In case you have not heard, Facebook changed its name to Meta Platforms, doing business as Meta. They are sending a clear message that they believe the future is the “metaverse,” which is basically a virtual reality social media platform. In other words, Mr. Zuckerberg (and his peers) saw the movie The Matrix and thought it was a how-to manual as opposed to a giant warning against the downsides of technology. 

How is Meta Platforms doing? The stock is down more than 36 percent and they reported fewer users for the first time in the company’s history. So, is Meta a good investment while the stock is down so much? We don’t think so. 

There is a trend in investing over the last few years known as ESG. Longtime readers know how I hate acronyms – their sole purpose, in my opinion, is to make unintelligent people within an industry sound smarter by talking in a language that no one understands. ESG stands for Environment, Social and Governance, the idea being that companies with high ESG scores are more responsible and better citizens than companies with lower scores. This is not the first time this responsible investing idea has come up. It always collapses because in the end, what constitutes responsible behavior is in the eyes of the beholder. 

Meta Platforms gets a high ESG rating according to Sustainalytics…but should they? There was a Super Bowl advertisement for the Metaverse, which followed a stuffed dog, formerly someone’s beloved toy, now discarded, lost, and thrown away. Its life was harsh. Someone found it, took it out of the garbage and put virtual reality goggles on it. The dog’s virtual life was wonderful. I believe it was the most twisted, disturbing commercial I have ever seen. 

Recently I had a chance to hear a presentation form Dr. Leonard Sax. Dr. Sax has authored several books on parenting and has done extensive research on the effects of technology on children. He cited research published by the American Psychological Association, which tracked depressive episodes experienced by individuals by age group over time. From the early 2000’s through 2017 the number of depressive episodes among adults, people 30 and over, remained stable with no significant change. The older the group, the more stable the data. However, such episodes among adolescents increase 52 percent from 2005 to 2017. Incidents of depression increased 63 percent among young adults ages 18-25. Incidents of serious psychological distress rose 71 percent. The numbers are far worse for girls than for boys. The spike began around 2010. 

What happened in 2010 that would cause such a dramatic shift in the mental health of our nation’s youth? Instagram. Coincidence? I think not. 

UCLA published a study on TV viewing habits from 1967 to 2017. From 1967 through 1997 the number-one shows on TV all had one thing in common: they emphasized community values of doing the right thing and being a good friend. Between 1997 and 2007 the top shows moved to reality TV, which was all about individual values of fame, fortune, and winning. Doing the right thing would get someone voted off the island.  

Today kids don’t watch TV at all, it is YouTube, most of which is people doing anything and everything to get you to hit the like button so they can be famous. Is it any wonder that this shift in emphasis from doing the right thing and being a good friend to grabbing attention for yourself has accompanied higher rates of depression? 

Social media started as a way to stay in touch with your real friends, from the real world. According to Dr. Sax’s research, individuals who spend 30 minutes or less a day on social media platforms still use it for that purpose and do not experience the negative mental health results. However, those who spend more time are primarily using it as a performance platform. They share posts that make their lives seem better than they really are, and then compare their lies to those of their friends. Only, while they know their posts are mostly an act, they fail to recognize that this is true for their friends as well. 

Meta Platforms knows all of this and has for some time. Frances Haugen, a former data scientist for the company, blew the whistle on them last year. What is Facebook doing with all of this evidence of the harm they have done? Changing their name to Meta, hoping you will simply forget about having a real life all together and volunteer to plug your self into your Matrix pod. 

We don’t subscribe to the ESG fad for investing. We do, however, believe that all prudent investing is done from the bottom-up and that we should act as owners of companies and not traders of stocks. Meta gets a high ESG rating because, in truth, ESG has more to do with a company’s politics than anything else. I do not believe a company whose product is primarily responsible for a 71 percent increase in serious psychological distress in the lives of young adults is being socially responsible; at least that is my perspective. 

Warm regards,

Chuck Osborne, CFA

Disclaimer: Neither Mr. Osborne nor Iron Capital owns shares in Meta Platforms stock in their personal accounts or in the accounts of clients. This Perspective was for educational purposes only and not a recommendation for investing. 

~Meta Meltdown

For those may did not know, the Jewish holiday of Hanukkah is underway. It began on Sunday, November 28, and ends on Monday, December 6. I want to wish everyone a Happy Hanukkah this year because it is part of the “Holidays” in “Happy Holidays,” or at least it is supposed to be. 

In our last Perspective I mentioned that we have to stop suffering fools, which brings to mind the obvious question: When did we start suffering fools? It all started with Christmas – at least that is my theory. When I was a child, no one ever uttered the phrase “Happy Holidays.” To be fair, before the age of eight I lived in Greensboro, NC, where my family is from, and there were not a lot of non-Christmas folks around. But when I was eight my family moved to Boca Raton, FL, where, as a gentile, I was a minority. 

Still, even in the majority-Jewish town of Boca Raton in the 1970s we would hear and say “Merry Christmas” throughout the month of December. The city would be decorated with signs; every other one said Merry Christmas and the others said Happy Hanukkah, alternating down the street. This is why I now am curious about Hannukah being included in Happy Holidays. 

It has been several years since I spent a Christmas in Boca, but the last time I did, the signs had changed. They still alternated, but now they alternated Happy Hanukkah with Happy Holidays. Somewhere along the line between my 1970s childhood and today, we decided that we could no longer say “Merry Christmas” because it was somehow offensive. Let us break this offensive phrase down to see where the true horror and meanness lies. 

The first word is Merry. Merriam-Webster defines it thusly: Full of gaiety or high spirits; marked by festivity or gaiety; or giving pleasure. Obviously, we can see the insult in that. How dare you suggest that someone should be full of gaiety or high spirits.  Almost sounds like you want them to be joyful… 

The second word is Christmas. Merriam-Webster defines it as: A Christian feast on December 25…that commemorates the birth of Christ and is usually observed as a legal holiday. I would personally add it is an adaptation of the pagan holiday celebrating the winter solstice, and – in America anyway – an enormous advertisement for Coca Cola (Santa’s suit is red in the U.S. because of an old advertisement for Coca-Cola; he wears green most other places). It is a cultural phenomenon that blends the Christian religion, pagan tradition, the legend of St Nicholas (aka Sinterklass), and retailers’ end-of-the-year, get-this-stuff-out-of-here push. If one wants to keep it simple, it could also be defined as the 25^th day of December. 

So, in its simplest form, Merry Christmas means: Please be of high spirits on December 25. Well, report that guy to HR right away. How dare he wish me well on December 25! Doesn’t he understand how offensive that is? Heaven forbid we wish a non-Irish person Happy St. Patrick’s Day. I will admit I see the offense in someone Googling, “What day is Cinco de Mayo?” 

I’m poking fun, but there is a serious point here: If we get offended by someone wishing us well on a day or week that is important to them even if it isn’t to us, how then are we supposed to have the actual difficult conversations needed to bridge the gaps in our society? It is just foolishness. 

The good news is we are not nearly as divided, or soft, as the media would lead one to believe. How do I know? The last time I ever wished anyone a Happy Holiday was when I left my job at a big corporation and started Iron Capital. When this time of year came around in 2003, our first year of existence, I ordered Christmas cards to send to our clients and friends. I was told that I couldn’t do that because I would offend people and we would get complaints, clients would leave. We have been wishing everyone a Merry Christmas ever since and we have not received one complaint. We have received several compliments from those who notice. 

We aren’t preaching or trying to convert. We wish people a Merry Christmas because that is our holiday, and we truly want everyone to be happy that day regardless of belief or background. So, this year I have no hesitation in wishing everyone a Happy Hanukkah, because it is Hanukkah. We should be aware of it so we can wish our Jewish friends well, and we truly want everyone to be happy whether they happen to celebrate it or not. “They” say we are all supposed to silo ourselves and keep our holidays and traditions only among us, but I think we need to celebrate each other. Holidays are what they are, and they have names for a reason. If we really want to show love and respect, we should call them by their proper name. At least that is my perspective. 

Happy Hanukkah! 

Warm regards,

Chuck Osborne, CFA
Managing Director

~Happy Hanukkah!

It could be said of every mentor I have ever had that “he did not suffer fools.” This didn’t mean that one could not disagree with them, but one had better have his facts straight and a logical argument or he was going to be put in his place. 

One of my bosses in particular had a gruesome reputation. One time I was talking with a member of the senior management team at a company party, and when I told him who I reported to, and he said something to the order of, “Good luck. People say I am jerk, but your boss really is a jerk.” (He didn’t use the word jerk, but this is a family blog.) In reality, my boss was extremely fair. He was extremely demanding, but I found if I did my job he rewarded me, and if I made a mistake, all he wanted was for me to own it and fix it without excuses. The people who got into trouble were the ones who tried to hide their mistakes. 

Said boss was also open to new ideas, as long as they were truly thought out. The skill of critical thinking is no longer taught, because somewhere along the way on the dumbing down of America we got the notion that to be critical is to be hateful. Nothing is further from the truth: critical thinking means when one has an idea or hears one, she then critiques the idea herself to measure its merit. In science one tests ideas by stating a hypothesis and then testing it rigorously to prove it is true or at least not false. This is the basis for critical thinking: one has to be able to be his own critic, and only then take his idea to other critics. 

A fool does no such thing. A fool has an idea and then just starts running with it. Further, he will simply ignore facts that are counter to his idea. I will admit, that like my mentors, I do not suffer fools well. I want to be clear: I have had many great conversations with people who disagree with me on many topics. I don’t mind that at all, in fact it is essential to critical thinking. Intelligent debate between two people who disagree sharpens both of them. It is mutually beneficial. However, when someone presents an idea to me which is based on lazy fantasy, it is like fingernails on a chalkboard. 

This happened recently. In writing a recent Insight I used a quote form Milton Friedman. I knew the quote but wanted it to be accurate, so I went to “the Google machine” to look it up. First thing I noticed is that what came up were negative articles about Milton Friedman. There is no economist who does not have critics, but this takes some doing, because Friedman’s supporters outnumber his critics tremendously. Curious, I read a couple of the articles. I disagreed with all of them, but most were well-written and thoughtful. All of them, interestingly, were written after Friedman passed away – these critics were not interested in a debate which they would almost certainly lose. 

However, one article stood out. It was published by Forbes and written by Steve Denning. Denning was arguing against the notion that the purpose of a corporation is to make a profit for the shareholders, and he referenced an article that Friedman had published in The New York Times on September 13, 1970. Friedman’s article, like most of his writing, would make a good read today as many of the trends we are seeing now were the same as we saw then. 

Denning’s critique was as follows, “…[T]he article states flatly at the outset as an obvious truth requiring no justification or proof, ‘a corporate executive is an employee of the owners of the business,’ namely the shareholders.” Denning goes on, “Come again? If anyone familiar with even the rudiments of the law were to be asked whether a corporate executive is an employee of the shareholders, the answer would be: clearly not.” 

Fingernails across the chalkboard, I do not suffer fools gladly. I am even sympathetic to Denning’s larger argument, which I’ll address in a second, but the reason Friedman stated “as an obvious truth” that each one of us ultimately works for the person or people who own the business is because it is an obvious fact. Perhaps this is not entirely obvious when looking at large publicly traded companies with thousands of shareholders, but those organizations represent a fraction of the corporations that are out there. 

Iron Capital is a corporation. I am currently the sole shareholder. Do you think an executive here has ever thought to say to me, “I work for Iron Capital, not you.” Sure, that is technically correct. When asked on a form for employer, one would write Iron Capital, but that is a distinction without difference. This is grotesque lazy foolishness and we as a society should not tolerate it. Facts are facts and cannot be dismissed. 

Denning went on to say that while almost everyone recognized that Friedman was correct, he claimed that it was they who “just wanted it to be true.” This can’t be made up. He then goes on to claim that business guru Peter Drucker, in his 1973 book Management, argued against Friedman. Drucker and Friedman were the super stars when I was a student of business and economics, so I have read them both extensively. Never in all of that have I come across a contradiction between those two. However, Denning says that Drucker’s claim that the purpose of the corporation is to serve customers is a rejection of the idea that maximizing shareholder value is the goal. 

I can understand how a third grader might get confused. Is the purpose taking care of the customers or taking care of the shareholders? Adult conversations should not be held at a third-grade level. In what universe does a manager maximize shareholder value by not taking care of the customer? That universe does not exist. These are not only not mutually exclusive ideas, they are also the same idea. To see this more clearly, perhaps one should add the phrase “in the long term” to the end. I would argue that in the early 1970’s, long term was a given. It certainly was for both Drucker and Friedman. 

Once again we will use Iron Capital as our example. Everything that happens here is for the benefit of our clients, and we do it in order to make a living. If we fail our clients then they will leave, and the shareholder value leaves with them. If we serve them well, they will grow their relationship with us and introduce their friends to us, and shareholder value will grow. There is no contradiction there. Friedman was an economist and he spoke like an economist, which is often cold. Drucker was a businessman and he spoke like a businessman, which is warmer than an economist. A visionary entrepreneur would be loftier and warmer yet, but in the end if one actually listens and seeks to understand she would recognize that they are saying the same thing. There is no real disagreement here. 

Unfortunately, this is the world we live in today. People make up their own facts and have bitter arguments over things that are not mutually exclusive. The examples are too numerous to list. It needs to stop, and it starts with having the courage to stop suffering the fools. At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA
Managing Director

~Suffering Fools

Frances Haugen has blown the whistle. Facebook and all its subsidiaries dominate the social media landscape, which has done real harm to our social fabric. Haugen claims they have known it all along – known what it is about their product that is harmful – and have decided to keep doing it anyway. It is a serious allegation and seems to ring true. 

Several years ago, I had the opportunity to work in Poland. I never officially moved as I still had responsibilities at home, but I would spend weeks at a time in Invesco’s Poland office. During one of those trips, I got a chance to tour the Nazi concentration camp, Auschwitz. It is estimated that more than 1.1 million people died there. Most were Jews, but the Nazis also killed Polish intellectuals and anyone they thought might challenge them. This I knew, but what I learned was even more horrifying. 

The Nazis turned death into an industry at Auschwitz. It started when they told their victims to pack one suitcase to take to their new home. The Germans knew that most would pack their most prized possessions, and the suitcases were confiscated immediately. There are storage rooms packed with them on display when one takes the tour. Hair was cut and used to make uniforms, and fillings were extracted from teeth for gold. Being there in person drove home just how evil people are capable of being. 

What does this have to do with Facebook? People who forget their history are doomed to repeat it. The lesson we should learn from the horrors of Auschwitz is that people can be convinced to do unspeakable things. People don’t just wake up one morning and decide to be evil; they have to be moved slowly but steadily in that direction. In 1924, nearly 20 years before Auschwitz, Hitler wrote, “Propaganda is a truly terrible weapon in the hands of an expert.” Joseph Goebbels was just such an expert, and for nearly two decades he and his Reich Ministry of Public Enlightenment and Propaganda slowly and steadily moved what many believed to be Europe’s most sophisticated society into a group that would create a place like Auschwitz. 

As Carl Jung so famously said, “People do not have ideas, ideas have people.” This brings us back to Facebook. When the company went public in 2012 it had one small problem: it was not a business. There was no method for actually making money. A business cannot survive if it can’t make money, so it started allowing advertising. Because Facebook had tons of personal data, it could tailor advertising like never before. Companies could target only those most likely to want their products. Content could be pushed to a user based on Facebook knowing who that user was and what she was most likely to click on. 

Facebook developed algorithms to push information their users were most likely to click on so they could maximize those advertising dollars. As a result, if one started out as a normal, right-of-center Republican, then he would be sent a steady diet of progressively more right-wing content. Conversely, if one started out as a normal, left-of-center Democrat, she would be sent progressively more left-wing content. This process may not be masterminded by any puppet master like Goebbels, but it works the same way nonetheless. 

So, otherwise intelligent people start to believe that a Russian plot put Trump into the White House, and four years later a massive fraud kicked him out. President Biden has claimed that the retreat from Afghanistan was a success and our border with Mexico is closed. Maybe he is crazy, or maybe he is not. Maybe he knows that half of the people will now believe anything he says no matter how crazy, and that the other half will not believe him no matter what he says. This is the damage that social media has done. 

So, what to do about it? Most now agree that social media needs to be regulated; the problem is what economists call rent-seeking. Each side wants their particular propaganda to be seen, and want the other guy silenced. Or, at least they want the other guy’s propaganda labeled as such, while their propaganda is labeled “news.” 

The ultimate problem with Facebook is the same today as it was in 2012. It is the fundamental reason we have never invested in the platform: There is no ethical way to make Facebook an attractive business. It was supposed to be a place where we could communicate with relatives and friends who no longer live down the street; where I can know what one certain friend has for dinner every single night (you know who you are); where people who care can learn that my son, Charlie, made his school’s basketball team – Go Cavs! It should be taken back to what it was. 

The algorithms need to go. Pushed content needs to go. Everyone has a right to free speech, but there is no entitlement for one’s speech to go beyond his friends who happen to know him, love him, and realize that he is an idiot who has no clue what he is talking about. In other words, the online neighborhood should reflect the actual neighborhood. 

If we do that, Facebook’s stock price will plummet. They can still sell advertising, but it won’t be as tailored. It is a solution that is simple and would work, which makes the likelihood of Washington doing it very slim. So, we will simply need to arm ourselves. What we see online is not news, it is propaganda. It is a terrible weapon whether in the hands of an expert, or the inner workings of a computer algorithm. At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA
Managing Director

~Blowing the Whistle

I’m sure anyone over the age of 30 can remember exactly where they were 20 years ago this Saturday. It is a day that will live forever in infamy. Several people I knew died that day. I have always tried to be careful when saying that; our readers know how I feel about hyperbole. I did not lose any loved ones – no close friends or relatives. However, one could not be in the investment management profession and not know people who had offices in the towers. I had been there for training on new manager research software just a few weeks before. Two of my close colleagues were right down the street as it was happening. It was very real to me. 

Everyone I have ever talked to about that day always has the same observation. It was a stunningly beautiful early fall day up and down the East Coast. There is something about that disconnect that sticks in our mind. I was running late that morning and rushed into my office. As I said good morning to one of my colleagues, she just looked up and said, “A plane has crashed into the World Trade Center.” We all started talking about what kind of plane it was. We assumed this must have been some private plane that got off course and lost control. 

Then it was confirmed that it was a passenger jet, and the mood changed. Shortly after the second plane hit and there was no doubt, this was an attack. All work stopped and everyone on our floor went to the big-screen TV in the executive conference room. We sat there watching in silence, except for my boss who had been in the towers just days before seeing an investment consulting firm on the 102nd floor (after all these years I can’t remember which tower). Everyone who was in that office when the plane hit, died. He kept saying, “I was just there.” 

We kept watching and then we heard about the Pentagon and Flight 93 that crashed in Pennsylvania. Conspiracy theories started blooming immediately. Finally, the word got out that all high-rise buildings in metropolitan areas must be evacuated. We walked down the stairs from the top floor, and a colleague and I went down the street to grab a sandwich and sit outside at Joe’s on Juniper. Everyone was eerily quiet. 

When I got home, my nephew who was living with me at the time was there. He was in the Army Reserves, and already wondering when he would get called up. I briefly considered enlisting, but he suggested that this would be over before I even got out of basic training, and then what? I thought he was probably right. He went on to serve two tours of duty in Afghanistan, two in Iraq, and a further two stateside. 

For the next several days at work my job was to call all the investment firms we traded with and confirm that they would be able to operate when the market opened once more. In other words, I was to find out who was still alive and who wasn’t. It remains the hardest thing I have ever done in my career. I dreaded every single phone call. Of course, as always seems true with human beings, where there was the most suffering, I also witnessed the greatest strength and resilience. Fred Alger Management had lost most of its management team, but former partners, including founder Fred Alger, came out of retirement to save the firm. 

My two colleagues were okay, they were able to rent a car and drive home to Atlanta. Another colleague from our Denver office was not able to rent a car, so he bought one and drove it back to Colorado. The market opened back up and continued the downward spiral that had started with the dot-com bubble bursting. Slowly life went on, but what had happened was real. 

That is my September 11, 2001 story, and I am sure you all have yours. Some of you may have been closer to it; to others it was just a scary news story. For a little while afterward it was actually wonderful. Our country came together as one nation. American flags were everywhere. That did not last long. 

Twenty years later our military has left Afghanistan. Reuters reports that before that exit, President Biden had a phone conversation with Ashraf Ghani, the then-President of Afghanistan. According to Reuters, Biden’s focus on the call was the Afghan government’s “perception” problem. “I need not tell you the perception around the world and in parts of Afghanistan, I believe, is that things are not going well in terms of the fight against the Taliban,” Biden said. “And there is a need, whether it is true or not, there is a need to project a different picture.” 

Peggy Noonan of The Wall Street Journal wrote about an excerpt from George Packer’s book, Our Man, about diplomat Richard Holbrooke. The excerpt describes a meeting between Holbrooke and then-Vice President Biden. In his diary Holbrooke described the meeting as “quite extraordinary.” Biden is reported to have dismissed Holbrooke’s arguments for protecting Afghan women’s rights as “bull –.” Biden went on to tell Holbrooke that he didn’t understand politics. 

This year our theme for this Perspective blog has been: If you care about people, then you have to care about the actual results of policy. In other words, reality must mean more to you than perception. What happened on 9/11 was no perception; people jumping from the burning towers were not a perception problem, nor were the people falling from our military planes as they took off from Afghanistan. 

This is not about Joe Biden, it is about our culture. We now care more about perception than we do about reality. Biden is simply a living example of what a lifetime of politics does to one’s soul. To some degree that has always been true for politicians, which is why they are so often compared to scum. Twenty years after the 9/11 attacks and 14 years after the introduction of the iPhone, our entire culture is consumed with perception. Personal branding – what image is she putting forth on social media – has become more important than who she actually is as a person. Recently someone I know commented that you never know what someone actually looks like anymore because all of the images on social media are doctored. Is it any wonder that we have record levels of depression and anxiety? Living a lie is hard. 

We have substituted opinion polls for substantive debate. Trump, and now Biden, wanted out of Afghanistan because polls say Americans are war-weary after 20 years of “Forever War.”  Where is the leadership? Americans are tired of hearing about our soldiers dying. They wanted the battles to end.  That does not mean they wanted to just abandon the Afghan people and create a power vacuum after 20 years of sacrifice. We have military bases in Germany and Japan. Does anyone think that World War II is a forever war? We have military bases in South Korea. One could argue that this is a forever war since the country is still split into North and South and North Korea is still an issue. Do Americans want to finally end the forever war in Korea? Have the pollsters bothered to ask? 

I was fortunate to go to a military high school in the 1980s. All of our military instructors were Vietnam veterans. From their perspective, one of the lessons from Vietnam was that we should never again allow politics to cause us to fight a war where we have to continuously fight for territory we had already fought for and won. I can only imagine what they are thinking watching the Afghanistan retreat. 

Biden wanted a photo op. He was going to get on stage somewhere this Saturday and say, “Look at me, I have ended the twenty-year war that started this day in 2001.” That was to be the perception, and all the Afghans had to do was hold off the Taliban until our TV cameras left, but they couldn’t do it. In reality, leaving Afghanistan doesn’t end the war, it escalates it. We just gave the enemy the one thing they really have not had in almost 20 years: Hope.  

A lot has changed since 9/11. Personally, I left Invesco and co-founded Iron Capital. I met my wife, got married, and had two wonderful children. My nephew I told you about? He is retired from the Army, married, and has four beautiful girls. I’m sure things are much different in your lives as well. One thing, however, has not changed: The Taliban controlled Afghanistan then, and our perception was that we were in a time of peace. This is once again the case. The reality of 9/11 was that we were wrong, and unfortunately, we are likely wrong once more.  At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA
Managing Director 

~The Reality of 9/11