Friday, October 30, 2009

"Google's Broken Hiring Process"

Ryan Tate of Silicon Valley Insider quotes Google's director of research Peter Norvig:

One of the interesting things we've found, when trying to predict how well somebody we've hired is going to perform when we evaluate them a year or two later, is one of the best indicators of success within the company was getting the worst possible score on one of your interviews. We rank people from one to four [one being the worst], and if you got a one on one of your interviews, that was a really good indicator of success.


Tate notes elsewhere in his piece that the Google interview process involves crazy questions. Tate doesn't connect the dots, but asking those sorts of questions in a job interview is essentially a way of giving a prospective employee a de facto IQ test (giving actual IQ tests to prospective employees has been legally problematic since Griggs v. Duke Power). Back to Googler Peter Norvig:

Ninety-nine percent of the people who got a one in one of their interviews we didn't hire. But the rest of them, in order for us to hire them somebody else had to be so passionate that they pounded on the table and said, "I have to hire this person because I see something in him..."


My guess at what's going on here: creativity probably increases directly with IQ up to a certain point, at which it peaks and then declines. So if you are looking for an employee who's going to come up with the next killer app or new line of business for your company, and you hire only the candidates with the highest IQs, you are probably overshooting the IQ sweet spot where you'd find the smart, creative types.

Wednesday, October 28, 2009

Blogging like it's 1999

One of the reasons I like reading venture capitalist Fred Wilson's blog is that it reminds me of 1999. Remember when the economy was booming, unemployment was at ~4%, the stock market was hitting new highs, and Internet businesses were focused more on gaining users than generating revenues? That last part, at least, is still the case with some of the ventures Fred writes about, and it makes me a little nostalgic for the good old days. Here was Fred blogging about one of his portfolio companies, Foursquare yesterday:

I was having breakfast at Pastis with a friend today. The "mayor" of that restaurant, Mark Ghuneim, walks in and goes to the bar to order his morning coffee to go. I said to my friend, "watch this, he's going to pull out his phone and then look up and and try to locate me in this restaurant". My friend, who is not on foursquare, says to me "how do you know?" I said "trust me". Sure enough, Mark starts looking around the restaurant and spots us and comes over and has a ten minute conversation about web music stuff (and foursquare).

When I checked in this morning at Pastis, I added a shout that said "getting a demo of a hot new web music service". The CEO of Targetspot, Eyal Goldwerger, saw that on his phone and jumped in a subway to come down and see the demo too. Sadly, we had left by the time he got there.

But both anecdotes are examples of why foursquare has such potential. It seems like such a simple and whimsical service. You just checkin to places via your phone. But the data that it creates and the way it is published out to your social graph is powerful. I expect we'll see a lot more of this sort of thing as the user base on foursquare hits six figures and hopefully seven figures in the coming months.



A commenter of his named Greg responded:

I don't think Foursquare is going to grow. Fred, your position is unique -- you're a micro-celebrity, people want to see you because they want to grovel for your money. The average person, though, has only 10-20 friends, and random people aren't checking to see them at all hours of the day. Checking in, then, quickly becomes a lonely and pointless experience; the virtual badges get old fast, there are no great anecdotes of people visiting you, and the deals businesses offer for mayors are sparse and easily gamed.

Foursquare is a case-study in the tech industry hype-machine. Because it's useful for micro-celebrities, you have exactly those people hyping it up: MG Siegler, yourself, etc.


Greg makes a similar point to the one I speculated about in this post, Social Media: the new Public Access TV?.

Monday, October 26, 2009

"S&P 500 Overvalued by 40%, Set to Fall, Smithers Says"

Bloomberg interviews economist Andrew Smithers, who called the correction in 2000. Smithers says U.S. stocks are 40% overvalued according to Shiller's cyclically-adjusted P/E ratio and the Q Ratio. Smithers says quantitative easing by central banks has fueled this asset bubble which won't be sustainable when that QE is reversed (HT: The Atlantic's Daniel Indiviglio).

Sounds reasonable to me.

Saturday, October 24, 2009

Matthew Yglesias on John Meriwether's new Hedge Fund

Yglesias notes the Financial Times article about John Meriwether, of Long-Term Capital Management infamy, setting up his third hedge fund and writes,

I’m not a huge believer in human rationality, so I totally understand how this scam worked once. That he was able to get a second fund off the ground is pretty amazing. If he finds investors for a third spin around the wheel I’m going to propose confiscating all the rich peoples’ money and giving it to capuchin monkeys.

Friday, October 23, 2009

Richard Posner on the Goldman Sachs Bonuses



Judge Posner, who in addition to being the co-author, with his Nobel Laureate friend, of the Becker-Posner blog is an Atlantic correspondent, has this piece today on the Atlantic's website about the Goldman bonuses. Worth reading the whole thing, but here's an excerpt:

Goldman Sachs, we learned earlier this month, may end up paying more than $20 billion in bonuses to its employees in 2009. The controversial bonuses that American Insurance Group (AIG) had wanted to pay had been intended to reward performance before the company collapsed, and most of the recipients appear to have had no involvement in the decisions that precipitated the collapse.

The Goldman bonuses, in contrast, were intended to reward Goldman's employees for their outstanding performance during the economic crisis. The performance was made possible by the government's having bailed out Goldman in September 2008, when it is believed that, upon Lehman's declaring bankruptcy, Morgan Stanley was 24 hours away from following suit--and Goldman Sachs 72 hours. It was saved by receipt of bailout money and, more important, by being permitted to convert from a broker-dealer to a bank holding company. That entitled it to borrow from the Federal Reserve -- unlike Lehman Brothers, which was denied a Fed loan because it was a non-bank. That was not a sound basis for denying it a loan, but Goldman would have been in the same boat, had it not converted.

So the argument goes: Without government aid then, no $20 billion-plus in bonuses for Goldman Sachs's employees in 2009? Maybe zero in bonuses, maybe indeed, no Goldman Sachs at all. Against that background, the bonuses seem egregious. It seems that the government drove a bad bargain when it bailed out Goldman, that it should have demanded a big chunk of Goldman's future profits.


Posner goes on to note that the majority of the firm's profits in the last year came from proprietary trading, an activity, he argues, that is of limited societal value. Posner posits some negative political and economic consequences of this.

The image above accompanied Posner's Atlantic essay and was credited to Chris Hondros/Getty Images.

Thursday, October 22, 2009

Coates and Co. on The White City














There's a spirited discussion on Ta-Nehisi Coates's Atlantic blog about Aaron Renn's essay The White City, and Renn himself stops by to join in the conversation. In his essay, Renn noted that many cities such as Portland and Seattle that are praised for their progressiveness have something in common: few African Americans. One objection Coates raised to Renn's argument was that Renn excluded large cities such as New York that do have significant African American populations and of course also attract young progressives. In response, I noted that many of the soi dissant young progressives in New York end up congregating in trendy neighborhoods that are far less diverse than the city as a whole.

I made a similar comment in the comment thread following Renn's essay and linked to a post of mine from earlier this year that included the photo above, from a New York Times article on the burgeoning culinary entrepreneurship movement in Brooklyn. I noted that the photo gave a sense of the sort of diversity one might find in some of the trendier neighborhoods in New York City.

President Obama Comes to Hackensack

President Obama made an appearance at the cis-Hackensack outpost of Fairleigh Dickinson University1 to raise campaign funds for our governor, Jon Corzine, the former Goldman Sachs chief. I was going to post about this yesterday, noting that, if memory served, this was the first presidential visit to Hackensack since President Uribe of Colombia made a state visit here a couple of years ago. Then I wasted a half hour trying to find a good photo or article to link to about the Uribe visit, got frustrated, and gave up. Part of the problem with that search is that we've had a Colombian-American mayor here, so articles about him popped up. And we also have an annual Colombian Day celebration here, so that comes up too.

Fortunately, I missed the inevitable traffic snarls yesterday, but Cheryl wasn't as lucky; she got stock in gridlock on Hackensack Ave. on her way back from the Hackensack Financial District. She had to make an Italian illegal U-Turn (all the police were occupied with motorcade security, so she didn't get a ticket for this) and loop around Hackensack via the highways. In any event, thanks to the magic of YouTube, here is some Hackesack residents' brush with the motorcade of the Imperial Presidency2:




1This school was derided as "Fairly Ridiculous" when I was growing up. Most of its "Metropolitan" campus is on the trans-side of the Hackensack River, which divides the City of Hackensack from the Township of Teaneck.

2By way of contrast, I recall a photo of French President Sarkozy jogging in Central Park last month when he was in New York for the annual UN festivities. Exactly one security guard was visible in the photo.

Wednesday, October 21, 2009

Response from Alloy Steel International's CEO


In response to the list of questions I submitted to him last week, I got an e-mail from Alloy Steel CEO Gene Kostecki a couple of hours ago. I didn't hear back from him when I asked him if I could share the text of his e-mail on this blog (bear in mind Perth time is twelve hours ahead, so he may have signed off for the night by then), so I won't quote it here verbatim. But this is the gist of it: Gene apologized for not answering the questions by today; he noted that he's been busy drawing up plans for the new mill program, and that CFO Alan Winduss has been busy working on the reports given the recent conclusion of the company's fourth quarter and fiscal year. Gene said that the company planned to issue an interim report that would answer many of the shareholder questions I submitted to him, and that they would be happy to address any questions it didn't answer.

Saturday, October 17, 2009

A David Brooks column worth reading

His effort from yesterday's New York Times: "The Reality Moment". Brooks wrote about the UK's likely next Prime Minister Chancellor of the Exchequer, the Conservative Party Shadow Chancellor George Osborne, whose party is rising in the polls in Britain not by promising tax cuts or more transfer payments but by being honest about its country's fiscal condition and the austerity measures needed to remedy it. There are other lessons American conservatives can learn from Osborne and his party. Worth reading.

Incidentally, Bloomberg TV featured a profile of Osborne recently, who has had something of a meteoric political career so far (he's still in his thirties).

Friday, October 16, 2009

A Conversation with the CFO of Destiny Media Technologies

Below are notes from my conversation last night with Fred Vandenberg, Destiny Media Technologies (OTC BB: DSNY.OB) CFO. Below that is a verbatim quote from him taken (with his permission, of course) from a follow up e-mail he sent me this afternoon.

General Notes:

- Currently working with auditors on preparing 10-K, which Fred anticipates will be filed in late November.

- Wanted to reiterate that the revenue and EBITDA growth guidance mentioned in this week's press release refers to sequential quarterly, not annual, growth. <-- Clarification, since not everyone reads the comment threads here, and since I have seen this point misinterpreted elsewhere: Fred did not offer any earnings guidance beyond next fiscal year's Q1. Also, if memory serves, the company's fiscal Q1 tends to be its strongest seasonally, and its Q2 tends to be its weakest. So based on that (not on any specific guidance from the company) I would expect a sequential decline in revenue and EBITDA from Q1 to Q2.

- Cash position is growing, and the rate at which it is growing is rising as well.

- No need to raise funds for capex or operations.

- Said there is an internal group dedicated to working on how to grow the Clipstream business, but he has been more focused on PlayMPE. Deferred to CEO on Clipstream.

Notes on Yangaroo Case:

- Expected motion to dismiss would be unlikely to succeed, but filed it under advice of counsel as part of a broader legal strategy.

- Yangaroo has approached Destiny Media Technologies on more than one occasion seeking a merger. Destiny Media rejected these approaches.

- Yangaroo's case is currently in discovery regarding an issue of extraterritoriality (meaning that the Yangaroo patent cannot even be asserted against Destiny). Yangaroo's lawsuit may not survive a close examination of this issue. Although DSNY management believes that Yangaroo's case lacks merit for a number of reasons, to be efficient, Destiny's legal team is focusing on the issue which it believes is easiest to demonstrate.

- If Yangaroo's lawsuit is unsuccessful, as Destiny Media is confident it will be, Destiny plans to pursue recovering its legal costs from Yangaroo.

- Fred Vandenberg reiterated that major record label clients of Destiny Media were aware of the Yangaroo dispute when they signed their contracts with Destiny Media. These companies are of course sensitive to intellectual property issues, due to the nature of their business, and conducted their own legal reviews of the situation before deciding to sign up as DSNY clients.

Quote from Fred Vandenberg's follow-up e-mail today:

I am very happy with what we have been able to accomplish over last year and 1/2 which to go from a company investing in the initial commercial push of Play MPE.

In Q2-Fiscal 2008
Revenue $360K
EBITDA (negative) ($718)K

Growing revenue in 5 of the 6 quarters since, turning a loss into income and then continuing the growth of that income

To Q4 - Fiscal 2009 - Revenue $860K to $875K - EBITDA $275K to $290K

That's more than a $1,000,000 improvement in EBITDA in 18 months and - in my opinion - that change comes at the most critical time in any business venture, and we have changed the entire nature of the business.

During that time we signed Warner, expanded to Europe and Australia, extended with UMG in the US and signed UMG in the UK (UMG International), amongst many other things.

We have also done quite a number of things behind the scenes and I think we're more efficient, provide greater value to our clients, and I am more and more optimistic that these behind the scenes activities will result in continued growth in revenue and profit and customer satisfaction well into the foreseeable future.

First Results in from USEG's Bakken Deal



U.S. Energy Corp.'s partner Brigham Exploration reports:

AUSTIN, TX--(Marketwire - 10/16/09) - Brigham Exploration Company (NASDAQ:BEXP - News) announced that its operated Brad Olson 9-16 #1H produced approximately 2,112 barrels of oil equivalent per day from the Bakken formation during an early 24 hour flow back period.

[...]

Brigham maintains an approximate 33% working interest and 26% net revenue interest in the Brad Olson 9-16 #1H. Also participating in a non-operated role in the Brad Olson 9-16 #1H is U.S. Energy Corp. (NASDAQ:USEG) with an approximate 61% working interest and 48% net revenue interest. Brigham will back in after combined payout of the six initial wells drilled under the participation agreement with U.S. Energy for 35% of their interest in the Brad Olson 9-16 #1H well.


I was waiting for a pullback to add more USEG. If Brigham keeps drilling holes in Bakken and finding oil, that may prove difficult.

Thursday, October 15, 2009

Rumors of the dollar's death: greatly exaggerated

So says Martin Wolf of the Financial Times in his most recent column. Excerpt:

It is the season of dollar panic. These panic-mongers are varied: gold bugs, fiscal hawks and many others agree that the dollar, the dominant currency since the first world war, is on its death bed. Hyperinflationary collapse is in store. Does this make sense? No. All the same, the dollar-based global monetary system is defective. It would be good to start building alternative arrangements.


It's worth reading Wolf's column in full, but he makes a point there similar to one David Merkel made on his Aleph blog1 recently [Merkel]:

Whatever country of our world has the status of reserve currency must issue debt, and a lot of it, that other countries can invest in to park their idle cash balances.


Wolf sketches out the "Triffin dilemma" this leads to: an overhang of debt that eventually undermines confidence in the reserve currency. Wolf's proposed solution is to look for an alternative to the dollar as a reserve currency, but I wonder if a simpler alternative would make sense in the near-term: instead of having surplus countries buy up U.S. debt to satiate their demand for dollar-based assets, why doesn't the U.S. government offer them an equity-like investment instead? Specifically, why not offer shares in a sort of massive master limited partnership that would invest its assets in nuclear power plants and other infrastructure, and pay dividends out of the revenues generated from those infrastructure assets?

Unlike the proceeds from the sale of Treasuries, which can go to fund transfer payments and health care for retirees, or extended military expeditions, proceeds from the sale of shares in this master limited partnership would go toward increasing productive capacity, which would fuel future economic growth in the U.S. This idea is a similar to (but simpler than) one proposed by Professor Yu Qiao of the School of Public Policy and Management, Tsinghua University, Beijing, in the Financial Times last spring.

1Speaking of Merkel's blog, last month he asked if any readers had any stock ideas to share. I mentioned three: USEG, AYSI.OB, and DSNY.OB. As of yesterday's close, they were up 26%, 390%, and 60%, respectively.

Wednesday, October 14, 2009

Nature versus nurture: hockey edition

From Yahoo!, 9-year-old Oliver Wahlstrom:



According to this bio, Oliver's father Joakim (pictured below) was a pro hockey player for seven years in his native Sweden. If they ever make a movie about this guy, Stellan SkarsgÄrd could play him if he beefed up for the role.

Update on Q&A with Alloy Steel International



I mentioned this in the comment thread of a previous post, but for those who missed it,

The list of questions ended up being fairly long. Gene [Kostecki, AYSI's CEO] wrote back to say that he and Alan [Winduss, the company's CFO] planned to try to answer all the questions by midweek next week. In light of that time frame, I am going to revise my previous comment about not placing any trades until I post their response. I am going to place additional limit buy orders today but I won't modify them if they don't fill until after I have posted AYSI's responses to the questions. The salient point remains that I won't be buying or selling AYSI based on answers received from the company before posting them here.


I put in a GTC limit order in the low 2's this morning, but obviously didn't get it filled today, given today's price action. Speaking of which: commenter J.K. (who, as far as I know, is the only reader to have invested in AYSI after reading about it here), sold his shares at around $2.70 recently, because he felt that the chart suggested the stock would pull back below $2 in the near future. I've held (and added a tiny bit more) because I don't think the stock will drop below $2 before earnings are released absent materially negative news, and I don't want to risk having the stock run away from me if additional positive news is released (e.g., a big supply deal with another multinational mining company).

Essentially, J.K. feels the stock's near-term trajectory will be driven by technical factors and I think it will continue to be driven by fundamentals. It will be interesting to see which one of us turns out to be correct over the next couple of months.

Tuesday, October 13, 2009

Questions for the CFO of Destiny Media Technologies?



Destiny Media Technologies (OTC BB: DSNY.OB) is going to be releasing its earnings tomorrow. The company's CFO, Fred Vandenberg, was kind enough to offer to speak with afterwords. I plan to call him after I've had a chance to read over the filing. If you have any questions you'd like me to ask him, feel free to leave them in the comment thread below.

Vertical Branding: A Predictable Failure


In a post last March ("Applying the Altman Z"-Score Model to a Non-Manufacturing Company"), I mentioned a company called Vertical Branding (at the time it was on the OTC BB; now it's on the Pink Sheets: VBDG.PK). I noted at the time that the Altman Z"-Score model predicted bankruptcy for the firm and that when I had shared this information with the folks on the Investor Hub message board for the stock, I had gotten the Enemy of the People treatment.

A few days after that March post I was indefinitely banned from Investor Hub's VBDG message board, by a moderator who was indicted for securities fraud a few months later. After the close today, Vertical Branding released a "corporate update". Excerpt:

The company's restructuring efforts have failed to achieve expectations or intended results and the company lacks sufficient cash flow to maintain normal operations and meet its current financial obligations. The company's Board is presently reviewing the company's options for reorganization, recapitalization or other methods of deriving value from the company's assets to satisfy the company's liabilities. Because of its working capital shortage, the company has substantially reduced operating expenses by laying off all but three employees and by suspending various operations.


In this case, my getting banned for posting fact-based, bearish comments about Vertical Branding didn't do much good for those who continued to hold the stock. Investors need a site where they can post and read a full range of comments about stocks, including bearish or skeptical comments. Soon they will have one.

Update: The site I alluded to is live now: shortscreen.com. Use of the message boards on that site is free; you just need an e-mail address to sign up here.

Monday, October 12, 2009

Zen and the art of portfolio management


John Hussman's latest market commentary is replete with Zen koans, quotes from a Vietnamese Buddhist monk (Thich Nhat Hanh, pictured above), plus some thoughts on expected return probabilities. You may need to get up and stretch about half way through to stay focused, but it's an interesting read.

Another source for design work

In past posts I mentioned I had hired a design agency to create logos for a couple of subscription-based websites my company is going to be launching as well as logos and semi-custom templates for a couple of new blogs. Going to a design firm is one way to get this work done. Another is to 'crowdsource' it. Crowdspring is a site that lets you do just that: you post a request for a project, and a dollar amount you'll be willing to pay for a winning design, and designers from all over compete to produce a winning idea for you. According to the site, the average request generates 80 entries. I haven't used Crowdspring before, but it might be worth considering. Definitely an interesting idea.

Sunday, October 11, 2009

The FT on the Nobel Peace Prize

Beautiful day here in North Jersey. The sun's out, and the Giants just routed the Raiders. Here's the Financial Times on Obama's Nobel Peace Prize, from yesterday, "Urgency of Now?". Excerpt:

The Norwegian Nobel committee has made odd decisions before. Awarding this year’s peace prize to Barack Obama, however, is not merely bizarre but bad: for Mr Obama, for the prize, and for the cause of peace itself.

[...]

This is the first time the prize is given for what remain, for now, mere aspirations.

[...]

Despite Mr Obama’s undeniable diplomatic ambitions for a more peaceful world, there has simply been no time for him either to realise or betray them. So – to borrow from his own rhetoric – why the fierce urgency of now?

The answer is a Nobel Committee trapped in an adolescent adulation of Mr Obama that, if once shared by many, most have put behind them. Its continuing desire to flatter a particular tendency in US politics – Al Gore and Jimmy Carter are recent laureates – risks painting it as an annex to the left wing of the US Democratic party. Hoping the prize will strengthen Mr Obama domestically is deeply misguided: it will embarrass his allies and egg on his detractors.

Elsewhere, it will come to be seen as awarded for wishful thinking, not hard work. Peace is not served by devaluing the moral force of the prize, whose greatest impact has always been the moral support it can give those who fight oppression with their lives – a von Ossietzky, a King or a Walesa – or leaders who make heavy concessions needed for peace. Mr Obama has done neither. It is, however, in his hands to rescue the prize from itself – by declining it in deference to those more worthy than he.

Friday, October 9, 2009

The Nobel Peace Prize and the Olympics

On his Atlantic blog, former Carter speechwriter James Fallows snarks,

Yes, that Olympic rejection really makes Obama look weak...

Talk about a contemptuous outside world.


Of course, the "outside world" didn't make the decisions in either case, but it's worth considering who did. The Olympic bid was awarded by a diverse group of 106 individuals hailing from many different countries. The Nobel Peace Prize was awarded by these five Norwegians.

In fairness to Fallows, he did write a more compelling post on the subject later, giving a former speech writer's analysis of the President's remarks this morning on hearing he had won the prize.

Congratulations to the Commander-in-Chief

Congratulations to the Commander-in-Chief of the U.S. Armed Forces, currently engaged in the eighth year of a (recently escalated) war in Afghanistan, and the seventh year of a war in Iraq, along with a smattering of smaller engagements from the Horn of Africa to the Philippines, on winning the Nobel Peace Prize.

Apparently, the Norwegian committee that awarded the Nobel to President Obama also admired his commitment to dealing with "climate change". I like how the Norwegians are concerned about carbon emissions. Not concerned enough to stop pumping their North Sea oil though. Norway looks as out of place as Saudi Arabia on the climate change on the bandwagon

According to the Atlantic Wire, a number of prominent pundits across the political spectrum are recommending that the President turn down the prize.

Thursday, October 8, 2009

New Short Position: KITD


In a post last year, I recommended a documentary from 2001 that was airing on Showtime again, Startup.com, which profiled the rise and fall of a dot-com called govWorks.com. A post on Fred Wilson's blog yesterday (NYC's BigApps Challenge) reminded me of one of the stars of Startup.com, Kaleil Isaza Tuzman (pictured above), the co-founder of govWorks.com. When I found through a quick Internet search that Tuzman was now the CEO of a public company (KIT digital Inc.; Nasdaq: KITD), I figured it might me a good candidate to sell short, so I ran the Altman Z"-Score on it. Its score was -4.17. Recall that a score below 1.1 indicates a high risk of bankruptcy. On the other hand, the financial data that score is based on doesn't take into account two recent acquisitions made by the company, which the company's management claims will be accretive, so bear that in mind.

I shorted this at $11.55 today.

The photo above of Mr. Tuzman is from KIT digital Inc.'s website.

Update: readers of this post may also be interested in this site, which offers tools and ideas for short sellers and includes an automated calculator and screener based on the Altman models: Shortscreen.com

Wednesday, October 7, 2009

Questions for the CEO of Alloy Steel International?


On the off chance any of you have a question for the Hank Reardon of wear plates, leave it in the comment thread below. Mr. Kostecki has apparently indicated through an intermediary a willingness to chat with me.

Bagel Dog


Last month, I mentioned I shorted Einstein Bagels (Nasdaq: BAGL) ("New Short Position: BAGL"). Today, BAGL was added to the Zacks #5 Strong Sell list.

Tuesday, October 6, 2009

Quip of the Day

The Louisiana attorney general subpoenaed ACORN for documents related to an embezzlement case, according to an article this morning on Nola.com. The article quoted ACORN board member Vanessa Gueringer on the subpoena:

"I believe it is another lie, another witch hunt, " Gueringer said.


In the comment thread of Megan McCardle's post about this, a commenter named Thorley Winston quipped:

People afraid of witch hunts should probably refrain from flying around on broomsticks.

Friday, October 2, 2009

Benoit Mandelbrot on the Efficient Market Hypothesis

Below, Jonathan Authers of the Financial Times interviews the eminent mathematician Benoit Mandelbrot1. Sorry about this video automatically launching into play. I didn't see an embed feature so I cut and pasted the source code here. Update: Thanks to Alex Garcia, here's the embedded version, via YouTube:




1I wonder if Dr. Mandelbrot knows that Jonathan Coulton made this song about him, Mandelbrot Set. Here are the lyrics to the chorus:

Take a point called Z in the complex plane
Let Z1 be Z squared plus C
And Z2 is Z1 squared plus C
And Z3 is Z2 squared plus C and so on
If the series of Z’s should always stay
Close to Z and never trend away
That point is in the Mandelbrot Set

The Nobility of Manufacturing

Luke Johnson's columns in the Financial Times are hit-or-miss for me, and mostly misses. But this one Wednesday was one of the hits, "The genuine nobility of manufacturing". A brief excerpt:

There is something authentic, something noble about making physical objects. It appears to me the essence of capitalism. Service and support sectors are all very well, but their output feels so much less tangible than a production business. Moreover, economies need balance: that way they are better equipped to ride out downturns.

[...]

But manufacturing matters not simply because of vaguely romantic notions about creating things. It provides well-paid blue-collar and professional jobs. It generates exports to help offset trade deficits generated elsewhere in the economy. It adds far more value pro rata than service industries. Every major plant fosters clusters of other businesses.


Yes.

This seems so self-evident, that you might think smart soi dissant progressives would embrace the notion. Not Michael Lind though, who, in his Financial Times column last week ("Healthcare can get America working") followed fellow progressive Matt Miller in arguing for eschewing manufacturing in favor of health care as a source of future jobs. Lind gives the same rationale as Miller: manufacturing jobs can be outsourced (as if health care jobs can't be -- and increasingly aren't being - insourced, i.e., filled by immigrant workers). Lind writes, apparently without irony,

Will the health aide be the typical worker of the 21st century, as the factory worker was the iconic figure of the 20th?


If the elites in both major parties don't come up with more coherent responses to the challenges that globalization presents to those who are vulnerable to outsourcing or insourcing (i.e., most private sector workers), they will leave open a large political void. They may not like what fills it.

How much was Tim Ferriss really making from his supplement business?

1/20/2011 -- Update/Request: For some reason, this post is attracting a number of readers from Australia. If you have plans to be in the Perth area in the near future, would you mind dropping me a note via this form? Thanks a lot.


The figure I remember from the book was $40k per month. In this thread on the forums of Tim's Four Hour Work Week site, commenter "Kamakiri", who apparently has launched his own knock off (Game Brain) of Tim's former supplement business (BrainQUICKEN), says the facts suggest Ferriss couldn't have been generating anything close to those revenues from his supplement business. Some excerpts from Kamakiri's analysis:

Page 8 & 16 mention 40k, page 7 mentions 40% profits. No referencing of either together or in relationship with BrainQUICKEN (which he sold earlier this year). Read closely and Tim also mentions 30k, 60k, and 70k in other places.

Heck, if you were making a half a million a year at 40% profits, a normal business offer would be 10 years profits plus assets. That would value BrainQUICKEN at well over a mil and a quarter. Who in their right name would pay that for a business that Tim tells how to copy?

[...]

Bodybuilding.com has over 8,500 products. 1.2 million members with a 10% conversion rate (a gift there, should be about 2-3%) makes 120,000 purchases.

120,000 purchases /8,500 products = 14 sales for BQ off that site.

The hits to Tims's old site are easily conformable. This is the internet here people. Do the math yourself, and anyone can quickly see that BrainQUICKEN does not generate anywhere near that income.

[...]

Bodybuilder.com is pretty straightforward. Go to the site and pull the numbers off the top page. Simple math tells you he isn't making much there. Check the page views per month on BQ. Those numbers just don't add up to anywhere near 40k.

[...]

Having that many references, 30k, 40, 60, 70k... with out being more specific hurt his credibility in my opinion. It is carefully worded each and every time he mentions a figure. As it is written it is straightforward, but it does lead people to believe that Tim made 40k in income every month from BQ. Even a cursory view of easily verifiable numbers shows that this can't have come from BQ (not to mention zero spending on google ads).

[...]

I also researched the heck out of the business model in developing GameBRAIN. That is when the cracks in Tim's muse story came from. They say imitation is the sincerest form of flattery, but after imitating BQ to a certain extent, it was like an onion. Lots of good layers to dig through, only to find a few rotten ones.


At this point in our discussion, I asked if it were possible if Ferriss could have generated $40k per month in sales if that were mostly from retailers buying his product in bulk. This was Kamakiri's response:

The idea of buying in bulk from the site doesn't work because it never had that option. Besides, it is harder than hell to get retail space. An example of this is Mana Potions. Those guys do something near BQ by selling an energy drink for gamers. They have a serious team of salesmen, campaign girls, convention booths, and even a treadmill hooked up to WoW with timed runs from point to point across Azeroth (sp?). They have a tough time getting into stores, and the market for those products is tiny. Compare that to the supplement market (8,500 products on bodybuilding.com alone), and you can imagine the sales force that he would have to compete against. Retail profits are also nearly non-existent. You are looking at a few dollars in margin as opposed to the $60 or so he makes from the site.



That aside, outsourcing 10,000 bottles a month just doesn't work. 500 cases of 20 @v $4 profit a bottle. The logistics are out of the scale of anyone working less than 40 hours a week.

Thursday, October 1, 2009

The 13th fastest-growing tech company in Canada is


PNI Digital Media1, the company formerly known as PhotoChannel. And I own a few shares of it. How exciting. What would be more exciting is if it started consistently growing profits, and not just revenues. I'm on the fence between holding this one to see if Edelheit's latest predictions of exploding sequential growth in EBITDA come to pass, or selling it.


1"PNI Digital Media" -- those nine syllables don't exactly roll of the tongue, do they? They should have stuck with PhotoChannel, even if they are expanding into areas beyond digital photo processing. Burger King doesn't just sell burgers, but its management had the good sense to not change the chain's name to "BKI Fast Food".

Tim Trunkated

From the "new to me" file, here's Penelope Trunk on Tim Ferris, posted on her blog earlier this year, "5 Time management techniques I learned from years of hating Tim Ferriss". Excerpt:

1. Don’t hang out with people who don’t respect your time

This all started at SXSW conference in 2007, right before Tim's book came out, when he was promoting the hell out of it to bloggers. Of course, this was not a bad idea, and to be fair, Tim was brilliant to start this book marketing trend. But that is beside the point. He approached me after my panel and said, "Can I get you coffee? I'd love to talk with you."

I said, "Uh. No. I have plans."

And he asked who with.

I wasn't really sure. I knew there were cool people to hang out with after my panel, though, and I knew he wasn't one of them. I gave a vague answer.

He said he was also meeting three people, and he name-dropped them. I can't remember who they were. But they were fun, interesting, and I wanted to have coffee with them. So I said okay.

Then Tim couldn't find them and I had coffee with only Tim.

Then I realized this was his strategy all along.

I told myself not to be pissy. I told myself bait-and-switch is the oldest sales tool in the world, and it's my fault for falling for it.

The Non-Starters



In a post last December ("Questioning the Conventional Wisdom about the Benefits of Microfinance and Encouraging Entrepreneurship"), I mentioned an article by Scott Shane in The American in which Shane poured cold water on U.S. policies that encourage Americans to start small businesses. In that post, I mentioned that the article wasn't available online, but prompted by a discussion on the forums of Tim Ferriss's Four Hour Work Week site, I looked for it again. It's available online now: The Start-Ups We Don’t Need -- Are we encouraging the creation of too many low-productivity businesses?.

What reminded me of Shane's article in the 4HWW forums, was the number of "me-too" businesses ("muses" in the 4HWW parlance) proposed there, e.g., high-priced e-books about how to pick up women, or how to get rich, etc. To be fair, there has been a minority of clever niche business ideas mentioned there too. For example, a teacher in the Midwest, after trying unsuccessfully to find study aid materials for a mandatory statewide algebra test, decided to create them himself for his class, and then made a business out of it, selling it statewide.

The illustration above, by Dave Plunkert, accompanied Shane's article in The American.