Long or Short Capital

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.

Clearly, there are still a lot of kinks to be worked out for piganol to be a viable alternative to traditional fossil fuels, but we are cautiously optimistic. This is only a prototype design, but fuel efficiency is reported to be quite good, as is the bacon byproduct (I had some).

As you can see there are some tradeoffs.

The fuel tank is larger than you would expect on such a vehicle and is now a mesh wire cage rather than a fully enclosed tank. This presents an opportunity for vehicles to get into accidents when their pigs get snagged on an incoming vehicle; it’s possible that this could be fixed by dismembering all the pigs but this revision has not yet been incorporated into the design.

The pigs squeal creating noise pollution. We are old school so we don’t see the exchange of one kind of pollution (green house) for another (noise) as a net benefit to society. Pollution is pollution.

Recommendation: Currently, we put piganol as a low probability to become a viable alternative to traditional fossil fuels, but we will continue to monitor piganol, sheepanol and and other live-animal-in-cages fuel sources. There are ways to position your portfolio to benefit from traction gained by piganol without engendering the huge risk associated with a not-yet adopted future technology. The pig byproducts markets will benefit from increased prices when/if piganol takes off. In this space, we recommend Bacon for the strength of its fundamentals and its ability to effectively complement lettuce and tomatoes, an overlooked component of its ability to grow earnings. We see Bacon as a low risk investment with moderate upside, allowing even the most cautious investor a way to play piganol.

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.

Market values of popular candies, serving size is “fun size” unless noted otherwise, based on actual market trading.* Does not include any candy broker fees or other transaction costs.

SKITTLES : 2.9 MILKY WAYS
SNICKERS : 15 units of CANDY CORN
CHARLESTON CHEW : 0.46 SNICKERS
ROLO’s : 0.7 SKITTLES
APPLE : 1/30 of a SNICKERS
M&M’s : 1.3 CHARLESTON CHEW’s
M&M’s : 1.01 PEANUT M&M’s
REESES PIECES : 0.6 SKITTLES
5 GUMMY BEARS : 7 units of CANDY CORN
KIT-KAT : 11 units of CANDY CORN
NESTLE CRUNCH : 2 SNICKERS
FUN-DIP : 3g of CRACK
HERSHEY’S MILK CHOCOLATE BAR : 20 APPLES
THREE MUSKETEERS : 0.20 SOURPATCH KIDS
SWEDISH FISH : 0.78 SOURPATCH KIDS
POP ROCKS : 0.30 FUN-DIP’s
SMARTIES : 4 units of CANDY CORN
TOBLERONE : 2 APPLES
REESES PEANUT BUTTER CUPS : 95 MOUNDS
Oh HENRY : 4.5 units of CANDY CORN(3-6 bid-ask spread)

*We will update this based on current market data. Updated 11/2 1:25PM

When my kids get back from trick-or-treating, you can bet they will have countless candy bars of a variety that they never choose to consume on their own. For my money, the worst of these is the Charleston Chew. While Tootsie Roll Industries Inc., the company that makes this confectionary abomination, produces many delights and is a model American business, their Charleston Chew is a crime against dentistry.

I have never willingly purchased a Charleston Chew, and I’m not aware of ever observing anyone buying one for their own consumption. But rest assured, folks across America will be shoveling them into trick-or-treaters’ bags.

Perhaps, you might say, it is just that people are taking the opportunity that Halloween offers to dispose of a menace. Rather than consume the Chews themselves, individuals foist them on unsuspecting youngsters.

-From a piece on Halloween by Kevin Hassett on Bloomberg (no link)

This is a clear case of moral hazard, where the dispensers of candy treats do not bear the full cost of their decision to dispense the tasty Chew during Halloween, namely the impact on the dental bills of the consuming children’s parents. But this report reveals another trend we find to be compelling, and a potentially delicious investing opportunity — the perpetual undervaluing of the Charleston Chew candy bar.

CC has some of the most desirable attributes of a candy asset:

• Medium width milk chocolate coating
• Artificial vanilla-mallow alloy filling
• Cross-selling opportunities (selling vanilla-malloy alloy to chocolate lovers, vice versa)
• Above industry avg SPCC (sugar per cubic centimeter)
• Freezability which increases the size of market demand for CC (people who like their candy assets frozen)

Despite this, Kevin Hasset heaps scorn upon the Charleston Chew, scorn which would have been unthinkable in CC’s heyday. How will the Halloween market react to the Chew? And how does one properly play the Chew?

Recommendation: This apparent dip in CC’s popularity without any corresponding dip in the core value of its assets are combining with temporarily distorted market forces (halloween, moral hazard) as an opportunity to pick up Charleston Chews on the cheap. Currently trading at 0.46 Snickers, we think CC is a great value at these levels, and we recommend accumulating CC at these levels. See our related report on 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.

People who decry the fact that businesses are in business “just to make money” seldom understand the implications of what they are saying. You make money by doing what other people want, not what you want.

-Thomas Sowell

Past Quotes Entirely Relevant to Investing

Long or Short Capital is having its strongest quarter ever in terms of revenue and expect that working capital has improved significantly. The results should be a strong growth in the dividend pool available to qualifying subscriberholders. We have also poured a significant amount of our cash flow into advertising spend but that does not affect the dividend pool. We will release our Q1’07 financial results on November 4th.

The US has been fighting a quixotic war against drugs for ages now, focusing on tougher penalties for both dealers and users and targeting the supply in a global game of cat (e.g. DEA) and mouse bigger cat(e.g. drug dealers). The only things which have been accomplished are hollow political “victories”, a huge expenditure of public money and an epic waste of limited police resources. A persistent suggested alternative is to legalize drugs (and tax the sh*t out of them) since they don’t hurt anyone but the user anyway and most of the violent crime related to the drug trade only exists because it is illegal. It might also counter-intuitively reduce the use of drugs. Cigarettes have had so much sh*t taxed out of them that their use has been declining consistently — see it works!

Why stop with cigarettes and drugs? Everything illegal should be made legal and have the sh*t taxed out of it.

Suicide? Who does it hurt but me? Let me do it whenever I get that feeling, but be sure to tax the hell out of it. This is called turning a cost center (all the government expenditure associated with oppressing consumers who want to enjoy some suicide in the confines of their own home or the public’s bridges) into a huge profit center.

Murder is a crime and a horrible thing….but at what price is it a great deal for the Government? I work in a high stress environment and I would pay a tax to let me kill a homeless man with a shiv when the blood urge compels me. A human life has an assignable dollar value — tax me that value for taking one. This would better allocate murderable resources with murder demand.

Plus think of all the job creation which could come about! A whole new industry would be created because in order to collect the tax revenue generated by legalized crime, you’d have to be able to account for it. Governmental life valuations agencies, third party appraisors, a whole new subindustry would have to be built to support this initiative, leading to job creation.

Recommendation: This concept is still in the infant stage, and we are working internally to see how this can best make Government provide greater freedom and greater choice to its citizens.

Editor’s Note 10/31/2006: This is in state of revision due to constructive reader feedback, bear with us as we make this idea better and basically make it work.

Our Hungarian friend Anonymous emailed us this question:

When I come out of the [subway] station, there is always a middle aged man selling Boston Herald’s wearing a YANKEES hat. With such a cheap discretionary purchase, one that is marginal and dependent [on] conveniece and low transaction costs, why would anyone doing [that for a living] think it was wise to wear a Yankees hat? What would the equivalent be in business? It’s even worse because the Herald is such a rag that is often given away for free later in the day.

In a situation where you were closing a deal or pitching a fund, the only thing that would compare would be saying something like “I would love to bang your wife/husband….again” and then handing him/her a glossy shot of you banging his/her wife/husband. As for a comparable act in the greater business world, maybe a company with a catalog driven sales model putting a white powder in all their catalogs? Or Panda Express replacing their banner with a biohzard logo; this would also have a high social benefit. (Panda Express was the 47th largest chain in the US in terms of revenue in FY’05. Just think about how many cases of food poisoning that likely represents….)

Sometimes I have questions but don’t have the answers. Here are a couple examples:

• Why do we use a french word, “entrepreneur”, to describe someone who builds a business or otherwise innovates. This type of person is effectively outlawed in France. Let’s relabel entrepenuers what they really are: “Americans”.

  Example: Those americans who started Skype are rolling in it.

• Why do we call a go-getter, a “go-getter”? If someone really is a go-getter wouldn’t they have go-gotten a position where they make others go-get for them? Types of people who are currently called “go-getters” should be relabeled “tyrants in waiting”.

  Example: Michael Milken was a real tyrant in waiting in his youth.

• Who buys those Bowflex machines sold on TV? …Actually, there really is no answer to this one. [Edit: the first commenter links to a great NY Times article on the bowflex]

Sample Probability Question for the CFA Exam

The probability that the CFA alone lands you a better job is 1.6%. The probability you will use skills you learned from the CFA (which you did not already possess or use in your job) in your future work is 4.8%. The probability that you pass the CFA is 70%. Calculate the probability that your time on the CFA is well spent and you shouldn’t be drinking more and studying less.

A) 17.2%
B) 4.442%
C) 4.443%
D) I have made a total mistake in where my life is headed and I need to rethink everything. It’s not this problem that I find hard, it’s waking up in the morning, staring at spreadsheets all day and living in the suck. I don’t even know where I end and my job begins. It’s like my nightmare relationship with a woman, except all the humiliation and feeling of ineptitude is not offset by sexual favors. I am trading my soul and my youth for a financial merit badge and a few golden shekels.

Explanation:

Based on the formula P (A | C or B |C) = P (A | C) + P (B | C) – P (AB | C), the correct answer is closet to the mean of B) and C), so you should answer with a symbol which was half B and half C. If filling in a bubble, be sure to fill in a half circle in both the B and C bubble. D is true but not correct. As a CFA holder it is important to be able to discern between what is true and what is correct; the subtlety between the two is what will define your ability to thrive in your chosen profession. This is testable material so be prepared to face it on the CFA exam and in the exam of life.

A year ago, I published a report entitled Is Russia a Place to Invest or a Place to Fear? which dealt with the rise of Russia as a popular destination for Western capital. The precis is as follows:

A common investing theme is that Russia is the place to put your money. Why?

Burgeoning middle class!!
Favorable demographics!!
Heavily educated human capital base from which to draw!!
More oil than T. Boone Pickens!!
Business friendly, and otherwise unfriendly, Dictator Tsar General-Secretary President Putin!!
Tradition of outlining and executing 3-5 year plans!!
Tradition of strongly protected property rights, economic openness and political stability!!
Literature with greats like Aleksandr Solzhenitsyn!!
And for the kids…GULAGS!!

Well sorry to be the turd in the blinchiki but Russia is jockeying to try and do the only thing they know to try and do: nuke the USA and rule the world. They don’t care about economic openness. They don’t care about working hard and they don’t believe in capitalism. They want three things, in no specific order.

Vodka.
World Domination.
To do evil.

Well, it took a year but the Ruskies found my article and posted it on the livejournal page of an alleged (by me) member of the Kremlin. The comments are mostly in cyrillic, but running some through babelfish led to this disconcerting discovery:

it is necessary to survive from the mind in order, after pursuing after the visibility of large dividentov, to pack money into vostanovleniye of the potential of the imperial militarism

Their plan is to use Long or Short Capital’s own dividend policy against us, and “pack money” into “the potential of the imperial militarism,” e.g. raze Long or Short and perhaps the Western World.

Recommendation: Short Long or Short?

Rap critics they say he’s “Money Cash Hoes”
I’m from the hood stupid, what type of facts are those
If you grew up with holes in ya zapatos
You’d be celebrating the minute you was havin’ dough(s)
I’m like fuck critics you can kiss my whole asshole
If you don’t like my lyrics you can press fast forward

-Jay Z in his track 99 Problems

Past Quotes Entirely Relevant to Investing