The Pendulum Shifts April 28, 1998March 25, 2012 The Dow has about quadrupled in the last eight or nine years. The Nikkei Dow has been cut by almost two-thirds. A dollar in the Dow is now $4. A dollar in the Nikkei is now about 40 cents. There’s been, therefore, about a tenfold shift U.S. stocks are now about ten times as expensive relative to Japanese stocks as they once were. Of course, Japanese stocks were wildly and I mean wildly overpriced back then, when the Nikkei peaked at 40,000. A lot of the decline was warranted. Indeed, maybe it is still overvalued. But a tenfold relative shift is pretty big. Maybe Japan, which a decade ago appeared poised to rule the global economy, is not entirely done for. (Have you seen that amazing new handheld Sony video camera? The new 1.2-mile suspension bridge they just built that dwarfs by a factor of four our own Brooklyn Bridge?) And maybe the U.S. which now appears to own the next millennium lock, stock, and barrel could face competition. (Did you see the report recently on CBS that 80% of our high school kids now readily admit to cheating? Something like that. It was probably overblown, but awfully depressing.) I had to laugh when, at the height of the Japanese insanity, they began making 100-year mortgage loans. (Truly they did!) Today I see that here in the U.S., mortgage loans remain limited, so far as I know, to 30 years but some lenders are advertising loans on up to 150% of the value of your home. I’m not saying the U.S. stock market, though it sure seems overvalued, is remotely as overvalued as Japan was. (And for all I know, those 150% mortgages are only granted to people with trust funds. I haven’t researched the offers yet.) Still, a tenfold shift in relative values is enough to get my attention. If 100% of your stock-market money is in U.S. stocks and none in Asia … or if you’re in the stock market on margin (or in the stock market but still have a car loan, say, which amounts to much the same thing) … maybe it’s a good time to reconsider your strategy.
To Claim or Not to Claim April 27, 1998March 25, 2012 You’ve got a policy with a $500 deductible, say, and you’ve just suffered an $800 loss. Any elementary school student can tell you that your net insurance recovery will therefore be … zero, if you’re smart. Why? Because the smart thing ordinarily would be not to make a claim. In the first place, you spare yourself the hassle. But mainly, you forego the possibility of losing your status as a preferred risk. Regulations vary from state to state, and policies for dealing with such situations vary from insurer to insurer … so it may sometimes be fine to file such a claim. But it is a statistical fact that people who file a claim are more likely to file another one than people who haven’t so insurers prefer customers who don’t file claims. Clearly, it’s a matter of judgment. If you had a $500 deductible and a $520 loss, you surely wouldn’t file the claim. (Would you?) If you had a $500 deductible and a $6,000 loss, you almost surely would. (Wouldn’t you?) Where do you draw the line? Your agent can give you good advice in this regard, if you buy auto insurance through an agent; and you may even get some helpful advice from your insurer’s phone reps if you buy insurance direct. But this is one more reason to take large deductibles. The first reason: Why pay someone to take a risk you could afford to take yourself? Over a lifetime of self-insuring for such small risks, you’ll get to keep all the money that would otherwise go to insurance company overhead and profit. The second reason: It’s less hassle not to have to involve an insurer in the small stuff. The third reason: Why pay for coverage you might not even use in the first place?
Bogus Bogie April 24, 1998February 5, 2017 Have you seen that PBS show they seem to run over and over where ordinary people have brought in an old duck decoy or weathervane they had up in the attic, and the Professional Appraiser tells them all the background on it they didn’t know … and the suspense is building … and somehow they even know the likely craftsman who made it, and that he was the great Nephew of Paul Revere or something … and the suspense is building … and then, finally, they reveal that this $15 flea market purchase would probably fetch at auction … the suspense is unbearable … about $4,500 to $6,500. Have you seen that show? I’ve never seen it from the beginning, so I am not clear on who or what it all is, really. But it seems to be aired a lot. Well, this column is, sadly, sort of the opposite of all that. It concerns a lovely woman who has an amazing trove of celebrity letters spanning decades, from the days when she and her late husband knew everybody. Many are just thank-you notes, some are gossip, but the crown jewel in the collection is a letter from Humphrey Bogart in 1954 saying some witty and earthy things I cannot repeat on a family web site. She sent me a copy, knowing I might be interested in purchasing it. “That’s a cool letter,” said the Beverly Hills expert I read it to over the phone, wondering what he thought it might be worth. “Well, whatever anyone wants to pay for it — it’s really kind of priceless. Bogart is very big.” “Yeah?” Enough with the suspense-building. “What would you pay for it?” I asked. “If I were in the right mood and I saw it someplace for $5,000, I’d buy it,” he said. Which means he would then turn around and put it in his catalog for $10,000, or perhaps just call a client, offer it for $8,000, and take $6,500 — very likely receiving the $6,500, over the phone, on a credit card, even before paying the $5,000 to buy it. A very quick $1,500 return on a zero investment. Of course, he has rent, overhead, staff … Anyway, that’s how the business works, and $5,000 seemed about the right ballpark to me, also. But then I mentioned the letter was typewritten — which was so obvious to me, since I was looking right at it, that I had forgotten to tell him, whereas he had been assuming it was handwritten, as the three excellent Bogie’s he’d previously sold me over the years were. That changed his tone real fast. He said if it was typed, it was almost surely dictated to his secretary — and that she signed most of his letters FOR him. I faxed him a copy, and he said it was her “Bogie,” not his — and consequently, in his mind, the letter was of essentially no value. “Five hundred?” I asked him. “Not even that,” he said. “Nothing, really.” This ended my interest in the letter. For the seller’s sake, I hope my expert is wrong. But it would appear this $6,500 early American duck may be just a $15 flea-market quacker. (Then again — like some stocks I know — it’s worth whatever anyone will pay for it, and not everyone would think to question the signature. The letter itself is clearly real.) The three handwritten Bogart letters I’ve bought are: A short note to his press agent, Ken, handwritten, witty content. An angry 3-page handwritten to Jack Warner. A wonderful little handwritten note to actor Clifton Webb asking to borrow $200 so Mary and he — then aged 39, yet still no star — could pay the rent. I like to think they’re all “right as rain,” as they say. But even then there are risks. A couple of years ago, the first of the three was stolen right off my wall. Buyer beware.
Of Telemarketers and Wallets April 23, 1998February 5, 2017 IN RE TELEMARKETERS: From Dan Saul: “I found your article on sales calls today very funny. After you are done seeing how long you can talk to the salesperson, however, there are a couple steps you can take to help decrease future calls. “First, register for the do-not-call file of the Direct Marketing Association by sending your name, address and phone number to the: Telephone Preference Service Direct Marketing Association P. O. Box 9014 Farmingdale, NY 11735-9014 “The list, which is available only for residential phone numbers, is updated four times a year and lets marketers know that you don’t want to be called. Once you register, your name will be kept on the list for five years. Unfortunately, however, telemarketers don’t need to check or honor this list. “Second, if you still do get a call, notify the representative that you do not wish to receive any future telephone solicitations. By federal law the company must honor that request. Some states have stricter laws, so people who really want to stop phone calls should check with their local consumer authority. “Hopefully these actions will free up your phone for calls from Elvis.” A.T.: Thanks, Dan! (People have told me this really does cut down on the calls.) From a dozen others: “What I do, when I get one of these calls, is ask the rep for her home phone number, and a convenient time for me to call her back.” A dozen others thank the rep for calling and immediately launch into a pitch for your product or charity. IN RE PHOTOCOPYING THE CONTENTS OF YOUR WALLET: From Winnie, Texas: “Our daughter is a freshman at Vassar College, a long way from Winnie, Texas, where her family lives. She lost her wallet several weeks ago, and we thought we had given her all the correct advice (cancel credit cards, call Social Security, etc.). But were we surprised when she received a letter from Blockbuster Video telling her she owed late fees of over $130! She argued them down to only paying $17 for the missing movie, but your advice is well taken. Who would remember little things like Video rental cards, when big things like American Express and Visa are uppermost in your memory of things to cancel?” From Skip Eby: “I believe one key to a happy life is keeping things simple (the old KISS philosophy). One aspect of this is not keeping a lot of miscellaneous credit cards, etc. in my wallet. I find I get by quite nicely carrying only my drivers license, one credit card, commuter rail pass, and a telephone calling card in my wallet, along with a daily supply of cash. Copying the contents is a good idea, but combined with simplicity, even better.”
More Car Talk April 22, 1998February 5, 2017 AUTO-BY-TEL IS A DELIGHT From Robert Walker: “I had to comment on www.Auto-by-Tel.com after your recent less than glowing commentary. Last year I bought a new car through Auto-by-Tel, and it was an unalloyed delight. I filled out the online form specifying the car I wanted and sent if off. A few days later I received a call from a local dealer. They didn’t have what I wanted in stock, but after chatting a bit I decided to order it from the factory; at less than MSRP [manufacturer’s suggested retail price] naturally. Off went my deposit check, and a couple of months later I received the call that my new car was at the dealership. The dealership was not convenient for me to visit, so for a modest fee they offered to drive it to my workplace. I carpooled to work that day, then wandered downstairs at lunch to sign some papers and a check, and to see my new car. Drove it home that evening, never having met the dealer or set foot in a showroom. The only surprise was that on the day of delivery they announced that they were giving me a $750 rebate. No doubt a bargain-hunter could find a better deal, but for those of us who don’t care for the chase, Auto-by-Tel is a joy.” BUT NOT FOR EVERYONE From Brad Sandman: “I tried Auto-by-Tel in ’96 when I was shopping for a new vehicle. I got called by a dealer, and visited the lot. They didn’t do anything differently from dealers I visited on my own. They even tried to explain how those Internet prices are not accurate. I complained to Auto-by-Tel, but never heard back. “I took my www.edmunds.com prices to another dealer, and they refused to admit that my prices were accurate. I walked out when they wouldn’t let me talk to a manager. It didn’t stop them from calling to make the same lousy offer. I did find a dealer who would come close to the Edmunds price, but they didn’t even want to discuss my trade-in. “I ended up using a service here in the Bay Area — 800-CAR-CLUB. For a $50 fee, they guaranteed to beat my best price by more than the cost of their service. In addition, they put my old car into the wholesaler network so I would be contacted with book-price offers. Sure enough, they found a dealer to sell me the new car I wanted for a few hundred less than my best haggling. Even better, I got four or five offers (sight unseen) for my used car from wholesalers for $5500 — about $1500 better than any dealer offered as a trade-in. “I ended up selling my old car for $6400 by advertising for free in www.classifieds2000.com, but it was nice to know I could have bettered the dealer trade-in with no effort. One of the wholesalers told me that the dealers ALWAYS profit on trade-ins, because they turn around and sell them to the wholesalers for book price. “I strongly urge people never to trade in a used car at the dealership — you may be tired of the old car, but it’s still your money. I guess if the car really is worth nothing, then the token offer from the dealer is better. But they almost always jack up the cost of the new car to compensate. No free lunch. “I ended up taking a loan from my credit union for the balance of the new car at a full point less than the interest rate at my normal bank. Plus, I’ll pay it off early to minimize the total interest I’ll pay. “Overall, I found that the best use of the Internet was the information available to consumers. My advice to new car buyers: know the prices, deal on the total cost of the new vehicle (not the payments or financing), and sell your old car yourself.” From Ralph East: “I really felt enthusiastic going into the A-B-T program and came out VERY dissatisfied. Let the buyer beware. I believe an in-person visit heavy on negotiation will produce the best price. If you want convenience and the euphoria of a few key strokes to buy your car, then convince yourself of the A-B-T system being to your advantage.” From Curtis Allen: “Your column struck two familiar notes with me. First, a bad experience with an Auto-By-Tel (ABT) dealer. We were shopping for a new Chrysler Town and Country LXi 2 years ago when I decided to try ABT. Worse than getting a lame call back from the dealer, I got NO call back. I received an email confirmation that my request was forwarded. Several attempts to contact the dealer by email and phone stirred no interest. I’m convinced that the ABT dealer had little or no incentive to sell a popular model to an ABT lead at a low profit price when he knows that auto will sell easily itself. “Well, we finally bought that Chrysler somewhere else. We did not choose the extended warranty. We have had numerous trips back to the dealer for a variety of repairs; transmission leaks (twice), water pump (left me stranded on Xmas eve), break handle and a door handle. We looked into the lemon law, but here in PA we were past the time limit for that to help. My wife finally got so disgusted that she wrote a scathing letter and sent it off to about a half dozen Chrysler corporate execs (names and addresses found on the Internet). The letter described, in detail, every repair, dates and where it was done. About 2 weeks later we got a response from a VP of customer service. Chrysler offered us an extended warranty at no charge. I’d call that a success.” A.T.: I’m impressed. From GK: “In your March 17 column, you responded to a women who wrote: I clicked the ad, searched for my old make and model, and found a deal (basically 1/2 the miles, 50K versus 95K, at a 10% premium over my insurance payment for the totaled car). “You wrote: ‘Couldn’t have said it better myself … except that I typically buy used cars, not new.’ “Andy, it sure sounds to me like that 50,000 mile car she bought probably was used; somewhere in being driven 50,000 miles the ‘newness’ usually wears off.” A.T.: Good point. I must be losing my mind.
Big-Time Research April 21, 1998February 5, 2017 From Hal Felman: “Your column was right on about what the little guy gets from the brokerage house. A couple of years ago I was persuaded to switch my account from a discount house to a larger New York brokerage when my account exec moved from the discount brokerage to the new firm. I was promised great results based on the superior research at the new firm for which (I was told) large institutions paid big bucks. I questioned the research I would get for free when somebody else was paying huge sums for it. I can’t remember how I was convinced, but I fell for it. Without going into details, I was given recommendations to buy or sell six or seven stocks, not all of which I followed. Of three I bought, I am still in the hole despite the rising market. Two I was told to buy, but didn’t, have gone South. The recommendation to sell, which I didn’t follow, has gone up another 10 points. So much for ‘advice’ from brokers.” Hal is being too harsh! In my experience, brokers are right about half the time. And they give you someone to blame when you do badly. Isn’t that worth paying five or ten times as much commission?
Anagrams April 20, 1998February 5, 2017 Have you ever considered all the anagrams you can get from your name? Today is my birthday, so I got to thinking about myself (me, me, me, me, me) and before you knew it, I had rearranged myself into quite a few anagrams, most of which were nonsense: Be a tin sword A snow bar diet A couple were vaguely Schwarzeneggerian: Sweat bod rain Brawn site ado A couple were almost uncannily financial: To end IRA swab Eat no bid wars One struck me as Yeltsonian (if your Duma’s acting up, just dissolve it): Sit a new board One, I felt, was just completely unfair: I rob and waste And one was more or less 100% on target: Said and wrote — or was until I realized I would have to spell “said” with a “b.” Saib and wrote. If today is your birthday, or someone else’s is upcoming and you need a little help with a clever card, visit www.genius2000.com/anagram. Though it’s not instant (they e-mail you the results), it’s easy and free. And fun. An anagram they suggest for President Boris Yeltsin: Endless Insobriety Trip.
Amazon.stratosphere April 17, 1998February 5, 2017 Full disclosure: I’m short a few shares of amazon.com, the online bookstore. This should be an encouragement to those of you who own it, because stocks almost invariably rise strongly after I short them. Then I short more, and one of two things happens: I’m finally right, and break even, covering too soon on the way down. Or else I’m not right, and wind up with a spectacular tax loss. (For the mechanics of shorting, click here. For the terror of a short squeeze, click here.) Amazon.com is a fantastic company, and I am probably one of its 100 biggest customers. I’ve spent literally thousands of dollars buying books from Amazon.com, and I recognize that, if they play their cards right, I might one day buy CDs and videos and who knows what else from them — batteries, office supplies, groceries. I trust them, they’re reliable, and although — as an author — I owe an enormous debt of gratitude to Barnes and Noble, and lesser debts to Borders and all the rest, I still find myself clicking www.amazon.com when I need something, because they were there first. And I remember my password. And I’ve just gotten used to it. (I’ve bought books with equal success from www.barnesandnoble.com, and have discovered www.powells.com for used and out-of-print volumes.) But looky-here, Slim: AMZN is divided into around 25 million shares selling for nearly $95 each — $2.3 billion in all last I checked a few days ago. It’s been in business five minutes, has small sales, no profits, and some giant competitors on its trail. Of course, this could have been said of Compaq a dozen or so years ago, more or less, so there really is the possibility that Amazon.com, even at this $2.3 billion market valuation, will ultimately prove cheap. But if Amazon.com is worth $2.3 billion, what is Random House worth? Random House is the largest publisher of English-language trade books in the world. (The term trade books includes everything, basically, except textbooks and technical books.) Among the other book brands in its stable are Ballantine, Crown, Pantheon, Knopf, Fodors, Vintage, the Modern Library and Clarkson Potter. It owns the rights to a tremendous amount of software; namely, books. It’s built relationships with bookstores and authors for nearly 75 years. And as you may have read, its owner, the Newhouse family, recently agreed to sell Random House to a German publishing powerhouse for $1.4 billion. So Amazon.com is selling for 65% more than the largest publisher of English-language trade books in the world. Was Random House losing money? I don’t think so. Was the Newhouse family hurting? You’ve got to be kidding. In other words, this was no desperation sale. One presumes that $1.4 billion was a fairly full price. Yet there are those on Wall Street — specifically, some owners of AMZN — who think Amazon.com is worth more than Random House. (Other owners don’t think about it either way. They just think it’s a neat company; and they know it’s a neat stock, because it goes up.) They could be right. And Auto-By-Tel could one day be worth more than General Motors.
What Works on Wall Street April 16, 1998February 5, 2017 From med-school student Christopher Brown, who can operate on me any time (well, assuming I need surgery): I was wondering if you have ever read the 1996 book What Works on Wall Street by James O’Shaughnessy. Its conclusions, at least, are worth mentioning to your readers. I browsed through it at the bookstore in January, and it has fundamentally changed the way I pick stocks. The author takes a look at a number of widely-used measures of valuation since 1951, and how useful they have been. Although the analysis is lacking completeness (he only considers companies with extremely high or extremely low values for most variables, not the ones nearer the middle), there are two powerful points: 1. The “value” indicator most closely correlated with share performance is a low price/sales ratio. [A.T.: Stocks selling at a low ratio tend to do well.] 2. The “growth” indicator most closely correlated with share performance is a high relative share price gain over the last 12 months; past performance was, overall, the single best measure of future performance. [A.T.: Stocks that went up a lot last year are likely to do well this year.] When you put these two factors together, you would have outperformed the market by a lot (several percentage points) over time. Of course, past performance doesn’t mean that this trend will necessarily continue (it seems that nowadays companies with low price/sales rations are the most commodity/least franchise and are in general a sad lot), but it’s at the very least an interesting correlation. So… on February 3rd, Ameritrade opened up my first ever IRA, and feeling empowered by the low commissions, I spread my $2000 out among five companies (and $2 cash :-)). I combined O’Shaughnessy’s observations with a search for companies with strong positions in growing industries. They were: Lucent and Nortel: both incredible growth companies with a great history of growing share price and trading well under 2 times sales. Accustaff: growth company with a very low price-to-sales ratio (as is characteristic of their industry) and a good last five years when you took it as a whole (sure, the shares hadn’t been doing well the last couple of years; but sometimes you need to consolidate after an 1100% run). Iona Technologies: tiny software stock that had recently started to rally after a slow first year. To get a low price/sales on IONAY I had to look a few years into the future, but in middleware, the rising tide is sure to lift many revenue boats by the tune of 50% annually, so it wasn’t really that much of a gamble. SCI Systems: #1 contract electronics manufacturer by revenue. Selling for less than 0.4 price/sales (a steep discount to its peers), and a great last two years in terms of stock movement. So far SCI is under the weight of Apple and Compaq, but thanks to the other four companies, my account is up 28% (after commission) in its first two months. Since January, I have also used this book to justify to myself the purchase of MSFT, CSCO, and PFE (in other accounts); in summary, thank you James O’Shaughnessy. Never again will I say, “but that stock’s already had a big run.” Response from Andy: In the first place, What Works on Wall Street is a worthy effort. Whether what has worked on Wall Street will continue to work, and whether it will work for you, is no small question. But Chris has done the thinking and homework to develop an investment style that makes sense, that appeals to him, and that because he is smart and does his homework, could work out fine. The low price/sales ratio part of it has always appealed to me. Let’s say you have a company doing $120 million in annual sales. Let’s say, further, the company has 14 million shares outstanding, currently trading at $1.50 each. That values the whole company at just $21 million (14 million times $1.50). So what is its p/s ratio-price-to-sales? Well, its price is $1.50 and its sales-per-share works out to $8.57 ($120 million in sales divided over 14 million shares), so its p/s ratio is $1.50/$8.57 or 0.175. Very low. What the ratio “should” be very much depends on the industry. In the supermarket business, you need lots of sales to eke out a sliver of a profit. In the hair care business, you would hope for much wider margins; and in software, when everything is clicking, much wider profit margins still. Lots of mature companies sell for around “one or two times sales.” Why? Because on $1 in sales, the after-tax profit might be a nickel or a dime. And a nickel or a dime of annual earnings, at 20 times earnings, is worth maybe a buck or two. (If interest rates were higher, or the market less buoyant, that “20 times earnings” I so blithely use in this example might be more like 10 or 15 times earnings instead.) Anyway, the appeal of the low sales/price ratio is two-fold: First, it may reflect Wall Street’s general disgust with this particular stock. That’s good, because the market tends to overreact in both directions. Maybe with all those ten-foot poles not wanting to touch this dog, this dog represents a bargain. Second, it means there’s a chance – though only a chance – that profit margins might improve. A company making 50 cents after tax on every dollar of sales is much more likely to see its profit margin erode than see it improve; but a hair gook company earning a penny on each dollar just might be able to boost that to two pennies. And if it can – doubling the profits per share with no increase in sales – its stock could double also. Anyway, being a bottom-fisher, I’ve always been emotionally compatible with the low price/sales ratio. (Another of its advantages: You can be fairly confident of a company’s reported annual sales. Its earnings, as in its price/earnings ratio, are subject to a lot more accounting games, smoke and mirrors.) What I’ve always had great trouble with – and this is why I wish I had had Chris’s smarts when I was his age, even if it may not work as well in the immediate future – is buying something at 40 that not long ago was 15. I just can’t bring myself to do it. This is why I skipped buying Berkshire Hathaway when I first wrote about it at 300 (up from 19), figuring I’d wait til it fell back; and skipped it again at 3,000 and again at 30,000 – it was $30,000 a share a couple of years ago – and certainly plan to skip it this week at $70,000. I’m relatively good about holding a stock that’s gone up a lot. That’s easy – it gives you a very nice smug feeling, not to mention tax deferral until you sell it. But buying something everybody else is buying that’s already quadrupled? Instead of its reminding me how smart I am every time I looked at it, it would remind me how stupid I was. It is exactly this kind of dumb human emotion that should figure into your investing only in the sense that you recognize it in others and attempt to profit from their irrationality. You yourself should be coldly rational. Missed the first 69,700 point run-up in Berkshire Hathaway? No sweat. That’s irrelevant to the question of whether to buy it (or Microsoft or Amazon.com, etc.) today. I’m not buying them today, and Chris isn’t buying all of them. But he’s freed himself from the irrational inability to buy a great stock just because he’s missed the first 1000% or 10,000% of its growth. That’s something I doubt I’ll ever be able to free myself of. I know myself well enough to know my nature, and so have adopted a different investing style. * * One last note: Imagine being able to buy a diversified portfolio of five stocks with $2,000 (not to mention the $2 Chris had left over). Until just a couple of years ago, the commissions would surely have come to at least $150 – a prohibitive 7.5%. Today you can do it for $40. It still costs you to play, but in this and a couple of other ways,* the playing field has become a lot more level. Three cheers for the little guy. *Narrower spreads; cheap and timely access to information.
Watch Out – Here Comes Don April 15, 1998February 5, 2017 Don actually had a question for me about New York City’s charming Unincorporated Business Tax. (If you live in New York but write a song while on vacation in Portugal … and if that song, miraculously, becomes a big hit in Brazil … the royalties you earn on that song over your lifetime are subject to New York State and New York City income tax, naturally, but also to the New York City Unincorporated Business Tax. Why? “For the privilege of doing business in the City of New York.” This was not Don’s specific problem — nor even mine, exactly — but it does give you an idea of how aggressively New York interprets the reach of its third income tax.) But no, this may be April 15, but it’s not about taxes. It was the rest of Don’s message I felt duty bound to share with you. Don writes: I am a financial albatross. I bought a gold wedding ring when gold was at $800 and it plummeted to $300 or so almost immediately. I bought a house at the height of the Oregon land rush of the late seventies which seems to have precipitated a collapse in the housing and lumber industries. After renting it at a loss for five years (moved to NY to put my wife through grad school whereupon she divorced me), I sold it. After predicting for years the collapse of the stock market, I gave in and joined the crowd with a mutual fund purchase just months before the market lost a third of its value or whatever in the crash of ’87. Recently (late last summer), I moved some CDs into mutual funds and kicked off a terrifying correction. A wealthy (by my standards) doctor friend (amazing how rich all my classmates got by NOT being a potter for 15 years after college) called me up and said if I was ever tempted to buy stocks again he’d pay me to stay out of the market. Fair warning. On your advice (so I have someone to blame), I’m about to put half of my Keogh savings for this year into mutual funds. My advice to you is to sell short or hedge or whatever it is you do to make a killing on a falling market. I would take Don’s advice, only my own experience shorting stocks over the last 25 years has been so dreadful — a few wonderful and notable exceptions notwithstanding — as to lead people to call and beg me to tell them when I’m shorting something, so they can buy calls on it and make a killing. My general rule of thumb: If I am buying puts, I should be buying calls. (One actually can do both — puts and calls at the same time, called a straddle — which is a bet that something will happen, you just don’t know what. If I ever do that, I guarantee the winds of the market will fall strangely still, with little activity in either direction until the day after my straddle expires.) Don’s tax question, for any New Yorkers out there with Schedule C income above $25,000 or so (and to make the rest of you feel good that at least you don’t have this problem today): Being a New York resident and a self employed computer weeny I find myself facing a possibly killing liability on years of back UBT taxes. What I don’t know is a) whether there is a statute of limitations on this stuff. [A.T.: No.] b) whether there is a tax amnesty in effect that would help [A.T.: I don’t think so.] c) whether the penalties etc are at all negotiable [A.T.: Possibly.] and d) whether there is someone better than an accountant to help me with this. The tax preparers I’ve encountered seem much more concerned with quickly filling out a form and getting their fee than answering bothersome and delicate questions about past oversights. [A.T.: Your local bartender would be a good one to talk to, both before and after you meet with the tax folks.]