BizThoughts

I didn't win. Which is no big surprise. But I didn't even know I didn't win until I happened to check my Spam folder and see a bunch of emails from the CNBC Million Dollar Portfolio Challenge.

Oops. Imagine if I had actually won. I might have missed the email!

Let's see how poorly I did. I'm almost embarrassed to publish these. Gulp.

Portfolio 1: Entertainment

Portfolio 2: Energy

Portfolio 3: Discount Shopping

Portfolio 4: Technology

Portfolio 5: First Week's Top Market Movers

Oh my. My my my. That's a lot of red. That's just… abysmal. I didn't do so badly last year, but sure as hell stunk like a rotting goose egg locked in a stuffy car during the summer this year, didn't I? This is why I'm in Silicon Valley and not Wall Street.

Remember your first iPod? Remember the first song you purchased from Apple's (AAPL) iTunes Store? Remember the 100th song?

I got a chance to check out Amazon's (AMZN) Kindle this past weekend. It was almost like seeing an iPod for the first time. I couldn't stop drooling and fawning over all the buttons and controls.

Much has been written about the Kindle already. Some extol its features, like being able to carry lots of books cheaply, having good battery life, and having audiobook integration. Others slam it for it's poor design and lack of social network (Um, really? You want a social network on an e-book reader? If anything, that's a P3 feature and shouldn't be part of a v1 product). It's interesting to note that many of the Kindle's original critics have changed their minds after using it for a while.

Rob Tillotson of The Gadgeteer has a deep & thorough review, Daniel Turner of Technology Review offers a good overview of its technical guts, and Mike Elgan of Macworld lists some great tips & tricks of the Kindle. These include how you can surf the web using its basic web browser (called, appropriately, "Basic Web"), download free e-books, get answers from a free human-powered search engine called Kindle NowNow, make the battery last even longer, read RSS feeds for free, etc.

My reaction? I just went out and purchased some AMZN stock. It's currently floating around the same price it had when the Kindle debuted on Nov. 19, 2007. It closed at 79.18 that day; today, it's been bouncing between 77.43 and 78.85, down from a high of 84.39 last Monday. But I don't care about that. I'm long AMZN. I'm betting that the Kindle will be to Amazon what the iPod was to Apple—and we all know how good the iPod was to Apple!

Here's why I'm long on Amazon:

UPDATED 5/24/2008: I added #9 to this list.

1. I am exactly the kind of early adopter customer Amazon wants. Although I didn't rush out to buy a Kindle (and am not going to anytime soon), as soon as the second or third version is released, I will. They're working on their second version right now, a source in Amazon tells me (and it sounds pretty good!), so it shouldn't be long before v3 is ready and relatively bug-free. And when I purchase a Kindle, I'm going buy lots of e-books. I'm a voracious reader and am always buying new books. Since Amazon's strategy is to profit from e-book sales and not Kindle sales (the Kindle is a loss leader), attracting book-hungry customers like me is going to be so money.

2. I travel often and always carry a book or three with me. That often adds extra weight that, well, just sucks. Since I usually try to travel light, carrying one Kindle versus three books sounds totally awesome. I can see other travelers wanting the same benefits. The business traveler niche could have great potential for Amazon, especially if business users are able to load their business documents onto the Kindle and peruse them during their flights.

3. I'm a bit of a digital pack-rat. Or just a big a geek, I dunno. I once had over 600 CDs. Then, to live more efficiently and have less material belongings, I burned them all into MP3s. I did the same with my DVDs. All that extra shelf space allowed my book collection to grow like crazy. Now imagine if I could digitize all of my books. How cool would that be. All of the media I'd own would be digital, portable, and easily searchable (told you I'm a big geek). That would be cool.

4. This is only a v1 product and already it's gotten a huge positive reaction. Most v1 products suck. The first generation of iPods sucked. But with Apple's branding & slick design and iTunes' ease of use & practical prices, it took over the market and surged as each new version was released. Kindle 1.0 was cool, 2.0 and higher can only get better.

5. A medical student I know took a look at the Kindle and said that if all of his medical textbooks were offered on the Kindle, he'd buy it in a heartbeat. First of all, medical textbooks are huge. HUGE. And medical students have to carry two to four of these heavy things at once. Second, medical textbooks are expensive, especially for starving students. With e-books being cheaper than regular books, a student could easily make up the cost of the Kindle over the course of his/her education. This could be a huge market for them, and the smart folks at Amazon know this.

6. Amazon has to maintain physical warehouses to store all the books they sell. E-books don't require expensive warehouses; they just require a database on a server farm somewhere, which is infinitely cheaper. This means Amazon could potentially sell more products (e-books) while not incurring any additional costs. I like them mathematics.

7. If Amazon can execute its Kindle & e-book strategy well, it certainly could go the way Apple's iPod & iTunes strategy went. According to a Nov. 19, 2007 article from Aaron Pressman of Business Week, "Apple shares (AAPL) stood at $9.51 (adjusted for a split) the day before the launch. I don't need to tell you where they are today. Ok, I will: $166." Not a bad return, I'd say.

8. I'm not the only one who expects great things from Kindle. Citigroup Analyst Mark Mahaney "expects Amazon to generate between $400 million and $750 million in revenue from the Kindle by 2010, or 1% - 3% of Amazon's total revenue," writes Michael Arrington of TechCrunch. "If Amazon executes right with its Kindle product and marketing strategy, the iPod analogy for the Kindle won't be too far stretched," Mahaney is quoted as saying. Cool!

9. Part of iPod's success came from the ease of use of getting more MP3s. Just as the iTunes Store made it very easy to download MP3s, the Kindle Store makes it very easy to download e-books for the Kindle. And even better, the Kindle Store is easier than iTunes because you can directly access it via the Kindle (no need for a computer at all).

I can't wait for the day I can look back and remember my first Kindle, my first e-book, and my 100th e-book. And also, a great big ROI on AMZN!

I like to win. Blame it on my competitive nature, the euphoria of winning, or the adrenalin of success. In any case, I like to win.

So when Bill Barker wrote "How to Win CNBC's Million-Dollar Portfolio Challenge", my ears perked like a cat hearing a can opener. (Meeeow!) Here's what Barker suggests:

1. Use all five portfolios.
2. Maintain a super-concentrated portfolio.
3. Size matters, so go small.
4. Focus on earnings announcements.
5. Look at companies trading at or near 52-week lows.
6. Celebrate low-priced stocks.
7. Look for shorts; they are great candidates for quick upward moves.
8. Invest in possible mergers, as they could offer a quick pop.
9. Biotech stocks frequently populate the top performers of the day.
10. Simply have fun.

Good advice there. I've already used some of it. He also suggests these stocks, which more or less fit the criteria he's outlined:

• Blockbuster (BBI)
• Circuit City (CC)
• FuelCell Energy (FCEL)
• TiVo (TIVO)

Let's see how on-the-money his advice will be. And good luck everyone!

I scratched my chin and occasionally picked my nose for a long time while coming up with these. For this year's CNBC Million Dollar Portfolio Challenge, I decided to cluster my stock selections by sector.

Since we can create five portfolios with a minimum of four stocks each, I did just that: five portfolios with four stocks each. Going with just four stocks maximizes my chances; any more than that, and I'd be diversifying my portfolios too much. The name of the game here isn't Who's the Best Real-World Market Investor, it's Who's the Best Short-Term (Two-Month) CNBC-Fabricated-World Market Investor.

My initial picks:

Portfolio 1: Entertainment

Let's see how Marvel does with this summer's upcoming blockbuster movies. BTW, Iron Man rocked!

• Marvel Entertainment (MVL)
• DreamWorks Animation (DWA)
• Electronic Arts (ERTS)
• Activision (ATVI)

Portfolio 2: Energy

Energy's a volatile sector and oil & gas prices are still rising. Perfect combo for wild stock spikes. Hopefully mostly up in the next two months.

• Venoco (VQ)
• Plains Exploration & Production Company (PXP)
• Berry Petroleum (BRY)
• BP (BP)

Portfolio 3: Discount Shopping

Some people are already tightening their belts. That means more shopping at discount stores. Everyone loves cheap stuff!

• 99 Cent Only Stores (NDN)
• Dollar Tree (DLTR)
• Family Dollar Stores (FDO)
• Ross Stores (ROST)

Portfolio 4: Technology

I have the least confidence in this portfolio; I don't know how strong technology will be growing in the next two months. But its volatility could make for some huge price swings.

• Clearwire (CLWR)
• GigaMedia (GIGM)
• 3Com Corporation (COMS)
• Yahoo! (YHOO)

Portfolio 5: First Week's Top Market Movers

This one simply takes the first week's top market movers. It's a random grouping, a what-the-hell portfolio, because: what the hell.

• Venoco (VQ)
• Acme Packet (APKT)
• Collective Brands (PSS)
• ICO Global Communications (ICOG)

What are your picks?

It's that time of year again. Time to take part in CNBC's 2008 Million Dollar Portfolio Challenge!

I entered this contest last year with a few average picks, and when it was discovered that some participants were gaming the system, the whole thing started becoming kinda lame. My final results were okay too: a 5.2% increase. Not bad.

This year, CNBC has changed up the rules because of last year's cheating. (Interesting anecdote: after disqualifying all the cheaters, last year's winner, Mary Sue Williams, is apparently still a waitress who is now getting lousy tips - cuz she's rich, her customers tell her.)

The rules now include:

• Requiring at least four stocks in your portfolio
• Allowing up to five portfolios within your account
• Allowing currency trading in addition to stock trading

Officially, this contest began yesterday. Their website has been marred with outages and problems, however, so I've had a hard time getting in and setting up my portfolio. I wonder if this year's contest is going to be kinda lame too. I hope not, though I kind of think it will, especially with the rough start it's been having. Bummer.

Like to invest in real estate? Like environmentally-friendly technologies and products? Here's an interesting venture.

In last month's issue of Entrepreneur Magazine, they ran an article featuring young (read: under 40) millionaire entrepreneurs. Along with an impressive cast, one of the duos profiled is Bob Shallenberger & John Cavanagh, founders of Highland Homes.

Bob , 37, and John, 38, are fraternity brothers from St. Louis University who both had real estate development experience before banding together in 2003 to create the St. Louis-based "homebuilder with innovative designs, green developments and urban lifestyle," as they state on their website.

They use green housing methods such as "sustainably grown wood, rooftop decks, underground parking, lots of parklike green space and high-efficiency heating and cooling systems." Such techniques offer them a competitive advantage as well.

Says Cavanagh about green building, "It's difficult and it's expensive to learn. It's challenging, and there's some risk in it. We see it as a big growth segment of the market." Their next move? "Being recognized as the top green residential builder in the country is the goal for us," he says.

That could possibly happen, if they play their cards right. I certainly agree that green buildings (both residential and commercial) will become a huge market in the future. With the way the environment is going, I don't think we have much choice.

Highland Homes doesn't just aim for environmentally-conscious customers though. They also cater to the luxury market. "Each new home comes with a plasma TV and the option of special packages like 'Elvis Live,' which includes a stereo, karaoke machine, CD player and iPod Nano." Another one of their current options, the Super Bowl Shuffle, contains a 50" plasma TV, Sony Surround Sound, 2 front & 2 rear speakers, center channel & subwoofer, DVD/CD player, a Sony Playstation 3, and Madden NFL 2007.

Not bad. And even better, especially for California Bay Area real estate investors, are some of the prices:

Kilmore Condominiums near St. Louis University (all 2bd, 2ba, 1500 sq ft):

• 7011 Dartmouth Ave 1FL - $249,900
• 7011 Dartmouth Ave 2FL - $259,900

6416 Cates Condominiums near St. Louis University (all 2bd, 2ba, 2000 sq ft):

• 6416 Cates Ave. 1FL - $314,900
• 6416 Cates Ave. 2FL - $339,900
• 6416 Cates Ave. 3FL - $359,900
• 6416 Cates Ave. 4FL - $379,900

Donegal Condominium near St. Louis University (3bd, 2ba, 2000 sq ft):

• 6404 Cates Ave. 2E - $319,900

Highland Walk Townhomes at The Hill in St Louis (3bd, 2.5ba, 2050 sq ft):

• 5717 Arsenal St. - $299,900
• 5719 Arsenal St. - $299,900
• 5723 Arsenal St. - $299,900

To be fair, I'm not a real estate investor. I just happened to read about these guys and thought it was an interesting opportunity for someone. The prices are lower than the $700k - $1.5M I see in the Bay Area, though I know that doesn't mean Highland Homes' prices are a bargain it in St. Louis.

(Also, I have no affiliation with these guys, nor am I getting any money for this. I just thought it was a cool idea. Plus, I like hearing about green businesses.)

There'd be lots of factors to consider if you wanted to buy or invest a green home with these guys. Are their methods sound? Will they actually stand the test of time? Presumably, they will, since the guys are living in homes they've built. How are the neighborhoods there? Being next to a university means lots of possible renters, but is the rental market healthy? How about the country-wide real estate downturn? Will the rising costs of housing materials hurt them? Could their prices drop as sub-prime fears depress the market?

Hmm. Lots to consider. And if you're a serious real estate investor, I'm sure you have many more important questions. But hey, if this is a sound investment, and you want to invest in green AND real estate, here's a chance to combine the two!

You may have heard: VMware just had their IPO. They're now listed on the New York Stock Exchange under the symbol VMW.

I'm going long on this company. I like their leadership and the fact that the President and CEO, Diane Greene, is a co-founder with previous CEO experience. She was the CEO of VXtreme, a streaming media technology company that was acquired by Microsoft (MSFT) in 1997.

I also love their products and have actually used their software before. As a front-end engineer trying to build web applications, you have to test your code across a large variety of web browser and operating system combinations. It's a very tedious task. And it can be very costly if you go out and buy a separate computer for each use case.

Fortunately, VMware's Desktop Virtualization Products can lower the financial burden considerably. Instead of five machines, you now only need one. Multiple that across an organization of hundreds of front-end engineers and you have mega moolah savings. I heart VMware.

There is a lot of buzz over VMware though, with the media calling it "the hottest tech IPO since Google (GOOG)." It's easy to fall prey to the buzz and believe all the hype.

So if you're thinking about buying some VMW yourself, don't take my word for it. Here are two great articles pro and con their IPO for your enlightenment:

• Is the VMware IPO Worthy of All the Hype? by Chris Krasowski
• VMware IPO by Khanan Grauer

"You know, I'm semi-retired right now," said the cab driver. "I was able to do that through investing in the stock market."

"Really?" I asked. "How so?" I decided not to bring up the fact that he was driving a cab.

"I have a degree in Chemistry. I used to work for a dot-com. When the dot-com bombed, I was left with some money. I used that money to begin learning the stock market."

The car sped down the 101 and darted between slower cars. "I started small," he continued. "First, I invested only a little. I read a lot of websites and magazines and books. I studied a lot. Everyday. My wife would come home and complain about all the financial reports I had throughout the house. I told her, 'But this is how I'm making us so much money!'"

I laughed. "So you built up a portfolio through reading all this stuff. Let me guess, you're a value investor?"

He smiled into the rear-view mirror. "No, not really. I invest in one stock a year."

"One stock a year? So… you don't diversify your holdings?"

He shook his head with a grin. "Nope. I spend six months researching and researching. Then, after six months, I select a single stock I want to invest in for that year, then I put all my money into it."

"Interesting. Sounds risky for the average investor, but since you're an educated investor…"

"Exactly," he added. "For six months, I study everything about a particular company. I study the executives, their backgrounds, how many shares they hold. If the CEO holds many shares of that company, that's a good sign. If he's selling most of his shares, that's a bad sign."

"True true," I laughed.

"I study the product, the market, it's competitors, everything. Even if the stock has a sudden spike while I'm researching, I don't buy it. I only buy it after I've completed my research and am very certain that it's a good buy."

"You must be a very patient man."

"Yes, I am very patient. You have to be if you want to be a good investor. I've been doing this for thirty years now. I started doing this at a young age. In the twenty years since I started the one-stock-per-year model, I've only lost money once."

"WHAT??"

He nodded with a broad smile. "Just once. I started with penny stocks, since they were very cheap. Even now, I'll purchase low-priced stocks. Right now, I'm holding about 50,000 shares of a $1 stock. So when it moves up to $2 and $3, well…" he beamed.

"Wow." I shook my head. "That's awesome."

"When I started, I didn't have this much money, of course. In the beginning, I lost a lot of money. Just like everyone else in the dot-bomb. But every time I lost money, I'd study my decision making analysis to understand why I made this mistake. I'd study the stock more, the company more. I analyzed why the stock lost money. And I used those learnings to improve my investment decisions going forward."

"And now you're semi-retired," I stated.

"Yes. Now I am semi-retired." We pulled up to my destination. He stopped the car, then turned around. "I tell you, investing is a very important skill. You should learn it. Start small and study your mistakes in the beginning. Do a lot of research and be very patient. Do that, and you'll be able to retire too."

I thanked him and got out of the cab. I waved as the cab drove off. Only in Silicon Valley can you met a semi-retired cab driver who makes his money with $1 stocks.