Archive for January, 2012

Is It Unamerican To Have An Optimized Fiscal Setup?

By: ispeculatornew | Date posted: 01.31.2012 (6:00 am)

I know, this might not be the most “popular” post, and I’m far from a Mitt Romney fan, believe me. That being said, am I the only one that finds it a bit over the top to criticize him for paying 15% of taxes. He’s not the one that put in place tax incentives and tax breaks. Sure, you could blame him for voting against repealing those tax breaks while being in favor of others. Clearly, guys like him are probably not the ones that should be able to escape tax increases in the coming years.

That being said, if possible, please set aside that part of the debate. Let’s only talk about the fact that there is outrage all over the country over the fact that Mitt Romney has been paying less than 15% of taxes on his income in the past 2 years despite being in that “1% group”.

It’s sad to say but there are countless ways to legally avoid paying taxes. With the internationalization, it is becoming much easier for companies to pay almost no taxes as has been discussed in some of my previous posts. As individuals become richer, their income and tax situation can easily become similar to what companies are able to do. I’m not saying it’s fair but it’s the way things are. Until we admit that fact, we’ll be stuck arguing on details. Are there solutions? Yes. But they’re not easy at all.

Mitt Romney is paying less than 15% on his taxes. What does that prove? That he was smart enough to get help to legally diminish the amount of taxes that he paid.

Wouldn’t You Do The Same?

I mean honestly, if you have 2 stocks, one that pays high dividends and another that will accumulate capital gains, you’d be smart to put the one that pays dividends in a tax deferred account such as a 401K or a RRSP (in Canada). That would be the smart thing to do. Trying to get all possible deductions that you are allowed under the tax code is also SMART.

I mean seriously, when is the last time you passed on a deduction in order to do “your fair share”?

“Yes, But He’s Rich”

That would be the common argument. Sure, Mitt Romney is rich. But chances are that you are also much richer than the average American. At what point should you “stop looking for ways to improve your bottom line”? I’m not talking about acting illegally or anything like that. At what point? When you make $50,000/year? 100K? 200K? $1 million? There is no clear answer of course.

Mitt Romney Has Many Issues To Defend

However, I don’t see paying few taxes as being one of them. It simply proves that he is smart and plays by the rule.

Tax Efficiency Is Too Often Overlooked

I personally think that being tax efficient is critical over time and makes a huge difference. Why so many investors spend tons of time on asset allocation, commissions, fees for funds/ETF’s and other areas without even spending a few hours to optimize their tax expenses blows me away. It can end up making a tremendous difference.

Any thoughts on all of this? Am I way off in your opinion?

New Trade: Long Google (GOOG) & Short Valueclick (VCLK)

By: ispeculatornew | Date posted: 01.30.2012 (5:00 am)

2012 has been a great year so far in terms of trading. I have opened 6 trades with 3 of those already have reached their “stop gain” limits…! I would like to reach my new limit of 7 open trades but I certainly can’t complain about how things have been going so far. I’ve also received many great questions about the trades both on the blog and in the tech newsletter (join now if you have not done already), I am getting through them, but appreciate all of the feedback. I am certainly feeling less nervous than just a few weeks ago.

I would also like to invite you to see how I calculate my returns for long & short tech stocks.

Today I am opening a trade that I was looking forward to doing. I wanted to go long Google against Valueclick, two advertising plays because I think that as the industry evolves, Google will end up doing much better. I wasn’t confident about Google’s earnings though and I turned out to be right to not buy Google ahead of its earnings. Now that the stock has declined, I am ready to go ahead!

test Tech Stock Power Rankings and while it was even more attractive a few weeks ago, I still think it’s a great buy and AOL is in many ways a very easy stock to short.

Let’s start off by looking at the numbers:

[table “362” not found /]

Long Google (GOOG)

Google, an incredible power and one of the top names in my 2012 Tech Stock Power Rankings but the company did come up short of most forecasts. I do still think the company is a great buy at this price and there is no logic to me of having Google and Valueclick trading at similar P/E ratios for next year. Clearly, Google has a ton of momentum in social (not likely to have an impact in revenues/profits soon) but also in mobile through Android (this one will!), I think Google will continue to increase revenues at a quick pace and is well positioned despite the soft advertising market.

Short Valueclick (VCLK)

Valueclick used to be a company that I truly believed in. Being a small player competing against the likes of Google (GOOG), Facebook (FB), Yahoo (YHOO) and others has made things very difficult for Valueclick though. It is simply having trouble coming up with enough innovative solutions to keep up with competitors and while the revenues have increased significantly in recent quarters, I don’t see that keeping up. I don’t think there is any doubt that GOOG can outperform in terms of growth.

Disclosure: No positions on Google (GOOG) or Valueclick (VCLK) but this trade will be opened on Monday morning

Weekend Readings

By: ispeculatornew | Date posted: 01.28.2012 (6:06 am)

Good Saturday to all of you:) I thought the image on the right was a great way to put it. It’s an extremely difficult problem to tackle and clearly not only about changing the government but I thought it was a great simplification:) Here are some of the good reading from the past few days:

Overconfidence is bad @ DarwinsMoney
Fee only vs fee based financial advisor @ GoodFinancialCents
Greece about to officially “default”? @ ZeroHedge
Asset Protection Strategies @ MoneyCrashers

Dividend Reads

Solid dividend players with powerful brands @ DividendMonk
GNV stock analysis @ TheDividendGuyBlog
Active Dividend Growth Investing @ DividendGrowthInvestor

Tech Readings

Apple’s impossibly good quarter @ CuriousCat
Facebook to file for IPO as early as Wednesday? @ TechCrunch
Big beat by Netflix (NFLX) @  ZeroHedge

Free Super Bowl Tickets Thanks to eBay’s ($EBAY) Flaws?

By: ispeculatornew | Date posted: 01.27.2012 (5:00 am)

With the Super Bowl a few days away, many of us fans are wondering how we would ever pay for Super Bowl tickets. I’m a Colts fan so obviously going to see the Super Bowl in Indianapolis would have been nice, even without those Colts being part of the game. Do you think you could never afford or never want to pay that much for a Super Bowl ticket? How about going for free?

Unfortunately, today’s post is not a happy story, it’s the story from the other end of the table. A friend of mine is a big hockey fan and lives in Montreal. He had bought some Montreal Canadiens tickets at the start of the year under both his name and his wife’s name (there is a limit per person). Unfortunately, for one of those games, he was unable to attend. What to do?

He decided to put those 2 tickets up for sale on eBay, great idea right?

A few days later, some guy bought the tickets for more or less the cost

The buyer then sent the money using Paypal to the seller who then sent away the electronic tickets

The buyer received the tickets and was surprised to see another name on the tickets. The seller confirmed they were right, gave his phone number in case something went wrong (he was going to be near the stadium on that evening)

The game night came and went, without any issues

Then, one week later or so, the buyer contacted the seller saying he had never been able to get in with the tickets, had been refused entry and wanted to a refund. The seller inquired why he did not contact him earlier or why he did not call… The buyer said he had lost the phone number and he had tried to contact him earlier but never gave any proof or explained how it was done.

The seller offered to go with the buyer to the stadium to get some kind of solution (if the ticket had been refused, that was certainly an error)..but the buyer was not interested, he simply wanted his refund

There are probably 2 possible explanations:

#1-The buyer forgot to go to the game and wanted to get a refund

#2-The buyer simply wanted to see a free game

You might think that there is no way that eBay/Paypal would rule in favor of the buyer here right? Wrong.. Since the buyer paid by Credit Card and complained to his credit card issuer, he ended up winning despite proofs of emails sent. Crazy right? It certainly makes me think twice about dealing with eBay again from the seller point of view. What could have been done differently? A few things I guess… But one thing is for sure, my friend ended up losing both his tickets and the money he had made selling the

Investment Opportunities?

I think this is actually another case for Facebook. In an online, virtual world, there are very few ways to verify the identity of someone. Sure, eBay has an online “reputation” score (the buyer had 2) but I think that Facebook will be able to deliver a more “trustable” environment for ecommerce than what currently exists. I still believe in eBay to some extent but I can only imagine that stories like that happen very often and it must be very costly for eBay & Paypal to deal with such issues. That is probably one more reason why eBay’s auction business has taken a back seat in the whole picture.

Disclosure: No current positions on eBay (EBAY)

Closing Long Dice Holdings (DHX) & Short Monster Worldwide (MWW)

By: ispeculatornew | Date posted: 01.27.2012 (2:55 am)

For a third time this year, I am able to close a trade, the one where I went long Dice Holdings (DHX) and Monster Worldwide (MWW) which currently stands at +29,27%. How did it get to this point? Mainly thanks to Monster which announced disappointing results, as has often been the case lately. They also announced lower revenues and profits expectations than most analysts expected sending the stock down over 20% today…!

Dividend Investing Is Not Just A Trend

By: ispeculatornew | Date posted: 01.26.2012 (5:05 am)

It’s a bit annoying honestly. Why in the world do so many people in the media and elsewhere like to punch on dividend investing and those that use it. I’m not saying that it’s a perfect investing method or even the best one around, but saying that it’s just a fade or a big bubble is at least as ridiculous. I’m not sure if those writing such stories do so just because it will make a good story, to get a good story out there or if they truly believe it. Here are the top reasons why I think that dividend investing is not only there to stay but will actually become much bigger over time:

DIY (Do It Yourself) Investors

A few decades ago, the only people investing in the markets were professionals. Sure, you had the exception here and there that was buying and selling stocks but for the most part, individuals that had money had a broker that would try to get the best returns possible. That has changed in recent years. Why? Because of the exaggerated fees that were being charged, because an increasing amount of information has been made available to the public through the internet

Add to that the appearance of discount brokers that have made it cheap and easy for individuals to buy stocks, making what would have been very difficult a few years ago, a growing trend.

Dividend Investing Is An Amazing Long Term Investing Method

What is the reason most players end up losing big when they go to a casino? Sure, the odds are stacked against players but there’s also the fact that very few people enter a casino with rules regarding how they will play, how much they are putting into play, etc. It takes discipline for investors to be successful. For most of us, that means haviing a clear, easy to follow  set of rules that can be followed.

How in the world can most of us tell what Exxon (XOM) might be worth or if we should be buying gold, oil, Euros, etc. The investment world is incredibly complex and I think there is something to be said for having a simple but reliable system to make investments.

A Stock’s Value = ?????

The basics of finance are that the value of a stock is:

Stock value = Present value of all future cash flows

In almost all cases, dividends are the only type of cash flows that shareholders do receive so I think that it makes a lot of sense to invest from that perspective. One counter-argument would be that doing so will end up excluding many high growth stocks like Apple (AAPL). Fair enough. But if you use that argument, there is no end really. You could probably add real estate, futures, commodities, currencies, alternative assets, foreign companies, etc. There is no end. So I don’t think there’ s anything bad with using a smaller universe (dividend stocks) to find our investments.

It Provides A Clear And Easy To Follow Methodology

Unless you are a professional (and even those might struggle), you’ll have a hard time telling me what any given stock is worth. However, if I ask you a different type of question, the common investor might be able to do exactly that:

How much will this stock pay you back and how likely will that amount increase (and by how much) over time?

The 2nd answer is not easy by any means, but it’s certainly much easier to get my head around it.

Psychology Change

I’ve also discussed the importance of seeing a dividend portfolio as what it should be, an increasing amount of cash flows. Sure, we’d all like the “value” of the portfolio to increase, but in the end, that is not what it’s about. It’s about making enough money to pay for your retirement when that time comes. I’ve also discussed how I believe a dividend portfolio is much better alternative to annuities. From that perspective, trying to buy dividend stocks makes a lot more sense to me than trying to find undervalued growth stocks.

I would love to hear your thoughts on this, do you think dividend investing will end up being just a trend? If not, why?

Investing Or Paying Down Debt? 6 Steps To Help Decide Between The Two

By: ispeculatornew | Date posted: 01.25.2012 (6:00 am)

We all know that the economy is weak, that unemployment is high, that debt is exploding, that it would be much higher if all laid off workers were still looking for a job or if those that recently graduated had decided to enter the job market. We know all of that. It still hurts when we know people that are affected personally by the economic struggles. One of the top ways that I use to discuss with readers is using the mailing list. I give out a lot of information, about dividend stocks, tech/web stocks, and more. But I also ask questions and discuss with many of you. If you have not joined our mailing list, I’d love for you to give it a try, it is free. You can signup for the tech newsletter here or join the dividend focused newsletter one here:



Back to the subject though. Sometimes, I receive a few comments that are very similar and this week I did receive a few that all had a very sad reality.. Many of us would love to do the two at once but the economic uncertainty has forced us to choose….

Investing Or Paying Down Debt?

It’s sad that we even have to consider a choice between the two, it’s far from the American dream. Many readers have been hesitating between the two in recent months. Why?

-worried about their job security
-rising interest rates
-volatile stock market
-low interest rates on money balances

There is clearly a very high correlation between the economy and this debate. The better things are, the less we worry about holding debt because we are confident that:

-we can pay the debt at any point
-buying assets that rise in value is much more profitable than paying down debt

The Sad But True Reality

We have to look at facts, a large majority of Americans (Canadians, Europeans, etc) face a much grimmer future than just a few years ago.

How I Look At This Decision

There is no right or wrong answer here obviously, we are all different and can live with different levels of debt. Here are the steps that I use:

Step 1 – Find Your Current Location

As in any other journey, in order to know where to go and what steps to take, you need to know what your departure point is and in this case, that is finding out what assets and debts you currently hold. Ideally, break it down by asset and debt category and find out how much interest you are paying on your debts. That will make a critical difference in how you decide to spend any surplus.

Step 2 – Determine How Much Money You Have Available

There are many different ways to do this, using a budget is clearly one way. What you are trying to find is the monthly amount that you can afford to set aside either to invest or to pay down debts. Many would base that number off of their budget but I personally prefer looking at the past 6-12 months in order to see how much I was able or could have saved.

Step 3 – Determine Your 6, 12 and 24 Month Goals

If for example you know that you are able to set aside $500 per month, you should be able to set aside $3000 over 6 months, $6000 over 1 year and $12,000 over 1 year. Look at your current investments and debts and determine for each of those how much you would like to contribute to each one.

Step 4 – Investments Split In 2

I think there are 2 types of investments that you can start off with:

#1-Emergency fund – Safe investing, to reduce stressful moments and give you some flexibility if something goes wrong
#2-Longer Term Investing – retirement, dividend investing, etc

How much you should hold in emergency funds really depends on you. Some say that you should have a few weeks while others want to have enough to live off of for one year. I personally like to have a few months but will increase it very slightly every year.

Step 5 – Setup Automatic Payments

No matter if it’s debt or investments, you can always contact your bank to make those payments automatic which for most people (including myself) makes it easier to contribute. Paying yourself first is a commonly used theory and I’m personally a believer. The odds of me paying $500 into my investing account the day that I get my pay are greater than waiting at the end of the month to see if I have a surplus.

Step 6 – Adjust And Restart

This is a never ending process. As time goes by, circumstances change, your job might become more or less fragile, you might be willing to put on more or less debt or see great investment opportunities. You can (and should) obviously adjust all of these over time. That being said, those with a specific plan of action will generally do much much better than those that don’t. Set up a plan, stick to it and adjust over time, you will be much better off.

It Doesn’t Get Any Easier

I wish I could say that at some point it becomes easier to decide between the two but it doesn’t. However, over time, I think we can all get a much better feeling over what the right proportions should be for each of us and get closer to the “ideal weights”.

How about you? How do you decide between putting that extra money in investments or paying down debts?

I Hate Breaking It To You, But Your Debt Level Is Exploding

By: ispeculatornew | Date posted: 01.24.2012 (5:00 am)

Today I was reviewing some of the news from the NY Times and it got me a bit depressed. Chances are that if you did, you are feeling the same way. It’s one thing for the Times to break down why Apple’s iPhone is being made in China rather than the US but more depressing are the reasons why and what it means. Hint.. iPhone production is not coming back to the US anytime soon, so are all of those lost jobs from the last couple of decades. It’s a well written article that explains why iPhones and all kinds of other products are no longer being built in the US which will certainly make the economic recovery much more challenging.

Is This Where It Gets Better?

I wish I could say that a slow recovery is the only thing to be concerned about but you probably would not believe me even if I did. However, there is one chart that is even more depressing, the explosion of debt per capita of the US government. I will talk about Americans in this piece just because using a concrete example  is much easier. That being said, don’t feel better if you are not American. Believe me, chances are that your country’s government is in much worse shape and if you are in Europe… well, I’m glad to see that things are holding up…for now.

So let’s get this straight. In 1975, the average US citizen had $44,762 of annual household income with a share of the US national debt equivalent to $20,564. That was probably a bit high but certainly could be managed. With a strong economy, fiscal discipline would probably help curve things back. After some heavy spending, and then the elimination of federal deficits by Bill Clinton came George W Bush and Barack Obama who both spended much more than they should have… the result?

In 2011, the annual household income is $50,876 while the share of debt exploded to $84,793!!! So income increased by 13.66% and debt by 312%? Are things about to change? Not exactly. Not only is the cost of this debt (interest) rising but expenses both in the short, medium and long term are all expected to rise. There does not seem to be anyone who can or even wants to seriously address these issues.

Why You Should Care

It’s so easy to always kick the can down the road, forget about the national debt and act as if it was a problem to be dealt with at some point in the future rather than today. I implore you to avoid thinking like that. Unless you are retired, have no kids, and do not depend on your government for any type of income, you are wrong. The fiscal problems will have major impacts:

Broken Promises: The government has made promises regarding pensions, health care, etc. Those are looking increasingly impossible to fulfill and the longer we wait to fix those programs, the worse it will be when we do have to change.

Rising Debt Costs: At some point, interest rates for the US government will start to rise, as has been the case in much of Europe. When that happens, not only will rates also increase for businesses and individuals but it will increase expenses for the government, will slow the economy, etc. Believe me, nothing good will come out of this.

Depend On Foreigners: We keep complaining about our energy dependance to middle east countries, to the billions of dollars that we send to buy oil. But by letting our debt explode, we are making ourselves increasingly dependant on investments by the Chinese and others to help us sustain our current spending. At some point we will need to stop and the earlier, the better.

How We Can Reverse Things

It’s easy to simply say that we should vote for one party or another. That is far from being enough. I think it’s easy to convince ourselves that we cannot change much but there is actually a lot that can be done.

Make Yourself Independent: Start investing early, do not count on corporate or government pensions as you will not know for a very long time if those will truly make it to you. Governments around the world will need to break many promises in the next couple of decades in order to survive. You do not want to depend on the government keeping its word.

Invest Carefully: There are many different things that can be done in order to give yourself a good shot. I wrote about investing when your country is going bankrupt and I stand by that, prepare yourself for the worse and you might be surprised if things are not as bad as you feared.

Get Involved In Politics: I do not mean running for any type of office or even giving your time. What I do mean is forming an opinion about the issues, how to improve things like the economy, our education system and our fiscal position. Those are critical and it’s not enough to vote for a part and hope for the best.

What Are Your Thoughts? Do You Care About Your Exploding Debt?

I mean we fight hard to save a few thousand bucks only to see the government spend that and much more. What do you think? Think that the 2012 elections will help in any way?

New Trade: Long TripAdvisor (TRIP) & Short AOL (AOL)

By: ispeculatornew | Date posted: 01.23.2012 (5:00 am)

It’s a “deja vu” feeling in.. I am reopening the same trade that was done earlier this year and closed with a very nice return a week later. You would think that with a universe of over 40 tech stocks that I follow, I could come up with different pairings but apparently not so far. I don’t mind honestly. Tripadvisor (TRIP) is one of my favorite stocks as you saw in the latest Tech Stock Power Rankings and while it was even more attractive a few weeks ago, I still think it’s a great buy and AOL is in many ways a very easy stock to short.

Today, I decided to open a trade based on this concept. Let’s start off by looking at the numbers:

[table “361” not found /]

Long TripAdvisor (TRIP)

I am getting slightly worried. If you remember well, at some point, I started worrying about having fallen for Google’s (GOOG) stock, I couldn’t see much downside about the company and thought it was such an incredible investment that I probably could have paired it off against almost any other stock. These days, Apple would be that stock but TripAdvisor is also right up there. To me, the lucrative online travel industry is quickly being taken over by TRIP. Have you booked any type of trip recently? If so, chances are that you spent some time on Tripadvisor.com getting feedback about a hotel, activity, restaurant, etc. It is that good and despite attempts by competitors, nothing comes close right now and the community is only making it stronger, in a similar way to Facebook.

Another great part is that TRIP is one of Facebook‘s partner making its relationship with the users deeper and stronger. I do think the company will continue to see significant opportunities and is a great investment going forward.

If you are looking for more info about my views on TRIP, I invite you to read my post about the company from a few weeks ago.

Short AOL (AOL)

Agreed, not much has changed for AOL since the start of the year, no good or bad news.  AOL is scheduled to report earnings in a little less than 2 weeks which is pretty much as close as I could accept right now. With Google coming up short, I don’t see any particular reason that would justify great results by the company led by Tim Armstrong. The costs will continue to be very high and with the economy still being very shaky, I don’t think there is any way it could come out with breakout numbers.  It will however be very interesting to see what type of news they can come out with and if they can define their strategy more clearly.

 

Disclosure: No positions on TRIP or AOL but this trade will be opened on Monday morning

How I Caculate Returns For Long And Short Tech Picks

By: ispeculatornew | Date posted: 01.20.2012 (5:00 am)

You might think it’s obvious right? I mean you buy and sell a stock then depending on the return, you can calculate a return. For example:

I buy 100 shares of Microsoft at $26.11 and sell them for $28.25. What is the return?

100 x (28.25-26.11) = $214 profit

Return = Profit / Invested Amount = $214/$2611 = 8.20%

I got an interesting question from a reader that is replicating some of the trades being done here regarding how returns are being calculated.

For long and short trades, that is different. To make my case, I will explain using my 1st trade of the year where I went long Apple (AAPL)and short Blue Nile (NILE). If I am managing a portfolio worth $35,000, and investing 1/7 of that amount in each trade (as per my 2012 trading changes), then I basically have $5000 in each trade.

So on January 5th, I bought Apple (AAPL) and sold Blue Nile (NILE). Keep in mind that there is “no cost” (excluding commissions) to entering into this trade. What do I mean? With $5000, I will be able to

Buy for $7150 worth of Apple (AAPL)
Sell for $7150 worth of Blue Nile (NILE)

That will leave me with the same amount in my account ($5000), an amount that I need to keep as “collateral” for my position. With this amount I am able to:

Buy 17 shares of Apple @ 410.00
Sell 175 shares of Blue Nile @ 40.69

Then, a week or so later, I closed the trade:

Sold 17 shares of Apple @ 419.70
Bought 175 shares of Blue Nile @ 35.47

The profit is:

Apple $165
Blue Nile $914
Total $1079

So on the $5000 that I was using to open this trade, I made a return of 21.6%. As you can see in the “Stock Picks” page, that is how I’ve been calculating returns. The other way would be to calculate the return as follows:

Return = Profit / Bough and Sold amount

In my opinion, that would not be representative however since for a total of $35,000 in the account, I would be buying for $50,000 of shares and selling the same amount.