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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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  • Who Is John Galt? He Is A Texas Hedge Fund Analyst And Former SA Editor 3 comments
    Nov 27, 2013 9:04 PM | about stocks: INTC

    First of all congratulations on your superb essay which earned first place in the Atlas Shrugged Essay Contest. You just made $10,000 by earning the first prize. What does that money mean to you? What are your plans for it?

    Like many members of my generation, I can't ever keep money in my checking account. It's somewhat like a sieve. Money flows out as quickly as it flows in. I perpetually complain to my friends that I'm nearly broke; they assure me that it's mathematically impossible for a junior hedge fund analyst who pays no rent to be broke. But my checking account says otherwise.

    You see, many of my age-peers have vices like cigarettes and alcohol, both of which I'm told are quite expensive. Having no personal experience with either, I can't verify the veracity of said statement either way. I have an even more expensive hobby: value investing. My brokerage and retirement accounts consume almost every dollar I earn and make it impossible to spend large sums of money. I look at pictures of Shelby GT500s and Audi R8s and think about how much fun they would be to drive, but then I always think "but but but that would be worth tens of millions if I stuck it in my Roth and compounded it at 10-15% until I'm 70!" And I can't justify spending tens of millions of dollars on a fast car. So I invest it instead.

    Moral of the story, kids: if boring old people try to talk to you about value investing, run away screaming and spend all your money on the latest consumer electronics immediately. Don't be selfish. Leave all the alpha for me and Chris!*

    So, given my predicament, I think I will do four things with the money:

    1. Cry profuse tears of great sadness as Uncle Sam pats me on the head and removes 37.5% or so. Estimated cost: $3,750. Estimated value of items purchased, not inflation-adjusted, in the year 2063: $37.50. The government spends trillions each year; meanwhile, the road I live on still has cracks in the asphalt, the line at the DMV is still >2 hours at all times, and a former science professor of mine mixes his solutions in a blender from the '70s because he apparently doesn't have enough grant money to purchase a newer blender. Consequently, I have a high degree of confidence that the government can invest my capital at a rate of return that will reduce its value by 99% between now and 2063.
    2. Purchase some very nice Christmas presents for my friends and family. Estimated cost: $500. Estimated value of items purchased, not inflation-adjusted, in the year 2063: $0.00. The items will be very nice but will probably not function for 50 years.
    3. Go out for a very nice dinner with a couple of friends at one of the best restaurants in town. It has rave reviews and prices designed to make any value investor go raving mad. Estimated cost: $250. Estimated value of items purchased, not inflation-adjusted, in the year 2063: $0.00. Consumables generally tend not to sustain their value.
    4. Blow the rest of the money on my horrible, horrible value investing habit. Estimated cost: $5,500. Estimated value of equities purchased, not inflation-adjusted, in the year 2063: $645,649.70. No commentary necessary.

    *My grammar teacher is floating around in my head bemoaning that the proper expression would be "for Chris and I". However, now that I've won an essay contest, I believe I deserve at least one grammar exemption per interview. I intend to fully utilize that privilege.

    What business leader today best exemplifies the type of heroic businessmen that you discuss in your essay?

    That is a fantastic question, and one which is kind of hard to answer. I think it's a question that's easier answered by looking in the rearview mirror rather than the silver screen. Lots of reasons but you can sum it up as signal-to-noise. Anyway, there are plenty of them. I'll go with the guys who founded and built Intel, and no, it's not just because I own INTC. Semiconductors are an enabler for basically everything around us today in one way or another, and I think that's awesome.

    How about the villains of business, where do you see them today?

    There will always be villains, and sadly, they get more press than the good guys. I won't name specific entities or people, but I'd point to the fact that there are a lot of entirely fraudulent companies in certain geographies, and there are also entire industries that are built on cost-inefficient technology that only continues to see widespread use due to government subsidy and regulatory mandates. In some instances, this goes as far as regulatory prohibition of alternative options that deliver far superior cost structures. Many companies in this arena have enriched their owners without providing the public with much (if any) benefit. I'm trying to drop anvil-sized hints here, maybe somebody in the comment section will come up with the answer.

    Would the world be a much better place if more people read and understood Rand? Or is the problem deeper, that many people understand our choices perfectly and choose to be or to reward the moochers and looters?

    The answer is somewhere in the middle. I believe there are a great number of people who would benefit from reading and understanding Rand; if they did so, the world would likely be a better place. However, I believe there are also people in two other categories: those who understand the principles of capitalism and liberty and choose to denounce them notwithstanding, and those who - due to preconceived notions, personal circumstances, or otherwise - truly believe that alternative worldviews are superior. Unfortunately, the number of people in these two categories is quite large. It doesn't help that many alternative (and utterly illogical) viewpoints have pleasant optics and easy framing.

    I referenced Eat People by Andy Kessler in my essay because I believe it crystallizes some of the issues in a very easy to understand way. Unintended Consequences by Edward Conard makes points along a similar line, though I don't wholly agree with that book. The general idea is - yes, it would obviously improve the current condition of all the world's poor and downtrodden if all the wealth of the rich was seized and redistributed. Does Rich CEO really need ten mansions when there are families in the third world living in the dirt? Why not tear down nine of Rich CEO's mansions and use the money to build shelters?

    The first-level thinking is compelling, which is why so many people (especially younger people) fall for it. However, you'll notice that there are many parts of the world that have consistently been provided a substantial amount of international foreign aid, ranging from money to food to medicine. Yet many of these areas remain systemically poor. The parts of the world that are rapidly developing and raising themselves out of poverty, on the other hand, have often not received substantial aid. They have, however, embraced capitalism to a greater degree than they did previously.

    It is true that government plays an important role insofar as providing basic infrastructure, an organized system of law to ensure everyone plays fair, etc. However, beyond that basic role, it is innovation and free enterprise that have done the most good for the world. If you look around most middle class American neighborhoods today, you'll see an abundance of cars and televisions and running water. Furthermore, children typically attend school rather than entering the labor force or working on the farm. These things were not made possible by taking medieval kings' hoards and redistributing it to the peasants - if that were the case, we'd all have some pretty shiny gold coins and no washing machines. Redistribution is a static activity that can never generate more than it takes; you can't magically wish one dollar into being worth two. You can print another dollar, of course, but that just means you now functionally have two half-dollars.

    Real wealth is generated by trade, because if you have a lot of lobster up in Maine, and I have a lot of beef down in Texas, the value of a marginal lobster to you and marginal cow to me is quite low. By exchanging, however, we get something we didn't have before. We're both wealthier. And at their most basic level, that's how economies work. Add in the fact that when people are incentivized to increase their wealth, they find ways to do things that make other people wealthier in the process… and yeah.

    I forget where I was going with all that (I'm tired… where's my apple pie, why isn't it tomorrow already!) but you can read my essay and the two books I mentioned. The point is that once you get past first-level thinking and figure out how things really work, you realize that capitalism with limited regulation to prevent externalities is the only system that works in the real world. But due to a mixture of bad intentions (of a few people) and good intentions but misguided interpretations (on the part of a lot of people), the world is the way it is, and we'll just have to continue making it a better place to the extent that we've can.

    On that topic, which seems Thanksgiving-y: what I've found (in all my 19 years of experience, lol) is that there are a lot of people that genuinely want to change the world. I've also found that it's often very difficult to effect changes in the lives of far-away people in far-away places. Put another way, it's easier to help your neighbor than it is to topple a dictator on the other side of the world. I'm not saying that humanitarian ambition is bad, per se, but there's more than one way to make a difference. You have to understand the limitations of your platform, finances, and abilities. Focus on taking care of your family and friends, and making yourself the most self-sufficient and productive person you can be, and pretty soon you'll find that you've done a lot of good without not necessarily meaning to. There's 99.99% probability that you've accomplished more good than you would have if you'd spent all those hours holding up signs at rallies for causes that will be forgotten by the end of tomorrow's news cycle.

    And now I'm done rambling. The nonexistent audience can return to whatever they were doing previous to this, and I can return to my kitchen for my fifth helping of apple pie.

    You win a lot in part because you compete a lot. Any other competitions coming up where we should watch out for you?

    I was intending to compete in ModelOff this year but quite honestly I didn't get the time to adequately prepare, so I decided to put it off until a future date. School and work keep me busy. However, after my success on the BAT (which I took on a whim, never studied for) and the Atlas Shrugged essay contest (which I remembered a few days before the deadline, at which point I quickly reread the novel and wrote a first draft at like two in the morning, sent it to you and a couple other people, and submitted the final version a few days later) I'm thinking that I might try something else. Dunno yet. We'll see. Stay tuned. But definitely don't expect any marathons… I'd come dead last in those.

    Also, not a competition, but I'd kinda really like to finally get a novel published. I've been working on several for a while. (Read: since I was about thirteen. As you might imagine, the first 5/10/15 really sucked. The stuff I'm writing now probably still sucks.) Unfortunately, I love the "writing" part but not so much the "pitching to agents" part. It's time-consuming, depressing, and kinda boring. But necessary. Now that I'm the official winner of the 2013 Atlas Shrugged essay contest, maybe somebody will actually agree to read the stupid stories that I love to write.

    And hey, if anyone who is in the book publishing industry and/or has first, second, third, or fourth degree contacts in the industry is reading this, or maybe if you've just stood in line with an agent or seem them at the mall or something, you should send Chris your contact information, so I can offer you a coffee in exchange for getting my book published pleaseandthankyou. My utilization of this interview for advancing my agenda is stunningly, shamefully self-serving. Which is pretty much what you'd expect from an interview about someone who won an essay contest about a book by an author who wrote something called The Virtue of Selfishness. Okay, I'm trying too hard to be funny and I'll leave the funny business to the professionals. Namely, my replacement at SA, who is infinitely more talented as an editor than I ever was. Even better, he spends his nights as a stand-up comic. He's hilarious. Go watch.

    What are you most grateful for this Thanksgiving? Let me also specify that I would like to remove the need to give a schmaltzy answer. So, please do not feel any obligation to reference family, peace, etc. What are you actually most grateful for right now?

    But-but-but I actually am grateful for my family! No, seriously. They've been very supportive of my somewhat insane desire to be a full-time graduate student and a full-time hedge fund analyst, and are always prying me away from my computer with tempting offers of action movies and warm meals. I'm also grateful for my neighbors' dogs, who I might spend more time with than my neighbors… I'm mildly concerned about what that implies about my social habits. But whatever. I'm an INTJ, and puppies are awesome.

    If I can't be schmaltzy, perhaps I can be self-serving for a second time: I am grateful for my employer, who is a due diligence master and as such will undoubtedly come upon this post. Okay, I'm just kidding… mostly. I'm thankful that a very awesome investor by the name of Bernay Box decided that a random misfit 19-year-old with a degree in biochemistry rather than finance had sufficient qualifications to join his prestigious organization. He's so awesome that he had a chapter in this book devoted to him. Must-read for any value investor.

    While I learned a lot during my tenure as an SA Editor, it was sort of the second derivative of what I wanted to do: I like finance/business/investing, and writing about those topics is the first derivative, and working for an organization that builds a platform to allow people to do so is the second derivative, so to speak. Thus, transitioning from SA to the investing world seemed like a better fit, and it undoubtedly has been. I'm still very early on in the learning curve, but I'm grateful to have found someone who:

    1. is an extraordinarily smart investor who's willing to mentor me and help me be awesome someday too
    2. lives in Texas so I don't have to move away from my family to Yankee-land, where talking about Ayn Rand too much will undoubtedly draw dirty looks
    3. was willing to hire me despite my youth and status as a full-time student

    I'm learning a ton and doing what I love and earning enough to help support my family while I'm at it. What more could I want?

    So yeah, that's what I'm grateful for this Thanksgiving. That and apple pie. And macaroni and cheese. And steak. No, not turkey… steak. And key lime pie. And cheesecake. And cornbread stuffing. And the cardiac specialist who will likely need to operate on me after another few decades' worth of Thanksgiving spreads.

    Well, as this contest has proven, your time is valuable so I'll leave it at that. Thanks for your many profitable ideas.

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Comments (3)
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  • earljr1
    , contributor
    Comments (291) | Send Message
     
    Villains of business-- "I'm trying to drop anvil-sized hints here, maybe somebody in the comment section will come up with the answer."

     

    I would certainly say that just about anything "green energy" falls into this category. Definitely ethanol--it's an environmental and an economic disaster designed to get money into the right people's pockets. And don't even get me started on the currency printer villains.

     

    (And I think you had the "for Chris and me" right the first time.)
    27 Nov 2013, 09:58 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4246) | Send Message
     
    Author’s reply » Great point. Here is a great 5 minutes on green energy: http://bit.ly/IhXWyT
    27 Nov 2013, 10:01 PM Reply Like
  • johnbarleycorn
    , contributor
    Comments (124) | Send Message
     
    Elon Musk to develope static electricity engine...:D
    2 Dec 2013, 11:42 AM Reply Like
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