- looking at TROW like the overall market makes
- in fact, I looked at the 1/4ly returns on T.
Rowe's mutual funds from the last Barron's, and see
they're mostly all down for the 1/4; & this explains the
depressed stock price
- since I have a long term
view on TROW; and I'm pretty sure the market goes up
decently after October; and MSFT turned in good #'s after
the close today, I'm going to hang in there
thanks for the helpful analysis
Lower equity prices equal lower amount of funds
under management which equals decreased earnings. Lower
equity prices and volatile equity prices decrease fund
inflows and may exacerbate fund withdrawals with a
similar effect on earnings (fixed costs can not be
decreased quickly to compensate this decrease in earnings
and in fact may be increasing). This may also be
happening with fixed income funds. Whether this is actually
happening at TROW, there is a perception that it is, hence,
the perceived value of TROW is less. Just as TROW
moved up with the market (more so in percentage
terms)it will probably fall harder when the market goes
down (or is perceived to be going down). The market
looks ahead and right now there is alot of uncertainty.
Also more individuals are investing directly (if at
all) in individual stocks rather than in funds. This
is also a negative. Over the long run, an investment
in TROW should do just fine. Short term it will be
volatile (understatement!). I believe that as individuals
find out that they aren't as astute as they thought
they were regarding their investing prowess, they will
return to funds. The last several years have been very
kind to investors and it has been difficult not to
make money. Alot of individuals don't have a clue how
well their portfolio is doing relative to benchmarks,
but because their portfolio has increased in value,
they are happy. A nice correction should "scare"
investors back to funds (hopefully). Speaking of
benchmarks, index funds have also hurt TROW as investors have
ditched actively managed funds for passive funds (index
funds have greatly outperformed actively managed funds
over many years). When one thinks of index funds, most
think of the grandfather of indexing; Vanguard not
Also hurting TROW are Fidelity & Schawb,
both of which have successful asset capture
strategies. TROW needs to be more aggressive in attracting
Of course the wild card is a takeover. TROW has been
talked about a takeover target for many years. Since
management owns a fairly big chunk of stock, any takeover
will most likely have to be friendly. A lower share
price may make TROW more attractive. Pimco is in play,
being pursued by Allianz AG of Europe. There are not
many public stand alone money managers left. Typically
fund companies are acquired at 2%-3% of assets under
management, the higher number goes to equity management
(higher fees) the lower to fixed income such as Pimco.
TROW has 159 billion under management of which 103
billion is in mutual funds. Current value is 3.407
Billion (28.125/share). At 3% of assets, TROW would fetch
a premium of 1.40 its current share price which
This was quite a ramble but I hope
it is helpful...obviously other poster's thoughts
pro/con are welcome!
- could it be when people short the s&p; that the
fund shorts all the stocks - including trow?
by the way, I'm not a happy camper at the moment. So
if you could hold your insults until trow comes back
to $30+ I'd apprec. it.
When a stock is in the S&P, then dozens and
dozens of mutual funds that track the S&P 500 have to
buy the stock. And since many people contribute
weekly and monthly to index funds in their 401K's, then
there will be a steady growth in purchases of TROW.
This should steadily drive the stock up!
Jregghead responded for me...
The math is
not so simple. If it were, FASB would be able to more
clearly define how to account fof options as liabilities
without as much debate in academia.
And I would
also say that I haven't seen a company yet that has
performed poorly *because* of options (isn't Microsoft
always being criticized for this?).
downside I see in a company that offers option packages is
that if the underlying stock performs poorly, and a
lot of employees are staying with a company because
of vesting, they may be inclined to leave en masse
during a lackluster performance period. That's the risk
I see in today's market. People don't have to stick
around in technology companies, if their options aren't
Just a few thoughts.
I think your points are well taken.
Shares transfering from treasury stock to individuals
obviously has an effect on earnings per share.
would not argue the premise of your point. However, I
echo Spudguy's observation that the math is not
simple. Options encountering a rising price have a much
different impact than options encountering a falling price.
This is one of the reasons why including probability
in the calculation is important.
point was another comment about why the math is not
straight-line simple. Stock options are an incentive designed
to make employees work harder to skew the
probability of price increases/decreases to the positive
side. I will testify that there are no guarantees, but
I will not assume that such an incentive has no
bottom line effect.
Given these two issues, I see
the math as pretty tough - and I can't buy a
straight-line percentage of float as a significant number
without a heck of lot of corresponding data to establish
a realistic coefficient (multiplier).
not trying to be obtuse, but isn't the SEC
looking into forcing companies to list options grants on
the liability side of the ledger?
true, implies that they are dilutive.
company grants a percentage of the company to someone
(e.g., a stock grant,) it is no longer part of retained
Did I miss something?