Schadenfreude, 4-20 style

Water Cooler
#1

Of course, 4/20 refers to April 20, 2020.

You all know the type of business I’m trying to build (and have been working on for the past five years). No need to rehash it here.

I will, however, tell you that in my travels, I have spoken to a great many people. Seeing that I live in the Permian Basin, most of them make a living in the oil & gas industry–particularly, in the upstream exploration & production part of the industry. Some of these people have 95% of their wealth tied up in oil & gas mineral interests, or in other assets which have a virtually 100% correlation to those mineral interests.

For several years, I have told everybody I could that they needed to diversify their asset base, and that having 90+% of your money tied up in one economic asset is extremely dangerous. I could see all the classic emotional & cognitive biases (overconfidence, illusion of control, endowment, home country or “home industry”, etc.), and I tried to overcome them and educate people, without making them uncomfortable.

Some of them were polite and listened and said “Thank you for your concern, but I’m not interested at this time.” However, there were many who weren’t so nice. Some of them (literally) laughed at me. Some of them mocked or ridiculed me. Some of them insulted me. One guy even went so far as to ask me if I was a Democrat. (I died inside that day.)

So here I am today–having witnessed the spot price of WTI fall from $50 to $13 per barrel. In other words, the guy who was worth $100 million two months ago is worth nothing today. It literally costs more to take it out of the ground than what he can sell it for. And on some level, I can’t help but feeling some happiness at his misfortune. I know how that sounds, but I don’t think you can help how you feel.

I haven’t gone and rubbed it in anybody’s face. I haven’t laughed and said “Ha ha!!! I told you so!!!” Yet, I do feel some inner satisfaction at seeing how the mighty (and some of them very proud and greedy) have fallen.

Is this wrong? On a moral or spiritual level? Any thoughts or opinions?

#2

It’s not wrong. I feel great when I see people I don’t like suffer.

#3

now peeing in the sink doesnt seem like a big problem anymore compared to what these people are going through

#4

Been through this so many times over the years.

My opinion is that 1) no you shouldn’t feel bad about feeling this way, and 2) under no circumstances can you say this to the client.

It is what it is. As advisers all we can do is provide guidance, ultimately it’s the clients decision to act one way or the other. Hopefully, in a just world the client remembers that you strongly encouraged them to go against this trade. I’ve seen that happen several times but unfortunately as I’m sure you’ve learned by now, advisory services is a thankless job. No credit for the upside and all the fault on the down. But you can’t go back to them and rub it in their face.

Not to mention the market can make you look like a fool on short notice. Imagine if OPEC/Russia/US decided to drastically slash production and oil spikes to $50. Unlikely, but not impossible over a 1 - 2 year span. Just have to eat it. Keep fighting the good fight and move on. Sounds like you’ve got a decent little practice set up for yourself.

#5

Reminds me of bitcoin with bitcoin. He was a bit suicidal for a good minute.

#6

They say the best revenge is to live well. The personal satisfaction you would get from “I told you so!” is probably very meaningless and would serve no useful purpose. I hope that 1-2 of them will be suitably chastened and maybe even have the humility to seek out your counsel.

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#7

Frasier: You know the expression, “Living well is the best revenge”?

Niles: It’s a wonderful expression. I just don’t know how true it is. You don’t see it turning up in a lot of opera plots. “Ludwig, maddened by the poisoning of his entire family, wreaks vengeance on Gunther in the third act by living well.”

Frasier: All right, Niles.

Niles: “Whereupon Woton, upon discovering his deception, wreaks vengeance on Gunther in the third act again by living even better than the Duke.”

#8

I’m going to open up here with a confession and I think its going to shock people. At times I’m occasionally prone to bouts of arrogance and a desire to be proven right. That was really hard for me, but really feels liberating to have off my chest. Thanks guys.

Now that that’s in the open, I’ll say that in my personal / professional life the past 5 years or so I’ve progressively made major strides in catching these things urges and curbing them. At first it was simply about avoiding detrimental professional episodes but then I began to have more awareness at home as well and eventually I began to internally function that way as well. I am still prone to it, it’s my nature but its markedly better. Who knows, at some point I may even stop blasting people on the nether regions of the internet but I wouldn’t hold my breath, it’s a low priority. I found far more success and contentment when I began getting out of my own way. I used to feel like people in my organizations were either ignoring me or holding me back and now I feel like I’m literally being propelled forward while also caring less about the individual aspect. Ultimately whether you’re working with people or co-habitating the planet with them, there’s no real reason to make it less enjoyable.

So, from my perspective there’s absolutely nothing wrong with acknowledging your nature, what you do with it is probably more pertinent, we’re all human. They had flaws, you saw them and didn’t appreciate their indulgence, what you do now probably determines whether you’re just returning the favor or striving for the high road. People do notice these things and from the perspective that you’re Christian its worth contemplating your role model.

Of course I’m sure there are others that may disagree, but I’d also like to point out that they’re stupid and wrong.

3 Likes
#9

Be who you are and say what you feel because those who mind don’t matter and those who matter don’t mind!

#10

Didn’t you back track on literally every view on marriage for your fiancé and change your habits?

#11

my views change. but its not every view. also just because something is an ideal move, doesnt mean i’m going to do whats ideal.

#12

Greenman, if I call your 100m client and convince him to do business with you, will you hire me as director of trading and let me work remote?

Naw but really. Can’t you use the collapse in oil as a platform for promoting why you’re a better advisor than the others and the clear choice to do business with? Call these people back in my opinion. Don’t come off self-righteous but instead as helpful. You don’t need to be empathetic, but you can use tact and diplomacy to give a client a clear and concise game plan for what to do in any market scenario right now.

The best education tool you can use with these oil barrons is probably that they should learn to never say “it won’t happen”.

#13

Yeah, I get this. “Even a stopped clock is right twice a day.”

But counter-point - how long do stock market “corrections” last? The 2000-2002 bear market was more prolonged, while the 2008 meltdown was pretty short-lived. In both cases, the market bounced back within only a couple of years. On the other hand, the last oil bust lasted 15 years.

I have more faith in the entire US economy (aka the Russell 3000) than I do in any one segment of the US economy (aka the Permian Basin and the upstream petroleum industry).

#14

i think itd be stupidest move to advise someone to sell out of your oil investments right now. its a little after the fact. better to call and tell them how they are doing. and if they tell you they are planning to sell to convince them otherwise.

#15

Yeah it’s a tough one. Anybody with a 70%+ concentration in energy is completely up the creek right now. They were also out of their mind to begin with, despite your best efforts. But I agree with Nerdy, I wouldn’t be selling energy if I rode the wave down at these prices and you probably couldn’t convince anybody else to do it either. They’re in for the long haul now and they know it.

If anything, you might be able to politely point out the volatility in the energy sector and encourage them to allocate future contributions to a more diversified portfolio. And you’ll always have this in your back pocket when the next Joe Oil comes around telling you how to do your job.

#16

Yeah, and I’m pretty sure people were expecting interest rates to ‘bounce back’ to ‘normal’ levels after they collapsed in 2008 too.

#17

I wouldn’t be advising anybody to sell right now. Nobody’s buying anyway. Who are you going to sell to?

Here are the common objections: “Well, mineral interest prices haven’t gone down. We just can’t find any buyers at the current price. But the price is still the same as it was last year. It’s not like the stock market, where the price goes up and down all the time.”

“Oil & gas prices (like real estate) don’t go down. I inherited these minerals from my Daddy back in 1990, and they were only worth $5,000/acre then. Now they’re worth $50,000/acre. This is proof that prices never go down!!”

“Last year, the prices were $30,000/acre. Now they’re worth $50,000/acre. That means it’s going up! Why would you sell when it’s going up?”

“You never, ever sell a royalty. Royalties provide cash flows to you. Then to your kids. Then to your grandkids. Then to your grandkids’ grandkids’ grandkids’.”

“They ain’t making any more of it.”

All of these are stupid reasons that are easily debunked, but a man convinced his will is of the same opinion still.

#18

True story. I remember giving presentations to investors in 2010 on our interest rate forecast. Something to the effect of "keep your durations low and ladder in. “We project a steady increase increase in rates over the next 2 - 4 years and beyond…”

Great call there, Voyager. But that’s the game you play when you’re in the prediction business… you’re either right or you’re wrong and there’s nowhere to hide. But energy prices are hellova lot more volatile than interest rates. I remember oil at $120/barrel in 08-ish. Who would have forecast a drop to -$40 a barrel in 12 years. Insane.

#19

Cringe worthy, isn’t it. With these types of objections I usually take it to the extreme. Thankfully for investment advisors we have plenty of data to work with. For me it’s Toronto real estate prices, which of course only go up. A well presented asset allocation pie-chart of their own holdings is a great way to drive home their concentration risk.

The next slide should be an asset periodic return table (quilt chart) that includes their wish list (real estate, energy, minerals, etc.). In two pages you can highlight their exposure and demonstrate the return potential of different asset classes. You also have to be empathetic to their endowment bias stemming from inheritances and what not. It’s usually a slow transition… maybe diversifying 10 - 20%yr over a number of years. Eventually you’ll have enough data to compare the results and slowly the light bulb will go off in their head.

And Nerdy was right about communication during these times. Absolutely imperative that you’re reaching out to clients proactively, even to the point of pissing them off with communication. Nobody’s ever fired an adviser for reaching out too often. It’s also a great opportunity to slowly chip away at their biases as almost every asset class save for fixed income is tanking. There is significant real estate risk right now. More important than ever to diversify.

#20

lol i literally bought TPL. its basically a company that owns 900k acres of land. they collect royalties from oil companies and some from water . they literally fell from 915 to 295. I bought around 450 when the russia and saud start fighting. i figure sure valuation fell, but they arent burning money from expenses with op margins around 80%. they just lost their revenues. they’ll be fine.
imo oil will be much higher when economy restarts. but im in the camp that oil’s value will not last forever as alternatives replace them. How long that is, I dont know. Id say we’re good for 50 years. Worst case if its sooner they’ll own 900k acres of land, and imo that will still have some residual value so i dont really care.
also the price of an acre land varies a lot right? I dont know much except that it really depends on the type of land. if its farmland, mountains, if it has resources etc. anywayas what i would have done. is borrowed against the value of the land and invested in the stock market to diversify. but if you did that, then you’d have major problems now that your revenue stream disappeared and you have loan payments. haha.
https://www.sec.gov/ix?doc=/Archives/edgar/data/97517/000009751720000017/tpl-20191231.htm
what yall think?
read below. im pretty sure ur potential client granddaddy boguht from them. this co came around when some railroad company filed for bankruptcy. and the bondholders got hold of this useless land in 1888. so they prolly panic sold it. funny right?
here’s a buffet quote in 1998, its negative. but tpl had a return of 4900%+ :
You will see an announcement in the next couple of weeks that may belie what I am telling you today. I don’t want you to think I am double crossing you up here. But generally speaking we have seen very little in that field that gets us excited. People sometimes get very confused about–they will look at some huge land company, like Texas Pacific Land Trust, which has been around over 100 years and has got a couple of million acres in Texas. And they will sell 1% of their land every year and they will take that (as income? Garbled) and come up with some huge value compared to the market value. But that is nonsense if you really own the property. You can’t move. You can’t move 50% of the properties or 20% of the properties, it is way worse than an illiquid stock. So you get these, I think, you get some very silly valuations placed on a lot of real estate companies by people who really don’t understand what it is like to own one and try to move large quantity of properties.