Archive for September, 2012

Everything Does NOT Have A Price ($GRPN, $RIMM)

By: ispeculatornew | Date posted: 09.18.2012 (5:00 am)

There is a saying that there is a price for everything. I was the first guy in line to defend Goldman Sachs a few months ago when Lloyd Blankfein and others were questioned by congress. Why? Because selling a product that you think is crap should not be seen as a criminal activity. Obviously, loans made to poor credit home owners is not worth as much as one made to ones that have solid credit. At some point, even I would probably be interested in buying. So yes, in a way, everything does have a price. Even a used up crappy car (which I could sell parts).

There Are Exceptions Though For Me

The other day, a reader asked me at what point I’d be interested in buying stock of Research in Motion (RIMM). Great question. The company has started to lose money, has diminishing sales and profits, has fairly crappy products (as an owner of a blackberry phone, I feel like I know about that part.. I’ve also seen a few disappointed Playbook owners), has little hope to one day become profitable again.

Still Has Value Right?

RIMM still has patents, customers, a lot of technology, very competent teams and employees. It’s very likely that the company will eventually sell part or all of the company and that will be at some price right? So surely, there is value here right? My problem though is that I have no idea how much that is worth. It becomes a lot more complex in my opinion to value a company based on its liquidative value than what I usually try to go by (future earnings, P/E ratio, etc). Even at a few pennies, I’d be afraid to buy shares of RIMM because I’d tell myself that those who really know the value of those assets would be buying if it was that obvious.

Groupon

Groupon is another one of those stocks that I have no idea how to value. I’ve written about the many questions that surrounded its IPO which make it very difficult for me to have a feeling about the stock. I could easily see the value increasing by 20-30% or decreasing (had written an ironic post about Groupon’s possible rise a while back) by the same margin and that is something that I personally try to stay away from. So don’t expect to see me trading either one of those names anytime soon (I haven’t traded RIMM in years and have yet to take a position on GRPN since its IPO)…

How about you? Do you think every stock becomes a value at some point? Did you buy a company such as Nortel (NT) or Lehman Brothers (LEH) a few years ago?

Worrying Trend For Facebook ($FB) Shareholders

By: ispeculatornew | Date posted: 09.17.2012 (5:00 am)

I’ve discussed Facebook quite a bit in recent months. I remain very bullish and have been a shareholder for a few weeks now.  I continue to think that the way many investors value Facebook is completely wrong. To look at Facebook as a company that depends only on advertising is wrong. It’s the case right now, but I don’t expect it to be the case 4-5 years from now. In the same way, those saying that having users connecting to Facebook increasingly from their mobile devices is bad are insane. Is Facebook making more money from desktop users right now? Absolutely. But having users so engaged that they want to connect over and over from their work, transit, on vacations, etc is NOT a bad thing.

Facebook’s main strengths are the enormous data that the company has and its status as the default social network that most of us use to connect, share, discuss, etc. More and more businesses are building their online strategies around their Facebook pages or Facebook apps which can only be good in the long term.

One Worrying Trend

There are some things that shareholders such as myself should look out for. These days, one trend that I’m getting worried about is the fragmentation of the social web. It used to be about Friendster, then MySpace. A few years later the scene was all about Facebook with Twitter and LinkedIn gaining some traction.

These days though, social networks are exploding. Facebook, Twitter and LinkedIn remain the strongest players but it’s also fascinating to see players such as Pinterest, Instagram, Reddit, Quora, Google+, Klout, Tumblr, Youtube, etc. Facebook’s value stems in large part from its dominant position. Obviously, having 1 billion users is amazing but if the trend becomes for users to have profiles on 3-4 or more social networks, that will greatly diminish Facebook’s position.  Facebook did end up paying up to buy Instagram but it will not be able to buy up all of its competitors.

That Being Said

I remain a strong believer in Facebook and do think the company will gradually increase the sources of its revenues. As long as Facebook remains the one social network that virtually everyone in the Western world uses, i will continue to believe that corporations, websites and individuals will continue to spend more time and money on the #1 social network.

Do you still believe in Facebook? Or LinkedIn? Does the growth of players such as Twitter, Pinterest and Quora make you pause?

Disclosure: Long position on Facebook (FB)

Weekend Readings

By: ispeculatornew | Date posted: 09.14.2012 (5:00 am)

Good morning to all of you, I hope you will have a great Friday and a good weekend of football.

General Readings

We don’t have a monetary problem, it’s fiscal @ Investor Junkie
High Frequency Trading critics @ NYT
The utility of investing in utilities @ Balance Junkie
How the 1% ended the middle class @ TheBigPicture

Dividend Readings

A new site about Canadian REIT’s @ CanadianReits
High dividend yield stocks.. what’s wrong with them? @ TheDividendGuyBlog
A look at blue chip corps with high dividends @ DividendMonk

Tech Readings

A better understanding of Amazon @ AllThingsD
Google struggles to compete with Amazon @ NYT
Facebook completes Instagram acquisition @ MarketingPilgrim

Amazon’s ($AMZN) Valuation Is NOT Insane, Don’t Try Comparing It To Apple’s ($AAPL)

By: ispeculatornew | Date posted: 09.13.2012 (5:00 am)

Yesterday I stumbled upon a post on CNN Money: “Why is Apple so cheap and Amazon so expensive?“. I’m surprised to not see more of these articles. I mean take a look at the 2 charts that they posted and you will get an idea:

Then you can also look at the numbers:

[table “444” not found /]

At first glance, you might think:

“Apple Is Sooooooooooo Undervalued Compared To Amazon”

And you might even want to open a new trade where you buy Apple and short Amazon. That would be crazy. Of course, Apple remains a strong value. I’ve said it was crazy to not own the stock, I picked Apple at the top of my 2012 tech rankings, as one of my 4 stock picks in the annual stock picking contest, etc. So yes, Apple is a buy, even after its big increase so far this year. The story becomes a bit more complicated when I try to value Amazon. You see, the company is playing a completely different game than anyone else right now.

Not Focused On Profits

Amazon has made some profits but I think it’s fair to say that it has not been a core focus. In a way, companies like Apple and Google are not entirely focused on profits either but rather on building quality products which have been translating into profits. But Amazon is in a whole other league…

It’s All About Infrastructure

There are many types of infrastructures but I’d say that Amazon’s shipping centers, its warehouses are the core that the company has been building for over a decade now. That has neabled Amazon to take a lead and make it nearly unstoppable. Amazon can basically ship anything to anyone in the US within 1 or 2 days. I’m exagerating but not as much as you’d think. It has also developed a very powerful distribution network in much of the Western world. That has taken a lot of time and has been very costly but it’s given Amazon a competitive advantage that will make it very difficult to overtake.

Amazon has also built the most efficient digital and physical publishing infrastructure. It can print on demand, without inventory costs, has been signing up new authors, established platforms such as Kindle Publishing Direct which make it easy for almost anyone to publish on Amazon, giving publishers many incentives to publish exclusively through its service.

The company has also built a cloud infrastructure so powerful that most of the huge online services such as Netflix use its AWS services in order to handle its traffic while others are storing their critical files, etc.

And just recently, Amazon has became a major player, with Apple and Samsung in the very lucrative tablet, establishing incredibly low prices since Jeff Bezos confirmed that its goal was not to make money on the sales of the Kindle tablets but rather when users eventually start using it to buy Amazon “stuff”

All of this has been built at extremely important costs, which has hurt Amazon’s short term profitability, big time.

Amazon’s (VERY!) Long Term Vision

The thing is, Jeff Bezos works invests in businesses or units that could only be paying off 10 or 20 years from now. He’s been right a lot in the past and his vision certainly makes a lot sense but. That being said, he won’t be right about all of these bets and it’s so difficult to evaluate the financial impact of the successes and failures of Amazon.

One Thing I Do Know…

I think it’s crazy to try to evaluate Amazon using the same ratio as Apple. They are so different and while it makes for a popular post, that doesn’t make it of any better quality. In fact, it reminds me of that Facebook post that said the company was worth $7 or something. What do I think about Amazon as an investment? I have a very tough time coming up with a value. What I do know is that using a P/E is useless in Amazon’s case unless you try to estimate earnings several years down the road. As well, I know that I could not short the company led by Jeff Bezos, and I can’t imagine how would dare doing that. Betting against one (if not THE) premiere companies of the 21st century that is on pace to dominating ecommerce seems like a dangerous proposition to me.

Disclaimer: Long Apple (AAPL)

Ultimate Sustainable Dividend Portfolio – September 2012 Update

By: ispeculatornew | Date posted: 09.12.2012 (5:00 am)

One year ago, 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 but also show how I would manage such a portfolio. I have said it before, I do not believe in stocks that you can hold “forever”. Thus, even in a long term portfolio such as this one, I will end up making some trades from time to time.

The USDP is obviously a critical part of my now very public quest to replace my job income with passive income.

The USDP is now one year old!! Very exciting stuff and I’m thrilled with how things have gone so far. I have done a couple of trades and continue to work on optimizing it, if ever you would like to receive those types of updates, 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 20 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:

[table “443” not found /]

Dividends Received

The Month of September is a fair good month in terms of cash flows month for the Ultimate Sustainable Dividend Portfolio. Since the start of this month, all dividends are being reinvested in DRIP fashion. Also, now that the portfolio is 1 year old, we’ll be able to compare how much these cash flows have increased year-over-year which should be fascinating:

 

Ultimate Sustainable Dividend Portfolio News

In a way, it was the most quiet of months for the USDP and we did not see any dividend announcements for our holdings. In the summer, there is not much going on so I had little to announce. One change as I mentioned earlier was enabling the DRIP.

Returns

Not much change, the USDP did outperform the S&P500 slightly over the last month but still trails by a few dollars…!

 

Trades

Well we did a trade a few weeks ago when I added Baxter international (BAX), you can read about it here, there will not be a big trade for now. However, tonight I will be investing a bit of our cash into the under weighted stocks such as Johnson Controls Inc (JCI).

The Day All My Personal Information Was Leaked On The Internet

By: ispeculatornew | Date posted: 09.11.2012 (5:00 am)

A few months ago, I woke up and visited one of the “tech news” websites that I visit every day and saw a headline that got my attention. The fact that Stratfor, a geo-poloticial news and analysis website that I had been using had been hacked. I was intrigued and clicked to read more about it. That is when I was shocked. It read that the website had been hacked and much of the data that had been stolen. What really caught my eye though was that personal data had been compromised as well. Not only that, the hackers went ahead and published the data on the web.

Surely, I would not be part of that right? Yes, I was a paid subscriber, but come on. Right??? So I actually looked for the file that they published (easily found), downloaded it and did a quick search for my name.

And there it was.. My name, address, phone number, credit card number (with the expiry and 3 digit security code). Everything was there!!! Even my password (which thankfully I was not using on other websites). Wow. I had a moment of panic. I did not have ID theft insurance or any other type of protection for that matter. And so did thousands of others that had been compromised. Thankfully, I had moved since then so that information was no longer valid.

This Was Not Just “Bad Luck”

Some might say that it was just bad luck. I beg to differ. Stratfor was hacked. But so was Amazon’s Zappos (although credit card data was not compromised) and even Microsoft India. Many others as well. Can you imagine id a website like Amazon was hacked? Who doesn’t have tons of information stored in Amazon’s servers? The issue is that with our emails, data, banking and so many other types of data gradually being moved online, getting robbed is increasingly difficult to protect against.

A New “Vulnerable” World

Protecting a business or a person used to be about having a good lock, living in a good and safe neighberhood and ideally having a home security alarm system. That is no longer enough. Some time ago I wrote about the impact that cyber-war would end up having and how so many great opportunities exist in that sector. I think great opportunities exist and while it’s not clear what the best investment might turn out to be

There are many stories about how a computer virus was potentially able to blow up in Iranian nuclear plant, you can read the fascinating story about it here . 60 minutes also discussed the issue with some US officials now worried that such a virus will now be copied to be used against Western infrastructures….

Symantec (SYMC)

With McAfee (MFE) being purchased by Intel Corp (INTC) last year, I would say that Symantec (SYMC) is the only big cap play on the sector. That being said, I will continue to keep my eyes open for decent opportunities. This will be a major growth sector. You only need one big company that has a major breach or security isssue to force all others to invest. Also, even a company that targets individuals could do very well as more and more people will be made aware of the risks.

What are your thoughts on the market, on Symantec and on any other names you know in the sector?

 

Lobbying…Critical Flaw In Our Democratic System?

By: ispeculatornew | Date posted: 09.10.2012 (5:00 am)

Today’s post is a bit off topic but it’s something that I’ve been very interested in. No matter if you are for or against it, I hope you can admit that some institutions such as the NRA seem to have disproportionate power in the government. For a company, an industry, a foreign government or any other interest group to be able to affect significantly government policies by spending enough money to get certain government members to be elected..

The NRA is a prime example because even in the days following the terrible shooting in a Colorado movie theatre, most politicians did want to even discuss having a debate about guns. Clearly, they are afraid of the political costs of even bringing up such a subject. The NRA has enough power and resources to influence what government officials can or cannot do.

In the same way, if you wonder what happened after the financial crisis when Obama came to power, promised massive changes and that he would go after individuals that were responsible. A few years later, we can see very limited changes in legislation and that no one was criminally charged. Is it for lack or proof? I doubt it. Much more likely is the fact that the powerful banks expressed their opinion on the subject.

It’s Only Getting Worse

It just seems like things are getting worse over time. These days, every serious company is putting up important sums into their lobbying efforts knowing that their competitors are as well. Even tech companies such as Facebook and Google increasingly understand how critical such expenses have become.

The End Result

As lobbying expenses continue to increase, it makes it even more difficult for an already ineffective government to get things moving. If virtually every important company is able to influence tax policies, environmental and business legislation, etc.. It becomes virtually impossible for the government to become efficient. Remember how Obama had promised to get rid of those earmarks? Well, he hasn’t and lobbyists are a major reason why.

I hope that at some point they will find a way to give the power back to the people who vote. Decisions should be made for the most part on behalf of the entire population, not based on who gave the most money to Senator XYZ, President, etc. I understand that it’s a bit idealist but there has to be some middle ground here right?

Do You Think I Am Way Off?

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Weekend Readings

By: ispeculatornew | Date posted: 09.07.2012 (5:00 am)

Couldn’t be happier to finally see some NFL football and congrat to the Cowboys who ended up winning the opener against the defending Super Bowl Champs:) Lots more football to come in the next few days, have a great weekend everyone:) 

General Readings

How catastrophe bonds work @ MillionDollarJourney
Work is not a four letter word @ HopetoProsper
What I learned about investing from a cult card-based strategy game @ Monevator
Vanguard previous metals and mining @ Long-Term Returns
Are we better off today than 4 years ago? @ BlogMaverick

Dividend Readings

-The Next Bubble is in Canada, and It Will Affect Everybody @ TheDividendGuyBlog
Smuckers looks fairly priced @ DividendMonk
How to retire with dividend stocks @ DividendGrowthInvestor

Tech Readings

Amazon goes after Apple with updated Kindles @ MarketingPilgrim
Amazon’s insane valuation @ AllFinancialMatters
When should you buy Facebook stock? @ TechCrunch

Tell Me Your Debt Ratio Is Not This Bad…

By: ispeculatornew | Date posted: 09.06.2012 (5:00 am)

I thought this chart was fascinating. The most striking part obviously is that Canada’s numbers look incredibly bad. It seems pretty basic doesn’t it? Dividend investing is all about creating passive income, or cash flows that enable us to live without worrying about working for every dollar, to not be forced to start using our retirement funds but rather simply live off of our passive income. I’ve recently started writing about where I currently stand in terms of passive income and while I look like I’m very far, things will actually be improving very fast and I’m confident that I’ll get there, especially with a solid plan and a dedication to improving my cash flows. It’s not about hitting a homerun but rather about constant and never ending improvement, buying more dividend shares, reinvesting whatever cash flows that you can and looking for long term sustainable dividend stocks.

Debt Can Be A Huge Part Of The Equation

I often talk about dividend income because it’s that first part of the issue, the top line if you will. As important though is the bottom part where you’ll find expenses and reducing your debt, especially in terms of your disposable income is an obvious key to being able to live off of your passive income.

There’s no doubt that the US number looks much better than its North American counterpart but even though it’s off of its high, it’s still much higher than it was 15 years ago and I’d argue that both numbers are way too high.

If you were to do this chart for your own situation, what would it look like?

I personally bought a house recently, so there is no doubt that I’m near the top but I’m putting as much focus (and money) into paying down debt every month as I save for my investment buckets so my chart will likely have peaked at 30 years old or so and should be coming down over the years, especially in terms of % of assets.

Don’t Count On Hitting A Homerun To Fund Your Retirement

By: ispeculatornew | Date posted: 09.05.2012 (5:00 am)

I hear it every day! Investors that start taking control of their retirement funds without taking time to put in place a clear and solid investment plan. Believe me, I’m all in favor of investors taking control instead of blindly trusting professionals. But wrong planning will usually end up leading you mistakes and in the end you will be paying for those in your later years when you’ll be forced to cut down on spending, trips and gifts to loved ones.

The Classic “Home run” Attempt

We all know someone who’s made a fortune on those 2-3 stocks that went up 10 or 20 times. Sometimes they are penny stocks, other times it’s about finding the Microsoft of Apple stock before everyone else. I’m obviously not saying that making such bets is wrong and should never be done. It would be dishonest anyway since I’ve disclosed that I just bought some Facebook (FB) shares. The key thing though is that Facebook is one bet I’m making with some extra money that I’m able to invest. I’m not counting on Facebook to fund my retirement. As much as I believe in the stock, I’m smart enough to know that there is a decent amount of risk involved.

Another problem is that those making bets on “home run” attempts will obviously get some right once in a while. How many of those investors that made a killing trading a couple of stocks ended up losing that money (and often much more) in their next few picks as they started to assume that they’d get many more right bets. Stock picking is incredibly difficult and the large majority of professionals struggle to make it work. I don’t see any logical reason to think that I could.

Use A System

I think that most of us should instead rely on a strict system to fund our retirements. Dividend investing is one obvious method, as is building an ETF portfolio. There are many other alternatives as well. More than anything, if you have a good system, your retirement will depend on:

-How much you contribute every month
-Your asset allocation
-How the overall market performs

Every month, I describe how I built and maintain my Ultimate Sustainable Dividend Portfolio and I expect the performance to remain very strong for several decades if I keep the same system.  I’ve determined how much I need to invest in order to reach my objectives. That way, I’m able to make riskier bets with any additional amounts that I’m able to contribute.

Fees and taxes

It’s so easy to underestimate the impact of fees and taxes but those end up making a world of difference. Instead of looking for the next Microsoft or that next penny stock that’s about to explode, we’d be much better off trying to save on recurring fees and taxes. It’s not as interesting for most of us, but that (and the amount we can invest on a recurring basis) will end up being the key factors in successfully funding a retirement.

How Are You Funding Your Retirement?

Do you aim for the fence? Do you have a solid system in place?