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Investing in Open Source?
echrist1 asks: "I'm in my school's investment club, and I'm in charge of investing $10,000 (real money) into technology equities. Clearly I want to make a profit, but I also want to do something to help the Open Source movement. Does anyone know of mutual funds that invest specifically in companies that further Open Source?"
Here's the plan:
if you are playing with someone else's money - even as a learning exercise - you have an obligation to act in their best interests.
Maybe he's setting up a social responsibility fund. Maybe he's setting up a fund around companies that will have positive impacts in the Third World. Maybe he's given a chunk of change for speculative investing in up and coming technologies.
We don't know.
My God, it's Full of Source!
OUTSIDE_IP=$(dig +short my.ip @outsideip.net)
One approach to finding out which funds might meet your needs is to look at which institutional investors have large blocks in the open-source companies you consider worthwhile. For example, we can look at the data for Redhat (and, yes, I'm laughing too at who is providing that data) and see that there are large positions in the company held by Fidelity, T. Rowe Price, etc. From that, you can check out the various funds that company offers and see if you can find one that matches your requirements. Taking a glance at our host's ownership information shows a large Fidelity block as well, but no other overlap I noticed. From this limited look, I conclude you should be looking at Fidelity's funds. That approach should get you on the right path. You can do the rest of the legwork--you're the student here, after all; I already know how to invest.
Recently found a copy of the 1974 book, The Screwing of the Average Man. One of the early chapters is about how average folk got screwed in the late-60's stock market - funny accounting, etc. As I read it tonight, some 32 years after it was first released, I amazed at how "history repeats itself." The exact same things happened in the late-90's tech bubble.
The U.S. stock markets may be at or near record highs, but adjusted for teh inflation they'd still have to advance another 25% or so to match their bubble peaks. Where are the fundamentals that would justify another 25%? Corporate profits may be at record highs, but average folk are getting squeezed. The housing bubble has burst, foreclosures are going up. Ford recently got 35,000 employees to take a buyout aka paycut. What is the growing industry that will offer jobs that offer comparable pay?
Most Americans live in a media-induced Never-Never Land, where the American economy, stockmarket and military machines are invincible because they always have been. Never mind that this is demonstrably false (great depresion, 1970's inflationary recession, Vietnam, Iraq, etc) - we're conditioned via compulsory government schooling and the idiot-box (television) to have a short memory.
More on the Screwing of average folk...
I gave people $1 (1 ounce) silver coins last Christmas. Think I traded around 10 or 11 "Feral Reserve Notes" for each one. Silver is now up to $13.75 or so, so I'm looking at having to put out about 50% more funny-money paper if I want to do the same thing this year (coin dealers typically charge spot + $2, iirc). Inflation at work.
If I had another $10k, I'd split it between metals and Euros... As it is, I'm sitting on a couple hundred ounces of silver and a couple ounces of gold. Not a sure thing, but the economy we know is doomed. The stock market is terminal too, but the big money will be sure to get out first, in keeping with the traditional screwing of the masses (that's 'us' - me, you, and everyone who reads this comment who doesn't pull in $1million/year).
Actually, I'd buy more Earthboxes, potting mix, and fertilizer (already have plenty of seed). $10k could get me two pallets worth (200), and all the potting mix and f
Learn the rules so you know how to break them properly.
www.teslabox.com
I have been watching it as well. In fact, I remember it from the late 80's. The simple answer is that if you are investing OTHER peoples money, you must pay attention to what will make money. In fact, if you are here asking, then you really MUST pay attention to what will make money shortly. Considering the world situation, tech can be blown out in 100 different ways.
Try energy. Oil is a good one. It is almost certain that W's tax cuts will be removed (and soon), but the simple answer is that China and India are are on a tear. They will be increasing demand on ALL oil resources. I would look heavily at any oil company. In addition, consider nukes AND alternatives. High Oil prices combined with Global warming will force us down this path. Wind energy companies are good ones. GE and westinghouse power are interesting.
Finally, consider looking more around the globe. America is heading towards a major slow down. W has ran up a major deficit like Reagan did. In addition, he is spending all sorts of money on funding the war, tearing apart EPA, buying the most expensive drugs for seniors, etc, and even cutting alternative energy research WHILE giving tax cuts to oil. Combine with moving core manufactuering to China, and you will soon see a collapse in our money policies. It is only a matter of time before the dollars starts to sink and we will be forced to raise interest rates AND taxes to keep foreign money flowing into America. This would normally induce a major global depression (think 1930s), but enough business is globalized as to allow the other markets to move forward without us.
I prefer the "u" in honour as it seems to be missing these days.
Consider waiting till early next year and investing in the Spectra Green fund, a fund set up by Bill Clinton whose goal is to invest in, and actually make money using, environmentally friendly alternatives to fossil fuels. It's tech, it's a good cause, it will(hopefully) make money.
Monstar L
Why do you seek to invest in mutual funds? I am also an investor, but I never invest in mutual funds. Choose index shares wisely and you won't be disappointed. Why pay for analysts's salaries when we all know that the economy is more or less a chaotic system that no one can predict its behaviour? What is your time horizon? If you can wait for many years, then use the method of the Sage of Omaha, as described in Buffettology: Buy shares of undervalued companies in markets with good economics, and keep them for years (be reluctant to sell, as in buy and hold). This may not work if your time horizon is short, however, so you might like to pay some attention to seasonality and perhaps sell in May and go away.
Having just gone through a corporate acquisition, businesses that make money primarily off the labor of their employees are not considered attractive investments.
Theoretically, the value of a business should be the net present value of its future income, discounted by risk. Consulting and services are perceived as more risky than revenues from intellectual property, therefore an open source company is likely to be valued less than a proprietary software company of equal profitability. In fact, a money losing intellectual property (IP) based business may have greater attraction to investors than a moderately profitable service business.
Personally, I think the risk differential is exaggerated, but in fairness the IP of a proprietary software company is an asset that could, in the worst case, be liquidated. Also, labor is expensive and it is difficult to grow labor intensive businesses quickly. A well run consultancy usually can be characterized by conservative growth goals and high efficiency. This places constraints on achieving high ROI. However, within those constraints you may find a solid, undervalued investment.
Of course the fun of investing is finding exceptions to the rule. I think most people who like to do their own investing think of themselves as contrarians. The flip side of the bias towards proprietary business is that service businesses may offer the chance to buy a share of future income that is relatively undervalued. However, this requires more homework, because you're placing relatively more faith in the management and sales team.
There is one kind of intellectual property that an open source company can avail itself of: trademark. Red Hat was for many years practically synonymous with Linux in the minds of many managers. It is still a name that commands immediate attention. If you are looking to make a killing, as opposed to merely outperforming the market by a bit over a long period of time, I think this means that you are looking for an outfit that has a plan that will create a brand that will command respect.
Brand is an instance of a broader class of assets: things which give you an unique competitive advantage with customers. Perhaps you are looking not for a software company, but some kind of consumer facing retail or service outfit that is an open source contributor. Maybe you are looking for a company that has uses open source in an unique hardware device. If you had enough money to place VC (which you don't), you could look for companies with innovative plans to entrench themselves in a vertical market -- a difficult but underexploited path for F/OSS.
You have to decide what kind of investor you want to be. All investors who hope to beat the market are contrarians, but you can be contrary in different ways. Some investors are like the tortoise in the fable: they beat the market by focusing further down the path to the finish line than most. Me, for example. I like money, but I have other things I'd rather be occupying my attention with, so I check in on my investments maybe twice a year tops. While the open source movement as a whole is something that will continue to grow and prosper, I don't think a single company that is highly dependent on F/OSS is an appropriate investment for the tortoise except as a part of a diverse portfolio.
Other investors are hares looking to beat the market by finding something before others have noticed it. Maybe that's you. The important thing is to be very critical of your argument for investing in something on that basis. Creative people can envision virtually anything working, and are very good at selling blue sky scenarios to others like themselves, and ready to buy the scenario when it piques their imagination. Mark Twain was no sucker, but he lost his fortune investing in high tech printing equipment.
Remember you are not investing in "open source" or "technology", you are backing a specific business plan. Is the data in that plan verifiable and correct? What way
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