Archive for September, 2011

Alright last week I started a post on Private Equity, but it quickly snowballed into an off topic rant about how damn macroey the markets are right now (and STILL are today but that’s besides the point) and ran out of viewers reading capacity. So this is the re-do!

 The idea behind private equity is similar to regular old publicly traded equity in that you are putting money into a company in exchange for an ownership share with the idea that it will use that money to make widgets, or sell Dr. Pepper, or cure antiboner syndrome or whatever and make the value of your ownership share grow right. Now with public equity, the odds of your 500 bucks from your Zeeco account that you buy stock with actually physically ending up getting used by some gentleman with a monacle (standard issue CEOwear) are 0%. This is cause you’re not buying shares from the company (unless it’s an IPO or another public offering), you’re buying shares from someone whose selling them. Now monacle man and his crew of flunkies could technically check at any time who exactly owns their shares, but outside of large institutional ownership and large activist investors, they don’t give a fig about you and your 0.0001% stake in their company.

This man has simply run out of figs to give.... and he did not start with very many

Private Equity on the other hand is (usually) about buying a much larger stake in a company that is not actively traded on any exchange. In exchange for this you, again get an ownership share, but usually one big enough to influence the operations of the company (therefore forcing figs to be given). Which is precisely what you do to either: 

-          Finance a companies growth in a direction acceptable to the investor

-          Develop a new product

-          Restructure the companies structure or management

 It’s been a while since I’ve created a sweet hooker analogy so let’s go! The difference between public equity and private equity is like the difference between a casual lunch between gentlemen at Barbarellas and a…uhhh…significantly less casual encounter in a Vegas penthouse (though after the one on the card didn’t show up several times, nice try BARRY).   

"yea......no"

Public equity is wayyyy more hands off you watch, you analyze, maybe it even moves a little bit (or…gets a little misty? I dunno are male strippers attractive or a joke? I’ve never figured out girls opinions on this… it’s just like….a dong….in your face….hitting you? That sounds awful…anyways), but in the end you pay your tab, spray some cologne on, and you move along. Other than some dubious eggrolls, it’s relatively safe, you can leave at any time (very liquid market, hundreds of millions of shares trade a day), and you usually get a whole variety for a relatively low price (to diversify your meat portfolio! It’s the key to success)

"oh haiiiiiiiiii"

Vegas penthouse time though, hoooeyyyy, you’re in there rearranging shit, inventing new stuff, and getting called titles you’ve never even HEARD of before man! BUT! Unless you are a baller on an “I created my own breed of mini giraffe for kicks” type scale, it’s pretty friggin hard to get a wide variety in there with you (given the capital required PE is expensive to get into). Also, after you jump in….if you try to get out before the appropriate time… there is usually a fairly significantly sized gentlemen named Throatopener Charlie blocking your way (very limited secondary market to sell out of private equity positions), and the worst part….if you pick the wrong one your dink explodes (…..you really need the financial equivalent of that?).

 I’ll flesh out PE more later (hehehe), including where it fits into a portfolio, why it is sweet to have in a portfolio, and how to get access to it without having to subsequently rock HJs in an alley to make rent.

 Till next week.

 Stay classy,

 The SRB

Now that the golden ticket quest is mostly over with the CFA (just have about a year of work experience left to acquire before I get my giant Certified Fister of Amateurs © framed poster), my attention has turned lately to what the hell I wanna do now. I love equities and would love to get into equity management or some derivative of that, but lately equities have been bugging me with their macroness and newsery.

 What I mean by this is the following: Rogers Communications Inc (RCI.B) is a totally domestic Canadian company in that all their sales and revenues are derived from Canada. Other than general consumer health and other obviously global things, they have little to do with the world economy (yes gross simplification I know). On September 13th, the markets rallied on news that China was talking with Italy about buying some of their bonds and helping them out with liquidity. Over the next 2 days, RCI.B jumped 4.4% on NOTHING other than this. It wasn’t even confirmed, just a rumor that this may happen triggered a huge move in a company that is 100% dependent on a Canadian revenue base. Since then Rogers has tumbled back to pretty much the same level as pre announcement due to continued fears about Greece’s debt festival…… Obviously there are other factors at play here as there are with every stock movement, but there were no Roger’s earnings reports, no positive or negative Canadian consumer reports, no legislative movements, no changes in the competitive landscape for telecom companies in Canada, no rage fuelled “Rogers Interactive Internet TV” customers from the early 2000s carpet bombing 333 Bloor East, you know, none of the normal things that affect Rogers stock.

 That’s the thing with crisis like this, everyone says “oh yea go international, invest the shit outta that shit all over the world that way, when the home economy hot garbagifies, your money will be off sexing locals and “finding itself” in Bangkok. Thing is that with the interconnectedness of everything now since Credit Default Swaps essentially put every single financial institution in the insurance market (so everything bad affects everyone), as well as the extremely global open flow of capital, during crises, correlation goes to 1 (meaning everything moves together). I know I’m exaggerating for effect and I know that statistically when there are bigger fluctuations (ie. volatility from shit storms) correlations by definition go up, but the amount that the world markets jump at every piece of news, rumor, or half truth out of Europe is ridiculous. It’s like if you don’t have an advanced knowledge of German Parliamentary procedure to know in advance whether they are going to approve the next stage of the Greek bailout, you have no right trading even a domestic stock like Rogers and….

 AHHH It’s happening right now!! At 3pm today (Sept 19th as I write this) the markets were blarrrfing all over the place and just now there was a CONFERENCE CALL between Greece, the IMF, the ECB, and the EU, that yielded NO results other than an oddly buoyant e-mail from the Greek Ministry of Finance that said:

 “Surprise!!! Conference call just finished a while ago… Short announcement should be expected shortly…”

 This e-mail lifted the S&P over a percent! Note, that is not me imitating the Greek Finance Ministry (there would def be more boy loving Athenian jokes), that is a for reals e-mail that turned around the GLOBAL stock markets. The announcement that ended up coming? “Talks [for the next tranche of bailout money] will continue Tuedsay” and the market’s nosedived again.

 3 exclamation marks turned this whole trading day around. Geez. There really is truth to the old adage “macro makes your sack grow” eh? (note: not an old adage).

 Uhhhh right, this post was supposed to be about private equity. Hey rant how you doin? Private equity next time! It isn’t as wildly affected by all this shit is the long and the short of it. But we shall discuss. Oh yes. We shall.

 Till later this week (or possibly next, bachelor party this weekend!).

 The SRB

a.k.a. The Payer of Dues to the Purveyor of News