Category Archives: Stocks

Why I Bought Some Facebook Shares

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Yep, that’s right I finally broke down last month (in December) and bought some shares of Facebook.

Previously, I wrote an article called (Why I Passed On The Facebook IPO) where I described why I decided to skip purchasing shares of Facebook during the IPO of the company.  History proved that skipping out on the IPO was pretty spot on, but times have changed!

My goal was to buy some shares once the stock price dipped below $20 a share (which it did), but unfortunately money was tight at that time.  Even in December, I only bought a little over $1,500 worth of the company (at a price of $27.50 per share).  I’m late to the game, but hopefully early enough to catch a larger wave that will still push the valuation of the stock up much further.

Why I bought Facebook shares, even though I don’t use Facebook much.

  1. Mark Zuckerberg – I think he will be like a Steve Jobs, but not quite as a powerful presenter, yet.  The idea here is that he’s proven and has incredible drive and intelligence.  I think he’ll make it exciting for Facebook shareholders.  I wouldn’t be surprised if he doesn’t try to be the next Bill Gates.  Either up or down, it’ll be an exciting ride.
  2. Untapped Monetization Potential – They have over a billion subscribers.  And even if only half are active, they have all that data on them that could be a gold mine for selling to companies (if they went evil).  Could you imagine how much the sales team of other companies that sell products would pay for such information?  Instead of a 1 to 5% success rate for a company using cold calling, their success rate might be in the 20 to 50% range.  Not to mention that all of the email addresses of all the Facebook members could sold (and by product interest probability to boot).  They eyes in the Facebook website is only half the story, the data warehouse of information on each user in Facebook is a data miner’s dream come true.  Both the the previous options are just the tip of the iceberg.  Most likely they won’t even pursue those option, because of the direct Advertising models they could implement.  I’m not even being creative here, the possibilities are far reaching.  Shoot, they could change the sales landscape with just a little bit of effort (watch out Amazon)!
  3. Momentum – All of the cool financial analysts and advisers are now on recommending Facebook…  Perception is reality.  Even if there revenue for the up and coming quarter is flat (which I doubt it will be), the analysts know the potential that the company has and I think they wouldn’t let mediocre numbers affect their rating of the stock (and company).
  4. Facebook is young – This platform can continue to grow.  It’s a single platform but multifaceted!  It’s a social engine, but the code base is something that can continue to grow larger and more useful over time.  I think once the Facebook teams realizes that instead of trying to make the product harder, it could really take off.  Some point in the future, they will have to realize that the audience that they are coding for aren’t themselves and needs to be written so that the average user can use the product without getting a headache.  But what do you expect from a new, young software company?  Eventually they will see the light and make Facebook user friendly, after all they have to be bright people right?

Here is my free advice to Mark and the Facebook team, do I expect them to read this… of course not lol.

Make the site more friendly for the average person or the LCD (lowest common denominator).  If you want more complex interfaces, give the users the option of alternative interfaces so you keep all of your users interested and engaged (no Henry Ford color options in these times).  Your site no longer appeals to the normal male audience (or at least the ones in my backyard), you need to think about that segment of the population and how to re-engage them, while at the same time keeping the female population interested.  Again, this is where the different front-end interfaces options might come into play.

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Anyway, just thought I’d share my thoughts.  What do you think, is the Facebook stock now a good investment?

Best,

Don

Mutual Funds Versus Stocks – Why I Choose Stocks

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Here is a shocking truth…  I don’t own any mutual funds in my regular brokerage accounts or Roth IRA anymore.  In fact, I wouldn’t own any mutual funds if it were for the fact that my employer’s 401k only has mutual funds as investment options.

Now you might think that I’m crazy, but surprisingly I’m not.  You see, mutual funds are too expensive of an option for me to own.  You don’t think so, then let me point out the ways in which mutual funds are expensive.

Let’s say that you have 10 thousand dollars and you want to invest it all in the financial markets, here’s how mutual funds versus stocks compare:

It’s free to put the money in a mutual fund, but each year the mutual fund charges operating expenses of 1% on the balance held within the mutual fund.  So if I bought 1 stock with the 10k, the transaction cost me around $10 and nothing at the end of the year.  With a mutual fund it initially cost me $0, but $100 at the end of the year.  Every year after the initial purchase my stock purchase cost me nil, but the mutual fund will cost me $100 each and every year that I own it!  TELL ME THAT’S NOT EXPENSIVE!  In some ways, buying individual stocks is a very frugal approach to investing.

Now let’s jump forward 10 years after investing 10k each and every year.  Not considering stock appreciation, your balance would be 100k.  At 100k, if you do nothing with the stock purchase it still cost you nothing per year, but the mutual fund is now charging you 1 thousand dollars a year!

Another financially hurtful thing with mutual funds is when the balance of the mutual fund is down, and year-end comes rolling around, the mutual fund company still takes their operating fees out of the balance.  To me this is like rubbing salt into an open wound, or kicking a guy when he’s already down.  The fund manager lost me money AND is still charging my for that loss.  nice…

I remember in the past a few bloggers that were college professors reprimanded me in the comment sections for not investing in mutual funds, but quite frankly, I’ve done much better in my regular brokerage account than my 401k.  So while I contribute less money to my regular brokerage account than my 401k, it has dramatically been rising in value and threatens to catchup to my 401k balance in 10 years or less.  Obviously, I’m happy with my non-401k balances catching up to my 401k balance, but I have to wonder about how great of an investment mutual funds and 401k that only invest in mutual funds really are?  One could advanced the idea (or is it really a fact) that the big winners with mutual funds and 401ks are the financial institution that provide such financial instruments.

As I was mentioned above that I was (gently) reprimanded, but perhaps people without experience shouldn’t do so without experimenting first?  Just because you repeat things that other people write about in a book, in front of college class, doesn’t mean that you know it all!  Or maybe I’m the exception to the rule and perhaps their route is best for the masses?  After all, I did pay off my house in about 10 years, and that kind of make me an odd duck.  Did I mention that by paying off my house early I was able to “not” pay 100k in interest to the banks.  What was I thinking… lol.

Perhaps if you are already rich it doesn’t matter.  Unfortunately I’m not so I have to go the frugal route and purchase my own individual stocks, etc.

So in conclusion, if you do the homework, stocks are a much more frugal and possible financially rewarding approach to investing.  If you are new to the game, and don’t feel comfortable doing it yourself, then don’t.  I personally have read tons of investment books and have an innate understanding of the stock market behavior and I understand the financial aspects that make a company “undervalued” so good, investment.

Bests,

Don

Why I Passed On The Facebook IPO

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Facebook is an incredible “Cinderella” like story!

They are managed by very young, intelligent people who can change direction quickly, considering their size.  I have two Facebook accounts (one personal and one for “Money Reasons”), so even while I use their service, I didn’t buy their IPO.

I have some friends that rushed in to buy the Facebook IPO (ticker symbol: FB), but I didn’t and here’s why…

  1. I figured the quick change in their interface will start to ween users off of the platform.  There is an old saying KISS – “Keep it stupid simple” (actually it’s “keep it simple stupid”, but I like the phrase “stupid simple” better because I think it’s more logical).  I think Facebook lost some participation on the site because of the change, and more importantly the fear of dramatic, complex, future changes.  The interface was simple and made sense previously, but now is a nightmare (especially for the non-tech crowd).
  2. Too many people valued it too highly, the market capitalization was at a nose-bleed valuation.  Based on the sharp declines of comparable online companies like Zynga and Groupon, why pay a premium for an internet site stock’s IPO?
  3. FB really doesn’t have that great of a moat around their business.  By moat I mean another business might come along with a better simple interface and steal facebooks thunder!  Before Facebook it was Microsoft’s MySpace.  But more importantly, I realized that if Apple decided to get into FB’s sandbox, Facebook is going to lose all the cool, hip kids…
  4. Facebook seems to be limiting its market segment to primarily females.  But the fact that they are changing their interface so quickly, many busy females and SAHMs don’t have the time to continually learn the new interface.  Hell, I’m a techie and I don’t want to learn the new interface…
  5. It’s a bad time to buy with the European crisis and the sideways movement of the stock market in the US.  Why buy when everything is sinking, all boats sink while the tide is going out.
  6. Facebook’s growth rate is slowing.  Unless the Martians start to sign up, it’s not going to improve.  While some point to China, I don’t think China will let Facebook complete…  Look at Google as an example for a reason not to believe in Facebook taking off in China.

So as you can see from my reasons, most of my basis is based on non-financial reasons.  That said, Facebook still might be a good investment if the stock get’s low enough…  They have an incredible team with a lot of potential.  I’m not sure of the price that FB would have to get at before I jump in and buy some shares, but I’m pretty sure it would have to drop below $20 a share.

I’ll be watching on the sidelines as the stock valuation plays out.

MR

Disclaimer:  Obviously I don’t own Facebook. nor do I intend to buy any in the next 72 hours.

Does The Lack of The Uptick Rule Make It Easier To Take Advantage Of Regular Investors?

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With the computerization of trades, and computer algorithms and code created to make trades on the market automatically, I really think that it’s easier to take advantage of regular investors.

Take Herbalife, for example…  When the famous hedge fund titan David Einhorn just questions some statements in Herbalife’s quarterly report, this served as a sell signal for all of the other shorts out there (including Bill Ackman), and they caused the stock to drop over 15%!  It continued to slide from that point much lower.

With the Uptick Rule, such a quick devaluation of the stock would not have happened so dramatically.  It’s obvious that once Mr. Einhorn expressed his concern, all of the other hedge fund manager flooded the market, with selling moves on that stock, this caused it to drop like a stone on really no news at all.  Oh sure, the hedge fund managers didn’t meet the week before and cook up this plan (or did they?), but once Mr. Einhorm expressed his views, it pretty much served as a massive sell signal to all of the other hedge fund managers out there.

To me, this is kind of a predatory approach to the stock market that many hurts us non-hedge fund individuals.  On the other hand, if the “Uptick Rule” was back in place, it would have dramatically change the outcome of that day.  You see, many of the hedge funds make great profits in volatility!  The Uptick Rule lessened that volatility big time!

There is a movement against the top 1%, but I say they should focus their attention towards the hedge fund companies and managers!  They are one of the largest creators of inequality that I’ve seen lately, especially with the complete computerization of the stock markets…  Let’s focus on the panic creators in society that make wounds deeper than the need to be.  After all,  to attack the top 1% seems harsh… after all, who really wants to protest either Warren Buffett or Bill Gates?

What is the government going to re-enact the “Uptick Rule”?  This is something that is making the rich richer, and the middle and poor classes poorer.  If not the “Uptick Rule”, then how about something to reign in the hedge funds companies, who’s practices seem a bit unethical and counterproductive to the entire purpose of the stock market…

What do you think?  Am I off base or wouldn’t it be nice to make the stock market a fair place again?  A place where you invest in a company because you want to own that company, not take advantage of the regular investors!

MR