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Trader Tom Strikes Again

Radiant InfraTek HangarA couple weeks ago, my good buddy Tom made 25% overnight by betting on bad news in the stock market. It’s a great example of how there’s opportunity in adversity.

Well, he’s done it again. But this time he put his money down on good news.

About 3 weeks ago he bought into a company called Radiant Energy Corp at $0.11 a share. He sold the shares this week for $0.28. That’s a yield of 154% in just 3 weeks.

Radiant Energy Corp makes a patented infrared pre-flight aircraft deicing system. Basically, the system is a hanger which the plane drives through before take-off. Most airports use a chemical called glycol to de-ice a plane’s wings. The InfraTek system by Radiant means you don’t need glycol, so it cuts out the expense of buying it. Environmental regulations are also frowning on the use of glycol, so the InfraTek system also gets around that issue.

Good News Is Good News For Small Caps

Radiant Energy got a good boost because of two announcements:

  1. They recently signed a distribution agreement with China to sell and license it’s technology there. People equate China with growth right now and that translates into profit.
  2. They also completed a private placement of shares. This is usually good news because it means a few serious investors like what they see and want to get in on the action. They buy the shares via private placement to get a discount rather than paying market price for them.

If this were a higher priced stock, the ROI for investing wouldn’t be nearly as good. But because it was an 11 cent stock, it wasn’t too difficult for good news to pump the price up and create a killer ROI.

That’s because, if a $4 stock goes up $1.00 you get a 25% yield. That turns a $1000 dollar investment into $1250. But take a stock from $0.11 up to only $0.28 and you get a 154% yield or $2540. It’s a lot easier to get a better percentage on a lower priced stock.

At the same time, investing in these small cap companies can also be a lot riskier.

Tom missed the boat last Friday when the stock hit $0.36. He was hoping that maybe it would continue to climb. That’s dangerous thinking and I urged him to get out and start looking for the next wave to ride. Luckily, he did and he still got $0.28 for it this week.

Maybe the stock will climb significantly again next week or rocket up next month. Who knows. But he made good money. And if you try and ride a wave for too long, eventually you get washed into the rocks.

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The Real Million Dollar Man

Logo ManHere’s a million dollar idea … for somebody.

Usually, when you sit around and talk about famous million dollar ideas, you get a few of your own. Now I’m not going to do this … but someone might.

The idea came up when I was talking with a buddy of mine about Alex Tew’s incredibly successful million dollar home page. Check out the site and read the blog there if you’re not familiar with the story.

The first idea that always comes up when you discuss a great idea that actually worked is “Hey, we should do that”. That’s always a bad idea. It’s simply impossible to get the same kind of buzz factor that the original idea generated with a copycat project. On top of that, you always generate a lot of negative buzz as a copycat.

And then I got a brainstorm. Instead of the million dollar home page … how about the million dollar man!

Here’s How It Works

Instead of selling pixels on a webpage for a dollar each, you’re selling millimeters. Of skin. There are about 25 millimeters in an inch so that’s 625 square mm per square inch. That works out to $625 per square inch of real estate. What you’re selling is advertising. Tattooed on. Permanently.

All the way up until you’ve got 1600 square inches of skin covered in corporate logos. That’s a million dollars. And that’s the real million dollar man.

How Do You Do It?

Like any business idea, you have to get out and sell that ad space. Publicity, publicity, publicity. And this definitely has buzz factor. But publicity is not enough. You have to actively contact potential advertisers. And you have to keep doing that until all the ad space is sold.

The other thing you have to put together is a way to display the ads so advertisers get some kind of real benefit from it. This might involve some combination of public appearances and maybe even a book deal that tells the story and features photographs of all the artwork.

The last thing you need to pull this off is a whole lot of “crazy”. I said it was a million dollar idea. I didn’t say it was going to be sane.

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Is Yahoo Preparing For A Takeover?

Cash For WhatWhen Shoemoney first predicted that Yahoo would be acquired by Microsoft in 2007, I thought he was right on the money (no pun intended … okay, maybe a little).

Since then, there’s been a fair amount of chatter about how Yahoo is selling paid inclusion into it’s organic search results. There’s the odd person that defends this, but most people see it as a bad idea. Rob Watts over at Yack Yack spells out a lot of the reasons why it’s a bad idea.

Here’s a few of those reasons:

  • Is it a search engine or a business directory?
  • Nobody who has done it got anything but bad mojo for doing it
  • How authoritive is ranking and authority … if you buy it?
  • One word. Transparency.
  • One more word. Integrity.

So Why Do It?

There are so many reasons not to allow paid inclusion and there’s only one benefit. Cash. Cold hard cash.

And all the reasons against it make it a short term benefit, not a long term business model.

One More Time … So Why Do It?

The only reason to do something you really shouldn’t do just to make a quick buck, is because you have to. You absolutely have to. Junkies steal DVDs at the local video store. Search engines sponsor paid inclusion in their search results.

Every War Needs A War Chest

Whether a company is trying to prevent a takeover bid or sees one as inevitable, raising cash is job one. Cash allows a company to fight a hostile takeover. And if they can’t stop a takeover or don’t want to, they can squeeze a lot more value out of the sale.

Threats that come sooner always take precedent over threats that come later. The threat of a takeover is the one reason why a company would sacrifice it’s long-term value and reputation to raise cash.

Of course, there are a couple of other reasons why they might do this. One doesn’t make sense. The other is too ugly to contemplate.

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Cats, Rats, And Stocks

Little Man The CatIf you have a sick pet right now, you don’t want to hear this. And I don’t blame you one bit. But the truth is, there’s opportunity in adversity, and this story illustrates that. The world is tough.

It’s even a little mean sometimes.

A good friend of mine has been dabbling in online stock trading. He bought a stock on Thursday, sold it Friday, and made 25% on several thousand dollars. The stock … yep … Menu Foods.

Menu Foods’ stock price dropped like a rock after they announced a major recall of cat and dog food on March 16th. The news kept going from bad to worse. And the news spread like wildfire. I have a lot of friends with pets and they were all scrambling to get answers to find out what they should do and what brands were tainted.

Not the kind of situation that makes your stock go up. But the markets over-reacted. Considerably.

Menu Foods lost half it’s value in about a week. That’s a lot. That’s a helluva lot. So my buddy jumped in and bought at $3.90. The next day he unloaded it at $4.89 and made a nice profit. A lot of traders made a nice profit on Friday.

What Brought The Stock Back Up

There are a number of factors that you have to consider when you invest in an ugly situation. Here are some of the factors that helped the stock price go back up.

  • Paul Henderson stepped up to the plate. He promised that Menu Foods would take responsibility and compensate expenses to pet owners incurred as a result of the food. On the surface, this looks like a big bundle of cash is going out the door in the future. But restoring confidence in consumers is the only way to bring a company back from the brink in a situation as bad as this.
  • Menu Foods isn’t just Menu Foods. Dozens of brands were affected because MF is a contract manufacturer. They make pet food for dozens of different brands. All these brands are going to invest a lot of time and money to get the positive word out there once the mayhem dies down.
  • There’s someone else to sue. Class action lawsuits are already being filed against MF, but the toxic chemical aminopterin (used in rat poison) appears to have originated from an ingredient supplier overseas. Depending on how big this supplier is, Menu Foods could recoup most or all the costs related to this recall and impending suits.

My buddies next stock pick? Maybe Vonage. He’s not sure yet. They just lost a court case with Verizon to the tune of a $58 million dollar cash payout plus a 5.5% monthly royalty rate. Adversity’s knocking.

The cat in the photo is Little Man. He’s well and fine.

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Make 300% On Your Money … With Cereal?

Promo TicketsI had to laugh at first. But it’s actually a pretty good deal when you look at the ROI. You might even call it an investment wave

A friend of mine went out and bought an armload of cereal. She likes going to the movies and General Mills’ latest promotion was just too good to pass up.

The Deal Is This

On the back of selected General Mills cereal boxes like Crispy Oats there’s a coupon for one free admission to see a movie. The coupons are instantly redeemable at Cineplex Odeon and Empire theatres.

Since a movie ticket costs about $11 and the cereal costs under $4, you’re making 300% on your investment. You also get your initial investment back (the cereal you bought).

Good Promotions Vs Bad Promotions

A lot of promotional ideas really suck when you think you’re getting something really great and it turns out to be not so great. This ususally happens when the promotion is worded badly and seems to offer more than it does. It also happens when there are hidden fees that have to be paid in order to take advantage of the promotion.

Bad promotions are cheap. They only have one goal: to make a short term buck. Because of this, they often have a way of leaving a sour taste in the customers mouth.

A good promotion can sometimes cost good money because the companies involved are giving away something of real value to their customers. They’re going for the long haul. It’s about branding. It’s about introducing people to new products or forgotten experiences and getting the word out there.

The General Mills / Cineplex / Empire movie ticket promotion is a good promotion. It gives real value. The goal is that you’ll buy the cereal, like it, and buy more of it. On the theatre side, they want to draw people away from their DVD players and big screen tvs to rediscover having “a night out”.

The beauty of this promotion is that it probably didn’t cost either company a whole lot. General Mills just needed to print a coupon on the box, and the theatres usually have empty seats available during most shows to fulfill their side of the deal.

*Note – I wouldn’t advise selling off your real estate holdings or stock portfolio to go buy a truckload of cereal …

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The Internet As A Creative Currency Zone

Internet CurrencyWhen someone says the word currency, most people automatically think money. Paper money. Dollar bills. But the internet is changing that thinking in some big ways.

Money is just a common and convenient medium of exchange. It’s easier to attach a common market value to everyday items we purchase with a universally accepted form of tender like money. It’s easier and more convenient than trying to trade chickens for horseshoes.

A currency zone is generally country specific. It’s an area where a certain currency is the dominant currency. Canadian dollars, US dollars, Euros … all different currencies, used in their prospective countries or regions. Or zones.

Digital Money

With the widespread use of bank cards and credit cards, the borders between currency zones have fallen away. All you need to travel to another country is your ATM card and a credit card. If you need paper money in a different currency you simply withdraw or charge that amount and it’s automatically converted for you.

Electronic funds and the computerized management of funds has made it easier to cross through different currency zones. And though the zones are still different and each currency carries its own value, the medium of exchange that people use everyday is not just paper money. It’s plastic.

Enter The Internet

The internet has changed the medium of exchange even further. It’s no longer plastic. It’s simply a number.

Your credit card number + your name + the expiry date on your card. That’s the common medium of exchange on the internet.

New Currencies On The Internet

Difficult problems require creative solutions. Here are a few inventive ways that people have come up with to create alternative forms of currency:

Online Gaming

The online gaming industry has been hit hard by the fact that legislation signed last October forbids the use of credit cards, checks, and EFTs to fund online betting accounts. Difficult problem. Creative solution required.

So, since then, people have been using gift cards, phone cards, and whatever they can get away with to stay in the game. These are just different stores of value being used as currency to get around the legislation.

Online Socializing

The online virtual world of Second Life has it’s own currency called the Linden Dollar. They’re directly convertable to and from US dollars at a rate of about 250 $Linden to 1$US. The large gap in the exchange rate allows players to use prices similar to those in the real world while conducting commerce in Second Life, without costing them the equivalent price in real world dollars. Nobody is going to pay a real world price for a virtual world house.

Links As Currency

I like to surf by SEO blackhat once in a while. I’m not into blackhat stuff, but I always find Quadszilla’s posts to be bold, off the cuff, and entertaining. Right now he’s putting together an SEO poker tournament.

You can’t buy your way into this tournament with cash. To get yourself a seat at the table, you have to have a website with a homepage pagerank of 4 or better. The grand prize is a link to your site for one year from all the participants in the tourney.

All these links contain a lot of potential value for driving traffic to a monetized website. How much value is dependant on a lot of different factors. And so, unlike phone cards or Linden dollars, the exchange rate into paper dollars is not easily pinned down.

Are These Things Really Currency?

They’re all stored units of value. And unlike bartering your web design services or something like that, they all have a certain capacity as a universal, or at least widespread, medium of exchange.

The crazy, crazy internet. You gotta love it.

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Investing In Waves

Calm WatersCalm days are not very good for sailing.

Funny enough, they’re not very good for investing either.

Housing Prices Vs Inflation

Robert J Shiller, A Professor of Economics at Yale, showed how housing prices (after being adjusted for inflation) have not changed much since 1890. There were ups and downs, but overall the price of housing has remained steady for over a 116 years. With two very big exceptions …

  1. Between WWI and WWII (during the great depression), housing prices were actually averaging about 66% of what they should have been.
  2. From 1999 to 2006, prices have risen steadily to reach 200% over what they should be if they were to stay in line with inflation.

What this means is that if you bought a house in 1890 for the equivalent of 100,000 1999 dollars and sold it in 1999, you would have made 100,000 1999 dollars. There’s absolutely no profit. But as of 2006, because of the largest housing boom in history, it would be worth $200,000 in 1999 dollars.

Stocks Vs Inflation

Over the long term, a portfolio of well performing stocks like the S&P can beat inflation. One study showed that from 1926 to 2005, the S&P index annually returned 10.42%. Inflation during this period was about 3.25% annually. So every year you could increase your wealth by 7.17% or $7.17 for every $100 you invested.

You also have to keep in mind that the companies listed in the S&P index have changed many times over the last 80 years. These changes are little waves and the 7% return you get over the long haul has plenty of better and worse periods.

So, What’s A Wave?

You can see by looking at housing and stocks over the long term that if you park your money in one spot, you’re going to make no to little return on your investment. The only strategy that wins in the end is to move from wave to wave.

If you bought Google shares during their IPO for $85, you potentially made 500% on your money in the first year. That’s a lot better than 7% and that’s a nice wave to ride.

Between 1999 and 2006, housing prices have pretty much doubled. Not as big a wave as the Google one, but a nice ride all the same.

Catching Waves

If you’ve ever done any surfing, you know that catching waves is all about location and timing.

First, you have to be in the right place. At any given moment in time there’s a wave happening somewhere. While the dot com crash in 2000 shook the stock markets, the real estate wave was just heating up.

Next you have to be there at the right time. If you’re too late, you might miss the opportunity. Too early, and it might turn out that what you caught wasn’t much of a wave at all.

So the secret to catching waves is to be on the lookout for them. Always.

Dangerous Waters

There’s always a certain amount of risk when you’re investing. Nothing is a sure thing until after it’s happened. Hindsight is 20/20 right? It’s easy to get mesmerized by a wave, a potential wave, or a wave that’s about to crash into the rocks.

I never buy at the bottom and I always sell too soon.
~ Nathan Rothschild

Nathan Rothschild’s rule for successful investing is great advice. Make sure you’ve got a rising wave before you jump on. And then jump off while it’s still rising and look for a new wave. It’s a lot easier to sell an investment while the price is still climbing because that means people are still buying it up. Once the price peaks, it’s going to be harder to sell.

To Sum It Up

  • You want to keep moving your money into rising waves rather than keeping it parked in one spot. One way you can hedge your bets is to stay diversified. Mutual funds are popular because a fund manager’s job is to find a diversified collection of waves and change them up as needed.
  • Don’t get greedy. Ride your investment and jump off before it crests and you get caught in a crash.
  • Rough seas are necessary for sailing and investing. Wind creates momentum. And waves. And good things come from waves.

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The US Senate Votes To Raise The Minimum Wage

InflationThe debate over whether or not to raise the minimum wage is always heated. Politicians always talk in circles on this (and most) issues, so most people don’t get a full understanding of why it’s so controversial or how it affects them.

A lot of people see this as big business vs the little guy, but it’s more complicated than that.

Raising The Minimum Wage Causes Inflation

Since the minimum wage is the bottom or base wage, raising it creates an increase in the cost of many goods and services. This inflation eventually trickles out over time to other goods and services that are not directly affected by the increase. Inflation also causes other, higher wages to increase over time as people look for better compensation to pay for the higher cost of living.

To combat a rise in inflation, the Senate is proposing to package an increase with a number of provisions as follows:

Besides increasing the minimum wage from the current $5.15 an hour, the bill would extend for five years a tax credit for businesses that hire the disadvantaged and provide expensing and depreciation advantages to small firms. The tax breaks would be paid for by closing loopholes on offshore tax shelters, capping deferred compensation payments to corporate executives and removing the deductibility of punitive damage payments and fines.
~ AP Article

How Inflation From A Minimum Wage Hike Affects You

For minimum wage earners. Over time, inflation will erode the gains made from an increase in wages. In the short to medium term though, this is a great thing for many minimum wage earners. But, there are some businesses that will be forced to lay off employees because they simply can’t afford the increased costs. After a lay-off, the remaining employees will be tasked to get more work done, and will most likely have less capital assets (like new equipment) available from the company to make their jobs easier.

For higher wage earners. Wage increases for higher income earners will most likely be held back or will not be as high as they otherwise might be. The number of management positions could also be pared back because the savings from laying off one management position could pay for the wage increases of several minimum wage workers.

Rainy day and retirement savers. A lot of personal and corporate retirement funds include stocks or mutual funds (collections of stocks). The performance of these investments is directly tied to the earnings performance of large public companies, otherwise known as “big business”.

Small businesses. Inflation hurts the small business owners ability to expand the business and employ more people. This is important because small businesses are responsible for many new jobs for the ever growing population. Small businesses that get hit hard by minimum wage increases may have to lay off some workers. Some of them may even be forced out of business. Many small businesses have a hard time passing on increased costs to their customers unless they have very specialized goods and services with little competition and good demand.

Large businesses. Like small businesses, the amount of cost increases that a large company can pass on to the customer depends upon their market competition and the level of demand for their goods and services. If they have trouble passing on the increases then the decreased profits they earn adversely affects their stock price. This not only hurts the companies ability to grow, it also hurts private investors who are saving for retirement and large pension funds that are invested in the market.

What It All Means

An event like increasing the minimum wage changes the landscape for everyone. Some people will find a way to make it work in their favor and others will be hit hard by inflation and cost increases. Whether you do well or not is more dependent on business savvy and your understanding of how money and markets work rather than how big you are. Of course, the bigger and more successful you are, the more resources you have to make good decisions.

In the end, increased population and competition for wealth, land, and natural resources creates a wider divide between the haves and the have-nots. At the same time, the entire economic system relies on growth just to remain stable. The need for growth and the friction caused by growth is what makes this and other issues so complicated.

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