Troubling Comms

So it turns out that BT Group (BT.A) are having some "issues" right now. I can't really see why it is particularly suffering, but its already at around -17% on purchase... and Verizon (VZ) is also running -15%, so all in all my safe comms shares are preforming pretty badly for me. I am however going to stick to my original 11th March plan for a sale decision on both of these. I'm just hoping right now that its not a flawed decision!

The dollar verses the pound is running at 1.431, so in effect hovering at just above purchase... financially speaking I just seem to be going nowhere at the moment and I am already looking forward to being free of my comms shares.

I'm thinking of being a little risky and investing in some tech shares. Specifically I'm looking at Red Hat (RHT), which is 36% down on 6m. Its currently running at 14.21 but has been running as high as 24.84 on the year. It also carries a 34.96 P/E, so as a medium to long term investment it looks pretty tasty. Figures aside though I like Red Hat; I admire their commitment to open source and their market share is still strong; with Apache based servers running 50% of the Internet according to January's NetCraft Survey. My concern is that Apache used to hold a more dominant position; at the end of 2005, it held about 75% compared with Microsoft's 25%, but since then MS has put a great deal of work into its IIS offering and as a result has climbed to about a 50% share.

You could perhaps tie this into the more commercial nature of the Red Hat corporation since the 90s, when they were considered more of an "open source" company. Since then Red Hat has now gone "Enterprise" and the opportunity to support larger organisations has been harnessed. This extended support provision is something that can only attract larger enterprises and pull them away from expiring offerings such as Novell or over priced, licensed burdened, closed source offerings such as IIS.

I would certainly support this share as part of a medium to long term investment, with a 2 year maximum review, as I see Red Hat stock gaining some serious stock, with both the server software and support aspects of its offering only contributing to that success.

An interesting comm share right now, should anyone wish to enter what seems to be a pretty erratic sector, would be Level 3 Communications (LVLT). Currently running at 0.738, they've been all over the place this year, with a high of 4.48 and a low of 0.57. Level 3 are a backbone provider operating out of Colorado, and seem to have a pretty sensible business model, exploring merger and acquisition opportunities last year and cutting back staff early December.

My only concern with them is a class action suit filed against them for an alleged 2007 securities laws violation which has to do with its quarter reporting, press releases and general PR which artificially impacted the stocks value. The bottom line is that this class action has not had a direct impact on the price yet, which worries me because it will hit as the class action gains momentum and coverage. In my opinion, Level 3 are certainly more of a risk than Red Hat, but have more earning potential if the suit action is managed badly or turns out to be unfounded.

Just out of interest, here is a 52 performance index of the companies we've been talking about today (Verizon, AT&T, Level 3 and Red Hat). Although Red Hat really isn't in the comms sector, the data from a "where next" angle is still useful.

Securing the Wiki

For some time now I've been searching for a more secure access method for my personal wiki UFBlue.

Until recently I've been limited to some pretty old-school methods of authentication; however I've discovered that with an extension, openID authentication can be added to the wiki, which supports token authentication. I'll keep you posted.

Hedging my Bets

ISA: As detailed earlier, I will be storing any GBP in a UK ISA. This will happen unless the dollar weakens to a minimum of 1.65 against the pound, in which case I will transfer funds across to the US. I already have a NatWest ISA, which receives 3.25% AER. I had considered Egg ISA however the rate is only 3.05% AER.

US Holdings: Currently only Verizon (VZ). Verizon has been struggling recently with only 0.87% movement in the last 3 months. If it has not made significant progress (at least 5% on purchase) by 11 March, then I will drop.

UK Holdings: Currently only BT Group (BT.A). BT have been performing poorly over the last 3 months with -4.36% movement. Again, if BT have not made significant progrss (at least 5% on purchase) by 11 March, I will drop.

Funds from dropped US holdings will return to PayPal MM, UK holdings will be reinvested in the fund market.

UK Fund Market: Over my cash ISA allowance, I will be investing into the UK fund market. I will decide which fund by 11 March.

Account Closures: I will close Citi GBP Savings, USD Current and USD Savings.

Deep Impact

Following from my last post on decision, I have a pretty major one to make; the decision of how the GBP will weather the new economy. I say new economy in an optimistic, forward thinking way... just because an economy is struggling, it does not mean that is necessarily "bad"... it just means that it has to be tackled in a different way.

After reading different articles on the destination of the pound, I am estimating that we will reach parity with the dollar by the end of the year. As such I will be transferring as much liquidity to US dollars as soon as possible, including ISA holdings irrespective of the ISA allowances for this and next financial.

I will use E*TRADE to invest 50% of my liquidity into a suitable fund, which I will decide on by the end of the month. I will keep the reminder in my low interest bearing PayPal account (0.59% yield, 0.59% AER with below formula). This will come at a high price, especially when compared with ISA tax free earning potential of 3.25% AER. If saving $10,000 for the full year, I would receive:

PayPal Money Market: $59
Tax Free ISA: $325

It would in effect be costing a total of $266 to hold my funds elsewhere, or the equivalent of 2.66% of my savings. Of course, this is negating the movement of the pound, would according to my estimates will be multiples of that figure.

Incidentally, the transferrance of funds across borders also comes at a high price. To give you an idea, right now the spread is as follows:

GBP to USD
Trade Rate: 0.703584 GBP Inverse: 1.42129 USD
Mid Market Rate: 0.686632 GBP Inverse: 1.45638 USD

USD to GBP
Trade Rate: 1.49330 USD Inverse: 0.669658 USD
Mid Market Rate: 1.45639 USD Inverse: 0.686629 GBP

To put that into a tangible sum, transferring 10,000 GBP to USD:

Trade Rate: $14212.90
Mid Market Rate: $14563.80

Bring the difference to $350.90 or 240.94 GBP. To put that into super-human-readable format, it means that a one way cross border transaction UK -> US would at this time cost 2.41%. So this decision cannot be taken lightly, at a sum cost of 5.07% (even before fund interest is potentially added to an investment ISA).

The question therefore is whether the pound will continue its trend of sliding against the dollar, or whether the dollar will weaken as the full force of the economic situation becomes apparent in the States. As stated earlier, I am certain it will be the former, and am accordingly willing to risk the 5.07% for the greater potential.

I will close my USD savings account here in the UK, along with my superflious USD current and GBP savings accounts. I will keep my NatWest current, savings (for short term hold), and ISA (for medium term hold).

AER to Gross: 12*((1+AER)^(1/12)-1), so for 5% interest rate you would: 12*((1+0.05)^(1/12)-1) = 4.89% gross
Gross to AER: ((1+gross_interest/12)^12)-1, so for 5% gross interest rate you would: ((1+0.05/12)^12)-1 = 5.12% AER

Let it Be

So here's the deal:

"Decide like a man of action; implement like a man of thought. It does not take much strength to decide what to do, but it requires great strength to do things."

I guess when it comes to personal decision making, I'm not too strong. For some reason I can make work-based decisions instantly, without pause, and not look back. So the simple question therefore is... why is this different outside the office? What happens when the suit comes off to turn me in to my father?

I've had real problems deciding what to do for Easter. After all, I leave a lean and mean life, so giving up luxury is not something that would fly with any degree of sacrifice. My decision therefore is to give up indecision for Easter. To not only make decisions immediately, but to act without hesitation. I feel that these people are the successful people in life... and I will fall into that category.

So starting as I mean to go on, I feel it apt to make some pending decisions, which I will do over the next couple of posts. Its a brave world, one where there is no looking back. Onwards and upwards and all that jazz. Let it Be.

"It's in your moments of decision that your destiny is shaped."