CMGI Sighting: Taking a Break from Trading

I’ll still read about the capital markets daily, but I have found trading quite distractive when considering my daily workflow. I’ve sold most my positions other than WBA, CVS, a REIT & a somewhat negatively correlated stock that tends to outperform when the market craps the bed. In the current market where a flood of IPOS are coming online, I’d hate to be in anything other than low beta stuff unless I was obsessively watching it.

I guess that near constant distraction would be worth it if my investing returns drastically outperformed what I was doing elsewhere, but the capital markets are far more competitive than most other markets. As a newbie it is better to wade into such waters when the central banks are pumping liquidity into the market after a pull back than to either buy beaten down value plays that keep getting more beaten down or diving into some beyond meat IPO pump-n-dump styled elevator price action.

I am the only person in America to have not filed an S-1 to go public this year. I love seeing endless IPO’s, but I know that with IPO’s comes supply and with endless supply comes lower prices (at least generally).

I also have some 1999 Déjà Vu going on.

SoftBank Group Corp. is considering audacious fundraising plans, including a public offering of its $100 billion investment fund and the launch of a second fund of at least that size, as it looks to seize on an exploding startup scene, people familiar with the matter said. … Highlighting the need for new funds: Mr. Son recently returned from China, where he negotiated informal deals worth several billion dollars that the Vision Fund doesn’t yet have, one of the people said.

If he & money from Saudi Arabia are existing, who is the next marginal buyer left in the market? I can’t believe the Wall Street Journal published an article with this analogy:

A Vision Fund IPO is the most ambitious of the plans under consideration and would take place after the fund is fully invested, likely by this fall, according to people familiar with the matter. The hope is to create a smaller version of Warren Buffett’s Berkshire Hathaway Inc. —only loaded with young technology companies, many of which have yet to turn a profit, instead of a stable of well-established utilities, insurers and energy companies.

Like Buffett, except the opposite.

  • Not value-based investments
  • Not profitable
  • No large insurance premium float to fuel other investments, but rather a bunch of marked up money-losing companies where the exit is done in part to raise funds to create another pro-cyclical investment vehicle which will likely invest in companies that also compete against the last batch of startups before they get profitable

Blue Apron is now profitable after a couple years as a public company & a 90% slide in their stock price.

Anyone remember CMGI? The Vision Fund feels like a high-stakes liar’s poker version of that. A loose collection of money losing somethings fueled by unrelenting optimism … sold to you.

Sounds like a press release to me

This sumptuous show last fall at the Hammerstein Ballroom in Manhattan represented the avant-garde not of theater but of Internet hype. It introduced a new home page and ad campaign by AltaVista, the search engine, to about 100 journalists and Wall Street analysts, and laid the groundwork for an initial public offering. AltaVista — prompted by its new owner, CMGI, one of the most successful incubators of Internet companies — promised to take on Yahoo with ”a portal as powerful and immediate as life itself.”

To do so, it would spend $120 million on a new slogan, ”Smart is beautiful.” These days, that strategy does not look very smart, and the prospects for the CMGI empire are not very beautiful.

CMGI’s shares are off 91 percent this year, to a value of about $3.8 billion, closing on Friday at $11.94.

And I wasn’t the only one who saw the CMGI parallel

If you lose 50% of your capital base, you have to double your base just to get back to even. If you ride a CMGI down 90% you’ll need a 10-bagger to get to par, excluding the impacts of inflation.

Maybe the market heads higher from here on a China trade deal & the Federal Reserve lowering rates once more to throw fuel on the fire, but I suspect the Fed will first have to see a catalyst to justify throwing more fuel on the fire & at the very least I’d rather wait for such a catalyst before putting much capital at risk.

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