Risk Taker #1: Nathan Rothschild saved the London stock Exchange (and England's Credit) (1815).
Here's my response to the article I wrote entitled "Where have all the Risk-Takers gone?", I decided to do a survey of financial risk-takers from history past who stepped in to save financial systems when markets were crashing.
The Panic of the London Stock Exchange in 1815 was accelerated by the fear that Napolean had defeated the Duke of Wellington (General of the British Army). Nathan Rothschild stepped into the panic and was a buyer of stocks. He did this putting the entire financial backing of the House of Rothschild into the market when the market was collapsing. He did this also because he made a commitment to the governments of Europe that were fighting Napolean. Many theorize that England would have gone bankrupt were it not for Nathan Rothschild and Napolean would have had the advantage. Upon receiving news that Wellington had defeated Napolean, he shared the news with the market (and revealed his secret of carrier pigeons to transport the news) and it recovered, while making Rothschild the richest man in the world.
This was dramatized in a movie in 1934 entitled "The House of Rothschild". This move was nominated for an academy award:
(11/12) Nathan Rothschild: "Rich People have grave responsibilities and moral responsibilities that come with money. I'm buying on the stock exchange when everyone else is selling. I'm risking everything we have to save England. "
(12/12) "Dramatic Conclusion"
Here are the links to the other 10 parts of the movie if you'd like to watch it in it's entirety: (1/12), (2/12), (3/12), (4/12), (5/12), (6/12), (7/12), (8/12), (9/12), (10/12)
Saturday, December 27, 2008
Tuesday, December 23, 2008
Where have all the Risk-Takers gone?
Where have all the Risk-Takers gone?
Everyone I talk to these days is frightened out of their skulls about the economy and what's going to happen with their money. So much money has been pulled out of every asset class and sitting in secure(?) instruments like Treasuries that they're willing to receive a negative to zero interest rate because they think Armageddon is going to happen. See: "Hedge Fund Redemptions may crash Q1 Markets".
If they really think Armageddon is going to happen, I'd recommend buying guns and ammo and stocking up on food and water, not hoarding cash!
The psychology of the world has been so affected by this negativity, it's almost like there is an actual virus infecting the minds of all of mankind. The depressive state expressed by the media and the blogs and the people I talk to is very strange, almost as if there is a spiritual darkness descending on all of us.
The upside is that with the falling of the old school financial institutions in this country, there are many new opportunities for entrepreneurs to fill the gap. Old business models are destroyed and new and improved ones will take their place. What will you do to contribute to a new and better society?
Perhaps there is something going on, but if YOU WANT TO return to living in caves and hunting for food, then keep on hoarding your money and not taking risk. It's only when we are all cooperating together in business transactions, in risk taking, in speculating, and investing that our society will thrive.
Sure, we've hit a rough patch. But enough with "The Sky is Falling" mentality. Start investing again and participate in the world economy.
One of my favorite quotes is by a 16th century author, John Donne. He said, "No man is an island, entire unto himself. Every man is a piece of the continent, a part of the main. Any man's death diminishes me, because I'm involved in all of mankind. Therefore, send not to know for whom the bell tolls. It tolls for thee."
The Bells are ringing for Risk-Takers. Are you ready to respond? The world needs you right now more than ever!
Protect your Capital while taking measured risks with Option Straddle Trades.
Merry Christmas and Happy holidays!
Everyone I talk to these days is frightened out of their skulls about the economy and what's going to happen with their money. So much money has been pulled out of every asset class and sitting in secure(?) instruments like Treasuries that they're willing to receive a negative to zero interest rate because they think Armageddon is going to happen. See: "Hedge Fund Redemptions may crash Q1 Markets".
If they really think Armageddon is going to happen, I'd recommend buying guns and ammo and stocking up on food and water, not hoarding cash!
The psychology of the world has been so affected by this negativity, it's almost like there is an actual virus infecting the minds of all of mankind. The depressive state expressed by the media and the blogs and the people I talk to is very strange, almost as if there is a spiritual darkness descending on all of us.
The upside is that with the falling of the old school financial institutions in this country, there are many new opportunities for entrepreneurs to fill the gap. Old business models are destroyed and new and improved ones will take their place. What will you do to contribute to a new and better society?
Perhaps there is something going on, but if YOU WANT TO return to living in caves and hunting for food, then keep on hoarding your money and not taking risk. It's only when we are all cooperating together in business transactions, in risk taking, in speculating, and investing that our society will thrive.
Sure, we've hit a rough patch. But enough with "The Sky is Falling" mentality. Start investing again and participate in the world economy.
One of my favorite quotes is by a 16th century author, John Donne. He said, "No man is an island, entire unto himself. Every man is a piece of the continent, a part of the main. Any man's death diminishes me, because I'm involved in all of mankind. Therefore, send not to know for whom the bell tolls. It tolls for thee."
The Bells are ringing for Risk-Takers. Are you ready to respond? The world needs you right now more than ever!
Protect your Capital while taking measured risks with Option Straddle Trades.
Merry Christmas and Happy holidays!
Saturday, December 20, 2008
When to Sell?
When to Sell?
Question: "Your software identifies when the BIG STRADDLE TRADES are BOUGHT. When do you SELL?"
This is in many ways is a more difficult question to answer than "WHEN TO BUY?". The reason is that the BUY QUESTION is answered when there is a large contract trade of both the PUT and the CALL on the same strike that matches on the same minute. Because the BUY portion of the trade is confirmed by the BIG TRADER, there is not a whole lot of decision making required -- just put on the trade! The SELL portion of the trade is left up to me.
I have discovered that the best answer to the SELL QUESTION is when the desired return on Investment is achieved on EITHER THE CALL OR THE PUT. This is because the BIG TRADER does not sell out his position in the easily identifiable way as when the Straddle trade is bought. I currently have the minimum ROI set at 20%.
This has to be monitored via software and my software does it. My software notifies me when a SELL SIGNAL has been identified on either the CALL or the PUT and I place the trade. On most of the CALL or PUT options there are at least 10 signals per CALL or PUT option, so if you miss one, there will be others.
Sometimes I get the benefit of a GAP UP or GAP DOWN or a NEWS EVENT which causes the ROI to be much HIGHER than my TARGET ROI but generally if the ROI is hit, I close out the CALL or the PUT. "A bird in hand is worth two in the bush".
In my experience, 95% of the trades are closed out when the ROI is hit. However, 5% of the time, either the CALL or the PUT hits the target ROI, but the other leg of the straddle does not hit the ROI. In this case, I make the executive decision to close out the other leg to minimize the loss on the trade. But in my experience this is usually results in a loss of less than 10% on the total straddle purchase price. But, since this loss only happens 5% of the time and I'm getting 20% return (or more) on the other 95% of the trades, this minimizes the loss even more.
Check out the SELL SIGNALS generated to today's date with my software. If you have any questions or would like to discuss how you can make some serious money partnering with me, please email me at: Rob Mapstead.
Friday, December 19, 2008
Two Weeks Early!
Two weeks early!
"Panasonic to buy Sanyo in $9 billion deal" AP 12/19/2008 5:58 am ET
Lucky or Smart? See my comments made about Mergers & Acquisitions in 2009. Specifically go to the spreadsheet and see my analysis on Panasonic as one of the 14 M&A "BUYERS" in 2009. There are over 15,000 publicly traded stocks and I picked 1 of 14 to be a M&A "BUYER". It feels good to get it right.
"Panasonic to buy Sanyo in $9 billion deal" AP 12/19/2008 5:58 am ET
Lucky or Smart? See my comments made about Mergers & Acquisitions in 2009. Specifically go to the spreadsheet and see my analysis on Panasonic as one of the 14 M&A "BUYERS" in 2009. There are over 15,000 publicly traded stocks and I picked 1 of 14 to be a M&A "BUYER". It feels good to get it right.
Thursday, December 18, 2008
Email Response to Mergers and Acquistions 2009
Email Response to Mergers and Acquisitions 2009
Below is an email response to my Blog about Mergers & Acquisitions in 2009 from a friend of mine who works at the investment group at a major bank. I respect his opinion and his insightful point of view. See if you agree.
Hey Rob,
I like the Blog – interesting read. Below are my thoughts on your M&A assumptions:
"1. We are in the bottom of the market (12/2008)" – Mildly agree, but I think we will see a number of significant corporate failures that will shock the market intermittently in 2009.
A lot of LBO transactions and leveraged acquisitions, particularly those completed in late 2006 and 2007 will experience difficulty in 2009 given declining EBITDA’s and covenant levels starting to ratchet down. These Company’s will not be able to refinance and will default as a result.
"2. The market/economy will recover in second half of 2009 or 1st half 2010" – I think any semblance of a recovery will not occur until 2010. While interest rates are near historic lows, it may not be sufficient to stimulate growth in 2009, given increasing unemployment rates, depressed house prices and most importantly weak consumer sentiment.
"3. Credit will remain tight through 2009" – Absolutely agree. When banks commence lending again it will be to larger investment grade companies. For lower rated, smaller, more levered companies it will be difficult to complete acquisitions that are EPS accretive given the high financing costs.
"4. Mergers & Acquisitions will be driven by companies with cash and those Companies will use that cash to buy cheap companies in their industry" – Agree.
Company's that have strong liquidity positions (balance sheet cash and capacity under their revolving credit facilities) will be in a strong position to acquire companies at depressed multiples.
"5. Premiums of at least 30% will have to be paid for the purchase of companies." - I would agree that premiums will be in the 30% area. With valuation multiples nearing historic low, premiums will be higher that the historical average as a result.
I think we will see a lot on industry consolidation in 2009 with the big players making a number of strategic acquisitions. I think this will be most prevalent in the energy sector and tech & services.
The premiums paid will factor in cash on balance sheet as the EV/EBITDA multiple is calculated on a net debt basis.
Hope you have an enjoyable and peaceful Christmas.
Regards,
xxxxxxxxxxxx
xxxxxxxxxxxx Securities
xxxxxxxxxxxx Group
Below is an email response to my Blog about Mergers & Acquisitions in 2009 from a friend of mine who works at the investment group at a major bank. I respect his opinion and his insightful point of view. See if you agree.
Hey Rob,
I like the Blog – interesting read. Below are my thoughts on your M&A assumptions:
"1. We are in the bottom of the market (12/2008)" – Mildly agree, but I think we will see a number of significant corporate failures that will shock the market intermittently in 2009.
A lot of LBO transactions and leveraged acquisitions, particularly those completed in late 2006 and 2007 will experience difficulty in 2009 given declining EBITDA’s and covenant levels starting to ratchet down. These Company’s will not be able to refinance and will default as a result.
"2. The market/economy will recover in second half of 2009 or 1st half 2010" – I think any semblance of a recovery will not occur until 2010. While interest rates are near historic lows, it may not be sufficient to stimulate growth in 2009, given increasing unemployment rates, depressed house prices and most importantly weak consumer sentiment.
"3. Credit will remain tight through 2009" – Absolutely agree. When banks commence lending again it will be to larger investment grade companies. For lower rated, smaller, more levered companies it will be difficult to complete acquisitions that are EPS accretive given the high financing costs.
"4. Mergers & Acquisitions will be driven by companies with cash and those Companies will use that cash to buy cheap companies in their industry" – Agree.
Company's that have strong liquidity positions (balance sheet cash and capacity under their revolving credit facilities) will be in a strong position to acquire companies at depressed multiples.
"5. Premiums of at least 30% will have to be paid for the purchase of companies." - I would agree that premiums will be in the 30% area. With valuation multiples nearing historic low, premiums will be higher that the historical average as a result.
I think we will see a lot on industry consolidation in 2009 with the big players making a number of strategic acquisitions. I think this will be most prevalent in the energy sector and tech & services.
The premiums paid will factor in cash on balance sheet as the EV/EBITDA multiple is calculated on a net debt basis.
Hope you have an enjoyable and peaceful Christmas.
Regards,
xxxxxxxxxxxx
xxxxxxxxxxxx Securities
xxxxxxxxxxxx Group
Mergers and Acquisitions Predictions for 2009
Mergers and Acquisitions Predictions for 2009
Assumptions:
Observations:
See this link for the supporting spreadsheet. This spreadsheet identifies two groups. The first group is identified as "BUY". These are companies that have at least $1 Billion in Cash and a market cap of less than $15 Billion. The second group is identified as "BUYER". These are companies that have Cash in excess of $10 Billion.
Since the assumption is that companies will have to finance their own acquisitions, which can be done through either cash and/or issuance of stock, there are just 14 BUYERS in this group. Of these 14, there are only 5 that have 30% or less debt (XOM, CSCO, MSFT, INTC, GOOG). These 5 will really be in the driver seat over the next year as stock prices may continue to go down and they can grow their business through acquisition at a very cheap price.
However, just because a company has debt in excess of 30% doesn't necessarily mean that they are disqualified from making acquisitions. It does mean that they will have a very difficult time of issuing more debt to make those acquisitions and if they burn too much cash in the acquisition their credit rating may go down. An example of this is HPQ that has debt to cash ratio of 174%.
The "BUY" companies have some very interesting elements to them. The assumption is that a 30% premium will have to be paid to purchase a company, but when that company has a large amount of cash, that cash can be used to offset the premium. There are several cases where even if a 30% premium is paid, the actual price paid is less than the current stock price without a premium because of the cash that the "BUY" company has. There are 10 companies like this: CF, SLT, KG, IACI, ERTS, NOVL, SAY, MXIM, ATE, TLAB.
A specific example of this is CF (CF Industrial Holdings) which has 36.36% of it's market cap in cash and a stock price of $55.50. It also has a return on Equity of 46.236% and a PE of only 4.01. If it were to be acquired for a premium of $72.15, the cash in the company would actually make the purchase price $51.97 or $3.53 LESS THAN then current market price. What a deal!
The only problem is that there is no identified buyer with enough cash in that industry (Agricultural Chemicals) that could buy that company. This company is a great candidate for a hedge fund to purchase. Another example is SLT (Sterilite Industries), which has 76.98% of it's market cap in CASH. It is a copper company and should rebound when construction rebounds, but the purchase price for this $4.166 Billion company is discounted by $3.21 Billion because of the cash it has on hand; the total cost excluding premium is: $956 million. With 18.303% return on equity, this is a great deal. Since no potential purchasers can be identified on my list in this industry, this is another candidate for a buyout by a hedge fund.
An example of a company with 35.96% of it's market cap in cash is KG (King Pharmaceuticals). This company could be bought for less than it's current market cap of $2.514 Billion when cash is factored into the price, by any one of 3 pharmaceutical companies that each have in excess of $10 Billion in Cash (PFE, WYE, JNJ). Of course synergies of the companies need to be considered, but from a purely financial observation this makes sense.
The big acquisition for 2009 will be ADBE (Adobe). Adobe has lost 50% of it's value this year ($41.71 1/2/08 to $21.64 12/18/08). It has gotten very cheap and yet it has a product in use on almost 100% of computers around the world (Acrobat Reader). There are other reasons for the sale of (and potential bidding war for Adobe) in 2009 is that there are 4 potential buyers (AAPL, MSFT, ORCL, GOOG). An argument can be made for any one of the 4 being a better fit than the others. There is already a close board of director relationship between Oracle and Adobe. Adobe's former CEO (Bruce Chizen) sits on both Adobe's and Oracle's board of directors, and has been given the designation of "Strategic Advisor" (usually the title given to those individuals helping with M&A Activity). Oracle can certainly afford Adobe, and it does have a pattern of growth through acquisition, but is not as financially strong as Apple, Microsoft, or Google. Because Microsoft botched its attempt at acquiring
Yahoo, they may have something to prove by going after Adobe, but it is developing a competing product to Adobe's Dreamweaver known as Silverlight which when you pull up Microsoft's website seems to be the only product they are excited about selling now.
That leaves Apple and Google. Apple seems to be pre-occupied with Steve Jobs health and Google seems like it's backpedaling from any acquisitions as it has it's first taste of an economic downturn. In my opinion any one of these 4 could bid on Adobe, and there may be multiple bidders. Google would make the most for synergy; can you imagine if Google figures out how to attach advertising to every Adobe Acrobat reader program out there?
MSFT may also be interested in a game acquisition to increase it's XBOX game inventory (See: ATVI and ERTS). Since ATVI was acquired by Blizzard Entertainment, I'm not sure if this will happen. ERTS has a -13.113% Returnon Equity, so I'm not sure if this would make much sense either, but both companies are sitting on almost $3Billion in Cash each with NO DEBT. That certainly is appealing and ERTS has a current market cap of only $5.526 Billion and 44% of that is in CASH. Another thought might be that AAPL might use this as an opportunity to dip it's toes into the gaming market... perhaps in conjunction with a game system??? Could this be why they pulled out of MacWorld? What would the name be for an Apple game system? I like the name "macAttack".
There is another category where there are multiple BUY opportunities with only one qualified BUYER and that is in the semiconductor industry. INTC (Intel) has $12 Billion in Cash and there are 7 BUY opportunities (ADI, MXIM, NVDA, BRCM, WFR, UMC, MRVL). MXIM, WFR, and NVDA have the most cash as a percentage of market cap. I'd have to leave it up to Intel to
determine which company would provide the best synergy.
CSCO (Cisco) could certainly purchase JNPR (Juniper Networks). It has $27 Billion in Cash to Juniper's $9 Billion Market Cap and $2 Billion in Cash and no debt. Cisco also has a long history of growth through acquisition although Juniper Networks would be it's largest acquisition.
Lastly, there is the acquistion strategy of a merger of Equals. Although FLR (Fluor) is three times larger than FWLT (Foster Wheeler) based onMarket Cap, It is only 2 times larger based on Cash. FLR could buy FWLT, and is the most probable scenario, but there could also be a merger of equals for an exchange of stock between the two.
All of the companies on this list have strong cash positions, which will be critical in the coming months. 5 of the companies have negative return on equity which could affect the premium paid on their purchase price; certainly they are low on the list for potential acquisition. Although this list focuses primarily on the cash position of the company, obviously synergies and due diligence for any "gotchas" that the market isn't factoring into the stock price need to be considered.
My prediction is that there will be far fewer mergers and acquisitions in 2009 than in previous years, but the companies on this list will certainly be in the headlines.
Assumptions:
- We are in the bottom of the market (12/2008)
- The market/economy will recover in second half of 2009 or 1st half 2010
- Credit will remain tight through 2009
- Mergers & Acquisitions will be driven by companies with cash and those Companies will use that cash to buy cheap companies in their industry.
- Premiums of at least 30% will have to be paid for the purchase of companies.
Observations:
See this link for the supporting spreadsheet. This spreadsheet identifies two groups. The first group is identified as "BUY". These are companies that have at least $1 Billion in Cash and a market cap of less than $15 Billion. The second group is identified as "BUYER". These are companies that have Cash in excess of $10 Billion.
Since the assumption is that companies will have to finance their own acquisitions, which can be done through either cash and/or issuance of stock, there are just 14 BUYERS in this group. Of these 14, there are only 5 that have 30% or less debt (XOM, CSCO, MSFT, INTC, GOOG). These 5 will really be in the driver seat over the next year as stock prices may continue to go down and they can grow their business through acquisition at a very cheap price.
However, just because a company has debt in excess of 30% doesn't necessarily mean that they are disqualified from making acquisitions. It does mean that they will have a very difficult time of issuing more debt to make those acquisitions and if they burn too much cash in the acquisition their credit rating may go down. An example of this is HPQ that has debt to cash ratio of 174%.
The "BUY" companies have some very interesting elements to them. The assumption is that a 30% premium will have to be paid to purchase a company, but when that company has a large amount of cash, that cash can be used to offset the premium. There are several cases where even if a 30% premium is paid, the actual price paid is less than the current stock price without a premium because of the cash that the "BUY" company has. There are 10 companies like this: CF, SLT, KG, IACI, ERTS, NOVL, SAY, MXIM, ATE, TLAB.
A specific example of this is CF (CF Industrial Holdings) which has 36.36% of it's market cap in cash and a stock price of $55.50. It also has a return on Equity of 46.236% and a PE of only 4.01. If it were to be acquired for a premium of $72.15, the cash in the company would actually make the purchase price $51.97 or $3.53 LESS THAN then current market price. What a deal!
The only problem is that there is no identified buyer with enough cash in that industry (Agricultural Chemicals) that could buy that company. This company is a great candidate for a hedge fund to purchase. Another example is SLT (Sterilite Industries), which has 76.98% of it's market cap in CASH. It is a copper company and should rebound when construction rebounds, but the purchase price for this $4.166 Billion company is discounted by $3.21 Billion because of the cash it has on hand; the total cost excluding premium is: $956 million. With 18.303% return on equity, this is a great deal. Since no potential purchasers can be identified on my list in this industry, this is another candidate for a buyout by a hedge fund.
An example of a company with 35.96% of it's market cap in cash is KG (King Pharmaceuticals). This company could be bought for less than it's current market cap of $2.514 Billion when cash is factored into the price, by any one of 3 pharmaceutical companies that each have in excess of $10 Billion in Cash (PFE, WYE, JNJ). Of course synergies of the companies need to be considered, but from a purely financial observation this makes sense.
The big acquisition for 2009 will be ADBE (Adobe). Adobe has lost 50% of it's value this year ($41.71 1/2/08 to $21.64 12/18/08). It has gotten very cheap and yet it has a product in use on almost 100% of computers around the world (Acrobat Reader). There are other reasons for the sale of (and potential bidding war for Adobe) in 2009 is that there are 4 potential buyers (AAPL, MSFT, ORCL, GOOG). An argument can be made for any one of the 4 being a better fit than the others. There is already a close board of director relationship between Oracle and Adobe. Adobe's former CEO (Bruce Chizen) sits on both Adobe's and Oracle's board of directors, and has been given the designation of "Strategic Advisor" (usually the title given to those individuals helping with M&A Activity). Oracle can certainly afford Adobe, and it does have a pattern of growth through acquisition, but is not as financially strong as Apple, Microsoft, or Google. Because Microsoft botched its attempt at acquiring
Yahoo, they may have something to prove by going after Adobe, but it is developing a competing product to Adobe's Dreamweaver known as Silverlight which when you pull up Microsoft's website seems to be the only product they are excited about selling now.
That leaves Apple and Google. Apple seems to be pre-occupied with Steve Jobs health and Google seems like it's backpedaling from any acquisitions as it has it's first taste of an economic downturn. In my opinion any one of these 4 could bid on Adobe, and there may be multiple bidders. Google would make the most for synergy; can you imagine if Google figures out how to attach advertising to every Adobe Acrobat reader program out there?
MSFT may also be interested in a game acquisition to increase it's XBOX game inventory (See: ATVI and ERTS). Since ATVI was acquired by Blizzard Entertainment, I'm not sure if this will happen. ERTS has a -13.113% Returnon Equity, so I'm not sure if this would make much sense either, but both companies are sitting on almost $3Billion in Cash each with NO DEBT. That certainly is appealing and ERTS has a current market cap of only $5.526 Billion and 44% of that is in CASH. Another thought might be that AAPL might use this as an opportunity to dip it's toes into the gaming market... perhaps in conjunction with a game system??? Could this be why they pulled out of MacWorld? What would the name be for an Apple game system? I like the name "macAttack".
There is another category where there are multiple BUY opportunities with only one qualified BUYER and that is in the semiconductor industry. INTC (Intel) has $12 Billion in Cash and there are 7 BUY opportunities (ADI, MXIM, NVDA, BRCM, WFR, UMC, MRVL). MXIM, WFR, and NVDA have the most cash as a percentage of market cap. I'd have to leave it up to Intel to
determine which company would provide the best synergy.
CSCO (Cisco) could certainly purchase JNPR (Juniper Networks). It has $27 Billion in Cash to Juniper's $9 Billion Market Cap and $2 Billion in Cash and no debt. Cisco also has a long history of growth through acquisition although Juniper Networks would be it's largest acquisition.
Lastly, there is the acquistion strategy of a merger of Equals. Although FLR (Fluor) is three times larger than FWLT (Foster Wheeler) based onMarket Cap, It is only 2 times larger based on Cash. FLR could buy FWLT, and is the most probable scenario, but there could also be a merger of equals for an exchange of stock between the two.
All of the companies on this list have strong cash positions, which will be critical in the coming months. 5 of the companies have negative return on equity which could affect the premium paid on their purchase price; certainly they are low on the list for potential acquisition. Although this list focuses primarily on the cash position of the company, obviously synergies and due diligence for any "gotchas" that the market isn't factoring into the stock price need to be considered.
My prediction is that there will be far fewer mergers and acquisitions in 2009 than in previous years, but the companies on this list will certainly be in the headlines.
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