Investing

Investing the Government Shutdown

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Too many investors try and ride short-term news events and rumors as a way to make easy money. It seldom turns out that way. Take the current government shutdown. Conventional wisdom says that Wall Street hates uncertainty. Furthermore, a lengthy shutdown could disrupt the still fragile economic recovery. Add that to the upcoming fight over the debt ceiling and you should have a plunging stock market. Funny thing, the stock market isn’t really going down. Stocks and the Shutdown of the US Government The problem, of course, is that we’ve seen this show before. Recently, Congress and the President took both the debt ceiling and funding the government to the wire but eventually reached a deal. While political partisans go red in the face discussing who won and the lost, the reality is that the overall economy, and by extension Wall Street, really doesn’t care how the pie is sliced up, as long as there is a pie. The only real concern for investors is that the instability at the government level will eventually bleed over into Main Street and Wall Street. Some may argue that is happening right now, but the fact is, no matter how long it seems, …

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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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Is Paying Off Debt Better Than Investing?

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As a former financial planner I know that not all finance is just about the math. The truth is that earning money, spending money, and saving money is a highly emotional thing. While it is fine to suggest that people eliminate emotion when dealing with money, that’s a little bit like telling people to eliminate hunger when dealing with dieting, it just won’t work in the long run. Is It Better to Save Money or Pay Off Debt? One of the things that gets thrown around like a solid, no-exceptions, rocket science idea from time to time is the concept of paying off debt as a high, guaranteed return. The theory goes a little something like this: If you pay off a credit card with an 18 percent interest rate, then that is like getting a guaranteed 18% return on your investment. Obviously, a sure thing 18 percent return is probably the best possible investment in the world from a risk/return perspective. But, is it really that simple? Mathematically, paying off higher interest debt is always the right move. However, that isn’t necessarily always the best move for real life, particularly if your finances are not in very good shape …

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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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Why Facebook Doesn’t Count as Public Disclosure

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Reed Hastings’ post on Facebook does not count as public disclosure according to the SEC. The agency sent a notice to Hastings and Facebook to that effect soon after the post. Since then, Hastings’ defense has centered around the contention that the information was not material. No claim that a Facebook post is public has been made. Facebook Is Not Public Disclosure Regulation FD requires that publicly traded companies disclose all material information publicly. It prevents the practice of selectively telling Wall Street analysts or other people news about the company. While the technology community thinks otherwise, the SEC does not consider a post on Facebook as public for this purpose. The SEC published guidance in 2008 regarding the disclosure of material information online by publicly traded companies. A central tenet of that piece was that the company must make it clear that is does, and will, publish such information online. In addition, the company must make it clear WHERE such information will be published. Finally, investors must EXPECT that material information will be posted in such a location. Since 2008, most publicly traded companies have gone on to include in their traditional printed materials a notice stating that the …

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1987 Stock Market Crash 25th Anniversary

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Twenty-five years ago on October 19th, the Dow Jones Industrial Average fell 508 points, just over 22 percent, the biggest one-day percentage drop in history. The crash was so severe that it usurped the use of the term Black Monday, which had previously been used to describe the two-day crash in 1929 that led to the Great Depression. Ironically, the stock market ended up for the year in 1987, having opened on January 2, at 1,897 and closing on December 31 at 1,939. However, it would be almost two years until the market overtook the highs for the year that occurred before the crash. After Black Monday, the so-called circuit breakers were implemented to reduce the chances for such spectacular, all at once, market drops. These curbs were revised and expanded to individual stocks after the “flash crash” of May 2010. Most interesting for students of personal finance is that while events like these can be punishing over the short-term, they fade quickly into the realm of past returns for long-term investors. Remember that just a decade later, in 1997,  the stock market was in the middle of a major rally which would continue for several years until the popping …

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