Feb 22 2012

Am I Any Good at Stockpicking?


Carlos Portocarrero

The Stock Market

Towards the end of 2009 I wrote My Stock Pick for 2010. I gave it a lot of thought, weighed many different options, and then decided the best place to invest my money in 2010 would be buying stock in Amazon (AMZN).

And I got really lucky—check out what Amazon has done since the start of 2010 (2010 is in red):

How AMZN Did

As you can see, I nailed it. I am the obvious successor to Warren Buffett. Shower me with praise and offer for me to invest your money.

Now.

Of course, as it is with most things in the stock market, I got lucky. My key assumption (that the Kindle would “blow up”) was pretty accurate. You see that thing everywhere now…even my mother-in-law has one.

The stock went up 38% in 2010. It’s only up 3% since then.

How Much Money Did I Make?

This is where it gets a little embarrassing. I didn’t make a cent off of Amazon in 2010 because I never bought the stock. Most of my money is invested in a retirement account that buys cheap index funds, and only a small portion of it is in actual, individual stocks (right now that’s Berkshire Hathaway and Johnson & Johnson).

Besides, at $130 I would only have invested around $300 in the stock at the time. At a 38% return, I would’ve made  $114—nothing earth shattering for having been so right.

But I have a little secret: right now I’m making some money off of Amazon, and so far it’s looking way better than 38%…

In February I put on a call spread that basically makes the following bet: If Amazon stays above $175 by April 20, I will make $500 before commissions. Making the bet cost me $285, which means my max profit would be $215, a return of 75% in three months.

Right now it’s looking pretty good (knock on wood), as AMZN stands at $182. Here’s what the stock has done since I entered this trade:

Nothing dramatic, I just paid a little more than I usually do in order to lock in a lower “must finish above X” price ($175) because I felt that the stock wasn’t going to go below that number. Amazon had gone from a high of around $240 at the end of 2010 down to a low of $175 and I felt that it had stabilized around there.

That’s why I picked that strike.

It had little to do with the fundamentals of the company. It had little to do with my long-term prospects of the stock. It had nothing to do with all the amazing investment books I love talking about so much (Malkiel, Lynch, anything with Warren Buffett, etc.).

When I trade options, it’s more of a speculation than anything else. It’s short term and as you can see it can be extremely profitable.

BUT!

But of course it can be risky as well. If AMZN goes down under around $170 I will lose my entire $285. It’s happened to me several times and it’s something that typically doesn’t happen with stocks.

Anyway, I’ll be writing more and more about options trading so if anyone has questions or wants to learn more about specific parts of it, let me know!

Image by rednuht


Feb 16 2010

Survey: What Keeps You From Buying a Kindle?


Carlos Portocarrero

amazon_kindle_2

I’ve been doing a lot of thinking about the Kindle lately, but it’s not because I want to buy one.

Since Amazon (AMZN) is my stock pick for 2010, I’m trying to figure out how the country (and the world) is seeing their latest gadget: is it a window into the future or is it a niche product? In other words, will everyone have one of these (or something similar) in five years the way iPhones exploded, or is the almighty book going to prove it has more staying power?

I’d love to hear readers’ thoughts on questions like:

  • Price aside, what don’t you like about reading a book on a device like the Kindle?
  • Is because you like having a real book in your hand?
  • Isn’t it so much more convenient?
  • Is it because the prices of e-books aren’t significantly cheaper than the paper versions? (this is a biggie for me)
  • What about the environment? Isn’t this a good argument for buying a Kindle? Don’t most people just give away their books after reading them? (not me, but a lot of people do)

Ramble away in the comments section, I want to measure the pulse of the readership on this one!


Dec 22 2009

My Stock Pick for 2010


Carlos Portocarrero

amazon_logo

I am not a stock pro and I don’t play one on TV, but every so often I have a strong opinion on certain companies and their futures. Today is one of those days.

My stock pick for 2010 is Amazon (AMZN).

I’m making this pick based on three key assumptions:

1. The Kindle Could be the Next “It” Device

It started with the Blackberry—I remember meeting a few people that owned them and my first impression was that it was an ugly-ass phone. Cheap-looking plastic and a Game Boy-ish screen made it come across as something you’d give your four-year old to play with.

But these people wouldn’t put it down—they were addicted.

Research in Motion’s stock went from around $2 when the first smart phone was released to around $150 six years later. That’s an ROI of 7,400%—awesome by any standards.

Then came the iPod and the iPhone. Nobody had MP3 players back in the day, and I vividly remember people mocking my Rio PMP, which was one of the originals. There were tons of MP3 players between the ol’ Rio PMP and the iPod, but Apple made it cool (and easy) to own one.

The iPhone was announced in 2007 when the stock was around $85 and by the end of the year it was up near $200 (Apple’s stock today is hovering just under $200).

It went through the same incubation period as the Blackberry did. No one had one, then you saw a few sprinkled here and there (see the bus effect for more on that phenomenon). Now 50% of the people riding the bus have an iPhone. I’m not kidding—we’ve all noticed this.

Well, being the gadget hound that I am, I read all about Amazon’s Kindle when it was first announced (and wrote about it too). Since I knew about the Sony E-Reader as well, I figured it would just be more of the same.

The E-Reader didn’t cause much of a stir when it came out, so why would this Kindle thing do any better?

It came and went just like Sony’s did: I never saw anyone on my bus carrying it around.

But Amazon put some a lot of the marketing magic behind the Kindle that Apple put into its products, and these days I’m seeing multiple people at a time reading books on their Kindles. That’s why I called it the gadget of the year.

The revolution has begun.

My one hesitation about this theory is this: do people care about books the way they care about their phones or their music? We’ll find out soon enough.

2. Amazon has Become a Major Retailer

Remember the holidays last season? Everyone was in a funk because of the crappy economy and it looked like Americans were finally understanding that spending more than you make was a bad thing.

Which meant that retailers were going to probably be hurting over the holidays. And it’s true, my Black Friday experience in 2008 was nothing like the one from the year before.

People just weren’t spending as much.

And it was in that climate that Amazon posted their best holiday season ever. Since then, the economy has definitely perked up: the S&P 500 is up around 20% this year compared with the precipitous fall in 2008.

Amazon’s stock price was around $51 last Christmas and today it stands at $132.

Things are looking good.

3. Amazon is Hot

It may not make the most sense to make a decision based on what other people think, but it sure feels comforting:

It’s the way they are run,” an analyst at Jefferies said. “Their strategy is to offer the best user experience with the best price. For the longest time, that was missing from the majority of e-commerce players.

  • Smart phones aren’t built for reading, so it’s unlikely they will compete with the Kindle.
  • The Nook is lagging behind the Kindle. Many thought it would provide some competition, but with those kinds of reviews it’s clear the Kindle is the iPhone of the e-reader space.
  • The Kindle keeps breaking sales records.
  • They just acquired Zappos, the kings of customer service. This just reinforces their commitment to their customers and gives them one of the most revered, customer-centric companies in the world. Oh and they made a billion dollars in sales last year too.

Finally, Mercifully, the End

Obviously, the Kindle is a major reason why I think Amazon is a great pick right now. But when you look at what Amazon has become, regardless of the Kindle, it’s pretty obvious that this is a great company with great leadership that’s moving in the right direction.

I’d love to hear what other people think and to shoot some holes in my reasoning. And again: I am not a stock pro nor will I be responsible for any losses you suffer if you decide to buy this stock based on this review!

If you make some money, however, then we’ll talk about how we arrange a commission-type setup.

I do not own any shares of Amazon and if I ever do, I will note it in this area of the post to avoid any conflicts of interest. UPDATE: I don’t own stock, but I have an options position in AMZN that expects it to stay above $127.


Dec 18 2009

Amazon Kindle: The Gadget of the Year


Carlos Portocarrero

amazon_kindle_2First we had Blackberries and then we had iPods and iPhones. Now it’s the Kindle—is this the next gadget that will steal our hearts (and our money)? I certainly think so, and I’m going to tell you why.

Who am I to say what’s going to be the next big thing? First of all, I’m a gadget hound—I love reading and talking about the latest tech toys around. And second, this device just happens to fall in the domain of two of my passions: reading and writing.

This story isn’t about paper book vs. e-book. It isn’t about the inevitable fate of paper books. It’s about why I believe the Kindle is the next “it” gadget.

The Bus Effect

I’ve experienced the bus effect two times in my life: the first was with the Blackberry and the second was with the iPhone. So if I’m right about the Kindle, it’s in some very elite company.

I knew a few people that owned Blackberries, but I didn’t understand why: they were ugly and the screens were lame. But those few people that owned them felt pretty strongly about them, and that stuck in my head.

Then I saw someone on the bus using one. As most Blackberry users, they were in their own world thumbing away at their ugly phone.

Then I saw another person using one on the bus. And another. It happened very gradually until one day it hit me: Wow, look at how many people own these things!

Along Came the iPhone

Same story: only I followed this one from way before it launched. I read everything I could about it because it sounded like a device unlike any other. When it came out, the tech world was in a frenzy.

Here was this cool, expensive, hip phone that had one button. You controlled it by swiping your finger across its screen. It was like magic.

I remember the first time I saw one on the bus—it was like spotting a rare bird in the wild. I almost snuck up on the person to get a good look—I didn’t want to scare it away. It looked awesome. It looked sexy. It made me want one right away (I resisted the urge and got a G1 instead).

Then I saw another person a week later using one. And another. Nowadays, 90% of the phones you see on the bus are iPhones. They’ve become as ubiquitous as the old Motorola RAZRs.

Kindle’s Time is Now

I remember the first time I saw a Kindle too: the white finish and the sleek design. I always thought that e-readers would be a niche product that only nerds like myself found interesting—and even I wouldn’t but one. The general population, I assumed, would stick to regular books.

But Amazon has pumped some major marketing muscle into the Kindle, and by taking a page out of Apple’s book they’ve managed to create demand out of thin air for the Kindle.

Does this mean the Kindle is on its way to outdo the iPhone and Blackberry? I don’t know, but the sales numbers are looking pretty damn good.

The one reservation I have has to do with people: do they really care this much about reading books? I think the answer to that one is “no,” but there are enough people out there that do care to make a huge difference for Amazon.

Do you think the Amazon Kindle belongs in the same conversation as the Blackberry and the iPhone?

What’s your pick for gadget of the year?

(by the way Amazon has free 2-day shipping on the Kindle from now until Christmas!)