My Notes on the Stock Market

Blackberry Playbook 2.0 Review: Ugly Duckling to Swan

2012-03-03T09:59:00.001-05:00

Blackberry released Playbook 2.0 in February 2012, some 10 months after its initial launch. Playbook 2.0 marks a decisive internal achievement for the company. RIM was not in a position to release another Storm device. QNX 2 is also the framework for Blackberry 10, so all work would eventually form the basis for its next-generation device.

Playbook 1.08 was Blackberry's ugly duckling of devices. While it was usable and functional, other users found it clumsy, difficult to pair with blackberry phones (initially), and included applications like Office and Adobe Acrobat reader basic.

In the time between the initial launch and the re-release, the tablet landscape changed in so many ways. HP's WebOS tablet was released, then discontinued 6 weeks later and sold at a fire sale price of $99. Amazon's Kindle Fire re-defined the baseline price for tablets at $199. Finally, Apple iPad 2 continued to be the tablet market.

Playbook 2.0 now costs $199, but is comparatively less expensive to own than Amazon's Kindle Fire and is more functional. Front/back cameras, memory, storage, app world, and productivity applications are only a few of the things that are included with 2.0.

Playbook 2.0 is a modest but complete evolution from version 1. Within its new price-range, the device is a “swan” compared to what it was before. At the top of the strong points for Playbook are pricing and portability. Functionality is strongest for web browsing, watching videos, and corresponding by emails.
The Playbook made emailing fun again.

A welcome touch was this email signature:

Sent from my BlackBerry® PlayBook™
www.blackberry.com

Having used the device for this long, this review will be bias with praise, so the discussion will be about how to make the most from the device. This entry was made directly from the Playbook device connected to a Bluetooth keyboard.
Making $2490 from $249
Getting the Playbook on “the cloud” is very simple, and just requires a few application downloads and a bit of changes in process.
Securities analysis requires the reading of hundreds of pages of documents. SEC filings in Excel, Word, and PDF format can easily be read on the playbook. This is done in the following way:
1. Installing "BlueBox"
2. Creating an account on Dropbox to connect to the BlueBox application
3. Using the Playbook browser to download attachments and saving to the device
4. Copying the files so that it may be accessed on a desktop or any computer with Dropbox installed
5. Using the new File Manager or 'Air Browser' to transfer from the BlueBox folder to the device

Note: Air Browser is a free application download.

BlueBox:

AIR Browser:

All Work and No Play...
To celebrate the launch, Blackberry made Asphalt 6 and Modern Combat available for free. They are inexpensive ($0.99) but are excellent games.

Playbook now supports folders. Below is a screen capture (press + and - buttons to capture an image). Here are some recommended games to buy or download for the Playbook:

Playbook demonstrates that Facebook is a Glorified Birthday Reminder. Birthdays are added to the calendar. As more appointments are added in a given day, the day number on the calendar gets bigger.
Email and calendar support was added to 2.0. When linking an email account to the device, contacts and calendar appointments are synchronized to the Playbook. Users are notified by way of a glowing red at the top left of the screen, and/or a blinking red LED. The email application supports twitter direct messages (unless the account is a corporation), LinkedIn, Gmail, Hotmail, POP email, and Facebook:

Video Chat
RIM integrated video chat to social media accounts to the Playbook. Facebook contacts show up on the Video Chat contacts list. Contacts who use a Playbook may be reached by video.

Connecting Playbook to Smartphone (“Bridge”)
Linking the blackberry phone to the Playbook was a breeze. After downloading an update for the phone, Blackberry bridge pairing (Bluetooth) was effortless.

Send Blackberry Phone Attachments to Playbook
To read file attachments more effectively, or to open website URLs received on a smart phone, users may now send them to the Playbook.

Mouse and Keyboard Included
Blackberry phone users have one more reason to own a Playbook. Blackberry Bridge connection turns the smart phone into a mouse and a keyboard. The phone may now be used as an alternative to the on-screen keyboard, or as a remote control if the tablet is used for watching movies. To connect the Playbook via HDMI, a micro-HDMI (not included but costs about $5) is required.

Playbook Spell Check and SwiftKey Keyboard
Playbook 1.0 did not have a fully functional spell-check. Typos would be identified but the correct spelling was not offered. In 2.0, the predictive text integrates well with spell-checking:

Docs to Go, Print To Go, and Android Applications
The included Docs to Go application is improved. Word count and bookmarks are two improvements in the Word program. "Print To Go" is a new application that enables users to send print documents from desktops to the Playbook. Note that this only works if the Playbook and the desktop are connected to the same network.
To help developers port Android application to the Playbook, RIM added support for Android. Consumers are confused in thinking Android applications are directly supported on the Playbook. This is not true. The Android-based application must be approved by RIM and then posted to App World.

Final Thoughts
At the current price point, Playbook 2.0 will likely sell better than anyone expects, but it will not generate substantial profits for RIM at this time. This implies that consumers end up the winner in getting a fully-functional, portable, device that gets the job of emailing, HTML5/Flash-supported web surfing, and document management done at prices far lower than that of the iPad. Retailing at between $519 and above, Apple might lower the price of iPad2 when iPad3 is released on March 7. This would strike to be an unusual move for Apple, since Apple rarely needs to discount any of its products to maintain its competitive position.
Recall that when Playbook was originally launched, RIM and the market focused on building a device comparable to the specifications of iPad1. Apple surprised the market by releasing iPad2, making things worse for RIM. As it stands, RIM's competitive threat to Apple is quite low, although RIM managed to reach a double-digit market share for tablets in Canada by December 2011.

The competitive positioning for RIM is very clear: the company must play on its own internal strength of group messaging (BBM) and the frugality of a cheaper smart phone/tablet data plan to appeal to consumers. Blackberry 7, albeit a "transition" operating system until BB10 is ready, is still a very functional device. The Torch 2 and Bold line-up have processors over 1.2GHz and whose web browsing experience is better than the older models. Even the Curve works well with the Playbook.

Two further points are worth mentioning. Marketing for RIM in North America needs to be limited and focused. Both Apple and Android dominate, so any advertising is likely to be of limited effectiveness. Where RIM shines is in countries where consumers are conscious about their monthly plan costs. With Nokia's Windows-based phones competing in the low-end, RIM must ensure consumers chose Blackberry when upgrading from a feature phone. With Playbook 2.0’s solid functionality alongside its smart phone as a companion, RIM added another reason to take choose a Blackberry.

Further Reading: click here.
@Twitter here.

1 Day: $10,000 to $170,000

2011-12-14T22:16:00.000-05:00

To illustrate the magnitude of possible returns, look no further than the options market.
An article exclusively published this Monday on seeking alpha called 1 company a sell and 5 a buy (article).

Today, First Solar warned that it would not make earnings or revenue forecasts. The market for solar energy is so dire that the company is changing its business model to adjust for the rapid decline in solar energy prices.

Had an investor purchased a December $35 Put, the return would have been a 12-fold return in a day:

Options can provide phenomenal returns, but an investor needs both bit of luck and skill in this area of investing. Most options expire worthless.

An investor needs to have an advantage over other participantsalpha.

First Solar's problems are big. Competitors were able to enter quite easily, tripling supply over the last three years. 80% of industry was subsidized. As the world now knows, government funding is constrained. The growth in supply to feed growing subsidies no longer applies.

In its conference call, the company said “The central learning from this experience is that open, transparent and uncapped markets cannot survive politically in an oversupplied industry with no entry barriers.” First Solar is now transitioning its business towards sustainable markets. This market was identified in its presentation as growing 5 to 10% per annum.

The main risk for investors is stated here:

“We believe this translates to a levelized cost of electricity, or LCOE, of $100 to $140 a megawatt hour, or $0.10 to $0.14 a kilowatt hour in most markets. As Mark will discuss, achieving these LCOE levels without subsidies will require the First Solar to reduce its manufacturing costs, increase module efficiencies, streamline operating expense and transition its business model to deliver superior returns at much lower gross margins than in the past.”

First Solar is now exposed to the regulatory and planning of the electricity market.

Uncertainty is high for investors bullish on First Solar. In that climate, risk aversion has risen, and share price will be under negative pressure.

Further reading: Crash-Proofing A $100,000 Portfolio From A European Crisis With These Companies

How To Save Your Portfolio: TradeFields

2011-11-22T21:03:00.001-05:00

Seeking for Alpha is the only way to truly differentiate oneself from the masses and the herd.

Taken from seekingalpha's web site, 'Alpha' is a finance term referring to a stock's performance relative to the market; it's used more loosely by fund managers to describe beating their index - so every stock picker is essentially "seeking alpha."

The first step of surviving the stock market is to not lose money. As easy as it sounds, anyone invested in stocks or mutual funds, for that matter, will know that "waiting it out" or holding something "for the long term" does not constitute as a strategy for protecting from losses.

Taking decisive steps, and learning by doing, goes a long way. On a stock simulator app on Facebook, tradeFields is one way to take practice steps.

In the last few weeks, my performance improved from months of "loss" to a gain of 20.10%:

Account Information
Short Balance	$3.00M
Long Balance	$355.35K
Available Cash	$8.66M
Spendable Cash	$8.66M
Account Value	$12.01M
Return:	20.10%

Holdings as of November 22 2011:

LONG POSITIONS
Company	Buy Price	Qty	Last Price	Market Value	Gain ($ \| %)
GILD	$38.29	4,865	$38.76 ($2.50)	$188.56K	$2.28K
NVDA	$14.92	8,173	$15.04 ($0.41)	$122.92K	$966.86
ORCL	$31.00	54	$29.71 ($0.20)	$1.60K	$69.91
PANL	$44.62	988	$42.75 ($1.41)	$42.23K	$1.84K
THRX	$21.04	1	$21.78 ($0.26)		$0.74
SHORT POSITIONS			Total Long:	355K
Company	Buy Price	Qty	Last Price	Market Value	Gain ($ \| %)
AAPL	$396.86	13	$375.57 ($6.56)	$5.43K	$276.79
FSLR	$42.44	29,565	$40.83 ($2.70)	$1.30M	$47.66K
GRPN	$22.71	891	$20.20 ($3.38)	$22.46K	$2.23K
LNKD	$71.88	2,891	$68.69 ($1.31)	$217.03K	$9.22K
NFLX	$70.96	2,085	$70.70 ($3.77)	$148.49K	$542.10
NVTL	$5.45	1	$3.00 ($0.14)	$7.89	$2.44
OCZ	$7.41	149,206	$6.08 ($0.15)	$1.30M	$199.14K
			Total Short:	$1.7M

The positive return was accomplished in a number of ways:

Short solar energy
Short Netflix
Short LinkedIn
Short Groupon
Long large cap technology
Long pharmaceutical and health care

For more real-time updates, follow tweets here.

How to Navigate Through This Downturn

2011-10-31T22:46:00.001-04:00

The market's massive rally last week, on the back of many weeks of positive returns, should not be used to justify a positive return in mutual funds or stocks.

A tug of war exists between a positive desire for European's financial mess to be resolved, and the reality that creating more debt to resolve a debt problem is not a viable solution in the long term.

The point is not to cry about a financial market collapse: the point of any investor is to figure out how to minimize losses while maximizing returns.

Navigating through this downturn starts with formulating a thesis about the market. Central to the thesis is that stocks will be stuck sideways. Stocks will need to be sold at once price and bought back at another. What are the results?

Using kapitall.com as a "virtualized" portfolio planning tool, most equities were sold into the rally last week. The allocation is now 73% cash and 27% stock.

The total return since inception is 31.5%.

Holdings as of October 31 2011:

For further reading on what will happen next, stock picks are exclusively published on seeking alpha. Here is a list of these articles.

iPhone "5" Launch Hands Market to Android

2011-10-05T08:39:00.003-04:00

Mobilesyrup reported that only 10% of consumers are intending to upgrade to an iPhone 4S. Consumers expected to be wowed, only to learn the update would still have a 3.5 inch screen. With Android making larger screens more appealing, the iPhone upgrade cycle will not be as strong as anticipated.

Android has 41% of the market share of smart phones. However, Apple has the largest profit share for smart phones.

About Greece Debt

2011-10-04T08:16:00.002-04:00

TradeFields Portfolio Beats Averages

2011-10-02T09:55:00.000-04:00

TradeFields finally rolled out an upgrade to its virtual investing game site. It also released an updated iPhone and iPad app. Let's hope to see the Blackberry app updated.

For a more detailed analysis on stocks picked for the model portfolio below, navigate to my seeking alpha page.

TradeFields is accessible on facebook here, or on its own website.

Is Gold/Silver a Bubble that is Popping? What $1.48M Says

2011-09-25T08:34:00.004-04:00

Gold prices fell 9% last week. Which way is gold headed? Here were two comments that worth noting.

Bear:
"Gold doesn't pay a dividend, cannot grow organically or through acquisition, doesn't have a yield, is in unlimited supply (more is being mined all the time), and for some reason it was the vaunted vehicle of financial safety. It's shiny, but even for that purpose it's out of fashion and there's simply not enough gold-chained gangsta' rappers to keep the price high. Technology doesn't even use it anymore given availability of far better and cheaper conductors. This bubble has more helium than the dot com fiasco, or the real estate mess that followed a decade later. Always funny watching the sheople herd to the next BIG one."

Bull:
"As long as government's kick the can on their deficit spending and debt problems, gold will be a viable safe haven."

Source: http://online.wsj.com/article/SB10001424053111903703604576589210888153064.html

One factor amplifying the moves in gold prices is the use of leverage. CME modified its margin requirements. "Gold margins will be raised by 21%, silver margins by 16%, and copper margins by 18%, effective at the close of trading Monday," CME said Friday, after the market closed.

Put another way, with $100,000 to speculate with, you can buy $1,481,481.48 in gold futures.

"Operation Twist"

2011-09-21T19:46:00.002-04:00

This is thestreet.com's illustration of 'Operation Twist.'

Further Reading

September Portfolio Performance: Kapitall.com

2011-09-10T10:19:00.002-04:00

Gauging market sentiment is as every as bit important as analysing fundamentals. With a "bigwig" leaving the ECB on protest over ECB's management of country debt, expected headwinds for Obama's $447B jobs proposal, and the realization that only 1/3 or so will actually create jobs, there is plenty for Mr. Market to worry about.

Despite the macro headwinds, my model portfolio on the stock game, Kapitall.com is being managed to remove most risk and to maximize safety. This was accomplished by selling into the rallies and buying deeply discounted companies.

There is $77,953.66 in cash out of the $129,093.21 balance.

Here are the holdings:

Total return: 29.1%

Notice below the losses incurred from January (~40% gain) to August (~20%) were reversed by riding out the recovery, selling into the rallies, and accumulating great companies at a great price:

What value is there in writing about a play portfolio?

One: the site's tools are used to plan out real positions.

Two: the companies held are further analyzed and discussed for publication. Here is the link to those publications:

http://seekingalpha.com/author/chris-lau/articles

To gain access to the above portfolio, login to kapitall.com (linking to your facebook profile will simplifying the login process), click on the contacts button and search for my name.

Portfolio Management: Dealing with the Market Sell-off

2011-08-08T21:57:00.000-04:00

In the coming days and weeks, there will be a plethora of posts from mainstream media "advising" investors on what to do.

Truth be told, only the most prepared investors coming into this market drop over the past few days will be those who anticipated it. Those who held on to cash and gold will not see significant paper losses.

On Kapitall.com, I run and share two virtual/practice portfolios.

What is the value of a practice portfolio? An investor can use kapitall's interface to plan investments before putting them in real portfolios.

The 100K portfolio:
Down 3.1% today vs. the 5.55% drop on the DJIA and 6.66% drop on the S&P.
Total return is 21.8% vs. ~5% return from the S&P 500.

The 10K Portfolio:

The 10K portfolio suffered devastating losses at the start of 2011, due to various Chinese RTO fraud investments. Thankfully, this lesson was learnt in the practice environment.

David Neubert, co-founder of kapitall.com was on Fox discussing today's investment environment:

http://www.q13fox.com/videobeta/d8f68da2-32ff-4820-bed0-e65de081afc8/News/David-Neubert-on-Stocks

In summary, the S&P downgrade is mostly a non-event. Recall that S&P failed to downgrade MBS securities when they were clearly not worth AAA. This is not to say that the market shift in sentiment is temporary.

It is to say that there are more serious risks to watch closely than what S&P says: the debt problem in Europe, the inflation problem in China, and the effect of U.S. debt yields dropping (with the world still treating the US as being the world's reserve currency).

$RIMM marketing: get aggressive against Apple

2011-06-21T08:18:00.001-04:00

Here's an exclusive publication on RIM: http://seekingalpha.com/article/275733-catalysts-for-a-rebound-in-research-in-motion-shares

Another marketing executive left RIM. This gives insight on how the company will approach its cost-cutting: the marketing department.

That said, a clean-house in the marketing department can mean good things for consumers if RIM gets aggressive. A user posted this comment (prior to this announcement) about what RIM can do in marketing:

But their marketing department could use a bit of an overhaul. They need to be much more in-your-face. Trade any iphone for a BB promotions. Trade any ipad for a playbook promotion. 10 free apps with every purchase, regardless of price. Max cost for new phone without plan = $200, not $600. Go for volume. Offer deals to Bell et al if they shun Apple products -- you know that's done in the states.

The major drawback from the BB OS is it doesn't feel as 'silky' as the iphone OS. The Playbook fixes this, and the ports to other phones of that OS has to happen NOW, not months from now.

And in marketing faux pas, RIM decided (wrongly) that its v6 OS would not be made available to phones before the latest Bold, crapping on all the new Tour et al owners. This is the type of mentality that has to stop.

Why $RIMM Will Not Go Away

2011-06-20T08:19:00.000-04:00

The popularity for Android and iPhone resulted in a massive decline in sales of Blackberry in North America. That, and slow operating system updates and a relatively slow refresh cycle for newer models of the device resulted in RIM's demise Friday.

RIM, however, is not dead. It will not die, as most would wish, because of three reasons.

1. Battery life is very good, provided a user does not install a "leaky" app (unlike with Android).
2. No presumptuous spell check system (iPhone)
3. Some users will not give up a keyboard

Here's a comment summing up what went wrong with Blackberry over the last 8 quarters:

I had a Blackberry for years (for business) and loved it, then made the switch to Android thinking it's the next generation smart phones and would be better. WORST MISTAKE EVER! Android and Windows phones are made for 12 year old girls who like to gossip and send pics to each other. Blackberries are the no nonsense utility phones. Unfortunately RIM lost sight of their strength and started competing directly with the others by coping their models and thus its failure. They should have stuck to what they did best.

Two Publications

2011-06-09T08:35:00.000-04:00

Two articles were accepted by SeekingAlpha for publication. The RIM piece was ready after using the Playbook for over a hundred hours and after gaining the experience of updating 3 generations of Blackberry Phones and moving the devices over to RIM's Blackberry Enterprise Server (BES) 5.

1. 6 Things You Should Know Before Writing Off Research In Motion
2. Microsoft Looks to Gain From Hardware Deal, New Revenue Stream

Notes on Nokia 14% Share Price Drop

2011-05-31T19:45:00.004-04:00

Barrons covered an opportunity may exist for RIM as Nokia warned that it faltered in Europe.

One comment that stood out was that shift among smartphone makers lies at the developer software level.

Christian wrote:

I don’t understand why people are so surprised with the sales decline, since that is very obvious when changing technology. When Nokia announced their alliance with Microsoft I saw it as very smart move. I guess I’m one of the only ones, but I am also a developer ;). The lack of channels and usability has been the biggest problem for Nokia and the alliance cures this, since Microsoft have some of the best developer tools, biggest user base and now they have Skype as well. An acquisition which I think is not as stupid as many have stated, but lets see.

Nokia is one of the best at mobile and network technology and still not to forget has the largest mobile user base. And I really don’t understand why people are so dissatisfied with Steven Elop, since he is doing everything which is needed. Cutting expensive, making a quick shift, fast in executing, targeting the developer community and is very aware of the competition he is up against.

And as I said Nokia technology is good they have the patents to prove it. Moreover as a former Symbian C++ developer I know this technology is good. Very fast, the architecture is very well designed and has a low energy use. The problem has always been the developer tools, the multiple platforms and the distribution channels. I remember trying to get Symbian development to work under Microsoft Visual Studio and with no luck, shifting to Borland which is not my favorite. It was just a drag. I think most developers will agree ;)

Now it’s going to be one platform where there is one of the largest developer bases in the world. I would reckon just a bit larger than iPhone developers. That was with sarcasm for those of you who don’t know anything about this, there is lots more and I would reckon this is largest developer base in the world. Moreover this base is ready to easily push application on a platform where the usability and the channels have been radically improved. Just look at the numbers of applications in the last period of time. Not to forget that this platform actually has gotten a warm welcome from end-users taken into account the competition.

The problem with this kind of stock is that people don’t anything about these things, which means that it will probably continue to decline and then there the few who are going to make a huge profit. Maybe Microsoft?

Microsoft in general not doing so bad. Moreover have they made mobile the primary key concern and they have the money to do it, lots of it. Not to forget, how they did concerning Internet Explorer not so many years ago, do you remember?

Google is cool but I must also admit that I am not that impressed with Android. They are already facing the same problems as with Java Microedition – J2ME. With different platforms, functionality, different user interfaces, etc. This is crap work for developers and ends up making software for the lowest denominator. It is not fun now and this is only going to get worse.

I am impressed with Apple wow! I love my iPhone and had to have it even though I am not an Apple fanboy. Fantastic phone, but they have done their share and it’s only to copy now. Moreover when people in the future realizes how closed and tightly coupled they are to this platform when new technologies arise they are going to be surprised and I don’t think it is going in Apples favor. Look at the history it just repeats.

Well let’s see, this is very interesting. I’m quite sure that we are going to see some long faces once again.

Believe me I don’t think Nokia will be as big as before but to announce that they are done I would believe is very wrong.

Name this Phone Maker's Ad Campaign: iDoalotmore

2011-05-29T06:40:00.002-04:00

In India there is an ad campaign, iDoalotmore.

Which smartphone device maker does this ad represent? Here are some of the features for this phone:

True multi-tasking
USB On-The-Go
Wireless file transfer (BT 3.0 or wifi)
FM transmitter
Hot swappable Micro SD
Faster GPU
Better camera with Xenon
AMOLED display
Single piece Aluminum chassis
"Replaceable" battery
Applications store with 70,000 apps
Customizable fonts/themes/ringtones/wallpaper
HDMI out (w/display fully repeated)
Dual charge ports (USB and micro pin) to support continuous play over USB OTG
Dolby Surround 5.1
Pentaband 3.5G
Free on and off-line globally supported voice navigation

It's not Android.

It's not iPhone.

It's not Blackberry.

It's Nokia. It's quite remarkable how rapidly Android and Apple are growing in North America.

Overseas, however, Nokia is still doing quite well.

Nokia is still the #1 phone maker (by units) in the world.

Research in Motion is also doing quite well overseas, much like Nokia. RIM recently saw somewhere between $5B to $12B in market capitalization (share price) evaporate as the excitement over RIM's Playbook waned. As that value flattens or falls over the next 2-3 quarters, QNX, an operating system used in autos and power plants, will prove to be an important transition for RIM.

RIM's market capitalization is $23B. Nokia's is $30B. Apple's is $312B.

Blackberry Playbook Post-Processing Showdown

2011-05-28T23:29:00.002-04:00

Original: From Playbook 5MP

Modified with $2.99 Photo Touchup App in 30 seconds:

As angry analysts issue 'sell' reports on RIM after the fact (the time to issue this warning was prior to the stock running up), let's take a step back and think of what the Playbook can do in the area a photography.

This entry was blogged from a Playbook. Additional edits made on a desktop.

Above: 5mp rear camera Playbook, no processing.

Photo 2: post-processed with 'Photo Touchup' - app available on app world

Below: post-processed in Photoshop:

Modified in Adobe Photoshop in 5 minutes including upload time:

It is unfair to compare the abilities of Photo Touchup App to Photoshop. Photoshop is a professional tool with thousands of post-processing options, and costs 500 times more. The Playbook has a good 5MP lens with f/2.8. This makes the lens faster than the average camera.

In the above example, it was easy to adjust color amounts (of green/blue), light balance, etc.

What Touchup allowed was the ability to quickly touch-up the photo in-tablet.

Conclusion: RIM Playbook has good apps available for processing photos. What's more important is finding the few apps that matter, and Photo touchup is one of them.

To find the best apps for the playbook, select featured or top. The apps with the most comments alongside the ranking are usually the best ones that make the "favorite" section of the Playbook.

Amazon.com in a Bubble, RIM (Stock) is in Trouble

2011-04-29T08:32:00.003-04:00

At Zerohedge, RIM's earnings shortfall was posted. RIM traded down between 10-15% last night, and is trading down 12.5% this morning in pre-market.

The culprit for the earnings shortfall? A refresh to the Blackberry smart phones is late. It seems that RIM was so preoccupied with the Playbook tablet launch that it neglected its core business. This is never a good thing, but was necessary for RIM.

Let's compare RIM's trading to that of Amazon.com. Amazon announced weaker earnings, with everything on its balance sheet showing that business is amiss. Stock traded down after-hours, but by the next day, it traded up.

A user posted this about Amazon.com (with formatting edited).
The user's website is here: www.lemetropolecafe.com

AMZN

Let's Talk About A REAL Bubble

I love this quote from the Amazon.com CEO in the Company's press release that accompanied the earnings report: "We love inventing on behalf of customers and have never been more excited about the long-term opportunities."He's probably thinking to himself also: "We love inventing earnings reports on behalf of investors and have never been more excited about the opportunities for this enabled by GAAP and our Government."It boggles my mind that the only investment "bubble" that the financial media sees right now is gold and silver. I'm bored of explaining to people why gold is not even remotely in a bubble.

So let's look at what a real investment bubble looks like.

AMZN's total market cap is $90.4 billion. Now, AMZN announced that its latest operating income was $322 million vs. $394 million in Q1 2010. That's an 18% decline. Based the latest trailing 12 month cash flow just over $3 billion, AMZN is trading at 30x cash flow. When a normal company trades at anything over 5x cash flow, you expect that to be because you expect a very high rate of cash flow growth. BUT, AMZN's operating income, the largest component of cash flow, dropped 18%. Think the market is being insane about the prospects for AMZN's growth?

AMZN also announced that the operating income for next quarter would be between $94 million and $245 million. This is an incredibly wide variance in guidance and it blows my mind that the market has tacked on over $3 billion in market cap to AMZN for a company that can't project its cash flow expectation for Q2, which already 33% over! This is insane.
Let's give Bezos the benefit of assuming Q2 operating income will come in at the midpoint of $170 million and annualized that number, which is generous considering that operating income is now declining at double digits. This yields a forward operating income projection of $680 million.

The stock thus trades at 132x operating income! THAT MY FRIENDS IS A BUBBLE.

Please note, we're not even talking about net income and p/e ratios here. Amazon's accounting is so obsfuscated by GAAP exploitation that I would more likely believe in the Easter bunny than I would Amazon's reported numbers.

So what's the deal? I used to track and untangle Amazon's accounting pretty closely up until about 8 years ago. I fatigued waiting for the SEC and NASD to crack down on AMZN'saccounting shenanigans. Of course the employees in those two organizations spend more time surfing porn than they do enforcing the law. The basic "crux" of Amazon's accounting exploitations has to do with how they account for fulfillment, marketing and shipping expenses. These are major major expenses for Amazon. Now, I don't have time to dissect its last 10K today, but I assume that they are still doing the same thing they were doing 8 years ago, especially since the source of their operating income cliff dive will be from these expenses.

In a nutshell, Amazon "buys" revenues by spending a massive amount on the process of getting you to buy from them. This includes subsidizing the price you pay by charging less than competitors and offering huge shipping deals, often extending free shipping. To be sure, they have negotiated favorable shipping deals with the big shippers. HOWEVER, they do not recognize the costs involved in all of this as they incur them, choosing instead to "capitalize" the majority of these costs. It's a "cost accounting" manipulation that is far too complicated for the regulators to understand. I don't have to go through the footnotes of their financials because all I had to do was read their press release to know they still do this.

Feel free to see what I mean HERE In the 7th paragraph they detail the nature of what I call their ramped up "revenue buying" programs.

The fact of the matter is that Amazon is one big ponzi scheme and as long as they can continue growing revenues, even at the expense of reporting declining operating income and cash flow, and as long as the stock market keeps inflating the AMZN bubble, then this scheme will continue. But believe me, the fact that their revenues are still growing at double digits AND their operating income is plummeting by double digits, tells me that they are getting a lot more desperate and aggressive at "buying" revenues.
Eventually this will come to an unhappy ending for everyone except the CEO Jeff Bezos, who sells millions of shares every quarter.

I would too if I were him.

In the meantime, I often buy from Amazon because it is convenient and, if they want to subsidized the cost of getting a product to my house, it is a lot cheaper in terms of what I pay plus the time involved and I love a "free lunch."

The bottom line for me is that I know that if I had time I could show you how Amazon likely loses money every quarter on a net income basis. I focus on operating income and cash flow because those are the numbers AMZN highlights in its press release. This harkens back to the tech bubble days when "pro forma" accounting was inserted in the financial media in place of true GAAP accounting. Now all tech companies use "pro forma" accounting and the stock market is conditioned to use it too. But even the operating income numbers they report are manipulated and dirty.

If anyone is interested, the footnotes in the last 10K will give you the keys to backing into somewhat real numbers. But we would need to see the inside books to see the golden truth.

Cisco Systems

2011-02-17T23:06:00.003-05:00

Cisco Systems, as investors already know, designs, manufactures, and sells Internet protocol (IP)-based networking and other products related to the communications and information technology industry worldwide (source: Yahoo Finance).

When the company reported earnings that greatly disappointed the markets, the stock fell considerably. Cisco Systems is failing, because it is getting too big, its product line too large, and the company appearing unfocused. Competitors are succeeding in markets where Cisco neglected, namely Riverbed and Blue Coat Systems. See chart below.

After reviewing its quarterly results during the quarterly earnings call, management was guiding analysts on the upside, over the longer term.

It will take some time for its new products to ramp up, for margins to improve, and for profitability grow.

On Seekingalpha, there was a debate on Cisco. Is the company undervalued? In the article, one comment that stood out was this one, by user NetEng. Once in a while good opinions pop out. It is like finding a needle in the haystack:

Most analysts do not comprehend the extent of Cisco's technology, which is exemplified by the Trefis chart in the above article. Add to that Cisco's upper management doing a poor job of explaining Cisco's new technology, and the result is that many analysts are commenting on and evaluating the Cisco of the past, and, moreover, using a technological framework that is fast receding into history.
Take the notion that Cisco is a "router and switch" company. While Cisco has done and continues to sell Ethernet switches, the data center model based upon top-of-rack Ethernet switches with multiple 1U servers is now becoming obsolete, especially to Cisco. The key technology is the Unified Computing System (UCS) which along with the Nexus 1000V virtual software-based Ethernet switch, can and will eliminate the top-of-rack/multiple physical server data center as we know it. The top-of-rack Ethernet switch is the technology targeted by HP and others. But for Cisco, there no longer exists a top-of-rack Ethernet switch, as it is now replaced by the Nexus 1000V virtual switch. The UCS system, using VMWare virtualization is able to replace the physical servers. Who supplies the physical servers today? Primarily HP, Dell, and IBM. So UCS is a direct threat to the server vendors' data center market.
Also Cisco, along with Brocade, is a major player in Storage Area Networks (SAN) technology, sharing the market with Brocade for the large Director class SAN switch technology at 50/50%. Many SAN innovations have been invented by Cisco over the past 7 years, such that it is fair to say that, contrary to most analysts perceptions, there are only 2 players in the SAN market: Brocade and Cisco.
Why is UCS important? By virtualizing physical servers, and eliminating top-of-rack physical Ethernet switches, a 5000 square foot data center can be shrunken into a 250 sq ft area with consequent electricity, cooling, and space savings. Think vacuum tubes vs transistors, when conceptualizing UCS/Nexus 1000V vs existing physical servers and top-of-rack Ethernet switches.
Senior Cisco management, simply has not gotten the word out, and analysts often speak in so much generalities that it is clear that they don't really understand what they are commenting on. How many data centers have most analysts built, for instance?

Finally, the economy is really, really bad, despite the rosy picture painted by most commentators. Reduced profits, smaller margins, are classical symptoms of a macroeconomic lack of demand, and warning signs of deflation. The Fed, and many economists are still sounding the cry that the economy is still very bad, and possibly getting worse. So, an alternative view is that Cisco is not losing market share, but still has the same share of a shrinking market ( think state and local government austerity cuts, which eventually hit Main Street).

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(Test) Post with Kapitall

2011-01-23T20:53:00.001-05:00

Kapitall.com is a fun, stock trading game that would appeal to new investors as well as experienced ones. To more accurately measure an investment thesis against actual practice performance, tools offered by Kapitall will be incorporated on this site.

So far, three portfolios created have cumulatively returned 30.9%. Although the market continues to drift steadily higher alongside lower volatility and lower volume, the cash levels on the Kapitall portfolios have increased to take advantage of future opportunities.

To test Kapitall's tools for sharing information, below is a chart on Chesapeake Energy.B denotes 'buy' and S denotes 'sell.' E denotes 'earnings' and D denotes dividend payment.

Chesapeake Energy contributed about 4% gains in one of the practice portfolios:

<p>&amp;amp;amp;lt;p&amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;Your browser does not support iframes.&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;lt;/p&amp;amp;amp;gt;</p>

As QE2 or quantitative easing via POMO unfolds in the United States, look for U.S. currency to weaken.

Companies in the energy and gold sectors will benefit as demand for these commodities increase. Credit easing will also increase risk tolerance, which will support expanded price-earnings multiples for the stocks (investors will be eager to pay a premium).

Therefore, oil and gold companies would be an area of interest for investors.

Get Rich... Slowly

2011-01-20T06:37:00.000-05:00

Report on Business is an excellent source for news on the financial markets. Yet, one comment that stood out from one of its readers is worth re-posting.

Is obtaining wealth impossible? Is it difficult?

"Certainly the rich get richer, and certainly the knowledgeable get richer, BUT..one need not be a genius to invest in the market and make some reasonable returns .

For example...at the depths of the late 2008 "correction/recession/whatever your favourite term is..you could have purchase stocks in any of the big canadian banks. I'll take TD as an example because thats the one I bought. I bought at $43...I believe it went lower. It's now at over $75.....

The dividend is around 3% now...if you bought at $42 you would be making over 5% dividend on your cost...and that will go up from now. Big risk/ Nope..I think TD or BMo or CIBC or RBC will weather most storms...no matter what. I think that history has shown that the canadian banks are a good investment and safe...not foolproof..you have to buy low..but safer than most.

Am I a genius? HARDLY.. am I making 100% on my investments yearly and wearing fancy clothes..HARDLY..but I made a good percentage on the stock and I am making a good dividend and I don't plant to sell anytime soon because I think the dividend will go up and I can safely make 6 or 7 or 8 % every year off that stock for the dividend alone.

Hard to do?? HARDLY You can do it too...and you don't need big dollars to get started.....but starting is the key...."

Talent Is Overrated

2011-01-07T18:47:00.001-05:00

T2 Partners published its annual letter to its investors. T2 under-performed the market in 2010 but has performed exceptionally well over the past 12 years. Below is a section from its annual letter worth repeating.

My emphasis is in bold.

Deliberate Practice and Review

We recently read an excellent book, Talent Is Overrated: What Really Separates World-Class Performers from Everybody Else, by Fortune magazine’s Geoff Colvin. In it, he argues convincingly that world-class performers in a wide range of areas – from sports, to music, to academia and, yes, to investing – aren’t born with innate supernatural gifts, but rather become great through a series of specific steps, most importantly, a lot of hard work and “deliberate practice.” This excerpt really resonated with us, because it’s exactly what we try to do to become better investors over time:

The best performers observe themselves closely. They are in effect able to step outside themselves, monitor what is happening in their own minds, and ask how it’s going. Researchers call this metacognition – knowledge about your own knowledge, thinking about your own thinking.

Top performers do this much more systematically than others do; it’s an established part of their routine.

Metacognition is important because situations change as they play out. Apart from its role in finding opportunities for practice, it plays a valuable part in helping top performers adapt to changing conditions…[A]n excellent businessperson can pause mentally and observe his or her own mental processes as if from the outside:…Am I being hijacked by my emotions? Do I need a different strategy here? What should it be?

After the work.
Practice activities are worthless without useful feedback about the results…

…Excellent performers judge themselves differently from the way other people do. They’re more specific, just as they are when they set goals and strategies. Average performers are content to tell themselves that they did great or poorly or okay.

The best performers judge themselves against a standard that’s relevant for what they’re trying to achieve. Sometimes they compare their performance with their own personal best; sometimes they compare with the performance of competitors they’re facing or expect to face; sometimes they compare with the best known performance by anyone in the field…

…If you were pushing yourself appropriately and have evaluated yourself rigorously, then you will have identified errors that you made. A critical part of self-evaluation is deciding what caused those errors. Average performers believe their errors were caused by factors outside their control: My opponent got lucky; the task was too hard; I just don’t have the natural ability for this. Top performers, by contrast, believe they are responsible for their errors. Note that this is not just a difference of personality or attitude. Recall that the best performers have set highly specific, technique-based goals and strategies for themselves; they have though through exactly how they intent to achieve what they want. So when something doesn’t work, they can relate the failure to specific elements of their performance that may have misfired…

…Since excellent performers go through a sharply different process from the beginning, they can make good guesses about how to adapt. That is, their ideas for how to perform better next time are likely to work

…They approach the job with more specific goals and strategies, since their previous experience was essentially a test of specific goals and strategies; and they’re more likely to believe in their own efficacy because their detailed analysis is more effective than the vague, unfocused analysis of average performers. Thus their own effectiveness help give them the crucial motivation to press on, powering a self-reinforcing cycle.

h/t zero hedge, market folly

Kapitall gets $7.3 Million to Jump Start 2011

2011-01-03T19:42:00.002-05:00

Kapitall.com was introduced in an earlier entry. It is described as an online investing platform that combines the world's friendliest investing experience with powerful yet simple tools to build your skills.

Most recently, Kapitall closed $7.3M in financing in December.

A number of practice portfolios were created in 2010. The performance of two of the portfolios were good, returning between 29 - 31%, additional portfolios were created so as to track its relative performance against the U.S. Index, the activity of stock picks made by hedge funds, and that of China.

The goal of this blog for the year will be to note and comment macro events, and to keep track of stocks selected and invested in the kapitall.com playground.

The link for kapitall.com is here. Facebook users can login and connect to facebook friends that way. Look up "Chris Lau" so I may "share" my stock portfolio holdings and activity.

Fig 1: Portfolio Performance versus other indices:

Fig 2: Performance for $10,000 portfolio

Fig 3: Performance for $100,000 Portfolio

A note of caution! Both portfolios are trades since June 2010. Positive or negative performance for 2011 will provide a better indication on the success of trades made in the Kapitall playground.

Let me be honest: My Performance Review for 2010

2010-12-30T10:15:00.002-05:00

There are two things to remember:
1. Know thyself
2. Nothing in excess

Gravitating around those two rules will reduce the chances of getting stuck in troubled places where it would be hard to get out.

1. Know thyself
In investing and finance, knowing thyself is a measurable, yet in news writing and reporting, few media writers would need to quantify their stock tips by reporting a "return-on-stock-tips" figure.

Ditto for Analysts.

Chart 1
Since writing for Seeking Alpha (www.seekingalpha.com), my reports (written in February 2009) yielded the following returns below. The phenomenal returns would look impressive, if not for the S&P returning almost 50% within the same period.

Companies Analyzed: BCE, Microsoft, Silver Wheaton, Valeant Pharmaceuticals (merged with Biovail in 2010):

Top: stock ticker
Right: Total return (%)

Chart 2
As for Seeking Alpha (www.seekingalpha.com) reports written from May 2009, the following returns below are illustrated.This chart was generated in yahoo finance and represents reports for 9 companies: BCE, Activision, Gamestop, FedEx, First Solar, Ford, Family Dollar Stores, Strayer Education.

Top: stock ticker
Right: Total return (%)
Notes: Strayer Education and FedEx were argued for short plays. The rest were long plays. No report was written on Motorola in 2009.

Motorola was analyzed in 2010 and has reached its target price (with a 50% margin of safety level).

Published reports here.

Warren Buffett's Biggest Mistake

2010-12-05T13:00:00.000-05:00

Buffett's biggest mistake was investing in his own company. Specifically, Buffett spent 20 years in the textile business, instead of focusing on something more profitable like insurance (at the time).

Bottom Line:

If you're in a terrible business, get out of it. If you want to be a good manager, buy a good business, and everyone will think you're smart.

and...

It's better to buy something that's good at a fair price, than to buy something cheap at a bargain price.

h/t Marketfolly (originally posted: 10/2010)