The Stingy News Weekly (10/25/02)
The Markets This Week
DOW 30: 8,444 +1.47% with a median P/E of 22.7
S&P/TSX: 6,406 +1.25% with a median P/E of 23.1
The Value View
Dow at a P/E of 20: 7,440 (-11.9%) Poor Value
Dow at a P/E of 15: 5,580 (-33.9%) Fair Value
Dow at a P/E of 10: 3,720 (-56.0%) Good Value
S&P/TSX at a P/E of 20: 5,546 (-13.4%) Poor Value
S&P/TSX at a P/E of 15: 4,160 (-35.1%) Fair Value
S&P/TSX at a P/E of 10: 2,773 (-56.7%) Good Value
A patently absurd invention?
"Inventors have been registering bright ideas with the UK Patent Office for 150 years. While the flush toilet, computer and aspirin have proved invaluable, the same cannot be said of every innovation."
A lost generation of job seekers?
"The young and those in mid-career are bearing the brunt of layoffs. And new jobs are harder to find, as older workers delay retirement."
The case against professionalism
"It is easy to forget that professionalism is the enemy of the high-tech startup. If these companies were operated by professionals, they would never have been founded. Nor would a professional tolerate the conditions necessary for startup survival. Michael Eisner never emptied a wastebasket at work, but I'll bet Walt Disney did."
Corporate America's crunched numbers
"S&P's "core earnings" calculation accounts for stock options and pension costs -- revealing profits that are far lower than reported."
Is that a $100 bill lying on the ground?
"A few days before Kahneman and Smith got their phone calls from the Nobel Prize committee, Wharton hosted a debate that addressed these questions. Called "Two Views of Market Efficiency: A Discussion of Behavioral Finance and Efficient Market Theory," the scrimmage took place between Burton Malkiel and Richard Thaler, and was moderated by Wharton finance professor Jeremy Siegel, author of Stocks for the Long Run."
GM's slow leak
"GM is banking on 0% financing to pump up sales and earnings. But it has a hole in its balance sheet that won't go away."
Apple's sweet-and-sour season
"Which brings me to the good news in Apple's fourth-quarter numbers. With $4.3 billion in cash, the company has the wherewithal to ride out the tough times. Better yet, signs of a turnaround are on the horizon. For starters, the advertising industry is starting to revive, especially in the higher end. TV experienced one of its strongest upfront ad-buying seasons in memory. Much TV advertising -- especially animation -- is done on Macs. Hopefully, this resurgence will prompt ad agencies to start upgrading their equipment."
Fatalities of Kyoto
"When this risk analysis is combined with the Department of Energy's conclusion that Kyoto would reduce GDP $397 billion by 2010, the results are startling. Based on Lutter and Morrall's findings (adjusted for inflation), Kyoto would result in 32,000 to 42,000 additional deaths per year by 2010. Unfortunately, because these deaths would be seemingly random, linking individual deaths to Kyoto could prove extremely difficult. Thus, while morally unacceptable, these deaths won't be politically damaging."
Trading is hazardous to your wealth
"Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that trade most earn an annual return of 11.4 percent, while the market returns 17.9 percent. The average household earns an annual return of 16.4 percent, tilts its common stock investment toward high-beta, small, value stocks, and turns over 75 percent of its portfolio annually. Overconfidence can explain high trading levels and the resulting poor performance of individual investors. Our central message is that trading is hazardous to your wealth."
Dive right in, Siegel says, the P-Es are fine
"Siegel is just as bullish now as he ever was, insisting that investors can confidently expect to make an average of 5% a year after inflation over the next 20 to 30 years. The main reason? Today's buyers are getting in at prices more than 40% lower than in March, 2000. That matters because the five big market busts of 40% or more over the last century were followed by above-average annual real returns of 8.6% over the next five years. "You're starting from a much lower base," says Siegel. "I don't consider this market to be dirt-cheap, but it is a good, if not better-than-average, time to buy equities.""
The stupid loan bubble
"The case of Motorola and Nokia vs. the Uzans may read like a gangster novel. But it also opens a window onto an unexamined chapter of Internet mania, one with urgent relevance for the ongoing crisis in the telecom industry. Motorola and Nokia agree with the Uzans on only one thing: that the loans looked sensible from the dizzying heights of the bubble, when dozens of telecom start-ups vied to rule the coming Internet world. Many of the world's most famous banks are now in trouble because of bad loans they extended to telecom start-ups. But at least JPMorgan and Commerzbank have some expertise in the business of lending money. The two biggest mobile-phone makers in the world could hardly make the same claim. And it was not only Motorola and Nokia but Lucent, Cisco, Nortel and others that started acting as reckless creditors, vying with one another in a race to extend millions, even billions, in financing to-telecom-bubble start-ups, often after those companies were refused loans by real banks."
Through the past, darkly
"In fact, markets typically fall five years in a row, and they would have recently, except for those two extenuating circumstances. The S & P (or its reconstructed equivalent) fell five years in a row from 1825-29 (inclusive). It fell seven years in a row from 1836-42, five years in a row from 1853-57, and five years in a row from 1873-77. Look at the charts. The S & P fell four years in a row from 1881-84, five years in a row from 1892-96, and five years in a row from 1910-1914, and every one of these declines was part of a longer bear cycle."
Warren Buffett comments
"If you look at 1974 as a time when you could make money by throwing darts at the wall [and] 1999 as the opposite, we're somewhere in the middle."
Lights out for Lucent
"How all this happened - one of the most damning chronicles of failure in the whole sweep of American enterprise - is not the story of lazy, over-indulged workers (the excuse of the 1970s). Nor is it the story of those scheming Japanese and their unfair trade in the American market a decade later (the excuse of the '80s). At the end of the 1990s, we confront the excuse none dare utter - the total, complete, and abject failure of the one group that plotted and maneuvered to seize the reigns of power for 30 straight years; then, having gotten them, went giddy-up at the gate and in no time at all fell flat on its face: The management class of American business."
Fall from grace
"Mark Belnick's indictment in the Tyco scandal has left friends in shock and colleagues bewildered. What went wrong?"
"It isn't just the Enrons and the Tycos of the world that will eat huge losses on insider loans. It turns out that the practice -- now banned -- was common at 75 percent of the country's biggest corporations."
This week's trivia questions are:
Q1. Who said "My biggest winners continue to be stocks I've held for three and even four years."?
Q2. Who said "The intelligent investor is likely to need considerable will power to keep from following the crowd."?
Q3. Who said "There will always be bull markets followed by bear markets followed by bull markets."?
The answers to last week's trivia questions are:
Q1. How many CEOs did American Express have from 1850 to 1992?
Q2. How many CEOs did Phillip Morris have from 1847 to 1992?
Q3. How many CEOs did Ford have from 1903 to 1992?
Source: Built to Last by Collins & Porras
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