Lazy Man and Money

Buy Social Media Stocks Today?

by 3 Comments

I’m trying to do a little less stock picking than I have in the past. I did well with it then, but now I like the diversity of ETFs. They don’t move too much and when I look at my portfolio it is still doing okay.

However, it’s hard for me to avoid the news. I need to stay on top of it to get ideas for articles to write. I didn’t much positive to write about lately, so I took a bit of a break. Hope you didn’t miss me too much.

So today, I’ve got some sales to offer you. No, I’m not going to sell you anything. I’m talking about stocks on sale.

Facebook opened up today 25% down from what people were paying for it yesterday. The could be a good deal if you wanted to hold it for a long time. It’s still worth nearly $700 billion, so bigger than the vast majority of companies. I had some shares when it was worth $50 billion, but I sold them far too early. Maybe I should get back in again.

Another social media stock that’s being put on sale today is Snapchat. It’s down nearly 20%. It’s almost at its 52-week low and about 70% off its highs. I had bought a bunch at $5 and now it is around $26. Fortunately, I sold a bunch between $60-$80. Unfortunately, I still kept some. Should I buy more back? I don’t know, but I think I’m going to wait.

What’s next? Oh, there’s Pinterest (PINS). I got lucky and bought 100 shares at $19. It’s not the biggest trade, but I sold off some at $25, $37, and $75. I still have around 50 shares worth, but it is trading back at around $24.

Buy and hold would have worked with Facebook, but it would have been disappointing with SNAP and PINS. If something goes up, I try to sell off some so that even if it goes to zero, I still made money. It’s a great plan, as long as the prices go up. I don’t walk away with a home run, but those singles and doubles add up well.

My last stock is Twitter. I don’t see how it’s always priced so low. It’s only a $27 billion company. Snapchat is bigger than that and it feels like fewer people are using that.

Nonetheless, if you are interested in social media socks, this looks like a good time to buy them. My crystal ball is in the shop getting repaired – so they may drop again tomorrow, the next day, or the next 100 days. Or maybe they recover and get back to where they were six months ago. I like buying when things are low like this because I feel there’s a better chance of them getting back there.

Of course, before you make any decision, you might want to read about why are getting hit so hard. I think there are a few different reasons such as slowing growth. Apple put in some new privacy settings and advertisers may not want to pay as much before. It also seems like some stocks are down because they are associated with Facebook. I think they’ll probably figure it all out over the long term.

Dollar Cost Averaging is Still a Big Win

by 2 Comments

I’m getting worse and worse at writing titles. My upcoming title ideas include, “Paint still dries” and “The Sun Also Rises.” I hope no one takes that last one, because I think it could be big someday.

When something is expected it doesn’t catch the eye. So while this may seem like a boring article on the surface, I’m going to go into detail about two times I went to (relative) extremes with dollar cost averaging. Did it work out? The title may give you a hint, but you’ll have to read on to find out.

This is a difficult for me to write. I have two conflicting thoughts when it comes to investing.

The first is that I want you to focus on what I think you should do, which is very, very different than the second… what I actually did.

So what you should do is read and follow this investing article: Investing is Boring. We’ve already established that the boring title of this article didn’t scare you away, so you shouldn’t have a problem with that article, which is quite entertaining. Go Curry Cracker has a one step plan for investing. You don’t need to do much or learn much and it’s the kind of thing I often wrote about when I created this website long ago:

You should be Lazy with your money.

Alas… sometimes I don’t do what I should do.

I live a boring enough life and sometimes I spice it up with nerdy, money, investing stuff. That means that I don’t do the boring investing stuff… at least not all the time.

I have a section of my portfolio that I trade in *gasp* individual stocks. This is all retirement money that we have no plans to touch for years. It’s just a section and the rest is in boring index funds. My wife is in all index funds.

With most of the individual stocks, I also do boring things like buying and holding big companies. For example, I have held onto Google, WalMart, and IBM for years now. I’ve recently gotten into GE and P&G.

However, today I’d like to tell you about a couple of stocks that aren’t like the others. They haven’t been boring at all.

In each of them, I lost half my money on the initial investment. In each of them, I “doubled down” and bought a lot more and more as they hit lower and lower prices.

And while dollar cost averaging may be about buying more on a consistent basis, it amounted to about the same thing.

Stock 1: United States Oil (Ticker: USO)

I bought this before I knew of oil futures, backwardation, or contango. (It turns out that contango isn’t when you ask someone to do a ballroom dance in Spanish. Who knew?) I didn’t even know that the US was making a lot of oil through shale.

I wasn’t very informed and didn’t make a smart decision. However, over time, I learned about these things and while it gets complex, I became convinced of two things:

  • Oil isn’t going away (just yet.) We aren’t quite there with self driving electric cars, solar, and other things. Maybe in 10-20 years, I’ll think differently
  • Oil got extremely cheap. There was just so much supply from the shale and the world wasn’t using it enough. I think there was concern that it would cost more to store than it was worth. It crashed below $27 a barrel two years ago.

I first started buying USO stock at $21. I subsequently bought it 11 more times as the price moved down and down. Eight of those times I bought under $15, and three times I bought significant amounts under $10. When all was said and done, my average price was $12.69 a share.

That looked terrible when oil was trading at $8.82. However, on Friday it traded a little above $15. I could sell the whole batch, and end up with a nice little gain. Perhaps I should have. Maybe I’m getting greedy.

Instead I have sold off bits and pieces while I was in the black. I sold some on Friday at that $15 price. If it continues to go up, I’ll just keep selling shares and taking profits. If it goes down, I may want to wait a little longer.

Stock 2: Twitter (Ticker: TWTR)

I’ve always been a big believer in Twitter as a company. (Read what I wrote about the IPO in 2013.) It’s got so many celebrities using it for free! It’s got television hashtags so people can talk along. It’s completely changed the way I watch football and as my wife can tell you, that’s nearly impossible.

And that was just the Twitter stuff that was happening back when I started buying it a couple of years ago. There’s politics and equality movements going on. I’ve even learned that there are personal finance bloggers who are willing to share their stories and opinions about MLM scams. I feel like I found my community. (That may seem weird because Twitter is also known for making it easy for others to bully and just spout out lies to change perception.)

I bought Twitter stock for the first time at $47 a share. I then bought some more in the $30s range. I then bought a little more in the $20s range. Overall, I bought 11 times. Fortunately, 4 of those 11 where around $16-17. My dollars went a lot further buying down there than did at $47 a share.

By the time I was done, my average price was around $23 a share. Like oil above, it looks terrible when the stock is still trading at $17 a share.

On Friday, Twitter stock was trading above $43. It has recently been as high as $48.

It’s not an understatement to call it the turnaround stock of the year… and some of that goes back to last year. Like with oil, I’m starting to sell a little of it at various milestones. However, I still believe that Twitter could be one of the next tech giants, which could give it legs to double or triple even from its already relative high level. I don’t see oil tripling to top $200 a barrel soon.

Conclusions

These two stocks had something in common… I didn’t see them going away. They were too big to fail. (You could say that Twitter could have failed, but they had the cash to run for 412 years.) And while there is a saying that the market can be irrational longer than anyone can stay solvent, I was okay with waiting a decade or two on them.

They had something else in common, I ended up owning much more of them than I had wanted to. However, I didn’t feel that the business of them fundamentally changed (well maybe I did with oil due to the shale stuff). Still, both holdings were getting to be such large parts of this “play” section of my portfolio that it dwarfed anything else.

As I sell off shares of them now, I’m able to lock in some gains. For now most of the money is staying in cash or bonds because I’m a fearful of how expensive the market has gotten in terms of it’s Shiller P/E.

One could make a case that Twitter and USO were “cherry picked.” I’m still waiting for IBM’s day to shine. It’s at its low and I’m thinking about buying more, but it’s still only down around 10% for me and it’s paid very good dividends over that time. It feels like a different story as it didn’t drop in half and I haven’t bought in nearly a dozen times.

Also, there’s the case that sometimes a company doesn’t go back up. More than a decade ago my shares of Palm, Lucent, and Worldcom didn’t recover. (Actually I’m not sure what happened with Lucent.) It’s looking like my GE investment is going to be where it is for quite some time as they restructure their businesses. That’s the risk I suppose

Finally, one could look at this whole thing and realize that while my money was tied up in oil and Twitter, the mix of my boring US and International stocks had been going up all along. I haven’t looked back to see what the 3-year returns on Twitter and oil, but I’m guessing through the highs and the lows a boring portfolio of index funds did about as well as they did combined.

The Problem with Picking Stocks

by 3 Comments

Last week, I excitedly wrote about my new stock play: Twitter. For those who have been following Twitter (pun not intended, but kind of intended), this has turned out to be a fantastic way to lose money in a short period of time.

I knew in picking individual stocks, I was taking on significant risk. What I didn’t realize is that the lock-up period for Twitter was coming in a few days. The lock-up period is when insiders at the company, who might have paid pennies a share get to sell at the current stock price. Buy shares at a few pennies and sell at $35 is a fantastic way to make money. Unfortunately, it creates more supply and price goes down.

I should have done this research as I did when buying Facebook. I didn’t. The egg on my face is well-deserved. I still believe it is a very good company and I intend to hold onto it for a long, long time so I used the opportunity buy some more and dollar cost average a better price for myself.

Even the Experts Don’t Get it Right

While I was try to figure out which hat goes best with egg-face, I got the June issue of Kiplinger’s Personal Finance. (Side Thought: Why do magazines always seem to live a month in the future?) The issue has an article about when to sell a stock. The advice boils down to, sell when the stock no longer meets your objectives.

Sounds good in theory, but one of their examples has blown up in their face since the magazine went to press. They say that if you love growth stocks and fell in love with Apple, you should unload it. They used the price of Apple on April 4th of $532. The last week of April saw Apple jump more than 10% to go above $585.

People invest because they want to make money. If you got to specific or cutesy about focusing on Apple’s growth, you missed the value. That laser focus would have stopped you from reaching your main objective… make money.

In fairness, Kiplinger’s does mention that Apple’s “bruised shares may attract bargain hunters”, so they’ve hedged themselves well.

Final Thoughts

You really have to know what you are getting into when you pick individual stocks. I knew the risks. On the other hand, over the past 18 months, I’ve done quite well. Perhaps this has lead me to have a false confidence in my ability to recognize good value. I openly admit that my dog could have picked good stocks in this market.

In any case, all individual stock picking is done with a small percentage of my overall portfolio. So even when I wear my egg face, it is a very small egg, and the rest of me is smiling.

My New Stock Play: Twitter

by 6 Comments

I’ve mentioned before that with a small part of my portfolio, I like to invest in individual stocks. In fact, some may say that it more speculation than investing. In the past few months, I’ve written about investing in SodaStream and IBM. Both have had their ups and downs. As of today, I’m up around 12% on each of them. Not bad for a few months.

Yesterday, I decided to get into Twitter. I should say, get more into Twitter. I had already bought a few shares at around $47, so buying more at $37.50 serves to dollar cost average me down to around $41. When I buy a stock, I send a little note to Evan at Million Dollar Journey. We have good discussions. He made the great point that Twitter feels like 1999, they don’t make a profit. I couldn’t argue with any of that.

In fact, many of the same arguments were ones that came up when I wrote about Twitter’s IPO.

My counter argument may not have been very strong. I suggested that other tech companies have gone from earning no profit to being very profitable. There’s an Ebay.com to counter Pets.com. Twitter feels more like an Ebay to me. When I watch a television they are using hashtags. When breaking news about the Patriots is coming down the pike it’s from Adam Schefter’s Twitter account. Celebrities have bought into Twitter and that’s incredibly powerful and valuable.

I hate when people talk about “intangibles”. I’m going to have to settle for punching myself in the throat, because the intangibles are huge with Twitter.

The problem I had with Twitter was paying for it when it was a $46 billion dollar company. I have much less of a problem when it is a $21 or $22 billion dollar company. It very well may turn out that I should have paid $10 for a shirt, but it feels better to pay $22 than $46. (Hopefully, I didn’t lose too many readers there.)

I understand that Twitter got a lot cheaper because it didn’t grow users as much as people had hoped. On the other hand it seemed to grow revenue more than expected. That’s got to count for something, right?

So where do you stand? Is Twitter a buy now?

Should You Buy Into Twitter’s IPO?

by 11 Comments

So word has it that Twitter is going to IPO today. When a large, popular technology brand goes public it is always going to catch the attention. Who can forget the late 90s and early 2000s when anything a “.com” at the end of it was jumping on the stock on market.

But then there’s Facebook. We remember the hype that got right? Kapitall implied it might be worth 36 trillion dollars in a video by comparing it to Microsoft and its growth. We all knew that wasn’t going to happen, right?

With Facebook I made a prediction. I said that it would close at around $42-46 on the first day of trading and then slide down to $30, when the hype dies down. I wasn’t that far off except that it was lower than I expected.

My prediction was based on the financials, but also on my gut. I asked myself, does Facebook seem like a $120 billion dollar company (which at the time would have been around a $42 share price I think) given the well-known problems with monetization and mobile. Is it really worth double what Ebay is, which has this nice Paypal business wrapped into it? I just didn’t see it. Today, it does have that $120 billion market cap because it has answered those monetization and mobile questions emphatically.

This brings us to Twitter (TWTR). It looks like they are pricing it at $26 a share today. That would give it a valuation of $14.2 billion according to CNET or 18 billion according to MSN. (What’s up with the $4 billion difference?)

My friend, Rob Berger at DoughRoller says that you shouldn’t invest in Twitter. He makes reasonable points like a lack of earnings… they are losing money. However, the company is growing its revenue up 106% from last year. DoughRoller put out an interesting thought… even if Twitter had no expenses (which is an obviously absurd supposition) it would have a P/E of 32, given their projected revenue for this year. In comparison, Apple’s P/E is around 13, so Twitter would still be 2.5x more expensive than Apple (again, with the assumption of Twitter having no expenses).

Here’s the thing that gets me though? My gut. Is Twitter a $14 billion (or even $18 billion) company? As of today, the financial world has decided that Facebook is worth $120 billion. Is it that unreasonable to for Twitter to be 1/8th or a 1/10th that? I don’t think so. If Twitter’s revenue’s grow another 75% (predicted some slowdown from the 106% growth), they’ll have grown their top line enough to make DoughRoller’s no expenses calculations seem reasonable. And while comparing a (very) hypothetical 32 P/E to Apple’s 13 sounds expensive, it’s a downright bargain compared to Amazon’s P/E in the 1200’s. While almost any company looks like a bargain in that comparison, it’s important to point out that a comparison to Apple represents just one end of the spectrum. I’d argue that Twitter is closer to the Amazon end of the spectrum, because it does have the potential to grow revenues. When you make the crazy amounts of money that Apple does it gets impossibly hard to double it in a short time frame.

The thing that my gut likes most about Twitter is how the world is adapting to accommodate it. When you want a television show there’s a hashtag, not just for the show, but often for specific scenes. This is tons of free advertising. I don’t see other companies receiving this… and that includes Facebook. Also, almost every star I can think of is on Twitter. Imagine if you were to start a company and wanted to advertise on thousands of television shows and get the top influence-makers to actively your product. How much would you have to pay for that?

This is the kind of advantage that I think you get with Twitter that you don’t get elsewhere.

In the end, I see two schools of thought. There’s one taking a hardline of “Where’s my profits? Without them, this is crap.” and then there’s a view that “Earnings will come just as they did with Ebay and Amazon who didn’t have them for a long time.” I’d place myself in the later view.

I’ll be putting in a bid to pick up some Twitter today. I just wonder if I’ll be able to get any for under $30. I predict a close of around $36.