The hullabaloo over economic inequality has plagued the Wodehousian class for some time. But, in an even bigger blow to the upper crust, it turns out that many Canadians are actually budding Berties.
It takes only $209,586 (U.S.) to be counted as a member of the world's wealthiest 5 per cent, according to the Credit Suisse Global Wealth Databook for 2014. You can get into the top 1-per-cent club with $798,285.
As a result, if you live in a big Canadian city and own your own house mortgage-free then you're probably already in the top 5 per cent and may even be in the top 1 per cent. Enjoy the canapés and bubbly before the real estate market crashes.
Inequality also happens to be the rule rather than the exception on Wall Street. Capitalism usually produces a handful of giants firms and a slew of tiny nippers that peck away at what's left over.
When it comes to size, Apple Inc. rules the roost in the United States with a market capitalization just a smidgen off the $700-billion mark. Six firms are worth more than $300-billion, and 75 are worth more than $100-billion – and the numbers balloon from there.
Some of the biggest companies also take home a large portion of the market's profits. Patrick O'Shaughnessy, the author of Millennial Money, recently observed that 12 large financial and technology companies are responsible for 19.5 per cent of the market's overall net profit margin. (24 firms are responsible for roughly one third of the market's margin.)
Apple alone provided 3.5 per cent of the market's margin and that's before the computer giant reported strong quarterly earnings this week.
The average net profit margin for those 12 firms is 19.8 per cent. By way of comparison, while you might think Wal-Mart Stores Inc. makes a fortune off its not-so-affluent customers, the firm's profit margin ranged between 3 and 4 per cent over the past decade.
Large profitable firms usually trade at high valuations. But many of the companies Mr. O'Shaughnessy highlights (excluding Fannie Mae and Freddie Mac) appear to be fairly or modestly priced.
On a price-to-earnings basis, Citigroup and Google are the most expensive of the bunch because they trade at more than 20-times trailing earnings. On the other hand, JPMorgan, Wells Fargo, and IBM all trade for less than 15-times earnings. Apple, Intel, Microsoft, Berkshire Hathaway, and Oracle occupy the middle ground. (I own a bit of Berkshire Hathaway, myself.)
Simply looking at price-to-earnings ratios can be deceptive because some companies hold large amounts of excess cash, which is often 'stranded' overseas for tax reasons. As a result, they're cheaper than they appear.
For instance, Apple held $178-billion of cash and marketable securities on its balance sheet at the end of December, which represents a little more than 25 per cent of the firm's market capitalization. Its shareholders get a pile of cash (with some tax complications) and a highly profitable operating company on the side for about 12-times earnings.
Before snapping up the profit generators, there are a few caveats to consider. To start, large firms tend to grow relatively slowly. Even worse, outsized profits attract competition and the technology landscape is littered with the remains of once dominant firms. While it's hard to imagine the likes of Apple going the way of the dodo, a lot can change over the course of a decade or two.
Despite such misgivings, large technology and financial stocks represent one of the few pockets of modest value left in the U.S. stock market. They probably won't make you as rich as Bertie Wooster, but they might be worth a little flyer.