Look, I understand the case for Salesforce (CRM).
Although some people think it is overvalued at 6-7x expected revenues, there is a legitimate fundamental case for buying CRM. After all, Cramer describes CRM as the heart of the cloud, the Facebook (FB) of enterprise.
Contrary indicator permashorts hate CRM like they have long hated Amazon (AMZN). Unlike them, I do not ignore revenue growth. I understand the concept of a "gazelle" stock which can have a growth valuation based on revenue, not earnings.
Testing highs at $159, CRM could "breakout" like AMZN did in fall 2010. So I understand why Cramer has gradually changed his mind about CRM after several years ago saying "stay away" at $24 and "I think the stock should be lower" at $43 and "even great companies can be too expensive" at $54.
I could care less that CRM uses non-GAAP measures to label stock-based salaries as profit, because we're only talking about half a billion dollars annually at most, which would only translate to $3-4BB in overall valuation in their $22BB market cap.
Yet I am short.
Shareholder demography is important to me. For example, seeing that Yuri Milner and Sean Parker had invested in Spotify was instrumental in a previous trade. So my question is: who (besides Cramer) thinks CRM stock is going up? And, who thinks CRM stock is going down?
CRM is the only short position in the portfolio of enterprise application investor David Heinemeier Hansson (37signals, Basecamp, Ruby on Rails). Hansson went short CRM at current levels. I consider him "smart money".
Do you think Nassim Taleb is an idiot? Then you probably also disagree with me on Hansson. Hansson's investment style resembles the anti-fragility philosophy of Nassim Taleb.
Short interest spiked in November of last year; this "could" happen again after last week's uninspiring earnings report. Currently at $159, the stock could selloff before January 2013 and breach $100 (like it did at the end of 2011).
An iconic example: Andor bought Mellanox (MLNX) stock last quarter. Based on recent disclosures, Andor has by far the biggest bet on MLNX among hedge funds..
But what is MNLX? It is one of 9 short picks made by Seeking Alpha Contributor Infitialis. Below is Infitialis' perfect record. Keep in mind, the probability of making 9 correct picks in a row randomly is less than 1 in 500.
Infitialis has explicitly articulated the strategy which achieved these returns: identifying exceptionally irrational herd-like behavior. Or as I like to think of it, walking around the casino and seeking out the poker table with suckers.
Unsurprisingly, Andor's herd-like momentum strategy preceded the fund's shut-down in 2008. It reopened in 2011. This was not an isolated occurrence; this is symptomatic of a pattern behavior.
Institution Investor Alpha in 2004 describes Andor's loss of half its value in a $7BB Technology Fund--in one month. Critics described the fund's "technology wave" portfolio as: "too high and too unrealistic [growth premiums]".
Fast-forward to 2012. Top-5 holdings as of latest 13f are: Google (GOOG), Apple, Amazon, Salesforce and Linkedin (LNKD). These 5 popular picks alone account for over half of the disclosed funds. Perhaps Andor has some brilliantly paired short positions, or an ingenious correlation strategy among longs; perhaps I am wrong in my assessment that Andor is passing off a generic high-beta tech ETF as a hedge fund.
Heads I Win, Tails You Lose
The fact that people/entities continue to entrust their money to Andor highlights the performance-chasing mediocrity incentives which often exist in management of other peoples' money. Mark Cabaniss writes a truly outstanding article on this theoretical situation in regards to Salesforce. I believe Andor Capital gives us a tangible example.
When Nassim Taleb discusses anti-fragility, what really pisses him off? Decision-makers not having skin in the game. After repeatedly and dramatically failing to manage risk properly (at least by my standards), Andor Capital still gets hundreds of millions in AUM from "select investors". With past failures so repeatedly forgiven, one can only imagine the executives feel they have little skin in the game. I'm sure trend following has brought them great years in the past; I'm not taking that away from them. But in corrective environments Andor has proven fragile. So are its holdings--especially Salesforce.