Fadi El-Eter

Most investors, before investing long term in a company, are interested to know what is the dividend that the company offers for its shareholders. The easiest way to know the dividend of a stock (in the US market) is to visit Yahoo’s finance page for that stock.

For example, let’s say that you want to find CSCO’s dividend, you go to http://finance.yahoo.com/q?s=csco . If you want to find the divided for MAS (Masco Corporation), you go to http://finance.yahoo.com/q?s=mas, so all you need to do is just replace the bold part with the stock ticker of the stock that you want to know the dividend of.

Now let’s check CSCO’s page on Yahoo finance (by visiting the link above):

We can see from the above that CSCO is paying a dividend of $0.24/share, which means that if you own 1,000 shares with CSCO – currently worth $18,180 – you will make $240 every year, about 1.3% of your initial investment. So, if you’re just there for dividends, then you’re there for the wrong reasons.

As for MAS, it is currently priced at $9.45 and is paying a dividend of $0.30/share. Which means that if you own a 1,000 shares with MAS worth $9,450, you will make $300, which is about 3% of your initial investment. Not that great but not too bad either, if you take into consideration the bad economy. However, keep in mind that MAS lost 25.36% of its value this year, which means that you would have lost 22.36% (if you bought MAS at the beginning of the year) even after taking the dividends into consideration.

Always remember, a high dividend is not a sign of a good stock.

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.

While writing an article yesterday on how much money you can make with stocks, I was trying to calculate how much money a day trader makes per year provided he makes 0.75% of his investment every trading day, so I needed to know how many trading days approximately there are per year. I assumed in that article article (for easiness sake) that the number of stock trading days per year is 261 days (Mondays through Fridays of every week – since we have 52 weeks and 365 days, then the number of stock trading days is 365 – 52 x 2 [the 2 is for Saturdays and Sundays] = 365 – 104 = 261 trading days).

Obviously, the number above does not take into consideration the US holidays, so how many days of statutory holidays are there in the US? Well, after research, I found out that there are 9 days of federal holiday in the United States (the stock exchange has to be closed on each of these days as federal holidays are observed nationwide). I know what you’re going to say, that sometimes holidays fall on a Saturday or a Sunday, however, keep in mind that in the US if a fixed-date holiday (fixed date means that the holiday falls on a constant date, such as Christmas, and not on the first Monday of September, for example, which may be anything between September 1^stth) falls on a Saturday or a Sunday, then the market closes for one day (usually the Monday).

So, now that we know the total number of working days per year, and the number of holidays, we can deduce that, in general, the number of stock trading days per year is 252 days (261 days – 9 days).

Note

There are two federal holidays that are not observed by the US markets: Inauguration Day and Veteran’s day.

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.

Everytime one of my friends knows that I trade stocks, he immediately asks me this question: “How much money can you make off stocks?” My immediate answer is that you can make unlimited amount with stocks. In fact, stocks can make you rich in a very short amount of time. So, the response is infinity once you have the necessary experience, and the patience and discipline needed to trade stocks.

Now infinity is a very nice number, but it’s not very realistic. Because stock trading does not only consist of making money, it also consists of losing money, and you may lose 10% of your investment in one day the same way you can make 10% of your investment in one day (you’d know this if you’re trading BAC nowadays).

So, realistically, how much money can you make off stocks? I’d say anything between -5% and +15% a year if you’re not an active trader, and 5% every month if you are an active trader with some experience, and about 0.75% per day if you are a day trader and you trade stocks for a living.

Let’s examine these results in details:

You are not an active trader

– Let’s say you start with an initial amount of $10,000. Let’s say that you are not that lucky and you lose 5%/year, this means that you make -$500 (negative 500).
– Let’s say that you invest the same amount, but you make the maximum of 15%/year. This means that you will make $1,500/year.
– Let’s say that you make the average of 5%. In this case you will make $500/year.

Obviously, stock trading is not very lucrative if you’re only trading for fun.

You are an active trader

– If you start with $10,000, with an average return of 5% every month, then this means that you will make about $8,000 in a year ($7,958 to be exact), which is 80% of your investment (assuming that you re-invest your profits every month). It’s obvious to see that the game changes completely for you if you are an active trader.

Note: Active does not mean stock trading for living, but it means that you trade stocks ever day or so. (Some banks refer to Active Trader as someone who makes 30 trades every quarter [here’s a comparison of active trader programs at Canadian banks], I think an active trader should be someone who makes at least 30 trades every month).

You are a day trader

– Again, if you start with $10,000, but this time with an average return of 0.75% every day, then you will make $59,777 (almost $60,000), which is almost 600% of your initial investment (based on 261 stock trading days and assuming you re-invest your profits every day). When you are a day trader, the sky really is your limit, provided, of course, you know how to trade and you rigorously follow the first rule of day trading: “By the end of the day you should not have any shares in any company.” Note that in some days you may lose money when you sell by the end of the day, but this shouldn’t deter way nor should it make you waiver from the first rule of day trading. Day trading seems to work for many investors. You must understand though that day trading can be a very stressful job, and may lead to heart problems if you’re the worrying type or if you’re investing money that you actually need.

So, again, you can make a lot of money with stock trading, but remember, to make a lot of money, you need to take stock trading seriously (e.g. trade every day and not treat it as a hobby), and also need to possess the qualities of a good stock investor.

Final word of advice: Stock trading can be stressful to the point where you become an obnoxious person if you don’t control yourself – on the other hand, stock trading is always, always, fun…

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 was buying an item the other day and the merchant gave my credit card to his assistant to make a copy of it. I immediately refused, not only that, I stated that he is not allowed to make a copy of credit card because it is in Visa’s terms that they’re not allowed to do so. He then refrained from making the copy, and apologized.

Of course, I didn’t know whether it was in Visa’s terms to actually allow a copy of the credit card or not, but I knew he didn’t know either, and that’s why I said that. I just didn’t want anyone to have a copy of my credit card (the merchant had my full address, my phone number, and by making the copy he will have the credit card number and the expiry date and the CVV [Card Verification Value], so he can make a purchase with my credit card online if and when he wants). So, can he really make a copy of my credit card or not? And why does he need to make a copy anyway?

After a heavy research, I couldn’t find an answer to my question. Even when I called the Visa department at my bank, they were reluctant in answering (I think they didn’t know the answer in the first place). However, let me give you some facts:

– Fact #1: PCI Requirements (Requirement for companies processing credit card transactions) clearly state that, while the merchant can store the credit card number and the expiry date, he can never ever store the CVV (Card Verification Value). These are Visa and Mastercard rules (so if an offline merchant makes a full copy of the credit card, then he will surely have the CVV, which is not allowed online).

– Fact #2: If, for any reason, a merchant tries to make a copy of your credit card and you refuse, then he may refrain from processing the transaction altogether (or revert the transaction if it’s already made), or just apologize and not make the copy.

– Fact #3: When you go to a store and try to subscribe to a service (such as a phone service), they usually make a copy of your credit card in order to automatically bill you every month.

– Fact #4: There is no reason whatsoever for the merchant to make a copy of your credit card. Even if you try to subscribe to a service, then they can just enter your credit card information into a system without copying it.

– Fact #5: All banks in the US and Canada will revert back any unauthorized charges to your credit card.

– Fact #6: There are some unconfirmed reports about Visa stating that it’s now illegal to make copies of the credit card.

– Fact #7: No one will give you a definitive answer to the question: “Can a merchant make a copy of my credit card?”

After examining all these facts, I think the only answer to this question is non-conclusive: “Nobody seems to really know”.

I will try to bug Visa again to see if they can give me more information, but until then, if a merchant tries to make a copy of your credit card, remember that you can refuse (the merchant will most likely not make a fuss out of it if he wants to close the sale).

On a related note, Visa is now trading at $94.07 (P/E of 22), and I think it’s overvalued as Visa is trying to compensate for the slow economy with higher fees, which will eventually backfire.

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.

Following this week’s drop of around 12%, which drove down AMZN $30 from around $236 to $206, one has to wonder: how much is Amazon worth? And is Amazon really worth $94 billion at the current price? Or is worth less?

To answer this question, let’s examine Amazon’s business, its current and potential competitors, and its potential and prospects on the long run…

What does Amazon do to make money?

Well, Amazon started out as a company that sells books, and then expanded to selling multimedia items such as movies and CDs, and then expanded to sell nearly everything (with the exception of cars and houses). Amazon usually sells at competitive prices, but sometimes your local store sells the item for less when that item is on sale. In any case, Amazon has a successful business model and it is highly trusted by its customers (although there are lots of fake/paid reviews on Amazon by the so-called “top-reviewers”).

Amazon also sells Kindle, an electronic book reader, that a lot of people who love reading books were duped into buying at an exorbitant price. The Amazon device can only read books. Compare that to the iPad and the Samsung Galaxy Tab (which, in my opinion, is the best tab currently on the market, but don’t take my word for it – do your research first) that can do nearly everything a PC can do, and can read books. Amazon was able to suck a lot of money from the Kindle, both through selling the now soon-to-be-obsolete hardware and for charging fees to its customers for using the whisper network to download e-books. We all know that Kindle will not stay for long, and here’s why:

– Electronic pads (such as the Galaxy Tab and the iPad) are much better at reading books than Kindle.
– People who buy a pad will not buy a Kindle.
– People who already own a Kindle will be a pad and will read books on the pad.
– People can read many books for free by using any pad, which is not restricted by a technology or a network (you just need an Internet connection).

Amazon apparently understands this and has created the “Kindle Fire”, a 7″ pad, which is supposed to compete with the other pads on the market, taking advantage of Amazon’s vast database of movies, music, and books. The Fire is also very nicely priced at $199 (compare that to $299 for the comparable Samsung pad). But, the Kindle Fire does not have an SD card placeholder, its screen resolution is not as good as its competitors’, it seems to be restrictive when it comes to content, it runs on an unknown OS developed by Amazon, its processor is very slow when compared to others, and it is only created to turn the buyers of the device into cashcows by luring them into buying paid content.

I think the Kindle Fire is a bit too little too late.

Amazon’s competitors

Amazon’s current competitors are really every retailer on the planet with an online presence, from Walmart to Sears. These traditional competitors pose no real threat to Amazon’s business, simply because both Walmart and Sears lag behind when it comes to technology adoption.

Amazon’s future competitors are Apple, Samsung, Sony, and the likes. I think in 10 years the absolute majority of books sold will be electronic. People will prefer streaming movies instead of buying them, and PCs will be dumped in favor of pads. That’s in only 10 years from now! Apple, Samsung, and Sony are racing against each other in order to gain an upper hand in this digital market. Amazon, although once the pioneer in selling digital goods, now lags behind.

Other competitors include Netflix and Hulu…

Amazon’s potential and prospects

Amazon still has a huge potential as its name is trustworthy and it still controls the online retail market. Amazon can leverage that control to sell its products, specifically the Kindle Fire. However, the Kindle Fire, as it currently is, will guarantee Amazon the same fate as RIM. This is because Amazon is using a closed OS (the same way RIM did with its Blackberry phones) which means that users are restricted and have much more less applications than in Android powered tablets, for example (by the way, I think Apple will suffer the same fate as well, but not in the so-near-future).

If Amazon opens up its Kindle Fire and enhances its technical specifications, then it may have a significant chance of controlling the tab market, and consequently be able to maintain its control on both the books and the digital media markets. Let’s just hope that executives at Amazon will not be as stubborn as those of RIM.

Now, after examining the above, how much is Amazon really worth?

Well, if the Kindle Fire doesn’t really fly with the customers, then a P/E of 10 is more than enough for Amazon, which means that Amazon’s stock should be trading at $20 (yes, $20). This is because Amazon will no longer be in control of the online retail market (within 10 years, almost all of the online transactions will happen through pads or through the smartphones – each maker of a smartphone/pad will drive transactions to his affiliates, that may or may not include Aamzon).

However, if the Kindle Fire becomes really on fire, then a P/E of 25 is the best that Amazon can do. Which means that that AMZN should be priced at around $50.

In any case, I think that Amazon is way overvalued with a P/E ratio of over 100 (come on investors, are you sure that Amazon will still exist in 100 years from now)?

I have warned against Netflix before, and now look at the results. Now I’m warning against Amazon, even if Amazon has a great result next quarter (and I doubt that it will, with all the overhead), it’s still overvalued by around 75% (AMZN is now trading at $206). But then again, no one listened to me about Netflix, and probably nobody will listen to me about Amazon.

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.

NFLX is stuck in a downward spiral since July of this year. Let’s look at NFLX chart since then (courtesy of Google finance):

I have warned against Netlfix many times before. In my last post about Netflix, I have evaluated Netflix as a company, and I deduced that Netflix is worth around only $2.1 billion, or $40/share. While I stand by these figures in the short term (for the next few months), I believe that Netflix is doomed as a company on the long term, and most likely will go bankrupt, here’s why:

• Netflix is expanding in emerging and secondary markets at an ambitious rate a scary rate, which is diverting its attention from its primary market: the US market. What’s the point of having mediocre operations all over the world resulting in a mediocre company? It was wiser for Netflix to strengthen its position at home before looking into expanding elsewhere.

• Netflix is constantly hiking prices, and not even listening to its subscribers who are complaining. Netflix’s CEO even apologized for the late rate hike (and the split of the DVD and the streaming service), but did not back down on it. As an investor, I don’t think there’s the slightest chance that Netflix can get away with this, especially after its subscribers noticed the power that they have over Netflix as a company, as well as its stock.

• Netflix’s churn rate will continue to increase, revenue will diminish, and overhead will grow. Many subscribers will flee Netflix in the short and the medium term, which will reduce the revenue, which will lead to constrained budgets for marketing (marketing is critical for Netflix to acquire new customers), which will further reduce the revenue. Overhead will also increase because of all the new endeavors that Netflix is undertaking, especially elsewhere (remember that these endeavors are funded by the revenue from the US operations).

• Competition is looming. Google, Apple, and a lot of mega companies (seeking to diversify their investments) that are very powerful and that have or can acquire the resources to clone Netflix’s service are already working hard to replicate the service. Most subscribers that stayed with Netflix even after it showed its greedy face are staying there because there are no other option. But when there is…

• Netflix is not enhancing its services. Not only Netflix is splitting its services and over-charging customers for things that they do not want, Netflix is no longer enhancing its services, and, for some reason, it’s keeping itself in the dark especially when it comes to mobile streaming (viewing movies on your smartphone) which has a huge potential in the not-so-far future.

So, let me answer the question of this article. Will Netflix go bankrupt? Most likely, if it continues ignoring its customers and treating them as if they were morons and/or cashcows. Does Netflix has a chance? I believe that at this very moment, the door is still open for redemption, but Netflix should implement the following, fast:

• Show Reed Hastings the door, and once he’s out, ask someone who understands Netflix’s subscribers needs to step in instead. Once that someone is in, Netflix should lock the door and never ever allow Hastings to get in again.

• Revert all the price hikes that Hastings imposed on Netflix’s customers. The stock price was better off without the price hike (just compare the stock price before the stock price and today).

• Sincerely apologize to its customers and make Hastings a genuine scapegoat. Netflix should blame everything negative that happened to the company on Reed (he does deserve the blame after all).

• Freeze all the expansions, and focus on restoring things to normal.

• Try to team up with Google especially when it comes to marketing and mobile streaming (this will make Google an ally instead of a competition). Apple will never agree to any partnership with Netflix.

• Reassure customers that no price hikes are planned in the near or medium future. (My personal opinion that it was very low of Netflix to hike the prices especially when we’re still in the middle of a recession).

• Focus on mobile streaming. As I stated before, mobile streaming has a huge potential and may become a cash cow in the not-so-distant future.

I think if Netflix follows the above, then it may, just may, have a chance in survival. In any case, I would stay away from NFLX until it reaches $40.

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.

CNN is one of the largest news channel in the US, and most likely the largest in the world. Since CNN is that important, it must have needed investors’ money in order to expand, and thus it must be a public company, and thus it must have a stock ticker. Right?

Well, while it’s true that CNN needed (and still needs) investors’ money to expand, it is not listed, and it doesn’t have a stock ticker. Why, well, because CNN is owned by the media giant, Time-Warner. Time Warner, however, is listed on the NYSE, and its stock ticker is TWX (so there is no stock under the ticker “cnn”).

Here are some technical information about Time Warner and TWX:

– Market Capitalization: Around $36 billion
– Number of shares: Around 1 billion
– Current stock price: $34.77 (valid as of October 24^th, 2011)
– P/E ratio: Around 15
– Industry: Entertainment
– Main companies belonging to Time Warner are: CNN, Warner Bros. (producers of Harry Potter movies), and HBO. I believe CNN is the largest Time Warner subsidiary.

I’m not sure if TWX is a good stock long term, mainly because people’s habits when it comes to getting their news and information may change in the future. I personally avoid all companies that provide news services, whether online or offline.

The year 2011 is almost over, and those who bought stocks (especially bank stocks) at the beginning of the year lost a lot of their investments. Stocks, with the exception of few (such as AAPL), were not a good investment for 2011, for many reasons that relate, in essence, to the economic crisis that is now spreading in Europe and that will probably touch China and the rest of the world in the next year or so (it’s a vicious, vicious cycle).

So now we know, for a fact, that 2011 was not the best year for investing in stocks. But what about next year (which is almost upon us), will stocks be a good investment in 2012?

Let’s examine some facts:

• Stocks are currently undervalued: BAC is trading at less than $7 (it reached $5 a few weeks ago), C is trading at less than $30, RIG is trading at around $50… There are just so many opportunities for next year, and I’m sure in January of 2012 all these stocks will experience a very strong January Effect (imagine all the sells in December to claim for capital losses and all the buys in January for the same stocks).

• World economies are getting worse: Greece was the first one to get hit, then Portugal, then Spain. Now Italy. Even France is threatened to lose its AAA rating. Debt problems are starting to emerge in China and other, smaller economies. World economies are definitely going in a not-so-good direction. This will have a huge effect on stocks (especially financial stocks) that will experience swings (there will be very high volatility). Most likely the majority of stocks will drop like crazy if the world economical situation becomes really bad.

• Inflation: After a few years of deflation, inflation will start hitting hard. Inflation has already spread in China, India, and other developing countries that have a huge weight in the market. Inflation is already past the food prices barrier all over the world, which means that the next barrier is consumer products. What does this mean? This means that stocks will go up, just like everything else, to adjust for the new inflated prices.

• Dollar versus other currencies: It seems that the dollar is now regaining its strength against all other major currencies, including the Euro (that may disappear in 2013). Traditionally, the strength of stocks is inversely proportional to that of the dollar, which means that, if the dollar continues to appreciate against other currencies, then stocks will go down.

• Political instabilities: There are so many political instabilities all over the world. These political instabilities may grow bigger and may affect developed countries (they already are) either directly or indirectly. Such political instabilities can be bad news for most stocks, except maybe for stocks of companies profiting from these instabilities (HAL, anyone?).

• Optimism: Investors are optimistic by nature, and a lot of them think that since 2011 was a very bad year, then 2012 must be a much better one. Optimism may lift the stock prices up.

Now after we examined the above facts, let’s try to answer the question, are stocks a good investment for 2012? Well, it depends, here’s what I think myself:

– Bank and insurance stocks should be avoided.
– Stocks relating to the strength of the Asian markets should be avoided.
– Resilient stocks such as Apple and Google should be purchased.
– ETFs can make a lot of money if played correctly, especially ETFs related to oil.
– IPOs should be avoided at all costs (especially the Facebook IPO).

I think 2012 will be a good year for stocks, well at least better than 2012, but, as I mentioned before, avoid bank stocks, focus on ETFs and resilient stocks, and you should be OK.

One last note: The days where you purchased a stock and forgot about it are long gone, you need to always track your portfolio, sell for profits and buy on opportunity whenever you can.

One of the questions that I always get from new investors is: “OK, now I know how the stock market works, how stock prices are set, and I want to join the game! But, I still don’t know where I can buy stocks!”

The answer to this question is easy: “Just call your bank!” – That’s right, all you need is to do call your bank and tell them that you want to trade stocks and they’ll help you. Let me explain…

Most (if not all) banks in the US, Canada, the UK, Australia, etc… act as large stock brokers, so what they do is that they have something called “investor accounts” (In BMO – The Bank of Montreal – it is called BMO Investorline). These investor accounts are made for any type of investor who wishes to trade stocks. When someone opens up an investor account with any bank, he is typically provided with an online interface where he can trade in the market (equities and options) from the convenience of his own home using his computer (it’s just about choosing the stock that you want to buy/sell, enter the number of shares, and click on buy/sell). Typically there is no minimum amount that you should invest (or allocate for investing) in order to be eligible for these accounts. However, you may incur fees if your balance is below a certain limit (for example, the Bank of Montreal charges quarterly fees if your balance in your investor account is below $10,000). Now, how do these banks make money out of you?

The answer is simple: commissions. Bank make money out of commissions. Every time you make a trade you will incur a commission fee, that ranges anywhere between $5 and $30. Additionally, some banks have complicated fee structures where you may incur the same fee multiple times (that’s not very good for your profits!). For example, the Bank of Montreal charges you the commission feefor each 1,000 shares, so if you buy 3,000 shares of SIRI with them, you may incur 3 x 29.99 = $89.97. On the flip side, almost all banks offer a “flat-fee” rate (except for options) if you are an active trader (for example, you perform more than 30 trades per quarter) or if you have over a certain amount invested (most banks set this number at $100,000).

So, you see, getting into stock market is not that hard, it’s just a call to the bank…

Note: All Canadian banks offer their clients the ability to trade stocks in both the Canadian and the US markets. I’m not sure if it’s the same thing the other way around (I mean I don’t know if US banks offer their clients the ability to trade in the Canadian markets as well).

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 discussed RIM many times before, stating that the company is doomed, long before everyone else thought that it was. However, I have never discussed, in details, why the RIM is losing market share. Here’s why I think RIM is consistently losing market share to competitors such as Apple’s iPhone and Android powered phones:

• RIM is providing an unreliable service: RIM’s last stronghold is its blackberry service. But when this service goes down for a few days it does scare away users: why would users stick with a service that is now considered to be intermittent?

• RIM is taking its users for suckers: We all thought that RIM will take drastic measures in order to compensate affected customers for the outage mentioned above, such as free blackberry service for several months, but instead, RIM offered its users free downloads for specific junk (such as games/applications that nobody ever cared and nor will care about). Apparently RIM thinks of its userbase as a bunch of suckers. I personally think that those sticking with RIM after this ridiculous offering should be officially labelled as suckers.

• RIM no longer innovates: When was the last time you heard that RIM had something new to offer (and not another copycat version of an Apple product, such as the PlayBook that nobody seems to care about, and that will be soon be offered for free after vouchers and discounts)? RIM seems unable to come up with something new. They are stuck in 2007 and they can’t seem to think forward anymore. Why would users continue to use RIM’s products when other companies have so much better things to offer?

• RIM’s products are not fully connected in this connected world: Although finally RIM decided to open up its products, that move came a little too late. RIM’s blackberry service still needs a blackberry to run (correct me if I’m wrong….) and nobody is buying blackberries anymore. If you want to connect with your friend using the blackberry service your friend needs to own a blackberry as well.

• RIM’s products are being dropped from large firms: Before, RIM’s products were the smartphones of choice for large organizations (including the US government). Now RIM’s products are being dropped from the buy lists of these organizations mainly because of security concerns and other issues that have to do with the “no-innovation” factor.

• RIM’s products are ugly by today’s standards: A blackberry might’ve been cool 3 or 4 years ago (I always thought the thing was quite ugly), but by today’s standards, RIM’s products are hideous, and their ugliness can only be compared to that of Ericsson’s (Not Sony-Ericsson, just Ericsson) phones that were offered to the mobile market back in 1996.

Finally, if you’re willing to invest in RIM, remember that even RIM top executives are not buying shares in their company anymore. Not a very good sign, huh? Get out, fast!