Lazy Man and Money

Analysis of My Best and Worst Investments

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A couple of years ago, I decided to take a small portion of my retirement and actively invest it. Unfortunately, I didn’t do it in such a way that I can easily gauge performance. Fidelity’s tools aren’t all that great (or maybe it is that I can’t find them), but it is further complicated by the addition of new cash.

I’m kicking myself for setting up something so flawed. At the same time, I don’t know how I would have done much better. I don’t want to change my whole retirement structure so I can report performance on the blog (though it would be worth knowing for myself).

Like every stock-picking investment to date there’s been some good and some bad. I thought I’d review them and see what, if anything, can be learned from them.

I’m going to start with the good. It’s going to look like sunshine and rainbows… that’s the nature of covering “the good.”

  • Groupon – I dollar cost averaged at buying shares around $4 a share and sold them for around $8 a share. This is a rough estimate. I usually retain some shares in businesses that I believe in, but I just wanted to flip it and get out. I realized that I bought it for the wrong reasons. I bought it because I thought it was cheap and couldn’t get cheaper (downside protection is a common theme). It worked, but I wonder if it is more luck than skill.
  • Zenga – Much like Groupon, I bought it at a very cheap price… around $2.50 a share. I had confidence it wouldn’t go much lower because they had cash and real estate assets almost equal to $2.50 a share. It was like the company was valued at zero. It got up to around $4 and I sold. I didn’t believe in Zenga’s long-term business, so I got out.
  • Facebook – This was my biggest win. I bought shares that I dollar cost averaged at around $21.25. Unfortunately, I sold most of them at around $32. I still hold 25 fantastic shares, which at $94 is not half bad. Remember all that talk about the bungled IPO? Me neither. Remember the talk of ridiculous evaluations? Well at a P/E of 95 it isn’t cheap, but it isn’t crazy like Amazon either.
  • Google – I’m not sure this counts as part of my experiment because I bought so long ago. I bought at split adjusted $295 a share. At $665 today, it shows no signs of slowing down.
  • Apple – I loaded up at a split-adjusted $71 a share, but sold off a pile at $100 a share. It would have obviously been better to hold onto the shares, but I’ll look optimistically for a minute.
  • –

    • And now for the bad…

    • SodaStream – When it dropped from $50 to $37, I jumped in. Of course I’m smarter than the market and a small revenue miss wasn’t a big deal… especially in getting a 25% discount. Today it trades at $17. I had a few more trades in between where I made a few dollars buying low and selling a few dollars higher, but I took a sizable loss on most of the shares.
    • IBM – I bought it at around $170 and had a chance to sell at $200 a share while back. Now it is $160. I read it is Buffett’s biggest holding. I think he likes it for the same reason I do… a P/E of around 10. The revenues are shrinking every quarter, but they spend a lot of money buying back shares. They also pay dividends. IBM is in transition as it moves away from mainframes and chips and more towards cloud computing. It’s taking years and will probably take a few more, but I think it is going as well as could be expected.
    • Yahoo – I bought this because the money they were getting from the Alibaba shares essentially equaled the value of the company. I figure this gives me Yahoo’s business for free. I was up for a little while, but now I’d down about 7%. I think Marissa Mayer is very smart and I’m optimistic they’ll get things figured out.

    You’d think there would be a lot more bad in there. The “bad” is mostly in the form of lost opportunity. There are some investments that did nothing while the general market has gone up. My investment in Russia stocks is one example. My investment in Twitter is another example of money going nowhere.

    If I had to guess I’d say that it probably all comes out to market average. I did well with some and others I had essentially dead money. This reinforces what I thought all along… stock picking isn’t going to driver of wealth for me. I’m fine if I get market returns… or even slightly below market returns.

    Why would I be fine with below market returns? It’s a small amount of my portfolio. I’m learning a lot. I’m having fun. Losing or gaining a percent or two on a small amount of a portfolio isn’t going to add up to much over the long haul.

    All that said, here are the things I’ve learned about myself in investing:

    1. I Like Technology – I already knew that, but I had to point out the obvious here. Almost all of the companies mentioned are, at least in large part, software companies. (Apple is more software than most people think.)
    2. I Like Buying Cheap and getting Downside Protection – Even the big technology winners were bought fairly cheaply. It may be hard to remember it now but there were major questions about Facebook and Apple.
    3. I Let Loose the Small, Fad Companies – I viewed Zenga and Groupon as fads and I’m probably more lucky than good in making money with them.
    4. Don’t Necessary Buy What You Love – I’m a huge fan of SodaStream’s products, but that doesn’t necessarily lead to profits. I thought that their focus on healthy fizzy water and cost savings would be a winner with consumers, but I guess I was wrong. I can’t see why it isn’t in most households. I’m probably naive, but I keep holding on to a few shares hoping the general public sees what I see.

      It’s probably a very bad omen, but I did the same with shares of Palm. (Yes, I laugh at Samsung commercials showing off wireless charging, when I enjoyed a superior version of it back in 2009.)

    I think the #2 and #4 points are probably the best ones to take to heart. Even my loss in SodaStream could have been much, much worse if I didn’t buy on the dip.

    If I were to translate these insights into an investment today, I’d say that commodities look attractive. I’ve been saying that for some time only to see them lag the market or even lose money.

Ask the Readers: Do Groupon and the Entertainment Book Save Money?

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Over the weekend, I was thinking about the Entertainment Book. If you aren’t familiar with it, you’ve probably been living under a rock for the last 30 years. It’s a book that has a lot of coupons, often of the buy one, get one free variety towards, as the name implies, entertainment activities. When I was child (we are going back over 25 years here), my parents would get the book and often use the coupons at restaurants. I was amazed at how a simple $25 purchase seemed to pay for itself in just one or two meals… and we had hundreds, perhaps thousands of coupons that we could use.

It seemed like we easily saved hundreds of dollars a year. Did we really though?

Before I get my answer on that, let’s look at the restaurant’s perspective. The reason why any establishment offers coupons is no big secret, they want to bring in more customers, even at a lower price. Restaurant margins when they get a customer in the door are particularly good, so even the buy one, get one free deals are profitable for them. That’s especially true if they can convince you through their good food and service to come back and pay full price. My eight-year old mind relished in the fact that we were somehow beating the system, getting a deal.

My 35-year old mind, definitely has a different perspective.

It is very easy to look at these coupons as saving money. Both Entertainment Book and Groupon offer discounts that seem rather large – 50% or better. The cost comes in when the deals lure you into buying more than you normally would. Even getting 50% of every restaurant meal adds up with drinks and/or taxes and tip included. It can easily cost $25 for a dinner for two (even if you are trying to save money at restaurants). It might not be as fancy, but cooking at home is just a fraction of the cost. We have to factor that into the big picture of whether we really “save money” with these coupons.

I think my parents had it right. They used the coupon book every 2 or 3 weeks on meals out that we generally would have gone out for anyway. Rather than have one particular “regular” restaurant, we went to new ones. In some ways that bit of mystery of trying a new place added to the adventure. As a child, I wasn’t included into any budget discussions, but it now occurs to me that whether my parents had a formal budget or not, the use of the Entertainment Book was worked into it.

When I look at whether these deals actually save money, I have to measure it in terms of sticking with-in a budget. If you are using the deals to lower your restaurant expenses or stretch that budgeted dollar further then you are saving money. If the deals become an excuse for lifestyle inflation, you may be better off without the temptation.

What do you think? Let me know if the comments below.

Living Social Buying a Million Customers?

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One of the biggest deals I’ve seen in a long time is running around the Internet tubes today. Living Social, a group deal company like Groupon, is offering a $20 Amazon Gift Card for $10 today. You just have to sign up and buy it. As always check the fine print, but I didn’t see any gotchas. At noon (Pacific Time) as I write this more than 700,000 people have taken advantage of the deal.

As I’ve suggest before Amazon gift cards are the ultimate last minute gift. Why? They are good for almost anything you might ever want to purchase. (Yes, even 1500 Live LadyBugs… I challenge you to count them!) I realize this deal isn’t exactly like $10 in free cash, but it comes pretty close.

Amazon isn’t in the business of giving away $10 on it’s stuff – it’s not worth it to them. Why would Living Social do it? They are essentially buying customers… and the price is close to $10 a head. (I suggest it is close because Amazon makes deals with CoinStar to offer gift certificates in exchange of CoinStar’s service fee). This is educated conjecture on my part, but I’m guessing that Living Social is putting up $16 for those $20 gift cards (getting a 20% volume discount). By selling them for $10, they are essentially giving away $6 for each person it signs up.

That $6 number may not be entirely accurate. Surely current Living Social members are taking advantage of the deal. In this case, Living Social isn’t getting a new sign-up. On the other hand, the deal is creating quite a buzz. For instance, it got me writing about their company today. It’s hard to put a price on the kind of buzz this kind of thing generates. I take that back. You might be able to put a price on the buzz. Competitor Groupon is rumored to have turned down a buyout offer from Google for $6 billion dollars. If Living Social can buy a few million customer for around $6 each and turn it into a $6 billion buyout from a larger company, it is nothing short of brilliant.

Update: I should have done a little more research. I didn’t realize that Amazon was an investor in Living Social. That $6 price is probably much less than I thought.