Archive for September, 2010

Stock Picks Update (Q3 Update)

By: ispeculatornew | Date posted: 09.30.2010 (2:47 pm)

Today’s close was the end of the third quarter already. Time flies by. If I look at the rankings, it’s not yet up to par with the expectations, especially after winning the competition last year. But things are certainly getting better. As a reminder, at the end of the 2nd quarter, I was ranked #6 with a return of -19,06%. 3 months later, I still find myself in the #6 spot but I did improve my performance quite a bit and find myself much closer to most players.

My average stock return is now -7,86% and from day to day I have been swinging between the #4 and #6 ranks. Not saying it’s a bad return, but it’s not terrible either. Obviously, picking stocks for a 1 year period is quite different from the normal stock picks that I do here but there is still something interesting about it and I’m certainly learning my lessons!

Now back to my 4 picks:

1-Nickel ETF (JJN) 23,53%

JJN is not a highly traded ETF but is part of the group of metals that keeps on rising. I will be writing more about the metals (other than gold which was written about last week) but I am obviously happy with the performance. Metals have been mostly driven up by demand, mostly coming from Asia.

2-Natural Gas ETF (UNG) -38,90%

Disaster with this pick as Natural Gas continues to struggle. There is no doubt that I would have gotten out of this trade much earlier if it had been possible. Natural Gas futures are struggling to remain above 4$ and there continues to be more downside risk than anything else at this point.

3-Google (GOOG) -15,11%

Google had a very tough first 6 months and is now finally recovering. I think analysts and investors are finally seeing how much potential and how much of an impact its mobile O/S Android has. I have written about Google many times and certainly am a long term believer so it’s nice to see a turnaround.

4-Sohu (SOHU) -0,96%

Sohu has actually rebounded very nicely after tanking with much of the Chinese market. Apart from Baidu (BIDU), almost all Chinese tech stocks have headed down. It’s been difficult to play and is exactly why I have not been going long or short on these names much this year.

That is it! Hoping that I can gain a few more spots in the last quarter to be the top performer over 2 years:) Here is the competition so far:

[table “173” not found /]

Sorry Research in Motion (RIMM), your diagnonis is in: Life threatening disease

By: ispeculatornew | Date posted: 09.30.2010 (6:00 am)

Dear Mr Balsillie & Mr Lazaridis, Co-CEO’s of Research in Motion

It is with great regret that we notify you of the results from the latest report following the recent tests to determine the health of your company, Research in Motion.. Unfortunately, you find yourself in a very bad shape and I have to be honest with you, things are not looking very good.

Unless some kind of miracle happens, you will become the next Palm or the next Nokia, companies that once dominated your field but after a very rapid deterioration, they required extended support. You might have heard that Palm was finally let off the machines when HP decided to rescue it. However, I don’t think anyone could argue that life will ever be the same again for Palm. As for Nokia, once the king of mobile handsets, it is now barely surviving and could be the next giant to go under. It is not even clear if one of its assets could be used or if the Finnish company would accept such a transplant.

-Symptoms

You are probably asking yourself what happened. How could a company that dominated the smart phone market lose it all so quickly? There are many causes of course but it all started when your cousin Apple decided to get involved in your market. I know, you didn’t expect it to have much impact. Apple had been successful in music players but you did not expect the same to happen in the mobile phone market. There were many aspects about Apple’s Iphone that should have caused concern much earlier though.

When Apple started letting developers work on applications & games that could be downloaded for free or for a small fee, you really should have seen what kind of impact it could have. I know that you opened your store but that was years later and it never seemed to be a major priority for you. While Apple was putting apps and games at the center of its marketing campaigns and front in center on its phone, you simply had created the possibility but without many incentives. The result? Iphone users started using apps which gave big incentives for developers to work on the best applications and games possible. That of course gave huge incentives for developers to work on apps for Apple’s devices instead of RIMM’s.

That contributed to making your devices less “fun”, less “practical”, less “social” and thus less attractive. Now might have believed that all of these aspects did not matter much because your target market was mainly the business market. But it did matter. Even Wall Street banks such as JP Morgan have started switching to the Iphone. That is as big of a symptom as you can find. And of course, if you are having trouble keeping large corporations, I don’t need to tell you that retail users are much more enclined towards Apple.

As if all of that wasn’t enough, Google entered the game recently thanks to its “Android” operating system which enabled it to power devices by almost any handset except for the exclusive Apple and Blackberry devices. The Android had a quick surge in users and Google gave a lot of incentives (including bigger payouts) to get developers to work as hard as possible. They have not quite caught up yet but it’s happening very quickly. Google’s rise was a huge blow to your company. Why? Because in the US, by far your most important market, users that wanted to switch to Apple needed to accept going to AT&T which was too much for many to accept. But thanks to Google, it was now easy for any customer to buy a non-Blackberry smartphone no matter which carrier he wanted to use. Gamechanger…

-Tests

Honestly, we did look into results but if you had paid attention, you would have noticed things happening some time ago and would have taken action. Did you even bother trying to improve your device or keep up with the competition? No matter how solid your product is, if you do not work hard at it, it quickly can become obsolete. The most important data is related to growth and market share.

If you take a look at the numbers in a post like here, you will see that the trend is not good in any terms. Subscriber growth has slowed down significantly, as has the revenue per subscriber, etc.

Lastly, take a look at your stock, which reflect the confidence in both of you, in your company….. not flying too high at the moment

-What is the stage of my illness

To be honest sirs, the problem is widespread and serious by now. Unless you take critical action, it will probably be too late to save Research in Motion. Your rivals have momentum and they are being helped by armies of application developers that help make their products better every month. That is not the case for the Blackberry. You might be ready to launche an Ipad rival but in all honesty, Apple already has most of the market so you will be battling out with HP, Dell, Sony and others for whatever is left. That being said, you are not quite done….

-Avoiding denial

Sorry to say but the most important problem that patients of your type have is that they ignore the problem and often even deny that there is an issue. Look at the numbers. Take an Iphone and an Android powered phone for a drive for a week or two. You will discover many possibilities that you probably did not even know could be done on a phone. The Blackberry torch has the hardware necessary to compete but you do need to realize that the problem is much deeper than that. I’m sorry to say but a few more months of denial could be enough to tip your status into the “no hope” category. I am not trying to scare you but want to be certain that you understand what is happening.

-What is my diagnosis if I take no action?

I have to say, taking no action should not even be considered. You have over 12,000 employees that depend on you and if things continue, you will start losing your best ones very soon. The most innovative ones that helped the Blackberry become the market leader just a few years ago. You need to take action to show them that the Blackberry is not out of the run. More importantly, give confidence to consumers that Blackberry will improve just as much as rivals so that they can gather enough courage to sign up for a multi-year contract to use your device. It’s not easy to reverse a tendancy but yours is not known by everyone yet. Not everyone knows that you can do so much more with an Iphone or Android phone than you can do with a Blackberry. Act before it’s too late…..

-Available Treatment options (aggressive option or avoid suffering)

There are many different things that need to be done but I think the main one is getting developers excited. Show them that apps and games will be a big part of the future of the Blackberry.

-Organize contests for the best apps that are created (why not give 1 million dollars to the creator of the most downloaded app in the next year or similar ideas?)
-Include apps and games in future advertisements
-Put them in the middle of your main platforms so that users don’t need to search how to use them
-Give users incentives to use, rate and interact regarding these games, through social networks, blackberry messenger, etc
-Hire your own team of developers that can use Blackberry’s power to its maximum

-Chances of survival

I’ll be honest here. You are in a very bad share and battling two giants that will make life very difficult for you. But you have huge market share and solid hardware. It’s just a matter of taking the next step. I think it’s very possible and while I would not say it’s likely, I think there is a fair shot if you start acting desperate. Go for growth, make your product “cool”, make alliances with Facebook and Foursquare. You have solid revenues and lots of money. Do not let it burn quarter by quarter. Go ahead and spend it.

Quick news – September 29 2010

By: ispeculatornew | Date posted: 09.29.2010 (7:54 pm)

Tech news: (concern the stocks we follow)

AOL (AOL) raised to “Buy” by Miller Tabak + Co

Best return:   Netflix (NFLX) +5,42%

Worst return:   Expedia (EXPE) -2,07%

Including international exposure in your investments

By: ispeculatornew | Date posted: 09.29.2010 (4:43 am)

If I showed you a portfolio that included only two or three different shares, almost everyone would agree that it’s not an optimal portfolio and exposes the investor is exposed to too much risk if something goes wrong at one of those companies. I could simply mention names like Enron, Lehman Brothers or Bear Sterns and you would know exactly what I mean. Simple enough right?

In my opinion, investing only in US markets is as big of a mistake as putting everything into one or two stocks. There are a lot of questions regarding the US economy and where it is headed. Health care, energy dependence, conflicts in Iraq and Afghanistan and out of control spending are all worries and while we can argue about their importance and impact, I think we’d all agree that no one truly knows what will happen in the next decade. It is almost certain that the United States will be the top economy 10 or 20 years from now and the domination of US capital markets is even more important. We wrote about the emergence of gold and clearly one of the main reasons why it has became so attractive is because of the questions surrounding the future of the US economy and the US dollar, which will have an important impact on the price of all US based and dollar based assets.

Will the US be the top performing market?

It is unlikely. Even the most optimistic economists admit that the US is losing “importance” in the global economy. It’s not happening because the US economy is regressing but simply because emerging countries are growing faster and they investing heavily in education and technology in order to catch up as quickly as possible. Would I bet that emerging markets will do better than US markets? Yes, absolutely.

Under invested

I recently read that US investors were investing less than 10% of their portfolios into international markets even though these markets make up a very significant portion of the total markets capitalization. As years will go by, I imagine that the discrepency will diminish which will certainly push up the valuations of these emerging markets.  It’s not easy to do name picking when you are considering companies that you do not know. It is even more important to use index investing

Investing in China?

Personally, I would not try to guess which market will outperform in a retirement account simply because emerging markets are more volatile. Trying to find out which one will do better is a bit like trying to find the next Google. The truth is that the best performing market will probably not be an obvious pick like China or Brazil but rather less obvious pick. For example, In recent months, Indonesia has been the best performing country. Since we are simply looking at getting better returns with less risk, I would stick to emerging markets as a whole.

How to do it?

There are many ways to gain exposure to emerging markets but readers from our blog would know that we are believers in ETF’s and buying an ETF like VWO or EEM is an efficient and inexpensive way of getting the desired exposure. You could also get mutual funds that will give you the desired exposure or try to buy securities directly into those markets. However, unless you are managing a few millions, you will probably be much better off buying an ETF or mutual fund that will do the selection and maintenance for you.

Counter-argument

One of the main arguments used against international diversification is that in periods of crisis, the assets tend to become more correlated with US assets. That is true and the 2008 market decline provided a good example as almost every type of asset around the globe lost value no matter what the company or location. There is no doubt that the globalization of the economy has increased the importance of relationships and even a crisis in a European country such as Greece has important impacts on investments around the world.

That being said, these assets provide less diversification than 10 or 20 years ago but they do still easily add enough to justify adding them to your portfolio and you will end up on the winning side by adding international assets to your investment portfolio.

Quick news – September 28 2010

By: ispeculatornew | Date posted: 09.29.2010 (4:18 am)

Tech news: (concern the stocks we follow)

Amazon (AMZN) launched a new “Kindle for the web”
Google (GOOG) is rated “Underweight” by Evercore partners
Yahoo (YHOO) is rated “Equal weight” by Evercore partners
AOL (AOL) is rated “Overweight” by Evercore partners
Baidu (BIDU) was cut to “Hold” by Mirae Asset Securities
AOL (AOL) is in talks to buy TechCrunch according
Research in Motion (RIMM) unveiled its tablet, the “Player” to compete with Apple’s (AAPL) Ipad
Valueclick (VCLK) cut to “Neutral” by Merriman Curhan

Best return:  Rackspace (RAX) +7,27%

Worst return: Research in Motion (RIMM) -3,00%

Wow…TechCrunch bought by AOL (AOL)

By: ispeculatornew | Date posted: 09.28.2010 (11:27 am)

Readers of IntelligentSpeculator know that we are not fans of AOL, of its business model and its future prospects. That being said, it just acquired a blog that we had written about just a few days ago, TechCrunch, the leader in technology info. The news came out and while there had been some rumors, it’s still a major shock to most of the community. Reports are that AOL paid around $40 million to buy TechCrunch which I consider to be a great deal no matter how you look at it. The blog is huge, has talent and contacts and with AOL’s sales force, it could start bringing in lots of money.

What does this mean for AOL?

It is a huge move but a risky one as well. I would be very curious to see how TechCrunch will operate within a very different atmosphere. If Michael Arrington stays there for some time, has all the lattitude to keep things running as it wishes and AOL only helps out with ad sales, I could see this as being a huge success. But if AOL tries to get involved, control revenues and expenses and set “standards” for the content, then the deal could turn out very bad. You can already see the TechCrunch community (a huge part of the website) is very upset, which is not surprising given AOL’s reputation. They can turn things around if TechCrunch proves over time that it remains the Best Technology Blog out there.

Do you have any thoughts on this surprising deal?

Will long term EEM investors please stand up?

By: ispeculatornew | Date posted: 09.28.2010 (5:00 am)

I have written about this in the past but I always find it interesting to go back and see how things evolve. Just to refresh your memory, EEM, one of the oldest ETF’s around was created by Ishares in on April 11th 2003 in one of the first ETF creations. The interesting part about this specific one was that it was the first ever ETF that gave exposure to broad emerging markets as it tracks the MSCI Emerging Markets index.

EEM takes over the market

Thus, there was no surprise to see the ETF pick up and capture virtually all of that market. Over time, more specialized ETF’s that cover either individual countries or even sub-sectors of those countries started to appear.But to most long term investors, trading one broad name is more efficient in order to diminish costs. Anyway, it is difficult to determine which country’s market will perform best over a few decades.

EEM had the first mover advantage. In ETF’s, as in most other financial products, being the first to offer a product is a huge advantage because it gives you the dominant market share. From that point on, unless you screw up or competitors come up with a significantly better offering, you can generally keep a significant portion of the business. At least that is the theory, would it hold true this time?

VWO arrives in town

Vanguard, now one of the biggest ETF players on US markets decided to offer direct competition to Ishares on EEM in 2005 as it launched VWO, a fund that tracks exactly the same index. How would they get some market share? The most logical thing to do was to offer lower fees for unit holders which is exactly what they did. They charged a 0.27% fee, less than half what Ishares was charging for EEM (0.72%). I am guessing that they expected Ishares to diminish their fees a little but remain lower or at least as low. That did not end up happening…

What is surprising is that Ishares has been able to maintain such high fees on the fund. There is no doubt that they could afford to diminish them but why do so if you are keeping high market share anyway? Now, VWO has been gaining assets a lot more quickly than EEM and thus gaining market share. Just take a look at numbers as of now as well as from previous dates where we presented the data:

[table “171” not found /]

That being said, the differences between the two are still significant. So I decided to look into why investors were still hanging on to EEM.

EEM charges much higher fees so long term investors would be paying higher fees
EEM has almost 4 times as much daily volume as VWO which can certainly be apealing to day traders, high frequency funds, etc. These companies will not end up holding much inventory over time so they would probably trade both but prefer the one with more volume
-As you can see in the above charts, the returns are very similar. There will be differences because they use different strategies to match the index return. Over time however, they should converge and both match the MSCI Emerging Markets index. And in any case, VWO is much closer to returning the index’s return as it holds almost twice as many names as EEM does.

So my main question is not why someone would buy EEM because it could be for a quick trade. Rather, I would like to hear from EEM shareholders. Why do you hold the stock even though you are paying more? It is because:

Ishares is a more “reliable” issuer? In the days where Vanguard was a small, lesser known player I could see this being as an argument but now that Vanguard is one of the big names in the space, I don’t consider this to be a valid reason.

You do not know about VWO? This might be the case for many of you either because you did not find it, did not do resaearch or your advisor/planner has a good relationship with Ishares which helps him recommend Ishares products above all others?

You just like to throw money out? If that is the case (and it’s really the only one I can see)… please switch to VWO and send me the money you saved by mail or Paypal. I’ll be glad to send you our premium newsletter in return:)

I would love to hear from any of you

New Stock Pick: Long Amazon (AMZN) & Short Blue Nile (NILE)

By: ispeculatornew | Date posted: 09.27.2010 (5:00 am)

Long time readers of this blog will be shocked by one of these two picks and not surprised one bit by the other. I have been a consistent short investor in online jeweler Blue Nile (NILE) and while last year it was not as obvious, this year has been a home run every time. It is the 5th time that I go short on Blue Nile this year and each of them has been successful as you can see in our track record.

When we closed out last week’s pick on Apple(AAPL) vs Blue Nile(NILE), I had no intention of going back to this name but when I was back studying different trade possibilities, Blue Nile once again came as an overvalued company. It is amazing how consistently the company is priced as a “high growth” stock when it is not so.

Surprise surpise…

The surprising pick here of course is going long Amazon. I have been a very vocal critic of Amazon (and here) and the energy it has been putting into the Kindle, a product that does not compete very well with alternatives such as Apple’s Ipad. But there are two very clear reasons why I believe Amazon is the right name to go against Blue Nile in this specific circumstance:

Amazon, like Blue Nile, is in the business of e-commerce and has been gaining sales and market share in a number of ways. It is well positioned and clearly experiencing growth which is a lot more than I could say for its competitor. Thus, seeing them at similar P/E ratios for next year does not make sense to me. I could prove this in many different ways but just take a look at the traffic charts for their main websites. Does Blue Nile warrant such a high P/E ratio?

According to Compete, Amazon’s traffic this year is +10,97% compared to last year

According to Compete, Blue Nile’s traffic this year is -38,38% compared to last year


One sided

-Just take a look at the numbers and you will see that every single indicator except for the P/E ratio favors Amazon. Even that number seems justified given the huge difference in growth.

[table “172” not found /]

The main worry on this trade is that Amazon (AMZN) has already gained significantly since July and could have a small setback. But the rise was not based on momentum alone but rather on good news, good earnings and solid forecasts. For that reason, I tend to think that this trade will turn out just fine. I don’t expect much from Blue Nile except under performing which it has been quite good at in the past year! Here are the charts for the two names!

Financial Ramblings

By: ispeculatornew | Date posted: 09.25.2010 (5:00 am)

Good Saturday morning to all of you,

The fall is officially now upon us and we are now leaving for work while the sky is still dark, not the best feeling in the world but at least it means that some volume is back on US markets. We are thrilled to finally do a new stock pick on Monday but in the meantime here are some good readings for the weekend!

What happens when you fall in love with a dividend stock? @ TheDividendGuyBlog
Netflix (NFLX) gets caught hiring actors as fans @ Forbes
Facebook founder gives $100 million to Newark school system @ New York Times
Alan Greedscam @ TheBigPicture
Global Tactical Asset allocation: Equities @ ZeroHedge
Which jobs would you choose if you were a millionaire? @ TheFinancialBlogger
9 dividend stocks give shareholders a raise
Your cheat sheet to gold investing @ WallStCheatSheet
6 reasons for not reinvesting dividends @ MoneySmartsBlog
Should the rich pay more taxes? @ PersonalDividends

Image credit: Flickr

Quick news – September 24 2010

By: ispeculatornew | Date posted: 09.24.2010 (7:27 pm)

Tech news: (concern the stocks we follow)

Target stores will start selling Apple’s (AAPL) Ipad in October

Best return:  Dice Holdings (DHX) +9,64%

Worst return:  NetEase (NTES) -0,44%