I bought Microsoft (MSFT) for $30.39

Forget today's run up on Microsoft (MSFT) of 9.52% since yesterday. We are in it in the long run. I bought Microsoft for three things.

1. They have the largest moat ever, period!

No matter how much I love Apple, most people and businesses don't use it. Microsoft is still controls the PC market. Sure there are many open source operating systems out there, but they are so confusing to the average market to just install that they hung themselves into obsolescence. XP, Vista, and Office may drive you crazy sometimes but they are good pieces of software. I am on a Mac right now and many people like me are able to run and have installed Windows onto their Macs. This is proof that Microsoft is a necessity.

2. The Xbox 360 kicks ass!

I know all we hear about is the Wii, except for yesterday when Microsoft announced that its Entertainment and Device segment posted its first operational profit. This unit includes the Xbox 360 among other things. Remember ISSS (it is the software stupid). The hardware doesn't matter. Sony thought they could put all this high end electronics in their system and it flopped. Does anyone remember Neogeo or 3Do?

Of course Nintendo came up with a cool little controller, but like I say ISSS! Everyone is going to have motion detecting hardware. The question is who is going to have the fun games to play. I knew Nintendo would not be the system I would be playing for the next 5 years when I played the latest Zelda and found it was the cute childish type as they made it for the Nintendo Cube. Come on Nintendo! The generation that grew up with Zelda is over 20 years old now. Give us free range motion and gratuitous violence. I just can't see anyone playing Grand Theft Auto on the Wii, can you?

3. Microsoft is going to be around for a while.

With no long term debt and $6 billion in cash, Microsoft's balance sheet looks strong. Even if Microsoft makes a mistake they have the money to fix it. They have the money for R&D and for long term strategic plans.

It is just too bad it went up so quickly today. I would buy Microsoft all the way up to $36.94. They have not reached that mark yet so Microsoft is still on my BUY list, but their might be better deals out there.

I bought Google (GOOG) for $656.00

I really like the fundamentals of Google. Their return on equity has averaged 22.9% over the last 5 years, and it has been increasing (if you ignore their first report) for the last 4 years.

If they keep up this return on equity for the next ten years we will see the price for a share of GOOG at $7,413. Can they keep that up? Probably not but even if they get a lower return Google's future is still good. The market still has room to grow.

Google has strong competition from Baidu (BIDU). It helps that when the Chinese try to go to Google.com that they are redirected to Baidu, or so I've heard.

Another reason I don't like Baidu is that I have heard that they give priority to their search returns to advertisers than to the best returns of the search. When Google started out searches were categorized by page rank and this is the reason I started to use Google. I still remember being in my college freshman English class and the professor telling us to use Google.com because it gave the best results for a search.

I also have no clue what is being said on Baidu.com, and I only invest in what I can understand. This is not to say I would never invest in BIDU. I just don't understand the Chinese market for the price of BIDU.

Anyway, this is a long term buy for me. There is much more room to grow for this company. Organization of all the information on the web will always be an important thing and Google controls the stock on its future innovation.

When I am comparing to products to buy I am always swayed by the software. This has become my motto and you will hear it a lot when I discuss tech companies. The acronym is ISSS, It Is the Software Stupid. People don't buy nice looking products for the looks, the software has to be killer. People will search with the best software and to me that software is controlled by Google.

There is not just the search. I use every Google item except for the newsreader, their social networking site, and their Gmail. I love Youtube and see an so much potential in that site.

Carried Interest

Why H.R. 2834 is a bad idea.

H.R. 2834 and other bills like it are a bad idea. H.R. 2834 seeks to tax carried interest at the rate of personal income tax levels instead at current capital gains tax rate of 15% for long term holdings.

This would be have detrimental effect on investment companies, venture capital firms, private equities, and hedge funds, and here is why.

The structure most of these companies have is a limited partnership. A limited partnership has two types of partners, the general partner(s) and limited partner(s).

Limited partners have limited liability for the companies debts. A limited partner can only loose what he or she invested into the company. In exchange for limited liability the limited partner can not be involved with the operations of the company, such as investment decisions as would be the case for the above companies.

At least one person needs to be a general partner to form a limited partnership. This person takes all the personal risk of the company. If the company takes out loan and goes bankrupt then the general partner has to pay back those loans. The general partner may lose his house, car, and have his or her wages garnished by the courts if necessary. The general partner takes on much more risk than the limited partner.

Also, the general partner is also the person who pools the investments from the limited partners and is responsible for investing the money of the limited partners.

It has been the case of investment companies that the general partner also runs the company and makes the investment decisions. This is how it works in small investment companies. Also, the general partner may take a percentage of the profits that the company has made. This is not a managerial fee or income, this is capital gains based on the risk that the general partner takes on as being personal liable for the company.

Lets say there are 4 limited partners and one general partner. They all invest $20,000 for a total pool of money of $100,000. This is not longer their money but is now the company's money. Each person just owns 1/5 of the company. The general partner will get 25% of the profits over 5%. This means that if the company gets a 5% return on the $100,000, then the general partner gets nothing, but if the company gets a 20% return then the general parter will take 25% of the profits except for the first 5%.

$100,000 Initial investment X 20% return = $20,000 profit

$100,000 Initial investment X 5% = $5,000

The general partner will get 25% of the profits of $15,000 ($20,000 - $5,000).

The general partner gets $15,000 X 25% = $3,750

This is return on capital based on the stucture of the business, not income.

This law will wreak havoc on the tax structure of limited partnerships.

ZECCO application success!

I finally got my Zecco account activated. It was a hassle to open with the long list of emails but it finally worked. After I got my trading key I had a little trouble logging in, but I found out this was because of my browser's cookies.

I set up ACH transfer from my bank account. The best thing of all it that it only took a day to setup! I am transferring about $400 right now and it will take a few more days for my money to get to my ZECCO account.

I already have a stock buy in mind. Hopefully my money gets in before the company releases their quarterly report next week because expectations are that it will good and I don't want the stock to go above my limit price.

Oh yea! I also signed up for the Money Market Sweep for my ZECCO account. By default any idle cash is given 1% APY, but if you activate the money market account you can get 4.39% (there are others that are tax free for state and municipal taxes).

Next week if I buy the stock I will update with what stock it is and why.

New Investing blog I bumped into

I recently deleted a lot of the investing and personal finance blogs I read from my NewsFire RSS reader. I did bump into this one searching for the account open process on Zecco. No, they still have not opened my account. Maybe they are waiting until January so that I cannot take advantage of the 40 free trades per month. If they only knew that I was only going to make 3-5 trades at most per month.

Anyway, here is that new blog I am reading. It is called Democratic Investments. It is good stuff. Not any of that holier than thou crap on a lot of other peoples blogs. This person, like me, will actually say they don't know anything. I'm not the only ignorant investor out there.

Attack of the PF bloggers

I don't consider myself a PF blogger but on a post from a reader of this blog has some very valid points about the limitations of personal finance advise from blogs.

Here is an excerpt. Most bloggers I read seem to have hundreds of thousands saved, are earning many times over the national average, and seems to have few obstacles to financial success. My feeling is, how hard is it to succeed under those conditions?

what bothers me the most about some pf blogs... is the self righteous, inflexible, and what I consider to be unrealistic attitude some bloggers bring to the table of “If you don’t succeed, or if you say you can’t do some thing, it is because you are a) lazy b)don’t really want it bad enough c) want others to pick up the slack for you, etc. and certainly not because real life circumstances exist that make certain achievements impossible under certain conditions.”

I want to read about those who for whatever reasons don’t have super-high salaries, have life circumstances that make saving and earning and getting out of and staying out of debt difficult, and yet are finding ways to make changes. That is where advice useful to me will be found….

These are extremely valid points. Everyone's situation is different, and everyone has a different attitude toward money. I sure as hell wished I made $70K a year. It is more like $25K a year.

My attitude toward money is that I like to collect it. Some people collect baseball cards, music, or DVDs. I collect stocks, bonds, and cash. If you want money to buy all the fancy things in life, I will pass not judgement on to you. But if you expect me to pay for your tax breaks because you have children and they need an education, but you spent all your money on that vacation to Maui, then go cry somewhere else. Don't take what I worked hard for at the barrel of a gun.

My response to the idea that if you don' succeed you are lazy or whatever, is that there are no guarantees to success in life. The spot where you start has no bearing of where you will end. Statistically someone born of wealth is more likely to be wealthy, just as a child who has a parent in prison is more likely to land in prison. I don't feel this has to be the way. I knew a lot of rich kids when I was younger and later in life they were asking for death. The reason I think this happens is that these people who grow up do not know any better. The rich don't know how to be poor (good for them) and the poor don't know how to get rich.

I make my salary from teaching, and what you see while you teach is not lazy people but people who are either destitute in the knowledge of their own abilities or do not know how to do things that could possibly lead to success. I hear a lot of "I can't do this." To me that means "I won't learn this."

So what I am trying to say is that while success isn't a guarantee from all the knowledge you may learn in life, at least you tried. My definition of happiness is having no regrets on my death bed. Knowing I have done all that I can do and learned all that I had the power to learn is good enough.

Expand your views

One of the most foolish things to do is to read only one side to an argument. This is why I read the opinions of bullish, moderate, and bearish bloggers.

Some of my favorite bulls,
BluePrint

Moderate
MyMoneyBlog

And the bears
But my favorite bear is Dean Baker. He is constantly correcting the media on their bad economic sense.

For example this was his latest post.

The High Dollar: The Real Cause of the Weak Dollar The NYT is upset again that the dollar is falling and once again it is blaming President Bush's budget deficits. This turns economics on its head. The story on budget deficits is that they lead to higher interest rates in the United States. This causes the dollar to be worth more than would otherwise be the case. In other words, the NYT's complaints just don't make any sense. They can say lots of bad things about Bush's tax cuts and his war-related spending, but it just doesn't make any sense to blame them for the decline of the dollar.

The dollar is declining for a simple reason -- it was over-valued. The United States had a trade deficit that exceeded 6 percent of GDP at its peak. This was not sustainable, as just about all economists recognized. There are two ways to reduce a trade deficit: a recession or a fall in the dollar. Unless the NYT prefers a prolonged recession, it should applaud the fall in the dollar as part of a necessary adjustment process.

The reality is that the high dollar policy initiated by Robert Rubin in the Clinton presidency was a short-term policy that temporarily allowed for higher U.S. living standards by making cheap imports available. (It also had important distributional effects, depressing the wages of less-educated manufacturing workers who are subject to international competition, while raising the real wages of highly educated professionals, who are largely protected from competition.) However, the trade deficit that resulted from the high dollar was unsustainable over the long-term, just as a large budget deficit is unsustainable. The Clinton-Rubin high dollar policy is to blame for the current decline in the dollar, not President Bush's tax cuts.

--Dean Baker

This is why I don't feel a declining dollar will be such a bad thing. It should eventually reduce the trade deficit. China will surely learn a lesson about buying high, but will they learn not to sell low?

In my next post I will talk about Zecco's new trading policy.