Ford (F) says next year will be the biggest for vehicle launches in the history of the company. As a result, Ford plans to hire 5,000 workers in the U.S., mostly in engineering and product development. Among the new offerings in 2014, redesigns of the Mustang and the F-150 pick-up. In all, it plans to roll out 23 new or updated vehicles next year.
The cold snap that has many of us shivering on the way to work this morning is sending natural gas prices sharply higher. They're at the highest level in more than two years, as demand soared. Meanwhile, the Energy Department reports that natural gas supplies fell last week, and that was before the cold weather blanketed many areas.
The deep freeze is also having an effect on California's citrus crop. State officials say it will take three to four weeks before they can put a dollar value on the crop damage. The good news: forecasters say more typical California weather should return next week.
OK, enough about the cold weather. It's Hobbit time, as the second installment in the "Lord of the Rings" trilogy debuts in theaters today. It's expected to draw huge crowds, likely to be one of the biggest box office hits of the year. Among the potential winners on Wall Street are Time Warner (TWX) and its Warner Bros. studio, IMAX (IMAX) and Dolby Laboratories (DLB), and movie theater chains such as Cinemark Holding (CNK) and Regal Entertainment Group (RGC).
-Produced by Drew Trachtenberg.
If You Only Know 5 Things About Investing, Make It These
Money Minute: Will Luck Stop Stocks' Slide? Ford to Hire 5,000 Workers
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.