The market ended a rough week with some green arrows, and one major tech company took a preemptive step to block Microsoft from poaching one of its top executives.
Qualcomm (QCOM) unexpectedly named a 20-year company veteran as Chairman and CEO. President and COO Steve Mollenkopf will take over for Paul Jacobs, the son of the company’s founder. Here’s the reason this is big news: Mollenkopf had recently emerged as a leading candidate to succeed Steve Ballmer as CEO at Microsoft (MSFT), which can now cross him off its short list. Qualcomm was little changed, but Microsoft fell 1.5 percent.
The Dow Jones industrial average (^DJI) gained 16 points on Friday, and the Nasdaq composite (^IXIC) added 2, but the Standard Poor’s 500 index (^GPSC) edged down by less than a point. The averages all ended lower for the week.
Two factors that have boosted the market all year were on display again today: stock buybacks and IPOs.
Honeywell (HON) announced plans to buy back up to $5 billion worth of its stock. It’s shares edged higher for the day; Honeywell’s up 40 percent over the past year.
And on the IPO front, Nimble Storage (NMBL) jumped 61 percent from its $21 a share initial pricing. So far this year, the market has been inundated with more than $51 billion in new stock offerings, the most in 13 years.
Some of the biggest names on the Nasdaq were on the move.
Amazon (AMZN) gained about 1 percent on reports that it’s working on a plan to expand home delivery of consumer packaged goods –- everything from paper towels to pet food. Analysts say it’s a direct challenge to Costco (COST) and Sam’s Club (WMT). Twitter (TWTR) rose 7 percent on a recommendation from the brokerage firm RBC. But Apple (AAPL) and Intel (INTC) both lost about 1 percent.
Adobe (ADBE) jumped 13 percent. Quarterly results were weak, but subscriptions to its new cloud service jumped 40 percent.
And Anadarko Petroleum (APC) slid 6 percent after a bankruptcy court judge said the company could be liable for at least $5 billion — and maybe a lot more — in an environmental lawsuit.
What to Watch Monday:
- At 8:30 a.m. Eastern time the Federal Reserve Bank of New York releases its Empire State Manufacturing Survey for December, and the Labor Department reports revised productivity and costs data for the third quarter.
- At 9 a.m., Markit releases its manufacturing index of purchasing managers for December, and the Treasury Department reports international capital for October.
- The Labor Department reports industrial production for November at 9:15 a.m.
–Produced by Drew Trachtenberg.
Warren Buffett is a great investor, but what makes him rich is that he’s been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.
Most people don’t start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That’s unfortunate, and there’s no way to fix it retroactively. It’s a good reminder of how important it is to teach young people to start saving as soon as possible.
Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That’s really all there is to it.
The dividend yield we know: It’s currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That’s totally unknowable.
Earnings multiples reflect people’s feelings about the future. And there’s just no way to know what people are going to think about the future in the future. How could you?
If someone said, “I think most people will be in a 10% better mood in the year 2023,” we’d call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.
Someone who bought a low-cost SP 500 index fund in 2003 earned a 97% return by the end of 2012. That’s great! And they didn’t need to know a thing about portfolio management, technical analysis, or suffer through a single segment of “The Lighting Round.”
Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return — still short of an index fund.
Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it’s not like golf: The spectators have a pretty good chance of humbling the pros.
Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time — every single time — there’s even a hint of volatility, the same cry is heard from the investing public: “What is going on?!”
Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.
Since 1900 the SP 500 (^GSPC) has returned about 6% per year, but the average difference between any year’s highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.
Someone once asked J.P. Morgan what the market will do. “It will fluctuate,” he allegedly said. Truer words have never been spoken.
The vast majority of financial products are sold by people whose only interest in your wealth is the amount of fees they can sucker you out of.
You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he’ll receive, even though it makes him more likely to be wrong.
This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.
“Everything else is cream cheese.”