Author: A.T.

In my April 30 column I said that if Bill Gates had invested merely one-millionth of a penny at 5% a thousand years ago, he’d have had $15 billion today. Of course, he has a lot more than $15 billion, but that is not the point. The point is: Could that possibly be correct? Could I possibly have calculated that right?

Sheepishly: no. Thanks to John Ebert for pointing this out. “I think you meant ONE-BILLIONTH of a penny,” John writes. And indeed he is right. I was not overestimating the power or compound interest but, rather, underestimating it — a thousand-fold. Had Bill invested the millionth-of-a-penny at 5% as I posited, he’d have $15 trillion today, which actually is more than he has — indeed, it is actually about double America’s gross domestic product.

It all comes back to Mary Poppins, doesn’t it? (“When you invest . . . your . . . tuppence in the bank . . . safe . . . and . . . sound . . . Soon that tuppence . . . safely . . . invested in the bank . . . will comPOUND!”) HOW CAN YOU LEAVE THE TV ON WHEN YOU’RE NOT WATCHING IT AND WASTE PENNIES OF ELECTRICITY THAT COULD BE WORTH BILLIONS TO YOUR GREAT-GREAT-GREAT-GREAT GRANDCHILDREN?

(In case you missed it, this all pretty well ties into yesterday’s column.)

Larry Jensen: “Your April 30 column played with the long-term power of compounding. I have another example that might temper this ‘astounding’ power:

“Suppose, while the three wise men were travelling to Bethlehem, a fourth wise man stayed home and deposited the equivalent of just one dollar in a trust fund for humanity. Suppose the trust fund earned a very modest return of 2.16%. (I’m choosing this rate for convenience. Using the Rule of 72 — or some more complicated math with exponentials — 2.16% will double your money every 33.3 years, or three doublings per century.) After two millennia, that dollar would have doubled 60 times, to the mind-boggling total of 1.15 billion billion dollars, or about $230 million for every man, woman, and child on the planet!”

[My own calculations show that the Rule of 72 is not completely precise, and that, over 2000 years, small discrepancies can magnify. It actually comes to 3.6 “billion billion” dollars, and change.]

“But it’s reality-check time. While I don’t know of a source that lists the net worth of the planet, it’s reasonable to guess that it’s not nearly $230 million [let alone $600 million] per person. That clearly implies that one dollar has NOT been able to remain invested, compounding at even this tiny rate of return, for the last 2,000 years. Consumption, inflation, depreciation, wars and disasters — what a physicist would simply call entropy — are processes that have been more than able to dampen the powers of compounding over the centuries.

“Something to remember when Wall Street implies that everyone will be able to retire a millionaire by investing just a few dollars each week.”

Larry believes that to have a comfortable, secure retirement, it will be necessary to save and invest more than a few dollars.

“As a late Boomer,” he concludes, “I remain concerned that the great bull market of the Eighties and Nineties will turn into an equally long bear market, when money starts flowing out of private retirement accounts at the same time that Washington is called upon to redeem, out of current receipts, all of the IOU’s that are piling up in the Social Security trust fund. I also worry that the philosophy of ‘soak the rich’ will find ample opportunities to penalize me for my thrift.”

These are reasonable worries.

Our hopes for avoiding that equally long bear market are: continued peace (well, relative peace) combined with continued astonishing technological advance spreading increasing productivity and prosperity throughout the globe (free trade and market economics being imperatives if this is to happen) — and, ultimately, 500 million middle-class Chinese and Indian 40-year-olds, mere teenagers today, who will by then be eager to buy our shares of Coca Cola and Gillette in hope of financing their retirements.

It’s also worth pointing out that the pace of productivity growth in the first 1500 of the 2000 years Larry has chosen to look at was essentially nil. And what wealth there was accumulated went mainly into building churches and forts and stuff, not labor-saving machines or research and development. (Well, a lot of R&D in the alchemy department, but this proved to be a long, unproductive dead-end.) But you start adding the printing press and the steam engine and electricity and microchips and suddenly you’re in a whole new ball game. Can investors reasonably expect 15% or 20% a year? (Or, as of late, 10% a month?) No way. Need they expect a reversion to some 2% Dark Ages mean? Not that either. (But might the market at some point drop 50%? Sure. It always used to. And rarely has it been as robustly priced as it is today.)

Have you checked the Dell market scale lately? As of yesterday morning, Dell outweighed the total market cap of Apple Computer, Sony, Kodak, Wrigley, Toys R Us, FedEx, and Homestake Mining . . . combined.

That’s all I have to say this morning. A picture (let alone a blinking, moving picture and our silent “thunk!”) is worth 1,000 words.

Imagine if the music stopped every 30 seconds as you listened to your car radio and, to get the next 30 seconds, you had to reach down to punch a button on the radio console. And then wait 10 seconds. And then again, and again, and again.

Forget that!

Yet isn’t that sort of what you have to do now if you’re searching with one of the 411 “white pages” directories on the web? I use the one on AOL. And it’s terrific. Except that it only gives me 5 names at a time!

That’s fine if I’m searching for Anton Shevarnadze in Iowa City.

But what if I’m searching for Michael Smith (or Mike Smith or M Smith) — in New York?

Do you know how frustrating it is to have to click “next” after each five, and then finger-strum? (You’re supposed to be reading all the ads, which is why they make it so slow, while you wait for the next five.) And then again for the next five? And the next?

My friend Marc has fixed all this. (It was actually his dog Looe’s idea.)

Last month I directed your attention to a new site I have a stake in called Quickbrowse. It’s still in a sort of beta phase, and if you all try it out at exactly the same time this morning it will slow to molasses. (We will shortly upgrade our server.) But BOY has it come a long way in a month.

It’s now three things (soon to be four):

Quickbrowse – for surfing

Q-Search – for searching

Q-People – for finding Michael Smith in New York

Basically, all it really is is a simple tool for building one long — sometimes very long — web page that you can look at all at once without interruption.

The only sensible way to find Michael Smith in New York from now on (whether with the AOL people finder or any of several others) is by using Q-People as your portal to people-finders.

The only sensible way to search for information on Yahoo and Altavista and Lycos and the rest — unless you actually like being interrupted after every 20 “matches” — is by using Q-Search as your portal to seach engines.

And if you like to see the same set of web pages every morning — Dilbert and the sports page from your local newspaper and the Wall Street Journal and, dare I even dream it, this column — the only sensible way to do it is by using Quickbrowse as your portal.

(There’s actually a lot more to Quickbrowse, as my April 6 column tried to explain. You can set it up to email you various “collections” of web pages at specific times each day or week. You can have it send you the special weekend airline deals a minute after they’re posted. You can turn “images off” for faster browsing. And there’s an “Alt-Tab” trick — Ctrl-F6 with AOL — that’s a total snap to use and makes reading on-line newspapers far more efficient.)

We have an interesting corporate structure with Quickbrowse. Looe basically calls the shots and sets the broad strategy. But, being a dog (and of indeterminate lineage), he does not write clean code. Marc does that. David feeds Looe (and cheers on Marc). I feed Marc and David (until we figure out the revenue model, which is presumably to lose an ever-increasing amount of money and watch our stock soar off into the stratosphere).

In the last column I suggested that, given our dim prospects for profits any time soon, we would be willing to sell 1% for $1 million. This was a joke. Three of you, undeterred, inquired about smaller shares.

But we are having fun building this, and encourage you to use it and provide your feedback — to Looe (just click beneath his photo), not me.

Blake Meyers: “I found your calculation of Bill Gates’ income since time began to be quite remarkable. [Click “Gates $$$ Clock” at left, and note that it was broken for a while because we forgot to account for the last split.] However, in discussing this with my officemate, we agreed that the real calculation should include compound interest. After all, Bill is savvy enough that he would put his money in an interest-bearing account, even if he was quite young when time began. Perhaps you could calculate how much he much he would have had to save each year, assuming a conservative rate of, say, 5%, to end up with the little pile of money that he has today?”

→ Good point. Though the investment choices billions of years ago — even 1,000 years ago — were quite limited. But the power of compounding never ceases to astound. (Me, anyway.) Do you know that if Bill had been born just 1,000 years ago, and if he had invested a mere one-billionth of one penny — not every year, just once — it would have grown by now, compounding at 5%, to $15 billion? Still not as much as he has today, but had he been able to bump the return up just a tiny bit, to 5.2%, he’d have over $100 billion.

This is why it pays to save when you’re young, even if you can’t count on living 1,000 years. (Neither, I think, should everyone NOT count on it — technology is racing along.) And it is also why the 20% and 30% annual returns people have come to expect from stocks . . . or in some cases 20% a month these days. . . are wholly aberrational and perhaps even a little worrisome. Five percent, let alone a mighty 5.2%, only seem low.

Rich Cullen: You wrote about gift certificates [April 12]. Well, the Walt Disney Co. has something like that called, ‘Disney Dollars,’ which is a printed currency that can be used in their theme parks and Disney Stores throughout the world. Of course, people use this currency. But many, especially ‘Disneyana’ collectors, hoard their ‘character cash’. Now how’s that for marketing?!”

George Berger: “My own pet peeve about gift certificates is that most of them have expiration dates. If you don’t use them within a year or two, the company gets to keep your money without rendering any services. I won’t buy them if they have expiration dates.

“A nice alternative I figured out is American Express Gift Cheques. These are basically pretty travelers checks, intended for use as gifts. I recently wanted to give a friend a Harry and David’s Gift Certificate, but since I wasn’t sure she would enjoy Harry & David’s, I instead sent her a gift cheque along with a Harry & David’s catalog. I included a card explaining that I was sending the cheque in lieu of a gift certificate (so as to make it seem a little less like just a cash gift), but explained that if there was anything else she would prefer to buy for herself she could feel free. She ended up ordering from the catalog, but this way she got to keep the change. (Disclaimer: Believe me, it is purely coincidence that I am currently working for American Express as a consultant.)”

Michael Roxborough:  “With the current market cap of etrade [about $12 billion last I looked, roughly triple the value of United Airlines], you could own controlling interest of every listed company on the stock exchange of Thailand. Would you like to own all of etrade or control an entire country??”

→ Well, would I actually get to control the country? Could I make all its citizens buy my books?

THE DELL SCALE

“Am I missing something, or can you ONLY use DELL for the comparison?”

→ You are missing something, but it’s our fault for making it unclear. After you click SCALE on the menu bar above, click the “ADD MORE COMPANIES” box and you’ll see the option to replace DELL with whatever you want — AMZN for example. Soon, my web wizard will be making this a little more intuitive.

FIRE AND ICE

“It may be an old book and long out of print, but wanted you to know I just finished it a few weeks ago and really enjoyed it. I buy books by the bagfuls at the annual Goodwill book sale here in Atlanta, and this year got F&I in paperback for only 50 cents.” — Carolyn B. McGough

→ Well, you overpaid by 50 cents. As you know, the entire book will soon be accessible here for free. (So far, we’ve posted Chapters 1 through 7. Click “BOOKS” above and scroll down to Fire and Ice and click “Excerpt.”) But you did a heck of a lot better than another e-friend of mine, who wrote to say Amazon had located and sold her a copy for $55.

LONG-TERM LOSERS

“I bought 4 stocks: PSFT, IOM, NAII, and SHG. ALL are down from what I bought them at, and I’m PISSED! *smile* Do most stocks really go up over the long term on average?” — Eric Lewison

→ Not most risky ones.

I only know one of these four reasonably well, and it’s down 80% from three years ago — and headed, a smart fellow tells me, lower still (though who knows?). He has been short the stock all the way down, and what he likes best is that he’s convinced it will fall further, yet never go out of business. That’s the perfect short, because it means he never has to “realize” — i.e., pay tax on — his gain. And that’s important, because gains on short sales, even if you’ve been short 500 years, are always heavily taxed as short-term. If the stock ever does become truly and totally worthless, as many do, then you have to declare the gain.

So remember two things about risky companies (and risky stocks — even a solid company may be a risky stock if that stock has been bid up to crazy heights). First — they’re risky! Second, you should not buy them inside your IRA. Because if they go way up, you get no benefit from the long-term capital gains tax break . . . eventually, when you withdraw your profit, it will all be taxed as ordinary income. And because if they crater, you get no tax benefit from the loss. Instead, it simply cuts into your precious tax-deferred retirement fund.

There are actually a lot of good things to say about Mississippi, and I don’t mean just Elvis Presley, William Faulkner, and Eudora Welty. There are a lot of awfully nice people. There are the magnolias. There is the Reverend M.C. Thompson, Jr., pastor of the Mt. Nebo Missionary Baptist Church in Philadelphia, Mississippi — a church that was burned by Klansmen in the summer of 1964 and then rebuilt — whose singing could make anyone a Baptist. And there are the good race relations in the state, arguably among the best in the nation.

I was in Mississippi for a brief part of Jesse Jackson’s 8-day statewide bus tour. The service at Mt. Nebo was to commemorate the deaths of Michael Schwerner, Andrew Goodman, and James Chaney, the three young men (two white, one black) murdered that summer as they joined 1,000 students in trying to register blacks to vote.

It is Reverend Jackson’s view that it’s no longer about race in Mississippi. The good people of that state get along just fine, for the most part. It’s about economics. And that affects both blacks and whites.

Did you know that Mississippi is last in education — 49th or 50th — but that its powerful senator, Trent Lott, thwarts legislation that would help build and modernize Mississippi schools and fund more Mississippi teachers? That it’s the poorest state in the nation, but that Senator Lott opposed the hike in the minimum wage from $4.25 to $5.15 and opposed hikes in the earned-income tax credit for the working poor? (Mississippi does have a spectacular new air conditioned ultra-modern prison in Yazoo City — about the best prison facility money can buy — so you can’t accuse the state’s leaders of doing nothing for the people.) The good senator has every right to oppose these things and the Family Leave Act and all the rest. He has every right to associate with the white supremacist Council of Conservative Citizens (the CCC), a group that even the John Birch Society has disavowed, and to write articles for its newsletter. But it was Reverend Jackson’s point that the good people of Mississippi have every right not to reelect him.

The first odd thing is that the primary air carrier between Miami, Florida, and Meridian, Mississippi — a distinctly southeast route, if you ask me — is Northwest.

It is not a nonstop flight.

And I was actually going on from Meridian to Houston — and then back to Miami. So it was:

Miami – Memphis – Meridian – Memphis – Houston – Memphis – Miami.

I felt a little like a FedEx package: Memphis, Memphis, Memphis.

No Saturday stay-over, so the whole thing was going to be $1,050 in coach. I asked about first class — sometimes when you have a full-fare coach ticket, first class is just a little more because you’re already paying five times as much as the guy in the seat next to you — and somehow wound up with a $746 first class ticket for the whole trip.

Well, when I got to Meridian I had an exciting time (no, really) and then found at the last minute that I would not be going on to Houston after all. The reason for that part of my trip had been canceled.

When I arrived at the Northwest counter in Meridian, there were just minutes before our little DC-3 was to take off for Memphis. Its little propellers were whirring to beat the band. (OK, it was a Saab or something. But it did have propellers vaguely reminiscent of Casablanca, even if the avionics were a half century more modern.)

The desk agent did not look as if he could route me back to Miami instead of on to Houston in seven minutes, so I grabbed a Northwest schedule and read it on the plane.

We were to land in Memphis at 1:10. My Houston fight would leave at 1:55. There was a Miami flight at 1:45.

Cell phones are such wonderful things. Before you knew it, even as I was wheeling my bag along the tarmac off the DC-3 and up the stairs to the extreme far end of A-Concourse, I was connected to a Northwest reservationist.

YES there was a seat on the 1:45 to Miami! YES they could make the change!

Ah, brave new world. Ticketless travel, bags with wheels . . . the aforementioned cell phones — not to mention being able to fly in the first place.

The only catch was that I’d have to go to the ticket counter to have the fare recalculated.

“But,” I explained, clutching my cell phone as I rolled down the Concourse, “there’s no time.”

A supervisor was found. By now I had made my way from A-25 all the way to the hub of the terminal and was headed toward B-concourse. The supervisor agreed to take my extra payment over the phone.

Extra payment?

The cost of not flying to Houston, added to the cost of not flying back from Houston to Memphis — the cost, that is, of making this a simple Miami-Meridian roundtrip instead of Miami-Memphis-Meridian-Memphis-Houston-Memphis-Miami — would be an additional $796, she said.

“You are saying,” I found myself unable to resist paraphrasing, “that if you only have to fly me back to Miami right now — one flight instead of three — the cost of my first-class ticket will go up $796?”

“Yes,” she replied.

By now I was yards from the Northwest ticket counter, at the joint of Concourse A and Concourse B.

“OK, thanks,” I said, hanging up (as if cell phones ever hung anywhere — how will we ever explain “dialing” and “hanging up” to our grandchildren?).

Well, I thought, as I approached “Chip” at the counter, I can always just go to Houston and come back tomorrow. But that’s a strange way to save $796.

I handed Chip my ticket, asking to get one of those nice seats leaving for Miami in 19 minutes.

Chip said not one word. He clicked and clicked and tapped and clicked and — tap, tap, tap — he then left his post and walked … deliberately … all the way to the opposite end of the ticketing trench and then all the way back with some kind of form and a ballpoint pen. Something told me I was in Chip’s hands and should just keep my mouth shut. Chip was about twice as old as you might expect from his name; Chip seemed a wise and logical old hand; Chip was, I could see reading upside down, writing me out a refund.

With 13 minutes to go, I had a first class boarding pass to Miami (and no one in the seat next to me!) and a $155 refund. Not to mention the pretzels, peanuts and unlimited diet Pepsi that would constitute the First Class meal service on the normally-two-hour flight between Memphis and Miami.

I am usually the first one on the plane — indeed, the first one at the airport — so fast-walking down Concourse B to be the last one on board was a new experience for me. But as it turned out, I had more than enough time. There was a “very minor mechanical problem that would be fixed promptly.” After half an hour, we all got off that DC-9 and onto another just like it nearby. I didn’t mind. I was not running an hour late, as I saw it, I was running a day early — and with an empty seat next to me!

We boarded, we got our emergency instructions again (oh, so that’s how you fasten the seatbelt) and, finally, left the gate.

We taxied out, then turned around and taxied back. A faulty gauge on the instrument panel. But this problem was fixed pretty quickly (and still I was almost a full day early), and off we went without further adieu.

And this, as someone noted, is how it worked before Y2K.

Tomorrow: What the Heck Were You Doing in Mississippi?

Well, I’ve been busy! But if I can get these darn web controls to work, you should have three more chapters of Fire and Ice to read over the weekend (please be prepared to discuss Chapters 4-7 in class Monday morning), with more to follow soon (and Tulipmania not far behind).

Just go to BOOKS, above; then scroll down to Fire and Ice and click “excerpt.”