Thursday, March 7, 2013

Fundamentals vs Instinct vs Technicals

The Dell story is quite interesting right now. The founder, along with a couple of PE guys wants to take the company private. Now, Carl Icahn has stepped in and made demands to the board via a letter.

That's OK. But Icahn is known to be a shaker.

Anyway, Chanos was on air and said that he was short Dell - videos on this page.

Key takeaways -
Somebody is always on the other side of the trade and quite often they are 'smart', 'heavy', 'strong' and or 'moneyed' guys - doesn't mean they are right. But most people get influenced by the presence of a big institution on their side of the trade.

Dell is now a commodity business with deteriorating cash flows
Negative tangible equity
Small net working capital - because once the business begins to dry up, such a business model suffers on a cash flow basis, when once it churned in money.

Icahn's terms for a financial engineering based transaction will not go through because it's difficult to fathom how an institution would lend against Dell's supposed assets.
Chanos simply says that the cash flows do not warrant this kind of a valuation for the company.

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