Investing

How Should I Invest $3,000

by

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 …

Read More

Microsoft’s First Quarterly Loss Facts

by

A lot of media have been leading with the headline that Microsoft reported its first ever quarterly loss. This is completely true, and yet, Microsoft didn’t actually lose any money during the quarter. So, what really happened. If the world of accounting had been better known to Mark Twain, he might have altered his famous quote to suggest that there are, “Lies, damn lies, and accounting.” Accounting is one of those things that seems like it should be straightforward enough. The popular notion is that companies and their lawyers and accountants deliberately obfuscate the truth about their company’s finances. That isn’t entirely untrue, but it is also true that accounting for a large corporation is not simple. Writing Down Goodwill One of the most subjective, and yet, completely legit, parts of corporate accounting is something known as goodwill. Essentially, the idea is that when you purchase a company, you are buying not just the tangible assets and liabilities of the company, but also the “good will” that exists toward that company. The acquiring company gets to count this so-called goodwill as an asset on its balance sheet. Although goodwill is a completely recognized, after all, a company is worth more …

Read More

2012 Economic Recovery?

by

It’s July 1st, and that means that the second quarter just ended. Recent economic data suggest that the housing market might finally be improving a little bit. Recent jobs data suggests that the labor market is at least holding its own, even though it isn’t strong enough to be lowering unemployment yet. How companies report their second quarter earnings will go a long way toward showing whether or not the economy will finally move forward faster than a snail in 2012. Economy Improving? Here is what to look for. Companies should report earnings that are pretty much in line with how well they did in the first quarter since there were no real up or down catalysts in the second quarter. However, what you really want to be looking for is the guidance that companies are giving for the next quarter and the rest of the year. If companies feel good about the rest of the year, that means that they are more likely to spend, or at least not cut. That additional economic activity is what this economy really needs to kick it over this hump because consumers are tapped out. A solid third quarter with rising expectations heading …

Read More

Economy Slowing? Banks Downgraded

by

The Dow Jones Industrial Average fell over 250 points today, while the S&P 500 dropped over 30 points. That is the second worst day of the year for the stock market. So, what happened, lots of stuff… or nothing, depending on how you look at things. Weak Economic Data The U.S. economy has been growing very slowly for a while now. However, the markets seem to keep getting ahead of themselves and forgetting the “very slowly” part. Every time new economic data comes out that shows the economy is indeed only growing at a snail’s pace, the markets get hammered. First up, the Federal Reserve announced it was cutting its growth and inflation forecasts for the rest of the year. Part of this is bad news. After all, the Fed’s growth projections weren’t exactly rosy in the first place. The second part, however, is good news. It means that all of that stimulus out there in the form of low interest rates and bond market maneuvers by the Fed are not causing inflation. Banks and insurance companies are big losers are the news of a worse economy. People cancel insurance when they cut back on spending. In addition, a significant …

Read More

Stock Market Greece Recovery

by

The stock market is attempting to stage a recovery now that worries about Greece defaulting and abandoning the Euro have taken a back seat. Recent elections gave the political parties that favor adhering to the conditions of Greece’s bailout the majority of seats and a solid chance at putting together a coalition government. However, Greece isn’t the only issue out there. Recent employment numbers have not been stellar and few companies are issuing what would be called “enthusiastic” guidance for the coming year. The result is an odd stutter-step market that today (June 18) gave us a mixed day with the Dow slightly down and the S&P 500 slightly up. In the long run, the last few months of market action have been good. Runs in the straight up direction seldom end well. This period of consolidation even had some new outlets using the term correction, which is enough to scare off the faintest of heart investors that are often the cause of so much volatility. For long-term investors the fundamentals today are no different than they were a few months ago. The economy is growing, but slowly. Europe is being held together, but barely.

Facebook Flop or Not?

by

Facebook went public on Friday. After months of build up, there were some issues with trading, and finally, no big pop in stock price. This has led some media pundits to conclude that Facebook’s IPO was a flop. But was it really? Facebook IPO Trading Facebook’s IPO was not necessarily typical. However, there was little typical about it before it even began. There was the sheer size of the offering, making the Facebook IPO one of the largest of all time. Then, there was the intense media interest, which, believe it or not, is not typical of initial public offerings. The idea that Facebook’s IPO was a flop revolves around the concept that its stock price did not rise on its first day of trading. Indeed, there was ample evidence that Facebook’s underwriters were forced to step in and prop up the share price to keep it above the $38 offering price. Whether this is a flop or not depends on whose shoes you are in, and how much you care about what normally happens. Facebook IPO Pricing In the days leading up to the IPO, there was some concern that the price for Facebook stock was too high. After …

Read More

Facebook IPO 2012

by

After years of speculation, rumor and guesses as to whether Facebook stock is a good investment at all, the company has finally announced plans to go public. Facebook will trade on the NASDAQ under the ticker symbol FB following its IPO. Like many other technology IPOs of late, this offering will leave CEO and founder Mark Zuckerberg in iron-fisted control of the company. He’ll control approximately 57 percent of the voting power in the company after it goes public, leaving shareholder lawsuits as the only chance for investor control. The company indicated and initial public offering range of $28 to $35 per share. This would value the company somewhere between $77 billion and $96 billion dollars, which is close to many technology pundit’s wishes of a $100 billion valuation. Regardless, of where within that range it prices, Facebook will be the internet IPO ever. With a $100 billion valuation, Facebook would be close in market value to long established technology companies such as Amazon and Cisco. The IPO would raise something in the $11 to $13 billion dollar range, although the company will only get half of that. Investors in the company are cashing in a big pot of chips …

Read More

Tech Earnings Week

by

This past week featured the earnings release of several major technology companies, coming closely on the heels of major earnings announcements from other tech companies, including Google and Apple. IBM Earnings First up, IBM reported revenue of $24.7 billion leading to earnings of $2.78 per share. The consensus estimates from analysts were a bit higher for revenue, but a bit lower for earnings per share. The company did raise its full-year earnings guidance, but it wasn’t enough. Investor reaction wasn’t pretty with shares dropping 2.4 percent the following day, and continuing down. The technology giant closed on Tuesday before reporting earnings at 207.31 and closed Friday at just 199.55. IBM’s results have also been blamed for the general downward direction of the markets for the end of the week. Still, IBM has a long history of boosting its share prices, primarily by buying back enormous amount of stock each year. Intel Earnings Intel’s earnings didn’t make investors any happier. The stock has had a pretty good run-up as of late, so anything other than a gangbusters quarter was likely to lead to a poor reaction. Intel shares got it. The stock closed before earnings on Tuesday at 28.48, but finished …

Read More

Apple Stock Paying Dividends

by

Apple (AAPL) announced that after years of building up a massive pile of cash with its record earnings that it will begin to return some of that money to shareholders. Apple will pay a quarterly dividend of $2.65 per share starting in July. It will also repurchase up to $10 billion in stock over the next three years. So, what does this Apple announcement mean for the stock and for the company? Apple Dividend At first blush, Apple’s announced quarterly dividend seems very large. But, how much is Apple’s dividend? It works out to $10.60 per year. That’s higher than most companies pay out in dividends. However, remember that Apple’s stock price is much higher than most companies. The stock currently trades around $600 per share. That makes the dividend approximately 1.8 percent, which, while respectable, is nothing to write home about. Why did Apple announce a dividend now? There are several reasons that Apple has finally decided to start paying a quarterly dividend after refusing to do so for years. First, and foremost, is that Steve Jobs is no longer around. Apple’s iconic CEO had the street cred to tell people, “No dividend,” no matter how high the companies cash balance got without …

Read More

PIMCO Equity Funds Win Again

by

PIMCO is synonymous in the investing industry with bond mutual funds. More specifically, PIMCO is synonymous with Bill Gross and the PIMCO Total Return fund, which is the world’s biggest, and one of the best, bond mutual funds. However, PIMCO actually offers a full range of investment products, including equity mutual funds. As Reuters reports, PIMCO actually managed to win the best large company equities award from the Lipper Fund Awards. I’m not sure whether to mock Reuters for repeatedly using Pimco, when everyone knows it’s PIMCO, or if there is an AP Style rule I’m missing. Either way, the bond mutual fund giant won the award last year as well, marking two straight years at the top. Before you load all your money up into PIMCO StockPlus TotalReturn or PIMCO StockPlus Short Strategy fund, it is interesting to note that PIMCO’s funds of this nature aren’t very traditional. Rather than owning shares of publicly traded U.S. companies, these funds have a lot of investments in various derivatives and contracts. This allows PIMCO to profit from moves of a macro nature rather than being right about specific companies. There is an advantage to this form of investing. For example, if …

Read More