02/15/2006
Are we headed for a cut in profit estimates over the next several months? That is what some Wall Street analysts are predicting, but it's not coming from a lack of corporate sales. Instead, this pitfall could be the result of new accounting rules that force companies to place a dollar value on stock options, and view them as a cost to be deducted from their profits.
In the "Heard on the Street" column of yesterday's Wall Street Journal, analysts speculated that over the next few months they'll be slashing earnings estimates for many companies whose stock options will begin to be counted as an expense. Most at-risk are companies in the technology sector, which have traditionally used large amounts of stock options to sweeten the pot for new employees.
For example, semiconductor giant Broadcom Corp. is expected to earn $2.15 a share this year. But after the value of its options have been subtracted, that figure could slump down to just $1.10 per share. That's nearly a 50% drop!
A mass revision in earnings estimates, especially in the tech sector, could have a big impact on stock prices over the next 12 weeks. Be prepared to see a lot more of the same volatility we've seen over the past couple of weeks, as Wall Street begins seriously grappling with this options accounting issue.
If you still have a 401k with a former employer, you are running the risk of not having access to your money when you need it.
According to the Wall Street Journal, a growing number of individuals who had 401ks with small companies that are now defunct are finding it extremely difficult to get to their own money. Due to the laws that govern 401k plans, if there is no one from the former employer authorized to approve a 401k rollover, the financial-services company that manages the plan cannot release the funds.
It is estimated that about 2% of all such plans are left "orphaned" each year, held by financial institutions without an employer representative to oversee the plan. That translates into about 30,000 workers and over $850 million in retirement assets virtually held hostage by bureaucratic rules.
The Labor Department is about to propose new rules to alleviate this problem, but do you really want to rely on the federal government for access to your own money?
If you have a 401k at a former employer, get on the phone TODAY with the discount brokerage of your choice and get started with a rollover IRA. Not only will you have access to your money without the hassle of getting anyone's approval, you'll also be able to invest your money in all of the exciting new tools available to individual investors, such as my beloved Exchange Traded Funds (ETFs).
If you need a little help as to which ETFs are the best for the current market climate, or you want to know if the time is right to be in—or when to be out—of stocks, then my Successful Investing service is right for you. Click on the link below for more information on what my service can do for you:
http://www.fabianssuccessfulinvesting.com/order.php?offer=12
On Monday we saw the rollout of three new Exchange Traded Funds from the company that started it all, State Street Global Advisors. The new funds are designed to track three of this market's most talked about sectors: biotechnology, homebuilders, and semiconductor stocks.
State Street Global Advisors said that these sector SPDRs—short for Standard & Poor's Depository Receipts and commonly known as "spiders"—will have the following ticker symbols: Biotech SPDR (XBI), Homebuilders SPDR (XHB) and Semiconductor SPDR (XSD).
These three new ETFs will track the performance of specific industries and are benchmarked against the Standard & Poor's Select Industry Indices. Each index is constructed with an equal-weighted methodology and is rebalanced quarterly in order to prevent a few select stocks from dominating the performance of the index. The expense ratio for each ETF is 35 basis points.
I recently read a fantastic book entitled The Number: A Completely Different Way to Think About the Rest of Your Life, by Lee Eisenberg. The principle message of the book is that a person must know his or her own "number," which is the amount of money each of us needs to be confident that our post-retirement lives will meet our expectations.
According to Eisenberg, everyone's number is different, but thinking about the number is more than thinking about a dollar amount. Equally important is defining the kind of life you want to live.
In the following edited excerpts from my radio show, Lee and I discuss some of the most important points of the book. I sincerely urge all my Making Money Alert readers to pick up a copy of Lee's book, as I am sure you will find it as valuable as I did when it comes to thinking about what really matters in life, and how you can make sure you have the financial wherewithal to realize your true passions.
DF: Why aren't more Americans aware of what they'll need to have a happy retirement?
LE: What I found is that there are really four kinds of people that think about, wrestle with or don't deal with the number. The biggest group by far, and I was the poster boy for this group, are procrastinators. These are people who will do virtually anything to avoid coming to terms with figuring out how much they will need for the rest of their life. There are a ton of reasons for this, but basically nobody wants to think about dying, getting old and nursing homes. It's easier to go home and watch the Olympics than to get out a piece of paper and start doing calculations.
The second group I call the pluckers. These are people who say they know exactly what their number is, except that all they are really doing is plucking a number out of thin air. They say, "I need $1 million to be happy, or I need $5 million."
The third group is people that really do work hard at figuring out their number, I call them plodders. They spend hours online with retirement calculators and spend a lot of time reading self-help books. Basically they know their number, but they leave out one very crucial variable in those calculations, and that is how do I get a little passion and fun and productivity and meaning out of life?
Finally, the last group that is almost the complete opposite of plodders, and I call those probers. They know that the second half of life really needs to be built around fulfillment and engagement. They know that they've got creative impulses that they've never had time to indulge. But they almost never stop to think that those things come with a price. They leave something out of their reflections, and that is some basic financial literacy that will allow them to pay the rent.
DF: Why should Americans care about their number?
LE: Well, you can't pick up a newspaper or turn on the TV without running headfirst into a really scary headline. For example, IBM a few weeks ago froze its pension plan, and it's by no means the first large company to do that. GM announced that it was capping health care benefits for hundreds of thousands of retirees. The Commerce Department issued a report saying that the savings rate was the lowest since the depression.
Clearly the retirement game has changed. In the book I call it the changeover from the old rest of your life in which you lived, you retired, and shortly thereafter you died. And while you were retired there were some very reliable support systems in place. You had healthy corporate pensions, you had a rock-solid Social Security system, and people really didn't have to worry about managing their own retirements. Today, or the new rest of your life, it's radically different. Pension funds are hurting, Social Security is questionable and we, you and I and everyone else, are basically expected to be the captains of our own ship.
You know we have to say, "There is our happy sunset on the horizon," and we have to get ourselves across choppy water in our own little boats, many of which are leaking. The only problem is that nobody taught us really how to sail. Nobody gave us a paddle. All of a sudden, people are waking up to the fact that unless we gain more confidence about managing money, and unless we figure out what that money will be best used for, there is nobody else out there that is going to do it for us.
To listen to my complete interview with Lee Eisenberg, click on the link below:
http://www.dougfabian.com/radio/leisenberg.jsp
"Poker is a microcosm of all we admire and disdain about capitalism and democracy. It can be rough-hewn or polished, warm or cold, charitable and caring or hard and impersonal. It is fickle and elusive, but ultimately it is fair, and right, and just."
—Lou Krieger, poker author and expert player
"A man with money is no match against a man on a mission."
—Doyle Brunson, poker god
Wisdom about money, investing and life can be found anywhere. If you have a good quote you'd like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars, or anything else.