VAL9000

It's interesting data. Here's a few other data points: US GDP: Then 13,336; Now 15,094 Employed Americans: Then 146,047,000; Now 142,469,000 Trailing 12 month average savings rate: Then 2.43%; Now 3.82% Interestingly enough, I came across this monthly savings rate data to calculate the above: http://research.stlouisfed.org/fred2/data/PSAVERT.txt The personal savings rate rose above 5% for exactly one month between 1998 and 2008. It's gone above 5% 22 times since 2008. It was above 5% 34 times in the five years prior to 1998.

Hi everyone, I wanted to share some thoughts on where I think the market is right now, and where I think we're going. I'm not a huge macro guesser, but I believe in cycles. Here's my thinking: - Current price on most equities is starting to get dear. I'm looking at the businesses I have bought over the past few years and am thinking at these prices it's difficult to justify buying more. I can't locate any fat pitches right now - just good long term stable buys at fair prices. - I think equities will continue to rise into stupid valuation territory over the next couple of years. Current policies in the US are going to be pumping money into the system for the next year or three - both from a monetary and fiscal perspective. This virtually guarantees net buying activity, which will push equities up regardless of valuation. We're seeing lots of fund flow activity reinforcing this idea today. - The alternative asset class of choice, debt, totally sucks right now. There are other asset classes, but I am too lazy to learn them. Plus I don't think that they offer significant protection from a market correction. It's like investing in equities right now is a damned if you do, damned if you don't scenario. This is a bad place to be as a value investor. What's a fella to do? I am going to play the waiting game. Most of my portfolio has cycled from "good company, great valuation" to "great company, good valuation" over the past year. My thinking is this is where you want to be heading into the tail end of a bull market to catch the upside and minimize the downside. I would prefer to have some debt investments, but I'm waiting for rates to rise. To me this is the hardest period in investing that I have ever encountered. It must be because prices are so fair in equities right now. Nothing I hold is truly overvalued and worth selling. Nothing I see is obviously cheap and worth buying. I believe my greatest challenge now is patience. I always thought that patience was what you required when you bought something cheap and were waiting for the price to correct. But it turns out that's easy patience. Hard patience is when you have to force yourself to do nothing because there is nothing to do. It is really hard to just sit and wait. Is anyone else struggling with this today? I need group therapy that addresses inaction.

I wanted to say this, too. It looks like there's plenty of runway left on this bull market. You know the dumb money is starting to flow when a teenage day trader gets a 10 minute segment to discuss her strategies ("buy when you like it, sell when you don't"). I remember reading a lot of BS like this in the late 90s. This is just the beginning; we're going to be delighted by tons of shallow wisdom over the next couple years.

That was mostly a joke, but also is a good lesson when you're thinking about this stuff - where does the value come from? For services it's about 1/3rd from the sales process, 1/3rd from the delivery, and 1/3rd from the market niche. The sales process involves everything between identifying prospective customers and closing the sale. The delivery is doing the work better/faster/cheaper than your competitors, and adds credibility to the sale. You need to do both, which is why having a partner makes a lot of sense. One pushes up the value on the sales side, and the other pushes up the value on the delivery side. The market niche is just where you operate. Social stuff, mobile stuff, these are hot/new markets so you will get lift from working in this space because people are interested in the new new thing. Microsoft .Net custom dev is much harder because the market is established, the offerings are commoditized, and it's boring as hell to talk about, but you can still do it. In any case, you should do what you really love because you will need to be excited about doing "the same thing" every day for the next 5-10 years. Nah at least we're still talking about business and not politics or the merits of a 4" vs. 5" smart phone. ;)

Neither of these are easy, but there is less risk associated with Group 2. Group 1 is a crapshoot. If you're going to do it, just take your best idea and run with it. Chances are extremely high that you will fail as a one man show. Chances are extremely high that you will fail anyway. Group 2 you will probably not be able to do successfully as a one man show unless you happen to be both a sales genius and a technical wizard. Most people are not this. Well that's because you're using the wrong channel and selling time instead of value. oDesk and e-lance are commodity sales. You are getting commodity prices. If you are lazy about selling your services then you are not providing a "value add" to your customer. You deserve to earn less this way. If you are educating your customers, provide a unique service, have skills that exceed your peers, then you can command a higher price. oDesk doesn't say that. oDesk says you are the same as the other guy and therefore can't charge more for what you're doing. This ties into the yin-yang of services though.. More time spent selling means less time spent billing, and vice versa. Finding the right balance is how you generate true returns. If you want to make more money with services, pile all your experience into the same group, and wrap it up as a unique offering. Here's an example: create a business that only focuses on facebook page development for businesses. Learn how to make nice custom pages, partner with wildfire etc. to drive ads and analytics, and then take your solution to your target market. Fix the price to something they can swallow and you know is fair. e.g. $2000 for a facebook page from these features. It'll take you 2 days to do when you're good. So you get paid a rate of $125/hr, instead of $20/hr if the client bought the service on oDesk. Plus you can charge them $150/hr when they call you back to make custom changes. Or you can go back and sell them the twitter account package, too. That's how you make rate on a services business. Touch oDesk and die. The thing that's scary is that you will get rejected more. Everyone needs tech help. Not everyone needs facebook pages. But tech help pays $40k per year, and facebook pages pays $200k a year once you outsource the development to oDesk and focus entirely on selling facebook page services ;)

There are a lot of software startups without business-domain knowledge. Paypal for example had zero domain knowledge since they didn't set out to do online payments in the first place. Ycombinator funds a lot of startups where the founders don't have business-domain knowledge. This really depends on how you slice it. There are lots of different kinds of software companies. Here is how I break it up: PayPal, Google (pre-IPO), Facebook, LinkedIn, Twitter, etc. are all in the "new idea" class. For this class, the software coding is probably extremely important because the idea is only new for a short time, and you want to outpace your potential competitors as quickly as possible. This class is also a much riskier business. For every Facebook there are a dozen Friendsters, a hundred "TagWorlds" and thousands of "never heard of it". The other style of software, which is what I think oddball is referring to, is the incremental improvement model. Find a business problem or market niche with weak competitors, develop a solution, then market and sell the hell out of it. It's less risky, but still risky. The rewards on the software side are not as grand, the markets are smaller and more niche, but the risk is also adjusted accordingly. For these problems the quality of the solution is less important than the ease of the sale. Worth pointing out is that companies from group 1 tend to become independent entities or they completely implode. Group 2 are less predictable.. many are acquired, some IPO, and most hobble long for quite a long while. Hmm I think that there are examples of businesses selling their time. In the Internet bubble days, consulting companies made a lot of money. Right now there is a mini-repeat as you can make money doing smartphone/tablet apps for people. A lot of companies don't have somebody who knows how to setup a software division. They may try to do software in-house only to find that it has turned into a huge disaster (the government is usually a great example of this). There is demand for outsourcing. IBM is a good example of a software/IT company. The professional services business cuts both ways. On one hand, you get your money now. Services are executed and so long as you didn't completely blow it, you'll see the payback in the next 60-90 days. That's almost immediate. Software is different. For group 1 above the payback period is somewhere between "we don't know" and "never". For group 2, it's usually 2 years minimum to get traction, 5 years to become profitable. This is why most software businesses require venture capital - few people can bankroll a team for 2-5 years (or forever) without outside money. You get diluted as the founder, but your pie grows much faster (if executed well). On the other hand, with services you can't scale well. Since you're a services business you are probably bootstrapped, so even if you come out of the gates making 40% margins (which you will because you'll pay yourselves only 20k a year), it would take you about 6 months before you can afford your first hire. But then you need to sell that new hire to a client, so you're now only making 10% margins because half of your team is now selling, which means it'll take you another year before you can bring on another person. Oh and you don't know how to sell, and nobody trusts you. Now you're at 3-4 people after 2 years, you're slightly profitable but you won't be making huge bucks for another 5 years because you will keep running into similar issues over and over again. Such is the nature of services businesses. Much lower risk, but also lower reward. So all told, if you're young and green you should either do group 1 or services because you have no money, no experience, no connections, and no knowledge of business. When I am old and crusty (or older and crustier), I will probably do group 2 because I will have resolved most of the barriers associated with succeeding in group 2. Plus I will be too old to succeed in group 1, and I won't have the energy to run another services business. I have done group 1, group 2, and services, with varying degrees of success. Services being the most successful for me.

Thanks for the review. I've also been looking at picking up a Nexus 7 to supplement my iPad. Apparently my wife doesn't approve of the iPad as a bathroom reader.

The Nexus 7 or was it a different Android tablet?

Wasn't sure if I should drop this in AAPL, GOOG, MSFT, or AMZN thread since there is an impact to all. I'm recommending that these product related news posts that have impact to multiple potential investments get placed into a "General Discussion" thread. This will keep the investment-oriented threads a little cleaner and free of too much speculation and product discussion. Some very interesting developments from Google today: http://googleblog.blogspot.ca/2012/10/nexus-best-of-google-now-in-three-sizes.html That's a Nexus 7 with 32GB and Mobile Data selling for $300, vs. the iPad mini equivalent selling for $560. The 7 is going for nearly half the price of the iPad mini. The Nexus 4 and Nexus 10 both look attractive, too. They're both clearly competing directly with the iPhone 5 and the new new iPad. Similar specs, better price point.

Keep in mind that 9 million Surface devices in a year represents about 2.5% of the PC market. iPad sells something like 50 million. For the OEMs, a Surface sold is much better for them than an iPad sold. There's a good discussion going on in the Dell thread over this same issue.

What business is the tenant in?

JEast, I pay attention to transport a bit due to my investment in SSW. If you look at the same chart from 2000 you see the transports are +70% whereas the Dow is +18%. This makes sense to me given the positive impact that globalization has had on international trade fulfillment. Shipping is getting killed due to oversupply right now, so that's reflected in here someway somehow, but I don't think it's the major contributor. My guess is that the bigger impact to this is the American consumer's appetite for discretionary spending. Today, demand is weak and demand growth is also sluggish, so the market is reflecting that when pricing these transportation businesses. Longer-term the demand will recover, either because the deleveraging trend will come to an end, the population will grow, the population will become richer, or a combination of all three. It's just when and to what degree.

I think you're right - the Volt and the Elantra are nearly direct competitors in terms of what each vehicle offers in terms of utility/comfort/etc. Where I think you're wrong is with the value of the environmental benefit. It's a very difficult benefit to measure, but I would imagine that the market looks something like: .01% of people would pay a $10,000 premium for an EV because they know that it helps the environment. Maybe 1% would pay $5,000. and maybe 10% would pay $1,000. Some kind of distribution like that exists in the market. If you take this approach to what the market is willing to pay, the Volt has a place. And over time we'll see if it's .01%, .001%, or 1% who are willing to part with that money for that benefit. There are way more factors (e.g. the Volt is ugly compared to the Elantra), but given enough competition we'll learn what the majority thinks the environment is worth to them. My next vehicle (1-2 years) will almost certainly be electric or plug-in hybrid, so I guess that puts me in the $15k category. I am not a huge environmentalist, but I support the vision and this is the only way I can do it. Being an armchair critic isn't enough. I feel like.. as someone who is lucky enough to live in a developed country with all of these great advantages, I am morally obligated to part with some of my earnings to help out in a small way. Plus, even dorky electric vehicles are cool. Gas is soooo 1999.

I remember seeing this in a used book pile while at university. I didn't read it, but the title indelibly shaped my perception of Larry Ellison.

The Lanai thing is really interesting/respectable. My theory that he would use it as a place to raise his clones is way off. Unless he's doing both - dun dun DUNNNNNNN.

A few points: - I disagree that the environmental costs of an electric vehicle exceed those of a gasoline vehicle. The arguments I've seen so far are pure FUD on the EV side and don't account for the equivalent costs on the gasoline side. e.g. people who design gas engines also use air conditioning, and there is a significant environmental cost associated with extracting oil from the earth (BP was just 18 months ago don't forget). If you are going to use those arguments, you have to give fair play to both sides. - Really the only reason why we're talking about electric cars AT ALL today is because of Tesla and they deserve full credit for that. They are doing very interesting things around what a car company ought to be. Huge flat panel display, trunk in the front and the rear, mobile servicing/telemetrics, free charging stations, new retailing concept. Some of this stuff is necessity, some is only possible in an electric vehicle, but it's certainly all valuable in the context of capitalism. Somebody's out there trying new things and that's going to benefit the world. - Tesla's strategy is very cool. For people who have studied how start-ups work, Tesla understands the concept of bootstrapping. Car manufacturing and bootstrapping typically do not go together very well due to the capital needed to reach scale, but they are giving it a go and I respect that. The approach they're taking (multipurpose robotics vs. assembly line) is much more suited to the < 100k vehicles market that they are creating. Whether it works as an investment... Who cares? Nobody's going to bet their savings on this, but what you can bet on is that the world will improve in a measurable way because of this. Maybe you'll lose or double a small position, but I doubt it will move the needle for anybody other than Elon, the original VC's, and anyone insane enough to make a huge bet on such a risky venture. Finally, say what you will about Elon Musk, but this guy has drive, vision, and balls. He's probably out of his depth when it comes to solar technology, auto manufacturing processes, and aerospace engineering. But he's the chairman of companies that specialize in all three. Between them, these ventures are responsible for thousands of solar panel system installations, reinvigorating the EV market with two brand new models built from scratch, and have launched rockets to the International Space Station for NASA. In fact, one of his life's goals is to die on Mars. Regardless of the success of SolarCity, Tesla, or SpaceX, the world really needs to appreciate these unique individuals for their audacious thinking and their ability to impact how the world works. Alright that's enough out of me...</ManCrush>

GOOG - 41% SSW - 20% USG - 11% 6 Other Equities - 16% Cash - 12% Working on getting my cash % higher. Was 2% in August.

I have a very small (<5%) position in Tesla. Mostly for the glamour. I tell myself that when my investment is worth enough to buy a Tesla vehicle, then I will allow myself to do so. Don't ask me what I'll be driving if the bet goes sour :P

This article sums up my feelings: http://www.wired.com/gadgetlab/2012/09/the-iphone-5-is-boring-and-amazing/ I like that the new dock connector is reversible. That is something I wish the USB standard had incorporated. So that's cool. The BS reason for why they're changing the connector was kind of weird, though. We use more wireless so we had to change the connector? Even though it's fully backwards compatible? Odd pitch. The excitement I felt upgrading from a BlackBerry Curve to an iPhone 4S will probably not be matched by upgrading from an iPhone 4S to an iPhone 5. Some in my office want to move from the 4 to the 5, but many are holding out for a different flavour of handset. All I want is my physical keyboard without sacrificing the excellent iPhone browsing experience. Also, the new nanos are ugly, ugly, ugly. It's _way_ too early to get concerned about the rest of the product line, but does anyone here think that those would have been approved for launch by Steve?

I'm glad we can agree on something. More than half of the eligible neighbourhoods have reached their minimum, and many of those that haven't are low-income neighbourhoods where high-speed internet isn't a priority. This is a far from validating your thesis of "nobody wants or should want 1Gbps service."

You sound like kind of a jackass arguing that people shouldn't want 1 Gbps. I want it and would pay $150/mo for it easily. That it could be available for $70 is just that much better. I can understand arguing why it's a bad idea for Google because of cost, because of brand dilution, because it's a distraction, it doesn't fit, etc. etc. But saying that people shouldn't want 1Gbps is like saying 640kb RAM is all anyone needs. It's not true and even if it were true today, it's still short sighted.

Even a stopped clock tells the right time twice a day.

Looks like we're getting more of an answer on what the Googs will do in the living room: http://allthingsd.com/20120627/with-sights-dead-set-on-the-living-room-google-debuts-a-streaming-media-device/ Which puts this investment into perspective: http://online.wsj.com/article/SB10001424052702303836404577474760722382998.html

My theory on why profit margins are so high is tied to my theory on why unemployment is so high. Since about the mid 90's, businesses have been investing heavily in hardware, software, automation, and other technologies. Businesses have always invested in improving productivity, but the mid-90s was unique in that it kicked off a lot of really interesting technology. e.g. the web/Google, "Enterprise Software" (ERP, CRM, etc.), Email, global supply chain, etc. These are technologies that can directly improve every kind of business. These investments allow businesses to do more with less. Between the mid-90s and '07, these corporations did more and more and more. When the "great recession" hit, a bunch of people got fired in anticipation of the corporation doing less. And what these businesses discovered is that they could do quite a bit more with quite a bit less. GDP today is much higher than in 2007, but the number of people employed is much lower. So I think what is happening is this.. Consumer demand is constrained because of persistently high unemployment. Corporations are unwilling to move on hiring more people because 1) consumer demand is constrained and 2) if the demand dips again they will have to fire a bunch of people all over again. Corporate profits are benefiting from this catch-22. The first business to bring up its staff numbers is going to suffer the most, because they won't immediately benefit from the increased consumption stemming from their own hired staff, but they will immediately be punished with lower earnings. Given this framework, my guess is that there will be some reversion to the mean as businesses bring on more staff to grow beyond today's constraints, but then that softening of the margins will be followed by improved profits as aggregate demand increases with greater employment. Economically this makes sense to me.. these are economies of scale at work. And the more these businesses scale, the greater the economies. In other words.. I expect a permanent increase in corporate profitability, but would guess that we're at the short-term peak.

I think it's extremely likely that we'll see "Xbox 720" running "Windows 8". Xbox 360 software is already pretty close to a cleaned up version of Windows 2000 as it is, but the system design goals likely didn't include any cross-device compatibility. Maybe I'll go a little further and say that it's pretty likely that Xbox 720 will run a version of Windows 8 RT rather than Windows 8 Pro. I say this because if I were them, I would be pushing to roll-over development from "Windows Classic" to "New Windows". Apple's strategy here seems like it's already mapped out.. Proprietary device, iOS code base, probably an all-in-one system, leverages iTunes ecosystem. What do you think about Google? Android has been successful in terms of OS adoption using a scatter-shot approach, but do you think that will hold up in a living room setting? And how does Chrome OS / Chromebox fit into this? The idea of being able to tie everything together from the OS & up seems untenable given the level of fragmentation. I don't have deep thoughts on this.. I see SmartGlass as a marketing term wrapped around a group of related software features that nobody has really taken the time to stitch together. I think entertainment companies have a huge opportunity (both in terms of increased engagement and increased revenue streams), but I don't believe that what SmartGlass offers will be unique to the MSFT ecosystem. You can do what they're showing with an iPhone, iPad, and a marginally improved Apple TV. The innovation will really come from the third party developers. You?