Xbox vs. PlayStation, and paying sales tax on your online purchases. These and more top money stories you need to know about Tuesday.
The new Xbox video game console seems to have captured round one in its battle with Sony's (SNE) PlayStation4, at least at Walmart (WMT) and Target (TGT). A market research firm says the Xbox from Microsoft (MSFT) grabbed 61 percent of console sales at those two key retailers on Black Friday. But one analyst said both new models were in short supply at many stores.
The best selling game was the "Call of Duty" sequel from Activision Blizzard (ATVI).
The Supreme Court on Monday let stand a ruling that allows New York and other states to require Internet retailers to collect sales taxes -- even if they don't have a physical presence in the state. Amazon (AMZN) and Overstock (OSTK) had appealed a lower court ruling. They fear a piecemeal approach will stunt the growth of e-commerce.
The number of banks in the U.S. has dropped to its lowest level in at least 80 years. The FDIC says there are now fewer than 7,000 banking institutions, down from a peak of more than 18,000 back in the 1980s. At the same time, bank deposits continue to grow.
Here on Wall Street, the Dow Jones industrial average (^DJI) fell 77 points on Monday, the Standard & Poor's 500 index (^GPSC) lost 5. Both are now hovering just above those key psychological levels they topped last month. The Nasdaq composite index (^IXIC) dropped 14 points.
Shares of Krispy Kreme Doughnuts (KKD) are set to slide, as its earnings forecast for next year fell short of expectations. But today's selling only takes a small bite out of the big gains over the past year. The stock has soared 170 percent in the past 52 weeks.
Finally, Dow Chemical (DOW) is one of the iconic names of American business. But the company says it might drop "Chemical" from its name as it continues to sell and spin off parts of its old-line chemical business to focus instead on agricultural seeds and packaging products.
-Produced by Drew Trachtenberg.
If You Only Know 5 Things About Investing, Make It These
Money Minute: Xbox, PlayStation Battle for Sales; Tally of U.S. Banks Falls
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.