Should We Worry About Apple?

There are relatively few companies in which we associate a single person as the company. Steve Jobs and Apple is one of those companies.

The initial announcement of the resignation of Jobs came quietly and calmly. It was not completely unexpected as Jobs has been having health issues that have been public since 2004. Even so the repercussions in the market have been significant.

Current off-hours trading is seeing Apple stock drop a tremendous 5%, indicating a serious lack of confidence in the leadership set to take over.

The question is: Is Apple in trouble now that Jobs is gone?

 

No, I think they are as strong as ever.

 

One of the problems that a company experiences when its leader becomes the face of the organization is that many forget that an organization consists of more than just a single person, and they begin to attribute all the successes to the leader. While Steve Jobs has played a vital role in the success of Apple, much of the success happens behind the scenes and out of sight. Even with Jobs gone those areas of success are still there and still contain the same talented teams.

Apple has shown consistently that they have developed a company model, brand, and culture that is deep and durable. The fact that Apple already had a succession plan to have Tim Cook become the new CEO means that they had been planning for this event and for the long term success of the company.

While short term I expect Apple stock prices to drop directly related to Jobs’ departure, they will once again reach high levels once it is seen that Apple will continue business as usual.

photo credit

DIY to Save Yourself Money: Shelves

I finally reached the point where I just felt that I needed to clear out my garage so that I could fit both of our cars in the garage. Water splashing from our front sprinklers was starting to leave hard water stains on our cars – which is not a good thing. In order to make enough room to fit both vehicles, I would need extra shelving in the garage.

I checked out Costco and found some nice shelves that would meet my needs. I have a moderate amount of items that need to be stored, so two shelves would have been enough to hold my items.

Each shelving unit costs $128.39, which would make two shelving units cost a total of $257.

Now $257 is not exactly cheap, so I had to ask myself some questions:

  • Do I really want to spend $257 on shelves to hold items that probably won’t make the same amount of money in a yard sale? Not if I can help it.
  • Do I need the 1,000 lbs capacity of the shelves? No.
  • Is there a chance I will need to move the shelves to a different area of the garage? Probably not.

Judging from those answers I could quickly see that building my own shelves would meet all my needs.

I went to the local hardware store and found 3 cheap MDF shelves (8′ x 15″), 9 brackets that can support 100 lbs each, and screws to attach everything together. The total cost of building materials? About $50 after tax. (Prices will vary depending on where you live)

After getting the materials home it actually only took about an hour to put up. The shelves themselves are 2 feet apart. The hardest part was just finding the studs behind the garage drywall. I have a stud finder that only seems to work when it wants too.

Now the part that most people hate about DIY projects is the part where you have to do it yourself. However, I reasoned that even if I had purchased the industrial shelves, I would have to assemble them as well, which may have taken almost the same amount of time.

In the end I saved over $200 and took about the same amount of time and effort as buying manufactured shelves.

I may add an extra support on the left side, if I decide to put heavier things on it.

What is the perfect stock?

I was reading through some random financial blogs and I ran across a particular blog that posed the question “Is [insert stock name here] the perfect stock to invest in?”

It actually made me sit up a little straighter in my chair because it’s something that I don’t normally even think about. The perfect stock?

What is this I don’t even…

Philosophically I fall under the camp that believes that there is no such thing in this world as perfection. Therefore, achieving perfection is also impossible. Stock trade is also filled with issues of Psychology, which naturally adds a level of unpredictability that even further prevents perfection.

For a few minutes, though, I will stray from my philosophical beliefs and consider what would be the perfect stock, if such a stock existed.

Here is what I think some of the characteristics a stock would need to have to be considered perfect:

  • Growth – a company would need to have had consistent growth in the past and would need consistent, perfectly predictable, and unlimited growth in the future. This company would also basically have no competition in their respective industry/area – a monopoly.
  • No Debt – not only would this company having amazing growth, they would have zero debt as well.
  • No Risk – how could a stock be perfect with any risk attacked?
  • Vastly Superior Financial Numbers – that company would have to sell a high profit margin product or service that nearly everyone needs -such as air. Most people need air, right? (I can’t think of a few that would be better off without air) I think something like this was in the movie Total Recall.

I think we can all get the picture now. There is no way short of enslaving the human race or doing something that is pretty much illegal that we would get even close to a perfect stock.

Of course I could just be taking this a little too far. They probably don’t mean a “perfect” stock, but a really good stock. Then again, why don’t they just say it’s really good instead of perfect? We all know why, it just doesn’t sound as sexy…

 

photo credit

LinkedIn IPO: Three Weeks Later

Three weeks ago I wrote my predictions on how I thought LinkedIn’s IPO would pan out. I will admit, while the prediction itself was not exactly a bold prediction, we can see the stock starting to perform as expected.

While I say it is performing as expected, I will say that it is higher than I expected. I personally did not expect the stock to peak at around $120 per share. I also certainly did not expect the stock to be at $72 per share at this point.

Let’s look at the stock price trend:

Why the stock is sliding down should not come as a surprise.

  • EPS: 0.07
  • P/E Ratio: 1,074.78

I couldn’t even have imagined it possible. A whopping 1,000+ price to earnings ratio? Investors must be crazy…

There is a lot of talk about shorting LNKD, but there has to be more people willing to go long on the stock, and I’m not sure there will be very many.

At least we can learn from this. Groupon is next – can we expect the same kind of results?

photo credit

Floods + Droughts = Higher Prices

Floods

With the Mississippi River floods, farmlands around those areas have taken quite the beating – some deliberately.  News and media outlets have mainly been focusing on the human element and damages to homes and infrastructure, and rightfully so. Estimates are predicting billions of dollars worth of damages once everything is said and done. There have been a few stories covering the potential economic impact of the Mississippi floods, but most have not gone further than that.

Even as water begins to recede, many farms still have to access damages and may even be left with unsuitable land to grow crops.

Now additional flooding along the Missouri River is threatening an additional 500,000 acres of key farmland in the western part of the Midwest. The U.S. Army Corps of Engineers is working hard to mitigate as much damage as possible, but they can only do so much.

Satellite Images Of South Dakota River Floods in 2011 – mouse over to see normal levels in 2005.

image credit

Droughts

Flying under the national news and media radar is the major drought occurring mainly in Kansas, Oklahoma, Texas, and Louisiana. Economists with the American Farm Bureau Federation caution that the drought may bring about more devastation to livestock and crops than the floods will when these events are over.

In Texas alone, according to the Texas AgriLife Extension Service, impact on agriculture alone is already approaching $1.5 billion. With the increase of feeding costs from strained supply and loss of grazing land due to the drought, livestock production losses are up to $1.2 billion. It should be noted that Texas is the largest beef producing state.

While global food prices did drop slightly, I don’t expect them to drop any further in the coming months. In fact, I would expect them to rise after these events caused by poor weather conditions.

It might not be a bad time to examine commodity prices…

Social Media is over-valued

I have been writing for a while now about my views on social media companies and their apparent valuations. I just cannot see how these valuations can be so high, especially considering the known business models they each use.

LinkedIn was first, next comes the Groupon IPO.

The good folks at gplus.com gathered data and put in into a nice infographic to see the various valuations of some social media companies. I will add that there should be at least one correction to the graphic: it’s not a tech bubble; it’s a social media bubble.

 

Click to see full size

phtoto credit

When is the right time to buy a home?

Same story, different day...

Yesterday came news that the home-price index fell to its lowest point since 2002. It appears that now is a great time to invest in real estate!

Errr…

Wait a minute…

Didn’t we hear the same thing last month and the month before? Are the people that invested last month suckers?

I’m sure we all know the drill: Home prices go up? Great time to buy! Home prices drop? Great time to buy! Apparently it is always a great time to buy a home. However, we need to take a step back to see what we really need to see.

Rather than considering the state of the entire economy, you should instead consider your personal economy.

Here is what I mean by that:

It starts out with managing your expectations.

  • Do you even want to buy a home?
  • If so, do you want to live in it or use it as an investment?
  • How much do you want to pay?

The third point is really the key. Obviously you have to make sure you can qualify for a home, but once that part is settled you have to determine at what price point you want to pay. That way, regardless if the value of your home rises or drops, you are at the exact price point that you wanted and planned to pay.

If you find a home that you want and it is at the exact price you want to pay, then it is a great time to buy a house for you. Forget whether it is a great time or not for anyone else.

Remember, those that are chasing the “bottom” of the market will always be disappointed. There is no way to tell if the housing market has hit the bottom until it is well past that point.

Set realistic expectations and you’ll know exactly when it is the right time for you to buy a home.

photo credit 2

6 ways to improve gas mileage

Prices at the gas pump are increasing and now 4 in 10 Americans are finding prices painful. So how can we save money on gas?

I’m not going to say to buy a new car. Many are not in a position to buy a new car, and while buying a new car may save money on gas, you may actually end up spending more overall on the actual car itself.

So what are other ways to save money on gas?

  1. Carpool – This is one of the more obvious solutions, but so many don’t do it. Reasons for not carpooling range from adding additional travel time, having to sync schedules, and not being able to drive your own car (Americans LOVE their cars). However, this is one of the best ways to save money on gas. If you are seriously determined to save money, then carpooling is a great solution.
  2. Look ahead – There is a common saying that braking wastes gas. This may have been true for older cars, but for modern computerized cars this is no longer the case. If anything, braking causes losses in momentum, which in turn will require more gas to accelerate back to speed. The purpose of looking ahead is to adjust and time slow downs to try to break as little momentum as possible. If you have a hybrid, then maybe you want to brake :)
  3. Accelerate slower – It is also another common thought that accelerating faster will get you up to speed faster than accelerating slower, and as such acceleration rates do not affect gas efficiency. Looking at simple physics seems to point that this should be true. The total amount of energy in the system is the same regardless of acceleration. However, what the simple physics leave out are losses due to friction, heat, and general inefficiencies in mechanical engines. Pushing harder on the gas pedal and putting in double the amount of gas in the engine won’t necessarily give you double the amount to energy to apply to acceleration. Accelerating slower will allow you to use gas more efficiently – just don’t be obnoxiously slow.
  4. Use cruise control – Cruise control is more efficient than manually controlling the gas, especially over long distances. The computer can control the gas at a much steadier pace than humans can. Many cars can engage cruise control at speeds as slow as 25 mph. One of the few limitations of cruise control is over areas that are very hilly. It cannot predict upcoming hills and will often not take advantage of places where momentum can be built to climb hills.
  5. Use the proper octane for your vehicle – Engines are built to run with specific gasoline in mind. Many times it can be found in the owner’s manual. If it is not there, then the all-knowing Google will know. Using a higher octane gas will not increase gas mileage if the engine is not made to utilize the higher octane. It will only cost you more money.
  6. Keep tires properly inflated – Low tire pressure causes tires to be less “round” which require more energy to begin moving and to maintain speed. Keeping tire pressure at proper levels also increases the life-span of the tires as well.

photo credit

LinkedIn IPO: Predictions

I wrote earlier about LinkedIn and raised questions about a social media bubble. Here we are a few months later and LinkedIn is expected to start trading Thursday morning on the New York Stock Exchange under the symbol “LNKD”.

Reports are showing that the asking price has gone as high as $45 per share. At that price LinkedIn would have a market value of over $4 billion, which is more than 17 times the value of its revenue in 2010.

So what do I think about the coming IPO?

I’ve said it before, and I’ll say it again, I think it will be a huge bubble. I just can’t see the long term business model they have so far revealed being very profitable.

Sure they are projecting themselves to have up to $500 million in revenues for 2011, but they also expect to not make a profit due to expansion, new products, and shoring up against competition.

I also see somewhat limited potential for growth. Two-thirds of LinkedIn’s revenue comes from fees required for greater access to the site and more information from profiles. That already shows that most of their business comes from specialized tasks and not from ad revenue. Unless they have something spectacular planned I don’t see my opinion changing much.

As for the IPO, I think the price will go up initially as there will be a frenzy to jump in while the price is “low.” Once everything settles down I think the price will slowly drift down as people start to realize the low profit margins the business model LinkedIn is using will generate.

This isn’t exactly a bold prediction either, as many others are having trouble seeing the growth and profitability potential for LinkedIn.

What do you think of LinkedIn’s IPO and future?

Charter Communications doesn’t make any sense

Whenever I mention Charter Communications, the majority of the responses I get from people within earshot is “I hate Charter!” I don’t blame them. Charter Communications is available in this area and are notorious for their service interruptions and lack of customer service.

When they filed bankruptcy in 2009, it came as no surprise to most. Paul Allen and his lack of leadership almost guaranteed Charter’s failure.

The bankruptcy ended in November, 2010, and shortly after the stock started to rise again. In fact, it hit an all-time high just this past week! The question is, why?

Charter’s old stock holders were wiped out during the bankruptcy, so investors were heavily burned. Why are they suddenly enamored to get Charter stock once again?

They finally stripped all of Paul Allen’s influence in the company this past January, which is a good thing. They also inked a deal to use TiVo hardware. This is also a good thing, considering TiVo will probably end up suing every other company under the sun that uses a DVR.

Is that enough to go from a low of $31.16 a share to $61.15 this past week?

  • Their ROE is effectively zero because they have no net profit
  • They have no P/E ratio because they have no earnings
  • They have a negative earnings per share (EPS)
  • They are still very highly leveraged

Conventional investing wisdom would say this is not a good investment at all. So why does their stock keep going up?

I certainly can’t tell why. Analysts just say that Charter is doing well, but they don’t say why.

Is it all just hype?