Author: A.T.

Through one of the wildly complicated telephone promotions now being phased out, I was entitled to cash in my AT&T points before the program disappeared. Rather than just throw away this opportunity, brought to my attention by a mailed brochure and reply envelope, I must have selected a $10 gift certificate at The Gap. I assume so, because I just received said certificate, along with a cover note from Denise Janiec-Domino, the Program Director for AT&T Rewards.

This is a woman who believes in what she’s doing. “Congratulations!” her letter begins. In a world of humdrum commercialism, here we had something to celebrate! Enclosed, she said, was my “invaluable” reward.

Now, I don’t mean to get all Bill Safire on you, but what is there about a $10 gift certificate that makes it invaluable? Is it not one of the relatively few things in life that can be more or less precisely valued? Is it not worth, at most, ten bucks? Would Ms. Denise Janiec-Domino consider trading me, say, a week’s pay, for my invaluable reward?

I think not.

Come on, guys! Relatively soon, thanks to the Internet, everyone in the world may be speaking English. Let us not destroy the language before they get here.

“It’s fair to say that most of the people I know have accounts at AOL and my students spend a fair amount of time in AOL chat rooms. But a friend of mine did the mental gymnastics and estimated that AOL [$167 on Monday] would need to fall to $50 for P/E=100 on estimated 2001 earnings! I have no doubt that AOL will still be standing in 20 years, but there’s got to be a limit to its subscriber growth (and thus to their profit growth), no? It’s not a consumer non-durable like Gillette or Coca Cola, and it doesn’t recreate a market cycle like Microsoft or Intel. So, Andy, can you (or one of your other readers) defend the current valuation for AOL?” — Elliott Wong

Say in 10 years there are 1 billion users on the net and AOL has managed to be such an indispensable community that everybody chooses to use it. Or well, one in two — 500 million people. Is that impossible? Surely half the people who use personal finance software choose Quicken, half the people who use word processors choose Microsoft Word — no?

And say they figure out a way to extract $50/year in after-tax profit from each of us, through fees, ads and commerce. That’s $25 billion in profit. Give it a 25 multiple, and you have a $625 billion market cap, versus today’s measly $150+ billion.

And (while we’re doing preposterous math), say you don’t have to discount the numbers to account for the 10-year wait, because that $50-a-year in after-tax profit will actually increase at your discount rate.

So . . . it’s selling today for a quarter of its true value!

(Do I buy this? No! But you asked.)

If you use these same extremely if not wildly aggressive assumptions, and figured the $50 profit would be the real number in 10 years, then you do have to discount the value of that $625 billion market cap. What’s $625 billion ten-years-from-now worth today? The answer, if you expect to be “paid” 15% a year for taking risks like this (or else why not just accept 5% from a bank?), is $155 billion, or about where it was Monday.

If you think you should get 20% a year to take so much risk, then the market cap today should be about $100 billion, and it’s $50 billion too dear.

If you think internet access will essentially be free and AOL will be one of dozens of companies competing like crazy for everyone’s business and that it will be earning “just” $10 billion after tax in 10 years, then it is wildly overpriced.

And if profits even that small — $10 billion a year — should prove elusive a decade hence, then paying $150 billion for the company today will, with hindsight, have been nuts.

But it’s also possible (I suppose) that AOL and a few others will rule the world like no other companies, and only a few empires, before them. In which case these stocks are cheap.

Leave it to my excellent readers, in this case Michael Gordon, to do my research for me. Michael directs those interested in foreign stocks, or more specifically the American Depositary Receipts that represent them, to these two sites:

www.bankofny.com/adr/adir.htm

This one, from Bank of New York, has an easily accessed directory of every ADR you’ll ever need, or at least all the ones I could think of. And when you scroll to the right, you find out where it’s traded, what its “CUSIP” number is (so your broker can be sure he’s buying you the right thing), and the ratio of underlying foreign shares to each ADR.

http://www.adr.com

This one, from JP Morgan, is less comprehensive in terms of the ADRs, unless I missed something, but offers very interesting global maps and market information that allow you to “drill down” by region and industry and so forth.

The Bank of New York site is only interesting if you’re checking out a specific security. (And then it’s very helpful.) The JP Morgan site might be worth a look even if you just want to remember where Thailand IS, exactly, and how its stock market has been doing.

Thanks, Michael.

I will never forget (this is a completely true story) riding in business class someplace 10 years ago, reading a Business Week article about the Japanese stock market, which had just reached 40,000 on the “Nikkei Dow.” Even at 20,000 a year or two earlier, people were marveling at it and looking for ways to short it. (Happily, I didn’t find a way until it had doubled.) At 20,000, it seemed awfully rich. And now, as I flew out to the West Coast, it was 40,000.

Not to deny that the Japanese had the rest of the world way beat in consumer technology and production methods and management and the harmony of their work force. They did. No matter how high the yen got (or how high the price of oil some years earlier, of which they produce none), they found ways to produce more efficiently and keep their quality products competitively priced. And their kids spent more time in school than ours, and there was no crime, and their cholesterol levels were half mine, and — while there is no shame in being the number two economic power in the world — it was obviously going to take the U.S. a lot of getting used to. Yet it was a real possibility. So maybe 20,000 was justified — but 40,000? One of the Japanese money managers in the article was quoted saying the market, at 40,000, was a clear buy. I circled that quote.

Meanwhile, I kept looking over at my seatmate, wondering whether I should ask him about this, because, truth to tell, he appeared to be Japanese himself. We got into a little general conversation — it turned out he was a financial whiz — and I asked him what he thought of the Japanese market. Could it go any higher? Was it poised to fall?

He fielded the question with youthful enthusiasm, saying that he thought the Nikkei was in a long-term upswing, all signals go . . . digging into his briefcase as he spoke and pulling out the same issue of Business Week I had been reading and pointing — THIS IS A COMPLETELY TRUE STORY — to the quote I had just circled. “Look,” he said a little flushed by the headiness of it all. “They quoted me.”

Next to my Elaine May story (you’ll just have to wait for that one), or possibly Karel Urbanek (that one, too), this was surely the spookiest thing that has ever happened to me.

Even so, I was sure this young financial whiz was wrong, and a decade later the Nikkei Dow, having gotten down into the 13,000s and 14,000s for quite a while, is finally showing signs of life.

So is now the time to buy? I long since lost that fellow’s business card, and he’s probably switched jobs by now, so we will just have to dope this out by ourselves.

Doug Aker writes: “Your brief reference in your column a few days ago about investing in Japan got me wondering perhaps you were thinking the same thing I was. To those who may NOT be thinking along these lines, an exercise: go to http://quote.yahoo.com and compare 10 year charts for ^DJI (Dow) vs. ^N225 (Nikkei). Then ask yourself: Over the next five years, what’s more likely: Dow 20,000 or Nikkei 32,000 (or even 40,000)? If Japan (STILL the world’s #2 economy) is now truly poised for a rebound, the Nikkei’s got a lot of catching up to do. To those who feel BURNED about not getting into the US stock market in the early 90’s, Japan’s your chance to take a trip in a time machine.”

So I was all set to run out and add to my position in a stock called Tokyo Marine (TKIOY), which I had bought at 51 and was already up to 59, when I opened this, from Malcolm Bersohn:

“I’m the guy who went to Horace Mann 20-30 years before you and yet a couple of our teachers were the same. I also recommended Merck to you when it was about 45. [It’s 80 or so today.] Anyway, those are my two claims to fame. I strongly advise you not to hint to anybody that they should buy Japanese stocks. You are probably thinking that matters are like a pendulum, the Japanese economy swings up then down, soon up again, then much later down again etc. etc. Actually and sadly for the hardworking Japanese ordinary people, the pendulum is now broken. It might take half a century to fix.”

And when you think about it in really simplistic terms (when have I ever not?), if Japan’s index seemed very high at 20,000 ten years ago, why should it seem a bargain at 16,000 today? Is its economy in nearly as strong a competitive position as it was ten years ago? No. Has it grown since then? Not much. Have we and the Europeans gotten leaner and meaner? Yes. Have other Asian countries with much lower labor costs gotten more technologically proficient? Yes. So is there much reason to see the Nikkei run back to 40,000 any time soon? None.

Sorry — yesterday’s column about Japan will run tomorrow.

Want to get this silly column delivered to you every weekday at 6am?

No? OK, then, want to speed up your web surfing?

Here’s a great new site I recommend not only because I own a little piece of it. And yes, of course, it’s free with no immediate revenue prospects in sight — but surely that alone makes it worth $100 million.

Anyway, it’s www.quickbrowse.com . Basically, you tell it the sites you like to check out every day (or every whenever) … Dilbert and the Miami Herald sports page and maybe the business sections of three papers plus Yahoo.

You can even “bookmark” that collection of pages, so you only have to tell Quickbrowse once.

So now you start your computer, click that bookmark, go off and make the coffee (or call your mother — you know she’d love to hear from you), and when you come back, it’s all there, on one long Masterpage. Just scroll down to see it all. No need to enter separate URLs and wait for each page, sloooooowwwwwly, to load.

And as you do run your eye down the Miami Herald headlines, say, you can click the stories you want to read — bing-bing-bing. By the time you’re done clicking them, at least the first one has been added to Your Masterpage ready to read, with the others following rapidly as you read the first.

Neat, no? This can save you a lot of time.

The other thing you can do is instruct Quickbrowse to e-mail the stuff you like to see on whatever schedule you’d like to see it.

If you use AOL, you may find the formatting doesn’t work very well with this feature — we’re trying to improve it. (And instead of Alt-Tabbing to jump instantly back to your Masterpage each time you click a link, with AOL you Ctrl-F6.) But try it.

For example, say you like to check out the cheap travel deals. Well, here’s a site you should visit: www.webflyer.com/@deal/crdeals.cgi/crdealmain.htm . But you will find that the Domestic Airfare deals are updated at 3pm Mountain Standard Time every Wednesday. Who can remember that? Quickbrowse can! So what you’d do is go to the page that has the deals for your specific city and then cut-and-paste the URL (web address) for that page into Quickbrowse and have it e-mailed to you at 5:01pm Eastern Standard Time (do I have my time zones right?) every Wednesday.

Quickbrowse is young, so you may find it can’t do everything exactly as described. And for sites that require your ID or password, it might take a little jiggering in the URL to get it to work automatically (we help you with that) . . . but check it out.

Amazingly, this new and unpublicized site somehow got discovered half a world away and was “site of the week” in the Bangkok Post a few weeks back, and got a great write-up in the Irish Times last week — we truly are becoming a very small planet. Forget Esperanto. (Kids: that was once proposed as the universal language.) It’s . . . Internet English. And aren’t those of us who happen to have been born in English-speaking countries lucky sons of guns? Why, yes, we truly are.

Anyway, try Quickbrowse. And if you want to buy 1% of it for $1 million — a bargain given its complete lack of revenues, profits or dividends (kids: stocks used to pay dividends, which investors used to use to pay the butler) — just drop me a line.

Not long ago, I made a little fun of an ad for the Strong Funds that exaggerated its Morningstar stardom (all duly hinted at in the fine print). But today Michael, who asks that his last name not be used, rants at the Morningstar stars themselves.

“The two biggest problems I have with Morningstar stars [Michael writes] are:

“1. Past results have nothing to do with future results.

“Everybody knows this but ignores this aspect of Morningstar’s ratings. Just because a manger had a hot streak doesn’t mean he’ll (why are they all he’s?) stay hot. More to the point, changes in managers do NOT impact the rankings.

“2. (and this is the important one) The returns used to calculate the number of stars are based on total returns and over short time periods-NOT relative performance.

“To see the truly silly situation this creates all one needs to do is pull up all the four and five star Japan funds, but…aye, there’s the rub. There are no four or five star Japan funds! None. And only 3 of 22 have three stars—the “average” ranking.

“Now pull up all the five star Europe funds. Amazingly, over two-thirds of all Europe funds have five stars (37 of the 55 ranked by Morningstar). Another ten funds have four stars. Wow…it seems that all the talented managers have been managing Europe funds, not Japan funds. Who would fish for good stocks in the horrible pond of Japan? Don’t they know better?

“Japan has been a horrible place to invest over the last five years, while any dolt could have made a killing in Europe, but does that mean the same will be true over the next five years? What would have the Morningstar ratings looked like at the end of 1989?”

Thanks for writing my column for me, Michael. I would only add, in Morningstar’s defense, that they, too, suggest investors not rely too heavily on their stars in choosing funds — especially the stars for the shorter time periods. And they do try to measure a fund’s performance relative to funds with similar objectives. But obviously not when it comes to measuring Japanese funds against each other instead of against all foreign funds. You make an excellent point in this regard.

Monday: What About Japan, Anyway?

If someone sends you a “Get Will Soon!” card, would it be a typo? Or, given your condition, an urgent financial planning suggestion?

Is today a holiday over at the Motley Fools?

If you sip a glass of orange juice as you eat your milk and cereal, wouldn’t it save time just to pour the juice in WITH the cereal? It saves ME time.

I’ve been talking about Uri Geller, who drove blindfolded through Central Park.

“Nothing unusual about Uri Geller’s driving,” notes Mike Wallin. “All Israelis drive as if they are blindfolded.”

Meanwhile, reports Scott Nicol, “Uri is still around. Seems he’s still making news in Britain, even doing a show for the BBC. I checked his webpage, www.urigeller.com, clicked on a few things and found ‘The Ultimate Bike Project.’ Finally, something I’m familiar with! I have done almost everything with/to bikes. I have worked as a shop mechanic. I have toured, commuted (all weather, minus-40 degrees and in blizzards), and raced (former Amateur Senior 2 — there are five amateur categories with 1 being olympic/pro hopefuls, 5 being newbies).

“So anyway, Uri is promoting this ‘Ultimate Bike,’ where his site claims Bruce Bursford set the ‘Solo Cycle Absolute Speed Record of 207.9 mph on the rolling road,’ producing ‘something like 5,000 watts of power’ and that Bruce ‘accelerated from 0 to 60 mph in 2 seconds.’ Wow! Sign this boy up! I’m quite confident that Greg Lemond never produced anything close to 5,000 watts of power (1000 watts, maybe).

“On some of the other links on this page, the ‘rolling road’ is quite obviously rollers. Rollers are a way of turning a road bike into a stationary bike, and they usually have no resistance. Try hopping on a stationary bike, getting rid of all resistance (fan, belt, etc), and then crank for all you’re worth. How fast did you just go? Zero. But the wheel sure was spinning fast, wasn’t it! Now take a real bike, lift the back wheel off the ground, and crank the pedals with your hands. I can get my bike speedometer to read over 100 mph this way, if I have it in a high gear. Now take that top gear and multiply by 4 (that’s how big of a gear Bruce was using).

“The funniest thing about the article is that Bruce is riding a special ‘aerodynamic’ bike. I don’t think it takes too many brain cells to figure out that aerodynamics (or, more properly, low air drag) doesn’t matter when you aren’t moving. Give me a Huffy beach cruiser and I’ll install a humongous gear and pedal it to 250 mph. You can be my first sponsor!”

And not only can you attain speeds over 200 mph with the Ultimate Bike — you can ride it blindfolded.

Recently, I described how Uri Geller drove me, while he was blindfolded, through New York’s Central Park.

Pieter Lessing: “For your readers who are interested in reading more about some of the hoaxsters that fooled the gullible multitudes, I can recommend Flim-Flam by James Randi aka ‘the Amazing Randi’ (the same Randi you mentioned March 24). Some amazing episodes, including the ‘fairy’ hoax, that had even Sir Arthur Conan Doyle (Sherlock Holmes) believing in little flying nymphs!”

To buy this book from Amazon, click its title above. To buy it 10% cheaper — which, rooting for your financial success (and still being short Amazon stock), I’d rather see you do — go to www.buy.com . (Or save time and money and buy the audio cassette, which is cheaper than the book and will take you less time to read, especially if you can listen to it while jogging when, otherwise, you would be wasting your time thinking about how your knee hurts a little and maybe you should stop — but no, if you start stopping now, at 37, what will you be like at 40?). Or just check it out from the library.

Anyway, Pieter continues, “I’ve got some GREAT news for any of your readers who can duplicate Geller’s feats (but without the cheating part). James Randi has an open offer to pay $1 million ‘to any person or persons who can demonstrate any psychic, supernatural or paranormal ability of any kind under satisfactory observing conditions.’ For full details on the challenge, see www.randi.org/jr/chall.html .”

Pieter concludes that if one of you does win this challenge, all he asks in return is that you become his new stock broker. “I’ll even pay full commission!” he says, perhaps imagining you will know tomorrow’s prices today.

This may appeal to Lorraine. Lorraine, are you listening? Lorraine writes: “Many years ago Uri was on The Today Show. I listened to him, got an old unrunning watch when he suggested it, held it and it started to run as I was listening to him. I didn’t shake it or handle it unduly. It ran for a while and then stopped again, never to run again. It was a keepsake (dated 1925) and hadn’t run for a long time. Then I went to teach a few kids in a classroom, and said, with dice in my hands: “I can make such-and-such number come up.” It did. I did this three times. This had never happened to me before. I figured I had pushed my luck enough and stopped. I’ve never done it again but was amazed and it made a sort of believer of me about Uri Geller’s talents. Even long distance.”

Lorraine, the Amazing Randi would do this better (not for nothing do they call him Amazing), but the kind of thing he’d probably point out is that 10 million other people also watched The Today Show that morning. The odds of your calling — and getting — “six” three times in a row are, depending on how many dice you were casting and how the exercise was set up, small, but hardly infinitesimal. With a single die, the odds are 1 in 216. And think of all the amazing coincidences that didn’t happen that day! Hundreds of astonishing things that you didn’t notice because they didn’t happen. So it may be you were temporarily endowed with, or had found a way to unlock your normally bottled up, supernatural powers. But it may also have been one of those spooky coincidences. (Imagine how spooky — how unnatural — it would be if there never were coincidences. If for some reason you never got the number you called three times running.)

As to the watch, I’m no scientist, so I don’t know. But maybe taking a watch that’s been sitting at a 70 degree temperature for days and putting it in your hot little 98.6-degree hand heats the metal and makes things “creak” a little, as it were, releasing some tiny bit of energy left in the mechanism of the watch. Or maybe Uri has a supernatural force that can extend thousands of miles in every direction and set millions of stopped watches running again, at least while his mind is on it. (But in controlled experiments, he has not been able to do even a small fraction of this.)

Still, if I were you, I’d have remembered this day, and been impressed by it, too. That’s why, when I began writing about Uri, I in fact did become convinced he was for real, and unfairly maligned. My gosh, he had driven blindfolded! I will never forget my impassioned speech to my editor, who was counseling this fledgling young writer not to go with the story, about how he was suppressing the truth! About how I had seen proof with my own eyes! The elephant really had disappeared! (No, wait, that’s David Copperfield.)

Anyway, it’s fun, and 2% of me does believe in a sixth sense we will someday understand better. But I really don’t think it will ever bend a spoon or start a broken watch.

Tomorrow: Whatever Happened to Uri?

“How are the banks that sponsor the ADRs paid for their work? I’m assuming that they don’t sponsor the ADRs out of the goodness of their hearts.” — Hank Gillette

Not surprisingly (and quite justifiably) the bankers are being paid.

ADRs — American Depositary Receipts — are the easy way for Americans to buy shares in foreign companies. Instead of going to Brazil to buy the phone company, you buy a security here that represents ownership of those foreign shares. (Sometimes one ADR equals one share; often, one ADR equals more shares.) J.P. Morgan or some similarly august and trustworthy American bank will be the custodian of the actual shares that underlie the ADRs.

ADRs trading on the NYSE and in other liquid markets are generally sponsored by the foreign company themselves. They pay the bank’s custodial fees out of their pocket, figuring that it’s worth it to be able more easily to raise capital from U.S. investors.

My friend Less Antman tells me that there are also unsponsored ADRs that trade over-the-counter and are highly illiquid, allowing the custodial bank to act as market maker and to earn its money by taking large spreads between the bid and ask prices. “Of course,” notes Less (and I agree), “ADRs, like all stocks, should be bought as long-term investments, diminishing the shock of this one-time spread. And it’s still usually cheaper than buying directly in the country of origin, due to the higher brokerage costs.”