New Money
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Bill Miller Beats the S&P in December
Continue reading… 0 CommentsBill Miller, whose Legg Mason Value Trust achieved the unlikely feat of beating the S&P 500-stock index for 15 consecutive years, has become the fund world's punching bag.
So far this year, the fund is down a devastating 56 percent on account of bad bets on stocks including AIG, Washington Mutual, and Freddie Mac. This horrific year (combined with lackluster results in 2006 and 2007) has banished Legg Mason's crown jewel to the ranks of the worst-performing mutual funds not only for the year, but for all standard periods of measurement. Miller has been cleaning house lately, and claims to be plotting a more diversified portfolio with more emphasis on dividends and free cash flow.
Maybe it's working. As Clusterstock points out today, something went right in December: Value Trust is up 12.4 percent this month, beating the S&P's 6.8 percent return. The fund's holdings also rose from 32 investments at the end of September to 43.
Perhaps 2009 will be Miller's comeback year.
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Give Your Beaten-Down Stocks to the Kiddos
Continue reading… 0 CommentsGot some sad-looking stocks in your portfolio? A story in the WSJ today, "How to Fix Your Life in 2009," offers this creative suggestion:
Consider giving some of that stock to your kids. There's a silver lining to stock prices' descent: You can give away more shares tax free. In 2008, an individual can give as much as $12,000 to each gift recipient before getting hit with gift taxes. That amount will rise to $13,000 in 2009. The gift helps reduce the size of your estate -- probably a good idea since the estate tax isn't likely to go away soon, financial advisers say. It also may allow the recipients to enjoy a nice rebound from today's depressed stock prices over the long haul.
Might make an interesting birthday gift...although they might not appreciate it just yet.
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8 Recession Stocks
Continue reading… 0 CommentsForbes published a list of "best recession stocks" today, which were each required to have a positive price change over the two most recent economic downturns (Jan. 1, 2008, to Nov. 28, 2008, and March 1 through Nov. 1 of 2001).
Not surprisingly, the list includes consumer products companies and discount stores:
Church & Dwight Co., a maker of cleaning products and personal care items (it owns the Arm & Hammer brand.) Earnings per share are up 11 percent and sales are up 8 percent over the past year, and analysts expect another 14 percent growth in earnings per share in 2009.
General Mills and Ralcorp Holdings, which both process breakfast cereal and other food items.
Family Dollar Stores, Ross Stores, and Wal-Mart Stores should benefit from more consumers on a bargain hunt.
Buying in bulk will be in vogue, Forbes says, which should benefit BJ's Wholesale Club.
Here's a somewhat bold bet: Paramus, N.J.-based Hudson City Bancorp, which Forbes thinks is the best-managed company in the banking industry. -
Vegas, Baby: Not so Recession Proof
Continue reading… 0 CommentsVegasgoers aren't such high rollers these days: They're spending less at fancy restaurants, and (gasp!) not ordering that second glass of wine, according to Time.
The number of visitors is only down 3 percent, notes Time, but gaming revenue is off 8.5 percent for the year, and a whopping 24.3 percent for October versus October 2007. Construction has fallen off, and Nevada's unemployment rate jumped to 8 percent in November--the highest since 1984.
Vegas was once considered "recession-proof," or "recession resistant." Some think the reason that's changed is that gamblers' options were historically more concentrated, and today, entertainment and lodging expenses are a bigger part of casino companies' revenue.
Or maybe gamblers are just toning it down in light of the recession.
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Buffett Makes Out With $224 Million on Hurricane Bet
Continue reading… 5 CommentsTalk about a big payout: Warren Buffett's Berkshire Hathaway just scored $224 million on a bet that Florida would escape major hurricane damage in 2008, according to Bloomberg (okay, technically it expires tomorrow.)
Essentially, Florida doubted its ability to raise money after a hurricane. In exchange for $224 million, Buffett pledged to buy $4 billion in bonds to if the state ran into a cash shortfall. Apparently, Florida's Attorney General thought the agreement was a raw deal for the state, stating that the chance of a serious enough hurricane hitting Florida in 2008 was about 3 percent (it turns out that this year was particularly bad in terms of hurricanes--among the five worst since 1944, per the NOAA--but the damage was mostly in Texas and Louisiana.)
Catastrophe bonds, which also cover natural disasters like earthquakes, aren't always a bad deal for states. According to a Milken Institute report:
Catastrophe bonds make a huge amount of sense, in theory. The cost of Hurricane Katrina was over $65 billion in insured losses alone. And that's a fraction of potential damages: coastal property in Florida is worth $1.9 trillion, compared to just $66 billion in Louisiana and Mississippi, where Katrina hit. Values in earthquake-prone California are, if anything, even higher. What's more, uninsured losses, especially in areas of the world which have recently been hit by hurricanes and the 2004 tsunami, are higher still: globally about 25% of catastrophe risks are insured, and in the emerging markets it's 7%.
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And Now, Socially Conscious ETFs
Continue reading… 0 CommentsMutual-fund investors have plenty of options when it comes to socially screened funds. Not so for ETF investors (save for a couple of iShares offerings.) That may be about to change: New Hampshire fund family Pax World--a pioneer of SRI investing--is getting ready to launch three exchange-traded funds in this space: the sShares FTSE Environmental Technologies Index ETF, which will track 50 large alternative energy, water treatment, pollution control, and waste management companies worldwide; the sShares KLD Europe Asia Pacific Sustainability Index ETF, made up of companies with high environmental, social, and governance rankings; and the sShares KLD North America Sustainability Index ETF (here's the full filing.)
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How Companies Earn and Lose the Prized AAA Rating
Continue reading… 4 CommentsOnly six nonfinancial companies hold the highly coveted AAA Standard & Poor's bond rating: General Electric, Johnson & Johnson, ExxonMobil, Automatic Data Processing, Microsoft, and Pfizer.
Now, there's a one-in-three chance that GE could lose that top-shelf grade, as S&P just lowered its outlook on the company to "negative" from "stable" (Still, it affirmed GE's AAA rating.) The warning stems from troubles in GE's finance arm, GE Capital, which has suffered in the credit crunch. S&P expressed concern that the conglomerate's earnings could be worse than expected over the next two years.
So how do companies earn (or lose) that top rating and why all the commotion? Essentially, those with a triple-A rating--the highest rating given--get cheaper access to credit. Investors also use the rating to gauge the risk of investing in the company's debt securities.
Standard & Poor's is just one of three agencies that deal in credit ratings. The other two are Moody's and Fitch (it's worth noting that Moody's affirmed GE's triple-A rating on Dec. 2 with a "stable" outlook.) A credit rating is different from a stock rating, in which analysts issue "buy" and "sell" recommendations. Credit ratings measure how likely companies are to pay back debt, which lets investors know the likelihood of getting their money back. Not surprisingly, AAA ratings generally go to large companies with vast financial resources. But the key is that companies with a top rating don't have to pay high interest rates to draw investments.
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A Quarter of Americans Say Their Friends Give the Best Financial Advice
Continue reading… 0 CommentsRecently, a friend asked me if she should invest in a particular municipal bond. I've covered munis numerous times over the years, but I don't think that qualifies me to give financial advice. Instead, I sent her a couple of links and some excerpts from stories in which financial pros point out red flags.
I was thinking about that today when I saw a survey from the Opinion Research Corp (on behalf of TD Ameritrade), in which nearly a quarter of respondents said their friends give the best financial advice. I wonder if some of the new social-networking features offered by online brokerages contribute to that. My feeling is that it's one thing to swap ideas about stock picks and funds you and your friends like, but it's quite another to act on that information based solely on what your friends say. Researching is a no-brainer [see 5 Ways to Track Your Stocks] when it comes to investing.
The survey also revealed that 40 percent of people prefer to get advice from a financial planner. Nearly 20 percent said accountants give the best advice.
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The S&P's 10 Best and Worst Performers of 2008
Continue reading… 3 CommentsHere are the S&P's 10 Best and Worst Performers of 2008, courtesy of Dow Jones:
Best of 2008:
1) Rohm and Haas Co. (ROH) (materials), up 32.98%. The chemical firm agreed to be acquired by Dow Chemical (DOW) for nearly $19 billion in cash and debt. Rohm and Haas' specialty chemicals has earned it a premium as they are seen as more stable than basic chemicals used in manufacturing. The slump in oil prices has also benefited chemical firms.
2) UST (UST) (consumer staples), up 26.20%. The tobacco and wine manufacturer reached a deal to be acquired by Altria. Tobacco stocks have outperformed as investors seek safe havens and high dividends.
3) Family Dollar Stores (FDO) (consumer discretionary), up 23.14%. The stock of the discount retailer was celebrated as a defensive play in a weak economic environment, and thanks to the firm's prudent money management, it is seen as likely to generate big cash flow in 2009.
4) Amgen (AMGN) (health care), up 24.87%. Boosted by the success of its anemia drugs, Amgen's stock benefited from an overall trend towards biotechnology firms, and being in the health-care sector, a classic defensive play in market downturns.
5) Barr Pharmaceuticals (BRL) (health care), up 23.45%. The generic-drug maker reached an agreement to be acquired by Teva Pharmaceuticals (TEVA) for nearly $9 billion in cash and debt.
6) Wal-Mart Stores (WMT), (consumer staples), up 15.63%. The discount retailer benefited as consumers worldwide retrenched and turned to cheaper alternatives for their basic shopping needs.
7) Celgene (CELG) (health care), up 10.3%. Sales at the biotechnology firm, which specializes in cancer treatment, are expected to top $2 billion this year. Celgene plans to boost sales in European markets and to launch in Australia and Canada. Its blockbuster cancer treatment Revlimid is currently being tested to treat lympocytic leukemia.
8) H&R Block (HRB) (consumer discretionary), up 10%. The tax-preparation services company, posted a narrowing loss for its fiscal second quarter compared with the year-earlier quarter, benefiting from the closure of its subprime mortgage unit.
9) Hasbro (HAS) (consumer discretionary), up 9%. The maker of board games such as Scrabble and Monopoly is benefiting from consumers backing away from video games and expensive gadgets and turning towards cheaper entertainment games.
10) Southwestern Energy (SWN) (energy), up 9%. Even though natural gas prices have slumped, the producer's third-quarter revenue more than doubled as it boosted production by 76%.
Worst of 2008:
1) American International Group (AIG) (financials), down 97%. The insurer, once the world's largest, was bailed out by the government to the tune of $150 billion after nearly collapsing due to its exposure to derivatives linked to bad home loans.
2) XL Capital (XL) (financials), down 93.54%. The insurance giant reportedly put itself up for sale. In November, XL Capital posted a quarterly loss of $1.65 billion due to investment losses and its stake in ailing bond insurer Syncora Holdings Ltd.
3) Genworth Financial (GNW) (financials), down 89.94%. The property and life insurer was hit by investment losses and concerns over its capital. The firm reached an agreement to acquire Interbank fsb.
4) American Capital (ACAS) (financials), down 89.88%. The firm, which invests in middle-market companies, cut its dividend to preserve capital and reduce leverage.
5) ProLogis (PLD) (financials), down 88.49%. The real-estate investment trust flirted with bankruptcy due to its lack of liquidity and highly leveraged position.
6) National City (NCC) (financials), down 87.65%. The Ohio bank agreed to be acquired by PNC Financial Services for $5 billion after lack of liquidity forced it to consider filing for bankruptcy.
7) Liz Claiborne (LIZ) (consumer discretionary), down 86.73%. After its capitalization sank amid a worsening environment for all retailers, the apparel maker was replaced in the Standard & Poor's 500 index, accelerating a slide in its shares.
8) Wachovia (WB), (financials), down 85.06%. Crumbling under writedowns of bad assets, the bank agreed to be acquired by Wells Fargo Co. (WFC).
9) Developers Diversified Realty (DDR) (financials), down 84.57%. An other real estate investment trust, which has seen its situation deteriorate amid a worsening economy and tight credit markets.
10) Hartford Financial Services Group Inc. (HIG) (financials), down 81.80%. The life, property and casualty insurer saw its shares sink on concern it could run out of capital and be unable to back up its insurance policies. -
Warren Buffett's Granddaughter Dishes About Family Friction
Continue reading… 3 CommentsUntil the recent publication of his first authorized biography, Warren Buffett famously kept mum about family matters. Naturally, he wasn't pleased when his adopted granddaughter, Nicole Buffett, appeared in The One Percent, a 2006 documentary by Johnson & Johnson heir Jamie Johnson focusing on the offspring of the elite (see her in the trailer here.) On camera, she says, "Money is the spoke in my grandfather's wheel of life." Soon after, she went on Oprah.
Big mistake. Buffett sent her an icy letter that essentially disowned her.
Now, Nicole is talking to Marie Clare about their falling out and how self-reliant she is: getting by on $40,000 a year by selling paintings (might her name have anything to do with that?) She also makes a dig at the Oracle for mailing sizable Christmas checks to his other grandchildren, to which she says, "probably he's rewarding them for behaving."
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How America's Cheapest Family Invests
Continue reading… 4 CommentsSteve and Annette Economides, along with three of their five kids--"The Cheapest Family in America"--were on the Today show this morning, talking about how they manage to live on $44,000 a year, debt-free and in a fairly cushy neighborhood.
Hearing about their exhaustive bargain-hunting was interesting, but I kept wondering if--and how--they invest. I couldn't find anything substantive in previous interviews with the clan, so I walked down to the bookstore to check out their book.
Investing is mentioned in one chapter near the end of the book, but the Economides mainly focus on the importance of an emergency fund. Their idea of investing for the future involves first paying off debt, then paying off cars and saving for a replacement, followed by building an emergency fund, considering your insurance needs, paying off your house, and--at the bottom of the list--investing in an IRA or 401(k).
For a book whose title touts "Cashing in on Your Dreams," I was surprised at the lack of space devoted to saving for retirement. As for their own investments, the couple only says that they stick to conservative mutual funds.
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McNabb Calls Current Market Environment 'Vanguard Weather'
Continue reading… 0 CommentsBill McNabb, the coach-flying optimist who took over as Vanguard's president and chief executive in August, describes the current market environment as "Vanguard weather," according to American Banker.
According to McNabb, Vanguard's number of new accounts increased during two of the most turbulent months this year, September and October. He also said buys outnumbered sells by 2 to 1 in the brokerage business, and 80 percent to 90 percent of individual investors stuck to their investing strategy.
Vanguard was one of the few mutual-fund giants that saw more investors streaming in than out in November. Inflows were $2.1 billion for the month, versus outflows of $5 billion in October, according to this story. Increasing interest in Treasury funds was likely a big booster.
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The 20 Worst-Performing Industries of 2008
Continue reading… 11 CommentsIndustry trends tracker Sageworks just released a list of the worst-performing industries over the past 12 months, measured by sales growth:
- Sawmills and wood preservation
- Lumber and other construction materials merchant wholesalers
- Offices of real estate agents and brokers
- Activities related to credit intermediation
- Cement and concrete product manufacturing
- Motor vehicle and motor vehicle parts and supplies merchant wholesalers
- Taxi and limousine services
- Nondepository credit intermediation
- Florists
- Other wood product manufacturing
- Building material and supplies dealers
- Furniture stores
- Furniture and home furnishings merchant wholesalers
- Veneer, plywood, and engineered wood product manufacturing
- Drycleaning and laundry services
- Drugs and druggists' sundries merchant wholesalers
- Residential building construction
- Radio and television broadcasting
- Ship and boat building
- Automotive equipment rental and leasing
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A Ponzi Scheme Red Flag
Continue reading… 1 CommentHere's the most-repeated tip I heard while talking to sources for this story on How to Avoid a Ponzi Scheme:
Understand the difference between a manager and a custodian. A custodian, which would include the Fidelitys and Charles Schwabs of the world, is in possession of your investment account and issues periodic statements of transactions. The manager of assets (your financial adviser) executes those transactions. "A lot of people fail to understand why it's important to separate these functions," says Kochis. "Frauds almost always occur when those two things are put together." In other words, look out for an investment manager who wants complete control of your money and asks that checks be made out to him or her. You can sleep tight if your funds are in the custody of a broker-dealer firm regulated by the Financial Industry Regulatory Authority and backed by the Securities Investor Protection Corp. But make sure you receive at least quarterly statements, says Mickey Cargile, founder and managing partner WNB Private Client Services, which is based in Midland, Texas. "The key is that you get it directly from the custodian and not from the adviser."
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Afternoon Buzz: Apple Fans, Analysts Freak Out
Continue reading… 0 CommentsNews that Steve Jobs wouldn't be delivering his annual keynote at the Macworld show sent shares of Apple's stock down 7 percent today. One analyst (Piper Jaffray's Gene Munster) thinks Jobs will soon be replaced. And Oppenheimer analyst Yair Reiner downgraded the stock today on concerns stemming from Jobs' pullout, to "perform" from "outperform." That follows downgrades by Goldman Sachs and Calyon Securities analysts earlier this week.
Here's Silicon Alley Insider's list of possible reasons Jobs is bowing out of his Stevenote (I prefer No. 3):
- Apple is just phasing out trade shows.
- Apple wants to let other executives share the limelight.
- Steve just wants to pop out of a cake or something and stun his adoring fans.
- Apple, Steve, and Macworld are having some sort of business dispute.
- Apple expected to have an exciting product or two to announce, but it has now realized that they won't be ready.
- Steve is sick.
Speaking of Mac, New York Governor David Paterson is pushing an iPod tax.
So...does the Fed rate cut mean you and I can get a zero-percent loan? In at least one case, yes, but it's no free lunch.
Which leads me to: LOLFed.
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Investing Goodies: 2008's Biggest Financial Fiascos
Continue reading… 5 CommentsThe Consumerist revisits the year's biggest financial snafus, which include some that are surely fresh on your mind, and others you may have forgotten, such as the time Countrywide honcho Angelo Mozilo replied to an email from a distressed homeowner, and calls his plea "disgusting."
After Yale disclosed that its endowment has fallen more than 13 percent between the end of June and the end of October, the university announced that it's going to do some belt-tightening.
Zipcar's getting more competition. Hertz is rolling out a very similar service, which will initially be available in New York, Park Ridge, N.J., London, and Paris, and it'll offer fun cars like the Toyota Prius and the Mini Cooper. I wrote about Zipcar's successful business model earlier this year.
And finally, here's why investors responded to yesterday's Fed rate cut with an "Eh."
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Snazzy Financial Services for Gen Y
Continue reading… 5 CommentsHow do you track your spending? A former roommate of mine meticulously recorded each penny she spent in a plain old notebook. I tried that, but didn't stick to it. I also experimented with Excel spreadsheets and Microsoft Money, but just couldn't commit. Today, I just log onto my accounts online to get a ballpark figure of how much I've spent.
I'm not the only one who's lazy: According to this story in the WSJ, lots of us track their finances online. Not surprisingly, lots of free sites are popping up and angling to capture the Generation Y audience, such as Mint.com, Rudder, and Thrive (the last two, I've never heard of.)
Established banks and other financial firms are also trying to draw in Gen Y customers with jazzy like including social networking and blogs. Wachovia's on Twitter. PNC offers a checking- and savings-account service called "Virtual Wallet," where customers can use a tool that separates their money into three segments: checking-account money for bills, spending money, and money for savings. I actually have an account with PNC, but am obviously out of the loop. Maybe that's because I'm too GenX.
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Funds for Tough Times: Forester Value
Continue reading… 0 CommentsSo far this year, not a single diversified stock fund has made money. Most have gotten creamed: According to Morningstar, the average loss for funds that invest in the United States is 42 percent, and, for those that invest internationally, 50 percent. Here's a look at relatively conservative stock funds that produced positive returns during the last bear market (March 24, 2000, through Oct. 9, 2002) and have been holding up better than their peers so far this year.
Forester Value (FVALX). Risk-conscious investors, listen up: In its history, Forester Value has lost money only in 2007, when it dropped 5 percent. It's down just 3 percent so far this year, which makes it the second-best performing U.S. stock fund (behind Embarcadero Alternative Strategies). The fund built up its cash stake earlier in the year, but recently, just more than 15 percent of its assets were in cash. Healthcare and food stocks make up Forester's top five, among them Johnson & Johnson and Kraft Foods, which have both held up relatively well in 2008.
2000-02 bear market return: 5 percent
2008 year-to-date return: -3 percentMore funds for tough times:
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Funds for Tough Times: Berwyn Fund
Continue reading… 0 CommentsSo far this year, not a single diversified stock fund has made money. Most have gotten creamed: According to Morningstar, the average loss for funds that invest in the United States is 42 percent, and, for those that invest internationally, 50 percent. Here's a look at relatively conservative stock funds that produced positive returns during the last bear market (March 24, 2000, through Oct. 9, 2002) and have been holding up better than their peers so far this year.
Berwyn Fund (BERWX). Another solid choice for a small-company fund, the tiny $115 million Berwyn fund has a strong value bent. The managers buy stocks trading at deep discounts to expected earnings growth, and they aren't afraid to trim back on positions that have sharply appreciated. Recently, the fund's top holdings included several companies that have posted positive (or near positive) returns so far this year: Suffolk Bancorp, FPIC Insurance Group, and Granite Construction.
2000-02 bear market return: 6 percent
2008 year-to-date return: -31 percentMore funds for tough times:
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Funds for Tough Times: Royce Special Equity
Continue reading… 0 CommentsSo far this year, not a single diversified stock fund has made money. Most have gotten creamed: According to Morningstar, the average loss for funds that invest in the United States is 42 percent, and, for those that invest internationally, 50 percent. Here's a look at relatively conservative stock funds that produced positive returns during the last bear market (March 24, 2000, through Oct. 9, 2002) and have been holding up better than their peers so far this year.
Royce Special Equity (RYSEX). In general, small-company funds don't offer much by the way of safety, as small companies are riskier than their more stable, large-company brethren. But this fund isn't a bad choice for investors looking to fill that hole in their portfolio. Managed by Charles Dreifus since 1998, Royce Special Equity sticks to a disciplined strategy, which reflects the philosophy of legendary value investor Benjamin Graham. Dreifus buys companies that have a high return on capital, and he makes sure not to overpay. He also takes a skeptical eye to company balance sheets and sells stocks when he thinks they're fully valued.
2000-02 bear market return: 19 percent
2008 year-to-date return: -23 percent
More funds for tough times:
