Archive for June, 2013

Weekend Readings

By: ispeculatornew | Date posted: 06.14.2013 (3:00 am)

bmasc-scaaehrq1We always think of Canadians as those reasonable, conservative investors but if you look at the chart on the right, you’ll probably be as shocked as I am…! Wow! Here are a few good readings from the past few days!

General Readings

The robots are losing @ BusinessWeek
Eurozone unemplyment out of control? @ CuriousCat
Bitcoins and other bizarre investments @ HopeToProsper

Dividend & Passive Income Readings

6 dividend stock to profit from the stock squeeze @ TheDividendGuyBlog
McDonald’s: Appealing under $100 @ DividendMonk

Tech Stock Readings

Will Zynga (ZNGA) shareholders be compensated for their patience? @ SeekingAlpha
New Apple iOS is better and worse at the same time @ TheVerge

chart credit: BusinessInsider

Should The Government Force Us To Save Money?

By: ispeculatornew | Date posted: 06.13.2013 (3:00 am)

samAs I’ve discussed several times, I think it’s a bit foolish to count on government promises to fund your retirement. Most Western governments have important deficits, huge debts and will end up being unable to live up to their promises. They are slowly making some changes to things like the retirement age, tax rates and other measures. That being said, it’s not close to being enough. The fact is that in most cases, we really need to fund our own retirement.

It’s Not Rocket Science

You start early, open a savings account, start adding money into that account every month and invest that money into a clear and established strategy (ETF’s, dividend stocks, etc). It’s fairly easy to setup.

The big problem of course is that the majority of the population lacks the discipline to do it. Most would say they can’t afford to do it but if you pay yourself first, you will see that no matter what your income is, you’re able to save a certain % of your money.

It’s Not About How Much You Make

If you look at people that are forced to go bankrupt, you’ll see that some are high school dropouts with low income but you’ll also find athletes and execs that have made millions of dollars. It’s really not about having enough money.

What Else Can Be Done Then?

The Australian government decided to take action forcing all of its working citizens to save a certain % of their salary every year. I have mixed feelings about this kind of solution but it’s not a terrible idea either. The biggest problem I see is that having the government get MORE involved in my retirement sounds like a bad idea. I’d hate the government to tell me how much to save, where to invest, etc. It’s just rarely a good idea to get more intervention.

On the other hand, if I know that most Americans (and others) are not saving nearly enough, this seems like the only way to make sure that they have something saved up. Will it necessarily be enough? Of course not. But it would be a very good start. In the wake of all the recent scandals, I’m not sure adding more government involvement would maybe at some point everyone will agree that the current system simply does not work.

What are your thoughts on such an initiative?

Is Google’s ($GOOG) Waze Acquisition Smart Defense Or A Desperate Move?

By: ispeculatornew | Date posted: 06.12.2013 (3:00 am)

wazeYou might have heard that Google (GOOG) is on the verge of completing its $1.1B acquisition of Israel-based mapping company Waze. On the surface, this could be seen as a surprising move. After all, if there is one company that does not need help with its mapping software, it would be Google. Not only do Larry Page and other Google execs think they have the best mapping product available (I doubt anyone would argue that), but they also feel like no one will be able to catch up.

Apple Reinforced That Confidence

If you remember well, when Apple (AAPL) upgraded its iOS over a year ago, it was forced to come out with its own mapping software because its deal with Google was going to expire. That ended up being a disaster for Apple as the product didn’t come close to meeting expectations. Instead, it made it obvious that the only way to get good maps would be waiting on a Google app which did end up being released a few weeks later. Since then, Apple has been working extremely hard on improving its product and while everyone would probably agree that it has done just that, it’s still years behind Google’s maps.

GOOG

In Comes Waze…

Waze is a unique product in the sense that it’s a mapping product used by tens of millions of users which also has a social aspect. Users tend to add and share information about traffic, road obstacles, etc. That makes it unique and explains why Apple and even Facebook (FB) are reported to have made offers in the past few months. Apple’s offer was too low and Facebook did not want Waze to keep its Israel based HQ which ended up paving the way for a Google deal. Larry Page offered a reported $1.1B and for Waze to remain independent.

Why Is Google Making This Move?

I think it’s a very fair question to ask. The main thing that buying Waze brings is the ability to keep it out of its competitors hands. Google has a competitive advantage in maps. One that can be leveraged over and over. If I take a minute and look at Facebook’s social advantage, it’s a lot more tricky to manage. Why? Because potential competitors are coming up every few months (from Instagram, to Tumblr, Vine, etc). It becomes very expensive for Facebook to keep buying these companies. On the other hand, there are only a handful of decent mapping products and it’s very expensive and difficult to build one from scratch. Waze could have been leveraged to build better Apple maps or a more precise Facebook local. Instead, for a fairly small amount of money, Larry Page just made it even more difficult to compete with Google maps.

In my opinion, this was a brilliant move by Google. In retrospect, it’s not surprising though. Was it worth +$1B for Microsoft, Apple or Facebook to get a helpful partner in competing with Google maps? Perhaps. But it was worth much more than that for Google to keep one of the few solid mapping companies out of the hands of its competitors.

What are your thoughts on the Waze acquisition by Google?

New Trade: Long Dice Holdings ($DHX) & Short Monster Worldwide ($MWW)

By: ispeculatornew | Date posted: 06.11.2013 (3:00 am)

I usually open new trades on Monday’s but lacked time to do the research last weekend but here I am today. Before getting started, I’m going to close 2 existing trades with one being a winner and the other a losing trade. Overall, the return of my tech stock picks has improved in the last few months but it’s always volatile so for now I’ll wait and see how things end up going. As a reminder, you can see all of my 2013 tech stock picks here. Here are the 2 trades that will be closed on today’s opening:

Long TripAdvisor (TRIP) & Short Travelzoo (TZOO)

TRIP Chart

TRIP data by YCharts

Long eBay (EBAY) & Short Yahoo (YHOO)

EBAY Chart

EBAY data by YCharts

Today’s new trade is one that I’ve done several times in the past few years, with good success mostly. I trade 2 job seeking sites, Monster and Dice. The rational remains the same on the trade. Before going further here are the numbers on these two companies:

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Long Dice Holdings

I’ve generally felt like Dice has been able to focus on a few key industries and has done very well doing so. They have strong niche websites that help job seeking candidates and companies in specific sectors find each other. That has been a working formula and the growth continues to be solid on all fronts. I don’t see a ton of growth coming but it is valued at a decent P/E ratio of 13.85 (based on next year’s expected earnings).

DHX

Next earnings release: July 25

Short Monster Worldwide (MWW)

Monster has always tried to be the answer to all. It targets every industry in almost every country. That is the type of thing that companies such as AOL (AOL), Yahoo (YHOO) and IAC Interactive (IACI) have been unable to do. It’s incredibly difficult to get that done, especially when a player like LinkedIn (LNKD) seems much better positioned. Monster has seen declining earnings and very low earnings

MWW

Next earnings release: August 2nd

Disclaimer: No position on either Dice Holdings (DHX) or Monster (MWW)

How Much Do You Need To Retire?

By: ispeculatornew | Date posted: 06.10.2013 (3:00 am)

retirement-3Some time ago, I wrote about how the 4% rule applied to a dividend portfolio and that generated quite a few reactions. Many of them regarded how much was truly needed to retire, especially since I had used a $1 million retirement starting plan. I personally hope and expect to retire with more but never did I even consider that you’d need $1 million to retire. That would be wrong on so many levels.

Your Own Number

ING made a splash when it started advertising that we all should know and work towards saving “our number”. As I discussed, I do understand that there are several unknowns, especially considering numbers like inflation. Even a rather small change in that number can have massive consequences, especially on those who have retired. That being said, I believe in planning, with the best available estimates. Then, over time we can adjust that number. It’s still better to have a number and adjust it over time than not having anything.

Where To Start

Before even starting, one thing I’d say is that there are a million different ways to do this. I will not give my exact numbers but will give some estimate here:) It’s important to remember that a few changes can make a massive difference, those can include moving to a new location which I discussed earlier this month.

Salary for my wife and I: $120,000
After taxes salary: $80,000

I think the main number to look at here when trying to determine at how much I will need. The first number I’m looking for is how much I currently have every year to spend. That number is my before tax numbers. I will then take out the following expenses:

-annual savings $15,000
-mortgage (should be paid by then): $30,000
-work related expenses (work clothes, transport, etc): $5,000

So that gives me a total of $30,000 that I need to generate before taxes assuming that everything else remains the same.

It’s important to consider that my tax rate will be significantly lower considering the lower income and some of it coming from capital gains. So I could likely be ok with $50,000 or so?

There will likely be more changes:

-govt or other pension: I prefer not to count on this at all as I think that most governments will have to break many promises if they want to avoid going completely broke
-travel: I am likely to travel more once I retire, so ideally I’d have something extra saved for such expenses
-sure I might have to move to a place with a rent at some point but the extra income from selling the house should be enough to compensate

So what would be my number?

I’m sure a lot of other changes that I cannot even consider now will occur. That is why my number will change every time I recalculate but that is more than fine.

What about you? What is your number?

Weekend Readings

By: ispeculatornew | Date posted: 06.07.2013 (3:00 am)

obamaMan oh man, no matter how involved or not involved the White House is in all of this… it really looks bad. After Bengazi, the IRS and the spying on AP, now we seem to learn that the NSA is working with tech companies and phone carriers to spy on all citizens? Is the government out of control? Here are some readings that you will hopefully find interesting:)

General Readings

Should we trust economists? @ TheAtlantic
Is the NSA spying on all of us? @ WashingtonPost

Passive Income/Dividend Readings

Top Canadian dividend stocks @ TheDividendGuyBlog
Coca-Cola (KO) dividend stock analysis @ Dividend-Growth-Stocks
Pepsi (PEP) to buy Sodastream? @ Reuters

Tech Stock Readings

The power of Amazon (AMZN).. fascinating @ TechCrunch
Zynga (ZNGA) announces major layoffs @ TechCrunch
Wall Street Hates Facebook (FB) @ Wired
Apple (AAPL) getting ready for iRadio? @ Bloomberg

 

Do Amazon’s ($AMZN) Grocery Plans Make Sense?

By: ispeculatornew | Date posted: 06.06.2013 (8:00 am)

amznfreshAsk any Amazon competitor about the strategies they use and tell you that the company is a big bully. Competing with Walmart (WMT) and its low prices as one thing but when you face a company of Amazon’s size that does not seem to care about losing money for several years on certain segments, it can become very tricky to compete. Time after time, Amazon has entered areas, offering extremely low prices in order to weaken and eventually eliminate competitors. Since the company does not break down its financials much, it’s difficult to say how bad it is but there’s no doubt that Amazon is ready to lose money in order to advance its long term goals.

Already, Amazon has been a major force in getting companies such as Barnes & Nobles, Best Buy and so many others to go further down the road to bankruptcy. There are few public companies willing to take such a long term view and I’d argue that perhaps none takes it as far as Amazon. Is the company making money selling its Kindle devices? Most analysts strongly doubt it.

In Come Groceries

Amazon has been running Amazon Fresh, a grocery delivery service for a few years now and is apparently ready to start scaling to other regions in the US and abroad. On the surface, it doesn’t look like a very attractive business:

-margins are already low
-many established competitors
-keeping and delivering “fresh” food will be a challenge
-such a local service that it will require warehouses in many more locations
-will require dealing with thousands of local producers (as opposed to dealing with a few international companies)

AMZN

Of course, if you know how brilliant Jeff Bezos is, it makes sense to figure out why he could be doing it. As others have pointed out, and I’ve argued in my post about owning Amazon as a long term play, the main competitive advantage that Amazon has revolves around its warehouse, distribution and sales process which is as streamlined and efficient as you’ll find. Google and a few others are looking at competing but I just don’t see that happening. At least not anytime soon. But if Google wants to build on that advantage, it needs to make sure that more users use it more frequently. The best way of course is venturing into areas such as Groceries where scale matters, where others will not venture because the margins are too low and where consumers spend a significant amount of money every month.

Impact Of Amazon Fresh’s Expansion?

I personally don’t think there will not be much impact on earnings and revenues from this expansion but it will give us a better look into what Amazon’s long term strategy is which will be incredibly fascinating.

What do you guys think of Amazon competing for your grocery budget?

Disclaimer: No position on Amazon (AMZN)

How To Build Your Own Mini Berkshire Empire

By: ispeculatornew | Date posted: 06.05.2013 (3:00 am)

Warren BuffettEvery year, I read the annual Berkshire Hathaway shareholders letter, written by Warren Buffett. I highly recommend that anyone interested in the markets take the time read it. It’s an interesting long term perspective that we rarely see. Why would someone want to build a mini-Berkshire? I guess having a fund that grows steadily over time, that outperforms stock indexes such as the S&P500 would help me tremendously in my passive income objectives.

What I Do Not Want From My Mini Berkshire

Two main things that I would not look to replicate:

Having shareholders: Buffett and Berkshire have shareholders that they invest for and while using other people’s money is a great way to get bigger, it’s not something I’d look to do at this point.

Paying Dividends: While Berkshire does not pay out dividends to shareholders, I do expect to depend on income from my investment fund at some point and would thus need to rely on some income at a certain point.

Similarities Between My Mini-Berkshire And The “Real” Thing

Positive cash flow: Berkshire gets very important cash flows from its insurance businesses that generate cash flows. I would also build a strong foundation on the back of income generating assets such as dividend stocks, ETF’s, real estate, etc. This would enable me to reinvest money, but also remain cash flow positive even when I end up living off of the portfolio.

Hold Cash: One of the unique aspects of Berkshire is how much cash it holds at all times. This can be a drag on returns but it also makes it possible to get good opportunities when there is panic. Buffett has frequently been buying big assets when everyone else was trying to get out, jumping in at very good prices. Having a lot of cash opens up opportunities and makes it possible to be more flexible.

Buy Based On Fundamentals: You might say that most of Berkshire’s investments are boring and it’d tough to argue. I do like buying companies that I understand and that I can get a good feeling on the valuation I’m paying and what I’m actually buying.

Investing in sound businesses rather than go bargain hunting: One mistake that Buffett has said he makes is when he goes bargain hunting. Buying great businesses at good prices is good. But buying average businesses at below-market prices is bad. I’m not interested in buying such businesses. As I’ve discussed in the past, it’s very difficult to try catching a falling knife.

Needs to outlive me: I don’t think many doubt that Berkshire will outlive Buffett. I certainly plan on having my mini-Berkshire also outlive me. Hopefully, it can give my kids a good start in life

The more I think about this, the better building this type of fund makes sense to me.  What about you?

Top 100 Dividend Stocks – June 2013 Edition

By: ispeculatornew | Date posted: 06.04.2013 (3:00 am)

56Dividend investing is a huge part of my investment strategy. As I’ve mentioned in my now monthly passive income updates, receiving dividend income from my both my Ultimate Sustainable Dividend portfolio and my ETF portfolio is a primary driver of how my retirement will be like a few decades from now:)

Today I’m looking at the top S&P500 dividend stocks. Why? It remains much easier and less risky to go for bigger cap stocks that have more history.

Find Out More

In the next few days, I’ll be doing some research on some of these names. As you can probably tell, most of the top names here are paying much more than they can afford. I typically stay away from such stocks which means Pepco Holdings (POM), Lorillard inc (LO) and Garmin (GRMN) in particular. You can join our free mailing list if you’d like more thoughts on those names.

In the meantime, here is the list!

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What Is A Good P/E Ratio?

By: ispeculatornew | Date posted: 06.03.2013 (3:00 am)

peratio220No new tech stock picks today, my 7 current trades are all filled up. Instead, I wanted to tackle one of the questions that I get over and over. Here is one example but there are several more:

“How about P/E ratio? I was always under the impression 18 was the limit. Then my broker told me not for utility stock it is lower – 14. Another article recently “Don’t Be Afriad of High P/E’s”

As I’ve said several times already, P/E ratio is one of the things that I pay the most attention to when I invest in stocks. It’s not a perfect metric by any means. There are cases where the number doesn’t work such as companies that are losing money or if a company had non-recurring items such as AOL’s patent sale which can “screw up” the earnings and thus the P/E ratio. That being said, it’s probably what I use the most when I feel like the number is reliable. Why? Because it gives me a comparable metric to use between stocks.

There Is No “Good” P/E

I do understand why some investors stay away from high P/E ratios such as Amazon. Those companies typically carry more risk. There is a reason though why investors are willing to pay a higher P/E.

It’s All About Growth

I typically look at growth in sales/revenues and earnings. The reason of course is that you typically will pay more for a company that can grow faster.  Why? Let’s imagine a company named Microsoft (MSFT) which currently trades at a P/E of 18 and Google which trades at a P/E of 26. To make things easier, let’s imagine they both made $1 of earnings.

So Microsoft would be trading at $18 and Google at $26. Which one would you prefer buying? Clearly, Microsoft is cheaper to buy for the same earnings. But what if Microsoft is growing at 10% while Google is growing at 20%… ?

One year from now. Microsoft would be making $1.10 and Google $1.20.  Suddenly, the “forward P/E” for Microsoft would be 16.4 and Google 21.7.. much closer right? If you keep the same growth for 3 more years and they’d be trading at basically the same “forward P/E”. So if I anticipate Google can keep up that growth advantage for 4 years, I’ll go for Google without a doubt.

Every time I do such a trade, I try to look at past growth and make projections as well as evaluate the probability that growth will keep up, accelerate or decline.

PEGThere Is No Answer

I could not tell you if I prefer high P/E ratio stocks or lower ones. It all depends on the level of growth I expect in the future. I’d recommend that you do the same. Many try to use the PEG ratio or P/E ratio to growth which can work. I prefer to do my own analysis because the growth used in the PEG ratio is also very easy to debate.

Do You Use The P/E Ratio? If so, how do you compare different P/E ratios?