New Money
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A Thanksgiving Stock
Continue reading… 1 CommentThanksgiving dinner is more expensive this year: According to the American Farm Bureau, the average meal will set you back $44.61, up from $42.26 last year. Turkey prices are a big factor; they're up 8 percent (those on a budget might consider the Tofurkey, which costs around $10, and tastes good, too!) All the fixings--rolls, cranberries, and pies--are also more expensive.
So what's a stock investor to do? Charles Rotblut of Zacks.com thinks Winn-Dixie (symbol WINN) is a timely play. According to his report, the company saw a 3 percent increase in same-store sales in its first quarter, and gross margins--a measure of efficiency--also improved. As a result, Winn Dixie posted a smaller-than-expected loss of 4 cents a share. A bonus, says Rotblut, is that analysts increased their full-year profit projections. That consensus estimate calls for fiscal 2009 earnings of 3 cents per share, versus last month's forecast of a 3 cents-per-share loss.
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ETFs Could Surpass Index Funds By 2012
Continue reading… 1 CommentA new study projects that by 2012, exchange-traded funds will overtake index mutual funds, reports IndexUniverse. By that year, Financial Research Corp. sees ETFs representing 6.8 percent of the pie of investment choices for retail investors. This would be the first time ETFs surpass index funds in terms of market share, says IndexUniverse.
However, Max Chen of ETFTrends points out a big caveat: The data doesn't separate retail and institutional investors, whereas mutual funds are typically retail investments.
Compared with the country's $6 trillion mutual fund industry, ETFs are still a fly speck. But get this: U.S. stock funds, which have surrendered nearly $170 billion in investor assets so far this year, are flirting with the biggest annual sell-off in their history (via TrimTabs Investment Research). But ETFs, which doubled their assets from $305 billion to $619 billion between 2005 and 2007, have actually seen investor money flowing in this year, to the tune of $100 billion.
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Mutual Funds That Offer Money-Back Guarantees
Continue reading… 0 CommentsNew data out from Standard & Poor's reveals that actively managed mutual funds haven't been earning their keep, even before the current market meltdown. Over the five years ending last June, the S&P 500-stock index beat out roughly 70 percent of actively managed large-company funds, according to S&P. International funds and bond funds lagged behind their benchmarks by even more (87 percent and just over 75 percent, respectively).
Now that every single diversified stock fund is in the red so far this year (and mutual fund fees are set to rise next year), critics are calling for funds to trim their fees when they perform poorly.
Some already do. TFS Capital, a small-company fund based in Richmond, says its goal is to beat the Russell 2000 index by 2.5 percentage points. If it fails to do so, the fund forfeits its entire management fee. But if it beats the Russell by more than 2.5 percentage points, management could raise fees (annual expenses are currently 2.7 percent).
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Mutual Fund Fees May Rise in 2009
Continue reading… 4 CommentsA heads-up for mutual-fund investors:
InvestmentNews is reporting that the annual fees of mutual funds will likely increase in 2009, by an average of 0.05 to 0.10 percentage points for stock funds. That's according to a Lipper analyst.
Expense ratios are often tied to a fund's assets, which means funds with greater assets generally charge lower fees. A deluge of investors have bailed out of funds this year, which have caused assets to fall.
Morningstar's director of research, Russ Kinnel, thinks international funds will see the biggest fee hikes, since they've suffered steeper losses than stateside funds this year. Currency losses will also have an impact.
Bond funds should only see slight fee increases of 0.01 to 0.02 percentage points, according to Lipper.
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Citigroup's Bailout From a Shareholder's Point of View
Continue reading… 1 CommentCiti's stock may be up on bailout news, but it's still trading at a "panic level", says Felix Salmon over at Market Movers.
What does the rescue mean for shareholders? Almost nothing, he says:
"Yes, they get to keep the full interest and upside on the $306 billion of assets which are being guaranteed by the government. But all the capital injections have come in the form of preferred shares with an 8% coupon--shares which might look like equity from a regulator's point of view, but which look very much like extra debt from a shareholder's point of view."
P.S. Don't get excited about the stock's spectacular rise in percentage today. As of early this afternoon, it was up more than 50 percent, but shares are still trading at just $5.70.
P.P.S. Here's how the bailout could turn into a raw deal for taxpayers.
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At Long Last, Google Gets a Sell Rating
Continue reading… 1 CommentMerriman Curhan Ford analyst Richard Fetyko slapped a sell rating on Google this morning, saying he sees downside to analysts' consensus estimates and that investors will get a better entry point in the next six months.
The full report is here, but here's a summary of his reasoning:
-The weak consumer and business purchasing environment spells bad news for search-engine marketing. But: "SEM is expected to be among the last places to see cuts, and we are there now."
-The company's paid-click volume is under pressure. People are searching for fewer commercial items and they're clicking on fewer ads.
-Fetyko sees a slowdown in international regions in the fourth quarter of 2008 and into 2009. Just over half of Google's sales are done overseas.
So at what price would Fetyko tell investors to buy?
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Munger's Berkshire Move: A Sign That the Stock is Dirt Cheap
Continue reading… 3 CommentsIn his latest email dispatch, hedge fund manager Whitney Tilson says Charlie Munger's sale Friday of 2,000 Berkshire Hathaway shares--or 13 percent of his stake in the company--is a major indicator that the stock is dirt cheap. Say what?
Munger sold Class A shares of Berkshire--which happens to be the country's most pricey stock--in exchange for a promissory note for $77,500 a share for family members. The stock closed at $90,000 on Friday (it closed Thursday at $77,500, and I got a few heated responses to this post as it was trading around $77,000.)
Says Tilson:
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The Best and Worst Times to Buy Stocks
Continue reading… 0 CommentsFeel-good markets are terrible times to buy stocks, and vice versa. Pretty intuitive, right?
Not to many investors. Come sit on the therapist's couch...or read Jason Zweig's recent column on the psychology of investing. He describes how present emotion and future returns are inversely correlated. Say what?
"When did your house feel like the safest investment? Just as its appraised value hit an all-time high, of course. The Dow felt safe when it was at 14000, and it feels risky as hell now that it is clinging to the edge of 8000 with its fingernails. That's perceived risk: low when prices go up, and high when prices go down."
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Investors' Incredible Shrinking Stock Allocations
Continue reading… 3 CommentsA chart posted on The Big Picture today (courtesy of FusionIQ) illustrates how much stock allocations have dropped compared with a 21-year historical average of 60 percent. Today, allocations are 15 percent less than that historical mean. Blogger Barry Ritholtz says that's significant because it mirrors the readings seen at other major lows in 1987, 1990, and 2002. "Now while it doesn't mean we bottom tomorrow (though we could) it does mean stocks are certainly in the eighth or ninth inning of the decline and not the third or fourth (however, as we know in baseball, even the last few innings can get ugly sometimes before the game ends)." He also points out that very low stock allocations are bullish for stocks because it means "investors have sold in droves, thus reducing much of the selling pressure from the market...the low equity allocations suggests a large buildup in sideline cash (i.e., new buying power) from many individuals."
Here's the chart:
(Courtesy of FusionIQ) -
It's No Fairy-Tale Ending, But Some Reserve Primary Investors Will Get Cash Back
Continue reading… 4 CommentsInvestors in one of the Reserve money-market funds are getting a break. The Treasury has agreed to backstop the Reserve U.S. Government Fund, which is among more than a dozen Reserve funds that froze customer withdrawals in September (Here's the back story.)
The fund is covered by the Treasury's Temporary Guarantee Program for Money Market funds. In a press release yesterday, Bruce Bent, president of the Reserve Management Company, said the U.S. Government Fund will return all of investors' money early next year.
Unfortunately for investors in other Reserve funds, a Treasury spokeswoman told Bloomberg that the department doesn't foresee a similar agreement with any other funds. However, investors in the Reserve Primary fund are getting some, but not all, cash back.
Interestingly, Bruce Bent, founder of the Reserve, criticized other money market funds on Nightly Business Report last summer for taking on too much risk:
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The Value of Berkshire Hathaway
Continue reading… 5 CommentsEarlier today, my post "Berkshire Hathaway: A $77,000 Steal" should have included the caveat that just because a stock is (relatively) cheap, doesn't mean it's a value. Granted, I did ask "how is it a deal?" without answering the question.
Here's a little help from hedge fund manager Whitney Tilson (via his email list, the full text of which will be posted on Seeking Alpha):
"At $84,000, Berkshire's stock today is the cheapest, by far, we have ever seen it, going back at least a dozen years (and it's below $80,000 as I write this). We estimate Berkshire's valuation the same way Buffett does: we value the investment per share (cash, bonds and stocks) at market then place a 12 multiple on the pre-tax operating profits of the company...As of the end of last year, investments per share were $90,343 and our estimate of normalized pretax earnings was $5,500-$5,700/share, which resulted in an estimate of intrinsic value of $156,300-$158,700.
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Berkshire Hathaway's Stock: A $77,000 Steal
Continue reading… 13 CommentsGot $75,000 lying around? Shares of Warren Buffett's Berkshire Hathaway are currently trading in that range. You might ask, "How is that a deal?"
By late morning today, the stock was trading around $77,000, down 8 percent from yesterday's close of $84,000. Wednesday, it fell $11,550, or more than 12 percent--its biggest one-day percentage drop since 1987's Black Monday. And get this: Since the stock's all-time closing high of $149,200 on December 10, 2007, Berkshire's shares are down roughly 50 percent.
For the thrifty, Berkshire's B shares are currently trading around $2,500. They're down about 8 percent so far today, and 45 percent from $4,550 a year ago.
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$1 Trillion is the Magic Number
Continue reading… 2 CommentsIt's a popular number today:
First, S&P reports that over the past year, stocks in the S&P 500 have lost nearly $1 trillion more than in the entire 2000-02 bear market.
Also, apparently the U.S. financial system still needs $1 trillion to $1.2 trillion of tangible common equity to restore confidence and improve liquidity in the credit markets, according to a Friedman Billings Ramsey analyst. Those with the greatest need of capital: Citigroup, Morgan Stanley, Goldman Sachs, Wells Fargo, JPMorgan Chase, American International Group, Bank of America, and GE Financial.
Wait, there's more: Citigroup estimates that hedge-fund assets may fall to about $1 trillion by the middle of next year--a drop of almost 50 percent from their peak assets in June.
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Are Value Funds Broken?
Continue reading… 0 CommentsAnyone who once thought of value investing as a low-risk way to ride out a bear market got a wake-up call this year. Value funds may have held up relatively well during the 2000-02 bear market, but their 2008 performance so far ranks at the bottom of Morningstar's categories of diversified stock funds.
Even more surprising to some, the kings of value--including Marty Whitman, Bill Miller, and the gang at Dodge & Cox--have fallen farther than most of their peers. Third Avenue Value, Legg Mason Value, and Dodge & Cox Stock have all lost more than half of their value this year (Miller's Legg Mason Value is down 62 percent!)
There are a couple of explanations for this. Miller, who awed the investing world by beating the S&P 500 for 15 consecutive years (1991 to 2005), may have lost his mojo. Keith Fitz-Gerald at Money Morning says he--along with the Dodge & Cox team--"simply underestimated the depth and severity of the challenges facing their investments. Adding insult to injury, they concentrated their investments in a relatively small number of core holdings they thought they 'knew.'
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Schoolhouse Rock: Bonds Made Fun
Continue reading… 0 CommentsBonds: They're not remotely jazzy. But that's before Slate turned them into cartoons, then threw in some Schoolhouse Rock-style lyrics!
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Bizarre Advice: 20-year-olds Should Run Up Debt to Buy Stocks
Continue reading… 1 CommentYoung investors: Forget all the conventional advice you've heard about paying down high-interest debt before you invest. A much better plan is to get a loan pronto and pile into the stock market now; you'll be able to pay the money back later.
That's what the contrarians over at Slate are telling 20-year-olds this week. Author Tim Harford's argument hinges on "generational risk": When investors are young, they have little money, therefore almost no exposure to the stock market. In middle age, they're on the hunt for high returns, but as retirement approaches, they become conservative again.
Slate's solution:
"The logical way to fight generational risk is to borrow money to make large, regular investments in stocks while young, then use a proportion of later savings to pay back the loan rather than to pile into the stock market in middle age. That sounds risky, but it is, in fact, exactly what people do in the housing market. Knowing they will need a place to live all their lives, then tend to buy a small house and gradually trade up to a bigger one, paying off their mortgages only later in life...Most of us need a retirement fund as well as a place to live; there is nothing intrinsically risky about regular borrowing to get that fund off to an early start."
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Insider Trading: What Did Mark Cuban Do?
Continue reading… 1 CommentSo the SEC charged Dallas media mogul and Mavericks owner Mark Cuban with insider trading. At issue: he allegedly sold 600,000 shares of the stock of online search engine Mamma.com "on the basis of material, non-public information concerning an impending stock offering," according to the SEC filing.
Regulators say that in 2004, Cuban sold his entire stake in Mamma.com four hours after the company tipped him off that it was planning to sell shares below its trading price. As a result, he avoided more than $750,000 in losses, according to the SEC. How so? When the stock offering was publicly announced, Mamma.com's shares opened nearly 10 percent down from the previous day's closing price of just over $13.
So what constitutes insider trading? Insider trading is legal when it involves the buying and selling of a company's stock by corporate insiders--when they report the trades to the SEC. In other words, when it's not a secret.
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Why Your Portfolio Isnt As Diversified as You Think
Continue reading… 0 CommentsThe old investing wisdom was that adding international--and especially emerging markets--to your portfolio would result in some zig zagging in volatile markets.
But the reality of this market is that stocks around the globe are moving more in step. Lately, they've converged aggressively to the downside, says the staff of Standard & Poor's "The Outlook."
"Specifically, the MSCI-EAFE index, a developed international equity benchmark, is now moving in unison with the S&P 500 index 89% of the time, up from 80% on August 31. Similarly, the MSCI Emerging Markets index's correlation to the 500 has jumped to 81% from only 68% two months ago. Worse yet, the MSCI Frontier Market index, long touted for its ability to 'zig' when the 500 'zags,' has seen its 500 correlation surge to 63 percent from a mere 9 percent on August 31."ot even small and midsize stocks have offered refuge, says S&P, as they're now moving with the S&P 87 percent of the time, up from 74 percent two months ago.
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5 Mutual Funds (Almost) Bucking the Bear
Continue reading… 3 CommentsIt's official: So far this year, not a single diversified U.S. stock fund has made money. Given this week's unrelenting market declines, that shouldn't come as a huge surprise. Just about any mutual fund that's in the black right now is one that's using leverage. For example, the fund universe's top performer so far this year is Direxion NASDAQ-100 Bear 2.5X, which aims to deliver 250 percent of the daily inverse performance of the Nasdaq 100 index. That fund is up an astonishing 145 percent (see my recent post on ultra-leveraged funds.)
Just five diversified stock funds are down less than 10 percent year to date, and almost all have achieved this relative success by stockpiling huge amounts of cash. Here's the list:
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Sirius XM Radio's Serious Predicament
Continue reading… 9 CommentsConsumers are reigning in their spending: on $5 lattes, $50 shoes, $1,500 laptops, and really big-ticket items like cars.
That's a problem for Sirius XM Radio. Although Sirius XM's subscriber base grew by 17 percent over the past year, the company expects sluggish growth in 2009 on account of a dramatic slowdown in auto sales. Also of note in the company's earnings report released Monday was a nearly $5 billion loss related to its acquisition of XM in July.
The problem is that Sirius XM draws in most of its new customers through sales of cars with built-in satellite radios, and autos are facing a massive sales slump. The best way to describe the situation? It sucks. That's what CEO Mel Karmazin on a conference call with analysts:
"We think the environment sucks. It is not like we're doing something wrong. It is that, unfortunately, we do not have a whole lot of control over what cars are getting sold. We do our best."
