In 2007 I had the question why Dell was losing market share. I only manage to answer myself now.
1. Bad timing for a price war
In 2006, Dell engaged in a price war against Hewlett-Packard et al.
The PC industry was diminishing and long-run revenue from potential market share gain couldn’t offset the loss.
Because the PC industry (in the US) was saturating, prices were affordable consumers were less sensitive about prices.
ex post, 2006 was the peak of the boom and consumers were even less sensitive about prices.
HP under Mark Hurd chose product differentiation, and won.
2. Change in consumer preference
Dell’s key strength has been mass customization of affordable and reliable machines. Consumers preference then shift to more personalized and fashionable products.
Poker is unlike trading in that:
- Poker rules are fixed and known; regulation and economic environment change, occasionally unpredictably
- Poker turns are fixed (clockwise / counter-clockwise) and linear (one hand after another); trades, economic movements and social movements evolve continually and nonlinearly
- There are no more than 10 poker players in one game; the number of traders and economic planners you trade with is… beyond my grasp
- In non-virtual poker games, players can see ALL participants; on trading floors, what traders see and hear are limited
you I suck in poker, well, good luck with trading.
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 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
An interesting article on programming for financial modeling
I’ll make a guess what these models do:
- They may utilize existing models to identify trigger points of order initiating
- Mass orders can be executed
- Hedge positions can be achieved because orders can be entered at the same time
- Make use of futures and calls/puts
- 2001-2003 was dot-com bubble => trends are clear => the focus can be narrowed down to tech (NASDAQ) stocks and tech indexes
- Have transaction costs, particularly market impact cost, been factored in?
- Has chain of events effect been factored in?
Re-written from a 5 Dec 2010 short note when Groupon rejects Google’s $6b bid.
- 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
- 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?
Start Fund: Yuri Milner, SV Angel Offer EVERY New Y Combinator Startup $150k
and what it means, financially
- 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
- 150k is big enough (to startups) so Yuri can bargain big stakes
- 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?
- 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
- The maximum the fund can lose is $6m (for this round), the upside is counted in tens of billion
- An indirect strike at other angel competitors now that entrepreneurs will fight the road to Y Combinator
- How far a we from the peak of this bubble? 3 years? 5 years?
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.
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:
- Berkshire does active management and corporate governance. Governance doesn’t work with gold
- Buffett has long-term view, counted in decades. In investment horizons that long, equities outperform gold, the latter is usually for storage purpose
- 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 might be a good product, but the business behind is questionable:
- Obsolete mortar and brick model
- Despite strong Nook sale, Barnes & Noble is getting closer to bankruptcy and no-one is willing to buy them
- 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.