Great White North Prognostications

As a tech person I use linux every day. It is my server of choice for most things. But as a desktop it bites. Now I can make an argument that will get you to go out and install linux tonight (good luck there sparky). And I can make an argument that would campaign to have Linux desktop users burned at the stake. But quite simply I can smell something good cooking in the oven but again I stuck my fork into it and it just ain’t done. The potatoes are still crunchy in the middle and the beef will give you the squirts.

Without going into the details I put Linux on a couple of machines. One was a slightly older laptop and the other was a newerish machine. I put it on the older laptop to buy some more speed. Nada zip zilch. It went slightly slower. The install was a pain on both in that it asked questions I had no problem with but the vast majority would choke on their technicality. (For you tech people who might beg to differ keep in mind that most people don’t know about alt-tab). Then when I went to install some opensource stuff that installs on windows like a dream it sicked up on me when I went to run it. Again no problem for me to solve but 25 years of programming might help a bit. Then the drivers were wonky. Wireless; never got one of the cards to fully work. Then I put it to the ultimate test. Watching a video. Nope. Frame rate was fine. But the green line along the bottom and side were off putting. The open source program that I used is identical to the one I use on windows so it shouldn’t be a problem. On the better machine some other problems that were not big but just not prime time yet.

So end verdict. When you see a company switching things to some opensource like their servers, databases, or MS Office to OpenOffice you can admire them for trimming the fat. But if you also hear that they are switching over to Linux desktops that is a religious choice being made by religious fanatics. Sort of like having Rasputin run your IT department. In the end you will have to toss it in the river and shoot desktop Linux.

I have a love hate relationship with Google, Apple, and RIM. I have always wished I could invest in them and cry that I didn’t but at the same time I can make a list a while long(which I have long learned to ignore) as to why they should all plummet.

Google took a bit of a hit today. I am a tech guy. Shouldn’t I be more interested in Google? Well I have three companies that I would love to invest in:Google, Apple, and RIM. But I also have three companies that I can make a long list of why they should go way down.

APPL. Apple’s unwritten motto is “Stick it to the man” Well Steve Jobs is the man. Sticking it to the man would be to switch over to Linux. In the computer world Linux is the Timothy Leary of Operating Systems. But so far Mac people don’t seem to have realized that this emperor is less well dressed than most. A risk that I won’t take but would be temped to do would be to short Apple. The iPhone isn’t built for business so it isn’t doing anywhere as well as people think. This bizarre fixation about locking users to AT&T is odd. With number portability people spoke loud and clear that they want to be free. Also the Macbook Air is very cool but very expensive. Executives who want to look cool will dig out the latest blackberry not their cool laptop. Cool laptops being pulled out is so late 90′s.

Google. Google is cool. Microsoft is down and people’s lives are moving onto the Internet. An interesting change is that even 5 years ago a computer was really a typewriter. If you visited someone’s house 5 years ago you wouldn’t probably go to their computer and do anything. Now you pop on and check your email or many other things. At home you do your banking or stocks online and all is through your browser. Google also tries many things and some might stick. Google earth and maps are very cool. Gmail is cool. Google docs is not as cool. The Internet does not bring much of value to a glorified typewriter. I think that most people will stick to keeping their documents close to home. But through all of the Google products there are two that are really key. One is Adsense. That is where the money comes from. Follow the money and that is the source. The other is Search. This might be obvious but actually it is their weakspot. Before Google one of the leaders was a company called Altavista. It was a good search and most people used it. A few used others like Lycos that were installed along with their ISP software. But then people all started to tell each other how much better google was. And it was. You typed stocks in Altavista and you got porn porn porn. You typed church and you got more porn. The porn people had learned to game the Altavista system and most of the others that were built like it. But then Google came along with their cool new PageRank system and it was much harder to game. All was good. But now people are starting to get better and better at gaming the Google system it even has a term SEO. Now some SEO is good as you do want people to find your quality content site (such as this one) but you are now finding more and more people who are figuring out how to divert you to their crap sites. So maybe Google will shore up their system and continue to innovate to kill the SEO wankers. I suspect though that someone else will just as Google did to Altavista figure out how to make a better search engine. I also think that a far hungrier company such as Yahoo, Microsoft, or even Sun might buy it and then use it to take the lead from Google. This presents a huge problem for Google. For if someone tells you that they have found a far better search engine and you try it and find that it is you will switch and potentially never use Google Search again. This means that Google could potentially loose a significant number of their customers in a few short quarters. This is different than almost any other business. You don’t switch banks, cell companies, or cars just because a friend points out that they have found a better bank. But on the Internet all you have to do is type a different URL. But I will see that one coming. My other and present fear of Google is that it is a bit over inflated and that can cause instant pain. I would love to buy Google but it is too Casinoey for my taste. I also wouldn’t bet against it.

RIM. There are many other better devices than the blackberry including older blackberries. But business people love them. Business people have money. Basically end of story for why RIM is cool. My question is why can’t Motorola or Nokia build a better blackberry than RIM. Motorola is a big bag of disappointments that probably deserves a whole article but they should be able to cough something better up in their sleep. I will even give a tech example of why BBs are bad. They are a pain in the ass to integrate with an existing tech system. Maybe they have improved in the last while but damn they might be one of the hardest systems I have ever heard of integration wise. Thus tech people everywhere would easily push a solution that was easier. The other bit with RIM is that one or more of the founders have bought a sports team of some sort. After making your zillions in tech running a sports team with cool jock types that used to kick sand in your face must be really cool. Why would you pay any attention to the geeks. So RIM should be a sitting duck in more ways than you can count. So why does their stock go up? I don’t know. Why doesn’t their stock go down? I don’t know. Wouldn’t bet a cent either way.

So those are my tech confusion stocks.

$329,813.33 Since last Friday. 3.3% Per week seems OK. How many more weeks can I do this?

VMW Bought at 56.95. Who

With some trepidation I paper traded for $500,000 of this one. Let’s see where it goes. I suspect that IT people everywhere are telling the broker types that the company has a bright future. Some people are probably rethinking there sells.  The shorts may have even pushed this one down and now they made their money. Thus clear sailing awaits VMWare.

Will sell if it goes under $50 as that would probably signal a serious structural problem. Will sell half at $65.

VMW as a tech guy I could try and explain what VMWare does but I would fail. I bet less than 1% of the population of the US could truly understand in less than one hour. Given this I will take a different approach. Basically they built a tool that could be used by big business and also could be used by geeks like me. Geeks like me only needed one copy and wouldn’t pay that much for it. We enjoyed it for our geeky reasons for many years. Unlike MS Word or excel or something there was a zero percent chance we would try and force this on any non geek. But then something magical changed with how the CPU’s of computers, especially servers at businesses, worked. This change suddenly meant that all those strange incantations and ceremonies that the IT people were doing in your server rooms became a whole lot easier if they used VMWare’s products. Thus if you are the CFO of a company and your IT people started to really use VMWare you wrote fewer checks for their activities, they stopped demanding more people with such vigor and they potentially produced then they ever did before or at least worked less.

All the above boils down to a product line that only appealed to a handful of geeks suddenly making CFOs happy. If you make CFOs happy you make lots of money. So VMWare has been making lots of money.

So why did they just drop 20%. Well I think they dropped for two reasons. One nobody has a clue what they do. All the other tech companies have a good story. Wall street loves a good story. VMWare has no story that can be told in less than 30 seconds. Up until now their only story was our revenues are going up like a rocket. Wall street bought that story. Now revenues are hitting a wall.

Now what wall are they hitting. Well quite simple. Old IT people are the same as dumb IT people. Many huge companies got their IT departments in the late 70s and early 80s. They also got the guys who now run those IT departments in the 70s and 80s. So now they are managers running a 21st century IT system using knowledge that is largely 20-30 years old. At best they have brought their basic knowledge up to the early 90s. Well without going into it VMWare requires that you know your stuff. You also have to be able to think in ways that are just not quite sane. But take it from me as a tech person. The basics of what drives VMWare is not just the future of big computers but it is the future of all computing. Thus as time goes by VMWare products will weasel their way into nearly every large company and organization in existence. Thus you can look at their market share as approaching 100%. I doubt they have even 10% of the market yet. The other 90% doesn’t even know that they are the market. So quite simply. VMWare is the future unless they drop the ball.

So when to buy this stock that just bombed. I think first thing in the morning is the answer. Basically this is a slow growth stock for a while but then one day the entire tech world will go VM and anyone not VM will feel lonely. At this point the stock will do the rocket thing again. Wall street will pile on and then again be dissapointed.

Thus buy tomorrow, sell into the next rush and then forget it exists. So tomorrow. Place an orders all the way up to 70. I hope it gets filled around 60. But their is going to be a bounce so maybe keep this to $500,000.

As of closing today the profit was: $43,961.65. I am happy about this as I also took a $50,000 dollar hit from DHX.TO and still managed to be profitable.

Even though I am looking mostly long term I still would have been unhappy to lose money on the first day of trading.

The bulk of the gains came from the banks led by citi C no surprises there.

I am a little worried about DHX dragging me down but if anything at 1.33 it is even a better buy.

This is an interesting stock. It favors around .55 if it gets below 50 you can bet on it going up. If it goes above 70 you can bet on it going down. But as for shorting it you must watch out for the pops. It can jump up a bit so one must be careful. With this one I will buy any time it goes into the .40s. But with such low volumes even virtually I will keep my paper trades to something that resembles normal volume.

EURCAD=X This is just a dull hedge. I don’t think that it will do all that well. Europe is big on selling big insurance all around the world and they no doubt had their star employees jump all over CDOs and other toxic waste. So now they have to pass this little bomb along to their share price. But unlike American banking companies they operate a bit more slowly and thus the bomb has a longer fuse. They will avoid the market jitters but it will still deal a minor blow to the entire Euro economy and thus the Euro. Also people who fled the US to the Euro are going to pile back into that money making beast they call the US economy.

So if anything Euro’s are a stupid bet. But I don’t know European companies well enough to think about what to buy. So I plan on taking a hit here but it is a hedge against all the other North American bets. The only hope is the pressure to devalue the Canadian dollar that exists on the Canadian political scene.

When to sell. I really don’t know. I don’t like not knowing and thus will research this. Probably this position will eventually be converted to an interesting European equity position. Something like a German machine tool maker.

C What hasn’t been said about Citigroup? Well I dropped a virtual million on this beating victim. Well why is summed up by Credit cards. Now Citibank will probably take a beating on Credit cards but at 19% APR how can you not make money.

Now I put Citibank on my probably-going-to-bite-me-on-the-ass list because they are probably running up against some internal accounting walls. That is that they are releasing bad news that causes their reserves and so on to run up near the legal limits of bad. Then they pull their ass a bit out of the fire which allows them to discover and then release more bad news. Now this has two effects. It prevents them from taking the easy path of just vomiting up all the bad news and like people you usually feel better afterwards but in this case it is more like the dry heaves. All the bad news keeps trying to come out but nothing really comes out. The worst part is that even the insiders are probably legal obliged to not know the entire picture because if you ever could prove that they knew how bad it was at a certain time then they could find themselves in a pile of well vomit. So the bad news will keep coming until they can’t find anymore bad news. Thus I suspect that even insiders are not leaking insider info as to how bad things are. So this might get worse before it gets better and this might not be priced into all this.

That said; how bad is this whole subprime mess? The news has stories of post-apocalyptic neighborhoods where their are more loan defaults than grains of sand on a typical beach. So will this really be so bad when all the chips are on the table. Personally I think the market has overreacted to what was really a liquidity hiccup. With a .75 pile of money thrown in as a bail out which might have been actually a reaction to Mr. French 7 billion’s mess the banks are probably out of the worst. So I think that Citi is ready for a nice climb. The next quarter might have some bumps but they will be explained as one time and that otherwise they are completely healthy (remember that 19% APR).

Now how long to hold this one? I think that as a hedge for a Canadian it will be good. The American dollar is probably going to climb and that would make any boring blue chip still look good for a Canadian but I think that Citi has the potential for 30% + growth over the next year plus a probable 10% growth in the American vs the Canadian dollar. This will probably be the star of this portfolio as it now exists. BUT citi might take all the future profits in the next few weeks while it chokes down all this subprime / CDO crap. I would not be shocked at a 20% drop before the end of February. But if that happens I will buy more Citi.

JAVA Now here is a company that I wrote off years ago. They were selling big expensive machines that were taking a direct beating from Linux. At one point you could buy a $2000 Linux machine that for the most part could go blow for blow with a $20,000 Sun box. If you argued my performance facts you could set up a few of those Linux machines to work together and blow the Sun box out of the water while providing you with the extra reliability of having multiple machines. Also at the time Linux machines were getting cheaper and better so the writing was on the wall for Sun. So since that time they have laid off half of the earth’s population. But they seemed to be largely debt free as most tech companies have trouble even picking up the slightest bit of debt so regardless of their revenue dwindling thet didn’t have any payments to make so Chapter 11 or 13 is just not on the table. So now here we are years later. The only product that I have noticed Sun getting any notice for is Java. Personally I don’t like Java but many do. But Sun gives Java away for free. They charge a bit for this and that but it couldn’t amount to much for a company that used to make many many billions. Then they got their hands on OpenOffice and have been going gang busters with it. Personally I love OpenOffice. It just works. Is it better than Office 2007 feature wise? No. Price wise? You bet. But best of all it doesn’t seem to bog my system down. But here Sun has another product that they give away for free. Now recently they bought a product called MySQL. They are from somewhere like Sweden and I hear they paid a fortune for them. I love MySQL. You have probably not heard of MySQL but you have probably heard of Oracle or SQL or at least databases. Well databases are where people (read large companies) store their vast amounts of electronic data. But MySQL had a revenue of something like 70 million and mostly gives their product away for free. 70 Million would be an accounting error at a place like Sun so what’s up with all the free products. Let’s review. Java- free. OpenOffice – Free. MySQL – FREE.

Now look closely at these three free products being given away by what I thought was a company that was yesterday’s news. Java might be the number one programming language taught and used in the world. Certainly popular in really big companies on their really big computers. OpenOffice is programmed in Java and is poised to replace Office 2007 in most of the really big companies in the world. MySQL is where really big companies can and sometimes do store their data and is a solid competitor for where they do presently store a lot of their data (Oracle and MS’s) products. Well I don’t understand exactly where the money is going to come from but I do understand that Sun is going to be a major player in something where the players have lots and lots of cash. So will it be services? I don’t know but it is going to be big.

This company is going to go in the opposite direction of Microsoft. Sun doesn’t look like they are going to try and wow their stock in to the stratosphere with stories of future growth. They did that in the 90′s bubble and it probably was a major factor in their near death. But now they are going to slowly grow and rebuild a solid company and then blow it on Wall street.

Thus Sun is a buy and hold. I suspect that as they grab more and more market share that people will realize that the sleeper has awakened.

Sun is a buy and hold for a long and probably satisfying ride. But it is one to keep an eye on. They are an old company with probably an old school way of thinking so they could end up screwing this whole thing up.

MSFT This has been a bit of a dog over the last while with a recent bump. This company barely took a hit with the latest meltdown which could make one believe that it is solid as a rock. Well I think the company is a walking corpse. But hey you might wonder why a million investing in the undead. I see a sunbeam coming. That is sunbeam the blender disaster people. Sunbeam was milked for every penny it was worth using cool accounting tricks. Well microsoft just released a new operating system that sucks ass. This is after something like 10,000 people working on it for years. To put that in perspective what could you do construction wise with 10,000 people working on a big project with heavy machines for 7 years. You could probably build the great wall of China from New York to LA and make it twice as high and twice as wide.

That is a lot of people power thrown into the toilet. Now they realize that they must create something called WinMin which is really small is good news but the same people who built this Vista junk will probably be the same ones in charge. Bill Gates seems to be gone to work on far worthier projects than making money. The guy who seems to be in charge of developing software at MSFT was the same guy who brought us lotus notes. As a tech guy I really hate lotus notes. I can’t completely tell you why but it just appeals to me the same way that eating poop would appeal to me. Well in my opinion lotus notes was a bloated pile of junk way back when so I don’t see a man who will excel at avoiding bloat.

But the key to MSFT misfortune will be the whole concept of paying the microsoft tax. Computers are so cheap they are nearly free. You could easily be reading this on a machine that cost you less than $300. An example of this would be my father purchased a computer for $250 from Staples (just the box no monitor). Ignoring all the Vista problems, he paid around $100 of that $250 to Microsoft. If the government upped the sales tax to 66% we would get a new government in about 1 minute but my father paid what is now becoming perceived as a MS tax of 66% on that machine. If he were to add Office 2007 he would nearly double the price of the machine to $500. So people (read governments and big companies) are now exploring products such as OpenOffice.org and other open source or alternative products. I have will have a later article documenting my move away from the products of MSFT. An example of this movement was a the British school system told their computer people to lay off buying Office 2007 and think about OpenOffice.org’s product.

Well as far as I understand Microsoft makes its dollars from two sources. The Windows OS and MS Office. If OpenOffice starts eating into the Office part of their profits then what will happen to the company? MS has little experience in shrinking. I suspect that they will blow it. Once they start shrinking they will start to bleed good people. Without good people the company then has little chance of ever hitting a homerun again.

So when to Sell? As I said earlier I think I smell a sunbeam. This means that the company will suddenly start to push the stock up using various tech and financial methods that will send the stock soaring at the cost of the entire company’s future. Thus they get a million for me to ride that same wave.

I bought at 32. I will explore selling around 40 if the growth is slow getting to 40 but only half if it rushes past 40. This needs to be revisited around September.

DHX.TO well this puppy got a whole million shares. It’s stock volume would not have ever allowed a 700 thousand share purchase to go through without impacting the share price in a big way but hey this is a virtual account and I have my reasons to purchase this one. But a million that is a big one. This stock has the potential to spike. The wiggling and jiggling are all on small volumes. This company is cornering the market in Canada in the generation of Children’s television with worldwide appeal so unless we run out of kids they are on to something here.

So this stock is in someways a cheat but personally if I was really investing the 10 mil I would drop as much as possible to get up to the mil mark on this one.

So the sell plans are: Buy and hold until something interesting happens. Then when the interesting happens sell as soon as the price looks good. I anticipate a 2-2.5 X hit on this one within a few years. If after 5 years nothing happens then think about exiting which would be slow due to traditionally low volumes.

Now here is the logic behind the above. All the .TO stocks are Toronto Stock Exchange stocks. All but DHX.TO are the big banks in Canada. Personally I don’t trust the lesser banks as you could always get a Northern Rock completely out of the Blue. The big Canadian banks are boring but short of recent events they have been bloating the portfolios of anyone who owns them. Even taking recent events into context you still end up with very good performance over say the last 5 years.

This is a typical Canadian Bank CIBC (CM.TO) showing the recent disaster quite well.

Canadian banks are well poised to scream because of the following main reasons:

• No real domestic sub prime market was developed thus all exposure is via stupid purchases of things like CDOs. These present a one time risk which has already been factored into their prices. No bailouts or share issues required.
• The Canadian dollar is too high for exporters in Canada. Thus the only way to drive it down is to devalue the Canadian dollar. This will be done by providing cheap money to the banks. They will loan this and make money doing it.
• Quite a bit of their value drop is due to the American banking disaster. A quarter or two will go by and people will see that Canadian banks are in great shape compared to their prices.

So that explains why the Canadian banks make up 40% of this portfolio. If anything they really should make up over 60% but this portfolio is also for fun and let’s face it Canadian banks are going to be boring until they are allowed to merge.

That leads us to when to sell. Well in Canada these banks are a major part of the economy. I have no worries about their collapse as that is only going to happen if Canada’s economy collapses. These are a buy and hold for many years to come. Basically they should be held until the government allows a merger. Now a merger is a very bad thing and will reduce the little competition in Canadian banking to nearly zero. But the Canadian government has little history of protecting the Canadian consumer from predatory Ontario based companies so my bets are for a merger with the next majority government.

This site will document my adventures in virtually investing $10,000,000. A yahoo finance account was started on Jan 25th using the closing prices to virtually purchace nearly $10,000,000 in various shares. As you can see in the title this is a Canadian site so for the most part the prices will be in Canadian dollars. But right now Canadian Dollars roughly equal American ones so just ignore the differences for now. (More comments on the Canadian dollar later).

Well here are the initial purchases:

The next few articles will document the reasoning of the above purchases.