Imitation, The Best Form of Flattery?

  • April 4, 2007

A couple of months ago, I decided to feature an Irish medical research company called ICON plc (ICON) in the February 2007 edition of my free investment newsletter. The focus of that newsletter was closed-end funds and while I decided to add ICON to the InsideArbitrage model portfolio, I was only able to write very briefly about the company due to time constraints. There was very little mention about ICON in the mainstream financial media and the only reason I discovered this company was because I noticed its hiring activity while looking for a new IT project. A few days after writing about ICON, I noticed this article on SeekingAlpha by Mr. Hans Wagner, who runs a subscription based stock picking website called Trading Online Markets.

While I was surprised that someone else decided to write about this little known company shortly after I wrote about it, I was thrilled to see that Mr. Wagner’s article covered ICON in greater detail and I mentioned it to subscribers in the portfolio performance section of my March newsletter.

A month later, I decided to write about EMC Corp (EMC) in the April 2007 edition of InsideArbitrage primarily because of EMC’s decision to file an IPO for its subsidiary VMware this summer. Imagine my surprise when I noticed this article about EMC in SeekingAlpha by Hans Wagner less than a week after I sent my newsletter out to subscribers.  I was not surprised by the fact that Mr. Wagner decided to write about EMC and the VMware IPO, which was commonly known to many market observers, but by the actual content of his article. To illustrate my point, check out the following paragraphs from my writeup about EMC,

“Beyond the data storage business, the reason I am interested in EMC is because of a subsidiary of EMC called VMware that was acquired by EMC in 2004 for $635 million. VMware sells virtualization software that allows companies to run multiple “virtual” machines on a single server or on distributed hardware. Virtualization allows companies to utilize hardware more effectively and this is something that is very appealing to power conscious large enterprises. AMD took market share from Intel primarily because of its power efficient line of server chips last year (if you live in the San Francisco bay area, you may have seen the huge AMD billboard on highway 101 advertising this fact). Beyond hardware efficiency, VMware also allows companies to rapidly deploy and easily maintain these virtual machines. VMware is expected to have sales of over $1 billion this year and is sometimes referred to as the fastest growing software company on the planet.

EMC has decided unlock value in its VMware subsidiary by deciding to file an IPO for VMware this summer, representing 10% of its stake in VMware. EMC’s IPO of VMWare could be valued anywhere between $600 million to $1 billion, giving VMware a valuation of between $6 billion to $10 billion. This is more than 10 times what EMC paid for VMware just three years ago and represents close to one third of EMC’s $29.2 billion market cap.”

and the following paragraphs from Mr. Wagner’s article,

“The primary near term reason I am interested in EMC is their VMware business that EMC acquitted in 2004 for $635 million. VMware virtualization software allows companies to run multiple “virtual” machines on a single server or on distributed hardware. This allows companies to utilize hardware more effectively and this is something that is very appealing to power conscious large enterprises. Beyond hardware efficiency, VMware also allows companies to rapidly deploy and easily maintain these virtual machines. VMware is expected to have sales of over $1 billion this year. Some refer to VMware as the fastest growing software company on the planet.

On February 7, 2007 EMC announced they intend to IPO 10% of its stake in VMware sometime during the summer of 2007. This IPO of VMWare could be valued anywhere between $600 million to $1 billion. This would give VMware a market value of $6 billion to $10 billion, more than 10 times what EMC paid for VMware in 2004. EMC’s market cap is $29.8 billion market cap, making VMware worth a third of the company.”

People have borrowed my ideas in the past and I have borrowed ideas from other investors. In fact the famous investor and founder of Fisher Investments, Philip Fisher also mentions other investors as a source of ideas in his book Common Stocks and Uncommon Profits. But it is highly disrespectful to borrow both ideas and content from a free website without permission or acknowledgement and then make your subscribers pay for those ideas and content.

One might wonder why I would be concerned about my content being copied given that InsideArbitrage is free and I allow websites like SeekingAlpha to redistribute my content. While I have not yet determined what I would like to do with InsideArbitrage, I am trying to build a track record and traffic in case I decide to launch a fund or a subscription service in the future. Someone using my content without permission or acknowledgement does not help my goals in the least bit and can actually have a negative effect as illustrated below.

My content being reproduced without my knowledge has already happened twice in the past but I did not write about it on this blog. The first time this happened, a website was posting my entire newsletter without permission and all of a sudden InsideArbitrage disappeared from search engine results because Google and other search engines imposed the “duplicate content penalty” on my website. I asked this website to stop posting my content and after a few weeks my ranking was restored on the search engines. Given that almost a third of my traffic comes from search engines, it can be clearly detrimental to have almost all your content copied by another website.

While I cannot claim that Mr Wagner did something similar, I felt that it was time I spoke up about this so that subscribers to websites like Trading Online Markets would realize exactly what they are getting for their money.