There has been a lot of hubbub surrounding the recent announcement that Facebook is looking to raise equity through a deal with Goldman Sachs. If you haven’t heard, Goldman Sachs is helping Facebook raise $1.5 Billion in additional equity through the private markets. All of their equity is totally private, so you’d assume that most of the shareholders are employees and very wealthy individuals with ties to the company or a good wealth manager.

Quick Lesson: Equity and Debt are the two ways that a company can get capital (cash). Debt comes with terms like a set maturity time and interest rates… equity, on the other hand, allows people to simply invest in a company and in return own a portion of profits into the future! In general, debt is cheaper than equity, but carries a higher liability and adds risk to the balance sheet.

Many newswires are reporting stories that would lead you to believe that this move is indicative of an upcoming Initial Public Offering (IPO) — in other words, trading with a ticker symbol on the open stock market where anyone can buy/sell their equity. For some examples, see: “Is Facebook’s IPO coming sooner than expected?“; “Will Facebook Succumb To IPO Pressure?“; and ”The Facebook IPO Is Proof That Everything Is Being Reinvented“. To the contrary, I believe that this move is actually one in which Goldman Sachs is behaving as the white knight… bailing Facebook out of the need to go public with their numbers.

Why An IPO Ain’t Comin’!

For Facebook, the thought of being a publicly-traded company runs contrary to the “cool” factor that has made it such a success. The new age of tech startups is a lot different than the prior era where firms couldn’t wait to get themselves public with free access to capital on the open market. There are several disadvantages to being public nowadays, and Facebook is (supposedly) far from a mature company, so the general consensus is better private than public.

Unfortunately, once Facebook has 500 private shareholders, the SEC regulates that all of their financials must be made transparent. For Mark Zuckerberg, this spells trouble because private equity is one of the company’s most sought after forms of compensation. The beauty behind this deal is that Goldman will invest around $1.5 billion into the company… but won’t add more than one shareholder if all goes according to plan. Here’s how it works: 1) Goldman Sachs goes out to its clients and offers the chance to invest in Facebook; 2) Goldman Sachs pools all of the money that it has received interest for; 3) Goldman Sachs invests the collective sum on its investors behalf… but it is only technically counted as ONE investor! Pretty smooth, eh? It is almost like a syndicated loan — a “special purpose vehicle (SPV)” by definition.

To me, this move by Zuckerberg and Facebook is one that says “hey, we need cash… but we really don’t want to go public.” In no way to me does this say “giddy up, lets go public baby!”

So contrary to public belief, I see Goldman Sachs actually stepping in to save Facebook the need to “sell out” by becoming openly traded. There is already a bit of undeserved outrage from Facebook users in groups like “Keep your dirty hands off my FB“, but hey… we’ll see how it works out for the company. Only problem is: how long can Facebook feasibly wait until investor pressures to execute an IPO get the best of them?

Stay bullish.
-Jimvesting.com

When this blog was first founded, it featured stock market advice and sportsbook tips in addition to ways to make money online. Over the past few years of operations, I have drastically narrowed the focus on blogging… but I believe that the new year will be the perfect time to implement a change in policy.

Two New Post Categories for the New Year

Those of you that have been long-time readers probably know that I absolutely love the financial markets. I’ve managed a $400K stock portfolio to a 18.5% outperformance over the S&P 500 in 2008 (nearly a 40% nominal gain), worked in investment banking at a major bulge bracket firm and presided over a mutual fund with assets under management (AUM) of over $4 million. On the side, I manage my personal portfolio which continues to beat the overall markets year after year… and I think that I want to shine a light on my stock picks when I buy and sell.

Additionally, some of my older posts are sportsbook recommendations and gambling picks every week. While I am more successful on NFL Football games than anything else (and the season it winding down), I am going to pick up in 2011 and begin sharing my thoughts on weekly props. In particular, I’ve had records over .500 for quite some time, and if you can manage this kind of track record you will make money over time if you bet proportionately. Therefore, I think this fits well with the investment theme and I would like to start to keep a running tally of my successes and failures on the blog.

Is this going to change everything?

I wouldn’t worry about this blog changing too heavily from what my core competency is. The goal here is to diversify what we are talking about… as I believe having numerous ways to invest is key in this economy. And heck, I really enjoy writing about the stuff.

Hope everyone has a great New Years… tons of great material to come in 2011!
-Jimvesting.com

Well ladies and gentlemen… every dog has his day, and I guess mine was today!

A bit earlier this evening, I received word that I had amassed a huge affiliate sum from my account at Aweber Communications (the folks that handle my email newsletter). Turns out, I am doing much better than I expected — thank heavens they decided to set up my preferences in order to alert me every time I get a payment in any form!

“Cheers” is right Tom Kulzer, I’m going to be buying all of the finest aged whiskey I can get my hands on with my shiny new thirty cents. Thank you everyone for your love and support. It’s been a great run! If you’d like to reach me, I’ll be in SkyMall buying a new G-6 jet.

-Jimvesting

…and we’re back!

After being out of commission for the summer and these most recent months, the time has come for me to resume blogging and get you that information that you crave. My apologies for my disappearance, but now that school has resumed I am prepared to deliver on some new excellent content that will get you back off your feet making money online in no time.

Wait… You Were Gone This Summer!?
Yes! I actually used a ghostwriter all summer to fill in for me and keep Jimvesting populated with articles. Because I used a freelance writer, I told him that I wanted to have him put information up about the merits of freelance writing, as that was a topic that I haven’t hit on much and is certainly a valid way to make money online in your spare time.

Who did I use? None other than Chris from Chrisblogging.com. Chris and I had a good arrangement over the summer to blog, and I think that he did an excellent job writing convincing content that was intellectually-stimulating to boot. When I accepted an internship offer in New York City over this past summer, I knew that I would need a writer if I wanted to keep things running. Chris is actually one of our readers here at Jimvesting.com, and because I knew he was interested in my blog I figured that he would be a good candidate to help out. This just goes to show that the relationships you form on your blogs can carry you through your online careers.

What I Did This Summer

Over this past summer, I worked at a major investment bank on Wall Street. I interned in the investment banking division as a summer analyst and will be returning full-time next year as an analyst. At the bank, I was given the opportunity to work closely with CEOs of several multi-billion dollar companies, created valuation models to pitch new investment ideas to our clients and even got to work on one of the largest M&A (mergers and acquisitions) deals of the year.

When you hear about investment banking in the news, it sounds like a completely different industry than blogging… but I think that you would all be surprised as to just how many synergies there are between the two. One characteristic that allows people to excel in banking is an entrepreneur attitude: the ability to think outside the box, deliver quality work and be as efficient as possible. Needless to say, anyone who has a positive work ethic and can deliver creative solutions is fit to work in many industries outside of the online realm if they so choose.

Regardless, I am back at the helm at Jimvesting.com and ready to put more awesome material into your inbox every morning. Stay tuned for updates, and thank you for sticking with us!

-Jimvesting.com

Back in April of 2010, popular MMO blogger John Chow and myself got into a debate over where you should trade Apple (NYSE: AAPL) on the markets. This was the Monday following the initial release of the infamous Apple iPad, which reportedly sold a few hundred thousand units. I bet that the direction of Apple would actually be LOWER on Monday, despite a great headline number — John disagreed, citing a good response to the new product launch. The result? Apple traded higher on Monday, April 5th by 1.07%.

Why John Chow was the winner

As soon as the day closed, John and I got to talking:

Now, while the stock of Apple was up on the day, my verdict was that I was in fact the winner because they underperformed the market. Perhaps John and I come from two different schools of thought, but I really don’t care how awesome my stocks are doing if they are underperforming the market. On the day, Apple underperformed the technology benchmark slightly… so I took this as to say if there was zero news, Apple would have been up more. Why do I put more weight on relative performance versus nominal performance? Any investor can just dump their money in a large index fund and do fine… there is no point in owning Apple and trying to pick stocks if you are underperforming the broader basket of stocks.

Regardless, I read what I said… and because I didn’t mention relative performance I am writing this review as payment for a lost bet. As it happens, John was absolutely correct about Apple’s stock! Looking over the past few months, Apple has actually outperformed the S&P 500 Index by roughly 15% and has been one of the best performing companies in the markets. Was this due to strong iPad sales? That is too much for me to extrapolate — but the news now is that Apple valued higher than Microsoft!

Is Apple Overvalued Here? Was John Chow Just “Lucky?”

It remains my contention that John was the fortunate benefactor of random upward momentum in Apple’s stock. The reason that he expected the stock to trade up was that the iPad sold a lot of units. Despite how many units they sold (which was actually in-line with expectations), it is important to look at how the stock market actually works. Naturally, everyone and their grandmother knows that Apple is “sexy” and that people like their products. The problem here is that investors aren’t dumb — positive sentiment is already factored in.

Apple is a great growth company, but I absolutely hate putting cash to work in stocks that are positively viewed by the market. Why? Think about upside and downside. Assuming that market movements are relatively unpredictable, which I think most of us would agree to, stocks that are “good” will not move up on positive news (they are already assumed to be good) but will get slaughtered on bad news (nobody expects a company like Apple to issue a product recall). On the other hand, stocks that are frowned upon now will do awesome on any piece of good news, while bad news is largely ignored because the company is already seen as being of lower quality so they won’t do too bad.

Looking at the performance of Apple, it is common for stocks to trade up on the expectation and sell on the news — in fact, so popular it is an axiom. This is why Apple always gets killed the day after they release good earnings: they might have been good but everyone saw it coming. The market sees forward 6 months, so trying to profit off of news like the iPad is insane difficult. Did John Chow get lucky? I don’t think so — he knows a lot more about the tech space than me and probably has additional insight into Apple’s products. However, I would think that over the short term my track record would be better. John won this round.

A Smarter Investment Strategy That Makes Sense:
At the very least, I think that it is psychotic that Apple is valued higher than Microsoft… and would embark on a long-term “short Apple, long Microsoft” strategy for investing. This will capture any outperformance of Microsoft in a market-neutral way. My prediction is that growth in Apple will inevitably slow down, no matter how good you think they are. People are currently willing to pay more than 22 times the amount of Apple’s current earnings to own shares (what we call a “P/E ratio”), whereas Microsoft is getting less than 14 times. However, Microsoft generates cash like nobody’s business ($21B last year), and Apple isn’t even close to that good ($12B last year). Stock value is all about cash flow that the business is experiencing. Despite the fact that Apple might gain more cash flow per year over time, they would have to surpass Microsoft’s $21B number in around 6-7 years in order to end up more profitable into perpetuity. To this, I say “fat chance.” In fact, if both companies held their current cash generation rates, Microsoft is worth twice as much as Apple.

My Gift to John Chow

For John’s birthday, and for winning our little bet, I compiled a completely customized portfolio strategy report for him and sent him it in the mail, along with a copy of one of the best investing books out there — “One Up On Wall Street” by Peter Lynch, one of the greatest investors in history. I put some effort into developing this report, and it recommended a portfolio allocation to John based on two things: 1) his personal investment profile (as a technology lover); 2) the market conditions. I recommended weighting his stock portfolio in a certain manner that I feel will outperform the markets, and recommended stocks that I felt are underpriced and worth investing in. I don’t want to reveal the actual report, which was around 5 pages and professionally printed, but here is a screenshot:

The Proof Is In The Pudding

I issue an unofficial email newsletter to friends and family that want stock picks and pans when I see the opportunity. I run what I call “Jim’s Value-Growth Portfolio” privately through ThinkOrSwim.com (my broker). My portfolio to date is actually up a considerable amount — despite the fact that the market is down. I do not short stocks in it, so anyone can get invested and feel comfortable.

The last date I updated my performance was May 2th: My portfolio is up 9.31% and the S&P500 is down 2.64%, an outperformance of about 12%. Here is a chart of my investments versus the market:

To me, it’s all about timing the market and investing in the right industries when it is most prudent — this is why John Chow’s strategy of investing in companies that have a new product that he thinks is cool, is basically heresy to me. And hey, when John wrote “ Oh crap! That was wild market ride! I hoped you picked up some nice stock bargains! I did!” on May 6th, I recommended staying on the sidelines and the broad market is down over 6% since then.

Bottom Line: John Chow won this round of stock picking in the tech space, but I’d still give myself the edge on the broad market. At any rate, I figured this would be a chance to get a few good jabs in on the man. Congratulations John, you’ve proven your mettle in IT stocks.

-Jimvesting Dot Com