The Secret Broker: If a virus doesn’t get your portfolio, Silicon Valley will
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
Well it finally happened. The markets came back down with a thud after managing to defy gravity for almost a month.
It seemed like the outbreak hitting Italy which is making global headlines was the catalyst.
All the traders’ wives planning a European summer vacation were now going to have to stay at home. The thought of this awful inconvenience must have dominated the dinner table chatter so much so, that Wall Street finally felt what everyone else was feeling.
I don’t know about you but I was almost running out of patience, as I did not think it would take so long for the markets to react.
All I can say is, that if any of your holdings have caught the virus downdraught and they don’t easily recover when things bounce back, then they are likely to drift off on their own course, fully detached from the markets.
There are lots of ASX-listed companies losing money and sticking out their hands more frequently than a Uni student living away and this week, for these type of companies, things have dramatically changed.
Loss making US companies that have been using the ‘La La Land’ Silicon Valley model of raising funds on an ever increasing valuation, are now being abandoned faster than bookings on a cruise ship.
For these companies, party time is well and truly over as reality has hit them smack in the face, with many laying off staff or having to just shut the doors.
Your portfolio may not be feeling the cold winds that have blown over Silicon Valley just yet, but it will.
To give you an idea of the scale of how ‘out with the fairies’ valuations had become, there is no better example than Zume.
Zume’s founders had the brilliant idea of putting a pizza making robot into the back of a truck so when you phoned and ordered your pizza, Zume would make it and bake it whilst the truck was being driven to your house. Brilliant.
Silicon Valley, now being so out of touch with reality, valued the company at … wait for it … $US4bn, which for our little humble dollar equates to 1.2 billion Domino pizza $5 pickup specials.
Having easily raised over $US400m and spent most of it bringing this revolutionary idea to the world, this time when they backed up the truck on a $6.1bn valuation, no dough (sorry, just had to) was collected, so they had to lay off 80 per cent of their staff.
Not all is lost though, as the remaining 20 per cent are now committed to concentrating on their other inventions, which includes their brilliant ‘I can’t believe I have never thought of this one’ fully patented product.
‘A Round Pizza Box’.
I kid you not.
Can you imagine the face of the Softbank Investment CIO when being shown a round pizza box, having invested $US375m just a year earlier.
If you want to see what happens when a Silicon Valley company gets $US400m in investment dollars we have included a link and a picture for you.
Mind you, if they spend the last few pennies left in the bank and get their robot to add a couple of strategically placed holes and thread through a few inches of elastic, they could have invented the world’s first $US400m pizza box that not only keeps your pizza hot but can also be converted into a face mask.
Sorry, got to go, my patent lawyer is on the other line. Bye!
Feel free to contact him with your best stock tips and ideas.
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The Secret Broker: Holden on to the past
Tale of two Citi’s
When the Osbourne Effect doesn’t include a Sharon or an Ozzy