Q: Is it my imagination, or are car-insurance rates rising, even as my car gets older? Why would that happen?
A: It’s not your imagination, and a bunch of factors are responsible. The bottom line is that insurers have been facing rising costs in the form of more claims than they expected. Accidents (sometimes fatal ones) due to texting while driving are one problem, along with the general distraction of smartphones. Some blame more widespread use of marijuana, as well. An improving economy and lower fuel costs have led to more driving, which also increases the number of accidents.
And it’s more expensive to fix cars, as they have a lot more technology in them — think, for example, of backup cameras placed in bumpers.
Is there any hope? Well, red-light cameras have been reducing the number of accidents. Self-driving cars may reduce accidents further and could lead to lower premiums. And online services can help drivers zero in on affordable policies.
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Q: What happens to the value of a stock when the company buys back its own shares? Does it change the number of outstanding shares?
A: That’s exactly what happens. The number of shares outstanding shrinks, boosting the value of remaining shares. Each share will have a greater proportional claim on the company’s value.
A grounded icon
Dear Fool: My dumbest investment was in the stock of Pan Am airlines. I bought 200 shares at about $4 apiece back in the 1980s.
The company was iconic. I figured it couldn’t go under and its shares would eventually go up again.
Well, while monitoring it a bit, I noticed that the company was selling their hubs (central locations) at airports. I told my wife we should probably sell, but then I didn’t. I just believed it had to come back. Wrong. I lost it all.
The moral of this story: If you see a company selling its assets when it’s in the tank, save some of your assets and sell. Icons can go belly-up. Look at Sears, Kmart, etc.
The Fool responds: It’s hard to imagine icons going out of business, but many have. Sears, which owns Kmart now, is still operating, but it’s struggling. It’s closing scores of stores and downsizing its staff. Other iconic companies that went out of business or are no longer what they used to be include Kodak, Woolworth, Blockbuster, Readers’ Digest and Lehman Brothers.
Pan Am was in business for more than 60 years — beginning in 1927 and entering bankruptcy in 1991. It suffered great losses in the 1980s that ultimately grounded it. When investing, it’s critical to consider risks and challenges facing companies, no matter how excited you may be about their potential.
More than sneakers
Shares of global footwear and apparel giant Nike (NYSE: NKE) were recently down about 13 percent from their 52-week highs. That spells opportunity more than trouble.
Nike has been facing a weak retail environment in the U.S., while growth in China has slowed. (Nike already gets more than half of its sales from outside North America.) As Nike is counting on its expansion in China to be a major growth driver, some investors are concerned. Those are temporary challenges, though. More lasting are strengths such as consumer-brand loyalty, which can make it easier to acquire new customers and can lead to high-margin repeat customers.
Meanwhile, Nike is courting new customers in new ways. It’s investing heavily in its direct-to-consumer platform in an effort to improve the shopping experience for consumers, as well as reach Generation Z and millennials, who are its future and core customers.
Nike is also aiming to get to $50 billion in total revenue by 2020 in part by doubling women’s apparel revenue from $5.5 billion in 2015 to $11 billion. (The company’s annual revenue was recently around $33 billion.) Its partnerships in digital wearable technologies may strike a chord with female consumers, too.
With a slightly depressed stock and a dividend yielding 1.3 percent, Nike is a promising long-term investment. (The Motley Fool owns shares of and has recommended Nike.)