MF Templar kicked off his new six-part series entitled "Buy and Hold Apocalypse" in the Lunchtime News today. (America Online for Windows 3.0 users can read it by clicking here -- others can head on over to our Old News Pile or our Web site.) The series will continue with installments alternating in the Lunchtime and Evening News reports. Our conference call cavalcade continues today, with synopses on AG Associates, ICN Pharmaceuticals, Papa John's Pizza, the Cheesecake Factory, and Insilco.
MF Merlin's Economic News today reports on the results of the Chicago Purchasing Managers Association July survey of member firms. You'll find the Economic News, as well as all our Special Sections, FoolWires, and earnings reports, on either the Evening News or Stock Research screens. Enjoy!
PAPA JOHN'S INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PZZA)") else Response.Write("(NASDAQ: PZZA)") end if %>
1-800-642-1687 (code: 951571)
CALGENE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CGNE)") else Response.Write("(NASDAQ: CGNE)") end if %>, maker of the world's first genetically-altered tomato, ripened by $1 5/16 to $6 3/16 today. Giving the company its boost was massive agri-biotech concern MONSANTO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %>, which raised its stake of Calgene to 54.6%, adding 6.25 million Calgene shares at $8 a share. Last week Calgene received a patent for a process to genetically change the color of natural cotton to black or dark brown, bypassing the need to dye the fabric. The company is working on constructs for red and blue cotton, as well.
The buyout firm of Kohlberg Kravis Roberts & Co. (KKR), most famous for its leveraged buy-out of RJR NABISCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RN)") else Response.Write("(NYSE: RN)") end if %>, has announced it is shopping around the 64% of AMERICAN RE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARN)") else Response.Write("(NYSE: ARN)") end if %> that it currently owns, boosting shares of American Re $5 3/8 to $56 1/4 this morning. This move comes a few weeks after the merger of NATIONAL RE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NRE)") else Response.Write("(NYSE: NRE)") end if %> and GENERAL RE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRN)") else Response.Write("(NYSE: GRN)") end if %>.
FORE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FORE)") else Response.Write("(NASDAQ: FORE)") end if %> rose $2 5/8 to $27 3/8 this morning after Goldman Sachs added the asynchronous transfer mode (ATM) and local area network (LAN) switch networker's shares to its priority list. ALTERA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ALTR)") else Response.Write("(NASDAQ: ALTR)") end if %>, ONEWAVE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OWAV)") else Response.Write("(NASDAQ: OWAV)") end if %> and PARAMETRIC TECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PMTC)") else Response.Write("(NASDAQ: PMTC)") end if %> were also added and rose $2 1/2 to $41, $2 1/4 to $15 and $3 1/8 to $41 5/8, respectively. On Monday, PaineWebber initiated coverage of Fore Systems with an "attractive" rating.
QUICK TAKES: Nailing its fourth quarter estimate of $0.24 EPS, RESPIRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RESP)") else Response.Write("(NASDAQ: RESP)") end if %> rose $1 1/2 to $20 1/4 today after reporting a 25% increase in its obstructive sleep apnea products and a 30% increase in its ventilatory business... NORD PACIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NORPY)") else Response.Write("(NASDAQ: NORPY)") end if %> shares surged $1 to $7 3/8 after the company released rosy results of a nickel-cobalt mining feasibility study... JOSTENS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JOS)") else Response.Write("(NYSE: JOS)") end if %> rang up $1 5/8 to $19 1/8 after beating estimates by a penny, posting $0.79 per share... SEVENTH LEVEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SEVL)") else Response.Write("(NASDAQ: SEVL)") end if %> raced ahead $1 3/8 to $7 7/8 after unveiling a new edu-tainment CD-ROM, "The Great Reading Adventure."
MORE QUICK TAKES: LERNOUT & HAUSPIE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LHSPF)") else Response.Write("(NASDAQ: LHSPF)") end if %> rose $2 1/4 to $19 this morning after the company announced that MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %> had chosen its text-to-speech technology for use in future text-to-speech applications... A deal with SYSTEMSOFT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYSF)") else Response.Write("(NASDAQ: SYSF)") end if %> to jointly develop next generation intelligent consumer electronics devices sent MICROWARE SYSTEMS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MWAR)") else Response.Write("(NASDAQ: MWAR)") end if %> shares up $2 3/8 to $15 3/4... CMG INFORMATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CMGI)") else Response.Write("(NASDAQ: CMGI)") end if %> company NetCarta unveiled an online library of 20,000 web-site maps, which assist in web navigation, boosting CMG shares $1 1/2 to $16... BT OFFICE PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTF)") else Response.Write("(NYSE: BTF)") end if %> said that it expects to meet estimates of $0.11 per share for its second quarter, and encouraged investors drove shares up $1 3/4 to $12 5/8... TUCSON ELECTRIC POWER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TEP)") else Response.Write("(NYSE: TEP)") end if %> posted a 241% increase in second quarter earnings over year-ago levels, and its shares rose 14%, up $1 3/4 to $14 1/4.
As ultra-short-term investors desert security stocks in search of the next hot sector (gymnastic training schools?), bomb detection concerns INVISION TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INVN)") else Response.Write("(NASDAQ: INVN)") end if %> and MAGAL SECURITY SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MAGSF)") else Response.Write("(NASDAQ: MAGSF)") end if %> slipped $3 1/4 to $20 3/4 and $7/8 to $7 5/16, respectively. Magal might not have been helped by Josephthal, Lyon & Ross's "sell" recommendation issued on Monday. BARRINGER TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BARR)") else Response.Write("(NASDAQ: BARR)") end if %> also retreated, off $3/4 to $8 3/16.
Negative comments from semiconductor equipment companies continue to drive down the shares. This morning front-end equipment manufacturer ADVANCED SEMICONDUCTOR MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASMIF)") else Response.Write("(NASDAQ: ASMIF)") end if %> gave a warning about a weak second half, driving the stock down $15/16 to $6 1/8. LAM RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LRCX)") else Response.Write("(NASDAQ: LRCX)") end if %> was also down $1 3/4 to $22 1/4 after bearish comments in the conference call. Also dropping was ONTRAK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ONTK)") else Response.Write("(NASDAQ: ONTK)") end if %>, off $1 5/8 to $13 5/8 despite the fact that the manufacturer of chemical-mechanical planarization capital equipment met its $0.18 EPS estimates. Continued concern about the semiconductor capital equipment industry going forward is weighing on the shares.
OAK TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OAKT)") else Response.Write("(NASDAQ: OAKT)") end if %> was mashed for $1 1/16 to $6 1/2 this morning after yesterday's grim conference call. The firm's MPEG controller market is suffering steep price declines and they have no idea when this will end. Apparently all is not lost in the industry, as shares of C-CUBE MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CUBE)") else Response.Write("(NASDAQ: CUBE)") end if %> rose $1 1/2 to $24 7/8, implying that this might be a company-specific problem in the low-end, commoditized area of MPEG controllers.
QUICK CUTS: CAIRN ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CEUS)") else Response.Write("(NASDAQ: CEUS)") end if %> dropped $1 1/2 to $9 7/8 after totally blowing its second quarter estimates. The company reported $0.05 EPS while the Street was looking for $0.15 EPS, not exactly an impressive showing... Shares of networker XYLAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: XYLN)") else Response.Write("(NASDAQ: XYLN)") end if %> dropped $5 to $37 1/2 on no news. Foolish correspondent Alex Schay is working on a feature piece on Xylan, which recently came public and was added to Morgan Stanley's New Nifty Fifty. Look for this to debut tomorrow... Laser-based bar-code system manufacturer PSC INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PSCX)") else Response.Write("(NASDAQ: PSCX)") end if %> tumbled $1 to $7 3/4 after the company reported sales up 4% from the year-ago quarter and forecast continued slow sales of its scan engines... MESA AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MESA)") else Response.Write("(NASDAQ: MESA)") end if %> beat estimates by 20%, posting $0.29 per share on an increased load factor, but perhaps the FAA's probe into Mesa's operations helped push shares down $13/16 to $9... Similarly, FAMILY GOLF CENTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FGCI)") else Response.Write("(NASDAQ: FGCI)") end if %> beat estimates by two pennies, but succumbed to worries in Barron's about the profitability of recent acquisitions, slipping $1 5/8 to $22 3/4.
MORE QUICK CUTS: INTER-TEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTL)") else Response.Write("(NASDAQ: INTL)") end if %> missed estimates by three cents and warned of slowing sales, sending its shares down $2 3/8 to $17 3/8... ARTERIAL VASCULAR ENGINEERING INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AVEI)") else Response.Write("(NASDAQ: AVEI)") end if %> shares tanked, off $3 1/4 to $19 3/8 after the company guided analyst expectations downward for the September quarter... ICN PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ICN)") else Response.Write("(NYSE: ICN)") end if %> must not have met investor expectations when it posted record earnings of $0.42 per share along with a 12% sales increase, as shares dropped $2 to $21... Claims that the FDA inappropriately leaked information about laser vision concern VISX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VISX)") else Response.Write("(NASDAQ: VISX)") end if %> to its competitors sank shares $2 7/16 to $18 3/8.
An Investment Perspective
by Randy Befumo (MF Templar)
FOOL ON THE HILL
Buy & Hold Apocalypse
Episode Two: A Time to Measure
The rising chorus of doubts about the "buy and hold approach" has recently raised concerns about the viability of long-term investing. Various piles of statistics are being peddled in the wake of the recent market correction to support the notion that stocks are quite dangerous and that investors need to reconsider the buy and hold hypothesis. In the Lunchtime News today, Episode One of The Buy & Hold Apocalypse explored what the term "buy and hold" really means, concluding the bashers have failed to clearly define what they were critiquing before issuing blanket condemnations.
Before we can really understand what the "buy-and-hold approach" is all about, we have to talk about the relative safety of investments in the stock market over various periods of time. The presupposition of the buy-and-hold approach is that over "long" periods of time, stocks are the single best place to have your savings. While this is an attractive hypothesis, it is important to prove this is the case before we either prove or disprove the validity of the "buy-and-hold approach."
The first step in proving that the market is the best place to have your money over long periods of time is to decide what period of time to examine. When should we look at the aggregate returns of stocks, bonds and inflation in order to construct a comprehensive and realistic argument that you should buy stocks for the long haul? After we figure out where to get our data we need to then look at it in a comprehensive and logical fashion in order to determine whether the evidence supports our claim. This involves pinning down a more exact definition of the "long" in "long-term" in order to figure out what the minimum holding threshold of the "buy-and-hold approach" should be.
When should we begin to measure stock returns? Better put, when do the returns of stocks count for the purposes of our analysis? In Stocks for the Long Run, Jeremy Siegel pushes our data about the aggregate returns of equities back in time to 1802, a fascinatingly remote moment in the history of capitalism. The Ibbotson Associates 1996 Yearbook correctly points out, however, that "the stock market [only] became a liquid secondary market in the Twenties." As we are dealing with a liquid secondary market today, this suggests that although this pre-Twenties data should be examined, it should not be viewed as authoritatively as the post-Twenties data. The procedure we will follow is to look at each set of data consecutively in order to determine the least amount of time you have to "hold" in the "buy-and-hold approach" in order to guarantee outperforming all other asset classes.
The data in Stocks for the Long Run is impressively comprehensive and is the first stop in our analytical tour. Using the 1871-to-1992 time period to construct his data, Siegel looks at the returns of stocks, bonds and T-bills relative to one another. The reason why he includes T-bills is because the lower rate of return in T-Bills serves in effect as a proxy for the returns of a money market fund. First, Siegel found that between 1871 and 1992, stocks outperformed bonds 100% of the time, despite the fact that the market was defined as illiquid for more than a third of the time period he was measuring. Over twenty-year periods, stocks outperformed bonds a remarkable 94.17% of the time. Over five-year periods, stocks outperformed bonds 71.19% of the time. Over one-year periods, stocks have outperformed bonds more than 59.02% of the time.
Since stocks have never failed to outperform bonds over periods of thirty years or more, I will initially conclude that the longest you have to hold for the buy-and-hold approach to work is thirty years. Also, we have seen that the odds of outperforming bonds in a period as short as one year are substantial, although we cannot derive any sense of what the total return might be, including all of the down years. What this does suggest, however, is that on an annual basis the stock market goes up a little less than two-thirds of the time -- not exactly bad odds. Over five year periods you have the market up three out of four times. Further out, the odds just keep getting better. The historical data still confirms the validity of the buy and hold hypothesis, with longer and longer holding periods improving the chance of beating a similar return in bonds.
Now we gotta nail down what the "long" in "long term" really means. What kind of total returns can we expect out of stocks over these time periods, even if they are positive? I take up the first part of this question and continue to trim down the minimum holding time in the next installment of Buy & Hold Apocalypse, which will appear tomorrow in the Lunchtime News.
**This Fool owes a special thanks to Legg Mason Fund Advisors' Bill Miller for information in this article and other articles in this series.**
Tune into the Lunchtime News's "Fool Plate Special" column tomorrow for an action-packed analysis of the Ibbotson Associates data surrounding decade-by-decade returns for various asset classes since the 1920s.
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