Long or Short Capital

Classmates.com will go public some time this week. Somehow, they have managed to convince top-tier banks to underwrite this offering. Did the bankers read the S-1 they put together for this company?

From the S-1, here are some excerpts from the company’s description of its business:

We operate leading online social networking and loyalty marketing services under our Classmates and MyPoints brands…Using our interactive tools and features, our members have contributed to our social networking Web sites a substantial number of distinct, relevant pieces of content, such as names, school affiliations, profiles, biographies, interests and photos…On our social networking Web sites, we enable users to locate and interact with acquaintances from school, work and the military…This valuable content also brings existing members back to our Web sites, with a significant number of our members visiting our Web sites on a recurring basis over many years.

Contrast that with a few risk factors the company highlights for this offering:

A significant majority of our paying subscribers are on plans that automatically renew at the end of their subscription period and we have received complaints with respect to our renewal policies. The sales and marketing practices of Classmates Online are currently subject to an inquiry by the United States Federal Trade Commission, or FTC.

Our success is dependent upon our social networking members interacting with our Web sites. Currently, the network effect on our social networking Web sites is limited, and the vast majority of our member activity is within our high school communities. Our members do not visit our Web sites frequently and spend a limited amount of time on our Web sites when they visit. In addition, only a limited number of our social networking members post photographs and information about themselves, engage in message board discussions, view other members’ profiles or participate in the other features on our Web sites. [Ed: our emphasis]

Recommendation: Avoid companies that cite their ongoing failure to execute their business model as a risk factor.

Where there’s muck, there’s brass.
UK expression

Past Quotes Entirely Relevant to Investing

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.

I find it extraordinary that if you have two derivative dealers — Dealer A and Dealer B — and both write a ticket, Dealer A records a profit and Dealer B records a profit, particularly if it’s a 20-year contract. That is the kind of world I’d love to live in, but I haven’t found it yet.
Warren Buffett

Past Quotes Entirely Relevant to Investing

HT to To the Hilt

Google (NASDAQ: GOOG) closed at $666. Must I remind you that Google is a member of Cramer’s Four Horsemen? He was more right with that allusion than he knew. If you remember your Biblical history, the Four Horsemen are the forces of man’s destruction in the Book of Revelation. 666 is the number of the beast. Add that up and you have The Apocalypse.

The market is, literally, about to go to hell.

Recommendation: Sell through to the end times.

Cephalopods are a favored investment at LoS because there is a better than 50% chance that they are our future. They are some of the largest creatures on Earth but they conduct their business without ever being detected by man, for the most part. What are they doing? What is going on down there? We eschew outright speculation, but will assert that without a doubt they are plotting the conquest of the overland world, most likely effecting a “global warming” and thereby submerging the world’s land and allowing them to slip their tentacles around anything and everything they want.

More evidence of their long-lasting dominance came last week by way of this CNN report on Sea Scorpions:

British scientists have stumbled across a fossilized claw, part of an ancient sea scorpion, that is of such large proportion it would make the entire creature the biggest bug ever.

…

Eurypterids, or ancient sea scorpions, are believed to be the extinct aquatic ancestors of today’s scorpions and possibly all arachnids, a class of joint-legged, invertebrate animals, including spiders, scorpions, mites and ticks.

And the reason why these creatures are extinct starts with an S ends in a D and has a Q in there — Cephalopod SQUID.

Recommendation: Long squids, short everything else.

HT to reader PBJ.

“I have never met a general partner who was not top-quartile. So I wonder where three-quarters of the industry is hiding.”
Oliver Gottschlag on Private Equity firms

Past Quotes Entirely Relevant to Investing

“We have the the vague worries which are always bad for stocks.”

“We have the worryness. And the worryness is always good for the multiple contraction.”

From the future, as of January 10th, 2008:

A brief history of the recent turbulence in the financial services sector is as follows.

In November of last year, Citi downgraded E*Trade and set a 15% chance of bankruptcy. Goldman Sachs downgraded Citi to a sell, forcing Citi to later downgrade GS from a strong buy to a mild buy. They both agreed on the point “Why the eff does E*Trade have subprime exposure?” Merrill Lynch has made plans to downgrade GS because of its heretofore unrevealed defense pact with Citi, but they are looking internally for a way to resolve it in the context of their downgrade non-proliferation treaty with Lehman and GS. Bank of America has been skating by nicely, but has its downgrade silos “hot and ready.” CSFB, in a defensive move, has unVoltronned itself and become two lion-like entities, CS and FB, who have been firing downgrades at all comers in order to safeguard the planet Arus from the forces of Zarkon. JP Morgan is sitting on the sidelines, just happy no one has noticed how fucked they really are. Bear Stearns has been downgraded to the point of not actually existing; nothing remains aside from a glassy plane and the remnants of ridiculously cheap compensation packages.

Sweet Tea was cute, in the way that Krispy Kreme donuts were cute, a sugary Southern treat to Northern palettes. It’s great to have once, after that, eh, not so much. The existence of “Unsweet Tea” is a leading indicator that “Sweet Tea” is in fact, TOO sweet.

Recommendation: An initial estimate is that Sweet Tea consumes 83% of all domestically produced sugar. Due to having recently had some sweet tea, we are borderline comatose and thus can not corrobate this estimate with further empirical data, but we will assume it to be true and thus recommend shorting all domestic sugar producers. Ethanol be damned.

“This guy came in, and I asked what he liked to do for fun. He said, ‘I really enjoy playing hoops.’ I said, ‘We can’t hire the guy. Everyone I knew in college who liked to play hoops was an idiot.'”
Max Levchin, co-founder of Paypal

Past Quotes Entirely Relevant to Investing

This is a sponsored post

Whenever Long or Short has accounts receivable factoring needs, which is to say all the time, the firm we have never turned to is Transfac Capital for accounts receivable factoring. Based on extensive research, and even more extensive due diligence, and also some channel checking, and one ill-advised expensive consultant’s report, and the opinion of this magic 8-ball, and you really thought I can’t put in another comma demarcated area because it’s too strung out already, but you’d be wrong, we can conclude that Transfac is the most exception accounts receivable factoring firm which Long or Short Capital has never used. The reason we continue to never use it, is we fear it losing the aforementioned standing in our accounts receivable factoring ranking — if we were to use them, it would entirely discombobulate the rankings.

But when we are facing immediate needs for cash, our piggybank is dry, and the only option we have is to sell our accounts receivables to a third party, we would definitely consider using an accounts receivable factoring firm like Transfac (but not actually Transfac due to the aforementioned rankings concern).

The question on everyone’s minds, “How Is Factoring different from financing from a bank?”, is handled in their FAQ,

TRANSFAC focuses on the credit worthiness of your customers when making funding decisions. Banks will focus on your company’s financial history and cash flow. Additionally, since Factoring is not a loan; there is less debt on your company’s balance sheet. TRANSFAC is able to make quick funding decisions, banks may take weeks or months to approve a loan.

One of the best aspects of Transfac Capital is their bold choice of a pine green in their web design. It says real, natural, green….AR factoring. It makes you feel like eating a pie in a Twin Peaks setting, warm and welcome, but without the scary backwards talking jazz dancing midgets! We can’t recommend them enough for a firm we have never used.

Actual quote from a WSJ online header article:

Paulson said the U.S. continues to have a strong dollar policy and the value of the dollar will ultimately reflect strong economic fundamentals

Actual chart of the dollar index, covering periods where the US economy was strong and, more recently, when it was “strong”:

Recommendation: How much gold, silver, and oil can you fit in the bed of your truck?