Archive for October, 2013

The One Stock That Got Away…..?

By: ispeculatornew | Date posted: 10.30.2013 (3:00 am)

$AMZNI love trading tech stocks because there are so many ways to view so many of these companies. You can easily find strong opinions both for and against stocks like Apple (AAPL), Google (GOOG), Netflix (NFLX), Microsoft (MSFT) and others. I’d argue though that no stock attracts the level of passion that Amazon (AMZN) is able to generate. No matter how you look at it, the company has been different. It manages its business like no one else, has a unique leader who is buying newspapers, is admired and loved by many (consumers mostly) and feared  by almost every retail business around the world. Today, I won’t try to cover all of those aspects. I’ll stick to the one most interesting to me; is the stock price beyond reach?

Every week I run into interesting analysis and this one was no different. I read the interesting perspective of a short AMZN holder but also a very interesting bullish view: “Amazon and the profitless business model fallacy“. Both have fairly opposite views about Amazon yet it’s difficult to argue with either. That’s very interesting.

I’m A Big Believer In Amazon’s Eventual Profits

In general, I do think Amazon has been 100% correct to reinvest so heavily into warehouses, and other businesses that will clearly generate profits in the future.  Revenues have been steadily growing and it’s safe to assume that the vast majority of those sales are profitable ones.

AMZN

 

Yes, there are some segments that lose money and anyone who reads about how Bezos does business knows that they’re more than happy to lose money if it its the longer term company goals. I’ve already spent time looking into how companies such as eBay, Google, Walmart and Costco would be able to compete. My basic conclusion is that I don’t think they’ll be able to.  Amazon seems to be several years ahead of the competition and that lead is only growing.  How long will it take for Amazon to turn profitable? Some say it’ll never happen because there will always be new segments but I think Amazon will get there. When? It could take a while. But who can blame Amazon for taking a 10-20 year horizon? The company has been making brilliant moves like opening a warehouse inside Procter & Gamble, trying out grocery delivery, etc. Trading a company with a long term vision is difficult in the short term for those such as myself who are trying to find a good buying points. In the end though, trying to find the low point can turn out to be a costly mistake if it means not buying for years.

My Big Problem With Amazon

So if I’m such a believer in Amazon… why not buy now? I fear the stock got away. You know that stock that seemed expensive so you wait a bit… then your belief keeps growing the price increases even faster?

AMZN

 

It just feels like every time Amazon releases earnings we see more revenues, no profits and the stock rises. And that keeps happening again and again and again. All the time.  I’m getting very tired of this story, especially since it’s making it less and less interesting for me to jump in now. Could this only be the start for the company led by Jeff Bezos? Yes. But it certainly feels like there is significant downside here which I always try to avoid.

Disclosure: No position on Amazon (AMZN)

Weekend Readings – Republicans Got Crushed…. Now What?

By: ispeculatornew | Date posted: 10.25.2013 (3:00 am)

Tea-Party-MovementI don’t know about you but I find US politics absolutely fascinating. So many different angles, I never get tired of it but the most recent outcome of the debt limit increase and most recent budget. I like some of the ideas that the tea party holds onto but their strategy is reckless… How will it turn out? Should be interesting! In the meantime, here are some interesting readings:)

General Readings

Jay-Z running the world @ VanityFair
Mitch McConnell is right, will Republicans follow him? @ WaPost
Why CEO’s make more than ever before @ New Yorker
Insanity of markets @ PBS

Dividend Stock & Passive Income Readings

Aflac (AFL), still undervalued @ DividendMonk

Tech Stock Readings

Apple (AAPL) targets Microsoft (MSFT) with free apps @ NYT
LinkedIn looking to expand its presence @ Wired
A viral company in the making? Chive @ BW
Twitter IPO is now priced @ TechCrunch

Why Apple’s Downside Is So Limited

By: ispeculatornew | Date posted: 10.24.2013 (3:00 am)

$AAPLI feel like I’m very vocal about stocks I believe in and those I don’t. When that feeling becomes strong enough, I take a bigger, long term position, which I call long term speculative picks. What makes a good pick? In my opinion, the top 2 things are:

-Significant upside
-Very limited downside

Simple? In a way yes. But stocks that fill that criteria are rare. I personally follow the tech stock sector and have only acted twice in the past 2 years (Facebook in 2012 and Apple this year). I’ve made the case for Apple several times but I was told that I didn’t explain myself enough. I think I usually discuss the upside part in dept as Apple continues to work on new product categories (TV, watches, etc) and even one success on a new product could have a significant impact on Apple’s value.

What I might not have explained so well is why I believe Apple has so little downside. Yes, that is true even at current levels but was obviously more the case when I took my position a few months ago.

Not only about new products

If we had to look at more pessimistic scenarios, I think it’s fair to say that we’d assume little to no success in terms of future products. Apple would be left with its current crop.  The fact is that Apple’s main products continue to be in fast growing markets (tablets, phones, etc) which means that even if Apple ends up losing some market share, sales will continue growing at a steady pace.

Apple’s current P/E

Apple currently trades at a P/E of 13 or so. If you look at sales and earnings growth and recent years, you’ll see that it’s unlikely to go much lower.

Microsoft is trading at a nearly identical P/E ratio despite the fact that it is obviously a much more mature company. We all know PC sales are declining so how can anyone justify having those 2 names at the same pricing. Apple made that fact obvious this week when it announced it would no longer be charging for it’s software (O/S or iwork suite). Microsoft’s 2 main products (it’s Windows Operating system and Microsoft Office software) now compete against free alternatives from Google and Apple. So yes, I’d much rather be in Apple’s shoes, selling hardware in fast growing markets, then trying to compete with free.

AAPL

Apple = iPhone

It’s easy to think about Apple as a company that produces all kinds of different products. The fact though is that Apple is not about ipod’s, macbook’s, etc. Apple’s revenues, users and profits are almost exclusively from iPhones sales. Just look at this chart if you’re not quite sure:

mktshare

Other businesses such as iTunes (which now generates billions in revenues) are closely related to the state of the iPhone so in many ways, it’s all about making sure the Iphone remains the top selling phone on the market.

iPhone Remains Dominant

For all the talk about the lack of innovation in Iphone products, the surge of Android, Samsung and others. Apple’s iPhone is still doing extremely well. Its launches are miles ahead of the competition, it remains the top phone in the US and is selling an increasing number of devices every year.

launch

 

image credit: asymco

Why? A big part is the fact that apps are simply better on iOS. Why? Because many developers only work on iOS and because that is where they make their money. Here are 2 interesting articles that discuss these facts:

Why Android first is a myth
Facebook makes overwhelming majority of mobile revenues on its iOS apps

I’d actually argue that the iPhone franchise remains dominant and while there is a risk of decline actually, it would take time and the risk seems relatively small. So no, I can’t imagine Apple’s revenues or profits declining anytime soon.

I personally think the downside risk of owning Apple, even at its current price remains very small. I’d love to hear your thoughts though. Do you agree?

Closing 3 Winning Trades – Including Apple ($AAPL)

By: ispeculatornew | Date posted: 10.22.2013 (3:00 am)

My 2013 long & short tech picks had done fairly well so far but the past 2-3 months have been even stronger. As of right now, I had 5 remaining open trades and this morning I will be closing 3 of those.

All 3 have done extremely well. The two first ones are:

Long eBay (EBAY) & Short Demand Media (DMD) +32,17%

ebay

 

dmd

Long Facebook (FB) & Short Rackspace (RAX) +28,76%

fb

 

rax

Some might be surprised to see that I’m closing out my trade on Apple (AAPL). Why? Because I’ve been arguing for some time about how much of a good trade it looked like. I will be writing a longer piece about Apple in the next few days but I just want to be the first to say that I still very much believe in the stock, especially with a longer term (1 year or more) time horizon.

In this case though, knowing that I’ll be closing out my trade in the next couple of months at the latest, it’s difficult to not take such an amazing return.

Long Apple (AAPL) & Short Travelzoo (TZOO) +71,52%

aapl

tzoo

I no longer have my +20% stop limit on winning trades but at some point winnings should be taken off the table and that is what I’ll do this AM

Where Does This Leave Me?

I now only have 2 live trades and the average trade has returned 6.96%. Not bad at all. I’ll be doing more of a recap later on though.

Would you have closed The Apple Trade? Especially with an iPad event coming up?

Weekend Readings

By: ispeculatornew | Date posted: 10.18.2013 (3:00 am)

chart ll

General Readings

Is the market efficient? Of course not @ The New Yorker
Why OPEC no longer calls the shots @ WSJ
Sell winners, hold losers? @ SeekingWisdom

Dividend & Passive Income Readings

Dividend Growth, the only thing that matters @ TheDividendGuyBlog

Tech Stock Readings

Why you should stay out of Twitter @ Objective View

 

Ultimate Sustainable Dividend Portfolio – October 2013 Update – Adding ETF’s To The Mix

By: ispeculatornew | Date posted: 10.17.2013 (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:)

So today, I decided to do something I had hinted I might do a few months ago. I’m adding some ETF’s to the USDP. I know that some of you will not agree with it but hear me out. I’m trying to build a long term portfolio that will be able to generate an increasing amount of income. Currently, I’ve been restricting myself to US traded stocks which is fine but also means that I have a lot of concentration in that portfolio. Here are in my opinion the benefits & downsides of adding ETF’s:

Pros:

-Getting exposure to 2 types of assets that are currently too expensive to do (international stocks and bonds – I’ll also consider adding a REIT ETF)
-I’ll be able to do better for the same level of risk (in theory)

Cons:

-Fees – I’m paying around 0.20% annually on those holdings which could add up over time
-Comparing the USDP returns with the S&P500 will not make as much sense given the fact that I’ll have other types of exposure

So what is the plan for now? I’ll slowly build positions in 4-5 ETF’s that might grow to around 15-20% of the USDP. I’ll adjust over time.

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:

TickerNamePriceEPSPE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaEarningsMkt CapRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg Growth
RAXRackspace Hosting Inc38.210.7857.0350.88-48.5527.723.637.071.022/12/20145.34B9.6823.126

Dividends Received

October is one of those rare months where income ($29) will end up being lower than the same month last year. It’s not ideal but nothing to worry about for now.  Take a look at the progress:

usdp2

Ultimate Sustainable Dividend Portfolio News

Not much to report here. one of the USDP Holdings, Omnicom (OMC) announced a special $2.00 dividend. It’s not clear when it will be paid but that will be a nice bonus:)

Otherwise, Microsoft is increasing its quarterly dividend by 22% which will help out.

Returns

Not much to report here. Unfortunately, the portfolio slightly underperformed in the past month. Not by much though and it does remain ahead of a similar S&P500 portfolio (that reinvests all dividends). Not bad at all.  Here are the top and worst performers:

Top Performers
Occidental Petroleum Corp OXY 8.13%
BlackRock Inc BLK 6.53%
Aflac AFL 6.09%

Worst Performer
Baxter International BAX -6.06%

usdp1

Trades

Tonight I made 2 trades as I hinted a bit earlier. I bought stocks of 2 ETF’s
VWO Vanguard FTSE Emerging Markets
BND Vanguard Total Bond Market
Those add 2 segments that were clearly missing from the USDP.

Passive Income Update – October 2013

By: ispeculatornew | Date posted: 10.16.2013 (3:00 am)

retire_22The 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.

With both sides of the US government acting like complete fools these days, more than ever I feel like being financially independent is critical, don’t you? So here is how I went about this whole process:

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.

October Updates

-The latest update of the USDP will be published tomorrow so stay tuned…here is last month’s update
-I also discussed the idea of running out of money at retirement

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?

pas-oct3

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:

5.81% – 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: 13.29%

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%:)

pas-oct2

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:)

pas-oct

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!

 

Trading Or Investing?

By: ispeculatornew | Date posted: 10.14.2013 (3:00 am)

stockWhat’s the difference between a trader and an investor? I personally find the debate fascinating and it’s interesting because there is no “right” answer. I personally consider myself a bit of both but I wouldn’t mind being called one or the other. It’s not a big thing. I know of many individuals that get very annoyed when being called these names, especially those that consider themselves investors are end up being called traders.

What Is An Investor?

Here is how I view the difference. To me, an investor is someone who tries to establish the value or future value of an asset and trades accordingly. Investors generally have a longer term perspective. Traders on the other hand are generally very short sighted. They will trade on news, on stock movements, etc. Most traders will hold stocks for a days, a few hours and sometimes dramatically less (most HFT firms hold stocks for a few seconds only). Clearly, traders don’t care much about what something is worth. They care about direction and making a short term profit.

Which Is More Important, Traders Or Investors?

Recently, there’s been a lot of backlash against traders, especially HFT’s. One newsletter that I read, by Jeffrey Dow Jones recently did a very popular interview with an HFT trader which I recommend. I am generally a believer in what they do and think they bring more benefits than downsides to the markets. Are they perfect? No. But they are an important part of how markets currently work. On the other hand, it’s important for the well being of our economy to have capital allocated as efficiently as possible and from that perspective, longer term investors have a critical role. Yes, they need a liquid market where they can buy and sell (which traders facilitate) but in the end, the market’s role is longer term investing.

Which Am I?

I guess in some ways, I’m a chameleon. Most of my assets are invested for longer periods of time, such as my:

-ETF index funds
Ultimate Sustainable Dividend
Long term speculative tech stock picks 

But I also make shorter term picks that while based on valuations, are very short term. It’s not exactly HFT trading but I would still consider it to be much closer to trading than everything else that I do.

I do think most of you are investors but I’d love to hear your thoughts. What’s the difference between an investor and a trader and which one are you?

Weekend Readings

By: ispeculatornew | Date posted: 10.11.2013 (3:00 am)

Later on Chicago I'll see you again in a few weeks! #Atmosphere

A photo posted by @kaskade on

General Readings

Retirement planning: sprint, spartan or marathon @ TheFinancialBlogger
A federal budget crisis months in the making @ NYT
Republicans popularity sinking to new lows @ Gallup

Dividend/ Passive Income Readings

Technology Stock Readings

Secrets of Jeff Bezos and the Amazon (AMZN) empire @ BW

https://www.linkedin.com/today/post/article/20130928204536-24171-the-end-of-venture-capital-sort-of

Adding Two Names To The Stocks I Follow: Oracle (ORCL) and SalesForce (CRM)

By: ispeculatornew | Date posted: 10.10.2013 (3:00 am)

$ORCLToday is a very exciting day as I’m writing in-depth about two stocks that fit very well among the stocks that I follow:

Oracle Corp. (ORCL)
SalesForce.com (CRM)

I had initially planned on doing two separate posts but the more research I did, the more convinced I was that both made a lot of sense to look at together. In some ways they are similar, in other ways they are rivals and they could be traded against each other or against other names in the stocks that I follow. Why weren’t these stocks added before? They are clearly tech stocks and are similar to other software companies such as Microsoft (MSFT) and Adobe (ADBE). I also tend to get a better feel for smaller stocks that I’m able to get a better feel on. It’s much more challenging to get a good feeling about a huge company such as Oracle because there are so many different moving parts.

Who Are They?

In some ways, it’s a David vs Goliath story. Oracle has over 120,000 employees, over 12 times what SalesForce has but the market does not have such a discrepancy in terms of valuations. In fact, ORCL is less than 5 times the market cap of CRM. Here are some numbers for both stocks:

CRM_ORCL

CRMNo surprise in the fact that CRM trades at a much higher P/E. It is after all a “younger” company I was still surprised by the CRM P/E. It reminds me of RAX and the fact that cloud-based companies tend to trade at big premiums because the industry is growing so fast. In some areas, such as hosting, that are so highly competitive, I have trouble buying such a valuation. If a company like RackSpace (RAX) is competing with Amazon (AMZN) and others, I highly doubt their ability to operate at high margins. That is different for CRM which operates in much more attractive area; enterprise services. It’s a highly attractive arena where margins are higher and it’s more difficult for competitors to step in. Strictly technology focused companies such as Google and Amazon will try to offer broad based solutions (such as Google Docs) but are unlikely to move into highly specialized corporate products.

Oracle is a company that I’d tend to compare with Microsoft. It trades at a comparable P/E and still has a highly motivated CEO that is working on catching up. So let’s look at those numbers in terms in a different light:

MSFT vs ORCL

CRM vs RAX

The question of course is how much growth we can expect. The 2 key metrics of course are revenue and earnings growth. In this specific case, I’m not so interested in dividend yields.. but here are some charts that I am paying very close attention to:

ycharts_chart

ycharts_chart (1)

 So what are your thoughts on these 2? Do you hold positions on ORCL or CRM?