I know I keep telling you this — valuations are looking toppy! Here’s a chart from Goldmans that is saying the same thing — note similarities to both the dot com bubble in 2000 and the ‘22 sell-off. I don’t know, you guys — maybe that’s not great? Am I starting to sound like a dude with a sign that says “the end is near”?
Also note the amount of tech insiders who are selling stock —
Per the FT:
Many of the biggest sales this quarter have come from technology executives. Thiel, co-founder of data analytics group Palantir, sold $175mn this month, according to regulatory disclosures, his biggest sale since offloading $504.8mn of the company’s stock in February 2021. Amazon founder Bezos sold 50mn shares worth $8.5bn in the ecommerce group in February. Andy Jassy, Amazon’s chief executive, sold $21.1mn of stock this year, compared to $23.6mn in 2023 and 2022 combined. Zuckerberg, Meta’s chief executive, has sold millions of dollars of the company’s shares for years. But he has increased selling this year as its stock hit all-time highs. In early February, he sold 291,000 shares for $135mn, his first sale of that size since November 2021. He still has 13.5 per cent of the company’s outstanding shares, which makes him its largest shareholder.
OK, not great? I don’t love it. I know Bezos has to buy yachts and things and I don’t know, I guess Zuck has to buy Sweet Baby Ray’s BBQ sauce (why doesn’t he just buy Ken’s Foods, the owner of Sweet Baby Ray’s?)
I presume owners of big tech companies have more information than myself when it comes to What Is Happening. They’re likely being told by their executives and management what the likely forecast is, and if they’re plugged in, they probably can see it with their own eyes. In a market where retail traders are buying tech by the handful and the insiders are selling, I know which side of the aisle I’d rather be on.
I am old enough to remember a couple of years ago where Tesla was valued at a zillion dollars and it was a “tech company”. Now it has fallen on slightly harder times (i.e. being valued at what it is, a car company). Anyway — everyone two years ago was telling me I was an idiot for not buying Tesla and now everyone is telling me I am an idiot for not buying Nvidia or Bitcoin. Everyone who says this is incredibly sure of themselves. I am sure of nothing. Everyone keeps telling me that Bitcoin is here forever, which strikes me as extremely optimistic given that governments are incentivized to keep their own fiat currency and back it with guns and nuclear bombs and so on. Here is Ray Dalio’s (flawed, rough, but pretty) diagram of the dominance of world fiat currencies.
I don’t know — if you are the US and you are currently embroiled in multiple conflicts you are perhaps not going to be crash hot on adopting a currency you can’t control. That wouldn’t be smart. If you are Blackrock, though, and you sell an ETF which packages the value of Bitcoin into a nice little box, then you are going to be very happy to take your fee on that, thank you very much.
Speaking of Bitcoin —
The mystery of the Hampstead mansion and the £1.4bn bitcoin haul — FT.
There were signs that Wen felt uneasy about aspects of her new job. In December, she asked an accountant she knew if she should let a “friend” funnel £2mn from the sale of bitcoin through her personal bank account. Would there be tax issues, she asked. No, he replied, but “personally, I wouldn’t do it in case they investigated me for money laundering.” Wen told the court that she took the accountant’s advice.
This is such a great story with so many great lines — to be honest it was the only thing I read this weekend; most of my time was spent watching Nicole Kidman playing an unhinged weatherwoman slash Mrs. Robinson in To Die For. Also recommended.
NZX puffery
Piece here today about the NZX which is full of a lot of promises and not much concrete information. It manages to leave out the ridiculous pay rise that has been proposed for the company’s directors. There’s some talk about NZX futures (how long have they been promising this?) and the CEO is quoted as saying the potential of our capital markets is “just touching the sides”. It’s all very nice but doesn’t really touch on 1) the multi-million dollar cash burn at wealth technologies 2) why so many NZX companies keep delisiting 3) the value of the exchange’s junket to Singapore (note here) 4) the rationale for both the CEO’s compensation and the board’s in light of sustained poor performance. I am not good at tact. It’s sad to see poor performance again and again. Note the current CEO’s compensation since 2017 below.
There is obvious value in the NZX — but the model of being both a funds manager and capital markets provider is like owning the market and being a stallholder. The value of both businesses is obviously not factored into the stk price on a SOTP basis. And let’s not get distracted from the main subject of my ire — the proposed +38% increase in director’s fees on a stock that hasn’t performed. I suspect if ordinary NZX employees asked for a similar increase they would be laughed out of the room. I refuse to think that directors have some kind of special magic wonderfulness that excludes them from criticism.
A word on CEO pay
I can’t help but comment on how the NZX structures CEO pay. Here it is below.
Let’s leave out “risk, compliance and culture” which is absurd. What does “Capital Markets industry leadership” even mean? Who makes up this stuff? Let’s leave out “strategy delivery and key operational targets” too, because that is also mumbo-jumbo. The only job of a CEO is to allocate capital effectively. They can do this by reinvesting into the business, buying back stock, or paying out a dividend. Nowhere in the measurement basis is return on capital, return on equity, or return on assets mentioned.
My favourite business Mainfreight keeps it simple. Here it is.
Don is paid his base plus a performance bonus based on profit and revenue growth and other quality KPIs — I am willing to bet that includes ROIC, which sits at 13% vs. the industry average of ~5%. Note founder Bruce Plested doesn’t bother paying himself a director’s fee. Also note nobody is paid extra for sitting on other committees.
Mainfreight has done incredibly well while the NZX has done fairly poorly. Here’s St. Munger:
You get what you reward for. If you have a dumb incentive, you get dumb outcomes
Back in the mid-2000s Wells Fargo decided it was a good idea to compensate employees on the front line based on how many new accounts they got opened. Of course, employees ended up creating fake accounts or moving existing customers to new accounts without their knowledge. Dumb incentive, dumb outcomes.
Kering — now sitting at five year lows
Considering initiating a position in our model portfolios in Kering SA (this is not advice, do your own research, I am just an idiot at a keyboard).
“What on earth, Eden?” you might be saying. “You’ve been telling us what a rust bucket it is!”
I mean — everything at a price. Kering’s main issue has been flagging sales at Gucci. I don’t know if the new designer has got what it takes — it’s slick, sleek, and a bit boring. However, Kering does have Balenciaga, St. Laurent, Bottega Veneta and the newly acquired perfumery Creed. St. Laurent is not small potatoes — it bought in €3.2 billion last year. It’s trading at 15x earnings (LVMH is trading at ~26x) and here’s the kicker — it’s trading at five year lows. We like that. Is it in the same league as LVMH or Hermes? No. Is it worth more than 15x earnings? Yes. The other thing worth paying a little attention to is Kering owner François-Henri Pinault just paid $7bn for CAA, the giant talent agency. I don’t think that’s a move just to satisfy his wife, Salma Hayek. I think it’s strategic — expect CAA clients to be dressed in Kering-owned brands clothes. It’s called “synergies”, or something like that. The record companies used to call it “Payola”.
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