Magazine Review: Kiplinger

Kiplinger Personal Finance Magazine is my most highly recommended magazine for those investors looking to get a taste of everything from retirement, stock investing, saving money, business news, and a minimal amount of advertising.

Their magazine is organized in simple sections:

- Ahead
This section features columns from regular Kiplinger writers and a general outlook of the economy. This section may give quick recommendations for stock picks and will generally have less detailed stories compared to what you will find in the investing section.

- Investing
For savvy investors, this section will cover a comprehension (yet simple to understand) look into various investment options. The February 2008 issue had a really good 3 page analysis of sin stocks encompassing casinos, alcohol, and tobacco companies. Then about a year and a half ago, there was another really informative bullish article about “black gold” (aka coal industry), and due to that article, I went on to profit very nicely from Peabody Energy Company (BTU). You’ll also find other great articles on mutual funds, money funds, and bonds.

- Money
This section is exactly what it’s title states, it’s about your money. Whether you want to get the bottom line on housing prices, social security, loans, retirement, interest rates, or college tuitions, this is the section that will spark your interest. Everyone wants to make more money through investments, but if you don’t enough money to put into the stock market or mutual funds, you want to be able to retain as much as you earnings as possible.

- Living/Rewards
This section is like the poor man’s Consumer Reports where they’ll sometimes give comparisons of different products (ie HDTVs, smart phones, cars, rewards plans). You can also expect to see articles on best ways to remodel a home, what to keep in mind when shopping around for a house, or FAQ about the do not call lists. The average working American should be able to get some value or general insight through the living/rewards section.

Cost: $12 for 1 year of issues from their website
Investor Audience: everyone
Distribution: monthly
Overall Grade: A

Bottom line: At only $12, this magazine could end up making or saving you a whole lot more money than what it costs to subscribe. That is a good enough investment to justify supporting Kiplinger Personal Finance Magazine. If you are still too cheap enough to fork over $12, then you can go browse through past issues for free (although not 100% of magazine content is posted online).

Visa, It’s Everywhere You Want to Be

Today, Visa revealed terms for an impending IPO, first announced last November in a registration statement filed with the SEC. Visa is the largest credit card company in the US and operates the world’s largest retail electronic payments network.

Visa’s IPO Terms

Visa plans to offer 406 million shares for $37-$42, and will trade on the New York Stock Exchange under the symbol “V” [1]. While an official IPO date has not been announced, IPO researchers expect trading to begin on March 20.

The IPO Market

The number of US IPOs priced this year has declined 49% from the number priced at this time a year ago [2], a possible sign that companies expect capital is no longer as freeflowing as before.

Last year’s largest deals were issued by financial firms including Blackstone Group (BX), Interactive Brokers (IBKR), and Och-Ziff (OZM) Capital Management. Demand was strong at first, but after the initial IPO “pop”, the majority of the financial companies ended up with negative returns by the end of the year.

MasterCard (MA) had its IPO back in May 2006, and has had a 400% return since then. MasterCard had a nearly 100% return in the past year. It has consistently beat earnings estimates since IPO and is expected to continue outperforming the business services industry. This has been possible in the terrible credit market because MasterCard provides credit card services and is not an actual credit lender.

Visa, the company

Visa, like MasterCard, derives its revenue from providing processing services to merchants and banks. By using bank issues, Visa does not profit from the interest paid by cardholders, but this also isolates it from debt defaults. Thus, the revenues of card service providers depend largely on consumer spending.

Visa did indeed see a 33% rise in revenue in 2007, although it recorded a loss due to litigation settlements with American Express and Discover.

Life Takes Visa

It seems inopportune for Visa to be offering an IPO at a time when consumer credit is rapidly crunching. What’s the hurry?

It’s likely that the banks invested in Visa are looking for a big pile of cash to help ease the credit crisis. If Visa does indeed raise the $17 billion it is hoping for, this would be good news for underwriters JPMorgan Chase (JPM) and Goldman Sachs (GS). Citigroup (C) and Bank of America (BAC) are also shareholders.

Visa may also be pushing for an IPO to cover litigation costs after a number of recent lawsuits.

I expect that Visa will underestimate their initial pricing to gain investors’ confidence given uncertain times. And, even though consumers will be cutting back on unnecessary spending, they will probably increase their use of credit cards for the essentials. Visa is also the official sponsor of the 2008 Olympic Games. Paired with this visibility, Visa may be in for a good run-up.

1. Visa SEC filing
2. Renaissance Capital IPO Research

Solar Part 1: Lunar Eclipse, Solar Power

I hope the lunar eclipse was enjoyable for everyone. Of all the branches of science, Astronomy is the one that anyone can associate with. Who hasn’t looked up at the stars in absolute wonder. If you look up at the sky in the daytime you won’t see any stars. Wait a minute. You do see a single star, one star drowning out the rest, our beloved sun. Daylight is a constant reminder of how strong and how much energy our sun outputs. Solar cells can harvest that light and turn it into electrical power. There are many solar companies on the market, but how do you look past the green fever to find what’s golden?

First, you have to list all the promising solar companies and see where they stand in comparison to each other. As of February 24, 2008.

Company	Symbol	Mkt Cap (B$)	P/E	F P/E
SunTech Power	STP	5.91	38.21	13.86
SunPower Corporation	SPWR	5.49	615.04	22.12
First Solar	FSLR	16.64	104.26	41.36
SolFocus	Privately held
Nanosolar	Privately held

There are several apparent trends.

First, the P/E is ridiculously high. The market has a lot of confidence in future earnings. First Solar’s 2007 revenue was almost 4 times its 2006 revenue. These companies are increasing their profit margins while doubling sales each year. The growth potential is enormous. The only thing that could possibly displace solar is nuclear fusion, but we are still at least 30 years away from that. People would rather have solar panels on their roofs than a nuclear reactor in their backyard.

Second, the F P/Es are reasonable, so one can assume that the current stock pricing takes next year’s projections into account. That’s easy to do, because most companies have already sold the panels they are going to make in the future.

Third, the companies with the potential to change the game are privately held. There is so much interest in solar, they don’t need to work very hard to raise the capital they need to start up their factories or develop their technology.

Fourth, the companies are still relatively small if they are truly the future of energy; their market cap should approach that of other energy companies. The future is bright.

In Part 2, I will go over various solar technologies.

Bottled Water, Next Generation Commodity

The stock exchange defines a commodity as “any unprocessed or partially processed good.” Wikipedia defines a commodity as anything for which there is demand, but which is supplied without qualitative differentiation across a given market. When we think of commodities or check the current prices of various commodities, we think of oil, natural gas, soybeans, corn, gold, silver, and other precious metals. Water, wind, and solar power are not considered commodities and cannot be publicly traded, but they are things that there are major demands for in our quickly developing world. Companies like First Solar, SunPower Corporation, and Suntech Power help provide megawatts of power through solar energy. Enercon and REpower manufacture the world’s largest wind turbines and take advantage of wind power to create energy. Finally we all pay water bills, we see Aquafina commercials on TV, and drink water out of public drinking fountains, yet the average person does not comprehend the demand for bottled water in this country. I guess it’s not just general water that is in demand, but the method of how we drink water and that Americans have a preference for the types of water they want and will pay for.

Within the last four quarters, Apple has reported Ipod revenue of 9.21 billion dollars with much help from the Ipod Touch and new versions of the Ipod Nano. 2007 movie tickets sales in the US totaled 9.66 billion dollars with blockbuster movies such as Spider Man 3, Shrek the Third, and Transformers all released last year. Also in 2007, Major League Baseball almost caught up to the National Football League in revenue with a little over 6 billion dollars. While all this revenue for MLB, Ipods, and movie tickets were quite impressive for 2007, what beat all those industries was bottled water. The United States contributed over 15-billion dollars to the bottled water industry last year!

Interesting bottled water statistics:

• Americans drink more bottled water than coffee, milk, or beer. (Don’t go rushing to sell your Starbucks or Anheuser-Busch shares quite yet though)
• In 1976, the average American drank 1.6 gallons of bottled water per year. Just last year in 2007, the average American drank over 28 gallons of bottled water. In over thirty years, we have increased our bottled water consumption by over seventeen times.
• Fiji Water produces 1-million bottles/day while 50% of the residents in Fiji don’t even have reusable drinking water.
• The only drink that outsells bottled water is carbonated soft drinks which totals to an annual consumption of 52.9 billion gallons.
• Bottled water is a 50-billion dollar industry worldwide with bottling companies like Arrowhead, Poland Springs, Crystal Geyser, and Saratoga Springs.
• 24% of US bottled water is tap water purified and repackaged by Coke & Pepsi (aka purified municipal water).
• Pepsi’s Aquafina is the #1 selling bottled water with 13% market share while Coke’s Dasani bottled water is #2 with 11% market share.

This doesn’t mean that people are completely halting their consumption of carbonated beverages, but it means consumers are adding a lot more bottled water to their drinking options. Coke (KO) and Pepsi (PEP) realize that consumers are considering a cold bottle of water over a cola, and almost a quarter of the US bottled water industry is derived from those two companies. Just because the bottled water industry is flourishing , it doesn’t make Coke and Pepsi good investment options. At the same time they generate much revenue from their bottled water brands, they also rely on huge revenues from their carbonated drink options. I honestly don’t know of any good way to profit in the stock market from the large growth of the bottled water industry. There are much better deals in the market right now with better long-term growth than these two beverage companies.

For me, it’s just a major eye opener on how much Americans spend on purified municipal water when we can just boil and bottle our own tap water at home. If we’re paying a premium for bottled water, I’d think that we’d at least want some spring water to get our money’s worth. We tend to pay a very high price for convenience in this country. If gasoline starts to cost $4/gallon this coming summer and a gallon of milk rises to $6, then it may be prudent to bottle our own water sooner rather than later!!!!

Basics: Fun with Exchange-Traded Funds (ETFs)

Exchange-Traded Funds (ETFs) are relatively new to the US market, having been introduced only in 1993. ETFs allow investors to follow the performance of key indices and sectors while providing the flexibility and instant liquidity lacking in traditional mutual funds.

There was a time when mutual funds were the most accessible entry to professionally-managed diversification. However, professional management has a price, and after the active managers have collected their paychecks, approximately 80% of mutual funds underperform the average stock market return. (Index funds, which are automated mutual funds that track a stock market index, have lower annual fees - but that is an article for another day.)

ETFs differ from mutual funds in that they can be traded like a stock. ETFs allow intraday trading, unlike mutual funds, which are only traded for the net asset value at the end of the day. The fact that ETFs are traded like stocks also means that they can be shorted, bought on margin, or placed on limit orders. Options are also available.

Finally, ETFs have tax benefits over traditional mutual funds. Actively managed fund shareholders pay taxes on all the capital gains that the fund owns while they hold their shares, as opposed to just paying taxes on their personal capital gains.

Now, onto the ETFs. There are more than 300 of them, and here are some of the most popular ones:

1. SPDRs State Street Global Advisors (SPY) - tracks the S&P 500
2. PowerShares QQQ (QQQQ) - tracks the NASDAQ-100 index
3. iShares Russell 2000 Index Fund (IWM) - tracks the Russell 2000 index

Here are a few that I am partial to:

1. streetTRACKS Gold Shares (GLD) - invest in gold without the risk of buying gold futures or the hassle of storing gold bricks in your home
2. SPDR S&P Metals & Mining (XME) - tracks the S&P Metals & Mining index
3. iPath S&P GSCI Crude Oil Tot Ret Idx ETN (OIL) - tracks the Goldman Sachs Crude Oil Return Index

Lately, it has been easier to target sectors to stay away from than ones to invest in. These bear-market ETFs can do the shorting for you:

1. UltraShort Financials ProShares (SKF) - corresponds to the inverse of the Dow Jones US Financials index
2. UltraShort Real Estate ProShares (SRS) - corresponds to the inverse of the Dow Jones US Real Estate index
3. UltraShort FTSE/Xinhua China 25 Proshare (FXP) - corresponds to the inverse of the FTSE/Xinhua China 25 index
4. Rydex Inverse 2x S&P 500 (RSW) - corresponds to the inverse of the S&P 500

All of these can be traded an AMEX, NYSE, or NASDAQ.

Want Updates? Try RSS Feeds

How do you get notified of the latest and greatest investment articles without visiting happyinvestor.wordpress.com everyday? The solution is to subscribe to the RSS Feeds. If you haven’t noticed before, there are links to the RSS Feeds in the “meta” side panel. RSS stands for really simple syndication, so it must be easy. For our purposes it is a list of links and descriptions of those links. When an article gets published this list gets updated with a link to the new article. The ease of use comes from the many ways to read RSS without opening your web browser.

Here is a CNET article about reading RSS.

You can subscribe to RSS in your

1. web browser (Firefox, Internet Explorer, Opera)
2. web-based e-mail account (Yahoo, Gmail)
3. e-mail program (Thunderbird, Outlook, Windows Live Mail)
4. hand-held device (PSP, iPhone)
5. standalone desktop application
6. desktop widgets

I know some of you are already using RSS Feeds to get updates. Any suggestions about other/better methods are welcomed. I hope this will save people time while keeping them informed. Feel free to subscribe to RSS on other websites too.

2008 IRA Contribution Changes

As April 15, 2008 (deadline for 2007 IRA contribution) approaches, people looking to add more to their IRA should be aware of the contribution limit changes for 2008. Contributors that are 49 and below will see their yearly contribution maximum increase from $4000 to $5000. Then for those above 50 years of age, their maximum contribution climbs from $5000 to $6000.

IRA Contribution Year	Max Contribution (Age 50 and Under)	Max Contribution (Above age 50)
2007	$4000	$5000
2008	$5000	$6000

Can I contribute to both Traditional and Roth IRA?
Yes, you can contribute to both types of IRAs in a given year but you cannot contribute the yearly maximum toward each of the IRAs separately. Therefore if you are 35 years old, your maximum IRA contribution is $5000 in 2008. You can put in $3000 into a Traditional IRA and $2000 into a Roth IRA (which totals $5000). What you can’t do is put $5000 in both the Tradition and Roth accounts.

What part of the year is the best time to contribute to an IRA account?
Ideally, as early as possible. If you want to fund your 2008 IRA as early as possible, it would have been best to do so on January 1, 2008. The earlier you finance your IRA, the earlier you can start to invest your money and let it compound and grow. Due to financial constraints, sometimes people have other financial obligations they need to handle (like student loans, mortgages, or car payments) before deciding how much they can afford to add to their retirement account.

Are there any eligibility limitations to contribute to a Roth IRA?
Yes there is. The tables below details what scenarios for 2008 and 2007 that you can are allowed to contribute a full Roth IRA amount, partial contribution, or even ineligible. Totals are based on adjusted gross income (AGI).

2008 Roth IRA Eligibility:

Marital Status	Eligible for Full Contribution	Partial Contribution Allowed	Ineligible
Single	<$101,000	Between $101,000 - $116,000	>$116,000
Married Filing Jointly	<$159,000	Between $159,000 - $169,000	>$169,000

2007 Roth IRA Eligibility:

Marital Status	Eligible for Full Contribution	Partial Contribution Allowed	Ineligible
Single	<$99,000	Between $99,000 - $114,000	>$114,000
Married Filing Jointly	<$156,000	Between $156,000 - $166,000	>$166,000

How much is meant by Roth partial contribution?

Please refer to chapter 2 (page 63, worksheet 2-2) of the IRS publication 590 on the 11 step calculation to see how much partial contribution you’re allowed if you meet that Roth IRA stipulation.

Since the IRA limits are increasing in 2008, you will have much more flexibility, so take that into consideration as you fund your 2007 contribution (if you haven’t already).

Book Review: The Standard & Poor’s Guide to the Perfect Portfolio

After reading and reviewing The Standard & Poor’s Guide to Selecting Stocks by Michael Kaye, I read through his next book, The Standard & Poor’s Guide to the Perfect Portfolio. In this book, Kaye emphasizes five steps to allocate your assets and ensure a lifetime of wealth. These steps boiled down to:

1) Identify Your Goals and Objectives
2) Choose the Specific Asset Classes in Which to Invest
3) Determine What Percentage of Your Total Assets Belongs in Each Asset Class
4) Decide Which Investments Products to Use
5) Monitor the Performance of Your Portfolio and Adjust Your Asset Mix if Warranted

I believe this to be an intermediate investment level book in terms of how much prior understanding you should have of money management and general knowledge of bonds, stocks, mutual funds, and real estate. If you were to pick up this book without knowing anything, you would gain some value from this book. On the other hand, you would gain much more if you knew your investment options beforehand so you have an idea on how to allocate them properly (which this books helps you do). Kaye tries to show how to construct a diversified portfolio of assets based on the risk tolerance you can handle with respects to your stage in life, career pathway, and other independent situations (which include having dependents, investing experience, and goal for your financial future). While you can easily go to an online calculator and calculate what percentage you should be invested in stocks based on your age, it’s not as simple as a single calculation. This book goes into more detail on how and why it is vital that you take into account many factors when determining your portfolio mix.

Interesting Notes While Reading Through This Book

- Chapter 4 (The Location of Your Assets: choosing the right accounts) has a very thorough explanation and calculations of the value of setting up a traditional or Roth IRA.

- Mutual funds are required by the SEC to hold more than 20 securities. Chapter 3 has a comprehensive explanation of everything you should know when starting with mutual fund investments.

- Kaye writes that “it costs a middle-income family approximately $250,000 to raise a child from birth to age 17.” This is another reason why it is so vital that you have a portfolio constructed to fit the lifestyle you need because keeping money in the bank may not even keep up with the rate of inflation.

- Finally Michael Kaye writes that “tax considerations should never be the sole factor and outweight your investment analysis in determining what to buy, sell, or hold.” I could not have agreed with him anymore regarding this comment. So many people try to hold onto securities for more than a year to take advantage of the long-term capital gains tax rate, and a lot of times they don’t realize that they might not even have a capital gain at the termination of that year to take advantage of. For now, my short analysis is that if you’re young, take your short term gains as they come, and change your strategy once you have more money to construct a more diversified portfolio later in your investing years. I will go into further detail of the benefits of the short-term vs. long-term capital gain benefits in another article.

What Was Left Out

While Michael Kaye did a great job with this book, what I believe was left out was not how to construct a portfolio of various types of assets, but how to construct a “perfect stock portfolio.” Now there may not be a straightforward answer to that question, but that was one of my early expectations (even though it was not the goal of the book) because a lot of investor’s assets will be in stocks or mutual funds. Many investors aren’t aware of how to truly diversify a stock portfolio, and trying to diversify a stock portfolio means more than just buying companies in different sectors. In his previous books, Kaye writes how to find stocks based on financial statistics/ratios that you are looking. Therefore I was looking to build upon that and find how to construct an effective portfolio in a variety of economic conditions.

Investor Level: Intermediate
Pages: 217
Release Date: October 2007
Overall Grade: B+
Bottom line: Read this book after you read his first book on stock screening and selecting stocks.

REDC (ushomeauction.com) San Diego Foreclosure Home Auction Review Part 1

In the last weekend in January, I went to the Real Estate Disposition Corporation (REDC) foreclosure home auction and builder liquidation at the San Diego Convention Center. They auction homes all over the country and details can be found on their website. There were over 222 homes auctioned and I stayed from 9:30 in the morning until 3:30 in the afternoon. Within the time frame that I was at the convention center, I was able to see over 147 auctions take place. For any home buyer that is interested in a used home, I would very much recommend attending one of these free events to understand what kind of market you’re dealing with. Especially with the kind of uncertainty we have with the housing market, it can only help to understand what foreclosed townhouses, single family homes, and condos are selling for.

Tips for Bidders

- The REDC# is the order that the properties are auctioned off. If you’re looking at the later REDC# auctions, you don’t need to go to the auctions until later in the day. For example, if you went to the SD auctions and you were looking for properties 180-200, then you probably don’t need to come anywhere near the 9:30AM starting time. Like I stated above, 147 auctions took over six hours so if you’re only looking for a particular area and don’t care about the other areas being auctioned off, don’t waste precious hours of your day waiting for your prized properties to come to auction.

- Pay no attention to the starting bid price because the final auction prices end nowhere close to what the auction starts at. It’s like selling a Nintendo Wii on Ebay with a starting bid of $1 or $150 because regardless of what you start it at, the Wii should be getting fair market value.

- Similarly pay little attention to the listed prices that REDC says these properties are valued at. This tends to confuse people and does not necessarily mean that a particular property was recently valued the amount that they stated as being “previously valued to.” Only one piece of property ended up selling for more than the previously valued price (and that was only 2.4% more) so the auction prices should be well below that previously valued price. I will analyze the accuracy of the previous valued prices stated by REDC in another continuation to this posting.

- Make sure to check out the properties you’re interested in before bidding. Bidding based on the square footage or the lot size only takes you so far because there may be underlying reasons why the home is being sold. If you visit a home and it has more damage than previously expected, you might not be so comfortable bidding on that particular property. Purchasing a home is an important life decision and it needs to have thorough research done beforehand.

- Be aware of the buyer’s premium!!! There will be a 5% premium added to the final auction price which is how Real Estate Disposition Corporation makes their money. If the condo you buy cost $250,000, make sure you factor in the $12,500 buyer’s premium for a total auction price of $262,5000. Factor the 5% premium into the amount that you’re willing to pay.

Faults of Auctioning Process

- Occasionally the TV screens (in the auction area) that detail the housing auction number, address, square footage, previous valuation, and other pertinent information would shut off and would not be restored until the next auction that starts (which is immediately after the previous one finishes). There should not be those kind of problems because potential bidders want to have all the possible information before making their bid and non-functioning TV screens will not help their bidding decisions.

- The average time to close a housing auction was not timed properly. The first 30 auctions (Chula Vista) seemed to go on forever and the auctioneer seemed like he was holding the auction longer than was necessary to get an additional $5,000 from bidders. As time proceeded to the city of San Diego auctions (100 auctions deep into the auction), the average time was much quicker to finish an auction and they almost seemed like they were hurrying a bit too much as much of the crowd had left toward the afternoon time. I understand that the higher the auctions sell for, the more money REDC makes, but if people get impatient, potential bidders may leave.

Tips for People Just Interested in Learning About the Auction Process

- Make sure to pick up a booklet at the auction with the details of all the properties so that you can log down how much they actually sell for. This will give you some valuable data to work with so that when you price the market in the future (whether it’s a month or a couple years), you can compare how much houses or condos are selling for at auction so you can get a better feel for the health of the housing market.

- Go get your free coffee. This auction can get lengthy if you stay there for many hours so get some caffeine in your system to keep up your attention span.

- You don’t have to register to attend the housing auction. You only need to register and go through all the pre qualification steps if you actually want to bid on an auction. Registering though will allow REDC to send you a catalog/booklet of their properties before the auction.