Reminder - JIG meets Monday night, April 26, at my house.
Below is an article from today's WSJ on Apple:
------------------
APRIL 23, 2010
Seven Reasons Apple Shareholders Should Be Cautious By BRETT ARENDS
Apple ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=AAPL ) investors could be excused for feeling on top of the world. Another blowout quarter has sent the stock booming to another all-time high. The iPad seems to be a success. Everything the company touches seems to turn to gold.
Savor the moment, by all means. But don't get complacent. If you're an Apple shareholder, here are seven things to be concerned about—and one thing you can do about it.1. Apple's good—but not that good. It's just that the competition is so bad. Nokia ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=NOK ), Microsoft ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=MSFT ), Samsung, Palm ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=PALM ): From smartphones to Internet tablets to computers, it's hard to believe so many big companies have blown it so badly. And they've committed mainly unforced errors, such as terrible user interfaces. I bought a non-iPod MP3 player the other day. It's great ... except making playlists is nearly impossible.
As long as the competition acts like this, Apple will keep winning. But its success owes less to the genius of Apple than the incompetence of everyone else. And that's something you can't control.
2. Apple fatigue. Was anything so ridiculous as the coverage of the new iPad? A computer company launched a new computer. Time and Newsweek put it on the cover, for heaven's sake, complete with fawning copy from the likes of Stephen Fry. A lot of people are getting absolutely fed up with this circus. Fashions come, but fashions go. Is Apple becoming overexposed? Right now Steve Jobs could sell his old underwear for $200 a pair (the "iPants"), and the sheep would line up at your local Apple store. If this mania lasts, it will be a first in human history.
3. The share price. At $260, Apple's stock price has more than doubled in a year. Amateur investors say, "It's going up." Present tense. Serious investors say, more accurately: "It has gone up." Past tense. No one knows the future. And the more it rises, the less attractive it gets. It's now 20 times annual cash flow and 5 and a half times annual sales. At $235 billion, the company is being valued at more than Sony ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=SNE ), Research In Motion ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=RIMM ), Dell ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=DELL ), Motorola ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=MOT ), Nokia, HTC ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=2498.TW ), SanDisk ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=SNDK ) and Palm ... put together. That assumes a lot.
4. Steve Jobs's ego. I don't care how much of a genius he is: Nobody is perfect. Yet Mr. Jobs has been subject to extravagant cheerleading, and it's not as if he was overendowed with a sense of humility to begin with. Bottom line: If and when he makes mistakes, who is going to stop him? A small but telling example: One thing keeping Apple from lots of extra iPhone sales to business users is that Mr. Jobs, for some reason, has a thing against keyboards. There's no business reason for it. It's a silly, unforced error.
5. The cellular networks. At what point will they stop giving away the store? Right now they're paying most of the cost of each new iPhone, and under-charging for the data plans too. That's great for customers and great for Apple, and bad for the networks. The iPhone is an expensive data hog that soaks up airtime, and there's always a risk the networks will start playing tougher. Verizon, which lost out to AT&T three years ago for the right to carry the iPhone in the US, doesn't seem to be suffering as a result. Its investors have done no worse than those of AT&T. And its data traffic just jumped 20%, even without the Apple phone.
6. Apple backlash. As the competition forfeits game after game, Apple is starting to dominate industries from cell phones and games to music and media. Now it looks like it wants to dominate ebooks too. But if Ken Auletta's account ( http://www.newyorker.com/repo%20rting/2010/04/26/100426fa_fact_auletta?curr… ) in the latest New Yorker is correct, Apple's game plan to defeat Amazon means teaming up with book publishers—and that may mean higher book prices for consumers. How will consumers react? And what will that do for Apple's "friendly," rebel image? Anyway, you can't play the underdog when you're the third-biggest company in the world by market value. Apple is already worth more than General Electric ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=GE ), Wal-Mart ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=WMT ), Chevron ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=CVX ) or Procter & Gamble ( http://online.wsj.com/public/quotes/main.html?type=djn&symbol=PG ). It is worth nearly as much as Microsoft. At some point it starts to look like the Big Brother it once vilified ( http://www.youtube.com/watch?v=OYecfV3ubP8 ). It may even look like the new Microsoft.
7. Steve Jobs's health. This is the "ick" issue. But Apple cheerleaders can't have it both ways. They can't hail Steve Jobs as a visionary genius and the world's greatest CEO, and then say it's none of shareholders' business whether he will still be running the company in three years' time. It's only a year since he had a liver transplant, and investors can hardly feel confident they got all the relevant information clearly and early. We all hope Mr. Jobs enjoys the best of health and lives to a ripe old age. But he still looks worryingly thin. This is something for investors to keep an eye on.
Some of these are issues that could erupt into problems quickly. Others, if they do emerge, would take more time. But if you're a nervous Apple investor, what are your alternatives? Sure you could sell some stock and take your profits. But if you don't want to get off this train quite yet, here's another idea: You could buy some insurance using "put" options. These pay out if the stock falls. So for $19 you can buy $200 puts, good until January 2012. These will limit your downside on the stock to $200. But if Apple keeps booming upwards, all you can lose is the $19.
Write to Brett Arends at brett.arends(a)wsj.com
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
NOTICE: Unless restricted by law, email correspondence to and from Anoka County government offices may be public data subject to the Minnesota Data Practices Act and/or may be disclosed to third parties.
I would like to reschedule the April 19th JIG meeting. My condo
association is having its annual meeting and there are a number of
matters being presented about which I'd like to hear. Also, I need to
do some lobbying of the association board to try to convince them to let
me put windows in my dining room. Originally I'd thought you could go
ahead and meet at my place without me, but Maryellen also has a conflict
on the 19th.
Monday, April 26th works for me, as does most any weeknight from April
21st through the end of the month.
Ideas, feedback...???
Thanks!
Betsy
NOTICE: Unless restricted by law, email correspondence to and from Anoka
County government offices may be public data subject to the Minnesota
Data Practices Act and/or may be disclosed to third parties.
Al, Jim and Maryellen have paid their March JIG contributions. John,
Peggy and I need to pony up.
Reminder for those of you who haven't already done so, let me know
whether you want your Shedule K-1 tax form e-mailed or a hard copy
mailed to you.
Betsy
NOTICE: Unless restricted by law, email correspondence to and from Anoka
County government offices may be public data subject to the Minnesota
Data Practices Act and/or may be disclosed to third parties.
Due to lack of participants tonight's meeting is canceled. Let Betsy
know if you want your K-1 mailed or emailed to you. Thank you!
Peggy Heaver
Anoka County Government Center
2100 Third Avenue, Sixth Floor
Anoka, MN 55303
(Tel) 763-323-6068
(Fax) 763-422-6988
Email: peggy.heaver(a)co.anoka.mn.us
NOTICE: Unless restricted by law, email correspondence to and from Anoka
County government offices may be public data subject to the Minnesota
Data Practices Act and/or may be disclosed to third parties.
Reminder that our rescheduled JIG meeting is tonight. I should have
your Schedule K-1 forms for you (just need to get them printed).
We have proxies from John and Maryellen.
NOTICE: Unless restricted by law, email correspondence to and from Anoka
County government offices may be public data subject to the Minnesota
Data Practices Act and/or may be disclosed to third parties.
FYI/FYE
February 6, 2010
Wealth Matters
Index Funds, Dowdy to Some, Get a Notable Endorsement
By PAUL SULLIVAN
FOR the wealthy, index funds have an image problem. They are considered the economy cars of the investing world: they.ll get you there but not in style and you.re always worried they may break down. Anyone at a serious level of wealth, the thinking goes, needs the equivalent of a luxury sedan, with strategic stock choices, hedge funds, private equity, real estate.
Burton G. Malkiel says this is all hogwash.
Best known for his classic investment treatise, .A Random Walk Down Wall Street,. Mr. Malkiel has just published .The Elements of Investing. with Charles Ellis, an investment consultant (Wiley, 2009). The book, an unabashed homage to .The Elements of Style. by William Strunk Jr. and E. B. White, is focused on the cleanest, simplest ways for people to invest their savings. He argues that while people of modest means are hurt by not saving regularly, wealthy people lose out by chasing the latest, greatest investment.
Mr. Malkiel, a professor of economics at Princeton University, has long advocated index funds. What.s striking now is his belief that the wealthiest would have fine returns without the volatility and high fees if they simply used indexes to diversify their money across asset classes.
.This is still a strategy that is good for people of all income levels,. he said. .If I took all the mutual funds that existed in the early 1970s and asked the question how many really beat the market through 2009, you can count them on the fingers of one hand..
There are plenty of dissenters to this view. James T. Tierney Jr., a senior vice president at W. P. Stewart & Company, which has $1.6 billion invested in 15 to 20 stocks, equated indexing to judging baseball players against the league average. .It.s like saying all hitters hit .275,. he said. .That.s not the case. Some hit .325 and some hit .200. If you find the ones with the higher average, you.re adding real value..
The argument between advocates of the two approaches . indexing versus active managing . is an old one and will not be resolved here. But Mr. Malkiel.s assertion that even the wealthiest investors should use indexes is intriguing. What follows are his main arguments in favor of indexing and the rebuttals from advisers who earn their livings doing the opposite.
INACTIVITY STRATEGY Mr. Malkiel has long said that no one can consistently pick winning stocks and bonds. He argues that index funds are the best, low-cost ways to invest money you will need. .We say to people in the book, .Don.t try to time the market,. . he said. .It.s not that you can.t do it; it.s that you won.t do it. The emotions will get a hold of you..
He pushes everyone to stick instead to a balance of stocks and bonds that are right for their age and to rebalance this annually so the proportions remain the same. Yet in this sense, his advice is not so different from what strategists at wealth management firms do.
.Asset allocation is the most important decision . 90 percent of returns extend from that,. said Joseph Jennings, director of investments in Baltimore for PNC Wealth Management.
On the other hand, Mr. Tierney argued that W. P. Stewart.s concentrated approach to stock picking serves high-net-worth investors better. .We.re selecting high-quality companies with earnings streams and eliminating all the bad stocks in the S.& P. that you have to own because it.s an index,. he said.
Mr. Tierney pointed out that his strategy has consistently beat the Standard & Poor.s 500-stock index. Since the fund.s inception in 1974, it has outperformed the S.& P. in its 28 positive years, 23.3 percent to 19.9 percent, and in the index.s seven down years, negative 2.9 percent versus negative 13.7 percent.
FEES Of course, all of W. P. Stewart.s returns were reported with its average management fee of 1.2 percent. And this is the area where Mr. Malkiel.s feelings are strongest.
While the old adage says you get what you pay for, Mr. Malkiel argues the opposite. .The one thing I.m absolutely sure about is the less I pay to the purveyor of the service, the more that will be left for me,. he said. .Whatever bad things happen with buying index funds, things are worse with actively managed funds..
This makes sense for the modest investor with a straightforward portfolio. But the counterargument is that the wealthy need more advice because of the complexity of their assets, and that the advice is worth the fees. (Mr. Malkiel would say the rich just need more tax-planning advice.)
.I understand Malkiel.s argument about fees; they should not be overlooked,. Mr. Jennings said. .But there are other factors, too. What is the client trying to accomplish? What are they looking to do?.
When it comes to fees, Mr. Malkiel reserves his harshest words for those favorite pre-recession investments: hedge funds. He contends that no one . except university endowment managers . should invest in them, mainly because of their fees . typically a 2 percent management fee and 20 percent of gains. Hedge funds, he said, are .great deals for the hedge fund managers but not super deals for the investors..
NO ALTERNATIVES Even Mr. Malkiel.s admirers disagree with his stance against alternative investments. They argue that wealthy, sophisticated investors are shortchanged if they do not have the ability to, say, bet against the stock of a company, as some hedge funds do.
.Being able to short stocks is a very important tool,. said Rex Macey, chief investment officer of Wilmington Trust, who calls himself an admirer of Mr. Malkiel. .If you.re long only, all you can do is not hold a stock. If you have an opinion and insight into a company that is not good, you have to be able to short it..
But Mr. Macey added, .Burton is absolutely right that you have to be careful of fees..
Still, even if hedge funds. fees were not so high, Mr. Malkiel has another objection to them. .There are very few that are any good,. he said. He added that his research had shown the good hedge funds of one era were not the good ones of another. And even if the hedge fund is a good one, he said, it.s likely to be selective in its investors or simply be closed to new ones.
This comes back to his argument for indexing broadly and avoiding alternative investments. .You don.t need a commodities fund if you.re really well diversified and into emerging markets,. he said. .You.re going to have some investments in Brazil, which is natural resource rich. It.s simple..
HIS PORTFOLIO Unlike most advisers, Mr. Malkiel was willing to divulge his own investments. Through his best-selling books and his various board seats Mr. Malkiel, 78, is wealthy enough to have a top adviser. But he said he indexes all the money he needs for his retirement.
.My investments are broken down almost exactly as I indicated,. he said. He has put in index funds the money from his individual retirement account, his 403(b) plan . for teachers the equivalent of a 401(k) . and the fees he receives from sitting on various boards.
In addition, he said, he invests in municipal bonds. .I don.t buy a fund for that because I think I.m capable of doing that myself, but most people should buy a fund,. he said. .Beyond that, I buy a few stocks because it.s fun..
.All the serious money,. he added, .is indexed..
--
------------------------------
* Dr. James Ellingson, jellings(a)me.umn.edu *
* University of Minnesota, mobile : 651/645-0753 *
* Great Lakes Brewing News, 1569 Laurel Ave., St. Paul, MN 55104 *
JIG meets Monday night at my place. We have a proxy and check from
Maryellen.
See you there.
Betsy
NOTICE: Unless restricted by law, email correspondence to and from Anoka
County government offices may be public data subject to the Minnesota
Data Practices Act and/or may be disclosed to third parties.
Just a reminder that tonight's JIG meeting is at Maryellen and Peter's:
428 3rd Ave. NE
Minneapolis, MN 55413
Phone: 612-623-7805
Later,
Betsy
NOTICE: Unless restricted by law, email correspondence to and from Anoka
County government offices may be public data subject to the Minnesota
Data Practices Act and/or may be disclosed to third parties.
REMINDER: JIG holiday party/meeting (brief) is Monday at my house around 6:30. Looking forward to seeing everyone (that means friends, spouse, etc.). m
Maryellen Skan
612-623-7805
skan(a)umn.edu
