Archive for February, 2009

Investment Talking

By: ispeculatornew | Date posted: 02.28.2009 (7:03 am)

Every Saturday, The Intelligent Speculator does a review of good read around the blogosphere. Here’s what caught my attention this week:



The Digerati Life talks about investment opportunities upon economic recovery.


Canadian Capitalist tells us a lesson from the Japanese Stocks.


Write a put, buy a put by Where Does All My Money Go.


Another interesting article about Leverage ETF’s by Zach Stocks. Definitely, you should read more about them before trading such financial product!


Thinking the market will collapse? Try learning how to short stocks at The Wild Investor.



Ebay’s Relative Value posted at Wide Moat Investing.


The Ultimate Stock For A Recession posted at The Penny Daily


Quick Take: SOHU.com posted at MagicDiligence.


KMB: Stock Analysis for Dividend Growth Portfolio posted at Dividend Tree.


Wells Fargo: Things May Not Be Well at Wells posted at Dividends Value


Are Canadian Bank dividends safe? posted at Financial Highway.


Carnivals:


Carnival of Personal Finance


Festival of Stocks


Carnival of Money Hacks


Cloud Computing… the next big thing

By: ispeculatornew | Date posted: 02.27.2009 (4:00 am)

Technology is a wonderful thing of course in that it improves productivity and one of the leading changes is the arrival of cloud computing. Nice name isn’t it? Actually cloud computing is quite a simple concept in that it only means internet based software. So instead of opening an excel spreadsheet, you connect to the internet and open a program from your internet browser. The most obvious example is the difference between Microsoft Office and Google documents. On one hand you have Microsoft that has a group of programs namely Excel, word, Powerpoint, etc. But cloud computing is probably something you already use. When is the last time you downloaded Google Maps on your computer? Never of course as you can use it from your browser.

Here are the main aspects i see in such traditional software:

-Usually Purchased physically (cd, etc)
-One time purchase
-New program versions are an incentive to buy a new cd
-Bugs must be repaired through patches, downloads, etc.
-Backups necessary

Compare that to Cloud programs:

-Usually would be paid monthly or annually
-Generally no upgrades necessary
-No support required as any fixes or batches will be made for the user
-Accessible from anywhere that has internet access (increasingly anywhere)

You can see how from the user perspective, there are many advantages in cloud computing because there is less support necessary and no upfront payments. The major advantage of course is that in such an offering, there is almost no limits to the flexibility that can be offered. A small company could purchase only the parts of a software that it will really use, could change its number of licences daily or modify its requirements. And generally, in cloud computing, you can be charged for what you really use, not so much for what you think you will be using a few months in advance when you negotiate with your software provider.

With all of that said, the real question is how to profit from this trend and to me right now it is not clear at all. We are in the opening minutes of this game. Google might be the obvious leader but Microsoft is also pushing hard to catch up and obviously has a lot of advatanges from its dominating existing software. And let’s not focus only on the Microsoft suite as there are countless different software types in specialised fields. To give an example, in the Finance software field, Bloomberg is heads and shoulders above anyone else. But who says a web based company could not provide a comparable service that could be offered at a lesser cost than the 3,000$/month generally charged for a Bloomberg licence.

Long Ebay/Short Knot

By: ispeculatornew | Date posted: 02.25.2009 (4:00 am)

logoebay_x45The current economic conditions continue to provide many opportunities in terms of mispriced stocks in my opinion and I’m now ready to enter into a new trade with two securities I’ve traded in the past although not through the current pair. I’m firstly going Long Ebay simply on terms of valuation. Honestly, seeing Ebay trade in single digit P/E’s makes no sense to me. However, given the current dislike from the market towards Ebay, this trade could have a tougher start than others. Ebay has a fairly stable market, little competition and makes most of its earnings through fixed and variable fees on sold items. On all accounts, you would think that the main threat to Ebay’s earnings would be a big competitor joining the game and taking away market share. While it is not a done battle, so far Ebay seems to be fighting hard and they are fairly diversified in that field with stakes in many smaller players.

knotebay

It is still unclear how Skype fits in the overall Ebay picture, mostly as to how it will be able to make money out of it. The recent news about Nokia creating phones that will support Skype is a step in the right direction although I would not count on it yet. And again, Paypal, the online payment solution by Ebay seems to be discounted. It has a very important position in the market and again is far from being challenged right now giving us hope that the very tough ride of Ebay stock might be coming towards an end…

theknotOn the other hand is Knot, the company behind theknot.com, a wedding website that is basically a media company, mostly online but it also has offline publications, all geared towards the market of young (and not so young)

couples wishing and planning to get married. Of course, the problem is the very public problems for media companies in this slowdown as companies in every sector of the economy cut down on their advertising budgets. Many offline publications have gone on the road of bankruptcy and it’s difficult to imagine that Knot will be able to come out untouched from this tough perio

d. It certainly is a leader in its niche but so is Ebay and I would expect advertising budgets to be affected a lot more than fees such as the ones that Ebay receives.

The downward risks that I see in this trade short term are mostly related to bad news about Ebay’s traffic or number of transactions. An always existing risk of course for Ebay is also the announcement of a new competitor for Paypal, something that is always possible but in recent years there has been less rumors about this and you would think that few companies would have the necessary skills and budget to enter this market.

Disclaimer: I hold no positions on Ebay or Knot

When investing becomes a big giant gamble

By: ispeculatornew | Date posted: 02.23.2009 (4:00 am)

I wrote last week about how playing Bank of America was almost like going to the casino and indeed this week that is pretty much what it turned into with giant swings. Just today, Bank of America was down 30% at one point and finished the day about 2,5% down.

The current environment has been truly amazing to me. But the current environment has been tough psychologically for investors all around the world. Recently, investors have been gravitating towards two main feelings; fear and hope.  Which is worse? In my opinion, both can have tragic impacts on a portfolio.

And unfortunately, many investors are making critical mistakes because of both feelings. Fear will usually tend to get investors to sell their investments and often act with panic. As any financial advisor or specialist would tell you, panic is probably the worst feeling you could have while trading. The most important thing is to remain down to earth. While investors that got out probably will suffer less losses, they will most likely also miss the stock rebound as usually happens in such cases and so they end up losing more.

A more dangerous feeling however might be hope. Why? Because hope tends to get investors excited and into taking more risks than warranted. I’ve seen several cases of investors thinking they know when rock bottom has occured. How bad can it get? Imagine investors that a few months ago decided to get into the action big time. So if you have no money, how can you do it? You can open a margin account at your bank. Then, send money from that account to a trading margin account and invest. Basically, you can be trading 50-60K without having put a dime of capital. And then things turn bad. If you suffer a loss of 20% (very possible in this environment), then you have actually lost 12K… and at one point, the loss becomes more psychological than anything else. And instead of investing with your head, you are always looking for homeruns, for that one trade that will help you get back into profit territory, and that’s when things usually get even worse… Read any trading book and they will all tell you, the most difficult aspect of trading has never, and will never be the technical aspect. It’s always about sticking to your system when things go bad or when they go too bad…

Unfortunately, I think such mistakes can have very long term impacts. If you are a speculative investor, set aside money, an amount that you can lose, and separate that amount from any retirement fund or any other specific goal that you might have. And use discipline. If you have reached your “stop loss”, get out of the market. Don’t all of these also apply to visiting a casino? Told you.. these days, for most investos, the difference is minimal between the two…

Investment Talking

By: ispeculatornew | Date posted: 02.21.2009 (7:39 am)

Every Saturday, The Intelligent Speculator does a review of good read around the blogosphere. Here’s what caught my attention this week:

Canadian Capitalist makes a review of CIBC Index Mutual Funds.

The Dividend Guy Blog shows how to use Stock Screens and talks about his own criterions.

Zach is talking about Obama’s plan for homeowner affordability and stability. Hopefully it will gives a little push to the economy and the market!

The Wild Investor takes another look at Netflix.

The Smarter Wallet presents 5 Stock Sectors To Avoid In A Recession posted at The Smarter Wallet

Primus Guaranty (PRS) Earnings Notes posted at College Analysts.

Fundamentals vs Technical posted at The Sun’s Financial Diary.

Do not use a Leveraged ETF for Hedging posted at OneMint.

Dividends4Life presents Stock Analysis: BP Plc (BP)

Investing School presents 30 Components of The Dow Jones Industrial Average Index

IACI actually makes a good move

By: ispeculatornew | Date posted: 02.20.2009 (4:00 am)

matchIAC Interactive, a company I shorted with success (vs Google) on a January 23rd trade is involved in several internet businesses that are seeing a major slowdown, especially in the finance sector but also in dating and its main property is Match.com, one of the main internet dating properties. The problem of course is not caused by the lack of users. There is arguably more and more internet users looking for love online every day and as such it certainly looks like a great business in theory. The problem of course is that there exists an increasing number of ways to get this done without paying any fees.

Users can now use social networks such as Myspace or Facebook to look for prospective lovers. And there are even some very important dating sites that do not use paid memberships as a business model. One of the sources I use to get information about the business of online dating is on the blog of the founder of PlentyofFish, arguably the most important free dating website in North America. He has written about how even Match.com has launched (although under another name), a free dating service. And the industry is certainly going through important changes. While leaner companies such as PlentyofFish are able to live off of advertising income because of a low cost structure, others such as Yahoo!, Match.com, etc are finding it a lot more difficult. And there is no question why in my opinion. They have a lot more resources than needed in most cases. Look at Match.com and you will see they have offices in Dallas (Headquarters), Beijing, London, Madrid, Munich, Paris, Stockholm and Tokyo. Say what? Why in the world do they need all of those offices? Just does not seem like a winning combination.

But actually, today IACI made a good move selling its european operations of Match.com to Meetic.com, the leader in that market. Of course, if it was a great move, IACI would be selling the company for cash. But instead, an important part of the deal is in stock of Meetic.com. But at least, perhaps Match.com will put more energy on the US market. In my opinion, dating is one of those sectors that is very difficult to leverage. It will always be very difficult to compete against a free local website that is popular among the local population.

For example, I live in Quebec where the leader in online dating is Reseau Contact owned by Quebecor, a media company that is very well implemented in the region. So for a US or foreign company to actually make it here would require a very important budget and probably not be worth it. And unfortunately for “Global Dating websites”, it is the case in much of the world. Social networks have somehow gone past these borders mainly through the way they help connect friends not only localy but internationally, giving a more “local” feel to users.

So not a perfect move, but without any doubt a positive one as Match.com will spend less energy on Europe and perhaps try to be a leader in the US….

Closing PCLN vs AMZN

By: ispeculatornew | Date posted: 02.19.2009 (8:10 pm)

Quick note to let you know that I will be closing off the Feb 2nd trade of LONG PCLN vs SHORT AMZN tomorrow. Amazon did not go down as expected but great results by Priceline were enough to insure a 21% return. Will confirm the exact profit tomorrow when market opens..!

PCLN & NILE announce results

By: ispeculatornew | Date posted: 02.18.2009 (5:06 pm)

Just a quick note to let you know that the trade I had reported to be struggling a bit on last time seems to have taken a major positive step today as PCLN announced impressive results with 21% of increase in revenues. Because of these results, PCLN is up over 10% after hours which will help in a big way with the AMZN vs PCLN trade.

As well, Blue Nile, the online jewelry announced very disappointing results with a decrease from 111.9M to 85.8M in sales. I no longer have an active trade on this stock but was looking into shorting it again. Given its dismal results, I will re-evaluate but I can’t regret not being in my position since it did return 30.46%! However, kudos to Zach who had suggested remaining short this one.

And finally, a quick word on today’s trade which has already returned 9.69% on GOOG vs VCLK mostly because of a decrease in VCLK…!

All for now!

Long GOOG/Short VCLK

By: ispeculatornew | Date posted: 02.18.2009 (4:00 am)

The current economic context is certainly giving nice opportunities in the long/short market. I’ve been looking at trading Valueclick(VCLK) and was initially going to short the stock. I’m glad I waited a little because the earnings came in over estimates resulting in a 10% increase overnight. But I still believe the fundamentals of the company are wrong and do believe it is becoming less of an acquisition target because of its growth slowdown. As I have expressed in the past, I do believe that Google(GOOG) is in a great position to gain better position in the market.

Valueclick announced earnings last week and came in with revenues of 150M, a 14% decrease from the same period last year. It had some impairment expenses that eventually resulted in a loss of 3$ per share. Excluding the impairment, earnings would have came in at 0,15-0,16$ per share. Valueclick relies heavily on advertising in a few different ways:

-Valueclick Meda: This most important part of the network has been losing ground to Google in many aspects and while it is well positioned in terms of display advertising, we believe its weak position in “contextual advertising” will continue to hurt the rates (eCPM) it can get from advertisers. As well, consolidation in the market has hurt as advertisers are spending their increasingly important online budgets in fewer areas.

-Comparison shopping websites: These have performed very well in 2008 and seem to be a portion that is growing in the business. However, these are and will be coming under pressure as it is a very attractive segment with almost no barriers to entry. In fact, this segment had growth of about 50% during 2008 (from 113 to 177), something we personally think will be very difficult to maintain.

-Lead generation: Valueclick has an important network of publishers that use them as it takes a portion of publishers earnings. In theory, this could be a great growth segment but it seems like Valueclick has not been as innovative as some competitors (mostly private companies) have been and thus they have been losing important clients such as Ebay. As of right now, we do not see any reason to believe there will be a turnaround here.

-Basically, this is a pure play on online advertising as both companies depend almost entirely on online advertising. As we had explained when doing the pick of GOOG vs IACI a few weeks ago, we believe that Google is uniquely positioned to come out a winner from the advertising slowdown because it has ample free space to add advertising, has been innovative and because of its crucial market share that makes it the first place any advertiser will start spending its dollars on.

Downside risks of this position: We see two main risks here:

1-Google has been under 300$ recently and with markets looking fragile, it could be back there in a hurry which would put short term pressure on this pick

2-Valueclick has and will remain a possible acquisition target. The risk has been going down as their numbers have not been as impressive in terms of sales but also as potential buyers such as YHOO have seen their position become too fragile to get into an acquisition mode…

Disclaimer: As of writing this, we are long VCLK but will revert to go LONG GOOG and SHORT VCLK

US..think your economy is sick? Look at Japan to see how bad it could be

By: ispeculatornew | Date posted: 02.16.2009 (4:00 am)

Since the start of the crisis over a year ago, much has been said about the similarities and differences between the current slowdown and the “lost decade” of Japan, a slowdown that affected the world #2 economy for well over a decade and which it has yet to recover from. There are many differences of course, but a lot had been blamed upon the reluctance by Japanese authorities to let “sick” financial institutions go down. And at least in that regard, there are many similarities with US authorities trying to save several US institutions (although even letting others fail has been regarded as a mistake by many thus confirming that there is no way to come out on top in such a context).

And today is a grim day even by Japanese standards. They were set to release their GDP for the last quarter and estimates were very negative with a consensus of a -11,6% decline. But it came out a lot worse actually, with a 12,7% decline, the worst since 1974. Exports of cars and high end goods such as tv’s. And of course the rising yen is not helping at all. So exports came in with a decline of 13,9%. “There’s no doubt that the economy is in its worst state in the postwar period,” Economic and Fiscal Policy Minister Kaoru Yosano said in Tokyo. “The Japanese economy, which is heavily dependent on exports of autos, electronics and capital goods, has been severely hit by the global slowdown.”

Is the same to be expected of the US economy? Thankfully, not for now at least as the US economy is less dependant on exports and its major stimulus should be able to get things more stable. Of course, a deterioration of either the real estate markets or confidence in the financial markets could put more downward pressure leaving the Fed and Treasury will little left to do.

And perhaps the worst scenario would be the one where the world starts to lose belief in the US dollar and in the ability of the US government to pay back its debt. There have already been hints that countries like the US could lose their AAA credit rating and that could be setting a very dangerous background for the world in general.

Am I being dramatic? Perhaps. But let’s not forget that Japan is one of the major economies in the world and the US is not beyond such tragic problems. It is important to act as quickly as possible because once you reach a point like Japan has, there is little left to do except wait for things to get better, and as Japan has discovered, once that happens, you are in for a long wait.

The positive aspect about all of this is that everyone seems to agree on the urgency of the situation and the need to act now, which might be what saves the US economy in the end…