The Social Marginal

Common sense, I know; but after a couple discussions today, I was again reminded that many individuals don’t think of it that way.

Regardless, the most important financial asset you have is your Job (or retirement/pension/disability income).  That means you need to treat it like a financial asset, or more specifically, an investment.   It means that appropriate time, attention and care needs to be put into it to fully realize the potential of it, and just as importantly, like an investment, if it’s going down hill, you need to know when to throw in your cards, cash out, and move onto another.  Holding onto a bad job can be extremely detrimental to your growth and overall long term financial success; sure, you’ll forfeit short term dividends, but they’ll generally pay off in the increased long term gains from a change of jobs.

And like an investment, proper diversification is key to long term success and weathering down times; for example, diversification of your client portfolio by industry if you run or manage a business.  By applying appropriate financial management/investment logic to your career, you can often ‘depersonalize’ the evaluation process a bit and help yourself decide what the best move is for you with a minimal amount of stress affecting your decision.

So I encourage everyone to step back and look at their current job as it was an investment.  If it looks like a bad investment, maybe it’s time to start making plans to move on to a better one.

What isn’t there to like about Netflix right now?  America wants cheap entertainment.  Netflix is an ‘unlimited’ subscription based model that fits right into the budgets of millions of dollar weary Americans to provide that entertainment.  The interchangable DVD business, sure, that won them their market share and help them beat the pants off of Blockbuster as an underdog, but what’s going to really make them great?  The age of online delivery of content. 

They are already on the forefront of subscription based (not priced per episode) online movie streaming.  Their “Watch Now” service works outstanding, it gets raves from everyone who uses it.  Best of all, they’ve now made it unlimited to all subscribers.  So you can have a low tier DVD exchange subscription and get unlimited access to stream from their catalog online.  Many think to themselves that this is neat and all, but we don’t want to watch movies on a computer screen, we want it on the big TV screen.  Other than the obvious solution of hooking your computer up to your TV, Netflix is already on top of this with upcoming solutions.  First, they are publicly in the works with LG to produce a dedicated set top box for streaming Netflix material to your television, well, that works fine for some people.  But here’s where they are going to ‘win’ the battle for online subscription based movie delivery services, by focusing on content and dropping their delivery payload on every possible device imaginable that has already saturated the marketplace (note: this is pure speculation at this point and driven by rumors and my mad intuition).  It is rumored that Netflix, due to the small and easily portable size of their content delivery payload (client software), is in talks with Microsoft for the Xbox 360, Sony for the Playstation 3, and others as well (I would love to see it on the AppleTV, but it would be direct competition with the pay-per-view iTunes service, but who knows) to get their client on their products as soon as possible.

 This would mean that as long as you had a Netflix account and an Xbox 360 (or any of the aforementioned devices with the Netflix client software), you could stream movies from their catalog of almost 10,000 streamable movies and television shows (just at this point, it keeps growing by the day) at no additional cost in DVD-ish quality on a high speed connection.

 I normally wait these things out and not take sides, but if Netflix gets their software for their “Watch Now” service on some consumer electronics devices quickly and in turn into millions of living rooms, like the Xbox 360, it’s over, they will have won the Online Subscription based content delivery wars. And the best part about it all is that they are continuing to focus on an all-inclusive subscription based service instead of trying to get greedier and add pay-per-view options to the mix.  They know who their audience is and they know what they do well and they are taking it all to the next level.

 So, I’m not recommending any stocks, but I will tell you that yesterday I bought a LOT of NFLX.  And maybe I’ll take it in the pooper on it all, or maybe I’ll have made a great educated bet.  Only time will tell.  Ok, I’m done with my Jim Cramer impersonation, time to go back to being mild mannered Clark Kent.

Got this in my email last night, pretty neat opportunity for current E*TRADE members…

As you know, the past few months have been challenging for the financial services industry.However, there is some good news. E*TRADE FINANCIAL Corp. has recently received a
$2.5 billion capital infusion from one of the world’s leading investment firms. This is a clear vote of confidence, solidifying the ability to deliver the value you have come to enjoy—today and into the future.

To celebrate this strategic transaction and thank you for your continuing loyalty, we are declaring Wednesday, December 19, 2007, as E*TRADE Customer Appreciation Day. Find out more >>

For a full 24 hours eligible stock, options and futures trades entered at E*TRADE Securities will not be charged a commission.¹ We hope this gives you a convenient chance to evaluate your investments, balance your taxable gains and losses, or capitalize on trading opportunities prior to year end.At E*TRADE, nothing is more important to us than our customers. We thank you for your ongoing faith in us, and look forward to serving you for many years to come.

Well, ING seems to be the first major online-only high yield bank to react to the fed rate cut and cut the rates on their ING Direct Orange Savings account from 4.20% to 4.10% in light of the .25bp cut from the two days ago.  I’m surprised the cut was that small to be honest, I was assuming they’d cut to 4%, but good for them for being competitive.  ETrade’s Complete Savings account is still at 5.05% for now, but I’m sure they’ll cut it in the near future to correspond with the rate cut.

Prosper is an interesting beast.  It’s easy to lose money or break even and it’s just as easy to make a better return than the 5.05% you’d make right now in a Savings Account through E*trade or various other online banks if you just employ common sense.  I’ve found that the best method of investing on Prosper (at least to me) to be small  bids ($50) on as many loans as possible, avoiding the temptation of super-high returns on the lower credit grade individuals.  Sure, you’ll still have your lates and defaults from individuals with higher credit grades, but they’re much lower than the lower credit grades promising higher interest rates and with small bids spread out across a multitude of loans, you’ll minimize your risk further and likely end up with a higher overall ROI as opposed to going for those tempting high interest rate loans.  If you use the link below, you can get a $25 bonus if you sign up as a lender.

It’ll be interesting to see how the concept of Peer to Peer lending plays out in the upcoming years.  Of course, as with any type of investment, do you own comprehensive research on it prior to making a decision.

Here’s a great post that wraps things up nicely by “suicideducky” on the Prosper Lender Forums:

Hello MMM, I have been a Prosper lender for about 8 months now, with my first loans originated in May of 2007. I started my account with just $500 and have been very satisfied with my experiences here so far, having added substantially more to my portfolio in recent months. Here are my thoughts on being a new Prosper lender, and things you might consider in your decisions to lend. In short, this post is to encourage that you familiarize yourself with Standing Orders, or “SOs” before you activate them; this (hard-earned) experience comes from being one of many who have suffered defaults on loans I’ve funded and what it taught me.

Just for the record, I’m a big fan of SOs, but they are a tool just like a hammer, and if your finger/dollar gets in the way, you can smash yourself just as easily as your intended target… but lost dollars don’t heal so quickly as a bruised thumb.

When I found Prosper.com (I was referred by my brother) I quickly determined that I would be able to pull down 25%++ ROR annually, and promptly set my SOs to begin bidding on the loans with the highest ROR I could find - which also, of course, were the highest risk loans posted. SOs can be learned very effectively just by going to the Lending/Standing Orders/Create New SO link and reading the qualifications listed there; it’s very self-explanatory - perhaps deceptively so for new users. The pitfall for me was in failing to click the Preview link (to see what listings matched my criteria) before setting the order active… after all, didn’t I just set what I wanted?!

…and so, on the eve of my first bidding, I found myself leveraged out more or less completely in bids on 4- to 7-day distant loans (which meant that my money was locked into the bid, and couldn’t be used for other bids with shorter remaining duration - or better/safer terms) that were not heavily bid upon (which meant they had a lower chance to be fully funded by expiration), and which were requested mostly by high-risk borrowers (D or below). To my great relief, most of these early bids were outbid by others or did not get fully funded, and I ended my first round of bids with only a few of the potentially catastrophic D, E & HR rated borrowers - and thankfully none of the NC loans I’d bid on in hopes of making 30%.

The valuable lesson I learned during this time is to set my SOs conservatively. That is, if you think some Ds or lower are a good risk (and some risk is ok in a portfolio IMO, if it’s selectively and intentionally chosen as speculation), bid on those loans directly and in person, or set a very low total to invest in those more risky borrowers via SOs. There will always be opportunities to speculate on ’sub-prime’ borrowers as there will never be a shortage of them, so don’t rush to do so; wait for the terms you like. Set your SOs to bid on solid loans at rates you will be happy with, and then adjust based on what you have bid. You can always go bottom fishing when you have 15 mins to kill before the wife gets home/your TV show is on/etc.

There is also a new feature available, called Portfolio Plans, which sets a batch of SOs for you based on your selected level of risk (high, medium, low, very low). I find that the PPs leave something to be desired based on my risk tolerance and priorities and so don’t use them, but if you just want a portfolio of ‘low risk’ and don’t have time or want to learn SOs, they’re a great alternative - and you have the assurance that you won’t be bidding on things you didn’t intend to based on your risk tolerance.

As a stock and options trader in the US markets, I have found that an average annual ROR of 20% is well within reach of most persons who are willing to accept risk, buy and sell sensibly, do their homework, and pay attention to current events, but with Prosper I’m currently seeing an average ROR of almost 19% (including some C, E & HR loans, granted) without having to do any homework at all. As my present bids are all on B or higher rated listings I expect that ROR to adjust down to about 13%-14% as the riskiest loans mature and I continue to lend at my current rates (exclusively AA, A & B borrowers).

In short, Prosper.com is the closest thing I have found to a ’sure thing’ to widely exceed the Rule of 72 with the least amount of labor-intensive research required, and the lowest risk assessment I have encountered in any investment vehicle to date… but you MUST test your SOs before you jump in with both feet, or you’re just throwing darts and taking what sticks.

Lastly, when you do begin your lending, I strongly suggest that you lend only $50 per loan for the first few loans, even if you have a significantly higher amount of capital to invest. $50 is the minimum allowable bid (I don’t think there’s a maximum, but not sure about that), so if you start like I did with $500, you will be able to bid 10% on each of 10 loans. There’s nothing worse than holding 10 loans for $50 each, and 1 for $500, and having the $500 loan you thought was a sure thing default on you… thus depriving you of half of your investment capital. After a few bids at $50 you’ll feel confident and be in a good position to consider increasing your bid amounts based on your own situation. Just remember, even AA borrowers default sometimes.

Best luck to you MMM - here’s hoping you Prosper in 2008!

sd

GE (General Electric) - While they took a recent dip due to a reported loss in their financing division (which accounts for ~13% of their yearly revenue), it will likely rebound on that account and continue to gain due to their alt energy research and being one of the few companies pumping out actual product in the industry.  They also have their traditional power/medical/etc products which continue to do well.  They are an extremely diversified company and their dividend continues to rise, currently over 3%.

SATC (Satcomm) - They make fuel cells and some other alt energy products and have a great Research division, this is definitely akin to buying futures in the company.  They have some contracts on the horizon that could cause this stock to rocket upwards.  It is relatively medium to high risk though, the upside is that it trades in the $1-$2/share range right now.  I’m holding this one long term.

INTC (Intel) - They are the leader in the microprocessor area now, basically dominating it with little to no competition from AMD anymore.  They’ve expanded into producing a good percentage of microprocessors for Cell Phones and PDAs and are now looking to expand into Ultra Portable PCs for hospitals to use bedside (Medical is a 2 Trillion Dollar a year industry).  This stock has nowhere to go but up in my opinion.  Good stable investment and at a good price right now.