As I hovered 36,000 miles above the ground I turned on to CNBC channel on Jet Blue. Its 9AM on Thursday and Facebook starts trading tomorrow. On the screen comes my favorite man Jim Cramer showing LinkedIn ($LNKD) stock chart, I cannot hear what he’s saying but I keep seeing video snapshots of Facebook “Like” buttons, status updates, etc.

It was obvious that the over-hyped Facebook would be the talk of the day (BREAKING NEWS blah blah) and at 1PM CNBC was going to have a discussion on it which I won’t be able to see. I’ve downloaded the SEC  Form S-1 Registration Statement for Facebook, Inc. which spans 228 pages and I’ll do my best to point out the important parts for your benefit.  The IPO Price is expected to be $36-$39 per share when it trades Friday and the book value for facebook is around $30 so that’s immediate price dilution for the early birds. Disclaimer: I am not a financial advisor & I also don’t intend to get into the $FB IPO bubble and the reasons below show why you should be cautious. There might be a buck or two to be made but overall it’s a bad idea investment wise, Facebook might be a great product but revenue is what shareholders/investors need to get a return on investment.

Facebook has 901 million MONTHLY active users but just 526 million DAILY active users as of March 2012 and there were 372 million in March 2011 so the 41% increase is there so far.

(Sweet Ads huh? I’ll so click on them!)

How Facebook makes money:
Advertising: They allow advertisers to target specific geographic areas or demographics based on what is shared by facebook users in terms of age, gender, etc.  Facebook hopes to get a bigger piece of the advertising pie which as of 2010 data was about $588 billion worldwide.
Payments: Selling of virtual & digital goods by app developers through the Facebook platform which includes things like games. This is a $9 billion industry that Facebook is trying to get a piece of by requiring Payments integration in games on Facebook, and may seek to extend the use of Payments to other types of apps in the future.

According to the income data listed on their page 3 Months Ended 2011 the revenue for Daily Active user was $1.97 and in 2012 was $2.01 which is an increase per user.  They did however spend more money in marketing and research and development so when you factor in Net income instead of revenue their income per Daily active user fell from $0.63 to $0.39.

If we take Monthly Active users (MAU) in 2009 revenue per user was $2.16, 2010 was $3.25 and 2011 was $4.39, net income of $0.60, $1.00, $1.18 respectively per Monthly active user.

Every company has to disclose foreseen risks in their SEC filings and below are a few that stand out:

Mr. Zuckerberg, after our initial public offering will control approximately 55.8% of the voting power. So Mark will have the ability to control the outcome of matters submitted to our stockholders for approval including the election of our directors, as well as the overall management and direction of our company.  VERY NICE! Let’s pay for a piece of the pie controlled by one person who has the power and ability to do as he wishes with your hard earned money.

Our financial performance has been and will continue to be significantly determined by our success in adding, retaining, and engaging active users. We anticipate that our active user growth rate will decline over time as the size of our active user base increases. A number of other social networking companies that achieved early popularity have since seen their active user bases or levels of engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our active user base or engagement levels. A decrease in user retention, growth, or engagement could render Facebook less attractive to developers and advertisers, which may have a material and adverse impact on our revenue, business, financial condition, and results of operations.

The substantial majority of our revenue is currently generated from third parties advertising on Facebook. Advertising accounts for 82% of our revenue and 18% from platforms including Zynga games. As is common in the industry, our advertisers typically do not have long-term advertising commitments with us. Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads and other commercial content in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return relative to other alternatives.
NOTE: As of May 14^th GM just stopped their advertising campaign and others may follow suit as they realize they’re not getting the expected value for their ad dollars.

We expect our rates of growth will decline in the future.
Historically, our user growth has been a primary driver of growth in our revenue. We expect that our user growth and revenue growth rates will decline as the size of our active user base increases and as we achieve higher market penetration rates. As our growth rates decline, investors’ perceptions of our business may be adversely affected and the market price of our Class A common stock could decline.

We currently depend on the continued services and performance of our key personnel, including Mark Zuckerberg and Sheryl K. Sandberg. Although we have entered into employment agreements with Mr. Zuckerberg and Ms. Sandberg, the agreements have no specific duration and constitute at-will employment.

A letter from Mark Zuckerberg (partial)
Facebook was not originally founded to be a company. We’ve always cared primarily about our social mission, the services we’re building and the people who use them.   Simply put: we don’t build services to make money; we make money to build better services.  And we think this is a good way to build something. These days I think more and more people want to use services from companies that believe in something beyond simply maximizing profits.

So there you have it the SEC form dissected, now go invest with your friends!

(Facebook IPO Investors)

K

Please note that this post is 1800 words in length and even though I have tried to proofread it, it might not be perfect but I couldn’t pass up writing about it… Enjoy and do listen to the full audios from the speakers as it was a very interesting lineup.

The StockTwits Symposium at Harvard took place on May 8th from 4pm to 7:30PM and covered a variety of topics including trader & market psychology, technical analysis, fundamental analysis (value investing) and insights on economics data from a money manager.

The lineup featured Todd Sullivan, Josh Brown, JC Parets & Dr Phil Pearlman but there were also a few other intriguing guests in the room including Eli Radke (read his legend!) , EconomicDisconnect blogger, Bob Nelson & Adam Feuerstein.
Todd Sullivan – General Partner at Rand Strategic Partners and author of ValuePlays talked about the benefits and examples of value investing.

His philosophy is to buy assets worth $1 book value for less and sell them for $1. Please note to the novice investors that this doesn’t mean buy stocks that are trading for $1 or less and selling them when they reach $1… in value investing you look at the Book Value or the NAV (don’t always rely on the values on financial sites so do your own research by digging through the 10-k forms of companies). Fore example if the NAV is $10 and the stock currently trades for $5 then the stock is trading at half book value (aka less than $1) and might be a value stock IF there isn’t anything shady or wrong with the company and a great buying opportunity for huge gains down the road.

Todd prefers the balance sheet approach versus looking at earnings of the stocks since earnings can get easily manipulated by companies and the balance sheets are usually reflecting the real picture.  Among the indicators  such as Book Value and NAV (Net Asset Value) he also looks at cash reserves and cash flow of a company.
The time frame for value investing spans from 1-3 years on average and Value investing is NOT a buy and hold strategy.  When asked what screening process he uses to find value stocks Todd replied that no screening process can be applied as there are too many one time events which can’t be accounted in the screening software.

Up next was Josh Brown – Author of the great new book Backstage Wall Street and the Reformed Broker Blog.  Advisor at Fusion Analytics.

A former Wall Street retail stock broker for 10 years during the secular bear market, Josh dropped his series 7 license and he is now a Wealth Manager (Adviser) at Fusion Analytics where he is not commission based but gives advice for a fee and has the client’s best interest in mind. He started off the presentation discussing the power of money and how emotional we are about it as money sometimes represents flexibility, sex appeal, status, safety etc.

Josh is optimistic about the potential America still has as there is a great wealth in this country contrary to what the news media tells us every day. As of April 2012 there were $58.4 trillion dollars in total household assets after debts and liabilities, $28.6 is investable assets some of which is already invested and some is cash. He also argued that home prices have stopped falling and according to Josh the Case Schiller index is a very flawed indicator as it uses only 20 cities.

Of course, Josh also neutralized his upbeat optimistic approach when he mentioned the fact that  now it costs more to live your daily life, with higher gas prices, food prices, health-care costs and their projected costs in the future. He briefly mentioned on the wealth transfer predicted 15 years ago from the boomers that didn’t happen and boomers are now living past the life expectancy of 78 and 25% of them are living past 90 years which complicates things when people plan their retirement because they need to plan for longer term than before.

Another important thing to remember is that no matter which party wins in this election this November, taxes are going higher the only difference is in which taxes are going higher or how much, either side has their opinions on that issue.  The Bush era tax cuts are expiring at the end of this year including  capital gains and dividend income to health-care etc and while the whole thing won’t go away due to lobbyists but we are going towards a Fiscal Cliff which Josh has now claimed the twitter hash-tag for it and believes it will be the hot topic coming the summer and towards the end of the year.

57% of the boomers have saved less than $100k for retirement and this is almost half of our country so it’s not an easy fact to digest. It’s getting harder to save and get returns because you can’t invest in safe bond funds that are producing 1-2% when inflation is 2-4%. If Apple didn’t exist the stock market would be the least popular thing on earth and it used to be an American past time 10-15 years ago. There are $377 billion of individual stocks and bonds being pulled out of the market every year.
The fed is not going to do anything to raise interest rates, they are stuck. Debt service rates are low and the government can continue to serve our debt. Rates could stay low for a very very long time in Japan style fashion (although US is not Japan in other ways). The Fed can issue currency and has a standing army around the world while the European countries cannot print money on their own (the ones part of EU).

Stocks will become even more important as investing in treasuries and bonds it is not a way to go in saving for the future with inflation higher than the returns produced there and stocks will be needed even more in the future although they are the most hated by main street according to the USA Today’s headline on May 8th (what a coincidence). $40 trillion in investable assets $13 trillion in retirement accounts will need to be managed and the future is bright for financial advisers of the future.

Active traders are going to options market and the option market is exploding and so is the forex due to the leverage provided in those markets. The inactive people are going into treasuries and cash and staying away from stocks and perhaps some money has gone into physical gold which will not end well. The last point Josh made which not many can come to terms with is that news has already been processed and disintegrated in the matrix of global economy by the time it gets to CNBC and other media stations so be aware that everyone has seen these headlines and the information has been priced into the market by the time you get to it.   For more interesting bits listen to the audio above.

After a brief break we  got the opportunity to hear from the awesome JC Parets – Chartered Market Technician. Author of AllStarCharts. Private money manager.

JC is a Technical Analyst and the takes the top/down approach by looking at the big picture of the economy then he looks at sectors within the industry and finds the sectors he wants to go long or short (Materials, Technology, Financials etc), he then decides how to best take advantage of the situation by either investing in Index ETF’s or individual stocks within those sectors.
He started the talk off with an experiment to which we are awaiting results to. First question asked what the next 20% move would be in the S&P. Next question asked if you could only own one stock and hold it for 1 year which would it be… what if you had to hold it for 10 years which stock would you pick?

He then followed by a quote which highlighted that technical analysis is the “action of the market itself”. Among the topics that JC touched up on during his presentation Risk management, sentiment, momentum, seasonality & risk/reward were some of them.

Some technicians overcomplicate things with a load of indicators and others have a Keep it Simple Stupid approach but what they all have in common is risk management. For example if you let a stock drawdown 50% you need the stock to make 100% to break even which is somewhat unrealistic when compared to a 10% loss that needs a 20% gain to break even.

Seasonality, certain times of year stocks do well and certain times they aren’t and he is interested in knowing when these happen and he can or cannot use it to his advantage if he decides to. The other important topic is short term Momentum, if stocks are making new highs the momentum needs to be making new highs, if there is divergence then something is not right.
We’ve been in a secular bear market for past 12 years and usually those markets last for 16 years so we maybe have another 4-5 more years to go until the next bull market.

The trend in stocks relative to gold last for decades. J.C.’s Dow/Gold ratio chart is his favorite chart, historically the market bottoms when that ratio is 1:1 and right now we are at 8:1 so we need more time to bottom out to at least 3:1.
For more interesting bits listen to the audio above.

Last speaker of the day was Dr. Phil Pearlman - Executive Editor, StockTwits. Psychologist. Author of The StockTwits Edge and Phil Pearlman Blog.

Phil’s talk on trader psychology was insightful and invigorating. You never can talk about what market experience is like relative to what that experience actually is unless you’re actually in the situation. People love the action (trading etc) that is why Vegas exists and a lot of trading occurs simply because of the action and nothing more.  Phil’s favorite quote touched a bit on what JC talked about in risk management above “Loses loom larger than gains”, we have a biological bias to hold onto our losers dearly and act like we don’t have them and avoid them pretend we don’t have them and we will nurse them and get crushed, but we are hard wired to sell our winners too soon as well so we need to adapt by taking risk off.

His last quote by Mike Tyson was “Everybody has a plan until they get punched in the face” sums it all up because when we get into the trading rink we will get your face kicked in and punched in and you will have learned from it next time you get into the market and you won’t get killed again when you get punched because you’ll hold onto your plan. Even the most unnatural behaviors like ballet can be learned even though they are extremely unnatural but trading requires the same learning discipline …  For more interesting bits listen to the audio above.

Of course after the end of it all we had a lot of fun walking around Harvard Square and ended the night with a couple of drinks. Unfortunately I had other plans and didn’t stick till the end but thanks again for a great afternoon guys!

Update: We all seem to be on the same page and posted on the same day.. go over have a look if you’ve made it this far.
Eli Radke’s Overview of the Symposium: Traderhabits.com 
Josh Brown’s Back to School Presentation
Phil Pearlman’s The False Truths of Social Finance
J.C. Parets  Talking Technicals at Harvard

K-Man the Investing Freak

I’ll leave it up to you for further research but here is a chart I’m studying and to me either uncle Benny provides more liquid or we’ll get thirsty soon.  Europe is already dehydrated.   If you don’t like analogies or can’t understand them… what I’m saying is that we don’t have much upside left so I’ll be Fearful now that everyone is greedy and regretful that they didn’t invest more.  The big boys got the sheeple where they want them and slaughtering will begin.

I’m lightening up at this point on positions, not all but a bit of a hedge is good too.

I won’t be posting the actual excel spreadsheet here just yet. Enjoy the video and ask questions.

Asset Allocation from InvestingFreak.

Technical Analysis 101 from InvestingFreak

2011 was a very busy year that really took time away from blogging. The learning never stopped though and this will be reflected in 2012 with the blog focusing mostly on making investing decisions and research and less getting involved in news and politics.

There is too much noise in the world and it is good to have an idea about the current situation in (for example) Iran and how it might affect oil prices if there is a disruption, but we all have our opinions about a certain topic and I’m no expert.

Although I do not have a sneak peek of what’s to come I hope you all have a Happy New Year and see you back here next year.

K

It has been nearly 6 weeks since my last update and as promised I have kept an eye on the weekly chart vs the ever so noisy daily chart. What has happened the past 6 weeks is the market moving down for a fake out on the daily yet closing right on the green area i had highlighted and then lifting to the red zone.

Will they score this time or will they turn it over to the bears again for another move down? You be the judge

Good Night

-K

If you think the market action of the past 4-6 weeks has been on the data then please stop reading and save yourself five minutes which you can use to watch Jim Cramer over at CNBC.

On the July 28th post titled “Deal or No Deal -Debt Ceiling Edition- $SPY” I talked about how the market had been setting up and that no “Debt Ceiling” deals would matter. It was obvious a debt “downgrade” was coming but that should have been no reason for the market to really go skydiving as it did.  If you were an great A+ student and partied a bit too hard, if your next grade was an A nobody would treat you with less respect especially when they’re getting grades from B+ and lower, (the analogy here being US credit rating vs ratings of many countries in the world).

The market was simply setting up for a technical Head & Shoulders pattern and there was a great chance of it playing out (which it did). Click chart below to enlarge.

The chart above is an updated chart of the previous post. The light yellow represents all the time It took since my last submission to the blog. The Fibonacci retracements drawn on the monthly chart really have helped see that we were about to enter a rangebound market (the area between the Red and Green boxes).

The “crash” from 1300 to 1170′s surprised me in terms of the velocity in which happened.  I expected it to trickle down for a few weeks but when the dam broke there simply wasn’t enough incentive to stay short the weeks following as there was a great possibility for a short cover.

The suggestions I made was to buy some SH shares or SPY puts.  I did both and got out with enough profits to allow me to break away from the markets for a few weeks.  Now I am back and so are many professional traders and when they fire up their charts they will see what I am showing above. They will wait out this rangebound trade until either a break above 1235 or a break and close on Weekly chart below 1120 which could set up for another 80 point slide.

Right now we are mid range and since Daily is too noisy I’ll keep checking the Weekly every few weeks and report the progress.

Hope some of you made money or at least the posts have been helpful to give you a second view from a Freak’s viewpoint.]

Till next time,

K

     Wake up because the time to act has passed. Instead of throwing money to bail out banks, and prop the markets for the past 2-3 years (Bubble 2.0) we should have let the “economic collapse” happen and now we’d be either in a hot burning inferno or on a better stage to recovery Worldwide.

Deal of No Deal

     A week ago S&P rating agency warned that the USA could lose it’s AAA debt rating if things weren’t solved for a better fiscally sound future, just today S&P said that it will not likely downgrade US debt rating. BULL$h!t we know full and well that with or without a debt resolution in the next few days that our rating will be cut one way or another. If it’s not S&P it will be Moody’s etc, these rating agencies are the ones that allowed things to get here when they rated the Credit Default Swaps & junk bonds safe and apparently it was blamed on a “programming code mistake” of sorts.

     If we do not reach an agreement on the debt ceiling the economy will go in a tailspin. Stock market will head to the south pole for the economic ice age, USD $ will be worth less, imported goods (Yes Chinese lead painted toys, middle eastern oil and the goodies in between) would become more expensive, US consumer spending would halt, US workers, contractors, aid for people, road work etc would be at a stand still and no money would be moving much if any at all. Unemployment would rise higher, banks would loan no money as they seek to avoid risk and stay liquid. And with a downgrade in our rating which is a no-brainer that would mean we’d have to pay higher interest on future debt we incur (Look at Greece interest rates on debt spike at downgrades, that will be the same here).  Anyways that is the doomsday scenario but right now we can do nothing but stick a fork into each politician and have them for dinner when we can’t afford food.

Take a look at how all this money came to become the $14 trillion+ debt.-Click to Enlarge- or go to NYT article

Whats in it for me?

     Lets take a quick look at how the market might be affected by this uncertainty,  but the obvious thing is most of the stocks will head down because on the 10-K SEC filing of every company one Risk factor is “Economic Uncertainty”.  Two weeks ago I posted the chart of /ES saying that it looked like a head and shoulders formation. This time the chart has the fib retracements that were drawn on a Monthly chart spanning back 20 years and drawn from major peaks to major troughs.  The ratios are hard to see but you will immediately notice where a lot converge.

So here we have a market that wants to hit 1250-1268 area in initially but ideally the 1225 in the very near term is last resort for support and thats 70 points below as of this writing.  Lets see what our knuckleheads do today, most likely nothing as always.

Possible downside trades would be SPY put options or buy SH shares for a hedge (SPY inverse)

Happy Trading,

K

This latest fear-mongering along with recent economic data in the US and worldwide( which have been less than expected) and also the upcoming U.S. debt limit crisis which will get resolved (just not until it has hurt a good chunk of the economy) but not in a timely manner because like their waistlines, Americans cant/don’t like to curb their spending.

I was looking at my favorite time frame, the Weekly and on the futures I noticed an early stage but possible H&S pattern. Here it is simplified for your enjoyment, voice in your ideas in the comment box.

Positions: Rolled a July put into a September put.

I was right just not satisfied after the 8 day rally which reignited at the green moving averages above (risk reward wasn’t there anymore but I was high on “hopium”)