Today is the big day. This morning Facebook, the great behemoth led by Mark Zuckerberg, the greatest industrialist of our time, went public. At a market capitalization of $104 billion (based on the original offering price, which was exceeded immediately and will never be seen again) Facebook is the 23rd largest US company, just edging out Amazon.com.
Is anybody buying this hype? Apparently so, as quite a few people seem to be buying the stock.
McDonalds has a market capitalization of $92B as I write this. It has a brand name that is at least as well known and globally ubiquitous as Facebook’s. It has 420,000 employees to Facebook’s 3500. And in the 12 months ending 3/31/12, McDonalds made a profit of $5.56B on revenues of $27.4B. Facebook made $0.65B on $4.04B in revenue.
As any stock market novice knows, the value of a company relative to its profits is a function of the expected future growth of those profits. A fast growing company gets a higher multiple.
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Much of personal finance revolves around the effort to amass sufficient financial resources to retire. And at the center of all that is a simple and powerful question: just how much will I need to pull it all off, to stop working once and for all?
I have never worked with a financial planner, and I have certainly never worked as one, but I will speculate that this is a question that often pops up very early in the conversation. I can imagine an earnest middle-aged couple outlining what they want to do in 25 years and then asking “So, how much will we need to have?”
If the planner is being honest, he will answer “Nobody knows.” I am betting few of them say this. At least not in so many words. Bad for business.
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Yes. If you can arrange bridge financing, they are a great way to pay off the construction of your new resort. You will have to hire a sales staff and wait a few years to sell the full inventory, but when it is done you will have made a tidy profit.
What’s that? You meant is it a good idea for a consumer to buy a timeshare? Oh.
No. It isn’t.
I am reminded of this by a recent item at SmartMoney telling us how the prices for some second-hand timeshares, that is, those owned by consumers who now want out, have dropped to $1. They are not so much for sale as up for adoption, free to a good home. Given the annual fees involved, that is not as illogical as it might sound, but it is a stark contrast to the five figure sums those consumers were dazzled into paying just a few years ago.
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Normally, this is the time of year that money advisors and gurus trot out the old canned advice on end-of-year tax planning. Not this year. This year we are all just too confused.
Generally, we can do little things in November and December to slightly lower our tax bill because, generally, we can predict what the tax rates will be in January. Not this time. Congress managed to adjourn for the elections without doing anything at all about the expiring Bush tax cuts, and when they 
reconvene for the lamest of lame duck sessions today I do not foresee a sudden clarity of purpose.
Could there have been any larger indication that the Democrats were in very serious trouble than that they passed up an opportunity to enact tax cuts a few weeks before an election? Yes, there were (and are) differences of opinion on what bits of the Bush cuts should be extended, but those differences ought to have been bridgeable. Instead, the Democrats became frozen in fear and indecision, petrified (and not entirely without reason) that any legislation they passed, whatever the particulars, would cost votes.
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As I have written a few times before, I consider the unpopularity of fixed annuities to be one of the larger personal finance conundrums.
Aside from the obvious problem of just not having enough money saved up, longevity risk is probably the number one challenge in planning a retirement. If you do not know how long you are going to live, how can you know how much of your kitty you can spend each year?
Annuities neatly solve this problem. You pay a lump sum to an insurance company and that company agrees to send you a check every month for as long as you are around to cash them. They even come in inflation-adjusting versions that will send you larger checks as the CPI goes up.
This sort of arrangement is practically identical to the defined benefit (a.k.a. pension) schemes that are often wistfully referred to as a part of the Good Old Days. And yet, as products, annuities are remarkably unpopular. They do exist, you can even get quotes for them online, but it is a comparatively tiny niche market. I have never seen firm numbers, but it seems safe to infer that something like only one or two retirees in a thousand buys one.
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Is anybody buying this hype? Apparently so, as quite a few people seem to be buying the stock.
Investing, Media | Frank Curmudgeon | 
May 18, 2012 11:59 am | 
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