Chris DeMuth Jr: Why Write On Seeking Alpha?

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Includes: AZSEY, UBAAF
by: Chris DeMuth Jr.

Summary

Organize and ship your thoughts, connect, make your catalysts, reach your audience, and get paid.

I write if I can say "yes" to the following: Is it true? Useful to readers? Strategic to Rangeley Capital?

Be a small part of crowdsourcing as it supplants a reliance on expert authorities.

Why?

I have written a number of articles for Seeking Alpha over the past few years. Why? Why do so many other investors do so too? The ranks include the CEO of BlackRock, the chief economist for Allianz (OTCPK:AZSEY), and the co-founder of Andreessen Horowitz. It is not as if such people have run out of other things to do.

Organize a Thought and Ship It

For me, the core reason to write is to organize my thoughts and then to ship them. For each article that I publish, there are another dozen that sound original and valuable in my head. I wake up brimming with enthusiasm, pore through stacks of SEC filings and have conversations with key sources. But by the time the thought is written down, it frequently looks either derivative or wrong. Sometimes, I am excitable by the quirkiness of an idea, but the facts are just not there. Other times, the idea really is as good as I think, but someone else (usually Whopper Investments) already thought of it first.

Writing imposes a discipline. I organize thoughts into articles, get several of my colleagues to weigh in on them, writing them down, and check the context of previous articles before submitting them. Once the ideas are shipped, they are falsifiable and actionable. If they are right, then that brings some satisfaction. If they are wrong, I want to be the first to know. I typically have millions or tens of millions of dollars at stake in each article's idea, so I would far prefer to be humiliated in public than to fail to understand the flaws in an argument in private ignorance.

The Standard

I have a simple three-part test for each article. First off, is it true? Perhaps this should be obvious. But is each word robotically and completely true? If I am not certain (it is rare that I am and rarer that I should be), then a thesis can be couched in probabilities, just as is my portfolio. Wrongness is not a freak occurrence, a surprise, an externality, or a bug. Wrongness is a part of the process. It is something that is constantly with me in my portfolio and in my articles. That needs to be clear. Even in the best of years, there are many losers for the winners to make up for. The net leaves behind a bit extra after the bill is paid for my many sins of commission and omission.

Secondly, is it useful to readers? Can the idea be understood? Can it be exploited for profit? Each mispricing has three basic attributes: an upside, downside and probability. Each premise should be based on extensive primary research that is not already in the press and in the price. The premises should lead to the conclusion that there is a positive expected value in a potential investment. The best caveats and critiques focus on specific premises and argue their validity and soundness. The best comment sections can be contentious, often rousing, but always apply reason to facts, focusing on the logic - and logical flaws - of the article's argument.

Thirdly, is it strategic to my partners at Rangeley Capital? In practice, this question tends to lead me towards silence in any position that we have not finished sizing. We typically own something days ahead (or years ahead) of any mention on Seeking Alpha. We typically remain invested until our thesis is done, when our view of the odds converges upon the market-implied probabilities. Of course, such convergences happen in negative outcomes as well as positive outcomes.

Connecting

My interest in capital markets has always been based on a fascination with the price system itself, and in finding specific little examples of pricing failure. This interest often takes me far afield from any industry, geography, or part of the capital structure where I have any specialized expertise. Professionally, I solve this by spending a fortune on getting that expertise when it is necessary.

Seeking Alpha plays a role too. It constantly connects me with fellow investors, including specialists in relevant industries or strategies. I typically have a few dozen positions in my portfolio, and track hundreds more in my alert portfolio (of ideas that I like but am awaiting better security prices for). I often know about a given industry only what I learn from reading. But people who worked their whole careers in a given industry will often offer feedback to articles. When it is their industry, and more so when it is their company, it is as if they can't help themselves.

Make Your Own Catalyst

Seeking Alpha writers can make their own luck. The worst thing about Urbana (OTC:UBAAF) in early 2013 was that few investors knew about it. But via Seeking Alpha, I was able to take a small role in changing that. So far so good. Elsewhere on Seeking Alpha, I helped publicize several petitions associated with our investment in the Lemtrada drug for MS. Again, we invested in something that cost a discount due to a problem. Then, we tried to solve the problem.

Historically, shareholders were not really company owners, because of the diffused nature of the ownership. They owned companies in theory, similar to the way that taxpayers own the Washington Monument. Show up one day and try to build an addition on it, and you will not be treated like an owner. But with a growing ability to communicate and coordinate, we can act like we own the place (because we do).

Scaling Your Audience with Search Engine Optimization/SEO

Before I wrote on Seeking Alpha, my furtive efforts to post a few documents resulted in only a few thousand readers. On Seeking Alpha, I was able to reach hundreds of times as many people, with no additional effort. Instead of showing up on Bloomberg a couple of times each year, my ideas are syndicated on Bloomberg terminals each time I write. If it is worth having an audience, Seeking Alpha will radically expand your audience.

While I have thought about switching to one of Seeking Alpha's competitors, the thought is short-lived, due to the difference in audience sizes. No other Seeking Alpha comes close to its reach. It gets 120 million page views each month from investors. 2.3 million people subscribe to real-time alerts. There are 4 million registered users. Seeking Alpha has 200 employees who are there to help you reach your audience. If you want to blog about your analysis on individual stocks, Seeking Alpha owns the place to do it.

Get Paid

I would admit to being a profit-seeking capitalist, but that would be redundant. The scale is extremely modest. A good year of writing about investment ideas on Seeking Alpha is about as lucrative as a good hour of actually executing such an idea. However, it is fun to make money writing.

Also, unlike my paycheck and partnership investments, my wife does not get my Seeking Alpha money. Unless she reads this, she doesn't even know about it. I just take the check to the bank and cash it. Any investor can appreciate the difference between theoretical cash and actual, undiluted cash that you can actually get your hands on and put in your pocket.

Surprises?

There have been both good and bad surprises. I like to start with the bad news. Bad surprises include the fact that audience does not seem to be the same audience as hedge fund investors. So, this is really a fairly separate group of people than my partners and potential partners. Also, they tend to be do-it-yourselfers who are more interested in replicating than in coordinating on ideas. This substantially reduces Seeking Alpha writing as a business opportunity to connect with auspicious contacts.

Secondly, some number of trolls are unavoidable and unpleasant. I hate accordion. But I spend no time or energy attending accordion concerts and booing the performers. It is beyond my comprehension why anyone would waste time reading event-driven value investing articles and then attacking them for being event-driven value investing articles. But I can assure you that some people do.

There have been far, far more positive surprises. The editorial process is a real positive. I would otherwise have to pay someone to spend the time that they do in poring through my work. Slowing down the process to get an article right can be a help to the article, and can even help the underlying investment idea.

My favorite surprise has been to find a small subculture of serious value investors writing on Seeking Alpha. None are among the most widely read, but if you look carefully, you can find them. Had I not spent the time on Seeking Alpha, I would have never discovered Jan Martinek or Yuanxi Zhang. Those discoveries fully justify every minute that I have spent writing on Seeking Alpha.

Conclusion

Why do you write? Different Seeking Alpha authors will have their own reasons. But each of them is a small part of something big: disintermediating investment ideas. This is capitalism's enlightenment and reformation writ small. In earlier times, strict credentialing had its advantages, too. Many people with impressive credentials deserved to be heard. Many people who lacked impressive credentials did not. The credentials often got it right, but not always. With platforms such as Seeking Alpha, anyone with an idea and an internet connection can submit content. The results have been better than those of the experts.

Such platforms also make certain demands of the readers. In a world of three television networks and two or three national newspapers, one might have trusted in their authority based on a belief that they double- and triple-sourced, that they fact-checked, and that the best minds crafted their judgments. Today, on sites such as this one, it is 100% clear that you need to think for yourself. Buyer beware. Stay skeptical... even of yourself. Here is how Richard Feynman described his process:

In general, we look for a new law by the following process: First we guess it; then we compute the consequences of the guess to see what would be implied if this law that we guessed is right; then we compare the result of the computation to nature, with experiment or experience, compare it directly with observation, to see if it works. If it disagrees with experiment, it is wrong. In that simple statement is the key to science. It does not make any difference how beautiful your guess is, it does not make any difference how smart you are, who made the guess, or what his name is - if it disagrees with experiment, it is wrong.

Sites such as this have obliterated the pretense that beautiful, smart, or credentialed guesses should be cut any slack. They should be tested, measured, and subjected to the toughest possible rational scrutiny. Make guesses and tolerate the writers' guesses... then demand evidence before acting upon it. Hold yourself accountable for finding and judging evidence. That is what we should always have done. Today, the need is made clear.

For a second perspective on this question, here is some further reading:

So, You Want To Write For Seeking Alpha?

Disclosure: I am/we are long UBAAF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.