Category: investing

One thing meditation has helped me do, is step a bit outside of the narrow line of thinking that is ingrained in us.  I do think a lot about investment and something just doesn’t sit right with me.

Recently I opened up an online investment account, fully intended to do the “recommended” thing of buying several diversified index funds to “track the market”.  This would be money that I would put away and basically never touch again.  At best I could hope for about 5-7% return per annum.

This is what we are supposed to do.  People go to university and study for years how to properly do asset allocation.

The thing is though, the world has changed.

Once, it was very difficult to start a business.  You needed a lot of capital, you’d need to beg a bank to lend you money.

These days you can start a business from your laptop, run it from anywhere in the world and hire an army of freelance workers from sites like Upwork, while you rake in a passive income stream.

Nowadays, I’m fully involved in growing our social casino business, Megarama.  But a long time ago when I was just starting out in business I created a couple of interesting little experiments that have returned an amazing ROI (small amount of cash, but nice return).

One was a website I created which was really an effort to SEO another site.  It’s basically an informational site for doctors in Israel who are interested to learn aesthetic medicine and in particular Botox administration for cosmetic use.

The site looks like the most crappy site you’ve ever seen, built on Google Sites.  I can’t remember how long it took me to create, but it wasn’t a massive effort (couple of days??).  I spent a bit of money on SEO for the site – can’t remember how much but probably around $200.

It didn’t take too long before my site was ranking #1, 2 and 3 for the key very niche search terms (in hebrew) for “botox course for doctors”.  I put a crappy email form on the site and started to collect leads.  Then I reached out to a number of people who were running such courses and came to an agreement regarding selling leads (again, wasn’t hard).

This was about 4 years ago I think.  Since I signed the lead selling agreement the site has consistently been making over $500 per month. Again, not significant. But the effort that went into it was not huge, the cost was minimal.  Lets say I spent around $500 and my time was worth lets say $100 per hour at the time (3 days work lets say), that’s a cost to launch the site of about $3,000.  The return on this is $6,000 per year, or 200%!!!! 

That is a hell of a lot better than a 5% return per annum.

(Oh, and BTW, the ONLY work I do on this site is send a monthly invoice. I LITERALLY do no other work).

It’s my personal experience that these online, passive sources of income can have tremendous longevity. Obviously each business is different, but there are ways to maximize longevity and minimize risk.

I’m just using this as a case in point.  I had a similar outcome with another small website I created around the same time.

 

The concept for these online business investment vehicles would be as follows:

(1) It needs to be TOTALLY hands off. i.e. I need a team of people who can execute on my ideas. Obviously there will be initial set up costs. But imagine that you could put together this team… To use an old cliche, “where there is a will, there is a way”.

(2) The system needs to be able to scale.  You need to find a repeatable business model that works and then be able to pour lots of money into it and see commensurate returns.

And there are two ways you can go about it:

(1) You can start a business from scratch. 

OR

(2) You can buy existing businesses (hopefully undervalued) and then uncover value to further improve the ROI.

Consider for a moment that you are able to build the team and system which can execute this with minimal or no daily involvement from yourself, in terms of ROI you can’t even compare it to any other asset class.

Especially if these are businesses you understand and have a degree of control over, the risk as I see it is minimal compared to riding the waves of the market.

Here are some interesting articles for further reading on the topic:

“Why a Website Should Be Your Next Investment”

“How To Invest In Websites In Your Spare Time”

“I was given $25k to invest in websites; here’s what I did : Entrepreneur”

“How to Sell an Amazon FBA Business”

Marketplaces or Brokers

Here is a list of some marketplaces and brokers for buy and selling various types of online businesses. Mind you, probably the best deals would be found “in the wild” and not on these sites.  It is doable for sure.

Fliptopia

App Business Brokers

Flippa

FE International  (This company also offers management services…)

Empire Flippers

Jungle Flippers

 

We’ve all been told that we should buy index funds, invest in the stock market, diversify our portfolio, buy real estate.

Is this REALLY what we should be doing?

At most these vehicles get you around 5-8% per year on average. Real estate often leaves you highly leveraged and in debt.

And worst of all with all these investment vehicles, you have very little control…

So, I’m just thinking out loud here and kinda shooting from the hip… what I’d really like to invest in are my own businesses.

The thing is though, to succeed in business you need to FOCUS (at least that’s one of the major lessons that I’ve learnt).

For example, at the moment my sole focus is building up our new social casino brand MegaRama. I can’t and don’t want to devote attention to other business ventures.

The thing is I’m an entrepreneur (God Darn It!) and there are lots of cool ideas and things I’d like to get off the ground. I LOVE building software products, because these often solve a pressing need and business wise they are great (build it once, keep getting paid). And I love this creative process…

So, lets say that I spy a nice little opportunity in my market.  Let’s say that this is something that might even be able to aid my core business (for example, see the post I wrote about tools which post app store reviews to slack).

I can do the initial validation, hire someone on Upwork to build a prototype and get the ball rolling.  The issue is that the marketing and upkeep seem like a lot of work… which is where I need an able bodied soul to take up the mantle and get the project running.

I could provide some relatively minimal funds to get the business ignited until it starts paying for itself (better be quick!) and then my new-found business partner could continue building up the business.

And with some thumb in the air calculations:

Lets say I invest about $500 to build the initial prototype and provide lets say $1,000 per month budget for a limit of 10k (i.e. 10 months runway).

And lets say that the tool then brings in a steady $2k per month with relatively minimal upkeep, $1k expenses per month including marketing… So I invested about 11k and the company gets about 12k in profit pre-tax, 6k after-tax. And let’s say that we split this 50-50 (3k each), taking it out as a dividend (another 30% or so tax, depending where you are, so each gets about 2k net of tax per year).

So that’s a pretty crappy and dismal business situation, I admit. No one is drawing a salary or anything and no one would hear about us on Techcrunch, but still I would be getting a 2k profit on 11k invested, which is over 18% return AFTER TAX (I’m awful at maths so if I made a mistake let me know…)

It has the added advantage that I control it and have some power to influence the success or failure of the investment.

Now this would only be worthwhile if on my end I had to spend very little time on the project (so that I will not be distracted from my focus on the main business). My partner would foot the sweat equity.

Of course the situation could be different. I might lose everything that I invested. Or the business could take off and make a lot more money.

But… interesting and fun and potentially worth trying out…

So what would I need to make this happen?

I’ve got quite a few ideas, no lack there.

Main issue is having people that I can rely on to execute on my vision…

Ideally this person would be a developer who can execute the project, but not necessarily, since it is quite easy to find good web developers online.

Partnership isn’t easy, I would need to have some sort of ongoing relationship with the person beforehand to know that we would be able to work together…

So anyway, those are my random thoughts on the subject.

If you think you’d be suitable to partner with me on some projects, then reach out to me and lets talk.

 

 

I’ve noticed a common theme recently, which runs through both great companies and great investors.  They have an extremely long term outlook.

Recently I was in San Francisco for GDC (Game Developer Conference) and probably one of my major takeaways was a common thread from several lectures I attended.  Design games for the long term; and it seems that the companies who are more successful have a longer term outlook.

For example, Supercell (makers of the top grossing Clash of Clans), create games that can be played for a decade or more.

Chillingo, a big publisher, advised developer to create games that can be played for 5 years.

And the founder of Runaway (company behind games such as Flutter: Butterfly Sanctuary), said that when they create events in their game, they have  a 2 to 3 year roadmap.

So, create games for the long term.   Can we say that the longer term your outlook, the more successful you are? Dunno, maybe.

 

Now if we skip over to the field of investing, I think we can see a similar trend.

I haven’t had my ear to the ground so much recently, but I know that Warren Buffet looks for companies that would be going strong 100 years from now – he has an EXTREMELY long term outlook.

So… I was thinking. I agree with the general consensus that its worth investing in Index Funds that track the market performance (that’s also what Buffet recommends when asked what investing advice he’d give his family).  That said, it is worth having maybe say 5% or so invested in individual stocks.

And what is something that has a long term life span?

So we come to the future…

Ray Kurzweil, the renowned futurist, has a decent argument that somewhere between 2040 and 2050 we will reach the Singularity, the point where Artifical Intelligence machines will be able to program themselves, which will send us into a new, exciting and maybe scary era that no one can foresee really what will happen after that point, since technology would have reached a tipping point that accelerates so quickly beyond human comprehension… He also argues that technology and computer chips are becoming exponentially smaller, to the point where (well before the Singularity, say in 2030 or so), nanobots as small as blood cells will swim through our blood stream and monitor our vitals, fight infections and all in all extend our lifespan as a species.

So, that’s a bit of an aside (I’ve been mulling over this quite a bit recently, the concepts he presents are fascinating).

But, the main factors that will drive this revolution:

• Artifical intelligence (software)
• Computer Chips
• Nanotechnology

With a quick Google Search and some filtering by me, here is a list of perhaps interesting companies to think about with a long term outlook (20-30 years)

 

Semiconductor Companies

• Intel (Div Yield ~3%, P/E 13.6)
• Taiwan Semiconductor Mfg. Co. Ltd. (Div Yield 2.7%, P/E 13.6) –
  • From their Wikipedia entry – “Most of the leading fabless semiconductor companies such as Apple Inc., Qualcomm, NVIDIA, Advanced Micro Devices, MediaTek, Marvell,STMicroelectronics and Broadcom are customers of TSMC, as well as emerging players such as Spreadtrum, AppliedMicro, Allwinner Technology andHiSilicon,^[8] and many smaller companies.”

Here are a couple of good Wikipedia entries about Semiconductor Manufacturers:

https://en.wikipedia.org/wiki/Semiconductor_sales_leaders_by_year

https://en.wikipedia.org/wiki/Foundry_model

 

It could be interesting to delve further into the semiconductor chip component and to see if there are other interesting investment opportunies / monopolies further down the supply chain (good place to start might be Intel’s Suppliers list… http://electroiq.com/blog/2012/04/intel-top-suppliers-2011/  and https://newsroom.intel.com/news-releases/intel-honors-21-companies-with-preferred-quality-supplier-and-achievement-awards/).  Also this wikipedia entry on “silicon producers” can be interesting.

 

More reading on semiconductor industry:

http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/semiconductors/pdfs/mosc_1_revised.ashx

Top Silicon Wafer Manufacturing Companies in the World

 

Artificial Intelligence Companies

• Google
• IBM

 

More Reading:

http://www.techworld.com/picture-gallery/big-data/9-tech-giants-investing-in-artificial-intelligence-3629737/#4

http://www.businessinsider.com/artificial-intelligence-how-to-invest-2015-2