Dusting Off the Books May 30, 1997March 25, 2012 I suppose books should be dusted after 18 years, but it was not something I was planning. I’m way behind on about a dozen different things. Dusting the books was not a priority. (I’m speaking quite literally here of dusting books, not “cooking” books or some other accounting esoterica.) But somehow, in a weak moment, I had agreed it was time to replace my put-’em-up-myself-on-brackets bookshelves with molding-adorned professional built-ins, not unlike the way Jerry agreed to wear the low-talker’s “puffy shirt” on the Today Show. (Translation for the Seinfeld-deprived: She was a low-talker, so Jerry and Elaine couldn’t hear a word she said. Eventually, they gave up trying and just smiled and agreed at what they took to be the appropriate places. One of the things Jerry apparently agreed to, without knowing it, was to wear the puffy shirt. And may I say, to further confound those of you who have no idea what I’m talking about, or how Seinfeld could possibly command $1 million an episode, and the others $600,000 apiece: Hey! I think they’re worth every penny of it. Now just give the writers a raise.) Anyway, getting built-in bookshelves meant taking down all the books from the old shelves and after a week or so, dusting them off and putting them back in the new shelves. Not a small job. But the side benefit, of course, is coming across so many long-forgotten pieces of one’s life. One thing I came across was the little file box from the eighth grade in which I kept neatly typed three-by-five index cards for the book I was writing on Attila the Hun. (It’s pronounced AT-ill-ah, even though nobody does, and my book, aged twelve, began: “Like demons out of hell, they came …” speaking here of the Huns, who used to “cook” their meat by putting slabs of it between themselves and their horses’ backs and then galloping off to loot and pillage.) So there was this box, filled with alphabetical cards I had neatly typed 38 years earlier (“Acatziri, a tribe imperfectly subdued by Attila,” “Addac, king of the Alans in Lusitania (around Portugal). He died about 418, in battle against Wallia” . . . ). I have never hidden the fact I was a strange child. And as you can imagine, looking at it now for the first time in decades, I was struck by the passage of time and by the absurdity of my pursuit (no, I did not complete, let alone publish, my book on Attila — at 12, I didn’t even have an agent), but mainly, I was struck by the note I had apparently typed to myself, with some urgency. Indeed, it was the urgency rather than the note itself that struck me. It was the first card (alphabetical order be damned), and it was headed: IMPORTANT IMPORTANT, once in black with red underline, once in red with black underline: SEE HODGKIN’S MAP, PAGE 568, VOL I., PART II. NOTE: THAT THEY USED A HIGHWAY ETC. !!!!!!!!!! NOTE WHICH ONE !!!!!!! NOTE WHERE IT LEADS !!!!!!!!!!!!!!!!! Hodgkin’s was a wonderful 19th century three-volume history I had found at a rare bookstore. I seem to have deduced from one of its maps the route Attila would have taken on his way to or from some battle. And — lest I forget this world-shaking discovery (the Huns were thought to have come teeming down over the hills, I think, not to have taken highways) — I had pounded away on my old manual Olympia typewriter this card: IMPORTANT IMPORTANT. Can you imagine if, at 12, I had put the same passion into learning about computers? I had not planned to tell you any of this. I had planned to tell you about a few of the financial books I dusted off. Please come back Monday.
All Cash Deal May 29, 1997March 25, 2012 There are some things everyone knows, so no one explains them, and you somehow know you’d look stupid asking, so you never find out. This was the story of my sex life for a dozen years, but I write here of real estate closings. Ninety-nine percent of you will just roll your eyes when you hear this, because of course you know it perfectly well. And the other 1% will pretend to be in that 99%. But I don’t care: Do you know how much cash changes hands in an “all-cash” real estate deal? None. No suitcases full. No wads of hundreds. Well, maybe $5 for the notary public. Cash is one of those words — like lash, rash, dash or bash — that has more than one meaning. To most people, it means actual currency. Dollar bills. Clinking coins. But in the financial world, it means “as opposed to debt.” An all-cash deal means you sold the building without having to “take back a mortgage” (i.e., you got the full selling price all at once at closing) and without even having to worry whether or not the purchaser can get financing. “I’ll pay $150,000 — cash” means I’ll write you a check or send you a wire, unless you happen to run drugs for a living, or run a nightclub, or be the doorman at some swank hotel. The maitre d’ at one of Miami’s most famous restaurants bought a major condo, all cash. Every once in a while, “all cash” means all cash.
And Another Thing! May 28, 1997February 1, 2017 With respect to that $45 billion middle class “tax cut” I told you about a couple of weeks ago . . . it would come via reductions in the cost of your car insurance . . . I forgot to include what the New York Times editorial page had to say a few months ago: “Trial lawyers contribute heavily to state and Federal politicians, largely because they want to block reforms that would eliminate excessive litigation that follows automobile accidents and other mishaps. For the most part they have succeeded, but their gain is the average driver’s loss. Americans pay punishingly high premiums, much of which land in lawyers’ bank accounts. Now, however, bipartisan proposals in Washington and New Jersey would give drivers, especially those who are poor, substantial relief . . . . The new proposals would give families the option of forgoing suits for non-monetary losses in exchange for quick and complete reimbursement for every blow to their pocketbooks. Everyone would win — except the lawyers.” And remember, this is the New York Times, not exactly a right-wing outfit willing to trample the rights of the aggrieved or the poor. Right now, you are forced to buy policies that pay insurance-company lawyers $150 an hour to fight your claim, and contingent-fee lawyers who take 40% of any money you do win. The Auto-Choice bill Senators Moynihan, Lieberman, McConnell and Gorton, among others, are pushing would allow you to opt out of this crazy system. Is your congressman on board? Or has he come to rely too heavily on trial-lawyer campaign contributions?
Ex-Dividends May 27, 1997March 25, 2012 “Where can I find a company’s ex-dividend date? and pay date? Thanks.” — John Jessica Check out www.stocksmart.com, which provides information about ALL upcoming dividends, splits, and distributions sorted by ex-dividend date or company for up to the next three months. Actually — check out this site anyway. It’s one of the best free sources of information I’ve seen. And for those we’ve made curious: the ex-dividend date is the date on which buyers will no longer get the dividend that’s been declared. So it trades “ex-cluding” the dividend. The actual dividends themselves may not be mailed out for weeks — on the pay date (and you’ll still get yours even if you sold out in the meantime). Usually it’s not very dramatic, in part because large dividends have gone out of fashion. If a company finds itself with an extra billion or two, it will not generally pay it out as a special dividend. It will generally use it to launch a disastrous acquisition campaign. Or it will build a luxurious new headquarters. Or, mostly these days, it will buy back shares of its own stock. That’s a better strategy than the first two, because it makes each remaining shareholder’s piece of the pie a little more valuable (the slices are slightly larger because the pie is divided into fewer of them) without having that extra value taxed (until you sell and take your profit). But let’s say we’re the Ford board and we decide at our meeting June 15 to pay our regular 38-cent quarterly dividend plus “a special dividend” of an additional $1 a share. We decide it will be paid on August 15 to “shareholders of record” as of July 18. That means anyone buying the stock far enough in advance for the transaction to settle by July 18 (normally three business days in advance — which in this case would be July 15) will get the dividend. But anyone buying it too late for it to settle by July 18 won’t. That’s why there will be a little “x” in the stock pages for a few days, to warn newspaper readers that the stock is trading “ex-dividend.” If you buy it “ex-dividend,” the trade will not settle in time for you to get this quarter’s dividend. The train has left the station. Other things being equal, if Ford stock closed at 50 on July 15, it would open at 48-5/8 the next morning, because $1.38 in dividends has just been carved out of what you’re buying. If a share of Ford was worth $50 to you yesterday, then it should be worth $50 less the $1.38 dividend you’re not going to get if you buy today. Recognizing this, if Ford should close trading July 16 at the same $50 it did July 15, the computers and stock pages will not show it “unchanged,” as you might expect, but actually “up” $1-3/8 for the day. But all of this is so out of fashion. Dividends? Who would want dividends? Isn’t it better just to buy stocks that go up 30% a year?
The Curtain Falls May 23, 1997February 1, 2017 All week we’ve been following preparations for the hotel visit of a famous actress, her arrival, the days subsequent, including yesterday, when she had a problem with her fax. It is almost time to leave — but not yet. “More than 400 society and civic leaders attended a luncheon and fashion show at the hotel today,” reports my secret correspondent, the hotel manager. “Fortunately, while all of this was going on, Ms. Star behaved herself — until she flew into a rage over the fact that the operators couldn’t overcome the fact that she had somehow taken one of her phones off the hook, which prevented them from directing the calls to that line as she had instructed. Of course, she wouldn’t allow anyone to explain the situation to her (she chewed out — and hung up on — the operator who tried), nor would she allow anyone to enter her suite to put the phone back on the hook. I finally had to call her secretary and ask her to come back to the hotel (her staff and the rest of the cast are staying at a budget motel down the street) to remedy the situation. “Spent the rest of the afternoon smoothing ruffled feathers in PBX and at the front desk — and assuring everyone that they wouldn’t be ‘written up’ for any alleged infractions of our standards even if Ms. Star complained about their performance during her brief tenure. (The staff is beginning to count the HOURS until her departure.) “I finally left the hotel around 6:00 p.m., after she headed for the theater and I was confident she couldn’t inflict any more emotional damage. Took one of the hotel pagers home with me to ease everyone’s mind (only fair — after all, I got us into this starry mess). “Kind people that they are, our staff feels sorry for her–they think she must be terribly unhappy to be so disagreeable all the time. Maybe they’re right. “Yesterday, my counterpart at one of the hotels where Ms. Star will be staying next called. ‘Rumor has it that she’s a handful; how bad does it get?’ I told him what I’ve told you. ‘That’s what I was afraid of.’ “He said that they drew the line on moving furniture in the suite. ‘We have expensive stuff up there, and we’re tired of replacing it.’ In fact, when they reached this point in the negotiations, he tried to convince the travel agent to book her at another property. But the TA insisted. “What prompted this hotelier to call me was that by the strangest coincidence, a meeting planner happened to have just come to his property from the hotel where Ms. Star was last in residence. This meeting planner told him that by accident the cell phone he had ordered through the hotel had been inadvertently given to Ms. Star and vice versa. Since the meeting planner’s number had been distributed to all of the attendees (and there were close to a 1,000 of them!), it was imperative that he and Ms. Star trade phones (if nothing else, to save her from hundreds of nuisance calls). The hotel, which had arranged the cell phone rentals for both, contacted Ms. Star and before they could explain the problem, she told them to ‘F— Off!’ and hung up. Somehow — at great expense — they were able to redirect the calls or advise all of the attendees of the situation. But everyone was shocked at her intransigence. “I forgot to tell you that I wrote her a letter late yesterday afternoon and asked that it be given to her after she returned from the theater last night. I decided to apply some ‘reverse psychology’ and allow her to direct her anger at me. It may have worked: There was not one unkind word or irrational act from her today. Not a peep.” And what was the text of this miraculous letter, I wondered? Dear Ms. Star [he wrote]: It is a great pleasure to have you at The ———-. Your visit continues a tradition of hosting Hollywood royalty that began at our historic hotel more than seventy years ago; and, as you might expect, we treasure it. We understand how difficult it must be to find an acceptable home on the road, especially when your venue changes weekly and the demands on your time are extreme. No doubt it is doubly frustrating having to manage your domestic affairs through a revolving door of people and regional customs. Throw in the fact that perfection is a process (not fully achievable in a week, much less a few days), and disappointment is inevitable, as much as we wish this were not so. More to the point, many of our staff come from the poorest sections of the city, and you can imagine the joy they derive from being able to please our distinguished guests with the services they provide. This is particularly true of stars of your caliber. From the doormen to the housekeepers, you could not find a more devoted following or one more intent on making you smile. A kind word is all they require. As a gesture of goodwill and a first step in mending any misunderstanding, we would be very honored if you would accept the enclosed gifts. The first is a cookbook that contains a brief history of the hotel, with a mention of Maria Callas and her historic visit many years ago. The second is a commemorative box designed exclusively for us by Tiffany & Co. Only a few were made, and we wanted you to have one as a keepsake. With kindest regards, “At this point,” continues my friend, to me, “I think I went into the bathroom and washed my mouth out with soap–for all of the bad things I was THINKING about saying to her. I’m still blowing bubbles.” Not long afterward, Ms. Star’s limited engagement ended and she went on to the next city, the next cowering hotel staff. “She left around 6:30 a.m. Even though a bellman saw her leave, everyone harbored a doubt that she was REALLY gone. Since my associates know that I’ve faced everything from grizzly bears to bobcats, they left it to me to enter her suite and check it out. I knocked first, of course. But it wasn’t necessary; she was gone. Gone now, and probably gone forever. I was relieved to see that the suite didn’t suffer any permanent damage. She broke a lamp earlier in her stay, but considering what could have happened — and what stars have done to our suites in the past — we got off very, very lightly.” SETTLING THE BILL “This morning I learned that at the last moment, Ms. Star switched credit cards on us. She established her credit with the touring company’s card and, on departure, asked the front desk to bill it to her personal card. This usually poses no problem; but given the enormous sum involved, it required a little more than just the basics to obtain an authorization code from the credit card company — to wit, her home address. Oh, great. “Fortunately, we were able to leave a message for her secretary. (Somehow we didn’t think Ms. Star would entertain this question.) The call was not returned for most of the day. Each time I passed the front desk I asked if we had heard from the secretary, and the answer was invariably ‘no.’ “It brought to mind the agony I went through a couple of years ago when I went out on a limb for a somewhat obscure governmental agency from Zambia (at least, I think it was Zambia). They brought in their minister of agriculture and an entourage intent on seeing everything — first-class. I think when they finally wiped the last crumbs of room service from their mouths, the bill topped $50,000. And I didn’t have a credit card to back it up. Or a check. Or U.S. dollars. Or Zambian dollars. Or ANYTHING. Just a promise to pay from a very diplomatic retainer in Washington, D.C., who waved away my doubts with, ‘Don’t worry, you’ll get paid. I PROMISE.’ O.K. Sure. No problem. “Every night I went home and tried to forget what a dent $50,000 would make in my personal balance sheet. What would it be like sleeping out under the stars. One week, no check. Two weeks, no check. Three weeks, no check. By the fourth week I was checking flight schedules to Zambia (and inquiring about the financial soundness of the Zambian government). Finally, in desperation, I called the diplomat again and asked him — in the interest of Zambian-American relations (not to mention my sanity) — to make good on his promise . . . via FedEx. Please. “Something in my voice must have struck a charitable chord because the next morning that beautiful FedEx packet arrived with a cashier’s check for $50,000. “About 4:30 p.m. Ms. Star’s secretary returned our call and cheerfully gave us the address. All’s well that ends well.”
To Reach the Impossible Star May 22, 1997February 1, 2017 Each of the last three days we’ve been following preparations for the hotel visit of a famous actress, her arrival, and the days subsequent. This saga won’t go on forever, but neither is it over . . . “The staff has begun to refer to Ms. Star as ‘Mommie Dearest,’ after Joan Crawford, who used to stay at the hotel during her heyday, behaving in a similar fashion but adding her own signature quirks (sending ahead a 10-page list of instructions, cleaning her own bathroom on arrival, ordering vast quantities of vodka, requesting mountains of towels and NO WIRE HANGERS, etc.). “Fortunately, our staff and Ms. Star have come to somewhat of an understanding. They accept her abuse cheerfully, but in pairs. No one has the courage now to enter her suite alone. “For example, this afternoon Ms. Star was having trouble with her OWN PERSONAL fax machine (she brought her own; we just installed the line for it). She told the concierge to report to her room in ’30 seconds.’ On the way to her suite, he grabbed the front desk manager — who’s known for his equanimity in the face of the most outrageous guest behavior — and persuaded him to accompany him to the lioness’s hot, humid den. They knocked on her door, trying to look composed even as their hearts were pumping wildly. She took her time answering the door, then made them stay in the hallway until she had made one last attempt to fix the fax machine herself. Frustrated, she told them to come inside and work on it. “It turned out that the fax machine was in perfect working order — it was just that she was not familiar with sending faxes long distance (something her secretary usually handles for her, I guess). After they explained the problem and showed her the procedure, she berated them for failing to post the directions on her OWN PERSONAL fax machine. As the concierge opened his mouth to protest, the front desk manager poked him in the ribs. He, then, turned to Ms. Star and said with one of his most endearing smiles, ‘You’re absolutely right, Miss ———–. We should have done just that.’ She dismissed them, and the front desk manager told me later, ‘I think she might have said “thank you,” but I wouldn’t swear to it.’ “She is a difficult woman. One of our front desk clerks worked elsewhere for a summer. Ms. Star made an appearance there and pulled some similar stunts, including timing the delivery of her 7:00 a.m. newspaper. Apparently, when the poor bellman assigned to deliver it arrived at 7:05, she grabbed the paper from him and slammed the door in his face. Later, she called the front desk manager and gave him hell. ‘I’m very busy, and I MUST have my paper RIGHT AT SEVEN.’ OK. OK. “Fortunately, this is not an issue with us. She sleeps until 11 a.m., as I’ve mentioned, and then leaves at four for the theater. I’ve been offered tickets to the show, but I’m afraid she might stop in mid-performance and shout something obscene at me across the footlights (who KNOWS what I might be guilty of). “Yet, aside from all this, I understand from ALL who’ve seen the show that she is ABSOLUTELY THE BEST. No one can touch her riveting performance. Her fans adore her.” Tomorrow: The Curtain Falls
Ms. Star – The Saga Continues May 21, 1997February 1, 2017 We have been spending the week spying on a famous movie star staying at a hotel a friend of mine runs. Click here to catch up with preparation for her visit or to review Day One. And now . . . back to our story. “You probably picked up on the fact that the Divine Ms. Star reserves her contempt largely for the hourly employees, most of whom — given their positions at the hotel — are unable to defend themselves against her wrath: the operators, the engineers (one of whom was cursed out royally for having the nerve to ask her directly where she wished to have her VCR installed), the front desk staff, etc. This creates a considerable challenge for our management: How to keep morale high when an abusive guest pushes it to a new low. (One of my managers was in my office early this morning saying, ‘Do you know she is addressing our employees with the F-word?’) “Not surprisingly, we don’t have an exclusive on these hotel ‘horror’ stories. This morning I had breakfast with a friend who handles a hotel across the Atlantic. She said that Barbra Streisand was at that venerable hotel recently and demanded that the maid vacuum the carpet backward toward the door of her suite so that the maid’s footprints would not be seen marring its plush surface. Only Miss Streisand was to have the privilege of taking the first virgin steps onto the carpeting each day. “Fortunately, we are finding now that Ms. Star follows a routine that keeps her in bed until 11:00 a.m. and out of the hotel by 4:00 p.m. By the time she returns after the show, she’s too drained to do anything but have her dinner and crawl into bed. (This morning when I stopped by the PBX, the operators were debating who would place her wake-up call. One brave soul volunteered and let go a chirpy ‘Good morning, Ms. Star. It’s 11:00 a.m. and 68 degrees outside.’ Her reflexes dulled by sleep, Ms. Star let the operator complete the sentence before hanging up on her.) “The maids report that she has four or five humidifiers operating around-the-clock in her bedroom now (moisture is beginning to form on the ceiling); she has turned off the air conditioning completely (allowing the room temperature to climb to nearly 90 degrees — ‘Oh, Lordy, it was hot up there!’ said one of our heavyset maids with a hearty chuckle, ‘And her chef a heatin’ up the place with her cookin’); she sleeps with an electric blanket (when you can’t get warmth any other way, you have to buy it I guess); towels cover the marble bathroom floors as well as the vanity; and her son’s framed picture graces her desk. They have been shown what they can and cannot touch — and told how quickly they must work. (‘She’ll be back here in less than 30 minutes,’ the assistant road manager warned. ‘Hurry, and don’t bother to vacuum — you can do that later when she is at the theater!’) “Incidentally, Maria, Ms. Star’s irrepressible Costa Rican chef, has learned that one of our night cleaners is also from Costa Rico. She is DESPERATE to meet him and has sought assurances from our housekeepers that introductions will be made forthwith. “Finally, before signing off for now, and to be totally fair, I should tell you that Ms. Star received RAVE reviews for her opening night performance. What do we know?” Tomorrow: To Reach the Impossible Star
Ms. Star Arrives May 20, 1997February 1, 2017 Yesterday, my source revealed how his hotel prepares for a very special guest. Her list of personalized requirements way exceeded my own. (A remote control TV, a data port, and some towels.) Click here to review them. The saga continues: “Ms. Star’s secretary arrived around 11:30 a.m., and she quickly went to work rearranging the furniture in the suite. Ms. Star has claustrophobia, so the housekeeping staff had to move the desk near an expanse of windows (first, removing the dining room table and chairs and raising the chandelier a couple of notches). Then, two credenzas were added to this setup to form a U-shaped command post. We were told that the credenzas would be used to spread out files. “The secretary explained that our staff should not greet her in any fashion (no ‘Good Mornings,’ no smiles, etc.). When screening calls, the operators are to be ‘New York abrupt’ (the secretary looked around and said ‘I hope none of you are from New York’): ‘Joe Blow calling.’ This is a little tricky to execute. But we’re going to give it a college try. (Imagine fielding thousands of calls each day and switching back and forth from being ‘abrupt’ to one person and ‘pleasant’ to everyone else. A screw-up is inevitable.) “Ms. Star arrived around 9:30 p.m. Her car pulls up and our congenial doorman, who welcomes everyone with a million-dollar smile (and who, incidentally, is the only person aside from the General Manager who can afford to wear one of that magnitude), proceeds to open the car door for Ms. Star. As he begins to say ‘Welcome to the…,’ she snaps ‘shut the door!‘ The doorman quickly obliges and steps back, noticeably shaken, having never been addressed in that fashion. “Several minutes later, the star emerges. Her face is now lit with a beautiful smile. She greets the doorman, who, baffled by the transformation, cautiously opens the hotel door for her. Inside, she smiles and waves at the startled front desk assistant manager. (He — like everyone else — has been told by her secretary that she will not acknowledge the staff AT ALL.) She smiles and waves at the bellmen. She smiles and waves at the concierge. Exit stage left. “Later that evening … Ring. Ring. (We answer the phone within three rings; it’s a hotel standard.) ‘Engineering? I’m cold. But I don’t want you to do anything about it tonight.’ Click. Unbeknownst to Ms. Star, her personal staff has spent the day in the suite with all of the terrace doors open wide. (It was cold and breezy here yesterday.) Her staff, who supposedly knows her likes and dislikes, does not adjust the thermostat in the room and shifts the blame to the hotel. “In the morning, I call her secretary who is carrying one of the five cell phones Ms. Star has rented for the visit. Me: ‘Good morning. We understand that Ms. Star was cold last night.’ She: ‘Yes, she’s always colder than the rest of us; and, besides that, she’s not feeling well.’ Me: ‘I see. When would you like an engineer to check the thermostat?’ She: ‘I’m on my way to the hotel right now. I’ll call you when I find out.’ Me: ‘Thank you very much.’ (She never calls. Presumably, she discovers that the thermostat is not an objet d’art; it controls the temperature in the suite.) “Ring. Ring. The concierge lifts the receiver: ‘Ms. Star wants another VCR in her suite,’ says the secretary. ‘Right away,’ says the concierge. Two minutes later. Ring. Ring. The front desk clerk lifts the receiver: ‘Where is that VCR?’ screams the assistant road manager (who has also been assigned to place the same order). The front desk clerk calls to check on the status of the VCR. ‘The VCR is on its way.’ In ten minutes the VCR is in the suite, installed. “Early afternoon… Ring. Ring. Operator: ‘Ms. Star, Mary Jones left a mess…’ Ms. Star: ‘I don’t know any Mary Jones.’ Click. Operator: ‘But…’ “Late afternoon… Ring. Ring. Ms. Star: ‘I want to talk to the front desk manager!’ Front Desk Manager: ‘This is Bill, how may I help you?’ Ms. Star: ‘My son tried to reach me and I never got the message. Make sure it doesn’t happen again. DO YOU UNDERSTAND? I DON’T WANT THIS TO HAPPEN AGAIN!’ Click. “Front Desk Manager: ‘Operator, Ms. Star. said that she missed a call from her son. What happened?’ Operator: ‘Mary Jones called and left a message for her from her son. But before I could give her the message, Ms. Star hung up on me.’ “I call the secretary and explain the situation. Secretary: ‘Oh, her son is always pulling stuff like that.’ Me: ‘I see.’ She: ‘But, don’t let it bother you.’ Me: ‘We just want you to know that we are doing everything possible to follow your instructions.’ She: ‘I know. We deal with this every day. As her employees, we just shout back at her when she does this. Of course, I understand that you’re not in a position to do that.’ Me: ‘I’m afraid not.’ She: ‘If it makes you feel any better, she’s been yelling at all of us today. It started early this morning. Opening-night nerves, you understand.’ Me: ‘Of course.’ “Exit stage right. The star leaves for the theater in a mad rush, avoiding all eye contact. No smiles. No waves. No wire coat hangers. “Some call it abuse; but in the hotel business, you might say we’re star struck. It gives the phrase a whole new meaning.” Tomorrow: The Saga Continues
A Star’s Suite is Born May 19, 1997March 25, 2012 Recently, a friend who runs a swank hotel shared an inside story on the condition I name neither the hotel (it’s in California — how’s that for vague?) nor the guest in question, an aging film star whose name you would know. To me, it’s only a little interesting who she is or where she stayed. What’s neat is that this is all true, behind-the-scenes stuff. She had come to town to star in a musical. The saga unfolded day by day, beginning even before her arrival: “How do we get ready for someone like Ms. Star? First, I ask the star’s assistant to send me a list of their preferences. Most of the well-traveled celebs have a dog-eared form letter that outlines everything — from how their telephone calls are to be handled to when they want their suite cleaned. A lot of reporters like to get their hands on these lists because they LOVE to poke fun at the details. But we are very grateful for the heads up. There’s nothing worse than to send fresh-cut flowers to an actress who has allergies (been there, done that) or to deliver a bottle of rare wine to a talk show host who is a recovering alcoholic (done that, too). Ideally, we’d like to have a ‘preference list’ for all of our guests. It would save a lot of time and guesswork. “It just so happens that this particular star brings her own chef. Part of her contract. So, the two-bedroom suite has to have a small kitchen, complete with a refrigerator (stocked with Diet Coke and 16-ounce bottles of Evian), a microwave, a toaster oven, and a tea kettle. No problem. (We built a kitchen in this suite years ago for an eccentric millionairess who enjoyed cooking. She was staying with us for several weeks while she worked on the museum wing she was donating.) “The master bedroom must have a humidifier, a desk, and a small oval table near the desk. (She keeps her files on the smaller table and glances down at them as she works. Makes sense to me.) Each room is to have a two-line speaker phone. The suite will have one dedicated line for a fax machine, which travels with her. She will purchase three VCRs, one for each room, since our VCR rental fee is too high. (I don’t blame her; our fee structure is VERY pricy.) “The minibar items are to be removed. (Why we have those things in the first place is beyond me. They are a constant source of irritation for many guests. But, the management insists that the revenue generated from those guests who want the convenience outweighs the cost of constant write-offs for those guests who swear they never touched the Godiva chocolates, the imported cheese, etc. Go figure.) The second bedroom is to be cleared of all furniture. The star brings her own exercise equipment, which will be delivered to the suite on Tuesday when she is away at rehearsal. “A driver has been hired to squire her around, at a moment’s notice. The budget was $100.00 a day (12+ hours), so I think they’re going with some devoted theater volunteer. No legitimate chauffeur — including our own — would work for such small change. “All her laundry and dry cleaning is to be delivered on wooden hangers. Each closet in the suite is to have 30 wooden hangers to start. (My guess is that she has quite a few designer clothes, and– at those prices–they certainly deserve to be hung with care on wooden hangers.) “Every call must be screened by the hotel operator. When she does not wish to be disturbed at all, it’s ‘hold all calls’ (with two exceptions). “The housekeeper will follow a schedule provided by the star’s personal assistant. “The staff is not to address her by name, nor are they to approach her unless summoned. (This sounds more royal than the royals. But it’s understandable. Some hotel staffs aren’t very discreet: They fawn, they hover, they flatter, etc. A person almost has to be rude to get some peace and quiet. This is never an issue with us, since a breach of ‘protocol’ is cause for immediate termination.) “There shall be no chocolates on the pillow. (A dumb hotel custom, I must say. But almost every luxury hotel does it.)” Tomorrow: She Arrives!
Can the Market Keep Climbing? May 16, 1997March 25, 2012 Sure it can. But are we near the top of a mountain, about to go over the other side — or merely at the first base camp above the foothills? And why a mountain? Why any ultimate peak? Why can’t the market just keep growing — with dips along the way — more or less forever? (Answer: It can. But, oh, those dips.) You will notice these questions were not sent in by one of you. Your questions are generally a lot more succinct and your metaphors, more engaging. Still, aren’t these questions we all wonder about every time the Dow adds another grand? (One thing to say right off the bat: 1000 points on the Dow ain’t what it used to be. Many of us grew up wondering if the Dow would ever reach 1000. When it finally did, adding another 1000 was a 100% gain. Today, an extra 1000 is about 14%. So one might now expect the Dow to rise 1000 points every couple of years, just in the normal course of things.) Now, what I’m about to tell you is so basic we forget to think about it . . . or tell our kids. In case no one told you, or you’re dialing in from Albania, where there were no investors around for several decades to clue you in — read on. Over the long run, two primary factors determine a stock’s price: its expected EARNINGS per share and the MULTIPLE people are willing pay for those earnings. If people expect Ford to make an after-tax profit of $1 billion next year, and Ford is divided into 100 million shares, its expected earnings are $10 per share. Now, what would you pay me for a share of stock expected to earn $10 a year? “I’ll give you twenty bucks,” I hear one of you say. “No, way, Cyberdude!” I say. “Way,” you say. “For one thing, I won’t actually get that $10, the way I would from, say, a savings account. A bird in the hand is worth two in the shrub.” “Piffle,” I say. “You do get part of it in cash, as a dividend . . . and you should be grateful you don’t get the rest — because that means you don’t have to pay tax on it! It gets reinvested for you by Ford management, very possibly better than you could reinvest it yourself.” “Well, OK,” you retreat, “I’ll give you $50 a share.” “Cyberdude, Cyberdude — you really are from Albania. Right now there are people paying nearly $150 to get $10 a year in earnings from long-term Treasury bonds. You expect me to part with $10 a year for just $50?” (A Treasury that yields 6.7% pays out $10 a year for every $150 invested.) “Jzmlec!” you respond, reverting briefly to your native tongue. “You want $150? That is a multiple of 15 times the earnings! You want me to wait 15 years at $10 a year to get my money back? In Albania, we all went into a deal that promised to double our money every year!” “Don’t give me ‘jzmlec,’ Genc.” (I actually hope to meet an Albanian civil rights activist named Genc in a couple of weeks. I expect he knows nothing of high finance.) “In the first place, you all lost 100% in that deal. We Americans are much smarter. Even those of us who bought Spyglass at 120 only lost 90% (symbol: SPYG). I personally lost 99% of my money in Kenetech, the highly-credentialed windmill company (symbol: KWND), but that’s still not 100% — and I got to ride it for several years.” (Some of my holdings are better viewed as amusement rides than investments — the longer the ride lasts, the more value I’ve gotten for my money.) “But I digress. The point is, Genc, I want more than $150.” “Khlyep! Nyepryecz! That is riDICoolous. You think Ford as safe as U.S. Treasury? With Treasury, $10 guaranteed. For your shaky $10, I pay tops $95. Last offer. Take leave.” “Genc, Genc, Genc. You totally miss the point. The Treasury bond will pay $10 for every $150 you invest. But just as the $10 is guaranteed not to go down, so, too, is it guaranteed not to go up. With Ford stock, you’ve got thousands of talented people working to improve profits. And if that weren’t enough, you’ve got inflation. Even at 2% inflation, car prices and car profits are likely to rise a little over time. So that $10 could well be $15 after a few years. How about $200?” “Two hundred? Pfft!” And around and around we — and thousands of others — go, debating the relative risks and rewards of various stocks, and of the stock market in general. According to the stock market, the ultimate arbiter of all such arguments, I would be crazy to expect Genc to pay me $200 for $10 worth of Ford earnings (just as he would be crazy to expect me to accept $20 or $50). Auto companies like Ford, being mature, cyclical, and faced with lots of competition, don’t sell at anything like 20 times earnings (unless those earnings have hit a trough in the cycle). So that’s stocks. What will they earn; what multiple will those earnings command. For the stock market as a whole, it’s the same thing. What will be the overall level of corporate profits; what multiple will investors assign those profits. If U.S. companies as a whole are able to grow their earnings per share at 6% a year, on average, then U.S. stock prices should rise at 6% a year, if the multiple stays unchanged. For the Dow, that would mean adding about 400 points this year and reaching 10,000 in under six years. Dow 10000. What’s been happening in the last few extraordinary, breathtaking years is that profits have been growing a lot faster than 6%, while at the same time multiples have been expanding, magnifying the good results further still. If profits double, the stock market quadruples if, at the same time, the multiple at which it sells expands from, say, 11 to 22. In the Seventies, multiples were much, much lower because interest rates were high (why pay $220 for $10 in earnings when, with U.S. Treasury bonds yielding 15%, you need pay only $70 to get the same $10?) . . . and because people had forgotten how rewarding stocks could be. Today it’s just the opposite. Interest rates are low, and people have forgotten how risky stocks can be. And there are also the people piling into stocks, bidding up their prices, simply because “they have to” in order to reach their hoped-for retirement goals. The computer says they need to grow their money at 15% or 18% a year to reach their goals, so what other chance do they have? (Unfortunately, the stock market doesn’t care about your need, any more than the lottery does. Indeed, when it comes to investing, it’s usually the least needy who do best.) The simple fact is that corporate profits very possibly will continue to rise more or less “forever.” There will be bad patches along the way — maybe even soon. Something awful or even cataclysmic could even happen. But it’s not unreasonable to think that our population, economy, technology, productivity and profits — just about everything, that is — will continue to grow. If the U.S. economy grows at 2.5% plus another 2.5% in inflation, that would suggest nominal growth of 5%. (Profits can grow faster than sales if profit margins rise — but that can’t go on forever. Math keeps them from rising above 100%. Taxes, labor, and competition keep them in far tighter check.) But what of the MULTIPLE? Can that, too, continue to expand more or less forever? Emphatically: no. Just as interest rates can’t drop below zero, so is there is a limit — fuzzier, to be sure — to how high the stock-market multiple can sustainably go. It’s not reasonable to think that there are enough Albanians in the world to bid prices up to lunatic levels (you see how hard-nosed Genc has already become) . . . or, if there are, to keep them at such levels for long. Most observers agree that the fun with the MULTIPLE is largely over. If you had the foresight, luck or resources to ride the great market multiple expansion that began around 1982, when inflation and interest rates started their long descent — congratulations. Long-term interest rates may yet have a ways further to fall. (From 1880 to 1965, there was never such a thing in America as a home mortgage at more than 6%. From 1925 to 1965, top-grade corporate bonds routinely yielded under 5%.) But the market multiple is at the high end of its range. That means it’s likely to stay about where it is (very roughly speaking) — in which case earnings increases of 5% a year would mean stock prices rising at 5% a year. Or else it will fall — in which case earnings increases of 5% could mean stagnant or even falling stock prices for a while. And if you ever got falling earnings and falling multiples — the opposite of what we’ve had the last 15 years — watch out. It would not be pretty. Of course, it’s all a great deal more complicated than this, which is why, fundamentally, I don’t have a clue. To the extent U.S. companies invest globally and reap vast profits from their operations overseas, the U.S. economy could grow slowly while those companies’ profits grow faster. (Just because a company is U.S.-based doesn’t mean all its profits come from sales that are included in the U.S. Gross Domestic Product. If they make stuff here and sell it abroad, yes. But if they own factories that make it there, no. Or at least I think that’s the way it works.) And to the extent companies use their profits not to pay dividends (the old-fashioned way to reward shareholders) but to repurchase their own shares (the new, tax-savvy way), earnings per share will grow faster than profits — because the number of shares shrinks. And so on. As is evident to any of you who are economists, I barely made it through Ec 1. Still, I do draw these conclusions: First, the market MULTIPLE is not likely to widen much from here — at least not justifiably (irrational exuberance is always a possibility). It could shrink a lot if fear or inflation ever returned. If it stays more or less where it is, and corporate profits rise more or less in line with the economy, the stock market will continue to climb . . . and the gains, even if modest in percentage terms, would seem large to us old-timers — 500 points on the Dow seems like a big deal. Second, irrational exuberance is a possibility. Crowds have a way of going to extremes. People have seen how incredibly well stocks have done, and how whenever they do dip back toward a 10% correction, they quickly rebound with a vengeance. What’s the risk? In addition, you have the demographics of us baby boomers, finally saving for retirement, and shifting our money from “safer” investments into stocks (as I and so many others have long counseled). So there’s powerful momentum toward buying, and that drives prices and multiples up, too. But these things can get out of hand and end very badly (witness: Japan). Or they can be moderated by a watchful force such as The Fed, which can serve as a sort of “governor” on the speed of the economy, so it slows down but doesn’t run completely off the rails. (Did you ever have model trains? Isn’t there an electrical device called a “governor”? Not for nothing is the Fed run by a Board of Governors.) Either way, stock prices will not rise at “above average” rates forever — of that I’m sure. Which is why even someone like me, who’s spent twenty years trying to persuade people to put their really long-term money into stocks, “because over the long-run stocks always outperform ‘safer’ investments,” gets a little nervous when everyone seems to have come to accept that, and all the risk seems to have gone out of the stock market. I’m going to get a real tongue-lashing from my friends who say — rightly! — “you can’t time the market.” But I nonetheless suggest that if you have all your retirement money in U.S. stocks, and you can make some changes without incurring taxes, I would consider doing so. A chunk of my own Keogh plan is in things like REITs (which are stocks, but essentially high-yielding real estate investments) and bonds (like the bonds of South Africa’s giant electric utility, ESCOM). After all, almost as well known as the tried and true advice about not timing the market is the advice about not putting all your eggs in one basket. And U.S. stocks — while magnificent and likely to do very well over the long run — are just one basket. Next Week: The Star Arrives