Money Minute: Twitter Makes Its $18 Billion Debut; Square Sets Its Sights on IPO

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Twitter. Twitter. Twitter. Twitter. That and more top money stories you need know Thursday.

The Dow Jones industrial average (^DJI) rallied 128 points Wednesday to another record high. The Dow is now up 20 percent for the year. The Standard & Poor's 500 index (^GPSC) gained 7, but the Nasdaq composite index (^IXIC) fell 8 points as some tech stocks lost ground.

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After months of hype, Twitter (TWTR) finally goes public Thursday -- meaning anyone can now buy shares of the stock. It priced the shares at $26 apiece, which values the company at more than $18 billion. Trading in the stock is likely to be volatile.

Twitter isn't the only IPO news today. The electronics company Square is reportedly talking with investment banks about going public next year. And there's a Twitter connection here. Square was co-founded by Jack Dorsey, who's also the chairman of Twitter, and who made hundreds of millions of dollars through its IPO. Square makes a credit-card reader that plugs into mobile devices.

Another big tech player is set to slide today. Qualcomm (QCOM) investors are looking past the chipmaker's strong quarterly earnings, focusing instead on its cautious outlook for the current period. Qualcomm makes key components for smartphones made by Apple (AAPL), Samsung and Google (GOOG) -- so the disappointing outlook could portend weaker sales for those companies as well.

Whole Foods Market (WFM) is likely to be picked over like day old bread. Its earnings rose, but fell short of expectations. The upscale grocer also lowered its sales outlook. But Wendy's (WEN) topped Street estimates and raised its outlook for the full-year.

And Gap Inc.'s (GPS) Old Navy unit has a who-wants-to-be-a-millionaire holiday promotion. The retailer will give raffle tickets to the first 500 people in line at its North American stores. One winner will take home one-million dollars. That can buy a lot of Old Navy hoodies.

-Produced by Drew Trachtenberg.

If You Only Know 5 Things About Investing, Make It These
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Money Minute: Twitter Makes Its $18 Billion Debut; Square Sets Its Sights on IPO

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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