Money Minute: BlackBerry Calls Off Sale; Gas Prices Motor Down

Beleaguered smartphone maker BlackBerry pulls itself off of the auction block at the 11th hour. That and more top money stories you need to know Monday.

BlackBerry Conference
John Raoux/AP
With final bids set to be received Monday, BlackBerry (BBRY) abandoned plans to sell itself, sending its shares sharply lower. Instead, the company will raise money by selling a billion dollars of debt to Canadian insurance company Fairfax Holdings, which is already its largest shareholder. BlackBerry also ousted its chief executive, Thorsten Heins.

Not that long ago, $3 a gallon gasoline seemed like a distant memory for American drivers. But prices are falling back near that consumer-friendly level in a growing number of states. AAA says the national average price for a gallon of regular is now $3.25. That's down from $3.72 a gallon back in March. With domestic production of crude oil on the rise, the supply of crude has jumped by 8 percent since mid-September. Also helping to drive down prices at the pump: the seasonal switch to winter blend gasoline from the more costly summer blend.

Investors are increasingly bullish about the stock market. According to the research firm TrimTabs, investors have poured $54 billion in stock mutual funds and ETFs last months -- the third highest monthly total ever. But that optimism raises some red flags. TrimTabs chief says it could signal that a short-term pullback is on the horizon. At the same time, investor have pulled money out of bond funds for five straight months.

The major averages were little changed last week, but the Dow Jones industrial average (^DJI) and Standard & Poor's 500 index (^GPSC) did manage their fourth straight weekly gains. The Nasdaq composite index (^IXIC) declined by 0.5%.

Merck (MRK) has an experimental drug in the pipeline that could be more effective than its current vaccine Gardasil in preventing the sexually transmitted HPV virus. The company could seek FDA approval this year, and possibly bring it to market in 2014. Analysts say it could be a billion dollar seller.

And eBay (EBAY) is looking at ways to allow its users to collect reward points they collect from retailers into a PayPal wallet.

-Produced by Drew Trachtenberg.

If You Only Know 5 Things About Investing, Make It These
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Money Minute: BlackBerry Calls Off Sale; Gas Prices Motor Down

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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