Compulsory cash

By Anne Tergesen, THE WALL STREET JOURNAL — 10/25/10

Congress, in an effort to give battered nest eggs time to recover, in late 2008 suspended the rule requiring older Americans to take withdrawals from tax-deferred retirement accounts such as traditional individual retirement accounts and 401(k)s.

The suspension—which was in place for 2009 only—is now over. Here are answers to some of the most commonly asked questions about required distributions in 2010:

I turned 70½ in 2009. When do I have to take my first required distribution?

• Normally, account holders must begin withdrawing money by April 1 of the year after they turn 70½. So, under normal circumstances, people who turned 70½ in 2009 would have had until April 1 of this year to take their first required distribution.

• But as part of the 2009 suspension, people who turned 70½ in 2009 were allowed to skip their first mandatory withdrawal—the one that had to be taken by April 1. That means these individuals have to take only one distribution this year, and the deadline for that is Dec. 31.

• For people who turn 70½ this year, however, the normal rules will apply—they will have until April 1, 2011, to take their first distribution, and until Dec. 31, 2011, to take their second distribution.

Has the formula for calculating withdrawals changed?

• No. To calculate the minimum amount the Internal Revenue Service requires you to withdraw annually, look at your account balance as of the previous Dec. 31 and divide that figure by your remaining life expectancy. You can always withdraw more. But if you take out less, you will be subject to a 50% excise tax on the amount you should have taken.

• Should I use my account's balance as of Dec. 31, 2009—or Dec. 31, 2008?

• For both account owners and beneficiaries who inherit IRAs, the answer is the same: Use your account's value as of Dec. 31, 2009.

Which life-expectancy figure should I use—my actual life expectancy or the number I would have used in 2009?

• Investors should use the life expectancy that corresponds to their current age. This data can be found in actuarial tables in IRS Publication 590.

Please consult with your tax professional to ensure compliance with these IRS rules.

Blue-chip specials from the Buffett menu

By Andrew Bary, BARRON'S — 10/23/10

Some recent investments by the legendary Warren Buffett have been slow to pay off. But these solid, well-run companies may still be a good—and inexpensive—bet.

There's no quibbling with Warren Buffett's extraordinary overall investment record, which has resulted in a $205 billion stock-market value for Berkshire Hathaway. But, in the past few years, Buffett has invested in some companies whose shares have been disappointing. Among them: ConocoPhillips, U.S. Bancorp, Kraft Foods, Sanofi-Aventis, Johnson & Johnson and even Wells Fargo.

All of these are strong, well-managed companies. Assuming Buffett hasn't erred, investors have the opportunity now to buy some of them for less than what Berkshire paid.

U.S. Bancorp, for instance, trades near 23, appreciably below Berkshire's average cost of $31. ConocoPhillips is at 61; Berkshire paid 73. French drug maker Sanofi's shares, at 34, are below Berkshire's cost of $40. Kraft is at 32; Buffett paid 33. We based the cost figures on data in Buffett's annual shareholder letter.

Buffett wouldn't discuss his equity investments. But in a CNBC interview in March 2009, he said: "I make plenty of mistakes…That's part of the game. You just got to make sure that the right things overcome the wrong ones." That's certainly true for Berkshire, whose Coca-Cola and Procter & Gamble holdings, which date back to the 1980s, are about 10 times above the company's cost.

Based on what Buffett has done in the market, he's gotten more bullish on Johnson & Johnson, and less excited about Conoco, Kraft and P&G this year; he has bought more J&J and pared his holdings of the others.

Many pros believe that, after a disappointing decade, blue-chip stocks will be one of the best investments over the next 10 years. Investing in those with the Buffett imprimatur could be a great way to share in that wealth.

Disclosure: I own Conoco, Johnson & Johnson, and Coca Cola

U.S. And Overseas Funds Rose in October

Foreign and domestic stock funds earned moderate returns in October, helping to remove some of the stigma of the disaster month. While tempered by the uncertainty of the midterm elections, the market cheered strong corporate-earnings results and the likelihood that the Federal Reserve will flush more cash into the financial system and keep long-term interest rates low. World equity funds rose 3.8% and 9.35% over those periods. Bond funds were mixed, with long-term Treasury funds down, high yield corporates up 2.5% and A-rated corporates bonds up 0.05%.

The Dow Jones U.S. Total Stock Market Index gained 3.8% in October, rising three of the past four months. It's up 7.2% year to date. Meanwhile, yields on 10-year Treasuries dipped below 2.5% in October, making dividend yields on stocks look more appealing.

With nearly seven in 10 S&P 500 companies having reported third-quarter results, earnings grew 30% year over year.

High unemployment is bad for stocks?

While losing one’s job is traumatic, a high level of unemployment doesn’t necessarily mean the stock market will suffer. In 2009, for instance, US unemployment climbed above 10 percent, but the S&P 500 leaped 26.5 percent.

This wasn’t an aberration. Typically, the stock market bottoms before the recession ends, but unemployment keeps rising even after the recovery has started. That’s because employers don’t start hiring again until they see clear signs that the economy is back in growth mode.

Because the stock market is often a leading indicator, if you wait for confirmation from falling unemployment to buy stocks, you can really miss out.

Stocks: Are small investors too late to the party?

By Brett Arends, The Wall Street Journal — 10/29/10

Private investors are getting back into the stock market—two months into the rally.

The latest numbers show investors put $759 million into U.S. equity funds in the week ended Oct. 26. Admittedly, that number is modest. But this the first time Main Street Americans been net buyers of U.S. equity funds in six months. They were cashing out all through the summer downturn.

Portfolio managers tell a similar story. The phones have started ringing in the past 10 days. Now that the Dow Jones Industrial Average has jumped 13%. Gold has risen 7%. Silver has risen a stellar 23%. Some other commodities have also boomed. And the dollar has fallen more than 5%.

Does this make it dangerous for investors coming late to the party? Ned Davis at Ned Davis Research thinks it might be. "There has been a lot of chatter and 'hopes' related to the November 2nd midterm elections..." he wrote to clients. "When one adds in all the 'better-than-expected earnings news,' one can make the case that a lot of good news is probably already baked into stock prices. Therefore, I would be wary about buying at these levels."

Mr. Davis adds that investors have now turned ominously optimistic. That is usually a bad sign.

John Hussman of the Hussman Funds—admittedly a very cautious investor—calls the current market "overvalued, overbought [and] overbullish."

When it comes to anticipating good news, Wall Street has an old saying: Buy on the rumor, sell on the news. In other words, by the time the happy event finally occurs, the market has often overanticipated the benefits.

Momentum may yet carry the stock market higher next week and even further. Short-term movements are notoriously difficult to predict. The most recent indicator is still bullish. Perhaps there are more good times ahead. But investors should make sure they're not just getting stampeded by the crowd.

The dominant ecosystem in technology

Analysis from Fidelity Investments Market Analysis, Research & Education group:

Roughly once every decade, there is a dominant ecosystem that emerges in technology.

Fidelity's technology, media and telecom equity sector research teams are bullish on mobile Internet due to its potential to emerge as the next ecosystem, which has significant investment implications across multiple industries.

The research team looked at individual product cycles and penetration rates across multiple geographies, to analyze historical patterns of adoption across a variety of consumer technology products over several decades (examples: VCR to DVD players, and CDs to iPods).

This analysis led to the conclusion that adoption rates for second-generation consumer technology products typically ramp faster than the initial device that defined the market, leading to conviction in accelerating smartphone adoption at a rate faster than took place for cell phones (and more generally, that mobile Internet penetration is occurring faster than desktop Internet).

Shoppers Hot for Smartphones

By Scott Moritz

Thrifty shoppers? Not necessarily in the smartphone market.

In a trend that seems to run counter to high unemployment rates and rising gas prices, people bought more $200 phones than cheap or free phones in the third quarter, according to NPD Group. Only one of the top five fastest-selling phones in the U.S. was a "dumb" phone.

In the past, promotional prices as low as $0 on simple flip phones or messaging phones were usually the big drivers of sales, with cheap models outselling more expensive devices by a mile.

Not so this past quarter as more people jumped on the superphone trend.

Leading the way, of course was the iconic Apple iPhone, which was introduced in June and suffered little in the ensuing antenna-gate controversy. Apple sold 14.1 million phones in the most recent quarter.

But the big surprise was Research In Motion. BlackBerries were expected to be crushed by the rise of Apple's iPhone and a host of Google Android phones. But the BlackBerry Curve managed to grab the No. 2 spot for most popular phones.

Pictured above, the Curve was a big hit not just with the usual BlackBerry crowd, but also among so-called prepaid customers who didn't lock into contracts, instead preferring to pay on a month-by-month basis. Outfits like MetroPCS and Sprint's Boost Mobile were big sellers of the typist-friendly BlackBerry Curve.

Landing at No. 3 was LG's Cosmos phone. This is the only messaging phone (read: non-smartphone) on the list and a big seller at Verizon and Sprint's Virgin Mobile.

Google Android phones round out the list with Motorola's Droid X at No. 4 and Verizon and Sprint's HTC EVO at fifth.

http://www.thestreet.com/print/story/10906898.html