Today, taking a break from the credit crunch madness, we paid a visit to the newly opened California Academy of Sciences. The admission is free every third Wednesday of the month and since we are starving entrepreneurs, we jumped at the opportunity.
When we finally arrived at Golden Gate Park we were greeted by a huge mass of people. The new Academy building is next to the De Young Museum and the line snaked all the way to its neighbor. We got lucky as some of our friends were already in line. So we cut in line. Fortunately, the people around us were rather gracious.
The museum was quite crowded and the tickets to the planetarium were already exhausted. So we spent most of our time in the aquarium in the lower level. We saw a few very cool things.
First, there was this albino alligator. I have never seen an albino alligator before, didn’t even know they existed. I guess they must live in very clean swamps, otherwise he would stick out like a thorn. He (I’m guessing it’s a male) lives in the swamp pit with a regular looking alligator and two giant turtles. I guess he was really tired today, he didn’t move very much.
Then there’s this giant sea bass. You can’t tell from the photograph but its head was about the size of mine. Now this fish isn’t exactly pretty, but I think I got the optimum angle for the portrait. It was swimming around pretty fast in the tank. I think it was looking for something.
Next to the sea bass, was a very dark tank. At first, I didn’t see anything. Then I saw it in the very bottom corner. A huge octopus! Yep and it was moving along the glass portion of the tank so we all got a good view of the suction cups on its tentacles. I was afraid the picture wouldn’t turn out, but I was pleasantly surprised.
At the same time there was this show where a scuba diver in the tank was talking with the audience. The lecture was on biodiversity in the ocean. I couldn’t get very close as you can see, the place was pretty packed.
After lunch at the museum cafe, which was surprisingly good (probably because we were starving at this point), we visited the Living Roof of the building. This building has the largest living roof in the world. The roof is completely covered in vegetation and they act to cool the building. Also the roof contains enough solar panels to provide up to 10% of the building’s energy needs.
All together, we had a lot of fun. It’s been awhile since all of CLZ went out and did an activity together, and since the October weather in San Francisco is absolutely gorgeous, it was a trip well worth the time.
Goldman Sachs just announced that it is going to raise money from my favorite investor - Warren Buffett. I was surprised to see that the terms actually reflect the risk usually reserved for highly risky startups extended to the most respectable investment bank in the world.
Forbes reports that Buffett will receive preferred shares that will yield 10% (think of this as debt), but also the ability to purchase common stock at $115, which are essentially in-the-money options.
Now, I’m a startup guy and I know that startup funding is usually something to the tune of preferred shares with an interest provision and the ability to convert to common. (Convertible Peferreds). This deal sounds terribly familiar.
Even if GS goes out of business, the scenario is the same as convertible preferreds - so Buffett gets first dibs in the shareholder pool on assets. In the case that goldman goes below $115, buffett is still collecting dividends (startups don’t pay dividends). In the case that Goldman shares gain in value, Buffett’s preferred shares increase in value AND he gets to exercise his options.
Anyway I look at this - looks like a great deal for Buffett.
$800B in soaking up bad paper and another $400B to back the money market funds. Let’s get on the macro level - we are curing the slowdown caused by our over-spending and over-valuations by…drum roll please…borrowing more money from the rest of the world! What a fantastic idea!
Ideally we want to grow things (plants, networth, economies, whatever), by slowly adding more value to the system. Occasionally, there is some good fortune and we’ll do better than expected, but most of the time, we’d do about average. But - that’s not how we ran the US in the past decade. Let’s try to make the unexpected by hype and over spending.
Corrections need to happen - and if you are going to prevent a correction by pulling money from the rest of the world. You are 1) pro-longing the pain 2) adding to the debt pressures we already have.
$1 Trillion in deficit projected ??!?!!? Are you kidding me?
Money doesn’t come for free - and this binge in borrowing from the rest of the world is going to hurt. Maybe not today, maybe not tomorrow, but someday…and for the rest of your life.
But Why? I still use apple products and my roommates just upgraded to the 3G iPhone.
OK - google and HTC are going to come out with an iPhone compete. Fine. Do they have the Apple Store distribution? OSX core software? Apple branding? Just because the device is shiny doesn’t mean it is going to sell.
OK - MS just launched commercials with Seinfield. Have you seen them? They are not funny.
OK - steve lost some weight.
Apple is trading at 25x trailing earnings, where Wall Street usually gives 30-40X multiple. My guess is that Wall Street short sellers are riding the momentum so they can make a quick buck by continuous shorting during a time when apple doesn’t have much news. Where are the efficient market theory guys now?
As you know, I really love the markets. In fact, before we started CLZ, I was ready to take a hedge fund job with $1B (that was 9 months ago, lol - it may be $100M now).
What in the world is going to happen and what should you do?
Well - I’m not a financial advisor, and I don’t manage anyone else’s money except my own. But I look at the books of these major banks and ask myself…gee…there’s no way for me to value how much these ‘toxic’ assets are worth. Could they be in fact worth 0? Yes. What about negative value? Yes.
Now - I use a pragmatic method of evaluating companies. Basically a reasonable PE ration and reasonable asset liquidation value. The key in these values is to get comfortable with thinking that you are going to buy the entire business and treat it like a cash flow company. For example, a company that is trading 10X earnings today means that if you were to own this company, you’d get about 10% return / year, assuming no growth in earnings (buy the company for $1, every year you make $.10 cents) –> assume you reinvest correctly, you can do the same next year). Now if the earnings will double in 10 years, then you will get 15%. (approx. numbers here guys)
Both of these are not easy metrics, but let’s address earning power - I look at the company and ask 1) is the business stable? 2) can it do a couple of times more business 5-10 years from now as it is doing today? That’s it - I don’t bother reading analyst reports on future earnings. Who are they to know what is going to happen in business??? Truthfully, no one really knows what’s going to happen in business and earnings metrics are mainly bogus.
Now the asset parts of the equation usually is much simpler, you look at the balance sheet and say…OK…I get it. BUT THIS IS THE EXACT PROBLEM TODAY!!!
I look at the balance sheets of MER,MS,AIG, etc, and although I feel like I can see that the firms will be profitable in the future in their ‘normal operations’ (such as underwriting, etc) I have no idea how to value the TENS of BILLIONS of derivative positions. For all I know (although unlikely) these positions can turn out to be very profitable.
Conclusions - everyone is trading on rumors and whims and ‘herd mentality’ expect even greater swings in the coming days.
WHAT DOES THIS MEAN FOR YOU?
OK - let’s forget about the market in general. Does this affect the average american consumer? You bet. I recently brushed up some reading on the Great Depression, and it looks like people are going to be doing exactly like the government says - keep spending, and be assured that everything will be fine. Guess what? It’s NOT.
I’d start saving and cut down costs. Maybe move to a smaller apartment, instead of going to the gym - just workout outside (SF is beautiful, that helps), cook at home more. Build a nest egg of tens of thousands of dollars and wait. There’s no reason why the world wouldn’t recover in 12 months, but there’s no telling how painful the de-leveraging of these opaque assets is going to be.
In short - make sure you will be OK without a job for 24 months.
For the readers who don’t know, we originally started in the facebook space last year, and have been in it ever since. But some time in February, 2008 we sold the majority of our applications to Zynga (the social game company).
Some people mistakenly thought we actually sold the company, but really we just sold applications and stayed on at Zynga for 7 months after.
Why? Turns out that Zynga is growing quickly and it’s just not our game. As I wrote to the Zynga employees “During our time here, Zynga has greatly matured as a company and in it’s strategic directions. Given where we are, this transition makes
a great deal of sense.”
What next? Well Linus is thinking of going back to school at Stanford, I miss being in coffee shops, and James is looking to study Krav (see his earlier blog entry) much more.
Personally, San Francisco is beautiful in October, and I can’t wait to enjoy some time off.
Right now, the CLZ guys are living in a ‘charming’ 2 bedroom apartment where we sealed off the living room to create an additional room. (keep your comments to yourself, please)
Recently - all this talk of home prices going down everywhere got me interested to see if there are some good deals on real estate. Maybe, I’ll get my own place.
Now - I don’t invest money based on some crazy thoughts that someone is going to pay me X% appreciation in the future. I’ll only invest if the deal makes sense at the time, and if the home appreciates, that’s just a plus.
Looking at real estate, I’ve taken a look at how much down payment you’d have to put down to break even on mortgage+hoa+property taxes=approximate rent I’m paying now. Now, true real estate agents will tell you that this is not a fair evaluation based on all the tax benefits. But, with the economy in such a state, who knows, maybe i’ll be out of a job tomorrow. Don’t think you can make deductions on $0 income.
Now - we pay $2100 / month on rent for our place. LOL - I did the math and almost fell over. That is a loan amount of a whopping 300k-350k.
After HOA of $500 average and property taxes, we’d be looking at buying a home at a reasonable 800k, and getting a loan of 100-200k and the rest in down payment.
I’m sitting here with Jeff and Linus listening to Mark Zukerberg’s keynote at F8. He’s giving an overview of the new profile. This iPhone is really useful :)
On Friday, I went to see Eddie Izzard perform at the Orpheum Theater. For those of you not familiar, Izzard is a comedic genius who usually does his stand-up routine in drag. His jokes are extremely sophisticated and usually draws a very intelligent crowd.
This time, however, he did not appear in drag and was immediately heckled by the audience. Yes, San Francisco is full of demanding assholes. But like a true professional, he handled it very well and made jokes on the hecklers. Then he launched into his routines. It actually took me awhile to get up to speed to what he was saying because he was talking extremely fast and in his British accent (and my seat also was far away in the Mezzanine). In the show he basically ran through natural history from the beginning of the earth to the Romans. He did running jokes on the Bible and religion and it was unbelievably sophisticated and hilarious.
The funniest routine, in my opinion, is when he made fun of the Latin language and its complex syntax. He pretended to be a messenger bringing the news of Hannibal coming around the mountains with elephants. At various points he was speaking in German, Italian, French, and probably some other language I didn’t catch. It’s just too funny. You had to be there.
Here’s a little sample of Eddie Izzard’s humor. It is funny and the funniness increases exponentially the more you know what he’s talking about. In this case, French.
I finally did it. Got Lasik eye surgery and got rid of glasses.
The results are phenomenal!
There were definitely a few points that I thought through before I actually went in. The major ones are:
1) What kind of results should I expect?
2) What is the most important factor when doing surgery?
3) What about afterwards? Will my vision change again over 5 years?
Here are my conclusions before I went in
1) I should expect at least 20/40, but most likely 20/20
2) The surgeon - I went to great lengths to select a surgeon. Great surgeons are not cheap, but they are worth it. At the end of the day, if you had a mediocre surgeon, there is a good chance that you will still have good results. But would you have GREAT results? Probably not. I chose Ella Faktorovich at (Pacific Vision Institute)[http://www.pacificvision.org/the-institute/meet-dr-faktorovich/bio.php], and she is one of the best surgeons in the world.
With the best surgeon you can find, you can expect that the surgeon will use the best equipment, have the best staff, and do everything else as well as anyone else.
3) Well, this is a tough one. And no surgeon (as expected) was able to give me an absolute answer. But your odds of vision changing after your prescription has been stable for 1 or more years is highly unlikely.
Amazing Vision
I don’t remember every seeing the world so clearly. I can see at least 20/15 now. (Apparently they don’t have the eye chart for 20/10)
There’s no dryness, distortions, or anything else that people usually complained about.
