Month: December 2020

This Week in Random Numbers

I don’t really have any new investment ‘ideas’. By ideas, I mean I’m abstaining from dart throwing. It turns out there are other interesting, but disturbing numbers out there. Here are a few from this week that are particularly wild.

  • 2,487 people in Japan have died from Covid-19. That’s fewer than the daily average in the US. Apparently they follow the 3Cs: closed spaced, crowded places, and close-contact settings. So, masks and a 2.4% obesity rate do seem to make a difference. Tokyo has a population of 38mm. They also haven’t really shut down anything.
  • 407k US soldiers died during WW2. 302k Americans have died from Covid-19. 16 million Americans served during WW2 (out of 140mm total) and there have been 16mm US (recorded) Covid cases. The comparisons can probably stop right there, but at least fewer people didn’t believe WW2 was a thing – that’s a great thing for my generation.
  • 50 bridges and 120 roads were knocked out a month ago in Honduras by two hurricanes. 175,000 people are living in makeshift shelters, 200 people died, and the total damage is equivalent to 40% of their GDP. Whoa.
  • 100 nano seconds (nano second = 1 billionth of a second) is how much time high frequency traders are looking to shave off data transmission between exchanges by using hollow-core fiber instead of glass. 10 years ago Spread Networks spent $300mm to lay a line between Chicago and New York so traders could send data back and forth with a 13 millisecond delay. And here we are watching stocks tick up and down on our RobinHood mobile app. Why even try to do anything ever?
  • 20% is how much the US money supply has grown since January this year. The M2 money supply has grown from $15.33 trillion at the end of 2019 to $18.3 trillion at the end of July. More later.
  • $150 / share is where Airbnb’s first traded after being priced at $68 / share. That puts the market cap of the unprofitable Airbnb higher than Booking Holdings, which is very profitable and has over twice the revenue. It looks like the market expects Airbnb to not only eclipse Booking Holdings, but maybe eat it entirely. Also more later.

Airbnb: Leave it Alone and Blame Me Later

Airbnb’s IPO was priced at $68 / share, but it’s first trade was at $150. It’s down to $124, which gives it a market cap of $74bn. Booking Holdings market cap is $85bn. Top line revenue bookings are $38bn vs $96bn, respectively. Booking Holdings did $5.3bn in EBITDA while Airbnb lost $253mm (those are all 2019 numbers). The only advantage Airbnb seems to have is they have almost double direct web traffic compared to Booking Holdings. Also, if you’ve never used Booking.com, it’s probably because you live in the US. It’s pretty much the standard everywhere else in the world, except maybe China, but I don’t really know. Should you buy the stock? I don’t know anything anymore. It seems dumb, but if it turns into a meme, anything can happen. I tried to read the S1, but at this valuation, what good is financial analysis. On a bullish note, the software they have open-sourced is quite impressive and shows they are a top software company and will continue to be one.

One More Thought on Inflation

The Economist had a great article on inflation last week. It basically said what I said a few weeks ago – inflation is unlikely. Yup, I made the comparison. You can read the article if you want to actually learn something, but here’s a fun thought experiment that I think illustrates their point.

Let’s say a joint costs like $10 today and you smoke about one joint per day. Let’s pretend joints have a shelf life of 7 days and you like to go to the weed store once per week. This week, you noticed there are a lot of people there and your favorite stain is running low on stock. An employee says they are having trouble sourcing more and might have to raise the price to meet high demand. Next week, the same joint might cost $15. So in order to save $35, I might buy two weeks worth of supplies. In fact, everyone at the store is thinking the same thing. Maybe I offer to pay $14 per joint today so I can save $7 over the next two weeks (everyone pays $14 this week and $15 next week).

A few things can happen next. Suppliers can grow more marijuana (increase supply), but that could take time. Demand can drop due to consumers not willing to pay higher prices (price elasticity) or consumers will learn to live with fewer joints at higher prices because they do not have enough money to afford $15 per joint – they may only buy 4 or 5 instead of 7. Fun fact: if prices go up and spending power goes down, that’s called stagflation.

The important thing to see here is that as soon as there is a perceived increase in future prices, the price rises today. Weed may or may not be ‘essential’, but things like oil, milk, wheat and metals are inelastic goods, meaning demand for those goods will not change much based on price. So if everyone thinks prices will rise tomorrow, they’ve already risen today. If everyone believes in an alternate reality, it becomes the reality.

But it ends there. It is my belief that the supply chain of the modern world can rapidly adapt to provide essential goods and services based on changing market conditions. We live in a world of abundance and there are very few essential goods that cannot increase or decrease supply rapidly. There are also countless substitute goods ready to fill in the gap in supply. This was recently challenged by the shortage of toilet paper, but that’s not too bad given the entire world changed what it buys and how it buys it over the period of a single month. If a pandemic didn’t cause massive price changes across a variety of goods affected by a global supply chain interruption and significant change in demand, a 20% increase in the money supply is unlikely to upset the demand or supply of price inelastic goods. Odds are, the ‘extra money’ will just flow into inflated asset prices, which are already owned by the rich. So rent-see may perceive a slight increase in living standards, but the rent-seekers will sop up the extra money. It’s not easy to spend $1mm, let alone $1bn and it certainly won’t be on weed, eggs or gasoline. I really don’t care about how much yachts cost these days.

What more money, but no inflation, does mean, however, is that meanies will make a few hundred dollars scalping PS5s. It is also why Airbnb and Tesla are essentially priced at their terminal value today. Maybe inflation isn’t about consumer goods prices, but asset prices and financial risk tolerance. What happens when unemployment, interest rates, cap rates and dividends all approach 0%? Maybe the word ‘economy’ will be ‘undefined’ and dropped from Webster (that’s actually the most terrible joke I’ve ever made).

What I’m Holding

I’m still holding PLTR, FUBO, and SPCE despite all the turmoil. I’m also still holding MRNA, NVAX, CTLT, CRSP, SGMO, NTLA, EDIT, VBIV, and VXRT. Biotech is seeing a lot of money right now and will continue to do so. I’m just holding and not trading. My new positions are TCEHY and U. For Tencent, I’m literally hoping that BABA’s Ant Group gets approved for it’s IPO (I hold BABA in my not-fun-safe-money-account) and that Chinese tech companies will bump. Not happening right now at all. Unity is a really cool company that makes video game software. It recently IPO’d and has been building great software since 2004. I see no reason why it’s valuation won’t get the tech IPO premium. It’s up 93% since it’s IPO and while it might have peaked recently, it can probably keep growing. Video Games are huge right now, and these guys are selling the proverbial picks and shovels. That makes us gold miners (drink on me if anyone gets the reference).

SPACs: How to Invest Pre-IPO

A SPAC is an acronym for Special Purpose Acquisition Company. Basically some yahoo raises a bunch of money through an IPO and says it will use the money to buy another company. So, I’m morally opposed to it because you’re basically giving money to someone you don’t know to buy anything and charge a large fee for doing so. However, they could buy a private company, which would effectively take that company public without said company needing to pay 7%+ to an investment bank to take their shares public and raise a bit of money. Also, banks tend to price IPOs so their customers see a huge return first day of trading (just a generalization, not the rule). As we’ve seen with recent tech IPOs, private valuations are significantly below public valuations (that wasn’t the case a few years ago – Uber being my example here). So, if you invest in a few SPACs that are nearing the end of their investment horizon, there’s a chance they buy a private tech company and their shares pop.

I’m not sure if people are doing this, but it seems reasonable. I’m having a look at PSTH, CCIV, FEAC and whatever else google comes up with. You can even buy options on these tickers. Sounds like buying a lot of chocolate bars looking for the golden ticket. But I can tell you where the golden ticket isn’t – Vanguard’s Total US Market Index.

Weekly Rant and CRM

As I’m sure you’ve all noticed, I haven’t posted for a while. I started a new job, which is stressful. The worst part about working from home is not knowing what to work on. If at any time I don’t know what to do at work, there are tons of better options either in my apartment or just outside. I mean this is Los Angeles; no one works a 9-5 here. The sun just doesn’t allow it.

You’re all probably going to hate me, but I’m going to post my returns over the last month just so you don’t think I’m making this up. I apologize for not really posting what I was doing; I was busy and I got lucky. Well, actually, you should all really just invest in whatever stocks I mention in the last paragraphs of these posts. Things I tend to not think too hard about do a lot better than things I analyze. I’m stoked I posted I was selling GME; if I hadn’t I’d look like a dummy. That thing has been going way up. It’s almost certainly due to a short squeeze, however. I don’t expect it to last, but, as the old adage goes, ‘the market can stay irrational longer than you can stay solvent’. Though finally their earnings came out and they dropped 17%. So, here they are:

(Note: there was an outage in data collection on Personal Capital – the light blue line gains are much more steady, it didn’t actually go up in a day, but the starting and ending values are correct).

As I’ve mentioned before, most of my portfolio is boring and left in untouched index funds and stocks that probably won’t go bankrupt because of a bad tweet. The light blue line is my fun money account tied to this blog. At the end of my last post I mentioned buying FUBO and PLTR. I must have been having a good day because I fat fingered both orders and bought a bit more than I planned. Over the last two months (mainly the last 40 days) I’m up 52%. I didn’t view these bets as risky – IPOs rarely lose 50% of their valuation in the first month – and in this case I’m up about 2.5x. I’ll probably dump PLTR soon as the short-selling research firm Citron tweeted PLTR, ‘is no longer a stock, but a full casino’. Honestly, in this market, a well respected research firm calling a stock overvalued is more a buy signal than anything else. So, do what you want here.

I’m holding FUBO for the long-term; I think it’s way undervalued and its sports offerings are fantastic. If they actually get into online gambling their $1.8bn valuation can easily be $18bn. Hulu, Youtube, AT&T, Sling, you name it – none of them are positioned to corner sports and sports betting. When live events are back, I don’t see how Fubo won’t be all over sponsorships, organizing events, or even securing exclusive rights to a variety of niche sports with an immediate opportunity for global distribution, and, yes, sports betting market making. I’m not even going to do a full analysis here as it seems like a complete no-brainer. Put in an uncomfortable chunk of fun money and wait. I also pay $60 / month for Fubo and it’s fantastic (kidding I split the account).

My Option Plays This Week

I’m looking pretty hard at CRM – that’s Salesforce. They got crushed after announcing they were buying Slack for $27.7bn. And by crushed, I mean their market cap dropped $40bn. Just do the math on that. Also, Slack is a fantastic product and allows them to take on Microsoft directly. Microsoft already has a fantastic CRM system – Dynamics 365 – that integrates nicely with their BI tools, which are also state-of-the-art. 

Side note, Microsoft’s growth over the last 10 years is astonishing. I was a hater because their OS is terrible and I thought they were going to just slowly burn their Office products until Google usurped them. Quite the opposite. In short, they rapidly developed effective business technology for both nimble, high-tech startups and software services for large tech companies who have valiantly pivoted to providing cloud and digital services as a first touch point to customers.

Back to CRM. They beat their earnings estimate by more than double the forecast ($1.74 vs $0.75). This is an easy win for analysts to give them an upgrade based on both strong earnings and strong positioning into a new market for big business. I’d even add this stock to your ‘boring retirement’ funds. I’m not though. That’s not why we’re here. I’m going for call options. I’ll buy calls at probably $230 expiring 12/18 and then more at $250 expiring maybe January. If you make 30-50% gains in a week or two, count yourself lucky and sell. This isn’t a penny stock that’s going to double over night and give you a 4000% return.

Minus today (12/9), the market is still unusually happy, so don’t get bummed out if there’s a sharp drop in the next few months. As I’ve shown in prior posts, small businesses have little to no effect on the stock market, so despite how absolutely terrible shutdowns are affecting small businesses, more virus cases will likely not put a dent in the market. Quite the opposite probably. I’m not passing judgements on whether or not shutdowns are the right thing to do, they just mainly affect small businesses and 90% of stimulus dollars are aimed at big business. This is a bit cynical, but the more small businesses and people suffer economically due to prolonged shutdowns, the larger the stimulus will likely be. That money will probably be directed at shoring up loan defaults for big companies. It’s easier to get $100mm from the government than $10k if you know the right people.

Another side note: I love the phrase ‘Limousine Liberals’. I’m sure all you Republican readers know this phrase well and if you’re a Democrat, or lean that way and are not aware of this phrase, at least think about it. Narcissism manifests in many forms and I think it does more damage to claim and shame moral high ground while some politicians completely ignore it themselves. It marginalizes the rare public figure who actually wants to make a difference and is willing to use their brain, reason, and empathy to do so. I figure most of you readers are liberals, so for the benefit of both sides, I urge you all not to condone public figures who act like this, especially now that the country has a chance to change its image. If you really believe we are ‘battling for the soul of our nation’ (maybe Biden’s only sort of decent campaign slogans, which, in general, have really gone downhill…and shouldn’t they choose one instead of micro-target slogans…I hate politics), our leaders should be honest with their own souls first. And we should all do the same.

I don’t really enjoy the show Mad Money, but any stock that makes Jim Cramer mad – either because he doesn’t understand why it’s up so much, or because he doesn’t understand the valuation – is a buy signal. Again, this isn’t long-term investing advice, but no index fund is going to jump 50% in a day. To be fair, he did say buy MRNA at $20, and I did, so he forever has a soft spot from me.

I should also note I was buying NIO calls and RIOT calls. I’m not even going to write about these because doing that is literally the same as playing roulette – the house is more likely to win, but, hey, if your number hits, you’ll at least 4x your money. Anyone else have any good casino bets?

Last note. I basically always have a 2 -4 week put on VXX. I think it’s broken; it always goes down. You won’t make a killing and if there’s a sharp drop in the market, you’ll lose the farm. But that’s ok, VXX always comes back down. Just make another bet and collect easy money.

Anyone buying AirBnb or DoorDash? I like AirBnB because they don’t own real estate, yet are primed for the 2021 Covid recovery. While Marriott’s and Hiltons deal with loan defaults, property tax reassessments and a huge number of full time employees, AirBnb will just be hoteling more properties. Plus, what better way to start paying off mortgages that are behind a bit. Yes, this is all grim, but let’s be honest with where money is flowing these days.

Sorry I’m rambling today, I can’t look at numbers anymore. Hit me up with some good bets; I’ll likely have some cash to gamble with after I get out of PLTR. That said, I know a lot of people going long PLTR now, so who knows.