Author: A.T.

A linguistics professor was lecturing to his class one day.

“In English,” he said, “a double negative forms a positive. In some languages, though, such as Russian, a double negative is still a negative.”

“However,” he pointed out, “there is no language wherein a double positive can form a negative.”

A voice from the back of the room piped up, “Yeah. Right.”

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And since some of you will find that item less than substantive, two more loose ends:

TRADING 24/7

“What is going on with this ‘after hours trading’ stuff. Every time I check my stock in the morning, it has already made a gain or a loss! Example: Intel closed one afternoon at 75 5/8 and opened the next morning at 76 3/8. How did it make a gain while I was sleeping?” — John

The thing is, Intel is such a growth stock, it’s stock just cannot be restrained. No, wait. That’s not it. You missed the column that dealt with this seemingly extraordinary phenomenon. One day soon I expect we’ll all be able to trade in “real time,” 24 hours a day, but that’s still restricted, basically, to the bigger boys tied in to Instinet and the like.

TELLER MEETS TRUMAN

Edward Teller, who had a lot to do with inventing the atom bomb, only met Harry Truman, who dropped it, some years later, in the fifties. In the course of that meeting, Truman told him he was raising money for the Truman Library and that Philip Morris had offered a big check if he’d make some comment about tobacco that they could use publicly. So he did. He thought and thought and he offered this comment: “When the colonists first came to this country they were met by Indians who gave them tobacco. And we gave them syphilis.” Truman did not get the big check.

(Note to historians: Someone responsible told me that story, as he remembers Teller telling it to him. That gives it an 80% chance of being accurate in some way, perhaps a 20% chance of its being accurate in every way.)

As usual, the most interesting comments on my subject came not from me but from you.

From Chris: In reference to volunteerism, I, too, have no illusions about achieving the sort of social relevance of a Ben Franklin. But I have pursued volunteerism for the past 18 years at an average of perhaps 5-7 hours per week in a manner most probably atypical.

I have found that good intentions are not enough to maintain long-term efforts. The persistent assaults of irritation, inconvenience and other demands on one’s time eventually overwhelm motivation based only in good intentions. There needs to be something more.

A local university has a program for undergraduates to learn about small satellite design and construction from local volunteer mentors-from-industry who come in and donate their time. The time is spent doing something the mentors find interesting and rewarding from a “techie” perspective, and simultaneously passing along knowledge kids could never receive from academe alone. I helped found the program and have stayed with it since. Thus far, we’ve managed to get two of the satellites launched, and one is still operating in orbit.

When I mention this to folks, I often see a double-take and then a smile. They will usually say something like “I’ve always thought of volunteer work as spending hours ladling soup at a homeless shelter. I never thought of it as rocket science.”

It can be anything. But if you want it to be long-term, don’t rely on just your nobility. Pick something that will keep you coming back even on days you feel less than noble.

And this from Travis Wilson: “The real trick, especially among those of us with yet a long way to go, is finding a way to get rich usefully.”

From Pete Kirby: "Every time a capital gains tax is brought up in the news, there seems to be quite a stir that it would only benefit ‘the rich.’ I am not rich. I do, however, invest in the stock market and have done pretty well. I tend to hold my positions for long periods and have built up some pretty healthy capital gains. Taxes on these gains will hit me as hard as or harder than ‘the rich.’ Here’s my thought: why not shelter the first $10,000 or so from any capital gains tax? This would help with the perception that a cut in the tax rate only helps rich folks. It would also help those people who invest to keep more of their gains until they are ‘rich.’"

Makes good sense, no? Of course, a break that would amount to about $2,000 in saved taxes (20% of $10,000) is of trivial interest to those with the most political clout, and thus would not be likely to get very far. And philosophically, one might wonder why investing needs any more tax breaks than it already gets. We already have the lure of (a) making a profit, (b) having it less heavily taxed than if it had been earned by the sweat of our brawn, and (c) having it grow tax-deferred until we decide to take the gain. So I’m not sure, when you consider the treatment we accord capital and labor, that we don’t already give capital a pretty fair shake (and labor a pretty fair shakedown).

Then again, we double-tax corporate profits — first with corporate income tax, then with personal income tax on the portion of profits paid out in dividends. So maybe things are vaguely balanced after all. (There was for decades a small "free ride" for dividends up to $300 a year, but this nice little nod to the small investor was long ago repealed.)

From Paul Siu:

I remember reading about Roth IRA in your column and decided to give Roth a look. However, I found that Roth has some hidden complexities. I have a small 401K, and a small IRA. I want to contribute to an IRA [before April 15, 1998] for the 1997 tax year. Finally, I want to convert all of them into a Roth IRA. I also want to make a Roth contribution for 1998.

After [several phone calls], I concluded that I have to:

1. Set up a roll-over IRA to roll in the 401K. Apparently, 401K has to be rolled over to a roll-over first.

2. Set up a traditional IRA to roll over my IRA.

3. Make the 1997 contribution to the newly established traditional IRA since Roth is not available for 1997.

4. Set up a Roth IRA to roll in rollover and traditional IRA. This is the Roth Conversion IRA.

5. Set up another Roth IRA for the 1998 contribution. This is the Roth Contribution IRA. Apparently, the IRS requires that the conversion IRA and contribution IRA be kept separate.

6. Transfer the rollover and traditional IRA into the Roth Conversion IRA. Close the rollover IRA account.

7. Make the 1998 contribution to the Roth Contribution IRA. Close the traditional IRA account.

I have to set up 4 accounts! This is crazy. After the process is over, we end up with two Roth IRA’s — Converted IRA and contribution IRA. The two IRA’s cannot be mixed, at least for the present. In both IRA’s, you must wait 5 years before you can withdraw without penalty.

You can contribute more money to the contribution IRA. Each contribution is marked by a year so that the IRS will know how long ago you contributed the money. However, you cannot contribute money to the conversion IRA.

Will the conversion IRA and contribution be separated forever? No one really knows. The best guess is that because the taxes may be paid over 4 years when you convert from a traditional to a Roth IRA in 1998, the IRS wants to set apart the conversion IRA for record keeping purposes. At some point in the future, they may be able to reunite again.

And to think there was a time I was getting real money for every copy of TaxCut tax-preparation software that was sold! If I still had that deal, can you imagine how rich the Roth IRA — and other of Congress’s latest tax simplifications — would have made me?

From Jim Harbaugh:“I recently encountered another postal nightmare. On 11/3/97 I shipped a one-pound parcel priority mail and insured it for $100.00. The total distance to the addressee was 225 miles. After 3 weeks I called the addressee and they said it had not been received. I took my insured receipt and went to the post office. They won’t talk to you if the interim time is less than 30 days. So on 12/3/97 I went back to the USPS. They wanted me to provide ‘proof’ of what was in the box. That’s a real joke, huh!!! I had to get a picture from a catalog and give it to them. (This really proves something??) They filled out some stupid bureaucratic govt. form and sent it to the addressee, who was supposed to respond. Another 2 1/2 weeks went by. (They didn’t respond). The USPS was asking me to place long distance calls and try to get the addressee to send me a letter or FAX stating they had not received the shipment. I refused to waste my money chasing their problem. They were telling me they would not search their records for a delivery signature until they received something or another 2 or 3 weeks went by. After a little ‘foot stomping,’ they finally sent ‘another govt. form,’ this time for me to send to San Antonio (District Office for the area) asking for them to search their records for signature. That was 1/02/98. This is now 1/13/98 and I have not heard a thing. I have more than $100.00 worth of my time in this, plus postage and insurance costs. If they finally come up with a signature, then I will be in a battle with the addressee. More wasted time and expense. I WILL NEVER SEND ANOTHER INSURED PARCEL VIA THE USPS and I think your audience should be made aware of what they are ‘getting’ if they insure and send via USPS. I have never had anything like this when dealing with Fed-Ex or UPS.”

Well, collecting from UPS ain’t easy either (I tried once) — and of course if word got around that collecting were easy, then up would go the incidence of fraud. So while you are perfectly justified in your frustration — and conclusion — I’d encourage you to consider an even broader rule of personal finance: never buy insurance for a risk you can afford yourself; e.g., a $100 risk.

Far better to set up, in your mind if not in actual fact at the bank, a separate “self-insurance account.” Pay the premiums to yourself. That way, you avoid subsidizing your share of fraudulent claims, your share of administrative costs and overhead (and your share of the insurer’s profit, in the case of a private insurer). Best of all, the adjuster always instantly approves your claim without the slightest hassle — because you’rethe adjuster. You never have to worry that making a claim will make your blood pressure — or your insurance rates — go up.

Two from Jeffrey Schwarz:

Yahoo, the Internet search company, reported that it earned $0.05 a share on a pro-forma basis. What is “pro-forma basis”?

Pro-forma means, essentially, “as if” — e.g., in the case of a merger or prospective merger, the results are issued as if the merger had already taken place, and past results are restated to pretend the merger had been in effect all along. In the case of Yahoo, it might mean “as if all the stock options we’ve granted our management and employees were exercised” (also known as reporting earnings on a “fully diluted basis”). Maybe earnings were $6 million on 100 million shares — 6 cents. But what if there are options outstanding on 20 million additional shares? In that case, one might think of the company, and its $6 million in earnings, as realistically being divided up among 120 million shares — 5 cents each.

Please note: I know nothing about Yahoo specifically, other than how to visit its website, and am just making up these numbers for the sake of illustration. Pro-forma, as it were.

Also: what prevents a company from claiming just about everything it purchases is an “investment” [which it can then capitalize over several years rather than charge to earnings right away], thus lowering expenses and increasing earnings? If a company did that, wouldn’t its earnings look artificially high?

Exactly so. What prevents a company from doing this are the independent auditors, who all attempt to follow GAAP (Generally Accepted Accounting Principles) . . . as well as pressure from Wall Street analysts who look to see how aggressive or conservative the accounting has been. But you’re right: there’s real variation in the “quality of earnings” that companies report . . . it’s important . . . and it takes a careful reading of the footnotes, and sometimes more, to find it. A company that “expenses” all its research and development costs, for example, is being a lot more conservative than one that chooses to “amortize” them off over a period of years. Both approaches can be justified, but in comparing two companies, it’s important to compare accounting practices as well.

One reason many investors give weight to “cash flow per share” as an indicator is that it cuts through all this. “Listen buddy,” cash flow says. “Just tell me how much came in and how much you spent. If you took in $10 million more than you spent, I don’t mind so much that you reported a big loss. And if you spent $10 million more than you took in, I’m a little less excited about the huge profit you reported — GAAP or no GAAP.”

GAAP is actually a very logical, painstakingly worked-out set of principles that in many respects can provide a much more thoughtful picture than simple “cash flow.” A smart investor often looks at both.

So comes in the mail one of the most appealing requests for funds I’ve ever gotten: A brief letter clipped to a clear proposal for a specific project called THE SMILE TRAIN. (Brief, clear and specific: already a plus.)

“Since you’re a big fan of leverage, and ‘bang for your buck,'” ran the letter, “I thought you might appreciate this. We deliver $6 of services for every dollar donated. We have almost a 100% efficacy rate — every child we operate on ends up ‘cured.’ No recidivism, no complications . . . we have the ‘cure,’ we just need the money to distribute it.”

The brochure opens with before-and-after shots of a two-year-old born with a cleft lip and palate. The before photo is hard to look at, and tells you unequivocally this kid faces an impossible obstacle. No way can he be happy and productive or accepted into society looking so terribly disfigured. The after photo shows the same kid, product of what can be as little as 45 minutes in surgery, with a normal, healthy smile.

Operation Smile has performed 40,000 such life-changing operations, but THE SMILE TRAIN is a way to reduce the cost by 85%.

The idea is to raise $30 million to outfit a train with an operating car and a training car and drive it through China for five years. China has millions of kids with this deformity. At every two-week stop, Operation Smile’s volunteers will work side by side with local surgeons and nurses, operating on hundreds of children and teaching the locals how to do it after they leave. When The Smile Train goes on to the next stop, it will leave behind $150,000 worth of operating room equipment and computers. In exchange, the local hospital commits to operate on one indigent child a day, for free. Operation Smile will maintain contact with the hospital, supplying additional support as needed to be sure it can fulfill its commitment.

And the hospital may of course use the equipment for whatever other procedures it sees fit.

After five years, according to the calculations in the brochure, local Chinese surgeons and nurses will be performing 12 times as many surgeries as THE SMILE TRAIN.

If it works in China, the program will be replicated elsewhere.

Rescuing 100,000 kids at a cost of $30 million works out to $300 each. Not too bad. Three subsidiary benefits: (1) the training and equipment remain in place for China to more or less solve this problem, going forward, by itself — so it really rescues far more than 100,000 kids at a cost far lower than $300 each; (2) the training and equipment left behind will doubtless help in other ways, too; (3) what an excellent way to build goodwill between the U.S. and China.

So how to get $30 million? Computer Associates has already given $10 million and some anonymous donor an additional $1 million. Tom Brokaw is in the brochure saying, “The work is real. The results are enduring. The gratification is limitless. I would encourage anyone who cares about children to support this idea and help make it happen.” Colin Powell calls it “a unique idea that makes you feel good about being an American.” George Bush thinks it’s terrific and so does China’s President Jiang Zemin. But the name and face that really struck me was Bill Gates, who says, “it’s an ideal combination of the latest technology and good old-fashioned values like charity, compassion and altruism.”

Maybe Bill was the anonymous million, but here’s my thought. Rather than spend any money trying to raise little bits of money from you and me, why doesn’t Bill just have Microsoft match Computer Associates and then get Disney or Kodak (smile!) to do the rest? Presto, done. No fund-raising costs, no directors of development, no galas, no direct mail solicitations . . . and of course the potential payoff to companies like Microsoft and Disney in a nation of 1.3 billion potential customers would be very large.

I’m not saying you shouldn’t send your own $50 or $300 or $750. By all means — call 888-OP-SMILE or write Operation Smile, 220 Boush St., Norfolk, VA 23510. But c’mon, Bill. If you really believe in it, why not “just do it.” (Hmm — maybe there’s room at this sponsorship table for Nike.) In yesterday’s comment, I suggested the value of cutting out the cost and effort of fund raising by setting up our own “mini-charities.” Well, to a guy with $37 billion, $10 million is mini.

Whoever funds it, it’s a wonderful project.

Technical note: The plug-in RAM-bus of my Java initializer winsocked out after the first try, so I was only able to do this once. But when I did visit www.operationsmile.org the first time, and then clicked Russia in the left margin, and then Before and After at top left, I saw a disfigured child’s face morph into a beautiful smile. Try it, and then tell me you’re not ready to hop on THE SMILE TRAIN.

"I would rather have it said ‘He lived usefully’ than ‘He died rich.’" — Benjamin Franklin (as quoted in the Fall American Benefactor)

So if you have no time to do any more than you’re doing, as is likely, perhaps you’d want to send a check. (Better still, donate appreciated securities held at least a year and a day.)

But where? Any charity will have lots of administrative expenses. That’s largely unavoidable. But it does make you worry.

If you were running a charity and found that for $1 million you could do a mailing that would bring in $1.2 million, would you do it? If not, you’d be losing the chance to net $200,000 for your good work. But if you did go for that $200,000, it would mean that 83% of the money people mailed in went simply to cover the cost of the solicitation itself.

Perhaps in some ways the very best charity, whether incorporated as such or not, is the one that dispenses with the $70,000-a-year development director charged with raising, first, the $70,000 to cover his salary and then the cost of the caterer for the dinner that was necessary to raise the $70,000. Take my friend Joe Cherner. He made a ton of money on Wall Street in his 20’s, left to set up a thing called SmokeFree Educational Services, Inc., and has run it for many years now with mostly his own funds. The administrative salaries of the organization total zero. He and his partner Laurent Seitz work for free. (Obviously, not everyone can afford to do this!) His development director costs nothing, because he doesn’t have one. He calls his friends and sometimes gets us to kick in some dough. Relatively little of his time is focused on raising money. Almost all of it is focused on getting the job done. He’s gotten cigarette ads removed from New York’s buses, subways and sports stadiums; he’s gotten smoking banned from restaurants except near the bar; he’s gotten cigarette vending machines (the easiest way for underage kids to buy smokes) removed from the city except in bars (and even then, they must be a good distance from the door, and within sight of an adult). Whatever you may think of his program, he’s been amazingly effective.

Clearly, not everyone is rich enough to run his own charity, although it does make you think. Is there a "mini-charity" you could run yourself? For example, could you find the right person to provide midnight basketball services (since your own hook shot isn’t what it used to be, and you’d be scared to go into that neighborhood after dark, let alone at midnight) and then provide him with the money for fliers, T-shirts, a couple of basketballs, Gatorade and a trophy?

In such a scheme, you lose the tax deduction that going through an established 501c-3 provides. But then maybe not: You might well be able to do it through the local school or YMCA or community foundation. Let them find the right individual, write the check to them — and then take the tax deduction.

In either event, though, the point is that all your money will go to "the cause," with little or no frictional sales and transaction costs to dilute its impact. Sort of like buying wholesale instead of retail or insisting on a low-expense, no-load mutual fund (or, for that matter, a deep discount broker).

I thought of this recently when I got an appeal for a project that could meaningfully improve 100,000 young lives.

Tomorrow: 100,000 Smiles

“I would rather have it said ‘He lived usefully’ than ‘He died rich.'” — Benjamin Franklin (as quoted in the Fall American Benefactor)

The trick, as I suggested yesterday, is not knowing how to get rich. (Work really hard, save and invest every penny you can, stir and allow to simmer for three decades.) It’s knowing how to live usefully. Franklin did stuff like establish the postal service, advance the study of electricity, launch the country’s first fire insurance association and persuade the French to help America win the Revolutionary War. What are we to do?

For those of us not up to discovering the cure for breast cancer or launching some astonishing new global satellite system, there are, naturally, myriad other opportunities of a scale we can handle. Indeed, there are so many it’s overwhelming.

There are two useful things one can offer: time and money. Next week, a suggestion for your money. Today, a suggestion for your time.

Does your local paper have a weekly feature listing all the local nonprofits in need of volunteers? A sort of Volunteer Help Wanted? If not, why not suggest it to them — or even volunteer to edit it yourself?

And if they do have such a feature, well then, perhaps that’s a place to look for a way to be useful.

Of course, it’s likely you’re already swamped being useful — to your kids, your folks, your neighborhood association, wherever. I don’t have any extra time to be a Big Brother or help some underprivileged kid learn to read, either. (I wish I did.)

But just in case you’re not swamped, there’s a lot that needs doing. Someone of your caliber and goodwill could make Ben Franklin proud.

“I would rather have it said ‘He lived usefully’ than ‘He died rich.'” — Benjamin Franklin (as quoted in the Fall issue of American Benefactor)

Of course, Ben was pretty rich when he said that. But even so, it helps to keep things in perspective. After all, who among us is not richer even than Ben was? We can afford the luxury of staying cool in the summer. What Ben wouldn’t have given for that! We can have hot showers at a moment’s notice. Imagine! Seasick-free trans-Atlantic crossings. (And speedy — eight hours!) Bright light to read by. Rare tropical fruits and juices twelve months a year. All but instant mail and news from around the whole world. Entire symphony orchestras playing in our homes — and carriages — at our whim. Finer medical care than Ben could have dreamt possible. Eyeglasses so small no one can see them (ah, vanity). Zippers. And on and on.

Our homes are not as large as his might have been, and it may be harder for most of us to enjoy the privacy and quiet of a walk in the woods. We are more likely than Ben to have to make our own beds and clean our own floors. But, on balance, few of us would want to trade our trappings of wealth for his.

The trick is not knowing how to get rich. (Work really hard, save and invest every penny you can, stir and allow to simmer for three decades.) It’s knowing how to live usefully. Franklin did stuff like establish the postal service, advance the study of electricity, launch the country’s first fire insurance association, and persuade the French to help America win the Revolutionary War. What are we to do?

Tomorrow: A Couple of Ideas (Meanwhile: If you are required to make quarterly estimated tax payments, don’t forget that today’s the day.)