Long or Short Capital

It has come to out attention that Mother Merrill Lynch (NYSE: MER) blocks our site which amazed us. That’s some serious net-nannying to block a site that lacks anything but incredible research and commentary which has been scientifically proven to generate amazing investment returns.

Do any of your firms block us? Feel free to leave a comment or email us (misterjuggles@gmail.com”) if your firm blocks us. This is just to tickle our curiousity. Anonymity will be preserved and respected as always, especially if you give us some material non-public information to Hold based on.

During my commute, I am frequently left to wonder about why it is that fellow travelers are talking to themselves. Are they crazy, maybe burdened with schizophrenia or with the tourettes? Or are they simply business professionals affecting the trappings of insanity by talking to the open air in front of them with the vehemence, volume and animation reserved for discussions with the voices within their head?

Hence Crazy Person or Bluetooth Headset.

This morning I was treated to two such travelers, allowing for two rounds of CPBH.

Round 1:

Man in his early 30’s, nattily dressed but in a casual fashion. Dark curly hair a little bit unkempt but not overly so. He sat on the train having this conversation with open space: “Father, you are up. It’s good to hear that [laughing a little crazily].” He continued but was cut-off by a cloud of people and background noise. Was he crazy or just bluetooth equipped?

Crazy person!

Round 2:

Asian man on the street, in a normal looking coat, mid-40’s gesticulating wildly while screaming things in Chinese or whatever. But his hair gave him away. Too well-coiffed to be a crazy person.

Bluetooth Headset!

In business flight terminals, you can play the sister game Bluetooth Headset and/or Total D-Bag.

Private Equity shops are primarily known for their ability to take public equity markets (or unwieldy conglomerates) in one hand and squeeze the coal out of them to create diamonds, while in the other hand, taking the leveraged loan market and squeezing it to get super-low cost debt financing out of it, and then riding off into the Billionaire Sunset…or onto their mega-yachts. But sometimes their tactics are much more base and straightforward than spotting a good deal and getting it done.

Witness TXU. How did Kravis Kohlberg Roberts and Texas Pacific Group get their TXU (NYSE: TXU) strategy done? With low cost guerrilla tactics as outlined below.

Step 1: Find a public company to take private that would be a viable member of Satan’s Portfolio due to a combination of its not politically correct products and its current disfavor with public sentiment. In this case, power company TXU, with its plan to build up to 11 new coal power plans (of which less than a handful had a realistic chance of happening) and to raise prices to the levels commensurate with the demand for electricity was a cruel and horrible agent against Mother Nature and the working class. A natural target.

Step 2: Hire “performance artists” thugs and hooligans to protest against this company for reasons of social justice or the environment or racism against robots or whatever is popular today. In this case, the hired hands staged a “die-in” in front of the offices of the largest mutual fund holders of TXU stock, which coerced these companies to reduce or terminate their exposure to TXU creating downward pressure on the stock price. For those not in the know, a “die-in” is where you simulate death as a form of protest. Think low budget live versions of television anti-drug and anti-smoking scare ads which have been trotted out for the past 20 years.

Step 3: Buy the company at the reduced level created by the protesting campaign you bankrolled on the sly.

Step 4: Ride off into the sunset on your mega-yachts.

Global warming has been a hot topic recently and everyone seems to be focused on the high-profile sources of carbon emissions: cars and power plants (see related research Make Emissions Delicious, Stop Global Warming).

What people are forgetting is how much of global warming is a result of flatulence, belching, dung, and other forms of so called “poop-lution”. Ever seen a steamy terd? We know they’re gross but more importantly they are warming the globe and ruining both the o-zone and your favorite ski area. Let’s take a look at factual graphs designed by science.

As you can see methane is responsible for 13% of greenhouse gases and 35% of methane comes from poop-lution, that means almost 5% of global warming is from steaming pooplets.

Recommendation: Until the ingenious Kyoto Protocol, collecting and burning dung was just a fashionable hobby. Now it’s an outrageously profitable enterprise and we want in. AgCert (LSE: AGC) is a $100mm market cap company who’s sole source of revenue is burning dung. We are long them. We also have put seed capital in an apparel company that sells hats that say “No Farting”. We think trendy fad marketing like this will generate millions of cubic cms of provable methane reduction which we can monetize on the European Emission Credit marketplace.

NEW YORK — The stock of [Company Name] is down [Number greater than 4]% in trading today. The movement is reportedly due to a Chinese market meltdown on concerns that government regulators would [increase taxes / curb investment / invade Taiwan / destroy the Earth’s environment] and fears of [a recession / inflation / deflation / a war with Iran / an emerging market bubble / that purple bastard Grimace]. Also contributing to the market decline today were [former Fed wizard / the man responsible for this mess / old Jewish man] Alan Greenspan’s recent comments that the economy is [ headed for a recession/ doing OK right now / irrationally stable].

While no one is sure what the recently released report on [Economic Indicator] really means, since the statistics are vague and have almost no conclusive predictive power anyway, stock brokers across the world should live in fear of being thrown out of the windows of tall buildings.

We are initiating coverage on the 4th dimension with a sector rating of “Yes Please“. We believe the 4th dimension is under-followed by the Street partly because it’s existence is based on string theory and currently, not empirically verifiable. When people get nervous about the existence of a company or industry, that is when LoS starts looking to lay down the big bones.* This thesis has previously worked well for us in the hot boobs sector where several years ago people were calling surgically enhanced boobs “fake.” Through extensive due diligence we determined that you could touch, taste, and smell silicon/saline boobs and hence they aren’t “fake” at all, they are just glorious, we’ve been long them and it’s paid off, HUGE.

This time it’s the 4th dimension everyone is calling fake and once again we don’t buy it (figuratively) because we recommend buying it (literally). We think the 4th dimension is the lowest cost location in the world. One artist in San Francisco is selling real estate in the fourth dimension realizing profit margins of 99.8% — without any expertise or track record as a 3D real estate broker.

Recommendation: We recommend anything you can get your hands on in 4-D, especially if you can get your hands on a pair of (3)4-Ds. If you’re having trouble identifying direct investment in the 4th dimension, try derivative plays in tessalation which lets you travel through the fourth dimension via a Wrinkle in Time or in 3-D glasses which look sweet and when used in the 4th dimension make everything 12-dimensional, i.e. decadimensional +2.

*This thesis is consistent with Mr Juggles Investments Commandments 5a and 5b because while we would never invest in a company with a fictitious CEO, if a CEO was nearly rumoured to be fictitious, this may well be the kind of mania we would like to bet against.

A reader email prompted this entry in our favorite anonymous Private Equity blog with “Going” in the title:

A loyal reader, “S,” joins with me in frowning on “social investing,” and backs up the collective distaste in our mouths with some interesting data on portfolios borrowed from the always entertaining Long or Short Capital. Long or Short’s semi-famous “Satan’s Portfolio” is the hedge against the Pax World Funds nonsense, and a good thing too. Looking at the graphic S forwarded me, it is pretty obvious that “investing” in Pax World Funds amounts to giving your money to charity, but without the tax deduction.

While this is only a partial demonstration of Satan’s Portfolio, we continue to believe in the strength of the investing thesis that backs it. Long Satan(‘s portfolio), short “social investing.”

Many traders aim to get out of harm’s way by avoiding exposure to rare events – a mostly defensive approach.

I am far more aggressive than those traders and go one step further; I have organized my career and business in such a way as to be able to benefit from them.

-Nassim Taleb whose new book Black Swan: The Impact of the Highly Improbable comes out April 17th, 2007.

Past Quotes Entirely Relevant to Investing

From a WSJ article [subscription] describing the problems that blind pedestrians have in sensing oncoming hybrid vehicles (due to their quiet operation:

Toyota spokesman Bill Kwong says he wasn’t aware of the issue and believes that the responsibility lies with drivers and pedestrians to watch out for each other. Mr. Kwong adds, “One of the benefits of the vehicles is that they don’t contribute to traffic noise.”

[Ed: our emphasis]

Is there money dumber than suburban housewives seeking to invest in overseas films?

For years, Renuka Pullat led the life of a wealthy mother in a suburb of San Francisco. She shuttled her two sons to tennis and soccer games, and volunteered for the American India Foundation.

Now, at 38 years old, she has an unusual new occupation: She is one of a wave of Indians in America pouring money into Bollywood movies here in India’s film capital….Her first movie, inspired by “A Fish Called Wanda,” made it to theaters in 2005. It barely broke even.

….

[“Aryan: Unbreakable”], the movie inspired by “Rocky”…[is being produced by] Poonam Khubani, whose husband is the New Jersey infomercial mogul[.] In the movie, banners advertising the TeleBrands Ab King exercise device are draped around the ring where fight scenes take place.

Ms. Khubani also sings one of the songs on the soundtrack, titled “Ek Look, Ek Look” (“One Look, One Look”).

…

Aryan didn’t break box-office records. A December review on the Web site for the Times of India, one of India’s biggest newspapers, said the movie “almost puts you to sleep with its insipid goulash.”

In late December in Mumbai, at one 5:20 p.m. screening of “Aryan” in a downtown theater a week after it opened, only a few people were in the audience, many talking on their cellphones. Then, during the intermission…they …left the building, skipping the rest of the movie.

“We’re lucky it lasted three weeks” in theaters, said Hitesh Israni, Ms. Khubani’s brother, who lives in India and helped coordinate the project.

Recommendation: Flee the dumb money put up by suckers. We recommend any investor scale back their investments in Bollywood film productions.

Full Disclosure: We ceased all our Indian film financing 18 months ago based on our proprietary Bollywood rhythm-method trading algorithm.

Is your child safe from “scrotum”?

This unsettling question is on the minds of America’s parents today as they wake up to a new dawn, one where their children may one day have to read books with words like “scrotum” or “condom” strewn about with frequency. This new word terrorism is being used to disrupt American society by writers and their ilk. But while bad word censorship is naturally beneficial to civilized society, we also see where it can be beneficial to a forward thinking profit seeking publishing company.

Recommendation: Publishers can benefit by creating the products that parents want for their kids — books that lack “adult” words, “big” ideas, and “foreign” concepts.

The keys for a publisher to profit from the war on word terrorism are simple:

1. Use no “Howard Stern-type shock treatment” in your literature. As an example, a passage about a young couple kissing would be inappropriate and likely be censored as it introduces dangerous themes like “love” and “sexuality”. In its place, substitute a passage about the importance of loving your father and mother or a physical fight between people.

li>Avoid words which have even a taint hint of being “adult”. This includes all tri-syllabic (or greater) words, four letter words, sexual terms and annything else as decided on a case by case basis. Good words include “the”, “Mom”, “war” and “fruit”. Bad words includes “them”, “potato”, “condom” and “scrotum”.

2. Avoid depicting situations which too closely resemble reality; this may startle children who are unfamilar with it.
3. “[You] won’t find men’s genitalia in quality literature”. This is the unbreakable rule. Place a banner with this on it and put it somewhere in the line of sight of each of your workers.

Situation: A Chinese man has been arrested and sentenced to death for bilking Chinese investors out of the 3bn yuan ($387mm) they invested in his sham company. He promised 60% returns on purchases of black ants that purportedly had therapeutic properties. He has (compellingly) defended himself by claiming that “he did not know the first thing about raising ants and was ‘quite unclear’ about the costs.”

Recommendation: Wang Zhendong’s fraudulent sales have roiled the market for magical ants worldwide and in China particularly. We recommend going long ants during this period of confusion. Buying ants that are “a natural remedy for ailments such as arthritis,” given the discounts available right now, is not dissimilar from buying Dynergy pipelines a month after the Enron scandal. Correlation trades in cathartic cephalopods and restorative rodents.

Long or Short Capital’s fiscal 2nd Quarter ended on 1/31/07, and the company reported its results in a press release:

Mr Juggles: “Good afternoon everyone, let me first state:

‘WOW we really killed it’.

Second, let me welcome everyone on the line to hear me talk about our 2nd consecutive best quarter ever. In the Q1 call, I let you know that we had been internally focused on the so-called “sequential same store traffic figure” and we delivered a “Googlesque” 146%; this quarter we delivered a 50% increase in SSST on top of that that elevated level. I’d like to reiterate the fact that we really killed it and you should say things like “Great quarter guys” and “Thanks for letting me talk in this Q&A, I promise to ask ticky tacky irrelevant questions to perfect my model and not any questions about your sketchy use of SAAP”.

But this quarter was not all about traffic. Our new primary internal focus was on a metric known as the “Eyeball Monetization Conversion” ratio. It’s a proxy for Long or Short’s efficiency at turning our readers into dollars. Last quarter our EMC ratio was $8.43 per thousand readers — note this is not based on page views; this quarter we launched initiatives and improved our mix to drive our EMC to $18.39. None of our competitors can say the same thing, proving that we have maintained our best in class performance.

We generated earnings per subscriberholder of $2.12 compared to $0.60 in Q1’07 and $0.38 in Q4’06. We generated $1,150 in revenue for the quarter, a 489% increase YOY, and 228% sequentially. We re-experimented with Adsense starting in October, and while we eked out decent performance through December, revenue per a click fell off a cliff in January forcing us to switch our ad sourcing back to the Yahoo! Publisher platform. Our timing turned out to be perfect as our revenue per click increased by 3-4x while our CTR increased reasonably, the latter more unexpected than the former. Text link advertising became the stalwart of our topline, although a smaller % contribution than expected. We sold all our inventory for the first time to date and are positioned for a round of price increases. We also exceeded expectations in some of our one-off initiatives including “Operation Sell Our Christmas Spirit Through Amazon.com” and our late in the month experimentation with CPA ads for Valentine’s Day.

Our subscribership increased from 381 to 508.

Our free cash flow took a big hit from working capital, which was unavoidable due to our topline growth. At 81.5% of sales, this is an area we know we need to improve and I’m confident we have the people in place to get it done and effect the necessary changes. Three weeks into February, we have already made headway towards this goal. We want to be at 30-35% of sales maximum.

We had our best quarter ever in terms of revenue, free cash flow and qualifying traffic. This may sound familiar because I said the same exact thing last quarter. Let me tell you something, I really hope to be on this call with you guys and gals three months from now saying the same exact thing for the third time in a row. Thanks for your time, and have a great afternoon.”

Note that the financials below are unaudited and may contain non-GAAP measures. All numbers comply with Seldom Accepted Accounting Principles (SAAP).

Unaudited Financial Results for Q2’07
Income Statement

Contextual CPC Revenue $239.24
CPA Revenue $120.32
Static Ad Revenue $783.41
Other Revenue $8
Total Revenue $1,150.97

Cost of Sales $19.55
One Time Charge $45.00
Marketing Expense $7.55
Operating Income $1,078.87

Balance Sheet

Cash $557.55
Accounts Receivable $787.43
Inventory $0.00
Prepaid Marketing/Hosting/Reg $150.95
Accounts Payable $0

Cash Flow Statement

Operating Cash Flow $470.70
Capex $0.00
Dividends $X.00

Performance Metrics

Visits 62,570
Pageviews 134,555
Clicks on ads 313
Subscribers by Email 109
Subscribers by XML 399
Inbound Links per Technorati 461 from 132 Sites
Technorati Rank 25,370
Inbound Links per Google ~367 sites
Google PageRank 5

Past Results (due to our reliance on SAAP, previous unaudited financial results are not reliable)
Long or Short Capital Q1’06 Results
Long or Short Capital Q2’06 Results
Long or Short Capital Q3’06 Results
Long or Short Capital Q4’06 Results
Long or Short Capital Q1’07 Results

The way for a young man to rise is to improve himself every way he can, never suspecting that anybody wishes to hinder him.

-Abraham Lincoln

Past Quotes Entirely Relevant to Investing