Market Minute: Popular Board Games Go Mobile; Big Banks Face New Regs

A makeover for some popular games, and some of the nation's biggest banks face more regulation. Those and more are what's making news in stocks Wednesday.

The Dow industrials (^DJI) fell 42 points Tuesday, while the S&P 500 (^GPSC) and Nasdaq (^IXIC) ended just slightly lower.

Trading volume is expected to be very light in Wednesday's abbreviated session, but that can lead to added volatility.

electronic arts hasbro board games monopoly
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Some famous board games from several generations ago are getting a 21st century makeover. Electronics Arts (EA) is expanding its partnership with toy-maker Hasbro (HAS) to make mobile versions of games such as Monopoly, Scrabble, Battleship and Yahtzee.

Dell Inc. (DELL) shareholders vote in two weeks on CEO Michael Dell's 24-billion dollar bid to take the company private. But reports this morning say a special committee of the company's board is pushing him to raise the offer price.

Eight of the largest U.S. banks could face a new round of rules on their debt and capital ratios. The intent is to prevent another 2008-like credit crisis by giving officials more tools to dismantle failing banks.

Meanwhile, Standard & Poor's has lowered its rating on several leading European banks, and that could put pressure on major domestic banks.

Mead Johnson Nutrition (MJN) and Abbott Laboratories (ABT) could decline for a second straight day after China launched a price fixing investigation into baby food makers.

Tyco International (TYC) could owe more than 1-billion dollars in taxes and interest, after the IRS disallowed deductions the company took from 1997 through 2000. Those deductions involved businesses that have since been spun off to create ADT Corp. (ADT) and a unit that later merged with Pentair. Tyco says it plans to appeal the IRS ruling in Tax Court.

And Toyota (TM) warns that sales of its Prius hybrid could fall short of the company's target for the year. For the first half of the year, Prius sales declined 5 percent from a year ago.

Remember, today is an abbreviated trading day. The market closes at 1 p.m. Eastern time, and won't reopen until Friday morning.

-Produced by Drew Trachtenberg.

If You Only Know 5 Things About Investing, Make It These
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Market Minute: Popular Board Games Go Mobile; Big Banks Face New Regs

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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