Posts from — May 2008

I am a big fan and active user of Twitter, as I have posted about here. People are just starting to scratch the surface on some of the cooler things that we can do with the service. One of the places I think some things can be done is in the world of finance. Markets move quickly, and information quicker. Getting insight from some top notch fund investors, and financial guru’s can help hone your skills and strategies, hopefully making you better at what you do.

The one problem here is the noise. How do you find useful information and distill it into something even more useful on a hourly or daily basis, etc. A problem that a fellow Twitter’er @sorenmacbeth has set out to solve. Hence the birth of StockTweet. You use a special tag that denotes that you are referencing a stock symbol by Prefixing the symbol with $. This essentially aggregates the data from people following the service on Twitter. Opens up a whole world of data warehousing. Cool stuff, and I hope it starts to flourish.

Check out more of what’s cool about the service in this blog post:

FT-Alphaville

I wish I could just sit around playing and having fun with my daughter. All day when I am at work, especially when the weather gets nice, I wish I could just take off to the park with her and my wife. However, checking my investments as they’re making money (optimism!) and scouring the market for plays in the early morning just isn’t my reality yet. Neither is removing myself from being tied to a “normal” workday. Heck I work best between like 7 and midnight, but having meetings then would probably be frowned upon in my work setting.

So the other night while I was feeding my daughter some macaroni I realized that I needed some concrete financial goals. Nothing like the “make a million bucks tomorrow” crap that everyone talks about. I wanted a realistic 5 year plan about creating some more financial freedom. Over the past couple of years I have turned my brokerage account over 4 times. It doesn’t sound like a lot, but do the math when you start doubling your money and things can add up quickly. I am going to try and do that 2 more times over the next 5 years. This will break up my investing goals into 2.5 year increments. That way I have tangible goals to attain and some time frames to metric to help me watch my progress as I move along. I realize this is going to be far from easy, and some would say impossible. But shooting for big goals keeps my eyes on the prize and motivates me immensely. Plus what the hell do I have to lose besides my money.

It’s that simple for me. These goals would remove me from the idea that I needed to operate in an 8-5 world if I choose. It also would allow me to focus my time on investments, growing my money, managing risk, and dipping my toes into some business ideas that I find interesting.

Take note that I never want to quit working and I really do love what I am doing. I just want to shift my focus into a faster paced world where I feel like I can flourish without becoming unmotivated. So, when you get some time, map out your financial goals no matter how big or small. Or just follow along with me as I try to make my goals become a reality. I might fall short, but most times I find setting goals is half the battle. Plus its tons better than sitting on the sidelines watching other people taking their chances and succeeding.

A lot of people have asked me about what I am doing on the web, using technologies like Twitter, Facebook, etc.. It’s something that is hard to explain and is a bit nebulous. I use it to help build my social reputation on the web because of the industry I am in, but I also talk about its implications in marketing, and business value. This is where things get a bit dicey for most people. They have a hard time grasping this concept. Most people think of a company having a twitter account that blasts coupons out to people following them. To me that misses the big picture.

Social media is playing an important role in an emerging landscape that is destined to blur lines of what traditional marketing was aiming towards. What does that mean? In a nutshell, things are moving from corporations from “pushing” product ideas to us, to “pulling” them from users and customers and building a community around the product.. This business model flies in the face of what we normally think of with TV ads, newspaper ads, and other forms of traditional media. For a good example of this, take a look at what Threadless.com is doing. Products that are totally built around the community deciding them. This example is a bit to the extreme, though, since they have become established around the last 5 years. So how do big companies use these tools to their advantage? Well, it isn’t pushing coupons through media outlets like I stated above.

Big companies need to get creative. Social web outlets can go a long way to create buzz about your products without “pushing” them. For example, have a your product manager “plugged” into communities you might think your product is designed for. This can be twitter, pownce, or any of the dozens of services out there. Chances are, you will get people to start looking at your product through these media channels. Especially the early adopter types. This will help build a community around what you are selling. From this community, you’re going to hopefully get a lot of ideas to “pull” information from to make your product better. You don’t have to completely abandon your traditional strategies, but incorporating some form of social web strategy is the important part. Start moving your marketing strategy from “push” to “little bits of push, and mostly pull”.

Using this information to hone your product into something your customers want and like, is a helpful recipe to making something people are willing to use and possibly even pay for. The paradigm is shifting, and companies big and small are going to need to recognize it and capitalize.

I’m a huge fan of the Pareto Principle . Everyone knows what it is, and if they don’t they should. It’s the rule that states that 80% of the effects come from 20% of the causes. Lots of people like to use this principle in business to explain all sorts of behavior. I like to think about products with a variation of that principle I call the “4 for 1 rule”. Its a derivation of the 80/20 principle and a strategy all businesses should employ once they have exited their infancy and have an established revenue stream.

The rule is simple. As a company, you are going to have a flagship product that started your company that you built your foundation on. Its the product that pays the bills, allows you to operate, and hopefully throws off some money so you can afford some Budweiser beer and BW3’s chicken wings (disclosure: long AB, and BWLD). This is the “1″ in the “4 for 1″.

Now that you’ve got that going for you, what comes next? Well, for starters you need to appease the 95% of your customer base that is appeasable. The other 5% aren’t humans, they just are robots placed on the planet to drop hate bombs on people selling stuff. That will take some time for sure and it’s a full time job. Your company is also going to be concentrated on growing your revenue through sales and that’s a full time job as well. With all of the hours of spare time you are going to have with nothing to do, you should also be strategizing about 4 other products to compliment the 1 that’s already under your belt (”4″ in the “4 for 1″). It doesn’t have to be 4, its staying under that limit that matters. These can be pipe dreams in your head, or fully functional beta products that you are trying to role out. The important thing to remember is to have only 4 product “ideas” officially on the table at any time. Too many companies I have worked for have spread themselves to thin. Chasing multiple products with capital allocations that don’t justify their ROI. Keeping this 4 for 1 rule keeps you focused and tight as a company. It makes you REALLY evaluate whether this is a product that will have traction in the market. It also helps you scale better when you get to that point.

Having multiple products isn’t for every business. Most small companies are happy with 1 product bringing in some dough and that is definitely fine. But if you want your company to someday go from small to medium size, keeping the 4 for 1 rule a priority will help.

Quantitative Finance seems to be an established trend in investing. It’s using computer models to find probably situations to invest in. There are tons of hedge funds around the country that employ some sort of quant strategy with the money they have under management. I think there is a space to play here, and a partner and I have been actively developing strategies to compete. It makes sense since we are software developers by day with a business background for me, and engineering for him.

It’s a tough space to figure out. People that have strategies aren’t exactly actively publishing how they are doing it, what their results are, etc. So we have very little information to go on as far as comparisons against the field. So one of the biggest questions for us is what would be good returns for an investor looking to get into this space?

Currently one of our 5 strategies is producing well. Up over 10.36% for the year, while the S&P is down around 2%. If you look even further back over the past 200 days, our strategy is up around 23% (Note, these numbers don’t include some small % of slippage). We are making quick hits in investments with exposure lasting no longer than 14 days to limit risk and are playing nothing but equities.

So our big question in to the investing world out there is, does this kind of return interest you? and do you think it would be competitive in today’s investing marketplace?

Fred Wilson’s post today has prompted me to get off my keister and write something. So I figured I would write about what I have been experimenting with lately. It’s being a bit random.

I am a software developer by trade, and we live a pretty structured life. Design, develop, release. Rinse and repeat. That can get old REALLY quick. So to keep things fresh I am always looking for at least one random thing to do a day. Change up the coffee I drink, read something different in the morning, leave at a different time from home. It might not seem like much but it’s a little bit of randomness. That kind of stuff for me fuels creativity as I am forced to think a little bit outside of what feels “normal”, which is really important. I like having ideas, goals and things to shoot for at work, and outside. We all want a better life. I think doing small things like this can lead to big things in the future.

So get out there, do something slightly random. It will help break up the monotony, and you might come up with an idea that can change your career or start a new one.

I am one of the many thousands finding Twitter’ing to be a great platform for talking about things that I know you aren’t interested in. The best part about the platform is that it really breeds creativity. I love it and I want you to as well. But with creativity comes freedom, which usually translates into carelessness. In the spirit of The Big Lebowski, I say this: “this is not ‘Nam. there are rules.”.  (Note here: there really AREN’T any rules so you can just disregard what I am saying and do what you want.  Thats what the web is GREAT for.  Just trying to enhance your followership with some simple easy to remember rules) So here are my top 5 for twittering:

1. Start Writing.

Nothing is more important. Quit sitting on the sidelines and jump in the conversation. Some of the smartest people I know are using twitter. Companies are using it as an awesome communication tool. You can be part of the game for sure and it isn’t hard.

2. Be somewhat funny.

Differentiation will separate you from the pack. Being funny will make terrible content interesting. I love reading guys that are witty and funny with their posts irrespective of their content conveying a message. I would suspect the majority likes to see the same.

3. Be Creative.

The idea of twittering just spurns creativity. I love the fact that I can be drinking beers with friends and have an idea that may seem totally ridiculous that I twitter. It just provides a platform for that “I wish my bank didn’t suck as much as it did. If I built a bank it would……”. Ideas that seem stupid usually really aren’t. Companies usually aren’t that smart.

4. Don’t be short and stupid.

We all wake up and eat food. Don’t twit about that. We all get to and leave work. Don’t twit about that. I beg you to find 1 thing that is interesting everyday to twit about. You will and you’ll thank me for just thinking about twittering about things that aren’t everyday operations.

5. Lead, don’t follow.

We are all wanting something interesting in our day. Be interesting, step out of the box. I love finance, but I’m a software developer and crossing industries makes me find all kinds of things to talk about. Chances are you are doing something that you really like, but your love or interest is somewhere else. This can be good. Twit about it, and you can be a leader instead of follower.

So get out there. Get your voice heard. It can be a super positive step in creating who you want to be.

I have twittered about this over the past week or so, but I am now officially moving over to ThinkOrSwim as my brokerage framework (I don’t like the “house” analogy when it comes to brokerage’s. It feels like more of a framework to me, especially with TOS, so that’s what I call it.). Its been a long road for me to get here, but I am excited about the move for my investments.

I started a brokerage account several years ago at Sharebuilder, which is an AWESOME low cost way of making value plays that aren’t in need of perfect timing. They offer a solution that allows you to make $4 trades on Tuesdays of every week, and they also offer a monthly subscription that gives you X amount of trades a month included. So if you are doing your homework and figuring out the plays the right way, you can drip in money at a discount through this program. It has served me well on not getting hammered on transaction costs. In short, I HIGHLY recommend it if it is going to be where you are starting out at with for value investments with smaller amounts of capital available. If you are like I am at this point in my investing habits, you will start to outgrow them for several reasons. They offer a limited amount of symbols that you can trade, and they don’t allow shorting of stocks.

About a year ago, while searching for a better alternative I started an account with Zecco.com. I wanted to manage making plays through my quantitative strategies that I am investing in with a partner. These were short term plays. I also use it to make some value plays. Let me just say that the platform is abysmal. There is a reason that they offer deeply discounted or free trades, because they aren’t putting time into polishing the tools for the end user. I will say they are making strides to improve this, but it still is tough to find things that I want, and I am always using other sites to help form the “big picture”, i.e. Google Finance, etc.

I can already tell that ThinkOrSwim.com is like stepping up to the big leagues. Their tool set is unmatched and it seems like they are actively adding value to this as evidence by snatching up my buddy Andy Swan’s company, MyTrade. That is what I want from a services company. I am willing to pay slightly higher transaction costs (and it isn’t much higher, they have a great pricing structure), if there is value in what they are providing for me. Pair that with them actively searching for companies to add to their tool portfolio and I am a happy investor.

So in several weeks, I am going to be an active trader with a brokerage company that is really adding value for the customer. If you look around this space for a place to park your money, you will quickly figure out that this is not the norm. Plus you get a free stuffed monkey.

I have been spending a LOT of time lately investing, watching markets, and reading and applying some of the different strategies that I have developed. It spurned an interesting discussion today with a smart co-worker, and hopeful colleague about how I trade stocks.

For the last 3 years I have been doing nothing but value plays, period. Putting money into companies, sitting back and hopefully having some gains come to fruition. I have won some, and I have definitely lost on a few plays. The good thing with value plays is that over time, if you’ve done your homework chances are you’ll eek out some kind of win. What this has established for me is a nice solid foundation to my portfolio. I will continue this strategy until I can’t understand how to read balance sheets, income statements and analyze products, or I have spent all of my money on Anheuser Busch products (disclosure long AB).

My discussion from earlier with my coworker, sheds light on an often overlooked part of investing. Since I have spent 3 years building a portfolio, I finally have enough dough to take on some other strategies in parallel with my continued value investments making up the lions share of what I will have when I get older. I can take some of the extra cash and make some speculative plays. Learn how to trade flat markets, play defined risk trades (big thanks to Andy Swan for some great tutorials!) and hopefully throw off some cash doing it. I call this trading for income. In this space things get a lot more dicey with wins and losses and you really have to protect yourself from the down swings. But what you also get a are some chances to hit some big plays. Or hit big runs of consistent plays which is where I want to be.

All the while my value plays will hopefully be increasing my net worth.

I am far from an expert at anything, especially trading, but my general strategy to building my portfolio has been a good one. Start with value plays with products you find interesting or that you have bought. Learn the basics of reading some financials and start dripping small increments of money into plays. Over time it will build and you soon will be turning your attention to income plays where things get a lot more fun.

I got mentioned over at the Evernote blog. They asked for tweets about how you use Evernote, and I responded with the following:

“Using Evernote gloriously to be a smarter wine consumer. I can’t remember yesterday, let alone the name of the last wine bottle I drank.” - Kevin Frey

I have spoke of my love for Evernote. If you’re a note taking nerd like me, there isn’t a better solution. Check out the entire blog post here: how-do-you-use-evernote