Saturday, October 27, 2007

The World Stock Exchange

Where to start.... Hmmmm.

Well, for anyone who doesn't already know it, the World Stock Exchange is a virtual stock exchange in Second Life, that currently lists 62 companies, including two of my own: Delicious Demar Enterprises (DDE) and Delicious Skins (DSE). Investors can buy into a company that is seeking to raise capital by purchasing shares during the Initial Public Offering, and once the company goes public, can trade shares through the WSE website (http://www.wselive.com/).

The WSE started about 7 months ago, and has certainly had its shares of ups and downs, all well documented throughout the extended metaverse of Second Life, in blogs and forums, announcements on the WSE, etc. etc. I certainly don't intend to rehash any of the history of the last 7 months. Google it. lol DDE was listed in a bout the 3rd week of WSE's existence.

The founder and CEO of the WSE is a man named Luke Connell, aka Lukeconnell Vandeverre. Now, I want to state for the record that I have a great deal of respect for Luke - he is a visionary that, while others talked, acted. He may not always do things the best way, but at least he has DONE something, which many others have tried to duplicate. So, if i bash the WSE, please take it in that context. DDE and DSE are committed to the WSE, so any negative comments should be seen more as the infighting of a (possibly dysfunctional) family, rather than a condemnation of Luke or the WSE. I may not always like what happens there, but we are going to ride it out, no matter what it may be. Of course, a girl's entitled to her opinion, nontheless... hehehe

My first rant, therefore, about WSE has to do with the new Analyst functionality. I have read most of the reports that have been posted on the WSE by their analysts, and just wanted to make a few observations:

[/begin rant]

1. wtf?

2. Can you say "inconsistent"?? The reports, and the analysts approaches to them, are wildly inconsistent. A few have been thoughtful and well researched - quoting key metrics and showing an obvious familiarity with the companies in question (i.e. the analyst actually talked to the company CEO before doing their report). And of course, Casper's report on DDE is a masterpiece (LMAO). But since there are no guidelines and no moderation of these reports, we have seen some companies getting reports out of left field, based seemingly on nothing but opinion and speculation. Note I say "nothing but opinion". Obviously, analysts have to form an opinion about the company to make a recommendation. But wtf is it based on?? From some of the reports posted, I have no idea...

3. Can you say "conflict of interest"?? How on earth is it reasonable to have analysts making reports on a company, when they have a vested interest in either its success or failure?? Analysts who hold shares in a company should NEVER be allowed to analyse them. Analysts who are CEO's of competing businesses should NEVER be allowed to analyse the. Analysts who have new companies in IPO or secondaries out, should NEVER be allowed to analsye ANY company (sorry Lindsay...) Follow the logic here - and note that i am NOT saying that any of this was a motivation for any specific report, but in something like this, the appearance of a potential conflict of interest should be enough to give an analyst pause.

WSE has market liquidity problems - we all know this. There simply aren't enough investors and enough Lindens to support 62 companies, and the 4 million new ones that are seeking to go public. In Lindsay Druarts report on SIM (ok - full disclosure, I am on the Board of SIM and DDE/SIM have a joint venture underway - so I am biased, ok!), she basically topedoed a new startup company (3 months old), and gave them a strong sell recommendation. In addition, she suggeted that the CEO consider one shareholder's suggestion that SIM liquidate and provide a final dividend to shareholders and delist. Huh???? SIM is one of the few companies that actually have assets roughly equal to their market capitalization. There are dozens of companies on the WSE that have NO assets, and huge market capitalization, so I just don't get it.

On the other hand, if SIM provides a liquidation dividend, suddenly there are 1.5m Lindens available for investing in other companies or IPO's. Hmmmm. Like I say, I don't think this was really Lindsay's motivation, but she really should have thought through the wisdom of analysing a company a) that is a direct competitor, and b) whose delisting could potentially benefit CEO's with outstanding IPO's.

In the end, this is NOT the analysts fault. They were apparently given no guidelines, or set of principles, on which to base their analyses, so the fault lies with the WSE. The has to be a Code of Ethics and/or guiding principles for analysts. We just saw yesterday one company that DELISTED from the WSE in large part because of a brutal report by one of the analysts - because they decided they could not recover from that kind of negative press. Is this helping the WSE??

So, bottom line, I support the implementation of analyst reports. But Luke, slow the fuck down and think through what you are doing, before you do it!! You can't keep hitting the "Go Live" button with new functionality without talking to your community and thinking through its likely effects.

[/end rant]

23 comments:

Anonymous said...

I believe the WSE is still developing WSE 4.0 and the analyst reporting process isn't complete. It is going through a trial phase to see how the market acted without guidelines in order to see what guidelines would be appropriate. I believe the WSE is working on both guidelines and other features related to the analyst system.

Delicious Demar said...

dear "anonymous"

hmmm...

Maybe as a society, we should remove all of our laws from the books, and give it a trial period, watch how people behave, and see what laws would be appropriate... I suppose some lives lost and carnage would be an ok price to pay...

that sounds to me like a sneaky way of saying - they didn't think it through, but are watching now that it's too late. My advice to WSE would be to remove the analyst functionality until the guidelines are established. there are plenty of people who could help develop them, like current CEO's, the SLEC...

ServMe said...

I take the analyst reports with a grain of salt, as I do with company announcements and other news reaching (potential) investors. That being said, I've got some feedback on your statements here, Delicious :

1. if analysts can not review companies they have invested in, or are direct competitors of, there is little left to review. I'm sure you'd be able to find a couple of people that are in neither position, but are they interested in an analyst position? I do see your point about conflict of interest though, but I have no magic solution either.

Maybe if they disclosed their participation and/or current position at the top of the report, that would clear things up for readers?

2. Companies that feel they were unfairly analyzed have a way to react : an announcement. I've seen some companies do that though the way it was handled could maybe have been better, who knows. As you point out, we're all adapting to a new function that's unregulated, as is much of the financial markets in SL. There are other analysts around, wait for them to analyze the company. If they come to the same conclusions, maybe some things are correct?

3. While CEO's have the right to de-list and list elsewhere, doing so without any consideration for their investors is bad practice if you ask me. If I see companies do that, I kick out their shares at the earliest option I've got, without getting burned too much.

It's like running from bad news.If you think you can outrun it by going elsewhere, I think one is wrong. News always catches up, and especially in SL we should all know by now that news is usually rather direct but also quickly forgotten.

Final point : I've read the report on SIM and I beg to differ on at least one issue that was touched there : the VAT. I think it shows good cooperation and a win-win situation for all CEO's and investors of the companies involved. Adaptation to changes can be done in a number of ways and while it is not always clear which one will turn out best in the end, I found this a creative and legit solution to a recent change.

Disclosure : Investor in LLL, LNL, LCA, DDE, SLM and RIS. Currently working for SLM.

Delicious Demar said...
This comment has been removed by the author.
Delicious Demar said...

dayum, Servme - do you have to be so REASONABLE???

well, you might be right - the WSE is an incestuous little community. But, for example, I applied to become an analyst. I sit on a few Boards, have maybe 10 direct competitors, and hold stock in maybe 5 or six companies. That still leaves probably 40-50 companies that I could review without any apparent conflict of interest...

And thanks for the comments re the VAT - it certainly seemd to Pablo (SIM CEO) and me as a good business proposition.

btw - I will refrain ffrom responding to EVERY comment on here - but since this is the first day of the blog, I am somewhat... overinvested, so to speak...

Jason said...

I am in no way educated in how the market actually works, etc, but I did at least think I understood it a wee bit and decided to follow it, lose a few thousand lindens(of course that was to be expected..was a learning process). What little I have dealt with in my life in general, my understandings were that posts from the CEO's in companies helped in the purchase and selling of these "stocks"..hence rise and fall of market value/along with increased profits or decreased as may be the case. So far that has been the case with a few companies that I have followed, but in quite a few others it was not even remotely close. I don't like to mention any names(I have no company in SL or on WSE but I am a self proclaimed "investor")but so far there has really only been one company listed on WSE that I have followed that seems to have any stability and the welfare of the investors in mind. Keep up the good work(too bad you dont know who I am talking about..lol, but then if you keep your good business ethics that you have had so far...you will know who I am talking about)Now I'm done with my little rant that probably makes no sense to anyone else, much less myself...but its what came to mind. Peace!

Lindsay Druart said...

Well D, a 3 month old company in SL is NOT a start up. A company that lasts that long in SL is probably a veteran. Look at WSE's numbers during their 3rd month....nothing looking like a start up.

My report was accurate based on what I saw and my company, nor the one in IPO should have anything to do with my analysis. Just because others don't know how to be objective doesn't mean I can't. I talked to Pablo about SIM during his IPO and he asked why I didn't invest and some of the same things I gave as reasons then based on his prospectus are some of the same reasons I gave him a low sell.

So in three months time, he can't clean that up? Sure he can. This is a good idea for D, but I think SIM shareholders will be shafted in the end and I am one of them though I hold very little.

In 3 months, we saw a huge bank come out with a credit card and the CEO run off with the money. So please, 3 months is NOT start up.

An analysis of the company is not going to always be what the company wants to here but you have to look at it from the eyes of just a plain old shareholder with nothing vested in the company. If you really looked at everything from a shareholder stand point, would you really invest? No. Because what's on the surface is not accurate and has no "wow" factor.

I gave suggestions as to what he could do and even know, I offer assistance if he wants it. But to have WSE have to edit his annoucement because of all the flaming he did to me was a bit ridiculous. I have no hard feelings to anyone and for him to say the things that he did about me persoanlly was deplorable.

But to no avail, I move on. I don't have time to stroke egos As an investor, I am unimpressed with what is going on and as an analyst still the same.

Lindsay Druart said...

my God, sorry for the typos

Lindsay Druart said...

"On the other hand, if SIM provides a liquidation dividend, suddenly there are 1.5m Lindens available for investing in other companies or IPO's. Hmmmm. Like I say, I don't think this was really Lindsay's motivation, but she really should have thought through the wisdom of analysing a company a) that is a direct competitor, and b) whose delisting could potentially benefit CEO's with outstanding IPO's."


This was interesting when I went back and read it again. Ask my direct competitors that own land on my sims and have ATMs on my Corporate Office if I care about that kinda thing. I don't have competitors. I have other solutions. L&L is not the best for everyone but its the best for some one. I don't care about competition. SL is too big for all of that and I am not that money hungry.

At the L&L Corporation Office right now are the ATMs of SLX, JTF, APZ, and WSE, along with LLBT. Everyone has different needs and I would rather them be met with my assistance that to be some money grubbing CEO that tries to "sell" everyone to their product. Sorry there D, but on that one you are quite wrong.

Lindsay Druart said...

Disclosure: CEO of L&L Corporation (aka L&L Virtual Holdings Inc incorporated in Georgia, USA), Chairman of the Board of LCA, LLL (LLADN), LNL, WSE Analyst, WSE Investments (LCA, LLL, SIM, APZ, GPB, SRI, ETC), SLCapex Investments (LNL), Second Life Mentor, Working for LCA as Business Analyst

Delicious Demar said...

Hey Lindsay - thanks for your posts. I totally respect the fact that you weighed in on this. I know that it is probably tiresome for this to come up again.
I will reserve comment on the posts made on the WSE itself - as I mentioned in the original post, I don't think the WSE announcements are the place to engage in discussion (i.e. rebuttal), and I never support personal attacks in any form whatsoever. We are all adults, and though we may differing opinions, they shouldn't be either taken or meant to be taken personally.

Although I used your report as an example, it was only as that. And, having read just about every post you have made, both on WSE and elsewhere, I am quite sure that you can be objective, and that your report on SIM represents nothing more than your own firmly held beliefs. Furthermore, and as i said in the post, I am pretty sure that you didn't have any ulterior motives for the report you posted.
It's not even that I disagree with your report (I do - but I have admitted a clear bias). It is simply enough that there could be the appearance of a possible conflict of interest. And, that there are no rules or guidelines for analysts.
Personally, I would be very uncomfortable doing a public analysis of any company in which i held shares, or that had a business that was in the same sector as one of mine. You may choose to believe that SIM is not a direct competitor, or you may not care about that kind of thing, but once again - it is the appearance of objectivity that is important. L&L Sales and Rentals, "other solutions" notwithstanding, is a real estate company like SIM.

For my part, I have watched with respect the development of all of your lines of business. You are clearly an accomplished, inspired leader with great business sense and the courage of your convictions. On this one, I guess we'll have to agree to disagree, but I suppose we have done that before... and likely will again. it's what we get for actually HAVING opinions and being willing to speak our minds.

Lindsay Druart said...

No problem at all D. And I have spoken with Luke about setting guidelines. That is also why I made the post about how I do my analysis and I think that in itself is an integral part of knowing the value of an analyst. Most RL analyst are also shareholders of the companies they analyze to get an insider view on the company.

For me, I will stop analyzing on WSE until some quidelines from both sides are set. No love lost though :)

Sekioh Sachs said...

I think it should be investors that sign up to be analysts, with a required back-history of trading or a 'sample' report of one of the companies that Luke or one of the developers or reviewers look over and then accept you as a analyst or not.

I wanted to sign up to be an analyst but it looked kinda like you HAD to have a company to sign up. All the fields were pertaining to a RL or SL business venture. I don't have a business but I do have brains, and I do see where most of these businesses are going wrong.

Bias is a problem, so it must be either regular investors as analysts, or company owners that have different business ventures (ie. as you said, textures vs sim purchasing escrow businesses vs banking can analyze each other because they have no benefit from it)

Logansan Oh said...

First off, Hi all, I have been trying to catch up with the other analysts to speak to them in-world, but alas I am on the other side of the planet to most people and my SL time is usually other peoples sleep-time. Hopefully I will get to chat to you soon.
Now, I have to disagree with you D. I think this is the first time tho:
“Analysts who hold shares in a company should NEVER be allowed to analyse them.” When you read the Financial Times or a Reuters market report, you will see comments made from analysts. When these are made it is an SEC requirement that any stock holdings or commercial relationships existing between the analyst and the firm be disclosed. If you worked at an investment bank as an analyst, I’m sure you wouldn’t be happy to be told you weren’t allowed to BUY something you were telling other people to…
I have offered this information in my reports where needed like this one on HCL - “Disclosure:
I will start out by saying that I do have an interest in these stocks, as I own 52915 of them and counting...”
So on this point, I agree that there should be some regulations, but I am also of the opinion that the self-regulating nature of the WSE and LukeConnell seems to be in play again. You can call it sneaky “- they didn't think it through, but are watching now that it's too late.” but I’m pretty sure it will become apparent who should be listened to and who shouldn’t. I believe what Jason mentioned above holds true of announcements and info on the WSE. If you followed all the news you would be broke, but that rings true for RL also!
One more point before I stop carrying-on here, the recent “one company that DELISTED from the WSE in large part because of a brutal report by one of the analysts - because they decided they could not recover from that kind of negative press.” I held stocks in this company and I believe the CEO’s blatant disregard of shareholders in this matter is, as mentioned before “deplorable”!! It seems the CEO has decided to take his baby bottle and go crying to mama. The stock price was low before…the market was low!! It was on it’s way back up regardless of the report and as for the report; well, I agreed with the website suggestions, didn’t agree with the “personal” analysis and overall, just took it as a bit of a laugh.

Lindsay Druart said...

One of these days we will have objective adults running the companies.....

Lindsay Druart said...

Oh....I am do agree on the disclosure thing...I don't normally hold much in other companies just because I pulled most of my SL investments and went back RL for a bit but I am looking to reinvest in SL personally fairly soon.

Delicious Demar said...

Yes, I agree about the disclosure thing as well - whatever standards do get put in palce, that should be part of it.

and i guess i stand corrected about analysts holding shares not doing company reports - I think with the disclosure this should be fine. And you're right, it is the common practice in RL

I have also sclaed wayy back on WSE investments - at this point i am only invested in about 3 companies, and only one in any serious way. WSE was just getting a bit too unstable, and my choices weren't always the best, as witnessed by the fact that i now have about 500k shiny new WTF shares - with a bunch more to come once the GPB shares are converted. woooot!!! lol

Tari Merlin said...

What can we learn from the latest financel crises in real life?
Never trust an analyst.
You may read analyses. But keep in mind that behind each analyse there stands a person or an institution with own interests.
Analyses always base on the past. Do you really believe that there is one single person in SL that can predict the future of SL and the behavior of their residents by looking in the past of SL?
Hey - this is Second Life. Anything can happen anyday!!

Lindsay Druart said...

Tari, that made absolutely no sense. No one is predicting the future. Analysts give opinions based on what they see and SUGGEST. No one is sitting around with tarot cards. We mark trends and look at stability. In the end, it is up to the investors to make their own decisions about what to invest in. But....I would like a company that recieved a negative to not lie and say that their stock dropped because of it and then leave the stock exchange.....

Delicious Demar said...

hell yeah!

I agree L - Tari I didn't really get the "seeing into the future" - obviously the best predictor of future performance is a solid history of past performance.

It's true that SL is a lot more unstable than RL (can you say VAT, gambling ban??), but an analyst certainly can't be held responsible for things that happen after their report that are unpredictable.

Lindsay is right - an analyst gives their best advice, and it is up to the investor to weigh all the factors that went into it. Over time, some analysts will get a reputation for being right more times than they are wrong, and voila...

Lindsay Druart said...

One thing I find kinda eerie in hindsight....I was about to post a SELL report for PSG last week but had browser issues and such and then Pablo got mad at me so I didn't post it....and I will be doggone is almost exactly a week later, PSG up and moves from WSE without a shareholder meeting......

Tari Merlin said...

May be I did read too many analyst reports. May be I did hear too many so called analyst statements on TV.
All I can say is that so many of them turned out wrong. I really recommend to read about and learn from the latest financel crises in the USA.

Logansan Oh said...

"I really recommend to read about and learn from the latest financel crises in the USA."
The chinese term crisis with 2 symbols; Danger and Opportunity. One of the most famous and trusted market indicators - The Dow Jones Industrial Average (based on historical data..) is rallying back to recent highs of 14000! Apart from the trouble in the investment and retail banking sector (hmm...sounds familiar) which was caused by greedy mortgage industry heads, who relied on poor government consumer credit regulations (as the FED lowers rates again! to bail them out) gold is headed for $800oz, M$oft with higher than expected...I'm not seeing crisis here? I see panic from those that see danger. I also see opportunity for people who see profit...