My musings on the economy, life, technology, business and things I find interesting.

Saturday, May 14, 2011

Silver and RIM, Timeframes, Luck and Patience

Silver and RIM have been on my mind of late.  I like being a calculated contrarian.  I have enough risk flowing through my veins running Snapsort, so I tend to be pretty conservative with my other investments.  I do love finance though and there are many investors I respect.  Most businesses are about arbitraging inefficiencies/disadvantages and investing is no different and the reason why the little guys gets so thoroughly screwed.  In February 2010 I wondered Can RIM maintain its stellar growth, yes it was a negative piece for sure, but negativity does not beget a negative reality, especially with the right time frame at play.  In August that sentiment became mainstream and I figured it was time to go against the grain, PUTs at 30 and 35 strike prices had fantastic yields and it was time to, synthetically at least, support RIMM. Even having arguably failed 3 product cycles RIMM will not go to zero, fear can be your friend in these circumstances.  I think that time has come again with the markets recent flogging of our star co-CEOs.  30 and 35 strikes are again loaded with decent risk premiums, you almost can't say no as long as you keep the time frame tight, six months seems good to me.

Time frames are an important part of any investment operation, something like RIMM puts has a simple setup, option A you generate yield like an insurance company and you stomach very reasonable risk, option B you get called and are happy having acquired assets what you believe to be well below market.  RIMM is already down 70% from its peak, conversely GOOG is about even from its top in 2008.  70% is a big number, another 30% drop for RIMM would put its P/E below 5, legitimate value territory, in a 6 mos time frame the chance of any legitimate reasons RIM would trade at 4x future earnings seem low so as long as its a metered bet and you can follow it to even better prices it seems pretty good.  Timeframes are interesting because you need to understand the potential cycles you're working with.  Even if we're in a bear rally six months can't really hurt you historically, you'll get an exit, especially with 30% downside protection.  If we're muddling here with 5 years of anemic growth ahead, the resultant undulations will be great for options traders.

Snapsort is my biggest investment, its taking a significant amount of my money, most of my time, and nearly all my capacity.  The timeframes here are different and the market cycles for VC capital, startups, m&a activity by google/facebook and IPO appetite will significantly impact the course of our and every other North American software startup.  Now IS a good time to be running a startup, we're fortunate (here's where luck comes in), guys like Marc Cuban owe a lot of their success to market cycles lining up well with when they launched and sold their businesses.  A lot of this is about luck, I'd wager most of the people with big exits in the dot com boom weren't waiting 10 years for a ripe market to do an internet play, they just made a lame website, raised money, bought a userbase and hopefully exited before the greater fools ran dry.  I'm sure there are a lot of opportunistic and pragmatic people who play business cycles like a fiddle, I don't think they're super common in tech.  Warren Buffet is one such person, he's not into tech, he likes underwear, ice cream and cherry Coke.  He is also an incredibly patient person, most people in tech are wired permanently to a red bull vat and are looking to conquer the world next week.  I think patience is key to leveraging business/economic cycles to your benefit and not your detriment.  VCs are likely more constrained by cycles, but I think that's more a function of the economic cycle impacts on GPs vs stated business plan, Angels seem less so, especially the ones who recently exited at a peak.  Bottom line, timing/luck matters.

Silver is starting to unwind a parabolic move, parabolas are not nice charts for investors, they rarely end well, but we're now seeing SLV puts at 20/25 coming with reasonable premiums, there is support for silver around those levels so if you have legitimate concerns on monetary inflation this is a pretty good hedge, 13% return will surely outpace inflation and owning silver in that range is a lot smarter (not necessarily smart) than owning it at $50.  Given there isn't much support before the 20s you can probably wait it out. I have no idea when people take concern with the massive printing in China (Google China ghost cities - interesting stuff), and general debt overhang in Europe and the USA (25k euros for every man, woman and child in Ireland pledged to bailout the banks).  I do know that those looking for an Apocalypse wont get it and those looking for some kind of new growth supercycle wont get it.  Likely what we get is low growth and crappy markets undulating +10% ~ -30% from current levels and cash cows like Google and Facebook buying up hundreds of startups.


1 comment: