Earlier this year, I received the following suggestion from a reader:
"I would like to see an exposé on gradually building a Family Legacy For Future Generations. The sin of most investors is that the power of their diligent trading stops at the next generation. The wad is blown by a son or daughter who paid no attention to the techniques of their father or mother. Generations beyond will need all the help they can get as the world becomes more complex. I have started a program for my family, but I need more input as the portfolio grows. It is an ongoing act of love. I am not convinced that a family member has surfaced to do the work after I am gone, and I am not sure that an entity exists that will provide anything but lazy management."
It has ever been so.
In fact, it's been codified in the aphorism, "Shirtsleeves to shirtsleeves in three generations."
But there are plenty of exceptions, cases where succeeding generations have demonstrated both the motivation and the ability to carry on a legacy.
The only advice I can give-I truly don't feel qualified to do an exposé-is that you communicate as much as possible your dreams and your values, so that those who are willing and able will understand your vision as time goes by and-if all goes well-ultimately embrace it to carry on your legacy as you wish.
As to an outside entity, even the best will not be motivated in the same way as the ideal family member. On the other hand, outside entities can provide stewardship that is free from the emotional relationships that might otherwise complicate the matter.
Moving on, I want to tell you about my recent test drive of a Nissan Leaf electric car.
I was in San Francisco, enjoying the Thanksgiving holiday with my older daughter, who's living and working in the city.
While there, I found time to visit the Auto Show, which was held in the Moscone Center, with my 18-year old son. That's him in the picture. I'm six feet tall, but he makes me look small!
Interestingly, the test drive area for the Nissan Leaf, the all-electric car that will start selling late this month for roughly $33,000 in the United States, was in the ballroom!
The floor was covered with reinforced plastic, and there was a fleet of four Leafs being driven around by people just like me who had registered and spent a little time in line. The cars were white, gray, blue and red.
So what was it like?
Smooth, which should be true for any car driven on a ballroom floor.
And quiet, which is true for only the handful of cars that can move under battery power alone.
And my son fit in the back seat, though he didn't say it was spacious.
But is it worth $33,000, less a $7,500 tax credit?
To at least 20,000 people, yes. That's the number of cars Nissan has allocated to the U.S. for the first year, and it's already taken nonrefundable $99 reservations for all of them.
Nissan expects to sell an additional 30,000 elsewhere in the world (mainly Japan), and to sell at least a million Leafs in its first six years. By way of comparison, it took Toyota more than a decade to sell a million Priuses (Prii?).
Of course, the Prius debuted in an era when the SUV was king-along with the McMansions to drive them to-and the world is different now … though not everyone is as bullish on the sector as Nissan. While Carlos Ghosn, President of Nissan, predicted that electric cars will account for 10% of global auto sales in 2020, J. D. Power predicts the number will be fewer than 2%.
Regardless of which prediction proves closer to reality, we do know that two trends will develop, as they do with any technology.
The cars will get better, and their prices will fall.
Performance-wise, the cars are already pretty spiffy on several counts.
Top speed is 93 mph.
Zero-to-60 takes 7 seconds.
The basic model of the Leaf includes a navigation system and Internet/smart phone connectivity. The higher trim level includes rearview monitor, fast charge receptacle, solar panel spoiler, fog lights and automatic headlights.
You can use your mobile phone to turn on the air-conditioner or the heater while the car is still connected to the grid, thus making the car comfortable before you enter without draining the battery.
And an on-board remote-controlled timer can be programmed to recharge the batteries at a set time-say after midnight when electric rates are lowest.
And though the acquisition price is admittedly steep, operating costs are significantly lower.
A year's electricity will cost perhaps $561 vs. the $1,289 it costs to gas up the company's comparably sized Versa.
Maintenance costs will be lower too, as there are fewer moving parts, fewer fluids, and the brakes will be used less.
And you NEVER need visit a gas station again, except perhaps to keep your tires properly inflated. Imagine what a time-saver that will be.
Also, there are no tailpipe emissions, and the emissions that do occur at the electric plant-wherever it may be-will be lower than those from a comparable gasoline-powered car.
The car's biggest shortcoming, or course, is its limited range.
All drivers alive today have become accustomed to driving cars with a range of several hundred miles. If I fill up my current car after a highway trip, it says I can go more than 600 miles on a tank!
But the Leaf, even under the very best conditions (cruising at a steady 38 miles per hour), will go no farther than 138 miles.
Under the worst conditions, heavy stop-and-go traffic with the air conditioner in use, the car might go only 47 miles.
So for many drivers, the Leaf just won't cut the mustard. Sure, you can stop and recharge along the way; the Leaf will even tell you where the nearest charging station is. But you want to waste less time getting your car tanked/charged up, not more.
So range anxiety remains a major issue for most drivers, and they won't be the ones buying (or leasing) in the early years.
Nevertheless, I'm very optimistic that the Leaf will be a success, that it will fill the needs of enough people for whom 100 miles (or even 47) is plenty of distance to drive in a day. And I'm confident that as technological improvements are incorporated, the performance of the car in every area will improve.
Equally important, the price will come down, as production volume grows to fill demand and competition comes to the market.
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As for the stock market, there are so many good-looking charts out there that today I've got six quick ones for you, in a format I call high-low.
Netflix ( NFLX ) is the high-end source of movies for your home, available through both the U.S. mail and online streaming. Revenues grew 31% in the latest quarter while earnings soared 42%. The stock's forward price/earnings ratio (price divided by consensus expected earnings) is 52.
Coinstar (CSTR) is the low-end source of movies for your home, via its Redbox kiosks that charge just a dollar a night. Revenues grew 42% in the latest quarter while earnings rocketed 74%. The stock's forward price/earnings ratio is 19.
Apple (AAPL) is the high-end provider of smart phones with its iPhone. Revenues mushroomed 67% in the latest quarter (to $20 billion!) while earnings climbed 68%. The stock's forward price/earnings ratio is 17.
MetroPCS Communications (PCS) is a low-end provider of mobile phone service, particularly adept at serving low-income consumers. Revenues grew 14% in the latest quarter while earnings stepped up 5%. (Thirty-five percent earnings growth is expected for 2011). The stock's forward price/earnings ratio is 13.
Sotheby's (BID) is a high-end auctioneer, selling art, jewelry, antiques and more, all over the world. Revenues jumped 63% in the latest quarter while the loss per share was only 29 cents instead of the 39 cents analysts expected. (The seasonality of the auction business means Sotheby's loses money every other quarter.) The stock's forward price/earnings ratio is 16.
Dollar Tree (DLTR) is a low-end retailer, operating stores where everything costs a dollar. Revenues surged 14% in the latest quarter while earnings climbed 43%. The stock's forward price/earnings ratio is 15.
I include the forward PE ratios to show you something interesting. In every case, the high-end retailers have a higher PE ratio than their comparable low-end retailer.
But PE ratios have no place in my growth stock selection system. What I care most about is the probability that the aggregate of investors who care about that stock (or will care about that stock) will have a higher perception of the company's earnings potential in the future than they do know.
Said another way, I want to buy stocks about which investor perceptions are improving and likely to improve further … because that's what drives prices higher.
And the best way to do that is to buy stocks that are continually exceeding analysts' estimates on the upside.
I also like healthy charts, and when all is said and done, I trust a stock's chart more than I trust my own opinion.
So, as I look at the charts of these six stocks, you probably want to know which is my favorite.
NFLX has an excellent long-term chart but is a little out of control, short-term. The stock needs to calm down.
CSTR looks great, sitting at support at 63, with no selling pressure evident. But beware the occasional big shake-out.
AAPL has a great long-term uptrend but it's been treading water somewhat noisily for seven weeks. This could be a top but as long as the bull market is intact, it's more likely to be a good base.
PCS didn't turn up until early this year, so it's less extended than the other stocks here-which is good-and it's built a nice base over the past month. But I have less long-term confidence in the stock than most of the others. Also, the low price (12) signals higher risk.
BID has been very strong since early 2009, with the exception of a big correction mid-2010 that shook out weak hands. It's recently pulled back to its 50-day moving average to present a textbook buying opportunity.
DLTR has been positive all year and since accelerating its advance in August, it's been advancing like a robot riding the up escalator. The only red flag is that volume has been slowly and steadily decreasing.
So there you go. I don't have a favorite, and I don't need one, with a bull market this healthy.
But if you'd like expert advice on the one stock to buy now, I invite you to try my Cabot Stock of the Month, which spotlights one particular stock every month, and keeps you updated on that stock until it's time to sell.
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Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory