This post is a follow up to yesterday's about the early stages of the Internet bubble collapse. Meet the Dumbest Dot-com in the World is both sad and hilarious. It should make you pause before you even think about investing in a company with no revenues or an "innovative" business model that seems way too smart for the little people.
AllAdvantage billed itself as an "infomediary"(by the way, I would also be leery of made up words like that). It's easy to dismiss the company now, but back in the day, it had really smart VCs like Softbank ponying up big money in order to fund it. The IPO was one of the last Internet highfliers of Frank Quattrone, then probably the brightest star in technology investment banking at Credit Suisse First Boston.
AllAdvantage wasn't a complete disaster though. They were an early creator of viral marketing campaigns. They were a behavioral marketing pioneer.
If you've got a lot of time on your hands and want to marvel and how naive people were at the turn of the century, then read this business description taken from it IPO filing.
Thursday, September 10, 2009
Wednesday, September 9, 2009
The Dot.con Era
It may seem pretty strange that so many years after the fact, I'm sifting through the wreckage of the dot-com era for lessons. It's largely because of the Michael Lewis-edited volume, Panic. The writings in this volume are so so prescient and smart. Two pieces that I've recently read are an excerpt from Dot.con: The Greatest Story Ever Sold by John Cassidy and "Meet the Dumbest Dot-Com in the World" by Mark Gimein. Even though these pieces were written back in the early part of the decade, they hold timeless wisdom about evaluating business models and much-needed perspective. Don't assume that we've learned everything that we could from this era. In fact, I assume we haven't. If we had, then we wouldn't be in the current mess.
The Dot Con excerpt recounts the early months of the bursting of the Internet bubble: March and April 2000. Reading books or magazine stories from this era is like walking through a cemetery or looking at a class photo from elementary school.
You either are feeling saddened and/or validated by a demise or just simply wondering what the hell happened to that kid from the back row.
It's amazing and almost laughable that companies like eToys, drkoop.com and women.com were considered viable businesses. Some of these companies did survive, mainly by being bought by stronger companies. For instance, women.com got folded into iVillage.com. It's not just the companies that seem like apparitions from the past. Do you remember Albert Vilar? He has a great quote in the book regarding a negative piece in which a Barron's writer claims that many of the top Internet names are running out of cash. He says, "I didn't set my performance record, which is about the best in the business, with any help from Barron's." I shall refrain from making a joke about this.
The real lesson I got from this piece is that it's very hard to call a crash, even when it's happening. Of course people were starting to throw in the towel, most people weren't. Many people thought that the market was going to bounce back and that this was simply a correction. This may seem like naivete, but it's exactly the sort of complacency and overconfidence that sets in when stock prices have climbed for so long. Besides if you remember correctly, in October 1998, the market experienced a correction and then bounced back to continue its ascent. Why on earth wouldn't people believe that the same thing was happening?
In tomorrow's post, I'll discuss the lessons learned from Mark Gimein's story on downfall of AllAdvantage.
The Dot Con excerpt recounts the early months of the bursting of the Internet bubble: March and April 2000. Reading books or magazine stories from this era is like walking through a cemetery or looking at a class photo from elementary school.
You either are feeling saddened and/or validated by a demise or just simply wondering what the hell happened to that kid from the back row.
It's amazing and almost laughable that companies like eToys, drkoop.com and women.com were considered viable businesses. Some of these companies did survive, mainly by being bought by stronger companies. For instance, women.com got folded into iVillage.com. It's not just the companies that seem like apparitions from the past. Do you remember Albert Vilar? He has a great quote in the book regarding a negative piece in which a Barron's writer claims that many of the top Internet names are running out of cash. He says, "I didn't set my performance record, which is about the best in the business, with any help from Barron's." I shall refrain from making a joke about this.
The real lesson I got from this piece is that it's very hard to call a crash, even when it's happening. Of course people were starting to throw in the towel, most people weren't. Many people thought that the market was going to bounce back and that this was simply a correction. This may seem like naivete, but it's exactly the sort of complacency and overconfidence that sets in when stock prices have climbed for so long. Besides if you remember correctly, in October 1998, the market experienced a correction and then bounced back to continue its ascent. Why on earth wouldn't people believe that the same thing was happening?
In tomorrow's post, I'll discuss the lessons learned from Mark Gimein's story on downfall of AllAdvantage.
Tuesday, September 8, 2009
Craigslist
Over the weekend, I read this excellent profile of Craig's List by Wired writer Gary Wolf. It's amazing just how powerful the site is despite its resistance to innovation. I don't think that there is any obvious investing lesson here. It is interesting to note how the site continues to be the leader in so many categories while steadfastly refusal to incorporate many of the innovations of the web that surfaced in the last ten years. What really sticks out to me about the company is that they are very much in touch with what their users want. Apparently, their users don't want all the bells and whistles. I think that giving customers what they want, while seemingly obvious, is actually a point that needs constant emphasis.
Friday, September 4, 2009
You cannot invest like Harvard and Yale: Part II
I wrote about this back in 2007 after I read a Smart Money article ( written by James B. Stewart) about copying the investment methods of these two endowments. I'm bringing it up again because Kiplinger's is now pushing the same naive advice. I thought that I would re-examine the idea and give it a bit more attention than I did two years ago.
To be completely fair, the Kiplinger's article does acknowledge that an individual cannot completely duplicate the strategies of these two endowments. The author, Andrew Tanzer, notes
Unlike the rest of us, the funds pay no taxes and never perish. Moreover, the endowments have huge staffs and access to investments, such as private-equity partnerships and hedge funds, that are unavailable to the common folk.
These are two really big differences. Taxes significantly eat into investment returns. Mortality and life expectancy play a big part in asset allocation, risk tolerance, and the investment instruments.
Furthermore, let's look at some of the ETFs that the Kiplinger's article recommends you use in order to replicate the strategies of Harvard and Yale. First of all, an ETF or a stock is not the same as investing in the physical asset. Investing in a REIT or REIT ETF is not the same as owning real estate. Owning a commodity ETF is not the same as owning an oil& & gas partnership in Oklahoma or a grain elevator in Iowa.
If you haven't read Pioneering Portfolio Management or Unconventional Success by David Swensen, please do. These books illustrate well the tremendous advantages that major institutional investors like big college endowments enjoy. Harvard and Yale have access to the creme de la creme of alternative investments. They can pick and choose exactly where they place their money. Their staffs have incredible access to the top managers as well as knowledge of their strategies. They can perform the type of due dilligence that you and I can only dream of. Harvard invests a good amount of money in timberland. They also have a lumberjack on staff.Hell, David Swensen even turned down Eddie Lampert years ago. Why? He wasn't forthcoming enough about how he was going to invest their money. That's how picky they can be.
Let's say that you did qualify as an accredited investor and could technically invest alongside Harvard and Yale. Many of the biggest and best venture capital, hedge, and private equity funds are closed to new investors. That is, unless you have a relationship that can get you in the door.
However, let's not diminish the importance of size and reputation. Yale and Harvard have billions to throw around. They also have two of the most impressive brands on the earth. They can give instantly credibility to any manager out there. You don't think they use this leverage to secure the most favorable terms that they can?
Think about it like this. Harvard and Yale are like a rich, handsome, well-endowed, smart tycoon that all the prettiest women in the world want to date. He can perform complete background checks, DNA, and psychological testing on any potential beaus. He literally has to have bodyguards in order to fight off these women. It must be nice.
So don't worry about trying to copy Harvard of Yale. You can't. You have to find an investment approach that works well for your personality,financial situation, and goals.
Thursday, September 3, 2009
10 More Investment Mistakes
Back in 2007, I wrote a post about the top 10 investing mistakes that I've made. I'm happy to admit that I've stopped making some of them, but I still make far more of them than I'd like. It's important to remember that investing is a process that involves not only learning new lessons, but re-learning old one. With that in mind, I took a hard look at myself and determined costly mistakes that I still make. Hopefully I can eliminate one or two of these habits and raise my returns by a percentage or two.
1. Using a market instead of a limit order. I usually do this because I'm overeager to establish a position. I need to learn patience.
2. Not scaling into a position, either when buying or selling. This is form the same reasons mentioned above.
3. Selling winners and keeping losers. Wishful thinking doesn't produce winning investments.
4. Investing without a goal or plan. The way you invest for a taxable account should be different than how you approach growing your 401(k).
5. Ignoring asset allocation. Stocks have outperformed bonds over the last 200 years, but bonds have outperformed stocks for some really long periods during that time. While I feel that your portfolio should have an equity bias, don't ignore bonds, especially when they're cheap relative to stocks. Valuation is really important. Also, don't forget to re-evaluate and re-balance your portfolio periodically.
6. Not having a plan for selling. I know that Buffett says that his ideal holding time for a stock is forever. It just isn't mine.
7. Buying on a hunch or impulse. In my experience, this ends in losses more often than not. Then again, it could be that my hunches are generally terrible.
8. Expecting an immediate gain from a purchase. It can take a while for the rest of the market to come to the same conclusion as you. Give them a little time.
9. Comparing your results to those of others. Comparisons are never kind. Don't do it.
10. Not stepping away from the market periodically. There are a lot of things that become clearer once you get some distance between you and the ticker.
Most of these erros are the result of a lack of discipline and a lack of patience. These are two of the hardest things to develop, but getting better at them will yield significant gains for your portfolio.
1. Using a market instead of a limit order. I usually do this because I'm overeager to establish a position. I need to learn patience.
2. Not scaling into a position, either when buying or selling. This is form the same reasons mentioned above.
3. Selling winners and keeping losers. Wishful thinking doesn't produce winning investments.
4. Investing without a goal or plan. The way you invest for a taxable account should be different than how you approach growing your 401(k).
5. Ignoring asset allocation. Stocks have outperformed bonds over the last 200 years, but bonds have outperformed stocks for some really long periods during that time. While I feel that your portfolio should have an equity bias, don't ignore bonds, especially when they're cheap relative to stocks. Valuation is really important. Also, don't forget to re-evaluate and re-balance your portfolio periodically.
6. Not having a plan for selling. I know that Buffett says that his ideal holding time for a stock is forever. It just isn't mine.
7. Buying on a hunch or impulse. In my experience, this ends in losses more often than not. Then again, it could be that my hunches are generally terrible.
8. Expecting an immediate gain from a purchase. It can take a while for the rest of the market to come to the same conclusion as you. Give them a little time.
9. Comparing your results to those of others. Comparisons are never kind. Don't do it.
10. Not stepping away from the market periodically. There are a lot of things that become clearer once you get some distance between you and the ticker.
Most of these erros are the result of a lack of discipline and a lack of patience. These are two of the hardest things to develop, but getting better at them will yield significant gains for your portfolio.
Wednesday, September 2, 2009
10 investing lessons from Michael Lewis
I've recently started reading Panic: The Story of Modern Financial Insanity. Michael Lewis has edited a compilation of magazine pieces about various financial meltdowns, from the crash of '87 to our present subprime fiasco.
There are a lot of good pieces in the book, but I gravitated to the pieces by Lewis himself. In particular, I loved a piece he did for the New York Times Magazine back in October 2002. It's called "In Defense of the Boom." Before you dismiss it as glib sophistry, please read it. It might be the most dispassionate, well-reasoned, even-handed summary of the benefits and deficiencies of the Internet Bubble. Even though it was written nearly six years ago, it's still a really relevant piece, actually, it's more prophetic than relevant.
The same boosterism and asleep-at-the-wheel regulatory bodies and media were just as present in 1997 as they were in 2007. Though the Internet boom had it's poster boy in the form of Henry Blodget, this era has yet to name one (Bernie Madoff and Angelo Mozillo are probably ranked 1 and 2 for this dubious honor). In hindsight, we often pillory booms as some sort of amorphous collective haze that obscured everyone's vision. Lewis paints a different, more nuanced picture. Booms are a byproduct of an intensely competitive, self-interested people and system (capitalism). He accurately points out that wealth is not so much destroyed as transferred (I think Gordon Gekko, made a similar point in Wall Street, but I digress).
Anyway, read the piece and make your own calls about it. However, I took away five points from it that I think could benefit every investor. These points aren't necessarily new or original, but they are easily forgotten.
1. Booms and busts have always been with us and always will be with us. You can't repeal the law of supply and demand or eliminate the business cycle.
2. Booms produce benefits that can't accurately be quantified and who's beneficial nature may not be apparent for years.
3. Brokerage analysts are useless.
4. The people who ought to know better(institutional investors and smart financial journalists for example) are no better equipped emotionally than retail investors to recognize and/or avoid a bubble.
5. The media is very adept and creating heroes and than tearing them down. Jeff Bezos was Time's Person of the Year in 1999.
6. The Internet is a new technology, but is still like all other previously new technologies. It's pros and cons will be overstated.
7. Human nature will never change.
8. Good or bad, even profitable, depends largely upon perspective. As Obi-Wan Kenobi famously said, "many of the truths we cling to depend greatly on our point of view”
9. Failure is useful. Even if you don't learn from it, someone will.
10. The business of America is business. As Michael Lewis, so eloquently points out in the article:
These are all great lessons that will hopefully allow to keep your head during the next boom. They might not be able to keep you from being swept up in it, but they might help you bail with some money in your pocket before the ride comes to its inevitable end.
There are a lot of good pieces in the book, but I gravitated to the pieces by Lewis himself. In particular, I loved a piece he did for the New York Times Magazine back in October 2002. It's called "In Defense of the Boom." Before you dismiss it as glib sophistry, please read it. It might be the most dispassionate, well-reasoned, even-handed summary of the benefits and deficiencies of the Internet Bubble. Even though it was written nearly six years ago, it's still a really relevant piece, actually, it's more prophetic than relevant.
The same boosterism and asleep-at-the-wheel regulatory bodies and media were just as present in 1997 as they were in 2007. Though the Internet boom had it's poster boy in the form of Henry Blodget, this era has yet to name one (Bernie Madoff and Angelo Mozillo are probably ranked 1 and 2 for this dubious honor). In hindsight, we often pillory booms as some sort of amorphous collective haze that obscured everyone's vision. Lewis paints a different, more nuanced picture. Booms are a byproduct of an intensely competitive, self-interested people and system (capitalism). He accurately points out that wealth is not so much destroyed as transferred (I think Gordon Gekko, made a similar point in Wall Street, but I digress).
Anyway, read the piece and make your own calls about it. However, I took away five points from it that I think could benefit every investor. These points aren't necessarily new or original, but they are easily forgotten.
1. Booms and busts have always been with us and always will be with us. You can't repeal the law of supply and demand or eliminate the business cycle.
2. Booms produce benefits that can't accurately be quantified and who's beneficial nature may not be apparent for years.
3. Brokerage analysts are useless.
4. The people who ought to know better(institutional investors and smart financial journalists for example) are no better equipped emotionally than retail investors to recognize and/or avoid a bubble.
5. The media is very adept and creating heroes and than tearing them down. Jeff Bezos was Time's Person of the Year in 1999.
6. The Internet is a new technology, but is still like all other previously new technologies. It's pros and cons will be overstated.
7. Human nature will never change.
8. Good or bad, even profitable, depends largely upon perspective. As Obi-Wan Kenobi famously said, "many of the truths we cling to depend greatly on our point of view”
9. Failure is useful. Even if you don't learn from it, someone will.
10. The business of America is business. As Michael Lewis, so eloquently points out in the article:
There's plenty to criticize about American financial life, but the problems are less with rule-breaking than with the game itself. Even in the most fastidious of times it is boorishly single-minded. It elevates the desire to make money over other, nobler desires. It's more than a little nuts for a man who has a billion dollars to devote his life to making another billion, but that's what some of our most exalted citizens do, over and over again. That's who we are; that's how we seem to like to spend our time. Americans are incapable of hating the rich; certainly they will always prefer them to the poor. The boom and everything that went with it -- the hype, the hope, the mad scramble for a piece of the action, the ever escalating definition of ''rich,'' the grotesque ratcheting up of executive pay -- is much closer to our hearts than the bust and everything that goes with it.
These are all great lessons that will hopefully allow to keep your head during the next boom. They might not be able to keep you from being swept up in it, but they might help you bail with some money in your pocket before the ride comes to its inevitable end.
Tuesday, September 1, 2009
China Crescent Enterprises earnings announcement
Yesterday, CCTR announced that a record $1.1 million in earnings on revenue of $17 million for the first 6 months of this year. Today and tomorrow, they will broadcast two webcast detailing their expansion into Africa and information about a new business totalling $30 million.
I'm still investigating the implications of Newmarket Technology's (NWMT.PK) majority ownership of CCTR. I gleaned this bit of information from a letter to NWMT shareholders written by CEO Philip Verges:
The rough translation of those two paragraphs is "we really want to give our shareholders a dividend in the form of CCTR stock. To this end, we're going to dilute the hell out of CCTR."
Given this, I would recommend that you keep your money on the sidelines for now. It's still unclear what the intentions of Newmarket Technology towards China Crescent.
I'm still investigating the implications of Newmarket Technology's (NWMT.PK) majority ownership of CCTR. I gleaned this bit of information from a letter to NWMT shareholders written by CEO Philip Verges:
China Crescent Enterprises, Inc., a regional subsidiary in which NewMarket is the majority shareholder, recently filed a preliminary information statement. The purpose of the information statement was to inform China Crescent shareholders of a planned recapitalization. NewMarket plans to reverse split the common stock of China Crescent in addition to the possible conversion of a portion of NewMarket’s preferred China Crescent stock into China Crescent common stock.
One objective of the planned recapitalization is to support a dividend distribution of China Crescent stock to the shareholders of NewMarket. NewMarket management is currently working with China Crescent management to develop a plan that would include the conversion of a portion of NewMarket’s preferred ownership into common stock and the dividend of that common stock to the shareholders of NewMarket. Such a dividend distribution might require an increase of authorized China Crescent stock, and as such, the preliminary information statement included a plan to increase the authorized stock.
The rough translation of those two paragraphs is "we really want to give our shareholders a dividend in the form of CCTR stock. To this end, we're going to dilute the hell out of CCTR."
Given this, I would recommend that you keep your money on the sidelines for now. It's still unclear what the intentions of Newmarket Technology towards China Crescent.
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