Archive for June, 2012

Closing Trade (ZNGA, DMD)

By: ispeculatornew | Date posted: 06.14.2012 (4:45 am)

Looks like I unfortunately called Zynga’s (ZNGA) bottom too early as the stock continued to decline in the past 2 weeks, that trade will be closed on today’s opening after reaching its stop loss! This now brings my year-to-date return on long/short stock picks to -15% or so… far from great and nowhere near the great returns from the past 2 years! Hopefully things can turn around soon:)

 

 

How Much Of Good Investing (and everything else) Is Caused By Luck?

By: ispeculatornew | Date posted: 06.13.2012 (5:00 am)

I’m a big believer in guys like Warren Buffett and I personally think that their long term vision and ability to find good opportunities has been the main reason behind the huge returns that he has achieved over the years. Others however disagree. I once read about the fact that if you had tens of millions of monkeys making investing decisions, there would be a few that would outperform the market for a few years. Among those, a few more would continue to outperform for a decade more. I’m not saying that is the cause but among the tens of millions of investors, there are bound to be a few that perform amazingly well for decades.

Then last week, I read the transcript of the Commencement remarks that Michael Lewis made to the 2012 Princeton graduating class. I’m a big fan of Lewis, of many of his recent books and to see this guy explain that in his opinion, much of his success is due to luck made me reflect. It made me think about many different things that have been going right for me so far in my life. How much of it is due to hard work, to skill and to what I might have learned in school or by reading? And what about my investing? I’ve done well in recent years, but part of that has to be luck right? Or am I way off base here?

I’d love to hear your thoughts! How much of what you are as a person and as an investor has been defined by luck?

The Worst Investment You Could Ever Make?

By: ispeculatornew | Date posted: 06.12.2012 (5:00 am)

I’m not saying I’ll never do it. I sure hope that one day I have a few extra dollars to offer myself the luxry. What exactly? This

Or this

Or this

I mean seriously, what other large investment do you know that instantly drops 20% or even more from the moment that you buy it? Just try buying a car like that and reselling it (no matter if it’s to the dealer or on any type of website such as eBay?

Why do we keep doing it? I guess to some degree we have extra money and we expect that buying that brand new car will bring enough joy and pleasure to compensate for all of that lost value.

But tell me, is the investment return part not relevant when buying a car?

New Stock Pick Long Dice Holdings ($DHX) & Short Monster Worldwide ($MWW)

By: ispeculatornew | Date posted: 06.11.2012 (4:36 am)

Today, I am back opening a new trade that I have actually done several times, mostly with success as I am opening a new trade featuring 2 online employment posting companies that compete to some degree but are incredibly different in many other ways. Let’s start off by looking at the number for Dice Holdings and Monster Worldwide:

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Long Dice Holdings (DHX)

Dice Holdings is a named I have often traded, with success, in recent years. I feel like because of its name and the fact that its brand is nowhere close to one like MWW, it constantly becomes undervalued. The company has a strong focus, good fundamentals and seems to be much more focused on its strengths compared to a company such as MWW.  Its forward P/E of 14 is certainly good enough considering its recent growth.

I am not a momentum trader but still look at Trend Analysis numbers, this trade looks decent from that perspective.

Short Monster Worldwide (MWW)

Monster is one of those companies that I was down on in the my 2012 Tech Stock Power rankings and it has not been doing so well either, as sales and earnings growth continues to be very low. I simply don’t think it warrants its current valuation, especially when you consider how competitors such as LinkedIn will continue to take MWW’s global market.

 

Disclosure: No positions on Dice Holdings (DHX) or Monster Worldwide (MWW), this trade will be opened on Monday morning

Weekend Readings

By: ispeculatornew | Date posted: 06.09.2012 (5:00 am)

Hope you are all off to a great weekend, I know I am:) I won’t drag on today but if ever you have some free time, here are some readings that I recommend:) Have a great weekend!

General Readings:

Do you have 11 days to take control of your finances? @ Fabulously Broke
Save us Ben Bernanke you’re our only hope @ The Atlantic
Financial planning: art or science? @ Balance Junkie
The Big reset: Here is what’s coming and what to do @ ZeroHedge
Why is no one from MF global in jail @ Coyote Blog

Dividend Readings:

11 surging dividend stocks that might continue their surge @ TheDividendGuyBlog
McDonald’s looking fair at $90 @ DividendMonk
Looking for yields in stocks and real estate @ CuriousCat
The Most successful dividend investors of all time @ DividendGrowthInvestor
Yes. Dividends Almost Always @ TheReformedBroker
Investing in utility stocks with high dividends @ MoneyCrashers

Tech Readings:

LinkedIn confirms user passwords leak @ TechCrunch
Why you shouldn’t buy Facebook @ DividendNinja

How Well Do You Know Yourself?

By: ispeculatornew | Date posted: 06.08.2012 (5:00 am)

Both as an investor and as a saver, it often becomes very difficult to see our own weaknesses. That is probably why I trust my own trading skills but only to an extent. I do rely on safer and more conservative ETF index investing and a long term sustainable dividend porrtfolio to ensure my retirement, not on finding that next Apple ($AAPL). Even a stock such as Facebook, which everyone seems to hate but that I believe in will remain a fairly small portion of my portfolio. Why?

I Don’t Want To Overestimate My Skills

I guess as humans we are clearly bad at knowing our strengths and weaknesses. This was made even more obvious in this latest European survey… which was posted on ZeroHedge

Does anyone, even 1 single person outside of Greece think that the Greeks are the hardest working employees in Europe? Seriously!

Passive/Index Investing Rules

The vast majority of money managers underperform the index after fees. Guys that are skilled, work full time and yet fail to beat the indexes.

What makes you think that you can beat these indexes by choosing your favorite stock, the one your neighbour or best friend talked to you about, etc?

How Important Is Stability When Selecting Dividend Stocks?

By: ispeculatornew | Date posted: 06.07.2012 (5:00 am)

When selecting dividend stocks, most of us agree on a few basics. We are looking for stocks that pay a decent to good dividend, that is both able and willing to increase it over time and that is expected to have a long term solid business for years to come. I don’t think many of you would disagree with such comments. That being said, there are other parts where it would be both logical and expected for some to disagree.

#1-How high should be the dividend yield?

I have discussed how retiring with a long term sustainable dividend portfolio can work out well, even compared with other products such as annuities. There are many however who need more than a 3% or so dividend to live perhaps because they did not save up as much as they would have wished, Thus, I did a post using a high yield divdend portfolio, found good candidates that came up to a 5% divdiend yield portfolio. Not bad right?

#2-How Stable Should The Company Be In Paying Its Dividends

Many are fans of buying dividend aristocrats which are known to increase their payout every year for decades. I’ve said in the past that I was not as convinced. I prefer holding stocks that try to maximize their payouts every year. The advantage of course is that the dividend yield tends to be higher as is the growth. The downside though is that compared with a more traditional dividend portfolio (such as the USDP), this one is more likely to see dividends coming down at some point which would of course be an unpleasant surprise.

Part of the reason is the culture. For many European companies, it’s all about paying a portion of earnings, no matter if it is higher or lower than the previous year (everyone hopes it will be higher of course). I have written about the desire for a company such as Microsoft to pay out a fixed portion of its earnings which would certainly raise the overall dividend but would also bring more volatility in the payout and years where the dividend would actually decline compared to the previous year.

Preference?

Personally, I would not mind this. I would probably prefer it in fact. The goal would simply be to pick more winners than losers and thus still have a dividend portfolio that can increase its overall payout every year. How about you? Would you mind holding names that have a more volatile payout?

Triple Your Money By Buying Groupon $GRPN

By: ispeculatornew | Date posted: 06.06.2012 (5:00 am)

Please Be Careful Who You Trust For Financial Analysis…..

Have you ever heard of TMZ? The celebrity gossip website/company? They have been able to grow thanks to many different things which including being able to write “Clever Headlines”. You know the type of headline that we all feel the urge to click on, share with friends, etc? I’m the first to be guilty sometimes. I guess there is little harm involved anyway right? At worse, I lose a few minutes of my time reading a story that is not what I would have expected from reading the headline.

The same exists in financial media of course… Most of you know how I feel about Facebook’s stock and how good of an opportunity it is. Last week, I saw a link to a post entitled:

“Facebook’s stock should trade for $13.80”

Personally, while I think it’s possible that the author might have good points, seeing that headline will not make me take the author seriously. My main question is, does the author really believe this or is he just trying to create a viral article? I invite you to visit the article but I think the 2 main points that the author brings up are:

“The researchers found that the revenue of the average company going public in the period analyzed in the study grew by 212% over the five years after its IPO”

“Since Facebook FB   is most often compared to Google GOOG, let’s assume that its price-to-sales ratio in five years will be just as high as Google’s is currently: 5.51-to-1. You could argue that this is an overly generous assumption, of course. But it nevertheless means Facebook’s market cap in five years will be just $63.8 billion — 30% less than where it stands today.”

“the news is even worse: No one is going to invest in Facebook shares today if its price will be 30% lower in five years. So, in order to entice someone to invest in it today, Facebook needs to offer a handsome return. Assuming that its five-year return is equal to the stock market’s long-term average return of 11% annualized, Facebook shares currently would need to be trading at just $13.80”

Seriously!?!?!?? How in the world could someone remotely serious consider such numbers? I’m assuming that the author is smart enough to know that:

Facebook is not exactly the average IPO. I don’t know how someone could possibly perform analysis based on such a factor, no matter what the company is.
-Using the price to sales ratio could be very useful in the context of an analysis but basing a valuation on these 2 very simple stats is oversimplication by any measure.

Let’s give it a try using a well known recently turned public company, which I have been very negative about, Groupon $GRPN. Let’s use the same methodology, so assuming:

Revenues will increase 212% as does the average IPO from $1.6B to $5.02B…. That would result in a market cap of over $27B using the same multiple which gives us a price per share of $43!!! Given this is 5 years from now, we will discount it using the same rate which gives me a stock price of over $25!!..

So is Groupon trading at half of its value? I certainly don’t think so. Financial analysis is very complex and while I can very much accept that some believe that Facebook is not worth anywhere near its current valuation, I need to see some type of argument. Don’t just bring me a 2 minute analysis that is complete B.S… Please:)

P.S: I’d more than happy to do a trade with the Marketwatch author… you sell me options to buy Facebook at $23.26 5 years from now… In return, I will gladly sell you options to buy Groupon for $40.. A $3 discount from its expected value using this “scientific analysis”… Anyone up for this trade?:)

Are You Optimistic? Heading Right Towards A Big Iceberg

By: ispeculatornew | Date posted: 06.05.2012 (5:00 am)

I’m an optimistic guy in general. I’m the type of person who sees a glass as half full, a poor NFL season (Colts…) as an opportunity to draft the best player, etc. That being said, these days, I find it increasingly difficult to be optimistic about the economy, and indirectly the stock markets…

Europe is the biggest sign of course with Spain already struggling to roll its debt, now having to start saving both its banks and some of its regions. Greece has been a major problem and it certainly attracts a lot of attention but the truth is that it barely counts when you look at Europe.

Having a country like Spain or Italy go down that path though would make Greece look like that practice that everyone goes through when boarding a big cruise ship. No matter how well or not the practice is executed, it doesn’t seem to help as much as you’d like when the actual emergency hits.

Everywhere around the world, economic growth is small, real estate prices are shaky at best, governments are being forced to withdraw some of their promises regarding health care, education, retirement benefits, etc. Many are blaming the wealthy but the fact is that it’s not that simple. Attacking private equity as some democrats have been doing lately is a little bit like suggesting to raise taxes on the wealthy. It’s a big oversimplication. In this new complex and global planet, solving problems has become increasingly complicated.

How I Track This Big Giant Mess

I always like to see how major exchanges have performed both here and abroad but those do not necessarily give a good picture of the situation. A better way in my opinion is to look at charts such as the long term rates that the Spanish government is paying on its debt. For example, if you take a look at this chart, you will see that the yield is over 6%, which is not sustainable in the long run. As long as that remains true, it means that Spain needs some type of help.

One Opportunity

When chaos starts to happen all around the world, one industry that will clearly profit is the security field, with security guards near the top. A company such as Canada’s Garda World (GW) would do very well in a context where all of the problems that we have been seeing in Greece when Austerity measures kick in start happening in other locations. Just two weeks ago, Garda announced terrific results and I would expect security companies to do well in the next few months/years.

What are your thoughts? Am I too negative on the economy?

New Stock Pick Long Zynga ($ZNGA) & Short Demand Media ($DMD)

By: ispeculatornew | Date posted: 06.04.2012 (5:00 am)

I can’t say I was miserable not making new picks for the past 2 weeks. It’s not that I don’t enjoy the process, I really do. But after making a few bad trades which now have me down a bit for the year, it was time to take a break and get a bit of distance from those picks. Hopefully I achieved that. Most of my stock picks so far this year have been going well including the Stock Picking competition, the 2012 Tech Stock Power rankings, the Ultimate Sustainable Dividend Portfolio and others. But tech stocks have not been doing anywhere close to what I would expect or what has been achieved in the past few years. Hopefully I can turn that around now!

Today, I am actually making a pick that momentum traders would stay away from, buying a stock that has been doing very badly and shorting one that’s been rising. I did discuss Zynga in last Thursday’s tech stock newsletter (join now, it’s free!). Let’s start off by looking at the number for Zynga and Demand Media:

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Long Zynga (ZNGA)

Zynga is getting crushed, especially since the now very public Facebook IPO fiasco. At some point, it should become cheap and if you do not believe that Zynga is another one of those falling knives, then I think now might be a good time to get involved. It is trading at a very reasonable P/E when you consider how fast the company is growing. There are still many questions regarding its profitability but I personally think there is very limited downside and a lot of potential for growth.

 

I am not a momentum trader but still look at Trend Analysis numbers, no surprise in the fact that the numbers are not looking great on this one.

Short Demand Media (DMD)

Demand Media has been one of 2 or 3 big misses so far in my 2012 Tech Stock Power rankings as it has been able to decent solid growth in revenues and profits and its guidance remains very strong. It remains to be seen if the company can keep it up and I guess you could say I’m not a big believer. The company continues to depend on a very soft advertising market and I don’t see it keeping up these numbers in the short to medium term.

Disclosure: No positions on Zynga (ZNGA) or Demand Media (DMD), this trade will be opened on Monday morning