Fyre Festival Scam

Me and my wife watched the Fyre Festival documentary on Netflix. We only watched it under recommendation of my brother because the trailer wasn’t appealing to us (kids partying on the beach with Ja Rule…pass). My brother’s track-record of recommendation is rock solid, so we gave it a shot. I told my wife let’s give this thing 10 minutes and we ended up watching the whole thing.

While the documentary focus on the Fyre Festival fiasco, there are lessons for the investor. The head of the group, convicted fraudster Billy McFarland, took everybody for a massive epic failure of a ride. It reminded me of Theranos founder, Elizabeth Holmes. She was the perfect package and turned out to be the perfect fraud. While Billy wasn’t as refined or smart as Elizabeth, he always had some kind of hustle on (mostly scams). Billy had ambition, vision, and could talk a great game and people fell for it. Here are 3 key ingredients for a great person: brain, energy, and integrity. If you have the first two and no integrity, you have a recipe for disaster. That’s when people like Elizabeth Holmes and Billy come in. They are terrible for society but they make a great documentary.

The lesson: Have a healthy dose of skepticism. When pitched with the a revolutionary way of doing something, a great idea or an awesome product, make sure that the people involved have integrity. Because if you bet on a person with high energy, high intelligence, but low integrity and you’ll get a smart, fast-moving thief.

This is what they promised:

  • The biggest party of the decade on Pablo Escobar’s old island
  • A line up of musicians, artists, celebrities.
  • Supermodels everywhere
  • Private jets from Miami to bring guests
  • Gourmet food
  • Luxury villa
  • A treasure hunt with over a $1m in prizes.
  • Party yachts

What was delivered:

  • A dump of a site with hurricane relief tents.

A lot of people got burned. People paid a lot of money to show up to realized they got scammed. A lot of hardworking people didn’t get paid. Investors got ripped off. Everybody got ripped off. Expectation and reality clearly weren’t aligned. Billy is probably safer in jail.

Related imageImage result for fyre festival expectation vs reality

The gourmet food:

While the website promised 'chef-curated culinary pop ups' one reveler posted a picture of a basic cheese sandwich served out of a polystyrene box. McFarland claimed that this picture was fake and not actually taken at the festival 

McFarland was charged with defrauding investors by presenting them with fake documents while seeking investment in his company, Fyre Media. He’s currently in jail for 6 years/

Billy McFarland

 

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Capital Allocation Presentation

Phil Ordway from Anabalic LLC has made a great presentation on capital allocation. In everyday parlance, capital allocation is “how you use cash”. Everything involves tradeoffs based on opportunity cost and how you evaluate these tradeoffs is essential.

For those who read the excellent book The Outsiders (read it if you did not), you will enjoy Phil’s presentation. The presentation goes a beyond effective capital allocation. It address three things companies need to do that everybody would agree on.

  1. Effective Capital Allocation
  2. “Good” shareholders
  3. Meaningful communications with stakeholders

Point #2, “good” shareholders, is interesting and definitely not talked about enough. I’m glad Phil brought it up and should be the subject of further studies. Just having the “right” shareholders can make a significant difference. Think of the effect of having Warren Buffett as a shareholder did for Graham Holdings (The Washington Post). Point #3, meaningful communications with stakeholders, is not done properly. Most companies have some kind of Investor Relation “IR” department but don’t communicate properly.

This presentation is for investors, board members, executives, and anybody that runs a company.

Here’s a bonus presentation from William Thorndike, author of The Outsiders”.

Podcast: Investing in Cuba

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Copyright Eric Schleien

I was back on the The Intelligent Investing Podcast with Eric Schleien of GSCM to discuss Cuba. In a previous post I talked about my recent trip to Cuba. While the post has more of a global approach to Cuba (politics, economy, reforms etc…), the podcast is more geared towards investing. Of course they are opportunities but it’s not easy to invest in Cuba and it would require a lot of work (even more if you American).

The podcast is a about 45 minutes long, perfect for the work commute. If you can’t stand my accent, or you prefer reading, Eric published a transcript on SA.

Other platforms:

Joel Greenblatt – Great Value Investors Need To Be Cold Hearted JellyBean Counters

Here’s a great video by Joel Greenblatt, author of You Can Be a Stock Market Genius,  with less than 3,000 views. In a segment, he talks about how outside influence, or “group think” affects our judgment, and basically on how we price stocks.

 

The Bond That’s Still Paying Interest, 280 Years Later

Here’s a lesson in inflation. The WSJ has an interesting story on bonds that are perpetual. They will pay interest forever as long the issuer doesn’t default. While that sounds nice, the problem is inflation will eventually eats your income away. Remember your grand-parent’s stories about how far they could go on with $1? That same dollar today lost its purchasing power. That’s inflation. It’s also a reminder that some debts never really die.

Reposted from The Wall-Street Journal

By Christopher Whittall and Georgi Kantchev

The French government has owed Marie Verrier’s family money for a long time. Almost 300 years.

All Ms. Verrier and her husband, Jean, have to do to claim the world’s oldest government debt is prove they are the descendants of an obscure 18th-century lawyer.

The question is whether it’s worth the effort: Three centuries of inflation and shifting currencies mean this debt yields just €1.20 a year, the modern-day equivalent of the long-defunct livres the bond was issued in.

“That [yield] would allow you to buy a baguette of bread once a year,” said the 81-year-old Mr. Verrier from the couple’s home in the Parisian suburb of Asnières-sur-Seine.

Bonds that never mature, or do so after a century or longer, aren’t just museum pieces. The ultralow interest rates of the last decade have encouraged governments and corporations to borrow for increasingly long periods, with some even selling 100-year bonds now.

Argentina, Mexico, Oxford University and the Wellcome Trust, one of Britain’s largest charities, have been among the issuers bonds that will mature in a century. Countries including Japan and Germany have issued so-called perpetual bonds, which never mature. Continue reading “The Bond That’s Still Paying Interest, 280 Years Later”

If Consultants Ran Christmas

Repost from The Economist

An elf-and-safety nightmare

Memo from: Bognor Consulting Group. To: Santa Claus, North Pole hq, Lapland.

Thanks for asking us to have a look at your business model. Our staff have now recovered from their frostbite and have a number of significant suggestions for a revamp before next year.

First, the brand name. The business seems to use several different monikers, including St Nicholas, Santa Claus and Father Christmas. We suggest settling on one of the three. Father Christmas is clearly paternalistic and gender-biased. St Nicholas is too overtly religious. Santa Claus is a much more inclusive term. Once trademarked, there is a ton of money to be made from merchandising rights, particularly from greeting-card companies and department stores. Frankly, your intellectual property is an underutilised resource.

Making better use of it could help address your most glaring challenge: the lack of any revenue stream. Mince pies, carrots and glasses of brandy are not a sound basis of remuneration for a multinational organisation. And who pays for the raw materials needed to make the presents? Given the lack of paperwork about your funding, we are surprised that the authorities have not launched an investigation into money-laundering.

Next, the distribution system. We admit you have an excellent record to date. However, in attempting to deliver millions of presents from a single point over the course of one night, you have been flying by the seat of your sled. It would take just one injured reindeer or a chimney accident and the whole system would grind to a halt. It is far from clear how you co-ordinate your flights with air-traffic-control systems.

Outsourcing is the obvious answer. Amazon, Fed Ex and ups would do the job just as efficiently. If the chimney-delivery route is still preferred, then small drones may be the answer.

Now let us turn to working conditions. Basing your operation at the North Pole exposes your workers both to extreme cold and, thanks to climate change, melting ice. It is a health-and-safety (or should that be elf-and-safety) nightmare. Speaking of which, our human-resources department is unsure whether employing elves should be classed as an admirable diversity policy or discrimination against Homo sapiens. As with distribution, the operation could be outsourced. The elves could be retrained, perhaps as shoemakers.

Our team was also very concerned about animal welfare. Asking reindeer to fly around the world in one night, pulling a heavy load, must put an enormous strain on their physiques. One of the reindeer has a very shiny nose and we recommend immediate veterinary attention.

The next issue is data protection. You tell us you have a “list” which records whether children are “naughty or nice”. We are afraid that checking it twice is simply not an adequate safeguard. Children, and their parents, have the right to inspect the list to see whether they agree with your assessment. Even keeping the list is a breach of data-protection rules around the planet. And how are the data compiled? The fact that you see children when they are sleeping, and know when they are awake, suggests surveillance on an Orwellian scale. This must be stopped immediately. If you insist on pre-gift monitoring, simply look at the children’s Snapchat accounts. That should tell you all you need to know.

While we are on the subject, how do you know which families celebrate Christmas and which do not? In some jurisdictions, you may be liable to a religious-discrimination lawsuit.

We are also worried about succession planning. No insult intended but the white beard suggests you are past retirement age and your rotund physique does not bode well for your health. You need to hire a graduate, preferably from an Ivy League college such as Yule University.

The good news is that you do live up to many of the precepts of modern business theory. Just-in-time delivery, a flat management structure and a purpose-driven ethos are all things we recommend to other clients. And no one can say that flying reindeer are not “agile”.

Finally, we need to talk about the terms of our bill. Our expenses were considerable; have you seen the price of a first-class seat on Lapland Airways? Your offer of a train set and slippers was very kind, but we prefer a bank transfer. Mind you, if you could drop a hassle-free Brexit solution down the chimney, the people of Britain would be very grateful.