Author: A.T.

Bill Merkel: “Thought I’d pass this ‘great deal’ on your way. My mortgage company, Norwest, has been bugging me since I first bought my house to sign up for their ‘convenient’ and ‘money saving’ bi-weekly service plan. They claim that by doing so, I can shave over 6 years off my term and reduce interest payments by about $20,000 over the life of the loan. And it only costs $9 a month. Hmmm, the opportunity cost of $9 a month for 23 years, say at 15%, is about $21,500. So I’ll save $20,000 by [foregoing] $21,500. I think I’d do better by just sending in an extra $9 in principal every month. That math is a bit tough for me, though. Any thoughts on bi-weekly payments?”

A biweekly repayment schedule is a relatively painless way to pay down your mortgage faster, and thus save lots of interest. Instead of paying $1,000 a month, say, you pay $500 every two weeks. There being 52 weeks in a year (and 4.3 weeks in a month — a handy fact many people forget), you wind up make 26 such payments, or 13 months’ worth rather than 12. That extra month’s payment greatly accelerates the pay-off.

Is it worth it? Certainly not if you can earn 15% on your money. But you can’t. At least not over the long run, unless you are a very, very rare individual.

The math here is actually very simple. Paying off, or paying down, an 8% mortgage is the same as “earning” 8% — risk-free — by not having to pay it. That’s a tax-free 8% (not bad!) if for some reason you don’t itemize your tax deductions; or more likely the equivalent of a taxable 8% if you do. (Because after-tax the mortgage interest really didn’t cost you 8% at all, but perhaps 5% — so, after tax, that’s all you’re really saving by paying it down early.)

So if you happen to be the last one on earth with a 12% mortgage, it’s a no-brainer — jump at any early pay-off you can make. But while I think mortgage pre-payments are a decent idea for most people, the case grows ever less compelling as the interest rate goes down. Would you rush to pay off a 3% loan (if there were such a thing)? I hope not!

The fact is, the 7% or 8% that most people could “earn” these days, risk-free, is a pretty good rate. After all, it seemed OK to the people who loaned you the money, and they weren’t naive little savers. Indeed, the people who loaned you the money were likely getting a tiny bit less (the bank, as servicing middleman, takes its small cut), and they were taking at least a teeeentsy bit more risk. (There is almost no credit risk in first mortgages, let alone in buying bonds backed by a diversified pool of first mortgages. But “almost no risk” is not zero risk. And believe me, there is zero chance, if you owe 8% interest on your mortgage, it will be forgiven. So there is 100% certainty that by paying down your mortgage you will save the 8% you would most assuredly otherwise have had to pay. Unless, that is, the bank fails to do its math properly — something to watch out for.)

Accelerating the payments on an 8% mortgage is not a way to grow rich quick, but it is, as I say, a relatively painless way to sleep sounder; an easy form of forced saving.

But what about this $9? At first, I thought it was a monthly principal prepayment, but now that I think of it, I assume it is, as you say, a bank service charge — $108 a year, year after year, to have a computer clerk at the bank click one button, one time, to recast your repayment schedule. (Not to mention the 14 extra payments for you to mail or e-transfer each year — 26 instead of 12 — which may have a small cost to you as well.)

So if you have the discipline to do it, I’d skip the $108 fee and just send an extra principal pre-payment (clearly marked as such on your check!) every so often. For example, you might commit to yourself to send the amount of your entire tax refund each year, if you normally get a tax refund. Check with your bank; but every bank I’ve ever had a mortgage with has handled pre-payments routinely. The extra payment is simply subtracted from the balance due. And without service fees.

Don Rintala: “I (still) can’t understand annuities. I get the idea, but I don’t understand why the marketplace fails to deliver any good ones. It you have some chips and you don’t know when you will be dying, then annuities could play a very useful role. This is, of course, the answer to your question as to why not stocks, or bonds. Because with them you leave your capital behind when departing this vale of tears. An annuity could, theoretically, let you live a better life, because you use up all your resources (no capital left behind), and you pool actuarially with a big group. Given the perfectly reasonable need for this kind product, why are the only ones available not very appealing? Must have something to do with the law.”

Good question.

First, to bring everyone up to speed . . . the original idea of an annuity was that you’d put up — or perhaps your spouse would arrange to put up for you in her will — some fairly large sum of money, in return for which an insurance company would promise to pay, say, $800 a month for the rest of your (or your spouse’s) life.

That’s still an option, but it’s not really what most people think of these days when they speak of the tens of billions of dollars in annuities — mainly “variable annuities” — that are being sold today . . . some, even — egad! — for use within an already-tax-deferred IRA (see “Annuity Insanity“). Variable annuities are basically huge IRAs that (a) provide no tax benefit when you put the money in; (b) allow you to put in as much as you want; (c) are invested in the stock market, which is why the outcome is “variable.” Yes, you will have the option, when you start withdrawing the funds, of receiving some fixed monthly payment for life, but you will also have the option to withdraw it all at once or in chunks. However you withdraw it, all but your initial investment will be taxed as ordinary income — not as lightly taxed capital gains.

So the first reason today’s variable annuities are not the world’s greatest deal is that all your long-term “appreciation” from the stock market, which would ordinarily be subject to a favorable capital gains rate, is fully taxed as ordinary income.

The second reason is that they are sold by insurance companies, most of which build into the deal their own high selling and overhead costs and high annual management fees, knowing that it’s hard for the layman to figure out just what those fees amount to, and that few buyers appreciate the huge difference they make over the long run.

(If you do buy an annuity, buy it, don’t be sold it. Actively shop around for the best deal, with the lowest, or near the lowest, annual expenses and fees.)

The third reason is that to satisfy the IRS requirement that these be “insurance” products (and thus qualified for the tax-deferred build-up), there has to be some element of insurance — and fee for insurance — built into the deal. Typically, what you are charged for this all-but-worthless insurance element is way out of proportion to its value.

The fourth reason is that it’s a big pain to switch variable annuities from one manager to another, so most people are essentially stuck with whoever they started with — which may well be a sub-par investment manager.

Those are the main drawbacks I see to the typical variable annuity enthusiastically marketed today. (As always: if you already have a variable annuity, good for you. You should be commended for having put money aside for your old age, and are in far better shape financially than if you had spent the same money on, say, a boat.)

But what of the traditional annuity? Namely, the option to pay a large lump sum in return for a lifetime of fixed payments? This is an appealing notion (especially if you can find an annuity indexed to keep up with inflation), and I expect it may become more competitive in this Internet age. But again there are reasons to pause.

First, to protect itself, the insurer assumes that you will live a long, long time. It will further assume that its own investment returns over that period will be quite modest (as they may be). And it will build into its calculation its selling fees and overhead costs, and a good margin for profit — as it should. If I were an insurance company, I would, too.

And actually, you want it to be conservative, so that no matter what happens, it will have the financial strength to survive and keep making your monthly payments.

But all that conservatism, overhead and profit cut into the size of the pay-out.

(I do think the Internet will allow for sharpened competition in this area, and better deals. Shop around! Shop around! But in addition to price, consider the other is the financial strength of the insurer. Yes, many states have financial guarantee funds to bail out failed insurers. But not all do, and not in every imaginable circumstance. So the more you plan to rely on annuity payments, the more closely you should scrutinize the strength of their provider. Note that while a B+ or A- was pretty darn good in high school, a B+ or A-minus rated insurer is low on the relative-strength totem pole.)

In short:

As IRA-like substitutes for a 35-year-old, I’m no fan of annuities. As annuities in the traditional sense, for you or your spouse, they can be worth a look as you near or enter old-age — especially if you just know you’re going to live to be 94 or 100. But I would personally be reluctant to trust all to an insurance company, or to resign myself to “dying broke.” I want always to feel I have some savings to fall back on, to control, and, ultimately, to leave to some worthy causes. Perhaps even to a worthy person or two. (So be nice.)

Thanks to George Fescos for alerting me to the $15 off for first-time visitors to healthquick.com. I went to the Grand Opening Specials, bumped my order up over $20 to get the free shipping, and wound up with 2 bottles of Echinacea (boosts your immune system), 3 bottles of Ginkgo Biloba (which I used to call Ginko Balboa, until it improved my memory) and 1 bottle of vitamin E (although I’m told you should really take the 200 IU size, not the 400s offered here) — all for $7.34. Including shipping.

Go and do likewise, with two caveats:

• First, although navigation of the site was quick and easy until the last step, “finalizing” the order required several tries — maybe because the server was overloaded or just because it’s new and there are some bugs to work out. I logged out, logged back in (it had retained all my info) and finally got it to accept and confirm my order.

• Second, your taking advantage of this good deal will not get me even a single frequent flier mile. No, for that you need to get your three free items from PlanetRx by clicking here. And today and tomorrow are, I believe, the last two days to do it. Quite a few of you have, but if you saw last night’s Friends re-run, about Ross selling the Girl Scout cookies, you know that there’s always some kid out there who devises some maniac way to sell even more than you did. (Ross sold 511 boxes, then quickly bought 361 more himself when he saw that the little girl next to him had sold 871 — so he could report 872 and beat her — but there was some kid who sold 2000 boxes somehow. So please! Get your free stuff (plus $3.95 shipping)! I won’t bug you about it again! Click here!

Two weeks ago I suggested that the Internet makes comparison shopping so easy, it’s a boon to consumers, but maybe not so much to investors. (I.e., tough price competition isn’t great for profits.) Last week I printed Joshua Rasiel’s response — which elicited more responses still. Among the most thoughtful . . .

Paul Johns: “I actually find myself agreeing with Joshua Rasiel in today’s column: service does matter, even on the Internet. I think you agree. The major point where I disagree with you is where you assume that the entry costs are ‘almost negligible.’ It’s relatively easy and cheap to do a ‘mostly good enough’ job, but to do the kind of consistently superior job Amazon does is hard — and relatively expensive, compared to other Web sites. Some customers will pay for the difference.

“Good people are, in this market, hard to find and expensive. I’d argue that the keys to Amazon’s success is that their site generally ‘just works’ and that their customer service is almost unfailingly perfect. For me, the amazing thing about Amazon is that they give what we call here in Seattle ‘Nordstrom-style’ customer service but charge steeply discounted prices. It’s true that their discounts aren’t as deep as some of their competitors, but having a rock-solid web site and having intellegent, customer-oriented people to back it up makes it worthwhile for me to shop with them.

“For instance: I had a problem with a gift certificate order (probably not due to Amazon). I sent email. I got a great response: it solved the problem. Moreover, it was spelled correctly and formatted neatly. Clearly someone cared enough to take the time to write me a good response. So I wrote a ‘Thank you’ to them. A DIFFERENT person sent another great response. I was so shocked that I sent a second thank-you. A THIRD person sent yet another great response.

“This sequence of events is no accident: Amazon must be selecting folks very carefully for customer service and writing skills. I don’t need to tell you how rare those skills are today. And hiring and retaining good people is frightfully expensive. Amazon gets to be picky because they’ve got lucrative stock options to offer folks. But that costs money none-the-less.

“Contrast this customer experience with what I had to go through the last time (there will not be a next time) I shipped a package with Airborne. When it hadn’t arrived a week later, I called. The first two times I called the people I talked to thought that ‘MI’ stood for ‘Missouri’ and ‘Minnesota,’ not ‘Michigan.’

“A week later, and still no package. I called a third time. This time, ‘MI’ stood for ‘Miami.’ I patiently explained that, no, ‘Miami’ is NOT a state and again asked what was up.

“A couple of days later, Airborne delivered the package. To a neighbor — they didn’t even find the right house. It appeared as though the major problem was that a driver had miscopied the address from the package to the clipboard and therefore was unable to find the address because the mistaken address didn’t exist.

“I believe that this sequence of events is also no accident. It reflects how Airborne is run. And whenever Airborne’s stock drops, I secretly know why, regardless of what the analysts say. (I of course don’t have a ready explaination for why it goes up.)

“The Internet commerece world isn’t really different from the ‘real world’: service will be a key differentiator for some (many?) customers. It’s only different in that you don’t have to have human contact with the vast majority of your customers — so there are some savings there.

“That’s why I think Amazon is a great company. And if their stock price were more reasonable, I’d be pleased to own some of it.”

I guess I would only point out that, while I, too, appreciate Amazon’s service, they did lose $138 million last quarter providing it.

(OK, the loss came from investing in growth. But something tells me that if Amazon had made $50 million from selling books, before all the other stuff that dragged them into the red, they would have announced that.)

So this just makes my point. The Internet is great for consumers, but not necessarily a gold mine of profits for Internet vendors.

And as to service, I expect buying a book may become pretty much like placing a call. Can you really tell MCI-brand long distance quality from AT&T-brand or Sprint-brand? Don’t they really sound pretty much alike?

Anne Speck: “Sure, you throw the box from Amazon away, but **the box comes!** Any company that operates at a loss will eventually go out of business. I think that Amazon will eventually balance the equation so that it runs in the black, and in the meantime, they go to an incredible effort to make shopping with them as pleasant and painless as a well-run bookstore. I know their box will show up.

“However, this week, I was checking out cameras and ended up at www.netmarket.com. They have two prices for every item they sell. A ‘guest’ price and a ‘member’ price. The membership you have to buy is $70 a year. Well, I’ve been doing my homework, and the guest prices are about $20 more than the cost for the same product at my local camera shop. The member prices are about $10 less (assume that the taxes I’d pay locally and the shipping I’d pay on-line are a wash). So, if I want, I can pay $70 to ‘save’ $10 on the camera. Suddenly, my modestly cheaper price (which would have fooled the net bot) has become much more than driving down the street. (I was also put off because several of the product descriptions were flat-out wrong… like they’d linked to the wrong product.)

“The [physical] camera shop also offers lessons for people who buy cameras from them and you get to walk out with the camera that day instead of waiting two weeks and then wondering what the delivery person will do with the box when it finally comes.

“I guess what I mean to point out is, some of the on-line ‘deals’ aren’t deals at all. If Amazon can cut me a percentage point or two off their price because they ‘only’ have to pay for stockers and order fillers and web masters and storage for the books (or clever people to do on-demand delivery scheduling) and can rent space in low-rent districts instead of high profile retail sites, then I will buy some of my books from them.

“But there’s nothing like touching a book to get me to buy it! And, I have been burned at Amazon. I did a search on ‘dog’ and ‘humor’ hoping to turn up something like ‘Poetry for Cats’ for a dog-owning friend. I got ‘How Dogs Work,’ which looked interesting. I ordered it. It was a children’s book. It was fun and funny, and my friend enjoyed it, but nowhere in the descriptions (at the time) did it say it was a children’s book. So now, I only order books I know something about from Amazon.

“The Internet will change a lot of things about business, but it won’t change everything. It will make it easier for companies who do what they do really well to replace companies that don’t do so well. I have an art supplies outfit I love. It’s called ‘Joe’s.’ They only do catalog sales, but the catalogs are funny and pithy and full of good quality names. By putting it on-line, they would easily replace the art supply stores that I have in town. At the four that I’m familiar with, the help is rude, the selection is small, and there isn’t enough information about the products. These places are in jeopardy.

“On the other hand, though I could beat the price I pay for my karate uniforms on-line, I love going to the funky little shop where I buy them. I always learn something new, I’m always happy to have gone there. I just can’t get too apocalyptic about the death of brick-and-mortar commerce.”

Anne, the karate chopping, water-coloring e-mail shopper. Is this a great time to be alive, or what?

And finally . . .

Joshua Rasiel (again): “Maybe right now, yeah, there isn’t much difference in getting the same book from amazon or booksamillion. My point was that I believe amazon will be adding more and more value to their site and to their books. This needn’t be limited to better packaging. Better customer service, for starters. Better guarantees and warrantees, better site navigation (cleaner, faster), all things I might pay a few more bucks for, just to get the same product. Amazon already does a lot of this: they invented 1-click shopping, which I love. And their suggestion software — where they figure out what you’ll like — is pretty cool, too.

“Which reminds me, if you wanna see a cool site, try www.moviecritic.com, it tells you what movies you like with uncanny accuracy.”

“I read a column you wrote years ago as I was entering a career in insurance and mutual fund sales. It was an article explaining why using an annuity in an IRA should be considered ‘financial malpractice.’ I agreed then and I agree now. Hardly a day passes without my encountering a poor soul who has been duped into sharing their wealth with a NEEDLESS middleman. I have lost the article. Could you please revisit the subject?” — Steve Reynolds

OK. A variable annuity is an investment product sold by insurance companies (or their agents). You give them $100,000, say, and it is invested as it would be in stock-market mutual funds, except that more of your money is siphoned off in fees and its harder to get your money back out. The annuity grows without taxes until withdrawal, but then withdrawals are taxed as ordinary income.

For those few of you who may have missed it . . .

Annuity Insanity

September 4, 1996

I’ve never been too enthusiastic about annuities, for reasons I’ve detailed from time to time. They’re heavily promoted (because the sales commissions are high), but that doesn’t make them a good investment. Once you get sucked into an annuity it’s not so easy to get out or even switch managers. And you have annual administration fees and a “life insurance component” that cuts into your return.

Yes, they grow tax deferred, like a giant nondeductible IRA. But why not buy municipal bonds, which are not just tax-deferred but tax-free? Or why not buy growth stocks outside the shelter of a variable annuity? Tax on their appreciation will not only be deferred until you sell them but, very likely, subject to a favorable capital gains tax rate. (Within an annuity, any capital gains advantage is ultimately lost — the gains are fully taxable as ordinary income when withdrawn.)

So I’ve been pretty down on annuities forever — not that this seems to have thwarted in any detectable degree the army of sales folk who sells tens of billions of dollars worth every year.

But what’s really appalling is the large percentage of annuities sold to people for their retirement plans. Their IRA rollovers and Keogh Plans and so on.

This is nuts. Those funds are already tax-deferred. Why on earth would you accept the sales and administration costs of an annuity product — the only real justification for which is the tax deferral aspect — when your funds are already sheltered from tax?

If you are one of the thousands of investors making this mistake — quit it! If a financial advisor put tax-deferred annuities into your tax-deferred retirement account, I’d consider not just switching advisors but even inquiring as to possible “remedies.” You’ve been the victim of something that either is, or appears to me to verge on, professional malpractice.

(Educators with TIAA annuities: don’t be alarmed — they are a better deal.)

Full disclosure: I own a little piece of this. It’s called OneCore.com. And, no, it’s not public. But it might be of interest to those of you who run small businesses, or even if you don’t (you don’t? it’s 1999.com, for heaven’s sake — get with it!). OneCore might be helpful if you have a one-day-a-week housekeeper and find the “payroll” aspects so daunting that, by not filing the proper forms and paying the nanny tax, you are jeopardizing your otherwise very real shot at becoming a Supreme Court justice.

(The household-employee aspect of this may be a little premature. But when I suggested it to OneCore, they thought it might be possible. In the meantime, Charles and I have an accountant working two days a week to tend to the requirements of employing our housekeeper one day a week. Or so it feels, anyway.)

As Business Week On-Line described it last week, “OneCore is a middleman: It bundles the small-business financial services of a number of companies into a single package accessible on one Web site. … [Its] basic service — which all customers must take for a fee of $25 per month — is an interest-bearing checking or sweep account, called the Core Account, administered by mutual-fund company Scudder Financial Services Inc. Aside from that, services are a la carte. Other offerings include payroll processing by Computer Resources Inc., bill payment through CheckFree Corp., 401(k) administration by Bankers Systems Inc., merchant card services from Michigan National Bank, and equipment-leasing loans from BankVest Inc. All transactions are handled online, and clients can download transaction information into their accounting programs. The system is compatible with a number of software packages, including Quicken and Quickbooks.”

Interest on business checking accounts. I like it.

OneCore is the creature of Barry Star, whom I first met when he was at Fidelity Investments. Company lore has it that OneCore was born when Barry was charged 85 cents to deposit a $100,000 check in his — non-interest-bearing — business checking account. (Even the youngest companies need their lore.)

OneCore is just staring out, but already it has clients like Clint Clemons, a photographer whom Business Week Online’s Jeremy Quittner describes this way: “His office is in Rhode Island, his bookkeeper is in New Hampshire, his production facility is in Los Angeles, and his agents are in New York and Italy. He travels about 150,000 miles annually. He has used OneCore since the spring of 1999 to pay bills and handle his payroll. The online access to his business accounts is indispensable . . . ‘It allows me to have personal control of the signing of checks, checking the performance on the accounts, and approving all the money that gets spent out of the company,’ [Clemons says].”

I haven’t tried OneCore yet myself, so cannot vouch for it. But if you’re tired of doing the pizza parlor payroll by pencil, check it out: OneCore.com.

Do you read Barron’s? Alan Abelson, whom I profiled as “The Smartest Man on Wall Street” in 1973, and who probably still is, had a column about a month ago that mentioned something about Japan. Alan has been bullish on Japan, as have been some other smart folks I know, and noted that $100 billion in Japanese 6% and 7% postal savings bonds come due next year. (In Japan, much of the prodigious saving people do is down at the post office.) Are the Japanese really going to roll them over into bonds that now yield practically nothing, Alan wonders? Or will some of them try their hand at the Japanese market? One more reason Alan is betting on Japan.

Then again, I was reading somewhere else that Confucianism prizes obedience before almost anything else, which is why, according to this, the Japanese — even more than the Chinese, for some reason — are slow to revamp their existing institutions, as some of its Asian neighbors have been. This writer was doubtful Japan would make the needed changes.

Someone else told me the rebound in Korea and Thailand had been so swift, the pain so relatively fleeting, he was afraid they had not really “gotten it,” and would largely revert to their bad old ways.

As usual, the world is too complex to scope out with any certainty. But Asia is not going away. And it would be foolish to assume that the Asian economies will never be able to figure out how to compete in the global marketplace. It wasn’t so long ago we actually thought they had won the competition.

Meanwhile, here is Chapter 14 of Fire & Ice. (You already have Chapters 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, and 13.) It’s called, “Women Are Liars and Cheats,” and suggests that beneath that crude exterior, Charles had a somewhat crude interior. But was basically just a lump of insecurities like everyone else. Or well, maybe a bigger lump.

Have a good weekend!

Monday: A New Website for Small Businesses

Through someone named Dean (thanks, Dean), I discovered google.com. This is one smart search engine. Check it out.

Dean had read of my Sony Swim-Man plight and decided to find me some underwater pool speakers. He typed “underwater speakers” in the search field and clicked Google’s I’m Feeling Lucky button. Five seconds later . . . well, you try it. Pretty amazing.

Meanwhile, Wayne Arczynski had a different solution to keep me swimming. He noted that I have this tiny waterproof radio, but that its signal is drowned out as I crash down the 40-foot length of the pool (forty-three thousand laps to the mile). And he wrote:

“You’re half way there! You just need to set up your own radio station. No, really! You can buy a little FM transmitter and hook it up to your stereo or cassette player and listen to it while you swim. I bet Radio Shack will sell you one for under fifty bucks. (Or you can probably buy an FM transmitter here on the web for half that price. On second thought, Radio Shack will show you how to plug it in to your CD player or stereo. More money but less cost [although I hear your time is going for a dollar a year now, so you will have to decide which is cheaper.]).

“Anyway, you can buy these little transmitters, tune them to a station that is not in use, tune your radio to the same station and voila, you’re on the air. This is basically how wireless microphones work. (Before you buy your FM transmitter, make sure it is legal. There are limits to how much power you can transmit on FM. I would think anything you can buy at Radio Shack would be OK.)”

Is this a great country or what? I’m not actually going to do this. But it’s great to know that I could. Forget Radio Free Europe. We’ve freed Europe. This is Radio Free Style.

In our continuing book-shopping saga, add to your favorites bestbookbuys.com, which searches — among several others — a Canadian outfit specializing in remaindered books, bookcloseouts.com. I was horrified to find the $24.95 hardcover of My Vast Fortune there for $4.79 (versus $16.10 at Amazon). Thanks to Barry Basden for pointing this out.

But in response to my notions that the Internet will make price competition acute — great for consumers, tough on vendor profits — Joshua Rasiel makes a different point:

“I predict this ‘price-bot’ craze will never happen, and if it does, it’ll self-destruct. Has everyone forgotten about value? Let’s look at regular commerce: If I go to K-mart instead of an upper-class store, 9 times out of ten, I can get the exact same album, shirt, or whatever, at a discount. Everyone knows that. Not everyone cares to get something the cheapest way they can, because they know that You Get What You Pay For. And that doesn’t always mean ‘expensive is good,’ but it does mean that if you care, quality is worth paying for.

“Take gasoline. Same exact product everywhere. Does the cheapo Fill ‘n’ Fly (real name; a chain in NJ) force Exxon under? of course not, because we all know that Exxon offers more in the way of service and reliability. they have more to lose if you end up with sugar in your tank, and aside from that, they’re cleaner, and they have slurpies.

“People pay for value. If an internet company wants to stay afloat and not slash prices to the bone, they ought to be remembering that.”

Well, I agree and disagree. It costs a fortune to build a chain of physical stores, to staff it and keep it clean, etc. And imagine the cost of hiring sales clerks who are all polite, knowledgeable and college-trained. And the cost of putting these stores in appealing neighborhoods. Yes, all this adds to the shopping experience. But the cost of doing the same on the Net is almost negligible. A few talented people can make it look and feel cheerful, polite and alert all the time — with no wait at the check out, no problem parking, no fear of the other patrons (or of being seen entering the store). At the back-end, FedEx delivery (or UPS or USPS) is the same whether you get it from the high priced site or the cheap one.

So, yes, sites will have to be reliable and meet certain standards to win and keep customers. But the barriers to this kind of entry are not terribly high. And the $150 bottle of pills, prescribed by your doctor, is really no better than the identical prescription filled for $97 on the Internet. Identical products have the same value regardless of what you paid for them. People will pay up for brand names and labels. But I doubt there will be much cachet in being able to show off an Amazon box versus the box of some competitor. Once the books come, I throw out the box.

“I got curious about an ad in the LA Times for an ‘investment opportunity.’ It guaranteed 11.9% annual yield for a three-year period. Which seemed interesting as it beats present bond returns. And one might not be able to guarantee that in the stock market either. 🙂 I called, and they said they’d send a prospectus. They said it was good for IRA’s or plain investment. They said it was like a CD, but NOT insured. They said in ten years of business, they had never failed to return an investor’s principle. I believe they said it was a corporate investment note. Now. Is this a good thing? Or a stupid thing to do. Do you know of this kind of thing? Is it legit or not, and how risky?” — Tom Whitaker

Could be vaguely safe or VERY risky. It depends on what stands behind the guarantee. No one borrows at 11.9% who could borrow at 7%, and strong corporations borrow at 7%, not 11.9%. So the banks or commercial paper market have turned them down (or they’re idiots, which is not a strong recommendation, either). I would steer clear unless you knew this deal inside out, and could explain convincingly why it ISN’T too good to be true.

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Thanks for clicking here, as many of you have, to go to PlanetRx and get three free products of your choice. (There’s $3.95 shipping.) As you know, if enough people click here, I might actually be one of four Grand Prize Winners who get 25,000 frequent flier miles. In the meantime, I’ve gotten a lot of free itchy-spray, toothpaste, and contact-lens solution. Thanks!