Author: A.T.

Proving yet again that my readers are smarter and funnier than I (I’m very proud of my readers), Scott Nicol writes: “Thanks for the heads up re healthquick.com. Got my orders in. One thing I noticed was that Healthquick was offering gift certificates that were discounted 20%. You can give yourself an easy 20% discount by buying yourself a gift certificate, then buying what you really wanted with the gift certificate. If they didn’t think this offer through and program the web site to stop it, presumably you could also buy a gift certificate with your gift certificate. This gives you a 25% compounded rate of return (i.e. $80 buys $100 in gift certificates, $100 in gift certificates buys $125 in gift certificates, etc). Assuming an $80 initial investment, a market cap of $1B, and 1 minute to complete each transaction, in 74 minutes you could build up enough gift certificates to buy the company (and have almost $187M pocket change, tax free). Not bad for an hour and 14 minutes’ work.”

I tried this, but was only able to get half a billion dollars worth of gift certificates — and it took me almost the whole day!

(Actually, I tried this but healthquick.com rejected my credit card even before I could buy the first gift certificate — sensing my intent, perhaps? now that would be impressive technology — and I asked myself: Wait a minute. Is this how you really want to be spending your time? Trying to cop some cheap vitamins when THE FUTURE OF THE WHOLE GOVERNMENT IS AT STAKE AND YOU COULD BE OUT RAISING FUNDS FOR THE DEMOCRATIC PARTY? So I clicked the close box, and that, my friends, may be the only reason I do not now own healthquick.com, or at least half a billion dollars worth of dandruff shampoo.)

Loose ends from last week:

THE MYSTERY QUOTE

In writing about Prudential Friday, I quoted this line: “A friend? You want a friend? Get a dog.“ But I couldn’t remember the movie it came from. “The line was from the movie Wall Street,” writes Greg Bandy. “Michael Douglas as Gordon Gecko said it to Charlie Sheen’s character. According to a recent Business Week article, Al Dunlap (Chainsaw Al) often uses this line as well — maybe not as much anymore, though.”

LARRY B IS ONE TOUGH CUSTOMER

In that same column I tried to trick you into clicking on a link to my book at Amazon, thereby to shake you down not only for the standard author royalty (which, astonishingly, is $20 on a $13 paperback), but also for the kickback Amazon gives its associate web sites (another $20 on each $13 paperback, which Amazon sells for $10.40 plus $3.95 shipping).

“Instead of Amazon for $14.35,” writes Larry, “I could buy your book at 1bookstreet for $12.60 or at buy.com for $5.45 (using a $10 off coupon).” [But did he?] “Yesterday, I borrowed it from the library and will read it to see if I want to buy it. I find your web site interesting and useful. I have used several of your links to save money. In fact, www.deal-finder.com was one of the links and it pointed to the buy.com coupon.”

You see what a tough business this writing is? Here we’re talking about a devoted fan. But risk $5.45? Not so fast, buddy!

(Actually, Larry is a man after my own heart. A penny saved — not spent — is, for those of you with high incomes in high-tax states, fully two pre-tax pennies earned. Libraries are terrific.)

Meanwhile: “Onsale.com is better than Buy.com for computer/software stuff,” writes Joe Cherner. “Why? Because Buy.com charges a minimum $10 for shipping while Onsale.com offers free shipping. Product prices are the same.”

And Vince Crisci: “Thought I’d pass on another excellent book buying site — bookpricer.com.”

And Ralph: “At the risk of seeing you rush out to short more Amazon.com, it might interest you to see BookCloseOuts.com.”

Actually, I already noted BookCloseOuts.com in a column this past summer. The books there are so cheap that if Y2K shuts down the power supply, I plan to order tons of books from BookCloseOuts.com and burn them to power a steam engine to generate the electricity to power the computer to go on line and buy more books from BookCloseOuts.com. Move over cold fusion (and Borealis): I think I’ve found the perpetual motion machine.

I was in the pay-phone booth on the main floor of Tillinghast Hall of Horace Mann School, calling the yearbook printer (and feeling very important that at 16 I actually had a reason to make a call to the real world). But instead of reaching the printer, I got an operator saying that my call couldn’t go through because of a national emergency: President Kennedy had just been shot. As no one else at the school was connected to the outside world at that moment, so far as I know, I may have been the first to know. I have a vague recollection of going across the hall to the headmaster’s office to share the sad news.

So much water under so many bridges since then — much of it increasingly positive in recent years. (For one thing, the water’s cleaner.)

I realize that where you were that day, in many cases, was NBY — not born yet. But it was one of the six most pivotal days of this American Century. My picks: Armistice Day in 1918, ending the First World War; the Crash in 1929; Pearl Harbor in 1941; VJ Day in 1945; the Kennedy Assassination in 1963; the Man on the Moon in 1969. Lots of runners-up (the RFK and King assassinations and Nixon resignation prime among them). But were there any other days marking our history that would have so grabbed our national emotions?

Your nominations welcome.

Tomorrow: Talk about your nutritional supplements!

I’ve been meaning to write this for months, ever since I saw those ads for Prudential Brokerage featuring $24.95 trades. Cheap!

OK, so it’s more than the $8 Ameritrade might charge or $19.95 eTrade might charge, but after a point, unless you trade a lot — or in tiny increments — who cares? And if you trade a lot, I would argue you are making a mistake far more fundamental than overpaying for your trades. So $24.95 is pretty good.

Sure beats the $200 and $500 commissions we used to have to pay!

Plus, it’s Prudential. The rock.

But of course it’s not the $24.95 they draw your eye to that makes any difference, it’s the 1.5% a year they shave off your entire portfolio as an advisory fee, if your account is small, or the 1% or so they take if your account is large. Are you kidding me?

As I have written over on the Personal Fund web site, over a lifetime, 1% makes a huge difference — let alone 1.5%. If you put away $2,000 a year for 50 years at 8%, you’d have nearly $1.25 million at the end. Not bad. Doing just 1% better, though, you’d come out more than half a million dollars ahead. And that’s with 1%, not 1.5%, and before any brokerage commissions.

Or look at it this way. If your savings bank took 1% from the 5% it pays you, that would be a 20% slice!

If studies showed that Prudential customers tended to outperform most people by a wide margin, because Prudential knew which stocks would go up the most and which the least, then 1% would be cheap. But what possible reason is there to think this? Is it possible that some huge investment firms do consistently better than average in picking stocks? If so, other big brokerage firms must do worse, no? Everyone can’t be above average — let alone by enough to make up for fees and brokerage commissions and the taxes you pay on gains from trading stocks. Is the idea that Prudential customers tend to do 2% better than average and Merrill’s customer’s do 2% worse? Or don’t they all, on average, over time, do about average — minus the fees.

That’s why index funds, which have tiny management fees, almost no transaction costs, and gentle tax consequences, make so much more sense for most people than, say, a brokerage account at Prudential — or anyone else who charges 1% or 1-1/2%.

I know. You’re getting more than stock-picking advice from Prudential, you’re getting someone to talk to, and that’s nice. But what was that famous movie line? “A friend? You want a friend? Get a dog.” (Was it Jack Nicholson? Sounds like Jack Nicholson.) Otherwise, read a little paperback book and, for example, the personal finance pages of the Wall Street Journal.

Want to ring up the Savoy Hotel in London without having to call information? Get the correct spelling and address of someone whose phone number you have? Find a friend’s number in Baltimore or a business in Beirut?

Check it out: www.teldir.com.

Meanwhile: Vitamins.com is offering $25 free on you first order (“get the shaving cream,” advises a friend) and HealthQuick.com is offering $15 (“get the contact lens solution or the toothpaste”) and PlanetRx is giving a $25 coupon for non-prescription items when you enter your first prescription order. (Get well soon.)

Tomorrow: ImPrudential

Monday: Amex’s Good Deal

From Toby Gottfried:

Apropos your comments about “threes,” it may be hard to find, but I have a book from my college days which talks about this. It’s an anthropology anthology (that’s not a typo) from 1968 called Every Man His Way, edited by Alan Dundes. Starting on p 401 is an essay by Prof Dundes called “The Number Three in American Culture” which discusses its pervasiveness in depth.

Consider:

small/medium/large

past/present/future

yesterday/today/tomorrow

up/down/sideways

one,two,three. GO

learn your A B C ‘s

NBC/ABC/CBS (Three networks, three letters each)

Auto Industry: The Big Three (well, for a long time)

Third Party Candidates

Tic-Tac-Toe

Minister/Priest/Rabbi jokes

Blondes/Brunettes/Redheads

Baseball: three strikes, three bases, three outfielders

et cetera

et cetera

et cetera

His list of references is stretched over . . . three pages.

Yada, yada, yada . . . blah, blah, blah.

(Actually: Thank you, thank you, thank you.)

For reasons sketched yesterday, I rarely recommend stocks in this space. I am certainly not recommending one today. Indeed, I have to assume it is going to zero.

It is called Borealis, and — full disclosure — I own a bunch. This is one of the reasons I think it’s going to zero.

Seriously.

I am a surpassingly fortunate man, but I don’t think of myself as particularly lucky. OK, there was the time on the New York City subway train 36 years ago when I had the entire high school yearbook to give to the printer but left it on the train, and would surely have had to throw myself under the train if the lost-and-found people hadn’t efficiently retrieved it and had it waiting for me at the end of the station. This was lucky beyond all reason. This was life-saving. But generally I think of myself as blessed, not lucky.

So Borealis has to go to zero.

Because if it doesn’t go to zero, that would mean its claims have at least some validity. And that would mean, with just 5 million shares outstanding and a US dollar market price around $3, I had stumbled into a bit of luck to rival the subway episode.

And that kind of luck comes just once in a lifetime.

Borealis claims (among other things) to have invented and patented an electric motor that is 30% more efficient than today’s motors. If true, the entire world would want to license it. They would make hundreds of millions of dollars a year on licensing fees. They wouldn’t even have to make anything. The market cap of such a company would not be today’s $15 million, but billions and billions.

Although the technology is different, I have to think this is a case of cold fusion. There, if I understand it right, an immutable law of physics prevented the dream from coming true. Here, with Borealis, it is an even more fundamental law — of human nature — that tells me it can’t be real. Because if it were, or even might be, why wouldn’t the tech-savvy people who’ve looked at this thing not have bid the stock to the moon? Or at least to 50?

It’s not as if management is trying to keep it all a secret. Hardly! There is, for starters, the web site — www.borealis.com. It explains the harmonics of the motor, whatever that means, with colorful representations that almost make sense to a layman. (Another bad sign?) There are the press releases. And, most amazingly, there is the daily e-mail shareholders get telling them that day’s closing stock price. In all my years, I have never encountered that.

And it’s Canadian!

(Sorry, all my Canadian friends; but let’s face it, there have been one or two funny stocks deals flying south on the wings of Canadian securities laws.)

So it can’t be legit because: (a) I’m not that lucky; (b) tech-savvy people who’ve seen it would have bid it to the moon; (c) no one has seen it, so far as I know, in the sense of seeing an actual working motor verifiably doing what they say it can do; (d) they e-mail daily stock-price updates; (e) it’s (sorry!) Canadian.

Can it? Some of you are actually physicists yourselves. Could you possibly take a look and tell me whether there’s even a prayer my ship might come in? No matter what you report, I won’t sell my shares, because this is a classic case of an otherwise bright person becoming obsessed with a magnificently greedy dream.

Scary, no? I am powerless. Logic insists this will be zero, and yet I hang on.

One day, maybe they’ll go into this company, grab one of the as-yet-phantom motors off a deserted work bench — heavy little sucker, this dingus — and ask Humphrey Bogart, with a quizzical look, what is it? And Bogart will take his time and reply . . .

Well, you’ve either seen the movie or you haven’t.

I have always been a sucker for end-of-the-year specials, which are those doggy stocks that have done so poorly — arf! arf! — that investors sell them around this time of year to take their losses and be done with them. Investors use those losses to cancel out gains they may have taken during the year on other stocks (and, if their losses exceed their gains, up to $3,000 in ordinary income, with any extra carried forward).

This is called tax-selling.

It can lead to some rational irrational behavior. Say you paid $29 for a stock that’s now $6 but worth $9. Selling at $6 to take the loss could save you so much in taxes it makes sense to sell.

So it can be rational to sell for $6 something worth $9.

But to the rest of us, a stock worth $9 that’s selling for $6 represents a bargain.

And it can become more of a bargain when disgusted tax-sellers, instructing their brokers to sell before year-end, regardless of the price, drive it down under $5, say — at which point many brokerages will no longer count it as “marginable,” making it harder for some customers to buy and putting pressure on some who already own it to sell. So now you may have tax-selling pressure and margin pressure and the stock is $3. Which makes more miserable owners see it as a tax-selling candidate — including those who paid “just” $6 for it — and they sell, too. So now the stock is two.

Of course, what often happens with these dogs is that they’re not worth $9 after all, or even $2 — they’re worth zero, and ultimately attain it.

Still, for the scavengers among you, and for those constantly urging me to suggest something more thrilling than an index fund or Treasury Direct . . . some way that you, too, can have horrible losses like mine to complain about at cocktail parties . . . I am tempted to tell you about a couple of dogs.

I am tempted . . . but I won’t do it, lest (a) you buy them, drive their prices up, and leave me open to accusations of trying to hype stocks I own; or (b) you buy them, they go to zero, and you hate me.

I know you say you won’t hate me, but you would hate me. I would hate me, too.

So you will have to find your own dogs, take your own gambles, and watch as many of them really do go to zero. The fun is when you have one that bounces back.

This used to be part of what was called “The January Effect.” In January, tax-selling pressure would end and quite a few people would reestablish their positions in those dogs, bidding their prices back up. (Tax-sellers have to wait 31 days before buying back their shares for the tax-loss to be valid.) Not to mention all the new IRA and Keogh money that can now be tossed into the market for a new year, and the flood of year-end bonus money.

Once The January Effect became famous, long ago, some people began selling their dogs earlier, buying back their shares in December rather than January, in anticipation of the snap-back. So that muddied the January effect a bit. It’s not the sure thing it once was; and in truth it never was a sure thing, just a little odds-tilter.

A bad surprise around Y2K — which few including me now expect (which is why it would be a bad surprise) — could muddy this January further.

But — for all the impossible-to-value wild high-fliers out there — I expect there are quite a few old-fashioned underappreciated stocks to be had as well, beaten down by bad news exaggerated by tax-selling.

If you have some speculative funds and enjoy this kind of thing, go look for some.

Or wait — here’s a way it might work to use actual names! The following six stocks are pretty doggy. But two of them I am short, meaning I hope (and believe) they have further to fall. Two of them I am long, meaning I hope (and pray) they will bounce back. And two of them I do not have an interest in either way.

I won’t tell you which are which, lest I be accused to promoting my positions or wind up with you hating me.

But they sure are doggy stocks! Clayton Homes (CMH), U.S. Floral (ROSI), Iomega (IOM), Criimi Mae (CMM), CompUSA (CPU) and Ultralife Batteries (ULBI). Remember: I am NOT recommending you buy or short any of these. If you do look into one and decide it’s going lower and it does — more power to you. I hope it’s one of the two I’m short. And if you decide another is going higher and it does — more power to you for that, too. I hope it’s one of the two I’m long. As for the two I have no interest in either way, I hope — well, what do I hope? I guess I hope they just prove very boring.

Shorting stocks is a very bad life choice for almost everybody; and buying doggy stocks is almost as risky. So this is more for fun than anything else. In fact, if you want to play the game without losing any actual money (oh, if they had only offered this option to me when I was your age!), do this:

Send me an e-mail at myvastfortune@aol.com (not my regular account, please!) that looks like this (feel free to cut-and-paste):

I WOULD GUESS

You own these two stocks: [XXX, XXX]

You’re short these two: [XXX, XXX]

You have no position in these two: [XXX, XXX]

I think these (if any) will be significantly higher in six months or a year: [ . . . . . ]

And these (if any) will be significantly lower: [ . . . . . ]

Indeed, set up a hypothetical portfolio on one of the Internet services and “invest” $100,000 any way you want in some or all these symbols. (E.g., if you short $20,000 worth of one of them, that would leave you with $80,000 to go long one or more of the rest.) Include these allocations in your e-mail.

We can then check in six months or a year to see how smart you were, and how smart you were in figuring out how dumb I am. (You’ll be the one reporting in with your vast success; but I’ll have a copy at myvastfortune@aol.com just to make sure no one is tempted to exaggerate.)

There may even be a prize.

And by doing it hypothetically this way, I will be the only one who loses real, actual money.

With your real, actual money — and only the portion you will NOT need in the next few years, and that you feel comfortable committing to the stock market — either buy index funds, or do a lot of real, actual homework.

Tomorrow: A Stock That’s Surely Going to Zero

Oh, the guilt. The dog (I’m not sure whose; we don’t have one) ate my homework.

Barring more canine mischief, Underappreciated Stocks will run on Monday. Sorry.