Name That Company

I was founded in 1983 and went public in 1993. Since then, my shares have increased in value by more than 800 percent. I rake in more than $1.6 billion annually. I’m a leading provider of business and financial management solutions. My main offerings include QuickBooks, Quicken and TurboTax software — respectively, they simplify small business management and payroll processing, personal finance, and tax preparation and filing. TurboTax is the nation’s top tax software package, and the most popular online tax preparation service, as well. One in four individual U.S. tax returns is prepared with one of my offerings. Who am I?

(Last week’s answer: Federated Department Stores)

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.

Index fund

Choosing mutual funds based solely on recent performance could be a recipe for bad performance. Here are some things to think about.

Funds that beat the stock market average one year are not likely to beat it the following year. To some degree, a terrific return isn’t the result of the fund manager’s brilliance, but of good luck — at least during the short term. And many fund managers invest only for the short term. Most funds have occasional outstanding years.

If a fund has a great three- or five- or even 10-year average, that’s often because of one amazing year. After all, a five-year average is just an average of five numbers. If one is unusually high, the average will be high. If in each of five years, a fund earns respectively 6 percent, 11 percent, 2 percent, 8 percent and 33 percent, its average annual return will be about 12 percent. That might look respectable, but note that in reality it exceeded 12 percent in only one of five years. That 33 percent return (a statistical “outlier”) skewed the average.

Believe it or not, the majority of stock mutual funds fail to perform as well as the market average as measured by the S&P 500 index. We’re talking about anywhere from 60 percent to 80 percent of all stock funds underperforming.

So what can you do? Well, consider investing in an index fund. If you can’t otherwise beat the average, you can meet it and outperform most other mutual funds by investing in a broad market index fund such as Vanguard’s S&P 500 index fund (ticker: VFINX) or its Total Stock Market index fund (ticker: VTSMX). Vanguard is at www.vanguard.com or (800) 662-7447. To do even better, seek out those select funds that do fare better than average consistently. Ideally, they’ll have no loads, expense ratios below 1 percent, and will be free from recent scandals.

Issuing more stock

Q: As a shareholder, should I vote in favor of or against a company I’m invested in issuing more stock? — J.J., Dallas

A: It depends. Adding more stock can dilute the value of the existing shares. Imagine that Scruffy’s Chicken Shack (ticker: BUKBUK) has just 100 shares of stock outstanding, and you own 10 shares, or 10 percent of the firm. If it issues 10 more shares, for a total of 110, your 10 shares are now only 9 percent of the firm. The value of your shares appears to have dropped.

A big factor, though, is why the company is issuing more shares. Sometimes it’s just to permit a stock split or for employee stock options. If the additional shares are to buy another company and the deal is structured effectively, then it may be a smart move. Perhaps the acquisition will add much more in value to your company than it’s costing in additional shares.

Q: What are investment “notes”? I keep seeing advertisements for “notes” that offer much higher yields than a CD or a money market fund. They look great from a return standpoint, but are they risky? — S.D., Memphis, Tenn.

A: “Note” usually refers to an intermediate-term bond, with a life of between one and 10 years. Notes vary in riskiness. Least risky are Treasury notes, sold by the government.

Corporate bonds, issued by companies of varying quality, are more risky. Higher-quality firms offer lower rates, while enterprises with lackluster credit ratings must offer higher interest rates in order to find buyers. “Junk bonds” are those with high rates and relatively shaky issuers.