Seeking Alpha by Adding Beta

On Friday last week, 4 tech darlings (Amazon, Microsoft, Alphabet and Intel) added market cap equivalent of IBM's market cap (close to $150 Billion) in one DAY! It reminded go-go days of dot com era. Almost exact same happened on Flashback Friday back in Apr 2015 . So is it different this time compared to 2000? Are these astronomical gains sustainable? One common factor which makes it different this time is: Network Effects. Network Effects:   The network effect is a phenomenon whereby a good or service becomes more valuable when more people use it. We see it in many services or goods we use. For example: land-line phones (more people used these when more people had phone connections), Internet, Social networks, Streaming networks, Costco membership and so on. The virtuous  positive cycle which gets triggered due to network effects is what is in play for many of these technology companies. Let's look at some of them. Amazon: Back in July I wrote about Amazon...

The Four Horsemen of the Apocalypse is a metaphor depicting the end of times in the New Testament. They describe conquest, war, hunger, and death respectively. While this analogy may not exactly map to economy and markets, it's one way to look at how good times could end. Markets are on a roll with indexes hitting all-time highs every week (DOW has reached this milestone 53 tines in 2017). At current pace, my predictions for indexes by end of year are: DOW: 24K, S&P: 2625 and Nasdaq: 6800 (about 2-3% upside from current levels). No one would have predicted that we would see these levels 12 months back. So with this backdrop, let's look at analogy of Four Horsemen which could propel or end the good times! Federal Reserve (FED): For world economy and markets, this institution is most powerful in world (even powerful than US Government itself). FED came to rescue during 2008 financial crisis and still helping the economy with its policy of gradual interest rate hikes...

During my MBA at Haas School of Business, UC Berkeley, my most favourite subjects were economics (macro, micro) and finance. I really enjoyed topics on how policy impacts countries' economic growth, currencies, interest rates as well as formation and success of businesses. Around that time I also developed interest in "behavior finance". Since then I have always wondered - Is Economics a science of pure math (Equations) or human behavior (Emotions) or mix of both? In most of the academic history of Economics, it is considered a mathematically precise discipline. There have been few exceptions along the way when in 30's Maynard Keynes suggested that we should also consider Animal Spirits which was taken up as book topic by Yale professor and Nobel Laureate Richard Shiller. This years Economics Nobel was awarded to another practitioner of human side of economics - Dr. Richard Thaler (his book Nudge is my reading list). In my opinion, Economics as science is best un...

My family and friends know that I like to take small bets almost on any topic. They also know that I win most of them. I did lose  big one with one of my colleague on Hillary vs Trump (no one would have imagined Trump would win except may be few folks like my colleague Arun). I ended up buying lunch for my colleagues for losing the bet. Investing is somewhat like betting. Depending on analysis and confidence, one is really making bets on companies doing well (or not) and investing (aka making bets) on stock prices going up (or down). Markets being at all time high, one must be wondering: Are there any sectors which are still worth making bets? Based on my analysis there are still opportunities in three of my favorite sectors - Biotech, Energy and Technology. In today's world of acronyms like FANG, I decided to call these as "BET". Let's look at why these three sectors? Biotech: Two years back our family went thru experience on cancer. Since then, I have been doing q...

Nvidia has been hottest tech company (and stock) for last 3 years with his stock more than triple in just 18 months. Most of the excitement is justified due to Nvidia's unique position in cloud players (Amazon, Google etc) as well as emergence of Artificial Intelligence in self-driving cars (Tesla and so on). So while Nvidia stock may not repeat last 3 years feat, there are other companies which could offer similar excitement. Micron (MU) has been on similar trend with its stock already tripling from under 12 to 39 in 18 months. Last week Micron announced record quarter with revenues growing at 91% compared to last year. Let's look at factors which are causing "commodity" players like Micron shine. Micron makes DRAM and NAND memories. In technology world, ASP (average selling prices) go down every year. Due to demand and supply imbalance, ASP for DRAM and NAND   have gone UP by 6-8%. That's rare! On demand side: Memory markets used to be driven mainly by PC...

I am not expert on retirement planning and have many years to go before readers of this blog would need to worry about "withdrawal" rate. However it's never too early to plan. Thanks to one of the friend, I came across few articles on "withdrawal" rate and how much one needs to save to maintain decent living standards. Here are few assumptions to make: "Safe or risk-free" rate of return is about 3% (equivalent of coupon on 30 year US treasury) Protect "principal" as many years as possible Mortgage is paid off College expenses are over (and kids have settled down) No major health care expenses With these assumptions, one could assume that $100K per year income is sufficient to live in areas like Bay Area (which is one of the costliest but most cosmopolitan areas to live in USA).  Assuming about $25K in social security benefits, one would need to create $75K per year in additional income from retirement savings. That would mean one ...

As of last count there are more than 800 crypto-currencies and more are coming every few days. And unless you are hiding on another planet, you must have heard about BitCoin. Since then there are other "credible" (if you can call any of these) alternatives like Ethereum, LightCoin, Dash have come. Most of these are based on underlying technology called blockchain  While the blockchain technology has tremendous potential and could at some point match buzz created by cloud, AI, VR, BigData, currently it is "(in)famous" for it's main application of digital currencies . So let's discuss if these crypto-currencies are Fad (aka bubble), Fraud (like Ponzi scheme) or New Frontier of Investing (like dot-com companies including Amazon in late 90s). Let's understand basics of "money" or " currency ". Why do humans need "currency"? Currencies serve multiple purposes like: Medium of exchange (makes bartering much easier and frictio...

One would wonder why am I writing about taxes right now when there are more than 3 months left for year-end and another 7 months before tax-filing deadline. But that's the whole point. There is still some time left in 2017 to take advantage of some interesting tools available. In my previous blog  After-tax 401K to Roth IRA  I had written about how one could maximize savings in 401K by making after-tax contributions and how these after-tax contributions could be converted into ROTH IRA. Many folks call this as "back-door" mechanism to contribute to ROTH IRA (even though it is completely legal unless tax-reforms in discussions closes this backdoor). Good news is that overall limit has been increasing over last couple of years as evident from following table. This means one could contribute upto $54K (or $60K if you are over 50) to 401K. After full contributions of $18K and your employer's match, it would still give you an opportunity to contribute 25K or so for after...

First half of 2017 is over and earnings season would get full-steam in next 2-3 weeks. Given lack of major pre-announcements, there should not be any major surprises coming out of this season. With Fed taking dovish view on interest rates, markets seem to be loving "Goldilocks" scenario "not too hot not too cold". We already know that some sectors are getting hot like technology especially FANG stocks. At same time, it's worth exploring are there any sectors which are "cold" or "out of favor"? And of course one major sector which keeps on coming on radar is "Energy" sector. It started year on high hopes that OPEC deal in Nov would bring back oil markets in equilibrium and with Trump promises economy would grow closer to 3%. Both of these did not pan out in first half. US shell producers and Nigeria/Libya nullified whatever smaller effect OPEC deal had on supply side and due to lack of any concrete steps from Trump and Congress on t...

Tesla is one of the most exciting company around and almost all of the credit goes to its visionary CEO Elon Musk. Over last few years, I have written two blogs dedicated to Tesla Seeking Alpha by Adding Beta: Tesla = Apple of Cars? Seeking Alpha by Adding Beta: Should Apple buy Tesla? And give the action happening with first production Model 3 coming out this week and bear attack on Tesla stock bringing it down by over 10% in one week, promoted me to consider 3rd blog on same company! A ride in my friend's red Tesla (I call it as his mid-life crisis car) and seeing it in action also played a role! Tesla - is it car company or tech company. This would decide if stock would eventually touch $1000 (from around $300 today) or touch maybe $500. Let's evaluate both sides: Tesla as car company: Tesla's major product is CAR and everyone love the product and willing to pay $1000 and wait for 2 years before they can get their hand on Model 3 (I am one of those). Which car co...

Normally I don't blog about my work and company I work at (Cisco). However this time I will make small exception. This week Cisco launched one of the biggest launches in company's history with Catalyst 9000, DNA/SDA and ETA. I am proud to mention that my team (along with some other teams) have been working on these intuitive products and solutions for last two years (Network.Intuitive). Congrats to all my team members! Environmentalists would be very happy if real Amazon jungle stops shrinking (due to human activity) and expands in the way Amazon company is expanding its reaches. Amazon is one company which has proven everyone wrong. I am sure there is not a single person in the world (other than Jeff Bezos) who had belief in this company when it went IPO in 1997 and it's journey as public company over 20 years. If there is such person who had invested $10000 would be worth close to $5 Million today (assuming he/she has lived thru all ups and downs). No wonder Jeff Bezo...

For last few weeks I was developing an hypothesis of recovery "kid" stocks and their likelihood of getting into "Adult" valuations. So before I get too far, let me define the terminology: Recovery: Stocks which were once high-flying crashed with stock prices below 15 "Kid" stock price: Stock price in range of 5-15 Adult stock price: Stock price generally greater than 20 With is criteria, during this earnings season which is just wrapping up, I was monitoring stocks in technology sector and after some research, shortlisted 4 stocks which have high chance of reaching "Adult" valuations. FireEye (FEYE: $15) - this stock crashed from over 90 to close to 10 in 2 years. After changing CEO and business model from selling security appliances to recurring software revenues, this stock is on mend and could see 20+ price in next 12 months. This also happens to be in hot security area and with hacks like "WannaCry", companies are ready to ...

As the tradition goes, I must write blog on afternoon of Oscar night. Given my love for movies (a good movie in any language would do - that's why I have been Netflix member for more than a decade) and penchant for predictions, how can I resist making predictions on who would win Oscars. So I have picked six categories for predictions. Here are these: Best Supporting Actress:  Viola Davis  (Fences) Best Supporting Actor:  Mahershala Ali  (Moonlight) Best Actress:  Emma Stone  (La La Land) Best Actor:  Denzel Washington  (Fences) Best Director:  Damian Chazelle  (La La Land) Best Movie:  La La Land We saw La La Land in a nostalgic theatre in Santa Barbara during Christmas vacation. We all moved the movie (and songs). It is one of the highest nominated movie with 14 nominations. However it's Oscar haul would not match that of Titanic and others which won 11 Oscars. Most likely La La Land would by high-single digi...

President Obama, Thank for your being our President for last 8 years. It started with an inspiring speech in 2004 during democratic convention leading to that historic fall night of Nov 2008. On that night I felt so proud of my adopted country and Americans who elected first African American President. In 2012 and I along with my son volunteered for your campaign. Historians and authors would write many books on your achievements and your presidency. One could not do justice to your presidency just by listing few. But I could not resist listing few here. You saved American economy (and by extension world economy) from 1930's style depression by working with Fed and congress.  Presided over economy which did not had a single recession once it recovered from depths of 2009 recession Created over 15 million jobs during 8 years and brought down employment from over 10% to 4.5% Stock markets nearly tripled (as measured by DOW index of 6600 to nearly 19800) Enacted first major ...

As we say Adios to 2016 and welcome new year 2017, it's time to take stock of 2016 recommendations done in first blog-post of 2016 and come up with new recommendations for 2017. So here is report card of 2016 recommendations. In all, I recommended 16 stocks at start of 2016 with very clear indication that these are not for normal investors since they reflect my aggressive style of investing (after all blog is called "seeking alpha"). In all out of 16 recommendations, 6 were negative and 10 were positive. Losses range from 100% for LNCO, 94% for SUNE to 35% for FOLD. Gains range from 160% for VEDL, 144% for CHK-PD to 14% for OIL. In all assuming approx equal amount was invested in all 16 recommendations, the portfolio would have returned 28% not counting any dividends etc. This beats S&P by approx 18% which seems to be overall good performance. Of course it came with extreme volatility especially during months of Feb and Jun (around Brexit time). So as I have mention...

Two weeks back I predicted that DOW would reach 20K in first quarter of 2017. Looks like it may touch even before end of 2016. I am sure many folks who are investing in stocks are happy with that and must be thanking Trump for that (even though he is not even President yet). Last week Trump met bigwigs from Technology world for the first time. Given than all except one were against him, it must have been an interesting meeting. Conpiciously other than Palantir and Uber, none of the so called Unicorns were present. Most of the presence was by big companies with market caps over $100 Billion. Talking about Unicorns, "Trump's Presidential bid" must be the ultimate unicorn of all time and majority of folks missed seeing this unicorn which was in front of us for last 18 months. Only few folks from technology - Peter Thiel being one of them (no wonder Peter made big money in Paypal, Palantir and Facebook). So let's look at "Trump's campaign" as startup and...

Now that I have started writing blog again, I have decided to get into habit of writing blogs every couple of weeks. Somehow I let complete election season go without writing much and expressing my views. Anyway, based on various bets I lost (4 to be exact), my friends (and family know) whom I was supporting in elections. I really wanted to see first Madam President. But alas, that did not happen due to some campaigning mistakes (and little bit of arrogance to ignore Michigan and Wisconsin).  Now that Trump is going to be our President, I am fully on board in supporting Donald Trump as President of USA starting in Jan. What surprised me was the margin of his election victory and how markets took U-turn (for better) after hearing his acceptance speech. No-one would have thought that DOW would cross 19K if Trump wins. But here we are - all three indexes at all time high. Oil is back in action heading towards $60. What is Trumponomics: Big tax cuts - hoping that trickle down eff...

Have you ever wondered how to save more (beyond $18K IRS limits) and also convert to Roth IRA? And how about having flexibility of using those funds for big-expenses like kids college? Well – thanks to recent tax-law changes, there may be an answer. However as always, it’s hidden in complex US tax code. Thanks to some excellent research by my colleagues Anand  and Venkaiah , here is simplified version. All of us know what 401K means and how it works. The standard limit on 401K contributions is $18K per year ($24K if you are 50 or older). However you can still contribute after-tax money to 401K. Limit for total contributions from all sources and to all retirement accounts is $53K per year ($59K per year if you are 50 or older). This includes 401k, ROTH 401K, after tax 401K and any employer matching contributions. e.g. For an individual under 50, let’s assume following: ·       Employee contributes $18K per year ·       L...