For the S&P 500, December has been the best performing month every year since 1960. That's 49 years of data, and if yesterday's rally was a sign of things to come, bulls are back to finish the year with a vengeance for the 50th consecutive year.
But to continue this trend, the S&P 500 would have to beat September's per cent gain of 8.76. That would require the breadth market to close above 1283.91 (1206.07 today) by New Year's Eve, a feat that traders might not be compelled to do just yet. Given the gains seen since the end of June, many are still anticipating a correction in the stock market. 1283.91 is also 4.63 per cent higher than the 52-week high set on November 5, 2010.
For the market to reach such lofty goals, the problems over Europe must either be resolved or traders must overcome these worries. Positive news from China, India, Japan, other parts of Europe, and America could help quash these fears and provide confidence that the global recovery remains intact.
If you fully believe that December will continue to be another stellar month, even if it does not beat 1284, consider getting positions ready on high-beta stocks on the next down day. Companies like Apple (AAPL), International Business Machines (IBM), Goldman Sachs (GS), Google (GOOG), MasterCard (MA), and Starbucks (SBUX) are a few S&P 500 components that often move substantially more than the index itself.
However, if you're leaning more towards a potential correction or that the month will finish flat from today's close, consider buying some protection in puts or writing calls to earn some additional income for Christmas shopping.
*Disclosure: I do not own any stocks or related derivatives mentioned in this blog. The blog is not intended to be financial advice or recommendations on buying or selling equities mentioned above. Before making any financial purchase, consider your investment objectives, risk tolerance, and liquidity needs (especially during Christmas) and speak to a financial advisor.
Google's Biggest Mistake Coming in Hours
Google has admitted that its three biggest mistakes were Google Wave, dejanews.com, and Gmail (quite surprised by the last), but if reports about Google's offer to buy Groupon is true, Google may see its list of regret grow just a little longer.
Google is expected to announce as early as Wednesday that it will be buying Groupon, the company with the "Enjoy (city) 50-90% off" advertisements seen commonly on Facebook and probably to the right of this blog. The price tag: $6 billion. It's a lot for a company celebrating only its second year this month, but Google is expecting the company to pay off early and often.
Groupon has been touted as the fastest growing company ever, already generating revenues of $50 million a month ($600M annually). And revenues are expected to reach $1.4 billion in 2011. Sounds like the best investment Google has ever made, except that it probably will be more trouble than it's worth.
Groupon's business model, which will probably remain intact, goes against many of Google's business practices. Groupon requires a team of thousands of salespeople negotiating with local businesses willing to offer its services and products at half the cost, with larger discounts often applied too. Google, however, uses computer technology to create its ads by using keywords, phrases, and website content. It's a concept that Google may not embrace or fully understand, which may cause a rift between the two.
Another problem is the unproven track record of Groupon and this industry itself. As mentioned, the company is only two years old, and management have not yet had to deal with long-term issues that often arise in business. This mainly includes competition, which is already starting to become extremely fierce in the advertising business. Redflagdeals.com has started to mimic Groupon's advertising model and have created their own deal of the days. And as more and more entrepreneurs decide to enter this industry, Groupon will face more challenges of competition. Unlike recent history, Groupon can not buy out every company in markets it aims to target.
The company only features one, that's right, one, deal per day (per city). And the company makes money only when the coupons are purchased and only if enough people opt-in to the deal. This business model limits any possibility for expansion in established cities and markets and is at the mercy of individuals looking for deals and nothing to do with its business partners. As a result, local businesses that frequently use Groupon may decide to find other clones if the waiting lists become too long or commissions are lower else where. The company claims 97 per cent of its partners want to be featured again and there are backlogs of over 100 requests in some markets.
The coupons may help create additional customers short-term, but businesses having to rely on low margin customers never survive. To top it off, Groupon earns half the revenue from the purchase of the coupon. So if a video store wants to sell $20 of videos for $10, they earn only $5. That's just 25 per cent of the regular sale. Now that's price-gouging! In business, there are two methods of success: increase margins or increase customer base. The latter is not sustained by Groupon and one website talks about poor customer retention.
Customers using Groupon will almost never turn into loyal customers, as said in the Quora link above. 80 per cent of a company's profits often come from 20 per cent of their customers, known as the 80-20 rule. The idea is that those using Groupon will always be looking out for the next deal. If waiting lists do become too long, companies may have to wait months or years to post up their next deal. In addition, those using coupons make it a habit. I know I do this, and so do many of you. I will never visit many shops and restaurants if I don't have a coupon because the prices are usually too high for my budget.
The article also notes that the customer has no connection to the local business, but only to Groupon. Businesses with no customer base will lack consistency and create volatility in margins. Local businesses also suffer because they are forced to attend to low-margin customers who might take away from high-margin customers waiting in line or leaving due to heavy volume. In fact, one article mentioned a spa company overwhelmed with a massive increase in clients. As a result, the company had appointments for several months, with many unhappy customers wanting their money back.
Many Groupon partners who want to be featured again have also lowered their discount values. That is, instead of offering $50 of fare for $25, they drop it to $40 of fare for $20.
Groupon's business model has been attacked by many of its partners, and although the company does have many repeat features, the truth is that the lack of profitability will eventually become a reality. Many articles have already been written about how Groupon coupons took out small businesses, which, to be fair, was possibly a neglect on due diligence by the owner. The point is that businesses will want to avoid low-margin customers with low retention when the economy picks up.
Google's bid to buy Groupon is a bit of an overvaluation and with only two years of a track record, Google is making one of the largest gambles in its history. It's basically buying a penny stock and hoping it will work out, but with so many negatives impacting business partners, it's tough to say if businesses will want to deal with a company that takes half its earnings when it already discounts its prices.
Google is expected to announce as early as Wednesday that it will be buying Groupon, the company with the "Enjoy (city) 50-90% off" advertisements seen commonly on Facebook and probably to the right of this blog. The price tag: $6 billion. It's a lot for a company celebrating only its second year this month, but Google is expecting the company to pay off early and often.
Groupon has been touted as the fastest growing company ever, already generating revenues of $50 million a month ($600M annually). And revenues are expected to reach $1.4 billion in 2011. Sounds like the best investment Google has ever made, except that it probably will be more trouble than it's worth.
Groupon's business model, which will probably remain intact, goes against many of Google's business practices. Groupon requires a team of thousands of salespeople negotiating with local businesses willing to offer its services and products at half the cost, with larger discounts often applied too. Google, however, uses computer technology to create its ads by using keywords, phrases, and website content. It's a concept that Google may not embrace or fully understand, which may cause a rift between the two.
Another problem is the unproven track record of Groupon and this industry itself. As mentioned, the company is only two years old, and management have not yet had to deal with long-term issues that often arise in business. This mainly includes competition, which is already starting to become extremely fierce in the advertising business. Redflagdeals.com has started to mimic Groupon's advertising model and have created their own deal of the days. And as more and more entrepreneurs decide to enter this industry, Groupon will face more challenges of competition. Unlike recent history, Groupon can not buy out every company in markets it aims to target.
The company only features one, that's right, one, deal per day (per city). And the company makes money only when the coupons are purchased and only if enough people opt-in to the deal. This business model limits any possibility for expansion in established cities and markets and is at the mercy of individuals looking for deals and nothing to do with its business partners. As a result, local businesses that frequently use Groupon may decide to find other clones if the waiting lists become too long or commissions are lower else where. The company claims 97 per cent of its partners want to be featured again and there are backlogs of over 100 requests in some markets.
The coupons may help create additional customers short-term, but businesses having to rely on low margin customers never survive. To top it off, Groupon earns half the revenue from the purchase of the coupon. So if a video store wants to sell $20 of videos for $10, they earn only $5. That's just 25 per cent of the regular sale. Now that's price-gouging! In business, there are two methods of success: increase margins or increase customer base. The latter is not sustained by Groupon and one website talks about poor customer retention.
Customers using Groupon will almost never turn into loyal customers, as said in the Quora link above. 80 per cent of a company's profits often come from 20 per cent of their customers, known as the 80-20 rule. The idea is that those using Groupon will always be looking out for the next deal. If waiting lists do become too long, companies may have to wait months or years to post up their next deal. In addition, those using coupons make it a habit. I know I do this, and so do many of you. I will never visit many shops and restaurants if I don't have a coupon because the prices are usually too high for my budget.
The article also notes that the customer has no connection to the local business, but only to Groupon. Businesses with no customer base will lack consistency and create volatility in margins. Local businesses also suffer because they are forced to attend to low-margin customers who might take away from high-margin customers waiting in line or leaving due to heavy volume. In fact, one article mentioned a spa company overwhelmed with a massive increase in clients. As a result, the company had appointments for several months, with many unhappy customers wanting their money back.
Many Groupon partners who want to be featured again have also lowered their discount values. That is, instead of offering $50 of fare for $25, they drop it to $40 of fare for $20.
Groupon's business model has been attacked by many of its partners, and although the company does have many repeat features, the truth is that the lack of profitability will eventually become a reality. Many articles have already been written about how Groupon coupons took out small businesses, which, to be fair, was possibly a neglect on due diligence by the owner. The point is that businesses will want to avoid low-margin customers with low retention when the economy picks up.
Google's bid to buy Groupon is a bit of an overvaluation and with only two years of a track record, Google is making one of the largest gambles in its history. It's basically buying a penny stock and hoping it will work out, but with so many negatives impacting business partners, it's tough to say if businesses will want to deal with a company that takes half its earnings when it already discounts its prices.
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