Intelligent Speculator

Last year, as I was preparing my picks for this competition, one of the big questions I was asking myself was if I should go for a homerun or not. The best way to go for a homerun is to build a scenario and take all 4 picks according to that scenario. Of course, if things go right, you will be very difficult to beat. But that also leaves little margin for error. A few of other contestants did just that, especially around oil prices. I also felt like oil would go up (hence my pick of USO) but was not convinced enough to put everything on that bet. And I am glad I did!!

As you can recall, I did take two companies based on economic scenarios, GLD and USO, as I expected gold and oil to rise in 2009 as fears of inflation and economic recovery regained traction. Turns out I was fairly right on both counts but that is not how I ended up winning the stock competition.

Rather, I won the competition by taking two tech stocks that I felt were much undervalued, Baidu and Ebay. Both of them enjoyed terrific returns as Baidu continued to fend off Google’s offence in China. Meanwhile, not much good news came out of Ebay in 2009 but the stock had been beaten up so badly that it actually did perform very well in the year.

Given the stock market returns this year (S&P 500 = +24, 36%, S&P/TSX = +30, 23%), any stock pick above 20% would be considered somewhat of a success:

So here is the recap for my 4 stock picks:

GLD (ETF on Gold)        +24, 01%

Gold has been discussed so much in recent months as it was able to rise well above the psychological 1000$ barrier. I can’t say I’m unhappy with this pick as it was also good protection in periods of downsides in the markets.

USO (ETF on Oil)           +18,67%

Actually happy this one did not perform too well. Other contestants had big bets on oil so a major spike in oil would have helped my performance but would probably not have helped me stay at #1 in the rankings!

EBAY (online merchant, owner of Paypal and partial owner of Skype)         +68,62%

I don’t consider that Ebay did much in terms of improving things in 2009. In fact, getting partially rid of Skype was major mistake and if they do get rid of Paypal as has been discussed, that would be another major mistake. Paypal has a dominant position in the exploding electronic payment systems market and if they do innovate quickly enough, it could mean some big numbers in the future.

BIDU (search engine, ranked #1 in China) +214,95%

Baidu got slammed because it was caught selling ads without notifying users and sometimes even tricking users. But as I had expressed, Baidu operating in China is a major difference and the way it abides laws should not be compared with how US companies such as Google must do so. Of course, that makes it very difficult for Google to compete when it cannot offer illegal downloads to compete with its Chinese counterpart.

In a few hours, I will announce my picks for 2010; hopefully they can do as well!

Here are the results of my fellow competitors!

Merry Christmas everyone! This will be a quick message, mostly just to wish everyone great holidays. Hopefully you will get to spend some valuable time with your friends and family! 2009 has been a captivating year in the markets both because of their movements but also because of huge stories such as the Madoff ponzi scheme.

We will be publishing results of the stock picking competition next week and also making picks that will hopefully set us back in front in 2010.  I think the major themes in 2010 will be commodity prices for oil, gold and others but also where the US dollar will head. That will make for a very interesting year in the markets.

In the technology field, I cannot wait to see how the battle for the cell phone (Iphone vs Blackberry vs Google Phone?) and now the electronic readers as Apple gears up for the launch of its tablet! Let’s just say things will get much more difficult for the Kindle when that happens.

And finally, ETF’s will be very interesting to follow as Alpha ETF’s become more trendy and as they continue to take flows that used to go into mutual funds!

So that is it for now, best wishes to everyone and thank you so much for being a loyal reader.

On Monday, we took a look at the ten ETF’s that had the best returns so far in 2009 and what could be drawn from such results. It is probably as important to look at those who did poorly and in this column, we take a look at the 10 ETF’s that have the worst returns so far this year. You would certainly expect to have a few leveraged ETF’s in here. It’s no secret that owning a 2 or 3 times bear ETF on something that keeps going up will turn into a disaster.

Worst ETF’s so far in 2009 as per their return

And yes, as expected, leveraged ETF’s are a big part of these worst performers. Poor Direxion has the 3 top ETF’s in this category but you would probably expect that when you offer ETF’s with 3X the exposure.  What I am surprised about is that for the best performers, a few picks were not leveraged ETF’s but all 10 ETF’s listed here are leveraged. Lessons? Again, I would argue that unless you are truly going for a homerun, I would not use a leveraged ETF for long term investing (the key here being the point that I consider 1 year to be long term).

Here is the chart for the past few months for FAZ:

Of course, with the complete collapse that financials suffered in 2008, it was doubtful that being short financials would be the trade of the year wasn’t it? I would say that generally, picking the same trade that was a winner in the past year will rarely be the result. So do not expect me to pick GLD, BIDU, EBAY or USO for my picks next week.

The other non surprising result is that leveraged ETF’s that were emerging market bears did not do well. An economic recovery is obviously very good news for emerging markets as they have a strong beta (they usually go up and down more than the developed markets).

Seeing these results also helps me confirm that I will not be picking any 3x leveraged ETF’s. I am not 100% decided on 2x ETF’s but I would say that I will probably stay far from those as well.

The next year is only days away now and while many of us are thinking about Christmas, holidays and others. It is also time to start looking at what will be the better investments for next year. Over the next few weeks I will be writing about possible winners for 2010 as well as announcing results for the stock picking competition that I was part of (was leading after Q3), making my 4 new picks for 2010 and many others. So no holidays for me!

I think one of the best ways to get ideas about the best ETF’s for 2010 is to look at what has worked so far in 2009, so here are the top performing 2009 ETF’s as of Friday’s close in the US!!!

Top ETF’s so far in 2009 as per their return

Surprised? I guess it’s not a huge surprise to have a few leveraged ETF’s at the top. They offer so much possibilities that if you pick the right one, you are sure to make a good return. Of course, there are many risks involved in leveraged ETF’s and I am far from certain that I will be picking a leveraged ETF in my picks for 2010! I have always liked leveraged ETF’s as trading investments, not as long term investments. Does one year count as long term?? I guess that depends on each investor.

So here is the chart from TYH, a 3x leverage on technology stocks in the past few months:

If I had been asked to guess what the best non leveraged ETF had been, I would have never guessed that it was RSX, an ETF that tracks the Russian stock market. It is also quite interesting because Goldman Sachs has actually said that being long Russia is one of their top trade recommendations for 2010!

Commodities like Oil and Natural Gas???

We (I’ll take the blame as well) tend to discuss Oil, Natural Gas and Gold when discussing commodities and it is no surprise to see that a few of the top returning ETF’s in 2009 have been commodities. But not the ones we always hear about. Rather, ETF’s on coal (KOL, PKOL), lead(LD) and Copper (JJC) have been solid enough to make the top 10 list!!

It is certainly interesting to see that despite all of the talk about clean energy and cap and trade, the top returns still origin from the “dirty energy” and older resources. This trend might influence my picks for 2010 as there are no doubt resources that will perform better than the usual picks on oil and natural gas.

Among those top 10 ETF’s, which would you think will perform best in 2010????

Good day to everyone! Wow, only a few days left before Christmas and it seems to be apparent as the stock markets seem much calmer. Volumes were very low this week and even talk of Iran taking control of a part of Iraq territory did not have much impact on oil.  Here are some of the better readings that I enjoyed this week:

It is NOT late to do some moves that will save you taxes – Million Dollar Journey
Debt reduction takes tough love – MoneyUnder30
4 ways to generate passive income – TheFinancialBlogger
Options strategy if oil is going to become stable? – MyTradersJournal
Investment strategy with 10K or less – GatherLittlebyLittle
You hear it over and over but it’s true, start saving early! – MyInvestingBlog
Very good thoughts on Gold – ZeroHedge
10 ETF trends – ETFDB
How important will Natural Gas become? – BloggingStocks

Today was a very interesting day for the mbile makers as what many consider to be the two big Apple(AAPL) rivals announced results a few minutes ago. A few years ago, the cell phone makers were led by companies like Ericsson, Nokia. But nowadays, it is all about smartphone and while Apple is new in the field, it has already set both Research in Motion and Palm on the defensive. And now that Google has its own phone & software (Android), things will heat up for all 3 of these players in the smartphone field.

Remember how internet companies (especially before the dot com bust) were judged more on their visitors than actual revenues/profits? It seems like both of these companies will have to go through similar judgments. Of course, in their case, the big number is the amount of subscribers/users (RIMM added 4.4 millions subscribers).

For Palm, let’s face it, expectations are quite low as estimates were for a loss of $0.33/share so there will be a lot more weight about their own forecasts for 2010. Do they still expect to be able to turn things around thanks to their newly launched Palm Pre? I’m personally very skeptical about anyone who is battling with RIMM and Apple.

For Research in Motion, it is quite a different situation. While it is having trouble gaining market share and is in many regards behind Apple’s Iphone, the truth is that among business consumers, it remains by far the $1 choice nad it seems unlikely to lose that title anytime soon.

So let’s get down to the numbers…!

RIMM Estimated Earnings Per share: 1,04$
RIMM Result: 1,10$

PALM Estimated loss per share:  .33$
PALM Result: -.37$

Congrats RIMM… more to come:)

Today, I received interesting research from Morgan Stanley about various 2010 predictions or possibilities and their impact on the stock markets. One of the industries that was discussed was online gambling. As you know, I have a tendency to get involved with technology stocks, especially in the internet subsector. It is very unfortunate that I cannot invest in one of the most important online industries.

Why? Quite simple. Because in the US, internet gambling is basically outlawed. There are many rules that describe what is and isn’t possible but the basic conclusion is that private companies are generally unable to offer online wagering.

This is fairly unique as Europe for example not only allows it but makes important revenues out of the taxes imposed, especially in Britain but also now in Italy. It is unclear how things will evolved as the US rulings and laws have been ruled as “illegal” by the World Trade Organisation. Of course, such rulings have been appealed and are likely to stall for a very long time.

I’m not going to argue the benefits of making this legal, simply state how nice it would be to able to invest in this industry. Companies such as Betfair, PartyGaming and Bet365 are some of the most innovative companies on the web and would offer many other possible trades. Some of my favourite trades are the pure search trades such as Google vs Yahoo. As competitors in the search field have lost market share, those trades have became more difficult. Google’s #1 competition comes from Microsoft’s Bing and we can all agree that Microsoft is far from a search play.

Alternatives?

Of course, one possibility would be to trade on UK markets, where many such companies are listed and traded. But that involves a bit more complexity than what I am looking for.

Are any of you trading these securities? Any luck doing so???

Just a quick link to an excellent piece of research done by Morgan Stanley, check it out here.

To many, this would seem like picking on Barry Diller. Just a few days after closing off a trade on Google vs IAC Interactive, I am at it again, going long on Google against a company that was spun off from IACI. Tree.com was the consumer credit branch of the company once owned by Barry Diller, the one that promoted loans, mortgages, etc, etc. So you can imagine how difficult conditions have been in the past year or so for such a company.

As I closed off my trade on Google, I looked at charts and data and felt like there was still a lot of upside, so I wanted to get right back in. And what better way than to do it against a company that just increased 10% in its last day of trading, Tree.com. You can take a look at the announcement done by management that caused the big rise here. Basically, guidance for the company is higher than analysts had expected.

I don’t buy it, I still put a lot more faith in a company like Google in a tough environment like the one we currently are experiencing.

Take a look at graphs for both companies:

I just think that Tree will have a lot more trouble than anticipated. Just take a look at the traffic on LendingTree.com, probably their most known and valuable property…traffic is down over 20%.. not a big surprise. You would think that few people are actually looking for loans right now.

Hello everyone!! With the holidays only days away now, it is becomming very clear that 2010 will start with a lot of uncertainty about a possible dip down from the US economy and markets. Here are some of the better readings I enjoyed this week:)

Risk of selecting a poor mutual fund @ CanadianCapitalist
Top 10 Wealthiest Canadians by Million Dollar Journey
JP Morgan expecting a major rebound by the US economy! @ Zerohedge
Starting a sideline en route to a 6 figure income @ TheFinancialBlogger
Looking for stocks that have returned 1000% in 2009? Take a look @ StockTradingtoGo
IndexFunds: Why choose anything else @ GetRichSlowly
Investment strategies with 10K or less: Index Mutual funds @ GatherLittlebyLittle
A very late player… Dell to launch a tablet?