Investing

Goldman Sachs Report Card Accountability

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There is precious little accountability in the world of stock market analysis. I’ve written before about how Goldman Sachs’ chief market analyst (at the time) predicted an up year for stocks during every single year from before the internet bubble burst through to when she finally stopped making market predictions after again predicting  a higher stock market for 2008. If you’re recent market history is a bit fuzzy, 2008 was a disastrous year for stocks and the start of the so-called Great Recession. Even where there appears to be accountability, it is often easily gamed. Analysts get rankings from various financial groups, but those are often laughable. If an analyst has a “Buy” on a stock and that company reports after-hours that its main product slaughters babies by the thousands, when the analyst cuts his outlook before the market opens, he gets credit for shifting his prediction before the ensuing drop in the stock price. So, it was a little breath of fresh air, when MarketWatch decided to take a quick look at the report card for Goldman Sachs’ 2013 investment recommendations. Goldman Sachs 2013 Investment Calls Report Card Remember in elementary school when the teacher had you self-grade some papers. You …

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What Are Expected Earnings?

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It’s earnings season again, and interest in running high in many companies including technology giants like Amazon, Apple, Facebook, and so on. With each earnings report, there is typically commentary noting how the company’s actual reported earnings ended up comparing to the expected earnings. This phrasing comes up so often, that most investors are used to the terminology long before they actually make any investments, but it is useful to understand just what expected earnings are, and who it is that generates those estimates. How Companies Report Earnings Publicly traded companies are required to issue financial reports about their company on a regular basis. These earnings reports are generated and published each quarter. In addition, companies generate an annual financial report, which typically accompanies the fourth quarter earnings report. There are very specific rules that govern when and how a company can disclose “material information.” A company’s financial information is most definately material. The basic rule is that companies may not make any disclosure of material information without doing so publicly. Just what counts as public has evolved slowly over the last few years, but the basic point is that all investors must get the same information at the same …

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Is Microsoft a Good Investment Now?

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Like many others in both technology and finance, I haven’t really looked at Microsoft as more than a staid company in a long time. However, recent events have necessitated a re-examination of the company. Is Microsoft a Buy or Hold? In the fantasy world of investment recommendations and analysts, buy, hold and sell, don’t really mean anything. Wall Street firms are reluctant to rate a stock as a sell lest it hamper their chances of getting investment banking business or other lucrative fees from the covered companies. Thus, most investors know that a “hold” rating is pretty much a sell rating. That doesn’t leave much room, so analysts added ambiguous ratings like Market Perform, and Overweight, among others. Whether or not it’s smart to invest in Microsoft depends, as always on your goals and risk tolerance. That being said, certain recent moves have made Microsoft an attractive play for an investor looking for a technology sector investment. First off, Microsoft is a company in flux. Two seismic level events this summer make any investment in the corporation a bit of a leap of faith. The CEO, Steve Ballmer is retiring. Truthfully, there aren’t many who are losing any sleep over …

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Why the Buying Company Stock Price Goes Down

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The deal where Yahoo is buying Tumblr got me thinking about a question that I get asked whenever there is a big merger or buyout between companies. Often, when one company buys another company, the buying company’s stock price goes down in reaction to the news. Why does the acquiring company stock price go down so often? Stock Price Reaction to Buying Another Company Investor reaction to deal of Yahoo buying Tumblr was understandably muted. First, Tumblr is not a publicly traded company, so there is no way for its stock price to react at all. Second, at a reported price of $1 billion the acquisition isn’t exactly a blockbuster deal in terms of size. However, when one publicly traded company buys another, there is often an immediate dip in the share price of the acquiring company. Before we get started on exploring why the buying corporation’s stock goes down, it is important to remember that stocks do not trade in a vacuum. There are millions of people buying and selling stocks, with millions of different objectives, millions of different time frames, and millions of different investment philosophies. At any one time, any of those competing motivations can affect the price of a company’s stock. However, …

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Yahoo Suffers from Activist Shareholders

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In 2008, Microsoft offered to buy Yahoo. This is what so-called, “activist shareholder,” Carl Ichan wanted all along, not to rescue the company or turn the company around, but to make a quick profit by selling it. Of course, those members of Yahoo’s board who had own shares much longer than Mr. Icahn, and those who truly cared about the company wanted no part of what they saw as a low bid from a bigger company just because Yahoo was down on its luck. When Mr. Ichan didn’t get his way, he sold his shares and moved on, no longer caring about the company. This is hardly what I would call an activist. Typically, an activist works for the greater good, and typically for the long-term greater good. Mr. Ichan, in this case at least, was nothing more than a big shareholder not an activist one. All he wanted was to be able to flip his relatively short-term investment in Yahoo into a profit. Calling him an activist is like calling someone trying to flip a house a neighborhood activist for wanting higher prices. It just doesn’t add up. Previously, one could only assume Mr. Ichan was right. Yahoo seemed to …

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What Is Going On with Apple Stock?

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There has been a lot of news about Apple stock lately. From the company’s swoon from an Apple stock price in the 700s down to the 400s in just months, to the company’s recent earnings report, to the new Apple plan to issue debt to pay shareholders dividends and buyback stocks. Is this good news for Apple? Is Apple stock a good investment now, or is this all a prelude to a big Apple stock price crash? What’s Wrong with Apple Stock? Years ago when I was a financial planner in Denver, I advised a lot of people who worked at Qwest. For those of you who don’t remember how the internet bubble worked, it went a little something like this. First, people decided that the internet was an amazing new technology. They weren’t wrong. Then, they decided that every company that had ANYTHING to do with the internet was therefore a great investment. This was very wrong. Qwest provided a certain kind of telecommunications link that was very important to the internet. It used its stock to buy a “real” company with real earnings, namely US West before the whole internet bubble blew up. During the good ride, it …

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Investing in GE Dead Money?

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The world of investing can seem black and white, even though nothing could be further from the truth. Particular investments made for one purpose by one investor are made for a completely different reason by another investor. Furthermore  what is a “good investment” for one investor is flat out dumb, for another. This is what makes the various Buy, Sell, Hold recommendations from stock analysts kind of difficult to take seriously. JP Morgan Cuts GE Rating The reality is that investors of all kinds who want to use investment analysis from financial firms need to carefully read the entire text, not the headlines that get carved out by various news organizations. The reasons for cutting or raising a rating on a stock may have nothing to do with your investment goals, making those one-word ratings meaningless to you. Today, Marketwatch, and others report that JP Morgan cut its rating on GE stock from overweight to neutral. Most intriguing is the line in which the company calls GE stock, “dead money.” Dead money, in case you are unfamiliar with the term, means that the money is not growing or earning anything, while it could be earning money elsewhere. In particular, dead money …

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Stock Market Records Is It Time to Buy

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Nothing gets the financial press in tizzy quite like a run of “up days” for the stock market. And, nothing gets the mainstream media interested in the financial media’s excitement like a new RECORD! Dow Jones Record High The Dow Jones Industrial Average has notched some record high closes lately. The S&P 500 Index isn’t far behind, within striking distance of its record high as well. So, what do these new stock market records mean for smart investors? First, the recent stock market records are a lesson to be learned for long-term investors such as retirement investors. When the market looked terrifying in  2008 many people sold off stocks in their 401k plans and other retirement savings, often after much of the damage had already been done. That was a foolish strategy then, but now, five years later, those investors are officially the fools. You were better off to have just stayed put. Harsh? Maybe, but if you are investing for retirement or other long-term horizons, this is a critical lesson to learn. In a recent discussion someone said to me that he was sure he did better by getting out when things were bad and getting back in now …

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Amazon Stock vs Apple Stock

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The stock market does not always make a lot of sense, especially over the short-term. Stock price changes occur for silly reasons a lot of times, whether a news event around the world, or the comments of a TV personality. I think perhaps the most instructive lesson comes from the fictional movie Wall Street where you can hear the financial news on a TV in the background explaining what happened with Blue Star Airlines stock, which, of course, is not at all what happened. However, over the long-term, the stock market tends to shake off the manufactured volatility from trading programs and over/under reaction to news and eventually move stocks in the general vicinity of where they should actually be priced. This can take a very long time; witness the completely irrational internet bubble of the late 90s, which lasted years. What makes trading stocks so tricky is that it doesn’t matter if you are right. All that matters is what everyone else thinks is right. Amazon vs Apple Earnings and Stock Prices One of the latest head scratchers that has everyone talking is what happened with Amazon’s stock price and Apple’s stock price following their earnings announcements and press …

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How Should I Invest $3,000

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A recent Money magazine tidbit on Twitter caught my eye. Someone asked how they should invest a small amount, in this case, $3,000. The response suggested a target-date retirement fund. However, I don’t think that is a very good answer in this case, or in most cases. How To Invest a Small Amount When I was a Certified Financial Planner, I would come across people all the time who wanted to know how to invest a small amount. It isn’t hard to see why. We are constantly reminded that we should be saving and investing money. Books like The Richest Man in Babylon (the single best book for beginners in personal finance) extol the virtues of investing some of everything you earn and letting the power of compound interest turn that on-going investment into millions of dollars. However, this very simple concept is actually very misunderstood. First, remember that compound interest is NOT fast. If you invested that $3,000 and were able to earn 8 percent per year you’d have just $4,408 in five years and $5,141 after a full seven years. That isn’t to say that you shouldn’t invest that money, you should just understand what your realistic expectations …

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