The October 2018 edition of GQ magazine mentions your Due Diligence Guy. It’s not because my fashion sense merits coverage in Gentlemen’s Quarterly. It’s because, apparently, I’m one of the “super rich” who have come to Puerto Rico to party while the poor, hard-working natives suffer the enduring aftermath of Hurricane Maria.
I find it fascinating (and relevant in a way I’ll make clear in a moment) that almost everything in the article is true. There are a few inaccuracies, plenty of statements that are interpretations I could argue with, and one glaring mistake. For the record, Puerto Rico’s Act 22 does not exempt personal income from taxation, but it does exempt passive income. Puerto Rico’s Act 20 does offer a 4% corporate tax rate, but native Puerto Ricans can set up Act 20 companies—none are excluded. That aside, the names author Jesse Barron gives are real. The events he reports happened. The words he quoted me saying are correct.
But one can use the truth to paint a very false picture.
Nothing highlights this more than the cartoon at the top of the article. It depicts a bunch of rich guys partying poolside with buxom blondes in bikinis, mega-yachts in the background. One guy’s pouring booze from a bottle directly into the open mouth of the girl on his lap. Another is throwing money in the air. I was at the party Mr. Barron writes about in the article: “Cocktails and compliance.” I’ve been to it every year—and it’s nothing like the cartoon.
Of course, Barron doesn’t actually say the compliance seminar was as wild as the unlabeled illustration implies. Still, that image sets the tone for the article. The way the true things said in the article are arranged—and the way many other true things are not included—leaves the reader with an impression that’s very different from the reality I see here in Puerto Rico.
To be fair, Barron does mention that the people who moved here to benefit from Acts 20 & 22 did pitch in to help after Maria hit. But he picks dog rescues as an example. One of the “super wealthy” guys was singled out in the article for a comment about taking a tax deduction for his private jet. Well, that guy used his plane to bring in emergency supplies after Maria. He’s not the only one. Other Act 20/22 people I know organized convoys to deliver supplies to communities in need. A lot of us pitched in with cash donation to groups helping those in need. Again, what Barron wrote is true, but it gives the impression of a callous elite that doesn’t really understand or care about the suffering of the people.
I’ll go further. Let’s imagine that the picture Barron paints with his words is completely accurate. Suppose my super-rich buddies and I do nothing but drink and hang out at the pool all day. It would still be true that Act 20/22 people—who would not be here without Puerto Rico’s tax incentives—are spending millions of dollars here. Judging from the construction and remodeling of hotels and such, it’s hundreds of millions, if not billions. We didn’t come here to steal anything. We didn’t take anything from anyone. Each one of us is a fountain of cash, buying cars, renovating buildings, hiring people directly, creating more jobs indirectly, and, yes, making charitable contributions locally.
Puerto Rico has a very tourist-driven economy. Act 20/22 people are like high-spending tourists who never leave. That may look unseemly to some people, but it’s one of the few things that’s going well for this troubled island. It’s most unfortunate to see it come under attack.
Barron’s article doesn’t actually say that people like me deserve to be shot, but it does close with a discussion of iguanas. These are said to be an invasive species. Puerto Ricans now have to shoot iguanas to keep these vegetarian reptiles from eating all the produce on the island. The analogy between Act 20/22 people and the invasive, gluttonous iguanas is clear.
The relevant point for investors is that the use of truth to paint false pictures is widespread, especially among stock promoters.
Here are a few quick and easy examples:
- It could be truthfully reported that a company found multiple high-grade samples scattered across the surface of its property. But that truth could be used to create the untrue impression that a valuable mineral deposit has been discovered, when at best, the facts only suggest that one might be nearby.
- It could be true that a company has the largest oil and gas concessions of any private company now operating in Mexico—but that doesn’t mean it has an actual oilfield, let alone one that makes money.
- It could be true that a company has drilled into a large body of mineralization at good grade—but in a mineral that’s notoriously difficult to process (enargite, a hard-to-crack copper sulfide, for instance).
And so forth. Some of these tricks are easy to spot. Others… not so much. (I didn’t find out about enargite, to use the same example, until I’d been in the resource sector for years.) But in almost all cases, a bit of calm, logical analysis can show that any given article, press release, book, podcast, or other source of information has a bias. And once you identify a bias, you neutralize it.
In the case of Barron’s article, the way he dismisses the 12,000 direct jobs created so far as a result of Acts 20 and 22 is telling. It ignores the fact that prices are determined at the margins, and 12,000 new jobs is a lot for a tiny island economy like Puerto Rico’s. And that’s not to mention the indirect jobs. Even people who’ve never been to a Cocktails and Compliance gathering—or to Puerto Rico at all—should be able to see this dismissal as bias.
As investors and speculators, we should always read, listen to, and watch everything that comes our way with skepticism.
Assume bias, and you’ll never be disappointed.
Caveat emptor.
