Category: Investing

A traditional investment advisor would advise an individual to put 20% to 40% of your money into bonds. The bond market is not a safe place to be at the moment. If you must own bonds, concentrate on shorter durations. The fundamentals for owning any bonds are just not their. The risk/reward ratio is terrible.
Treasury Bond Yields:

Corporate Bond Yields:

Yield and spread on agency mortgage-backed securities:
In the long term, all bonds and any derivatives based on bonds, are going to suffer.
However, I don’t plan to short bonds because I don’t believe the bond bull is dead. I don’t plan to go long bonds because there is no fundamental reason to own them. The only reason to go long bonds, at this point, is because investors around the world think they are a safe investment. They are very wrong. But until the psychology of the market changes, the best action is to stay away. The bond bears have been around for 10 years. From the above charts, you can see they have done nothing but lose money year after year.
The original widow-maker was shorting Japanese Government Bonds (JGB). No matter how much debt Japan racked up, JGB’s continued to rally from 1990 all the way up to present day. It has been almost 30 years since 1990. I have no intention of making the same mistake predecessors made.

Snapchat lets users create pictures and send to friends. These pictures only last a limited time. I decided to take a look through their 145 page 10-K to see what is going on with this company.
At a share price of $17.26 it has a market cap of 20 billion dollars.
They have never posted a profit. Ever.

EBITDA:

FCF gets worse and worse.

Than we get to the interesting part.
From the 10-K:
“Research and development expenses for the year ended December 31, 2017 increased $1.4 billion compared to the same period in 2016. The increase was due to a $1.1 billion increase in stock-based compensation expense primarily due to the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of the registration statement for our IPO in March 2017. The increase was also driven by an increase in research and development headcount of approximately 84%. The investment in personnel supported our efforts to continue growing our user base and building and improving products for our
users and advertisers”
From the 10-K:
“General and administrative expenses for the year ended December 31, 2017 increased $1.4 billion compared to the same period in 2016. The increase was primarily due an increase in stock-based compensation expense of $1.2 billion, composed of an award granted to our CEO with an expense of $636.6 million and the remainder primarily related to the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of the registration statement for our IPO in March 2017. The increase for the year ended December 31, 2017 was also driven by increased personnel costs from an increase in general and administrative headcount of approximately 24%. Additionally, there was an increase in professional fees related to increased acquisition activity, legal, and general growth.”

Management at snapchat believe they have done such a fabulous job for their shareholders they decided to reward themselves.

The conclusion of this post is from the 10-K itself:
“We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.
We began commercial operations in 2011 and for all of our history we have experienced net losses and negative cash flows from operations. As of December 31, 2017, we had an accumulated deficit of $4.7 billion and for the year ended December 31, 2017, we experienced a net loss of $3.4 billion. We expect our operating expenses to increase in the future as we expand our operations. If our revenue does not grow at a greater rate than our expenses, we will not be able to achieve and maintain profitability. We may incur significant losses in the future for many reasons, including without limitation the other risks and uncertainties described in this report. Additionally, we may encounter unforeseen expenses, operating delays, or other unknown factors that may result in losses in future periods. If our expenses exceed our revenue, our business may be seriously harmed and we may never achieve or maintain profitability.”

Would you buy this company for 20 billion dollars?

Watching South Africa turn into Zimbabwe is sad. However, it is self inflected by the South African people. Zuma seems to be on his way out.

Their central bank and government officials seem hell bent on destroying the currency and economy. In this respect, they are no different than all the other countries. The ANC seems smart enough not to nationalize the mining industry. This is a good thing.
The EFF is a small political movement in favor of nationalizing mining. In times of crisis, political movements can become majorities very quickly. South Africa becomes more political unstable each day. Buying platinum is like buying a put option that never expires on the stupidity of SA’s government.

…Jesse Livermore called the top in bitcoin.

Read about his favorite book here.
A biography of his life was detailed in Reminiscences of a Stock Operator. It is amazing Hollywood never made a movie about his life. He made and lost many fortunes. After making a $1.5 billion (in 2017 USD) by shorting the market in 1929, he lost it all. I always wondered how he lost all that money. Some where, hidden in the foot notes of history is the answer to this.

The mania phase is the last stage of a bull market.  It is when a particular market goes vertical. It should be the most profitable period for the bulls. It is not. Contrary to popular belief, bulls actually lose money in the mania phase. The bears make money. The bulls marry their investment. They think it should continue to go up. They don’t know when its time to jump ship.
There are three components to every market top.
1- It has gone parabolic.
2- Everyone is talking about it.
3- There is mass stupidity at the top.
If you ever invest in anything memorize these three points. Get a tattoo on your chest backwards if needed. Look in the mirror. Ask yourself the three points above in a question format.
Has it gone parabolic?
Is everyone talking about it?
Is there mass stupidity?
The best example today is bitcoin. I have wrote about it to the point of boredom so I will not digress. John McAfee actually said bitcoin can not go into a bubble. He wrote an idiotic op ed. He has given numerous interviews on the subject. He ignores 5,000 years of market history. He will be the poster boy of point 3-mass stupidity.

Conclusion
Never marry your investment. There is a time to sell. Always have an exit strategy. Read this book. Ask yourself this:
Am I the wolf or the sheep?