Author Archive

New Non-SAAP Measure: Net Tweetcome-based Valuation

Long or Short Capital was the first firm to switch its accounting to SAAP. LoS further improved accounting when it added Earnings before Everything (EBE) to the SAAP lexicon. The results are that SAAP is ubiquitous and it’s now quite common for public companies to exclude most expenses when reporting earnings.

After delivering those innovations and after switching to the “royal we”, we looked at potential disruption in the accounting space and started yAccountingStars, an accounting accelerator. We hired hordes of hungry hipsters, who were willing to work for almost nothing so long as we promised them beanbag chairs, organic coffee, and a good work/work balance. We also lied and told them they’d all get equity. (Please don’t txt or tweet this to them, they don’t actually read anything that isn’t a txt or a tweet, so this is safely between you and us here.)

We then asked ourselves: what investor pain-points can we help solve? what kind of onerous constraints does accounting impose? Investors already get SAAP, given that 80% of companies employ SAAP according to a study we might have done. Investors also firmly grasp the value of companies with no reported net income but ample EBE. But what about companies that have huge opportunities but negligible revenue but also have a vigorous twitter account? Why should these companies be left behind?

Following years of R&D and inappropriate workplace behavior at yAccountingStars, LoS is ready to throw such companies a lifeline and introduce Net Tweetcome and Price to Net Tweetcome (P/NT). Net Tweetcome is calculated by taking a CEO’s tweets and then deducting all expenses associated with those tweets. Mathematically (for all the nerds* out there who care about the actual calculations behind made up numbers) this is represented as:

Tweets - 0 = Net Tweetcome
P/NT = Price / Net Tweetcome

Example: Suppose you are an investor trying to find value in the consumer internet space. There are some companies that have been public for ages like Priceline (PCLN). Then there are newer, Up-and-Comers like Grubhub (GRUB), Zillow (Z), and Yelp (YELP). Which should you buy? A traditional analysis might be based on P/E:
PE

Even though we are using pro forma, EBE-style EPS estimates that exclude all kinds of normal expenses (for instance, the large portion of employee compensation that happens to be paid in stock), the Up-and-Comers carry ridiculous valuations; only Priceline appears to be reasonable. But investors need to own these hot Up-and-Comers…in size. P/E valuations fail us here.

What’s the solution? (spoiler alert: it’s Net Tweetcome):
P 2 NT
Note that we have chosen to display this comparison on a logarithmic scale in order to convey a false sense of precision and general maths capability.

P/NT shows that Priceline actually sports the loftiest and most dangerous valuation. While many of the Up-and-Comers sport quite attractive valuations. Zillow is positively cheap on a P/NT basis. Thanks to CEO Rascoff’s unprecedented 5.8 tweets per day, Z looks like a value buy for a progressive analyst capable of spotting their strong fundamental Net Tweetcome. To underscore how cheap it is, if Zillow traded at the same P/NT multiple as Priceline, it would be worth $3.4 trillion dollars and a prospective investor would be served a delicious 65,327% return from today’s trading level. And just think if Rascoff starts live-tweeting all his favorite TV shows: Z could go straight to Perf.

Recommendation: Long Twitter. The gap between reality and Net Tweetcome is highest at Twitter itself. On traditional metrics, is confusing. For instance, in 2013 Twitter managed GAAP net loss of $645mm on revenue of $665mm for a net income margin of negative 97% while, on an EBE basis, they lost $35mm. These are impressive results in their own right; it’s not easy to lose that much money 140 characters at a time. But look…Twitter sent over 200 billion tweets in 2013! That means Net Tweetcome = 200bn tweets – 1.3bn opex** = 198.7bn. That is the highest Net Tweetcome in the world! Twitter is trading at 1/10th of annual Net Tweetcome…we have literally never seen this type of opportunity before and are up to our necks in fictional Twitter stock!

If we can rein in their Tindr activity, we are confident yAccountingStars will have their next report “How to Calculate the Tweetcome TAM for Any Company in 14 Easy Steps” ready shortly.

*Only nerds read footnotes, you nerd.
**Yes, we previously defined Net Tweetcome as “Tweets - 0” but Twitter is the exception that proves the rule. Given that they actually bear the costs to send all tweets, we must dock their Net Tweetcome with operating expenses.


Open Letter to Those Who Would Write For Us

We get countless solicitations from hungry young pups who want to write for us. In the past we have replied one off, but the volume has grown so huge of late that we are posting this open letter to all those who would write for us in a post we have creatively titled “Open Letter to Those Who Would Write For Us.”

Dear Sir(s)/Madame(s)/Cephalopod,

Thanks for your correspondence. We started this site when we were young and only had 20-50 years of investment experience each. We were all at that stage in one’s career when one isn’t too jaded and still has a sense of humor. That stage when one makes a humble eight figures and hasn’t grown too full of oneself — when one can still laugh at oneself while detesting everyone richer and poorer than one. More importantly, we were at that stage when one can still generate abstract financial investments ideas that produce strong inflation-adjusted (key in this era of Quantitative Easy) fake returns.

The entire LoS staff barrels towards that dreaded 50 years of investment experience mark as we type this up. It’s only a matter of time before we read Rick Reilly unironically — we shudder at the thought. As is we still manage to write at a breakneck “almost yearly” tempo. That kind of posting cadence won’t always be possible for us, so your timing in emailing us is…timely. And your taste in sites for which to write is impeccable. Let’s take a sentence here and celebrate you. But we don’t know how funnily you can write. There are 2 ways to prove yourself:

  1. Pay us money. Nothing is funnier than money and everyone knows we have a great sense of humor. An expensively acquired sense of humor if you know what I mean. I think you do. Think of a sum. Then triple it. Then pay us that sum. If this option seems right for you, let us know and we will provide you the appropriate Dogecoin instructions. For advanced bribers, remit the appropriate sums to our Dogecoin address: DPCxKFnmJ86jCciLbnrCBmrgnsWdqcE1qe.
  2. Pass our elite examination. This costs only your soul. What we typically do is have an exercise where we give the writer (that’s you!) 3 things that they have to turn into an abstract financial recommendation. Representative example drawn from past exercise: Syrian chemical weapons, the SEC, and Comic-Con. Good luck. Don’t break 600 words! We then evaluate your submission. If it’s good enough, we refer you back to 1) because we are capitalists and desperately want more money and now that you’re hooked on this whole “getting in” exercise, we likely can soak you for a few more shekels.

If you succeed with either 1) or 2), we can celebrate with a drink. A drink you buy for all of us.

Cheers,
Mr. Juggles
longorshortcapital.com

p.s.

How tall are you? And what’s your vertical leap? We have an intraoffice volleyball league; captains of the various teams will want to know your stats for scouting purposes.


Quotes Entirely Relevant to Investing 04/29/2012: May Day

My own country is hopeless. It was almost better under the czars. At least the czar didn’t have to strain his empty head over a lot of theory. Lenin took whatever he could understand of Marx’s theory and used it to his own advantage, and Stalin took whatever he could understand of Lenin’s theory (which wasn’t much) and used it to his own advantage. The narrower a man’s intellectual grasp, the more power he is able to grab in this country.
-Boris from The Wind-Up Bird Chronicle

Past Quotes Entirely Relevant to Investing


Short Structural, Long Cyclical

Time is tough. People struggle to understand it. We can make sense of what’s happening now, can kind of remember what happened in the recent past, and can’t fathom the long-term. All of this is probably because of Twitter or because people no longer write each other long, boring letters like they did during the Civil War or ancient Greece or whenever. For whatever reasons, our attention spans are not only short, but also narrow, able to understand history only as if looking at it through a roll of paper towels.

It is increasingly apparent that everyone — investors, politicians, businessmen, consumers, etc. — have mistaken cyclical trends to be structural in many different areas. We are now at a crescendo as the long arc of history turns and heads back down in the other direction. This is a great opportunity to take advantage of people for whom the short term (the last 1 year, the last 3 years, the last 10 years, the last 30 years, depending on context) is the only relevant term. This is most everyone. It’s a rather large opportunity.

Some facts:

  • Global interest rates are not in secular decline. They have been in a 30yr cyclical decline and the 30yr reversal is now in process.
  • China is not locked in a structural vendor financing agreement with the US & EU. They are ending a long, cyclical run with an under-priced currency.
  • Europe’s imbalances are not the result of a structurally strong, responsible Germany and spendthrift periphery. They are the result of a cyclical trade imbalance due to domestic policies that increased German exports and savings rates while the inverse was true in Span, Greece, etc. The swing is coming back the other way now.
  • Keynesian intervention was not a structural improvement in the operation of the modern fiscal and monetary apparatus. It was a cyclical increase in leverage, starting from a time of low leverage and great demographics. Prepare for the payback.

To quote myself from The Model Business Model: “What is that expression? How does it go? Shit’s way different at this point in history, dude?” Maybe, just maybe, it’s not so different. Maybe we’re just lacking the benefit of the full context.

Recommendation: Short the so-called structural trends. Get long the true, underlying cycle.


The Model Business Model

Notwithstanding its conservative investment portfolio, the central bank remains highly profitable because of its unique business model. Rather than paying for funding, it simply creates the money that it needs at no cost. The return on its investments, as a result, almost all flows directly to the bottom line.
-NY Times

So simple and so beautiful. What kind of genius entrepreneur would invent such a perfect business model? “Economist” John Law of the 17th and 18th centuries. Not only did he invent the perfect business model, but he also made significant advances in the business of Bubbles. How did his business model innovation turn out? Like most incredibly brilliant men who come up with bold ideas too early, John Law “ultimately fled the country disguised as a woman for his own safety.” 10 years later, Law “contracted pneumonia and died a poor man.” This is all according to Wikipedia, which, according to Wikipedia, is the source for the unvarnished and unbiased truth.

In the twenty-teens, our central bankers are much more advanced, more ethical, and more American. Importantly, they also look way less good in drag and wouldn’t “pass”. There should be no way this ends as badly as all the other times this has been done. What is that expression? How does it go? Shit’s way different at this point in history, dude.

Recommendation: Long the best business model, short all inferior business models, as the former will compete away the latter.

HT to the Paleofish


A Rebuke, Literally in Public

From Georgetown’s own, “Elizabeth,” in the comment thread for Pomegranate Capital Thinks Women Can Run Money Better, Is Wrong:

This is quite literally the most ridiculous article and comment thread I have ever read. Are you men really so afraid of a little competition that you have to kill it before it becomes a serious threat? I suggest that you spend less time bashing women and more time getting an education and getting out of your tiny elitist and anti-female bubbles. I am so embarrassed for your gender reading these comments…

My reply:

You are LITERALLY the most ridiculous poster in that entire thread, Eliza. Literally! As successful men, we are always “killing it.” So your implied suggestion — let’s call it what it is, Beth, a rebuke — that we NOT “kill it” is offensive. Literally offensive. But the embarrassment you, Lizzie, feel for our gender (I usually fill out all Government forms that ask for my “Sex” as “Yes,” just to make it harder for the Government to know what my gender is. But I digress, I LITERALLY digress) is nothing compared to the embarrassment that we feel for not only your gender, but for your Common App safety school, and for your parents, and for that time you read A Modest Proposal and thought “Gee this Dr. Swift guy is practically the antichrist, how does he think can solve poverty and the ills of the underclass by eating their babies, I am so embarrassed for his gender, profession, language, countrymen, yadda yadda, et alia and cetera.”

LITERALLY,
Mr. Juggles

PS Chin up, the world needs coffee-makers, too. Human ones. With skirts.

PPS But it wouldn’t hurt to learn to type.


Never Trust A Mullet

Recommendation: Do not own stock of, or hold prime brokerage balances at, companies run by mullet-toting executives.


Things Are Too F**king Complicated

Sept 29th’s FT contains two alarming articles. Martin Wolf calls for the EU to get the printing presses running because everything else has failed. We respect Mr. Wolf as one of the only three journalists in the world today who thinks for himself and does not have his head wedged up his ass. We respect his idea as well. He may be wrong but his idea is simple, to the point, and he admits it’s desperation (he calls it “the unthinkable”).

In the second article, George Soros explains how to prevent a “Second Great Depression.” Mr. Soros is an investing genius and a very smart man. Perhaps too smart. Because I have no f**king idea what he is talking about.

“This is how it would work. Since a eurozone treaty establishing a common treasury would take a long time to conclude, in the interim the member states have to appeal to the ECB to fill the vacuum….

It would require a newly created intergovernmental agency to enable the EFSF to cooperate with Europe’s central bank. This would have to be authorised by Germany’s Bundestag and perhaps by the legislatures of other states as well….

The EFSF would be used primarily to guarantee and recapitalise banks. The systemically important banks would have to sign an undertaking with the EFSF that they would abide by the instructions of the ECB as long as the guarantees were in force. Banks that refused to sign would not be guaranteed. Europe’s central bank would then instruct the banks to maintain their credit lines and loan portfolios while closely monitoring the risks they run for their own account…

To relieve the pressure on the government bonds of countries such as Italy, the ECB would lower its discount rate. It would then encourage the countries concerned to finance themselves entirely by issuing treasury bills and encourage the banks to buy the bills. The banks could rediscount the bills with the ECB but they would not do so as long as they earned more on the bills than on the cash.”

Ok, so I skipped a bunch of parts but WTF George? What are you talking about? I read this article excited to learn the solution to our woes but now I just need a stiff drink. I have literally no idea what he is talking about.

Neither do the regulators. Unfortunately, that will not stop them from implementing some inferior version of his plan. After all, they love complicated stop-gap measures that buy them a few more days/weeks/months and pass the buck to the next unlucky legislator.

As a society, we have outsmarted ourselves. Things are too complicated. No one — not George Soros, not The Bernank, not The Maestro — can understand how all the pieces fit together and where all the unintended consequences will pop up. And yet we add more towers to our castle built on sand.

Recommendation: Initiate a complication index spread trade. Get long short-term complication and confusion while shorting the out-year complication basket. Things are going to simplify, one way or the other.


Translating Corporate Speak: Wynn [Unforeseen Upside Edition #5]

Steve Wynn used to discuss business trends on his quarterly conference calls. No longer necessary now that the Macau business generates almost a billion dollars of revenue and over $300mm of EBITDA per quarter. Instead, he is free to opine on the macro and political situation. It’s still the most entertaining call of the quarter even though it is sad when he no longer feels the need to mock investors and competitors. But at least he’s calling Jeff Immelt a Judas. Someone had to.

Wynn on Obama:

Well, here’s our problem. There are a host of opportunities for expansion in Las Vegas, a host of opportunities to create tens of thousands of jobs in Las Vegas. I know that I could do 10,000 more myself, and according to the Chamber of Commerce and the visitors and convention bureau, if we hired 10,000 employees, it would create another 20,000 additional jobs for a grand total of 30,000.
I believe in Las Vegas, I think its best days are ahead of it, but I’m afraid to do anything in the current political environment in the United States. You watch television and see what’s going on on this this debt ceiling issue, and what I consider to be a total lack of leadership from the President, and nothing is going to get fixed until the President himself steps up and wrangles both parties in Congress.

But everybody is so political, so focused on holding their job for the next year that the discussion in Washington is nauseating. And I’m saying it bluntly that this administration is the greatest wet blanket to business and progress and job creation in my lifetime. (our emphasis) And I can prove it and I could spend the next three hours giving you examples of all of us in this marketplace that are frightened to death about all the new regulations, our health care costs escalate, regulations coming from left and right, a President that seems, you know – that keeps using that word redistribution. Well, my customers and the companies that provide the vitality for the hospitality and restaurant industry, in the United States of America, they’re frightened of this administration.

And it makes you slow down and not invest your money. Everybody complains about how much money is on the side in America. You bet. And until we change the tempo and the conversation from Washington, it’s not going to change. And those of us who have business opportunities and the capital to do it, are going to sit in fear of the President. And you know, a lot of people don’t want to say that. They say “oh, God, don’t be attacking Obama.” Well, this is Obama’s deal. And it’s Obama that’s responsible for this fear in America. The guy keeps making speeches about redistribution, and maybe we ought to do something to businesses that don’t invest, they’re holding too much money.

You know, we haven’t heard that kind of talk except from pure socialists. Everybody is afraid of the government. And there’s no need – there’s no need, you know, soft pedaling it. It’s the truth. It is the truth. And that’s true of Democratic businessmen and Republican businessmen, and I am a Democratic businessman and a – I support Harry Reid, I support Democrats and Republicans, and I’m telling you that the business community in this country is frightened to death of the weird political philosophy of the President of the United States. And until he’s gone, everybody is going to be sitting on their thumbs.

Wynn on taxation on capital abroad:

If the government – if the administration in Washington isn’t frightening the dickens out of those of us who create jobs and build buildings and make lives for their employees, they’re attacking China where in the case of my company, the vitality of capital to improve Las Vegas has come from.

You know, it’s the double whammy. American companies that have ventured abroad to broaden their markets are bringing money – have reinvested much of that in America. And so the rhetoric about offshore capital, there would be a lot more of it brought back here if the government did intelligent and encouraging things to bring capital back. But this is a very business, job creating unfriendly administration and that’s the plain truth of it. And so you know, you want to build condominiums? Why? You want to protect yourself in this environment. Everybody is in a defensive crouch, except for Jeff Immelt, who is sort of a Judas goat. (emphasis ours)

Wynn on TSA:

Coming to the United States is tougher than going almost anywhere else in the world. Homeland Security has, you know, we seem to have been safe more or less but so much of it is excessive and irrational, you know, like patting down babies and old ladies and stuff like that. But it is very difficult – it’s more difficult today to get to the United States for people who have been coming here for years, for decades.

Our customers that are big businessmen that have been coming to America for 10, 15, 20 years, are asking us for help to relieve the bureaucratic congestion of government overregulation in this area. We’ve talked to Homeland Security. They’re aware of the problem. So is Customs and Immigration and the State Department. And you know, when we talk to any given individual in those organizations, in those bureaucracies, they’re very sympathetic. And they know the truth of the complaint.

And they know the truth of the fact that these things are very often excessive and unnecessary. But yet there seems to be a tremendous amount of inertia to move government in America, whether it’s the deficit management and coming to some kind of logical conclusion before August 2 or whatever it is, or whether it’s getting visas. Everybody has a clear understanding of the problem, but when it comes to our government it seems to be getting more and more sclerotic, more and more inflexible. By its own device, it keeps growing and growing and getting more and more onerous, more and more sluggish in its responses to real problems, and sluggish in its ability to take advantage of real opportunity. And it’s frustrating for me because I got a front row seat.

Update: While Wynn failed to mock investors or competitors, we were remiss not to include his mocking of some (past) customers.

We did not lower our rates like some of our competitors did. We’ve come to the conclusion here, incidentally, I’d like to add this parenthetically, having tried this before and failed, we don’t want to make the mistake again. This place is not set for price cutting. We lower the price, we can fill the rooms in an instant because they’re such fancy rooms. But we get people that carry their beer in from 7-Eleven, move their own bags, and don’t eat in our fine dining. We can’t use them. This is not a place for folks that have that kind of economy mentality. (our emphasis) This is a place for people who expect superior service, higher quality food, beverage and everything else.


You Cannot Escape Doom

One of the other two writer/PMs signed up Mister Juggles’ email for something called “Roubini Global Economics” (ed note: we will not be linking any of the mentioned material for reasons that will be made clear, bear with us). “They” made a huge mistake. At the time it seemed innocuous enough – “hey this guy sometimes has some insights, just like sometimes that dead clock over there tells me what time it is.” Roubini Global Economics is an attempt to parlay the Dr. Doom schtick into serious global economic monitoring with a Doom bias. Fine, knock yourself out buddy. Nouriel Roubini’s role in the project is as “Chairman,” and all of Latveria rejoices in his genius. Sample headlines include: “Meltdown, Anyone?” (Mar’08), “Are Commodity Prices Getting Ahead of Fundamentals?” and “Green Shoots or Yellow Weeds” (May’09). But there were too many emails, too much self-promotion, and too much repetition. I can only take so much information and so much email before I just tune it all out. I unsubscribed two years ago. Simple enough, really.

Except that I didn’t stop getting various RGE emails. No, no, no, into my inbox, Roubini still snuck. Email types received include: “The RGE MONITOR,” “The RGE Content Weekly Roundup,” “Welcome to the New EconoMonitor,” “New and Improved RGE Newsletters,” “From Nouriel’s Blackberry,” and “From the Desk of Nouriel Roubini.” I unsubscribed over and over and over and Nouriel did not go away. And he was a goddamned sneak about it, too. Like, for a couple weeks, I’d be in the clear and think: “Finally, this unsubscription took! I’m a-OK and Roubini free!” Then boom I’d get an email like: “From Nouriel’s Blackberry: Greek Contagion Risks – Much Ado About Relatively Little”; Roubini’s way of saying: “I’m not done with you yet, I’m economic hepatitis.”

And like in my lifetime fight against hepatitis, I roared and I raged. The whole thing gave me pause. What does it mean that since 2008 I have been unable to unsubscribe from Nouriel Roubini’s bearish soothsaying? Maybe it’s not the RGE that is unsubscribeable at all. Maybe, just maybe, what is really unsubscribeable is doom. You, one, me, we, WE cannot unsubscribe from doom.

Recommendation: You cannot escape doom.


Quotes Entirely Relevant to Investing 6-26-2011

Any approach to scientific inference which seeks to legitimise an answer in response to complex uncertainty is, for me, a totalitarian parody of a would-be rational learning process.
-Sir Adrian Frederick Melhuish Smith

Past Quotes Entirely Relevant to Investing


Announcing the CPI-F (flat)

The WSJ’s Heard on the Street column is generally pretty good. So the title of a recent entry, “Housing Bubble Continues to Haunt Fed“, made me interested to hear adults talk about the current stagnancy in real estate and how the hangover from the bubble still lingers. But I didn’t hear any of that malarkey. Instead, I learned that people are debating whether housing plays too big a role in the CPI; specifically, the “problem” is that the housing portion of the CPI is exerting upward pressure on the overall number. Y’know because consumers typically live somewhere and pay for that privilege.

“OER [editor's note: "owners' equivalent rent"] is expected to jump to 1.2% year-on-year in December from 0.6% in February, despite a sluggish housing market.”

1.2%!! This is getting serious.

So what should we do?

“Some suggest alternative inflation measures.”

Oh ok. Well, what are “some” proposing?

“A ‘supercore’ alternative excludes not just food and energy but shelter, too, to gauge underlying trends.

There is great opportunity for the Govt to reduce CPI by excluding more items. In fact, this looks eerily reminiscent of another highly successful endeavor in metrics improvement: LoS’s change from GAAP to SAAP (Seldom Accepted Accounting Principles). By changing our standard, we could change our metrics, and by changing our metrics from EBITDA to EBE (Earnings before Everything aka “supercore earnings”), we greatly improved our profitability.

As visionaries in the SAAP space and masters in specious metrics, LoS would like to be included in the “some” who are suggesting alternatives ways to measure CPI. Considering that the evolved goal of the CPI is to show a slight and consistent level of inflation, we propose that the CPI no longer include any components that are increasing in price level more than 1.5%. These items will be increasing as a percentage of the index, thus throwing off its accuracy. Similarly, items that are increasing in price level less than 1.5% or even decreasing should also be excluded since a) we are not interested in deflation and b) the accuracy of the model depends on items maintaining a consistent (rather than falling) proportion of the total index. It’s important to note that any price changes greater or less than 1.5% could skew the whole thing we are trying to measure and render the CPI not just unreliable, but practically useless.

This new CPI, CPI-F (flat), will provide data on all changes in the prices paid by urban consumers for a representative basket of goods and services whose prices demonstrated a slight and consistent level of inflation. We expect it to have the most consistent and consistently low inflation readings of all the CPI measures. Its current reading is 1.5%. In the future, the monthly CPI-F level will be reported on the 5th of the following month, unless there is no change to the index, in which case you can continue to use the prior month’s reading. Here is a pro forma chart that demonstrates what inflation would look like as measured by CPI-F since 1900.


This Week in Tweets for 2010-05-15


This Week in Tweets for 2010-04-10

  • It's disappointing that 20% of americans are unemployed and Joe Morgan is not one of them. #

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