Author: A.T.

My mention of priceline.com last month evoked a woeful tale. To be sure, one modest snafu hardly invalidates a brilliant business model. But as we lurch into the brave new world of cybercommerce, we look to each other for guidance. Does this stuff really work? How well?

Thanks, therefore, to Graig Ponthier, for the story that follows. (Countervailing anecdotes welcome!) Graig writes:

“I thought I was being very ‘Tobias’ when I decided to get on priceline.com and see what kind of bargain I could get on hotel accommodations for a recent trip. For me, it was only worth spending $40 a night since I could have driven back home instead of staying the night. After shooting for the moon (3, 4, 5 stars), I finally found that my $40.00 got me a suite at a 2-star hotel (with kitchenette, separate living area, etc.) I was pretty excited because of how easy was this. I didn’t even have to call the hotel, just show up and the room would be waiting.

“Well at check-in, I discovered that the room reserved in my named was at a special discounted rate of $65 (which was not a suite and was not a double occupancy as Priceline stated it would be). I explained to them about my $40.00 room and discovered that none of the front desk employees have even heard of Priceline.com. They asked if I had something I could show them that shows this rate. I thought for sure that I was a victim of a Priceline scam, since they already had my credit card number.

“Well, all I had was my bag and my laptop. So, I went up to my $65 room, booted up my laptop, dialed up the server, loaded up my emails to find my confirmation. In pure embarrassment, I brought my laptop down to the lobby, placed it on the front desk as all the other patrons watched and waited. Anyway, they finally did honor the rate but the whole check-in process was a nightmare. Oh well, I guess I still saved some money on the rate. Unfortunately, they got it back at the hotel bar.”

HE’S NO TAX EXPERT . . .

“I’m no tax expert,” writes Darren, “but I thought shorting stock did not allow you to declare capital losses. Am I confused by the fact that you have to pay ordinary income tax when making a capital gain as a result of shorting?”

Yes, you are confused. Any gains or losses you realize when you close out a short sale (by “covering your short”) are reported as short-term capital gains or losses. You could have held this short position for 30 years, but when you cover it (by buying back and returning to their rightful owner the shares that you borrowed and sold short), your profit is treated as a short-term gain or loss.

Speaking of short sales, some of you know I have for years been high on Amazon.com as a company but short its stock. The Internet will be great long-term for consumers, but possibly not for investors. Did you see this week’s Barron’s cover story? AMAZON.BOMB, as it was titled? The same day it came out, I found myself with a Titan of Industry who — not knowing of my interest in Amazon, or of the Barron’s cover story — offered me a wager. “I’ll bet you,” he said, “that Amazon never turns a profit.” Should he prove to be right, market historians will surely look back in amusement at the $36 billion market cap the stock sported last month, or even the $19 billion or so it commanded at the time of the Barron’s story.

HE’S NO FERMAT . . .

“I was all set to write the Secret of Wealth, which had just come to me in a flash … but then I got so distracted waiting for the elevator, and so bemused once I eventually got IN the elevator, the Secret snuck back off into the ethos, like a dream you know you had but can’t remember.”

Or so I told you last week — evoking this (from Doug):

“That happened to me once. Of course, I couldn’t admit it as easily as you did. You should say something like ‘The Secret is too big to fit in the margins of this notebook’ and then die dramatically before anyone can ask you about it.” — Pierre de Fermat

WANT TO BUY A FLYING CAR?

“Amazingly,” writes Bob Price, “this isn’t another ‘beat the market in a few minutes’ email from me. Since you ignored all of THOSE, I got the hint. Check out www.moller.com/faq. Neat stuff.”

Chances are you won’t be buying, or flying, one of these cars any time soon. But — like the dream of beating the market with a few minutes’ work each week — the dream of leaping over traffic on the way to the beach never dies.

But first a joke.

“Do you know what DNA stands for?” asks Steve Mohanan?

Scroll down . . .

“National Dyslexic Association”

Sorry.

And now, if you keep scrolling down, you will eventually come to the Q-page button near the bottom of this page. (See it?)

I tell you this for three reasons:

First, you might want to use it to get this column delivered to you on a schedule of your choosing. I wouldn’t, because I use AOL, and right now with AOL Q-page has to send the page as “an attachment.” That’s a pain. Plus, why would I want to have my own column delivered to me? But you might, and you might not use AOL.

Second, you might want to put the Q-page button on your web page, if you have one, or your company’s web page, so your visitors are sure to see it. Why make them request it “manually” each time? Why risk their forgetting to come visit? To “Q-page” your page, just click the little line just below the Q-page button and follow the instructions from there.

Third, some of you have been following the development of this small company, in which I hold an interest. This is the latest development. (Also: we’ve moved to our own dedicated server.) What I find most remarkable is that until we reached abroad and hired a 22-year-old Bangla Deshi on a contract basis — Nayeem is his name, and, no, we have naturally never met him — all of the programming for this enterprise was done by my brilliant young friend Marc and his canny canine Looe down on South Beach. (You can see Looe on the Quickbrowse website. We do not ourselves know what Nayeem looks like, but he writes clean code. And at 22, everybody looks good.)

The world has come a long way since the Seventies when a friend of mine, more into Daily Variety than Foreign Affairs, asked of “The Concert for Bagla Desh” — a record you may recall that featured a little girl on the sleeve, designed to raise money for that flood-ravaged, impoverished nation — “What’s with this Bangla?” Yes, she was an appealing little girl, he allowed. But how was it that an entire record album had been produced on her behalf? Who was this little girl? What was the angle?

Nayeem had not even been born by then; Steve Jobs and Steve Wozniak had just about the only two personal computers in the world; and a phone call to Bangla Desh cost . . . well were there any phones in Bangla Desh?

And now Nayeem is writing code that will enable Quickbrowse and its sisters, Q-search, Q-people and Q-page, to assist millions of people around the globe to use the Internet a little more effectively. Or so Looe seems to be dreaming, as he snoozes at Marc’s feet. Looe has been working like a dog.

Tomorrow: Short-Sale Tax Treatment, and More

QUICK $15 — TODAY ONLY

“Fatbrain.com sells computer/tech books and — don’t ask me why — Andrew Tobias books. Follow this link to save $15 on an order of $15 or more: www1.fatbrain.com/offers/tryus/?/from=jae795 . Valid through May 28. You are welcome to reprint this message if you wish, but please say ‘a reader from Lewisburg, PA’ rather than using my name.” — John Stephens, Jr.

Thanks, John. (I can’t vouch for fatbrain.com, having more of a swisscheesebrain.com myself, but I did visit the link, and it would appear that if there’s a $16 book you want today, it will cost you $1 plus shipping.) (Also, I’m kidding about the guy’s name. I just made up ‘John Stephens, Jr.” to see if you were paying attention.)

AND SPEAKING OF BUYING BOOKS ON-LINE . . .

R.T. Schoen (his real name), had this to say about My Three Astonishing Panelists: “Yes, yes, but are you still short AMZN?”

Yes, yes. I am. Some. But I’ve taken a lot of tax losses. The psychology of the thing is that if you short something high enough, it’s easy to stay short as it bobs up and down around and below your entry price. But if, like me, your timing was awful, and you shorted it after it was up eightfold but before it was up twenty-fold, it’s very tough not to take some losses and reduce your risk when you have the opportunity … even if you would never normally buy the stock at this price. (Largely irrational though it is, buying-to-cover is psychologically different from plain old buying.) Also, to its credit, Amazon continues to do a great job — but that part I never doubted. I still think it’s way ahead of itself and risky, though a bit less so at $114 than at $221.

It’s simply not clear yet just how much profit there is to be made in this intensely competitive field. Amazon certainly has as good a shot at it as anyone on the horizon, and has used its inflated stock to take big pieces of other, related companies like drugstore.com. But at $18 billion, Wall Street is assuming an awful lot will go right. It is valuing AMZN as highly as it values fat old profitable behemoth Sears. Both currently are valued at about $18 billion.

Yes, you can say this is sensible: Sears is stuck with all those bricks and mortar. AMZN is the future of retailing. Like a money-losing automobile company versus a profitable buggy manufacturer in 1902. (Don’t hold me to the exact year.)

But wait. How about 1990, say, when almost no one, least of all Wall Street day traders, had any inkling of on-line sales? Back then, Sears had a market cap far lower than the $18 billion valuation it sports today. Throughout the Seventies and Eighties and most of the Nineties, Sears was valued lower than Amazon is today. Yet Sears had a fairly large share of the country’s retail sales. Let’s assume AMZN one day soon will, too. Will its profit margins be so much higher than Sears’s were? And will the barriers to entry in retailing be greater or lesser than those that, partially, protected Sears? It would seem to me that the barriers to entry for on-line sales are a lot lower. And that on-line price competition will be even more intense, because it’s so much easier to go “from store to store” to hunt for the best buy. No need to move the car.

Also, as has been endlessly pointed out, investors in the pioneering automobile companies wound up not being the ones who made a lot of money.

None of which is to say AMZN will not eventually grow into this remarkable market cap, let alone to knock the great job AMZN is doing. Yes, you can buy what it sells cheaper if you simply click a different URL. But AMZN is always likely to provide the best, or near-best overall on-line shpping experience if you don’t mind paying a bit more.

So, yes, I’m still short. But even less than before. Given my knack for bad timing, that probably means it has a lot further to drop.

Have a good weekend!

Some of you, against all reason, are actually annoyed when I am late with one of these daily columns.

I am flattered but perplexed. We are all so swamped! My favorite thing is Saturday’s New York Times because it is just two sections. And there is no Wall Street Journal Saturday! Yay! (There is no Wall Street Journal Sunday, either — but there is SUNDAY’s New York Times.)

Anyway, here’s my excuse. The dog did not eat my homework, but the elevators in the hotel I was staying in last night were so unbelievably slow, I just didn’t have time to get everything done.

Which is a shame, too, because I was all set to write the Secret of Wealth, which had just come to me in a flash — a rare moment of clarity perhaps divinely inspired at the hotel check-in desk — but then I got so distracted waiting for the elevator, and so bemused once I eventually got IN the elevator, the Secret snuck back off into the ethos, like a dream you know you had but can’t remember.

Oh, well. At least I remember every detail of the elevator. (I say “the” elevator, because it seemed as if only one of the eight hotel elevators was actually doing anything. Lines were forming for this elevator that stretched outside the hotel, down Commonwealth Avenue, over the B.U. Bridge, and well into Cambridge. The other seven elevators, I concluded, were faux elevators — trompe l’oeil elevators.) And the detail I remember most was way up at the top, above the red-dot L.E.D. display of the floor, a little rectangular plaque that read “Elevator Beeps for the Seeing Impaired.” This was to inform the seeing impaired — specifically those who could not read the red dot L.E.D. display but could read this little plaque — that the elevator beeps signified the floors being passed. Lest they, or anyone else, think that these beeps — beeps we have all surely come to know by now, as they are hardly exclusive to this hotel’s elevator — were some form of uniquely uncreative, annoying, Muzak.

The other remarkable, distracting thing about this elevator was that — this is true! only the part about the line across the B.U. bridge may be a bit exaggerated — the L.E.D. display was off by two floors. When the doors opened on 7, the L.E.D. display said 9. When they opened on 8 — and with just one elevator, and huge crowds packed into it, naturally there was someone getting off or on at every floor — the display said 10. And so on, consistently, hour after hour, all the way up to my high floor. So there should have been a second little square bronze plaque next to the first: “Kindly subtract two.”

So, no, the dog didn’t eat my homework. But there will be no column today. In place of the empty space you see here, please click Archives, and pick one of the hundreds of columns you may not have read previously. (Perhaps even one related to your money! I do try to do one of those occasionally.)

Or do what I do when there’s a little less to read: Rejoice!

I got to moderate a panel in Washington last Wednesday where I was the oldest but clearly the least wise. My three panelists where Meg Whitman, CEO of E-Bay (whose stock had jumped from 8 to 191 in the prior few months), Richard Owen, who heads up Dell On-Line (which currently sells $18 million of computers on-line a day), and Jay Walker, founder of Priceline.com (of which his personal stake was worth, that day, $9 billion). Jay was on the cover of last fortnight’s Forbes as the modern Thomas Edison.

Our audience were several hundred marketing executives from the mutual fund industry. My main function, as I saw it, was to remind the audience — confronted with the terrors of competition and obsolescence — that cocktails would be served immediately following the conclusion of our panel.

Richard Owen, of Dell, a British national with degrees in mathematics and economics and graduate of M.I.T.’s Sloan school, had turned 34 the day before. He is responsible for Dell’s on-line operations, and those operations are currently responsible, in turn, for 30% of Dell’s sales — the aforementioned $18 million a day. “How long,” I asked him, “before it’s 80%?” He gave a “who knows, exactly” sort of shrug, but casually guessed, “a couple of years.” What does this say for brick-and-mortar computer retailers like CompUSA?

Not that Dell sells through brick-and-mortal outlets itself; but what does this say about the growth of e-commerce generally?

Meg Whitman, CEO of eBay, must be about 43. After Princeton and Harvard Business School, she was a brand manager at Procter & Gamble, then a consultant for Bain & Co. (perhaps the most elite of the managing consulting firms), then senior VP of marketing for Disney’s consumer products division, then President of Stride Rite Corporation’s Stride Rite division (one of Stride Rite’s larger divisions, I’m guessing) — you may remember her launch of the Munchkin baby-shoe line — then President of FTD, the flower people, then General Manager of Hasbro’s preschool division (Mr. Potato Head) and now this.

Jay Walker, meanwhile, 42, doesn’t just control priceline.com, he runs an “intellectual property lab” with a dozen young inventors and a dozen patent attorneys. They are patenting business models, like the one for Priceline. Sure, he’s only worth eight or nine billion today — and most of it in somewhat iffy Priceline stock, at that. But this is one smart cookie. I predict he will one day be a very rich man.

As for his predictions, he ridiculed me when I asked him to predict something 10 years out. Ten Internet years, he noted, was like 100 regular years. It’s hard enough to see a few months into the future.

But looking ahead, he did see “a consolidation of the major portals” (huh? I thought Yahoo was already pretty much the major portal). And there was talk of a wall-sized always-on flat screen with multiple entry points — your whole wall would be the portal.

My panelists barely dignified the Y2K problem when I asked them about it (apparently, it’s being adequately solved — or at least it won’t affect them).

Jay kept talking about voice recognition. (Who needs credit cards? he wondered when I asked how people would pay for mutual funds if they bought them on-line as they do computers. In a few years, you’ll just say into the computer — “Computer! Shift fifty thousand dollars from my Chase account number six oh one five nine three triple zero eight into . . . ” — and it will be done.) I allowed as how the guys who can do impressions — “He sounds just like James Cagney!” — will become immensely rich impersonating others’ voices and draining their bank accounts. This comment was brushed aside without even a smile. (“Where did they get this guy,” I could hear my panelists wondering.)

It would be a rough few years ahead for the assembled, I summed up, as I announced, again, that cocktails would be served directly following the discussion. The world is changing fast. Mutual funds will not be marketed as they are today, and Jay may be working on a patent to sell them better even as we speak. Subtext: retire or get to work.

The good news? You don’t necessarily have to be in your teens or your twenties to participate in all this, though it helps. Take Richard Braddock, 57, former president of Citicorp. Jay hired him to run Priceline.com. Maybe one day my partners and I will hire the president of Exxon to run Quickbrowse.com.

Here’s Chapter 10. (You already have Chapters 1, 2, 3, 4, 5, 6, 7, 8, and 9.)

I remember growing up in an “advertising family” — my dad worked on Madison Avenue. Charles Revson was legend. He loomed almost as large on Madison Avenue as Bill Gates does today in cyberspace. Not that he had the same power, let alone the same influence — it was just lipsticks and nail polish he was selling, after all. He wasn’t reshaping the world. But at the ad agencies he terrorized and the magazines he advertised in (and terrorized), he was the topic of conversation.

“Your article today reignited a thought about us all getting older. I am a 1957 boomer and a contrarian. So with all this success of the stock market, I see gloom coming. This is especially true when I think of my generation retiring (more importantly, those slightly older than me). Who is going to buy all these shares? My broker says we’ll cross that bridge in ten years, selling before the wave hits. Haven’t other people thought the same thing?” — Steve H

Yes, and it could be a (huge) problem. But as I’ve suggested, 500 million emerging middle-class Asian and Latin American investors could begin to take up the slack.

Also, the “selling wave” will not hit all at once — most people don’t want to “Die Broke,” and so would rather live off income than sell. (Is it possible Yahoo might not only one day make a profit, but even pay a dividend? I frankly doubt it, but others will. Especially once all us voting seniors force Congress to end the double-taxation of dividends.) Too, if they hold on, they avoid capital gains tax. But yes, there would be some selling, and some shifting of assets from stocks to bonds. No question.

Finally, if technology continues to race along, as is likely . . . and we don’t spoil it with shooting wars or trade wars or labor/management wars (and it isn’t spoiled by a plague of natural or manmade environmental disasters) . . . then productivity and prosperity will rise markedly, and THAT could rescue us.

Say cars get 100 miles to the gallon instead of 20 by then, as is very possible. Suddenly, other things being equal, what we spend on gas goes down 80%. That lessens the need to sell stocks to pay Exxon. Certainly the need to sell stocks to pay for long distance phone calls to the grandkids has plummeted in the last 50 years, and will plummet further. The cost of today’s elder-care drugs will be much lower, once patents expire. And so on. (Except, of course, by then we won’t be satisfied with today’s medications — we’ll want tomorrow’s, pricier ones.)

Still and all . . . yes: it’s absolutely an issue. Demographics giveth (as they are these days), and demographics taketh away. Save your money. And not all in stocks selling at 80 times earnings or 25 times sales, either.

“Staples, the company (SPLS), has announced that they are going to issue 50% more stock. Dilute not split. I voted my proxy against this, but it looks like it is going to pass anyway. Why would anyone vote for this? Are the big institutions (Fidelity, et al) getting information that I am not? My 0.18 millionths of this company is soon to be only 0.12 millionths. This might not seem like much, but hey, it’s the principle!” — Wayne A.

There is a world of difference between authorizing shares and issuing them. I suspect they are authorizing. But if they ever do issue additional shares (of those authorized to be issued), they — and you — will presumably get something in return . . . such as another company.

Right now Staples has 464 million shares outstanding. I am too lazy to look this up, but I’m guessing maybe 500 million are authorized. So in case they want to — quick! acquire Rubberbands.com for 50 million Staples shares — well, you can see why they’d want authorization to go beyond the 500 million. (And no, don’t rush to day-trade Rubberbands.com — I made it up.)

The “float” on SPLS currently is around 390 million shares. That’s a different number, referring to the shares that are unrestricted for trading and out in public hands.

(With a new company, there might be 10 million shares issued out of 100 million authorized, but 8 million of them — 80% of the company — might still be in the pockets of the founder and her husband. Maybe the company went public by selling just 2 million of those 10 million shares. So in this example, the “float” would be just 2 million shares, making the stock very scarce if there were a lot of interest in it. It can be tough to buy large blocks of stock with a small float — in trying, you drive the price up.)

Meanwhile, the short interest in SPLS is under 5 million shares, with a short ratio of about 1.7. This means that, relative to the 464 million shares issued and outstanding, few have been borrowed by speculators and sold short. Relative to the float, it’s still trivial. But the “short ratio” many short-sellers look at to see how hard it will be to cover their shorts, should they feel the need, is the ratio of the “short interest” — the nearly 5 million shares that have been borrowed and sold short — to the stock’s average daily trading volume, which for SPLS is about 3 million shares.

In other words, in this case, if no one else were buying (which would not be the case, but just by way of example), and if sellers were selling the same 3 million shares a day they have been selling on average, it would take the shorts just 1.7 days to “cover” their shorts (i.e., to buy back the shares they borrowed and sold short, and return them to their rightful owners).

“Authorized” is one of those formalities only a little less archaic (if you ask me) than a stock’s “par value,” which by now as best I can tell, means absolutely nothing. Yes, the shareholders must approve any increase in the authorized number of shares. But authorizing more shares has no impact on the size of the pie or who owns what proportion of it. What matters, and can dilute or enhance your ownership stake, is the issuance of new shares. There the crucial question is: what is the company getting in return for issuing them? Is it a good deal? Could Rubberband.com really be worth 50 million shares?

Sometimes yes, sometimes no.

Here’s Chapter 9. (You already have Chapters 1, 2, 3, 4, 5, 6, 7 and 8.)

How quaint that Revlon super model Suzy Parker was earning $120 an hour back in the Fifties. Even with inflation, what could that be? Supermodels today earn $60,000 to $100,000 a day. It’s almost as if they were SuperModels.com.