The Ignorant Investor
Ignorance Can't Stand in the Way of My Opinion
Thursday, December 29, 2005
The Ignorant Investor's Tiny 2005 Wrap Up
Among media outlets, the week after Christmas is typically slow on news and big on year-end wrap ups. I don't want to follow the crowd on this blog -- I long for originality- but the sad reality is that I'm no less lazy in my own modest, slow-witted manner than the mainstream journalists are in their pretentious but equally slow-witted manner. So guess what? I'm doing a end-of-year piece just like everyone else.
Luckily, I don't need 10,000 words and a big color photo spread to do the job like they do. Last January 12, I went into Yahoo Finance and used its portfolio tool to set up benchmarks using Exchange Traded Funds (essentially index funds that can be traded like stocks). I don't have full coverage of every sector, but I covered the major ones during the year.
The sectors/ETFs that had the highest gains since January 12 included the Energy Sector, which basically kicked ass with a 40% rise. So if you own oil, and I do, you had at least something to cheer about come Christmas time. Other good sectors this year were Gold (GLD up more than 20%), Mid-Cap stocks (VO up almost 18%), international stocks (EFA up over 14%), REITs (VNQ up 14%), and small caps (IJR up 13%).
The broad market ETFs, represented in my benchmark list by the S&P 500 and Vanguard's Total Market ETF were up about 6% and 7%, respectively. The Dow stocks, represented by Diamond ETFs, lagged like a decrepit old pickup truck chugging up a steep Vermont hillside, turning in a gain of only about 1.5% (with dividends included it goes up to around 3.2%). The much talked about tech sector, always expected to come charging back by any analyst on CNBC, pretty much tracked the S&P for the year. Nobody appears to have a good explanation for why the Dow average and other big cap averages, including techs, aren't keeping up with the smaller issues. The profits are there, the cash is there. The market just seems ready to pay a bit more to own smaller issuers. Could the presumably larger pension and healthcare costs for big companies be a factor here as companies expect a continued threat to profits as workers age?
Multiples on the broad indexes are running about their historical averages, and Mr. Market seems to be hesitating about moving them higher. It's not that he's completely depressed about the new year- he still has his hopes. But he's worried about the steam going out of the housing boom and the negative savings rate and a new Fed chairman, so he's kind of hedging his bets right now. I get the sense that there are a ton of managers out there who are worried about missing a big run-up even if they don't like the fundamentals, and what that tells me is that they'll get nervous and bail out on positions the second they think there's a sustained downturn and then jump back in when they think there's movement back up. That might make for some white knuckle moments as volatility increases in 2006.
The talk I see by money managers in the papers is all about strong corporate profits and strong GDP growth and rising productivity. If any one of those measures don't turn in strong gains during 2006, I suspect we'll see some sharp declines in the averages. But we won't see a desperate panic unless corporate profits plummet or Wall Street starts seeing massive inflation underneath the rosy projections of the Administration and the CNBC crowd.
Bonds had a bad year, with the Lehman Index declining about a percent in 2005. I know I should be angry at the bond market for betraying my trust in its steadiness, but with interest rates rising there's not much it can do. If interest rates keep rising, bond funds will continue to get hammered.
That's it. That's the wrap up. A decent year in that a broadly diversfied portfolio didn't get crushed by circumstance, but nothing that's going to start me singing and dancing around in my underwear. I'm working on a plan for next year now. I don't expect it to be a very good plan, but I'm working with my own brain power here. There are limits to what it can do.
Thursday, December 15, 2005
GM to Workers: Worry About Your Own Damn Retirement!
DETROIT (Reuters) - General Motors Corp. is suspending contributions to its 401(k) retirement savings plan for salaried workers, a spokesman said on Thursday.
"We continue to monitor the business in determining when to reinstate the matching contributions," GM spokesman Robert Herta said.
A while back I wrote about the disappearing pension in corporate America. Now one of America's larger employers decides it won't contribute to 401k plans for some of its workers. Remember 401Ks? These were the terrific plans that were supposed to replace pensions, only now GM is basically absolving itself of any responsibility of helping to provide for the retirement of these workers. Without employer contributions, what's left is just a tax-deferred investment account. It's tough to build a really good nest egg when you're not getting decent matching from an employer because you're then essentially relying on the stock market to build it into something you can live on during retirement.
I don't know if this is just GM dealing with its own internal troubles or the start of a wider trend. I hope not. My own employer's matching contribution is only on a measely 10% of whatever I contribute to the plan, assuming I work for the company for 5 years, but I'd hate to see that contribution go.
Fortunately, today's announcement wasn't all bad news for GM workers:
The world's largest automaker was also dropping the requirement that up to 3 percent of worker's contributions and 100 percent of the automaker's contribution be invested in GM shares.
This makes a long-needed change to what must have been one of this country's crappier bargains: "We'll give you money for your 401K, but you have to buy shares in our miserably run company with it." At least now GM's workforce can invest in Honda or Toyota and actually see the value of their shares go up.
Tuesday, December 13, 2005
Yahoo is pissing me off
An irritating thing just happened to me.
I opened my yahoo mail account, as I am apt to do when I wish to check my mail, and this picture of a woman danced across the front of the screen. After a second or two, she transmogrified into a large red heart, and after that magically shifted into a perfect facsimile of a large electronics discount retailer. It was only then that I saw the small block of words in dark type in a corner of the screen: "CLICK TO CLOSE."
I must say that the symbology of this message baffles me. What does it all mean? Dancing woman, heart, "Circuit City". After much thought, I translated the message thusly:
"Please be aware that everything you ever liked about the internet is now dead." Our free e-mail accounts are now riddled with advertising. We can't visit a site without delousing ourselves with special software afterwards to get rid of the spyware. Our Google searches are more likely to bring up a long string of hits for online retailers than information we can use. And don't get me started on popups and flash ads-- I will personally tear the nuts off the man who invented that revenue source using a set of rusted ice tongs, should I ever run across him (and if it was a woman who perpetrated that crime, I swear I shall sleep with her and then never call her again). The internet is dead, I tell you. Stone cold murdered by commercial interests.
I can't stop this trend; I'm watching it with utter despair I'm so helpless. But I can pledge on my honor as a penniless blogger that I shall never accept advertising onto this site. Unless the price is just too high to refuse.
That's my pledge to you, the reader. Now, if I could only find some readers. Then I'd be able to get some advertising in here and make some money doing this....
Wednesday, December 07, 2005
This is why I don't invest in individual stocks anymore
There's a reason I've recently turned almost exclusively to ETFs and index funds for my equity purchasing needs. Imagine you laid down ten or twenty thousand dollars on shares of Coca-Cola a year or so ago hoping new management would come in to give it a boost (not a crazy move- it's been one of the world's great brands). Only this morning you wake up to see this in your morning paper:
NEW YORK (Reuters) - Coca-Cola Co. (NYSE:KO - news), the world's No. 1 soft drink company, on Wednesday said it will launch a coffee-infused soft drink called Coca-Cola Blak in various markets around the world in 2006.
The news of the launch came hours before Coke Chief Executive Neville Isdell was scheduled to address financial analysts and investors in New York.
"Blak"?
That's not much different than "blech". It's kind of the sound that I imagine one makes when one is about to throw up, as in, "Hmm, I don't feel so good . . BLAK! . . . Oh, man . . . BLAK . . . Oh, God, this toilet bowl disgusts me . . . BLAK!"
This is the problem with guessing about what management will do when the going gets rough at their companies. Any normal person would look at the idea of a coffee-flavored cola as just this side of insane. Literally- I think that's one of the tests they teach these days in schools of psychiatry. "When in doubt about a patient, pitch the idea of Coca-Cola Blak- if they smile and nod you know they're a danger to themselves."
Yet in a corporation this big, not just one person, but several layers of managers THOUGHT THIS WAS A GOOD IDEA. That tells you all you need to know about the management at Coke. Yet who would have guessed just how unhinged management at Coke had become before it evidenced itself this way? You really never know until it's too late, as far as I can tell.
That's why for me it's index funds all the way....
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