The Stingy News Weekly (11/30/01)
The Markets This Week
DOW 30: 9,851.56 -1.09% to a P/E of 27.2
TSE 300: 7,425.65 -0.09% with a negative P/E
The Value View
Dow at a P/E of 20: 7,244 (-26.5%) Poor Value
Dow at a P/E of 15: 5,433 (-44.9%) Fair Value
Dow at a P/E of 10: 3,622 (-63.2%) Good Value
Stingy investors value Microsoft at $95 billion
Visitors to the StingyInvestor.com website were asked to value a mystery company in bid to win a copy of Jim Otar's new book "High Expectations & False Dreams: one hundred years of stock market history applied to retirement planning".
The mystery company was none other than software giant Microsoft in disguise. The disguise? Raw financial numbers such as sales, earnings and book value were divided by 1,000. As a result, sales of $25 billion became sales of $25 million and so on.
On average, the stingy contestants thought that the mystery company should be worth $95 million. Multiply by 1,000 and Microsoft is worth $95 million. However, the market took a different view and at the end of the contest Microsoft's market capitalization was closer to $346 billion.
Is Christmas inefficient?
"Yale University's Joel Waldfogel, writing in the American Economic Review, condemns what he calls "The Deadweight Loss of Christmas." Once you cut through the calculus and graphs, his conclusion is clear: though Christmas generates a $50 billion gift-giving industry, a tenth to a third of that is sheer loss. Why? Because the recipient doesn't always get what he wants. Given the chance, the recipient would have purchased something else."
Mr. Buffett on the stock market
"But in the past few months, on four occasions, Buffett did step up to that subject, laying out his opinions, in ways both analytical and creative, about the long-term future for stocks." - Burgers and stocks, a fine combination.
Buffett: Stock market 'hamburgers' are cheaper today.
"The market value of all publicly traded securities as a percentage of the country's business--that is, as a percentage of GNP--has certain limitations in telling you what you need to know. Still, it is probably the best single measure of where valuations stand at any given moment. And as you can see, nearly two years ago [in 1999] the ratio rose to an unprecedented level. That should have been a very strong warning signal."
A conversation with Benjamin Graham
"The Stock Exchanges appear to me chiefly as a John Bunyan type of Vanity Fair, or a Falstaffian joke, that frequently degenerates into a madhouse--"a tale full of sound and fury, signifying nothing." The stock market resembles a huge laundry in which institutions take in large blocks of each other's washing--nowadays to the tune of 30 million shares a day--without true rhyme or reason. But technologically it is remarkably well-organized."
Ten lectures by Benjamin Graham
"These lectures are from the series entitled Current Problems in Security Analysis that Mr. Graham presented at the New York Institute of Finance from September 1946 to February 1947."
Portfolio managers want employee options expensed
"More than 80 percent of financial analysts and portfolio managers around the world who responded to a survey believe any stock options granted to employees are compensation and should be recognized as an expense in the income statements of the companies that grant them."
No free lunch with funds
"Are you paying 10% or 60% in fees over the lifetime of your mutual funds? If you are like many consumers, only your advisor knows for sure."
Buy the managers first, then their funds
"Don't bother trying to ferret out winning mutual funds. Buy shares in a mutual fund management company and be done with it. You'll have no troublesome capital gains distributions and small dividends. As a result, you'll get a good return with great tax efficiency."
Greed and glory on Bay St.
"Holoday had swindled millions of dollars from clients, friends and relatives during a three-year romp. Police called it one of the biggest known frauds involving an individual broker in Canadian history."
Going extinct: an ETF roundtable
"Mutual Fund Review magazine organized a round-table discussion on passive investing, incorporating Index Funds and Exchange-Traded Funds (ETFs). We brought together some of Canada's leading minds in the field, to butt heads on the topic."
One Nobel laureate's view
"The problem is that the people with high-quality products are at risk of leaving the market because the price reflects the average product and the buyers can't distinguish."
The trivia questions this week are:
Q1. What is the median P/E of the S&P 500?
Q2. What is the median P/Book Value of the S&P 500?
Q3. What is the median P/Sales of the S&P 500?
The answers for last week's trivia questions are:
Q1. If you bought equal amounts of the "nifty fifty" stocks on January 1 1972 how much money would you have made by May 31 1993?
A1. A 8.73% annual return vs 11.68% for the S&P 500.
Q2. What was the return on IBM stock from January 1 1972 to May 31 1993?
A2. 2.86% annually.
Q3. What was the return on Phillip Morris stock from January 1 1972 to May 31 1993?
A3. 19.48% annually.
New @ StingyInvestor.com
Last December I reviewed the MSN.com stock screener and found nine stocks that fit Benjamin Graham's guidelines for defensive investors. In this article I look at how these stocks have performed and provide this year's list of candidates.
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