Archive for November, 2012

Weekend Readings – Winter Is Near

By: ispeculatornew | Date posted: 11.30.2012 (4:00 am)

Ahhh the temperature has started dropping, I’m now getting ready to install my winter tires and have to go shopping for a new shovel… it’s not something I look forward to. I hope that those of you who do not have a winter are thankful for it:) Ok, ok I won’t complain too much now.. the worst is yet to come unfortunately:) Here are a few good readings for the weekend;)

General Readings

Gambling vs Investing in stocks @ InvestorJunkie
USA fiscal cliff – better than past behavior? @ CuriousCat
Major fat finger in Sweden @ Zero Hedge
Tax the rich @ TheFiscalTimes

Dividend Readings

Investment blogger of the month: MyOwnAdvisor @ DividendStockAnalysis
Walking the path @ DividendMantra
Why dividend investors should never touch principal @ DividendGrowthInvestor

Tech Readings

Zynga shares sinking a bit lower again @ TechCrunch
30 minutes with Yahoo’s Marissa Mayer @ Youtube
Andrew Mason on his way out at Groupon? @ AllThingsD
What has changed (VC investing) @ AVC

Should Your Employer Or The Government Force You To Save?

By: ispeculatornew | Date posted: 11.29.2012 (4:00 am)

You might have read about this or even seen some shows on ESPN that described how hundreds of pro athletes that made millions in their playing days are now completely broke. Many of them had to declare bankruptcy. For some, it’s because of bad investments, getting caught in ponzi schemes but for the vast majority, it’s caused by excessive spending. It’s shocking honestly. How in the world can someone who’s made $10M in 5-6 years of playing end up having nothing left? I know that most athletes don’t make that much, but there are still hundreds of examples. I heard that some guys would receive bills on mortgages that they didn’t even remember taking (buying houses for friends…). It’s scary.

Is the Problem Bigger Than We Think?

If you agree as I do that we can’t count on governments or company pensions to retire, then I think it’s fair to say that our ability to save and invest will end up being a huge part of how our retirement ends up looking like. Unfortunately, for the vast majority, that will not be enough to have a decent retirement. They will be forced to lower their retirement standards of living and/or work longer than they’d like to. It’s sad. Part of it is because they don’t make millions and are unable to save up enough money.

The Actual Reason

A much bigger reason though is that most of us set it as too low of a priority. We do all of our spending and then save whatever is left. In most cases, that amount is slim if not negative.

What Could Be Done

The NBA announced that it would be forcing its players to put money aside by the NBA into funds that will help them when retirement comes around.

Could This Model Be Duplicated?

Could you imagine the government forcing us to put money aside? It would certainly resolve part of the problem but I’m not sure how that would work. First of all, controlling that, trying to determine how that money can be used, etc. It seems like a lot of complexity and would probably end up being very inefficient. I could also imagine the government trying to force people to invest in certain ways which clearly would not work out well.

A Much Better Idea

I still think that schools should focus a lot more on this stuff. Showing kids how to build a budget, how investing and compound interest works, the consequences of starting to save early vs not, etc. I still can’t believe that we don’t learn more about this given how critical it is.

Any thoughts?

Are You Trading At A Huge Disadvantage? Do You Even Stand A Chance?

By: ispeculatornew | Date posted: 11.28.2012 (4:00 am)

We all know that because we are often trading against High Frequency Traders (HFT’s), we are at a disadvantage in terms of speed and price execution. But did you know that you might also be trading against investors that have a whole lot more knowledge than you do?

Digital Economy

I’ve discussed cyber warfare a bit in the past and the other day I stumbled onto a Bloomberg article about Chinese hackers and how powerful they have become in recent years. They are way past the point of hacking into computers like yours and I. These days, they are much more active hacking their way into critical networks. This post reports that one such group hacked its way into in European Union Council, but also networks of companies such as Halliburton and tens of other listed companies. They are able to get access to files, to gain access to emails and documents sent by executives, etc. It’s very elaborate and while the US government does know a lot about what they’re doing by spying on them, there is clearly a lot more that they are not telling us and even more that they don’t know about.

Scary Stuff

There are obvious dangers that come to mind such as a foreign government taking control of nuclear, utility or other infrastructures or even disabling them to some extent. They have also been working hard on stealing all kinds of information to further their own ambitions. It becomes very easy to imagine nightmare scenarios…

But what if they decided to try something else. Either instead or in addition to what they’re doing, they could quite easily get access to financial statements or critical information that would help them better trade these companies. If they’re able to access all emails by a company’s board and executives, you’d think they could easily put their hands on such information right? In such a situation, they would be able to trade prior to earnings being released with an invaluable advantage. If they did it right, they could make it nearly impossible to detect… making them incredible profits.

We Are Not Being Told About This

One big problem is that our entire system is built on trust so even big institutions such as the Fed are very reluctant to discuss such issues. There is very little benefit in giving ideas to hackers all around the world, to diminish the public’s confidence in our

What Does It Take To Be A Great Investor?

By: ispeculatornew | Date posted: 11.27.2012 (4:00 am)

Yesterday, I ended up reading an article that surprised me. A study of successful entrepreneurs came to the conclusion that a majority of such persons were married with children. As a newly turned dad, that was very surprising to me at first. You would not expect those that have the least amount of free time to end up being the most successful in business.. or would you? It’s easy to get caught up thinking about guys like Mark Zuckerberg and Bill Gates that built empires in their early years when they could basically dedicated their entire lives to their company.

What Does It Take To Be A Great Investor?

I guess the question might require a bit of thinking and there are many different good answers. I started thinking about it and came up with two dozen different answers!! Here are a few of my top ones, I’d love to hear about yours:

Having A System: Both in my general investing, in my tech stock long & short and my dividend investing, I do have fairly strict rules that change over time but do provide a great guideline. I’m convinced that is necessary. Any successful investor will be able to explain exactly how they invest. Sure, some to be guided by instincts but I think that most of the successful investors do have clear systems.

Discipline: Investing can be very challenging and any investor that is unable to follow his rules, close out losing trades when they no longer make sense will have a very difficult time succeeding.

Ability To Filter Through Information: A few years ago, guys like Warren Buffett would use financial statements to build an opinion on a stock. These days there are those statements, analyst analysis, news, rumors, information, earnings calls, social media, blogs, etc. It is truly a challenge to determine what information is most reliable and how to judge the value of different sources.

Mental Strength: Being disciplined is important but it’s also critical to be able to remain mentally strong and confident after a few bad trades, to remain confident in the system.

Do you have those abilities or others that you consider necessary to be a great investor?

Facebook ($FB)… Sorry To Say But I Told You So?

By: ispeculatornew | Date posted: 11.26.2012 (4:00 am)

I’ve certainly had more than my share of bad trades but after going on and on and on about Facebook being incredibly valuable, I did end up buying. No, I did not buy right as the stock went public, that is a mistake that I’ve promised myself to never again repeat. But I did end up buying the stock at $19.99. A few of my friends said it was time. Facebook was seen as this massive failure and if I thought it was a buy at its IPO price, I’d be crazy not to buy it at half the price right?

Yes, I Did Walk The Walk

I did end up buying Facebook despite all of the incredible bad press. It’s always interesting to me when a stock starts to have so many haters. These days, although it’s not quite as bad, Apple seems to have its fair share. I’m obviously a big Apple believer. Anyway, back to the point, if you remember well, my main argument about Facebook was the number of different things it could do with its platform and user base.

Mobile = Death Of Facebook?

This argument drove me insane. I’m not kidding. How can it be seen as a bad thing that instead of going to Facebook for a few minutes from their desktop, they are now going several times more from their smartphones. Seriously!  If you look at earnings calls of most web companies, you will see that this is a major concern. I’m not saying that it’s not a problem for some players but I never feared it was a problem for Facebook. Was it a problem for its current sidebar ad model? Yes.  Even that is overvalued. Facebook did start displaying ads in the news feed which DO appear on mobile devices. Problem solved?

It’s Not Just Advertising!

Facebook was never going to be valued based on the number of sidebar ads it can sell anyway. If that is how you are valuing Facebook, then yes, maybe the stock is still massively overvalued.  There are many different things that Facebook can do with its user base though. It did start “Facebook gifts” recently. I’m unsure how well it’s working but with initiatives like Facebook Gifts and Facebook Offers, the company is increasingly seeing transactions take place through its platform which is perfect. If Facebook can make life easier for users, merchants and take money for that service, that would be perfect.

There are also other initiatives. One possibility that looks increasingly likely is related to advertising but somewhat different. Google operates an advertising service named Google adsense. Basically, it sells ads for other websites through all of its current advertisers. It makes billions of dollars doing so. It is looking increasingly likely that Facebook will launch a competing service which would also boost earnings.

There are also many different things being discussed…So yes, as you can see I’m still very much optimistic on my Facebook (FB) investment.

It’s Not Too Late

The goal is never to buy at the bottom.. you will end up stating on the sidelines always trying to buy for cheaper. The question remains… is stock XYZ a bargain at this price? To me that question is: “How much upside to I get and what is the downside?”. I personally think Facebook will likely go much higher. If you’re not convinced yet, I read a very interesting piece about Facebook’s eventual demise on TechCrunch, which will happen at some point, but probably not anytime soon. I agree with most points discussed.

Anyone else a holder of Facebook? Or thinking about it?

Disclaimer: Long Facebook (FB)

Closing Trade ($MWW, $DHX)

By: ispeculatornew | Date posted: 11.26.2012 (3:00 am)

This morning, I will be closing out one of the 3 remaining tech stock long & short trades. On June 11th, I opened a trade where I was long Dice Holdings ($DHX) and short Monster Worldwide ($MWW), a trade that I’ve done a few times over the years. It was a bumpy ride but turned out very well, the trade now stands at +23,65%! I will be closing out both remaining trades in a month even if they don’t reach their stop loss/gains!

Weekend Readings

By: ispeculatornew | Date posted: 11.23.2012 (4:00 am)

Ah well, I had seen some of the first 2 games and was hoping to see a solid one last night.. it didn’t quite turn out that way did it?  I’m not a big Patriots fan as many of you know.. but they do have quite a team once again, gotta respect that much:) Anyway, for those of you celebrating Thanksgiving, I’d like to wish you all the best, especially quality time with your loved ones:)

General Readings

The facts of investing life @ Monevator
Save what you can, increase that amount when possible @ Curious Cat
Is the CFA worth it? You’ve gotta be kidding @ SmartFinancialAnalyst
Not retired yet? Ignore the 4% rule @ MillionDollarJourney

Dividend Readings

The fiscal cliff and its impact on your portfolio @ DividendMonk
My take on Canadian banks @ TheDividendGuyBlog
Why dividend investors should never touch principal @ DividendGrowthInvestor

Tech Stock Readings

Apple and the Desire for Control @ NYT
The Marissa premium @ AllThingsD
Why Priceline bought Kayak @ TechCrunch

Found On Quora: What is it like to be a partner at Goldman Sachs?

By: ispeculatornew | Date posted: 11.22.2012 (4:00 am)
I’m not sure if I have ever mentioned Quora before. I LOVE the site. It’s basically a Q&A website, similar to Yahoo answers for example. The big difference? Everything about it is incredibly well done. It was founded by former Facebook early employees, and has been slowly but surely gaining traction. Some say that growth has been disappointing and they did make a few mistakes along the way but overall, it’s one of my favorite sites. Why?
It guesses what I’m interested in: every week, I get an email from Quora with a few questions relating to things that I’ve liked or viewed (not sure of their exact methodology) and there is so much interesting stuff
It revolves around subjects that I have a passion for: technology companies, silicon valley, finance, travel, etc
Big Names Answer: Because of the way Quora is built, a lot of big names have stepped up to answer. Want to know how things were when Wikipedia started? Jimmy Wale, the founder can answer that. Wondering about life as a woman in technology, why not get an answer from Facebook’s COO, Sheryl Sandberg, etc.. The list goes on. Other times, some very good answers come out, anonymously. Here is one that I enjoyed reading:

I am going to keep this short and sweet. Here is what caught my attention this week, posted by an anonymous user:

My Title: Partner Managing Director
Time served: I have been with Goldman now for 17 years. I have been a partner for eight years.
Compensation: I have seen the good times and the bad. I used to take home a lot more money but now I make 5-6 mil annually (including bonus) not a small chunk of change by any stretch but when the market was roaring before the mortgage meltdown the take home pay was far greater.
My hours: I work about 55 hours a week. I have many others to do my grunt work.
What I do? Make sure my unit continues generating revenue for the firm. I travel to seek out new business, work my contacts, etc.
My life: I have a wife, two kids, live in Greenwich, have couple of cars and bells and whistles.
Stress: The stress is incredible. The money is great but the mental and physical toll it takes on your body over the years isn’t (putting on weight, grey hairs, not being able to watch all my kids soccer games, going to recitals, less time with family, arguments at home, etc)
***There is a lot more discussion on the Quora page, if you’re interested, go take a look🙂

What are your thoughts?

 I know that this might shock quite a few people. It doesn’t shock me. And I personally have no problem with it. I’ve discussed this before. If this guy is able to transfer to some other broker tomorrow and bring in $20M in business for example, wouldn’t you be more than happy to pay him $5-6M? If not, someone else probably would.

International Dividend ETF’s…Adding To The USDP?

By: ispeculatornew | Date posted: 11.21.2012 (4:00 am)

I’ve talked a lot about adding international stocks to the USDP. Why? Because it adds diversification, which in the end means more returns for a same level of risk which obviously makes a lot of sense when working towards my passive income goals. The major problem or challenge when adding international stocks is that if they are not traded on US markets (listed or ADR’s), there is a lot more complexity and fees involved. You can end up being stuck with fx conversions, fees, taxes, etc. It kind of takes out a lot from my idea of managing a sustainable dividend portfolio in very little time. So what did I decide to do?

Adding ETF’s

You’ll maybe be surprised. After all, I already have an ETF portion to my retirement/long term investing strategy. So why I add ETF’s to my dividend one? I think it makes a lot of sense to get some exposure to a few different dividend stocks to buy ETF’s. That is why I will be adding some level of ETF’s to the USDP in 2013. I don’t expect it to be huge as I do prefer selecting specific stocks for the USDP. That being said, in order to get exposure to high quality international stocks, it will sometimes make more sense to buy an ETF. I’m not sure how this will evolve over time but for now, I’d expect to gradually move to 10-20% of my holdings into internationally focused dividend ETF’s.

Which ETF To Go For?

Let’s start off by looking at the main dividend ETF’s that fit my first criteria:

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If I take a look at the top holdings in IDV for example, here they are:

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As you can see, the vast majority are names that I would not have access to without trading pink sheets which I want to avoid. So I’d be paying about 0.50% annually in order to get access to these names, which seems reasonable to me. I am convinced that my portfolio will end up doing better by including such stocks. The big question will be if IDV is the best ETF for my needs which is something I will continue to monitor between now January. I do expect to only hold 1 or 2 at most.

What are your thoughts? If you are a dividend investor, do you hold strong international stocks? If so, how? ADR’s? ETF’s? Pink Sheets? Buying on foreign markets?

Passive Income Targets – November 2012

By: ispeculatornew | Date posted: 11.20.2012 (4:00 am)

After starting this new series earlier this year, I received a lot of positive feedback. Going forward, on a monthly basis. I talk a lot about the need accumulate different passive income flows. As time goes by, my objective is to be able to live entirely off of these new income streams but also be able be diversified enough to be ok no matter what happens. In many ways, that is what’s behind my interest in dividend income. For now, I prefer to avoid using actual numbers (might change later on) so what I will do is express all of this data in %. The objective of course is for all of these flows to end up generating 100% of my current income. I also want to gradually make sure that my income producing assets are not all locked away in accounts that will only be available upon retirement. In terms of income, I will be using my gross household income. Counting the bonus would only make things more difficult to track and would not represent how I currently live on my finances.

For example, if my base salary is currently 100K, my objective is to make 100K of passive income on an annual basis. This could be done through a variety of methods which I will be exploring of course. A few people tried to figure out how much capital I have by looking at the USDP size. The main issue is that the USDP is only part of my dividend income. I also get income from my ETF holdings, etc.

How Much Do I Really Need?

I am aiming for an income of 100K or so, before taxes. To be clear, I feel like I need significantly less than that. Why? Let’s imagine that I currently make 100K of gross income. I am able to save 10K in a non-taxable account so my pre-tax income is 90K. I pay about 50% of that in taxes which takes me down to 45K. Then, I save 5K in a taxable account. So how much disposable income do I really have? About 40K. Once I reach retirement, I’ll hopefully still be growing my investments but it’s fair to say that if I made 80K pre-tax, that would be more or less equivalent of my current income. Would you agree? There are other factors to consider such as the fact that my mortgage will likely be paid off but I also expect higher tax rates.

Overall, I feel like aiming for the same level of income as I am currently making is very very reasonable and I could easily live with less but why aim lower if I’m confident I can reach that 100K?:)

Why Am I Doing This?

I’m a strong believer in working with clear objectives but also holding myself accountable so writing about these objectives will without any doubt help me reach financial independence more quickly.

Current Passive Income Flows:

3.69% – Dividend/Investing Portfolio: I am currently generating a dividend yield of about 3.50%. This portfolio will be increasing over time, especially on year end bonuses (a month from now). I use a bucket system which I will be writing more about but the main retirement components are a long term dividend portfolio (see the Ultimate Sustainable Dividend Portfolio) and an ETF portfolio (see BuildYourETFPortfolio for more details on how I build mine). I saw a slight increase here thanks to markets rising and a similar yield.

4.86% – Private Investment In My Online Company: I have discussed how my web company has been the best investment of my life so far. Currently, the company is paying back very little as it is focused on repaying debts and we are still very much focused on growth. This certainly has the potential to increase over the next few years but probably not until 2013. We have seen a lot of volatility lately in income sources as you might have read on TheFinancialBlogger but the debt repayment continues.

Total: 8.55%

It’s not spectacular by any means yet. That being said, I am 31 years and do have a decent base (I could live with less easily).. I will continue to work on getting that total as close as I can do 100%:) I do expect a significant jump in January after the bonus payments.

Passive Income Ideas

0% – Real Estate: I have started writing about adding real estate to my income flows. One aspect that I love about Real Estate Investing is how much of an inflation hedge it will represent for my portfolio.

0% – P2P Lending – This is a new idea which I will certainly discuss in the near future, one that could add some extra passive income

0% – Annuity – No intention of buying an annuity for the time being

0% – Other ideas – I could end up starting other businesses or projects will I’ll certainly keep you posted about.

What I Am Not/Will Not Include

Pensions: I do know that the government will be paying me a sum of money once I retire. However, given how poor government finances look like these days, I personally think it’s crazy to count on the government actually fulfilling its promises. It won’t happen. Yes, there will be money, but not anywhere what is currently being promised. Whatever I do end up getting will be a nice surprise.

I feel like I am being extremely conservative here. By not including my government pension and also not including the fact that lower revenues will mean less taxes to be paid, I’m overestimating the amount of passive income that is truly needed. That is more than fine by me. I’d also like to think that my house will be paid by then making my level of spending lower all things being equal.

Do you have any questions or comments? I’d love to hear any ideas or how you’ve been managing on your end as well!