Electronic Entertainment Expo (E3) Recap

July 28, 2007

This year’s E3, the video game industry’s annual convention, has come and gone. Even though it took place at a smaller venue (Santa Monica instead of Los Angeles), the big three still made important announcements.

Microsoft (MSFT)

They unveiled some type of kiddie remote which had big buttons. This is part of their effort to appeal to the casual gamers and bring younger children on to the Xbox360 platform. Other than that they only showed games in development. Considering what they showed the company is in cruise mode; just allowing developers to create more content and tweaking the cooling of their hardware. A price cut may be in store before the holiday season. The switchover from 90-nm to 65-nm allows them to make more chips on the same area, reducing costs. I’m personally waiting for these new chips before purchasing an Xbox360, because the Xbox360 is known to be noisy due to the cooling fans. The price drop, improved aesthetics, and plentiful content will help drive sales Holiday 2008. Their blockbuster game, Halo 3 will be ready in time for the holidays. This improved hardware will also reduce the losses incurred by repairing broken consoles, which has cost more than a billion so far. The games in development are for hardcore gamers and ones that hardcore gamers can play in front of their kids.

Nintendo (NTDOY.PK)

At the beginning of the press conference, they announced that they had won this generation’s console war. They are indeed in a position to be envied with hardware and software flying off the shelves. The most important announcement was the new peripheral, the Balance Board and its accompanying game, Wii Fit. The Balance Board senses your weight distribution on a board placed on the ground. By shifting your weight, you can interact with the character on the screen. Initial reports from the show floor indicate that the concept works and is fun even for hardcore gamers. The main target of Wii Fit is perfectly clear when you start seeing the yoga poses. Soccer moms will eat this up. They are ensured to sell millions of copies. Another peripheral announced was the Wii Zapper, a plastic case to put the WiiMote and Wii Nunchuck in to create a light gun for only $19.99 including game. This is perfect for simulating the guns at arcades and for killing zombies in Resident Evil: Umbrella Chronicles. The first party line up of (Super Smash Bros. Brawl, Super Mario Galaxy, Metroid Prime 3: Corruption, and newly announced Mario Kart Wii. Although the bulk of the announcements were for the Wii, the DS Lite handheld is also doing well with The Legend of Zelda: Phantom Hourglass. If all this wasn’t enough, Nintendo is now the 5th largest company in Japan.

Sony (SNE)

One thing I was extremely happy about was the redesigned PSP. I broke mine, so I was waiting for their new and improved version. The new PSP has longer battery life, is thinner and lighter. The game lineup is still lacking, but the PSP’s sales are starting to increase. I know people who have bought it and keep it in their drawer.

The PS3 underwent a pseudo-price drop. They are shifting around the prices and configurations by putting new models with bigger hard drives and bundled games at the $599 price point and pushing down the older configurations to $499. When those older configurations sell out, they will not be replaced. There are 2 killer applications that will drive the sale of the console. They are Metal Gear 4 and Gran Turismo 5. Unfortunately both of them will not make it for the holidays. Gran Turismo 5: Prologue, a stripped down version will come out in October in Japan to wet racer’s appetites. Their online experience called Home is shaping up to integrate games and a virtual 3D-world together. In the online arena, NCSoft, the makers popular of MMORPGs will make the PS3 their sole console platform since it has a hard drive. One thing that Sony does right is push upgrades that enhance functionality of their machines.

Outlook

MSFT is still having trouble penetrating the Japanese market. I know two people with an Xbox360. I own a Wii and NTDOY. My male friends have their own Wii. My female friends own DS Lites. My rich friends have PS3s. The PS3 has a lot of momentum with the brand, but they need to get the ball rolling. By end of 2007 if not sooner, the Wii will be the dominant platform.


Don’t know what to buy? Now might be the time for tech stocks

July 28, 2007

For those of you that don’t have a position in the Technology sector in your portfolio, now is the time to buy. Big institutions (i.e. mutual funds and hedge funds) all obey an investment cycle. These big institutional investors are the ones that move the market and whose investments are the ones that counts. According to Jim Cramer (A former hedge fund manager, who has his own show Jim Cramer’s Mad Money on CNBC, which I highly recommend for people to watch) now is the time in the investment cycle to buy tech stocks because the big institutions are now buying tech stocks. The two stocks that he recommends now are Dell (DELL) and Hewlett-Packard (HPQ). However whatever tech stock you ultimately buy into, you should sell the stock by no later than January 31, because as you can guess that is when the big institutions begin to sell their holdings in the technology stocks. The only exception to this (according to Cramer) is Apple (AAPL), this is the only stock that historically does well year-round and doesn’t move with the investment cycle. So, for any of you looking for something to buy during this down time in the market, definitely rid yourself of Financial’s (because they are definitely taking a beating) and get yourself into the Technology sector. At the very least definitely take some time to look at Dell and Hewlett-Packard, for they come highly recommended by Jim Cramer. Remember it is almost back to school time for a lot of students, and students will be in the market for technology products, which will definitely bode well for the growth and earnings of companies like Dell and HP.


Top Places to Sell Online (Ebay, Craigslist, Facebook)

July 23, 2007

I’ve sold a lot of things online, ranging from: concert tickets, collectible fishing lures, bobbleheads, Yu-Gi-Oh cards, digital cameras, and baseball jerseys. I’d like to share what are the most efficient ways to sell things through the Internet. Why keep stuff laying around when you can turn that into cash which can be reinvested?

1) EBAY (www.ebay.com):
Use Ebay (EBAY) as an indicator of the market value for the item you would like to sell whether you plan to use the site or not. View the recently completed auctions to find out what the public is generally paying for the used or new item that you have. For things that can be easily shipped and have some kind of scarcity, I would use Ebay because you have the widest range of possible buyers from all over the country. Be aware that you will have to account for the cost to ship the item and 3-4% of the sales that will be paid in Ebay fees. Then you’ll have to pay another 2-3% of the payment via Paypal (the usually method of payment through Ebay). If you’re not willing to lose up to 7% of the sale plus shipping cost, then Ebay may not be the best option for you.

Best Ebay benefit: can sell almost anything, widest range of buyers
Biggest downfall of Ebay: a lot of auctions to compete against

2) CRAIGSLIST (www.craigslist.org):
If you’re looking to sell items not easily shippable (furniture, artwork, household appliances, car parts), then Craigslist would be the place for you. Craigslist was started in the Bay Area and is basically an online classified site that allows users to post ads for free. There are no fees involved like Ebay, but you have to communicate through e-mail to set up an appointment for the sale. There is a minor amount of fraud on Craiglist with people trying to obtain payment via Western Union wire funds. If you don’t meet with the person to complete the sale, there is no guarantee that he/she is a legitimate buyer. The housing postings are plentiful and are good for advertising to all types of potential renters.

Best Craigslist benefit: ability to sell larger/heavier items, no fees
Biggest downfall of Craigslist: no commitment from buyers, fraud

3) FACEBOOK (www.facebook.com):
Facebook is a social networking site that has recently added a marketplace to their site; where you can post items you want to sell, items you want to give away, or housing vacancies. At this point, it is hard to say how successful the classified ads for material items are doing. The major benefit to using Facebook is for college students or recently graduated college students looking for housing and have yet to invest in a piece of property. The rental options are quite plentiful and you can check out the profile of the poster so you can make an assessment beforehand how compatible you would be. I have easily found three roommates via the rental section of Facebook marketplace.

Best Facebook marketplace benefit: easy way to find college roommates
Biggest downfall of Facebook marketplace: too new to know how effective listings are


Basics: 401(K)

July 18, 2007

For most workers out there, employers have on offer a retirement plan. In the past, this used to be in the form of a pension plan guaranteed by the company. But with a lot of companies moving away from this corporate financial liability, the in vogue benefit offered to employees has become the 401(k). So how exactly is a 401(k) beneficial in establishing a retirement strategy?

Depending on the employer, the 401(k) plan gives you a variety of mutual funds to invest in set by the company managing the accounts. Some of your wages are set aside pre-tax and placed into the 401(k) account and you choose how much of that contribution are placed into which mutual funds. In addition to the untaxed money, there also tends to be a matching contribution from your employer. The match is commonly 50% of your contribution up to a certain percentage of your wages. So if you set aside 8% of your wages, your company will kick in an additional 4% to give you a total of 12% of your wages set aside in a retirement account.

Why is this so great you might be wondering. Couldn’t you just set aside the money yourself and invest it in whatever you feel like? Yes, you very well could, but then you will have to give the tax man his cut. And if you’ve read the compounding interest article you should know that taxes eating away at your gains will reduce your potential overall savings by a lot in the long run. When you put money into your 401(K), you get that percentage of your wages without it having been taxed and it reduces your taxable income by the amount you set aside. If done properly, you could potentially keep yourself in a lower tax bracket, saving yourself even more money.

While the tax benefit is by itself a great reason to put money into a 401(K), there are also a few other advantages. First, you set up an amount to be automatically deducted from your paycheck. There’s no easier way to save money than to not have it in your hands to spend in the first place. Second, if you’re in a bind you can take out a loan on the balance of your 401(K) or even make an early withdrawal without penalties if under specific hardship situations. Third, you can rollover your 401(K) to another company if you decide to change careers.

But you still need to be careful and keep track of this investment tool. At least once a year you should re-balance the distribution of mutual funds you choose to invest in to keep your money thoroughly diversified. Another issue to be aware of is the fees the mutual funds incur since those will also eat into your long-term earnings. If you change jobs often or have a major financial emergency, be cautious when handling your 401(K) since you might incur penalties and taxes if you don’t follow the rules for withdrawal or rollover.

There are limitations to the amount you can contribute to the 401(K), but you can contribute more if you are 50 or older. After 59 1/2 you can begin withdrawing money from your 401(K) without penalties and you must begin taking distributions after you reach 70 1/2 unless you are still working. Since the 401(K) is a tax-deferred account, you don’t pay any taxes on the gains of the account, but you pay taxes on the distributions you take when you start withdrawing money. A 401(K) is best if you expect to be in a lower tax bracket in the future since the money you put in will then be taxed at a lower rate than if you hadn’t put it into the 401(K).


Starbucks: Add a Caffeine Shot to Your Portfolio

July 18, 2007

After hitting a high of $40/share in early October, Starbucks (SBUX) has fallen to a current value of $25.87, down 35% and is at a 22-month low. Why is this stock down so much?

1) In late June, the CFO of Starbucks was quoted that the high end of 2007 earnings forecast ($.87-$.89/share) “will be very challenging” to attain due to:
a) rising price of milk (which is directly related to the increase in ethanol production)
b) slowing sales growth in US Starbucks locations

2) Increased competition from other competitors getting into the coffee business such as McDonalds (MCD) who has a premium coffee that has received positive reviews.

Reasons for optimism:

a) Starbucks says that China will be the biggest market outside of the US and will increase international stores by 20% over the next few years. Key growth will be outside of the US in markets that Starbucks has yet to establish. Locations in Russia and India are poised to open later this year. Americans already knows what to expect out of Starbucks when you go to the one of 6,281 Starbucks locations. The goal is to get a foothold in Chinese, Japanese, and Brazilian markets as soon as possible.

b) Adding more drive through locations is a no-brainer. As of October 2006, Starbucks operated 1,600 drive through locations. Life is so fast-paced here in America that sometimes people just want to pay for their $4 latte and get on with the rest of their work day. Some people don’t want to deal with the long lines inside the store and hassle of carrying coffee to their car. If America wants coffee on the go, then that’s what she’ll get.

c) Peet’s Coffee (PEET) isn’t considered direct competition for Starbucks, but Dunkin’ Donuts is probably the closes competitor. These two chains target entirely different demographics. Dunkin’ Donuts was originally founded in 1950 in the Northeast (Quincy, Massachusetts) and appeals more to the lower/middle-class America that is looking to get a cheap coffee and a more down-to-earth experience. Dunkin’ Donuts operates 6,000 shops worldwide compared to Starbucks 14,000.

d) Modification of their food menu because sometimes people don’t want just coffee. Customers sometimes need some sustenance to go with their coffee and Starbucks has delivered recently. Additions to their lunch menu with new items including a tomato mozzarella salad, fiesta salad with grilled chicken, roasted corn and black beans, bowtie pasta with goat cheese, and Asian sesame noodle salad. To cater toward the health conscious consumer, McDonalds did an overhaul of their menu over the last few years including salads, premium chicken sandwiches, negating the supersize option, and offering other healthier options. McDonalds stock price has doubled over the last three years and their upward momentum appears to be continuing. Starbucks understands that they are not just a coffeehouse anymore.

Benefit or downfall?
Starbucks has over 14,000 stores open around the world and aims to have over 40,000 stores in existence for the long term (with over half outside of the US). But some say that with so many stores open this will dilute the appeal of a Starbucks coffee and saturate its image.

The way I see it, if Starbucks can open stores across the street from each other, then they can handle losing the “novelty” label. They cater toward a crowd that is looking for a pleasant ambiance and a casual place to have a drink with a friend, conduct an interview, work on your laptop during lunch, or just have a place to cool off during summer.

Starbucks is at a discounted price and I believe will have more upside potential with minimal risk. Target price: $33


Pro-Ethanol Means Being Pro-Alcohol?

July 14, 2007

So what does ethanol have to do with alcohol? Well fueling your car with ethanol is just like putting alcohol into your gas tank. Do you know why? Well after the fermentation process step in ethanol production, where sugar is converted to carbon dioxide and alcohol by yeast, the alcohol is concentrated to about 95% through fractional distillation. The fermentation process usually takes around 40-50 hours. With the ethanol at 190-proof after distillation, drinking 151 proof rum at the club barely seems daunting. But just to make sure that the ethanol producing company isn’t charged a beverage alcohol tax, 5% denaturants (additives unfit for human consumption) is added to the mixture to make it undrinkable. Smart guys!!! So it turns out that all those environmentalists that are pro-environment/pro-ethanol are actually pro-alcohol. I guess they would also be pro-corn as well since corn-based ethanol is our staple ingredient to produce ethanol. So next time you’re drinking that fire-water at the bar or eating a corn-on-the-cob at your summer BBQ, think about the correlation to the great alternative fuel we call ethanol.


Whole Foods CEO using internet forums to attack rival company

July 13, 2007

“DALLAS – The chief executive of Whole Foods Market Inc. (WFMI) wrote anonymous online attacks against a smaller rival and questioned why anyone would buy its stock, before Whole Foods announced an offer to buy the other company this year.”

link to article

Wow, in light of this, the guidelines will be updated to also disclose stocks owned that are in direct competition with stocks you talk about.