Dividends and Investors (Part 3)

By | 2014-09-05T19:37:57+00:00 June 30th, 2010|Global Market Update|

Are you a chicken farmer, or an egg farmer? Chicken farmers raise chickens for their meat. Egg farmers raise chickens for what they lay. Investors who plan to sell their stocks to pay for college or to buy a second home are chicken farmers. Investors who hope to use the income from their investments are egg farmers. The financial press is hopelessly biased against the egg farmer. Every day they report market prices and how they’ve changed. But they almost never report on dividends. [...]

Dividends and Investors (Part 1)

By | 2014-09-05T19:36:30+00:00 June 29th, 2010|Global Market Update|

Why do companies pay dividends? It’s a good question. After all, dividends reduce management’s flexibility. The company can’t use the money it pays out to invest in research and development or other important internal items. Indeed, a Presidential Commission identified dividends paid as a major way US companies differ from firms elsewhere in the world. Also, dividends are taxed twice. Companies pay corporate taxes on their earnings, then pay dividends out of earnings. Investors then have to pay income taxes on those same dividends [...]

Dividends and Investors (Part 2)

By | 2014-09-11T15:32:38+00:00 June 28th, 2010|Global Market Update|

Oh, grow up. That’s the advice people need when they act immature. And it’s the advice a lot of companies need, especially regarding their dividend policy. When a company is young, it needs all the cash it generates just to survive. Later on, growth opportunities abound. The firm can either invest in its own product line, or it can make strategic acquisitions and build out its business. But there comes a time when a successful corporation needs to return cash to its shareholders. Years [...]

Overshoot

By | 2014-09-11T15:32:32+00:00 June 27th, 2010|Global Market Update|

When people try too hard to hit a target, they often overshoot. We saw that last week in the disappointing World Cup game against Ghana, when the US shot again and again and again without success. We’re seeing that now in the housing economy. The government wanted to stimulate the housing sector and adopted a home-buyer tax credit. Only they overshot. As the tax-credit was due to expire, more and more people rushed in to take advantage of the program, and the market seemed [...]

Getting Lucky

By | 2014-09-05T19:32:27+00:00 June 24th, 2010|Global Market Update|

Are the top money managers good? Or just lucky? Sometimes it’s hard to tell. When Gene Fama and Ken French studied outperforming money managers years ago, they found that most of them were just taking big risks. Thus was born the most humble formulation of the Efficient Market Hypothesis: the market is really hard to beat. They have a good point. A few years ago I was interviewing international equity managers, and when I examined one who seemed to consistently beat the global developed [...]

Team Players?

By | 2017-07-17T12:35:18+00:00 June 23rd, 2010|Global Market Update|

Do we believe in teams, or superstars? That’s a question for sportswriters. It’s also a question for investors. Years ago mutual fund companies seemed to bank on the rock-star portfolio manager. Superstars like Fidelity’s Peter Lynch were all the rage. They wrote books and gave speeches. Everyone wanted to invest with them. But a funny thing happened. Companies that put all that capital into a shining star found that the star could lose its luster. First, people are fallible. When Peter Lynch retired, his [...]

Credit Card Follies

By | 2014-09-05T19:29:58+00:00 June 22nd, 2010|Global Market Update|

We started out trying to prevent the next financial crisis. We ended up arguing about credit card fees. What’s going on? When consumers use credit cards, the card companies reduce the amount they pay to the merchant. This discount is called an intercharge fee. Different cards charge different amounts. Visa and Mastercard charge around 2%; Discover charges about 6%. American Express charges 8%. With credit card transactions now totaling $1.3 trillion, banks make about $30 billion annually. This fee pays for frequent flier miles, [...]

Volker Schmolker

By | 2014-09-05T19:29:25+00:00 June 20th, 2010|Global Market Update|

Sent: Sunday, June 20, 2010 11:46 PM Subject: Global Market Update The “Volker Rule” is da’ bomb. That’s what’s coming out of Congress. While I confess to having not read the entire 1500 page Financial Reform Bill, it looks like derivatives trading will no longer be part of a bank’s activity. Only, it wasn’t their derivatives activities that got the banks in trouble. Sure, Barings Bank was taken down by a rogue futures trader named Nick Leeson who operated out of Singapore. But that [...]

Good Beginnings

By | 2014-09-05T19:28:10+00:00 June 17th, 2010|Global Market Update|

Well begun is half done. When you’re investing, most of the work is done before you ever spend a penny. We’ve discussed before how important beginnings are; having a sound investment plan based on your total financial picture is three quarters of the task. It’s the same with many things: the foundation you lay determines how the rest of the product turns out. A home’s foundation needs to be level and solid. A car’s frame needs to be true and stable. And in this [...]

The Gods Must Be Angry (Part 2)

By | 2014-09-05T19:27:23+00:00 June 16th, 2010|Global Market Update|

How do you win the favor of an angry god? The traditional answer is to sacrifice. When Artemis was angry with Agamemnon and prevented his army from sailing to Troy, he sacrificed his daughter and gained the goddess’ favor. I mentioned how BP had angered the energy gods by its hubris yesterday. It seems that today they sacrificed their equity investors by suspending their dividend. But it’s only a token sacrifice. The company earned $8 billion in the first quarter and had planned to [...]