Author: Manuel Jesus

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How to Invest Special Report

Posted on by Manuel Jesus

How to Invest in the Next Billion-Dollar Startup

It’s every investor’s dream—the one trade that makes a fortune.

Of course, more fortunes have been lost in pursuing that dream than have been made. The idea of finding one tiny investment where a mere $1,000 investment can turn into millions seems like a pipe dream.

That makes sense. After all, if you bought $1,000 of a stock and it went up tenfold, you might think about taking the money and running with it. The true test is to buy, hold, and stick to it.

That’s the simple secret of success behind many of history’s greatest investors. Of course, many of the investment greats have done so with one hand tied behind their back. That’s because they were limited to buying shares of publicly-traded companies after those companies had gone public, and after they’d already grown enough to become sizeable firms in their own right.

There’s a way to drill into a pool of companies that haven’t gone public yet. Some might, some might not. But even fi they don’t, as an investor in these companies, you could reap substantial profits.

This isn’t some fly-by-night offer, either. There’s over $1 trillion in these privately-held companies.

And best of all, anyone can invest in them, even if they only have $100 to put to work.

Flight of the Unicorns

In the world of companies that haven’t gone public yet, the unicorns reign supreme.

Unicorn is the term for a company that has a valuation of over $1 billion dollars. How are these valuations tracked? By private buyers and what they paid. Say a company sold a 10 percent stake to a private equity firm for $150 million. That implies a valuation for the whole business of $1.5 billion.

Think about it. This isn’t a company that’s publicly traded. Someone making a large commitment—and putting up a huge percentage—isn’t looking to buy on Monday and sell on Friday. They’re looking to see their investment grow… substantially.

Crunchbase estimates that there are 276 companies right now that are unicorns. And the value of these companies is $967 billion dollars. Add in the smaller companies that haven’t hit that billion-dollar mark, and you’ve easily gotten to over $1 trillion in private wealth that you can’t access by calling your stockbroker or logging onto your online account.

These unicorns might be where the Silicon Valley fat cats play around with their venture capital. But individual investors can play that game too, thanks to the power of crowdfunding. By getting in before a company even hits the unicorn stage, it’s very possible that an investment of just $1,000 could grow tenfold or more in just the space of a few years.

What a Difference a Decade Makes

Think back to 2008. We all remember the housing market bubble and collapse. And while it’s been a decade since the peak fear hit, it seems as though the economy is still struggling to find its way forward.

In some sense that’s true. But in others it isn’t. We’ve made some profound changes in how we live in the past decade. But the chances are it’s been so gradual that you haven’t even thought about it.

But a decade ago the world was a very different place for many other reasons:

Touchscreen smartphones were still in their infancy. The most popular brand of phone among the business community was the Blackberry.

While we had the Internet on our phones, we didn’t have the quality streaming video capabilities of the 4G Network.

If you needed a ride, there wasn’t an app for that.

Those are just a few changes in the world of technology.

And, of course, the hot financial topic of 2017 was cryptocurrencies. They didn’t even exist a decade ago, much less surge over $500 billion in value like they did in 2017.

But there’s another financial innovation of the past 10 years that can also create wealth like that. I’m talking about crowdsourcing.

In many ways, crowdsourcing is a lot like traditional investing. A group of people pool their capital and take a stake in a company—sometimes in the form of ownership (called equity) or sometimes by lending the company money and becoming a bondholder.

But the truth is, crowdsourcing is far different than buying a stock online. But it gives you a chance to invest in the companies that we’ll look back on in 2028 and wonder how we ever got by as a society without it.

Winning Strategies for Crowdsource Investors

With all the dozens of crowdsourcing opportunities out there, you’ll need to be armed with some simple, easy-to-understand concepts to succeed. Knowing how to invest is critical, and will make the difference between a great investment and a poor one.

Here are a few key things you need to know:

1) Diversify, Diversify, Diversify!

I know, I know. It’s not the exciting advice you want to hear. But let’s face it: you need to diversify. Investment professionals stress that anyone with less than 20 stock positions isn’t sufficiently diversified. Any fewer positions, and you run the risk of any single position causing devastation to your portfolio if it goes belly-up. That’s a bigger risk with crowdsourcing, as many companies could potentially lose money. But if you’re diversified, you’re increasing the chances of having more winning investments on your side.

With early-stage companies, that’s no exception either. In fact, it’s even more important. Here’s why:

As with any investment, you can’t just put all your eggs in one basket. When investing in smaller, startup-level companies as you are in the crowdsourcing stage, some businesses simply won’t pan out. It doesn’t matter if they run out of money, can’t compete with a better business model, or otherwise fail. The fact of the matter is that most businesses fail, and typically well before they ever get on the public’s radar.

Most venture capitalists expect their investments to go belly up a lot of the time. But one success will more than offset a dozen failures. The important thing is to build a diversified portfolio of startup level companies across a variety of industries.

Remember, diversification isn’t just about the total number of positions you have. It’s where those companies are located in their industry. Owning 10 different startups working on a new ride-sharing app doesn’t make you diversified. Especially if it means potentially missing out on a promising app company outside that space.

2) Start Small and Scale Up

Investing is supposed to be about rationally allocating your capital. But let’s face facts: people can get emotional about their investments. One important factor to consider with investing is to be able to sleep well at night. Yes, that may sound silly. But think about it this way: If something’s keeping you up at night, it might be because you’re too exposed to it. You’d be better off elsewhere.

As with any other investment, then it pays to start small, get comfortable with what you’re doing, and then scale up. If you only have $5,000 to invest, putting more than 10 percent into any one opportunity may mean creating a big risk of loss. Even at that level, a huge profit from an early-stage company can more than grow your portfolio as a whole without putting too much risk into a single position.

Sure, some investments sound better than others. But sometimes a great story behind a company doesn’t have a fairy tale ending. That’s why by starting small, you can scale up later. It’s impossible to start with all your money and scale up any further—and that may lead to difficult losses later down the road. Putting a lot of money into a single investment may seem like a great idea at the time—but at some point, it’ll cost you sleep. Better to start small and scale up.

3) Investing is a Marathon, Not a Sprint

When investing, consider your timeframe. You don’t need to make millions overnight. And trying to do so will just encourage a lot of frustration along the way. Early-stage companies might hit it big in a few months after you invest—or it may take years. Many successful companies didn’t get there on their Plan A. Rather, they were on Plan B… or Plan C. you get the idea.

Taking the time ensures that you’re making the best choice possible with your money. It means you’re not rushing into an investment. You have the time to do your research, and get comfortable with an investment. Likewise, by monitoring and reviewing your positions over time, if there’s a potential problem, you’ll have the time to see how it develops. Rather than sell out at a panic, you might see a company transform its business model and move on to more successful endeavors.

This goes hand-in-hand with diversification. If you’re diversifying, you’ll have money set aside for a future opportunity that may come along. When you don’t need to rush, you have the ability to build a great portfolio of crowdsourced companies over time.

4) Buy the Company, Not the Story

It’s easy to get caught up in a great story. And when it comes to early investing, when a company doesn’t have a track record or years of financial records to analyze, it’s tempting to give into the story.

While it’s fantastic to live in an era where there are so many innovators looking to change the world for the better, not every opportunity will pan out that way.

Consider what you’re getting for your equity stake when you invest in a crowdsource opportunity. Make sure a company isn’t overvaluing its potential relative to the produce or service it expects to provide. Stay emotionally disciplined. A story that sounds too good to be true might be.

Remember the Internet tech bubble of the 1990’s? Any company could go public with little more than an expectation of being profitable within five years. Towards the end, a few companies even added “dotcom” to their names just so their shares could go along for the ride. Many of those companies went bankrupt, and investors in those companies lost out because they focused on the story, not the company.

To some extent, you can also avoid the story by buying in areas where you are using a company’s product. By buying into something you understand, you improve your chances of making a great and profitable investment. It’s already some area that you have tangible knowledge of. That’s a good sign that you’re buying the company on the merit of its products, not just some concept.

5) Follow the White Rabbits

As with the old children’s fable, slow and steady wins the race. Focus on building a portfolio that’s balanced across a variety of sectors. That may prevent you from investing as much as you’d like in a compelling opportunity. But you only need one huge winner in an early-stage company to build surprising amounts of wealth from small amounts of capital.

Some companies will act like the hare—making big changes in valuation in a short amount of time. Others will act like the tortoise. But remember, these are early-stage companies.

Many may simply limp along from the starting line only to drop out of the race entirely. That’s okay. We’re here to profit from the best opportunities possible—but sometimes being the best at something in the business world isn’t enough.

But in investing, you can do well following the proverbial white rabbits. Those are the big players in the market who are investing.

By buying alongside major venture capitalists and hedge funds, particularly those with a track record of success, you’ll likely increase the chances of a winning opportunity. If you’ve ever seen Shark Tank, you know that Mark Cuban, the early venture capitalist in Facebook, selects his deals wisely. His years of making deals in early startups has given him a keen eye that not everyone else has (not to mention the ability to make quick decisions on the show!).

The point is, there’s no rule and nobody to stop you from following the news. If a company gets major funding from a hedge fund with a great track record and there’s a crowdsource opportunity, that might play a deciding factor. Remember, these aren’t just the big players—they’re also following these same rules that we’ve looked at in this report.

Conclusion: How to Make the Best Crowdsourcing Investments

It’s clearly a new era. We’re constantly innovating as a society, finding new and better ways to do things. Ways that are often disruptive—and have the potential to create huge sums of wealth along the way.

The things we take for granted 10 years from now may just be an idea in some innovator’s mind today. But thanks to tools like crowdsourcing, they can get the capital they need to make their idea a reality. Some of those realities won’t be very profitable. Others may become the next Facebook or Google. Time, patience, and luck will tell.

By combining the tools of diversification, patience, scaling, emotional discipline, and following key industry players, anyone can make a profit from the leading companies of tomorrow.

It’s a growing space, so there’s still plenty of opportunities out there. One trade can make a fortune. But many good prospects won’t pan out. That’s okay. You have the tools to succeed. Take the time, be patient, and get started.

Stock market

Amazon Could Be the Next Walmart

Posted on by Manuel Jesus

Amazon (Nasdaq: AMZN) has been a great stock market performer and great performance often leads to skepticism. Investors become concerned that the growth cannot continue. That can be a healthy attitude for investors to maintain. Not all companies can continue to grow rapidly even after delivering growth.

These concerns could be overblown in the case of Amazon. The company’s operating profits are shown below and the trend appears to be moving in the right direction.

Amazon's profits

Source: Mauldin Economics

Of course, this chart shows past growth. To continue growing in the future, Amazon could benefit from new ideas. Recent reports indicate that Amazon could be following in Walmart’s historic footsteps.

Analysts note that Walmart “grew from one retail store in Arkansas in 1962, founded by Sam Walton, to the largest food retailer in the U.S. for 2010 with an estimated $188.3 billion in total food/consumable sales.

In 1987 Wal-Mart opened larger Hypermart USA stores which combined a grocery store, a merchandise market and other services such as restaurants and video rental stores.

Sales volume averaged $1 million per week at the Hypermart stores compared with $200,000 for the regular stores.

The store spread across the country like wildfire. But its first full-stocked grocery didn’t open until 1988. The first Wal-Mart Supercenters opened in 1988 which combined the discount outlets and grocery stores. Hundreds of supercenters were opened during the 1990s.”

The Next Move For Amazon

Now, according to The Wall Street Journal, “Amazon.com Inc. is planning to open dozens of grocery stores in several major U.S. cities, according to people familiar with the matter, as the retail giant looks to broaden its reach in the food business.

The company plans to open its first grocery store in Los Angeles as early as the end of the year, one person said. Amazon has already signed leases for at least two other grocery locations with openings planned for early next year, this person said.

The new stores would be distinct from the company’s upscale Whole Foods Market brand, though it is unclear whether the new grocery chain would carry the Amazon name.

Amazon is also exploring an acquisition strategy to widen the new supermarket brand by purchasing regional grocery chains with about a dozen stores under operation, one person said.

Amazon is now in talks to open grocery stores in shopping centers in San Francisco, Seattle, Chicago, Washington, D.C., and Philadelphia, the people familiar with the matter said.

While Amazon has already signed leases, that doesn’t guarantee it will open the grocery stores. Retailers sign contracts and then pull out or delay store openings if certain conditions aren’t met.

The new stores aren’t intended to compete directly with Whole Foods and will offer products at a lower price point, these people said. The new chain would offer a different variety of products than what is on the shelves at the more upscale Whole Foods stores.

Whole Foods doesn’t sell products with artificial flavors, colors, preservatives and sweeteners, among other quality standards. Suppliers with big brands have hoped that Amazon’s 2017 purchase of Whole Foods would give them new inroads into the high-end chain.

Whole Foods has gradually expanded the big brands it carries—such as Honey-Nut Cheerios and Michelob beer—but the grocer’s quality standards haven’t changed. A conventional grocer can carry a much larger assortment of items.

Amazon is also increasingly focused on physical retail. It has had mixed results with its food-delivery business, and the company wants to better understand how it can cater to grocery shoppers, according to people briefed on the company’s strategy.

Supermarket operators Walmart Inc., Kroger Co. and others are also trying to find ways to offer delivery and pick-up to customers in a more cost-efficient manner.

Amazon has been targeting new developments and occupied stores with leases ending soon. It could also look at a portion of a vacated Kmart, for instance, a person familiar with the matter said. Stores in the new grocery brand could be in strip centers as well as open-air shopping centers, the people said.

They will be about 35,000 square feet, smaller than the 60,000 square feet for a typical supermarket, they said.”

The Competition Reacts

After The Wall Street Journal reported news of Amazon’s plans, the stocks of other supermarket operators fell, according to Barron’s. Kroger dropping 3.6% on the day, Walmart down 1% and Sprouts Farmers Markets Inc. losing 1.1%. Amazon rose 1.4%.

Amazon’s new grocery brand also comes as the retailer rolls out its cashierless Amazon Go stores in urban areas across the U.S. The company has 10 Amazon Go stores in Seattle, Chicago and San Francisco, according to the Amazon website.

A look at Walmart could be instructive for investors. The company now has over 11,000 stores in 28 countries. The stock has been a great performer. Since shares began trading in 1972, the stock has gained more than 268,000%.

WMT quarterly chart

The stock has delivered a gain more than 2,000% since it opened its 1,000th store in the 1980s. By that time, the company’s success seemed to be assured and the stock carried much less risk than it did in 1972.

This could be the point that Amazon is at. The stock has gained more than 150,000% since it began trading in 1997.

AMZN quarterly chart

Yet it offers the potential to become a ten bagger from its current level.

A tenbagger, according to Investopedia, is an investment that appreciates to 10 times its initial purchase price. The term “tenbagger” was coined by legendary fund manager Peter Lynch in his book “One Up On Wall Street.”

While tenbagger can describe any investment that appreciates or has the potential to increase ten-fold, it is usually used to describe stocks with explosive growth prospects.

Lynch coined the term because he is an avid baseball fan, and “bag” is a colloquial term for base; thus “tenbagger” represents two home runs and a double, or the stock equivalent of a hugely successful baseball play.

Amazon’s expansion into new businesses carries the potential to increase earnings and that could lead to even more stock gains, even after the big gains of the past.

 

Did you know that dividends have rewarded investors for at least 100 years, at least since John D. Rockefeller said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

We have prepared a special report about dividends that you can access right here.

Stock market

How to Trade the Change From FAANG To FAANGUP

Posted on by Manuel Jesus

The FAANG stocks are the market leaders, a group of tech stocks consisting of Facebook (Nasdaq: FB), Apple (Nasdaq: AAPL), Amazon (Nasdaq: AMZN), Netflix (Nasdaq: NFLX) and Alphabet (Nasdaq: GOOGL), the parent company of Google.

The chart of an index consisting of those stocks is shown below.

FANG weekly chart

Their leadership is visible in the chart. The index gained more than 230% from the lows in early 2016 to their peak last year. But there could be a change coming to that group as some other leading tech stocks come to market.

Pinterest Could Be the First

The Wall Street Journal is reporting that “Pinterest Inc. has confidentially filed paperwork with the Securities and Exchange Commission for an initial public offering that is expected to value the company, which operates a platform for online image searches, at $12 billion or more as it joins a parade of hot tech startups planning share debuts in 2019.

Pinterest logo

The filing is the latest example of a rush to the public markets by highly valued technology companies including ride-hailing service providers Lyft Inc. and Uber Technologies Inc., which have both also filed confidentially for listings.

Such companies had for years shied away from public markets—a luxury afforded them by a surfeit of private capital—but in recent months the tide has turned.

The shift appears to derive from the outsize gains new tech stocks have enjoyed of late. As of this week, shares of U.S.-listed technology and internet companies that went public in 2018 are up about 33% on average, according to Dealogic.

That is far ahead of the major indexes and the performance of all 2018 U.S. IPOs, which are up 11%.

Bankers and others predict that 2019 could be the busiest year ever for IPOs by the amount of money raised. The current high-water mark is 1999, near the height of the dot-com bubble, when companies raised $107.9 billion going public in the U.S., according to Dealogic.

Last year’s total was barely half that, at $60.8 billion, up from $49.4 billion in 2017.”

Even before Pinterest, traders could have a chance to own Lyft, which filed confidentially for its IPO late last year. The company may make the submission public next week and begin trading on Nasdaq by the end of March according to reporting in The Wall Street Journal.

Uber also filed confidentially at the same time late last year, while workplace-messaging provider Slack Technologies Inc. has since submitted paperwork for a so-called direct listing.

The Journal noted “Many of the largest companies are wedded to going public in 2019, regardless of market conditions. In some cases, like with Uber, they have told investors they wouldn’t raise any additional private capital.

It is a big turnabout from last fall, when many companies that were expected to debut in 2018 delayed their plans as markets swooned amid fears of slowing economic growth in the U.S. and other concerns.”

While some big-name companies still successfully launched, they had a more difficult time pricing their offerings. Two of the biggest fall IPOs were those of biotech Moderna Inc. (Nasdaq: MRNA) and music-streaming company Tencent Music Entertainment Corp. MRNA is shown below.

Moderna, which had been one of the most highly valued health-care startups, hasn’t fared as well as Tencent. The biotechnology company raised more than $600 million, pricing its shares at $23 apiece in early December.

It suffered one of the worst opening days for a company going public last year. Since then, the stock has recovered somewhat but still trades near the offering price.

MRNA daily chart

Shares of Tencent Music, which fetched a valuation of more than $20 billion at pricing, have risen by about 30% since then.

TME daily chart

Pinterest and its underwriters, led by Goldman Sachs Group Inc. and JPMorgan Chase & Co., are eyeing a late-June listing, according to people close to the deal. They warned that, as always with IPOs and unpredictable markets, the timing or valuation could shift.

The social-media company’s chief executive, Ben Silbermann, has said the company would look to debut in 2019 and The Wall Street Journal reported in December that it was preparing for an IPO that could take place as soon as April.

In September, Pinterest, which launched in 2010, surpassed 250 million monthly active users, who visit the site to browse through and share billions of images on topics ranging from living-room furniture to dinner recipes and tattoos.

The company generates revenue from ads scattered across its site and notched more than $700 million in 2018, up 50% from the prior year, according to a person familiar with the matter.

Lyft Also Offers Potential

Lyft, according to The Wall Street Journal, has been in a race with rival Uber Technologies Inc., which has also filed privately for an IPO, but it is now clear Lyft will provide the first major test of how public investors value the ride-hailing industry.

Lyft is planning to launch its roadshow pitch to investors in mid-March, the people said, which could mean the shares start trading by the end of the month. There is no guarantee that timing will hold, as it will depend in part on cooperation from the markets.

Lyft is expected to pitch itself to potential investors as a comprehensive ride-hailing service offering access to cars, bikes and scooters, mostly in the U.S., and one that won’t be saddled with losses from competing globally.

Like many fast-growing technology companies, Lyft is planning to debut with supervoting shares that will give the company’s founders near-majority control, despite together owning a stake of less than 10%, The Wall Street Journal has reported.

The question for investors is whether or not they should chase these shares if they open up on their first day of trading. In the long run, the companies could struggle financially and there could be a pullback that allows for a better entry later.

These will almost certainly be highly publicized events but they might not be the best deals for individuals until a few months after the offering so that insiders can complete selling their shares.

 

Did you know that dividends have rewarded investors for at least 100 years, at least since John D. Rockefeller said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

We have prepared a special report about dividends that you can access right here.

Marijuana

Marijuana Could Be a $50 Billion Industry

Posted on by Manuel Jesus

For now, marijuana is in an unusual position. It is legal in some states but illegal in others and it is also illegal on the federal level. But some analysts believe sales could quickly hit $50 billion a year if the substance was fully legalized.

The legal atmosphere could complicate investment in the industry. As Barron’s notes, “U.S. federal law still considers marijuana an illegal drug in the same class as heroin. Any financial service provided to a cannabis business may violate federal law.

So bankers in the Federal Reserve System, not to mention the New York Stock Exchange and Nasdaq, won’t touch an American business connected to the cannabis plant. Weed outfits can’t even deduct their business expenses, under the U.S. tax code.

Happily, we have federalism. Since California legalized medical marijuana in 1996, 32 other states, plus the District of Columbia, have allowed medical marijuana. Now 10 states permit recreational use.

Each state does it differently, however, so multistate operators like Curaleaf (CURA.Canada) and Acreage (ACRG.U.Canada) must pick their way across a regulatory obstacle course. And their shares can trade only on the thin Canadian Securities Exchange or the OTC Markets Group in the U.S.

No one expects the U.S. to legalize pot soon. But some federal initiatives are trying to let states do their thing.

A recent hearing before a subcommittee of the House Financial Services Committee considered the SAFE Banking Act, a bill that would allow banks to legally handle the proceeds from a state-legal cannabis business.

“Thousands of employees and businesses across this country have been put at risk because they are forced to deal with piles of cash, while Congress stuck its head in the sand,” said the bill’s co-sponsor, Ed Perlmutter (D., Colo.).

With no federal approval, U.S. companies face different rules in virtually every state. Here are state-by-state comparisons.

marijuana laws by state

Source: CRS presentation of data from the National Conference of State Legislatures.

“The American voters have spoken,” said Perlmutter, “and you cannot put the genie back in the bottle. Prohibition is over.”

A broader federal reform would result from the States Act, first proposed by Sens. Cory Gardner (R., Colo.) and Elizabeth Warren (D., Mass.) in June 2018. It would exempt cannabis from most federal drug laws, within states that have legalized it.

The SAFE Banking Act might get a vote this year, but Congress isn’t likely to seriously consider the States Act before next year, says Troy Dayton, who heads the cannabis investment and research firm Arcview Group.

Meanwhile, legalization continues to sweep across the states. Last November, voters in Missouri and Utah approved medical marijuana, while Michigan added recreational pot.

New York, New Jersey, and Illinois don’t have voter referendums, but their governors have said they’ll seek legislation that legalizes recreational sales. Advocates are gathering signatures for public initiatives in Florida, Arizona, and Ohio on recreational pot.

Municipalities have a say, too. In Massachusetts, the state’s Cannabis Control Commission evaluates the suitability of licensees, says Commissioner Shaleen Title, but each municipality can vote on how many cannabis establishments it wants.”

While full legalization is unlikely to come soon, investors can prepare for that event which could be a reality in several years.

Getting Ready for National Sales

In a skeptical article called You’d Have to Be High to Buy American Marijuana Stocks, Barron’s presented a summary of stocks in the industry.

top contenders in U.S. marijuana market

Source: Barron’s

 

This article reviewed the risks which included the fact that “Just finding the stocks is hard. Although marijuana is legal for recreational or medical use in many states, it remains illegal under federal law.

As a result, the companies can’t list on the Nasdaq or New York Stock Exchange, so they’ve gone to the Canadian Securities Exchange in Toronto (and the OTC Markets Group in the U.S.). Companies that sell only in Canada, like Canopy Growth (NYSE: CGC), can list in the U.S. and tap deeper-pocketed investors.”

The article added:

“The U.S. companies have disclosed investment risks ranging from federal investigations to allegations of self-dealing. Heightening the risk is thin trading in Canada’s market, which can scarcely accommodate both the investing public and early-stage private-equity investors—some itching to unload stock at the first chance.

These potential problems don’t seem to be reflected in U.S. cannabis stock prices, which carry a hefty collective market valuation of US$14 billion, despite modest revenues and the ferocious cash-burn rates at loss-making start-ups.

“It’s difficult to do due diligence on these operations right now,” says Stavola’s new colleague, iAnthus CEO Hadley Ford. “The store counts are small and with the massive upfront spending, free cash flow doesn’t exist.”

Sorting winners and losers so early on is virtually impossible. Better to wait and see how many of these outfits can turn a profit. For speculative investors who can’t wait, there are two possibilities: Spread small bets across the U.S. industry, a strategy suggested by Ford, or buy one of the handful of weed-focused exchange-traded funds, such as Horizons Emerging Marijuana Growers Index (HMJR.Canada, and HZEMF in the States).”

Stocks that are listed in Canada but have at least operations in the U. S. include Curaleaf Holdings (CURA.Canada), Acreage Holdings (ACRG.U.Canada), Green Thumb Industries (GTII.Canada), MedMen Enterprises (MMEN.Canada), Harvest Health & Recreation (HARV.Canada), and Trulieve Cannabis (TRUL.Canada).

Investors can access stocks that trade in Canada and many other countries through brokerage accounts at many of the large U. S. brokers. However, some brokers may not allow investments in marijuana stocks even if they offer access to foreign markets.

If you want to buy a stock your broker won’t allow, it is possible another broker will and a query to additional brokers could allow you to determine that. There are potential risks in the industry, including high valuations for some of the stocks. But there are also potentially large rewards.

For aggressive investors, the marijuana industry could be worth a look. And it could also be a reasonable strategy to take profits off the table when they are available to minimize the risks associated with the industry.

 

 

Did you know that dividends have rewarded investors for at least 100 years, at least since John D. Rockefeller said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

We have prepared a special report about dividends that you can access right here.

 

 

Stock market

After a One Day Drop of More Than 50%, Is This Company a Buy?

Posted on by Manuel Jesus

It’s unusual to see a multi-billion-dollar company lose more than half of its value in one day. But that happened when Stamps.com (Nasdaq: STMP) announced that it would be expanding its base of business partners.

While that seems to be a possibly favorable announcement, the news was bearish to investors. The company saw its market capitalization drop from over $3 billion on the announcement.

STMP daily chart

Amazon Forced the Change

CNN reported that “Stamps.com says it is ending an exclusive relationship with the US Postal Service, sending shares of its stock plunging more than 50%.

The company says Amazon is disrupting the shipping business, and it needs to do shipping deals with postal service competitors going into the future.

Amazon has popularized two-day shipping with its Prime service, and Stamps.com says its customers demand two-day shipping guarantees. FedEx (NYSE: FDX), UPS (NYSE: UPS) and DHL offer those guarantees. The Post Office doesn’t.

“One of our nonnegotiable items is that … we will no longer be exclusive to the USPS,” said CEO Kenneth McBride in a call with analysts on Thursday evening. “USPS has not agreed to accept these terms or any other terms of our partnership proposal.”

McBride said Stamps.com opted to discontinue its shipping partnership with the Postal Service so it can “fully embrace partnerships with other carriers who we think will be well positioned to win in the shipping business in the next five years.”

The CEO added that “Our customers are demanding and need 2-day delivery guaranteed” and “In the last month … Amazon came out and they said, ‘Hey, we’re going after shipping’”

Stamps.com will still allow its customers to print out stamps, but McBride said that decision to end the exclusive deal will cause “some short-term pain for us over the next few years.”

He said that it now expects revenue to fall as much as 8% this year. Analysts forecast had forecast sales would grow by more than 16%.

McBride said a key reason why Stamps.com made its decision to end the Postal Service partnership was Amazon publicly stating it will get into the delivery business itself.

“Amazon’s track record of disrupting an industry is well established. So their threat should be taken very seriously by every player in the shipping industry,” he said. “We are setting our corporate strategy assuming Amazon will be a big global player in shipping.”

New Opportunities

Barron’s noted that “the company will no longer use the Postal Service to deliver stamps to customers, and instead will seek to make shipping deals with companies such as FedEx (FDX) and United Parcel Service (UPS). Customers can still print their own postage using the online provider.

Amazon’s Prime service has popularized two-day shipping among customers, and FedEx, UPS, and DHL offer similar guarantees. The Postal Service doesn’t.”

The news “wiped out $2 billion in Stamps.com’s market value and sent its shares to their lowest level since August 2016 even though the company reported a 29% year-over-year jump in revenue, to $170.2 million, for its fiscal fourth quarter.

Stamps.com ended its USPS deal so it “fully embrace partnerships with other carriers who we think will be well positioned to win in the shipping business in the next five years,” CEO Kenneth McBride said on a conference call with analysts.”

But this could be a transformative event for the company. “in its annual 10-K filing, the e-commerce powerhouse made it clear it is adding “transportation and logistics services” to the arenas in which it competes.

At least two analysts cut their ratings on Stamps.com.

The company’s strategy shift “will take heavy investment in order to re-establish new deals with strategic carriers in order to restore growth over the long-term,” Roth Capital Partners analyst wrote in a research note on Friday. He downgraded the stock to Sell from Buy and slashed his price target to $78 from $260.”

Investors could consider the companies STMP plans to partner with, including FDX.

FDX daily chart

Analysts expect FDX to report earnings per share of about $16 this year and $18 next year. This could be a bargain since the price of the stock is just about 10 times next year’s expected earnings.

The long-term chart of UPS shows that the stock is in a down trend that began last year.

UPS weekly chart

A down trend is defined by a series of lower highs and lower lows. That is visible in the chart above. The company is expected to report earnings of about $7.50 this year and $8.22 next year. At the recent price, the stock is trading with a price to earnings (P/E) ratio of about 14 based on next year’s expected earnings.

Depressed valuations in the shipping industry could indicate that investors expect an economic slowdown. These companies would be likely to experience declines in revenue and earnings in an economic contraction.

The decline of STMP demonstrates the problem investors face when buying growth. Prior to the news, the company had delivered growth in revenue averaging about 32% a year over the past five years. Earnings per share grew by about 31% a year over that time.

That type of growth could justify a higher than average valuation for the stock however any slowdown in growth could lead to a sell off. That is what happened, but the selling could be overdone. The stock is now trading in line with the broad stock market and could deliver some growth in the long run.

Bottom fishing, or buying after a large decline, carries a great deal of risk because there is no way of knowing if additional declines are ahead. However, cautious investors could place STMP on a watch list and consider buying if the stock consolidates at a lower level or even turns up.

The consolidation could indicate the selling pressure has dissipated. The up move could indicate buying pressure developed. Either pattern could decrease the risk.

 

Did you know that dividends have rewarded investors for at least 100 years, at least since John D. Rockefeller said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

We have prepared a special report about dividends that you can access right here.

Stock market

Robots Could Be the Next Big Investment Theme

Posted on by Manuel Jesus

Robots have been an almost constant theme in the public imagination for decades. Television shows in the 1960s often featured robots in households, making it appear as if the future would be filled with affordable and useful robots.

In the television shows and cartoons, the robots were lifelike and almost human. In the real world, the current robots available are often useful but not always like humans.

robots

Source: BMW Werk Leipzig 

Machines like this are increasingly common in the industry.

Rise of the Machines chart

Source: Barron’s

At General Motors, according to a recent article in Barron’s, 13,000 of the 30,000 robots in its plants worldwide are now connected. Each day, those robots feed operating data into the cloud. GM uses the data to do predictive maintenance on its machines to improve plant uptime.

“One [percentage point] improvement in uptime is significant,” says Dan Grieshaber, GM’s director of global manufacturing engineering integration. “We got seven [percentage points] improvement in our first month with data analytics. That’s huge dollars.”

Technology is also enabling robots to do more. The sorting of red and green pills in the Fanuc facility wasn’t directed by any human. The machines recognize color and can react to object orientation and a changing environment like never before.

A fast-growing niche is collaborative robots, or cobots. These smaller robots work alongside humans and are cheaper, easier to program, and appeal to smaller enterprises that wouldn’t have considered robotic automation in the past.

Rise of the Robots

Source: Barron’s

The new technologies are part of what manufacturing executives are calling the next industrial revolution, one that makes robotic automation accessible to a wider assortment of customers.

Already, growth has been explosive. Robot deliveries have grown 19% a year on average for the past five years, up from the 5% annual growth averaged in the previous 20 years.

For investors, there are opportunities to be found in the major robot makers but they are largely on overseas markets.

Fanuc, a Japanese company, is the largest. Other large makers include Japan’s Yaskawa Electric and Germany’s Kuka. ABB Group (NYSE: ABB) and Teradyne (Nasdaq: TER) are U. S. based companies that could be potential investments.

TER weekly chart

TER supplies automation equipment for test and industrial applications. The company designs, develops, manufactures and sells automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in the consumer electronics, wireless, automotive, industrial, communications, and aerospace and defense industries.

Barron’s noted that, “Teradyne is particularly attractive. Robots are 12% of total sales but the business is growing rapidly, and investors don’t give the company credit for that growth.

Its stock trades for 17.2 estimated 2019 earnings—a small premium to other semiconductor equipment companies that don’t have high-growth franchises.

Teradyne’s automation business generated $261 million in 2018, and Weston Twigg, an analyst with KeyBanc, says that cobots can be a $1 billion business by 2021. That’s a huge opportunity for a company with $2.1 billion in revenue.

Based on the multiples paid for other high-growth industrials and for Teradyne’s semiconductor peers, the company’s shares could double over the next couple of years.”

Industrial robotics

Source: Barron’s

Barron’s has also been bullish on ABB because the company is selling its slower- growth power-grid infrastructure business. What’s left will be dedicated to electrification and advanced automation technologies—including robotics.

ABB weekly chart

The site noted, “It’s impossible to write about growing robot use without considering the impact on factory workers. One side of the debate worries that robotic automation steals jobs from the people who have the most trouble training for a new career. The other side maintains that higher productivity will create more jobs.

Everyone in the robotics industry is painfully aware of this debate. Robot users are quick to point out that they apply robotic technology to dirty and dangerous jobs they have trouble filling.

ABB CEO Ulrich Speisshofer frames the debate another way: Better manufacturers get the work. Economies with the highest penetration of robotics—South Korea, Germany, Japan—have healthy manufacturing sectors that create jobs.

The penetration data also point to the potential demand. To increase robot density to the levels of those three countries, the industry would need to ship four million to five million industrial robots—more than 11 years of production at current rates.

(There are only about two million robots around the world today.)

Consider what happened in aerospace when China emerged as an economic power. Boeing ’s backlog went from three years of production to seven. Along the way, its valuation went from 15 times estimated earnings to around 18 times. The robotic backlog is expanding in a similar way.

Fortunately, you don’t have to rely solely on a Boeing-like multiple expansion with industrial robots. Higher growth and a stable industry structure should do the trick for investors in Teradyne and ABB.”

Investors could also consider an exchange traded fund (ETF) that tracks the industry.

Robo Global Robotics & Automation ETF (NYSE: ROBO) is a fund with more than $1.3 billion in assets. The fund’s sponsor notes that “ROBO was the first robotics and automation ETF to market, providing investors with a liquid, cost-effective and diversified way to gain access to rapidly evolving robotics technology and AI.”

Bill Studebaker, CIO of ROBO Global, reminds investors that this could be a volatile investment. He recently said, “The market is not good at pricing exponential growth, and this is what we’re seeing in robotics and AI.”

An example of the type of company the ROBO ETF holds is Zebra Technologies Corp., which specializes in automated sensor and scanning technology.

“When you look at Zebra, if you order anything from Amazon.com over the holidays, chances are that Zebra Technologies was involved in your order,” Studebaker said. But older companies are also involved in the sector.

Deere & Company (NYSE: DE), according to Studebaker, is in the portfolio because “over 60 percent of their tractors have autonomous mobility capabilities.”

The biggest problems in the world today represent opportunities for AI and robotics companies in the long-term, Studebaker said.

“AI technologies and applications are becoming central to every industry, and I think now is the time to focus on investing,” he said.

Studebaker compared the impact that automation and AI will have on the business world to the impact the internet has had in the last two decades.

“As we look out the next three, five, ten years, investors I think are going to look back at this opportunity and say, ‘Why did I miss it?’”

However, this is a risky sector and risk should be considered before making any investment in the industry.

 

 

Did you know that dividends have rewarded investors for at least 100 years, at least since John D. Rockefeller said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

We have prepared a special report about dividends that you can access right here.

Cryptocurrencies

This Is Why Crypto Could Be a Buy

Posted on by Manuel Jesus

Cryptocurrencies were a trader’s favorite in 2017 but then a crash destroyed significant value in the sector. That crash could be a reason to consider investing now.

The crash was significant, wiping out the gains of the bubble. The depth of that decline can be seen in the chart below. It can also be seen that the price began to stabilize near the end of 2018 and could be forming what technical analysts consider to be a basing pattern on the chart.

bitcoin weekly chart

Basing, according to Investopedia, “refers to a period in which a stock or other traded security is showing minimal upward or downward movement. The resulting price pattern looks like a flat line or slightly rounded.

Often, ‘basing’ is a term used by technical analysts to describe a market that is consolidating after a period of rapid growth or decline. A market that is basing has equal amounts of supply and demand.

Basing is a common occurrence after the price has been in a lengthy decline or had a significant advance. In other words, the market is taking a break. Some markets can form a base that lasts for several years before the trend reverses.

Basing periods are accompanied by declining volume as prices consolidate. Volatility also contracts as a market trades sideways.

Markets that are basing establish clear support and resistance levels as the bulls and bears fight for control. Institutional traders may use a basing period to accumulate a large order they are buying for a customer.

Many technical analysts believe that basing is crucial, especially for markets that have had a rapid advance. They view basing as the “breather” that allows the issue to continue climbing.”

The site notes that basing can represent a trend continuation or a reversal.

“Traders who are using a basing period to find an entry point in a trending market should place a trade when price breaks above the high of the consolidated range (for a long position). The breakout should occur on above-average volume to show participation in the move.

Ideally, a commonly used moving average, such as the 20-day or 50-day, acts as support at the bottom of the basing period; this allows the moving average to catch up to price. The moving average acts as resistance for a short position.

The narrow range of a basing formation allows for a healthy risk/reward ratio. Traders can place a stop-loss order on the opposite side of the consolidation period.

Because the market is expected to start trending again, profit targets that are many multiples of the stop amount can be set to capture the bulk of the move.

On the other hand, contrarian traders may use a basing period to find potential bottoms or tops in a security.

If a market has been consolidating for an extended time, a breakout in the opposite direction to the previous trend often triggers stop-loss orders and attracts breakout traders which can cause a reversal.

As with the trend continuation strategy, the trade should be exited if price crosses the opposite side of the basing range. Traders could use retracements of the previous trend to set profit targets.”

The next chart shows the details of the recent basing formation in bitcoin.

bitcoin daily chart

The Decline May Have Boosted Bitcoin

One expert recently told CoinTelegraph.com that the sell off could have created a buying opportunity as money moved from speculators, or weak hands, to more entrenched investors, or smart hands.

“Alexis Ohanian, co-founder of Reddit and known crypto bull, claimed that the crypto hype is gone, leaving space for true crypto believers. Ohanian spoke on the subject in an interview with Yahoo Finance [that was recently released].

When asked if he is still a big believer in crypto, Ohanian acknowledged that the current state of the market is undoubtedly still considered to be a crypto winter, which means crypto prices are depressed.

However, citing Coinbase CEO Brian Armstrong, Ohanian emphasized that the bear market has contributed to the elimination of speculators, while true crypto believers have stayed to build real crypto infrastructure.

Ohanian elaborated that in his opinion, the extinction of the hype around the crypto and blockchain space is actually a good thing for industry development. He said:

“Now, it’s still to be seen. But what’s a strong signal to me is still some of the smartest people I know in tech are working on solving these problems. They’re building companies that are built on blockchain. The hype is gone. The fervor is gone. But I think that’s a good thing.”

Ohanian was also asked about the announcement from banking giant JPMorgan Chase concerning the launch of its own cryptocurrency JPM Coin, a blockchain-powered asset that is expected to increase settlement efficiency within the bank’s operations.

Answering the question, Ohanian stressed that the recent move by JPMorgan is just another indication that there is real innovation happening since the wild speculation is gone.

Considering the upcoming release of the coin to be a good thing, Ohanian still noted that JPMorgan CEO Jamie Dimon had previously called major cryptocurrency Bitcoin (BTC) a scam.

Recently, Dimon has since clarified his stance towards Bitcoin, claiming that he had not intended to become the spokesperson against the biggest cryptocurrency.

Born in 1983, Alexis Ohanian became a 23-year-old multi-millionaire in 2006 after selling Reddit along with the second co-founder Steve Huffman back in 2016. The internet entrepreneur and investor is also a co-founder of early-stage venture capital firm Initialized Capital.

In July 2018, Ohanian maintained his prediction that Bitcoin and top altcoin Ethereum (ETH) will hit $20,000 and $1,500 respectively in 2018.

However, since July 2018, the highest price points of the two cryptos have been maximum thresholds of around $7,200 and $400 respectively, according to CoinMarketCap.”

A chart of ETH is shown below.

ETH daily stock chart

Given the dynamics of the market and the chart pattern, now could be an ideal time for individual investors to consider making modest commitments to the crypto markets by buying either BTC or ETH. The lower price of ETH could make it more appealing to small investors. 

 

Did you know that dividends have rewarded investors for at least 100 years, at least since John D. Rockefeller said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

We have prepared a special report about dividends that you can access right here.

Economy

Retail Sales Raise Flags for Investors

Posted on by Manuel Jesus

Many investors and analysts closely watch economic data. The most recent data on retail sales caused many to question the health of the economy.

Investopedia explains what the report is and why it is important:

“The Retail Sales Report, released monthly by the U.S. Census Bureau, is very closely watched by both economists and investors. The Census Bureau has been releasing the report since 1951 and they adjust the sample of retail outlets used every five years to stay current.

retail report

Source: Federal Reserve

This indicator tracks the dollar value of merchandise sold within the retail trade by taking a sampling of companies engaged in the business of selling end products to consumers. Both fixed point-of-sale businesses and non-store retailers (such as online sellers) are used in the data sample.

Companies of all sizes are used in the survey, from Wal-Mart to independent, small-town businesses. These companies provide data including retail sales and month-end inventories.

The data from the Retail Sales Report is widely used by various government agencies, academic analysts and researchers, economists, businesses and investors. It is a component in the calculation of Gross Domestic Product, a key economic indicator.

The Fed uses this data to analyze recent trends in consumer purchases as part of their overall analysis of the economy and recent trends. The results of the report are widely reported by the financial media.

Investors use the data to measure trends in consumer spending as part of their overall analysis of business and economic trends, and of industries impacted more directly by this data.

The release of the Retail Sales Report can cause above-average volatility in the stock market. Its clarity as a predictor of inflationary pressure can cause investors to rethink the likelihood of Fed rate cuts or hikes, depending on the direction of the underlying trend.

If retail sales growth is stalled or slowing, this means consumers are not spending at previous levels, and could signal a possible recession due to the significant role personal consumption plays in the health of the economy.

One of the most important factors investors should note when viewing the indicator is how far off the reported figure is from the so-called consensus number, or “street number.”

In general, the stock market does not like surprises, so a figure that is higher than expected could trigger selling of stocks and bonds, as inflationary fears would be deemed higher than expected.”

The Latest Data

MarketWatch summarized the  most recent report and highlighted a potential problem in the data:

“The Commerce Department on Thursday said retail sales slumped 1.2% at the end of 2018, marking the biggest decline in nine years. Virtually every retail segment suffered, including high-flying internet retailers.

At least that’s what the initial government estimate showed. Many economists don’t believe it.

“There’s no denying retail sales are weaker, but they are not this weak,” asserted chief economist Richard Moody of Regions Financial. Moody regularly tells investors to ignore preliminary retail sales figures because they are so often heavily revised.

He is far from alone. Most economists say investors should treat the December retail report cautiously.

“This release is such an outlier and so incongruous with the general trend in consumer spending, holiday consumer sales reports and holiday seasons consumer credit data that it does raise suspicions of data reliability,” said Ward McCarthy, chief financial economist at Jefferies LLC.

One big red flag, for example, was a reported 3.9% decline in sales among internet retailers. The last time internet sales fell that much was in 2008 at the height of the last recession.”

red flag retail report

Source: Federal Reserve

Yet by all accounts, Amazon and other internet retailers posted very strong sales and had one of the best holiday seasons in years.

What Gives?

Moody points to the government’s effort to “adjust” sales figures for season variations . The goal is to smoothen out the retail numbers so they don’t show huge changes from one month to the next, giving investors a clearer idea of sales trends in the economy.

Seasonal adjustments are used in most government reports and widely accepted by the economics profession, but sometimes they can throw a report out of whack. Many economists think that’s what happened in December.

Consider internet retailers. Their sales actually rose 10% in December, the government’s raw or unadjusted numbers show. Yet they had been rising in December in recent years at a 25% rate.

Nonstore retail sales growth

Source: MarketWatch.com

When the government applied its seasonal adjustments, the increase in internet sales became a decrease. That happened throughout the report.

Other factors may have also been at work.

The stock market plunged in December and sparked fresh talk of a recession. The partial government shutdown began a few days before Christmas. And an unusual bout of cold weather struck large swaths of the country.

There’s little doubt, economists say, the U.S. economy slowed toward the end of 2018. They just don’t think retail sales truly cratered and took the economy with it.

“Before succumbing to panic and despair, we would suggest waiting to see what the January and February data have to say about the state of the consumer,” wrote chief economist Joshua Shapiro of MFR Inc. in New York.”

Barron’s also cited a problem with the report, “Philippa Dunne and Doug Henwood, who pen the TLR on the Economy advisory, point out the monthly retail sales release is perhaps the most revised report to come out of the government’s statistics mill. Even so, it was a shocker.

Previously, Barron’s had cited the importance of retail sales:

“According to a recent research note from Goldman Sachs , the wealth of, and spending by, not just the very wealthiest Americans but also middle- and upper-middle-income households have become tied more closely to the stock market.

That’s contrary to the standard economic assumption that the “wealth effect” from moves in stock prices should be diminished since so much equity wealth is now in the hands of the tippy-top, who can readily absorb a hit from a bear market without cutting back.

The wealthiest 0.1% of households account for 17% of the stockholdings of all households, while the top 1% own 50%, according to Goldman’s parsing of Fed data on consumer finances. Those percentages are up from 13% and 39%, respectively, in the late 1980s.

Relative to their incomes, all households’ stockholdings have tripled. As a result, for the top 10%, the impact of a 1% drop in equity prices is now three times as large as it was in the late 1980s, according to Goldman.

Even for the upper middle-class (those in the 50th-90th percentiles), the impact of stock price declines is one-third greater. As a result of an 11% decline in equities from their September peak until Jan. 15 (the date of the report), Goldman economists expect 2019 gross-domestic-product growth to decline by 0.5 of a percentage point.”

Because retail is so important to the economy and the stock market, investors will be watching revisions to the data closely.

 

Did you know that dividends have rewarded investors for at least 100 years, at least since John D. Rockefeller said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

We have prepared a special report about dividends that you can access right here.

Passive Income

There’s a New Investment Opportunity. But Should You Take It?

Posted on by Manuel Jesus

Jumpstart Our Business Startups Act, or JOBS Act. While having many different functions, the one that has captured the most attention is the area surrounding crowdfunding.

crowdfunding

Source: SEC.gov

The JOBS Act allows companies to raise an unlimited amount of funds from accredited investors. It also allows smaller companies to raise up to $1.07 million from both accredited and non accredited investors.

There are limits on the deals that smaller investors can participate in. The offers must follow a highly prescriptive set of rules. The offer must be listed on a FINRA approved funding portal or with a Broker Dealer. Investors are limited in the amount they may invest.

Jobs Act

Source: GovInfo.gov

But, even with restrictions, this is a new asset class that every investor should consider. Before getting into the details, it’s important to remember that this investment, like all others, combines the ideas of risks and rewards. High rewards require accepting high degrees of risk, and both are available in this investment category.

A recent Forbes article summarized the performance of one crowdfunding web site:

“Does the potential for a 40 per cent plus returns over three-and-a-half years or so offer sufficient incentive for a 40 per cent failure rate? Those are the numbers that jump out of the report published today by Seedrs, one of the UK’s big three equity crowdfunding platforms, into the performance of companies that have raised money with it.”

The average returns worked out to 14.4% a year for deals on the site. But, investors in this field will pick and choose which deals they participate in. It’s unlikely they will achieve average returns unless they invest in a very large number of deals.

Since the investor will be selecting individual deals, there is another important piece of information to keep in mind from that article. That is the fact that 41% of the deals lost money. Some lost 100% of investors’ money while others suffered smaller losses.

Finding Deals

Several web sites allow small investors to participate in this opportunity. While the goal will be to create passive income, the investor may need to be patient and expect money to be tied up for some time before returns are seen.

Among the sites offering deals is CircleUp which has raised over $300 million since the site began operating in 2012.

CircleUp also has a $125 million growth fund to invest in companies directly. Using machine learning technology called Helio, CircleUp Growth Partners says it will be able to identify potential investments using data about companies to predict success.

CircleUp co-founder and COO Rory Eakin said that he believes the company will be able to “find patterns and signals” and is “pioneering the advent of data and analytics.”

While CircleUp is using technology to make its investments, the investments themselves will not be in the technology category. Instead, CircleUp is looking at categories like food and beverage, and personal care. Eakin says CircleUp’s strategy is “companies that produce something that sit on a shelf.”

The companies that they’ll be looking at have $1 million to $10 million in revenue. Eakin says that they’ll be co-investing with others in the CircleUp community.

Fundable has raised over $411 million for startup companies. LocalStake allows investors to focus on the communities they want to buy into. That could be their local community or a community an investor believes is growing and could provide diversification.

Wefunder is designed to be a platform connecting investors with startup founders. It highlights the source of “information regarding companies on Wefunder is provided by the companies themselves. Wefunder may assist a company in presenting this information, but we don’t verify its accuracy or endorse the company.”

That is an important factor to consider in the investment. There is a great deal of research required to verify information since it will be initially provided by the company.

It is important to remember that these are long term investments. LocalStake notes, “If you decide that you no longer wish to remain invested during the fundraise, you can cancel your investment for any reason up to 48 hours after the business countersigns your investment documents at no charge.”

After 48 hours, you are committed to what could be an illiquid investment that could take years to recover. Or could result in a complete loss.

While there are risks to crowdfunding small businesses, there are also potential rewards. Passive income from business startups is possible for investors who can accept the risks.

The University of Chicago recently asked, “Does equity crowdfunding increase the odds of success?”

Their answer may be illuminating:

“The early days of equity crowdfunding have yielded mediocre results compared to VC and angel investing.

Equity crowdfunding has been in active use in the United Kingdom since 2011 and is supported by government initiatives including the Seed Enterprise Investment Scheme, which gives investors tax breaks on early-stage investing. But early results appear to be mixed.

A headline from this past September in the London Telegraph read: “First crowdfunding results: 70 go bust, one makes money.”

According to the article, which cites research from finance data provider AltFi Data and law firm Nabarro, of 367 companies funded via top crowdfunding websites in the UK between 2011 and 2013, nearly 20 percent went out of business, while only 16 percent went on to raise additional capital at higher valuations.

Only one, or 0.2 percent, exited—and it is estimated that its investors received a modest 2.5 times their money back.

Compare these results to those of a 2015 study by data analytics company CB Insights that looked at a cohort of 1,027 start-ups initially funded in 2009 and 2010 by venture capitalists.

In that group, 40 percent raised a next round of capital, 22 percent exited, and 1 percent reached valuations of over $1 billion. And according to a 2017 report commissioned by the Angel Capital Association, 11 percent of angel portfolio companies had a positive exit.

survival rates for start-ups

Source: University of Chicago

Granted, equity crowdfunding is very new, so the early results may not be indicative of future performance.

However, additional research is turning up some possible reasons companies choosing to go the equity-crowdfunding route may continue to underperform compared with those that receive venture capital and angel backing.

An analysis by law firm Millyard Tech Law of the first 100 US-based crowdfunding campaigns launched after the SEC rules were first published finds that 50 percent of the campaigns were for equity while the others sought debt.

Of the companies that chose equity-based campaigns, 60 percent had been in business for less than one year at the time of their fundraising. It is rare for companies this young to qualify for angel funding, much less venture capital.

Also, equity crowdfunding may not be an entrepreneur’s first choice for funding.

A July 2018 study by Ghent University’s Xavier Walthoff-Borm and Tom Vanacker and University of Côte d’Azur’s Armin Schwienbacher finds that the 277 firms that sought funding between 2012 and 2015 on Crowdcube, a leading UK crowdfunding platform, were less profitable and carried more debt than similar firms that didn’t seek crowdfunding.

Further, the failure rate for the companies that successfully completed a funding campaign was similar to or higher than for those studied that did not seek this kind of funding. Meanwhile, more than 40 percent of the start-ups that didn’t raise the desired capital on Crowdcube failed.”

This study might indicate investors should consider the wisdom of Groucho Marx when offered an opportunity to invest in a small business. Groucho supposedly said, “I don’t care to belong to any club that will have me as a member.”

 

 

Did you know that dividends have rewarded investors for at least 100 years, at least since John D. Rockefeller said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

We have prepared a special report about dividends that you can access right here.

 

Stock market

Here’s What Berkshire’s Oracle Buy Really Means

Posted on by Manuel Jesus

For at least some Berkshire Hathaway (NYSE: BRKB) watchers, the recent news from the company might have been surprising. Like all large investors, Berkshire is required to report on its portfolio holding every three months.

These reports are filed with the Securities and Exchange Commission (SEC) and some are closely watched. In particular, Berkshire’s have been closely watched to see what the company’s chairman Warren Buffett, has been buying and selling.

Buffett is perhaps the world’s greatest value investor and also may be the world’s best known long term value investor. Buffett has traditionally bought companies with businesses that are relatively easy to understand. As CNBC has noted, Buffett has long said that technology is outside his expertise.

Uncharacteristic Moves Show What’s Going on Behind the Scenes

Barron’s recently highlighted changes in the Berkshire portfolio that offer insights into what could be happening behind the scenes at the firm. The site noted,

“Warren Buffett’s Berkshire Hathaway appears to have a complicated relationship with technology stocks.

The Oracle of Omaha’s conglomerate dropped Oracle (NYSE: ORCL) from its investment portfolio in the fourth quarter, according to a form Berkshire filed Thursday with the Securities and Exchange Commission. Berkshire exited its $2.1 billion stake in the tech company, acquired only a quarter ago.”

The chart below shows there has been little movement in ORCL.

ORCL daily stock chart

Barron’s continued, “Berkshire also trimmed back in Apple (Nasdaq: AAPL), which still represents its most valuable individual stock investment. Buffett missed out on the tech-stock boom, but seemed to come around to the sector when he added Apple to Berkshire’s portfolio in 2016.

Lately, Apple’s stock has suffered as investors worried about slowing iPhone demand.

AAPL daily stock chart

Barron’s said in a December story that Apple’s selloff could be a drag on Berkshire’s profits.

Charlie Munger, Buffett’s longtime partner at Berkshire, was asked at the Daily Journal (DJCO) annual meeting Thursday why he thinks Apple’s stock has been hard hit lately.

“I don’t know why Apple’s stock is going up or down. I know enough about it that I admire the place, but I don’t know enough to have an opinion why it’s going up or down,” said Munger, who is the chairman of Daily Journal.

”Part of our secret is we don’t attempt to know a lot of things.” Munger also mentioned that he has a pile on his desk of issues that he considers to be “too hard” to figure out.

Berkshire did add one new tech position: Red Hat (NYSE: RHT).”

RHT daily stock chart

What’s unusual about all of this activity is the fact that Berkshire is taking positions in tech and that Berkshire is selling more quickly than is commonly associated with the company. This could all indicate that Buffett is no longer making all of the investment decisions.

Changes at Berkshire

Last year, The Wall Street Journal reported,

“At Berkshire’s annual meeting this weekend, Mr. Buffett said four executives—Greg Abel, Ajit Jain, Ted Weschler and Todd Combs—are already handling many of the day-to-day responsibilities of running Berkshire.

Mr. Buffett remains chairman, chief executive and chief investment officer, but “‘semiretired’ probably catches me at my most active point,” he joked in front of thousands of shareholders at the CenturyLink Center in Omaha on Saturday.

In January, Mr. Buffett promoted Messrs. Jain and Abel to vice chairmen. The managers of Berkshire’s 60-odd businesses now report to one of the two executives, not to Mr. Buffett.

In interviews this weekend, several Berkshire subsidiary CEOs said the new leaders have touched base, though they foresee little change, especially because both men were promoted from within the company and understand its culture.

By starting the management transition while he is still in charge, Mr. Buffett hopes to instill shareholder confidence in the next generation of Berkshire leaders, said Thomas Russo, partner at Gardner Russo & Gardner, a longtime holder of Berkshire shares.

“This is a very serious transitional year,” Mr. Russo said. On Mr. Buffett’s part, “I think there’s a real sense of willingness to let go of things.”

Fortune has offered brief profiles of the two new investment managers:

Todd Combs is one of two investment managers at Berkshire often mentioned as potential successors to Buffett. A former hedge fund manager, Combs arranged Berkshire’s largest acquisition. In 2016, he was invited to join the board of JP Morgan Chase & Co. after impressing Jamie Dimon.

He’s credited with working behind the scenes to spearhead a health care joint venture between Buffett, Dimon, and Jeff Bezos and has been praised for his “indifference” to attention—a trait one Berkshire investor said one would want to see in Buffett’s successor.

Another Berkshire investment manager in the running is Ted Weschler. Combs and Weschler have had nearly identical performance since they each joined the company in 2010 and 2011, respectively.

They have both out-performed the S&P 500 in the course of their tenure at Berkshire, which is better than Buffett himself has done. Still, Weschler is most often mentioned as an also-ran to Combs’s rising star.”

The Journal had noted, “Messrs. Combs and Weschler, manage about $25 billion in stock investments and take on other projects. Mr. Weschler arranged Berkshire’s 2017 investments in Home Capital Group Inc. and Store Capital Corp., and he has scouted out opportunities for Berkshire in Germany.

Mr. Combs is overseeing Berkshire’s role in the health-care initiative with Amazon and JPMorgan.

Because the two managers have already arranged deals for Berkshire, Mr. Buffett said shareholders shouldn’t worry about lucrative investment opportunities drying up for the company in the future.

Either Mr. Combs or Mr. Weschler was also the first to buy Apple Inc. for Berkshire’s portfolio. The company is now one of Berkshire’s top holdings, as Mr. Buffett started buying the stock as well.”

What this is all means is Buffett watchers can not count on portfolio changes at Berkshire to tell them what Buffett is thinking. Even large deals could be the work of one of the other managers at the firm. While Buffett is still engaged, outsiders have no way of knowing how engaged he is on any decision.

 

 

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