Long or Short Capital

In previous reports, we have shown the light on the rising popularity of pooplet derivatives products and the growth of the “willing-to-consume-feces” demo (see related research below). A new wrinkle has been brought to our attention, a faux pooplet derivative product called Free Range Chicken Poop Lip Balm. This product contains no poop based on its description which says:

This product contains no poop!

Although not specifcally noted, our diligence indicates that it contains no free range chicken either. In fact, this lip balm is made completely out of lip balm.

Despite it being made of solely of lip balm, Free Range Chicken Poop Lip Balm glams onto two seperate idiot demographics:

1. The aforementioned “willing-to-consume-feces” demo.
2. People under the mistaken impression that humanely treated chickens are more delicious than tortured chickens.

These combine to form a large addressable market comprised solely of easily swayed idiots, who are ambivalent between actually consuming what they want and the feeling they are actually consuming what they want.

Recommendation: This data point indicates that there is more strength in poop than we previously believed. We raise our rating of the producers of pooplet derivative products to “Three Flushes” from our previous rating of “Two Flushes and a Firm Wafting“. Initiate faux pooplet derivative products at “Light a Match.”

Relax. The market goes up, the market goes down. But, over the long haul, the market goes up.

-Peter Burke, CEO Global Century Investments

Past Quotes Entirely Relevant to Investing

The results for the TradingMarkets/Playboy 2006 Stock Picking Contest are finally in, with Deanna Brooks amassing a huge return of 43.43% on her portfolio. The premise was to combine models and charity as a way to promote the kind of active investing around which TradingMarkets builds its products. TradingMarkets.com claims to be “a financial information company that works with institutional and individual traders in helping them improve their trading.” I guess “purveyor of black box technical trading products to wannabe day traders” doesn’t sound as sexy.

Dorkins:

We advocate active investing as opposed to buy and hold. We do think [the performance of the playmates] is sort of a reflection on the buy-and-hold industry that shows that anyone can come in and do just as well or better than a supposed expert.

I’m sure he is familiar with statistics which, used properly, would indicate that there would be a high probability that some members of any sample of stock pickers will beat the S&P 500. Frankly, I’m not even sure he is familiar with numbers as the Playboy Model Composite underperformed the S&P 500 by a decent amount without adjusting for risk. Given that most models picked 3-4 random stocks, adjusting for risk would show that investing with the S&P 500 would have been a dominant investing option over investing in a portfolio of Playboy Model PM’s, a shocking and surprising result.

I am sure the majority of this site’s readers have been following the playmates more than their portfolios. Exploiting hot chicks that show their boobs is an excellent way to raise awareness for charity and forcing men to look at the stock market, or at least the boobies which are standing next to the stock market. But it’s apparent that this stunt was not for charity or even to boost the visibility of TradingMarkets.com. It was simply a way for this guy, Ashton Dorkins, to finally see in real life a woman he had also seen in her nude suit, blending his porn with his real life, to create a synthetic sexual experience.

Dorkins also said:

The ones that did very well picked stocks that they are familiar with. That goes back to the point that stock pickers should pick the stocks of companies they understand.

It is true that investors should make long or short choices about stocks which they are familiar with, especially when presented with a stock you are familiar with and a stock which you are not. If the opposite was true, then the yacht Mr Juggles bought with the money he has been paid to get familiar with companies would seem even more ludicrious than it already does. But Dorkins’ statement does not mesh with the reasons Deanna Brooks gave for her decisions:

Hauppauge Digital (HAUP), I’m a tech head my self, so anything that advances something like TV on your computer…you get my drift…

Pfizer (PFE), I like staying healthy and alive (and I think most people do!)

Yamana Gold (AUY), What girl doesn’t like a little bling? I’m hot for gold this year…

Petroleo Brasileiro (Petrobras) (PBR), Ok, I do own 2 hybrids and I’m pro-eco/ recycler/tree hugging liberal, but…oil is making money…(maybe I can buy my next Hybrid with the profits…)

IBM (IBM) Hey I’m emailing you on my computer aren’t I…they (computers) aren’t going away.

Maybe “familiar” is spelled differently in model-speak.

Recommendation: The real lesson of this story? Even if your point is wrong and stupid or your firm’s product expensive and terrible, it never hurts to bring in boobies, the zero downside asset class. Short Dorkins, Long boobies, Long long.

Note: This all presume Ashton Dorkins exists as a live human being. He may in fact just be an amalgam of digital nerds (or Nerd CEOs) which only exists in digital form like that terrible movie with Al Pacino. The name sounds made up, as no parent would give their child the name Dorkins — they would sooner change names or kill themselves than create progeny so endowed.

With the NFL postseason in full-swing, we invited Monday Night Football announcer Joe Theismann to come by and share investing color commentary.

Joe Theismann:
“I’m gonna tell you something. Warren Buffett knows that value investing wins championships; no team can succeed in post-season investing without having a strong ‘going long’ strategy. We had the opportunity to talk to Buffett yesterday before the market opened, and he told us how important he thinks the long game is to investing and he told us how he built his entire empire on it. Establishing the long keeps the market guessing, and allows investors to win big returns. Once an investor has established the long game against the market, the experienced investor can call for play-action shorts leaving the market expecting the long up until the transaction is complete, then running a short trade. So the key to Buffett investing is always going long except when you’re going short.

We also had the chance to catch up with Bill Miller last week during training camp. He told us that he has always focused on investing in stocks that go up and avoiding stocks that go down. Whenever he looks at a company, he tries to figure out whether that company is going to make money, even before he makes an investment. That type of hard work, strategy, and dedication explains why he’s a star. But the thing about Bill Miller that really seperates him apart is that he is also a tremendous person.”

Theismann referred us to his former Sunday Night Football boothmate, Paul Maguire, for technical commentary.

Paul Maguire: [Ed: Maguire used a Bloomberg machine to perform his trademark telestrator analysis.]
“Now I’m gonna show you something, LOOK AT THIS CHART RIGHT HERE, see that line, watch that line, see how it traces up, now look at this, the shape it’s forming, look at that line, here, and there, look at it…BAAMMM! That’s a nice formation. Now I’m gonna show you how that line connects at this point HERE, look at that and forms with those lines over there, watch this, look at this, watch this, LOOK, now what that means is that you watch this, right here is where you are going to want to short. And that’s how investing is played.”

In mid-06, I added a new (additional) computer monitor to my desk thinking – MY PRODUCTIVITY COULD DOUBLE. HUZZAH!

I left my bloomberg ticker screen on one monitor and any work in progress on my other monitor. After three weeks my right eye was twitching which was worrisome since I’ve had the eyes of a falcon since I was two; literally my dad shot a falcon took its eyes out and replaced my human eyes with falcon eyes – it’s sort of like LASIK but more wild. So I went to the doctor and he told me I had an eye problem and it was either because I was using rotting falcon eyes or because there was a red and green flashing screen in my periphery 12 hours per day.

Well I fixed that, now my Bloomberg screen is directly in my line of sight and I moved any models or real work to my periphery at all times. My eyes feel better already. And I always know the most recent price of every stock I follow which comes in very handy for making sound investment choices and stumping your boss.

me: “Hey, Steve, you see what LEN did this morning? . . . Up 120 bps, yeah, bet you didn’t know that”
my boss Steve: “Falcon Eyes, you’ve stumped me again, give yourself a raise”

See? Amazing.

Recommendation:

Phase 1: Get yourself some falcon eyes.
Phase 2: Buy a Bloomberg subscription.
Phase 3: Open your launchpad, fill it with tickers and stare at it all day long.
Phase 4: Profits for your firm and for you.

This post was 80% true story.

If you have not already read Reminiscences of a Stock Operator, you must do it now. Order a copy from Amazon or get it for free online since it has recently passed into the public domain.

Jesse had flair and a dedication to his craft. This quote sums him up. [our emphasis added]

The moment I got to Palm Beach and saw what the misguided insiders were still trying to do, I let them have a second lot of TT. Back came the report and I sold another 2,000 shares. The market behaved excellently. That is, it declined on my selling. Everything being satisfactory I went out and had a chair ride. But I wasn’t happy. The more I thought the unhappier it made me to think that I hadn’t sold more. So back I went to the broker’s office and sold another 2,000 shares.
I was happy only when I was selling that stock. Presently I was short 10,000 shares. Then I decided to return to New York. I had business to do now. My fishing I would do some other time.

The RIAA filed a $1.65 trillion lawsuit against AllOfMP3.com last week. AllOfMP3.com is Russian website which sold Mp3’s free of DRM to anyone in the world, and apparently did not reimburse any copyright holders. This was legal under Russian law (as most things are, including but not limited to murder, stealing, felching, kidnapping, rape, arson, armed robbery, unarmed robbery and assault) and in our opinion, highly efficient.

The RIAA have waited years to act on this matter, but when they did, they did it with panache. Let’s put $1.65 trillion in perspective.

If AllOfMP3.com has destroyed $1.65 trillion of value or committed acts worth $1.65 trillion in punishment, there is implicit in that the idea that the RIAA stakeholders are worth a minimum of $1.65 trillion plus whatever fair market values would peg them at. A quick perusal of the enteprise values of the constituents of the RIAA make it clear that they are not worth even $100bn, much less 16x that.

Also implicit in the $1.65 trillion number is that AllOfMP3.com has sold somewhere close to $1.65 trillion worth of music in its 3-4 years of mainstream existence. In 2004, there was $30-40bn of total music recording sales (and the RIAA does not represent all of that figure). The GDP of Russia is about $1.5 trillion. In 2005 there were $1.1bn of digital music sales. So in 3-4 years, AllOfMP3.com did the damage worth the revenue equivalent of 40-55 years of total music recording sales or 1x the GDP of Russia.

The RIAA has a resume of distorting reality in an effort to protect its members’ interests. Using the words “stealing” and “piracy” to describe copyright infringement, an act where no one is deprived of their property. Using the assumption that a song illegally downloaded is a sale foregone on a 1 for 1 basis. Never getting on the ball and creating a legal service which makes the digital music as facile as the black market is. Advocating the extension of copyright tenure despite the fact that the time it takes to monetize copyrighted material continues to fall as technology improves and society speeds up. And now suing a website for the entire GDP of Russia.

Recommendation: The smell of desperation is strong, the likelihood of disintermediate is high and we are long irrational acts by the RIAA. We recommend evaluating investments in such potential RIAA moves as:

• Suing for sonic rights to the dark side of the Moon, based on Pink Floyd’s album, and by extention, the entire universe which has ever been blocked by the dark side of the moon.
• Reprogramming Carson Daly’s Prime Directives. Previously these were
  1. Serve the corporate trust
  2. Protect the public from thinking
  3. Uphold corporate interests
  4. Never oppose a media company officer (any attempt to arrest a media company rep results in automatic Carson Daly shutdown)

  The RIAA may append a fifth directive as follows: “5. Conquer Russia and destroy AllOfMp3.com. Crush the insolent.”

• Proposing a bill to congress through one of their many shills requiring that each citizen have a meter attached to their ear which would keep track of how much RIAA content you listen to and charge you for it. Failure to pay would result in their using the installed ear meter chip to broadcast Crazy Town’s Butterfly directly into your brain until you agree to pay or until your head explodes.
• Suing the dead. (Edit: Apparently the RIAA has already sued the dead)

Everything should be made as simple as possible, but no simpler.

-Einstein

Past Quotes Entirely Relevant to Investing

This is a sponsored post from ReviewMe

What if there was an online market place for small time venture capital fund raising? Would that be something you might interested in? That is what the The Go BIG Network’s Venture Capital Funding provides. I love markets, so much so that I’ve played Monopoly games wherein we have created ad hoc derivative markets to better match the demand for complex financing of fictional real estate projects. But this market seems to be plagued by that which plagues most Internet marketplaces: Low quality listings. It’s unclear whether this because the quality controls of the site itself are weak or that this is just an unstoppable internet phenomena.

Take two listings available today.

Travel Packages worth $15,000 for one-time fee of only $1,295 /couple Around The Woprld Travel Packages
Recreation – Travel Packages and more…

Not only is this just an advertisement for some crappy spamlike vacation package, but they don’t even misspell “World.”

Real Estate Co. Seeks 250,000 for mulit unit projects Baxter Enterprise Investments, Inc
Funding needed for rehabing projects short term

Keep looking for $250k, because who would fund someone that much who can’t even take the time to review their 10 word title for mistakes.

But this doesn’t address whether this marketplace actually works. Does this market connect venture capital with those who need it? It’s difficult to say. But my gut feeling is that in the modern world, the types of businesses who would use this market are precisely the ones who are not capital constrained to begin with. Most online ideas are likely to be critical mass constrained.

The GO BiG Network itself is essentially a social networking site for VC’s, wannabe VC’s, wannabe VC funded entrepeneurs and wannabe VC funded wannabe entrepeneurs. From their about page:

The Problem We Solve

The startup community is highly disconnected. Startups, investors, job seekers and service providers all need one another to survive and grow yet at the same time they are hindered by their own lack of connectivity. Go BIG allows members of the startup community to connect faster by exposing all of the demands of the startup community in one place.

Recommendation: We peg The Go BIG Network’s Venture Capital Funding as market neutral; no harm to play with it just like the online C2C debt lending site Prosper.com. We can’t be short something that has no downside other than time. The catalyst for an upward revision of our sentiment would be the development of a critical mass market place. And if that critical mass market were to gain critical mass, we would expect this site to be bigger than eBay.

Carson Daly was developed by a secret cabal of corporate interests as a response to worsening corporate conditions in America in the 1970’s. He was the first corporate interest enforcement droid created by this cabal and he operates under a programming rule set called “the Prime Directives” as follows:

1. Serve the corporate trust
2. Protect the public from thinking
3. Uphold corporate interests
4. Never oppose a media company officer (any attempt to arrest a media company rep results in automatic Carson Daly shutdown)

The market says that a position in Gerald Ford is crazy.

It says, “Gerald Ford is just a filler president with no historical appreciation upside. His most memorable acts are pardoning Richard Nixon and being mocked as an incompetent klutz on Saturday Night Live by Chevy Chase.”

I say to the market, “Market, you are crazy. Any man who can get me a bonus vacation day is someone I want to be long. Washington, Lincoln, Martin Luther King, Christopher Columbus, the signers of the Declaration of Independence, the Pilgrims, Valentine, Jesus, laborers and all our soldiers, I am long you all. And I am long Gerald Ford too. And I think he deserves some credit for Presidential seppuku in pardoning Nixon, not to preserve his own honor and not to preserve Nixon’s, but to preserve and protect the institution of the Presidency itself. He took one for us all. Gerald Ford, I am long you.”

Recommendation: Get prepared to be long Jimmy Carter soon.

Who would have thought that a chain of stores that sells overpriced esoteric technocrap (all of which include some sort of ionization feature to reduce odors) and whom I associate mentally with lifesize Boba Fett statues would be run by a complete and total nerd? WATFO? Footnoted.org points to this SEC filing made by the Sharper Image (NYSE: SHRP) which lists that former CEO negotiated to buy from the company some of his former office decorations as part of his severance, including C3PO a C3PO sculpture and a Superman statue.

Sculptures: I would like to purchase two sculptures that decorate my former office or that the Company retails. The Company will sell me the 3CPO sculpture that was in my former office for $7,500 (which is 50% of its retail price of $15,000) and a Superman for $2,500 (which is 50% of its retail price of $5,000), for a total of $10,000, which I already have paid to the Company. I will pay the Company the cost of shipping Superman to me, within 30 days after this Agreement becomes effective. I may take the 3CPO model from the Company’s office (or have it picked up at my own expense), and the Company will ship a Superman to me.

Perks come with the territory of being CEO, but would shareholders really approve of perks if they knew that they were the kind that further nerded up their company? Nerds come in all stripes, and while some nerds add value (finance nerds like me and also those red/purple nerds which create beautiful synergy in my mouth), nerds of the 40 year old virgin ilk (cipher nerds) pull it straight off the table.

Here is a chart which scientifically demonstrates the effects of a cipher nerd on the stock price of a publicly traded company. The start of the chart is approximately the point in time just before the realization that the CEO was a cipher nerd. The rest of the chart demonstrates how the market prices such a fact.

Recommendation: Given that the Sharper Image is trading at nearly a 50% discount to it’s nerd-free valuation of $20, it looks like a buy at $9.41. The market has been slow to recognize that the taint of the nerd has been lifted and we expect the battered stock to rise up to its nerd-free valuation as the market corrects itself. Additionally, there is an activist shareholder opportunity in finding companies whose CEOs watch Battlestar Galactica or keep a twenty-sided die on their desks and then taking action to affect regime change, thus realizing significant appreciation of shareholder value.

Jack Welch has such unparalleled management skills, they named Welch’s Grape Juice after him because he squeezes the sweetest juice out of his workers’ mind grapes.

-Jack Donaghy (Alec Baldwin) in “30 Rock” (season 1 episode 7)

Past Quotes Entirely Relevant to Investing

It appears that our future overlords are putting feelers out on the world which they will soon own. Japanese scientists filmed and a caught a live giant squid for the first time last week (see our previous reseach reports Long Cephalopods, Updating the Cephalopod Position: Shark vs Octopus and The Cephalopod Index Is Officially Out of Control). No, the Japanese are not planning on taking over the world like they tried to in the late 80’s. The squids and their cephalopod brethren are the ones who seek to rise from the depths of the ocean. Or perhaps they would rather simply rise the depths of the ocean?

Who is really behind global warming (see releated research report Make Emissions Delicious, Stop Global Warming)? They claim that it’s carbon emissions or other man-made causes which are the problem. But whenever we want to get the heart of an issue, or find a cause for something, we always ask the question “Who has the most to gain?” In this case, man gains little and potentially loses a lot by causing global warming. Less land will be hospitable, tropical zones will spread bringing with them malaria and a bevy of diseases, less rain will fall, hurricanes will be more frequent and more violent, polar bears will drown, and more land will be underwater.

Think about that last point. Who gains from that? Surely not man, who cannot swim well and is afraid of sharks. Surely not the Grizzly Bear, who while adept in the water and capable of fishing, would need at least a small stone perch in order to defeat a Great White Shark in the wild. Surely not the Cheetah, who while swift on foot, is so inbred that there is not enough diversity in his genepool to adequately fend off disease. Surely not the Platypus, who is famously neutral in all inter-species issues. Who does this logically leave? The Cephalopods, the creatures who lurk in the depths of the ocean, who duel with whales and kill sharks. They will be the masters when the world is underwater and thus they are likely behind global warming.

Recommendation: This small giant squid was location scouting for his leaders, searching out the best landside seastates for future wealthy squids. While traditionally seaside land in warm climates has been desirable real estate, when the squids take over, landside sea will be the real estate worth owning. We do not recommend flipping your seaside real estate for landside sea as of yet (our catalyst would be a sea creature Bastille event at a major acquarium), but we do recommend hedging all your real estate with offsetting sea. This offers an important hedge against the growing likelihood of dominant species regime change. We continue to recommend a long position in the Cephalopod Index, as a hedge against the end of overwater civilization as we know it.