Friday, 20 June 2014

Always arrive at meetings early . . . Testing a winter jersey

Always arrive early for presentations at investment banks. For that matter always arrive early in airport lounges, shareholders meetings, lawyers offices and even at your accountants. I'm not just saying that because of the fascinating magazines and journals available to you at such destinations, but rather because you get to see and hear and even discuss the most remarkable things before anyone else arrives. Once the "crowd"enters everyone's guard goes up and people step into their usual roles, but be there first and it's like watching politicians and journalists discussing things off the record before the lights go on and the cameras roll. Trust me you won't be disappointed. And not to make too fine a point of it, if you enter a room on a mobile phone discussing an important deal always assume that who's ever in that room is a competitor, so either exit the room or finish your call. Do not be like the Merrill Lynch banker from their NY office I once sat with in the Singapore Airlines Lounge at Changi Airport who decided to discuss at the top of his voice the pricing of a new CB for a Taiwanese company. That will end in tears.

Yesterday provided me with another value added example of why to arrive early for a presentation. As I said on my previous blog I was attending local investment bank BBY's "Disruptive Lunch" looking at some pre-IPO tech companies. When I arrived there was no one in the room and the receptionist had to step away so I waited patiently for things to kick off. The next person in was Adir Shiffman, Chairman Catapult Sports. Now if you're anything like me you know how difficult it can be to get your questions answered during group presentations, so an opportunity to get 10 minutes alone with someone like Mr. Shiffman in an empty room as you wait for the crowd is worth it's weight in gold. It's not that you get any information extra, you just get to drill down a bit, especially in tech about how things work. I think he liked that I knew they had good penetration in the US and when I asked him about this years number 1 draft pick in the NFL Jadeveon Clowney and his perceived propensity to take a little personal time out during his games at the University of South Carolina. He obviously wasn't about to tell me anything confidential, but he did explain to me how player "load" was their core measure etc. Having example like that really allowed me tot skip a step when the formal presentation started. See what I mean . . .always arrive early.

It's also rare you get to meet someone likely to be at the head of a company that you know is going to end up either getting taken over for a billion dollars plus, or going public with a similar valuation. Trust me, when you hear the story you'll know it straight away. You have to hear a touch of arrogance from the management that comes from a real focus and confidence in their product. It's magic when you see them later in a room rattling off questions to themselves before the crowd is able to formulate the obvious. And it's even better to see them bat away badly contrived queries based on old economy prejudices.

So what did I learn? I learn't that my Strava account is like using a typewriter in the presence of Steve Jobs. I also understood from my own interest in the media sector that the amount of cash trickling down to the coach / player level is exploding. Consider the fact that The University Of Texas has its own "Longhorn" TV channel , as does a number of others. The football at UT has revenue north of $100m and there's plenty of others in the NCAA with similar numbers. So a team buys a subscription from Catapult for about $130k a year per year for 3 years. I don't remember from the presentation whether the team has to pay the hardware cost, but its minimal per unit anyway. In return they get access to the algorithmic analysis software that allows coaches to see anything from basic (lets call them Strava) numbers, but more importantly some advanced sports science metrics that allow them to drill down on even how likely a player is to suffer soft tissue injury because of the state of their player load. In Australian rules football and in soccer they have the ability to put sensors in the balls now and you can imagine the extra analytics that this gives you. In fact next time you watch live sports and see the coaches looking at laptops they'll probably be looking at Catapult analytics. On Saturday when Australia play France in a Rugby game watch when substitutions are made . . . they're not solely made when someone just looks tired or is playing badly, the coaches can actually see in numbers that the players are becoming less effective, or that when they hit a certain level they're more likely to get hurt than to contribute. It's fascinating and when you consider that Catapult have half the NFL, lots of College's including this years national champion Florida State, a vast array of soccer teams in Europe, and all the major football codes in Australia, to name just some of their markets and you'll quickly understand that the real key to the business is the database.

Catapult own the data. You don't need to be head of high frequency trading at Goldman Sachs to know that your algorithms are only as good as your database. So, if you're the Dallas Cowboys and you want to gauge the effectiveness of your players against the best in the league Catapult have the metrics for you. In fact I should have asked whether the pro-teams can buy the college data of he prospective draft picks they are scouting? I assume they can . . . and watching Mr. Shiffman I'm betting that it is, or will be monetised at some stage. The possibilities are endless. And when Catapult  get around to it I'll be t we see a trickle-down to weekend warriors like me. I mean I already ride with guys who have power meters as well as the cheaper heart rate straps etc. Imagine they actually had proper analytic tools? Yes this is a company to watch.

Unfortunately for investors unless you're already in a private equity fund that has participated in Catapult's capital raisings it's unlikely in my humble opinion that you'll see this one get as far as going to the public markets. If Apple paid $3bn for beats I just wonder how long it takes someone in fortress Cupertino to wake up and write a cheque before Nike, Under Armour et al smell the coffee brewing? Now just let me grab a suit and tie and ticket to San Francisco and cut me a cheque and I'll happily bang Tim Cook's garage door down.

Many thanks to the BBY team for arranging the presentation. I'll be blogging about the other companies over the weekend so readers may like to look out for that.

I think I was feeling particularly unfit after hearing the Catapult story, so I headed out on a cool Sydney winter's morning for a ride in a new jersey. I have plenty of winter clothing from my time in Geneva. My favourite winter outfit in Geneva usually was topped-off with an Assos Airjack 851 riding jersey, but to be honest that is just overkill for 99% of the winter in Sydney.

Last year I also tried Castelli Mortirolo Due Jacket, but it was perhaps a little close fitting for my liking.

This year I've gone back to my favourite brand Rapha and bought one of their winter jerseys.

I got mine at  small discount to normal retail through a special offer (AUD200), but you can get one even cheaper now due to the cycling industry being driven by the northern summer, rather than the southern winter. I got mine in a blue as I really don't see the point of wearing a black jersey in the dawn or twilight hours of a Sydney winter. 

The jacket comes in a soft marino wool blend and if your own a classic Rapha long sleeve jersey you'll immediately notice the additional weight. On the back the usual 3 pocket configuration is changed to two pockets and a larger zipper bin that I tested and decided it was perfect for a folded rain cape. Of course you could use it for other things, but the size suggested clothing "bin" to me. The other two pockets are larger than normal and somewhat deeper. In fact I found the back length of my XL version longer other all than the classic long sleeve version. 

At the front of the jacket are two almost invisible zippered air vents which open about a half the length of the torso and are backed by mesh when in that position. the interior is lined, much like my AirJack851 to stop the wind hitting you full on. 

During this morning ride the conditions were not overly cold at around 10ºC, but I wore the jacket anyhow. The fit was generous, overall a bit loser than the classic jersey. If you like it tight go a size down. The collar is also higher and softer than normal. Once on the road and going up the first climb of the day out of Rose Bay I was regretting the Jersey choice as the weather was getting more mild as the sun started to come up over the harbour. I opened the vents and all was good again. In fact the size of the vents really enabled me to forget about being too hot and concentrate on thumping out a cadence. By the time a swung back for the stretch south through the beaches (Bondi, Tamarama, Bronte and Clovelly) the wind picked up off the cold sea and I zipped up the vents and felt warm and cosseted as I rode back towards Sydney's centennial Park and towards my morning coffee.

Overall I liked the Rapha jersey alot and although I'd say ideally it's better suited to the 4 - 10ºC range it's not overly stifling a couple of degrees warmer when you open the vents. I think the storage "bin" is fantastic for carrying my rain jacket, although it would want to be closer to freezing if you were wearing a rain jacket with this one. The Assos AirJack is best for -4 - +6ºC. The Castelli Mortirolo Due Jacket is more 0º - 8º. I think the Rapha is a little more useful for Sydney conditions and amongst these three premium jackets/jerseys is definitely best for we cruiser type riders due to the cut. Invest in one.


Thursday, 19 June 2014

Somethings change and some things stay the same . . .

While on my way to another of local brokerage firm BBY's "Disruptive Lunches" today I'll be thinking about Fed President Janet Yellen's latest remarks regarding the US economy. As someone who is somewhat under employed at the moment it was no surprise that Yellen made a point of over-capacity  / under utilisation within the labour market. The headline unemployment rate in the US is 6.3%, but that's not 6.3% in the pre-2008 sense, thats long gone and a primary reason why the Fed is still buying back securities in an attempt to stimulate economic activity. That's the reason we're now clearly in a post-inflation world, how else can you describe the way the Fed pays so little attention to the CPI (above 2% in May from a year ago)? I know the Fed prefers to use the index for personal consumption expenditure (1.6% in April from a year ago), so investors just need to understand the push pull in a policy sense between the two numbers. Thats why Yellen spoke of a pick-up in domestic demand, but not of this being unsustainable. Clearly the Fed believes that a moderate tapering well into 2015 is still their preferred track and as such I'd expect equity markets to continue in fairly narrow, but upwards path for now.

In Australia the banks will continue to benefit from dovish central bank attitudes and I note that while rates remain low I'd expect them to continue to revisit the global bond markets to supply their balance sheets with the necessary finance to support the Australian housing market. My main concern with Australia is the narrow focus of their activities. The performance of housing and the reasonably benign condition of our own labour market continues to see them reach an easy return on their carry trades (offshore finance v. local business spread). I had a meeting with a senior HR person at one of the international investment banks here in Sydney and they agreed with me that since the GFC bankers had become more "siloed" in their focus as they try to cope with head office compliance demands. The days of having a premium value as a multi-disciplined member of a team have passed at the mid-levels with only the upper-management being able to move easily across product lines. 

In cycling terms, as a banker I'm more a General Classification rider in a peloton that prefers to be composed of single disciplined teams. Thats why todays BBY lunch will be refreshing. The great thing about dealing with maturing start-ups is there are still so many paths they can take both with their product and their business structure. Today we'll be hearing from four companies:
  • Catapult Sports: wearable sports technology
  • Divvy Parking: an aggregator of car park spaces
  • OneShift: casual jobs placement
  • Expert 360: specialty employment market place
Catapult will be the one most familiar to investors from watching sports. They're the company providing live performance data to coaches and professionals via those little bumps you see outlined just behind players shoulder blades. They're fairly well established now and you can see them across the globe. I'll be interested if they're going for a exit via a float or whether they'll prefer to keep it private and raise money to finance expansion. I don't know the management team or the shape of their balance sheet, so I have no idea how scalable the product is with their current infrastructure, but I'll listen and learn today. 

For someone who spent a lot of time watching the Tokyo real estate market over the years I'm betting Divy Parking could be quite interesting. In the Japanese capital there has always been a problem with the aggregation of building sites. Thats why something like Roppongi Hills took so long and was so expensive to build. Wander down a side street in Tokyo and you'll immediately be struck by the limited width of the building blocks. On these are what is locally termed "pencil" buildings. Like a giant game of monopoly the major real estate developers (Mitsubishi Estate, etc.) spend years accumulating a row in order to demolish them and rebuild at opportune moments. In the meantime those buildings are difficult to use in a modern commercial sense and require a lot of "horse trading" to maximise their revenue stream. Aggregation therefore is a significant business and in Div's case they are used as a central clearing house for disused parking spaces in buildings. A great idea for landlords with neither the time or infrastructure to make such an offering. I know that the building I used for the Sydney office of the hedge fund I was working for in Sydney in 2005/06 had a number of free spots because the owners couldn't readily administer them economically. My bet is that today they'd go to Divy and hand them a half a dozen spots and pay them a good margin to up their income. It makes so much sense.

This week I went for a change in my exercise regime and got back to the gym under the guidance of a trainer in an effort to improve my performance on the bike. Sometimes it's too easy to do the same old things, which is a trap old bankers often fall into. As such I was put through a not to gruelling, but somewhat different weights programme aimed at strengthening very specific muscle groups for cycling:

A lot of these are familiar strengthening exercises with added resistance from weights or a particular piece of equipment. I feel a bit sore after the first session, but I'm told twice a week and the muscle groups should make the adjustment. 


Tuesday, 10 June 2014

Disrupt this . . . and ride up that

You can either go with the flow and do things as they've always been done or you can try something different. After my blog last week I was kindly invited to a lunch looking at some private Australian based companies looking to disrupt old business world models with new technology.
  • WattCost  - a "smart" electricity metering company.  
  • Jayride - an e-commerce platform for bookable passenger transport
  • Car Next Door - a car sharing platform that allows city dwellers to make money from their cars when they're not using them
  • Snaploader - is a new app that connects images to the digital world, enabling a user to simply snap an image and connect to all the relevant content behind the it
My favourite of the four companies presenting was power meter specialist WattCost, probably because if you're anything like me you've become quite concerned about the spiralling cost of power.

Even I can can install one of these . . . 
David Soutar (CEO and Founder) & team have come up with a gem of a device that connects to both old analogue power meters and newer digital models. You don't need an electrician, just a wireless internet link and you'll get access to some quite clever algorithmic technology that will most likely see you repay the $99 dollars you spent in short order. You sign up and install the unit yourself. Complete  a questionnaire about the appliances you have and some other details and you're good to go. The algorithms do their magic to the extent that not only can they see how much you use, but which appliances are using it and at what time of the day. In fact they say they can even tell what cycle you're running your washing machine or dishwasher on. The really smart thing is that you'll get a text message saying you put the dryer on at the most expensive time of day. You'll even be presented via app with suggested supplier alternatives and potential savings. The company gets paid by the suppliers when you switch, but there's a lot of other potential revenue sources. In Australia and the UK expensive government sponsored smart meter projects had enormous cost blow-outs and already look like old technology compared to this. The privately held company looks set to do deals in various jurisdictions including California. You've got to love a company that makes governments look like donkeys . . . right? Investors look out for this one when they finally get around to going public.

In between watching Chris Froome debut his new Pinarello at the Criterium du Dauphine I've been working on some more consultancy based enquiries including revisiting some older vol structures and dividends swaps for investors. It''s amazing that even with higher regulatory hurdles and increased capital costs that you still see pockets of innovation in a wasteland post the crisis. I remember in 2000 being presented with a double barrier knock-out structure on the N225 that seemed like an impossibility to price without most of the candidates from Imperial College London's post graduate programme in pure mathematics. Of course that didn't last long as Monte Carlo made its way swiftly from the main frame to the laptop and so today we're looking once again at variations on a theme. I'm going to start calling it the IB Cyclist law of extended derivative markets ... the first of which will be:

A product class of derivatives will see returns decrease in proportion to the increase in barrier conditions available to investors

This doesn't mean that you shouldn't want to be involved in the products in questions, only that the conditions that caused the engineering behind probably started to decay the moment the first structure was sold. Another example was the range accrual options in places such as HK that sought to pay investors a return above bank deposits if a nominated underlying traded within a range. Of course when volatility went skyrocketing in 2007 - 2009 those products cost the owners quite a chunk of change. That didn't wipe them out, but it did deflate their returns and the breadth of the market involved. They're back now and probably a good investment over the last couple of years as vol as an asset class continually fell. I could go on about what I've seen in Japan where the market because of terminally low rates and an inherent need for positive carry has always been at the forefront of "conditional" derivative type structure.

So leaving the world of barrier options I want to predict that the Tour de France is going to be an absolute cracker this year if the fireworks we got on Stage 2 at the Criterium du Dauphine yesterday is anything to go by.

This is proper cycling with Froome absolutely burning every one of his team mates in an attempt to shake Contador and crush him before the Tour. You have to love the response by Contador, he just stuck to Froome. I wonder what was said between them? "Bert" just sat on Froome's tail as though to say he was back this year and that he wasn't going to allow the "Sky-train" the dream run they got last year. If you're in Geneva right now working on your latest commodity deal at one of the big funds I strongly advise you to find an excuse to cycle or drive out and catch the final stage between Megeve and Courcheval this coming Sunday.


Monday, 2 June 2014

What's VBA between friends?

After a particularly disappointing episode with a potential employer last week I've decided to make it clear that for the right job I am prepared to work for $1 a day for 3 months as a sign of commitment. Let me spell it out: ONE DOLLAR PER DAY FOR THREE MONTHS.

Why am I doing this? Well mainly because of one particularly disingenuous rejection phone call when the person in question tried to tell me that I'd be bored in the role as it was mainly just "data processing". He went on to try and tell me that it was just spreadsheet work and was beneath me. When I said that coincidently I was attending a VBA course he just asked me what VBA was? And then right at the end of the call after explaining all this he dropped in  . . . "so we hired someone else and we also get to save some money." So is the reason you went with someone else really because of the the job itself or was it my price?

OK, so lets deal with this directly:

1. Money: Don't ask me what I want to be paid if you already know what you think the job is worth. Salary is not always the sole determining factor for why people take jobs. Just read any of the books on Google's inception. It's very simple; if you have a partner/spouse, four children, a mortgage, two car loans, alimony to pay and a reliance on Johnnie Walker Blue, then you've got some cost structure issues for your potential employer. If on the other hand you have none of these and like a lean business you've reduced your input costs in terms of time and capital you can function at a more advantageous rate for an employer or a client. It's called "backing yourself" . . . I have the confidence that if you get to know me you'll want me to stick around and you'll value me accordingly. I'll make the money equation my risk and your risk is that in three months you need to find someone else.

2. Don't ever tell me that I'd be bored in a position when you met me for less than 90mins. You don't really know me. Let me give you an example. People who've worked exclusively in financial institutions such as investment banks really have little idea what goes on in a hedge fund. They often equate the amount of fees you pay with "institutionalisation" . . . i.e.. "these guys must have a huge infrastructure in order to pay us like a large institutional pension fund." Here's the truth; I've worked in offices where you don't have a single support staff member and where you trade, research, write reports, manage risk, book transactions, deal with investors and maintain systems without anyone on the end of a phone line to help. You may be a Managing Director by title, but you're not really managing anyone but yourself. Honestly unlike in a bank you actually have to get under your desk and reboot your own computer and in some cases re-wire all the systems without so much as a friendly voice to guide you through the systems. You do all this and then you get to go home. And you don't just pass it on to another office, because there isn't always another office or even a contractor in somewhere like India that can be left to deal with the situation(s). If you don't deal with it you and your company can lose investors and revenue. So please don't tell me I'd be bored with mundane things. I have never left a job because I was tired of processes.

Spreadsheet built with VBA code specifically for Excel for Mac . . . it's easier to code this for windows, but fewer people can code it for Mac.
3. Skills for the job. An example: VBA is the basic code writing language behind macro operations in Microsoft Excel. The reason why you want to do be able to do that is so as to deal with the inefficiencies in your data processing in order to free up time to tackle other possible revenue streams and opportunities. It's far more efficient to produce a macro code and distribute it to others than to build a spreadsheet model that can be easily overwritten by someone not paying attention to things. This is called PRODUCTIVITY. If you're involved in banking where regulatory capital costs in your business have risen because of the Basel III guidelines you need to make product lines more efficient, scaleable and flexible because this will help your per dollar revenue cost to go down. For the dummies then, if people offer to do more for less, this is GOOD and should not be seen as some personnel nightmare, as in: "If I hire this person they might start innovating and want to be promoted or get paid. Perhaps it's better just to take someone on who'll do exactly what I say?"

Here's the VBA code for the spreadsheet shot I inserted above.  Note the use of QueryTables as Mac Excel handles web referenced data differently to the Windows version. If you want the sheet as is please send me a request by email.
4. Working hours. It always makes me nervous when people in describing a job or a mandate start talking about how even though they have a great team who like to work hard everyone gets a chance to work reasonable hours and get home in time to deal with their own life. Work life balance is getting to be a tired phrase. It's amazing when people tell you something like the above how many times you'll see them later the very same day in a shopping mall at 3pm oblivious to time constraints. These are often the people who have an issue with their own work life balance. They trot out this type of phrase to cover up their own problems. If I say I'll work an 60 - 80hr week it's because I mean it. That's why you can check my references. Don't assume that just because you want to get home to do whatever you do (watch Game of Thrones, complete remodelling your bathroom, attend yoga classes, etc.), that I also have those priorities.

Given that I've used a bit of Steve Jobs for this issue of the blog I thought I better take a look at what's going on at Apple. Cupertino's finest look set to buy Beats, the makers of those huge colourful headphones you see people wearing about town. They're likely to pay around $3bn for the business and it includes not only hardware but music streaming services and some "hip" managers as well. Now I like Tim Cook the Apple CEO, because he reminds me of some of the very best process managers I've seen in business. In fact Cook would probably be in a logistics Hall of Fame, if we had one, probably along side Henry Ford and the person who invented JIT (Just In Time). Where I don't like this acquisition is from the standpoint of Apple playing catch-up with others by buying-in rather than innovating directly. The trouble for Cook is people such as myself are always going to wonder what Steve Jobs would have done? If as the video clip above suggests, Apple is truly run like a start up, would Jobs have already been on to this or something better? We'll never know. We know what Cook will do, because he's done it so often: Cook will take the acquisition and quantify the inefficiencies and refine them and squeeze the life out of the parts, but he's going to have to rely on others to work out how to grow the business in order to justify the price tag . . .  thus the hip dudes. Logistics and process management can transform a business, but they rarely create a new business in itself.

Since I last wrote an entry for the blog the Australian Government released a new budget. It's not dissimilar to what the Conservative / Liberal Democrats did in the UK when they were elected, though it's probably a bit tougher. The trouble is that the election cycle in Australia is only 3 years and as such the government here won't have as much time to see their policies gain ground with the electorate. Add on to this that the macro situation, especially in respect to China which seems like it's going to continue to slowdown it's demand for key Australian commodities. Just watch Iron Ore which is getting back towards the $90/t level. That makes the bet by the Australian conservatives a bigger gamble politically than that undertaken by David Cameron and George Osborne. Just to add spice to things here the government has to rely on minor parties and independents in the Senate (upper house of the Australian Parliament) to get the legislation through and in doing so it's hard to believe they won't have to make some "interesting" compromises that will stoke the fires of the opposition. Investors here need to proceed cautiously. If the budget manages to get through relatively untouched I'd predict an AUD above 95 cents. If not we're going to see pressure again on that 90cent level.

Innovation is coming to the world of Italian cycling manufacturing. Since I last wrote both Pinarello and Colnago have produced new models for the top end of the market. I need to declare that I'm an owner of a Pinarello Dogma 60.1 (2012) that I purchased from the Pinarello shop in Treviso under the guidance of none other than the founder of Pinarello himself "Nanni" Pinarello. It's still a beautiful bike and I tend to ride it when I'm in the mood for a cruise.

The handling is always rock solid, though compared to my Cannondale Evo you notice the extra weight and lack of stiffness in the frame. Team Sky apparently asked for the new bike to be lighter and stiffer and I can see why. What they've come up with is interesting, because its still heavier than bikes such as my Evo, the top of the line Cervelo's and others such as Canyon's racing specials. Even Specialized who's Tarmac SL4 was somewhat of a benchmark has been forced to update is still lighter. So what do I make of the new Pinarello F8?

It's not exactly a pretty bike, it's BMC'ish rather than Colnago'ish. The front forks are spread in an interesting way. I think I need to see it in colours other than the brutal raw carbon the first press photos seem to be dominated by. I'm kind of sad that the wavy Onda fork has gone as it made the bike into something different. Having said that, one has to acknowledge that the old adage of form following function has come back to shred the Pinarello Dogma and turn it into an all together more brutish looking machine. I'll bet a fair amount of money that this new one is plenty stiff given my experiences of similar frame shapes from BMC. 

An altogether more classic looking example of Italian cycling art is the new Colnago C60. I was a big fan of the old C59's looks, but a bit like this blogger it was always a few grams heavier than the top bikes in the peloton.

I particularly lusted after the above C59 in the Europcar colours from 2012 and have ridden with a guy who owns this exact bike. As usual with Colnago the paint work is fantastic and the pop of the metallic lime green against the matt black is brilliant in the sunlight. The new C60 continues the Colnago tradition of tube and lug construction.

It looks fairly similar at first glance, but technically the tubes have a different shape and the bottom bracket uses a new a new system being called PressFit82.5. This bottom bracket will accept any BB86 compatible crank, however, instead of pressing the BB directly into carbon or a permanently bonded aluminum sleeve, Colnago uses replaceable aluminum cups threaded into a removable center sleeve on the C60. The bottom line is that there's a massive difference where the power gets transferred:

I suspect that this makes the C60 far stiffer than the old C59 and I bet more responsive. 

Well given my current state of employment I'll hold off on buying a new bike and like many of my readers resign myself to enjoying what I have.