What did Yogi Berra say? It's deja vu all over again? Dow 10,000. Nasdaq 2,000. Media sources saying these stock market measurements reached "key levels" today. We've seen it before. If a market rally and those big round numbers make you happy, Fool, go ahead and enjoy it. Heck, the Nasdaq bungee-jumped 4% today, the FOOL 50 catapulted 3%. But smooth benchmarks like Dow 10,000 are just a part of the cacophonous ups and downs of the market. Remember the bubble, remember the past year, keep some long-term perspective. To quote Yogi once again, it ain't over til it's over -- and for long-term investors, it's probably not over until we're sitting on Retirement Island with the peace of mind that we've got a nest egg that will continue to work for us for the rest of our days.
In Today's Motley Fool Take:
Earlier this year, the Securities and Exchange Commission passed a rule requiring that mutual funds invest at least 80% of their assets in the securities implied by the funds' names. In other words, the "007 Intermediate-Term Bond Fund" must invest at least 80% of its assets in intermediate-term bonds. (Of course, the Investment Company Institute -- the trade group for the mutual fund industry -- fought such a stringent requirement.)
Previously, funds were required to just have 65% of assets invested according to what was stated in their name. Plus, that was just an "SEC position," not a rule. So, to cite an infamous example, the Alliance North American Government Income Trust had 25% of its assets invested in Argentinean investments back in 1995. The SEC tried to sue Alliance, but the case was dismissed.
The need for this rule highlights one of the many problems with investing in mutual funds: You never really know what you're getting. Even with this new rule, managers have 20% to play with, and they can disregard the rule altogether "in response to adverse market, economic, political, or other conditions," according to the SEC.
This rule only applies to funds with names that indicate a particular investment. It doesn't affect funds with names like Fidelity Magellan or Vanguard Windsor.
So what? If you choose to invest in mutual funds, consider these tips:
- Invest in an index fund. They outperform most actively managed funds, and are less likely to have "surprise" holdings.
- Use the fund's prospectus and third-party analysis (from such sources as Morningstar) to determine what the fund will likely be investing in. (We say "likely" because there are still plenty of loopholes available to mutual fund managers.)
- If you have the time, inclination, and acumen, invest in individual securities instead of funds.
Although attention to the implosion of Enron (NYSE: ENE) overshadowed Warren Buffett's disclosure that he brushes his teeth each day, reactions in the investment community have been passionate.
At a news conference last week, Warren Buffett, the septuagenarian chairman of Berkshire Hathaway (NYSE: BRK.A), and one of the world's wealthiest individuals, said "Well, one of my secrets is that I brush my teeth every day. Sometimes twice. And I always floss." Buffett then added, "What was the question again?"
Buffett declined to answer any questions as to his method of toothbrushing, except to say that he doesn't employ any newfangled technology when a good old manual toothbrush works just fine. "All of the information you need is right here in my mouth."
Most long-time Berkshire shareholders were sanguine about Buffett's toothbrushing. "Well, it's perfectly obvious that the man brushes his teeth," said one. Some more enthusiastic Buffett adherents immediately began collecting video footage of Buffett, attempting to reconstruct his methods by studying the results. One noted, "I've always admired Warren's choppers, and it makes sense that he's as principled in his oral hygiene as he is in everything else."
Some in the investment community were decidedly unimpressed. "The old man's lost it," said a technology investor. "Everyone knows that sonic refractive toothbrushes are the future," crowed another, gold tooth very much in evidence.
Charlie Munger, Berkshire's Vice-Chairman, was also present at the news conference. "I have nothing to add," said Munger, adding "for all of this talk about Warren brushing his teeth, I've never seen him do it."
Mega-media super-duper conglomerate AOL Time Warner (NYSE: AOL) announced today that CEO Gerald Levin will retire, effective May 2002. He will be replaced by current co-COO Richard Parsons, who currently oversees the company's content businesses.
Analysts expressed shock that Parsons was chosen over redundantly fellow co-COO Robert Pittman, the brainfather of MTV. Pittman was a former Time Warner executive who was president of AOL before the merger. Some speculated that Parsons was chosen over Pittman because Levin wanted a Time Warner person, not an AOL person, in charge. A source here at Fool HQ speculated that it was because Pittman's name "sounds vaguely icky." Both opinions may have some validity.
Seriously, though, everybody thought the job was Pittman's. Parsons is said to be a really good guy and stuff, though, so no harm done. The company seems blessed with depth in talented management. The bigger unanswered question is why does Levin, at the young age of 61, want to retire? In a recent New Yorker interview, he seemed content at his job. Could he have been forced out because he was the impediment to a deal for AT&T (NYSE: T) Broadband? Is he determined to get a job with Lockheed Martin to work on the Joint Strike Fighter?
Only time will tell.
There are two main kinds of employee retirement plans. With the formerly predominant "defined benefit" plan, employees are promised certain sums and it's up to the employer to save and invest enough moolah to cover its commitments. The employer bears most of the risk. With today's more popular "defined contribution" plan, such as the 401(k), employees bear most of the risk and responsibility. The amount of the contribution is what is defined, and employees must decide how to invest the money that will eventually be tapped in retirement.
Some of us may lament this recent transition, wishing for the defined benefit days of yore. Defined benefit plans have turned into major headaches for many companies, though. If firms didn't plan prudently and/or the economy or their performance worked against them, things could get ugly.
Consider the beleaguered steel industry. Bethlehem Steel (NYSE: BS) is moving to merge with U.S. Steel (NYSE: X) and perhaps several smaller steelmeisters, as well. As a Reuters story noted, Bethlehem Steel is asking "for creation of a government-sponsored program to help steel companies with pension and retiree healthcare costs, known as 'legacy costs,' and a new labor agreement to cut operating costs."
At Bethlehem, the situation is grim: The company is bearing health-care costs (which we all know haven't been going down) for more than 100,000 beneficiaries, including 74,000 retirees and their dependents. The rub? Well, Bethlehem has just 13,000 active workers, is not in the most profitable industry, and filed for Chapter 11 bankruptcy protection two months ago. Defined benefit has become a defined crisis in this case.
If you're considering investing in an old, established company, it might be worth it to investigate the state of its pension obligations.
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The intriguing story of Excite@Home continues. Late yesterday, the high-speed Internet provider said it had reached a transition agreement with nine cable operators to provide service through Feb. 28 of next year, at which point it will close its doors for good. The operators, which include Comcast (Nasdaq: CMCSK) and Cox Communications (NYSE: COX), will pay Excite@Home a combined $355 million for the services. Conspicuously absent from the agreement is AT&T (NYSE: T), which broke off its efforts yesterday to purchase Excite@Home's Internet service. Excite@Home cut off AT&T customers last Saturday, and AT&T said today it has moved about 90% of those affected to its own high-speed network.
Ford (NYSE: F) dropped a few percentage points today after warning investors it would fall short of fourth-quarter earnings estimates. Analysts were predicting the world's second-largest automaker to lose about $0.14 a share for the quarter, but today the company said it expects to lose $0.50 a share.
Chico's FAS (NYSE: CHS) is the man. Already up 168% this year, the specialty women's clothing retailer and former Foolish 8 member rose nearly 14% today after posting strong third-quarter results. Earnings rose 14% from the same period last year, while comparable-store sales rose 7%.
Today on Fool.com: With U.S. drug costs rising three times faster than GDP, are drug companies setting themselves up for a backlash?... Today's Rule Maker Portfolio report covers news from Intel, Cisco, American Express, and Johnson & Johnson... Looking to get the best deal on an automobile? Selena Maranjian has the lowdown on how cars are priced in today's Ask the Fool.... Finally, is it just possible that Santa Claus is a Rule Breaker?
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