Third Martini Investments

Black Gold June 20, 2006

With last weekend being the only one in recent memory without rain or the need to go to the office, there was only one thing to do: hit the beach. Being just like any self-respecting (future) high-net worth individual in the glamorous world of finance, taking the train or a bus out to Long Island was not an option. So with suntan lotion, towel, and beach toys (including girlfriend) in tow, I headed for the Hertz on 77^th and Amsterdam. All the luxury cars were already gone, so I could pretend to be disappointed. In the end, I was stuck with the standard Ford pinto-esque piece of crap. No Problem, at least I’ll save on gas…WRONG. Filling that baby up on the way home cost me nearly as much as paying for dinner that night.

Yes, I’m very concerned about the effects of high fuel prices on the economy. Inflation, lower growth and all that really aren’t great for anyone’s portfolio. But I’m really concerned more about having to shell out so much for the privilege to drive a car I can barely fit into. And speaking of portfolio, I realized yesterday at the pump that without oil and gas exposure in my Fidelity account, I couldn’t even take comfort in the fact that the absurd price I was paying was helping Exxon-Mobil to another record year of profits.

What to do, what to do? Buy shares in major oil? Not right now- been there, done that, overvalued. And besides, Oil companies are evil. Really, they are.

The investment professionals at Third Martini Investments (meaning “myself”) always see beyond the conventional plays, though. If one desires to profit from $70 oil, one should buy $70 oil, with one caveat: Buy it for less.

Someone told me that a two year HBS education could be boiled down to this: “Buy low, sell high; collect early, pay late.” Well, this is the first part of that equation in action. Allow me to introduce you to two gentlemen, Mr. Patrick Johnson and Mr. Aloy Okafo. Both reside in the lovely city of Lagos, Nigeria, and can be contacted through http://www.alibaba.com/trade/search?SearchText=oil&CatId=&Areaca=NU&Country=NG&opt=EXT&IndexArea=offer_en&OfferType=SALE%2CAGENT%2CMISC&PostTime=&advancesearch2=Search . Both gentlemen will sell you crude oil for USD$40 per barrel. WTI/Brent is currently around $70 or so in the US, and many of us think it will go higher. Do I smell an arbitrage opportunity?

“Well,” you’re saying, “a lot of good a barrel of Nigerian oil is going to do me. Who am I going to sell it to- Nigerians?” Nope- the answer lies at  http://www.maritimesales.com/Ships%20for%20Sale.htm. For $1,550,000 you can buy your very own oil tanker. Bring the oil over here, sell it to whomever you please, and force guys like me who want to go the beach to pay too much for it.

A quick number crunch: Buy 1MM barrels from Patrick or Aloy @40= 40MM. Sold in New York for $70MM. Tanker charter rates are around $30,000/day- assuming a 55% margin at that price, operating costs would be $16,500 per day. At 10 days (the average number of days between the middle east and the states according to a Sept. 2005 article in the Houston Chronicle), operating costs would be $165,000- round trip at $330,000. Throw in the cost of the tanker and around $5MM for “unforeseen contingencies” (bribing officials, hiring someone who can drive the damn boat, airline ticket to Panama to buy it, etc), and you still end up with $23,120,000 in profit. And this assumes you only do it once. You tell me you’ve seen triple-digit IRRs?- I’ll show you quadruple-digits, baby!!!

[A note on risk management: We all know Nigeria is famous for scams, so proceed with caution. A quick look at the profile of Mr. Johnson and Mr. Okafo may help you decide between whom to go with. Patrick Johnson’s office is located at No. 20 Border Thomas Street, Surulere, Lagos. Mr. Okafo conducts his business at 21 Computer Street, Lagos, Lagos. Now, I’m well aware of the fact that Lagos is the IT capital of Africa, but I can’t seem to get comfortable with the fact that the city has a street named “Computer Street.” Perhaps he meant to write “Internet-café-where-I-hatch-my-online-ripoff-schemes Street.”]

In the beginning… June 6, 2006

One thing you should probably know is that I’m not an alcoholic…yet. In fact, I’m not a huge martini fan either- I prefer scotch. So, the question then: Why “Third Martini Investments?”

The best investors are always contrarian; they see the value in places others are too afraid to even look. And the contrarians who make the investments are oftentimes labeled as crazy. “You’re investing in what? You’re crazy!” Yup. Crazy…or possibly drunk. But the crazies are the ones making big money. The optimal number of drinks most people would need before they agree that certain contrarian or risky strategies are a good idea is three. Three stiff drinks. Three Martinis, to be exact.

So how does the three martini investor think? Well, to put it simply, after three martinis you:

1.      Have a lot more fun: Stop worrying about making money, and start doing, experiencing, and thinking about other things. Your perspective widens, and you start to see more of the possibilities that the world offers. You need perspective to come up with new ideas.

2.      Become more reckless: You gotta take risks at the bar, and with your net worth. It may take us three martinis to go up and talk to that leggy blonde who throws a glance our way from across the room. It also takes three martinis to throw our money at inner-city real estate or the Turkish stock market.

3.      Are more motivated: Good ideas are out there, you just gotta find them.

I’m hoping to get a few things from this blog:

1.      It will be my personal soapbox to preach on investing and business success, which I see as one and the same. This is not about picking stocks and running numbers- its about ideas. And ideas only come with perspective

2.      I’ll be able to present a few back-of-the napkin (cocktail napkin wet with gin and vermouth) ideas on businesses or assets to invest in.

3.      I’ll look forward to having you tell me that I’m crazy, or that I’ve had one too many.

So who am I? I’m an investment banker at the bottom of the totem pole. If the Eagle on top is my MD, then I’m the squirrel on the bottom. As a banker, I’m currently suffering from creativity-scurvy. And unfortunately, the cafeteria does not serve martinis. A few lines from two of my resumes:

• Participated in buy-side transaction for X’s $215 million acquisition of Y Corp; prepared detailed DCF model, comparative companies and acquisitions analysis and valuation memoranda; contributed to formation of bidding strategy and due diligence process
• Founding member of Tokyo office of  “X” a real estate investment and asset management firm; significant role in business development and client interfacing
• Completed two week, informal, unpaid internship at Michelin two-star restaurant in New York. Experience includes peeling tomatoes, chopping parsley, and observing service.
• Business level fluency in Japanese and Spanish

Theres more on me in the “about” section. Lastly, remember that this a Blog. Take it with a grain of salt.