Spotify and Dropbox are Set to IPO

Hope your day has been great.

In today’s update:

  • Spotify and Dropbox
  • Newell Brands
  • Pipeline Companies
  • Oil Chart

Spotify and Dropbox: Love Us, We’ll Change. (Bloomberg Gadfly)

These are the two biggest IPO’s so far this year. Ben Thompson’s take on Spotify and Dropbox are a must read if you want to better understand these two companies.

In addition, check out his podcast on Dropbox and Spotify.

My thought bubble

I don’t have insights into either business, however, the Bloomberg article noted that both companies were pitching investors that how they would earn money in the future is different than how they are earning money now.

From the article:

All of the Dropbox customers featured in the video are businesses — tiny, medium and large — not the individuals who make up the vast majority of Dropbox’s paying customers. Businesses also were the featured customers in Dropbox’s financial prospectus to potential investors.

This makes sense. What they provide to individuals, storage, is largely undifferentiated from say Gdrive. I use both. Frankly, I like Gdrive better. It’s not to say individuals can’t make a good business, but in order to grow in the future, they have to find another source of revenue.

Read More

How Reinsurance Works

Hope your weekend has been relaxing. Here are a few of my notes from the previous week.

Enjoy!


Any opportunity in reinsurance stocks?

The WSJ carried a story about how reinsurers’ profits have been hit by two things:

  1. Losses from catastrophes($135 billion, this includes regular insurance companies) in 2017.
  2. Rising competition from other parties willing to assume catastrophic risk.
(Source: WSJ)

What is reinsurance?

Reinsurance insures the insurers. They are not consumer-facing companies.

For example: Blue Cross is a consumer-facing health insurance company. Say they have a risk pool(policies) of $10 million dollars. They might pay for the first $2 million dollars of claims out of their own pocket and lay the other $8 million of claims off to a reinsurance company.

In order to do this, they pay said reinsurance company a premium. How much will depend on the amount of risk they are keeping and the amount they are passing off to the reinsurance company.

Read More

How to Trade Volatility

Our goal is to watch what other investors are doing and find a way to take a position against them if the risk/reward is favorable. We are looking for mispriced bets.


Betting on volatility

This article from the WSJ discusses who is making the bet.

From the article:

Donald Pierce, the chief investment officer of the $9.3 billion San Bernardino County Employees’ Retirement Association, has been trading volatility for about six years, most recently by buying options on stock indexes, often with trades equivalent to about $300 million of risk for the plan.

 

Sometimes, Mr. Pierce buys products betting on rising volatility. Other times he sells these products, depending on his view of where U.S., Japanese, Russian, Brazilian and other markets are headed. Mr. Pierce says his trading has saved the county millions recently and that he will continue to make volatility trades.

He is making bets based on “his view” of the world. We don’t do that. There are too many variables that affect asset prices. We watch other investors, like Mr. Pierce, who like to make bets based on what they think will happen.

Read More