Exercising Your Incentive Stock Options July 31, 2001February 20, 2017 He may be wrong on most of the issues, and a modest choice, at best, to entrust with more responsibility than anyone else on Earth. But you’ve got to give him this: the man can dance. Click here. Janice B: ‘Recently, I read that the tax consequences are different for the same options depending on whether they are exercised when they are “in the money” (what does that mean exactly?). For instance, suppose you have options at $10, exercise them (buy the shares), and then later they go to $20 and you sell. Is that different tax-wise from waiting until they go to $20, then exercising (buying at $10) and selling right away?’ ☞ In the first place, ‘in the money’ means ‘worth something if exercised today.’ So if your employer’s stock is $8 and YOU have the privilege of buying it any time in the next 5 years at $10, well, that is a privilege . . . but not one you’d want to exercise today. Your options (in this example) are out of the money. When the stock gets to $12 (or even to $10.01) your options are ‘in the money.’ And when it gets to $20, they are very nicely in the money. So what happens if you exercise your option? One of two things: Exercise and sell and you have a taxable short-term gain. Exercise and don’t sell, planning to wait a year and report a more lightly-taxed long-term gain, and you have the alternative minimum tax to worry about. For AMT purposes, the excess of the fair market value of the stock over the exercise price is included in income immediately, even if you don’t sell and the stock you hold then collapses. That’s what happened to a horde of Silicon Valley “option millionaires” who exercised incentive stock options in early 2000, planning to hold the stock a year and a day to get long-term gains treatment. The value of their stock plunged, but their Alternative Minimum Tax bills remained huge. Not only did they not make a huge profit on their options, they lost a fortune because of the taxes. So . . . two rules: 1. Only exercise options when they’re sufficiently “in the money” to make you a nice pot of money. Obviously, there’s rarely any point in exercising an out-of-the-money option. (Why exercise and buy at $10 when you could buy on the open market at $8 and preserve your option, to boot?) And generally, an only-slightly-in-the-money option shouldn’t be exercised either, at not least not until shortly before it expires, because the general trend of stock prices (speaking very broadly here) is up. If options have a long way to run, think twice about cashing them in, because you give up their remaining “time value.” (Having the option but not the obligation to do something for the next few years can be very valuable.) It certainly makes sense to cash in if the stock has gone nuts, as the dot-coms did. But if it’s stock in a company whose profits tend to grow, and whose stock price might grow along with profits, then the longer you wait, the deeper into the money might your options be when you exercise. This is a very tough decision, and depends on: (a) how well you think the company will do; (b) how well you think its stock will do (if interest rates rise, even the stock of companies doing well may fall); and (c) your own personal circumstances. Two people with identical stock options could very rationally make different decisions if one were living hand-to-mouth (exercise! sell! pay off those credit card balances!) and the other had a $2 million inheritance and could afford to risk that the stock would go down instead of up. (Because it’s such a tough decision, what most people naturally and sensibly do is hedge their bets, exercising a little bit at a time instead of all at once.) 2. Once you do exercise . . . SELL immediately and pay the taxes.
Junk Bonds Wobbly Gyros, and Marriage Bonds July 30, 2001February 20, 2017 JUNK BONDS Bob Price: ‘I guess we can forgive your 88 year old friend for not understanding how bonds work when apparently American Express doesn’t either. Sigh.‘ ☞ For those who skip the Business headlines, Amex wrote down its bond portfolio by yet another $400 million, explaining that it hadn’t understood the risks it was taking. Ouch. WOBBLY GYROS In acknowledging my misuse of the phrase ‘begs the question’ last week, I lamely explained, ‘You’re right. My gyro was wobbly. I’ve gone back and fixed it.’ Chris Williams: ‘Technical tidbit. Gyros don’t wobble anymore. Gyros are now made from lasers and fiber optic tubes formed into rings. The standard is now RLG, Ring Laser Gyro. [Ah, yes. But my gyro was built in 1947, and it definitely wobbles.] A laser is pointed into the fiber optic ring and a sensor is placed at the other end. The sensor is so accurate is can tell if the light coming into it changes its ‘phase.’ ‘Phase of a light signal is . . . well, visualize a sinusoid. You know, like a wave on the ocean. Up and down and back up. Each position on the sinusoid is a position of ‘phase.’ A change of phase means you are at a different point on the sinusoid. ‘If the laser is pointed into the tube, illuminated continuously, and the entire assembly is torqued (twisted) around the axis of the ring, a phase change will occur in the sinusoid. The light has either farther or less far to travel than it did when it left the laser and the twist wasn’t in progress. The sensor can detect this, and measure the amount of twist, and command something to twist it back to the original position. Note this twist measurement was all mechanical gyros ever did, and they would slow down due to friction over time and lose accuracy. RLGs don’t. Who makes ’em? Litton (Northrup Grumman) and Honeywell.’ ☞ Sure, sure, but doesn’t that beg the original question? What was the original question? MARRIAGE BONDS From the op-ed page of the Wall Street Journal comes this conservative’s view of gay marriage. Tomorrow: Exercising Your Stock Options
The Legal Blonde, the Sleazy Bank, The Begged Question, and the Gift Annuity July 27, 2001January 26, 2017 THE LEGAL BLONDE See Legally Blonde. It’s pretty (well, entirely) silly, and I feel quite sure that Harvard Law School has more than 100 students in its graduating class. But I think it will be pretty hard to see this movie and not come out laughing and smiling. And people who laugh live longer. Which, Philip Morris would doubtless argue to the Czech Republic, is not entirely a good thing. But fret not for Philip Morris. In the first place, they were right. The health costs of smoking are balanced by the cost savings realized in cutting people’s post-productive years short. A country that could give its citizens a gold watch at 65 and strychnine at 66 would have its Social Security problem totally knocked. And in the second place, whatever embarrassment Philip Morris may have suffered over its Czech memo, it can rest easy in the knowledge, mentioned here last month, that the Bush administration is squarely on its side, our tax dollars going to help promote Marlboros abroad. It’s a matter of America’s IN-trests, as the President would say. THE SLEAZY BANK Warren Spieker: ‘I noticed that in yesterday’s column you don’t name the sleazy bank. Personally, and I bet there are others, I’d like to know what bank is pushing this kind of stuff on seniors. On the one hand, withholding the name seems “honorable” and above the fray. On the other hand, maybe you can raise the level of consciousness amongst a group of consumers that just might make a difference.’ ☞ I didn’t name the bank lest some take it to be a practice of this specific bank. All banks do this! (Well, most.) That’s the point: beware whoever your nice bank, or nice insurer, or nice financial planner is. They almost all wish you well (they really do), but often they have a personal stake in what they’re recommending. Which is fine – they have to eat, too. But neither is it your obligation to feed them if you’d rather take the simpler, cheaper, direct route. Why should my 88-year-old pal pay $1,900 up front plus a further $300 a year for a recommendation on where to put his $40,000? (Or else nothing up front but 1.59% – $636 – a year?) Aaron Stevens: ‘[An alternative for your 88-year-old friend:] The Vanguard New York Insured Long-Term Tax-Exempt Fund holds AAA-rated average rating bonds, and only a 0.20% expense ratio.’ THE BEGGED QUESTION Andrew Beaujon: ‘You write, ‘Even the AAA bonds beg the question – which I hope we never have to see answered – of what would happen in a really terrible economic collapse.’ To ‘beg the question’ does not mean the same thing as ‘to raise the question.’ Thank you for allowing me to get this off my chest.’ ☞ Andrew – copy editor of Spin Magazine – is quite right. ‘Begs the question’ means (to me) ‘seems – but fails – to answer the question at hand, by giving it the run-around.’ It was late. My gyro was wobbly. I’ve gone back and fixed it. Thanks. THE GIFT ANNUITY Andy Lutton: ‘Another option your 88-year-old friend can consider is a Charitable Gift Annuity. Considered a ‘split interest gift’ by the IRS, the Gift Annuity is a guaranteed income for life in exchange for a gift to a qualified charity. The payment rate is based on the donor’s age; most charities use the rates established by the American Council on Gift Annuities. The rates are based on actuarial tables and life expectancies. The suggested rate for an 88-year-old is 11.4%. That’s an annual payment of $4,560 if he funds the Gift Annuity with the $40,000. ‘The ‘catch,’ of course, is that the donor no longer has access to the principal. This is an irrevocable gift. After he passes away, the remaining capital goes to the charity that issued the Gift Annuity. For a lot of people, though, that is OK. Some were planning on leaving money to charity anyway; others don’t have family or don’t want to leave everything to family. I wouldn’t recommend this if the $40,000 CD is the gentleman’s primary asset, or if he has family obligations to take care of with the principal. ‘Additionally, the donor receives an immediate charitable tax deduction. Because he is getting something in return for the gift (a life income) the deduction is not the full amount of the gift. An 88-year-old would receive a deduction of approximately $21,447 for a $40,000 Gift Annuity. Assuming he is in the 30% tax bracket, between federal and state taxes, that is a tax savings of about $6438. ‘There’s more. Another benefit is that a portion of his annuity payment is income tax free for the first several years – the IRS considers it a return of principal. When you take that into account, his ‘equivalent’ rate of return is even higher. ‘Furthermore, there can be additional tax benefits to using appreciated stock instead of cash from a CD. ‘A final benefit is that your friend will have the satisfaction of helping a worthy organization. The great thing about my job is that I get to work with a lot of very nice people who really want to help make the world a better place. Sometimes they can help do that, and get some financial benefits themselves too.’ ☞ Andy is Vice President of LifePath Hospice and Palliative Care in Tampa. Setting up a gift annuity for a relatively small amount may or may not be practical (the charity of your choice may have some pointers for you). Another way to do it would be to put $20,000 or more into the pooled-income fund of Fidelity’s Charitable Gift Fund. It’s easy, with much the same advantage as a gift annuity; except that with an annuity you get a guaranteed annual income for life, some of which is a return of your own principal. With the pooled income fund, you would get a somewhat smaller, and less certain income – namely, whatever income the pool earns.
How the World Really Works July 26, 2001March 25, 2012 I have an 88-year-old friend who had a $40,000 certificate of deposit come due. The nice young man at the bank commiserated with him about the low interest rate CDs pay these days – lower still after tax – and suggested that he put his money into the Rochester Fund instead. ‘It pays 5.75% tax-free,’ explained my old pal when he called – what did I think? I thought I had better look into it. And sure enough, checking Morningstar, one learns that this is a fund that invests primarily in very long-term New York tax-exempt bonds, mostly maturing between 2020 and 2039 (which makes them risky if the general level of interest rates should rise). Only a third of them are rated AAA or AA (which makes the other two-thirds less than ironclad). If the general level of interest rates should rise, the value of a bond maturing in 2039 plummets. Not good if you should want to sell the bond before maturity. Meanwhile, if the general level of interest rates should fall sharply, the value of your holdings rises – but not as much, because most bonds in this situation would be ‘called.’ Just as you would refinance your house if mortgage rates plunged, so do municipalities call in their too-generous bonds and replace them with lower-interest ones. So if rates go up, you get clobbered; and if they go down, you don’t gain much. It’s ‘heads I win, tails you lose.’ Meanwhile, if one or two of the lower-rated bonds Rochester Fund holds should default, that would hurt, too. (Even the AAA bonds raise the question – which I hope we never have to see answered – of what would happen in a really terrible economic collapse. Many of those AAA bonds have their AAA ratings not because the issuer is rock-solid, but because the bond issue has been ‘insured’ by one of a couple of giant insurance companies in this business. Well, fine, but who insures them? If a single bond issue went bad, no sweat. But if it were a more general problem, bringing hundreds of municipalities to their knees, what good would this insurance be? My guess is that we’ll never have to find out, because the real insurer, in that sort of situation, would be Uncle Sam. The government just wouldn’t allow an economic collapse so severe it would bring down the muni-bond insurers. But one never knows.) All this worrisome stuff falls into the No-Free-Lunch Department – and I can live with it. Municipal bonds rarely default, even if they’re only rated A or BBB. (Rochester Fund also has 2.4% of its money in BB and B bonds, and 20.5% in unrated bonds. But unrated bonds are generally unrated not because they’re bad, but because they’re tiny issues, not worth the issuer’s money to get rated.) What I cannot live with are the sales and expenses charges the bank didn’t mention to my 88-year-old friend. My friend, I should mention, is smarter than a college-full of kids. But he is 88. It’s a little hard for him to hear and a little hard for him to see. So if the nice young man at the bank tells him something, he may not rush to read the fine print. The fine print reveals a 4.75% sales charge on this fund – meaning $1,900 of his $40,000 would be lost immediately in a sales fee – and then a .74% annual expense fee – in this case a further $300 or so a year. It is not a coincidence that the bank recommends a fund with a high sales fee and high expenses. The bank gets a piece. Rochester, one of the Oppenheimer family of funds, offers this fund with two other pricing plans, including one with NO load but a 1.59% combined annual expense ratio. With safe tax-free bonds yielding 4% or 5% these days, to pay 1.59% in annual expenses is to give up about a third of the yield. Why do that? Why not just buy bonds directly, through a broker. You won’t need diversification if you buy ‘general obligation’ bonds of a state or major city, which are almost surely safe. And you’ll be able to select exactly the maturity that fits your plans. Just be sure to shop around for a decent price on a widely-traded issue. Nothing obscure that will be hard to sell at a fair price. Something issued in great quantity, and thus traded often. (Of course, if you select a bond that you hold until redemption, there will be no selling costs.) Or call Vanguard and invest in a tax-free bond that’s both no-load and low expenses. How many octogenarians had CDs come due last month? A lot, I’d guess. And how many of those found themselves advised to roll them over into the Rochester Fund and its ilk? A lot, I’d guess. It’s how the world really works.
Prudential’s Imminent Demutualization July 25, 2001March 25, 2012 Mutual insurance companies (and mutual savings banks) ‘demutualize’ for two reasons, one stated, one not. The stated reason is that it gives them needed access to capital markets – the ability to float bonds, issue stock. This, they say, should make them better able to fund the modernization required to remain competitive and serve their customers. Well, maybe. Most of the insurance companies I know already have more than enough cash to modernize, and they sure don’t need to build new buildings. The unstated reason is that, heck, executives of all the private insurance companies have a shot at getting rich and the chance to do the really fun stuff, like mergers and acquisitions – why not us? There’s some intersection of the two. It could be argued that talented executives will all be attracted to the places that can offer stock options, leaving the least talented to run the mutual companies, and that mutual policyholders (and depositors) will thus suffer in the quality of the financial products and customer service they receive. I don’t much buy that argument. If true now, it would have been true for decades. Yet a number of mutuals have done just fine in attracting talent and providing value. In any event, Prudential Insurance is poised to demutualize, distributing its roughly $11 billion surplus to its roughly 11 million policyholders (who technically own the company), and one of those 11 million asked me how he should vote. (The policyholders get to vote July 31 on whether to demutualize.) The answer is: it doesn’t matter, it’s going to pass anyway. The important question is: should he take stock or cash. And here, although nothing like this can ever be guaranteed, one would come down strongly in favor of taking the stock. That’s because the demutualization is designed to be good for management (who designed it), and they want their own stock, and options, pegged at a nice low price. I called a friend who’s made it his life’s work to try to force the mutuals to give policyholders a fairer shake when they demutualize. How badly is this one treating the shareholders, I asked? Well, fairly badly, he said, but it could be a lot worse. That’s pretty high praise under the circumstances. Interested in this kind of stuff? Click here.
Sorry! July 24, 2001January 26, 2017 Sorry for posting yesterday’s column late . . . for offending Democrats by suggesting checks be sent to the RNC . . . for offending Republicans by suggesting checks be sent to the DNC . . . and (while I’m at it), for offending cat-lovers on Friday. I have learned there are some furry things about which one just does not joke.Meanwhile, don’t miss Paul Krugman’s crystal clear piece in Sunday’s New York Times on the Social Security report that has just been issued. One paragraph to suggest its flavor: The commission, in an attempt to sow panic, claims that Social Security is in imminent peril – that the system will be in crisis as soon as 2016. That’s wildly at odds with the standard projection, which says that Social Security reserves will last until 2038. And even that projection is based on quite pessimistic assumptions about future economic growth and hence future payroll tax receipts. If you use more optimistic assumptions – say, the assumptions in the budget forecasts that were used to justify Mr. Bush’s tax cut – the system will still be financially sound in 2075. And one more clip (well, this stuff is important!): . . . [T]he commission declares that these accumulated assets [in the Social Security Trust Fund] aren’t “real,” and don’t count as resources available to pay future benefits. Why? Because they are invested in government bonds – perfectly good assets when they are accumulated by private pension funds but worthless, says the commission, when accumulated by a government agency.
Here Come The $300 / $600 Checks! July 23, 2001February 20, 2017 The frugal Republican administration just spent tens of millions of our tax dollars dollars to send people letters telling them to expect their $300 and $600 checks. You may have gotten one yourself. ‘This mailing was a complete waste of taxpayer money,’ said Republican Congressman Peter Hoekstra, of Michigan, miffed not least because 500,000 letters went out with the wrong information, leading to further expense in correcting them. In any event, the checks have begun going out. The lower the last 2 digits of your Social Security number, the sooner yours will arrive. (Those ending in 00-09 arrive this week; 90-99 will arrive in late September.) If you run balances on high-interest credit cards, that is unquestionably the place to apply your windfall: pay off those balances! Not having to pay 21% (or even 11%) on a credit card, is like earning 21% (or 11%) tax-free, risk-free. Get off the debt treadmill! But if you don’t particularly need the money, you may want to join those who have decided to support some charitable or political cause they care about. One possible recipient (not my own choice) is the RNC. If you are pleased with the vision of George W. Bush, Trent Lott, Tom DeLay, et al, endorse your check over to the Republican National Committee and mail it to: Robert M. Duncan Treasurer Republican National Committee 310 First Street, SE Washington DC 20003 1. Note that political contributions are NOT tax-deductible (and that only U.S. citizens and permanent residents may make them). 2. Endorse your check: “Pay to the order of the Republican National Committee” (and sign it). 3. Include a business card or a note with your OCCUPATION and EMPLOYER for the RNC’s report to the Federal Election Commission. (This can be “homemaker/self” or “retired/none” — whatever applies.) Maybe include, also, a note to let the RNC know which of their policies you particularly applaud – ‘Drill the Arctic Wildlife Refuge!’ ‘Preserve the gun-show loophole!’ ‘Shut down the Korean peace process!’ ‘Scuttle the nuclear nonproliferation treaty!’ ‘Cut alternative-energy research!’ ‘Criminalize abortion!’ ‘Help Big Tobacco!’ ‘Abolish tax on America’s 4,000 wealthiest estates!’ (My personal favorite: ‘Global warming, global schwarming!’) You could of course just stick to the traditional ‘Cut taxes!’ and ‘Smaller government!’ But that’s getting a little frayed around the edges. For one thing, the federal payroll got significantly bigger under Reagan/Bush, not smaller. It was under Clinton/Gore that the federal payroll shrank sharply – both military and non-military. And it was under Reagan/Bush that taxes on the average American, when you include hikes in Social Security payments, went up, while only taxes on those at the top were slashed. I happen to think it was right to slash my taxes. The top federal bracket had been a preposterous 90% under Eisenhower, a nearly as preposterous 70% from Kennedy all the way through Johnson, Nixon, Ford and Carter, a still-too-high 50% in Reagan’s first term and then 28% in his second. Reagan deserves a lot of credit, I think, for slashing that 70% top bracket. It’s just that by going all the way down to 28% – much as we lucky few loved it – he overshot the mark. The result: Huge deficits and a quintupled National Debt. I think we got the balance about right under Clinton/Gore, leaving income tax rates unchanged for 98% of taxpayers, lowering them to even further-below-zero for the working poor (via an expanded earned-income tax credit), but raising the top brackets to 36% and 39.6%. Do I love paying 39.6% of my marginal income to Uncle Sam? I do not. But I did love the prosperity of the last 8 years, and the extraordinary feeling that we actually had begun, finally, to pay down the $5.5 trillion national debt. It’s not that I’m fixated on paying off the debt. As I’ve written many times: we don’t need to. But paying it down in good times will give us that much more cushion and flexibility to weather, or even largely avoid, bad times. So before you write, ‘more tax cuts!’ on your note to the RNC, remember that tax cuts have consequences. Already, deficits seem increasingly likely . . . which could lead the bond market to demand higher interest rates, your adjustable mortgage payment to rise, the dollar to weaken, imported products to become more expensive – just think back to the last Bush economy. The Bush tax cut, let alone all the time bombs it contains down the road, will pretty much put an end to significant debt reduction. It was nice while it lasted. That said, I recognize many of you disagree with me. I really do invite those of you who are excited by the direction that Bush / Lott / Helms / Armey / DeLay are taking the country to send your refund checks to the RNC. For those of you not so inspired, there is a whole different set of groups to whom you might endorse your check. (See, for example, the set of choices suggested at RejectTheRebate.com.) Your church, your child’s school, Indian earthquake relief – the list is practically endless. Kathryn Lance: ‘A colleague has suggested that we all send our $300 tax refunds as donations to the Democratic Party. Great idea, or what?‘ Well, perhaps not surprisingly, I do think that is a great idea (and Kathryn was only one of several of you who have suggested it to me). The DNC is probably the one place, above all others, that President Bush, Karl Rove, et al, would not like to see people send their checks. If this appeals to you, you might want to print this out or address your envelope now to have handy when the great day arrives: 1. Remember that political contributions are NOT tax-deductible (and that only U.S. citizens and permanent residents may make them). 2. Endorse your check: “Pay to the order of the Democratic National Committee” (and sign it). 3. Include a business card or a note with your OCCUPATION and EMPLOYER for the DNC’s report to the Federal Election Commission. (This can be “homemaker/self” or “retired/none” — whatever applies.) 4. Maybe include, also, a note – ‘Reproductive rights!’ ‘The environment!’ ‘The national debt!’ ‘Stem cell research!’ – to let the DNC know what you care about. (On the issue of stem-cell research – frustration over which, as you may have seen on the front page of the Wall Street Journal last week, drove one of our top scientists to emigrate to England where his efforts are ardently sought – may we assume that today’s opponents will, on principle, agree to forgo, and deny their children, the miracle therapies that will likely result?) 5. Include your e-mail address to help the DNC extend its effectiveness. 6. Mail to: Andrew Tobias Treasurer Democratic National Committee 430 So. Capitol St., SE Washington, DC 20003 Think of it as poetic justice. Unlike the RNC, the DNC actually needs the money.
Painting the Tape July 20, 2001February 20, 2017 Paul Morton: ‘I just noticed CN went up over 6% today, from 80 cents to 85 cents a share. And the number of shares traded so far was 1,900. Which to my mind begs the question how many shares of a stock have to be purchased before it sends the price up? I mean, I could afford to buy 1,900 shares of CN. I know it’s illegal to manipulate the stock by buying shares to send its value higher, and then dump them once the value is higher. But isn’t it possible to buy shares in a stock hoping it would go up. Then noticing it HAS gone up, perhaps unaware it has gone up because of YOU. Or maybe you’re aware of what caused the shares to go up after the fact, but that wasn’t your intention on buying the shares initially. So you dump the shares at a nice profit. Sort of premeditation versus temporary impulse? Anyway, Calton seems in a place where one could almost single-handedly send the price up with little investment. It’s a chicken versus egg thing. Who is the finger to be pointed at and when?’ ☞ Well, the first thing to say about this, though off the point of your question, is that the big 71% profit in CN I was gloating about – for those of you who bought the stock a few weeks ago at $5.80, got that $5 return-of-capital dividend shortly thereafter, and then saw the stock open at $1.40 a day or two later (thus effectively turning your 80-cent risk into $1.40 in just two or three weeks) – that awesome profit has now shrunk to zero with the stock back around 80 cents. I know at least one of you did sell at $1.40. Mazel tov. For the rest of us, we’ll just have to see how this speculation turns out. But that’s not what you were asking. The answer to what you were asking is: forget it! In the first place, as you point out, stock manipulation is illegal. More practically, your plan would not work. Yes, by buying 1,900 shares of the stock, you could boost its price, paying (in this example), 85 cents for most of it . . . plus a commission, which can be as low as $13 on a limit order at some deep discount brokers, plus another $13 to sell, but as much as $38 each way – $76 total – at other discount brokers that charge a 2-cent-a-share minimum. (That would be a 4% handicap to overcome.) The problem comes in when you go to sell. Just as a purchase of 1900 was enough to drive the stock up, so you would have paid 85 cents for most of it, a sale of 1900 shares is likely to drive the price down. You might sell the first 100 or 200 or even 500 shares at 85 cents, just as you bought the first 100 or 200 or even 500 at 80 cents. But the balance might well get sold at 80 cents, just as most of your purchase was completed at 85 cents. So what have you accomplished? You bought the stock at 85 cents plus commission and sold it at 80 cents minus commission. You had the fun of seeing your transactions move the market. But you lost money. What some people do attempt to do is ‘paint the tape,’ perhaps in secret concert with a pal or two. They create a flurry of unusual activity in a stock, which attracts the attention of folks who sit mesmerized by such things (in the old days, a narrow ribbon of ticker-tape spewing out of a machine; these days, a narrow ribbon of type dancing across the TV screen or computer monitor), and who think, ‘Gee, something must be going on. Someone must know something. I’ll jump on board.’ That makes the activity and upward spike in the stock price even more noticeable, attracting other momentum players, chart readers and assorted riff raff who care nothing about value and are just in it as a video game – and before you know it, there’s a full-fledged little rally going on in this stock (and maybe some short-covering, too, by nervous, soon-to-be-panicking, short-sellers). So now the stock is really on a roll, CNBC commentators are trying to come up with knowing one-line explanations (‘expectations of street-beating third quarter earnings’), and it’s easy for you and your pal(s) to sell the shares you traded back and forth to get this going. But your buying 1,900 shares of CN, and driving it’s price – $1.40 a couple of weeks ago – up to 85 cents from 80? Nah. Not gonna attract any interest at all. Rarely, even if you made a concerted, illegal effort like the one above, would you be able to ignite enough of a rally to justify your costs and economic risks – let alone the criminal liability. Fun to think about, though, isn’t it? In an earlier millennium, much the same sort of thought was put into turning baser metals into gold. Rejected Hallmark Card (or so the spoof goes): My tire was thumping…. I thought it was flat…. When I looked at the tire…. I noticed your cat… Sorry.
Follow-Ups July 19, 2001February 20, 2017 MONEY MARKET FUNDS Stephen Gilbert: ‘A reader asked, ‘What do you do for a money market account?’ And you answered, ‘I don’t pay much attention to this. I just use the ones that come linked with my brokerage accounts.’ This from the guy who once wrote that you could make more by buying ketchup in cases on sale and keeping it under the bed? I keep my money market funds in a Vanguard Treasury money market account. It yields 40 or 50 basis points more than Schwab’s equivalent account, and is not taxed by the state. (California asks for 9.3% of my income.) Maybe I keep too much in my money market fund, and maybe I only earn $250 extra a year, but I’d rather have it than let Charles Schwab keep it. I don’t think Charles needs the extra money anyway.’ ☞ Sounds good to me. It’s not that I’m no longer frugal. I am now sporadically frugal, where once I was maniacally so. The trick is to be maniacal when you’re young, so you can afford to be sporadic when you’re older. PRICELINE Mike da Mailman: ‘You are so correct about priceline. We have used them 3 times. I just got round trip tickets from Sacramento CA to Norfolk VA for $225 instead of $575. Works for me. Spread the word so they don’t go the way of other dot.coms.’ AIRPORT PARKING Jim Maloney: ‘Your suggestions for ways to save money are often on-target. However, the airport parking one didn’t pan out. I am flying out of LAX for an 11-day cruise and needed long-term parking near the airport. When I entered my data in their system I received two quotes for $99 for both companies — 105 Airport Parking and Park Air Express (which are actually owned by the same company). However, when I went directly the Park Air Express website they were offering parking at $7.99/day with an internet coupon of 1 free day. So the total price becomes $79.90 versus the AirportParkingLots.com price of $99. It pays to shop around.’ ☞ Indeed it does. ICE COLD DE-LITES Chuck Smith: ‘Never fear. I won’t take the last box of GOOD HUMOR ORIGINAL POPSICAL BRAND SUGAR-FREE TROPICAL ORANGE CARRIBBEAN ICE BARS. Instead, I will purchase LIFESAVERS SUGAR FREE POPS THAT HAVE ONLY 10 CALORIES PER POP. See attachment.’ ☞ I am very psyched. I couldn’t find a URL to show you the attachment, but we are talking here about one brilliantly colorful set of 12 Lifesaver-flavored single-stick ice pops. What time does the Food Emporium open? I’m there. FREEZY MATH Mark Roulo: ‘You write: “Fifteen calories . . . Have one every ten minutes for an hour and you’ve burned twice as many calories (just by breathing) as you’ve consumed.’ But 15×6 = 90 calories/hour. Twice that = 180 calories/hour by breathing . . . 24 hours x 180 = 4320 calories/day. This seems high.’ ☞ You’re right. I meant heavy breathing.
The $500 Billion Popsicle July 18, 2001February 20, 2017 I am of two minds about this. If I tell you, you might get the last box in the store, leaving me high and dry. But if I don’t tell you, there might not be enough demand to make it worth the store’s while to keep them in stock. What to do? What to do? Oh, all right. But if you get to the freezer compartment and see just one box left, I want you to wait until they restock: GOOD HUMOR ORIGINAL POPSICAL BRAND SUGAR-FREE TROPICAL ORANGE CARRIBBEAN ICE BARS. Fifteen calories, no fat, each one a guilt-free de-light. Have one every ten minutes for an hour and you’ve burned twice as many calories (just by breathing) as you’ve consumed. Thorsten Kril: ‘I discovered a simple rule: once a company reaches $500 billion or so in market cap [as Good Humor may, when the word gets out], it will turn south. I sold my CSCO and INTC on that basis last summer. MSFT I missed – it had already dropped from $500B to $250B when I discovered the rule. I never owned GE, but it looks like a good candidate for my rule, too. And yes, I know, rules stop working when you discover them.’ ☞ Yes, usually they do. It may be a while before we have a chance to test this one again, though. David Smith: ‘I read No Such Thing As a Bad Day. It was very moving, and I enjoyed it. If you ever get a chance, read Trashing the Planet and/or Environmental Overkill by Dixy Lee Ray. They’ve really made me think.’ Barry Raine: ‘You may want to tell your readers about airportparkinglots.com a sort of national network of airport parking lot services in and around many airports all over the US. The deal is that if you make advanced reservations for a spot, you save a huge amount of money as I did at Bradley International in Hartford when I needed a last minute flight. $(25 for eight days) Also, I bought the ticket (from Hartford to New Orleans roundtrip on Continental) through lowestfare.com and only paid $207 with only a 36-hour advance purchase.’