Zuckerberg, who is yet to turn 30 will likely officially become the 9th richest man in the world once Facebook goes public. Believe me, I will be discussing the Facebook IPO and what I think about buying the shares (most already know my opinion) but today I simply wanted to talk about Mark Zuckerberg.

The guy has been able to build one of the most important companies in the world from his dorm in Harvard and looks as determined as ever to take Facebook to the top.

It’s Not About The Money

You might think that no one becomes this rich without being driven by money, by its power and by the though of passing by Bill Gates and Warren Buffett in the top rankings. I think it’s becoming more clear every day that Zuckerberg was not about the money.

Sure, you could say that it’s easy for him now. He announced he would be making $1 per year, exactly the same as Steve Jobs who seemed to mentor the Facebook founder in the later years of his life and actually said he had a lot of respect for the guy that wouldn’t sell out unlike others he had accused of doing so (Bill Gates would be the main guy). So clearly, Zuckerberg is not motivated by money these days. He also pushed off his IPO much longer than most would have and has signed the giving pledge, promising to give away at least half of his fortune.

It Never Was In Fact

Sure, you might say that it’s easy to forgo getting a salary of a few million dollars when you’re worth billions. I don’t think ,any would have been to resist selling their stakes in the earlier years. Imagine yourself being offered millions, then tens of millions and even hundreds of millions while you are still barely able to afford your own place. Props to Zuckerberg for resisting. Just take a look at founders of other companies such as Google. By the time those companies turned public, the founders barely had a few % of the company. Zuckerberg has almost 30%!!! If you saw the “Social Network” movie, you might think that he was able to accomplish that through dishonest tactics. Some parts are unclear of course but I think that overall, what he was able to do is impressive.

Facebook’s Direction

One of the big critics that Facebook faces when being compared with Google is that revenues are much lower than Google at the same stage and revenue growth as well. That is more than fair. I will discuss my opinion on why that is soon but the basic story is that Facebook still to this day probably does not spend much time on revenues and monetization. A few years from now, I expect many more companies like Zynga (ZNGA) to build a business model centered around Facebook.

I also think one recent move by Zuckerberg, the hire of Sheryl Sandberg, says a lot about him. This woman is exceptional, well liked and a strong leader. That is one more proof that Zuck is after improving his product, not acting in his self-interest. Many leaders would hesitate to put such a high profile leader next to them.

Clearly Not Perfect

It has been well discussed that Zuckerberg and Facebook had many privacy issues, especially in the earlier times of the company. Even recently, changes were done to the company that created a stir among users. There was also that now famous “meltdown” when Zuck was interviewed about privacy concerns at Facebook. But I don’t think anyone would argue that he has gotten much better at his position and at dealing with the media, users, etc. He’s not perfect, but I would argue that he is the perfect leader for Facebook as it moves towards its IPO.

Do you think Facebook is in a good position?

That being said, if possible, please set aside that part of the debate. Let’s only talk about the fact that there is outrage all over the country over the fact that Mitt Romney has been paying less than 15% of taxes on his income in the past 2 years despite being in that “1% group”.

It’s sad to say but there are countless ways to legally avoid paying taxes. With the internationalization, it is becoming much easier for companies to pay almost no taxes as has been discussed in some of my previous posts. As individuals become richer, their income and tax situation can easily become similar to what companies are able to do. I’m not saying it’s fair but it’s the way things are. Until we admit that fact, we’ll be stuck arguing on details. Are there solutions? Yes. But they’re not easy at all.

Mitt Romney is paying less than 15% on his taxes. What does that prove? That he was smart enough to get help to legally diminish the amount of taxes that he paid.

Wouldn’t You Do The Same?

I mean honestly, if you have 2 stocks, one that pays high dividends and another that will accumulate capital gains, you’d be smart to put the one that pays dividends in a tax deferred account such as a 401K or a RRSP (in Canada). That would be the smart thing to do. Trying to get all possible deductions that you are allowed under the tax code is also SMART.

I mean seriously, when is the last time you passed on a deduction in order to do “your fair share”?

“Yes, But He’s Rich”

That would be the common argument. Sure, Mitt Romney is rich. But chances are that you are also much richer than the average American. At what point should you “stop looking for ways to improve your bottom line”? I’m not talking about acting illegally or anything like that. At what point? When you make $50,000/year? 100K? 200K? $1 million? There is no clear answer of course.

Mitt Romney Has Many Issues To Defend

However, I don’t see paying few taxes as being one of them. It simply proves that he is smart and plays by the rule.

Tax Efficiency Is Too Often Overlooked

I personally think that being tax efficient is critical over time and makes a huge difference. Why so many investors spend tons of time on asset allocation, commissions, fees for funds/ETF’s and other areas without even spending a few hours to optimize their tax expenses blows me away. It can end up making a tremendous difference.

Any thoughts on all of this? Am I way off in your opinion?

-Overconfidence is bad @ DarwinsMoney
-Fee only vs fee based financial advisor @ GoodFinancialCents
-Greece about to officially “default”? @ ZeroHedge
-Asset Protection Strategies @ MoneyCrashers

Dividend Reads

-Solid dividend players with powerful brands @ DividendMonk
-GNV stock analysis @ TheDividendGuyBlog
-Active Dividend Growth Investing @ DividendGrowthInvestor

Tech Readings

-Apple’s impossibly good quarter @ CuriousCat
-Facebook to file for IPO as early as Wednesday? @ TechCrunch
-Big beat by Netflix (NFLX) @  ZeroHedge

Unfortunately, today’s post is not a happy story, it’s the story from the other end of the table. A friend of mine is a big hockey fan and lives in Montreal. He had bought some Montreal Canadiens tickets at the start of the year under both his name and his wife’s name (there is a limit per person). Unfortunately, for one of those games, he was unable to attend. What to do?

He decided to put those 2 tickets up for sale on eBay, great idea right?

A few days later, some guy bought the tickets for more or less the cost

The buyer then sent the money using Paypal to the seller who then sent away the electronic tickets

The buyer received the tickets and was surprised to see another name on the tickets. The seller confirmed they were right, gave his phone number in case something went wrong (he was going to be near the stadium on that evening)

The game night came and went, without any issues

Then, one week later or so, the buyer contacted the seller saying he had never been able to get in with the tickets, had been refused entry and wanted to a refund. The seller inquired why he did not contact him earlier or why he did not call… The buyer said he had lost the phone number and he had tried to contact him earlier but never gave any proof or explained how it was done.

The seller offered to go with the buyer to the stadium to get some kind of solution (if the ticket had been refused, that was certainly an error)..but the buyer was not interested, he simply wanted his refund

There are probably 2 possible explanations:

#1-The buyer forgot to go to the game and wanted to get a refund

#2-The buyer simply wanted to see a free game

You might think that there is no way that eBay/Paypal would rule in favor of the buyer here right? Wrong.. Since the buyer paid by Credit Card and complained to his credit card issuer, he ended up winning despite proofs of emails sent. Crazy right? It certainly makes me think twice about dealing with eBay again from the seller point of view. What could have been done differently? A few things I guess… But one thing is for sure, my friend ended up losing both his tickets and the money he had made selling the

Investment Opportunities?

I think this is actually another case for Facebook. In an online, virtual world, there are very few ways to verify the identity of someone. Sure, eBay has an online “reputation” score (the buyer had 2) but I think that Facebook will be able to deliver a more “trustable” environment for ecommerce than what currently exists. I still believe in eBay to some extent but I can only imagine that stories like that happen very often and it must be very costly for eBay & Paypal to deal with such issues. That is probably one more reason why eBay’s auction business has taken a back seat in the whole picture.

Disclosure: No current positions on eBay (EBAY)

Back to the subject though. Sometimes, I receive a few comments that are very similar and this week I did receive a few that all had a very sad reality.. Many of us would love to do the two at once but the economic uncertainty has forced us to choose….

Investing Or Paying Down Debt?

It’s sad that we even have to consider a choice between the two, it’s far from the American dream. Many readers have been hesitating between the two in recent months. Why?

-worried about their job security
-rising interest rates
-volatile stock market
-low interest rates on money balances

There is clearly a very high correlation between the economy and this debate. The better things are, the less we worry about holding debt because we are confident that:

-we can pay the debt at any point
-buying assets that rise in value is much more profitable than paying down debt

The Sad But True Reality

We have to look at facts, a large majority of Americans (Canadians, Europeans, etc) face a much grimmer future than just a few years ago.

How I Look At This Decision

There is no right or wrong answer here obviously, we are all different and can live with different levels of debt. Here are the steps that I use:

Step 1 – Find Your Current Location

As in any other journey, in order to know where to go and what steps to take, you need to know what your departure point is and in this case, that is finding out what assets and debts you currently hold. Ideally, break it down by asset and debt category and find out how much interest you are paying on your debts. That will make a critical difference in how you decide to spend any surplus.

Step 2 – Determine How Much Money You Have Available

There are many different ways to do this, using a budget is clearly one way. What you are trying to find is the monthly amount that you can afford to set aside either to invest or to pay down debts. Many would base that number off of their budget but I personally prefer looking at the past 6-12 months in order to see how much I was able or could have saved.

Step 3 – Determine Your 6, 12 and 24 Month Goals

If for example you know that you are able to set aside $500 per month, you should be able to set aside $3000 over 6 months, $6000 over 1 year and $12,000 over 1 year. Look at your current investments and debts and determine for each of those how much you would like to contribute to each one.

Step 4 – Investments Split In 2

I think there are 2 types of investments that you can start off with:

#1-Emergency fund – Safe investing, to reduce stressful moments and give you some flexibility if something goes wrong
#2-Longer Term Investing – retirement, dividend investing, etc

How much you should hold in emergency funds really depends on you. Some say that you should have a few weeks while others want to have enough to live off of for one year. I personally like to have a few months but will increase it very slightly every year.

Step 5 – Setup Automatic Payments

No matter if it’s debt or investments, you can always contact your bank to make those payments automatic which for most people (including myself) makes it easier to contribute. Paying yourself first is a commonly used theory and I’m personally a believer. The odds of me paying $500 into my investing account the day that I get my pay are greater than waiting at the end of the month to see if I have a surplus.

Step 6 – Adjust And Restart

This is a never ending process. As time goes by, circumstances change, your job might become more or less fragile, you might be willing to put on more or less debt or see great investment opportunities. You can (and should) obviously adjust all of these over time. That being said, those with a specific plan of action will generally do much much better than those that don’t. Set up a plan, stick to it and adjust over time, you will be much better off.

It Doesn’t Get Any Easier

I wish I could say that at some point it becomes easier to decide between the two but it doesn’t. However, over time, I think we can all get a much better feeling over what the right proportions should be for each of us and get closer to the “ideal weights”.

How about you? How do you decide between putting that extra money in investments or paying down debts?

Is This Where It Gets Better?

I wish I could say that a slow recovery is the only thing to be concerned about but you probably would not believe me even if I did. However, there is one chart that is even more depressing, the explosion of debt per capita of the US government. I will talk about Americans in this piece just because using a concrete example  is much easier. That being said, don’t feel better if you are not American. Believe me, chances are that your country’s government is in much worse shape and if you are in Europe… well, I’m glad to see that things are holding up…for now.

So let’s get this straight. In 1975, the average US citizen had $44,762 of annual household income with a share of the US national debt equivalent to $20,564. That was probably a bit high but certainly could be managed. With a strong economy, fiscal discipline would probably help curve things back. After some heavy spending, and then the elimination of federal deficits by Bill Clinton came George W Bush and Barack Obama who both spended much more than they should have… the result?

In 2011, the annual household income is $50,876 while the share of debt exploded to $84,793!!! So income increased by 13.66% and debt by 312%? Are things about to change? Not exactly. Not only is the cost of this debt (interest) rising but expenses both in the short, medium and long term are all expected to rise. There does not seem to be anyone who can or even wants to seriously address these issues.

Why You Should Care

It’s so easy to always kick the can down the road, forget about the national debt and act as if it was a problem to be dealt with at some point in the future rather than today. I implore you to avoid thinking like that. Unless you are retired, have no kids, and do not depend on your government for any type of income, you are wrong. The fiscal problems will have major impacts:

-Broken Promises: The government has made promises regarding pensions, health care, etc. Those are looking increasingly impossible to fulfill and the longer we wait to fix those programs, the worse it will be when we do have to change.

-Rising Debt Costs: At some point, interest rates for the US government will start to rise, as has been the case in much of Europe. When that happens, not only will rates also increase for businesses and individuals but it will increase expenses for the government, will slow the economy, etc. Believe me, nothing good will come out of this.

-Depend On Foreigners: We keep complaining about our energy dependance to middle east countries, to the billions of dollars that we send to buy oil. But by letting our debt explode, we are making ourselves increasingly dependant on investments by the Chinese and others to help us sustain our current spending. At some point we will need to stop and the earlier, the better.

How We Can Reverse Things

It’s easy to simply say that we should vote for one party or another. That is far from being enough. I think it’s easy to convince ourselves that we cannot change much but there is actually a lot that can be done.

-Make Yourself Independent: Start investing early, do not count on corporate or government pensions as you will not know for a very long time if those will truly make it to you. Governments around the world will need to break many promises in the next couple of decades in order to survive. You do not want to depend on the government keeping its word.

-Invest Carefully: There are many different things that can be done in order to give yourself a good shot. I wrote about investing when your country is going bankrupt and I stand by that, prepare yourself for the worse and you might be surprised if things are not as bad as you feared.

-Get Involved In Politics: I do not mean running for any type of office or even giving your time. What I do mean is forming an opinion about the issues, how to improve things like the economy, our education system and our fiscal position. Those are critical and it’s not enough to vote for a part and hope for the best.

What Are Your Thoughts? Do You Care About Your Exploding Debt?

I mean we fight hard to save a few thousand bucks only to see the government spend that and much more. What do you think? Think that the 2012 elections will help in any way?

-US debt now equivalent to entire US economy, how to invest @ DarwinsMoney
-Best Canadian Dividend Stocks for 2012 @ TheDividendGuyBlog
-2012 looks like a good year for the markets @ HopeToProsper
-Public’s view of Capitalism @ AllFinancialMatters
- How a financial adviser could help you @ InvestWithPassion
-France and others downgraded @ ZeroHedge
-UK debt infographic @ BorrowingMoneyOnline
-ETF asset growth @ TheBigPicture

Tech Stock Readings

-12 stocks for 10 years @ The Curious Cat
-Murdoch admits he screwed up with MySpace @ TheNextWeb
-Why Samsung is the next Apple @ TechCrunch
-The Twitter-Google chess match @ ReformedBroker

One Recurring Critic

One theme that comes up over and over is the fact that despite growing mountains of cash, the company refuses to pay out dividends back to its shareholders, preferring to keep the money for possible acquisitions, etc. At this point, that stack of cash is becoming rather large, even for a company that could eye major acquisitions in the coming years…

So Back To The Subject…

Earlier this week, after markets had closed, Apple filed an SEC document where it had to disclose among other things executive compensation. Turns out that newly appointed CEO Tim Cook’s base salary was $900,000 in 2011. That seems low for a company that is making billions in profits.

That “Other Compensation”

However, Cook also received shares and options of Apple worth over $375 million dollars!!!! Sure, he can only sell half of those in 5 years and the other part in 10 years, but that is still an insane amount of money. If Apple’s stock does continue to increase, those will be worth even more. In fact, as of yesterday, the value is slightly higher than what he was given… in fact, his options are now worth over $420 million!!!

So Is Tim Cooke Worth $380M…?

I’m usually in favor of high compensation for executives, especially when it’s paid out in shares and options like this. Why? Because, believe me, Tim Cooke has a lot of incentives to keep things going well for Apple and for the stock price to increase many times what it currently stands at. Also, it’s easy to overstate this but it’s true. If Tim Cooke is able to deliver even 1-2% more in earnings than what others could have done because of his experience, knowledge, etc… then, it is probably a great move by Apple.

There Is An “If”

Honestly, was Apple’s board forced to give out this much. We all want Tim Cooke to have strong incentives, but wouldn’t $100M been enough? I’d love to know how they came up with such a huge number. Did Mr Cooke negotiate this for himself? If so, I’d love to get a few tricks from him…

Is Apple Rich Enough That It Can “Throw Money Away?”

If that is the case, now would be a great time to pay out a dividend to its shareholders…

Just sayin’

Disclosure: Long Apple (AAPL) but closing that position on today’s opening:)

What about you? When your broker sends out information about your statements and that things have not been going well, do you consider a change? What about if they have great excuses to explain the poor performance? I mean could you really fire your broker for delivering a poor performance in 2008 when the market was absolutely crushed?

Do You Only Consider Change When Someone Offers You An Alternative?

Unfortunately, it seems like so many do not want to take the initiative of firing their broker. They will generally wait to be approached by someone else and once they get a good enough agreement, they’ll cross over and change. That sounds crazy. Do you think that coaches are only fired when another one offers his service to the GM?

It’s All About Expectations, Don’t Take Excuses

One of the more critical aspects of having a broker or financial adviser helping you manage your money is that there should be a very clear understanding as to how the money will be managed. Will there be a lot of risk (and thus volatility) involved? Or Not? Once you come to an agreement, you should know what type of profile your portfolio is supposed to have and thus how it should react more or less under different markets. The best example would be an investor that does not want risk and has 80% or so of his assets invested into bonds. If the stock market cripples, that should not give an excuse for terrible returns.

Communications Is Key

There is nothing wrong with telling your broker that you expected a different return. In fact, you should tell him because chances are that you do not have the same understanding of how the portfolio should react. Yes, there is a part of the returns that will be determined by which specific stocks or ETF’s are bought. But by far, the most important factor of your returns is the asset allocation which both of you should agree on.

Don’t Wait Until It’s Too Late

Any good broker should be more than happy to get questions about your returns. If you do not feel like such comments/questions are welcome, you have a good indication that you might not be working with the right guy. It’s important for you to voice your expectations rather than let yopur questions build up over time. If your broker has the right skills, he should be able to make the portfolio’s returns look more like what you’re expecting.

Do remember that with better expected returns also come more risk… there is no miracle recipe. Sure, there are some better brokers than others…

What You Should Expect From Your Broker Or Financial Adviser

-Regular communications regarding your portfolio, returns, etc
-Answers to your questions
-Returns that are comparable to what you would expect given your portfolio asset allocation
-Consistency of the returns over the year (there is nothing wrong with performing a bit less than expected for 1 year.. But over time time it should improve)

Have you ever fired your portfolio manager/broker and if so why?

-Today’s Top 50 Trending Stocks @ Ino (requires subscribing but it’s free)
-Dividend Growth Index Q1 @ TheDividendGuyBlog
-Noise, sentiment and StockTwits @ The Psy-Fi Blog
-Weekly chartology with focus on dividends and Goldman’s 2012 target @ ZeroHedge
-US adds 200,000 jobs.. looking better? @ CuriousCat
-5 New Year Resolutions That Are Good For Your Wallet @ BalanceJunkie
-All the world’s gold @ The Big Picture
-We are not in a dividend bubble @ DividendGrowthInvestor
-Comparing Canadian stock brokers @ MoneySmartBlog
-The Slow And Steady Passive Income Q4 Update @ Monevator
-The rise of consumption inequality @ AllFinancialMatters
-Do You Have What It Takes To Pass The CFA? @ SmartFinancialAnalyst