Author: A.T.

If you’re serious about the way you find the stocks you buy and follow them once they’re yours, here’s a link you should definitely check out: www.companysleuth.com. You tell it the stocks you’re interested in, and it automatically searches for and e-mails you stuff that would take you much longer to find – like patent and trademark applications and insider trading reports.

Especially if you trade in a taxable account, it’s possible that this level of detail could tempt you to trade in and out far too often. As discussed last week, even in a tax-deferred account, buy-and-hold generally works best.

But for those who do their investment homework, this site is an easy and at least for now, free way to get a possible edge.

(It may be of even more interest to business folk eager to keep an eye on the competition. As in: “They filed a patent application on what? Uh, oh.”)

 

From Linda C: “I read the column you had in the Parade Magazine [about trying to get off the credit-card debt treadmill] and am wondering if there is another system that works more efficiently for the ‘working poor.’ I have two credit cards and have about $5,000 plus about $3,000 in student loans. I am a single mother of two children. The only debt I have on credit cards is medical and auto repair. I make about $18,000/year and have no insurance benefits. I live in Montana, land of low wages, high rent and too many people for every job. We have a couch and sofa (picked up in alleys), a kitchen table, beds and a desk. We have no television, no stereo, no entertainment budget and I have come close to paying off my debt on several occasions. Then, a medical situation will come up that costs $50 to $5,000 and we are denied service unless we can pay the bill. The same with the car, which I need to continue to work. I save like a mad person, only to have that wiped out and a debt on the credit card that I work hard to pay off again. I actually believe that the closer I get to paying a card off, the more likely one of the children is going to get sick or need dental work or the car is going to have a problem. I know I am not alone with this problem, especially in this area. Is there any hope that we’ll ever be able to live like others — to save for things we would enjoy instead of making payments to credit card companies for basic life needs? I feel like I’m working for nothing and I’m tired. I have been in this battle for 11 years and I have an excellent credit record.”

A.T.: What are the answers? Obviously, it would help a lot if Linda had a working spouse. But in the real world, not everyone does. If good folks like Linda have such a struggle, are the rules of our game somehow out of whack?

On the one hand, the rules of the game are no longer set entirely by us. It is a global game, and our wages in some jobs can’t be set irrespective of what someone in another country is willing to work for. But are we really going to drive off to China to buy our fast food if the minimum wage were raised here from $5.15 to $6.15, as the Democrats proposed and the Republicans recently rejected? (And did raising the minimum wage from its long-stuck level of $4.25 to $5.15 in 1997 really wreck our economy or throw hundreds of thousands of low-income people out of work as the Republicans who fought it feared?)

But some of it is entirely local. One of the first things President Clinton did, over great opposition from the other party, was raise MY taxes smartly in order to provide the “earned-income tax credit” — for people like Linda, members of the working poor.

Some people who earn $500,000 or $2 million a year consider income redistribution a terrible thing. But today’s somewhat higher on-the-best-off tax brackets have not wrecked America’s economy. And, while I hardly favor anything much above today’s rates — please! no! big mistake! — it must be noted that even the 90% top tax bracket under Eisenhower and the 70% top rate under Messrs. Kennedy, Johnson, Nixon, Ford and Carter did not entirely kill our economy. Growth rates and productivity gains back in many of those years were very healthy indeed. (Yes, I know, with oil deals, real estate depreciation, etc., essentially no one actually paid 90%. But still. That was the rate.)

Raising the minimum wage “could actually have an adverse impact upon our economy” and could cause unemployment “that hurts the low-income workers the hardest,” Republican Minnesota Senator Rod Grams said when asked about hiking the floor to $6.15 an hour. (That’s $12,300 a year for someone who works a full eight hours a day, five days a week, 50 weeks a year.) It was his compassion for the working poor that led him to vote no.

But Henry Ford — no socialist — had an interesting idea. He could have paid less, but decided that anyone who worked building Fords ought to be paid enough to be able to buy one.

Raising the minimum wage is no panacea and clearly has its limits — mandating a $30-an-hour minimum would clearly not work. And perhaps there should be exceptions (though that gets tricky) or regional variations. But when you think of Linda, who earns considerably more than the minimum wage, you wonder whether it was really a bad idea bumping it up from $4.25 to $5.15, and whether Ted Kennedy is hopelessly subversive for suggesting it be bumped up another notch still.

#

Last, related, point: Something else that’s important is to encourage less developed countries to begin introducing the concept of a minimum wage, albeit on a much lower scale at first, too. Better pay empowers consumers to consume, and in the long run — as Henry Ford seemed to intuit — can profit a nation’s capitalists right along with their workers. And the more prosperous workers in those countries are, and the higher their wages rise, the higher our own wages will be able to rise as well.

 

TRY A CREDIT UNION

From David Ames: “My in-state bank sold its credit card portfolio to an out-of-state bank. My payment arrived one day late, so the bank assessed a $29 fine. (They call it a late fee, but of course the bank suffered no loss.) I found I had a credit-union alternative through my employment. They sent the bank a payoff check. Now I have an 11.9% rate instead of 16.9% and the terms of account are superior. For example, there is no ‘late fee.’”

BEWARE “CONVENIENCE CHECKS”

From Greg Ricketts: “I opened my Chase VISA bill over the weekend and was surprised to find a $70 finance charge. Being one who pays off the balance each month to avoid such charges, I was very concerned about the origin of this charge. It was noted under the cash advance column which I soon realized was the category they use for the “convenience” checks that I was sent some time ago with the teaser that read ‘Use just as you would your credit card.’ Well I had used the check to pay some fees associated with refinancing my mortgage that I was to be reimbursed for at the end of the month. I thought this would be a perfect use for the check and a way to avoid actually having to ‘spend’ any of my money. I guess this is a case of not reading the fine print on the back of the ad. The APR on the one check I wrote for $1875 was a whopping 46.67% (you read it right — forty-six point six-seven) for the 30 day period. The APR was plainly noted on my statement. Talk about loan sharking. I always thought that only the mob could collect that kind of interest. This type of activity should be illegal. It’s just another way these outfits have of fleecing the public ‘legally.’

“I called the Chase customer service line and demanded that the charges be removed. They agreed, but told me that if I had used a 7000 series check instead of the 4000 series check there wouldn’t have been any finance charges. Silly me, the 7000 series is the one that is plainly stated as being for transferring of other card account balances to your Chase card at some ridiculously low rate. I thought my experience might be helpful to your readers. It’s definitely something every credit card customer should be cautious of.”

A.T.: Indeed it is. Beware of those checks. (And be annoyed, too. Because if you just throw them out, someone could grab them from your trash and — well, the smart thing to do is to rip them up first. And why should we have to hassle with that?)

Then again, every once in a while some card will offer checks that really do NOT start the interest clock ticking. Or at least they used to. I wrote about one such example — gaping loophole since closed — just about a year ago.

IS ONE CARD ENOUGH?

From Trina Martin: “I am one of those people who learned about credit card debt and money management the hard way. Ten years ago while a freshman in college, I had 21 credit cards!! I have yet to find out why it is so easy for a college student with no job or a part-time job to get credit. By the end of my sophomore year I was in debt so far that I didn’t know where to turn. By my junior year I got wise and paid off all of my credit cards, but not before ruining my credit! I kept the Master Card that I had since I knew I needed a major credit card and this was the only one I was in good standing with. No one ever taught me about credit card management. I always thought that the more you had, the more important you were. Now, at 28, I know the real truth. I have one credit card — that same Master Card. Today I am much wiser. Three years ago I bought my car new and had to take a very high interest rate because of the damage I had done to my credit. I now have a 15% interest rate on my Master Card and a good credit limit that they raise about every six months. I always send in a payment of $100 when the minimum is only about $50. I only charge after the billing date and although I have a balance on this card, I pay the total amount of what I have charged. I am in the process of paying this credit card off, hopefully without any unforseen charges. In two years, sticking with my plan, I will have this card totally paid off. My credit is now back to good standing. Five months ago I purchased my first home. I plan to keep my one Master Card, since I now know one is all a person needs. I do have a question for you. Now that I am a homeowner, should I get one more credit card for emergencies or just stick to my one Master Card?”

A.T.: Wow. Well, that was a lot of struggling, but it sounds as if by age 30 your credit card woes, and even the relatively “low” 15% interest you pay, will be fully behind you, with nothing, let’s hope, but 60 years of clear financial sailing ahead. But, yes: a second credit card is handy, kept in a drawer at home, in case of emergency or some problem or dispute with your MasterCard. Indeed, if you get offers for 4.9% introductory-rate cards, and are very careful about paying on time, why not switch your 15% debt to one of those? You’ll have the security of a second, backup card and a break on the interest on your remaining outstanding balance.

THEY REPLACED HIS POWER TOOLS

From Terry in Calhan, Colorado: “I pay my credit card off each month, and try not to use it if cash or checks are available. The one exception is for the purchase of anything with a warranty. The reason is that most premium cards (gold, platinum, etc) will, in general, double the warranty of most items bought with the card. This is like getting a service contract for free. Even if the item does not have a stated warranty, many cards offer ‘Buyer Protection.’ This often will replace or refund items that have been stolen, lost or damaged in a way that a warranty would not cover. For instance, I bought a long handled yard tool by catalog, and shortly after it arrived, I mangled it in the garage door. A new one was on its way the same day, thanks to the ‘Buyer Protection’ offered by the card. I keep an up to date inventory of items like this, and I can tell at a glance if the item is covered by a current manufacturer’s warranty, or an extended warranty offered by the credit card. I have had several episodes where a power tool ‘died,’ and was past its warranty, but was replaced at no cost because of the double warranty from the card. The bottom line is: You can win at this game, but ya gotta know the rules!”

A.T.: This organized I could never hope to be. But more power tools you.

 

More good mail from that PARADE story on credit cards:

DAMPING DOWN THE TEMPTATION

From Diane: “One phone call to 1-888-567-8688 (OPT OUT) will put a stop to most unsolicited ‘preapproved’ credit-card offers. I called in August and to date have only received two offers. My mailbox can testify that this is a huge decrease!”

GETTING OUT OF DEBT

“What do you think of programs like the one at www.credit.org? Are they a good way to get out of debt? I am a full time student and have very little income right now and over 12K in credit card debt … please offer some suggestions.”

A.T.: I have not used it personally, but I think you are very much on the right track with www.credit.org. Try also www.genus.org. As Director of Education Bryan Amsel wrote me, “Our debt management and educational services are free. We do our debt-management services over the phone — 888-793-4368 — so people can call us and get the help that they need from the convenience of their own home. Also, since we are open 24 hours a day Monday through Saturday and 9AM-6PM (EST) on Sunday, people can call us when their debt problems are on their mind.”

KEITH AND JUDY ADAMS’ SMART STRATEGY

“My wife and I were $35k in card debt when we married in 1995 (divorce, illness, son’s college …). We were out of debt in two years by doing three things:

• “First, we plotted our progress using a computer spreadsheet program, and put it on the refrigerator. After a few months, we began to project when we would be debt-free. It helped us set our priorities, and to be patient.

• “Second, we used those 4.9%, 5.9%, etc. short-term rates to roll over the balance. We opened and closed a dozen accounts, and the maximum we paid (I think) was 8.9%. The credit card companies kept on sending us new low-rate offers, and we used them. Funny thing, since we are debt free, we seem to be getting fewer offers.

• “Last, we reserved one card for new purchases, and we paid it off every month. That way, we became used to paying off new purchases every month; I mean, we still had to live! Also, we liked being able to take advantage of the grace period right from the beginning of our debt recovery program, not after we were done.”

A.T.: So maybe you don’t want to 1-888-5-OPT-OUT of all those tempting ultra-low-interest introductory-rate credit card offers just yet. Keith and Judy Adams used them to good effect. But if you are even the tiniest bit out of compliance with the rules on those low-interest cards, many of them have the right to recalculate all your interest back up to the sky-high ordinary rates.

Toni Chiszar’s cautionary tale is a little different but makes the same point:

TONI CHISZAR’S CAUTIONARY TALE

“Back in August I noticed a high interest rate on my statement. Of course, I assumed it was an error, until I called and found out that 2 payments which were 5 days late in the last 12 months caused my interest rate to skyrocket from a fixed rate of 12.99% to 22.99%. I found no ‘small print’ allowing for this to occur. And I have impeccable credit that is now being threatened. To make a long story short, I obtained a home-equity loan and WILL NEVER PAY INTEREST ON A CREDIT CARD, AGAIN.”

A.T.: (The big caution on home-equity loans for paying off credit cards — on its face, a total no-brainer smart thing to do — is that two-thirds of the people who do that wind up just getting back into hock on their cards again. So they’re soon back where they started and have a second mortgage on their house.)

Tomorrow: Try a Credit Union; Beware “Convenience Checks”

 

Brad Barber is one smart, hard-working professor. Among other things, with his U.C.-Davis colleague Terrance Odean, he analyzed the trading records over several recent years of a discount broker with tens of thousands of customers. The results – that most of us trade too much, that women do better than men – are instructive. Click here for his Web site.

Some of it is awfully academic (remind me what the “geometric mean” is), but the message is clear: The more you trade, the more spreads and commissions you rack up. (Not to mention taxes! Those weren’t even included.) And on average, this proves to be a real drag on your performance. Men, being overconfident and more risk-prone, trade more than women. Single men do even worse.

Professor Barber looked, too, at the performance of 166 investment clubs. His finding? “The average club tilts its common stock investment toward high-beta, small, growth stocks, and turns over 65 percent of its portfolio annually. The average club lagged the performance of a broad-based market index by over three percent per year.” Sixty percent of the clubs underperformed the index.

Do your homework. Buy and hold. Get married.

 

I was interviewed for Charities Today. It occurs to me that some of you may not in fact see Charities Today on a regular basis, and that — as we are approaching the "giving season" — a slightly edited version might be of interest here.

Note that if you do give to charity in fairly significant chunks, it’s cheapest to give appreciated securities — stocks that have gone up — that you’ve held more than a year. (Never give appreciated securities held less than a year, because you will only be allowed to deduct your cost, not their value; and always be certain to transfer the shares to the charity before they are sold.)

Charities Today: Can people afford to be philanthropic, even when they’re being frugal?

Well, I suppose the more frugal they are, the more they can afford it. One motivation for frugality is to become rich, in which case "giving" handicaps you a bit (but some will still want to do it). Another motivation is to "live lightly on the land" and in a world of so much poverty, etc., not live too lavishly. In that mindset, giving fits in fine.

I think a lot of it is just who you are. If you grew up knowing that your family or "your people" gave at church or wherever, you just see that as one basic expense born of your core values. Maybe not a big expense — $10 a week at the church — but just part of who you are.

But of course you don’t need to belong to a formal church to feel this way. Many of us who grew up in the ’60s just got used to giving. The line we learned then: "If you’re not part of the solution, you’re part of the problem."

CT: How much should people give?

There is no "should." Giving is voluntary. It’s not like tipping, where it’s theoretically voluntary but you basically have to leave 15%.

According to the IRS, the typical American who itemizes deductions gives 3% of adjusted gross income. The Bible says 10%. And 30% is the IRS cutoff for deductibility (with the balance carried forward up to five years) when you give appreciated securities, 50% when you give cash.

Everyone is different. Some people pay higher taxes than others do; having kids or not having kids makes a difference. Still, it does seem as if the proportion should rise with income — that those earning big bucks are better able to give a large percentage than those barely scraping by are.

If you really want someone to tell you how much is enough, I suppose you could do worse than to take a tip from God. God says 10%. Then again, He may not have been figuring FICA into the burden you already have to bear.

CT: What do you think of the philanthropic activities (or even lack thereof) of today’s wealthiest citizens: Ted Turner, George Soros, Warren Buffett, Bill Gates, and others?

The first thing to say is that no matter how much money you have, it’s your money. You don’t have to give away a penny of it. The second thing to say is that, interestingly, rich people seem to take that first thing very much to heart.

Many are generous — some, like George Soros, magnificently so — but by and large, the rich are different from you and me: On an after-tax basis, as a proportion of their income, they give less money. Going back to the IRS figures, the average for charitable deductions in the higher income ranges is a more or less flat 3% of adjusted gross income. In other words, there’s no increase as you go up the income scale.

In absolute terms, of course, this means the rich are much more generous than the rest of us — 3% of $5 million is a heck of a lot more than 3% of $35,000. But because the $35,000-a-year family doesn’t itemize deductions, that 3% is really 3%, whereas for a millionaire — especially one living in a high income-tax state like California or New York — it’s more like 1.6% after tax. And the millionaire probably gives appreciated securities, which provides yet more of a tax benefit. So you might say that, on a strict after-tax percentage basis, the rich give only about a third as much as the rest of us.

To be sure, the rich also pay a heck of a lot more in taxes, and many presumably feel that in so doing they’ve more than done their share. But the presumption here is that giving, if one could afford to, is something one wouldn’t want to do. Yet when you look at all that needs doing, and how tantalizingly close we are as a species to making this thing work (or else having it all blow up in our faces), it turns out that there’s nothing some people would rather do.

CT: So why don’t people give, or give more?

People don’t need to find reasons to justify their not giving. As I say, it’s their money. But those who don’t, yet could afford to, are missing out on one of wealth’s greatest luxuries.

CT: Once people have decided to give, should they do it now or [when they die]?

Warren Buffett’s plan is to do most of his giving after he’s gone, perhaps on the theory that every dollar he gives now is $20 or $40 he won’t be able to give later — he surely compounds wealth faster than any charitable foundation could. Yet, ironically, the cause he’s singled out for special attention (as have other smart folks like Ted Turner and the late David Packard) — population — has a certain compounding dynamic of its own. It took 10,000 human generations for the population to reach a billion. Now we add a billion every 13 years. Not being able to compound my money at anything like the rate Warren Buffet does, I figure I’d better not wait.

We need both approaches. If everyone gave away everything now, and for current needs, it would sap strength from tomorrow. If no one gave now, there might not be a tomorrow.

CT: What’s the best way to choose a charity?

Consider it a "social investment" and make decisions about asset allocation among investment types. That is, first you decide how to allocate funds between "asset classes" such as education, church, the environment or the arts, say, then decide which specific "securities" — or charities — are the best in each class. Education, health, civil rights and auto-insurance reform are my four biggest.

Obviously, most people, including me, aren’t this methodical in their decision process. They give to their friends when asked; they’re true to their school; and they react spontaneously from time to time when they see something particularly poignant in the newspaper or on TV — the equivalent, I suppose, of acting on a hot tip. Still, one can "play the market" haphazardly with some of one’s money while still attempting to have a rational, effective plan for the rest.

CT: What do you like to see in a social investment?

Low overhead and fund-raising costs lead the list. But even more important: leverage. Take, for example, MESAB-Medical Education for South African Blacks [2101 East Jefferson, Rockville, MD 20852]. For $10,000, you can provide the funds to train a nurse, or almost half a doctor. By now, MESAB’s assistance has helped to train something like 10% of all the black medical professionals in South Africa. The leverage here, of course, is that each additional young medical professional will impact thousands of lives in his or her community, both in specific illness-curing and lifesaving situations, but also in helping to educate on general issues of health and hygiene. Not to mention helping South Africa, in a tiny way, to build a successful multiracial, tolerant society that one day could be a model for the rest of Africa and beyond.

I’m not suggesting you contribute to any or all of the things I do. I’m just sharing the equivalent of "stock tips." Like most tips, you will and should ignore them, pursuing, instead, your own social investment goals.

Every so often over the past two decades, I’ve gotten a note and a sample copy from Arch Crawford. Arch is a personable guy who thinks out of the box. Out of the planet, actually. He is a financial astrologer.

Now, I recognize that the moon exerts a powerful gravitational pull on the water in our oceans — hence, the tides. And I recognize that you and I are 90-something-percent water ourselves. (Sure, Aunt Mary is all "piss and vinegar," but what do you think piss and vinegar mostly are?) I will even admit to having howled a time or two at a full moon.

But astrology? To me, "What’s your sign?" is a very handy shorthand way of saying, "Hi. I’m a really nice person. But a complete airhead."

The idea that the moon’s pull affects the stock market in any important, predictable way (by affecting human emotions) strikes me as only a little less unlikely than the idea that the pull of the planets would. Yet that is exactly what Arch Crawford has been pitching lo these many years in Crawford Perspectives: Quintessential Market Timing by Planetary Cycles and Technical Analysis Since 1977, a $250 monthly newsletter (6890 East Sunrise #120-70, Tucson, AZ 85750).

How Arch has managed to stay in business all these years, let alone thrive, is to me an Unsolved Mystery. Indeed, you can see him on "Unsolved Mysteries" one night soon (CBS — check your local listings).

That he has thrived seems clear. Last year, he abandoned his $300-a-month rent-controlled apartment in New York for Tucson, where his dwelling budget is ten times as large(forty-five hundred square feet on a golf course). One does not walk away from a rent-controlled New York apartment unless things are going very well.

And in the September 11, 1995, Forbes, a reprint of which accompanied the sample newsletter Arch sent me, there is Mark Hulbert — the arbiter of financial newsletter performance — admitting that "there is no getting away from Crawford’s excellent performance."

Now, let me be quick to say two things: Arch, who hales originally from Oxford, North Carolina, accepts all ribbing with not even a trace of annoyance or defensiveness. He is a modest, decent fellow. But in my view, most people would be throwing their money away to buy his newsletter.

In Forbes, Hulbert reports that from 1990 to 1995, "a portfolio that shifted between the Wilshire 5000 index and cash on Crawford’s signals gained 83.6%" versus just 78.7% with a buy-and-hold strategy. What’s more, "this market-beating performance was achieved with 12% less risk" — because when you’re out of the market, you are taking no risk of loss.

But in the real world, is it worth paying $250 a year for a newsletter and switching in and out of the market, generating commissions, suffering "spreads" — and paying taxes — just to do a tiny bit better than buy-and-hold? With a bit less risk? No.

Arch does seem to have a good feel for the market (however he does it). But, taking that Forbes example, how much time and trouble — and commissions, spreads and taxes — is it worth to earn 83.6% instead of 78.7%?

Even in a non-taxable account, you have to wonder.

Anyway, in the October 5 sample newsletter Arch sent me, the first I’d gotten from him in a couple of years, the headline was: WE BELIEVE A MAJOR CRASH IS NOW!! "As for now, the flow of cosmic energies max out on October 16-20 with a secondary hit October 31. Mars squares Pluto (vicious), Venus at midpoint semi-squares both. Mercury squares stationing Uranus, SURPRISE! Sun parallels Pluto, but oppose Mars in declination. Mars opposes a previous eclipse point. We believe the low for this period will come as MARS forms 135 degree aspects with both SATURN and NEPTUNE as they Square each other, all on Saturday, October 31. By the full moon on Wednesday, November 4, the worst is most likely done. Benefic Jupiter returns to returns to Direct forward motion on Friday the 13th. Things should look better under that influence."

When he wrote this, he was "200% short" — i.e., no long positions and margined to the hilt betting the market would fall. The Dow was 7726 on October 5, so being 200% short might have smarted as it rose to close at 8416 on October 16. "There are many BAD days during September and October," he wrote, "the worst of which is October 17-23." In fact, the market barely budged over those days, with the Dow closing at 8452 on the 23rd, having been a little higher in the days preceding. "Expect an eventual bottom close to the October 30 to November 2 weekend, as Mars forms a Yod or ‘Finger of God’ aspect with the exact Saturn/Neptune square."

In fact, the Dow was up 97 to 8592 on October 30, but you can’t be right every time. That he’s right even a little more than most is an unsolved mystery. But my guess is it has less to do with Pluto and Uranus than with the other analysis he does.

On Friday I reprinted the first part of a story I wrote 15 years ago about junk mail and the diamond necklace I won (but did not accept) in a mailing from Cheeselovers International — they of the crème de menthe cheese balls. Herewith its conclusion. (Please remember, all the numbers and addresses are as of 1983.)

Picking up from the question of whether any of the financial newsletters we find offered in our daily mail can make us money …

#Some undoubtedly can. But which?

“Would you pay $5 per month to find out whose investment advice really works?” asks an envelope. To which the sensible reply is, “No, but I’d pay $5,000 a month to know whose will.” For there’s the problem. It’s easy to find newsletters (or mutual funds or brokers or crapshooters) who’ve had a great couple of years; not at all easy to judge which will.

The concept of a $135-a-year newsletter called the Hulbert Financial Digest, which tracks the performance of a variety of other newsletters, is to find the ones with the hot hands and climb on board while they’re hot, then deftly abandon ship (before everybody else does) when their hands begin to cool. Never mind that most of your gains, if you have gains, will likely be short-term and thus heavily taxed. It’s particularly important to bail out ahead of everyone else when a letter has developed a following. When 5,000 of you go to sell 300 shares apiece of some $13 stock — well, 1.5 million shares may be more than the market can absorb in one day without the price slipping a point or four. (Indeed, the hot hands get hotter, at least for a while, because their recommendations are frequently, in the short run, self-fulfilling.)

One of the hottest hands over the past five years has belonged to Dr. Martin Zweig, whose $245 Zweig Forecast is published every three weeks, with special bulletins when conditions warrant and a hotline you can call for daily comment. Marty Zweig is a smart and personable fellow. Whether paying him $245 a year will greatly improve your lot in life I cannot say. On the back page of each newsletter, there’s a listing of his open positions (the things he’s recommended you buy) along with the paper profit or loss you would have made on each one. At the bottom of the list is a figure for average profit: 12.9% in the most recent letter, although I don’t believe it takes into account brokerage commissions or taxes.

This figure doesn’t attempt to include all the wonderful profits you may have reaped from Dr. Zweig’s past recommendations — only the profit or loss on the position he suggests you still hold. It’s not a weighted average in any way — just the sum of sixteen profit and loss percentages divided by sixteen. What’s interesting to me is the temptation Dr. Zweig must be under not to recommend sale of the first two entries on his list, IBM, up 66% from where he recommended it in July 1982, and Walgreen, up 98.5%. In fact, a footnote shows he sold half these positions at significantly lower prices … but has not yet had the heart to recommend sale of the other half. In part this may be because he thought IBM, even when it hit 130, was still cheap (he had sold the first half at 83), and in part — if he’s human — because he hated to see that winner removed from the top of his list in every subsequent issue of the newsletter. Likewise Walgreen, which he had bought at 17. Half he sold at 25, but the other half he recommended holding even when it hit 40. Was it really, at 40, one of the sixteen best buys he could find for his subscribers — or would it simply have been a shame to have to drop it from his list? Without those two magnificent holdovers, IBM and Walgreen, the average gain before commissions and taxes on the other fourteen open positions in the issue of the newsletter I’m looking at would have been 3%.

It’s got to be a nightmare to have tens of thousands of people scrutinizing every investment decision you make, so I sympathize with Dr. Zweig if he held onto IBM and Walgreen to keep the back page of his newsletter looking good (and I have no proof that he did). The nightmare is in part ameliorated by the $245 a year each of those tens of thousands of onlookers tosses into the pot, but let’s not begrudge The Zweig Forecast that money. In 1981 and 1982 followers of Zweig’s recommendations would have gotten it back in spades and shovels and wheelbarrows. Zweig was great. In 1983 and at least the early part of 1984, they could have done about as well as Zweig in a Sealy Posturepedic. [That’s a mattress, kids.] However, for 1985 Zweig’s recommendations are likely to be extraordinarily good, as they were in ’81 and ’82; or else not so good, as they were in ’83; or else kind of rotten, as they were on rare occasion way back when. Who knows? The $225-a-year Option Advisor newsletter, reports Hulbert in his digest, was up a spectacular 97.9% in the first quarter of 1984. On the other hand, it was down 93.4% in 1983. So, if you’d invested $10,000 according to its recommendations in 1983, you’d have been down to about $660 by the start of 1984, and then that $660 would have doubled.

And how can we forget Joe (“I can never be wrong again”) Granville, whose market-shaking predictions you could have received for $250 a year, or when he was really hot, by watching the nightly news? Granville was great for a while, except that those who stuck with his advice would ultimately have been taken to the cleaners. (“My name’s Granville, not God,” he eventually shrugged.)

Howard Ruff has a newsletter. Subscribe and you get a free LP, on which Howard sings “If I Were a Rich Man,” “Hymn to America,” “I Walked Today Where Jesus Walked,” “My Way,” “Climb Every Mountain” and “The Impossible Dream” … and/or copies of all Howard’s outdated hardcover books. The newsletter is largely occupied with introducing additions to the Ruff family (he has 30 or 40 kids and grandkids), spurring readers to political action (he has his own lobbying organ), and promoting new or affiliated newsletters. He has great skills as a communicator and marketer, substantial skill as a singer and financial analyst.

He will start one newsletter with an anonymous, and possibly fabricated, letter so he can defend free enterprise and the profit motive (“Dear Howard: Why are you always trying to sell us other newsletters, coins, books and cruises? All you care about is getting rich. You’re greedy.”). He starts another by chewing out impatient subscribers who wonder why gold and silver still haven’t gone up. The mystery of it is that he actually has more than 150,000 fans paying $89 a year (and more) to cheer him on.

He’s the misunderstood multimillionaire underdog, fighting valiantly against the big bad Government, and the fact that his investment advice is sometimes good, sometimes not so good, is almost beside the point. It’s you and he against the establishment, you and he against the Russians, you and he against the welfare cheats, you and he against Congress (well, he’s got a point there), you and he against promiscuity, you and he against impatient, ungrateful subscribers.

You and he on exotic, arguably tax-deductible investment seminar tours. You and he assuring his next book, Making Money, climbs onto the best-seller list, thereby confirming his popularity and expertise. (“Buy the book sometime in the two weeks beginning May 14,” he offered 175,000 subscribers, and your newsletter subscription will be extended at no charge.)

The investment letters I do like don’t attempt to predict world events, the price of gold or even the course of the stock market, but provide the kind of fundamental analysis on overlooked or undervalued situations I don’t have time to do. And even then I don’t have a great deal of confidence in them, because picking undervalued stocks is a tough, tough game. Most people will be better off picking a seasoned mutual fund that picks undervalued stocks, like Mutual Shares Corporation.

Generally, when asked where to look for sound investment ideas, I suggest a subscription to Forbes. But that’s no good because no one expects to get rich fast reading Forbes. We want to believe there’s a simple, worry-free way to make 1,555% on our money.

And I don’t blame us.

A week or two ago I listed the addresses to write to if you want to stem the tide of junk mail and dinnertime sales calls. “Of course, do this and you may very well miss your chance to join the Cheese of the Month Club,” I wrote … promising to explain the next day.

And then “technical difficulties” prevented my telling you about the Cheese of the Month Club after all.

Well, all systems are now go, and for those of you with plenty of time to kill, I offer this story, written for Playboy, I think, 15 years ago. Reading it now, it strikes me that I may have been in a little bit of a foul mood when I wrote it. But except for a couple of [in brackets — 1998] comments, I’ve made no attempt to update any of it. A lot’s changed since 1983, and a lot hasn’t.

#

Free! 100 Shares of Stock in a Public Company

Seven hundred million trillion tons of junk mail are sent out across this country every year. I get half of it.

Much of it would make me rich if only I would listen. “More explosive price action ahead in low-priced stocks,” reads one envelope. “No-risk triple bonus offer enclosed!”

“Inside,” reads another, “find out how $8,750 grew to $405,125 in only 13 weeks!”

“Free!” reads a third, “Get 100 Shares of Stock in a Public Company With This No-Risk Offer.”

A hundred shares of stock free? Wow! I wonder which stock it is. General Foods? Hewlett Packard? Sears? The letter doesn’t say.

The way to deal with junk mail is not even to look at it. Anything that arrives with less than twenty cents postage or a computer-generated address label gets tossed out unopened.

Which is why advertising copywriters have begun reserving their most inspired moments not for the messages printed inside the envelopes but for the messages outside. Somehow, between the time that you bend your right wrist, claw-like, to clasp the top envelope in the pile cradled in your left hand … and the time, a moment later, that you flick that same wrist to send the envelope flying for the trash — somehow in that moment a message of such urgency and intrigue must be conveyed as to stun you in mid-flick.

Examples abound.

• From Mutual of Omaha: “If You Think $2 Doesn’t Buy Much Anymore, Look Inside … You’ll Be Amazed!” (Amazingly, they were selling insurance — and $2 didn’t buy much.)

• From Mother Jones: “URGENT REMINDER ENCLOSED.” (The deadline for Christmas gift subscriptions was fast approaching.)

• From an address in Washington: “Ted Kennedy hopes you’ll throw this away!!” (Out it goes.)

• Bulk-rate from “The Honorable Ronald Wilson Reagan, President of the United States.” (Oh, that Ronald Wilson Reagan.) Wonder what he could want. Out it goes.

• From the American Civil Liberties Union: “An Open Letter to President Reagan.” (Gosh! Letters from Reagan, to Reagan … Should I forward it?) Out it goes.

• From International Living: “You can now earn up to $80,000 TAX-FREE by living abroad …” (assuming you have the skills to earn $80,000 and don’t mind living abroad).

Some junk mail can be strangely personal — and not just because of the strange ways they stick your name, or variants thereon, into the advertising copy.

• From a doctor in San Antonio: “Are you over 40? [No.] You could be missing out on the best sex of your entire life! [Really?] To find out why, see inside. [Well, it can’t hurt to look.]”

• From Ovation Magazine, bulk rate, a “special invitation” from my cousin Andre Previn. As it is the first and only communication I have ever had from my spectacularly gifted cousin, verbal, visual or otherwise — I’ve never met him — and as my middle name is Previn (really — we’re cousins [and – 1998 – I still haven’t met him]), I am sorely tempted to open it. Out it goes.

• From a company in Illinois: “Do you have a system for getting organized that works?” They have a wall-sized calendar.

A hazard in throwing all this out unopened is that you won’t know what you’re missing. Take the envelope headlined: “Me? Sleep in a subway station?” Either some wonderfully creative real estate developer had hit upon renovating unused subway stations (in which case I was being offered a “great space, no view”), or this was an appeal to aid New York’s homeless. We’ll never know. And what are we to make of: “Demand a nuclear-free New York!” Was New York planning to join the arms race? Or was this about the Shoreham, Long Island, nuclear power plant? You’d assume the latter, but judging from the fine print — still on the outside of the envelope — you’d be wrong. It was about the stationing of missiles someplace upstate, when, of course, everyone knows they should all be stationed up in Somebody Else’s state.

Junk mail can depress you — what can you expect from an envelope marked “Urgent” and sent from the World Mercy Fund? — but there’s actually quite a lot of celebrating going on. The amazing Mutual of Omaha offer referenced above was in celebration of Mutual’s 75th anniversary. The Visiting Nurse Service of New York was recently looking for $90 donations in celebration of its 90th anniversary. A company selling quartz watches for just $2 (“this is not a misprint”) was doing so — all this explained on the outside of the envelope — “to celebrate the 10 millionth watch sale of the famous New York jewelry firm of Abernathy & Closther.” Surely you know the firm.

I love the ones marked Personal and Confidential down by my name and Blk Rt in the upper right. And, of course, I get a lot of animal mail. It is very hard to resist.

“Inside: an urgent appeal to stop the killing of 6,000,000 animals … Open At Once.”

Six million animals? How endangered could they be if there are six million of them? What are we talking here — hogs? chickens? Oh, God … okay, I’ll open it.

The appeal proved to be from the Kangaroo Protection Foundation. One might think this largely an Australian issue, but apparently it’s all our fault for lifting the ban on kangaroo skin importation. We did so, according to the letter, “under intense pressure from the Australian government,” which, democratically elected though it may have been, obviously knows nothing about the wishes of the Australian people who are, the letter says, all furious over the kangaroo harvest.

The compromise I worked out with the KPF — having opened these letters, one must rationalize one’s non-response — was this: I would send no money, but neither would I ever eat or wear anything even remotely marsupial. Why should I? I have more than enough other delicacies available by parcel post.

From the Collin Street Bakery: “What Bordeaux is to wine and Maine is to lobster, Corsicana, Texas, is to fruitcake — the New York Times.” The bakery’s so darn proud of that fruitcake, a four-color mouthful of it peeks out at you through a Texas-shaped plasticene window. These are, furthermore, guaranteed fruitcakes (I couldn’t resist: I opened the envelope). If you or your friends have ever tasted better, your money is refunded. Bob McNutt, Bill McNutt and Bill McNutt III stand behind that promise, and Gene Autry and the Kuwait Oil Company are among the list of Distinguished Clientele. We’re talking serious fruitcake here.

And from Cheeselovers International (never mind how I get on these lists): “If you find a 3-inch PINK SLIP in this envelope, you have won a diamond necklace in our $1,000.00 Sweepstakes.”

I don’t wear jewelry, but that is only because I’ve been waiting to win a Cheeselovers International diamond necklace. I opened the envelope.

The letter begins: “Dear Cheeselover, before you look at a single cheese — search through this envelope. If you find a 3-inch colored slip, it may be your lucky day. And if the colored slip you find is pink, it means you have won a genuine diamond solitaire necklace. To claim your prize, just follow the directions on the pink slip. [The cheesewriter seems awfully confident that I’ll find a pink slip.] Then — once you’ve calmed down (if you are a winner) — look at our delicious cheeses.” (Special this month: the Creme de Menthe Cheese Ball, “the most sophisticated cheese spread of all.” Move over, Velveeta!)

Well, it did take me a while to calm down, let me tell you. Because naturally, like everyone else who got this mailing, I found a pink slip. But I never bothered to claim my free necklace (which cost $2 for shipping), because I had a feeling the diamond might be smaller than the one I’d been dreaming of.

Actually, I was lucky to be offered a diamond necklace of any size. (Hey, fella, what more do you want?) My August Cheeselovers letter had declared prominently across the outside of the envelope: NOTICE OF REMOVAL. I risked being struck from their mailing list if I didn’t order some cheese. The next month I got an envelope that said: “GOODBYE. This may be the last letter you receive from us.” And now, a month later still, and still having ordered no cheese, they were giving me a diamond necklace.

The diamond, I discovered someplace in the mailing, was a 17-facet quarter-point stone. Say, hey, Jose! A little calculation (there are 100 points in a carat, a carat is a fifth of a gram, a gram is 3.5 hundredths of an ounce) produced a gem weighing nearly 18 millionths of an ounce. Diamond dust.

But if diamonds are not a great investment, and if getting them free for $2 apiece from Cheeselovers International is not the best means of acquisition, there’s no lack of mail to tell you what is.

Here’s an envelope that promises to tell “How you could have made 1,555% — without being an investment expert!” Of course, the implication that investment experts make 1,555% is almost as absurd as that by opening this envelope and signing up for this service, you will, too.

The headline on the back reads: “How a $10,000 investment became more than $165,000 since 1975!” A footnote beneath the text next to the chart on the back of the envelope confesses that this was a “hypothetical” $10,000. But it would’a grown to $165,000 if only this service had discovered and promoted its magic formula back in 1975. There follows the SEC-inspired disclosure that “Past results are not necessarily a guarantee for equivalent future results” — the understatement of the age — particularly since, in this case, the “past results” were hypothetical.

(You tell me what happened over the last ten or twenty years, and I’ll construct a surefire strategy that would have worked magnificently if only you had followed it. One such involves buying stocks whenever a pre-merger NFL football team wins the Super Bowl, and shorting them whenever an AFL team wins. As Professor Steven Goldberg has pointed out, far more remarkable than this coincidental correlation would have been someone’s predicting it. No one did.)

For $96 a year, you get to see whether a strategy that would have worked over the past eight years is the right one for the next eight. What’s more, there’s “No emotional involvement. No guesswork. No worry.” Just follow the monthly advice. Like connect-the-dots, only at the end you’re rich. What’s more, if after two months you’re not pleased with the newsletter (how can you assess its performance after two months?), you can get your money back — less the $16 you paid for the first two issues and any money you may have lost following its advice.

Or perhaps you’d rather “Profit by Learning Politicians’ Dirty Little Secrets,” as another envelope invited … “a Unique New Publication for the Sophisticated Investor,” just $275 a year. Isn’t that great? Here you have scores of sophisticated reporters for The Economist and The Wall Street Journal struggling to come up with the occasional secret, and these two guys (two guys write it) come up with a newsletter full of dirty little secrets month after month after month.

But why spend good money to get rich — hey, a dollar’s a dollar — when the very next envelope in the pile promises a free report on HOW TO ACHIEVE FINANCIAL INDEPENDENCE IN THE NEXT THREE YEARS? I ache to open the envelope. Pressing real tight, I can even see the words IRON-CLAD GUARANTEE showing through from the inside. But you know my rule about junk mail. Out it goes.

Because really, if you sift long enough, you will eventually come upon an envelope that will not only make you rich, like the others, and at no cost to you, like the one above, but without your even having to open it. Like this one bulk mailed from Howard Lake, Minnesota, emblazoned: “The Dow will pass 2300 … Silver will hit $95/oz … The prime rate will sink to 8% … Housing values will gain 30-50% … all within 18 months!” The envelope goes on to promise “10 more profitable forecasts for 1984-85 from the fastest-growing investment analysis service in America,” but the four on the outside of the envelope more than suffice. Just sell everything else and buy silver.

Too easy? Nothing worthwhile comes free? Okay, go ahead and pay the subscription fee ($150, The Money Advocate).

The rub comes when one of your $150 newsletters is saying one thing and another, the other. (Or when both are saying the same thing and both prove wrong.) This happens all the time.

Who’s right? you wonder — and, as if by telepathy, comes, bulk rate, a buff and maroon envelope headlined just that way. “Who’s right?” It enumerates contrasting predictions by Howard Ruff and Harry Browne (gold will zoom; no it won’t); Vern Myers and James Blanchard (deflation is unstoppable; 30 to 35% inflation’s around the corner); the Aden Sisters and Mark Skousen (gold’s going to $4,000; don’t hold your breath). Gee! All these preeminent experts, strangely full of praise for each other and frequently touting each other’s pricey monthly poop sheets — “Who’s right?”

“At last, you can find out! (see inside).”

One examines the envelope in hope of unmasking this arbiter of investment prediction, this forecaster’s forecaster, this Edgar Cayce of international finance, but there’s no return address. So we’ll never know who it is unless we open the envelope, and you know the rule.*

[*One set of envelopes I do consistently open comes from American Express’s Travel Related Services Company. I open them to see just how far the concept “travel related” can be stretched. No fewer than three such travel-related offers came in one day’s mail not long ago. One was for a $540 Vidal Sassoon Infinity Necklace (sorry, I get all my jewelry from Cheeselovers); another offered goblets engraved with my name and crest; the third offered a dozen crystal paperweights, presumably to keep my papers from flying all over while I’m off traveling.]

Swamped by all this stuff? “Too bad, Tobias,” reads the caption of a cartoon showing through the window of an envelope designed to catch me in mid-flick — “I told you reading 43 newspapers would warp your mind!” This would appear to be the beginning of a pitch for a news-digest newsletter, not to be confused with a newsletter-digest newsletter, several of which solicit with equal enthusiasm. The style of the cartoon is suspiciously like one that shows through the window of another envelope, in which I am apparently in the midst of a tax audit. “Tobias,” says the auditor, “you should be proud to be a taxpaying American.” “I am! I am!” I apparently say, but a little balloon above my head shows I am thinking I could be just as proud on half the taxes.

Personalized junk mail cartoons! I’ll bet they don’t have them in Russia. Does this mean ten years from now we’ll be watching cable TV and the cable box atop our set will insert our names into the audio whenever the commercial broadcaster leaves a coded blank? (“You deserve a break today — Tobias — at McDonald’s.”) And will that spell the end of junk mail as we know it?

These are heavier questions than I mean to ask or dare to answer. The question I should address — no snap either — is whether any of these financial newsletters can make you money.

Some undoubtedly can. But which?

[For the conclusion, come back Monday. You’re late for work!]

 

GROWTH IN CREDIT CARD DEBT

1997	$505 billion
1996	$473 billion
1995	$420 billion
1994	$347 billion
1993	$273 billion
1992	$245 billion
1991	$232 billion
1990	$212 billion

Estimates based on total revolving credit debt.

PROFITS AT THE GROCERY STORE

Mark Langenderfer
Chicago, IL
Age: 32
Occupation: Plant Manager
Credit Cards: 3

“I got my first credit card in college and have never, not even once, paid any interest or finance charges on any of them.” His Private Issue Discover card offers a nearly 2% cash rebate; his Driver’s Edge VISA rebates 2% toward any new car purchase. So Mark has found something better than bank ATMs. “Chicago area grocery stores will give you up to $50 in cash with any purchase. For example, you can buy a pack of gum for $1, charge $51 to your card, and get $50 cash. This is the same as withdrawing $50 cash from your ATM, but you get the cash a month in advance. Plus, with the 2% rebate, I get a dollar added to my rebate check every time I do this.” So the gum is free.

THE WARRANTY WORKED!

Lynwood Brawn
Edinboro, PA
Occupation: Computer Consultant
Credit Cards: 9

“I used a GE gold MasterCard to buy a Gateway 2000 Telepath modem for $195 plus $10 shipping. The modem died on October 10, 1994, with less than a month to go on the gold card’s ‘warranty extension’ (it doubled the manufacturer’s warranty). I called to report it, expecting a hassle. No hassle. The card company sent me some forms, I filled them out, and the check came within a week.”

(I’m still gasping in surprise at this one.)

FLIES FIRST CLASS

Eli Broad
Los Angeles, CA
Age: 52
Occupation: Mogul

SunAmerica Chairman Eli Broad bought a painting a couple of years ago for $2.4 million — with his American Express card, to get the frequent flier miles. (Is it possible you have an American Express card and haven’t signed up for the Membership Rewards program? Gadzooks! You are throwing money out the window! Call at once — 800-297-3276. You can also use that number to see how many miles you’ve accumulated and check to be sure they have your correct frequent-flier numbers.)

NO BLACK-OUT PERIODS

Gary Saxer
Agoura Hills, CA
Age: 44
Occupation: Designs Trade Show Presentations

“I think credit cards are great! I use them for almost every purchase I make — I can go for weeks on $200 in my wallet and not use it up. I now have a Travelers Bank card with TravelerMiles [800-932-8472] that offers me $100 in airline fare for every $6,000 I spend. I can use up to $400 in these credits toward ANY ticket on ANY airline, as long as I book through their agent (which has been as good as any I’ve used). And I get 5% of my travel purchases BACK if I send in the receipts after the trip. This service costs $39 a year. I pay my bill in full every month and get a record of my purchases that comes in handy at tax time and when I need to find out when I bought something for warranty repair.”

Tomorrow: Anything But Credit Cards — I Promise