Monthly Archives: March 2015

Conference Illusions

Sunny Florida in the dead of winter. A generic hotel ballroom packed with indistinguishable vendor booths. Two hotel staffed open bars adorned with branding from the “Vendor Fair and Cocktail Hour” sponsor. Small circles of generally white middle aged men wearing mostly identical gray or navy suits having numerous variations of the same conversation.

It starts out with the usual greeting and discussion of how much they are enjoying the wonderful weather in Florida – even though they’ve spent the entire day in hotel ballrooms with no natural light. Then they move on to “comparing” how awful the winter weather has been where they live. It’s -10 in Chicago? We went 3 weeks straight below freezing in Toronto! In Boston the snow banks are as high as a 6 story building! This continues on for awhile until the conditions at each locale have been finally described as being only slightly more inhabitable to mankind than the dark side of Pluto.

Whoever “won” the weather description continues playing the role of alpha male and immediately changes the conversation to business. The all ask how each others company is doing, of course the only acceptable answer is some variation of “great”, “wonderful” or “best quarter ever”. Those that could potentially have a use for each others product profess that they are nearly sure their company is yearning to purchase just such a product.

Now it is time for the business card exchange. A ritual which temporarily transforms a piece of printed cardboard into a valuable gift to be bestowed and cherished. Each participant eagerly distributes his own card while thoughtfully reviewing the information printed on the ones he receives. In that single moment, the card is no longer just a piece of paper with the same information as everyone’s email signature and LinkedIn account. Instead it represents his professional hopes and dreams – the allure of a marque new account, a potential acquirer for his firm or his next employer. Still caught up in the moment, the new cards are safely tucked away in coat pockets less what they represent be lost or forgotten.

A final round of goodbyes commence with solemn vows to “follow up as soon as they get back to the office” or to “run this up the flag pole” and “make sure this gets in front of the right people”. As the group disperses, phones materialize from pockets not holding business cards and are used to send emails to colleagues and superiors about the importance of who they just met and how they had a “high level of interest” and are “very interested in our product”.  All these emails end with a variation of the standard self-congraluatory/self-justification line “this single interaction made the entire conference worth it” as the hopes and dreams are still very alive for now.

Snowy (Chicago, Toronto, Boston) the Monday after the conference. Alarm clock, morning coffee, taking dogs out, getting kids off to school, commute, traffic, coworkers, “how was your weekend?”, “how was the conference?”, status meetings, voicemails, emails, lunch meetings, conference calls, client meetings, commutes, traffic, takeout dinner, kids homework, TV, bed. Days pass with nary a thought of the treasured business cards or the conversations that spawned them until they’re rediscovered in the bottom of a bag while looking for a cellphone power cord. The slightly wrinkled pile of cards is spread out on the desk. Vague memories of the conference filter back but any conversation specifics are overshadowed by the late nights and alcohol. What exactly did this person do? Why did they say they were interested in the product? What was the followup supposed to be about?

A self-compromise is reached. It would obviously be unprofessional to contact them so long after the promised followup date and not even remember the conversation yet it would also be a waste to just throw away such a valuable contact. Instead, the cards are added to the already growing pile on the desk that is going to be entered into an address book and LinkedIn right after checking this email.

Hours later and the pile of cards remains unreviewed and unentered. They are now completely out of site, buried under an avalanche of flight, hotel and car itineraries. The email was in invitation to another conference. This one in Vegas.

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Too Easy

Bill Browder’s best investment made his fund more than 10,000% in only 5 years. Over $100,000 for every $1,000 invested initially invested.

Interested? Bill’s book (which I strongly encourage you to read in full) explains in detail exactly how he did it.

“Gazprom was eight times the size of ExxonMobil and twelve times bigger than BP, the largest oil companies in the world— yet it traded at a 99.7 percent discount to those companies per barrel of reserves.” – Bill Browder from Red Notice: A True Story of High Finance, Murder, and One Man’s Fight for Justice

How was this even possible in modern times? Aren’t the markets now so perfectly efficient that even Warren Buffet can no longer beat them.

“Why was it so cheap? The simple answer was that most investors thought that 99.7 percent of the company’s assets had been stolen.”

An oil and gas company in a country run by Vladimir Putin and the Russian Oligarchs.  A company where management was not only working against shareholders, but brazenly transferring out entire assets.

“Based on an extremely conservative estimate, we determined this subsidiary was worth about $ 530 million, yet a group of buyers was allowed to buy 53 percent of Sibneftegaz for a total of $ 1.3 million— a 99.5 percent discount to our calculation of its fair value! Who were these fortunate buyers? One was Gennady Vyakhirev, the brother of Gazprom’s CEO, Rem Vyakhirev.”

Against a macro backdrop of extreme inflation, a recent debt default and fleeing foreign capital.

Still interested?  It gets better.

After spending months investigating the extent of the Gazprom asset thefts by interviewing competitors, customers and ex-employees, he took all he had learned about the corruption in Gazprom and turned it over to the press.   Bill went public about the extreme corruption at Gazprom all the while living in Moscow and endangering the safety of himself, his firm and everyone he worked with in Russia.  Going public eventually led to the investment paying off but also to horrific costs which are detailed in the book.

I apologize if you were hoping that 100x returns could be achieved with no more effort and risk than entering a few EBITDA screens into a Bloomberg terminal and clicking a “buy” button.  But did you really think you were going to find tremendous opportunities in the same securities that any 10 year old with an iPhone can pull up the last 10 years of financials for in the time it takes for a red light to change?  That would just be too easy.

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