The Numbers Are In!!

The numbers are in and we are officially at 50.4% return for the investments that we've recommended for clients. And it's annualized 27% since I began in 2008. This is great news, I believe only one mutual fund in the country has a higher return over that time period according to Morningstar's Fund Screener tool.

Now we don't operate as a mutual fund, nor do we manage money of clients. Where we get our numbers from is with our investment consulting services. With our investment consulting services we help our clients make decisions in what stocks (bonds, mutual funds, ETFs, etc) that they may want to incorporate into their investment portfolios. They either take our advice or leave it. How we got our numbers are by using the date and price of the stocks that we've recommended it and tracked the price movements by using Updown and Google Finance. So, if you're thinking pictures or it didn't happen...

We announced last month that we are going to begin to offer stock recommendations on a monthly, quarterly, and yearly basis by subscription only. This feature to our site will come in the form of password protected pages for each time interval. We are currently working on how to fairly choose our price price point for the feature, as well as how to integrate passwords into the site. We are expecting our paid stock recommendation feature to go live on New Year's day.

An Undervalued Aspect in Investing

The most undervalued aspect of investing is the area that remains shrouded in gray.  Most believe that investing (and personal finance in general) is black and white. Either you invest in risky equities, or you invest in safe, bond-like securities. Either you spend as much as you make; or you hold on to every nickel and dime that you come in contact with. But what about the gray area? Or the area that you purposely shade in gray?

The gray area in investing would be asset allocation; for personal finance, the zeroed-out budgeting system. The so called “sweet spot” in either is usually identified by a financial planner (or someone of that kind of profession), or by an individual who is self-educated on what works best for their age and lifestyle mix.

In our opinion the most undervalued aspect of investing is due diligence. We harp on it time and time again, because with due diligence we have found Amazon, Apple, and Netflix to have unbelievable high returns over the last 2-2.5 years.  Through due diligence you’ll see that HP(Hewlett Packard) is poised to set the investing world on fire with it’s future earnings. Take into account it’s 2010 acquisitions and you will see the breadth of its product line is about to get more intuitive than ever before. More on that later.

Due diligence is what makes the world go around. And lucky for investors of the technology age, it’s easier now than ever to come across proprietary information. Sure the larger institution have their super-computer algorithms. But, people tend to have a way of adapting and adjusting in a way that an algorithm may not due to it’s mechanical nature. Always remember that when considering due diligence; management shifts, acquisitions, and financial statements can exploit some gray areas that computers themselves cannot take into account.

Why You Should Take Notice Of Facebook Now, and not later

News recently hit the web about Facebook setting off a chain of events that will split their stock forward 5-1and set up a $2,500 fee for any current stockholders who wish to sell their shares.

On the surface this decision looks like a simple one - meant for private eyes - and not really taken seriously by the public. What we see are indicators. . . major indicators.

1) The $2,500 fee for the transference of private company stock, as well as the 5-1 split, is meant to lower the company’s stock valuation. This decision is so that when Facebook does go public, their shares will be accessible to anyone, thus enabling their price to rise even further with the more investors that will buy and sell ownership of the company.   

2) The transference fee informs the company's CEO and other higher-ups how much the shares are worth to outsiders.  If someone is willing to pay $2,500 extra on top of of the already high valued stock, they can see that this investor expecting to make a return of at least the purchase price, plus the extra fee.  

You can see that even the smallest things can give away a large aspect of a company's internal strategy or future earning potential.  A number of articles detail news in the tech industry, but we are not a company that is biased in towards technology related stocks...we just see it as an indicator of future trends in the global economy. More on this later.

Microsoft stock splits

 Disclaimer: We pulled this post in it's entirety from an outside source. This is not our original writing. The original article from Mashable, is linked in the title.

Microsoft’s Stock Has Split Nine Times

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Microsoft has split its stock nines times since it went public back in March 1986. Put very, very simply, a company will generally split its stock when its share price becomes too high.
Since Microsoft has had six 2-for-1 splits and three 3-for-1 splits, one original Microsoft share would now be equal to 288 shares today. Interestingly the price of Microsoft’s stock at its initial public offering was $21 a share, at the time of writing a share is now around the $23 mark. One original MSFT share would now be worth over $6,000. 

I bet you're wondering, "why would they post content that isn't theirs?" Well, we wanted to write a post about stock splits and how you can look past a company's stock and see how they've faired over history, just by using their history of stock splits. This is just a reference article.

What grinds my gears...

What grinds my gears is the "over-the-head" language that financial planners speak to their clients with. I feel like most of them have the same disease that the majority of college professors have...they believe that the client is there for them, not the other way around.

How wrong they are!

Clients of financial planners aren't required to employ a specific planner. The planner is there for the client, and should treat them as such. Talking over your clients' heads does make you sound smarter. Yet, it fails to accomplish the reason they are even there. Financial planners are there to teach and guide their clients. And if I remember correctly teaching and guiding requires simple explanations to complex problems. That's why if you've read this blog before, I try my best to convey certain theories and strategies in the most simplistic manner possible.

What I think about Skype...

I, the founder- Stephen Alred,  am writing this post on a whim. I see that many investors are not giving Skype much attention at the moment because of their not-so-high margins from their IPO filings. While I don't normally spotlight a company...I think I may add it into my subject matter. Mainly due to the fact people may wonder what a finance "professional" personally thinks about a specific company.

I think Skype is a great company. Not because of what they've done, or because it's the only reason that my company runs for as little required overhead as it could muster. I like it because they have a user base of 500 million plus, and they've only converted 6% to paying customers.

What I see in this, is a gold mine.

If Skype can just use a simple adsense revenue model, the most basic of basic, they could make quite a sizable amount of cash. I stay updated with tech blogs. And from what I'm reading, Skype is configuring new features that may be only accessed by premium users. With these two simple revenue sources they could significantly increase their bottom line, which would then eventually show up in the market's evaluation of their stock price. However, Skype won't do a simple adsense model, and the model that they come up with will undoubtedly bring in even more revenue.

Keep an eye on Skype, I think that they may surprise people with their five year numbers. As well as with their future financial performances.

Google Games may be a calm before the storm

With rumors swirling about Google possibly partnering up with  online-gaming company, Zynga, stockholder value may be in jeopardy.

Every recent deal, from energy trading to mobile advertising has put Google on regulators' radars. Anti-trust investigations seem to come with every new venture that Google takes on. Both here and abroad. We think if their growth into other markets continue to be dominant, the government (or EU commission) may rule that it's gotten too big.

So what will be the straw that breaks the camel's back? Will it be another acquisition? Or, will it be Google venturing out on its own?

The answers to these questions are virtually irrelevant. How an anti-trust suit will affect stockholder portfolio, is.  If Google is ever ruled against in a suit of this caliber, stock traders will see an effect similar to when Microsoft was told to sell its assets. While, we don't see this as a problem looming over the company's head. We definitely see it as a near future possibility at the rate Google is growing.

A move into the online gaming field isn't the red flag that investors should be looking for. However, if you look at the last 18 months: you'll see ventures into energy trading, mobile advertising, travel (not to mention in-house location based services as well as operating systems), and now rumors of online gaming. We don't have holdings in Google but we wanted to write an article for those of you that do. Stay alert. Google is a great and innovative company.  However, if it is deemed anti-competitive, investors may change their minds about investing in their stock for the long haul.

Earning in Real-time

For many day traders, investing information site earningsBuzz will be an invaluable asset. The most benefited group of individuals, are those whose trading trategies stem from market-timing.

The idea behind earningsBuzz is to aggregate real-time news about stocks stemming from twitter updates. You may think that this is remarkably similar to StockTwits. On the contrary, earningsBuzz makes sure that all if the updates are relevant to the task at hand. Its news aggregator only tracks news from companies with an earnings report from present day, yesterday, or tomorrow.

This will help traders realize earnings potential (or shortcomings) in real-time; and allow them to adjust their trading decisions accordingly.

The best and most underused tool for individual investors

The stop-loss. The equalizer for individuals to compete with those lightening quick super-computers a large, international brokerage firms.

In a nutshell, stop-loss trading is a sell side decision that allows the investor to dictate at what price a company's share should be sold. Once the share price hits that number, the system triggers an automatic sell of those shares.

The major benefit of putting a stop-loss on all shares is to curbs potential losses, or maintain present gains. For example: you buy a stock at $25.00 per share. If the share price dips, you create a stop-loss at $22.50 to keep your losses to a minimum (while also giving the stock a chance to return to the initial price). When the stock hits $22.50, the system immediately sells the number of shares that you indicated in your stop-loss for that holding. On the positive side, if a share jumps to $30.00 and you want to preserve your present earnings,  use a stop-loss at $28.00 per share.  This will ensure that you will get out ahead regardless of the share price's fluctuations.

Investors that use the stop loss effectively will use a stop-loss on every trade and continue to adjust it based on how a company's share is faring. If the aforementioned stock jumps to $35.00 per share, you would adjust your stop-loss from $28.00 to $32.00. The adjustment will guarantee that you will maintain your earnings of $7.00 per share from the original price of $25.00, and not allow you to only earn $3.00 ($28-$25) from your first stop-loss order.

Like everything, there is a disadvantage to stop-losses in your portfolios. The automatic trigger that is set off to sell your shares of company does not take into account market volatility.  Meaning, if you set a stop-loss at $22.50, it is very unlikely that the preferred price will be the same as the market price (you may sell at $22.00).

A lot of investors, investment advisors, and stockbrokers refuse to take advantage of stop-loss orders due to pride on the loss of initial clients' investments. If they had, the losses on the majority of their clients' portfolios could have been minimized amid the financial crises. In our investment consulting sessions, we will always ask and recommend that each client put a stop loss on all of their equity accounts.

Contrarian Logic: Why buying really low could be beneficial to you

What I love about being an investor, is that you can develop unconventional strategies that happen to work. With contrarian logic you can channel your inner Buffet and make wealth grow from seemingly daunting situations.

Contrarian
For this post we are going to explore the idea of investing in mutual funds using a slightly different metric. We are going to suggest that you look at the worst performing mutual fund in the "balanced funds" sector. This fund should have holdings in blue chip as well as tech stocks. These two types of stock will represent both, speculative and fundamental markets.

Logic
Everyone and their grandmother wants to grab the hot mutual fund. When a mutual fund is considered "hot", the influx of investment capital always pushes it into the stratosphere of earning potential. So let me ask you a question...why wouldn't  you want to buy the worst mutual fund with the most profitable stock holdings?

On one side, you enter into the investment right after the fund "pops." When a fund "pops," the value of the fund (percentage-wise) jumps by a sizable amount. That jump signifies that the fund has won the proverbial, popularity contest among casual investors. At this time expect the exponential increase in value to level off. This leveling off of earnings is where most individuals investors jump in. That is where all investors agree, jumping into a fund while it is flying high is buying high. And buying high is a major no-no for investors looking to retire with a sizable amount of income.

On the other hand, we are recommending investing before the fund pops. The contrarian way, is to invest in undervalued funds with holdings in outperforming companies.  Your return will be substantial for the lowest amount of invested capital. Even if the return isn't that high for the first few years, by following our process and selecting a fund with a manager with more than 7years experience, you'll see improvements. Our logic is that recession-tested managers will be researching to see what other (higher-performing) funds are holding, as well as the best company for future earnings. This research will show them what they are doing wrong and how they can improve upon their fund's performance. So while they may not be rolling in dough when you first invest, they will be soon enough. When you invest at the bottom for a fund with our criteria, the only place to go is up. And when they roll in dough...so do you.

The Process
The metric to follow contrarian logic begins with going to a fund screener. Once there, screen for funds that have a very poor 3-5 year performance. Among those direct your attention to the funds with the highest  10-15 year performance. Once those funds are populated, look into the holdings of each fund. If the fund holds only blue chip and technology stocks (U.S. Only) write that fund down as one of interest. Here's the last and most important step in contrarian logic: look at the tenure of the funds managers. A  manager that has been there for too long may not be willing to change with the times. Managers with little experience may either be awfully brash or incredibly unlucky. You want neither. We recommend a manger that has survived the recession? But not one that still believes that GE or P&G are the best stocks they will ever invest in.

Conclusion
That's it for contrarian logic. Keep in mind this is a theory of investing strategy, it is not proven nor is it agreed with by accreditted organizations. We have been testing it out, and will continue to  in the next few years with our personal cash (we want to make sure that we lose cash before you do). We think that this investing strategy probably has an official name somewhere; but until we find it, we are going to name it "contrarian logic."

Think about it, if you were to buy low with great stocks, what happens? Now, what do you think will happen if you diversify your  buying low by investing in a fund with over 25 great stocks? Yeah...that's what we thought.

Your Own Worst Enemy

We wrote this article to detail how managing your own investment portfolio can sometimes hurt more than help if not managed correctly. We’ll quickly go through some reasons why individual investors, on average, lose money when they invest themselves.

Overconfidence
Every investor believes they are above average and can, therefore out-smart the self-correcting markets.  The trait of overconfidence is usually observed in single men. Mainly, because men do not have very many financial obligations, which frees them up to take certain risks when investing to make a positive outcome. The down side is that they usually produce a negative, or neutral return after trading commissions are factored in.  

Excessive Trading
Excessive trading does nothing but rack up commissions for the brokerage/advisors that manage your trades.  Generally excessive trading result from individual investors getting a “tip” from leading analysts. What they do not realize is that millions of people received the exact same advice.  This negatively affects their trading strategy, as everyone moving at once will only serve to raise or lower market prices.

Stubbornness
Investors who are stubborn tend to not realize when they have actually lost out on potential earnings.  They tend to embody the last two attributes and are overconfident that their trade is the right one.  Not admitting when you’re wrong works in investing just like it works in real life. You lose out on beneficial opportunities by not seeing the big picture.

Conclusion
These are just a few mindsets that may get you into trouble when investing for yourself.  Taking advantage of professional advice may limit your margin of error; but it will not completely eliminate losses incurred by the attributes listed above.  

Our reference article for this post was written by David K. Randall of Forbes.com.

Toro!! Don't dodge the bull market

Etoro got its start in 2007, and has since been called the "Zynga for men." Its goal is to make investing fun and social. The trading platform supports in commodity, currency, and index markets only.

There are two options to "socially investing" on Etoro: trading accounts and practice accounts.  A fringe benefit to having a trading account, weekly trading challenges where the winners receive reward bonuses(in cash).

Here's the kicker, Etoro offers not only in-house trading guides and tutorials on the website. It offers the ability to follow better performers, as well as ask more experienced traders for investment counsel.  The personal trading coaches (for beginners) and the personal account managers (for professionals) are also a nice touch in winning over potential users.

Etoro currently has 1.5million users, and employees spanning four different countries. There's nothing like making something as stressful and hair-pulling as investing, fun and social.

Become the banks, without all the economic meltdown "stuff"

Peer-to-peer lending is one potential investment opportunity that many financial professionals don't include in a client's portfolio. But why? Any client can lend their money at as much as 21.64% APR, where else can you get a definite 20% return on your initial investment?  There are some risks of default but it's very rare on this site considering that borrowers have to show, and update their credit scores.

The two major lending sites are Prosper and Lending Club. These two companies have taken advantage of the fact that banks have dried up most of the resources for consumers, and entrepreneurs to borrow money.  In a lot of cases, these two sites serve as a place where average consumers can borrow money at a lower interest rate to pay off other debts.  A refinance of sorts, but for consumer debt.  They each have a collections process in case an account becomes delinquent, and Lending Club even has an in-house "No-fee" IRA account option. 

For the investor, the sky is the limit with these two companies.  With both internal and external collections agencies on call, they are able to make sure that the principal is returned to the lender.  Where Prosper has claims of ROI's high as 16%, Lending Club offers risky loans as high as 20%.  Of course this wouldn't be a blog post of ours if there wasn't a way to creatively implement an investment portfolio at a no-cost basis. How would it sound if you can potential borrow at 6% from Lending Club, then turning around and lending that cash out at 20% (with only 0.7% going to processing). How does a 13.3% return sound with no cash coming out of your pockets? We can hear the cash registers ringing in your head.

As with all of our creative investment processes that we present to our clients, there is a caveat. We would not recommend going through with any kind of lending procedure without consulting a lawyer to make sure the "terms of use" are fully understood by all parties involved. Also, an accountant wouldn't hurt either. They would serve to help you realize what this could do to your taxes come 2011. You wouldn't want to make just enough cash to bump you up into the next bracket, while still having the same income.  Lastly, due diligence is always the key to your investment success. Vet all options and make sure that the lender you choose is reliable. Even with each company having a collections agency on tap, there's still a chance of delinquency

Want to learn more about creative investment opportunities? E-mail a consultant at info@cloud9-financial.com for any questions.

Welcome to a new era

First Google, now Microsoft. This country's two power house companies are being challenged, finally.

Google:
According to Hitwise, during the week of March 8th Google was bested by a company that originally no one saw coming. Born from a night full of hacking and coding just a few years ago, Facebook posted a slim lead over Google in terms of visits to the site. This move marks the first time that a social networking site has bested the search engine giant. And it reveals that whether you like it or not social networking sites and applications are here to stay. Facebook's superiority was short lived as Google regained it's normal spot as the world's most visited site. But, if you truly think about it, that was the day when Facebook changed the world. That was the day that the culmination of being featured on smart phones, t.v. screens, video game consoles, and many music sites came to fruition. Consider the fact that when this company goes public, will you be ready? Investors generally get caught up in the semantics of established companies, in the process they miss out on the high-reward of a newly public, but established company. I think that history will be the same here so don't miss out on a chance to be apart of it. If Facebook goes public, be ready.

Microsoft:
Microsoft even as a software company has been pegged as the leader in it's market. However, it's reluctance to delve into the physical/hardware until recently (this year they are debuting Kin 1 and Kin 2 smart phones), has maybe hindered the chance it has to stay in the lead. On the heels of Microsoft is Apple. Apple is a company for the young crowd, and even though many business still stick with Microsoft operating systems, Apple's market capitalization is only $46 billion away from vying for the pole position in technology. Apple may very well complete the slaying of Goliath in the next year or so depending on the success of it's new iPhone OS 4.0 and the ubiquitous iPad.

Diversifying your portfolio is important in building and maintaining wealth, I would recommend that Apple and Facebook (if it goes public) are in the line up. I can't guarantee it...but these companies are on their way to being relevant for a very long time. Only time will tell if they stay on that path.