I’ve added to my DX Group position (London Stamps) after it fell more than 70% on the day of a profit warning. The news seems that the business is not doing as well as planned but it’s in no way catastrophic. It was already pretty modestly priced.

It’s now priced for a high chance of total failure, which seems an excessive reaction. Maybe the news being published during the trading day rather than before the open as usual triggered some weird conditions. Looking at the trades log on the London Stock Exchange website, it seems only £30K worth of trading in a post-announcement auction (uncrossing after 6 minutes post-announcement break) explains the bulk of the gap (80 to 55), and then the post-gap momentum may get its own life.

Usually things get worse before they get better after a profit warning (the earnings announcement drift anomaly) but in this case I’ve topped up on the day in case there’s a rebound early next week as bottom fishing value investors go back to their desks. I’m happy to keep the stock until it succeeds or fails more convincingly in any case.

Funny news about a granny who shred her cash stash to annoy her heirs. The local central bank will replace the banknotes!

Mattress safety

This bring interesting potential applications. How to make cash under the mattress safer? Just cut it in two and hide it under TWO mattresses in different locations. If you need to spend it, rejoin the two parts and redeem it for spendable currency at the central bank. (This doesn’t though cover the somehow unlikely scenario where the central bank ceases to operate but the banknotes still have some value.)

Paper multi-sig

This could also be used by a group of people who want to share a stash and only spend it when they all agree: cut each banknote in N-pieces where each party takes one. To spend, the parties must collaborate to reunite the parts and redeem them at the central bank. This is pretty similar to multi-sig addresses in Bitcoin — indeed it could be used to explain multi-sig to people who don’t get the explanation in cryptographic terms.

Shredded will

Back to the granny, a central bank representative is quoted as saying that “If we didn’t pay out the money then we would be punishing the wrong people.” I think it is the wrong attitude. Destroying a banknote is equivalent to making a donation to society, as the value of everyone’s remaining currency increases (there are fewer of them going around). From an accounting viewpoint it decreases the central bank, thus the state, liabilities as there are fewer banknotes to redeem (paper money in circulation show up as a liability on the issuer’s balance sheet). So, the act of shredding the notes was obviously a wilful act of spending on the granny’s side. She could have equivalently bought an expensive object and destroyed it so as to destroy its value.


The ECB says that they do not redeem banknotes damaged intentionally. The Bank of England seems more tolerant. Arguable if people started to use the procedure for mattress safety and paper multi-sig en masse, central banks’ damaged notes redeeming service could be overwhelmed, though economically or morally I don’t see a problem with operating the service, perhaps with a fee to cover direct costs.

Today’s trade in Obliquity London is swapping SAB Miller for Rolls Royce. The brewer got taken over and I don’t like it much for both fundamental reasons — big takeover tends to be underwhelming, and AB InDev’s management style is a bit too Ryanair-style for my taste — and practical — the new company won’t be London-listed.

Rolls Royce, the engine manufacturer, had been on the watch list for a while. It’s a pretty steady stock which is currently seen as more distressed than it really is in my view, and today’s profit warning may provide an interesting entry point.

Here’s an app idea: make an app, let’s call it Ubercut, that allows Uber users to shortcut Uber and avoid paying the fat commission.

How would it work?

The app would run in the background on a phone and detect if the regular Uber app is running in the foreground. When it is and both a driver and a punter are using it at the same time, and are within pickup distance, it sends a notification of the type “you guys may want to make a deal” to both parties, e.g. doing the ride but for 90% of the fare suggested by Uber (splitting Uber’s 20% comm) and allows them to communicate, thus bypassing Uber before initiating a transaction. A comprehensive hijack would “read over” both user’s Uber screens to send notifications only when there is an exact match. This could be quite tricky or impossible to implement, but a simple passive version (“running the app at the same time and near in space”) can be done relatively simply, at least in Android.

The contracting parties would lose the benefit of the protection afforded by Uber for on-platform rides, but most such platforms mainly work hard on their disclaimers when it comes to cover unwanted trouble. Third party insurers could also offer cover the weary, for a fraction of an Uber commission. The Uber reputation system would still be operational as this is pure freeloading — no ride are initiated in the app directly (in the simplest version of the concept, one could also couple it with a cheaper or peer-to-peer matching platform).

What’s the benefit?

Disruption! Uber and other trading platforms that are dominant collect economy rent due above the cost of operating the service because of the network effect — it’s a winner take all game. This is a classic market failure. The existence of shortcuts would probably contribute to cap such rents.

Would it be legal?

If Uber lawyers haven’t anticipated that, we can be sure they’d add a ban to their terms if such an app becomes popular enough for them to notice. Would people care? Maybe, maybe not. Could they could sue their clients and drivers succesfully? I know not.

Would it be moral?

Unambiguously yes I’d say, as it is merely about applying Uber’s philosophy (disrupt incumbents, ignore the law, etc) to Uber itself.

PostIt Note

3M has been acquired today, with a large cap sizing, to mop up some of the cash accumulated in Obliquity London (dividends + Volkswagen sale). There’s very little to write about, it’s a model Obliquity stock and had been on the watch list for a while. Timing doesn’t look too good in the very short term as it’s just gone up in the past few days, but better get in now than later at a higher price.


In an internal trade, the Stamp Collection has “sold” Kingspan, an insulation manufacturer, to Obliquity London. It had been rejected for the main portfolio, back in 2012, for being too small, undiversified and family-owned, but it’s maturing nicely, diversifying both through acquisition and organic developments. Still not cheap, but larger and stronger, so good enough for graduation. It also doesn’t fit so much any more in the stamps portfolio which is about special situations and small oddballs.

Keep steady…

Of the recent buys, Pearson has seen a harsh profit warning, but nothing that distracts from the underlying case, so we’ll do nothing, other than lament the unfortunate timing.

… if not forgetful

In a slightly more comical development, I saw the value of SIG plc drop on a profit warning in the FT’s portfolio tool. This is a company bought at inception, when I went through a lot of companies over a few weeks, and the funny thing here is I was convinced it was the similarly named packaging manufacturer SIG, which it turns out is not listed (though it may have been at the time in 2012). The SIG in the portfolio is a building supplies manufacturer that I vaguely recall looking at but probably not decide to buy. It seems okay but may be in need of a more thorough review. I guess it’s a good indicator of sufficient diversification.

Panmure Gordon

I am already forgetting to keep to my rule to blog before trading, so catching up with today’s trade: the acquisition of Panmure Gordon for the Obliquity Stamps collection.

The rationale is simple: it seems a reasonably well run business with a solid balance sheet, on a very cheap rating on classic value metrics, probably due to the cyclical business and recent acquisitions. It also diversifies me a bit from my usual fare of packaging companies and pipe manufacturers. On a macro level it could benefit from big banks withdrawing from some areas due to regulatory headwinds.

Back to the future: AIM 2012 IPOs

Morning mist in burn forest

Burnt Forest (credit: Charles Peterson, petechar on Flickr)

Talking of AIM IPOs, on a tangential point I’ve been looking at the historical list of AIM IPOs and been through all of 2012 ones, to see if there was something to be learned from their fate 3 years later. Taking out investment vehicles, Chinese/Malaysian companies (mostly frauds, very fashionably that year) and resource companies (oil and gas, miners, not all fraud but a lot of dodgy stuff and I’m not covering that sector) we’re left with just 10 companies still standing. A couple of the 2012 listings apparently got taken over legitimately, and a couple of bankruptcies might have been non fraudulent failures but what a track record.

I’ve been wondering if there might be modest alpha in a simple “IPO survival” strategy. It seems the get-rick-quick schemes drop like flies quite quickly. The remaining businesses are probably legit although it’s still a mixed bunch. It may have been a bad year.

Here’s the list of 2012 AIM IPO survivors (ex invest. cos, China and resources):

Name Sector
VENN LIFE SCIENCES Health Care Providers
GOOD ENERGY GROUP PLC Alternative Electricity
REVOLYMER Speciality Chemicals
BELVOIR LETTINGS Real Estate Services
UTILITYWISE Business support services

I’m trying a new policy of blogging every trade in the Obliquity Portfolios before they happen. I usually can’t be bothered after the event, and writing things down helps keep a record and concentrate thoughts, and possibly avoid extraneous trading.

Talking of which, let’s start with a news trade today, selling Volkswagen. See the press for the fiasco regarding software hacks used to fake US environmental testing. This is a bit late closing the the stable doors after the horse has bolted, but I also have some long term rationale:

  • I’m in a slow tidying up process away from non-UK/US stocks in Obliquity London due to costs
  • Volkswagen breaks my family/close control portfolio rules
  • It remains a good brand but I have some doubt about their world domination plans, they may be trying too hard

On the actual current news, it’s hard to price. The raw cost of the regulatory proceedings are likely to be smaller than the headline maximum figure, which is what the market seems to have priced. The fine may be lower, but the reputational damage may be worse, even if it turns out it was just a rogue middle management initiative. If it’s symptomatic of a more widespread culture, the downside is increased even more. On the other hand it could well be forgotten in six months after profuse apologies.

From a market psychology viewpoint, uncertainty tends to depress the price for a long time, and inertia is such that bad news tends to take some time to be absorbed, so it’ll probably get worse before it gets better.

One amusing thing is that the CEO hasn’t resigned yet. I’d be surprised if he’s still there by the weekend. Even if he did not authorise it, I can’t see how he could survive that.

I’m a bit tempted by FIAT Chrysler as a replacement but the US listing is not tradable in this UK account and the Milan one has the cost issues, so will skip that for the time being.

Edit: given the huge moves during that day I’ll add that my price was a fortuitous €125.


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