Author: A.T.

“A humble question: How many pennies should one be allowed to use from the penny jar at the local gas station? Recently I filled up my gas tank and was 6 cents over $15 and without a credit card. I went inside to the cashier — a surly woman of modest pretense — and set down my $20. Seeing a dish labeled PENNY DISH on the counter, I decided to save her from what I thought might be a potentially difficult calculation for her. So I picked 6 cents out of probably 20 there and placed them on the counter, whereupon this self-appointed queen of the penny dish protests loudly in front of a long line of people behind me, ‘Please take only one, Sir!’ Ashamed, I put them all back got my change and dumped all my coins into the dish and said, ‘There, that is for anyone who needs them.'” – L.B.

A.T.: The first thing to say is what my grandfather apparently said following some sort of embarrassing altercation with a subway token booth attendant early in this waning century. “And that’s why that man is a subway token attendant,” were the wise words that have been passed down through my family for generations.

If you ask me, this surly woman was a penny-pinching fool. Just one? Just one? And since when did the penny dish, that most voluntary and civil of institutions, become subject to oversight of any kind. The penny dish is one of the few entirely discretionary venues remaining in our commercial world. Taxes and prices and FICA and all those things are determined by others. Tipping is voluntary, but in truth we know what is expected of us. Ah, but the penny dish. It’s there for your convenience and for the free expression of your personality. There are those who put all their pennies in it and wouldn’t dream of lifting one out; there may be those who take but do not put, though I expect they would be so much in the minority as to leave a large penny surplus at almost all times, hence the 20 you found. The penny dish is such a good idea, and one of its best features is its lack of oversight.

So I’m really angry with this woman.

But six pennies? This does break the nickel barrier. To those who see the penny dish as nothing more than a means to avoid pennies in the first place — you leave ’em when you get ’em and you take ’em when you need ’em to avoid getting any more — I suppose the etiquette might be as follows: Take one or two to avoid getting three or four, but never take three or four to avoid getting one or two. And never take five to avoid getting silver, or 25 to avoid paying for a pack of gum.

Still, I’m with you. The surplus in the penny dish arises from people like you and me who usually leave and do not take. And if, on rare occasion, we choose to recoup from our cup of copper capital — even breaking the nickel barrier — no one should question our moral compass.

Here I stand.

From Ed Shoben: “I know you are interested in closed-end funds, and I share your view that there may sometimes be opportunities in this sector. Buying $1 worth of assets for 80 cents is always an interesting idea.”

A.T.: Seems Ed owns some First Australia Fund (IAF), which he says hasn’t done particularly well. He recently received a proxy statement and noticed that the fund directors (at least those up for election) owned none of the fund. He consequently voted against them and against management on all proposals except ratification of auditors.

“My paranoia did not start,” reports Ed, “until I got a phone call asking me if I had voted. I said yes and she said they hadn’t gotten it yet and thanked me for voting. About a week later, I got a phone message that I needed to call an 800 number and vote my shares. I called and was told that my [negative] vote had not been recorded and I would need to vote again. I said okay and the first question was, ‘Do you want to vote your shares the way the board recommends?’ I said no, and the gentleman said, okay do you want to vote for all directors? I said no. He said do you want to abstain from voting? I said I didn’t think he was phrasing the question very neutrally. He replied that he was just trying to find out what I wanted to do. I then remarked that my recollection was that the three choices for directors were For All, For All Except, and Withhold Approval For All. He said that was right and I asked him to phrase all the questions as they were on the original proxy. Given that one of the proposals was to make it harder to open-end the fund, it seems management here is more concerned with preserving the status quo than with shareholder value (and they ain’t shareholders). I also didn’t care for lobbying in the guise of collecting a vote. Things do get lost in the mail, I realize, but it’s pretty rare.”

A.T.: One way a closed-end fund selling at a discount can rise in value is simply by converting to an open-end fund. That means allowing investors to get out not by selling for whatever pittance they’re offered in the open market – $8, say, when the fund owns $10-a-share of stocks – but, rather, by “redeeming” their shares at full net asset value with the fund company, which sells enough of its holdings to pay you off. Fund managers aren’t thrilled to do that, because if a fund’s been doing poorly, it could mean lots of redemptions, which in turn means less money under management from which to take its sliver.

Good for you for sticking to your guns, Ed. Shareholders rarely win votes against the recommendations of management, in part because we shareholders tend to be lazy about reading proxy statements. But maybe we should try harder.

Yesterday, I made a case for considering placing a speculative bet or two in Asia. Does this make sense for a an investor with $25,000 in stocks and a 10% car loan? No. As I have argued before, that investor is effectively in the market on margin. He should first pay off the car loan. (Not having to pay 10% nondeductible interest on a car loan is as good as earning 10% risk-free, tax-free – an outstanding return.)

So, no. But what of the investor with $300,000 in stocks and all his debts paid off (other than a mortgage) – would it be crazy for him to move $50,000 of it into a long-term bet on Asia, spreading it among four or five closed-end country funds?

Maybe. Only with hindsight will we know for sure. (One might argue it wasn’t crazy even if it didn’t work out, but no one buys that kind of argument when they’ve just lost $50,000.)

If you do choose to explore these waters:

• Nerves – and patience – are required. If it would make you nervous to see this go very badly for a while … or hurt you if it went very badly permanently … then forget it.

• Avoid buying funds at a premium to their net asset value. Once closed-end funds (also known as “publicly traded funds”) are sold to the public, they’re closed to further investment. You can only buy their shares from someone else, not by sending your money to the mutual fund company. So they trade like stocks. And, like stocks, they often trade irrationally. If a closed-end fund owns Japanese stocks worth $1 billion (say) and the fund is divided into 100 million shares, then the “net asset value” of each of those shares is $10. But that doesn’t mean the shares will sell for $10. They might sell for $7.50 or for $15. One reason they actually should sell for less than $10 is the fat annual expense charge the fund management takes – so owning those Japanese stocks through the fund isn’t really like owning $10 of them directly. Reasons an investor might buy a fund for more than its net asset value (NAV): He believes the fund managers can pick the right stocks and outperform the Japanese market … he can’t find some other way to invest in Japan … he expects the premium will widen even further (the greater fool theory, which often works, at least for a while) … or (and this is the most likely) he doesn’t even realize that he is paying $1.20 to buy $1 worth of assets.

Recently, you could have bought some closed-end Korea Funds at large premiums to their net asset values … certainly easier than boarding a plane for Seoul and establishing a brokerage account over there and chatting up the managements of a bunch of Korean companies trying to decide what to invest in … or you could have invested in a more obscure one at a large discount. It’s called the Korea Asia Fund, and you can find out at least a little about it at www.trustnet.co.uk/charts/1201.html. Last I checked, it was selling at approximately a 20% discount to net asset value. If – and it’s a BIG if, which I have NOT researched – this fund is as well managed as the others, with annual expense charges no greater, then clearly, over the long run, it’s more advantageous to buy $1 worth of Korean stocks for 80 cents than for $1.20. Then again, even if this turns out to be an accurate description of the situation … and I repeat that I have NOT researched it … it’s a pain to understand and buy this obscure British/Hong Kong-managed fund that doesn’t trade on the New York Stock Exchange like the others, so most people don’t.

Full disclosure: I did buy some of this and so learned that for U.S. investors, it trades in 500-share ADRs (American Depository Receipts). The $1.30 price per share you may see on its Web site translates into $650. If it’s down to $1.10, that’s $550; if it climbs to $2, that’s $1,000 per ADR.

The point of this is not to get you to buy this closed-end fund but to show you the variability of what’s out there and suggest the value of doing some research. I was too busy and lazy to research it myself. I have such a widely diversified (ragtag?) portfolio, no single folly can do much harm. But just because I’m (prudently) reckless doesn’t mean you should be.

Finally:

• I often argue the merits of index funds, Spiders and WEBS (World Equity Benchmark Shares, if memory serves). Their expense charges and taxable gains are kept to a bare minimum, which gives you an edge. But it’s probably true that in some of the less developed markets, a smart manager may be worth paying for. Take, for example, Japanese WEBS. They trade just like stocks, symbol EWJ. Yet I sold mine when a friend who knows Japan made a good point. He said he thought this was a good time to buy into Japan for the long-term but that some of the big companies were still being artificially propped up by the old-boy cozy network over there … they hadn’t yet bitten the bullet … and so if you just bought the index, you’d be weighted pretty heavily with potential clunkers. Better to pay a fund manager who can tell the good from the bad, the truly competitive firms from the old guard still in the process of face-saving measures on the road to further write-downs. This made sense to me, so I took my tiny profit in EWJ (always easier to change one’s mind with a gain than a loss) and am casting about for the smartest way to put some chips in Japan. (One way, of course: just buy some stocks like Sony and Hitachi directly, here on the New York Stock Exchange.) All suggestions welcome.

So there you have it. The only part I’m really sure of: pay off your car loan.*

*Unless it’s one of those 1.9% deals, in which case it would have been advisable to take the “$1,500 cash back” instead.

Perhaps the saddest-but-true Wall Street maxim is to buy "when there’s blood in the streets." Under this rule, the drop in the U.S. crime rate, especially in New York, could be seen as an ominous sign. Not enough blood. More to the point, the scary goings-on in Indonesia suggest it could be time for large, sophisticated investors to begin thinking about how to place a small bet in that country.

"Stay away!" was the knee-jerk response from a very smart f/x trader I know. (F/x is short for foreign exchange, which means that on a moment’s notice, he may sell a billion ringgits or arbitrage the yen against the baht. Ah, finally words I know that my spell checker does not.) "You don’t want to be anywhere near that region — not Indonesia, not Malaysia, not the Philippines, not Singapore, not Hong Kong. …"

Which could mean he’s right, or which could prove the point: When everyone’s terrified and the end has surely arrived — when there’s blood in the streets — it’s time to consider taking a gamble.

Had you observed the blood in the streets of St. Petersburg in October 1917, you would have done very poorly following this folk wisdom.

Had you taken it a little less literally and invested in U.S. stocks after the crash of 1987, or when OPEC in 1973 had thrown the economy into a tailspin, you would have done Okay.

A friend who runs a company based in New Jersey and Malaysia thinks the bottom has more or less been reached. His company’s most important customers are disk-drive makers. Of these, Seagate has been the biggest. Well, at the beginning of the year, given the turmoil in Asia, the bad news came: Seagate wouldn’t be ordering anything from my friend’s little company for a year. They planned to resume ordering in 1999. Now that’s a pretty hefty setback for a little company — what do you do? Lay off all the Malaysians for a year? No, he found other things for them to do and just carried the plant for a while and, guess what? A few weeks ago, Seagate called to place a $3 million order. And IBM has been going gangbusters with its manufacturing in this region. So my friend won’t have to lay off any Malaysians, and at least his little corner of the Asian economy may have seen the worst.

Of course, this is hardly a macroeconomic view. One anecdote from one guy with one plant in one country in Asia. (His favorite country in the region from an investment perspective: the Philippines.) But even with a macroeconomic view, no one knows for sure what will happen.

But I’m looking into how to place a small bet on the Philippines.

Tomorrow: a few related words on closed-end country funds.

Yesterday I told you what my full-service broker says he first learned when he came to Wall Street. “I can’t use that,” I protested. “It’s too ethnic.” (I used it anyway.)

An hour passed.

My phone rings.

I am screening my calls, so he gets the machine.

It is obvious he has now put some thought into this.

“Buy when you most feel like selling,” he tells my machine (no need to identify himself or anything — we’ve been doing this for 25 years), “sell when you most feel like buying.”

This is not a prescription for happiness. You’re always either terrified … maybe this time the world, or at least your stock, really will end … or heartsick … over ditching a stock you’ve come to love, over watching it rise some more after you sell it, and over paying the tax on your gain. (It is from just this experience that comes the expression “eat your heart out.”)

Nor is this a guarantee of success.

But the fact is, the market in effect pays you for your distress.

Sometimes.

“Perhaps you could explain to me something that sounds like a mystery to me (I am sure there are many more) but which may not be at all. I have owned a few Sony Corp shares (SNE) for the last couple of months. Yesterday, Friday 05/08, I receive a newswire saying that Sony hit record consolidated sales, pretax profits, and net profits, listing a plethora of highest-of-all-time double-digit etc. etc. What is the result of all this? I’ll tell you … During a strong day on NYSE like yesterday, the stock fell 0.62%. I was quite stunned! Should I be so? Is this normal?” – Fabrizio Manopulo

The first thing they used to teach new hires on Wall Street was “buy on the rumor, sell on the news.” (“The first thing I remember hearing,” says my full-service broker, “is buy on Rosh Hashanah, sell on Yom Kippur” — reason enough to pay $245 for a trade you could do for $8 here, don’t you think?) The point is: Since everyone wants to get a jump on everyone else, the time to buy something is when you think there will be good news, and the time to sell it is when the news is announced and folks new to the market, who assume good news is good news, rush in to buy the stock.

It doesn’t always work this way, especially if the good news is even better than expected, but that’s basically the key, at least to short-term price movements. It’s not how good or bad the news is that counts but how that news compares with how good or bad people expected it to be.

Of course, if you are buying SNE to hold for the next 20 years, because it’s a great company and you believe in its future, then how the market reacts to any given quarter won’t make much difference. (And I’m not sure they even celebrate Yom Kippur in Japan.)

“I’m starting to see a trend in the products and services mentioned in your column. They all have the same initials. ATCall, Auto-by-Tel, AmeriTrade, Andy Tobias. Have you noticed this? Do you own all of these companies?” – Joe Robinson

I had the same thought about Mobil when it acquired Marcor and Montgomery Ward a billion years ago (or I imagined they did, for a story about conglomeration I wrote in 1976) — that maybe their strategy was to stick to the “M’s” — until out of the blue they went and acquired Belgium. (“Why not? The Belgians are a practical people …”). And I milked the IBM AT for all it was worth, if any of you can remember back to 1984 or so, when it was first introduced. But no, as of yet I don’t even own AT&T, and my plans to acquire it must remain secret until I’ve saved up $125 billion.

INCREASING YOUR DEDUCTIBLE

“Your recent column on deductibles reminded me of what I found researching the cost of an individual health insurance policy last fall. In the most extreme case, to go from a $500 annual deductible to a $200 deductible, the monthly premium went from $115 per month to $194. The possibility of saving $300 in expenses increased the annual premiums by $948 or by 316%. Other policies had increases of 176%, 200% and 232% to go from a $500 deductible to $200.” – Erik Sten

A.T.: Moral? Check your current insurer (for health or auto or homeowners) and find out how much you could save going to a higher deductible. Often, it’s worth it.

“Another reason not to file a claim if the amount is slightly more than the deductible: I recently had to replace a broken windshield. The first thing they asked was whether I had insurance or not. The cost for replacement if they billed the insurance company – $850. If I paid out of my own pocket – $200.” – T.K.

A.T.: Depressing, no? And even where it’s not fraudulent, there’s a point to be made. My convertible roof was just slashed (again). To get a new roof is $1,500. To get a waterproof patch is $50. Because it’s a beat-up old car by now anyway, it would be dumb to go for anything but the patch. Yet by buying ‘comprehensive’ insurance (which I don’t), I am in effect paying a premium that not only covers the insurer’s overhead and profit, but also covers all the people who DO go the $1,500 route. (Well, it’s insured, so why not?) Yet another reason to self-insure, when you can afford to, and make your own economic choices.

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MORE TELEMARKETING TALES

From Uvarov: “A friend of mine said he told a telemarketer, ‘My favorite show ends in 10 minutes. Hold on and we’ll talk.’ The caller said, ‘FOR TEN MINUTES!!!’ He got rid of the telemarketer.

“I was a telemarketer in high school. The first call I made, inviting the woman and her husband to a dinner, she said, ‘If you don’t know, my husband is dead, and you shouldn’t be calling.’ Ouch.”

APRs

“I just read your column on APR’s and I wanted to make a couple comments. If one is talking about savings accounts or CD’s, then the method of compounding might be the main thing that affects the APR, although as computers have taken over the banking industry I don’t know if anyone still compounds quarterly, or even monthly. But in my experience, when one is talking about home loans, the APR is mainly affected by the points and/or fees on the loan. There exist no-point, no-fee loans where the APR is the same as the nominal rate, but the APR for the other loans takes into account these points or fees.” – Greg Buliavac

A.T.: When I think APRs, I think savings accounts. But you’re right. Thanks, Greg.

* * *

DUMB LUCK

“Speaking of dumb luck (as in forgetting about GTC Limit orders), the following has happened to me twice: I went into the trade screen of my online broker and instructed them to trade 100 shares of a stock I was holding so that I could realize a tidy profit. Upon checking the status of the trade later I realized that I hadn’t indicated the trade was a sell, and therefore the default of ‘BUY’ was executed. Instead of selling 100 shares, I now owned 200 shares. Fortunately both times the stock has risen, so that when I remedied my mistake I actually made a few hundred extra. Whew! Counting my blessings in NC. (Don’t use my name in column please, too embarrassing. ;-)” – A.T.: For a few hundred extra, I agreed not to use his name.

FINDING GREAT CD RATES

“The two best money market and CD rate scanning services I’ve found so far are www.bankcd.com and www.bankrate.com. I’m now earning .4% more with an FDIC insured bank I found through www.bankcd.com (5.85% compared to 5.39%, $25,000 minimum deposit and a limit of 3 checks a month) than I was with my … [broker’s – a broker other than the one that sponsors this comment] alleged premium money market mutual fund ‘the best in the country.'” – Bill Nagler

Adds Alan Light: “Another useful site is www.banx.com/wsj/savcd/savebox.htm. Which, unlike bankcd.com, is completely free.”

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FINDING OUT-OF-PRINT BOOKS

“If you are looking for a really great book search engine, try www.mxbf.com. It will catalogue results from Advanced Book Exchange, Powell’s, Bibliofind, Amazon, Interloc, and Bibliocity … all in one swell foop! You can ask it to give you 10 books per site, 25 books per site, or more … and specify price ranges.” – Rick Geyerman

A.T.: A swell foop indeed. And as if that weren’t testimony enough:

“Amazon just got back to me about your book, Getting By On $100,000 a Year and Other Sad Tales, and after a full month, they offered it to me for $80. Now, I like some of your work, but not at $80. I declined, then found MX Bookfinder (www.mxbf.com). In 30 seconds, they found 4 bookstores with 8 copies priced $10 – $20 plus shipping. They aren’t quite as easy to use as amazon (I have to snail-mail a check to the dealer), but much faster and cheaper overall. MX Bookfinder allows you to put in requests for books they cannot immediately locate, so I put in the out-of-print anesthesia text that Amazon has not yet been able to locate. You have a point about Amazon’s cutthroat competition and the likelihood of an after-tax profit of $250 million.” – Charlie McDannald