Author: A.T.

Falling into the broad category of “my readers offer much better advice than I do,” here is another of the many compassionate, intelligent responses I got to the column on Linda. It comes from Dianne Duncan:

I just had to respond to Linda’s predicament because 25 years ago, I was exactly in her shoes. I was a single mom, 2 kids, no child support (he was wacky, dangerous, and lost jobs regularly), and worked full time in a job that paid so little, I qualified for food stamps. I was a high school graduate with one year of community college.

How I got out of the poverty situation:

1. With the help of a boyfriend who babysat in the evenings, I went back to community college and took electronics classes.

2. I was able to transfer (because of those classes) into a (male dominated) craft job that gave me a 50% increase in my pay. (I also put up with a lot of harassment – this was the early 70’s.)

3. I married my boyfriend who paid off the rest of my debts.

4. I continued in the craft field, two years later transferring to a top craft job that paid over twice what I had been earning as a clerk.

I am now retired, drawing my own pension. I will have my own social security check, and am now teaching technical classes, working 5 or 6 days a month and earning more than what I used to earn working full time. I am continuing to add to my IRA because I am scared to death to ever be in that situation again.

My heart goes out to Linda. I was a little bit smart, and very lucky. I do have some suggestions:

1. Don’t be too proud to accept any help you qualify for. You deserve it, and so do your kids.

2. Look carefully at what you do for a living. What else could you do that might pay more?

3. Don’t listen to people who discourage you. Yes, you need to be realistic, but I have seen so many people get jobs they didn’t qualify for and then learn how to do those jobs.

4. A job that pays less, but offers benefits might be worth the difference.

5. Can your kids qualify for Medicare coverage? My son works full time, but has no medical. My grandkids are covered (thank God) through Medicare.

6. Are there medical or dental schools nearby you can go to? They charge little to nothing, you have to go several times, but often the care you get is superior to that of a private practitioner.

7. Do you have any resources (family or close friends) in other parts of the country that offer more in the way of jobs, transportation, and services? (I’m NOT suggesting that you up and just move, just try to consider options you might not have considered.)

8. Look carefully at the interest rate you are paying on the credit cards. If you are paying 18% and have a good credit record, you are paying way, way too much. Also track each month the exact dollar amount you pay in interest. The card companies do not want you to look at that very hard. You should be able to negotiate a lower interest rate. Call the company and tell them you are thinking of switching to another company because of the rate. Tell them you deserve a better rate and ask if they are willing to lower their rate. If you do switch, close out the old card.

9. Talk to your medical provider. Explain your situation and don’t be proud. Doctors charge various rates to various people. My husband had surgery last year and asked the doctor what his fee was. They had a long discussion and it turns out the doctor’s rate varied depending on whether the person had insurance, was well off, or very poor. The difference was more than half.

Good luck to you. It does get better.

And then there was the fellow who wondered how come, if times were so tough for Linda, she could afford a computer to get on the Internet. But that’s what I found so especially compelling about her message. She’s not poor or starving; she makes almost double the minimum wage – and yet what a struggle it is. Her credit record is excellent, but she can never quite get ahead of the game. (On $18,000, how could she?) She’s been trying for 11 years, and she’s tired. Bully for her that she found a way to get a computer and on the Internet – both for her and as a way to give her kids that all-important chance to grow up computer-literate. Bully for President Clinton that one of the first things he did on taking office was raise my taxes and institute the earned-income credit for the working poor, like Linda. In her case, it might have provided just enough to buy a computer for herself and the kids, and to stay online.

(If you know people who work, but who file no tax forms because they think no tax is due, tell them they should file anyway. If they have a child and income under about $25,000 – or two kids and income under $30,000 – they may get a check from Uncle Sam.)

I don’t like higher taxes, but we fortunate upper-income types still do OK. The top tax rate is still way, way lower than it was under Eisenhower (90%) or Kennedy, LBJ, Nixon, Ford and Carter (70%).

From Larry Jensen: "Your shorts of Amazon.com ought to work out. Obviously, people will NOT be using it as a portal for buying everything, since they’ll be too busy buying and selling everything at auction on eBay. Or at least that’s what I see the market saying. I wrote to you last Wednesday, when eBay was $147 1/2, after writing in late October at $80. Today it closed at 196 13/16, after trading as high as 234 1/8! Volume was 6,003,400 shares, roughly meaning that EVERY share in public hands traded TWICE, today! Words like frenzy, mania, and irrational exuberance hardly seem adequate any more, so I’m pleading with you to come up with an appropriate mania scale that can handle the task. I’m still completely on the sidelines with this one, hoping that my Vanguard Index 500 shares don’t get hit by the shrapnel when this bubble bursts. But it feels like skipping the party of the year. P.S. The hot, impossible-to-find toy of the year is supposed to be the ‘Furby.’ Have no fear, there are 2,277 Furbies on auction at eBay this minute. Scalping toys has just been raised to another level."

An opposing view …

From John Ruman: "There is a book out called The 22 Immutable Laws of Marketing — very entertaining. And in the beginning they say something like … ‘Quick — who was the first man to walk on the moon?’ And everyone knows the answer — Armstrong (Amazon??). Then they say … ‘Who was the second person to walk on the moon??’ and not too many people know that one!!(Barnes and Noble??) There is Coke — and Pepsi — and everyone else. I think Amazon’s stock will get there first (to the moon!)."

From Dorothy Mallonee, gloating: “I almost hate to tell you this, but based in part on your prior experience with short sales, but more on my expectation that the market dip on September was very temporary; and firmly against the advice of both my husband and my broker, I bought 200 shares of Amazon.com on 15 September at 71 9/16. Today it closed at 218. I’m trying to figure out if I can take my original investment amount out without paying capital gains, thus playing with my ‘free money’ and riding the Amazon roller coaster for awhile, yet. My broker called me a week ago to congratulate me. And, truth to tell, I don’t hate to tell you about this, any more than you would! (Can you say ‘tulips’?)”

A.T.: No, Dorothy (who long-time readers will recognize as one of our most informative correspondents), you can’t “take your original money out without paying capital gains.” However many shares you sell, you have to pay tax on the gain versus what you paid for those shares. But what do you know? You’re just a rank amateur (who made $29,000 in six weeks on a $15,000 investment). But I … I am an expert! I am so smart! I know the basics of the tax law! I know what you mean about tulips (Dorothy is of course referring to the Dutch tulip-bulb mania of 1634). And, yes, that’s me out there in front of Starbucks, tin cup in hand, with my expertly lettered sign: “I shorted Amazon.com – spare some change?”

"I have several mutual funds (14 to be exact, which I know to be too many), accumulated over the years, most of which way underperform the market. I have recently begun reading an online group that says that the best way to beat the market is with the top 4 or 5 yielding Dow stocks, adjusted annually. This group backs up their theory with 20 year results showing that this would be the way to go. It seems to me that this is like saying that you should bet on the Steelers Sunday since they have never lost to the Jaguars at home (what I call ‘backing into a trend’). Or is it a sound strategy?" – Joan Trawick

Picking a mutual fund to outperform the market is even harder than picking a bunch of stocks that will. Why? Because the fund’s performance is dragged down by annual expense charges (not to mention the up-front sales fee, or "load," a majority of fund buyers — amazingly — pay). So when it comes to funds, my advice is to select one or two or three index funds (one for big stocks, one for smaller stocks, one for international stocks), because they charge no sales fees and their annual expenses are typically very low. There’s nothing more obnoxious than a guy who quotes himself, but I’m going to quote myself anyway: "In the investment race, the horse with the lightest jockey — the fund with the lowest expense ratio — wins." Not every year, certainly, but over the long run. An index fund is a horse with a 20-pound jockey (20 hundredths of one percent annual fee); most actively managed funds have 100-pound or even 150-pound jockeys. And this is one of the key reasons your 14 funds underperform the market. Taken together, I would bet your 14 funds more or less ARE the market — except with these huge jockeys weighing them down. (The market itself is a riderless horse — it flies like the wind.)

Buy index funds and you will do better than 80% of your friends and neighbors because the jockey is so light.

Equally good, buy the securities known as Spiders and Diamonds, which are like index funds for the S&P 500 and the Dow Jones Industrials (they trade just like stocks, with the symbols SPY and DIA) … and/or the similar security that buys a basket of mid-size stocks (symbol MDY) … and perhaps some "WEBS." (WEBS are baskets of stocks designed to represent the market of a particular country. All trade on the American Stock Exchange. Their three-letter symbols all begin with EW — Japan is: EWJ. Barron’s lists the Net Asset Values each week.) Or spice it up with some closed-end country funds selling at a discount.

Or kick off the jockey altogether! Cash out of all those funds and split the money equally among the Dow 30 stocks, say. Guess what? From then on, after a one-time $240 brokerage charge (30 stocks at $8 a trade), you’d do essentially just as well or poorly as the Dow. You’d beat the index funds (at least those that invest in the Dow stocks) and you’d beat Diamonds.

Of course, if you have unrealized huge taxable gains in your 14 mutual funds, then cashing out and incurring the tax may not be such a good idea. Otherwise, though, dump ’em.

In fact, over the long run, taxes are actually another reason to dump them. That’s because when you "do it yourself," constructing your own little index fund (spiced up with some WEBS, say), you get to control the tax consequences.

Take a year when the market is flat. No gain, no loss. In an index fund, that would be the end of it. But within that fund there would have been some big winners and losers. Say one of the Dow 30 stocks was up 50% and another down 50%. This does you no good in an index fund. But owned individually, you could sell the loser to get the tax loss (up to $3,000 in losses can be taken against your taxable income each year) and give the winner to charity instead of the cash you had intended to give (giving appreciated securities held more than a year is smarter than giving cash). Then you could just buy back the same positions (waiting 31 days in the case of the loser, or else the IRS disallows the loss as a "wash sale") or substitute something similar.

The Dow 5 or Dow 4 strategy you refer to, and others like it, work brilliantly in hindsight, but that has limited bearing on how they will do in the future. Are they reckless or harebrained strategies? Certainly not. They are a basket of a few very big companies — with no rider on the horse — and you are certainly not going to do much worse than you would in your 14 mutual funds; indeed, you might do a good bit better. But I don’t buy the "magic" of the strategy. And sure enough, the year this all got really popular, based on decades of back-testing (what woulda happened) and the publication of a book extolling its virtue, the strategy began dramatically underperforming the broad market indexes. My guess: some years it will do better than average; some years, worse. But the fact that there’s no jockey weighing down your results is a definite plus.

A couple of weeks ago I wrote about Linda, a single mom struggling with two kids and an income of $18,000 a year, and wondered how much tougher yet it must be for someone at the minimum wage (currently $5.15, or about $10,000 a year). As usual, you had some thoughtful, and thought-provoking, things to say:

“My father-in-law was a union worker as were many of our friends. I’ve seen what often happens when a union goes on strike for wage increases – ‘$X is not enough to live on in dignity. We insist on $Y as a minimum living wage.’ They forget, as you forget, that $4.25 and $5.15 are not the only alternatives. One other alternative is to not have a job, because the wage you demand is higher than an employer is willing to pay for your services. Which is better, to be employed at $4.25 or unemployed at $5.15?” – Ray Van Tassle

A.T.: Clearly, this is the other side of it.

I think there’s a balance here. There will be instances where a business closes or shrinks if the janitor or burger-flippers – or bookstore clerks – have to be paid $5.15 instead of $4.25. But the recent increase in the minimum wage doesn’t seem to have killed the economy or sent unemployment spiking. Most of those jobs need doing and can’t easily be lost to low-wage countries (how is a 20-cent-an-hour child laborer in Bangladesh going to sweep the floor or flip the burger in New Jersey?) nor automated (I’m still waiting for a machine to make my bed). It’s just that many of those workers have very little power to negotiate. The floor needs to be swept, but some desperate person, competing with other desperate people, might be found to sweep it for $3 an hour. The minimum wage sets a floor (just as a state’s usury law sets a ceiling).

“My problem with the minimum wage is that it is not well targeted. Although I am not as bad off as Linda, my wife and I have to work hard to support our family. When the minimum wage is raised it doesn’t help me but appears to help the teenagers of middle class families have more disposable income to spend on CDs and clothes.” – John Waggenspack

A.T.: John has a good point, though it leads one to wonder: Should a kid get less than another kid for the same hour of work – $4 versus $6, say – because his parents have some dough? I also wonder whether in the long run it may not help the rest of us when the minimum wage is raised. It gives those workers a little more money to spend, which helps the economy; and a little less call on taxpayer-assisted programs.

On top of that, I think it may simply be more fair. You might be able to find a maid willing to work for $3 an hour – but is that all you’d pay to avoid having to do it yourself? No, you’d probably be more generous. Well, how about $3 an hour to work at McDonald’s making you lunch? Even though it might lower the cost of lunch by a dime, my guess is that most customers would want to give the poor working stiff a break. And yet competitive pressure for market share and profit give store managers an incentive to pay as little as possible. The minimum wage is a crude but useful way to try to put some protection in place to keep that competition from getting too cruel.

“While totally sympathetic to the problem of low-income workers, I can’t afford $5.15 an hour. There are people who would and could work at my bookstore for less, but I would break the law by offering them what we both want. Also, $5.15 becomes much more after FICA and the rest are added in. How can you believe in free markets and demand that government over-regulate them, at the same time?” – Paul

A.T.: Well, I wouldn’t want over-regulation.

“P.S.,” Paul continues, “I have several of your titles in stock. I can keep the price down if I am not forced to pay an employee a mandated wage.”

A.T.: Don’t keep the price down on my account. But, yes, what with the chains offering discounts, and now the online booksellers, running an independent bookstore has got to be a tough, tough business. Some haven’t made it and others will close as well. (Just as online banking will close many a bank branch and ATMs have cut the jobs of many a teller.) Yet I’m not sure that lowering or eliminating the minimum wage would be the best solution.

“Here in St. Paul, Minnesota, I personally don’t know anyone – including teens working at fast food restaurants – who settles for the minimum wage. A booming economy and not enough ‘good’ workers (unfortunately, that means just about anyone who shows up for work at the assigned time) has raised many entry level and minimum wage jobs, in some cases, significantly higher than the so-called minimum wage. That is not to say, however, that a family (or even a single person) can live well on these higher-than-minimum wages.

“At the same time, we have here in Minnesota a serious shortage of semi-experienced, skilled and computer-literate entry level employees to fill jobs that pay at the next higher levels of wages. You seem to cast aspersions at the Republicans, but what of the ‘Democratized’ educational system that has so miserably failed society at preparing lower income people for better jobs through rudimentary educational tools, and what blame do we put on the ‘victims’ of these minimum wage jobs (which are supposed to be entry level anyway) who do not have the self-discipline and responsibility to climb above this level?

“I’ve enjoyed reading you over the past years or so, and I intend to keep doing so, but I think you’re getting a little too partisan, and thus unfair, in some of your thinking. Hard questions aren’t so easily answered as you hint at, and one party is not exclusively guilty of hurting people, as you suggest. That’s maybe why we Minnesotans recently selected a rather unorthodox choice for governor. Because he doesn’t want to play the partisan blame game and finds the extreme solutions of both ends itself hurtful.” – Bob Wicker

A.T.: I agree that the Democratic Party has been too beholden to the teachers’ unions (which are not wrong about everything, but are not right about everything either). I admit that I generally find the views of “new Democrats” (i.e., those like President Clinton and Governor Romer and Senator Lieberman), who favor free trade and many of the same sensible economic policies as moderate Republicans, far preferable to those of “Trent Lott Republicans.” In that sense, I am partisan. But I totally agree that “hard questions aren’t easily answered” – and, like you, I cringe at the partisan blame game and all the oversimplification and demagoguery. (Though of course, being a Democrat, I think you guys started it.*)

*This is a joke.

“I am looking to buy my first rental property, a duplex with $1,500 per month income. Asking price is $92,000. When calculating a purchase price, should I consider the return I could get investing the $92,000 (even though most of it would be borrowed) or should I consider the return on my ‘real’ investment, the 10% I put down. I’m up here in Burlington, VT” – Steven Polli

I think you need to look at it a lot of ways. Ultimately, the numbers an accountant would look back on in figuring your success or failure would be the after-tax results from ‘operations’ each year, plus any gain or loss in the value of the property along the way, as a percentage of your “real” cash investment. When mortgage rates are low, as today, this is the leverage that can make real estate so attractive. Say you get the property for $88,500, putting down $11,000 in cash plus closing costs. And say the $18,000 in rent rolls in without complication each year (maybe even inches up over time). And that mortgage interest, property tax, insurance, repairs, and large allowances for having to repaint, reroof, reboiler, repair (redundant, but trust me, justifiably so) add up to $14,000 a year. You are left with $4,000 on your $11,000 investment — and because you will depreciate the property over 27.5 years, part of that is tax-deferred.

(You don’t depreciate the full purchase price, because the land it sits on is worth something and not depreciable. But say you assign $33,500 to the value of the land and $55,000 to the structure — that’s $2,000 a year you get to depreciate for the next 27.5 years. The depreciation lowers your taxable profit by $2,000 each year, though it simultaneously lowers your ‘cost basis’ by the same $2,000 a year, increasing your taxable gain when you eventually sell the property, if you do.)

So the numbers could look great. Close to a 40% return on investment ($4,000 on $11,000) — half of it tax-free (well, tax-deferred). And that’s before allowing for the 3%-5% a year or even more the property might appreciate in value.

But hang on. In the first place, you’re risking more than your downpayment. It’s conceivable the property could go down in value, not up, with you on the hook for the difference. More to the point, don’t compare the 15% (say) you figure you might earn on this annually to 15% from a simple passive investment like shares of some unusually successful stock. You need to be paid for the work! The hassle! The extra paperwork and tax preparation! Sometimes these things go very smoothly (although they are still work) but sometimes not. Owning rental property is more of a part-time job than an investment. How would the numbers work if you decided to charge a phantom $5,000 a year for your work and worry?

So you want to be very conservative in your estimates. You want to be sure you’ve thought through how you’ll handle the accounting, the lawn care, the plumbing problems, the roof leaks, the feuding tenants, their late payments, the eviction process if need be — and so on.

Today’s low interest rates may offer you a good opportunity. And the kind of property you describe does not sound terribly difficult or risky. But I’d look to get a very attractive return and, for sure, a positive cash flow after all costs and repairs (and an allowance for periods of vacancy) before going into this.

Good luck.

UPDATE: AS I WRITE THIS, AMAZON IS VALUED AT SIX TIMES BARNES & NOBLE. HERE’S AN IDEA FOR BARNES & NOBLE: PUT TABS FOR VIDEO, ETC., AT THE TOP OF YOUR WEB SITE AND SEE IF YOUR STOCK SEXTUPLES. IF NEED BE, CLOSE YOUR 504 PROFITABLE STORES AS WELL, SO YOU JUST HAVE A MONEY-LOSING INTERNET UPSTART AND AN EXCITING FUTURE.

AND NOW BACK TO OUR REGULARLY SCHEDULED PROGRAMMING.

#

I wrote recently about Linda, a single mother of two in Montana who earns $18,000 and has a very tough time getting off the credit-card debt treadmill. “What is Linda to do?” I asked. It was more of a rhetorical question than anything else, and a way to lead into musings on the minimum wage ($10,000 a year for a full-time worker), but you had suggestions:

John T: “Linda is missing a big source of income: It’s called child support! Where is the father? This is costing her at least $500 dollars a month and probably a lot more.”

A.T.: Yes, indeed. But something tells me Linda has thought of this.

Ed Ost: “I would suggest not paying the medical bills with her credit card. Set up a payment schedule directly with the hospital if they are willing or (if you must) pay by check and cancel the check if necessary. The main point is to keep the bill with the hospital since they don’t charge interest, at least I’m pretty sure they don’t and if they do, they probably charge a lot less than the credit card companies. Also, she could try using any not-for-profit clinics in the area for whatever health care they provide, probably maintenance type health care such as flu shots, vaccines etc.”

Dr. Marc Armstrong: “Linda C.’s credit card problem could be ameliorated if the U.S. had a sensible system of national medical insurance.”

Shawn Tapley: “Linda sounds like a very responsible person, now. It sounds like she is living with the consequences of some irresponsible decisions earlier in life (like having kids she can’t afford). That’s not fun, but it is life. Linda may even be too proud to accept many of the welfare programs already in place. From my volunteer work in Georgia, I can tell you that if she were in my state she would qualify for plenty of assistance, including help with medical care. She probably qualifies for federal assistance too. I remain convinced that people like Linda who persevere can improve their lives, and that there is PLENTY of assistance available for these people through private charities and existing welfare programs, WITHOUT raising taxes one penny.”

Sri Shankar: “Does universal healthcare violate the fundamental principle of capitalism? Does minimum wage? How does one resolve the cruel efficiency of a pure free market and the cruel inefficiency of a government-run program? I really don’t want to see children homeless and without healthcare in a country like the US.”

A.T.: Much about government is inefficient, but not everything, by any means. Social Security isn’t inefficient. Progressive taxation isn’t inefficient. Much about the private sector is efficient, but not everything, by any means. (If it costs $100,000 to put on the gala that raises the $300,000 that goes to pay for the overhead and program expenses of running a private charity, is that really so much more efficient than raising the money by taxation?)

#

Lots of food for Thanksgiving thought — and not a gram of fat.

Friday: A Duplex in Vermont (will you get a load of that Thanksgiving foliage!)

CHECKING OUT INTERNET NAMES

“Tip: Go to http://rs.internic.net/cgi-bin/whois to find out who owns a site; this is the official Internet name database. If you type in ‘batteries.com,’ you’ll find out that it was registered in July 1996 to some guy in Scotts Valley, CA. This site is very useful both to check out if names are free and to see who is really behind a site.” – Ken Shirriff

SCHMIDELITY

“Sorry to hear about your bum trade. At Schwab, they display the ‘estimated commission’ on the screen before you hit the final button to send the order. Maybe Schmidelity could benefit from such a feature.” – Dan Mitchikoff

A.T.: Yes, indeed. Of course, that would just drive home how much more you’re paying than necessary.

MY BILLIONAIRE MOM

“I liked your [Schmidelity] column today. It reinforces my inclination not to keep an account my father had at a certain very large full service brokerage firm. What surprised me though is that you were buying $40,000 of a penny stock for your mother. Your mother? How does this fit any sensible suitability guidelines? She’s probably retired or near retirement so she may need the money soon. I realize it’s an AMEX stock and not off the pink sheets, but the last time I looked, none of the S&P 500 stocks were under a buck so it probably doesn’t have a big market cap. YOU may be really, really rich, but this is your mother’s money not yours. What’s her risk tolerance? A lot of common sense is reflected in your books and columns. Did none of it come from her, or is she the eccentric billionaire to whom the normal rules don’t apply?”

A.T.: In the first place, my mother is a couple of years younger than I am. (“I have two sons,” she is fond of quoting the late Hermione Gingold, “both younger than I.”) And she is neither eccentric (I would say more: “energetic”) nor, sadly, a billionaire (I would say more: “comfortable”). What’s more, what common sense I do have (clearly not evident in my latest Amazon foray), did come from my folks. Children of the Depression, they know well the value of a dollar and passed it on to me.

In the second place, the stock I bought her for under a buck is what they call a “special situation,” and one of which I have written here before. So far, we’re doing OK.

Tomorrow: More on Linda and the Minimum Wage

And speaking of Amazon.com, as I was yesterday and frequently have in the past ….

I noticed last week that the day after I jumped back in to short a bit more (eager for a tax loss and a good night’s sleep, I had largely covered my short position when it plunged in The World’s Briefest Bear Market That Let’s Hope But Not Assume Is Over) … yes, the very next day, AMZN jumped 22-1/2 points. In one day. And that was just for starters. I had shorted it at 128-7/8 on Monday; it closed the week at 180-5/8.

I am not paranoid. And I am not superstitious. So how can one possibly account for this 51-point jump? I actually have an answer:

Stupidity!

I am not paranoid, I am not superstitious – I am stupid.

That must be it, because it couldn’t possibly be the other explanation – that Amazon had finally added the VIDEO tab to the top of its home page.

Could this possibly have surprised anyone? Could anyone possibly have thought AMZN was fairly priced, at $128 a share ($6.5 billion for the whole thing – more than triple the value placed on Barnes & Noble), based solely on its ability to sell books and CDs? Surely any investor in the company realizes that one day soon Amazon’s home page tabs – once just BOOKS – will resemble:

BOOKS MUSIC VIDEOS SOFTWARE BATTERIES PHONES LENSES FLOWERS CARS INSURANCE MORTGAGES ANYTHING-ELSE

As a very happy Amazon customer, I look forward to it. But as an Amazon-valuation skeptic, seeing nearly $3 billion tacked on to the company’s worth in four days with the addition of the VIDEOS tab left me wide-eyed (yet again).

True, by Friday there was another astounding positive development – a three-for-one stock split was announced.

Who would have dreamed the stock would split? Such fantastic, unexpected news! Like the news that Christmas will come again next month! Or the news that you can actually get four quarters for every dollar. (“We’re rich, Ma! Our dollars have been split into quarters!” [Or, in this case, into thirds.])

I have previously made the case for how, if everything goes right for Amazon, it could conceivably be worth even five or ten times more in a few years. To a short-seller, that is assuredly scary. (PROMISE ME YOU WILL NOT TRY THIS AT HOME. IT’S MY JOB TO DO THE STUPID, RISKY THINGS AND TAKE THE PAIN FOR YOU.) But scary as it is, the key phrase here (or so I tell myself) is “if everything goes right.” So much has to go right.

CEO Jeff Bezos is a very smart guy and he may pull it off. That he himself filed to sell 180,000 shares recently – 540,000 of the post-split equivalent shares – means nothing, because he’ll still have a zillion shares left. But as I say, there’s a lot that has to go right.

To begin with, Amazon has to, some day, turn a profit. A quick check of earnings estimates for 1999 shows The Street expecting a loss gaping toward $2 a share. So at 180, the company has a projected p/e of better than 90, except it’s not E that’s projected (as in price/earnings ratio), it’s L (as in price/LOSS).

The second thing that has to happen is that a great many others who would like to be our primary-source-for-purchasing-everything have to figure, “Oh, what the heck, let’s go out of business and let Amazon win.” This includes all the obvious players, like Barnes & Noble and Borders. But also the less obvious players, like Yahoo (why can’t IT put little tabs across the top?) and Netscape and Dell and Intel and Microsoft and Citigroup and NBC and Sears (well, Sears may be too sleepy ever to get it) and dozens and dozens of others.

Let’s start with the book business.

I noticed that after a very lackluster TV ad campaign, Barnes & Noble rolled out a pretty snappy print ad. It showed how many more titles B&N had available in stock than Amazon (a lot more) and how many more it had in its database (a lot more, still). Yet Barnes & Noble is clearly the underdog in Wall Street’s eyes, accorded what is now barely one-fifth Amazon’s market value. So for those who like to root for the underdog, giant Amazon no longer has that edge; Barnes & Noble does. And it has hundreds of thousands more obscure titles you might be looking for.

In a way, Barnes & Noble really is the underdog. All those physical stores and employees, all those windows to polish and books to rearrange after the author has been by to take his book and put it face out at eye level (mum’s the word!) – it all costs money.

To the extent that people are willing to come and pay for the experience, and maybe have coffee, their 504 stores are a great asset. But to the extent bookstores become merely a “showroom” for Amazon – see the book at the bookstore, then go home and order it on the Web to save money – well, that’s gonna make the bookstore business even tougher than it already is.

(One small plus in this: How much people spend on books each year is not fixed. You’re not going to buy extra cars once it’s easy to buy them online, or extra refrigerators or pacemakers. But you may well buy more books. I certainly do. In other words, it’s not entirely a zero-sum game.)

But even if Amazon got 50% of the world’s retail book business – and that’s just not going to happen – it wouldn’t be worth 180. The book business is just not that big.

So an investor has to try to figure out how much of the world’s total business will funnel through Amazon. Will it become a place to go to buy anything? Probably. And will there be other such places aggressively competing for your mouse click? Probably. And might, indeed, every popular “channel” of the future Internet not have an icon for shopping, so even if you’re watching Seinfeld reruns on MSNBC.com, you can click on the MSNBC peacock and buy anything? I think so. And will Amazon have better Seinfeld-like reruns than other channels, better news broadcasts than CNN and Bloomberg, more popular original shows than Fox? I doubt it. But will Amazon possibly make deals with some of these to provide the “back-end” for shopping when you do click the peacock to shop? That would make sense.

And so how do you even begin to value a future like that?

Let’s work backwards. At $180 for each of its more than 50 million shares, Amazon is pushing $10 billion in market cap. And the people buying it certainly aren’t viewing it as a conservative investment on which they hope to earn 7% a year. No, they’re gambling on, let’s say, at least a five-fold increase over the next decade. So let’s say they’re looking for a company that will be worth $50 billion in ten years, based on profits and dividends at that point, not dreams. How much annual profit justifies a $50 billion valuation? Well, pulling a generous large-company multiple of 20 out of the air, that’s $2.5 billion in annual after-tax profits. How much commerce has to pass through Amazon’s portal to produce such profits? Well, that would all depend on the profit margin it could eke out of each kind of product or service. If it can pull 3% after-tax down to the bottom line (right now it loses 25% or so, but there are reasons for that), that would require sales of $80 billion. If the distribution becomes even more cutthroat competitive than that and only 2% can be cleared, $125 billion in sales.

It could happen.

And imagine if, on many products and services, it didn’t actually have to do anything other than funnel the orders through to the supplier (the car company or the life insurance company) and for that got a commission. No bricks or mortar to maintain, no humans at the cash register – just a sort of computerized money machine.

All of which is why some people do pay these crazy prices for stock in Amazon.com and why, if writing this column scares me into covering my short at a four-day 51 point loss (maybe more by the time you read this!), I just might be one of them.

A third thing Amazon may have to worry about is – what if the suppliers Amazon relies on want a piece of the bonanza? For example, how many different ways has Amazon got to ship you stuff? Twenty eager cutthroat competitors? Or just, principally, three: the post office, UPS, and FedEx? What if they want a bigger piece of the pie?

I suppose the answer is that Amazon (and its competitors) could just pass on the extra cost to consumers. Or it could buy FedEx. At Friday’s close, Amazon.com’s market value slightly exceeded that of little brother FedEx. Yes, FedEx does have a top-notch worldwide reputation and $15 billion or so in sales, half a billion or so in profits. Yes, it has some pretty good technology, some amazing distribution facilities and a huge fleet of vehicles and aircraft. But it’s no Amazon.com. Amazon.com has a Web site!

Sarcasm aside, Amazon has done what it’s done so well that it may be earning ownership of one of the key leverage points in the new economy. If it gets to control a reasonable share of the order flow from the consumer, through Amazon, direct to the goods or services desired – cutting out the middleman and lowering costs in the process – it may indeed be able to take a nice little sliver from a simply enormous, enormous pie. And even though it will have lots of competitors, there will still be plenty to go around.

But is it already worth more than FedEx? A lot has to go right.

In the meantime, I am launching one of those pricey Investment Advisory services that faxes or pages you the instant I make a market call. Had you been one of my clients, you would have known within 15 minutes that I had shorted Amazon.com. Based on my prior expertise with short sales generally and Amazon in particular, it would have been your signal to buy.

What a pain to try to find the replacement battery for your Panasonic answering machine.

Not anymore.

This is a very simple one, but voilà: You need batteries? Click here.

The only reason I even offer this to you is that none of the obvious (to me) things worked. I just assumed there would be a brilliant site called www.batteries.com where you could quickly get any kind of battery you wanted. But no: When I tried that, I got a "no such address" message. Not even "under construction." (Quick, Mr. 1-800-Batteries — grab that address and make it synonymous with your own!) I just assumed that if I typed PURCHASE BATTERIES into my search engine, I’d get to the right place. But no. I can’t now reproduce it, but somehow when I tried this, hoping for quick success, I got to a bunch of articles about European battery standards. (I admit this is odd. Today, no matter what I type in the search field — kumquats — I seem to get to 1800batteries. But I swear: I wasn’t getting it before.)

Indeed, after some considerable time thinking about how frustrating it was not being able to get these batteries … stores don’t have them, the prospect of calling Panasonic was mind-numbing ("Press one if you have a Touch-Tone phone …") … and with the phone beginning to beep more and more frequently indicating BATTERY LOW … and not wanting to buy an entirely new answering machine as a last resort ("Press two if you do not have a Touch-Tone phone") … what should arrive in my actual, physical mail but: a holiday catalog from 1-800-BATTERIES, complete with its Web address prominently across the cover: www.1800batteries.com.

Are there cheaper places to get batteries? No doubt. You could, for example, check out the somewhat lower-end www.batteryguys.com. (Quick, Battery Guys — grab www.batteries.com and make it synonymous with your site!) Or if you’re really in no hurry ("Press three if you’d like to buy a Touch-Tone phone …"), you could just wait until Amazon.com gets a new tab for batteries — BOOKS MUSIC GIFTS BATTERIES — up at the top of its page.

And speaking of Amazon … (tune in tomorrow, if I haven’t killed myself first)