Archive for October, 2012

10 Years From Now, Would You Bet On Apple ($AAPL), Microsoft ($MSFT), Google ($GOOG) or Amazon ($AMZN)?

By: ispeculatornew | Date posted: 10.31.2012 (4:00 am)

These 4 companies started off doing very different things but more and more, they’ve decided to focus on having vertical integration. They now try to own the content, the software and even the hardware in order to complete the entire customer experience. It’s a fascinating thing to see:

Apple: Perhaps the first to try to do this, Apple started off with devices (Mac’s and ipods and eventually with iPhones, iPads, etc), and its own operating system (iOS) and is gradually providing more and more content through iTunes, the app store where its acts as a powerful middle man. Apple has even started offering cloud computing through iCloud, making it possible for the consumer to basically get all of its entertainment through the formerly Steve Jobs ran company.

Microsoft: Once the kind of software (you could argue that it still is), Microsoft has taken the lead in gaming through the xBox, continues to dominate the operating system space through Windows, has launched SkyDrive for cloud based data and just recently announced it would finally go for the next frontier as it will produce its own hardware, the Surface, This is a very significant step for Microsoft.

Amazon: You probably thought that Amazon was an ecommerce store. It is that (the biggest by far) but it’s also a lot more. It now stands behind the most powerful distribution chain in the world in some regards, has been able to successfully launch tablets, to promote its products, is working on same day delivery, is arguable the leader in cloud computing as it provides the backbone for many of the top services in the world (Netflix, etc). Also, Amazon has increasing power over retailers, authors, etc

Google: The company defined by search has quickly became a force to be reckoned with in terms of cloud-based software, email, now has its own operating system, Android, which rules the mobile phone world, has its own tablets, the most used browser (Chrome), etc, The company is working on many different products and services and is increasingly becoming the top internet play. It even set in place a beta named Google Fiber to be the actual internet provider.

Will There Be One Winner?

Clearly, these 4 companies are going after an insanely big and valuable market. I’m not sure if there will only be one winner as Apple and Google for example have clearly showed they could co-exist. That being said, I doubt that the 4 of them will remain “as relevant” so picking the right one could end up being an insanely valuable investment. Why? Because these companies are becoming so powerful that it’ll become nearly impossible for a new player to come in. Think about it. Even now, if a company decided to compete, they would need to start investing heavily in:

-hardware, patents, etc
-software development
-data, cloud infrastructure
-marketing
-creating major alliances with content producers in a world where many have signed off exclusivity
-etc

Sure, you can try to do only one of those.. but think of companies that only do hardware (Dell, HP, Blackberry,etc), software (Yahoo, Facebook, etc) or even services (phone carriers,etc) and you’ll see that while some are doing well, the majority are struggling.

So who would you place your bet on?

I’d probably make a long term play on Google and Amazon at this point with Apple also being a strong play

What Is The Worst Thing That Could Happen To Your Retirement Income Flows?

By: ispeculatornew | Date posted: 10.30.2012 (5:00 am)

Every month, I now publish my passive income report where I discuss the different income flows that I currently have and that I’m working on getting between now and my eventual retirement. Even though I have no plans to retire anytime soon, I still hope to be financially independent within a decade or so.

Increasing Passive Income Is Not Enough

I am always looking to increase my passive income, the money I can generate from my retirement accounts, my online company, etc. That being said, it’s not enough for me to simply increase that amount. I’d like to become more diversified over time in terms of the sources of my income. For example, a few years ago, all of my passive income was generated from my online company. It had 2 big sites that generated money from one source. Since then, we’ve diversified and now have about 10 major sites with many more different sources of income. I also have a bigger and more diversified retirement account and am looking to add other sources such as real estate, an offline business, etc.

Always Keeping In Mind “Worst Case Scenarios”

I’m an optimistic guy by nature so I do try to always see things as being “half full”. That being said, it’s also important to prepare for the worst. I see many people out there building a retirement plan that depends greatly on the federal government for their pension, medical insurance, etc. I hope that by now you know that no entity, especially governments are immune to going down if they lose control of their fiscal situation. The US government, like many European ones continues to accumulate deficits, rising debt with no end in sight. I’m hopeful that at some point the government will get its act together, hopefully before it’s too late. But I certainly don’t want my family to depend on those guys in Washington getting it done.

Real Estate Has Its Dangers Too

I also know of plenty of people that end up building solid retirement income through real estate and while I intend to build some, there’s no doubt that there is danger. Just think of the current hurricane Sandy and the massive losses it will generate. Sure, you might have home insurance and even flood insurance but there will still be massive losses. Even if your house ended up being rebuilt, what happens to its value if the neighborhood loses much of its appeal?

Dividend Income Is More Diversified…

It’s true that I feel confident that my dividend portfolio is very safe and it’s unlikely that the income it generates will diminish if I get rid of poor stocks before they cut dividends. That being said, if I think about what happened to the financial sector just a few years ago and how all of these huge banks suspended their dividends, I have to think that it’s not bulletproof either because if the whole economy went back into a recession, my income could easily be affected.

I know that I’ll never protect myself fully because the range of outcomes is so incredibly huge. I am doing my best to be as diversified as possible though which will hopefully mean I’d need many different very improbable events to happen to have a serious impact on my retirement passive income flows.

What are you doing to protect yourself? Is your income all from one source? Could it be taken away if something happened to your pension, the markets, the government, etc?

Staying Far, Far Away From Best Buy ($BBY)

By: ispeculatornew | Date posted: 10.29.2012 (4:00 am)

Best Buy is a franchise that we all know and most of us do some shopping in their megastores. Over the past few years though, the company has struggled to compete, especially with online giant Amazon which sells much of what Best Buy does, at lesser prices.  So what do consumers do? They drive to a Best Buy store, shop and get information about the electronic items, and then increasingly often use the Amazon app to see which price is lowest. Of course, in almost all cases, Amazon is significantly lower so they end up buying from the online store and receive it a couple of days later. That is becoming a true nightmare.

Best Buy’s Answer

BBY management has confirmed that in the coming holiday season, they will be matching Amazon pricing on most of those items. Good strategy? I personally think they’re missing the point. In most cases, that will mean losing money on those sales. The problem is not the Best Buy prices but its price structure. Amazon has so few fixed costs that it becomes nearly impossible for Best Buy and its hundreds of huge stores, employees, etc to compete. I’m not exactly sure what the solution is but clearly moving a lot of what they do to ecommerce would be a solution.

Financials Getting Worse

Last week, Best Buy warned that its Q3 earnings would be lower than expected, sending the stock down even more. If you only take a quick look at BBY’s numbers, you will see a dividend yield over 4%, a P/E ratio under 6, etc. It looks good but it also reminds of the ridiculous P/E ratio that RIMM was trading at just months ago. Everyone knows that BBY is in big trouble and they will not remain profitable for much longer.

Management Jumping Ship

When everything looks bad AND senior execs start leaving, you know you have a major problem. Mike Vitelli, head of Best Buy’s US Operations will be leaving the company just a few weeks after the company CFO Jim Muehlbauer also announced his departure.

What Are Your Thougts on Best Buy? Are You A Shareholder?

Weekend Readings – Obama and Romney Manipulating Markets?

By: ispeculatornew | Date posted: 10.26.2012 (4:00 am)

Well, this weekend I need to do some research, I’m in the market for an SUV:) Any thoughts? Anyway, I loved this idea by the Atlantic Magazine.. I did discuss last week how I use InTrade to figure out who’s doing well. They now ask if it would be worth it for Obama and Romney to spend money manipulating these markets. Fascinating idea…

General Readings

Investing during bear markets @ Long Term Returns
Can you leave your kids too much money? @ DarwinsMoney
Long term view of manufacturing employment in the US @ CuriousCat
Interesting thoughts on Crowdfunding @ Christine.net

Dividend Readings

Kimberly Clark (KMB) Dividend analysis @ TheDividendGuyBlog
Dividends versus homemage dividends @ DividendGrowthInvestor
Current dividend vs purchase cost of dividend yield @ DividendStockAnalysis

Tech Readings

Big miss (again) for Netflix (NFLX) @ TechCrunch
Nice results from Facebook (FB) @ TechCrunch
Apple announces new mini iPad @ Zerohedge

A Few Tech Stock Thoughts + Closing A Trade

By: ispeculatornew | Date posted: 10.25.2012 (5:00 am)

This is the type of discussion I usually write in the free tech stock newsletter, you can sign up if you’d like to get 2-3 emails per month regarding the tech stocks that I follow. Simply sign up in this form:)

It was a very interesting week in the tech space for me. Before getting started, I’ll simply confirm that this morning, I’ll be closing out the trade where I am long eBay (EBAY) and short IAC Interactive (IACI), eBay has been doing incredibly well and the trade currently stands at +26,14%.

On Monday, Apple (AAPL) announced the mini iPad, a 4th generation standard iPad and a new mini MacBook. The most anticipated product was the mini iPad. It’s a product that excites a lot of consumers but not me personally. I do understand that there is some demand for it, so it makes a lot of sense to sell it. But it’s not something that changes how I value Apple.

Also Monday, Yahoo reported earnings for the first time since Marissa Mayer took over. The earnings were nice and the stock did well but the most impressive by far was how Mayer presented her vision. It was very strong, very focused, she seems to know exactly where she’s going, has already made significant changes in products focus, and in the entire senior leadership. All of those are costly but those are steps Yahoo needed to take. Frankly, if Mayer had said that small changes were required, I would have been negative. But she’s taking drastic action and I’m a believer. Look for me to go long Yahoo at some point in the future.

Then on Tuesday, both Netflix (NFLX) and Facebook (FB) announced results. Clearly, the most anticipated one for me was Facebook. As a Facebook shareholder, I was anxious to see what the numbers would look like and what the earnings call would reserve. I was very happy with the results and even happier with the earnings call. I don’t think i was as surprised as the street seems to be but then again, it’s fair to say that I’m much more optimistic about Facebook’s future than the average investor. Yes, the P/E ratio remains very high, but Facebook is just getting started in terms of generating revenues from its data and traffic. I will continue to look into all of the quarterly data and will certainly share more in the next few weeks. I’m glad people started believing that having tons of mobile users is a good thing..seems kind of obvious, even though the traditional “display advertising” doesn’t apply as well.

Netflix on the other hand announced decent revenues but had very disappointing guidance as the company now expects to add between 4.7 and 5.4 million subscribers this year to its streaming service, well south of the 7 million it had been looking for in the past. The fact is that Netflix faces incredible competition from companies such as Microsoft (MSFT), Google (GOOG), Apple (AAPL), cable companies, etc. It’s just not an easy business these days.

What are your thoughts on these companies? I’d love to hear:)

Passive Income Targets – October 2012

By: ispeculatornew | Date posted: 10.24.2012 (5:00 am)

After starting this new series earlier this year, I received a lot of positive feedback. Every month. I talk a lot about the need accumulate different passive income flows. As time goes by, my objective is to be able to live entirely off of these new income streams. In many ways, that is what’s behind my interest in dividend income. For now, I prefer to avoid using actual numbers (might change later on) so what I will do is express all of this data in %. The objective of course is for all of these flows to end up generating 100% of my current income. In terms of income, I will be using my gross household income. Counting the bonus would only make things more difficult to track and would not represent how I currently live on my finances.

For example, if my base salary is currently 100K, my objective is to make 100K of passive income on an annual basis. This could be done through a variety of methods which I will be exploring of course. A few people tried to figure out how much capital I have by looking at the USDP size. The main issue is that the USDP is only part of my dividend income. I also get income from my ETF holdings, etc.

How Much Do I Really Need?

I am aiming for an income of 100K or so, before taxes. To be clear, I feel like I need significantly less than that. Why? Let’s imagine that I currently make 100K of gross income. I am able to save 10K in a non-taxable account so my pre-tax income is 90K. I pay about 50% of that in taxes which takes me down to 45K. Then, I save 5K in a taxable account. So how much disposable income do I really have? About 40K. Once I reach retirement, I’ll hopefully still be growing my investments but it’s fair to say that if I made 80K pre-tax, that would be more or less equivalent of my current income. Would you agree? There are other factors to consider such as the fact that my mortgage will likely be paid off but I also expect higher tax rates.

Overall, I feel like aiming for the same level of income as I am currently making is very very reasonable and I could easily live with less but why aim lower if I’m confident I can reach that 100K?:)

Why Am I Doing This?

I’m a strong believer in working with clear objectives but also holding myself accountable so writing about these objectives will without any doubt help me reach financial independence more quickly.

Current Passive Income Flows:
3.64% – Dividend/Investing Portfolio: I am currently generating a dividend yield of about 3.50%. This portfolio will be increasing over time, especially on year end bonuses. I use a bucket system which I will be writing more about but the main retirement components are a long term dividend portfolio (see the Ultimate Sustainable Dividend Portfolio) and an ETF portfolio (see BuildYourETFPortfolio for more details on how I build mine). I saw a slight increase here thanks to markets rising and a similar yield.

4.86% – Private Investment In My Online Company: I have discussed how my web company has been the best investment of my life so far. Currently, the company is paying back very little as it is focused on repaying debts and we are still very much focused on growth. This certainly has the potential to increase over the next few years but probably not until 2013. We have seen a lot of volatility lately in income sources as you might have read on TheFinancialBlogger but the debt repayment continues.

Total: 8.5%

It’s not spectacular by any means yet. That being said, I am 31 years and do have a decent base (I could live with less easily).. I will continue to work on getting that total as close as I can do 100%:)

Passive Income Ideas
0% – Real Estate: I have started writing about adding real estate to my income flows and I certainly hope that will happen in 2013 but I do fear that it might have to wait one more year.. we’ll see I guess, there’s still a lot of work to be done and capital to be put aside.

0% – P2P Lending – This is a new idea which I will certainly discuss in the near future, one that could add some extra passive income

0% – Annuity – No intention of buying an annuity for the time being

0% – Other ideas – I could end up starting other businesses or proejcts will I’ll certainly keep you posted about.

What I Am Not/Will Not Include

Pensions: I do know that the government will be paying me a sum of money once I retire. However, given how poor government finances look like these days, I personally think it’s crazy to count on the government actually fulfilling its promises. It won’t happen. Yes, there will be money, but not anywhere what is currently being promised. Whatever I do end up getting will be a nice surprise.

I feel like I am being extremely conservative here. By not including my government pension and also not including the fact that lower revenues will mean less taxes to be paid, I’m overestimating the amount of passive income that is truly needed. That is more than fine by me. I’d also like to think that my house will be paid by then making my level of spending lower all things being equal.

Do you have any questions or comments? I’d love to hear any ideas or how you’ve been managing on your end as well!

The 7 Step Roadmap To Building Your Own Dividend Portfolio

By: ispeculatornew | Date posted: 10.23.2012 (5:00 am)

Every month, I write about the evolution of the Ultimate Sustainable Dividend portfolio which plays a critical role in building my passive income flows for my goal of financial independence. Last week I got an interesting email from a reader asking how to get started building such a portfolio.

It’s Not An Overnight Thing

I personally think the USDP is ideal for what I’m trying to do and as it continues to grow, it will surely evolve. That being said, building a solid, diversified and growth-focused dividend portfolio can seem like a huge challenge and without a solid plan, you might never get started. Another part to keep in mind is that while I started keeping track of the USDP with a capital of $20,000, many start with a lot less and I think it’s critical to start as early as possible, no matter how much you have. I’ve written about starting a dividend portfolio with as little as $5000 and to be honest, could start with a lot less. How would you get it done? Here are the steps in my opinion:

#1-Open a Brokerage Account

We did discuss a few of the top broker options recently on TheDividendGuyBlog if you need some ideas

#2-Transfer whatever money you can start with

This can be as little as $1000, the bigger, the better obviously!

#3-Setup An Automatic Transfer To This Account

This is critical. Don’t build a dividend portfolio without one. I’ve written frequently about this being the most critical factor. If you feel like you can’t afford to put much, that’s more than fine. Simply start with a small amount and try to increase it every year, or as frequently as you can. Ideally it transfers money from your bank account to your brokerage account on a monthly basis or more.

#4-Determine How Many Dividend Stocks You Should Own To Start Off

If you have $1000 or so, it’s likely that you will start off with 1 dividend stock while bigger portfolios might reach 15, 20 or perhaps a bit more. You can read my post about it here.

#5-Build A Solid Foundation

Those initial stocks are critical. As is the case with anything that you build, starting it off right is very important. What do I mean? While I certainly think that a stock such as Apple (AAPL) could be part of a dividend portfolio, I would never have it as the base. Why? I would personally try to get started with stable, longtime dividend payers that have an extremely stable (albeit probably slower growth) business. Companies such as Coca-Cola (KO), Pepsi (PEP) or Procter & Gamble (PG) come to mind as good foundation stones for any dividend portfolio. If you’re looking for inspiration, I obviously have a few recommendations (shameless plug)..

-Subscribe to our free mailing list which gives dividend stock analysis, etc

Download our free dividend investing ebook at TheDividendGuyBlog

-Download our most recent Dividend Investing eBook on Amazon

#6-Start Trading

Once you know which stocks you are going to start off with, you can buy them in the market, hopefully by making sure to not use market orders, avoid buying ahead of earnings, etc.

#7-Review And Rebalance Portfolio

This should be done at least monthly. If you can use the DRIP for your portfolio, I do recommend it. Ideally, you can write down or blog about your trades in order to help you take a look back and improve on your trading. I personally try to look at all stocks frequently to make sure they are still great fits and rebalance if necessary. As time goes by and your capital increases, you can slowly add new stocks to the portfolio.

What Are Your Thoughts And What Has Been Your Roadmap in building your own dividend portfolio?

How Blogging Improves My Trading

By: ispeculatornew | Date posted: 10.22.2012 (4:00 am)

As most of you know, a big part of my trading is fairly passive, ETF index investing, in my retirement account. That and my dividend portfolio combine as the core of my retirement passive income strategy. I do however also have some more speculative strategies such as my long term speculative picks, my long & short tech stocks. I don’t expect to improve my returns every year obviously but I do expect to get better at it over time. I only control so much and while my tech stock picks have been disappointing this year, I do believe that I’ve been trading better. I do still get some things wrong obviously but hopefully when there are lessons to be taken, I’ll be able to learn them.

Trade Diary – Great Concept But Not For Me

I’ve read many interviews with some of the greater investors and many of them agree that it’s key to go back in time, look at trades and try to understand what was done right or not, what could be improved, etc. It makes perfect sense obviously. When athletes try to improve, one of the top ways is going back to look at film, seeing what could be improved. I think most of us would agree that the same is true of trading. The problem is that it’s not as easy to go back in time. If I were to try to write down a trade diary as many of the others guys, I’d like have to write about:

My trades: why I opened a trade, what the main factors were, why this pair rather than another, what the numbers are, etc.

The reality is that it just seems like a lot of work to not only write these down but then go back trying to look back at trades months later.

This Blog Is A Better Way

I get an opportunity to write down my thoughts, my trades, my opinions on specific stocks, etc. This has enabled me look deep into my trades, find some recurring errors, that did lead me to make some changes in the way I trade. One big change for example has been to not open such positions in the week prior to a company announcing its results. There’s no doubt that my post about Google (GOOG) last week is yet another example of how trading before earnings can go wrong.

Wait, It Gets Better

While being able to get my thoughts out there, and retrieve them easily has been a good way to write my own sort of “trading diary”, the best part without any doubt has been the feedback from all of you. I’m not just saying this. Through comments on the blog but also a lot of interactions on Twitter (@intelligentspec) and answers to my mailing lists, I’ve been fortunate to get a lot of feedback which has helped my trading a great deal. I’m very fortunate to have all of you and I’m truly thankful.

How Do You Learn From Your Trading Mistakes?

Have you bought stocks that you later regretted? Do you look back on past mistakes to see if you are repeating them? I’d love to hear from you.

Weekend Readings

By: ispeculatornew | Date posted: 10.19.2012 (4:00 am)

Obama or Romney…who will win? I find it so interesting that while some surveys say Obama leads by 4-5%, others have Romney with the same lead. Yes, there are margins of error.. but not to explain what’s truly going on. I get it, surveys are very much an imperfect science. I personally use live “markets” where people put actual money to see what the most likely results are. If investors/gamblers are willing to put their money, I’d say that is the most likely outcome. Where do things stand now? Today I looked at both InTrade (event trading) and Betfair (sports/political betting)

Betfair: Obama given about 67% chance of winning
InTrade: Obama given 64.7% chance of winning 

Do you trust survey results? 

Here are a few readings for the weekend if you have some free time:)

General Readings

Actual wealth vs perceived wealth @ BalanceJunkie
Exxon Mobile acquires Celtic exploration @ BeatingTheIndex

Dividend & Passive Income Readings

Procter & Gamble (PG) dividend analysis @ TheDividendGuyBlog
IBM: solid value? @ DividendMonk
Are most dividend investors frugal? @ DividendStockAnalysis
Why I love being a landlord @ InvestitWisely

Tech Stock Readings

The new eBay @ TechCrunch

If You Had To Buy Google ($GOOG) Or Microsoft ($MSFT), Which Would It Be?

By: ispeculatornew | Date posted: 10.18.2012 (4:00 am)

The market seems undecided on the question as both companies are currently worth more or less the same thing. As of writing this, Microsoft is valued at $248,06B while Google trades at $247.81B. Even though both companies are competing with each other in almost all of their segments, they are incredibly different and both have different strengths and weaknesses. Today, I wanted to take a stand as I’ve been a believer in both of the names in recent months. They both have very different strengths and weaknesses and I guess you could argue either way depending on what type of investor you are.

Feel free to answer this before or after reading this post but I’d love to hear, which would you buy?



I have to say that with both companies announcing earnings today, my opinion might change a bit depending on what comes out in a few hours:)

A few Numbers

I’m big on numbers and love to see charts so here are a few:

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And let’s look at revenues as well as net income:

Revenues (quarterly, in $B)

Net Quarterly Income

So from a numbers perspective only, the fact is that Microsoft makes a lot more money and that Google will need to keep up the growth for a significant amount of time in order to catch up. In terms of income though, if you exclude the last quarter (you really should), Google’s margins are clearly lower. There are many other factors to consider though:

Google’s Business:

-Has the leading mobile operating system, Android which most Apple competitors are now using
-The undisputed leader in search, the entry point online
Struggling to compete with Facebook (FB)  in social despite launching going “all-in” with the launch of a solid alternative product; Google+
-Has been working on many potential high profile such as robot car driving, clean energy, which could end up bringing revenues & profits in the long term
-Has been able to develop several other leading products such as the top browser, Chrome
-Is slowly becoming a major competitor to Microsoft’s Office thanks to its Google Docs suite
-Continues to take risks and experiment as is currently shows by its attempt at providing high speed internet in Kansas City through Google Fiber.

Microsoft’s Business:

Highly concentrated revenues and profits from 2 sets of software (Windows OS and Office)
Faces increasing competition as the market evolves into cloud-based software
-Has emerged as a market leader in gaming through the xBox which is also an entry into the living room of most families
-Has announced what seems like a very promising table device, the “Surface” which does arrive a couple of years too late as Apple’s iPad and Amazon’s Kindle have captured the market
-Does pay a steady cash dividend that is set to increase steadily over the years
-Has a struggling online division despite investing billions of dollars every year to compete in search

The Bottom Line

In my opinion, both stocks are very good values and which one you choose depends largely on the trading perspective or what your objectives are. Obviously, dividend investors would go for Microsoft and I do think that someone nearing retirement and looking for a growing, stable and safe pick can’t go wrong with Microsoft. Someone that is investing with a 20 year horizon or willing to take more risk would probably side with Google as the upside remains significant. I would personally probably go for Microsoft in my retirement accounts and Google in my speculative accounts. If I really had to make one pick, I’d probably go for Google at this point, the upside seems significant compared to the risk.

What are your thoughts on Google and Microsoft’s stocks? Which one would you go for?