Author: A.T.

I suppose it seems odd to be reading about auto insurance reform — three of last week’s columns — when the whole nation is on the brink of shooting itself in the foot.

I don’t think we will go over the brink, but we sure are coming close. (With brinks, can one ever not?)

I speak here, of course, of the possibility that the House, against the wishes of a majority of the people it represents, will impeach the president. It is very Alice-in-Wonderland-like if for no other reason than this: Everyone agrees the president will not be convicted and removed from office. (To be sure, some feel he should be, but no one thinks two-thirds of the Senate will so vote.)

So this is purely an exercise in theater. We would be choosing to tie up the Chief Justice of the Supreme Court and the entire Senate and no small portion of the executive branch (how can they not be consumed by this, even if not directly involved?) — for months — for the purpose of making a point. The point: that no one, least of all a president, should lie — in common sense terms if not in legal technicality — and especially not under oath.

It is an important point.

Much of the country and many of the Republicans in the House, given the choice, would opt for censure to make that point — and so would I. (In truth, it seems to me the point has already been made.) “Censure and move on” is the operative phrase.

Censure is no trivial thing. Clinton would be only the second president in history to be censured (and Andrew Jackson’s censure was later repealed). And maybe they’d dock him a full year’s pay. This is a very big deal. Point made!

But three or six more months of Monica Lewinsky?

Hello … we have Iraq and a global financial crisis and Russia and the Year 2000 problem to deal with. Not to mention education and Fast Track and Social Security and everything else.

If we absolutely had to do this, because the president were attempting to subvert our democracy by, say, setting the IRS upon his political enemies, as Nixon did, or by using the CIA to thwart an FBI investigation into illegal wiretaps of the opposition party, as Nixon also did, or by authorizing operations to break into a psychiatrist’s office to obtain patient files … then of course we would do so. (And it wouldn’t just be theater; the chances are, there would be a conviction.)

But the president was just trying to keep from admitting an embarrassing sex thing between himself and a consenting adult.

That really is different.

If the president were robbing us blind, we might put ourselves through this. (Nixon wasn’t robbing us blind, but he did commit serious income tax fraud — a terrible example to set to the American people. Yet neither the Democrats nor the Republicans on the House Judiciary Committee at the time felt that this rose to the level of Treason, Bribery, or other High Crimes and Misdemeanors. It was deemed a personal infraction.)

The president was not robbing us blind. No, the Whitewater prosecutor (who reported no presidential wrongdoing with Whitewater) found only that the president gave in to sexual temptation with a consenting adult and then did all he could to keep it from coming out.

The world should not be paralyzed over this. We shareholders do not deserve to see our portfolios plummet if the market loses confidence during an impeachment trial. People at the bottom of the economic ladder do not deserve to have their jobs jeopardized over this if a gloomy mood leads to recession here, or to prolonged agony in the already depressed economies overseas. We need our government’s attention focused on the real problems. Censure and move on.

I’m not predicting apocalypse if there were an impeachment trial. But don’t underestimate the possible impact, the power of psychology in markets and economics.

Remember when the world was in crisis just a few weeks ago and — bang — the crisis passed when the Fed lowered interest rates a quarter of a point between regularly scheduled meetings? Overnight, an amazing change in world confidence. It wasn’t the quarter point that mattered, it was the psychology of the thing. Psychology and confidence and moods matter in markets. I don’t know for sure what the impact would be of our being mired in months more of this mess, but I do know it couldn’t possibly be a plus. And that it could possibly be a big minus.

So why do this to ourselves? Are we that certain this is what Thomas Jefferson and the others had in mind when they wrote of Treason, Bribery and other High Crimes and Misdemeanors? If we’re not certain (and many of us, of course, are certain this in fact is not the case), then let’s give ourselves a break. Censure — for only the second time in the nation’s history! — and move on.

And that’s all I have to say.

(Except that through the miracle of hyperlinks, for those who do want to split a few hairs — irrelevant to the larger points made above — click here.)

The president and Monica knew their behavior was wrong, just as, presumably, a married 42-year-old Henry Hyde and the married woman he had a five-year affair with knew it was wrong and Thomas Jefferson and the slave with whom he had a long affair and a child knew it was wrong.

And so, like many in this situation, they tried to keep it secret. There’s more one could say about how inappropriate this was — an intern? the Oval Office? But he really didn’t have much option to go to a Motel 6. And this was hardly an unwilling child reluctantly seduced.

So the president gambled that he and Monica could get away with keeping their secret, thus sparing themselves and their families and his office and the nation the embarrassment. He lost.

Did he lie in the Paula Jones testimony? Well, the part about not recalling having been alone with Monica seems by any stretch to have been a lie. This is a guy who remembers everything. I think he remembered that. But on top of feeling an incredible invasion of his privacy (this never happened to Kennedy!), I wouldn’t be surprised if the president didn’t also feel this: He really did try to restrain himself. He really didn’t “go all the way,” as we used to say in high school. He really didn’t have a full-fledged affair of the type Henry Hyde or Thomas Jefferson had. And so (one can imagine his feeling, as he agonizes over this) doesn’t he get any credit for that? He obviously resisted some temptation, just not enough. And the first definition of “sexual relations” in my dictionary is “sexual intercourse.” (The problem is that, at least in my dictionary, the alternate is: “any sexual activity between individuals.”) To the two of them, what they were doing — stopping so far short of “the act,” so far short of ski-chalet weekend trysts — was, technically, not the real deal.

Of course, it’s just this kind of legal bobbing and weaving that got him in so much trouble, so I’m not making the case that backed into a corner by his political enemies, he didn’t screw up. He truly did. He agrees. He should be censured, maybe fined. We should move on.

Anyone who looks at America’s lawsuit-based auto insurance system has to conclude that, except in Michigan, it provides poor value for the consumer dollar and a terrible surprise for most of the worst-injured victims.

(The surprise: High as the premiums are, the benefits from your lawsuit, when you’re badly hurt, are zilch, if your injury was caused by a hit-and-run driver or a driver you cannot prove was at fault or a driver who has no insurance or assets to sue for — which is a high proportion of the accident causers … and next to zilch if you are hit by a driver who did stay around to be sued and whom you can prove was at fault and who did have the legally mandated insurance — which in California, for example, will entitle you to only $15,000 (less legal fees) even if you have $1 million in medical bills, excruciating pain, terrible disfigurement, and can never work again a day in your life. In Michigan, where insurance costs less, you would, in this situation, have all your medical and rehab bills paid, and some wage loss reimbursement. But the lawyers claim to think Michigan’s system is worse for consumers and victims. Vastly better protection at significantly lower cost? They see that as a bad deal, because there’s little money in it for them.)

The defense lawyers who represent insurance companies are not keen on Michigan-style no-fault either, because if most lawsuits were eliminated, so would be most of their incomes.

In the November issue of Crossroads, published by The Auto Insurance Compensation Project of the University of Wisconsin at Milwaukee, Jackson Williams, a spokesperson for the defense attorneys, offers six suggestions to try to improve the situation without clamping down too hard on lawsuits:

1. Repeal the Collateral Source Rule. This would allow juries to be told when someone was already covered by health or disability insurance and so didn’t necessarily need to be reimbursed for already-reimbursed medical bills or lost wages. (In deciding the damages to award, juries could choose to ignore this information, but they would have it.) This would likely lower the cost of settling many claims and reduce the incentive to sue in the first place.

2. Allow a Seat Belt Defense. Right now, though a victim may have violated the law by not wearing his seat belt, the jury can’t know that or take it into account in deciding how much compensation he is owed. The defense lawyers argue this shifts some of the cost of injuries to those who do wear seat belts.

3. Adopt Medical Injury Profiles. “Injury profiles representing the medical consensus as to what treatments are required for minor injuries should be admissible in lawsuits to help jurors identify excessive medical expenses.”

4. “No Pay/No Play” for Uninsured Plaintiffs. California passed this by referendum, prohibiting uninsured drivers to sue for pain and suffering. (They can still sue for all their medical, rehab and wage loss.) In other words, if you make $6 an hour and can’t afford $1,400 to buy auto insurance, you’re not entitled to sue for pain and suffering if you’re hurt. It would seem fairer to cut the cost of auto insurance by eliminating most of the legal expense and fraud, so low-income people could afford to obey the law and buy it. Then maybe such a provision might be warranted.

5. Require Contingency Fee Disclosure. The idea here would be to force personal injury lawyers to tell their clients at the end of a case how much time they had spent on it, and if they felt outraged (“I’m paying you $32,000 for 17 hours’ work?”), they could “negotiate for a reduced fee.” But even assuming each attorney were candid about his hours, what leverage would the consumer have in these “negotiations”? Ordinarily, the contingent-fee agreement is signed up front, and the lawyer is the one who receives the cash, takes his fee and expenses, and passes on the remainder to the client.

6. Experiment with Procedural Reforms. Like changes to the rules of discovery, mandatory arbitration and the like.

Even if there is merit to some of these — as I think there is — you can be all but certain the personal injury lawyers will not allow them to happen. And note that the savings these reforms would achieve are achieved almost entirely by reducing what crash victims get. You’re poor and couldn’t buy insurance? You get less. You weren’t wearing your seat belts when your head was bashed in? You get less. You were already reimbursed for these expenses you’re suing for? You get less.

Some of that may in fact be warranted.

But where are the reforms that would cut out the legal expenses and fraud? And why not just do what Michigan does? It’s been working there for 25 years.

(The one important tweak: as suggested yesterday, Michigan needs to allow low-income drivers to buy a less generous, more affordable benefit package.)

The problem: Consumers pay too much for auto insurance and, if they’re badly hurt, get far too little. In California, for example, consumers pay something like $7 billion for the "people" portion of auto insurance (auto theft and damage are additional). But if they’re badly hurt — $100,000 or more in medical expenses and lost wages — they recoup on average just 9% of their actual losses from that $7 billion pool. Imagine your $200,000 house burning down and recouping just 9% — $18,000 — from your insurance company, after paying high premiums all those years.

So where does all the money go? In California, more than half goes to lawyers (both yours, fighting for your claim, and the insurance company’s lawyer, fighting against it) and to fraud. Why so much fraud? Because the current system actually encourages people — even normally honest people — to strike back at the insurance companies and recoup some of those years and years of exorbitant premiums by saying their necks hurt when they don’t, or exaggerating their injuries.

In Michigan — the one state that does this almost right — there are 7 fakeable claims (e.g., whiplash) for every 10 unfakeable ones (e.g., a broken arm). But they’re probably not fake, because there’s no incentive to fake them. Neither are they likely underreported, either, because if your neck really hurts, why wouldn’t you tell your doctor and try to get the pain to stop?

In California, by contrast, there are not 7 fakeable claims (e.g., whiplash) for every 10 unfakeable ones, as in Michigan — there are 25! The extra 18 are presumably fraudulent, but the insurance companies can’t tell which they are … so they pay them, and the cost of that fraud is added to the cost for everyone else. But, perhaps understandably, they pay them grudgingly and with suspicion (because they realize there’s a good chance they’re being conned), which means that they treat everybody badly, including the "7" of those 25 who deserve real sympathy and support.

Could people and lawyers and chiropractors really misuse the system so starkly?

You bet. In Massachusetts, when its first-in-the-nation "no-fault" bill was passed in 1971, you could only sue for pain and suffering if you had medical bills and lost wages of $500 or more. But people quickly learned to treat that $500 not as a threshold but as a target. (How hard is it to rack up $500 in medical bills?) Then in 1988, to try to rein in the lawsuits, the target — sorry, I mean the "threshold" — was raised from $500 to $2,000. The next year, the average number of doctors’ and chiropractors’ visits after an auto accident jumped from 13 to 30. So, yes, people do game the system. The "no-fault" the lawyers like to discredit as not having worked largely hasn’t — because the lawyers, way back when, saw to it that there would be these low "thresholds" above which the old lawsuit system took over. In short, they sabotaged it. Only in Michigan did a "real" no-fault system squeak past the personal injury bar … and it has been working well for 25 years.

In most states, more money goes to lawyers after an auto accident, on average, than to doctors and hospitals and nurses and chiropractors and rehabilitation expenses combined.

Auto insurance in every state except Michigan is, to a greater or lesser extent, terrible And even Michigan has a flaw. (Yes, it’s significantly cheaper than in California; and yes, the compensation you can expect to receive is closer to 90% than 9%. Yes, relatively little of your premium goes to legal expenses and fraud, because you can sue only in the most severe cases. But the flaw is: If you can’t afford to buy it, you are not entitled to the benefits. Michigan needs to allow low-income drivers to buy a less generous, more affordable benefit package.)

Why don’t all states just follow Michigan’s example (with that one tweak to accommodate low-income drivers)? After all, it’s worked for 25 years. People pay less, yet get vastly better protection against severe injury. Consumers Union long called for just such reform.

Because the lawyers won’t allow it. In California, the lawyers take about $2.5 billion a year from that $7 billion pool. They have shown they will do virtually anything to keep from letting go of it. They will certainly lie and defraud the public — and the public, in such situations, has no real recourse.

(Most insurance companies aren’t keen on a system of lower premiums, either. Only the mutual companies, owned by their policyholders, support no-fault.)

In an ideal system, a good chunk of the premium would be blended into the price of gas and collected automatically. That would eliminate sales costs, end the uninsured motorist problem (nearly half the accident causers in California drive uninsured), and — well I wrote a whole little book about how this could actually be a fairer system than today. (Bad drivers would still pay more.) But the nation’s insurance agents and insurance companies and oil companies are simply not going to allow pay-at-the-pump … so let us, reluctantly, put it aside in our discussion. Though it would help, the really big gains to be had in auto insurance reform come from eliminating the incentive to fake and exaggerate claims and the need for lawsuits — namely, from adopting Michigan-style no-fault insurance.

But, as I say, the lawyers won’t allow it. They’re probably still kicking themselves that a coalition of labor unions, consumer groups, and others managed to get this passed in Michigan in 1973. (Michigan, by the way, is a place that ought to know something about automobiles.)

Herewith, the personal-injury lawyers’ suggestion for fixing the problem: Blame it on the insurance companies. No system is acceptable to them that merely helps the victims, a la Michigan. The lawyers must be paid. It is their right. Michigan may compensate the badly injured far better, and it may cost consumers less but is only secondarily of concern to personal injury lawyers. Of primary concern are their legal fees. And under the Michigan system, these are cut way, way back. So that’s unacceptable.

Tomorrow, I will describe the defense attorneys’ prescriptions for reform. They don’t make as much from the current system as the personal injury attorneys, but nationwide it still amounts to billions of dollars a year.

Well, the PARADE story on credit cards that many of you helped me with reached 41 million households and generated tens of thousands of requests for more information.

You know those laundry baskets prisoners use to escape from penitentiaries in the movies? They’re under the shirts and get rolled out by unsuspecting guards and then jump out of the truck once they’re clear of the prison walls? We’re talking about enough mail to more than fill one of those.

And that was just the physical mail to the Consumer Federation of America, which had offered an informational brochure. What about the e-mail? I liked this one from George Yurgaitis:

“I’m 31 now and have 2 credit cards. When I was 23, I had over 30 cards. I carried most with me, but thankfully never used them. It was a game to collect as many as possible. I did notice one part of the PARADE story that I had to laugh about. I started collecting the credit card offers that arrive in my mailbox on March 1 of this year (okay, so I forgot in January and February), just as one of the profiled people in PARADE had done. He received 34 credit card offers. 34?! To date, my wife and I have received over 120 – with the big month of December to go. To boot, my two-year-old son has received four offers in the past six weeks as well. I haven’t even been including the store credit cards and the mortgage equity loan offers in my count. I haven’t decided, but I may mail the card offers I have received back to the card companies with a note to see what sort of response I’ll get in return.”

George and his wife very rarely carry a balance. When they do, they shift the balance to a new card with a low introductory rate and pay it off before it climbs to the regular rate.

#

We picked five of those tens of thousands of letters out of the laundry cart last week (OK, maybe they’re how terrorists get out of hotels – don’t hold me to the specifics), and in addition to its little brochure, CFA will be sending each of those folks $1,000 to help jump-start their debt-repayment regime.

Repeat after me, yet again: Credit cards are for convenience only. Borrow against them – run a balance – only in true emergencies.

From Dave Davis: “My lunch mate sends me a joke every morning (which he receives from a friend who is an executive at one of the major advertising agencies in Chicago). Here’s the latest …

“Three buddies die in a car crash. They immediately find themselves at orientation in heaven. During this introduction, they are all asked: ‘When you are in your casket and friends and family surround you in the mortuary, what would you like them to say about you?’

“The first guy says: ‘I would like to hear them say that I was the greatest doctor of my time and a terrific family man.’

“The second guy says: ‘I would want them to say that I was a wonderful husband — and a fine school teacher who made a huge difference for our children and their future.’

“The third guy says: ‘I would like to hear them say … LOOK! HE’S MOVING!’”
A.T.: And speaking of car crashes, let’s talk a little about auto insurance reform — about which you should be furious, because so little has been done, except in Michigan (which for 25 years has had it nearly right).

Here’s a little idea from an enterprising Farmers Insurance agent in New Mexico whose name I have temporarily misplaced — oh, no! — but it’s a good little idea. His idea is to modify the proof-of-insurance card your insurer sends you. He would add a small perforated tear-off section that has printed on it all the information you need to exchange when there’s an accident.

Think about it. It’s raining, it’s dark, you’re late. You’re in an unfamiliar part of town, you only have a pencil and the point’s broken, cars are honking or whizzing by dangerously close to you — and the other person is not necessarily someone you’re thrilled to be spending time with. Perhaps she’s screaming at you, perhaps in a language you do not immediately recognize, perhaps gripping a tire iron. Is this a good time to be trying to remember the information you need to get? To give? No. And now, with this little perforated stub, you don’t have to. You simply tear off the Accident Information Card, hand it to the other person, motion for her to do likewise, get it (checking briefly to see that it matches the description of the car) — and, if it’s a minor accident to which the police are unlikely to respond, off you go. Even if the police do come, it’s easier and faster for everyone.

Two years ago, this fellow — Tom Gregory, that’s his name — sent me the idea wondering how he could get companies to adopt it. Farmers, his own company, had ignored him.

I suggested he send the idea to Progressive, among others — because they are progressive. And here we are two years later and, guess what, Progressive did it! They’ve added a tear-off Accident Information stub to the bottom of their proof-of-insurance form. Knowing how the insurance industry operates, now that Progressive has adopted it, others will follow — in about 30 years.

Thursday: Some Bigger Ideas

From Paul Langley: “Several days ago I read your column about Linda. I don’t have a solution but please refer Linda to this book that I personally found very helpful. It’s called How to Get What You Want in Life With the Money You Already Have, by Carol Keeffe. Which she can find at Amazon.com http://www.amazon.com/exec/obidos/ASIN/0316485187/qid=911923176 (and help send their stock up a little bit). Some of the ideas are a bit unorthodox … but it’s tried and true and the author writes from experience.”

A.T.: I haven’t read it myself, but a reader from Montreal recently had this to say on Amazon: “I only got one idea from this book … but it’s a GREAT idea. I read the book about three years ago. Every day, at the end of the day, I put all my loose change in a jar. So far, I’ve upgraded my PC, bought a lot of computer hardware (scanner, zip drive, etc.), bought a used car. I expect to upgrade my color TV this month. All on one simple idea I got from this book.”

He bought a used car with his spare change? Well, it helped that he was Canadian. Canada long since stopped printing dollar bills, preferring $1 coins instead. So “loose change” in Canada means a good deal more than it does south of the border.

But if this Montrealer got just one idea from the book, here’s another Amazonian who seems to have gotten even more:

“This book has changed my life. After reading this book, my attitude towards money has improved significantly. These changes have even spilled over into other areas of my life. I know that small changes can make a huge difference. My savings are growing and my debts decreasing. I can’t say enough about this book. I have read it several times and every time I learn something new.”

Sounds like a good stocking stuffer. Got any teenagers?

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.