinics, physicians would make patients wait as they crowded around terminals to check stocks. I was one of the few not doing so. I was writing for Microsoft MSN Money as the Value Doc, and I was a bit fearful one of them would find out.
Walking to clinic one day, a fellow resident alongside me casually mentioned he had made $1.5 million on Polycom stock. $1.5 million gold then is worth $21 million today.
Fortunately for him, he was then and still is a gold bug. It all worked out very well for him, and today he lives in about the nicest neighborhood I have ever seen. All thanks to gold. Not your typical Silicon Valley story.
As I was describing, it was a bubble on paper and pavement.
My Buffett Revisited article. It was written because of Apple but was not really about Apple, rather more about the importance of good analysis and patience. I had received significant pushback from VSN readers when I bought Apple, and this article was my response.
“Noting that Apple has recently been trading in roughly the same range for the last 11 years, one critic noted, ‘You could never, in a million years, come up with an eleven year period when any of these three companies LOST value in real terms for shareholders.’ Time flies...
Coca Cola closed May, 1971 trading at $0.91. It closed May, 1982 trading at $0.89, adjusted for splits. Adjusted for inflation, the 1982 price was just $0.38. That’s 11 years and a 58% capital loss. No, dividends did not keep up with the torrid rate of inflation in that era.
American Express closed July, 1973 trading at a split-adjusted $15.97. It closed July, 1984 trading at a split-adjusted $14.63, or $6.13 adjusted for inflation. That’s 11 years and a 60% capital loss. Dividends help here more than Coke, but do not come near offsetting the ravages of inflation.
Disney closed January, 1973 trading at a split-adjusted $1.90. It closed January, 1985 trading at a split-adjusted $1.41, or just $0.57 adjusted for inflation. That’s 12 years and a 70% capital loss, even for the patient. Dividends? Disney did not even pay dividends during the entire period.”
Plus ça change, plus c’est la même chose.
Great companies can be missed for a long period of time. Apple was one of them. At the time, I liked where it sat in the culture of creative computing, with a very proprietary angle and a knack for minor hits and long draughts.
Plus they had just released their Blueberry, Strawberry, Tangerine, Grape, and Lime iMacs. And I thought, yep, this is the reason to own Apple.
It would often trade very cheap back then. Later, when I was running my fund, I bought it at one point for about $12 and it had about $11/share in cash and ARM Holdings stock. It was selling its ARM Holdings stock, which I thought would be a catalyst for it.
But back to 1999.
A few years earlier, I had read just about every investing book I could find in the old BookStar bookstore in Nashville. It was in a converted movie theater, and I would just sit in the aisle and read and put the book back without buying it.
Whenever I could, that was what I did instead of going out.
I was searching for my style of investing. All that reading about Buffett and Graham informed me that these were two very different approaches to investing.
Buffett, though he had the father of value investing as a mentor and friend, had to do his own thing, as the environment had changed. I thought I would ultimately do that too.
So, though I was in medicine, I had a lot of investing words in me.
My web site, which I updated maybe twice a week, did ok mainly because there was no Seeking Alpha back then. When I looked around, there was The Motley Fool, Street.com (Cramer), and Microsoft’s MSN, where I was found under the pen name “Value Doc.” Not much competition on the world wide web. Very hard to imagine today.
I had purchased Apple for the VSN Portfolio, which was a small portfolio I ran for all to see. I did this with some money I had from my dad’s death in 1996, when I was a third-year medical student at Vanderbilt. There was a lawsuit, and my three brothers and I each got $50,000 for wrongful death. I decided to invest it rather than pay off 1/3 of my student loans.
If I had put that wrongful death money to the loans, I would still be a physician today.
Writing about investing on my web site and MSN Money was what I did for relaxation late at night or early in the morning. Even when I was on call and had downtime in the hospital.
I am not proud of that, but I also, apparently, could not control it. I am rather fortunate that this was the thing I could not control.
But did I mention that MSN Money paid me $1 dollar a word? That was so much money to me as starving young resident. I always loved to write, and I could not believe I was being paid to do it.
The web site and MSN Money gig attracted some press that marked different points for me that year that I otherwise would have long forgotten.
In January 1999 Worth Magazine interviewed me about the online investing scene for the February issue, and I gave a quote.
“The boards aren’t without their share of hype and nonsense, but practiced participants learn to separate the signal from the noise. ‘If you take time to read with an unbiased eye, you can find employees and insiders posting good information,’ says Michael Burry, a physician in Palo Alto, California, who also writes an online investment newsletter, Valuestocks.net. Last spring he joined a Yahoo! group focused on the titanium industry. ‘There was a guy named AerotI, who said he was an insider in the titanium business,’ Burry recalls. ‘He told us where the trends in titanium were going and that it would soon be in a downturn.’ Subsequent events showed AerotI to be ‘dead on,’ says Burry, and he now looks for postings that, like AerotI’s, are delivered with authority but without an apparent ax to grind. ‘He posted what he needed to post and didn’t get involved in arguments,’ says Burry.
Fee-based or monitored Web sites are also good for weeding out the riffraff. Burry’s favorite site, Silicon investor, charges a $10 monthly fee, but he says the price is worth it. ‘It’s really amazing to see the time and thought that some people put into their posts,’ he says.”
As Worth noted, I was allocating $10 of my monthly budget to participate at Silicon Investor, which was still techstocks.com in 1996 when I started a thread on value investing and hoped it would survive. It did.
On June 12, 1999, I married my oh so lovely wife of 26 years on a stunningly clear blue sky day in San Francisco. I had met her on match.com about 8 months earlier.
On October 11, 1999, Randall W. Forsyth at Barron’s surprised me by including my web site in a column entitled, “Eternal Values.”
“Formerly known as The Market Wizard, ValueStocks.net subscribes to Graham’s tenets, notably his emphasis on a margin of safety when buying stocks. Among the places to look: stocks that have been trampled down, trading at deep discounts based on various criteria; industries under severe stress; small-capitalization stocks, which rarely have been cheaper relative to their bigger brethren. The site’s developer put his money where his mouth is, and you can see how he’s doing with the VSN Fund, a real-money, diversified portfolio whose particulars are spelled out on the site. For the year through October 2, the VSN Fund was up 38.7%, well ahead of both the Dow and Nasdaq.”
On February 21, 2000, Harry Domash at the San Francisco Chronicle reported on “Top Web Sites for Investment Tips.” He included my website in the article.
“ValueStocks.net is run by Dr. Michael J. Burry, CEO and chief investment strategist at hedge fund Scion Capital Inc.
Burry, inspired by Benjamin Graham, looks for beaten down stocks trading far below their real or intrinsic value.
Burry tracks his stock picks in a hypothetical mutual fund he calls the VSN Fund. You can see his portfolio of 20 or so stocks by selecting VSN Portfolio on ValueStocks.net’s home page.
When I looked, he had shorted Amazon.com. Burry does a lot of trading for a disciple of Benjamin Graham. As of February 8, most of the stocks had been in the portfolio less than three months. You can see his trades for each month by clicking on VSN Fund Activity below the portfolio and fund results.
The VSN Fund returned 68.1 percent in 1999 according to Burry.”
14 days later, the NASDAQ Composite Index put in an epic top it would not revisit for another 15 years. This is what that looked like.
And no, I did not stay short Amazon.
After all I was one of the first Amazon Affiliates, selling Amazon’s books on my site.
As I devote myself to Cassandra Unchained, I find myself on an old road not taken. I feel lucky, and I am grateful for the opportunity as I walk it again.
Until next time!
Michael Burry is not a one-time fluke.
2001: S&P 500 −11.88%, Scion +55%
2002: S&P 500 −22.1%, Scion +16%
2003: S&P 500 +28.69%, Scion +50%
Nov 2000–Jun 2008:
Scion +489% net vs S&P ~+2%.
I am looking forward to more of your posts! Thank you!