Author: A.T.

I know a guy who recently spent $1,200 on a scarf. (His rationale? “It was reduced from $3,000.” He actually said this.) Here’s what I recently got for $1,200:

• One blue Fioravanti suit
• One gray Ungaro suit
• One brownish-gray Nino Cerutti suit
• One black Ungaro suit
• Two belts
• Free alterations
• Eleven hundred thirty-six frequent flier miles
• $63.38 in change

Yes, I got a little carried away. I can’t honestly tell you I sit here typing all day in a suit.

And, yes, when I got them home, one of the suits was not a hit. “I don’t like black suits,” said Charles, who, to my relief, liked the others.

But here’s the great part. I had forgotten to buy a tux — that’s what I needed, a tux! — and after squinting at the situation for a minute with a designer’s eye, Charles told me to give him the black suit. Next thing you know, it had black satin stripes on the pants and the collar — voilà! My new tuxedo.

Now, you may think I got all this fine loot so cheap because, having given Men’s Suits a plug or two over the last year, Men’s Suits wanted to do me a favor. Not so. I actually make a point of trying to avoid that sort of thing. When out of the blue two ostrich eggs arrived unsolicited from the ostrich people a while back, one broken, I did not return them — who has time to be that incorruptible? — but I’ve paid for every pound of ostrich meat I’ve consumed, paid for every fat-free cheesecake, paid for all my suits. The alterations were free because, it seems, with even the suggestion of negotiation, all the alterations at Men’s Suits wind up being free.

Indeed, it was not until he had run my credit card through the cruncher that — displaying a copy of my book — I asked (couldn’t resist):

“Have you seen your plug?”

“What plug?” the manager asked.

“Page 159,” I allowed, handing him the book.

“Hey, Harry! Come look at this!” he called to someone who almost surely wasn’t named Harry but whose real name I forget.

“You should give a free book with each suit,” I suggested helpfully.

“Hey, Raoul! Come look at this!” he called animatedly to someone who almost surely wasn’t named Raoul, wisely ignoring my suggestion.

So, OK; when they connected the face on the book to the face with the credit card they threw in free delivery. But that’s as far as it went. And inasmuch as I now have enough suits and tuxes for at least five more years, it’s not likely to go further any time soon.

#

And now for an unrelated but important Public Service Announcement:

Please: Drive VERY carefully tomorrow night. (And at all other times as well.) I need all the healthy readers I can get. Seat belts save lives; driving defensively saves more; plastic surgery is no fun; there are tens of thousands of tragically serious accidents each year — and not a single one was expected by the drivers involved.

Don’t drive too fast, leave PLENTY of room between you and the car in front of you, NEVER drive when you’re too sleepy or have been drinking.

Dave Allman: "I’m 46 with a $250,000 zero basis IRA and the Roth conversion numbers absolutely make sense, if I can meet the $100,000 AGI cutoff. My concern is the "tax risk" of assuming that today’s law will control in 20, 30 or 40 years. It wasn’t long ago that Social Security wasn’t taxable (okay, special case, but point is the same). Any speculation on the risk of paying taxes today only to have to (perhaps) pay them again someday?"

It’s a real risk, though there will be lots of senior voters by then to keep Congress from daring to do it directly. The Roth would never be taxable per se, I suspect. But if they decided that income from your Roth IRA should be counted in determining your eligibility for Social Security or other benefits, say, or in figuring some 21st century alternative minimum tax, it would amount to much the same thing.

The best you can do is make some educated guesses, comfortable in the knowledge that, by and large, whatever choice you make is secondary in importance to the fact that you’re saving in the first place. That’s the big decision, and either way you go — traditional IRA or Roth IRA — you’re making it right.

I wish you a Merry Christmas, I wish you a Merry Christmas, I wish you a Merry Chrissssssssssst-mas — and a Happy New Year!

I would also point out that if you never quite get to itemize your deductions — or if you do itemize, but for barely more than the standard deduction would have entitled you to anyway — you might want to think about the old bunch-things-up-every-second-year strategy. Stop! Don’t send out those charitable gifts this week — send them January 1, 1998. Stop! Don’t pay your property tax this week — pay it January 1. Then at the end of 1998, do make your charitable gifts and pay your taxes before the end of the year. For 1998, you’ll have double the deductions you normally have and might thus get more of a tax break. In 1999, you’d take the standard deduction. In 2000, you’d double-bunch again. And so on. (Naturally, you wouldn’t delay paying property or state income taxes where penalties would be involved.)

Let me be quick to say this idea does society no good whatsoever. But it seems harmless enough, and if it ultimately saved you $1,000 in taxes every second year, I say: Merry Christmas.

And this just in from someone with a cryptic AOL address. Today being the first day of Chanukah, I thought it might bring a smile to faces Jewish and gentile alike. In these politically-correct times, I feel I should preface it by saying I am a trustee of the Shoah Foundation, and it didn’t offend me. So I trust no one else — including aviary-rights advocates — will be offended either. It’s a joke:

Meyer, a lonely widower, was walking home one night when he passed a pet store (perhaps a PetSmart — PETM?) and heard a squawking voice shouting out in Yiddish, “Quawwwwk … vus machst du … yeah, du … outside, standing like a schlemiel … eh?”

Meyer rubbed his eyes and ears. He couldn’t believe it. The proprietor sprang out of the door and grabbed Meyer by the sleeve. “Come in here, fella, and check out this parrot.”

Meyer stood in front of an African Grey that cocked his little head and said, “Vus? Ir kent reddin Yiddish?”

Meyer turned excitedly to the store owner. “He speaks Yiddish?”

In a matter of moments, Meyer had placed five hundred dollars down on the counter and carried the parrot in his cage away with him. All night he talked with the parrot in Yiddish. He told the parrot about his father’s adventures coming to America, about how beautiful his mother was when she was a young bride, about his family, about his years of working in the garment center, about Florida. The parrot listened and commented. They shared some walnuts. The parrot told him of living in the pet store, how he hated the weekends. Finally, they both went to sleep.

Next morning, Meyer began to put on his tefillin, all the while saying his prayers. The parrot demanded to know what he was doing, and when Meyer explained, the parrot wanted to do it too. Meyer went out and handmade a miniature set of tefillin for the parrot. The parrot wanted to learn to daven, so Meyer taught him how read Hebrew, and taught him every prayer in the Siddur with the appropriate nussach for the daily services. Meyer spent weeks and months sitting and teaching the parrot the Torah, Mishnah and Gemara. In time, Meyer came to love and count on the parrot as a friend and a Jew.

On the morning of Rosh Hashanah, Meyer rose, got dressed and was about to leave when the parrot demanded to go with him. Meyer explained that Shul was not a place for a bird, but the parrot made a terrific argument and was carried to Shul on Meyer’s shoulder. Needless to say, they made quite a sight when they arrived at the Shul, and Meyer was questioned by everyone, including the Rabbi and Cantor, who refused to allow a bird into the building on the High Holy Days. However, Meyer convinced them to let him in this one time, swearing that the parrot could daven.

Wagers were made with Meyer. Thousands of dollars were bet (even money) that the parrot could NOT daven, could not speak Yiddish or Hebrew, etc. All eyes were on the African Grey during services. The parrot perched on Meyer’s shoulder as one prayer and song passed – Meyer heard not a peep from the bird. He began to become annoyed, slapping at his shoulder and mumbling under his breath, “Daven!”

Nothing.

“Daven … feigelleh, please! You can daven, so daven … come on, everybody’s looking at you!”

Nothing.

After Rosh Hashanah services were concluded, Meyer found that he owed his Shul buddies and the Rabbi over four thousand dollars. He marched home quite upset, saying nothing. Finally several blocks from the Shul, the bird, happy as a lark, began to sing an old Yiddish song. Meyer stopped and looked at him.

“You miserable bird, you cost me over four thousand dollars. Why? After I made your tefillin, taught you the morning prayers, and taught you to read Hebrew and the Torah. And after you begged me to bring you to Shul on Rosh Hashanah, why? Why did you do this to me?”

“Don’t be a schlemiel,” the parrot replied. “You know what odds we’ll get at Yom Kippur?!”

If you like that joke and are Jewish, like me, you may retell it. If you are not Jewish, maybe not. But my main concern is that whoever wrote it has gotten no credit for it. In hope of finding some attribution, I used the Alta Vista engine to search on “Meyer” and “Parrot” — and it turns out (seriously!) there’s a guy named Meyer who has a parrot, but not a Jewish parrot. When I added Rosh Hashanah into the search mix, I came up blank. Thanks, in any event, to whoever started this thing orbiting. I assume he’s Jewish.

"Is money the root of all evil?" — Dawn M.

Hardly. Shaw had it right. Lack of money is the root of all evil. Once people get a lot of it, they turn into philanthropists, endow colleges, and send their sons off to be inspiring presidents of the United States.

Money itself — the medium of exchange — is of course this miraculous invention that is as fundamental to economics and prosperity as language is to civilization and culture.

It’s not money that causes evil, it’s desire (whether material or sexual or egomaniacal). Not to knock desire; just to say that a "good" person will not allow it to trample basic notions of fairness and honesty. So it’s perhaps the lack of scruples or conscience that’s the root of all evil. A chemical imbalance, no doubt. One day there will be a pill. Or a patch. (Imagine the money in that!) And the truly evil people will find a way to get everybody else to take it, or wear it, but not them. AND THEY WILL TAKE OVER THE WORLD. Except that George Clooney and Nicole Kidman will find those people in the nick of time — I mean WITH JUST SECONDS TO SPARE — and stick patches on them and it will all work out OK.

Trust me on this.

From Siu: "I have seen a couple of cases so far this year that were related to my question. I will use the most recent one as an example. OmniHealth is being acquired by some company announced on 10/17/97 for $35/share cash. Why is Omni’s price still around $31? This puzzles me."

A: It’s because some people must fear the deal might fall through, in which case the stock could fall back to where it was. Incidentally, I think you may mean OmniCare, not OmniHealth. Last I checked, no one was offering to buy it for $35.

Greg in California: I’m new to investing but I understand that the firm of Salomon Bros has been in the bond business for a long time? and provides services to a lot of institutional clients? Their newest funds for individual investors are relatively new so it’s hard to track them for any length of time. My question is: Is Salomon Bros the gurus of the bond world? do they have a reputation I’m not aware of? Their bond funds are sure expensive. Thanks.

A: The only thing Salomon may be more expert in than bonds is making money for themselves. No harm in that, but I would advise going with very inexpensive funds (or, when it comes to U.S. Treasury bonds, the program known as Treasury Direct — call 800-943-6864 at any time of day or night, listen to the end of the recording, and then enter your zip code when prompted to get a local phone number to call during business hours for details).

From Kiruba: "I am an engineering student working on a graduate degree. I don’t know much about investing in the stock market but am thinking about investing some money in it. I have some (very dumb??) questions and wonder if you can help me with them.

1) When I buy and sell shares, do I pay tax only on the profit I make?

A: You pay ordinary income tax on any dividends the shares may pay you. You pay capital gains tax on any profits you realize when you sell. (The profit is figured after deducting brokerage commissions.) If you hold the shares a year or less, the capital gains rate is no different from your ordinary income rate. Lower rates kick in at the one-year-and-a-day mark (i.e., if you bought April 3, 1997, you must wait until April 4, 1998 to sell), the 18-month-and-a-day mark, and, beginning for most people with shares purchased after 2000, the 5-year-and-a-day mark. Note that losses offset gains — you only pay taxes each year on your net gains. And should you have net losses — up to $3,000 can be written off against your taxable income each year, with the remainder "carried forward" to offset gains in future years.

2) If I want to invest in foreign markets, say Hong Kong or Bombay, can I still go through American brokers like Ameritrade if I am scared of trusting my money with foreign brokers?

A: Different brokers have different capabilities when it comes to buying foreign shares. Call and ask. But all can buy US-traded foreign securities, as well as US-traded "country funds" that invest in a basket of stocks in, say, Chile or India or France. And from the sound of it, until you get more money and experience (and maybe even then), this would be a wiser course anyway.

3) As an amateur investor am I at a disadvantage because I don’t get to know of things going on till I see them on the news?

A: Yes and no. Certainly, common sense suggests that it should help to be experienced, knowledgeable and "plugged in" to the business world. You are none of these yet. Then again, studies show that a monkey throwing darts tends to do better than most pros (because the monkey is not saddled with sales commissions, fees, expenses or taxes — he’s normally a hypothetical monkey). So if you’re careful and sensible and patient, you may not be at as much of a disadvantage as you might think. Still, inexperience can’t be a plus. Your main job isn’t to try to outsmart the pros competing with you in the market. It’s to develop the habit of investing something every month, and patiently building your stake.

“Neither a borrower nor a lender be, for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.”

I’ve been kidding around about this for some time, but gosh, that’s good advice. Loan oft loses both itself and friend — we sure know that’s true! And borrowing dulls the edge of husbandry — just look at what happened to the over-borrowed economies of Asia.

“Shakespeare wrote it and Polonius says it,” notes reader Gordon Whiting, “but Polonius (being a fictional character) never spoke Danish — and I agree with you that the name sounds more Latin than Danish. But what kind of a name is ‘Hamlet’?”

Hmmm. Dunno.

Gordon continues:

“Shakespeare makes Polonius out to be a pompous fool, but in the particular speech the quote comes from, Shakespeare let Polonius say something intelligent, for a change. Polonius heads the one somewhat-functional family in the play (he’s father to Ophelia and Laertes) and maybe his maxims helped make it that way.

“I love the irony of his famous comment on brevity:

To expostulate on why day is day, night night, and time is time, were nothing but to waste both day, night, and time. Therefore, since brevity be the soul of wit, and tediousness the limbs and outward flourishes, I will be brief. [after he has not been nor will be in what comes next]

“Sorry, I got to play the part of Polonius last year, so some of the lines still stick in my memory.”

Thanks, Gordon! A flight of angels . . .

____________________________________
Husbandry, it may be worth noting for those who did better on their math SATs than their verbals, has nothing to do with keeping your spouse in line. “Economical management” is one Webster’s definition. Keeping to a budget. That sort of thing. Top

A young investment banker I know went bankrupt. He had let his debts get the better of him and had gambled recklessly in the market. But he was of essentially good character and excellent financial prospects, so if only his creditors had borne with him until he got his bonus, everything would have been fine.

“Sure, sure,” said three of his creditors, who had heard it all before. They forced him into bankruptcy over $60,000. Six months later he got a $250,000 bonus and paid off all his creditors. (Except these three. When his rage at them subsides, he may pay them, too. I hope so.)

Now he wants to buy a $300,000 house in Connecticut with $100,000 down. Have you ever tried getting a mortgage after you’ve gone bankrupt? Never mind the circumstances or the size of your down payment: almost no bank will touch it.

But that’s where you or I might come in. You or I might look at this and say, bankruptcy or no, the $300,000 house supports a $200,000 first mortgage. You might not want to lend that kind of money — if you have that kind of money — at 7% for 30 years. I certainly wouldn’t. But how about lending it for two or three years, and at 12% or 14%, say, backed by a first mortgage on the house and by the borrower’s personal guarantee? With the borrower paying all closing costs? And with no prepayment allowed the first year (so you earn your good rate of interest for at least that long)? And with perhaps even a “point” or two thrown in for good measure?

If you have a spare $50,000 or $500,000, that’s the kind of mortgage you might want to make.

Such deals are widely available. There are borrowers who can offer good security but who, for whatever reason, can’t get, or don’t want to try to get, a conventional loan. Or can’t get it as fast as they need it.

To find them, start by contacting mortgage brokers in your area and letting them know you might be a source of funds. You’ll quickly establish whether they have an interest in working with you and what you might expect. A second possibility: local realtors and real estate attorneys, both of whom may frequently encounter buyers in search of mortgage money. A third: take an ad in the real estate section offering to buy existing mortgages — typically, mortgages that sellers were forced to take back in order to move their homes.

It’s crucial to be represented by a knowledgeable, reputable attorney, and to get ample security — or at least an interest rate commensurate with the risk. (If it’s a second mortgage, the going rate can be 16% or more, but it’s all the more important to ascertain the true market value of the property and to obtain other collateral, if possible, such as a mortgage on a second piece of property the borrower may own.)

You must be certain there’s title, fire and flood insurance on the property and that your mortgage is recorded properly. And you should never assume that a property appraised at $200,000 today would yield anything even close to $200,000 in the event of foreclosure. The appraisal might have been high; selling costs will typically eat up at least 6% or 7% of the proceeds; the property could have deteriorated markedly in the meantime and would have to be maintained for the months and months it took to sell it even at a fire-sale price; the bottom could have fallen out of real estate prices in this area or out of the economy as a whole.

For you to lend $30,000 as a second mortgage on a $200,000 house that already carries, say, a $120,000 first mortgage might sound conservative, but it’s not. In a foreclosure, the bank holding the first mortgage would be entitled to $120,000 plus the unpaid interest and back taxes and legal fees . . . so figure maybe $140,000 . . . the property may well have been allowed to go to pot, unpainted, landscaping turned to weeds and muck . . . and on the courthouse steps, $145,000 might be the high bid. In this example, you’d be left with $5,000 of your $30,000, if that. Or else if you thought it was being stolen at $145,000, you could buy the property yourself. In this example, you’d be the high bid at $146,000, say, meaning you’d have to pay $140,000 to the first mortgagee (who might along the way have agreed to work with you with financing), and then you try to sell the place for more. Sure, you could paint it and clean up the yard, and maybe when all was said and done, you’d somehow rescue your $30,000. But you’d be risking a ton of cash and time in order to do so . . . so when push came to shove, you might well not.

All that said, and the very real risks recounted, here is a way for careful investors to earn high interest on large chunks of cash, with some additional effort but little additional risk.

Additional points to note:

• The person who mortgages his property is the mortgagor. You, who lend to him, are the mortgagee. I was so excited when I finally got that straight!

• When the loan matures, in a year or two or three, you may have the opportunity to renew it on similarly favorable terms. The borrower now has an added incentive to stick with you: by doing so, even at an above-market rate, he saves what may be thousands of dollars in a new set of processing fees, points and closing costs. And he saves the hassle.

• The interest you earn is fully subject to income tax.

• If you’d rather not deal with the borrower directly, your lawyer can serve as your trustee, disbursing the loan and collecting the monthly payments.

• Always, always, always, always be prepared for the possibility you might one day have to foreclose on the property, as unlikely as that may seem today. Considering all the costs — financial and emotional — is it something you could do?

Tomorrow: Polonius Speaks

"Lately, I’ve been seeing infomercials that promise big profits from buying ‘government-backed’ tax lien certificates at auction. It smells pretty fishy, but what’s the real story on this?" — Geoff Wisner

I wonder if there’s something inherent in the economics of infomercials that makes all their products a disappointment. I’m not saying there is, just wondering why I’ve never personally encountered happy, successful people with rock-hard stomachs who owe it all to an infomercial. There are presumably hundreds of thousands of such people out there, given the volume of business the successful infomercials do. But the only ones I tend to meet are on TV, on the infomercials themselves.

Funny.

Anyway, however much they’re charging for the tax-lien books or tapes, perhaps I can save it for you with this column.

The basic idea is to earn a safe 10% or 12% or 14% or even more by participating in auctions that some counties hold to collect back property taxes. You pay the tax for the delinquent property owner, and then if for some crazy reason the owner fails to pay you back in a couple of years, you get his property! So you’re virtually guaranteed a nice return on small chunks of dough, or else — "worst case" — you get the property for the price of a couple of years’ taxes.

I did this myself in Dade County, Florida, a decade ago. Worked fine. But I do know that if they’re doing infomercials on it, there’s going to be a lot more competition at the auctions, driving down the return you can earn from doing this. (In effect, the lowest interest rate wins the auction. "I’ll accept an 18% return!" shouts the first bidder. "I’ll take 16%!" counters the second — and before you know it, some annoying soul in the back row has won the bidding by agreeing to accept 9.8%.")

I also know that in some localities — perhaps even in Dade County by now — there are far more pitfalls than there were the year I did it and wrote a column about it for Time. So if you look into this, be careful. (Don’t, for example, buy the tax certificate on some former gas station only to find out that, as the new owner a couple of years from now, you’re liable for some million-dollar environmental cleanup.) But basically, though it’s labor intensive — it tends to be a lot of odd little $1,844 and $2,329 investments, each of which you have to keep track of — I expect this can still make sense in some parts of the country.

The key thing to do, and I doubt the infomercial product can do it for you, is to check out the current rules of the game in your locality. (I suppose you could drive to neighboring counties and states as well, if you really get into this.) Ask your local real estate agent how it works and what can go wrong. Ask the county clerk or whoever runs the auctions. Find out when the auction is held and what you’d need by way of cash and cashier’s checks, etc. to participate. The research is less about the properties on which tax liens will be auctioned — what property isn’t worth two years’ taxes? — but the overall rules of the game. In some areas it’s not as clean and simple as it was in Dade, where you really could be sure you’d get either your interest or the property — free and clear — without further legal expense or contingencies, and without ever having actually to meet or deal with the delinquent taxpayer. (In Dade, the delinquent taxpayer would pay the county, which passed the money on to you.)

Perhaps the best way to research it is to find some friendly soul in the tax collector’s office (and/or some friendly real estate or bankruptcy lawyer) and ask what would happen if you couldn’t pay your property taxes. Would the state ultimately put your debt up for auction? After how long? What if you repaid it? What if you didn’t? What recourse would you have to get it back? What if you didn’t vacate the property? What if you declared bankruptcy? In other words, learn how it works from the other side of the transaction: the guy whose delinquent tax bill you’d be paying.

Of course, the other way to learn about this is go to this year’s auction just to scout it out, asking questions of anyone who’ll talk. Some may paint a rosy picture, but others may want to discourage your competition and thus emphasize the pitfalls.

Some of the people at these auctions will be real estate professionals and real estate lawyers. You might want to work a deal with one of them to serve as your agent at these auctions. Don’t you bother to go each year. Let him go with your $25,000 or $50,000 and a power of attorney (or whatever), and bid for you, for a fee. He’s got to be there anyway; if he can pick up some extra dough for the day, why not?

Needless to say, you’d want to be very careful in making such an arrangement, especially if the chunk of money you were entrusting were significant to you.

For the most part, you get what you pay for in the financial marketplace, if you’re careful — but not more. The reason these things pay more than money market interest is that, at the very least, they require more effort. You’re being paid for lending your money, yes, but also for your time going to the auction, for arranging for the certified checks and the paperwork, and for having your money frozen for a while and not knowing exactly when you’ll get your money back.

So it’s not a free lunch, but it could be worth looking into. All the information you need on this should be available without charge.

I know I am not what you would call an authority on golf, having played only once in my life (and wasn’t that a triumph). And I know that a lot of you get really steamed when the talk in this space strays from matters financial. But golf being as popular as it is, I just feel a responsibility to warn you it is not as benign a pursuit as one might imagine.

Last time I forwarded to you a report on the health hazards (what kills weeds may kill golfers, too). Well, naturally enough, there is also the danger of the errant golf ball. On the local news, I recently saw an incident — all caught on tape, which they played — where some pro hit a ball that conked not one but two spectators, with a ricochet. No one was permanently damaged, thankfully, but both were knocked to the ground (and breathing in, therefore, all the more toxic herbicide).

This reminded me of the time my Aunt Gussie neglected to cry “fore” and drove a ball into my dad’s fore-head. Although this occurred before I was born, it was legend in our family. Aunt Gussie was never our favorite, and I suspect this may be one of the reasons why.

According to The Injury Fact Book, notes faithful reader Kenneth Shirriff, golf resulted in an estimated 18,800 emergency room visits in 1980 and 28 deaths from 1973 to 1980. And though these statistics are old, I know of nothing to suggest the sport has become any safer.

The point is, you can do a lot of damage if you hit that little pockmarked missile wrong — and get yourself into a real pickle, a la the young newlyweds and the genie that I told you about in August.

Golf at your peril.