Winners and losers in the telecom wars. That's one of the top money stories you need to know Thursday.
AT&T's quarterly profit edged up by 5 percent. The company also added more than 360,000 new contract subscribers. That's not bad, but it's less than half the number reported last week by chief rivals Verizon (VZ) and T-Mobile US (TMUS). AT&T (T) stock has also underperformed the broader market. It's up just 5 percent this year.
Also reporting today: Ford (F), 3M (MMM), Southwest Airlines (LUV) and United Continental Holdings (UAL).
And after the close we'll hear from Microsoft (MSFT). Of course, the numbers and the outlook are important, but investors want to know about the plan to succeed outgoing CEO Steve Ballmer. One of the leading candidates in the rumor mill is Ford chief Alan Mullaly. He has refused to respond to the speculation so far.
On Wall Street Wednesday, the Dow Jones industrial average (^DJI) fell 54 points, the Standard & Poor's 500 index (^GPSC) lost 8, and the Nasdaq composite index (^IXIC) dropped 22.
The World Series is now underway, but the two most valuable franchises are nowhere to be found. According to Bloomberg, the New York Yankees are worth $3.3 billion, and the Los Angeles Dodgers are valued at $2.1 billion. The Boston Red Sox, which won Game 1 last night, are tied for third at about $2 billion. But the team's opponent, the St. Louis Cardinals, is way down the list, valued at just over $800,000. On average, teams are worth about a billion dollars, up 35 percent from Bloomberg's previous estimate. Much of that increase comes from TV contracts and the ownership of regional sports networks.
And more than four years after his death, Michael Jackson is as popular -- and successful -- as ever. The King of Pop tops the Forbes list of top-earning dead celebrities, bringing in $160 million last year. In fact, that's more than any living celebrity made this year. Most of the Jackson windfall comes from a Las Vegas extravaganza that makes as much as $250,000 a show, and the "Immortal" world tour. Second on the list of dead celebrities is Elvis, at $55 million, followed by Peanuts creator Charles Schulz, Elizabeth Taylor, Bob Marley and Marilyn Monroe.
If You Only Know 5 Things About Investing, Make It These
Money Minute: AT&T Profit Rings Higher; Top-Earning Dead Celebrities
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.