Wednesday, January 09, 2008

George Soros, Morton Topfer, Mubadala and Chicagrafo

George Soros, Morton Topfer, Mubadala and Chicagrafo: Who are they?

George Soros

George Soros is a self-made billionaire that now runs an important Hedge Fund. A very successful investor, who developed a theory about how the Market exaggerates trends, how Market Value and market participants' perception feed each other until Valuation and reality diverge to a breaking point. Mr. Soros used this model for his most famous exploit, when he "bankrupted the Bank of England" short selling the Sterling Pound in September 1992: The facts were that the Pound was coupled to the other European currencies because of its participation in the European Exchange Rate Mechanism, but wouldn't have comparable rates of interest. The perception was that the Pound was strong enough to sort of live an independent life of its own. Soros had the conviction to short sell 10 G$ worth of pounds on the reasoning that something had to give, and when the pound was taken out of the European Exchange Rate Mechanism the devaluation gave Mr. Soros more than 1 G$ in profits.

Soro's model deals with emerging trends and exhausted trends. Most investors try to detect emerging trends that The Market will embrace, but what I found valuable about Soro's model is the other part, that when a trend is fully embraced by The Market, this "reflexivity" of market participants becoming aware of the trend become a positive feedback loop that makes market valuations to lose the sense of proportion. I venture to say that AMD's recent crash lost its sense of proportion, but I won't delve deeper about this subject in this article.

Morton Topfer

Morton Topfer sits at the AMD Board of Directors. He was vice Chairman of Dell and was an important executive at Motorola before that, presumably he got to know Dr. Ruiz while at Motorola.

Mubadala Development Company

Mubadala Development Company is a State Owned investment company.


And I am a commentator of the technology equity markets.

So, in this group there is representation for Hedge Funds and their managers, large investment companies, directors of publicly traded companies, and "pedestrian" investors.

What do we have in common?

We all have lost substantial amounts investing bull-side on AMD.

According to this site, George Soro's Hedge Fund bought AMD around $23 by the end of 9/2006 and sold around $21.6 by 12/2006. He insisted buying @ ~$15.5 by 3/2007 and sold by 9/2007 @ ~$13.4. This page documents the approximate value of $20 millions that Mr. Soros owned of AMD by 9/2006 in 782,600 shares, or over $24.85 per share. We know that he lost money because the stock price never went back to those levels after 9/2006. What was he looking for when he took bullish positions on AMD? perhaps the materialization of the Dell deal that finally broke Intel's exclusivity?

It is important to remember how highly coveted a customer Dell was for AMD before the deal, the ties to Dell of Mr. Topfer are not to be underestimated. In any case, Mr. Topfer purchased, out of his own pocket, 1.8 M$ in 28 Jul '06 (100,000 shares @ $18+ per share) and another $2 M$ in Nov. 06 (100,000 shares @ $20.85 per share) of which he gave up 100,000 shares in 24 Jul 2007 at a price of $15.07 and still has more than 100K shares...

The "poor" Mubadala company saw its 622 million dollars in AMD reduced to $271 millions (49 million shares at the current price of $5.53 per share), or less than 44% of what they began with...

As a matter of fact, AMD has attracted all kinds of investors (bull side) and almost all of them have lost money.

This company remains an anomaly among publicly traded companies being one that has net losses on its 30+ years of history.

There is something that has kept attracting investors to this siren call.

The point I am trying to make is very simple: While I made a terrible mistake, I realized I had screwed it up much sooner than Soros, Topfer, or Mubadala, despite my great disadvantages of only having access to freely available web sites and fora for investors to get the information to guide my investments. Why did I got ahead of them?: Because of my superior knowledge of the technology:

In July '2006 I advised to sell AMD while Soros was buying because I realized that the Core micro architecture was as good as Intel was advertising it, that AMD was in denial of the threat, and it won't have competitive products, this before knowing about the ATI acquisition.

The ATI acquisition was a very confusing factor for me, until by January 2007 I had assembled the whole puzzle (*) and got to the easy to understand conclusion that this acquisition is a blunder of suicide magnitude.

About the same time (*), I correctly interpreted the extended L2 cache latencies of 65nm K8 and their slow speeds as evidence of serious problems in the schedule of the 65nm process; furthermore, I acted with extreme conviction regarding the implications a bad 65nm process had for single-die quadcores, because I then understood that to commit the company to pursue a challenge as hard as the "triple challenge" [ single die quadcore/immature process/substantially different architecture simultaneously ] was another suicide-magnitude blunder.

Despite not having even a thread of information from inside AMD, much before Mr. Topfer sold half of his position, I was already sure that ATI acquisition won't ever pay off, and that Barcelona and Phenom were very mediocre products. Just like Mr. Richard, Mr. Topfer sold AMD before the shit hit the fan, before the launching of Barcelona, the first K10.

By the time Mubadala took a position on AMD, it was already very clear to me that this company is not viable.

Unfortunately, this chronology does not mention all the hesitation, tribulation and doubts I have experienced in the over two years I have been on AMD: At the beginning I had the extreme opinion that AMD was supposed to topple Intel not just in the technical leadership, but in the market too, took market positions as extreme as my opinions and lost equally extreme because the market and I disagreed from Feb '06 on regarding AMD. Ever since I had the "pessimistic" extreme opinion, AMD has declined fast, all right, but didn't crash as I expected, until recently, at a time that I wasn't prepared for. It is ironic that I turned out over-cautious when the crash really happened (from $12+ to $6-) because I still can't understand how is it that the market prices-in today information we knew as far back as August!

I really don't know what is the lesson to learn from this experience, but I am mulling over it.

(*) The blog articles linked were written much after the periods mentioned in the text. For me, it is easier to refer to articles that explain the ideas in their polished form, and for the reader perhaps it is also easier to read the polished version, but if I get requests to come out with incipient expressions of these ideas, I can dig my old posts in Investor Village about this subject. Some of them proved prescient, it is not that I am making wild claims of predictions, the record is there that among all the cacophony of opinions and my own flip-flopping I had the trends clear. I was always skeptical of the ATI acquisition but flip-flopped because I didn't really understand it and the Market and everybody else praised the gamble until I got to definitive conclusions; regarding the triple challenge, I still have problems to believe how irresponsible AMD's management had to be to go this path...


warisshah said...

Hi eddie,
Excellent post!, and some deep observations. Keep up the good work. I found your blog through roborat-I'm glad I checked it out.

Anonymous said...
This comment has been removed by a blog administrator.