Archive for July, 2010

Financial Ramblings

By: ispeculatornew | Date posted: 07.31.2010 (4:00 am)

If you are on our free mailing list, you already know this but the company behind this wonderful blog has made a nice acquisition this week buying TheDividendGuy, which will be a nice addition to our existing blogs especially considering the fact that dividend posts have been so popular on this blog. They will continue of course but you can also find a lot of great content starting next week on TheDividendGuy. In the meantime, you can already head over there, post a comment and get a chance to a win an Ipod Touch or other prizes!

Without further wait, here are our favorite readings from the past week!

Bill Gross offers his investment outlook @ Pimco
Who owns American debt @ Mint
Youtube banned in Russia? Sort of @ Sillicon Valley Insider
Compound interest can be your friend @ CashMoneyLife
19 stocks using real cash to pay off dividends @ DividendsValue
Join the new and improved TFB mailing list @ TheFinancialBlogger
Dividend yield or dividend growth? @ DividendGrowthInvestor
Money lessons I thought my 5 year old @ BibleMoneyMatters
Canadian telecoms road to profit @ PassiveIncomeEarner
My Financial Timeline @ GreenPandaTreeHouse

Daily news – July 30 2010

By: ispeculatornew | Date posted: 07.30.2010 (3:46 pm)

Tech news:

Netflix (NFLX)
upgraded to “Overweight” by Morgan Stanley
Bloomberg reports that Facebook will not IPO before 2012

Best return:   Expedia (EXPE) +7,64%

Worst return:  QuinStreet (QNST) -3,06%



ETF news:

Inception of BRAF, an ETF that tracks the financial sector in Brazil

Why Facebook is succeeding where Myspace has failed

By: ispeculatornew | Date posted: 07.30.2010 (3:49 am)

Some people wonder why Facebook has not done its IPO earlier and while I personally wish it was a public company that could be traded, I certainly understand the company’s resistance to postpone that day as much as possible. Why? Because public companies tend to shift to a short term focus and while there are some exceptions, I think Facebook will be much better off in the long term if it can push back that day.

A perfect example

A few years ago, MySpace was the king of social internet and dominated everyone else by very far. It had millions of users and was flying high above any other possible competition. Then, the company decided to cash in. It wasn’t done through an IPO but the result was very similar. It was acquired by News Corp for $580 million in July 2005! From that moment on, things have been very different at MySpace as the focus for its new owner was no longer on growth and improving the website, at least it was not the primary objective. Instead, it became about News Corp proving that the acquisition had been profitable. The new focus of the company was on getting advertising (its sole revenue generator). And to an extent, it did work as MySpace inked a deal with Google where it was guaranteed $900 million for advertising exclusivity. So I guess News Corp has shown that the acquisition had been profitable.

Facebook using another model

While Facebook was just a tought in those days, it has maintained one single focus since starting; improving every day. That has helped the company gain users and easily overtake MySpace as the leader in the Social web reaching what is now over 500 million users over the world far beyond what MySpace owners could even dream of getting. How has it done so? It has focused almost all of its energy on making the user experience better by allowing developers to work on apps, adding available features and by making it easier for businesses and other users to reach out. Facebook does face some competition from companies like Twitter and LinkedIn but generally, Facebook has been improving and users are remaining loyal.

So where is the growth at MySpace?

Wonder what happens to growth when you focus entirely on revenues without improving the end product? I guess it would be predictable but MySpace still wanted to give it a try. In a world where double digit growth is almost necessary, MySpace is losing users very fast. In May 2010, MySpace had 109 million users, down 13% from a year ago. It’s amazing really. And because of that, News Corp decided to cut 30% of the payroll and take down the value of MySpace in its most recent financial statements. Looks like MySpace users are becomming more rare every day and once that tendancy has started, it can be very difficult to revert.

Life as a News Corp Unit

When you are part of a huge corporation like News Corp, you become a unit… ONE unit. You get limited time to present your performance. Just try going into News Corp’s investor website. If you are looking for MySpace, you will look through each of the main segments and not find MySpace. Then you can go into the “Others” page and from there, look inside the United States Other Businesses. There, you will find MySpace. It is a tiny part of an empire. So if you can imagine how things go… here is what I imagine.

-The CEO of MySpace must get an hour or so per quarter or per year to discuss what is happening at MySpace. As you can imagine, in one hour, they probably do not discuss much besides financials. It is probably among the lines of:

-What were your revenues?
-What were your costs?
-How could you increase your profitability?
-What are your projections for next year?
-What additional resources do you need?
-Etc, etc, etc

Then, if there are a few minutes left, they might get into what MySpace hopes to become. But don’t think that News Corp is spending much time worrying about investing into a better user experience, reinvesting to accelerate growth, etc. It is about financials. That works for most businesses but it wasn’t the ideal plan for a company in an exploding market like MySpace was.

Was it a failed acquisition for News Corp?

The most surprising part of all of this is that this might not be seen as a failure by News Corp management. If they were able to make a 20-30% return. In the more recent technology sector, returns of 20-30% are certainly great successes. It all depends on what the objective was when they purchased the website. We wrote about investments in domains & websites recently and I would certainly think that MySpace is smart enough to know that simply keeping the website live is not good enough and that like any other business, you do need to improve. It is impossible to keep the status quo in any business. If you are not improving, you are losing ground. And that is what has been happening to MySpace for years now…

What could have been …

Examples like this are perfect to illustrate the downfalls of short term management. While MySpace might be very happy about the return on its $580 million investment, it could have been so much more. With Facebook now valued at close to $30 billion, that could have been. Mark Zuckerberg has lots of flaws that come with his brilliant mind. But the best decision he has made so far is keeping Facebook private and only accept money from long term, patient investors that are not waiting to question every move when the quarterly reports are released. It certainly makes me think about statements such as those from Michael Dell when he said he was considering taking Dell (DELL) private. While the temptation to cash in is always difficult to resist, the reward can be so much more satisfying.

Quick news – July 29 2010

By: ispeculatornew | Date posted: 07.30.2010 (3:48 am)


Google (GOOG)
confirmed it was being blocked again in China
Monster WorldWide (MWW) reported earnings of $0 per share (estimate -$0.049) on revenues of $214.9M (est $216.3M)
Expedia (EXPE) reported earnings of $0.44 (estimate $0.42) on revenues of $834M (est $845.9M)
PartyGaming and Bwin Interactive Entertainment AG, two gambling stocks often mentionned here, but traded only in Europe are merging in a $1.76 billion deal
DST will do its IPO at some point with Goldman Sachs
Zynga forms Zynga Japan as it gets funding from Softbank
Blue Nile (NILE) rated as “Buy” by MKM Partners

Best return: Rackspace (RAX) +2,66%

Worst return: QuinStreet (QNST) -3,04%

Amazon (AMZN) goes to war against Apple (AAPL) armed with a new Kindle

By: ispeculatornew | Date posted: 07.29.2010 (4:00 am)

It is no secret, we have never been a big believer in Amazon’s strategy regarding the Kindle, for so many reasons. Starting to think about adding Wifi and Colors to its Kindle after the release of the far superior Ipad seemed late. So when Amazon recently announced its earnings just days after revealing that it had sold more electronic books than physical books (actually now selling 180 electronic books for every 100 physical ones), it was very bad news in our opinion. Why would it be good news to have the biggest portion of your sales in a segment where it seemed destined to lose market share mainly to Apple but also to the many rivals who are now entering the market. It seemed like a desperate situation and I guess we are not the only ones who believed it was the case….

Desperate times call for desperate measures

We have to applaud Amazon. According to Crunchgear, Amazon is launching a new improved Kindle at a much reduced price , $139 for the Wi-Fi version and $189 for the 3G version. Of course, there are still many lacking elements to this new Ipad and no it does not have colors, apps or all those other great Ipad elements. But it is a solid ebook reader at a very cheap price. I admire the guts to do this and would imagine that it would help Amazon’s stock and will almost certainly hurt Apple’s. Most consumers that were thinking about getting the Ipad will probably still do that (including yours truly) but I think that many customers who might not have purchased an ebook reader might just go ahead and that will help Amazon remain in the mix of things, as a solid competitor to Apple.

Now I don’t think anyone would doubt that Amazon will make little if any profits selling the Kindle at such a low price. But it’s not really about selling Kindle’s or Ipad’s, but rather about being the device used by consumers when they turn to buy books, newspapers and in Apple’s case, applications and videos too.

Will Apple answer back?

Apple generally does not play much with its prices no matter what its competitors do. Is it because they are immune to price elasticity concepts? Or simply because Apple lives in its own world and does not really care about its competitors strategy? But I don’t think many doubt that Apple could easily take down its prices significantly. No, of course it could never compete with Amazon’s prices but it’s a far superior product anyway so there is no need to take it down as much.

My guess is that no, Apple will not respond. The fact remains that Amazon has an inferior quality product and over time, as Apple can also take down its price, it will be very difficult for Amazon to keep its market share… Apple will most likely remain on its schedule and only take down prices when it gets closer to the release of the next generation of Ipad’s.

Here are the stock charts for both companies:

Amazon (AMZN)

Apple (AAPL)

Quick news – July 28 2010

By: ispeculatornew | Date posted: 07.28.2010 (5:20 pm)

Amazon (AMZN) is temporarily out of Kindle devices
IAC Interactive (IACI) reported earnings of $0.24 per share (estimate $0.20) on revenues of $402.9M (estimate $383.2M)
Microsoft (MSFT) complained that Yahoo Japan’s deal with Google (GOOG) was anti-competitive

Best return:  IAC Interactive (IACI) +4,42%

Worst return:  Dice Holdings (DHX) -4,69%

What are your financial motivations?

By: ispeculatornew | Date posted: 07.28.2010 (4:00 am)

Most of the readers of this blog as well as yours truly are into making money at least to some level. I think that’s fair to say and there is certainly nothing wrong with that. Getting out of debt, saving for a first down payment, saving your first 100K or eventually your first million dollars are all very noble achievements. Anthony Robbins explained very clearly though that there is something deeper than money. No one, even the more wealthy is after money only for money. There is a feeling, a meaning or something else associated with money for all of us.

I’ve written about my financial philosophy in the past but have never explained what is behind those and for a long time I maybe didn’t really know.

My motivations

“Basic needs”

Personally, there are many things that keep me “hungry” when it comes to building a bigger business, a better and more efficient portfolio and in the end more income. The more obvious reasons are security for myself and my friends, knowing that I could survive for some time if I lost my job, being able to do a grocery without always looking for the cheapest meal, going out with friends, etc. To me, having my house and car is not a luxury either and it’s something that I consider almost necessary.

“Luxury needs”

Once all of those have been achieved, there are some other elements that I truly enjoy and get me motivated such as travelling abroad, a nicer car, being able to have weekends away with my wife, being able to buy nice presents for those I love, etc. I wouldn’t consider that any one of these is necessary and while money might not directly bring happiness, these are all things that bring me a (perhaps superficial) level of joy.

“Early retirement”

Like all of you I’m certain, I’ve grown a bit afraid of reading about pension plans from governments and companies. Promises are always great but we always find ourselves one bankruptcy away or one government policy change away from a very different level of life during our retirement. One of my biggest motivations is therefore being able to retire at an early age without depending on any institution to provide for me. Obviously I aspire to an active retirement with traveling, a house near a lake or the beach. It is still far away but I believe that early planning makes a world of difference. So yes I am already planning how much I will need to live my retirement!

“Money aside for kids”

I was lucky to always get support from my parents and help for my eduction, travel and giving me the necessary throughout my life. That was priceless and I fully intend on offering a similar level of support to my kids later on. There is a major difference between starting a career with no debt or having a 100k loan to pay back. It’s easy for me to get highly motivated when it comes to helping my family and if that is not enough motivation for someone, I’m not certain what would be.

The Ultimate Motivation: Giving more to charity

Finally, like most of us, I aspire to make a difference in our world, make it a better place even though by myself I have limited resources and time. To me, it is the ultimate motivation and I think the way I set up my finances this year has given me even more motivation. Since the year 2010 started, I have been giving a percentage of my income to charity. It goes directly into an account that has 2 purposes:

-finance all charity donations
-accumulate capital to create my own little “endowment”

Setting a percentage, as little as I could afford was key. While I have been helping out to some level, I can easily see how much more could be done if I could somehow increase that amount. Of course that can be done in two ways:

1-increase the percentage: the easiest way but it obviously has its limits and is not sustainable for very long

2-increase my income: this in my opinion is the best way to get it done and thus make a bigger contribution.

If you want to have added financial motivation, simply start giving to charity and make sure to get information about the impact that money has and how additional money could do even more.

What better motivation?

I recently read an article in Fortune Magazine about an initiative from Warren Buffet, Bill & Melinda Gates to get Billionaires to give away important portions of their fortunes to charity. Warren Buffet has already pledged to give away 99% of his net worth to charity through his life and after he dies. That will have a lifelong impact on countries, will save lives and improve the lives of millions of others. And while I cannot have as big of an impact, I truly believe that making a significant contribution to our society is the best motivation any one of us could ever find.

What motivates you to make and accumulate more money?

I know there are many different reasons and each of us have different backgrounds that define us but also define what we aspire to. Some want to make money because it is what helps them keep count and compare themselves like any other game. Others want to save because they do not want to ever live with debt or be dependant on anyone else. I would love to hear about your motivations!

Quick news – July 27 2010

By: ispeculatornew | Date posted: 07.28.2010 (3:41 am)


Tech news:

Priceline (PCLN) & Expedia (EXPE) cut to “Hold” at ThinkEquity
New market shares in China were released, Google (GOOG) is down to 24% while Baidu (BIDU) has 70%
Comscore confirmed its traffic estimates for Yahoo (YHOO) in June had an error and had underestimated its traffic
Apple (AAPL) unveiled a new Mac Pro line
Dice Holdings (DHX) announced earnings of $0.08 per share ($0.05 estimates) on sales of $29.921million (estimate $28.64 millions)
Yahoo Japan confirmed it had a deal with Google (GOOG) to provide its search results, a blow to Microsoft’s (MSFT) Bing
Yahoo Japan was raised to “Outperform” by Mitsubishi

ETF news:

LIT
, an ETF that tracks a GLobal Lithium was launched
EMLC, an ETF that tracks a JP Morgan Emerging market debt index was launched

Diversification in a dividend portfolio

By: ispeculatornew | Date posted: 07.27.2010 (4:00 am)

Regular readers know that I am a big believer in both passive dividend income funds and ETF retirement portfolios. Both have their advantages and I personally think when possible, having both is an advantage. They both have their positive and negative aspects but I would say that one concern that is much more important for a dividend portfolio is the need for diversification. While an ETF portfolio is the equivalent of owning hundreds of shares, with dividend portfolios, you are owning single names and become a lot more vulnerable if your portfolio is not diversified. Many examples come to mind but I think it’s fair to say that in recent years, investors that did not have proper diversification sometimes experienced massive pain. Just think about those who owned a dividend portfolio composed of banks, brokers and insurance companies a few years ago. No need to tell you they suffered greatly.

Why diversify ? (market events, laws, etc)

Since the objective of building this dividend portfolio is to create a long term source of passive income, it is critical to not be too affected by any events. There are many different events that I need to be protected against. The example of owning financial stocks is perhaps the most obvious example of dangers in being too concentrated. Financial firms suffered from a major change of circumstances that caused not only a stock decline but also those companies were forced to diminish their dividend payouts.

If such changes affect only a portion of the portfolio, the long term impact becomes very limited. But if the entire portfolio suffers from such a change, it can greatly change the expected passive income. There are really no reasons to not diversify. You can find high yielding companies and companies that display constant growth in their payouts in so many different industries that I cannot think of a good excuse to not diversify.

How do you diversify? I did some research and did not find much information about diversifying a dividend portfolio, which is why I decided to write this. I think that even with 20, 30 or 40 stocks, it is very possible to get diversification. I will write more about an ideal number of shares later on but I would say that no matter how many different stocks you own in a dividend portfolio, the objective when adding a stock is to find a good dividend stock but also one that provides additional diversification to your portfolio. I’ve listed a few of the ways a portfolio should be diversified.

Industry diversification

This is probably the easiest one to understand. Obviously, different sectors of the economy react very differently depending on the economic cycle. Being too concentrated in staples, technology, energy or any other sector will mean that you will outperform in specific circumstances and under perform in others. However, overall, your portfolio will have more risk associated with it than other more diversified portfolios with the same expected return. Ideally you would find dividend stocks in each of these sectors:

Consumer discretionary
Consumer staples
Energy
Financials
Health Care
Industrials
Technology
Materials
Telecommunications
Utilities

Security type diversification

Different capital structures offer different advantages and some such as trust units (especially Canadian companies), limited partnerships, preferred shares have various characteristics. For example, stocks, trust units and preferred stocks will react differently when the economy changes. Not only that but law and regulation changes can affect these securities differently.

I think it’s safe to say that laws that regulate stocks will not change too much  but this warning is especially valid for investors who load up on specific types of securities. For example, many Canadian income trusts offered very high yields for a few years and attracted funds from around the world. However, the Canadian government modified its fiscal laws which resulted in major drops in those titles. Never become too concentrated or too vulnerable.

Correlation diversification

This one is kind of obvious. When selecting individual stocks, you should be careful to select stocks that are not too correlated between them. Many stocks could have relationships even though they are in different sectors. For example, while Family Dollar stores and Walmart are technically in different sectors, you can imagine that both companies do very well when the economy is doing poorly with consumers trying to save as much as possible on their purchases. In fact, Walmart probably has strong correlations but many of its suppliers which would include large companies in various sectors.

Even more obvious is the fact that within one sector, some companies have very strong correlation while others offer more diversification. You would always want to add a stock that will react well in different circumstances from the rest of your portfolio. It’s simply a warning to be careful about this.

Markets

Not a surprise but there are major advantages to diversifying the market. You do not necessarily need to buy stocks on foreign exchanges. In fact, simply buying multinationals or foreign companies listed on US exchanges is a good way to achieve that goal. What you want to avoid is having your portfolio greatly affected by a struggling country. If the US economy goes through a depression, it would affect companies around the world but the effect would be much much greater on companies that operate exclusively in the US. A company like Coca-Cola is so diversified that even a crisis in the US or in Europe would have a much smaller impact than a company like Wal-Mart!

Conclusion

So what are your thoughts on diversification in a dividend portfolio? Are you doing so in yours?

Will Russia create the next Sillicon Valley??

By: ispeculatornew | Date posted: 07.26.2010 (4:00 am)

A few weeks ago, you might have heard about Russian President Dmitry Medvedev coming to North America. He made the trip for the G7 & G20 meetings in Toronto, Canada. At least that was the official reason… Medvedev combined the trip with a visit to America to visit Barack Obama. He also made a point of visiting a few company headquarters.. Companies such as Twitter (he ended up creating a profile), Facebook, Apple and Google. Was it random that he ended up visiting the top technology companies instead of companies from any other industry? Of course not!

Russian ambitions

Russia has made it clear that it wanted to become a major player in the tech world and would put major efforts into it. While many natural resource rich countries have been trying to diversify their economies, most of them have done so by creating tourist attractions. Russia is going down a much more challenging road.

All of you who have knowledge of Russia and its history know that when the country has large ambitious projects, its puts a lot of energy into getting things done. Medvedev’s visit was certainly a nice official way of making its ambitions clear but there is certainly much more going on behind the scenes. Some  say that the tech industry is a bit like the nuclear technology from a few decades ago when the Americans had a major advantage which Russia ended up catching onto prior to the Cold War.

How is Russia catching up?

There is no doubt that Russia has a lot of distance to cover to compete with the US in terms of knowledge, infrastructure, etc. It has money and certainly has the capacity if enough will and resources are dedicated to this project.

Digital Sky

There are many different ways of course but the more open way is having companies like Digital Sky take increasingly large stakes in some of the top tech companies such as Facebook & Zynga. The Russian internet holding company (kind of a Russian IAC Interactive) has also made deals with AOL and others. From the surface, everything about Digital Sky looks legitimate and it looks like any other venture capital fund but it has been very aggressive about its investments in American tech companies. Are there hidden intentions?

Spying

Yes, Russia like most other developed nations has spies gaining military and political knowledge. However, you might have also read about the 10 Russian spies that were caught by the FBI on American soil. These individuals had not been trying to get military or political secrets but rather had been told to gain trust from American companies in the financial, technology and other fields. Agents such as Anna Chapman (seen on the right) had been in America for years trying to get corporate secrets and technology. Chapman, like the others was caught and sent back to Russia in exchange for our own spies who had been caught over there. But the big question is how many others are there? Does Russia have enough knowledge to start up the next big technology company?

It did not take very long to get some answers as Microsoft (MSFT) confirmed that an employee named Alexey Karetnikov, in his 20s, had also been arrested for spying. It is unclear what this man was working on but clearly, Russia spies have been getting closer and closer to sensible data. This is significant news and it would certainly be interesting to know who is getting the information from these spies. Government only? Or are corporations also getting their share of the pie?

Do not doubt Russia

The country has proven for centuries that it was a force to be reckoned with. Slowly but surely Russia has been regaining some of its lost power in recent years in the military, political and even commercial spheres. Guess who the top money making money is according to the most recent Fortune magazine report? No it is not Exxon, Microsoft or Apple but rather Russian gas company Gazprom, the same company that has been used to put political pressure on Eastern and Western Europe. Could the same be done if the next Facebook or the next Twitter was Russian? I guess time will tell!

Not necessarily evil

While you can see that I think Russia is getting ready to compete in a very strong way with American technology giants, I don’t think we need to be scared. Competition is good and will likely spur even more innovation. But unlike the US auto industry, I think it is critical to look at what’s being done by foreign corporations and governments to avoid being surpassed. What are your thoughts on this? Do you think Russia will be able to create a new and improved Silicon Valley?