Nervous About the Market January 31, 2000February 15, 2017 Doug Deckman: “Money Magazine recently listed a website, energyguide.com, that finds the natural gas and electric energy providers in a given zip code and lets you compare their prices. I was able to save $100 off my annual gas bill using this site.” Allan S: “I am a university professor, 62 next June, making $52,000 a year, planning to retire at 65 (certainly not later than 67) with currently $78,000 in TIAA and $542,000 in Vanguard Index funds. I have three years to try to get my retirement fund to around $750,00 and do not have ten years to recoup a major fall in my assets. I see NASDAQ going into a classic bubble, the S&P heavily weighted with tech stocks, and all the ingredients for a major downturn that may spread worldwide through the stock markets. To get stocks back to reasonable valuations, I think that we may see 5% rates of returns for the next decade, even if the US economy grows at 3.5% and the CPI at 2.5% over that period. I am VERY nervous! I feel like bailing out of the market until next June to see what happens from the sidelines, but I did that once before and probably lost $80,000 and 5% of $750,00 isn’t going to maintain my current standard of living. It is this very short time horizon in what looks to me to be a very unstable situation that makes the usual advice — it will all work out in the long run — difficult to follow. Any advice for the many of us who are near retirement and don’t want to have to stay working into their seventies if we get caught by a Stock Market Tsunami? ” I think you are right to be cautious, and, given your circumstances, would consider putting a chunk of the money in something a lot safer. Then again, you’re going to be around for another 30 years, at least, so . . . Plan to work longer, even if in a different capacity (part-time consulting? textbook-authoring?). Don’t exit equities altogether. But for money that’s not taxable, consider switching into things like a basket of relatively high-yielding REITs and utilities (if you have the temperament to study a bit and choose them sensibly) and less-puffed-up indexes than the S&P. Save as much as you can these next three-to-five years, for two reasons. First, to build your assets. But also so that, as a consequence, you may discover ingenious and relatively painless ways to reduce your cost of living — not because you have to (which is a drag) but because you want to (which is a challenge). Good luck! Tomorrow: Important Things to Know
More Free Money January 28, 2000February 15, 2017 Elizabeth Seger: “Our latest scheme involves an online casino at www.casinoonair.com. The deal is this: new accounts receive an immediate bonus of 20% of whatever you deposit, after which the company sends e-mail from time to time to advertise “specials” that are even better — 25% for Thanksgiving, and 35% for the “Millennium Special.” Let’s take the last case: we deposit $1000. Then the casino adds $350 for a “V-chip” total of $1350. We bet both sides of a few football games, and take a 9% hit on the winnings of each bet for doing so: we end up with half of the original total ($675) plus 91% of the other half ($614.25) for a total of $1289.25. Less the original investment and a pesky 3% credit card charge on your $1,000 deposit, we have a profit of $259.25, basically risk free, and more if anyone ties (because with no winner, there are no winnings for the house to deduct its 9% from). Your original investment is credited back to your card on request, and the rest of the money arrives by check a week or two later. There is no limit to the amount you can deposit for the bonus. As long as nothing really bad happens in the Caribbean anytime soon, this an easy way to make a very good wage for half an hour’s labor…” An honest day’s wage for an honest day’s work. Building a better, more productive America. (Seriously: I have not tried this myself, and fear that some folks might get left holding the bag if this company goes under — or, worse, get hooked on yet another form of gambling. But I could not resist passing this on, both as a way a few of you might actually make a few bucks, and as further evidence that we live in, to say the least, giddy times.)
My 1000th Internet Column Exporting Your MYM-DOS Card File to the Real World January 27, 2000February 15, 2017 This is my thousandth Internet column. And for most of you, it will be even less useful than the rest. (Note the subtitle.) I hope to make up for that, however, by making it very long. In the past, at milestones, I have indulged myself with tasteless lawyer jokes (column #300), or flights of financial philosophy (#400) topped off with a tasteless lawyer joke. I seem to have discontinued this practice with #500, my scheme for The Replicator. In the world I envisioned . . . Every product, item of clothing, music CD, trowel, dish — everything we buy — would have an identifying bar code on its bottom. A great many of them already do. When you wanted more “copies” — more of the same shampoo, another identical trowel — you would merely swipe the bar code past the eyeball of your computer (a simple plug-in device that would soon be sold built-in ) and instantly get a screen showing the item. It would allow you to click size, quantity, and other options as appropriate (e.g., color). It would allow you to click on “competitors” to see what else might interest you. It would display alternative prices and availability times (it might be cheapest direct from the manufacture, but take a bit longer if that manufacturer were in Thailand); you would click your choices. There would be several competing purveyors of this kind of universal shopping service. Amazon.com would be one. It started with books, would simply expand to . . . everything else. FedEx would be another. One assumes Microsoft would have an entry. You could flip your replicator eyeball scanner to any of these, setting one as your preferred one as your “home mart.” You’d never have to enter your address (just click if you want delivery to an alternate address), never have to fuss with a credit card (it would just tot up the bill and debit whichever account you clicked). You’d have the option to set up regular deliveries (a quart of Tropicana every Tuesday and Friday), you’d have the option that amazon.com already gives you to have whatever you just ordered delivered immediately, or wait to be bunched with more items to reduce the shipping cost. You could set up a regular delivery schedule — with FedEx or some other carrier that got with this program, guaranteeing to show up at your home every Saturday morning between ten and one, for example, with whatever items you had ordered that week. This system would not be great news for physical retailers or their landlords — shopping-center REIT holders take note — but it would be great for us baby boomers as, in our waning decades, we became too infirm to cruise the aisles for shampoo and trowels. Marketers would flood us with samples, knowing that whatever we liked could be swiped past the scanner eyeball and a moment later the sale would have been completed. Others would send you their cents-off coupons, complete with bar-code (or you’d find in your newspaper). To get the item you’d just — swipe. L.L. Bean would begin to get orders for all those classics you and I both have in our closets . . . fraying, fading, but we love that shirt and just wish we could get another just like it. No problem! Just swipe its label. Running low on printer cartridges? Swipe. Want another of these cheap phones? Swipe. Friend come by and like that Spice Girls c.d.? Swipe. This would actually be depressing. It’s more fun to go shopping — to be dazzled by the variety and have a chance to get out of the house. What am I proposing, A Clockwork Orange? But if you did want another bottle of this chamomile shampoo . . . Look, too, for the advent of the refrigerated mailbox. New homes would all be built with a high-tech set of four mail chutes. The first, little one would be for . . . mail. The second would be for regular packages that would just thunk onto the floor, like the mail, when put through the (bigger) slot. But the third would be an actual refrigerator to keep your delivery fresh until you arrived home and the fourth would be, of course, a freezer. Just as “green” packaging now universally denotes healthy or decaf, so the distribution system would wrap your refrigerated stuff in orange plastic and your frozen in blue. The delivery guy/gal would slip your mail through the mail slot, your trowel through the package slot — thunk, thunk. The orange shrink-wrapped stuff he had for you would go into the orange door, and the blue into the blue. To keep passersby from themselves reaching in for a snack, the orange and blue doors would have locks. The delivery guy’s “wand” would know all about your order and address, and so, passed in front of your mail chute’s eye, would confirm that he was the FedEx guy and that he had come to the right place, unlocking the refrigerator and freezer doors. Yes, all this would add $1,000 to the cost of a new house. But so does a washer/dryer, and how many houses are sold these days without one? As with the clickle, you heard it here first. I will spare you #600 (Who Votes the Short Shares?) and #700 (a sad story about a woman named Linda with financial problems). I won’t go near #800 (“AOL – A Steal at 681 Times Earnings?”) And I don’t think 900 even is a round number, with 1000 all but around the corner. The hundredth column, from June, 1996, was a lot rounder than the 900th, but was just a bunch of reader mail. The 200th was, I thought, actually pretty good. It was about how I thought my bank had failed — I went to make a deposit only to find the huge iron and glass door closed in the middle of the day, no lights on, the morning’s newspaper delivery outside the door with the mail — and I began to panic, except that it was Veteran’s Day, and all the banks were closed. But for the 1000th Internet column feeling nostalgic, I figured I’d go back to my tech era roots, and to the several of you who may have been “with me” since the days of the 160K-capacity 5-1/4-inch floppy disk. What fun it’s been to watch the pieces of this puzzle come together faster and faster. How astonishing the next decade will be, topped only by the one after that. (You will forgive me, or perhaps you won’t, when I suggest that Clinton/Gore and Bradley seem to get the significance of this astonishing time more than George W. George W. seems to be most fixed on huge tax cuts for those of us at the very top.) To those of you in your twenties, it was an eternity ago that IBM came out with its first PC (two floppy drives but no hard drive), in 1982. But really, it was fifteen minutes ago. And what fun it was, starting in 1982, to help build Managing Your Money. (The bulk of the credit should go to Jerry Rubin and his team — Spencer Martin, Andy Zaslow, Beth McClain, and so many others. One teenager we didn’t hire, if only because his social skills seemed all but nonexistent — or maybe we hired him for a few weeks and it didn’t work out — was a kid named Rob Glazer. Unless memory is playing tricks on me, in which case one of you will surely set me straight, this is the young fellow whose stake in RealNetworks, which he founded, is now worth a trillion dollars.) MYM was designed to do just about everything I wanted to do on a computer — it even had a word processor built in — because, pre-Windows and large memory capacity, you would otherwise have to leave one program entirely, and put its disk away, and then get the other program’s disk and load it, in order to go from one task to another. MYM solved that — you had your checkbook and portfolio and word processor and datebook and calculator and household inventory and Rolodex (which we called your Card File) all in one program, working together. I am yet to find any program that can match Managing Your Money’s DOS Card File. I use it 100 times a day. But so what? The world has passed us by. I think I will still use it for a long time to come. But what if you want to download your 2000 names and 6,000 phone numbers to a Palm Pilot, say? Or, as you’ll soon be able, to your cell phone? Thanks to Mike Starkey, the solution is at hand. (It always was at hand, but it took Mike to make it so simple and clear that even I was able to handle it.) And this is where all but a handful of you should politely push your chairs back from the table and excuse yourselves, because the reminder of this column — while momentous to me and seven others — is totally and completely useless and irrelevant to you. (Truly. This is not a joke. Have a nice day. Get lost.) Still here? Ah: you must be a die-hard MYM-er too. Huddle ’round. I asked Mike to figure out a way we could get our Card Files into Excel, since so many people have Excel. From Excel, we can then export to all sorts of other Windows-based programs. Surely any Palm Pilot worth its salt knows how to import from Excel. (I know I must have that manual here someplace.) The only place Mike’s procedure fails, because of limitations in MYM, is in carrying over more than the first line of MYM’s “memos.” I have some memos that are 2000 words long! So I am a long way from abandoning MYM. But now I am also just days away from being able to use my Palm Pilot. (I know it came with a manual. Where did I put it?) Mike has divided his instructions into two parts: Exporting from MYM; Importing into Excel: I. Run MYM12 1. Go to Card File 2. Press F4 to Print 3. Mark just a couple of cards for now so you can see what’s going on 4. Press F7 to export these marked cards 5. Select the fields you wish to export 6. Press Action Key to export the records 7. Enter a filename for the report (I entered “Export”) 8. Press Action Key to export II. Run Excel 1. Go to File and Select “Open” 2. Point to the filename you exported from MYM (“Export” in your dataset directory) You’ll now be in the “Text Import Wizard” in Excel In Step 1 of the Wizard 1. Choose the “Delimited” choice instead of “Fixed Length” 2. Start on row 1 3. Select DOS from the dropdown 4. Click on Next button In Step 2 of the Wizard 1. Choose “Comma” ONLY in the “Delimiters” section. (All other choices should be unchecked!) 2. Uncheck “Treat consecutive delimiters as one” 3. Select “Text Qualifier” as double-quote (“) – mine is first item in dropdown 4. Click on Next button In Step 3 of the Wizard 1. You can leave all columns marked as “General” for now. (Although most should be marked as “Text” so Excel doesn’t try to do any math operations on the column values.) 2. Click on the Finish button TaDa! You’ll now have a spreadsheet with the contents of your Card File. Each column has a label and all the records fall below. Only the first line (70 characters) of your memo in MYM will come thru though. You cannot change the order of the columns in MYM but you can switch them once imported into Excel. You’ll be able to see the progress of the report as you go thru the wizard choices. Thanks, Mike! Tomorrow: Something Shorter
Reader Mail January 26, 2000January 28, 2017 Rick Boyd: “Regarding your column [on the dangers of shorting what you think is an overpriced stock], I believe J.P. Morgan said, ‘The market can remain irrational longer than you can remain solvent.’ I might be wrong about that, but it does serve to remind us that market timing makes sense only if we can predict the movements of the herd.” Did J.P. Morgan really say that about my column? Awesome! Seriously: It’s a great quote. Thanks. Does anyone know for sure whether ol’ J.P. said it, or who did? Gavin Graham: “You’re quite correct that Quickbrowse is a wonderful service, but you should tell users of Lotus Notes (like me), that it’s still having problems delivering your column in a readable (to them) form. Quickbrowse tells me that they’re working on it, but in the meantime, let Lotus users know, or they may become dissatisfied with the otherwise excellent service. “PS [Gavin continues] I’ve been enjoying Barton Biggs‘s columns for over 15 years, and the quality of his writing is reason enough to read them. As for accuracy of forecasts [which has been touched upon in recent columns], those of us who were in Hong Kong at the time still remember his ‘maximum bullish’ call on China in September 1993, and, although he changed his mind a couple of months later after a big move up in the Hang Seng Index, still treasure such insights as that China is a really big country, with lots of consumers discovering capitalism and therefore you should buy a bunch of Hong Kong power and trading companies.” Bob Iserman: “You recommend putting one’s investment dollars into ‘two or three no-load, low-expense, low-tax index funds,’ and that for me raises some questions. What is a low-tax index fund? More importantly, which index funds have been the most rewarding both in up and down markets? I am concerned about the future with indexed investments when the market declines, which it inevitably will.” All index funds tend to have light tax consequences because they do little trading. They mainly buy and hold. Where there is little trading, there are few realized taxable gains. Of course, if you hold your fund within the shelter of a retirement plan, this isn’t an issue. As to how index funds will do in a bear market — they will do badly. But no worse, likely, than most other funds. Indeed, they will do “less worse,” because at least they will not be adding large expense charges to their dismal results. As between the various indices, one might ordinarily expect small-cap funds to do worst in a bad market, because small-cap stocks are typically more volatile than blue chips. And that may be the case the next time we have a bad market. It’s also possible, however, that the S&P 500 Index will dive deeper than broader indices, because it has climbed so much higher. I don’t know. LIVE FREE OR DIE Allen Lewis: “I saw that column title and thought your article would be about New Hampshire but it turned out to be about a bank in Maine. Did you get your state mottos confused?” Thanks, Allen. The Maine reference was to a fanciful Canadian military invasion. But if you like, I could have Canada invade NH next. Dean Reinemann: “Speaking of ‘Live or Die’ take a look at www.deathclock.com.” Thanks, Dean. It’s pretty terrible. They just assume you will live 73 years no matter when you were born (if male). I told it I was born in 1920; it told me I would die . . . seven years ago. I know a lot of people born in 1920 who would dispute that vigorously. The truth is that today’s kids will likely live a lot longer, on average. And according to the trusty Life Expectancy module in Managing Your Money (no longer for sale), today’s 72-year-old males, if married nonsmokers, are likely to live 19 more years, to 91. Single smokers in good health: about 12 more years. Tomorrow: Column #1000 (This One Was #999)
It Is SO Hard – Your Feedback January 25, 2000February 15, 2017 Thank you all for signing up at X.com to get your free $20, your free checking account, and the rest. I have now received eighty-four million in referral fees. And will retire Thursday morning. Wanakee Hill: “As one writer put it, an index fund is like sticking your head in the freezer, and your feet in the oven, stating somewhere in the middle is comfort! When it comes to index funds, why not just invest in the Cisco’s, GE’s, HD’s, and AOL’s without buying the entire index of losers too? (I just listed my portfolio, by the way).” That would be an outstanding way to have invested. Had I not just received $84 million in referral fees, I would be green with envy. But will these stocks do as well in the future? If so, then of course you’re right. But these things are often harder to know than you might think. (The companies are likely to do well. But might the stocks be so expensive as to more than take that into account? What if you had to pay double today’s price to buy them? Ten times today’s price? Is there any price at which the stocks would not be a good buy? If so, how do you know today’s price is not such a price.) I truly do not know the answer. If you believe in the “efficient market theory,” at least with stocks as widely followed as these, then you might argue they are priced “just right,” given all the market knows about them, their prospects and risks. If you believe winners are sometimes buoyed to unreasonable heights by momentum players who will buy at any price, then these stocks might do worse than average at some point. If you believe the best stocks rarely sell for all they’re worth because few are visionary enough to grasp their true potential, then these stocks may be cheap. These days, I have a hard time accepting that third alternative. And I would point out that when a way of beating the averages becomes so simple and obvious — as with “the Dogs of the Dow” a few years ago — it often fails. (The dogs have been dogs, relatively speaking, these last few years.) But see January 13th’s column, “It is SO Hard” — because it is. Don: “I enjoyed your January 13th column, especially the line . . . ‘We have lost more than a dime or two with out laser-like intellects.’ While I suspect that you intended the word our instead of out, the slip does add another level of truth to the statement.” Indeed it does. Neil Weinreb: “Your column mentioned Barton Biggs’s 1993 prediction of doom. Don’t forget Alan Abelson, whom you also labeled as ‘very smart’ in a column a few months ago. As a brand new investor in 1994, I subscribed to Barron’sas a learning vehicle and prime source of financial information. Big mistake. I was much impressed with the learned Mr. Abelson’s erudition and elegant prose. Unfortunately, I was also much impressed with his advice: DOW 3600, get out while you can, soon to be DOW 3200 or even 2800. I followed his advice for a few years and now see that it cost me several hundred thou in gains. I understand that I am solely responsible for my own investments, but you can see how a novice might be impressed with someone as weighty as Mr. Abelson. How come someone who has been as wrong as he has for as long as he has still have his job?” Many of the very smartest people on Wall Street have been over-cautious for a long time — Alan Abelson and a fellow named Jim Grant being two whose brainpower fairly glows in the dark — and to me this says two things: First, that it is SO hard to beat the market over a long period of time, no matter how bright or seasoned you are. That was the point of the column. (Hence my preference for a lifetime of monthly investments in no-load, low expense mutual funds, through thick and thin. I know I’m not smart enough to outsmart the market, and I’ve been excessively cautious — at least judging from the today’s vantage point — too.) Second, that a note of caution now might be wise. It’s just when we cannot get over how much smarter we are than the “so-called experts” with all their gray hair — how do they keep their jobs? — that it could turn out there was something to their concerns, after all. Or as Curly says to Billy Crystal in City Slickers, “Day ain’t over yet.”
Stock-Splitting Parrot Jokes You Can Post on Your Own Registered Web Site January 24, 2000February 15, 2017 Thank you all for signing up at X.com to get your free $20, your free checking account, and the rest. I have received $82 million in referral fees and will retire Thursday. YOURNAME.COM Want to register a web site of your own? I just did: www.cookinglikeaguy.com. I can’t imagine it will do me any good, but it took just five minutes, cost just $35 (for a year), and was fun. To register your cockamamie domain — www.mycockamamiedomain.com, perhaps — click Register.com. (It’s also a quick and free way to find out what’s available and what’s taken. Is your name-dot-com already taken? The $35 is only charged at the end, if you decide to register a domain.) STOCK SPLITS Brian Miller: “Hi, Andy. What happens if I buy a stock on January 7 that has a pending 2 for 1 split, and the stock split will be payable Jan 25 to shareholders of record Dec 27? What happens to my shares since I was not a shareholder of record Dec 27?” You lose half your money. (Just kidding. These things always get adjusted properly. You don’t have to do anything or worry about it.) YOU WANT I SHOULD TELL IT AGAIN? Terry McCarthy: “I went looking for the Jewish Parrot joke in order to send it to a friend and couldn’t locate it. Thought to myself, Okay, just go through all the old columns in order rather than hit or miss and you’ll find it. In doing so I realized that it appears that anything older than about 2 years is not displaying in your Archives. Is this correct? Would you please send me the link to the JP joke?” It’s from December 23, 1997. I just released it to the archive. May God strike me dead. BUMPER STICKER Read My Lips: No New Texans Tomorrow: Beating the Market. It Is SO Hard – Your Feedback
Cooking Like a Guy™ Recipe #3 January 21, 2000February 15, 2017 Q-Page Folks: Sorry for some recent snafus. Should be fixed now. Todd Jennings: “My father-in-law, a big-time salmon fisherman on his annual trips to Alaska, taught me about wrapping the big fish in aluminum foil, then running them through two cycles of the dishwasher to poach them. I loved the 3×5 card he wrote for me back in the 1970’s: ‘Wrap fish, put in dishwasher, run one cycle, turn fish over, run for another cycle. DO NOT USE DETERGENT!'” Charley Kneifel: “Speaking of ‘cooking like a guy’ — I have a book by Chris Maynard and Bill Scheller titled Manifold Destiny: The One! The Only! Guide to Cooking on Your Car Engine.” R. J. Kirsch: “Another interesting (and funny) cookbook for guys: The Kitchenless Cookbook, by Suanne Beverly. RECIPE #3: SALAD 1. Buy a big bag of ready-to-serve salad. Being rather sophisticated, I prefer the “romaine” kind that has a variety of greens. But there’s nothing wrong with the iceberg/carrots/cabbage kind, either. 2. Dump into a big plastic bowl. Or not; but Tupperware is hard to beat when it comes to elegance and versatility. 3. Douse with soy sauce. Soy sauce should be bought in bulk, as it is an indispensable member of the Salt family and complements any fine meal. 4. Douse with olive oil. In an earlier era, it would have been “drizzle” with olive oil, but that all changed when I saw on the “Today Show” that olive oil actually improves the ratio of your bad and good cholesterol, and has all sorts of other pleasing side effects, such as getting you to enjoy salad in the first place, and improving your Italian. 5. Toss. This is best accomplished with clean hands or two forks. That’s it. And it’s actually less involved than it sounds. Hint: No need to clean the plastic container! Assuming you only were able to fit half the bag of salad into the container (leaving “tossing” room – you can’t fill it too full), now you can dump the remaining half into the same container and clamp on its Tupper-lid. Sure, the salad at the bottom will get a little soy/oil onto it, but why not? That’s the best part. Just put it back in the refrigerator until tomorrow, when you repeat steps #3-#5. Gracious dining tip: Sure, you can eat at six-thirty and have your salad before the entrée. But if you want to dine, you would sit down to the TV at eight o’clock — at the earliest — and have your salad after the entrée.
Why, Overpriced As I Think It Is, You Should NOT Short Yahoo January 20, 2000February 15, 2017 Apologies to those of you who may already have read this in my book, but I hereby give myself permission to reprint this excerpt. If only I had had the brains to read it before I shorted stocks that – had I bought them instead – would have landed me on the Forbes 400,000. Anyway, here’s the excerpt: David Dreman, author of The New Contrarian Investment Strategy, writing in Barron’s, made a good case against random walk [the idea that stock prices always reflect all available information about a stock, and that, thus, their future moves can’t be predicted]. He pointed out that stock markets have always been irrational and concluded that a rational man could therefore outdo the herd. “Market history gives cold comfort to the Random Walkers,” he writes. “‘Rational’ investors in France, back in 1719, valued the Mississippi Company at 80 times all the gold and silver in the country – and, just a few months later, at only a pittance.” It is true, I think, that by keeping one’s head and sticking to value, one may do better than average. But it’s not easy. Because the real question is not whether the market is rational but whether by being rational we can beat it. Had Dreman been alive in 1719, he might very reasonably have concluded that the Mississippi Company was absurdly overpriced at, say, three times all the gold and silver in France. And he might have shorted some. At six times all the gold and silver in France he might have shorted more. At twenty times all the gold and silver in France he might have been ever so rational – and thoroughly ruined. It would have been cold comfort to hear through the bars of debtors’ prison that, some months later, rationality had at last prevailed. A driveling imbecile, on the other hand, caught up in the crowd’s madness, might have ridden the stock from three times to eighty times all the gold and silver in France and, quite irrationally, struck it rich. I am not calling you a driveling imbecile. And I am not saying the Internet is a scam – it is the future – even though, by coincidence, it may indeed be valued at 80 times all the gold and silver in France. (Gold and silver were more important in France, and France more important in the world economy, in 1719 than they are today.) The point is simply that just because I foolishly short stocks from time to time doesn’t mean that you should make the same mistake. It’s far, far safer to buy puts. The problem is, puts on crazily valued stocks are, understandably, crazily expensive – and I am too cheap to pay the premium. So I often go short rather than buy puts, and, nearly as often, twist myself into knots of self-loathing as I watch the nightmare unfold.
Our Little Stock Quadrupled! Quintupled, even. January 19, 2000February 15, 2017 Pieter [writing last week]: “Calton (CN) is up 48% today! What happened? Yes, I’m still holding on to this (thanks for the tip). Is there still a lot of upside here, or is it time to cash in on this sudden spike?” I don’t know what happened. There may be upside, but I am cashing in. Here’s the background: As you know, I’m more prone to provide recipes in this space than stock tips. (Cooking Like a Guy™ Recipe #3 is almost ready. I call it: “Salad.”) But two summers ago, I couldn’t resist. With I-hope-appropriate caveats, I told you about Calton Homes. The stock was then 50 cents. It was $2.75 yesterday. So far as I know, it is NOT something to buy here. But the story illustrates that the stock market may NOT always be rational, and how, in spotting pockets of irrationality, the rational – and patient – investor may find opportunity. Just as it did not seem rational to me a couple of weeks ago that Yahoo! was valued at more than Ford, GM, Dow Jones and the New York Times Company, combined (so I shorted some), so it did not seem rational to me a year and a half ago that CN would be valued at less than the cost of a used corporate jet (so I bought some). CN was selling for about 50 cents a share, down from much higher; there were 28-or-so million shares outstanding; and the company’s founder had returned, after retiring, to see if he could rescue it. My thinking was that he had managed to build the company once, and that he had 11 million reasons to try to rebuild it (because his family owned 11 million shares). So that was possible irrationality #1. Shortly after my writing about it here, it was announced that a large company would assume all CN’s liabilities and buy all its assets for $48 million — about $1.70 a share. Calton would be left with three employees, an American Stock Exchange listing, $48 million in cash, and a four-year “consulting contract” of $1.3 million a year — enough to pay all the remaining shell’s expenses. I assumed the stock price would jump pretty close to $1.70 – maybe even go a tiny bit higher – but it quickly settled in at around $1. So you could, effectively, buy $1.70 in cash (well, near-cash) for $1. Not bad! So that was possible irrationality #2. Indeed, barring something pretty bizarre, this seemed to be all but a “gimme.” Even though I already had a lot of shares, I bought some more. So did some of you. So did the guy with the 11 million shares. The company announced it would use some of its cash horde to buy in stock below book value. That would make the remaining shares more valuable. (To illustrate: say the company managed to buy in half the shares using a third of its cash. Result: Two-thirds of the cash would remain to be divided over half as many shares. Bravo!) At the same time, it said that it would explore other businesses to invest in. (Uh, oh! What if they do something dumb with all that money?) But that if it didn’t find something else to do with it, it would distrubute the cash to us shareholders within 18 months. Today, about 12 of those 18 months have passed. The company has bought in some stock and has made a small Internet investment, which is now branded as eCalton. Will the company burn through its cash hoard and wind up worthless? Perhaps, but as I say, the founder and his wife have 11 million reasons not to screw it up (13.5 million, actually, now that they’ve bought more shares). So what happened last week? Who was buying millions of shares? And taking the price as high as 2 7/8? The company says it has no idea. It’s possible the stock will zoom from here, simply because speculators may notice the volume and the stock’s big move and “like the chart” and like the very low p/e ratio, and – not having any idea what the company does, just that it has a lot of cash, no debt, and a small “dot.com” component – take a flier on it. This would be irrational, in my view – but when has that ever stopped a stock from rising in this market? Or it’s possible that in a few months the company will distribute its cash and close it doors, leaving the people who paid $2.75 a share with a modest loss. Or perhaps Calton will allow itself to be acquired for a modest premium to today’s price by some company that wants to “go public” the easy way – by acquiring an already-public company. Anyway, I would not be amazed to see the stock go higher – and I naturally hope it does, because I still own a lot – but, based on what little I know, I’ve already begun selling. Tomorrow: Why, Overpriced As I Think It Is, You Should NOT Short Yahoo
IRA Withdrawals January 18, 2000April 22, 2012 Ray: “I am 62 and do not need my IRA money to live. Is there a formula/guidelines on when/how much to remove each year, considering growth tax-free, tax at withdrawal, inheritance tax etc.?” Ideally, you’d delay beginning withdrawals until the year in which you turn 70-1/2 . . . and then withdraw the IRS-mandated minimum each year. (There’s a formula, but you have 10 years to learn about it and it may change.) Also, if you plan to give some money to charity at death, you should do it by naming that/those charities as the beneficiaries of your IRA. Otherwise, your heirs will have to pay income tax on the withdrawals AND estate tax. Give your heirs “regular” money from outside your IRA instead — money on which income tax has already been paid. To the charity it won’t make any difference (charities don’t pay taxes); but to your heirs it will. (One small drawback: with a charity as the beneficiary, you might be required by IRS regulations to withdraw money from the IRA faster, once you turn 70½, than if, say, your spouse were the beneficiary, thus exposing more of it to taxation.) Tomorrow: Our Little Stock Quadrupled