Two tech giants are set to jump on Wall Street. That and more top money stories you need to know Friday.
Microsoft continues to show steady growth, despite the sluggish market for personal computers. The software giant's quarterly profit rose 17 percent -- significantly better than analysts had expected -- led by strong sales of its software for businesses. Microsoft (MSFT) shares are up 26 percent this year.
Amazon (AMZN) shares are also set to soar after the company reported revenue is rising at a rapid pace. But the retail giant is still having trouble turning that into a profit. The company posted a loss of $41 million as it continues to spend lots of money to expand its distribution centers, its movie streaming business and its technology offerings such as tablet computers.
Also out this morning, quarterly earnings reports from economic bellwethers Procter & Gamble (PG) and UPS (UPS).
On Wall Street Thursday, the Dow Jones industrial average (^DJI) rose 95 points, the Standard & Poor's 500 index (^GPSC) added 5, and the Nasdaq composite index (^IXIC) gained 21 points.
The Food and Drug Administration is looking to place new limits on some of the most widely prescribed drugs in the country. It's proposing to limit the number of pills and refills doctors can prescribe for powerful painkillers such as Vicodin, Lortab and a number of generics. The intent is to reign in the widespread abuse of the narcotic painkillers. The number of deaths from these prescriptions has quadrupled since 1999.
Twitter is one step closer to going public. The micro-blogging company set the price range for its initial public offering at $17 to $20 a share, which is at the low end of analyst expectations. That price values the company at up to $11 billion. That makes Twitter one of the largest-ever tech IPOs, even though it pales in comparison to Facebook (FB). Its initial offering last year valued the company at a whopping $81 billion. The Twitter IPO is likely to hit the market here at the NYSE on Nov. 7.
And Google's (GOOG) YouTube is planning to challenge Spotify and other music streaming services. According to various news reports, the company is expected to charge $10 a month for an unlimited number of downloads, as well as ad-free access to an uninterrupted stream of YouTube's music videos.
-Produced by Drew Trachtenberg.
If You Only Know 5 Things About Investing, Make It These
Money Minute: Tech Giants Set to Soar; Twitter Sets Modest Price for IPO
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.