Star Trek (Next Gen): Jean-Luc Picard
A growing number of folks are becoming aware that the performance of most mutual fund managers over an extended period does not exceed that of benchmark indexes such as the S&P 500. More specifically, 99.6% of all mutual fund managers failed to beat (i.e., only 71 funds out of 17,785 matched or beat) the performance of the S&P, net of fees, over a ten year period according to data compiled from the Mutual Fund Screener of The Wall Street Journal. Please reference the entire article titled “Wall Street Is a Rentier Rip-Off: Index Funds Beat 99.6% of Managers Over Ten Years
” at the blog Of Two Minds
Talented investors are often not managing formal, traditional funds but rather managing one’s own accounts or a small number of accounts (e.g., friends and family). These individuals are more likely to fit the mold of idiosyncratic entrepreneurs or founders of technology start-ups.
Nevertheless, one of several takeaways is “don’t judge a book by its cover.” In other words, just because a money manager is nicely dressed, displays stereotypical good credentials, and has friends in high places (partly enables said manager to either procure capital or secure the fund management role), shouldn’t imply an above average talent for investing. One can present a similar case against most (not all, of course) hedge fund and venture capital fund managers, as highlighted in two Zero Hedge
articles titled “Most Hedge Funds Underperforming The S&P 500 For Fifth Year In A Row - Full YTD Performance
” and “Venture C(r)apital: Myth And Reality
According to Thomson Reuters and the DealBook
, edited by Andrew Ross Sorkin of the New York Times, the pace of worldwide M&A during the first quarter of 2013 was relatively slow. The summary, highlighted below, reflects announced transactions and ranks them by value. Goldman Sachs is on top of Thomson’s League Tables in both number and value of announced deals in the quarter.
For those who want a free, interactive graphic regarding investment banking activity, then reference the Investment Banking Scorecard
compiled by Dealogic and the Wall Street Journal.
And, lastly, for a comical perspective on League Tables, spend a few minutes to read The iBanker’s blog titled “Lies, Damned Lies and League Tables.
” The art of presentation, however, is nothing new to bankers and the most discerning clients.
Yuan Dynasty Banknotes (circa 14th century)
Let's end the year with some humor from The Daily Capitalist and its recent post titled “Top Ten Reasons Why Fiat Currency
Is Superior To Gold (Or Silver) Money.”
The Top 10 Reasons are below; the commentary can be found at The Daily Capitalist
Number 10: There Is Not Enough Gold (Or Silver) In The World To Serve As Money
Number 9: Gold And Silver Are Old-Fashioned, Cumbersome Money
Number 8: Gold Restrains Growth
Number 7: The Gold Standard Caused The Great Depression
Number 6: Rules Can Be Broken
Number 5: Gold-Backed Money Favours The US Versus The Rest Of The World
Number 4: Gold Favours Gold-Mining Countries Over Others
Number 3: Gold Favours The Rich
Number 2: PhDs Know What’s Good For Us
Number 1: If Given A Choice, We Would All Prefer Fiat Over Gold-Backed Money
Samuel L. Clemens stamp, 1940
November 30th is Mark Twain
's birthday, which makes me think of some of his witty quotes
such as this one:
“It could probably be shown by facts and figures that there is no distinctly native American criminal class except Congress.
Keeping that quote in mind, the webcomic xkcd
has a fine infographic cheat sheet of the economic vortex appropriately titled “Money Chart
.” It's available in a wall poster, which could make for a unique holiday gift for any finance geeks
among you. Also, Chris Turner, a sustainability blogger and author wrote a short article
referencing a few interesting sections of the diagram such as cost externalities of electricity (upper right corner; coal).
Governing.com: Municipal Bankruptcies
provides a dynamic map
concerning municipal bankruptcies. It and ZeroHedge
offer plenty of commentary
, so we won’t regurgitate.
For perspective, however, keep in mind the size of the municipal market is $3.7 trillion
Also, Warren Buffet has written $16 billion
of municipal credit default swaps (CDS), which might imply that he believes the Federal government would step-in to assist certain issuers upon distress (this can happen indirectly - a backdoor bailout
- as some are suggesting regarding California's high-speed train plans).
1886 Bank Run: "The War of Wealth"
SecondMarket provides a timeline of trades
in Facebook (FB)'s common stock since April 2008. If one applies a discount (let’s use 30% for example purposes) to account for a limited supply of shares available via SecondMarket versus a larger supply of shares otherwise available in a publicly traded market, then one could derive a "fair" value of FB in a public market (note 1).
Further, SecondMarket data from 2012 along with a January 2012 tiny venture capital round
(only $9.6 million at about $31 per share) seem to have been used and publicized to anchor in a price and valuation to justify the targeted IPO price range. Accordingly, it would be reasonable to consider this data as less reliable and an outlier.
So, using data from the last half or last quarter of 2011 would provide a reasonable benchmark share price in which to apply a discount (or a discount range). A back-of-the-envelope calculation indicates a share price on SecondMarket that averaged about $32. Applying a conservative 30% discount indicates a “fair” share price of roughly $22 if supply were not as constrained as it was on SecondMarket. Given this assessment, the investment bankers apparently earned their commission since they priced the IPO at a 72% premium to the adjusted share price calculated using SecondMarket data.
Our opinion is even at $22 per share, which implies a market capitalization of $60 billion (note 2), FB is considerably “overvalued," especially in light of the most highly valued companies depicted in the chart below and highlighted on InvestmentNews by Mark Bruno
Regardless, to incorporate a downside valuation range, one might want to further consider the picture highlighted in the upper left above from a ZeroHedge blog title "PeakBook?
" that compares search volume between Facebook and Myspace. Or, read a post at Forbes by Mark Evans titled "Warning: Stay Away From The Facebook IPO.
(1) Securities and Exchange Commission. 424(b)(4) Prospectus
filing dated 17 May 2012. . Total Class A and Class B shares being offered
in the IPO is 421,233,615 or about 20% of actual common shares outstanding as of 31 March 2012 of 2,138,085,037 and 15% of adjusted common shares outstanding after the IPO of 2,741,527,754.
(2) Total Class A and Class B common stock to be outstanding after initial public offering: 2,741,527,754 multiplied by the calculated common stock price per share of $22.
Map of U.S. with Ohio highlighted
This April, Manta Media
, based in Columbus, Ohio, raised $44 million
from Norwest Venture Partners
, which is headquartered in Palo Alto, California (aka Silicon Valley).
Manta provides a free online database and social media platform for businesses to share their marketing and contact data. As of early 2012, Manta had 89 million businesses listed in its database; it also reports 25 million unique visitors monthly and 3,000 new small businesses joining daily.
As for Ohio, it was ranked 19 among states based on total venture capital dollars invested in 2011, as highlighted March 2012 by Laura Tomaka at The Council of State Governments
(see chart below). Downloadable data is available from the State Science & Technology Institute
(SSTi) based in Westerville, Ohio. Also, a user friendly dynamic map showing state-by-state per capita venture capital investments is available at St. Louis Post-Dispatch
The folks at Pragmatic Capitalism (PragCap) posted a blog today by Walter Kurtz titled “Time to Stop Fearing the Greek CDS Bogeyman.
” The article essentially presents an argument that the market shouldn’t be overly concerned about a potential significant payout by writers – banks, insurance companies – of credit default swaps (CDS) on Greek sovereign debt.
Part of this topic relates to Greek lawmakers wanting to retroactively change the existing Greek-law bond agreements
by including a collective action clause (CAC
) that would enable a supermajority
of bondholders to force a debt restructuring on all holders. S&P wrote that it would consider this amendment an action of default
, hence triggering a default and a CDS payout.
PragCap includes some useful charts from SoberLook.com
and outlines four points regarding why a CDS trigger would not be a concern. The first and last points relate to CDS being marked to market.
This argument may be valid if most or all of the CDS written were done so prior to mid-2010 when laws were imposed for writers of derivatives contracts to post collateral. However, these laws were not
imposed retroactively. We can thank Warren Buffett, as he lobbied Congress
in 2009 and 2010 against making this law retroactive, which is fair (unlike the CAC insertion mentioned above). Note, however, at the time Berkshire Hathaway had $63B+ of derivatives contracts of which it was at risk of being asked to provide collateral of between 10% and 20% of the total amount, or roughly $7B to $14B of collateral. Nevertheless, since the law is not retroactive, Berkshire doesn’t have to post collateral for these contracts, which are mostly index derivatives, incidentally.
Our sense is that a lot of the outstanding Greek sovereign debt CDS were written prior to the collateral posting requirements. Ergo, the writers of said CDS – banks, insurance companies – have not posted collateral, just like Berkshire Hathaway has not posted collateral for its derivatives written prior to the change in rules.
We shall see…
Rolling Stone (Nov. 1967)
Rolling Stone Magazine
is becoming a source for provocative investigative journalism.
Here is its most recent article (17 Aug. 2011) titled "Is the SEC Covering Up Wall Street Crimes?
" by Matt Taibbi
Also, here is a related Rolling Stone's article by the same author from earlier this year (16 February 2011) titled "Why Isn't Wall Street in Jail?