DJIA 8028.77 +26.78 (+0.33%) S&P 500 1044.75 +2.03 (+0.19%) Nasdaq 1743.59 +23.25 (+1.35%) Value Line Index 801.48 -1.60 (-0.20%) 30-Year Bond 105 23/30 +20/32 5.12 Yield
Internet and database technologies investing company CMG Information Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMGI)") else Response.Write("(Nasdaq: CMGI)") end if %> rose $2 9/16 to $57 1/8 after reporting fiscal fourth quarter net earnings of $1.27 a share, up from a loss of $0.55 per share in the previous quarter and a loss of $0.26 in the year-ago quarter. Analysts had been expecting a net loss of $0.58 a share. Before gains from the sale of some of the company's shares of Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> and the issuance of stock by Lycos, CMG had an operating loss of $0.85 per share, compared with the preceding quarter's operating loss of $1.51 and year-ago loss of $0.73. The year-on-year increase in the company's operating loss is due to the fact that the company no longer accounts for its investment in Lycos under the consolidation method but under the equity method. The company said that it made 8 new investments during the quarter, bringing its total number of investments as of the end of July to 31. CMG owns significant stakes in Lycos and GeoCities <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GCTY)") else Response.Write("(Nasdaq: GCTY)") end if %>, and plans to convert its 34% interest in Reel.com into shares in Hollywood Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HLYW)") else Response.Write("(Nasdaq: HLYW)") end if %>.
It was generally an up day for Internet-related companies. America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> rose $2 5/8 to $114 3/4 as Salomon Smith Barney reiterated its "buy" rating on the online services provider. On Monday, AOL plans to launch a nationwide campaign marketing AOL 4.0, the latest version of the company's software. Internet search engine and portal company Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> continued rising, up $1 3/4 to $40 7/8 on the momentum of the deal announced Wednesday that would make a personalized Excite home page the first site to greet users of Dell Computer's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> new Dell Dimension desktop PCs. Other Internet companies gained ground as well: Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> tacked on $5 3/4 to $121, Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> gained $1 9/16 to $35 3/16, Infoseek <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> bumped up $1 to $26 1/16, Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> booked a $7 1/8 gain to $109 1/4, and Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> was up $1 1/16 to $25 3/16.
QUICK TAKES: Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> gained $2 3/4 to $66 1/16 on optimism that the PC maker and direct seller won't be hurt by the economic downturn in Asia. The company also held its semi-annual meeting with analysts today... Intel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> powered up $3 to $88 5/16 as it announced that demand for its Xeon processors is outstripping supply. At the same time, Lehman Brothers analyst James Barlage initiated coverage of the Pentium chip maker with an "outperform" rating... Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> was lifted $3 to $34 as CMP's Electronic Buyers' News reported that Intel is currently negotiating the acquisition of a minor equity stake in the memory chip maker... NationsBank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NB)") else Response.Write("(NYSE: NB)") end if %> rose $1 11/16 to $56 1/16 while BankAmerica <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> added $2 11/16 to $62 11/16 after shareholders yesterday gave their stamp of approval for the mega-merger of the two companies, which will create the largest U.S. bank.
Drugmaker American Home Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %> leapt $1 3/8 to $57 1/8 on news of a new study showing that the company's experimental vaccine may be the first effective measure in protecting children against potentially deadly forms of pneumococcal disease... Catalog retailer Fingerhut Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FHT)") else Response.Write("(NYSE: FHT)") end if %> picked up $2 9/16 to $24 7/16 after announcing it will stop paying a $0.04 a share quarterly dividend and use the money to buy back shares. Consumer credit firm Metris Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTRS)") else Response.Write("(Nasdaq: MTRS)") end if %>, which is 83%-owned by Fingerhut, charged up $3 3/4 to $50... Hungarian Broadcasting Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HBCO)") else Response.Write("(Nasdaq: HBCO)") end if %> shot up $3 31/32, or 384.85%, to $5 -- no joke -- after its subsidiary, M.A.C. TV Ltd., won approval from the Council of Slovak Republic for Radio and Television Broadcasting to extend its broadcasting time to 24 hours from eight hours a day.
Amresco Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMMB)") else Response.Write("(Nasdaq: AMMB)") end if %> jumped $1 1/8 to $8 3/8 as the home equity asset-backed securities company issued a $1 billion security, bringing total home-equity transactions to more than $7 billion... Graphite electrodes manufacturer UCAR International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCR)") else Response.Write("(NYSE: UCR)") end if %> sped ahead $1 7/8 to $17 1/4 as BT Alex. Brown resumed coverage of the company with a "buy" rating. Yesterday the company announced a restructuring plan that will involve cutting 12% of its workforce, shutting down plants, and reducing production amid falling demand for steel... Gold mining company Placer Dome <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PDG)") else Response.Write("(NYSE: PDG)") end if %> jumped $11/16 to $14 3/16 as the price of gold jumped to a three-month high... Employee administrative services company ProBusiness Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRBZ)") else Response.Write("(Nasdaq: PRBZ)") end if %> surged $4 1/4 to $32 1/2 after announcing it has made a public offering of 2.775 million shares of common stock at a price of $27 a share.
Computer digital printing technologies developer Electronics for Imaging <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EFII)") else Response.Write("(Nasdaq: EFII)") end if %> picked up $1 3/16 to $21 3/8 after Prudential Securities upgraded the company to "strong buy" from "accumulate"... Biopharmaceutical company Guilford Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GLFD)") else Response.Write("(Nasdaq: GLFD)") end if %> moved up $2 1/4 to $16 7/8 after announcing that its scientists presented new data on two "promising" neuroscience programs at a meeting sponsored by the Cambridge Healthtech Institute in Las Vegas... British enterprise application software developer and Year 2000 problem-solver Micro Focus Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIFGY)") else Response.Write("(Nasdaq: MIFGY)") end if %> added another $1 7/16 to $25 15/16 as it completed its merger with software configuration management firm Intersolv <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ISLI)") else Response.Write("(Nasdaq: ISLI)") end if %>. The Chicago Board Options Exchange also announced that it will begin trading options on the company starting Wednesday.
It wasn't a nice day for NICE Systems Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NICEY)") else Response.Write("(Nasdaq: NICEY)") end if %>, which tumbled $11 3/16 to $18 5/8. The Israeli developer of digital recording and quality measurement systems said problems with the introduction of two new products and lower orders from its financial trading clients during the third quarter will result in a 10% to 15% sequential decline in revenues and EPS below the $0.44 expected by the Street. Brokerage firms use NICE's systems to record conversations between brokers and their clients. That way, the brokerage's bigwigs can keep tabs on whether their underlings are doing anything silly, such as breaking securities laws. However, recent trading losses from emerging markets are forcing some investment houses to cut back on their spending for such systems, which is hampering NICE's near-term results. The company said it expects to return to its previous growth rate "in the beginning of 1999."
The American depositary shares of Doncasters PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DCS)") else Response.Write("(NYSE: DCS)") end if %> fell $3 1/2 to $10 1/2 after the England-based firm said it would report fiscal Q3 earnings of $0.48 per ADS, missing the $0.57 per ADS Doncasters said analysts had been expecting. The company, which makes engineered metal components for the aerospace, industrial turbine, and petrochemical industries, blamed the lower-than-expected results on a delayed shipment to one customer and product redesigns for two others during the quarter. Chairman and CEO Ian Dillamore said the setbacks normally wouldn't be a big deal, since they are events which are be expected to happen during the course of the business's day-to-day operations. However, since the problems cropped up at the same time and also occurred during Doncasters' slowest seasonal quarter, the earnings warning was the end result.
QUICK CUTS: Grocery store operator Food Lion <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FDLNB)") else Response.Write("(Nasdaq: FDLNB)") end if %> went to the dogs, falling $11/16 to $9 7/8 after reporting fiscal Q3 earnings of $0.13 per share (excluding a $0.02 per share tax benefit), missing the Street's mean estimate by a penny. Morgan Stanley Dean Witter cut its rating to "outperform" from "strong buy"... Linear and mixed-signal system-level chip maker Cirrus Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CRUS)") else Response.Write("(Nasdaq: CRUS)") end if %> slid $1 7/32 to $6 1/16 after saying it will cut about 70% of its total fixed wafer fabrication capacity and related fixed costs while firing 400 to 500 employees, resulting in a fiscal Q2 restructuring charge of up to $500 million... Gallium arsenide chip maker Anadigics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANAD)") else Response.Write("(Nasdaq: ANAD)") end if %> slipped $3 3/8 to $7 13/16 after saying its fiscal Q3 revenues will come in about $1 million below the $22.7 million posted in Q2 due to declining orders.
Drug giant Merck & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %> dropped $5 5/8 to $131 1/2 on worries that Agouron Pharmaceuticals' <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AGPH)") else Response.Write("(Nasdaq: AGPH)") end if %> Viracept AIDS treatment will steal more sales away from Merck's rival Crixivan drug. Today, Agouron said a study indicated that Viracept may still be effective if taken only twice a day, rather than the customary three times... Interactive entertainment software maker Electronic Arts <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERTS)") else Response.Write("(Nasdaq: ERTS)") end if %> dropped $3 3/4 to $39 7/8 after BT Alex. Brown downgraded the company late yesterday to "buy" from "strong buy," following reports that the firm will delay the release of its SimCity 3000 game until later this quarter... Online auction service eBay Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %> gave back $2 1/2 to $44 7/8 after jumping 163% from its initial public offering price of $18 per share in its first day of trading yesterday.
Information technology and systems integration services firm Computer Sciences Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSC)") else Response.Write("(NYSE: CSC)") end if %> moved down $6 7/16 to $62 9/16 after Morgan Stanley Dean Witter cut its rating to "neutral" from "outperform"... British drug developer Glaxo Wellcome <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLX)") else Response.Write("(NYSE: GLX)") end if %> sank $2 15/16 to $57 3/4 after Goldman Sachs reduced its rating to "market perform" from "recommend list," citing the tough competitive environments that many of the company's new drug offerings will face upon introduction... Furniture upholstery manufacturer Quaker Fabric Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QFAB)") else Response.Write("(Nasdaq: QFAB)") end if %> was ripped $4 1/32 to $4 31/32 after saying its fiscal Q3 and Q4 earnings will be "significantly" below analysts' forecasts due to production problems related to the firm's conversion to a new enterprise resource planning (ERP) system.
Polyester and nylon fabrics maker Unifi Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UFI)") else Response.Write("(NYSE: UFI)") end if %> unwound $4 5/16 to $17 1/8 after saying its fiscal Q1 EPS will be about 20% below the $0.45 earned last year due to the recent General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> strike, lower demand, and the Asian financial crisis... Chemicals, metals, and ammunitions maker Olin Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLN)") else Response.Write("(NYSE: OLN)") end if %> misfired $2 5/8 to $26 1/4 after saying its fiscal Q3 EPS will be about $0.40 and its fiscal 1998 EPS will be around $2.50, missing the firm's earlier forecast of $0.60 and $3.00, respectively... Specialized metal stamping and agricultural machinery maker Allied Products Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ADP)") else Response.Write("(NYSE: ADP)") end if %> was slammed for $1 to $7 5/8 after saying its fiscal Q3 EPS will be lower than Street's mean estimate of $0.34 due to higher costs at its Verson division.
Recovery Engineering <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: REIN)") else Response.Write("(Nasdaq: REIN)") end if %>, which sells water treatment systems under the PUR brand name, was soaked $3 3/16 to $8 7/8 after warning that reduced inventories of its products at retailers will result in a net loss in the fiscal third quarter, rather than the $0.05 per share gain expected by analysts... Triarc Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRY)") else Response.Write("(NYSE: TRY)") end if %>, which makes Snapple beverages and operates the Arby's restaurant chain, fell $1 1/8 to $14 15/16 after warning that a higher tax rate, a loss in its interest in National Propane Partners, L.P., and other "non-operating factors" will lead to fiscal Q3 EPS about half of the $0.36 earned last year... Catalog apparel retailer Brylane Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYL)") else Response.Write("(NYSE: BYL)") end if %> slid $4 3/4 to $16 1/4 after several analysts downgraded the firm and cut earnings estimates for the second half amid expectations that the company's sales are suffering from not keeping up-to-date with fashion trends.
Home accessories and crafts retailer Garden Ridge Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRDG)") else Response.Write("(Nasdaq: GRDG)") end if %> was plowed $2 5/8 lower to $7 13/16 after saying its fiscal Q3 EPS will miss the Street's mean estimate of $0.04. The company's president and COO also announced his resignation... Copper wire and cable products maker General Cable Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GCN)") else Response.Write("(NYSE: GCN)") end if %> was tripped $3 7/16 to $17 7/16 after ING Barings Furman Selz lowered the firm's rating to "hold" from "buy"... Italian restaurant operator Il Fornaio <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ILFO)") else Response.Write("(Nasdaq: ILFO)") end if %> was burned $1 3/4 to $6 3/4 after pre-announcing fiscal Q3 EPS between $0.10 and $0.12, missing the Street's mean estimate of $0.15... Chef Boyardee pasta and Bumble Bee tuna fish products maker International Home Foods <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IHF)") else Response.Write("(NYSE: IHF)") end if %> slipped $1 3/8 to $14 5/8 after saying it will take a $41 million pre-tax charge in fiscal Q3 to close two facilities and fire 525 employees in an effort to cut costs.
FOOL
ON THE HILL
An Investment Opinion
by
Dale Wettlaufer
Merrill Pros Lose to Individuals
An Open Letter to David Komansky, Merrill Lynch Chairman and CEO
September 25, 1998
Mr. David H. Komansky
Merrill Lynch & Co., Inc.
World Financial Center - North Tower
250 Vesey Street
New York, New York 10281
Dear. Mr. Komansky,
I am writing to you to comment on the campaign that Merrill Lynch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> Vice-Chairman John Steffens has waged against the discount brokerage industry. What Mr. Steffens has to say about the discount brokers themselves doesn't really concern me at all -- what concerns me is Mr. Steffens' insulting attack on the intelligence and competence of individual investors who use Internet stock brokerage services.
According to the Wall Street Journal, Mr. Steffens says, "The do-it-yourself model of investing, centered on Internet trading, should be regarded as a serious threat to Americans' financial lives. This approach to financial decision-making doesn't serve clients well and it's a business model that won't deliver lasting value." Before I get to some pretty good evidence that Mr. Steffen's assertions are baseless, I want to point out that it sounds pretty disingenuous to me when a full-price brokerage house makes these sorts of assertions. This is especially true when the income of most of your brokers is decided by turnover of customer assets and not the investment return of customers.
But let's get to some hard data on how well customers of discount brokers do. According to a study dated April 1998, Professor Terrance Odean of the University of California at Davis shows that individual investors as a group are not really bad investors at all. This group of individuals, 60,000 households in all, was selected from the customer list of a single discount broker. Before taking expenses into account, the average performance of individual investors beat the market over a four year, 11-month period. Net of expenses, the average investor generated annual returns of 15.3%, underperforming the market by 1.8 percentage points per year. As a percentage of the index, the average investor's performance was 89.5% that of the index. Say we counted the normal 20 basis points (0.2%) annual expenses it takes an investor to get into an index-matching security or fund. Then the underperformance would be 1.6 percentage points per year.
Compare that with the average mutual fund manager. Most funds do not match the market, not even discounting loads and 12b-1 fees. But rather than looking at all the funds in the equity mutual fund universe, I wanted to look at how Merrill Lynch's funds have done over the last five years. I've taken out all short-term bond funds and other funds that are supposed to be lower risk. I have left in, however, international equity funds, balanced funds, and things like high-yield bond funds.
Versus a compound annual return of 18.75% for the S&P 500 over the last five years, here's how Merrill Lynch's funds stack up (data according to Bloomberg -- monthly from 9/30/93 to 8/31/98).
Basic Value...14.93%
Capital Fund...12.05
Consults International...4.04
Developing Capital Markets...-6.97
Dragon Fund...-21.59 (since 10/31/94)
EuroFund...17.55
Fund for Tomorrow...9.6
Fundamental Growth...21.27 (since 10/31/94)
Global Allocation...8.24 -- the symbol for this fund is "MALOX." Ironic, huh?
Global Holdings...6.7
Global Resources...-1.7
Global Small Cap...-1.92 (since 10/31/94)
Global Utility...11.17
Growth Fund...8.14
Healthcare Fund...16.54
International Equity...-1.3 (since 10/31/94)
Latin America...-15.8 (since 10/31/94)
Pacific Fund...0.36
Phoenix Fund...8.06
Special Value...8.59
Strategic Dividend...13.93
Technology...0.61
And don't forget, these funds have 5 1/4% loads and annual fees. But we'll give you the benefit of the doubt and compare the pre-expense returns of your best guns against the "average" individual investor using a discount broker.
The average for your funds, Mr. Komansky, is 5.11% annually, 13.64 percentage points below the S&P 500. As a percentage of the return of the S&P 500, Merrill Lynch's investors did a little better than one-quarter as well as they would have done investing in a low expense, no-load S&P 500 index fund. And these are the returns generated by your best employees when it comes to money management, one would think. What about your brokers who don't have to have any special degrees, need only to pass an easy Series 7 (I took and passed the test), and engage in professional education that's not that intellectually rigorous? Are they better money managers than your fund managers? I can't make that judgment, so I have a challenge for you.
I bet you $5,000 that a randomly chosen sample of 40,000 Merrill Lynch clients cannot outperform 40,000 randomly chosen clients of an online discount brokerage. The loser has to make a $5,000 donation to the charity of choice of the winner. This would be a five-year study, because we don't believe that investing results are significant unless measured over at least five years. It would be safe money for me to put a bunch of individual investors up against your money management pros, but we'll see how your clients do against a bunch of regular Fools.
If you are game, please contact me here at the Fool.
Sincerely yours,
Dale Wettlaufer
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), Fool Two Alex Schay (TMF Nexus6), Fool, too Dale Wettlaufer (TMF Ralegh), Final Fool
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