In this episode of The Acquirers Podcast, Tobias chats with Jamie Powell, reporter at FT Alphaville. During the interview Jamie provided some great insights into:
- Wirecard – Exposing The Biggest Financial Fraud Case Since Enron
- Exposing Solutions 30
- Tesla’s Accounting
- Zion Oil & Gas – A Biblical Vision
- The Repercussions Of Reporting On Financial Fraud
- Sometimes There’s A Good Reason For Accounting Anomalies
- Short Selling Works Both Ways
- Fanatic Stories On Valuation
- Messi & Player Transfer Accounting
- Reporting For FT Alphaville
- A Good Story Is One You Could Tell Your Friends In A Pub
- Europe’s Aggressive Libel Law
- What’s The Lifecycle Of A Story
- From Filmmaker To Journalist
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Full Transcript
Tobias: Hi, I’m Tobias Carlisle. This is The Acquirers Podcast. My special guest today is Jamie Powell. He’s a reporter for the FT Alphaville. He’s broken some really interesting stories. We’re going to talk about it right after this.
[The Acquirers Podcast theme]Can you just start from really basic? Explain what your job is, and then explain what is unusual, or what is particular about being a reporter at the FT Alphaville?
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Reporting For FT Alphaville
Jamie: Yeah, the job of a journalist is to when someone– The way I think about it is FT Alphaville is a blog and there are different types of journalists. There are journalists who only write opinion pieces, and there’ll be the kind of brand-name journalists you might have heard of. Like Paul Krugman is an economist who writes analysis opinion pieces, he sells papers based on his name. And then, there are reporters, you might not know the names of them, but they’re the people churning out– or maybe not churning out, writing very nice pieces on Chesapeake’s results today or Facebook results a few weeks ago.
Now, they’ll do the 400 words that say, “Facebook reported earnings, where earnings per share was x, the profits were x. Mark Zuckerberg said this on the conference call. An analyst said this.” Instead of you having to read that entire thing yourself, if you’re not invested in that stock, you just want to get an update on what’s going on with Facebook or in digital advertising, then they do that kind of job. They’ll also do interviews with the chief executives, and they’ll do maybe an analysis piece, like a longer piece for the newspaper.
And then, I sit somewhere in between. I report on the news, but it might not be– I don’t have a defined be. So, it will be what I’m interested in what I think is news. And also, there’ll be some sort of opinion and analysis thrown in there. There’ll be a new story, let’s say, Ocado, which is a big online grocer here in the UK, very popular stock, reported its results, and we’ll have a story about that.
They’d be expectations and the share price is up 5%. I’ll story being like, well, there’s something essentially, you have a look at their working capital like the cash flow, missed expectations. No one really seems to care, about what’s actually really going under the hood of the business, and I’ll do a piece like kind of analysis these based on that. Often, it’ll be framed as an unquestioning tone, but a lot of the time, it’ll just be like, “Hey, this is interesting.” More like a bar conversation than a news piece, and it’s written like that as well. It’s written in a way of–
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A Good Story Is One You Could Tell Your Friends In A Pub
My first boss, who was Dan McCrum, who’s the main Wirecard reporter, he gave me this good rule, which is like, “If you could tell your friends in a pub about it, it’s probably a new story. It’s probably worth writing. But if your friends wouldn’t care, then don’t write it.” [laughs] So, it should be easy to understand, and if it’s technical, you should be able to explain it quite easily.
I guess the job really boils down to writing what you think is important, and what you think is true and accurate, and not kowtowing the bombardment you get from PRs and the companies. I knew now in the US is five PRs for every journalist, and I think in the UK, it’s three. Our email inboxes, I open my email every day before I wake up, and there’s 200 emails from people I don’t know, with all the all the earnings press releases, some analysts I’ve never heard would the comment on Beyond Meat numbers, and you just can’t–
You’ve got to really sift through that and figure out what’s important. Quite often, very rarely you get everything from those, but every now and then you get a nugget. There are other journalists, your job isn’t just– If someone tells you it’s raining, and your job isn’t to write, “It’s raining. Look out the window and see whether it’s raining or not.”
Tobias: The job is to find the thing that is interesting to you and to someone who you could discuss it with in a pub, but who is your audience when you’re in the pub? Are they investors, are they analysts, or are they just completely retail? You have no expectation of any sort of knowledge.
Jamie: On Alphaville, we’re allowed to– This is something I generally fight for at the FT. But I think you’ve got to assume a bit of knowledge from your readers because you treat them like adults. There was a time in financial news journalism where you had to explain what EBITDA was every time you type EBITDA. In a way, you’re never going to learn if it’s explained to you. I remember when I first got into finance, reading the first finance book I ever read, and I didn’t know what EPS meant, and it was Guy Spier’s book, and I was on page 10 of Guy Spier’s book, and he was talking about how he moved away from Wall Street to Europe, because he was sick of just being obsessed with quarterly numbers and wanted to focus on the longer-term investments. I was like, “What the fuck is EPS?” I had to go on Google and go on Investopedia and figured out.
I think sometimes, it’s good to have a little bit of a… even if someone is… that they’re most likely on the internet. They can go and look, and it’ll take them three or four minutes, and then they can recontextualize it. So, there is a level of assumed knowledge. I think with some articles,… some article, I assume we know what duration be, when I say duration, what the reader will mean. There is some assumption of knowledge. But it’s sometimes good. For instance, what I’m talking about capitalizing intangible asset development, then I might explain that a little bit more, because unless– you could be a brilliant macro trader and have a clue what that means, so you’ve got to judge it to an extent.
But yeah, it depends on the piece as well, but a lot of the time, it gives them a bit of knowledge, but not to the point where they’re going to close the article. Because in the end, you still want them to read it.
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The Difference Between Writing A Blog And Traditional Journalism
Tobias: What’s the difference between writing a blog? For a long time, that was a very keen distinction between writing a blog and traditional journalism. But probably over the last 10 or 15 years, they’ve converged a little bit that it might not make much difference now. But what in your mind is the difference between– Do you have some sort of– Is it more casual with Alphaville than, say, a more traditional article in a paper?
Jamie: Well, the blogosphere in the noughties was really where it kicked off. Barry Ritholtz had his blog, and Paul Kedrosky, and there’s some other famous blogs from that era. FT Alphaville was launched by the FT as a kind of someone’s… FT Alphaville was launched with the idea that we would be the first markets blog attached to a paper. So, we’d have the editorial standards of the FT which are very high, and there’s a lot of rigor that goes into fact checking, and making sure everything you say is true and running stuff by lawyers, if there’s going to be some legal problems potentially in a format, which was that conversational tone, just [fun, which took the Mickey a bit. The idea was that you could do a 200-word article taking the piss out of… you could do a 2000-word article about what is going on NBS in 2007. You get the no word count limit as you can use photos. In 2007 and… books launch and Wall Street Journal and Bloomberg… taken the need for blogs away, people just do threads. So, I was thinking that threads are the new blogs really on Twitter.
But I still think that people like– from what I know, readers really enjoy FT Alphaville and they like coming to us for something a bit different, and a bit refreshing, and not just your normal newspeak or a kind of normal tone in writing. We always try to focus on all the different things that other people might not know what was going on. We also try be early on trends, which obviously means you might be completely wrong sometimes but we wrote our first bitcoin article in 2011. We were writing about will bitcoin be a payment system before what it was trading at or below a dollar. Unfortunately, some of us did own some and then got rid of it. So, that’s been– Someone actually lost their keys as well. It was a frantic day in the office looking for them. They never found them.
We always try to be early on things. Sometimes, that means we’ll be kind of wrong on how things will turn out, but directionally right, in terms of it becoming a larger thing, and sometimes, we’ll just be completely off. But it’s always worth thinking about what might happen in the future. Once it becomes a main FT story or a main new story, then we’ll try and find something else because everyone’s writing about it.
Tobias: What’s a typical story? What’s the story that you’re looking for that makes a great FT Alphaville story?
Jamie: Well,… what about whatever we want. I’ve tried to build up a specialty in certain topics, and then, that gives you the knowledge to write articles quite quickly rather than having to learn something on the fly, which I think a lot of– If you’re new to a beat, it’s quite terrifying, because, let’s say, you’re the leisure correspondent at the FT, and you’ve got to learn about how cruise liners work. That’s a lot of work. They’re all domiciled, and some of them are domiciled in African countries and what are their main expenses, who are the key players, who are their suppliers, who are their customers? That’s a lot of knowledge. So, over my time at Alphaville, I just want to build up knowledge about two or three things. One of the main things I do is the kind of accounting stories, odd things in accounting and exploring whether a company is, let’s say, massaging their numbers, or presenting pro forma accounts, and how that–
If that’s a fair depiction of reality, and quite often with pro forma numbers, it is there. It’s sometimes fine to take a line item out of accounts and normalize them and say, “This is what the real business looks like. We’re getting rid of this company. That’s why the numbers are a bit skewed.” a lot of the time. But then that 5% of times, there’ll be something very odd going on, or something might quite not make sense, or they’ll be something like– I’m not going to name the company, but one thing I came up, I was looking into this company in the UK. It’s a tech hybrid business, and it said it’s UK sales grew 30% last year, but then in its new ESG disclosures, its UK energy use went down 5%. Okay, well, how does that– That makes absolutely no sense. [laughs] Unless you’ve just got an incredible new energy supplier, and I really need to get their name [unintelligible 00:12:16] and using… energy.
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Fanatic Stories On Valuation
Those are the kind of stories I look out for. And then, I like fanatic stories on valuation, and I’ve written a lot about the EVs and SPACs, and what’s been going on in the market since middle of last year, all the way from Hertz through to GameStop and etc. Yeah, I focus on equities, accounting, and valuation. Anything interesting that happens on the day about that, I’ll write a story about that grabs my attention, and often, they can get a bit repetitive… stories can get a bit repetitive, especially, when the market is like it is now. There’s only so many times I can write an article and say, “Wow, this company is trading at 50 times EV sales and it’s shrinking.” I can only write that story so many times. Sometimes, it’s been a few times this year, I just sat there like looking at my– I’ve got a huge Yahoo Finance set up with all the companies I follow, and just looking and be like, “This is so mad.” I can’t just say everything is mad, because that’s just ridiculous. Yeah, those are things I focus on.
But then we’ve got people on the team who are very good at macro, some people are very good financial plumbing, and bitcoin. Someone talked to me about how the whole settlement works in broking. It’s so complex and I probably understand 10% of it. But we have someone on the team who is a genius on it. That’s the kind of things they focus on. Yeah, you’re trying to build up core understanding of a few topics, and then, hopefully, that gives you a great story.
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Messi & Player Transfer Accounting
An example this week was that Lionel Messi, the Barcelona player has left Barcelona, and he’s gone to Saint-Germain, and there was a big FT story about Barcelona are in a lot of financial problems. They spent way too much money on a bunch of players. They did a transaction allegedly which– they did a player swap with Juventus through an Italian club. But instead of doing a swap where it’d be player for player plus 15 million euros, they did the outright transfer costs. So, they said, we pay you $70 million or $75, you pays us $60, and there wasn’t any kind of player swap agreement. But it happened on the same day. But what that did for their accounts was that, when they sell a player, they can book it directly as revenue. So, it’s the gap between the book value of the player, the player basically is an intangible asset, and it gets amortized over his contracts. So, I just tried to explain or about how football transfer accounting works and how–
There was nothing illegal about the transfers. There’s obviously a little bit of statesmanship with the numbers. But that is interesting in itself, so I did a big [unintelligible 00:15:15] about how football transfers… which was great, as I spent a day reading about that and wrote an article. I think that’s an example of something which I find interesting. I think, instinctively, that doesn’t make much sense, but when you lay it out, you think, “Oh, well, there probably is a reason there’s [unintelligible 00:15:33] tweets in the accounts.” These players are of economic value, the loss of contract periods, so, it’s like buying– It’s like developing software or something. [crosstalk] which costs you capitalize on which you don’t but–
Tobias: So, they can book the profit from the sale of the player immediately, and then they amortize the cost of the salary of the one that they received, they’re paying him over a certain number of years, right?
Jamie: Yeah, and that goes to the cash flow from investing. Yeah, like an investment.
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What’s The Lifecycle Of A Story
Tobias: What’s the lifecycle of a story? Is that literally you wake up in the morning with your 200 emails from the [unintelligible [00:16:12] and you go through those 200 or you have your own idea, and then, is it done that evening? Are you done? How does that all work?
Jamie: It depends. I can give you a few examples. There was a story I wrote about a Paris-listed Luxembourg-domiciled company called Solution 30, who Muddy Waters had been short the company since May 2019. I wrote some stories about them. Unlike for the normal Muddy Waters shorts, it didn’t come with this gigantic 30-page thesis with all detail, because in the Europe, you have to disclose your short positions over 0.5% of the flow. So, they went to 0.5%, they went on the AMF website, the French regulator, and the shares fell 20% of the day. But there was no reason why. I started writing stories about it. I did some work and started looking at it, and I thought it’s just a very weird business.
I started looking at it back in September 2019, and I did a few stories on it. Nothing really happened. The shares kept going up, and then, a whole bunch of stuff happened earlier in December, and throughout that whole period, I’d still be chipping away at it. I set away a Friday afternoon probably when I had a free Friday afternoon, which was once every other week, I just spent two to three hours going on Romanian Companies House, and just trying to figure out what this business was up to.
I finally got a story out in May, but I’ve been working on it for like a year. Sometimes, you find some weird stuff, and you’re like, “Okay, well, that’s weird,” or they’re working with this person who’s got a dodgy history. It would be a great short thesis, but it’s not necessarily a great FT story. So, I had to get enough stuff together, and I had to build some sources. I had to try and talk to people who used to work at the company and all that. That process could take a very long time, and especially, when you’re going to publish something about a company that is potentially very negative, that can move the share price quite substantially. Even the legal process on that story took a month, that’s like a 2000-word story.
But then, there’s some stories I wake up, and today, I saw that AppHarvest, one of the SPACs from February, one of Jeffrey Ubben’s SPACs, they guided down on their 2021 estimates like mega. As we know with the SPACs, the whole thing is they just have these ridiculous estimates that they’re never going to hit. I just did a quick story being like, “Oh, wouldn’t you believe it. Another SPAC has missed it’s 2021 estimates. What about those 2025 ones?” That took an hour to write.
You get this huge variance and then some stories last a lot longer than you ever expect they will, and some stories, people forget them out, and I’d say obviously, only 1% of stories people are reading a year later, and that’s when you know you’ve done a good one really, I think, or people are… Yeah, so it depends. It’s a very odd job. It’s very hot off and on, and also normally you’re working by yourself.
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Wirecard – Exposing The Biggest Financial Fraud Case Since Enron
Tobias: What about when you come across something like a Wirecard, doesn’t have to be Wirecard, particularly, but something like Wirecard where you really do think that you’ve got potentially something very, very big? How does that process work out, where there’s a group of people over an extended period of time?
Jamie: Well, I think with Wirecard, all good journalists are talking to investors. I talk to people like you, people on the long side, value guys– [crosstalk]
Tobias: Why don’t we just back up a bit for people who aren’t familiar with Wirecard is? Let’s start there. Just explain the story.
Jamie: Wirecard was a German payments company that was to a €25 billion market cap. It was the darling of Europe’s tech scene… payments company. There was always reputation around it for being a bit dodgy, like a very high margin. So, Adyen, which is a Dutch payment company. It’s a very popular stock actually, was one of its competitors. But Wirecard had much higher margins, and was growing at 30% a year. The story always was, well, they’re doing payments for adult companies and gambling websites. That’s why they can charge much higher margins. They go near businesses that no one else will touch, which obviously, already gets questions firing in your head about, why would you, why those businesses? But anyway, since 2015, and they’ve been the subject of quite a lot of speculation from– The short sellers have been after it since 2015. A lot of stuff didn’t really add up about the company, what it was saying to investors about its technology, and its money flows, and how good it was winning new customers versus they had a payment–
As one example, remember they had a payments app, which was just a very vanilla payments app. You open it up on the app store, and it only had 10 reviews, and they were like two star. And then, you go on one of their competitors in the UK, and it would have 20,000 reviews. You’ll just be like, “Okay, well, clearly, something is wrong here.” But there was a lot of incidents like that, and there wasn’t a huge smoking gun. It was very incongruous, the entire thing. But it was growing at 30%, and had 30% of EBITDA margins, and for a lot of fund managers in Europe, where we’ve had GDP growth basically zero, that was a pretty enticing prospect. So, it got a lot of people, a lot of investors work in this thing, and it had a very charismatic CEO. We all know that kind of story.
But anyway, so, in 2019, the FT, after writing about it a bit in 2015, and then leaving it, we began to look at it again, we had some whistleblowers come to us. Basically, the company got so big that it began to have to hire serious people. When you hire serious people at a company that’s misbehaving, they actually tend to whistle blow, and I think that’s one of the issues with fraud, why a lot of fraud stay very small is because when you get to that €3 billion, you can start hiring people who will blow the whistle. If you keep it under a billion-market cap, no one’s going to look, and no one’s going to really care.
Tobias: Hot take for the fraudsters just right there, keep it under– [crosstalk]
Jamie: Yeah, no, also, the problem is you promised growth. You have to maintain a low market cap while still growing. But yeah, we got some whistleblowers and it all kind of snowballed. They accused the FT of– I think they accused us of all sorts. They were a very dastardly business. They were following our journalists. They were hiring ex-Mossad types to try and take photographs of short sellers. They would go into quite extreme lengths for a business to shut down stories, and put a lot of pressure on our journalists. Then, the German financial watchdog opened up a criminal investigation into the FT as to whether we were– So, we were under serious legal pressure– and this was a darling of the German stock market.
We did a big story. I think it was on January 29th or 30th, 2019 after getting some whistleblower stuff in the year before. It took three months to get this story out from what I recall, and the share price fell 40%, and it all kicked off. For the whole year after, we were under this amazing amount of scrutiny and it was ridiculous because if you’re going to manipulate markets, you might as well put something in it for you. So, it wasn’t really– [laughs] a bit of a weird one. But anyway, so, by 2020, the company was still saying, all was fine, but it got to the point where the board of Wirecard, the supervisory board said, “Okay, we’re going to do an independent investigation.”
PWC did an independent investigation, which left a huge amount of questions over the business. Then, Ernst & Young, who had signed off on its accounts the year before, I think it was June 2020, basically, after delaying the current accounts, the accounts were getting delayed, and delayed, and delayed, and I think there was a deadline of June 30th. I think during mid-June, a press release coming out saying, they said, they had 2 billion in cash, in these two banks in the Philippines, that cash doesn’t exist. It basically turned out that half the business, a profitable side of the business just did not exist and had not existed for 10 years.
Actually, there was a payments company there, but as we can get as a payments company is low margin and was actually losing money, and it wasn’t growing. So, they basically just made up half of the business. The CIO, he escaped to, we think, Belarus never to be seen again. He had some interesting ties with some international characters.
The CEO is currently in jail awaiting trial, I believe, and the stock is at zero. So, we were very much vilified for our reporting. But there were definitely times internally and even talking with friends about it, we were like, “Is this worth the risk for us to keep poking, or are we wrong?” We could be wrong. It’s completely– and that happens. You get bad sources or you get the wrong– Lord knows, I’ve been wrong about some companies. Yeah, I think it was a good moment at the FT that day. Never want to see a company go to zero, people lose their jobs, etc. But the amount of pressure we’ve been under, it was kind of a nice release. Bonkers story. I could go on about it.
Tobias: Perhaps the most baffling part of the whole thing was the regulator opening a criminal investigation into the FT. How were they persuaded to do that? Did the company have some sort of in with them?
Jamie: I’m not super [unintelligible [00:27:33] with the story. I’m just going to quickly…
Yeah, German regulator files complaint on alleged Wirecard manipulation. The German financial watchdog has filed a criminal complaint against two of our journalists and several short sellers, accusing them of potential market manipulation over reports about suspected accounting irregularities. That must be the most legal first paragraph the FT’s ever written. [laughs] So, that was on April 16th, 2019. Yes. I don’t know. It’s hard to say I think, in US capital markets, you guys are very lucky to have very healthy, skeptical capital markets.
Europe’s Aggressive Libel Law
It might not seem like that all the time, and particularly this year, it felt like it’s out of control at times. But at least you have a very healthy short selling community, you have the First Amendment, which means you can’t get sued for libel, which is a big problem in Europe, and the UK has some of the most aggressive libel law in the world. If you’re a Russian oligarch and you can sue in the UK, you will sue in the UK, because you’ve got a very good chance of winning.
I think with this one, we were just– Someone was talking in someone’s ear. Big companies, as we know, have political power and somehow this came to fruition. I think it’s important to know with European small countries, capital markets where it’s at, the billionaire and upper millionaire class, they all know each other. When we’re talking about America, there’s probably an insurance company in Kansas City that would be the fifth biggest insurance company in the UK if it was here. But I’ve never heard of it. It is family owned, it ticks along, it’s doing great. But America just is so big and so rich on a per capita basis, it’s such a much bigger economy than all these other European economies, that you don’t get this web of people or just everyone knowing each other.
Everyone goes to the same dinner parties. They all live in the same two or three– In the UK, they all live in the same city. But in Germany, they might all live in Munich or Berlin or Frankfurt and in France, we all live in Paris in holiday in south of France. So, that leads to a lot of kind of people looking the other way with these situations I think more so, and you combine that with just not having as deeper capital markets, not having as many short sellers and having much smaller broker coverage of companies as well.
I think with this one, we’ll find out more, Dan’s book is coming out at some point towards the end of the year, and it’s going to– from what I’ve heard, it’s going to be pretty exceptional. I think it was all politics, basically. Germany has SAP, which is Oracle of Europe. But apart from that, there was no tech heroes in that country. So, I think there was an element of trying to defend their one company that was doing 30% revenue CAGR, as opposed to Deutsche Bank or whatever so. And as also in Europe, there is a distrust of Anglo-American capitalism as well.
Definitely, after the financial crisis, German banks bought a lot of that paper that ended up being dogshit. I think there’s just a general distrust– They think we were just coming in axes access to take apart their capital markets. To be fair, sometimes, they’re right, but I think a lot of the time they’re wrong. So, it was a combination of things. But yeah, politics and then the suspicion of Western capitalism, I think, or the way free market, Anglo-American capitalism, I think it just combined there to go to a ridiculous extreme.
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Short Selling Works Both Ways
Tobias: It’s a reasonable argument, sometimes. Short sellers aren’t necessarily always right. They’re often looking for something that is spectacular, that is going to get attention or there’s something that you can insinuate something about and then somebody with a surface-level understanding or looking at it immediately will say, “Yeah, that does look wrong.” But if you get to know that– I can think of examples in the States where well-known hedge fund guys get short and let everybody know about it. It’s just it’s one of those businesses that has a lot of headline risk, and they’re going to have these spectacular events every now and again, but if you can get in there and say that– I don’t want to name any, I can think of very specific example– [crosstalk]
Jamie: Sure. I’m sure we’re talking of the same companies. There are always things wrong and right about every company and the question is whether they’re systemic and that they verge on criminal or fraudulent or whether it’s just their numbers are going to be weak for a few years and that’s the actual business is doing fine. Yeah, the activist short thing is very– We can talk about that maybe but it’s very interesting part of the market. Some guys do great work and there’s some guys who do, to be honest, shocking work. So, yeah, it goes both ways.
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From Filmmaker To Journalist
Tobias: What’s your background, Jamie? Were you trained as a journalist? Is that how you came to be in this position?
Jamie: Oh, no. I had a very, very, very odd career. I was an arts grad. What we call undergraduate here in the UK, your first degree, I did a filmmaking degree. It was practical filmmaking, sort of making films, learning about cinema or studying cinema. Then, when I was doing that, I got really into Russian cinema, which is right on the tail end of the weird– the stuff which you stroke your chin and drink whiskey to and smoke clove cigarettes. You use it to chat to girls basically.
Tobias: That’s all right. [chuckles]
Jamie: Yes, I got into that, and I went to Russian studies at UCL, which is a university here in London. When I was doing that, I got asked to be in a band by a friend. So, I played bass in a band for three years. It was quite weird, because it was one of those things where my friends– I was doing my Masters and post-grads do not work. In the UK, the level of work is not the same as your undergrad, like you do have time.
So, I thought, “Okay, I’ll just give it a go.” I played bass in school. By the end of my post-grad, it just turned into this. I was playing shows four times a week. We were meeting labels, we were on the radio, we’re doing all of this. I was like, “Okay, well, I’ve got to give it a go,” because if it works out, it’ll just be awesome. But of course, the music industry is like a video game. You need to get through each level. There’s instant death. It’s like an instant death video game.
Tobias: [laughs]
Jamie: Once you don’t get through one level, which for us was not getting signed, but for some bands is not having a successful second album or whatever, you just die because you are old news, you have no momentum, and you just need to either start again, new project or leave it. So, I left. I was 24, and I never had a proper job. So, I thought I’d better get on with this, and my dad was breathing down my neck. I took a job at a startup in London, kind of ed tech, I’d say, like education software. That went really well. It was good introduction for me for learning about business, because at a company with– We had 60 employees, but a lot of those were back end and content. So, the front of office sales and marketing was like 10. In those kinds of jobs, you’re doing everything. You’re normally doing this, but if someone needs help putting a PowerPoint deck together for the next morning, you’re up till 2 AM doing that. It was a good intro for me for the wider business.
While I was doing that, I got very interested–We were raising some money, and we met some VCs, and I thought, “This is really interesting. These people go around, talking to people, making judgments, and putting their money in,” and that’s just– I never really thought about capitalism like the investing world in that way. I actually had no interest in it, basically. I went on a holiday with a friend who worked at a really famous emerging markets hedge funds here in London called Nevsky. Guy called Martin Taylor ran it and he’s a hedge fund market wizard. I think he’s one of the interviewees in there. My friend was telling me about his job and I was like, “Oh, what’s it like working there?” He’d done the opposite of me. He had a very traditional white collar, grad scheme at a famous investment house for four years, and gone to a hedge fund.
He was like, “Oh, well–” I just look at companies analyze them and make judgments. It’s very varied. I get to travel,” and I was like, “Oh, that sounds actually quite an interesting job. I didn’t really–“ He was like, “Oh, I’ll give you five books to read.” He gave me five books to read, which were kind of Guy Spier’s book, Howard Marks’ book, David Einhorn’s book.
I think The Snowball, the Warren Buffett biography. I’m sure you’ve all had and I read these. I was like, “Oh, this is fascinating.” I had that eureka moment, I think, when anyone discovers the world of investing and finance. So, I just spent three years teaching myself. In the UK, we have CFA-run junior CFA. So, it’s not CFA 1, but it’s called the IMC, Investment Management Certificate. It’s basically the CFA 1, but you have to do 100 hours versus 300 hours revision, basically. I did that in my free time, and I was looking for junior analyst jobs, but I was struggling to get hired because my CV was just too odd. I was getting through a few levels, and then, I get to the fourth stage and they’d be like, “Oh, it’s you versus a guy who’s did maths at Cambridge.” I was like, “Fair enough. I would hire them over me.”
I applied for the job at FT Alphaville, and I was very lucky that Izzy looked at my CV and thought, “Well, this guy actually– He seems to know what he’s talking about but he’s also got a very odd, an interesting CV.” So, I got hired, and I’ve been there for three and a half years. This is my first ever journalism job. Compared to a lot of people that– I came from the finance side rather than the journalism side. I think that’s helped me a lot because I like these– No, I wouldn’t say my core knowledge is– my technical most incredible. I don’t know anything about quant stuff. I know you had Ben on your podcast. I couldn’t understand any of that like Corey that well.
My core knowledge is quite good. I’ve just tried to build a niche for myself writing about that stuff rather than being a– There are some journalists at FT who are brilliant at getting scoops, and calling people up. They’ve got an amazing contact book and they know everyone. I’m the kind of guy who pulls up the quarter and sees what’s weird, and that’s my story. So, I think that’s always been the angle I’ve come from rather than talking to people. But of course, I also talk to people, but just not to the– like pounding the phone. I said that was my very odd– That was my 20s, and so, now, I’m in my 30s. So, yeah, I’ve been in journalism in three and a half years.
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Exposing Solutions 30
Tobias: In that period of time, what are the biggest stories that you’ve identified? You’ve been able to pull anything out of just looking at the reporting?
Jamie: I think Solutions 30, which is the company I mentioned earlier. If you want to find one to read about, I still remember when– Muddy Waters are short, so it’s going to be worth looking at it. Also, everyone was trying to figure out why. I talked to a lot of good short sellers in San Francisco, that kind of the San Francisco short seller crew and they couldn’t figure it out. They were like, “It looks weird, but I can’t really see.” I remember [laughs] first story was just an overview of the business. It’s a man in a van outsourcer.
So, it goes around installing broadband connections, electric car charging stations, gas smart meters. Really last mile, low margin, low growth business, but they had better margins in all the people that were supplying, and it was growing at 60% a year, and it was a rollup. So, it’s going around, basically, buying lots of mom-and-pop stores in Europe, plugging them into their big contracts.
It was a bit of a weird one just stepping back. But I started to overview of the business and I was looking through their 2017 accounts, and they had Excel tables in the footnotes for the accounts where you have your receivables balance. They had the Excel errors still in the numbers. So, they had an even like– and this was in their English accounts. Their French accounts were slightly better. But then you go back to their 2013 French accounts, it was like a scan of a document through a printer, but it looked like it has scanned like five times.
So, you couldn’t really read half the text. This was a company with a €1.2 billion market cap. So, I did a story being like, “Look at this weird company. It’s called–” It had a hundred subsidiaries. It had a subsidiary in one of the French-Caribbean islands, in North Africa, and in Eastern Europe, and it’s just a man in a van company who operated in five countries. It should not be this complicated either.
So, I did an overview, and then, I spotted after I wrote about the company, the company started removing all their annual reports from their website and replacing them with better versions. Because obviously, when you’re writing a negative story about a company, and I do think this is something we don’t understand, there’s a lot of toing and froing between you and the company being like, “Hi, I’m writing a story about you guys. Here are my questions. Here’s the cut and jib of the story, what is going to be about. Do you have any comments? Do you want to answer my questions?”
Sometimes, they just don’t reply and then get very angry when the story is published. Sometimes, they reply at length, and try and confuse you, and keep you asking more questions. So, I had a bit of back and forth with the company. But as I was having the back and forth, they started pulling these annual reports off their website. Luckily, I suspected they might do that, so I had them saved. So, I went back and looked and I noticed in their 2017 annual report that they were audited by Grant Thornton at the time, and at the beginning of the annual report, they had the audit letter on the first– I know most companies don’t have to write the back of the annual report, but they had right at the front. I noticed that it looked like the English version of the audit letter had been translated by them and made in a Word document, it didn’t have the same logo with the Grant Thornton. It had a different logo. The text was kind of skewy. It was cut off at some–
Basically, they printed it out, cut it out, put it on a piece of paper, then scanned it again to make it look like it was a scan. They also copied and pasted the signature of the Grant Thornton auditor over to the English letter. And of course, if you want to get an English version of your audit letter, surely just say to your auditor, “Hey, can you just do a translate? Well, we’ve done the translation. Here it is. You just send it over.” I, now say, I doubt they’ll charge you a fee, but they might go, “Yeah, that’s €100,” whatever it is.
The fact they went to this length was just very odd. I think that’s when I knew that this business– and I don’t think I mentioned earlier but what happened was that in last December, an anonymous [unintelligible [00:44:18] report came out about the company accusing them of laundering money for the mafia, and then Ernst & Young refused to sign off on their accounts in May citing– I can’t remember the exact language, but citing related party transactions with members of management that they couldn’t verify the substance of and share price went down 80% on the next morning.
Tesla’s Accounting
I think that was a good one. I’ve also been following Tesla for a long time but not so much on the new side of it although the new side of it is super fun but more on the accounts, like what they do in their accounts, how come this business– last quarter, how did Tesla’s margins go up 300 basis points while shipping costs and raw material costs were going up exponentially?
Tobias: How did that happen?
Jamie: I don’t know, but it’s worth asking the question. The good thing is an Alphaville story might just be like, “How did this happen?” That is just all. You ask anyone, any auto analyst, auto margins shouldn’t move that much quarter on quarter. For Tesla, they move a lot. Yeah, you can ask the question as well, which is one of the good things about writing a blog versus– That’s not a news story. In a news story, there’s Tesla reported better gross margins than expected, which helped them beat their earnings per share. But Alphaville story will be like, “Well, how did that happen?” I’m still skeptical of the business, but obviously, it’s been completely ruinous for those who have had money on that direction. But it’s a weird one though.
I always think that story is still ongoing, and it’s not finished. It’s endlessly fascinating. We know now in 2017 that the company was two weeks away from going bankrupt. No one was actually really wrong about that. It’s just that there was no [unintelligible [00:46:36] about that at the time, but Elon was going around having dinner saying that. It’s a fascinating one, and obviously, you get a lot of fan mail about that company, which is always quite fun as well.
Tobias: It’s a very polarizing company.
Jamie: Yeah.
Tobias: With people, just friends and family who have put a lot of money into it, and I understand their perspective on it but saving the world, it’s an EV all of this and then, Elon’s a visionary and all of us sort of things, I just have difficulty reconciling the account from quarter to quarter that’s sort of my stumbling block. But I have gone back to collapse from the 80s and looked at journalists interviewing the people who were perpetrating the fraud at the time and listened to some of the questions that they have asked. It’s interesting that they might ask 10 questions, and 6 or 7 might be just, what’s your relationship to Pinochet in Chile? Yeah, he’s a bad guy, and that’s a bad thing happening.
But that’s not what’s going to ultimately destroy this company. It’s the payments between the related party transactions and debt that’s going to sink this company and the fact that it’s a fraud that’s being perpetrated. When you’re on these stories where the powerful people who are bad dudes and they’re interested in protecting their fraud, they want that to continue going on, they don’t want to get caught.
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The Repercussions Of Reporting On Financial Fraud
Tobias: Do you ever get worried that there’re potentially repercussions like Wirecard? That must have been pretty scary.
Jamie: Yeah. Dan, the guy floats about like nothing’s going on. I would have been a nervous wreck. I would say some people just have the constitution for that. You see Jim Chanos and Carson talk about that, saying– you need a certain constitution in this business. I think as a journalist, it’s even worse, because you’re going to be the main conduit where this stuff comes out through in a way like the most pressure on you. But at the same time, yeah, Wirecard was very exceptional, but I would say with Solutions30, the mafia stuff, it’s not proved the company’s denied it, of course, and I should be very clear about that but those are very serious allegations. As a journalist covering it, you do think a little. I live by myself. There is a little bit of you which always goes, “Well, should I still be covering this? Is the payoff– is my salary versus the–”
Tobias: [laughs]
Jamie: The risk reward there just can get a bit skewed at times, I think, even if I was getting paid mega money, the risk will still be a bit skewed.
Tobias: In some sense, you’re the record. You set the record, whereas Chanos is a player in the game. He’s allowed to be wrong about certain things, but the record has to be set correctly. So, there’s an expectation and they’re obviously they’re interested in having that record. The bad guy is interested in having the record written the way that they want the record written.
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Zion Oil & Gas – A Biblical Vision
Jamie: Yeah, exactly. I do think the smokescreen– I think people do underestimate the gaslighting journalists have to face from companies at times. When I took the job, I’d never been a journalist, and I still remember that my first story which would have pissed off a company– I actually wrote about this. You’ve probably already heard of this. Zion Oil & Gas. It’s like– [crosstalk]
Tobias: Zion? Yeah.
Jamie: Zion Oil. I wrote about that. That’s the first company I did a lot of writing on. So, in 2018, their new well, it was just the most ridiculous. It’s still going, which blows my minds. But anyway, they got a new well, I don’t want to go into that.
Tobias: [chuckles]
Jamie: It makes me sad if I think about it. But anyway, I did my first story, was a long primer about the business or failed wells. John Brown had this vision of oil in Israel, mad story.
Tobias: You say vision, it’s literally like a biblical vision– [crosstalk]
Jamie: Biblical vision. Yeah, like a religious vision–
Tobias: Conviction.
Jamie: Yeah, and he wasn’t taking anything either.
Tobias: [laughs]
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Sometimes There’s A Good Reason For Accounting Anomalies
Jamie: Yeah, well, who knows? I remember the story, and Dan being like, “Okay, well, you’re going to email the company.” I was like, “You want me to email the company?” I was like, “Shit, that’s quite scary.” That took a lot of getting used to like and now, it’s fine. But I do think it is quite nerve wrecking at times. As you know, when it comes to accounts, somebody might look dodgy, but then actually, there’s quite a good explanation for it, and a CFO will tell you, and they’ll be like, “Actually, you know what–” You’re like, “Okay, actually, I don’t have a story.”
I’ve got 20 stories in my archive, which I’d never publish, because the CFO actually came and talked to me and said, “I think you’ve got the wrong end of the stick, Jamie.” I went back and went, “Actually, you know what? I think he’s right.” So, you’ve always really prepared for that. That’s part of the oddness of the job at times, is kind of having these fights with multinational corporations, and you’re just a little journalist sitting in London.
Tobias: Man, I’ve got some empathy for you, because I’ve been on both sides. I’ve been on that side where you’re preparing the accounts, and you’re trying to put it together, and it’s not– equally, it’s complex putting them together. Even if in good faith efforts to put them together, it’s entirely possible to make some sort of error or mistake in that and then to have someone pick up on that and then come back– It’s difficult to understand. There are a lot of moving parts in the accounts. It’s not quite as mathematical as people might think it is externally. There are some judgment calls and in some great areas that reasonable honest people could disagree on. It’s a difficult process. I’m sure.
Jamie: My dad was an auditor. So, I do get to talk. Luckily, I do have that in my family, so I can call him up and say like, “What do you think about this?” He’ll go, “Yeah, that looks all right to me,” instinctively, so I’m lucky to have that to fall back on. He always says to me as well, “You won’t believe from the discussions I’ve had in boardrooms about accounts, it’ll blow your mind,” when he was doing them back in the day.
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Tobias: Just as a final question, what’s the ultimate goal? As a journalist, do you seek to become an opinion type, like a name that sells newspapers? Do you want to become a Paul Krugman or– [crosstalk]
Jamie: I don’t know. The traditional way, you work as a reporter, you get a reputation for yourself, you might get a more senior reporting role where you have to write slightly less but you’d do more in-depth stories. My friend and my colleague, Rob Smith here at the FT, he now is in this position where he’s doing very deep stories on two or three things and he’s earned his stripes reporting on the bond market and capital raising. Now, he’s doing that. And then, maybe he’ll become a manager, and you’re still doing a bit of writing, but you’re managing a team of reporters and you move up the tree. Yeah, think that would be amazing.
But for me, as well, my career so far has been quite– I don’t tend to think about the ends that much. I’m very happy doing my job. I get to spend all day reading, and learning, and talking to people like you and– I’ve got to talk to people– when I first started learning about finances, someone had told me that Howard Marks would email me. There’s joy in that as well and I can pick the brains of some of the smartest people I think in markets at least. I’m just enjoying the job and hopefully people will enjoy reading my articles, and that seems to be the case at the moment. So yeah, [crosstalk] continue.
Tobias: I certainly do enjoy reading them. Jamie, if people want to get in contact with you, they’ve got the hot scoop, where do they send it? How do they follow along what you’re doing?
Jamie: I don’t tweet my articles too much, because I have that weird British thing where I don’t like boasting, but maybe I should do that more.
Tobias: You better do that.
Jamie: Yeah, I’ve got a Twitter account, which is @ajb_powell. There, I mainly just share posts. It’s more just for fun and taking the mickey out of people then actually– I don’t pay myself too much. My DMs are open. I’d say if you’ve got a story where you’re worried about people finding out that you told me, DM me and say, “Hey, I’ve got a story and I’ll give you my mobile. We can talk on a more secure way of talking.” I’m also at jamie.powelll@ft.com. Easy to remember. That’s my email address. So, I love any story which your listeners go, “I wish someone was fucking writing about this. This is really interesting. Why isn’t anyone covering this?”, email me. That is my wheelhouse. Do email, I’ll get in touch. Always love to chat.
Tobias: That sounds good. Jamie Powell, FT Alphaville, thank you very much.
Jamie: Cheers, Tobias. Thanks for your time.
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