Archive for March, 2007

Companies We Love: Rakuten Group

Long or Short, mini-ballers, and effective executives all love the phrase “Get It Done.” It conveys the crucial point of business across: results matter, so make things happen now. Naturally, we also love a company that embraces this phrase and philosophy as their number 1 motto. This is taken directly from the Rakuten Group (TSE: 4755) annual report.

Goal of Rakuten Group: To be the No. 1 Internet Service Company
The five concepts of success at Rakuten Group:

  • Get Things Done
  • Complete Professionalism
  • Hypothesize, Execute, Verify and Incorporate
  • Maximize Customer Satisfaction
  • Speed!! Speed!! Speed!!

Recommendation: Initiate a long position in Rakuten in the expectation that they Get Things Done with Speed!! Speed!! Speed!!

Insider Sales: How It’s Done

NCsoft management has emphasized that the Garriott brothers do not have plans to further sell down their stake. The company commented that Richard will use the proceeds for space travel. Robert did not state a reason for selling his stake.

Most executives sell stock. When you ask them why they’ve sold, they invariably give a generic answer about diversification, portfolio management, or taxes. These answers don’t usually vary whether the exec is selling 5% or 100% of his stake.

So we congratulate Richard Garriott of NCSoft, a Korean online video game company with operations in the US, for his candor. Richard, also known as “Lord British,” built a famous castle and haunted house named Britannia Manor in Austin. Now he has set his eyes on other pursuits and is not shy about listing them as reasons for his recent stock sales.

Satan’s Portfolio: RICK PTR TXT

Here is an explanation of Johnny’s Satan’s Portfolio Investing Thesis.

Rick’s Cabaret (NASDAQ: RICK)

Rick’s Caberet is a $50mm market cap company which operates strip joints gentlemen’s clubs aimed at Wall Street and at executives at large. The firm’s online division owns/operates “adult entertainment Internet Web sites, including that features adult content;, a personals site for those in the swinging lifestyle; and, an online adult auction site that contains consumer-initiated auctions for items, such as adult videos, apparel, photo sets, adult paraphernalia, and other erotica”.

Pulled directly from the last RICK conference call: “I would like to invite everyone out tonight to our New York City club for our Due Diligence Ball at 50 West 33rd in New York.” A publicly traded strip club and porn supplier which offers investors a “Due Diligence Ball”? Satan says “Giggity giggity…alright.”

PetroChina (NYSE: PTR)

Does your company ruthlessly seek out oil assets in the ickiest places in the world? Check. Did Harvard’s Corporation Committee on Shareholder Responsibility recommend that the Harvard Management Company divest itself of PTR? Check. Does your company look the other way when it comes to genocide in Darfur? Check. Does your company have the explicit backing and support of the world’s 2nd most ruthless government? Check. Welcome to Satan’s portfolio.

Textron (NYSE: TXT)

Textron is an $11 billion market cap firm who “primarily manufactures general aviation aircraft worldwide” but the Bell segment supplies and makes “helicopters [and] weapons, airborne and ground-based surveillance systems, aircraft landing systems, hovercraft, search and rescue vessels, armored vehicles and turrets, reciprocating piston aircraft engines, aircraft and missile control actuators.” And for the kids, Clusterbombs!

Sometimes we don’t have to make the call, the public will do it for us. In this case, Brown students staging die-ins outside Textron’s offices let us know exactly what Textron is all about. One of the protesters signs leadingly asked “Are you in the business of killing?” The answer is yes, and the lucrative blood of innocents is what makes Satan’s Portfolio’s returns so juicy.

Long Bob the Builder, Short the Sodor Railway

Submitted by LoS readers “Anonymous”

Anyone with a boy between the ages of one and five will be familiar with both Bob the Builder and The Sodor Railway – home of Thomas the Tank Engine. Both entities are owned by Hit Entertainment, an entity taken private off the London Stock Exchange by 2005, but apart from that they represent vastly different investment options.

Bob The Builder and his team have built an ethical, environmentally-sensitive construction business based in the booming Sunflower Valley. A family business, the culture of the operation is rooted in the values handed down from his father. They offer great value to their clients by staying under budget while building attractive, energy-efficient structures. Sites are always organized and clean, and safety is clearly a priority. The company also provides exemplary solutions to the problems that arise when new development encroaches on wildlife.

Bob’s team is a textbook example of emotional intelligence driving value. The team is smoothly integrated in a number of important ways – among races, among species, among all the mammals and several machines with extraordinary artificial intelligence – all of which pays off in superb performance. Bob is an efficient manager and consensus builder; this commitment is reinforced every day in song. This focus on employee satisfaction allows Bob to achieve industry leading productivity levels while keep wages below the industry median.

By contrast, the Sodor Railway (home to Thomas the Tank Engine) is fraught with managerial, operational, infrastructural and safety issues. The island is subject to an assortment of unrelated but frequent natural disasters which soak up governmental funds. This, in conjunction with mismanagement, has prevented Sodor from adequately investing in effective infrastructure which will attract new businesses and their tax revenue. Key bridges and stretches of track routinely fail, resulting in delayed deliveries and damaged stock. Abandoned mines and other Superfund sites are left open resulting, creating a looming environmental hazard.

The CEO, Sir Topham Hatt has overseen a comprehensive decline of the railroad and has neglected critical infrastructure. Hatt engages in wanton appropriation of company assets for personal use, frequently damaging them in the process. On one notorious afternoon, he commandeered an entire train, a truck and a steamroller to get to his wife’s decadent Kozlowski-type birthday party which may or may not have have had midgets serving cocktails.

The Sodor Railway team has devolved into two ethnic factions – steam engines & diesel engines – tended by humans suffering from severe ADD. The engines’ internecine struggle not only routinely disrupts operations but also distracts management from planning for the future, further burdening a proven incompetent management.

Recommendation: Long Bob the Builder, Short the Sodor Railway. We see a compelling pair trade between the two, and recommend a 1:2 long to short ratio.

Quotes Entirely Relevant to Investing

The world is full of smart-alecs who don’t understand anything.

-Richard Feynman, Nobel Prize winner in theoretical physics

Past Quotes Entirely Relevant to Investing

Marijuana Causes Genocide

From 1976-79 in Cambodia, Khmer Rouge leader Pol Pot oversaw the genocide of 1.5 million Cambodians. Since 2004, the Janjaweed, a paramilitary group covertly supported by the Sudan government, has been genociding 500 Darfurians per day. Pol Pot. Janjaweed. Coincidence? Science says not.

Killer African Frog LEAPS

As reported by the SF Chronicle, killer African frogs are leaving a wake of death and destruction not seen since my NHL 95 days on the Sega Genesis.

No one knows for sure when the African clawed frogs got into the pond or who put them there. But there they are, and the Toad Warriors have pretty much taken care of the native turtles, frogs and fish.

“They’ve eaten everything they can get their mouths around, and now they’re eating each other,” said Eric Mills of the animal rights group Action for Animals.

Mills worries that the fiendish amphibians — which grow to 5 inches in length and have claws on the toes of their oversize hind feet — may jump the pond and spread their reign of terror across other Bay Area waterways, although so far, none has popped up elsewhere.

Are they the real deal or just another hyped “killer African” mania like those bees that apparently aren’t that “killer” and won’t migrate north of Texas?

Recommendation: One look at this albino Grimace-looking killer gives an investor all the due diligence he or she needs to state unequivocally that these killer African frogs can produce killer returns. We recommend loading up on killer African frog LEAPS. A catalyst for hopping out of a a long position would be the moment “Killer Frogs” appear on the cover of Time Magazine.

2007 Going Private Awards

Cohort and comrade, Equity Private, has created the 2007 Going Private Awards “intended to recognize the contributions of individuals and organizations to financial and economic ignorance, the elimination of market economies and the destruction of economic efficiency everywhere.” These are the most important awards ever created. LoS readers should submit nominations for the awards below to The deadline is August 1st, 2007.

The Enron M&A Prize

…Presented to the management team responsible for the merger, acquisition, sale or divestiture causing the most extensive financial damage to equity or bond holders.

The Daniel Loeb “Chief Value Destroyer” Award

…Presented to the senior executive most responsible for the destruction of shareholder value.

The Maxwell Smart Prize for Mediocrity in Financial Journalism

…Presented to the financial journalist issuing the most sweeping generalizations, possessed of the weakest grasp of finance and most the deficient command of economics. (Note: As the prize has already been awarded to Justin Fox of Time, only submissions for “runner up” will be accepted).

The Thai Medal

…Awarded to the individual or organization most responsible for fostering regulatory or legislative initiatives leading to the frustration of efficient markets.

Private Equity Tactics Being Used on Textron

Private equity firms KKR and TPG were able to acquire TXU (NYSE: TXU) at a discount by hiring goons masquerading as activists to stage die-ins and other protests outside mutual funds and public holders of TXU stock. Could the protests, die-ins and facsimile blood hand-prints on the wall by Brown students outside the offices of Textron (NYSE: TXT) in downtown Providence indicate that the firm is about to be snatched up by private equity firms? LoS thinks so.

It’s clear just from looking at the pictures that those are not Brown students, as they lack their trademark long hair and hippy attire. Knowing that they aren’t Brown students, the only other logical conclusion is that they are agents hired by private equity firms. How long until Carlyle and Cerberus take Textron private? Weeks? Days? Light dollars (the measurement of how long it takes light to travel a dollar)?

Recommendation: Textron makes weapon systems and military vehicles, so it’s already a pretty good investment per Satan’s Portfolio. Taken together with the near certainty that PE firms snatch TXT up amidst the public backlash is another clear buy signal. “Buy” times “buy” equals “buy squared”.

Addendum: Some choice bits from the Brown Daily Herald’s article.

During the protest – which about 20 students from Brown attended, in addition to 10 others – students pantomimed Textron executives throwing cluster bombs at civilians while other protesters pretended to die in the circle at the intersection of Westminster and Exchange streets….

The protesters, using jam as fake blood, imitated injured or dead civilians and held signs with slogans condemning Textron’s military contracts, including, “Dear Textron, our democracy is not for sale” and “Are you in the business of killing?”

Two comments. If you have ever killed a man and tasted his blood, you know that it is nowhere near as delicious as raspberry jam. Also cluster bombs are dropped out of planes, not thrown by soldiers. If you really wanted to kill and horribly maime a crowd of civilians from the ground, you would want to use a flamethrower. Silly Brown.

The Market, She’s a Bitch

Submitted by LoS reader “Charles”

In many roles that have been traditionally dominated by men, the underlying structure of a given profession is often personified as a woman. The best example I can think of is that of a sea captain: both the ship and the ocean are almost always described as a woman. Mother Earth yields crops to farmers; look to Greek mythology to find the goddesses of Spring and the Harvest. A rejoinder to this observation is the stock market. I have never heard a trader or an equity analyst (during my employment at a sell-side firm) refer to the market as a woman. Indeed the stock market is almost always given the genderless pronoun “it” in both common and academic conversation.

I, however, firmly believe that the market is a woman, and I believe the most recent sell-off gives support to my argument. On February 27th, the market behaved exactly as a woman would in a similar situation. In bed.

Over the trailing trading sessions, the market was getting nailed – in a good way – and she was really enjoying it. Point by point, rising closer and closer to double digit returns. Coherent thought was miles away as she slipped deeper into a state of upward momentum. Rising. Higher. Higher. It seemed like the pure joy would never end. But was there risk? Globalization and transparent markets had mitigated all need for protection, so on she went. Closer and closer to the peak of 52-week highs.

Then, as if fate itself called down to her, she realized she had forgotten to take her birth control and she was not “this kind of girl”. She was overexposed to sub-prime debt. The market went from legs-wide-open to frigidity in less time than it takes a fixed income trader to eat his Atkins lunch. And when the market closed, investors had to go to bed pissed off and feeling like they got kicked in the nuts.

Don’t worry, though. She’ll be back.

Quotes Entirely Relevant to Investing

You must have long range goals to keep you from being frustrated by short range failures

-Charles C. Noble

Past Quotes Entirely Relevant to Investing

File Your Taxes or You Will Die Alone

Fact: It’s that time of year again. The Ides of March has passed and tax season is engulfing the time space continuum.

Fact: Despite your well-founded reasoning which supports your stance that the federal income tax is unconstitutional, you need to face the facts. The government has more guns than you, so your cache of weapons on your ranch in that remote part of Manhattan will not allow you to avoid paying income taxes on your excessive compensation.

Fact: No woman has ever said “Oh you haven’t filed your taxes yet? I find that so sexy, and now that I know that about you, I would like to show you a special happy time.”

Recommendation: As your friend, and abstract financial advisor, we recommend you file your taxes immediately through this link or you risk dying alone, just like all of our readers who opted NOT to buy their GFs flowers. Things that will probably happen if you do not file your taxes through this link:

  • You will lose all your hair
  • You will die alone and unloved at any point in your life after today
  • You will be impotent, if you are not already
  • You will lose your job and not be able to support your unloving family who hate and resent you for being such a fool

Kenneth Cole is No Fortress

When an actual, savvy hedge fund like Fortress (NYSE: FIG) goes public, the masses go nutty and bid up the price far beyond its worth. When Kenneth Cole takes his Hedge Fund shoes public, they are shunned and end up on markdown.

Rich Writer Poor Thinker

Robert Kiyosaki is a maroon.

I haven’t read Rich Dad Poor Dad but I assume it contains common sense probably hidden amongst boring platitudes and high levels of noise (Ed note: this assumption as to how much common sense is in the book is being challenged by feedback from readers). The writer, Robert Kiyosaki, has turned his book and himself into a brand for repackaging common sense and selling it to idiots in the form of books, speeches and classes at the Learning Annex. He probably has even found a way to work “consulting of dubious value” into his product offering as well. This type of commerce is fine. If you can sell products to The Idiot Demographic, then more power to you.

But he seems to have evolved from “common sense in layman’s terms” to “erroneous information in layman’s terms” with a side helping of “terrible terrible advice.” For the last year plus, Rich Dad Poor Dad has been espousing that, in the words of a reader:

the stockmarket/mutual funds were for suckers… [you should be] long real estate, and metals, etc…[all this] last year riiight at the top of the bubble, and that if you dont get rich its because your lazy, because anyone can buy a building, convert it into an apartment, and sell for triple the price. Buy high and sell low kids!

Now he has completely contradicted all that advice in this article Rich Today, Poor Tomorrow which outlines how his McMansion living, double vacation home buying 3-kid having friends went from millionaires to selling their BMWs (the horror!). The formerly non-lazy hustling investors who were protecting themselves against inflation (or was his fear, HYPER-inflation) by buying real estate with freedom loan financing are now fools. This alone is a testament to the value of his advice.

He then reinvents macroeconomics by stating that:

cash + credit = economy

Yep folks, it’s that simple. If cash + credit go up, we get inflation. If cash + credit go down, we get deflation. If the credit bubble bursts, all these freedom loan speculator types will be “short squeezed” as he calls it (it’s not really a short squeeze, if you want to use a trading analogy, it’s more like a margin call) and have to pay lenders cash to keep their collateral position whole in the face of declining real estate prices.

This is idiotic. In fact, this article is so terrible, I find it difficult to even know how to properly form an argument against it. It doesn’t even make sense.

But here is more evidence to unback-up the truck on Rich Dad Poor Dad guy.

From his first ever Yahoo article:

“I’m very bearish on the U.S. dollar and have been for years. That’s why I have so many of them. This sounds like a contradiction, but let me explain. The reason I have so many dollars, even though I think they’re worth less and less, is because I don’t hang on to them. In my mind, cash is trash..

In the late 1990s, when people were pouring money into the tech and dot-com stocks, my dollars moved into oil, gold, silver, and real estate, when prices were low. Today, because the dollar continues to drop in value, I keep moving my money into those same asset classes, although much more cautiously.”

From a later article:

In my opinion, that means getting out of anything else that’s “paper with ink on it” — anything backed by the full faith and confidence of the SS U.S.A. That means I’m very suspicious of stocks, bonds, savings, and mutual funds, especially if they’re U.S. dependent. Although I love real estate, I’m suspicious of any piece of property that doesn’t generate cash flow today. I don’t invest in future appreciation of real estate — not today, at least.

While he is effectively mananaging his intelligence, and I applaud that, what exactly does this leave people to do with their money? He advocates against cash, stocks, bonds, saving money, buying things, the US, real estate, etc etc. What is left? Brine shrimp futures? Short or long positions in abstract ideas like Perf?

Recommendation: While we respect selling common sense to idiots, if you sell wrong sense to idiots, we have to short you if only to maintain a feeling of moral rectitude. Furthermore, we recommend a blanket shorting of anyone who speaks at the Learning Annex or anyone who has written a book with “Success”, “Rich” or “Positive” in the title. By the way, if you would like to learn more about our views, we will be hosting a free* workshop** “Don’t Believe Anything You Hear at the Learning Annex” at the Learning Annex this Saturday.

*Free after a payment of $899 for the 1st day or $1299 for two days
**Not actually a workshop or actually a real event

Addendum: Here is an in depth review of Rich Dad, Poor Dad and Kiyosaki, I haven’t read it but the criticisms match his columns as well and point to the fact that the book is less common sense than I assumed.

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