How to Evaluate a Home Builder

riverviewinnercityshowhomesHaving your very own home can be very rewarding as you do not have to worry about making expensive improvements that you will just leave behind like when you are renting.  When it comes to having a home, nothing beats having it built from the ground up because this gives you better control over the distribution or layout of the different areas of the home.  Of course, when having your dream home built, it is important that you hire the right home builder for the job.

There are many home builders all over the country and it is crucial that you properly evaluate the construction company that you will be hiring to build your home.  In the past, hiring a construction company meant that you will around town asking or perhaps scouring through the yellow pages.  These days though, things are more high tech because you can find home builders near you by searching the internet.  Some construction companies have their own websites and some simply have Facebook pages.  Either one will do as any of both will help you in properly evaluating a home builder.

Once you’ve located the website or Facebook page of a home builder in your neighborhood, try to assess the words and pictures within their websites.  Do not always trust testimonials on websites because many of such are just done by the website owners themselves.  Try to evaluate if these testimonials are real or just sugarcoated.  Check if these testimonials also have different dates.  If the dates are very close to each other, spanning only a few days, then they are most certainly not trustworthy.,

One of the important things to look for inside a website is the past projects that a home builder has done.  This is not always about showing off good homes, but more of allowing visitors to get glimpses of the projects you have been doing recently.  Laid-out floor plans also helps in assessing as this helps in giving you an idea on how you can distribute some areas around the home.  Other factors may include the home builder’s scanned images of their licenses and other important documentation the helps further prove their work and professionalism. These days is one of the most highly sought after home builders within Calgary.  If you want your home done with very satisfactory results, this is the construction crew that you should hire.

Newsletter added.

Bad news is no posts today as I was busy setting up the newsletter with the help of a friend (thanks G!).

Good news is that there is now a newsletter signup. Obviously I encourage everyone to sign up. I promise I will never spam inboxes or send more than 1 email per week ;-)

Who Says You Can’t Value Biotech?

First things first, a special thanks to my extremely intelligent and talented friend and colleague, Brad Hargreaves, who kindly contributes the following insights:

Who says you can’t value biotech?

Outside of supercat bonds and weather derivatives, very few things in the market are stochastic. Some things are harder to predict than others, but even the seemingly daunting waters of biotechnology can be analyzed and priced. Today, I will look at valuation of biotech companies with a very straightforward example—Curagen (CRGN), about as sure a bargain as one gets in emerging technology.

Curagen, a Connecticut-based biotech company, isn’t your typical drug-development firm launched straight out of the lab. Rather, it has a penchant for speculating in other nascent technologies unrelated to its drug pipeline. Most notably among these is a 66% stake in 454 Life Sciences, a small (~120 employee) company that develops technologies to sequence DNA for labs, hospitals, and eventually personalized medicine.

However, the details of the technology aren’t terribly important as long as similar companies exist. Cambridge-based Solexa (SLXA) started marketing a similar product last year, over a year after 454 entered the market. The take-home: Solexa, despite burning cash at the rate of $10 million per quarter, was recently acquired for $600 million by Illumina (ILMN), a biotech powerhouse. With net tangible assets of under $50 mm, Illumina paid a premium for Solexa’s technology and growth potential.

With that in mind, Curagen’s roughly $250 million market cap is surprising. Even making the very conservative estimate that 454’s weak intellectual property portfolio cuts its value to two-thirds that of Solexa’s, it’s hard to believe that Curagen’s drug pipeline is worth negative twenty million dollars. Rather, I believe that investors have simply overlooked the value of Curagen’s subsidiaries by relying on traditional pipeline-based biotech analysis.

Apple iPhone Hype – But how ’bout the long term?

Hype is by definition a short-term phenomenon. And Apple’s iPhone has epitomized it.

Of course hype, short-term results, and pumped up demand for product often blind market participants to long-term business ramifications and actual shareholder value creation. But on the other hand, world-changing innovations which started as hypes and were derided as fads have gone on to make fortunes for owners. So what’s the deal on the heels of the iPhone’s much-awaited debut — is AAPL overbought or underestimated?iphone hype

Well, first a few qualitative thoughts. As much as I may not be able to tell you with certainty where AAPL will be in ten years, I can say this: they are the reigning kings of what I’d call synergistic marketing and demand creation. In other words, whether or not they are actually innovative (that’s up for debate — iPod was not the first MP3 player, for instance), they are better than anyone at convincing customers that there product is the coolest, hippest, and best must-have invention on the face of the planet. And their success has bred only more success and greater cross-selling revenue (Paul Carton has a great discussion of Apple’s halo-effecthere).

Think of it this way — that Apple has been so successful and hip with the iPod has made computer buyers more interested in their other, largely unrelated product, the Mac. This should come as no big surprise — simple psychology informs us that, well, people love winners. This is at the heart of what I believe is Apple’s true competitive advantage. Apple has been and should continue for the foreseeable future to be a winner.

From a quantitative perspective, the added revenue if the company meets sales prediction for the next twelve months should be around $5-7 billion (or about 20% of TTM revenue). That’s assuming sales of 10 million iPhones. My quick and dirty estimate might put incremental net income from iPhone sales at around $0.60/share. So it’s not an insubstantial short-term factor. But in the long-term things become more interesting. Who’s to say the iPhone won’t flop in a couple of years and that the shares that have been so heavily bid up will topple?

Certainly not me, which is just part of the reason I won’t take a position in any shares (I generally don’t short, and almost universally avoid stocks with such rich multiples as AAPL unless exponential growth is a no-brainer). But I can at least speculate on what I think the future of the iPhone or iPhone-like products will be. For what it’s worth (and that’s probably not much coming from me), I’ll attempt to prophesy the future. I’ll keep it brief, but bold:

1) 1-4 years. The iPhone sees significant demand, but competing products (likely from shops like Research in Motion) begin to cut into market share and drive down prices as quality and functionality also increases.

2) 5-10 years. Hand-held, all-in-one personal devices will ultimately become nearly as good, affordable and universal as personal computers. They’ll steal share from the desktop and laptop markets, but those devices will never entirely disappear, though they may change forms. We enter new tech era.

3) 11-15 years. Owners of said devices begin to realize that it is too risky to carry their whole life in tablet form, so devices come equipped with a body-encapsulating bubble and a life-insurance policy.

4) 16-17 years. Given the slight inconvenience of personal bubbles, the iPhone as physical device is replaced by implanted brain chip with telepathic email functionality, trance-inducing sedatives that allow you to watch YouTube videos in your mind.

5) 18-20 years. YouTube, Apple, and Google merge to form You-Google-Appletube, with combined market cap (adjusted for inflation) of $17 trillion and a PE of 245.

6) 21-24 years. All human interaction is replaced by electronic communication.

7) 25-26 years. World peace.

The Month of June

Clearly I checked out from writing in June. But I’m back from that little hiatus, and I’ve decided to write more concise, to-the-point articles that will allow me to be more prolific in July. I’ve been thinking that I’m at the point where I have a bunch of ideas, but just don’t have time to share them in the the standard, longer article format.

How to Spot Investing Frauds, Scams, Ponzi Schemes, and Other Rip Offs

I was having a conversation with a reader earlier this week, and we both got to talking about the vast number of investment schemes peddled everywhere from newsletters to the internet to television. There’s a surprising lack of good advice on how to spot it and a disturbing failure on the part of many consumers to research products and advice. So I’d like to provide my own checklist of things to look out for when considering the purchase of advice, services, or products promising to make you tons of money. These are a few telltale signs of ripoffs and garbage that simply isn’t worth your time or money. The list is not exhaustive, but offers what I believe are some good things to investigate or think about when considering the purchase of investment advice or education.

1) Promises or guarantees of excess returns, especially in a short period of time. Whenever you read or here some charlatan sharing his “magic formula” for investing success that made him millions or some “testimonials” from “average folks” going from rags to riches and making a fortune in the market, be aware. If you believe their claims are genuine or you’re not sure, always ask yourself both how long it took them to do it and how much they started with. After all, anyone could make a hundred thousand dollars in a year if he started with $2 million. But if someone says he started with $1000 and in two years turned it into $1 million, run and run fast — never trust claims of 100,000% returns. There is simply no method that yields huge returns which is not extraordinarily risky and leveraged, meaning that that person could just as well have been in debt $1 million.

2) Lack of SEC registration as an Investment Advisor. A really simple way to spot something that might be shady is to check whether the seller has registered with the SEC. It is illegal for anyone or any entity to directly sell investment advice without notifying and filing with the SEC as a Registered Investment Advisor (RIA), and, trust me, anyone who is legit will surely share it with their customers, usually upfront and center. Now, things get a bit fuzzy because general investing education programs, newsletters, etc. usually do not require registration and can still charge for services. Nonetheless, if you don’t see the SEC’s stamp of approval, consider avoiding it. It’s also important to note that the presence of RIA status should likewise not be taken as a green light — plenty of registered advisors are not to be trusted. In any case, it’s just another clue to take a look at.

3) Lack of documented and verifiable returns or success stories. If an investment advice peddler is charging for services, be sure to get or ask for a track record, study, or other verifiable data demonstrating that the system or advice is sound and, well, works. Any idiot can start a website with a stock-pick newsletter, or a “system” for large, imaginary profits, but of the many, many programs out there, few will show you documented or audited results and even less will share any study indicating that their way works (for instance, by back testing). Of course, it’s easy to fudge numbers and take some liberty in creating phony returns, so the more rigorous and verifiable the data, the better.

4) Lack of a free trial. If someone is offering a “system” or regular newsletter for investing success, they’ll usually offer some sort of free trial period if they are legitimate, to allow you to test out the product before committing to buy it. If they want to get you locked in to the product and don’t offer the opportunity to test it, think long and hard before buying it.

5) Money back, satisfaction guarantees. I’m honestly a bit conflicted on this point, but here’s what I think. On one hand, if a company is not willing to put its own money where its mouth is, why should you? On the other hand, because around 70% of products are never returned even when fraudulent or stupid, even a scam artist can make such a guarantee and come out on top. So while most companies offer either a money back guarantee or a trial period (but not both), all things equal, I prefer the trial period. If it’s missing either, don’t bother.

If a company does offer a money back guarantee, it’s important to note that they should be guaranteeing “satisfaction” and not excess profits, since, as we discussed above, that’s usually another sign of a ripoff. No legitimate source — not even the best investors themselves — would ever tell you they can promise excess returns. Remember, you can still lose a ton when someone promises you profits, and simply getting your $200 back from the guarantee won’t recoup the $10,000 you lost using crappy systems, advice, or stock picks. And in some cases, the company may never even respond to your request to get your money back. Which leads me to the last point:

6) Check the BBB. The Better Business Bureau is a great resource for consumers looking to investigate the actual satisfaction of customers. It’s not perfect since many dissatisfied customers fail to report (indeed, many consumers in general don’t even think about reporting). But it’s another indicator. A fair number of irate customers is a definite red flag, so keep an eye out.

I’ll try to edit and fill into the list based on reader’s suggestions and anything else that comes to mind. So if you can think of anything you’d like to add, contact me.