The price of everything

Sauce for the goose

 

“Not only is the company valued at more than $100 million, but its website (and even its investor relations page !) is written in Comic Sans –  the cheesiest of all fonts.”

• Alison Griswold of Slate covers the IPO of the Grilled Cheese Truck, Inc., 5^th February 2015.

 

At first, it seemed that the grilled cheese food truck company valued at $107 million might mark the top for the US stock market, but that was clearly premature. Then it seemed that the IPO of a profitless web business granting no shareholder voting rights valued at $28 billion might mark the top of the market, but that turned out to be premature too. Perhaps the inability of President Trump to repeal Obamacare might do what grilled cheese and Snapchat failed to do, and finally and conclusively mark the top of a frothy market, given that much of the valuation has been driven by expectations around political change that now look more than a little overheated. And if the Obamacare defeat isn’t sufficient to turn the market around, perhaps the launch of Mike Tyson’s brokerage offering 400 times leverage might be.

So it’s clearly time to republish our weekly glimpse at Robert Shiller’s cyclically adjusted P/E for the US market, which now stands at just under 29 times, versus a long run average of roughly 17. Did someone use the word ‘unsustainable’ ?

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Penny wise and pound foolish ?

 

“I’ve run a country but I’ve never run a newspaper.”

• Quote attributed to former chancellor and model of humility George Osborne, who has just been appointed editor of the London Evening Standard.

 

“Sir,

“Most of the commentary in the UK press since the announcement of the “merger” of Standard Life with Aberdeen has focused on job losses in the City or the degree of power each set of shareholders might have. What about the most important people affected by this deal, the investors whose money both manage?

“Little” Aberdeen is well known for its dominance in Asian markets, but it already has a reputation for being too large to manoeuvre. This is widely believed to be one of the factors in the withering of its performance in recent years and other managers have frequently gained by avoiding stocks dominated by the behemoth funds. Now it is to add yet more firepower, controlled by fewer minds in concentrated groupthink. How can this improve performance? And what of client servicing? If your fund manager has £600bn under management, how large does your own personal portfolio need to be for the company to care if you are displeased with them in some way?

“The City agonises about how it might restore ethical behaviour to its participants. Well, here is a suggestion: block this merger and make all future ones consider the impact on fund performance across the majority of accounts by client numbers (not assets under management, which favours just a few sovereign wealth funds).

“The money we manage is people’s hopes and dreams. We seem to have forgotten this. If we keep allowing mergers to create groups so large that they are unable to perform and simply dismiss their real owners, we can only dash those hopes and trample on those dreams.”

• Letter to the Financial Times from Sally Macdonald, Stevington, Bedfordshire, UK, 18 March 2017.

 

Another letter to the Financial Times this weekend also makes for interesting reading. A correspondent “looking for suitable funds to invest in” asks Lucy Warwick-Ching in FT Money whether there is a league table for the total charges levied on “all the leading general managed funds”. Assessing genuinely comparable funds on the basis of their fees is entirely legitimate, but ranking disparate funds primarily on the basis of cost is altogether more questionable. 

 

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“A huge structural advantage”

 

“Sir, As chancellor of the exchequer, George Osborne would extol the virtues of fair pay while decrying those who received something for nothing. Would Mr Osborne explain, please, how he and Blackrock determined that £650,000 a year for a day’s work per week constitutes “fair pay” ?

“On the surface it may look as if Mr Osborne is receiving a chunk of money for nothing. No doubt, the pay is based in part on something, namely the contacts and privileged knowledge that Mr Osborne can bring; but they were acquired when he was chancellor paid by the taxpayer. So, should he be free to profit further from them ?”

• Letter to the Financial Times from Mr Peter Cave, London W1, 11 March 2017.
  
  
  

Of course Blackrock, as a listed business with assets under management of $5.1 trillion, is free to do what it likes with its money. Vanguard, which in the US at least is run as a not-for-profit business, has to operate with the constraints that come with being one of the lowest-cost fund providers. But that has not prevented Vanguard from attracting over $4 trillion by way of assets itself, and the company is said to have seen more inflows in 2016 than the rest of the asset management industry combined. Compared to these two firms, the newly created ‘Staberdeen’ (Standard Life and Aberdeen Asset Management), with its £660 billion of assets, looks like a tiddler.

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..Crackle, Pop

 

“The enthusiasm for Snap came despite the decision by some portfolio managers to shun the stock over concerns about the company’s decision to issue shares with no voting rights, a first in the US, and to ensure control for the co-founders even if they leave the company. In addition, some analysts questioned whether an app with no profits and fierce competition from other social media groups warranted such a lofty valuation. Last year the company recorded a net loss of $515m, up from $373m in 2015, on revenue of $405m..

“Snap’s IPO filing with the SEC forged new ground, referencing sexting, “poop”, and a cartoon ghost spewing a rainbow.”

• ‘Snapchat owner closes up 44% for $28.3 billion valuation’, Nicole Bullock and Hannah Kuchler, The Financial Times, March 2^nd

 

The Onion got there first. No amount of knowing, middle-aged smugness at the apparent absurdity of the Snap IPO can rival their November 1999 story,

Species of Blue-Green Algae Announces IPO:

“Anabaena, a photosynthesizing, nitrogen-fixing algae with 1999 revenues estimated at $0 billion, will offer 200 million shares on the NASDAQ exchange next Wednesday under the stock symbol ALG. The shares are expected to open in the $47-$49 range.”

Nevertheless, enough ‘investors’ have got together to give Snap a market capitalisation, for the time being, at least, of $31 billion. Perhaps Stanley Weiser was right when he suggested that a fool and his money are lucky enough to get together in the first place. Beyond the subjective assessment of Snap’s inherent worth, its IPO appears to provide further  confirmation that millennials have little to offer the world beyond a myopic focus on self-obsession. And one can hardly blame Wall Street for giving people what they think they want: if the ducks are quacking, feed them.

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