Brian S. Kimerer: ‘A short while ago you recommended looking at Wal-Mart as an investment. I have, and it looks to me like a company under siege that is about to collapse under its own weight. What is it you like about Wal-Mart as an investment?’
☞ It’s gone up a little since then ($48.54 versus $45.74) but it’s still 20% cheaper than it was in 2002, even as sales have grown by nearly half – and earnings, by more than half. You were wise not to buy in 2002 (let alone 1999, with the stock at $69 and sales and earnings barely 40% what they are today). But at $48.50 for shares in a much larger, more profitable company? Could be good.
Wal-Mart has enormous economies of scale and efficiency. It may win permission to open a bank (or at least clear its own credit card transactions). It is expanding like crazy in China. And people like Warren Buffett, way smarter than me, seem to like it.
As to the negative stuff – I saw the Wal-Mart documentary and was dismayed by much of it (especially the working conditions of the Chinese who produce the goods Wal-Mart buys). But much of this can be corrected (unlike, say, the negative effects of smoking, which are a permanent negative for tobacco companies) . . . and it’s often better to invest in something perceived to be in trouble than something for which trouble – as opposed to improvement – would be the surprise.
HOW TO MANAGE $500,000
Name Withheld (so his kids don’t expect him to pay for law school?): ‘I am a 56+ year old employee of Verizon, which as you may know recently froze its pension plan. For those who retire – and I’m eligible – they offer the option of a one time lump sum payment, equivalent of the present value of your pension. In my case, it’s a little over $500,000. Employees like me are being barraged by financial advisers working for big firms – think Citibank – offering to manage the money for an annual fee of 1.5% of the gross amount. At least to me, this sounds good for them and bad for me, but I don’t know what other options there are out there other than managing the money myself. Do you have any idea what alternatives are out there? Is there a Consumer Reports or Morningstar of managers? Are there managers who are compensated on the basis of earnings rather than cash under Management?’
☞ Your instincts are correct. Consider retiring and taking the lump sum – but, ideally, with another job lined up, so you can work another ten years (we need your mature judgment and expertise!) and pile up more assets to supplement Social Security. If you do take the lump sum, rolling it over into an IRA, consider parking it at Vanguard. Then, your only decision will be how to allocate it among Vanguard’s various low-expense funds. Not the easiest decision, to be sure; but you are likely to be able to do it as well as Citibank, and save $7,000 a year.
Juan and Ken Jover-Ahonen: ‘Ken and I are listening to Gore’s fabulous January 15th speech on spying (especially the very end). Check out politicstv.com – choose the ‘D Channel’ on the menu and then scroll down to the Gore speech.’
☞ This is so good. Many assume things will just inevitably work out okay as they ‘always’ do. But they only ‘always’ do so long as there is a reasonably well informed citizenry that makes them work out okay. Try to find time to listen to this speech.
Monday: Jugglers Gone Bananas
Quote of the Day
It was never my thinking that made me my money. It was my sitting.~Jesse Livermore
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