Thursday, April 30, 2015

Should you be able to short internet Unicorns?

This article wonders if you should be able to short private internet stocks with (seemingly) excessive valuations:
Private tech companies could benefit from relaxing restrictions on stock transfers and allowing short-selling, bringing more investors into the market for their stock.
OK, so the summary is a little disingenuous, but more seriously, if someone thinks that a stock, public or private, is too high, then isn't the ability to short it both a good way for the market to capture that information and hopefully come up with a better valuation, and also getting naysayers to put-up or shut up? Also, aren't better valuations important for the economy as a whole, and the sector in particular?

I disagree with both assertions. Firstly, I don't believe that shorting is captured particularly well as market information. It didn't help with the Internet bubble of the 1990s, which is primarily a public market phenomenon, and it contributed to the real estate debt bubble that followed in the 2000s (by banks selling the securities with one hand specifically so they could short them with the other).

Secondly, I don't believe that asset bubbles in general, and this asset bubble in particular, are harmful to the broader economy. Unlike debt bubbles, which wipe out bank capital and so generate a systemic contagion effect, equity bubbles wipe out assets within individual entities, limiting their spread. We bounced back quickly from the crash of '98, but are still struggling with the crash of '08. Japan has yet to emerge from their crash of '91.

When/if this bubble pops, it will knock out some venture capital and private equity firms, will be a damper in a couple of overcooked real estate markets, but the broader economy will continue just fine. If you see stocks tumble, rush in to buy them.

Monday, April 27, 2015

Why does active asset management still exist?

At U Chicago, I was confronted with the paradox of 1) being at the intellectual ground zero for the efficient market hypothesis while 2) being at the vocational launching bad active investment managers. And yes, it was the same people in both classes.

Robin Hanson talks (briefly) about why index funds have not taken over the world:
Even employees who invest for themselves tend to pick at least one high fee intermediary: an active-management investment firm. Few take the low cost option of just directly investing in a low-overhead index fund, as recommended by academics for a half-century.
Whatever the reason, this is why the recent spate of Roboadvisors have come to the fore (that, and their very slick websites).

Looking at my own portfolio, I see lots of index funds, and the effort to patch together international index funds back when that was hard to create, plus strange situation specific hedges (REIT, Muni Bonds) and a handful of experiments (BP, Greece, Fannie Mae bonds).

Certainly time to rationalize it all, but tricky to do without triggering a lot of capital gains.

Friday, April 17, 2015


No idea how it works, but these will be great (.pdf).

Monday, April 13, 2015

LinkedIn acquires

Yesterday, on Crunchbase, I could sweat that the Lynda entry said it raised it's series B at a pre-money valuation of $1B in Jan 2015, giving it a post-money valuation of about $1.2B. The LinkedIn acquisition at $1.5B then represents a poor cash-on-cash return, it seems.

I wonder why the company sold for $1.5B just 4 months after raising money at a $1B-$1.2B valuation? What does this say about the online education space?

If anyone has insights, I'd love to hear them in the comments.

Friday, April 10, 2015

Job-to-be-done by the Economist

It's worth reading the entire interview of Economist deputy editor Tom Standage, but this really stuck out:
...what we actually sell is what I like to call the feeling of being informed when you get to the very end. So we sell the antidote to information overload — we sell a finite, finishable, very tightly curated bundle of content.
I have to believe that this came out of some deep customer insight work, because it is not normally how media organizations present what they do, or more precisely, what role they play in their readers' lives.

This level of understanding what job your product does, in the Economist's case, giving the reader all they need to know in 90 minutes a week, with a clear finish line, is very specific and insightful. As the Economist continues to move to move to digital, the question will become, is this job important on the phone? And if not, what new job takes its place?