After Market: Tech Stocks Help Lead Broader Market Lower on Wall Street

Twitter's debut grabs the headlines, but the rest of the market stumbled. Shares of Twitter soared, but other key Internet stocks helped lead the broader market's big losses.

The Dow Jones industrial average (^DJI) dropped 153 points, giving back all of Tuesday's big gains. The Standard & Poor's 500 index (^GPSC) fell 23, and the Nasdaq composite index (^IXIC) tumbled 74 points.

The market ignored some surprisingly upbeat economic news -- a stronger-than-expected 2.8 percent increase in third quarter GDP, a drop in weekly jobless claims, and an interest rate cut by the European Central Bank.

Wall Street Twitter IPO
Richard Drew/AP
As for Twitter, the stock was priced at $26 a share. The first trade was at $45 and change. And after a brief spurt higher, it closed at just below $45 a share. A lot of market pros think it's very richly valued at that level. At that price, Twitter has a market value above $30 billion -- about equal to such well-known, profitable companies as General Mills (GIS) and CBS (CBS).

In the meantime, Facebook (FB), LinkedIn (LNKD), Groupon (GRPN) and Yelp (YELP) all slid Thursday. There's not necessarily a direct correlation with Twitter's IPO, but these are companies that often named as comparable to the microblogging firm.

Outside of the Internet space, Whole Foods (WFM) was one of the standout losers. %VIRTUAL-article-sponsoredlinks%It had been a hot stock until sliding 10 percent today. The upscale grocer lowered its sales forecast for the current fiscal year.

Wendy's (WEN) also tumbled 11 percent and the casual restaurant chain Noodles (NDLS) lost 10 percent -- both on disappointing earnings news.

While losers certainly dominated the trading, but there were some interesting gainers as well.

The biotech firm Geron (GERN) soared 45 percent on news of positive test results for its experimental drug to treat a bone marrow disease. In just three months, Geron shares have quadrupled in value.

A pair of struggling retailers posted big gains. J.C. Penney (JCP) shares gained more than 5 percent as a key measure of sales rose last month, the first increase in two years. And American Eagle Outfitters (AEO) rose 4 percent. The company raised its earnings outlook.

What to Watch Friday:
  • At 8:30 a.m. Eastern time, the Labor Department releases employment data for October at 8:30 a.m. Eastern time and the Commerce Department releases personal income and spending for September.
  • At 10 a.m., the Labor Department releases job openings and labor turnover survey for September and the University of Michigan releases its preliminary survey of consumer sentiment for November.
These major companies are scheduled to report quarterly corporate earnings:
  • Cablevision Systems (CVC)
  • E.W. Scripps (SSP)
  • Lions Gate Entertainment (LGF)
-Produced by Drew Trachtenberg.

If You Only Know 5 Things About Investing, Make It These
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After Market: Tech Stocks Help Lead Broader Market Lower on Wall Street

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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