Our 3 programs in London July 7-11; 2 new free webinars on "How to Raise $1 Billion (or not)" & "Lessons from 15 Years of Short Selling"; The Harvard Undergrad Fixing Finance; stocks pitched at confs; Fear of Trade War; Bitcoin Drop; Toys "R" Us
1. We're going on the road for the first time in two weeks and teaching our three programs in London on July 7-11 (our three-day Lessons from the Trenches investing bootcamp Sat.-Mon. July 7-9, a one-day seminar on How to Launch and Build an Investment Fund on Tuesday, and our new one-day program, an Advanced Seminar on Short Selling on Wednesday). We typically fill our last few seats at a steep discount for students and young/emerging investors, so if you're available on short notice please email me and we'll try to accommodate you.
2. Please join us for two more free webinars on Tuesday and Wednesday:
A. How to Raise $1 Billion (or not)
Tuesday, June 26, 5:00-7:00pm EST
Rooted in their one-day seminar on How to Launch and Build an Investment Fund, Whitney Tilson and Glenn Tongue of Kase Learning will share the many things they did to grow Kase Capital from $1 million at inception in 1999 to over $200 million in assets under management at its peak in 2010 – and why they should have raised over $1 billion if they'd done a few things differently.
To register, go to: https://zoom.us/webinar/register/WN_99AojsWQQf2Fmsvz7xoqPg
B. Lessons from 15 Years of Short Selling
Wednesday, June 27, 5:00-7:00pm EST
Rooted in their one-day Advanced Seminar on Short Selling, Whitney Tilson and Glenn Tongue of Kase Learning will share their experiences over 15 years of short selling: the highs, the lows, and the many lessons learned.
To register, go to: https://zoom.us/webinar/register/WN_88g6WT03Q-GVxTTqjx6FLw
Further information about Kase Learning and our programs is at www.kaselearning.com and posted at: www.tilsonfunds.com/KaseLearning.pdf.
3. I love this story about one of the students at our seminar a week ago, Angel Onuoha. He's an extremely impressive young man and will go far. The Harvard Undergrad Fixing Finance, https://www.bloomberg.com/news/features/2018-05-03/harvard-student-starts-fund-to-lead-more-black-recruits-to-banks. Excerpt:
One morning last June, Angel Onuoha took a train from Connecticut, where he was staying with a friend, to New York City. His summer internship at C.L. King & Associates Inc., a small investment bank, was his first real taste of the finance world outside the student financial clubs he'd joined as a Harvard freshman. It was also a reality check. After a month on the job, he says, he had yet to meet another black employee.
Onuoha knew that Wall Street lacked diversity, but on the train that morning he decided to do something about it. He remembered that his friend and fellow freshman Drew Tucker, whom he'd met through a campus organization for black men, was also interested in Wall Street—and that the two had discussed how the clubs did a poor job recruiting black students. So Onuoha texted Tucker with an idea: What if they started an investment fund that would give students hands-on experience and provide banks with a pool of talented black students to pull from?
Tucker, it turned out, had been pondering something similar. Within days the two began work on what would become BLK Capital Management Corp., a hedge fund that now has about 85 student members. They don't manage a lot of money—so far, just $92,000—and they haven't made any investments. But they've attracted funding from the likes of Goldman Sachs Group Inc. and JPMorgan Chase & Co. as part of an ambitious effort to reverse a dispiriting trend. For all the talk of increasing diversity on Wall Street, finance hasn't welcomed people like Onuoha. According to a November report from the U.S. Government Accountability Office, the proportion of black financial managers was a paltry 6.3 percent in 2015, slightly fewer than when the government measured eight years earlier. "The lack of diversity is extraordinary," says John Rogers, chief executive officer of Ariel Investments LLC, one of the largest black-owned money managers in the U.S. "People have not thought about this problem in creative ways. That's why there's been so little progress."
Traditionally, banks recruit on college campuses to fill internships and entry-level jobs. But the finance clubs that produce top prospects can be exclusionary. For one group, Onuoha had to go through an application process that all but required him to have relevant experience: He had to complete a case study and sit through an interview that included probability analysis. For a lot of kids, those skills are hard to come by. Only 5,300 U.S. high schools offer an Advanced Placement course in macroeconomics. "That's a great opportunity that black students tend to miss out on," he says.
4. This is some shoddy journalism here. If you read the Bloomberg headline (Hedge Funds' Best Ideas? Those Are Just Stocks They're Dumping) or the Business Insider one (Here's the real reason hedge funds give you ideas, according to Harvard), you would think that the Harvard report revealed that stocks investors pitched at conferences performed poorly, as scummy hedgies dumped their shares onto unsuspecting investors lured in by their pitches. But in reality, investors who bought the long ideas and shorted the bearish ideas that were pitched earned outsize returns! Excerpt:
He found that stocks pitched by hedge funds... outperform the benchmark by about 7% .
"Pitched stocks exhibit positive risk-adjusted returns both before and after the pitches," writes Luo.
Here's the chart that shows the data:
5. I think a global trade war is the greatest risk in the markets right now – not to say it's likely, but the odds are going up. Just the Fear of a Trade War Is Straining the Global Economy, www.nytimes.com/2018/06/16/business/tariffs-trade-war.html. Excerpt:
Only a few months ago, the global economy appeared to be humming, with all major nations growing in unison. Now, the world's fortunes are imperiled by an unfolding trade war.
As the Trump administration imposes tariffs on allies and rivals alike, provoking broad retaliation, global commerce is suffering disruption, flashing signs of strains that could hamper economic growth. The latest escalation came on Friday, when President Trump announced fresh tariffs on $50 billion in Chinese goods, prompting swift retribution from Beijing.
As the conflict broadens, shipments are slowing at ports and airfreight terminals around the world. Prices for crucial raw materials are rising. At factories from Germany to Mexico, orders are being cut and investments delayed. American farmers are losing sales as trading partners hit back with duties of their own.
Workers in a Canadian steel mill scrambled to recall rail cars headed to the United States border after Mr. Trump this month slapped tariffs on imported metals. A Seattle customer soon canceled an order.
"The impact was felt immediately," said Jon Hobbs president of AltaSteel in Edmonton. "The penny is really dropping now as to what this means to people's businesses."
The Trump administration portrays its confrontational stance as a means of forcing multinational companies to bring factory production back to American shores. Mr. Trump has described trade wars as "easy to win" while vowing to rebalance the United States' trade deficits with major economies like China and Germany.
Mr. Trump's offensive may yet prove to be a negotiating tactic that threatens economic pain to force deals, rather than a move to a full-blown trade war. Americans appear to be better insulated than most from the consequences of trade hostilities. As a large economy in relatively strong shape, the United States can find domestic buyers for its goods and services when export opportunities shrink.
Even so, history has proved that trade wars are costly while escalating risks of broader hostilities. Fears are deepening that the current outbreak of antagonism could drag down the rest of the world.
6. Good to see this total scam dying: Bitcoin Drop Sparks Broad Cryptocurrency Selloff, www.wsj.com/articles/bitcoin-drop-sparks-broad-cryptocurrency-selloff-1529684764. Excerpt:
The price of the top cryptocurrencies fell sharply on Friday, with bitcoin falling near its year-low, after Japanese regulators ordered BitFlyer and five other cryptocurrency exchanges to improve security measures.
Bitcoin was down about 8% at $6,169 and had traded as low as $6,081, according to Coindesk, very close to its year low. In early February, it briefly fell as low as $5,947.
Friday's selloff was sparked by news that BitFlyer, one of the world's largest cryptocurrency exchanges, was ordered by regulators to stop taking on new customers, finding that the firm's measures to prevent money laundering and terrorist financing were insufficient.
Bitcoin has been falling steadily since hitting a record high of $19,800 in mid-December. It surged to $17,136 in early January, but has been mainly moving down since then. At its current price, it is down about 69% from the December high.
7. An interesting, in-depth look at the demise of Toys "R" Us: Tears 'R' Us: The World's Biggest Toy Store Didn't Have to Die, www.bloomberg.com/news/features/2018-06-06/toys-r-us-the-world-s-biggest-toy-store-didn-t-have-to-die. Excerpt:
As its mascot, Geoffrey the Giraffe, became as recognizable as Tony the Tiger and its "I don't want to grow up" jingle lodged itself in the brains of a generation of kids, Toys "R" Us became the first category killer. In 1985, Goldman Sachs called it "one of the outstanding companies in all of retailing," and for much of the decade, Lazarus was among the highest-paid chief executive officers in the U.S.
Featured in Bloomberg Businessweek, June 11, 2018. Subscribe now.
Illustration: Arn0 for Bloomberg Businessweek
His final opportune move was to step down just as Toys "R" Us peaked. That was in 1994. Four years and two CEOs later, Toys "R" Us was overtaken by Walmart as the biggest toy seller in the U.S. Two years after that, Toys "R" Us struck a disastrous deal to give up its troubled website and exclusively sell its wares online with Amazon.com Inc. By 2004 the company, which now relied on its Babies "R" Us stores for much of its profit, was looking to sell itself. Executives suggested it might have to get out of the toy business altogether.
Instead, the private equity firms Bain Capital LP and KKR & Co., along with Vornado Realty Trust, took over the company in a $7.5 billion leveraged buyout in 2005. For the next 13 years the owners would watch a succession of executives try to halt the steady slide of Toys "R" Us amid a recession and retail upheaval. As the last big toy store chain, Toys "R" Us had a captive audience. Kids could reasonably be counted on to badger, drag, or otherwise persuade adults to bring them to toy stores, especially if they were fun and hands-on. Those adults would more readily acquiesce if the stores were well organized and the toys competitively priced. There could have been an alternate ending for Toys "R" Us.
Complicating the executives' efforts, though, was the central fact of the company's existence: It was living on borrowed money. When Toys "R" Us filed for bankruptcy in September, one figure was particularly clarifying. The company had been paying interest of $400 million on about $5 billion of debt every year for a decade. In the good years, that was almost half its operating profit. Toys "R" Us had U.S. revenue of $7 billion and, even toward the end, a 14 percent share of the toy market, but there was no math that made $400 million look sustainable.
When it all came crashing down in March, Toys "R" Us had just about run out of cash, and it could find no one willing to replenish its accounts. It was a category killer killed by bigger and more powerful rivals, with the inevitable ending hastened by the cold logic of its private equity owners and bankers. But it goes deeper than that. As the company's advisers liquidate its 735 U.S. stores, make deals for the operations around the world, and determine the value of its intellectual property, it's become clear that Toys "R" Us didn't only have an improvident amount of debt—it also had a debt structure as complex and precarious as a Jenga tower, which obscured the company's tenuous finances. But gravity always wins in the end.