How I Missed 1,300% in $GOOG

Sometime in 2003, I looked down at the FedEx package that had just arrived at the office and saw the silicon valley address of Google. I curiously opened the medium sized box to see what in the world could be inside. What was it?  A black fleece blanket with the Google colored letters logo on one corner, and a simple card reading something along the lines of:

“Thanks for being a Google Adwords customer”

I tried to find a picture to show you, but I think we threw it away finally after using it under the Christmas tree one year and ironically, it was difficult to find a picture of one via a Google search (image searches remain one of their worst bits of technology in my opinion).  But anyway, why are we talking about fleece blankets?

Because it’s the 10th anniversary of one of the most successful IPOs of all time, the now ubiquitous Google, providing us all with a rare chance to look back and see just how stupid we were to not get involved in that offering. How stupid were most of us?  A $10,000 investment in Google at its $85 IPO price would now be worth $139,458.82 today, for a smooth 1,294% return, or about 30% per year.  I’m sure more than a few of us could have found $10,000 somewhere back in 2004, and could use over $100 grand extra today!

Nasdaq Google

Everyone knows the name Google by now, and even way back in 2003 most people knew what Google was and used it on an increasing basis. But how many people had gotten fleece blankets? And how many people in the financial world had gotten blankets?

Looking back now, I can see that I was not only an early adapter of Google Adwords, but also representative of just how powerful of a platform it could be. It was 2003 and we were a small company with 4 employees and about $600,000 in revenue spending about $50,000 on Adwords a year. That spend on Google seems excessive looking back on it today, but this was money well spent, with the bulk of our early business growth coming from “online” sources via traffic driven by Google Adwords.

What’s more – the altruistic founders Larry Page and Sergey Brin had decided on a Dutch Auction IPO, meaning that anyone could, in theory, participate at the offering price, not just the first trade price once it went public. The WSJ described the fairness of such approach:

“Fans of auctions say they are more democratic, because price is the only thing that determines who gets shares. A bid by Fidelity for 1 million shares would go unfilled if it fell below the clearing price; a retired teacher’s bid for 100 shares would be accepted if it was above that price.”

So, in review – I was intimately aware of the product, able to bid for IPO shares via the Dutch Auction, in the financial world, living proof that they had a very broad customer base willing to pay for online traffic, and financially able to invest $10,000 to $20,000.  All systems should have been go, but how much did I actually invest?

Exactly ZERO dollars :-(

Why not? The stars were aligned for me in a way they weren’t for the $1.9 Billion worth of money that did get involved that fateful day. What was I thinking?  Well, it’s hard to remember what I had for breakfast yesterday much less what my mental arithmetic was 10 years ago. But they were the usual list of excuses along the lines of:

-          $85 was too expensive

-          I wasn’t going to make the same 1999 IPO mistakes again

-          The initial value of the company would be over $20 Billion!! Way too much.

-          I was going to wait for it to trade down and then get in

-          The articles touting it as the “hottest IPO in years” made me nervous

-          There were a lot of competitors like MSN Search, AltaVista, Looksmart, Yahoo,

-          Microsoft could move in and reduce profitability (ha..)

-          They wanted to be a “company that does good things for the world even if we forgo some short term gains.”

So why beat myself up about it now, 10 years later? Because if we can’t learn from missed opportunities, we’re doomed to miss them again and again. In my best Yogi Berra impression – if we can’t know now what we should have known then, we won’t know then what we can know now.

Fact of the matter is there was no process in place for me to recognize this opportunity, and weigh these mental ‘excuses’ against the probabilities that Google would become one of the largest and most profitable companies on the planet. It wasn’t my day job to analyze my use of the product and craft an investment thesis out of that use. We were (and are) after all, an alternative investment shop, not financial folks who did analysis on individual stocks.

And here’s the thing – almost nobody else got this ‘trade’ right. The IPO raised a mere $1.9 Billion, out of the roughly $40 Trillion in investable assets under management across the world, meaning only  a select few who were really, really good or really, really lucky got it right.

The real lesson, perhaps, is that picking individual stocks is downright hard. Harder than Jim Cramer makes it look. Harder than it seems when reading the articles this week about Google’s 10 year anniversary of its IPO or Apple back at all time highs. It is so hard that professionals with decades of experience get it wrong. It’s so hard that the better approach for 99% of us is to simply buy a low cost index tracking ETF.

As someone, somewhere once said about something, which applies to stock picking:  “Don’t quit your day job”.

-          Jeff Malec, Attain Capital Founding Partner

Alternative Links: The Next 5 Years

Managed Futures in the Next Five Years – (Hedge Fund Intelligence)

Feature – Advisors that are ready for the bear market with alternatives – (Barrons)

Education:

Deconstructing Management Fees In Alternative Funds – (Forbes)

How to Think About ‘Alternative’ Investments (Managed Futures gets bad mention) – (WSJ)

Recognition:

NIBA Member of the Month: Attain Capital Management – (NIBA)

Futures and Miscellaneous

Speculators widen corn net short position-CFTC – (Reuters)

General insurance accounts increasing use of alt investments – (Hedge Week)

CME Group launches Eurodollar bundle futures and options – (Futures Magazine)

Invest like a Billionaire?

When someone first starts investing, there is the sort of high that comes with it; a high that convinces you that you just might be the next Warren Buffet. Sure. You watched a couple investing tips videos on Youtube, and you think you found some ETFs (with extremely low or no fees) that no one else knows about.

The thing is, that feeling never really goes away. The overly active investors are confident that with a little hard work they too will eventually become Warren Buffet. We all know the likelihood of that, so instead the people at Direxion decided to take that idea and turn it into an ETF. What are we talking about? The newly launched ETF Direxion iBillionaire (IBLN). Now you can feel like you’re trading with the greats, without actually doing it. Here is the description:

[Read more...]

Who needs the USDA when you can Live Tweet Crop Conditions

What gets Ag folks excited on a Monday morning on Twitter? Live Tweeting crop conditions. All day, the people of the “2014 Pro Farmer Midwest Crop Tour,” have been tweeting their hearts out with the hashtag #PFtour14 to show the conditions of corn and soybeans across the Midwestern states.

Crop Tour Logo

The goal of this four day tour is to provide accurate information of the condition of corn and soybeans as harvest season approaches. We can’t think of a better way to do such a thing then traveling state to state live tweeting the conditions in the field in real time.

Now you might be wondering, doesn’t the USDA already collect data from around the country to provide the conditions of various crops? Yes, but this crop tour is unique in that they don’t want to focus on  yield numbers specifically, but the big picture.

“Don’t focus on yield calculations from individual fields,” says Brian Grete, Pro Farmer senior market analyst and leader of the tour’s eastern leg. “That isn’t what we are trying to do, and we actually discourage scouts from tweeting individual yield results. Instead, we look at the entire area we cover as one big corn field. Twitter is most useful for getting a general idea of what scouts are finding. And the pictures are valuable.”

Essentially, give people the opportunity to tweet about the condition of their corn with pictures, and you got yourself one heck of a trend (pun intended). Take a look at some of the pictures from the first day of the tour, via the Ohio County Journal.

Corn 1 [Read more...]

ETF Commodity Exposure YTD

Here’s our monthly look at the various commodity ETFs and how they track a simple strategy of buying December futures and rolling them annually. Plus, a comparison to Ag Traders and an overall commodity index.  C’mon futures…

(Performance as of 7/31/2014)

Commodity ETF Over/Under Performance 2014

Commodity
Futures
ETF
Difference
Crude Oil$CL_F
3.76%
$USO
2.80%
-0.96%
Brent Oil$NBZ_F
0.55%
$BNO
-2.60%
-3.16%
Natural Gas$NG_F
-7.12%
$UNG
1.98%
9.10%
Cocoa$CC_F
17.48%
$NIB
18.10%
0.62%
Coffee$KC_F
65.49%
$JO
74.52%
9.03%
Corn$ZC_F
-18.49%
$CORN
-14.94%
3.55%
Cotton$CT_F
-19.84%
$BAL
-20.85%
-1.01%
Live Cattle$LE_F
19.93%
$CATL
16.11%
-3.83%
Lean Hogs$LH_F
18.46%
$HOGS
14.24%
-4.22%
Sugar$SB_F
-3.46%
$CANE
0.50%
3.96%
Soybeans$ZS_F
-4.67%
$SOYB
-0.79%
3.88%
Wheat$ZW_F
-14.10%
$WEAT
-13.83%
0.27%
Average4.83%6.27%1.44%
Commodity Index $DBC-1.36%
Long/Short Ag Trader CTAs3.12%

(Disclaimer: past performance is not necessarily indicative of future results).
(Disclaimer: Sugar uses the October contract, Soybeans the November contract.)
Long/Short Ag Trader CTA = Barclayhedge Ag Traders Index

Bloomberg Vomits Alternatives

We couldn’t resist this Bloomberg headline the other day:  “Classic Cars, Lean Hogs and Duchamp Art Lead Alternative Investment Ranking”  Cars, Hogs, and art… and an alternative investment ranking – this was going to be interesting.

Except the ranking is little more than the trailing 36 month returns – without mention of the volatility, drawdowns, or any other risk to the investments.  And the so called “Alternatives” in the article seems to be an odd mish mash of returns for whole investment categories like Private Equity with its 100s of Billions of Dollars invested alongside the returns for single stamps from 1867 which gos for around $400.

Throw in a few Ferraris, REIT indices, some Bordeaux wine, Soybean Meal futures, and Hedge Funds; and it’s like Bloomberg vomited alternatives all over the page.

Conventional_1

Conventional_2

Exotic_1(Disclaimer: Past performance is not necessarily indicative of future results)
Tables Courtesy: Bloomberg

Now we get it, looking at exotic property or ideas is a lot more fun to read about then say risk adjusted ratios (what real alternatives folk geek out over), but to compare investing in wine and fast cars to Private Equity and Hedge Funds seems a bit off the mark to us. For one, there is perhaps $1 Billion worth of capacity in some of the ‘exotic’ investments put up on the page, while some of the hedge funds listed manage many billions.  It’s not quite fair to compare the return on a $400 stamp or $1,000 bottle of wine with the Trillions invested in the hedge fund and private equity space. One is attainable to a handful of people in the world, the other to millions. It’s sort of like comparing the Yankees win/loss record for the year with Phil “The Power” Taylor’s darts record.

Oh well… the tables are pretty and it’s fun to see how much some of those ‘exotics’ returned. Who knew?  Self storage REITs were the place to be. We’ll take the ‘under’ on that happening over the next three years.

As for their line about alternative investment (now they’re talking the whole world of them…) underperforming the S&P – that is another case of apples and oranges, although not for the reasons outlined above, with both return streams available to the masses.  Alternatives are oranges to stocks apples because “Hedge Funds Don’t Care if They’re Underperforming the S&P.”

Attain’s Semi-Annual CTA Rankings

We know we’re a little late getting our semi-annual Managed Futures rankings out this summer, but we had good reason (launching our Family of Alternative Investment Funds). The rankings are something we do every 6 months for the past couple of years, with pursuit of answering the question we get most often, “What’s the BEST managed futures program?”Rankings_ClearBackground

Who’s the best is a tricky question? Do you mean: Best last year? Best for all time? Best risk adjusted return? Best in terms of lowest drawdowns?

We’ve dedicated extensive resources over the years to analyzing and testing a rankings system that would best reflect what we believe to be the important metrics for measuring skill in this investment space. Our rankings start by filtering the BarclayHedge database to a smaller subset of managers which have at least 36 months of track record, are registered with the NFA, offer managed accounts, and are viable business concerns (no prop trading records for example).

Overall, there are 8 separate categories, from best programs with risk adjusted performance, best reward managers, as well as best on our Attain Focus list. Click here to download the report.