Money Minute: Yearly Rise in College Costs Eases; Is Panera Stock Toast?

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The rapid rise in college tuition is moderating. That's one of five money stories you need to know Wednesday.

In-state tuition at four-year public colleges increased by just 2.9 percent in the current school year. The College Board says that's the smallest increase since 1975. The average tuition is $8,900. Add in room and board, books and other costs, and the bill rises to $22,800 a year. Tuition increases at private collages and universities has also moderated -- up 3.8 percent to an average of more than $30,000 a year. A full-ride at those private schools now averages $44,750.

Another day, another record high for the Standard & Poor's 500 index (^GPSC). It rose 10 points Tuesday, to its fourth straight all-time high. The closely followed index is now up 23 percent for the year, and if it ends the year with that gain, it would be the best performance in a decade. The Dow Jones industrial average (^DJI) gained 75 points and the Nasdaq composite index (^IXIC) gained 9.

A Panera Bread Restaurant Ahead Of Earnings Figures
Patrick T. Fallon/Bloomberg via Getty Images
Panera Bread (PNRA) is making more bread -- the green kind -- but its stock may be toast. Panera's quarterly profit rose 17 percent from a year ago, but investors were disappointed by lackluster sales growth and a tepid forecast for the rest of the year.

President Obama's chief economic adviser says the partial government shutdown earlier this month cost the U.S. at least 120,000 jobs. Jason Furman also says it cut the nation's GDP in the current quarter by a quarter of a point. He says a lot of the loss came from a decline in consumer and business confidence. That slowed down retail purchases and made a lot of employers delay hiring.

And great news for drivers. AAA says the average price for a gallon of regular is now $3.34. That's down 30 cents from this time a year ago, and it's a big drop from early this summer when prices spiked to more than $4 in many areas. This follows a sharp drop in crude oil prices, which fell Tuesday to their lowest level since June. A lot of that is the result of higher supplies because of a jump in domestic production.

-Produced by Drew Trachtenberg.

If You Only Know 5 Things About Investing, Make It These
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Money Minute: Yearly Rise in College Costs Eases; Is Panera Stock Toast?

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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