Here’s the mid-2007 update for my portfolio. All the quotes are from the close of June 1, 2007. As usual, I’m not posting my IRA investments.

Stocks I’ve bought since 2005:

My Annualized Gain: +41.5%
SP 500: +8.2%
Wilshire 5000: +9.0%
Russel 2000: +9.3%

Sales

I sold my Amgen shares that I bought before starting this portfolio.

Other holdings

I have a small investment in an index fund and my IRA investments. I carry margin debt, so my portfolio isn’t actually worth the amount listed above.[2].

Looking Back

I feel vindicated about buying 盛大. On the other hand, it pains me that I never did buy any 百度. It was the first company I analyzed on this blog, and I was convinced it was a good investment. Apple has continued to do well since I sold it, but I still think it’s way over valued and that the price will come crashing down as soon as they hit a real setback.

It’s been an entire year since I’ve added any money to my investments. I just turned 29 a few days ago, and I really should be saving something. The problem is, I’m just not earning what I used to. Until business picks up, I may not be adding anything.

Looking Forward

I don’t plan to buy anything more on margin without first selling a stock I already have. This portfolio may get pretty boring unless something comes along that’s so exciting that I’m willing to sell my current investments to buy it.

[1] Due to a 3-2 stock split, I now have 90 shares instead of 60.
[2] I carry a margin balance. That means that I’ve borrowed money to make some of my investments. The liquidation value of my account isn’t actually the total listed above.

Legal Disclaimer: All of the information in this article is accurate to the best of my knowledge. However, I make no guarantee about the accuracy of anything written above. I’m not responsible for any mis-typings, or any other errors in the information. If you purchase any stock solely because I did, you do so at your own risk.

Related post: Stocks 2006- Part 2
Related post: Stocks 2006- Part 1
Related post: My 2005 Investments

(Note: This post’s title has hurt some feelings. It was not intended to refer to any specific blogger. In particular, Lonnie at OMB is actually a very generous person in his charity work. This post is an argument against an idea, not an individual.)

Recently, it seems there’s been a sort of obsession spreading through the expat blogging communities. It’s about search engine optimization, i.e., trying to get one’s site to come up as high as possible in search engine results. The idea is to bring in traffic by figuring out how the search engines rank sites and then exploiting that system, or at least making sure of not being ranked artificially low. It’s not really a topic I’m interested in, but I’ve been dragged into this debate. Now that I have, I’ll let let my feelings be known.

Rather than spending my time trying to game the search engines, I’d rather spend my time making my writing more interesting or more useful to other people. I don’t want to change a post title just to grasp for a few more readers from a search engine. I don’t want to write based on what “keywords” search engines might notice. I want to write both as a way to organize my thoughts, and as a way to express myself. I’ve been writing a journal for a long time, even when it was offline and nobody read it but me.

Is the idea of personal expression really that alien to most bloggers? Am I the only blogger out there who isn’t obsessed with trying to get as many readers as possible? I’d rather focus on improving the actual quality of my writing rather than a search engine’s perception of its quality.Of course, it’s nice to get attention. I enjoy being listened to online or off. But just as making attention-seeking a primary goal in face to face meetings has its drawbacks, so too does writing primarily for the purpose of gaining a large readership. Has anybody ever considered that Stephen King’s writing isn’t necessarily better than that of any of the Bronte sisters, even though his books sell so many more copies? He himself, would admit that readership and quality writing don’t have a 100% correlation.

Unfortunately for readers, though, self-promotion is a lot more exciting than self-improvement:

Naturally, optimize your page title, your headings and keyword density in pages (5-8%), same as Google.

Onemanbandwidth.com: post#254

I detest this sort of talk. I’ll chose my own page titles and headings, thank you very much. I’m not interested at all in gunning for various “keywords”, either. The quotation above is an excerpt from Lonnie B. Hodge’s onemanbadwidth.com, in which he wrote at length about one of Fili’s many articles on SEO on filination.com. I’m not sure where he found out about me, but he linked to me and said he was interested in getting into a “running discussion” with myself, Fili and a couple of other bloggers about SEO, particularly as it relates to Baidu. Why, oh, why would somebody who reads Fili’s blog, where I’ve already stated my opinion on SEO obsession, want to be in this “running discussion” with me?

In all fairness, I’m pretty interested in Baidu, and I’ve written before about the poem Baidu’s name came and their financials. On the other hand, I’m not really interested in changing my site to make it rank higher on Baidu searches, or discussing the topic with a bunch of bloggers dreaming of ways to get more readers and more profits from the ads on their sites. I politely explained this to Lonnie, and he fired back with an assessment of how my site is “doomed”:

Umm, just checked Mark and your server is blocked by our server here…Not sure why…
I searched your site in other way: Google only has one page indexed for you and submit express shows your title tag is too long and you have no description tag, no author tag, and no keywords tag. You have no incoming links from Google or MSN and your Google page rank is a 0/10. You had better be the next Hemmingway if you want the writing alone to bring in more readers….

OMBW

It’s hard for me to figure out how to even respond to this. Everything he said was flat out wrong. Toshuo certainly isn’t any sort of mega-site, but it does have thousands of incoming links, and Google indexes it well. Back when I was using Hostgator, and they accidentally deleted all my hosted content, I was able to restore a full and current backup from Google’s cache. My site is the first google hit on various topics I’ve written about, such as my former school Modawei, terms such as “Taiwan geek”, “pinyin tone tool”, “buxiban curriculum“, and“Chinese textbook reviews”, as well as a number of others.

Toshuo.com achieved a pagerank of 5 within seven months of me starting it, whereas onemanbandwidth.com, has a pagerank of 3 [1]. In other words, I’m not going to spend the next 6 hours reading his advice on SEO.

The sad thing is that I’m not really interested in writing just for the purpose of building up traffic. I guess it’s likely my traffic won’t grow that much more since I’m not making it a goal. I also suspect that if guys like Lonnie work hard at getting traffic, they’ll get it… but so what? Is being heard by more people so important to you that the whole matter of having something worthwhile to say is irrelevant? I’d much rather be “the next Hemmingway”, as he put it, and be unread by anybody than become so obsessed with self-promotion.

The title of this post was completely unfair, but it caught your attention. And that’s what promotion is all about.

The major downside of taking on my current entrepreneurial project is the money that I’m not making any more. This pain has been further compounded by the fact that the stock I’ve been wanting to buy has grown by over 30% in the last two months.

When I left First Step, I knew I’d be earning less money as a result. I’ve been trying not to think about how much less, but I couldn’t help myself. Based on the class-load my replacement is teaching, plus the first and second grader program I started there, I’d be making 133,000NT a month, plus bonuses. That’s more than four times what I’m earning now. Ouch. Worst yet, Baidu, the very first stock which I wrote about on this blog released excellent numbers in its most recent quarterly earnings report on the last day of October. I badly wanted to buy some, and it’s gone up by from $87.28 to $114.80 a share since then. I could have bought some on my old salary. On top of that, I’m practically salivating over another Chinese company, Suntech Power, and some of the companies I’ve already put money into are excellent candidates for further investment. In order to make this new school pay off, not only does it have to grow, but it has to outperform wherever I would have invested my money if I were still a normal salaried employee.

Oh, well. At least I’m frugal enough not to have sold anything over these last few lean months.

With all the talk on my blog and others about search engines in China, it’s only fitting to post the market share and popularity rankings for 2005. Baidu is the clear leader, and Yahoo has lost quite a bit of popularity.

In related news, Baidu’s Q3 year over year revenue growth was 173%.

I just remembered a really neat thing about Bǎidù. Remember how you used to be able to get MP3′s straight from a search engine? On Chinese search engines you still can. Go to http://www.baidu.com, click on the MP3 at the top, type in the name of the song you want and go.

This second picture has the various search terms labelled in English. Baidu will let you choose what filetype you want to download: .mp3, .ram, .wma, etc… There’s also a lyrics search, and the functionality to hear a sample before downloading the whole thing. It’s the most convenient way to download music I’ve ever seen.

I guess I should warn my readers in the US, the penalties for downloading songs this way could be worse than those for arson, auto-theft, assault, battery, or even manslaughter. With the RIAA successfully suing thousands, including children, it needn’t be said that some things in the US are seriously messed up right now. But hey, in China there’s already more freedom in a lot of regards. If you are American and any of this bothers you, consider contributing to the EFF or the ACLU.

Update: The timing of this is amazing. A grand total of three days after I published this post, Baidu started blocking searches for US songs. Sorry for getting your hopes up everyone.

At this point, just about everybody who follows the stock market at all has heard of Băidù, the Chinese search engine company whose shares rose from $27 to $150 on IPO day, setting a NASDAQ record. This same company’s site http://baidu.com is currently the 5th most visited site in the world. On top of that, the name Bǎidù supposedly comes from some nifty, classical Chinese poem. However, analysts are nearly universal in their critique that Bǎidù is over-valued. Goldman Sachs initiated coverage on Bǎidù last month with an “underperform” rating, valuing the dominant Chinese search engine at $27 a share. The market on the other hand, still values it at about $67 a stub at the time of this writing.

In this post, I’ll investigate two things:

1) What poem exactly did the name Bǎidù come from anyway?
2) Is the valuation fair? Should I invest in it directly or maybe just pursue indirect ownership through shares in google?

The Name

After sniffing around on baidu.com itself, I turned up this interview with the founder. (Those of you who can’t read simplified characters might like this tool.) After that, it didn’t take too long to come up with the original poem by 辛棄疾:

青玉案

東風夜放花千樹，更吹落、星如雨。
寶馬雕車香滿路。
鳳簫聲動，玉壺光轉，一夜魚龍舞。

蛾兒雪柳黃金縷，笑語盈盈暗香去。
眾裡尋他千百度。
驀然回首，那人卻在，燈火闌珊處。

The man was desperately searching for his loved one in a festival. In the red line above you can see the word 百度 bǎidù appears to be an intensifier. I’m no translator, so I’ll just go word by word:

In the crowd, I searched for her a with an intensity of a thousand-hundred degrees.

Or maybe like this: In the crowd, I searched a million faces (and didn’t see hers).

I can understand how this name would convey the intensity of their baidu.com’s search for your information, but is this really the image they should give users? Would anyone really want that kind of searching experience? You search a million times in failure, only to find what you were looking for later after you already gave up. It makes a good love poem, but if there must be something about the Chinese psyche I seriously don’t get if those connotations make for an appealing search engine name.

The Valuation

Let’s start by looking at their revenue and income for the last 3 years:

Financial Performance

	2002	2003	2004	LTM*
Revenue	$1.3	$4.7	$13.4	$21.5
Revenue Growth	—	238%	185%	60%
Net Income	($2.2)	($1.1)	$1.5	$3.0
Net Income Growth	—	—	—	100%

*Through 6/30/2005; revenue and net income in millions. Data from Capital IQ and Baidu.com SEC filings.

That revenue growth is nice. However, it is clearly decelerating. It’s not easy to keep up %50 growth for more than a few years. Looking at these numbers Baidu’s (Nasdaq:BIDU) current valuation of over 2.1 billion dollars looks absolutely insane. Let’s say we assume that BIDU remains a fast growing stock worth a P/E of 40 even after five years. What would earnings need to be to justify a market cap of 2.1 billion? The answer is, somewhere around $54 million per quarter. This would be to achieve zero growth in the market cap. I don’t know about you guys, but I want to see a good chance for at least a 20% yearly growth to even touch risky growth stocks like this one. In order to achieve that earnings would have to be as follows.

This means that if Baidu were to receive a generous P/E of 40, it would have to grow earnings from it’s current 3M by 213% per year every year for five years. Looking up at the my first chart you’ll see that it isn’t even growing at that rate now. It seems pretty clear that Goldman Sachs knows what they are doing. Until you look at the history of similar companies when they were making similar earnings, that is.

Data provided by Capital IQ.

Google needed to get 4 times larger than Bǎidù’s current size before it was profitable. Yahoo had to get even larger than that to become profitable. While Bǎidù’s valuation of 2.1 billion is outrageous by traditional metrics, consider this: Yahoo is capitalized at 46 billion, or about 20 times what Bǎidù’s is. It’s only been nine years since Yahoo was earning 21.5 million, just like Bǎidù is now. Yahoo was losing money then, and Bǎidù is not. Just five years ago Google was earning what Bǎidù is now, and doing so at net losses. Google is now capitalized at 92 billion, or about 46 times what Bǎidu is.

Bǎidù is certainly run more efficiently than its predecessors. Not only that, but it is pursuing a MUCH larger market. The growth of China’s entire GDP has been triple that of the US for decades, and the differential in computer usage uptake is even greater. On top of all of that, tax burdens are MUCH lower in China than in the US.

Just as I’ve made very profitable investments in the past by ignoring the advice of wall street, I plan to do so again. The major firms have research at their disposal that individual investors couldn’t hope to match, and yet their “buy ratings” have underperformed the market consistently for decades. Searching a million times does no good if you’re searching in the wrong place .

Legal Disclai
mer: I own stock Amgen, and Middleby. I previously owned but do not currently own Apple. As of the time of this writing I do not own any interest in Yahoo or Baidu.