The Stingy News Weekly (02/01/02)
The Markets This Week
DOW 30: 9,907.26 +0.68% to a P/E of 28.6
TSE 300: 7,690.51 +0.41% with a negative P/E
The Value View
Dow at a P/E of 20: 6,928 (-30.1%) Poor Value
Dow at a P/E of 15: 5,196 (-47.6%) Fair Value
Dow at a P/E of 10: 3,464 (-65.0%) Good Value
A Stingy Contest
Test your investment knowledge for a chance to win a copy of "The New Investment Frontier" by Howard Atkinson and Donna Green.
Longer time horizon does not reduce risk
"'You must ask what is the proper way to make use of that data when forecasting for the future,' says Bodie. He suggests an exercise: write every one of those years of stock market returns on a piece of paper and put them in a hat. Then pick 25 out at random, but one at a time and returning each to the hat before picking again. 'The likely result is that in 95 per cent of cases, your 25-year return will be higher than the return on bonds. But there will be 5 per cent where the results will be bad - in some cases spectacularly bad.'"
NASDAQ 100 Companies Report $82 Billion Loss
"For the first three quarters of 2001, the one hundred companies that make up the NASDAQ 100 reported $82.3 billion in combined losses to the Securities and Exchange Commission (SEC). For the same period, these companies reported $19.1 billion in combined profits to shareholders via headline, "pro forma" earnings reports-a difference of $101.4 billion or over $1 billion per company."
"The equity premium (also known as the equity-risk premium) is a measure of the average annual return over and above riskless debt, such as government bonds, that shareholders expect to receive as compensation for holding risky shares. This risk is no illusion: shareholders are always the last to be paid, after other creditors get their cut. The authors conclude that all the world's stockmarkets offer strong evidence that riskier assets, on average, return more to investors"
"When the Internet bubble burst in March 2000, unlucky investors watched more than $3 trillion of their money disappear. What spurred the incredible dot-com bull run on Wall Street? Was the public blinded by dreams of small fortunes and easy living or did the nation's investment banks manipulate the IPO market and exploit public trust?"
Enron losses 'off the scale'
"And the emerging shape of the Enron scandal was almost identical to one of 70 years ago, which prompted the setting up of the first regulators to govern the way companies report their performance, he said. That regulation has been chipped away to the point where it is no better than it was in the 1920s, Mr McCullough said."
Fake sites aim to teach investors a lesson
"McWhortle Enterprises is a government hoax cloaked in respectability and planted on the Internet, waiting to deliver a lesson about the risks of online investing to unsuspecting consumers. "
Paying for time
"This story is an inside look into how some TV business shows are charging companies to appear on their programs. It's called "pay for play" and often it allows companies to have editorial input during the filming and scripting process. Good coverage can then raise the company's stock price. It's a win-win situation for everyone - except the viewers, who are not in on the deals."
TSE important index change
"On May 1st, 2002, Standard and Poor's will officially take over the administration of the TSE 300 Composite Index. This benchmark index will be renamed the S&P/TSE Composite Index. The S&P/TSE Composite Index will join the family of S&P Canadian indices which include the S&P/TSE 60, launched in 1999, as the index for senior capitalization companies in Canada, the Canadian mid-cap and small cap indices and the recently launched S&P/CDNX Index - all barometers that reflect the unique and diverse nature of the Canadian capital markets. Details on the index and the changes that will take place are available here."
Pricey stocks risk a fall into the GAAP
"The gulf between what corporate America would like people to think it earns and what it has actually been earning, according to the rules of accounting, has never been so wide. Perhaps that's because if investors started looking at actual bottom lines, rather than their jazzed-up ones, stocks might be significantly lower." - Check out the keen P/E graph.
How not to invest in the next Enron
"While Wall Street analysts and Big Five auditors were looking the other way on Enron and financial journalists had their heads in the sand, signs of dubious accounting in Houston were there for anyone willing to wade through the company's mind-numbing corporate filings."
The trivia questions this week are:
Q1. Who said "I feel like an oversexed man in a harem. This is the time to start investing."?
Q2. Who said "I'll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It's addictive. And there's fantastic brand loyalty."?
Q3. Who said "It is amazing to see how many capable businessmen try to operate in Wall Street with complete disregard of all the sound principles through which they have gained success in their own undertakings."?
The answers for last week's trivia questions are:
Q1. Who said "An investor who has all the answers doesn't even understand the questions."?
A1. John Templeton
Q2. Who said "I'd be a bum on the street with a tin cup if the markets were always efficient."?
A2. Warren Buffett
Q3. Who said "Success is getting what you want. Happiness is wanting what you get."?
A3. Warren Buffett
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