This was a cheery Monday for the markets, with the major averages up big to start off the week. The Dow added 170 points for a 1.7% gain, and the Nasdaq moved up 3.25%. The Motley Fool 50 also joined in the fun, tacking on more than 2.25%.
Of course, we had an even bigger day last week, and yet all the indexes finished the week down. The day-to-day and week-to-week gyrations of the market may be interesting, but they're little more than background noise in the long term. As one popular saying goes, over the short term the market is a voting machine, but over the long term it's a weighing machine. You'll find that bit of wisdom attributed to legendary value investor Benjamin Graham, but we like to think Yogi Berra really said it.
Other Yogi-isms:
"Nobody goes to that restaurant anymore, it's too crowded."
"It gets late early out there."
"You can observe a lot by watching."
And, tellingly: "I really didn't say everything I said."
Well said. Now, on with the show.
In today's Motley Fool Take:
The Softer Side of Sears
In retail, actions speak louder than words. With this morning's move by Sears (NYSE: S) to acquire apparel chain Lands' End (NYSE: LE) in a $1.9-billion transaction, it appears as if the department store pioneer is backpedaling on its move away from soft goods.
After all, Sears was starting to realize that it couldn't be all things to all people. Despite its "softer side" ad campaign, the retailer was really only relevant in hard goods. With Craftsman tools and Kenmore appliances as its lone strengths, the company was suffering through an identity crisis. It couldn't compete against the Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) chains in the discount space and its hard goods anchor kept its upscale efforts in check. So why buy Lands' End?
Well, beyond the fact that both companies share mail order roots, it makes sense for Sears. Lands' End has not only succeeded in the clothing realm that has given Sears problems, but it is also the leading online apparel retailer. Sears will begin adding Lands' End merchandise to its namesake stores, a good move for the chain since Lands' End has a very limited brick-and-mortar presence. The popular brand that Sears was never able to create in-house, it will now own -- at the price of $62 for each share of Lands' End outstanding. Who would have thought that figuring out the soft side would be this hard?
Discussion Board of the Day: Lands' End
Is this the best move for Lands' End? Will Sears help grow the brand or downgrade it? All this and more -- in the Lands' End Discussion Board. Only on Fool.com.
Big Accounting Changes From S&P
Standard & Poor's is expected to announce tomorrow some changes in the way it calculates operating earnings, and that will turn up the heat on companies that do not account for stock options as an expense against earnings.
According to published reports, S&P -- famous for stock indexes and credit ratings -- will begin treating stock options as an expense. It will also count some other expenses (like restructuring charges) against operating earnings and exclude pension plan investment gains, among others. S&P has no power to force companies to follow its lead, but its urgings -- as well as those of members of Congress and influential business leaders like Warren Buffett -- put pressure on them to do so.
What will all this mean? For starters, the market will take on a richer appearance. The Wall Street Journal estimates earnings for companies in the S&P 500 will drop by an average of 10% when stock options are expensed, and the new standards will bump up the index's P/E significantly, to 30 times estimated 2002 earnings from its current multiple of 22.
S&P chief economist David Blitzer told London's Financial Times the new standard will provide for "clear and transparent earnings reports that honestly portray the company's profits and losses." That's certainly something we support, as evidenced in prior articles and The Motley Fool Manifesto. From Part 6, Accounting Standards:
"The fact is that companies have an unequal benefit of being able to ignore the cost of stock options for existing shareowners....Yet there are significant constituencies exerting pressure on the FASB to reject the notion of stock options as an expense. For American accounting to remain robust, an issue that has been projected to cause an overstatement of earnings by more than 2% per year among all U.S. companies is important enough to be reviewed."
"Never doubt that a small group of thoughtful, committed people can change the world; indeed, it's the only thing that ever has!" -- Margaret Mead
Penny-Pinching for New Parents
Uncle Sam estimates that it will cost $150,000 to $200,000 to raise a child, and that doesn't include the cost of college or nose rings. Of course, parents readily acknowledge (in public, at least) that their kids are worth every penny. But does it have to cost so much to propagate the species? Absolutely not. Below are some cost-saving strategies to take the "rub" out of "cherub."
- Make sure you comparison-shop. This is easiest done via the Web. Besides checking out the major retailers' websites, visiting MySimon.com is a handy way to compare the prices for baby items. Another place to look for bargains is at manufacturers' websites, such as this one for COMBI. You may save up to 50% on past models of various items.
- Try out things before you buy them. Test-drive strollers, try on baby carriers, and make sure you can tolerate the repetitive songs played by various toys. Also, keep in mind that every baby has a different personality. Some infants don't care for vibrating chairs, even though this is an item on many "must-have" lists.
- Calm your "inner decorator." You can go hog-wild on nursery decorations and furniture, especially if you get sucked into the "Why would you want anything less than the best for your baby" mentality. Decked-out nurseries are something for parents and friends; babies couldn't care less. They like black, white, and red, pictures of other babies, and photos of mom and dad -- and aren't picky about whether the crib sheets match the diaper stacker. Why do you need a diaper stacker, anyway?
- Consult good sources. Perhaps the best book for any new parent -- besides 101 Household Uses for Dirty Diapers -- is Baby Bargains. Another grand resource is other parents, and you can talk to a whole bunch on the Parents and Expecting Parents discussion board.
A word of caution: No bargain is worth compromising your child's safety. If you are going to use "pre-owned" equipment -- such as strollers, cribs, or high chairs -- make sure you do a thorough inspection. Know the safety specifications for baby supplies and check companies' websites for recalls. The National Safe Kids Campaign has plenty of general safety information, and the National Highway Traffic Safety Administration has a website with recall information on car seats.
Shameless Plug: TMF Money Advisor for Dad
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Fools Attend RetireMint Conference for Free!
To help educate Americans about the importance of saving, investing, and planning financially for all life stages, the American Savings Education Council (ASEC) will hold the second RetireMint conference in New York City on May 17-18, 2002. The two-day financial education event -- the largest and most comprehensive of its kind -- is geared to both individual investors of all ages and backgrounds and benefits professionals. The RetireMint conference will consist of two program tracks, "Money Survival Skills for Real People" and "Retirement Plans: Here Today... Where Tomorrow?"
And the best news: Fools can attend for FREE (save $20!) by registering here: www.retiremint.com/thefool/. Come and join Fool personal finance writers Dayana Yochim (TMF School) and Robert Brokamp (TMF Bro) to discuss ways to rule your retirement, boost your short-term savings, and anything else that is on your mind!
Last week the SEC held an "Investor Summit," and our own Bill Mann participated as a panelist. Click over to the SEC website and listen to the summit.
Today's lackluster market is putting pressure on brokerages. Leading discount brokerage Charles Schwab (NYSE: SCH) has reported that average daily trading activity fell 18 percent in April (compared to year-ago levels). The company raked in just $2.6 billion in net new assets in March, less than half of year-ago levels. (Learn more about discount brokerages.)
Toys "R" Us (NYSE: TOY) is waxing bullish, expecting to lose less in its first quarter than Wall Street analysts have been expecting (two to three cents versus nine cents). Credited for the improved outlook are boosted gross margins and successful cost-cutting efforts.
James J. Cramer, The Street.com's (Nasdaq: TSCM) co-founder whom many love or hate, has just released a new book, Confessions of a Street Addict, while embroiled in controversy (free subscription required) surrounding some of his behavior and while reportedly being investigated by the SEC and others.
President Bush today signed a controversial new law that will boost crop and dairy subsidies by 67%. A Reuters story notes that, "The new [six-year, $52 billion] law adds an estimated $6.4 billion a year to crop and dairy spending and marks a further retreat from free-market reforms begun in 1985." Learn more about it.
The Wall Street Journal (subscription required, free trial available to Fools) reported today that, "US Airways Group (NYSE: U), among the hardest hit of the nation's airlines following Sept. 11, said it could be forced to seek bankruptcy-court protection unless it receives concessions from its employees and creditors, as well as loan guarantees from the federal government."
A Washington Post article details the SEC's interest in CEOs "[sitting] down once a year and [writing] their investors a clear, concise, and frank assessment of the company's recent performance and future prospects" and explains how hard it can be for investors to figure out "what's really going on in a company." Go get 'em, SEC!
If you're waiting for some great news regarding long-distance giant WorldCom (Nasdaq: WCOM), you still need to wait. In the past few days, the beleaguered company's (substantial) debt has had its rating reduced to junk status by Moody's (NYSE: MCO), Fitch Ratings, and Standard & Poor's.
According to The New York Times (free registration required), "Tens of thousands of stolen credit card numbers are being offered for sale each week on the Internet in a handful of thriving, membership-only cyber-bazaars, operated largely by residents of the former Soviet Union, who have become central players in credit card and identity theft."
And Finally...
Today on Fool.com: Matt Richey praises outdoor-gear retailer Sportsman's Guide as a great little business at a great price.... Bill Mann asks, with the market down and investors suspicious or uneducated, where do we go from here?... In our new College Savings Center, read up on how much college will cost and how you can afford it.... In our Home Center, learn six ways to save on your mortgage.... Fool's School explains the different types of Treasury securities.
Contributors:
Bob Bobala, Robert Brokamp, Jeff Fischer, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Reggie Santiago, Dayana Yochim
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