I concluded by speculating that the gamification of investing by Robinhood et. al, plus the ready availability — if not aggressive promotion — of margin loans and options to retail accounts might turn them even more short-term oriented than the funds and so transform “The Wisdom of Crowds” into “The Stupidity of Crowds.”

A real-world test of my theory was just provided by the SaaSpocalypse, the software stock crash in February that now looks like the trade of the year, if you bought at any time between then and June. It’s hard to think of a round-trip as violent as this one, where a whole sector crashed 30% in days, bottomed out in 3-1/2 months, then (mostly) rebounded 50-90% within a month after that.

As an emerging markets investor, I’m used to news-driven selloffs that crush all a country’s stocks, even those of companies that theoretically benefit from the news. In the U.S., though, the players are diverse enough for there usually to be at least some sorting — but not in the SaaSpocalyse. As software stocks dropped simultaneously, investment bank analysts spoke up, e.g., Goldman Sachs in a note highlighting five companies less vulnerable to AI. One was Via Transportation, an Israeli-U.S. provider of mobility solutions mainly to municipalities, which I know well, having participated in an early financing round (I still own it).

It seemed as strange to me as to Goldman that Via was tanking along with the SaaS companies, given that the key criticism in a short seller’s report last year was that it was not really a SaaS company. Via’s services are lower margin, more labor intensive but embedded in the transport infrastructure of cities, to which they increasingly act as consultants (using AI). While Via isn’t immune to AI competition, it would be hard, as Goldman wrote, for a challenger to replicate its millions of miles of data and experience servicing hundreds of municipal clients. Nevertheless, although Via had already corrected 30% since December 2025, it fell another 35% to the June low. From then until today, it’s up 83%, and its 2026 chart closely resembles those of Salesforce, Workday, ServiceNow, and other round-trippers.

Retail’s Role

My assumption going in was that retail investors had magnified the SaaSpocalypse by panicking along with the hedge funds and other institutions, an assumption that turned out to be both right and wrong. It seems that retail investors did exacerbate the volatility and price inefficiencies created during the crash, but not because they were freaking out like the institutions. They were actually betting right but doing it with leverage and options. By “betting right” I mean buying select babies being thrown out with the bathwater. This trade, if it focused on software companies entwined in companies’ operations, looks great today, though of course we don’t know how even those will fare in the long run.

Recall that the SaaSpocalypse began with the release of AI agents like Claude Cowork, which raised fears that AI could eventually replace SaaS, or at least challenge its per-seat pricing and huge margins. The institutional investor herd, who were heavily invested in SaaS stocks and sitting on big profits, stampeded out of anything software-related over a few days. While I’ve said that you occasionally have to take your favorite stocks out back and shoot them, this was a no-questions-asked massacre.

The fear had been stoked by AI evangelists like Leopold Aschenbrenner, who has claimed that it will replace all software. In previous posts I’ve written that Aschenbrenner, though brilliant, was too inexperienced to be managing billions of dollars. Now I have to modify that assessment: I’m not sure he’s that brilliant, given that he was indiscriminately shorting software stocks that exploded right in his face.2 Also, Cowboy Leo’s portfolio was structured like a “Texas Hedge,” where the longs (AI) and shorts (software) would move in the same direction. Great idea — you know, until it isn’t. (In fairness, I’ve said that while Firebird also had a lightning-fast start, we also were too inexperienced to handle highly volatile markets. It took many years to learn, and we still are.)

As the software stocks collapsed, retail investors were not selling but, as they’d learned to do during the 15-year U.S. bull market, buying the dip.3 The Wall Street Journal reported that “February was one of the strongest months for retail buying since the meme-stock frenzy of 2021 … and the fifth-biggest month on record.” The article quoted an “investor and vegetable farmer” in Missouri saying, “If anyone wants to keep their job as CEO, it would be tremendously foolhardy to adopt a homegrown, vibe-coded solution.” The farmer bought Salesforce and Crowdstrike and should be pleased with himself by now — unless he bought them on margin and got blown out.

And there was the rub. Much of the retail buying was on leverage: Robinhood’s margin balances were $17.5 billion at the end of February, +98% yoy, and up to $19.5 billion by May. Robinhood option activity also increased, to 231 million contracts by May, +29% yoy. A J.P. Morgan report cited a level of margin and option activity that was “extreme by historical standards.” On top of this were the hundreds of leveraged ETFs that have sprung up, most focused on tech.

The problem for these aggressive dip-buyers was that the recovery was jagged, reversing in April and early June and causing margin-related forced selling. As for the options, when the value of call options erodes and they lose delta, the dealers become sellers of the underlying shares, magnifying the declines. Interestingly, when the call-buying dried up, JPM took exactly the wrong message from it, saying that it was bad news for tech stocks — when in fact it helped to create the bottom.4 JPM’s bearish note, published after the SaaSpocalyse was already over, failed to grasp the dramatic and not necessarily positive impact that retail investors could now have on the objects of their enthusiasm.

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Conclusion

The gamification of investing and the easy availability to retail of leverage and options is likely, as I suspected, to create huge mispricings — and opportunities for stock pickers — with the SaaSpocalypse being only one of the first. It’s not because The Wisdom of Crowds has been abolished but because, like the slots players who sicken me in the lobby of the Bellagio Hotel, the investing crowd either doesn’t know how to assess risk or doesn’t care to.5

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.

One thing Brom used to say was, “You have to get comfortable with the idea of paying for information.” In poker, that means you may have to call a bet or a raise to see the next flop card, and there’s no shame in doing that, then folding if it doesn’t fall your way. In investing, you have to apply the maxim in reverse: there may be information you want about a company before you’re comfortable buying the stock, but if the info turns out as you’d hoped, you’ll be buying at a higher price, and you must accept that.

Gamblers like Brom, cold-blooded calculators of probability (having been a horse race handicapper before B-school, Brom became an A student in the course), would have no trouble paying up once provided with the info they needed.2 Unfortunately for the rest of us who are warm-blooded, it can be psychologically impossible to buy a stock that has already moved a lot — even if the rational part of our brain tells us there’s a good reason for the move. An example: if you were considering Moderna last week and didn’t act on it, would you buy it today at twice the price, even if you felt deep down it might double again in a year? That’s what I thought.

As someone who has always hated overpaying for anything, I’m susceptible to this emotion, one that I know impedes successful investing, so I had to think up a workaround. For years now I’ve been using a simple mind trick I call “taking a psychological stock position.” I’ve posted about it on Substack twice before, but I think it’s the most valuable investing advice I have, so here it is again.

In a recent post about value investing and art collections, I discussed the pain of finding a winning stock and selling it too soon, then watching it climb for years afterward. There’s a related pain that doesn’t hurt as much but is economically worse, i.e., identifying a great bargain, never buying any, and seeing it go up seemingly forever. It doesn’t hurt as much as selling too soon, since you didn’t hold it in your hand and let it slip away; but it’s economically worse because you didn’t make even a little money from your original insight.

In summer 1998, my partner Ian and I were sitting around our office discussing the growth of the Internet and it occurred to me that if computing were to move mostly online where there was a universal language, Java, then Microsoft’s operating system would no longer be as dominant. “It could be good for Apple,” I said, and Ian agreed. We were at that time the rare investment professionals who used Macs, so we were particularly interested in Apple’s outlook.

I checked Apple shares, then trading at the split-adjusted equivalent of $0.20, and did nothing. Later that year, when I became more certain that we were right about Apple’s improved prospects, I checked again and saw that the price had gone up to $0.30, a 50% gain in a few months. This time I didn’t buy any because “I missed it.” I MISSED IT!!3

It’s easy to say, as Jim Cramer often does, that you buy your portfolio every day and what happened in the past doesn’t matter, but it’s hard to be that disciplined. I repeated my Apple mistake with other stocks, both in my personal account and in the funds I co-manage. And it’s not just me. A few months ago, I attended a dinner with successful tech people in Silicon Valley and when the question was asked how many of the 20 or so attendees owned Nvidia, only one raised his hand, while the rest winced as if slapped. I’m guessing that the absence of Nvidia holders in a group that included semiconductor experts wasn’t a vote against the company, but because they had MISSED IT. Since that night, Nvidia has appreciated another 70% [260% now: HS], adding to the pain.4

To avoid more missed opportunities, I had to find a way to overcome my mental barrier against buying a stock that I’d considered and passed on at a lower price. What we’ve done in our funds is: when we have a strong interest in a new name but aren’t sure that we want to build a big stake, we buy a toehold, even as small as a 0.10% weighting in the portfolio. I call it “taking a psychological position.”

If we do this and later become convinced about the stock, and it has declined since our first purchase, we can buy more at a better price: a win. But more important for the emotional side of investing, if the stock has gone up since our first purchase, we can tell ourselves that we’re “adding to the position.” (If I had bought even $500 worth of Apple at $0.20, I wouldn’t have had any trouble buying more — adding to my winner — at $0.30.) If, on the other hand, confidence is not achieved after the initial assessment, we can sell our toehold without a big impact on the portfolio.

This technique can also work for selling: if you’re turning negative on one of your holdings but haven’t decided whether to exit fully, you can sell a little. If you then become sure, you will have already “broken the seal” and can more easily sell the rest. One of the hardest and often the most necessary things to do in investing is to sell a formerly profitable position after it’s already down 20%, and this mind trick makes it a little easier.

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I recently saw a CNBC interview with Stanley Druckenmiller in which he said that he follows a rule learned from his old boss, George Soros: invest then investigate. When an idea is presented that seems attractive, Druckenmiller quickly buys some — if it’s a sectoral idea, he buys a basket of stocks — and does his research later. He said that when he first purchased Nvidia, he couldn’t even spell it.

Unlike me, Druckenmiller doesn’t dip his toe but goes in with big dollars. If he concludes upon deeper review that the idea was a mistake, he sells it all back immediately, even if he takes a significant short-term loss. What I know about myself is that unlike Druckenmiller or Soros, I have trouble admitting my mistakes and dispassionately realizing losses. So my psychological positions have to be small.

If you decide to try this strategy, you should first ask yourself whether you are a trading god like Druckenmiller or Soros, or a mere mortal like me, and size your trades accordingly. Just as a poker player must know his own tells, a serious investor must discover his psychological weaknesses and deny them the opportunity to take control and do damage.5

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.

In that prior post, I wrote that “Elevation of the Unqualified” was one indicator flashing red, citing Leopold Aschenbrenner, a (brilliant, but so what?) 25-year-old handed billions to manage with no experience, seemingly based on one good article (with a weird title, “Situational Awareness” — what is that, a cool way of saying, “I know what’s happening”?). As a direct result of his inexperience, Leopold’s public portfolio got liquidated, to the benefit of savvier Wall Street players like Citadel.

Situational Awareness still has a stake in Anthropic, which reportedly plans to IPO at a $2 trillion valuation. With respect to this proposed sum, I refer to my comment in Quacking Ducks that financial entrepreneurs have no obligation to price their offerings for decent aftermarket performance. Usually, the underwriters fight to do it, so that the ducks will make enough money to return in the future for further feeding, but with fees this large on the line the banks will do whatever the promoter wants.

Also concerning are frequent news stories about people leaving one of the big AI developers, launching their own company, and raising money at multibillion dollar valuations with nothing but an AI-related idea. At least these folks have credible backgrounds, but now I’m also seeing truly unqualified former creatures of the crypto bull market raising their hands, stating the magic phrase “AI,” and getting on CNBC to flog their startups. These may or may not have any business logic, and if they do find investors, that would be further evidence that a bubble is forming.

“Advertising to the Masses,” another indicator I cited, is flashing more yellow than red. While there are commercials for OpenAI and Gemini and many AI-related posters in the subway, the messaging isn’t ubiquitous, as during the real estate or dotcom bubbles. In the latter case, startups’ valuations and thus their ability to raise capital and survive were based on “clicks” and “mindshare,” so it made sense for them to advertise. The AI companies, by contrast, have a product so useful that it’s not necessary to create demand, though they do want to gain market leadership.

It’s the third qualitative indicator I cited, “Conversion of the Skeptics,” that seems least indicative of an AI bubble. The very fact that everyone is asking if AI is a bubble argues against it being one, analogous to the S&P having climbed a wall of worry since about 2012. Every day I see or am sent articles and CVS-receipt-length X posts “proving” that AI companies can never generate the profits implied in their valuations. I’ve not only heard the argument that they’re like the 1990s fiber optic companies that failed, but I thought of it first. I posted this comparison, inspired by a Charlie Munger heuristic, a comparison that, again, I thought of first, on Substack in February 2025.1

The top story on Bloomberg as I write this is, “Bond Traders Fear $70 Billion Shadow AI Backstops.” I’ve seen dozens of stories about risks in AI-related debt, and circular financing in the AI universe; and prominent short sellers are all over the AI stocks. Jim Chanos has been trashing them on X and Michael Burry has now joined the chorus, advising his Substack following on August 6 that he had shorted AI neocloud Nebius (NBIS) at $212. The stock reacted, dropping from $200 to $187 in the next two days, but Burry’s timing was questionable, as NBIS was to report results just a week later — results that even a monkey with a copy of Barron’s could’ve figured would be exceptional. Last Friday the stock closed at $277, near an all-time high. Burry and Chanos may yet be proven right, but for now they and anyone who followed them are sitting on big losses.2 (Nb: I’ve written before that I was, and still am, long NBIS.)

Dotcoms Were Different

The widespread and well-reasoned skepticism about AI contrasts with the dotcom bubble, as I remember it. As with AI, the public’s enthusiasm for the dotcoms was expressed through the stock market but then, unlike now, there were few prominent naysayers. Value investors were up in arms, and financial journalists did use the word “bubble,” but they were drowned out by the bulls. Warren Buffett’s warnings in 1999 are remembered now because they were such a minority view. It wasn’t that people didn’t think the stocks were pricey, it was that they believed in a new paradigm for measuring value — one of my main quantitative bubble indicators.

I don’t fully trust my memory of the dotcom era, so I asked Perplexity if the market was truly complacent and here’s what it said:

The dominant idea was not necessarily that every dot-com was sound; it was that the internet was creating a new economic regime in which old valuation tools — earnings, P/E ratios, cash flow — were supposedly less relevant. Analysts and both retail and institutional investors bought internet stocks with scant attention to business-model viability, often expecting to sell to another buyer at a higher price.

So “complacent” is directionally right, but euphoric and momentum-driven is more precise. There was a vocal bear case, but few market participants were willing or able to stay short long enough to monetize it.

Maybe the reason the bear case is so loudly expressed today is that there are many AI stocks big enough to short in size, whereas the universe of dotcom-related large caps was limited and the startups too illiquid to short. Whatever the reason, the dotcom euphoria felt very different from the current market attitude to AI.

And finally, although retail investors are getting increasingly interested in AI stocks, in 1999 everybody seemed to be involved in dotcoms. Between March 1998 and March 2000, when the Nasdaq peaked, active retail online stock trading accounts exploded from 5.3 million to over 13 million. I remember my college roommate calling me, for the first time in years, to say how great his tech portfolio was doing and that he might quit his job as a screenwriter to become a full-time trader. (He didn’t; he’s now a professor of screenwriting at USC.)

Gemini3 agrees with my recollection:

The dot-com boom was the first major market bubble driven by the democratization of retail trading. The rise of online discount brokerages (like E*Trade) allowed everyday investors to day-trade. People were quitting their jobs to trade tech stocks, and IPOs routinely tripled on their first day of trading regardless of whether the business model made sense.

That specific environment created a “consensual hallucination” where questioning the party felt foolish because anyone holding cash was losing out on historic gains. Today’s market is much more institutionalized, disciplined by past trauma (like 2000 and 2008), and far quicker to demand real revenue from technological spending.

Maria is a Punk Rocker

Even Joey Ramone, front man of the seminal punk band The Ramones, was in on the action, writing a song about the Money Honey (and current MAGA disappointment to me), “Maria Bartiromo.” Here are some of the lyrics:

Maria Bartiromo
Maria Bartiromo
Maria Bartiromo

What’s happening with Yahoo!
What’s happening with AOL
I want to know
What’s happening with Intel
What’s happening with Amazon
I want to know
I watch you on TV every single day
Those eyes make everything OK
I watch her every day
I watch her every night
She’s really outta sight

When Kid Cudi or Kendrick Lamar drops a track called “Sam Altman,” then we’ll really know it’s over.

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.

Before I got out of there, I spied on a shelf two binders for Value Line, the stock analysis and rating company launched in 1931 by an ex-Moody’s employee, Arnold Bernhard. I was surprised to see that Value Line still exists, given the ubiquitous free stock information on the internet, but apparently there are enough old school investors willing to pay $600/year for the weekly physical leaflets for VL to stay in business. Either that, or when the original subscribers died, no one was left with instructions to cancel, so the estates keep auto-renewing.

Learning to Pick Stocks

I have warm feelings for Value Line, because their books were my guide when I started buying individual stocks in 1992. Prior to that, I’d worked at Wachtell, Lipton, which, given its M&A focus, allowed lawyers to own funds only, to avoid even the appearance of impropriety. When I was considered for partner and instead politely asked to move on, my mentor, who knew I wanted to get into stocks, handed me a copy of The Intelligent Investor. I read it, thought, “This seems easy,” and headed up to the Columbia Business library to research companies that met Benjamin Graham’s criteria.

Value Line covers about 1,700 names, screening for metrics like low P/E, high ROIC, and discount to book. They also have a “Timeliness” ranking for year-ahead appreciation, with 1 being best and 5 worst. Back in 1992, I’d glance at the Timeliness ratings, then apply the Graham criteria, since those were all I could understand: P/E of 10 or below, some dividend yield, some earnings growth, current assets double current liabilities, and long-term debt below net current assets. When I found a few companies that ticked all the boxes, I sent off for their annual reports, which came in the mail. After studying those, I made my purchases through Freedom Securities, a now-defunct brokerage.

The amazing thing was that stock picking not only seemed easy, it was easy: as I recall, my first purchases outperformed the market over the next year. Again, I was a novice and had no skills beyond the ability to follow the dumbed-down rules in an investment book. In hindsight, the reason it worked was that I was buying then out-of-favor sectors like defense, when the imminent election of Bill Clinton had raised fears that he’d cut defense spending (he did, but not drastically), and financials, which were still weak post the early-90s debt crisis. In markets dominated by active mutual funds, which were averse to underperforming their peers even for a couple of quarters, any sector facing short-term concerns would sink to bargain prices and sit there waiting for a value guy to stroll in and buy them.

The Mid-1990s: It Gets Harder

Sometime in mid-decade, I noticed that I was having a tougher time finding undervalued U.S. stocks and when I did buy one, it often turned out there was a problem with the company that I hadn’t recognized. Similarly, the Value Line Timeliness rankings, where the gap between 1 and 5-rated stocks had outperformed impressively since the 1960s, were no longer useful by the end of the 90s. What had changed? Claude says that the “Value Line effect” decayed as “the anomaly became widely known and arbitraged away.”

I must disagree with my AI friend, as I never heard anyone in the market ever cite, much less try to copy, the Value Line effect. Rather, my pet theory is that it was the rise of online brokerages like E*Trade, Schwab, and Fidelity which, by bringing retail traders into the market, vastly increased its efficiency. From 1992 to the end of 2000, online accounts went from 100,000 to 18 million. These traders, free of the mutual funds’ performance pressure, and even if individually dumb as a post, as a crowd could spot and act on mispricings that might take a year or two to play out.

Value Line Now

Back at St. Agnes yesterday, I looked at the top-rated stocks in the latest Value Line update. While I won’t do research on any of them, because lazy, at first glance I saw nothing interesting. Their picks included momentum stocks, e.g., semiconductors, or if they were very cheap, it was for a reason, e.g., cable companies and automakers. While I do think it’s possible to outperform the S&P, no one is going to do it by buying the 100 1-rated Value Line stocks. Instead, it requires deep analysis, a relatively concentrated portfolio, and a long-term investment horizon backed by patient, sophisticated investors or your own money.

Then again, part of me wonders whether the gamification of retail investing by Robinhood et. al could be undermining “The Wisdom of Crowds” that has been in effect and has, in my view, been keeping the U.S. market more efficient since the mid-90s. If young investors are taught to be even more short-term oriented than the mutual funds, moving as a herd into anything that looks hot and using leverage to do so, what we may wind up with is not the wisdom but “The Stupidity of Crowds.” Then stock picking will be easy again.

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Something Happened

While I did some good stock picking at the Columbia Business library, something else happened there that turned out to be worth much, much more to me. One day in 1993, I ran into a college friend of my wife’s, who had just returned from a stint at a Hong Kong brokerage analyzing frontier markets in Asia. He asked what I was doing, I said I was researching value stocks, and he said if you want to talk value, you need to hear about emerging markets. We went to lunch at Tom’s Diner (the one in Seinfeld), he laid it out for me, and my life took a wild turn to the left, never to return. But that’s a story for another 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.

In identifying a market that’s toppy or in bubble territory, there are both quantitative and qualitative indicators. I find the former less reliable.

Toppy Markets: Quantitative Indicia

An example of a quantitative signal that has been wrongly indicating a top in the U.S. is the CAPE — Cyclically Adjusted Price to Earnings ratio — which market bears have been banging on about for 15 years.1 While it’s true that on that measure the market has looked expensive for a while, there may be good reasons for a structurally higher valuation, e.g., the indices’ shift to technology; higher corporate productivity; and better governance. Increased use of AI in business, creating cost efficiencies, means that the now very overextended CAPE may still be calling a false top.

Comparing a stock to its historical trading multiples may also give a false signal. Value investors avoided Apple over the last decade because it was trading well above its average valuation level, missing that the growth of its services segment would warrant the higher valuation. If elevated multiples in stocks or sectors don’t necessarily indicate a top, a related indicator might, that is when investors start changing the key metrics to justify the higher prices, i.e., moving the goalposts. At the bottom of a cycle, the market requires an attractive P/E; halfway up, it’s focusing on EBITDA; a bit higher up, adjusted EBITDA is fine; then it’s revenues; finally, something like ARR (annual recurring revenue) or TAM (total addressable market).

Another way to move the goalposts is to change the comparison set. If a utility stock starts to look expensive for its sector, you can say, “Well, it’s an AI play now and it’s cheap relative to those.” In 2007, the Russian index looked pricey to us at an all-time high P/E of 12, but we told ourselves it was okay by comparing it to Brazil at 15x, India at 20x, and China at 30x. What we missed, or chose to overlook, was that these were all peak multiples.

Toppy Markets: Qualitative Indicia

Charles Kindleberger and Edward Chancellor have written histories of bubbles, which I consider required reading for a professional investor.2 The events they describe seem to recur as every bubble inflates. These signposts are qualitative, and I can add a few more from my experience watching or, sadly, participating in bubbles over three decades.

Elevation of the Unqualified

In every bubble, Pied Pipers emerge, or what my Firebird co-founder Dan Cloud used to derisively call “Creatures of the Bull Market.” Their views are received as wisdom, even if they have no track record and come off to non-believers as mediocre minds. During the crypto boom, CNBC constantly aired interviews with “experts” who struck me as utter numbskulls. (It’s hard to defend crypto and not sound dumb, though economist Kenneth Rogoff manages it in his new book3, which I may discuss in a future Substack.)

In my last post, I wrote about Cathie Wood, the gibberish-spouting avatar of the VC boom, so I’ll skip her and look at Leopold Aschenbrenner, the Icarus of the AI bull market. He blew up his fund in record time, not because he wasn’t intelligent but because his lack of market experience made him unqualified to run billions. At a poker table with players like Goldman Sachs and Jane Street, Leopold was the obvious patsy. Being a genius isn’t enough to make you a good investor — Isaac Newton was wiped out in the South Sea Bubble — and certainly isn’t enough to manage a fund — two of the LTCM founders were Nobel laureates.

My Firebird co-founders and I were all intelligent — I would put one or two (not me) in Leopold I.Q. territory. Like Leopold, we identified a great trade (Russian vouchers), like him we were skilled at picking the winners, like him we took in a lot of money as newcomers — and like him, we weren’t ready for the wild ride ahead. Months after our launch, in mid-1994, the Russian market took off, an event we saw as only proper, not to worry about or to hedge. It turned out that that blow-off top was attributable to a few speculators like George Soros who, reportedly, when he took a closer look at Russia, said, “Get me out now.” Soon after that the market crashed, and the ruble with it. Firebird rocked like a rowboat in Soros’ wake and that of the other big players, clueless about what was happening to us.

By the next Russian bull market in 1997, we were experienced enough to know that skyrocketing prices aren’t just for high fiving, but also for questioning. We tried to protect our funds against a possible inflating bubble, with limited success, and one way we did it led us into a whole other world of risk. My ex-partner had the idea of replacing half of our stocks with a combination of call options and leveraged ruble-denominated bonds, a trade that was sure to work unless Russia devalued massively. In 1998, as Russia was about to devalue massively (and default too, for fun), I got a surprise margin call from Salomon Bros. I must have sounded rattled, because twenty minutes later CNBC’s Ron Insana was on the phone, asking if we were “blowing up.” My blood ran cold and, unlike Leopold, I was able to and did immediately sell enough to remove all leverage and live to fight another day (and never to go on margin again).

Conversion of the Skeptics

This is not a painting at the Louvre by Titian, but another sign of a toppy market. When the most prominent naysayers start to convert, one must question whether the relevant market is near an interim if not long-term peak. The recent announcement by Terry Smith of Fundsmith, a $30b fundamentals-focused manager, that he would going forward include momentum in his stock selection signaled to many a top in the momentum trade and a bottom in value. That remains to be seen, but it is a sign.

During the VC boom, I heard a podcast with skeptic and value investor Jeremy Grantham, in which he spoke excitedly about his stake in a high-flying battery startup, Quantumscape (QS), that would make lots of money for his charity. I took it as a bad omen for VC and rethought any more speculation of my own. (QS is down around 80% since then.) Similarly surprising was when Howard Marks changed his tune on crypto, which he had called an “unfounded fad,” if not a pyramid scheme. He became “open-minded” in 2021, after spending Covid time with his enthusiast son. (I can think of nothing I want less than to be quarantined with a crypto lover.) Marks’ conversion turned out to be a false signal, as Bitcoin has quadrupled since then.

Advertising to the Masses

In 2006-07, it seemed wherever you looked there were ads for real estate. I was taken to a Rangers hockey game in January 2008, and all the signs around the rink were for mortgage companies. I turned to my host and said, “I predict that every one of these companies will be out of business in a year.” I was spot on.

In 2022, in the Crypto Bowl commercials, Matt Damon prepared to play Odysseus by advising in heroic tones that “fortune favors the brave,” while Larry David stumbled into prophecy, saying, “Eh, I don’t think so,” to the idea of buying crypto via FTX.

Today, every subway car is filled with posters for AI companies, and it’s not obvious from the ads what any of them actually do. Maybe they haven’t figured it out yet.

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Conclusion

With my golf buddy who was disputing that anyone can identify an overheated market, I finally gave up and quoted Justice Potter Stewart’s famous line about pornography: “I know it when I see it.”

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.

A recent instance of “quackery” was the SpaceX IPO, in which an aggressive, widespread sales campaign — I was offered stock by everyone from Goldman and JPM to my corner Sabrett vendor — stoked demand. Elon Musk squeezed every drop of it to value the company at $1.2 trillion, obviously unconcerned about potential losses to starry-eyed believers. The underwriters, who usually argue for leaving upside in the aftermarket, clearly were no match for Elon with fees this rich on the line.

Another master of duck feeding is our president, whose latest heads-I-win-tails-you-lose venture was $Trumpcoin. Before its launch, I wrote that given his track record as a promoter, anyone who bought the coin would get what they deserved, and they sure did: $3.8b of losses to nearly one million crypto wallets.1 You’d think that Musk or Trump might at least have worried that if their offerings crashed they’d never raise money again, but they weren’t. They both know, as well as P.T. Barnum, that there’s a sucker born every minute.

While financial entrepreneurs owe a duty only to themselves — in the State of Crypto, the motto on the great seal is Caveat Emptor — with fund managers it’s supposed to be different. They are after all fiduciaries and should only market products they truly believe in. Since we’ve already stipulated that demand for a financial asset is strongest when it’s becoming most overvalued, this would imply that an honest manager will turn away investors just when they’re the most plentiful. But do they?

Private Equity and the Ducks

“ABC: Always Be Closing” is the credo of most (not all) private equity firms. If demand for a new fund exists, it will probably launch, regardless of whether the valuation/interest rate cycle is propitious or ominous. PE firms market themselves with phrases like “top decile,” but even a great manager will struggle to post attractive returns off a bad vintage year. From the managers’ perspective it’s a no-lose situation: if the current vintage turns out to be bad, they can keep raising funds until they hit a good one, and that’s when they earn the big performance fees (to be taxed as capital gains, for some reason).

My first experience as a PE limited partner was with a (then) top-rated manager. The fund, J.C. Flowers II, launched in a terrible vintage of 2007 (my bad for investing; I was quacking) and was deployed way too fast in light of the crisis then unfolding — one of my co-investors said they spent the money “like drunken sailors.” JCF II ultimately delivered a 70% loss to investors. Out of morbid curiosity, I attended a presentation for JCF III, which happened even as the wreckage of II was still smoldering. I almost spit up my waffle when Flowers said that Fund II was problematic but “now the timing is ideal.” Since then, I’ve avoided most PE — and automatically reject any fund with a roman numeral higher than II, e.g., Apollo XIII or Blackstone MCMXIV. (I don’t even like “II”; I think they should call a follow-up fund “Jr.”).

Venture Capital and the Ducks

A different dilemma arises when a fund manager is still getting to scale and loath to turn money away, even when the risk-reward in their market has already deteriorated. I saw this in venture capital from 2020-22, when U.S. VCs alone raised 3,000 funds. Soon after the funds were raised, while capital calls were just starting, many of the managers capitalized on insatiable demand by offering SPVs to co-invest in some of the funds’ deals. (This practice was so popular that big fund investors often negotiated “co-investment rights.”)

Not wanting to be left out of the VC boom, I bought into three funds and eight SPVs, all run by small managers trying to reach a level of assets under management (AUM) that would sustain their operations. Most of the SPVs represented a venture-stage company’s additional capital raise, at a valuation marked up from where the VC fund and other seed investors had gotten in. I don’t doubt that the managers believed the companies were still attractive at the higher level … or convinced themselves of that anyway, as they could simultaneously satisfy LP demands for paper and grow the AUM they needed (with a carried interest).

Every one of those managers has come back in the past year raising a new fund, but the problem is I’ve gotten hardly any money from the 2020-22 funds and SPVs and don’t know how those will ultimately do. Because VCs invest on a long time horizon, the lack of capital returns is understandable; and if I’d only invested in the main fund, and liked what I see in its portfolio, I’d consider the new vehicle. But when I add in all the SPVs, my VC basket is full; the only fund where I might re-up is the one that offered no SPVs (it’s based in Europe, where co-investing is less common).

I respect the VCs I gave money to and think they’re honest people who faced choices similar to ones I did when Firebird was smaller. Less deserving of respect, in my view, are VCs who, though already managing many billions, continued feeding the ducks even when they had to know that stratospheric valuations had made their new funds highly speculative.2 One manager that comes to mind is the avatar of the venture bubble, Cathie Wood, whose ARK Invest destroyed $14 billion in shareholder wealth over ten years through 2024.3

Wood’s flagship fund, after gaining 150% in 2020 on starting capital of $3b, attracted $30b of inflows from mid-2020 through 2021, then dropped 67% in 2022. While it’s not precisely her fault that all the people came in at or near the top, she did nothing to dissuade them, on the contrary constantly presenting her dreamlike valuation ideas on CNBC and Twitter, at conferences, and everywhere else. (As for ARK’s portfolio construction, that’s an MBA thesis in itself.) Even after a recovery from the 2022 lows, $ARKK has underperformed QQQ by 110% over the last five years.

I’ve written before about the emerging markets bubble of 2007.4 That year, Firebird continued accepting big investments into our one open Eastern Europe fund despite our misgivings about Romanian banks trading at 4x book value and the DeWalt Tools of Bulgaria up 20x in a year. (At least we never, like a couple of our peers, made asset-gathering a focus to the extent that we had to change our strategy.) And like the big VC managers, we were already at a sustainable AUM, so didn’t have the excuse of “needing” more to be profitable.

The LIFO Rule of Bubbles went into effect and the 2007 hot money became the first to bail in 2008. These extreme inflows and outflows destabilized the fund in question, delaying the time it took to recover and damaging our reputation with the longer-term investors in it.

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Conclusion

As fiduciaries, fund managers also have, in my opinion, a professional obligation to protect investors from themselves. Yet their track record in doing so is poor, even when it’s in their own best interests. If that’s so, how much less likely is that non-fiduciary financial entrepreneurs will be looking out for the little guy?

$DOGE to the moon, indeed.

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.

I’m deep in the new Rolling Stones biography, which together with the World Cup have occupied my writing time, so I’m reposting one of my first Substacks, which few have seen. The new Stones book could eventually get on this list, but for now here are my favorites.

The list is all non-fiction, as I’ve never read any attempted fictional treatment of rock that didn’t embarrass me. I can’t say why the feeling I experience is embarrassment — maybe the novelists remind me too much of eleven-year-old me, dreaming up names and outfits for fantasy bands my friends and I would launch as soon as our parents let us. (One movie, Almost Famous, and one play, Stereophonic, have passed the embarrassment test.)

Life, by Keith Richards

My favorite part of this memoir is when Keith describes the recording of the album Exile on Main Street in a villa in the south of France. I’m going to paraphrase his description of a typical day: “You’d wake up about noon, smoke a joint in the sunshine, then there’d be a breakfast of fresh fruit and croissants on the terrace. You’d float in the pool, and there were always some models coming over from St. Tropez to hang out. A brilliant dinner prepared by our French chef, do some heroin to get in the mood, then into the studio to record our masterpiece all night. But I don’t recommend this life to anyone.”

Up-Tight, by Gerald Malanga and Victor Bockris

This is the history of the Velvet Underground, by someone who was there from the beginning. Fun fact, their first show was in 1965 at Summit High School in suburban New Jersey to an audience of unhip mid-’60s kids in party dresses and suits. When the band launched into “Heroin,” the crowd had no clue what they were hearing and half of them walked out, thus costing Summit the chance to be forever known as the birthplace of alternative music. Malanga reveals that John Cale was a classically trained genius, Mo Tucker was a housewife who had drums in her garage, and Lou Reed was kind of an asshole.

Please Kill Me: The Uncensored Oral History of Punk, by Gillian McCain and Legs McNeil

We learn that punk started not in the 1970s but the late 1960s, with the MC5, followed by Iggy Pop and the Stooges. Second fun fact: Iggy lives half-time on Grand Cayman, highly recognizable as he tools around the island in a red Porsche 911. I spoke to him once on the beach; his skin looks like Yogi Berra’s catcher’s mitt, which I saw at the Yankee Hall of Fame. The Ramones were the source of the genre’s name — they adopted the male prostitute (“punk”) leather jacket aesthetic. Heroin was a big part of the scene, and although Lou Reed adopted addict chic, he was never a serious user. Also, he was kind of an asshole.

Who I Am, by Pete Townshend

The summer when I was nine, an older kid at White Rock Bungalow Colony in the Catskills introduced me to Tommy, changing my whole perspective on music and culture.1 No more Alvin, no more Chipmunks. I stuck with The Partridge Family though, whose records still hold up (with The Wrecking Crew as their backing band). The most interesting part of Townshend’s memoir 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. While writing the book, Townshend was criminally investigated when he searched the web for child porn, then explained that he was trying to unearth repressed memories of his own abuse. He writes that many children evacuated from London to the countryside during WW2 were abused in the homes where they were sent, possibly himself included.

Catch a Fire: The Life of Bob Marley, by Timothy White

Not only a fascinating study of the man, but of the social and political environment in 1960s and 1970s Jamaica. I’ve had several heartbreaking near-misses in fifty years of concert-going, including 1) when I stood outside Madison Square Garden, unable to pay $25 for a scalped ticket, the night John Lennon came on to play with Elton John, and 2) picking the wrong night of the “No Nukes” concerts in 1979 and getting The Doobie Brothers and James Taylor/Carly Simon instead of a legendary Bruce Springsteen show. My third worst miss was opting out when my high school friends went to see Bob Marley at The Beacon Theater in 1975. They even smoked a joint with Chevy Chase, how cool is that (in 1975)? White writes that Marley died of an operable skin cancer when he refused to let the doctors amputate his toe, saying, “You cyan’t cut de Rastaman.” The loss of Bob Marley, considering what he had left to contribute to music, ranks up there with Buddy Holly and Kurt Cobain, in my view.

Chronicles, Volume One, by Bob Dylan

The book starts out straightforwardly enough, describing Dylan’s arrival in New York City at the beginning of the early 1960s folk revival. Given that the writer is Dylan, he can’t resist throwing readers a curveball, abruptly jumping to the recording of the album Oh Mercy in 1989. His story of rediscovering his performance mojo in the mid-1990s is thrilling, to me especially since I saw one of those shows, while he was still out of favor. At that 1995 concert, I was surprised to see the surly performer of the prior decade transformed into a jocular entertainer, smiling and shaking fans’ hands as he tore through his catalogue — with their original melodies, mostly. Bob’s biggest curveball is that, 20 years later, there’s never been a Volume Two.

Trouble Boys, The True Story of the Replacements, by Bob Mehr

Biographies of rock musicians usually follow an arc, from drugs and vomit amid squalor, to early success, to stardom and conflict, to drugs and vomit amid luxury, and finally to maturity or death. The story of The Replacements has no real arc: they got great early on, became popular pretty fast, then flamed out, and along the way never changed their idea of what a rock band should be, or lost their rebellious attitude. They were known for drunk, shambolic shows, but the two I saw were both extraordinary. I tried to hire Paul Westerberg to play at my 50^th birthday party and his rep said, “Paul doesn’t play private shows”. Good for him, but he’d have had an adoring audience. (Tommy Stinson, the bassist, did play at my friend’s 60^th, but they’re neighbors in upstate New York, so that’s different.)

Last Train to Memphis: The Rise of Elvis Presley, by Peter Guralnick

Guralnick shows that one key to Elvis’ success was that he was not a racist. The young King would sneak out of church services to hear better music at the “sanctified meetings” in a Black church nearby. Rumors cropped up over the years that Elvis once said something racist, but Black scholars have rejected them. By the way, what you learn in Guralnick’s sequel (Careless Love: The Unmaking of Elvis Presley) is that it was the U.S. Army that hooked Elvis on amphetamines (they distributed “go pills” to all the soldiers) and not, as shown in Baz Luhrmann’s Elvis movie, “some Black musicians.” Now that’s racist.

Petty: The Biography, by Warren Zanes

I’m including this one mainly because I love Tom Petty so much. One aspect of this bio that stuck with me is that Petty lucked out when Leon Russell became his champion. Russell, as a member of the Wrecking Crew, knew everyone in the L.A. music scene and opened doors for Tom. Even with a talent as large as Petty’s, in the entertainment business luck is always a factor. The Beatles also lucked out, landing the Hamburg Star Club engagement when another band got sick – without that, their story may have gone differently. This is a theme of the Coen Brothers’ Inside Llewyn Davis, when the talented protagonist finally gives up on music and ships out just as Bob Dylan steps onstage and the folk scene kicks into overdrive. Bob’s timing was lucky; Llewyn’s was not.

Born to Run, by Bruce Springsteen

It would be impossible for me to leave this memoir out, even if it weren’t so beautifully told. Bruce has reflected more, and more intelligently, on his work than any other rock star I’m aware of. Being the humble guy he is, he’s one star who credits luck and timing for his success, along with monomaniacal determination.

Honorable Mention

20^th Century Man, Ray Davies at the Westbeth Theater

This is a performance of a book, which I saw for my birthday in 1996. A lifelong Kinks fan, I could not miss Davies transforming his memoir X-Ray into a one-man show, performed in a haunting, elegiac style, with songs interpolated. The show inspired VH1’s “Storytellers,” and without it there’s no Springsteen on Broadway or Bono book tour/performance. Ray Davies’ fame in the U.S. never matched his importance to rock music – as I observed personally one time at New York Sports Club, when he pedaled calmly on a stationary bike, unrecognized by anyone but my slack-jawed self. God save the Kinks.

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.