When you are forced to write long tomes at nadirs…
…resupporting your decades-long views of the future while the market tells you loudly how stupid you are, you come to realize that writing down your thoughts at certain critical points can serve a purpose. But why must we always try so hard to be humble on the other side of the coin, if we write for therapy during the tough times, perhaps we can write in hope of regaining level-headedness during euphoric victories as well? Yin AND Yang, no?
It is with that in mind, we not only write when times are tough, but resolve to write when times a rosey too…
This article is what’s typically known in certain parlors of Wall Street as a “Victory Lap”, and here we provide it shamelessly — but hopefully with a helpful spin. Let’s face it, in the modern world of “humble-brag” creatures, at least just do the thing out in the open and stop all the passive-aggressiveness which fools no one. Why not use exuberance energy for further analysis when it’s probably needed most (at a peak, not just the valleys).
“REMEMBER THOU ART MORTAL, REMEMBER THOU ART MORTAL”
What you usually do when you witness these victory laps, is cherish them by immediately taking the other side of the trade for a short period: no good deeds go unpunished, as they say. But this is an attempt to write the victory down on paper with the intention to cancel some of the bubbling-up of awkwardness of hubris with lessons learned, and a humbler re-look at what realities might lie ahead for the over-enthusiastic celebrators of SNAP 2020.
First, let’s review the alpha treasure:
Let’s then list those valleys of humility when we ate crow again — reflectively & unwaveringly:
i^2 = j^2 = k^2 = ijk = -1's Blog Posts
We focus on 20x<10, which is "20-baggers" made in less than a decade, while paying strict attention to risk/reward…
Now the important part: analyze mistakes with hopes of not making them again.
Lesson learned this time:
The difference in public perception of a challenger overtaking a gargantuan incumbent backed by conservative Wall Street, and a green-field opportunity (Google, FB, AMZN, Netflix) has QUITE an effect on volatility and short/medium term performance. Challengers get punished much worse for small infractions due to the nature of incentives, or the law of mass tonnage ($600 billion worth of investors are much louder than $19 billion worth of investors and in the media this ratio is even more exaggerated than 30x).
Summary: Treat a green-field tech company different than a usurper of the current kings that’s very close to its competitors. How do you know if your investing in a usurper vs a green-field? You just determine if the long term opportunity already exists ($SNAP can just steal market share from Finstagram), or if the company is creating a new market never been seen before (Amazon 2001, Google 2004, Apple 2006, Facebook 2006, Netflix 2012, Bitcoin Planaria sCrypt Tokenized & Volt 2019). If the competition is a very very old business like the Yellow Pages was for Google’s search, you’re dealing with a green field opportunity. If the competition is relatively new and recently blazed its own trail, like MySpace Facebook and Twitter are for Snapchat, then you’re expecting a ursurper trajectory.
Google in 2002–2004 was very hard to conceptualize. But it was still some napkin math after scores of work was done. If you had put up the size of all the advertising markets in each category (TV, Newspaper, Radio, Billboard, Magazines) at the time of the poorly-received IPO in 2004, and said “Google can probably get the vast majority of ALL of this with it’s ad-auction contraption,” and then made a guess how big “two-way advertising” could get vs legacy “1-way” advertising… You could get a big picture idea of what Google could become in more than a decade or two of growth. Turns out this method wasn’t such a left-field prediction, and if Google hadn’t ignorantly distrusted their young CEOs and hired “adult supervision” in Eric Schmidt (one of the words CEOs of all time), it’s possibly they would have acquired MySpace before it was too late and saved themselves from the fate of Facebook eating up half of their advertising market share in the subsequent decades to the misfire. We refer to when the “adult supervisor” stopped all acquisitions for over a year during financial crises which turned out to be the best time to scoop up startups like Google had been doing before Schmidt applied the parental brakes. But that’s an old lesson for another time.
Snapchat was MUCH easier in 2017, you didn’t need a napkin, but just a click over to Facebook’s market cap of $600 billion. $600 / $20 billion = 30-bagger. Why is this so easy? Because electronic two-way advertising in 2017 was a well-known force of nature, you didn’t have to DREAM what it would be like if advertising agencies had every single detail of your life mapped in a graph on their database, and selling it to the highest bidder — it already existed!
A previous lesson re-inforced:
The Pitts Uncertainty Principle of Investing was born during the rise and fall of Snapchat stock [ https://sym.re/UFvBcBK ]: higher alpha opportunity is married with extra volatility. This is both a curse and a blessing. The blessing must be focused upon and utilized. While one could invest 20–25% initially and “Rip Van Winkle it” (sleep thru the volatility) with no leverage, the cooler approach is to do 10–15% and then reserve ability to take advantage of even crazier extremes in the risk/reward ratio. But 20:1 odds with good probability of success (with probability directly proportional to stock-picking ability) should not be invested at anything less than 10% as the work involved is too large to be risked missing the 20:1 odds simply to hope for 40:1 or 100:1 (or in the case of BitCoin in 2019, 500–1,000:1). Was well prepared for volatility going into the $13 August 2017 public long recommendation, but at the same time thought the timing had been nailed (and for several months going into the gangbusters Q4 2017 earnings we HAD nailed the timing perfectly). You simply have to place your bets into uncertainty, but hopefully the lesson learned above will help us with our timing and pricing accuracy next time, so we can generate HIGHER alpha with future investment recommendations. Consider BitCoin (BSV) for example, where calculations backed with historical evidence resulted in some screaming-buy recommendations from the virtual rooftops beginning on Easter Sunday 2019). If you’re not improving, you’re dying.
FUTURE: short, medium, long
If the money printing charade continues as planned by Emperor Fink & Nickel’n Dimon…
SNAP will rip into the $30s and likely “under-damp” to $40–60 range by Xmas. This isn’t idle prediction, but using historical pattern data for this. 10x is about right for great companies off the bottom, in an 18 month span. Yes, I stress great company in that sentence. Sure, Spiegel is doing some dumb shit like diluting (twice in the past year) instead of using profitability as an excuse to streamline his internals (spending), and taking political sides (utterly stupid for ANY corporation, see the immediate effect on Under Armour, and the longer term effect which will come for imbecilic Nike mgt). But for rising tech companies, Spiegel’s errors are much much smaller than his SillyCON Valley peers (Google dilutes when not even remotely needed, Bezos ran on dilution fuel like no other, and I won’t even comment on the extremes to which FANGs have attempted to hang themselves politically at every opporunity — that should be blatantly obvious to even children, with some worse [FB] than others [AAPL].
Spiegel and Murphy make up for these errors by making the correct big-boy decisions, like in Q1 2018 when they seperated the “church and state” of private coversations and curated public content like KarTrashians Stories. Sure, the market didn’t have to react by sending stock to $8 and then $4 from $20 (part of the lesson learned above) but that’s how the world works when you’re an upcomer with no green fields at your disposal.
Medium term: Perhaps the collective but unanimous managers of the world economy get away with another trillions-dollar crime yet again, in this election year of absurdities, but we are in the Last Days of Disco as they say.
What this means for SNAP is another wicked shaking out at some point, before they have a chance at the $100–666 valuations in their 10–17 year horizon.
Long Term: Let’s keep it short… $666.66 target price. Roughly a trillion. But the nice thing about long term, is you get plenty of time to re-analyze for new information such as Twetch and BitCoin and SLictionary & Hilarist.
And don’t forget to vote — with your feet.
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