April 19, 2012 | In: Technology

Will Yahoo Go Bankrupt?

After this month’s post on Groupon going bankrupt, one might think that I’m bashing every public online company (or is it online public company?) – but that’s not what I’m after. It’s simply that because of my other job, I have a lot of experience in this area and can assess online companies fairly accurately.

Now, let’s move to the topic of this article – Will Yahoo go bankrupt?

Let me first start by discussing Yahoo… Yahoo, as a business, never ceases to amaze me, here’s why:

Yahoo had (when it used its own search engine) and now it has (as it’s using Bing’s search engine) a terrible search engine. It’s impossible for anyone to get what he or she wants from that search engine. Google’s search engine is light years ahead of Yahoo’s and Bing’s. From what I’ve noticed, Yahoo’s search is mainly used by 3 types of people:

  • Very young people located in the US
  • Non-tech savvy people located in the US
  • SEO masters testing their websites on several engines

I think the reason why Yahoo is the search engine of choice for very young people is because, Yahoo, as a portal, connects to them: they have many nonsense stories every day on celebrities, and they host the answers community, where youngsters can have their homework questions answered by experienced people.

As for why non-tech savvy people go with Yahoo as a search engine, I think that’ll remain a mystery to me, but this is what I have noticed after 15 years of using the Internet.

Yahoo has a mediocre advertiser ROI when compared to Google. Anyone who does advertising on the web can easily tell you that Google ads convert much better than Yahoo’s. And I’m not only talking on CTR, I’m also talking on real conversions (e.g. sales). Not only that, Yahoo, has a weird way of billing advertisers, and now it’s even more complicated as you have to buy the advertising from Bing if you want to advertise on Yahoo. Maybe I’m not a marketing genius, but probably the most basic rule when it comes to selling anything is to never make the buying process complicated, and that’s exactly what Yahoo is doing.

Yahoo is not innovative at all. In fact, Yahoo stopped being innovative the moment the website was made live. When was the last time you heard that Yahoo is trying a new endeavor? When was the last time you heard that Yahoo is releasing a new smartphone, a new tablet, a new anything? Yahoo’s sole revenue relies on ad revenue generated from its portal.

– Last but certainly not least, Yahoo posted a profit that exceeded expectations this very last quarter. Although that might seem illogical when taking the above into consideration, it seems that the spike in traffic over the last twelve months has certainly helped (I think the spike is related to the rebound in the economy). Take a look at the below:

Yahoo’s Traffic for the last 12 months (courtesy of compete.com)

According to the above chart, Yahoo’s traffic has increased about 12.5% over the past 12 months, which is excellent. The increase in traffic is lower than that of Google (which is 17%), but it’s still impressive. It does seem that there’s still life in Yahoo – and it does seem that Yahoo still has many cards under its sleeves.

But, let’s look at the below facts:

  • Fact #1: The non-tech savvy people using the Internet are decreasing everyday, either they are becoming more savvy or they are passing away.
  • Fact #2: Yahoo is leveraging its partnership with Microsoft to benefit from Facebook’s success – should that partnership end on a sour note (and it may very well do), then Yahoo’s will lose all that extra traffic coming from Facebook.
  • Fact #3: Yahoo is a website, and not a website that has a lot of intelligence (as opposed to Google’s).
  • Fact #4: On a scale of 0 to 10, Yahoo ranks 0 when it comes to innovation.

But, what is the answer? Will Yahoo Go Bankrupt? Obviously not, not for the foreseeable future anyway, but Yahoo has a huge chance to improve itself by doing the following:

  • Making its search engine more intelligent (that will probably mean breaking up with Microsoft)
  • Making the process of buying and running ads on its network much easier
  • Expanding its YPN (Yahoo Publisher Network) program outside the US (currently only US residents are allowed to participate in this program)

I think Yahoo has a huge opportunity at this very moment, and it also has the momentum, why not benefit from it when it still has the chance? It’s in these times that Yahoo’s executive management can prove itself.

Yahoo will not die soon, but it will die if it doesn’t revamp itself, and doesn’t focus more on its main source of income, advertising!

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

April 18, 2012 | In: Technology

Is Rovio a Public Company?

If you’re here just to know the answer to the question in the title, then the answer is no, Rovio is not a public company. Rovio is a private Finnish company, located in the same city (ESPOO) where Nokia is located.

But why is Rovio not a public company?

Usually companies go public for two reasons:

  1. They want to expand without paying hefty interest rates to the banks.
  2. Executives want to amass fortunes by technically selling parts of their company at exorbitant prices.

Judging from the state of the stock market and the ethics of its players nowadays, I’d say that the first and foremost reason why companies go public is the second one in the above list.

Now why hasn’t Rovio gone public until now? Well, the number one reason is that Rovio doesn’t need to expand, it’s a company producing games for mobile devices and it’s doing a very good job at that (yes, these Angry Birds games are quite good – except for the last one, which is very buggy). It doesn’t need a bigger team, it doesn’t need to expand into other areas (it’s a mobile app company, after all). You might say that this exactly the case for LinkedIn, Groupon, Facebook, and the likes, and that these companies have gone (or are going) public. Well, clearly, they have gone because of the second reason.

But is it that Rovio’s executives don’t care about the money? Certainly not! They do care about the money a lot, but they think that they need to build more momentum before deciding to go public, and they will go public.

So, when will Rovio go public?

Rovio will go public as soon as its executives feel that the investors are seeing value (wink wink) in their company for the long term. In other words, they will go public when they think that there are enough dumb investors in this world who are happy and willing to put their money in a company that may or may not exist in a couple of years from now. Besides Angry Birds, what does Rovio have? And what will happen when people get tired of Angry Birds?

In any case, the media machines are working, day and night, to promote Rovio as the best company since X (US Steel), and that buying this company at IPO will be the investment of a lifetime.

But what will Rovio’s stock ticker be?

I don’t know, but here are my suggestions:

  • ROVI
  • RVO

I personally think that that they will probably go for Rovi (I was right at predicting Facebook’s ticker, see here).

Now, before you ask, I’m fairly certain that ROVIO will be listed in the NASDAQ, as their listing requirements are much more lax than those of the NYSE.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

I have warned against buying GRPN back in August of last year. Back then, I have explained that Groupon cannot sustain the hefty customer (who may or may not be loyal to Groupon – after all, this is a coupon business, where customer loyalty is nearly 0) acquisition costs. Groupon was paying a lot to Google for advertising costs in order to acquire new customers – it has stopped these intensive marketing campaigns (that was the first red alert that the business model was not working) a few months after it started it (remember those ugly banners all over the place that made us think that Google was about to buy – or has already bought – Groupon?).

Now, let’s go back to today’s Groupon:

  • Groupon is still advertising, but not using the insane marketing model as before.
  • There are just too many competitors in the coupon business.
  • Groupon is shrinking.

Let me examine each point aside:

Groupon’s advertising mode is no longer aggressive

Well of course! Don’t you remember these terrible banners with the dinosaur that had something like RAWR…, they were all over the place. Now Groupon’s advertising is limited to Google’s targeted search and a targeted content network. What does this mean? This means that while advertising costs are lower, much lower on Groupon, new subscribers are also lower – which means decrease of revenue (the churn rate on coupon websites is really high because, again, there is no customer loyalty whatsoever – customers are loyal to Groupon as they are to the next coupon company). It’s the chicken and the egg scenario: Groupon can’t get subscribers without spending a lot of money on advertising, and can’t advertise without making money from subscribers.

Too many competitors

Try typing the word “Coupon” in Google’s search and you will be inundated with paid ads for coupon websites, such as dealfind, livingsocial, teambuy, etc… These competitors are growing and their business model is much better than that of Groupon because they rely a lot of traffic from social networks.

Groupon is shrinking

Whether it’s due to the first point or the second point, it is now a matter of fact that Groupon is shrinking when it comes to traffic. While its traffic reached a high of 33 million US uniques back in June, it has now decreased to merely 14 million US visitors, which is 40% of its traffic a year ago. Take a look at the below graph:

Figure 1: Groupon's 12 Months Trend

groupon.com’s traffic for the past 12 months – notice the decreasing trend (courtesy of compete.com)

If the trend continues, then Groupon will lose 50% of its current traffic in 2012, and then lose another 70%-80% of its traffic in 2013, etc… Groupon will definitely be the equivalent of MySpace in the coupon area.

In my opinion, Groupon is currently just another RIM – there is nothing – absolutely nothing – that can save it at the moment, the only thing that they can do right now is to kick the can forward (by spending more money and exhausting all the credit that they have or can have), until large investors notice what’s going on. There is no sane bank or investor on this planet who will agree to lend more money to Groupon based on their current balance sheets. To answer the question in the title of this post – yes, Groupon will go bankrupt, and I suspect they will file for chapter 11 in 2013 or 2014.

By the way, this latest farce with the mistake that they made in their balance sheets is the first in many, many farces to come. Jump ship now or else you’ll regret it. I am confident that this stock will close the year as a penny stock (below $5) – that is, if GRPN remains listed.

The nice thing about public companies that consist of websites is that the performance can be easily guessed based on their traffic (along with a combination of public information – such as increased/decreased spending). I still don’t understand how come most investors don’t even check the traffic for the websites of these companies before investing in them.

PS: GRPN is down today for nearly 12%, and will most likely close at around $16.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

The Canadian Stock Market had indeed caught the attention of the investors since 2008, being supported by an economy that was resilient to the economical downturn that started then. In fact, here are some facts about the Canadian economy:

  • Most of the jobs that were lost during the brief recession were in the automotive industry. Most of these lost jobs returned.
  • Home prices were affected in 2009, but only in the West – only to regain their previous strength back in 2010. Home prices in Atlantic Canada, Central Canada, and the Prairies kept rising throughout 2011. Now they have somehow stabilized.
  • Bank of Canada rates were kept low for the sole reason to ensure that the Canadian loonie remains at par with the US$. In fact, if the Bank of Canada increases the rate to stem the economy a bit, then the economy would fall back into recession again because Canada will no longer be able to export its products and can no longer provide services at a reasonable rates to its US neighbor because of the high loonie (by the way, Canada is the US largest trading partner, and the trade balance between the US and Canada is acceptable and fair, unlike the one between the US and China, which highly favors the latter).
  • The Canadian economy is subsidized either directly or indirectly by both the Canadian and the Provincial governments. Large Canadian companies are highly protected by the government and they are never allowed to default.
  • Canada has a very diverse economy that is balanced between services and commodities/resources. (so if one is affected, the other is there to make up for the loss)
  • Canada is one of those rare countries with a sustainable trade surplus. Canada’s expected trade surplus for 2012 is about $8 billion – $10 billion.

Now, since the Canadian stock market is directly associated with the Canadian economy, it is easy to deduce that the Canadian Stock Market is healthy, but the question is, is it the best?

Let’s see briefly discuss the most important stock markets today to answer the above question:

  • The US Stock Market: Currently recovering, but it is still very, very volatile due to the constant influx of good/bad news every single day. (Consumer confidence is good, oh no, scratch that, new house sales drop, oh no, scratch that, exports increase by 1%). If you’re into VIX, then the US stock market is the best in this day and age.
  • European markets: The worst at the moment. European markets are directly affected by what’s happening in Europe, especially the dilemma concerning the PIIGS countries, which, for the records, is still in its beginnings. Even the German market is not good to invest in because Germany will most likely end up paying the bill for all the PIIGS countries, as well as helping the rest of Europe (including its beloved France).
  • Chinese market: Has lost its momentum end of last year. No longer exciting and the economy is definitely cooling in China. China, by the way, may bring the rest of the world into recession (with the exception of the US and Canada) if it does go into recession – and many analysts are predicting that this will happen. China has grown into a superpower because of its cheap prices/labor, but now that its GDP per capita is $8,400 – China can hardly be considered as cheap. If the trend continues, then China will not be able to sustain its foreign investments that were lured by cheap labor. Most likely there will be a shift towards countries that are cheaper such as the Philippines, other Asian countries, and West African countries (where China is becoming increasingly dominant).
  • Hong Kong market: Strongly tied to China and its economy. If China does well, this market will do well. Judging from the state of things, this market will not do very well in the medium to long future.
  • Japanese market: Many Japanese companies, including Sony, Sharp, and the likes are losing tons of money every year. I hardly think of such a market as inviting. Additionally, Japan has many, many financial and demographic issues (including an increasingly aging population). Japan’s economy can only get worse. I feel sorry for Japan because I always used to love Japanese products. In fact, the laptop I’m writing this article on is a Sony Vaio laptop that is made in Japan.
  • Asian markets (with the exception of the Chinese, the Japanese, and Hong Kong markets, which are discussed above): Flourishing at the moment but lack some transparency. Might be a good place to put your money in. Asian companies, especially Malaysian and Indonesian are benefiting from a boom that was previously experienced by China and India.
  • Australian market: Has remarkable ties to China, but is also interconnected with emerging economies in South-East Asia. Has some potential, but Australia’s economy is characterized by a lack of dynamism. Maybe it’s the nice weather all year around.
  • Russian market: Very risky and certainly not the most transparent market on this planet. Additionally, by putting your money in Russian markets, you will be raising more than a few eyebrows, especially when it comes to the IRS and the FBI. I would avoid it.
  • Indian market: Not that bad but not that good either. Completely unexciting and heavily attached to the US market. India is currently losing the “call center of the world” position (which means direct loss of a lot income) to the Philippines, a country qualified by a population that is fluent in English. (The Philippines was occupied by the US for about 50 years, from 1898 until 1946, and its population was very quick at learning the American English – in fact, if you happen to reach a call center in the Philippines you won’t even know it as the person on the other line, who is potentially 10,000 miles away, has almost no accent.)
  • Middle Eastern markets: Small markets but can be lucrative. Hard to invest in as most streamline brokers do not provide their investors tools to invest in these markets. Volatility is high at the moment and there’s always a risk of losing nearly all your money in these markets because of the lack of transparency (this actually happened in the Saudi market back in 2006-2007). Immensely dependent on oil. If oil goes down sharply then all listed companies in these markets go down, and vice versa. Watch out!
  • Latin American markets: Very risky markets and lack transparency. Most Latin American markets are overvalued due to the huge hype they have. One word: Argentina.
  • Canadian market: Supported by one of the largest and the best economies in the world – as well as the soundest financial system on this planet. Has huge exposure to the US market and benefits from the increasing demand on its securities primarily from US investors, and then Russian and Chinese investors. Canada has acted as a role model to other countries (especially failed countries – for example Iceland is debating whether to adopt the loonie as its national currency) during the latest financial crisis by gracefully weathering its effects despite the strong US-Canadian ties. Some caveats: 1) An aging population, 2) Many benefits (including free healthcare, subsidized education, and a lot of other perks), and 3) many pet/useless projects.

So, is the Canadian stock market the best? Definitely! There are other markets that are also good (as you can see from the above), but none of these markets offer the balance of transparency, fluidity, and stability that the Canadian market offers. What are you waiting for? Buy some shares in Canadian companies, just avoid putting any money in RIM until it revamps itself (which may or may not happen).

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

It’s that time of the year again, where everyone is doing his or her taxes. Instinctively, we report every income we received in the previous year in our tax return – but how about that $2,000 tax refund we received back in last year? Does it count as income?

I will discuss the issue of taxation on tax refunds only for Canada, and not for the US – because while the tax code in these countries is very similar, it is slightly differs when it comes to how tax refunds are handled.

So, do I have to report tax refunds on my tax return in Canada?

No, you do not. The thing is, from CRA’s (Canada Revenue Agency) perspective, the money that you have received on your tax return was money that you was already taxed in the previous year – so it doesn’t make any sense to report it again and pay tax on it (again, that money has been already taxed).

Think about it this way: You made $50k last year, and you paid $20k in taxes. After submitting your tax return, the CRA and the Provincial tax agency both decide that you have overpaid for taxes, and you should have only paid $18k, which means that for the whole $50k, you should have only paid $18k, thus you overpaid $2,000 (which means you will be refunded that amount). The $2,000 was already taxed and accounted for in the $18k. I think I have explained it in a way that couldn’t be clearer.

Note that this applies across the board for any type of tax refund, and it is regardless of whether the tax refund is federal or provincial.

Again, in the US, tax refunds are treated differently and may be subject to taxation.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

The NASDAQ yesterday briefly hit the 3,000 milestone, which is a major milestone not seen since November of 2000.

Let’s look at the NASDAQ chart for the past 20 years:

NASDAQ  Past 20 Years

Figure 1: NASDAQ Chart for the Past 20 Years (courtesy of Google Finance)

I think we all should cede to the fact that this is a solid proof that despite all the rumors and all the sayings and all the analysts’ opinions, the economy is doing well. But is it the good economy that lifted the NASDAQ, or is it Apple? Let’s see…

Each AAPL share has increased by a $139.18 since the beginning of the year (or 34.37%). Considering there are 932.37 million AAPL shares in the market, this means that Apple (which is a the top NASDAQ ingredient) alone has added 932,370,000 x $139.18 = $129,767,256,600 – about $130 billion to NASDAQ. The total value of the stock market (less than a year ago) is about $23.34 trillion, and that number is for both the NYSE and the NASDAQ, which means that $130 billion cannot be considered as a mere “change” when it comes to the the NASDAQ. So, we can safely say that the NASDAQ reached the 3,000 level because of Apple, and not because of the good and improving economy. But now the question is, will the NASDAQ sustain the 3,000 level (once it stops the flirting process and actually closes for everyday on one week above that level) – or – in other words – will the 3,000 level be a solid support level?

The answer lies in Apple’s upcoming products – both the iPhone 5 and the iPad 3. If both of them flop, then expect the NASDAQ to withdraw back to its normal, two-thousand-something level, for a long, long time. If, on the other hand, these two products prove to be hot sellers like their predecessors, then it’s very possible for the NASDAQ to break the 4,000 level before the end of the year – regardless of the performance of other companies.

But, how much should AAPL be in order for the NASDAQ to break above the 4,000 level? Well, let’s see: since the beginning of the year, AAPL went up about 35%, while the NASDAQ went up about 15%. So, when AAPL goes up by 1%, the NASDAQ goes up by 0.42%. In order to reach the 4,000 level, the NASDAQ has to go up by about 33%, which means that AAPL has to go up by 78%. So, considering a static market at all other levels, AAPL has to go up 78% or reach $968 ($32 shy of $1,000) in order for the NASDAQ to reach the 4,000 level. Is this a very hard achievement? I guess it is. Is it impossible? Well, I have learned that there is nothing impossible for Apple (I still think though that Apple is now growing because of its formal glory, and once investors and consumers start hating this company, then it’ll be the beginning of the end).

Regardless of everything, I think it’s a positive sign that the NASDAQ reached this level – and I hope that this move will restore investors’ confidence in the market (whether that confidence is rightfully earned or not is another story – because I think investors’ confidence should be based on the whole economy, and not just on one company).

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

“No one gets out of here alive!” – I think we’re all familiar with the statement. At one point, all of us will die. But, one might think, “what will happen to my stocks when I die? Can they be part of my will? And who takes them if I have no inheritors?”

Well, first of all, stocks are possessions, so they can be part of your will. So when you die, your inheritor(s) (according to your will), will be able to smoothly acquire the stocks from your broker.

Now, if you don’t have a will, then your stocks will be distributed to your inheritors according to the law. Your inheritor(s) can send your death certificate to your broker along with all the legal documents (entitling them to inherit your stocks). Your broker will then forward it to all the companies that you have stocks with, and these companies will then reassign your shares to your inheritor(s).

If you don’t have any inheritors (which is very unlikely), then your stocks will be assigned to either your state or to the federal government (they won’t be given back to the issuing company). But this will be a very lengthy process and most likely you will end up having inheritors that you have probably never met in your whole life (inheritors tend to smell the money even when they’re thousands of miles away). Additionally, keep in mind that if you died while carrying any debt, then all your possessions might be sold in order to settle all your debts.

It’s amazing that you work all your life to accumulate a great wealth (you trade stocks, real estate, you name it!), and then you die, and you take not a single penny with you!

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

I know, it’s the end of the month, you’re a bit strapped on cash, and you have to make that credit card payment – or else!

Now, you think, hey, I owe about $1,000 on my credit card, what if I buy an LED HDTV (55″) for about $1,500, and then return it in a couple of days. Wouldn’t the return count as payment towards my credit card bill? Well, I had the idea yesterday, and that’s why I decided to investigate about it!

I called TD Visa (Toronto Dominion’s Bank Visa Division) and I asked the following question to the assistant on the other line (here name was Lisa, by the way, and she was very, very helpful): “Let’s say I owe $1,000 on my Visa, and then I bought an HTDV for $1,500, and then returned the TV a couple of days later, wouldn’t the refund for the TV considered a payment?”.

To my surprise, she gave a very fast and firm answer: “No, the $1,500 would be used as a credit to your account, and not a payment towards your balance”. I then told her I’m writing an article on my website about it to inform the public about this scenario, and I just wanted to know more information about it since the only answer I could find on this topic on the Internet was on Yahoo answers, which makes the answer completely unreliable. The reason why I was surprised is that I thought that first level assistants will probably not know how to answer such a question.

In any case, I then asked her: “why isn’t the $1,500 considered a payment?” Her answer was that if this is the case, then people will abuse the system and nobody will have to pay his or her credit card bill ever (unless, of course, s/he’s near the maximum credit allowed). So, in case refunds are considered a payment, then people will buy products that are more than their balance every month, and then return them a few days later.

I then proceeded, “but why would the credit card companies care about this, don’t they take a cut that is worth anywhere between 2% or 3% of the whole transaction amount (not to mention, of course, transaction fees)? Isn’t it better for them if people buy more products and return them?” Her answer was: “No, credit card companies have to pay merchants their money from real sales at one point, and if all people are delaying their payments nearly indefinitely, then credit card companies won’t have any money to pay the merchants. Additionally “, she continued, ” merchants suffer from this situation as well, because they will have to sell the returned items at a discounted price”.

I thanked for her time and I started writing this post. And while I was writing it, I started thinking of the very negative side effects that we will have on the economy if credit card refunds are considered a payment.

There is one thing that you should keep in mind, if your credit card bill is $1,000 and one of the items in that credit card statement costs $400, and if you return that item in the next month, then the owing balance will be only $600 (the refund will count towards a payment on your initial bill). Please note that some banks allow this (I know that TD allows it, but maybe it’ll change it’s policy about it), and some banks don’t.

If you have read this post and you still didn’t understand what the answer to the main title is, then let me say it again: “No, credit card refunds are not considered a payment!” and “No, you are not smarter than your credit card company”. Remember that credit card companies have dealt with billions of cases and they have ironed their system to their best advantage, and not yours. So don’t think that there’ll be day where you can sucker them!

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

February 24, 2012 | In: General

How Do Banks Process Payments?

Let’s say you’re one of those people who execute many bank transactions a day: you make and you receive a lot of payments from/to your bank account. Naturally, at one point, you might run into one of the following situations:

  • You make a payment from your account, taking your balance to a below-zero figure, and then immediately receive a payment to your account, taking your overall balance above zero.
  • You make several consecutive payments from your account, where the first payment lowers your balance to below 0, and then make a payment later in the day that will take your balance above 0.
  • You make a big payment to your bank account, and then make several small debit transactions while still maintaining your account above 0.
  • You make several small payments to your bank account, and then make one big debit transaction while still maintaining your account above 0.

The reason for you to be worried because in any of the above scenarios, you are at risk of being hit with an overdraft fee, often more than once, and that’s why you want to know how banks process your payments.

The first thing to know is that each bank has its own method of processing payments – most banks use methods that are optimized to maximize their profits. Let me list all the commonly used methods and how they work:

Method #1: Transactions Are Processed in a Chronological Order: In this situation your bank is fair. So, let’s assume you had $50 in your account. You bought a cup of coffee for $5, and then you went to an electronic store and bought an iPad for $500, and then you funded your account with $600. In this case, your bank will charge you an overdraft fee because at one point during the day, your balance went below 0.

Method #2: Debit Transactions Are Processed First: In this situation your bank is a thief. Let’s say you have $30 in your account, you make a payment of $100 to your account, and then you go and have dinner with your significant other for $40. The bank will first process all the debit transactions, and then all the credit transactions. Which means that in your case, the bank will process the $40 payment for the dinner first, which will lower your balance to -$10 (which means that you will be hit with an overdraft fee), and then it will process the credit payment of $100.

Method #3: Large Transactions Are Processed First: In this situation your bank is a transaction manipulator. Let’s say you have $30 in your account. You then fund your account with another $30. You then make a purchase of $50. The bank will take your largest transaction, and then process it first, and then process the second largest one, etc… Which means that the first transaction to be processed is the $50 purchase (lowering your balance to $20, and thus charging you with an overdraft fee), and then the $30 payment is processed. It has been reported that this method is used by most banks in the US and that this practice is currently under investigation by the current administration.

Method #4: Small Transactions Are Processed First: In this situation your bank is also a transaction manipulator. Let’s say you have $10 in your account, and that you fund your account with $100. Later in the day, you have lunch with a friend for $20, and then buy a small gift for $30 for your nephew. If the bank is processing small transactions first, then the first transaction to be processed is the $20 for your dinner with your friend (lowering your balance to -$10), and the second one is the gift purchase (lowering your balance to -$40), and the forth one is the $100 credit payment (upping your balance to $60). Now since debit payments are mostly small payments, and credit payments are mostly large payments, then this method can really ding you with multiple overdraft fees constantly if you’re not careful.

Method #5: Transactions Are Summed by the End of the Day: In this situation your bank is very, very fair. The bank will calculate your balance by the end of the day, and if it drops below 0 (regardless of the order of the transactions), then you will be charged an overdraft fee. If it doesn’t, then you’re safe. Note that this method is also the best because you will only get charged an overdraft fee once, regardless of the number of times you went below your balance during the day.

I have noticed that if you call the bank immediately about the overdraft fee, they can waive it for you if it’s the first time. Overdraft fees are really heavy, and for buying a small bar of chocolate that is worth no more than $1, you might be charged an overdraft fee of $45 (that’s one expensive chocolate which probably wasn’t bought at one of these duty free outlets at your local airport!).

Banks are really artistic when it comes to charging you overdraft fees, and you usually are charged overdraft fees as many times as you go below your balance according to their calculation. As a rule of thumb, try to have at the beginning of the day enough funds to cover for all of your purchases and other debit transactions throughout the day, regardless of the credit transactions that you will make – this will ensure that your account will not be dinged with exorbitant fees everytime you make a debit transaction.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

I remember reading a long time ago that Microsoft helped Apple survive, and in return Apple gave Microsoft a lot of shares at dirt cheap prices (they weren’t dirt cheap back then because Apple’s range of products was exciting only to its very few fanatics). Additionally, it seems that also Apple agreed not to sue Microsoft over anything anymore – this non-public agreement seems that it’s still enforced by Apple (which, by the way, surpassed Microsoft when it comes to market capitalization back in 2010) until this very moment.

According to several resources, Microsoft gave $150 million to Apple in return for 18.18 million AAPL shares priced each at $8.25 back in 1997. Now how much was AAPL back in 1997? Well, let’s look at the below chart:

Figure 1: AAPL in 1997 and in 1998 (courtesy of Google Finance)

We can easily see from the chart above that AAPL did not even break the $7 level back in 1997 – so, was Microsoft suckered into this deal? Well, apparently not, as stated earlier, the deal was publicly about helping Apple, but secretly about buying Apple’s silence about the patents’ claims. Microsoft was a clear winner back then, but in retrospect, I’m sure that neither Bill Gates nor Steve Ballmer (one of the world’s worst CEOs in 2011) were the real winners – it was Apple.

Microsoft held these shares for a while and then sold them for an undisclosed amount, probably back in 2000 (for a healthy profit of almost half a billion, most likely when Apple was trading at the $33 level – just before the NASDAQ collapse of 2000).

Now, what if Microsoft did not sell its AAPL shares?

Well, first of all, Microsoft would have owned about 2% of the world’s most valuable company, and, the 18.18 million shares would have added $9.26 billion to Microsoft’s value (at the current price of about $509.46 for AAPL).

Was it a wise move for Microsoft to sell its Apple shares? This is the stock market, and regretting a buy trade or a sell trade is the worst thing that an investor can do. But, again, was it wise? I think the answer to this question would be, if they knew then what they know now – and if they did, they probably wouldn’t have given the money to Apple in the first place and left it to die.

Microsoft now owns a few percent of Facebook. Will it sell these shares at one point? And more importantly, will it wish it didn’t sell in the future? Only time will tell!

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.