Copycats

In economics - when there is an excess profit in a market - companies will enter the market until the supply increases to a point, which lowers the price of the product and eats away at the profit. This idea holds true in all(most I can think of) marketplaces; recently - lemonade stands, airlines, restaurants, and recently technology startups.

"Can You Clone Tangler For $1,500?" is the headline of a Techcrunch article today.

"Someone in Turkey is willing to pay up to $1,500 to anyone who can “clone Tangler.” But don’t go too far - the listing also states “do not steal tangler.com images and do not violate copyrights. The clone should have the same functions, but the design should look different.”

A company that offers this is http://www.getafreelancer.com/. It is hard to imagine getting the best quality in just two weeks for <$1,500 to try to mimic some of the top web 2.0 technology site out there.

We'll see how this goes...

Financially Blogging again!

With markets as volatile as they have been recently, I felt it was about time for me to start blogging again. Just recently I have come across a couple of very solid tools for different investment strategies. Unfortunately, sometimes, the more information we have, the higher chance that we get confused and miss glaring opportunities.

A few recent financially-oriented companies have been popping up and have been very impressive.

Market Simplified is just that. Market Simplified is a financial vertical search tool which attempts to provide concise semantic answers to financial queries. You can ask it any question you want about the market, equities, and investment strategies - and it should have an answer in 10 seconds flat.

Not to be outdone, FirstRain has come out with a very similar product - yet more people involved. They actually take these questions and queries and have them answered in a research shop overnight in India. Has a really solid management team and should look to be a more serious player in for the institutional investors doing research.

GStock is a pretty interesting stock search engine that gives BUY and SELL ratings based upon simple trend analysis, which allows them to beat right on 2 out of 3 trades. Unfortunately, the average gain above market over the past 3 years was only 2%. It will be interesting to see how this company does.

Options-Research is another one of those "newsletter" beat the market trading sites. September '07 Results that only plays the options on a couple major ETFs, DIA and QQQQ, and some major public technology companies, AAPL, EBAY... It will be tough for them to keep their 2006 monthly avg of 73% returns.

Optionetics is a great company and they must have a contract with Yahoo Finance. Their Option Screening Tool is very helpful in finding the best priced option for a security you might be interested in playing based upon risk/reward profiles and odd probability that the option might take off

Redefining Luxury as Necessity

In economics, a luxury good is a good for which demand increases more than proportionally as income rises, contrast with inferior good and normal good. Luxury goods are said to have high income elasticity of demand: as people become more wealthy, they will buy more and more of the luxury good. This also means, however, that should there be a decline in income its demand will drop. It must be noted, though, that income elasticity of demand is not constant with respect to income, and may change sign at different levels of income. That is to say, a luxury good may become a normal good or even an inferior good at different income levels, e.g. a wealthy person stops buying increasing numbers of luxury cars for his automobile collection to start collecting airplanes (at such an income level, the luxury car would become an inferior good).

My argument is not that this is true, not that these good should be avoided, but more people than thought of before should be living the life of luxury. My goal, through taking the ideas used to value a company, is to use discounted cash flow analysis to show the actual future value differences of regular vs. luxury goods that we see everyday. From the lady who invented the little black dress, "Luxury is extremely superfluous, but extremely necessary," observed that legendary trendsetter, Coco Chanel.

According to dictionaries, luxury is something that is not necessary for life but can make it more enjoyable or comfortable. Sumptuousness and extravagance are a couple of synonyms for luxury. Unfortunately/fortunately, these dictionaries are right and wrong. It not only makes life more enjoyable and comfortable, but for the lives we live in today's society, spending more makes sense.

Now, I am not promoting paying more than something is worth, but not settling for anything less than the best. Best mattress, best suit, best car, best life. If you do your necessary due diligence, luxury goods hold their value better and your enjoyability with the good is much higher (debatable).

I will try to do this exercise with a couple of examples; durable goods that can be found everyday that both have common and luxury substitutes. Some examples mentioned were clothing, automobiles, and mattresses. I would appreciate any thoughts you might have as well.

Stock Market Social Networks - Find the Next Warren Buffett

Recent start ups Stockalicious and RockYourStock are the next wave of investment tools that can be used by easily misled beginners all the way up to easily misled expert investors. These social communities could be great at offering investment advice without getting charged hefty fees. Also could be dangerous because of easy manipulation.

Stockalicious.com is "a clever site that helps you examine your investment habits by putting all of your stocks in one place. By looking at your trading habits on the site, you can see when you purchased stocks, whether you are trading too early, or if your portfolio holds up against the market, and even personal notes about why you make trades. If you think all of this info should be spread around to your buddies, you can spam your friends. On the other hand if you’d like it to remain private, you can embed your portfolio in your blog. All you have to do is register for free to get started on your portfolio."(K)

From Stockalicious you are able to watch how others are faring in the market and if you notice someone consistently making the right moves, you could copy his portfolio.

On the other hand, RockYourStock "is a funky cool, high-octane and constantly updated website that brings the investment world out from the grey towers of Wall Street and puts it into context for you, the everyday consumer. Each day we’ll blog on companies that you interact with all the time to bring to light ‘hidden gem’ investment opportunities."

It can make investing a little more fun. They have four featured portfolios on their site; the fruitbasket, bastard fund, granola fund, and icebucket. Description of the bastard fund: "The stocks chosen participate in activities or manufacture products that many consider sinful. We at Rock Your Stock are agnostics. We only care about the business. We’re not here to judge anything or anyone; except for the quality of investment."

Look to leverage long the stock picking social networks, because at least now you can do what everyone else is doing...

No Idea's Original

A couple of months ago I was talking to my (PE/now VC) friend about where the next big plays in the technology/web 2.0 would be. Somewhere it came up that using high technology to do low-tech things. It also came up that both of us were trying to improve our vocabularies, and the way he had been going about it is keeping track of words he had not known or was interested in adding to his lexicon through an excel spreadsheet. I suggested that someone make online flash cards or a system similar to flash cards that could be used to study anything. Well, Quizlet did it.

This is a great idea; think of students in classes studying vocabulary or terms, think of actors remembering prompts, think of anything and everything that can be written on a card can now be saved and viewed by anyone.

Although this is the second(1st was the Sony Reader: basically an iPod for eBooks) time in the last year where a good idea of mine has been released by someone else, it makes me happy to see that is is successful (confirming the good idea) and making our experience on this rock a little more enjoyable. One thing it proves once again is that no idea is original.

As Nas would say:
"No ideas original, theres nothin new under the sun
Its never what you do, but how its done
What you base your happiness around material, women, and large paper
That means you inferior, not major"

Look to leverage long the eBook and Quizlet. Unfortunately Nas' hold ranking remains unchanged.

Market Makers

A new company, Trendio.com made it's debut on killerstartups.com today. "Trendio takes the high pressured, fast paste(paced) world of the stock market and turns it into a game. Instead of actual stocks, key words are used as the trading item. The amount of times that name or word is mentioned in the news the next day determines how well those stocks are doing." But unlike a real market, these participants are unable to generate any material gains.

Although it isn't exactly the same, it reminded me of two other recent(ish) start-up that were exchanges themselves in weather and professional athletes, respectively.

"Basically the way they make money is Weatherbill's algorithm will usually be better than you at guessing the variance of cooling/heating degree days, so they can price their contracts with a premium. The small risk of error they have calculated and already sold to masticulating hedge fund analysts in NYC. Their premium is going to eat into your profits no matter what -- it's decided by the insurer, not the market. This is why people use insurance for low-probability, high-impact events and futures for high-probability, low-impact events (like weather); you just keep getting screwed by overhead otherwise. "(DL)

The third example of this created market, and more similar because of the not REAL money being traded in it, is protrade.com. Protrade sets the athletes prices and people (investors) trade these athletes based upon the fantasy points they think they will achieve during the season. Price move up/down based upon trading pressure. Then the season ends with earnings day. Unfortunately these earnings are in FAKE dollars. Because of all the online gambling laws, Americans are unable to recklessly throw their money away online, yet can do so with other markets (NYSE, Nasdaq, AMEX...Shanghai Stock Exchange) and find forms of gambling without much effort.

I am definitely a fan of these types of start-ups. In "Trading Is Taking to the High Seas: Freight-Rate Swapping Lets Investors Wager On Costs of Shipping" By Ann Davis on January 4, 2007; Page C1 of the Wall Street Journal, we see that investors are always looking for new alternatives to invest or gamble on, in this case it is tracking the timing of shipments and buying contracts on the amount of time they will take to be delivered.

As an investors you might be in a tough position because the arbitrage opportunities might become eaten up by the high premiums on the contracts. But my good friend DL suggested "However, if you think like an entrepreneur you realize that you can do this with basically any security, repackaging it using Ajax to seem like a new offer. You could do this with options, with swaps, even with **** like treasuries. "Buy ***** School community bonds!! Customize your issue based on your kid's AP score! We will only take a 10% premium for making you feel cool." Schmucks will line up for X number of months, and you are guaranteed money."

I would look to leverage long these market makers, especially if they get the ability to allow investors to use REAL money.

Project San Dimas

eBay seems to finally be rethinking their user experience with the announcement of a new Apollo application currently called "Project San Dimas." The new application is meant to make buying and selling items on eBay more efficient, competing with third party “Power User” auction service. "No word on whether it was named after the patron saint of reformed thieves (fraud detection?) or referencing the quiet suburb that served as the backdrop to “Bill and Ted’s Excellent Adventure”."(Ajax Blog)

San Dimas features a user interface created by Effective UIand uses eBay’s API’s to make creating, and managing auctions easier and faster. Because it’s written in Apollo, the program can improve performance by cutting down on repetitive requests for data, caching it locally instead. The application will also feature real-time auction monitoring and allow sellers to add in pictures directly uploaded from webcams and cameras.

Now the application is pretty remarkable in itself, but the real significance of this release is that it highlights an increasingly competitive marketplace, which previously had one major player; Adobe. Now Adobe Flash and Microsoft Silverlight are in a broader battle over how Internet services and software will be built in the future. Both want to be the key supplier of cutting-edge software that handles functions like video and animation on the Web.

Just like any competitor trying to save face (by thinking the best defense is a good offense), Adobe made an announcement about moving into Microsoft's Windows Media Player Space with their own Adobe Media Player. Unlike the "Freddy Vs. Jason" or "Alien Vs. Predator" films where "No matter who wins, earth loses" attitude, this Adobe vs. Microsoft competition can only make our media experience more enjoyable.

Because it is so unpredictable who will win with both sets of products (if I had to guess, Adobe Flash and Windows Media player are the winners in their respective groups) I would Leverage Long both of these products and make up the loss from the premiums on the gains from the winner.