After thinking long and hard about this decision, I’ve decided to stay with Apple, although I do realize that there is a downside risk.  Unless things change, however, I do believe that Apple shareholders will be happy they either bought or held onto their Apple shares come 2013.

I’ll list my reasoning in bullet points for why I think it’s still a good stock to own:

• Cash rich and can weather any storm, might offer a dividend at some point.  They certainly could.
• Low P/E ratio considering how solid this company is
• People underestimate the Iphone 4S.  I think it’s a smart move.  It will sell very well in Asia because of prestige alone, and I think Apple will role out a new Iphone 5 that will shock the world come the summer of 2012.  That’s just when the 2 year contracts of the Iphone 4 users of the US run out.  Perfect timing…..

• Apple’s international prestige as a cool brand is totally underestimated and misunderstood by analysts.  I know many people in Shanghai for example who have the Iphone 4 and now the Iphone 4S.  It’s a status symbol and there is a kind of “anti price sensitivity” associated with it.  China is not alone either.  Large and rich Asian city centers think the same way.  Millions of men will try to woo their beautiful girlfriends with the Iphone 4 as a gift.  Many people just don’t understand how true that is.  Once the Iphone 5 comes out, they will do it again.  It’s crazy but true.
• The continuous adoption of Apple hand held gadgets will push people to buy the laptops and desktops.  There are many Apple converts yet to be discovered.
• People overplay the importance of Jobs.  He was truly one of the best CEO’s to ever walk the planet, but he left a legacy that his very smart team will be able to follow for at least another year or 2.
• Apple is a kind of luxury product and when people see large jobless claims then they see the stock tank.  It makes no sense because it’s the upper middle to upper class who is buying the Iphones anyway.  In China, people will spend a whole month’s salary on an Iphone 4S or Ipad 2 even if it makes little logical sense.  A slowdown in jobs won’t slow Apple’s sales too much to the people who already have money.
• Many people don’t feel this way, but a surprisingly large number of people will buy Apple stuff almost out of respect to the legacy and genius of Steve Jobs.  He is so big in the media now that it makes his products almost like paintings of the famous painters who passed away.  That is a bit of a stretch but it’s a phenomenon none the less.
• His best selling book and media coverage is free advertising for Apple and they will profit a lot from it.

All in all, 2012 should be a strong year for Apple shareholders and I certainly won’t be selling my stocks until they are trading in the $550 range at least.  I don’t know if that will happen but I’ve got my money riding on the fact that it will.  I recommend you do the same.

I’ve owned Microsoft stock and watched it do virtually nothing.  It’s not fun.  For some reason I had this belief that they are going to make a come back.  I highly doubt it now.

To me, Microsoft is running on an old business model and an investment in them seems very risky.  They put windows on every PC and they sell a bunch of software to companies.  Years ago, it worked amazingly well and that’s why it is still such a giant.  I honestly think that Micosoft’s best days are long behind them and they will just be in some kind of unforgettable “tech hall of fame”. They are the tech boys of yesterday who have still yet to retire.

I haven’t seen Microsoft do anything new in a long time.  Their attempt to get into search with Bing has been a major failure.  I think it’s failed far worse than most numbers would have you believe.

I own and operate several websites and I can see where my traffic is coming from.  If I total up all the websites I own, I have over a quarter million monthly visitors.  That’s a fairly big sample size and my websites are across many sectors.  The traffic from Bing is even less than 1% of the traffic from Google.

Google is crushing Microsoft in pretty much any space it enters.  Look at Chrome and Explorer.  The only people who still use explorer are the people who don’t care enough to switch browsers or even know it’s an option.  Google is starting to make cheaper and better software and offer it to companies.  That will kill Microsoft.

There have been several rumors of Google coming out with an operating system for PC’s.  It won’t be much of a stretch considering they make Chrome, and own Android and Honeycomb.  I think it’s just a matter of time and people will switch quickly.  Google will make a better and cheaper version of Windows in due time.  They will make it similar enough so that people are comfortable making the switch, and make it better in the ways that are obvious.  The same thing will happen as did in the browser wars.  If Google’s operating system uses Google stuff as the default, then Microsoft is going to really be in trouble.  I can’t imagine many people changing the default settings to get back to Bing and Explorer.

Microsoft bought Skype and I thought that might have been a good move.  I was excited to see what they were going to do with it.  Turns out not much.  Skype was losing money when Microsoft bought it for 8.5 billion and I’m sure it still is.  Their social media efforts have been a joke and even their popular MSN instant messaging service are losing steam to Facebook’s IM.

With all the smart, young, and talented CEO’s out there in the tech space, I really see bad things ahead for Microsoft.  What’s the upside to this company?  How could they possibly have a blow out quarter?  It’s easy to see how there is always the looming possibility of bad news for Microsoft from innovations from Google, Facebook, Amazon, Apple, and whoever else.  I just don’t see much of an upside to justify the risk.  I’m thinking that a best case scenario for the stock would be a slow increase of a few cents per share here and there.  The worst case is pretty disastrous and could see the stock trading at half it’s current value.  Unfortunately I see the latter to be a lot more likely.  The company has had plenty of time over the years to prove themselves but they seem like slow old veterans who’ve simply lost a step or two in today’s fast paced game.

If I’m right about this and Microsoft gets destroyed, a lot of this money that was in the stock will transfer over to companies like Google.  That’s why I’m very long Google over the next couple of years.

I personally think that over the next 5 years or so, Google will be a much better investment than Facebook.

First of all, I’ve read that Facebook is targeting between a 63-100 billion IPO.  That is a massive market cap for a company that earns a lot less than Google.

Google Plus is growing quickly and estimated at having over 40 million users and an increase of 30% in just the past 2 days alone.  It’s obviously nowhere near as big as Facebook now, but it will certainly grow in size.  Google launched the product only 90 days ago and opened it up to the public just the other day.  No matter what, Google Plus is going to be a real nightmare for Facebook because it’s going to take people’s eyes and time off the Facebook site.

On the flip side, Facebook doesn’t stand a chance to chip away at Google’s search business.  I just can’t see that ever happening for a variety of reasons…

Overall the management team of Google is much better than Facebook’s because the team has the right combo of ingenuity, experience, and depth.

Zuck is still a young guy and a lot of people hate him for a variety of reasons.  I think Facebook is worth less than 20% of Google when you factor in Gmail, Android, Search, Google Plus, Youtube, and all the business software developments along with cloud computing.  Facebook’s revenues are estimated to be under 5 Billion USD for 2011 and Google’s will be over 40 Billion.

As Facebook grows, they will face legal battles.  I know that will happen because it always does with this kind of company.  Google has proven to know how to weather the storm but Facebook will have to deal with the transition of being a private company to the hassles of becoming a public company.  It will force FB to take their eye off the ball for a while and deal with a bunch of red tape.  There are so many privacy problems already and they will have to deal with them in court.  It’s just a matter of time.

Google’s second quarter revenues increased 30% YOY, which is a lot considering how old, large, and established the company is.

I’m a shareholder of Google and I think the stock will jump if and when Facebook numbers disappoint.  Google is quite cheap right now and I believe one of the reasons is the fear over how big Facebook could get.

I’ll be the first to admit that predicting the future of this kind of thing is impossible, but those are my honest feelings.

I’m a webmaster, website owner and developer, of many websites and I understand the importance of Google Plus.  Webmasters “control” what gets popular to some extent because they are the people who write about what’s going on and get people to use buttons.

All webmasters know how important a high Google ranking is and Google Plus is a lot better for them than Facebook likes.  Google has already admitted that they are factoring in the “Plus one’s” into their search algorithm.  Expect to see Google Plus buttons on most websites within the next year, in addition to FB, and Twitter.

All in all, I believe that Facebook has a lot further to fall than Google and are the ones who risk being obsolete 5-10 years down the road.  Google has a big head start over Facebook in pretty much all areas aside from Social networking.  I think they are too strong for Zuck and his less experienced Facebook squad to handle.  Google has a lot more money in the bank too.  Google just paid a lot for Motorola and still have over 25 Billion.  They have the ability to beat Facebook in any bidding war they may square off in for new companies.

That said, there are a lot of new and interesting things happening with the Facebook team.  I always read interesting announcements and they are certainly a lot more secretive with their future plans.  I could be totally wrong with this advice, but Facebook seems like a far riskier and over hyped investment.  I think you’ll be happier with a buy and hold with Google.

1.  The classic “buy low sell high” mantra applies.  Google is quite cheap in terms of P/E.  I don’t think I need to explain more there.

2.  Google renewed their China licence.  That means they are finally smartening up and learning to work with different governments instead of trying unsuccessfully to force their ideals down the throats of other nations.  I’m living in China and can see that this is a very smart business decision.  It’s not exactly how Google wants things but at least they are trying to negotiate and play ball instead of being out of the China game.

3.   Their Android play is going nuts.   Android is one of the fastest growing search terms of something that is already highly searched.  Check out Google Trends and search for Android and look at the graph.  Compare it to almost anything.  Apple is considered greedy but Google takes the same cut as Itunes for App sales.  Huge money..

4.  New sources of revenue that most people are unaware of.  Google used to do everything for free and try to put ads here and there.  Now they are targeting small companies and even charging for a personalized gmail account system if the company has more than 10 people.  I’m involved with a company doing this and happily writing Google a check every month.  This is quite new and many investors don’t know about this new revenue source.  There is a lot of potential with software for businesses.  They will undercut Microsoft but still charge something.  They are learning that it doesn’t need to be free to work.  Dirt cheap with high volume will be a new model for Google and a major revenue engine.

5.  Google + is a lot better than people are saying in the media.  There is so much incentive for website owners to use it and promote it as well because of search rankings.  It’s pretty easy to see how this can be monetized.  It will be a top 3 social media site for sure.

6.  They are poised for growth in Mobile and Video.  Google is very smart at predicting where the world is going with tech.  Apps, Video, Mobile, Social networking.  They’ve got it covered and they are now starting to understand that the world is different all over.  There is a lot of room for them to grow internationally.

7.  They have a lot of money.  They make mistakes but they make smart moves that compensate.  Youtube was said to be a bad buy at something like 1.65 Billion.  Every major buyout comes with risks, but Google isn’t afraid to take the bat off their shoulders.  There will be some inevitable strike outs, but expect some grand slams too.

8.  Google Chrome Browser is taking off.  Google will figure out how to monetize that for sure.

Great buy and hold for at least a few years.  I’ll let you know if it overheats but it’s a great stock pick now.

I believe a good portfolio really needs good diversification to hedge against possible unforeseen circumstances.  I like different currencies, companies that invest heavily internationally, companies with massive growth potential, large stable dividend paying stocks, etc.

I like the tech sector for 2012 but I’m not just going to pick 10 stocks from my favorite sector because I like to hedge a little.  Leave a little room for the uncertainty of this crazy world we live in.  If you hold onto all 10 of these stocks for the full year, I think you’ll be happy.  I have them all so we’ll be in this together.  In no particular order, here are my 10 picks:  

K-Swiss: (KSWS)

I know I said no particular order but this is by far my favorite stock this year.  Unless you are incredibly risk adverse, I highly recommend putting as much money as you can into this stock.  The analysts don’t get it.  This is a forward thinking California based company and they are changing the shoe industry.  The market cap is tiny at the moment.  Just to put things into perspective, $100 invested in K-Swiss would give you about the same % ownership as $20 000 invested in Nike.  The costly re branding campaign has hurt the stock a lot but a lot of this marketing campaign is viral.  It is sitting on Youtube for free and people are actively watching the commercials and telling their friends about it.  People are joining the Facebook Page in droves and I’ve read pretty much only great reviews for the K-Swiss Tubes.  I’m actually wearing a pair as I write this article and they are fabulous.  The K Swiss Tubes are in my opinion the best cross trainers for 2011-2012.  I love sports myself and I’ve owned the recent stuff from all the top brands.  K Swiss is sponsoring the right people in growing industries.  Fox Sports signed a massive deal with the UFC and it will invariably make the UFC even more popular than it is now.  Instead of only being able to watch UFC on PPV, you can now watch a lot of events over the next several years on Fox sports.  K Swiss has signed some of the best athletes like Jon “Bones” Jones and they are making all the right re branding moves.  Go to Youtube and type in “Kenny powers Kswiss” and you’ll see what I mean.  Read the comments there and on their growing facebook page.  Buy yourself this stock and a pair of Tubes.  Best move you can make.  FYI, the CEO owns about a 20% stake in the company and has a lot of incentive to make it work.  He’s got a proven track record of digging himself out of trouble before and he’s poised to do it again in the biggest way yet.

China Mobile: (CHL)

I’m living in China and I know what’s going on here.  I’ve been here for 9 years so I’d better.  A lot of companies are overpriced but China Mobile isn’t one of them.  They are going to be selling a lot 3G plans, which is very new in China, over the next several years.  The smart phone boom is going nuts here and China mobile is the leader in setting up these plans.  They aren’t cheap but the rising middle class can afford them.  I’m not Chinese but I’m going to get a good plan tomorrow.  I’ve checked into all the options and this is the best one.  Amazing pick that pays a solid 3.6% dividend.

Starbucks: (SBUX) 1.3%

The CEO of Starbucks is a genius.  This guy gets it and he’s really on top of his game internationally.  Expensive coffee is really all about branding and Starbucks is just taking over the world.  Their brand management is unreal and somehow they’ve been able to make their logo almost like a luxury item.  It’s even cooler in Asia than anywhere else in the world.  They are moving westward in China and are planning on ripping it up in India.  I’ve personally had the experience to watch Starbucks go from almost nothing to a huge success story in a country that didn’t drink coffee.  I know the analysts like the stock but I think the company will do better than anyone can even imagine over the next couple of years.

Coke: (KO)

Very safe 1.8% Dividend yield.  Great brand image.  They are playing off the growth of the world.  A can of coke is almost the first thing someone rising out of poverty can buy.  They bottle water all over the developing world at a great price and sell a lot of coke classic itself.  Very low downside risk and appears to be a company that will just keep trucking along quarter after quarter.  You won’t double your money in a year with this but you will be happy with this as a long term holding.

Procter and Gamble: (PG)

3.3% Dividend which is very strong for such a rock solid company.  Procter and Gamble coined market research and is a master of selling their zillions of brands all over the world.  They know what they are doing in each country and can really pick outstanding price points, in store locations, and targeted commercials.  I expect them to beat analyst’s expectations and I can’t see any real downside risk at all with them.

TD Bank: (TD)

This is a Canadian bank with a solid 3.7% dividend yield.  Canadian banks didn’t fall for the same tricks that happened in the US.  They are very steady and there is enough competition to make them keep up with the times, but not too much to erode profits.  There are a few banks that pretty much run Canada and I don’t see that changing anytime soon.  People pay back their loans and the bank just keeps profiting.  Simple and solid investment.

Apple: (APPL)

I am a huge believer in Apple’s brand internationally and I think they still have more room to grow than people think.  We all know the Iphone 5 is coming out and I think the sales will be insanely good.  People buy these products not only because they are great, but because they are the only fashionable computer item on the market.  Many people have no problem at all paying the large premium for Apple’s stuff just to look cool.  That’s not the reason everyone does it but it’s a reason that all the challenger companies won’t be able to touch a large % of Apple’s core user base.  Apple is in a league of their own and will stay that way for the foreseeable future.  Any Apple naysayer makes very weak arguments against the investment.  Some people buy computers to get the most bang for their buck.  Apple users proudly pay the big premium.  That’s why they keep beating expectations on Wall Street.  They don’t pay a dividend but certainly could at any time.  They are a cash cow already sitting on a mountain of cash.  I can see the company going over $500 before the end of 2012.  Very strong buy.

Amazon: (AMZN)

Jeff Bezos is a very smart and committed CEO.  They have a stranglehold as the world’s largest online retailer.  It makes a lot of sense to buy stuff online and the younger generations are getting more and more comfortable doing so.  The logistics and economies of scale make it almost impossible for any other company to come into this space.  The stock price has risen considerably lately but there is still a lot more room for growth.  When they start selling their tablets with the ability to sell the largely discounted e-books, expect the stock to jump.  All the readers out there will love to buy this new tablet and they are continually making the online shopping experience better, cheaper, and easier.  People are now even buying from their mobile phones with the Amazon App.  Solid long term hold.

Bank of Montreal: (BMO)

This is another solid Canadian bank paying a whopping 4.70% dividend.  My arguments for buying this bank are pretty much the same as above for TD.

NewsCorp: (NWS)

I know I said best 10 stocks but I just thought of another one and I couldn’t resist.  NewsCorp is making a lot of very smart moves to cater to the new generation of TV watchers.  Their shows on the FX network are outstanding and they just signed a massive deal with the UFC.  They pay a small dividend of 1.1%, but still better than nothing. If you look at what they are doing and who they are targeting, you’ll see that it is all very sensible and forward thinking.  It’s not just Fox News.  There is a lot to the company and a lot of smart people pulling strings there.  Expect the UFC ratings to move the stock price as well as extremely solid TV ratings in 2012 for the FX network.

Many of the top US multinationals do well over half of their business outside of the USA.  It doesn’t matter where the headquarters are, it’s where the sales are.  About 80% of Apple’s Iphone sales are from outside of the US.  This is just one of many examples where international sales make up the lion’s share of an American company’s sales.

As an investor, I really can’t figure out why the US unemployment numbers have such an amazing ability to move the markets.  We report global sales and then go ahead and report domestic numbers like unemployment rates, housing starts in the US, or US consumer confidence.

There are several reasons that this is ridiculous…

First of all, when a company moves their manufacturing plant to China, the stock might jump a few % because investors can think of all the money saved on not having to pay American workers.  Then a couple weeks later the stock will drop a few % because there is more unemployment in the US.  If it’s true that the Chinese are “stealing our jobs” for example, then the Chinese people are getting paid instead.  It’s a transfer of wealth and not a loss of wealth.  The newly employed Chinese then start to pick up the spending slack lost by the newly unemployed American manufacturers.

We don’t have reliable stats for “global unemployment rates” but it’s not hard to figure out that when a company moves, some people lose jobs and other people get jobs.  The company saves money and are just selling their goods to new consumers.

Someone might argue that the cheap labor in China for example won’t allow those people to have enough disposable income for things like Iphones.  That makes logical sense but it’s just not the case.  The Chinese pay full price for Iphones they can barely afford.  (I’m oversimplifying by using China and Apple but the same arguments could be made with countless other examples)

The US isn’t the only show in town either.  I realize it’s still the richest nation with the largest GDP, but the gap is continually closing.

Many of the populous nations are starting to wake up and get into buying stuff.  That’s why corporate profits are so massive while stocks are slumping.  Old school economists are giving too much attention to numbers that matter a lot less than they used to and smart investors should be able to take advantage of this.

Here is a world population pie chart.  I understand it can be misleading if you are an idiot, but it’s still interesting and it will give you a feel for where the people in this planet live.  Many of these big countries on the chart are getting a lot richer fast.

Expect the domestic numbers to matter less and less.  It’s why corporate profits are soaring while the stock market isn’t following suit.  The so called “experts” can’t quite get their head around what’s going on.  It shouldn’t be a surprise because these “experts” and “stock analysts” are basically the same people allowed the credit crises to happen by selling homes to a bunch of people with no money.  They didn’t see that one coming.  Pretty pathetic when you think about it.

At one point, investors are going to wake up and realize that many companies are incredibly cheap right now.  They just aren’t sure which numbers to use when doing their analysis at the moment.  They seem confused at how unemployment can be so high in the US while corporate profits are soaring.  I truly believe that many of the old school analysts are so near sighted it’s ridiculous.  A lot of them haven’t been out of the country.  A lot of them couldn’t pass a 12th grade stats test either, even though they have an economics degree.  It’s the reason why so many companies keep beating analyst’s expectations.  When you think about it, if someone keeps guessing lower sales figures for a company quarter after quarter for years, they obviously don’t understand the company and are using a weak model.

Savvy investors understandably want to know what are the best ways to invest in China or even how to invest in China.

We’re in the 3rd quarter of 2011 and looking forward to 2012.  I have some answers that are very valuable and may actually surprise you about the best ways to go about this.

I should mention that I’m a westerner who has been living in Shanghai for the past 9 years.  I’ve been all over the country and I read and speak Chinese.  I feel that I know what is going on here a lot more than the people on wall street.  It’s not because I’m on an ego trip.  I’m actually living here and dealing with this country everyday.  As an investor, I’m going to be as objective as I can possibly be.

Many of the “exciting” Chinese stocks trade in New York and they are shockingly overvalued.  Here is just one example I wrote about of an overpriced Chinese stock listed in New York.  I’m not a classic “value investor” but I know a bubble when I see one.  Many Chinese internet stocks are losing money and trading at about 4 times the P/E of Apple.  They are insanely overpriced because so many investors think that China and the internet equals an amazing investment.

There is a herd mentality following this simple logic and it’s very misguided.  It’s true that China is growing fast and will continue to do so as the growth spreads west.  Cities you’ve never heard of are booming like you wouldn’t believe.  The growth is real and the internet is really taking off.

The problem is that too many people already know about this and speculators have bought into this hook line and sinker.

If you want to make money in China while minimizing downside risk, buy a company that does an incredible amount of business in China and has a strong brand image.  The Chinese consumer loves top brands more than anyone else I’ve ever seen.  I often read in the western news media that China has so much fake stuff.  It’s true that there is a lot of fakes here but what you need to understand about this culture is that they love the real thing.  Many people will spend 2 months salary to get a real LV bag instead of a fake one that is similar.  The incredibly strong luxury market in China is a paradox to the people who don’t understand how a culture can spend so much money on real brands even when they don’t have a lot of money and there are fakes they can buy.

“Face” is a big part of it but so is quality.  It’s not easy to copy well made things and the Chinese are probably the best in the world at spotting fake stuff from 10 meters away.  It’s embarrassing to be seen with cheap fake stuff here.  The fakes actually expose the real brand and create demand.

China is a proud nation but they actually like western goods like Apple and Starbucks more than their own stuff.  It looks cool to be international here.  I bet my life that this trend will continue.

Another reason to invest in American companies like Apple and Starbucks which are just so dominant here is that the Wall Street analysts really don’t know what’s going on here.  They have proven themselves time and time again to be just terrible at predicting sales figures in China.  Since these companies sell so much in China, a good Chinese quarter will almost certainly push up the share price up a lot because when the quarterly sales numbers come out ahead, the stock price jumps.  Apple and Starbucks are both poised for global and massive Chinese growth for 2012 and beyond.

Now is not the time to invest in silver because it’s in an even bigger bubble than gold is.

(Read this:  Is gold in a bubble?)

No one really knows what the future holds but it seems to me that investing in the silver bubble would be a massive misstep.  It’s almost admitting that the world is coming to an end.  And if the world is coming to an end then silver won’t help you much anyway.  It’s a hard asset like gold and can’t be printed.  When all the people start panicking like little babies, the prices of both gold and silver skyrocket, for a while.  Don’t forget, these supposed “safe haven investments” have been known to crash hard and it can take decades to get your money back.

Take a look at this silver chart from Wikipedia:

The thing I’m most interested in is the far right column of the ratio of gold to silver.  We all know that gold has shot up and gets a lot more media coverage than silver, but silver has actually gone up more than gold on a percentage basis.  Gold is always more valuable per ounce than silver but the gap isn’t always the same.  Silver has gone crazy.  From under 15 bucks in 2009 to over 40 bucks now.  As with all bubbles, they have the capacity to keep growing and the bubble might grow bigger for a while depending on a variety of mostly meaningless reports coming out of the US.

You need to be careful when you are investing in commodities that are pumped up in price from speculation rather than from real demand.  This is exactly what is going on in the silver market.   It’s happening with gold too but to an even larger extent in the silver market.  I was surprised myself when I decided to do some research on this metal and that’s why I’m writing about it.  I would highly advise anyone to stay far away from silver no matter what ridiculous “investment advice” you come across.

Remember, buying high and watching an investment plummet is neither good advice nor fun to experience.

The truth is that Sina is really not a good investment in my honest opinion.  I’ll tell you the pros and cons of this stock. It’s basically a list of cons so don’t get your hopes up if you are looking for pros.

Go to www.sina.com and click on the country you are from.  The whole site looks shockingly junkie and there are messy ads everywhere.  This isn’t “Chinese” taste.  It’s just pretty pathetic and only works because they were at the right place at the right time early on.  Companies can coast on that only for so long…..

The stock has risen from $20 to $98 since April 200o and it makes no logical sense.  It makes sense for stocks in a growth phase to be losing money but you need to be profitable at some point and they’ve had plenty of time.  Here are reasons I wouldn’t touch Sina with a 10 foot pole:

1.  It’s very overvalued.

2.  It’s obviously resting on it’s laurels and not innovating.  It reminds me of a really bad version of Yahoo.  The look and feel of their site shows that a future company paying more attention to detail could dethrone it.

3.  It’s still losing money after all this time.

4.  The good news is already priced into the stock but the bad news isn’t.  Good news is that China is a huge and growing internet market and Sina is currently a top dog in it’s space.  To me it’s obvious that it’s not going to stay that way for years to come.  They don’t have much competition and still manage to lose money even though they aren’t competing with Twitter and Facebook since those sites are blocked in China.

5.  More and more Chinese internet users are using VPN proxy servers to access the blocked sites like Twitter and Facebook.  I live there and I don’t know anyone who likes it.  Chinese people use it because it’s there, not because it’s good.

I wrote about the Chinese internet bubble and Sina is a major part of it.  They bought a stake in Tudou.com, another garbage internet company.

The bulls of the China internet sector argue that they have the most internet users in the world and they are still growing fast.  They argue that Sina is a household name in the world’s most populous country.  The funny thing is that I totally agree with those claims but I strongly believe that the stock is very vulnerable to being the next MySpace after Facebook came into play or the next Yahoo after Google.  I read and write Chinese and there is just nothing that will hold people to Sina.  If something better comes along, people will migrate.  Remember that it’s still losing money and there is very little competition from outsiders.

The only thing I can imagine for Sina is that they have ties to the government and sign some deal with Twitter and do some kind of a revenue sharing co-branding thing.  I’ve never heard of that possibility though so I wouldn’t count on it.

There is so much potential downside for the stock and very limited upside.  It’s a poorly run company but it’s stock has been mysteriously well rewarded.

Even though the company is incubated from outside competition it stands little chance of surviving any bad news.  The stock trades on thin volumes and could tank at any time.  They are the opposite of cutting edge in an industry where being cutting edge is everything.   They don’t seem organised or nimble enough to move with the changing internet.  It’s more like a junk pile of silly news.  It’s not adding much value to the users and it’s not making a profit.

I’m personally not a short seller because there could always be something I’m missing like a surprise buyout.  If I was a short seller, however, I’d strongly consider Sina.  It’s one of the worst stocks I can think of and I’m glad I don’t own it. A pretty bad combo for a super expensive stock.  If you ask me, investing in Sina is a bad idea.  I could be wrong, but at least you’ve been forewarned.

If anyone has a counter argument, I’d love to read it.

First of all, let me ask you a question, have you ever used any of these sites or do you have a clue about what is good or bad about each of them? Do you know what real Chinese people think of them? My guess is no and that’s the truth for most of the investors in these companies. That’s scary and makes for an easy breading ground to blindly lead naive investors with simple reasoning:

“China and the internet are growing like weeds so you’d be a fool not to hop on to any internet stock coming out of China because you don’t want to miss out on something like this”.

I’m living in China and have been for 9 years. I vividly remember the dot com bubble in the US during the late 90′s and this is shockingly similar. Why? People are buying companies that have no real intentions for ever making a profit.

I’m a big believer in the continued growth of China and also the continued growth of the internet. The problem is that I’m not the only one, not even close. Many Chinese internet stocks have been dumped onto the US stock markets and people just blindly buy companies they know little or nothing about. This blend of greed, herd mentality, and naivety, fuel the bubble.

I learned to read and write Chinese, it’s not as hard as you’d think actually, and I can and do use all of these major websites. I understand how these sites work and can personally formulate an objective opinion of how good they are from a user’s perspective and get a real feel for the business model.

Since a lot of investors want a piece of the Chinese growth pie, they dive on any stock coming out of China. The Chinese businessmen know this and love to list their companies in New York for this reason.

Many of these companies are not bad, but they are far overvalued. The P/E ratios are enormous and the future prospects of these companies don’t deserve such valuations. A lot of the companies are losing money and I can’t see how many of them could realistically ever become profitable.

Remember that the Chinese know that it’s relatively easy for them to raise money from American investors and this fact makes the companies try to get listed in New York. The founders of the companies stand to make a killing regardless of whether or not the companies ever become profitable.

If you do decide to invest in Tudou, Sina, Youku, Baidu, or any of the other Chinese internet stocks, I’d highly recommend reading as much as you can about each company and also read their financials and plans. Don’t fall for the trap of thinking that “China + Internet = big profits”. It’s not that simple anywhere and you really need to be vigilant before making any investment decision. I’m not saying that these companies won’t work. I’m just saying that there is a lot of research that needs to be done before a smart decision is even possible.

Are Chinese internet stocks a good investment? I honestly don’t know but I’d be extremely careful or you may lose your shirt. Proven multinationals that do a lot of business in China like Apple and Starbucks might be a safer and more reasonable China play with much less downside risk.