Archive for December, 2005

  • In the Year 2025
    , December 13th, 2005 at 6:42 am

    The government just released its annual energy report, and it says that oil will cost $54 a barrel in 2025.
    Last year, the same government report said that in 2025 oil will be $31 a barrel.
    My forecast is that in 2025, government forecasts will be worth the exact same amount they are today.

  • Pfizer Boosts Dividend
    , December 13th, 2005 at 5:35 am

    Pfizer (PFE) will have to do a lot to win me back. But raising their dividend by 26% is a good start.

  • The Market Today
    , December 12th, 2005 at 9:02 pm

    Here’s a very brief update on today’s market. Our Buy List lost 0.13% while the S&P 500 gained 0.08%. Fifteen of our stocks fell while just 10 went up. Our big gainer was eBay (EBAY). Progressive (PGR) and Golden West (GDW) were our biggest laggards. Since I’ve stuck my neck out on Dell (DELL), I’m happy to see that the stock is moving in the right direction. Shares of Dell closed today at their highest level in nearly two months.
    Outside our Buy List, Merck (MRK) fell slightly as the third Vioxx trial was thrown out. I’m beginning to think that the Texas trial was a fluke and the company is going to be very successful in court. Just a hunch though.
    Link o’the day: Daily Dose of Optimism. I go daily. I hope you do too!

  • Reader Comments: Market Timing
    , December 12th, 2005 at 8:44 pm

    Just a comment on your site. I like it. You come up with interesting daily comments I find enjoyable. The only thing I just noticed I disagree with is your investing philosophy you describe in FAQ section:
    “Be prepared for bear markets. A lousy market can strike at any time without warning. All stocks go down. It doesn’t mean the stock is broken. Stocks are volatile by nature. That’s the price you pay for superior returns. If you can ride out the bad times, you’ll be rewarded. If you can’t bear to see your portfolio drop by 50%, do not invest in the stock market.”
    I couldn’t think of a worst philosophy especially after a 3 year year market we’ve recently had. If that didn’t convince you that ‘buy and hold’ is a failure, nothing will. Buy and hold worked through out the 90’s. But that was a unique time we will likely not see again in our life time.
    I believe that there are times to be in the market and times to be out. It is crazy to see the market going down daily in little or large amounts only to watch your hard earned gains disappear. I find there is nothing worse than helplessly watching yourself lose money. There are numerous ways to follow the major trend of the market and catch the trend, whether up or down. Following a few technical facets of the market daily or relying on services that have long term good records in doing so is a far better way. Subscribing to IBD is but one of many examples of where one can find sufficient data to know when the trend in the market is changing, more than just a couple down days. The market moves in cycles and catching a significant portion of both the ups and downs is FAR superior than just buy what you feel are ‘good stocks’ and riding through no matter what the market brings you.
    To accept a 50% decline in your portfolio is not only avoidable, it is totally insane. To assume ‘well it just comes with the territory of investing’ is very foolish. Avoiding being invested during down markets or better yet, buying funds that take advantage of the downtrends, is a far better way with less risk. Being a great stock picker is only half the battle. When the market is tanking, and most often it isn’t a surprise and there was plenty of warning if you are watching closely, great stocks don’t care. But I do.
    Thanks for your time and otherwise keep up your nice site.

    Thanks for your thoughtful comments. I greatly appreciate this kind of feedback.
    First let me say that I absolutely agree with you that there are times to be in the market and time to be out. My problem is when. Speaking for myself, I’ve never seen conclusive evidence of a system that can consistently time the market over the long-term.
    Perhaps it’s just me. I freely admit that I can’t time the market. I’ve tried. (Oh boy, have I tried!) But I always found out that the market never does what it’s supposed to.
    A bear market doesn’t prove to me that buy-and-hold has failed. I know that bear markets will come along. Some will be quite nasty. However, the historical evidence is absolutely clear that the long-term trend of the market is up. In fact, 99% of the time the market is net flat. All the profits come on just one day in 100. My strategy is to assume that the market will go up every single day, and I act accordingly.
    Even after the worst bear market in seven decades, the S&P 500 index with dividends reinvested is higher than it was except for a few months right near the market’s peak. If a Rumpelstiltskin had invested in the market 10 years ago, gone to sleep and woken up today, he would have doubled his money. Not bad for the worst bear in market in seven decades.
    I truly wish all market timers the best of luck. But for me, I’m sticking with buy-and-hold.

  • Fed May Alter Statement
    , December 12th, 2005 at 2:24 pm

    Fed watchers beware. Greenspan & Co. may alter the language in tomorrow’s post-meeting statement:

    Lehman Brothers Inc. and Banc of America Securities LLC are among 12 of the 22 primary dealers of U.S. government securities that say the central bank will stop saying interest rates provide “accommodation,” meaning they are low enough to spur economic growth. All 22 expect the Fed to lift its key rate to 4.25 percent from 4 percent.
    Removing that one word from the Fed statement explaining policy decisions may fuel the debate between economists and investors over whether the central bank is almost finished raising rates, setting the stage for a rally.
    “The message they want to convey is that they are still concerned about inflation and that they will continue to raise rates until inflation pressures subside,” said Joseph Abate, a senior economist at Lehman in New York. “It’s not difficult to reconcile the Fed keeping the ‘measured’ language in there but altering the accommodative language.”
    Fifteen dealers predict policy makers will repeat rates are likely to rise at a “measured” pace, citing the potential for faster inflation.

    Here’s more on what the Fed needs to consider.

  • Welcome to the Global Economy
    , December 12th, 2005 at 1:23 pm

    One of Brazil’s fastest-growing companies is a home-grown Arabic fast-food chain.

  • Stock Options: Old Game, New Tricks
    , December 12th, 2005 at 11:29 am

    Business Week looks at the game of stock options accounting. One of the variables of the Black-Scholes pricing formula is volatility. Now that companies have to account for employee stock options, their volatility assumptions are magically falling:

    Time Warner’s lowering of its expected volatility in 2004 cut its options expense by $72 million, a 28% drop, according to New Constructs. Wireless service provider Nextel Partners slashed estimated options expenses from $41 million to $33 million. A Time Warner spokeswoman says the new calculation accurately reflects the more stable range in which the company’s stock now trades. Nextel Partners declined to comment.
    Another tactic hundreds of companies have used is accelerated vesting. Options traditionally become effective over a period of years after they’re granted and are canceled if the recipient leaves the company. By making options vest in 2005 rather than in future years, companies can bury the cost in the footnotes of their 2005 paperwork. That boosts earnings in 2006 and beyond.
    The number of companies employing the practice has almost doubled since midyear, from 234 in July to 439 by late November, according to Bear Stearns. The activity has slashed $4 billion from expenses for 2006 and later years. Senyek of Bear Stearns projects that 600 companies could speed up vesting by the end of 2005, boosting future profits by over $5 billion.

  • Still More Mergers
    , December 12th, 2005 at 10:37 am

    The merger deals continue to roll along. Today we learn the Viacom (VIA-B) beat out GE (GE) for DreamWorks. According to the New York Times, the deal was high drama up to the last minute.
    Also, ConocoPhillips (COP) is going after Burlington Resources (BR) for $30 billion. Plus, Electronic Arts (ERTS) is going to buy Jamdat Mobile (JMDT).
    But despite those headline deals, the most fascinating one is the verbal/bidding war for the London Stock Exchange. In the U.S., the exchanges have seen their stocks soar. Now there’s a bidder for the venerable LSE. The London Stock Exchange has roots that date back over 400 years. The problem is that the bidder ain’t British but a slovenly colonist, the Australian investment bank Macquarie. This has the Brits rather upset.
    Last week, Macquarie bid 580 pence for the exchange. The LSE call the offer “derisory.” Yes, even the British insults sound classy. Just once, wouldn’t you love to hear an American company say that about an offer?
    The Aussies have hit back and said that they’re really not that interested in a “boring utility.” Yep, it’s getting ugly. Now Macquarie is being totally silent, which in Australian is very suspicious. Meanwhile, London is abuzz and a formal offer is expected soon. Personally, I hope they don’t find it too opprobrious.

  • Case: Break Up Time Warner
    , December 11th, 2005 at 9:32 pm

    In today’s Washington Post, Steve Case argues for breaking up Time Warner (TWX):

    This past July, having concluded that integration would never happen, I proposed to the company’s board that it was time to “liberate” and split the conglomerate into four freestanding companies — Time Warner Cable, Time Warner Entertainment, Time Inc. and AOL — each with its own strategy, stock, balance sheet, management team and board.
    Each of the four units would benefit from the separation. Time Warner Cable would be better positioned to compete effectively against aggressive communications companies like Verizon and the new AT&T — and it would lose little in being divorced from the Time Warner movie and television companies, as few benefits have ever materialized from having Time Warner Cable and Turner Broadcasting under the same roof. Time Warner Entertainment (Warner Bros., New Line, HBO and Turner Broadcasting) could build on its strength as one of the world’s leading entertainment companies, and more vigorously embrace new technologies and new distribution channels. Time Inc. would be able to grow from being a traditional magazine company into a multifaceted media and information company, focused on expanding its brands well beyond magazines.
    AOL would be the fourth company, and perhaps the one with the greatest potential. At a time when some of the fastest-growing enterprises in our economy are Internet leaders — such as Google — shareholders would benefit from seeing AOL return to its roots in the Internet sector. A split into separate companies has one other advantage for shareholders: Investors who don’t believe in the promise of one of these endeavors could sell their shares in that business and double up in their holdings in other parts of the former Time Warner empire.
    The success that Warner Music has had since being spun off from the parent company is an example of how this strategy can deliver value for all stakeholders. When Warner Music was part of Time Warner, it was — much like AOL — seen as a business in decline, a troubled division with a glorious past but a questionable future. But since being separated, Warner Music has increased in value by cutting bureaucracy, signing new artists and investing more aggressively in digital music. The private equity firm buyers have already recouped their initial investment, and are still major owners of a stock that is up 20 percent since its initial public offering six months ago.
    My sense is that other parts of Time Warner would achieve similar results if set free from the conglomerate. Time Warner has proven to be too big, too complex, too conflicted and too slow-moving — in other words, too much like a classic conglomerate — to seize new opportunities.

  • Greenspan Warns
    , December 11th, 2005 at 6:55 pm

    grrrr.jpg
    AP:

    Greenspan Warns on Federal Budget Deficits

    Times Online:

    Greenspan warns of US threat to global trade

    Reuters:

    Greenspan warns of spending, trade risks

    AP:

    Greenspan warns of investment fallout

    UPI:

    Alan Greenspan warns of fiscal peril

    Internet:

    Greenspan “I’m More Popular Than Jesus”