Long or Short Capital

Market values of popular candies, serving size is “fun size” unless noted otherwise, based on actual market trading.* Does not include any candy broker fees or other transaction costs.

SKITTLES : 2.9 MILKY WAYS
SNICKERS : 15 units of CANDY CORN
CHARLESTON CHEW : 0.46 SNICKERS
ROLO’s : 0.7 SKITTLES
APPLE : 1/30 of a SNICKERS
M&M’s : 1.3 CHARLESTON CHEW’s
M&M’s : 1.01 PEANUT M&M’s
REESES PIECES : 0.6 SKITTLES
5 GUMMY BEARS : 7 units of CANDY CORN
KIT-KAT : 11 units of CANDY CORN
NESTLE CRUNCH : 2 SNICKERS
FUN-DIP : 3g of CRACK
HERSHEY’S MILK CHOCOLATE BAR : 20 APPLES
THREE MUSKETEERS : 0.20 SOURPATCH KIDS
SWEDISH FISH : 0.78 SOURPATCH KIDS
POP ROCKS : 0.30 FUN-DIP’s
SMARTIES : 4 units of CANDY CORN
TOBLERONE : 2 APPLES
REESES PEANUT BUTTER CUPS : 95 MOUNDS
Oh HENRY : 4.5 units of CANDY CORN(3-6 bid-ask spread)

*We will update this based on current market data. Updated 11/2 1:25PM

When my kids get back from trick-or-treating, you can bet they will have countless candy bars of a variety that they never choose to consume on their own. For my money, the worst of these is the Charleston Chew. While Tootsie Roll Industries Inc., the company that makes this confectionary abomination, produces many delights and is a model American business, their Charleston Chew is a crime against dentistry.

I have never willingly purchased a Charleston Chew, and I’m not aware of ever observing anyone buying one for their own consumption. But rest assured, folks across America will be shoveling them into trick-or-treaters’ bags.

Perhaps, you might say, it is just that people are taking the opportunity that Halloween offers to dispose of a menace. Rather than consume the Chews themselves, individuals foist them on unsuspecting youngsters.

-From a piece on Halloween by Kevin Hassett on Bloomberg (no link)

This is a clear case of moral hazard, where the dispensers of candy treats do not bear the full cost of their decision to dispense the tasty Chew during Halloween, namely the impact on the dental bills of the consuming children’s parents. But this report reveals another trend we find to be compelling, and a potentially delicious investing opportunity — the perpetual undervaluing of the Charleston Chew candy bar.

CC has some of the most desirable attributes of a candy asset:

• Medium width milk chocolate coating
• Artificial vanilla-mallow alloy filling
• Cross-selling opportunities (selling vanilla-malloy alloy to chocolate lovers, vice versa)
• Above industry avg SPCC (sugar per cubic centimeter)
• Freezability which increases the size of market demand for CC (people who like their candy assets frozen)

Despite this, Kevin Hasset heaps scorn upon the Charleston Chew, scorn which would have been unthinkable in CC’s heyday. How will the Halloween market react to the Chew? And how does one properly play the Chew?

Recommendation: This apparent dip in CC’s popularity without any corresponding dip in the core value of its assets are combining with temporarily distorted market forces (halloween, moral hazard) as an opportunity to pick up Charleston Chews on the cheap. Currently trading at 0.46 Snickers, we think CC is a great value at these levels, and we recommend accumulating CC at these levels. See our related report on Candy Asset Exchange Rates.

In studying Jong-il, we have uncovered that while his foreign policy strategy of “apocalypse for sustenance” is suspect, he is perhaps the world’s biggest mini-baller. Naver.com has reported that Jong-il spends upwards of $700,000 on Hennessey per year or roughly 3,500 bottles. What could he be doing to consume that runrate of alcohol? Straight-mini balling: malnourished models & bottles.

Jong-il was married to a woman named Kim Young-suk, and he still managed to father thirteen illegitimate children. His manhood is reportedly shaped like a fist (it can knock you out) and can hold a golf club well enough that it shot five hole-in-ones in one round of golf, finishing at 38 under par. Only a handful of professional golfers have ever shot under a 60 in competition, but Kim Jong-il shot a 34 on his first round with his elephant trunk.

Perhaps the most profound proof of Jong-il’s mini-ballerhood is that he plans to win the nuclear arms race with after ceding the world a 60-year head start and with GDP 1/60th the size of that of NY state. He knows that it’s not about your skills, or the size of your bank account, but what you DO with those skills to reduce the size of that bank account.

Recommendation: Long or Short Capital recommends that Kim Jong-il is appropriate for almost any diversified global portfolio as an insurance policy against chaos and international instability; he demonstrates a low correlation to reason and sanity.

Sir Equity Go is a contributing assistant to the assistant director of research at Long or Short Capital.

People who decry the fact that businesses are in business “just to make money” seldom understand the implications of what they are saying. You make money by doing what other people want, not what you want.

-Thomas Sowell

Past Quotes Entirely Relevant to Investing

Long or Short Capital is having its strongest quarter ever in terms of revenue and expect that working capital has improved significantly. The results should be a strong growth in the dividend pool available to qualifying subscriberholders. We have also poured a significant amount of our cash flow into advertising spend but that does not affect the dividend pool. We will release our Q1’07 financial results on November 4th.

The US has been fighting a quixotic war against drugs for ages now, focusing on tougher penalties for both dealers and users and targeting the supply in a global game of cat (e.g. DEA) and mouse bigger cat(e.g. drug dealers). The only things which have been accomplished are hollow political “victories”, a huge expenditure of public money and an epic waste of limited police resources. A persistent suggested alternative is to legalize drugs (and tax the sh*t out of them) since they don’t hurt anyone but the user anyway and most of the violent crime related to the drug trade only exists because it is illegal. It might also counter-intuitively reduce the use of drugs. Cigarettes have had so much sh*t taxed out of them that their use has been declining consistently — see it works!

Why stop with cigarettes and drugs? Everything illegal should be made legal and have the sh*t taxed out of it.

Suicide? Who does it hurt but me? Let me do it whenever I get that feeling, but be sure to tax the hell out of it. This is called turning a cost center (all the government expenditure associated with oppressing consumers who want to enjoy some suicide in the confines of their own home or the public’s bridges) into a huge profit center.

Murder is a crime and a horrible thing….but at what price is it a great deal for the Government? I work in a high stress environment and I would pay a tax to let me kill a homeless man with a shiv when the blood urge compels me. A human life has an assignable dollar value — tax me that value for taking one. This would better allocate murderable resources with murder demand.

Plus think of all the job creation which could come about! A whole new industry would be created because in order to collect the tax revenue generated by legalized crime, you’d have to be able to account for it. Governmental life valuations agencies, third party appraisors, a whole new subindustry would have to be built to support this initiative, leading to job creation.

Recommendation: This concept is still in the infant stage, and we are working internally to see how this can best make Government provide greater freedom and greater choice to its citizens.

Editor’s Note 10/31/2006: This is in state of revision due to constructive reader feedback, bear with us as we make this idea better and basically make it work.

Our Hungarian friend Anonymous emailed us this question:

When I come out of the [subway] station, there is always a middle aged man selling Boston Herald’s wearing a YANKEES hat. With such a cheap discretionary purchase, one that is marginal and dependent [on] conveniece and low transaction costs, why would anyone doing [that for a living] think it was wise to wear a Yankees hat? What would the equivalent be in business? It’s even worse because the Herald is such a rag that is often given away for free later in the day.

In a situation where you were closing a deal or pitching a fund, the only thing that would compare would be saying something like “I would love to bang your wife/husband….again” and then handing him/her a glossy shot of you banging his/her wife/husband. As for a comparable act in the greater business world, maybe a company with a catalog driven sales model putting a white powder in all their catalogs? Or Panda Express replacing their banner with a biohzard logo; this would also have a high social benefit. (Panda Express was the 47th largest chain in the US in terms of revenue in FY’05. Just think about how many cases of food poisoning that likely represents….)

Sometimes I have questions but don’t have the answers. Here are a couple examples:

• Why do we use a french word, “entrepreneur”, to describe someone who builds a business or otherwise innovates. This type of person is effectively outlawed in France. Let’s relabel entrepenuers what they really are: “Americans”.

  Example: Those americans who started Skype are rolling in it.

• Why do we call a go-getter, a “go-getter”? If someone really is a go-getter wouldn’t they have go-gotten a position where they make others go-get for them? Types of people who are currently called “go-getters” should be relabeled “tyrants in waiting”.

  Example: Michael Milken was a real tyrant in waiting in his youth.

• Who buys those Bowflex machines sold on TV? …Actually, there really is no answer to this one. [Edit: the first commenter links to a great NY Times article on the bowflex]

Sample Probability Question for the CFA Exam

The probability that the CFA alone lands you a better job is 1.6%. The probability you will use skills you learned from the CFA (which you did not already possess or use in your job) in your future work is 4.8%. The probability that you pass the CFA is 70%. Calculate the probability that your time on the CFA is well spent and you shouldn’t be drinking more and studying less.

A) 17.2%
B) 4.442%
C) 4.443%
D) I have made a total mistake in where my life is headed and I need to rethink everything. It’s not this problem that I find hard, it’s waking up in the morning, staring at spreadsheets all day and living in the suck. I don’t even know where I end and my job begins. It’s like my nightmare relationship with a woman, except all the humiliation and feeling of ineptitude is not offset by sexual favors. I am trading my soul and my youth for a financial merit badge and a few golden shekels.

Explanation:

Based on the formula P (A | C or B |C) = P (A | C) + P (B | C) – P (AB | C), the correct answer is closet to the mean of B) and C), so you should answer with a symbol which was half B and half C. If filling in a bubble, be sure to fill in a half circle in both the B and C bubble. D is true but not correct. As a CFA holder it is important to be able to discern between what is true and what is correct; the subtlety between the two is what will define your ability to thrive in your chosen profession. This is testable material so be prepared to face it on the CFA exam and in the exam of life.

A year ago, I published a report entitled Is Russia a Place to Invest or a Place to Fear? which dealt with the rise of Russia as a popular destination for Western capital. The precis is as follows:

A common investing theme is that Russia is the place to put your money. Why?

Burgeoning middle class!!
Favorable demographics!!
Heavily educated human capital base from which to draw!!
More oil than T. Boone Pickens!!
Business friendly, and otherwise unfriendly, Dictator Tsar General-Secretary President Putin!!
Tradition of outlining and executing 3-5 year plans!!
Tradition of strongly protected property rights, economic openness and political stability!!
Literature with greats like Aleksandr Solzhenitsyn!!
And for the kids…GULAGS!!

Well sorry to be the turd in the blinchiki but Russia is jockeying to try and do the only thing they know to try and do: nuke the USA and rule the world. They don’t care about economic openness. They don’t care about working hard and they don’t believe in capitalism. They want three things, in no specific order.

Vodka.
World Domination.
To do evil.

Well, it took a year but the Ruskies found my article and posted it on the livejournal page of an alleged (by me) member of the Kremlin. The comments are mostly in cyrillic, but running some through babelfish led to this disconcerting discovery:

it is necessary to survive from the mind in order, after pursuing after the visibility of large dividentov, to pack money into vostanovleniye of the potential of the imperial militarism

Their plan is to use Long or Short Capital’s own dividend policy against us, and “pack money” into “the potential of the imperial militarism,” e.g. raze Long or Short and perhaps the Western World.

Recommendation: Short Long or Short?

Rap critics they say he’s “Money Cash Hoes”
I’m from the hood stupid, what type of facts are those
If you grew up with holes in ya zapatos
You’d be celebrating the minute you was havin’ dough(s)
I’m like fuck critics you can kiss my whole asshole
If you don’t like my lyrics you can press fast forward

-Jay Z in his track 99 Problems

Past Quotes Entirely Relevant to Investing

The so-called “Intelligent Surveillance and Guard Robot” uses visual and infra-red detection to distinguish between humans, trees, and vehicles, and can do so from 2.5 miles away during the day and about half that at night.

“Until now, technology allowed these robots to conduct monitoring function[s] only. But [now] our robots can detect suspicious moving objects, literally go after them, and can even fire at them,” said Sang-Il Han, principal research engineer at Samsung Techwin.

Once the target is within 10 meters, it will demand a pre-programmed military secret code. If this code is not provided, it could give three possible responses: sound an alarm, fire rubber bullets or open fire with a K-3 machine gun.

-From ABC News on the rollout of South Korean Robot Sentries (interest seeded by Collision Detection)

It took 20 years for the premise of the futurist 1986 film Short Circuit to become realizable in the real world, but that day is now upon us. Unmanned robot sentries are being rolled out by the thousands in Korea at $200k a pop, a price within the range of the US consumer market.

Recommendation: Short human soldiers, Hold Militaries (on watch for downgrade). The cost savings generated by eliminating human cogs from the war machine are likely to be offset by increased competition from rival militaries, as the barriers to entry to creating a robot army to take over the world are smaller than those required to create a human army to take over the world. Current R&D costs maintain a distinct competitive advantage in favor of the incumbent suppliers of highly engineered killing conquest services, but this could abate over time and the move away from a labor intensive industry to an idea intensive industry creates opportunities for disruption by nimble militaries or evil geniuses.

Mr. Cohen’s purchase,”Police Gazette,” is described in the Times as one of the artist’s “more abstract canvases, primarily yellow, red and green.” Others might say it looks a bit like an exploded taxi cab.

Whatever it resembles, it is a lot less fearsome than Damien Hirst’s “The Physical Impossibility of Death in the Mind of Someone Living,” for which Mr. Cohen paid $8 million two years ago. That work consists of a 14-foot shark suspended in a glass tank. The shark has since begun to rot and is now being painstakingly replaced with another, slightly smaller one — a process that apparently requires 224 gallons of formaldehyde, among other things.
–Dealbook

An $8mm shark in formaldehyde that rots and must be replaced every two years isn’t art, it’s an incredibly inefficient way to spend money that could have been spent on bottle service. Alterntatively, it’s an incredibly efficient way to WASTE money. Previously, someone who — like Mr. Cohen — had money to burn might have bought an expensive shark tank with live sharks. But Mr. Cohen raises the bar on the efficiency of waste by spending 80x as much for a shark tank with a rotting shark corpse. The sheer brilliance of this frivolousness is hard to comprehend.

Over the last few years, Mr. Cohen’s annual earnings have varied between $428mm (2001) and ~$1bn (2005) adding up to a fortune now estimated at $5bn. Such huge, rapid gains in wealth have clearly caused him to increase his investment in the research and development of new, efficient ways to waste large sums of money.

Rotting shark corpses are an early sign that this research has paid off. Note the brilliant use of a unique art artifact, making other stupillionaires hesistant to directly copy his maneuver.

Recommendation: We see a long term rise in top-tier spenders’ ability to fritter away stupefying amounts of money. Go long cyrogenically-frozen elephants, a likely next target for money-wasting.

On my way to work on Friday, I got off the subway and was approached by a hot chick wearing a pink ribbon. She claimed to be collecting money for “the fight against breast cancer.” It was the first time such a pretty girl had said the word “breast” to me and the gears inside of my mind started turning.

Tim Harford’s Undercover Economist column on Charity expanded the idea for me further:

In fact, the closer you look at charitable giving, the less charitable it appears to be. A recent experiment by John List, an economist at the University of Chicago, showed that donations are less than magnanimous after all. Using controlled trials to compare different methods of door-to-door fund-raising, professor List’s team discovered that it was much more important … to make sure that the fund-raisers were attractive white girls rather than a dowdier assortment of males and females representing all shapes, races, and sizes. This dramatically increased the average contribution, because many more men decided to give money.

This led me to realize these two things:

• Breast cancer is a serious issue and warrants significant funding
• The best people in the world at getting/raising/borrowing/stealing money are smoking hot chicks.

Why not combine the indisputable nature of these two truths into a money tree for a good cause? My campaign is called “Save These Hot Boobs from Cancer” and it involves beautiful women with big hearts and bigger breasts appealing to the love all guys have for a great pair of tatas. Let’s pretend you’re walking on the street and a well-endowed blonde with a big smile says to you: “Statistically speaking my perky boobs have a 35% chance of being ruined by a malignant tumor, would you please contribute to the fight against breast cancer?” If you don’t give money to that girl then you probably don’t have a conscience.

Chartible organizations need to penetrate the industry leaders in solicitation — beautiful women. A first mover will have an enormous market opportunity.

Let’s do a little math:

• Incoming earning males in the western world = 1 Bn
• Percent of income earning males who would give money to a babe for a good cause = 100%
• Average donation per income earning male when approached by a “Save these hot boobs from cancer” representative = $20
• Fund raising potential = (1 Bn) x (100%) x ($20) x (% of incoming males approached).

If we can reach even 50% penetration we can raise over $10bn to fund research on hot boobs cancer. As noted above, these estimates are empirically proven using math and advanced probability techniques. With so much money thrown at the problem, the only remaining issue is what all these hot chicks are going to do a year from now when we announce we’ve found a cure.