Everyone Lies

November 9, 2012

 

Don’t count your chickens before they come home to roost, or something

 

Because there just aren’t enough stories about Apple as an investment, we’re adding our own. Why not? Apple is to personal finance as Tim Tebow is to ESPN First Take. Even if nothing of note is happening with the subject at hand, we still need to not only talk about it, but do so until the readers/viewers weep and beg us to discuss any other topic.

You’re going to have to wait a couple more days. In the last few months Apple has gone from in danger of passing ExxonMobil to become the biggest corporation on Earth, to passing ExxonMobil, to Apple’s stock price setting an acme, to it losing 10% off that high and therefore still being a topic of concern. You know, because no stock in the history of the world has ever reached its lifetime peak and then fallen 10%. Only Apple. Groundbreaking as usual.

A couple of weeks ago USA Today used an effective gimmick for a) attracting readers and b) continuing to give Apple undue attention: the misleading headline. Even better, USA Today posed the headline as a question so that no one could accuse them of sensationalism.

Do too many people own too much Apple stock?

Which not only has less zing than

Too many own too much Apple stock

But isn’t even news. Heck, it isn’t even research. The writer, Matt Krantz (subject of a recent post), starts with a conclusion and works his way back to the premises. Which is what journalists all too often do.

Sparing you from Mr. Krantz’s breezy introduction, we get to the meat of his “argument” a few paragraphs in. (This isn’t an inverted pyramid, it’s a pyramid that’s been ransacked and left to rubble.)

(I)nvestors have found that zeroing in on this one company is their ticket to a big Wall Street score. The stock has been a winner despite its recent decline, which briefly pushed it into a 10% correction. At its close of $635.85 Tuesday, it’s still up more than 50% this year, which compared with the 15% gain in the broad Standard & Poor’s 500 index makes it a runaway winner.

Get rich from a single stock? Without having bought it before everyone else did? Sure, sounds at least as solid a strategy as playing blackjack is. Diversity is overrated, anyway. Here’s the next fanciful line:

“I don’t want to diversify that much when I have one stock doing just fine,” says Matt Loud, a 28-year-old security worker in Bellingham, Wash., who has upwards of 38% of his retirement accounts in Apple.

We were going to track down Mr. Loud and ask him if what he said is true. Failing that, we’d find Mr. Krantz and ask him how he just slipped that into his story without asking Mr. Loud how hard a surface the delivering doctor dropped his head on. Fortunately, Twitter did the work for us.

Here’s a Tweet from @MatLoud to @MattKrantz dated October 2 (before the story ran, but whatever):

@mattkrantz apple plays a key role in my investments but I don’t have a substantial amount of outright shares.

So what does the USA Today quote even mean? How can you have 38% of your retirement savings in a company’s stock but “(not) have a substantial amount of (its) outright shares”?

Using Aristotelian logic, the only possibility is that Mr. Loud was referring to Apple stock in absolute terms, rather than relative ones, in the tweet. A standard lot of Apple stock is 100 shares, which would be worth $63,585. That’s 38% of $167,328, which would be a snappy nest egg for a 28-year-old unskilled worker with a disjointed Twitter account.

The other possibility is that Mr. Loud made the numbers up and/or doesn’t know what he’s talking about, and a journalist with a deadline and a conclusion needed something to flesh out his story.

Loud is part of a crowd of investors who have become infatuated owners of Apple — and richly rewarded as a result.

Then why wouldn’t you tell us how much he bought his stock for? Sounds like an important point, doesn’t it? Is he dollar-cost averaging? Did someone will him the stock? Did he buy it at its 2002 bottom? No, none of this is important.

Personal finance is useless unless you quantify. It’s not “I feel pretty good about my 401(k) balance.” It’s “I’ve got $145,342.99 in there, split between Vanguard’s Admiral Treasury Money Market Fund and its 500 Index Admiral Shares Fund. I contribute $1,950 monthly and my employer matches it.” If you don’t quantify, you don’t have any business investing.

Imagine Al Michaels telling us, “It seems like it’s been a lot of games since Drew Brees didn’t throw a touchdown pass.” Or Paul Ryan saying, “Our national deficit sure is big.”

It gets much worse. The author interviews a 35-year-old San Francisco housewife who claims she first bought Apple in 2007 (it ranged from $85 to $200 that year) and now holds ¾ of her portfolio in it. This is assuming she’s telling the truth. Later in the story she says she doesn’t like the new 9-pin connector, and what that has to do with investing, rather than consuming, we’re not sure.

The same housewife “worries…how much higher can it go”, then contradicts that worry by claiming that if it hits $750, she’ll sell. And will then have at least 78% of her portfolio in cash, assuming her other investments stay constant.

There’s a similarly depressing story about a retired soldier who has “nearly 40%” of his portfolio in Apple.

At Control Your Cash, we treat journalists with slightly less disdain than we do pederastic college football coaches. Check your sources? Not when there’s popular folklore to reinforce. We don’t believe that any of the interview subjects indeed have the listed percentages of their retirement savings in Apple, because we doubt the interview subjects even know what buttons on the calculator to press to divide their Apple holdings by their total holdings, let alone know how much Apple they hold.

The lies don’t stop there, either:

Nearly 17% of all individual investors own Apple shares

According to SigFig, a site Mr. Krantz contacted for his story.
Really? Every 6th individual investor in the country holds AAPL?

From Apple’s latest 10-K, and if you don’t know what a 10-K is, just buy our book already:

As of October 14, 2011, there were 28,543 shareholders of record.

Which would mean that there are only about 168,000 individual investors in the country. Also from the 10-K,

929,409,000 shares of Common Stock Issued and Outstanding as of October 14, 2011

Okay, now we’re the ones playing with facts. There are more than 28,543 individuals who own Apple. It’s just that most people own their shares via brokerage accounts. As far as Apple knows, your shares are under the name “Morgan Stanley” or “Charles Schwab”, not “Jane Doe”. As are your neighbors. It’s impossible to tell exactly how many people own Apple at a given time.

But we can estimate, and we can start by comparing apples to apples. Microsoft has 128,992 shareholders of record.  Alcoa has 319,000. Exxon Mobil has 486,416. Apple isn’t America’s most widely held stock, or anything close to that.

We could pick apart more of this story, but that’s not the point. The point is –
Alright, one more folkloric quote:

Apple investors, on average, have nearly 17% of their portfolios riding on that one stock.

That’s either impossible, or it includes the Apple directors and officers who have enough of the stock that they’ll be rich no matter what. (We’re guessing SigFig didn’t interview them.) Commonplace, you-and-me investors don’t have anywhere near 17% of their holdings in Apple. And if they did, the examples cited in the story wouldn’t be remarkable.

Alright, we’re back. The point is that if you read the financial news, even from a trusted outlet, even from the nation’s biggest newspaper, be skeptical. Nowhere near 1/6 of individual investors have a piece of Apple. No one who has ¾ of her money in Apple knows anything about anything, especially if she’s a dilettante with no coherent investing strategy.

And to answer the author’s rhetorical query? No, not too many people own too much Apple stock. Not even close. After 3 decades, the stock finally started paying a dividend, which will reduce liquidity. It’s trading at less than 15 times earnings, which is not only less than the S&P 500 average but hardly indicative of a bubble that’s reached maximum surface tension.

Would we buy it? No, because the $63,585 initial investment is a little too much for us to commit to when there are other investments available. Doesn’t mean you shouldn’t bite, though. Nor does it mean you shouldn’t invest in a mutual fund that prominently features Apple. Like PowerShares QQQ Trust, which is comprised 20% of Apple and is up 19% this year.

Question everything. Think about whether a quantitative claim makes any sense. And don’t take investment advice from 20-something security guards, impulsive housewives, nor the journalists who indulge them.

Filed Under: Bad Examples, Finance, Investments Tagged With: , , ,

How To Make An Effective $1200 An Hour

October 26, 2012

The guy with cop hand in his face should’ve read this post.

 

We haven’t done a story with a misleading headline in a while. So here’s one, in Yahoo! News and Drudge Report fashion.

You’re not going to make $1200 an hour doing this, but you could make $200 in 10 minutes. Or, more accurately, not lose $200 in 10 minutes. It’s a post about how to get out of a speeding ticket, or at least minimize the damage.

Your humble blogger enjoys driving fast for several reasons, the primary one being the self-evident one – you get where you’re going earlier. While we’re on the topic, something of a tangent: it makes no sense that old people drive slowly. They’re the ones who have the least sand left in the hourglass, yet they mosey along as if God isn’t tapping them on the shoulder and pointing to His watch.

So yeah, driving fast is efficient. Almost as importantly, it’s fun. The Richard Petty Driving Experience doesn’t charge people $135 to do laps of an oval at 45 mph. Also, driving fast forces you to pay attention to your surroundings, engaging you in a way that a driver fixated on the speed limit never is. Drivers who lull, or worse yet fall asleep at the wheel, are rarely speeding. It’s when the possibility for danger is heightened that your senses are correspondingly so.

Alright, enough preface. Two offenses, a couple of weeks apart. The first was outside the quiet desert town of Baghdad, Arizona, 82 in a 55 zone. Obviously, no one was in any danger. No bobbing and weaving, no dodging oncoming traffic, just unfortunate positioning (us here, the highway patrolman there – traveling in the other direction, on the crest of a hill, where a civilian’s radar detector is useless.)

That’s a $200 fine, for doing 25-30 over the limit. And probably a couple hundred more in the near future, indirectly, when the insurer realizes that they’ve been providing coverage to a genocidal driver who won’t be satisfied until the highways of the Southwest are covered with blood.

We got out for $40, no points, and no notification to our insurer (unless said insurer happens to read this blog. Hi there!)

How’d we do it? Simple. Here’s how you can do it:

  • Acknowledge the obvious: you’re busted. You saw the cop’s lights flash, so don’t be stupid. Pull over immediately. If it turns out that the cop happened to turn his lights on for a completely different reason, big deal – pulling over thus cost you a few seconds. If you are indeed the subject of the cop’s interest, you’re showing deference and expediency – you value his time too, and want to get this incident over with as soon as possible.
  • It’s going to take the cop a few seconds to approach your car. Break out your license, proof of insurance and registration and place them on the dash before he gets there. You’re not admitting guilt, at least not explicitly. But if you are guilty, or at least citable, doing this makes things easy for the cop.
  • Hands in front of you. On the steering wheel is as good a place as any. Tell your passengers to put their hands where the cop can see them, too.

Oh, you don’t have guns in the car? Why the hell not?

Riding with at least one gun (and, more importantly, availing the cop of its/their presence) shows you’re responsible. Doing so is common sense, and if you had to sit through a class to receive a concealed weapons permit, the instructor should have gone over this anyway.

The cop sees a speeder. He doesn’t know if you’re a career missionary who just returned from volunteer duty at the local veterans’ hospital, or Brandon Marshall. So put him at ease. Getting shot isn’t a common job hazard for any domestic line of work, but it’s a lot more frequent among police than it is in whatever you do for a living. The cop is certain you’re a speeder: make him equally certain that you’re not a criminal. Again, you’re trying to make his job easy here. Cops spend most of their workdays dealing with personalities ranging from verminous to merely uncooperative. Set yourself apart.

Oh, and tell him about the guns before he has a chance to talk. A) You’re supposed to and B) it’s kind of fun to initiate a conversation with a cop, forcing him to listen to you and not open his mouth until you’re done.

  • Don’t commit to a number when asked if you know how fast you were going. If you do, you’re signing your own warrant. Say something like “Officer, I was looking at the road, not my speedometer.” If you happen to be far from home, blame the scenery. “Officer, I thought I was driving safely and responsibly, but I was paying more attention to the gorgeous mountains and cacti than I was to my speed. I apologize for forcing you to stop me.”

We’re not kidding. Those quotes might look sarcastic, particularly the last one, but the idea here is to show deference. It’s amazing how many people will attempt to stand their ground against a cop, helpfully explaining to him why he’s wrong or at least misguided. If you’re going to do that, you might as well insult his mother.

All over our book, we remind you to look at each (financial) transaction from the other party’s perspective. Same deal for traffic stops. What does the cop want out of this? No hassles. Someone’s going to hassle him today, probably several people. Don’t be one of them. Be a bright or at least neutral spot in his otherwise stressful day. It’s not about who’s right. It’s about you minimizing the damage.

Back to our encounter. We found common ground, and continued to put the good patrolman at ease. We ending up discussing music for a few minutes – the merits of the Gibson SG over the Les Paul, etc. – and would have gone longer if we didn’t politely ask to get a move on before our bladders exploded. He said, “Look, I have to write you a ticket. You were doing 82 in a 55. I’m going to cite you for 5 over. Pay it by the end of the week and it won’t appear on your record. And slow down.”

Here’s what we didn’t do:

  • Plead for a reduced violation.

Reducing the violation is the cop’s call. Asking for it is like asking someone for a birthday gift. Tacky and ineffective.

  • Curse, threaten to fight the ticket, come up with an idiotic excuse, or use the venerable “Good thing there are no murderers or rapists for you to arrest” line.

This should go without saying, but it’s rarely a good idea to antagonize someone who has the legal authority to make your life miserable.

As for the second incident, that was on a lonely stretch of interstate in an even more remote part of the West. The officer was in the median. The radar detector went off too late to do anything about the excessive speed.

Again, pulled over immediately and did everything listed above. Complimented the officer’s beat (“These wide open spaces are just too distracting”), and he agreed to write up a 20 mph excess as a 1-5 mph one.

Then it got better. He did the thing where he steps back to his car for a few minutes, forcing his quarry to sweat, then returned and said, “I noticed you don’t have a front plate. The state requires one. I’m going to write you up for that instead.”

At least in the state in question, “No front plate” results in a fine or points only if the driver doesn’t show proof of correction within a fixed period. That is, if you affix the front plate to the vehicle, then fax a picture of same to the court, they’ll drop the charges.

Yes, if you no longer know where your front plate is you could conceivably just put the back plate on the front and send a picture of that to the court. Not that we encourage that, or would ever dream of doing it ourselves.

See? You learn something new on this site every day. Under the right circumstances, driving without a front plate can reduce your violation to zero. Grab a flathead screwdriver and take a little more control of your financial future right now.

 

And if all this fails, have breasts.

Filed Under: Bad Examples, Finance, Making Smart Choices, Role Model Tagged With: , , , , ,

Date The Plain Girl With The Good Job

October 10, 2012

 

You folks are never going to learn, are you? By “you folks” we mean the investing public, never ones to be dissuaded by a tight sweater or hair extensions. (Or for a corresponding example, an Xtreme Couture shirt and a neck tattoo.)

Our latest entrant in the irrational exuberance category, Chipotle Mexican Grill. The first few chapters of Chipotle history were a classic success story worth emulating. The company opened its 1st store in 1993, and opened its 2nd

  • 2 years later,
  • using the cash flow from the 1st.

Chipotle didn’t expand for the sake of expanding. It didn’t develop an appetite for franchise fees, saturating the market and abandoning quality control. It grew modestly, as you do.

There’s a common misconception that Chipotle originated as a brand of McDonald’s. Not quite. McDonald’s became a minority investor 3 years after that 2nd store opened, and within another 3 became Chipotle’s largest shareholder. With the resources of one of America’s healthiest corporations behind it, only then did Chipotle start growing exponentially and forever casting off its humble Denver origins.

And then, the initial public offering. January 2006, $42.40. Which is about where CMG stayed for the 1st year.

Look at the chart, which comprises CMG stock’s entire history. Notice anything unusual about it? Not that we encourage technical analysis over fundamental analysis here, but again, regard the chart.

It’s a fractal! The movement from inception through 2007 is a smaller version of the movement from the start of 2009 through April of this year (when the stock hit its zenith of $442.40.) We’ve already been on this ride before, the one where Chipotle loses ¾ of its value. This time around, the stock has lost only 35% of its value.

That includes a 7% drop in 5 minutes. The company has the Department of Labor assailing it from one side (for hiring illegals, or more precisely for hiring illegals while not being a union shop or a proud political contributor.) On the other side are venture capitalists selling off their institutional holdings. Unless you were prescient enough to have loaded up on Chipotle when it bottomed out the first time, which you weren’t, you’re probably looking to bail out.

Chipotle trades at 34 times earnings. It’s profitable, but not crazily so. What do we have here, fundamentally?

  • A company that provides what’s on one hand a necessity (sustenance), but on the other, a luxury. (We’re in a protracted recession, remember? You can make your own burritos, perhaps in less time than it takes to wait for one if your local Chipotle has an exceptionally busy lunch hour.)
  • A company with competitors that make an almost indistinguishable and indistinguishably priced product. (Qdoba, Moe’s Southwest Grill.)
  • The market leader, which isn’t necessarily a good thing:

Chipotle operates 1310 stores throughout the United States and Canada (and another half dozen in the United Kingdom and France.) Revenue is about $4700 per store, per day. Qdoba has half as many locations, Moe’s half of that, and Baja Fresh slightly fewer than that. The subject of our post can only sustain so much more growth.

Are there any barriers to entry? If you’ve got a) the phone number of a grocery wholesaler and b) a kitchen, you’re a potential Chipotle competitor.

Chipotle is a $9 billion company if you measure by market capitalization, what its stock is worth. It’s a $1 billion company if you measure by stockholder equity, the difference between accounting assets and liabilities. To us, that’s a company that’s overvalued by something approaching a factor of 9.

The food is better than Taco Bell’s. That’s not the point. This isn’t about winning consumer accolades. It’s about showing profitability and the potential for growth. Goofing on the food at McDonald’s is the go-to material for hack comedians everywhere, but In-N-Out didn’t turn a $5½ billion profit with a 20% margin last year.

Ask your average CMG stockholder which he thinks the stock will do first: hit $430 (a 50% jump), or $191.16 (a 50% reduction.) It’s obvious, isn’t it? We’re now at the point where mathematical inevitability will trump all the investor confidence in the world.

Believe it or not, we don’t follow the movements of 5000+ publicly traded securities every single day. We don’t even follow market sectors all that closely. But a $400 price tag for a seemingly unremarkable stock got our attention. Was that merely a function of the IPO, the company just originally deciding to have divided itself into a small number of shares in the first place? No. Did Chipotle figure out a way to dramatically reduce costs? (Unless you count hiring illegals, no. And the company’s habit of rounding checks to the nearest nickel doesn’t quite count as “dramatic”.)

Have you bought lunch at McKesson recently? Has Cardinal Health ever caught your eye with a wacky promotional and/or advertising campaign? The questions are rhetorical, but the balance sheets are hearteningly real. If you’re going to buy stocks, research like crazy and don’t lose sight of the goal – making money, rather than patronizing businesses you have an emotional affinity for. And if you have no clue how to get started, don’t just buy our book, but read the free e-book that accompanies it if you buy it on our site.

Filed Under: Bad Examples, Finance, Investments Tagged With:
« Previous Page
Next Page »