Where will Facebook head?

The (roughly) 20% decline in Facebook is now the talk of the town after its plunge struck fear into investors and sparked widespread panic among investors. Facebook has been a rather predictable business for the past decade and has grown its user base exponentially and also reaped in revenue from advertisements. Where will Facebook head?

Long term trends still pointing upwards:

• Facebook's fundamentals are still very good, despite the privacy leak saga
• High free cash flow
• Quarterly revenue growth was 49% (year on year)
• Quarterly earnings growth was 62.8% (year on year)
• Still a very profitable business with high profit margin at 40%
• Increasing revenue from mobile ads over the years (as shown below). Trend likely to continue.
• High daily user rate as daily users in US and Canada still stand at a high 185 million.

Long Term unfavourable factors:

• User base growth and usage appears to have finally hit saturation and slowed down, meaning it will  not be able to replicate and sustain its past growth rate. 
• Not withstanding sluggish user growth, research has shown that Facebook users are predominantly middle aged women and young users don't favour it instead using platforms like Snapchat and twitter more. Facebook's purchase of Instagram has retained some of these young users.
• New laws on privacy in Europe look to hit Facebook and caused user decline.
• Facebook's reaction to move 1.5bn users to fall under US law instead will have people question its commitment to privacy.
• Facebook's ex chief information security officer Alex Stamos left on a sour note amidst disagreements indicating all might not be well behind the scenes and there are conflict about where Facebook should be headed.
• Facebook's changing algorithms have also hurt digital businesses that it derive part of it's revenue from. In a nutshell, Facebook is shifting focus on user content and this put a hole in digital marketers' traffic which would likely translate into lesser revenue as well.
• Long term plans to move into China market hit a snag after the Chinese government withdrew Facebook's approval for an innovation hub.

Short Term trend (unpredictability):

• Strong downward momentum on Stock Chart, which is likely to continue for a while.
• Mark Zuckerberg warns of slowed growth going forward (Not the first time he did it, perhaps to lower public expectations)
• Mark Zuckerberg dumped alot of Facebook shares for Q2 of 2018, and Insiders have also dumped Facebook shares. Did they know the stock was going to drop?
• Expected increase in spending on privacy and security (will erode earnings and revenue)
• Public still reeling from the privacy leak scandal.
• Facebook and Mark Zuckerburg sued after the plunge.

In summary, Facebook still continues to be a very profitable business, but short term fear and long term permanent changes to its user trends and algorithms may have long lasting effect on the business which makes its outlook very unpredictable going forward. It remains to be seen how these changes would positively or negatively impact the business as a whole. Results and data over the next few quarters will shed light on the impact of these changes.

Till next time,
K.C.

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If you spend what you earn, you need to read this!

Ever spent money and wondered where it all gone afterwards? It happened to me.

I used to spend much of what I earn in the past. And I didn't remember much about whether it was on important things or the exact things I bought or spent on.

I just spent them all.

In this age where we live in the moment, enjoying the here and now is important to us. But we have mostly forgotten the benefit of delayed gratification.

Now, before one can learn how to INVEST, one first need to learn how to SAVE. Here is why everything starts from having some savings.

Warren Buffet's favourite rules of investing.

5 ways to save your money:

1. Budgeting and tracking your spending

Budgeting is important, but first YOU HAVE TO DECIDE AN AMOUNT TO SAVE BEFORE YOU DECIDE HOW MUCH TO SPEND. This means you decide to set aside an amount to save even before you spend what you earned this month.

I have an easy way to track what I spend on, and that is through transactions on my bank account. I copy that over to an excel spreadsheet and I can see what I spend on each month. It shouldn't be tough to categorise your spending into main areas like food, transport, entertainment. This allows you to see if you can choose better and more affordable options. This will give you an idea how much to allocate for spending after a few months of monitoring.

2. Have a "Saving" and "Spending" account

Linked with point 1, You need to have 2 separate bank accounts. One to credit your salary into which is your main saving account, and another just for utilities and general spending. E.g. you earn $4,000 per month. You decide to first save $3,000. and you transfer the remaining $1,000 into your spending account. No matter what, $3,000 will be saved each month and you must make it a point not to touch that money in the saving account. Combined with point 1, I have an excel spreadsheet that takes me less than 30 minutes per month to update and allocate my money for the next month.

3. Work within your budget.

If $1,000 is allocated for generic spending, try to work within the budget. Additional expenses that are one off and big ticket like travelling can be similarly set aside for and planned.

4. Never buy what you cannot afford. Never borrow! That is debt. Pay off debts asap.

Never buy items on installments or higher purchase because you end up paying more for it. Try not to use a credit card because the interest rates can be crazy and swiping the card too often can make you lose track of your spending. There are some debts that are unavoidable like student loans and housing, make your best plans to repay them as soon as possible to minimise the interest paid.

5. Invest to preserve the money from inflation.

If our money is sitting in the bank, we are losing the money to inflation. It would be wise to preserve the value in relative risk free instruments if we are too afraid to lose that money. To take it a step further, learning how to invest for income can also help to increase and grow the amount of money saved.

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Savings is a pre-cursor to investing. Unless we have a substantial capital on hand, we cannot really invest in the market even if there are opportunities around. Save, Save and Save!

Until Next Time,
K.C.

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Related topics:
1. About K.C. What is my story?
2. My 3Cs to money/investing

Investing: Have a plan and stick to it.

Recently, my purchase in SingTel shares gave me a good lesson and also crystallised some of my thoughts with regards to investment. So the story goes that Singtel was trading back in April and early May around $3.40-$3.50 per share. This was already a huge drop for a share that was closer to $4 and above in 2017.

When it dropped around 3.28 at the end of May, I had been following the counter for a while and thought to myself that 3.28 per share seems to me like a good price to buy from Mr. Market. Firstly, SingTel had announced that it would maintain its 5% dividend yield for the next 2 years and at $3.28 it represented a better value than buying at a previous $3.40.

And so, I bought 1000 shares at $3.29 after doing my due diligence, confident that it would be a good investment.

What happened in the next month blew me away. For the whole of June, SingTel seemingly plunged to no end and hit an all time low at $3.02!

At that point in time, I hardly know much about TA. And so, some of my friends started telling me: "Aiya, bro. You caught the falling knife. SingTel free fall leh why you buy sia."

And it did make me rethink about this counter and also supposedly some damage mitigation plans, like averaging down, or buying more. Did I make a mistake?



Lessons Learnt: 

1. Everyone's investment strategy is different. What is mine?
When my friend mentioned that I caught the falling knife, he is much more of a trader who does most of his trading in the US. It made me re-think why I bought SingTel in the first place. First of all, I invest for income/dividends and what is my investment strategy? Pricing and entry positions are always relative and there is always a better thing to have been done in hindsight. It is therefore important to stick to our own strategy, and not be swayed too much by the noise. As long as we have done our due diligence, true that we could have earned more or lost lesser but it all depends on Mr. Market. It is incredibly important to know what we are doing and why.

2. There is always imperfect knowledge
There is always the uncertainty factor. And most of the time buying a stock is akin to making an educated guess. What are the factors that cause the share price to drop? Is it a question of fundamentals or market fear and sentiment? If we cannot tell the difference then we deserve to be making the loss. Having said that, it is all about probability. We can do all the homework and Mr. Market may act differently.

3. Portfolio Sizing and the ability to hold on to the investment is important.
If our exposure to a single share is huge, we can be sure that if that share takes a plunge, we will be hit quite badly. This is why it is important to consider the amount of exposure we uptake in a single stock. The money we invest should also be money that we do not need urgently and can be used to tank the ups and downs while Mr. Market does his thing. Having more cash on hand and also investing money that we don't need urgently will give us more freedom and choices without having to worry about whether we should be doing emergency cutting losses etc.

So, will SingTel continue to rise? Who knows? Perhaps it might take a plunge again on Monday till even lower than $3.02. I have done my homework and I'm not worried. 😊

Until Next Time,
K.C.
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Related topics:
1. About K.C. What is my story?
2. My 3Cs to money/investing
3. Why you need to set aside money for savings first