Money & Business
Money Watch: A Wall Street Winner Prefers Qwest
As the only mutual fund manager to beat the S&P 500 for 14 years running, Bill Miller is a legend on Wall Street. When the CEO of Legg Mason Capital Management talks, everyone listens. And last week, Miller squawked loudly, firing off a letter to the chairman of MCI urging the company to accept Qwest's bid to buy the long-distance company for $8.9 billion. For months, MCI has been caught in a bidding war between Qwest and Verizon, siding with the latter, despite its lower $7.6 billion bid. This isn't surprising, since the so-called smart money has favored the financially stronger Verizon. Ever the contrarian, Miller says MCI's board is fixating too much on Qwest's problems. The weaker company is a better fit, he says, citing greater profit potential through "synergies" and other factors. Moreover, he says, MCI shareholders are likely to favor Qwest because they are value-minded investors willing to take risks. Remember, they bought shares in MCI after it was "the subject of the largest fraud and bankruptcy in U.S. history," wrote Miller, whose firm owns shares of Qwest and MCI. The jury's still out, but if put to a shareholder vote, better believe that Miller will be hanging up on Verizon's bid.
Money Watch: Small Investors, Small Returns
At a time when the White House is pushing for private investment accounts to fix the nation's Social Security system, a new study has come to an eye-opening conclusion: Americans are pretty lousy at managing their money. Over the past decade, the average stock fund investor has earned just 6.2 percent a year, according to a recently released report by the consulting firm Dalbar. That's about half what the S&P 500 delivered during that time. Over the past 20 years, folks have done even worse, producing gains of 3.7 percent a year when stocks returned 13.2 percent annually. Seems investors have a nasty habit of chasing hot funds just as they're turning cold and leaving cold funds just as they're heating up. But they're slowly learning. Dalbar found that stock fund investors last year were hanging on to their funds longer than usual. This might explain why the average fund investor beat the S&P in 2004 by 1.7 percentage points.
Money Watch: I'd Rather Have the Cash Anyway, Grandma
Beginning May 1, new U.S. government Series EE savings bonds will earn a fixed rate of interest rather than a variable rate as has historically been the case. This means savers who buy such bonds after that date will be locking in for 30 years--just when rates are starting what's expected to be a substantial climb. For fans of the venerable birthday present, it may be time to abandon ship in favor of vehicles that will pay out more, such as money market accounts, money funds, or inflation-adjusted I bonds.
The Week Ahead: A profit slowdown
It's earnings time again. The big concern on Wall Street: Profits are growing, but the rate of growth is dropping off noticeably. In the fourth quarter of 2004, earnings among S&P 500 companies grew about 20 percent over the same period in the prior year. But first quarter profits are expected to climb 10 percent or less. That's "putting investors a little more on edge," says John Caldwell, chief investment strategist for McDonald Financial Group. Two influential Dow components-- General Electric and Citigroup --could move the markets when they weigh in with their numbers this week. And be sure to check out the earnings of major media companies. Their revenues are largely advertising-driven, and ad budgets grow when times are flush. Some to watch: Gannett, Knight Ridder, and Tribune.
The Week Ahead: Uncle Sam Pitches In
The tax man's deadline cometh. If you're looking for a reason to file on time, consider this: The average tax refund shot up from $1,600 in 1998 to nearly $2,500 last year. If that's not motivation enough, take note that the IRS's budget to make sure you and yours pay up has grown by $190 million.
April Showers
Average annual tax refund (in dollars)
1980 $684
2004 $2,454
[Chart labels]
0 500 1,000 1,500 2,000 $2,500
1980 1990 1994 2004
Source: Internal Revenue Service
Chart by Rod Little-- USN&WR
This story appears in the April 18, 2005 print edition of U.S. News & World Report.
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