Archive for June, 2014
Crazy how the world works. This amazing catch by the Yankees when they signed Masahiro Tanaka is basically saving their season.. but despite 15 or so extremely high quality starts, as soon as he ended up losing a 2nd game, giving 3 earned runs in 7 innings, the bets are on for what this means and if it’s the start of his demise. Just feels like so many people can’t wait for things to crash down… right Apple? I know I’m a believer in Apple and in Tanaka:)
General Stock Readings
Tech Stock Readings
Why Do I Post This?
The main reasons why I post this monthly account of my passive income are to keep myself accountable and also establish a clear process where I can build and track my journey. I’ve been fortunate so far in doing very well with my USDP portfolio as the income being generated has continued to increase at a very rapid pace. That and my side business are the core of my early retirement plan.
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.
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?
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:
7.83% – Dividend/Investing Portfolio: To this day, there have been no dividend declines in the USDP which is a big part of why the income continues to increase steadily.
8.08% – Private Investment In My Online Company: No changes here although I did meet my biz partner and we do expect to raise our kickbacks later this year which will hopefully make a decent difference.
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%:)
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 an updated post here) 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
I continue to see that little blue line slightly above of the red line so everything is looking very good:)
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!
I’ve written about Amazon dozens of times on this blog and will certainly keep trading it for long & short stock picks but despite my continued attempts to find a good buying opportunity as a long term speculative pick, I just don’t see it happening anytime soon. I admire almost everything about Amazon, and over the years have been gradually increasing the proportion of my spending that goes to the Bezos controlled conglomerate. Of course, most of that is irrelevant when I try to determine if I’ll buy a stock or not. Yes, using the service helps me understand it better and that makes it more likely that I will buy. But it’s certainly not enough for me to pull the trigger.
The Big Problem
If you’re Jeff Bezos, an Amazon employee or customer, you’ve gotta love what the company is doing. Every month, it spends hundreds of millions to improve its infrastructure, services and goods. Sometimes that means building a few warehouses, building a world class cloud infrastructure, starting new initiatives such as its new Fire Phone, or testing things like Amazon Fresh, etc. Amazon seems determined to keep reinvesting until it reaches that “critical” point.
What Is That Critical Point?
In the past few days, I’ve been thinking about one Amazon initiative that seems to give us a good look into what the company is trying to build; Amazon Fresh. The short story is that it is starting to offer grocery delivery. That makes sense in so many different ways. Groceries are one if not the most important retail sector and one that has seen little to no disruption from technology. Clearly, there is a big opportunity that several companies are looking to get into.
Instacart is a startup that makes it possible for customers to order grocery which can be purchased and delivered by personal shoppers who get paid to perform the service. It is the “Uber” of groceries. You can imagine that it is a challenge to get started such a service because you need to get both demand from customers but also people that will perform the task. It’s not easy to do both at the same time. Try finding customers when there is little to no service or getting “shoppers” when no orders are coming in. However, when it does work, the investment required is very small.
Amazon is approaching the problem in its usual way of course which means massive investments. Amazon is trying to build warehouses to store food, get orders that can be delivered either through its existing distribution or what Amazon has started; its own trucks. The cost of trying this in parts of Seattle are important but Amazon can clearly afford those. Can Amazon afford to build this across the country and around the world? Clearly not at this point. Yes, once that happens, Amazon would be able to get much higher margins, etc. How long could it take Amazon to get there assuming that is its intention? 10 years? 20 years? Longer?
How about same day delivery? Yes, drones might help at some point, but what is the shorter term goal? This story is repeating itself over and over. Yes, Amazon is slowly taking over the world. Sales continue to increase with no end in sight.
That is not translating into profits though as you’ve heard over and over:
Yes, Amazon is a low margin business and is never going to make 20-30% profit margins. There is a difference between 20-30% and 0% though…
The big issue here is not that Amazon can’t generate profits. I’m convinced it could decide to turn the switch at any moment. That is not what Jeff Bezos wants to do though. He’s probably right as well because while the internet isn’t a “one winner take all” game, it certainly is closer to that than what you’d see offline. Just look at what Amazon is able to pull off with its dominant book market share. But as long as Amazon is focused almost entirely on growing and improving its infrastructure, profits will remain close to $0. No matter how much faster sales increase, Bezos will simply use that money to grow everything else more quickly. With no end in sight, it could take several decades before Amazon can start reducing its infrastructure spending.
Can’t Blame Bezos
I’d probably be the last guy to blame Bezos. I think the main problem of most public companies and governments is there singular short term focus and if you’re using a 20-30 year horizon, sacrificing profitability in order to build what is already the top operation is likely worth it. At some point though, investors will get tired of the profits that never come. Amazon will likely be one of the hardest hit stocks the next time a stock market crash happens. That is exactly when I’ll get in. There’s more than enough time for that to happen, I’m guessing we’ll see a few crashes in the next 20-30 years!
Disclaimer: No positions on Amazon (AMZN)
After raising money at a stunning $18.2B valuation, Uber is getting a lot of attention and there has been a lot of very interesting analysis, I personally love seeing this and can’t wait to have players such as AirBnB, Dropbox and Uber in the public markets, it’s coming:)
Dividend & Passive Income Readings
–Quick note on dividend stocks @ Alephblog
Tech Stock Readings
–With Uber, owning cars may be over @ NYTimes
–Alibaba opens US based-store @ TechCrunch
–Instacart, the Uber of grocery @ Recode
–The economics of UberX @ Justin-Singer
–A Disruptive Cab Ride to Riches: The Uber Payoff @ Musing on Markets
Amazon is able to get incredibly valuable data on what is being sold, by who and where it’s shipped and then can adapt by getting more involved when it makes sense.
Now that Amazon is dominant in so many categories and now launching media consumption products such as tablets, phones, and tv consoles and expanding its app store to other platforms such as Blackberry. The goal of course remains to get dominant market share which it has achieved in several product categories. Then, it’s able to negotiate with suppliers in a position of power and bully them if needed (see Hachette’s very public battle with Amazon for a good example).
–Digital content (storage, music, ebooks, audiobooks, video (some of it leased from HBO and other studios and other produced itself)
–Its own media devices (tablets, ebook readers, tv consoles, smartphones, etc)
-dvd’s, cd’s, etc
-electronics and computers
-home, gardent and tools
-beauty, health and grocery
-toys, kids and baby items
-clothing, shoes and jewelry
-sports and outdoor stuff
Amazon also owns several brands such as Zappos which have very strong brands.
So yes, Amazon is taking over the world. It is taking its lead in some areas and taking that edge to extend it into new products. I just don’t see anyone able to successfully compete with the Bezos empire, no matter if they’re called Google or Walmart. It’s too late for that. Yes, at some point Amazon will need to produce some profits but in the meantime it’s been able to spend a decade of profits into building the top distribution and technoloy in order to manage such a franchise where having a “local” presence takes a whole new meaning.
Will I buy Amazon? Probably at some point, I’m just looking for the right entry point as I continue to believe the downside vs upside risk remains poor.
In 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.
The past month was an active one as I did a few “major” trades in the portfolio. Yes, I did end up missing out on a huge rebound in Intel Corp (INTC) but I do still feel like those were the right moves. INTC has stopped increasing its dividend which is a big warning sign here.
If ever you would like to receive updates about the USDP and other passive income initiatives, 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:
Ticker Name Shares June 17 2014 Price June 17 2014 Values
OMC Omnicom Group Inc 32 $70.37 $2,251.84
MSFT Microsoft Corp 74 $41.68 $3,084.32
JCI Johnson Controls Inc 42 $49.84 $2,093.28
PEP PepsiCo Inc/NC 30 $87.28 $2,618.40
ETN Eaton Corp 33 $76.16 $2,513.28
DOV Dover Corp 26 $89.41 $2,324.66
ITW Illinois Tool Works Inc 29 $87.97 $2,551.13
XLNX Xilinx Inc 39 $47.47 $1,851.33
SJM JM Smucker Co/The 21 $106.10 $2,228.10
BLK BlackRock Inc 13 $312.05 $4,056.65
TROW T Rowe Price Group Inc 31 $82.73 $2,564.63
OXY Occidental Petroleum Corp 24 $102.74 $2,465.76
XOM Exxon Mobil Corp 21 $102.42 $2,150.82
ADI Analog Devices Inc 46 $55.70 $2,562.20
HAS Hasbro Inc 31 $52.41 $1,624.71
MAT Mattel Inc 45 $38.65 $1,739.25
AFL Aflac 31 $62.96 $1,951.76
BAX Baxter International 26 $73.17 $1,902.42
IVZ Invesco Ltd 69 $37.35 $2,577.15
CVX Chevron 20 $128.83 $2,576.60
TXN Texas Instruments Inc 32 $48.26 $1,544.32
VWO Vanguard FTSE Emerging Markets 61 $43.36 $2,644.96
BND Vanguard Total Bond Market 34 $81.62 $2,775.08
SPX 15.89980418 $3,513.05 $55,856.80
I really can’t complain much here. Thanks to good picks and the $1000 that I’m adding every month, my portfolio continues to generate more and more money. It will generate $134 which is a full 46% more than the June 2013.
Ultimate Sustainable Dividend Portfolio News
It was a quiet month with the summer now in full swing but there was still one upgrade:
|OMC||Omnicom Group Inc||Dividend increase from $0.40 to $0.50, a 25% increase|
Despite now having some asset classes such as bonds that underperform in rising markets, the USDP still managed to catch up a bit with S&P500 total return index!
Unfortunately, as much as I would like to open a new trade today, my 7 live trades are actually a decent % away from being closed and my average trade return slipped a little but the overall portfolio return remains at 17.46% as of Friday’s close. Today, I wanted to take on a comment that I got last week:
In case you missed… This Happened!!
You can imagine that anyone holding a short position in OPEN would have a very bad day. I have indeed been short OPEN a few times. I certainly agree that this is a risk and while you could say that I was “lucky” to not have an existing position, I like to think there was more involved. If you remember well, I had discussed the idea of OPEN being acquired although I personally thought it would be a better fit with TRIP. I do still think OPEN was a solid purchase by Priceline (PCLN), one of the best internet names out there and a company with incredibly strong management. If a rather blue, conservative company like Priceline made this move, it sends out a strong signal to the rest of the industry:
-Priceline is not content with its (dominant) position in car/hotel reservations
-It is willing to pay a significant premium for a unique asset that can extend its global presence
I will certainly spend more time looking into the move from Priceline’s perspective, but I do like the move.
Am I Being Wreckless By Shorting Pandora (P)?
I can certainly see some similarities between Pandora and OPEN. There is certainly a risk that Pandora could end up being acquired and although there are few rumors about it, given the importance of music as a play and the recent Beats purchase by Apple, it’s certainly something that could happen. It becomes a risk vs. reward play. While OPEN was the dominant player in its industry with very little real competition, Pandora does face competition. That means the premium that a company like P could ask for should be smaller.
I also think that shorting Pandora is a good risk-reward play because it is a company that continues to struggle, years after its launch, to become profitable. As is the case for many cloud-based companies, it is facing competitors that care very little about the profitability of music which will continue to make very difficult for a company like Pandora and makes me very very skeptical of its current valuation. So yes, takeover is a risk, it’s the main one but it is one that I am willing to take.
It Goes Both Ways
If you remember, I did get burned by my short Rackspace (RAX) position, but I’ve also had some very good trades. The idea is simply to avoid stocks that I’m very fearful of being acquired (as of right now – WebMD, BBRY, RAX, etc) and hope that some of my long positions encounter a similar fate.
Do any of you short stocks? Did you ever get burned?
As one of the key ecosystem players out there, Amazon ($AMZN) is in a position to launch products that can successfully compete against others out there mostly thanks to its existing infrastructure. One of the key features that all ecosystems have or will end up battling for is payments. I don’t think I need to explain why. Payments are most likely the most lucrative business in a world where everything is going digital. It’s not clear if there will be one winner but in any case, even if it ends up being a world with several dominant players, it is an area that all ecosystem players will end up fighting for.
Yes, that means Amazon has a better shot at competing against established players such as eBay’s ($EBAY) Paypal but also newer players such as Stripe. Up to this point, Google has already worked on a solution (Google wallets) and Apple is rumoured to be working on a solution. Facebook ($FB), like Google has been trying but has not succeeded to this point. They each have their own unique advantages and for Amazon, one of they key aspects of course is its number of active customers that each have a current credit card on the system.
One Big Issue That Amazon Payments Needs To Address
Amazon is of course targeting 2 main types of payment customers; personal and businesses. Everything does look promising but one key missing feature is the lack of international support. I certainly understand that it will be a big challenge to quickly scale up in a world where each country has its own regulations and banks but it’s the only way that Amazon Payments can succeed. One of Paypal’s most important features is the fact that virtually everyone in the world can use it. In our inter-connected world, the majority of business and transactions are done internationally and it will be very difficult for businesses to justify moving to Amazon when they can only do a portion of their transactions.
Impact On The Stock
In the short term, there is no impact. We all knew that Amazon, like other ecosystem players would be launching a payments solution. I will however be closely following the progress of this platform and think that it could end up having a very significant impact on Amazon in the coming months/years. It is certainly positive for Amazon to come out with this launch so early and it gives
Disclosure: No position on Amazon (AMZN)
Last week was a fairly quiet one but the overall return of my portfolio is now up to 19.40% (before fees) and the average trade has returned 9.05%. I’m obviously happy with the results so far.
I discuss these type of things as well as give my thoughts on the tech stocks in my free email newsletter, feel free to join here:
You can also see my live trades here:
As I’ve mentioned many times, this is a return gross of fees. The main fees involved are the borrow costs (net of interest on cash) and can be up to 1-2% on average per year.
Back to today’s business though. I decided to go back to shorting Adobe (ADBE) at the same time as I’m closing my previous one on the company.
|Ticker||Name||Price||PE Ratio||PE Next Year||Return YTD||Sales Growth||Analyst rating||Book Value||Beta||Revenue/Share||Sales 5Y Avg Growth||EPS 5Y Avg Growth|
|ADBE||Adobe Systems Inc||66.91||112.35||32.49||11.46||-7.91||3.89||13.26||0.94||8.09||5.25||-8.22|
It’s no secret that I’m a big believer in Facebook and have been for some time. It’s actually my biggest single name holding, mostly because it has risen so much from the purchase point. I do think the stock is well on its way to recover after falling significantly like most other internet related stocks. At this point, I do think there is still a lot of growth ahead for Facebook and while it’s not as cheap as it was a year ago, FB is certainly a no-brainer when trading at a comparable valuation to ADBE.
Next earnings release: July 24th 2014
Adobe is one of those companies that is trying to adapt to a cloud-based world and is struggling in many ways to get it done. I do think they’ve done some things right but overall, it’s not a very encouraging story and it certainly does not warrant its current valuation making it a fairly straightforward stock to short.
Next earnings release: June 17th 2014