Strong Opinions @marksbirch

Random thoughts from a NYC entrepreneur and investor about start-ups, technology and the people that make it all happen. Also find time for good tunes and good food.
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Fascinating story about how poorly managed software processes unleashed an algo trading “knightmare” that sank Knight Capital.  Of course, for such negligence, they received a whopping fine of $12M.


This is probably the most painful bug report I’ve ever read, describing in glorious technicolor the steps leading to Knight Capital’s $465m trading loss due to a software bug that struck late last year, effectively bankrupting the company.

The tale has all the hallmarks of technical debt in a huge, unmaintained, bitrotten codebase (the bug itself due to code that hadn’t been used for 8 years), and a really poor, undisciplined devops story…


““I’m spending the rest of the day on our product. I believe that that’s what serves investors the best, and I believe that that’s the way it will be rewarded by the market in the long term the best.”

Mark Pincus

After Zynga IPO, Pincus Aims to Keep ‘Startup Feeling’ - Bloomberg

Sound like a convenient excuse for a failed IPO launch and a total misreading of what investors in the public markets value.  VC and angel investors look at the long term because they are (for the most part) sophisticated investors and understand both the risks and rewards.  They realize that the road is long and hard and fraught with few highs but many lows.  Patience behooves the private market investor as it is to the patient the spoils go.

Public markets on the other hand expect positive results EVERY QUARTER.  Then even if you have several quarters of meeting expectations and strong growth, one missed quarter could spell disaster for the company’s share price.  It perverts the entire nature of value and investments.  While Benjamin Graham’s rules of value investing may get lip service, the discipline of buy and hold has gone by the wayside in an era of day traders, global market turmoil, and continuous misdeeds by the banks.  This is in addition to the fact that the default nature of most people is to not be patient and unemotional when it comes to investing and money management.  They do not have the skill and experience to assess the value of an investment in a dispassionate and realistic way with a view towards the long-term.

While the sentiment by Mark Pincus sounds nice in theory, it is not going to change the fortunes of the stock.  The shares may recover over time, but when every tech IPO has trended lower this year and are now all trading below their respective offering price, there is little that Mark or anyone at Zynga can do to improve the stock price.  I believe that Mark understands this to a certain extent, thus the soundbite about working on the product.  The only other tact would have been to admit the IPO was poorly timed and executed.

What serves public market investors long term is short term gains in share price.  It is backwards and it makes zero sense, but that is the market mentality.  If anyone wants to understand the roots of the increasing gap in CEO pay versus that of average workers over the past couple of decades, look no further than tie between the equity markets and executive compensation.  This is also why companies continue to get in trouble for manipulating the books and artificially inflating quarterly results.

The public markets are not the generator of wealth and financial security that they once were.  The new wealth is being created in alternative asset classes and the private markets, where the long-term view is better appreciated and the maddening burden of quarterly results and reporting is reduced.  If anything, the IPO market has become the biggest suckers game in the investing world.