Author: A.T.

From Kim Ness: Enjoyed your comment about the crazies of the late ’70s/early ’80s. [The buy a gun and run for the hills crowd.] I would have been one of them, at least when it came to buying gold, but I’d just gotten out of school and had no job and no money.

Regarding Paul Volcker, while I have no personal opinion about his mental powers, I do know of a true story (published in the Reader’s Digest I believe, or maybe in the Orlando Sentinel) back in 1983 or 1984.

It seems that at that time one of the Senators from Florida was a woman named Paula ? (can’t remember her last name). She had gotten swept into the Senate by the Republican tsunami of 1980. At some point she and Mr. Volcker were at a function where Mr. Volcker spent a good amount of time explaining macro-economics to this senator, a lady with little economic or business background. During his monologue he kept hitting his head against a lowhanging chandelier. Finally Paula, a petite woman, had had enough of Mr. Volcker’s preaching and said, “Mr. Volcker, I may not know a lot about economics, but I do know that if I kept hitting my head against a chandelier I’d have enough sense to move.”

A.T.: Paul Volcker was a great public servant and a real American hero, in my view. But can’t you just see it?

The inflationary problems Volcker had to handle in the late ’70s, early ’80s were largely psychological. There could be more than a small element of that regarding the Year 2000 problem. Not to pay any attention to it could prove foolhardy; to pay too much attention could prove almost as scary. That’s why taking some very-likely-needless precautions early is a good idea. The more people feel prepared, the less likely they are to act irrationally or anti-socially.

Tomorrow: some very practical ideas from a friend in the Heartland.

My recent columns on the Year 2000 problem, in which I suggested we just might have a real problem, drew a lot of comment — much of it, as always, a lot more interesting than my own.

From a friend at the FDIC (the Federal Deposit Insurance Corporation): Did you notice the recent announcement from the Fed that it will increase cash reserves at its banks in ’99 in anticipation of greater demand for greenback withdrawals late in the year? I’d say that is a major wake up call to folks to do a little common sense preparation today.

I’m not a market timer, but I’ve already (back in May) moved the bulk of my retirement portfolios out of equities and into bonds and governments. I plan to dive back in to the stock market sometime in 2000 after either the dust clears, or it appears there is much to do about nothing. I figure at worst I’m trading potentially greater stock run-up for lower bond yields for 18 months, and in my “best case” I’ve conserved my principal and accrued gains of the last few years and can buy back into the market when stocks looks cheap again in 2000.

By the way, credit card servicers are busting their guts to get ready for Y2K. Many of them are not accepting, or delaying for 6 to 8 months, conversion accounts from other servicers. I’ve learned this from a recent bank failure that involves hundreds of millions of dollars in credit card portfolios. (The WSJ is working up an article about this failure as we speak.)

From Emmett Redd, Associate Professor in the Technology Department at Southwest Missouri State University (I had said that if the power went out, so might the ability to pump gas): Gasoline probably won’t be too hard to pump without electricity. On many pumps I am familiar with, just take off the side, loosen the belt between the electric motor and spin the pump by hand. Also, most of the tanks around here are above ground (to avoid groundwater contamination). Just shut the valve, “break” open the lines and gravity fill whatever container you have available. The store owner will like your bag of dimes better than the muzzle of your shotgun. 🙂

However, I have lived through enough ice storms where electricity has been out for 2 or 3 days for neighbors of mine. Even our house got cold after 16 hours without the forced air furnace. Therefore, I have always lived my adult life with at least two sources of heat, at least one of which does not require electricity. Wood has been a great primary source for over half of my life. But now my house has a propane heating stove (with a 300 gallon tank out back), baseboard electric (in case I forget to call the propane truck), and a kerosene heater (purchased back during the high fuel price days of 1985, but now used to keep the apple trees frost-free or to warm up the diesel tractor for starting when electricity is not available).

The advice for multiple heat sources applies for every winter here. And don’t forget Jan. 1, 2000 is likely to be cold.

Most of the rest of your list is fine, but Jan. 1, 2000 is too close to the solstice for a solar water heater. Just heat the water on a non-electricity dependent heater.

Y2K or not, the solar electric fence charger should (and is) keeping my cows in the pasture they are supposed to be in.

Be Prepared.

From Kevin Rasmussen: A pretty in-depth exploration of personal Y2K preparations can be found at: http://millennia-bcs.com/prep.htm

This is a part of the Cassandra project web site, which is a non-profit organization that discusses “Y2K and the Risks to Public Health and Safety.” It’s a neat source of information and anecdotes.

From John Wildenthal: There are a few verified examples of embedded chip failures. You might look at www.cv.nrao.edu/y2k/sighting.htm for some verified problems, including the valve at a UK nuclear plant (scram/failsafe in 20 seconds after Y2K).

Power generation (except for windmills, hydroelectric, and solar) is a process of boiling water-spinning turbines-cooling water, over and over. The fan problem you discussed is evidently not uncommon in automated water valves. DeJager’s Damocles site mentioned that in the context of a sewer plant until DeJager shut Damocles down.

A.T.: I’m not entirely certain what this means or who DeJager is. Damocles I knew in a previous life. (High school, that is.)

From Jonathan Hochman: No doubt there will be some Y2K disruptions. Last year we had an El Nino weather pattern. How many times did we hear about various problems that were caused by El Nino? Lots of people started joking that every little problem must be the fault of El Nino. Those inclined to ‘pass the buck’ will take advantage of the year 2000 to blame all sorts of failures and lapses on mysterious computer bugs.

Having spent a considerable number of years earning a computer science degree, I can give a quick lecture. Binary computers (virtually every device that people commonly call a computer) store numbers as 0’s and 1’s. Depending on how many switches (bits) are allocated to store a number, the number can range from 0-1 (1 bit), 0-3 (2 bits), 0-7 (3 bits), 0-15 (4 bits), and so on.

Some legacy programs, written in archaic languages like Cobol and Fortran, may show two digit years when they print or input dates. However, I see no reason why the programmers would have wasted their effort to program special arithmetic functions valid from only 0-99. In 1999, a year stored as an 8-bit number (0-255) will be stored in the computer as the binary equivalent of 99. When the computer adds one to the year, the computer’s 8-bit storage slot will contain the binary equivalent of 100. Maybe the computer will print ’00’, but in memory the date will still be valid for many arithmetic functions like adding, subtracting, and comparison. The program’s math and logic functions might continue to provide correct results for up to 155 years!

Recently the FAA determined that its non-Y2K-compliant air traffic control computers would fail in 2007 because they stored dates as (I think) 5-bit numbers, 0-31. Maybe the software was implemented in 1975, so 1975 was represented as zero. Failure is expected in 1975+32=2007.

I doubt that many essential devices care about the year. Clocks in computers count up from 0 to 2*2*2*2*2*2*…*2-1. The year 2000 is nothing special to them, because they use binary math, not decimal. They could ‘flip’ (like a car odometer) any time, depending on when they started counting, and how many binary digits they store.

Logically, we should expect old computer software and chips to produce unexpected date-dependent results from time to time, whenever the date exceeds its storage range. We probably have been experiencing these problems all along. In 2000, the biggest problem will be that various systems will print out funny dates, or fail to understand newly input information. However, it does not follow that math based on dates will fail to calculate properly. I very much doubt that the power grid will go down, or that digital toasters will suddenly start burning toast because they no longer know what time it is!

Please put the problem in perspective, and do not be deceived by those who stand to profit from high consulting fees to re-engineer old software. Anybody using such old software should probably replace it with a modern product. I recently bought Oracle stock (ORCL), because Oracle sells complete software packages for running many different kinds of businesses. Why fix the muffler on an old junker when something else is going to break next week? At some point its [sic] better to replace the whole car than to keep spending money on incremental repairs. Anybody in big business worried about Y2K can call Oracle and buy a sparkling new information system, free of Y2K bugs, much less costly to maintain, and providing all the latest features to enhance efficiency. (For small business, I suggest Peachtree Accounting, which is also Y2K compliant.)

A.T.: I hope Jonathan is right, as he well may be. It’s certainly true that a great way to solve many Y2K problems is to get a new system altogether. I’m told this is why many big companies have gone or are thinking of going to an SAP software system, a hugely elaborate but elegant accounting/inventory/everything system that works wonders. One small problem: The system takes about two years to install. Let’s see. What’s August 26, 1998 plus 24 months ….

From Jerome Payne: I read your article on Y2K today and I find it amazing that people are comparing this to a hurricane or a blizzard or an earthquake. When is the last time any of these events impacted the whole world at the same time (relatively speaking — 24 hours to be precise). There is a major difference between Y2K and any natural disaster we’ve faced to date — there won’t be the rest of the country/world to help dig us out of it, they’ll be digging themselves out.

Hope you will rethink the magnitude of this occurrence. The closest natural disaster this will be like would be for an asteroid 1-mile in diameter or so to impact the earth. The whole world would feel its impact — severely.

A.T.: I highly doubt it will be terrible, which is why I suggested there was an 80% chance 2000 would come and go with little more drama than Kohoutek’s comet. But it would be very foolish not to take simple, cost-effective precautions just in case. (Buying in bulk is a good idea anyway. Having an alternative energy source can be a good idea anyway, although it’s obviously not practical for everyone.)

More of your comments to follow.

PS – Thanks to Peter Yeates for pointing out that “Warren Buffet has sold his zero coupon bonds — see www.berkshirehathaway.com/qtrly/2ndqtr98.html Note 4.” What a nice little trade that was. Why didn’t I put $4 billion into long-term zeroes when long-term rates were in the 7% range? But if he’s out now, that may tell you something, too.

Correction: A penny stock I mentioned recently as being on the New York Stock Exchange, symbol CN, is actually traded on the considerably less prestigious American Stock Exchange. Sorry for the slip.

* * *

From Jarett Chaiken: “I just started investing a few months ago, and have been reading everything I can get my hands on to bring me up to speed, and I’ve found countless articles and books that tell me how to pick stocks, what to look for, and what to expect. What I haven’t found is anything telling me when I should sell. The best I can find is ‘Sell when the reasons that you bought are no longer valid.’ This seems unreasonable to me. If I follow that line of reasoning, the day I don’t want to buy it anymore I should sell. Once I decide to buy a stock, I want to have a solid exit strategy; and if I can’t come up with one, then maybe I should re-evaluate why I wanted to buy it in the first place.

“To pick on one of your favorites [Jarett is being wry here], I’ve heard plenty of people tell me to buy Amazon shares because they keep going up and don’t show signs of stopping (Why? I’ll never know) but then, when do I get out? The same time everyone else discovers that it’s overvalued and sell at a loss?

“I’m not expecting any ironclad guarantee to make money, but if I lose a money I’d like it to be because of my bad judgement in planning rather than my failing to plan.”

A.T.: It is, of course, an excellent question, especially because traditional Wall Street analysts are much quicker to recommend buying a stock than selling it. (Analysts want management to answer the phone next time they call; Wall Street firms sometimes hope for underwriting business from the firms they write reports about.)

There’s a book called When to Sell by Justin Mamis (most recent update: 1994) you might want to check out. But (absent the effect of taxes) the answer is to sell any stocks you don’t strongly feel you should own – based on solid fundamentals, not voodoo: They pay a high dividend (which almost none do these days) or they are selling cheap relative to their assets and/or their earnings and growth prospects.

Look, you can get an absolutely safe “stock” that currently “grows” at 5% a year with no chance of loss – short/intermediate-term U.S. Treasury bonds. So for you to take the considerable risk of tying up your money and/or losing 80% of it (or even 100%) on a stock, you need to really believe you have some understanding of why it’s worth taking that risk.

The famous Warren Buffett avoids high-tech stocks because he doesn’t understand them. This may be good advice for the rest of us as well. (If you ever felt that, as a group, they had unreasonably fallen into disfavor, you might certainly buy them as a group, not trying to divine which will be the winners. Either construct a little portfolio, or buy one of the high-tech “sector funds” where, for a fee, experts will choose the specific stocks for you.)

If you’re a techie and have good reason to believe in the management and/or products-in-the-pipeline at a firm you know well (a supplier? a competitor?) but that is undiscovered as yet on Wall Street … well, that would be a good reason to buy its shares.

If you find a stock yielding 6% versus the Treasury’s mere 5% … and you think, based on your research, earnings (and thus, some day, dividends) are more likely to go up than down … then THAT could be a good reason to pass up a certain 5% in favor of 6%.

Indeed, even a stock that pays no dividend, or just a small one, could be a great and compelling buy if it were selling at a low multiple of its current or future realistic earnings.

But ultimately, despite long periods of musical-chairs markets and euphoric markets (and, for that matter, sinking-ship markets and overly-despairing markets), stock prices will be determined by assets and after-tax earnings potential (and by the level of interest rates on competing investments like bonds).

So, yes, you might want to re-evaluate the stocks you’ve bought. And don’t feel like an idiot if you can’t find compelling reasons to give up the safety of 5%. There’s no rush. Work at it long enough (and/or let the market drop far enough, if that’s what happens), and you’ll find lots of them.

Of course, the other way to approach this is simply to put a steady monthly sum into two or three no-load, low-expense index funds (or equivalent “stocks” like SPY, MDY, DIA and WEBS), and never sell until, decades from now, you actually need the money. (Well, you’d start selling some years before you need the money … money you really need within the next 4-5 years should not be in the stock market, especially at times like now, when it’s still near it’s all-time high, both in absolute terms and in terms of price/earnings ratios and the rest.)

Long-term success in the market most often comes from buying shares in good companies, not so much because you think they will go up (though that’s the ultimate goal) as because you want to own a piece of the business and profit from its long-term success, getting a piece of the profit each year and, in most years, seeing that profit grow. It is not dumb to hold some shares for the better part of a lifetime, as Buffett has held GEICO and the Washington Post Company and others, especially in taxable accounts. It is dumb to sell too often, taking lots of taxable gains, because the taxes will greatly diminish your long-term success. (This is another reason “index” funds and instruments fare relatively well; they generally do little selling, and thus generally keep the tax bite low.) That said, if you hold a stock that seems to be gripped by craziness and euphoria, as Avon was in the early ’70s at 140 a share (decent company though it was and remains), or whose long-term prospects do not seem bright, it doesn’t make sense to hold on just to avoid taxes. (Though the company continued to do reasonably well, Avon stock dropped 87% in two years before bottoming out and beginning a very gradual recovery.)

In sum: “When to sell” is an agonizing question to which my answers are as unhelpful as everyone else’s – but a question you are right to consider even before you buy.

So I went to Amazon.com to check out my book, just to make sure it’s still there, and carelessly typed My Vaswt Fortune. Amazon replied it was unable to find an exact match but that (through the magic of artificial intelligence and truly awesome computing power) it had come up with three “close matches for this search;” namely,

• Don’t Pee on My Leg and Tell Me It’s Raining: America’s Toughest Family Court Judge Speaks Out by Judy Sheindlin and Josh Getlin
• My Year of Meats by Ruth L. Ozeki
• Light My Fire: My Life With the Doors by Ray Manzarek

Okay, they weren’t precisely “My Vast Fortune,” but you’ve got to admit they came pretty darn close.

Which leads me to think that a few things may indeed go wrong on January 1, 2000, as we’ve been discussing — computers are so literal and, in that sense, can seem so stupid! All three titles had the word “My” in them, and they appeared within seconds of my request. And I’ll admit to being intrigued by all three, or at least the first and the third. (The Doors were so cool, and how can you resist a folksy family-court hanging judge?) But come on: How close are these titles really to the one I entered?

Are nearly 100% of the computers and embedded processors in the world really going to do OK when the date appears to be 1900 but any idiot can see that obviously what we meant to say was 2000?

But enough gloom and doom.

Let’s get back to my running obsession with the now $6+ billion Amazon.com.

My first mistake was in analyzing it as a book company. Clearly, it’s got enough of a head start and, by now, brand recognition, to be one of what may ultimately be just a handful of prime retailing Internet portals. You’d arrive, click the category of item you are after — books, movies, software, music, eyewear, consumer electronics, jewelry … and click to add items to your shopping cart. What might have taken half a day before can be done in 15 minutes, with no need to drive through the rain or snow, park, wait at a checkout line … it really will be a brave new world. Ordinarily, you can save time or you can save money. With Internet shopping, we save both. Indeed, America (and the rest of the world) will become more efficient, and with that, more prosperous.

At the same time, $6+ billion doesn’t seem cheap for this stock (50 million shares, plus options, at approximately $125 or $130 each), because the barriers to entry are relatively low, and everyone in the world is going to try to do the same thing.

So I keep coming back to FedEx. You can’t buy shares in UPS or the Postal Service, which will be the other way Amazon and its competitors will deliver all the products you used to carry home with you in a shopping bag. But you can buy shares in FedEx. FedEx has a pretty well-established/well-regarded brand also, and unlike Amazon.com, the barriers to entry in FedEx’s business are very high. First, for example, you need to buy or lease a fleet of aircraft and trucks.

So I’ve been long FedEx even longer than I’ve been short Amazon.com. And while I think I may have blundered with Amazon — certainly I blundered by shorting it too soon, and I may have blundered by shorting it at all — it seems to me in the long run that FedEx is a better buy than Amazon. It sells at around $51 currently, with a book value per share of $26. Amazon sells at more than twice the price and has a book value of 41 cents. FedEx earned $3.37 a share last year; Amazon lost $1.03. FedEx had sales of about $108 per share and so sells at about one-half times sales. Amazon had sales of $6.50 a share and so sells at nearly 20 times sales.

None of this is to suggest I am comparing apples to apples. Amazon is still very much at the start-up phase of its trajectory. But here’s my point. If Amazon and/or its eventual competition are as successful as the market expects them to be, won’t sales of FedEx, UPS and the USPS boom too? And isn’t FedEx the premium brand among those three? So won’t FedEx likely grow nicely along with Internet retailing? Someday, some music and books and software will be delivered electronically, I suppose, which will mean that many fewer packages. But it will be a cold day in July before ski parkas and gourmet pretzels and contact lenses can stream into your home through a fiber optic cable.

So given the choice between FedEx at twice book and 15 times earnings and Amazon at 300 times book and 20 times sales, I opt for FedEx. Given the choice between Amazon, up tenfold from its low of the past year, and FedEx, at its low for the year (down from its high of $84), I would buy FedEx. If someone gave me a chance to buy all of FedEx for $7.5 billion (its approximate current market valuation) or all of Amazon for $6.5 billion, I think I’d call a couple of friends to pull together the extra billion and go for FedEx.

Rising interest rates and fuel prices, if they ever do rise again, will hurt FedEx, as will union demands. And surely Amazon and the others will get FedEx, UPS and USPS bidding fiercely against each other. (Oh, yes — and Airborne.) But won’t margins be at least as thin on the selling side? Indeed, if we are disintermediating middlemen, might FedEx someday offer its own Web site? And allow any FedEx customer — any publisher, any clothing manufacturer, any pretzel maker — to include its offerings online? At which point you might not need Amazon at all. Rather than Amazon’s feeding shipping instructions to FedEx, you’d just order from FedEx in the first place. It would probably be harder for Amazon.com to replicate a global shipping company than for FedEx to start a subsidiary that did what Amazon does.

One thing for sure: However this plays out for investors, it’s likely to play out very nicely indeed for consumers. It already is. Want a movie? Just visit www.reel.com and — bang — there it is. And cheap. Soon, I have no doubt, you’ll be able to do the same thing with Amazon.com.

Here I thought I had solved half your Christmas shopping needs and helped do a good turn for the world, and now it turns out all I’ve done is provide a stocking stuffer. Still, here’s the deal. It’s a book called The Plot Thickens, the brainchild of mystery writer Mary Higgins Clark. She asked 11 others to join her and write a short story for this book. The only ground rule: The story they wrote had to include a thick book, a thick fog, and a thick steak.

The stories they came up with are marvelous.

Why would these hot-selling authors agree to apply their talents for free? Simple. There are something like 40 million adult Americans who can’t read. Royalties from the book go to Literacy Partners, which runs an adult literacy program.

Frankly, I didn’t expect much when they sent me the book. But what fun! One story for each of the 12 days of Christmas. Or 1.5 stories for each of the 8 nights of Hanukkah. (The Jewish kids always did seem to have more homework.) The writing is really sharp.

So I figured: Buy half a dozen of these from one of the online bookstores at 30% off, and you have half a dozen of your holiday shopping problems solved months in advance. Not your Major Gifts, to be sure, but your boss? your secretary? your friendly next-door neighbors? Only problem: the hardcover seems to have been replaced by an inexpensive mass market paperback edition. This makes a considerably less impressive gift, but a great stocking stuffer.

Why am I telling you all this now, in August? Because (a) Christmas is around the corner, (b) it makes me feel so smug — and relaxed — to get all this stuff wrapped up well in advance, (c) it will give you plenty of time to read one copy yourself — maybe even over Labor Day weekend.

Yesterday I did the best I could, as a layman who understands this stuff not nearly as well as many of my readers, to persuade you to think — and act — now to prepare for the Year 2000.

Think of it as a hurricane with just a 20% chance of hitting. But potentially a very big hurricane. What would you do? Just take your chances that it will veer off into the ocean?

At its worst (which I am not predicting), imagine how you’d cope without electricity for a few weeks. This would also mean no elevators, no computers, no TV, possibly no gasoline (it’s pumped), no purified water, no ATMs.

You might want:

1. A lot of canned food and a manual can opener.
2. A lot of bottled water and canned or bottled beverages.
3. An electric generator and some very carefully and safely-stored gasoline.
4. A lot of matches and candles and Sterno and maybe Duraflame logs, depending on where you live.
5. Some hand-crank-powered radio/flashlights (and solar-powered radios).
6. A solar water heater.
7. A lot of toiletries, paper goods, and, especially, any of the medications you normally take or might need. (Check with your doctor or pharmacist for expiration dates, and keep the appropriate ones refrigerated to extend their shelf life.)
8. A good bike and a pump to inflate the tires.
9. Some cash, and perhaps a bag or three of silver dimes (dimes minted before 1965, or thereabouts, when dimes were made of silver).
10. Printed records of all your important computer files.

I’ve always dreamed of an exercise bike that would power a generator and recharge a big battery. I’ve even written letters over the years suggesting it to some of the mail-order firms. Has anyone seen such a thing? You’d eat your canned food, pedal off the calories, recharge the batteries, and get that computer up and running after all. (And what about mini-versions for the hamster?)

The time to begin listing this stuff, and acquiring it and finding a cool place to store it, is now. A year from now, let alone December 1999, some of it could be harder to come by.

Let’s assume there’s an 80% chance the Year 2000 hurricane will pass us by entirely. Not even a blip or a recession. Still, it makes sense to be prepared. Especially inasmuch as this hurricane, if it hit, would be global. You couldn’t necessarily expect help to come flooding in from the neighboring county, because the neighboring county could well be in the same boat.

There is a small but real chance our lives will be considerably disrupted January 1, 2000.

The purpose of this comment is not to alarm you or to join the ranks of perennial gloom-sayers. It was great sport making fun of them in the late 1970’s and early 1980’s. These were the folks who insisted inflation could not be reined back in without a total collapse of the economy, that a well diversified investment strategy consisted of a home in the woods with a gun, some gold coins, and a year’s supply of trail mix. Not to say things couldn’t have spiraled out of control back then … just that these folks seemed so sure that the “morons” in responsible positions did not grasp the problem and would almost surely not do sensible things to solve it. That’s where my naïve optimism paid off: I didn’t think the Volckers of the world (Paul Volcker: then head of the Federal Reserve) were remotely morons. I thought that when push came to shove, they would shove back as needed. It is this same naïve optimism that leads me to hope that Japanese leaders will act in the nick of time (they need, for starters, to cut way back on their tax rates, nationalize some of their banks, and “open the books” to more transparent accounting), thus to avert an even much worse Asian crisis that could easily become a world crisis.

One cannot be sure of such things, which is why one hedges one’s bets. (Note that Warren Buffett, no market timer, has nonetheless bought billions of dollars in zero-coupon, long-term U.S. Treasury bonds and millions of ounces of silver. I am not recommending either of those for mere mortals like us — for one thing, the price of those zeroes has gone way up since he bought them. But I do know that money you might need in the next five years belongs in the bank, not the stock market.)

But the Year 2000 problem is different. The Y2K problem can’t be solved by getting the powers-that-be to adopt sensible policies. Yes, part of the problem could be one of leadership and psychology — if people panic, panic alone will cause a financial calamity that could otherwise be avoided. So we need to count on our leaders to avert that — and I think they will. But part of the problem is simple nuts and bolts. For one thing, January 1, 2000 arrives in 501 days and cannot be put off. Can you think of another such crisis? Not counting the precise arrival time of an incoming comet? Any Y2K problems prior to that date will be primarily psychological in nature (The comet is coming! The comet is coming!), and thus avoidable. But any problems from that date on — well, they would be real.

Which is why companies and governments are spending billions and billions and billions of dollars to fix the problem … which is why, in turn, most of us assume it will be a minor annoyance at most … which is why we could be caught unprepared … which is why I’m writing this column now rather than, say, next summer.

The Y2K problem will probably be a minor annoyance to most of us, but it could quite possibly be a huge mess.

The biggest worry is what we’d do if the power went out. Which means, I think, that gasoline would soon go out, too, since gas stations run on electric power. No light, no heat, no refrigerator, no elevator, no computer … if it lasted just a few hours, as after a bad storm, it would be no big deal. But longer?

Probably this won’t happen, but it’s pretty hard to be absolutely certain. A friend of mine who I can say without a trace of modesty is much smarter than I am, long ago founded an institute to consider such nuts-and-bolts planetary problems. He is concerned about embedded processors. These little items are buried in things like the railway system. They took the place of the guy who would go out and manually switch tracks at the appropriate time, so trains careening through a junction headed in the right direction. So what if 2% or 5% of these embedded processors have a Year 2000 problem and, because they think it’s 1900, fail to switch properly? How long would it take to locate them all (they’re embedded! buried!) and replace the ones that need fixing? And in the meantime, he asks, how would things like food replenish your supermarket shelves?

Somewhere else I read about the problem — I hope it’s a myth — of an ancient piece of software that tells old computer fans when to go on and off. It naturally wouldn’t affect your Compaq. But what of some of the old mainframes? Everything else is working perfectly, according to this disaster tale, except this virtually prehistoric little bit of code controlling the fan. The fan does not go on (the code thinks it should wait 100 years before 20 minutes will have passed since the last time it went on), the computer overheats and goes down, and whatever it is controlling — the air traffic control system, your Social Security check — goes down with it.

I do not remotely have the competence to assess the reality of these kinds of threats. I know they’re real, or companies wouldn’t be spending hundreds of billions of dollars to try to deal with them. I know they’re real, also, because people like my friend the institute-founder do have the competence to assess these things and do not believe 100% of the Y2K problems around the world can be solved by midnight on December 31, 1999. And I know they’re real because the world is sufficiently interconnected that a problem in Japan or Italy can easily cause a problem in your home town. A score of 95% is an A in high school but would leave 5% of the Y2K software glitches undetected. Depending on what they were, these glitches could cause tremendous problems.

So the comet is coming, and now, when nobody’s panicking, is the time to do our emergency-preparedness stuff. Because the paradox is that if we do all prepare for food shortages and panic-in-the-streets, there won’t be food shortages or panic in the streets. But if we don’t, there just might.

Tomorrow: A Shopping List

But first a joke. (Surely it’s high time for another joke.) This one came a long while back from Dr. Steven Rubin, so inspired was he by the Jewish parrot joke. But I didn’t want to push my luck, so I’ve been holding onto it for a while.

An elderly priest invited a young rabbi over for dinner. During the meal, the young rabbi couldn’t help noticing how attractive and shapely the housekeeper was. Over the course of the evening, he began to wonder if there might be more between the elderly priest and the housekeeper than met the eye. Reading the young rabbi’s thoughts, the elderly priest volunteered, “I know what you must be thinking, but I assure you my relationship with my housekeeper is purely professional.”

About a week later the housekeeper came to the elderly priest and said, “Father, ever since your young rabbi friend came to dinner, I’ve been unable to find the beautiful sterling silver gravy ladle. You don’t suppose he took it, do you?” The priest said, “Well, I doubt it, but I’ll write him a letter just to be sure.” So he sat down and wrote:

“Dear Rabbi: I’m not saying that you DID take a sterling silver gravy ladle from my house, and I’m not saying you DIDN’T take it. But the fact remains that one has been missing ever since you were here.”

Several days later, a letter came from the rabbi. It read: “Dear Father: I’m not saying that you DO sleep with your housekeeper, and I’m not saying that you DON’T sleep with your housekeeper. But the fact remains that if you were sleeping in your own bed, you would have found the gravy ladle by now.”

Tomorrow: Getting Ready for 2000

From Billy Cravens: “I would like to get started in buying small stocks and I know very little and would like to make enough small gains on my investments and I would like your advice. The amount I was intending to start out with was around $500 to $1500 and I really need some help. P.S. I also have a 401k account and I realize the importance of long term investments so any help is appreciated.”

Good for you for wanting to start. I don’t want to discourage that. And the time to lose a portion of your money through inexperience is when you don’t have much – so that’s good, too.

Still, you’re about to sit down at a table with some very smart, very aggressive players. And it turns out even they have an all but impossible time racking up 20% a year after tax, on average (most will average more like 6% to 12% over long periods of time).

So we’re talking about growing your $500 to $600 – maybe – a year or two from now.

What’s my point? Two points:

1. It’s far more important that you simply get into the habit of saving/investing money periodically from now on … that WILL make you rich, or at least comfortable … than that you try to find a way to make a lot of small (taxable) gains by playing the market against the pros with your $500. Find a stock you really believe in and hold it for the long term. And keep putting aside whatever you can each month or quarter or year to add to your investment portfolio. You’re already doing that with your 401(k), which is great.

2. If you can find the time, and if I may be so presumptuous, go to the library or bookstore and read The Only Investment Guide You’ll Ever Need. It was written for you.

From Jin Hee Park: “I am interested in opening an IRA for my parents. After reading your article, I have learned that the Roth IRA is probably not a good one for my parents, especially my father. He is 58 and has no savings or retirement plan. I think he may retire in about 10 years. He doesn’t make much money, but needs a plan that will produce growth in a pretty conservative manner in the 10 year period. What type do you suggest? Please write me soon. I would like to start his plan as soon as possible.”

I may be missing something, but it sounds to me as if a Roth IRA would be fine for your father. You say his income is modest, so he loses little by not getting the tax deduction of a regular IRA – yet he will never have to pay tax on the withdrawals. So as between a regular and a Roth IRA, the Roth would seem to me to make more sense.

The next question is how to get “conservative growth.”

Big question. It depends on how conservative you feel you need to be. Bear in mind that though he may retire in 10 years, we hope your dad will live for 40 years – or certainly 20 or 25 years if he’s in normal health. So in that sense, you have more than a 10-year time horizon. If you bought stocks or mutual funds that were depressed 10 years from now, nothing would force you to sell them all the day he retired.

There are a million possibilities. Here’s just one: Open a Roth IRA for each of your parents at a deep discount broker. Put the full $2,000 a year into each one each year, if possible $4,000 a year. Put $1,000 of it each year in SPY – “spiders,” as they are commonly known, which will more or less mimic the performance of the Standard & Poor’s 500 … $1,000 a year in MDY, which is the same thing, only for the S&P MidCap 400 … and split the remaining $2,000 a year among three or four WEBS – these are like index funds for various countries. My hope/guess is that some of these countries will still be here 10 and 20 years from now, despite their current problems, and we may actually look back and think their stock markets were unreasonably depressed in 1998. (If they crater further, as they well may, you’d just buy more in 1999. One day, I think, they’ll turn back up. But you never know.)

Or just put it all in Intel and hope for the best.

A really conservative and not entirely idiotic strategy, though, is to start your fund someplace really safe and convenient, like the local bank, and just let it grow there, at least at first. Your parents probably won’t have as much money over the long run, but they will have the security of knowing where it is and that it will not go down in value.

As I say, though, there are a million possibilities and no single “right one.” Good luck.