Exposed vulnerability and other topics as well. Warren buffett may miss a key selfimposed benchmark for the first time in 44 years. We will tell you what it is and why he may miss his own goal. Buyoutf the industry say firms should put more equity in the companies versus credit. Our expert will tell you why it is so controversial. First, a focus on the u. S. Governments case against ssc capital. We have been covering the case is the very beginning. Sheila, i know tuesday is jury selection. How long will it take . Class it typically takes one day to two days. In some of these cases, it can take a little longer because they struggle to find jurors not tainted i all of the negative press coverage. Case ofst saw in the the current manager who was convicted in december, they have had a really hard time filtering out all the jurors. One person said, wasnt he selling a lot of art . They had eight negative sense of him. That will take up at least one to one and a half days next week. We have spoken about this. This is the most mysterious element in the case. Why will he not flip . Later . Promised him money conspiracy theories abound. I have zero evidence he has been promised anything, not to turn and testify, but a lot of people are really scratching their heads and trying to figure out why he would fall on his sword. The case against him would appear to be very strong. He has three small children and a lovely wife. Why would he go down on behalf of . There is always a possibility that he really believes he is innocent, which is what he said all along. He may nots the fact actually have the goods the government wants. Both of those things might propel him to go to trial. It is due to happen next week unless there is a lastminute big negotiation. One of the twist or events that has happened is that the government succeeded in getting Hedge Fund Activity stopped and essentially turning the fund into a private and monument money managing firm. What happens next . That was one of the major effects of the indictment that happened over this summer. Charges. Uilty to yes. As a result, it is business as a manager of outside investor money has to shut down. It is effectively over. The fund will now be a private family office. He is estimated to have eight or nine million dollars. It will still be a very significant force in the market, although a leader one. They are shedding entire apartments. They will not need that in the future. Focusing on trading his own money and growing his personal urchin. Thank you as always. From one former hedge funds to activist funds, millionaires took hide profile stakes in Companies Last year and made a big splash and investors are clamoring for a piece of the action. Su keenan is with me now with more on this story. Activist strategies, will they get the lions share of new money. Absolutely. All about following smart money. Activists were a big story this year. Companies from netflix to yahoo grabbed headlines and boosted share price. Investors are piling in activist strategies like never before. The latest data shows total assets rose to a record high of 89 billion as of september. Returns more than double the average hedge fund return. These are still a small piece of the Big Hedge Fund universe, but it is a strategy rising with a bullet. It does not hurt that netflix, one of the biggest gainers of the year, basically making a fortune off of this trade alone. That really tells us this story. It is the big gains that attract retail with the growing view that activists add value. Netflix up 300 . Pharmaceuticals and cracker darrell were other big gainers for 2013. Is a Mutual Fund Fund that is seeing explosive growth. He says he thinks money will continue to flow into activism. He told me that this morning. Ofsays it is because successful strategy, often without any m a taking place. Basicallyrategy follows the Regulatory Filings as well. The investor has taken a five percent stake. The fun only had 7 million in withand it rings in 2014 457 million. 7 million, it shows you. Thank you very much. Here with the very latest on to activeedge funds entrepreneurs. We bring in internet and media pioneer, part of the team that put first of the red web browser in online service. Com, which reached a public value of 1. 5 lien dollars two years ago. He founded at keeper. Com. Resume. A very long i just like to give the highlights. It is wonderful to see you. As far as media and tech and social being everything and location being everything, what do you think will stand out this year . Social is now a part of everything. Classicyou are a department store, youre saying, how do i use the Facebook Graph or create my own graph on top of it . Interesting topic. Is there a single graph for social . Facebook clearly admitted it. Going forward, it is everywhere. They are the big daddy of it. He saw the u. K. Study were kids were abandoning. You saw the u. K. Study where kids were abandoning. Come and go. Microsoft used to be more of a powerhouse. One of the things is the social graph. The master graph and subsidiary graphs. What about twitter for example . We have been talking about the stock price a little bit and the idea twitter could even knock off youtube. At one point, you went to youtube for video where people would tweet, this is my video. Now, you could actually get longer through fine, snippets and longer pieces. Twitter is mobile. Your phonely have number. I do not think twitter becomes the place for video. It is a place for video. I think existing players, and they are all fighting each other, the amazons and the hulu and youtube wants to play longer forms so they will morph as well. Twitter is a great place for broadcasting. People do not make a prof proper distinction for twitter and facebook. Facebook is my twitter is my friends and linkedin is the people i want to know. I do not think twitter is the video plays going forward. It is a good place for clips. If we want specific, longform, we will go2net flicks and amazon, both doing a really good job. What about twitter . In reference to the stock price, what do you think about the idea, it is for everybody. Everything is free. But if i want to what if i am willing to pay to get feeds from people i am i respect and help me generate ideas tell me do my job better . Has beenw york times very successful with the pay wall after years. Get aroundways to the pay wall, which i will not get into here, but they give you eight tastes and we will see that with others. Job withs doing a nice advertising. Everyone said how little facebook handled with advertising. They will be successful there. You have to look at anyone who has audience and has diversified i have the say, do opportunity or are there certain stars on twitter that would i would want to charge on my feet and they would logically follow them, as they have for others. I think we will see a celebrity at some point. In 2013s record release was phenomenal. I think they will probably follow some very wellknown people or brands and say, we can actually manage that. For only 30 . You took a fouryear hiatus and then tweeted out this morning, hello, is this thing on . It was pretty funny. I have to ask you about the larger message of the snap chat snafu and issues of privacy. We will continue our conversation. We have a quick eight to take. We will also talk about one half hemissing a pretty big goal outlined for himself. If he does, it will be the first time in 44 years. Mobile news app quickly gaining, following among some of the more founderng vcs. And the of an Online School. We two minutes. We are back in two minutes. Welcome back. Were turning our focus now to Warren Buffett. For the first time in 44 years, he may miss ace elf imposed target. Bob rice is joining me now on in 44ubject area one time years for Warren Buffett, we are paying attention. Exactly. He said his goal is to outperform the sec as in terms of having his value in his Company Increase more than the index over five years. It was a little tricky to pull off this year with the s p 500 up 29 . It was. We will forgive him. He have had he has had other times of underperformance. Unperformed until the bubble burst. Check out this number. It is pretty amazing. His investments have increased 586,000 . Class so nobody else cares. 7400 since 1964. That is remarkable outperformance. Yes. That is a fine ratio. Fundsng of which, hedge would love to have those kinds of returns and any other investor in the world stack up to that . The numbers show us important lessons. I am sure Warren Buffett, youre just saying, do not do that well this year. By comparison. It is because he is doing things like investing in hard assets producing income instead of twitter. He is making better risk adjusted returns. That is the point. We can show that numerically and it is very interesting. You cannot just focus on gross return. You cannot. That is the main message from alternative investing in hedge funds. You can underperform while making smarter bets. Over time, smarter bets will give you the kinds of results Warren Buffett has shown. If we bring up, for example, the sharpe ratio which you sent us this morning. I am sure we have it. The arrow. Line with here is the information ratio. A little different than sharp. We will show you that in a second. The ratio is the amount of risk you take to generate your alpha. Where buffett is, way over there all by himself on the right hand of the chart, as opposed to all of the stocks that have been around for 30 years. He is off the chart in terms of alpha for the amount of risk he is taking. If you look at the simple sharp ratio, you will see something similar. You will see he is outperforming the market almost by to ask. Of 76. Ratio all stocks, sharp or nine. 49. He has outperformed every mutual fund on the basis that has existed over the last 30 years. That is how remarkable his performance has really been. How does this fit in with some of the other themes and theories we have talked about . The people you all talking about efficient markets and active management does not work, you cannot explain this any other way. You can just say two words, Warren Buffett. And you are done. It is a funny thing. One of the interesting things to me is the sharpe ratio we just showed you is dramatic and impressive. Less impressive than people would expect. There are managers where people would say, i am generating a sharp of 1. 5 or two. What is going on . What it shows you is consistency over time really generates fantastic returns. Good news for all of us. We do not have to be amazing esp type market makers. With ado really well solid strategy over time. A nice idea to start the new year. Thank you, as always, joining us there from tangent capital partners. We have a quick rate to take. When we come back, more with our special guest host. We will ask him what he thinks about netflixs is potential new pricing schedule. We bring back our guest host for the hour. Talking about privacy. This headline just crossing. Being sued over allegations of messages. Sers rioted snap chat, its system is shown vulnerable even after multiple warnings. It had a big snafu it is now trying to deal with. What do you think about all of the lipservice Tech Companies have given to the public echo we care about security and privacy. Now two services a lot of people use are clearly showing weakness. One, theis a third nsa. That is the granddaddy. There is a difference a different time. Go to the other two. I did not know facebook was scanning. It just happened. I bet if you read facebooks the of service, they have right to do that. Facebooks private messages are akin to google and gmail. I am sure the terms of services we get to do with what we want and we will keep it private, we will use it to your betterment and introduce you to friends and whatever, you have a facebook one over here. The snap chat one is tougher. Its create it creates a new level of distrust across the entire media. Quest that was the point of snapshot. It data disappears in five seconds. Quest you can keep a snap chat photo because you take a screenshot from your iphone. That is a different issue. The snap chat issue is more that your passwords are now Something Like 4. 5 million of them out in the open. The problem is people are awful with their passwords. I am sure you are. The problem is we use them in multiple places. If you steal from snap chat, you can probably get into a lot of other things. It is an issue for snap chat. They will get over it pretty easily. But it is one more in the arm armor for people trusting the medium. Quest for business, there will be an avalanche of new companies to keep that promise all of our conversations private, and keep our data private. I feel like, if youre going to watch a security company, this is the year to do it. Security is an issue. I have gotten to know reputation. Com recently, doing business with them. Their whole purpose is to make sure you your reputation is good online. I think that is interesting. Ating the ephemeral rep web, people do not think everything ive ever done on facebook should be visible. Ive always assumed it is. I view it as, i will never post something on facebook that im not happy for the world to see and the world to see 20 years from now. But it is interesting. The reason for snap chat turning down the alleged 3 billion of facebook is they believe there is a concept of a femoral social network. If that is true, they may be as big as facebook or twitter. 3 million compared to the 30 or 40 billion and facebooks hundred or 20 starts to sound appealing. Quest i want to ask you about netflix, the idea of original content creation. You have worked at leadership positions at only almost every Media Company there is. Who will win, netflix versus youtube versus amazon . While it sounds easy and rolls off the tongue, netflix comes out with Something Like house of cards which is awesome and i cannot wait to see the next thing, i read subscribed to netflix after being pissed off at what reed ago,ngs did a couple years we learned, if you get one good show, and we saw this on amc with madmen you get another and another and make a network deck a network. Has become a musthave, along with amazon looking to do its originals and it changes everything. Hold that thought and we are back with more in just a minute. In the meantime, it is 26 minutes past the hour. That means it is time for on the markets. A quick snap chat snapshot. More on the markets in 30 minutes. We focus on innovative alternative investments. Here are your Bloomberg Top headlines at this hour. Chrysler will now be fully owned by the italian carmaker. The ceo of both chrysler and fiat agreed to buy the remaining stake in chrysler from the autoworkers health care trust. It will put up most of the funding for the deal, valued at close to 4. 5 billion. Cosmetics maker revlon is shutting down. It has not been able to get much traction there. It counts for two percent of sales. It will cut about 1100 jobs. Snap chat is facing a massive security breach. User names and phone numbers for as many as 4. 5 million accounts have been leaked by hackers. This comes months after the photo sharing site was warned its data is vulnerable. Shifting gears and a look at what is going on in d. C. , minimum wage will be front and center when Congress Comes back from vacation. We will take you there now. Phil mattingly with me now with the details. Statelevel changes are serving as the spark for a larger federal push. What is the idea . It has been really interesting. As of january 1, 21 states now have a higher minimum wage than the federal threshold of 725. What this has done, it has latched on to the populist movement. Now federal legislators are looking to back up with it as well. President barack obama first mentioned this earlier last year. You mentioned it again in a speech and you will see it again in this state of the union. Obviously, one major issue, republicans do not want any part of this. Big business is very against this now. A republicanled house and split congress, it is unlikely it will move through capitol hill. As 2004 two elections pick up, keep an eye on this issue. Democrats will handle hammer it going forward. Act isAffordable Care certainly front and center. Recent proms have come to light . That is true. What we got at 9 30 p. M. On new years eve, the Supreme Court one of the a stay on mandates related to contraception coverage. As the Affordable Care act was written, nonprofits that are not owned by a religious group but are affiliated with them, still have to comply with the mandate. If they do not comply, they have a fine. They have petitioned the Supreme Court saying this infringes on their religious rights. What they did on new years eve is put a stay on them having to pay the penalty. The Obama Administration has to respond by friday. Everywhere you look with this law, whether on capitol hill or through the legal sphere, there are always a bunch of issues cropping up. The administration feels good. January 1 totally changed the game because the Affordable Care act kick in. Number of issues will have to keep trying to iron out in the months ahead. Thanks as always. Phil knightley joining us there from d. C. From d. C. And macro issues, back to private equity, the wall street journal is reporting the number of firms employing a strategy of purchasing a companys debt with a buyout is not always go quite as planned. Jason kelly is here, author of the new tycoons. Along with my guest host for this hour. Jason, first of all, there is a credits out criticism that buyout firms should be putting in more equity instead of becoming such strong creditors. Why are people in that industry saying, we should be doing more of that . There is a sense that private the private equity firms are playing both sides of the table. The reason they do it is fairly straightforward from their perspective. They are trying to retain control and figure out a way to still make money on a deal that may not be going the way they expected it to. Withare buying up the debt the idea if it goes to restructuring, they would be able to come out on the other side maybe with control and ownership even after equity is wiped away. And you know the venture cap landscape extraordinary well, where there is ordinarily a lot of equity and you have entrepreneurs saying, i do not want to take the money because i do not want to g