The Stingy News Weekly (04/19/02)
The Markets This Week
DOW 30: 10,257 +0.65% with a median P/E of 35.8
TSE 300: 7,900 +2.19% with a median P/E of 31.9
The Value View
Dow at a P/E of 20: 5,730 (-44.1%) Poor Value
Dow at a P/E of 15: 4,298 (-58.1%) Fair Value
Dow at a P/E of 10: 2,865 (-72.1%) Good Value
TSE 300 at a P/E of 20: 4,953 (-37.3%) Poor Value
TSE 300 at a P/E of 15: 3,715 (-53.0%) Fair Value
TSE 300 at a P/E of 10: 2,476 (-68.7%) Good Value
Up and atom
"No offence, but it's a challenge to get most real estate agents to shut up. At least that's been my experience. After all, it's their job to gush endlessly about the magnificent homes they've got on the market and detail every last one of the fabulous amenities they offer. But strangely, when I began making inquiries about the unique aspects of the Toronto mansion originally built by Canada's once- high-flying developer, Robert Campeau, even the most loquacious realtors clammed up. Sure, they'd happily go on about stuff you'd expect from any half-decent Bridle Path spread: manicured lot, built-in recording studio and chemical-free pool. But something as indispensable as a custom-built bomb shelter seemed to give everyone the heebie-jeebies."
McDonald's Fallen Arches
"Chances are, if you hear of a "Big Mac Attack" these days, it comes with chest pains. At least at McDonald's headquarters in Oak Brook, Ill., where the bad news tends to be super-sized."
After the binge
"The financial condition of US business at the start of the economic recovery was probably worse than at any such juncture since the second world war, says the veteran Wall Street economist Henry Kaufman. From 1995 to 2001, he adds, the equity of non-financial corporations contracted by $423bn (#294bn) while net debt increased by $2,300bn."
Moral hazard psychology expands
"Two weeks ago we noted that the presumptively conservative president of the Bundesbank, Ernst Welteke, proposed that the German central bank sell a portion of its gold reserve and invest the proceeds in European equities."
Warning: Fund stats offer little help
"So you think all those fancy statistics generated by Morningstar and Lipper for the financial press will help you predict the future performance of a mutual fund? Wrong. Stop kidding yourself, folks."
Expenses tarnish index fund results
"There's no free lunch for fund investors. And you won't always find a cheap lunch, even if you're shopping for index funds"
Wall Street's den of thieves
"The first thing you learn on Wall Street: Earnings don't mean anything. Everyone assumes that earnings are financially engineered ( sometimes downward! ) to meet a variety of stakeholder expectations. The key expectation -- the one that stakeholders want companies to meet -- is steady growth. Earnings that spike and swoon set off alarm bells at places like Fidelity. Steady growth makes fund managers feel calm and content."
The blue-chip penny stocks
"The reality is that a company's share price tells you absolutely nothing about its valuation or market capitalization. That can be a little hard to remember these days, though, with so many well-known companies sporting stock prices that would seem to be screaming "buy me." The problem is, that isn't what they're really saying."
The price of envy
"Attorney Joseph H. Choate, if he were alive today, would agree with you. Choate thought federal income tax rates were too high back in 1894, when the income tax consisted of a single rate--2 percent--exacted on income in excess of what in today's money would amount to roughly $80,000. Choate came to argue the case against the income tax that came before the Supreme Court in 1895. He won the case."
Optimism has no place in accounting
"The fiasco at Enron had two causes: (1) perverted "financial engineering" that portrayed failure as progress and (2) generally accepted accounting principles that practically invited delusion and fraud."
The trivia questions this week are:
Q1. Which Canadian company has the largest market capitalization?
Q2. Which DOW stock has the lowest P/E ratio?
Q3. Which S&P 500 stock has the highest book value?
The answers for last week's trivia questions are:
Q1. Who asked "If options aren't a form of compensation, what are they? If compensation isn't an expense, what is it? And if expenses shouldn't go into the calculation of earnings, where in the world should they go?"?
A1. Warren Buffett
Q2. Who said "As a substitute for knowledge about specific securities, many money managers have well-developed top-down programs for investing centering on portfolio diversification and asset allocation."?
A2. Martin Whitman
Q3. Who said "Do not use market-timing or technical analysis. These techniques can only cost you money."?
A3. David Dreman
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