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QUEST MEANS BUSINESS
World Economic Forum: Rethinking, Redesigning, Rebuilding Global Economy
Aired January 25, 2010 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: After the crisis, let the rebuilding begin. Davos 2010 is all about repairing the global economy. From sand to snow, we follow world leaders as they get to Swiss slopes.
And meet GEF, The Snowman, and the traffic lights. I'm Richard Quest at Davos, where I mean business.
Good evening and a warm welcome to a cold mountainside where all this week QUEST MEANS BUSINESS, we're live, from the World Economic Forum in Davos.
Although, first of all, let's be quite clear about it. Its not Davos, its "Davoos"! And while we are going to be here, we are going to be talking and finding out about the current state of the global economy. Because the best brains in the business world from government, from NGOs, will all be wending their way to join us. And they will be, on this program, telling us the way forward, looking beyond the recession.
So, tonight, on QUEST MEANS BUSINESS we ask the fundamental question: Can Davos fix it?
The fourth year of the World Economic Forum is essentially a rallying cry. The mission will be to give nations and business the tools to prevent future collapse. The Forum has set out a three- point plan.
First, rethink. On that front business must adapt their models and find new ways to innovate and handle risk. The policymakers, they must redesign the way they control the system and the institutions that do it. And then that rebuilding of trust, trust, trust, again, you are going hear it a lot over the week. The change must be something people can believe in, short and long term.
So, reshaping this post-crisis world, freezing Davos is tackling a different climate. The Forum's founder, Klaus Schwab joined me to discuss exactly how different it was from a year ago.
KLAUS SCHWAB, FOUNDER, WORLD ECONOMIC FOURM: It is. And people are thinking much more why the fire happened; and such a reason why we have us seen rethinking, redesigning, and rebuilding. And when we talk about rethinking, we speak mainly about values. When we speak about redesigning, we speak about the systems, like the financial system, and rebuilding the institutions.
QUEST: Is there a danger that this year becomes a bit self congratulatory? That, "Well, we did very well. We looked into the financial abyss, but we didn't fall over?"
SCHWAB: Not at all. Because first, don't forget it was the G20 heads of states and government which prevented the fall over. And the price for not being fallen over, still will have to be paid. And we see now, in terms of the debts of governments, in terms of fiscal pressures, and I think people are very concerned that the crisis will have a next phase, which still has to be defined.
QUEST: The idea of rebuilding, redesigning, and rethinking, I sometimes wonder, it's a nice slogan, but what does it mean? And for the participants coming here is there a danger that it becomes grandiose, woolly talk?
SCHWAB: Why should it become grandiose, woolly talk when you have let's say people who spent five days, who come from all stakeholder groups of global society, and they are all concerned. When I was talking to the people in advance of this meeting, you see the degree of concern which now prevails society, and I should say business leaders, and government leaders.
QUEST: Because, sir, many of the bankers who come here this year...
SCHWAB: Two hundred forty...
QUEST: ... come here on an orgy of bonuses, and of a systemic failure to reorganize a year after the crisis. That's why people question it.
SCHWAB: Yes, but they still are coming. And they know this issue will come up very much on the agenda. So you see here a certain degree of openness, at least to discuss the issue.
QUEST: Do you fear of -- with the bankers here, and who are coming this year -- do you fear that they are going to use this as a lobbying tool against regulatory reform, whether it's from the Obama administration, the British government or the European Union. They're going to basically lobby for their own vested interest, or is that a proper use of Davos?
SCHWAB: I think Davos is built on dialogue. Of course everybody will try to push his own interests. But at the end you become aware that it's not only your interests that count, but there are other groups who have different interests. And if you can find under that, in the process of interaction in Davos -- your own point of view -- I think then we have done a great achievement.
QUEST: The achievements as according to Klaus Schwab.
Well, Davos is about protecting ourselves from future financial crisis. It is worth asking whether our present problems have really gone away. "Forbes" magazine asked researchers to rank 2,700 U.S. companies, public companies, in terms of financial risk. Those in the top 100 are reckoned to have a 8 percent chance of going bust, 8 percent. The multinational icon of photography, Eastman Kodak, US Airways Group is in there, Westwood One, Federal-Mogul, DineEquity.
Now, no doubt those companies will be on to us before day is finished, to protest that they are in such illustrious company. But now I'm joined by the chairman and chief executive of "Forbes". Steve Forbes, the editor- in-chief of "Forbes" magazine.
Steve, the first question is, why are you not in Davos? What's happened this year?
STEVE FORBES, CHAIRMAN, CEO, "FORBES": Well, I had some things that came up here. And my brother, who is younger, but smarter than I am, will be joining you on Tuesday or Wednesday. So, "Forbes" will be there, but this Forbes, sadly, won't be.
QUEST: Well, we'll build a snowman in honor of you anyway, this year, Steve.
Now, let's get straight to it. The question of the Devosian agenda, is rebuilding the economy, but if we are looking at bankers who are coming here, trying to forestall President Obama's message on markets, I mean, do you see a disconnect this year?
FORBES: Well, I think the key thing is to realize, one, that the recovery we're getting here in the United States is based on a sea of liquidity from the Federal Reserve. It is not a sound recovery. You can't have a sound recovery when your currency is weak. And even though the dollar has a little bit of fluctuation, it is a weak currency. It is delivered (ph) on the part of the Fed.
There is also hurting the economy the prospect of major tax increases, still uncertainty about what's going to happen on things like cap and trade and health care. That is hurting, especially, small businesses and our bank regulators are pounding on small banks, community banks, about loans they make, so there hesitant to make loans to small businesses.
Now, it is fair to say that you did sort of stand for president one time, so I aware I'm asking you a party political question in this sense, but the weakness of President Obama following Massachusetts, is this dangerous for the world economy?
FORBES: No, he was pursuing policies that were not helping the economy. He certainly hadn't convinced the American people they were, even those who had voted for him in the last election, especially among independents, his support has fallen precipitously. So it is what you want from the markets. People are reacting and saying no, you have to change course, this is not going to work.
QUEST: Yes, but hang on. Let's just put this into market speak for one moment. As we look at the fourth quarter earnings season, we have had earnings that are reasonably good. They may not be gangbusters but they're not bad, Steve, as you would probably agree. And yet the market tanked last week. We are seeing a bit of a rebound this week. But I can't help feeling that there is something lurking underneath that might be about to take us by surprise.
FORBES: Well, you have, of course, China didn't help the markets; they are popping their own bubble. But you also have uncertainty about what the administration is going to do on the banks. Certainly there is need for reform. But is this going to be serious reform, people like Paul Volcker actually designing it, instead of the administration just grandstanding. Or is it going to be more populism, rather than serious substance. For example, he left out Fannie and Freddie, in terms of reform. If you don't reform those two institutions people are not going to take you seriously.
QUEST: Is Tim Geithner a busted Treasury secretary? A lot of people have been talking over the weekend, as you know, about whether his time is just about up?
FORBES: Yes, yes, and rightly so. I don't think he's been an effective financial chief. And so, yes, I think you might see a change there.
QUEST: All right. Now, Steve, can't let you go without - your familiar with our traffic lights on the economy. So, let's go over - you can't necessarily see this, but going over to the traffic lights. Do you want a red, amber, or green for the global economy? Which is it going to be from you for tonight? A red, amber, or green?
FORBES: A mix of amber and green. I think the economies will grow, not as much as they should but hey it is going to be better than last year. So, I'll take it.
QUEST: All right, better than last year, a mix of amber and green. And trust you, Steve Forbes, to nearly break my traffic lights on day one.
Many thanks, indeed, for joining us.
FORBES: Thank you, Richard.
QUEST: Look forward to seeing you in Davos next year.
OK, one other little -of course, it wouldn't be at home if we hadn't brought the bell. So, let's have a look and see how the U.S. markets are fairing this season -or session, I should say.
Stocks practically flat, a weaker-than-expected U.S. housing markets report cutting into the gains. And if you look now at the market, down 57 points -sorry, up 57 points.
Good grief, how could I do that?
Talks swirling around the markets that the Federal Reserve Ben Bernanke will indeed, actually will be renewed.
Let's catch up with the news headlines now. We have a lot more, of course, as we wend our merry way through our Davos coverage. Max Foster is at the CNN news desk.
QUEST: When we come back in just a moment, the latest numbers from Ericsson. Interestingly, they sent a shiver not only through Ericsson's prices but also through the wider market. QUEST MEANS BUSINESS, all week we are in Davos, and so are you.
QUEST: We're building snowmen later in the program and it is all for a serious purpose of explaining exactly how the global economy needs to be repaired.
Talking of repairing things, the latest numbers from the Swedish group, Ericsson, sent a shiver through the markets. Stocks in Europe took a heavy tumble during the session. Markets in London, Paris and Frankfurt posted losses around the 1 percent mark. Banks were mixed despite lingering concerns over President Obama's plans to reign in risk-taking. RBS up 2 percent, in France Societe fell 1.4; drug maker Glaxo, GSK, down 2 percent.
In Sweden Stockholm's benchmark slipped further, over .37 percent. Telecom giant, Ericsson slumped 1 percent after posting a sharp decline in profits.
Now, telecoms may be amongst the fastest growing industries, especially when it comes to the mobile and digital era. It makes Ericsson's latest numbers all the more disappointing; net profit down 92 percent at the world's biggest wireless equipment maker. These aren't handsets, these are the big bits that make the whole thing work. Ericsson made $43 million in the last three of '09. Sales down 13 percent, as operating companies cut back. And the company shelled out close to 9.6 billion in restructuring costs during the quarter. Ericsson says it is cutting more than 1,500 jobs, on top of 5,000 that were lost last year.
Ericsson's bleak fourth quarter may be just part and parcel of the company's turn around strategy. I asked the chief executive, Hans Vestberg, when he expects to see results from his turn around policy?
VESTBERG: I think that, first of all, 2009 was of course a year with some mixed trends. But I think that in the first quarter of the year, we had good growth. In the second part, as we said already in -- at the end of 2008 it would be unreasonable that -- that the telecoms basis in Ericsson wouldn't be impacted by this financial crisis.
And we saw some markets, especially emerging markets that we're more cautious on the spending and that flowed through in the second half on 2009. At the same time, of course, we worked with our efficiency work, which we did, all actually we started in early in 2009. So we basically were flat on operating more adjustable restructuring when it comes to 2009.
QUEST: You see that's really the point, isn't it? The core business seems to be flat. You're developing new areas, but you're not yet seeing the growth stream coming on line?
VESTBERG: No, I think that first of all we have the economic situation around us. And that has been prevailing in 2009. But you are absolutely right. We are developing this company. We will of course be very strong on mobile infrastructure, but we're heavily invested in I.P. Our service business is now a very important piece of our business, and also multi media.
So our strength in the whole portfolio to be an even stronger company going forward. And as well we are represented in more than 175 countries. So of course that is what assets we have in this company.
QUEST: Why will you not, therefore, give guidance for first quarter, and some idea for 2010?
VESTBERG: First of all -- I mean, we -- we have since the last year when we came into the crisis been cautious in out guidance. We want the market to see our performance and what we are doing and then we'll report back on that. We think it's too early to start to give any guidance right now in this environment. But also we believe we can report back after the first quarter, second quarter, where we believe the market is going, and what trends we are seeing exactly as we have done in the fourth right now. We're going through quite thorough on our regions, what has happened, and on our product portfolio.
VESTBERG: And that we'll continue to do.
QUEST: If there is one thing about which you are worried as we go into 2010, what would it be? Is it the possibility of double dip recession? Perhaps it's telecoms operators cutting cap-ex expenditure?
VESTBERG: Of course we're a company that has core business in network infrastructure. You always are looking for how will the investment levels from operators continue to go. So that we'll be close to and that we have been close to for the last year as well. And we can balance it up and down.
And as long as we're proactive, and -- as we were in 2009, but that is always an area where you sort of are very cautious, and look into.
On the other hand, we have upsides and -- and possibilities in our service business that can grow. And of course, help operators with their efficiencies. So it is a mix, again. I think we have that spread in our portfolio.
QUEST: I understand, obviously, that costs will always be a key contained factor. Do you envisage this year having to make serious cuts and in roads further either into workforce or into R&D and research?
VESTBERG: I think we started already in the beginning of 2009. We outlined a program over -- over six quarters. And we have updated the market today about the programs on it. And we already achieved the program in Q3. So that means we well overachieved that program when we end it in the end of 2010.
QUEST: Chief executive of Ericsson talking to me earlier. When we come back here, in Davos, in just a moment, well it is lessons learned, this time from the mighty snowman. It all looks so easy. But if we are going to repair and rebuild, well, the global economy needs some help.
QUEST: There are two things you can always count on if you are coming the World Economic Forum. Here in Davos there is an avalanche of big thinkers and as always a mountain of snow. This year, as you have heard me say already, and it is going to be another R, rethink, redesign, and rebuild, and repeat ad nauseum. We thought the only way to really test the truth of the ability to do this was on a snowman.
QUEST (voice over): It's a sorry sight. Meet GEF, The Snowman, Global Economic Fortune, turned Global Economic Failure. But how can we turn GEF back upright again? Make him proud, once again, to be master of all he surveys?
Back to basics, getting things started should be as easy as rolling a new snowball. Like the global economic system, this snow is not fit for the purpose of building a snowman. It won't roll, which is why here in Davos, the week is going to be spent rethinking how we make a new financial system.
(Voice over): While the rebuilding goes on, some will undoubtedly take advantage, still scavenging over the wreckage, hoping to make a bonus.
(On camera): We know there is plenty of snow. It is just a question of rethinking how to use it and that is where rethinking the project comes into play. Ha, use a bucket.
This should take. Bigger is not always better.
(Voice over): These days you need to do it differently.
(On camera): Add a bit of water. I'm making progress. It is slow going. Thankfully, I'm not alone. Expert help is appropriately named.
UNIDENTIFIED MALE: Hans.
UNIDENTIFIED MALE: Yay.
QUEST (voice over): More and the merrier to get this snowman right. We need to salvage what we can from that which remains.
(Counting in German)
Davos is different this time. Paradigm shifts, out of the box thinking.
(On camera): GEF, the Global Economic Fortune, is neither as big nor as beautiful as perhaps we'd like. But it has taken a lot of effort to get us this far. We have had to rebuild, redesign and, crucially, rethink. And if it is not all it might be, well, heck, it is good enough for this year.
QUEST: And I do promise you that as the week wears on I will not bore you tears with that dreadful phrase, rebuild, redesign, rethink. When we come back in just a moment, we go from the snow to the sand. QUEST MEANS BUSINESS, we are live in Davos.
JOHN DEFTERIOS, CNN ANCHOR, MARKETPLACE MIDDLE EAST: And I'm John Defterios in Riyadh where chief executives from Dell, Unilever, Cisco, and others met their counterparts from the Middle East, ahead of Davos. I'll speak to the chief executive to WPP Martin Sero (ph) to get his global outlook and his read on the region.
QUEST: Welcome back.
(AUDIO GAP) with us in Switzerland (AUDIO GAP) markets are open and doing business and much of (AUDIO GAP)
MAX FOSTER, CNN INT'L. NEWS ANCHOR: There we are. We have some communication problems with Richard, unfortunately in Davos. Though we are going to get back to him as soon as possible; we do believe we can fix those problems for you.
But in the meantime I'm going to take over for the moment. And much of the anger against the Fed chief Ben Bernanke and the government at large is due to what many see as out-of-control spending. And according to a new poll most Americans believe at least half of the money spent in the federal stimulus plan has actually been wasted.
We are going to be speaking to Maggie Lake about that in just a moment. But first we are going to check on the markets on Wall Street with Susan.
Susan, what have you got going on over there?
SUSAN LISOVICZ, CNN FINANCIAL CORRESPONDENT: Well, Max, I'm happy to say we're seeing something we haven't seen in a few days, and that is green arrows. We do have a rally today and, you know, why is that a surprise? Well, we're coming off the worst week since last March, which was the low of the bear market.
Kind of a quiet day. We don't have any major earnings before the closing bell. We do have Apple after the closing bell and that stock is rallying 3 percent, in advance of the news. But we have the three major averages pretty much moving in lockstep with about 90 minutes to go in the session, Max.
You know, one of the things that really spooked the market last week was not only the president's sudden harsh rhetoric about the financial, about big financial institutions, but also the sense that maybe he was rethinking Ben Bernanke's status for a second term.
And that really unhinged the market because there was enough uncertainty to begin with, with concerns about new regulations, and then, well, who the heck is going to be leading the Federal Reserve? That just really added to it. So, there was a sense over the weekend, a lot of talkers on the news programs, that Ben Bernanke does have enough votes to hold on to his job and try to rescue the U.S. economy at the same time.
There is also, the other major reports - the only other news, I guess, I should say -today, Max, was a report on existing home sales, the broadest part of the U.S. housing market. That was a big disappointment, down nearly 17 percent. The market expected a decline, just not, by that much. If you look a little deeper you see that sales did increase year-over-year, substantially. And prices, actually, firmed up, too. So market taking it pretty well, and we do have a rally today.
FOSTER: OK, Susan, thank you so much from New York to London, back to Davos. We can join Richard Quest, I hope.
Is the sound sorted, Richard?
QUEST: Yes, indeed, one of the -I would say the penalties, perhaps, or maybe the trials and tribulations of broadcasting in the snow.
Don't worry, Max. I'll send a snowball your way. We are back...
FOSTER: I'm looking forward to it.
QUEST: I -- I promise you, by the end of -- by the end of the week, bits of frozen that are best not -- not best kept warm.
Right. Much of the anger against the Fed chief, Ben Bernanke, and the government at large, is due to what many see as out of control spending.
According to a new poll, most in America believe that at least half of the money spent in the federal stimulus plan has been wasted.
Maggie Lake is in New York to talk about those poll numbers -- and, now, Maggie, I mean we always know -- whenever you have a stimulus package, that a fair dollop of cash disappears somewhere it shouldn't. But this is extraordinary.
MAGGIE LAKE, CNN CORRESPONDENT: Yes, it is. And what's also extraordinary, Richard, is that you are seeing a real shift among voter sentiment. And that really explains some of that anger that's showing up in the polls and that has Washington scrambling.
Take a look at the some of these numbers from this new CNN/Opinion Research poll when it comes to the stimulus. Those who favor the stimulus now, only 42 percent compared to 60 percent. Opposing it, 56 percent versus 39 percent.
So you can see, a lot more people say they don't want it. They're not in favor of it.
Look at this next set of numbers. The stimulus money, many believe, mostly went to political projects -- pork barrel politics to promote local politicians' careers, not, as you can see, to benefit the economy. Only a third of Americans think that. That is very troubling to the Obama administration.
How much of the stimulus has been wasted, was the other question that was asked.
Half or more -- 74 percent of people think half or more of it was wasted. Some, 21 percent. Only 4 percent think none was wasted.
The American people are very angry at what they see as politics as usual in Washington. And they see it as squandering their future, their children's future. They know that this stimulus dwarfs any other spending by the U.S. Government when you look back in history at some of the other big projects. And they're not happy about how it's going down. They've let their voice be heard in Massachusetts. Now Washington is trying to react -- Richard.
QUEST: Maggie, I -- I don't want to be a -- an apologist for the stimulus packages, but I mean it's a moot point. We'll never know how bad things would have been if there hadn't been the $787 stimulus package.
LAKE: That is absolutely right, Richard. And that is very important to bring up. And that's the quandary that the administration finds itself in and, frankly, some politicians and officials, like Ben Bernanke.
It's very hard to quantify the horror that would have been. All people see is the expectations that were out in front of them and the fact that we're still facing unemployment, even though everyone said unemployment was going to remain stubbornly high this year.
I think the one thing, though, that we need to pay attention to in that poll is the idea that they think the money was wasted on these pork barrel projects. Maybe they understand that not all of it was going to be seen in a...
QUEST: Right. But...
LAKE: ...and it prevented something worse.
But the waste and the corruption is really what they're zeroing in on and they're mad about that.
QUEST: Yes. But no one should be surprised. I mean every country has pork barrel politics, but the U.S. is renowned for it.
So I'm wondering, is it naivete that they thought that pork barrel wouldn't have been involved in this?
We'll never know that either -- Maggie.
LAKE: No, we won't. Maybe a desire for change, though. Remember, Obama came in and said we're tired of politics as usual in Washington and people believed that. And now they're seeing just how difficult it is and that some of these, as you say, entrenched habits, are not going away. And that's a problem.
QUEST: Maggie Lake, who is in New York.
We thank you.
Maggie will be with us all week.
From the snow to the sand, all week, we're going to be going backward and forwards between the two. While some of the world's financial leaders shiver in Davos, others are attending a global competitiveness forum. And that's taking place in Saudi Arabia.
CNN "MARKETPLACE MIDDLE EAST" anchor, John Defterios, is in the Saudi capital of
JOHN DEFTERIOS, HOST, "MARKETPLACE MIDDLE EAST" (voice-over): The physical landscape may be far different than the Swiss Alps, but the sentiment seems to be the same here in Riyadh -- and that is, the worst may be behind us, but don't expect any miracles in 2010. The precursor to Davos brings together business leaders from East and West at the crossroads, if you will, in the largest market in the region by far, Saudi Arabia.
I talked to the chief executive of WPP, Martin Sorrell, to get his outlook for this year and why he thought it was important to boost his presence in the Middle East.
MARTIN SORRELL, WPP CEO: The Middle East is about $400 million of revenue for us out of $14 billion. And we -- we put it in the BRICs next 11 category, or we would put the Middle East and put Saudi -- obviously Dubai, Qatar and the other parts of the region -- and the Gulf -- into that category.
DEFTERIOS: The World Bank was saying that global growth of 2.7 percent, with the East basically keeping the global economy afloat...
DEFTERIOS: ...China, India, the Middle East even...
DEFTERIOS: Do you see a -- a faltering in the G7 countries in the second half of the year?
SORRELL: My -- my own view is -- I mean, this is a world at different speeds. And if you're running a global company, you -- you have to change your strategy and adapt your strategy to the different markets. So, for example, just putting it very simply, Western Europe is about cost containment. America may be to some extent that, as well. So finance and procurement -- we're heavily looking at that. The BRICs, the next 11, Asia, Latin America, Africa, the Middle East, Central and Eastern Europe, is about growth. And that's where -- you know, your -- any company that you talk to -- any CEO who you talk to, any company you look at, you are looking for like for like -- what the retailers call "like for like store growth."
So organic growth is critically important. That's where the growth is. It's relative growth, not absolute growth. So what you're seeing is strategies that are -- take advantage of that.
DEFTERIOS: The Dubai debt crisis is quite shocking for the region in itself and we haven't seen the bottom of it yet. You come in as a global CEO.
How do you plan for the future with that debt crisis in the backdrop for the region?
SORRELL: The debt issues, obviously, have hit the local markets more. So they probably haven't affected us to the degree of the average. But -- but these local clients, which are increasingly becoming regional and multi-national clients, are very important. So we want to see stabilization there and -- which we will get.
I mean, Abu Dhabi's intervention in -- in the context of Dubai has been very helpful, I think, already in restoring confidence.
But it's not just the confidence in the region. I mean it would be quite arrogant for us in the West, having seen the events of last week and see Obama's statements, the Supreme Court decision, Barney Frank's statements. The degree of uncertainty in terms of what is going to happen in terms of regulation; whether it's going to be across the world; whether propriety trading is going to be banned outside the United States, as well as inside the States. There's a lot of uncertainty.
DEFTERIOS: So you're looking for clarity is what...
SORRELL: I'm looking for clarity. I mean, I -- as I look at our budgets for this year, we're -- we're basically staying flat, as flat is the new up.
DEFTERIOS: By the way, it's Sorrell's first visit to Riyadh. But he's about one of 50 business leaders making that transfer from here to Davos in the next 24 hours.
John Defterios, CNN, Riyadh.
(END VIDEO TAPE)
QUEST: In a moment, the mysterious concept of dollar cost averaging. We'll explain what that means and the significance in The Biz Clinic on CNN.
QUEST: Welcome back to Davos.
So any of the financial gurus here in Davos will tell you there are many different ways to make money from the market. You can throw in a lump sum and hope it will appreciate. Or you can invest at random when you think you spot an opportunity. Some investors follow the idea of dollar cost averaging. That involves investing a set amount of money at regular intervals and ignoring the direction of the market.
On this week's Biz Clinic, Andrew Stevens looks at how dollar cost averaging stacks up.
Is it a proven strategy or is it just marketing hype?
ANDREW STEVENS, CNN CORRESPONDENT (voice-over): Investing is a numbers game, with the aim to buy low and sell high. Some try to time the market, throwing in a lump sum. Others follow the idea of dollar cost averaging -- investing a set amount of money at regular intervals, regardless of where the markets are heading.
Google the phrase and you'll see plenty of pitches from financial advisers. That's why some critics say dollar cost averaging, or DCA, is just marketing hype. They say it gives investors a false sense of security, luring them into thinking they're protected even in a falling market.
But supporters say the strategy gets people into the habit of investing regularly, and when prices fall, you're getting more shares for your money.
PURU SAXENA, PURU SAXENA WEALTH MANAGEMENT: If you're a great market timer and if you have the time and information to do your homework, then, of course, you can try and invest at the market troughs. But the reality is that maybe one in a thousand people are good market timers.
STEVENS: We crunched the numbers. We take the widely held mutual fund, Fidelity's Contra Fund, and tracked it over the past seven years -- the start of 2003 through the end of 2009.
We took a hypothetical $3,000 each year and invested it in three different ways.
First, to dollar cost averaging, we invested $250 at the start of each month.
Second, we took a random approach, investing $1,000 at three different times throughout each year.
The last approach was to just invest a lump sum, the $3,000 each January.
And here's what we found. To try to keep it simple, we'll award medals. Six out of seven years, investing that $3,000 lump sum in January gave us the best annual return. One of the years, that strategy came in third. So, six gold medals and one bronze for lump sum.
Random investing was the winner one year. It came in second one year and was last in five years.
And as for dollar cost averaging, it was a consistent second, with six silvers and one bronze.
So how about the long-term?
Over the entire seven years, lump sump inched out dollar cost averaging by $463, with a total return of 9 percent and 6.8 percent respectively.
UNIDENTIFIED MALE: A $150 bid at 300.
STEVENS: Our analysis obviously is just one sampling, and, as most mutual fund managers would tell you, the key is to be in the market over a long period.
SAXENA: The markets have been run based on greed and fear for centuries and they will continue to be run on greed and fear for centuries to come. So if you want to keep your emotions out of the game, then investing in a disciplined manner on a monthly or quarterly basis is the best option for most people.
STEVENS: A steady, long-term bet in times of volatility.
(END VIDEO TAPE)
QUEST: Dollar cost averaging, an interesting idea -- part of The Biz Clinic. More interesting, perhaps, you'll see over the next few days is the weather forecast.
Now, I can tell you, it's very beautifully mild during the day and punishingly cold at night.
But Guillermo is at the World Weather Center.
And I -- are -- is there any snow in the forecast this week?
GUILLERMO ARDUINO, CNN METEOROLOGIST: I think that Jeff (ph), your snow man, is going to get fatter, because I think that tomorrow we may see some snow. And then -- but, you know, the snow is not coming alone to Davos, because we are going to see some cold conditions, as well.
So, look, we think that we're going to see some snow showers on Tuesday. Temperatures will continue to go down and Wednesday will be very cold. And then, toward the end of the week, we will see more snow -- a little bit more than tomorrow, I think.
This is the temperature right now, minus five. There's no wind. You see four kilometers per hour. So we're expecting the wind to stay there.
But, as I said, the snow is not coming along alone. It's because the cold air is spreading all over. You have heard what's going on in Poland, in Germany, that we have very, very biting cold conditions. And now that's spreading and bringing temps back to normal in the east, which means it's going to be colder. Example, look, the coldest night in Warsaw, minus 20, the coldest this winter.
We are seeing problems with this, because there are thousands of people that have no electricity because the branches of trees are actually all iced up and they are falling onto the power lines and then we have the electricity issue in here.
So this is the site that we see right now in the east especially. And we are anticipating, over here in Berlin and especially in the eastern parts of Poland, very, very cold conditions. All the alerts have been posted, especially in Podlaski, Matsoviki (ph) and Lubelski. That's toward the east -- Warsaw to the east.
Now, back to the snow. You see with the cold air in place, we're going to see some more snow in the east, and that's exactly where Davos is in Switzerland. Also, it's going to see some more snow. And we are going to see some more snow in southern parts of Germany, too.
Croatia being affected by more snow. Airports are being affected by snow. Zurich is not going to be in bad, bad shape. But Frankfurt -- you know, Germany has alerts all over when it comes to the very, very cold conditions. We're going to see the cold invading France, as well. This is pretty much the picture that we have right now. And, also, windy conditions in coastal parts of Norway. So we have alerts in place, as well.
In the States, everything is quiet. You see San Fran with some rain showers.
And we are going to see some more cold conditions moving into Japan. So we are going to see some unstable weather, especially today. We have seen some. And as I was saying before, we are seeing the cold air descending into different parts of Asia, especially into China. So we're going to see some problems so -- over there and some snow coming into Japan, as well. That's in the immediate forecast.
Now, we talked about the snow. I think that today is a special day, Richard. We want to celebrate it, because QUEST MEANS BUSINESS turns one year. And it's, of course, one of our favorite shows and we want to celebrate it with you.
Happy anniversary, Richard.
QUEST: Thank you very much.
You're right, one year ago, that. And I'm being told...
(LAUGHS AT SNOWMAN)
QUEST: One year of QUEST MEANS BUSINESS. Here we are. Oh. Ooh. And a cake for us all.
We'll be back to talk about Profitable Moments -- more of them -- and big hotels. World At Work, after I cut into this.
QUEST: Welcome back to Davos.
While they work on fixing the global economy, delegates descending on the village, town, whatever you want, they'll bestow plenty of prosperity in this small area. In just five days, several months worth of business will be coming through the doors of the Belvedere Hotel. If you are one of the fortunate ones, that is the prime hotel here in Davos.
Now, we decided it was time to go and meet the general manager of the Belvedere to see how he reacts and what he gets up to in his World At Work.
ERNST WYRSCH, GENERAL MANAGER, BELVEDERE HOTEL: I love it because it's you being in the world, being a host of the most prestigious event worldwide. And we have over 220 events. And that goes very fast, from one event to another one. So the movement or the transition period is very short. So actually that's the challenge.
(INAUDIBLE) tage und.
And we are probably the only hotel worldwide who really kicks out head of states, because outside of the meeting rooms is waiting another one. So that brings us cruel situations, but we love it.
QUEST: Your entire hotel has to be transformed, doesn't it?
WYRSCH: Yes. This is a good example here. This is the pool -- still the pool area. This morning, the last guests have been swimming here inside. And now it will be transformed into a ballroom. It will be called the Ballroom Atlantis.
QUEST: Do you ever get weary that when you know December has finished, January has arrived -- oh, no, it's time for the World Economic Forum?
WYRSCH: No, we react differently.
The trick of the trade is -- is to be extremely focused on every detail, because we are planning the whole year around. And we can't do it a second time. It has to be right the first -- the first time.
In the days before, it's always, it's looking and you think it will be never finished. It will be never finished. But it will.
QUEST: Does it actually make good money for you?
WYRSCH: Oh, this -- this is the best business over the year. I do more than 25 percent of the annual business revenue. And it's big money for us.
QUEST: Every year I've been coming here, I've tried to stay in this hotel and I've never succeeded.
WYRSCH: Ah, with such a smile, you make it very hard to meet. But I think you have to wait another two or three years.
(LOOKING AT TOWELS)
WYRSCH: Take one. A souvenir.
QUEST: It's the closest I'm going to get to the Belvedere.
(END VIDEO TAPE)
QUEST: And there are you. There is the souvenir from the Belvedere. Absolutely, as I say, it's the closest I'll ever get.
Interestingly, a bit of Davos trivia for you. Where you stay is not decided by how much you're prepared to pay. The World Economic Forum organizers, they determine which hotel or apartment or whether you stay up here in Davos -- or Da-vos, as I've been told repeatedly it's pronounced -- or you have to take the shuttle to Calostros or anywhere in between. While we think about the shame of that, let's take a look at the big board.
I'm going to tell you, that's home for me mother. She could do with some new towels.
Let's have a look at the Dow Jones Industrial Average.
The market is up 72 points at the moment. We are at 10246. That's a gain of just .75 of 1 percentage point. A weaker than expected U.S. housing market report cut into the gains. Stocks plunged after President Obama proposed new limits on banks. That is how the U.S. markets traded.
The European markets took a heavy tumble during the session. Markets in London, Paris, Frankfurt, posted losses around 1 percent. The banks were mixed, despite lingering concerns over these plans.
OK, so, I promise you we're not going to bore you all week showing you around our broadcasting position here. But you do need to know, I'm the lucky one, because down here -- if we take this camera -- down here, I have got heaters that are keeping me rather toasty and nice and warm.
If we move around over here, oh dear. That's Gail (ph), in charge. She's just cold. Tom has lost all use of his fingers. And as for Jason over there...
(CAMERA PANS TO JASON)
QUEST: Absolutely. The camera is over in the corner, but, really, we can't -- we can't shock you that much with a shot of over there.
When I come back in just a moment, we will have a Profitable Moment on Davos and the World Economic Forum.
This is QUEST MEANS BUSINESS.
We're one year old.
QUEST: Tonight's Profitable Moment.
It is fashionable to call into question the purpose and usefulness of the World Economic Forum. After all, it's easy to criticize a conference that is up here, in the Swiss mountain resort.
Jobs are still being lost. Social services are being cut. Bankers are still being paid high bonuses.
There is much merit in this criticism.
As the private jets roar into Zurich and the limos clog up the mountain roads, one often does have to ask, have the delegates here learned anything?
But this week, you and I, we need to go beyond the obvious. We are out of the financial abyss, but we are a long way from climbing the mountain of growth. A year ago, we were putting out fires. Now, we're starting to rebuild financial houses.
So perhaps it's understandable, everyone has an agenda. Banks are lobbying against proposed banking reforms. Davos was always a bit about self-interest -- you do a deal, you make a contract. After 40 years, when this mountain gab fest (ph) began, this year, I'll be asking what comes next.
And that's QUEST MEANS BUSINESS.
I'm Richard Quest in Davos, Switzerland.
Whatever you're up to in the hours ahead, I do hope it's profitable.
"AMANPOUR" is after the headlines from Max Foster.