Profit Off The Clueless. It’s Your Duty

September 14, 2012

 

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.

Filed Under: Economy, Investments Tagged With: , , , , ,

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

September 12, 2012

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.

Filed Under: Bad Examples, Capitalism, Economics, Economy, Finance Tagged With: , , , ,

How Are We Still Having This Conversation?

March 28, 2012

 

Speaking of children working in inhumane conditions, how much did he pay the 5-year-old who created that sign?

 

Sometimes, avoiding the first-person voice on this blog is impractical. But we try, and will continue to. Here’s a recent conversation with a Lexus-driving business owner who lives in one of the ritziest gated communities in town, if not the ritziest:

Him: You shop at Walmart? (harrumph)

Yes, he harrumphed. An onomatopoeic expression that sums up his indignation with our choice of grocery purveyor far more effectively than any words could. Our relationship will never be the same.

It doesn’t matter what the low-cost provider is. Could be WinCo, Food4Less, or whichever discounter in your town sells in bulk and doesn’t waste money on décor. But Walmart gets most of the notoriety, and will serve as our example. It’s notorious because it isn’t unionized, and was founded in a part of the country that some people equate with a punchline. Boiled down to their essence, the reasons most commonly given for not buying groceries at Walmart (and passing judgment on those who do) are:

  1. The people who shop there are comically unfashionable, which should make it obvious to you that the food itself is awful.
  2. The company exploits workers, somehow.
  3. It runs mom-and-pop stores out of business.

 

Grocery shopping is not a social statement, or at least it shouldn’t be. It’s simply something you do to avoid starvation.

Given that Walmart has the most employees of any corporation in the United States, and doesn’t keep any of them shackled, is there any chance that maybe the employees don’t feel they’re being exploited?

You could argue that they’re too dumb to know it, as many a wag does. At that point it becomes less about the principals and more about the observer.

Day-to-day buying and selling of goods and services in a relatively free economy like the United States’ is a series of voluntary exchanges. Ideally, the cheapest provider not only ought to win (in a logical sense), but should win (in a moral sense). You take possession of whatever it is you wanted regardless of whom you buy from, but when patronizing the lowest bidder you end up with more money in your pocket. You’d think this is so obvious that it doesn’t warrant mentioning, but it does. Again and again and again. In the same respect, when selling something – and what most of us sell is ourselves, on a regular schedule 5 days a week – we’re looking for the opposite and will only do business with the highest bidder.

When buying anything, and we used groceries because they’re as much of a necessity as anything, you’re welcome to pay a premium for proximity, for perceived quality, or even for guilt. But the sensible thing to do is to buy as cheaply as possible. When operating as a seller (see above), you’re again welcome to offer a discount. But you’d need a compelling reason to. Two jobs with the same requirements, equidistant from your home, but you’d choose the one that pays less? Maybe if your ex-spouse sits by the door at the better-paying one, but it’s hard to think of many other reasons why you’d refuse an opportunity to make more money with no incremental effort.

Back to the buying side. Clearly, the Cheerios and celery at Safeway are of much higher quality than those sold by the Bentonville Bruiser. And the canard about running family businesses out of operation doesn’t stand up to any kind of scrutiny. How Kroger, SuperValu, and the Delhaize Group stores (Food Lion, et al.), each multibillion-dollar concerns, managed to avoid that same accusation is a mystery. The “mom-and-pop” grocery store is, to almost all of us, laughably inapplicable and obsolete. Family-owned food merchants are as much a part of 2012’s landscape as dry goods stores and blacksmiths are.

There are trillions of ways to waste money, and future generations will find further ways that we could never conceive of. But with respect to gambling, smoking, drinking, taking out permanent life insurance, and incurring credit card debt, it’d seem that paying extra just for the sake of paying extra would be an easy one to omit. For many, it isn’t.

Speaking out of self-interest, we can make an argument that that’s good: when other people are willingly spending more than they need to, it makes it easier for the rest of us to make offers on assets. After all, there are now fewer viable bidders in the marketplace. On the other hand, a society full of financial dimwits is a weak one. There are two major reasons why China went from economic wasteland to powerhouse in barely a generation. One is a government policy of economic liberalization, the other is a cultural propensity to bargain and save. (Cf. Mark Steyn, “Culture trumps economics.” When you’ve got both on your side, seismic shifts occur.) Westerners who do dumb things with their money indirectly hurt all of us, their cumulative effects making our society that much weaker.

Maybe the economic truths that we hold to be self-evident, aren’t. Buying an item at Store X when Store Y sells it more cheaply means putting your own financial interest in a position of relative unimportance. Caring about the plight of the non-unionized Walmart employee is a job for…the non-unionized Walmart employee. Respect that, and we won’t tell you to eat your vegetables and straighten your tie.

This article is featured in:

**The Totally Money Blog Carnival #62-Easter Edition**

Filed Under: Capitalism, Economics, Economy, Making Smart Choices Tagged With: , ,
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