This is the day we earn our reputations as chocoholics. A candy trade group says nearly $3 out of $4 spent on Halloween candy will involve chocolate. And for the full year Americans spend nearly $4 billion on chocolate bars. The five most popular candy bars are: MM’s, Snickers, Kit Kat, and Hershey Co.’s (HSY) Reese’s and Hershey’s confections.
American Airlines and US Airways (LCC) are preparing concessions to win government approval of their proposed merger. The Wall Street Journal says the companies may offer to give up some slots at Washington’s Reagan National Airport. The Justice Department has blocked the merger on antitrust grounds, arguing that it would harm consumers. Combined, the two airlines control two thirds of the flights going in and out of Washington National.
The Dow Jones industrial average (^DJI) fell 61 points Wednesday and the Standard Poor’s 500 index (^GPSC) lost 8 — both backing away from Tuesday’s record highs. The Nasdaq composite index (^IXIC) dropped 21 points. Investors were a bit surprised by the Federal Reserve’s optimistic assessment of the economy, reigniting concerns the Fed could start to cut back on its stimulus program sooner rather than later.
Two of the most high profile, trendy companies — Facebook and Starbucks– posted strong quarterly results. Facebook (FB) beat expectations on a number of key measures: a better-than-expected profit, a 60 percent revenue jump, and an 18 percent increase in the number of active users. The company also says mobile ads, considered the key to future growth, accounted for nearly half of its revenue. But, in a potential danger sign, Facebook says use by younger teens declined.
And Starbucks (SBUX) profit perked 34 percent higher as its new loyalty program helped boost traffic at its stores.
Speaking of coffee, McDonald’s (MCD) is teaming up with Kraft Foods (KRFT) to test grocery store sales of McCafe branded packaged coffees. Kraft had a distribution deal with Starbucks that ended two years ago.
And Weight Watchers International’s (WTW) stock is slimming down after the weight loss company suspended its quarterly dividend.
–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.”