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Philip Morris Companies
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Merrill who?

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By BuildMWell
October 15, 2002

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"Wasn't it Merrill Lynch that was recommending Amazon.com at $400 a share? What a bunch of losers."

Absolutely. I hope we have all figured out the real game plan here. If you listen to CNBC for any length of time, the game is obvious just hearing the "talking heads" explain their outlook to us.

The plan is to beat this stock market down as far as it can possibly go through negative comments, innuendo and outright lies. I continue to hear experts point to the bond markets and rave about "how smart bond investors were to get out of the stock market". And, that is true on the short-term. But, to imply that buying a 10 year bond at a 3.6% yield is smart...well, I have to wonder about that idea.

The investor who is talked into moving into bonds today stands a really good chance of losing 25% of his investment if bond yields move back to 40 year averages. The 10 year bond yield today is around 1958 levels. Now, that is good in one respect and bad in another.

If you truly believe that we are going back to a 1958 type economy, then bond yields will continue to drop and today's bond investment will prove to be wise. Stocks will continue to move down to 6000 or even 5000 as Bill Gross has shown. Of course, Bill Gross is a bond guru! What else would he say? BUT! Does what he says make sense? That is the real question. What makes sense to us?

Let me ask my question. Does it actually make more sense that Wall Street is just playing their typical game which is aimed at robbing the ignorant, little guy of his savings? That's right, the idea is to get the silly investors to sell their blue chip, high dividend stocks on any bad news and then get them to buy "safe" and "guaranteed" 3.6% yield bonds. In fact, to fuel the game, they trump up more and more bad news to feed the panic! Then, once enough small investors are locked into these long-term, low-yield instruments, the gurus then switch their story and begin calling the absolute bottom in the markets. They suddenly see earnings that were mysteriously hidden just a month before, they hype stocks and the bond markets start to fall as investors move their funds back again into stocks. Golly, and look at bonds! The yields are soaring! If they were a good buy at 3.6% look how great they are at 4.5%! As usual, the last ones out of stocks will also be the last ones out of bonds...waiting for bonds to surge once again. They will absolutely believe the guys who put them there were right. Surely the broker will call if there is a real problem.

But, the broker never calls because he never calls the sucker back. Suckers are expendable.

Last night I was at a seminar on investing. The subject was "How to reduce risk in your portfolio". They served an very tasty meal and the presentation was interesting. It was Interesting for what they did not intend to say more so than for what they were actually selling.

On one slide, the speaker showed a graph of the NASDAQ market from 1994 to today. He pointed to the peak at 5100 and showed that we have lost 76% of that value. Then he said, "The experts tell us that we will not retest the highs of 2000 for six or seven years!" He was trying to show how a well balanced portfolio of stocks and bonds using the power of hedge funds could give 14% returns even in a down market. The idea was, "Sign up with us and we will make you 14% instead of losing money like you have for the past two years!"

After the presentation, the speaker sat down across from my wife and me since there was an empty chair there. We had a great conversation about lots of topics. But then, late into the meal, I asked him, "If we retest the 5100 highs on the NASDAQ in six years the QQQ will give a 27% annual return and if it takes seven years, the return is still 23%. It seems to me that just being invested in the NASDAQ market will give a nice return. Your projected 14% is almost half that yield."

Now, you will notice that I did not ask this in front of the entire room. I mean, those nice people were feeding us a great dinner...I felt I owed it to them to let them make their points without any "comments from the peanut gallery". And, I even waited until everyone else at our table had left before I asked my question. But, without blinking, the answer came back, "Remember, that NASDAQ return is not guaranteed. It could be ten years!"

Well, he had me! I had not calculated the return if it took ten years and I thought it would be rude to pull out my calculator and do the math right then and there. He had already told me all I needed to hear. It is true that the NASDAQ yields are not guaranteed, but neither was the yield guaranteed from his scheme. But, he was willing to imply that was the difference.

Anyway, today I did the math. If it actually takes ten years, the return is 16.3% compounded yearly! Not a bad return at all. And, my friends that is the game plan in a nutshell. Patience pays. Impatient people are suckers. Meanwhile, those of us patient Philip Morris investors can reap 7% returns even if Philip Morris never gets back to the $60/share where it should be today. To me MO beats a long bond without any question. Why buy a 10 year bond at 3.6% when you can own an appreciating asset yielding 7%? Now, that makes sense to me...and not one single broker has called me to tell me that.


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