Long or Short Capital

The following advertisement, found in an old The Economist, leads me to believe that Scottish developers needs a new branding strategy:

If there’s one thing Scotland is famous for, it’s bold innovation. The television. The telephone. The steam engine. The fax machine. Penicilin. Aspirin. Insulin. the ATM. Dolly the sheep. They all got their start in Scotland. In fact, there are far too many Scottish innovations to list. Which is why more companies are doing business in Scotland. Where they can get the innovative thinking and practical solutions they need to develop new products. And expand their business. Contact Scottish Development International to find out how you can join them.

Scottish Development International wants to be a middle man connecting businesses with…the rich history of Scotland? Seriously? That’s your pitch?

Why would Scottish bankers having had invented the ATM decades ago persuade any company to do business in Scotland now? Because that creation ability is somehow replicable? Hey Big Pharma, the Scottish are more likely to create the 21st century’s penicilin because they created the original, it’s in the blood that courses in their sputnik-sized melons.

Scottish Development International is a company that…shares a name with an old country? Great. An advertisement should not make potential customers question whether or not your company actually exists, as we know from previous research.

Recommendation: Scottish Development International: Fire your marketing team. Also, consider not existing. Also squared, change your name to something more awesome like Siberian Tiger Developers.

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

Recently, recruiters at top universities and college administrators alike have recognized a growing trend in the student job market, namely the adoption of “adjusted” GPA figures. It appears that students have realized what investment bankers have known for years: if you don’t like a number, you can change it.

Say you are an investment banker at a large Wall Street Firm, like Silverman Sachs or Layman Brothers, and you are trying to syndicate Theoretical FCF Corp’s bonds. The problem is that Theoretical FCF Corp seems to lack any actual cash flow and will almost certainly never actually pay down any debt. What do you do? Just pro forma their EBITDA to what their cash flow would be if they actually generated cash flow, as you kinda expect they may sometime in the future. And if that doesn’t get your bond customers to a number that makes them want to write big tickets, adjust that number for “one-time” expenses like “bad debt”, “restructuring charges” or the vague but powerful “fees”. This is how you get it done when syndicating debt or selling IPOs.

Now for a student, their GPA is basically the equivalent of a firm’s 4 year trailing cash flows. The number itself carries huge weight in job interviews, yet for decades students have reported GPA exactly as it appears on their transcript. While entirely accurate, this is a huge mistake. Job applicants are now realizing that adjusting their GPAs can give a more accurate misrepresentation of their performance and expected future production.

Why should an employer hire an average of you over the last four years, when what they should be interested is a real misrepresentation of what you could be now if not for certain events? Here are some ways students are making themselves look better on paper:

1. Add-Backs for non-recurring GPA deductions, such as getting drunk at a final, or anything that happened freshman year
2. Pro forma GPA for dating someone smart or at least someone who wears glasses in the morning.
3. Projected GPA levels for future years using the same class load. Surely a student would be more efficient in those classes if the student took them again. Thus the student should adjust their GPA to better match their future production.
4. And the most common move, arbitrarily making their GPA a 3.6 – good enough to get by, but not good enough to raise suspicion.

Recommendation: If you are serious about a job in finance, it’s important to signal that “you get it” before you even arrive. We heartily endorse the use of adjusted and PF GPAs for this reason. Remember, it’s not what you did or will do, but what you can convince people you did or will do.

In the small town where I grew up, there exist three seemingly unrelated businesses. Until recently I thought the names were just a coincidence, but now I realize that this series of companies is remarkable in many ways. The companies are:

1. Bang’s ambulance service
2. Bang’s funeral home
3. Bang’s sausage manufacturing plant

I think this is the first example of what I like to call the “vertizontal merger”. Bang is capitalizing on both sick and hurt people, as well as the families of the sick, and of course on the dead. But Bang is also making sausage, which is where the synergies really come to life. Bang is being paid to cart dead people away, and then again to turn them into sausage. This merger has drastically cut costs for the sausage division. But what is so unique about this merger is that the company has simultaneously capitalized on the cresting wave of the American consumer’s willingness to eat just about anything, so long as it is cheap AND delicious, in this case human sausage.

Recommendation: We have already documented the surging “willing-to-consume-feces” demo,” but now that demo has one-upped itself as if to say “excrement is nothing — we’ll pay to eat our own relatives (provided that our relatives are both cheap and delicious.” And Bang’s ambulance/funeral/sausage is there to reap the profits. Right now, I really like any business plan that is based on ruthlessly taking advantage of the American public’s willingess to eat anything which is both cheap and delicious.

11/11/06: It was recently announced that Sir Equity Go (Me) will be switching form a LIFO to FIFO refrigerator accounting system. This news comes quickly on the heels of a $10 write-off of inventory for “Raw chicken cutlets in a ziplock” that had been sitting in inventory for two months, hidden under the bacon. The chicken’s market value was reassessed at market value which is substantially lower due to salmonella allegations. The benefits of this change will clearly outweigh the negative tax implications.

11/12/06: Sir Equity Go (Me), in a bold reorganization of his food production and consumption process, has announced plans to initiate a Just-in-Time inventory system. The practical application of this shift will require Sir Equity to eat only take-out Chinese food for every meal. While this will streamline his inventory system, it will also likely increase his W/H ratio (Weight/Height) substantially.

OJ Simpson’s plan to retake “Biggest Psycho Murderer in Recent Memory” Intercontinental belt from Scott Peterson failed when his new book “If I did it” was canceled shortly before release by publisher News Corp (NYSE: NWS). The book idea apparently came to Simpson when he realized that he risked falling out of the public psyche. He began this project several years ago, when the book was tentatively entitled “I did it,” and wasn’t actually a book, but a short speech given in a confession booth.

When it came time to publish, the marketing team thought it would sell more copies if the audience was left in some suspense, kind of like when a movie trailers shows you 90% of the movie rather than 100% of the movie. However, amid controversy and protest from the family of OJ’s If-he-did-it victims, News Corp scrapped both the book and a two-part promotional interview on Fox. In an interview with the associated press, Rupert Murdoch, a principle of News Corp said, “I and senior management agree with the American public that this was an ill-considered project. We are sorry for any pain that this has caused the families of Ron Goldman and Nicole Brown Simpson.”

This book idea was in such bad taste, that the publisher scrapped it even though the project would likely have been profitable. Consider that for a minute. OJ Simpson so disliked that it is worth giving up money just so as not to be associated with him. Is it possible to create so much negative value…..that you can actually reverse the value flow?

This concept has led to our development of the Anti-Endorsement. Imagine how valuable it would be for Pepsi (NYSE: PBG) to have OJ Simpson endorse its competitor’s product.

I am OJ Simpson. You might know me for winning the Heisman, or for killing my ex-wife and her friend in a premeditated rage, or as Norberg from the classic comedy film The Naked Gun. I am here to let you know that my beverage of choice for whenever I am allegedly killing my ex-wife is Coke. That name is Coke. Coke is the drink for you. You can’t beat the real thing, but you can beat a murder rap if you are rich and famous. I murdered people. Thank you. Coke.

This concept can be applied in many such ways. Campbell’s Soup (NYSE: CPB) could pay Osama Bin Laden to publicly endorse rival Easy Mac.

Issue a Fatwah against inconveniece and less delicious Mac & Cheese products! EASY MAC! THE CLOCK IS TICKING!

Recommendation: More research is needed as we develop ways to play in what may be a systematically undervalued asset class. We also need to dig into questions regarding legality.

Gawker.com is soliciting suggestions to replace “Douchebag” as their go-to description of everyone who acts like they do but isn’t actually them. Douchebag has proven to be the most versatile insult currently available on the public market, gaining ground in all parts of the insult cycle. While the force of the insult has been diluted by mass adoption over the last several years, trade volume has spiked recently due to the increased popularity of Investment Banking jobs and several political scandals.

As I have a personal affinity for this word, I would hate to see it replaced by a shiny new insult. To illustrate the lasting power and versatility of the word, allow me to quote a passage from my own memoirs, “Equity A-Go-Go:”

I had called him a douche.

‘You are a douche’

The insult hung in the space between us for an eternity.

As my foe absorbed the force of the word, his anger tensed to repel the familiar antecedent that he knew would follow. He leaned in, bracing himself. But there was no “Bag”.

He faltered, doubt racing from his mind through to the depths of his soul. As he fell, he cursed that word, that fickle ender of arguments. Beaten by a bag-less douche. Shame would surely overcome his family.
(Go, Sir Equity. “Equity A-Go-Go:” Oxford University Press, 1993).

Recommendation: While holding “Douchebag” seems like a good strategy in itself, we are in favor of holding a basket of “classic insults”. Classic insults seem to be undervalued due to a temporary drop in demand. We like this insult class due to their historic ability to evoke humiliation across a broad base of recipients, without needing to be micromanaged. The insult class should also benefit from the absence of any exposure to the insult backdating scandals in which insulters would retroactively replace the actual insult they delivered with ones that were perfectly tailored to humiliate their insultee and improve their reputation as someone not to eff with.

Recommended picks in this space include “Douchebag”, “Ass”, “Dick” and in the industrial end of the market, “C***sucker”, “Mother***er” and “A**hole”. Unsexy, classic, consistently generating returns with low volatility — these are the insults Warren Buffett would love to use.

Rumors are flowing in that the CMU (Candy Monetary Union) is on the verge of adopting candy corn as its standardized measure of candy value and the de fact reserver currency of the global candy market. This has nothing to do with the intrinsic value of candy corn, but reflects its unique properties:

• Candy corn melts neither in your hand nor in your mouth; in short it doesn’t melt.
• Candy corn is ubiquitous.
• Candy corn comes in a form of small indivisible units, which lend themselves to representing precise values.
• Candy corn exhibits historic economic stability and strength.

As the candy market switches from a bilateral exchange market to a monetized market, the transactions demand for candy corn stands to go through the roof. Trade gummy bears for candy corn (current exchange rate is 5 gummies for 8 candy corn). A perfect hedge for this trade (given that the CMU may not in fact monetize) would be to simultaneously trade candy corn for gummy bears.

Adapted from the comments of 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.