Over 43 Million APE Shares Fail to Deliver — Market in Chaos

The market in AMC Entertainment Holdings Preferred Equity (APE) shares is a mess. Fails to deliver (FTDs) peaked at over 43 million shares last month, according to a report just out from the SEC.


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These new shares were issued last month by AMC and began trading on August 22. FTDs peaked at 43,438,257 shares two days later.

This represents over 8% of all shares outstanding. And it all happened in 3 days!

FTDs like this is beyond a mix-up. It’s a total market meltdown.

FTDs remained elevated through the end of the August reporting period. They settled at 5,635,854 on August 31, the last data available.

Let’s compare the FTDs on August 24th in APE shares with those of some of the biggest stocks in the market:

Amazon: 0

Apple: 395,929

Google: 113

Microsoft: 0

Tesla: 530

APE: 43,438,257

APE shares have dramatically more FTD’s than other, much larger stocks.

FTDs can sometimes happen for benign reasons, like clerical errors. But when there’s a sustained pattern of massive trade failures, it often indicates naked short selling.

This generally illegal practice involves selling short shares without borrowing them first. It’s a powerful way to push down a stock’s price.

If you don’t have to find shares to borrow or pay interest, you can sell short as many shares as you like! All that selling makes a stock’s price crater.

If naked short sellers are targeting APE, so far they seem to be winning. The stock is down 43% since its debut.

The NYSE and SEC must look into this market breakdown immediately. One in three trades failing is not a functional market.

What do you think of the huge FTD numbers in APE shares? Leave a comment at the bottom and let me know!

Have a great weekend everyone!

More on markets:

AMC Fails to Deliver Pass 700,000 in New Report

Hedge Fund Manager’s Arrest Shows How Market Manipulation Works

Morgan Stanley Investigation Spreads to Multiple Countries

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Midas Speaks: Sequoia’s Don Valentine at Stanford GSB

“We love recessions. Best time to invest in our experience.”

That’s Don Valentine, founder of Sequoia Capital and perhaps the greatest VC of all time. Today, I dug into a fascinating talk he gave in 2010 at the Stanford Graduate School of Business (GSB).


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Valentine breaks down Sequoia’s investment approach, which heavily emphasizes markets.

Sequoia only wants to bet on companies taking on the biggest markets. If the startup isn’t solving a huge problem, the odds of an outlier success are slim.

“If you don’t attack a big market, it’s highly unlikely you’re ever going to build a big company.”

Don Valentine

Valentine is wise to emphasize the size of the opportunity. After all, a tiny number of highly successful startups drive almost all the returns in venture capital.

I’m going to focus more on market size, based on Valentine’s advice.

An outstanding founder with a rapidly growing company is great. But if she doesn’t have a giant market to grow into, the company can only go so far.

Once Valentine finds a market he likes, he often makes numerous investments in that area.

He invested in Apple, which helped create the PC market. Then he invested in other companies to produce memory for the PC’s, peripherals, etc.

Presciently, Valentine mentions the opportunities in the mobile market in his talk. This was in 2010, just 3 years after the launch of the first iPhone.

Sure enough, Sequoia made a killing betting on the iPhone ecosystem. The firm invested early in Instagram, WhatsApp and others, netting billions.

At one point, Valentine shows a slide of some of the greatest founders he’s invested in.

What strikes me is how happy many of them look. They’re beaming, ear to ear.

This is the look of people who are building what they dream of and reaching their full potential.

Now, I’m off to find some entrepreneurs like that!

More on tech:

Managing a Crisis the Sequoia Way

John Doerr’s Biggest Mistake

The Power Law (Part One)

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SoftBank May Launch Third Vision Fund

Masayoshi Son’s Softbank Group may launch a third, massive venture fund. From a report that broke this morning in The Wall Street Journal:


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Global tech investor SoftBank Group Corp. is considering the launch of a new giant startup investment fund, part of a plan to turn a new leaf after the poor performance at its two earlier funds, according to people familiar with discussions at the company. 

SoftBank, led by Chief Executive Officer Masayoshi Son, has been hit particularly hard by the rout in tech valuations that began last fall, posting a record $23 billion loss in the three months ending in June. 

The first two Vision funds, massive at $99 billion and $56 billion respectively, have not performed well. The first is up just 20% since its launch in 2017, while the second has lost nearly 20%.

Massive bets on WeWork, Didi Global, and others have soured, leaving the funds with huge losses.

But if we look at Softbank’s performance more closely, the picture begins to brighten.

Vision Fund 1 is at least in the black. And since it was launched in 2017, it has about another 5 years on its fund life.

That’s a lot of time to notch big gains.

Vision Fund 2’s performance looks awful, until you realize it’s only 3 years old. It’s common for venture funds to lose money early on, as poor performers go bust.

The big winners usually take longer to mature.

But the Vision funds have one big thing against them: size. A venture fund is expected to at least triple in 10 years to justify the risk.

That’s hard enough with a small fund, but when you’re sitting on $100 billion, it’s almost impossible.

If you own 10% of companies you invest in, you have to find companies that will generate $3 trillion of value in 10 years. That’s more than the entire market cap of Apple.

Even if you own 20%, you still need to find a Google. In every fund.

Companies like Apple and Google are rare, coming along perhaps once a decade. The idea that you’ll find one every few years and be able to get major ownership is unlikely.

Another problem with having so much capital is that you have to write tons of huge checks, fast. It’s venture capital meets Brewster’s Millions.

This means writing giant checks at high valuations with minimal oversight. After all, who has time to attend all those board meetings when you’ve got billions more to deploy?

Big investors have been lured by the siren song of venture capital for years, from Softbank to Tiger Global. They see the big returns and think “What if I could get returns like that on my $100 billion?”

The problem is that venture capital doesn’t scale that big.

Done right, Vision Fund 3 could be a huge success.

Valuations are down and capital is scarce. This is especially true at the late stage, Softbank’s specialty.

Son could have his pick of deals, making gains so large any past failures are forgotten. But he’d be wise to keep the fund small.

Son has had some incredible successes — Alibaba, DoorDash, Uber. He may be struggling now, but something tells me he’ll make a comeback.

Would you invest in Vision Fund 3? Why or why not?

Leave a comment at the bottom and let me know!

More on tech:

Why Drone Delivery Will Be an Awesome Business

John Doerr’s Biggest Mistake

Giving Investors What They Need to Say Yes

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Photo: Masayoshi Son

Why Drone Delivery Will Be an Awesome Business

Drones are starting to deliver packages in some parts of America. But can drone deliveries be a viable business?


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Bloomberg is skeptical. From an editorial out this morning:

The biggest hurdle is that drones will be making point-to-point deliveries, which is the quickest but most inefficient way to take packages to homes or businesses.

Despite the hype in the e-commerce market, it’s unlikely the sky will be studded with packages coming in for a landing on doorsteps.

What Bloomberg is missing is drone delivery’s massive advantage in labor costs.

The average UPS driver makes $22 an hour and does about 120 deliveries a day. Even if he’s very efficient and can finish in 8 hours, that’s still $1.47/delivery in labor costs alone.

Compare that to a drone. This sleek model from DJI is a mere $300 on Amazon. If it could make even 1 delivery per hour, 8 hours a day for a year before it wears out, that’s just $0.10 a delivery.

And remember, you don’t have to buy a huge truck, fill a gas tank, or pay benefits to a driver!

Drones may be able to do far fewer deliveries each than a driver can. But drones cost so little, you can afford to buy a swarm of them and still save money.

What’s more, drone delivery makes the most sense where drivers are least efficient: suburban and rural areas. Here, it takes drivers much longer to get to the next stop than in dense cities.

But it’s a perfect environment for drones — lots of space to land!

In a world of ever cheaper hardware, labor costs overwhelm almost everything else. If you can cut out labor and still get the job done, it’s hard to lose.

I look forward to having packages land on my roof. I just hope the porch pirates don’t send their own drones to steal them!

What do you think of drone delivery? Leave a comment at the bottom and let me know!

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Robot Pizzas and the Future of Fast Food

Adam Neumann Was Their Biggest Investor — Now He’s Their Biggest Competitor

The Last Fast Food Worker in California

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Giving Investors What They Need to Say Yes

I see a lot of awesome startup ideas every day, from plant-based salami to rocket fuels. These entrepreneurs know how to build great businesses, but often have no idea how to communicate with investors.


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Some founders give me tons of details — but none of the facts I actually need! Let’s go through what information investors need in order to give you that “yes”:

1) Explain exactly what your business does, succinctly. If if takes paragraphs to explain, you’re doing it wrong.

You should be able to explain what you do in a single sentence. For example: “Uber makes it easy for you to get a ride anywhere, anytime.”

If an investor can’t understand what you do and why, he isn’t going to invest.

2) Show revenue clearly. You would not believe how many people get this wrong.

Report your revenue month by month. Don’t just tell investors your last month’s revenue, or add all your revenue up and report it as a single number.

Investors want to see a trend. Are you growing fast, or just treading water?

Showing revenue broken down properly allows them to see that trend.

Here’s an example of how it should look. Give investors both a table and a graph, so they can see exact numbers and visualize the trend.

Bonus points if you calculate your monthly growth rate using a tool like this. At that point, you’ve done everything but write the check for them!

That’s what you want to do: make it easy for them to say “yes.”

3) Be clear about terms and legal.

If you have a lead investor, the terms and valuation will already be set. Be sure to communicate those to every investor you speak with, so they know what they’re agreeing to.

If you don’t have a lead, be sure investors know that too. Some investors, like me, do not lead rounds.

Others only lead rounds, so the fact that you don’t have a lead is actually a positive for them!

Also, clearly explain how you’re incorporated. Most investors only want to invest in Delaware C Corporations.

If you can give this basic info on what the company does, how it’s performing, and how the investment will work, you will have answered most questions right off the bat. When a founder has her presentation dialed in like that, I assume she is experienced and highly competent.

Remember, if investors don’t have the info they need, the default decision is always no.

Make sure that doesn’t happen to you! Present the key facts clearly so you’ll have the greatest chance of success.

Where do you find founders struggling to communicate with investors? Leave a comment at the bottom and let me know!

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How Wordcab Will Change Business Communication Forever

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Fundrise

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New Index Will Drive Demand for AMC, Other Meme Stocks

Note: This is not financial advice.

Robinhood Markets is launching a new index fund to track meme stocks. From a report that broke this morning in The Wall Street Journal:


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Robinhood Markets is launching an index to track the favorite stocks of its millions of predominantly young, social-media-savvy customers.

The brokerage firm’s new “Robinhood Investor Index” will track the performance of the 100 investments most popular among its user base. Initially, the top five stocks in the index will be Tesla , Apple, Amazon.com, Ford Motor and meme-stock favorite AMC Entertainment Holdings. Robinhood said it would update the composition of the index monthly, offering a view into its customers’ changing tastes.

In an unusual approach to constructing an index, Robinhood said it would weight stocks in the index by the “conviction” customers have in them, defined as the percentage of assets in a customer’s portfolio devoted to a particular stock.

The new index will increase demand for meme stocks, especially those weighted heavily like AMC and Tesla.

When a stock is included in an index like the S&P 500 for the first time, the price generally jumps. This is because so many index funds track the S&P 500.

When a stock is added to it, those funds must buy the stock. Similarly, when investors buy shares of the new Robinhood index, Robinhood must buy stocks like Tesla, AMC, etc.

This increases demand for those stocks.

Indeed, a McKinsey study found that stocks added to the S&P 500 jumped a median of 5%. But the increase was short-lived, disappearing in just 20 days on average.

The effect of inclusion in the Robinhood index is likely to be more modest, given that $5.4 trillion tracks the S&P and the Robinhood index is just getting off the ground. Still, I expect a modest tailwind for meme stocks from this change.

The Robinhood index is an interesting approach. It allows investors to profit from the “wisdom of the crowd,” following investors who have strong conviction about particular stocks.

If an investor is confident enough to put their entire portfolio into a single stock, maybe they know something I don’t.

I’ll be curious to see how the Robinhood index does against other index funds. And you can bet every broker is rushing to create a meme index as we speak.

What do you think of Robinhood’s new meme stock index fund? Leave a comment at the bottom and let me know!

Have a great weekend everybody! 👋

More on markets:

AMC Fails to Deliver Pass 700,000 in New Report

Morgan Stanley Investigation Spreads to Multiple Countries

Hedge Fund Manager’s Arrest Shows How Market Manipulation Works

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Fundrise

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How Wordcab Will Change Business Communication Forever

Like everyone else, I get invited to a ton of Zoom calls these days. Even if the information sounds useful, I often don’t have time to attend!

But what if I could read a brief, accurate summary of every call in minutes?


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That’s what Wordcab’s API can do. This incredible new startup based in NYC can summarize Zoom meetings, customer service phone calls, sales calls, and a whole lot more.

When the co-founder, Aleks, pitched us, he even summarized his own presentation using Wordcab!

Sure enough, a perfect one sentence summary popped up.

You can even vary the length of Wordcab summaries depending on the level of detail you need.

Do you want to get the information down to a sentence or two? Or would you prefer a few paragraphs that give you more info?

Either way, Wordcab is on your side.

I was extremely impressed with Aleks’ strong customer focus. He knows exactly what his customers need and makes sure they get it, no matter what.

That’s the kind of company you want to do business with. It’s also the kind of company I want to invest in.

In time, Wordcab may be used to summarize emails, documents, and all forms of business communication. This would be a true revolution in the way we work, making us dramatically more productive.

I’m delighted to be an investor in their recent pre-seed round! I can’t wait to see this great team scale up and change the business world forever.

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The Last Fast Food Worker in California

I Pitched a Robot VC

Mark Twain: Venture Capitalist

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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The Last Fast Food Worker in California

Who will be the last fast food worker in California?

Yesterday, California passed a new law dramatically raising fast food wages.

It sounds like a victory for the working class. But it’s likely to put them out of a job. 


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From Bloomberg:

California Governor Gavin Newsom signed the fast food recovery act into law, giving restaurant-chain employees more input over wages and working conditions even after strong protests from the industry.

A study by Harvard Kennedy School and UC San Francisco showed that wages for California’s fast-food workers hover around $16.21 an hour, or 85 cents on the dollar compared with other service sector workers in the state. AB 257 could raise wages as high as $22 an hour next year for chains with 100 or more locations across the US. It’s the first US law of its kind, leading the way for other states.

Let’s see how this will play out at a restaurant. And where better than the oldest McDonald’s in America, in Downey, California?

In business since 1953, the Downey McDonald’s is one of the area’s biggest tourist attractions. And it still serves Big Macs and fries, 7 days a week.

The Downey McDonald’s is open from 6am to 10pm every day. That’s 112 hours a week.

McDonald’s employees in Downey actually do a little better than that $15 minimum wage. They average $16.41 per hour.

Increasing that to $22 means every employee-hour costs $5.59 more. Staffing the restaurant for those 112 hours now costs $128,000 per person per year, instead of $96,000.

Instead of paying that, restaurant owners may hire Flippy

Flippy is a robot from Miso Robotics that runs an entire fry station. It can make french fries, onion rings, and even chicken tenders.

It costs about $36,000 a year. And unlike humans, it never comes in late, gets sick, or tries to unionize.

Flippy can’t do all the jobs in a McDonald’s — yet. But in combination with order kiosks and automated drive through lanes, there may soon be few fast food jobs left. 

Is all this fair? I don’t know. 

But it’s going to happen. And blunt instruments like this law only bring our robot future closer. 

Instead, politicians like Gavin Newsom should focus on helping working class people get more skills. This is a durable path to better wages and a better life.

I hope for a future where humans do stimulating, meaningful work. Let Flippy handle the rest.

What do you think of the California law? Leave a comment at the bottom and let me know!

More on tech: 

COFFEEBOTS AND THE SEARCH FOR THE PERFECT CUP

GROWING VEGGIES ON MARS

I PITCHED A ROBOT VC

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

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Brave Beats Safari in Security

Today, I saw something that would really piss Steve Jobs off.

Let me explain.


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Websites are constantly trying to track us. Meanwhile, every browser seems to claim to protect our privacy — but do they really?

Today, I ran an identical test on two leading browsers: Apple’s Safari, which I use every day, and Brave.

Safari is second only to Chrome among internet users, with a 19% share. Brave is much smaller but claims to have 50 million monthly active users, doubling every year.

I tested Safari and Brave using an awesome tool called Cover My Tracks. This tool shows how easy it is for trackers to identify you.

Safari

Safari produced mediocre results. It only blocked some trackers and allowed websites to “fingerprint” me.

A browser fingerprint is the unique combination of characteristics your browser has.

What add-ons do you use? What fonts are installed?

When you look at these and other factors, it turns out two browsers are rarely the same. When you see my unique combination on the internet, you can be pretty sure it’s Francis.

Brave

Brave crushed it. It blocked trackers and stopped fingerprinting cold.

Brave does this by randomizing your browser’s fingerprint.

Remember all those characteristics about your browser that make you unique? Brave slightly modifies them, making you very hard to trace.

Imagine if every time you touched a doorknob, your fingers left a slightly different print. You’d be pretty hard to track down!

I’m appalled that a multitrillion dollar corporation that talks about privacy nonstop gives you worse security than a tiny startup. If Steve Jobs were here, he’d be screaming at the Safari team and having them escorted from the building.

It’s no wonder Brave does such an awesome job at protecting our privacy. Its founder and CEO Brendan Eich created Javascript and co-founded Mozilla.

With such a great product, awesome founder and rapid growth, I only wish I were an investor in this one!

Test your browser’s privacy here. And check out Brave to see how it compares!

How do you protect your privacy online? Leave a comment at the bottom and let me know!

More on tech:

I Pitched a Robot VC

Where Are All the Startup Acquisitions?

Mark Twain: Venture Capitalist

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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Hedge Fund Manager’s Arrest Shows How Market Manipulation Works

Hedge fund manager Neil Phillips has been arrested in Spain this week.

He is charged with masterminding a market manipulation scheme that reached from the UK to Asia. His strategy shows how hedge funds manipulate markets from currencies to stocks.


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From a new report in Bloomberg:

Phillips was charged with conspiring to manipulate the US dollar-South African rand exchange rate in late 2017. The indictment, which was returned in March but previously sealed, describes at least two co-conspirators, raising the possibility of charges against more people.

Neil Phillips

Phillips faces up to 20 years in prison if convicted. His scheme involved buying an option on the dollar-rand exchange rate, then manipulating the exchange rate to make his option pay off:


With the option set to expire, Phillips began making spot trades in an effort to push the exchange rate lower late on Christmas Day, while directing a Singapore-based employee of an unidentified bank to sell $725 million in exchange for more than 9 billion rand, according to prosecutors. That pushed the exchange rate below the barrier, triggering the $20 million option. Phillips collected more than $15.6 million from the deal and also allocated $4.34 million to an unidentified client.

Phillips’ moves show us how market manipulation works.

He took advantage of thin trading late Christmas Day. Markets are easier to manipulate when trading is light.

He also used trades in an underlying asset to benefit an options position. The same approach is likely common in stocks.

Phillips even went as far as involving a co-conspirator on the other side of the world in the hopes of hiding his illegal trades. But he was foolish enough to discuss the whole thing in chat messages on his Bloomberg terminal.

Bloomberg routinely gives chat records to the government in subpoenas. Phillips might not be facing prison had he used an encrypted app like Signal.

I find the Phillips case fascinating for how it trains us to spot hedge fund manipulation of markets.

If we suspect price manipulation, we should look for big trades at odd times. Major sell order right before the close on the last trading day of the year?

It might be worth a look.

Where do you see signs of market manipulation? Leave a comment at the bottom and let me know!

There will be no post on Monday for the holiday. Have a great Labor Day weekend everyone! 👋🥳

More on markets:

AMC Fails to Deliver Pass 700,000 in New Report

Why Hedge Funds May Pile into APE Shares

Is Melvin’s Gabe Plotkin Headed to Prison?

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Photo: “prison fence” by Brad.K is licensed under CC BY 2.0.