Made up stats

Every year, over $7bn is spent on used retro goods.

Microsoft's purchase of Nokia looks set to double this figure for 2013.



[Disclosure: not original - comes from this Twitter account... (@madeupstats). I just wish I had written it...]

We interrupt for a brief Herbalife update

Bill Ackman's huge Herbalife presentation ("Who wants to be a millionaire?") compared Herbalife to other consumer companies that Ackman considered self-evidently legitimate.

One of those companies was Ralcorp as per Slide 305 presented below.

Well William P Stiritz has just filed a 13G disclosing a 5 percent shareholding in Herbalife.

Mr Stiritz would be a good person to make the comparison above because:

WILLIAM P. STIRITZ has served as our [Ralcorp's] chairman of the board of directors and our chief executive officer since February 2012. Mr. Stiritz is a private equity investor and served as the chairman of the board of directors of Ralcorp Holdings, Inc. from 1994 until February 2012.

But it is worse than that - Stiritz was appointed CEO of the Ralcorp spin out and cereal company Post Holdings.

And in 2012 he was responsible for buying Premier Nutrition - a maker of - you guessed it - protein shakes.

So here we have it. Bill Ackman thinks this is a pyramid scheme and knowledgeable rich industry insiders are buying huge slabs of stock in their own name.

Be sure to take your seats. Herbalife is turning into a very interesting show.




John

Musical Chairs

The music has stopped.

Blackberry is standing up.

There are no chairs left.

A quick thank you to Bill Ackman

My visit to a Herbalife club in Queens inspired me. If those guys could lose weight on a protein shake meal replacement diet so could I.

So I started mostly with local Australian brand products (but a few Herbalife products, notably the tea). Anyway I am now 9kg (20 pounds) lighter and I can fit into trousers I purchased on a trip to New York in 2004. [They have sat unused in the cupboard for about six years!]

And so the new svelte me (well not really svelte - this is relative) is off to Claudes - a Sydney dining institution - and I suspect I can knock off the evil even that will do to my waistline.

And not just the dining performance that has improved. Going long the stock has rather helped my stock picking performance.

And so Bill Ackman,

Thank you.





John

The distinctly cooler Mr Hempton is the Odd Man Out

Nick Hempton (far cooler than your blogger) has a new recording out:




This time he is paired up (for four tracks anyway) with the great Michael Dease on trombone.

I won't repeat the expletives of this review - but it is accurate.

Buy it at Positone - and you too can be up with the hippest jazz.




J

Strange stock assessment from a value investor I kind of admire: a note on the transition of Apple into a "value stock"

In my email today I received a missive from a value investor I kind of admire - a peon to the value in Apple shares. To quote:

My mother-in-law had an Android tablet, and it quickly turned into an expensive paperweight on her kitchen counter.  Six months ago she got an iPad mini, and she is inseparable from it.  She won’t be buying another non-Apple phone or tablet.  There is a lot of bearishness on Apple in the media and blogosphere, but if these headlines start scaring you out of the stock, just visit a few Apple stores and your fears will all go away – the one we dropped in on recently in Denver was swarming with Apple fanatics, while the Microsoft store next door and the Samsung store at Best Buy were almost empty.  These folks will be buying whatever comes out of Cupertino for a long, long time.

Value investors must be the only people who assess tech stocks by what the grandmothers like. And they do it without any trace of irony.

Just like the classic Samsung advert but without the humour:




But of course my value friend does have a point. What with increasing longevity Apple will be here for a long time. I am not killing granny off yet - and the trail of some declining tech stock is clearly worth a lot of money.

What is Microsoft worth?





John

(No position in either stock - but generally I want to leave declining tech alone. Someone pitched me Blackberry the other day based on the qualities of their latest phone. You can make a pitch for Blackberry - but it is a patent-installed base pitch, not a pitch on the future...)

The bad guys won one this time...

Jeff Matthews has a funny blog post about how someone bought call options over 760 thousand shares of Booz Allen Hamilton (NYSE:BAH). The strike price for these options was $20.

This is an enormous trade - over seven times the open interest in all options of all stripes for BAH.

The next day comes a headline:

Accenture in Talks to Buy Booz & Co.  An Acquisition Would Beef Up Strategy and Operations Consulting

As Jeff Matthews tartly notes Booz & Co is not the same company as Booz Allen Hamilton - they separated years ago.

And so our want-to-be insider trader has blown his dough - 760 thousand times 85c worth - or a little over 650 grand if you include brokerage. This was a costly error, but less costly than the criminal trial and almost certain conviction for insider trading if our imbecilic crook had been right. I mean he didn't think he could get away with that did he?

As luck would be Booze Allen Hamilton "crushed" earnings estimates. Here is the stock chart:

And so our asinine aspiring insider trader has made quite a decent profit proving once again that it is better to be lucky than good on Wall Street.

Notch one for the bad guys.

In my darker moments I imagine there is enough inside information around that someone knew about both the Booz & Co takeover and the Booz Allen Hamilton earnings beat and were Machiavellian enough to know they could trade this information aggressively and not get pinged for insider trading. But that couldn't possibly be true... could it?





J

A little Herbalife red-herring

Here - linked - and from the SEC's Edgar database is the original Herbalife IPO prospectus. This document was filed on 1 October 2004.

Remember back then. George Bush was President yet to win his second term. Barrack Obama was a Illinois State Senator and you needed to be a political junkie to have heard of him. Almost nobody could have identified his family in a photo.

And so - lurking - unnoticed in the prospectus - is this photo presumably representing Herbalife customers or distributors:

The photo is there - you can go check it.

It occupied my mind for a while - but it is alas not the First Family much as I wish it were. It is just one of life's little coincidences.

Then of course I may be wrong. Been wrong before. Appearances might not be deceiving...




John

Herbalife is addressing Bill Ackman's concerns...

Bill Ackman spent eight pages of his presentation (100 to 107 inclusive) covering the issue of shipping surcharges. His argument was that the retail margins were misstated because customers had to pass along a 7 percent shipping charge.

The issue Bill Ackman raised concerned me.

It is pleasing to see that the company is addressing these head on. From page 28 of today's 10Q:

(1)

During the second quarter of 2013, we simplified our pricing structure for the North America region by increasing suggested retail prices and reducing total shipping and handling revenues by a similar amount, eliminating a “packaging and handling” line item from our invoices to distributors. We do not expect these changes to materially impact our consolidated net sales and profitability. We anticipate extending these changes to additional markets in future periods.

As a long investor it is encouraging to see perceived deficiencies being appropriately addressed.



John

Bronte is hiring - a follow up...

APPLICATIONS ARE NOW CLOSED. We received 270 plus - and we are finalizing a short list...


As many know - Bronte Capital - the asset manager - has advertised for their first employee.

I have gone through my email fairly carefully and I should have replied to every single application although more than 200 in the negative.

I found five applications in the "junk mail folder" and I fear I may have missed a few others.

If I have not replied to you please resend to brontecapital@gmail.com and make sure you get a reply. If you are interested enough to consider working for us and devoting a good part of your life to Bronte then we owe you the courtesy of a reply.

=======

We are currently about half way through a "preliminary round" interview where I ask some questions testing

(a) basic science and a scientific understanding of the world,
(b) thoughts about how you may build our computer systems [targeted at our quite unusual needs], and
(c) business analysis [mostly for looking at longs].

We have found nobody who answers all three sets of questions well - but a few who answer two of the three well.* [Some of these people are very high quality - just not entirely on our needs...]

This means that eventually we will need more than one employee though we are at the moment very focussed on the computing problems and we would prefer doing those things really well. [We are not much into compromise...]

All of the people who do "two out of three" well are expensive: they have good jobs, are aged over 30 and I would need to promise them a lot to make them move. [And I am reluctant to promise a lot for a compromise employee...]

I will consider someone who does the computing part well but is cheaper (which probably means younger). I would probably hire a young, entrepreneurial computer geek who wants to be taught the business analysis stuff - especially if they were Australian based already... If I get someone like that I can spend more on the next employee.

Above all else I am interested in intellectual firepower (I want to hire people smarter than me, especially in the computer task) and the ability to actually implement this stuff.

Still I have another 20 or so preliminary interviews to go. Who knows what I will find...




John

*I have high standards. One senior Silicon Valley executive I tested on the questions suggested that he knew several people under 30 who meet my criterion - but they are mostly going to wind up worth 100 million dollars - and that a surprising number worked at Facebook. He thought I was being unrealistic.


J