Archives for September 2012

Profit Off The Clueless. It’s Your Duty

 

The French dude in this picture? 27 years old.

 

Ah, les cigarettes. Ils sont magnifiques!

 

 

I think we are inviting God’s judgment on our nation when we shake our fist at Him and say, “We know better than you as to what constitutes a marriage,” and I pray God’s mercy on our generation that has such a prideful, arrogant attitude to think that we have the audacity to define what marriage is about.

(Journalistically abridged version: “Let’s kill all the queers, or at least not serve them.”)

The Chick-Fil-A story came and went, but we’d prefer to take a sober look at its absurdity after a few weeks have passed. People protested, Dan Cathy got assailed, and to the extent that a regional restaurant chain’s management can influence public policy, Chick-Fil-A’s chief operating officer remains committed to the non-marginal belief that marriage is between a man and a woman.

It makes no sense to shun a business because someone said something that hurt your feelings. Your actions either won’t make a difference, or the difference they’ll make will be a negative one.

Take the brief and unspirited Chick-Fil-A protests. What good did they do? That is, what tangible economic benefit did they achieve? How did they make the world a better place?

You could argue that such protests aren’t supposed to provide anyone with an economic benefit, they’re supposed to do the exact opposite to the targeted parties.

But a month later, Dan Cathy is still rich. Say the boycott had worked, to the extent that a few restaurants ended up closing. The company’s franchisees, most of whom have far less money than Mr. Cathy, would have suffered far worse than he. Any affected employees would have suffered even worse. All because a man whom you have no connection with, and who has an extremely modest impact on the crafting of marriage laws, gave his Biblically consistent and majority opinion as to what defines a marriage.

Dan Cathy could have said the Armenian Genocide was The Awesomest Thing Ever and it shouldn’t have made a difference to anybody. The actual business of serving chicken sandwiches isn’t connected to the opinions of the guy in charge.

Legitimate reasons for boycotting Chick-Fil-A:

  • They boil chickens alive.
  • The secret ingredient in the Polynesian sauce is toxoplasmosis.
  • New seasonal pricing – $300 a sandwich.

That’s it. Making a decision based on anything non-galline is part counterproductive, part foolish. And attempting to assess the values of the people in charge is 100% hypocritical. Either that, or every pot smoker who protested Chick-Fil-A must buy exclusively from pro-gay-marriage dealers.

Boycotts temporarily satisfy. (“Delta kept us on the runway for 3 hours. I’m never flying that airline again!”) Three months later, when you need to fly to London and Delta’s prices are hundreds of dollars cheaper than Virgin’s or American’s, your mind will probably change. That being said, almost all of us are guilty of this.

For instance, your humble bloggers refuse to do business with a local Toyota dealership that uses Michael Vick as its spokesman. It’s a 2-person boycott that will have a negligible impact on the dealer’s bottom line. We don’t expect other people to join our passive protest, although we can’t fathom why anyone would patronize a business whose management could have chosen any of 1500 active NFL players to hawk its products yet went with a convicted felon who did to dogs what Josef Mengele did to Jews.

So we established our position. Now, how far should we take it? Should we never buy a Toyota nor a Lexus from anyone anywhere, because how can we do business with a corporation that would grant a dealership to someone who would hire Michael Vick?

That same dealership’s vendors include companies we do business with – a couple of local radio stations, for instance. Should we refuse those companies’ money? If so, what about the radio stations’ vendors; their catering company, for instance? Are 2 degrees of boycott sufficient? How about 3? Where does, or should, it end?

We know a former vegan who quit and reverted to omnivority. Why?

It was too hard. She couldn’t eat beef or pork. Okay, fine. She couldn’t eat chicken. Yes, that’s how herbivority works. She couldn’t eat eggs or fish. The culmination happened when she refused a plate of pasta served with an anchovy sauce. The dish was 1% meat, but that was enough to taint it. At this point her hair had started falling out, and her skin had the pallor of a corpse. (She also smoked cigarettes, reinforcing that her restrictive diet had little connection to health.)

Which brings us to the most profitable company in America, as measured by return on shareholders’ equity. The difference between this company’s assets and its liabilities is $229 million. Which is equivalent to the profit it makes every 10 days.

Almost half the cigarettes sold in the United States come from Philip Morris International. Dividing that into the American Cancer Society’s figures, that means the company kills 217,000 of its own satisfied customers every year. (Of course, that’s a semantic mistake. The 217,000 kill themselves. Philip Morris only sells them the weapons.) That’s to say nothing of the myriads more around the world who die courtesy of Philip Morris cigarettes.

Philip Morris International pays a $3.08 dividend annually. That’s a 3.4% yield, which is excellent. (And remember that the lower that yield is, the higher the stock price is, which is not exactly a bad thing.)

Chick-Fil-A feeds people. A day without lunch is a miserable day indeed. Philip Morris International, even if its CEO were to register as a minister with the Universal Life Church just so he could marry as many homosexual couples as he can find, still sells death. His products have no worthy purpose, and do nothing to better the species nor our surroundings.

They’re also a fantastic buy. Philip Morris International has a diehard customer base, if you will, with hundreds of thousands of budding smokers waiting to take their place once the former check out. For every one who quits, plenty of others never do, taking their brand loyalty to the grave. Refusing to invest in the company that gives said consumers a reason to die is high-mindedness that leaves cash on the table.

Anheuser-Busch, too. Same thing. Last year, an $8 billion profit on $39 billion in revenue. Selling a product that numbs brain cells, impairs judgment and causes far more problems than it solves. Should we take the noble road and not purchase its stock?

Whatever for, if it continues to turn increased profits and pay regular dividends? It only does so because people like to get drunk. Millions of them. Are we going to do our best Carrie Nation, standing outside 1 Busch Place in our finest black bloomers, espousing the moral rectitude of temperance? Doing so wouldn’t convince a soul. As long as smokers and drinkers (and chicken sandwich eaters to a lesser extent, although Chick-Fil-A isn’t publicly traded) want their fix, someone’s going to get a cut of it. Why not you?

If your answer is “because I’m better than that”, good for you. We’ll let you know when your local organic yoga mat workshop does its IPO.

Your Fund Isn’t Killing You, But It Isn’t Helping Either

A parade of fund managers, showing both their eclectic viewpoints and love of the United States and its capitalist system

Last month we claimed that the same stocks are often held by the same funds. But we didn’t back it up with any data.

Lipper is the go-to company for fund research. This is their list of the largest mutual funds by net assets. Let’s walk through the relevant abbreviations and codes.

The 3rd column lists the funds’ objectives.

IID is intermediate investment-grade debt. “Intermediate” refers to the length of the debt, 5 to 10 years.

SPSP means the fund is supposed to replicate what the S&P 500 does.

MLCE is multi-cap core funds. “Multi-cap” means the fund invests in a range of market capitalization sizes; everything from giant companies to small ones, with no more than ¾ of its value in any one size. If you want that size quantified, well, you’re asking too many questions. (That’s not a copout. We seriously couldn’t find a formal definition.)

CMP is commodities precious metals, which means not just physical gold and silver, etc., but their corresponding derivatives.

MLGE is multi-cap growth funds. Same as MLCE, except MLGE funds invest in stocks with above-average price-to-earnings ratios, price-to-book ratios and 3-year sales-per-share growth value.

We’ll spare you the rest of them – if you want the details, they’re here – but now we’ve got 3 categories (SPSP, MLCE and MLGE) that specialize in equities, as opposed to debt or commodities.

Here are the biggest holdings of the SPDR S&P 500, the largest S&P 500 replicator:

Apple 4.66
Exxon Mobil 3.26
Microsoft 1.81
IBM 1.76
General Electric 1.72
AT&T 1.71
Chevron 1.71
Johnson & Johnson 1.54
Wells Fargo 1.46
Coca-Cola 1.44

Here are the largest of the Vanguard Total Stock Market Index Fund, the largest multi-cap core fund and one whose very summary says it’s “designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks.”

1

Apple

2

Exxon Mobil

3

Microsoft

4

IBM

5

AT&T

6

General Electric

7

Chevron

8

Procter & Gamble

9

Johnson & Johnson

10

Pfizer

Wow, what tremendous diversity. Did you notice how although the two funds’ 1st– through 4th– and 7th-largest components are the same companies in the same order, the one fund’s 5th-biggest component is AT&T and 6th-biggest is GE, while the other’s 6th-biggest is AT&T and 5th-biggest is GE? It’s like they’re from different galaxies!

Finally the Fidelity Contrafund, the biggest multi-cap growth fund. It holds the stocks of, according to Fidelity, “companies whose value (we believe) is not fully recognized by the public.

APPLE
GOOGLE
BERKSHIRE HATHAWAY
MCDONALDS
COCA-COLA
WELLS FARGO
NOBLE ENERGY
TJX COMPANIES
WALT DISNEY
NIKE

 

Apple’s value could not be more recognized by the public if the company tattooed its logo on every citizen’s forehead. Same with Google. The only Contrafund major component that you might not have heard of is Noble Energy, a $7 billion oil and gas driller based out of Houston.

Funds make their full holding data difficult to access. Contrafund has 413 components (which is nothing compared to the Vanguard fund, which has 3220 components.) The Fidelity fund’s components are listed here. We can’t put an image in the site, it’d run for way too many columns, but here’s a summary:

Microsoft is 50th on the list. The Contrafund’s 2nd-biggest component, Google, is 13th on the Vanguard Total Stock Market Index Fund list while Berkshire Hathaway is 36th, McDonald’s is 25th, Coca-Cola is 15th, Wells Fargo is 11th and Disney is 33rd.

It doesn’t matter whether you do business with Fidelity, with Vanguard, with American Funds or with PIMCO. Buy a mutual fund, at least one that deals in equities, and you’re paying a fund manager to say “Hmm…this Apple looks like a good buy. I think I’ll pick some up.”

Look, this isn’t necessarily an argument for you to stop whatever your occupation is and devote the requisite hours to becoming an amateur fund manager. Whatever motivates you. Rather, we’re asking you to acknowledge that “picking” hundreds of stocks en masse barely counts as picking. Choosing the stocks of the largest, most profitable, most widely held companies doesn’t take any special aptitude or knowledge. It’s a defensive measure, done purely out of the fund manager’s self-interest. He’s thinking:

I’m 20-something. I’m making ridiculous money, way out of proportion to the value I’m creating. Women are enamored of me, or at least of what I can buy. Should I actually do some research, look for nothing but undervalued stocks (which there won’t be 413 of, at least not simultaneously), sell all of my fund’s current components and buy those instead?

Of course not. The higher-ups wouldn’t have it. They’d have me, roasting on a spit. My job isn’t to provide the highest possible returns. It’s to avoid mistakes.

Understand that there is no room for outliers nor independent thinkers among the ranks of the major fund managers. The managers’ job is to be as conservative as possible. Which means your money is going to be treated conservatively, which means little chance for legitimately large appreciation. When a fund hits big returns, it’s an accident. Yes, there’s a top-performing fund, and a top 10 list. Every year and every quarter. There has to be. Someone’s got to be at the top. Whether the SPDR S&P 500 outperforms the Vanguard Total Stock Market Index Fund thus reduces to little more than the question of whether AT&T will outperform GE.

You can do better than this. You can also do worse, but we’re talking to the ambitious among you.

Synthesizing the classical proverb with Mark Twain’s updating of it, “Put your eggs in a few baskets. And watch those baskets.” You need to buy individual stocks. You can start by reading here.

Carnival of Wealth, Political Overload Edition

The Hulkster wants you to say your prayers, eat your vegetables, inject your androstenedione and stop listening to all the political nonsense

 

2 political conventions in, and we’re collectively dumber. Let’s see if this week’s Carnival of Wealth doesn’t continue the trend. Again, personal finance blog posts from around the world, mostly the U.S. with a smattering of Canada. We start now:

Charles Davis at WalletHub says you need to take an inventory of your financial records, which is a capital idea. He also says you need to “consider” a safe deposit box, which is a 20th-century idea. Or a fire-safe box. A, we have these things called scanners now and 2, the next time we hear of someone saying, “I lost my house in a fire, but thank God my marriage license is still intact” will be the first. It’s almost easier to go down to the county office and request a copy than it is to buy a box and stick documents in it.

We shamed Ken Faulkenberry at AAAMP Blog back into submitting this week. Ken’s an investment planner, but hear him out. He stresses that much of managing a portfolio is not taking undue drawdowns from your clientele. That is, learn how to preserve your capital even when the market is in the toilet. Sounds easy in theory, yes. Ken explains the idea in considerably more detail.

We’re going to go with “Yes.” From Neal Frankle at Wealth Pilgrim:

you probably ask yourself, “When should I retire?” Is it simply a matter of finances? Or do you retire when you’ve “had enough” and are simple unwilling to take it anymore?

It starts with running the numbers. Well, that’s not true: it starts with knowing what numbers to run.

Thanks, I’ll just keep working until I collapse. 

That’s the spirit! Neal cites the example of a rich nonagenarian he knows who still goes into the office every day. Maybe he loves working, or maybe his wife’s just difficult to spend time with.

From PKamp3 at DQYDJ.net (Don’t Quit Your Day Job), a recommendation to…sit and wait. Those dividend stocks you were all set to load up on? Their value is largely contingent on what will happen this November. Furthermore, dividends are subject to the absurdity of double taxation – they’re taxed at the corporate level, as profits, and taxable again when distributed to shareholders.

There’s a trickle-down effect here, too. Rich people, the ones who lots of dividend stock, will rearrange their purchases to combat taxes. Smaller shareholders, like it or not, will dance to larger shareholders’ tune. And it’s in 15/9 time, with a drummer who only knows 2s and 4s.

Counterpoint: Dividend Growth Investor. He recommends that you find a basket of stocks with a 3% dividend yield (easier said than done, but whatever), and enjoy fat dividend income 24 years from now. Reinvest the dividends, and you’ll be even further ahead.

Save money by being friendly? Free Money Finance has an anecdote that illustrates how being friendly isn’t just less strain on your liver, it’s good business. It saved $50 for no incremental effort on what would have been an ordinary transaction.

Save money by not being friendly? Dave at 6400 Personal Finance reminds you that you’re not the sales clerk’s pal, you’re his mark. Dave and his girlfriend went to Maui for the weekend (you can do that when you’re stationed on O’ahu), rented a car, and chose not to buy all the useless add-ons, saving them serious cash in the process. The kind of money it took Dave a few seconds to save, it would take Iowan heartthrob Trent Hamm a year’s worth of strategic toilet flushing to pull off.

Like ours, the brain of John at Wallet Blog has been saturated beyond recognition by endless political grandstanding and rhetoric the last few weeks. As a practical matter, John would like to know what will happen to mortgage tax relief under a Romney administration or under Obama Part II. As it stands now, people who failed to make their payments weren’t taxed on any financial break their lenders cut them. You know, because responsibility sucks on wheels. Should that tax relief run its course, plenty of people who lost their houses would get a tax bill for their troubles. This is justice, but to some folks it’s unfair.

From the running-out-of-adjectives-to-describe-how-awesome-she-is Liana Arnold at CardHub, another parable about unintended consequences.

To recap: not to be confused with the mortgage slackers above, a bunch of people didn’t like their credit card balances and decided to complain about them rather than pay them. The government intervened, forcing credit card issuers to cap rates and limiting how much they could charge in swipe fees.

YOU’RE NOT GOING TO BELIEVE THIS, but the people who run the credit card companies aren’t stupid. They didn’t throw up their hands and say, “Damn. The feds foiled us at our own game. Guess we’ll just make less money now.”

No, the responsible people got punished. Banks started raising fees on everyone, and slashing benefits left and right.

Alright, that was a rant only barely related to Liana’s post. Today, she cites the prospect of merchants charging fees for customers wanting to pay with credit cards. It’d be the ultimate result of a settlement that derived from a class-action suit filed by merchants who claimed that Amex, VISA et al. overcharged them by billions of dollars.

Harry at Your PF Pro has some interesting ideas and could use an editor. Harry thinks you should diversify by country of origin. A 70-30 mutual fund balance (international and U.S., respectively) should make your holdings as stable as possible, assuming you’re locked into mutual funds. Of course, “international” covers a lot of ground, so to speak: there’s a difference between investing in Canadian companies and in Burundian ones.

One more on dividend investing and then we’re done. Dave Scott at Excess Return joins the CoW this week with his methods for evaluating and selecting dividend stocks. While we’re not sold on the importance of dividend yield to the extent that Dave is, this article is tremendously well-written, perfectly formatted, and contains a pretty chart.

Alright, one more. The comprehensive Andrew at 101 Centavos breaks down the 2 publicly traded firearm manufacturers: Sturm, Ruger and Smith & Wesson. (That’s a company called Sturm, Ruger and another called Smith & Wesson: not a company called Sturm and another called Ruger and Smith & Wesson. Companies with commas in their names are reprehensible.) Andrew’s post gives credence to our observation that the better and more thought-provoking a post is, the fewer comments it inspires. Andrew is a Ruger shareholder (unlike us, mere Ruger customers) and illustrates the stark difference between the companies’ management styles. Also, for you ladies looking to be stereotyped, a mention of how “pink guns are becoming more commonplace.”

We kind of miss the bad submissions. This week’s were impossible to make fun of. Well, there’s always next week.

Wait. One more. Serial submitter and avowed masochist Lance at Money, Life & More maxed out his Roth IRA.

Oh, did we mention we’re on Investopedia? Yahoo! Finance, too, once in a while. New blog posts here every Wednesday and Friday, new CoW every Monday. Anti-Tips every day. See you tomorrow.