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August 2010

Ameresco -- It's all green.

August 31, 2010 by skyrank   Comments (0)

Today, a stock I purchased as an IPO finally began to move upward. If you haven't heard of it, and you probably haven't, it's called Ameresco and its symbol is AMRC. It began trading about 2 weeks ago, and it's hardly moved at all since then. But today, it's up almost 2 points or 20% in one day on still fairly light volume, but heavy volume based upon the activity over the past two weeks. I was told about Ameresco by a very good friend of mine who works for Oppenheimer named Sail Adler. Sail is another one of the "good guys" in our industry and I've known him since the beginning of both our careers when we started out at Merrill Lynch and Fidelity. On a side note, Sail is one of the most honest and ethical private bankers and investment managers I know and someone I'm proud to call a friend. It also helps that almost every idea he's brought to me was a winner. I subsequently researched Ameresco, its business and fundamentals, and its brilliant CEO, George Sakellaris, all of this providing me with information to conclude that this had the potential to be a real winner, and it was nice to know that I was investing in a company that was helping to improve our earth. I then told my brother and father and a few friends to take a look and they subsequently purchased shares also.

One of the reasons you may have not heard of AMRC is that it's not known yet by Wall Street. That will probably change soon, because I recently read that there will be some analyst coverage on the stock soon.

Ameresco advises hundreds of companies and institutions on how to improve their energy efficiency and their sales and earnings are growing at exponential rates. Although their revenues are growing at about 100%, the P/E is still about 10.

If you're looking for a solid, long-term green energy investment, it's certainly worth a look. I probably will never sell my shares.

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Why I changed my mind about Zynga Water (and Mickey Mouse Eggs).

August 31, 2010 by skyrank   Comments (0)

This morning I entered 7-11 to buy some water for my daughter and saw Zynga Water next to Poland Spring. My reaction when I saw this was similar to the one I had when I saw Disney Eggs in Shop Rite. "What in the hell is Zynga doing making water?!" Upon close inspection of the label, in fact, it does seem that Zynga is producing and manufacturing the water. A Google search on this returns nothing, so I may be the first one commenting on this, and if I am wrong, please let me know. This is distinct from the company's wonderful efforts and partnership with Water.org, where Zynga is donating $1 from every chip purchase from its Texas Hold 'Em game.

I ended up buying the Poland Spring, by the way. But, I started to think about this revenue model for Zynga, continuing to think about this as I paid, entered the car and turned the key. By the time I dropped my daughter at camp about ten minutes later, my opinion had changed. It actually makes tons of sense! I think it makes more sense for Zynga, but to some extent makes sense for Disney and other consumer-oriented brands also. About 65 million people play Zynga games every day. It is free to play. These people identify with the games, and although Zynga's brand is still too new to influence consumers like me to buy Zynga water, ultimately, with the right incentives, consumers will choose to buy Zynga water, over Poland Spring. After all, do I REALLY know that Poland Spring water is better than Zynga water? Does it REALLY come from a spring? And, why shouldn't Zynga water come from a spring also.

I'd be more inclined at this stage of the "game" to purchase Hold 'Em Water with an incentive that with my purchase I will receive 250,000 chips when I log in. Poland Spring is immediately crushed, when Zynga decides to market to me in that way. Or, with my purchase of 50 "Zynga" Hold 'Em Water bottles, I get a free entry into a Vegas Zynga-sponsored actual poker tournament. Now, there's a real incentive for me to purchase water, because it delivers a real value-add to a consumer who likes Poker. What is Poland Spring left with to market? Nothing.

We live in all kinds of worlds now. I live in my actual Poker Group world, where conversations are unique to 10 weird guys. I also live in my tennis group world, where each guy has his own aging ailment and we talk about all kinds of stuff between points. Then, my family world with its trials and tribulations, my blog world, hedge fund world, tech world, and yes, gaming worlds.

So, for me to buy products which communicate with me on an intimate level makes all the sense in the "world", as long as they're good quality products.

Zynga is a virtual world marketing organization that has every opportunity to monetize with physical products in the real world, and THIS is the reason I will buy the stock when it goes public, and I would invest in hedge funds who own the company, or private equity pools who invest in similar themes, and most importantly why I would drink Zynga Water.

Would you?

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Distribution of SkyRank Ratings

August 31, 2010 by skyrank   Comments (0)

Some time after I began publishing SkyRank Ratings on a large number of funds, I found myself enjoying the process of examining the distribution of the Ratings on the funds. It provided a clean way to see if I missed anything when running the algorithm. Often times, I do, because the algorithm still sits in VBA inside excel, and the process of rating thousands of funds includes multiple excel templates, two of which include VBA code. It would be more fluid if the algorithm tied to the data directly with an API, but for now, it is what it is. In addition to helping to find any data cleaning mistakes, examining the distribution also allowed for me to identify if my preferences using SkyRank were lined up the way I wanted them to be. What I find most special about SkyRank is its flexibility in nature; it is a System that allows users to optimize their own preferences for hedge fund analysis, create their own algorithms, and the VBA code now simply reflects one user's preferences: mine. And my preferences, admittedly are pretty simple: AUM, Time, and a raw Sharpe Ratio (I would like to change the Sharpe to an adjusted Sharpe to account for auto-correlation of returns, which would go a long way to weed out blow-up risk). We do have plans to upgrade the software to allow all of our users to create their own algorithms, but we're not quite there yet.

Well, back to the distribution: for example, shortly after the credit crisis, about 50% of 8,000 hedge funds (now 11,000) received a 1-year SkyRank Rating of 'E', or a failing grade. This seemed about right to me given the 1-year returns got slaughtered the year following the crisis. The distribution of ratings is fairly normal during normal economic, financial market, and hedge fund times. When hedge funds outperform, the distribution tends toward the left side of the diagram reflecting more funds with a shorter-term higher quality rating. And during extremely bad times, as I mentioned, the skew to the diagram gets exaggerated to the lower quality side (right side). It kind of reminds me of a volatility skew which reflects normal, up-markets, showing low volatility, and sell-offs with much higher pumped volatility. At any rate, I thought it would be worthwhile to show this diagram that I often examine, typically around the middle of our data upload and ratings process.

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A rare yellow lobster and finding the 1 in 10,000,000 jewel in the haystack of hedge funds

August 31, 2010 by skyrank   Comments (0)

Yesterday, a rare yellow lobster was found off the coast of Rhode Island. Scientists estimate that it's about a 1 in 10,000,000 find. You can see it here. There are only about 13,000 hedge funds trading today worldwide, and to be completely honest, most of them are garbage. Finding the few out of the 13,000, that will survive and perform at a very high risk adjusted return for more than 5 years is very difficult. But if you can find them, the effects on your portfolio will be profound. Managers that have been able to produce these types of returns, represented by high risk adjusted returns over several years are very rare. Some who come to mind are Millennium, Ralph Wanger at Acorn Investments and Peter Lynch. There are certainly others also and I will try to post a more exhaustive list.

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Hedge fund trader gone wild

August 31, 2010 by skyrank   Comments (0)



This is a picture of my broccoli plant. I haven't pruned it for several weeks now, and it's growing out of control. It reminds me of several formerly successful hedge fund managers I know who were not able to keep their egos in check.  Look at the plant. Soaring  high with little deadly blossoms poking out of the sides where strong broccoli heads should be. Cocky and soaring above all that's around it. Without keeping one's ego in check a trader can blow up very easily. It's what separates the men from the boys in the trading world. It's not difficult to make money over short priods of time, but finding the managers who are sustainable over years is what we should be looking for, avoiding the potential blow ups at all costs.

Location : 4-20 Independence Dr, East Brunswick, NJ 08816,

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Valuation of Unique Visitors Based Upon Purchasing Power

August 31, 2010 by skyrank   Comments (0)

We've been approached by a few Angel Investors and are working through some valuation questions, so that's forced me to think about how to value our intellectual property, some of which includes unique visitors. We haven't sold any equity outside of immediate family, but are now looking to move SkyRank in a different direction which will require additional working capital. We've also lacked some management expertise and have put together a wonderful Board who is helping with that.

The top Google return on this topic states that web companies with unique visitors are selling at about $30 to $40 per unique on a monthly basis. You can view that analysis here. So, a normal website that publishes content and attracts let's say 100,000 monthly unique visitors could typically get valued at 100,000 * $35 or $3.5 million. Interestingly, I'm friendly with a company that caters to the ultra high net worth investor and alternative investment funds that recently received a similar valuation with far less traffic than 100,000 uniques, which does imply a higher value per wealthy visitors. Most social network and recurring users in the web space though are average consumers surfing the internet. I don't know of much that's tracked high net worth investors or institutional investors with high purchasing power.

Tiger Global Management LLC recently invested $20 million in LinkedIn providing a valuation of $2 billion for LinkedIn, valuing each of LinkedIn's 14 million visitors at $143 each -- that's 400% greater than the $35 per visitor estimated prior. I would think the majority of LinkedIn users however are college-educated professionals seeking upward mobility which would imply income greater than $100,000. LinkedIn probably has some significant revenue also based upon subscriptions they charge, which should be accounted for in the valuation.

But what about traffic of very wealthy individuals, say, of income greater than $500,000 per year? There aren't as many of those people worldwide, but shouldn't their purchasing power and their value as unique visitors be valued higher than other visitors? After all, they are able and willing to pay more for more expensive products and services. I was recently talking with a Board Member who mentioned some web subscription services and other "social groups" requiring subscription fees to access a network of ultra high net worth individuals. He said he typically pays $4000 to $5000 per year to access these groups which equates to about $350 per month. I'm interested to hear what others think about this concept of valuing unique visitors based upon purchasing power.

I would propose the following equation:

(Avg Annual Income of Monthly Visitor) / ($50,000) * $50 = value per unique visitor,

where $50,000 is the mean income of males and females in the USA, and $50 is the value per unique visitor for a site with average income users.

This would value a website attracting ultra high net worth investors with $500,000 annual income at $500 per unique visitor, a similar value as the monthly subscription my friend and Board Member pays regularly for useful subscription services.

Or perhaps a more simple formula to value a unique visitor would be how much a user is willing to pay per month for a useful subsription-based service.

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Internet tycoons and hedge funds

August 31, 2010 by skyrank   Comments (0)

It's an interesting cross-over between technology tycoons and hedge fund managers, and one that I think is difficult to put into words. I'm still learning about the blend between the two groups, as I find myself more and more interested in social media and its implications, yet remain firmly embedded in the hedge fund financial technology world. We're getting great input from potential investors to move SkyRank to the next level which will be a completely new direction and revenue model. Tomorrow I'm spending the evening socializing with what will likely be, from my past experience, a very interesting group of people who are working in social media, at the #140 conference in NYC run by Jeff Pulver. Let me put it simply: it's just a lot more interesting to me to be on the cutting edge of technology, especially now, with social media bringing people together, rather than sitting behind a computer finding inefficiencies of various markets. So, how to blend the power of social media with owning a massive hedge fund database and comprehensive hedge fund rating? We're putting together some good ideas in this space and it's quite exciting to be moving in this direction.

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Enlightened Angels

August 31, 2010 by skyrank   Comments (0)

Today, I had an excellent meeting with an Angel Investor. In six years with SkyRank, I can count on one hand the real meetings we've had with potential investors outide of my family. I have to admit that a major shortcoming of my graduate degree at Brandeis IBS was a lack of education for the fundraising process which I would assume top 10 business schools offer to their students. As good as Brandeis IBS is, it could use some improvement in this area. So, I've had some learning to do, and I'm thankful to the colleagues I've met recently who are helping with that process. The few meetings I have had with VCs have been wrenching emotionally, and I typically come out of the meetings feeling colonoscopized. But this was different. It was actually enlightening to be able to talk openly about SkyRank, the past business models, and future ideas with this person. He offered his honest opinions about what he liked and what he was skeptical about. It wasn't an all out onslaught of my knowledge and business -- it actually felt good.

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Roald Dahl -- another unique mind

August 31, 2010 by skyrank   Comments (0)

Tonight we watched the "child's" movie Matilda, based upon the book by Roald Dahl who also wrote Charlie and The Chocolate Factory and James and The Giant Peach. He wrote Chocolate Factory for his children and was inspired by them. I could identify with being inspired by my kids. Like many other interesting authors, I was introduced to Roald Dahl by my intelligent eight year old son, Matan, who is also interested in Tim Burton, Edgar Allen Poe, Louis Sachar, Nikki Giovanni, and literally hundreds of other classic and contemporary poets, authors, directors, movie stars and musicians. I can't tell you how many literary figures I've learned about from him in just his eight years with us. Matan really does amaze me more than I can express. Now, for Roald Dahl, another wickedly talented mind, not dissimilar to Tim Burton. The movie, Matilda, directed by Danny DeVito, if you're planning to watch it with your children, borders on horror, so be careful; although my 4 year old daughter handled it, she almost didn't make it through. It is WAY over the top with talk of killing, abuse of children by their parents, scary, screaming and nazi-esque aunts. It is also quite funny, and ends in hollywood fashion -- we all enjoyed it very much. I'm always so impressed by a creative mind in any field, one like Tim Burton, Roald Dahl, John Cazale, Nicholson, Picasso, Einstein, etc. What allows that person to continue to create through the ridicule and likely criticism of the general masses? I just love being a fan of these rare individuals who change our world despite the odds against their creative success.

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