A few weeks ago I made a video on Meme Coins – in particular a cryptocurrency named Floki
Inu, and how the world of investing has changed over the last couple of years.
I explained how much easier investing had become in 2021, as there is much less of a
need for the type of analysis people used to do in the past, the trick today is to invest
in things that seem funny, and hope that Elon Musk then tweets about them.
This approach is what Matt Levine at Bloomberg calls the Elon Markets hypothesis – it’s
not being taught at business schools yet, it is the kind of cutting edge financial theory
that is really only available here on YouTube.
There are of course boomers out there who don’t understand this, and lots of people
in my comments section even accused me of being a boomer who doesn’t understand how
things work, even though I had just made an entire video explaining it.
Of course I do kinda understand how these people were confused, because I posted my
video here on YouTube, rather than on Tik Tok, and it was over 30 seconds long, and
who has time for that??
Look, here is a quick example, A crypto called Omicron rose more than 900% over the weekend
because there is now also a Covid variant called omicron.
There is already some crypto cork sniffer down in the comments section writing, don’t
make fun of the Omicron Crypto, you clearly don’t understand its use case…
Wake up, it didn’t rise 900% because over the weekend people suddenly noticed something
useful about it, it rose in price because it is funny, stop overcomplicating things.
Anyone who paid attention to my earlier video would have caught the majority of that move.
Anyhow, a viewer just yesterday contacted me to show me how some old-fashioned investors
might actually be catching up with the times.
They sent me a link to a letter sent by an activist investor to Jeffrey Gennette, the
CEO of the department store Macys.
You know, Mayc’s, the department store where you might go if you were looking to buy a
suit with an elasticated waistband.
So – to give you some background on activist investing, activist investors have been around
for quite a while.
They are typically big investors who take a position in a company’s stock with the
goal of changing the way the company is run.
For example, an activist investor might want to oust a company’s CEO, to close down stores
or to streamline the entire business model – they make these changes with the goal
of boosting the stock price.
Activists typically target companies that are underperforming relative to their industry
and due to their often-aggressive attitude toward management and their hostile approaches
to short-term profit making, they are sometimes seen by the press as being “corporate raiders,”
“green mailers” or “asset strippers”.
Some of the better-known activist investors are people like Bill Ackman, Carl Icahn, David
Einhorn and Dan Loeb.
A few years ago, some of the better-known activist investors busied themselves with
putting together PowerPoint presentations that were hundreds of pages long that laid
out the case for change within a given company.
Often, the activism would involve trying to convince the company to change something about
their way of doing business, other times they might be pitching that the government get
involved - to crack down on a company like Herbalife.
A lot of the time the focus was on financial engineering ("telling the company to make
certain changes to its corporate structure to reduce taxes for example...")
One of my favorite examples was from back in 2014 when Starboard Value presented an
almost 300-page PowerPoint deck on how The Olive Garden restaurant chain needed to change.
There was a slide on how they needed to change their breadstick policy to reduce food waste,
a slide on how they used nonstandard drinking straws which then required a custom run from
suppliers.
There was a whole section which included photos on how the food looks like garbage.
It wouldn’t be a true activist investor presentation if there wasn't a populist element,
so in this slide, Starboard attacks the company for its wastefully luxurious corporate offices,
and this one suggests that the restaurant managers be paid more.
There was even a section on how Olive Garden had stopped putting salt in their pasta water
in order to get an extended warranty on their cooking pots!
These guys had done their research…
Starboard Value eventually pulled off their shareholder coup and made major changes at
olive garden, they simplified the menu, added those ghastly tabletop tablets, and invested
in the takeout business.
They decided against salting the pasta water – apparently it does ruin the pots, but
the stock price rose 48% after the changes were made.
Now, this is of course a totally out of date example, I’m just telling you about it,
so you know how things used to work.
Obviously as I said earlier, investors today demand different things.
Today it is fine if a restaurants food looks like garbage as long as the company CEO is
willing to reveal that he is not wearing pants in a YouTube interview like Adam Aron of AMC
did a few months ago.
This has become common knowledge – In this clip you can see Kevin O’Leary trying to
appear relevant to a youth audience [now either you believe in cryptocurrencies and you believe
in what an NFT is or you don’t] – I’ll tell you I’m not looking forward to the
presidential debates in 2024… but anyhow…
So here is the activist letter in question, from New Orion Advisors to the Chairman and
CEO of Macy’s.
The letter starts out by requesting that the Board of Directors give immediate consideration
to a proposed path to unlock the full value of Macy’s digital business.
I won’t, lie, it is already a bit boring and old fashioned…
But then we get to the suggestions - They suggest that Macys “should form partnerships
with EV car companies (e.g. Tesla, Lucid or Rivian) to showcase their products on the
ground floor of Macy’s 100 top landmark stores” Note that they suggested specific
EV companies – Tesla Lucid and Rivian – It would obviously be a disaster if they were
to showcase the Nissan Leaf and the Mustang Mach E next to the display of elasticated
waistband suits…
If Macy’s is going to be a meme stock, they need to order the first 1000 Cybertrucks,
you and I know this – other people still don’t get it yet – all ev’s are not
the same.
Next up, New Orion suggest that Macys build an EV charging network – basically they
could be like Buc ee’s for EV’s.
They say in their letter “We believe that direct association with EV companies will
drive enormous traffic to Macy’s stores”. – once again, I would add in – not all
EV’s.
They then go on to suggest that Macy’s should announce immediately that they are partnering
with various Crypto platforms to allow digital payments.
They don’t say which crypto currencies – obviously it should be a dog themed coin – anything
else would just be dumb…
Now, just to be clear, while this advice generally makes sense – as they are essentially pushing
the CEO to understand the new world, and to make some effort to become a meme stock.
While old fashioned investors might argue that a fundamental change within a business
might add greater value, I think we all know that the CEO doing something dumb is more
likely to boost the stock price today.
Unfortunately, I can’t whole heartedly agree with the New Orion strategy.
It’s way too conservative, and frankly a bit of a cliché.
While it might have worked in early 2021, the year is nearly over and I’m not sure
that associating yourself with EV’s and doggy coin will cut it in 2022’s more competitive
meme stock environment.
This letter was written by finance guys who are unfortunately still a bit old fashioned,
but at least they are trying.
Look, as we have just established, Kevin O’Leary – a man who has up until recently been wearing
a red pocket square in order to be edgy is already appearing on YouTube with no pants
on and talking about NFT’s, and frankly no one cares…
In fact you probably just learned about it in this video.
It is not exactly getting headlines.
Look, here is a photo of David Cameron and a pig, and probably less than ten percent
of you even know why that’s funny.
That illustrates how fast the news cycle moves nowadays and while Macys should definitely
put out a press release about electric cars and crypto, we have to realize that that is
just the bare minimum.
There is no doubt that in order to truly unlock the full value of Macy’s digital business,
it’s management are going to have to go a bit further to stand out.
In fact feel free to share your suggestions in the comments section.
I’ll at some point have to update my corporate finance text book, and I might need to rely
on some of your suggestions of modern methods for unlocking value in a stock.
Look, some of you are just going to tell me that this is all dumb, but maybe you are just
out of date.
If I owned shares in Macy’s right now, I’d be pressuring the CEO to book the next Space
x flight he can get himself on, and bring that doggy coin dog with him into orbit.
If such an announcement does turn up in Macy’s SEC filings, buy some short dated out of the
money call options – it’s going to the moon.
If you missed my earlier video where I first explained the new rules of finance, here is
a link.
See you later.