Money Minute: Beer Sales Going Flat; U.S. Energy Independence Grows

Beer sales are going flat. That and more top money stories you need to know.

Beer consumption has been steadily declining over the past few years, with drinkers giving the cold shoulder to some very well-known brand names. According to an industry newsletter, sales of nine major brands have tumbled 25 percent over the past five years. Craft beers continue to steal market share, and consumers are increasingly switching to wine and liquors.

Beer signs in neon in liquor store window
Visions of America/UIG via Getty Images
Over that five year period, Michelob Light has been the hardest hit, losing 70 percent of its sales. Other big losers include Budweiser Select, Miller Genuine Draft, Milwaukee's Best Premium and Light, and Budweiser (BUD).

We have more signs that the U.S. is moving closer to energy independence. The government says domestic production of natural gas is at its highest level in at least four years, boosted by increased fracking. As a result, imports are likely to decline. However, that could mean natural gas prices could rise.

Here on Wall Street, the Dow Jones industrial average (^DJI) fell 52 points Tuesday, the (^GPSC) lost 6 and tthe Nasdaq composite (^IXIC) dropped 8 points.

Bank of America Merrill Lynch (BAC) -- the sponsor of this report -- remains bullish about stocks, despite the big run-up over the past few years. The brokerage firm's top equity analyst expects the S&P 500 to hit 2,000 next year. That's up 11 percent from current levels.

Shares of MasterCard (MA) could charge ahead. The company declared an unusual 10-for-1 stock split, raised its dividend payment by 83 percent, and said it will buy back up to $3.5 billion in stock. It's a sign of management's confidence the company will continue to grow. MasterCard trades at nearly 800 a share, up 59 percent from a year ago.

And it's the fifth anniversary of the arrest of Bernie Madoff. He later pleaded guilty and was sentenced to 150 years in prison for a Ponzi scheme that bilked thousands of investors out of billions of dollars.

-Produced by Drew Trachtenberg.

If You Only Know 5 Things About Investing, Make It These
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Money Minute: Beer Sales Going Flat; U.S. Energy Independence Grows

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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