Uber Part Deux

Here’s the first part on Uber’s sale pitch.

I just can’t get over this quote from Morgan Stanley’s pitch of Uber shares to their clients when addressing the lack of financial info from Uber (There’s a 290 page prospectus of just verbiages and no financial data):“the development of insights and big ideas is valuable to the investment process, whereas obsession over incremental ‘information’ flow is not.” Nice quote right. Well Uber is still raising billion despite the lack of info. A chart like the one below is probably all some investors need to make an “informed” decision.

number-of-uber-rides
Source: Bloomberg

The bankers that refused to push the Uber stocks on their clients will probably not be doing the IPO. But at the same time, this is great risk management from their part. Let’s say Uber investors starts to lose a lot of money, they might have a legal case for suing the banks for pushing the stock on them. This is the kind of stuff that got bank in troubles over and over. Just look at the financial crisis mess with the subprime mortgage bonds.

I can’t believe they can sell that stuff. How much money can Uber be losing for not disclosing their financials? This is like Trump’s taxes. There’s stuff in there he doesn’t want us to see otherwise he would have disclosed it a long time ago. If Uber is making money, they would proudly show it. Now everybody know they are in the red. Losing money is not bad thing when you are starting up since people are investing on the potential of making money in the future. The real question is will Uber will ever be profitable? Can they show a path to investors that will see a positive return in the future? Uber has been around 6-7 years and it’s still classified as a $65 billion start-up. When do you lose the tag start-up?  This is what Uber is offering: the potential of making money in the future. But maybe they can’t show that therefore we will talk about our big dream. People love investing in these new concepts. Sometime it works, like Facebook, and sometimes its a flop like Twitter. Twitter has been around longer than Uber and still hasn’t figured out how to make money.

“the development of insights and big ideas is valuable to the investment process, whereas obsession over incremental ‘information’ flow is not.”

Let’s assume you need money for a house or a project. So you go to your bank asking for the money. The banker ask you for pay slip, your budget, assets and liabilities, you know the usual stuff that would ask somebody if they were asking you for money. But instead of providing the info, you tell him about that your insights and big ideas are valuable to getting money, whereas the banker’s obsession over incremental ‘information’ flow is not.” No way in hell you are getting a dollar. They might think you have been smoking too much. But somehow you can pull that stunt with the sale of Uber shares…

Good for Uber really. If they can raise that money without putting up any financial data, good for them. Heck there are a lot of suckers out there, might not be a great shareholder base to have but they are willing to throw money at you, why not take it.

Regarding Uber’s financials and future, there’s a great piece online by the nakedcapitalism you can read here.

Advertisements

Uber’s Pitch to Investors

Update: After publication I received a Tweet  suggesting an excellent article on Uber: Can Uber Ever Deliver? Part One – Understanding Uber’s Bleak Operating Economics posted Yves Smith. Hubert Horan did a thorough 6 part series on the company. The article includes financials from Uber.

A lot of people are asking how can I invest in Uber. They say things like “Uber is the next big thing, I can’t miss out on its IPO”…Every year we have a company that makes people dream. People want the next Microsoft. The fantasy of easy money makes people dream and they kind of lose their mind when it comes to rational investing.

Uber is what we call a “disruptor” business. Companies like Uber, Netflix, Spotify, Airbnb and Amazon among others are “disrupting” the world we know with the aim of making it better. Along the way it creates winners (usually the consumers) and losers (taxi drivers, cable companies, hotels etc…) Uber is simply an taxi app on your phone that let’s book a ride. Uber didn’t reinvent the wheel here. They simply made an under-served service, cabing, much better.

Uber is a company that I admire. I like taking it and I believe they are not going anywhere no matter how many angry cabs drivers block the streets. Technology is not something bad or good, just like steel is not bad or good. It’s just that our laws are not up to date for these new an upcoming companies. Companies like Uber take on the establishment and left the old guard gritting their teeth. Fast growing companies like Uber constantly need money. Uber is still a private company and we don’t have access to financials. Various media have reported that Uber is burning over $500 million a quarter. It could be an exaggeration but it’s reasonable to think they are burning through a lot of cash since they are constantly looking for money. Uber is not profitable and probably won’t be for a long time. A company like Uber is still allowed to exist because the capital market let it exist. If the tide turned, like it did with the dotcom boom in 2000, it could become a bust.

Companies that you admire and love doesn’t necessarily make it a great investment. I like Twitter, it doesn’t mean it’s a great investment. You still need to focus on the fundamentals. You still need to ask how you are going to make a return on that investment. Especially if the company is burning through cash. Interesting fun companies doesn’t necessary = I will be rich. A company like Uber can’t pay a dividend or buyback shares. So you are entirely hoping that the next valuation round will be higher (and you are diluting your ownership too). It’s the greater fool theory. Now I’m not saying Uber is a bad investment. We barely know anything about its finances. It might turn out to a great investment. I don’t know.

I suggest you read the article, Banks Passed Up Uber Share Sale on Lack of Data from Bloomberg. Credits to François Denault,  an excellent value investor in Montreal for the find.

The articles says that at least two investment banks passed on selling shares of Uber to their high-net worth clients — shares eventually sold by other banks in January — because the ride-share company wasn’t willing to provide financial details about its business. The 290-page Uber prospectus Morgan Stanley sent to prospective investors before the January stock sale didn’t include Uber’s net income or annual revenue. The New York-based bank addressed the lack of data in its prospectus, and love that part, by saying “the development of insights and big ideas is valuable to the investment process, whereas obsession over incremental ‘information’ flow is not.” I just love how you can spin so much b.s. and still get the money you need. Good for them. But there’s a lot of suckers out there. We live in a weird era. Reminds me of Trump with his “alternative facts” and “we disagree about the facts”.

Who is buying shares of a company without having any clues about the financials? A lot of folks apparently.  It’s a dream for Uber and a potential disastor for investors. Reminds me of the dot-com mania. Now that we have the Dow at 20,000 points, there’s seems to be a mini euphoria going on.

The Trustees’ Dilemma

John Train, one of the most respected financial author, his book, The Money Masters, published in 1980. Mr. Train shares a story of one woman, her family, and the difficulty of applying proper fiduciary management to her trust account. He ends the piece with a call for help from other professionals, as “it’s a problem that requires airing.

Retired baby boomers, more than ever, need financial advice. They retire at 65 and most of them have a life expectancy of 20 years plus. But the key is to make their money last as long as 30 years or more. I never bought into the theory as you get older you need more bonds. Bonds looks riskier than ever.  A portfolio full of “safe” bonds barely provide any income and the “safe” capital could be in for a shock in inflation and interest rates starts creeping up. Anyway that’s another story. The point is it’s hard to find a solid reliable financial advisor. They operate in a conflict of interest. Financial planners earn their living from selling products (commission) and from a % of managed assets. The majority of these “advisors” have lived in an isolated world of product distribution whose portfolio management skills revolved around a suitability standard. There are some good advisors out there and they are hard to find. You need to ask around, check their experience, qualifications, and find out how they work.  Talk to a few of them and you will see the difference. See if anybody can referred you somebody good. Is the person product centric or portfolio management focus?  Advisors have a fiduciary duty to the client. That means that the client’s interest comes first and should provide the highest standard of care. Make sure it’s respected. As the article suggest, another advice is to surround yourself with professionals. Make sure you get the input of a tax lawyer and an accountant on your situation. A financial advisor is not a tax expert. Here’s the article:


The Trustees’ Dilemma by John Train
Reposted from the July 9th, 1979 edition of Forbes Magazine

A widow was left a substantial amount of money by her husband when he died. The income went to her for life, with the capital to be divided among their three children after her death.

Her late husband had been a successful New York businessman, and the family had two large houses: one in Greenwich, Conn. and one on Cape Cod, where they went in summer. The children liked coming to the Greenwich place on the weekends and spending long periods on Cape Cod in summer, so she kept both. As a result, the widow found herself living at the limit of her resources.

At her annual meetings with her trustees, the problem was aired frankly. How could she maintain the houses and keep up roughly the same standard of living as before, with her husband’s considerable salary no longer available? Each year it was decided to sell some growth stocks with low yields and move into bonds or high-yielding equities to maintain the needed income, and hope that all would end well.

So the trust portfolio eventually became roughly half fixed-income securities and half high-dividend stocks, notably utilities and the like.
Continue reading “The Trustees’ Dilemma”

Your Home Value

your-home

The World Economic Forum

It’s this time of the year again.

world-economic-forum

The Forgotten Highlander

the-forgotten-highlander

I just read the The Forgotten Higlander: An Incredible WWII Story of Survival in the Pacific by Alistair Urquhart. Alistair who has died aged 97, was a prisoner of the Japanese from 1942 to 1945, surviving both the infamous ‘Death Railway‘ and the atom bomb dropped on Nagasaki. The fact that he lived until he was 97 is a miracle. Alistair, as a POW, was constantly beaten, tortured, starved, malnourished, dehydrated, forced labor, and was hit with every tropical diseases you can think of (Malaria, cholera etc…). You can say that Mr. Urquhart hit hell’s equivalent of winning the Powerball jackpot. When you though that life couldn’t get worse, hell decided to step it up a couple notch. But Alistair was “lucky”. He survived (or maybe the ones that died were the lucky ones). But Alistair refused to die. He worked on the infamous ‘Death Railway‘, where thousands of British, Australian, Dutch, American and Canadian prisoners would perish in the task. He was put on a Japanese ‘hellship’ that was torpedoed. His book, The Forgotten Highlander, is his memoir. There’s a documentary on Youtube: The luckiest man in World War ll

The sad thing is that the POWs that returned were treated like absolute shit. The British government had insisted all POWs take a vow of silence, but like most veterans of the WWII he initially did not wish to speak about what he had witnessed. Britain said that they needed Japan has an allied against Russia, so they didn’t want to “offend” Japan.

Recently Japan marked the 70th anniversary of the end of World War II. Prime Minister Shinzo Abe reiterated his country’s “profound grief” for the millions killed – but stopped short of offering any new apologies. He was remorseful for his country’s actions in the war, future Japanese generations should not have to keep apologizing.

PM Shinzo Abe said Japan “did inflict immeasurable damage and suffering” on “innocent people.” But he added, “We must not let our children, grandchildren, and even further generations to come, who have nothing to do with that war, be predestined to apologize.” Full transcript.

Almost every Japanese prime minister since 1945 has apologized in some fashion or another. But these apologies seem to have never been deemed sufficient. Why? To be fair, the Japanese people also suffered greatly during WWII. It’s the only nation that took the full massive devastation of atomic bombs — not one, but two. Unfortunately almost all of those who perished in Hiroshima and Nagasaki were civilians.

Japan has committed some of the most horrendous war crimes. It’s not widely discussed and it’s downplayed. In school you are taught that the Japanese bombed Pearl Harbor and the U.S. dropped the bomb. That’s it. The issue is politically sensitive. I mentioned that the allied needed Japan as an ally after the war. That’s part of it. We are constantly reminded of the atrocities Nazi Germany committed. We can’t forget the horror of the Holocaust. We know about concentration camps, we know about Schindler’s List and Anne Frank. But we never talked about the crimes committed by the Empire of Japan. Japan did attacked the U.S., not Germany. What the Japanese did to the Chinese is on par or worse than that the Nazi did, think Nanjing Massacre. (It’s not just Japan, we don’t talk about Stalin’s brutality the same way we talked about Hitler’s.) Maybe it’s a cultural thing. Much of Nazi victims are Europeans with western culture (including European Jews), and Americans identify better with them compared to Chinese and South-East Asians who became the victims of the Japanese. The Japanese war crimes just wasn’t a Western problem, it was far from our eyes. We see the same attitude today towards massacre in Africa. We treat it as  “just another African problem”.

Japan has turned it around since the end of the war. Today Japan is a pacifist country. It’s sophisticated, developed and rich. Their army only participates in humanitarian missions. I’ve been to Japan. It’s a great country with amazing people that has accomplished so much after WWII.

Edge of Eternity

ken-follett-edge-of-eternityI finally got around writing the review for the last book of this trilogy which I finished last month. Edge of Eternity by Ken Follett is the conclusion to a trilogy that covers the 20th century.  This 1,000 page brick covers the event that followed WWII. So it touches the Cold War, JFK, the Berlin Wall, the Vietnam War, the Civil Right movement, up to the fall of the Berlin Wall.

I’m not sure what there’s to say that hasn’t been covered in the first two posts about book #1: Fall of Giants, here, and Winter of the World, here. If you like history but having a hard time reading the stuff out there, these book provides entertainment and knowledge. You follow a bunch of characters/families throughout the major events that happened last century. The 20th century really shaped the way we live our life today, including two World Wars and a technology revolution (communications, TVs, media, airplanes, transportation/cars, Internet etc…)

My favorite was book #1, the one about WWI and the surrounding events. There was a lot I didn’t know about the first World War. The book did an excellent job explaining the complexity of the events leading up to the war. The second book covers WWII and the surround events. This last book covers a lot, from the 1960s to the fall of the Berlin Wall. That’s a lot of stuff and it doesn’t feel like you are reading a 1,000 page book. These books are excellent and might get even better over the years as the 20th century becomes a distant memory.

Mike Tyson the Investor

mike-tyson-trading

I love Mike Tyson.  He was the absolute dominator in his prime. There hasn’t been a fighter like him since. But it’s really hard to fall for this ad. Associating Mike Tyson to online trading…I’m not sure that’s a smart move. Mike Tyson can punch really hard. That’s his thing. I don’t know if you have heard him speak, but it doesn’t rhyme with forex or futures’ trading. What’s even more ridiculous is the note in the bottom left corner stating that U.S. citizens cannot trade on Trade12. I’m pretty sure Mike is a U.S. citizen and if he’s trading on Trade12 that would make what he’s doing illegal. I don’t think Mike is trading. He just sold his image because he’s broke (again why would that be a good person to promote making money?) But I would love to have Mike as a counter-party (in trading, not in the ring).

I don’t think the ads got much traction. There’s two videos on Youtube has about 300 views combined since July.