Secondary Thoughts #31

Bizarro World and Carta's 7-Minute Abs

“…the line between public and private markets continues to blur.”


“I’m sorry…we’ve already got a George.”

// We talk about the private market becoming more “accessible” to where it will eventually become more “liquid and transparent.” So what will this look like? Similar to what I wrote about a few weeks ago, it probably looks a lot like the public market in its current form. It’s much akin to Seinfeld’s Bizarro World. It essentially is a parallel universe that will be a better and eerily similar version of where you currently reside.

You can use this “bizarro” strategy when investing or building within the “alternative” world. Take stock of what works in the public markets today, and then create the same thing in parallel, but different. Obviously, this world already exists, as seen through the private market platforms and the investors who have already crossed over to the other side. But, there still is an opportunity not only in investing in the new assets but also in the supporting infrastructure.

Off the top of my head…benchmarking, advisory, media, research, data, valuation, regulation, trading software, portfolio, and risk management could all be paths to take advantage of. Just take a look at George, but then build the version of George you want to hang out with.  


Carta’s 7-Minute Abs

// I’m a big believer of Carta’s mission and I’m hoping (and betting) they’re successful. This week the company announced that their private stock market will launch in January, but, it looks like they’ve created, for now, their version of 7-Minute Abs, versus the Nasdaq Private Markets’s 8-Minute Abs. Carta was talking grander things earlier this year after raising $200M at a $3B valuation where they were going to create a liquid private market. However, looks like we’ll have to wait as they aren’t bringing anything new to the table. At least the exchange is getting started, and I’m sure it will evolve, as this market evolves, but, hopefully, CartaX will eventually have more opportunity for more people.

~ CEO Henry Ward brings up a lot of good points in his blog, “Liquidity is coming.”


Quote

// Philippe’s Laffont’s quote (from 2018) I’m going to stick in my back pocket:

  • “I truly believe that in every portfolio you need to ask yourself what is going to be more relevant five to 10 years versus today. The most interesting trend is that technology, which used to be mostly software and semiconductors and obscure things, it’s coming everywhere, it’s the future of cars and the future of transportation and every sector.”

This comes from an article the Financial Times ran earlier in the week that talked about how hedge funds are fairing this year, specifically highlighting Coatue’s YTD performance of 52%.


Playing VIX Chicken

// Seems awfully quiet in VIX land going into the end of the year with the market at all-time highs.

With that said, kind of flying under the radar is Tesla’s addition into the S&P in two weeks. (H/T to Max Power for bringing this to my attention.)

The WSJ wrote about it in Tesla to Enter S&P 500 at Full Weight in December, but the Motley Fool does a better job of explaining why it’s a big deal.

“Investors have waited for a long time to see when Tesla would get an invitation to join the ranks of roughly 500 companies tracked within the key benchmark. Trillions of dollars in index-linked investments follow the S&P 500, so getting added to the index is a big deal. Hundreds of billions of dollars of Tesla stock is likely to change hands in the coming two weeks in preparation for the S&P addition. To ensure they'll have Tesla's returns as part of the index's calculation, investors following the S&P 500 will need to make sure they have stock exposure by the end of trading on Friday, Dec. 18 -- the last trading day before the official addition.

Moreover, S&P Dow Jones Indices, which runs the S&P 500, said this week that Tesla would come into the index in one fell swoop.

By itself, this would be enough to cause extreme volatility in Tesla's stock. We've already seen the results of that volatility since the S&P announcement. But many stock investors don't realize the other component of what could cause a perfect storm in trading in Tesla shares on Dec. 18.

It just so happens that Dec. 18 is also an important day for traders in options and futures. It's one of four days each year in which stock futures contracts, stock index options, individual stock options, and single-stock futures contracts all expire. Traders sometimes refer to these confluences of four different expirations as quadruple witching days.

Quadruple witching days often bring massive volatility for the entire market. The nadir of the coronavirus bear market came in the two days surrounding the March 20 quadruple witching day, with stocks hitting bottom the subsequent Monday and then never looking back.”


Gig Workers and Equity Compensation

// Important development from last week that I didn’t want to let slip through the cracks…

From the WSJ, the SEC proposed a new rule where privately held online platform companies could pay their workers partially in stock.

However, “the proposal marks the latest move by SEC Chairman Jay Clayton and one of his top deputies, former Silicon Valley deals lawyer William Hinman, to expand access to private securities. It is unlikely to advance in its current form because the 60-day public comment period won’t allow the SEC to complete the rule before Mr. Clayton departs around the end of the year.”

Regardless, it’s good to see the equity compensation conversation moving forward.


Acquistions

// Wanted to quickly highlight these two companies that were acquired this week because 1.) these are cool companies I would work for and 2.) shows there’s value to be found where other’s might not be looking.

Chernin Group Invests $30M in Subscription Media Company Surfline

  • “The company started as a 1-900 phone line, where people could call and get the daily surf forecast for $1.99.”

And from Joseph Pompliano’s Huddle Up, “Entrepreneur and sports card collector Nat Turner is teaming up with D1 Capital Partners and Cohen Private Ventures, the family office of hedge fund billionaire Steve Cohen, to take Collectors Universe private for about $700 million.”

  • “As the trading card market has become more liquid, and investors continue to look at it as a real asset during economic uncertainty, Collectors Universe has seen their stock more than tripled in the last six months alone.”


Private & Public News From the Week

// Private

  • Airbnb Sets IPO Terms Sending Valuation as High as $35 Billion (WSJ)

  • DoorDash Is Set to Deliver SoftBank a Big Hit (WSJ)

  • Mystery Surrounds $7 Billion Outflow From Vanguard S&P 500 Fund (Bloomberg)

  • Investors Turn to Private Credit as Key Portfolio Hedge Amid Covid-19 Market Ruptures (hedgeweek)

  • The Forever Tech Bubble (Axios)

  • GitLab is Being Valued at More Than $6B in Secondary Share Sale (CNBC)

// Public

  • I Started Trading Hot Stocks on Robinhood. Then I Couldn’t Stop. (WSJ)

  • Peter Thiel Says Covid Marks 21st Century’s True Start. SPAC Boom, Surging EV Stocks Are A Sign (Forbes)

  • Chanos Reduces ‘Painful’ Tesla Short, Tells Musk ‘Job Well Done’ (Bloomberg)

  • S&P Upgrades Itself to Data Juggernaut With IHS Markit Deal (WSJ)

  • The ‘Everything Rally’: Vaccines Prompt Wave of Market Exuberance (FT)

  • SoftBank Is Winding Down Options Bets (Bloomberg)


// Thanks.



This newsletter is created and authored by Bryce Tolman and is published and provided for informational purposes only. The information in the newsletter constitutes the Author’s own opinions. None of the information contained in the newsletter constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You understand that the Author is not advising, and will not advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the information contained in the newsletter may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.