Category Archives: Investing

My project for the month is a stock trading bot that will ingest tweets from accounts I consider to be market influencers and do some parsing and sentiment analysis to help create and execute a trade through my broker.

For years I’ve wanted to build something to do automated trading and this is something that seems simple enough to accomplish in a month.  That makes it a worthy experiment.

There are several steps to this process:

  1. connect to the twitter stream API and listen to specific user accounts
  2. for each tweet that comes in, parse it for a company name or CEO name
  3. if there is a company or CEO mentioned, find the ticker symbol
  4. run a sentiment analysis on the tweet
  5. look up the current price of the stock
  6. decide on a trade (long/short) and size, limits and stop loss
  7. execute trade through broker

This project will be open-source for those of you interested in watching the progress or curious to see how it works. Twitter Trading Project

Recently I’ve been interested in finding a business investment – something like a B&B that allows me to put some of my retirement savings into a business that I have some control over its success.  The normal process for something like this would be to write a business plan or at least do some back of the envelop estimations for how much revenue is expected from the property.

The usual tool of choice is a spreadsheet.  And those are excellent ways to work through the numbers and visually see things.  However, the flexibility of a spreadsheet is somewhat limited for even more advanced analysis.

I wanted to take things to a different level.

What information could I get from looking at the market and scraping webpages that I could feed into a bigger model to see how other owners of similar businesses do.  By pulling in 1000+ comparables and running them all through a similar model to estimate each of their profitability it becomes possible to identify the traits of a successful business.

Applying this sort of ‘big data’ analysis is proving interesting.  There is an amazing amount of information freely available on the internet, but much of it exists in different silos.

In the example of running a B&B, there are lots of them listed on booking.com and similar travel booking sites.  These provide a partial picture of how popular a place is (from it’s availability) and the revenue (from the cost to stay there). Another big piece of the picture is the costs – which you can estimate by checking real-estate listings.  By putting all this information you can see many interesting things.

If your model is accurate then you can get answers to these questions:

  • What percentage of B&Bs turn a profit each year
  • Is there an optimal size / number of rooms
  • which attributes of the property correlate most to it’s profitability

You can take a deeper dive into the best performing properties to see if they do something unique – do they have nicer websites / photos? Do they do aggressive advertising? Are they active on social media?  Answers to these questions can help you find the strategies that are working best in the market – and perhaps things that are a waste of time.

This type of analysis is something I think more people should be doing.  It provides some competitive advantage in terms of the information that you bring with you into a potentially big investment, and reduces the risk that you inadvertently buy a lemon.

 

Looking to find a place to invest your money that will give very impressive returns when compared to just about any other investment product out there?  There’s a strong argument for buying websites as an alternative to stocks and an alternative real estate investing, or stocks if you want to grow your money. Here’s how it stacks up:

Website Real Estate (investment) Stock Market
Price Range $50 – $1,000,000,000+ $20,000 – $30,000,000 $1000 – unlimited
Cash Flow $0 – $100,000/month couple hundred/month dividends
Risk can be almost eliminated no tenant and you’re on the hook for mortgage payments/ bad tenants/ real estate market can crash managing risk can be tricky
Typical P/E ratio 1 ? value stock : 10 momentum stock : 30-50
Buying/Selling Cost 0% – 5% 5%-10% $0-$50
Work Involved none to full-time job moderate very little to full time

Price Range: A real estate investment pretty much requires you to get a mortgage.  That extra debt adds risk to the investement since if you fail to find a tenant for the property and can’t make payments you could lose everything in foreclosure.  Both websites and stocks offer entry points that are accessible without taking on debt.

Cash Flow: A website is a business and you are the owner which means that all the profit goes into your pocket.  With dividend paying stocks you are a part owner and the CEO will decide how much of the profit gets distributed.  Typically with a rental property you’ll make enough to cover the mortgage payment/repairs plus a small amount of cash profit.

Risk: Because you get a chance to negotiate the deal when buying a website it’s possible to greatly reduce the risk.  A good review of the working of the website and it’s history of profits will help identify solid businesses that will continue to perform in the future.  Thus risk is almost eliminated.  As for real estate, there is tremendous risk.  The property could be destroyed by fire or flood, bad tenants could cause your repair bills to increase or not pay rent leaving you to pay the mortgage.  Default on the mortgage and you risk a hit to your credit rating or even bankruptcy.  The stock market risk can be managed by diversification and using stop loss orders.  Even the best stock market wizards can only pick good stocks 60% of the time – it is impossible to know what the stock market will do in the future (legally).

P/E Ratio: The Price/Earnings ratio is a measure of the value of what you’re buying as it relates to the earnings it will provide.  A P/E ratio of 2 means that it will take 2 years worth of profit to pay off the initial investment.  Surprisingly the typical selling price of a website is around 1 times earnings that means that a website that makes $10,000/year will sell for around $10,000.  This is almost unheard of in other investments.  In real estate since returns on have historically matched inflation you can expect real returns matching just what you can sqweak out above your holding costs.  For stocks the high P/E means that you get comparatively less value for your money.  That means that you really depend on the stock price increasing in order to get a good return on a stock.

So what’s the catch with buying websites?

The catch is that you have to be prepared to run them or hire someone to run them for you.  There are many sites out there that are completely automated, but even those sites will require maintenance from time to time or additional promotion to grow the business.  A website is a business and it requires some amount of management to grow and remain profitable.

Where to buy Websites

The absolute best way to buy websites is to contact website owners directly and see if they would like to sell.  In many cases website owners have lost interest in their websites and are letting them whither and die and will gladly take your money for them.  In some cases you could quickly renovate the website by monetizing it and immediately turn a junk site into a cash machine.

Alternatively there are a number of places that will connect you to people who are actively trying to sell their websites:

Final Note

If you are looking for something to invest in take some time to consider an alternative to stock investing and real estate.  Websites are currently under-priced in comparison to those established investment categories.  There’s a huge potential upside and the downside risk can be limited.

I’ve been thinking about investing.

With the upset in the markets over the last few months due to the credit crisis, and a looming recession in the US which has led to record low interest rates as a last ditch effort to keep the economy growing. With many stocks taking a nose dive, I’m weary about putting more money into my stock investing account until we hit the bottom.

I’ve been trying to think of good alternate places to invest. To diversify my investments to something that has the potential returns of the stock market but isn’t as susceptible to market swings.

After reading a couple of blog posts (such as Why Do So Few Bloggers Sell Their Own Products? by Yaro Starak) and doing some pondering. I’ve come to the conclusion that investing in assets which you can turn around and sell could prove far more lucrative of an investment.

One of the things that I’ve done for this website and my online business ventures is to set aside some money automatically from my bank account into a savings account. This money is to be used to get HalOtis profitable and increase the cash flow. In the past I’ve used this money to pay for Google Adwords campaigns and pay for hosting of sites.

The missing part of the picture has been lack of products and business assets that I own and can resell over and over to continue to make a profit passively.

Lets compare the potential costs and returns from an investment in product creation vs. the stock market over a one year investment period.

Case 1

$1000 could be used to outsource the creation of an ebook and marketing material that would sell for $25. If you add in about 20 hours work to do some videos for youtube, find some affiliates or jv partners, create some webpages and link to those site with the social sites. The sale of just 40 copies of the book is the break even point. Lets say you have a fairly terrible launch and over the course of the year manage to sell just 50 copies. That works out to a total income of $1250 subtract the $1000 cost gives $250 profit or 25% return on investment for the year.

Case 2

$1000 invested in the market during an average year should return about 8% if invested in a market wide ETF. Of course, you’re at the mercy of the market the only thing you have control over is when you buy and when you sell. Market timing is notoriously difficult. Still, lets assume you had an average year and you’ve made your 8%. That’s $80 minus trading costs.

What’s the biggest difference between these two scenarios? In case one, you’re in control you decide what the ebook will be about after testing the market, you build the anticipation, you control the quality of the product and can do what ever it takes to create something that people want and then convince them to buy it. In case two you’re at the whim of the market, and of macro economic trends. There’s very little if anything you can do to influence your chances of beating the market.

Furthermore, it’s possible to leverage the exposure you get with this first product in case 1 for subsequent products. There’s the chance to create an email list, build authority, make connections to other sites, get more exposure in the search engines etc which can be leveraged time after time to get a bigger and bigger return each time. Not to mention that you can sell other peoples stuff at no cost for even more income!

When looking at these two scenarios side by side it’s easy to see that investing in your own product creation is a very effective way to invest your money.

cash flowOverview

The cash flow statement is what a business or person will have after doing a cash flow analysis. It is a financial statement that shows incoming and outgoing money over a period of time. Looking at a cash flow statement allows you to see how your balances have changed over that time. Typically the cash flow statement is broken down into operating cash flow, investing cash flow and financing cash flow. As an indicator of company strength, many investors consider cash flow to give extremely good insight into the quality of a business.

the cash flow statement is a useful accounting tool for both personal and business. For personal use it can open your eyes to see that you will have enough cash on hand to pay for upcoming expenses, or to see if you’re falling farther into debt. Within a business it can be important to know if there is enough cash to cover the payroll or other expenses. Outside of a business, lenders and investors are interested in seeing the cash flow statement because it indicates the strength and stability of a business. Continue reading

After thinking about it for the whole week I decided that I would sign up for the Immediate Edge to continue my learning about building a business using internet marketing techniques. I really like their approach that focuses on long term business creation and not simply spamming the internet. They focus on explaining the reasons for everything they do.

Between the two guys Ed Dale and Dan Raine, they’ve made $9 million
over the last 2 years. That’s incredible. These guys really know what
they’re doing, and my impression of their site is that they really try
hard to share their success.

It simply wasn’t really feasible for me to self teach myself everything I’d need to know and reach my goals in time.  Spending a couple hundred bucks will fast track my success and hopefully prove to be a good investment.

At $100/month I would like to see a positive ROI within two to three months.  That means actively trying out the techniques they teach, and sticking with a project until it’s finished and generating revenue.

AutomaticFor the last year I have automated a transfer of $100 from my checking to my savings account every week.  This is not a new idea.  Many financial advisers will recommend taking advantage of automatic money transfers as a way to ensure good saving habits.  I had been taking the money from my savings account and moving into a brokerage account to buy stocks.   This was all part of my retirement planning.

In the last few weeks I’ve changed my perspective.  With the costs of starting an online business so low it’s possible to use as little as $500 to fully test the profit potential of a business.  I will continue to use that money to invest,  but I’ll be using more of it to invest in my own business ideas.  In that way I control the risk rather than being at the whim of the market.

With $100/week and $500/business to test I could market test approximately 10 business ideas every year.  There are 2 likely outcomes if I maintain this and do many tests. Continue reading