What I Personally Learned Investing – or umm Gambling – on HMNY/Moviepass

Wow did Moviepass and HMNY really humble me as an investor, or should I say gambler, on stocks.   I learned a lot and man oh man did the experience humble me and make me a bigger skeptic than ever before on Wall St. and buying individual stocks.   I have always accepted that buying individual stocks is risky, and have always tried to advise people who read this blog to not invest more than 1% or possibly 2% of your portfolio in ANY single stock.  I sure stand by that advice as we head toward the end of the year.  With Moviepass in a literal death spiral that looks very unlikely to correct, I am very grateful this Thanksgiving that I stuck to that rule.

In this post, I want to share some of the biggest lessons I learned and really relearned after investing in HMNY.  I think it is important to write these things down so I am less likely to repeat the same mistakes, and I figured I might as well share them with others in hopes that maybe they can learn from my mistakes and save them from making the same.

First big lesson – I did not do enough due diligence on the management of this company.   I was aware that Ted Farnsworth had a less than stellar record, but I did not truly understand what a total crook and fraud that guy was and still is today.  It is just about impossible to do well with a stock if the leadership is dishonest, self-serving, and has a bad past.   I overlooked Farnsworth because I really believed in Mitch Lowe, that also turned out to be a mistake.   While I still believe that Mitch Lowe has some good qualities, I believe I heavily misjudged him as well.  While Mitch did play a role in Netflix and he also did a decent job at Red Box, it appears that he is not investible on his own right.  He really spent a relatively small amount of time at both of those companies, and it now seems more likely than not he had little to do with their success.  Mitch and Ted together was a toxic management combination, bringing together greed, entitlement, carelessness, hubris and all kinds of bad things for shareholders.   I should have listened more closely to what others were saying about Ted, the signals were there, it was my mistake not to listen to them.  I truly hope Ted lands in jail someday.   His deceit caused many individual investors to lose a lot of money, some have said that people potentially committed suicide over their losses related to this company.   I sincerely hope that is not the case.   I think Buffett and Charlie say something like that greatly prefer a talented management team, but they would take honesty over talent any day.  Because if you are both talented and dishonest, you are very dangerous.  It may be giving too much credit to Ted to say he has any talent at all, but he most certainly is dishonest.  It was a big mistake to trust him with a single penny of my money.

My second big learning lesson.  I was arrogant and put on blinders.   This one really gets me as I have had enough training and experience to know better and to be more thoughtful and fully consider other people’s ideas and opinions.  In this case, it was even worse because there were good people who knew more than me about the potential pitfalls of this stock, that I should have listened to more carefully and with much more respect.   Mark Gomes was one such person, but there were others who also warned me that this was a risky bet and that dilution and potential lack of funding were serious potential roadblocks with the company.  Obviously, they were right, and had I listened and really sought to understand their arguments and weighted their experience and opinions equal or better than my own, I would not have bought a single share of HMNY.   I have always loved Warren Buffet’s simple baseball analogy for picking stocks.   There was enough wrong with HMNY that I was a fool to swing at that pitch.  The bad and dishonest management history and the fact that others with solid stock picking experience were waving red flags over the company’s dilution and ATM plans.   Those were more than enough to toss this one on the heap of “I am not sure, maybe later maybe never pile”.  Unfortunately, my own arrogance and bullheaded nature enticed me into believing what I want to believe about Moviepass, I was stupid enough to also believe what dishonest management was saying about their business.   I used management’s lies to reinforce my own arrogant tunnel vision on the positive prospects for the company.  This made for a fool and his money – being easily parted.  Shame on me for not fully listening and considering more viewpoints.  That was a rookie mistake, and I know better.  Damn it!

Third learning lesson.  Wow is this an obvious one, if it is too good to be true – it is!  That was definitely the case with Moviepass, both the consumer deal and the business story really was too good to be true.  I can almost give myself a pass on this one because Mitch Lowe, in particular, was so convincing with his pitch, he had his song and dance on how they had years of data that proved that people would “settle down” and on average utilize Moviepass less than one time a month on average.  That was total bullshit of course, and only now after making the product totally impossible to use have they been able to get utilization rates anywhere near where they had promised they would be with the unlimited once daily plan.   But I can’t give myself a pass on this one, because

Fourth learning lesson.  This is really an aside, but may be useful for some.  Generally people on stock boards like stock twits, yahoo etc. are really horrible people.  Not all, but most.  I have bumped into a few good people on these boards, but for the most part, these boards are full of angry, strange, rude, petulant trolls who seem to be miserable most of the time.   I regret almost all the time I have spent on these boards, and regret engaging in similar conduct from time to time on them.   These places bring out the worst in people.  They are like the Vegas strip full of losers, gamblers, and hustlers – only they are worse because it is all virtual and almost entirely anonymous which means that it is rare to run into anyone with even a modicum of civility.   I am pretty sure that an eternity in Stocktwits is what hell would be like, just add the fire.  I highly advise people to totally stay away from these boards, and if you do go to them, visit them sparingly.   The advice is generally bad, not trustworthy, and the environment only leads to bringing out the worst of human behavior and it is hard for it not to rub off on you.

My fifth and most important lesson – or reaffirmation in this case.  It is almost impossible to beat the market, and it makes no sense to try.  I know this and have known it for many years.  There is so much overwhelming evidence of this fact that it smacks of total stupidity to try and pick stocks that will help you do better than the market.   I will write another post that goes into this in more depth soon.   I will also talk about why I think many people just keep on trying, even when they know that can’t beat the market.  It’s something like a gambling addiction, but worse because it is so delusional.   But it is important to reflect here that this was another insane attempt to beat the market that backfired for a lot of people.  As a group, we know it is stupid to try, and if you don’t know, I will spend a good amount of time trying to convince you that you are not the 1% or less of people who can beat the market.  If you are reading this, I can guarantee you that you are not the type of person who will likely ever beat the market, so you should just put down the mouse and turn off your trading screen before you hurt yourself, or your financial future.

In the end – I promised myself and readers I would hold on to this stock for 5 years.  I have about 4 years left to hold this heavy bag, and there is a cold day in hell scenario where this stock does return some value, it will never ever get back to its all-time high.  But there are some possible scenarios where this POS gets a bit back.  They are highly unlikely of course, and I absolutely do not recommend this stock to even my worst enemy on Stocktwits.  – Well maybe to them, but nobody else 🙂

Is the Worst Over for HMNY?

There was a very strong market reaction to Ted Farnsworth announcing he had secured $65 Million in “Financing” for Moviepass today. Farnsworth also boasted that Bankruptcy was “off the table”. He continued to state that he is looking for acquisitions and to find new ancillary revenue opportunities.

All this happening at an event called The Grille.

Can we believe Ted this time. Unfortunately, probably not. Ted has proven too many times that he gets confused about what “securing finances” really means. Because the company won’t comment on who, how or why anyone would give them additional financing, it seems very unlikely that there is any new real support. It is possible the company stuck another toxic deal for shareholders with Hudson Bay, and combined with some further dilution from their long running ATM offer they may have $65 Million in the bank. But if the history even rhymes with what we are going to find out about this new round of financing, get ready to find out the worst deal you can imagine for common stockholders. It’s simply the way Ted does business.

If somehow Tee did pull a hat trick and secured a reasonable debt deal, that would be a great thing for the company. I doubt that happened however, as Ted said the company still has no debt. Or maybe they do now? Who knows – this is Ted we are talking about here.

At any rate. The big jump from today is probably NOT going to last, and almost certainly won’t survive another big reverse split. If there is no other news than Ted haplessly announcing more toxic deals with sharks like Hudson, you can forget any long term rally.

If there is new real sound financing. Why would Ted and company not issue an official statement? Why would there be no SEC filing? It makes no sense. Yet nothing at HMNY ever makes sense.

I guess one silver lining. If he does have $65 in the bank now, that is nearly 3X the market capitalization of the company.

Unfortunately, even with all that, Ted will likely find a way to piss that money away faster than you can say reverse split!

I hope I am wrong, history says I am right. I hold my slightly less worthless shares, praying the company will find a way, and get rid of Fraudsworth.

The HMNY Bull is Dead

Ted that little bastard did it again. A 1:500 share Reverse Split.

It’s impossible to say anything other than Farnsworth is a total scam artist.

I am officially done with HMNY and with Ted Farnsworth.

The ONLY hope – and there is pretty much zero hope left now – is that Ted gets sacked- or that Moviepass posts some kind of big surprise.

The chances of either happening are probably less than being struck by lightning.

I now recommend staying away from the stock.

It’s time for me to accept that this stock is a scam. And I don’t want to risk having others get hurt by this scam.

My only advice here is to stay away – even from the lotto ticket idea. You are likely just throwing away your money.

It is with deep sadness and regret that I have come to this conclusion. I was such a deep believer in this company, the idea, and the potential to change an industry for the good.

It’s not just losing money that hurts here. It is the fact that I decided to pick this stock of all stocks to get behind and to write about.

It’s crazy for me to even think about it. I am mostly – 95% plus – an index ETF investor. I don’t like penny stocks and never intended to be involved with one at all. That I picked this stock with a lying thieving CEO, an idiotic management team, and a cavalier toxic view against shareholders absolutely sickens me. It is toxic – so I am done.

I believe a better and more honest management team possibly could have pulled this off. But for HMNY it was not to be.

In full disclosure – I am going to hold the shares I have for the 5 years I committed to earlier. I have about 4 more years to go. With this next RS it will be a minuscule number anyway. And I suppose if they go BK before that I can take the tax loss when it happens.

I may poke my head up and write something if there is a really big new development on the positive side. Otherwise this is my last post on HMNY.

So with that – my final apology for those who caught HMNY fever from me or with me. It was fun dreaming, and an interesting case study. Ultimately it was a case study of how management can and will lie to stockholders for their own personal gain.

3 Counterpoints to Silly Motley Fool Story on Moviepass

I take it as a bullish sign that Motley fool has the one big nasty hit piece out this weekend on HMNY.  The article “3 Reasons AMC Is Beating MoviePass at Its Own Game”     is so bad that I felt like a counterpoint to each of their reasons would make sense.

Motley Fool has helped more people lose money than just about any site out there, they are pumpers, dumpers and make horrible calls on a regular basis.  I called it quits with Motley Fool after they made multiple very bullish calls on 3D Printing Stocks.  I was a sucker and believed the hype on that one.  Not that 3D printing isn’t amazing and holds a bright future.  They were just bad picks and bad timing for Fool readers.

The fools and the Fool pumped these dogs like crazy, the hyped never delivered.   I have seen the Fool website be wrong so often, I can hardly recall a time where they have been consistently right.

Now, of course, I have to acknowledge I have been wrong on HMNY to date.  I get it!  My call on Moviepass sucked even worse than Fool’s call on 3D printing!  But I must say, it is a bit different here.  These were established companies with years of revenue and profit behind them.   While by no means were they “safe” investments – you don’t expect to see the bottom fall out of companies of this size, with such huge projected growth.

OK – on to the matter at hand.   Motley Fool contends 3 Reasons AMC is “winning” of Moviepass.   Let’s take a look at each claim.

Claim #1- AMC can do Marketing in their own theaters.   That is true, AMC owns the theater, and they can promote whatever they like on their screens.  Now, does anybody think for a second that Moviepass has a hard time getting publicity?   No- me neither.  Unfortunately, as of late, most of that PR has been negative.   I fully expect that when Moviepass turns the corner, the PR will change for the positive, and will do so with a massive comeback kid story.  The amount of free marketing that Moviepass has received as a startup has been nothing less than mind-blowing.  There are still plenty of people who loath AMC for being hyper negative and aggressive against Moviepass.   If Moviepass does make a comeback I expect the free PR to continue.   If they continue to grow larger than AMC – expect the press to start covering Moviepass as the leader and innovator in the space.

Claim #2 – MoviePass has devalued itself this summer.   Hard to argue that Moviepass didn’t have to change their plans to kill the hogs and abusers.   And the summer was obviously a rough ride. But does that really mean AMC is winning?  I agree that heavy users who have a viable AMC option can see more movies for less on the AMC plan.  As many have argued, AMC actually did a great service to Moviepass by sucking away a big chunk of the most costly Moviepass users.  It was like a gift to Moviepass.  They could not get rid of these people fast enough.   Remember – AMC has something like 23% market share – the vast majority of the moviegoing public does not have a good or viable AMC theater option available to them.  Customers like choice, and having the option to choose whatever theater they want to go to remains a valuable feature for most moviegoers.

The most important point here is that most people don’t see more than 3 movies a month.  They simply don’t have the time or the desire to go to the movies that often.   So why pay twice as much to lock yourself into AMC if you really don’t see yourself going all that often as a casual moviegoer.  And that is the key, Moviepass wants to get the casual moviegoer, they guy or gal who normally sees around 4 movies a year, and try to get them to go more like 8 times a year.  This is where the business model works the best.   And it works best here for a few reasons.   First, because it keeps utilization rates lower for the Moviepass subscriber base – which helps keep COGS down.   Second, this group of casual moviegoers is attractive to Hollywood for marketing purposes.  Heavy moviegoers are great for Hollywood, and Hollywood loves them.  But for marketing purposes, when you are trying to move the needle on a film, getting the next group down from heavy users is really important.  It is sort of like going after swing voters in an election.  You spend your money on those who are undecided, who might not bother getting off the couch and going to the theater.  The guys that go all the time, they will likely show up anyway, the casual user, they need a little more prodding to get them to turn up to the theater.   This makes that casual group a sweet spot for Hollywood to deals with Moviepass to push that group to go see a particular film.   If Moviepass can keep their numbers in the millions, and use their Moviefone audience to push audiences to certain shows, it will be an advantage over AMC.

Claim #3 – Sustainability “The fatal flaw with MoviePass’s original model is that it doesn’t have full control of its input costs. It has to pay retail for the movie tickets it’s buying for its members, and that easily adds up to more than $9.95 a month.”  This reasoning has been claimed over and over again by the bears and bashers.   When the service was unlimited and had a lot of really heavy users, the argument held a lot of merit.   Now the argument is much weaker.   It is true that Moviepass has been slow to get to deals with theaters – they have admitted as much.  But it is a lot less clear that having physical assets is a big strategic advantage in today’s marketplace.   The argument that “controlling all the operations” is a big winning strategic position seems like an idea from yesteryear.   You don’t see Uber very concerned about not owning the Yellow Taxi companies.  You don’t see AirBnB very concerned about not owning hotels, resorts, or vacation homes.  Even lowly Amazon seems fine not holding all the inventory for items they sell online.  The argument that Moviepass can’t be successful without owning the theaters seems suspect, if not downright ridiculous.

Final thought.  With the recent changes, Moviepass is not playing a very classic disruptor role.   Moviepass is now IS NOT for the high-end heavy user, and that is a GREAT thing.  It follows the disruptive innovation model much closer with the new plan.  

The offer from Moviepass is now a classic move of coming in at the very low end.  They are offering a lesser service for a low price, that only appeals to the lower end of the market.  Naturally, this market and these customers are less appealing to established players like AMC.  AMC is looking to maximize profit and to do that they look to create more margins by offering fancier options to their most loyal customers.  In fact, it actually makes perfect logical sense for AMC to ignore Moviepass as they move into the low end of the market where there is little profit to be had.  From AMC’s perspective, the logical move is to move higher upmarket and leave the low-end low-profit space to new entrants.   This is classic disruptive innovation.    None of this is to imply that AMC is purposely doing something wrong or stupid.  AMC is trying to save and optimize their profits – that is what management is SUPPOSED TO DO!   It will feel to AMC and some others that AMC is actually winning.  But what they are missing is that the incumbent just allowed a new entrant to get a toehold in their marketplace.

What naturally happens after a new entrant moves into the low end of a market is they continually innovate and find new ways to move upmarket and take increasingly large pieces of the market.  At the same time, the incumbent keeps trying to optimize more and more upmarket in an ever increasing race to find fatter margins in the highest end of the market.   Eventually, time runs out for the incumbent and they are overtaking by the new entrant.   This pattern repeats time and time again across multiple markets.    Steel, Automobiles, TV’s, Computer Chips, – even Netflix vs. Blockbuster and then HBO, –and many more industries have experienced this exact phenomenon.  There is really no reason to believe that moviegoing is immune from this well know theory.

Chapter and Lesson #6

Winning is habit. Unfortunately, so is losing.  

Vince Lombardi
 

 

My next move at Microsoft happened fairly soon after I joined the Windows Team, by this time I had delivered some cost-saving measures for Product Support issues, and I had also got some experience working on Windows as a Product Manager handling the details of delivering the retail box of Windows for resellers.  It was 1996 and the Internet “Browser Wars” were starting to really heat up.   With new urgency around winning on the Internet, Microsoft Executives decided to carve off a team of people to focus solely on battling with Netscape and their market dominant browser Netscape Navigator.    I was offered a choice to stay with the Windows Marketing team or move to the new team that would be focused on marketing Internet Explorer.

There was no specific job that was set out, they were going to figure that stuff out later.  So I had a choice to join this new “Internet” thing, or stay with Windows and keep working on the “old thing”.   This was an easy choice for me.  It was obvious the Internet was going to change everything, and while I had been young and dumb in the past, not seeing the future and the opportunities ahead.  This time it was so blatantly obvious how big this was going to be, I jumped at the chance to join the Internet Explorer (IE)  Marketing team.  The guy heading up the IE team was a young up and coming executive named Yusuf Mehdi.   Yusuf was extremely charismatic, smart and charming, with incredibly strong marketing instincts, killer intellect and deft PR and public speaking skills.  He had made a name for himself with the Windows 95 launch, and he was set up to lead the Internet Explorer marketing effort under the tutelage of Windows Marketing Vice President Brad Chase.  Yusuf had a hot job, and was recruiting some of the best marketing people from across the company, he was set up for great success.   

A lot has been written about the browser wars, and I won’t bother trying to cover that in any detail here.  The browser wars are well documented because of the antitrust case they eventually brought against Microsoft in May of 1998.  Amongst the many charges against the company the DOJ claimed.

  • In May 1995, Microsoft executives attempted to persuade an internet browser software competitor–Netscape Communications Corporation–not to compete with Microsoft and to divide the browser market, with Microsoft becoming the sole supplier of browsers for use with Windows 95 operating systems and with Netscape becoming the sole supplier of browsers for non-Windows 95 operating systems. Netscape refused to participate.
  • Microsoft unlawfully required PC manufacturers to agree to license and install its browser, Internet Explorer, as a condition of obtaining licenses for the Windows 95 operating system.
  • Microsoft now intends to tie unlawfully its IE Internet browser software to its new Windows 98 operating system, the successor to Windows 95.
  • Microsoft continues to misuse its Windows operating system monopoly by requiring personal computer manufacturers to agree, as a condition of acquiring a license to the Windows operating system, to adopt a uniform “boot-up” or “first screen” sequence specified by Microsoft. This sequence determines the screens that every user sees upon turning on a Windows PC. Microsoft’s exclusionary restrictions forbid, among other things, any changes by an OEM that would remove from the PC Microsoft’s Internet Explorer software or that would add to the PC a competing browser in any more prominent or visible way than the way Microsoft requires Internet Explorer to be presented.

Some of the claims were accurate, some were not.  And for the purposes of this book, they don’t really matter now.

What was important was that Microsoft had a strong preference for winning.  They were aggressive, they hired what they believed were “A Players”, they had a culture of winning.   It was sort of just assumed, that if Microsoft was going to go after something with all of its power and will, they likely would win.  This was all prior to the DOJ case and settlement.  Things were very different in those early days.

My personal experience was one of great learning, fast pace working, and a feeling of teamwork and comradery I would never again experience at Microsoft.  Because we had a small team, I was fortunate to wear many different hats and do many different types of Marketing and Product Management jobs in a short period of time.  Nothing beats the feeling of winning a big battle and doing it with a team of people who work well together, who you genuinely enjoy working with.   Yusuf and Brad were both great leaders of that team and effort, and they had a great set of people they pulled together from across the company and industry to decisively win.

It was tons of fun- the most I ever had while working anywhere.   If you are competitive, being on a winning team is super important.  There’s a reason that great athletes late in their career only want to play on teams that have a shot at winning a championship.  After they get all the money, fame and respect of being a great player, they realize, nothing compares to winning.   

Learning Lesson #6  It is better to Play Backup on Winning Team than be a Starter on a Loser.   I think this holds in business and beyond the business world.   I would rather be a group manager at Facebook than an Executive VP at MySpace.  I would rather have the 3rd spot at Wide Receiver on the Super Bowl team than the 1st spot a team that didn’t make the playoffs.   Winning is fun!  Losing sucks.  In business losing is fatal.  And when working in technology it is a horrible and thankless spot to be in.

I spent time on several winning and dominant teams and a few real losers at Microsoft.  Windows, Windows Server, IE, those were great times.   MSN, and a lot of my time on Bing, well, those were often very tough times and not nearly as fun.

If you know you are on a loser, try and find a way to get traded, or move to a winner as fast as you can.  Sitting on a sinking ship is thankless, and no matter how much your boss, your co-workers, or your employees seem to need and want you to stay on.   DON’T DO IT!   Play for a winner, even if it means stepping to a lower level position to get on with a winner.   I can’t tell you how many people I knew who left their loser group at Microsoft to go to an obvious new leader – be it inside or outside of the company – and made great things happen.

Staying too long on a losing battle is normally a case of you getting caught up in your own ego – thinking you can turn it around, or you feeling like you are more important or capable than you really are.   Just like the stocks you may own where it is almost always better to kill your losers and keep your winners.  You should do the same with jobs if you know you are on a losing team get out.  It is a simple strategy, but hard to follow.  I followed the strategy reasonably well, but I wish I had done it even better.