Long or Short Capital

This now confounds us and we need it solved. Mail an email to misterjuggles@gmail.com and tell us why Google Talk makes the text “BP” blue in messages. We will paypal $50 to the best* answer as of a week from now. The criteria are both subjective and objective as determined by our advanced DCF Correctness Model. We reserve the right to republish the theories which are especially awesome, with attribution of course.

The UK is a land of fear. Everything is geared to frightening the populace into a frenzied state. The free daily papers consist almost entirely of fear mongering journalism about violence in schools, poisons in foods, death by cellphone radiation, minicab rape, murders of Britons on Holiday, genetically altered crops. All of this is complemented by a steady torrent of T&A, usually on the same page. Mind the gap, mind the taxi, mind the man with the gun, mind the man about to violently rape you, mind the totty, mind the CCTV, mind the et cetera. Big Brother will never stop reminding you to mind while you are in the UK. Even the escalators have stop buttons positioned every few feet, as if escalator rides are a high risk endeavour.

This context will not help you when faced with the Creepy V.

No, this is not an educational ad warning about the dangers of “vagina” to young men (which are plentiful) nor is it an ad for outsourcing child molestation to letters of the alphabet. The Creepy V is the avatar used to market Virgin’s new Cancer Cover product which “can give you a cash lump sum to help you financially if you’re diagnosed with cancer in the future.” I’m not a big believer in insurance other than health and dental, but setting aside the dubious value of the product itself, the marketing is exactly the blend of creepy, offputting and cartoony that really doesn’t resonate with….anyone.

Not only that, but on the Virgin Cancer Cover page they let you watch their TV commercial (bottom left) which gets its fact completely wrong. It depicts Cancer as an entity which will do the following: pull the tablecloth out from your dinner table, steal your newspaper, take away your lawnmower and break down your door. As far as I know, these are not medical symptoms of getting cancer.

Recommendation: Virgin Group may be seeking to be the brand to rule all other brands, but when your advertising takes on an alphabetical theme similar to the Jedi Knights of Overstock (OSTK) and is creepy to boot, it may be time for you to be glad you aren’t public and Long or Short can’t back its truck up to a mountain of your stock’s put options.

Martins: Have you ever seen any of your victims?

Harry Lime: You know, I never feel comfortable on these sort of things. Victims? Don’t be melodramatic. Tell me. Would you really feel any pity if one of those dots stopped moving forever? If I offered you £20,000 for every dot that stopped, would you really, old man, tell me to keep my money, or would you calculate how many dots you could afford to spare? Free of income tax, old man. Free of income tax – the only way you can save money nowadays.

-From the movie version of Graham Greene’s The Third Man

Past Quotes Entirely Relevant to Investing

My GF: How do I make it so I’m invisible on Google messenger?
Me: But I’m the only person on your Google Talk buddy list…
My GF: So how do I do that?

Recommendation: Market underweight me.

A tale of dinosaurs in the age of robots.

“For the customer, who doesn’t enjoy high levels of service and has no respect for their money, Financial Management Account, by Smith Barney”

JD: I have a brokerage account with you. A relative used to work there and having a live broker helps for things like buying producers of Japanese toilets or Russian Petroleum on their native exchanges rather than illiquid domestic ADR’s.

Smith Barney: Yes, I am a well-known, venerable brokerage house, built upon the philosophy that customers should be rich, have low expectations and a deep self-hatred.

JD: You are a remarkably mediocre brokerage. You are more expensive than my pal Ameritrade, yet you make everything more difficult and less convenient. You are never galling but consistently incalcitrant. Would a customer like to receive their documents by email? They should expect to receive a link to their document by email, and have it not even work half the time. Does a customer want to have one account number? They ought expect to have Smith Barney CHANGE the final digit on you due to some unannounced internal transfer causing the customer to run around not being able to log in. For you, Smith Barney, it is a privilege for me to be able to look at my account online, like it’s 1997 and real time observation of my portfolio is a gift.

Smith Barney: Smith Barney Access has been named the #1 overall website among Full Service Brokerage firms for the sixth consecutive time, by the semi-annual Watchfire GomezPro Scorecard, for fourth quarter 2005. Watchfire GomezPro Scorecards measure the quality of online financial services offerings, with predominant focus on ease-of-use, customer confidence, onsite resources, and relationship services. Unfortunately, it appears as Smith Barney Access has been named the #Crap overall website by Johnny Debacle of Long or Short Capital.

JD: Let me tell you a story, Smith Barney. Last week, I decided to buy Quicken to tidy up my personal finances. Smith Barney, you don’t have any downloadable Quicken or MS Money files or anything at all, outside of PDF’s. I searched and searched and found that the only way I could get access to Quicken ready account statements, with their QIF’s and OFX’s and what not, was by upgrading to a Financial Management Account.

Smith Barney: The cornerstone of your investment relationship with Smith Barney, the Financial Management Account (FMA®) allows you to consolidate, manage, monitor and access your cash and other assets, simply and conveniently.*

JD: …And it costs $100 per year (on top of already expensive fees which I pay) and offers nothing that Ameritrade doesn’t provide gratis. Smith Barney, why would I want this? Why would I want an extended business relationship with you, who has demonstrably shown to me that everything you do is convoluted, user unfriendly, and limited? I’m a twentysomething living in the digital age and I don’t want to have worry about things that should be taken for granted. You make money off the trading I do with my money. $100 means nothing compared to the unduly non-monetary transaction costs you apply to everything. How do you not see that it’s in YOUR interests, not mine, to make it as easy as possible for me to trade and to manage my trades?

Smith Barney: Plastics.

Fin.

*Except when compared to every other brokerage.

McDonald’s (MCD) is known for supplying products so good that they’re dangerous, whether they be steaming hot coffee or obesity causing french fries. But they should be known more for getting it. Yesterday, McD’s announced that they will be selling exercise DVD’s along with their fast food. They get ’em coming and going. Seriously, there is probably some management consultant who read this news release and subsequently had their head explode Scanners-style as they jubilated “SYNERGIES.”

Recommendation: Long the Hamburgliest company on the planet.

Patience is waiting. Not passively waiting. That is laziness. But to keep going when the going is hard and slow – that is patience.

-Leo Tolstoy

Past Quotes Entirely Relevant to Investing

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

Altria (ticker: MO)

Why would a $145bn market cap company change its name? If it’s business was selling products to slowly kill its customers through addictive fire-lit tobacco. Satan knows that even that kind of mortal churn is capable of generating a stream of free cash flow to reward its stockholders. He also relates personally to the business strategy implicit behind the name change:

“They are trying to bury themselves. This is a name and brand the objective of which is to make themselves invisible.”

Invisible merchant of death. Play to the Dark One’s ego, Altria, while selling your murderous and addictive macaroni & cheese.

Rambus (ticker: RMBS)

The joys of trade conferences. Open bars lead to both professional and non-professional miscegenation, with ideas and STDs flowing as much as well-liquors. Every company benefits from these exchanges, but some companies realize you can benefit a little more; by attending them, illegally secreting away your patents and watching as the trade conference seek to adopt open standards based on your non-disclosed patents. This is know as THe Rambus Way.

Even better when a company can supplement this by negotiating incredible lock-in contracts with the largest OEM in their industry despite an expensive and laggy product. Rambus was also a pioneer of the “professional patent hostageers” business model that has been adopted by publicly traded firms like the SCO Group (SCO)and private ones like NTP and lawfirms across the country. In Satan’s dream world, no one would create anything, people would only fight over what already exists.

Del Monte (ticker: DLM)

Del Monte is known as a diversified food brand, selling everything from bananas to pet food. But not only are their bananas harvested in the same unethical conditions that permeate the business, but they even operate the acquired assets of the former United Fruit Company, an all-time great. Del Monte also recently acquired Meow Mix for a 12x multiple, a huge discount to the number of times “Meow” occurs in their insidious jingle. You need to fear the the Power of Meow.

The recent Captain Hook Awards for Biopiracy do not play into the piratery investing series, because they are not truly piracy. If so-called “Bio-Pirates” were using frigates, sloops and galleons to plunder the likes of Genetech (DNA) off the Barbary coast, then aye, we could approve on the basis of demonstrated piratery.

But a mere interest in applying manipulated genes to grow 400lb watermelons and create a personal synchronized swimming team comprised solely of cloned Scarlett Johannson’s does not a pirate make. Despite that, the status of Monsanto, the genetically modified crops company, as a previous winner of the Captain Hook Award is a definitely a buy sign for MON per our Satan’s Portfolio thesis.

Me: “In my dream, I was on Survivor.”

My GF: “In my dream, I killed 6 people and your firm covered it up.”

It was only a few weeks ago, that we outlined that providers of pirate patches and clothing would benefit from the rising piratery tide. Now witness piratery on the catwalk:

Ever since pirates first sailed under the skull and crossbones, it has been associated with death. Now, this morbid symbol flies again in the upcoming fashion season…Should we be spending our hard-earned golden doubloons on the next must-have fashion items, or are there more important things in life?

Recommendation: We maintain that you should continue to spend your hard-earned golden doubloons on Tier 1 and Tier 2 piratery suppliers; their backlogs continue to grow granting significant revenue visibility and some of the cost pressures are abating. Also the changes in the weather patterns due to global warming play right into the piratery cross-sights as more of the Earth goes underwater, the tropical zones expand and hurricanes & natural disasters present chaos opportunities for pirateers..

I begin my descent to the 23rd floor. As I exit the elevator bay at my destination level, a colony of cubicles are laid out in front of me, perfectly aligned as if created by African honey bees. I scan the area and alight East, turning around a corner.

The monstrous IT guy remains motionless just ten feet away. Emotions give way to cognitive thought and I train my glare on him. Almost on cue, he begins his approach.

With blinding acceleration, he lurches onto me with a powerful “thud crackle”. He slams into my chest. The impact is incredibly powerful, knocking the wind out of me. His huge arms envelope my complete upper body and I can feel my non-iron shirt move as his beak grinds against it. The crackle and scratching of thousands of chitenous ring teeth against my suit is unmistakable. He withdraws back to 2 meter range and his huge bespectacled eyes begin to survey me for damage or weakness.

Behind him I can see dozens of man-sized IT fiends waiting to come at me but they don’t. Is it because he is so much larger? Is he the alpha dominant? He certainly has my full attention.

It is then that I notice his condition. His massive body is a map of pain and experiences. Scars cover his right side and most of his left arm is missing, possibly from being jigged by a rabid Hewlett-Packard or a lucky bite by a female he mated with. Due to his body marks, I call him ‘Scar’.

Read JD’s Lending No-No’s #1a and #1b. The focus today is on what can be gleaned from a lender presentation.

Lending No-No #2a: Don’t loan to companies who will need to control costs, if they have no connection to actual real world cost controlling.

Examples:

I was recently in an Italian city for a meeting. The company I was there to see indicated that the best way from the Aeroporto to the meeting was by taxi, so I trusted them and took a taxi. It was €80. I later found out that there was a €5 shuttle express that would have taken me with half a km of the meeting and would have taken about 10 minutes more. These are the people charged with cutting costs in a large industrial company that operates in a cyclical sector that saw several competitors file for bankruptcy only a few years ago.

A steering committee is generally a group of lenders from within the overall lender group picked to direct the bankruptcy process. Senior management will meet with the committee and usually a couple of third party financial consultants. A US based manufacturing company that filed for Chapter 11 several years ago held their steering committee meetings in a rented room within the most expensive law firm real estate in the world. The food was luxuriously catered, while the excessively compensated senior management laid out their plan to cut costs by cracking the union, shuttering plants and laying off thousands of workers. I think we consumed the equivalent of 3-4 salaried employees during that meeting alone (and they were delicious)!

Lending No-No #2b: Never loan to an industrial or manufacturing company, if the tchotchke they give you at a meeting immediately breaks in your hand.

Examples:

At the meeting up above, I picked up the complimentary pen included with the presentation. I tried to click it on which resulted in my catapulting the clicky part into the Brooks Brother suit in front of me. It didn’t even last a single usage. If a company can’t even make a workable clicky pen, who says they can produce products out of chemically enhanced ceramic polymers?

Lending No-No #3: Don’t invest any confidence in management’s projections. Management’s projections are very useful….for me to poop on.

Examples:

Every company has the same guidance: 8.9% CAGR revenue growth for 5 years, steadily improving margins and working capital which is so smooth, you might actually try and eat it thinking that it was Accrued Liabilities flavored gelato. They are all bunk. About the only use a lender should have for projections is as a gauge of management’s hubris.

A lot of questions have been coming in about so-called Phantom Bonds and where they fit in the asset allocation of a personal investment portfolio.

The answer is that it depends.

If you have a 20 year plus horizon, then you probably want an allocation that is heavily weighted towards equity, say 90-100%. But you could supplement a 100% equity allocation with an incremental 20-30% of phantom bonds, without disrupting your asset allocation. How is that possible? Well one of the unique features about phantom bonds is they don’t actually exist. So in addition to the existing equity level rate of return, phantom bonds would be adding both non-existant diversification AND non-existant fixed income payments.

Applying this to someone with a shorter investing horizon, for example a 45 year old CEO of a company who has 3-5yrs before he gets jailed for financial fraud, you could go 40% treasuries, 60% equity and 35% phantom bonds just to top up your returns a bit. You could also add leverage with the equity as collateral, but only if you could find the right bank to supply you the worst loan ever.

Recommendation: Phantom Bonds should become a cornerstone in 401k’s, but read up on them to make sure they are right for you.