TIME Companies

Apple’s Market Cap Just Hit $700 Billion for the First Time

Apple Unveils iPhone 6
People attend the Apple keynote at the Flint Center for the Performing Arts at De Anza College on Sept. 9, 2014 in Cupertino, Calif. Justin Sullivan—Getty Images

The number has doubled since Tim Cook took over as CEO from Steve Jobs three years ago

Apple hit a major symbolic milestone Tuesday morning as its market capitalization topped $700 billion for the first time.

The tech giant’s market cap has doubled since Tim Cook took over as CEO three years ago when Steve Jobs stepped down from the role. The company’s stock has hit several new record highs lately on the heels of September’s wildly successful launch of the iPhone 6 and iPhone 6 Plus. Apple shares have jumped by 21% since the company unveiled the new smartphones at a product event that also heralded the arrival of the much-hyped Apple Watch and the new Apple Pay mobile payments system.

The Apple Pay service became available last month, while the Apple Watch will go on sale in 2015.

But, the latest iterations of the iPhone have been driving up the company’s value since they went on sale in September and posted a record opening weekend by selling more than 10 million units. Apple is expected to keep selling those phones at a swift pace over the holiday season, with at least one analyst forecasting 71.5 million iPhone shipments in the fourth quarter.

At this point, Apple’s market cap is higher than the gross domestic product of all but 19 of the world’s countries, coming just behind Saudi Arabia (GDP of $745 billion) and ahead of Switzerland ($650 billion), according to data compiled by the World Bank.

This article originally appeared on Fortune.com

MONEY investing strategy

Nobel Prize-Winning Economist Explains How to Dramatically Improve Your Investment Performance

rolling dice
Michele Galli—Getty Images

Stop thinking that you're smart enough to beat the market.

Beating the market is very difficult, and most investors are incapable of doing it. I’m extremely confident that I can beat the market, however. I know I’m better than the average, and am pretty sure my investing results would support that view, if I were to tally them all up.

Over the years, I’ve heard variations of the above response countless times whenever I’ve asked investors if they could beat the market. This composite response illustrates perfectly a main theme from Daniel Kahneman’s Thinking, Fast and Slow. All of us – whether you’re Warren Buffett or a struggling day trader – tend to overestimate our own investing abilities, while being extremely capable of assessing the weaknesses in others. Grasping this simple insight alone could dramatically improve your investment performance.

Being more humble isn’t just an admirable personality trait – it can literally save you money. Below are nine investing insights from Nobel Prize Winner Daniel Kahneman’s classic book Thinking, Fast and Slow:

1. “The best we can do is a compromise: learn to recognize situations in which mistakes are likely and try harder to avoid significant mistakes when the stakes are high.”

Here, Kahneman is saying that we too often rely on our intuition and routine thinking for big decisions when we should actually slow down and become more analytical. This is especially true of those investors who are quick to trust their gut and overestimate their pattern recognition skills when deciding to buy or sell a particular stock.

Kahneman helps us better understand our thought processes by using the framework of System 1 thinking and System 2 thinking. The former operates automatically and quickly “with little or no effort and no sense of voluntary control.” System 2, on the other hand, “allocates attention to effortful mental activities that demand it.” Quite simply, System 1 is fast thinking, and System 2 is slow thinking. For investors, it’s very important to know that System 1 is our default thinking style, and it can be a “machine for jumping to conclusions.” Knowing this will encourage you to try to shift to System 2 when faced with a difficult decision.

2. “There is general agreement among researchers that nearly all stock pickers, whether they know it or not – and few of them do – are playing a game of chance.”

Kahneman is skeptical about whether it’s possible for ordinary investors to beat the market. As an academic steeped in statistics and economics, he points to 50 years of research that shows “the selection of stocks is more like rolling the dice than like playing poker.”

Obviously, many of us might disagree, and that’s fine. I still believe it’s important to consider his view on this issue, however. Anyone who truly thinks they can beat the market, should be able to provide evidence of that skill by objectively analyzing their returns over a long timeframe. System 1 thinking is quite good at allowing you to fool yourself into thinking you might be better at stock picking than you really are.

3. “Most of us view the world as more benign than it really is, our own attributes as more favorable than they truly are, and the goals we adopt as more achievable than they are likely to be. We tend to exaggerate our ability to forecast the future, which fosters optimistic overconfidence. In terms of its consequences for decisions, the optimistic bias may well be the most significant of the cognitive biases.”

Here again, we see how our System 1 thinking can play tricks on us. According to Kahneman, we often have a very unrealistic sense of our abilities and future prospects. This may explain why so many political and financial analysts are out there confidently making bad predictions on a daily basis.

The interesting part of this quote, for me, is Kahneman’s take on optimism. He believes that being optimistic is a good thing to be – many entrepreneurs are more confident than mid-level managers, according to one study, for example. The danger, Kahneman argues, is that optimists tend to underestimate risks. This might be a good thing for spurring action, but might not always be the best thing for your portfolio.

4. “Closely following daily fluctuations is a losing proposition, because the pain of the frequent small losses exceeds the pleasure of the equally frequent small gains. Once a quarter is enough for individual investors. In addition to improving the emotional quality of life, the deliberate avoidance of exposure to short-term outcomes improves the quality of both decisions and outcomes.”

This is one of the most helpful pieces of advice for investors in the entire book. Kahneman points to compelling research showing that checking individual investments on a frequent basis will lead to poor decision making. So why not save time and improve performance by turning off the daily market noise?

5. “The research suggests a surprising conclusion: to maximize predictive accuracy, final decisions should be left to formulas, especially in low-validity environments.”

This quote is potentially very helpful for investors. Remember, Kahneman believes that stock picking is a classic “low-validity environment.” So he’d likely argue that an inconsistent investing process would hurt performance over the long run. For illustration purposes, your belief that you know exactly when to increase (or decrease) your cash allocation might be a delusion that is hurting your overall returns.

If Kahneman is right about this, then relying on rules could be helpful. Putting money to work every single month, for example, regardless of what the market appears to be doing at that particular moment could be a smart technique. Holding stocks for five or even 10 years without selling could also be wise.

6. “Stories of how businesses rise and fall strike a chord with readers by offering what the human mind needs: a simple message of triumph and failure that identifies clear causes and ignores the determinative power of luck and the inevitability of regression. These stories induce and maintain an illusion of understanding, imparting lessons of little enduring value to readers who are all too eager to believe them.”

I know I’ve been guilty of this many times in the past. We see a successful business from the past, and assume that’s the magic formula for the future. Kahneman challenges us to be more skeptical. The excellent management book The Halo Effect makes a similar point.

Kahneman believes the key variable that is never considered by observers is “luck.” Because luck is so important, “the quality of leadership and management practices cannot be inferred reliably from observations of success.” Another important principle is regression to the mean. He notes a study of Fortune‘s “Most Admired Companies” showing that the worst-rated companies actually earned higher stock returns than the most admired firms over a 20-year timeframe.

7. “Success = talent + luck; Great Success = a little more talent + a lot of luck.”

These formulas illustrate an important theme in the book. Kahneman feels that luck “plays a very large role in every story of success.” A big challenge for investors, of course, is distinguishing between skill and luck. I’ve noticed that the most successful investors rarely acknowledge the latter as playing any role whatsoever until they have a bad year.

8. “The core of the illusion is that we believe we understand the past, which implies that the future also should be knowable, but in fact we understand the past less than we believe we do.”

As a former history teacher, I believe this to be true. Our knowledge of the past is imperfect at best, and yet, we often make important decisions based on this imperfect understanding.

This insight is very important for investing. Is 2014 really like 1938? Or is it more like 2007? Does that mean you should sell or buy stocks or load up on gold? Kahneman would urge you to be careful here — each of us has an “almost unlimited ability to ignore our ignorance.”

9. “The satiation level beyond which experienced well-being no longer increases was a household income of about $75,000 in high-cost areas…The average increase of experienced well-being associated with incomes beyond that level was precisely zero.”

This is such a great insight for me. Beyond a certain point, earning more money won’t make you any happier. For investors, it’s encouraging to know that growing a realistic pot of capital over a long timeframe will likely be enough to result in a happy retirement.

I can’t recommend Thinking, Fast and Slow enough to all investors. For me, it’s one of the best investing-related books that I’ve ever read.

MONEY Investing

The Easy Fix for an Incredibly Common and Costly Retirement Mistake

New proof that just showing up is half the investing game.

Writing about retirement inevitably turns you into the bearer of bad news. But last week brought a positive development: The downward trend in the percentage of workers participating in an employment-based retirement plan reversed course in 2013. The number of workers participating is now at the highest level since 2007, according to the Employee Benefit Research Institute (ERBI).

Which means, unfortunately, that from a wealth-building perspective, the timing of the nation’s workforce is actually pretty terrible.

The ERBI has only been tracking participation rates since 1987, a relatively short window, but still a bad pattern has clearly emerged: Workers are less likely to participate after the stock market drops, so they lose out when the market recovers.

The participation of wage and salary workers peaked in 2000 at 51.6%, right before a 3-year bear market that saw the compound annual growth rate (the CAGR, which includes dividends) of the S & P 500 declining 9.11% in 2000, 11.98% in 2001, and 22.27% in 2002. In 2003 however, the S & P rebounded up 28.72%, but retirement plan participation rates continued to decline, hitting a low of 45.5% in 2006 before finally beginning to rise.

Then the same thing happened again after the financial crisis. Participation rates had peaked at 47.7% in 2007, before declining in 2008 when the S & P 500 dropped a whopping 37.22%. Even though the market began to bounce back immediately in 2009, participation rates continued to decline down to 44.2% until that trend finally reversed in 2013 according to the EBRI data released last week. With each stock market shock, the participation rate fell but never fully reached its previous high, so that the 2013 rate of 45.8% is still lower than the 46.1% participation rate seen in 1987.

This bears repeating: The participation rate in an employment-based retirement plan in 2013 was lower than it was in 1987. I don’t think I need to tell you what has happened to the S&P 500 from 1987 to 2013.

Now of course one could argue that it’s harder to save for retirement if your salary has been frozen, or your bonus was cut, or especially if you were forced to take a lower-paying job, as many who were able to stay employed throughout the recession experienced. Employers have also been scaling back or eliminating entirely company matches, which further disincentives workers from participating. But waiting until you start making more money to save for retirement is a losing game, especially if you subscribe to the new theory put forth by Thomas Piketty in his much-discussed but I suspect less-widely read book Capital in the Twenty-First Century.

Piketty’s thesis is that the return on capital in the twenty-first century will be significantly higher than the growth rate of the economy and more specifically the growth of wages (4% to 5% for return, barely 1.5% for wage growth.) Furthermore, the return on capital has always been greater than economic (and wage) growth, except for an anomalous period during the second half of the twentieth century when there was an exceptionally high rate of growth worldwide. It is the inequality of capital ownership that drives wealth inequality, a phenomenon that cannot be reversed as long as the rate of return continues to exceed the rate of growth, or as Piketty helpfully provides, R>G. (Full disclosure: I only read the introduction and then used the index to find sections that most interested me.)

If you apply R>G to retirement planning, it follows that it’s more important to be in the market than to wait for a raise or to reach the next step on the career ladder to start participating in a plan. The usual caveats apply: First you must get rid of any high-interest debt and create a three-month cushion for emergencies. But once you’re in a plan, if the economy—and your income along with it—hits some major bumps, it’s even more important to continue to contribute lest you miss out on the upside. Just remember: R>G.

Konigsberg is the author of The Truth About Grief, a contributor to the anthology Money Changes Everything, and a director at Arden Asset Management. The views expressed are solely her own.

More on retirement investing:

Should I invest in bonds or bond mutual funds?

What is the right mix of stocks and bonds for me?

How often should I check my retirement investments?

Read next: Why Americans Can’t Answer the Most Basic Retirement Question

TIME stocks

Another Record-Breaking Week for U.S. Stock Markets

Dow Climbs Above 17,800 For First Time As Stocks Rise
Traders work on the floor of the New York Stock Exchange on Nov. 21, 2014 in New York City. Spencer Platt—Getty Images

It was the fifth-straight week of gains for the U.S. market, reversing a big dip earlier in the year

The U.S. stock market closed out its fifth-straight week of gains with new highs Friday, buoyed by positive economic news from China and Europe.

The People’s Bank of China announced a surprising interest rate cut on Friday — the bank’s first in two years and one that sent international markets higher. Meanwhile, Mario Draghi, the president of the European Central Bank, further boosted global investors’ confidence by saying the central bank is prepared to step up efforts to give the struggling eurozone economy a much-needed shot in the arm.

The Dow Jones Industrial Average jumped 91 points, or 0.5%, to finish at a new record close of 17,810. The blue-chip index, which also set a new intraday high by flirting with the 17,900-point mark, hit a record close two out of five days this week after recording new all-time high finishes three times last week.

The S&P 500 also posted another record close Friday by rising almost 11 points, or 0.5%, to 2,064. It was the closely-watched index’s third record finish of the week after posting three new records last week, as well.

Meanwhile, the Nasdaq composite was up slightly, gaining 11 points, or 0.2%, to finish at 4,713. The tech-heavy index continues to climb to its highest levels since 2000.

One of Friday’s best-performing stocks was auction house Sotheby’s, which jumped nearly 7% following news of its CEO’s departure after a long battle with activist investors.

For the most part, it was a week of moderate gains for the U.S. market. But it did mark the fifth-straight week of positive performance coming on the heels of the best four-week stretch since 2011. Earlier this week, the markets improved on news that Japan’s prime minister would delay tax hikes for 18 months in the hopes of stimulating that country’s sluggish economy.

The Dow Jones and S&P 500 were both up by about 1% on the week, while the Nasdaq gained just 0.5% over the past five days.

Each of the major indices has rebounded sharply after a series of market-wide sell-offs in early October nearly erased all of the year’s gains as investors showed their concerns over the global economy and the possibility of a sooner-than-expected interest rate hike in the U.S.

This article originally appeared on Fortune.com

MONEY stocks

Virtual Reality Makes Investing — Yes, Investing — Dangerously Fun

StockCity
StockCity from FidelityLabs

A new virtual reality tool from Fidelity makes navigating the stock market feel like a game—for better or worse.

There’s no question: Strapping on an Oculus Rift virtual reality headset and exploring StockCity, Fidelity’s new tool for investors, is oddly thrilling.

Admittedly, the fun may have more to do with the immersive experience of this 3D technology—with goggles that seamlessly shift your perspective as you tilt your head—than with the subject matter.

But I found it surprisingly easy to buy into the metaphor: As you glide through the virtual city that you’ve designed, buildings represent the stocks or ETFs in your portfolio, the weather represents the day’s market performance, and red and green rooftops tell you whether a stock is down or up for the day. Who wants to be a measly portfolio owner when you can instead be the ruler of a dynamic metropolis—a living, breathing personal economy?

Of course, there are serious limits to the tool in its current form. The height of a building represents its closing price on the previous day and the width the trading volume, which tell you nothing about, say, the stock’s historical performance or valuation—let alone whether it’s actually a good investment.

And, unless you’re a reporter like me or one of the 50,000 developers currently in possession of an Oculus Rift, you’re limited to playing with the less exciting 2D version of the program on your monitor (see a video preview below)—at least until a consumer version of the headset comes out in a few months, priced between $200 and $400.

Those flaws notwithstanding, if this technology makes the “gamification” of investing genuinely fun and appealing, that could be big deal. It could be used to better educate the public about the stock market and investing in general.

But it also raises a big question: Should investing be turned into a game, like fantasy sports?

There are dangers inherent in ostensibly educational games like Fidelity’s existing Beat the Benchmark tool, which teaches investing terms and demonstrates how different asset allocations have performed over various time periods. If you beat your benchmark, after all, what have you learned? A lot of research suggests that winning at investing tends to teach people the wrong lesson.

“Investors think that good returns originate from their investment skills, while for bad returns they blame the market,” writes Thomas Post, a finance professor at Maastricht University in the Netherlands and author of one recent study on the subject.

In reality, great performance in the stock market tends to depend more on luck than skill, even for the most expert investors. That’s why most people are best off putting their money into passive index funds and seldom trading. It also means there’s not a lot of value in watching the real-time performance of your stocks—in any number of dimensions.

MONEY 401(k)s

Are You Smart Enough to Boost Your 401(k)’s Return? Take This Simple Quiz

141119_RET_SmartEnough
Pete Ark/Getty Images

If you can answer these 5 basic questions, you'll likely earn bigger gains in your retirement plan.

Can knowing more about investing and finances boost your 401(k)’s returns? A recent study suggests that may be the case. But you don’t have to be a savant to improve performance. Even if you don’t know a qualified dividend from a capital gain, lessons from this research can help you fatten your investment accounts.

The more you know about finances and investing, the higher the returns you’re likely to earn in your 401(k). That, at least, is the conclusion researchers came to after giving thousands of participants of a large 401(k) plan a five-question test to gauge how much they know about basic financial concepts and then comparing the results with investment performance over 10 years.

You’ll get your turn to answer those questions in a minute. But first, let’s take a look at what the study found.

Savvier Investors Hold More Stocks

Basically, the 401(k) participants who answered more questions correctly earned substantially higher returns in their 401(k). And I mean substantially. Those who got four or five of the five questions right had annualized risk-adjusted returns of 9.5% on average compared with 8.2% for those who answered only one or none of the questions correctly. That 1.3-percent-a-year margin, the researchers note, would translate to a 25% larger nest egg over the course of a 25-year career. That could be the difference between scraping by in retirement versus living a secure and comfortable lifestyle.

But while the 401(k)s of participants with greater knowledge didn’t outperform the accounts of their less knowledgeable peers because of some arcane or sophisticated investing strategy. The secret of their success was actually pretty simple (and easily duplicated): They invested more of their savings in stock funds than their financially challenged counterparts. And even when less-informed participants did venture into stocks, they were less apt to invest in international stocks, small-cap funds and, most important to my mind, less likely to own index funds, the option that has the potential to lower investment costs and dramatically boost the value of your nest egg.

The better-informed investors’ results come with a caveat. Even though more financially savvy participants earned higher returns after accounting for risk, their portfolios tended to be somewhat somewhat more volatile (which isn’t surprising given the higher stock stake). So they had to be willing to endure a somewhat bumpier ride en route to their loftier returns.

I’d also add that while more exposure to stocks does generally equate to higher long-term returns, no one should take that as an invitation to just load up on equities. When investing your retirement savings, you’ve also got to take your risk tolerance into account as well as the effect larger stock holdings have when the market heads south. That’s especially true if you’re nearing retirement or already retired, as portfolio heavily invested in stocks could suffer a setback large enough to force you to seriously scale back or even abandon your retirement plans.

Mastering the Basics

Ready to see how you’ll fare on the study’s Financial Knowledge test? The five questions and correct answers are below, followed by my take on the lessons you should from this exercise, regardless of how you score.

Question #1. Suppose you had $100 in a savings account that paid 2% interest per year. After five years, how much would you have in the account if you left the money to grow?
a. More than $110
b. Exactly $110
c. Less than $110

Question #2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account?
a. More than today
b. Exactly the same
c. Less than today

Question #3. Is this statement true or false? Buying a single company’s stock usually provides a safer return than a stock mutual fund.
a. True
b. False

Question #4. Assume you were in the 25% tax bracket (you pay $0.25 in tax for each dollar earned) and you contributed $100 pretax to an employer’s 401(k) plan. Your take-home pay (what’s in your paycheck after all taxes and other payments are taken out) will then:
a. Decline by $100
b. Decline by $75
c. Decline by $50
d. Remain the same

Question #5. Assume that an employer matched employee contributions dollar for dollar. If the employee contributed $100 to the 401(k) plan, his account balance in the plan including his contribution would:
a. Increase by $50
b. Increase by $100
c. Increase by $200
d. Remain the same

The answers:

1. a, More than $110. This question was designed to test people’s ability to do a simple interest calculation. To answer “more than” instead of “exactly” $100, you also had to understand the concept of compound interest. (Percentage of people who answered this question correctly: 76%.)

2. c, Less than today. This question gets at the relationship between investment returns and inflation and the concept of “real” return. To answer it correctly, you must understand that if your money grows at less than the inflation rate, its purchasing power declines. (92%)

3. b, False. Here, the idea was to test whether people understood that a stock mutual fund contains many stocks and that investing in a large group of stocks is generally less risky than putting all one’s money into a the stock of a single company. (88%)

4. b, Decline by $75. This question gauges people’s understanding of the tax benefit of a pretax contribution to a 401(k) and its effect on the paycheck of someone in the 25% tax bracket. (45%)

5. c, Increase by $200. This was simply a test of whether people understood the concept of matching funds and the effect of a dollar-for-dollar match. (78%)

Average score: 3.8 All 5 correct: 33% All 5 wrong: 2%

Okay, so now you know how you stack up compared with the 401(k) participants in the study. But whether you did well or not, remember that your performance on this or any other test isn’t necessarily a prediction of how your retirement portfolio will fare. Very financially astute people sometimes make dumb investment moves. Sometimes they try to get too fancy (think of the Nobel Laureates whose hedge fund lost billions in the late ’90s). Other times there may be a disconnect between what people know intellectually and how they react emotionally.

Nor does a lack of financial smarts inevitably doom you to subpar performance. You don’t need a PhD in finance to understand the few basic concepts that lead to financial success: spreading your money among a variety of investments instead of going all-in on one or two things, keeping costs down and paying attention to both risk and return when investing your savings.

So by all means take the time to educate yourself about investing. But don’t feel you have to go beyond a few simple but effective investing techniques to earn competitive returns and improve your chances of a secure retirement.

More from RealDealRetirement.com:

Can I Double My Nest Egg In the Final Years of My Career?

How To Save On Retirement Investing Fees

How To Build A $1 Million IRA

MONEY Health Care

The 7 Biggest Health Problems Americans Face—And Who is Profiting

Bottles of prescription medicine in cabinet
Kim Karpeles—Getty Images/age fotostock

Here are the most-prescribed drugs in America.

Americans include two health-related issues among the 10 most important problems facing the U.S., according to a recent Gallup survey. Healthcare in general ranked fourth on the list, with Ebola coming in at no. 8. But is Ebola really among the biggest health problems for Americans? Not when we look at the chances of actually being infected.

So, what are the actual biggest health problems that Americans face? One way to answer this question is to look at what drugs are prescribed the most. Here are the seven top health problems based on the most-prescribed drugs in the U.S., according to Medscape’s analysis of data provided by IMS Health.

1. Hypothyroidism

AbbVie’s ABBVIE INC. ABBV 0.9403% Synthroid ranks at the top of the list of most-prescribed drugs. Synthroid is used to treat hypothyroidism, a condition caused by an underactive thyroid gland.

The American Thyroid Association estimates that 2%-3% of Americans have pronounced hypothyroidism, while 10%-15% have a mild version of the disease. Hypothyroidism occurs more frequently in women, especially women over age 60. Around half of Americans with the condition don’t realize that they have hypothyroidism.

2. High cholesterol and high triglycerides

Coming in at a close second on the list is AstraZeneca’s ASTRAZENECA PLC AZN 0.3394% Crestor. The drug is used to help control high cholesterol and high triglyceride levels.

According to the American Heart Association, nearly 99 million Americans age 20 and over have high cholesterol. Elevated cholesterol levels are one of the major risk factors for heart attacks and strokes. The problem is that you won’t know if you have high cholesterol unless you get tested — and around one in three Americans haven’t had their cholesterol levels checked in the last five years.

3. Heartburn and gastroesophageal reflux disease

AstraZeneca also claims the third most prescribed drug in the nation — Nexium. The “purple pill” helps treat hearburn and gastroesophageal reflux disease, or GERD, also commonly referred to as acid reflux.

Around 20% of Americans have GERD, according to the American Society for Gastrointestinal Endoscopy. A lot of people take over-the-counter medications, but that’s not enough for many others. Medscape reported that over 18.6 million prescriptions of Nexium were filled between July 2013 and June 2014.

4. Breathing disorders

The next two highly prescribed drugs treat breathing disorders. GlaxoSmithKline’s GLAXOSMITHKLINE PLC GSK 0.5186% Ventolin HFA is used by asthma patients, while the company’s Advair Diskus treats asthma and chronic obstructive pulmonary disease, or COPD.

More than 25 million Americans have asthma. Around 7 million of these patients are children. Meanwhile, COPD, which includes chronic bronchitis and emphysema, ranks as the third-leading cause of death in the U.S.

5. High blood pressure

Novartis NOVARTIS AG NVS 0.5471% claims the next top-prescribed drug with Diovan. The drug treats high blood pressure by relaxing and widening blood vessels, thereby allowing blood to flow more readily.

Around one-third of American adults have high blood pressure. Many don’t know that they are affected, because the condition doesn’t usually manifest symptoms for a long time. However, high blood pressure can eventually lead to other serious health issues, including heart and kidney problems.

6. Diabetes

Several highly prescribed drugs combat diabetes, with Sanofi’s SANOFI S.A. SNY 0.9234% Lantus Solostar taking the top spot for the condition. Lantus Solostar is a long-acting basal insulin that is used for type 1 and type 2 diabetes mellitus.

According to the National Diabetes Statistics Report released in June 2014, 29.1 million Americans had diabetes in 2012. That’s a big jump from just two years earlier, when 25.8 million Americans had the disease. Diabetes ranks as the seventh leading cause of death in the U.S.

7. Depression and anxiety

Eli Lilly’s ELI LILLY & CO. LLY 0.7031% Cymbalta fell just below Lantus Solostar in number of prescriptions. Cymbalta is the leading treatment for depression and generalized anxiety disorder.

The Anxiety and Depression Association of America estimates that 14.8 million Americans ages 18 and older suffer from a major depressive disorder each year. Around 3.3 million have persistent depressive disorder, a form of depression that lasts for two or more years. Generalized anxiety disorder affects around 6.8 million adults in the U.S.

Common thread for common diseases

One thing that stands out about several of these common diseases affecting millions of Americans is that many people have one or more of these conditions — but don’t know it. This underscores the importance of getting a checkup on a regular basis.

Regardless of what the Gallup survey found, the odds of you getting Ebola are very low. On the other hand, the chances of you or someone in your family already having one of these seven conditions could be higher than you might think. Perhaps the truly biggest healthcare challenge facing Americans is knowing the status of their own health.

MONEY Warren Buffett

Why Warren Buffett Just Bought Duracell

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc.
Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. Andrew Harrer—Bloomberg via Getty Images

All signs indicate that Buffett has once again found another wonderful business at a fair price.

The last few months have been a busy for Warren Buffett’s Berkshire Hathaway and today we learned its buying spree continued.

It was announced this morning Berkshire has come to an agreement with Procter & Gamble THE PROCTER & GAMBLE CO. PG 0.0901% to buy battery manufacturer Duracell in exchange for the $4.7 billion worth of Procter & Gamble shares Berkshire held.

The details

At the end of June, Berkshire held roughly 53 million shares of Procter & Gamble worth nearly $4.2 billion, and since then P&G has seen its stock rise by almost 15%, explaining the $4.7 billion price tag.

When P&G released its earnings for the first quarter of fiscal 2015, it also announced that it would be exiting the Duracell business, preferably through the creation of a stand-alone company. At the time of the announcement, P&G’s CEO A.G. Lafley said:

We greatly appreciate the contributions of our Duracell employees. Since we acquired the business in 2005 as part of Gillette, Duracell has strengthened its position as the global market leader in the battery category. It’s a business with attractive operating profit margins and a history of strong cash generation. I’m confident the business and its employees will continue to thrive as its own company.

Then, P&G noted the reason behind the move was “consistent with its plans to focus and strengthen its brand and category portfolio,” and that “its goals in the process of exiting this business are to maximize value to P&G’s shareholders and minimize earnings per share dilution.”

Today, P&G noted that the $4.7 billion price tag for Duracell would represent an adjusted earnings before interest taxes and depreciation, or EBITDA, of seven-times fiscal year 2014’s.

The rationale

So, why would Buffett make such a move?

First, as highlighted by many news outlets like Bloomberg, similar to Berkshire’s previous deals in acquiring an energy subsidiary from Phillips 66 earlier this year, by exchanging P&G stock for the entirety of Duracell, Berkshire will be able to abstain from paying any capital gains taxes as if the P&G shares had been sold for cash.

Considering that the P&G stake stood on Berkshire’s books at a cost basis of just $336 million at the beginning of this year, the tax savings alone are a compelling value proposition for Berkshire Hathaway and its shareholders.

Also, knowing at heart Buffett’s always been a proponent of buying businesses at an appropriate price, the fact that the market traded at an 11.5-times EBITDA multiple in January of this year, according to the Stern School of Business at NYU, and the consumer electronics industry traded at nine-times EBITDA, then the $4.7 billion price tag seems more than reasonable.

In last year’s letter to Berkshire Hathaway shareholders, Buffett wrote that “more than 50 years ago, Charlie [Munger] told me that it was far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price.”

So, the consideration of the deal must extend beyond just the financial aspects of it. And Buffett’s words regarding the deal are quite telling.

In today’s announcement Buffett said:

I have always been impressed by Duracell, as a consumer and as a long-term investor in P&G and Gillette. Duracell is a leading global brand with top quality products, and it will fit well within Berkshire Hathaway.

It is of note that Buffett mentioned the Duracell brand first. One of my favorite Buffett quotes is:

“Buy commodities, sell brands” has long been a formula for business success. It has produced enormous and sustained profits for Coca-Cola since 1886 and Wrigley since 1891. On a smaller scale, we have enjoyed good fortune with this approach at See’s Candy since we purchased it 40 years ago.

And how is this applicable to Duracell?

Consider for a moment in its ranking of the Best Global Brands in 2014, Interbrand estimated that the brand value of Duracell stood at $4.9 billion, ahead of MasterCard ($4.8 billion) and narrowly trailing both Chevrolet and Ralph Lauren.

Said differently, Buffett paid less for Duracell — the company — than what one company estimated its brand value alone is worth.

Also, it isn’t just the Duracell brand that is compelling, but its business, too. P&G noted in its annual report that Duracell maintains over 25% of the global battery market share. And Interbrand noted in its report on the company:

Duracell continues to respond to consumer demands through innovation and new product launches. New technologies in rechargeable batteries, longer lasting energy storage times (Duralock) and synergies with wireless iPhone charging (PowerMat) demonstrate responsiveness to a changing marketplace. Duracell is working to further increase its presence by forging retailer-specific partnerships and nudging competitors out of view in the process.

Clearly, the company isn’t afraid of innovation, and it is responding to changing demands and desires of consumers.

The charge to the bottom line

We don’t know the details of how Duracell will fit in the massive empire that Berkshire Hathaway has become. But there is one thing we do know — to the delight of Berkshire’s shareholders — all signs indicate that Buffett has once again found another wonderful business at a fair price.

MONEY asset allocation

How Much Stock Is Too Much? Here’s a Quick Rule of Thumb

Investing illustration
Robert A. Di Ieso, Jr.

Q: My wife and I are 54 years old and we still have about 94% of our retirement savings in a variety of stock mutual funds and ETFs. Should I begin moving some of that to bond funds? — Gary Wirth, Pittsburgh

A: Assuming you and your wife are still more than a decade away from retirement, you’ll want to keep the bulk of your investments in stock funds and ETFs.

Even so, your 94% allocation to equities is on the high side at this stage of the game, says Mitch Tuchman, managing director of Rebalance IRA, a national independent investment advisory service that specializes in asset allocation.

At this point, while you’re still working and accumulating savings, adding bonds to your portfolio isn’t as much about earning income as it is giving your investments some ballast in case the stock market goes topsy turvy — as it did briefly in late September and early October.

The question then isn’t if you need some additional bond exposure, but how much more?

Most experts, including Tuchman, do not recommend relying on the old rule of thumb that says the percentage of your portfolio in fixed income should equal your age. According to that old standard, 54-year-olds ought to keep 54% of their portfolios in bonds while holding a minority of their money in equities.

That rule doesn’t apply for a couple of reasons, says Tuchman. First, people are working longer and living longer. Second, you have to consider the environment you’re in. With bond yields as low as they are, for as long as they’ve been, there is a real risk interest rates will go up.

Why is that bad?

Market interest rates move in the opposite direction of bond prices. When rates rise, prices on existing bonds in a portfolio will likely go down. In theory, this means you could lose money in bonds when this shift takes place.

Your target allocation to bonds will also depend on other factors, such as how long you and your wife plan to keep working and your emotional tolerance for market swings. If you lose sleep and make rash choices (i.e. move to cash) when the market dips, you should probably own a larger helping of bonds.

With all that said, Tuchman suggests a good target for you and your wife is about 15% in bonds. He recommends divvying that up among high-quality corporate bond funds, high-yield funds, and emerging market debt funds. “Those groups still pay a reasonable amount of interest and, for various reasons, are a better hedge in a rising rate environment,” he says.

Having 15% of your portfolio in bonds may still seem like an aggressive stance.

Keep in mind, though, that Tuchman is not saying that the rest of your investments belong in equities.

In addition to the bond holdings, Tuchman says it’s also a good idea to allocate 5% to 10% of your total portfolio to real estate — in the form of real estate investment trusts — and another 5% to 10% to dividend-paying stocks, which are considered more conservative than other types of equities.

As for the remaining 70% or so of your portfolio, make sure that’s well diversified among large-cap stocks, small-cap U.S. shares, foreign equities, and emerging-market stocks.

This mix should get you through the next several years, says Tuchman, who at 58 adheres to a similar strategy in his own portfolio.

Read more on asset allocation:

What is the right mix of stocks and bonds for me?

MONEY stocks

Stocks Go Up. Stocks Go Down. Deal With It.

The best tool for addressing anxiety about the stock market is information. Unfortunately, that isn't always enough.

Like some of our investment advisory clients, I fear the market sometimes. The way I combat that fear is with information. Markets go up, markets go down. Here’s what’s normal. Here’s where we are.

Last month, in conversation with one of my more nervous clients — when I had finished my list of market facts and cycles, when I had emailed my short and long-term charts — she replied, “And I’m supposed to be content with that?”

Essentially, yes. That’s the answer most financial professionals would have, if they’re honest.

I suppose you may find it strange, but that’s the kind of challenge I’m up for. It’s a challenge to try to keep clients calm when markets are anything but calm.

In 2008, many of my friends who are financial advisers were deeply affected by the trauma that clients experienced as markets worldwide experienced the worst decline since the Great Depression. They remain affected by it. Trauma is not too big of a word.

Today, I don’t fear the downturn. I speak.

In a downturn, people’s attention is most focused on sliding markets. They may hear what you have to say, but they may not listen to your various messages: Markets are risky. They go up and down. If you don’t take market risk, you limit your potential for capturing the gains when they do come. If you do take market risk, you’ve got to be able to see that downturns are a part of the deal. Shall I get out my trusty charts now and show you just how common it is for markets to fluctuate?

Probably I’d bore you if I did. What you probably want to know is what’s a good strategy for dealing with a volatile market.

You could move some money out of equities, of course. Or we could layer into the portfolio some exchange-traded funds that continuously move out of the most volatile stocks and into the less volatile ones. Both these moves will limit returns, but will also make the trends less upsetting.

But even if we lessen the throbbing uncertainty, we cannot eliminate it.

No one has overcome market cycles yet, no matter what they promise. Cue the charts.

And here’s the flip side: For all the confidence the clients might have in us, we can’t tell them when the markets will tumble. We can’t tell them when to run for the hills. Because no one can.

I feel I have gone down this road to every end I can find, looking for the analytics, the portfolio theory, the guru, the portfolio construction expertise, the economic underpinning, the macro-down and the bottom-up way of selecting exactly what would be the best globally diversified portfolio. I’ve made my own deal with risk and return. But none of that work changes the simple fact markets do go down periodically. Personally, I am content with that.

But for that client, this is not a comfortable fact.

It’s humbling, really, to have a discussion in which you cannot provide something which is very much wanted.

But it’s a smart discussion to have.

The client told me that when the market goes up again, I have permission to say, “I told you so.”

The market is up nearly 10% since we had that conversation, so I might. But when times are good in the markets, it’s the same as when times are bad: Clients don’t listen.

———-

Harriet J. Brackey, CFP, is the co-chief investment officer of KR Financial Services, a South Florida registered investment advisory firm that manages more than $330 million. She does financial planning for clients and manages their portfolios. Before going into the financial services industry, she was an award-winning journalist who covered Wall Street. Her background includes stints at Business Week, USA Today, The Miami Herald and Nightly Business Report.

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