Sysco is up 5%
Posted by Eddy Elfenbein on January 30th, 2006 at 11:03 am

Thanks to ExxonMobil (XOM), today is another big day for the energy sector. Interestingly, ExxonMobil launched a preemptive public relations blitz and took out ads in several newspapers defending its profits.
Incidentally, Friday was another good day for the Buy List. We followed up Thursday’s impressive rally, which was our best day of the year, with our second-best day of the year.
For today, only five stocks on the Buy List are higher, but thanks to big rallies from Sysco (SYY) and Expeditors (EXPD), the Buy List as a whole is slightly in the black so far. Sysco is up nearly 5%, and Expeditors is at a new high.

Risk is Relative
Posted by Eddy Elfenbein on January 30th, 2006 at 10:34 am

In the New York Times, Virginia Postrel had an interesting article on risk. She notes the work of Professor Shane Frederick of MIT who’s studied how people have different conceptions of risk. Risk truly is in the eye of the beholder.
Professor Frederick devised a simple math test in which all the answers are counter-intuitive. He found a very strong correlation between test answers and a person’s perception of risk.

“Even when it actually hurts you on average to take the gamble, the smart people, the high-scoring people, actually like it more,” Professor Frederick said in an interview. Almost a third of high scorers preferred a 1 percent chance of $5,000 to a sure $60.
They are also more patient, particularly when the difference, and the implied interest rate, is large. Choosing $3,400 this month over $3,800 next month implies an annual discount rate of 280 percent. Yet only 35 percent of low scorers — those who missed every question — said they would wait, while 60 percent of high scorers preferred the later, bigger payoff.
Men and women also show different results. “Expressed loosely,” he writes, “being smart makes women patient and makes men take more risks.”

You can see Professor Frederick’s original article here.

Sysco’s Earnings
Posted by Eddy Elfenbein on January 30th, 2006 at 9:48 am

Today will be another busy day for earnings. ExxonMobil (XOM) reported that it earned $10 billion for the fourth quarter. According to Reuters, the company’s profit last year was larger than the economies of 125 countries.
Sysco (SYY) reported that it earned 33 cents a share, but had a charge of four cents a share due to stock options. Including that charge, Wall Street was expecting 37 cents a share. Sales also came in above expectations.
AFLAC (AFL) and Fiserv (FISV) will report after the close.
Dell’s (DELL) CEO said that its sales will grow faster than the market’s. The company is going to hire another 5,000 people in India, bringing its total in that country to 15,000.

A Look at the Long Term
Posted by Eddy Elfenbein on January 27th, 2006 at 2:18 pm

Here’s a question for you.
Including dividends and inflation, what’s the average rate of return for the broad stock market?
12%?
15%?
Not even close. Over the last 80 years, the real return of equities is just 7.1%. Pretty small. At that rate, you’ll double your money every 10.1 years.
I don’t think most investors realize how small the historical rate of return is.
Below is an interesting graph I made, but bear with me, it takes some explaining. I took the 80-year real return data and divided it by a line growing at 7% a year. By doing this, the unusual bull and bear periods stand out a lot better.
(If you’re confused, think of it this way: When this line is moving straight, equities are growing at 7% a year. Also, the line roughly begins and ends at 1.0.)
Interestingly, the 1987 crash only appears as a rather minor blip. From 2000-2002, the line gave back everything it gained from 1995 to 2000. Six years ago, it was hard to tell people that this isn’t normal. Now I think you can see what an outlier that period was.
It looks like there’s only been three truly great bull markets: one in the late-20’s, another in the early-50’s and another from 1982-2000.
I also think it’s interesting that the peaks and troughs are fairly symmetrical (1942 and 1982, 1966 and 2000).

Happy 250th Birthday Mozart
Posted by Eddy Elfenbein on January 27th, 2006 at 12:45 pm

Wolfgang Amadeus Mozart was born in Salzburg on January 27, 1756. During his life, he wrote over 600 works. His output was astounding; 41 symphonies, 21 operas, 15 masses, 12 violin concertos, 27 concert arias, 17 piano sonatas, 26 string quartets and much, much more. He did it all in 35 short years.
Tom Lehrer said, “when Mozart was my age, he had been dead for two years.”

Biomet Up 6%
Posted by Eddy Elfenbein on January 27th, 2006 at 11:34 am

Another good day for us. Biomet (BMET) is soaring. The shares are up over 6% today. Varian Medical (VAR) is up another 4% today. The stock is up 19% for us this year. Donaldson (DCI) is up to a new 52-week high, and Fiserv (FISV) is up over 3%. There’s still 4-1/2 hours of trading but this is a nice finish to week.

GDP Report
Posted by Eddy Elfenbein on January 27th, 2006 at 9:55 am

Today, the government released its first report on fourth-quarter GDP growth. They released a GDP report at the end of each month, so this report will be revised twice more.
According to today’s report, the economy grew by 1.1% (annualized) for the last three months of 2005. That’s pretty bad and it’s about half of what economists were expecting.
Until now, the economy had delivered over 3.3% growth for ten straight quarters. So I guess we shouldn’t be too greedy. Also, this was positive growth so we can say that the economy isn’t receding.
The economy has grown at a faster rate over the last 3-1/2 years than it did during the 1990’s.
Reuters is declaring: “GDP growth at weakest in three years.” That’s accurate, but that headline can be used, on average, once every three years. For any set of 12 quarters, one will have to be the weakest. Of course, only three quarters ago we were being warned about the “Slowest GDP growth in 2 years.”

The Market Today
Posted by Eddy Elfenbein on January 26th, 2006 at 4:17 pm

This was the Buy List’s best day of the year. In fact, we more than doubled our second-best day. We also doubled the S&P 500.
The S&P 500 rose 9.15 points to 1273.83, an increase of 0.72%. The 20 stocks of our Buy List rose 1.64%. For the year, we’re still trailing the market 2.05% to 1.49%.
Sixteen of our 20 stock went up. The big winner was Respironics (RESP) which was up 7.20%. Our other big winner was Varian Medical Services (VAR) which was up 5.01%.
Expeditors (EXPD) was also up big, jumping 3.58%. Golden West Financial (GDW) closed 3.66% higher.
Chipotle (CMG) closed at $44 a share, a nice 100% for its first day on the market.
General Motors (GM) dropped 3.35%. The stock is still about five dollars above its 52-week low.
The Oil Service Holders ETF (OIH) has a nice turnaround today and closed 0.60% higher.

Breaking Down The OIH
Posted by Eddy Elfenbein on January 26th, 2006 at 3:58 pm

Here’s a closer look at the 18 stocks in the Oil Service Holders ETF (OIH). This has become one of the most popular exchange-traded funds on Wall Street. Since May 13, the ETF is up 75%.
I’ve thought that this sector has been overpriced for some time. Yet, despite what I think, the stocks keep going up, up, up.
With this chart, I wanted to show you just how high Wall Street’s expectations are. Look at the projected five-year growth rates. It’s rare for a company to grow its earnings 20% a year for five years, much less 30% or 50%. Thess projections are very optimistic.
Note: This is a corrected version of my original post where I had listed the 35 stocks in the Dow Jones Oil Equipment Services Index. Thanks to Roger Nusbaum for pointing me in the right direction. You can see more info on the OIH here.

For Nerds Only
Posted by Eddy Elfenbein on January 26th, 2006 at 2:24 pm

Here’s a fascinating article on Pythagoras’ theorem. Robert P. Crease says that the theorem is about a lot more than the sides of triangles. It’s about “the idea of proof itself.”