Is This the Bottom? June 28, 2002February 21, 2017 John Mahoney: ‘When the media said the party would go on forever, it was time to sell. But this recent headline in USA Today – Stocks Drop, No Bottom in Sight – makes me think it’s about time to get back in.’ ☞ It may be. But first you have to be sure stocks have gone well below their intrinsic value before we would be at or near a classic bottom. Are most companies selling for unreasonably low prices relative to their assets and earning potential? Some would question this. You’ll know it’s the bottom – or at least a good time to buy even if stocks drop further before bouncing back – if you can say with the same sense of wonder that you said it at the top: ‘Can you believe these prices? They bear no relation to value! They are INSANE!’ Or if you can say, as I concluded many of my pieces in the 1974-1982 period . . . ‘If the world doesn’t end – and it usually doesn’t – this has got to be a great time to buy stocks. (And if it does end, what difference does it make?)’ In large part because interest rates were high, many companies were selling at under 10 times earnings. I hope interest rates never go up again, but I’m not sure we can assume that they won’t. Maybe this bear market will end before prices seem insanely low. I hope so! But usually, bear markets go to extremes of undervaluation just as bull markets go to extremes of overvaluation. We’re getting there. We may still have a way to go.
Fatten Your Wallet AND Your Recording Capacity June 27, 2002January 25, 2017 YOUR GOVERNMENT AT WORK Having won nearly half the popular vote – which is to say, very nearly as many votes as his pro-choice, gay-inclusive opponent – George Bush has set America firmly on the side of Islam when it comes to these issues. To wit: Islamic Bloc, Christian Right Team Up to Lobby U.N. By Colum Lynch Special to The Washington Post Monday, June 17, 2002; Page A01 UNITED NATIONS — Conservative U.S. Christian organizations have joined forces with Islamic governments to halt the expansion of sexual and political protections and rights for gays, women and children at United Nations conferences. The new alliance, which coalesced during the past year, has received a major boost from the Bush administration, which appointed antiabortion activists to key positions on U.S. delegations to U.N. conferences on global economic and social policy. . . . ☞ Strange bedfellows. SAVE MONEY; NEVER DELETE A SEINFELD Michael Adberg: ‘FatWallet.com has a forum where people post details of really good deals they find, mostly online. You’ve got to read it for a while to understand all the abbreviations and shorthand, but many people have gotten cheap satellite TV ($9/month), free clothes (from BrooksBrothers.com, no less, myself included), cheap computer items, free frequent flyer miles, discounts at online retailers, and more. Back in the heady Internet days, the free offers abounded; but it’s still quite valuable, and its the best of the similar forums out there. And while I’m at it, can I plug my own website? We can increase the capacity of any standard model TiVo to over 200 hours of recording capacity.’ ☞ Whether or not you already have TiVo, Michael’s website is worth a look. If you do have one, he has a page on how to protect it from problems. And he can help you enhance its capacity. If you don’t have one – well, why not? As suggested here several times before, TiVo is great (if not exactly cheap)! Michael will sell you a refurbished and upgraded one. (My only caveat here: he does not yet sell the TiVo 2 model, so far as I know, and that model has a far more robust modem than the original, which means less likelihood you would ever need to send your unit in for repairs.) More questions? You’ll find most of them addressed in his FAQ. Tomorrow: Is This The Bottom? Monday: The Real Estate Bubble
Three Little Speculations June 26, 2002February 21, 2017 If you own country or region mutual funds, click here. The ‘jockey’ is even heavier than we thought. (Thanks to Roy Gilbert for bringing this link to our attention.) # So you have the great bulk of your stock-market-money in index funds – the smart way for most people to invest in the stock market – but, in keeping with the notion I’ve suggested from time to time, you have a little of your money in a few speculative stocks . . . for three reasons. First, it keeps your blood going, just as a lottery ticket might. You are not made of stone, after all. You are descended from warriors! You fly through the heavens like Mercury, racing to Zeus with the news! Your middle name is adrenaline! All right, calm down. Second, if one of your little speculations hits big (and you have held it a year and a day), you can sell it for a lightly taxed capital gain, or use it to fund the next few years’ charitable giving. (Set up an account at the Vanguard Charitable Endowment Fund or Fidelity’s or Schwab’s.) Third, if one of the stocks tanks (as at least one surely will), you use the loss to offset up to $3,000 of ordinary income a year. Speculative stocks are going to rise and fall far more dramatically than index funds. They will give you the sharp gains and losses that can help you minimize taxes. Index funds will give you the good long-term performance that will keep your stock-market performance well ahead of that of most of your friends and neighbors – even as you spend less time and worry doing it. But which speculations? Here are three I own, hoping they might be a lot higher in two or three years . . . but recognizing they might well tank: our old friend BOREF, which makes amazing claims on its website, trading back under $4 a share (valuing the whole thing at $20 million); CSPLF, a natural gas producer in Canada, also under $4; BMRN, a pharmaceutical company trading just above $4. All three could be zero three years from now. With luck, one might be higher. But remember: you have no business being in the market at all if you still have any high-interest debt or lack a substantial rainy day fund. The stock market is only for your long-term money. And remember: many stocks that seem cheap now, down 90% or more from their highs, will just fade away . . . while others, that may actually be cheap, are likely to fall further anyway, for two reasons. First, the mood has shifted. Where two years ago bad news was ignored and stocks were climbing irrationally higher regardless of value (‘value schmalue’) as everyone wanted to get in on the game, today fear has begun to overtake greed, as people lose stomach for the game and just want to get out, regardless of value. Second, there is likely to be a lot of tax-loss selling as the year wears on, and it will be concentrated most heavily on the stocks that have shown the largest percentage losses.
Dick Davis #23-#24 June 25, 2002February 21, 2017 Until we get to the end of Dick Davis‘s 35 tips, I don’t have to declare an Andy Day – I can declare a Dick Day: Item 23: Predisposition Toward Failure Human nature makes us ill-equipped to achieve success in the market. Fear and greed are powerful, deep-seated emotions and work against us. They can be harnessed but only with great discipline. I’m not saying we are predestined to fail. Only that by temperament most of us are predisposed toward making the wrong moves. Contrarians make a living from this human fallibility. Some investors, by a complete lack of discipline, are born losers in the stock market. Every time they buy something, it goes down and every time they sell something, it goes up. If you know someone who is consistently wrong, you can do the exact opposite of what he does and be consistently right. Item 24: Avoid Big Losses Taking losses in the stock market isn’t a probability, it’s a certainty; it’s an integral part of the investment process. Yet, there is a strong reluctance on the part of the investor to take a loss. It is much easier to hold on in hopes that a stock will come back than it is to close the door on that possibility and deal with the pain and embarrassment of having made a bad investment. Psychologists dealing with stock market behavior tell us that investors consider the loss of $1 twice as painful as the pleasure received from a $1 gain. However, you can keep losses moderate by using stop loss protection. In fact, you can be wrong more often than right and still come out a winner. (The baseball player who fails to get a hit 7 out of 10 times, in other words a 300 hitter, is considered a star and is paid millions.) What’s not acceptable is taking a big loss. When buying, enter a stop-loss order or make one mentally, giving yourself plenty of room on the downside. If you’re stopped out, at least you won’t be wiped out. Sometimes the stock will go back up, but more times than not, you’ll be right. Right or wrong, the key point is you protected yourself against a risk you could ill afford. It comes down to preservation of capital. A big loss is a crippler. You can’t play the game if you lose your chips. Unless of course, you’re super wealthy. Last year, Paul Allen, who founded Microsoft with Bill Gates, lost $1 1/2 billion in RCN, a telecommunications company. Bear markets make smart money a lot less smart. Of course, Allen’s nest egg includes some $9 billion worth of Microsoft stock.
The Real Estate Bubble June 24, 2002February 21, 2017 Andy Long: ‘Would Robert, a ‘CPA who specializes in international tax issues,’ really have us believe that Stanley is moving its headquarters because it likes the weather? Technically, he’s correct, Stanley will still owe taxes on all US operations. As a practical matter, though, I predict that Stanley’s US operations will suddenly become MUCH less profitable while its overseas operations will become MUCH more profitable. This will be done through transfer payments and overhead allocations. There are some [flaws in] corporate taxation; but let’s be honest about what corporations [that pretend to move to Bermuda] are trying to accomplish.’ Toby Gottfried: ‘In your November 16 column a correspondent advocated buying the Smith Barney Aggressive Growth Fund based on its track record, which you pointed out might not continue. Today, in item #2 of this article, I read that the respected manager of this fund made a big play on Tyco (and other poor choices) which sent the fund to ‘an ugly 27.9% year-to-date loss, worse than 96% of its category rivals.” ☞ Well, it’s so much easier to pick a good fund in hindsight than prospectively – unless you choose index funds. Then it’s easy, because index funds are ‘guaranteed’ to outperform 80% or 90% of their peers over the long run (even more if you’re investing in a taxable account). That said, of course, if the market drops by 50%, so in all likelihood will your index fund (by 50.2%, actually, allowing for the expense ratio). But most other mutual funds would drop even more. PILL SPLITTING It is crazy that a 25-year-old man of steel like me – this is how I think of myself, even if it’s not how my knees think of me – would be suggesting a tip like this, but you won’t be 25 forever, either (and you may have grandparents), so listen up. Part I: Lipitor really works. For all I know it will kill me some other way (see the archives for October 12 and October 15 for reader warnings), but my cholesterol plummeted so sharply after the first month’s daily minimal 10 milligram dosage – from 253 to 144 – that . . . Part II: I began ‘pill splitting’ even more aggressively. I had begun buying the 40mg Lipitor tablets and cutting them in quarters, because even at Drugstore.com a year’s supply of the 10s would come to $678, versus just $269 buying the 40s and eating them in quarters. But now, armed with the results, I began nibbling the 40s rather than cutting them, hoping to make each last for about 6 days instead of 4. This is good because Lipitor tastes pretty rotten -adding to my sense that I am doing something worthy – and because if Lipitor is bad for me, as some of the MDs in the crowd have suggested (and I am increasingly coming to believe), I am taking even less of it. And because I have now cut my cost even further, to about $180. My latest test score: 145. I’m excited to be rated now in the lowest risk category for heart disease, but even more excited to be saving $500 a year. THE REAL ESTATE BUBBLE In many parts of the country (Manhattan, for one, curiously, in the wake of 9/11), we’re in one. More thoughts on this soon.
Less, Robert, Steve, Debra and the Mystery of the Pregnant Queen June 21, 2002February 21, 2017 Less Antman: ‘Juanita Albro summarized my points in a manner that could be misinterpreted, and that is exactly what Bob Kirkland then did. I’d appreciate a clarification, or at least a link to the page Juanita was ‘quoting’ in her message. The whole page was clearly designed for someone with over $1,000,000 in assets, and hardly suggested someone give away virtually everything to heirs during their lifetime. The focus was on using the $11,000 per year annual exclusion, as this excerpt shows: ‘Start giving now – Take advantage of the annual $11,000 exclusion (in 2002) and unlimited exclusion for medical and tuition payments. And make your will out to charity, so your kids have a rooting interest for you to live as long as possible!” Robert: ‘I’m a CPA who specializes in international tax issues. Companies like Stanley Works will not avoid U.S. income on all their earnings. Just monies earned outside U.S. borders. The reason companies are doing this move to Bermuda is that our tax system makes it very difficult to avoid economic double taxation on foreign earnings. Most of our trading partners have a territorial tax system that exempts income earned overseas. We have a worldwide tax system that taxes all income of a U.S. corporation no matter where it is earned. Stanley Works will still owe U.S. income tax on all of its U.S. earnings. I think you have overstated the amount of tax avoidance from moving to Bermuda. I think the current system of taxation needs to be changed. The corporate income tax is not a huge source of revenue for the Treasury – only about 10% or so. Let’s get rid of it. I believe that most of the corporate tax is passed on to the consumer any way. I think the migration to Bermuda is not such a great thing, but neither is the mess of a corporate tax system that we now have.” Steve: ‘Brian Annis wrote: ‘Those who support the estate tax are in the moral class of ambulance chasers and grave robbers; or perhaps lower.’ I’m curious – into what moral class would he place those who support tax breaks for the fabulously wealthy while simultaneously claiming we can’t afford to address the educational, health, or housing needs of our less fortunate citizens?’ Debra: ‘One of your readers said US citizens are subject to US Federal tax on income worldwide. Not exactly accurate. I’ve lived abroad for seven years. Individuals are allowed a $76,000 foreign earned income exclusion. We don’t have to pay taxes on the first 76 grand (I only wish I made more). This is for citizens who are bona fide foreign residents. The US is one of the only countries that has this arrangement.’ Michael LeBoeuf: ‘A university creative writing class was asked to write a concise essay containing the following elements: 1. Religion, 2. Royalty, 3. Sex, 4. Mystery. The prize-winning essay read: ‘My God,’ said the Queen, ‘I’m pregnant. I wonder who did it?”
True June 20, 2002January 25, 2017 IT CAN’T BE TRUE! Michael Axelrod: ‘I don’t know if this applies to corporations, but an individual cannot avoid federal income taxes by relocating to a so-called tax haven such as Bermuda. All residents and citizens of the US are subject to tax on all income earned worldwide. I find it hard to believe that a company with offices and business in the US is not subject to full federal income taxes. States are another matter. I believe that the Stanley company was trying to avoid CT income taxes by moving it’s official headquarters to Bermuda from CT. I think that you are confusing your readers by not being clear on this point. You make it seem that companies are seeking to avoid federal income taxes, aided and abetted by those mean old Republicans.’ ☞ Yes, it is hard to believe. But it is true. All the press accounts make it very clear: this is about avoiding US tax . . . which is one reason the Republicans in Congress – not the Connecticut state house – are the ones obstructing the bill. (Congress does not handle CT tax matters.) SAY IT ISN’T TRUE! Bob Kirkland: ‘Less Antman was quoted today as advising distributing assets to one’s family prior to death. I had two great aunts of substantial means (neither left me anything). One had generously divided most of her assets among her nieces and nephews at least ten years prior to death, so the government wouldn’t get it. Fortunately, she did reserve just enough to live modestly and support nursing home care. The other held on to every dime. She never talked about her will, other than to frequently express her hope that she had made the right decisions. Guess which one spent years nearly forgotten in a nursing home, and which one received the considerable attention of these same relatives til the day she died?’ ☞ When I first read this I thought it was one of those heartwarming stories, and I pictured grateful nieces and nephews smothering their generous aunt with attention. But then I read it again and realized what must have happened. CAN THIS BE TRUE? Chris: ‘Hyderabad, India has 4-5 million people, making it larger than every US city except New York, yet most Americans have never heard of the place.’ OR THIS? John Miller: ‘Your recent comments on the penny flipping (tails occur more often than heads) brought back an old memory. Freshman dorm, 1972: A bunch of us guys are sitting around BS’ing when one guy claims that flipping a nickel one hundred times will result in more tails than heads due to the weight of the head. Intense dorm room argument ensues. Only one way to settle it. We clear out a space on the floor (no carpet) and the guy begins to flip a nickel over and over. I have a pad with two columns to record the results. Around flip 50, the nickel hits the floor, spins a while on its edge, and stops! It stopped standing on its edge. Please imagine a room of eight dumb freshmen guys suddenly quiet, all open-mouthed and bug-eyed. That pretty much ended the experiment (I didn’t have a column on the pad for it). We taped a shot glass over the nickel and made it into a shrine of sorts. It lasted about a week before some drunk knocked the whole thing over. I don’t get many opportunities to tell that story, [so thanks].’ MY CREDULITY IS BEING STRETCHED FURTHER AND FURTHER Bryan Norcross: ‘Note the following from dictionary.com: Since the Middle English period many writers have used farther and further interchangeably. According to a relatively recent rule, however, farther should be reserved for physical distance and further for nonphysical, metaphorical advancement. Thus 74 percent of the Usage Panel prefers farther in the sentence If you are planning to drive any farther than Ukiah, you’d better carry chains, and 64 percent prefers further in the sentence We won’t be able to answer these questions until we are further along in our research. In many cases, however, the distinction is not easy to draw. If we speak of a statement that is far from the truth, for example, we should also allow the use of farther in a sentence such as Nothing could be farther from the truth. But Nothing could be further from the truth is so well established as to seem a fixed expression. Some dictionaries simply define ‘further’ as ‘interchangeable with farther’.’ THE TRUTH WON’T KILL YOU . . . BOTH, SIMULTANEOUSLY Brian Annis: ‘Juanita Albro wrote: ‘I just had a comment about the estate tax. The person being taxed is dead, so really, why would they care about the tax?’ My answer: Because it’s wrong for the government to be taking advantage of the misfortune of its citizens. Those who support the estate tax are in the moral class of ambulance chasers and grave robbers; or perhaps lower, as it is generally someone close to the deceased who is forced, in their time of loss, to sell off the deceased’s property and pass along the proceeds. At least the grave robbers of old would do the dirty work themselves (though I’m sure they held a similar rationale).’ ☞ I think the number of business owners who will die simultaneously with their spouses AND who were unaware of the need to plan for estate tax is very low. But the Democratic proposal to raise the exemption to $4 million and also exempt most family farms and family businesses would have dealt with this. The Republicans dismissed it out of hand.
Dick Davis on the Insignificance of News June 19, 2002February 21, 2017 THE LEONA HELMSLEY PHILOSOPHY OF CORPORATE TAXATION Headline in yesterday’s New York Times: G.O.P. Is Moving to Slow Action on Tax Loophole. The story begins: ‘Republican leaders in Congress are using procedural tactics like walking out of committee hearings to keep Congress from voting on measures to close the so-called Bermuda loophole in the federal tax code, measures that would almost certainly pass overwhelmingly if given the chance. The loophole allows big companies to pretend legally that they are based offshore (Bermuda has been the country of choice) and then filter profits through a third country (most often Barbados), avoiding American income taxes.’ To the Republicans – always sensitive to the plight of the rich – this is just good old fashioned Yankee ingenuity. ‘The Bush administration,’ the Times reports, ‘while saying in a Treasury Department report last month that the Bermuda deals should not be allowed, has called for further study, which may take several years.’ It is a grand time to be rich and powerful in America. # LET’S WRITE A NOVEL Picking up the thread from yesterday, Michael Rutkaus contributes the second and, apparently, concluding chapter of The Longest Book Review Ever Written: Chapter 2 – APPLY AGAIN IN 500 YEARS Never seen or heard from again in THAT universe, anyway. John was an emissary from Zeta Reticuli determining whether we were worthy to join the federation. Unfortunately for us, this one rude passenger tipped the scales, and as John’s bodily information was reassembled at home he began his report: ‘Given several hundred more years Earth may be ready, however now the general level of human achievement has not reached acceptable status for including them in the Federation. Respectfully yours, John.’ [The End] FLIPPING PENNIES IN NEVADA Well, of course not all of Nevada is west of Los Angeles – but Reno and Carson City are. But thanks to the several of you who pointed this out. (And to Steven Rubin for reminding us that it is FARther west, not FURther west – further is reserved for abstract distances, not measurable ones, I believe.) Also, there seems to be some doubt about that heads-heavy penny. Stephen Gilbert: ‘I saw a report on CNN or someplace like that of a study done by a European physicist (is this vague enough?) which involved spinning a coin which came up tails more than half the time. It was mentioned that this effect is only seen when the coin is spun, not flipped.’ John Seiffer: ‘I don’t know about the heads being heavier but I know that professors in probability class often give a homework assignment to toss a penny 100 times and record the results on a chart. I am shocked, SHOCKED, to learn that students often fill in the chart without actually doing the flipping. However, it turns out this is easy to detect. In an actual flipping of 100 times a run of 4 or 5 heads or 4 or 5 tails is to be expected once or twice. However, such a pattern often looks fake to a student who is actually faking it, so the professor suspects any chart where no such run is in evidence. The point? People often give meaning to patterns (in places like the stock market) where the explanation is actually randomness.’ DICK DAVIS #22 Item 22: The Insignificance Of News The impact of news on a stock is grossly exaggerated. Much of the news is routine and mostly forgotten over time. The only news that has long term significance is news that represents basic, fundamental change. Such news occurs rarely and when it does, the basic change usually cannot be determined except in retrospect Almost all other news, regardless of its short term impact, is usually no more than a blip in the long term picture. In the majority of cases, after the initial reaction, the stock will resume the course it was on before the news was released. History tell us that if news is in conflict with the market’s, or a stock’s primary trend, it will cause a temporary detour at most. If news conforms with a stock’s primary direction, that news will be used to explain the move, but it would likely have happened anyway, sooner or later. Obviously, news on earnings, the economy, interest rates, inflation, etc. matters. It matters a lot. It shapes the long term direction of stocks and the market. But it is the totality of the news, when one news story, let’s say an earnings report, is confirmed or negated by the next news release and then the one after that, that we begin to get a trend with some possible long term significance. Almost no news story, in and by itself, requires immediate action by the long term investor.
Let’s Write a Novel June 18, 2002February 21, 2017 American Airlines sends its frequent flyers ‘YOU’RE SOMEONE SPECIAL’ coupons to hand flight attendants and others who’ve gone above and beyond the call. If they get enough such coupons, I think they get something nice. With that in mind, our novel begins: The Longest Book Review Ever Written Chapter 1 – YOU’RE SOMEONE SPECIAL The Longest Book Review Ever Written (TLBREW) is, first and foremost, a gimmick – deserving of the shortest book review ever written. (That first sentence says it all.) The author’s intent is to find some way to draw attention to an otherwise pedestrian tale. It begins in the first class cabin of an American Airlines Boeing 757. ‘You can’t put that in here, Sir, I’m sorry,’ the male flight attendant is saying to a coach passenger hoping to put something in that roll-up ‘closet’ behind the galley. Not the big flat closet you see to your right directly as you’re boarding the plane, but the next one, as you turn right and approach the first row of seats. If you’re in 1C – the righthand aisle seat as you face forward, and if you brace your feet up against the carpeted wall in front of you, as I like to do – shoes off, generally, to show respect – your feet are pressing on the back wall of that roll-up closet. (I call it a roll-up, because that’s how the flight attendant opens it. He leans down, grabs the handle, and rolls it up and over, like one of those wonderful old fashioned desks that had the curved wooden roll-up covers.) ‘But the overheads are all full!’ protests the passenger, who’s been told he will have to gate-check his bag. ‘I’m sorry sir,’ says John, the flight attendant. ‘This closet is reserved for first class only.’ ‘But everyone’s on board and it’s still empty! Can’t you — ‘ ‘No,’ John cut him off, taking the bag and handing him a claim check. ‘Your bag will be waiting for you when we land. It will be safe. I am afraid you will have to take your seat now. We are ready to close the doors.’ Whereupon the complaining passenger – steamed – stomped back toward coach, and John, the flight attendant, stepped into the empty first-class closet, stooping to fit, and then rolled it shut behind him – from the inside – and was never seen or heard from again. # So now, if this intrigues you, all you have to do is send me an outline of the characters and plot from here, and/or Chapter 2 – what happens next. # Did you see Paul Krugman’s June 11 column on the protectionist Republicans? # ‘There are two ideas of government. There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them.’ – William Jenning Bryan in the famous ‘Cross of Gold’ speech to get the 1896 Democratic Presidential nomination. He was a nut, but not entirely. Tomorrow: Dick Davis #22: The Insignificance of News
More Dick Davis (20-21) June 17, 2002February 21, 2017 CHOOSE TAILS I have been advised – one of you will doubtless correct me if this is just an urban myth, I haven’t found time to try it myself – that if you toss a penny 10,000 times, it will cope up heads about 4,950 (not 5,000) times. The heads picture weighs more, so ends up on the bottom. I would also like to point out (you can win a few dollars betting on this one) that Nevada is further west than Los Angeles. DOUBLE TIME Craig: ‘The picture of Charles on the IBM site – is he wearing two watch bands, one on each wrist? Where else does he need to know the time?’ ☞ Several of you asked this. No, the watch is one that costs more to clean than mine cost in total. And what looks like a second watch is a plain leather band a girlfriend gave him. Lynn Smith: ‘Wow, what a looker!! My mental picture of him was completely different. Anyhow, inquiring minds need to know if he’s wearing one of those Walgreen’s denim shirts?’ ☞ Surely you jest. (Although it would have looked every bit as good.) MORE DICK DAVIS Item 20: The Contrarian Approach Being a contrarian – that is going against the consensus, buying stocks no one wants, is certainly a viable market approach. But there are 3 important caveats: First, the popular view that the consensus is always wrong is not true. They are always wrong at market tops and bottoms, but for most of the middle stages of major trends the consensus is right. Second, the consensus opinion is sometimes murky and difficult to determine. And third, a stock out of favor may stay out of favor. It is a buy candidate only if its problems are likely to prove temporary and it has a distinct prospect of going up within a reasonable amount of time. Item 21: CEOs On Their Own Stock The head of a company is often the worst source of advice regarding his own stock. His recommendation is based on an intimate knowledge of his company and industry, not the stock market. Even the best stock should be bought only at a reasonable price. The company CEO doesn’t know from price levels. Just buy his stock regardless of price because things are either good or about to improve. He has to believe that (at least publicly) to please stockholders and keep his job. This is not to say his optimism may not be well-founded. Only that Wall Street uses different criteria than he does to evaluate his stock. The same can be said about most CEO interviews on television. Like politicians, CEOs are adept at dancing around hard questions. The company officer has his own agenda – to make good news sound even better and to put bad news in the most favorable light. The interview often turns out to be a PR release with the usual corporate spin.