Thread - examples of steep drops in wealth from not managing risks esp. in business with operating leverage
Reichmann wealth collapsed 90% due to the huge bet on Canary Wharf when real estate demand / pricing dropped and credit was hard to get /1
Next up: flashy salesguy Erik Bautista who lost 90%+ of his wealth in one year. His investors also lost it all because he lied about OGX offshore oil potential. Here's an article from 2013 that talks about it. /2
Perhaps the craziest saga is of Sean Quinn - who went from being the richest in Ireland to filing for bankruptcy. He used leveraged instrument to bet on 25% shares of Anglo Irish bank - the bank with really loose lending standards- prior to 2008 housing crisis. /3
Sean Quinn used a leveraged bet on a bank which already has a leveraged structure. How did he fund his bet? By taking money from his insurance company which also subsequently filed for bankruptcy. Turns out the insurance co. was also risky due to low insurance premiuums
/4
Vijay Mallya is the next fascinating example. He owned the biggest beer and spirits maker in India with high barrier to entry due to regulations, fast growth, and great brand.
BUT Mallya aspired to be Indian Richard Branson. He started an airline!
/5
Alcohool --> Airlines has got to be the worst capital recycling. Mallya's Kingfisher airline struggled from absorbing low cost loss maker, jet fuel price , jet fuel, and restrictions on foreign equity. He personally guaranteed airlines debt before the airlines shut down! /6
Continuing on: Aubrey McClendon of Chesapeake (h/t @BarbarianCap). His $2 Billion stake in Chesapeake Energy stock melted down to $30 million in 100 days due to margin whalewisdomalpha.com/the-mother-of-…
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At the surface, this is a small W. Va. bank trading around 1.7x TBV.
But a deeper looks shows that it's a fintech play with exposure to Credit Karma, crypto (Kraken) and most importantly igaming (Draftkings, Fanduel, etc)
Gaming deposits grew 70% from Q3 to Q4!
Around 2014-15, MVB was growing loan portfolio at 20% CAGR, but the deposits were not growing.
So CEO Larry Mazza and team went towards fintech as a way to get low cost deposits.
Larry: "We get deposits nationally but still loan locally”...
They are the bank for U.S. operations of Tipico, Score (tie up with Penn National gaming), and Betfred. MVB also has clients in FanDuel, DraftKings and Credit Karma.
I was still in high school in 2000, so obviously wasn't investing.
But the more I read, the more I realize it wasn't just a using "eyeballs" for valuation problem.
Thread below:
First up Xilinx
They were the leaders (and still are) with ~40% share in FPGAs. The end market was growing. They were growing fast as shown in this chart for fiscal year 2001 ending in March 2001
The CAGR was lot higher in closer to 2000 - it was growing 50%+. Until 2001 that is. That's when revenues dropped 30% due to market correction.
Xilinx - an innovator and leader in FPGAs - did not reach same stock price until 2018!
There's been a long bear market in shipping rates. And new ship building activity dropped post 2010. And more than half of the shipyards close
/1
If we look at the sub-segment of tankers, and specifically clean tankers, in the last 5 years supply has gone up in terms of dead weight tons. In 2019, the deadweight tons went up by another 6 million, but the TCE rates have still gone up a lot.
/2
Further, demolition activity for tankers dropped in 2019 because it was high in 2018 (181 tankers) and the TCE rates for both dirty and clean tankers was high in 2019.
What this all mean? There's inflection now where supply is (finally) constrained
/3