Tuesday, March 11, 2008

Starting up...

Today marks my first official foray into the murky depths of investing. I'm keeping this blog as a sort of stop gap, to enforce critical thinking about my decisions and to give me a good record of what the hell I was thinking at any given moment. I'm anticipating there'll be a healthy dose of rationalization when I experience some losses, but that's all part of the fun.

A little about myself: I'm 22 years old and run a web development company. I've never invested in anything except a middle-of-the-road online savings account which, thanks to the fed, is currently only yielding 3.55% APY. I think I can do better.

I've started off by transferring $5,000 out of my savings account and into my Scottrade account and making a few buys:
SymbolActionQtyAcct TypePriceTotal

So, one share each of Berkshire Hathaway, Apple and Google.

Berkshire Hathaway, for the uninformed, is Warren Buffet's company. It's a mega-conglomerate that owns a great deal of holdings across a bunch of different industries. Warren has built up this portfolio in a strikingly intelligent manner and managed the business with a flare whose genius I'm sure I don't quite yet comprehend.

After reading his shareholder Owner's Manual (PDF), I found myself really, really liking his approach and perspective. It seems so straightforward, but a lot of what he espouses (slow, long-term, stable growth) is sometimes lost in the fray and trampled by greed nowadays. He makes it absolutely clear that he intends to build the true value of the company by working diligently to improve operations, properly manage float (a great deal of which is provided by GEICO) and by letting the managers at each organization do their job, relatively hands-off.

BRK/B indicates that I bought a Berkshire Hathaway Class B share. A Class B tightly correlates to about 1/30th of a Class A share, though it only holds 1/200th the vote Class A shares maintain. Class A BRK is trading roughly at $131,940. Per share. Needless to say, I'm not exactly able to afford one of those right now. (The stock is at such a high value because it has never split, a tactic further representative of Warren's ideal that you should be in BRK shares for the long haul. It's his nest egg and he wants it to be yours, too.)

By the end of the day, here's where I ended up:
SymbolQtyPriceMkt Value
Total Market Value:$4,967.19

So roughly up $47.40. Less the $21.00 in trading fees, I'm looking at $26.40 profit, or, you know, roughly 0.5%.

My outlook on each of these positions:

I'm going to hold onto BRK/B for the long-term. I've heard some really encouraging things the point to a proper valuation closer to $5,500-$6,000. Some people believe it'll hit that by summer, most people agree it'll get close to that within 18 months. Naturally, people believing isn't enough to make it so, but Berkshire is often considered relatively inflation- and recession-resistant. Mr. Buffet explains as much in the aforementioned Owner's Manual: A recessed market allows Berkshire to pick up on some great deals and buy out some very undervalued companies when the time is just right.

Berkshire should represent some significant growth and present as a relatively low-risk position for me over the next year or so.

Apple's taken it in the shorts since the beginning of the year, sliding 70 points and about 35% from its 52-week high of $202.96. Ouch. Why? A bar set a bit too high, and a penchant for missing expectations. Apple has delivered with the iPhone—an incredibly popular device that should represent a consistent money maker for them. Their latest line of Macbook Pros are gaining market share and since the switch to Intel-based chips, they've seen incredible adoption rates.

So where have they gone wrong? They've had some issues keeping the residuals up with the iPhone. Users are abandoning AT&T and in doing so, cutting Apple's residual check from the telco. Apple's CFO Peter Oppenheimer played the spin game with this issue a few days ago, stating that they viewed it as a positive thing: an indicator of future demand. That's all good and well, but perhaps Apple should be looking for a trap door out of their contract with AT&T that would let them also receive residual kickbacks through T-Mobile. TMO would love to sell the iPhone, I'm sure, and unlocking the device isn't exactly a basic task, though some software is available that makes it much easier.

Add to that a lackluster MacWorld in January, where the best thing going for Apple was a thin-and-not-too-functional version of the Macbook and you see why investors aren't the most excited right now. But watch: we'll see the iPhone continue to be a great seller. Apple will release higher capacities and continue to evolve their iPod line. And they'll continue selling Macbooks and Macbook Pros like hotcakes.

About 45 minutes ago, some news came off the wire that the government of Japan was investigating a potential defect in the iPod nano that may cause it to, you know, erupt into flames. That could ding the share price tomorrow, but I'm guessing it won't have too big an impact. Apple's due to bring back some value, and I'll probably sell if it gets close to $165 or drops below $100.

The GOOG has taken about the same thrashing since the start of the year as Apple. We're talking a very similar story: down 271 points, about 38% from a near-52-week-high of $710 on Dec. 26 to a 52-week-low of $413.62 yesterday. It rebounded today a bit to close at $439.84.

Google's taken such a beating because they simply couldn't keep reporting exceptional growth quarter after quarter. There are diminishing returns and Google's starting to feel the burn of a slip in click-through-rates on their primary product, AdWords. Today's news that the EU has cleared Google's planned acquisition of online advertising behemoth DoubleClick can only help things. This will broaden Google's reach a great deal and make it considerably harder for rival Microsoft to gain the traction they'd like to with their AdCenter product.

Today's approval completes the acquisition for Google. I'm guessing we'll see some afterglow from that announcement tomorrow and some continued growth from the brand to a perhaps more balanced $550 or so over the next three months. We'll see what happens at the Q1 2008 earnings release on April 17th. If they've cleaned house a bit more this quarter, we'll see some positive activity. If they've failed to wow again, we could be in for another market-adjusting slide.

I plan on adding another $5,000 to the pot in the next month or so. I think I'll play that set a bit more closely and try some much shorter term holdings. I'm learning a great deal about things like Dollar Cost Averaging and other fun things like that.

We'll see how this goes.

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