Long or Short Capital

Every firm has an alias that represents everyone of the firm — you send an intra-office email to this address and everyone in the firm gets it. Every office also has an amazing amount of people who think it’s a good idea EVER to send a non-work related email to the entire firm:

Hey all:

I’m registering for the Save Hot Boobs from Cancer Strip-off for Charity and anyone sponsoring me would be greatly appreciated! I get paid for every hot boob I am able to hit with a nerf gun and I have been training hard for months. I think I can raise a lot of money for charity if you can only spare some money. Especially you, Bill, I saw your bonus and it was enough to buy a vacation home in northern Spain, so I think you can spare a few bucks for hot boobs.

Signed,
Herman Resourcier[ed note: this signature would be in size 15 of Scripty Font San-Serif and probably in light blue hue]

Found a cubic zirconium earring on floor 48, if yours please contact:
Irina Techzocova ext 10007

If not please ignore this email I sent to everyone including the managing partner.

This has astounded me since the very first day of my professional life. In firms ranging from 50 to 1000+ employees, I have received hundreds of firm-wide emails containing attempts to sell tickets to a Christina Aguilera concert, messages about lost $5-10 value items, assorted solicitations for ineffectual charities, accidental pornographic emails, and invitations to parties. This does not even count the incessant HR and IT notices that have been on minutiae so small that they had no need to be sent to the whole firm, yet were sent anyways so that those respective departments could maintain the theater that they are not cipher-ladens pools of mediocrity.

Recommendation: Short anyone who think it’s a good idea to send a non-work related firm-wide email in a 100+ person firm. They will never achieve above average returns because they have negative common sense.

Here is an easy to follow guide on when you should send a non-work related firm-wide email:

1. Never or
2. Only with the explicit direction and approval of someone who is your boss’s boss.

There are two kinds of investors, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor — the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.
William Bernstein

[hat tip: Infectious Greed]

Past Quotes Entirely Relevant to Investing

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!!

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.

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 xxxPassword.com that features adult content; CouplesTouch.com, a personals site for those in the swinging lifestyle; and NaughtyBids.com, 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.

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.

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

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.

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.

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 equityprivate@hushmail.com. 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 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.

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.

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

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