Dividend-paying stocks are under pressure, and Microsoft looks to get back in the phone game. Those and more are what's making business news Thursday.
A Bernanke-inspired sell-off sent the Dow industrials (^DJI) down 206 points yesterday. It's the seventh straight triple digit move for the Dow, and we're likely to see more selling this morning. The S&P 500 (^GSPC) lost 22 points and the Nasdaq (^IXIC) slid nearly 39.
The yield on the 10-year Treasury note shot up above 2.4 percent -- its highest level in nearly two years. That means utility, phone and other high-yielding stocks could come under more pressure.
Microsoft (MSFT) was reportedly near a deal to acquire Nokia's device business, but The Wall Street Journal says those discussions have cooled. Both companies have faltered in the smartphone business, falling far behind Apple (AAPL) and Samsung.
PC-maker Lenovo also wants to expand its smartphone operations. The Journal reports the Chinese company wants to start selling phones in the U.S. within a year.
Chip-maker Micron Technology (MU) posted a better than expected quarterly profit, reversing a big year ago loss. Micron's stock has more than doubled in value this year.
Red Hat (RHT) also topped expectations. The company, which provides open source software, reported strong revenue growth.
But Rite Aid (RAD) is set to fall despite posting a profit in line with expectations. Sales fell from a year ago.
Videogame-retailer GameStop (GME) is set to rally after Microsoft opened up its Xbox One console to use any disc based game. The Xbox One is due out later this year.
But discount retailer Five Below (FIVE) is headed lower. It's planning a secondary offering of stock, which dilutes the value of existing shares.
And George Zimmer, the chairman, co-founder and public face of Men's Warehouse (MW), has been ousted. The company didn't say why he was let go after 40 years with the clothing store chain. Zimmer starred in the company's commercials, using the catch phrase: "You're going to like the way you look. I guarantee it."
-Produced by Drew Trachtenberg
If You Only Know 5 Things About Investing, Make It These
Market Minute: Stocks Point Lower; Microsoft's Nokia Deal Falters
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.
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.