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It's the beginning of a new year -- time to take stock of a lot of things, including our portfolios. So, make a note, this is where the major indices opened on the first trading day of 2002: Now take note of where your own portfolio is. A year is perhaps only one-fiftieth of your investing life, but tracking your portfolio against a benchmark like the S&P 500 is a lifelong endeavor. If you're not beating the index you're tracking your portfolio against over the long term, it might be time to join it. The Motley Fool 50 Index started the new year off positively, gaining about 1%. In today's Motley Fool Take:
Companies need enough cash in the bank to be able to make interest payments on any debt they have, to fuel operations and grow their businesses, to buy back shares of their own stock when it's priced attractively, and/or to make acquisitions. If a firm has more money than it needs, that's where dividends come in. Most big, established companies pay out dividends to shareholders. ExxonMobil (NYSE: XOM), for example, pays out $0.23 per quarter, or $0.92 per year, per share to shareholders. (Its payout ratio is 0.37, meaning that the $0.92 dividend represents 37% of earnings per share.) Younger, more quickly growing firms usually need all the cash they can get their hands on in order to grow, so they typically don't pay dividends. Examples: Southwest Airlines (NYSE: LUV), eBay (NYSE: EBAY), EMC (NYSE: EMC), Costco (Nasdaq: COST), Amgen (Nasdaq: AMGN). A recent Wall Street Journal article (subscription required) raises some questions about Microsoft's (Nasdaq: MSFT) hoard of cash and marketable securities, which currently exceeds a whopping $36 billion. The company is just so darn profitable (gross margins topping 80% and net margins above 20%) that its pile of cash keeps growing and growing -- quickly. Indeed, nearly a fifth of Microsoft's operating income comes not from the sale of software, but from interest and dividends on its cash and marketable securities. One analyst estimates that the pile will grow to $48 billion within a year. All this and the company does not pay out dividends. As with just about any public company, if Microsoft is getting a better return on its cash (through investments, acquisitions, share buybacks, etc.) than shareholders would be able to get on their own with the money, then all is well. But if not, perhaps the time has come for Mr. Softy to consider paying out some of its cash to shareholders. (Learn how you can put dividends to work for you in Investing Without a Silver Spoon: How Anyone Can Build Wealth Through Direct Investing -- it's on sale now!)S&P 500 1,148.08
DJIA 10,021.71
FOOL 50 1,419.55
Wilshire 5000 10,818.57
Microsoft: How Much Is Too Much?
Vanity, Thy Name Is VISA
Forget national debt statistics, fluctuating APRs and how you're way over your VISA credit limit for the moment. Have you taken a good look at the plastic in your wallet lately?
The affinity card business is booming, and with the addition of branded gift charge cards, the contents of your wallet can reveal your alma mater ("Go Bucks!"), allegiances ("A member of the Ontario Trial Lawyer Association, eh?"), and even your addictions ("That Java Card from Starbucks is looking a bit worn.").
MBNA, the pioneer in the field of affinity cards, started the trend by giving consumers a way to show their allegiance to their athletic booster colleges. Today the company's card is carried by more than three million alumni and students of more 500 educational institutions.
Those who aren't filled with school spirit can express themselves with any one of the thousands of cards from MBNA and other issuers that carry the endorsements of everything from the Atlanta Braves to the American Ireland Fund. Reveal your rebellious side with your Harley-Davidson VISA. Celebrate your patriotism front and center with the new United We Stand VISA and MasterCards.
And finally, the item that prompted us to write about the vanity-card trend: Proud patrons of restaurant chain Hooters -- whose draw, insist customers, is the "family dining experience" -- can choose from the 10 recently introduced collectible cards bearing a host of Hooters Girls. [Dramatic pause.]
We would leave this Fool Take at that, but our editors insisted that we include some Foolish lesson. The lesson is this: If you purchase a Hooters gift card, first check for any processing fees, expiration dates, how leftover balances are handled, and if your wife or girlfriend is standing behind you.
Berkshire's Streak Comes to an End?
At midnight Tuesday one of the most remarkable streaks in business and investing may have come to an end. Berkshire Hathaway (NYSE: BRK.A), the insurance and diversified holding company controlled by Warren Buffett, may have finally shown a decrease in book value in 2001. This would mark the first time in Berkshire's 36-year history that this is the case.
We say "may have" because the real number will not be announced until Berkshire's next quarterly report. If we look at the stock price, Berkshire actually gained 7.2%. But Buffett has always pooh-poohed the short-term vagaries of market prices and focused more on increasing the book value of the company. From 1965 to 2001 Berkshire Hathaway's book value increased by an average of 23% per year, well above the 11% gain of the S&P 500 over the same stretch.
But the streak may be yet another casualty of the terrorist attacks in September. Berkshire Hathaway is one of the largest reinsurers in the country, particularly through its General Re subsidiary. Just after the bombing, Buffett announced that the company estimated its loss to be in the range of $2.2 billion, which it took as a charge against earnings. This, coupled with losses in the largest stock holdings of Berkshire, including Coca-Cola (NYSE: KO), Gillette (NYSE: G), Wells Fargo (NYSE: WFC), and American Express (NYSE: AXP) may be too much for the company's other operations to overcome.
None of this, of course, points to overall weakness at Berkshire Hathaway, except that its massive 1999 acquisition of General Re is still causing some heartburn, but it is somewhat sad to see such a remarkable streak come to an end.
Quote of Note
"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."
-- Warren Buffett
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Quick Takes
Short-term memory? Shares of computer memory makers Micron Technology (NYSE: MU) and Infineon (NYSE: IFX) rose sharply today on a possible end to the depression in memory prices. South Korea's struggling Hynix Semiconductor bumped up memory prices for the third time in the last month. Memory makers have been reportedly selling dynamic random access memory chips -- DRAM -- below cost.
Manufacturing may be less important to the economy than services, but it isn't chopped liver, and there are signs of improvement. The Institute for Supply Management Purchasing Manager's index bumped up to 48.2 in December from 44.5 in November for a second-straight monthly gain. The index is compiled from a survey of manager's factory orders, and a number below 50 indicates contraction. It's been under 50 since August 2000 -- the longest period since the 1990-1991 recession. More positively, the New Orders Index climbed from 48.8 to 54.9, the Production Index from 47.1 to 50.6, and Inventories Index dipped from 37.9 to 37.7.
You can satisfy your yen for euros. The changeover to the euro has reportedly gone smoothly so far. A bellwether: Eighty percent of ATMs in the euro zone are dispensing euros and the rest are on track to do so by the end of the week. Those from outside the zone will no longer watch their cash dwindle at each border with conversion fees. We wonder if governments have a transition plan for employees at the ubiquitous currency exchanges, that, for example, outnumber stores on the Rialto and other tourist hot spots.
America West Airlines' (NYSE: AWA) stock soared higher today on currents from Friday's news that the government tentatively would provide $380 million in loan guarantees to help stave off bankruptcy. Shares are up over 60% since the deal went public, but still are off 50% since Sept. 11.
And Finally...
Today on Fool.com: Bill Mann says to start the year with a clean slate and benchmark your portfolio returns against the market indices.... In the Rule Maker Portfolio, they're looking for a sustainable, defensible business that won't lose sight of its core revenues as it grows.... We spend a lot of time talking about stocks on Fool.com, but one community member says investing in real estate can help you retire early, too.
Contributors:
Brian Bauer, Bob Bobala, Robert Brokamp, Jeff Fischer, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Dayana Yochim
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