As an owner of the business you are better off with a share buyback than dividends giving that your stock is undervalued. This will be a super good option when the stock is undervalued.
 
A lot of research shows that shareholders are better off with share buyback. As simple as this, if the company P/E ratio is 12 and it dose share buyback, the shares outstanding will be lowered after the buyback and hence will increase the P/E. As a result, you, and investor, make more money through stock appreciation than you would do through the dividends payout, because you are dealing with P/E multiple of 12. In addition to the tax advantage and the perception of the market toward your undervalued stock.
 
Share buyback is showing under the name "Treasury Stock" at the Owner's Equity in the Balance Sheet. And they are negative in the Balance Sheet. And in many cases companies list them as they describe how much dividend they paid right after the balance sheet or somewhere in the 10-k report.  

Hussain Jubail

Migration Paths to New Technology

September 19, 2011

After receiving several friends’ proposal to order the Windows 7 system, recently I am starting my trip to explore the IT business and strategies for technology/information products.

What is the hidden engine behind improving technology and information product innovation? New technology can win the market eventually and create more benefits for producers. So how can producers persuade/attract customers switching to new/improved technology? Offer customers an attractive migration path to a new technology. What obstacles need overcome? Is there any strategy they use to smooth user migration paths to new technology?

The primary technical obstacle for technology innovators must have to do with the need to develop a technology that is at the same time compatible with and yet superior to existing product. Only in this way can producers keep customers’ switching costs low, by offering backward compatibility, and still offer improved performance. The obstacles to the compatibility and performance trade-off are not unique to upstart companies which are trying to survive in the competition with market leaders. Those leaders in the market face these challenges as well. Microsoft held back the performance of Windows XP so that users could run old application temporally only compatible in the XP environment, and left enough time for software producers to upgrade their products for Windows 7. And although Microsoft has clearly indicated that Windows Vista is a transition operating system and that its eventual goal is to move us to windows 7, there are still a bunch of people using Windows Vista (and I am one of them).

One popular way to deal with the compatibility/performance trade-off is to offer one-way compatibility. When Microsoft offered Office 2010 as an upgrade to Office 2007, it designed a part of the file formats used by Office 2010 incompatible with the Office 2007 formats. Word 2010 could read the complete files from Word 2007, but not the other way around. With this tactic, Microsoft could introduce product improvements while making it easy for Word 2010 users to import files they had created using older versions. This one-way compatibility could create an interesting dynamic: early adopters have a hard time sharing files with their slower-to-adopt fellows. Something has to give. Microsoft surely is hoping that organizations would shift everyone over to the latest version of Office to ensure full interoperability. However, when potential users see the costs of an inconvenient environment for sharing, they would begin to delay deployment of the latest version. I am thinking that could probably be the reason for Microsoft to offer users the option to save files in either the new or the old version!

So the key for the strategy with respect to selling upgrades seems to give users a reason to upgrade (such as desirable new features or the desire to be compatible with others) and also to make the process of upgrading as easy/smooth as possible. The difficulty with the tough incompatibility strategy is that users may decide not to upgrade at all, which is why Microsoft today has already softened its incompatibility strategy – Office 98 even cannot open files under Office 2003 format.  

 

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Lorena Li

Modern Portfolio Theory vs. Value Investing

In my Capstone portion of my masters degree at Johns Hopkins I am learning that an optimal portfolio can be constructed by looking at the beta of the firm.  This I already knew....

After being a member of the Equity Analyst Team and looking at how the two of the greatest investors of all time (Benjamin Graham and Warren Buffett) construct their investment portfolio's I'm not so sure if MPT is the best course of route.  I calculated beta for 10 stocks using regression analysis, diversified the portfolio, confirmed using a correlation matrix I constructed, and most importantly I made sure that the firms I picked were within the realm of how the MPT is supposed to be utilized. 

With that being said, I also looked at the various investment funds which follow the MPT and needless to say I wasn't impressed.  The Equity Analyst Team and I will drill into this further this coming weekend and see why many funds who follow the MPT tend to under perform the market.
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Note: This was first posted on: http://investmentsinsight.blogspot.com/
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Saliq

First Weekend Equity Analyst Team Meeting

At the first weekend group meeting for the Equity Analyst Team and Hussain and I are bombarding Lorena with information about company valuations!

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Note: This was first posted on: http://investmentsinsight.blogspot.com/
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Saliq

The Quants by Scott Patterson

Always hearing about this book yet never picking it up was a big mistake.  I picked up the book this morning and started reading The Quants by Scott Patterson. I'm halfway through the book and I'm having a hard time putting it down. 

I quickly realized that many people in the investment industry are mere imposters.  Many who want to go into the investment field don't have the knowledge, the passion or the desire to work long hours like some of the legends which we always hear about.  It's not about just learning the basics in class, but about going above and beyond to learn the skills needed to compete with the best.  It's about going out and creating something which could potentially revolutionize the way things are being done in the investment industry. 
To each their own.....I'm sticking my head back into the book.  It seems like I need to drastically beef up my math and computer programming skills.  Just tacked that on to my to-do list.

Seriously, pick up this book.

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Note: This was first posted on: http://investmentsinsight.blogspot.com/
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Saliq  

United States Downgraded to AA+

Take a look at this: http://www.cnbc.com//id/44043776

With the recent downgrade of the United States credit rating from AAA to AA+, government officials are bashing S&P, but I believe that it's a knee-jerk reaction to the downgrade.  While the downgrade shouldn't be looked at as a catastrophe, this is the worst time for something like this to occur.  With the ongoing battle of working towards taming the unemployment rate, stabilizing the housing market, correcting the issues in Europe, and the ongoing fears in the global economy, a downgrade of the United States only adds fuel to the fire.

S&P's ethics should not be in question and I am aware of the political games which will now be played in an effort to discredit the rating agency.  We're now going to see the Republicans blame the Democrats, the Democrats blame the Republicans, the White House blame S&P, and everyone blame Europe.  S&P had told the government officials a while back that the debt ceiling needed to be raised by $4 trillion or else the United States could be at risk of a downgrade.  Apparently, politicians and lawmakers didn't take that very seriously....no surprise there.

The coming few weeks will be volatile and will come with changes from Europe to the United States.  I intend to sit tight and let the market drop and stabilize before I jump back in and start buying again.


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Note: This was first posted on: http://investmentsinsight.blogspot.com/
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Saliq 

Bank of America (BAC) - Getting Crushed

 I bought BAC at an average price of $9.88 while realizing that the PE ratio was negative, PEG non-existent, Beta at 2.21, etc.  Nothing good to say about this stock except that I had presumed that the mortgage related litigation's were behind them and that investors were selling the stock without realizing the upside.  It looks as if that isn't the case.  Now at $9.40 and the firm is slapped with another lawsuit.  I'm not ready to give up on this stock just yet because the valuations still seem very cheap and the stock is trading below its 50 day SMA with the signals all pointing to the fact that the stock is oversold.

With the debt crisis fear on top of us and the rating agency in China downgrading the U.S., while the rating firms in the U.S. putting the country on a negative outlook, investors are running away from equities and finding shelter in fixed income products.  This can prove to be a great buying opportunity for those that are seeking beaten up stocks which may have good upside.

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Note: This was first posted on: http://investmentsinsight.blogspot.com/
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Saliq