Buy Low, Sell High

You know what I love about this recession? The low prices. I’m seeing sales and discounts everywhere. It’s much easier to haggle and get a good bargain nowadays. Even a lot of stocks are arguably undervalued right now.

One stock I’ve been tracking is Berkshire Hathaway’s Class B shares (BRK-B). As of this post, it’s floating around $2,830.50/share. I like Buffett’s school of thought. His Class A shares are above the amount I’m willing to invest right now, but Class B is totally doable. With his track record, BRK-B is sure to swing back up again. Same for many other great stocks. (Buy low, sell high!)

Of course, this presupposes that you have the means to be buying right now. A lot of people don’t. If are one of the lucky few who can, take a look at the prices you’re seeing on Craigslist and eBay (EBAY). Some people are unloading lots of high-value products at low prices. An enterprising individual with a discerning eye and a bit of capital could easily scoop up some of these items and sell them at a higher price when the market rebounds. Know what I’m sayin? (Buy low, sell high!)

This recession also means low prices from vendors. Small business owners should definitely advantage of this. Negotiate with your vendors on lower prices, favorable payment plans, and/or lower interest rates. Many businesses are open to negotiation right now. All you have to do is ask. (Buy low, sell high!)

Isn’t this a great time to be an entrepreneur? Ah yes, it sure is.

Photo by: timparkinson

Financial Security, Comfort and Wealth

The Brick Which do you want? Financial security, financial comfort, or financial wealth?

Everyone says, “I want to make lots of money.” But what does that really mean?

The distinction between different levels of financial status is important because it helps to conceptualize what you really need. Money is a means to an end. You don’t want a lot of money, per se. You want what it can afford you. So what does that mean? Let me explain.

There are actually four levels of financial status:

Financial Insecurity
This is where most people operate. It means living paycheck-to-paycheck. If you were to lose your job tomorrow, you would be in serious trouble. Obviously, it is not a good place to be. Getting out of it requires a lot of discipline and a bit of luck.
Financial Security
Some people operate here. This means having enough of a financial cushion that if you lost your job tomorrow, you would be okay for up to six months. In other words, your savings account should be able to cover up to six months worth of living expenses (rent, food, insurance, etc). This should be enough time for the average person to find employment elsewhere.
Financial Comfort
Few people are at this level. This means having enough money that you don’t mind losing your job because you have enough saved up for years. You can afford the occasional item of luxury and comfort. While you still have a budget, you aren’t scrambling to make ends meet. You don’t have a lot of anxiety about money. In short, you are comfortable about your financial situation.
Financial Wealth
Very few people are at this level. This means having enough money to afford the luxuries all the time. You can afford to be a philanthropist who donates hundreds of thousands of dollars. You can afford to pursue your hobbies and interests at will. Your life is one of leisure. Ironically, many of those who become financially wealthy overnight don’t know how to hold on to their money and lose it just as quickly.

Me, I am aiming for financial comfort. I don’t need financial wealth – though, sure, if I achieved it, I sure ain’t gonna cry.

To reach financial comfort, I know I must live my life a certain way. For one, I can’t be an employee all my life. Owning a business is one great way to get there and that’s the path I’ve chosen. It also means practicing financial discipline, like keeping a budget, saving money, being smart about investments, taking calculated risks, learning how to be financially savvy, etc.

It is possible to achieve financial security and financial comfort. Very possible. Anyone can do it, even you.

So which financial level do you want? Million Dollar Portfolio Challenge

It’s baaack…’s Million Dollar Portfolio Challenge is back for a second time this year. And this time, it includes a free $25 Micro Account from FXCM, a forex market. Otherwise, it looks to have the same rules as last time.

The challenge starts on November 17th.

I can’t say I’m too hot on playing this again. It’s not because of my previous dismal results – though I’m sure if I was a previous winner, I might be more motivated. It’s really because, well, the game has gotten kinda boring.

It was kinda cool when it first came out. A novelty and all that. There was even a friendly wager going on between a friend and I. But I’m not too familiar with forex trading and it’s more about gaming the game than playing it like a real market – cuz it isn’t a real market; it’s just a derivative of a real market.

So I dunno… I think I’ll sit this one out. Are you going to play it this time around?

How To Save & Make Money in a Recession

The Brick Much of what I hear about the economy today is doom and gloom. But personally, I’m hopeful. The market is cyclical. It’s always been this way, for as long as it’s been around. That means it’ll rebound someday.

In the meantime, there are ways to take advantage of this falling economy. There are lots of ways to save money – and even make money!

Here are 10 tips on how to do that:

  1. Short Sell the Market

    Short selling is a method of making money when something loses value. For instance, you could “short” a stock and make money when its stock price falls. And as you can see, lots of stock prices are falling right now. However, the SEC can sometimes place temporary restrictions against short selling, which it did earlier this season.

  2. Buy Low

    Prices fall in recessions. That means you can make some great buys at great prices! Assuming you’ve got the money, of course. But if you do, this is a fantastic time to pick up some choice stocks. Then, when the market rebounds, you can sell those stocks for a tidy profit. Buy low, sell high!

  3. Negotiate Your Credit Card Rates

    Lots of credit card companies will give you a lower interest rate if you just ask. It helps if you have a good credit history and have been a long-time customer though. But even saving a few ounces of a percentage point can add up in the long run, so it’s worth asking. Then, if you must use a credit card, use those with the lowest interest rates first.

  4. Trim the Fat

    Review your bills and pay attention to where you could tighten up your belt. You might be paying a recurring fee for something you don’t really use. Maybe your barely-used gym membership could be ditched in favor of joining a weekly running group. Or maybe all those extra cable channels aren’t really necessary.

  5. Buy Used Items

    If you can make do with a used item instead of a brand-spanking-new one, do it. Lots of people are selling their stuff now – especially on eBay (EBAY) and Craigslist. That means lots of potentially great bargains. A recession is a great time for bargain hunting and finding cheap, high-quality stuff.

  6. Sell Your Stuff

    And speaking of used items, if you have a bunch of stuff lying around that you’ll never use, sell it. If there’s absolutely no more use for it, why not squeeze a buck or three out of it? The downside is that you won’t be able to fetch as great a price if the economy was better. But if you need cash right now, this can help. You’ll be able to clean up some of that clutter in your room too.

  7. Buy Bulk

    You can often get more value for your dollar if you buy from wholesalers and discount warehouses like Costco (COST). If you’re a single person living alone, this might not be worth it because of the annual fees, but if you’re in a family or multi-person household, the savings can add up over time.

  8. Do It Yourself

    There are lots of things you can do yourself. Wash your own car, make your own lunch, fix your own plumbing, etc. Search online or check out your library for a do-it-yourself guide for any task. You’ll gain the added benefit of learning new skills too. The downside is that this can take up a lot of time, which may not be feasible for everyone.

  9. Do Free Activities

    There are lots of ways to spend your time without spending a dime. I’ve got a long list of free stuff to do in San Francisco. I’m sure there are similar lists for your city too. If not, some common options are parks, museums, and art galleries. And if you love to read, check out your local library too.

  10. Prioritize, Prioritize, Prioritize

    Finally, be strict about your true priorities. What is absolutely critical to you? Every decision you make has trade-offs. If it is absolutely necessary that you splurge on that new sofa, then you’ll have to hold back on dining out every Friday night. Or, if money is that tight and simply putting food on the table is a priority, then cut back on all family vacations.

I hope these tips help. Do you have any more money-saving or money-making tips?

CNBC’s 2008 Portfolio Challenge: My Results

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

Symbol % Gain
MVL -2.43%
DWA 1.72%
ERTS -15.15%
ATVID 13.33%
Total -2.52%

Portfolio 2: Energy

Symbol % Gain
VQ -8.82%
PXP -16.09%
BRY -20.55%
BP -15.34%
Total -60.81%

Portfolio 3: Discount Shopping

Symbol % Gain
NDN -32.60%
DLTR 0.14%
FDO 1.63%
ROST 1.17%
Total -29.65%

Portfolio 4: Technology

Symbol % Gain
CLWR -26.04%
GIGM -29.31%
COMS -27.84%
YHOO -20.35%
Total -103.54%

Portfolio 5: First Week’s Top Market Movers

Symbol % Gain
VQ -8.82%
APKT -54.25%
PSS -3.98%
ICOG -4.85%
Total -71.90%

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.

High Hopes for the Amazon Kindle

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!

CNBC’s 2008 Portfolio Challenge: How to Win

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:

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

CNBC’s 2008 Portfolio Challenge: Initial Picks

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!

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.

Portfolio 3: Discount Shopping

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

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.

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.

What are your picks?