In Search of the Perfect Investment

It renews my faith to spend a day listening to CEOs make impassioned 30-minute presentations for their company’s products and their services. There were two investor conferences going on yesterday — SeeThruEquity and Marcum. Probably a couple of hundred companies in total. The companies are typically small young public companies with large ambitions and often very appealing business models. I saw only a handful. They all had really low market caps. Hence a way to grow. Of those I saw, these ones appealed:

+ Inventergy (INVT). They buy patents — chiefly in telecom — and go after infringers for royalties. They share the royalties with the patent owners, including Huawei, Nokia and Panasonic. Market cap: $10.6 million.

+ Multimedia Platforms (MMPW). They’re going after the LGBT (lesbian, gay, bi-sexuual and transgender) marketplace. Apparently 7% of our society are LGBT. They’re very early on. They’re assembling print and web publications. Market cap: $35.5 million.

+ General Employment Enterprises (JOB). They’re an employment agency. They hire people for their clients — full and part-time. They’re still small. But one day, they’ll be a juicy takeover target for one of the biggies, like Manpower (which also hires women, despite its name). Market cap: $26.9 million.

+ Greenwood Hall (ELRN) helps smaller college recruit and retain students. I heard their success numbers. They were impressive. Greenwood interacts (talks to, emails with, texts with, etc.) students as though they were the college. The students are none the wise. Except they now appear to be loved by their college. Market cap: $40.7 million.

I own a little MMPW and JOB. I’ll probably nibble at INVT and ELRN today.

Dick Fuld gave the luncheon speech at Marcum yesterday. He, predictably, denied all responsibility for the bankruptcy of Lehman Brothers — the biggest ever. He was CEO at the time. The Wall Street Journal had this kind piece:

Richard Fuld Jr., the man at the helm of Lehman Brothers Holdings Inc. when it collapsed in 2008, said a “perfect storm” of events caused the financial crisis.

Among the contributing factors Mr. Fuld listed Thursday were government officials who pushed for lower home-lending standards and homeowners who used their equity on their homes “as ATM accounts.”

“It’s not just a one single thing, it’s all these things taken together,” he said.

His comments came at the 2015 Marcum MicroCap Conference in midtown New York, where he was giving the keynote luncheon address-his first such appearance since Lehman filed for bankruptcy. The first minutes of his remarks were broadcast live on CNBC, complete with the clinking of the silverware in the background.

Mr. Fuld has kept a low profile since leaving Lehman Brothers. Most of his public remarks since then have been before lawmakers in Washington. He joked Thursday that he didn’t count “my wonderful time with Congress” as a speaking engagement.

He started his remarks with a brief discussion of Lehman’s culture and its compensation practices, which he said fostered a sense of teamwork. Then he discussed the fall of Lehman and took the audience on a whirlwind tour of the easy-money policies that led its demise.

“Regardless of what you heard about Lehman’s risk management, we had 27,000 risk managers because they all had a piece of the firm,” he said.

And he defended the bank’s capital structure when it was “mandated into bankruptcy” saying its equity capital was $28 billion.

CNN Money had a more fun, and less kind piece:

They wrote:

In the fall of 2008, Dick Fuld may have been the most hated man in America.

As the disgraced former CEO of Lehman Brothers, he had just presided over the largest bankruptcy in American history. Fuld quickly became the poster child for the reckless risk taking that fueled the Wall Street meltdown and Great Recession.

Since the financial crisis Fuld has largely stayed silent — until Thursday when he decided it was “time for me to raise my ugly head.”

“Not a day goes by that I don’t think about Lehman Brothers,” Fuld said at a conference in Manhattan.

Fuld alluded to how unpopular he is, but he downplayed how much the criticism impacts him.

“My motto is: That was then, this is now,” Fuld said. He added: “My mother still loves me. She’s 96.”

Fuld is something of a toxic asset on Wall Street, not unlike the ones Lehman bet on that caused the bank to collapse. Fuld has not been hired by any big firms and has been the subject of countless lawsuits, including a shareholder suit he and other Lehman execs paid $90 million to settle in 2011. On Thursday, he received modest applause from the crowd of mostly financial professionals.

Fuld’s comeback effort: Fuld’s comments marked his first public remarks since being grilled by investigators on the Financial Crisis Inquiry Commission in 2010. After years of silence, he is trying to make a comeback of sorts. He took the opportunity to talk up the work of Matrix Advisors, the consulting firm he founded in 2009.

Fuld, who built and lost a $1 billion fortune on Wall Street, said he didn’t think he “had a choice” other than to try to get back into finance.

Sarcastically asked by the moderator why he didn’t ride into the sunset after presiding over the epic Lehman failure, Fuld replied: “Why don’t you bite me?”

‘Perfect storm’: If he could, Fuld said there are many things he’d do differently over his final year at the helm of Lehman.

“You have to have enough liquidity to ride out the storm. I’ve been there, done that,” he said.

During the crisis, Lehman and other big banks were stuck with too many “illiquid” assets, meaning ones they could not buy or sell quickly enough to meet other obligations.

“It’s very easy to look back…I missed the violence of the market and how it spread from one asset class to the next,” Fuld said.

He described a “perfect storm” and “self-fulfilling negative loop” that drove financial panic, including an explosion of debt and financial products and lax regulation.

LessonS from the Great Recession for all of us:

Be wary of your borrowings.
Be wary of owning too many illiquid assets.
Don’t concentrate all your investments.
When in doubt, stay out. The good times don’t continue forever.
Keep enough cash around to ride out two years of family expenses.
And don’t do what Fuld did –Don’t do stupid and arrogant, especially arrogant.

 Two good pieces in today’s New York Times:

The Small, Happy Life by David Brooks. it begins:

A few weeks ago, I asked readers to send in essays describing their purpose in life and how they found it. A few thousand submitted contributions, and many essays are online. I’ll write more about the lessons they shared in the weeks ahead, but one common theme surprised me.

I expected most contributors would follow the commencement-speech clichés of our high-achieving culture: dream big; set ambitious goals; try to change the world. In fact, a surprising number of people found their purpose by going the other way, by pursuing the small, happy life.

Read the full piece here.

The Insecure American by Paul Krugman. It begins:

America remains, despite the damage inflicted by the Great Recession and its aftermath, a very rich country. But many Americans are economically insecure, with little protection from life’s risks. They frequently experience financial hardship; many don’t expect to be able to retire, and if they do retire have little to live on besides Social Security.

Many readers will, I hope, find nothing surprising in what I just said. But all too many affluent Americans – and, in particular, members of our political elite – seem to have no sense of how the other half lives. Which is why a new study on the financial well-being of U.S. households, conducted by the Federal Reserve, should be required reading inside the Beltway.

You can read the efull piece here.

Today’s gloom and doom nahsayer is MarketWatch. They send out a free newsletter which I sadly receive. They haven’t sent out a positive piece in eons, maybe ever. Latest two pieces I got:

WASHINGTON (MarketWatch) – The economy shrank at 0.7% annual pace in the first quarter owing to a smaller inventory buildup and weaker net exports than previously reported, revised figures show. Originally the government had said the economy grew by 0.2% in the first three months of the year. Wall Street was expecting gross domestic product to be marked down. Economists polled by MarketWatch had forecast a revised 1% decline in GDP. The increase in consumer spending, the main engine of U.S. growth, was little changed at 1.8%. Yet the value of inventories, which adds to GDP, increased by a smaller $95 billion instead of $110.3 billion. Exports fell a somewhat larger 7.6% while the increase in imports was revised up sharply to 5.6% from 1.8%. A bigger trade deficit subtracts from GDP. Businesses invested more in equipment than initially estimated, but spending on structures such as oil rigs fell precipitously. Economists expect U.S. growth to rebound in the second quarter, with most forecasting GDP to rise around 3%. The same pattern occurred in 2014.

WASHINGTON (MarketWatch) – Adjusted pretax corporate profits fell 5.9% in the first quarter and declined for the second quarter in a row for the first time since the middle of the 2007-2009 recession, the U.S. government reported Friday. By the same measure, profits had fallen by 1.4% in the fourth quarter. Adjusted profits decreased by $125.5 billion in the first quarter to mark the biggest drop in seven years, the Commerce Department said Friday. Profits had fallen by $30.4 billion in the final three months of 2014. Profit figures are adjusted for depreciation and the value of inventories.

They’re reporting the nonsense from our Federal Government in Washington, which routinely makes numbers up for its own political purposes. Actually the real problem is that the economy is too big and far too diverse and far too small-business, cash-oriented, and far too start-uppy to get a handle on in real time. I love MarketWatch’s first story: One minute the economy is up by 0.2%. The next minute it’s down by 0.7%. Statistics up and down faster than a whore’s drawers.

I’m writing this for the sole purpose of saying “Ignore what MarketWatch says.”

Speed up, back up. This is Samsung’s latest 850 Pro solid state drive, shortened to SSD. It’s many times faster than earlier SSD generations and a zillion times faster than the spinning platter hard drive you have probably are still suffering with in your present laptop.

SSD drives are the miracle workers of laptops, SSDs used to cost megabucks. I bought this 256 gigabyte drive for $142.99. You can buy a huge terabyte (a thousand gigabytes) for $497.99. I don’t need one that big since I just don’t have that much junk (or pirated movies). I will clone my present SSD onto this one and then use it. SSD drives don’t last forever. It’s good practice to replace them every couple of years. Amazon sells these Samsung SSDs here. Resist the urge to buy cheap SSDs. Samsung makes the best. I have many Samsungs. And I’ve never had a moment’s problem with any Samsung SSD.

Yesterday I showed you show to clone hard drives easily. Click here.

Bubba’s Hovercraft. 8.8 million have watched YouTube video of a Bubba Watson’s prototype hovercraft golf cart.

Fun thing. I don’t play golf but I’d like to own one. Watch here.

Harry Newton who doesn’t like catching falling knives. But he sees some interesting opportunities in beaten down sectors — oil, mortgage REITs, railroads and, to a much lesser extent, some of the railroads — undoubtedly why Berkshire has been under pressure lately. Good research for the weekend.