Sunday, 28 April 2013

Nine Quotes From The Master Investor Show 2013, London

I had yet another very enjoyable visit to the sixth Master Investor Show I've attended. It was the first year under new management but with a few familiar faces.
This is a quick blog for now, I'll cover the speakers I saw over the next few days.

"The Euro is the greatest short I have seen in my thirty years of foreign exchange experience."
Jim Mellon

"Hold 5 to 10% of your portfolio in gold as insurance and hope it doesn't go up because that would mean everything else is bad."
Merryn Somerset Webb

"Those over forty are driven mad by compliance officers, those under forty know nothing." 

Simon Cawkwell on the problem with stockbrokers

"Gold is the Anti-Christ of investment. It's what everything else isn't."
James Ferguson

"Interest rates at a 300 year low tells us that nothing is normal now."
Merryn Somerset Webb

"I don't know why they've asked me to the Master Investor Show, I'm a rubbish investor. In fact I ran my own Rubbish Investor Show but it wasn't very successful."

Richard Reed

"President Truman demanded to see a one-handed economist - all the others began their advice with 'On the one hand...but on the other hand."
Jim Mellon

"The bare-faced tolerance of fraud by the regulators is degrading."
Simon Cawkwell

"QE is now running at three times the rate the Bank of England used during the worst of the credit crunch."
James Ferguson


Master Investor have started publishing presentations from the show:. For viewing compatibility, I have put Powerpoint files through an online viewer:

Managing the t1ps legacy - Peter Webb

Friday, 26 April 2013

Zinbcoin, the Elephant in the Bitcoin Vault

The supply of Bitcoins is restricted, sure, but what if...

" Either Bitcoin ultimately fails and the individual Bitcoins end up worthless. Or Bitcoin takes off and Bitcoins are worth hundreds of thousands of paper dollars, paper yen, paper euros, or paper pounds. Maybe more." -
 "Bitcoins could be worth thousands of Dollars per coin" -
I haven't had a cab driver tell me he's buying Bitcoins yet, perhaps because I'm too cheap to take cabs, but we are heading that way. The key to the fevered speculation is the absolute limit to the supply of Bitcoins, set at 21m. If there were no limit, if a new cyber-seam could be discovered tomorrow, the current speculation would be madness. It probably is anyway. God, maybe if the upside is infinite that's actually a good risk-reward opportunity.
Whoa! No it isn't. The problem with the limited supply argument was staring me in the face: May I present:


WTF is Zinbcoin? Zinbcoin is not Bitcoin! Geddit? *

Bitcoin has first-mover advantage but guess what? It's easily replicated. What if Goldman Sachs backed a rival to Bitcoin, Zinbcoin? Zinbcoin would still live in the cloud - a peer-to-peer mediated currency. But the Goldman imprimatur and perhaps some attractive sounding twist (a shrinking supply?) could see it overtake Bitcoin as the speculator's weapon of choice.

There's no limit of the number of Bitcoin rivals. Another degree of uncertainly will have undermined the mine.

The domain etc are available. Will someone register it? What will be the next puncoin? Will Google create one? How about Nioctib? Why Nioctib? Nioctib is often compared to innovator Bitcoin.

* Older geeks will remember an operating system called Xinu. Xinu is not Unix.

Friday, 19 April 2013

Insights and tips from the UK Investor Show: The Long, the Short & the Wide

A good Christian loves his enemy but good shorter knows his enemy

Most of the notes I wrote during Tom Winnifrith's UK Investor Show will remain in my book since Paul Scott has made far better write ups of fund manager Mark Slater's presentation (excellent as always) than I could. You'll find them on Stockopedia: Pt1 and Pt2.

Shares mentioned in this blog

Alliance Pharma (AIM:APH)
Derwent London (LSE:DLN)
Shaftesbury (LSE:SHB)
Zoltav (AIM:ZOL)
Gulf Keystone Petroleum (AIM:GKP)
Churchill Mining (AIM:CHL)
Ocado (LSE:OCDO)
Cupid (AIM:CUP)
Proteome Sciences (AIM:PRM)
Quindell Portfolio (AIM:QPP)
Juridica Investments (AIM:JIL)

The Long: Nigel & Nick

Tom conducted an interesting interview with small cap investor Nigel Wray and property developer Nick Leslau. Both are sure Britain's economy is heathier than the media, particularly the BBC, portrays.
"The UK is doing a great deal better than we're being told. A lot of companies are being created, there's real energy out there."

Retail property

House prices are too high according to the property man. Buy-to-let is dangerous, particularly in London. "Overseas buyers see London as a safe place to be" but it could go sour for instance if a new Gov't made a tax raid on non-doms.
Wray was not as negative, venturing that London & SE will continue to outpace the rest of the country and "There are houses in the south east worth buying."

Retail retail

Whole rows of high street shops were unanimously condemned, if not to demolition, at least to residential conversion. Tesco et al bully local councils to allow new superstore sites by playing them off against neighbouring councils, threatening to close stores and move.
"Pricing pressure will squeeze high street shopping into a third of its present size"
There are plenty of walking wounded chains who will pre-pack shrink themselves on the next blow. In a few years all you'll be doing is sipping a Starbucks while you plan whether to buy more shoes/clothes/bling in the boutiques.

The magic of franchising

A lot of Wray's fortune has come from his Domino's Pizza (LSE:DOM) holding, "The most predictable business I've ever been involved in." The outlets have remained 100% owned by franchisees, against his early expectations. That has helped the company's growth since a franchise owner will run the stores better than HQ ever could. It's a tough business late at night when the weirdos and drunks turn up. Wray is slicing his stake only because, at £1bn cap, Domino's no longer has the exponential growth potential he looks for.

Wray's wrap up

"Buy good small companies, on modest PEs, where directors own a meaningful percentage of shares."
He did mention Alliance Pharma (AIM:APH) where he is a 15% holder. I've noticed over the years that he does talk his own book.

Leslau's warning

"Leave property investment to the property specialists"
He recommended niche operators: Derwent London (LSE:DLN) and Shaftesbury (LSE:SHB).

The Short

Lucian Miers gave a walk through his process for selecting shares that deserve
short shrift, and particularly how to avoid disasters in these unlimited downside plays.
Miers finds short selling comes to him more readily than ownership simply because he finds it easier to spot companies that will fail than those than will win, especially in smallcaps.

Market timing and God save us from QE

Shares are being pushed up by negative real interest rates. "People think they are smart enough to see the warning signs and get out." They are deluded. History shows that optimists claiming QE will not end badly are wrong. The consensus is that QE countries will gradually inflate themselves out of trouble. In fact we will probably see a sovereign debt crisis.

The shorting process

  1. Read the accounts. Miers reads three or four years of his prospect's RNSs.
  2. Look at the corporate website to get a feel for how the company presents itself to the public. Is it all substance or show?
  3. Know your enemy: who are the company's owners, brokers etc. Are there bulletin board cheerleaders?
    An example of a share he did not short is Zoltav (AIM:ZOL). It is "grotesquely overvalued" but Roman Abramovich's son is part owner so it is too risky a situation.
  4. Instinct: Miers has often been advised to short Gulf Keystone Petroleum (AIM:GKP) but there's something about it he can't put his finger on. Thats' not much help to the rest of us who have a fraction of Mier's market experience.
  5. Timing: Avoid selling when the price is hitting new highs every day. He is currently monitoring Churchill Mining (AIM:CHL) whose only asset is interst in a court case in Indonesia. It has zoomed up on no news. Risk manage your short by waiting for it to drop 15% or even 25% from its peak.
  6. Patience: If you are forced out of a position don't try to get your money back ASAP. Wait until it's coming down the mountain.
  7. Getting out of a disaster: He doesn't hang onto soaring shorts like Evil Knievil does. He took a loss on Ocado (LSE:OCDO) at 100p from a 74p start. The newsflow was relentlessly positive, buy notes were appearing. It's on his watch list, waiting for sentiment to turn negative again.
Top tip - if a company tells you the shares are probably worthless then guess what, they are probably worthless. The RNS will use a phrase like "there is likely to be little or no value left in the equity" yet the market cap will often continue to levitate at well above worthless.

Lucien's top shorts

  1. Cupid (AIM:CUP) - the dating site operator. The business model is non sustainable - they are not providing the service the clients expect. The related party deals are "reprehensible" and it's not OK for those deals to be brushed aside in an RNS. The business will unravel quickly when it happens.
  2. Proteome Sciences (AIM:PRM). Previously known as Electrophoretics International, its shareholders have been waiting years for the jam. The CE is bailing it out and he's kept the balls in the air for nearly twenty years. The rule of thumb is:
    "The longer the potential has been there, the less likely it is to be realised."
  3. Hibu (LSE:HIBU) = Yellow Pages. The company has implied that the equity is worthless.
He also added one for the watchlist: Quindell Portfolio (AIM:QPP). It ticks all the boxes but it's too soon to short. The cap is £485m. The CE tweets every time a broker buy note comes out. The website is more focussed on pushing up the share price than explaining what the business does.

The Wide

I caught the end of a ding dong between the alarmingly large but charmingly civil bear Evil Knievil (Simon Cawkwell) and the CE of, Clem Chambers. Evil said he did not know why he got ASOS (AIM:ASOS) so wrong - his short has cost £250k so far (and that's not his most expensive mistake by a long shot).
Clem: "Because it's an Internet company."
Evil: "Be that as it may."
Clem, even louder: "Because it's an Internet company."

And so on twice more. It was more of a heckle than help and Evil had had enough (and so had I). Being a bear of good manners he merely said "Please desist" but I'm sure the words in his head were shorter than that.

Evil's latest long tip is Juridica Investments (AIM:JIL) which is throwing off cash. I looked at this share a month ago. It has very tasty value ratios but the corporate governance* is unacceptable to me.

Evil's short tip was also Cupid (AIM:CUP) which to my amazement he called "a fraud, and I'm prepared to take a writ on Monday."
Find out why Cupid is a hot potato from these tweets.

* Juridica's funds are managed by a 36% owned company, Juridica Capital Management Limited (JCML). JCML charges its parent hedge fund type fees: 2.5% flat plus a performance fee that starts at 20%. This climbs in steps up to an incredible 50% of the increase in adjusted NAV. There is a hurdle but still. Oh and all three of JCML directors/managers are directors of Juridica. Why don't they just work full time for Juridica's shareholders instead of creaming off profits in the good times. More views on the Motley Fool boards here and here.

Disclosure: I am long of Alliance Pharma and short of Ocado.

Thursday, 18 April 2013

Oil barrels, scraping the barrel and Farage giving it both barrels at The UK Investor Show

The percentage game of hard selling

I returned with ten tiny pages of notes and a squeezy red oil barrel from the advfn/Tom Winnifrith UK Investor Show at ExCeL. Winnifrith may as well have called it Dolly the Show, so hard has he worked to clone Master Investor, the event he founded. The show was as enjoyable as always, with great insights from the speakers. If it wasn't free, I'd certainly pay to go again.

The speakers and company stands were just as I expected from previous years. The functional squareness of an ExCeL hall was not - I missed the echoey cavern of the wrought-iron and glass building in Islington, once the Royal Agricultural Hall.
Standing out from the rag bag of early stage oil explorers and Dirty Harry ("do you feel lucky?") miners were Stockopedia and UKIP. The latter now feels the need to include non-racist in its proclamation, which shows how concerned they are with this perception. Their stand was crowded round with non-racist libertarian admirers when leader Nigel Farage was there. He's an outstanding speaker too, if his populist demagoguery doesn't make you too queasy. He's also speaking at Master Investor early doors if you want to catch him on 27 April. Here's a taste of his theme on youtube.
"I never imagined that the Troika would resort to the level of common criminals and steal money from people's bank accounts in order to keep propped up this total failure that is the Euro."

Ed Croft was giving non stop demos of Stockopedia's share screeners. His energy was like the sun's gravity, pulling in listener after listener. Damn his easy charm and good looks.

There was one stand which caused me to say "WTF are they doing here?", Emerald Knight. I received an email ad of theirs three years ago. They were promoting a carbon credit scheme in the Amazon with a fixed 30% return on investment. I'm pretty greedy but 30% seems too good to be true. If there was a moderate-to-high risk opportunity paying 30% PA then the investment banks would be all over it. They were the guys don't forget who thought subprime mortgage bonds paying 0.25% over T-notes were a monster deal.

When I threw this truly Amazonian money-making opportunity open to the cynics on the the Motley Fool boards it prompted a vigorous debate.
There's another discussion here too and a blog.
The FSA has said this about carbon schemes sold to the public:
"Trading on carbon credit markets requires skill and experience...
Beware that VERs certificates are often labelled as ’certified‘, but this certification is voluntary and involves a wide range of bodies and different quality standards that are not recognised by any UK compensation scheme...
Even if a firm involved in the sale or trading of carbon credits is authorised by us, as we do not regulate carbon credits you will not have access to the FOS or FSCS [protection schemes]."

After he clocked my glance at the stand, the Emerald Knight salesman appeared at my side as though he's been teleported and started his pitch. He was by far the best (er, most effective) representative of any company I spoke to. I dead batted away his first offering of a bamboo plantation in Nicaragua
"My right arm merely hovered, untouched by human contact"
Sure I said, I'll charter a Black Hawk plus ten Marines and check it out next week. After 5 minutes I'd really had enough of feigning interest and thought he might notice my choking on the blood from biting my lip. I applied the handbrake of a thank-you and a handshake. My right arm merely hovered, untouched by human contact. Mr rep then pitched the admittedly much more attractive idea of being a Brazilian landlord.
My dangling limb was an embarrassment though, so I made a tactical withdrawl and informed him I wasn't interested in South American social housing either.
A very decisive lunge by me clinched the deal of a handshake the second time.

Although his first refusal to shake my hand was pretty rude, in the percentage game of hard selling it was a price worth paying to allow him a second pitch. Skillful, no?

Six months ago I'd had an email from another company offering oddball investments, Capital Alternatives. Sure enough they had a stand as well. Here's some discussion of the African land they were offering me. Money Observer ran a detailed piece on a problem with a hotel share scheme in Slovenia.

I'm not saying that you would necessarily lose money investing via Emerald Knight or Capital Alternatives. I am saying that their schemes are likely riskier than is apparent to the naive. I'm also surprised that advfn and Tom Winnifrith took their shilling but that merely shows up my own naivete.
I'll follow up with what I learned from the speakers. Paul Scott has written two excellent pieces already: Pt1 and Pt2.

Thursday, 11 April 2013

Bitcoin crash and bounce 100x faster than Black Monday. Is this the birth of a monster?

Internet-time crash makes Black Monday look like nothing-to-see toe stub

We've been waiting all of three and a half weeks since the Cyprus 'lost weekend' bailout. The Zeitgeist-currency Bitcoin has bubbled and burst. Its value is arbitrary, set by a continuous market. It does not even have the aesthetic value of gold or diamonds.

Even better than diamonds for gangsters and oligarchs to move millions around, a Bitcoin account looked the obvious stealth wheelbarrow of choice.

bitcoin chartFrom (already) an all-time high of $47 on 16 April, Bitcoin raced to $265 yesterday before halving in hours. It then bounced like the bonnet of a Cuban Cadillac on a speed bump. Even if Russian billionaires had not been liquidating Cypriot bank accounts and buying Bitcoins, the belief that they might do so has fulled the speculative Bitcoin market.
The total value of the Bitcoins went over £1bn to peak at $2.5bn.
In 24 hours it has crashed and bounced three times.

Compare this to the biggest and fastest stock crash our our era, Black
Monday. The chart is the most similar I found but the timescale is two-orders of magnitude longer. Admittedly the Dow took only days to fall almost half but the subsequent oscillation was measured in months.

According to IG Markets there's "a waiting list of over 10,000 to open an account with the primary bitcoin exchange, Mt.Gox".

The birth of a monster?

The number of Bitcoins in circulation is 11m and is capped at 21m. They can be created by 'mining' but this is deliberately a slow process. At the all time high of $265, 21m Bitcoins would be worth $5.5bn. Even a complete wipe out would not register on Goldman's Vampire Squid global crisis meter.
It's not widely realised even now, but the subprime mortgage collapse destabilised the whole banking world because the derivative market in mortgage backed securities was 100s of times greater than the real value of all subprime mortgages. As the peerless account of the credit crunch, The Big Short relates, there was not enough subprime in the world for the bankers to gamble with so they simply created new markets of arbitrary size using synthetic CDOs.

You can already bet on Bitcoins. IG Markets offers binary bets on what the value will be on May 31. If this carries on, a future Bitcoin crash (and they will happen) might cause losses of $100bn, $1tr, who knows?

And if you want to speculate on Bitcoins, my advice is don't.

Monday, 8 April 2013

The Supertax Investment Fund

HMRC ruling opens door to paying income tax at 100%, 200%, anything you want

The Inland Revenue has ruled that rebate of commission from funds is taxable income because it's annual. Even though the rebate is really from money you handed over in the first place you can't have it all back.

Why stop there? I propose a new fund for the guilty rich who worry about not paying enough tax. This is how it works:

The Supertax Investment Fund (SIF)

The client buys £100 of units. SIF charges 50% PA but rebates 50% PA = £50. The £50 is taxed at the client's marginal income tax rate.

Let's say you earn £50k. Your tax is £9822 or 19.6% of gross income. You'd like to pay 100% tax, an extra £40178. SIF lets you easily generate the extra income of £91000 to take your total income tax bill to £50k.

You simply buy £182k of SIF units, incurring an extra tax bill of £40178. SIF deducts basic rate tax at source = £18200. Don't forget to declare the extra £91k income on your Self Assessment or you won't get to pay 100% tax straight away, and you will be surcharged, fined and perhaps jailed when the revenue catch up with you.

How does the Supertax Investment Fund rebate 100% of its charges?

This amazing deal is possible because the SIF puts your capital to work in ultra-safe fixed interest investments. Currently these yield only 2% which is just enough to pay for running costs and five-times-a-week lunches at the Ivy. Clients don't pay a penny piece!

What's the catch?

It can't be as simple as that to pay 100% income tax? Well, you are right. After two years your capital in the SIF has completely gone so you'll need to buy new SIF units to maintain your 100% tax rate.