Penny Smart

Where the 530A Trump Account Fits in the Tax‑Advantaged Waterfall

2026-07-22T21:48:02.983-04:00

The 530A Trump Account is one of the newest additions to the tax‑advantaged investing landscape, and it’s already creating confusion. Many people assume it’s an education account or a niche savings tool, but that’s not what it is. The 530A is fundamentally a retirement account for minors — a tax‑deferred compounding vehicle that later becomes a traditional IRA at age 18.

Understanding where it fits in the tax‑advantaged waterfall is essential for using it effectively. And the answer is surprisingly simple: the 530A belongs immediately after the 529 plan.

The Waterfall Logic: Tax‑Free → Tax‑Deferred → Taxable

A tax‑advantaged waterfall prioritizes accounts based on the strength of their tax benefits:

Tax‑free (best)
Tax‑deferred
Taxable (last)

The 529 plan sits high in the waterfall because it offers:

Tax‑free growth
Tax‑free withdrawals for education
High contribution limits
Broad investment menus

Nothing beats tax‑free for education. That’s why the 529 is the primary child‑focused savings vehicle.

Where the 530A Fits

The 530A Trump Account offers:

Tax‑deferred growth
Ordinary income taxation on withdrawals
After‑tax contributions
Restricted investments (low‑cost U.S. index funds ≤0.10% ER)
Automatic conversion to a traditional IRA at age 18

This makes it a retirement account, not an education account. And because it’s tax‑deferred rather than tax‑free, it naturally follows the 529 in the waterfall.

Why It Matters

The 530A isn’t meant to replace a 529. It’s meant to complement it. The 529 handles education with tax‑free precision. The 530A handles long‑term retirement savings with tax‑deferred efficiency.

Together, they create a two‑stage strategy:

Stage 1: Fund education tax‑free
Stage 2: Build retirement wealth tax‑deferred

And that’s why the 530A Trump Account belongs immediately after the 529 in the waterfall.

IBM Buys Confluent

2025-12-11T10:41:00.006-05:00

IBM Buys Confluent

The Headlines

IBM announced they were acquiring Confluent. 31 bucks a share

At what price?

Let's look at some charts from Yahoo finance.
The 30% pop seems a good deal - the stock had languished for the past 6 months when the rest of the market raced ahead.

Someone looking at the stock for a short period may wonder if IBM overpaid for this stock. However, looking at even just a 1 year history may tell a different story and the price seems to be a decent offer
However, pretty much inline with where the stock has been for a good part of the past 5 years.

In fact,, it's surprising Confluent accepted an offer that's more or less in a range of where they were trading
One possible inference is that Confluent didn't really see a a bright future. It seemed like the company had run out of momentum beyond Kafka, had not really come up with any products that could move the markets and get it the sort of multiples that high flying technology stocks demand at the moment. A very small premium was adequate to convince the company to sell itself to a behemoth where it would be drowned by the bureaucracy.

What does Confluent stand to gain?

Possibly an exit for the current management, with a decent amount of money. Perhaps more if this is looked at as a strategic fit.

What about intellectual Property?

It's unclear how much net new IP IBM gains from this acquisition, given that Kafka itself is Open Source. There's certainly some, but given the expansive patent portfolio IBM already has, this would be a drop in the bucket.

Is this a strategic fit?

For IBM, this is a good strategic fit to get out of the legacy MQ into modern Kafka for streaming. Let's face it, IBM has struggled to find a replacement for MQ that has mostly stayed the way it was regardless of the WebSphere rebranding somewhere in the last decade. It's likely IBM can (and probably) has innovated in alternate technologies, but once again has not managed to beat what Open Source can do.

It's possible IBM's vast network of enterprise contracts can open up more opportunities for Confluent to penetrate into accounts they previously did not have a sales force to handle. Packaged along with more security and cheaper access to cloud infrastructure could also be an upside.
An analogy would be IBM's purchase of RedHat - a company that too didn't have much of an IP, but was a vendor that provided companies with 'endorsed' packages of primarily open source technology. Linux had been replacing the IBM legacy OSs rapidly, IBM saw a demise of their solutions and quickly adopted an open source bandwagon. Red hat too saw that it didn't really have much of a value addition or differentiation so found a sale to IBM was a good exit.

Buying is cheaper than renting.

Could this be done through strategic partnerships? Perhaps. However, one possibility is that the way IBM saw it, buying was cheaper than renting.
IBM has a war chest of cash that its service business rakes in year after year. It also has stellar credit rating and can borrow money cheap. This transaction could look good even while looked at simply from a discounted cashflow model. I am reminded of an older acquisition of RSA that could be looked at in a similar vein.

Final Thoughts

What this model offers is for clients to shift the technology operational risk over to a vendor. A bigger vendor such as IBM is seen more credible. After all, no CIO got fired for hiring IBM!

401K Regular or Roth

2025-09-14T19:23:00.008-04:00

Regular or Roth?

Most companies now offer a Roth 401K Option.

The employee contributions can be Roth, which is after tax money, where as the company match continues to be in a tax-deferred account.

Roth is becoming increasingly popular as folks expect tax rates to go up in future. However, that's hard to predict and by itself, the math works out the same if you expect to be in a similar tax bracket in retirement as one is now.

In one way, you're socking away more money in a Roth. a 23.5K post-tax would be equivalent of saving 30K pre-tax. Since the maximum amount one can contribute is the same, one is effectively saving more by choosing a Roth 401K.

After-tax contributions

Once you have max'ed out the contributions to the Roth 401K, some plans offer an opportunity to sock away even more after-tax money. This seems very similar to the Roth 401K in terms of the tax treatment of your contributions but that's the key difference is the fact that while your contributions aren't taxed at withdrawal, all the investment gains arising from after-tax contribution are taxed at ordinary income levels.

As such this wouldn't appeal to most people - after all, the after-tax dollars in a regular brokerage account could have gains that could get taxed at a lower, long term capital gains level. There are some advantages in the fact there's no tax due until withdrawal, but it would be something that requires careful planning.

What sets this apart is that the after-tax contributions can also be rolled into a Roth IRA if you leave your job. This is the Mega backdoor. In fact, some plans do allow in-plan conversions and that makes the after-tax contribution even more appealing.

In-plan conversions

Some of the plans allow an in-plan conversion. If you do have this opportunity, you should see if you can take advantage of this.

In these cases, there is a process where you can move money from a 401K into a Roth 401K account within the same employer's plan rather than rolling it into a separate Roth IRA. The good thing is you can do this any time (even monthly - see if your plan offers an automated in-plan) where as most plans do not let you roll out of a Roth 401K into a Roth IRA while you are still employed at the same place.

If you are able to make after-tax contributions and then use the in-plan conversion, you can effectively put way more than 23.5K into a Roth 401K every year, in fact this year one can effectively put 70K in Roth 401K. Post conversion, the gains on this are not taxed at withdrawal - similar to any Roth 401K withdrawal.

Pay attention to the In-plan conversion

It is important you pay careful attention - what you are looking to do is have after-tax contributions along with simultaneous in-plan conversion.

This is typically a 2-step process.

The first step is to add the after-tax contribution to your current selection. This is typically done on the contributions page.
Second step is to elect what percent of the after-tax contributions you want to convert in-plan. This is typically within the Balances section. You want to choose 100%.

Look at the plan documents provided for guidance. Yes, it would have been a good idea if there was a one-step process for this for the most common scenario, but most plans have this as a 2 step process.

Mega backdoor

Post-tax contributions with in-plan conversions are a way to invest far more than the usual limits in a Roth manner. If you leave that job, you can also take the entire Roth 401K and move it into a Roth IRA to get a wider selection of investment options as well as avoid all the fees the 401K savings plan charges you. There is also additional flexibility that a Roth 401K allows one to withdraw the contributed amounts after 5 years penalty free. That can offer a good way to start cashing out especially if there are mid-career hiccups that leave you wanting more cash inflows before retirement.

Correlated indices & top 10 effect - should one diversify?

2025-08-24T11:18:00.009-04:00

"I invest in a bunch of low-cost index funds. Roughly a quarter of my investments are in S&P 500 but I know there's a lot of market beyond S&P so I invest 20% in US total equity market and the rest in global equity market. Meanwhile, I also have 10% in Nasdaq index so I can get all the AI & tech boom."

This is what I heard recently from a gentleman I was in a casual conversation with. The background is that several indices are hitting new highs, and this dude was confident his strategy is solid.

The purpose of this article is to point out that there is far lesser diversification than what this gentleman I spoke with realizes. The reason is, indices are not a great representation of the economy because most of them are weighted by market capitalization.

For example, as of writing, Nasdaq 100 index is at an all-time high, but even though there are 100 companies that make up the index, 10% of the index is simply one company - nVdia. Microsoft, Amazon, Apple, Meta and Broadcom make up another 30%. Essentially 50% of the index is the top 10 companies.

If you thought S&P with 500 companies would be tremendously different, the reality is that close to 40% of that index is the top 10 holdings. Of course, the top companies there are pretty much the same as what you get in the Nasdaq

Let's go even broader, how about total stock market? Well, turns out the story is the same. 33% of the total stock market index of over 2000 companies in the US is dominated by the almost the same top 10 as Nasdaq and pretty much exactly the same as the top 10 from S&P 500. The fact that the top 10 in 500 is the same as the top 10 in the all the companies is hardly surprising, you would point out. What needs to be pointed out is that the top 10 make up 37% of the S&P 500, and 33% of the total stock market.

What does this mean?

Technology companies make a disproportionate share of the stock market as compared to their share of the economy.

Classical diversification has been of limited use in the past few years, where the gains of the top 10% are what are driving the overall market.

You may very well simply invest in Nasdaq 100 index fund, or at least, know well that there's not much to be gained in terms of diversification by investing in S&P500 or total US market. In fact, you may actually lose some of the returns in the process because these over weighted stocks have done exceptionally well.

Perhaps this is so US centric. How about looking outside US, at the global market? Look at index funds beyond the US. A combination of Developed Markets & Emerging Markets may seem like a good way to look at it. However, when one actually looks at the past 1-year chart does not look inspiring either - seems like a bit of volatility aside, the entire world market seems to be moving lock step.

The strategy of investing in any of the index funds is essentially a market-neutral strategy. That means you will not gain or lose more money as compared to the market. That does not make it a great strategy for making more money or especially being able to withstand if the market is truly in a tech bubble.

If diversification is the goal, one must look for alternatives.

Hard Assets - The US real estate market shows significant correlation with the stock market from 2020-22 but diverges widely once the interest rates started going higher in the past few years

Sector funds - Thematic investments are frowned upon as they tend to get more retail money pouring into the topic of the month, but a longer view in some of the sectors may offer an opportunity to diversity and potentially get some oversized returns instead of the possibly overheated tech sector.

Tax-advantaged Investing for non-wage earners

2025-04-09T17:53:00.015-04:00

Why is this topic needed?

If you are salaried, you have access to several tax-advantaged ways to save and invest - check out this article instead. This article is for those that do not have active income.

Not having active income can be no income or passive income.

Passive income can be from rentals (renting out properties or part of the home), royalties and social media influencing as well as interest & dividends received on your investments.

If you don't have active income but your spouse does, they can save and invest on your behalf, but the options are limited. Unfortunately, the tax code does not do much for a home maker or an amateur artisan.

HSA

You can have your own HSA, but the maximum amount specified is for the family. In 2025, that's 4300 for an individual and 8550 for a family. Given the HSA is conveniently set up for the primary on the health insurance policy, having your own HSA may be an unnecessary overhead.

IRA (and Roth IRA)

If you are married and file jointly, your non-working spouse can contribute to an IRA if the other spouse has earned income.

The annual limit is fairly small, $7000 for 2025 with an additional $1000 if you are older than 50 years. This is tiny compared to the $23,500 in a 401K. But this is the only real tax-advantaged retirement investment you can have, so make sure you do not pass on the opportunity to have it.

In more cases than not, it makes sense to invest in a Roth IRA. Unless your spouse is close to retirement (< 7 years), it is more likely to be better to invest in a Roth IRA instead.

What if you make too much money to qualify for a Roth IRA contribution? You can read more in this Backdoor IRA article.

Set up an account with one of the online brokers - Fidelity, Vanguard, Schwab or any other of your choice. If you are going to do the backdoor strategy, you'll need two accounts, a Regular and a Roth IRA.

A Simple Asset Allocation

A simple portfolio I can suggest beginning would look like this. You can follow this in the IRA as well as early on for the 529 Plan.

30% US Equity Large Cap Growth

30% S&P 500 Index

30% International Index Fund

10% Emerging Market Index Fund

Exciting? No. Hardly one that you'd talk about at a cocktail party. But works fine in long term. If you have less than 5 years to start using the money, move over 20% of your balance each year to conservative investments such as Short-term bond Index Fund & Money Market fund.

529 Plans

These plans are tax-advantaged ways to save money for your kid's college and post graduate education. You contribute post-tax money and then it grows tax-free as long as it is used for education. An ideal scenario is to contribute an amount that's below the gift-tax limit. Individuals can give up to $19,000 to each person in 2025 without triggering gift tax reporting requirements. Married couples can effectively double this amount to $38,000 per recipient per year.

While this may seem like a fairly large sum, this is absolutely something a family should look to do when they can, if it the intention is for the kid to graduate out of college debt-free OR simply a way to leave a bit of sum for your eventual grandchildren.

2025 Guide to Tax-advantaged Investing

2025-04-08T13:23:00.012-04:00

Tax Advantaged Investing for Retirement & Education

Saving (in general) is a great personal choice. When savings are not expected to be used in the short term, then it's even more important to invest them wisely. The longer time frame allows investments to grow significantly.

Saving & Investing for your retirement & Savings for your kids' education are two such uses cases.

It is beneficial to know about certain tax advantaged vehicles that facilitate investing your savings for long term.

How-to work through this list?

Since there are several such vehicles, it can be, at times, confusing to choose which ones to invest in.

In that case, here's a simple priority list I recommend.

Waterfall

Go through list works in a waterfall manner.
Invest in each of the vehicles to the suggested limit before getting to the next vehicle.
Once you have exhausted this list, you've used up the common-sense tax advantaged investment vehicles.

Rainfall

Another option is to can invest a bit into each of these
That way you have all the options at your disposal.
This comes with a bit of an overhead to manage multiple accounts.

Priority List

Pensions
401K/403b (or Roth 401K) up to the amount the company matches
HSA
Roth IRA
529 Plans
401K/403b for the remaining amount

Pensions

These are typically entirely employer paid. Some of these do need you to explicitly enroll in them, and surprisingly, many employees simply forget to do so! All you need to do is sign up, and its truly free money you are entitled to. These should go to the top of your list.

401K/403b* up to the amount the company match

Employers offer retirement accounts to help their employees save for retirement. Many employers match what you put into the 401K accounts, some employers match dollar for dollar, others contribute 50c to every dollar you put in yourself, often up to 5-6% of your base salary. Let's say the employer matched 50% of your contribution up to 6% of your base. If you contributed that amount, you get a 50% return right away! This is the closest you can get to free money!

If your company offers a Roth 401K option, choose that. Upcoming: 401K Regular or Roth?

*Almost everything I've mentioned for 401K applies for 403b accounts with minimal changes.

HSA

This is the most tax-favored account. The contributions into this account are qualified deductions on the current tax bill. The money can grow in to this account. The disbursements are also tax-free as long as used for qualified expenses (medical bills).

If you have the money to put into this account and handle most of the routine medical expenses out of pocket in your working years, you may have a good-sized nest-egg over a 40-year period that can cover the ever-growing cost of medical care as you age.

IRS allows $8550 this year with additional catch-up contributions beyond age 50

Roth IRA

Pay taxes on the money going in. Use this money to wisely buy good stocks (if you like to pick) or low-cost ETFs & Mutual funds (if you don't want to make specific bets). When you retire and start to take the money out of this account, there are no taxes on any of the gains! Given the power of compound interest, the gains are more than 10x the contributions for most people with a 40-year career.

What if you make too much money to qualify for a Roth IRA contribution? You can read more in this Backdoor IRA article.

529 Plans

Similar to Roth IRAs in concept. Pay tax now, no taxes on the gains when used for qualified expenses. In this case, that would be for education, typically for paying for your kid's college. Many states also offer a tax deduction in state taxes for 529 contribution, so it's nice to get an extra tax saving (in such cases, the money is post-federal tax and pre-state tax). As of this writing, NY, PA, VA, SC give generous state tax deductions.

401K/ 403B for the remaining amount

IRS allows $23,500 per year for folks under 50 with additional catch-up contributions if you are older.

You get tax deductions for the amount you put in this account. For many people who expect to earn more in their working years than in retirement, this is a good idea. However, you pay taxes as if this were income, in your retirement years. Currently, long term capital gains are taxed at a lower rate than income, but even if it seems like the money in your 401k is like a long-term investment, it will be taxed at regular income levels when you begin with withdraw.

Still, being in a higher tax bracket during retirement years than working years is what I consider a 'high quality problem' to have. For most of us with moderate or no expectations of sudden wealth in a windfall, it would be good to save the remaining amounts in a 401k.

Back story

I wrote the original article in Jan 2020 and updated it in 2022. Most of those ideas are still applicable, I wanted to refresh the article. I also felt a 'how-to' could help make it easier for folks.

When not to use this approach?

Some of this needs to be tweaked if:

Your income is less than expenses
You have bad debt

9+ percent returns guaranteed

2022-05-06T20:42:00.007-04:00

Series I Savings Bonds

The skinny

Get 9.6% returns on your investment backed by the full faith of US Treasury!

What's the catch?

None

Come on, there's got to be a little more to it

The basic premise is simple. These are floating rate instruments where the interest rate changes every 6 months. The interest rate is reset at a specific time and is based on the previous observed inflation.

The current offering is 9.6% which applies to bonds purchased between May and October 2022.

Is this real?

The bonds are offered directly by Treasury. In sense of safety, these are rock solid with little default risk.

You can invest in small amounts, $25 and above. Makes this really good for folks saving under 10K.

Why are they not as hot as they sound like?

Inflation changes, and while we are in a high inflation zone at this time, traditionally, inflation has been extremely low. After the Reagan era of crazy inflation, since the 90s, inflation has been low, mostly under 5%. More recently, there was a short period of deflation, after which it has hovered around the 2-3% range. You can see a graph of inflation https://www.gzeromedia.com/the-graphic-truth-50-years-of-us-inflation-vs-interest-rates.

So even if you get a good rate of return now, once the inflation subsides, the rates will go down. In fact, the FOMC has already increased the short term rates to curb inflation. The expectation is that the Fed will watch keenly to get the inflation back into the sweet spot (under 4%). So expect to have roughly that rate of return for many years after.

But you can always invest for the time the rate is good?

That is certainly true. You can invest now, and then, if the inflation goes down and so does the rate, redeem them and get your principal back. Here are the few things to keep in mind

1. Your money is locked in for an year. You can't sell sooner. Not a big deal, IMO

2. If you sell before 5 years, you lose 3 months of interest. Certainly worth keeping in mind, if your plan is to sell them quickly if the rate goes down. Let's pretend that the inflation went down to 4% in the next 6 months, and then to 2% after that, you will have a return around 5.5% averaged if you plan to sell it right after the 1 year. Suddenly, this doesn't look so hot. Not terrible return given the slight state tax advantages, but still not that hot.

3. There's a limit of 10,000 per person. While you can open accounts for each one in your family, that means creating multiple accounts, multiple logins, a lot of work for what, in many cases, may be a small investable amount.

4. Interest is taxable. No state tax, but still, federal taxes take a bite.

Recommendation

If you are willing to put in the work to open these accounts, watch the rate, and have the discipline to sell when the rate goes down, this is a solid investment.

Otherwise, if you leave money there and are not disciplined, you may find yourself looking at an account 10 years down the line, that has yielded just 4-5% annualized returns

If you have a healthy risk appetite and a some good dividend paying stocks that are paying north of 6% with potential of capital appreciation (given the current morose in stock market). Yes, there's tax consequences, but at least you can look for some appreciation there, as well as dividends that are tied to the health of the economy as opposed to inflation.

Special case

The interest is tax free when used for educational expenses. This makes it attractive to someone who is saving for college in the near future. If you are saving for your kid who starts college in say, 2024 or 2025, this might be an awesome investment instead of (or in addition to) the typical 529.

More information? Or want to buy?

https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

Leveraging 529 even more

2022-01-22T22:51:00.002-05:00

Background

By now you may have already opened a 529 account to save for your child's college expenses. You may have funded it from time to time, based on your abilities, and the next set of questions are around how to optimize the benefits of this account if you can afford to fund it a bit more.

Is there an annual limit?

Most plans do not impose an annual limit. However, any money contributed to the plan is subject to the same gift tax limits.

The gift tax limit is per beneficiary per giver. The current gift tax limit is $15,000 per year. For married filing jointly, this would mean a limit of $30,000 from the parents to each child.

What is super funding?

In 2021, the max gift tax limit is $15,000. However, you can contribute 5X of that limit, i.e, $75,000 in one shot, provided you do not contribute any more for the next 4 years. Putting a 5 year's max in a single shot is called Super Funding a 529.

Who can contribute?

Anyone can. While we can expect parents to be the major contributors, grand parents may also decide to chip in,

More still, do suggest that friends and family could gift to a 529 instead of a holiday or birthday gift. Why not encourage new parents to open a 529 for their child, by giving gifts directly in it instead of yet another BabysRUs gift card?

During the holidays, any thoughtful gift is always appreciated, so why not look ahead and make a smart choice that will benefit all?

Can you contribute for ever?

Most plans have a maximum limit per account. Once the amount reaches that limit, you cannot contribute any more to it. However, the money in the account can continue to grow in the account. You do not have to withdraw the excess, in fact, any withdrawals are subject to the same criteria.

The current maximum limits for most accounts are to the order of half a million dollars or so. There's some guidance in what you can target for saving in https://p3nnysmart.blogspot.com/2020/11/deciding-how-much-to-invest-in-529.html

What if my child does not use up all the money?

Most plans allow you to change the beneficiary. First of all, college costs a lot, and post-graduate education even more.

However, if there is surplus, the most important thing to remember is that you can change the beneficiary on the account. This means, you can change the beneficiary to the younger sibling if the older one doesn't use up the funds in the account. If you tend to think even longer tern, you can consider leaving it in the account a little longer, perhaps until you have grand children. This account can be a simple and effective way of leaving a little legacy for the future generations.

Maximize your contributions to HSA

2020-12-05T22:07:00.004-05:00

So you did switch to a high-deductible plan and are entitled to open an HSA account. Awesome. Here's a few things to do (assuming you are at least 5 years from retirement as a rule of thumb)

Get your free money

When you did open that account, the employer threw in a sweetener, and contributes some money to your account. Some times, employers do this on their own, and in those cases, there is little you need to do other than sign up for the account.

At other times, thru some incentives such as you. There are companies such as Rally Health and similar companies that manage an incentive program on behalf of the companies. This is achieved by contributing $200 for you getting your annual physical done and another $100 for the 5K you signed up for.

The incentives are additional monitory incentives for you for doing something that you should be doing for yourself anyway. Use these, especially given that the money the employer will put in can grow tax free for years!

Familiarize yourself with the Cash Account and the Investment Account

An HSA account has two components. First, there's a cash account. Your contributions (and any employer contributions) go into the Cash account. You can use the cash account to pay for deductibles and other health expenses.

The second part is an Investment account. You need to explicitly move money from Cash account to Invesrtment account. Some plans allow you to set up a monthly transfer, which makes things easy, but if it doesn't, you need to go into the account and transfer yourself periodically.

Investment Account

An investment account looks similar to a 401K account, in the sense, it offers a small range of mutual funds that you can invest in. You can allocate future contributions based on a percentage across various options, and there are mechanisms to rebalance your portfolio, either as a one-off or on a periodic basis

Not all accounts offer all the facilities, I find the HSA accounts are often more bare-bone, not as sophisticated as the 401K for many folks.

A mistake that you can avoid

The cash account isn't growing much, it's just cash. At the current time, there's little to no interest cash accounts. Your contributions may be sitting in this account and not growing.

You may have even gone into the account and set up the way the various mutual funds in which the investments should go. However, unless you take that extra step, a large portion of your HSA account may be still idling in cash! This is a tremendous loss of opportunity. Anecdotally, I found many folks are unfamiliar with this very basic concept, and wind up having tens of thousands of $$s sitting in their cash accounts over the years.

Bottom line

As long as you can afford to pay the medical expenses you actually incurred in the year from your own pocket (and not from the HSA), you can use the HSA to grow this money tax free for years. The power of compounding means this money will be worth several times over later in life. Since medical expenses grow as we age, having more money to use for medical expenses later in life is a tremendous advantage.

Do you have an HSA account?

2020-12-05T21:40:00.000-05:00

Background

Many of us have a high-deductible health insurance plan. Premiums are ever increasing, and high-deductible plans are one of the few ways to keep the premiums down. However, if you can afford it, the HSA account is a terrific tax saving vehicle for long term health care and retirement.

This is the first in a series of articles about the HSA Account.

Do you have an HSA Account?

Chances are, this is a question that you were asked during the Open Enrollment period. For the small fraction of Americans that has Cadillac health plans with little to no premiums and/or deductibles, this does not hold true. However, if your employer does offer a high-deductible plan that has lower premium, the first thing to do is take a look at your last 5 years of medical bills.

This is not easy, but for a quick summary, you can ignore any minor bills (doctors visits etc) unless you have more than 4 per year. You can also exclude Dental copays and vision (eye glasses/ lenses) since those are not covered by the medical plans anyway. A big expense for parents is orthodontics for kids, and that should be excluded too. Assuming you and your families have been healthy for the past year and that you have the ability to absorb the deductibles if something were to happen, then high-deductible plans with HSA is the way to go.

Most high deductible plans have a $5000-9000 maximum. However, even regular plans often have a $2000-$4000 deductible. The lower deductible plans come with higher premiums.

In some cases, I found that max of high deductible added to the total premium is lesser than or equal to the max of lower deductible and their corresponding premium. What that means is that the high deductible plan is effectively cheaper than the lower deductible plan even in an year you would have major medical expenses.

Example

Option 1: Max deductible $5700, premiums $200 per pay check

Option 2: Max deductible $2500, premium $350 per paycheck

Option 1 implies an annual premium of $200 * 24 = $4800

Option 2 implies an annual premium of $300 * 24 = `$7200

If your total medical bills for the year are $6000, then you would benefit from Option 2, where you would pay $7200+ $2500 = $9700 in a year. Option 1 would mean $4800 +$5700 = $10,500

However, for most folks who typicall spend $1000-$3000 per year, assuming a $2000 spend, the Option 1 = $4800 + $2000 = $6800 where as Option 2= $7200 + 0 = $7200. The higher premiums simply do not pay for themselves.

A final word

When you add the fact that the High deductible plan allows you to open an HSA account (more about the advantages of HSA later), it seems like a good choice for some of us. Of course, a sceptic may suggest that with ever increasing medical bills and higher than ever medical premiums, the congress had to come up with some sort of a sweetener to make the high deductibles more palatable. I recommend you crunch your own numbers, but if they are close, I recommend using a high deductible plan with HSA.

Deciding how much to invest in a 529 Account.

2020-11-28T22:52:00.013-05:00

Deciding how much to invest in a 529 Account.

How much can you invest every year?

You can invest $15,000 per year per beneficiary. Twice the amount if you are married filing jointly. You can also "super fund" it by investing $75000, effectively 5 years of contributions in a single shot, without having to file gift taxes, while protecting their lifetime gift and estate tax exemption.

Assumptions

Average public tuition & fees cost is ~$10,500 a year for public in-state, ~$23,000 a year for public, out-of-state, and ~$55,000 for private universities
Average living expenses are $12,000 per year for in-state. I added $2,000 to out of state living expenses. Private colleges are more expensive and I have factored $17,000.
Cost of tuition goes up by 3% per year
Expected returns are 7% per year
Money is expected to be used up with a little left over at the end of 4 years of undergraduate.

Analysis Spreadsheet

All examples use 2028 as a starting year for college for the child. I have analyzed 3 different scenarios in the attached spreadsheet.

Examples

No 529 savings yet. Goal is to save for in-state tuition. This involves opening a new 529 and saving $10,000 per year going forward.
You have been saving $6,000-8,000 over the previous 10 years and has grown to a current investment of $75,000 with some gains. You can continue investing $6,000 going forward and be all set for out-of-state tuition for a lot more choices for your child.
You are aggressively saving over $10,000 per year and with growth, have already built a good investment base of $150,000. You plan to continue saving $10,000 per year going forward and preparing for saving for a private college.

MarketAxess continues to shine

2020-09-10T20:46:00.001-04:00

I had posted this on LinkedIn when the news came out last year

Complementing the offerings on the credit (bond) side, MarketAxess has acquired LiquidityEdge, a company that offers bespoke treasury ecosystem.

This could add value to the credit offerings, improved execution of cross trades as well as abilities to hedge market risk. Improved product offerings is listed as the key reason behind the acquisition.

I wonder if one of the drivers behind this move was to acquire low latency capabilities that treasury trading platforms offer.

Definitely an exciting space to watch and see what this acquisition brings to the table.

It has been an year since this news and the stock has almost doubled in that time. I am still bullish on the impact this company has to the fixed income trading world.

Strategies on Savings

2020-01-04T09:27:00.004-05:00

Background

Saving for retirement (or saving, in general) is a personal choice but there are certain tax advantaged vehicles that facilitate savings. There may be times when there are more tax advantaged vehicles than the amount of money you have available to save. In that case, here's a simple priority list I recommend.

Update 2022

This list does not factor Roth 401K/Roth 403B. The article will be soon updated with additional guidance.

Quick List

Pensions
401K/403b up to the amount the company matches
HSA
Roth IRA
529 Plans
401K/403b for the remaining amount

Pensions

These are typically entirely employer paid. Some of these do need you to explicitly enroll in them, and surprisingly, many employees simply forget to do so! I put these at the top of the house, because all you need to do is sign up, and it's truly free money.

401K/403b* up to the amount the company match

This is the closest you can get to free money. Many employers match what you put into the 401K accounts, some employers match dollar for dollar, others contribute 50c to every dollar you put in yourself, often up to 5-6% of your base salary. In fewer and fewer cases these days, do employers have vesting periods. Your money grows 50% almost instantly.

HSA

This is the most tax-favored account. The contributions into this account are qualified deductions on the current tax bill. The money can grow in to this account. The disbursements are also tax-free as long as used for qualified expenses (medical bills).

If you have the money to put into this account and handle most of the routine medical expenses out of pocket in your working years, you may have a good sized nest-egg over a 40 year period that can cover the ever growing cost of medical care as you age.

Roth IRA

Pay taxes on the money going in. Use this money to wisely buy good stocks (if you like to pick) or low cost ETFs & Mutual funds (if you don't want to make specific bets). When you retire and start to take the money out of this account, there are no taxes on any of the gains! Given the power of compound interest, the gains are more than 10x the contributions for most people with a 40 year career.

What if you make too much money to qualify for a Roth IRA contribution? You can read more in this Backdoor IRA article.

529 Plans

401K/ 403B for the remaining amount

You get tax deductions for the amount you put in this account. For many people who expect to earn more in their working years than in retirement, this is a good idea. However, you pay taxes as if this were income, in your retirement years. Currently, long term capital gains are taxed at a lower rate than income, but even if it seems like the money in your 401k is like a long term investment, it will be taxed at regular income levels when you begin with withdraw.

*What applies to 401K accounts also applies to 403b and similar accounts.

529 Plans - the real 'final' one

2012-10-08T10:50:00.004-04:00

This article applies specifically to those that live in New Jersey and work in New York.

Previously, I wrote a multi-part blog on choosing 529 plans. The "final" one in that left off with a comparison of the Nebraska plan and the Ohio plan with the idea that the Ohio plan was the best for me.

However, in part 2, i had written one of the main "factors"
"You live in a state that offers tax breaks for saving money in 529 plan. Investing in that state plan will make more sense."

For some of us that live in New Jersey and work in New York, we do pay NY state income taxes as a non-resident. The good news is NY state offers tax breaks for contributing to the plan, that also applies to those filing NY state non-resident taxes.

https://uii.nysaves.s.upromise.com/ allows you to create a new account online. The plan is reasonably good, with a good selection of funds that you can choose from. While there are no real estate or alternate investment funds, there's a selection of a few index funds, as well as small cap / mid cap funds and one fund focussed on international investments. I feel this is a reasonable mix of options and allows me the flexibility to create a pretty good portfolio.

Given that the tax deduction is upto $5000 per year, for couples who both work in New York, this means you can deduct upto $10,000 per year from the NY state taxes. This is a substatial amount. My recommendation would be,
1. invest the first $10000 per year in an NY state plan (or 5000 if only one person works in NY)
2. if inclined to do so, invest any additional amounts to an Ohio state or Nebraska plan (where you can focus on some investment options not offered by NY).

It really depends on what parents intend to save for the kids education, but $10,000 per year for a total of 18 years with a conservative 5% growth still creates a nice size savings of $281,000 which is a reasonable chunk of change for a kid's education.

Start a 529 plan or add to one

2012-09-13T07:44:00.001-04:00

This post comes after three recent conversations I had with totally different sets of people. These were all young parents or parents-to-be. None of these had a 529 plan.

First of all, there are a lot of plans to choose from. Of course if you live in a state that offers tax incentives for contributing to its plan and the plan is reasonable, it is probably a good idea to top it off to the tax incentive limit. You can read up my previous series on 529 plans (i have tagged them so that helps you find it).

While most plans have made the paperwork really simple and straightforward, you will still want to leave some time to get all that taken care about of. After that you will have some time left to make some choices about how you want to allocate between the various mutual fund like investment vehicles that they offer.

Then you get 3-4 monthly contributions in. If you choose to make automatic deductions from bank account every month then this allows you to contribute a slightly higher number and then see how that affects your budget.. Given that most families spend more in these months than the rest of the year, one can argue that if these ambitious, slightly above what you thought contributions are not affecting your budget too much, you could continue those and save more aggressively.

Having too much money in 529 is a high quality problem to have:-) Take action towards your child's education now!

Aye, Robot

2012-03-19T23:45:00.002-04:00

Tim Cook made the big news by declaring a dividend, but Jeff Bezos is my man for the day.

Amazon has been growing by leaps and bounds, making headway into every retail segment. It has displaced erstwhile well known brand names and created a model that is based on improving on logistics to increase profits in it's supply chain distribution.

Amazon needs to keep up to speed for it's 2 day shipping promises. It faces increased competition from ShopRunner, which also offers 2 day shipping for a lot of other retailers. Amazon prime membership has increased, so has its' share of subscription retails such as diapers, baby formula, pet food and such.

A few years back, with the purchase of diapers.com and zappos.com, Amazon got a big break into the next generation warehouse, one run by Kiva's robots.

Today, Amazon announced it's buying Kiva.

It looks like a big warehouse, with coloured markings that indicate the zones in which robots operate. These robots work in a synchronized efficiency that allows Amazon to be at the top of it's supply chain game. Now, with the purchase of Kiva, Amazon has a potential to offer this as a service to other companies, including some of it's competitors. It could potentially also lock other competitors out of the game.

Amazon had always prided itself on being a 'retailer service' in addition to carrying it's own merchandise. Stock gurus had blamed Bezos for spending too much money. However, these are bold moves that will keep Amazon way ahead of it's competition. While Kiva purchase is by no means inexpensive, I feel the price tag is well worth the money Amazon is putting into it.

Greg Smith

2012-03-16T07:25:00.001-04:00

Greg Smith's resignation letter expressing his disgust at the workings of the prestigious Goldman Sachs has been a topic of much discussion.

For those who have somehow not seen the letter (and you're reading my blog? you're quite one of a kind, i must say), here's the letter
http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?_r=1&pagewanted=all

My first opinion is of cynicism to Greg himself, and that is what this blog post is about. Do I want to comment on the points he makes? Sure, at some point, but 'does greed originates from capitalism?' is a separate discussion topic in itself.

It is a commonly enjoyed sport everywhere, that has become even more popular in the US recently, to wag fingers at any one in the financial sector as frauds and cheats and unscrupulous. While this sector has it's fair share of villians, it is difficult to imagine this being labeled to a whole industry or a firm.

Greg Smith seems to want to be dramatic. For someone who has been described as 'quiet and hard working', this seems to be quite a big drama. Did something snap? Was he wound so much that when he came out, it had to be so loud? In a way, this does beat taking an Oozi to work and going postal and knocking off some human lives!

Greg seems to be discredited on several grounds. First of all, it seems unethical to have a public resignation. This is not a whistle blower. There are proper channels within a firm to discuss your thoughts.

While I am an outsider to the firm itself, I have been in the city and this industry long enough to have noticed no change in the culture at GS in the last 10 years. I can sympathize a 30 year veteran of a firm commenting on a change in culture. I fail to do that for someone who has spent just 10 years in a 150 year old firm. It seems more likely that Greg had no qualms about being a part of the "make lots of money" culture in 2005-2007 when the going was good, and now that the market is down, he complains about change in the culture.

It is entirely possible that Greg is naive. As an analyst or whatever he started of as, he was less a party to the real dealings of the firm. It's just now that he even realized what the culture was to begin with. Whether the culture is toxic or not is a different topic, but speaking only of a 'change' in culture, that's not what I can see.

This is different from the other 'why i quit google' letter. google did go public 5 years back. that letter is more matter of fact, the author owns up exactly his own weakness. James Whittekar's email is still intended at dramatism & the fact that he works for Microsoft shows that one of the purpose of that letter is to garner sympathy and visibility in his new firm at the cost of the predecessor. I don't agree that this should have been made public either, but atleast the points are valid, and he doesn't fault the company as much as he says 'the company is doing the right thing, but i am not interested in what the company is doing at the moment', which is easier to accept than 'i dont agree to what the company is doing so the company must be wrong'.

It's even easier to do so at a time like this when politicians and media have been relentless in pointing fingers at the bankers. Join the crowd, ride the public sympathy. If Obama can do that, why not Greg.

I am also surprised that a guy who runs the US front office sales for Equity Derivatives is NOT an MD already. Was he not good enough for an MD spot? Was he passed for promotions this year? Is that his motivation?

GS always had higher fees than the market. People go to Goldman knowing fully well they are paying steeply for the services, but with the assumption that they are well worth it and the returns will be higher and more than compensate for the high fees. In the past, GS would often put it's own money on a deal, something that says GS is willing to put it's money where it's mouth is. If GS has done it's due diligence and winds up with a record ROI on it's money, more often than not, the other parties are only too happy with the way things have gone. It's a win-win situation. Clients and GS are both happy with the deal.

While I have ample cynicism for Greg Smith himself, I do agree with some of the points he made. Any company that stops putting it's customer ahead is going to wind itself down in a few years.

Take profits on KMP

2012-03-13T23:01:00.000-04:00

This year has been good to the pipeline MLPs but a few have matched the spectacular performance of Kinder Morgan KMP, or it's related stocks such as KMI. (The choice to own one or the other has more to do with your tax situation than the fundamentals of the company itself).

KMP though, is thought of as an income play. With a dividend (or return of capital etc) yield that used to be north of 6%, it was an absoutely terrific 'fixed income' like stock.

However, even before Kinder Morgan announced it was going to merge with El Paso, the stock has been on a tear
http://finance.yahoo.com/q/ta?s=KMP&t=1y&l=on&z=l&q=l&p=m50%2Cm200&a=vm&c=

At this time, the dividend yield is hanging around in the low 5% from the rich 6-7% dividend yield that some of the other MLPs offer. Energy Transfer Partners trading with a ticker symbol ETP offers a yield greater than 7%. Need more research on how safe that dividend is, and if the management is good. Kinder Morgan boasts the top of the line pedigree in terms of Richard Kinder's ability to deliver solid returns to it's share holders. However, at this level, I think the stock is fully valued. It is likely to conserve cash with the merger that's being announced, and that means it's less likely to boost dividends in the upcoming quarters. I feel like it would be a good idea to lock in the profits, and then start hunting for other such good MLPs to put that money into.

AMRI Kolkata hospital fire inferno

2011-12-12T19:58:00.002-05:00

Ten Requests/Ten Commandments.
- Dr. Mrs. Vijaya Datey

Let AMRI Kolkata hospital fire inferno be an eye opener for all of us.

i) Every hospital doctor, director, safety officer do a bit of introspection, check, monitor and survey to see that their hospital is SAFE in true sense.

ii) All specified building rules by the municipal bodies, fire brigade etc. must be strictly followed while construction of such public places. Political and commercial considerations should not overrule the safety requirements. Even in existing places, a guidance and necessary help should be taken from these authorities.

iii) In case government takes any steps to impose additional safety rules, the medical fraternity and general public are normally the first ones to oppose, flout or circumvent them. Instead of government pressure, the hospital administration itself should feel such need.

iv) Just give it a thought – the doctors, cardiologists, housemen, registrars, physicians, intensivists, interventists, and nursing staff are supposed to take care of patients and are trained to handle emergency situations. It is ironic that none of these even attempted to rescue the patients but the' untrained' and 'uneducated' slum dwellers of Dhakuria risked their lives by entering the smoke and rescued at least 15 precious lives=15 patients by bringing them on their backs.

v) These slum dwellers had no knowledge of disaster management and did not have necessary equipment. Yet they endangered their lives for others because they had a live pumping heart, fast brain reflexes and enriched soul soaked in human values. So the people like Pradip Purkait along with other local youth used bamboos to scale the hospital wall.

vi) I am sure; most of our friends in medical fraternity already have ‘clean’ audits on paper obtained from very authorities. However, all of us know that this is only eyewash and similar to practice of unethical use of ultra-sonography for sex determination and female foeticide which is still rampant.

vii) Whether hospitals or other organizations, how many of these get rid of their waste at the earliest and in a safe manner? How many store inflammable materials safely? Again, one should not leave these matters to a Government body to supervise, but action and care must come from within.

viii) Let us – the common people – try to poke our nose and question about health and safety measures of these hospitals before admitting our dear ones.

ix) Let us be inquisitive to check hospitals, schools, colleges, multiplexes, cinema halls, construction sites etc. whether they are utmost safe for their employees and entrants.
Do these structures and buildings have Safe Emergency Exit.

x) Every citizen must be accountable and responsible for his every task. Let us not shirk our responsibility and blame others for mishaps.

You gotta be a numb-skul to buy this

2011-11-27T23:35:00.000-05:00

Amongst the volatile market that has been 2011, there were a few IPOs that were talked about quite a bit. LinkedIn, AngiesList and so on and the most awaited one, Groupon.

In the middle of these came an IPO that can almost said to be 'well received'. A company selling fancy eye catching headphones under the name "skullcandy". It caters to the young and the dynamic, trying to be the fashion house for headphones. The cheapest headphones are available for $19.99 and the quality of these is the same as the $8 sony headphones that are available in pretty much any store. The designs are definitely trendier.

After IPO'ing at $20 a share, the stock pretty much never saw that same price hit in the next 6 months or so. It bottomed at $13 and then reversed a bit under low volume. In the past couple of weeks, it has shown another decline.

While the product itself is fairly catchy and I have no doubt that the profit margins are tremendous, I have to question the company's ability to realize this profit. The profit margin is currently -1.8% on a revenue margin of 18%. In a company where the cost of production is trivial, the only expense is really marketing and advertising. The company also boasts a 50% YOY growth, but growth always looks this glamorous at the beginning. The company sells a product in a fairly comoditized electronics accessories segment. While there's still a few people who would pay a little more to get cooler looking gear, the appeal of doing such a thing is limited. If this appeal were to increase, the traditional brands in this space, sony, philips and even nike, reebok would certainly get into this space and compete. There is hardly any barrier to entry in this space, it's trivial to sketch a design and get it built in some factory in china. It is really a merchandizing game, which is why I doubt the 50% YOY growth is sustainable.

At the current levels, the forward P/E is 13. This assumes the company will meet it's expectations, which is something I am not entirely sure of. Even if it does though, a PE of 13 is still much higher than what I would want to pay for a company that's really not able to create any sort of a moat to prevent competition. It reminds me of CROCS on which I have been burnt in the past, when I was a part of the euphoria that resulted in 200+ P/E with an expectation that the next years earnings would be so much better that the forward P/E was projected to be in the low teens (SKUL has current P/E of 3000!)

My take on this: short the stock.

Corzine & MF Global

2011-11-04T22:58:00.000-04:00

MF Global has become the latest victim of the European Crisis. Here are banks in France and Spain who were supposed to have a huge exposure to the Greek sovereign debt, who seem to be trodding along just fine. Even Dexia that hardly has the deep pockets of BNP Paribas and such seems to have survived so far.

MF Global, a small bank with a checkered history of ups and downs has filed for bankrupcy. John Corzine has resigned from the top job. What exactly does it mean to resign from a company that has filed for Bankrupcy? Looks like a rat leaving a sinking ship.

John Corzine himself has a checkered past. While people talk about his glory days at Goldman, the fact remains that he was cast aside at one point. He then became the governor of Jersey by pumping millions of his own dollars (another example of how wealth can buy power), and did a pretty lousy job at that. Then he took over MF Global, a company that did actually do a decent job at it's bread and butter forex and commodity trading. He tried to use this platform to create a 'prop desk' to become another major bank, but instead by taking concentrated risks in a few markets that were levered excessively, caused the death of a company that was trying to come out of a crisis it had found itself in just a few years back.

First for taking a company to a brink of disastor and second for deserting it at the moment of truth, John Corzine deserves to be on the Wall of Shame.

Leo goes, enter Meg

2011-10-02T15:48:00.000-04:00

It is hard to resist saying "I told you so" so why resist the temptation? In my previous post, I had expressed my dissatisfaction over Leo Apothekar. Looks like the HP Board got rid of him. In yet another 'lets get this done, why think about the decisions we make and it's consequences' stroke of action, it appointed Meg Whitman as the CEO.

The HP Board is equally or more to blame for the whole bunch of missteps. They began with firing Mark Hurd, who was actually someone able to manage the huge and complex enterprize HP is. They hired this guy who had managed SAP, a company which is as focussed and HP is diverse. They must have been part of the decision to buy Autonomy at the crazy multiple HP paid for it. Now they want quickly dismiss their choice of CEO, and replace it not even with an interim CEO, but just hire 'the next available person' to be running the show.

Thankfully, they chose Meg Whitman as opposed to choosing Pat Russo (who, btw, has been a subject of my previous blog article). While that shows a touch of sanity, the ideal situation would be for the HP board to dismiss itself, rethink what the strategy for the company would be, and then find itself a board that's aligned to that strategy. But who does decide a strategy when the board and CEO is no good? That's a difficult situation to be in, and usually when things like this happens, it's either an aggressive activist shareholder such as Carl Icahn (who is currently working on something along those lines at RIM ) or competition taking shots at a weak company in hopes that it can simply take it over (Larry Ellison seems to be doing just that)

WeOS is dead

2011-08-23T08:14:00.000-04:00

Ameya: I was never a fan of leo apothekar, but this puts him in my sh1t list.

Akshat: A sad day in HP history, certainly not something that Bill Hewitt or
David Packard would've done. So much for the "HP Way". It's also the end of Palm for good. It was never going to survive the suits at HP.

Mihir: As a business decision (irrespective of any emotional attachment to WebOS), I support this decision. The TouchPad/ Palm Pre never had a chance, and HP doesn't have the nimbleness needed to compete on HW, SW and Apps with Apple/ Android. Plus, the tablet market in the US has tipped decisively in favour of the ipad (as witnessed by the scarcely believable sales numbers from the previous few quarters). It would've been foolish to spend more money and time on WebOS and devices, especially since HP would always have to cut prices (and take lower profits) to make any sort of dent in the tablet market. Plus, tablet without apps had no chance. The phone market is already an iOS - Android race and HP would have faced similar challenges there. I suspect we might see a Compaq-spinoff for the PC division. At least this is not as bad as Cisco killing off the very profitable, very popular Flip video camera...

Ameya: There was no reason in buying palm albeit on a cheap price, if there wasn't a long term interest in webOS. In terms of the talent, I am sure substantial webos talent (and there is quite a bit) will move to the other three platforms and come up with innovative products, I am sure of that.

I would disagree as to 'nimbleness to compete with android' .. HP makes tons of hardware, including fairly widely used specialized hardware where they could have used embedded OS to strengthen the portfolio.

Buying a second grade business intelligence firm at 10 times revenue at the time of cutting the product pipeline that you invested in just an year ago -- this is not what you want to see from a company which claims to be getting it's act together.

At this point, ibm is thought of as a competition to Accenture and Infosys, and hp is going to get into that space. Now all they need to do is get rid of that Vyomesh Joshi guy who runs the printing dept since it's so hardware centric and non-core to the hp body shop, regardless of the strnmg revenue generated by that department.

Google buys Motorola Mobility

2011-08-16T22:30:00.002-04:00

Update 7/19/2011 - I added Mihir's comments inline.

Big news for the last few days. At a time when the news otherwise talks about debt crisis and a possible downgrade of sovereign debt, Google has offered to buy Motorola Mobility, the cell phone etc part of the Motorola.

1. This validates the apple / rim model of cell phone manufacturer and mobile phone software being a single offering. This was always the case during the time of dumb phones and even during the short lived era of feature phones. In the smart phone world, android and windows phone had offered a software platform for any manufacturer to use. Apple had succeeded in keeping true to it's theme of a combined hardware + OS + controlled application space.

Mihir: To the extent that Google focuses efforts on deep integration of Android and Motorola branded devices, this may be true. However, given Google's conflicting interest of getting and keeping large share of the OS market (through partners like HTC, Samsung, Sony Ericsson, LG etc.), it is not clear that Google will do something better internally than through partnerships.

1.1 This somewhat validates HP's purchase of Palm (I don't remember the exact details, but the amount involved was quite paltry compared to the steep premium Google paid for Motorola)

Mihir: I remember Palm being ~$1-1.5 billion mark. Certainly validates the purchase if HP makes a success of WebOS phones and tablets. Today's reports suggest that Best Buy has sold <25k of the 300K HP TouchPads it sourced from HP. Not good news for HP. Plus, given HP's strength of Patent portfolio in PC, Server and other platforms, and relative lack of penetration in the mobile phone/tablet market, it is not clear if the patent portfolio is worth much to HP.

1.2 This also somewhat validates Microsoft's partnership with Nokia. While Nokia is still too big for a software maker to purchase, a strong alliance might serve the purpose.

2. After desperately trying to get their hands on Nortel's patents, Google went on an offensive bashing 'others' of misusing patents to stifle innovation. That bashing lasted a few weeks and suddenly Google has acquired a has-been phone manufacturer, but one that has 17000 patents. Eric Schmidt was going to be the google's political front, but looks like Washington has taught him double talk pretty quickly!

Mihir: Don't necessarily think this is double-talk or in contradiction of Google's position on patents. Cold-war forced countries to accumulate nuclear stockpile while being opposed to nuclear weapons. If Google naively continued to rely on lobbying and policy mechanisms, it may have lost the mobile market (policy/ law always moves way slower than tech). Till Google files an unprovoked lawsuit, this is not proven. Plus, this allows Google to convince HTC and Samsung (with low numbers of mobile phone patents) that it is serious about Android and that it will help them counter any patent assertions.

Ameya: Accumulating nuclear stockpile while opposing nuclear weapons is no less hypocritical and double-talk. You might as well admit you need patents to stay in the game and not be two-faced about it.

3. Sanjay Jha has proved yet once again what an extraordinary salesman he is. After getting a few good solid hits he has managed to sell the company at a pretty good price, despite the fact that Samsung / HTC are eating Motorola's lunch. Good time out.

Mihir: certainly, he sold the company at or near the peak of patent valuations and in a trough of performance wrt actual products (Atrix, new Droids etc.). A few months early or late might have been a far lower price. Strike when the iron is hot!

4. This raises a potential conflict of interest. Android based phones are also made by other manufacturers (HTC/ Samsung). If I were them, I would be skeptical about how well they would be supported at a time when the OS maker was also manufacturing handsets. This might just mean that they look at Win7 as a platform to continue building on lest they should be at the mercy of Google.

Mihir: Given the commodity nature of all non-iphone smartphones/tablets (and relatively low margins), it is hard to believe that Google will risk benefiting Motorola and alienating other partners.

Mihir: An additional point - there shouldn't be much problem with the antitrust authorities with respect to the deal scrutiny and that the deal should go through that review quickly. The reason is that the merger does not meet the thresholds that the DOJ uses to determine whether there is potential harm to competition due to the merger.

Is Zillow IPO overrated?

2011-07-24T23:37:00.000-04:00

Ever since LinkedIn IPOed and then doubled on the day, the media increased the number of articles about the frothing IPO market, and the bubble that they think it is. Zillow recently IPOed and the stock price trippled on the opening day and touched 60. Right now, it is at a somewhat modest $34 and change.

While it's been chastized as a company that's still not making profits IPO reminding people of the dot com bubble, I think that Zillow has a good business model.

1. Zillow is the leading website in it's subject area. No other website has captured the property assessment market.

2. It has an algorithm that is reasonable.

3. It has adequate transparency in the way it used the data to compute the assessment.

4. As the housing market turns around, there will be greater demand for Zillow's services to get a ballpark estimate of the 'fair value' rather than the current 'beaten down, lowball figures' at which houses are currently trading.

5. It will at some point be able to monetize the services better, particularly if it ties in to human appraisers for a higher quality appraisal that feeds back into the zillow algorithm

ps: this post is still in progress, i need to come back and add some more thoughts to it.