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Older Americans are burdened with unprecedented debt loads as more and more baby boomers enter what are meant to be their retirement years owing far more on their houses, cars and even college loans than previous generations.

The average 65-year-old borrower has 47% more mortgage loans and 29% more auto loans than 65-year-olds had in 2003, after adjusting for inflation.

Just over a decade ago, student debt was unheard-of among 65-year-olds. Today it is a growing category, though it remains smaller for them than autos, credit cards and mortgages. On top of that, there are far more people in this age group than a decade ago.

The result: The composition of U.S. household debt is vastly different than it was before the financial crisis, when many younger households took on large debts they could no longer afford when the bottom fell out of the economy.

Older borrowers historically have been less likely to default on loans and typically have been successful at shrinking their balances. But greater borrowing among this age group could become alarming if evidence mounted that large numbers of people were entering retirement with debts they couldn’t manage. So far, that doesn’t appear to be the case. Most of the households with debt also have higher credit scores and more assets than in the past.

 

Source: People Over 50 Carrying More Debt Than in the Past – WSJ

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More than 3 million people decided it was worth $99 to get that last-minute present delivered from Amazon Prime last week.

Amazon [stckqut]AMZN[/stckqut] announced Sunday that a staggering 3 million people joined the membership service during the third week of December, a major record for the company. More than 200 million items were shipped for free over the holiday season this year, Amazon said in a press release Sunday.

More than 3 million people signed up for Amazon Prime in the third week of December.

Amazon doesn’t say how many Prime members exist, but some have estimated as many as 13 percent of Americans – 41 million people – subscribe to the service. That means Amazon boosted its membership by more 7 percent in just week, something that’s pretty much unheard of for a retailer.

Source: Amazon dominates the holidays: Prime adds 3 million members in a week – Puget Sound Business Journal

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dilbert photoIn my opinion, Scott Adams is one of the great satirists of the 21st century. He frequently uses Dilbert to poke fun at companies, management, and the work force. In this strip, Scott is pointing out that the investment analysts that publish earnings expectations either don’t know what they are doing or are being “managed” by the company executive management.

Unfortunately, I cannot reprint the Dilbert cartoon here due to copyright issues. I can reproduce the text of the conversation as fair use though. If you would like to see the cartoon (which is much more humorous), please click here.

The C.E.O.: You should be proud that we beat earning that analysts expected.

Dilbert: Why should we be proud that analysts are bad at making estimates?

The C.E.O.: Those bad estimates don’t happen on their own. I had to mislead them.

Asok: I’m proud of you.

Analysts following a company have an official annual and quarterly earnings estimate for the company that they make public. They construct these expectations based on many different points of data, including company conference calls, previous earnings reports, market trends, sector strength, etc.

The problem is that many companies tend to “manage” their earnings expectations. Meaning, they will purposely project conservative earnings expectations so that they can beat those expectations on a quarterly and annual basis. No one wants to invest in a company that is missing earnings expectations, no matter how robust those earnings. So companies will manage expectations in order to “beat” earnings each quarter. Being able to tell mutual fund and hedge fund managers that we have “beat quarterly expectations 14 quarters in a row” is quite a powerful market tool for bringing new investors to the company.

This problem was actually much more prevalent a decade ago. Some companies managed their earnings expectations by doing things that were at best unethical and at worst illegal. Now many of those unethical techniques are illegal.

Most analysts are incredibly smart and very honest. They are trying very hard to predict the expected earnings of the company they are monitoring. However, they are not without error. Also, it is inherently a conflict of interest that managers want the earnings expectations to be slightly lower than actual results. Not so low that it embarrasses the analyst, but low enough that the company looks like it “beat” those expectations.

The real challenge is trying to figure out what a small investor should do about beating or missing expectations. Best advice: don’t worry about it. You only need to worry about where the masses of investors are going to take the stock. As a momentum investor, you simply need to see if the market is happy or unhappy about the quarterly or annual announcements. Trying to interpret the result of beating or missing expecatations is a very short-term game that will probably make you wrong as often as you are correct.

Photo by Ol.v!er [H2vPk]

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This is not a political site. I try very hard to avoid political issues, especially those that are controversial. The last thing I want people to do is to get bad advice on investing because of political preferences. One of my readers asked my advice on health insurance companies though. The theory was that since so many people thought that health insurance companies were making a ton of profit (one of the reasons for Obamacare), they should be great investments.

My first comment is that you should never buy the stock of a company due to an entire industry. You should evaluate the company by itself and not based on the industry. If you don’t know how to do this, I suggest that you buy my book, The Confident Investor.   You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.

My second comment is that you should avoid sector investments. You can buy mutual funds or ETFs that follow a single sector. Avoid putting these into your portfolio. Find the best companies to invest in and then invest in them with a plan. Once again, if you don’t know how to do this, check out my book.

To answer the reader question, I started researching United HealthGroup [stckqut]UNH[/stckqut]. I went to Morningstar for my initial research and used that tool to generate the data for United HealthGroup and its top competitors. Morningstar gave me a list of companies and then I did a bit of quick analysis.

Symbol Revenue Net Income Profit Market Cap
    (M) (M) percentage (M)
UnitedHealth Group Inc UNH $113,700 $5,330 4.69% $72,879
Express Scripts ESRX $107,800 $1,418 1.32% $54,365
WellPoint Inc WLP $64,000 $2,684 4.19% $26,071
Cigna Corp CI $30,500 $1,309 4.29% $22,209
Aetna Inc AET $37,200 $1,637 4.40% $21,017
Humana HUM $39,400 $1,447 3.67% $14,030
Centene Corporation CNC $9,600 $1 0.01% $3,019
WellCare Health Plans, Inc. WCG $7,900 $155 1.96% $2,675
Health Net Inc HNT $11,300 $198 1.75% $2,640
Odontoprev S.A. ODPVY $1,000 $161 16.10% $2,276
Molina Healthcare, Inc. MOH $6,200 $21 0.34% $1,812
 Sum   $428,600 $14,361 3.35%

 

As we can see, the health insurance companies don’t generate that great of a return. These companies average out to 3.35% profit. The S&P500 averaged 16.14%! That means that health insurance companies aren’t just rolling in cash like Michael Moore implies. Taking the profit motive out of healthcare doesn’t seem to be the driving focus of Obamacare.

This article points out the fallacy of following the news to find your investments. While it is worthwhile to research companies that you hear about on the news or read about in the newspaper, just because they sound good there doesn’t make them great investments. The only sound way to make a great investment is to research the company using solid tools.

 

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It is common for stock investors to be compared to gamblers. This comparison is even more common when discussing stock traders or those that move in and out of their holdings more frequently. While I am sure there are some stock traders that are gamblers, some long-term investors would more readily match the image of a gambler, much to the long-term investor’s chagrin.

Before I defend the previous paragraph, I think it is necessary to provide assistance to those in need of help. If you believe that your stock trading activity has begun to affect your life in an unhealthy manner, please seek help. Gambler’s Anonymous is a great organization that can help those that have become addicted to gambling. Gamblers Anonymous is a fellowship of men and women who share their experience, strength and hope with each other that they may solve their common problem and help others to recover from a gambling problem.

One of the habits of an addicted gambler is to push hard on a losing position. You have seen this in movies for decades even if you haven’t seen it in person. The gambler is losing badly and continues to play the same game in the same manner. Typically, the gambler loses it all.

I hate to say this, but this behavior is often what I see in the most cautious of investors. The investor that thinks that loyalty to a stock somehow is the honorable thing. That loyalty extends to even when the stock price drops 10-50%. That loyalty often is accompanied with logic that says that if the asset is held long enough, the loss will turn into a gain.

I am sorry, but I believe this is reckless behavior. You should have no loyalty to any individual stock. You only need commitment to your family that is counting on you. They want you to develop a reasonable return on your investment to provide for the future acquisition of the nicer things in life. I guarantee that the CEO of the company will not be personally offended if you sell the stock of his company!

I publish my favorite stocks on my Watch List. These stocks have gone through a filter that the majority of stocks cannot survive. These few stocks are not blessed forever – I regularly revisit my analysis of each company and cut them from the list when they have failed to meet my criteria. I also sell all my holdings as soon as I can in each company that has failed my tests. I explain my criteria in my book, The Confident Investor.

Even the companies on my list don’t get a free pass. I monitor each one for upward momentum. I invest heavily in the ones that are increasing in value. I pull out of those that experiencing a short-term bull market. I explain this strategy in my book, The Confident Investor, and I call it Grow on Other People’s Money (GOPM for short).

You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.