Is it too late for Groupon?

Being a private company, the financial numbers rumored and said by Groupon have never been clear. Have they really made $800 million in revenue? What are the profits? It was back in December, 2010, when I read the news that Groupon rejected Google‘s buy offer at a reported $6 billion to instead have an IPO in 2011. I thought to myself, “Those guys MUST be crazy!” (or greedy!)

Fast forward a few months and in March, 2011, Groupons IPO valuation was said to be up to $25 billion. Craziness, if you ask me. A giant bubble.

When you really think about it, are there really any high barriers to entry for competitors of Groupon? There aren’t. Is Groupon’s business model easy to copy or improve? It is. Being in essence a discount site, I would even expect profit margins to be very low.

Today Groupon is now facing much more competition than it was a few short months ago. Facebook, Google, and even AT&T are now jumping in, and I expect them to take large portions of Groupon’s market share. Groupon is also facing heavy competition in planned expansions to China.

Still think Groupon’s IPO will still be worth $25 billion later this year?

How do you think the market will react to Osama’s death?


By now I’m sure most of you have heard of the news of Osama Bin Laden’s death. This is a major and great occasion, and there will be much celebration.

So with what I blog about, how do we think the market will react to Osama’s death?

Do we think it will shoot up? Go down? Stay the same?

I’ll make my own prediction here:

I think the market will remain steady and take a wait and see approach

While Osama’s death is indeed great news, there is always the fear of martyrdom and retaliatory terrorist events. If even 1 retaliatory event happens I would expect the market to react violently towards it.

If anything I think we’ll see some people play it safe and even move investments to safer ventures.

How do you think the market will react to the news tomorrow?

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My Own Home Improvements

Last week I wrote about ways to improve the value of your home. To show that I really mean what I write, here I am practicing what I preach.

My low cost home improvements consist of:

  • Painting walls and replacing wall fixtures
  • Installing a ceiling fan to a ceiling box
  • Adding low cost and creative decorations
  • Adding low cost window treatments
  • Installing lights and electrical work through family/friend connections

I cannot recall some of the prices of the items I bought, but what I can remember:

  • Stainless steel wall plates $2.99 from Home Depot
  • Curtains $29.99 each at Bed Bath and Beyond. I have since seen comparable ones starting at $19.99
  • Ceiling fan was $299, a bit expensive but we indulged ourselves a little. They can easily be had for lower costs.
  • Plastic wall flowers were $19.99, and we have quite a few extra
  • Floating shelves were $19.99 each
  • Red vases were $10 for all three from Ross
  • Flowers were from Michaels, or maybe another craft store

Leasing a New Vehicle

There are a lot of myths and misconceptions when it comes to leasing vehicles. A lot of money gets tied into our vehicles, so let’s set the record straight when it comes to leasing vehicles.

What is vehicle leasing?

Vehicle leasing is the leasing (or the use of) a motor vehicle for a fixed period of time. It is commonly offered by dealers as an alternative to vehicle purchase but is widely used by businesses as a highly cost-effective method of acquiring (or having the use of) vehicles for business, without the usually needed cash outlay. The key difference in a lease is that after the primary term (usually 2,3 or 4 years) the vehicle has to be returned to the leasing company for disposal. (source)

Why would someone lease rather than buy?

It’s no secret that buying a car and keeping it for 10 years will be cheaper than leasing for 10 years. However, there are some benefits to leasing:

  • You’ll drive a new car every few years. Some people prefer to drive newer cars. You do end up paying more over the long run, but you also get to update or change vehicle models regularly. This also helps for certain situations. For example, if you lease a sedan and realize you need a vehicle that can tow, you can easily change vehicles at the end of your lease.
  • Car payments are lower than purchasing. Lease payments are basically calculated by estimating the residual value of the car at the end of the lease term. The payments are combination of a depreciation charge and a finance charge. Therefore you don’t actually pay the full price of the vehicle, but only part of the price depending on the estimated residual value. For example, if a new Toyota Camry is worth $22,000 new, you may pay around $12,000 over the 36 months of your lease. (it can vary depending on your deal)
  • Leased vehicles remain under warranty over the term of the lease. Usually lease terms coincide with the terms of the manufacturer’s warranty – 36,000 miles and 36 months. Sometimes lease terms can be longer, but many times there may be extended warranties offered for those. This offers an extra level of security, as a leased vehicle will most likely be under warranty the entire time you drive it.
  • You don’t have to sell/trade/dispose of unwanted cars. Once you are done with your lease you return the car. If for some reason you wanted to keep it, you would also have the option to buy it by paying the remaining balance of the original price of the car.
  • You take care of your car and don’t modify them. Since leased car have to be returned, you will be responsible for any damages not covered through warranty. If you already take good care of your car and don’t modify it, you will most likely have no issues when returning a car. Also, some dealerships forgive a certain amount of repairs if you agree to a new lease at the end of your current lease.

If the points above suite you as a driver, so may want to consider leasing a vehicle. Of course, make sure you look at the numbers to make sure you are still getting a deal.

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What is Greed?

I was chatting with a friend a few days ago and we were discussing business and investment opportunities. As an off-question my friend asked what I would do if I had Warren Buffett’s money. I half-jokingly said I would build a race track and race around it all day in all sorts of exotic cars. I say half-jokingly because given the chance I would love to do that, but I know there is no way I get get away with doing that while amassing and maintaining that sort of wealth at the same time. My friend laughed and in a light-hearted manner told me, “You’re so greedy.”

I literally paused for a second, but brushed the comment off.

Yesterday I was reading the financial news and saw that Procter & Gamble Co. and Kimberly-Clark Corp. were both going to raise prices on certain items such as diapers and paper towels. The reasons given were from lowered net income from rising costs of goods. Reading some of the comments from one of the stories revealed a common theme:

“Kimberly Clark, symbol of greed.”

“Crony capitalism at its finest.”

“corporate greed at its worst”

Assuming that P & G and Kimberly-Clark are telling the truth about rising costs, is raising prices on consumers justified? Is it corporate greed? I did blog earlier about the realities of rising commodity prices. Should corporations be responsible for eating the costs of rising prices?

Let’s look at the definition of the word greed:

  • : a selfish and excessive desire for more of something (as money) than is needed

Going by the strict definition, it is greed. Then again, going by the strict definition, many other things should be deemed greedy. For example, leaving one job for another job that pays higher is technically greedy. It’s “more of something than is needed.” However, should we be splitting hairs here?

The reason I wanted to talk about greed today is because of the very nature of what we are trying to accomplish as investors. Investors take extra capital or money that they have and invest it in efforts to generate additional capital. Taking extra money and trying to make more money is by definition greed.

I blogged earlier about setting and managing expectations of investments. This is an additional aspect one should also consider – the moral implications of investing. With your investments you should expect to invest in companies that many will consider to be greedy. You will most likely be supporting companies that implement cost cutting measures and other “greedy” tactics.

The question you should ask yourself as an investor is, “Are you OK with that?” If not, you may have to re-consider some of your expectations in investing. Should one even care about what others think of their actions?

I personally think that “greed” is automatically seen as negative or evil by society. I don’t think greed in itself is negative or evil. It’s what you do with it that should be judged as evil or not. Is my fantasy of driving around a race track in exotic cars greedy? Yes it is. Is it evil? I don’t think so.

There are many different views on the subject of greed.

Here is the late economist Milton Friedman’s take on greed:


Here is comedian Lewis Black’s take on greed: (explicit language)


How do you look at greed?

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Easter Spending Habits

Easter is tomorrow and what better way for an investor to look at it is there than by looking at consumer spending habits!

Here are the juicy statistical projections for Easter 2011 by the National Retail Federation:

  • the average consumer is expected to spend $131.04 on everything from candy to clothes – up from last year’s $118.60 but not quite to pre-recession levels
  • Total spending on Easter related merchandise is expected to reach $14.6 billion
  • Candy will account for $2.1 billion in sales
  • Food will account for $4.5 billion in sales
  • The average celebrant will spend $21.51 on colorful new apparel, up from last year’s $19.03 and totaling $2.4 billion in sales
  • Consumers will spend an average of $9.02 on flowers, $8.00 on decorations and $6.79 on greeting cards
  • Children looking forward to a visit from the Easter bunny this year are in for a treat: spending on gifts will reach an average of $19.89, totaling $2.2 billion

It looks like there is plenty of money to go around for Easter activities. Have a happy Easter!

5 Simple ways to increase the value of your home

With the current state of the real estate market, many are looking for worthwhile ways to increase the value of their home – without breaking the bank. I am one of those people.

Here are 5 simple and relatively cheaper DIY tasks that can possibly increase the actual value and perceived value of you home:

  1. Paint your walls – especially with older or scratched and stained walls, a fresh coat of paint will breathe new life and can completely change the atmosphere in a room. Creative and colorful designs are also coming into style. If you are selling you home, neutral colors will tend to appeal to a wider variety of possible buyers and will increase the chance of higher offers.
  2. Update fixtures – many times it can be the small things that can add value. Things such as light switches and wall plates can add value by catering to more desirable designs. Improvements such as a metal wall plate can be relatively cheap.
  3. Install Ceiling Fans – If you already have a ceiling light box, installing a ceiling fan is fairly cheap and easy. New ceiling fans start from $50 and require minimal assembly. Fans can help reduce utility bills during both the winter and the summer by properly circulating air. If you need to install a box and do electric work, then you would have to consider the high costs from that.
  4. Window treatments – Window treatments such as drapes and blinds can make huge differences in overall atmosphere. Even if they aren’t going to stay with the house, it will raise perceived value among buyers. Drapes can even be made at home at a very low cost.
  5. Clean up you front yard – As the saying goes, “First impressions are lasting impressions.” Curb appeal can really set your property apart. Simple things such as cleaning your driveway and sidewalk with a pressure wash and keeping your lawn and shrubbery trimmed and weed free can literally add value to a home. Make sure your front door is painted and clean, and have a nice welcome mat.


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Setting and Managing Investing Expectations

Here is the cliché response to winning the lottery:

I would quit my job, pay off all my debt, spend a little on myself, invest the rest, and retire.

So what does it mean to “invest the rest?” When posed with the question I have heard many responses:

  • Put it into savings and live off the interest
  • Put it in mutual funds
  • Put it into stocks
  • Diversify
  • Start a business

So what is the correct thing to invest into? Well, it really depends on what you want from it. Many don’t actually take the time to determine what they want from an investment, or even why they are investing. Many just do it because that’s what a person is supposed to do, right?

So let’s ask ourselves a few questions:

1. Why are you investing in the first place?

  • For retirement?
  • To get rich?
  • For fun?

By defining your reasons for investing you will be able to better plan the approach or methods you will use for investing. You don’t want to jump into riskier investments if you are planning on retiring in a few years.

2. What do you expect from your investments?

This is actually a tough question to answer. Do you expect low amounts of risk and high returns? It’s important to keep things in perspective. If you expect returns of 10%, then you should expect $100 for every $1,000 of investment. Many times investors look at the actual amount of returns and do not compare it to the amount they invested and their expected return percentage. While $100 may not seem like a lot, if it is in line with your expectations then there is no reason to be disappointed. If you are still disappointed, then you might want to re-evaluate your expectations.

3. What if your investments fail?

You always want to look at this as a worst-case scenario. What if you lose everything? Investing requires capital, so where is that capital coming from? Is it from your second-mortgage? Is it from your student loans? Or is it from extra money you have saved up for such an endeavor?

It is especially important to have an exit strategy. It is not a sign of weakness, but a sign of maturity and risk management. Investments are always a gamble, so be prepared if they do fail.

Last point: Set and stick to goals

One of the hardest parts of investing is knowing when to stay in and when to get out. For example, with stocks, set high and low sell points so that you won’t incur too much loss if the price tanks and you can get out at an amount that you will be satisfied with. Same can be applied to entrepreneurship and real estate. Set hard goals so you know when to get in and more importantly, get out.

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Political Talking Point for Taxes: The Laffer Curve

Benjamin Franklin said it best, “In this world nothing is certain but death and taxes.” Taxes and tax rates have very large actual and psychological effects on both the  economy and investments. Not a day goes by without hearing news or issues related to taxes – especially when relating to budgets and deficits. How to get enough revenue for the government is a constant battle. Within political discussions, there seems to have emerged two distinct camps: those that propose that increasing taxes will increase revenue, and those that propose lowering taxes will increase revenue.

The battles rage daily over news networks, water cooler discussions, and internet forums. Quite often the Laffer Curve is brought up as an argument point for both sides. It is both said that the concept itself has been discredited, and that it has proven that lowering taxes increases revenues. So which is it?

The only thing that I can see is that there is a lot of misunderstanding of what the Laffer Curve really is.

The Laffer Curve, a simpler explanation

The Laffer Curve is an economic theory named after Dr. Arthur Laffer. The theory relies heavily on psychology attempting to predict how people will react to different levels of taxation. For example, at a zero tax rate, revenues will obviously be zero. At a 100% tax rate, revenues will also be zero because people will realize that all their money goes to the government, so they will just stop earning money (at least legally). There may be a few die-hards that will continue to work for free, but it will effectively bring zero revenue. This implies that there is some optimal rate between 0 and 100 that will bring in the max amount of revenue.

That’s pretty much it.

It does not say that lowering taxes will aways bring in more revenue. It also does not say that increasing taxes will always increase revenue. So what does it say? What is the answer? The answer is the same as the answer to every psychological question – it depends. (Don’t put that answer on your next psychology test!)

Assuming that we accept that there is some optimal tax rate to maximize revenues, the desired point to reach would be point A. Now, if we as a country were at point B, then the model would show that increasing the tax rate would increase government revenues. If we were at point C, lowering the tax rate would increase revenues.

So where do we currently lie on the curve?

That’s the tricky part. The curve itself has an unknown shape. Additionally, we really don’t know where we lie, and there really is no way to tell until you increase or decrease the tax rate and observe the results. There are also a myriad of other factors and variables that complicate measurements. That makes taking empirical evidence and forming conclusions much more difficult.

For example, during the 1980’s lowering the tax rate appeared to have worked to increase government revenue. But was lowering the tax rate the main factor, or were there other economic forces at work? The Bush-era tax cuts appeared to also have increased government revenues, but it was also a time when banks threw out money with large shovels. Attributing revenue gains from tax rate changes is a bit too simplistic and finding the real answers are much beyond the scope of the Laffer Curve itself.

We should look at the Laffer Curve for what it is: an economic theory and a thought experiment. It does not prove anything, and it certainly does not disprove anything as well.

As Al Gore, the inventor of the internet, said before, “It is what it is.”

Fuel efficient cars won’t always save you money


While cars are some of the worst investments that can be made, the necessity to travel long distances for daily activities pushes need ahead of investment. That doesn’t stop many from viewing it as a long term “investment.” Many view the value in a car over many years and compare a combination of cost, maintenance, and fuel efficiency.

Fuel prices have surged and there are already some locations with fuel prices starting at $4 per gallon. As a result many are starting to look towards more fuel efficient cars in order to balance out the increase in fuel prices (Although some are doing it in an effort to help the environment).

However, buyer beware! Having a higher gas fuel efficiency does not always equate to saving money. I’ve collected data from various manufacturer websites and I am comparing based on figures given by the manufacturers themselves. Be aware, that real-world application will vary, as efficiency is heavily dependent on driving style, location, and general traffic conditions. I also do not take into account any unforeseen maintenance costs, options added to models, taxes, etc. I also took the average between city and highway driving fuel efficiency.

The gas/electric hybrid cars have been highlighted in green. As we can see, although they theoretically will use much less gas over 36,000 miles, the premium price paid for those models seem to outweigh any benefits from using less fuel. I added theoretical costs if gas was at $4, $5, and $6 a gallon on average for the entire 36,000 miles.

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Interestingly enough, even when I up the mileage to 72,000 miles, the overall cost positions do not change much at all.

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When comparing cost per HP, it is actually the hybrids that cost much more per HP. In fact, the Toyota Prius Two costs more per HP than the Nissan GT-R!

What we have to realize here is that having a higher MPG rating does not necessarily increase overall cost efficiency. While the more fuel efficient cars may eventually prove to be the most cost efficient, the question is how long will that take? 5 years? 10 years? Will the car even last that long?