Masayoshi Son had help pulling SoftBank from the brink
wsj.com
wsj.com
Also, in case you haven't read this PG classic: http://www.paulgraham.com/submarine.html
Due to this - "SoftBank racks up $3.7bn in losses at tech stock trading unit": https://www.ft.com/content/0edb7c17-58e6-4ded-acfa-1822440a9...
Bwahahahahaha....
Oh wait I fell of my chair laughing.
I feel you, but I do have some respect for the markets no matter what they say. At least enough respect to be cognizant of what is being priced in, despite my personal views.
I'll believe the yields mean something when the US Treasury issues a special series of bonds that are forbidden to be owned by the Fed or any entity with access to the discount window.
Birth rates are declining and the cost of maintaining our infrastructure is at the point in most high-GDP locations (New York, California, etc) where obligations cannot be met and credit status changes were inevitable _before_ Coronavirus. Look at the insanity New Jersey has gone through with the criminal pilfering of infrastructure/development funds to pay pensions (aka, Christine Todd Whitman should have gone to jail).
We're looking at cascading failures in a complex system. Nobody can see enough of the picture to predict what's next or realize that it's already dead. To assume that we'll right the trend with growth will most likely require either war or (a technical) revolution.
Disco music in various forms is immensely popular today. It dominates global streaming charts. Rock is the loser.
Stu was just an early adopter facing the through of disillusionment.
It took decades for the industry side of Disco music to recover from Disco Demolition Night. Italo and Hi-NRG notwithstanding.
The music might have stayed four on the floor but the names and the people all changed.
Also Kylie Minogue doesn't set trends, she rides them. Most of us realized Disco was still alive 10 years ago.
PS. I agree that this is not just a covid problem.
There are times when the bond market is very explicitly manipulated, such as towards the end of WW2 in the US. The country's economy was getting seriously inflationary and rates were pegged at 2% (the rate should have been probably over 10% without the manipulation). Thankfully there was much collective sacrifice and the country managed to win the war in time before its economy imploded. Then the typical post war recession and later the baby boom solved everything.
You can detect such situations by things like: wage freezes, rationing, shelves not completely full in shops, large premium on gold bullion particularly small coins, the politicians' talk of "great effort", things like that
Also, reach out to the source. Want to know if "China is hoarding dollars?" Well try to verify it yourself via Treasury data or IMF data. Want to know how does Apple actually make money? Read their statements at sec.gov
Also, if you want names:
Ray Dalio puts out a lot of good research for free as a means of building his legacy. Robert Shiller wrote a lot of good econ. As far as investing goes it's really tough to beat the common sense logic of Warren Buffett and co. and Benjamin Graham and co. The true masters of speculation include George Soros and Jesse Livermore.
Ugh, I hate it when PNL is reported in pure dollar terms with no reference to capital. I get it, the writer/editor wants to make the title punchy, and $4 billion is certainly punchier than say 4%. However, FT is in some way supposed to cater for professionals and I would expect better from them.
For actual informed use, the dollar numbers is largely meaningless. For a $100 billion fund, losing $4 billion is painful, but not the end of the world. For a $10 billion fund, it is likely game over.
You might have this backwards. Actual informed people have a good idea of the scale that these funds are operating at, and can understand without context whether $3.7bn is a lot.
>For a $100 billion fund, losing $4 billion is painful, but not the end of the world. For a $10 billion fund, it is likely game over.
Losing $3.7bn trading stocks in a tech bull-market the likes of which we've never seen is...not good, regardless of the fund size.
They lost 4% of their unmanageable capital, big deal.
Even "actual informed people" won't necessarily know how much much any given fund has in AUM.
>Losing $3.7bn trading stocks in a tech bull-market the likes of which we've never seen is...not good, regardless of the fund size.
Actually, fund size is very relevant. Losing $3.7b as a $10b fund will put you in at least 37% drawdown which can put you past a board-controlled threshold at which trading might pause or a re-evaluation of the trading strategies might be triggered. Losing $3.7b on a $100b account is 3.7% which is business as usual really.
If you have a machine learning background this analogy might be useful: if you're building an algo trading strategy then training your model on absolute dollar returns data will be nonsense. What makes more sense is calculating the relative returns or even log-returns because then we're encoding an actual relative change.
I'm sorry but nobody can keep all the different AUMs in their head. There are thousands (tens of thousands?) of funds in the world, I really can't be bothered to memorize all their assets. The headline was clearly written to elicit an emotional response, at the expense of information content.
> Losing $3.7bn trading stocks in a tech bull-market the likes of which we've never seen is...not good, regardless of the fund size.
It's not good, but again the dollar figure is completely meaningless: if the fund has an AUM of $100bln, this is a largely inconsequential -4%, which may compare unfavorably to their peer group and may elicit management changes down the line. For a $10 bln fund this is pretty much game over and they would be gearing for a fire sale of office equipment.
Fun fact, this is called "apophasis". https://en.wikipedia.org/wiki/Apophasis
I'm not attacking the OP (or is this another apophasis?), especially since they expand on what they mean later in their reply; I just like the word.
These days, I'm ok with any headline that isn't a complete fabrication or at best, completely misleading.
Also, even capital is sort of irrelevant because of gearing. I can go to the futures market and take the same risk with a $10m fund that you can with a $20m fund in the cash equity market.
This is FT however, I'd expect them to be professional enough to avoid this crappy game of clickbait titles. If the NY Post wrote a headline like "SoftBank suffers a massive $4 billion loss!!!111" I wouldn't bat an eyelid.
From a purely informational perspective, this headline doesn't tell me anything about the actual severity of this loss for SoftBank.
The Norwegian Govt Pension Fund manages $1 trillion of assets. It's value is likely to fluctuate by billions each day. Would you level the same accusations against them?
Size matters tremendously for these things.
It's ~$20B, though they had market exposure of over ~$50B.
Unless he literally has quasi inside information, this seems wrong.
Paradoxically - even just being a 'true series D/E fund before IPO' is a really great concept, they should stick to it. WeWork, Uber etc are actually good investments if managed properly. If they reigned in Adam at WW it might have worked out better.
1) FT seemed to have changed the headline, it used to be "SoftBank’s Northstar tech unit racks up $3.7bn in losses" (refer to archive link below), which was much more specific.
The article contents are the same however - many comments below refer to $100B, however the article does not refer to Vision Fund $100B; it refers to their new "speculative trading" division, which was officially announced back in August.
2) Since this is FT, probably most people don't have access to the article due to paywall - the article itself:
3) The loss is significant, it is not 4%.
When Northstar started, Softbank announced it started with $555 million; however as of Wednesday announcement now they say Northstar manages 21B of Softbanks 43B cash pile.
3.7B quarter loss is 17.6% of 21B
4) FT has been reporting on Softbank trading for some months now - it was one of the first (or the first) to break the news about Softbank large speculative call options trades back in September (https://www.ft.com/content/75587aa6-1f1f-4e9d-b334-3ff866753...)
5) Finally, this is my personal opinion.
Softbank seemed to have built up a reputation for throwing money at companies at high valuations, with some disastrous consequences (Wework etc).
Now, it seems they are approaching trading with the same cowboy attitude; these high risk trades may work some of the time, when the market is in your favour, but when the wind changes, big losses may incur - this FT report is one indication of such losses.
The Fed messaged its willingness to buy bonds. They never had to. The market took the message and ran with it. But it’s a tool borne out of Bernanke’s work the last time around which was borne of his scholarship on the Great Depression.
Which means they are insane
I believe tales of our "recession" are greatly exaggerated. Since COVID-19 took hold, roughly around March 2020, the market hasn't really been depressed, has it?
One would hope that the stock market reflected actual economic activity, but that doesn't really seem to be the case anymore.
That's because the Fed said "money printers go brrr!". If it weren't for massive massive massive repeated cash injections into the market to maintain liquidity, we would have had a crash.
Hilarious to think he's basically treating his corporate treasury as a Wallstreetbets Robinhood account.
I somehow get the feeling that SoftBank and Masayoshi Son aren’t great at investing and have managed to throw a whole lot of money aggressively into ventures that any common person would doubt about returns, scaling, etc. At the same time, it has sold off what could continue to be profitable, like ARM Holdings.
I honestly don’t understand SoftBank’s business model and how it expects to generate great returns. It doesn’t even look close to the stock market advice of “if you get 6 calls out of 10 right, that’s great.” It looks like SoftBank has a lot of money (or had). Business sense and agility? Not so much.
Case in point: they bought ARM for $32B in 2016 and recently sold it for $41B. The S&P500 performed better over the same time period.
(I don't think they sold at a bad price; I think they massively overpaid for buying it. ARM was a prime takeover target back then and you could see that in its valuation, and SoftBank paid a hefty premium even on that.)
In any case, unless they got truckloads of money for that, performance would still be under S&P500.
Simple: lose money hand-over-fist, forcing your competitors to do the same. Continue this until they've all bled to death. Then declare a monopoly, jack up prices, and make back what you've lost.
This is the optimal strategy if you have more capital than your opponents. It is quite effective.
I often see people posting some variation of this theory. Can anyone point to real-life example of this happening? Where competitors were driven out of business only to have the perpetrator "jack up prices"? I'm not a believer that the market is perfect, but I have more faith in it than that. From my view, it looks like most companies who attempt this strategy end up going out of business themselves.
In Canada, our band of oligopolies is well known (telecoms and banks primarily)[2], and past and future attempts[3] are difficult to implment due to our low population density[4].
[1] https://www.goodrx.com/blog/epipen-price-change-since-mylan-...
[2] https://this.org/2018/11/30/canada-has-an-oligopoly-problem-...
[3] https://financialpost.com/opinion/the-crtcs-proposals-for-wi...
[4] https://www.statista.com/statistics/271206/population-densit...
Facebook. They drowned out everyone else in wide parts of the world: Myspace is dead, German "Lokalisten" and "SchülerVZ/StudiVZ" are dead, even Google Plus is dead, vKontakte is only Russians and a couple of Western conspiracy nuts, and no idea what China is doing.
And now, they (and Twitter, which serves another niche than Facebook) together are raking in almost all of social network ad spending
Carrefour supermarket opened in my block next to a decades old famously local bakery/grocery store and undercut their prices by more than half, with a focus on infrastructure, quality and service, bakery went out of business, one year later all the prices in the supermarket were way up, staff was cut and service went terrible afterwards.
There's a huge war on this with tons of delivery apps/ride sharing as well, in different corners of the world, Uber tried to burn cash to get ahead of taxis with coupons and discounts in several markets, it won in some, but lost big in China(Didi), India(Ola), and Indonesia(Grab).
Another major example was the "Brazilian airbridge", the flights between SDU - CGH airports, when a growing company tried entering that market, three airlines bundled their offerings together to set prices and coordinate flight times, which priced their competitor out of the route, eventually getting them bankrupt.
The difference between the on-paper value and the real value of these assets is so vast that everyone involved is in a Mexican standoff.
They're all hoping that if nobody blinks, the economy will get better and their investments might actually become good unicorn bets.
It's a similar reason to why properties can stay vacant with no tenants for years and years and years. I'm almost convinced that we need a law that forces unproductive assets to turn into write-downs after some window of time.
It was a nuclear disaster before the lockdowns. Corporate real estate is about to see a biblical correction and lease terms are about to become the friendliest they've ever been. I keep seeing one positive article about their prospects after another and yet I can't find anyone rational who agrees with any of it.
I say this about pretty much everything in the mainstream media nowadays, whether it's WeWank-related or not.
We had one, it was called the "law of compound interest". Back when it was in effect, it bled these writedown-refusers to death.
Unfortunately it got repealed by Zero Interest Rate Policy.
In a sense, that's what interest rates are: they're the penalty function applied to stuborn-refusal-to-write-down. If rates are too high a bunch of startups get killed needlessly by capital asphyxiation. If rates are too low (like now) you get zombies.
The scale and negative follow-on effects of unproductive landholding is much worse than this problem isolated to the tech industry.
2) Because the assets are not liquid the “value” of the assets is highly debatable. (Value of your stock portfolio vs private equity holdings).
3) Some assets are not free to own. Simple example being property. It’s worth a lot but also costs a lot (taxes, Maint, ...) to own it. This is in theory valued into the asset value but really on a point in time basis. If the asset isn’t “productive” in earning income then having it on your books with those expenses just keeps eating away at funds elsewhere. Think owning a paid off rental property that doesn’t earn enough to cover its annual costs. Worth a lot in a fire sale, but terrible item to have on the books long term.
4) Companies can have negative goodwill on their balance sheet, especially if there are questions about the quality of the fundamental business or management team. Outsiders may say the company owns a lot of stuff but it’s so poorly managed that that that stuff isn’t worth what it’s normally worth. Yahoo had this issue where the market cap of the company was less than the stock Yahoo owned in other companies. “Yahoo the company” and its team was literally considered to be worth negative dollars.
[0] https://www.reuters.com/article/us-softbank-group-alibaba/a-...
I.e. I can incorporate a company, borrow 100m, and buy 100m of Alibaba. It doesn't mean my company is worth anywhere close to 100m...
That's not what goodwill is. Goodwill is the difference between book value and purchase price of assets to make the numbers work. It's nothing to do with the quality of the business or management team.
At least part of that is accomplished by never marking your assets to market. In other words, the assets simply aren't worth what the balance sheet states. One of the oldest tricks in the book.
And the fundamentals of that company and its accounting are in question...
I don't know what other things you might be referring to.
^^Definitions of core metrics like that make people nervous.
If you owe the bank $1000, then you have a problem. But if you owe the bank $100 billion, then the bank has a problem.
Actions should have consequences. Keep in mind that this is a man with a history of making enormous bets and losing, having previously lost $70 billion out of $78 billion of his own assets in the dotcom crash.
This is other peoples' money he's doing this with. There's that old saying about fool me once...
Both companies had notoriously terrible business practices and were for the most part loathed by their own customers.
In the '90s, Sprint was somewhat famous for rampant billing errors to the tune of 4 or 5 digits and then fighting people in court for it.
2) The challenges faced by those two businesses make their restoration an even greater achievement.
Keeping a company from failing is not a virtuous act.
Continuously risking it all is not investing, it's gambling. Normal people and normal companies can't invest the way he does. Nobody reasonable has that risk tolerance. If you were trading margin on like that, you'd get margin called before you even got started.
Son can get away with what he does because he's risking the wealth of nations. SoftBank's debts are so big that they risk taking Japan and Saudi Arabia down with them.
It's not that he's a savvy investor, it's that his clients have guns.
It’s a bunch of Arab royalties’ money with some tech companies and employees to boot. Not a sympathetic bunch.