We are all headstrong and egotistical. We all would not have gotten to the point in our lives where we can put money in the markets if we had failed at all the endeavors we had set out upon. Reality speaks a hard truth, the market doesn't care about your previous successes, be that in the market or out of it. That is why many traders fail, many investors lose money and do so through their own negligence. Many will claim fault on exterior forces but the facts remain that you, the man (or woman) in front of the screen pressed the button, called the buy or sell. Not at all am I suggesting that I am immune to mistakes, I have made some costly ones, but through trial and error I have learned a key to my future success:
If you listen to fools you are nothing more than a fool.
Aligning yourself with the right team, be that news sources, bloggers, tweeters, your mother (I watch what she buys like a hawk to judge the masses) is crucial to successful trading or investor. Below is a clip from one of my favorite shows, Boardwalk Empire. The background is that Chalky White is a man of his people, a supporter of his community. By looking out for those around him they look out for him. The comparison I am drawing is that aligning yourself with quality people in trading or business will benefit you extensively.
In the wee hours of the morning Howard Lindzon retweeted a tweet that I think best sums up Apple. It not only shows the impact of the tech giant on their competition but shows just how successful they are. It makes me wonder if the destruction the iPhone caused was a mere fluke or if Apples competition truly stands no chance. So I took that tweet and looked a little deeper.
The first step to delving deeper is looking at the basic numbers. To get a better overall picture of Apple and their effect on the Television makers we need to take a look at the Apple effect when it comes to their most recent premium product, the iPad. Here is a look at the competition and their reaction since the launch of the Apple iPad on April 3 of 2010.
Apple +157.34%
Microsoft +.05%
Google + .74%
Amazon +71.89%
Hewlett Packard -63.35%
Dell -15.67%
The numbers above speak for themselves. Though looking deeper and trying to understand the overall picture, there are a few points that one should take from the numbers. First off, those established in the market Apple is coming for should be on their A game or they soon won't have any game. Second, Apple has the ability to create a new market which some of their competition may be able to take advantage of. In other words, Apple created a market and the competition often steals their premise to better serve themselves. Google and Amazon are players in the tablet market and even though they have mediocre products compared to Apple, they are still competing (or attempting to) they have not fallen by the wayside.
At the end of the year when Apple launched their next generation product, the iTV, you as an investor will be the one to judge the merit of the competition. As obvious through the above figures their is a right way and a wrong way to survive when Apple is gunning for your business. The companies that focused solely on one product line that Apple could make better, suffered. Those companies that diversified and offered a decent competition or put up a fight against apple, for example Google and their android phones, had a chance. Though the one theme that repeatedly presents itself is that betting against apple when it comes to new products is a fools errand.
Either way you cut it, the television makers are Apples new target and this tech giant is currently using a scorched earth policy when it comes to the competition.
I spend a lot of time in my local coffee shop. Mostly due to the closed door policy at my household often being construed as a "please come in and bother me" policy.The one thing that many coffee shops have in common as their naming suggest, is coffee. This may come as a surprise to many, but the product of coffee can be reproduced very easily. The same can be said about certain restaurants, though everyone knows that a Big Mac taste different than a Whopper. As we see Starbucks take on new markets throughout the world that are dynamically different from the United States, the best coffee play may be those with room to grow here at home.
Yes its easy to say that Starbucks is synonymous with coffee.That does not mean that only Starbucks will sell in America. I know Americans well and they are synonymous with lazy. If you offer me, the average lazy american, coffee at the corner I am at or the corner 5 blocks away, I will choose the former. As I mentioned above, coffee remains a interchangeable product. A cup of coffee from Starbucks can be swapped for that of a coffee cup from Dunkin' Donuts (obviously this does not pertain to the minority of coffee enthusiasts). Just ask McDonald's who has in the past year made leaps and bounds in the breakfast market, in particular in coffee sales, even in the frozen coffee drink sector that was thought to be owned by Starbucks. So as the success as McDonald's and the obvious laziness of the masses suggests, ease of access prevails over branding when it comes to coffee.
Starbucks sits at the head of the class looking to expand globally. Others in the coffee industry still have room to go at home. Yes global growth has worked out well for many a company. When it comes to such a commodity as coffee the game may be different. New markets bring new challenges. I am not sitting here suggesting that Starbucks will fail in its continued expansion plans, though accessing new markets such as China and Latin America will not be an easy task as these consumers are a different beast with differing price points then their United States counterparts. For example tea rules with the caffeine heads of China which suggests that Starbucks will have to adjust its game plan extensively as it enters China. Being that Starbucks is a coffee company this movement should be a interesting ride.
As one looks for growth they can find it safely here in the United States. Some may prefer the riskier growth story, but as the global economy continues to look weak I would rather bet on American breakfast than Greece. It is to early to count out Caribou and other regional coffee shops. A portion of America runs on Dunkin' and the potential is there for growth in an established coffee market. Starbucks is looking at growth abroad in markets that are more challenging and diverse. So to answer the above question simply, no all coffee shops are not made the same. As one bets on the future of coffee, which I will do in about 5 minutes with my second cup of the day, it is best to know where you think the most profits lay.
A few weeks back I wrote a piece about negative perception surrounding Facebook and how it would turn at one point. After today's major sell off in the broader markets and Facebook not giving back a substantial amount of its prior weeks gains,one can infer that perception has changed for the better. A month ago on a day like today, social media would have been destroyed, taken out back and shot. One could not look to hold for the long term because days of down 10% were the norm. With the market selling off like today,social media like Facebook, Zynga, Yelp, and many others would have taken the assault to the face. Today the perception of social media looks to have changed, because a dramatic sell off is far from the case.
This change of heart by the market may be due to the hope of good earnings or more likely the fact that the worst is behind these companies. The worst has occurred, the leader of the social media industry has come to the forefront and flopped completely. We have all recently witnessed the recovery from its near death experience. Does this mean its all clear sailing? No, that is far from the case, though as obvious through its recent positive trading, enthusiasm for Facebook has lifted the stock.
As we look forward to Zynga unleashed conference tomorrow we see that the social media industry has turned a corner. They (social media as a collective) are taking the next steps to allowing mobile to be a giant. As I recently mentioned in I See The Future, the future sits upon mobile, so this move lines up nicely for both Facebook and Zynga. Being that a large portion of both Zynga and Facebook's profits come from these social games, that will now be easily accessed by mobile devices, they are now playing the wall street game.
So the "perception," as I put it sometime ago has in fact changed and it looks as though social media is now playing the Wall Street game. As the social giants have won the social game it is now time for social media to prevail at the game of Wall Street.
Who is to say that poker cannot revolutionize Facebook's profits? With all the talk of Wall Street being unhappy with Facebook's mobile monetization, no one has thought for a moment that maybe mobile monetization isn't even the key. Great companies are built around many revenue sources, so that is why I see Facebook taking a multifold approach to revenues. One could only imagine how popular gambling could be once again, if it involved real money, and your Facebook friends. Those tech all stars that sit upon their billions out in silicone valley are much smarter than we ever thought. The next big thing is unquestionably online gambling, with or without the United States. Who is the global company set up to own this space? Why no other than the social media giant, Facebook.
As investors and traders we sit around all day, thinking, dreaming, trying to figure out what is next. While reading news and more news and more spewing of so called analyst, I pieced two and two together. Facebook will be the king, queen, and full fledged court of online Gambling. Yes, Gambling has been done online before. Yes, it was very profitable for those involved, though many had to give that money back to the U.S. government (suckers). The reality presents itself as this: if online gambling is legalized, Facebook is set to make a killing.
Fulora, leader of Facebook's general monetization product developments recently said, "we hope to simplify the purchase experience, give you more flexibility and make it easier to reach a global audience of Facebook users who want a way to pay for you apps and games in their local currency." I don't know how you read that, but someone with half a brain can see there is much more than meets the eye. Why would Facebook have such a desire to move from their credit system to one focused solely on cash from all nations around the world?
Gambling
The topic of gambling has consumed those that are bullish on Zynga. Now I believe it is time for Facebook believers to get behind the train on online gambling. In my opinion the adult version of gaming is gambling. As we have seen the growth in the older age demographic on Facebook it is fairly obvious that a move towards online gambling will capture the attention of many of its users. Gambling has long been considered a social activity and what better way to gamble and be social then via Facebook.
With the recent news out of Facebook changing their purchasing system to focus on local currency and the success as of late of Zynga Poker, the future seems to be lining up nicely. We have all read the news stories and heard the tales of the profits made from online gambling. Most of these success stories were not done with the power and knowledge of a company like Facebook, nor on the massive level of Facebook. Social and gambling are on the brink of colliding and Facebook has aligned itself perfectly for success.
Many of you will attempt to say that facebook is a family oriented company, they would never delve into gambling. Though the truth of the matter is that being a family oriented company means offering something for every memeber of the family. Facebook's move to allow Zynga Poker means that Facebook sees the future already. Zuck is smart enough to know that daddy may love gambling, and that his 15 year old son should not have access to it. The prowess of Facebook allows for an access to a large market of gamblers (and potential gamblers) and the capacity to maintain a family atmosphere.
Yes, I think this bodes well for Zynga. Though overall the real winner here is Facebook, being that they have access to the many users and information about these respective individuals.
Do you know what they told Henry Ford when he said he wanted to make an automobile? They said you sir are ridiculous. Who would ever quit riding their horse to ride around in something so unreliable as a car. Comical isn't it? A horse was thought to be more reliable than a car, and the rest is history. Do you know what they said about the internet many a moons ago? They said al gore had created another fad and it would fall by the wayside. Well we sit here today reading financial news via the internet, many of you while driving in your vehicle, so we now know both the above mentioned counterpoints to be a falsity. So I sit here once again upon my blogger throne, not suggesting, but informing you, that I know the future.
The future rests on the back of mobile. Mobile in the form of smartphone, games, apps, connectivity, etc. Mobile in reference to the mobility of phone, the mobility of tablets. Every great tech company somehow is correlated to mobile, be it that of Apple, Facebook, Microsoft. Just to name a few. Wherever one looks, mobile surrounds you. Mobile encompasses every aspect of our life. Mobile allows for ease of life, which for those of you who obviously lack vision, means that it is necessary for the future.
Why has Apple been the tech baby of the last decade? They have taken mobile to the next level. They invented the smartphone. By the end of the year they will take it to the next level by making the world between your phone and television one in the same. Microsoft recently announced their launch of the next big tablet. This may be insignificant for many of you, who believe apple cannot be touched, though with an actual quality product by the PC giant Microsoft, the number 2 spot in the tablet world is now up for sale. No matter who stands on the leader pole of the tablet or smartphone industry, one thing remains, the future and dominance of the app world.
The mobile space continues to heat up, as I have said for some time, and with the launch of the the surface tablet, even old tech is decisively saying that the future is in handheld devices (phones and tablets). This means one thing: mobile gaming. We all know the story of Microsoft and Apple. The masses have failed to capture the mobile gaming tale. In the coming months as we will see mobile gamers like Zynga balance social and mobile gaming, pumping gangster rap in an electric powered car headed forward towards a bright future. The mobile phase has just begun. As we see better monetization and a wider customer base in the coming months Zynga shall eat the shorts for a late night snack.
Don't get me wrong either, Zynga is not the only soon to be giant to benefit from this continued trend towards mobile and tablets. Companies like Yelp, Facebook, Twitter, LinkedIn, and the list goes on, will benefit handsomely. One of the basic ideals instilled in every trader is to not fight the trend. The trend is smacking you in the face. Mobile, tablets, they are here to stay. The world of apps has just gotten started and those stupid enough to fight the trend will capitulate when its far too late. The results will be disastrous for the shorts and they will not be able to find a building high enough.
Dollar General has succeded in becoming a power source of its own. It was initially thought that no one could compete with the giant that is Walmart, but as we have seen over the past few years, the size of Walmart can actually be used against it. Dollar General has succeeded by combining the power of cheap with perfection in square footage. While Walmart has many employees running around being completely useless, Dollar General has just a few employees racking in huge profits.
These saving stores have had a great run over the depths of the recession. I am here today to argue that even as fuel prices go down and the economy looks better, these stores will continue to excel. In particular, Dollar General, because it has succeeded in stealing revenues and customers from the bigger discount stores like Walmart. Instead of going to Walmart or Target to pick up a few random needs, Americans are entering their dollar stores like Dollar General. This movement may be due to ease of use or avoidance of the mania in the big price savers, but either way it bodes well for Dollar General. Not only that, but with an expanding landscape of stores and a more competitive line of merchandise their is just no stopping the DG.
The last and final fact that pushes Dollar General to the top of my radar, deals with the change in Americans habits. Americans will stop at nothing to save a dollar. Walk through your daily routine and you will see a mass amount of individuals pinching pennies everywhere. This behavior has stemmed from the tough times that were prevalent for the past few years and still encompass our world. These cost saving behaviors will stay with the consumer for quite some time and penny saving stores like Dollar General will continue to excel in that type of environment. So no matter how you feel about the future of our economy or the global economy, stores that sell bargains will be packed with everyone from the low class to the upper.
"Continuous effort - not strength or intelligence - is the key to unlocking our potential." -Winston Churchill
We all have goals and ambitions, some bigger than others. It is always good to take a moment and focus on the direction we are headed. With the excitement that is to come in the following weeks it is best to take a Saturday and remember why we do what we do. Maybe you get up at 5 A.M. for your family, for yourself, for your love of trading. Remember why you do what you do, what your long term goals are, and this will ensure that the next challenge that arises you will take in stride. Ensure that you are putting out "continuous effort" and this will guarantee that you are on the path to accomplish your goals. Success is not an overnight event, it is an effect that has many causes from a wide range of times and avenues (as the best traders know, the best trade is not a one day 10 % win but rather that 6 month 100% return) . Take today to clear your head, put that to do list aside, and prepare to conquer your long term goals.
Analysts just like a vast majority of traders are reactive rather than proactive. This does not bode well for your portfolio or mine. Over the trading day today, Zynga has been beaten, mutilated, with no regard to its true potential. I had thought over the past week that the suffering had come to a halt, that possibly the end was near. Instead, more have capitulated, more have ran, the price has continued to decline on huge volume. Today the masses have left in exodus due to a negative research note. This note merely supported my earlier thesis stated this year, that Zynga was set up to own the mobile space, and profit handsomely from it.
As I have mentioned in my previous research notes (Assuming Social Media and Mobile Are Dead and Looking Past The Facebook IPO At The Future Of Zynga), which may be more vetted then the piece published today, Zynga has set themselves up to capture the whole of mobile. Zynga has taken the door Facebook has opened for them, profited from it, and has now opened the door of mobile. Why in the world would Zynga buy OMGPOP? Well the masses believe it was to throw away a few hundred million. Those with a little common sense can see it was to become a more dominant force in the mobile community. You think that if the Facebook gaming community was declining Zynga wouldn't know about this, wouldn't have made plans to profit elsewhere? Really? Contrary to popular belief Zynga desires to be profitable and make money for themselves, as well as shareholders. They have been setting themselves up for quite sometime to capture the mobile platform, along with the Facebook, Google play, internet, and soon to be iTV platform. As the rest of the year plays out, as we see many potential sellers turn into investors due to the dramatic price decline, things will get better, if not great for Zynga.
Of course when many around you, including those in the know, suggest a stock is headed towards $0.00 it is easy to capitulate. It is easy to suggest that death is near and that the company has no future. Well more often than not the right trade is never easy, just ask those who bought Yelp at $15.00 last week. Just ask those who bought Zillow at $20 last year when it was headed towards the abyss. Social media will be profitable, especially with the push from investors to monetize mobile. Facebook will monetize, succeed handsomely, and social media will be a darling once again. If you fear that social media isn't the future, just buy Apple, oh wait isn't that tied to mobile? That's right the tech darling of the industry is betting on mobile as well, so I will continue to bet on mobile, elsewhere, where the returns are greater. Mobile is the future, Zynga has been and will continue to be positioned for this. The social media premium has long left us, but it will return. The growth is obvious in the mobile area and as I said in the past, Zynga is set up to profit from many platforms, many cell manufactures, be that of Google, Apple, or the next big thing.
At the beginning of the year I was adamant that higher fuel prices were negative for the overall economy and in turn beneficial for both Walmart and in particular Dollar General. Today, with the decreased price at the pump one could lean towards the opposite end of the spectrum, arguing that with more money in the consumers pocket they will upgrade their spending habits. This assumption is wrong. Over the last few years in the time of this dire recession, Americans habits have changed. Americans have become more money conscious without even realizing it, they have learned to pinch penny's without even attempting to. With continued lower prices at the pump we will see overall better sales in the lower end, in names such as Walmart and Dollar General.
Walmart prides itself on having some of the best prices around and some days Dollar General goes as far as to beat them at this game (due to smaller square footage, aka less overhead). Either way these entities are set up to make a killing in the recent environment that has surfaced. The key to the coming success is their access to consumers. Walmart and Dollar General have a strong consumer base that they have established through the rough part of the recession. Now these consumers will have a few extra dollars in there pockets. So in turn Walmart and D.G. will have a few extra in theirs as well. We will see the consumer base step up and not only purchase more items, but possibly step up to name brand items, that are higher margin. This suggests that even with a somewhat bettering economy both Walmart and Dollar General are places to be (possibly Target, but that's an article for another day).
In the world in which we live and flourish, perception means everything. We buy certian cars, houses and clothes to give others a certain perception of us. We attend specific universities and pay in $100 bills to imprint our identity on those around us. Perception rules our lives. The perception of Facebook since their lift off has been nothing but horrific. Does this perception mean they deserve to lose over $40 billion of market cap? No. Though, perception rules our world and as of late Facebook has a negative perception in the eyes of many (or those that matter in the investing world). In due time the perception will reverse and the social media bulls will be rewarded.
The plight of Facebook has not been helped by the talking heads or the investors that don't even understand the workings of Facebook. I constantly hear comparisons between Myspace and Facebook. At this point I find it ridiculous. It just goes to show how many investors fail to understand the ins and outs of a company before they invest. It shows how ignorance encompases the field of investing. Would you have bought into Apple for the iPhone if you had no idea what a smart phone was? A smart investor would have gone to the store, seen the hype, and explored the product prior to putting money behind his or her thesis. So for all you fools that claim that Myspace and Facebook are one in the same, I have nothing to say to you. You have failed yourself as an investor, because these products are galaxies apart. My mother and her generation did not even know what Myspace was but today she checks her Facebook daily on her iPhone. Event planning for a mass majority of individuals is done via Facebook. That is just a mere example of what separates Facebook from Myspace, oh yeah and the difference of about 870 million users at there peak (though Facebook is still growing strong).
the hatred for the Instagram deal astounds me. Everyone fails to grasp how great of a move it is. Facebook just made an aggressive move against Twitter. Instagram has a majority of their postings on twitter or is linked to twitter. Zuckerberg showed some cojones and marked his territory and now the world is mad at him. The best tech companies are the ones that protect their best interest and hinder that of their competition. A picture says a thousand words, or rather, a picture says everything a profile description says. Facebook wasn't going to miss out on the next thing, it's going to integrate it to be part of its platform. The move was pricey, but a must, and it shows that Facebook is here to stay one way or another.
For those you that are not so familiar with the social media environment, Facebook's competition twitter is set to make a billion in about two years. This should come as a giant surprise to many being that Facebook and all other social media stocks are headed directly to zero. For those of you who believe in the story of Facebook, that has been far from a fairy tale, this should be some conformation in your beliefs. These companies are making money and growing at rapid rates. Though Facebook has failed to monetize mobile yet, it will, and it will do so at the same time as protecting the user experience. Zuckerberg understands that there is a need to balance profits and user experience, because without users Facebook has nothing.
Don't believe the talking heads or the poorly written articles by individuals that have never traded or held stocks. I rode LinkedIn down from $80 to $60 last year then back up, pulling out my hair, fearing for a portion of my portfolio the whole way. Do you know what the know it all skeptics said? They said it was worth $0.00. It was worth nothing, absolutely nothing. Now, today, it is the social media stock to own. So don't get your panties all in a wad, perception can change overnight. In due time Facebook will prevail because it didn't become a giant by luck. It may be a long road, but Facebook will be a stand out in the end.
After this morning it seems as though the world has ceased to be the world we know. Today things seem bad, real bad, but before you capitulate lets take a look at some of the macro data from this past week and attempt to put everything into perspective. As you digest the information in which I am about to share with you, you must also realize that though the beautiful economic data that we immersed ourselves in at the beginning of the year may be faltering, the U.S. remains the best of the worse. Though the rest of the world may be falling apart and many around you capitulating, the U.S. stands to benefit from the misfortunes of those around the world. As the rest of the equities markets will be plagued with horrible economic data in the future, here at home, we seem to be making some progress (or at least not getting worse).
Lets begin with the most important data point, the employment situation. It is by no means as good as anticipated. Though many fail to look at this glass half full, we are nowhere near the grotesque situation we experienced in 2008 and 2009. So what if the recovery takes some extra time, we aren't falling apart like our neighbors across the pond. We in fact are holding up quite nicely compared to the Europeans who employment situation is horrendous.
If you have read any of my previous work, you will know I am very bearish on the housing market as a whole, as I believe the U.S. housing market has been destroyed for a generation. What I am proud to share with you is that the housing market has finally stopped destroying my property value. No one is getting rich via equity of there home any time soon, but it looks like the months of 10 % losses are something of the past. So to sit there and say things are horrible is laughable. Things were horrible and the stabilization we are witnessing is a blessing that we should relish in.
Since jobs seem to be so important, lets take a quick look at the jobless claims. Last year I remember telling my colleagues how I would be much more comfortable with our economic situation if, and only if we get could get jobless under 400k. Look at the above image, we have done that and held nicely. Over the next year if we continue this trend my portfolio will likely have an inverse trend to the above chart.
Another point in which the masses seem to be quite preoccupied with, the GDP. Yes the GDP was revised downward a smidgen. The significance of the number 2 seems to be quite overblown in my opinion. We are by no means even looking at stepping in a negative direction. The GDP has fluctuated around this era for a majority of the recovery and will do so for some time. This negative revision suggests things are not on a steep uptrend in which some idiot analysts previously suggested. Though the number suggests things are just fine. Just like all the above data points suggest, things are just fine. Our economic data is not falling apart due to Europe. Though if the ridiculousness continues across the pond the equity markets will continue to fall apart. At the end of the day we will remain the best of the worse here in the United States and this will benefit our equity markets.
