Friday, October 11, 2013

Profit in a Shutdown and a New Internet Bubble

               As the United States government enters its 11th day into a partial shutdown and with the debt ceiling debate still stalled, it is the perfect time to invest.

                I am Michael Molman, I am not a millionaire stock broker, I don’t have a Hedge Fund managing billions of dollars, but I believe I have discovered the key to thriving in a world market that is still fragile, super competitive and constantly takes down small investors.

                This week might have been the most epic week on the trading floor of 2013, as the government shutdown continues into week two markets, reacted violently at the lack of progress in Washington, the DOW fell over 136 points on Monday followed by an equally bleak triple digit loss of Tuesday.

                Thus far, through a combination of luck and skill I have been able to avoid the losses that have plagued the World markets during the weeks leading up to the Government shutdown and debt ceiling limit. Yet on Monday and Tuesday this “immunity” seemed to disappear, my portfolio was hammered with heavy losses that should have set me back for weeks, yet, much like the U.S stock market, I had a rebound.

                Wednesday showed minor gains but Thursday and Friday showed the largest gains in my Portfolio I had seen in months. I had even took advantage of the flat day on Wednesday to squeeze in a few buys the most profitable of which was buying shares in Blackstone.

                My logic in this buy was that with the stock price down 2.5% on Wednesday, and with private equity on the mend, I could take advantage of the low price created by worries about the government shutdown and the debt ceiling. My assumption proved to be correct, shares rose 4.64% on Thursday and a further 2.51% on Friday.

                This trade proved that it is possible to make money even when markets are uncertain and are hesitant. Wall Street is worried that if the debt ceiling is not raised by October 17th the Federal government might not be able to pay all its bills, resulting in a default. This would send the U.S and the world into another recession.

Personally I have enough faith in our elected officials, to find some common sense and stop playing this political poker game that pits the Republicans against the Democrats and will result in only one thing, disaster. But I am not a politician; my greatest concern over this political battle in Washington is how I could profit from it, and so far I have been doing a good job.  

One good thing that came out of the arguing of Politicians in Washington was that companies that I have been calling bubbles in the making from the very beginning; Facebook, and Tesla being the major ones, saw their stock prices deflate somewhat.

My Great Uncle, was once offered to buy shares in Facebook and Tesla before the IPO and he declined, when I asked why he said

“A good idea does not always make money” I took this view to heart, seeing that although an electric car made by Tesla is a good idea it is too expensive for the regular consumer market and with a market price of 21.70 billion it is remarkably overvalued, valued at over 100 times 2014 expected earnings. Shares in Tesla are down over 10% in the last few weeks and although rallying with the rest of the U.S stock market on Thursday and Friday I firmly believe that Tesla stock has nowhere to go but down.

As for Facebook, I cannot describe my feelings of agitation at seeing this stock climb and climb and climb over the past few months, ever since Facebook announced improved mobile add revenue. I call Facebook, LinkedIn, and Groupon the Internet bubble resurgent.

Each of these companies has seen remarkable growth in the share prices over the last year, and all three a remarkably overvalued, Facebook currently trades at over 185 times earnings estimates compared to a market norm of 15. As a comparison I would like to compare two technology companies to show just how crazy Facebook’s evaluation is.

Take Qualcomm, a chip maker making most of the chips more smart phones, I currently own shares in QUALCOMM and the company is valued at 115.9 billion as of today. Facebook is valued at 119.6 billion. Now everything comes down to one thing, money, how much did each company make? Qualcomm made 6.1 Billion dollars in revenue in the 2nd quarter 2013, at the same time Facebook made 1.81 billion in revenue, Qualcomm made 1.87 billion in profit while Facebook made 333 million.

The numbers don’t lie, Qualcomm made more than 3 times the revenue, and over 6 times the profit, yet Facebook is valued more the Qualcomm, if this sounds like it doesn’t make any sense you are right. Granted after Facebook’s botched IPO and shares falling to a low of 17.50 the stock was valued correctly, and investors who bought at the all-time low have made out like bandits but now I would recommend selling, with shares taking a hit due to the current political situation I do not see any more growth in Facebook stock unless the company announces an amazing 3rd Quarter on October 30th.  

So to conclude my first publication I would like to state that with all this uncertainty going on in the world and worry in the market place it is the best time to buy, my suggestion is to buy into large stable blue chip companies such as Qualcomm and General Electric, these companies are predictable and are trading lower due to Washington’s bickering over the debt ceiling, when this debate blows over the stock will continue to go up and any person who buys right now can make a nice profit in a few weeks.

I would also avoid companies that have seen rapid gains like Facebook and Tesla since these companies are highly volatile, overpriced and overdue for a correction. There is no guarantee in the value like in blue chip stock like General Electric.



As this is my first publication I would ask that if you may please leave comments about how you liked the article and any suggestions you have about how to make it better. Also if you enjoyed this article I would ask if you please spread the word since currently I am advertising only through word of mouth.

I will be posting an article every Friday and looking back at the political and economic events of that week, both personally impacting events and suggestions about my opinions on the future of the market.


1 comment:

  1. Mike. This is impressive. I like your style and the fact that you are simply narrating your logic rather than diving into emptions or judgment. Would definitely enjoy reading more of your blogs. Would be interesting to learn more about some smaller companies and interesting investment choices (i.e. hidden jewels) that you stumble upon in your investment quest.

    Vlad R