Crossroads, Language, and IPOs
Last week, I said that the next newsletter will include me revisiting a past write-up: Crossroads Systems. This is currently up on my website, but I decided to instead include my Graftech Post-Mortem instead of the Crossroads write-up. The next newsletter, which will probably come out in a few weeks, will include the Crossroads write-up and a preamble (I promise!!).
Graftech was an idea that I originally wrote up in 2019. I touted the idea around, and had an email chain with a friend, Abe, discussing the idea. He also had an investment idea (PAR Technology), that I was not a fan of. Since my initial write-up,**** $1000 invested in PAR would be worth $2,376, and $1000 invested in Graftech would be worth $937.Sorry Abe!
Looking back, Graftech was a bad investment. It was an OK company in an OK industry at an OK valuation. Not my best idea, but not my worst. However, it is important to revisit your mistakes, no matter how painful or embarrassing. Part of the reason I am writing this newsletter is so I can do just that! It will be interesting for me to look back in a few years and read my thoughts/opinions, thinking how dumb I was back in August of 2021.
Anyways, the Post-Mortem and original idea is linked below. If you have any other thoughts regarding Graftech/Post-Mortems, let me know!
§Graftech Post-Mortem
Two Thoughts:
Should Music Be Personal?
Recently, the Wu-Tang album that was owned by Martin Shkreli was sold by the U.S. government to an anonymous buyer for an undisclosed amount (if you happen to be that buyer, please call me ASAP). Unlike most (all?) other published music, there is only 1 copy of the album. No Wu-Tang member has heard the album in its entirety (except for RZA). As is on the album’s website, RZA writes:
Mass replication has fundamentally changed the way we view a piece of recorded music, while digital universality and vanishing physicality have broken our emotional bond with a piece of music as an artwork and a deeply personal treasure
If you don’t know about the album, I would recommend at least reading the wiki page. It is seriously cool.
But I think RZA brings up a great point- would having less copies of music make the song more appealing to the listener? I am sure that there is some allure to having unique copies- but should art, if published in the public domain, be personal? And if yes, does mass music distribution really damage this personal connection?
Buying Initial Public Offerings (IPOs)
A friend recently texted me:
Invest in robinhood ipo? Thoughts? I am thinking I could ride the frenzy early. But I want your advice
As many of you know, I seldom (read: never) give advice on specific stocks. I do share my notes (see: mylesmarino.com) on some companies, but I rarely say if I think it provides a good investment opportunity. So, instead of answering the question, I side-stepped it!
Instead, I talked about how IPOs put the retail buyer at a substantial disadvantage. Whenever you buy shares in a company, you are implicitly saying that the person selling you Y stock at X price is wrong about its prospects.
Who is selling Robinhood stock?
Well the company itself, Robinhood, sold 52.3M shares, the two founders are selling 2.5M shares, and the CFO is selling 125K shares.
Who chose the price?
The management team in conjunction with J.P. Morgan and Goldman Sachs, where the #1 and #2 smartest investment bankers work (I’ll let you think about who is the #2 there!).
What does it matter?
If you buy this IPO (or any other large ones), you are saying that the management team, J.P. Morgan, and Goldman Sachs are drastically mispricing this company. That is a tough bet to make. Maybe you are right, maybe you are wrong. But typically, it pays more to be the seller in IPOs than the buyer.
Funnily enough, these dynamics are almost always flipped in spinoffs. No wonder why over a 3 year period, spinoffs as an investment class trounce IPOs!
That being said, money can be made by investing in IPOs. However, most success in this area require the investor to look out 3+ years (IE, past most investment bankers who are pricing the security), which is fundamentally difficult to do in many of these companies. If you want to read the Robinhood prospectus, here you go.
RE: Robinhood IPO
Fun fact, Robinhood IPO’d at $38/share, and is currently (9:48am at 8/4/2021) sitting at ~$73/share (not to mention trading was halted after a 40% surge, so it is actually above $73/share) :)