What This High-End Escort Can Teach You About Business

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By: Chris Tell

At a recent meeting with a VC in Singapore a strangely interesting article Sex is Sex But Money Is Money was shared with me. It was written by a 24-year-old ex-New York escort Svetlana and I recommend it to entrepreneurs, business owners and investors alike.

Svetlana Z

What I found most fascinating were the business lessons this girl had learned. Prostitution is certainly not what pops into most people’s heads when they think business. It is said, however, to be the oldest “profession”.

Lesson 1: Ongoing capex is necessary to grow your business

This girl realised that she needed to spend money to stand out. She needed to spend money on marketing, clothing, skincare and so on.

Even if you’re not a businessman, an investor or in fact inclined to think about daily activities from a business minded perspective you’ll likely grasp the basic concept that in order to keep your house, your car or your boat in good shape you’ll need to spend some ongoing money on servicing, repairs and maintenance.

If you’re in a profession it’s likely that you need to spend money on keeping relevant via courses, workshops and so forth. Sportsmen need to keep fit in order to perform and businesses need to spend money on keeping relevant, too. This involves, among other things, marketing, updating technology, equipment and education. As discussed before, we live in a dynamic world and it’s very dangerous to think in a linear fashion.

Capex is required to grow an economy, too, and it’s important to watch these trends as investors. This is true whether you’re looking at an entire country, a sector or an individual deal. Capex cannot grow faster than revenues so the ratio of capex to revenues needs to be watched. This is, of course, how it is relatively easy to see where in the business cycle a country is.

As an investor in early stage private equity it’s typical to see large capex with little to no revenues, otherwise known as burn rate, but this has a limited time frame and typically a company needs to gain a certain amount of traction during this growth phase in order to begin generating returns on this previously spent capex.

Right now, for example, a concern in global markets is that there is very little capex and it’s been falling. This article from the Economist details more on the numbers and the graph below shows the contraction.

Global non-financial capital expenditure

Side thought: Svetlana had one thing in her favour. She lives (or has lived) in NY, which means she is very close to the hose spewing liquidity into the markets. If I was going to sell my body (not that anyone would pay for it) I’d also locate myself as close to the hose pipe as possible.

Lesson 2: Do not neglect the value of uniqueness

Here was an Eastern European girl with no formal education who had little prospects, and subsequently struggled to find a job. She took the fact that she was from Eastern Europe and turned it to her advantage, instead branding herself as an exotic and foreign girl; an advantage since guys would want to hop into bed with and exotic beautiful young girl, over and above a local girl presumably. This was her IP and she used it to her advantage.

I have a friend, Derek, who built and sold a very successful business. Derek has wrote an article entitled The Philosophy of Great Customer Service about what made his company stand out and a major reason for its success. One of the critical success points for Derek was that he had a real person answer the phone. In today’s world of automation this is a discerning factor. You need to stand out and provide something unique, valuable and engaging.

Lesson 3: Study the market and position yourself accordingly

Svetlana, the girl in the story, studied her market. She learned that there were customers in all income brackets, she learned what they wanted to hear, what they wanted to see and do, and she positioned accordingly. Whatever your chosen market, it’s not as hard as you think to determine what and where opportunity lies. Study your competition, know your market and you’ll immediately see where gaps exist. I just got off the phone with a good friend and mentor. He just sent me this fact. I’ll just cut and pasted it below because I think it’s relevant.

Iran now accounts for approximately 90% of the world production of saffron – $11 gram. Wikipedia on Saffron

I’ll leave those with an imagination to consider this. A massive concentration of supply in anything in one place ALWAYS increases the arbitrage opportunity. Imagine you really knew this market.

I’ve not looked much deeper into saffron, though. I’m a busy guy, but knowing these things has always proved valuable to me. Why? Because I’m always meeting businessmen, entrepreneurs and financiers from all parts of the world and I never know when I next bump into someone in the business of trading saffron.

Even writing this article may bring out someone who reads this and happens to be in the spice business and will reach out to me and I’ll learn about saffron. I know this because we have the most awesome readers :) Perhaps there is an opportunity there. Perhaps not.

Lesson 4: Being an owner is better than being a worker

This isn’t as simple as it sounds and though I’ve been an entrepreneur and owned and run businesses most of my adult life the above statement is not necessarily true everywhere, every time. I know business owners who work 7 days a week, earn very little and at the same time I have a few friends earning high six figure salaries who work 9-5 and can go home and switch off. That said, for this girl the cost to operating under an escort service was far too high and running her own operation was far more profitable.

When you look at any industry obviously the top companies or individual entrepreneurs running those companies, are wealthy. It’s business owners who get rich. This is where the asymmetric payoff exists and it’s why private equity historically has been the highest returning asset class. It is the sector that we dedicate our lives to in our private equity syndicate.

Lesson 5: “Young guys are bad, virgins are awful, young virgins are a nightmare”

Inexperience can be costly. Mistakes are currency and I’m fortunate to have a lot of currency. I think of my mistakes as currency because without it I would not have had success. When I’m investing my capital and vetting deals, however, I don’t want to pay that price. I don’t want any more currency any more than Svetlana doesn’t want young virgins. If virgins are involved in a business, and sometimes they are, I need to see a “grey hair” involved in the company; someone with currency and someone who can help the inexperience navigate.

Take heed from this girl. Whatever you think of prostitutes she clearly has a head for business and I personally look for business people like her when vetting deal flow. She could be an ugly old “babushka” and she’d stand out for her business savvy. I have to wonder what damage she could do if she put that brain to work in the business world. Either way I wish her luck and would definitely consider investing in her intellect and business acumen.

– Chris

“One thing I always say is being a great chef today is not enough – you have to be a great businessman.” – Wolfgang Puck

Stability in Renminbi Offers an XXL Profit Opportunity

CRB Commodity Index

By: Brad Thomas

As mentioned in my writing on the Singapore dollar, the most dangerous thing in finance is the “thing” that never moves. This stability creates an illusion of control around which many positions are built, the greater the perceived stability the greater the positions, and the more other assumptions and forecasts are made.

The stability (or lack of volatility) in the Renminbi has been the one of the foundations that has made so many other variables more forecastable. No one can imagine the Renminbi being a highly volatile currency, let alone coming remotely close to repeating what happened during the Asian Tiger crisis of 1997! If this foundation of stability suddenly disappears then there will be a great increase in uncertainty and volatility in many markets across the globe.

I don’t know exactly how a breakdown in the Renminbi will play out. However, it is a sure bet that all those markets that prospered over the last 15 years or so on the back of a China will do badly. Where things become shady is the collateral damage to other markets that have had nothing to do with the Chinese economic miracle.

I think a reasonable bearish position on the Renminbi will be a great way to hedge out the uncertainty of outcomes with respect to how the Chinese economic miracle “unwinds”.

For a long time I have been highly skeptical on the Chinese “economic miracle”. Every contrarian bone in my body has been telling me that there is something not quite right with China’s meteoric rise from an economy that was seemingly insignificant some 15 years ago to the economic powerhouse that we are led to believe it is today.

The Chinese economy has risen to prominence too quickly too soon. What has been the driver of this rise? Why did commodity prices explode skywards in 2002 having gone nowhere for the previous 30 years? I find it hard to believe that commodities became scarcer all of a sudden!

CRB Commodity IndexThe CRB Commodity Index (the CCI)

Well, no one has been able to give me a straight down the line answer – at least one that an ordinary average trader like myself could understand. That is until I came across the following discussion with Mark Hart. Hart came to prominence together with Kyle Bass after shorting the “sub-prime thing” in 2007.

Hart’s discussion on China starts at about the 55 minute mark. Note what Hart says about how he is applying his view on China (via options on the Renminbi). The interview was conducted in September but note that he has been “bearish” on China at least since 2011!

For more on the issues facing China you might like to read the writings of Gordon Chang and Michael Pettis. I think both present very objective views on China. I am not going to pretend to offer anything more than what these gentlemen offer with respect to the view on China.

Hart talks about buying “puts” on the Renminbi. What makes the trade so attractive is the extreme low level of volatility. Below is an index of implied volatility for 12 months to expiry at the money (ATM) calls on the USD/CNY.

CNY Volatility

So we can buy calls on the USD/Renminbi for about 2.5% volatility. For comparison purposes – implied volatility on the AUD/USD is about 10%!

Hart talks about buying the CNY 7 strike call on the USD/Renminbi. To give you an idea of the leverage offered on a 12-month option at the CNY 7 strike – about $1,100 will get you a notional position of $1,000,000! To achieve a payoff of 10x all the USD/CNY would have to close at is 7.07, and at 7.15 a 20x payoff is achieved!

One can now appreciate what Mark Hart is on about – the gearing offered by options on the Renminbi is huge because volatility is grossly underpriced.

Is it so crazy to think that the Renminbi can get to a “tick or two” above 7 within 12 months?

CNY Chart

Well, let’s not forget what happened to currencies in the past. Note what happened to the Mexican Peso during the “Tequila” crisis:

Mexican Peso

…the Thai baht during the Asian Tiger crisis:

Thai Baht Chart

…or to the Russian Ruble during the LTCM crisis:

Russian Ruble Chart

Currencies can move and they move significantly when they have been sailing in calm waters for extended periods of time – just like the Chinese Renminbi now. Position for the unexpected. It is why Hart and Bass made so much money during the Subprime crisis.

– Brad

“Never think that lack of variability is stability. Don’t confuse lack of volatility with stability, ever.” – Nassim Nicholas Taleb

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Corporate Debt to GDP

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App Cartoon

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