Did Forbes Get the Math Wrong?

While I'm on the subject of mathematics, Quentin Hardy wrote a short item at Forbes.com comparing the performance of IBM's stock starting from the date when IBM CEO Sam Palmisano took the helm in 2002. IBM's stock price is up about 57%. He then points out that IBM's stock price rise is less than HP, Oracle, EMC, and Accenture but more than Intel, Microsoft, the Dow Jones Index, and the S&P 500 Index during the same period. And then he points out that 57% is less than 59%, the total yield on a 10-year U.S. Treasury bond during that period.

Notice any problem with this analysis? Yes, that's right: IBM has paid stockholders an unbroken stream of dividends for nearly a century, and those dividends increased under Palmisano's tenure. Last quarter IBM paid $0.65 per share in dividends. That's about 1.6% per year based on recent stock prices. Current dividend yields are approximately 0.6% for Oracle, 0.8% for HP, 0.0% for EMC, 1.7% for Accenture, 3.4% for Intel, and 2.5% for Microsoft. The 10-year U.S. Treasury bond paid no additional dividend: the 59% yield is the entire yield.

Still notice any problem? Capital gains on stocks are taxed much differently than yields on bonds under U.S. tax law. The tax rate on U.S. Treasury bond interest is roughly double the long-term capital gains tax rate, at least for taxpayers who are likely to own both.

I realize Mr. Hardy was only writing a brief "isn't it interesting?" sort of article, but if you're going to judge a CEO's performance strictly based on financial results delivered to stockholders, shouldn't you actually compare, you know, financial results delivered to stockholders?

Many IT professionals also get the math wrong too often. For example, for over a decade IBM has been delivering "technology dividends" with every new mainframe model. Yet for some reason these dividends aren't always well understood. IBM mainframes also help you avoid myriad IT taxes, legally — taxes such as underutilized resources, excess networking costs, security breaches, and power/space/cooling inefficiencies, among others. Just treat your investment well to enjoy the highest yields and the best rewards.

by Timothy Sipples March 8, 2011 in Economics
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Comments

Sometimes because of too many equation we almost forget the proper formula in order to solve the problems but it is normal it just prove that we are only humans and not perfect at all.

Posted by: rent guarantees | Oct 14, 2011 5:27:28 AM

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