Archive for the ‘Equity’ Category

« Older Entries
Newer Entries »

What to Do When Your Business Model Depends Entirely on Google’s Search Results

Wednesday, March 9th, 2011

“In a recent e-mail to employees, company founder and CEO Jason Calacanis and Mahalo President Jason Rapp said the start-up trimmed a tenth of its workforce due to a reduction in traffic caused by Google’s change to its search algorithm, according to the blog CenterNetworks.

The Google changes were meant to push down low-quality sites in search results, but some unexpected websites such as Mahalo lost their ranking as well, the report said. With less traffic visiting Mahalo, revenue took a hit, the e-mail said, according to CenterNetworks.”

What do you think?

How can online businesses protect themselves against rapid changes in the technology industry? Does this news make you think twice about investing in web-based companies?

Who Owns Facebook?

Friday, March 4th, 2011

who-owns-facebook.jpg

i.e., Who’s profiting from your news feed addiction?

Facebook isn’t publicly-traded, which means you can’t buy stock in the company on any stock market. But it seems to have found plenty of well-heeled investors without reaching out to the great unwashed masses (i.e., us).

The NYSE Is Worth Less (and More) Than You Think…

Thursday, February 24th, 2011

nyse-1909.jpg
(credit: jarapet)

How a marriage of two stock exchanges illustrates the modern revolution in stock trading.

  • The New York Stock Exchange – famed hall of capitalist drama – has just been acquired by a German company called Deutsche Boerse. The result will be a giant international company with stock exchanges in Lisbon, Paris, Amsterdam, Brussels, New York and Frankfurt.
  • The way people trade stocks has totally transformed as technology has changed. Most trades these days are executed by computers with almost no human involvement. Since computers are smaller and cheaper than human traders, it’s possible for more small exchanges to exist, and that means more competition for giants like the NYSE.
  • The NYSE still operates a real trading floor with real people, making it ancient by today’s standards. Fewer companies are bothering to even get listed on the NYSE. This merger is an attempt by the exchange to stay competitive in an increasingly crowded industry.
  • Still, the trading floor, the opening bell, and that building on Wall Street are worth something. In fact, according to the latest valuation, they’re worth about $10 billion.

Facts & Figures

  • The NYSE has been on Wall Street since 1792, when 24 merchants traded stocks under a buttonwood tree (you know, back when there were trees on Wall St.)
  • The new company formed by the merger will be 60% owned by Deutsche Boerse
  • High-frequency trading (a.k.a. computer trading) accounts for about 70% of all daily trades

Best Quote

“The exchange business is really a computer business these days.” – Charles Jones, Professor at Columbia Business School, former visiting economist at the NYSE

What do you think?

Did you know that stock exchanges like the NYSE are themselves publicly-traded, for-profit companies?

How much does a name brand influence your decision to buy (or invest)?

Get to it!

Thinking about investing in stocks? Take our Risk Assessment Quiz to see how much equity you can handle.

When You Think “Activism,” Is Corporate Strategy The First Thing That Comes To Mind?

Tuesday, January 25th, 2011

“On Monday J.C. Penney said it would add Mr. Roth and hedge fund manager William Ackman to its board, news that sent its stock up 7%. The pair, who have a track record of buying big stakes in companies and then pressing them to make strategic changes, surprised markets and Mr. Ullman Oct. 8 by saying they had amassed a 27% holding in the retailer.”

What do you think?

When you think of activism, is corporate strategy the first thing that comes to mind? Would you be willing to invest in a company that has taken a step toward major changes in the way it operates?

Goldman Sachs-Facebook Deal Actually Was Too Good To Be True

Tuesday, January 18th, 2011

“It was supposed to be Wall Street’s hottest tech deal in years: the private offering of as much as $1.5 billion in shares of Facebook Inc… Goldman bankers burned up the phone lines in the first week of January, pushing many of their best American clients to invest in the deal. And then, on Sunday and Monday, those same advisers were on the phone with those same clients with some bad news. They wouldn’t be getting any Facebook shares, after all… Goldman worried that the media spotlight surrounding the private offering might violate U.S. securities laws and expose the firm to legal action.”

What do you think?

How would you feel if your bank promised you something it couldn’t deliver? How much would you risk to be one of the first investors in a hot company like Facebook?

What An Earnings Report Can Tell You

Monday, January 10th, 2011

Hey, kids – it’s earnings season! That means that companies are starting to report to the world how they did in the last three months of 2010 (that is, the 4th quarter of 2010). Earnings reports are super important, whether you’re a rookie or a pro. Read on to find out why:

credit: Smudge 9000windsurfer.jpg
Here’s the interesting thing about earnings reports: they give investors important information about the past and the future.

For example, overall profits are expected to be 9.8% higher than they were at the end of 2009. (Makes sense – 2009 was a pretty rough year on the economy.) But what about the years before that? Are there any companies that usually bring in 15% profit that are now earning less? Maybe 10% is their new normal. Would you be satisfied with that, as an investor, or would you prefer to find a company with a better track record?

Companies’ past earnings aren’t as important as their future earnings. Even though overall profits rose at the end of 2010, it looks like they’re not going anywhere in 2011. Why? Well, the job market hasn’t really improved. People without money can’t spend money, and companies can’t profit without money.

There are some exceptions: even though the job market is in bad shape, companies that sell luxury goods to a different market have continued to perform well. You can also predict future earnings based on new laws and tax policy. FedEx and Novellus Systems will both be taking advantage of a tax break to buy themselves new computers and cargo jets. (Those purchases not only benefit the businesses – they also increase profits for technology and airplane manufacturers.)

A little bit of bad news for companies that depend on consumer spending to boost their profits:
“…we’re not going to see sustained declines in the unemployment rate.” – Ben Bernanke, Chairman of the Fed

A diverse investment portfolio. With butter and sprinkles.

Thursday, December 23rd, 2010

cookie-allocation.png

from Let It Dough! by Christoph Niemann (NYTimes)

You can invest in lots of different things – stocks, bonds, mutual funds, currencies, cows. (For real! They’re called commodities and they’re really weird.) And you can invest in this stuff in the U.S. or in almost any country in the world.

But here’s the trick: you want to have a diverse mix of all these things, so you don’t lose all your money if, say, the U.S. economy crashes or all the cows go on strike.

Diversification is a way to reduce that risk by creating a portfolio with a wide mixture of different investments. In basic terms, it means “don’t put all your eggs in one basket.”

Mmm. Sprinkles.

What Happens When You Tell Google To Take A Hike?

Thursday, December 23rd, 2010

Apparently they fund one of your competitors and DESTROY YOU.

(Back story: Google offered to buy wildly successful Internet coupon company Groupon for $6 billion. Groupon said, “meh.”)

Read the original:
BBC News, 12/21/20: Google eyes smaller players after Groupon: report

How A Bunch Of Really Smart Kids Ruined Everything (Volume 1)

Wednesday, December 22nd, 2010

“Repo 105″ – like Four Loko, but more dangerous to the health of your company.

Ever wonder how enormous old financial firms suddenly bite the dust? Well, the answer (according to the man suing Ernst & Young for civil fraud)  is that they do stupid things with the help of accountants.

According to New York Attorney General Andrew Cuomo, giant accounting firm Ernst & Young helped their client Lehman Brothers hide billions of dollars in debt so that it would look like a healthier company than it really was. For seven years. Until (surprise!) Lehman went bankrupt in 2008.

Lehman owed a lot of people a lot of money (like, billions of dollars). But they didn’t want to go around telling people about it.

mathemagician-by-kf6gpe.jpg

credit: kf6gpe

So (according to the lawsuit) Ernst & Young helped them hide their little debt problem with a ninja accounting tactic called “Repo 105.” Basically, Lehman would sell off a bunch of their assets and use the money to pay off some debt. That day was a good day, because when they had to show their financial reports to the world, it looked like they didn’t owe billions of dollars.

But – here’s the genius part – the next day, they would buy back the assets they sold at an even higher price, taking on more debt than they had before.

In exchange for its creative accounting services, Ernst & Young received $150 million in fees from Lehman between 2001 and 2008. Ernst says it was just using “generally accepted accounting principles,” which makes you wonder what other firms have been drinking. Cuomo says it will be paying those fees back to the State of New York by the time he’s done with them.

Important Credit Ratings Agencies “Provided Little Or No Value”

Friday, December 10th, 2010

Ten credit ratings agencies are in charge of predicting risk for investors worldwide. So why didn’t they predict the economic crisis?

  • Agencies like Moody’s and Standard & Poor’s rate the quality of companies, bonds, even countries. Investors use this information to decide whether a particular investment is a safe bet.
  • In the financial reform bill that passed this July, the government called them out for ineffective ratings and serious conflicts of interest.
  • In many lawsuits against the agencies, they’ve said that the First Amendment protects their right to assess investment risks whether they end up being right or wrong. But because they’re regulated by the government, they’re supposed to be trusted and non-biased sources of information for the public.
  • The conflict of interest appears when a credit rating agency wants to do business with a particular company. In that case, it may be tempted to give that company a higher rating than it really deserves.

Facts & Figures

  • The ratings industry is worth about $6 billion worldwide
  • $3 billion of that is in the U.S. market
  • Fitch, Moody’s, and S&P control 97% of all U.S. ratings
  • Moody’s rated 42,625 mortgage-backed securities (you know, the ones that blew up the real estate market) as AAA – the same rating as ultra-secure U.S. Treasury bonds

Best Quote

“Activities of credit rating agencies are fundamentally commercial in character and should be subject to the same standards of liability and oversight as apply to auditors, securities analysts and investment bankers.” – from the Dodd-Frank financial reform bill

« Older Entries
Newer Entries »