David Schwartz: One of The Good Guys

To contact us Click HERE
 David Schwartz, who passed away last weekend, was one of the good guys. The company he and his wife, Alice, founded in their garage many years ago is a clinical diagnostics and life science products maker called Bio-Rad Labs, which readers may recall from a few years back when its “mad cow” disease test was suddenly in demand after a limited but frightening outbreak of that brain-wasting disease in North America. Mad cow test aside, Bio-Rad happens to be one of those off-the-radar public companies that does nothing the way Wall Street’s Finest like to see things done when it comes to “increasing shareholder value.” For one thing, it has a Class A/B stock structure that gives the family control in a way that most Wall Street analysts, who have never run anything in their lives more complicated than an espresso machine, find exasperating, since it has (presumably) prevented the company from being taken over for a short-term profit—long-term potential be damned. For another, Bio-Rad doesn’t issue scads of stock options to senior executives, which means it doesn’t have to toss money down a rat-hole buying shares back at silly prices, which is what most companies do when they are “enhancing shareholder value” via share buybacks that should actually be labeled “enhancing our senior executives’ value.” (In 10 years, Bio-Rad’s fully diluted share count has risen only 15.5%.  At the other extreme, Life Technologies, which swims in the same pool as Bio-Rad but plays the Wall Street game like a shark, has seen its fully diluted share count rise 75% in the same time frame.) A third thing Bio-Rad does that has never endeared it to Wall Street’s Finest is not managing to quarterly earnings.  Its average “earnings surprise” over 5 years has been 21.3%, according to my Bloomberg, while the aforementioned Life Technologies’ “earnings surprise” is a P/E-enhancing 11.6%.  (GE, the King of Managing to Quarterly Earnings, has a 4.4% average surprise.) There are many more things Bio-Rad does that don’t march to the mantra of “enhancing shareholder value” sung by Wall Street’s Finest (and by way too many public company CEOs), like building a real business without worrying about what analysts worry about. Notwithstanding the Class A/B structure, the lack of share buybacks, the non-smooth earnings stream, and big piles of cash that build up on the balance sheet and then leave when an attractive acquisition comes along (an acquisition which may or may not be “immediately accretive”—another slogan in the “enhancing shareholder value” toolkit of trite sayings), Alice and David built, from a standing start, a diagnostics and life science company with 7,000 employees generating $2 billion of revenue, carrying an enterprise value of $3 billion, without ever having to cater to the whims of Wall Street’s Finest.
How, exactly, did they accomplish this?  One of many examples comes in the following story. After the North American “mad cow” outbreak occurred, Bio-Rad was suddenly facing a windfall from its test, so I visited the company to get an update on its long-term plans from the CEO (David and Alice's son, Norm Schwartz), and the CFO (Christine Tsingos).  David sat in with us, wearing his usual bolo tie and occasionally interjecting in his affable way. When the mad cow issue came up, however, David took over the conversation. Now, he could have hyped his stock using the mad cow disease as a launching pad.  He could have, like many other CEOs in his shoes might have, pretended it was the beginning of up-and-to-the-right growth for Bio-Rad that would get me and other investors excited.  He could have easily pumped his stock and made himself a lot richer in the short-run. But he didn’t. Instead, he took a piece of paper and drew a line that looked like the normal distribution of a standard deviation.  “The mad cow revenue will climb like this,” he told me, tracing the upward curve of the line.  “Then it’ll peak and then fall off, like this.  Meantime, we’ll use the money to invest in other things for the long term.” And that’s exactly what happened. And it’s exactly what they did. And it worked for everyone involved. David Schwartz was one of the very, very good guys.


Jeff MatthewsAuthor “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”(eBooks on Investing, 2011)    Available now at Amazon.com
© 2012 NotMakingThisUp, LLC                                    The content contained in this blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.  This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  The content herein is intended solely for the entertainment of the reader, and the author.

Doing the Right Thing: Upside? Zero. Downside? Financial Ruin…

To contact us Click HERE
  In a typically breezy, highly readable and highly informative blog post (Bronte Capital: Daddy you are more evil than I thought), hedge fund manager (and friend, for the record) John Hempton writes an at once amusing and illuminating description of what he does and why he does it, to the admiration/horror of his son. (John leaves out the ‘how’ he does it, but I can tell you it is the ‘how’ that makes John so good). However, by summing up his work in the manner he does such that it generates his son’s amusingly alarmed reaction (quoted in the title of the piece), John, I think, diverts attention away from the real underlying issue that anybody who plays on both sides of the investing fence faces when considering going to the press or to the authorities with negative information about a public company. The real underlying issue is this: the downside of going public with damaging information on a public company, even if that information could bring down a bad guy and stop the bad guy from doing damage to other innocent investors down the road (e.g. Robert Maxwell, whose favored broker was Goldman Sachs, as described here), is so much greater than the upside that it makes no sense (in America, at least) to bother.
 So you just keep your mouth shut.
 What is the downside to going public?  There are many facets, but the two main ones are these: 1) Getting sued by the offending scammer, who, being CEO of a public company, can spend unlimited company money (not his own), on the effort to shut your mouth, run you out of business and keep the scam going; 2) Getting ignored (or worse--see David Einhorn's grim experience with the unintended cost of being right in "Fooling Some of the People All of the Time") by the Feds.
 Now, what is the upside of going public? Well, the upside is you may ultimately be proven right, and the bad guy may go to jail, in which case the investors and shareholders and analysts and investment bankers who hated your guts during the process and wanted to see you die because it was you (not the bad CEO) who was destroying their company, will finally admit you were right and shower you with kisses—no, wait. They won't. They will still hate your guts. In fact, they’ll hate your guts even more, because they will perceive that it was you who brought their company down.  After all, without your efforts the fraud they were profiting so handsomely from would not have collapsed.  They’ll think, in fact, that you’re evil, because, as you will learn the hard way, scammers never, ever admit culpability: they blame short-sellers on the way to jail, in jail and out on parole.
 So, to summarize: Upside to doing the right thing by going public? Zero.  Downside? Financial ruin.
 Still, while the bad guys John has exposed (and there are more than a few) may agree with the title of his blog, his investors (I am not one) would probably say that John Hempton is way less evil than his son fears. And simply based on what I know of the work he does in arriving at his unwanted, non-conscencous, frequently scam-busting conclusions, I would tell his son, “No, your old man’s alright.”

Jeff MatthewsAuthor “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”(eBooks on Investing, 2011)    Available now at Amazon.com
© 2012 NotMakingThisUp, LLC                                    The content contained in this blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.  This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  The content herein is intended solely for the entertainment of the reader, and the author.

Berkshire 2012: The Times They Are A-Changing and Other Observations

To contact us Click HERE
Editor’s Note— This year we’re utilizing a shorter, snappier way to summarize the Berkshire Hathaway annual meeting as a way to spare readers the redundancies in Buffett and Munger’s question-and-answer session. After all, the commentary overlap with past meetings is probably 75% nowadays—we’ve even developed a sort of Berkshire shorthand for our note-taking, writing simply “Graham story” when Buffett launches into his dissertation on the importance of certain chapters in Ben Graham’s “The Intelligent Investor,” for example; “MBA joke” whenever Buffett or Munger make fun of the meaningless (and dangerous) risk-evaluating models of the academic world; and “IBK joke” when they go after investment bankers, another favorite target. Nevertheless, the meeting was, as always, interesting. For one thing, attendance was down, noticeably, even if Buffett wouldn’t say so—probably a side-effect of his high, and highly controversial, political profile these days.  Also, there was the added (and, we thought, welcome) presence of insurance analysts asking questions for the first time since the very old days when a few professionals would show up at the Berkshire cafeteria and fire away. Overall, there was a detectable “thrill is gone” sense hanging over the weekend.  Buffett himself did not show up at some of the side-parties that many of his most loyal shareholders routinely schedule, as he did in the past, and even the press complained about the tight restrictions on their cameras. But Charlie Munger, pushing 90, was in great form, and Bono was spotted in the crowd, a step up from last year when George Lucas made it. So there. —JM, May 2012
Berkshire Hathaway 2012
Biggest Change: Tighter security and more of Buffett The Analyst than Buffett The New-Age Spiritual Guru.  
 Gone, unfortunately, was Buffett’s pre-meeting stroll to a seat in the middle of the floor of the arena to watch the kick-off movie (instead he was kept inside the Board of Director’s gated pen, up front near the stage, where beefy guards with earpieces and zero smiles stood watch). Gone, fortunately, were questions like “What should I do with my life?” and “Do you believe in Jesus Christ and do you have a personal relationship with God?” (That was actually asked—and answered by Buffett—a few years ago: you can read the answer in our book.)
Best Change: Three insurance analysts asking geeky business questions about Berkshire’s operations—the first time in years Buffett has been questioned in depth about the guts of Berkshire Hathaway. And while there was grumbling from the sightseeing-types in the crowd about the technical discussion (as well as from ace financial analyst/money manager John Hempton, who thought it was not technical enough and wrote about it here, although I knew what John thought before he wrote that because I sat with him), the fact is Buffett has gotten away with very few hard questions about Berkshire’s operations in the years since he became a CNBC staple. Expect fewer attendees next year, and the year after, and the year after…but better questions.
Most Fun: Getting to see and hear Warren Buffett discuss the insurance businesses in detail thanks to those geeky questions.  He didn’t create the track record of a lifetime by luck.
Least Fun: Two rants, both by people from Boston (where else?)—one about the Liberty Mutual scandal and the other about Fannie Mae/Freddie Mac, both of which Buffett and Munger handled far more patiently than the crowd. Also, way too many questions about Berkshire’s lagging stock price (it’s a conglomerate with a bunch of low P/E business for gosh sakes, not a closet mutual fund run by Warren Buffett any more.)  Speaking of which...
Most Delicious Moment: Charlie Munger blowing off a well-known hedge fund manager who used the microphone to talk up Berkshire’s stock before lobbing a softball, “what-am-I-missing” type of question about the lagging stock price. Rather than respond in Typical Public Company CEO Fashion about how Berkshire was “executing its strategic objectives” or complaining the stock was “not reflecting the underlying values of the business” or reassuring us that management would “pursue all means to enhance shareholder value,” as most CEOs would do, Munger simply said: “I wouldn’t worry too much.  I think you aren’t really welcome in this room if that sort of short-term orientation turns you on.” And that ended the discussion about Berkshire’s stock price.
Least Appreciated Line: “If you make your buy and sell decisions based on what a business is worth, you’ll make money.”—Warren Buffett.
Most Appreciated Line: (In response to a question about succession at Berkshire after Buffett’s death.) “The good fortune is not going to go away just because Warren happens to die.  It won’t help him, but...”—Charlie Munger.
Weirdest Moment in the Opening Movie: The cartoon, in which the University of Nebraska football team (Buffett’s favorite) plays a University of Washington team made up of robots coached by failed/disgraced presidential candidate Herman Cain. (I am not making this up.) Worse, during his half-time pep-talk, Coach Cain made a bunch of 9-9-9 jokes and then urged his men to hit hard, yelling “Take that, sucka!” like a, well, like a stereotypical African-American. Who thought that would be funny?
Best Comment on the Opening Movie: “Are they that corny every year?”—John Hempton.
Oh Puh-leeze Moment: When Warren Buffett defended “the Buffett Rule” with talk of “shared sacrifice” and the curious claim that his rule applied only to “a very few” people, meaning those with “the 400 largest incomes in the U.S.” which of course is no longer the case, as everyone in the place knew.
You-Could-Hear-A-Pin-Drop Moment: When Buffett casually said Todd Combs and Ted Weschler, the recently hired money managers at Berkshire, are being paid “one million dollars a year,” plus incentive fees.  Buffet’s no fan of “shared sacrifice” when it comes to incentivizing his own moneymakers…
A Lesson For Every Money Manager Department: Buffett’s revelation that in all of his and Munger’s years of managing Berkshire together (47 and counting), “We’ve never talked about macro stuff.”
Most Surprising Applause Line: Becky Quick’s question on behalf of a man who first noted that his 84 year old father wouldn’t buy Berkshire stock because of Buffett’s constant yapping about a Buffett tax, and then asked what impact Buffett’s high profile might be having on the stock price. (This got spontaneous, fairly loud applause despite the Buffett-friendly crowd.)
Least Surprising Applause Line: Buffett’s response to the young man, which was “I don’t think anyone should have their citizenship restricted” simply because they run a public company, plus this zinger about the young man’s 84 year old father: “Maybe he oughta own Fox.” (This got louder applause than the question, naturally.)
Feel-Good Question, Literally and Figuratively: From Andrew Ross Sorkin, on behalf of “many” in the crowd who had urged him via email to ask, “Warren, how’re you feeling?”
Feel-Good Answer, Literally and Figuratively: Buffett’s response to Sorkin, “I feel great.”
Best Munger Retort: (To Sorkin after Buffett said “I feel great.”) “I’m jealous.  I probably have more prostate cancer than he does.”
Least Interesting Question: About gold. ‘Nuf said.
Most Interesting Question: “How do the large sovereign debts get balanced, and do they concern you?” 
 Buffett’s answer was, “I don’t know how it plays out in Europe…I would totally avoid buying medium or long term government bonds.”  Munger added, “He’s asking the really intelligent question of the day and we’re having a hard time answering it.” For the record, this “really intelligent question” actually drew applause from the crowd when it was asked, which tells you what’s on people’s minds regardless of which party they’re voting for in November. Also, for the record, the fellow who asked it was from Boston, which just goes to show not everyone in that Commonwealth is certifiable.
Least Convincing Answer: Buffett, asked by the fearless (and good friend of Buffett) Carol Loomis whether buying the Omaha World-Herald newspaper was “some self-indulgence?”  The Oracle spent a good five minutes explaining how the paper “still tells me some things I can’t find out about elsewhere,” such as—and I am not making this up—the obituaries and the wedding notices.  Nobody was buying it.
Most Convincing Answer: Buffett and Munger, when asked by one of those geeky insurance analysts whether Berkshire would ever be subject to the Investment Company Act of 1940. Buffett said he’s read the Act “20 times” (and when Buffett says he’s read something 20 times, he’s not kidding), and “I see no way Berkshire comes close to that.”  Munger said flatly, “We are NOT just an investment company.”
Something Every Investor Should Always Keep in Mind: Asked about why Berkshire keeps such a large cash reserve, Buffett said, “We don’t ever want to go back to ‘Go.’”
Worst Answer: Buffett, when asked how Amazon.com will affect Berkshire’s various businesses, said, among other things, “It won’t affect Nebraska Furniture Mart.”
Best Answer: Munger, to the same question, “I think it’s terrible for most retailers—not slightly terrible, really terrible.”
Most Concise Answer: Munger, when asked how a business can “build barriers” around itself: “It’s tough.  We sort of buy barriers, we don’t build them.”
The Single Most Revealing Comment About What Made Berkshire A Growth Stock And Why It Is No Longer One:  “There were times when Ajit [the genius who runs Berkshire’s reinsurance business] would generate billions of float and Warren would generate 20% returns on that float, and that would happen over and over and over…and that was fun.” —Charlie Munger
One More Mungerism Before We Go: “I rejoiced the day I got rid of a stock quoting machine.  I like this idea of owning businesses forever.”
And Warren Buffett’s Successor as CEO of Berkshire Hathaway Is Who? The answer is clear.  Read all about it in the forthcoming 99c mini-eBook on Amazon.com, “Buffett’s Successor: Who it Will Be, Why it Matters.”  To be published by eBooks on Investing this summer.
Jeff MatthewsAuthor “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”(eBooks on Investing, 2012)    Available now at Amazon.com
© 2012 NotMakingThisUp, LLC                                    The content contained in this blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.  This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  And if you think Mr. Matthews is kidding about that, he is not.  The content herein is intended solely for the entertainment of the reader, and the author.

MobSav Celebrates National Healthy Skin Month

To contact us Click HERE
MobSav is honoring National Healthy Skin Month with coupons and deals to spas all over the Chicagoland area. So get ready to pamper yourself and save some money at the same time with these great offers. Visit mobile.mobsav.com/all to see our entire collection of spa coupons. Look below for today's special deal:

Salon Two Nine
(North Aurora)

Free $10 Coupon
- With Every $100 Gift Card Purchased -

1 Microdermabrasion Treatment for Just $125
- Purchase 5 Treatments, Get 1 Free -

$100 Spa Package
- Facial, Massage & Manicure -

25% Off Any 1 Service
- New Clients Only -

Go to mobile.mobsav.com/all on your smartphone for coupon details and many more money-saving offers ready for you to use! Save some money and like always show ’em your MobSav.

Mobile Coupon Ethusiast Escorted Off "Let's Make a Deal" Show

To contact us Click HERE
Los Angeles-- During a taping of the popular day time television show, "Let's Make a Deal", a contestant had to be detained and escorted off Sunset Bronson Studios early morning for acts of violent behavior.

Before being detained by LA Police Department the contestant later identified as mobile coupon enthusiast, Mobsav Man, went on a rant about the studio citing, "Bronson Studios has rats! This show sucks! What the (exploited and deleted) is a Zonk anyway?!? (Exploited and deleted) you Wayne Brady! Your Improv sucks! I won that (exploited and deleted) smart car!"


After obtaining a copy of the police report, it was cited that Mobsav Man had become disgruntled and furious when Wayne Brady offered to exchange his already won $1,300 for a mystery curtain containing a bath tub full of mashed potatoes. Mobsav Man then proceeded to coerce Brady into giving the money back. He then proceeded to run around the set destroying people's costumes and began throwing mashed potatoes at audience members before finally being detained by studio security.

When speaking with eyewitness and audience member Ryan Beckett, he stated, "I thought I came to the show to have a good time and sport my Mr. T costume. Not to have my gold chain whipped at Mangun's face and be part of a Tina Turner Thanksgiving. You know what, Brady really screwed that guy though."

Sunset Bronson Studio members are yet to comment on the incident. However, co-host Jonathan Mangun who had been reported to be cowering in the corner at the time of the incident is said to be suffering from post-traumatic stress and doesn't plan on returning to work anytime soon.

---Evan Tucker mobsav.com

So Inflating Your C.V. Is Worse Than Inflating Your Earnings…

To contact us Click HERE
 Poor Scott Thompson.  The world’s (currently) most famous accused-resume-inflator is gone from the C-Suite at Yahoo.  Oh, and he has thyroid cancer to boot. Meanwhile, Wall Street’s Finest are gearing up for next week’s earnings from Hewlett-Packard, and based on our perusals of various so-called research reports—not to mention a puff-piece on the company in this week’s Barron’s—all signs point to an “in-line” quarter from HP, although one analyst is suggesting “yet another restructuring plan/charge of about $1billion.”


 [Editor's Note: Tuesday morning, another of Wall Street's Finest came forth with an expected non-recurring-recurring-like-clockwork restructuring charge as high as $2 billion for HP.  Let the Palo Alto "non-GAAP" earnings games begin!]


 [This just in on Thursday afternoon: news is breaking that HP will lay off as many as 25,000 workers. In the perverse logic of one Wall Streeter, this "would enable investments in strategic, higher growth areas," as if HP has not been able to make those investments with its $3 billion R&D budget (perhaps the $10 billion share buy-back authorization has something to do with it).  Faulty logic aside, expect earnings estimates to start being ratcheted upwards... ] Now, we have, more than once, commented on the low quality of HP’s reported earnings.  You can read about it here and here, if you like. Suffice it to say, HP does what portfolio managers can only dream of getting away with: it reports “non-GAAP” earnings that include the good stuff from acquired companies (revenue and gross profit, for example) and excludes the bad stuff from those same companies (amortization and restructuring charges, for example), which serves to a) point out what silly prices HP pays for acquisitions in the first place and b) explain how such a theoretically profitable enterprise as HP came to possess a tangible book value of minus $7.84 per share, according to my Bloomberg.  (Yes, that's negative, not positive, $7.84.) Nevertheless, Wall Street’s Finest dutifully record those “non-GAAP” earnings from HP and set their clocks by them.

 Imagine if portfolio managers tried to report “non-GAAP” investment returns, booking only their winners.
 Or if baseball players tried to report “non-GAAP” batting averages.
 Or, most relevant of all, if Jamie Dimon had tried to call that $2 billion trading loss from his London Whale a “non-recurring” loss...
 Hey, HP does that stuff every year, and for some reason, Wall Street’s Finest buy HP’s “non-GAAP” earnings presentation lock, stock and barrel. We’re not sure why they buy it—after all, GAAP earnings surely exist for a pretty good reason, as investors discovered a decade ago when the tech bubble collapsed—but they do. Thus we have the strange contrast of Mr. Thompson being ridiculed and then run out of town for a modest (and still unexplained) bit of resume inflation, while just down 101 from Yahoo the folks at HP prepare to report yet another quarter of “non-GAAP” earnings, even though HP’s non-GAAP earnings appear to have less relationship to their GAAP earnings than Mr. Thompson’s “non-GAAP” resume had with the “GAAP” version that Dan Loeb’s detectives uncovered. The HP folks ought to hope Dan doesn't get his detectives to start asking questions about that...


Jeff MatthewsAuthor “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”(eBooks on Investing, 2012)    Available now at Amazon.com
© 2012 NotMakingThisUp, LLC                                    The content contained in this blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.  This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  And if you think Mr. Matthews is kidding about that, he is not.  The content herein is intended solely for the entertainment of the reader, and the author.

The Facebook Face-Plant: “Nobody Put a Gun to Their Heads”

To contact us Click HERE
 A friend called up today about the Facebook “Face-plant” hysteria: he wanted to know why everybody was looking for somebody to blame.  “They wanna blame the underwriters, they wanna blame the analysts, they wanna blame NASDAQ, they wanna blame the insiders.  But how about they look in the mirror?” he said.  “Nobody put a gun to their heads and told ‘em they had to buy it.” And he’s right. In fact, there was plenty about Facebook to make a sober investor take pause even before it became a badge of honor to tell the Wall Street Journal you were going to load up on the stock, as so many investors did. Check out, for example, the following sequence of quarterly revenue growth starting in March 2011 and ending in March 2012:
111.88%, 107.18%, 104.28%, 54.72%, 44.73%.
 Now ask yourself, “Is this a company I want to buy at any price? Well, that’s the annual growth rate in Facebook’s quarterly revenues, straight off our Bloomberg.  Not exactly “up and to the right” as they say on Wall Street. Here’s another set of numbers—also publicly available—that might have flashed an even bigger yellow warning sign for a prospective Facebook IPO flipper:
140.66%, 114.56%, 79.77%, 58.99%, 32.15%.
 That’s the growth in quarterly revenues from last March to this March, also straight off our Bloomberg, for Zynga. Zynga, as most Facebook fans know, is the equivalent of a hotdog vendor in Yankee Stadium: the only place it sells its stuff is on Facebook.  If you follow how the hot-dog vendor is doing on any given day, you have a pretty good idea how full Yankee Stadium is. So you would think anybody buying Facebook would have looked at not only Facebook’s revenue progression, but Zynga’s as well.  And given those trends, you’d think anybody buying Facebook would have paid attention to the other warning signs, like GM pulling its ads off Facebook the week before the IPO; like the underwriters ramping up not only the deal price but the deal size; like CNBC devoting the entire day of the IPO to Facebook—that sort of thing. And of course you’d be wrong.   People wanted to buy Facebook, no matter what. And those people can blame the underwriters or the analysts or NASDAQ or the insiders all they want.  But as my friend said, “Nobody put a gun to their heads.”
Jeff MatthewsAuthor “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”(eBooks on Investing, 2012)    Available now at Amazon.com
© 2012 NotMakingThisUp, LLC                                    The content contained in this blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.  This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  And if you think Mr. Matthews is kidding about that, he is not.  The content herein is intended solely for the entertainment of the reader, and the author.

Encore: The New-New Gettysburg Address

To contact us Click HERE
 The coolest thing about writing these virtual columns is that you meet a lot of interesting people, mainly through emails but also face-to-face.  After all, people with a specific knowledge of whatever you happen to write about often end up reading, and reacting to, something you happen to write about (especially if you make a factual mistake).
 It is simply astonishing sometimes who reads this stuff.
 The second coolest thing is the longevity of some columns.  For example, I wrote a piece about Best Buy in 2006 (Best Buy + Guitars = No Threat to Guitar Center, Yet) that still gets comments, six years later...mainly from musicians, which may not be saying much, given their general frame of mind, if you get my drift, but still...
 And there was an oddly passionate reaction to a years-ahead-of-its-time-even-if-I-say-so-myself column (Goodbye, Ruby Tuesday), both pro and con, from waiters and waitresses of that place for years.
 But columns don't have to generate comments to prove they're still being read.  Some things appear on the Google Blogger page view statistics that I forgot I wrote.  And I've noticed recently that for reasons beyond my comprehension, a piece from the depths of the financial crisis has consistently generated page views.
 Why, I don't know, but since it was one of my favorites, I thought I'd reprint it here.
 The New-New Gettysburg Address popped into my head when the Feds mind-blogglingly agreed to bail out the holders of credit default swaps written by AIG at 100 cents on the dollar, at a time when the holders of those credit default swaps, which included Goldman Sachs, would probably have given their first-born children for 50 cents on the dollar.
 Oh, and the Average Joe was not getting bailed out of anything, least of all the 120% loan-to-value no-doc mortgage he'd been talked into taking out by one of the many scummy mortgage brokers whose short-sighted, commission-based incentive to close bad deals was the one real driver of the subprime crisis Congress never got around to blaming.
 The column took probably took 15 minutes to write, and another hour to polish.
 And three-plus years later it still appears on the stats of what people are reading.
 Thanks to those readers.
JM

Monday, March 16, 2009

The New-New Gettysburg Address

(With apologies to our greatest President.)

Old Gettysburg Address:

Four score and seven years ago our fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.

Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived and so dedicated, can long endure. We are met on a great battle-field of that war. We have come to dedicate a portion of that field, as a final resting place for those who here gave their lives that that nation might live. It is altogether fitting and proper that we should do this.

But, in a larger sense, we can not dedicate -- we can not consecrate -- we can not hallow -- this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced.

It is rather for us to be here dedicated to the great task remaining before us -- that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion -- that we here highly resolve that these dead shall not have died in vain -- that this nation, under God, shall have a new birth of freedom -- and that government of the people, by the people, for the people, shall not perish from the earth.


New-New Gettysburg Address

Four or five years ago our Investment Bankers helped bring forth on this continent, and around the world, a new banking system, conceived in Leverage, and dedicated to the proposition that all persons working for Investment Banks can create enormous Wealth for themselves with almost no Risk except to Taxpayers.

Now we the Investment Bankers of Goldman Sachs are engaged in a great Scam, testing whether that Nation of Bankers can get paid without Tipping Off the Taxpayers to that Scam.

We have come to cash our checks.

It is altogether fitting and proper that we should do this, for we have Houses in the Hamptons requiring upkeep.

But, in a check-clearing sense, we can not Cash Our Checks so long as AIG cannot make good on the credit default swaps we purchased to Hedge our Leverage. Thankfully, the brave men of Goldman who struggled to Attain Positions of Power in Treasury and the White House have consecrated it, far above Barney Frank’s poor power to detract from our AIG Contracts.

The Small Investor will little note, nor long remember, how completely screwed He got, but we the Investment Bank of Goldman Sachs can never forget what they did to provide us this cash. We thank them for the $8 billion Their Government is paying to AIG in order to Make Us Whole.

We here highly resolve that The Little Investor shall not have died in vain -- that this nation, under Goldman Sachs, shall have a new birth of Leverage Without Risk -- and that government of Goldman, by Goldman, and for Goldman, shall not perish from the earth.

Jeff Matthews
Well, Yes, I Am Making This One Up

© 2009 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Great Mysteries Of The World, Part 1: Songs Stuck In My Head

To contact us Click HERE

 My friend and ace financial blogger JohnHempton not only dreams about physics while he sleeps, but he comes up withworld-changing concepts in those dreams, which he writes about when he wakesup, as you can read here. I wake up with songs stuck in my head. And not just any songs.  Really mediocresongs.  The kind you don’t want stuck inyour head. This morning it was The Doors’ “The End,” abunch of musical noodling on top of Jim Morrison’s ersatz poetry (“This is theend/my only friend/the end”), which at the age of 16 seemed incredibly profound, but these days, having crossed the half-century mark, seems like something that would mainly impress a 16 year old. I’d have preferred “Love Me Two Times” (thelyrics of which Morrison didn’t write—Robby Krieger did), or “Soul Kitchen,” or the unheralded “Texas Radio and the BigBeat,” one of the best but least enduring of the Doors catalogue (and a JimMorrison song if there ever was one), which nevertheless somehow manages to getplayed on Sirius XM often enough to make me want to take back everything I saidabout that satellite radio monopoly in our last holiday music review, which you can read here. A couple of days ago the song stuck in my headwas also unfortunate: it was Paul McCartney’s (actually Wings, but, same difference) “Jet,”which is one of those McCartney songs I never enjoyed—even though it sort ofsounded pleasant enough on the radio—because it had what remains one of themost outstandingly bad lyrics the Beatles’ least-cynical lyricist ever created(“And Jet/I thought the only lonely place/was on the moon”), which, as youmight have guessed, was the lyric stuck in my head that morning. How did the genius who wrote “Golden Slumbers”and “Her Majesty” ever come up withthat?  And if it had to be a song fromthe “Wings” era, why couldn’t it have been “Let Me Roll It”?  (Of course, at least it wasn’t “Silly LoveSongs.”) Now, outside of “Revolution# 9” you might think there wasn’t a bad enoughJohn Lennon song to qualify for this stuck-in-my-head-when-I-wake-up thing, and“I’m Only Sleeping” isn’t exactly bad, but it’s not a song you want stuck inyour head, believe me.  It might be morelistenable than “Jet” or “The End,” but it’s not exactly an enduring Lennon number,like, oh, “Dear Prudence” or “Starting Over.” And it’s not a song I’ve ever actually playedon purpose, except when it comes up on “Revolver” after you skip “EleanorRigby,” which is, technically, a great song, but not one you ever want tolisten to all the way through. So why “I’m Only Sleeping” crops up in thismediocre-songs-stuck-in-my-head thing is a great mystery: I haven’t heard it anytime recently—and I mean in the last 5 years, that I can remember.  But come to think of it I haven’t heard “Jet”or “The End” lately, for that matter. What would be great, of course, is if somehow you couldwake up with exactly the song you wanted to wake up with stuck in yourhead.
 Longtime readers know that thehouse band of this virtual column is the Arctic Monkeys, whose lead singer andsongwriter, Alex Turner, I would put up there with John Lennon on both counts. And if there’s any way John Hempton can figureout how, in his abnormally fecund dreams, to program “Red Light Indicates DoorsAre Secure” into a person’s random-access-memory upon wake-up, I would greatlyappreciate it.
Jeff MatthewsAuthor “Secrets in PlainSight: Business and Investing Secrets of Warren Buffett”(eBooks on Investing,2012)    Available now at Amazon.com
© 2012 NotMakingThisUp,LLC                                    The content contained inthis blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor andclients advised by Mr. Matthews may hold either long or short positions insecurities of various companies discussed in the blog based upon Mr. Matthews’recommendations.  This commentary in noway constitutes investment advice, and should never be relied on in making aninvestment decision, ever.  Also, thisblog is not a solicitation of business by Mr. Matthews: all inquiries will beignored.  And if you think Mr. Matthewsis kidding about that, he is not.  Thecontent herein is intended solely for the entertainment of the reader, and theauthor.

A Tale of Two Retailers

To contact us Click HERE

 We present below excerpts from analystpresentations by two retailers.  The first is an old, well-known departmentstore chain, and the presentation was made last September, when its long-timeCEO spent an hour or so ruminating about the transformation of his company. The second is more recent—like, this past Friday. And it’s by JC Penney, or “JCP” as its new-ageexecutives insist on calling it—a misguided nod to the company’s stock ticker,which seems to be the one thing those executives understand about the companyand its now-muddied 110-year old relationship with the American consumer…arelationship that won’t be getting any better any time soon so long as itsexecutives insist on referring to a stock ticker that 98% of Penney’s customerswouldn’t recognize if you tattooed it on their foreheads. After all, did Steve Jobs walk around talkabout the great things “AAPL” was creating? Does Coke run ads saying, “Enjoy a KO Today”?  Do Wal-Mart greeters say, “Welcome to WMT” tothe overburdened mothers and their screaming toddlers as they begin the hair-pullingsearch for the day’s bargains? No they do not.  But Penney executives would. Worse still, the company runs newspaper adswith no identification except “JCP” on the page.  AndTV ads with only a “JCP” logo on the screen. It’s no wonder the company’s sales collapsed 21% last quarter. But if you’re expecting ex-Apple retail geniusRon Johnson to bend a little on the “JCP” thing, well that’s not going tohappen, if last Friday’s earnings call was any indication—but we’re gettingahead of ourselves.   The point here is to contrast Penney’s Fridaymorning transcript detailing its current “transformation” with last year’spresentation from another, larger department store—we’ll call it “XYZ” fornow—describing its own “transformation.”  If youcan guess what company “XYZ” is, well, you just might be cynical enough to workon Wall Street.
 Who We Are  XYZ: Ithink, overall, we feel good about our position in the marketplace…I would saythat our transformation over the last five to seven years—I came [here] at a time whenthe turnaround had been complete and we identified the fact that we needed tobe an attraction that people came to us for merchandise, but they also had tohave an experience that was memorable.—9/7/11.

 JCP: We are going to become an entirely newclass of department store that doesn't exist today.  We are going to create a new category that wecall the specialty department store and we think it is going to be profound andlet me tell you about it…—8/10/12
Our Customer Experience
 XYZ: So we focused very much on engagingour associates and having them be the best ambassadors. I'm pleased to say that our customerservice scores have been outstanding and lead recent American Express pollthree years in a row, lead for department stores. I think that is a real testimonialto the effectiveness of our sales associates.—9/7/11.

 JCP: Butwhere we are most excited is how we are going to use RFID to transform thecustomer experience… So next spring we will be rolling out personal check out.So in addition to being able to check out from any employee anywhere, any time,you will be able to check out by yourself in our stores. And we think customersare going to like it and it is going to help our conversion and the customerexperience.—8/10/12
Our TechnologyXYZ:  Wemaintain a $650 million capital expenditure commitment this year primarily ondigital infrastructure as well as remodels, two new stores, and fixturerollouts for our attractions and new initiatives…—9/7/11.

 JCP: From a technology perspective…we have overspent on technology as acompany. Part of that is because we have an extraordinarily complex and anabundant number of applications to run the business. Mike sharedlast January we have 492 unique applications, 88% of them are customized,meaning we have done all this hard work internally to make them unique to usand the challenge of that is 95% of the money we spend every year, $400 millionwas spent to maintain and support outdated applications, which meant we onlygot to spend about 5% on strategic go forward initiatives. If youthink about that, that is $20 million a year out of $400 million going tosomething new to improve the customer experience or ability to manage thebusiness and the balance going to maintain outdated legacy systems. That is aproblem.—8/10/12
Our Promotional Policy XYZ: Well, our pricing and promotion is set ina year in advance, so we don't react on a week-to-week basis, but I will say that weare well priced; as I said, we're the lowest priced anchor in the mall and wecompete head-to-head in the off-mall.—9/7/11.

 JCP: In2011 our Company ran 590 unique promotions and the average item had 20 to 30prices -- different prices during the year. And so I figured going to threetypes of prices would be a lot simpler. A great everyday price, some items at amonth-long better value and then clearance, which we called best price.—8/10/12
Our Home Business XYZ: We've done very well in luggage, inhousewares, in the soft home side. We have a very well developed windowcovering business. I think one-third of all windows in the United States have [our]window coverings. That's a tremendous advantage when people are building homesand remodeling.—9/7/11.

 JCP: And onthe home thing, just so you know, there is going to be a material change inhome. —8/10/12
Our Online Business XYZ: I've said many times we'd been better offif we started from scratch the dot-com than trying to change the locomotive'sengine while we're running down the track. So I believe we've done a good jobof understanding the issue, but it has not been easy, and has not beenaccretive to our monthly comps. Having said that, we've invested heavilybecause we believe it is a strength and that we have a history of being able toship items to a customer's home effectively and the customer looks to us forthat.—9/7/11.

 JCP: Yes,we have not been performing well online. It is one of our big opportunities.Steve Seabolt is here in the front row. Steve took over the online store inMay, we have uncovered a lot of issues -- basic issues. We don't set up ouritems on time. We had items in our shops that weren't set up online. Ournavigation is kind of kludgy at times.—8/10/12
Our Cost Structure XYZ: Our expense program, overall, is reallydesigned to get us to as competitive as possible of a cost structure. Ourmargins have been - are historically high, so we just need to make sure thatour cost structure is competitive to get back to double-digit operating profit.—9/7/11.

 JCP: Expenses-- we have talked a lot about this at $900 million. So in 2011 we had $5.1billion of expense. Our anticipation is that number will be down by over $900million in 2013. And where is that coming from? About $400 million of it iscoming from our stores. It's about $350 million coming out of our home officeand about $150 million coming out of our marketing.—8/10/12
Our WorkforceScheduling System XYZ: Our workforce utilization, our jTime- what we call jTime, which is matching schedules to when the customer is inthe store, that's, again, we've taken out cost. But at the same time, ourcustomer service scores have gone up because we have better staffing when thecustomers actually are in the store and save the expense when obviously thereis less traffic.—9/7/11.

 JCP: So Ithink in many ways our employees are so far ahead of us and they are so tiredof having to go find a piece of paper to figure out when they should work…—8/10/12
Our StoreMerchandising System XYZ: We have a very sophisticated process thatallows us to merchandise every store differently even if they're in the samemarket or in the next community.—9/7/11.

 JCP: So wewill have as many distinct shopping choices in our 130,000 square feet as youwill find in a 1 million square-foot mall, except you won't have to go fromcheck out every time you leave a store, this will be a whole uniqueenvironment…—8/10/12
 Those readers with good memories, or longexperience with JC Penney, or long experience with this virtual column, areprobably already ahead of the game and know that both XYZ and JCP are one andthe same: JC Penney. Or “JCP.” Take your pick.  Either way, willthe new JC Penney “transformation” work any better than the previous one? If it does, Ron Johnson really is agenius.  If it doesn’t, well, at least hetried a whole lot harder than the last crew.

Jeff MatthewsAuthor “Secrets in PlainSight: Business and Investing Secrets of Warren Buffett”(eBooks on Investing,2012)    Available now at Amazon.com
© 2012 NotMakingThisUp,LLC                                    The content contained inthis blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor andclients advised by Mr. Matthews may hold either long or short positions insecurities of various companies discussed in the blog based upon Mr. Matthews’recommendations.  This commentary in noway constitutes investment advice, and should never be relied on in making aninvestment decision, ever.  Also, thisblog is not a solicitation of business by Mr. Matthews: all inquiries will beignored.  And if you think Mr. Matthewsis kidding about that, he is not.  Thecontent herein is intended solely for the entertainment of the reader, and theauthor.