It sounds like the sequel to an action movie. Like, two years ago, Maximum Drawdown was a surprise hit. So, this summer, we get Return Over Maximum Drawdown.
But, alas, no dope fight scenes here. Just a way to analyze hedge funds.
First, a bit about maximum drawdown. It measures the difference between a fund's maximum return and its low point. The value of a hedge fund will move around as the value of its investment positions change. Depending on what the fund invests in, it might move around a lot. As such, there might be points where the fund is posting a 25% gain for a particular period, then a few weeks later a 5% loss. The maximum drawdown measures this distance.
Return on maximum drawdown takes a fund's average return, and then divides it by the maximum drawdown. It compares the amount of return the fund typically shows with the breadth of the swings it suffers. It compares return with risk, allowing you to judge how much you might earn versus how volatile the fund is.
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Finance: How does momentum work in inves...1 Views
and finance Allah shmoop How does Mo mentum work in
investment returns All right people we have mojo you know
for a moment way have your groove you invested in
I'm not here dot com A software company that completely
anonymous eyes is your presence anywhere on the grid that
is anywhere and everywhere Big brother thinks you are be
a mobile phone or e mail or chatbots Thing is
it makes you anonymous You pay cash upfront to buy
this thing and poof you're gone The company had $50,000,000
in revenues and 20,000,000 and expenses last year as word
of mouth at all It's marketing for it So it
had 30,000,000 pre tax and 20,000,000 after tax in earnings
and traded at 20 times earnings for a $400,000,000 valuation
at its AIPO But then suddenly it got sued by
the U S And by Chinese governments to disclose the
whereabouts of Carmen Sandiego Yeah you knew she couldn't hide
forever But the company declined open its server and big
fuss ensued Lawyer bills were big but the press for
the company was free and fantastic and far reaching Many
cynics thought you paid off the government to sue you
just for all the free press it would garner So
the next quarter when the company was supposed to print
18 cents a share in earnings it actually printed 23
cents And you note that on its balance sheet it's
deferred revenues line balloon from 17,000,000 tough 43,000,000 meaning that
a ton of new sign ups came to the companies
seeking to you know anonymous eyes themselves So now what
do you do is an investor The stock has been
trading around 20 bucks a share with 20,000,000 shares outstanding
but now all of a sudden it's $32 a share
The first print after the quarter is announced and you're
thinking Damn I missed it But have you this mist
it Resignation is an extremely common mistake among new or
non professional investors or professional investors who are just not
very good They don't look at the underlying fundamentals and
the earnings momentum behind the stock So a pro a
good one would ask a few questions like Is this
market saturated like the price to anonymous eyes yourself for
100 bucks a year so with say $50,000,000 in trailing
revenues That would mean that 500,000 people have signed up
to anonymous themselves Don't you think the world market is
something closer to 100,000,000 people who'd anonymous eyes and then
maybe you know 100 bucks each Right That's a world
market of something like $10,000,000,000 And if I'm not here
dot com own say 30% of that world market Well
they'd be $3,000,000,000 in revenues and enormous profits So it's
not like they've already dominated an early tiny market Right
There are 7,000,000,000 people on this planet and you're assuming
100,000,000 or 100 over 7000 there Whatever that percentages Yeah
that would be the market Okay next question How good
is this business Well to run it It's almost entirely
about automating a software process that works with phone companies
and cable companies and anyone else who provides Internet access
to the masses along with a small army of lawyers
who send a cease and desist letters toe websites and
a few other masking app things that company updates every
now and then Well in return for that identity masking
of I P address and phone trails while the company
collects 100 bucks their marginal additional cost on that 100
very little Maybe a few dollars like the 501,000 customer
cost the company like three bucks to manage and they
collect a year's anonima izing cash up front right to
get paid first Then they anonymized you for a year
afterwards and most people who buy one year by a
second and third and fourth And so on the moment
they don't continue to spend well they lose their anonymity
and I'm not here dot com is actually evil enough
so that they put out a mini press release on
everyone who has Dia Na Nim ized with them so
that they are well highly incentivized to continue renewing for
100 bucks a year So then you return to the
earnings mo mentum story The company just printed 23 cents
a share and fully tax earnings It was a big
earnings beat with big things clearly going on with its
balance sheet The stock's at 32 bucks a share now
with 20,000,000 shares outstanding giving it evaluation of well just
over 600,000,000 and anonymous izing is fast becoming a thing
in America and around the world and I'm not here
is ideally poised to take advantage of this mega trend
Could the company have 1,000,000 subscribers paying 100 bucks a
year this coming year Worldwide absolutely couldn't have 9,000,000 shore
easily It's not like we're going to run out of
people So suppose that had 4,000,000 paying 100 bucks And
this is a total guess because well you have little
window into the world other than to note that tons
of partners are voluntarily linking to their website now presumably
getting commissions for the sale of that $100 anonymous izing
year And while you can kind of track that number
if you spend the time so you're thinking well some
affiliate gets $20 for getting $100 sale for the company
so they only keep 80 instead of 100 But their
marginal cost like five bucks or three about something like
that So yeah that makes sense logically So if the
company had 2,000,000 paying $100 a year the company would
be printing $200,000,000 in revenues likely with only marginally more
costs than the 20,000,000 in operating costs And then well
then you had in taxes right like there's affiliate fees
and so on that they'd have to pay So maybe
the company as ah no $50,000,000 in operating expenses or
objects to then be taxed on 150,000,000 of operating profit
to the tune of say 40,000,000 to then have 110,000,000
in earnings Is that a reasonable estimate Sure given the
huge amount of press and chaos going on all over
the world with governments terrified of anonymous citizens and citizens
loving the freedom of being anonymous Sure 2,000,000 feels easily
doable this year And if company does these numbers well
then on 20,000,000 shares outstanding with 110,000,000 in earnings they'd
be printing something closer to five bucks a share in
earnings fully tax unlevel earnings and in the process they'll
have generated over $100,000,000 in cash on their balance sheet
And with this kind of spectacular growth the company should
trade at a vastly higher multiple than 20 gones earnings
more like 30 40 50 maybe even 80 times But
even if you pick 50 times for your target multiple
on that five bucks a share in earnings and you
just ignore the fat cash stash being generated on the
balance sheet with no debt you get a price target
of something more like $250 a share in just one
year Right That's 50 times the five bucks gives you
to 50 a share Well with the stock trading at
32 bucks a share now why isn't this a screaming
mo mentum by Well lots of nervous Nellies will worry
about the government stepping in to regulate the company But
can the government regulate them Is it even possible to
d anonymous eyes in the cloud The company claims that
it expunge is all of its data And while it
may be possible Dian Ana my zing would certainly take
a lot of time And you Khun bet that the
engineers working for I'm not here are like 300 points
smarter than the engineers working for government regulators Right So
it'd take the G men in grey suits a very
very long time to do harm but yeah Big brother's
always watching So the trick is to you know pull
the wool over his eyes and lead your life anonymously
or at least a CZ anonymously as you can So 00:07:10.982 --> [endTime] good luck with that Yeah
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