Wednesday, May 23, 2012

OMG! They Killed Zucky...!!

Actually, they killed Zucky's unlucky punters. Yeah, well, what did you expect ? Paying stratospheric prices for something more or less impossible to value on any model is a mugs game. I have little sympathy for any involved.

Those seeking headlines are now falling over themselves pointing fingers at "the process", but surely this misses the most pertinent point: FB (and anything else flogged) is worth what The People will pay. The IBs, like Sotheby's auctioneers, are hired to maximize the proceeds to the seller. They have no frickin' idea "what it is worth". Skeptics (like me) will tell you they wouldn't pay more than $5 or $10 (already an impossible large margin of error. Optimists will point to all manner of metrics and prognostications that justify multiples many times greater than that. Old-timers will remember the days when one of the most trusty investment strategies was to short ALL IPOs, whereas their (privileged) sons (and occasionally their daughters) have subscribed and flipped their way to riches, watching and participating in debut price-vaults that would make the consigners of impressionist art at auction weep.

It is shock to my sensibility that people rationally seek deals that tether value to need in almost every aspect of their life, lose all sense of errrr umm rational expectation [value, measure, proportion etc] when it comes to the Hot IPO. And while 2-cent nickels can pile up unloved in the eddies of slow-growth, or earnings downgrades, the $5-dollar quarters attract financial magpies like a shiny pull-top from an aluminum can.

Maybe FB will metamorphosize into a GOOG, an AAPL, or an AMZN. Maybe not. But I see nothing in the process that is any different from an unwary punter paying $2000 (or $4000!!! for the '88)-a-throw for a "Le Pin", and subsequently complaining it wasn't as good as they thought it would be, or as good as Parker rated it.  This is NOT an apology for the bankers, or the touting analysts, who's honesty ranks just above Nigerian Scam Artist-Phishers and Payment Protection Insurance Salesmen. But the ultimate responsibility lies with the buyers who should look introspectively rather than point fingers.

Tuesday, May 22, 2012

Farewell W

It is a miracle that I am here. 
At the very least, because you, yourself, were improbable according to statistics and circumstance. 
Your father, navigated uncertainty and turbulence, coming to America circuitiously from Russia via Egypt.
Your mother - who also managed against the odds to arrive here from the Lithuania - was late in her years when she bore you - even by today's standards. 
She was told repeatedly by doctors that she would never have children. 
Despite these obstacles, your arrival, defied the odds....and was - in the truest sense - a miracle.

Improbably, but thankfully (for your children), you found my mother.
From which my siblings and I are of further miraculous result.  
Any manner of happenstance or wrinkle in events prior, and I would not be writing these words.
If that were all, it might be dismissed as unlikely, though simple fate.
But it is not.

From this miracle came ripples of magic that extended far-and-wide to those you touched.
Your magic is part of me.
It is why I like to cook; why I love mountains, why I enjoy throwing a ball with my kids; why I have patience; why I drag my children on hikes; why I can identify the birds from their songs, and crucial to why I love and feel pride in my children, the way you felt about yours.

Your touch, however, extends well-beyond me. 
I see your miracle in my siblings, my own children, and my nieces. 
I see the numbers of people you have profoundly touched in your life with your care, attention and smile - extended family, friends, neighbors, colleagues, as well as your students. I do so with both awe and admiration  - and I am humbled. 

Few have such impact or can visibly attest to such lasting and a meaningful impressions upon others. 
And fewer still, do so in as many different ways as you: as partner, leader, teacher, friend, organizer, advisor, sage, confidant, parent, and grandparent. 
You are a challenging act to follow, but the path you have made is profoundly good and worth heeding.

I will miss you a lot.

Thursday, May 03, 2012


What is the worst business you can imagine? It would be retail, flogging commodity-like products, with more or less perfect competition, large square-footage requirements, large inventories with associated carrying costs, big staff requirements, low margins, high macroeconomic dependency, transient or unreliable employees, high after-sales service requirements, high internal pilferage rates, and uber-rapid product obsolescence. Guessed it yet?

The history of American retail is littered with the carcasses of electronics retailers. Crazy Eddie, The Brick, Musicland, Sam Goody, Radio Shack, Circuit City, and most recently, the humbled Best Buy. And if the aforementioned challenges are in and of themselves not sufficient to deter retail entrepreneurs and their investors, then just add the challenge of web retail, where prices are lower, sales  taxes non-existent, fulfillment rapid, and the comparative technical information, more informed. Strangely, somehow, a few Europeans have managed to prosper in their restricted markets (e.g. FNAC, Darty, Interdiscount, Saturn). They are all reasonably pleasant to frequent, and have managed to preserve margins - perhaps because they have achieved scale, straddled both web and bricks&mortar, and perhaps due to logistical bottlenecks and pervasive and unavoidable VAT, weathered on-line competition. The UK experience (witness Dixons and Comet/Kesa!) has been equally as dismal, despite Kesa's ownership of the excellent Darty franchise. Only Apple has prospered, and they, as of this moment, haven't turned their attention to Vacuums or Toasters....yet.

But as quickly as the lights go out, the plug is pulled, the speakers are blown, and the latest Top Dog is at best humbled or worse, liquidated, investors - ever hopeful (or merely gluttons for punishment) - try their luck anew. This time, it's Texas-based Conn's, a former favourite of the IBD crowd when they pumped it up to absurd heights back in the mid-noughties, before souring and returning it's share price to panhandles altitude. 

Analysts (the few who cover it) are again optimistic, despite their poor 2011, and leverage which is double that of former heavyweight champion, Best Buy, along with an ev/sales 5x that of BBY,  and an ev/ebitda more than 3x BBY's - both on historic and forward-looking measures.  Historical margins are inferior in every way, though, they are forecast to sparkle in the coming year. What CONN's does have going for it is a short interest nearly double that of highly-shorted BBY. Perhaps it is the the fact that Texas is NOT the USA. Perhaps it is CONN's marginally-broader offering - a few lawnmowers and some furniture - that separate it. Maybe it's made the IBD TOP-50, again with its Donchian channel breakout and high momentum. Or perhaps it is the starry-eyed belief that like Tractor Supply, good 'ol boy Conn's may be on the cusp on succeeding nationally where the dull methodical no-nonsense midwestern Best Buy could not. I really do not know.

What I do know is that, outside the hasidic bucket shops in Manhattan where it seems to be as much a way of life as a business, electronics retailing well-and-truly sucks.  And investors should be ever-wary of paying up, or being optimistic, or thinking that THIS time it's different. It's not. And it won't be. At 6x next year's forecast, with a reasonable balance sheet, huge scale, BBY might be cheap enough provided the macro status quo doesn't further deteriorate. I am not long, and am unlikely to be so, but there are no shortage of bottom-fishers that may think otherwise. As for Conn's, god bless them and their investors. They will need all the help they can get in order to fulfill expectations.