After Market: Dow Tops 16,000 and Holds On; Goodbye, Government Motors

After crossing the 16,000 mark on both Monday and Tuesday before heading back down to close below it, the Dow Jones industrial average (^DJI) ended the day above that milestone level for the first time on Thursday. The Dow rallied 109 points. It just so happens that it was on this day in 1995 that the Dow topped the 5,000 level for the first time. The S&P 500 (^GPSC) rose 14, and the Nasdaq (^IXIC) gained 48 points.

Dow Passes 16,000 During Intraday Trading
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General Motors (GM) gained 1 percent Thursday after the Treasury said it will soon sell its remaining 31 million shares in the automaker. When the sales are final, taxpayers will have recouped about $70 billion dollars of the $80 billion used to bail out the company in 2009 -- a lifeline that saved the company and tens of thousands of American jobs.

Among the best gainers on the Dow, Intel (INTC), American Express (AXP), and JPMorgan Chase (JPM) all gained 2 percent. Goldman Sachs (GS), UnitedHealth (UNH) and Chevron (CVX) all rose more than one percent.

But some retail stocks were hurt by earnings news.

%VIRTUAL-article-sponsoredlinks%Target (TGT) fell 3 percent. It lowered its profit forecast, indicating the holiday shopping season could be very rough. And Sears (SHLD) lost more than 3 percent after posting another loss and weak revenue growth. Investors also shook 4 percent off the price of Dollar Tree (DLTR). Its net fell short of expectations. And video game retailer GameStop (GME) lost 7 percent on a downbeat forecast for the current quarter.

In general, retailers catering to lower income shoppers are really suffering, right along with those customers.

Abercrombie & Fitch (ANF) was little changed even though it forecast weak sales. The stock has lost 20 percent over the past year, after losing its cachet with buyers of trendy clothes.

On the upside, Williams-Sonoma (WSM) rose 7 percent. It posted a solid earnings gain and raised its outlook for the holiday quarter. And Green Mountain Coffee (GMCR) was one of the day's big winners. Its shares perked up 14 percent higher as earnings topped expectations.

Apple (AAPL) gained 1 percent after a jury in California awarded the company $290 million in its long-running patent infringement suit against rival smartphone maker Samsung.

Finally, biotech giant Amgen (AMGN) fell 3 percent after a market advisory firm said the stock has dropped below a key technical level.

What to Watch Friday:
  • The Labor Department releases its job openings and labor turnover survey for September at 10 a.m. Eastern time.
These major companies are due to report quarterly corporate earnings before markets open in New York.
  • Ann Inc. (ANN)
  • Foot Locker (FL)
  • PetSmart (PETM)
-Produced by Drew Trachtenberg.

If You Only Know 5 Things About Investing, Make It These
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After Market: Dow Tops 16,000 and Holds On; Goodbye, Government Motors

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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