Monday, January 31, 2011

What I learned from my Son told me to sell Intel (INTC)

Like many parents, I woke up extremely early the day after Thanksgiving to go shopping for deals for my kids. I heard Toys R Us was just nuts (thankfully I didn't go there). I had my sights set larger...a laptop. I figured that Best Buy was going to give me my "best buy"...and that was true...only the people at Best Buy had been there from the night before (who sleeps out in the cold on Thanksgiving night to save a hundred bucks?). I wasn't about to wait in line only to find out that they ran out of laptops before I got to the door.

So, I headed over to HHGregg, a little known competitor that I figured would have some similar deals. I had no trouble getting into the top 50 in line and the store would be open in an hour (unlike Best Buy which wouldn't open for more than 2 hours). I didn't even know what they had at the store...I was just hoping.

When I finally got a circular, I saw that the "deal" at HHGregg was a netbook...not a notebook for $199. Why not I thought? My son is small, maybe he'd like having a computer that was "his size" so I decided not to "waste" my lack of sleep and get the netbook computer and an internet connected Blu Ray player from LG.

I was excited to give my 5 year old his first computer. He uses my wife's all the time and she was anxious to get hers back so that she could do what she needed to during the day instead of waiting until he was asleep. Finally Christmas came and we gave him the netbook. He was very excited to have his own computer...until he used it.

Most websites that are visited by little people offer free games via the cloud on websites like www.pbskids.com, www.hasbro.com, www.nickjr.com. This means that parents don't have to buy games (that they'll inevitably get bored with and never play again). It dramatically lowers the cost of giving a computer to a child (since the only cost is the machine they'll use as the internet connection is being paid for by the adults). Well, websites are not built for netbooks. Often the content on the screen simply can't be seen on that little tiny 10" screen. The "web" can't see how big your screen is. Next, this particular machine thought it would be cute to make the up/down keys toggle between page up & up. Well...in the middle of a game, pressing page up on a web-based game results in moving the whole screen up & you dieing. I don't know what other people use their netbooks for...but they are terrible. I would have thought these little computers could have been designed by use by smaller people (children).

Even with an adult using the computer, who may not be prone to playing games on the cloud, 10" screen is just too small. Heck, a notebook computer with a 15" monitor is small...but one can work with it. A 10" screen is 50% smaller than that! If you were doing text only on social websites (and maybe news), without any video...maybe...maybe. But tablets offer that and much more with a device that is frankly more powerful (especially if we're talking the iPad). I just couldn't see continuing to own this poorly designed device. I took it back (along with the Blu Ray player, that I found at Walmart* for about $30 less).

When I got back home, I sold all our Intel stock with it. Intel made an early bet on the adoption of the netbook and many of the devices contained the Atom chip. It has big time market-share in the netbook space. Everyone asked the question about cannibalization of netbooks by tablets when Apple released the iPad (again it was first to define a category). Intel largely ignored the question and said they believed the two could exist together.

I'm here to tell you that they are wrong. I almost didn't write this article, until I saw Intel's blunder this morning regarding the Cougar Point Chipset in which they basically have to recall all the devices shipped from January 9th and stop shipping devices with the chip since the chip leads to progressively poorer performance over time. The issues surrounding the Cougar Point Chip sound a whole lot like the stock...it leads to progressively poorer performance over time.

You can buy INTC (that's Intel stock ticker symbol) if you want something that'll act better than a bond since inflation will be coming eventually. The stock pays a 3.5% dividend (better than nearly all CDs and many bonds) and they have tons of cash flow, clean balance sheet, and attractive valuation. But, ultimately, their valuation is attractive and the multiple is low because growth doesn't exist anymore. Intel made a bad bet on the rise of the netbook (a device I think will go the way of the HDDVD that lost to the Blu Ray format). With netbooks only $140 or so less than a notebook...most will do what I do and spring for the full size computer and save themselves the headache of the terrible design of the netbook.

If people want a smaller device, they'll buy a tablet pc (probably from Apple). Instead of betting on the future of netbooks...it looks like Intel should have just called up Apple and asked them if they could make them a chip for whatever device they saw in the future. Instead, Intel tried to get "out front" (netbooks beat tablets to market) and ended up getting whooped by players like NVDA, CRUS, ARMH, and others who made the chips that went into Apple's now industry leading, netbook crushing, iPad. So sell your Intel and just go buy Apple. There are still plenty of haters to convert that will have to buy Apple & take it higher. Besides, Apple only has something like 14% of the personal computer market and probably less of the smartphone market with superior products. Who cares what chips they use inside...Apple is the real investment.

Intel may finally get its act together and go higher…who knows, anything is possible. But there is an opportunity cost to owning Intel…you might not be able to own Apple at the same time. For me, that opportunity cost it too high. I’d rather own no Intel and whatever size position of Apple that is appropriate for your portfolio (not more than 10% of the total holdings). My son is now much happier with his new notebook computer and I'm much happier with our bigger Apple position in the portfolio (we bought more on the big dip on the Jobs news).

Tuesday, January 11, 2011

Why James Altucher is Totally Wrong on This One

James Altucher posted a link to his blog today on Twitter. So, like I usually do, I followed the link and read the contents of the post. I am actually a big fan of James. Ever since I saw him on "China Watch", which was a little video segment on TheStreet.com where James would talk about small-cap China stocks for a minute or so. After a while, I didn't see him on TheStreet.com so I went searching for everything James had ever written and bought a book or two of his.

Anyway, I was reading through the 10 things James learned from Jim Cramer and I was in vehement agreement until I got to #9 and I have to tell you that I completely disagree with what he said. In parenthesis, as if to sneak it by the reader, he throws out the thought that " "my last book, out in December 2008, was a total flop" to which I have to say "HOG WASH", because that is most certainly untrue.

Let me tell you another story to make my point clear. I pick up the forever portfolio because I think I like Jim Cramer, this guy James Altucher works at TheStreet.com, might as well read everything I can to give me an edge. I look up the last book from Altucher and it's "The Forever Portfolio". I read the book, cover to cover, and in it he revealed that he eats out daily and carries a pad with him. On the pad, he keeps a list of great ideas that pop into his head so that he can keep track of them. Then, he finds the right people to put these ideas into practice. James is a man that has started & failed or started and sold many businesses. He has a disease, called entrepreneurship that...if we had an epidemic in our country, could probably cure the recession in one full swoop.

Back to the story. I get this bright idea that I have to somehow become James Altucher's next big idea. That seems logical, right? My friend invites me to the World Money Show and I check out the list of attendees and low and behold, James Altucher is on the list of speakers. Now all I have to do is figure out where he's going to eat breakfast that morning, ask him about the note pad, and somehow fate will take over and my dreams for Magnum Opus Financial will all come true.

Well, I didn't see James at breakfast the morning he was speaking. BUT, I did go to his presentation and I decided to stick around after and ask him if we could have an interview with him for a new series we're launching. At the time, "we" meant me and Rachel (my wife) and this new series didn't even have a name (or a guest beyond James if he even said yes). James graciously agreed to do the interview on his latest book, "The Forever Portfolio" and I went about my day.

That night, it was raining outside so I decided to have dinner at the hotel and when they sat me down, they put me right next to James Altucher. He remembered me from earlier and we struck up a conversation. After an hour of so a good conversation we bid each other farewell and James kept his word, becoming the first ever guest of America's Favorite Trader. The topic of the show, his book ("The Forever Portfolio") of course.

We went on to book Jared Levy, Patty Edwards, Brian Kelly, Anthony Scaramucci, Guy Adami, Steve Grasso, and Jon Najarian. From our one interview came an interview series with exclusive content available only from us. The iTunes episodes of the podcast received thousands of downloads and we are getting ready to launch Season Two this year with even more shows than last year.

It doesn't stop there. Chapter 21 in the book, "Internet Forever; or, Five Mistakes I Made as a VC" helped guide Rachel and I through the process of founding Magnum Opus Financial in March of 2009, becoming a Registered Investment Advisory, striking a deal with tradeMONSTER so that we could trade capital for our clients on their newly created institutional platform (that can now be used to bring other firms on board). Episode 5 of AFT was done from Anthony Scaramucci's office in Downtown Manhattan. I have shook hands with 5 of our 8 guests and been to conferences in Orlando, Chicago, New York, and Los Angeles. We have an invitation to the prestigious S.A.L.T. Conference that Skybridge Capital puts on annually.

We have a daily show on YouTube, a Facebook Page, close to 1,600 Twitter Followers, a Blog and on and on and on. Why recount the successes of Magnum Opus Financial since 2009? The company took off last year and it all started with our very first guest on Inside the Mind of America's Favorite Traders, James Altucher. Where did I get the idea for the show? After I read about the days when James produced a show for HBO I got the bright idea that we could create a show for CNBC. The goal was to make the show so popular that someone offered us money to do it for their network. Without the book, which James apparently considers a total flop...none of this would have ensued and we'd still be wondering how we would make our tiny little company a household name.

So James, my friend, I'm afraid I'm going to have to politely disagree with you about the "failure" of "The Forever Portfolio" and it's impact on the world. They say it's not what you accumulate while you're here that you'll be judged by, but what people say about you when you're gone. Well, I am who I am and Magnum Opus Financial is what it is thanks, in large part, to the many great things I read from that book and I want to say thank you. See, James is a guy that has made himself and others a lot of money in stocks and is getting sick of writing about them. Since starting his blog, "The Altucher Confidential", he's written mostly about life lessons that he hopes to share with the world. His advice has been a rare window into the life of someone on Wall Street who has made, lost, & then made back millions. And, while his financial accomplishments are to be commended. What I think he probably sees as some of the greatest things he's ever done are found in the life of his kids, whom he writes about periodically.

The last book, and so much of his other writing are so terrific, that I hope we can have James Altucher back on the show this year to talk about his new book that should be due out in February. In fact, it just so happens that the World Money Show in Orlando, FL is coming up again; and James Altucher will once again be speaking. Unlike last time, where fate bailed me out on my shot in the dark...this time I have an appointment. I'll be having dinner with James in Orlando and I think this time, I may just be the one to bring the notepad so that I can write down all the great ideas that come out of this year's dinner conversation.

Bottom line, the last book, "The Forever Portfolio" wasn't a flop...it set my life on a course that humbles me to this day. Who knows what I'll get out of the next one...who knows what anyone will get out of it. But, people often say that if you touch just one, then it was all worth it. Well James, I may be the only one for the last book (but I doubt it) and I'm willing to bet the next book will change someone's life as well. Thanks to you for writing about so much more than stocks, more than money, more than finance. Thanks for stopping to share a few things about life with us because THAT (life) is the real commodity and so many of us are short it right now in pursuit of something else with a $ sign stuck before it. What we should all do is short all the time we waste and get long those things we can never get back in life once our time is gone like time with our kids and other loved ones, time spent with a good book, and a good conversation with a friend. Who knows if I made a dime trading anything off what was in "The Forever Portfolio". What I do know is that I'm a lot further along the road to success than I was when I started, and that book was one of the things I read on the way. I'm looking forward to dinner next month. I'll see you in Orlando my friend.