Surf Report: The value of short sellers in a world gone 🚀
Issue 10: 12.06.2020 (Free Version)
INTRODUCTION
December 6, 2020
Hey everyone—I’m so glad to have you here. What a week.
I’ve been thinking a lot lately about value. That is, what value certain things (industries, jobs, people…) contribute to society. It’s a topic I return to often, initially sparked years back from the incredibly well-argued book Bullshit Jobs by the late, great David Graeber (author of Debt: The First 5,000 Years, which I also recommend!), but most recently in the context of market speculators. Does society benefit from a stock trader? What does a short seller contribute to the world?
Plenty, it turns out.
The stock market was initially invented as a better alternative to what had previously been private price negotiations between individual consumers and producers. It was a solution to the problem of price discovery. These individual, varied exchanges led to huge differences in agreed-upon prices of commodities that businesses need to function, like grain, corn, fuel, and lumber. This variance meant that companies couldn’t reliably predict their future operating expenses, which meant they couldn’t effectively budget very far in advance.
A “stock exchange” creates continuous price discovery—speculators can buy and sell shares of commodities to such an extent that it smooths and normalized the aggregate agreement of value, allowing businesses to plan without fear of wildly unpredictable future costs. The risk in these price movements is transferred to the speculator—the trader—instead of the business. Putting his/her own capital at risk, traders provide liquidity to the marketplace by being willing to buy or sell at any given time, which narrows spreads between the bid and ask prices.
Stock traders are the reason you can buy plane tickets months in advance, since the airlines are able to price it buy fixing their costs knowing future fuel price changes will be absorbed by the market speculators.
So what value do short sellers provide? That one’s easier to explain: a short seller’s due diligence is all about trying to expose corporate wrongdoing. They try to blow the whistle on poor businesses trying to appear outwardly successful, and are able to profit from the time-consuming investigative research needed to do so. Short sellers are an important check to balance an industry otherwise incentivized to show positive results at all costs.
This line of thinking is helpful for founders and small businesses too. “What value am I providing? How is this helping?” That question lies at the heart of good business, good technology, and good relationships. If you don’t have a good answer to it, perhaps it’s time for a change.
As always I appreciate you staying with me for this project, it’s hugely valuable to me personally and professionally. Hopefully what’s inside this issue is of some value to you too. :)
—Mark
“The mind, once stretched by a new idea, never returns to its original dimensions.” —Ralph Waldo Emerson
Breaking 🌊
The Dow Jones gained 12% in November for its best month since 1987. So What?: Investors were largely spurred on by vaccine optimism + eased fears regarding Biden’s transition to power. This led stocks that had suffered all year to come back to life—Chevron ($CVX), for example, rallied 25% in anticipation of more travel and increased fuel demand next year.
Facebook ($FB) is close to a deal to buy Kustomer, a customer service CRM startup, that would value the company at a little over $1 billion. So What?: Facebook is buying the capability to provide high-touch customer service at scale. This will likely benefit businesses (who spend $) on the platform, not so much individual (free) Facebook users, emphasizing their continued strategy to become the leading platform for doing business.
DoorDash’s upcoming initial public offering is now seeking a value of $32 billion—double what it was back in June. It will be listed on NYSE under the ticker $DASH. So What?: The company is trying to capitalize on current investor excitement around the gig economy and the meteoric rise of tech stocks have benefited from Covid lockdowns. (If every other IPO in history is any indication though, expect the share price to return to earth shortly thereafter.)
Petco has filed to go public as consumers adopt more pets during the pandemic. Their same-store sales have risen 9.6% so far this year. So What?: The pandemic story in the markets is less about technology and more about how to survive and thrive while stuck at home. Connection and care, whether technological or furry in nature, are the more relevant themes to track in a post-Covid world.
Warner Bros. will stream all 2021 films on HBO Max the same day as theatrical release. This includes major releases such as Denis Villeneuve’s Dune, Matrix 4, the Sopranos prequel film, and the highly anticipated Space Jam sequel. So What?: It’s a big shot across the bow to streaming giants Netflix ($NFLX), Disney ($DIS), and Apple ($AAPL) whose catalogues compete for binge hours and recurring revenue, establishing Warner Bros. owner AT&T ($T) as a major player looking to innovate and incentivize eyeballs.
From the Tweetbox 🐦
🔗 Insight from Jeff Bezos on self-awareness as the tool for finding the playing field that suits you
🔗 “Non-software company to buy failed game studio, story at 3:15 PT” (Many forget that Salesforce is branded as SaaS—not software. And Slack began as an internal comms tool for a tiny video game company ✨)
🔗 The creator economy is putting up serious numbers (💰), and it’s still getting started.
🔗 A thread on helping you understand the relationships between investing and inflation
My favorite of the week is this great distinction between ‘dense’ and ‘filled’:
For The Pros 😎
Data from over 400 ecomm holiday campaigns with 10 actionable strategies you can use. 🔗 (Link available to Pro subscribers)
The best guide I’ve fund so far for determining which investment-related expenses are tax-deductible. 🔗 (Link available to Pro subscribers)
How to handle stock market booms & crashes like a professional. 🔗 (Link available to Pro subscribers)
Worthwhile Reads ☕️
How Visa ($V) is quietly building a crypto empire under the guidance of Cuy Sheffield. (h/t to Meltem Demirors for this one)
“We continue to think of Visa as a network of networks,” says Sheffield, a five-year veteran of Visa, who took over as head of crypto last June. “Blockchain networks and stablecoins, like USDC, are just additional networks. So we think that there’s a significant value that Visa can provide to our clients, enabling them to access them and enabling them to spend at our merchants.”
[…] Visa estimates that $120 trillion in payments annually are made using checks and instant wire transfers, costing as much as $50 each, regardless of the size of the transaction. Since USDC settles on the Ethereum blockchain, transactions can close in a little a[s] 20 seconds and, importantly, can be done for nearly free, Visa believes its vast array of merchants could choose to use this nearly instant alternative form of payment.
Watch This Space 👀
If it seems like I talk a lot about gaming it’s because everyone is talking a lot about gaming: Americans of all ages are spending more on video games
4-out-of-5 consumers in the U.S. played a game in the last six months
Those consumers are spending 26% more time and 33% more money on games than the same period in the previous year
Spending on video games for Americans 45 years old-to-54 years old increased 76%. People age 55-to-64 increased their spending 29%.
While some say business is the greatest video game on earth, it seems video games are fast becoming one of the best businesses on earth too!
If you don’t play games or know much about the major players, consider at least having exposure to the industry from an investment standpoint in the form of an ETF like $NERD (Roundhill BITKRAFT Esports & Digital Entertainment ETF) which includes stocks from across the gaming sector to cover your bases.
Insight 💡
A mochi seller in Kyoto, Japan (Ichiwa) has been selling their grilled rice flour cakes to travelers for over 1000 years. It turns out Japan has 140 businesses that are at least 500 years old. Of the companies that are at least 100 years old, more than a quarter said they had enough funds on hand to operate for two years or longer.
[…] “If you look at the economics textbooks, enterprises are supposed to be maximizing profits, scaling up their size, market share and growth rate. But these companies’ operating principles are completely different,” said Kenji Matsuoka, a professor emeritus of business at Ryukoku University in Kyoto. “Their No. 1 priority is carrying on.”
[…] The Japanese companies that have endured the longest have often been defined by an aversion to risk — shaped in part by past crises — and an accumulation of large cash reserves.
[…] Even when they “make some profits,” said Tomohiro Ota, an analyst at Goldman Sachs, “they do not increase their capital expenditure.”
JPG 🖼
“The beginnings of all things are small.” —Cicero
Groms 🐣
Gala Games, a blockchain game studio from Zynga ($ZNGA) cofounder Eric Schiermeyer, just struck a promotional deal with Brave browser to help drive awareness and trial for what is still an unfamiliar concept to casual gamers. Its first game, Town Star, has helped the 14-person company become profitable for the first time:
These games are built on the Gala Network, a platform that uses blockchain to identify the assets in games that players own themselves. In the games, you can buy and sell assets and reap financial benefits via the game’s Non-Fungible Tokens (NFTs), which are connected to the Ethereum blockchain. After connecting with an Ethereum wallet, players in Townstar can harvest crops and build a house and eventually a city. Players can purchase items in the game with Bitcoin or Ethereum. And because blockchain can identify the one-of-a-kind items, the players can own the items they buy.
Gala says its mission is to “enable freedom for anyone on this planet through play.”
“Don’t tell me what you think, tell me what you have in your portfolio.” —Nassim Nicholas Taleb
Drop Ins 🏄
My latest investments & trades
Buy & Hold Investments (I will hold these forever)
This section is only available for contributing subscribers. If you’d like to trade and invest along with me, consider one of the paid tiers!
Swing Trades (1-3 month time horizon)
This section is only available for contributing subscribers. If you’d like to trade and invest along with me, consider one of the paid tiers!
Barrels 🎯
Portfolio Highlights
Winning Trade of the Week: $QS (formerly the SPAC ticker $KCAC), scaled out more profits for a 253% gain
Pods & Schools 🐬🐠
(I clip all my favorite podcasts excerpts on the Bitcast.fm app. Give it a try! You can follow me @markmulvey)
Podcast Reco: Jim O’Shaughnessy’s Infinite Loops, Ep. 26: Tren Griffin - Escaping Gravity. This conversation with Senior Director at Microsoft and author of the popular business and investing blog 25iq covers a lot of insightful, unexpected ground:
“Action without knowledge is foolish; knowledge without action is futile.”
“Risk is roulette. Uncertainty is the more normal case—most of life is uncertain.”
“Being brave is how you learn.”
“Business is the greatest video game on earth”
Podcast Reco: Traveling, Learning to Code, and Bootstrapping to $25k/mo with Tyler Tringas of Storemapper [Indie Hackers Podcast, Episode 12]
“If people aren’t searching for your business online, or whatever problem you’re solving, then you’ve got a problem. […] Pick a problem you know people want a solution for.”
Tools of the Trade ⚒
Products I use to make money
Wealthfront. ~25% of my portfolio is in Wealthfront, which since 2016 has netted me a time-weighted return of ~39% (~35% money-weighted) at the time of this writing, all while harvesting tax losses like the pros do.
Use this special link to get your first $5,000 managed for free: https://wlth.fr/2ephpyb
StockCharts. I easily make back the small monthly subscription fee with the superpowers it gives me.
Carrd. Use this link or referral code 892PYX69 to start your own web empire.
Cointracker. Track your coins like you track your stocks.
Hypefury. Easily the best tool out their for growing a quality Twitter following.
Validate Your Business Idea: Includes everything from researching, writing, getting attention, and engaging with people, plus a spreadsheet template for tracking subs. Surf Report subscribers get $5 off with the code: surfreport
Disclaimer
Nothing in this email is intended to serve as financial advice. Do your own research.