Investors - Page 10

I'm not sure which index funds you've been looking at but, it's the opposite. Because these are not actively managed, the hedge fund manager is not getting a cut. For example, Vanguard Total Stock Market Index Fund has an expense ratio of only 0.17%, compared to managed mutual funds expense ratios which are about 1% to 2%. Vanguard's Total Stock Market Index Admiral Shares is only 0.06%!

If you don’t believe me, read the book “A Random Walk Down Wall Street", or look up the topic of John Bogle / Bogleheads / and the foundation of the Vanguard company itself.

read what circa wrote, since thats essentially what i was going to reply with. It has serious growth potential and its making moves already. Read about their most recent acquisition of MoPub. Going public is inevitable for very successful companies, facebook decided to stay private as long as it could. You could read about Zuckerbergs latest comments on that.

They seem to be gearing up quickly for 2014. I might wait a little before i buy in, but i definitely think it will be worth it.

I seriously don't think its worth it. Lets wait and see...

It's only a matter of time...

Canadian billionaire businessman Ned Goodman predicts the end of the U.S. Dollar as the world's reserve currency. He predicts the transition out of the U.S. Dollar will become, "...quite ugly." He delivered the lecture at Cambridge House's Toronto Resource Investment Conference 2013 on Thursday, September 12, 2013.


http://www.youtube.com/watch?v=nX7J8-VTG08

For the typical investor, index funds make the most sense unless you're willing to concentrate your portfolio into a a basket of 5-10 stocks you've done your homework on (and even then transaction costs will get you if you're not careful). In terms of costs, there are several low risk index funds out there such as the Vanguard one previously mentioned.

When reading investment recommendations online, it is imperative to isolate facts from speculation. For what it's worth, the fact that Goldman or Morgan Stanley are underwriting the IPO means nothing. It just means that you as a retail investor will probably get the short end of the stick since investment banks have a less than perfect track record. Google "Goldman Shitty Deals" and dig a bit deeper into the Facebook IPO and you'll see what I mean. That said, I would think twice before investing in Twitter when it IPO. Is twitter a great company? Yes. Is it growing? Yes. Is it a social media phenomenon? Yes. Will it continue to grow? Yes. Is it a good investment? Uncertain.

The problem rests in its valuation which may hit 20-25 billion on speculation about future growth. The problem with many modern tech companies (Read yesterday's news about Pandora) is that while they have millions of users, they focus on getting big fast and worry about monetizing later. This posts a problem to investors since "online marketing" as a revenue model for a social network is skewed at best. LinkedIn charges a premium membership for job seekers and probably charges for job posts which is pretty unique, but how much would you be willing to pay to use facebook or twitter before you use Google Plus?

In a market manipulated by the federal reserve, rising interests rates, potentially negative real yields on bonds and TIPS, and capital flight from emerging markets like Brazil and India into dollar denominated assets, the stock market has been booming. Why? Because money has nowhere else to go aside from real assets (real estate, timberland etc.) This results in traditional companies being overvalued by nearly all metrics and while some tech companies have fallen from grace lately, this doesn't mean that investors should flock to them or invest in their IPOs.

In the case of Zynga, the company arguably was too aggressive on acquisitions and its redirection towards online gambling is a hail mary to try to save itself since games aren't working out so well. Revenue is falling, the company can't generate stable cash flow, and its top official are leaving. When a company's prospects are so inextricably bound to its people, it should be a matter for concern when hiring freezes and you're top talent is jumping ship (a classmate quit to go to Disney Interactive). That's just qualitative though. If you want to look at the numbers, Zynga generates very little Cash flow and negative earnings (operating loss carry forwards?) and should have a very high discount rate. With a Beta of 3.37, it's discount rate should be ~.26 which is very high since the company can't take advantage of the debt tax shield. Yes, it has a billion dollars in cash so it won't go bankrupt any time soon, but investing in it seems like a bad idea. If you had gotten in at $2, the argument changes and there could be some value there. That said, if anyone is willing to invest a significant amount of in Zynga, you should do so understanding the risks, both internally and externally. Once inflation hits and the markets are asphyxiated and the correction comes, that Beta of 3.37 is going to kill you. A similar fate will happen to facebook, Tesla and twitter. Once the mood swings in the markets, hedge fund managers will smell blood and short the stock to where it should trade. And if you think hedge fund managers won't hesitate to pull the trigger.... ask the people of Thailand what George Soros did for their economy when he realized there was a coming crisis and shorted the Bhat as soon as it was clear they had no foreign reserves left.

As an aside, I find it difficult to believe that Zynga is only worth 1 Billion dollars more than Nintendo. The latter still isn't a great investment, although it has $11 billion in cash (and 0 debt) from it's Wii and DS days that it needs to use in order to weather the coming storm. The Wii U stinks and tablets and phones are eating away market share, but if I had to choose which company would still be around in 10 years given games, people, and intellectual property... I would choose Nintendo. It may be a very different Nintendo than what we have today. I'm not saying to go out and buy Nintendo ADRs as the video game industry is one with very questionable economics, but in a world with so many options, it blows my mind when retail investors stay away from index funds or less risky investments. And when you think you're hot shit, just remember that more likely than not there is an advanced algorithm on the other side of the trade knowing something that you don't. So do yourself a favor dreamers: stick to index funds unless you know what you're doing and don't blindly follow the advice of people in online forums. If you still want to own individual names, it may make more sense to stick to what you understand. As for me, I'll be a horrible individual and invest in cigarettes, beer and oil instead as I laugh my way to the bank. You smokers never learn.

...

Let's say you buy into this fund. And let's say the S&P is up 20% at the end of the year. Is your account up 20%? No. It's up 20% minus said fees; hence, you trail market performance. Math.

People have been predicting the end of the USD as the reserve currency since Bretton Woods. Old news. US Dollar survived terrorist attacks, financial panics, and the most severe economic crisis since the Great Depression. Fact of the matter is that the US government, infrastructure, and economy is the most stable in the world.

Right. Didn't say they were bad investments, I merely pointed out that index funds -- by pure nature of the product -- trails market performance.

I don't really read into recommendations or follow analyst calls. If you do your due diligence, you can come to your own conclusions on what a firm is worth.

As for $FB -- Morgan Stanley was lead. No kidding.

The shear amount of information that can be these firms posses is huge for marketing firms that can cater to and display to you what you need. Facebook's platform is inherently better than Twitter's. Twitter was designed from the start to be mobile, which is its biggest plus.


Bonds have had negative real yields since ZIRP. TIPS don't. That's what TIPS are.


I wouldn't say it was an "aggressive hail mary" as it's quite aligned with their model. Also, they're not going into online gambling anymore (though I think this will change soon).
If you're using CAPM, then r(a) isn't the same thing as a discount rate (just like it's not the same as a discount rate in anything ever). Also, you're using CAPM (lol wat).
If you're not using CAPM, then what are you using? How did you get from beta to discount rate w/o any other variables (how is that a thing). Make a back tested proprietary model, or at least use a semi decent DCF spreadsheet that you can google or something. (if it doesn't account for operating leases, initial cost of capital, minority interests, real CapEx, or the average strike price of employee options - it's not good. but it's up to you to differentiate between real CapEx into infrastructure v. what they say is CapEx into infrastructure).

Inflation isn't coming.


I didn't give any advice. I said I was playing Zynga as takeover speculation with deep OTM calls.




Yeah.

1) I think the point of index funds is that while they may trail performance, most professional money managers (and by extension most retail investors who are further burdened with higher trading costs) can't beat the S&P 500 every year indefinitely. Very few actually do. Even seemingly good money managers end up getting crushed every once in a while and over a long horizon, their returns oftentimes show excess Kurtosis (fat tails). Once you account for really bad years where the maximum draw down is high, studies show that cumulative returns for a long term period after fees are usually better if one pursues index funds. Of course some hedge funds like Renaissance are exceptions, but most of us wouldn't be able to buy into it even if we were qualified investors as per SEC rules. The empirical evidence here is crystal clear. Read "A Random Walk Down Wall Street."

2) TIPS have had negative initial rates for a while due to the fact that expected inflation has been higher than nominal interest rates. If for some reason actual inflation isn't really high, you're out of luck and lose a decent amount of your purchasing power. Nominal yields in the US have been positive albeit really low. To my knowledge, nominal rates only became negative in Japan and Europe. Real rates on govt bonds are expected to be abysmal (and perhaps negative) as well. Moral of the story? The 30 year bull market in fixed income is over and as capital makes its way into stocks, the all the familiar symptoms of asset bubbles start to come into play. We're not there yet. But moving in that direction. I don't quite see how Facebook can be valued at $100 B right now.

3) In a DCF you can discount the free cash flow to equity at the cost of equity (from CAPM) or the free cash flow to firm at WACC. For Zynga, these will be the same since the firm has 0 debt. I used the traditional CAPM to get the cost of equity. Even if you use a build up method, it would look something like this: risk-free rate + beta*equity risk premium + size premium + company-specific risk premium. Very similar for the Fama French multifactor model. Do you see how the "beta *ERP" part of the equation never goes away? That basically drives the discount rate. This is also the case if you were to use a residual income model which is discounted at the cost of equity(from CAPM). What you're talking about in terms of leases affects cash flows and not the discount rate. If you start your CF calculation from diluted EPS, you should get rid of the effect of options. CAPX also affects CF and not the discount rate. But if you want to be realistic, none of this matters since Zynga is such a mess that CF is impossible to forecast.

4) If you bought the options when they were deep out of the money, your investment thesis is a reasonable one although one grounded in speculation and not fundamentals. That said, I'm almost sure that most people on this site don't know the difference between a call option and the underlyer and that at least one person considered buying Zynga stock on the basis that it seemed "cheap" at $3. So I wasn't attacking your idea as much as the people who would act upon it without doing their homework. I'm pretty sure the hedge fund I used to work at was short Zynga since their IPO. Is Zynga a good trade? Perhaps. A good investment given the risk? There are better alternatives for long term investors.

5) You can't expand the money supply like the fed has done and not expect inflation in the medium term. While the traditional money supply defined as M2 has not increased as much as people think, excess reserves have ballooned to trillions of dollars. Eventually banks will want to lend these out as that's what they are in the business of doing. Credit Expansion-->Inflation. There is also a link between national debt, foreign investors and inflation that I don't care to go into but that is a very real threat that people seem to ignore. I also don't hold it below the government to under report inflation and over-report employment.

Drinks on me this weekend.

nice!!!

I had very nice gains this month on $CPRX, in at 1.30