jschembs

Hopefully folks learned their lesson with CYNK. Obviously this thing is overvalued, but in this market, that tends to result in at least a short-term run as speculators exploit that perception and seek to force significant short covering. I've experienced that over the last month since getting short Z :(

Does this chart not imply that the general economy has generated returns below the cost of capital since the 1960s? Seems rather nonsensical.

Heh. So, just an anecdotal story for you. My daily commute used to be the 4 train in Manhattan up thru harlem and the bronx. And it's rush hour one summer evening, and everyone is standing. The proximity to other warm bodies oppressive, everyone is exhausted and wants to get home, and there are these two spanish women, overweight, from the south bronx (based on where they got off to "go home"), and they are loudly having a conversation. The topic of which is LITERALLY how to (1) trick men into impregnating them so they can collect both welfare and child support (2) exactly how many children to have which is the optimal amount to collect the most from city/state/federal welfare programs and (3) how to use various monies given to them for the sake of their kids to buy, well, stuff (cable tv, cell phones etc). One girl was telling the other how she actually accomplished this. I mean, it was detailed and everything: the specific programs, filing processes, how long it takes to process, where to go buy things afterwards, etc. At some point I knew it wasn't just hot air. And I could not believe what I was hearing! I almost burst out laughing because it seemed so ridiculous once I knew they was completely serious. And the looks of the other passengers was equally incredulous. So maybe it's not everyone, maybe it's not a majority, maybe those were the only two people in the entire country who consciously made that choice. But to say something like "But to imply that poor people - particularly those born into poor circumstances - remain there because of conscious decisions is, in my humble opinion, either ignorant or self-serving." is in some cases factually wrong and (in my mind) frankly is a very middle/upper class thing to say! The reality is that you, and I, simply do not know the thought processes of some of these people, so we can opine all we want about why we think they are in their situation, but we really have absolutely no clue. Just my 2 cents. Duly noted, thanks for the story! I probably should've qualified that a bit...

Yeah, because all the single mothers I know do it for the money and life of leisure. If we made that life less attractive, maybe they would stop consciously choosing to become single mothers; heck, maybe it would even force them to stay in bad relationships and be financially dependent on abusive men, like in the good old days... LOL! Couldn't agree with you more Liberty. I don't think single mothers go out of their way to be single mothers, but more so because they are naive, run into loser men, not enough education, or never fully understood the consequences and repercussions. Not to say there may not be a certain niche that get pregnant simply for welfare payments, but I would say that percentage is far smaller than those simply falling into single motherhood due to circumstance, than making it a lifestyle choice. Buffett says that the children growing up today, will live better than his generation, and those after them will live even better. I'm not sure that isn't the case, regardless of the huge gap in wealth, income and opportunity. You have a black president in the United States today...how can that not be more advantageous for the millions of underprivileged black youth, than 50 years ago when segregation still existed! Cheers! Great points by Liberty and Parsad. Does anyone honestly think teenage women get pregnant so they can get on welfare? These kinds of polls are toxic, as they further the view that poor people are poor because of their life choices. Of course there are folks who make bad decisions that lead them to a harder life. I grew up in the Seattle suburbs, and remember plenty of folks from junior high and high school who had an easy path laid out for a upper middle income life, but threw it away with a number of poor decisions in their youth. Those folks deserve no pity. But to imply that poor people - particularly those born into poor circumstances - remain there because of conscious decisions is, in my humble opinion, either ignorant or self-serving.

Granted, I'm working from extremely limited information, but something doesn't make sense to me. Blodget says the current valuation isn't absurd if you consider the $10 billion revenue whisper number he cites. (http://www.businessinsider.com/uber-revenue-2014-6). If true, $10 billion most certainly represents gross revenue, before subtracting the ~80% paid to drivers, which would imply ~$2 billion in net revenue attributable to Uber. He also says most of Uber's revenue comes from five cities (of which I presume SF, where the company is based and has a substantial head start on other markets, is the majority of their revenue). Kalanick claims they're doing "many multiples" more than the $120 MM TOTAL market estimate of spend on taxis and limos in San Francisco. (http://blogs.wsj.com/digits/2014/06/06/uber-ceo-travis-kalanick-were-doubling-revenue-every-six-months/). Now no one knows what many multiples means, but that implies Uber has more than wiped out San Fran's existing taxi and limo market. I grant Gurley's points regarding new market opportunities (soccer moms, use in lieu of rental cars), but even if that were the case, and Uber was generating, say, $300 MM in gross revenue in San Fran, that is only $60 million in net revenue for Uber. Assuming (wild ass guess, I know) Uber generates 40% of their revenue from San Fran implies $150 MM of total net revenue - roughly 115x revenue. Separate angle - Wedbush's article that AJC posted at the beginning of this thread describes the TOTAL U.S taxi market at $11 billion. So Uber capturing the entire U.S. market yields $2.2 billion in net revenue (nearly 8x revenue assuming 100% market penetration). Yes, international opportunities, yes soccer moms, yes disrupting rental cars, but this all seems a bit March 2000ish to me.

We had a very successful gathering this afternoon, which we plan to replicate in three months. Hopefully I won't consume 75% of the beer at that event. Email me at jschembs gmail if interested.

Like JAllen said, it really depends on the projected portfolio need for liquidity. In my retirement accounts, I'm fine holding extremely illiquid positions, but with taxable assets prefer a bit more liquid positions. My love of illiquid securities is twofold. One, you don't have the bullshit games you see in the larger space, particularly those names that end up being toys of hedge funds (HLF, NFLX, Z, etc), where folks are buying and selling for reasons totally irrespective of underlying business value. Second, it really is more of an exchange of one partner selling their interest and another partner buying their interest, almost trading by appointment. Since as we all know, equities represent fractional ownership in a business, I find the infrequent trading refreshing.

Right, but at what point does the network effect cut rates such that Uber becomes less appealing to the marginal driver?

As is typically the case with VCs, however, he has no discussion regarding the economics of the business itself. He probably can't discuss Uber's financials, as he's on the board, has been for years, and Uber is private, right? Except there is evidence that the TAM is already larger than pre-existing taxi markets, like in SF, where Uber's revenue now exceeds the entire pre-Uber taxi-market here. Which parts of his arguments do you disagree with? I found his arguments to be very convincing. Maybe it's because I'm an Uber user myself and live in SF, a dense city where it's firmly established and I'm weighing the idea of getting rid of my car and just using Uber, transit and Zipcar/Getaround. I could use Uber 3 times more per week for $20 each than the number of trips I use my car for and still not pay as much as it costs me to own my car right now. This is huge, and I believe is the future, at least for the millions of Americans that live in cities. I was just in Bogota and Panama City where we used Uber tons, because it was so convenient and I trusted that at the very least Uber had more information about the people driving us around than a non-Uber driver. Another thing: people say there are no network effects, I disagree with this too. If you don't have a ton of demand from riders, your drivers require more payment per trip; but if you have a ton of riders constantly requesting rides like Uber does, drivers have more trips per hour (this is discussed in the link above) so the price can be lower per ride, for both Uber and the driver, and they both make the same amount per hour. This obviously creates a virtuous cycle by increasing the number of riders and drivers in the network, reducing wait times, and further increasing demand. Imagine trying to start another Uber right now. How would you compete? Why does it bother so many people so much how much others pay for their investments, especially people that haven't actually seen the financials at all and that don't specialize in investing in young tech companies? I believe Uber will be absolutely enormous and the current valuation will seem cheap in a few years, just like Twitter and AMZN now. It doesn't bother me how much people pay for other investments. I agree Uber has network effects, and I didn't mean to imply I thought Gurley should disclose Uber's financials - moreso generally describe the economics of what makes the business so attractive outside out of a massive TAM. The typical network effect has a fixed supply source (i.e. MSFT office, ebay, AMZN, FB), whereas with Uber the supply source will expand as more drivers become interested in joining the network. This should put downward pressure on prices (good for Uber users), which may or may not have a positive impact on Uber drivers. Yes, they reduce deadhead miles, but they also put more mileage on their vehicles at lower rates, decreasing the economic life of a major asset to a given driver, and one which certainly needs to be replaced every few years. So I'm just not convinced that the network effect story, while certainly beneficial to consumers of the service, will benefit the company and its contractors in the traditional manner. Perhaps I'm just a curmudgeon who finds most VCs think their shit doesn't stink, particularly after years of positive reinforcement from the public and private markets.

It is a very good read, and shows wonderful thought processes to consider the art of the possible for future markets. As is typically the case with VCs, however, he has no discussion regarding the economics of the business itself. Given his original purpose for the post was to critique Damodaran's conclusions of value, I found his own conclusions a bit lacking. Effectively, he's saying, "hey, look at all these cool things Uber could do to massively grow its TAM. Therefore, Damodaran's value conclusions are wrong."

For those not on the group list, we're planning to meet at 2 pm this Sunday at the 74th St. Alehouse in Phinney Ridge (www.seattlealehouses.com/74th).

McKinsey's Valuation interests me... I've read a few reviews on Amazon, but I'd love to get your opinion (or anyone else here who has read it) on why you think it's good and useful, and the kind of stuff that it does well. Is the thinking in the book directly compatible with value investing, or is it more general tools that you can then try to transpose to a different approach? Has anyone read Investment Valuation by Damodaran? Seems like another interesting one. McKinsey's book changed the way I thought about business performance. The book clearly articulated the rationale for ROIC, and, more importantly, understanding invested capital from both a financing and operating perspective. Further, the book clearly articulated the link between ROIC and FCF generation. It has the flaws of any academic finance book (building capital costs using the accepted methodologies), but if I had to recommend one book, and one book only, it'd probably be this one. Now that I've just written this, I realized I gave my copy to a colleague/friend, but I don't recall who. This is a problem.

I've read 2 and 3...most like 3, and it's also (or was when I took the exams) part of the CFA curriculum. Those, however, focus more on ways companies can and do manipulate financial statements to mislead investors. Certainly valuable knowledge, but not necessarily what it sounds like you're looking for. It's helpful to understand how the statements convey what is important to an investor (ROIC, FCF) - in that regard, I'd recommend McKinsey's Valuation and Stewart's The Quest for Value.

People are being that stupid left and right in this market. Creates lots of opportunities for us haha Also: http://www.otcmarkets.com/financialReportViewer?symbol=CYNK&id=122455 Incredible...the cash flow statement makes no sense (some totals don't even foot), and is that really $39 in assets they have? Too bad it's probably impossible to take any position on something like this, other than slapping anyone who tells you they're long.

People are being that stupid left and right in this market.

LOVE the business description: "The Company intends to develop a social network business."

We're trying to find a time/date next weekend. Shoot me your email if you want me to add you to the string discussing the schedule.

SKEW jumped above 140 for the third time in six months...just sayin' :) http://pragcap.com/cboe-skew-index-spikes-to-bearish-levels

Do you mean the he's the only manager offering this in a mutual fund product?

Good point; his more recent investments seem to be in industries whose moats come from regulatory protection rather than brand affection.

Crazy that this article was written nearly three years ago. You could plug in roughly the same names, update the numbers, and the article would read the same today.

Brian - welcome to the board! While I (and many others, I'm sure) would be happy to serve as e-mentors, it strikes me that it might be useful for you to just continue this thread as your mentorship. Ask questions as they arise; you'll undoubtedly get responses from myriad sources. Plus, you may end up asking questions the rest of us wanted to ask but were too embarrassed :) Jay

Tim Eriksen did mention that - if we think it'd be better to reschedule, I'm open to that. I'm a huge sports fan, but haven't followed soccer since the sixth grade, so I wasn't aware :) If you email jschembs at gmail.com, I'll include you on the string to set up the gathering.

Good timing; a handful of us just agreed to meet 6/22 at 2:30 at the 74th St. Alehouse in Phinney Ridge (seattlealehouses.com/74th).

I would read McKinsey's book on valuation to help understand the value drivers, and recognize that a model is only as good as the assumptions that go into it. Better to build a series of outcomes under different scenarios, assume some probabilities for those scenarios, and compare that to the market price. Early in my DCF days I spent way too much time building a complex model subject to a litany of input assumptions, only to realize later that more time could be better spent familiarizing yourself with the company, its industry, and the consensus/variant views in the market.