Money Minute: Boeing Workers Vote on Jobs; Facebook Sued Over Privacy

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Boeing workers vote on their own jobs.

Union workers at a major Boeing (BA) plant in Washington state are to vote on an eight-year contract extension that could determine whether the aerospace giant moves production of the new 777X out of the state. This is actually a re-vote on a slightly modified contract offer. The union local voted down the earlier offer, but the International Association of Machinists has ordered a new vote.

Boeing Washington
Elaine Thompson/AP
They want to keep the work at a unionized plant, and if this contract is rejected again, Boeing is likely to move production to a nonunion facility in another state. The key issue is Boeing's demand to significantly change workers' pension plan.

American Airlines will repaint 1,100 planes after its workers voted to drop the familiar AA logo on the tail in favor of a red, white and blue abstract U.S. flag design. The company put the issue to a vote after completing its merger with U.S. Airways three weeks ago.

Two Facebook (FB) users have filed suits against the company. They allege that Facebook intercepts private messages sent by users to build profiles on people that could be very valuable to advertisers.

Here on Wall Street, the stock market started off the year on the wrong foot. After a stellar performance in 2013, the market laid an egg in the first trading session of the new year.

The Dow Jones industrial average (^DJI) dropped 135 points Thursday, the Standard & Poor's 500 index (^GPSC) fell 16 and the Nasdaq composite index (^IXIC) lost 33 points.

Despite the weak start, Bank of America (BAC) Merrill Lynch -- the sponsor of this report -- remains bullish. It says there is still a lot of skepticism on Wall Street, and that's a contrarian indicator. The brokerage firm forecasts the S&P 500 will return 18 percent this year.

General Mills (GIS) is responding to consumer concerns about food made with genetically modified ingredients. The company is now making its original Cheerios GMO-free, perhaps the most prominent product to make the change. Groups that oppose GMOs worry they could present health problems to consumers.

-Produced by Drew Trachtenberg.

If You Only Know 5 Things About Investing, Make It These
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Money Minute: Boeing Workers Vote on Jobs; Facebook Sued Over Privacy

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 S&P 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 S&P 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."
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