In Search of the Perfect Investment

Every day The New York Times has one section — Business/Sports. The same unpredicability. The same insanity.

Take yesterday. It gave new meaning to the old Australian expression — up and down as often as a whore’s drawers:

Amazing movement in one day. Why did it plummet? Why did it bounce at 1 PM? No one knows. Just volatility. Whatever that is.

The only thing to remember is that panic is not a strategy. Sell into strength, not weakness.

Alternative asset managers were strong in 2013, and the first quarter of 2014. Then they crashed. Here’s why. This is from Deutsche Bank’s latest research report on them:

Read the report here.

I made a big mistake with these things: I wrote “buy them for their big first quarter dividends.” They rose. They paid the dividends. I was right. Then they crashed. I didn’t get out in time. I dumped APO. But I still own a little BX and KKR. Both KKR and APO have fallen below their 200-day moving average. BX is still holding in, but the outlook is not good. Look at the estimates above:

Most of us can now direct our trades to IEX. And we all should. IEX’s list is half way the page here.

Two big holdouts: Fidelity and Schwab. I don’t know why. Before you switch accounts, call them and ask them, “What’s holding you up?“

If you haven’t read Michael Lewis’ book, Flash Boys, you really should.

Tesla has fallen in 2003, but it’s up substantially in the past year.

It will come back. Friends who’ve ridden or driven a Tesla rave about it. All want to own a Tesla. I haven’t heard such enthusiasm in eons. If Elon ever builds his battery factory, the price of Tesla cars should plummet and my friends will all buy it. Meantime, Tesla is one gutsy company. Here’s a piece on it by my favorite New Yorker writer, James Surowiecki:

The electric-car company Tesla seems like everyone’s darling these days. Its stock, even amid a pervasive sell-off in the tech sector, is up nearly forty per cent this year. It has announced plans to build a five-billion-dollar battery factory, which various Southwestern states are vying to host. And it’s now starting to sell cars in China. But there is one place where Tesla is getting no love: New Jersey. Last month, the state decreed that the company would have to shut down its showrooms. In doing so, New Jersey joined states like Texas and Arizona, where it’s effectively illegal to buy a Tesla. Pretty soon, you’ll be able to get a Model S in Beijing but not in Paramus.

Why was Tesla banned? It sold cars. It built showrooms where customers could check out a vehicle, arrange a test drive, and buy a car. The hitch was that Tesla sold cars directly to the public, without going through independent dealers. In most industries, this would hardly be a radical idea. Dell built its business on selling direct to consumers, and the most successful retail phenomenon of the past decade is the manufacturer-owned Apple Store. But the auto industry is different. In its early years, companies tried all kinds of ways of selling cars; you could buy them right at the factory, or at local department stores, or even from the Sears catalogue. But by the nineteen-twenties the industry’s major players had settled on a system of local, independently owned car dealers. Today, almost every new car in the U.S. is sold this way. In forty-eight states, direct sales by car manufacturers are restricted or legally prohibited, and manufacturers are often prevented from opening a dealership that would compete with existing ones. If Ford wanted to open a flagship store on Santa Monica Boulevard, it couldn’t.

Tesla, since it’s starting from scratch, has no existing dealers, and so in theory it isn’t encroaching on anyone’s turf. But auto dealers around the country have still been lobbying state governments to force the company to change its ways. Dealers like the existing system, and they don’t want other automakers to get any ideas. Fiona Scott Morton, an economics professor at Yale who has written extensively on car dealers, told me, “There isn’t a rational argument for why a new company should have to use dealers. It’s just dealers trying to protect their profits.”

Of course, no one involved presents it like this. State legislators insist that the status quo benefits consumers: the relevant Florida statute claims to be “providing consumer protection and fair trade.” We’re told that only independent dealers can guarantee service and warranty coverage. But look at the Apple Store: manufacturer-owned, and yet famous for the customer service and tech support provided at the Genius Bar. And while the argument is sometimes made that the use of independent dealers lowers prices, it’s hard to see how forcing Tesla to sell its cars through middlemen would make them cheaper. Indeed, a series of studies in the nineteen-eighties found that the various rules protecting dealers led to higher prices-six per cent higher, according to an estimate by the Federal Trade Commission. And in 2001 the Consumer Federation of America estimated that restrictive franchise laws could be costing consumers as much as twenty billion dollars a year. In any case, no one expects dealers to disappear. The question is whether automakers should be legally banned from trying out new ways to sell their cars.

It isn’t just auto dealers. State regulations are littered with provisions designed to protect incumbent businesses. In most states, retailers and restaurants have to buy alcohol from wholesalers rather than directly from producers. And there’s an ever-growing thicket of occupational licensing regulations. For some professions, a licensing requirement makes sense. But, according to a 2008 study, almost thirty per cent of jobs now require a license in some state or other, including many-auctioneer, shampooer, home-entertainment installer-where licensing seems totally unnecessary.

State governments have been looking out for local businesses since way back-in the nineteenth century, they forced travelling salesmen to pay extortionate fees-and they haven’t minded too much when this protectionism comes at the expense of consumers. Besides, as Scott Morton says, “dealers employ a lot of people and they generate a lot of sales-tax revenue, so they have great influence over state legislators.” Auto manufacturers, by contrast, are typically based out of state, while consumers are too amorphous a group to really exert much political pull. And, as the political scientist Mancur Olson famously noted, when the benefits of a regulation are concentrated and the costs are diffuse, the party that gets the benefits is almost certain to win.

Of course, you might ask, who really cares if some luxury-sedan maker has to sell through dealers? But what the New Jersey ban exemplifies is the tendency for businesses to use state power to divide the economy between insiders and outsiders. This discourages innovation, raises prices, and makes life hard for people trying to start new businesses-or even just get a new job. Does it really make sense to force someone, as Utah did until 2012, to go through two thousand hours of cosmetology training to work as a hair braider? Such statutes delegitimatize the idea of regulation, by making it look merely like a way for governments to indulge special interests. As the financial crisis showed, there are plenty of areas in real need of regulation. But maybe car buyers can take care of themselves. 

Make a zillion dollars shooting dumb YouTube videos.
Every day my friends send me YouTube videosthat I should watch. They’re always dumb — like this one that showed today’s kids reacting to yesterday’s technology, Sony’s Walkman:

They didn’t know what it was. Surprise. Surprise. To me the video gave boredom a whole new meaning. Until…. I saw this magic number:

Over four million people have watched this idiocy.

Now to the good news: YouTube pays you for videos that get viewership. I’m guessing that’s  why the FineBros have made 584 of them. Encourage your kids. These days you can make YouTube videos with everything from a smartphone to a $200 point and shoot camera or my favorite Canon G16 — which you can’t buy this week from B&H, because it’s Passover.

 I hate NDAs. Reading them wastes time. Signing them opens me up to horrendous potential liabilities. This morning  I wrote one. And the company accepted it. It reads:

“I promise to keep confidential anything XXXX (CEO’s name) tells me about ABC Corp (name of company) and his plans for the company.”

Why is it so hard to buy?
Companies and their salesmen routinely:

+ Take eons to respond to requests for simple information.

+ Don’t acknowledge your emails and voice mails.

+ Don’t follow up.

+ Don’t “touch” their customer frequently enough. We used to believe in “touching” our prospects four times a month. Phone calls. Faxes. Emails, Postcards. Presents.

How did he get fired?
All he had to do was wear a Winnie the Pooh costume and be friendly to kids.

How did he get fired first day on the job?

Hint: He put the pants on backwards.

Harry Newton who notes that simple strong companies like HON, JNJ, and QCOM seem to be holding nicely. MA and V are now looking interesting again.

Check your Bucket List. A dear friend has just come down with multiple myeloma. It’s very sad. Follows other friends just hit with cancer. Lesson: When you’re feeling a little yuchy, get a blood test. Don’t wait until it’s too late.