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Enthusiasm powers the world, except when it goes awry — viz Sam Bankman-Fried, et al. Lessons we’ve learned from other awry investments

An old story of mine: When I left Australia in 1966, my boss said “You’re going to love the Americans. Just like you, they substitute enthusiasm for intelligence.”

The NYTimes wrote that Sequoia Capital, a top venture firm all but begged Sam Bankman-Fried to take its $214 million during the mad rush when crypto was shiny and new.

Sam was a genius. So his investors thought. That’s the key. And it’s my main point today. No investor (like you or me) is ever sold by the sellers of the investment. We sell ourselves. I’ve done it many times. I love the positioning. I love the industry. I love the model. I love the  TAM — that stupid concept called Total Addressable Market.

I love everything. I ignore the fact that the kid running it has no skills — management or otherwise. And that if I thought about it, I wouldn’t get the “kid” to organize a queue for my outhouse. I’d ignore the fact that I was being sold by a master salesman, who wasn’t going to run the thing, but would hand it over to the newly-minted, wet-behind-the-ears MBA sitting in the corner, wishing he could play his video game.

“Wall Street” is a product machine. That means it invents things it can sell to gullible investors, like me.

So here I present you, Newton’s Rules of Investing in New Things:

+ Don’t say Yes. Mull. Research. Ask others. Wait at least a week.

+ When in the slightest doubt, stay out.

+ When you close a window by saying NO,  a door opens. That door has bigger, better opportunities.

+ There are always bigger, better opportunities. No matter how awful the world looks.

+ You can predict if any investment you make is going to work. And you won’t have any control, anyway. So don’t beat the farm.

Talking about predictions — look at bitcoin. It’s one of the best performing investments of 2023. – up 111.57%. I don’t make this up.

Below I reproduce the funniest article I’ve read on Sam. Enjoy.


Travel tips

+ Europe is on sale. The Euro is cheap. My measure: Croissants cost half in Amsterdam what they do in Chatham, NY. Moreover, they taste better in Amsterdam.

+ JetBlue Mint to Amsterdam is great, and much cheaper than Delta or KLM business class.

+ You need to figure exactly why you’re going and what you want to see and do. Our Australian Dutch guide said to us beware of ABC tours. That’s Another Bloody Church tour.

+ Layering your clothes is the key, topped off by a lightweight parka from Amazon or Uniglo.

+ Uber works well in most places. Amsterdam’s tram system is superb. It even has a timetable which it sticks to.

+ You don’t need cash in Amsterdam. Even the trams take credit cards.

+ Global Entry is fabulous. Saves huge time getting back home.

+ The new USB-C plug is two-faced, which can be irksome. You may need to plug it in upside down to get it to work.

+ Verizon has a new international plan that’s a “gamechanger,” according to my ebullient Verizon rep. It saves huge.

+ The Netherlands in general and Amsterdam in particular have more museums than Carter has liver pills.

+ The best shoes to take are Blundstone boots. They’re comfortable, warm and waterproof. You need waterproof for Northern Europe.

+ A VPN is useful. You can pretend to be in New York City when you’re really in Amsterdam. My son and I like Mullvad. Be wary, it slows your Internet down. But you can easily turn it on and off from your taskbar.

Paying bills

+ Venmo is really good. It pays your friends what you owe them. It flawlessly moves money into and out of your bank account.

+ The Washington Post wants me to pay $40 a year and $120 a year next year. But if I give them ” Single Use” cred credit from X1, the rate stays — as if by magic — at $40.  But it does up to $120 if I leave them an eternal credit card. Lesson: Watch out for for bargain introductory subscriptions that triple in a a year — if they have your credit card on file.

Travel health

+ This nice lady wrecked her hand by pulling her heavy suitcase down from the overhead compartment. She forgot that God invented young men for that task. Ask them to help.

+ My repairman didn’t show today because he fell off a ladder.  My granddaughter fell down a bunch of stairs, including the last one. Don’t do stupid.

+ I don’t know how to get over jet lag. It’s worse going East. But it’s horrible both ways. I don’t do pills or melatonin. I’ve read all the articles. The only good benefit of reading all the articles on how to recover from jet lag is that the articles are guaranteed to put you to sleep. For my recovery, I sleep. Often small amounts — perhaps 10 minutes here and there. I’m no longer good at sleeping soundly through the night. I do get some great dreams.

Sam is guilty

Sam could go to jail for longer than if he had killed someone.

Much has been written on him, but this New York Times piece is the best (and the funniest):

There comes a moment in the development of a new technology when the hype is so common it passes for common sense. Lawyers, accountants and regulators are nowhere to be found. Investors insist entrepreneurs take their money. The world trembles on the brink of change.

For dot-coms, the moment was 1999. For artificial intelligence, it was just over nine months ago. For cryptocurrency, it was 2017.

Six years ago, Sam Bankman-Fried knew little about alternative currencies. But he correctly bet there were huge opportunities in grabbing a tiny piece of millions of crypto trades. In the blink of an eye, he was lauded as being worth $23 billion. Only Mark Zuckerberg had accumulated so much wealth so young.

The Facebook co-founder has his critics, but he looks like Thomas Edison next to Mr. Bankman-Fried. After a speedy trial in Manhattan federal court, the onetime crypto king, now 31, was convicted on Thursday of seven counts of fraud and conspiracy involving his companies FTX and Alameda Research.

Mr. Bankman-Fried once partied with stars and big shots, doled out fortunes in looted funds to politicians and himself, was acclaimed as the next Warren Buffett, employed his friends and made them rich for a while, was courted by the news media that printed his most banal comments. For a time, everyone loved Sam Bankman-Fried — with the apparent exception of Sam Bankman-Fried.

“I am, and for most of my adult life have been, sad.” That plaintive statement appears at the end of testimony Mr. Bankman-Fried had hoped to give Congress last winter before his arrest scuttled his plans. He was onto something.

In photographs from his heyday, Mr. Bankman-Fried always looked awkward, embarrassed and as if he would rather be playing a video game, even when Gisele Bündchen had an arm around him. Everyone kept insisting he was off-the-charts brilliant, the entrepreneur who would create the future. Maybe he knew better.

As journalists — and now prosecutors — have made clear, FTX and Alameda were run by a group of hapless young people who did not have the required skills, maturity or patience. Those who actually had a moral compass and sensed something was wrong soon peeled off, leaving a core crew who drifted — or perhaps dived — into trouble.

“When I started working at Alameda, I don’t think I would have believed you if you told me I would be sending false balance sheets to our lenders or taking customer money, but over time it was something I became more comfortable with,” Caroline Ellison, Mr. Bankman-Fried’s colleague and sometime girlfriend, testified during the trial.

When Ms. Ellison started working at Alameda, something called the blockchain was going to transform everything, somehow. Silicon Valley poured billions into crypto, seeking out those like Mr. Bankman-Fried who got in early and appeared smart.

Sequoia Capital, a top venture firm that has funded Apple, Airbnb, Instagram and WhatsApp, all but begged Mr. Bankman-Fried to take its money during the mad rush when crypto was shiny and new. The FTX founder did. Sequoia then commissioned a very long celebration of Mr. Bankman-Fried by Adam Fisher, a longtime Silicon Valley writer who fell hard for the man whose fans called him S.B.F.

“After my interview with S.B.F., I was convinced: I was talking to a future trillionaire,” Mr. Fisher wrote. He added: “The FTX competitive advantage? Ethical behavior.”

Less than two months after the interview was published, FTX collapsed. Sequoia put a note at the top of the story saying this was an “unexpected turn of events.” It later took the story down and wrote off its $214 million investment in the exchange. Sequoia and Mr. Fisher declined to comment.

The central myth of Silicon Valley is that techies are here to save the world. If they get insanely rich in the process, well, that only proves how great their idea was in the first place.

This was the appeal of Elizabeth Holmes and her blood-testing company, Theranos. She was young, female and attractive, which looked good on the covers of magazines. But the notion that really propelled her to fame and fortune was that she was a sort of high-tech Florence Nightingale, working all night to refine medical technology that would improve people’s health. (The truth was that her technology didn’t work and placed customers at risk by giving them unreliable results.)

FTX allowed people to bet on cryptocurrencies. It was, in essence, a casino. It is difficult for even the most sympathetic journalist to portray a casino as a savior of humanity, so the focus of the stories was always on Mr. Bankman-Fried himself.

He calculated the odds on everything — he thought there was a 5 percent chance he would become president of the United States. He figured he would help humanity by making a fortune and then giving it all away, a philosophy known as effective altruism. The details didn’t matter. As a fawning Forbes profile put it in 2021: “He’s a mercenary, dedicated to making as much money as possible (he doesn’t really care how) solely so he can give it away (he doesn’t really know to whom, or when).”

During the trial, it emerged that Mr. Bankman-Fried had spent $15 million on private plane travel. He never did much to disguise the fact that he lived with some of his FTX pals in a $35 million penthouse. The question of whether these young people should be sleeping on the beach instead of living the high life if they were truly following the doctrine of effective altruism never seemed to get asked.

Sam Bankman-Fried was happiest when playing video games, which he did as often as he could. Even as he talked to Sequoia over Zoom about his grand plans to make a financial super-app inside FTX and therefore obliterate every bank in the world, he was playing League of Legends.

Again and again, he conveyed his contempt for what he was doing, and he seemed to implore the authorities to take a closer look at his companies. Take, for instance, this statement he made in August 2021 in one of his many interviews: “If there’s anything we’re doing that a regulator doesn’t want, you don’t have to sue us. Just reach out and tell us what you want.”

The magic of starting a company just as a boom is beginning is that the bar is low. When Sequoia was looking for a crypto exchange to invest in, FTX was “Goldilocks-perfect,” according to its profile. One big reason: “There was no concerted effort to skirt the law.” Hard to find a bar much lower than that.

Mr. Bankman-Fried tried to warn everyone.

“By number of Ponzi schemes, there are way more in crypto, kinda per capita, than in other places,” he told The Financial Times in May 2022.

It didn’t matter. Investors, customers, journalists all saw the genius they were told was there. And if they had the slightest doubt, Mr. Bankman-Fried had an ace: His parents were Stanford law professors.

“He has two parents that are compliance lawyers,” said the “Shark Tank” star Kevin O’Leary, who was both a promotional spokesman for FTX and an investor in it. “If there is ever a place I can be and I am not going to get in trouble, it is going to be at FTX.”

Mr. O’Leary may not have known that Joseph Bankman, a tax law specialist and clinical psychologist, and Barbara Fried, a professor emeritus at Stanford Law School, had their attention elsewhere. According to a lawsuit filed by the bankrupt FTX, their son gave them, through FTX, a $16 million home in the Bahamas, $10 million in cash and many other things. Lawyers for the couple called the claims “completely false.”

According to a lawsuit filed by the bankrupt FTX, Mr. Bankman-Fried gave his parents, Joseph Bankman and Barbara Fried, through FTX, a $16 million home in the Bahamas, $10 million in cash and many other things.Credit…Karsten Moran for The New York Times.

In that glowing Sequoia profile, Mr. Bankman-Fried said: “I’m very skeptical of books. I don’t want to say no book is ever worth reading, but I actually do believe something pretty close to that.” He didn’t like movies, either.

It’s impossible to read the sad saga of Mr. Bankman-Fried without thinking he, and many of those around him, would have been better off if they had spent less time at math camp and more time in English class. Sometimes in books, the characters find their moral compass; in the best books, the reader does, too.

As I read about Mr. Bankman-Fried, the historical drama “A Man for All Seasons,” once a staple for high school students, kept coming to mind. It’s about a man who knows right from wrong and a man who doesn’t. Richard Rich is a little like Mr. Bankman-Fried: a young man with huge ambitions and no scruples. He begs Thomas More for a place at court. More tells Rich he would be a good teacher.

Who would know if I were a good teacher? Rich asks scornfully.

“You, your pupils, your friends, God,” More replies. “Not a bad public, that.”

Rich rejects the quiet life, betrays More and is rewarded with a post in Wales. Viewers are given to understand that he loses his soul. Mr. Bankman-Fried rejected the quiet life, betrayed nearly everyone he knew — and ended up with neither wealth nor Wales.

Totally tasteless (but funny) video

The last couple of weeks

They’ve been incredible:

Half my friends believe we’re moving into a recession. The other half have no clue, but they’re hankering down in short-term treasuries, now paying 5.46% for six months. We have two major wars going on. My investment in Lockheed Martin is flat. But the usual suspects — NVDA, AAPL, GOOGL, LLY, META, MSFT and NVO are doing just fine. Finding nuggets is not easy. I bought some ONON today because I was impressed with an interview I heard with the co-CEO on Bloomberg and friends like their shoes.

Meantime, the best way of understanding Hamas/the Palestinians and Israel is through a New York Times podcast called “The Daily.”

See you soon. — Harry Newton