Author: A.T.

Dr. Steven Rubin: “Okay, okay, so 1600 Penn Ave may not be so tough, especially for a certain underpaid treasurer of the occupant’s political party. But I’ll bet that, unless you were watching by poolside, you checked your pockets for loose change when Regis asked on which coin does the head face to the right (which was the only question I saw while channel-surfing)!”

This refers to my September 8 comment on the ABC TV hit show (now in hiatus) “Do You Want to be a Millionaire?” and to the $100 question about what famous building is located at 1600 Pennsylvania Avenue in Washington (a-the White House, b-the Mexican Embassy, etc.).

Well, I’m first to admit the show IS good fun, and that there are lots of questions I would miss — although fewer now that I have become almost instantly hip, by my very recent exposure to the remarkable Wyclef Jean. In one night I learned who George Clinton is (not the long-deceased governor of New York, but one cool funky jazz dude with hair from another planet); who Sheila E is (a) Prince’s one-time drummer, now a very cool drummer of her own; (b) the woman who lost the last several letters of her last name in a freak chainsaw accident; (c) the White House; who Naomi Campbell is (Charles just rolled his eyes and explained that she is “only the hottest model out there after maybe Christy“); who Bono is (not the late sunny congressman, but the original U2 pilot) . . . and more.

So I would no longer miss all the pop culture questions.

But Dr. Rubin obviously did not stay tuned long enough to understand how easy that question would have been. When unsure, “Do You Want to be a Millionaire?” allows you a limited number of “lifelines” — including “Call a Friend” and “Ask the Audience.” So assuming you didn’t have change in your pocket — or a penny in your loafer (it’s the penny) — you could just ask someone who did. I tell you, this is not a tough way to make $32,000.

Emmett Redd: “Usually, we patronize the companies we own stock in so they can make more profit and our wealth goes up. But David Lazar (9-9-99) might do better not to patronize Mirage after he buys its stock because he is, he says, “a successful gambler.” His successful gambling would (however minutely) reduce the profitability of Mirage. This is quite a quandary, if you ask me.”

Yes. David should buy Mirage stock when he’s feeling lucky, but only gamble there when he’s feeling self-destructive.

John Reade: “Holy mackeral, your new web site is amazing. Like a lot of people, I’m freaking out at the cost of my mutual funds, now that I see the full impact. Do you have any simple advice on when to get out of a mutual fund? I realize the front-end loads have already come and gone and that back-end loads will be paid when I leave. Just wondering what other penalties/taxes may be incurred when I bail out of one mutual fund and go into another.”

Holy mackerel indeed. (And when was the last time you saw mackerel on the menu, anyway?) The front-end load is a sunk cost, and so shouldn’t figure into your decision. (Easier said than coped with psychologically, especially if you’ve only recently paid it.) The surrender fee, if there is one, is another matter. Most funds don’t charge them, but some certainly do. With many of those, the surrender fee scales down to zero after a few years, which gives you a (small) incentive to wait.

The big disincentive to switching is whatever capital gains tax you’d have to pay on the appreciation you’d realize. (In a tax-sheltered account, this would not be an issue.)

More on this Monday.

(Please note that I’ve added a permanent link to the Mutual Fund Cost Calculator, up there in the top left “link” area. I am incredibly proud of this, because it was one in the morning and I didn’t want to wake my web master, so I went into the html code and figured out how to do it myself. This is why it probably appears upside down on your screen, or accidentally links to the Naomi Campbell photos.)

David Lazar: “With all of my investment money in various mutual funds, I’m not what you would call a ‘player’ in terms of moving my money around and looking for ‘quick-hitters’ in the stock market. I am, however, a successful gambler. I supplement my income by playing poker and betting baseball for profit. As a result, I have taken some interest in gaming stocks, namely Mirage Resorts, the Steve Wynn company that owns and operates such mega-resorts as The Mirage, The Golden Nugget and Bellagio. I have personally stayed at these properties and as a person who is admittedly picky about customer service, I find them to be at least one order of magnitude better than any of the other hotel/casinos in Vegas or Atlantic City.

“The proliferation of legalized gambling and the huge wave of recent construction of billion dollar resorts in Vegas has caused the market to be flooded and profits have gone down. This has caused a major downturn in the stock price of Mirage Resorts which has a 52 week spread of 12-32 and right now is at about 13. The 10-year spread on gaming stocks shows them to be very cyclical with the current downward trend likely to reverse itself sometime between now and the next 2 years.

“I know there is a question in here somewhere. Oh yeah. With what has been a traditionally cyclical market at a low point, wouldn’t this be an attractive investment? If so, why have the so-called investment gurus not endorsed gaming stocks? As a Darwinistic survival-of-the-fittest phenomenon takes place (it’s already begun), I feel very strongly that Mirage Resorts will outlast the competition and emerge as the strongest player. This will cause the stock to rebound from 13 to well over 20 in the not too distant future, allowing for a modest score prior to the cyclical effect precipitating a return to its current price.

“If you don’t have a strong opinion on gaming stocks in particular, perhaps you can comment on cyclical stocks in general.”

I don’t much like gambling stocks, because the underlying enterprise is — to my mind — neither physically, fiscally nor mentally a terribly healthy form of recreation. I’d rather be a part of building semi-conductor plants or ski lifts.

But I’d be the first to argue — and have — that it is not logical to allow a bias like that to limit your investment options. Maybe you wouldn’t participate in an new issue of a gambling company’s stock or bonds, on principle, but buying them in the secondary market has such an infinitesimal effect, it’s silly even to think about it.

This, of course, has nothing whatever to do with your question.

I think you’re smart to have most of your investment money in mutual funds, although as I noted yesterday, I now have an adjunct site — www.personalfund.com — that may help you make even sharper fund choices going forward. (Please check it out — and register! We will be enhancing it in a variety of ways, and want you with us on our journey toward ever-more-effective investing.)

And I think it is perfectly reasonable that, in addition to your mutual fund investing, you would take a well-considered position in something you know, like the gambling stocks. I do believe in buying out-of-favor gems (sometimes, even out-of-favor dogs), so why not put a little money in at 13, planning to put in more at 7 or 8, in case we get some rough markets. (Even year-end tax-selling could depress the stock a little if it is widely held in taxable accounts.) If it never goes down from here and you don’t get more at a lower price — bravo! You caught the bottom! (Albeit, not for as many shares as you might have bought.) If it DOES drop significantly from here — bravo! You lost less than you might have, and got a chance to buy more shares even cheaper!

There is obviously nothing very clever in this. And you certainly shouldn’t get TOO sucked into it, if the stock kept dropping. But I think this is a reasonable thing to do, and something that will interest and engage you — and that alone has value.

As to why the gurus don’t recommend cyclical stocks when they’re low, well, to the extent you’re right about that, I guess it’s because patience is not very exciting. If you’re writing a newsletter, you want to try to recommend a group just as you think it’s beginning to take off (or, failing that, when everyone IS excited about it). That this sort of pinpoint timing is all but impossible gives pause to only a few.

OK, guys. Click here.

[I use “guys” in its modern, pan-gender form. I am delighted to note that, where almost all the contestants on ABC’s “Who Wants to Be a Millionaire” were guys — and morons — the readership here is wonderfully diverse — and bright. Did you see this show? “What building is located at 1600 Pennsylvania Avenue in Washington?” Granted, that was only for $100, but it was the first time I tuned in, and I was astonished to hear, in the next breath, that it was a multiple choice question. And that if you needed help with it, you could ask the audience or phone a friend. “(a) The Washington Monument, (b) the White House, (c) the Louvre, (d) Starbucks.” Or something like that. So — after a little tense silence — the guy says, “I’ll go with ‘A,’ the White House.” Regis Philbin allows another moment of silence and asks, “Is that your final answer?” (You can tell he feels silly about this, because at one point he explains to the contestant why he “has to” ask that each time.) “Yes, that is my final answer.” A bit more dramatic silence … though of course not nearly as tense or drawn out as when the questions get harder (“Paris is the capital of what country? (a) France … “) and the stakes get higher … and then Regis beams, “YOU’RE ABSOLUTELY RIGHT! THE WHITE HOUSE.” The fact is, it’s a very fun show, brilliantly designed, and almost everyone watching can feel certain he or she would win and get to keep at least $32,000, if only he or she could become a contestant. And yet almost all the contestants are male. This is not a brains thing — everyone knows women are smarter than men — it is a fear thing. Men are fearless. “Ask me simple questions in front of 15 million people and risk my looking like an idiot to the whole world? WHERE DO I SIGN?” But I’m getting a little off point. Namely: Click here.]

I hope you had a great weekend. I was working all weekend on a new web site that will link to this one — starting tomorrow morning — and that has me all excited. I hope many of you will find it helpful.

In good Internet tradition, and to my mother’s continuing dismay, it will be free. (“How are you going to make any money from any of this,” she worries for me, not understanding the billions that have been made on the Internet by losing money.)

So I’m going to fink out on a regular column today (do I not get sick days? do I not get vacation days? is the concept of hooky lost to the modern adult world?). Instead, please think of this as a dddddrrrrrrrruuuummmmmmmmmmm rrrrrollllllllll . . .

I’ve switched on Chapter 18 of Fire & Ice. (You already have Chapters 1 thru 17.) It’s called “Follow the Lauder” and recounts some of the marketing wars — even wire-tapping — that were the unseen subtext as you strolled through the ground-floor department-store aisles.

And, as I trust you have scheduled for yourself a wonderfully relaxing Labor Day weekend, here are the final two chapters as well, 19 and 20.

Charles Revson was some piece of work.

Mike Wallin reacting to one of the Daily Quotes:

“Who is rich? He who is satisfied with his portion.” This was said in Perkei Avos (Ethics of the Fathers) a thousand years before Ben Franklin. Ask your local Rabbi.

Dana Nibby reacting to the July 29th mention of Echinacea and Ginkgo Biloba:

Ginkgo Biloba has only been shown to provide a mild cognitive benefit with impaired, elderly folk. And it can have a positively negative effect on those with blood clotting disorders. Self-medicating with herbs may be fun, but there are potential dangers. Be certain you let your physician know what you’re self-medicating with. Ginkgo is a relatively harmless herb; others less so.

Herbal extracts essentially are drugs — something like the difference between coca leaves and cocaine — and like illicit drugs, the concentrations of active ingredients vary enormously between manufacturers. At least with a drug, you know precisely what you’re getting. Just because something’s natural doesn’t mean it’s safe or salubrious.

I like Varro Tyler’s book The Honest Herbal — it’s the only responsible, non-credulous book I know of on herbal medicine; one that takes a sobering look at what the scientific evidence supports — written by a top-notch professor of pharmacology.

You could also try Camilla’s web page — a skeptical RN whose information I’ve always enjoyed. She maintains sober FAQs on the medicinal uses of various herbs — http://www.primenet.com/~camilla/herbs.htm.

Some herbs do in fact heal; some are physiologically inert; and some can do extreme damage in concentrated doses The notion that something is safe because it’s natural isn’t born out by the facts; i.e. some of the most effective poisons are natural as well.

Most people don’t have a clue about the concept of herbal extracts as drugs, and consequently don’t consider the consequences of possible interactions with other drugs.

Another thing that worries me is the whole homeopathy craze — on the one hand, it could be considered as harmless as taking sugar pills (placebo effect); on the other, anyone taking homeopathic remedies to combat something like strep throat could end up slowly destroying his liver or heart valves (rheumatic fever). Stuff like bacterial strep infections are not to be messed with. I’d be dead several times over if it weren’t for antibiotics.

And there’s what’s known as the false placebo effect — when people think they’re better only to die several months later. James Randi makes a similar point in his book The Faith Healers. When cancer patients eschew western medicine in favor of faith healers, proclaiming they’ve been healed, they often die several months later. So faith healing isn’t just a quaint harmless practice. It can be positively harmful when people use it exclusively.

Howard Smallowitz, reacting to yesterday’s column on mothers:

The first Jewish president calls his mother to invite her to the White House for Thanksgiving.

“Well, to tell you the truth, I wasn’t going to do Thanksgiving this year. It’s such a hassle with all the cooking, the cleaning and the serving, and I’m not getting any younger, you know.”

“Mom,” he replies, “I’m president of the United States of America. I’ve got a hundred people whose job is is to cook and clean and cater to my every whim. You won’t have to lift a finger.”

“Yes,” she says, “but with all the traffic on Queens Boulevard, who can get a cab?”

“What are you talking about, mom?” says the president. “The secret service will pick you up in a limo. You won’t even have to lift your own suitcases.”

“I guess,” says the mother, “but you know how congested airports are. Thanksgiving is the busiest travel day of the year, and who needs to fight the crowds?”

Again the president sighs. “Look mom, I’ll have Air Force One waiting to pick you up. You’ll fly into Andrews Air Force Base, where a helicopter will whisk you to the White House lawn. You’ll be here in no time.”

“Well, okay,” the first mother finally relents.

A few days later she’s talking with one of her friends. “So what are you doing for the holidays this year?” the friend asks.

“I’m going to my son’s house.”

“Oh, the doctor?” says her friend, impressed.

“Nah, the other one.”

A tall dark man holding a cell phone approaches the President of the United States. The man’s mother is on the line, he says, and it would mean so much to him if the President would just take a moment to say hello. You see, so far he’s provided her no grandchildren. At least, by this act, she’d know that he hasn’t amounted to a total failure.

Normally, the Secret Service doesn’t allow the President to do this. In the Middle East, exploding cell phones are apparently a favored means of political expression. (“Hello, Mom?” Kabooom!)

But this is not a tent in the desert, it is a tent in the Hamptons, and this is a President who tries his level best to be accommodating.

The tall dark man’s mother’s name sounds something like Santa. She is Italian.

“Hello, Santa?” says the President. A conversation ensues.

Afterward, I see the tall dark man. So? Was she over the moon? Was she impressed? What did she say?

“She said, ‘It didn’t sound like the President.'”

Mark Bell: “My mother-in-law recently received a letter from her life insurance company notifying whole life customers that the company is considering a change from a mutual to a stock company. The members/policyholders will apparently vote their shares to decide for sure. Her question, ergo mine, is whether or not to convert the policy cash value to shares of stock in the new company or to leave it as cash. She does not need the cash and was satisfied to leave things alone to compound peacefully while she slept. What would be the prudent play with this one?”

Normally, these conversions (“demutualizations”) are done to enrich management, although I’ve never seen it expressed quite that way. I don’t know the details of your mother-in-law’s offer, but chances are she should go for the stock.

After all, the face amount of the policy remains guaranteed either way, and that $100,000 (or whatever) is the primary reason she bought the policy, or so I would assume. As time goes on, the cash value grows . . . but it is not paid out IN ADDITION to the life insurance face amount. The pay-out will still be $100,000. The growth in cash value just shrinks the insurance company’s risk. (That’s how whole life is able to keep the premium “level.” The premium starts high enough to build cash value when you’re young. It needn’t go up each year as the risk of death increases, because as the cash value grows, the insurance company’s exposure — to make up the difference — goes down.)

Taking the stock, she might do as well as management hopes to do (albeit on a smaller scale). So, without knowing the specifics of the offer, my guess is that going for the stock is the better choice. Then again, if she views the cash value as an emergency fund she wants to be able to count on no matter what — even if stocks in general or this stock in particular crash — it could make sense to sacrifice a likely gain for peace of mind.

Jason Dickers: “Does whole life insurance ever make sense for someone in their mid-twenties who has a well-paying job, lots of insurance through work, and enough discipline to make automatic monthly contributions to 401(k) and Roth IRA accounts?”

No.

“My insurance agent is trying to sell me on a policy which earns 6% a year, but charges 5% a year in maintenance fees! Am I missing something here or is that a deal for only a true bozo?”

I see an old yellow VW beetle driving by with 27 purchasers of this policy all packed into it. How on Earth do they all manage to fit in that little car?

Jack Tuttle: “Your point about keeping higher yielding interest bearing investments in an IRA, and low yielding stocks outside the IRA is well-taken as regards taxes. But don’t overlook the fact that often the non-IRA is a shorter term investment, in which case, the reverse may be desired. Put the riskier stocks in the IRA where it will weather the market over time, and keep the safer interest bearing investments outside the IRA, if you might need it for a remodel or college. Wouldn’t this often be the wise course?”

I was assuming two long-term accounts. Stocks are never a good idea for short-term accounts. Money you might need in the next few years should not be in the stock market. So in that sense, you’re right.

FREE

Click here, if you still haven’t, to get free stuff from PlanetRx and get me my free plane ride. Supposedly, this contest that ended July 31 now ends — really — August 31. They provide contestants the names of those who’ve logged in for free stuff, so I know that three of you haven’t. And I know which three.

NOT FREE, HARD WORK

This one’s not so simple, but a good idea. Christmas is coming. Chanukah and Kwanzaa and somebody’s birthday and anniversary, too.

Click here for a site that lets you make your own customized Monopoly game. It costs $29.95 and is a real project, not for the faint of heart. But look at all the time you spend on the Internet. If you log off now and work diligently on Youropoly seven days a week, straight through, you will have it done just in time — with a board that has the streets where your folks grew up; with money that has their faces on it; with Chance cards that read like the genuine vicissitudes of their lives, or any others you care to invent. (“Cisco triples. Collect $18,000.” “New York has decided to audit you even though you’ve only been there twice. Pay $5,000 in legal fees or just shoot yourself.”)

This is a particularly great Major Gift idea for the giver who is unemployed or retired on Social Security. You have the time and lack the money. Let others show up with their $500 cashmere sweaters; your gift is the one all will be talking about.

(Friends did one of these for me — a tad off color, as a matter of fact — but I haven’t tried it myself. If you don’t have time for such an ambitious project, click here and give them a can of Rhulispray, some Vegicaps, Tagamet, Clearasil or 25 Butler GUM Floss Threaders. Anything can make a good gift if the card’s clever.)