Money Minute: Target IDs Cyberthieves; Advertisers Like Facebook Ads

Target now thinks it knows how hackers broke into its system.

Target (TGT) says hackers used stolen credentials from an unidentified vendor to invade the software program that controls its payment system. The hackers stole the credit and debit card information of 40 million customers. Separately, the Justice Department has begun a criminal investigation into the cyber break-in.

There have been several reports lately that teens are turning off to Facebook, but advertisers are still "friending" the company. Its net soared eightfold from a year ago, as revenue jumped. Mobile ads now account for more than half of Facebook's revenue. Facebook (FB) shares have jumped 74 percent over the past year, and are set to add to those gains today.

Google is getting out of the business of making smartphones. Just three years after acquiring Motorola Mobility, Google (GOOG) is selling the handset business to Lenovo of China for nearly $3 billion. But Google will retain most of the patents that are connected to its Android software. Google has already sold off other part of Motorola, but it won't recoup most of the $12.5 billion it paid in 2011.

The Dow Jones industrial average (^DJI) tumbled 189 points Wednesday, %VIRTUAL-article-sponsoredlinks%the Standard & Poor's 500 index (^GPSC) lost 18 and the Nasdaq composite (^IXIC) slid 46 points. There's concern the S&P has broken below a key technical level that could lead to more selling.

Can the Big Mac co-exist with a veggie burger? The Wall Street Journal says more than 80,000 people have signed a petition for McDonald's (MCD) to add a veggie burger to the menu. But McDonald's veggie burger experiment a decade ago was a flop.

Many of the young analysts and associates on Wall Street are highly paid, but they work unbelievably long hours that can take a heavy physical and mental toll. Well, Citibank (C) is trying to improve working conditions, telling these young employees to take off at least 36 straight hours on the weekend and to use all of their vacation days.

-Produced by Drew Trachtenberg.

If You Only Know 5 Things About Investing, Make It These
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Money Minute: Target IDs Cyberthieves; Advertisers Like Facebook Ads

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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