Hell froze over yesterday, which is another way of saying that the conservative candidate in France's presidential elections beat the rear end of the socialist candidate, and one of the first things he says is that France is going to be a friend of the United States from now on.
Plus he's going to make some much needed economic reforms to rollback socialism in France. All of which will be good for investing, since the more financial freedom people have anywhere in the world, the greater the wealth creation within the world. That's good for investors all over the world, whether they invest in stocks, bonds or even money market funds.
We saved Eastern Europe from communism, only to see Western Europe fall to socialism. Hopefully this is a sign that the continent is not totally and hopelessly lost.
French investments
French investments
Monday, May 7, 2007
Sunday, May 6, 2007
Immigration and Social Security
I'm a little late, but most of you know that on May 1 various groups advocating changes in immigration law put on rallies in cities around the country.
Immigration is an interesting issue for many reasons, and very complicated. What does it have to do with investing?
First, unless you're savings up a lot of money and investing for income, you probably will depend on Social Security for income in your old age.
Yet all projections show that once us baby boomers start retiring in large numbers, there's going to be a huge gap between what the younger generations are paying into the Social Security trust funds and what the baby boomer retirees will technically be eligible for given their work records of paying into the system while they were employed.
I'm convinced that the reason leaders in both the Republican and Democrat parties don't crack down on illegal immigration and are proposing faster routes for illegal aliens to become citizens is that they're hoping that young immigrants working and paying Social Security taxes will "rescue" the SSA system for us baby boomers.
Yes, it's true that many illegal aliens work for cash. But many have Social Security numbers or use Social Security numbers of other people. This means that FICA taxes are taken out of their paychecks and sent to the Social Security trust funds.
Every year, the Social Security Administration sends every American over the age of 25 an Earnings and Benefit Statement showing their total gross wages for the past years. If the number for a year on your statement is larger than you expect, check your W-2 forms. Maybe an illegal alien is using your number.
Horrors? Hardly -- they're increasing your eventual retirement check. You can go to your local SSA office and have them take the earnings off your earnings record . . . but guess what? The trust fund is not going to return the money to anybody! If you don't keep the credit for those earnings, nobody will -- but the government will keep the money in the trust funds.
In THE FUTURE FOR INVESTORS Dr. Jeremy Siegel states that he believes that retirements for American, European and Japanese baby boomers will be funded by young investors in India, China and other developing countries buying up the stocks and bonds of our companies.
I don't know if that's true. Or whether it's desireable if true. But I believe the government's response to the immigration situation comes from the hope that illegal aliens will eventually fund the Social Security trusts.
immigration and Social Security
immigration and Social Security
Immigration is an interesting issue for many reasons, and very complicated. What does it have to do with investing?
First, unless you're savings up a lot of money and investing for income, you probably will depend on Social Security for income in your old age.
Yet all projections show that once us baby boomers start retiring in large numbers, there's going to be a huge gap between what the younger generations are paying into the Social Security trust funds and what the baby boomer retirees will technically be eligible for given their work records of paying into the system while they were employed.
I'm convinced that the reason leaders in both the Republican and Democrat parties don't crack down on illegal immigration and are proposing faster routes for illegal aliens to become citizens is that they're hoping that young immigrants working and paying Social Security taxes will "rescue" the SSA system for us baby boomers.
Yes, it's true that many illegal aliens work for cash. But many have Social Security numbers or use Social Security numbers of other people. This means that FICA taxes are taken out of their paychecks and sent to the Social Security trust funds.
Every year, the Social Security Administration sends every American over the age of 25 an Earnings and Benefit Statement showing their total gross wages for the past years. If the number for a year on your statement is larger than you expect, check your W-2 forms. Maybe an illegal alien is using your number.
Horrors? Hardly -- they're increasing your eventual retirement check. You can go to your local SSA office and have them take the earnings off your earnings record . . . but guess what? The trust fund is not going to return the money to anybody! If you don't keep the credit for those earnings, nobody will -- but the government will keep the money in the trust funds.
In THE FUTURE FOR INVESTORS Dr. Jeremy Siegel states that he believes that retirements for American, European and Japanese baby boomers will be funded by young investors in India, China and other developing countries buying up the stocks and bonds of our companies.
I don't know if that's true. Or whether it's desireable if true. But I believe the government's response to the immigration situation comes from the hope that illegal aliens will eventually fund the Social Security trusts.
immigration and Social Security
immigration and Social Security
Saturday, May 5, 2007
Beware of mutual fund charges
If you have money in mutual funds, I hope you're doing it the smart way. Readers of my blog are too smart to invest their money in load mutual funds, right? You wouldn't put your money in a mutual fund that charges you a front end load, right? Please say you know better than that.
That front end load is 2-8% of your money that you lose right off the top, as your immediate "reward" for choosing that particular mutual fund out of the only 8000 or more that you could have chosen. That load goes into the pockets of the mutual fund company and is split with the broker or financial planner who conned you into sending your money there.
Studies have proven -- mutual funds that charge a load don't perform any better than no-load funds, no matter what that broker or financial planner who wants to get a commission from you claims.
Also beware of mutual funds that charge you a rear-end load -- that's a charge to withdraw your money. However, I admit I can sympathize with that one somewhat, since I believe that once you invest in something like volatile like stocks, you should be keeping your money in for the long haul.
What many people don't realize, however, is that even no-load mutual funds can charge 12b-1 fees to pay for all the advertisements they place in financial magazines. Also, they do charge management fees.
Management fees are legitimate, of course -- they aren't running the mutual fund for free. However, many funds take out an amount that's so large it dramatically affects your long-term performance.
That's why if I were going to invest in a mutual fund, I'd almost certainly pick Vanguard, which has notoriously low expenses. There're not the only ones, but they're a safe bet.
But personally I'd rather not invest in mutual funds. Their only advantage over owning individual stocks is diversification, and you can obtain that with exchange traded funds.
"Expert" management is often touted as an advantage of mutual funds, but since numerous studies have shown that actively managed mutual funds underperform the market in the long run, this to me is a disadvantage, not a benefit.
beware mutual funds
beware mutual funds
That front end load is 2-8% of your money that you lose right off the top, as your immediate "reward" for choosing that particular mutual fund out of the only 8000 or more that you could have chosen. That load goes into the pockets of the mutual fund company and is split with the broker or financial planner who conned you into sending your money there.
Studies have proven -- mutual funds that charge a load don't perform any better than no-load funds, no matter what that broker or financial planner who wants to get a commission from you claims.
Also beware of mutual funds that charge you a rear-end load -- that's a charge to withdraw your money. However, I admit I can sympathize with that one somewhat, since I believe that once you invest in something like volatile like stocks, you should be keeping your money in for the long haul.
What many people don't realize, however, is that even no-load mutual funds can charge 12b-1 fees to pay for all the advertisements they place in financial magazines. Also, they do charge management fees.
Management fees are legitimate, of course -- they aren't running the mutual fund for free. However, many funds take out an amount that's so large it dramatically affects your long-term performance.
That's why if I were going to invest in a mutual fund, I'd almost certainly pick Vanguard, which has notoriously low expenses. There're not the only ones, but they're a safe bet.
But personally I'd rather not invest in mutual funds. Their only advantage over owning individual stocks is diversification, and you can obtain that with exchange traded funds.
"Expert" management is often touted as an advantage of mutual funds, but since numerous studies have shown that actively managed mutual funds underperform the market in the long run, this to me is a disadvantage, not a benefit.
beware mutual funds
beware mutual funds
Friday, May 4, 2007
Baby boomer retirements hanging over our heads
It's inevitable that my thinking about investing and investments also be tied up with the concept of retirement. That's because I'm facing retirement in the not too distant future. Also, because so are about 78 million of my fellow baby boomers.
It's very unlikely that we'll treat old age the same as our parents.
Based on the expectation that baby boomers will begin selling stocks at age 65 to meet their retirement expenses, a lot of people expect stocks to go into a long bear market starting roughly 2009 or 2010. I'm not so sure the moment will be a dramatic, for several reasons.
It's unlikely every baby boomer who turns 65 will immediately sell all their stocks and go into bonds.
Not all baby boomers will turn 65 at the same time. When the first bunch hit 65, there'll still be many millions of us who are not yet 65, and still buying up stocks for our retirement funds.
From what I read, people who want their resources to last for the rest of their life, should not sell off more 4% of their assets in a year. Baby boomers following that advice will not immediately sell everything right away.
Many baby boomers will simply switch jobs and careers to something they enjoy doing, and so will delay having to live on investments.
A few of us plan to hang on to income-generating investments for the rest of our lives. Why sell stocks that are paying out good dividends? I don't want to live on the total yield generated by selling off shares of stock. Then I'd have to pay too much money to the government in capital gains taxes. I want to live dividends that keep growing every year
baby boomer retirement
baby boomer retirement
It's very unlikely that we'll treat old age the same as our parents.
Based on the expectation that baby boomers will begin selling stocks at age 65 to meet their retirement expenses, a lot of people expect stocks to go into a long bear market starting roughly 2009 or 2010. I'm not so sure the moment will be a dramatic, for several reasons.
It's unlikely every baby boomer who turns 65 will immediately sell all their stocks and go into bonds.
Not all baby boomers will turn 65 at the same time. When the first bunch hit 65, there'll still be many millions of us who are not yet 65, and still buying up stocks for our retirement funds.
From what I read, people who want their resources to last for the rest of their life, should not sell off more 4% of their assets in a year. Baby boomers following that advice will not immediately sell everything right away.
Many baby boomers will simply switch jobs and careers to something they enjoy doing, and so will delay having to live on investments.
A few of us plan to hang on to income-generating investments for the rest of our lives. Why sell stocks that are paying out good dividends? I don't want to live on the total yield generated by selling off shares of stock. Then I'd have to pay too much money to the government in capital gains taxes. I want to live dividends that keep growing every year
baby boomer retirement
baby boomer retirement
Thursday, May 3, 2007
Dow breaks 50-year old streak record
The Dow's best winning streak since 1955!
That's the latest news from the stock market. It's risen 21 out of the last 24 trading sessions -- total gain 7.4%. It's closed at a record high five out of the last six trading sessions.
Am I cheering? Hardly. But I admit that I'm glad that one cause is higher corporate earnings and the other is lower oil prices.
Higher corporate earnings is the backbone of corporate health, enabling companies to pay out more money in dividends, which is good for income investors.
I like lower oil prices as a consumer, though local gasoline prices are rising at the pump -- hitting $3 a gallon for the first time since late 2005.
High stock prices mean that companies that pay out dividends have a lower dividend yield, because their stock price is higher. So it costs more to buy that stream of dividends.
Here's the link to the details:
Dow Jones winning streak
It appears that the second leg of the bubble boom predicted by Harry Dent has begun. According to him, the real strength behind this stock market is the buying of baby boomers. Eventually boomers will start selling (because of retirement) and then the stock market will go into a long bear market.
I don't know if that will happen, but I do know that the long run never arrives, and these figures are not permanently etched in stone. They can go up more. They can go down.
Dow records
Dow records
That's the latest news from the stock market. It's risen 21 out of the last 24 trading sessions -- total gain 7.4%. It's closed at a record high five out of the last six trading sessions.
Am I cheering? Hardly. But I admit that I'm glad that one cause is higher corporate earnings and the other is lower oil prices.
Higher corporate earnings is the backbone of corporate health, enabling companies to pay out more money in dividends, which is good for income investors.
I like lower oil prices as a consumer, though local gasoline prices are rising at the pump -- hitting $3 a gallon for the first time since late 2005.
High stock prices mean that companies that pay out dividends have a lower dividend yield, because their stock price is higher. So it costs more to buy that stream of dividends.
Here's the link to the details:
Dow Jones winning streak
It appears that the second leg of the bubble boom predicted by Harry Dent has begun. According to him, the real strength behind this stock market is the buying of baby boomers. Eventually boomers will start selling (because of retirement) and then the stock market will go into a long bear market.
I don't know if that will happen, but I do know that the long run never arrives, and these figures are not permanently etched in stone. They can go up more. They can go down.
Dow records
Dow records
Tuesday, May 1, 2007
Would Warren Buffett invest in Berkshire Hathaway today?
The issue of BARRON'S I've been reading also has an interesting, contrarian article on Warren Buffett and Berkshire Hathaway -- Questioning the Cult of Buffett by Stephen P. Mauzy.
One criticism is of Buffett's steadfast refusal to split stock shares, so one is now worth upwards to $100,000. He says that the stock market would not be a place for small investors if all companies did this. True, but so what? Berkshire Hathaway is not a huge public company like General Motors.
He makes a good point that most of Berkshire Hathaway's outstanding returns occurred before the past 5 years. The real villain is size. It's grown so large thanks to its past successes. As the author points out, Berkshire Hathaway is in effect a closed end mutual fund.
What's a more serious defect for would-be buyers, is that it's selling at a 60% premium to its net asset value.
Also, I insist, it should pay out a dividend as well. Buffett invests for a high cash return. He is consciously raising the market value of the stock, but it means that money used to buy shares of Berkshire Hathaway today will not return any money to you until you sell it. What is the time value of the money you use to buy a share, when you get no immediate return? And presumably will never get a return because you wouldn't want to buy it while Buffett is still in charge, would you?
Would Buffett buy a stock that pays no dividend, shelling out a 60% premium over its fair market asset value?
Not likely, methinks. If Buffett did that, Benjamin Graham would be spinning in his grave.
Berkshire Hathaway
Berkshire Hathaway
One criticism is of Buffett's steadfast refusal to split stock shares, so one is now worth upwards to $100,000. He says that the stock market would not be a place for small investors if all companies did this. True, but so what? Berkshire Hathaway is not a huge public company like General Motors.
He makes a good point that most of Berkshire Hathaway's outstanding returns occurred before the past 5 years. The real villain is size. It's grown so large thanks to its past successes. As the author points out, Berkshire Hathaway is in effect a closed end mutual fund.
What's a more serious defect for would-be buyers, is that it's selling at a 60% premium to its net asset value.
Also, I insist, it should pay out a dividend as well. Buffett invests for a high cash return. He is consciously raising the market value of the stock, but it means that money used to buy shares of Berkshire Hathaway today will not return any money to you until you sell it. What is the time value of the money you use to buy a share, when you get no immediate return? And presumably will never get a return because you wouldn't want to buy it while Buffett is still in charge, would you?
Would Buffett buy a stock that pays no dividend, shelling out a 60% premium over its fair market asset value?
Not likely, methinks. If Buffett did that, Benjamin Graham would be spinning in his grave.
Berkshire Hathaway
Berkshire Hathaway
Why people don't follow Peter Lynch's advice
I thought about Peter Lynch last night.
I was driving along a stretch of McKnight Road just a little north of Manchester Road, in Rock Hill. It's an area I go down a lot. A year or so ago, this stretch on the east side of the road was pretty much deserted land. As I recall, a tree nursery of some kind used to be there.
But for some months now somebody has been building a group of fancy apartment buildings. And last night I saw a sign up reading, "Luxury Condos - from the Lower 100,000s."
To me, that's serious housing money, and I laughed at the idea of paying that much for a brand new "luxury" condo that had just recently been put together from scratch on land that not long ago was a tree nursery. Plus, I didn't think much of living right there. It's a short way down the road from an apartment complex with some low-lifes in it. It is close to the very nice Tilles Park. It is close to Ladue, which is the St Louis area's wealthiest area. But these condos are separated from the Ladue mansions by plebian areas of Rock Hill. Plus, they're across the street from where I once saw about 20 raccoons late at night all over the road. Plus, it's not far from a poor area that contains some dishonest criminals, so I'd say it's not really a safe area to walk around at night. It is true, though, that there's currently a large building project at McKnight and Manchester that will add a lot to the shopping available, and it's likely the city planners are going to try to move out the criminal element.
However, it's quite likely that soon people will be buying up and moving into those condos and perhaps living quite happily, glad to have such a cheap luxury condo.
Peter Lynch has long advocated that people buy stock in companies they know well from their own employment or their own shopping. Yet many people don't take his advice -- they'd rather invest in a company that sounds exotic.
Familiarity breeds contempt, and that explains why people would rather lose their money in a high tech company they don't understand than invest in a company close to their lives.
(They really should invest in a portfolio that's diversified, using some of the findings of asset allocation, instead of trying to pick any stocks, but many people want to pick stocks.)
Years ago, I used to sell cable TV door to door. I read somewhere that cable TV companies were a good investment, and the one I was selling for one of the best. Did I invest in cable TV? Are you kidding me? It's a high cash business, with all that implies. Sales people ripped off cash (I had a manager fired for stealing to support his cocaine habit, and he was far from the only cocaine user, and I heard that was a commonly used drug in the company headquarters.) Installers sold the cable boxes to customers. And so on.
Plus, I heard constant complaints about poor customer service and picture outages during bad weather.
Yet, years later, the stock had gone up a lot!
peter lynch
peter lynch
I was driving along a stretch of McKnight Road just a little north of Manchester Road, in Rock Hill. It's an area I go down a lot. A year or so ago, this stretch on the east side of the road was pretty much deserted land. As I recall, a tree nursery of some kind used to be there.
But for some months now somebody has been building a group of fancy apartment buildings. And last night I saw a sign up reading, "Luxury Condos - from the Lower 100,000s."
To me, that's serious housing money, and I laughed at the idea of paying that much for a brand new "luxury" condo that had just recently been put together from scratch on land that not long ago was a tree nursery. Plus, I didn't think much of living right there. It's a short way down the road from an apartment complex with some low-lifes in it. It is close to the very nice Tilles Park. It is close to Ladue, which is the St Louis area's wealthiest area. But these condos are separated from the Ladue mansions by plebian areas of Rock Hill. Plus, they're across the street from where I once saw about 20 raccoons late at night all over the road. Plus, it's not far from a poor area that contains some dishonest criminals, so I'd say it's not really a safe area to walk around at night. It is true, though, that there's currently a large building project at McKnight and Manchester that will add a lot to the shopping available, and it's likely the city planners are going to try to move out the criminal element.
However, it's quite likely that soon people will be buying up and moving into those condos and perhaps living quite happily, glad to have such a cheap luxury condo.
Peter Lynch has long advocated that people buy stock in companies they know well from their own employment or their own shopping. Yet many people don't take his advice -- they'd rather invest in a company that sounds exotic.
Familiarity breeds contempt, and that explains why people would rather lose their money in a high tech company they don't understand than invest in a company close to their lives.
(They really should invest in a portfolio that's diversified, using some of the findings of asset allocation, instead of trying to pick any stocks, but many people want to pick stocks.)
Years ago, I used to sell cable TV door to door. I read somewhere that cable TV companies were a good investment, and the one I was selling for one of the best. Did I invest in cable TV? Are you kidding me? It's a high cash business, with all that implies. Sales people ripped off cash (I had a manager fired for stealing to support his cocaine habit, and he was far from the only cocaine user, and I heard that was a commonly used drug in the company headquarters.) Installers sold the cable boxes to customers. And so on.
Plus, I heard constant complaints about poor customer service and picture outages during bad weather.
Yet, years later, the stock had gone up a lot!
peter lynch
peter lynch
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