Intelligent Speculator

Financial Ramblings

IS — Sat, 07 Nov 2009 13:10:21 +0000

Wow..fall is coming to an end, I sure don’t miss the cold winter mornings when going outside is probably the toughest way to wake up. But that is what’s coming in a few weeks, better get ready right? It was another interesting week with more volatility, here are some of the more interesting readings I enjoyed last week:

Primerica 100M IPO @ TheFinancialBlogger
BlueNile reported more impressive earnings @ ZachStocks
Shares slump on US employment data @ BBC
Buying stocks on margin@ FourPillars
5 good financial habits in your twenties @ MoneyUnder30
Returns of the top 10 Canadian Equity Funds @ CanadianCapitalist
Gold moves to 1100$ @ WSJ
When Money doesn’t matter @ MillionDollarJourney
Personal Finance and the NYC marathon @ FreeFromBroke
Are you preparing your portfolio for the worst? @ GatherLittlebyLittle

New trade: Long Baidu(BIDU)/Short Amazon(AMZN)

IS — Fri, 06 Nov 2009 11:00:02 +0000

It was only a few weeks ago that I did a successful trade on Baidu, being short the Chinese search engine. As I had said, I believed the stock had moved up significantly and there was little downside. But now, only days later, I’m already back being a Baidu believer (why shouldn’t I, it has helped me a lot in the yearly stock competition) in a new trade that should be very interesting.

Amazon and Baidu trade at almost exactly the same P/E ratios and I do hesitate going short a stock like Amazon that has so much momentum but it has went up so much in 2009 and it will face increased competition on products such as the Kindle (rumors of the upcomming Apple tablet are getting louder). As well, Amazon will probably face pressure from a lot of different areas that will result in lower prices and lower profit margins. The fact is that both “traditional” merchants such as Barnes and Nobles and newer companies like Apple and Google will be competing with Amazon as books and magazines head to the digital form.

Amazon is a company that I believe in fundamentally and its recent purchase of Zappos was one more reson to be a long term bull. But the fact is that Baidu has been growing a lot faster than Amazon, it still has so much space for improvement both in terms of monetization and traffic as it continues to dominate the very attractive Chinese search market.

The major point here is that while both companies do show growth, they do not really compare. In the past year, Amazon’s revenues have improved almost 30% which is very impressive but still far from Baidu’s revenues that have grown about 40%. There is just so much potential for Baidu and little competition when you consider that its market is growing fast and that even Google has been unable to gain much market share from its Chinese competitor.

Baidu did slip when it announced its earnings because of diminished expectations for the next year, especially compared with expectations. But I honestly believe that things still look very bright for Baidu, especially when you consider that its valuation is almost identical to that of its much more mature Amazon competitor.

Disclaimer: No return is guaranteed and each recommendation should be considered within the investor’s individual situation. As with any financial investment, there are risks involved.

Hedged ETF’s..good or bad?

IS — Wed, 04 Nov 2009 11:00:44 +0000

No matter where you live, you will probably want to consider investing abroad. Wherever you live, it is just one country and there have been numerous studies about diversification that proved its benefits. Some might argue the theory but in general, most agree that at least some diversification is useful. Living in Canada, I am in a country which includes not even 5% of the world’s stock market value. It would be foolish to buy only Canadian stocks in my opinion.

So here comes the big question. Suppose a Canadian would like to invest in the broad US equity market, what is the best way? Of course, I will suggest using ETF’s. But there are two main choices if investing in the S&P500, the main stock index in the US.

1-Buy an ETF such as IVV ($USD that tracks the S&P500)
2-Buy an ETF such as XSP (IVV hedged to CAD$)

There are of course many questions to be asked when asking you this question:

-Why are you getting this position?

If the reason is to get exposure to the US equity markets, then I would say that you generally are looking for a hedged return. That is, if the US markets goes up 10% but the US dollar loses 10%, would you expect to make about 0% or about 10%? Of course, the opposite may be true as well. It is important to know what kind of exposure you are looking for. Generally, I have been more interested in gaining exposure to the market than actually gaining both currency and market exposures, but both are possibilities.

-If you want a currency hedged position, which is best?

In this case, you have two options

#1-Buy XSP and become automatically currency hedged. This solution is a bit more expensive as there is an additional layer of fees involved (although usually it is rather small, in this case, .24%.

#2-Buy IVV and hedge currency exposure yourself: I think this can become attractive if you have a reasonable large position. Why? Because hedging currencies is not as straightforward as you might think. You would need to either trade Forex directly (more on that very soon) or trade a currency ETF (in this case FXC would be a good solution, it tracks the Cad dollar almost perfectly). But no matter how you hedge, your hedge will likely never be perfect. And depending on how often you trade, you will end up paying more or less than the actual hedging fees charged by XSP.

-So which should I do?

I think it’s defendable to do both, and that flexibility is one of the reasons why I like ETF’s so much. The point is that you must know what you are looking for. I think the US$ is currently very volatile and could easily head in either direction. Since the size of my position is currently very small, I doubt trading Forex for hedging purposes makes much sense. Because of that, I personally prefer going for the market right now, investing in XSP.

Festival of Stocks - Investor Type Edition

IS — Mon, 02 Nov 2009 11:00:31 +0000

Welcome to the Festival of Stocks!

If you are a new reader to Intelligent Speculator, you might want to read a few of our best posts:

- 4 stock picks that made 70% in 2009

- 10 reasons why ETFs are superior to mutual funds

- 6 things to look at before buying ETFs

- Leveraged ETFs… scam of the century?

And if you would like to find out how participate in future editions of this festival, go here!

If you read my blog, chances are that you like talking about investments. Most of us have an investment portfolio but we rarely manage them in the same ways. Active investors have different perceptions of the very same news and will trade accordingly. So before you share investment picks with someone else, you should ask which kind of investor he is:

Momentum Trader aka The Gambler

The momentum trader manages his investments like I help my daughter in her swing: they push when they think it’s good timing and pull back before the market crashes. They think they have that special 6^th sense to know when the market is “high” and when the market is “down”. The problem is that the market is a psychopath… so tell me how you can predict a psychopath?

DR presents Best Discount Brokers for Online Stock Trades and Option Trading posted at The Dough Roller.

MBB presents Net Worth, Stock Loss, and New Home Update posted at Money Blue Book Blog.

MBB presents Discount Brokerages For Cheap Stock Trades posted at Money Blue Book Blog.

The Smarter Wallet presents Stock Mutual Funds: Building Your First Investment Portfolio posted at The Smarter Wallet.

The Day Trader aka The Technician

Day traders are stock market cracks sticking to their 5 trading screens like flies on sh…… They really don’t want to miss anything as any tidbit of information is crucial. Volume, trends, moving average, big news… they look at everything and use their system to draw patterns. If their analysis is right, they may make a killing from their technique. However, this requires passion and a lot of time in order to be successful. I don’t have the patience (nor talent!) to track 5 screens of minutia 8 hours on a daily basis!

Silicon Valley Blogger presents Use A Stock Screener To Find Stocks To Buy (Morningstar Demo) posted at The Digerati Life.

Manshu presents What is an ETF? posted at OneMint.

AlexG presents Jim Rogers Talks Gold | All Things Jim Rogers posted at All Things Jim Rogers.

Soo-Young presents How To Choose An Online Stock Broker posted at Bullishness.com.

The Short Seller aka The Pessimist Gambler

These traders expect stocks to crash and sell them short. This is how Timothy Sykes made most of his money. Many short sellers have been accused by Wall Street of pushing the stock markets down the stairs back in September 2008. As the world was about to collapse, short sellers were looking to buy their new Bmer with the profit earned from their short sales of Citibank, AIG and others. As in the case of the momentum trader, the short seller is a gambler and bets on bad news to make money on market swings.

Matt_SF presents Some Tech Bubble Stocks Finally Breaking Even after a 10 Year Wait posted at Steadfast Finances.

The Financial Blogger presents The Financial Blogger » Blog Archive » Canadian ETFs That Pays Dividends – Am I in Heaven? posted at The Financial Blogger.

Steve Alexander presents Face-off: Pharmaceutical Distributors posted at MagicDiligence - The Best Magic Formula Stocks.

The Stock Picker aka The Professional

While he thinks and acts like a Pro, it doesn’t mean that the stock picker is one. He usually has reasons why he buys stocks based on fundamental analysis. He might have spent 20 minutes or 5 hours analysing reports…. In the end, he is convinced of his choice. He follows each of his stocks closely and will trade them upon certain homemade rules such as gain/loss target, sector swings, fundamental changes, etc. While he can make a lot of money, he will only perform well if his analysis method is accuraate!

D4L presents Abbott Laboratories (ABT) Dividend Stock Analysis posted at Dividends Value.

Mike Piper presents Review: Scottrade IRA posted at The Oblivious Investor.

Super Saver presents Dow 10,000 3.0 - What’s Next? posted at My Wealth Builder.

Nesher presents Mutual Fund Strategies: How to Minimize the Risk posted at Internet Stock Trading for Beginners.

The Buy and Hold aka The Warren Buffett

The famous buy and hold strategy is not too popular these days. Several articles have been written on the fact that buy and hold investors had left a lot of profit on the table when it was time to cash in their profits. I personally think it is still a good strategy but one must consider selling his holdings and not fall in love with them

Tom @ Canadina Finance Blog presents Book Review – Stocks For The Long Run | The Canadian Finance Blog posted at The Canadian Finance Blog.

Darwin presents 3 Low-Cost Option Strategies for Stock Market Speculation posted at Darwin’s Finance.

Albie presents Many ideas to sort out your financial life (Updated 22/10) posted at iDevelopWorld.

Diane Steward presents The Definitive Gold ETF Guide posted at ETF Database.

jim presents 50 Fun Facts About The Stock Market on Blueprint for Financial Prosperity posted at Blueprint for Financial Prosperity.

The Contrarian Investor aka The Rebel

The contrarian investor bases his trading strategy on the opposite of the market. While everyone is looking to buy, he looks the other way. It is actually one of the most logical things to do when you are close to stock market peaks and at the bottom of a drop. Someone who was buying stocks during fall 08 is probably laughing right now… oh wait, this is what I told most of my clients… they are showing double digit returns since then.

I hope you have enjoyed the Festival!

image source: steve cherrier, adam foster,

Financial Ramblings

IS — Sat, 31 Oct 2009 17:41:45 +0000

Wow, spectacular week of action as we saw volatility not seen since about one year ago when the whole financial system was on the verge of collapse! Here are some of the best readings I enjoyed this week:)

-EBay to begin a new advertising campaign @ WSJ
-You are not going to stay as a financial planner are you? @ TheFinancialBlogger
-Good analysis of the state of the S&P500 @ MyTradersJournal
-Cost of a future university degree: 92,369$ @ CanadianCapitalist
-A dozen or so ways to earn extra income @ GatherLittlebyLittle
-9 more banks being seized! @ Reuters
-5 reasons why RIM is a buy @ BuyMyStockPicks
-80$ oil is not justified @ TheStreet
-ING gets to make a profit @ Advantage US

A new way to protect against inflation? Who cares..?

IS — Fri, 30 Oct 2009 11:00:46 +0000

On this blog, as well as on many others, inflation has became an important topic of discussions fears of inflation become more mainstream, especially because of the massive expansion of monetary supplies that were injected by the Fed in the past year. Ironically of course, many argue that the biggest fear is deflation. Today was a good inflation reminder as Norway became the first European country to raise interest rates in an effort to fight inflation. The problem of course is that many think the US will not be able to do such a move because its economy is too fragile. This would create an inflation friendly environment.

In any case, it is no surprise to see that a new ETF has just been launched whose mission to provide a solid “real return”, 2-3% above inflation. Of course, while inflation sits at current levels, the expected return does sound very low. But in a scenario where inflation could rise to 10% or more, such an ETF would provide solid protection.

The new ETF’s ticker is CPI, a convenient name given the fact that the CPI (Consumer Price Index) is the most known statistic that indicates inflation. It measures the cost of life. It does so by holding a variety of assets such as short term bonds, commodities and some currencies.

The idea can be good of course. But as I had said when I was discussing “Target Date Funds“, I don’t think it’s usually a good idea to buy “ETF’s of ETF’s“, because you do end up paying for an additional layer of fees while you could easily do it yourself. While I have never personally lived through a period of massive inflation, I doubt it is suitable for most investors to start allocating important portions of their portfolio to protect against inflation. It is not an overnight phenomenon and I would think that if it does become a problem, we will have time to reallocate our portfolios in consequence.

So no, I will not be buying any CPI, at least not as a long term investment. And given all of the fees involved, probably not as a short term investment either. It does have .48% of fees, but you must add to that the fees included in the underlying ETF’s, which could end up costing you close to 1% as constituents change… If you want to pay 1% of fees annually, buy a mutual fund:)

On a more serious note, having different type of assets (equities, commodities, and bonds) is a good idea to generate more solid inflation protection. While gold for example has generally been a good inflation hedge, it has not always been the case so the idea behind this ETF isn’t bad. But that is not enough to make me a buyer of CPI.

Do you plan on trying out this ETF? Don’t get me wrong, I love ETF’s, but I certainly do not think all ETF’s are good ideas, especially when considering each investor. I would much prefer slowly tilting my portfolio to become more “inflation resistant”

Valueclick (VCLK) beats estimates..through cost cutting

IS — Wed, 28 Oct 2009 11:00:10 +0000

One of the companies that we have been following in the tech space has been Valueclick (VCLK), which provides online advertising solutions through various forms. The company has been active for a long time and is one of the dot com bust survivors. The company had made some great moves as it had secured funding during those great years but while others wasted their funds, Valueclick hung out to the funds.

It later was able to use those funds to buy several high growth and high valued properties such as Fastclick and Linkshare. But still, Valueclick has not been able to generate organic growth and its technology seems to have fallen behind competitors such as Google and thus growth has stalled.

So it is no surprise to see Valueclick come in with negative growth in today’s earnings report. The actual profits turned out to be better than estimated at .29$ per share while estimates were for only .14$. However, revenue ended up declining almost 13%, even worse than IAC Interactive’s report. No doubt, the context is difficult for all media companies that depend on advertising. But the industry leaders have been able to hold their ground. Valueclick issued guidance of 128-138$ millions revenue for the next quarter which indicates there is a distinct possibility that revenue could go down again, even in the upcoming fourth quarter, the biggest quarter for online advertisers with the black Friday as well as the holidays. This should be seen as a negative for the company.

The company discussed how it viewed overseas markets as an opportunity for growth and that may very well be but since they do admit that 85% of their revenues come from the US market, it would be surprising to see the company be able to turn it around on those markets alone.

To see Valueclick actually beat earnings thanks to cost cutting is actually a perfect opportunity to possibly go short on this stock. I guess it will depend how others judge this performance in how the stock performs in the next few days. From what I can see, even the revenue results are over estimates which could indicate a nice rise in the stock tomorrow.

The one thing I am always worried about when thinking about shorting Valueclick is the fact that it does remain an interesting acquisition target, especially at these low prices. Its technology is not as impressive as it was with competition catching up and more, but there is still a lot of value remaining in the company that could make it a potential target.

Quick trade news

IS — Tue, 27 Oct 2009 21:52:02 +0000

The Microsoft (MSFT) -Baidu (BDIU) trade that was initiated yesterday has already proved profitable as the earnings from Baidu came in much lower than anticipated which resulted in a loss of over 12% in today’s trading alone. Add to that the decent performance of Microsoft and I am already happy to report that it is time to close out this trade, as it currently stands at +20,37%. I will do so tomorrow morning and report prices as well as the final performance on the trade.

Another good earnings report came out for me as IAC Interactive (which I am short against Google) released earnings that did beat estimates in terms of earnings but also had a 9% decline in revenue, another clear sign that the company is not doing too well. Cutting costs will only get you so far, especially in the tech area. This is also good news because so many estimates focus on earnings that it might provide more opportunities.

Other trades have not moved much since Sunday’s report….!

Long Microsoft(MSFT) - Short Baidu(BIDU)

IS — Mon, 26 Oct 2009 11:00:18 +0000

While I am long Baidu in my 4 picks for 2009 and still ok being so (cannot change those picks anyway), the valuation for Baidu is becomming very extreme with the stock up over 300% so far this year. It now trades at 435$, at 86 times earnings!! Because of that, I feel like it is a good time to go short on Baidu going against Microsoft. The company started by Bill Gates is gaining momentum with Bing and even seems to have Google on a defensive position, something we have not seen in a long time.

For those who had not read, we had a series of article about Microsoft:

Part #1
Part #2
Part #3
Part #4
Part #5
Part #6

Bing is still slowly but surely gaining market share:

Last week’s announcement of a deal between Bing and Twitter generated some panic at Google headquarters and the piles of cash that Microsoft is throwing at search is starting to show results. Baidu off course is another reason why Google executives are getting frustrated as they continue to show very strong results in China.

Financial Ramblings

IS — Sat, 24 Oct 2009 11:00:32 +0000

Good morning everyone! It was an interesting week in the markets with volatility picking back up, markets ending the week with 2 drops and oil back at 80$… bring back some memories? There continues to be a fairly large group that believes we are headed back for a major stock market drop..I’m not part of that group but the next week should be very interesting. In the meantime, here are some of the more interesting readings I enjoyed this week:

-TFB discusses the pros and cons of locking a fixed rate on your mortage. I don’t necessarily agree with the conclusion but it’s worth reading, you can give your thoughts.
-MDJ discusses why most financial planners do not plan finances!
-MTJ is selling some EEM puts, should make for an interesting trade:)
-Wondering how a good credit score can help you save money? No Longer:)
-Is oil being back up at 80$ a signal of upcoming inflation?
-Should you take that call even without knowing who is calling?
-5 ways to make sure you do not lose everything to the next Bernid Madoff
-Is Calpers too big too fail??

You might also want to check out this Carnival:

Carnival of Pecuniary Delights #29 Money and Songs Edition
Carnival of Money Stories
Festival of frugality