Notes on speculation

By , August 9, 2011 6:44 pm
  • Always plan your consumption on savings, not speculations. Blowups, or at least illiquidity, always stand ready to knock you down, and they will.
  • Standard deviation & volatility are not risk, at least not entirely. They offer opportunities.
  • Decision making: speculate on things that offer limited loss and enormous gain.
    Borrow the idea of a speculative protective put portfolio insurance: max loss = put premium, max gain is unconstrained.
    Hit those jargon sundowners.
  • Changing the world is the job of Mark Zuckerberg, not Yuri Milner

    By , August 9, 2011 6:43 pm

    This is yet another entry about Facebook’s valuation at $50 billion by Goldman Sachs.

    I don’t plan to argue whether Facebook is worth that whooping sum. I’m more fond of discussing where investors will make money departing from that valuation.

    Advocates roar in triumph "for a company that changes the way we bond, $50b is still not much!" This sentimental message has a lot to do with intangible value of the site, what about tangible assets?

    I want to apprise that changing the world is the job of Mark Zuckerberg and Sheryl Sandberg and engineers. What investors are interested in is neither ideas nor dreams, but how they would make money from money.

    They know that an IPO almost always drives the value of the company up, and putting money in the final private equity stage guarantees a good deal.

    They know that equity analysts, under peer pressure, will be forced to issue positive recommendations.

    They know that the cloud covering Facebook’s earnings induces speculation, and with Goldman’s back they hope to win the speculation game.

    They know that this is the start of another bubble, and inception of bubbles is good timing to enter.

    Image is a screen from Wall Street: Money Never Sleeps

    We are living in a Chronocracy, and what to do about it

    By , August 9, 2011 6:42 pm

    We are living in a Chronocracy where the year one enters the workforce shapes his/her career more heftily than his/her capability. Graduating from school in year 2006 at the peak of global economy (or bubble) where many companies over-expand gives one more opportunities, thus relative social power, than being a fresh graduate in 2008.

    Unemployment is an obsession, and our belief, self-esteem, attitude toward career planning is drastically challenged.

    What to do about it?

    • Forecast and planning horizon is shortened.
    • Sacrificing short-term for long-term becomes much less important. If we have nothing now; there’s no guarantee that we’ll have what we want in a few years time.
    • Because goals stand ready to be crushed by economic forces anytime, backup plans are a must and action plans need to address many intermediate results.
    • I like the idea of duration of a coupon bond. A bond with high coupon pays the holder back more quickly. Same for plans. This makes fast-track programs more valuable.
    • Keep on being exposed. Presence alone brings opportunities.
    • Top-down approach is devalued. Agility gains.
    • Quick fixes are addictive pain killers.
    • Small ‘innovations’ create yet other bubbles and thus, speculative opportunities.
    • Abstractionism should give way for specificality.
    • Historically, big crisis has occurred every decade, following disruptive destructive innovations. I expect that my 40-year career be greeted by at least another 6 crises.

    Image courtesy: Daylight saving time

    Technology & finance hybrid

    By , August 9, 2011 6:42 pm

    An interesting article on programming for financial modeling

    I’ll make a guess what these models do:

    1. They may utilize existing models to identify trigger points of order initiating
    2. Mass orders can be executed
    3. Hedge positions can be achieved because orders can be entered at the same time
    4. Make use of futures and calls/puts
    5. 2001-2003 was dot-com bubble => trends are clear => the focus can be narrowed down to tech (NASDAQ) stocks and tech indexes
    6. Have transaction costs, particularly market impact cost, been factored in?
    7. Has chain of events effect been factored in?

    Groupon & co believes it’s easier to fool financial markets than Google

    By , August 9, 2011 6:42 pm

    Re-written from a 5 Dec 2010 short note when Groupon rejects Google’s $6b bid.

    1. Negative synergy
    • Google’s achievements in e-commerce is modest and it is hard to believe Google will run Groupon well
    • Google is a geek company, Groupon is a sales company. They’d hardly get along well
    • Groupon’s access to Facebook should be limited, while local ad is suitable to social media
    • If the deal is part cash part stock: Groupon’s investors would not exchange a rising stock like Groupon for the cash cow stock GOOG
  • IPO scenario
    • Analysis pressure to drive price up
    • Compared to other e-commerce business models, that of Groupon is easier to understand which would attract retail investors. (I’m not sure whether Groupon can be categorized to e-commerce)
    • Blogosphere’s euphoria
    • Andrew Mason would not want to follow the lead of Chad Hurley & Steven Chen, would he?
  • Yuri Milner & co blowing the bubble

    By , August 9, 2011 6:41 pm

    Start Fund: Yuri Milner, SV Angel Offer EVERY New Y Combinator Startup $150k

    and what it means, financially

    1. The amount is convertible debt. If the kids (startups) fail, Yuri liquidates the assets to get money back; if they succeed, the debt is converted to ownership
    2. 150k is big enough (to startups) so Yuri can bargain big stakes
    3. Discount-free and cap-free: this gives more freedom to startups to do crazy/innovative things with money. Wait a minute, what’s the catch here?
    4. Yuri & co want to shake and stir the bubble up now that they have shares in new tech flagships, particularly Facebook. LinkedIn’s IPO is also triggering speculation on a new wave of tech IPO
    5. The maximum the fund can lose is $6m (for this round), the upside is counted in tens of billion
    6. Marketing
    7. An indirect strike at other angel competitors now that entrepreneurs will fight the road to Y Combinator
    8. How far a we from the peak of this bubble? 3 years? 5 years?

    Why Warren Buffett hates gold

    By , August 9, 2011 6:38 pm

    Now it’s clear to me that Warren Buffett hates gold.

    1998 at Harvard:

    Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

    Here’s an excerpt from CNBC in 2009:

    Becky: the question is, where do you think gold will be in five years and should that be a part of value investing?

    Buffett: I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you.  Whereas, you know, Coca-Cola will be making money, and I think Wells Fargo will be making a lot of money and there will be a lot–and it’s a lot–it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that. The idea of digging something up out of the ground, you know, in South Africa or someplace and then transporting it to the United States and putting into the ground, you know, in the Federal Reserve of New York, does not strike me as a terrific asset.

    Most recently,

    You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what that’s worth at current gold prices, you could buy all — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?

    Possible reasons why Buffetts chooses equity over gold:

    1. Berkshire does active management and corporate governance. Governance doesn’t work with gold
    2. Buffett has long-term view, counted in decades. In investment horizons that long, equities outperform gold, the latter is usually for storage purpose
    3. He has superior stock analysis skills, and is able to pick the most promising ones. As for gold, his advantage is dismissed as gold is only gold

    Which makes him Buffett.

    Nook strong, Barnes & Noble weak

    By , August 9, 2011 6:38 pm

    Nook might be a good product, but the business behind is questionable:

    1. Obsolete mortar and brick model
    2. Despite strong Nook sale, Barnes & Noble is getting closer to bankruptcy and no-one is willing to buy them
    3. Nook differentiates itself from Amazon Kindle by providing tablet-like services, which consumes big and unfocused investment

    I’m not sure BKS will survive for long to support it.

    We don’t go to news, news finds us

    By , August 9, 2011 6:36 pm

    It doesn’t look good on social-news, social-bookmarking sites:

    1. RIP Digg
    2. Yahoo! puts Delicious on sale for rumored $5m and the deal was reportedly bargain down to $1m
    3. Reddit is still strong but there are signs of attrition
    4. My stake: StumbleUpon may go on because it is slightly different from the rest

    Why?

    • Shift to consume news on social media
    • Shift from topic-led to influencer-led: we are less interested in following interesting topics and more in following interesting people
    • Paradigm shift: we will no longer go to news, relevant news finds us. How does machines know what is relevant to us? By two things: data mining and people know who what interest us

    Let’s just face it, Digg is so 2007 and even if it might still be a cash cow, future doesn’t look good.

    Investor sentiment and communities

    By , August 9, 2011 6:35 pm

    Investor sentiment can be measured by data mining information from stock communities.

    A sentiment index can even be calculated.

    Correlation between expressed personal view with the index can be attributed to reputation. The gravest pitfall of this approach, however, is myopia of the crowd. It takes time for contrarians’ view to be realized.

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