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How Fund Categories Fared Barrons 1-08-2005 [Duplicated data - one and three year yields - was in original data from source]
The problem, says Goldman Sachs economist Jan Hatzius, is most people lack the sort of information they need to answer many of the questions -- like what business conditions will be six months hence -- and so craft responses that have more to do with whatever story is dominating the news. This differs from the questions on business surveys, which can be more reliably answered. The purchasing managers who respond to the Institute for Supply Management's monthly report on manufacturing, for example, have a fairly clear idea of what materials are scarce and how quickly orders are getting filled. It's a reason the ISM's purchasing managers' index is considered a first-tier economic report and consumer confidence isn't. Employment is one area where the purchasing managers have lately been less than accurate, however, consistently overestimating the job market's strength. This may be because, with a limited insight into the employment plans of the companies they do business with, they have extrapolated how the job market is doing from their sense of what overall business conditions are like -- something that hasn't worked in the current environment, where hiring has been slow despite what seems like a favorable economy. But the job market is one thing that consumers have a pretty good handle on, Mr. Hatzius says, and their answers to questions on the employment climate have some predictive value as a result. In the Conference Board's November report, the number of respondents who said that jobs were hard to get rose, while those who said that jobs were plentiful slipped. The November employment report came in far weaker than expected.
Traditional ratings services such as Morningstar and Lipper calculate the historical performance of funds, such as total annualized returns over a five-year or 10-year period. But that can entice some investors into buying a fund long after its star manager has gone. On the other hand, many investors may avoid a fund with a poor performance history but a potentially bright future because it has just hired a top-performing manager. The Rankings Service calculates a score for each fund manager based on the annual rates of return of all the funds they have managed over the past five years, relative to the broader market categories they operate in. It keeps track of them when they leave one fund and switch to another. It also calculates the performance of all the fund portfolios they manage, giving equal weight to each -- not just the performance of the largest or most-famous fund they handle. Points are subtracted from managers who take too much risk, as measured by wide monthly differences between their performances and broader market indexes. And greater credit is given to recent performance. James Lowell, a private investment strategist, spent three years creating the new service. He is also the publisher of an independent newsletter about Fidelity Investments. "We are really looking at a simple question," says Mr. Lowell. "Does this manager add value and if they do, how much do they add?"Mr. Lowell's attempt to add value to fund ratings doesn't come cheap. The service costs $379 a year for quarterly reports and $579 a year for reports updated daily, and since Dec. 1 has been available to anyone at his Web site (www.trsreports.com1). His target market is the investment-advisory industry, which also can buy the service via a brokerage-industry distributor, Pershing LLC. Among the surprises in the new survey is Mr. Gross, of Pacific Investment Management Co., who runs the $77 billion Pimco Total Return fund. According to Morningstar, the fund's largest share class -- Institutional -- has an 8.47% annualized return over five years, beating 96% of all funds in its category. But the Rankings Service places Mr. Gross 1,845th of 3,341 managers in the survey. That's partly because it tallies up the rates of return of 61 portfolios Mr. Gross manages -- including both different mutual funds and a number of different share classes where his performance relative to the overall bond market hasn't been high. Looked at broadly, Mr. Lowell says, Mr. Gross "is much better at marketing than managing," says Mr. Lowell. Mr. Gross, managing director of the Pimco group of funds, didn't return telephone calls seeking comment. Mr. Gross and his investment team twice have received Morningstar's fixed-income manager of the year award since 1998. Some may view the Rankings Service as unfair because it lumps bond managers together with stock managers, even though the two kinds of investments typically diverge widely in performance. Mr. Lowell justifies that practice because he factors out market performance in calculating his overall score, and includes only how much a manager exceeds or falls short of the relevant benchmark, whether a bond or stock index. Mr. Gabelli, who created the family of funds that bears his name, ranked 2,854th in the Rankings Service. He manages the Gabelli Equity-Income fund, which receives the maximum five stars from Morningstar, which ranks it in the top 15% of funds in its category in the past five years. But another fund managed by Mr. Gabelli, Gabelli Westwood Mighty Mites AAA, hasn't been as successful. Morningstar gives it two stars and ranks it in the bottom 2% of funds in the small-cap value category. Mr. Lowell says Mr. Gabelli is a portfolio manager for 21 funds and "might have spread himself a little thin." Mr. Gabelli said he wasn't familiar with the new service, but added he was "delighted to get a lousy rating." He then added that "our clients love us" and that over the past 27 years his company has generated impressive returns. He said if investors were dissatisfied they wouldn't invest in his company's products. "It is what it is," he said of Mr. Lowell's rankings. Among the high-scoring fund managers with low-ranking Morningstar funds are Mr. Greig, who manages the Strategic Partners International Growth fund, and places 65th; Mr. Henning, who manages two small-cap funds under the Pacific Advisors name, and places 91st; and Ms. McKenna, a manager of emerging-markets funds for Morgan Stanley Investment Management, who places 105th. Mr. Henning was helped by Mr. Lowell's practice of weighting his rankings to favor recent performance. One of Mr. Henning's funds has a two-star rating at Morningstar and the other a three-star. In Mr. Lowell's rankings, by contrast, he is ranked in the top 3% of all managers rated. Both Lipper and Morningstar say they view the ratings of fund managers as complementary to their services, not as a substitute. Both of those services rank funds based on historical returns. Morningstar awards a star ranking of one through five, with five being the best. Lipper ranks funds across five categories, including total return, consistent return and tax efficiency. Lipper, a subsidiary of Reuters Group PLC, says it is in talks with another Reuters unit called Citywire to add information on fund-manager performance to its rankings service. Andrew Clark, a senior research analyst for Lipper, said the company already offers the service in Europe. Morningstar Managing Director Don Phillips says the analysis of fund-manager performance has merit. "I think anytime you can look at an investment from multiple angles, you enhance your understanding of it," he says. "Fund manager is an important aspect of understanding a mutual fund, and paying attention to the manager of a fund is important." Mr. Phillips and others, however, warn that fund-manager rankings are an inexact science. For example, some funds are managed by teams, making it difficult to assign credit or blame to any one individual. In other cases, a manager's performance may be boosted by the behind-the-scenes work of high-quality analysts who may or may not follow a manager who moves on to another fund or company.
Look how many investors shunned bonds and bond mutual funds heading into 2004, certain that a rise in interest rates was going to drive bond prices lower. Now here we are in the last two weeks of the year, and the yield on 10-year Treasury notes stands almost exactly where it was 12 months ago, between 4.1 and 4.2 percent. If I opted instead for the purported safety of money-market funds over those 12 months, I got a return of about 1 percent for my trouble, or less than one-fourth of the coupon interest I would have received from the 10-year Treasury. For a fixed-income investor with $500,000 to put to work, that translates into settling for monthly income of $417 instead of $1,730 or so. Quite a difference, lifestyle-wise. Looking ahead to 2005, the smart money again says bond- market rates are bound to rise, this time for sure. Their arguments are as compelling as ever, and on this go-round they may actually prove right. Still, if they could be so wrong in 2004, what makes us think the same forecast is any more reliable now? The tactical-asset call I couldn't resist falling for in 2004 concerned big stocks and little stocks. Small-caps, as they are known in the business, came into the year looking fat and sassy. The small-stock Russell 2000 Index had beaten the big- stock Russell 1000 for five straight years, including a 45.4 percent to 27.5 percent shellacking in 2003. Any crafty contrarian could see big stocks were overdue for a rally. The savvy move was to switch some money from a small- stock fund to one favoring the big blue chips. How inconvenient, as events unfolded, to see the small-stock index prevailing again in '04, this time by a resounding 2-to-1 ratio through the first 11 months of the year. The Russell 2000 was up 15 percent, while the Russell 1000 gained 7.5 percent. Circumstances like this invite rationalization. If we bought the relative-value case for big stocks a year ago, it looks even more seductive now. We were a little early, that's all. Sooner or later, big stocks must get noticed again. And you or I aren't the only ones who think so. Consider this comment from the Web site of money-management kingpin Fidelity Investments: ``Are large caps poised for growth? With small-cap stocks enjoying a five-year run of strong performance, large-caps may be poised to take the lead.'' The trouble is, if I can't get the timing right, how am I going to succeed as a tactical asset allocator? Why, in the wrong hands this whole business of tactical allocation could amount to nothing more than market timing with a fancier name. Experience teaches that market timing is investing the hard way, because it requires that I outwit the people on the other side of my trades, over and over again. Unlike a buy-and-hold investor, I don't consistently have time on my side. Let's be careful not to tar the phrase ``asset allocation'' with the same broad brush. All investors must choose how to deploy their money among the various classes, and the way in which they pursue this risk-reward balancing exercise plays a big part in determining the success of their money-management plans. The key is to distinguish between tactical and strategic asset allocation. The strategic kind can be based, as it ought to be, mostly on an investor's own circumstances -- age, amount of capital at hand, investment objectives, and risk tolerance, to name four of the important variables. Another good thing about strategy, as opposed to tactics, is that it focuses on ``an intended objective,'' in the words of the American Heritage Dictionary, while tactics are concerned with ``operations that are smaller, closer to base and of less long- term significance.'' In other words, too much tactics and not enough strategy can put me at risk of forgetting what I'm fighting this whole battle for.
As a rapidly industrializing country fueled by exports, this means that China must push ever-larger gobs of commodities into its maw. An appetite of such Pantagruelian proportions has naturally upset long-running supply-and-demand balances, forcing a sharp push higher in raw-materials prices. The Commodity Research Board's index of commodity prices, which excludes energy, has risen around 20% over the past two years. But this view of what has gone on with commodities is far more potent in the U.S. than it is elsewhere, points out Lehman Brothers chief global economist John Llewellyn. "You only hear about commodity prices being high from Americans," he says. "But commodity prices have done nothing out of the ordinary. The dollar is weaker and you're paying more and that's the end of it." Put the CRB index into yen terms, and it has only risen 4% over the past two years. Relative to the euro, it has fallen 10%. Against a GDP-weighted basket of the dollar, euro, yen and British pound -- the world's four major currencies -- commodity prices have risen, but by no more than one would expect during a period of rising global industrial production, Mr. Llewellyn says. Which isn't to say that Chinese demand hasn't had a profound effect on some commodity prices. Surely what has happened in oil, which has risen sharply regardless of what currency one prices it in, has something to do with China's rampant growth. Ditto many metals. At the same time, however, China's global demand for some commodities could slow in the years to come as it continues to add to its domestic capacity to mine, transport, smelt and refine. Then there is the fact that it isn't as if all that copper China is importing is going into transistor radios that are getting shipped back out to the U.S. A fair chunk of it is going toward a massive infrastructure buildup -- one that many observers reckon is excessive. If the Chinese buildup cools, prices for many commodities could go slack.
"The bulk of evidence fails to identify tangible advantages of the broker channel," concludes the working paper, written by Daniel Bergstresser, an assistant finance professor at the Harvard Business School; John Chalmers, associate professor of finance at the University of Oregon's Lundquist College of Business; and Peter Tufano, a professor of financial management at Harvard. In an interview, Chalmers emphasized that the purpose of the paper was not to discredit brokers who put their clients into mutual funds. "We admit there are likely to be benefits to using a broker to buy mutual funds," says Chalmers. "However, with one exception, these benefits don't show up in the characteristics we're able to measure." In fact, funds sold through brokers performed a shade worse in the study. The direct funds trailed their benchmarks by 1.070%, on average each month after expenses, while the broker-sold funds lagged by 2.282%. (And that's not counting the sales charges.) Why the performance gap? For one thing, the expenses on broker funds tend to be higher, to cover the costs of distribution and advice. But there was also evidence that the broker funds underperformed somewhat worse even before such expenses are factored in. That raises the possibility that the universe of broker-sold funds simply isn't as good. Of course, there are cases where broker-sold funds have superior investment performance. Exhibit A would be American Funds, whose portfolios continue to rack up good returns, despite massive inflows from the broker channel this year. A prominent example of the direct channel is the Vanguard Group, which relies heavily on index funds and keeping expenses down. Chalmers surmises that one reason retail investors turn to brokers to buy funds is "a deep-seated desire to have their hand held in making these decisions." Or, "It may be that these investors are too busy and they outsource it to their brokers," he says. Brian Reid, deputy chief economist at the Investment Company Institute, characterizes the document as "a very preliminary look at comparing those funds in those two channels." In his view, the slightly lagging performance of broker funds in the study stems from "brokers providing an additional service -- and they have to be compensated for that." Admittedly, distinguishing between direct funds, which can be acquired via the Web or over the phone with the help of a company sales rep, and brokered funds is not always easy. Funds in the study's direct category include some 401(k) offerings. Following up on the research that went into their paper, titled "Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry," the professors are "considering how we might measure some of these more psychological benefits, or immeasurable benefits, that brokers must be providing," Chalmers explains. Both the broker and direct channels each had about $2 trillion under management in 2002, according to the study. Analyzing roughly 5,000 funds, the paper studies the performance of funds in both distribution channels from 1996-2002. The study examines five possible benefits offered by the brokers, such as whether brokers can help their customers locate funds that are harder to find and analyze. Other possible broker benefits: putting their clients into funds with lower expenses, distribution costs like sales loads notwithstanding; access to better performing funds; better asset allocation; and steering clients away from "behavioral investor biases," such as chasing the latest hot fund category. The study did identify several pluses for the brokers. "Some evidence suggests that the broker channel sells funds that broadly could be characterized as hard to find and analyze," the authors write. (That would include funds that aren't rated by Morningstar.) What's more, the authors found some evidence that "home bias" -- that is, an emphasis on U.S. funds -- "is less pronounced in funds sold in the brokered channel." Compared to buying funds directly, however, the broker route didn't fare so well in other areas. For example, consumers using brokers "pay extra distribution fees to buy funds with higher non-distribution fees expenses," the authors observe. And: "The funds they buy [in the broker channel] underperform those in the direct channel even before deductions of any distribution-related expenses." What's more, there is no evidence of better asset allocation among the broker-sold funds and the funds they put clients into "exhibit substantially greater trend-chasing behavior," the authors observe. Still, the authors stop short of deeming one channel better than the other. "In the end, costs and benefits of using the brokered channel can only be judged by the consumers that make the decisions." Concludes Chalmers: "Our paper shows that the service the broker provides is probably not helping you pick a mutual fund that will have better performance. We speculate that the benefit is more likely to be psychological or the time-saving benefit you would achieve from not having to make these decisions."
Yet even the pros don't agree on whether stocks are cheap or pricey right now. A wrench in the works: They use different valuation yardsticks. People can find "numbers to show whatever they want," says James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. To make sense of it all, here are some yardsticks commonly used to decide if stocks are undervalued or overvalued -- and what those yardsticks are saying right now. P/E Ratio: Sell The most popular measure of stock prices is the price/earnings ratio. It shows the multiple of annual per-share earnings that investors are willing to pay for a stock. (As in other types of shopping, a higher figure indicates that investors are willing to pay more, perhaps because the company is growing faster than others.) The Standard & Poor's 500-stock index closed at 1188 Friday. The combined per-share earnings reported by all the companies in the S&P 500 in the past year was $56.15, according to S&P's Web site. So the P/E is 21.2 (1188 divided by 56.15). Historically, such "trailing" P/E ratios have averaged about 15, so this might suggest that the market is significantly overvalued right now: If the P/E returned to its average level, the S&P would be trading at just 840. Forward P/E: Buy But this measure alone doesn't account for the fact that companies will probably earn more next year than this year. Given the market's forward-looking focus, many analysts prefer to use next year's profit forecast, which gives a reasonable-looking P/E of 16. Mr. Paulsen prefers this measure, and he also looks beyond it to other factors such as low interest rates, low inflation and strong growth in corporate profits. "What we have is a multiple that's just a little above average in an environment that's anything but average," he says. Fed Model: Buy Along with earnings, investors need to keep the broader economy in mind. Several techniques have evolved to gauge economic factors. A popular one is the "Fed model," which compares yields in the stock and bond markets. If you can get a 10% return from long-term bonds, for example, then the stock market will struggle to beat that. But with the yield on the 10-year Treasury now down at 4.15%, the stock market looks attractive by comparison. Despite the name, this model is not officially endorsed by the Federal Reserve. But it has a significant following among investors and a reasonably good track record in recent years. It's easy to calculate: Divide the forecast 2005 earnings of the S&P 500 ($74.03) by the yield on the 10-year Treasury note (0.0415), and the result should be a fair value for the index. Right now, this method says the S&P 500 should be trading at 1784, meaning stocks are undervalued by about 30%. Not all analysts agree with the Fed model. "Just because bonds are expensive, it doesn't make equities cheap," says Brett Gallagher, co-head of global equities at Julius Baer Investment Management. "It's as if you're out sailing and you navigate using a buoy that's in the wrong place. Then you say, 'Well, relative to that buoy, there shouldn't be any rocks here."' Dividend Yield: Sell Traditionally, the dividend yield has been an important way to value stocks, because it measures something tangible: the cash that companies regularly kick over to investors. If a stock trades at $100 and the annual dividend is $2 a share, then the dividend yield would be 2%. A high dividend yield may indicate that a stock is trading cheaply. The dividend yield of the S&P 500 is now about 1.7% -- lower than historical averages. The measure lost a little luster in the 1990s as many companies stopped paying dividends. But companies have been boosting their payouts again recently after President Bush slashed the dividend-tax rate, so the dividend yield may regain its popularity. Mr. Gallagher uses a slightly more complicated "dividend discount" model that values stocks based on the stream of dividends that they pay out. He also looks at other measures such as P/E multiples based on trend earnings -- a measure that uses a kind of long-term average for earnings instead of the current value. Right now, Mr. Gallagher says, all his models point to a fair value for the S&P 500 of around 880 or even lower. That's about 25% below where the market is today. Valuing Individual Stocks But even if the market overall is looking a bit expensive, it doesn't mean you should stash all your money under the mattress. For one thing, the market can sometimes take years to reach its "fair value." Remember the '90s? So even if the long-term outlook isn't rosy, there could be some gains along the way. Moreover, individual stocks and sectors can prosper even when the market as a whole does not. To find individual stocks that are cheap, there are many valuation methods, including looking at the P/E ratio compared with the stock's historical average range, and the dividend yield. Investors also pay attention to the PEG ratio, which is the P/E divided by the annual earnings-growth rate. If the P/E of a stock is 15 and earnings are growing 10% a year, then the PEG is 1.5. Another measure that's popular for young companies with little or no earnings is the price/sales ratio. That's the market value of the company (price times number of shares) divided by the sales or revenue. For both measures, a low number means a cheaper stock. It's important to compare a ratio with those of other companies in the same sector, not just the market as a whole. There are other virtues in individual stocks, of course, such as a track record of consistent earnings growth, good management and a strong position in an industry that will still be around in 10 or 20 years. And a low P/E doesn't necessarily make a good investment: Some stocks are cheap for a good reason. But valuing stocks, and valuing the market, can give you a useful reality check.
The rules have changed because foreign stock markets are increasingly moving in lock step with the American market. As the correlations tighten, the old reason for investing abroad - diversification - has all but disappeared. In the past, investors reduced risk by apportioning holdings among many stock markets - confident that if some markets fell, others would rise. But if nearly all markets are moving in the same direction, as they are now, this kind of diversification makes little sense. Still, if investors are convinced that that the dollar will continue to fall, moving assets abroad becomes compelling, because of the added returns possible from investments denominated in other currencies. This has been happening this year. An increase of 5.9 percent in the CAC 40 index in France, for example, has meant a return of 11.2 percent in dollar terms, handsomely more than the 6.8 percent gain of the Standard & Poor's 500-stock index. Many forecasters expect the dollar to continue its decline in 2005 and beyond. James W. Paulsen, chief investment officer at Wells Capital Management, said the tight correlations of global markets meant that his one big consideration in allocating money abroad was "whether I think the currency is going down 10 or up 10." He has put 33 percent of his stock portfolio abroad, double the commitment from two years ago. "It was all on the dollar and still is on the dollar," he said. "If I think the dollar is going to end its multiyear weakness, I am going to reduce my international exposure." That is not to say that international investing should be ruled entirely by judgments about the dollar's future. But the declining rationale for traditional diversification means that foreign investing has to be rethought. Paying more attention to dollar weakness or strength is one new approach. Another is to forget about diversification - and to invest abroad because the evolution of the global economy is reducing the dominance of the American market. Measured by market capitalization, foreign stocks compose almost 50 percent of the Morgan Stanley Capital International All Country index; that percentage should rise in the years ahead. David Antonelli, chief equity officer at MFS, a mutual fund company, has embraced global investing for this reason. "I am just expanding my population of opportunities to find good stocks," he said. In the long run, recommended equity allocations in foreign stocks could be nearly equal to those for the American market. That would be an enormous change. Currently, many managers recommend 20 percent to 25 percent exposure abroad, yet the actual allocation for many investors is in the low single digits, if not zero. The fundamental shift in many managers' thinking stems from the startlingly parallel movements of most world stock markets. In measuring how closely one market follows another, a figure of 1 represents perfect correlation, while -1 means perfect inverse correlation and zero means no correlation. Four years ago, some Wall Street firms noted that rising correlations of world stock markets were undermining the argument for diversification. At the end of 2000, the correlation of the S.& P. 500 and the M.S.C.I. index of developed countries - known as EAFE - was already 0.73, according to an analysis by Ibbotson Associates, an investment management firm that specializes in asset allocation. The correlation of the S.& P. 500 and the M.S.C.I. Europe index was 0.69, while the figure for the S.& P. 500 and emerging markets - usually sold as a portfolio diversifier - was 0.68. At the time, those figures led many money managers to recommend reducing foreign exposure, but they also warned that correlations could decline later. That hasn't happened. As global economic policies, including fiscal and monetary policies, are increasingly in sync, even in emerging-market countries, so is the performance of stock markets. The S.& P. 500's correlation with other markets has continued to climb; by the end of October this year, it stood at 0.85 with the EAFE index, 0.83 with Europe and 0.77 with emerging markets. (Ibbotson measures monthly correlations over a five-year period. Shorter measuring periods produce even higher correlations.) The correlation of the S.& P. with East Asian markets has risen to 0.71 from 0.64, if Japan is left out. Japan is the major market that provides the best diversification opportunity, in part because of a decade and a half of financial crisis and underperformance. The Japan correlation was 0.48, down from 0.49 four years ago. This modest figure, along with the expectation that the dollar will fall against the yen, could make Japan both a diversification and weaker-dollar bet for some investors. But the best diversification play for American stock investors is the bond market - in the United States. The correlation of the S.& P. 500 and the Lehman Aggregate bond index is -0.26, compared to a positive reading of 0.28 four years ago. All of this leads Jeremy J. Siegel, a professor at the Wharton School of the University of Pennsylvania and the author of "Stocks for the Long Run," to offer some simple advice on investing abroad. He is including it in his new book, "Future for Investors," due in March. Like Mr. Antonelli of MFS, he says investors should look outside the United States for exposure to more companies. Forty percent of an investor's stock portfolio should be invested abroad, he said. "If I am left out of this world scenario," he said, speaking as an investor, "I am going to be worse off."
You don't have to blame yourself. Perhaps buying more than you want or can afford is more force of nature than weakness of character. You may be just one more victim of "the shopping momentum effect," according to an about-to-be-released study by researchers from Yale and Duke universities. It works like this: Once you decide to buy that first utilitarian item and put it in your cart, you have matter, it is moving, and it is taking you for a ride. Force equals mass times acceleration, and what you have is an unstoppable force. Ravi Dhar, co-director of the Center for Customer Insights at the Yale School of Management, began noticing the phenomenon a couple of years ago. Turning to Amazon.com for a book he needed, he would quickly find himself checking out with a shopping cart stacked with books he hadn't planned to buy. He mentioned this behavior to Joel Huber, who was giving a talk at Yale. Huber, a professor at Duke's business school who specializes in modeling consumer choice, realized he did the same thing. They decided to find out why. Dhar says a shopper looking for something utilitarian, such as an umbrella, sets off quite rationally, considering price and value. But as soon as he decides to buy it, something happens. He shifts gears, lurching into buying mode. "It's a change in mindset," Dhar says. "You go from carefully weighing pros and cons to buying. You don't stop to think. You get into a frenzied mindset. You start looking for things to buy." That utilitarian purchase, he says, apparently gives you the justification to do something fun. "Essentials drive momentum," he says. To quote the study: "Shopping momentum arises from this reasonable idea that shopping has an inertial quality, that there is a hurdle to shift from browsing to shopping, which, once crossed, makes further purchases more likely." Huber describes the first stage as a period of evaluation. "Suppose I'm in the mall and I'm looking around. I'm in Bed, Bath & Beyond, and I see a pillow that's perfect for my Aunt Polly. "Until that moment, you're in 'browsing mode.' Someone comes up to you and asks, 'Can I help you?' You say, 'I'm just looking.' But as soon as you decide to make that purchase, things change. "As long as you are in browsing mode, you have the brakes on. But once you make that first decision, the brakes come off and you are in 'buy mode.' That's when you purchase too much. Next thing you know, you have a whole basket of pillows, and you're wondering why you bought them." Fortunately, Dhar and Huber have found a most pleasant way to head off the momentum. Make your first purchase a guilty pleasure, and something akin to remorse takes hold. Your subsequent purchases are restrained, and you emerge from your shopping trip within budget and bounds. "This is one of the more surprising things," Huber says. "If your first purchase is a guilty pleasure, you don't go into that next mode. Maybe it's an ice cream cone. . . . It's something you want but you don't want to want." Somehow, initial indulgence leads to prudence. I think this is something a good shopper must know by instinct. As a recent Maritz poll reports, one-third of shoppers plan to buy themselves a gift this Christmas. I'm planning to do the same, in the interest of sound scientific principles. "If you start by buying something you really need, something for the house, perhaps, that makes the momentum larger," Dhar says. "There's a feeling you can reward yourself in some sense. If you start with something that is guilt-inducing, you are more likely to stop. It acts as a deterrent." Another trick, he says, is to shop in stores with multiple checkout counters. If you take all your purchases to one counter, you tend to buy more. "We speculate that multiple checkout counters disrupt the momentum," Dhar says. "If you have to open your wallet and pay again, that can make you stop." Huber says the study shows that people tend to be in either purchase mode or evaluation mode. "The trick is, once you decide to purchase something, go back into evaluation mode," he says. "Don't let yourself say, 'I solved it,' and then fill up the shopping cart." Once you leave evaluation mode, Huber says, you not only tend to buy more than you might want, but you stop caring as much about the price. "You're simply saying, 'It's time to buy.' " When Dhar and Huber designed their study, they must have been deep in evaluation mode. The work was done in Pakistan, with the help of Uzma Khan, a doctoral candidate at Yale. "It's cheaper and more efficient to do it there," Huber says. Apparently, true shoppers ignore boundaries of culture and continent. Everyone is born to shop. "We validated it in New Haven," says Huber. "It's universal. All you have to do is go into a store and you'll see it occurring." A shopping bag sitting in my own house says he's right. Stopping in a store for a small gift the other day, I emerged with three T-shirts and a pair of pants. Think of it this way: Whatever you were doing, you'll keep doing unless something gets in the way, Huber says. If you're evaluating, you keep evaluating . . . if you're buying, you keep buying. Or, as Newton put it in his First Law of Motion: An object at rest tends to remain at rest, and an object in motion tends to remain in motion unless acted on by an outside force.
Wealthier investors -- those with brokerage accounts of $100,000 or more -- who held concentrated portfolios also outperformed comparable households with diversified accounts by at least four percentage points a year. In fact, wealthy households that invested in many stocks underperformed the markets by about 1% a year. That advantage appears to stem from having access to information, either through strong social or professional networks, that makes investors with concentrated portfolios better stock pickers, researchers said in a paper released last month. Although households with relatively large portfolios can afford to buy more stocks, they appear to concentrate their holdings because they have better information about those companies. Simply reducing the number of stocks in one's portfolio won't automatically improve returns if investors don't have good information, says Clemens Sialm, assistant professor of finance at Michigan's Stephen M. Ross School of Business and one of the study's co-authors. The study analyzed 1,156,000 stock trades that individual investors made through a discount broker from 1991 to 1996. The study also found that the outperformance of households with concentrated portfolios is particularly strong if they hold "local" stocks -- defined as companies located within a 50-mile radius of their residences. That is because investors who live near the company they are investing in are likely to know more about whether that business is worth investing in, Mr. Sialm suggests. Meanwhile, investors with concentrated portfolios also outperform the broader market if they hold small stocks or companies not included in the Standard & Poor's 500-stock index, since those companies aren't likely to be well known or as widely followed. On average, investors who held one or two stocks outperformed those who held three or more by about one percentage point during the year following a stock purchase. For households with portfolios of $25,000 to $100,000, the difference in returns for concentrated versus diversified investors is three percentage points. Households with stock portfolios valued at less than $25,000 didn't perform materially better. The tradeoff, of course, is that holding fewer stocks increases the risk of those portfolios. The study did not look at the other investments the households may have had, such as retirement accounts or pension plans, so their brokerage accounts may comprise only a small portion of their total wealth.
Many market timers, in particular, have paid close attention to the overall ratio of insider sales to purchases. Typically, they say it is a bullish sign whenever this ratio falls well below its several-decade-old average of around 2.5 to 1, and a bearish sign when it rises well above that average. This indicator certainly looks bearish right now. The insider sell-to-buy ratio for trades over the last eight weeks is 5.51 to 1, according to the Argus Research Company of New York, which collects insider trading data from the S.E.C. and reports its findings in a newsletter, Vickers Weekly Insider Report. Largely because this ratio is more than twice the long-term average, Argus is decidedly bearish. For its newsletter's two model portfolios, the firm is recommending that investors hold no stocks at all. But how valid is it to compare today's ratio to a long-term average that is based on insider behavior extending back several decades? In recent years, some researchers have worried that the widespread use of stock options has distorted the picture, making the sell-to-buy ratio artificially high. Here is why: The ratio on which market timers focus is based on open-market transactions - purchases or sales at the market price. Shares bought when cashing in options are made at the price specified by those options, and therefore are not counted in the ratio. But when an insider sells the shares acquired by exercising his options, those sales are counted. This calculation quirk is not a recent development. The figures have always been based on open-market transactions. But so long as relatively few options were being granted to insiders, few people worried that the ratio was significantly misrepresenting insiders' trades. H. Nejat Seyhun, a finance professor at the University of Michigan who has extensively studied insider trading, recently set out to determine how much the sell-to-buy ratio has been skewed by options exercises. Professor Seyhun calculated what the ratio would be if it included shares bought when cashing in options. His focus was on the four years from the beginning of 2000 through 2003, a period that included the last few months of the Internet bubble, a bear market and a little more than a year's worth of the subsequent bull market. He found that the inclusion of shares bought via options exercises caused the sell-to-buy ratio for those four years to drop significantly - to just above 2 to 1, on average, compared with 6.5 to 1 when those purchases were not counted. As he points out, the lower number is right in line with "what used to be the normal level before option exercises became more prevalent." The biggest discrepancy between these two calculation methods came in late 2003, in the wake of the powerful bull market that began a year earlier. In November 2003, for example, the traditional sell-to-buy ratio, based only on open-market transactions, was more than 11 to 1 while the ratio including purchases from options exercises was less than 3 to 1. According to Professor Seyhun, this large discrepancy showed that insiders were taking advantage of the bull market to cash in their options. Investors should take his findings into account if they want to compare current insider selling data to the long-term average. Ideally, apples-to-apples comparisons should include options exercises when calculating the sell-to-buy ratio. But it's difficult to get up-to-date data that includes option exercises. Professor's Seyhun's numbers, for example, extend only through the end of last year. Without information that is more current, he recommends that we assume the norm for the ratio to be around 6.5 to 1. He adds, however, that this number is no more sacrosanct that the 2.5-to-1 ratio once was. The number would need to be revised again, for example, if the S.E.C. required companies to record options as an expense in the year when they are granted - a proposed rule that the agency is seriously considering. In that event, he speculates, companies would reduce the number of options they grant, and the average sell-to-buy ratio would decline again. For now, however, because the current sell-to-buy ratio is still below 6.5 to 1, Professor Seyhun says that insider selling is no worse than neutral for the overall market.
Alas, these benefits come at a price: First, mutual funds often aren't used properly. Second, and more troublingly, the vast majority of funds get paid an aggregate of tens of billions of dollars a year for accomplishing nothing (or worse than nothing). On the first issue, mutual funds should be used as deliberate elements of a broader investment plan. Unfortunately, many people imagine that fund managers play the same role in the investment process as financial advisers: They invest your money in a way that makes sense for you. Most fund managers don't do anything of the sort, of course, and not because they are shifty or incompetent. Most fund managers do what they are hired to do: trade stocks or bonds according to the tightly proscribed criteria of a given fund. But these criteria may have little or no relevance to you. The most important part of money management is asset allocation (how much of your portfolio you place in stocks, bonds, real estate, etc.). For more than ten years, most investors and investment advisors have operated with the belief that asset allocation explains more than 90% of portfolio performance. The study that initially validated the importance of asset allocation is “Determinants of Portfolio Performance,” by Gary Brinson, Randolph Hood and Gilbert Beebower (BHB), published in the July/August 1986 issue of the Financial Analyst Journal. In contrast, William Jahnke challenges many of the BHB tenets in “The Asset Allocation Hoax.” Jahnke’s paper was followed by additional research conducted by Morningstar, which also concluded that asset allocation was not nearly as significant to actual investment results as had been originally understood. Appropriate allocation depends to a large extent on your goals, time horizon, and risk tolerance, and fund managers do not make personalized allocation decisions. Instead, they simply offer a vehicle with which to implement them. If a fund buyer understands how to make allocation decisions, then (some) mutual funds are logical tools to use in a portfolio. Alas, in this age of do-it-yourself finance, many people skip right over the tedious allocation process and head straight for the sexy stuff: fund picking. And, in so doing, they set the table for disaster. If you put all your eggs in a super-hot technology-fund basket, for example, it doesn't matter whether your fund is the best or worst of the lot: If tech tanks, you're headed for the poorhouse. Similarly, if you bet your daughter's college money on that top-quartile U.S. equity fund, you must hope that the U.S. equity market doesn't stagnate for a decade (because if it does, it's second-mortgage time). Bottom line, the appropriate use of mutual funds requires significant portfolio management expertise, and statistics on fund turnover and money flows suggest that many buyers just don't have it. But the bigger issue is that active money management - aka stock-picking, the strategy employed by most funds - doesn't usually work. According to study after study, the vast majority of fund managers can't generate enough extra performance from active trading to offset the costs of their efforts (costs that include salaries, bonuses, and fund company profits). This problematic finding doesn't stop fund companies from selling active-management prowess, of course - or from collecting huge active-management fees even when performance stinks. Your odds of picking a market-beating fund are somewhere between one in six and one in 30 (roulette-like); the fund industry's chance of collecting big fees, meanwhile, is 100 percent. If alternatives didn't exist, active managers could just hide behind the rhetoric about offering small investors a simple way to pool resources and diversify, etc. Alas, alternatives do exist. Passive funds buy all the stocks that meet given criteria and leave stock-picking to folks who hope that they can defy the odds (and to their customers). Because passive management costs less than active management—fewer expensive MBAs, lower trading costs, lower research costs, lower taxes - passive funds generally do better than active funds: What they lose in performance (surprisingly little), they more than make up in costs. Academics have been wrong before, of course, and perhaps some hidden advantage of active management has been overlooked. (Personally, I hope so; active management is a dream job, and if I hadn't been afforded time to read the studies—by getting tossed out the industry - I'd probably be doing it right now.) If the academics are wrong, however, the fund industry has been awfully quiet about it. Usually, when the value of an entire industry's primary product is questioned, the industry responds to the charge: "The methodology was flawed. … " "The studies failed to account for …" To my knowledge, the fund industry has yet to respond persuasively to this charge. Until it does, we might tentatively conclude that, intentionally or not, most fund customers are being taken to the cleaners. (One obvious remedy would be for fund companies to refund fees when active funds fail to beat their passive benchmarks; fund companies probably know a bad bet when they see one, however.) Should you care about the near-futility of active management? If your time horizon is only a few years, no. Over this period, the cost drag won't amount to much, and you might as well play a few spins of the active-management roulette wheel (some funds do beat the market, and hope springs eternal). If you're investing for the long term, however, you should care a lot. On average, active funds underperform passive funds by about a percentage point a year (or more). Over 20 years, assuming 10 percent annual appreciation, this difference will eat nearly a fifth of your return. Over 40 years, it will gobble almost a third. Monthly Tech Update
Many users' second choice is Spybot Search & Destroy (Win 95 or newer, www.safer-networking.org), another free program -- a donation is requested but not required -- that takes a more inclusive approach to spyware protection. It overlaps some features of antivirus software, policing Trojan horses (dangerous programs disguised as legitimate software) and other types of malicious code in addition to spyware and tracking cookies. (Spybot is even less helpful than Ad-Aware about the relative threat of tracking cookies.) A third free option for spyware detection and removal comes via Yahoo's Toolbar add-on to Internet Explorer (Win 98 or newer, toolbar.yahoo.com), which includes a utility called Anti-Spy. This ran much faster than others but missed a few spyware items located by other programs -- while also finding some that its competition had overlooked. (Note: Never use a free anti-spyware program advertised via junk e-mail or a pop-up ad, lest you wind up only collecting more spyware.) The leading commercial choice is McAfee's AntiSpyware (Win 98 or newer, www.mcafee.com), a $30 utility often bundled with McAfee's other security programs. Another widely used program, Intermute's SpySubtract (Win 98 SE or newer, www.intermute.com) costs $30 as well. The price you pay for these programs mainly buys you speed -- both McAfee AntiSpyware and SpySubtract ran about twice as fast as the free programs, with McAfee the slightly faster of the two. These commercial releases also tend to provide more information, more control and more ways to fine-tune their behavior. (SpySubtract, for example, includes a separate program, CWShredder, to combat a particularly vicious form of browser hijacking.) And McAfee and Intermute clearly distinguished between dangerous spyware and mere tracking cookies. Paying for a program means you can call for help if you want to. But all of these programs, free or otherwise, offer automatic updates without any subscription charge. Time Warner Inc.'s cable division is planning to roll out a new feature for digital-cable subscribers called "Start Over" that will allow viewers to do exactly that. At any point during the broadcast of a program, viewers will be able to hit a button on their remotes that will start the show from the beginning. Start Over raises a number of thorny programming-rights issues that must be resolved before a launch. To make shows available outside the usual viewing time, Time Warner has to get approvals from holders of rights to the content, which could be acting guilds and music producers, as well as studios and networks. Difficulty in obtaining program rights has forced Time Warner to shelve more-ambitious efforts to make on-demand programming available. In 2003, for example, Time Warner Cable was quietly working on a project called Mystro TV, which would have made the entire program lineup available to digital-cable subscribers for two weeks. But that effort was largely abandoned because Time Warner was unable to obtain the rights to enough content. Time Warner is hoping to avoid many of Mystro's pitfalls by making the new service more palatable to content owners, such as by precluding fast forwarding through commercials. (Peter Grant, WSJ 12-23) Monthly Employment Stats
"We had such a big jump in October, so I think it's reasonable to expect a little bit of a payback in November," says David Greenlaw, an economist with Morgan Stanley. "All other indicators suggest that the labor market continues to improve."Despite the weak jobs data, the Fed is likely to go ahead and raise its target for the federal-funds rate, charged on overnight loans between banks, by a quarter percentage point to 2.25% at its Dec. 14 meeting. Investors did, however, slightly mark down expectations the Fed would raise it further to 2.5% in early February. Having raised rates four times since June, the Fed is more willing to calibrate future moves to the economic data. Nonetheless, because the funds rate remains low and the economy has weathered high oil prices so well, Fed officials appear to be focusing more on keeping inflation under wraps than on stimulating spending. Mr. Santomero and Ms. Minehan emphasized the importance of remaining vigilant on inflation. Mr. Santomero said that while he saw no "flashing lights" on inflation, the Fed's actions "operate with a lag." As unemployment slowly declines, the Fed must "allow interest rates to move to more normal levels." The unemployment rate fell to 5.4% in November, well in line with expectations. The jobless rate has moved between 5.4% and 5.5% since July. But it is taking longer for some workers to find jobs. The average duration of unemployment rose to 19.9 weeks from 19.6 weeks a month earlier. African-Americans might be disproportionately representative of this number, since they were the only group whose unemployment rate grew, rising from 10.3% in September to 10.7% in October and to 10.8% in November. Across the economy, professional services, health and education registered the largest payroll gains. Service-sector hiring rose 104,000, while construction added 11,000 workers, down from the hurricane-rebuilding effort that occurred in October and pushed jobs in that industry up 65,000. Manufacturing shed 5,000 jobs, while retail lost 16,000 jobs. But economists say those declines may not signal trouble. Retailers are hiring more part-time workers for the holiday season and are opting to use temp agencies to fill those jobs. Indeed, the Labor Department's report showed that payrolls at temporary-help services grew by 8,900 jobs last month. Manufacturing jobs declined for a third month in a row in November. But the decline "is not reflective of the health of manufacturing," says Dan Meckstroth, chief economist for the Manufacturers Alliance/MAPI, a public policy and business research group in Arlington, Va. He says manufacturing, while still growing at a healthy clip, isn't growing as fast as during the first half. At the same time, productivity in the industry continues to improve. The two trends mean the industry needs fewer workers.
Just the Facts Even Benign Results Have Emotional and Financial Consequences Amy Marcus, WSJ 12-28 Cancer researchers are learning that a problem once considered minor in the fight against cancer -- false-positive test results -- in fact have long-term psychological and economic consequences. And researchers say these costs need to be considered before a patient undergoes screening. It has long been recognized that cancer screening sometimes finds abnormalities that later turn out to be benign. So-called false positives naturally create a great deal of anxiety until a biopsy or other testing reveals that a patient is cancer-free. The assumption has been that as long as a person eventually finds out the first test was wrong, any distress is transitory and minor -- and that the cost of additional testing is worthwhile for the peace of mind it brings. Instead, several new studies reveal that the impact of false positives can be serious and persist far longer than expected. One recent study showed that significant numbers of men who had a false positive on a prostate-cancer screening test still experienced anxiety several weeks after learning they were cancer-free. And the medical costs of unnecessary additional testing can be considerable. In a study published this month, researchers found that men and women who had false-positive screening results averaged more than $1,000 each in follow-up care in the year following the test. As screening increasingly moves to easier, noninvasive methods, such as blood, urine or saliva tests, the number of people getting tested is increasing, and so is the number of false positives. Many of these newer tests use technologies that are extremely sensitive and are more likely to pick up small abnormalities that actually aren't cancerous. There are no guarantees in screening. Cancers still can be missed, and the results of follow-up testing are frequently inconclusive. Add in the psychological and financial impact of false positives, and the results of cancer screening can wind up being the opposite of what patients seek: Rather than peace of mind, they can come away with more questions, distress and financial expense than they bargained for. Portfolio Fix Jonathan Clements, WSJ 12-05 Still finding it hard to fix your portfolio? Try three tricks. First, when unloading your losers, sell some winners at the same time. "From a tax standpoint, the smart thing to do is to realize your losers and leave the winners alone," says Meir Statman, a finance professor at Santa Clara University in California. "But from an emotional point of view, you might want to sell both winners and losers. By pairing the trades, you lessen the pain of selling the losers." Second, for every losing investment, find yourself a scapegoat, like your broker, or your brother-in-law, or your favorite personal-finance columnist. "Never forget that you can reduce the pain by blaming somebody else," Prof. Statman quips. Third, commit to showing your year-end brokerage and mutual-fund statements to a family member or a close friend. Faced with the prospect of having others scrutinize your portfolio, you will have a powerful incentive to ditch your foolish investments and replace them with a sensible mutual-fund mix. Quick Facts, Stats & Opinions As the dollar fell in 2004, investors piled into foreign companies' U.S.-listed securities to make a currency-conversion killing. Trade in American Depositary Receipts or ADRs -- baskets of shares in a foreign company -- went through the roof. Volume of ADR trading year to date is at an all-time high of 39.1 billion, valued at $885 billion, up about 18 percent from 33.1 billion, worth $632 billion, in 2003, according to the Bank of New York, the market-maker for two-thirds of ADRs. (Arindam Nag, Reuters 12-30) For 2005, the 60 forecasters we surveyed expect, on average, that the economy will grow 3.5% from the end of 2004 to the end of 2005. That's a bit below the 3.8% pace expected for 2004. The consensus view is that profit growth will slow to 6.7%, and inflation will fall, as oil prices slip to $39 per barrel by the end of 2005. The Federal Reserve will keep lifting the federal funds rate, to nearly 3.5% by yearend, from 2.25% now, and the yield on 10-year Treasury bonds will increase from 4.3% to 5.1%. In general, economists see the dollar slipping at a gradual pace of about 10% against major currencies and 5% vs. all currencies. The jobless rate should fall from 5.4% to 5%. (James Cooper & Kathleen Madigan, BusinessWeek 12-27) In a survey conducted by TEC International, a San Diego chief executive group, 64% of the 2,308 CEOs polled say they expect their company's work force will rise, while 30% say it will remain at current levels, and only 5% expect a decline. The majority of respondents, 67%, say economic conditions in the U.S. have improved compared with a year ago, and 61% say it takes longer now to hire a qualified candidate than it did a year earlier. For those who chose not to hire in the past five months, a lack of qualified candidates topped the list of reasons, cited by 32%, while health-care costs was the runner-up at 13%, with oil-price increases cited by only 5%. (Richard Breeden, WSJ 12-28) When stockbrokers, other brokerage employees and investment bankers load up on shares of their own publicly listed employers, the overall stock market tends to rise in the following year, according to new data from Thomson Financial. And the pros appear to be banking on a Happy New Year. In all but one of the years from 1990 to 2004, the overall stock market, as represented by the Standard & Poor's 500-stock index, rose when brokerage employees and investment bankers were consistently buying their own firms' stock in the prior year. The only year this pattern didn't pan out was 1993, Thomson says, a year the S&P 500 barely budged. (Gene Colter, WSJ 12-20) In broad schematic terms, the United States imports and the rest of the world exports; the United States borrows and the rest of the world lends. Financial flows are so lopsided that last year America soaked up nearly three-fourths of the surplus savings in the entire world. (Eduardo Porter , NY Times 12-19) The corrosive effects of fund expenses on returns are well documented. But taxes on capital gains distributions for the $3.5 trillion of assets held in taxable accounts actually cut deeper into profits, according to Lipper. From 1994 to 2003, these taxes dragged down fund returns by 1.96 percentage points, versus 1.45 points from expenses. "Over the last 10 years, capital gains and income distributions have been a bigger drag on mutual fund investor returns than expenses and sales commissions combined," said Tom Roseen, senior research analyst at Lipper. (Norm Alster, NY Times 12-19) Economists expect that the Labor Department's consumer-price index will show a 0.2% gain for November, a move that would put it 3.6% over last year's level -- the biggest year-over-year increase in more than three years. Last week, the producer-price index showed a year-over-year rise of 5% -- the biggest increase since 1990. Eugene Flood, head of institutional asset-management firm Smith Breeden Associates, points out that periods when gains in the PPI have been outstripping gains in the CPI haven't been happy events for the economy -- and actually have been a good recession signal during the past 30 years. This may be because companies reacted to pressures on profit margins by cutting back on production growth and expansion plans, which is a sensible response to being less well-compensated for taking on risk. (Justin Lahart, WSJ 12-17) Don't rebalance into individual stocks, which can fall -- and then keep on falling. Instead, you should rebalance only into mutual funds. With funds, you can be more confident that a steep decline will be followed by a subsequent rebound. (Jonathan Clements, WSJ 12-15) Two important lessons about market timing: First, market timing has greater odds of success in some market environments than others. Far more market timers beat a buy-and-hold strategy when the market is declining, for example, than when it is rising. Since the Russell 2000 has risen for the past two years, Thompson has had a significantly harder time than he would have if the market had instead declined. Second: Even when the overall market environment is favorable, individual market-timing strategies with excellent long-term records will nevertheless on occasion fail to work. (Mark Hulbert, CBAS MarketWatch 12-15) Two more Web-query services launched last week, Accoona and Blingo; but their initial performance suggests market leaders Google and Yahoo don't have reason to worry yet. Accoona went live Monday. "Accoona understands the meaning of words," chief executive Stuart Kauder said. "It will expand your query to include more matching pages. We also allow users to highlight particular words in the query that are of greater importance to them." Blingo, appeared to deliver better search results but also looked more gimmicky. The site, unveiled in test form Wednesday, offers users a chance to win such prizes as digital cameras, Amazon.com gift certificates and music CDs with every search they run. Company officials said Blingo will offer hundreds of prizes a month while they are testing the service, then thousands each month once the site formally launches. (Leslie Walker, Washinghton Post 12-12) `Rates are going back to a more normal level,' said Joe Deane, co-manager of the $2.6 billion Smith Barney Managed Municipals Fund, who is more positive about prospects for stocks than bonds. `If rates are going up because business conditions are good, why should anybody in the stock market be upset?' Recent history supports this argument. According to my Bloomberg, in the last three years in which 10-year Treasury yields rose, the Standards & Poor's 500 Index gained 26.4% (2003), 19.5% (1999) and 20.3% (1996). The last three years in which 10-year Treasury yields declined, the S&P 500 dropped 23.4% (2002), 13% (2001), and 10.1% (2000). (Chet Currier, Bloomberg 12-07) Car seats are going through a growth spurt. Inspired by the popularity of sport-utility vehicles, which let drivers ride higher than usual, auto makers are raising the front seats in regular cars. Higher seating also provides more legroom, both in the front and back seats. The shift focuses on what is known as a car's H-point -- the technical term for the place where a driver's hip rests in the seat. The higher the H-Point, the higher you ride in the car, and in some cases, the more comfortable you feel behind the wheel. Taller seats also can make a car easier to gracefully enter and exit, by eliminating the need to flop yourself down into a low seat or awkwardly hoist yourself out. (Michelle Higgins, WSJ 12-02) According to the annual report from security firm MessageLabs, the incidence of phishing attacks has risen exponentially over the past year, posing a serious risk for businesses or individuals who conduct business online. According to MessageLabs, which tracks and monitors e-mail, phishing messages in January 2004 numbered 337,050, but in November they totaled 4.5 million. As recently as September 2003, MessageLabs identified fewer than 300 phishing messages in a month. Phishing scams have also become increasingly sophisticated, according to the MessageLabs report, preying on the trust of computer users and fooling some into acting as money launderers. The report noted that some scams are able to access online banking information even when users do not click on any links. Meanwhile, according to the report, the number of e-mail messages that include a virus rose to 1 in 16, up from 1 in 33 last year, and spam now accounts for 73% of all e-mail. (CNET 12-06) Home Page Previous Factoid Top Sites
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