6 ms·

Things You Could Buy for $4B Instead of LinkedIn

62 points by psawaya 15y ago

raganwald 15y ago
I remember reading about a teenager who was persecuted (I don't say "prosecuted," because I think he settled for a fraction of his profits) for buying stocks and making bullish comments about them on the Internet. He fully disclosed that he bought the stock and liked it. Now I read this bearish comment and the author discloses he intends to buy puts. Given that the stock market is run on sentiment, is there a clear line drawn between legal and illegal manipulation? Or does it come down to whether you are in the club or out of the club?
- monk_the_dog 15y ago
  Are you thinking of this article: http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-extracurricular-activities.html http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-... Good read for sure.
  - raganwald 15y ago
    Yes, although I read it in Michael Lewis' subsequent book "Next: The Future Just Happened." Amazon link (with ginormous affiliate revenue!): http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?tag=raganwald001-20 http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?...
- jrockway 15y ago
  I think the issue in that case was that he made a bunch of shill identities that agreed with him. In any case, it's not certain he did anything wrong. When you settle, it just means you want the case to go away: nothing else.
- whakojacko 15y ago
  On the flip side (as a casual investor who reads Seeking Alpha a bit in my spare time), I prefer reading financial analysis from people who have positions in the companies they are talking about. Sure they may be biased, but assuming they disclose that properly, I at least know they have their money with their mouth is. If someone writes an article about how great stocks x, y, and z are hasn't bought them, I'm immediately skeptical.
  - raganwald 15y ago
    I'm also a big fan of reading about dog fights from people that have a dog in the fight: http://raganwald.posterous.com/bias http://raganwald.posterous.com/bias The big issue I have with the finance industry is that they're incredibly biased with tremendous incentives to talk certain stocks up or sell certain issues to their clients, yet they pretend to be unbiased.
    - michaelchisari 15y ago
      Difference is, talking up your dog in a dog fight doesn't make him any more likely to win.
      - raganwald 15y ago
        As you know, the expression is not mean literally. However, if you bet on the fight and then talk your dog up, you can profit by laying off some of your wager at lower odds or covering by betting on the other dog at higher odds. There's always some way to profit from a change in sentiment caused by your words. My big point is that I like hearing from people on all sides of an argument (pro, con, neutral), and also that I am disgusted by people who claim to be neutral but in reality profit greatly by abusing the public's trust in their "neutrality."
- ChuckMcM 15y ago
  A friend of mine lost nearly everything selling Yahoo! short in the bubble. He kept saying, this is riduculous, it can't go on. Eventually he was proven right but the window was longer than he imagined. By the time Google went public he got a second mortgage on his house and bought as much stock as he could at the IPO and held on to it. (I do thing he sold it in the high 600's). On the apocryphal teenager story it would be helpful to have a citation since there were many stories of pump-n-dump artists in the dot com days, however most of them involved people doing actually sketchy, probably illegal things (like sending email spam to millions).
  - donw 15y ago
    My favorite Keynes quote: "Markets can remain irrational a lot longer than you and I can remain solvent."
  - raganwald 15y ago
    Jonathen Lebed: http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-extracurricular-activities.html http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-... http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?tag=raganwald001-20 http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?... http://news.bbc.co.uk/hi/english/static/in_depth/programmes/2001/future/tv_series_1.stm http://news.bbc.co.uk/hi/english/static/in_depth/programmes/... http://en.wikipedia.org/wiki/Jonathan_Lebed http://en.wikipedia.org/wiki/Jonathan_Lebed
    - ChuckMcM 15y ago
      Up top you wrote: "He fully disclosed that he bought the stock and liked it." But the articles say: "... the kid had bought stock and then, ''using multiple fictitious names,'' posted hundreds of messages on Yahoo Finance message boards recommending that stock to others. " That latter is "classic" pump-and-dump. Create a fake pattern of interest in a stock you bought and then sell into that interest that you created. He should have been prosecuted since it's illegal. I'm guessing his current 'newsletter' has the disclaimer it does (at least according to Wikipedia) because now he knows if he doesn't include it he'll go to jail.
- artmageddon 15y ago
  Earlier this year, 50 Cent more or less did this with H&H stock and made a good amount of money off of it(I'm not sure if he actually sold it, but the value of the stock went down a fair amount two days after the initial rally). The article below also references that teenager you mentioned: http://today.msnbc.msn.com/id/41041141/ns/today-entertainment/t/cent-pumps-doesnt-dump-penny-stock/ http://today.msnbc.msn.com/id/41041141/ns/today-entertainmen... The actor Jesse Eisenberg also quipped the same line from the article, "But is what 50 Cent did really that different from what happens all day long on CNBC when professional money managers take to the airwaves to praise the stocks of companies they already own?" If this sort of thing is illegal* then Cramer should've been charged with a crime on the first airing of "Mad Money". *yes, I realize there's more to the legalities of insider trading than just talking about it on air :)
  - raganwald 15y ago
    Your foot note makes an incredibly interesting mistake: What a teenager like Lebed does is not insider trading, because he doesn't work for the company or otherwise have access to inside information. He knows as much as you or I do. Insider Trading is well-understood and easy to define: trading on secret information that is not available to the market. Talking up a stock you own when you don't have inside information... Anybody can do this and everybody does this. How can I talk about Apple and Google taking over Microsoft's business and it's just fanboyism, but if I buy and sell stock while writing the exact same words, it's illegal? Ridiculous, especially in the age of the Internet. Pump-and-dump used to require a boiler room, now it requires a phone with a data plan.
    - artmageddon 15y ago
      If you meant the asterisk at the end, I may not have stated my thoughts clearly(fyi, I agree with everything you said). The only way it would've been a crime on Lebed's part would be if he had gotten non-public information from someone involved in/with the company in question. I haven't researched it but that doesn't seem to be the case. It's utter crap that the SEC can come down on someone hard just for stock tips from someone who's no more well connected than anyone else. Personally, I work in the financial field(as a developer) and won't touch trading just because I feel like if I make one wrong move I could risk getting fired / barred / etc..
p_h 15y ago
Looks like buying the puts was a bad idea
- mikeryan 15y ago
  a. you can't yet short linkedin. b. how would you know? Its way to early to figure out what's going to happen there. I don't like linkedin's current valuation - but I think shorting it in front of several very high profile tech IPOs would be foolhardy at this point.
  - sabat 15y ago
    It's a matter of differentiating between a) what we recognize as the real earnings potential (which some see as fairly limited), and b) what John Q. Sharebuyer and Joe C. Fundmanager will probably do (buy buy buy, it's the interwebs!). The reality of 'b' means that shorting is not wise.
lsc 15y ago
while I agree with the guy, I was pretty amused by the edit to the opening line: "Before you go and buy LinkedIn (LNKD) shares at the IPO price of $45 - a $4 billion valuation (Ed: Shares are now trading hands at $83)" Oh man. ouch.
- flipbrad 15y ago
  I want a version of this article based on the share price as I write this: not $45, but $108.
mrb 15y ago
My own, and favorite, idea: you could buy one thousand early-stage startups valued $4M each.
- lsb 15y ago
  Or give a hundred thousand startups 40K seed funding.
  - iwwr 15y ago
    Or $1000 for every person sitting in a coffee shop in SF.
bproper 15y ago
Hmmm...half of Skype.
code_duck 15y ago
"I bet DNB will be around in for another 50 years. Do you think LNKD will be?" I'd like to go back a few years and ask the author whether Lehman Brothers and Bear Stearns will be around in 50 years.
Jd 15y ago
There is a classical school of valuation that has difficulty dealing with Internet companies. Namely, a number of VCs, etc. have recognized that having a large number of passionate (or possibly addicted) users is the ticket to desirability and also valuation. It is better, in this sense, to have an indispensable product that is free or near free, than to have 5% of the population paying you $1K per year. Does this make any sense? Well, given that the stock market largely runs on hype, it makes lots of sense if you are trying to make money (the stated aims of VCs). Large investment banks that underwrite IPOs know that money flows where there is hype and they stand to make a good deal more where there is hype. Not only that, hype is ultimately close to (although certainly not the same as) making a sale. There is an additional wrinkle, social media, which no one knows what to do with, yet is so the subject of so much hype it is sure to attract lots of money. This system clearly is not broken when now big players like Facebook are able to attract money, expand, then once they've captured virtually the entire market and gotten them "addicted," they can capture advertising revenue and a percentage on Farmville-esque games. So social is weird, but the strange system in place, even if it doesn't make sense to the casual observer, seems to be working in some strange way. And it really is different. A good product can capture most of the viable US market in a year or two, which is virtually impossible in other arenas, but this is made possible by rapid growth, which is also made possible by the influx of capital. Ironically, other examples like Lady Gaga are even more driven by the hype machine and can fade even more quite quickly, meaning that if you were investing in her you would be depending almost entirely on hype, while the hype for Linked-In is based on an indispensable product.
- deathflute 15y ago
  Most of what you wrote made some sense until I read the bit about linked-in being indispensable ;)
missing_cipher 15y ago
"commercial airliner dogfights.". Sounds like my kind of thing.
SeanDav 15y ago
A large part of this is "The Greater Fool" syndrome. Doesn't matter what you pay for the shares, you can always find a greater fool to sell them to! Oh and 4B$ will buy about 1/10 to 1/20 of Facebook
cryptoz 15y ago
No mention of spaceships? Forget funding a bunch of small internet startups. Build a moon base! Japan's got plans to do it for half of that $4 billion: http://www.google.ca/search?q=robotic+moon+base+japan http://www.google.ca/search?q=robotic+moon+base+japan
0ffw0rlder 15y ago
100 million in t-bond & index funds and take a vacation.
gallerytungsten 15y ago
While suggestions 3-5 are relatively facetious, the first suggestion, for NRGY, is kind of interesting. While a 7.9% dividend is not the highest out there, it's nothing to sneeze at.

62 points by psawaya 15y ago

I remember reading about a teenager who was persecuted (I don't say "prosecuted," because I think he settled for a fraction of his profits) for buying stocks and making bullish comments about them on the Internet. He fully disclosed that he bought the stock and liked it. Now I read this bearish comment and the author discloses he intends to buy puts. Given that the stock market is run on sentiment, is there a clear line drawn between legal and illegal manipulation? Or does it come down to whether you are in the club or out of the club?

monk_the_dog 15y ago
Are you thinking of this article: http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-extracurricular-activities.html http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-... Good read for sure.
- raganwald 15y ago
  Yes, although I read it in Michael Lewis' subsequent book "Next: The Future Just Happened." Amazon link (with ginormous affiliate revenue!): http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?tag=raganwald001-20 http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?...
jrockway 15y ago
I think the issue in that case was that he made a bunch of shill identities that agreed with him. In any case, it's not certain he did anything wrong. When you settle, it just means you want the case to go away: nothing else.
whakojacko 15y ago
On the flip side (as a casual investor who reads Seeking Alpha a bit in my spare time), I prefer reading financial analysis from people who have positions in the companies they are talking about. Sure they may be biased, but assuming they disclose that properly, I at least know they have their money with their mouth is. If someone writes an article about how great stocks x, y, and z are hasn't bought them, I'm immediately skeptical.
- raganwald 15y ago
  I'm also a big fan of reading about dog fights from people that have a dog in the fight: http://raganwald.posterous.com/bias http://raganwald.posterous.com/bias The big issue I have with the finance industry is that they're incredibly biased with tremendous incentives to talk certain stocks up or sell certain issues to their clients, yet they pretend to be unbiased.
  - michaelchisari 15y ago
    Difference is, talking up your dog in a dog fight doesn't make him any more likely to win.
    - raganwald 15y ago
      As you know, the expression is not mean literally. However, if you bet on the fight and then talk your dog up, you can profit by laying off some of your wager at lower odds or covering by betting on the other dog at higher odds. There's always some way to profit from a change in sentiment caused by your words. My big point is that I like hearing from people on all sides of an argument (pro, con, neutral), and also that I am disgusted by people who claim to be neutral but in reality profit greatly by abusing the public's trust in their "neutrality."
ChuckMcM 15y ago
A friend of mine lost nearly everything selling Yahoo! short in the bubble. He kept saying, this is riduculous, it can't go on. Eventually he was proven right but the window was longer than he imagined. By the time Google went public he got a second mortgage on his house and bought as much stock as he could at the IPO and held on to it. (I do thing he sold it in the high 600's). On the apocryphal teenager story it would be helpful to have a citation since there were many stories of pump-n-dump artists in the dot com days, however most of them involved people doing actually sketchy, probably illegal things (like sending email spam to millions).
- donw 15y ago
  My favorite Keynes quote: "Markets can remain irrational a lot longer than you and I can remain solvent."
- raganwald 15y ago
  Jonathen Lebed: http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-extracurricular-activities.html http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-... http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?tag=raganwald001-20 http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?... http://news.bbc.co.uk/hi/english/static/in_depth/programmes/2001/future/tv_series_1.stm http://news.bbc.co.uk/hi/english/static/in_depth/programmes/... http://en.wikipedia.org/wiki/Jonathan_Lebed http://en.wikipedia.org/wiki/Jonathan_Lebed
  - ChuckMcM 15y ago
    Up top you wrote: "He fully disclosed that he bought the stock and liked it." But the articles say: "... the kid had bought stock and then, ''using multiple fictitious names,'' posted hundreds of messages on Yahoo Finance message boards recommending that stock to others. " That latter is "classic" pump-and-dump. Create a fake pattern of interest in a stock you bought and then sell into that interest that you created. He should have been prosecuted since it's illegal. I'm guessing his current 'newsletter' has the disclaimer it does (at least according to Wikipedia) because now he knows if he doesn't include it he'll go to jail.
artmageddon 15y ago
Earlier this year, 50 Cent more or less did this with H&H stock and made a good amount of money off of it(I'm not sure if he actually sold it, but the value of the stock went down a fair amount two days after the initial rally). The article below also references that teenager you mentioned: http://today.msnbc.msn.com/id/41041141/ns/today-entertainment/t/cent-pumps-doesnt-dump-penny-stock/ http://today.msnbc.msn.com/id/41041141/ns/today-entertainmen... The actor Jesse Eisenberg also quipped the same line from the article, "But is what 50 Cent did really that different from what happens all day long on CNBC when professional money managers take to the airwaves to praise the stocks of companies they already own?" If this sort of thing is illegal* then Cramer should've been charged with a crime on the first airing of "Mad Money". *yes, I realize there's more to the legalities of insider trading than just talking about it on air :)
- raganwald 15y ago
  Your foot note makes an incredibly interesting mistake: What a teenager like Lebed does is not insider trading, because he doesn't work for the company or otherwise have access to inside information. He knows as much as you or I do. Insider Trading is well-understood and easy to define: trading on secret information that is not available to the market. Talking up a stock you own when you don't have inside information... Anybody can do this and everybody does this. How can I talk about Apple and Google taking over Microsoft's business and it's just fanboyism, but if I buy and sell stock while writing the exact same words, it's illegal? Ridiculous, especially in the age of the Internet. Pump-and-dump used to require a boiler room, now it requires a phone with a data plan.
  - artmageddon 15y ago
    If you meant the asterisk at the end, I may not have stated my thoughts clearly(fyi, I agree with everything you said). The only way it would've been a crime on Lebed's part would be if he had gotten non-public information from someone involved in/with the company in question. I haven't researched it but that doesn't seem to be the case. It's utter crap that the SEC can come down on someone hard just for stock tips from someone who's no more well connected than anyone else. Personally, I work in the financial field(as a developer) and won't touch trading just because I feel like if I make one wrong move I could risk getting fired / barred / etc..

p_h 15y ago

Looks like buying the puts was a bad idea

mikeryan 15y ago
a. you can't yet short linkedin. b. how would you know? Its way to early to figure out what's going to happen there. I don't like linkedin's current valuation - but I think shorting it in front of several very high profile tech IPOs would be foolhardy at this point.
- sabat 15y ago
  It's a matter of differentiating between a) what we recognize as the real earnings potential (which some see as fairly limited), and b) what John Q. Sharebuyer and Joe C. Fundmanager will probably do (buy buy buy, it's the interwebs!). The reality of 'b' means that shorting is not wise.

lsc 15y ago

while I agree with the guy, I was pretty amused by the edit to the opening line: "Before you go and buy LinkedIn (LNKD) shares at the IPO price of $45 - a $4 billion valuation (Ed: Shares are now trading hands at $83)" Oh man. ouch.

flipbrad 15y ago
I want a version of this article based on the share price as I write this: not $45, but $108.

mrb 15y ago

My own, and favorite, idea: you could buy one thousand early-stage startups valued $4M each.

lsb 15y ago
Or give a hundred thousand startups 40K seed funding.
- iwwr 15y ago
  Or $1000 for every person sitting in a coffee shop in SF.

bproper 15y ago

Hmmm...half of Skype.

code_duck 15y ago

"I bet DNB will be around in for another 50 years. Do you think LNKD will be?" I'd like to go back a few years and ask the author whether Lehman Brothers and Bear Stearns will be around in 50 years.

Jd 15y ago

There is a classical school of valuation that has difficulty dealing with Internet companies. Namely, a number of VCs, etc. have recognized that having a large number of passionate (or possibly addicted) users is the ticket to desirability and also valuation. It is better, in this sense, to have an indispensable product that is free or near free, than to have 5% of the population paying you $1K per year. Does this make any sense? Well, given that the stock market largely runs on hype, it makes lots of sense if you are trying to make money (the stated aims of VCs). Large investment banks that underwrite IPOs know that money flows where there is hype and they stand to make a good deal more where there is hype. Not only that, hype is ultimately close to (although certainly not the same as) making a sale. There is an additional wrinkle, social media, which no one knows what to do with, yet is so the subject of so much hype it is sure to attract lots of money. This system clearly is not broken when now big players like Facebook are able to attract money, expand, then once they've captured virtually the entire market and gotten them "addicted," they can capture advertising revenue and a percentage on Farmville-esque games. So social is weird, but the strange system in place, even if it doesn't make sense to the casual observer, seems to be working in some strange way. And it really is different. A good product can capture most of the viable US market in a year or two, which is virtually impossible in other arenas, but this is made possible by rapid growth, which is also made possible by the influx of capital. Ironically, other examples like Lady Gaga are even more driven by the hype machine and can fade even more quite quickly, meaning that if you were investing in her you would be depending almost entirely on hype, while the hype for Linked-In is based on an indispensable product.

deathflute 15y ago
Most of what you wrote made some sense until I read the bit about linked-in being indispensable ;)

missing_cipher 15y ago

"commercial airliner dogfights.". Sounds like my kind of thing.

SeanDav 15y ago

A large part of this is "The Greater Fool" syndrome. Doesn't matter what you pay for the shares, you can always find a greater fool to sell them to! Oh and 4B$ will buy about 1/10 to 1/20 of Facebook

cryptoz 15y ago

No mention of spaceships? Forget funding a bunch of small internet startups. Build a moon base! Japan's got plans to do it for half of that $4 billion: http://www.google.ca/search?q=robotic+moon+base+japan http://www.google.ca/search?q=robotic+moon+base+japan

0ffw0rlder 15y ago

100 million in t-bond & index funds and take a vacation.

gallerytungsten 15y ago

While suggestions 3-5 are relatively facetious, the first suggestion, for NRGY, is kind of interesting. While a 7.9% dividend is not the highest out there, it's nothing to sneeze at.