Three Cheers for the S.E.C. August 16, 1996January 30, 2017 The first (and only) time I was ever subpoenaed by the S.E.C. was 25 years ago, in connection with a high-flying company I had worked for whose stock had crashed and whose president subsequently went to jail. I just remember their being a little surprised I didn’t come with a lawyer — well, all I was going to do was answer their questions, why did I need a lawyer for that? — and that everything went fine. I suppose the faces at the S.E.C. have changed somewhat since then, but I’ve always felt that, by and large, the S.E.C. are the good guys. That in a world of too many government regulations — a world where an entire agency, like the I.C.C. (Interstate Commerce Commission) could simply be eliminated — the S.E.C. is, by and large, a corps of overworked, underpaid protectors of one of America’s (and thus the world’s) very most precious assets: our free, efficient, and relatively honest capital markets. This isn’t to say there may not be horror stories out there, cases of excessive zeal, botched opportunities and the like. But in thinking of the literally hundreds of millions of dollars private lawyers have made from the “strike suit” game described a few days ago, I couldn’t help wondering whether we shouldn’t, at the same time as we try to rein in the extortionate strike suits, find an extra $10 million or $20 million for the S.E.C. each year — enough to hire and support another 100 or 200 lawyers. (They have 1,070 now.) You may say, how can you find a competent, motivated attorney to go after market abuses for just $70,000 or $100,000 a year? Unless lawyers have the prospect of earning millions from this job (as the ones specializing in “strike suits” do), they won’t do it well. But that’s not necessarily true. For example, would we really want to turn the job of issuing speeding tickets over to private cops paid on the basis of how many they can give? With no sanctions on the cops if they give you a ticket when you weren’t speeding? That’s the strike suit game now. It leads to a lot of unjustified speeding tickets that are nonetheless too costly and time-consuming to fight. So they’re paid, the private cops make a fortune — but is the driving public really better off? Wouldn’t it make more sense to have a few more $40,000-a-year highway patrolpersons armed with radar guns? No outfit is perfect, but as government agencies go, the S.E.C. could be a lot worse. It costs a mere $300 million or so a year — less than a twelfth what Coke spends on advertising — and none of that comes from taxpayers (not to say that it’s free). It comes mostly from corporate filing fees, from a tiny SEC fee you pay when you make a sale on one of the exchanges (grabbing a confirm here I see that I paid 32 cents on a recent $9,450 sale), and from penalties the S.E.C. collects from companies and brokerage firms who (while almost always denying any wrongdoing) get their wrists slapped. All told in 1995, those revenues totaled about $600 million — twice what the S.E.C. cost., with the balance going to the U.S. Treasury. On top of that, in 1995, the S.E.C. won orders requiring defendants to disgorge $994 million in illicit profits, most of which went back to investors. (When that would be impractical — $2 each, or something — the money goes to the Treasury instead.) On top of which we get little bonuses, like Edgar, the free on-line access to tens of thousands of S.E.C. filings, and like the S.E.C.’s excellent recent effort to narrow the spreads on the stocks we buy and sell. In short, while I trust you to write me with examples of awful things the S.E.C. has done, I would say this is a group of government employees who can, by and large, feel proud of their public service. Unlike the lawyers at the strike-suit firms. No one’s talking about ending private lawsuits — least of all the S.E.C., which welcomes the additional policing the threat of private lawsuits provides. But in a field as complicated as this it’s a matter of balance, not absolutes. As Congress overwhelmingly agreed last year, the strike-suit racket had gone way out of balance. Too easy for the private cops to pull you over and shake you down.
More on Ripley, Believe It Or Not August 15, 1996February 6, 2017 A few days ago I shared my shaken faith in Robert Leroy Ripley, the New York City sports cartoonist who, in 1918, at the age of 25 found himself stuck for something to draw. According to the keepers of his legend, he “dug into his files where he kept notes on all sorts of unusual sports achievements” and did a little collection of oddities, including a Canadian who (believe it or not) ran the 100-yard dash in 14 seconds — backwards. One thing led to another, including the opening in Chicago in 1933 of his “Odditorium,” stocked with odd items he’d collected from around the world, which, believe it or not, 2.5 million visitors came within one year to see. (Times were simpler then — and no TV.) Anyway, what shook me was this item: “Mrs. E.H. Bisch’s 3 children of Santa Rosa, Calif., all have the same birthday! The odds against three children in the same family being born on the same date are 28,000,000 to 1.” As I pointed out a few days ago, the odds of this are in fact not at all 28,000,000 to 1. “The first kid could have been born any day [I wrote] — the odds of that are 100%. So what are the odds each of the next two would be born the same day, wherein lies the remarkable occurrence? The answer is 1 in 133,225 (365×365), if you don’t nag me about leap years. Not common, to be sure. Not likely. But not 1 in 28 million, either.” Well, leave it to my wonderful readership to run with this and point a ton of things I missed. In the first place, thanks to those of you, like Monty Goolsby, who pointed out that even with his faulty logic his math was wrong. Ripley was apparently multiplying 365x365x365 to get his number, but this was back in the days before pop-up calculators. Pressing Ctrl-N in my trusty old DOS version of Managing Your Money and raising 365-1/4 to the third power, I get 48,727,112. So he didn’t mean 28 million to 1, he meant 48 million. But that’s just math. It’s the logical nuances you noticed that were more interesting. Writes John: “Not to nag the point too much further, but the odds of the 3 children with the same birthday could be even less than 1:(365 x 365). If the parents are inclined to have such an occurrence, they could plan things out 9 months ahead and further increase the odds. From what I remember of my wife’s OB/GYN telling her, the normal gestation period for humans is 40 weeks +/- 2 weeks, so then the odds could really be as low as 1:(28 x 28) = 784 to 1. That’s even less than the Pick 4 lotteries! From Glen: “I’m surprised that you didn’t point out that a child’s birthday is hardly a matter of random chance. I know a family with five children, all born within about two weeks of each other. The father’s birthday is about three months later — or nine months earlier, depending on how you count.” I.e., we know what HE gets for his birthday. Eric Pollack says he “would be shocked to learn that they didn’t actually TRY for the same birthday with the third” child, which makes a lot of sense, too. And, he adds, “the same assumptions of randomness corrupt market evaluations. Look for reasons behind and beyond the numbers, and you’ll have a better shot at making predictions.” Finally, there’s this from Mark Brady, which can make you twenty bucks: “I enjoyed the Ripley’s story because in our family we had three pairs of birthdays, three days apart. My fiance and myself, my mother and her mother, and my sister and her husband. Of course we had a lot of family members to choose from, as well as the range of days apart. Which leads me to ask: In a room of 20 people, how often will two people have the same birthday? Most people guess 20/365 or about 5% of the time. In reality, the probability is above 99% because you are comparing each person with every other person in the room.” I was aware of that one, as you may have been, too. But most people find it astounding. So it’s not a bad way to win $20 in a bet. Tomorrow: Back to the S.E.C.
Clinton and Lerach August 14, 1996February 6, 2017 Bill Lerach is king of the “strike suits.” These are class-action lawsuits brought on your behalf (like it or not) against companies you may own shares in (which drives down the value of your shares if you still own them) but makes the lawyers a pile of money. Lerach’s San Diego firm takes in tens and tens of millions of dollars a year from these suits. He contributed almost $400,000 to the Democratic party last year, according to Common Cause, to gain a little White House “access.” His firm contributed $1.9 million to fight a California ballot initiative I was helping to push that would have curbed such suits at the local level. Some of the suits are doubtless justified. Lord knows there’s a lot of foul play out there. And whether justified or not, the threat of lawsuits probably keeps some CEO’s a little more honest than they might otherwise be. So Lerach is right that the suits his firm and the handful of others around the country specializing in this field bring serve a valuable purpose. But in a world of trade-offs, they also do a lot of harm, too — more harm than good. The game has gotten out of balance. According to one study, all ten of the top ten public companies in Silicon Valley have been hit with one of these so-called “strike suits.” Is our whole high-tech industry run by crooks? The way it works now, many of the suits are brought with little or no foundation. A stock drops on bad news; the word processors are fired up and a suit is filed alleging that the bad news should have been disclosed earlier or was purposely hidden from shareholders so insiders could sell their stock first. And sometimes that’s doubtless true. But often it’s not. Yet the targets have to settle for a few million dollars anyway, because fighting the suits takes a tremendous amount of management time and effort, costs millions even if you win — and you can never know for sure what a jury will do. Even if you’re certain you’re innocent, is it really prudent to bet $100 million a jury will agree — or smarter to pay $10 million (some of which you would have had to pay in legal fees anyway, and some of which is covered by insurance) and just make it go away? Most pay the toll, which results in $2 million or $3 million for Lerach’s firm or one of the others, and ridiculous little checks like $37.92 or $5.61 or $87.13 for the thousands of guys who own (or owned) 200 shares and went through the paperwork required to collect. (I’ve done this myself once or twice. By the time you make sense of the legal papers and find and photocopy and mail in the brokerage statements from years ago proving you are a “member of the class,” and so forth, it can be easily an hour’s work. In my case, because I’m lucky enough to buy more than 100 or 200 shares at a time, the check I eventually got came to something like $335, if I remember right — not bad pay for an hour’s work, I guess, but really trivial in context of my overall investment.) In most cases, T. Rowe Price vice president Liz Buyer told The San Jose Mercury News in the midst of our California ballot fight, suits of the type Lerach specializes in “not only aren’t helping the small investor, they’re causing significant harm. The one who gets hurt is the small shareholder. The one who gets helped is the lawyer.” So Congress passed a bill to make these suits harder — but by no means impossible — to bring. The President came close to signing it, but on the advice of a couple of law professors, decided it tipped the balance just a little too far in the other direction. He vetoed it, but, one might say, half-heartedly. It was the only time in his presidency he’s been over-ridden. Joining in the override, lest you think this is all the evil Al D’Amato’s doing, or whatever, were Ted Kennedy, Barbara Mikulski and Dianne Feinstein. So it’s not just a Republican issue. The President took a lot of heat for vetoing the bill. Many believe he did it as a favor to the trial lawyers and Lerach who’ve been such strong supporters of the Democratic Party. But you know what? Since it was pretty clear the veto wouldn’t stand — even Connecticut Senator Chris Dodd, chairman of the Democratic Party was working to override it, and the President made no real effort to avoid the override — why not? I don’t mean to be cynical here, but if someone gave MY party millions of dollars and I could do something nice in return that wouldn’t hurt (i.e., be overridden), maybe in the real world that’s a good solution. Certainly better, in my view, than taking tobacco-industry money and doing REAL favors for the tobacco industry that are NOT overridden. In any event, what’s put all this back in the news is Lerach’s latest move, putting his own initiative on the November ballot — Proposition 211 — that would essentially roll back the federal law for suits brought in California. Indeed, it would void the new law for the whole country, really, because it would allow suits to be brought if the public company in question had even just one California shareholder. Last week, the President, to his credit, came out against Prop 211. It was clearly the right thing to do, because on balance Prop 211 would have been bad for both investors (who don’t want to see their companies mired in these suits) and bad for the economy (the way to compete with Toshiba and NEC and Sony is not by diverting management time from innovations to depositions). Now the President is taking heat for having flip-flopped. But c’mon. In the first place, the main thing is he’s on the correct side of the issue, helping to defeat Prop 211. Flip-flopping should be encouraged when one is flopping in the right direction — or would we prefer a President who is steadfastly wrong? In the second place, in vetoing the federal law, he never used his position to fight against the concept of the legislation — he acknowledged the reasons it was needed — he just said he thought it was flawed. If a politician sometimes does favors for his or her largest contributors, better that they be favors that, like the veto-he-knew-would-be-overridden, are of no practical consequence. The bottom line, from my point of view: if you’re from California, vote NO on Proposition 211 in November. We must always allow securities-fraud lawsuits — this is a balancing game, not a prohibition. But the way to police the securities markets isn’t to funnel hundreds of millions more into the pockets of Lerach and his small group of colleagues in this game. Better to appropriate one-tenth as much in additional funding for the S.E.C. Dissenting views welcome. Tomorrow: More on Ripley, Believe It or Not
The Good “Surrogate Tax Cut” Dole’s Handlers Have Given Him August 13, 1996January 30, 2017 Yesterday I suggested that only Jack Kemp, of the Dole/Kemp ticket, actually believes in a 15% income tax cut right now. Tax-cut talk is a good way to buy votes, but not appropriate fiscal policy when the economy is expanding. Save it for when, say, you are trying to climb out of a recession or, when, say, you’re projecting a budget surplus. But just as Dole’s marketing guys have analyzed the polls and focus groups and forced him to swallow the 15% tax cut line . . . and a running mate he’s never much cared for who actually believes in the tax cut and will sell it well . . . so have they also slipped him a good “surrogate” tax cut that shouldn’t be overlooked. Even the Washington Post editorial page — never staunchly Republican — likes it. It’s the Moynihan/Lieberman/Dole/McConnell bipartisan “choice no-fault” auto insurance bill introduced in the Senate June 11 that would basically let vehicle owners around the country decide whether they like their auto insurance the way it is, as some do, or would prefer to opt out of the lawsuit-lottery in return for sharply lower premiums and limited but guaranteed benefits if they’re hurt — even if they can’t prove the other guy was at fault. Roughly the same thing was handed Bush in the last weeks of his faltering campaign, and he was actually set to deliver a speech about it in New Jersey the day — my memory is hazy on this, but was it the day the guy in the chicken suit showed up taunting him to debate? Or the day the guy in the chicken suit showed up one time too many and Bush finally lost his cool? I just remember that it was the day Bush actually quit in the middle of his speech, or no one heard him because of all the paCAW, paCAWing, and this last-minute proposal sank before it had even really surfaced. If it grabs anyone’s attention this time around, I’ll go into more detail, because it’s a plan that could basically put $200 or $300 into the average family’s pocket — not with a tax cut that just winds up lifting interest rates (and thus taking away that same $200 or $300 because of higher variable-rate mortgage payments, etc.) but in +real savings on the legal expenses and fraud built into today’s auto insurance in almost every state but Michigan. (Michigan has pretty close to real no-fault auto insurance. If you’re hurt — even if it was a hit-and-run or a one-car crash, or not the other driver’s fault — you get unlimited medical care and rehabilitation, plus generous wage loss coverage. Yet, because suits for pain and suffering are sharply limited, auto insurance in Michigan costs less than in, say, California, where if you’re hurt you often get nothing despite the high premiums.) It’s a long story, so for now consider this nothing more than a “heads up.” If you hear Dole/Kemp talking about it (and if you own a car) — listen. You should vote for Clinton/Gore, in my view; but this $300-per-family saving would be like a tax cut that did make economic sense.
Bob Dole August 12, 1996February 6, 2017 Poor Bob Dole. He’s not a bad guy, has been a fine American and a good Senate Majority Leader. But unlike Bill Clinton, who deeply wanted to be President not just because it’s the top prize, but because he so strongly believed in the importance of education and universal health insurance and reinventing government and fixing welfare and equal rights and on and on . . . Clinton is the ultimate, passionate public policy wonk . . . Bob Dole is, by contrast, just sort of going through the motions. It’s Jack Kemp (don’t any of these guys have a second syllable? what ever happened to Ei-sen-how-er? since Bush, the Republicans all seem to come pre-”Ike”d) who really wants to be President for a reason. And Kemp is a very good guy. But (a) he’s not running for president; (b) we already have a dynamite one-syllable vice president; (c) though irresistibly likable and thoroughly decent, Kemp can’t match Clinton/Gore on the economic, technical, social and foreign policy issues. Clinton/Gore have four valuable years’ experience running what we used to call “the free world.” Why change CEOs when things are going rather well? But as I say, Jack Kemp isn’t running for President, Bob Dole is. Big problem. Clipped thoughts. Little embarrassed by it all. I’m not one of those who talk, every time there’s an election for anything, of having to choose between “the lesser of two evils.” I think many of our elected representatives are really exceptional, dedicated people. Not a wacko like Ross Perot or a personable lightweight like Dan Quayle. But Clinton, Dole, Gore, Kemp, Bush, Dukakis . . . while I clearly have my preferences, I could go on at some length as to why I think they are better, by and large, than they get credit for being. All anyone remembers about Dukakis is how silly he looked in the tank. But this was a very sharp, fine guy. I guess it is part of our American birthright to consider all politicians crooks and morons — the criminal class, as Mark Twain long ago referred to Congress. But surely in our more private, sober moments, we realize we’re fortunate to have people of such caliber willing and eager to go through this for us. Would you? I wouldn’t. Which brings me back to poor Bob Dole. You know he doesn’t believe in that 15% tax cut — it’s exactly the kind of thing he is prudent and responsible enough to know makes no sense right now, much as we’d all enjoy the break. You know it wasn’t his burning conviction that this would solve America’s problems (the good economy? the low unemployment? the modest inflation? the amazing stock market?). Or that it was the chance to realize this grand vision that motivated him to run for President. Give Steve Forbes and Jack Kemp one thing — they really believe in tax cuts. Bob Dole is more of the school that looks at all the Forbes family built in the era of 70% marginal tax brackets and concludes: “The top bracket was 70%; busted their butts to build a great business anyway.” A tax cut when the economy is strong, as now, could overheat it, leading to inflation that kills the nice long economic run we’ve been having. Or a tax cut could easily spook the bond market, leading to higher interest rates (a tax hike of a different sort), that could also kill our nice run. And why do we have to call him Bob Dole, anyway? Why does HE have to call himself Bob Dole? Can’t we just call him Bob? Or Dole? And can’t he just call himself “I” or “me”? Especially because his chances of winning seem modest, why doesn’t Bob Dole just shuck his handlers and use the amazing three-month megaphone he’s won — his real prize for so many years of public service — to say what he really feels and lead the country back a little from cynicism, negative campaigning, and partisan rancor toward the civility, decency and common sense you know are, for the most part, in his heart? (And why doesn’t he finally denounce the tobacco interests that he and his wife have been beholden to for so long? Not cool.) He’d still lose — Clinton/Gore are the better team to lead us into the next century. But he’d have made a real contribution in this, his final major act of public service. Tomorrow: The Good “Surrogate Tax Cut” Dole’s Handlers Have Given Him
Ripley’s – Believe It Not August 9, 1996February 6, 2017 Oh, sure. This could be one of those daily comments that tells you why the stock market went up or down yesterday or, better still, what it will do tomorrow. “A crash is no more than weeks away,” famed market seer Granville told Barron’s last September. “Sometime over the next month and a half, we will witness a stock market crash comparable to the legendary disaster that shattered Wall Street 66 Octobers ago” in 1929. (I stopped following Granville’s pronouncements the day he reportedly dropped his trousers at one of his investment seminars, decades ago — seminars which had come to involve a piano, for reasons that have blurred in my memory with time.) But by his lights, “the signs [were] unmistakable.” “All that I have learned in analyzing the market over the past 40 years tells me: The end is near.” Now, correct me if I’m wrong, but looking back to last September — was there a gargantuan 1929-style crash in there someplace I just missed somehow? Maybe the day I was watching that Seinfeld marathon and forgot to check CNBC? Or take this newsletter solicitation from someone named Nick Guarino who, according to the outer envelope, “predicted the 1987 stock market crash and turned $200,000 into $14 million for his associates in a day.” Postmarked September 2, 1995, from Minneapolis, it was an “URGENT WARNING. You have less than 100 days to the biggest stock market wipeout of our lifetime. The stock market is about to give back a year’s worth of gains in one day. . . . We are on the verge of the biggest bear market ever. Before it’s over, the stock market will be trading under 2000.” Hmmm. Add 100 days to September 2 — his measure, not mine — and you get December 11 as the date by which the crash will occur. Here we are several days past that cut-off (well, 240 days, actually), and the wipe-out has not yet appeared. Not to be smug. Mr. Market is at his best seeking out and demolishing smug. Show me a smug investor, and I’ll show you an investor about to get blind-sided somehow. So I’m not trying to jinx things by making fun of these predictions. And I’m certainly not discounting the possibility of another major bear market someday. All I’m trying to discount is the value of daily market comments, where guys tell you buy! sell! whatever! based on their reading of the tea leaves or their need to sell newsletters. Which is why I prefer to write my daily comments about things like Ripley’s Believe It Or Not. Faithful visitors to this web page will remember that in a recent “comment” I provided the cure for the common cold. A little off subject, perhaps, but useful all the same. Missed it? Too bad! (Oh, OK: the secret is to swill just the tiniest sip or two of apple cider vinegar the minute you begin to feel that tingle where your sinuses meet your tonsils.) In connection with that comment I referred to one of my favorite childhood books, Ripley’s Believe It Or Not. So then, after signing off, I logged on to www.amazon.com, my new favorite neighborhood bookstore, and quickly located a whole bunch of Ripley’s paperbacks, several of which appeared at my door a few days later. Ah, brave new world. And I have to tell you I was shaken. Not that Donald Case and his stepfather Glen McGraw were both stricken with appendicitis “on the same day”, relatively hard though I found that to believe. Nor that “the Peace Poplar planted in Jena, Germany, in 1815 to celebrate the end of the Napoleonic war with France toppled suddenly 99 years later on August 1, 1914 — the start of World War I.” (Believe it or not.) No. I was shaken when I read that “Mrs. E.H. Bisch’s 3 children of Santa Rosa, Calif., all have the same birthday! The odds against three children in the same family being born on the same date are 28,000,000 to 1.” What shocked me of course was not that they were all born May 28, but rather the fact that in 100% of the cases where I could actually check Ripley’s veracity — namely, this one — I found it sorely wanting. Yes, I know he says “believe it or not,” but isn’t the whole idea that these things are unbelievable, yet true? And I still like to think they’re mostly all true. But my faith is shaken, because as many of you instantly grasped, Ripley’s math is just silly. The odds of three kids in a three-kid family all being born on May 28 are indeed about 1 in 28 million (365x365x365). But who said anything about May 28? The first kid could have been born any day — the odds of that are 100%. So what are the odds each of the next two would be born the same day, wherein lies the remarkable occurrence? The answer is 1 in 133,225 (365×365), if you don’t nag me about leap years. Not common, to be sure. Not likely. But not 1 in 28 million, either. The point is: it makes me worry that maybe the well that supplied water for Christopher Columbus’s three ships didn’t “dry up suddenly on May 20, 1506, the die Columbus died.” I’m not saying I don’t believe it. I’m just shaken. That’s all.
Reader Mail: Updates and Elaborations August 8, 1996February 6, 2017 AMERICAN EXPRESS REWARDS – SAVE $50? I think that in your May 14th comments on the American Express Rewards Program you should have mentioned that membership costs $25 per year (1st year waived) and $50 to enroll using a Corporate American Express Card. I’m sure Mr. Broad doesn’t worry about the fee, but others might.” [I had passed on the report of SunAmerica’s Eli Broad charging a $2.4 million Roy Lichtenstein painting to his Amex “to get the miles.”] One interesting avenue explained to me by the nice lady at American Express is to enroll your personal card for the $25.00 fee and then link your Corporate card as a secondary card for free.” — Peter Iannone Thanks, Peter. I don’t have a corporate card, but if I did, it sounds as if you’d have saved me $50. OSTRICH MARINADE David Davis, Public Relations director for Dallas’s Adolphus Hotel, read my comment about ostrich steak and suggested the following marinade. I’m not entirely sure what a marinade is — I think it’s what you let the ostrich steak sit in for a day or two before actually cooking it — but I know some of you will follow this as easily as others of us follow yield curves. Ingredients: 6 whole lemons, skinned 6 sprigs fresh thyme, cleaned and stemmed 3 shallots, chopped 5 pearls garlic 2 tablespoons whole peppercorns (or 2 ounces) 4 cups salad oil (or 28 ounces) 3 tablespoons honey (or 3 ounces) Directions: Place the above ingredients–except for the salad oil–in a blender. Mix the ingredients well while slowly adding the salad oil a little at a time. When the mixture is thoroughly blended, pour it over the ostrich meat in a tight-fitting basting pan. DON’T STRAIN THE MARINADE. Cover with plastic wrap and chill for 4 to 6 hours. Sear each ostrich portion and finish in the oven at 375 degrees for 10 minutes (max). Serve medium rare with fresh fruit, a sweet sauce (blackberry, for example) or a honey vinaigrette. Since it has virtually no fat, the ostrich meat has to be cooked sparingly. It dries out very quickly. Let me know if you and your friends have problems with this recipe. I can find out how to fine-tune it for you. (I’m no help personally in this area. The kitchen in my condo is used as storage space for my financial records.) Remember: Don’t strain the marinade! HOOVER – BIG DAM, NOT SUCH A SMALL MIND AFTER ALL And while Mr. Davis has the floor, here is yet another remarkable message (remarkable for the trouble he went to on our behalf). It is in response to my July 25 comment on Herbert Hoover. Hoover was writing to film studios in 1917, urging them to stop using real food in their movies. Either use something fake or take out the scene, he suggested, which I took to be a rather petty contribution to the War Effort. Was the fellow conserving steel by suggesting reuse of paper clips soon America’s Vice President? But Mr. Davis adds perspective: I went by the library after lunch today and flipped through some biographies on Herbert Hoover to see if I could find your letter referenced. No luck. But the books confirmed that he was appointed “Food Czar” by President Woodrow Wilson in May 1917. According to biographer Eugene Lyons, this is what happened: “In the months before his return [from Europe], he [Hoover] had made for Mr. Wilson quiet surveys of food, shipping, and other elements of war. . . . From the first, ‘food mobilization’ had been recognized as America’s number one obligation if and when it joined the war. The formation of a special agency to deal with every phase of food provisioning was the President’s suggestion, but the availability of Hoover doubtless hastened the decision. In conference with Wilson, on May 5, Hoover accepted the invitation to organize and head up this agency. He made the same stipulations he had made in assuming the Belgian burden; first, that he was to receive no pay, and second, that he was to have full authority.” Lyons goes on to say that “Some twenty million individuals–housewives, restaurant managers, food processors, wholesalers, retailers, shippers–signed pledges making them ‘members’ of the Food Administration, as attested by a certificate and lapel buttons. . . . The very landscape of America shrieked the reminder, ‘Food Will Win the War!’. . . .” More than you wanted to know, but there you are. Sounds vaguely like Gerald Ford’s WIN pins — Whip Inflation Now. I just found the Ceres web site. You are obviously associated with Ceres. What is that association? Are you a principal? By your association are you recommending Ceres? In your books you seem to espouse mutual funds over individual stocks as an investment. Have you changed your mind? — James Griffin My association with Ceres: they pay me (generously) to write these comments. I have no stake in the company and no relationship beyond that. True, I wouldn’t have accepted the assignment if I doubted the company’s integrity. But so far as I know, they are sound and principled — and at $18 a trade, I had little fear anyone would be overcharged. I still espouse low-expense, no-load mutual funds — for example, in the disclaimer at the top of each of these comments. But like a lot of people, I trade stocks anyway. Even (horrors!) the occasional option. When I do, I like to keep my transaction costs low. I do maintain “full-service” accounts at a well-known firm, but it is mainly out of loyalty to my long-time friend/broker there — a relationship begun several years before there were discount brokers or personal computers at all. I don’t have an account at Ceres, but have been very pleased with my account of several years’ standing at Accutrade, owned by the same parent. Accutrade costs more than Ceres, but I’m too lazy to switch. I also have an account at Fidelity, but use it mainly as a checking account. Tomorrow: Ripley’s – Believe It Not
What Shall We Name the Baby’s Mutual Fund? August 7, 1996January 30, 2017 Simply put: I want to put away a lump sum in a mutual fund NOW to pay for my 8 week old daughter’s college (yes, I will cost average it over several months). How about ranking several aggressive growth/small cap long term funds for me (or any other funds you think would be appropriate). Dave Waisel Congratulations, Dave — mainly on the baby, but also on your foresight and sense of responsibility. I knew just the man to field your query, my mutual fund guru. But before relaying his response, I have to share my own baby story with you. We went to see BRING IN DA NOISE, BRING IN DA FUNK — which, if you’re in New York and have ever tapped your foot in time to a tune, you must float a bond issue and go see — with Benjamin and Jennifer Levy. Benjamin’s principal claim to fame is that he can take a $100 bill someone has given him — jotting down the serial number first to be sure it’s the same one — and make it appear inside a sealed paper bag someone else, across the room, has been clutching. Indeed, not just inside the bag, folded and wet INSIDE A LEMON that’s inside the bag. This trick and others landed Benjamin a spread in Fortune recently. (If you happen to be a board chairperson, or better still a bored chairperson, grab him for your next meeting. Just click me for his number.) Jennifer’s principal claim to fame at the time we sat down to eat was that she was very, very pregnant — estimated time of arrival just two weeks off. Sure, she has other claims to fame, but this one sort of overshadowed the others. We spent an hour trying to decide what to name the baby. (“Andrew” was my first suggestion. “Magic” was my second. Benjamin favored “Zebulon.” I thought “Ahab” would be arresting. There was much talk of “Nicholas” — too common.) Anyway, off we went to the show, after which we put Benjamin, Jennifer and Ahab into a cab. The next morning, I get this message on my machine. “Well,” says Benjamin, “BRING IN DA NOISE, BRING IN DA FUNK, brought in DA BABY at five nineteen this morning.” Less than seven hours after we parted — and this was Jennifer’s first. (Apparently, she woke at 1:30 dreaming that my friend and I were having contractions, we later learned — which I can tell you with some assurance we were not — only to realize, as the sleep-haze cleared, that she was having contractions. No great rush, but off they went to the hospital, planning on major anesthesia and a long day. Not Ahab! This kid — whom they inexplicably chose to name Nathaniel instead — was not letting any grass grow under his itty-bitty feet. Bang! Five nineteen a.m., nineteen inches, everyone’s fine, bless you for asking.) OK, OK, so this is a little off the point. CNBC would not be taking your time with stories like this. So what about answering the question? (As a service to the millions newly diagnosed with Attention Deficit Disorder, also known as the MTV disease, I herewith repeat the question: “I want to put away a lump sum in a mutual fund NOW to pay for my 8 week old daughter’s college. How about ranking several aggressive growth/small cap long term funds for me — or any other funds you think would be appropriate.”) No one I’ve found is more sensible about mutual funds than my guru Less Antman. Having exhausted myself with Nathaniel, I figured I’d throw this question to Less. As usual, he did not disappoint: “I’m godfather to identical twin pre-schoolers,” Less messaged back, “and their father asked me for exactly this same advice. At my suggestion, he established two mutual fund accounts with equal amounts being dollar-cost averaged into each: (1) Twentieth Century Vista Investors Fund (TWCVX) (2) Twentieth Century International Equity Fund (TWIEX) “Both are available for starting investments of as little as $50 per month. These are maximum volatility funds with maximum long-term expectations. If you prefer index funds, then a 50-50 split between these two would also be a fine approach: (1) Vanguard Total Stock Market Index Fund (2) Vanguard Total International Index Fund “These require $3,000 initial investments with additional investments of at least $100 per month allowed after that. The use of these broadly-based index funds should prove to be less volatile but, of course, somewhat less profitable over the long term than the Twentieth Century funds. “A final excellent choice for someone who wants to use a single fund that balances off all of the different equity arenas, and includes an inflation hedge to boot (through natural resource companies) is the T. Rowe Price Spectrum Growth Fund (PRSGX). This is where I usually suggest friends put their IRA accounts when they want just one fund that will serve them for life. This is the only one of the choices I’ve made which I don’t think will suffer much in the upcoming bear market (assuming there is one). But if the fellow is dollar-cost averaging, he’d rather have a bear market right now anyway. And, of course, as the least volatile choice it will probably do a little less well over the long time periods.” Looking at Less’s advice, I’d suggest his middle suggestion — those index funds — and then, if we ever get really decimated, with those funds down 30% and the Twentieth Century funds down 60%, I might switch from the index funds to the Twentieth Century funds. Or do half and half right now. The main thing, though, is that you’re doing this at all. You will come out far ahead of those who can’t or don’t.
Living in a Cave (Nicely) August 6, 1996February 6, 2017 Have you seen what’s happened to the prices of caves in Southern Spain lately? A perfectly adequate two-bedroom cave that sold for about $150 ten years ago now fetches nearly $8,000! This according to last February’s issue of a newsletter called International Living. (Thanks to Los Angeles Photographer Pieter Lessing for sending it to me.) “Antonia Requera is a bright, articulate, Spanish woman in her 30s,” reports International Living. “She dresses stylishly and speaks several languages. So it may surprise you to know that she lives in a cave.” Apparently there are quite a few middle-class Andalucians living in caves, complete with all the modern conveniences, including phone and fax. Ms. Requera sees nothing strange about it — she was born and raised speluncularly. It kills me that I didn’t think of this 10 years ago, of course. For $200,000 I could have all but cornered the cave market and been Caveman Numero Uno. But even now it’s intriguing, if only because these caves keep a year-round temperature of around 60 degrees. Wouldn’t that be nice in August? To get your feet wet, the newsletter suggests blowing $500 to rent a nice two- to four-bedroom cave for a week to see how you like it. For more information, they suggest the Spanish Government Tourist Office at 666 Fifth Avenue, NYC 10022 (remember physical addresses?) — 212-265-8822, fax 265-8864. [If you’re interested in International Living itself, a $34/yr monthly, you could call 800-851-7100 and probably get them to mail you a free sample (“we’re usually pretty good about that,” said the woman I reached).] If I weren’t already spread so thin, with no time to get to Spain in the first place, I feel quite sure I would buy a cave. At these prices, how can you miss? The cocktail-party chatter alone would be worth the price. “Hey, Mister — you live in a cave?” someone might ask, stunned by my lack of knowledge on one topic or another. (I get that a lot.) “Why yes I do,” I could earnestly reply. “Would you like to see pictures?” Tomorrow: What Shall We Name the Baby’s Mutual Fund?
Einstein — Your Bids August 5, 1996February 6, 2017 My dad, who was a captain in World War II, told me more than once that if you want to estimate the range of a target and have no sophisticated equipment for doing so, just ask everyone in your platoon. The estimates you get will vary wildly, but the average will be remarkably close. I think you’re also supposed to throw out the lowest and highest estimates before taking your average. I can’t say for sure this works, but we clearly did win the war. Anyway, last week I told you about the Albert Einstein autographed letter I had bought on the subject of infidelity (he was against it, but counseled his colleague not to let it make her crazy), and asked you to take a wild guess at what you thought it might be worth — to you, and/or what it would bring at auction. I had so much fun with your responses! It was more evident than ever that most of you are a lot more interesting than I am, even if I’m the one who happens to be holding the mic. Not to say you know the first damn thing about the autograph market. But I thought I would share some of the responses. Representative of one batch was this, from Brian Buonamici, with whom I agreed every step of the way until he finally blurted out his price: “Regarding your question as to how much the Einstein letter is really worth, I feel compelled to take the conservative easy way out and say it is worth whatever a buyer is willing to pay for it – which will probably prompt you to mention something about the volatility of illiquid markets. However, such an answer would not be in the spirit of the experiment so I’ll give pricing it a whirl. Please keep in mind that I am the farthest thing from an expert in this sort of thing. “There are a couple things I would consider. First, as it was signed “A. Einstein,” there is the off chance it wasn’t good ol’’ Albert but a relative named Alfred, Ann, etc. But I’m assuming that you have some sort of certificate of authenticity so it’s probably a moot point. Second, it’s in German. My knowledge of German goes about as far as “dopplebock,” so the letter could be about which of the seven dwarves had the best love life for all I know. The fact that it was handwritten and not a copy makes it one of a kind, this would hopefully add to the value. But probably the most important factor is the fact that Mr. Einstein’s contributions to society at large are almost immeasurable — which means, unfortunately, it probably couldn’t fetch more than the latest coke-snorting, wife-beating, sports hero’s used sweat socks. “I’d put it somewhere around the $50 – $75 dollar range.” Oh, Buonamici! More aptly be thou called Malamici, so cruelly dost thou appraise my treasured leaf! (I paid a great deal more than $75 for this baby.) More to my liking, for reasons that will become clear, was Ken Powell’s astute, albeit incomprehensible, assessment: “Seeing as the letter is from Einstein, its value must be related to a physical constant. Clearly the rest mass of an electron (mc2) or the rest mass of a proton (mc2) is the relevant constant. Given that the topic is infidelity, the electron is unquestionably more relevant (cf Heisenberg’s uncertainty principle). The rest mass of an electron is half a million ergs. An erg is one ten-millionth of a watt-second, or about 2.8 x 10-14 kilowatt-hours. A kilowatt-hour is worth a nickel or so (depending on where you live). So, each electron in the paper is worth 1.4 x 10-13 cents or so, if you could convert it to energy and sell the energy in the US market. You haven’t told me how big the paper is, but let’s say that it weighs about a tenth of an ounce — slightly less than an 8.5 x 11 sheet of paper. Less than 1/1835 of the paper’s mass is made up of electrons, so there is about 10-5 ounces of electrons, i.e. 0.3 milligrams of electrons, or 3 x 1023 electrons. With each electron worth 1.4 x 10-13 cents, the note is worth 4 x 1010 cents, or $400 million. Sounds like you got a deal!” Throwing out the lowest and highest estimates left us with estimates like these: David Philip Gladstone: “I bid $2,000 Canadian.” Steve Citrin: “Thanks for printing it. In fact I even printed out a copy, and saved it in my office. I believe it could be appropriate to many of today’s frustrating experiences and not just infidelity. I feel it would go for about $5,000 at auction. It’s advice well taken from the world’s great thinker. If Jackie Kennedy stuff sells-this is worth five big ones. Tim (a surgeon): “I think that he may be the smartest scientist on the face of the earth, but his advice on infidelity was poor at best. Because of this, I think that it would be worth something because it gives a glimpse into his personality. My guess, which is a wild stab in the dark, is $500. I am sure it would probably go for much higher though.” [If so, isn’t your guess “much higher than $500?”] Rick Frey: “$5,000 – $10,000.” Dan Eisenberg: “The letter’s practical value is matched only by that in your excellent investment guide. The similarity continues in that both sets of advice appear to be rational and easily implemented. But, alas, the unpredictable real world effects of emotion enter into the “equation,” resulting in hostile divorce proceedings and buying high and selling low, respectively. I’d guess about 1,000 bucks.” Bert Morano: I really would need to know the condition of the letter and some comparable prices of other letters which have sold recently. But since I have none of that information, and since I cannot really understand the Jackie O. phenomenon of outrageous auction prices, I would say the letter is worth what my personal finances could afford for such a nonperforming asset — $3,500.” Daniel Helman: “$5,000.” K. J. Baldwin: “If all that Jackie Kennedy [stuff] is worth millions of dollars, then a letter handwritten by the smartest man who ever lived ought to be worth at least a million by itself.” (I like the way you think, Baldwin! But I guess I should throw out your estimate before averaging, too.) Daniel Diachun: “Not having much background information I will hazard a wild guess of $3,000. In addition, I believe that the price any one day or any one auction could vary considerably. Say an auction were held the week that infidelity had received a great deal of press — the price might go up considerably. On the other hand, say it were held the week a forged historical document received a great deal of press — the price might drop. Of course, there are endless examples. Another factor could be the letter’s last sale price. Lacking influence of other factors, items tend to maintain similar pricing from one sale to the next. (Call this “Diachun’s pricing inertia law” <grin>). David Davis: You are an experienced collector; you know what to look for in terms of authenticity and condition. Therefore, I’m taking it as a given that you are satisfied on both counts. You’ve purchased it from a reliable source. It’s in Einstein’s own hand–in German, no less. That could have been uncharacteristic of him; he may have preferred to type everything. Although the content of the letter does not reveal anything about the theories for which he is famous (“Now that we’re good friends, Thomas, I must tell you that my theory of relativity is just an enormous practical joke. The ‘equation’ came from the back of a . . .”), it does provide wonderful insight into his character. Also, I think this letter has been the subject of a newspaper story or has been mentioned in a book review recently. That favorable notice may also bump up the sticker price. Taking all of this into account, I think the gavel probably came down on $12,500 plus commission. But, to hold such history in your hands, what a bargain! You can bet it will appreciate in value, quickly, too.” B. Foley: “I would guess (keeping in mind I thought the Red Sox would win the World Series), that this would be worth upwards of $10,000 — and possibly more in DMarks. The target market for this would be unfaithful husbands!” D. Brubeck: “What it is worth at auction is so unimportant, and so utterly vulgar compared to the worth of the wisdom of his thoughts. I had no idea that he had that sort of a mind. I shall search the library for books that might reveal his thoughts.” [If you’re surprised to know he had an amazing mind, wait til you see his hair.] John Simonet: “I have no basis to make this guess at all, but I would say $10,000 or thereabout — regrettably, not to me however.” Eric Mueller: “Maybe $500 at an auction? I don’t know what Einstein stuff is going for; aren’t these things normally priced by a very fickle, fluctuating market for collectibles?” [Fickle indeed — which is one of the reasons I like Einstein. Madonna could fade. But Einstein?] Jeffrey A. Roesener: “I bid $2000.” Are you seeing a pattern? Take out the crazy ones, and they all bunch in a range of $500 to $12,500, averaging about $6,500. And that’s exactly what I paid. I think I got it cheap, but beauty is in the eye of the beholder. Let’s give the last word to Michael Welford, who wrote: “I’ll guess an auction price of $1200. But what’s the letter worth? That question is unanswerable. I’d give $20 for it.” Tomorrow: Living in a Cave (Nicely)