Archive for September, 2006

The European Market Standard

I just called [unnamed European I-Bank] with questions pertaining to a deal they are banking and in which my firm is participating. [European I-Bank] had sent my office a document, requesting my reply on a certain issue in the aforementioned deal. They listed two contacts at the bottom of the memo, numbers for London capital markets types who wanted to get feedback on the issue and answer any potential questions or problems we had. Bear in mind, this issue needs to be resolved today and they sent us the memo yesterday afternoon.

So I contacted the first number.

“You have reached the line of [Guy No.1]. I am on Holiday until Octobey 9th, please refer any questions you may have to [Guy No.2] at extension [5555].”

I call [Guy No.2] at extension [5555].

“Sorry, this is [Guy No.2] and I am out of the office until October 16th. Leave me a voicemail and I will get back to you when I get back.”

I then look back to the document and dial the 2nd listed contact’s number.

“You’ve reached [Girl No.1] and I unavailable to answer your call. I will be back in the office on October 4th.”

Recommendation: Short Europe and their non-stop Holiday-taking investment banks. You can’t get it done or make it happen, if your team is never at work.

The Attractiveness Scale

All man to woman (M2W) relationships reduced to a simple easy to follow chart. We endorse all attempts to simplify all complicated human interactions into charts and numbers. Especially when they are dead on accurate.

(Via Typhoon Ahlwoon)

Mr Juggles’ Investing Commandments 5a and 5b

In this installment (Read Mr Juggles Investing Commandments #1 and #2, #3 & #4), the focus is differentiating real passion in a CEO from unreal CEO’s.

Commandment #5: Invest with CEOs who are smart and passionate. Do not invest in companies with fabricated CEOs.

5a. Nidec (NYSE: NJ), a Japanese electronics comany that specializes in brushless motors, has a CEO with smarts and passion. Investors who have bet on Mr. Shigenbou Nagamori have been well rewarded. Here’s a passage from a recent Barron’s profile where Mr. Nagamori discusses the business potential of using brushless motors in air conditioners:

“Can you hear this conversation?” Nagamori asks, suggesting we can because “this hotel has Japanese motors for its air conditioners.”
Last week in Boston, my hotel air conditioner was so loud, I couldn’t sleep,” he say. “Finally, I lulled myself to sleep by thinking of the business opportunity!

5b. CEOs to avoid include that of China Energy Savings Technology (OTC: CESV), which was suspended from trading by the SEC this week. Here’s the relevant excerpt from the SEC order:

Questions have arisen regarding the accuracy and completeness of information contained in China Energy’s press releases and public filings with the Commission concerning, among other things: (i) the company’s purported ownership and control of its sole asset, Shenzhen Dicken Industrial Development, a manufacturer of energy saving devices located and doing business in the People’s Republic of China; and (ii) the existence and/or identity of the company’s purported former Chairman and Chief Executive Officer, Mr. Sun Li.

Long or Short Advertising is a Giffen Good

In response to sluggish ad sales through BlogAds, we did a thorough SWOT analysis of the situation, hiring innumerable consultants and people with impressive titles. What we found through this research is that Long or Short Capital advertising is a Giffen Good.

Giffen Good
A Giffen Good is a product for which a rise in price of this product makes people buy even more of the product. [Per Wikipedia]

Upon the recommendation of our consultants, we increased the price of all our BlogAds to double their existing levels. We needed to communicate that advertising on our site was a good value, and the best way was to increase the price of the ads. This dovetailed nicely with an integral life lesson that my father taught me as a young child: if something costs a lot, it must be better than something which costs less. (Why is this the best bike? Because it was the most expensive one son, that’s all you need to know). By raising the price of advertising, we signalled an increase in quality of our product. And, if we signal it enough, this will eventually become an accepted truth (The Goebbels technique).

The evidence is now in and the results are clear. The number of BlogAds purchased in August under Price Regime X was 0. The number of BlogAds purchased in September under Price Regime 2X was 1. We now project that the number of BlogAds purchased in the next 30 days under Price Regime 4x will be 2. Note the incredible positive elasticity of demand (+1). Below is the actual demand schedule for the number of 1 month BlogAds which were submitted to us vs a leading competitor. Demand Schedule

As compared to: Schedule

Long or Short Capital — 1 out of 1 leading analysts agree that our advertising beats’s advertising in getting out even the toughest household stains in having a positive elasticity of demand.

The Perf Contagion

From our Mexican Desk comes this missive about the Pert Contagion which is posied to sweep the emerging markets in a way heretofore unseen.

You’ll all be happy to know that I sat down with a team of crack Mexican scientists and we’ve decided on the spanish translation of the number Perf. Or perhaps they were Mexican crack scientists… well, whatever, that’s not important. What’s important is that the number is “perdo” (pronounced “pair-doe”).

Polls show the acceptance rate in Latin American countries is an astounding ninety-perf percent overnight. Of course they also believe there are leprechauns that live in the hills beside their pueblos.

You can’t stop [Perf aka Perdo]…

Once an investing contagion starts, it continues forever (until it stops). We continue to be very bullish on Perf and see huge opportunities in the so-called “bottom of the pyramind” — the 4 billion poorest people in the world.

Quotes Entirely Relevant to Investing

For every complex problem there is an answer that is clear, simple, and wrong.

-H. L. Mencken

Past Quotes Entirely Relevant to Investing

The Money Series by Anthony White

It’s only art if someone will pay for it.

Anthony White is money. As a brash twenty-something living in a town of 11,000 people in Yepoon, Australia, he began his career as an artist. Shortly after becoming an artist he was tired of being poor. So he got a job at Credit-Suisse as a “stockbroker”. Most of our readers are probably saying a “stockbroker” isn’t a real thing, it’s just what ignorant people call everyone who works in the cut throat world of high finance. Unfortunately the only articles written about Anthony are by ignorant art critics, so he’s a stockbroker, and that’s that. This is where the story gets good.

After “broking stocks” for six years his girlfriend told him that he was too focused on money and he needed a hobby. So to appease his grilfriend he started painting again in February of this year, but he also wanted to teach his grilfriend an important lesson which was “Don’t pretend that you don’t like money, because everyone likes money.” That’s when he invented The Money Series.

In The Money Series, Anthony paints a picture and the only thing on the picture is a $ (or other currency) sign and a number like this:

He then sells the picture for only and exactly only the amount painted. E.g. the painting above was sold to Mister Juggles for $87. He only paints one of each number and he refuses to paint them out of order so he must have a buyer for every number in order to continue. In our humble opinion this is artistic tomfoolery and financial genius. A few things we like:

1) He is basically selling you a colorful price tag
2) He is limiting supply and via his self-imposed price control system he is nearly guaranteeing the paintings will be good investments. The $4 piece just sold for $500 in the after-market.
3) He is mocking over-priced art and giving you the opportunity to mock it with him when you hang it up in your house and proudly display to all your visitors how much you spent to cover your wall with a commisioned painting.

All of our staff is or will very soon be holders of his art and we love it. So if you have a non-artist income then go to his site right now and buy art that’s so liquid it’s practically M2.

Cenveo to Banta: Nothing More Unamerican than a Poison Pill

Robert Burton, CEO of Cenveo (NYSE: CVO), gave a tour de force performance in strong-arming a company into accepting a takeover offer. The target of Cenveo’s $47 per share bid is Banta (NYSE: BN), a printing company about the same size as Cenveo. Some choice cuts from the Cenveo CEO’s letter:

Dear Ms. Streeter [CEO of Banta]:

As you might expect, following our prior proposals to acquire Banta, we were amused to read in your press release on September 14th that Banta has adopted “strategic initiatives” to “create value for shareholders.” At Cenveo, we are always working to create value for shareholders and do not wait until we have received proposals from third parties to do so.

The fact that you continue to dismiss our proposal as “illusory” is outrageous and further demonstrates your entrenchment. I personally believe that you and the Banta board have breached your fiduciary duties to shareholders by taking actions to entrench yourself by not responding to my September 5, 2006 letter and the $47.00 per share proposal to purchase Banta.

Further, to say, as you did on your call, that we were unable to reach an agreement on the terms of a “standard” confidentiality agreement is a joke. We have offered to meet with you and to provide you with information about our commitment from Lehman Brothers and Wachovia WITHOUT OBTAINING ANY CONFIDENTIAL INFORMATION FROM YOU.

The fact that you and your board continue to hide behind your poison pill is in my view 110% un-American.

I also find it comical that overnight you have come up with a $35 million cost savings plan. This plan has significant execution and market risk as compared to our fully-financed offer.

I am again requesting you to consider our proposal as a way to save Banta for the long haul and deliver immediate shareholder value. You should do what is best for your shareholders, not what is best for you and your board. Thank you.


I recommend reading the whole thing. It comes close to but doesn’t cross the Patrick Byrne line of executive overboardedness.

Short The Law of Large Numbers

Mr. Moore said it was possible that Yahoo, in its race to compete with Google, was simply overoptimistic in its forecasts and too eager to appeal to investors. “You are expected to grow every quarter,” he said. “There is a law of large numbers. It just gets tougher and tougher to please the Street.”
-NYTimes article, Ad Sales Fall Short at Yahoo

Every day I hear some wannabe business guru citing The Law of Large Numbers. Listen to the 3Q’06 Google (NYSE: GOOG) conference call and you will not fail to hear the Law mentioned and referenced numerous times by Wall St analysts. However, in each instance, this is a case of silly business people trying to sound knowledgeable and failing miserably.

These empty suits are trying to describe the situation when a company’s increased size makes it more difficult for them to grow, perhaps because it has already penetrated most of its potential market. However, saying just that would be far too straightforward and they instead opt for convoluted and misguided jargon.

Here’s a mini-lesson, dumbed down for the target audience:

The Law of Large Numbers states that when taking a random sample from a population, the observed mean will converge towards the actual mean as the sample size increases. Dumbed down even further: you get better estimates from larger sample sizes. This is The Law of Large Numbers.

Recommendation: Short The Law of Large Numbers. Upgrade Eric Schmidt, CEO of Google, from “Sell on Extreme Arrogance” to “Hold”. After invoking The Law of Large Numbers on one of Google’s initial conference calls, he has changed his rhetoric to focus on The Law of Diminishing Returns, a more appropriate rule for the discussion.

HP-12C, I Wanted to Love You

HP-12C. I wanted to liked you. I wanted to love you.

I grew up seeing you in the hands of rich elite men of finance, men so powerful they could choose any model to calculate bond payments or whatever it is exactly people use financial calculators for these days. And yet they all chose you. Your gilded metallic head and your firm tightly constructed box conveyed elegance. You were refined yet sleek enough to look good in your leather case. I wanted to be a man so I could press your buttons and create binary reactions in your core logic.

But then that day came, when I pressed your buttons for the first time, receiving tactile feedback on the tips of my fingers as your LCD lit up with numbers. The experience was entirely incomprehensible. I knew the first time would be different, that it would take getting some used to before it felt natural, but I never knew it would be so complicated, so radically different from my intuition and a complete departure from every single calculator I had used up to that point. I cannot calculate interest payments on you, I can’t even add 2 + 2 on you. I gazed at you for 15 minutes in my CFA Prep Class, the impenetrable enigma of your buttons glaring back at me and I couldn’t make anything happen. I could not get it, or you, done.

My cohort is the first to be digital natives, so the problem doesn’t lie with my tech literacy. Manual? In these times, if you can’t be picked up and understood, then you are a relic. Usability, intuitive design, all that junk are Now.

You, like many childhood fantasies, are a busted balloon, timeless in my youth, somehow extremely dated in my manhood. No one calculates like you do, you are backwards and twisted, hewn by men who used punch cards to learn computing. I am not even sure what purpose a calculator really servers in a world of ubiquitous computing power. But I do know my CFA Exam mandated model, will not be you, but instead be the TI BA II Plus.

As the fire dims in the old men of finance, as they retire to super-yachts and cheating on their mistresses with their mistresses, so too will you dim further, HP-12C, your place obsolete, your model changed for the new or the different and your glory a distant memory of a time past.

HPQ Presents Patricia Dunn and the Off The Record Unindentified Insiders

SpyTech Truth DetectorFollowing last week’s pieces on Patricia Dunn of Hewlett-Packard (NYSE: HPQ), Dunn, board member/connoisseur of SpyTech, now has unidentified insiders justifying her actions to the press off the record. Nothing screams credibility more than unindentified insiders off the record. Keep in mind, Dunn started this controversy by violating Board members’ privacy during an internal investigation she initiated to stop Board members from leaking to the press.

Other tidbits from the article:
-“[Dunn] is deeply involved with the Conference Board’s Global Corporate Governance Research Center, and her photograph and a quote from her are featured on the center’s home page.”
-HP has a Chief Privacy Officer (CPO) who testified to Congress that “Privacy is a core HP value. As a company, HP is 100 percent committed to excellence in consumer and employee privacy.”

One caveat to this saga: Dunn is apparently quite sick and underwent surgery to address cancer at approximately the same time that this scandal was unfolding. Therefore, it seems that — while she has a track record of mediocrity — she may have been incapacitated and/or unable to fully oversee her investigation due to medical reasons. Long or Short Capital is a “compassionate critic.” We wish Patricia Dunn a speedy recovery so that she can get back to violating board members privacy at full strength with the off the record approval of unidentified insiders.

Recommendation: We expect to see large scale corporate purchases of spy technologies as a veritable cornucopia of value is created by illegally invading board member’s privacy, clearly. Likewise, we expect healthy demand for counter-intelligence equipment, as board members protect themselves. Suppliers of both techs are not at risk of disruption by cut rate ex-KGB services and suppliers, as those agents are too busy owning all of the former Soviet Union’s natural resources.

Google uses Perf

From the article we used as a source last week in our atricle about Google’s (NYSE: GOOG) information technology side, there was a Perf sighting:

Performance reviews are handled in a similarly technocratic way. Google’s “Perf” system lets managers write e-mails–again read by a computer before any human–describing what a worker did on a project that was good or bad. Come review time, peers get an e-mail asking to compare the employee to other Google people. Perf breaks up the answers, measures who’s being compared with whom, and–get this–makes the answers public. The way Merrill figures it, techies like open-air back patting. Presumably, the process airs some dirty laundry, too, but Merrill says that would happen anyway. “We have to protect our culture as we’re growing fast,” he says. “That’s what keeps us up nights.


Quotes Entirely Relevant to Investing

Some people will happily jump on the next big thing, give it all they’ve got, and in this way make important contributions to fast-moving fields. Others just don’t have the temperament to do this. Some people need to think through everything very carefully, and this takes time, as they get easily confused. It’s not hard to feel superior to such people, until you remember that Einstein was one of them. In my experience, the truly shocking new ideas and innovations tend to come from such people.

From The Trouble with Physics by Lee Smolin.

Past Quotes Entirely Relevant to Investing

Reader Comment on Strategic Craps

Great comment by marcel_marceau outlining the power of “Do you play this one?” on our Strategic Craps post:

The “Do you play this one” option is a classic demonstration of the teachings of Sun Tzu. By allowing the choice of whether or not to engage in battle, given a known dispursment of terrain and resource, one may regenerate situations until the circumstance is advantagious for victory.

Unless of course you choose wrong and a 7 way ass kicking ensues, ending with your hurling of mouse, docking station and Thinkpad across the neighbouring cube farm and the subsequent requisition of a wireless mouse to avoid the negative budgetary impacts of a repeat performance.

This is true and we refer you to more of Sun Tzu’s work on terrain selection which is highly applicable to Strategic Craps*.

The natural formation of the country is the soldier’s best ally; but a power of estimating the adversary, of controlling the forces of victory, and of shrewdly calculating difficulties, dangers and distances, constitutes the test of a great general.

*We are attempting an act of Wikiality, wherein if we say that something is not true, is true, it becomes true, because we, and other likeminded distorters of reality, have said it’s true enough. Hence, wikiality.

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