PS: Annual Reports, First Class, Freetrade April 28, 2000January 28, 2017 PS: After yesterday’s column, a few of you wrote to tell me that PS stands for Post Scriptum and belongs after the signature. Not any e-more. It stands for e-Prior Signatorum. Please reread that column. ANNUAL REPORTS III Randy Mahoney: “As a shareholder of Service Corporation International (SRV), I was delighted to receive their annual report today. Considering their share price dropped over 70% in the last year, they have begun some much needed belt-tightening. This year’s report is simply the SEC ‘plain-Jane’ annual filing, stapled to the inside of a white paper jacket. Probably saved millions! “One good thing, though: Since SRV is the largest provider of death care services in the world, I’m glad they didn’t include free coupons!” FIRST CLASS II Aaron Stevens: “This is in response to your column today. I am a Premier Executive 100K with United. I generally get the free upgrades for the best flyers, but yesterday, I declied the upgrade on my flight from San Francisco to Chicago, realizing that I had a window seat, and it’s only 3 1/2 hours, and I’m keeping kosher for Passover, so I wouldn’t eat the first class food anyway… So the flight was fine. “So we arrive in Chicago, and as we’re leaving the plane, this old guy sitting in front of me asks me, ‘So, you work for Cisco, huh?’ To which, my standard reply ‘How did you guess?’ (I’m wearing a Cisco golf shirt, my employee badge, and my briefcase luggage tags are business cards.) So we make small talk a minute, and then I notice he’s wearing a ‘Cisco 1996’ jacket. ‘You work for Cisco?’ I ask. ‘Yes, I do,’ comes the reply. So I venture, ‘what do you do there?’ ‘I’m the Chairman. John Morgridge,’ he introduces himself with a gentlemanly handshake. “Interesting. This man was CEO of Cisco for 8 years, took the company public, grew sales from very small numbers to the hundreds of millions of dollars range… and owning roughly 43,000,000 shares of Cisco, he’s got to be about the tenth richest man in the USA. “And do you know what it feels like to shake the hand of a $15 Billionaire? Just like shaking any other guy’s hand feels, after he’s been on a plane for 4 hours, and in coach to boot!! “I guess this serves as good testimony for our corporate value of frugality. Everyone flies coach at Cisco.” FREETRADE II Last week we got a peek at a new free all-electronic trading sit, sans humans, called Freetrade. I said I wouldn’t be signing up any time soon, but that I thought it was fascinating and worth a look. I still do, but have encountered another reason not to sign up just yet. Rob: “One really, really nasty red flag, in my opinion, is where they say: ‘We will not accept account transfers. We do not want securities sent to us, nor do we want to send any out.’ If they won’t do a transfer out, that means that if you don’t like their service, you get to choose between just putting up with it . . . or else having to sell everything and take a tax hit — and then buying it all back with another broker, thus paying some of the fees you avoided in the first place. That really sucks, IMO.” Yes, that would be nuts, and I assumed it was not the case. (I assumed they wouldn’t transfer specific shares out, but that, naturally, if you ever wanted to shut down your account, they’d transfer all your positions to the new broker.) But we asked Freetrade, and they promptly and candidly replied, “Rob: Your red flag analysis is correct. Freetrade.com only promotes procedures that can be utilized from the Internet, i.e., does not promote any procedure that requires paper. Transfers of Account are a paper process at this time and thus are not processed. We’re working on automating this and other services/procedures and when these additional services are automated we’ll roll them out.” I think Freetrade has to fix this. In addition to taxes and commissions, you’d even have the hassle of wash-sale rules for those stocks you sold at a loss but then bought back in the new account. (The IRS requires that you to wait 31 days, or postpones the loss until you eventually sell the position.) And if you wanted to give long-term appreciated securities to charity, you couldn’t do that, either. Freetrade should raise this red flag very clearly on its web page, or — better — offer to transfer securities for some fee . . . and offer to close out an entire account for free after 2002 (by which time they would have worked out an electronic way to do this, or else absorb the cost if they haven’t). Something like that. A couple of other points . . . In its description of its revenue sources (how do they make money if you trade for free?), Paragraph 4 is confusing. All its really meant to do is criticize the stock exchanges for charging for trading information, because the information they’re charging for (the price and volume of each trade) is information, in Freetrade’s view, that came from you (and people like you), who make the trades. Freetrade wishes they could make this information freely available. But because the exchanges charge Freetrade (and everyone else) for stock quotes, Freetrade gives you a quote only when you’re in the process of making a trade, but not if you just want to check on stock prices. When you’re offering free trading, you have to keep the perks to a minimum. Finally, Freetrade doesn’t sweep cash balances into a money fund the way many brokers do. It does pay interest on credit balances over $1,000. That first $1,000, you are loaning Freetrade interest-free.