Archive for August, 2009

So insiders are selling, should you?

By: ispeculatornew | Date posted: 08.14.2009 (4:00 am)

2007042902001301Insider trading is one of those stats that I take a peak at but rarely act on. What is it? Basically, executives of public companies usually must disclose their holdings and transactions of their own stock. Many analysts look at these informations and pay great attention to them. The logic being of course that if a CEO is selling his stock, chances are the company’s future prospects are not as dazzling as he would have you believe in the company conference calls. That being said, there are many ways for executives to act around this law by doing OTC trades that will not be disclosed and can change quite significantly the stats of insider trading. Because of that, I usually take such numbers and barely glance at them.

But in the past two weeks, the numbers are so one sided that you’d have to be a fool to not try to understand what is going on. Last week, insiders bought for $13 millions and sold for $1,042 millions. Then this week, they bought for $60.1 and sold $1,146!!! Quite incredible. What is going on?? Clearly, some executives are cashing in some major cash. Obviously, it would be easy to simplify and tell everyone that we’re heading for a crash. While that might be true, I really believe there are more factors to be considered.

Of course, insiders have been selling and we could easily conclude that they think their stocks are overpriced. There surely is a lot of that going on. But I also think that many outsiders have been reluctant to sell for so long because of the depressed prices that they are finally selling some of the stock they would have sold months ago had prices been a bit higher. I’m not so convinced that this should be taken as a prediction of the future, but rather more as a relief from some very severe stock drops that are finally reversing. Now of course, these executives do think that the future might not be so bright. I think they mainly see that the risk for a major drop is a lot higher right now than for another major increase in the market, which most of us would agree on in any case.

What are your thoughts on this?

Why viral buzz is priceless…

By: ispeculatornew | Date posted: 08.12.2009 (5:00 am)

twitterWhen advertising a product, especially an online one, advertising or marketing it usually goes one of two ways; paid or viral. Paid advertising, the more known method, is the one Microsoft is currently using to promote Bing, paying millions of dollars to have advertisements in magazines, on tv, on websites, paying other websites to use its brand, etc. It is a method that can work very well of course, but can prove very costly. The major challenge is having a good enough product for users to end up using it even when the paid promotions cool off.

The other method is nowadays known as “viral advertising”. It happens when something is so “cool” that users spread the word, talk about it and it becomes a buzz in itself. Even better is when it reaches the point where the media talks about it. That is how Google and Facebook have became so popular; both had nearly 0$ for promotion. And it is now very true of Twitter. Just look at the image on the left, with New York mayor Michael bloomberg receiving lessons on how to use Twitter. Having celebrities such as Ashton Kutcher and Barack Obama use the service and mention it is priceless and even with the stack of cash that Microsoft has, there is just no way that they can compete with such advertisement.

Of course, Microsoft is probably hoping that at some point its product will be so adored by its users that it will be able to spread through viral marketing instead of the costly and less effective traditional one. Why do I say it is less effective? Of course it is debatable but generally, users are fairly immune to ads, that is they often do not even see them and it is thus very difficult to be effective in such campaigns. On the other hand, in viral advertisement, your friends will often be the ones pushing for you to try out a product and studies have shown time after time that such a method is very efficient.

The tough part of course is how to have a product that has the potential for a viral buzz and even more difficult is to generate it. there are many theories but in my opinion, the best one surrounds the book the Tipping Point, which explains how certain products suddenly become popular. I recommend you reading it if you have not yet had the opportunity.

So just for a few days, pay attention to the amount of times that you hear, see or watch anything related to Twitter and remember that in all cases, Twitter is getting this advertisement free of any charge…

Future of the Kindle

By: ispeculatornew | Date posted: 08.09.2009 (4:00 am)

amznAmazon has a lot of momentum these days and thus commands a very high P/E valuation. To be certain, Amazon’s retail store remains its core and will be so for the foreseeable future. The recent acquisition of online shoe retailer Zappos certainly fits in that model. But Amazon is increasingly counting on growth coming from its portable electronic reader, better known as the Kindle. Is it fair to assume that the Kindle will mean to Amazon what the Ipod has been to Apple?

Different release strategies

While the Ipod was not perfect upon release, it was still a very high tech product that ended up taking months and probably longer to be matched by competition. Part of it was the brilliant design and part was the fact that generally speaking, competitors did not take the Ipod threat seriously enough until it was too late. Releases by Microsoft (Zune) and others were late and in most cases did not even match the features from the first generation of Ipods. This gave Apple the opportunity to grab early market share but also take prices down making it more challenging for competition but also ensuring that their product would become the “standard” both from the user and developer’s point of view.

kindlehandAmazon meanwhile has had a different strategy and a different environment. While its product is certainly the best in the market right now, thanks to its slick design and high capacity, its high pricing as well as some lacking features (colour screen, superior central platform, etc) have left it vulnerable to competition from the outside.

What is Kindle’s competition?

While Apple has been denying any plans to enter the market with a reader, the Ipod/Iphone is certainly more than capable of competing. It is also impossible to discount Apple entering the market with a cheaper, better looking and superior product. It would not be the first or last time that Apple denied entering a market before a major release.

For now, what seems like the real competition for Amazon is Sony with the launch of its “Reader Pocket Edition” in a few weeks. It will be retailed at 199$ which is about a third cheaper than the Kindle. This will probably put pressure on Amazon’s pricing power. And there is of course Google, which has also been very vague about the possibility. It’s a dangerous prospect for any competitor as Google has been digitizing books, newspapers and magazines for a few years now and is years ahead of everyone else. So a potential Google product would have a lot more possibilities in terms of content.

There is so much more to do…

What Apple was always able to do was stay ahead of the curve with its Ipod, with high resolution, pictures viewing, video capabilities, etc. The key was that Apple was always first to initiate. With the Kindle however, it is not clear at all that Kindle will be first in line. Obviously, adding high resolution colours will be in future E-reader editions, as well as wi-fi connections to download content, etc. But the big question is: Who will be launching product with these more advanced capabilities? Because if Kindle is not first to step up, it could very well lose its lead….

amzn

Financial Ramblings

By: ispeculatornew | Date posted: 08.08.2009 (5:00 am)

1290792Interesting times this week, especially with a great jobs report being released today and the unemployment rate actually going down, which came as a nice surprise and created a nice rise in US and Canadian markets. Here are some of the more interesting readings of the past few days:

-The Digeratilife takes a shot at one of those questions without answers; market timing
-GLBL looks into the impact of how we were brought up on how we deal with our finances
-MDJ looks into the purpose of having financial goals
-Live in Canada? Here are ideas for your TSFA by TFB
What and where should you study if you want to become rich?
-MTJ publishes a few picks that were done this week
-When you want to diversify from stocks and real estate, try stamps and art:)
-Zach reviews Blackrock which is enjoying a nice little run
-Oh here we go again…oil at 150$?
-The biggest ETF’s by Nasdaq
How much is a high salary in the US?
-In to dividends..? Wow, Manulife’s 50% cut might hurt…

Those “hidden” fees when you executed a trade

By: ispeculatornew | Date posted: 08.07.2009 (4:00 am)

nohiddenfeesAll too often, when retail or even institution investors execute on the market, they get to pay a lot more fees than they are being told, an unfortunate but true reality. Over an investment lifetime, these fees can add up and make a major difference in your end net worth. In this post, I will go over a few of these, you can see for yourself if you are getting “screwed” or not.

Liquidity costs

When executing trades, investors use the “market order” too often and it can end up costing a lot of money. If you enter a trade at market order (rather than entering a price order), you are basically telling your broker to buy or sell the position no matter what the price is. Of course, the broker is being paid only if the trade is made so he will make sure to get the trade done, even if market conditions are bad. You could end up paying a lot more than you should.

Front running trading

A major source of controversy in the past few weeks has been the extent to which firms such as Goldman Sachs are believed to be front running. What is it exactly? Suppose Goldman Sachs knows, for even a tenth of a second, that investors want to buy 10M Microsoft shares. Goldman could simply start buying the shares in front of everyone and once those investors come in to do their trades, Goldman could sell those stocks at a penny or two higher. Not much of a difference you’ll say…but these fees add up. Of course, this is illegal and it is not quite clear what brokers are doing and to what extent, but we can assume that some of this going on, at Goldman or elsewhere

FX trading

So you have a brokerage account in $CAD and decide to make a purchase on US markets. Guess what? Your broker is going to make a good spread on your fx trade. They will charge you the standard commission and will then convert it to $CAD using a rate that gives them a little extra money in their pockets…

Costs to enter or exit positions

In many products such as mutual funds as well as structured products, you can find small print that will give you the exact breakdown of costs when you initially buy and then sell your position. These can add up very quickly…

Conclusion

No matter how you trade, you will be paying commissions. However, it is very important to look at the details of the fees you are paying. These can add up very quickly, especially if you are fairly active in your trading.

Youtube WILL become a major profit maker, here is why!

By: ispeculatornew | Date posted: 08.05.2009 (5:00 am)

There have been many doubters over the years as to Youtube’s future especially in regards to how profitable the website can become and if Google will ever be able to re-coup its profit. A recent video that you might have seen (see it at the top of this post) is a very good example of Youtube’s unique power. Where else will a video be shared with tens of millions of visitors around the world in a matter of days without even a dollar of advertising spent. Now of course, the video is truly amazing. In fact, tens of millions is probably a very low estimate as many tv stations have been showing the clip around the world. I am myself getting married in 2010 and seeing such a video is certainly very inspirational.

the story here of course is not the profit that Youtube made, because there is little profit. There are a few ads around the video and Youtube is surely making a few bucks. But the real story for Google is another example of how Youtube can be used by corporations around the world to promote a specific brand or product. Examples like this will open a lot eyes, especially in the marketing world. How much is a spot on the front page of Youtube worth if you can make a video good enough to generate this much buzz? It almost has no price really does it? Imagine if Pepsi made a video good enough to get as much attention? It would be priceless. And that is exactly what Youtube will be counting on. It does not have the exact details worked out but I would sure prefer having a Youtube website with little revenues than the greatest idea. I heard in an interview (not sure where) that never has it happened that a medium that attracted mass audience had not succeded in becomming profitable and with all the bright minds at Google, I doubt Youtube will be the first one on that list.

Some would argue that this is once more a case where Youtube demonstrates copyright infringement but we have strong doubts that Chris Brown would be the one complaining as his song is now back in the charts more than a year after its release.

Sure Youtube has competition from Hulu and others, but right now, only Twitter can have anything close to the viral effect that Youtube can count on.. If you have not seen the video yet, enjoy:

Did you avoid paying taxes thanks to your UBS advisor? Look out!

By: ispeculatornew | Date posted: 08.03.2009 (5:00 am)

dscn1358aThese are interesting times for everyone rich enough to consider “alternative incomes” that would include offshore bank accounts. There are so many ways of doing it, most of them being in gray zones between being legal and illegal. It is very interesting of course because we are currently in the middle of a battle between the Swiss and US governments with Swiss bank UBS stuck in the middle.

The basic story is that the Swiss bank helped thousands of US citizens avoid paying taxes to the US government often through very questionable solutions that basically involved hiding income and assets. The US government started pursuing legal actions and demanded that UBS disclose the full records of its clients. The response came from the Swiss government who said that giving out such info would be illegal according to Swiss law. The matter is still being debated and it is unclear what the outcome will be but clearly many clients are very scared.

So much so that in fact over 400 clients gave themselves up last week, more than in the entire last year. These citizens face reduced penalties by going forward instead of waiting for the US government to find proof of wrongdoing. There is no doubt that this is a landmark case and could have quite an impact on international banking but in the meantime it’s easy to understand citizens choosing financial penalties instead of the possibility of jail among other possible fines. The problem is widespread and has been one of the main focuses of industrialised countries over the past few months as they try to isolate countries that facilitate such manoeuvres.

I personally think there are so many legal ways to diminish taxable income that I consider it somewhat foolish for citizens to act illegally in order to save income tax. After all, anyone making enough money to go through such extreme measures can surely pay a little more taxes in order to be legal, don’t you think? But on the other hand, I think that this issue is a lot more complex than most people would assume and automatically faulting those guilty is a very easy way to look at the issue. The reality of course is that you could have some attorneys from both the private and public sector meet and be unable to reach clear conclusions, it really is that complex.

Just to update: Since starting this article, there seems to have been an agreement between the US and Swiss governments although the terms have not been made public yet but we should hear more very soon.

Financial Ramblings!!

By: ispeculatornew | Date posted: 08.02.2009 (9:39 am)

offshore-oil-rig-sunsetWithout further wait, here are some of the better articles that I read last week around the web:)

-Very interesting graph published by TFB comparing the return of the S&P500 to cash deposits..!
-Zach looks into the debate about position limits being imposed on commodity trading
-GLBL discusses how we can help unemployed friends!
-S&P500 is currently enjoying quite a ride
-MDJ gives us a breakdown of the net worth updated for July 2009!
-Some endowment funds such as Harvard lost big time in last year’s market collapse
-GDP numbers were released and the numbers were better than expected after all!
-MU30 discusses the never ending discussion about if it’s possible to get rich living on a salary only!
-Take a look at the current holdings of MyTrader’s Journal
-Interesting look at the fiscal impact of dividends depending on your income bracket