Market Minute: Shutdown Threatens Retail Sales, Forces Factory Layoffs

The government shutdown worries retailers, and it leads to layoffs in manufacturing. Those and more are what's in Thursday's Market Minute.

The Dow Jones industrial average (^DJI) fell 58 points Wednesday, the Standard & Poor's 500 index (^GPSC) lost a point and the Nasdaq composite index (^IXIC) slipped 3.

government shutdown threatens improved holiday retail sales
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A number of retailers are reporting September and third-quarter sales this morning, and the numbers aren't expected to be very good. The back-to-school season was disappointing, especially for retailers that cater to teens such as Abercrombie & Fitch (ANF), Aeropostale (ARO), American Eagle Outfitters (AEO) and Ascena Retail Group (ASNA). Weak back-to-school sales often portend a weak holiday shopping season.

The National Retail Federation forecasts holiday sales will increase by nearly 4 percent from last year, but warns that forecast could be cut if consumers reduce their spending because of the paralysis in Washington.

The jewelry chain Zale (ZLC) is losing some of its luster. The company says private-equity firm Golden Gate Capital may sell up to 11 million shares of Zale stock.

United Technologies (UTX) will furlough 2,000 workers from its Sikorsky helicopter unit as a result of the government shutdown. Several thousand more could face furloughs if the budget stalemate isn't resolved in the next week or so. And Boeing (BA) warns an extended shutdown could force the company to delay deliveries of the 787 Dreamliner and other newer model planes.

Shares of Angie's List (ANGI) remain volatile following reports the company is slashing the cost of membership in several key markets. The company is testing a $10 annual fee in New York, Washington, Chicago and several other markets. That's down from $40.

A bidding war could be brewing for Blackberry (BBRY). News reports say a second private equity group is considering an offer to compete with the tentative deal Blackberry already has with Fairfax Financial Holdings.

And activist investor Bill Ackman is reducing his bet against Herbalife (HLF). He claims the maker of nutritional supplements is run like a pyramid scheme. But so far, he's lost an estimated $300 million, as the stock has rallied this year.

-Produced by Drew Trachtenberg.

If You Only Know 5 Things About Investing, Make It These
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Market Minute: Shutdown Threatens Retail Sales, Forces Factory Layoffs

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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