July 8, 2013
By Carl Richards via bucks.blog.nytimes.com Article
The Only Investing Pattern That Matters Is Behavioral
“… I stumbled on some research by David J. Leinweber at Caltech … he’s figured out how to predict the stock market using just three variables:
1) Butter production in the United States and Bangladesh
2) Sheep populations in the United States and Bangladesh
3) Cheese production in the United States
Statistically speaking, those three variables predicted 99 percent of the stock market’s movement. Imagine what you’ll be able to do with that information. …
In our very human pursuit of looking for patterns, we start seeing things that aren’t really there. … we will mine the data until we see what we think is a pattern. … We start to believe, we want to believe, that this pattern will have predictive value. …
In fact the S&P 500 is full of patterns if you’re looking for them. Pick your poison: sheep, the S&P 500, gross domestic product, or the latest unemployment numbers. If you look for some sort of theme to emerge, it’s highly likely you will see something. But the past is not prologue. …
Oddly enough, the only pattern that will influence your investing success is your behavior. Can you break the pattern of buying high and selling low? Can you break the pattern of chasing after the next “big” investment? And perhaps most importantly, can you buy low-cost investments in a diversified portfolio, and then ignore it? Now that’s a pattern I can endorse.”
July 1, 2013
By John Kirk via techopinion.com Article *Thanks to Daniel Smith for suggesting this article
Android’s Market Share Is Literally A Joke
“Have you heard this one?
Two farmers bought a truckload of watermelons, paying five dollars apiece for them. Then they drove to the market and sold all their watermelons for four dollars each. … ‘See!’ said the one farmer to the other. ‘I told you we shoulda got a bigger truck.’
Or how about this one?
Android is winning because they got a bigger truck.
… the joke is on us because this is exactly the kind of nonsensical analysis that is being doled out by tech pundits … [Examples:]
– Android is crushing Apple and Microsoft in the mobile device market …
– CHART OF THE DAY: The iPhone’s Market Share Is Dead In The Water …
… These headlines – or their underlying articles – all … point to market share as the … basis for their conclusion. … pundits think that Android has won because they ‘have a bigger truck’ (i.e. more market share) – regardless of how much – or how little – profit Android manufacturers make. …
Quiz #1: Market Share Alone
Question: Company A has 25% market share. Company Z has 75% market share. Which company is doing better?
Answer: With market share alone, there’s simply no way to know or tell. Company A might be bringing in all the profits and company Z might be going bankrupt.”
June 17, 2013
By Philip Elmer-DeWitt via tech.fortune.cnn.com Article
Apple’s shrinking diluted share count
“FORTUNE — By the time it decided in April to increase its stock buyback program five fold — from $10 billion to $60 billion — Apple (AAPL) already spent $1.95 billion of the original $10 billion fund and had bought and retired nearly 4.1 million shares of Apple common stock. …
That leaves … $58 billion to be spent over the next 11 quarters. …
As a result of the exercise…:
- The repurchase program represents a material boost to Apple’s bottom line. For example, even if September’s net income were to be flat, Apple would report nearly $.25 more in EPS (earnings per share) because there will be that many fewer shares in the denominator.
- By the end of the program, Apple will have repurchased just under 100 million shares, or approximately 10.55% of its current diluted share count.
- The company will save more than $2.230 billion in dividend payouts on the retired shares — even if it increases its dividends 10% each May. …
‘The dividends saved each year will go a long way to covering the interest costs on the funds borrowed to facilitate the share repurchases … while Apple continues to earn interest on the off-shore funds not repatriated and used for the share repurchases.'”
June 3, 2013
By Carmel Lobello via theweek.com Article
17 weird finance buzzwords, explained
“… like any industry, the finance world is … filled with lively slang words and phrases, coined over the years to describe practices and trends unique to that world. Here are a few of our favorites. …
2. Big uglies: Big, older companies, usually in ‘dirty’ industrial sectors like mining or steel. Though they can be solid investments with good, steady returns, many investors ignore them for ‘cleaner,’ trendier stocks. …
4. Cockroach theory: The theory that when a company reports bad news to the public, there’s usually a lot more bad news behind the scenes that may come out later. It can also refer to industry-wide suspicions — if one subprime lender is going bankrupt (like New Century Financial was in 2007), other subprime lenders might have similar problems behind the scenes.
5. Cookie jar accounting: An accounting practice in which a company stores up funds during good times to dip into during bad times. Because it effectively misleads investors — making them think goals are being met even when the company is losing footing — this practice is forbidden by the SEC. …
8. Jennifer Lopez: An informal term that describes what happens when a security reaches a low, then gradually starts to go up again. On a graph, it looks like a curve at the bottom, which is why investors named it after the admirably round-bottomed singer.
9. Puke point: Puking, in this case, is slang for selling an asset as the value is plummeting. The “puke point” is the point at which the investor can no longer stomach the losses, and decides to sell the asset, regardless of its steeply falling price.”
May 20, 2013
By Jeffrey Pfeffer via businessweek.com Article
Why Does Apple Care About Its Share Price?
“Beset by critics and bedeviled by a declining stock price, Tim Cook, the company’s beleaguered chief executive,announced a big stock buyback and a substantial dividend increase. … these actions do raise the question why Apple (APPL), which has too much cash on its books and … unlikely ever again to need to raise money in the public markets, should worry so much about its share price anyway? …
Although many people believe that total shareholder return (TSR), which consists of changes in stock price and dividend payouts, actually reflects something about the quality of the company’s management, I am far from convinced. …
As research (pdf) by Stanford accounting professors Ron Kasznik and Maureen McNichols has shown, stock price returns are related to whether companies either beat or fall short of expectations, and earnings surprises can be a more important determinant of a stock’s price than actual operating performance. …
Don’t get me wrong. I’m all for underpromising and overdelivering in jobs at all levels—it’s a nice way to build your managerial reputation. But we ought not to confuse image management with substantive performance. Some of the best-managed companies have share prices that don’t move much because their superior management and results are already reflected in their stock price. (Southwest Airlines (LUV) is one example.) That fact does not negate their outstanding results in the least.
Put simply, executives should spend more time on product development and customers and less time worrying about something (their stock price) that is more outside their control.”
April 15, 2013
Five Really Dumb Money Moves You’ve Got to Avoid
“1. Reaching for yield
What this country needs is a good 5% certificate of deposit. Instead the collapse in interest rates, and the Federal Reserve’s policy of keeping them down for as long as possible, is driving people crazy … In these circumstances, people start to do really foolish things… That includes taking on crazy amounts of risk … The Fed is producing a bull market in scams, Ponzi schemes and associated rackets. …
2. Going into the poor house to send Junior to a country-club college
Over the past 40 years, the cost of tuition and fees at a private university has tripled—after accounting for inflation. The cost of a public university has quadrupled. … the smart move for the budget-constrained is to get a bachelor’s degree at a public university. The tuition and fees average less than $9,000 a year instead of $30,000 at a private college.
3. Owning stock in your employer
This is one of the silliest and riskiest moves any investor can make. If the company hits trouble, you get whacked twice. You can lose your job and your savings—all in one fell swoop. Ask anyone who worked for Enron…or Lehman Brothers. …
4. Taking ….”
March 25, 2013
By Bill Waddell via Manufacturing Leadership Center Article
Maximization of Stakeholder Value in Practice
“I often wrote about the lean principles of focusing on all of the stakeholders, rather than abusing some of them for the sake of the shareholders – a la GM borrowing money to pay dividends while laying off employees. This is not some socialist principle that belittles the importance of capital. No, it is driven by the common sense point that the stockholders gain the most in the long term when everyone contributing to the business shares their long term objectives. The problem with the ‘maximize shareholder value’ principle is that it has no time frame perspective, which generally means maximize short term shareholder value because the investment community has a hard time seeing beyond three months into the future. …
More companies should look to the Progressive Insurance approach to this issue. They have a formula that is well publicized in advance for calculating the annual dividend stockholders will receive – if any. Then they use the exact same formula to calculate employee bonuses.
I don’t know anything about the insurance business but it’s a safe bet it is a lot like manufacturing in that there are likely to be plenty of accounting tricks available to dress monkeys in silk suits – they can make mediocre, or even lousy performance look good by playing games with the numbers. The cool thing about Progressive is that, if they choose to play such games, employees benefit to precisely the same degree as Wall Street. Everyone wins, or everyone loses.”