Mohawks, Tattoos and the West

Mohawks are all the range.  Teenagers, adults, World Cup footballers and even small children are revisiting a fashion statement mostly absent since the days of President Carter.

As for tattoos, it seems that everyone but me has one.  From the elegant blue heart etched on the shoulder (polite and discreet) to the full-body multicolored monstrosity, wearable graffiti is now an acceptable norm. These days, as I sit across from middle-aged Wall St bankers I sometimes wonder what hides under the padded shoulder of their single-breasted suits? A tattoo of their pet chihuahua? A winged angel? Skull and crossbones?

The recent revival of 1970s fashion is cute but fairly meaningless.  However the reappearance of Mohawks and tattoos are a notable cultural moment.  That is because they both draw their roots from a distinctive 1970s subculture that most would rather have forgotten. Punk.

Punk in the 1970s was the voice of a dissatisfied youth. It was a full frontal rebellion against societal norms. Punk took the 1960s hippy culture to a dark place.  Rebellion with a mean streak.  Less free love, more free hate.  Punk was unpleasant, its music inaccessible. The fringes of the punk movement blurred with scary outsider groups like the Hells Angles and white supremacists.

Today's punk revival is not simply a fashion statement, it symbolizes a repeat of history.  Take two examples.

First, we are witness again to an exhausted and demoralized America. In the 1970s it was post-Vietnam syndrome while today it's post-Iraq syndrome.  ISIS rolling through Iraq is eerily reminiscent of the chopper on the rooftop in Saigon.  Punk was a distorted reflection of a sense of a failed mission.  Today that feeling of failure is again palpable.

The second is youth unemployment. 1970s punk arose at a time when Britain was mired in economic malaise and Americans were learning the meaning of stagflation.  Then, like today, unemployment was way too high throughout the West. And then, as now, young people bore the brunt.  Today, in the US, youth unemployment stands at 13%. In France it's 23%.

When our economy doesn't provide its citizens with an avenue to be productive, our society looses it sense of self-confidence and extreme individualism replaces the collective mission, the fabric of the West begins to fray. Citizens disconnect from society.  Instant answers are demanded.  And into the intellectual vacuum stride extremists.

In today's Wall Street Journal, columnist Gerald Seib argues that three forces are disrupting the US political order - globalization, alienation and populism.  I'm not sure about globalization, but on alienation and populism he's right on point.  Not only is the US political order being disrupted, we are at risk of undermining the very foundations of liberal democratic society.

The citizens of the West are broadcasting their frustration and alienation on their bodies.  And unlike in the 1970s this is not limited to a small youth subculture, it is a widely spread phenomena reaching across all stratum of society.

The good news is that just like in the early 1980s this situation can be quickly salvaged.  But it is going to require the clear-sighted leadership of a Reagan or a Thatcher.

We can only hope.

Israeli Ambassador Ron Dermer – Israel’s Capitalist Revolution

I encourage you all to watch this.
One of the reasons, is because he says many of the views that I have expressed in the halls of Goldrock for quite some time!

http://tinyurl.com/k7x9wjr


1. Capitalism is moral, much more "social justice" oriented than socialism. Israel is on the right trend line

2. The chareidim (ultra orthodox) is a huge economic opportunity, similar to the Russian immigration that occurred 20+ years ago. As intelligent and more educated ultra orthodox enter the work force, Israel will experience growth.

3. Buy in beer sheva – anything real estate!

4. Israel's biggest economic risk is brain drain – innovation is our currency.

5. The natural gas find will be a big economic story for the next decade (good thing we found it 65 years late)

6. Israel should put in a railway from Eilat to Ashdod for east to west goods distribution (ship to Eilat, rail to Ashdod, ship to EU)

Enjoy!

Prudent risk management as vital as ever

In no way does the following necessarily reflect the Goldrock view, nor constitute any advice whatsoever, investment or otherwise; the purpose of this posting is to remind ourselves how devastating losses are; and maintain a disproportionate impact on ones' portfolio; and the ensuing gains required to recover from losses. Significantly, as the magnitude of the loss increases, the required recovery gain increases EXPONENTIALLY.

As 2013 draws to a close, few would have predicted this time last year that the S&P would be finishing the year some 30% higher than it started the year. Those who were indeed fortunate enough to fully participate in the stock market rally will be rubbing their hands in glee. But what does 2014 bring about? The trend is your friend, right? Well yes ….. until it isn’t. There is high temptation to follow the momentum of 2013 and jump headfirst in the stock market.

Markets tend to be somewhat "mean reverting" over time. The good times don’t last for ever, and consummately neither do the bad times. In the good times, or what is commonly known as an equity bull market, simple buy and hold strategies would perform very nicely indeed. You would fully participate in market up-ticks. However, during a bear market, you would perform woefully, and would be at the peril of the market.

On the flip side, prudent active management allows one to use diversification, investment selection and skill to limit the downside, whilst giving up some of the upside. In bull markets, you will undoubtedly underperform, however, should be able to sleep better at night, knowing that in a downturn, when the market plunges, your portfolio ought to suffer far less.

That’s the theory. How does it play out in practice?

Lets assume the market drops by 30%. And then recovers 43%. An investor who starts out with 1,000 will decline to 700 and then recover back up to 1,000. An investor fully in the market, would have returned nothing. An investor though who constructs his portfolio that should limit the downside risk whilst participating in some upside would have made a positive gain over the same cycle. Lets assume his portfolio is constructed with a beta of about 0.5. He would expect to participate in about half the markets upside, and half the markets downside. Under the exact same scenario, where the market drops by 30% and recovers 43%, this investor's portfolio would expect to drop 15% and then recover 21.5%. His portfolio ought to decline to 850 and then recover to 1,033. So whilst the market portfolio experienced lots of volatility, twists, turns and excitement, but ultimately returned nothing, our astute investor would have made a small gain.  Due to compounding, his gain grows exponentially over various market cycles.

That’s a nice theory. Does it hold up in practice though?

At the beginning of 2000, the S&P 500 was at 1469. Fast forward to October 2002, and the index stood at 777, some 47% lower. Moving on 5 years and a performance of 101%, the S&P stood at 1565. On to March 2009, the market low was at 666, a loss of 57%. Currently, a bit less than 5 years after that low, we are at 1830, a gain of 174%. Over the 13 year period, a buy and hold investor would have been up 24%. Lets return to our astute investor, who has constructed his portfolio with a beta of 0.5. He would expect performance to the tune of -23.5%, +50.5%, -28.5% and +87%. Overall, his 1,000 would have declined to 765, risen to 1,151, declined to 823 and then risen to 1539. His cumulative performance would be 54%. So whilst there would have been periods, often long ones at that whereby the market (and the buy and hold investor) would have performed considerably better, in the bigger picture and over the longer term his portfolio would outperform considerably.

Remember, this is due to the disproportionate impact of losses in relation to the gains required to recover from a loss. As the losses increase, the required gain SIMPLY to reach break-even also increases, EXPONENTIALLY. As the table shows, if the market goes down 40%, then the buy and hold market investor requires 67% gain, just to recover his losses and break even. The other investor, only recovers a 25% gain to recover his loss. If the market goes down 50%, then the buy and hold market investor requires 100% gain, just to recover his losses and break even. The other investor, only requires a 33% gain to recover his loss.

Whilst the temptation to plunge into the market remains as strong as ever, prudent risk management is vital! 

The End of the Road for Dankner? 

I feel sure that yesterday will be marked as a milestone in the business and economic history of Israel. There is much talk among the chattering classes and politicos that regulation and politicians should save us from "tycoons."

Whilst the process has taken two years, and certainly banks and institutional shareholders have not always acted with speed and wisdom, the market and the legal process have made the difference in the battle to control IDB and its many subsidiaries.

This is great news for Israel on many fronts, but I would like to pick four highlights:

1) As mentioned above the market has removed Dankner from his control position at the head of the IDB pyramid. Nothing personal Dankner bet and lost. The excellent operating companies down the stack will survive and depending on the skill of the new owners, may even thrive. If they do not, they too will be removed!

2) We have 2 new names as major players on the business scene in Israel. One foreign coming with a long track record of success bringing his capital to Israel for the first time, and one local, who has mostly plowed foreign fields up to now.

3) Pyramid structures and uber-leverage is (IMHO) not the way to create a thriving economy. Building businesses through hard work and sensible financing is. If this allows the subsidiary businesses to thrive as more independent entities, then the entire economy will benefit, probably attracting additional new capital along the way.

4) The intervention of "smart" capital (Jeremy Blank and York) was one of the key catalysts for the radical change of direction at IDB. I hope that this will represent a new era of intelligent activism within the market!

Finally, I will end with a quote from Dankner himself from 2009 - Here is what he had to say when he was king of the country, four years ago,  in "Globes":

"I take care to ensure that IDB has large amounts of cash, and that we exploit business opportunities in moderation, cautiously, conservatively, and gradually. Despite the many business opportunities, we retain in our hands large cash reserves. I see them as an insurance policy. The strategy is to be prepared for changing situations that are hard to foresee."

http://www.globes.co.il/serveen/globes/docview.views.asp?did=1000902511&fid=4163

Our friend Matt Craig-Greene at Pivot Partners sent us the results of a new survey they conducted on private equity communications.

It revealed some fascinating facts about how private equity firms communicate out to the world.

• 88% of business owners have difficulty finding useful, relevant information on private equity funds  
• Over half of PE firm websites scored an "F" on Pivot Partners' Transparency Test
• 86% of Limited Partners think that private equity has a poor reputation with the general public

Clearly the PE industry needs to be spending more time working out how to communicate better.

If anyone has specific comments about our Goldrock Capital website, please let me know. I'm at darren@goldrockcap.com

To see the full survey click here.

Infolinks is the number 1 contextual advertising company

It feels good when a third party recognizes one of your investments as the best.

A firm named topseos.com is an online producer of independent reviews and ratings. The listings of the top online marketing channels are released monthly to assist businesses in connecting with contextual advertising channels which feature a history of effective services. Thousands of online marketing channels are put to the test while only the absolute best channels are showcased in the listings.

The 5 best contextual advertising companies have been revealed by topseos.com for the month of August 2013. The rankings are revised each month in order to account for the latest developments and achievements of competing contextual advertising companies in areas most commonly associated with successful contextual advertising services. The five areas of evaluation used to determine the best companies include targeting, diversity of network, size of network, publisher controls, and reporting methods.

The 5 top contextual advertising companies for August 2013 are:
1. Infolinks
2. Vibrant Media
3. Kontera
4. ResultLinks
5. Trafficvance

To view the rankings of the best contextual advertising services visit:
http://contextual-advertising.topseosrankings.com/best-contextual-links-networks

Congratulations to the Infolinks team!

Hatzalah - the first response ambulance volunteer network: the healthcare social network

There was an inspirational speech given by Eli Beer on TED telling the story of the founding of United Hatzalah and its subsequent success from a first response and social perspective. Here is the video.

Hatzalah is a volunteer organization that provides first response ambulance style services.

Eli Beer describes his experience as a 17 year old EMT in an ambulance and their failure to save lives during medical emergencies, largely due to heavy urban traffic not allowing the ambulance vans to access the scenes in a timely fashion.

Eli realized that there are many capable people located close to emergency sites at any given time, but they simply do not have knowledge of the situation and they do not necessarily have equipment required.

So Eli began to build the idea. First step was to provide the information to a volunteer network via emergency radio scanners and a communication system for the response team (beepers, to mobile phones, to mobile apps (now using Israeli company NowForce)). As the team grew, he was able to provide faster transport via scooters ("ambucycles"). Next, it included custom built mobile equipment. Quite amazing.

Hatzalah now has an average response time of 3 minutes, while the ambulances are 15-20 minutes!

Over breakfast with my wife this past Friday, we were discussing this story with awe. Later on during our date, we began talking about how Facebook works, Twitter and other social networks. (My wife is one of the last in the western world without Facebook, Twitter, etc.). I was explaining the news feed, groups, following people, comments, likes - and importantly the influence the social networks have had on the media in the western world.

We discussed some of the negative results of social media on the media in the western world - mainly the consumer demand for immediate 24-hour news flow, lowering standards of the professional media (like low standards of information sources and corroboration) and the emergence of people that spew vitriol with large social audiences with no accountability or consequences. And we talked about the amazing results of social media on the media within emerging and frontier countries - that essentially can bring the power back to the people and undermine totalitarian dictatorships by bypassing the oppression to proliferate free speech and free "press".

I reminisced about the event that pushed me to use my Twitter account on a constant basis - The Gaza War in January 2009. The reason why was based on the ability to follow certain non-media people that had first hand and immediate information on the happenings on a constant basis. Following the Gaza War, we all watched how the grass roots of the young population within Muslim countries (initially Iran in 2009) used social media - mainly Facebook and Twitter - to break the regime's stronghold over information flow that resulted in some dictatorships falling. Interestingly, here in Israel, during the conflict in Gaza last year, we saw Israeli Defense Forces heavily use Twitter and Facebook in various capacities in very effective ways.

And then I realized that Hatzalah is a similar story.

Social media answers a need for precise and timely information. And the need is insatiable. The progress went from messenger pigeons to Paul Revere to radio to TV to cable TV to internet to mobile to social networks. Social networks provide the platform for exponential proliferation of communication flow on an immediate, global scale. In other words, people want information NOW. How do you do it? Anyone can be an authority. Anyone can be a source. If you want information on a certain topic, region, person, etc., Twitter and Facebook have it. And you can then see what all of the people with the same interest as you say on those topics. Exponential. Game changing.

Hatzalah answers a need for precise and timely emergency response. And the need is insatiable. When someone is choking or has a heart attack, they need emergency service NOW. A few minutes is the difference between life and death. How do you do it? Anyone can be a response to an emergency. Anyone can save a life. They just need information, transportation, some equipment and training. This creates a "social" network of people across different locations at different times of the day. Don't rely on the incumbent service. Bring the power of the masses to answer the need.

On a personal note, I was in venture capital during the emergence of social networks as an investment category (2005+). I was personally not a believer in the sector as an investment opportunity. Perhaps due to my lack of faith in humanity on a large scale. I was proven wrong...and I am not referring to missing out financially, but rather from the human perspective. the social networking and sharing economy start ups have shifted the way society can operate.

People are not perfect, but Facebook has proven that people will be honest about themselves - profiles, pictures information and content is largely true. Prosper.com proved most people are honest and have self respect - to pay back loans, even without assets connected to the loan. And AirBNB is proving that most people are hospitable and respectful - with minimal crime, vandalism, etc.

And this Hatzalah story made me rehash my faith in humanity - building out a volunteer, non-compulsory social sharing society.

Kol hakavod to Eli Beer and all social entrepreneurs that bring power and faith down to the people - to rely on human compassion, honesty and respect.