Four Minutes on Al-Jazeera January 17, 2007March 5, 2017 ROTH IRA Kevin: ‘What is the best way to invest the $4,000 for the upcoming year – send it in this week in one lump sum or divide it up by 12 and use the ‘dollar cost averaging’ thinking?’ ☞ As a general rule, if you don’t have to go into debt to do it, you want to fund your IRA as fully and as early as you can. That’s because, as a general rule, the longer you have your money working for you tax-deferred, the greater the sum it will ultimately grow to be. I think the way to view the dollar-cost averaging part of this is that you are dollar-cost averaging . . . only you are doing it on an annual, not a monthly, basis. Every year, whether the market is high or low, you put in $4,000. So over the long run, you’ll buy more shares when they’re cheap, fewer when they’re dear. That’s dollar-cost averaging. CFLs Brad Hurley: ‘Compact fluorescents do indeed last a LONG time. In 1990 I won eight of them in a contest sponsored by my electric utility. The last one burned out a year ago, and the others all lasted more than 10 years. That’s a pretty good life for a light bulb! I took those bulbs with me each time I moved to a new apartment, removing the incandescents that came with the place and putting them back when I moved out. I did the same with my low-flow showerhead and faucet attachments. Note, however, that you won’t save money with compact fluorescents in all situations: for example don’t use them in closets (unless you frequently forget to turn off your closet lights), because those lights are on for such a short time that it would take decades for a compact fluorescent to pay for itself in electricity savings. And remember that most compact fluorescents will be damaged if you use them in fixtures with dimmer or three-way switches…there are models available that work with those switches but you have to look for them.’ Michael Rutkaus: ‘Note that the heat from an incandescent bulb is NOT wasted when the building is heated. The heat from the bulb then goes to reducing the fuel/energy used by the main building heating system, natural gas, oil, electricity. So the savings in winter of using CFLs or even LEDs is only the difference between the cost of electricity and the cost of the other heating method. In summer, though, all savings are [more than] as advertised as the lower heat output reduces A/C costs.’ OY Oy, oy, oy, oy, oy. Saddam executed this guy’s brother – but look what side he is on. If you haven’t seen this video, it’s worth the four minutes to see what we have gotten ourselves into the middle of.
This Rabbi Walks Into a Bar January 16, 2007January 9, 2017 FORTUNE-STEALING II Mike: ‘Much as I love mindless pop drivel, it seems unfair for Sheryl Crow to receive credit for a clever quote originally written by Rabbi Hyman Judah Schachtel. Click here. The relevant part is in the next-to-last paragraph: ‘The often quoted thought, ‘Happiness is not having what you want, but wanting what you have,’ was originally written in his book, The Real Enjoyment Of Living (1954).’ Now, if you can’t make a joke out of copyright infringement, a fortune cookie, a pop singer, and a rabbi, I don’t know what to tell you. Perhaps it should start with them all walking into a bar.’ LITTLE BOOK – NOT EVERYONE DID 30% Jonathan Kaplan: ‘Since investing with the Magic Formula starting late February, 2006, my returns are only 4.25% to date (S&P 500 is about 13% over that period). I bought 12 stocks at quarterly intervals of four each. In selecting from the many stocks on Greenblatt’s website, I picked the ones that schwab.com also thought had a prayer. So maybe Schwab is to blame and random selection would improve my returns. A glutton for punishment, I plan to buy four more.’ ☞ Over time, I think you’re likely (though not guaranteed!) to do better than the S&P following this system. Note also, of course, that your money was invested, on average, for less than half the year. So 4.25% isn’t quite as paltry as it sounds. Ted Graham: ‘I cashed in some Vanguard Index funds in an IRA to try out Magic Formula Investing. On Jan 26, 2006, there was $123k in the account in cash. I bought six MFI stocks (DLX, EGY, HRB, JAKK, NOOF, OVTI). Dividends have been swept to a money market account. As of today, the account is worth $127k, which is well under the ~10% the Russell 2000 and the S&P have gone up. However, my two other MFI groups of stocks are up nicely: 18.48% annualized for the April 06 group and 66% annualized for the September 06 group.’ DIAMONDS II Professor Dana D. Dlott: ‘As a chemist and a materials scientist, I can tell you the price of diamonds is a joke. This is one of the biggest swindles existing. Diamonds are no longer scarce, the vaults are full of them. Also synthetic diamonds now exist that are more perfect than natural diamonds. The jewelers have some kind of hocus pocus script to tell you how synthetic diamonds are no good because they are ‘too perfect’ or don’t have the flaws of the natural diamonds. If you are willing to spend months of salary in order to get extra flaws you are a fool. I have a friend who makes 10 carat diamonds in his lab. By the end of the decade he is going to be making 100 carat diamonds. Your diamonds are going to be worth nothing unless somehow everybody keeps sticking to the ‘I have to have the flaws’ story. Eventually they will have to come to their senses. In your article you focused on the diamond’s hardness, but it is also the light refraction that makes diamonds special. Quartz and cubic zirconia don’t have this. Two options are moissanite, which is a synthetic silicon carbide. It is about as hard as diamond but it has more light refraction which makes it more brilliant. There are also a variety of cheap synthetic diamonds.’ WHICH DISEASE GETS HOW MUCH MONEY Eric Batson (MD, PhD): ‘Actually [with respect to AIDS research versus cancer and heart disease], in public health the costs of doing two different interventions are often compared by looking at how many QALYs society can buy with the intervention. A QALY is a Quality Adjusted Life Year. This lets us compare things on two bases. First, the obvious one of just how long is someone expected to live. Curing an acutely ill 20 year old who would otherwise die buys 50+ years of life. Keeping an 80 year old alive after their third heart attack so they can have a fourth, and this time fatal, heart attack in six months, buys one-one hundredth as much lifetime. The Quality Adjustment looks at how disabled the person is. If the 80 year old will be partially disabled because their heart is now very close to ultimate failure (they can’t walk up and down stairs, etc.) then those 6 months may be discounted to 3 months. So, if I can keep a 25 year old with AIDS alive, apparently indefinitely, at a fully functional state, including full employment (paying taxes, etc), I have a way to compare that outcome to a cancer treatment that gives a 75 year old an additional 6 months. The calculation of how much to discount various disabilities can be done many ways, for example by external standards used to calculate disability for workman’s comp or by patient’s own relative valuations of competing scenarios (would you rather be pain free with no doctor’s visits and live six months or live a year with chronic pain and seeing the doctor every week?). This does not mean any individual life is less valuable, but when choices have to be made on how finite resources will be spent, we have an ethical obligation to make those choices wisely. A long way to say that just because it is listed on more death certificates doesn’t mean a disease should get more research funds than another disease.’
Doing My Taxes January 15, 2007January 9, 2017 Sorry for the technical problems that kept some of you from seeing Thursday‘s column and Friday‘s column. There’s no column today because it’s a federal holiday – Happy Birthday, Reverend King – and because fourth quarter 2006 Estimated Income taxes are due tomorrow. Even so, if you have not yet seen Keith Olbermann’s take on the President’s speech last week, it may be worth your consideration.
Beating the Market, Shattering Your Hand, Saving on Diamonds January 12, 2007January 9, 2017 FORTUNE-STEALING Peter Baum: ‘While I very much like the fortune you got – ‘Happiness isn’t in having what you want but rather in wanting what you have.’ – it in fact comes directly from a Sheryl Crow song (Soak Up the Sun) – good song if you like a splash of mindless pop.’ ☞ There is an intellectual property / copyright infringement joke in here somewhere, but I don’t want to set off an international incident. HONEY Andrew Krauss: ‘You could save the electricity cost of microwaving the jar of crystallized honey AND save the cost of a new jar of honey with this simple, guy-like technique: Go to sink, find clean-looking spoon, plunge spoon into jar of crystallized honey, eat! My mother used to call it sugar honey, and it’s a much better treat than the flowing kind. Try this as well: Spread sugar honey on one slice of bread and peanut butter on another slice. Press the two slices together, devour, try to keep eyes from rolling with pleasure.’ BEATING THE MARKET *AND* SHATTERING YOUR HAND Josh: ‘For a variety of reasons (the efficient market hypothesis, transaction costs, etc.), self-directed investors following Greenblatt are highly unlikely to consistently meet or beat the returns of a low cost index fund. The retired investment banking shill Henry Blodgett makes the case here. I would have bought his personal finance book but I already have yours and, therefore, will never need another!’ Don Szostak: ‘I’d like to comment on a couple of the comments you received regarding annual performance using Greenblatt’s ‘system.’ I started with an IRA valued at approximately $49,000 on January 1, 2006. It contained a variety of stocks, including ExxonMobil. I cashed out of the various stocks as I needed money to invest in the formula. I chose 2 stocks a month and invested approximately $2000 per stock. At the end of the year I have approximately $68,000 worth of Magic Formula stocks. Most went up but some went down since I purchased them. As to why there might a variation in performance, it is not surprising to me since there is such a wide variety of stocks to choose from, both large and small cap. The hundreds of issues which are on the list do not move in lock step. Indeed, my best performer has been Pinnacle Air (PNVL) which is up 147% since I bought it on 3/7/06. The worst performer has been Aduddell (ADDL) which is down 61% since my 6/5/06 purchase. As the author said, the risks are still there, but the fundamentals upon which the list is developed help reduce those risks.’ ☞ Well, to go from $49,000 to $68,000 in a year is to gain 38.7%. Sounds as though the non-Greenblatt stocks you had in the IRA did well, too, before you replaced them, little by little, each month. But 38.7% sounds good to me. Mark Lefler: ‘Well, for the last year I have been using the Greenblatt strategy from the ‘Little Book‘ which you suggested. My returns (and this with being a chicken and selling some losing stocks too early): 18.82%, projected out to a full year since the buys were spread out: 29.52%. S&P Did 15.79% over the last 12 months, so I am beating the market. If this continues for the next 6 months, I will make a nice donation to the Democratic party. Of course BOREF has not paid off yet [AND MAY NEVER! – A.T.], but I am patient. Oh, here is an idea you can use to scare Charles or friends. When you are at a party or some place with those plastic breakable cups, secretly slip one into your inside breast jacket pocket. Tell your friends your hand hurts, and bend your arm so the wrist is pressing against the cup. As you bend back your fingers, press against the cup. The sound of the shattering plastic cup sounds like you broke every bone in your body!’ Ken Shirriff: ‘I saw this ad on Slate for ‘The only investment guide you’ll ever need. The Wall Street self-defense manual by Henry Blodget.’ Isn’t that the title of your book?’ ☞ Yes. Seems a bit dodgy to me. Maybe Mr. Blodgett, or his publisher, wrote that fortune cookie fortune. In any event, it’s too bad people didn’t read his book (not yet published) or mine (in print since 1978) before they followed his dot-com advice. (As you’ll recall, Mr. Blodgett went to work for Merrill Lynch promoting stocks he thought were crap and was subsequently banned from the securities industry for life.) Now, in his 40th year, he has begun advising investment in low-cost index funds. Better late than never, of course. (And he is a good writer.) But, as I’ve argued – and as some of you have, at least anecdotally, now demonstrated – the Greenblatt strategy may be an even better bet. (Note: If some of you have had bad results with this strategy, don’t be shy about letting me know. So far, I’ve seen only positive emails on this.) ‘BLOOD DIAMONDS’ Wow. That was some movie. Perhaps an excuse to reprise this column from October 28, 2002: I have never been much for jewelry. You take the trinkets; I’ll take Manhattan. Diamonds may be beautiful, but diamonds are also a lot more expensive than they would be if DeBeers hadn’t organized the world diamond cartel so efficiently, and hadn’t persuaded starry-eyed young men that, to be men, they had to devote two months’ pre-tax pay to the purchase of an engagement ring. I say: click here for the engagement ring and be dazzled by the possibilities. Not that I have ever dealt with these people myself. But their full-page ad in the New York Times and their web site lead me to believe you could do worse than to risk your $119 on a two-karat diamond engagement ring that (the ad says) would otherwise cost $22,000. I never thought I would actually write the words ‘cubic zirconia,’ and have deleted both QVC and the Home Shopping Network from my cable line-up. And, okay, yes, these are fake diamonds. But about the only way for a layman to tell they are fake is to scratch them with real diamonds. And what kind of people go around at parties doing that? Especially since their real diamonds are locked away in a safe deposit box, and they are wearing fake ones, too. Do you remember Moh’s Hardness Scale? I do! I do! It runs from 1 to 10, with TALC being softest, at 1, then GYPSUM, CALCITE, FLUORITE, SOMETHING, FELDSPAR, QUARTZ, BERYL, RUBY, DIAMOND. Ta-da! (Ah, those endless, lonely childhood hours.) Diamond is 10. But quartz, at 7, is pretty darn hard, as you surely know, so if these $119 suckers are 9, and can scratch quartz, for crying out loud . . . can scratch beryl . . . can hold their own against rubies!!! – well, surely such a ring, along with $3,000 matching his-and-her Roth IRAs, is the wiser way to demonstrate your love and commitment. On your fiftieth anniversary, she’ll still have the dazzling ring. But you’ll also have – just by accepting a 9-hardness stone instead of a 10 – an extra $110,000, after-tax, in today’s buying power to help make your golden years joyous. (This assumes a return 6% above inflation, and from just one investment of $3,000 apiece in the matching his-and-her Roth IRAs. Manage to contribute $3,000 apiece every year at that rate, and on your fiftieth anniversary you will have, between the two of you, better than $1.8 million. If one or both of you don’t qualify to contribute to a Roth IRA, you could still do well with an index fund.) Just the $119 ring – let alone trying to pass it off as a real diamond – won’t cut it, obviously. You’ve got to come up with the ring and the $3,000 Roth IRAs – and maybe a necklace and a joint mutual fund account – to show that you really are crazy in love. Just not crazy in love with DeBeers. Have a great weekend.
IIfx, CFL, WMT, FMD, FWIW January 11, 2007January 9, 2017 THE SOUL OF A MACHINE: COULD THE HERTZ LADY REALLY HATE ME? Jon Frater: ‘I’ve been working with computers both as a hobby and professionally since I was 12 (I just hit 40 a couple of weeks ago. Gah!) My first PC was an Atari 800 which was the best PC I have ever owned – nothing fazed that thing. Nothing. But I admit my new (now slightly used) G5 Intel Core Duo iMac is nice. Anyway, everything I’ve seen in the world of computers has convinced me that any system of sufficient complexity might as well be ‘alive.’ If nothing else, every single PC I’ve ever owned had a distinct personality. Some were obnoxious, some were cautious, some ran beautifully for all requests and all of them had their good and bad days. Some of them simply hated some people. When I worked in software retail many moons ago, I was the resident Mac Jock. The big gift that Corporate had sent our location that year was a brand new Mac IIfx (a machine that retailed for nearly $10k back in 1990). They expected us to sell lots of nifty graphic packages and with that baby running demos, I did. I loved that machine and now I do believe that it loved me back. By 1991 I was taking more and more classes to get my BA and thus spending less and less time in the store. If I needed to demo a package on the Mac, it worked without any problems, but none of the other sales people could say the same thing. One morning before class my manager called me up begging me to come into work to fix ‘that damn Macintosh.’ Apparently it refused to do anything for anyone without actually showing the ‘sad mac’ or ‘bomb’ on startup (either one would have meant a major system problem). So I went in to work, went to the expensive new IIfx and put it through its paces, no complaints. I checked all the system files and nothing was out of place. So, realizing I couldn’t be on call 24/7 for the store any more, I went home, dissected an expired driver’s license, took the photo back to work the next day, opened the IIfx’s case and taped the photo to the inside of the lid before replacing it. No sales person ever reported a problem with that machine ever again. So yes. The Hertz Lady is definitely someone to treat well. If you know what’s good for you.’ CFL and WMT (and FMD) Stewart Dean: ‘It took me a while to dig out the link for this (because the bulbs last forever) . . . but the ultimate source for Compact Fluorescent bulbs I’ve found is topbulb.com They have 95 different bulbs, ranging from 2 watts (putting out a hefty 8 incandescent watts equivalent and just the thing for a rarely used stairwell or the like) to a blazing 105 watt (420 watt incandescent equivalent). They also have many wattages in different degrees Kelvin, which is how the industry rates a cool, bluish white bulb at 5500K while a warm white is 2700K. And black light CFLs, odor dispersing CFLs for bathroom, dimmable CFLs, CFLs that glow slightly when they have just been turned off (for getting out of the room), super long life CFLs (15,000 hours or 40 years), CFL that will start when it is -20 degrees F (most fluourescents won’t), 3-14 watt candelabra-base bulbs (12 to 60 watt equivalent), flood and regular bulb look alikes . . . Here are their CFLs.’ Even more exciting, from the Earth’s point of view (and for those of us who own WMT), is this recent New York Times headline: Wal-Mart Puts Some Muscle Behind Power-Sipping Bulbs. Michael Barbaro reports, in part: As a way to cut energy use, it could not be simpler. Unscrew a light bulb that uses a lot of electricity and replace it with one that uses much less. . . . if only Americans could be persuaded to swallow them. But now Wal-Mart Stores, the giant discount retailer, is determined to push them into at least 100 million homes. And its ambitions extend even further, spurred by a sweeping commitment from its chief executive, H. Lee Scott Jr., to reduce energy use across the country, a move that could also improve Wal-Mart’s appeal to the more affluent consumers the chain must win over to keep growing in the United States. ”The environment,” Mr. Scott said, ”is begging for the Wal-Mart business model.” It is the environmental movement’s dream: America’s biggest company, legendary for its salesmanship and influence with suppliers, encouraging 200 million shoppers to save energy. . . . . . . only 6 percent of households use the bulbs today. Which is what makes Wal-Mart’s goal so wildly ambitious. If it succeeds in selling 100 million compact fluorescent bulbs a year by 2008, total sales of the bulbs in the United States would increase by 50 percent, saving Americans $3 billion in electricity costs and avoiding the need to build additional power plants for the equivalent of 450,000 new homes. ☞ Go, Wal-Mart! (Still, a good buy, I hope, at $47.28.) (And while we’re talking stocks, ‘don’t sell your FMD,’ opines the guru who got us in at $26, adjusted for the split, nine months ago. It dropped $2.50 to $54.50 yesterday, but it’s still more than doubled – and he seems to think the future is bright.) Tomorrow: Blood Diamonds. (I’m against them.)
Yummy, Honey January 10, 2007March 5, 2017 COOKING LIKE A BEE A friend has become an amateur apiarist and sent 180 of his closest friends a jar of his first-ever harvest, along with a charming holiday letter. (“Raising bees, at least on the small scale we did this year, is easier than you might think. The bees do all the really hard work.”) With the jar came a little note advising that if the honey had begun to crystallize – it hadn’t – we need only remove the metal lid and microwave for 30 seconds. You’re kidding me! Does that really work? I’ll bet you have an old jar of honey in the back of your cupboard (do you have a cupboard? this whole thing is sounding less and less guy-like) and I’ll bet you’d be throwing it away once you found it, because it got all crystalline. And now we may just have rescued it for you. So there’s another $3 you picked up from this web site. I hope you’re keeping score. YUMMY Not only does Yummy deliver your choice of Chinese or Japanese; their fortune cookies are crisp and provocative. I’m still thinking about the “you will succeed someday” fortune I got last week (a reference to Borealis?). And last night, with my miso soup and mushrooms-three-ways, I got: “Happiness isn’t in having what you want but rather in wanting what you have.” Deep! (At least for a fortune cookie.) HOW CONSERVATIVE OR LIBERAL ARE YOU? I saw this test highlighted on Andrew Sullivan’s site and, surprise, surprise, I am more liberal than he is. (On a scale from 0 to 40, where 40 is Genghis Khan, Andrew says he’s 26 and this Andrew seems to be around 13.) But it’s really an annoying questionnaire, because of the “have you or have you not stopped beating your wife” nature of the questions. E.g.: 21. As a society, we should spend more money trying to find a cure for AIDS than for cancer and heart disease because AIDS threatens younger people. ☑ Agree ☐ Disagree Well, no, we should spend more on AIDS because it’s . . . contagious. (But, yes, maybe also because it kills younger people.) HOUSEKEEPING Roger: “If you are Andrew, why do you write the posts as if you were F.?” ☞ What you see as an F my browser displays as a pointing forefinger. I get an F in keeping my website techno-currant. (Speaking of which, the photo at upper left was taken in 1953.)
The Hertz Lady, the Apocalypse, and $2.06 for Your Warrants January 9, 2007March 5, 2017 DON’T SELL YOUR OIL STOCKS This January 8 blog entry by Stephen Pizzo reviews the situation country by country – Kurdistan and Turkey, too – and concludes: [E]veryone seems to be talking about how Iraq will be George W. Bush’s legacy, and that’s just plain wrong. Iraq will be part of George W. Bush’s legacy, but only part. The rest of his legacy will play out in the years and decades after Bush leaves office. Because, when he invaded Iraq he didn’t free the Iraqi people, as he likes to now claim. He freed a thousand years of ethnic/religious/tribal demons. And while these demons may not be the Horsemen of the Apocalypse, it’ll sure feel like they are. One hopes it is wildly too pessimistic. But I’m not selling my North American energy stocks. DON’T SELL YOUR WARRANTS GLDD (formerly ALBA) closed at $7.18 last night and the warrants at $2.06. It’s tempting to take the triple (or quintuple if you got in when they touched 38 cents), but what’s the rush to incur a taxable short-term capital gain? Or to part with a bargain-priced warrant? The warrants were actually selling below their intrinsic value most of the day yesterday. (A warrant that gives you the right to buy a $7.18 stock for $5, as this one does, has an intrinsic value of $2.18. Yet this one was selling for $2.06.) Logic would suggest they should sell for a premium. That’s because, with 25 months to run until they expire, you get two advantages. Either way, you get whatever gains the stock makes – if the stock goes up $3, so will the intrinsic value of the warrant. But with the warrant: You only have to put up about $2 instead of $7 to be in line for that possible $3 profit. That leaves $5 you can keep in the bank earning interest (or somewhere you think will provide an even greater return). Figuring conservatively that, after tax, you can earn 3% a year – a total of 6% over two years – that works out to 30 cents on the $5 you didn’t have to put up to buy the stock directly. So it would be rational to pay a 30-cent premium for the warrants. Then again, there’s no law that requires people to be rational. And with the warrant, at today’s price, all you can lose is $2.06, whereas if you had paid $7.18 for the stock, you could, at least in theory, lose as much as $7.18. GLDD is not likely to drop precipitously, so I wouldn’t assign a very high value to this advantage – but surely a nickel? A dime? So you could make the case that, with 25 months to run until they expire, the warrants should sell at a 35- or 40-cent premium to the stock – more, if you expect more than 3% a year after tax on your money – not at a discount. The fact that they don’t makes them cheap, at least relative to the stock itself. The final reason I wouldn’t sell – even at $2.55 – is that I think there’s a reasonable chance GLDD could pick up another few points in the next couple of years. It absolutely may not. Indeed, it could fall back below $5, wiping out the intrinsic value in the warrants. So you must ONLY make this investment with money you can afford to lose. But if the stock hit $11 in a couple of years, the warrants would be worth $6. RIGHT TURN IN . . . TWO MILES Marie Coffin: ‘Part of the problem between you and the Hertz Lady may be your method of address: she has a name, for goodness’ sake! I have it on good authority that her name is ‘Betty.’ For some reason, this always makes me think of ‘You Can Call Me Al.” ☞ If Paul Simon rents from Hertz, that’s probably what they call each other. Cole Lannum: ‘The Hertz Lady’s name is ‘Gloria.’ I know because my wife has named her following many human-like experiences. Still, she has never (yet) tried to kill us. You must have really made her mad. ☞ Cole goes on to say that ‘with the home version of the Hertz Neverlost system, StreetPilot, you can change to a male voice (his name is Jim). He has neither the panache nor the attitude that Gloria has, so we avoid him.’ Larry Trachtenberg: ‘A couple of months ago, I took a Northeast college tour with my daughter, Sarah, and Zelda the Hertz Lady. I found her much more helpful than the GPS system in my Acura. Now, you ask, why ‘Zelda’? Well, the Acura lady is named ‘Leslie’ after my ex-wife. This is because she’s always telling me what to do and where to go, but she always gets me lost. Sarah doesn’t know this fact, so when I rented the car from Hertz I had to choose a different name. The Hertz Lady obviously liked the name Zelda and consequently did not try to kill me. For crying out loud, treat Zelda with some respect! Call her by her name, thank her once in a while and she won’t try to kill you.’ ☞ Good advice. I also got a Mio Digiwalker for Christmas, and – oh my, oh Mio – can’t wait to set it up and test out its sense of humor. (Yes, I know; I should have done this before setting out on our trip.) Kathi Derevan: ‘I used to have a relationship with the Hertz lady, but I kicked her to the curb. Bought a Garmin 330 (now probably obsolete) which goes with me everywhere. I can program my favorite spots anywhere in the country right from my sofa, and after 50 or 60 days with no Hertz lady, it was paid for.’ Stephen Gilbert: ‘You may cook like a guy ™, but you don’t drive like one. It is a commonplace that real men don’t ask for directions.’ ☞ You make a good point.
The President Would Be More Effective If He Stopped Making Things Up January 8, 2007January 9, 2017 Back to the Hertz Lady tomorrow, but today, three more important things: THE LITTLE BOOK So just how well did you do last year if you followed the strategy outlined in The Little Book That Beats the Market? Dan Galbraith: ‘I’ve been following the program for about 9 months, and although Quicken tells me I’m doing better than all the indexes (Russell 2000, NASDAQ, DJIA, S&P 500) I’m not getting the returns some of the other folks say they are getting.’ ☞ Ah. Well, this, from Ivan, may help explain it: Ivan Maltz: ‘I was wondering why Dan and Don had such differing results, until I realized that their returns were really about the same, and paralleled my own results. After following the program all year, my magic formula portfolio is also up 16.7%. As recommended in the book, I staggered my investment throughout the year, buying five stocks every two months. So on average, my portfolio was only invested for half the year. The 16.7% return translates into an annualized return of better than 33%. The book warns that returns can be quite variable from one year to the next, but with a start like this, the long term performance should be quite satisfactory.’ ☞ Yeah, 33% annualized beats a whack in the head with a skillet. (A new Boston Legal airs tomorrow night.) MOST UNDER-RATED Did you see ‘The McLaughlin Group’ on PBS a week ago Sunday? I didn’t either, but my Tivo did. It was the New Year’s Eve show organized around the ‘best and worst’ of 2006. McLaughlin teed it up for his panelists, who range from Pat Buchanan on the right to Eleanor Clift on the left: Who was the MOST UNDER-RATED person of 2006? PAT BUCHANAN answered: ‘Howard Dean really hasn’t gotten credit for his 50-state strategy which quite frankly WORKED.’ To which ELEANOR CLIFT immediately responded – perhaps the only time all year she has agreed with Pat Buchanan – ‘Right. That’s exactly my nomination. Kudos to Howard Dean.’ Nice to hear. PROPERLY RATED From the Washington Post, Saturday: PRESIDENT BUSH wrote in a Wall Street Journal op-ed Wednesday that “it is also a fact that our tax cuts have fueled robust economic growth and record revenues.” The claim about fueling record revenue is flat wrong, and it is shocking that the president should persist in making such errors. After all, tax cuts are the central plank of his domestic policy. How can he fail to understand the basic facts about them? . . . . . . In a period when it was run by Douglas Holtz-Eakin, another economic conservative who worked in Mr. Bush’s White House, the CBO estimated the extent to which a 10 percent reduction in personal taxes might pay for itself. On the most optimistic assumptions it could muster, the CBO found that tax cuts would stimulate enough economic growth to replace 22 percent of lost revenue in the first five years and 32 percent in the second five. On pessimistic assumptions, the growth effects of tax cuts did nothing to offset revenue loss. It’s evident to almost all that on matters of foreign and military policy the Republican strategy has been a disaster. This is mostly the fault of Bush/Cheney and their team, but it was certainly not challenged by the Republican Congress. It’s less evident – but I think equally true – that in its economic priorities, primarily to lower taxes on the rich at the expense of everyone else, the Republican agenda has dramatically weakened the country as well. No, no, they argue – there is no piper ever to be paid; tax cuts lead to more tax revenue. Well, they did when Kennedy cut Eisenhower’s top marginal rate from 90% to 70% (which was still wildly too high). But after a point, obviously, lowering tax rates lowers tax revenues, thus plunging us ever deeper into debt. The Bush years have been a positively grand time to be rich and powerful in America. But we will have amassed $10 trillion of National Debt by the time the White House changes hands – of which $8 trillion, accumulated since 1776, will have been racked up under just three presidents: Reagan, Bush, and Bush. The annual interest on that debt already consumes 40% of all the personal income taxes we pay. And that’s with the forbearance of our foreign creditors, who thus far have not demanded higher rates to compensate for the falling dollar. The Washington Post editorial cites two other sets of data (one from President Bush’s own Treasury Department) that put the lie to the notion that Bush’s tax cuts pay for themselves in economic growth. It concludes: Mr. Bush’s op-ed included nice statements about bipartisan cooperation. But the Democrats would be more likely to cooperate with the president if he stopped making things up.
The Hertz Lady January 5, 2007January 9, 2017 DON’T SELL YOUR WARRANTS ALBA, which sharp-eyed readers know changed its symbol to GLDD, closed last night at $6.74 and the warrants (GLDDW) at $1.80. Notwithstanding the likelihood of dips along the way – and the possibility of something awful (no stock is without risk, even one in a company that moves mud) – I am cheerfully holding on to all of mine. THE LITTLE BOOK Fred: ‘About a year ago, you recommended Prof. Greenblatt’s ‘little book that beats the market.’ Some of your readers (me) might appreciate an update.’ ☞ I’ve gotten no reports of bad results; and, in the last couple of days, these two unsolicited year-end wrap-ups: Dan Flikkema: ‘Quick update on Magic Formula investing. Net of all expenses, I’m up 16.7% for 2006 which is a long way from 30% but still about 1.2% better than the Vanguard Total stock market fund did this year.’ Don Szostak: ‘After the first full year of Magic Formula Investing (at your suggestion, using only funds I can afford to squander), that account returned 31.95%, even with Fidelity’s $8.00 commission per trade. That’s about double the Dow. Thanks for the tip, even though 48 trades a year is more than I like to do.’ My sense is that these readers not only did well, but that they did so with less risk than they otherwise might have taken (given both the diversification and the value orientation of the strategy). So mine may be The Only Investment Guide You’ll Ever Need; but, as I’ve long maintained, it is not the only investment guide that’s any good. I stand by my enthusiasm for The Little Book That Beats the Market. THE HERTZ LADY Christmas morning, I picked up a Taurus from Hertz and drove Charles and my folks out to Long Island for the joyful chaos we call Christmas at the Nolans. There were five of us in the car, counting the Hertz Lady, who for $9.95 a day has proven an indispensable member of my family. She and I have a complicated relationship. She has emboldened me to go places that I – born without a sense of direction – never would have dared to go before. Yet, she can be temperamental, demanding, and defensive when she makes mistakes. She sometimes gets flustered. I know this, because I get a kick out of flustering her. Sometimes I will do a series of U-Turns just to blow her mind. ‘Recalculating route! Recalculating route!’ she will cry, throwing up her hands, exasperated. I had always assumed she was just a complicated computer program, not a real woman in a box, or I would not have done this to her. But I have seriously come to suspect otherwise, and I’ll tell you why. The next day, December 26, she and I and Charles drove to the smoky mountains of North Carolina (or perhaps the Blue Ridge mountains, but they were smoky). I had tested her patience with a few Rest Stop figure-eights; but, again, I was assuming she was just software, not a female HAL from the movie 2001. When we got to our destination, Main Street in Highlands – ‘You have arrived’ – we were seemingly in the middle of nowhere. We wanted 270 Main Street, a delightful bed and breakfast, but she had seemingly washed her hands of the project at two in the morning up a very windy mountainous road, with the only visible street sign reading ‘Raoul.’ Raoul and what? Eventually we discovered, or intuited, that our twisty road had simply become Main Street, with Raoul the first intersection. We began to see mailbox numbers (640, 620 . . . ) that became more promising as they declined. She was silent throughout all of this, if I recall, or else she was repeating her other favorite phrase – ‘Proceed to the highlighted route’ – but her LCD display, unnervingly, showed us growing ever more distant from Main Street. Suddenly, we rounded a bend into a well lit, charming little town. A minute later, we were at 270 Main Street, the very friendly Main Street Inn. All being well that ends well, we put this episode out of our minds and – having turned off power to the car – assumed we had put it out of her mind as well. A couple of days later we proceeded from North Carolina to South Carolina. I had a Mapquest printout, but the Hertz Lady seemed quite confident, and I decided not to challenge her authority. Remember: at this stage, I still thought she was just software. Well, we are going through mile after mile after mile after mile of narrow twisty mountain road, guard rail to my right (did I mention that I am afraid of heights?) – and sometimes no guard rails where any sane person would have wanted there to be – and I am beginning to wonder whether we might be trapped in a sort of paved mountain maze, gas tank slowly emptying (you have seen Deliverance?), proceeding 522 miles from Highlands to Charleston at 25 miles an hour. I was beginning to speak ill of the Hertz Lady, when – finally – she announced: ‘Right turn in two miles.’ The tension drained from my neck. We were saved. Shortly, the two-lane mountain road would intersect the Interstate. Could Chevron and McDonalds be far behind? The steep drop off to my right was still daunting; but (‘Right turn in one point one miles’) level ground would be soon at hand. (Really? We still seemed awfully high in the mountains with no traffic signs ahead. But then, the Hertz Lady owns a satellite, with the ultimate bird’s eye view.) ‘Right turn in point five miles.’ ‘Right turn.’ This she said with her customary assurance, and the ‘ding ding‘ that signifies: ‘yes, now – turn now.’ Which, had we done so, would have led us through a guard rail, off a cliff to a fiery death. The Hertz Lady, I realized just in time, was trying to kill us. We did not, as evidenced by my living to tell the tale, turn right. Many miles later, we came, finally, to a gas station and someone from whom to ask directions. And from there on, all the way to Charleston and then up to Washington, she more or less behaved. My sense is that she was actually a little embarrassed for having let her professionalism lapse. Listen, Lady: the customer is always right . . . no matter what he says about you when he thinks you’re not listening, and no matter how many figure-eights he performs to push your buttons. All I’m saying is, now that I know she is a real person, with feelings (which would explain, by the way, why you can’t ‘select the voice’ you want to hear – it is always her voice), I am going to try to be a little more respectful. But you need to know: don’t mess with the Hertz Lady. She might try to kill you.
And Yet Maybe They Shouldn’t Recycle It Into Napkins January 4, 2007March 5, 2017 SORRY, CAN’T RESIST* A Polish immigrant went for an eye exam to get his driver’s license. The examiner showed him a card with the letters: C Z W I X N O S T A C Z ‘Can you read this?’ asked the examiner. ‘Read it?’ replied the applicant – ‘I know the guy.’ *Thanks Roger, who thanks Gus. SHALIKASHVILI Yesterday’s Early Bird – the clipping service that goes to all military leaders throughout the Pentagon – carried the former Joint Chiefs chair’s op-ed that I linked you to, in full. An AP story reported on it nationwide. Former Secretary of Defense William Cohen, asked about it on CNN, opined that it was indeed time to revisit Don’t Ask, Don’t Tell. President Clinton – who tried to lift the ban on gays in the military outright in 1993, but was forced to settle for Don’t Ask, Don’t Tell – wrote in August, 2003: Simply put, there is no evidence to support a ban on gays in the military. From the pages of history down to the present time, we know that gays have served with great heroism in military units. We should learn, too, from some of our most effective military allies, like Great Britain and Israel, who do not discriminate against gays and lesbians. . . . I have faith that, in time, change will come. That time shouldn’t be this month – our friends in the Republican Party and on rightwing radio would like nothing better than to say that, ‘the minute you elect Democrats, their first priority is always gays in the military.’ But with the country’s attitudes so much more enlightened than they were in 1993 (thanks to people like you), and the military stretched so thin (thanks to people like you know who), it should be soon. COSTA RICA Peg: Your resortlet sounds incredible! If only I could afford it. But why don’t you contrast it to this? The prices make your spot sound like the Costco of ocean vistas!’ HAVE YOU EVER REALLY *THOUGHT* ABOUT ELEPHANT POO? Well, it seems that you should. Click here. Matt Madigan: ‘It’s a wonderful blend of capitalism and conservation that may be of some use to your readers who enjoy giving unique gifts or have young people they would like to instruct. Having received some of the stationery this holiday season, I can tell you it’s quite nice, and the story behind this unique paper is even better!’