Archive for April, 2013

So Do You Still Doubt That Money = Happiness?

By: ispeculatornew | Date posted: 04.30.2013 (3:00 am)

Obviously, money is not the most important thing in my life and hopefully it’s not in yours either. I do spend a lot of time talking about here because that is kind of what this blog is about right? I’ve always had an issue with the saying that money can’t buy happiness. Yes, there is a lot more involved and being rich in itself is certainly not enough to live happily ever after. But does it help? Absolutely.

A new research paper is being discussed all over the place today, as it links money to life satisfaction (i.e. happiness). You can see the full paper here, but here is one very telling chart, from studies done in the top 25 countries in the world (in terms of population):

money

 

great-wall-china-wallpaperYes, in every single country, rich and poor, Asian or American, an increase in annual income does lead to better satisfaction. That is also why I put so much effort into ensuring that my retirement will be well funded an that I become financially independent as quickly as possible. I can think of travels I’ve done, live events, etc. Yes, a dinner in a good Chinese restaurant can be amazing. But is it the same thing as going to a Chinese restaurant after walking for a day on the Great Wall? Watching a hockey or football game on tv with friends is always a blast.. but going to see the real thing in person? Those memories always stick.

What are your

 

This Market Is Terrifying Isn’t It?

By: ispeculatornew | Date posted: 04.29.2013 (3:00 am)

Is it just me? When I look at the main market indexes such as the S&P500, I see them at or near all time highs. The economy though continues to struggle with sub-par economic growth, high unemployment, record deficits, and no clear way to turn all of this around. It’s the same or worse in most of the Western world and some emerging countries such as China are clearly slowing down.

SPX

Market Performance = Economic Performance?

I do know that these don’t necessarily go together, especially in the short to medium term. That being said, markets are generally driven (at least in the long term) by fundamentals.. by company earnings. A struggling economy would eventually put pressure on those earnings. The only way for the market to keep growing would be:

-higher P/E ratios

That of course is not sustainable, even if a treasury is pumping billions into the system trying to help us believe that everything will be alright…

What I’m Doing To Counter This Feeling

There is only so much I can actually do. Waiting to invest or shorting the market could cost me dearly and has been a difficult position to sustain for many hedge funds & investors. I personally am trying to do the following things:

Not Trying To Time The Market: I will continue to invest money on a regular basis into my retirement accounts no matter how markets react overall which in general works out much better than trying to determine when markets will crash

Looking For High Value Stocks: I do try to look for stocks that have strong brands & fundamentals and that would do well no matter how the economy ends up doing

Being Realistic About Potential Losses: In some cases such as my trade on Apple (AAPL), I do feel like the downside is fairly limited. In other higher reward plays though, such as my purchase of Facebook (FB) stocks, I do make sure I understand the potential risks and would be able to live with large losses.

What are your thoughts? Do you trust the current market?

Weekend Readings

By: ispeculatornew | Date posted: 04.26.2013 (3:00 am)

fisherFootball is backkkkkkk! Ok maybe not quite, but I’m writing this while watching the NFL draft, loving it. I’ll certainly be ready when fall comes around. Not that I’m anxious about it yet, I do look forward to the summer but you know what I mean don’t you? 🙂 Quick question…are any of you members of Audible? If so, anything to recommend for my next “reading” ?:)

That being said, here are some good readings 🙂

General Readings

AP Twitter account hacked sends markets lower @ TheVerge
Is the 60/40 asset allocation strategy dead? @ MarketWatch
Should Bloomberg be afraid of Twitter? @ Fortune

Dividend/Passive Income Readings

17 dividend stocks to look out for @ TheDividendGuyBlog
Opportunity costs for dividend investors @ DividendGrowthInvestor

Tech Stock Readings

Terrific discussion on pricing of ecosystems (FB, AAPL, GOOGL, etc) @ AboveTheCrowd
Netflix (NFLX) now bigger than HBO? @ QZ
Amazon’s app store doing very well @ TechCrunch
Future of tv according to Netflix CEO Reed Hastings @ PaidContent

image credit

Is Google or Amazon The New 21st Century Conglomerate? (GOOG, AMZN, BRK/B)

By: ispeculatornew | Date posted: 04.25.2013 (3:00 am)

A few decades ago, conglomerates gained traction but in the end it proved to be a failed business model. According to Wikipedia, a conglomerate is “a combination of two more corporations engaged in entirely different businesses that fail under one corporate group”. That model failed because it had been proved that no entity trying to compete in all these different businesses could be consistently better than a company that was 100% focused.

Samsung

Last week, I read an excellent article about Samsung which sadly is not traded on US markets. That company seems to be the latest of many successful conglomerates. Think about where it started, building fridges and other electronics. These days, the company is in many ways the top mobile phone manufacturer, it is building TV’s, software for its phones, buildings, etc. The company had sales of $179B last year and employs 370,000 people in more than 18 countries. It has been doing extremely well overall and continues to grow both at home (where it is 17% of South Korea’s GDP) and abroad. In fact, it’s stock has returned close to 25% annually over the past 20 years.

samsung

Berkshire Hathaway (BRK/B)

In many ways, Berkshire is the most known of these conglomerates in the financial sector. It has a foundation built on insurance businesses that generate significant cash flow. Then, Berkshire can get into businesses such as railroads that require important capital It certainly seems like a smart way and returns over the past 2 decades have certainly showed it. Yes, part of it is Warren Buffett’s genius mind at work but another is him using a corporate structure and instead of paying out dividends, reinvesting the money in a more efficient way.

brkb

Are Conglomerates More Efficient These Days?

I’ve been thinking about this and while in a way you could think that building cars, producing electricity and mapping the world could be totally unrelated, a company like Google has been able to find a way to use its strengths in one area to become dominant in everything else. As the planet becomes more connected and more global, it seems like all of these industries are becoming more connected. Google is the ultimate player. It started off with search and quickly expanded into all kinds of online services (video-Youtube, email, storage, software, etc), has expanded into other areas such self-driving cars, maps, mobile phones, clean energy, internet provider, same day shipping, etc. You could argue that a couple of those don’t make as much sense (I’ve argued against the same day shipping for example) but overall, it does seem like Google has an edge in each of those.

While it’s not as diversified, I would argue that Amazon building a global storage and distribution for physical and digital goods, building hardware such as Kindles and more is another type of 21st century conglomerate where the company can sell for years at little to no profit in order to gain market share and eliminate competitors.

The One Key

For both Samsung and Berkshire, the leader has incredible power and vision to see how to best allocate resources. That seems to be the key rather than having paralysis at the top because the units are all competing for dollars and resources. I do think that Google’s new leader, Larry Page, does seem to have what it takes so far and I think it’s clear the same is true for Jeff Bezos.

What are your thoughts on modern day conglomerates? Are they better bets?

Is It Possible To Find Decent Telecom Plays For A Dividend Portfolio?

By: ispeculatornew | Date posted: 04.24.2013 (3:00 am)
220px-Mobile_phone_evolutionIf you’ve been following my monthly top dividend reports and are a subscriber to my free mailing list, you know that telecom stocks are often at the very top of these lists but I’m more often than not very convinced about staying away. It’s not all about the yield right? I guess that’s true but I’m also trying to build a solid higher yield portfolio which gave me the idea to take a fresh look at the sector. Maybe some of these stocks would actually provide decent yield at a reasonable price. What I did was look at US stocks in the telecom/cellular industry (this includes stocks that are foreign but that trade on US markets) and that yield over 3%. I ended up getting down to 35 names from which I gathered some information but also did a bit more filtering. I removed stocks that:
-have a price under $5 (3 stocks)
-have a payout ratio over 100% (which removes some stocks such as France Telecom (FTE), Verizon (VZ), AT&T (T), WindStream (WIN)

Then, there were 19….

[table “509” not found /]
As you can see, simply removing stocks that pay out more than they can afford to takes out a large portion of the candidates. My other expectation is that many of these companies have slow growth..so let’s look at these 19 using a less severe version of my 7-7-7 rule. I’m looking for stocks that have increased revenues, EPS and dividends by 3% on average over the past 5 years.

How many respect each criteria?

EPS growth over 3% for 5 years: 4
Dividend growth over 3% for 5 years: 8
Revenue growth over 3% for 5 years: 10
The big question is how many names fit all 3? Only 2…!! Crazy right? Here are the numbers on those 2 companies:
[table “510” not found /]

Which of these 2 would you add to your dividend portfolio? I personally know a lot more about Rogers and would probably go with that one but I’d love to hear your thoughts!

Owning Physical Gold Or An ETF/Closed End Fund?

By: ispeculatornew | Date posted: 04.23.2013 (3:00 am)

gold_bullionI’ve said for some time that I think most investors should own part of their assets in gold. It’s an asset that has done well over long periods of time, especially as a hedge against inflation and weak/volatile economies. There is certainly a sense that this could be a good time to buy following major losses in the last few weeks. I would never describe myself as a gold bug and I’m not one who follows the daily movements of gold. Like others such as John Mauldin, I believe in buying some gold, especially after big declines and holding on to it. I’ll probably never have 5% of my assets in gold, but I do have a small part of my portfolio invested. I received a couple of questions last week regarding different ways to buy gold. There are certainly pros and cons to both methods. Here are my thoughts:

Buying Synthetic Gold

There are many ways to do this (futures, options, etc) but I think it’s fair to say the most popular method is through ETF’s. That is also generally the way I’d personally do it. Some closed end funds also provide good ways to gain exposure and can sometimes even be converted back into physical gold but the problem is that closed end funds can end up trading away from NAV. So you might end up buying at a given price, and selling it at a loss even though the price of gold increased. It’s a tricky thing really. I personally refer going through the route of ETF’s such as GLD in the US and CGL in Canada. There are always conspiracy theories about where the gold is held, etc. I guess those stories always find their way around any type of gold story:)

Top Benefits: The costs are actually very small here. When trading an ETF like GLD, you can generally buy at or near NAV and will only pay a very small commission.

Top Downsides: If you’re holding gold as a hedge for a major financial collapse, I guess it’s worth asking yourself what would happen to your gold ETF if that happened. Perhaps it would be fine, but I know of several people who fear its value would not rise the same way physical gold’s value would in such a scenario. Also, how useful is a gold ETF if the markets are down, etc?

GLD

Buying Physical Gold

In this case,you an buy physical gold usually in coins, from a local dealer or through the internet, etc. They will generally send it over to you and you can then either store it in your home somewhere or rent a safety deposit box to store it.

Top Benefits: Being able to use your gold at any point certainly has value, especially if you are worried that a currency or a bank deposit could end up being worthless overnight.

Top Downsides: The costs. If you’re going to do this, please do one exercise. Ask the place/site/person you’re buying from a simple question. If I buy $10,000 worth of gold now and resell it to you an hour later (assuming gold has not moved), how much will I get? This gives you a good idea of fees involved, etc. Also, needing to hold and store your gold is certainly not ideal and I can’t imagine storing too much of it in my home.

How about you? Do you own gold? If so, how?

The Time Has Come…I’m Buying Apple ($AAPL)

By: ispeculatornew | Date posted: 04.22.2013 (3:00 am)

aaplI’ve been pretty vocal about Apple (AAPL) in the past few years, mostly being very bullish which has served me very well. I did also make several picks involving Apple and generally did very well with it. Today however, I am taking a position which is much more meaningful. Those who follow this blog know that I divide my investments into a few different buckets, the main ones being:

Retirement accounts: dividend focused stocks and ETF passive income strategy
Long & short tech stocks (which I present here)
Longer term speculative stocks

Today, I will be opening a position on Apple in that third category. What is the difference? This means I consider Apple to be grossly undervalued at this point and would argue that the upside potential is very significant compared to the downside. I take these picks very seriously because they are bigger bets with a long term focus. The last such bet I made was buying Facebook (FB) a bit below $20… which has been a good investment so far. I’m hoping to do as well with this one. I spent a significant amount of time looking at Apple’s data this weekend and here are some of the main reasons why I’m ready to finally jump in.

#1-Apple’s P/E Ratio Makes It A Great Play

Apple is currently trading at a P/E under 9. That is insane. Why is trading here? Wall Street hates companies/stocks that have decreasing growth which is understandable. I would argue that the hate has gone (way) too far this time around. Let’s look at other stocks that have comparable P/E’s:

[table “508” not found /]

Let’s take a look at the growth in revenues and earnings per share over the past 3 years:

AAPL EPS Diluted Quarterly YoY Growth Chart

AAPL EPS Diluted Quarterly YoY Growth data by YCharts

AAPL Revenue Quarterly YoY Growth Chart

AAPL Revenue Quarterly YoY Growth data by YCharts

Now… I have a few thoughts looking at these…. Apple is clearly the top pick in terms of revenues growth and while it’s seen some declines, continues to look solid in terms of EPS growth as well. So why is the company trading at such a discount to these other names? You might say that I picked names that would fit here. I didn’t. I’m more than happy to debate other names, ideally that have comparable P/E ratios to make the comparison easier.

 #2-Apple’s Huge Cash Reserves

When I say that Apple has little downside at these levels, this is what I mean. Apple currently has a market cap of about $365B. That is significant. But consider the fact that Apple has about $140B in cash right now and is expected to move above $170B by the end of the year. So about half of its value is in cash with many other assets also having a lot of value.  The company is (very) profitable, continues to grow sales so I don’t know how much lower the stock could go.

#3-Apple Is Paying Back Shareholders With Much More To Come

Apple already does pay out a 2.71% dividend yield and is likely to increase that or pay back some special dividends because cash is coming in much more than the company is able to spend it (good problem right?).

#4-Apple’s Product Line Will Continue To Do Well

Apple continues to have leading products such as its iPad and iPhone. The media often tries to make stories out of little about Apple but I don’t worry about these as much as some others. Why? First off, the iPad is dropping market share… That was expected of course as it started off with nearly 100%.. that was not going to hold but it continues to do well.

As for the iPhone? Yes, Android devices are doing extremely well and some phones produced by Samsung have produced decent competition for Apple. But if you look at this chart Asymco, you can see that Apple has actually out-gained Android phones in the past 12 months…thanks to in part to new corporate and government clients such as the Pentagon. So not, the iphone is not dying.

Screen-Shot-2013-04-05-at-4-5-4.20.02-PM

credit: Asymco

In addition, Apple has many other revenue sources such as its iTunes business that bring in consistent profits.

iwatch#5-Apple Will Come Up With New Products

Apple is rumored to be working on quite a few items which include a new Apple TV, iWatch, iRadio, etc. So yes, I’m confident that Apple will continue to do well for the medium to long term.

In the end, I simply think that the potential benefits greatly trump the risks of this trade…!

Disclaimer: Long Apple (AAPL) in a long & short trade

 

Weekend Readings

By: ispeculatornew | Date posted: 04.19.2013 (3:00 am)

fbI’m very excited about having a first “warm” weekend! It’s about time right? I know that for some of you, it’s never an issue.. but believe me, I’m thrilled. Even better, today, the NFL schedule was released for next year, I’m trying to find games that I could potentially attend… hoping to see at least one this year:) Are any of you planning to go see a game? If so, which one?

General Readings

Obama’s chained CPI explained @ DarwinsMoney
Most $100 bills live outside the US @ NPR

Dividend/Passive Income Readings

Portfolio update Q1 @ TheDividendGuyBlog
Dividend investing or index investing @ DividendStockAnalysis
Energy Transfer MLP Update @ DividendMonk

Tech Stock Readings

Microsoft (MSFT) can’t keep up in a mobile world @ WSJ
Full Specs for the Google glasses @ TechCrunch
Google’s Bufferbox…it starts in San Francisco @ TechCrunch
The truth about Google Fiber @ PCMag
Yahoo comes out with earnings @ TheNextWeb

What If Google Fiber Is More Than An Experience ($GOOG)

By: ispeculatornew | Date posted: 04.18.2013 (4:06 am)

google-fiber-austin-texas-540x361Interesting turn of events in the last few weeks.  After making a case that Google was making a big mistake in trying to go after same-day shipping and that it should focus on areas where it would have an edge (retail stores and Google Fiber),  Google announced it was moving on to Austin, Texas as its second Fiber city. Then, yesterday, Google announced it would also be offering its service in Provo, Utah. Just to recap, Google Fiber offers the following options:

-$300 installation fee only for 7 years of free 5mb internet
-$70/month for 1GB internet connection (which ranks at the very top of Netflix’ ISP rankings)
-$120/month for 1GB internet connection and HDTV cable

I don’t know about you (actually I do), but this is not even comparable to what I’m getting from my current ISP. Because of that, Google Fiber was able to secure huge market share in its first market (Kansas City) and looks likely to do the same in Austin and Provo.

Fiber Was Deemed An Experience

At first, Google Fiber was explained as a way for Google to show consumers and cable companies what was possible.  It has clearly worked, scared off cable companies but ultimately they seem to be too old and have too much infrastructure to adapt so far.

So The Experiment Expands

Google’s recent announcements send a very important signal in my opinion. It would not be moving to other markets if it could not see this as a potentially profitable business. Of course, it probably needs to enter these markets slowly and carefully because the market share is key here. But what if Google is thinking about expanding Fiber into many other cities. What would this mean to Google? And for cable companies? I’ve heard the idea that Google could/should spin off that business but I don’t agree. The synergies are too important to risk having the companies work apart.

I always talk about owning the “ecosystem” and in a way, Google Fiber is the ultimate ecosystem play. 

GOOG

Cable Companies Must Be Trembling

Imagine a competitor offering a service that is multiple times better than your offering at a lesser price, with a brand (Google) that is loved.  Companies like Comcast and Time Warner must be having daily meetings about trying to compete with Fiber… I’m guessing their best hope is that Google does not start speeding up its expansion. Can you imagine if Google Fiber arrived in a few bigger cities? The best part for Google of course is the fact that no one seems capable of offering something even close to Google Fiber’s offer (for many different reasons including those huge data centers, etc).

Hoping To Find Out More Today

I doubt that Larry Page will give out much about Fiber but I do hope that in tonight’s earnings call, analysts will at least ask about it, what it means, plans for the future, etc.

What are your thoughts on Google Fiber? Do you think it could end up having a significant impact on Google’s long term future?

Are You Ready For The Next Market Crash?

By: ispeculatornew | Date posted: 04.17.2013 (3:00 am)

The other day I read a very interesting piece of data… if you look at the US markets over the past century or so, every strong rally has had some kind of dip at some point. There have been a dozen or so times where the markets have increased by 100% without a 20% setback. Just look at this chart:

bullmarkets

Now take a look at that last column… At some point, we will have a major correction. On Monday, we had a good look at what markets could be like with almost everything plunging:

SPY

If markets were to decline by 30-40% or even more, there would be many more such days. If you’re doubting that it will be coming.. Just think about it. The markets are at all-time high’s but the economy remains depressed in many ways. Unemployment remains high both in the US and Europe, growth is not exactly what you’d call “strong” with the EU expected to contract again this year, a slowing China, etc. Banks around the world are struggling with some in Cyprus even funding their bailouts with their shareholders money.

Gold Might Not be Your Refuge

A lot of gold bugs think it is the ultimate protection against inflation, falling markets, etc. It has been doing very poorly in recent weeks and broke past the psychological $1500 level:

GLD

gold

So how should you prepare yourself? One clear way is to own dividend stocks which tend to do better than the overall market in market crashes/setbacks. I feel confident that a portfolio like the USDP would outperform the overall market in such a context.

Another question to ask yourself of course is how well you could support such a loss. Obviously, no one would be happy about such a loss but I think it’s important for everyone to be able to support such a loss. If you are retired or close to it, it’s important to be comfortable with how much money you have “at risk”, in the markets.

What are your thoughts on this market? Do you think it’ll be higher or lower by the end of the year?