Re: My Three Astonishing Panelists May 28, 1999February 12, 2017 QUICK $15 — TODAY ONLY “Fatbrain.com sells computer/tech books and — don’t ask me why — Andrew Tobias books. Follow this link to save $15 on an order of $15 or more: www1.fatbrain.com/offers/tryus/?/from=jae795 . Valid through May 28. You are welcome to reprint this message if you wish, but please say ‘a reader from Lewisburg, PA’ rather than using my name.” — John Stephens, Jr. Thanks, John. (I can’t vouch for fatbrain.com, having more of a swisscheesebrain.com myself, but I did visit the link, and it would appear that if there’s a $16 book you want today, it will cost you $1 plus shipping.) (Also, I’m kidding about the guy’s name. I just made up ‘John Stephens, Jr.” to see if you were paying attention.) AND SPEAKING OF BUYING BOOKS ON-LINE . . . R.T. Schoen (his real name), had this to say about My Three Astonishing Panelists: “Yes, yes, but are you still short AMZN?” Yes, yes. I am. Some. But I’ve taken a lot of tax losses. The psychology of the thing is that if you short something high enough, it’s easy to stay short as it bobs up and down around and below your entry price. But if, like me, your timing was awful, and you shorted it after it was up eightfold but before it was up twenty-fold, it’s very tough not to take some losses and reduce your risk when you have the opportunity … even if you would never normally buy the stock at this price. (Largely irrational though it is, buying-to-cover is psychologically different from plain old buying.) Also, to its credit, Amazon continues to do a great job — but that part I never doubted. I still think it’s way ahead of itself and risky, though a bit less so at $114 than at $221. It’s simply not clear yet just how much profit there is to be made in this intensely competitive field. Amazon certainly has as good a shot at it as anyone on the horizon, and has used its inflated stock to take big pieces of other, related companies like drugstore.com. But at $18 billion, Wall Street is assuming an awful lot will go right. It is valuing AMZN as highly as it values fat old profitable behemoth Sears. Both currently are valued at about $18 billion. Yes, you can say this is sensible: Sears is stuck with all those bricks and mortar. AMZN is the future of retailing. Like a money-losing automobile company versus a profitable buggy manufacturer in 1902. (Don’t hold me to the exact year.) But wait. How about 1990, say, when almost no one, least of all Wall Street day traders, had any inkling of on-line sales? Back then, Sears had a market cap far lower than the $18 billion valuation it sports today. Throughout the Seventies and Eighties and most of the Nineties, Sears was valued lower than Amazon is today. Yet Sears had a fairly large share of the country’s retail sales. Let’s assume AMZN one day soon will, too. Will its profit margins be so much higher than Sears’s were? And will the barriers to entry in retailing be greater or lesser than those that, partially, protected Sears? It would seem to me that the barriers to entry for on-line sales are a lot lower. And that on-line price competition will be even more intense, because it’s so much easier to go “from store to store” to hunt for the best buy. No need to move the car. Also, as has been endlessly pointed out, investors in the pioneering automobile companies wound up not being the ones who made a lot of money. None of which is to say AMZN will not eventually grow into this remarkable market cap, let alone to knock the great job AMZN is doing. Yes, you can buy what it sells cheaper if you simply click a different URL. But AMZN is always likely to provide the best, or near-best overall on-line shpping experience if you don’t mind paying a bit more. So, yes, I’m still short. But even less than before. Given my knack for bad timing, that probably means it has a lot further to drop. Have a good weekend!
There Will Be No Column Today The Elevator Ate My Homework May 27, 1999February 12, 2017 Some of you, against all reason, are actually annoyed when I am late with one of these daily columns. I am flattered but perplexed. We are all so swamped! My favorite thing is Saturday’s New York Times because it is just two sections. And there is no Wall Street Journal Saturday! Yay! (There is no Wall Street Journal Sunday, either — but there is SUNDAY’s New York Times.) Anyway, here’s my excuse. The dog did not eat my homework, but the elevators in the hotel I was staying in last night were so unbelievably slow, I just didn’t have time to get everything done. Which is a shame, too, because I was all set to write the Secret of Wealth, which had just come to me in a flash — a rare moment of clarity perhaps divinely inspired at the hotel check-in desk — but then I got so distracted waiting for the elevator, and so bemused once I eventually got IN the elevator, the Secret snuck back off into the ethos, like a dream you know you had but can’t remember. Oh, well. At least I remember every detail of the elevator. (I say “the” elevator, because it seemed as if only one of the eight hotel elevators was actually doing anything. Lines were forming for this elevator that stretched outside the hotel, down Commonwealth Avenue, over the B.U. Bridge, and well into Cambridge. The other seven elevators, I concluded, were faux elevators — trompe l’oeil elevators.) And the detail I remember most was way up at the top, above the red-dot L.E.D. display of the floor, a little rectangular plaque that read “Elevator Beeps for the Seeing Impaired.” This was to inform the seeing impaired — specifically those who could not read the red dot L.E.D. display but could read this little plaque — that the elevator beeps signified the floors being passed. Lest they, or anyone else, think that these beeps — beeps we have all surely come to know by now, as they are hardly exclusive to this hotel’s elevator — were some form of uniquely uncreative, annoying, Muzak. The other remarkable, distracting thing about this elevator was that — this is true! only the part about the line across the B.U. bridge may be a bit exaggerated — the L.E.D. display was off by two floors. When the doors opened on 7, the L.E.D. display said 9. When they opened on 8 — and with just one elevator, and huge crowds packed into it, naturally there was someone getting off or on at every floor — the display said 10. And so on, consistently, hour after hour, all the way up to my high floor. So there should have been a second little square bronze plaque next to the first: “Kindly subtract two.” So, no, the dog didn’t eat my homework. But there will be no column today. In place of the empty space you see here, please click Archives, and pick one of the hundreds of columns you may not have read previously. (Perhaps even one related to your money! I do try to do one of those occasionally.) Or do what I do when there’s a little less to read: Rejoice!
My Astonishing Panelists May 26, 1999March 25, 2012 I got to moderate a panel in Washington last Wednesday where I was the oldest but clearly the least wise. My three panelists where Meg Whitman, CEO of E-Bay (whose stock had jumped from 8 to 191 in the prior few months), Richard Owen, who heads up Dell On-Line (which currently sells $18 million of computers on-line a day), and Jay Walker, founder of Priceline.com (of which his personal stake was worth, that day, $9 billion). Jay was on the cover of last fortnight’s Forbes as the modern Thomas Edison. Our audience were several hundred marketing executives from the mutual fund industry. My main function, as I saw it, was to remind the audience — confronted with the terrors of competition and obsolescence — that cocktails would be served immediately following the conclusion of our panel. Richard Owen, of Dell, a British national with degrees in mathematics and economics and graduate of M.I.T.’s Sloan school, had turned 34 the day before. He is responsible for Dell’s on-line operations, and those operations are currently responsible, in turn, for 30% of Dell’s sales — the aforementioned $18 million a day. “How long,” I asked him, “before it’s 80%?” He gave a “who knows, exactly” sort of shrug, but casually guessed, “a couple of years.” What does this say for brick-and-mortar computer retailers like CompUSA? Not that Dell sells through brick-and-mortal outlets itself; but what does this say about the growth of e-commerce generally? Meg Whitman, CEO of eBay, must be about 43. After Princeton and Harvard Business School, she was a brand manager at Procter & Gamble, then a consultant for Bain & Co. (perhaps the most elite of the managing consulting firms), then senior VP of marketing for Disney’s consumer products division, then President of Stride Rite Corporation’s Stride Rite division (one of Stride Rite’s larger divisions, I’m guessing) — you may remember her launch of the Munchkin baby-shoe line — then President of FTD, the flower people, then General Manager of Hasbro’s preschool division (Mr. Potato Head) and now this. Jay Walker, meanwhile, 42, doesn’t just control priceline.com, he runs an “intellectual property lab” with a dozen young inventors and a dozen patent attorneys. They are patenting business models, like the one for Priceline. Sure, he’s only worth eight or nine billion today — and most of it in somewhat iffy Priceline stock, at that. But this is one smart cookie. I predict he will one day be a very rich man. As for his predictions, he ridiculed me when I asked him to predict something 10 years out. Ten Internet years, he noted, was like 100 regular years. It’s hard enough to see a few months into the future. But looking ahead, he did see “a consolidation of the major portals” (huh? I thought Yahoo was already pretty much the major portal). And there was talk of a wall-sized always-on flat screen with multiple entry points — your whole wall would be the portal. My panelists barely dignified the Y2K problem when I asked them about it (apparently, it’s being adequately solved — or at least it won’t affect them). Jay kept talking about voice recognition. (Who needs credit cards? he wondered when I asked how people would pay for mutual funds if they bought them on-line as they do computers. In a few years, you’ll just say into the computer — “Computer! Shift fifty thousand dollars from my Chase account number six oh one five nine three triple zero eight into . . . ” — and it will be done.) I allowed as how the guys who can do impressions — “He sounds just like James Cagney!” — will become immensely rich impersonating others’ voices and draining their bank accounts. This comment was brushed aside without even a smile. (“Where did they get this guy,” I could hear my panelists wondering.) It would be a rough few years ahead for the assembled, I summed up, as I announced, again, that cocktails would be served directly following the discussion. The world is changing fast. Mutual funds will not be marketed as they are today, and Jay may be working on a patent to sell them better even as we speak. Subtext: retire or get to work. The good news? You don’t necessarily have to be in your teens or your twenties to participate in all this, though it helps. Take Richard Braddock, 57, former president of Citicorp. Jay hired him to run Priceline.com. Maybe one day my partners and I will hire the president of Exxon to run Quickbrowse.com.
Fire & Ice – Chapter 10 But You Still Wouldn't Want to Work There May 25, 1999February 12, 2017 Here’s Chapter 10. (You already have Chapters 1, 2, 3, 4, 5, 6, 7, 8, and 9.) I remember growing up in an “advertising family” — my dad worked on Madison Avenue. Charles Revson was legend. He loomed almost as large on Madison Avenue as Bill Gates does today in cyberspace. Not that he had the same power, let alone the same influence — it was just lipsticks and nail polish he was selling, after all. He wasn’t reshaping the world. But at the ad agencies he terrorized and the magazines he advertised in (and terrorized), he was the topic of conversation.
Gloom and Boom May 24, 1999February 12, 2017 “Your article today reignited a thought about us all getting older. I am a 1957 boomer and a contrarian. So with all this success of the stock market, I see gloom coming. This is especially true when I think of my generation retiring (more importantly, those slightly older than me). Who is going to buy all these shares? My broker says we’ll cross that bridge in ten years, selling before the wave hits. Haven’t other people thought the same thing?” — Steve H Yes, and it could be a (huge) problem. But as I’ve suggested, 500 million emerging middle-class Asian and Latin American investors could begin to take up the slack. Also, the “selling wave” will not hit all at once — most people don’t want to “Die Broke,” and so would rather live off income than sell. (Is it possible Yahoo might not only one day make a profit, but even pay a dividend? I frankly doubt it, but others will. Especially once all us voting seniors force Congress to end the double-taxation of dividends.) Too, if they hold on, they avoid capital gains tax. But yes, there would be some selling, and some shifting of assets from stocks to bonds. No question. Finally, if technology continues to race along, as is likely . . . and we don’t spoil it with shooting wars or trade wars or labor/management wars (and it isn’t spoiled by a plague of natural or manmade environmental disasters) . . . then productivity and prosperity will rise markedly, and THAT could rescue us. Say cars get 100 miles to the gallon instead of 20 by then, as is very possible. Suddenly, other things being equal, what we spend on gas goes down 80%. That lessens the need to sell stocks to pay Exxon. Certainly the need to sell stocks to pay for long distance phone calls to the grandkids has plummeted in the last 50 years, and will plummet further. The cost of today’s elder-care drugs will be much lower, once patents expire. And so on. (Except, of course, by then we won’t be satisfied with today’s medications — we’ll want tomorrow’s, pricier ones.) Still and all . . . yes: it’s absolutely an issue. Demographics giveth (as they are these days), and demographics taketh away. Save your money. And not all in stocks selling at 80 times earnings or 25 times sales, either.
“Issued and Outstanding” May 21, 1999February 12, 2017 “Staples, the company (SPLS), has announced that they are going to issue 50% more stock. Dilute not split. I voted my proxy against this, but it looks like it is going to pass anyway. Why would anyone vote for this? Are the big institutions (Fidelity, et al) getting information that I am not? My 0.18 millionths of this company is soon to be only 0.12 millionths. This might not seem like much, but hey, it’s the principle!” — Wayne A. There is a world of difference between authorizing shares and issuing them. I suspect they are authorizing. But if they ever do issue additional shares (of those authorized to be issued), they — and you — will presumably get something in return . . . such as another company. Right now Staples has 464 million shares outstanding. I am too lazy to look this up, but I’m guessing maybe 500 million are authorized. So in case they want to — quick! acquire Rubberbands.com for 50 million Staples shares — well, you can see why they’d want authorization to go beyond the 500 million. (And no, don’t rush to day-trade Rubberbands.com — I made it up.) The “float” on SPLS currently is around 390 million shares. That’s a different number, referring to the shares that are unrestricted for trading and out in public hands. (With a new company, there might be 10 million shares issued out of 100 million authorized, but 8 million of them — 80% of the company — might still be in the pockets of the founder and her husband. Maybe the company went public by selling just 2 million of those 10 million shares. So in this example, the “float” would be just 2 million shares, making the stock very scarce if there were a lot of interest in it. It can be tough to buy large blocks of stock with a small float — in trying, you drive the price up.) Meanwhile, the short interest in SPLS is under 5 million shares, with a short ratio of about 1.7. This means that, relative to the 464 million shares issued and outstanding, few have been borrowed by speculators and sold short. Relative to the float, it’s still trivial. But the “short ratio” many short-sellers look at to see how hard it will be to cover their shorts, should they feel the need, is the ratio of the “short interest” — the nearly 5 million shares that have been borrowed and sold short — to the stock’s average daily trading volume, which for SPLS is about 3 million shares. In other words, in this case, if no one else were buying (which would not be the case, but just by way of example), and if sellers were selling the same 3 million shares a day they have been selling on average, it would take the shorts just 1.7 days to “cover” their shorts (i.e., to buy back the shares they borrowed and sold short, and return them to their rightful owners). “Authorized” is one of those formalities only a little less archaic (if you ask me) than a stock’s “par value,” which by now as best I can tell, means absolutely nothing. Yes, the shareholders must approve any increase in the authorized number of shares. But authorizing more shares has no impact on the size of the pie or who owns what proportion of it. What matters, and can dilute or enhance your ownership stake, is the issuance of new shares. There the crucial question is: what is the company getting in return for issuing them? Is it a good deal? Could Rubberband.com really be worth 50 million shares? Sometimes yes, sometimes no.
Fire & Ice – Chapter 9 The Revlon Girls May 20, 1999February 12, 2017 Here’s Chapter 9. (You already have Chapters 1, 2, 3, 4, 5, 6, 7 and 8.) How quaint that Revlon super model Suzy Parker was earning $120 an hour back in the Fifties. Even with inflation, what could that be? Supermodels today earn $60,000 to $100,000 a day. It’s almost as if they were SuperModels.com.
Who Will Care for Us? May 19, 1999February 12, 2017 Susan Carpenter: “I have been interested in the question of who, i.e. manpower, is going to physically take care of 79 million baby boomers when they become infirm. Will we open our gates to the 3rd world so that helpers can pour in? Certainly the next generation is going to be so busy working at jobs that will fund the baby boomers’ social security that they will not be changing Depends, cooking meals for the boomers etc. The only answer to this question, i.e. physical care not the $$$ to pay for it which is another problem, is from some futurist who said that by 2025 there will be a federal law that stating that children will by law be responsible for their parents. What do you think?” Well, if today’s kids don’t learn to vote, we by-then seniors might indeed get such a law passed. But your scenario may be too dire. In 25 years there are an awful lot of jobs that won’t need doing. Remember how many people used to be employed as 411 operators? (And the incredible Mike Nichols/Elaine May skit on the subject? “Sir, In-for-MAY-shun is a free service. In-for-MAY-shun would not STEAL your DIE-yum.”) As the demand for senior-care workers rises, the free market will likely adjust. Not to mention all the labor saving devices for seniors themselves. E.g., this new pet dog you have probably read about from SONY. No need to feed it, walk it, bathe it, take it to the vet — already you’re way ahead of today’s seniors’ pets. And by 2025 it will likely be a great comfort to its owner and able to perform such rudimentary tasks as calling for help if you’ve fallen and can’t get up . . . fetching your cane so you can get up . . . smelling the gas if you’ve left it on accidentally. And quite a few other elder-care chores. There is no substitute for the human touch. I’ll grant you that. But it may just be that by 2025, though we will be living longer and more of us will be old, the length of time any of us needs help will be shorter, not longer. (I grant that the reverse may be true, but I’m an optimist.) At 95, we may be doing quite nicely on our own, most of the time; touching each other; and then, blessedly, keeling over on the shuffleboard court real quick, with our SONY pet programmed to lead the paramedics to the DO NOT RESUSCITATE clause of our living wills.
More Wealthy than Roman emperors? May 18, 1999February 12, 2017 It’s an old idea, but — in my view — worth frequent repetition. So recently I repeated it: In many ways, even the lowliest of us, or at least the reasonably lowly, live better than the royalty of old. Predictably, you had some interesting things to say. Eric Batson: “My favorite is just how easily we access ice on demand. Ice water is free in any restaurant. I was taught in elementary school that the Roman emperors had an outpost in the mountains. At midnight they sent out a chariot with a chest full of snow so the emperor could have ice for his morning orange juice.” Russell Turpin: “You wrote: ‘… most of us live better in many ways than the princes of Egypt.’ Well .. I’ve developed some skepticism of this kind of claim. The modern economy and its accompanying technology are wondrous, indeed, letting most of us live far better than common folks of past times. But better than the Princes of Egypt? I will argue otherwise by looking at what the modern economy brings the average person. “1. Material well-being. In the US, the average person does not want for the material necessities: shelter, food, and clothing. But as wonderful as are the products of industrial economy, I think the Princes of Egypt had it better. A modern house is not a palace, off-the-rack clothing is not tailored fare, and no grocery store will be quite as accommodating as your own chef. True, the Prince lacked ice cream. But we don’t know what delicacies his chef prepared.” I have just two words for you, Russell: air conditioning. And if those two aren’t enough, I can think of a million more. E.g., Shakespeare. Seinfeld. Telephones. Bright reading lights. Nintendo. And of course most important by far: longevity. I am not arguing people today are happier. I tend to agree that ignorance is bliss, and all that. (Are we miserable today because we lack tomorrow’s wonders?) And I recognize that with TV news casts and the competition for ratings came TV violence, new fears, the loss of innocence, and so forth. But I still believe that in many ways most of us live better than the princes of Egypt. “2. Service. The service economy is much lauded, but the average person still spends a lot of time doing their own chores. She vacuums her own floors, makes her own bed, mows her own yard, buys her own groceries, prepares her own meals, and maybe even changes her own oil. This is much better than the farmer a century ago who had to sweep his floor, grow his groceries, and feed his horse. The average person undoubtedly pays for *some* of these services *some* of the time, but even there, mass supplied services involve the customer arranging, verifying, and waiting. Going to Jiffylube is more convenient than changing your own oil, but it is still a chore. And only someone who is fairly well off can indulge in all the kinds of services the modern economy offers on a routine basis. The Prince had it much better. He had a staff of lifelong servants who did for him whatever he needed, AND who knew what this was without him having to explain it each time. Automation is starting to make *small* headway here, but it will be a long time before the modern economy provides this degree of luxury.” Yeah, well, there’s something to that. But how about their boredom? What about those stories — not Egyptian, but still — of royalty that longed to get out among the commoners and live a “real” life. I love grocery shopping! I wish I had time to do more of it. Imagine the prince’s wonder at the thousands of amazing choices, all an arm’s reach away. That’s not a chore, it’s a marvel! (Have you seen the new chocolate-dipped Tropicana frozen orange-juice bars?) “3. Entertainment. This is where the modern economy excels. Not only are shows and music pumped into the average home, but theatres are convenient to almost every neighborhood, and even those of moderate means can afford to travel to distant lands. But those shows and movies typically focus on the interesting people of this and past times. One visits Egypt to glance in awe at what the Prince of Egypt did, where he lived, and what was built for him. Somehow, I suspect there is no entertainment quite like being one of the most important people of your society, and knowing it. You don’t get Spielberg, but you do get your own theatre troop. You don’t have TV, but you do have your own harem. You don’t get PBS, but you do get to hobnob with the learned and important people of your time. And for the Prince, this all comes at *your* convenience.” I’m not saying being a prince was all bad. But how about, also, the decidedly unentertaining aspect of being treated like a prince and feeling you don’t deserve it? I suppose most of them were not guilt-ridden by the inequality. But I know some “princes” today who, handed their millions simply by virtue of birth, spend a great deal of time in psychotherapy. “4. Social belonging and affirmation. It is fun to travel on vacation, and financially rewarding to open the geographic scope of one’s vocation. The downside of the latter is that people often live great distances from family and old friends, and many adopt migratory lifestyles to the service of their career. Even those who live in the ‘same place’ may commute an hour or more each day, and while they may restrict their careers to one metropolis (and even one large company), they are still likely to change jobs every two or three years. They are financially rewarded for the commuting, travel, and disruption they endure, but it also creates stress, alienation, and faux community. Modern communications somewhat compensates, but talking with friend or family on the phone is not the same as continual, personal interaction [Yes! If only our parents lived with us full-time! — A.T.], and Internet communities are not real communities. Undoubtedly, the new arrangement is better for most people than being stuck as a serf in a poverty-stricken, disease-ridden Medieval village. But being Prince of Egypt is better. True, I can fly cross-country four times a month. Indeed, I must. And therein lies the rub.” But also the frequent flier miles. “5. There is only one area of life where I think the average, modern man clearly has it better than the Prince of Egypt: medical care. If the Prince of Egypt was diabetic, he died. The modern man takes insulin. The examples are well-known and plentiful. But even here, keep in mind the difference between being an average person of times past and a Prince of Egypt. The Prince did not suffer as a great risk from bad water, bad food, and infectious disease. Much of this century’s lifespan increase is not due to *individual* medical care, but to better sanitation and public health measures. Even though the ancients did not know about sanitation, the Prince enjoyed it by accident of wanting and having a more pleasant environment, further from animals, crowds, and dirt.” The part about the harem may not have helped, however. Yes, they were probably all virgins. But that’s still a lot of different germ-sets to be exposed to. (I am not a doctor, but I am Jewish, and thus have strong feelings about germ-sets.) “Bottom line: If it did not come with an inherited disease, I think it would be better to be Prince of Egypt. The state of the average person has advanced tremendously, but don’t underestimate the benefit of being a Prince!” Or the difficulty of learning Egyptian. Thanks, Russell.
When to Get In on a Hot IPO May 17, 1999February 12, 2017 “Big money is being made every day it seems on IPOs. How can I get into the action? A recent article in Smart Money paints a somewhat gloomy picture for guys like me with not a lot amount of money to risk. Should I just give up and watch the few people with the right connections just continue to rake in the dough?” — Walt Gunnison Yep. But Smart Money or one of the others also had a good story recently about catching these same IPOs a year or two later after, in many cases, reality has set in, original shareholders have sold to take their profits, and discouraging news may even have emerged. An example from my own life is having been pitched on Compaq when it first went public at 10. Oh, please, I thought — how is it ever going to compete with IBM? And whomever else was out there at the time. It did go up for a while. But then it stumbled and the stock fell to 3. Which, adjusted for splits, was somnething like 25 or 50 cents. Last year it hit $51. (Needless to say, I wasn;t smart enough to buy it at 50 cents — or short it at $51.) So one strategy might be to note the IPOs you really believe in, if you’ve researched them. Then keep following them, and wait until the excitement has subsided and they return to more like the IPO price — or even well below it. This obviously cannot be done indiscriminately. But at least you’re buying when people are no longer mesmerized by the stock — perhaps even disgusted with it — and not when they’re participating in a feeding frenzy. And that’s a better time to buy.