While looking at General Electric some days ago, I remembered that I had the IPO/Spin-off GE Capital Credit Cards which is now Synchrony Financial on my research list for quite some time.
This is from the 2016 annual report explaining how Synchrony was separated from GE:
People who have read my blog for some time know that besides value investing, I am a big fan of historic (and current) asset bubbles.
The South Sea bubble – recap
One of the most interesting historical stock bubbles was clearly the famous “South Sea Bubble” which peaked and collapsed around 1720. Besides the fact that Sir Isaac Newton lost a ton of money in this bubble, there is another interesting aspect of this bubble which is often overlooked:
The underlying construct which enabled this bubble was the invention of the “Business Corporation” which were initially created to gather enough capital for exploiting the colonies in the Netherlands and England.
GE for a long time was one of the bluest Blue Chips. Especially under Jack Welch, GE was a synonym for great management and clock work like profit growth.
Now things look different. we just need to look at the 1 year chart:
I have had some posts on Bitcoin and Crypto currencies on the blog before. Overall I find the technology very interesting, but at least for Bitcoin I am not certain about the real value.
Things are though very different for a German company called “The Naga Group”. The company IPOed 5 months ago on July 10th in Germany in the lightly regulated “Scale segment”. Initially, its aim was to specialize in “disruptive Trading technologies”.
The disruptive technology is an App which is the “Tinder of Stock trading”. The product is a “social trading business platform” called Swipestox, trying to earn most of its money with advertising. I have looked up the App on the Google play store and it has been downloaded a 100.000 times which is OK, but not great. Interestingly the newest comment/rating is from beginning of September, so I am not sure how actively this App is used.
Disclaimer: This is not investment advice. PLEASE DO YOUR OWN RESEARCH !!!
Cars.com is a recent (May 31st) spin-off from publishing company Tegna, which itself is a spin-off of the Gannet publishing Group. Interestingly, Gannet/Tegna only bought control of cars.com in 2014 for a total value of 1,8 bn USD.
Cars.com – The business & Market
Cars.com is a typical “Online classified” business, meaning that it collects offers of merchandise (in this case cars), aggregates and sorts them and then shows it to as many potential customers as possible.
The economic value of such a “service” is relatively easy to explain: For a potential customer, it saves time because he can look at and compare different offers at one place. For the sellers, such a service is basically an advertising and/or sales channel which ideally reaches many potential customers.
Quick Home Capital Group follow-up:
After my first post about Home Capital Group, a reader recommended to look at the KPMG report on Home Capital Group. This document can be easily obtained via a dedicated Home Capital Short Seller website hcgexposed.com which seems to be run by “famed” short seller Mark Cohodes.
I am a big fan of actually reading documents so I did read it fully (its only 20 pages).
My summary is as follows: Yes, there were serious deficiencies in HCG’s underwriting process. At its core, management emphasized volume growth above anything else and controls were not adequate.
The core issues of the “documentation fraud” is summarized as follows:
Home Capital Group is a Canadian bank/mortgage lending company founded in 1986 and run by the same CEO for 30 years, which came into the spotlight over the past few months. It ran into trouble, almost imploded and then got saved by no one other than Warren Buffett (and Ted Weschler).
There is good coverage following this link. The story in short:
Home Capital wanted to aggressively expand into insured mortgages. However at least one underwriter collaborated with mortgage brokers to get mortgages approved without proper documentation. At some point regulators reigned in but management did not tell shareholders about it. Then the regulator got tough and management had to go. In the meantime, short-term financing was pulled and the company got into real liquidity troubles.