Author: A.T.

Many of you joined Mark Brady in setting me straight. “Your comments today on Posh being a travel acronym [Port Out, Starboard Home] are a little misplaced. Actually, the acronym was supposed to refer to travel to India from England. There was a long discussion about this on the urban legends newsgroup. The relevant URLs are: www.urbanlegends.com/language/etymology /posh_etymology_of.html where they reference The Browser’s Dictionary by John Ciardi and www.urbanlegends.com/language/etymology /posh_etymology_of_more.html. They also reference the OED, which has six entries, one where Posh is a nickname of a friend and another referencing a Murray Posh. Still, my favorite use of it was in Ian Fleming’s Chitty Chitty, Bang, Bang.”

Adds Robin Sahasranam: “The Port Outbound Starboard Home referred to the desirable cabin bookings on journeys between Britain and its Asian and Pacific colonies like India, Malaya, and Australia. These journeys were before the days of air-conditioning. Port-side cabins on outbound journeys from Britain and Starboard-side cabins on inbound journeys to Britain were on the shady side, and thus more desirable. By the way, all etymologists are not in agreement over this origin of the word posh. There are some who have traced the origins of this word to some Indian languages.”

And this from Mike Schiffer: “John Ciardi, in his Browser’s Dictionary series, argues that the word derives from the Romany word ‘posh’ meaning ‘half,’ which entered into London thieves’ cant as meaning swag or loot, and hence became ‘rich’ or ‘fancy’ in more general slang, but I don’t have that book in front of me. I highly recommend the Ciardi books both because they’re interesting in themselves and because they’re great for checking derivations like this. (A check at Amazon indicates that they are out of print, but they shouldn’t be hard to find used.) In my experience, just about any derivation based on an acronym from before the twentieth century is suspect, though I’m sure there are exceptions. (‘Cop,’ meaning policeman, doesn’t come from ‘Constable On Patrol’ either, even though the World Book Encyclopedia of my youth told me that it did, and ‘tips’ aren’t originally To Insure Promptness.) On the other hand, there are still some neat discoveries to be made: daisies are called that because they look like the Sun, or the ‘day’s eye,’ for example.”

“A difficult question I’d like your insight on: How might I identify stocks which I have a reasonable chance of holding forever and enjoying roughly a (U.S.) market rate of return? I am primarily interested in holding in taxable accounts.” – Gilman Miller

A.T.: Your question is either very simple or very difficult, so let me take the simple way out: Just buy SPY, a synthetic security that trades like a stock and mimics the Standard & Poor’s 500, and you will be assured of getting essentially a market rate return (minus a mere two-tenths of one percent) all your life — and with relatively mild tax consequences. You will, thus, outperform most — very possibly 90% — of all your friends and neighbors. Of course, simply buying SPY is boring. Your friends and neighbors will have more fun.

And speaking of fun …

Thanks to Brooks Hilliard for turning me on to www.bobsfridge.com/skew.htm. The day I looked, the lead story had Janet Reno very convincingly calling for the arrest of Congress for posting 445 pages of porno on the Internet. It’s a very funny site.

“In your recent article, you stated that if a person may need the money in 5 years do not consider putting in the stock market. Why do you feel that way? Five years seems to be a nice length of time for your stocks to grow as opposed to leaving it in a bank and getting 3-5% interest a year.” – JPNappy

A.T.: Well, say you have $10,000 you may NEED for something in the next five years and that when you DO need it, it’s only worth $6,300, because stocks are down. That would not only leave you short of cash but force you to sell at what might be close to the bottom. Better to have bumbled along in a bank or money market or Treasury Direct and have $11,500 instead.

Obviously, five years is arbitrary. If you will literally need the money in five years and one day, that doesn’t make the market a completely safe place for it, any more than at four years and 11 months it’s suddenly dangerous. But the notion that stocks can never go down and stay down for more than a few months — or even a few years — is a very modern one with little regard for reality. To me, for money you really can’t afford to lose, five years would be a sensible minimum — and even then there are no guarantees.

One reason “the rich get richer” is that they can afford more risk. They have that first $5 million safely in bonds. <grin>

(Hey, I hate “<grin>s” as much as the next guy — what a tragedy it would be if writers had to begin signaling <irony> or <humor> or <tears> with brackets. But I have this morbid fear one of you might actually think I don’t realize how preposterous $5 million IS to most of us — let alone $5 million safely in bonds. <downward-drooping envious pout>)

An Internet start-up in which I have a small foolhardy investment wants to offer you a free “financial plan.” They assure me it’s not a trick to grab your innermost financial secrets but rather a way to get some early feedback on their service, and to get users in all 51 jurisdictions (D.C.? Guam?).

If you’re curious, you can do it by phone — and grill the reps with whatever questions or reservations you might have (888-736-9720) — or else proceed straight to the very-much-a-work-in-progress Web site: www.PaceFinNet.com. There — after you click “Sign In” at the upper left, scroll down to First-Time Member and “register” — you’ll be able to choose one of the following reports, based on the info you provide:

• College
• Retirement
• Insurance
• Estate
• Comprehensive

Note: To find these, click the TOOLS option and then PERSONAL FINANCIAL REPORTS.

The company assures me: “As you might expect, PFN’s privacy and security policies are very strict and require that all information be kept confidential and secure. PFN’s requirement of a personal account name and number provides one level of security. Another level of security is provided through constant monitoring by PFN and IBM to prevent and detect any unauthorized access.”

Of course, it’s way too late for me to unload this investment if it’s a turkey, but let me know what YOU think, if you try this. All feedback will be forwarded and appreciated.

RE: BILL BUYS AN ELECTRIC GENERATOR

“Does Bill’s ‘idiot-proof’ generator contain an embedded microprocessor? Is it Y2K certified?” – James Keenan

“Honda does make great generators. I have a little 700-watt model that is enough to run my computer and a few lights, or, if it’s cold, just a little space heater. It’s been a work horse, and when I worked at home on my computer, it paid for itself in one winter (with frequent power outtages [sic]).” – Seraphim Larsen

“Can’t afford it, and don’t have a place to put it, but for the only way to go with emergency power generation check out: www.radius-defense.com/scupp.htm. Unbelievable.” – Jim Cobbs

[I did. Talk about the ultimate in disaster protection! Don’t miss the $1,900 food/fuel package, either. Enough food to last your family of four more than a year. If we need that, we in big trouble. I am persuaded that the power outages in 2000, if any, will most likely be relatively few and short-lived. At first, all the power plants are likely to be taken OFF grid, so problems at one don’t cause problems at another. This could make for brownouts or outages in certain localities. But then, as it proves safe to do so, plants could be added back onto the interconnected national system. – A.T.]

“Here is the best web site I know for ‘Non-grid’ living [non power grid, that is] — www.realgoods.com. It doesn’t have your generator bike but lots of other cool ‘Solar’ stuff.” – Dave Dierking

LOW BILLS, BIG LEGS

“My ex-boyfriend runs his whole apartment off of bicycle and solar power. (Their electric bills are about $2 a month!!!) He mounted a bicycle onto a stationary adapter (so he can still use his bike) and pedals about an hour a day to get full power. I don’t know the details on how to do it, but I know it can be done!” – Prefers Anonymity

RE: USEFUL WEB SITES

“Your list of web sites was pretty good. But here’s one you left out. It links a lot of the news services in the search for stock related news: www.justquotes.com.” – Elliott

RE: THE PHYSICS OF COFFEE

“I do believe coffee tastes different in a glass than a ceramic cup. However, though it pains me environmentally, I think the best comes in a paper cup.” – Dana Canzano

RE: THE PENNY DISH

“I have an 8 year old son and 5 year old daughter so the ‘penny dish’ rules are real to me, because I have to be able to rationalize what I’m doing at EVERY moment to them. Our rules are, 1 or 2 pennies is okay, never any more than that because it would seem to [sic] much like taking other people’s money which is WRONG. All rules eventually find their root in the ‘do unto others as you would have them do unto you’ basis.” – Jim Strickland

“Need a penny? Take a penny. Need two? Get a job.” – Ray Van Tassle

RE: Y2K FEEDBACK

“You say you haven’t heard of DeJager? He was one of the first to make a big deal of Y2K. He now spends all his time traveling around giving talks, consulting, etc. on the subject. He also started (and may still run) the web site that is the first place to start with Y2K questions: www.year2000.com. Personally I would rather listen to Ed Yourdon (25 books and 30 years in data processing) whose last book, ‘Time Bomb 2000,’ covers the waterfront; or Ed Yardeni of Deutsche Bank who has a good feel for the economic impact. Both have web sites.” – Jim Cobbs

Remember all the talk about converting to Roth IRAs? As The Wall Street Journal and others have ably pointed out — but it may warrant my repeating in case you missed it — the recent market drop has this silver lining: If you do qualify to convert your existing IRA to a Roth IRA (because your 1998 adjusted gross income is likely to be below $100,000), it’s now less taxing to do it. Why? Because the tax is based on the value of the IRA at the time of the conversion. If the value of your IRA has dropped 20% or 30%, so has your tax bill! (Or nearly so.) Hence, conversion may be worth another look.

There’s also this nice amendment to the tax law. If you convert thinking your income will be under the $100,000 ceiling and — nuts! — you get a nice bonus, you are allowed to UNconvert without penalty so long as you do so before your 1998 tax return is due (i.e., April 15). So it’s not the gamble it might have been.

For free software aimed at helping you decide whether to convert or not convert, you might check out www.owlsoftware.com.

Goldman Sachs market strategist Abby Cohen and I were on "Face the Nation" last Sunday talking about the stock market collapse — she, because she’s one of the most highly regarded analysts on the Street, and I, because Peter Lynch was unwilling to screw up his Labor Day weekend — and I have two things to report.

The first is that I’m not really as pessimistic as I may have sounded. I did mean, and do believe, that anyone who’s in the market on margin should sell enough to get off margin (and that anyone in the market who runs credit card balances or pays 10% on a car loan is, in effect, in the market on margin, only paying high non-deductible interest). But that’s always true. I did mean, and do believe, that people should not invest money they may NEED in the next five years, possibly even longer — but that’s always true. And, finally, I did mean and do believe that anyone in the market should pay special attention to transaction costs and fees — easy to overlook when the market is going up 25% a year, but a terrible drag on performance at any time, and painfully so when the market is actually stagnant or going down. And that’s always true as well. (It’s never smart, in my view, for example, to pay a 2% or 3% annual "wrap" fee to have some venerable brokerage firm manage your money — it’s insane.)

I even did mean and do believe that we probably haven’t seen the bottom yet. But on that point I would have liked to bold face and italicize the caveat: "Needless to say, I don’t have a clue where the market’s headed." Hunches, yes (more often wrong than right, I’d say), but a real clue? Nah.

So Abby was a lot more confident — not to say she was issuing any guarantees — in her expectation of a market back at 9300 by year’s end than I was/am in my hunch that we probably haven’t seen the bottom.

And sure enough, with the Labor Day Weekend over, the market opened up 380 points. So maybe we have seen the bottom, though my hunch … well, you know my hunch.

But over the long term, one should certainly be excited by and optimistic about our nation’s and our world’s prospects. We have to do a lot of things right to keep from blowing it — mainly, we have to resolve our conflicts peacefully, or as nearly so as possible — but the power of technological advance holds out the possibility for extraordinary gains in productivity and prosperity.

The second thing I wanted to say is that I got a lot of e-mail from friends snickering over Abby Cohen’s presumed unstated interest. Namely, that Goldman Sachs hopes to go public next month, so of course Ms. Cohen is, consciously or subconsciously, touting the market.

But interestingly, and to her credit, this may be dead wrong. Ms. Cohen is not a partner at Goldman Sachs; she is an employee (albeit a highly regarded, senior one). Which means that while the partners will, in effect, be "sellers" when Goldman goes public and would not mind seeing a strong market for their offering, Ms. Cohen will in effect be a buyer in that her stock options will, one presumes, be tied in some way to the opening price. The lower, the better.

So Abby Cohen may be right about the market or wrong about it, but she’s not bullish just to pump up her Goldman stock — she doesn’t own any.

From Dana Dlott: “Hewitt Associates has introduced an index that tracks 401(k) activity – www.hewitt.com/401kindex.”

The index is based on more than a million employees of 40 big companies that allow daily switching among investment options. The idea is to get a sense of what people in general are doing from how this sample behaves. One thing I noted: Where a decade ago my recollection is that 60% or more of 401(k) money (I think more, actually) was invested in safe fixed-income stuff, now that’s down to under 30%. In other words, people have been getting the message that for really long-term money, and that’s what retirement money is, the stock market is the place to be. Over really long periods, stocks always outperform safer investments (barring periods like 1917 in Russia or 1949 in China).

The paradox, or at least the nagging worry, is that it is this very huge shift of 401(k) funds into stocks that has helped fuel the bull market, and it’s a shift that must at least be nearing, if it hasn’t reached, its extreme. (The theoretical extreme would be 100%, but I doubt we’d ever get all the passengers on the boat over to starboard.) So what happens if people begin shifting some of their money back out of stocks?

One mitigating factor is that new money is being poured into 401(k)s with every new paycheck. And some of it, doubtless, will always go into stocks, even if not at the same rate as today. So even as some people may be shifting 401(k) money out of stocks (passengers shifting back to the port side), at least some of that money will be replaced from the flow of new 401(k) contributions.

Well, this Web site offers a glimpse of how some employees have deployed their retirement money and how they’re allocating new sums every month.

(I assume you know the original of the word posh – it comes from Port Out, Starboard Home, which apparently afforded the best views or breezes or something to the wealthiest passengers, and was thus requested when booking passage. Now one of you will have to tell me whether this would have been the British or American passengers, since to the other group, soph would have been the desired booking. The point is: Where we collectively choose to stand on the financial ship affects the way it leans.)

From MNB, just before the market break: “Well, I am all ready to run off and short Amazon.com (and AOL for that matter). One lingering question, though. Most likely Amazon.com is overvalued by the market, but what if some big guy like Borders Books comes in and buys amazon.com to secure a larger online presence? I think Internet stocks will eventually fall out of favor, but I am worried that a company like amazon.com will be taken over for a significant premium before then.”

Borders is too small to buy Amazon. But be very careful shorting it. As I suggested yesterday, these guys are pretty smart. Conceivably, Amazon will become one of a handful of global Internet retail access points – you need something (anything!), you go to Amazon – with, say, 50 million active users. At that point, five years from now, it could certainly earn $100 after-tax profit from each one, let’s say, which comes to $5 billion a year. At 20 times earnings, that would be a $100 billion market cap, or about 15 times what it is today.

There are a lot of things that could go wrong with this scenario (most of them all coming under the heading competition), but unless/until some do, you could have the stock just keep climbing.

So … don’t short it on MY account!

[But I hope you did, because it was 115 when you wrote me this and 73 in the midst of last Monday’s big drop.]

Flash Update: Second ship comes in? You have to understand, I wait years for these things. And most of my ships sink. So I was as astonished as anyone a couple of days ago when Calton Homes (CN) – which I described here August 13 at 60 cents a share – announced it had reached a definitive agreement with Centex to sell its core business for about $1.70 a share. According to the September 2 press release, Centex will pay $50 million and assume all CN’s debt. CN will trade its only asset (so far as I know) – the home building subsidiary – for this $50 million. At which point perhaps the CEO will blow it all somehow; but with 11 million shares himself, I’m guessing he’ll at least try not to. And now back to our regularly scheduled programming:

* * *

Is it possible Amazon is my first true love/hate relationship? Love the company, hate the stock? Probably not, because “hate the stock” is too strong after it has dropped 60 or 70 points. I just think it’s still way risky and overpriced. But I have such admiration for how well this pipsqueak has managed to “do it right” – and I am short so few shares – I can’t say I’d hate to see it break through all the likely upcoming obstacles to a touchdown. (To see what such a future would look like for Amazon, see tomorrow’s column.)

I consider that a long shot, but when did Americans not root for the long shot?

That said, check out www.bookblvd.com which will lead you to the lowest online book prices around – often from a company called A1 Books. And note that you shouldn’t have to type barnesandnoble to get there – someone told me “bn.com” works just as well. When I tried, it didn’t; but if it doesn’t ordinarily work, what is Barnes & Noble thinking? For a fraction of the millions they’re spending on ads, surely they could buy that URL and make it synonymous with barnesandnoble.com. I know it’s moot once you bookmark the site, but I’m convinced a little thing like this is a BIG thing to the lazy among us (which is 90% of us) and to the uncertain spellers (40%).

Anyway, here’s the latest smart thing Amazon has done – as amply and amusingly chronicled in The Wall Street Journal two or three weeks ago, but in case you missed it. Rather than just list the top 10 or top 100 sellers for the past week, Amazon (and only Amazon) has taken to ranking ALL books – and updating those rankings hourly for the top 10,000 (daily for the next 100,000; monthly for the rest, which run up past 1 million).

So here’s what’s so smart. I love Barnes & Noble, yes. Barnes & Noble has been very good to me. Barnes & Noble even has my latest number in a few of its windows and featured at 40% off on its Web site. (No, it’s not about money – don’t ask/don’t tell.) But the Barnes & Noble Web site doesn’t yet have this ranking gimmick.

• So guess where authors quickly become addicted to going on the Net? Precisely. We’re like little over-the-counter CEO’s addicted to checking our own stock prices – which in our case is the Amazon rank. I’ve seen my investment guide ricochet from 235 to 1,400 and back to 639 in a matter of hours. One night, when I saw it slipping, I couldn’t resist – I clicked and bought one. Sure enough, an hour later I was back up a bit. (Amazon’s computer assigns weight not just to sales but – even more – to how recent those sales were. A sale 10 minutes ago counts for much more than a sale yesterday, let alone 10 days or 10 months ago.)

• And guess where at least some authors are going to send their friends to order their books. That’s right.

• And guess to what sales-ranking list thousands of newspaper and magazine articles will likely refer (as others refer to the Fortune 500 or the Forbes 400 rankings). That’s right, too.

And that’s why Amazon is so smart.

On top of which, once the software was written – a process I expect took one bright guy or gal the better part of a day – this little gimmick is a trivial expense. The computer just does it.

Barnes & Noble and Borders (and A1 Books and the on-line music/video/software stores) may well come up with great ideas of their own and leapfrog Amazon. For example, Barnes & Noble has begun awarding frequent flier miles via an outfit called ClickRewards (see www.clickrewards.com). But sometimes small size can be a plus. You can just sense the guys at Amazon are having fun.

As I was while their stock was dropping from 140 to 73.