The Greatest Business On Earth

I have discovered what I believe to be literally the best business on Earth.

FacebookGoogleAlibabaFraud manufacturing?

Nup.

It’s the Australian Securities and Investment Commission (ASIC) corporate database, ASIC Connect.  This thing is a moneymaking machine. Let me put this to you.

  • Zero customer acquisition and marketing costs – if you need a corporate report, ASIC Connect is the only place to go.
  • An absolute moat – where else can you get these documents?
  • Zero manufacturing costs – every company above a certain size has to file their reports, change of shareholder forms, etc as a matter of course.
  • Zero regulatory concerns (obviously)
  • Minimal technology/operating costs – database is clunky but functional, and doesn’t look like it’s had a lot of $$ spent on it.
  • Close to zero admin costs – filing reports and selling them is all automated (or should be), and there are no refunds. There are a few analysts that are employed to handle regulatory complaints. If you spun it off, you’d leave the analysts in ASIC employ and just take the database.
  • Unlimited pricing power – files cost $20+ a pop and take it from me, you’ll need more than $600 to understand a business of anything more than basic complexity.
  • Wild guess I’d say it is capable of earning something north of 50% NPAT margins.

Course, putting prices up would make it harder for journalists and investors to catch fraud, but who cares about that?

According to ASIC’s FY17 annual report it raised $920 million in fees for the government in that year. There were 90.6 million searches of various corporate databases (flat YoY), of which approximately 95% were free of charge. There were 54.6 million searches of the companies registry (the one I refer to below, up 4% YoY) and 32.2 million searches of the business names register, down 4% YoY. There were 3.8 million searches of ASIC’s professional registers, down 22% YoY. I couldn’t find specific data on the fees raised by the companies register, but if 5% were paid searches at $20+ apiece it suggests at least $54.6 million in fees.

Lemme walk you through it:

  • Application for Registration as a Public Company – $20
  • Company Constitution – $40
  • Any addendums that might exist – $20 apiece
  • Change of Company appointments/officeholders (every time directors change) – $20
  • Change to share structure (every time the company issues shares) – $20
  • Resolution of change of share structure (share cancellation/consolidating etc) – $20
  • Annual financial report – $40

Straight up you’re looking at ~$200+ for the first year and easily another $100+ for every year after that that a company’s been listed – and that’s if you’re lucky and it only has a small number of shareholders.  And that is just one company.  Does your business have a subsidiary?  Rinse and repeat.  What if it has like 20 subsidiaries and they’re shuffling directors and shareholders around as a means of transferring money to China or the Caymans?  Tough shit.

If you’re looking at these documents, you are probably looking for fraud. You want to track the investors and the shareholdings over time. You want to know what the company constitution says. You definitely want to read all of their financial reports and appointments of officeholders. You pretty much have to buy every document that’s ever been issued within the last 3-5 years to get any idea of what you’re looking at (unless you’re lucky enough to catch the problems soon after inception).

Find mis-statements and report them to the regulator?  They’ll order the company to file updates. Then you gotta purchase the requests for correction for $20 a pop. I mean:

Greatest business on earth.

I have no interest in any company mentioned. This is disclosure and not recommendation, blah blah.

10Foot Capital declares morals ‘non-core’, diversifies into fraud manufacturing

reprinted with permission from financialnews.net.com.network.au. 

Bringing you the hottest news in global finance

FNNCNAU reporter Fiona Mastodon recently conducted a live interview with Yeti Bigfoot, founder of controversial activist investment fund 10Foot Capital. 10Foot Capital is in the midst of a major restructuring program as it attempts to rectify market-lagging performance.

Yeti Bigfoot, founder of 10Foot Capital, at a gala event in late 2013.

Here’s the interview transcript for those who missed the original:

Financial News Network: Yeti Bigfoot, you stated in your recent market update that your performance has persistently lagged the wider market. We understand you’re divesting some core businessses as a result?

Yeti Bigfoot: Noncore businesses Fiona, but yes you are correct. We have determined that major parts of our ethics, morals, and compliance divisions don’t immediately contribute to our competitive offering, and may in fact be a burden relative to peers who are not weighed down by these cost-intensive, low-ROE legacy businesses. We will look to divest them in a way that maximises value for shareholders, such as via a trade sale or IPO.

FNN: Your latest quarterly report shows that you are up 3% since inception, versus 6% for the index. Are these legacy businesses a key cause of that? We understand that you’ve taken radical steps to turn your performance around.

YB: Yes, we’re lagging the market significantly, a common occurrence for value funds in the late stages of a bull market. However, unlike most funds we’re not forced to simply lay down in the face of the underperformance and outflows. I think it was you who reported several months ago that 1,700% of our listed shares were sold short. We have since conducted an extensive buyback – I now personally own 104% of 10Foot Capital’s common stock on issue – but due to regulatory issues in Uzbekistan we have not been successful in closing our discount to portfolio fair value. As a result we’ve turned to unconventional means to make up the shortfall. Fraud is a real area of expertise for us and we think we have an edge by focusing our attention on fraud manufacturing.

FNN: But fraud manufacturing?  Surely that carries risks?

YB: Quite the contrary. Most frauds persist far longer than those who identify it are ready to admit, and fraud carries a high bar to prosecution so it is difficult to convince the regulator to stir themselves to take care of it. You do have a point, a poignant one. However, I would point out that most frauds are artisanal and bespoke – usually created by a small handful of people and enabled by a few brokers or financial advisers. There is a limit here to both production capacity and ultimate size – most frauds collapse under their own weight once they pass a certain degree of mass or complexity. What we’re doing is industrialising fraud on an institutional scale. The ROI on these types of ventures is astronomical, and our proprietary algorithms have identified this as a real gap in the market and something that buyers will pay a premium for.

FNN: That sounds exciting. Can you give us a little taste?

YB: Sure, well, we’ll carry all the markers – mark to model accounting, opaque private equity holdings, ‘misunderstood’ tech investments, regular dividends, cash flow misalignment with revenue, hockey stick profit forecasts, routine equity raising to fund the dividends, and possibly an ICO if they’re still hot by the time we finish our white paper. We’ll have a handful of corporate advisors and other enablers posting suspiciously detailed analyses under nom de plumes on Hotcopper and SeekingAlpha. In due course we’ll also raise serious cash from large pension funds and use sophisticated cornerstone investors to rubber stamp our operating model.

The difference between us and other frauds is that we’ll own it and we’ll take it big. Most frauds try to stay small, thus sowing the seeds of their own destruction as I mentioned. What we’re looking to do is create a story so colossal that no one would believe that someone ‘could have the impudence to distort the truth so infamously’. Regulators are notoriously slow off the mark against large frauds, and research shows a direct inverse correlation between the size of fraud and likelihood of achieving convictions.

FNN: In our experience here at FNN we find that the media usually brings corporate skulduggery undone, not regulators. 10Foot Capital is already controversial, fraud manufacturing will just paint a target on your back?

YB: Disagree. Fraud against white collar and wealthier individuals is generally seen as more acceptable, so we expect minimal if any media outrage. One thing we do intend to do is found a charity to provide affordable home loans to those of humble means. We see this as an effective hedge against media risks, as it’s unlikely that a market reporter could convincingly attack a company that runs a charity that lets poor people leverage into the Australian Dream with irresponsibly large loans. We will, of course, lay off any risk via securitisation and special-purpose vehicles. Additionally we expect to attract a number of well-connected but not particularly skilled directors who we feel will bring additional security to the table.

Look, I’m not calling it a fraud here, but our goal is to create frauds the size of Valeant. I’d like to count Pershing Square as a co-investor one day.

FNN: Yeti, I’m not as familiar with Valeant as you are, but my understanding is that there’s been no fraud proven at Valeant, nor any criminal charges laid against its executives?

YB: Exactly.

FNN: Yeti, thank you for your time.  Everybody, Yeti Bigfoot.

 

I have no financial interest in, or relationship to, any person or company mentioned or implied. This is a disclosure and not a recommendation. This post is satire. Any resemblance to any individuals, living or dead, is strictly coincidental.

10Foot Presents: If-

I was hoping to have my December quarterly review out this weekend. I was also hoping to make some progress on either my deep dive on Mongolian stocks or my look at Blue Sky Alternatives (ASX: BLA). I did, but nothing’s ready to publish yet.

Instead I did this:

If-

If you can keep your head when all about you
Are losing and blaming weak hands or fools,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too.
If you can wait and not be tired by waiting,
Or being lied about, don’t deal in lies,
Or lagging the market, not give way to hating,
Yet don’t look too good, nor talk too wise:

If you can buy spec stocks—and not make gambles your master;
If you can think—and not make thoughts your aim;
If you can meet with Getswift and Disaster,
And treat those two impostors just the same;
If you can bear to hear the truth you’ve spoken
Ad hominem’d by knaves to make a trap for fools,
Or watch the specs you gave your life savings to, broken,
And take a second job to fund the next that looks cool

If you can make a heap of all your winnings
And risk it on co’s with thick sheen of gloss
And lose, and start again at your beginnings
And never breathe a word about your loss;
If you can force your heart and nerve and sinew
To serve your turn long after the hype is gone,
And so let go when there is nothing in you
Except the loss aversion that says: “Hold on!”

If you can talk with punters and keep your virtue,
Or walk with stock promoters—nor lose the common touch,
If neither Quintis nor Slater’s can hurt you,
If all men listen to you, but none too much;
If you can fill the unforgiving minute
With sixty seconds’ of fantasy profits won,
Yours is the Earth and everything that’s in it,
And—which is more—you’ll be a Man, my son!

Adapted from If- by Rudyard Kipling, 1895. Remastered by 10foot investor, 2018.

Open to suggestions for further creative license.

I have no position in any stocks mentioned. This is a disclosure and not a recommendation, yada yada.