Lijit Ad Tag2

Thursday, June 14, 2012

What is the 8th fastest growing industry in America?

It's no secret that the American manufacturing sector has been losing out to foreign competitors over the past 60 years. Whether it is anything from autos (this graph of personal vehicle production market share loss is amazing) to electronics, we just don't have the ability to manufacture products as cheaply or efficiently. But really, that's OK; we shouldn't be trying to compete in (arguably) commodity-like manufacturing businesses where low cost wins. Instead, Econ 101 tells us that we should focus on sectors were we have a comparative advantage and trade for the goods where we don't. (boom, everyone wins!)

Therefore, it really warmed my heart today to see a video today about one of the fastest growing industries in AMERICA. Looks like not only are we focusing on an extremely high value-add sector and churning out product at a rate high enough to fill demand domestically, but we are also exporting it across the globe.

So without further ado, I present the 8th fastest growing industry in America*:

HOT SAUCE, with 150% revenue growth (9.3% CAGR) over the past 10 years!

And the other good news is that Hot Sauce is likely going to be the savior of the American economy from here on out, because it basically is like crack (great biz model): Highly addictive, people develop tolerance so will need more and more to get their fix in the future, exciting advances in pepper design leading to ever hotter (yet still tasty) sauces, etc. All we need now to accelerate future growth is to develop a smartphone app and get hot sauce integrated into Facebook. Once this occurs (and FYI I've already begun planning/designing this, so don't even think about stealing this idea), the US economy will get back on track and we can all go back to buying cheap cars and TVs from Asia. 

The video is worth watching in its entirety, but five highlights include:

1) the founder of Blair's (one of my favorite hot sauce producers as regular readers would know) suggesting that in 5-10 years "Hot sauce will be like Coke", and that "it'll be more appropriate to eat a meal with hot sauce, than without hot sauce". Also interesting to know he got his start working in a bar, and developed really hot sauce to put on wings and burn up patrons (late at night, so presumably they were drunk/obnoxious) in order to get them to leave.

2) the little professor dude calling hot sauce "benign masochism"

3) the fun fact that kids undergo a transformation (think spiderman) between the ages of 4-6 where they start to begin liking hot sauce

4) Tabasco exports 50% of its products, while Blair exports 75% of its products (still room for growth domestically!)

5) The CBS reporter is a total wuss, and is unable to try the 2nd hot sauce (says he has to "blow his nose" and runs off camera... clearly to go cry)

(Note: I apologize for the 15 second advert in the video, I am not taking a stand one way or another on the validity of "Romney Economics" )

* (according to IBISWorld, where knowledge is power) PDF:

Friday, June 8, 2012

Echo Mountain- Investment Opportunity of the Year

I just received the following email from my friend, MG. In it, he highlighted a very attractive real estate opportunity (far superior to the Nigerian Banking opportunities he normally sends me). After conducting an extremely rigorous and thorough analysis, I have come to the conclusion that we should be buying for roughly $1.3mm. Once MG deposits the $$$ into my bank account via wepay, we will be a go! Free hot sauce will be served at the base lodge every Fri-Sun, so I trust this will drive droves of skier traffic (and lead to major upside to our investment!)

---------- Forwarded message ----------
From: MG
Date: Fri, Jun 8, 2012 at 1:00 PM
Subject: Colorado's Echo Mtn Ski Area for Sale
To: Todd Wood

Here's your big chance! Bids due Aug. 2.
Sent from my iPhone


From: Todd Wood
Sent: Friday, June 08, 2012 1:49 PM
To: MG
Subject: RE: Colorado's Echo Mtn Ski Area for Sale


I estimate roughly $1.5mm in annual revenues. Conservatively assuming a 15% EBITDA margin (as non-premium destination, ECHO will not be able to command as high prices as Vail, and hence deserves a discount to the low 20% EBITDA margins that Vail has historically achieved in its mountain segment), I see $225k in EBITDA. At an 8x EV/EBITDA multiple (Vail/Whistler trade historically in the 8-10x range), the company is worth $1.8mm. This would be a 1.2x EV/S multiple, compared to 1.65x for MTN’s mountain (ex-real estate) biz, which seems like a reasonable discount due to ECHO mountain being miniature, completely unknown outside of Denver, and in the boonies.

To get the 40+% returns we’d want, we should be bidding $1.3mm.

As 50/50 partners, I’m just going to need you to contribute $650,000. Please send to me using the wonderful payment service, WEPAY. Thanks, I’ll take care of the rest once I see it hit my account.

Highly Accurate and In-depth Financial Analysis supporting this bid:

Historical Revs per skier visit (by segment) for the past 4 years at VAIL:

Total Rev $109.4

Lift ticket $49.3
Ski School $12.0
Food $9.5
Retail/Rental $26.0
Other $12.5

Echo Visits 32,000

 Blue-Sky Scenario- Echo receives the same $109/visit as Vail. Base case is somewhere in between a 50% discount, and a 50% discount plus ascribing no value to their ski-school business/other....

@Vail Profitability @50%  Discount @50% discount w/out ski-school/other
Implied Revs $3,499,676 $1,749,838 $1,358,908
Lift ticket $1,579,140 $789,570 $789,570
Ski School $383,199 $191,600
Food $305,418 $152,709 $152,709
Retail/Rental $833,258 $416,629 $416,629
Other $398,662 $199,331

Friday, June 1, 2012

Hot Sauce Therapy

When things are going well, working at a hedge fund is extremely gratifying and exciting. For instance, owning a stock into a quarterly earning report, your heart races as the market closes and you anxiously wait for the earnings release to come out. WHAT'S THE NUMBER, WHAT'S THE NUMBER you yell to your trader, as you start to see the stock move in the after-market. If you get it right, and the stock moves up 10+%, it's all you can do to keep yourself from dancing around the office in happiness.

The flip-side to this is that when things are going poorly, working at a hedge fund absolutely sucks. Screwing up timing on trades (buy high, sell low!), missing warning signs and getting pummeled on earnings, watching your portfolio get smashed as the lazy Greeks somehow get active and decide to riot against Austerity measures, etc. All of these are painful, and the negative utility from losing money really is a lot higher (absolute basis) than the positive utility from getting things right.

The most recent month has been rough city, especially in my sector (tech) as evidenced by the below chart. Basically owning anything has been a bad idea. Shorts have been successful, but as a general rule investors (and my fund in particular) are usually long biased so at best the short book minimizes the damage.

So what is one to do to combat a miz month like this in the HF industry? Three words for you. 


While the market gets crushed on a daily basis, you self-medicate and burn the pain away. 

THTF Recommended Weekly Therapy Routine: 
Miz Mon: You Can't Handle this Sauce- Start the week off with a bang
Terrible Tues: Widow Hot Sauce- No Survivors- Feels about right
Wacky Wed: Endorphin Rush- Week can't possibly get worse right?
Thirsty Thurs: Smack My Ass and Call Me Sally- Yup, managed to get worse
Freaky Friday: The Beast- End with a nice gentle sauce; congrats on surviving the week!

After a day like today however, (thanks payrolls!) a quick shot of Mad Dog 357 is required to blow your mind and get you out of your funk.

(co-worker BW with his own weekly therapy he starts off with ASS REAPER, and ends with ASS BLASTER. Sounds about right....)