Archive for December, 2011

These 2012 Stock Picks Predictions Are Driving Me Crazy

By: ispeculatornew | Date posted: 12.20.2011 (5:00 am)

I don’t know if it’s just me… But you know those people that are so desperate for attention that they will do absolutely anything to get it? You know some of those right? I might be crazy but I find those that are already making 2012 stock pick predictions are crazy. Why? Because 2012 is still a couple of weeks away. Tons of things can change between now and then. No I do not only mean a war, big deals in Europe or even huge events of that nature.

But how could someone say that a stock like Microsoft (MSFT) or any other for that matter will do well in 2012. Is it because the stock is very undervalued? Let’s imagine an analyst or blog thinks Microsoft is 20% undervalued or some other crazy number…. Then, yes you could expect that stock to do well in the next few months.

What if Microsoft (MSFT) is upgraded by a few brokers or changes its expectations? Or if a few big investors decide to buy the stock. What happens if Microsoft (MSFT) outperforms the market by 15% in the next few weeks? Then, suddenly, the person that expected Microsoft to be a great buy for 2012 would no longer have it as such.

So are those really the “Best Stocks To Own In 2012”? No… They are “The Best Stocks To Own In 2012 Assuming No Changes”. That is not the same thing at all.

Am I being too picky? Am I completely off here? Believe me, I have nothing against 2012 picks, and I will be making some in a few different ways. But I don’t think you’d ever catch me doing such a prediction 2-3 weeks in advance… Markets have never been so volatile so trying to anticipate what things will look like next month seems like a crazy thing to do.

My 2012 Tech Stock Picks… Mostly More Of The Same, Hopefully

By: ispeculatornew | Date posted: 12.19.2011 (5:00 am)

After a successful year of trading in 2009, last year was a home run in almost every possible way. I do truly believe that the main changes I made last year ended up making a positive difference, especially my decision to stop opening trades later in the year. I know that it was not the most popular decision since those stock picks are among the most read posts but in the end, getting higher returns is the objective.

Last year, I got many questions regarding the stock picks or other technology stocks that I follow. I answered many of them by email, some were comments on the blog, but there was no ideal place really. I ended up creating a new mailing list, dedicated to tech stocks and the trades that I do. If you would like to get more information about the picks, other stocks that I like, or don’t, I highly encourage you to join, it’s free. I will also try to answer some of the questions that I get there since I’m not going to be writing 5 different posts about one trade. The mailing list is sent once every 1 or 2 weeks.

To join the list, simply fill out your name and email here:

Biggest Change For 2012

In the past, I’ve held at most 5 live trades on the stocks that I follow. This year, I will increase that number to 7. Why? There are a few different reasons. First off, it will help me trade more often since chances are greater that 1 of those 7 trades reaches its stop gain or stop loss. Also, it gives me less concentration on a few different names. Each person might have a different view on this but I personally prefer doing a few more picks with less money involved. That means less gains when a trade goes exceptionally well but also less losses when they don’t.

Why Not Add Even More Live Trades?

It’s always a matter of opportunities isn’t it? I track a universe of stocks and try finding opportunities in there. It’s not always easy to find good ones, even with 5. But I do believe that I will be more active on many of the recently turned public stocks such as Groupon (GRPN), Pandora (P), LinkedIn (LNKD) and even Zynga (ZNGA) as well future ones such as Facebook.  That will certainly provide more trading opportunities which is what I’m counting on to be honest. It’s a fairly big change so there is always that possibility that at some points in the year, I will not see good opportunities and prefer not trading for a few days/weeks but I somehow think I’ll find some good ones.

Better At Tracking

I’ve been reliable about posting trades on this blog but not as much in updating the live positions on the right sidebar and the results in the stock picks page. I will make an effort to make it easier for you to track my picks and performance.

What’s The Plan Now?

The plan is to continue to monitor the markets for the next 2 weeks, start preparing myself and then I will be opening a couple of trades in the first week of January. If you have any questions about the tech trades, comments or simply an opinion, feel free to contact me, I’d love to hear from you.

The Time Has Arrived: Zynga (ZNGA) Turns Public

By: ispeculatornew | Date posted: 12.16.2011 (5:45 am)

It’s an exciting day for me. No, not the type of day that I wake up wanting to jump up and down 10 times (maybe when Facebook will go public it’ll feel that good) but it’s still a great day because Zynga, one of the companies that I have been discussing for a very long time is finally turning public. The IPO was priced at $10, a $7B valuation for the company and should start trading today on the Nasdaq exchange. In case you did not know, a company that goes public will typically give a range at which it expects to sell its shares. Then, depending on demand, the number of shares available and how much each investor is willing to pay, a final price will be made public. In general, there has to be a balance between two different things:

-IPO investors are generally the underwriter firms best clients so they want the price paid to be low enough for those investors to make some money
-However, the higher the price, the more money comes in for both the underwriter firm and the company (Zynga in this case) itself.

LinkedIn (LNKD) was a case of a stock that turned public well below what it ended up trading for which ended up meaning that:

-IPO investors made a ton of money
-Linked (LNKD) ended up selling its shares at a very cheap price
-Underwriters were heavily criticized

It will be interesting to see how things will play out for Zynga. As I’ve said many times, I think that while there is a decent amount of risk involved, it’s a bet that I would be willing to put up with. I think the growth in social gaming will be significant and Zynga is the dominant player in this space.

Risks Are Overblown

I think the 2 main risks that are being discussed are worth discussing but not significant in my opinion:

Zynga depends too much on Facebook

While it’s true that Zynga depends on Facebook for an overwhelming majority of its revenues, I think it’s too easy to say that the company is worth less because of that.

Facebook is also very dependant on Facebook: Not only is Facebook making a huge part of its revenues (both in advertising and through its credits) from Zynga but damaging that relationship would end up hurting the confidence level of other partners.

Despite Rumors, Facebook Will Not Start Making Games: Another big rumor is that eventually, Facebook will start making its own games. Is it impossible? No. But I don’t see it. I believe Mark Zuckerberg when he says that Facebook will not be in that market. It makes no sense for Facebook to start producing games, licensing music, etc. Facebook seems much better off trying to tax all companies using its environment/infrastructure.

Zynga Depends On Its Ability To Produce Hits

No doubt, coming up with winning games frequently will be a major challenge. I do think that Zynga has things setup in a way to be able to produce these. Zynga has produced several very popular games, has a solid user base and will have cash. It will be able to acquire smaller, promising games, talented individuals and promote those games better than any other player. Time will tell if I’m right about this but I expect Zynga to be able to produce over long periods of time. One thing to note is that for several years, main gaming competitors such as Electronic Arts and Blizzard were not competing too much in social gaming and that is changing very quickly. However, I think there is enough space for several large players and for now, I think Zynga can compete.

It Remains A Gamble

I’ve had a good 2-3 years of stock picks in technology and you would think that I would have a stronger opinion about ZNGA. The truth is, I think it’s worth a gamble, a shot at being a long term speculative pick. The investment might not work out but I personally think it’s worth trying.

It All Depends On The Price Of Course

Every asset has a price at which I could buy or sell. Ok, I’m sure you could find exceptions but I think you get the idea.The main thing is that I do not know how ZNGA will be trading, especially in the first few days/weeks. I was asked a few times how I will be trading a stock like ZNGA that goes public.

How Will I Try To Buy?

What I will not do is place market order (I try to never do that) or even a limit order today or probably even next week. I personally prefer staying away from all of these crazy movements. I am in no hurry to buy and I prefer to wait to have the feeling that the price is less volatile. Once that happens, I will evaluate the cost and value and decide on buying accordingly.

There is no way I will try buying the stock when it’s moving by 10-20% or even much more…

So how about you? Do you intend on buying ZNGA? If so, how and when?

Top International Dividend Stocks (ADR’s)

By: ispeculatornew | Date posted: 12.15.2011 (5:45 am)

I’m surprised that no one has called me out on this! I’ve been a vocal defender of adding international stocks to any portfolio, especially dividend ones. Yet, when I discussed sustainable stocks and eventually built the Ultimate sustainable dividend portfolio, I was almost exclusively focused on domestic companies. Sure, many of them have a large portion and even the majority of their activities overseas. But I don’t think anyone would say that the portfolio is as well diversified as it could be.

Why I Focused Too Much On US Stocks

Unfortunately, I guess I have the same reflex that almost all of us have; to look mostly at home. Just look at the very popular post that I publish every month with the top 100 dividend stocks from the S&P500. These stocks are mostly US based. Going into 2012, I will be putting more focus on these stocks. Just to clarify, I am not talking about going to trade stocks on a Chinese or Russian exchange, or even trading US pink sheets. I am talking about foreign based companies that trade on US markets as ADR’s (American Deposite Receipts). Today, I wanted to start off by publishing 100 of these names, with some of their numbers. I will be taking a much deeper look into these names in the coming months both here and in our free mailing list. If you have not joined, do so now, it’s free:

The major downside of course is that for some of these companies, it’s much more difficult to get information about how they’re doing, etc. Still, since they are traded on US stock exchanges, it does require these companies to report “standard” financial statements.

As we enter 2012, I will also be posting more often about the UDSP (Ultimate Dividend Stock Portfolio) and as you know, some stocks will need to be taken out over time. You can expect those to be replaced by more international names, which can probably be found somewhere on this list. For now though, I will leave you with this list, from which I will do further analysis next week on the mailing list. Please feel free to send out any comments about these names.

Here is the top 100 of the names that we follow, ranked by dividend yield, which as we have seen is rarely the beest way to choose dividend stocks. Still, it’s a good starting point:

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How To Help Your Parents Invest For Their Retirement

By: ispeculatornew | Date posted: 12.14.2011 (5:00 am)

Unfortunately, in most families, talking about finances is an akward subject, one that never ends up being properly discussed and creates strange situations for everyone involved. Sadly, it often ends when someone passes on to another life. Sometimes, it’s when a dad passes away and the mom finally is forced to admit she has no idea how to manage things, how much she has left. Other times, you end up finding out too late that while you thought their finances were in order, they are actually living through a lot of stress wondering if they’ll have enough money to live for a few more years. Sometimes, after a market crash, they end up panicking, selling everything at the bottom of the market and thus incurring major tax losses, etc. There are many different possible situations and very few of them end up being enjoyable.

It’s not easy and I don’t pretend to have the solution but I thought it might be interesting to offer my thoughts and also get yours. Here are my top priorities:

Show Interest

It’s not necessarily easy to get involved in your parents finances. Chances are that they will feel like they are more than capable of dealing with things or maybe that it’s none of your business. I think it’s important to offer your help, ask questions and show interest. You might not get much in response but it will end up making things much easier for the day that they will end up having some questions.

Get As Much Information As You Can

Once your parents do start sharing information, I think it’s useful to know how much they have saved, what kind of investments and insurance policies they hold, any reitrement or pension accounts, etc. Over time these will change but being able to keep in mind the type of setup that they have will help a great deal.

Find Out Who Is Managing Their Things

I think it’s useful to know who is managing your parents money, what they are doing, etc. Initially, that will not be of much help but over time, as your parents age, it might become very useful to know what type of people they deal with and maybe eventually start going to some of the meetings. Not only will it help you get a better idea but as you can unfortunately see, your parents will start losing both memory and some of their abilitty to act rationally over time. Being able to better understand how they’re doing in regards to their finances can be a big help.

Investing Your Parent’s Retirement Funds?

This is certainly not an easy decision. Some decide to do it and I’d probably be fine doing it if asked. I think it can only be done in a very careful way though. I would not do it without a few ground rules:

-Very clear rules on the investing objectives
-Agree to schedule regular meetings to discuss how things are going
-In the end, it’s their money: as wrong as you might think they are sometimes, you can try discussing and making your point but if they want to get out of an investment, etc.. They are in charge, it is their money after all.

The pros of course are that you would then know exactly how the finances are (the investment part of them I mean), would be able to manage more efficiently than what they might get (less fees). It could be done by building an ETF portfolio, dividend investing or other methods but I think it’s important to remain very conservative. Remember that your parents are not trying to hit homeruns out of the park. They simply want to be able to keep going at bat for a few more decades.

The downsides of course are that if things are not clear, especially in regards to the investing objectives, it can certainly create conflicts. If they want to have little to no market fluctutations, it’s important that you know.so.

How To Start Managing The Money

There are many different ways to get started but I think the best way is to have them open a brokerage account that you have access to trade into. Then, they can slowly start to deposite some money into that account while keeping everything else as is. That will ensure that you both can see how things go from a small scale and either increase it or stop when you can see how things go.

Would You Do It? How do you help your parents manage their money if at all and do you have any plans or expectations for how things will be done as they get older?

Do You Hate Greed? (War On Greed)

By: ispeculatornew | Date posted: 12.13.2011 (5:00 am)

If you have a few minutes, take the time to watch this fairly provocative video about private equity legend Henry Kravis, one of the richest and most successful men in the world, co-founder of KKR.

What did you think? It’s certainly an interesting point of view. I’m generally one-sided on these issues, and would usually say that these videos are too simplistic and in a way they are. I do think that some individuals are able to generate enough value to actually deserve this money. Take any celebrity that is making $20 million or more to make a move or play football. Do they deserve it? I’m not sure you could say that they don’t. The fact is that if someone is able to generate incredible sums of money by filling out a stadium, investing more wisely or leading a company to better profits, the free market will generally do a good job of making sure that person gets a large share of those profits.

The Contrast

Of course, the sad story here is that when you contrast with individuals that for example work in the health or education fields, it’s easy to feel like things are not fair. I would argue first off that it is our fault that teachers, nurses and others are not making enough money. The day that we will recognize as a society how critical having great teachers is, that might change. Another big part of it is also that very few individuals are able, willing and have been able to start private equity or other companies. It’s hard, the large majority end up failing and very few have the ability to do it. Being a nurse or a teacher is not easy, far from it. But in the way that we currently define it, there are many that are willing and capable of doing the job.  The laws of supply and demand then make sure that wages are not as high as what you and I might think they deserve.

What Does Upset Me

While I don’t have much of a problem with this guy making hundreds of millions and spending it as he wishes, I do have major problems with the fact that he is then able to affect the outcome of laws through lobbying. Isn’t that a big part of what’s wrong in our society? If you have money and are able to change laws (or keep ones that don’t make sense) simply because you have more power than others, it does not seem fair. I’m not sure we’d be better off if all laws were decided by public vote, in fact we’d probably be worse off. But what is the ideal way to manage situations like this? There is no easy answer.

Pressure To Do Good

One thing that I would much prefer to see instead of a focus on the differences and “fairness” of someone making so much is a focus on what they are giving away. I have not heard enough about Henry Kravis to judge him on this. I do however know that tens of billionaires are signing the “Giving Pledge” to give away the majority of their wealth and by doing this they are having a very strong impact in making our world a better place.

 

Do You Invest Based On Intuition?

By: ispeculatornew | Date posted: 12.12.2011 (5:00 am)

Recently, I’ve been spending an increased amount of time studying investing psychology and that is bringing up several questions. Yesterday, I was reading about intuition and how it influences the ways that we act. I started wondering about what role (if any) intuition plays in my trading, especially the long & short technology picks but even in dividend investing.  The reality is that it plays a big role.

Intuition provides us with beliefs that we cannot necessarily justify” – Wikipedia

Intuition Is A Big Part Of Investing

As much as I think we try to always be rational, to invest based on numbers, on P/E ratios, growth rates, dividend rates, etc. In the end, when I do filtering, the result is never just one stock. There are usually several trade possibilities. What makes me go one way rather than the other? You could probably include several factors:

-My feelings about these stocks/companies
-My past experience trading these names
-Trading momentum
-etc

Intuition Comes Into Play

At some point, we gather all of the numbers, feelings and we end up making a decision. Even deciding not to buy a specific stock is a decision in a way, so yes there is always a decision involved. My question thus becomes: What triggers these decisions? I think intuition plays a big part. I tend to be a strong believer in Google (GOOG) for example and if you showed me two companies that have exactly the same profile, chances are that I would end up picking the one named Google simply because I feel like I will be better off in most cases being long Google.

The Limits Of Intuition

I think we end up getting to know ourselves better over time and knowing when to trust our intuition. Personally, one of the ways I try to improve my analysis is using stop limits. Why? Because when a trade reaches the stop loss point, I force myself out of the trade, to rethink the trade and see if the numbers truly make sense or if I was wrong. In most cases, I do choose to not re-open the trade. The day that you admit to using some intuition, it also opens you up to several possible issues such as being over-optimistic, stubborn, etc. Of course, very few investors to not use intuition at all and those would be trading strictly on technical factors. You can read an interesting piece from one such frame of mind on why intuition is not a good trading tool here.

I Stay Away From Short Term Intuition Plays

Generally, as most of you know, I do stay away from day trading so no I do not trust my intuition on telling where Amazon will end up on Monday. In the same way, I try to stay away from opening new positions just before earnings because it seems like those taking such bets are doing so solely on intuition and luck (except for those that have access to inside information).

What are your thoughts on intuition in trading/investing?

Is Microsoft (MSFT) About To Wake Up From The Dead?

By: ispeculatornew | Date posted: 12.09.2011 (5:23 am)
Microsoft

MSFT

Microsoft has been known since the start for its software, its operating system Windows changed how we were able to use pc’s while software like Office ended up being used by nearly every pc user around the world. You might argue that things are changing and that it’s far from clear how those will be able to compete in this new cloud based era. I would agree. Certainly, the domination that Windows has enjoyed will probably never be the same. That being said, I don’t expect a crumble anywhere near what Internet Explorer ended up suffering. Building an operating system is complex on so many levels and even powerhouses such as Google and Facebook are facing many challenges in coming up with a viable alternative.

Are Windows/Office and others slowing down? Not significantly. But the booming years of Microsoft certainly look way behind. Just take a look at this MSFT chart from the past 5 years, you will see what I mean.


A New Era?

I do think Microsoft is doing great things though with all of the cash that its software business continues to generates. After paying a reasonable and growing dividend, Steve Ballmer and others have been able to develop promising businesses.

Online/Social

Argue as much as you want, I think this still has to be seen as a success, even though it is proving a very expensive one. Microsoft is putting up billions of dollars into its online business, trying to compete with Google and others through Bing and its other properties. It has proven to be an incredibly difficult challenge which is no surprise. Almost everyone has given up on competing with Google in search but Bing continues to challenge. A remarkable success has also been the early stake in Facebook which not only was a good move financially but it has also helped Microsoft develop a great relationship with what is without question, the new dominant internet player. Facebook, which will become the biggest IPO in a long time to hit the markets in 2012 will be an important partner for Microsoft’s online division. How soon will it be profitable? It’s unclear of course but I personally think that the main priority should continue to be improving the product and the audience, everything else will come.


Gaming

No doubt, many thought Microsoft was crazy to get involved in an industry dominated by Sony’s Playstation franchise. Where are the doubters now? The company has been incredibly successful and continues to be an extremely strong player in the fast growing gaming market with its Xbox 360.

Microsoft Taking Over The Living Room?

Slowly but surely, Microsoft is becoming a huge player in a space where Apple and others are fighting very hard: The control of our living rooms. As Xbox continues to gain market share, it has proven to be a premium place for all entertainment. There were games, links to providers such as Netflix but there is also a growing offering of tv shows, movies and all kinds of other entertainment options. On Black Friday, Microsoft sold 960,000 Xbox consoles in the US alone. A large portion of those users will start using Xbox to access entertainment.

Major Battle Coming Up

Of course, 2012 will be a big year for Microsoft as the Xbox is likely to compete with some type of offering from Apple when Apple comes up with a new product for our living rooms (some type of Apple TV). In the end, it comes down to valuations though and I personally think that Microsoft might turn out to be a very good play for 2012. Will it explode? Probably not. But there is much more upside than downside.

Disclosure: No positions on Microsoft (MSFT)

Even Warren Buffett Has Terrible Ideas

By: ispeculatornew | Date posted: 12.08.2011 (6:00 am)

Before getting started today, I’d love to invite you to try our new quiz if you have not done so already, “Do you have what it takes to be a dividend investor?” on TheDividendGuyBlog, it’s meant to be fun, don’t take it too seriously:)

The other day, a reader sent me a video of Buffett explaining how he would fix within a few minutes, the problem of recurring US government deficits and a growing debt. His idea?

I could end the deficit in 5 minutes” he told CNBC. “You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of congress become ineligible for re-election“.

It’s a terrible, maybe even stupid idea in my opinion. The thought behind it isn’t bad: If we could could give a strong incentive to those members to avoid big deficits, the idea is that they would do everything in their power to keep their job. I do agree that they are generally more worried about their own job than about what is happening to the country so the idea could make sense from an “initial perspective.

Extreme Case Scenarios

The reason the European Union is turning out to be so disfonctional is not because the whole concept is necessarily always flawed. It is however very difficult to make the EU work in unusual circumstances such as a financia/credit/sovereign crises. Such events are unusual but they do happen. It’s not a matter of when or how but rather when they will occur.

Financial Crisis/Crash

You might agree (or not) with the whole bailout that the Obama administration used after arriving to power and the effect that it had on the economy. One thing that you would have to agree with though is that there is no way the US government could have avoided a big deficit in those years. Why? Tough financial times meant less income for individuals and for companies, less capital gains, etc. All of that combined had a dramatic impact on the revenues of the US government. Let’s imagine that the revenues suffered a 5% decline which is certainly possible in difficult economic times.

What To Do Then?

Imagine a government that would face a 5% shortfall in revenues with members of the government losing their jobs on any deficit of 3% or more. Just think about it. They would be stuck with one of two choices:

#1-Stimulating the economy (either through bailouts/subsidies or tax cuts) and ensure the deficit would surpass the 3% cap or
#2-Cut government expenses in order to avoid the defitic breach.

Would you trust the members to do the right thing and say goodbye to their high paying jobs or do you think they would risk putting the economy in even more turmoil in order to save their own jobs? I don’t know about you but I’m not convinced they would only be looking after the interests of the nation.

There Is No Easy Fix

I do have a lot of respect for Buffett but I certianly hope he was joking when he talked about this. The reality is that the issue is not simple enough to be fixed in 5 minutes. I think there are two main things that must be done (also very difficult) in order to fix the system and get our finances back in order:

-Get compromises between the Republicans and Democrats
-Get top politicians to manage with a long term perspective instead of always focusing on the next election.

What are your thoughts? Do you think Buffett was way off on this as I do?

How Long Would It Take To Build A $5000/Year Dividend Cash Flow?

By: ispeculatornew | Date posted: 12.07.2011 (5:45 am)

I thought it would be an interesting experience. Imagine that you were able to accumulate $1000/month that you would invest into a dividend portfolio such as the Ultimate Sustainable Dividend Portfolio, how long would it take you to generate a significant amount of money from that portfolio? For simplification purposes, I created a spreadsheet (that you can download later in this post) where an investor would be buying one stock, I used the ticker USDP (Ultimate Sustainable Dividend Portfolio). Obviously, an investor would not be buying only one stock. The objective however would be to buy a dividend growth focused portfolio similar to the one I presented some time ago. Thus, for simplification purposes, I used an investor that would be buying this type of portfolio from the start.

In any financial forecast, many different “assumptions” are necessary, here are the ones that I used for my sample investor which I will name John:

-John is able to invest $1000 per month
-Every month, John buys as many shares as he can of USDP
-The shares of USDP start at a price of $100 and pay a dividend yield of 2.86%
-Every year, the price of USDP increases by 2% and the dividend increases by 9% (much lower than the historical growth rates from the sustainable portfolio that we built)
-John reinvests all dividend payments until he achieves his “objective”, in this case $5000.

I think you could probably argue for any one of these assumptions and probably make a case on both sides (too conservative or too aggressive) but I personally think those are easily achievable with the right type of portfolio.

What It looks Like

I simply built a spreadsheet that would be used to calculate the portfolio’s value and payments. You can see an example here.

Obviously, you could easily increase the annual dividends that you will receive by increasing the amount that John invests every month or dividend growth rate. Even more dramatic would be increasing the amount of time. If John uses the same strategy for 20 or 30 years, you can see the dramatic impact it would have on the passive income generated. Yes, that is exactly why we always hear that the most important part of planning a good retirement is starting early. That has much more of an impact than any investing strategy.

Using Debt?

Next week, I will be sending over to the mailing list the impact of adding debt into this investing strategy… you can sign up now if you have not already done so, it’s free!