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Archive for Sunday, April 29, 2001

The motley fool

April 29, 2001

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Name that company

I trace my roots back to the Star Furniture Co. of Zeeland, Mich., in 1923, where I first produced traditional furniture for the home. Today I rake in about $2 billion annually, serving homes and businesses with my innovative products, customer-focused technology and furniture-management services. Decades ago, I pioneered open office designs and introduced ergonomic products. Today, you might know me for my popular Aeron chair, owned even by museum collections. Who am I? (Answer: Herman Miller)

Know the answer? Send it to us with Foolish Trivia on the top and you'll be entered into a drawing for a nifty prize! The address is Motley Fool, Box 19529, Alexandria, Va. 22320-0529. Send questions for Ask the Fool, Dumbest (or Smartest) Investments (up to 100 words), and your Trivia entries to Fool@fool.com.

Adobe shimmers

Software maker Adobe Systems is the standard in the desktop publishing industry and is making progress in Web publishing and electronic books. The company has grown earnings per share at a compound annual growth rate of more than 24 percent during the last five years.

Software companies typically enjoy high profit margins. Adobe generates more than $0.20 in cash for every $1 in sales. With revenues of $12.7 billion, Adobe has more than $670 million in cash, and no debt.

Sales of Acrobat, Adobe's electronic document distribution software, jumped 61 percent during the last year, to $208 million. Photoshop, a leading photo-editing product, had sales last year of about $350 million. It's the company's most successful product to date. Adobe also produces graphics software Illustrator and desktop publishing software PageMaker and InDesign.

Maintaining the kind of growth rates that Adobe has achieved during the last five years isn't easy. Software companies must fight to keep talented programmers from moving.

Investors should be aware that competition in the software industry is just as fierce, perhaps more so, than in any other business. But a software franchise built around a product that's an industry standard can be a solid long-term investment.

Overinsured

In 1956, I purchased a life insurance policy that cost me $400 per year in payments for 20 years. The policy would pay me 90 percent of the policy earnings. Today, nearly half a century later, those earnings amount to $300 per year. If I'd invested that $400 per year in the stock market instead, earning the historical average of 11 percent per year, I'd have ended up with $25,681 after 20 years. That money, invested for an additional 25 years, would be worth more than $351,000 today. I've used my bad example to teach my kids the importance of investing intelligently. The sad thing is that I worked for a major corporation that offered me term insurance at almost no cost. I didn't really need the insurance policy in the first place. Dal Wolf, Auburn, Ind.

The Fool Responds: Life insurance isn't necessary in every situation.

It's useful as protection against the loss of an income stream (i.e., your salary, if you suddenly buy the farm). If you're looking for an investment, though, you usually can do better elsewhere.

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