Archive for September, 2011

Groupon IPO disaster

By: ispeculatornew | Date posted: 09.30.2011 (5:00 am)

In the first few months of this year, I did show excitement for quite a few soon to be public companies. Some did turn private but most of the anticipated ones did not happen. Waiting for some has been frustrating (Facebook!!!) but I’m glad to get a chance to get more information on others (Groupon, Zynga, etc). We can all certainly understand why now is not the perfect time to go public but for some companies… that waiting time might end up much lower valuations. Today, I’d like to give some impressions on Groupon, the giant daily deal company and why its IPO is being delayed over and over.

Context: No doubt about it, a world where at any point in time, Greece, Europe, US and international banks and perhaps much more could all blow up is ont the most friendly IPO environment. No one wants to go public in the middle of a recession or a market crash, it would mean selling out at the low point and looking like the loser. That being said, if this context is going to remain for several years, I’m not sure how companies like Groupon will be able to decide on timing.

Founders Getting Out: I’ve never been a huge fan of trading on the basis of executives buying or selling stock. That being said, I think many including myself were surprised to see that most of the money raised in recent months by Groupon was not to fund growth and operations but rather to buy out some of the current founders and early employees. I can understanding them wanting the money but it does still raise questions: Do they think valuations have peaked? Are things as good as they might seem? Are they truly dedicated to Groupon in the long term?

Accounting: Perhaps even more worrying is the fact that Groupon has had to revise its financial statements in a few different ways. First of all, Groupon was expensing its marketing over several years on the basis that the cost of acquiring new clients would pay off over that many years. That is a strange way of looking at it and they were forced to amend. Also, they were initially reporting the whole value of coupons sold as revenues instead of the portion that truly belongs to Groupon which was inflating revenues. They did eventually amend but it certainly raises a few questions. If so many obvious things were attempted in order to help Groupon look more profitable and as if it had more revenues than it truly did, what else was done? What kind of tactics are being used that could be difficult to find for most of us?

Errors: As if things were not bad enough, Groupon managers have made a few errors. For example, I’ve heard no one think positively about Groupon’s Super Bowl ads, how much they spend and how unpopular it turned out to be. That could probably be attributed to a minor mistake by marketing. However, for Andrew Mason to break the “silence period” discussing the firms financials when he was not legally free to do so was a big mistake. To be fair, Google founders had made that same mistake over a decade ago. That does not make it any better though.

Competition And Margins: One of Groupon’s big problems is that competitors can set shop with not much more than a couple of individuals and a couple thousand dollars. That has sparked competition from local players, niche players (such as Travelzoo for travel deals), but also huge companies like Google, Facebook and Yelp but also other international players like Amazon backed LivingSocialFacebook and Yelp seem to be exiting the space because of the margins being so small and competition being so intense. That is certainly not a great sign for Groupon  and might explain why the growth story is slowing down years earlier than expected.

Does This Mean Groupon Is Junk?

Of course not. Groupon refused a $6 billion offer from Google about 2 years ago and while it may not go public at its once discussed $20 billion valuation, it is still likely to go for an expensive price. Will I be a buyer? I would say unlikely at this point but like everything else in life, if the price is right:)

Should Microsoft Pay Out A Payout Ratio?

By: ispeculatornew | Date posted: 09.29.2011 (5:00 am)

Microsoft (MSFT) and Intel Corp (INTC) are probably the two most important dividend stocks in the Tech space which conveniently is a space that I have deep interest in. These two names also turn out to be great dividend payers and would probably both qualify as solid sustainable dividend stocks. In fact, Microsoft is part of our Ultimate Sustainable Dividend portfolio. They are both using the standard (usual) method in determining how much they pay to stockholders for each payment. They pay an amount for a few quarters and try to raise that amount every once in a while (each year is the rule of thumb). That is great and there is no doubt that it has worked well for both companies so far. I would argue that it is maybe not the best way to go from a dividend shareholder perspective.

What Would Be The Alternative?

What if Microsoft took a different approach. Instead of paying out a set amount, it could opt to pay a fix percentage of the diluted earnings per share. I would not consider this if they needed to reinvest very large amounts of cash but that is clearly not the case. Microsoft is piling up cash at a faster rate than almost everyone else (Apple is clearly part of that exception!). Could Microsoft do it? There would be benefits and downsides but I think it would be a great thing overall. Let’s start by looking at a few numbers. Microsoft dividends since 2006, diluted earnings per share and then the dividends that would occur if Microsoft had decided to pay out 25%, 35% or even 50% of those earnings.

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Impact

To be clear, there would of course be different impacts on the company and it’s difficult to estimate what the value would be. For example, it’s very difficult to estimate what the dividend yield would be. Why? Because in the scenario where the company had paid out 50% of its earnings, Microsoft would have $20 billion less in its cash reserves. Instead, that cash would be in the hand of its shareholders. Lets take a look at the pros and cons:

Cons

Instability: There is no doubt that one of the most important aspects of passive income investing is holding stocks that can increase their dividends and be reliable. A company that would be paying a fix ratio would certainly have some ups and downs. For example, Microsoft dividends would be impacted by launches of Windows or Office (spikes when they do and small declines after that).

Less cash for the company: There is certainly value in having Microsoft being able to hold so much cash. Last week, we discussed some of the possible acquisitions that Microsoft could/should look at. In a world where Microsoft’s main competitors (Google, Apple and others) hold tons of cash, it is certainly possible that such a strategy would make acquisitions more difficult.

Pros

Major incentives for the company: I tend to think that like releasing earnings per share, this would give increased incentives for the company to manage its cash even better.

Maximize Dividend Payouts: I don’t think anyone doubts that Microsoft could easily pay out more of its earnings to shareholders. It doesn’t too that for many reasons. One of them is that by raising its payout, it needs to be able to pay that additional amount every quarter in the long term. That makes raising the dividend that much more difficult.

Disclosure: No Positions on MSFT or INTC

10 Ways To Stay Calm In These Crazy Markets

By: ispeculatornew | Date posted: 09.28.2011 (5:00 am)

I know, it become difficult to keep your calm, to avoid getting overly excited or terribly depressed. How in the world can the market have its worst week in years last week with many calling the appocalypse and then follow that with an incredibly rally just days later. Did anything change? Not really! Sure, there are always rumors that Europe will come out with a huge package to help out Greece, the banks and everything else going on in the world. But would that stop the domino effect? I would say it’s unlikely. Things will continue to be crazy for some time and you do have to get used to it. You are bound to hear about appocalyptic scenarios, with gold coins being the only way out. If you did see the movie Contagion, you can easily imagine how quickly things can go downhill. How do you avoid becoming this anxious person that cannot go to sleep at night? Here are 10 things I would recommend:

#1-Keep Some Perspective: You are trading with a 10, 20 years or even long horizon. There will be huge rallies and major setbacks, do not lose sight of how crazy things will get. A 15% rally in a few days can seem dramatic but in the context of a few decades, it is meaningless.

#2-You Do Not Need To Follow The Markets At All Times: It becomes tempting to follow each and every tick but what is the point really? If you follow it for entertainment purposes only, that can be useful. However if each down day creates additional stress, you might be better off staying a bit further away from the markets.

#3-Only Risk What You Can Afford To Lose: No, the markets will not decline by 75% overnight. However, if you are investing more than you can afford to lose, you are a fool. Markets do NOT always go up, they do go up on average over long periods of time. That means that as you become older, you should start relying much more on passive income and less on stocks moving higher.

#4-Reduce Debt: One of the primary causes of stress for both individuals and companies in tough economic times is debt management. It’s difficult to manage high debt payments when you suffer market shocks. I would say that over time, your debt to net worth should diminish gradually. Leverage is great and can always be used, but it should never be used in excess.

#5-A Worse Case Scenario: Honestly, you might think that you need $75,000 per year at retirement to live off of. But what if you decided to travel a bit less, move to smaller town or house, keep working a year or two? Not ideal scenarios of course but I’m just trying to say that it’s easy to make things look much scarier than they should. It does not need to be that way. If you do end up suffering unexpected losses in the market or lose your job, you can still recover without any issues.

#6-Stick To The Plan: One thing that I can tell you is that any over-reaction is likely to be costly in these volatile times. Panic about a major crash will make some sell off big part of their holdings just before the market recovers. In a same way, hopes that the crisis is over will mean investors buying at the top. Stick to your investment plan, do not try to time the market perfectly.

#7-Hold Cash: If you can accumulate cash, it is ideal in difficult periods such as the current one. There will be plenty more as well. When you look at investors such as Warren Buffett, you get a pretty good idea of how great deals are available to those that have cash. You might not be able to call up bank CEO’s offering them your terms but you can buy real estate from desperate banks or sellers, you can buy distressed stocks or assets. All of those things are possible. They will likely decline after you buy, as timing the bottom would be nearly impossible. But if you expect to be up significantly 5 or 10 years from now, then you have a bargain.

#8-Read All Points Of Views: I’m telling you, it is very easy to find someone that believes the markets are going to zero and the end of the world is close. In fact, you could easily spend entire days reading all of the logical and well explained arguments behind that theory. In a similar way, I think it would be easy to find texts and commentary debating the exact opposite, that markets are undervalued, that a major rally will soon occur, etc. It’s important to be able to be critical towards all of those.

#9-Do Not Expect Governments To Do The Right Thing: You could probably think that governments will end up doing the right thing, that Europe can fix its Greek issue, that Obama and others can solve the fiscal deficits. I think we have seen too many examples of that not happening. The debt ceiling debate was one perfect example that did end up having massive consequences as all US creditors and rating agencies have issued serious concerns about the fact that the situation got this far. In the long run, that will result in higher interest rates and a weaker economy. No one had anything to gain by waiting so long. In a similar way, governments will be forced to revise some of the promises it made regarding pensions, benefits, taxes and services. Do not take anything for granted.

#10-Do Not Simplify The Debate: I don’t give any credibility to those that expect one or a couple of actions to be enough to reverse everything. Tax the wealthy? Sure, it will help raise more revenues, but at what cost and what will be the consequences. I’m not saying it shouldn’t be done, but all of these need to be done very carefully because it is truly not that simple.

How Do You Survive These Crazy, Volatile Markets?

A Domino Game That Could Spread Very Far

By: ispeculatornew | Date posted: 09.27.2011 (5:00 am)

We all have at one time or another, spent time trying to set up the perfect domino effect, where the fall of one piece leads to the fall of every other piece in the game. These days, most negative views are based on the theory that the same could happen and might even be on the verge of doing so. While a domino game usually needs some kind of manual intervention, this one would likely start when Greece will confirm that it is indeed defaulting on its debt. The exact way it will be done, the conditions and direct consequences are unclear but the fact that Greece will have to go down that road look certain by now.

Surviving The Domino Effect

The challenge for countries, corporations and investors is to get a clear vision of what will be knocked down by the domino effect, and what will not be. For example, it seems clear that European banks will suffer greatly from a Greek default. Why? Because they have been able to avoid mark-to-market on their positions meaning that their books still reflect a AAA-Greece. Needless to say that taking a 50% cut will result in massive losses. Most agree that the worst off are the French banks as they have massive exposure to these banks.

The question then becomes, if French banks do suffer such losses, will one or several them be unable to operate? Christine Lagarde, the former French finance minister and now head of the International Monetary Fund (IMF) has been urging the banks to increase their capitlizations, which some have done and others not. If one or several of them would fail, what kind of impact would that have on credit markets? If US bank Morgan Stanley (MS) is said to have a huge exposure to French banks, would that mean that Morgan and other US banks could also be threatened? If so, where does this end?

There Are Several Possible Paths

If that was the only path, it would be a lot easier to fix. But consider the fact that a Greek default could bring increased pressure on other EU countries like Ireland and Portugal but also giants like Spain and Italy. There is absolutely no doubt that this is the more serious path and brings by itself a large number of other scenarios.

What To Do As An Investor?

Clearly, pressure is on for investors like you and I. How is it possible to anticipate everything that could/will happen when Greece does actually start to falter. This is also something that will likely happen over a few months/years so I would personally consider it neatly impossible to try to time all of these events. There will be great opportunities for those willing to take some risks but if you do consider yourself someone that cannot afford or support a 20-30% loss, I would recommend being very safe until the Europe crisis resolves. Of course, by doing so, you could end up missing a big rally that will occur if they do come up with a solution. There is always a downside to avoiding risk.

Amazon (AMZN) A Must Buy Stock?

By: ispeculatornew | Date posted: 09.26.2011 (5:00 am)

It’s funny how quickly we can sometimes drastically change our minds. About 2 years ago, I was very bearish on Amazon, on its business and on the Kindle in particular. I could not have been more wrong and thankfully I did end up having a change of heart about the Seattle based company quickly enough to not short Amazon in recent months. In fact, Amazon was one of my 4 stock picks for our yearly stock picking competition (results for Q3 will be announced next week) That was certainly a good thing. Despite a big drop in August, Amazon’s stock continues to rise quickly. Why? The numbers don’t lie. I think Amazon is one of the best tech investment opportunities out there these days. Limited downside and a lot of upside. What more could you ask for?

Here are the main reasons why I think Amazon is a stock to buy right now:

Kindle: As I said, I once was very negative about the Kindle. While sales numbers for the device are not being disclosed, it is an incredible success and the only ebook reader that has picked up to the point where some compare it to Apple’s iPad. That is not a fair comparison of course but rumors are very strong that Amazon will be releasing an upgraded and enhanced version that could mean real competition for Apple. What are the odds? Probably bigger than you could imagine and any success would mean big things for both the company and its stock.

Amazon = ecommerce?: No company has taken ecommerce even close to Amazon’s reach. Through its flag franchise (Amazon.com, and others) as well as its smaller franchises such as Zappos and smaller players, Amazon has been able to create a strong brand where an increasing number of consumers buy a big proportion of their online purchases. Why? Mostly because Amazon’s distribution network around the world is second to none. That and a few other operational strengths has given Amazon such an incredible advantage that huge companies such as Walmart (WMT) are starting to feel threatened.

Amazon Is Willing To Experiment: One thing that Amazon has been very good at is quickly adapting to new tendencies. Its feedback/ratings system is in many ways one of the first large scale social websites on the web. In a similar way, when Groupon started out with its daily deals, Amazon bought a big stake in LivingSocial, put energy into it that has now taken LivingSocial to become one of the two big companies in the field.

Cloud Computing: It’s not only shopping that is moving online. Data used by both individuals (files, music and video, etc) and by corporations are increasingly being moved to the clouds and in that sector, Amazon is considered by many to be the leader thanks to its AWS (Amazon Web Services), that is used by many of the internet’s companies (such as Netflix for example).

Valuation: There is no question, Amazon’s P/E ratio is high and I can see why some would consider the company to be expensive.  It generated $2.28 in earnings per share in the past year, making its current price very expensive. That being said, I think one of the things that Amazon has been very clear about in the past few quarters is why they feel like investing a lot into their infrastructure is critical right now.  The company reported nearly 50% more revenues last quarter than in the same quarter the previous year. I do expect that tendence to easily keep up for some time. Will profits follow? To some extent but I am personally willing to be very patient with Amazon.

Amazon revenue growth chart from ycharts.com

Endless possibilities: Because of its huge base of customers and its reputation, Amazon could move into a lot of different segments and compete with companies like Apple, Netflix or others. I don’t think anyone would underestimate Amazon in those sectors. Even competing with Google for apps, data hosting and other areas seems possible.

Disclosure: No position on Amazon (AMZON) at this point

Financial Ramblings

By: ispeculatornew | Date posted: 09.24.2011 (8:00 am)

Hi everyone! Hoping you’re having a good weekend! Here are some good readings but before getting here, I have to say: Gotta love all of these new applications for tablet devices, the USA today now reports that an increasing number of restaurants have consumers order their food on iPads. How in the world did only Steve Jobs come up with a decent device on time? I’m telling you, Apple will get a lot bigger even with a new guy in charge! Yes, Apple is already big, the Atlantic did a review of things that were now smaller than Apple.

6 Steps to buying a 7% dividend stock with low risk @ TheDividendGuyBlog
Greece MUST live up to its commitments @ The Big Picture
The UBS CEO is out @ Zero Hedge
When to Sell A Dividend Stock @ WhatIsDividend
A Global Ponzi/Poker Scheme? @ Wall Street Journal
Groupon loses 2nd COO this year, restates earnings @ TechCrunch
What Are Adviser Class Covered Call ETF’s? @ CoveredCallETF’s
Aflac (AFL) dividend stock analysis @ Dividend Monk
Financial Tips For Refinancing Your Home @ BeatingTheIndex
Did you study for your CFA exam last weekend? @ SmartFinancialAnalyst

Should Microsoft (MSFT) Go For A Big Acquisition? (RIMM, YHOO)

By: ispeculatornew | Date posted: 09.23.2011 (5:00 am)

Microsoft has a killer franchise, we all know that. Its Windows operating system and Office programs continue to generate tens of billions of dollars every single year. Sure, there has been some level of competition from Google and others but overall, the growth in emerging markets has been enough to offset that helping Microsoft generate billions of dollars per year. Steve Ballmer has used that money to try to create other profitable businesses. Its first success has been in gaming. Sony’s Playstation and Nintendo’s Wii seemed locked in as leaders but Microsoft’s Xbox franchise has been a game changer that is now an important part of Microsoft.

Microsoft’s the Dubai Of Tech?

In many ways, I like to compare Microsoft to Dubai. Why? The UAE got solid cash flows from oil for several years and used that business to build many other businesses such as its airline, real estate and other tourist attractions. However, don’t get me wrong, Dubai has also had its share of failures and proved several times how difficult building secondary businesses can become. Microsoft has also had its share of failures including two major sectors:

-Mobile
-Online Business

In both sectors, Microsoft has been unable to get those businesses off the ground despite putting money and energy into them. On the mobile side, Windows Mobile has now been made nearly irrelevant in the smartphone business. Will its recent purchase of Nokia’s (NOK) phone business help? It might… but probably not enough.

As for its online business, Microsoft continues to lose considerable amounts of money in its online business, around $1 billion per quarter with no slowing down. Sure, Microsoft has been able to gain some traction, reach the status of being Google’s top search competition. But hardly anyone would call the results so far a success.

Existing Opportunities

In both cases, Microsoft has great opportunities right now to turn things around. While the company does aspire to pay out more dividends, it still has tons of cash to spare with more coming in every month. What to do with that cash? Right now, two possible acquisitions would be big enough to have an impact on those results. Let’s take a look:

Option #1 – Buying Yahoo (YHOO)

Following the very public firing of CEO Carol Bartz, Yahoo is now considering all of its options (and so are investors like myself). The company is clearly far from the gem it once was but still pulls in a great number of visitors, has one if not the top online brand and already has strong ties to Microsoft. In fact, it was only a few years ago that Microsoft tried to buy Yahoo for $44.6 billion in 2008. The cost of doing so today could be less than half with Yahoo now trading at a value of $17.5B or so.

In fact, the cost of buying Yahoo could come out much smaller than that. Microsoft would likely try to sell several of Yahoo’s more valuable Asian holdings such as its Alibaba stake which does not really fit in Microsoft’s strategy. How much are those worthy? The estimates vary quite a bit but most agree that those grouped together represent the majority of Yahoo’s value meaning that the acquisition could come out at a reasonable price.

How would a Yahoo acquisition fit? I think one point is that Microsoft has quality holdings, a strong relationship with Facebook but one thing it does lack is quality content and holdings. Yahoo does have exactly that and could surely benefit from Microsoft’s strong technical/engineering. Also, the Yahoo-Microsoft search alliance has had tricky results at best. It’s not easy to get the two companies to collaborate entirely and buying Yahoo’s properties would surely diminish the conflicts/questions. Honestly, Yahoo’s acquisition could boost the speed at which Microsoft’s online business would become profitable significantly.

Option #2 Buying Research in Motion (RIMM)

While RIMM is clearly not doing very well, it does remain one of the big three in the smartphone market.Sure, RIMM clearly lags Apple and Google Android powered phones in terms of market share, it is not YET irrelevant. A big part of the reason is the fact that RIMM has a strong user base including a lot of corporate clients. I’m a big time basher on RIMM and I do not expect much in terms of its future but being bought by Microsoft could help turn things around. The cost would be a bit lower than buying Yahoo as RIMM currently trades for under $12 billion. The big difference is that while profitability is coming down very fast, RIMM is making money and would help Microsoft’s bottom line (to give you an idea, RIMM is tading at a P/E of 4). There could also be synergies both in terms of mobile but also getting developers to put more energy into working on apps for RIMM could help out quite a bit.


Would such an acquisition be seen as problematic by Canadian regulators? They did end up causing the Potash deal to fail and many do think such a move would be blocked by Canadian authorities. I personally do not think so. While potash was doing well and very profitable, RIMM is clearly on its way downward and seeing its Waterloo center become obsolete would be tragic. Instead, having a strong new owner could help turn things around.

Another good thing is that both companies are very focused on enterprise and could certainly work together in securing clients, offering joint solutions for mobile and desktop solutions.

Major Doubts

Would Microsoft try to squeeze out RIMM’s operating system? Windows Mobile is not seen as being superior to RIMM’s O/S so switching would probably not be a good idea. If that’s the case, where could Microsoft help? It’s not clear. The reason products such as Zune failed isn’t because their hardware was so great. Where is the synergy? Unclear to me. I do still thin that the deal could work out with RIMM operating as a fairly independent company. Benefits of working together would happen along the way without being forced from the start.

Yahoo Is The Best Option

It can certainly be debated but I personally consider it very clear that Yahoo would be a much better fit and has a lot more potential. Buying the company now that Carol Bartz is out would be a bit more expensive but I think taking control might be easier as the board and shareholders certainly seem more desperate. What are your thoughts?

The Safest High Dividend Yields on US Markets

By: ispeculatornew | Date posted: 09.22.2011 (4:23 am)

Last week, we published what turned out to be a very popular post where we published an example of the “Ultimate Sustainable Dividend Portfolio” that featured high quality companies that did pay and increase dividends. It did end up generating a lot of interest and many of the comments and suggestions that we did end up getting was about including higher dividend payers. There is no doubt that finding high dividend yields can turn out to be a great proposition, especially if you have cash or access to reasonably cheap money. The big question of course when looking for such stocks is how to determine if these dividends will be paid out over the medium to long term. In other words, we are looking for sustainable high dividend yield stocks. I know, I know, sustainable is coming up very often these days but isn’t that the name of the game for passive income investing?

So today my quest starts here, I am expanding the universe of stocks to include the 3000 largest capitalized stocks in the US. What would make these dividend companies sustainable?

A Low payout ratio (anything above 75% is too high in my opinion)
Little debt (debt to market cap under 75%)
Sales and earnings per share growth over 5 years
-Finally, we excluded companies that have not increased their dividend over 5 years. Dividend growth is not the priority here but we are looking for steady and reliable dividend payers.

That gave me a list of 20 seemingly very solid high dividend payers that already have a dividend yield over 4%. First off, no, I do not have any stocks that pay a 10% dividend yield on that list unfortunately. There are several high quality stocks that can be purchased though. Here are the ones I like the best

Safest 4%+ Dividend Yield Stock: Strayer Education Inc (STRA): 4.69%

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Safest 6%+ Dividend Yield Stock: AT&T (T): 6.01%

[table “317” not found /]

Building a high quality portfolio with high yielding stocks would certainly be a much bigger challenge but I certainly think these 2 would be great ones to start out with.Any thoughts on those?

Would You Bet Your Money On Beating Roger Federer At Tennis Or Tiger Woods At Golf?

By: ispeculatornew | Date posted: 09.21.2011 (4:31 am)

Both Roger Federer and Tiger Woods are no longer considered to be at the top of their sports (although you could argue that Federer is much closer than Tiger in that regard). That being said, how much would you be willing to wager on being able to defeat Roger Federer in tennis or Tiger in golf. You have doubts? Ok, how about I make things easier for you. You can choose the time and location. Yes, that can even mean facing off with Federer on clay, which he has struggled with throughout his career. I know, I know, he did win Roland Garros once.. But still.

Let me guess. You would not be pulling to put much money because you think your odds are very slim at best? I’d agree. To be honest, I would probably be willing to bet some amount of money (getting the opportunity to play Roger on a tennis court would be incredible) but I would expect my chances of winning at 0%. Not more, not less

What’s My Point?

If you don’t think you’d stand a chance competing with these guys, what in the world makes you think you can compete in the markets. Seriously. How in the world will you be able to find the next Apple when there are analysts in big firms that are:

-Spending their entire year looking at a few companies
-Hiring assistants to gather data
-Meeting with executives from those companies, their suppliers and clients
-etc

What makes you think that you have a shot at coming up with the right pick when you are competing against the best of the best? Hedge funds around the world are ready to spend millions of dollars to find the next big thing. How could you possibly compete? Google? Annual statements? Talking to your neighbour who’s best friend’s cousin heard about this new mining company? Seriously?

I’m not entirely against stock picking as you can imagine. I have done a lot of it on this blog, including what has turned out to be very successful trading on technology companies once again this year. That being said, most of my passive income/retirement funds are invested in vanilla index ETF’s. It just seems like a losing proposition doesn’t it? Or am I being too negative?

We all would like to think we’re good at sports, but I don’t think anyone in their right mind (except a few pros like Rafael Nadal and Novak Djokovic) would think they can take on Roger/Tiger. So why do you think you could outperform the market when the best informed and most brilliant minds struggle so much to do so?

Obama In Panic Mode Regarding Taxes?

By: ispeculatornew | Date posted: 09.20.2011 (5:00 am)

Barack Obama and the Democrats clearly lost the battle that occurred in order to do the only smart thing: Raise the debt ceiling. They ended up accepting a deal that did not include any tax increases, contrary to what they had said they would do. Yesterday, President Obama unveiled the big lines behind his latest project; which is being called the “Buffett rule”. Why? Because Warren Buffett suggested that taxes on millionaires were too low and that it wasn’t normal that he was paying a lower tax rate than most of his much lower paid employees. Few would argue about the logic behind such a rule.

It’s Always The Same Story

I always find it interesting when I hear about such ideas as “taxing the rich”, because it is so much more complex than that. Both companies and individuals have clever ways to avoid paying taxes. We mentioned a few examples such as General Electric (GE), Google (GOOG) and Facebook that are paying virtually no taxes to the US government. Such tax avoiding structures can be expensive to set in place but they are not illegal under current regulations. Why? Because many of these structures are made possible by the thousands of loopholes in the current tax system.

Tax Rates Are NOT The Problem

“Either we ask the wealthiest Americans to pay their fair share in taxes, or we’re going to have to ask seniors to pay more for Medicare. We can’t afford to do both,” Mr. Obama said in a speech from the Rose Garden. He said later, “This is not class warfare. It’s math. The money is going to have to come from someplace.”

The United States have the 2nd highest corporate tax rate in the world which is certainly not pro-business or pro-job. Of course, larger companies are able to escape much of the effect of those high rates through different tactics while smaller ones are stuck with paying them. That hardly sounds like taxing the rich to me. Almost everyone agrees that the tax rates are not the issue and that they should even be lowered significantly. Those tax rate declines could easily be paid for by improvements or a complete redesign of the current tax code.

So Why Is Obama Working On Such Legislation?

To me, it looks like a move driven by panic. It’s a very popular thing to do: “Propose taxing the rich”. It is a measure that will get you a few votes very quickly, especially when the economy is as weak as it currently is. That does not however mean that it is the right thing to do. What I dislike is when government officials oversimplify issues that are complex. Mr Obama, please explain to us exactly how you would like to proceed. I’m all for taxes being raised but this should not be done through higher tax rates but through elimination of loopholes and other measures.

Am I alone on this? Does this just sound like a populist measure? I do think that the Rich should pay