Money Minute: Wintry Weather Worries Retailers; Diet Soda Sales Fizzle

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The weather rains on retailers' parade.

There are now just two weekends left before Christmas for holiday shoppers, and retailers are starting to get nervous -- especially after snow and ice in many areas of the country reduced the traffic at stores. So far, analysts say this has been a disappointing season for most brick-and-mortar retailers.

Severe Weather
Brandon Wade/APCrews spray deicing solution onto an American Airlines 737 before departure at Dallas-Fort Worth International airport.
The weekend storms also played havoc on airline schedules and on package delivery services UPS (UPS) and FedEx (FDX). Airlines were forced to cancel thousands of flights over the weekend, especially American Airlines flights coming and going from Dallas.

Better news for American on the merger front, as it completes the deal to merge with USAirways (LCC). Changes for fliers will come slowly, as both brands will continue to exist for at least another year.

Ski resorts might appreciate the snow, but middle and lower-income skiers are getting priced out of the sport. CNBC reports that a number of the most popular slopes -- Vail (MTN), Jackson Hole, Sun Valley and others -- are charging $100 or more for lift tickets at peak times.

Health concerns are causing more and more people to cut back or give up on diet soda. The Wall Street Journal says in-store sales of diet brands have plunged nearly 7 percent over the past year. For many, there are new concerns about the health impact of aspartame and other artificial ingredients used by Coca-Cola (KO), Pepsi (PEP) and Dr. Pepper (DPS).

Here on Wall Street, the Dow Jones industrial average (^DJI) fell 0.4 percent last week and the Standard & Poor's 500 index (^GPSC) edged just slightly lower. Both snapped streaks of 8 straight weekly gains, despite Friday's huge rally. The Nasdaq composite index (^IXIC) edged a bit higher for the week.

Market watchers will be paying attention to a series of speeches today by Federal Reserve governors. Everyone is looking for new clues about when the Fed will start tapering on the massive bond-buying program that's been one of the key drivers behind the market's big rally this year.

-Produced by Drew Trachtenberg.

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Money Minute: Wintry Weather Worries Retailers; Diet Soda Sales Fizzle

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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