Investment performance can be done. You right, you can’t do performance reporting like a mutual fund – which must be done daily. But there are standards for private equity that can done quarterly. Moreover, as a investor in a hedge fund you deserve accurate and timely reporting – you are not buying a pig in a poke. I am not saying the PM has to reveal its secret sauce – but it should provide enough information so a outsider can judge the risk and nature of the fund and the VC is working for you – not just sitting on a beach somewhere. GIPS offers standards that run daily priced funds to real estate.
So, to clarify, speaking about high and low risk is kind of pointless, you need to look at the risk / reward ratio in a diversified portfolio. Ccompare these 2 indexes
MSCI REIT Index – which tracks REITs - real estate trusts that trade on the stock market (i.e. liquid)
FTSE NAREIT – which tracks returns from real estate partnerships, hedge funds, etc. (i.e. not liquid).
The illiquid FTSE NAREIT consistently offers better risk / reward and diversification. This has been repeated with many different asset classes. So, in a sense you are right. Illiquid assets are risk so most people stay away. This depresses the price of said asset. If you have the stomach and a long term view, you can buy them for 80 cents on the dollar and earn long term excess returns.
MF Global was not a hedge fund – it was a poor run brokerage firm that (criminally in my mind) comingled it’s assets with their clients. As for LTCM, I said it offered a better pay off, not that it was risk free.
You are probably thinking about Special Purpose Vehicles. These tend to be narrowly construed financial companies where one can park matched assets & liabilities. Back in Enron’s days, one could sell 5% of that company and get all off the liabilities off the books. In Enron’s case the SPV had full recourse back to Enron, so this was little more than a fig leaf. (In Enron’s case, the 5% equity was dodgy, the matched assets were dodgy, etc.). I would recommend “Smartest Guys in the Room” (The book is much better then movie – but also much thicker.)
The rules have been tightened to require real distance between the parent and the SPV to off-load liabilities from the books.
And I was not trying to say that audited statements were fool proof – as you have pointed out the can be window dressing or wholesale fraud. Financial Shenanigans by Howard Schilit is a good book on the subject.
The point I was trying to make is that for a public company everybody has access to the same level of data. Anybody can go to Edger and get them – it’s not like VCs have a magic wand – in theory they make their money though their application of superior wisdom. (Unless you are talking about illegal insider trading – but that is a different story.)
When it comes to private companies it is a different story. To some investors they just might throw out a 1 page finical summary – for other they may open their order book.
For some hedge funds this is true – but not for VC. On one side, a startup can only take funds from a limited number of people. On the other side, startups tend not to have audited financial statements, so it takes a lot of leg work for the due diligence.
I too read the Economist but I come away with a slightly different reading.
Alternative assets actually are a good thing for pension funds to invest in. For example, lack of liquidity means the assets are cheap, which means you get superior performance over the long term. Hedge funds have a lock up period of 10 years, pension funds invested for people working today won’t be needed for 10 years. It is a perfect marriage.
Now, for the last 10 years everybody and their dog have been piling into hedge funds. Which means many hedge funds have been able to get away with poor disclosure (as you mentioned) and poor results. Now that the punch bowl has been taken away, the hangover begins.
If you want Alpha you hire a hedge fund for their expertise. For the examples given, Sequoia et.al., they will invest in 20 high tech startups. Which, from the broad market perspective, is not spreading your bets. This gives you Alpha – a special extra return over the normal market return because of the managers skill (or luck – it is always better to be lucky then good.)
If you want to spread your bets you but a index fund – you get the Beta and a cheap cost.
I agree with your second statement while disagreeing with your first.
I would hope that the public is mature enough to understand that investing in alternative asset classes will result in lump, erratic returns – they are designed that way. Many have long lock up periods (10 years) to ensure that the investment managers focus on long term results. Alternative asset classes (VC being a subclass) has been touted as a wonderful thing – the reality has been less rosy. Many used cheap interest rates to leverage up during the good days or other cheap strategies. The good ones are great but there are too many poor ones out there. Owners of a fund have a right to good management and accurate reporting – demand no less.
Planet Money did expanded research on this – which makes sense, they share staff with American Life and have an expanded format.
The point is, Chris Crawford was held up as the poster boy – a small time inventor with a brilliant idea who lacked the resources to go big – but did so with the help of Intellectual Ventures. That is, he should be a sterling example. But closer inspection shows a lot of tarnish – an overbroad patent with harassing lawyers.
On second read maybe rude is not the right word – aggressive might be better. The OP plainly assumes that the patent system is broken. (which I agree with.) The OP then states that Myhvold is silent, thus backing the corrupt current system. This would put Myhvold on the defensive and shut down the conversation.
Better to ask open ended questions, free of assumptions or accusation, sit back, and see what unfolds. Myhvold probably has some specific view and passion when it comes to the subject. Get him started on the subject. We may see a new viewpoint. As an good interview knows, get a person to talk and something interesting will come out of it.
Another way to put it, give a man enough rope and they will hang themselves. I feel that the original question would tend to shut down the conversation.
Those patents were for making things and scope was well defined.
First, the newer set of patents tend to be for ideas and business processes and are not well defined and tend to be broad. I forget the details, but somebody has a patent for transmitting images over a network which in theory covers almost every moving image on the internet – and this was not for a specific method, code, or algorithm of doing so – just the general idea.
Second, devices are getting more complex and interrelated. A cell phone needs patents covering data transmission, networking protocols, digital camera, OS, etc. Throw on top of that design patents (look and feel) and it is a real mess.
Nathan Myhvold will be our guest and it would be bad manners to ask rude questions – so let us see if we can modify this question – because asking hard questions is fine.
Do you feel that the patent system is broken? If so, how would you change it?
It has been suggested that different industries patents should be valid for different periods of time. For example, drugs should have a longer time period because of the lengthy testing and approval process. What do you think the optimal time for a software patent should be?
Can anybody think of a better, more specific question than that?
Regulation can be used to restrict competition to the insiders. Real Estate is a good example. Most states require licensed realtors to offer Cadillac services – which means nobody offers a striped down version – which is why commissions are uniformly high.
On the other hand, regulation can be used to bring down the barriers to entry – see the internet. Telecom firms were required to wire up and transmit data regardless of who provided the equipment or services. Regulation helps when one side/group has a significant edge over consumers or other outside producers.
So regulation is neither good nor bad – it is how it used. (FYI, I prefer less regulation then more)
Obviously there are teachers, there are great forums with a nice community and hey... figuring out problems is one of the most best things that can happen to your learning-curve.
You see – I don’t give that as a given. You need some combination of intellectually curious students and teachers. Assume the students are better informed then the teachers, which happens a lot with new technology. Does the teacher encourage the students to explore? Or do they lock down the lab?
In short, without the right kind of teacher environment the lab could start collecting dust.
During my senior year some boys played around with the computers in the lab and made them do creative / mischievous things – nothing serious, just being immature. After that, the lab was only open when a teacher could be there reviewing approved projects. Since she was not technically sophisticated or intellectually curious she drastically curtailed what could be done. Kind of hard to experiment around in an environment like that. The value of the lab fell dynamically.
That is what everybody said about Apple when Steve Jobs came back.
And the reason why Michele wants to take Dell private is so he can do some radical things to it. So who knows? Give the man the benefit of a doubt, grab some popcorn, and see what happens - assuming Michele get the company.
What is the purpose of the lab? Since it is a high school I am going to shoot low and assume “keyboarding skills” and basic net access rather than programing or CI.
What type of infrastructure does the school have? i.e. how good is the electricity and security?
What type of support does the lab have? What skills do the teachers have.
Answers these questions and I think you will have a much better idea of what you need.
Maybe – The IRS has special rules to handle hobby and garage sale income. If it is an occasional thing that does not earn too much money the IRS lets it fly under the radar. If you are a full time gold miner in WOW then yes, the IRS cares about it. (It does not mean that WOW will report the transaction)
Reading the tax code, in my opinion (talked to a qualified tax expert on your particular issues, etc.) BitCoins transactions are already taxable. I would think that the current rules on foreign currency, script, and batter would cover all possible situations.
Note that “Taxable” transactions are different then “Reportable” transactions.
And I believe these rules are coming from the DOJ Fraud divisions then the IRS.
Amazon has already kind of done this in California IIRC. They found a small municipality and agreed to build a large distribution facility in the municipality agreed to kick back a portion of the taxes as “rebates”. Honestly, some of the stuff cities do to attract business just stinks.
One dimension is the number of tax authorities. You would need to silicate a large number of them – and you can’t use ZIP codes.
Another dimension is what you are buying. In my state groceries are exempt from sales tax but clothes are not. So quick – are eatable panties exempt form sales tax?
There are enough quirks like that to make payroll taxes look easy. Now, if we are talking about a simplified sales tax – that could be done.
No – It was up to Saddam Hussein to prove he did not have weapons of mass destruction – as Iraq promised at the end of the Gulf War I. Hussein then blocked the investigators, falsified evidence, etc. (And at the end, after he had really dismantled his WMD program, he had lied so many times and falsified so much data that Hans Blix still could not certify that it was really dismantled.)
In that context, what was the right course of action? Let a man who committed war crimes against his own people remain in power? Continue with embargos that hurt the population but not the military thanks to bribed UN employees?
I think the world should have taken action. I know the world is better with Hussein removed from power. I think the world is worse off because of Bush’s actions – not so much the military bits but the diplomacy and the reconstruction.
Serious question – what would you have done in you were in Bush’s shoes?
To be honest, some of the blame has to rest on Saddam Hussein – he was playing a double game. He wanted his people and neighbors that he did have weapons of mass destruction while doing the minimum to comply with the UN resolutions. I still remember the UN inspector Hans Blix talking about the cat and mouse game he was playing with Saddam – and that it would only take another 7 years to confirm that Iraq did not have any WMD.
As to the Twitter question – I find new media does a good job on the high level headlines stuff but less well with in-depth stuff. Considering that Hussein had deliberately engaged in disinformation for years, how is Twitter going to get around that? Maybe if a high level government official defected – but heck – even that could be part of a misinformation campaign.
I am not happy with that answer. That means we end up with a failed state spewing forth chaos and violence into the world. (Still trying to figure out what the right decision is.)
Slashdot Mirror
Investment performance can be done. You right, you can’t do performance reporting like a mutual fund – which must be done daily. But there are standards for private equity that can done quarterly. Moreover, as a investor in a hedge fund you deserve accurate and timely reporting – you are not buying a pig in a poke. I am not saying the PM has to reveal its secret sauce – but it should provide enough information so a outsider can judge the risk and nature of the fund and the VC is working for you – not just sitting on a beach somewhere. GIPS offers standards that run daily priced funds to real estate.
http://www.gipsstandards.org/Pages/index.aspx
So, to clarify, speaking about high and low risk is kind of pointless, you need to look at the risk / reward ratio in a diversified portfolio. Ccompare these 2 indexes
MSCI REIT Index – which tracks REITs - real estate trusts that trade on the stock market (i.e. liquid)
FTSE NAREIT – which tracks returns from real estate partnerships, hedge funds, etc. (i.e. not liquid).
The illiquid FTSE NAREIT consistently offers better risk / reward and diversification. This has been repeated with many different asset classes.
So, in a sense you are right. Illiquid assets are risk so most people stay away. This depresses the price of said asset. If you have the stomach and a long term view, you can buy them for 80 cents on the dollar and earn long term excess returns.
MF Global was not a hedge fund – it was a poor run brokerage firm that (criminally in my mind) comingled it’s assets with their clients. As for LTCM, I said it offered a better pay off, not that it was risk free.
As of today, not so much.
You are probably thinking about Special Purpose Vehicles. These tend to be narrowly construed financial companies where one can park matched assets & liabilities. Back in Enron’s days, one could sell 5% of that company and get all off the liabilities off the books. In Enron’s case the SPV had full recourse back to Enron, so this was little more than a fig leaf. (In Enron’s case, the 5% equity was dodgy, the matched assets were dodgy, etc.). I would recommend “Smartest Guys in the Room” (The book is much better then movie – but also much thicker.)
The rules have been tightened to require real distance between the parent and the SPV to off-load liabilities from the books.
And I was not trying to say that audited statements were fool proof – as you have pointed out the can be window dressing or wholesale fraud. Financial Shenanigans by Howard Schilit is a good book on the subject.
The point I was trying to make is that for a public company everybody has access to the same level of data. Anybody can go to Edger and get them – it’s not like VCs have a magic wand – in theory they make their money though their application of superior wisdom. (Unless you are talking about illegal insider trading – but that is a different story.)
When it comes to private companies it is a different story. To some investors they just might throw out a 1 page finical summary – for other they may open their order book.
For some hedge funds this is true – but not for VC. On one side, a startup can only take funds from a limited number of people. On the other side, startups tend not to have audited financial statements, so it takes a lot of leg work for the due diligence.
I too read the Economist but I come away with a slightly different reading.
Alternative assets actually are a good thing for pension funds to invest in. For example, lack of liquidity means the assets are cheap, which means you get superior performance over the long term. Hedge funds have a lock up period of 10 years, pension funds invested for people working today won’t be needed for 10 years. It is a perfect marriage.
Now, for the last 10 years everybody and their dog have been piling into hedge funds. Which means many hedge funds have been able to get away with poor disclosure (as you mentioned) and poor results. Now that the punch bowl has been taken away, the hangover begins.
I know what you are saying, but I disagree.
If you want Alpha you hire a hedge fund for their expertise. For the examples given, Sequoia et.al., they will invest in 20 high tech startups. Which, from the broad market perspective, is not spreading your bets. This gives you Alpha – a special extra return over the normal market return because of the managers skill (or luck – it is always better to be lucky then good.)
If you want to spread your bets you but a index fund – you get the Beta and a cheap cost.
I agree with your second statement while disagreeing with your first.
I would hope that the public is mature enough to understand that investing in alternative asset classes will result in lump, erratic returns – they are designed that way. Many have long lock up periods (10 years) to ensure that the investment managers focus on long term results. Alternative asset classes (VC being a subclass) has been touted as a wonderful thing – the reality has been less rosy. Many used cheap interest rates to leverage up during the good days or other cheap strategies. The good ones are great but there are too many poor ones out there. Owners of a fund have a right to good management and accurate reporting – demand no less.
http://www.economist.com/news/finance-and-economics/21568741-hedge-funds-have-had-another-lousy-year-cap-disappointing-decade-going
Planet Money did expanded research on this – which makes sense, they share staff with American Life and have an expanded format.
The point is, Chris Crawford was held up as the poster boy – a small time inventor with a brilliant idea who lacked the resources to go big – but did so with the help of Intellectual Ventures. That is, he should be a sterling example. But closer inspection shows a lot of tarnish – an overbroad patent with harassing lawyers.
On second read maybe rude is not the right word – aggressive might be better. The OP plainly assumes that the patent system is broken. (which I agree with.) The OP then states that Myhvold is silent, thus backing the corrupt current system. This would put Myhvold on the defensive and shut down the conversation.
Better to ask open ended questions, free of assumptions or accusation, sit back, and see what unfolds. Myhvold probably has some specific view and passion when it comes to the subject. Get him started on the subject. We may see a new viewpoint. As an good interview knows, get a person to talk and something interesting will come out of it.
Another way to put it, give a man enough rope and they will hang themselves. I feel that the original question would tend to shut down the conversation.
Follow up – I am in favor of patents – it just the system needs a major overhaul.
Those patents were for making things and scope was well defined.
First, the newer set of patents tend to be for ideas and business processes and are not well defined and tend to be broad. I forget the details, but somebody has a patent for transmitting images over a network which in theory covers almost every moving image on the internet – and this was not for a specific method, code, or algorithm of doing so – just the general idea.
Second, devices are getting more complex and interrelated. A cell phone needs patents covering data transmission, networking protocols, digital camera, OS, etc. Throw on top of that design patents (look and feel) and it is a real mess.
Nathan Myhvold will be our guest and it would be bad manners to ask rude questions – so let us see if we can modify this question – because asking hard questions is fine.
Do you feel that the patent system is broken? If so, how would you change it?
It has been suggested that different industries patents should be valid for different periods of time. For example, drugs should have a longer time period because of the lengthy testing and approval process. What do you think the optimal time for a software patent should be?
Can anybody think of a better, more specific question than that?
To expand on what bored is saying.
Regulation can be used to restrict competition to the insiders. Real Estate is a good example. Most states require licensed realtors to offer Cadillac services – which means nobody offers a striped down version – which is why commissions are uniformly high.
On the other hand, regulation can be used to bring down the barriers to entry – see the internet. Telecom firms were required to wire up and transmit data regardless of who provided the equipment or services. Regulation helps when one side/group has a significant edge over consumers or other outside producers.
So regulation is neither good nor bad – it is how it used. (FYI, I prefer less regulation then more)
Obviously there are teachers, there are great forums with a nice community and hey... figuring out problems is one of the most best things that can happen to your learning-curve.
You see – I don’t give that as a given. You need some combination of intellectually curious students and teachers. Assume the students are better informed then the teachers, which happens a lot with new technology. Does the teacher encourage the students to explore? Or do they lock down the lab?
In short, without the right kind of teacher environment the lab could start collecting dust.
During my senior year some boys played around with the computers in the lab and made them do creative / mischievous things – nothing serious, just being immature. After that, the lab was only open when a teacher could be there reviewing approved projects. Since she was not technically sophisticated or intellectually curious she drastically curtailed what could be done. Kind of hard to experiment around in an environment like that. The value of the lab fell dynamically.
That is what everybody said about Apple when Steve Jobs came back.
And the reason why Michele wants to take Dell private is so he can do some radical things to it. So who knows? Give the man the benefit of a doubt, grab some popcorn, and see what happens - assuming Michele get the company.
What is the purpose of the lab? Since it is a high school I am going to shoot low and assume “keyboarding skills” and basic net access rather than programing or CI.
What type of infrastructure does the school have? i.e. how good is the electricity and security?
What type of support does the lab have? What skills do the teachers have.
Answers these questions and I think you will have a much better idea of what you need.
Maybe – The IRS has special rules to handle hobby and garage sale income. If it is an occasional thing that does not earn too much money the IRS lets it fly under the radar. If you are a full time gold miner in WOW then yes, the IRS cares about it. (It does not mean that WOW will report the transaction)
Reading the tax code, in my opinion (talked to a qualified tax expert on your particular issues, etc.) BitCoins transactions are already taxable. I would think that the current rules on foreign currency, script, and batter would cover all possible situations.
Note that “Taxable” transactions are different then “Reportable” transactions.
And I believe these rules are coming from the DOJ Fraud divisions then the IRS.
Amazon has already kind of done this in California IIRC. They found a small municipality and agreed to build a large distribution facility in the municipality agreed to kick back a portion of the taxes as “rebates”. Honestly, some of the stuff cities do to attract business just stinks.
One dimension is the number of tax authorities. You would need to silicate a large number of them – and you can’t use ZIP codes.
Another dimension is what you are buying. In my state groceries are exempt from sales tax but clothes are not. So quick – are eatable panties exempt form sales tax?
There are enough quirks like that to make payroll taxes look easy. Now, if we are talking about a simplified sales tax – that could be done.
Technically yes – but the rabble rousing was anti-tax.
No – It was up to Saddam Hussein to prove he did not have weapons of mass destruction – as Iraq promised at the end of the Gulf War I. Hussein then blocked the investigators, falsified evidence, etc. (And at the end, after he had really dismantled his WMD program, he had lied so many times and falsified so much data that Hans Blix still could not certify that it was really dismantled.)
In that context, what was the right course of action? Let a man who committed war crimes against his own people remain in power? Continue with embargos that hurt the population but not the military thanks to bribed UN employees?
I think the world should have taken action. I know the world is better with Hussein removed from power. I think the world is worse off because of Bush’s actions – not so much the military bits but the diplomacy and the reconstruction.
Serious question – what would you have done in you were in Bush’s shoes?
To be honest, some of the blame has to rest on Saddam Hussein – he was playing a double game. He wanted his people and neighbors that he did have weapons of mass destruction while doing the minimum to comply with the UN resolutions. I still remember the UN inspector Hans Blix talking about the cat and mouse game he was playing with Saddam – and that it would only take another 7 years to confirm that Iraq did not have any WMD.
As to the Twitter question – I find new media does a good job on the high level headlines stuff but less well with in-depth stuff. Considering that Hussein had deliberately engaged in disinformation for years, how is Twitter going to get around that? Maybe if a high level government official defected – but heck – even that could be part of a misinformation campaign.
I am not happy with that answer. That means we end up with a failed state spewing forth chaos and violence into the world. (Still trying to figure out what the right decision is.)