MONEY stocks

Apple’s Not the Only Tablet Maker With Problems

Some women use an Ipad at theTelefonos de Mexico SAB, Telmex and the Telcel's Digital Village at the Zocalo in Mexico City, Mexico on Friday,  July 24, 2015. Photographer: Susana Gonzalez/Bloomberg
Susana Gonzalez—© 2015 Bloomberg Finance LP Some women use an Ipad at the Telefonos de Mexico SAB, Telmex and the Telcel's Digital Village at the Zocalo in Mexico City, Mexico on Friday, July 24, 2015.

The worldwide tablet market is shrinking.

Apple APPLE INC. AAPL -3.28% investors have probably all already heard this by now: the iPad isn’t doing so hot right now. Units are on the decline, despite regular refreshes and an expansive lineup. That’s undeniable and painful for bulls to watch unfold.

But there’s far less consensus regarding whether or not the iPad’s current predicament is cause for concern in the long run. Is the device simply taking a breather while hitting a speed bump, only to resume its upward march? Or did Apple fail to deliver the tablet renaissance that it assured investors it could? Of course, only time will tell which of these scenarios turns out to be true, but it’s also worth noting that it isn’t just Apple that’s suffering. Despite its youth, the broader tablet market is undergoing some growing pains.

The third time is not a charm
Market researcher IDC has just put out its latest estimates on worldwide tablet shipments, and the market has now posted its third consecutive year-over-year decline. This time around, worldwide unit volumes came in at 44.7 million, down 7% from a year ago. This isn’t exactly how a growth market is supposed to look.

Idc Tablets

SOURCE: IDC

Here are the top five vendors right now, according to IDC’s figures.

Vendor Q2 2015 Units Q2 2015 Market Share Change
Apple 10.9 million 24.5% (17.9%)
Samsung 7.6 million 17% (12%)
Lenovo 2.5 million 5.7% 6.8%
Huawei 1.6 million 3.7% 103.6%
LG Electronics 1.6 million 3.6% 246.4%
Others 20.4 million 45.6% (9.3%)
Total 44.7 million 100% (7%)

SOURCE: IDC

It’s meaningful that Apple’s decline was worse than the broader market, evidence that rivals are finding some success in stealing market share away from the iPad. To some extent, this is also a function of Apple sitting on the sidelines of the low-end tablet market, content to watch Android competitors eat each other (and their profits) alive through commoditization and intense pricing pressure. Apple figures that it has 76% market share in the U.S. for tablets priced above $200, so it’s happy enough.

IDC attributes the tablet market’s current weakness to a number of factors. First off, the life cycles and upgrade cycles are a bit longer than the smartphone. Second, there is some inevitable cannibalization happening from large smartphones and phablets. Lastly, the hardware upgrades that vendors are introducing aren’t the most compelling refreshes, and most tablets are still able to receive software updates to the latest operating systems. This trifecta is hurting consumer tablet demand.

Any day now, enterprise market
Can the enterprise market be the shot in the arm that tablet vendors really need? Apple certainly seems to think so. After all, that’s the whole reason why the Mac maker partnered with IBM in the first place. Last year, Tim Cook noted that while 99% of Fortune 500 companies have deployed iOS devices to some extent, overall tablet penetration in the enterprise market remains surprisingly low at just 20%. Cook hopes to get that figure to 60% in the years ahead.

At the same time, tackling the enterprise market is also Microsoft territory. Microsoft’s presence in the tablet market depends on who you ask since different researchers define tablets differently and Microsoft has blurred the lines between form factors. But the company did just launch Windows 10, the realization of a long-standing vision where one operating system would rule all form factors.

Still, a rising tide would lift all enterprise tablet vendors.
Evan Niu, CFA owns shares of Apple.

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MONEY strategy

The Top 3 Reasons Never to Chase Investment Returns

539235813
BraunS—Getty Images

#1: The past is too late.

You hear advisors on TV talking about how they research and pick the securities with the highest returns. That sounds good since who doesn’t want the best? Why not jump in and catch the wave? Here are three reasons why not.

1. The past is too late. Those returns did happen, but the investment isn’t already in your portfolio. Regardless of how good they were, you don’t get the past returns of the investments you weren’t in.

If you take an old investment out and put a new investment into the portfolio after you notice it had better return, you get the returns of the lower performing investment. So you see the shell game? Switching out a lower performing investment gives you an illusion that your returns improve.

2. The future is unpredictable. Past performance does not guarantee future returns. You see this in every disclosure. Yet many still have the misperception that they can look at past returns to determine the future return of that investment.

Numerous studies have found that funds that did well in the past do not consistently go on to do so. The Standard & Poor’s ongoing reports on funds performance show that managers don’t year after year outperform the indexes.

I agree with advisor Daniel Solin’s article that we need a stronger disclaimer to better remind investors of this fact. A study he cites found that a more effective disclaimer would be: “Do not expect the fund’s quoted past performance to continue in the future. Studies show that mutual funds that have outperformed their peers in the past generally do not outperform them in the future. Strong past performance is often a matter of chance.”

3. Outperforming is not your goal. The real objective of investing is achieving your life goals, such as a sustainable retirement. That has more to do with your savings and spending rates that it does with returns. And unlike the returns the markets deliver, you can control how much you save or spend.

So how should you invest? Rather than chasing returns, simply invest in broad indexes and get what the markets give you – good and bad. This approach allows you to dial in the level of risk. You don’t get the occasional outperformance, but you also don’t underperform, either. Unless there are systematic risks – when the economy tanks, like it did in 2008 – you get consistent returns that match the markets.

One can wish for good returns all the time. But that is not how the markets work. Unexpected news and all participants’ expectations and reactions to it move prices. Your part is to let the markets work over time.

Larry R. Frank Sr., CFP, is a Registered Investment Advisor (California) in Roseville, Calif. He is the author of the book, Wealth Odyssey. He has an MBA with a finance concentration and B.S. cum laude in physics with which he views the world of money dynamically. He has peer-reviewed research published in the Journal of Financial Planning.

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TIME China

What Is Happening to China’s Stock Market?

Here's what to know

After climbing by 150% in the last year, China’s stock market has taken a tumultuous turn. The market has fallen by 30% over the past month, sparking worries amongst investors across the globe.

What happened to the Chinese stock market, and how did it take such a steep plunge? Watch the video above to find out.

MONEY mutual funds

The Simplest Way to Safeguard Your Investments Before a Market Selloff

highway signs with bear crossing and fever chart
Taylor Callery

If you're living in fear of a bear market, so-called Alt funds aren't your only alternative.

With all the talk of a possible bear market lurking just around the bend, it’s no wonder that investors are terrified of stocks. In the past 12 months they’ve yanked $110 billion from U.S. equity portfolios.

So if you’re a mutual fund company, what do you do? You promote funds that promise a big cut of the current bull market’s gains while claiming to have a secret sauce for protecting investors when a selloff strikes.

Enter alternative funds, or “alts,” which use strategies pioneered by hedge funds that will, theoretically, lessen a bear’s bite. “Long/short” equity funds try to do that by betting on parts of the market while simultaneously betting against, or short-selling, other shares or sectors. “Market neutral” funds are similar, but they make equal-size bets on and against equities, neutralizing the impact of overall market swings. Gains come instead from the fund manager’s ability to pick the right stocks to invest in or to short.

Is this bear protection worth it? Probably not, and here’s why:

The Track Record

Relatively few alt funds have even a five-year record, and that makes it tough to evaluate their efficacy—especially in a bear. Schwab Hedged Equity SCHWAB HEDGED EQUITY SWHEX 0.23% is one of the few such funds with a long record, having beaten most of its peers over the past one, three, and five years. In the 2008 crash, it lost 17 percentage points less than the S&P 500. But the following year the fund trailed the market by 11 points, and over the past five years it has lagged by eight points annually.

One reason alts struggle over time is expenses. The average long/short fund charges 1.87%. The Schwab fund charges 1.33%, but that’s still one point more than the fees on many stock index funds.

Read next: Higher Interest Rates Are Coming. Here’s Who Wins and Who Loses

The Simpler Alternative

If dampening potential bear-market losses is your aim, adding exposure to bond funds or cash may be just as effective as hedging. And you may not even need to add that much more ballast if you’re a diversified investor. A Vanguard study found that a simple 60% stock/40% bond portfolio can provide much of the same type of protection you’re seeking from a hedge-fund-like strategy.

A 60/40 strategy held its own against many types of hedge funds in the 2007–09 bear, and it trounced long/short- and market-neutral-style hedge funds by more than 10 percentage points from March 2009 through the end of 2011.

Just remember: If you are living in terror of a bear market now but are investing for the next 20 years or longer, the last thing you want to do is hedge your portfolio in such a way that it leaves you poorer in the long run.

John Waggoner has written three books on Wall Street and investing.

Read next: The Simplest Way to Safeguard Your Investments Before a Market Selloff

MONEY stocks

Get Ready for the Market’s Sugar High to End

milkshake and green detox shake
Yasu+junko

Investors still aren't thirsting for high-quality companies with fit finances.

At this point in a recovery—when anxiety is on the rise because the economy and stocks have been advancing for years and the Fed is about to raise rates—”investors often seek shelter in quality,” says Mark Freeman, chief investment officer at Westwood Holdings. That usually means companies with stable earnings and reliable (though not necessarily dazzling) growth.

Yet instead of favoring the Steady Eddies, Wall Street still has a taste for flashier fare. The S&P 500 Low Quality Rankings index—made up of headline-grabbing companies such as Amazon.com and Salesforce.com, both fast-growing firms that are having trouble generating reliable profits—has beaten high-quality stocks in four of the past six years.

While it’s normal for speculative parts of the market to lead the way coming out of a bear market, as in 2009, the fact that they’re still outperforming after more than six years is rather unusual.

This is especially true because high-quality shares generally do better over long periods. The Leuthold Group ranks the 1,500 largest stocks it tracks based on quality measures. Since 1986 the top 20% of shares based on quality rankings have generated annualized returns of 13.1%, vs. 9.7% for the lowest-quality stocks.

What’s more, market and economic factors are shifting now and could soon give high-quality stocks a new tailwind.

Why Tastes Could Change

The Fed factor. For years the Federal Reserve’s effort to keep a lid on interest rates to spur the economy has benefited lower-quality companies that rely on debt to finance their operations. For starters, heavily indebted corporations have been able to refinance their debt on the cheap while borrowing greater amounts at attractive rates.

At the same time, cheap money has encouraged investors to take risks and chase higher returns, pointing them in many cases to lower-quality stocks offering fatter yields, notes John Fox, research director at FAM Funds.

That’s a gambit that has paid off—at least until now. “As the Fed begins to raise rates, the equation should change,” says Fox. After all, investors may sour on low-quality stocks once cheap money dries up.

The 800-pound bear in the room. Something else to keep in mind is that this bull market has already run 2½ years longer than the typical rally—and has produced more than double the typical bull’s gains. So it’s not a stretch to think that equities are due for a pullback.

High-quality stocks are likely to lose less when the next downturn or bear market strikes, as the chart below shows. And while “it’s not always obvious, generating the highest excess return in periods when the market is down is how you can outperform over the long term,” says Brian Smith of Atlanta Capital Management, which invests in high-quality stocks.

How to Build a Moat

It used to be that fund investors seeking quality stocks had to go with actively managed portfolios such as the Yacktman Fund AMG YACKTMAN FUND YACKX 0.04% , which generates strong long-term returns by focusing on stable cash-generating cows.

Today there are several lower-cost index funds that cater to this strategy. For instance, PowerShares S&P 500 High Quality ETF POWERSHARES EXCHAN S&P 500 HIGH QUALITY PORT SPHQ 0.04% tracks blue-chip stocks with the most reliable earnings and dividend growth. When the market has been on the rise during the past five years, this ETF has managed to nearly keep pace. And when the market has fallen during that stretch, it has lost 17% less than the benchmark.

Market Vectors Morningstar Wide Moat ETF MARKET VECTORS ETF MKT VECTORS WIDE MOAT ETF MOAT -0.36% is another fund that will give your portfolio a tilt toward quality. The ETF tracks an index that focuses on the 150 or so companies that Morningstar analysts believe have strong sustainable competitive advantages, and thus are well positioned to churn out reliable earnings and profitability growth. Each quarter the index is reconfigured to hold the 20 stocks in this group that are trading at the steepest discounts.

Current holdings include Exxon Mobil and Berkshire Hathaway. The ETF’s 4% gain in the past year is less than half that of the S&P 500. But in 37 of the past 38 five-year rolling periods, this index has beaten the S&P 500.

And ultimately, isn’t that the best gauge of quality?

READ ALSO: The Simplest Way to Safeguard Your Investments Before a Market Selloff

MONEY Ask the Expert

What the Bond Market Says About Stocks — and Vice Versa

Investing illustration
Robert A. Di Ieso, Jr.

Q: Is there any relationship between the value of stocks and bonds? – E. Phong, Houston

A: Without a doubt, there is a relationship between equities and fixed income, but as you’d expect it’s complicated.

The explanation starts with the fact that stocks and bonds tend to move in different directions because they are competing for some of the same dollars that investors seek to deploy.

For example, when equities appear risky, investors will seek the relative safety of bonds — and that drives up fixed income values. And if stocks seem like a good bet, investors will dump lower-returning bonds for the promise of higher gains in stocks.

“When investors fear that growth opportunities will be scarce they are happy to have the fixed-income payments of bonds,” says Daniel Loewy, the chief investment officer and co-head of multi-asset solutions at AllinaceBernstein. “When growth fears abate and the reverse happens, stocks tend to appreciate and bonds tend to fall.”

For this reason, stock and bond values tend to have an inverse relationship with one another. This is why investors have, for the last couple of decades, counted on bonds to help reduce volatility in their portfolios. It’s also why a well-diversified portfolio holds both stocks and bonds.

Sounds simple enough. But here’s where things get more complicated: Despite this dynamic, there will be times when stocks and bonds move in unison. Yet it’s often difficult to predict when that will happen.

Following the financial crisis of 2008, for example, investors dumped equities and corporate debt with abandon – though bonds recovered faster than stocks. Likewise, there’ve been times, including over the past few years, where bond and stock prices appreciated in tandem.

The extent to which bonds and stocks move together – or do not – will depend on what’s happening in the economy and the type of securities you’re dealing with.

For example, because high-yield corporate bonds generally do well in a growing economy — when there is less risk of defaults — these securities often move in sync with stocks. Likewise, certain sectors of the stock market may move up and down with bonds. “A current example is REITs,” says Loewy, referring to real estate investment trusts, which trade like stocks but have many of the same qualities as bonds.

Inflation is another wildcard. When investors worry about inflation, it can be bad news for bonds – whose fixed payments will be worth less in real terms – and for sometimes stocks because future earnings aren’t as valuable when prices are rising.

In the near term, that double whammy is unlikely. “Inflationary pressures are low,” says Loewy, “and the Fed has made it clear it will raise rates slowly over a period of time.”

MONEY stocks

The Force Is With Electronic Arts

Star Wars: Battlefront ships November 17, 2015.

Strong preorders for Star Wars: Battlefront have led the game company to forecast record revenue this year.

Electronic Arts is back from the “dark side”.

The video game publisher, voted the “worst company in America” on the Consumerist.com website in 2012 and 2013, is forecasting record revenue this year thanks to the anticipated success of a new Star Wars-themed game launching in November.

EA said on Thursday that “extremely strong” preorders for “Star Wars: Battlefront” were behind its decision to raise its full-year revenue forecast to $4.45 billion from $4.40 billion.

It was the first time in 15 years that the Redwood City, California-based company had raised its revenue forecast in the first quarter, Jefferies analysts said in a client note.

EA’s shares fell on what appeared to be an underwhelming forecast, but analysts said the company was likely being cagey.

“(EA) is merely trying to rein in runaway expectations for Star Wars, during a highly competitive holiday window for first-person shooters,” Barclays analyst Chris Merwin, who raised his price target on EA by $14 to $82, wrote in a research report.

And expectations are high.

2D Boxshot Wizard v1.1

“They’ve done an incredible job with the game,” said Ben Howard, an executive at video game review site GameSpot, who played the game at the E3 gaming industry trade fair in June.

There have been plenty of other Star Wars games over the years, Howard noted.

“(But) I’ve never played a game which felt so much like playing a movie of Star Wars … they’ve got it exactly right.”

A trailer released in April for the game, a reboot of the 10-year old “Star Wars: Battlefront” game published by LucasArts, has already garnered more than 19 million views on YouTube.

The positive reception marks a turnaround for EA, which a few years ago was struggling to grow after many gamers switched to free games on social networks and mobile devices.

Gamers also became disillusioned with what they considered to be the inferior quality of some games, as well as high prices and server glitches that marred their experience.

John Riccitiello quit as chief executive in 2013 after six years at the helm after the company missed several targets.

“I’d rather see them be conservative and beat expectations than suffer through what they did several years back,” said Eric Handler, an analyst at MKM Partners.

The new game will launch a month ahead of the release of Walt Disney’s “Star Wars: The Force Awakens”, the latest movie in the iconic franchise.

EA’s shares have nearly tripled in value since current CEO Andrew Wilson, who has been focusing on expanding EA’s high-margin digital business, took over in September 2013.

The digital business, which involves distributing games through the Internet as opposed to sales of game discs, has driven growth for the past few quarters.

At least four brokerages raised their price targets on EA’s shares on Friday. Even so, EA shares were down 0.6% at $71.87 in afternoon trading.

Of 22 brokerages covering EA, 15 have a “buy” or a higher rating on the stock while seven have a “hold”.

The median price target is $79.50. Up to Thursday’s close, EA shares had risen about 53% this year.

TIME Earnings

Here’s Why LinkedIn Shares Are Tanking Today

LinkedIn Corp. To File For IPO
Justin Sullivan—Getty Images In this photo illustration, the LinkedIn logo is displayed on the screen of a laptop computer on January 27, 2011 in San Anselmo, California.

LinkedIn may need to do some better networking with Wall Street

LinkedIn announced Thursday that its sales and earnings in the second quarter had beaten analysts expectations. How did investors react? They sold big-time.

Shares of LinkedIn fell $21, or just over 10%, on Friday to just over $205. That’s the company’s biggest one day stock dive since the end of April, when the shares fell nearly $50 in one day.

What happened? Like many résumé writers, LinkedIn seems to have taken some liberties to make its earnings seem more impressive than they actually were.

First of all, the company’s earnings beat was manufactured — LinkedIn told analysts to lower their expectations at the end of April, so when the earnings came out, they were actually better than the most recent expectations, but lower than what people thought the company would earn a few months ago.

Second, the company said by its metrics it earned $71 million in the second three months of the year. In fact, LinkedIn didn’t actually turn a profit in the second quarter. By generally accepted accounting principals, it lost $68 million. (Companies are allowed to report results using their own adjusted accounting as long as they report GAAP results as well, which is what LinkedIn did.) Still, that loss was less than analysts were expecting.

Third, LinkedIn upped what it may earn in the next year. But a good portion of that profit increase is coming from Lynda.com, an online learning platform that LinkedIn bought earlier this year, and not an improvement in LinkedIn’s core business. And Lynda will be adding more profits than expected not because that business is doing better, but because LinkedIn is completing the acquisition sooner. Take out earnings from Lynda, and projections for LinkedIn’s core business appears to be dropping.

But the biggest problem for the company is the rates it can charge for display ads is dropping. Linkedin said revenue from display ads was down 30% in the quarter. Most of the revenue boost that LinkedIn has gotten recently has come from selling premium services to recruiters and others. But many analysts think that market is basically tapped out for LinkedIn. So that avenue for growth might be over, or at least slowing.

Like many people on its website, LinkedIn seems to be in need of a transition, but it’s still just making connections.

TIME chinese stock market

China’s Stock Market Just Had Its Worst Monthly Drop In 6 Years

FUYANG, CHINA - JUNE 26:(CHINA OUT) An investor observes stock market at a stock exchange hall on June 26, 2015 in Fuyang, Anhui province of China. Chinese stocks dropped sharply on Friday. The benchmark Shanghai Composite Index lost 334.91 points, or 7.40 percent, to close at 4192.87 points. The Shenzhen Component Index shed 1293.66 points, or 8.24 percent, to 14398.78 points. (Photo by ChinaFotoPress)***_***
ChinaFotoPress

The country's economic woes continue

China’s stock market fell again on Friday, with The Shanghai Composite Index slipping 1.1% to close at 3,663.73, according to a report in Bloomberg News.

The loss brings to an end the worst month for stocks in China since August of 2009, when China was still reeling from a global financial panic and recession that caused massive losses in financial markets around the world.

For the month of July, the Shanghai Composite Index fell a total of 15%, despite unprecedented state intervention aimed at calming markets. According to Bloomberg, the losses on Friday started “after Reuters reported that Chinese regulators had asked financial institutions in Singapore and Hong Kong for stock-trading records as part of efforts to track down investors betting against shares in China.”

Chinese regulators also halted trading in 505 companies on the Shanghai and Shenzhen exchanges on Friday, equivalent to 18% of all listings.

MONEY tech stocks

3 Ways Facebook is Crushing Twitter

150730_INV_FacebookOverTwitter
Alamy—© dolphfyn / Alamy

What Facebook has that Twitter wants: 1 billion more users and an advertising strategy.

Two companies are invariably mentioned in the same breath whenever the term “social media” gets thrown around: Facebook FACEBOOK INC. FB -0.06% and Twitter TWITTER INC. TWTR 0.2% .

But while both Silicon Valley giants create networks that allow you to engage with friends and celebrities, the two have less in common than you might think. That was plainly evident in both companies’ recent earnings reports.

While Facebook — which is now worth more than 10 times as much as Twitter — is still considered a story of rapid growth, Twitter is quickly losing its luster on Wall Street as it struggles to match its rival when it comes to user growth and ad revenue.

Here’s what their financial results revealed:

The Ad Gap

Facebook announced it had taken in about $3.8 billion in advertising revenue in the second quarter, up from $2.7 billion a year before — a 41% jump. And advertisers are lining up across the globe to reach Facebook users, as international ad revenue climbed to $2 billion.

Read next: What Twitter Needs to Do Next to Satisfy Investors

Yet there are still many more ways Facebook can leverage it’s popularity into future growth. For instance, Facebook’s popular photo-sharing app Instagram, with about 300 million users, and its instant communication tools Messenger (700 million users) and WhatsApp (800 million) have the potential to add meaningfully to revenue in the future.

Twitter reported some good news on the sales front too. The microblogging site surprised analysts this week with stronger-than-expected revenue growth, as ad sales jumped to $452 million from $277 million over the same period 12 months ago. This was certainly welcome news for investors who had endured a 25% drop in the company’s stock price in the first three months of this year amid disappointing revenue growth.

Still, Facebook generates twice as much sales in a quarter than Twitter does annually.

The User Gap

Facebook just has a staggering number of active monthly users. To put it in perspective, there are about 7.3 billion people in the world and about 1.5 billion of them — 21% — are on Facebook. There are roughly 213 million active users of Facebook in the U.S. and Canada out of more than 355 million people. American and Canadian users are particularly beneficial to Facebook’s bottom line, which takes in $8.63 in advertising revenue per user there compared to $2.61 worldwide.

This growth in popularity is crystallized when you look at mobile phone carriers. Those who only access Facebook through their handheld device jumped from 399 million a year ago, to 655 million now. Overall, 1.3 billion people access Facebook in the palm of their hands.

While Twitter impressed the street with its revenue numbers, the stock dropped double digits thanks to the company’s inability to significantly grow its user base. Chief financial officer Anthony Noto said in a conference call after the earnings release that it would be “a considerable time” before such growth occurred.

Twitter has 66 million monthly active users in the U.S., up from 60 million a year ago, and 250 million internationally. In other words, it is more than 1 billion users shy of playing in Facebook’s league.

The Valuation Gap

While Twitter theoretically has more room to grow than Facebook, investors have to pay a stiff premium when betting on Twitter’s future. The stock’s price/earnings ratio, based on projected profits, is 64, according to Morningstar. That makes Twitter shares considerably more expensive than Facebook’s, with a P/E of 37.

To add insult to injury, Twitter announced that it was cutting the range of what it expected to spend on capital investments this year from $500 million to $650 million to $450 million to $550 million. Facebook meanwhile spent $549 million in capital investment in the second quarter alone.

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