Archive for September, 2013

What To Do With Facebook ($FB) Now…. ?

By: ispeculatornew | Date posted: 09.30.2013 (3:00 am)

homerI’m hoping that this also happens to you once in a while. You lie down to relax but then two voices start arguing. Sometimes about useless stuff but other times about trades or positions. This isn’t just me right? It seems like at least Homer Simpson has had the same experience although I’m not sure that makes me feel any better.  Anyway, moving on… not sure I want (or should) spend more time on this.

So what am I struggling with? What in the world should I do with Facebook (FB)?

If you remember, I was bullish on Facebook from the very start. Even at its IPO price, I thought it was a great buy. I try to stay away from IPO’sin the first few weeks which I did and helped me buy the stock well below that price (at 19.99 to be specific). I thought it was a steal. I bought the trade in what I classify as a long term speculative pick. As you can guess from the name, I usually hang on to such positions for some time. I don’t really have an exit point because it’s so far out in time (which you could argue is a mistake). Those stock picks have done well over time but this one is doing exceptional (by my standards at least) and is now over 150% in a year or so. As I’ve said before, these picks are bigger bets for me so I’m very happy with the return. I’m obviously a big believer and recently told my tech newsletter subscribers that I was closer to buying than selling my position. The issue? The stock keeps going up:

FB

Why is the stock rising so fast? Because it’s no longer a joke. It’s seen as a must hold, a stock that belongs to te Nasdaq-100 Index, a stock that has beaten earnings and for which broker after broker is now issuing a “buy” recommendation with target prices going higher and higher (I’ve seen targets in the 70s already)… It’s a “hot” stock to hold.  That seems to me like exactly the time you’d want to get out right? When everyone is buying, the right move is to get out?

Sky Is The Limit

My big issue is that I think Facebook can do so much more with its holdings. It has not even scratched the possibilities and while advertising (and mobile advertising) are being seen as successes, I continue to think that Facebook will get involved into much higher added value activities. So this seems very early to sell.

Take Your Gains Or Hope For The Next Apple/Microsoft?

One the one hand, having too much ego interfer with my trading is not a good thing. But I continue to believe that Facebook has just scratched the surface. I can’t really say I’m looking into buying more at these prices but it does not feel right to sell either. It might not be the next Apple or the next Microsoft that goes 10-20x higher (especially given where it started) but I’d feel a lot worse regretting having sold it off early than taking the risk of seeing Facebook become what it should; the next internet leader.

Disclaimer: Long Facebook (FB), Apple (AAPL), Microsoft (MSFT)

Weekend Readings

By: ispeculatornew | Date posted: 09.27.2013 (3:00 am)

chi

Life is very strange sometimes isn’t it? I don’t know if you’ve used Evernote but I’m a big time user and was stunned to read that it was one email away from closing its doors, read more about it here.

General Readings

One big trader lost millions betting on Romney @ WSJ

Not only Detroit is in trouble… San Jose too @ NYT

Dividend/Passive Income Readings

100 investment lessons in less than 5 minutes @ TheDividendGuyBlog

Tech Stock Readings

Facebook’s evolving status with investors @ LA Times

Can Walmart (WMT) Or Costco (COST) Successfully Compete With Amazon (AMZN)?

By: ispeculatornew | Date posted: 09.26.2013 (3:00 am)

$AMZNA couple of weeks ago, I looked into how well Google (GOOG) and eBay (EBAY) could compete with Amazon. The conclusion? Not very well. It then became very relevant to look into how Walmart (WMT) and Costco (COST) would be able to compete. Why? Because I think it’s becoming more and more difficult for smaller players to compete with these megaplayers. I’ve often discussed my theory about dominating the ecosystem and I think those who succeed become very difficult to deal with. Why? Just think about the levels of automation Amazon is able to bring into its business in terms of making it easy for consumers to buy all kinds of products more easily than any other store. Add to that rock bottom prices (slim margins and good purchasing power does help) and it’s a major challenge. Are Walmart and Costco the only players that can compete?

Better local presence: There is no doubt that both Walmart and Costco have a much stronger local presence with big stores all across the US and in many other countries. That is a major advantage.

Cost structure: (employees, fixed costs, etc) On this front, the advantage for Amazon is very clear. It has fewer locations, employees and has been able to open warehouses with the overall goal of keeping costs low. It has also started using robots in its warehouses.

AMZN

COST

WMT

Amazon Has An Insurmountable Lead

The major advantage for Amazon over its competitors is that it was able to start off its business at square zero. It built everything geared towards this new business environment:

Digital Products: Amazon has built a strong business around digital products thanks in large part to its Kindle. It has been able to sell digital books, streaming videos, etc.

Same-day delivery: Amazon has been building warehouses in a very strategic way in order to be able to quickly offer same-day delivery to as many customers as possible. Walmart and Costco built with a completely different mindset as they focused on which stores would get enough business.

Technology Advantage: Building a website that sells products is easy. Having technology that will make it easy to target consumers with the right offers, to make purchases extremely easy, to have an active community that generates millions of product reviews, that is much more difficult and from that perspective, Amazon is at least a decade ahead.

AMZN Revenue Quarterly YoY Growth Chart

AMZN Revenue Quarterly YoY Growth data by YCharts

Walmart and others will survive

I don’t think that in the long term, Walmart and Costco will be able to successfully compete with Amazon but those two players will certainly remain major, very relevant players. We’re not near the day where consumers stop going to physical stores so having a strong local presence obviously matters a great deal.

Disclaimer: No positions on WMT, AMZN or COST

Is Cisco ($CSCO) Good Enough To Make The USDP?

By: ispeculatornew | Date posted: 09.25.2013 (3:00 am)

$CSCOAs I’ve mentioned previously, I’m seriously considering getting rid of Intel Corp (INTC) in the USDP. It’s not that I don’t think the company can rebound but I prefer getting rid of a name earlier than regretting holding when unfortunate things start happening (such as a dividend drop). The USDP has not seen any of its stocks reduce dividends to this date (knock on wood!!). So what am I looking for? Stocks with long term growth potential in terms of revenues, earnings and dividends. Unfortunately, if I’d like to replace it with another technology name, there aren’t that many candidates. Yes, there are more options than a few years ago but it’s not quite the same as looking for companies such as utilities, etc.

Today, I decided to take a deeper look into Cisco by using the top 20 things I look at when judging dividend stocks:

Dividend Metrics:

dvd1

 

ycharts_chart

I obviously prefer to hold stocks that have long histories of paying dividends but in the tech sector that is a lot more difficult to achieve. Cisco has been paying dividends since 2011 and has increased them steadily. The 2.82 current yield isn’t exceptional but it’s certainly good enough for me to consider adding the name.

Company Metrics

dvd2

Here, the numbers are much stronger. Sales and earnings are growing at a steady rate, the payout ratio is very reasonable and Cisco has very little debt. I do have one area of concern though and as you might imagine, the P/E ratio is a bit high for me. I do however appreciate the fact that while the current P/E is a bit higher, the projected one for next year is much more reasonable at 10.64.

Just look at the 5 year revenues chart:

CSCO Revenue Quarterly Chart

CSCO Revenue Quarterly data by YCharts

Stock Metrics

CSCO Chart

CSCO data by YCharts

Industry Metrics

Cisco is very well positioned in the fast growing network sector. It faces a lot of competition but very few of those names have the name and power to go after those bigger government and multinational accounts that Cisco is able to secure. Also, while many smaller players are able to compete on the software part, Cisco remains very dominant and difficult to compete with in terms of both hardware equipment and ore integrated solutions.

Is It Good Enough?

I’m still contemplating a few different options but I think it’s fair to say that Cisco has a strong profile and less uncertainty than a company such as Intel Corp (INTC). Logically, there is less upside as well but in the context of a long term income portfolio, that is often something that comes with these picks.

What Are Your Thoughts On Cisco? Do any of you own it?

Disclaimer: No position on CSCO

Running Out Of Money At Retirement?

By: ispeculatornew | Date posted: 09.24.2013 (3:00 am)

palomeWe only control so much right? Sometimes, smart & hard working people end up unable to find a good paying job. It can be because their health isn’t good, someone in the family is sick, etc. There are unfortunately many reasons beyond our control.

Today, I ended up reading about Tom Palome, a 77-year-old man who works for $10/hour in a Sam’s Club. Think that’s an ordinary story? How about if I told you that this guy used to make more in an hour than he now earns weekly? Mr Palome is a former vice-president of Oral-B. He ended up not saving enough for retirement. Like so many others, he probably imagined that such a day would never come and that the income would go on for much longer than it actually did.

These Stories Are Becoming More Frequent

I wish this was an exception. Yes, in some cases, it’s about wasteful spending (many pro athletes come to mind) but for the vast majority of retirees, it’s simply about:

-not investing enough

-not investing in a smart, organized way

In an era where many depend on government promises of pensions as well as pension payments from former employees, that is likely to happen a lot more. Governments of all kinds and sizes in the West are quickly realizing that they won’t be able to keep their promises. They have started making some changes (reducing benefits, increasing the retirement age, etc) but it’s happening too slowly to have a significant impact.

My Own Quest

As many of you know, I’m working hard on building my own passive income sources and dividend investing is a critical part of that.  I’m certainly not immune to something happening related to my job, my health (or that of a loved one) but here’s what I do know. Every year that goes by, my financial situation does get stronger and I’m a little less worried about all of the what if scenarios and the idea of having to flip burgers at some point later on in life. It’s also important for me to keep my spending fairly constant over the years to increase my odds.

Do you ever think of such a possibility? Do you think you’ll be forced to work late into your “retirement”?

Closing One Trade

By: ispeculatornew | Date posted: 09.23.2013 (4:20 am)

I currently have 7 live trades and 2 of those could in theory be closed, one of them reached my stop-loss and one is over my 20% winning threshold (long Apple-Short Travelzo). This morning I will be closing out the losing trade but will keep the other one alive. Why? Because I continue to believe holding Apple brings a lot more upside than downside, especially with new products being launched in the coming weeks (even though the iphone launch was not received as well as I had hoped). So what am I closing?

Long Google (GOOG) & Short Yahoo (YHOO)

The trade currently stands at -29% and will be closed on the opening this morning:

GOOG Chart

GOOG data by YCharts

Weekend Readings

By: ispeculatornew | Date posted: 09.20.2013 (3:00 am)

f1Did you hear this story of a Boston homeless man who found a huge stack of cash and returned it to the police? Wow.. I’m happy to see it’s turning out well for him:) Here are some interesting readings going into the weekend:

General Readings

Why benchmarking your portfolio is a losing bet @ StreetTalkLive
Rogue Goldman algo messes up options market @ ZeroHedge
Is it impossible to beat the market? @ InstitutionalInvestor

Dividend/Passive Income Readings

8 investing strategies, what’s yours? @ TheDividendGuyBlog
Medtronic (MDT) dividend analysis @ DividendMonk

Tech Stock Readings

Apple will not go after lower priced smartphones @ BusinessWeek
What Twitter needs to do after IPO @ Fortune

 

Twitter Is No Facebook ($FB)

By: ispeculatornew | Date posted: 09.19.2013 (3:00 am)

$TWTROn Monday, I announced a few changes to the stocks I follow and while I could not add Twitter to that list just yet since they do not trade and have not announced their ticker yet, that day is quickly coming. The company filed an S-1 and is rumored to be looking at a 2013 IPO which would mean that I could end up having one more social stock in next year’s social stock picks.

I Truly Love Twitter

I’ve been using Twitter for a long time and while I always believed it would be useful, that feeling has gotten more and more powerful over the last few months. It has clearly become the top source of news out there. Yes, there are sometimes things that go wrong but no matter what the subject (news, sports, politics, etc), Twitter is usually the place where it all happens first. Yes, it’s only 140 characters so a headline doesn’t tell the whole story. But in a world where speed is everything, being the first one with the news is critical.

I remember when I was on my way to Japan during the Tsunami and wondering what was really going on at Tokyo’s Narita airport, Twitter was by far the best source of information for me. These days, I use it to get news, follow friends and family, keep track of subjects that I like but also to communicate with big brands. It is now (with email) the top application that I use on my iPhone.

twtr

So yes, in a way, I’ve become a bigger fan of Twitter than Facebook. That is the product though. If that was the only criteria, I’d be preparing to buying a ton of Twitter shares.

It’s About The Business

Of course, as a Twitter user and believer, I tend to think the world of the company. The issue of course is that it’s not about how great of a product or how used it is. When deciding to buy a stock, it’s always about future earnings per share, which mostly depend on revenue growth. Yes, margins count as well, especially in the first few quarters where they will likely be under pressure as the company starts paying stock-based compensation and using some of that new capital. We don’t know much about Twitter’s financials, especially compared to what we knew about Facebook. That being said, revenues are said to be under $1B which is not shocking. Facebook also had less than that in 2009 and look at how quickly those grew:

FB Revenue Quarterly Chart

FB Revenue Quarterly data by YCharts

Can Twitter do the same or better? I personally don’t believe so. One of the big reasons why I’ve been a believer in Facebook has been my belief that it could do much more than advertising (which is still not really the case). I’m not as convinced regarding Twitter. Ads are the primary way to gain money. Another way would be the licensing of its data for various uses but I can’t imagine that becoming a billion dollar business.

In terms of growth, I’ve always said that for Facebook it wasn’t about #users. Why? Because apps are being built. Other sites are building themselves or specific services on top of Facebook, etc. And clearly, for many reasons, I believed Facebook could grow revenues/user substantially. It’s not as clear for Twitter. They do have a few other services (such as Vine which ironically lost significant appeal when Facebook owned Instagram launched a competing service) but those remain separate from Twitter. Yes, while some celebrities and brands are active on Twitter, it is likely to grow much bigger. But are we talking about 10x growth? I doubt it. I have read some other interesting arguments about Twitter being the ultimate advertising play but it’s not been enough to convince me.

In The End, It’s About Valuations

Like everything else in the market, it comes down to valuations though. I’m not sure what kind of P/E the stock will trade at, what growth it has been generating in the past year or so, etc. So it’s certainly very possible that the price could come down to something I feel is a bargain. Would I short Twitter? No. The company has the potential to change the world and while I personally don’t see as much revenues/profit growth potential, I know I could be wrong so I’d prefer not to play that game.

For me to invest in Twitter though, the P/E will likely need to be significantly lower than competing stocks such as Facebook.

What About You? Would You Buy Shares Of Twitter?

 

Ultimate Sustainable Dividend Portfolio – September 2013 Update – Thanks Microsoft (MSFT)!

By: ispeculatornew | Date posted: 09.18.2013 (3:00 am)

pas2In September 2011, I did some in-depth research to find long term sustainable dividend stocks and have been doing updates on this Ultimate Sustainable dividend portfolio since then in the attempt to show how well such a portfolio can perform over the long term. I would personally say that things have been going very well and will certainly continue to evolve. I do have a few more things planned which I will discuss in the near future.

The USDP is obviously a critical part of my now very public quest to replace my job income with passive income. you can see my most recent update here. I recently came back from vacations and I can tell you that it’s one incredible motivation.. Not that I needed it but wow:)

Things continue to go very well for the USDP which I’m thrilled to see. Very exciting stuff and I’m thrilled with how things have gone so far. I have done a couple of trades and continue to work on optimizing it, if ever you would like to receive those types of updates, please join, it’s free:

Keep in mind that this portfolio was built by selecting 20 stocks out of thousands. The goal is not to pick the best dividend stocks but rather to pick a diversified, high quality portfolio that will keep dividends increasing over time.

Here are the holdings as of last night to start off:

[table “538” not found /]

Dividends Received

September is once again a very solid month as the USDP will generate $80.20 which is nearly 50% more than a year ago.  Take a look at the progress:

usdp2

Ultimate Sustainable Dividend Portfolio News

Not much to report here, none of the reported dividends were increases. Microsoft (MSFT) did announce a 22%  dividend increase and a massive stock buyback so that is certainly positive.

Returns

Not much to report here. The portfolio slightly outperformed the S&P500 total return index. The USDP returned 0.52% while the S&P500 did 0.44%. It’s not a big difference but over time those differences are adding up which is helping that little blue line distance the red one:)

usdp1

Trades

No new trades

Passive Income Update – September 2013

By: ispeculatornew | Date posted: 09.17.2013 (3:00 am)

retirement2The reason I post this monthly update is both to keep myself accountable but also have a more public discussion about my plans and how I can become financially independent as quickly as possible.

As time goes by, my objective is to be able to live entirely off of these new income streams but also be able be diversified enough to be ok no matter what happens. 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. I also want to gradually make sure that my income producing assets are not all locked away in accounts that will only be available upon retirement. 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.

My primary objective remains to generate 100K in passive income on an annual basis as soon as possible, ideally from a few different sources.

September Updates

-The latest update of the USDP will be published tomorrow so stay tuned
-I also wrote about the idea of buying real estate and renting it out on sites like AirBnB
-I wrote about a few other questions regarding real estate
-Some have questioned the fact that I need 100K in yearly income at retirement, I looked into it further.

How Much Do I Really Need?

I am aiming for an income of 100K or so, before taxes as a first goal. To be clear, I feel like I need significantly less than that. Why? I’ve described how I am living off of significantly less right now (I’m paying taxes, paying my house, saving, etc). I also have the option, as discussed of retiring in a foreign location. I discussed the idea of needing 100K in yearly income here.

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?

pas3

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:

5.69% – Dividend/Investing Portfolio: I am currently generating a dividend yield of about 3.40%. This portfolio will be increasing over time. 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.

7.48% – Private Investment In My Online Company: I have discussed how my web company has been the best investment of my life so far. I’m happy to say that I was able to slightly increase my monthly income from the company even though it wasn’t expected. I certainly hope that will keep happening.

Total: 13.17%

It’s not spectacular by any means yet. That being said, I am 32 years old 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%:)

pas2

Passive Income Ideas

0% – Real Estate: I have started writing about adding real estate to my income flows. One aspect that I love about Real Estate Investing is how much of an inflation hedge it will represent for my portfolio. So I started looking into some aspects such as investing into residential or commercial real estate as well as the question of becoming (or not) a landlord. I’ve also looked into the possibility of renting property that I’d own though AirBnB and a few other questions I had been wondering about.

0% – P2P Lending – I started exploring the idea and wrote my first post about it here🙂

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

0% – Farming – I know it sounds crazy but I’ve started looking into it as you can see from my post a couple of weeks ago

0% – Other ideas – I could end up starting other businesses or projects 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.

My Long Term Passive Income Objectives

January 2014: $12,000/year
January 2018: $25,000/year
January 2023: $50,000/year
January 2030: $100,000/year

Things continue to go better than planned but the line isn’t as “upward” as I’d like. Since I get a significant portion of my savings from my year-end bonus, it’s not a big surprise though. I do hope to get some kind of jump in 3 months that will be enough to notice on this chart:)

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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!