Author: A.T.

Yesterday I ran a letter from Mary, who says all she really asks of her mutual funds is that they do at least as well with her money as she could do in a money-market savings account. Anything beyond that, to her, is gravy.

Although I doubt she was entirely serious in this — and it sounds as if she has enough money not to have to worry much in any event — clearly, she’s not expecting a lot.

Not so most investors. You probably saw it, but if not it’s worth highlighting the table the New York Times, and perhaps other publications, ran last week. It came from Montgomery Asset Management, which had surveyed 750 mutual fund investors as to the level of annual returns they expected their mutual funds to provide them over the next year and the next decade.

In fact, Montgomery has been gathering this data quarterly since the start of 1997, and if the data is to be believed and the sampling techniques trusted, investors are becoming more euphoric by the month. It’s as if St. John’s Wort had been added to the national water supply, if not something stronger.

In January, investors said they expected to see their returns top 15% for the next year and 21% annually for the decade ahead. In April, they were only a hair more upbeat, but by July their ten-year expectation had climbed to top 25% and in October — drawing the notice of the New York Times and others — they were looking for a gain of about 22% for the year ahead and annual returns of 34% in the coming decade.

The first thing to say is that if this is the case, there will almost surely be a tremendous number of disappointed investors ten years from now. No way is the Dow headed for 149,000 in ten years (today’s level compounded at 34%). Even the icon of investment success and nation’s second richest man, Warren Buffett, has not been able to compound money at that rate — and suddenly, going forward, we expect this to be the norm?

The second thing to say is — AEIEIEIEIE! Which may be misspelled, but is roughly what the cavalry used to say when they spotted 20,000 Indians coming over the ridge.

Another applicable phrase might be: irrational exuberance.

This is not to say there will be a crash, or that our outlook in America is not bright. But one sure sign the market is not poised for unprecedented appreciation over the next decade is that so many people apparently believe it is.

I forget what the opposite of a “Type A” personality is (Type Z?), but here is a woman who would appear to be both wonderfully relaxed about life, and honest. And I’m not just saying that because I am her love slave for life for having added significantly to my already vast fortune. (Typically, on hardcover books the author gets 15% of the retail price less a small-concealed shipping charge, though only 10% on the first 5,000 copies and 12.5% on the second 5,000 copies. On paperbacks, 5% to 10% of the retail price.) She writes:

OK, OK. After only mild suggestions, I purchased your book on-line through your hyperlink. I got it in the mail yesterday and began reading it this evening. It promises to be as entertaining as your Investment Guide, which I read under the Caribbean sun. Not that I have made any particularly outstanding investments over the years, but I did enjoy the book and have given a number of copies away. I am going to the hyperlink right now to get a couple more copies for friends that I talk money with. Not that any of us spend very much time on money matters, but it has become a “fun” topic over the years. The kidding about the ones that got away and the ones we rode to zero. Such as you may have missed IBM at 50, but you managed to get some great Barton wallpaper.

Actually I wonder if I am the only person that has found a few stocks to lose money on in the last few years. I do not think so, but few people admit it.

I believe that I have a realistic performance threshold for funds or brokers. The funds should do as well as if I had gone fishing and left the money in a money market savings account. Is that just too difficult? Actually, the last couple years have been fine, but over the long haul some of the accounts have not come close to passing that arduous test under my careful tending. Pretty scary.

Mary A. Block
devoted fan, but bad investor

I run this letter partly because I promised Random House I’d find 101 ways to plug my book, and so far I have inflicted on you only 83. Eighteen to go. But also because I thought you might find Mary’s attitude interesting. Either it mirrors your own, and makes you feel better for not being alone (I’ve never heard of Barton wallpaper — do they make wallpaper, or did this just become the best use for their stock certificates? — but I have managed to lose money in any number of stocks these last few years) . . . or else it gets your blood going (Type A that you are, like me), angry that she allows herself to be taken advantage of by poorly performing brokers (she’d have been a lot better off picking the stocks herself and paying deep-discount commissions) and poorly performing mutual funds (she should have gone with a no-load, low-expense index fund) . . . or else it gets you racing to find her e-address, hoping to sell her something with a high commission (which is why I have disguised her name).

It takes all kinds in the stock market, and I fear that some of those who are nicest, like Mary, may provide more than their share of fuel for the great money machine. Then again, it sounds as if she isn’t hurting, and she’s having a good time. Hard to beat that.

Tomorrow: Scary Expectations

Real estate can be an appealing investment, but slum properties pose their own special challenge. As some of you know, I own a few such properties, purchased with the hope that we might be able to fix them up and improve the neighborhood. You know: do well by doing good, and all that.

It’s a long story (see: Chapter 2, “Never Buy Real Estate Over the Phone“), and from an investment standpoint, you would almost surely be better served by buying shares in a publicly traded real estate investment trust. However, rather than reprise the whole thing here, I thought I’d just give you today’s slice:

Today, my property manager reported to me, was the day the sheriff came to put the people in Apartment 4 out on the street.

This is something no one feels good about, for all the obvious reasons, plus one more: if the sheriff is coming, that means no voluntary accommodation could be reached. (Usually we just work something out with the tenant and swallow our losses.) And that means the full formal eviction process was necessary, adding at least another $375 to our cost.

The tenant in Apartment 4, I’m told, was a heavyset white woman, a recovering addict, referred to us by the Human Resources Service (a government agency).

We are certainly not above renting to recovering addicts, who need a place to live too, and when H.R.S. sent her around we apparently rented her a small one-bedroom apartment — $350. She agreed to live in it alone, and reviewed with us and signed our standard list of good-neighbor rules. Rules like: no drugs, no loud noise that disturbs the neighbors, and so on. Not long after she got the key, I’m told, her boyfriend moved in, and we got reports of the frequent coming and going of strangers — the kind of activity that appeared to be drug-related.

The city of Miami relies largely on landlords to rid their buildings of drug activity. The city appears overwhelmed by the prospect of doing it through police action. If a building is cited repeatedly for harboring drug activity, what eventually happens is that the city (believe it or not) tears the building down. One two-story apartment building on our block suffered just this fate. It’s now a vacant lot.

Anyway, in a constant battle to keep the neighborhood on a gradual uptrend . . . and not eager to see our building bulldozed . . . after two months we asked the tenant to leave. But sensing she might not, we plunked down the $375 to go through the formal two-month eviction process. That meant losing a good chunk of rent, because we’ve found that tenants, while being evicted, do not pay. So instead of getting $1,400 for the four months she would be there before we could get the apartment back ($350 times 4 months), we would get $700 less our $375 in eviction fees, or a net of $325, less the cost of water and sewer and taxes and insurance and management, repairs and, of course, the mortgage.

This is a tough way to earn a profit, and leads some landlords to abandon their properties, which is one reason neighborhoods remain mired in decay.

Anyway, that’s the background. Here’s the new twist. It seems that if, at the final stage of the eviction, when the sheriff comes to actually put people out on the street, the address on his work order varies at all from the address of the property, the whole process goes back on hold for at least another two weeks.

This is presumably done to assure that sheriffs don’t go around evicting people from the wrong apartments — a practice no one could favor.

Knowing this, our tenant and her cohorts apparently removed the address from the front door of the building shortly before the sheriff was due to arrive. Pried off the little metal numbers.

Fortunately, our guys spotted this and, unbeknownst to the tenant inside, quickly spray painted the numbers back on.

When the sheriff came, minutes later, and knocked at Apartment 4, he was met with complete ignorance. You have the wrong address! This is not such-and-such number! We don’t know what you’re talking about!

And had our guys not restored the address just in time, that would have been the end of it, for two weeks, anyway.

Instead, everyone went out to the sidewalk where the numbers did indeed match the work order. Five people were evicted from this small one-bedroom apartment.

(Often, in a situation like this, the air conditioner would have left with them, costing another $350 or so, but in this case, perhaps not expecting to have to leave for another two weeks, they took only what was theirs.)

What exactly were five adults doing in our one-bedroom apartment at 11 on a weekday morning? I don’t know for sure. But a good guess might be that the apartment was being used as a place to do drugs. Not to sell them, necessarily, but a place crack addicts could come use them and crash, in exchange for a small fee or a cut of the crack.

My property manager called H.R.S. to report what had happened. H.R.S. told him there was nothing she could do, and that, if asked, it would now set about trying to find the woman we had evicted another apartment — another chump landlord. That’s their job.

(Given that our tenant and her boyfriend knew to remove the street address from the building shortly before the sheriff was scheduled to arrive, we got the impression they may have been around this block before. And with taxpayer-funded H.R.S. help, it looks as though they’ll be around it again.)

I’m less angry about any of this than sad. On one level, of course, one can and should blame the addicts. Weren’t they listening when Nancy Reagan told them to JUST SAY NO? But one should also blame the pushers and, when you think about it, the absent fathers or rotten schools or overwhelmed teachers . . . not to mention the lack of midnight basketball programs and big-brother/sister programs and church programs and good jobs — or any jobs, in some cases . . . some dismal combination of which led these five adults, who were children once, to be in that one bedroom at 11 a.m. on a Friday morning.

Maybe the answer is just more cops, prisons and homeless shelters. But how vastly much more efficient if we could find the resources to prevent the problem in the first place (or at least a larger chunk of the problem than we’re preventing now).

From your feedback to prior columns, I know some of you feel government — at any level — has no rightful role in any of this (except the prisons) and that left to their own devices, the good people of Miami will solve this problem by themselves. I don’t see it. Rather, I see the affluent sections of the city simply breaking off from the problem areas — as Aventura, a few miles from my little slum, seceded from Miami not long ago — so as to be able legally to say, “not my problem.”

Well, that’s not the right solution.

My Harvard Business School yearbook opened with a quote from John Kenneth Galbraith. "It’s a good school," he said, in his wry way. "We should be grateful to it for training people who will shoulder the dull, tedious administrative jobs in organizations."

This goes back 25 years, but my recollection is that the teaching at the Business School was a lot more animated and accessible than the teaching at Harvard College. The College was academic. Few academics have the outgoing personalities of, say, a Galbraith (and few Galbraiths spent a lot of time teaching undergraduates). At the B-school, by contrast, the professors were, for the most part, more fun.

Business: dull? Tedious? I don’t think so.

Better than half the respondents to our class survey responded "yes" when asked, "Do you consider yourself an entrepreneur?" Tedious administrative jobs, indeed.

What strikes me in contemplating our 25th reunion isn’t so much our two years in those United Nations-like horseshoe classrooms (instead of signs in front of us that read NIGERIA, CUBA, FINLAND, we had signs that read PERELLA, HOBBS, SCHWARZMAN), but how much has changed in the interim. We have gone from the days of pocket calculators and inflation so severe, at 4%, that President Nixon (that laissez-faire Republican) imposed wage and price controls, to a world where each of our kids has more computing power on his or her desk, and each of us on his or her lap, than all of Harvard had in its entirety (or certainly all of Harvard Business School) . . . a world that seems to have found a better way than price controls to tame inflation (free trade, competition, innovation, dour central bankers).

In these 25 years HBS has gone from being an acronym only a little more palatable around the world than CIA, to symbolizing much that the younger generation and people everywhere aspire to.

Not to say my classmates and I have had a whole lot to do with ending the Cold War or the near universal acceptance of market economics. Or that dear old Professor George Lodge, in our day more or less the liberal "conscience" of the B-School, succeeded in making us all ethical, compassionate capitalists. One of my most likable sectionmates made the front page of The Wall Street Journal for massive insider trading even before our fifth reunion. Another — a centi-millionaire by now, I would guess — was featured in that same newspaper with a quote so unsentimental, in connection with a takeover years ago, that it was runner-up only to the "greed is good" quote Gordon Gekko wound up using in Wall Street. But most of us, from what I can tell, fall comfortably in between: modest to significant successes, honest, doing our bit for the economy and our communities, paying our taxes (grumbling, if we’re Republicans, and amazed, if we’re Democrats, that the top federal bracket is only 39.6% – it was 70% in 1972).

We have gained some weight, lost some hair, and seen the world take giant leaps forward and a few steps back. Many of us would never be remotely where we are today had we not lucked into the HBS imprimatur and network of connections (not to say we would have been circus performers or busboys, but still). Most of us are really glad we chose business school rather than law school. (We surely need good lawyers just as we need good politicians — but talk about maligned professions!) And almost all of us, I imagine, regard the next 25 years with a sense of wonder.

Recently I mentioned going to my 25th Harvard Business School reunion. While you were left wondering why the reunion would be held in the fall — isn’t June reunion month? — I was left wondering how a young guy like me could possibly be this old. I must have graduated when I was 12.

It also occurred to me that a couple of comments might be in order.

The first is: what is this fund-raising stuff? My classmates and I were asked to pony up ten million dollars. OK, I sent something — I do believe in "participation." But if there’s any school in the country that should be self-sufficient, it’s Harvard Business School. It’s the college or the divinity school or the ed school or the science labs that need alumni money. If I were running the B-School (and you can be sure I will never be asked), I would jack up the tuition from whatever astronomical sum it now is ($25,000 a year?) to the full unsubsidized cost plus a profit ($50,000?) and then offer the 95% of students who couldn’t afford it a couple of financing plans.

They could borrow as much as they wanted on terms more or less identical to a 15- or 30-year mortgage (with a small life-insurance fee tacked on to pay off the debts of those struck by lightning out on the golf course). Or they could agree to pay, say, 5% of their income for life (or until they had paid a sum equal to double all they had borrowed, plus accumulated interest at the prime rate).

This is obviously rough — it would be fun working out the details — but the ballparks are right. Say you borrowed $75,000. That works out to about $7,000 a year for 30 years on an 8% loan. Starting pay for graduates of top B-schools tends to range between $50,000 and $100,000, so 5%-of-pay for most would quickly rise to cover the cost — and over a lifetime, most students would wind up paying their debts in full, with interest, while many others would pay up to double their debt with interest. The extra money from those would cover any shortfall from those who chose less lucrative careers.

That’s my plan. Understandably, the B-school alumni magazine chose not to include it with the other thoughts it solicited for our 25th — which, if you are really a glutton for this kind of musing, you are invited to come back to this space to read tomorrow’s comment.

(OK, OK — for it to work, I guess the country’s other excellent business schools would have to do more or less the same thing, lest Harvard lose all its best applicants to lower-priced rivals. So maybe Harvard should just begin to ease into this gradually, raising tuition a little and offering financing options, leading the way for the other schools to follow suit.)

You know the episode where Kramer has this terrible cough but, not trusting human doctors, he finds a dog with a similar cough and off they both go to the vet? Well, here is the converse of that story, and it’s not from Seinfeld. It’s from The Very Rich, by Joseph Thorndike, Jr., via Dave Davis:

John Wendel worked as a porter for John Jacob Astor and took to heart his employer’s advice to invest his savings in land. With unwavering trust in this ancestral wisdom, the family held on to their real estate until in the twentieth century it was valued at one hundred million dollars. The last of their line were two spinster sisters, Miss Ella and Miss Rebecca, who for fifty years seldom ventured outside their brownstone, huddled amid the stores and office buildings at the corner of 39th Street and Fifth Avenue.

According to Lucius Beebe, they resisted offers of five million dollars and up because their succession of dogs, each named Tobey, liked the garden to run in. Once when they could not reach a veterinary, the current Tobey was taken to Flower Memorial Hospital, where a kindly doctor treated him. The Misses Wendel did not forget, and in 1931, when Miss Ella died, leaving the family estate to charities, sixteen million dollars of it went to Flower Hospital.

Be nice. What goes around comes around.

“I saw your advice in PARADE recently about tempering the impulse to purchase non-necessities. A habit I developed in college was, when I felt the urge to buy some item that caught my eye, to wait two weeks. If I wanted it then, I told myself, I would buy it. Usually, I didn’t even remember it after two weeks. Even though my financial situation is much changed from those days, I still maintain this habit and consider it really useful.” — Vince DeHart

This is so simple and so smart and so important, I have only one thing to add: it does not apply to books.

Yesterday I described my run-in with a credit card company that chewed me out for approaching them with a poor attitude . . . and then refused to waive a $20 late fee. Something tells me this might not have played out the same way with Paul Fischer, of Virginia.

Writes he:

I recently had a run-in with one of my 401(k) companies and I’d like to pass that lesson along to your readers.

I had been one-third owner in a small business, and after a year and a half we were able to start up a small 401(k). We agreed to a penalty for early withdrawal, thinking it would give our employees greater reason to stay with the company over the long haul.

I rolled an older 401(k) into the plan, thinking nothing about the penalty, as I was an owner. I never imagined that two and a half years later I would have sold out to my partners and moved on. Now, four years after its inception, my partners are closing down the plan, and I am being forced to move my accounts. I called the 401(k) company, and they insisted that they had a contract and would be taking about $4,600 of my money, regardless of whether I kept the money invested with them.

They said the early withdrawal penalty applied even though I wasn’t quitting the plan, the plan was quitting me. I got really angry about this, and sat down for a good think. I came up with some points to threaten them on, and apparently one if not all struck home. I would like to share these with your readers since they may someday be in a similar situation, and should learn that there is always an alternative and that persistence will get you what you want.

In order to do this, you must know what you want. I have been happy with the fund performance, and would gladly roll my money over to an IRA with the same investment company as long as they abolished the early withdrawal penalty. This became my goal.

The first thing I did was ask for the boss of the person in charge of my plan. Usually the front line people are not allowed to make deals or exceptions to policy (read corporate dogma). This got me on the phone with someone who would feel the heat really bad if I went above his head, which I threatened to do. Never be afraid to take things all the way to the top.

Next, I computed, conservatively, what my account would be worth when I reached 67 (36 years from now). Since I have been earning about 16% annually on these funds I decided a long term average of 12% over my lifetime would be a conservative return. Using the Rule of 72, I calculated my current account will be worth about 64 times what it is now by the time I retire. Although the account is relatively small now, it would be worth well over $2,000,000 by the time I started withdrawing from it! This, I felt, gave me some leverage.

I thought about some proper threats to motivate them to see my point of view. And I came up with some good ones, if I do say so myself.

1) File a complaint with the SEC. Since the plan was quitting me, and they were penalizing me as if I were quitting the plan, I considered this legalized theft. I figured I could easily cost them 10 times my penalty in legal bills if I asked the SEC to investigate legalized theft. Again, this will not apply to everyone, as my situation was special, but it seemed to me a good way to achieve my goal.

2) Never do business with them again. Although my accounts are small now, they will be worth several million when I retire. Whichever companies I do business with will make lots of money in the long run. If they want to keep me for that long run they can make a lifetime friendly customer who will tout their respectability or they can make a mortal enemy.

3) Tell a friend. Either way, I plan to tell lots of people whether or not they are a good company to deal with. If all my friends are in about the same financial place as me, and I get 5 to switch away from their company, they lose the management of over 10 million dollars by the time we retire. If they submit to my demands, they could gain just as much.

4) Go public. I also threatened to post my story all over the Internet if things didn’t go my way. There is nothing they can legally do to me if I print the truth, so I planned to blast them week after week, month after month, and let people know how heartless and pedantic they were.

Fortunately, they backed off their stance, probably because it was a special case. Possibly because I outlined several things I would actively pursue that would cost them a minimum of $46,000 and the management of an eventual 2 million dollars. At most, I could have cost them several accounts totaling tens of millions of dollars.

Let your readers know they can stand up to these financial institutions and get their way. Also, I’ve never seen you cover the rule of 72, so you might want to expound on that.

Even if I had any serious reservations about Paul’s approach, and I have only minor ones (like: a contract is a contract, though I haven’t read this one), I’d be afraid to voice them. This guy’s tough! But he was right to pursue the case, because it ended up win-win. He got to keep his $4,600; they got to keep a customer.

For those of us who are already hellions when it comes to this stuff, Paul’s tale just confirms our aggressiveness. To those of us who are meek, it suggests a way of inheriting a little more of the earth while we’re still here to enjoy it.

[The Rule of 72 is an easy way to dazzle your innumerate friends. It tells you how fast money will double, roughly, at any given interest rate. Just divide 72 by the rate. Three into 72 is 24, meaning that money growing at 3% doubles every 24 years. Six into 72 is 12, meaning that money growing at 6% doubles every 12 years. Eight into 72 is 9, meaning that money — well, you get the idea.]

Let me preface this by saying it’s trivial and could doubtless have happened elsewhere, not just with GM. But now that we know there’s such a thing as Road Rage, which leads people to kill other people over nothing, should we not all admit to having suffered, from time to time, Credit Card Billing Rage, where we want to hurtle down through the phone line and rip the customer service rep’s heart out?

No? You mean I’m alone in these fantasies? Oops. How very embarrassing. Well, fortunately, it’s moot, because I’ve yet to figure out how to hurtle down the phone line. And because I’m aware it’s not the customer service rep who makes policy, so the Rage quickly passes.

It’s actually been a while since I felt any of this, because my credit card life is really simple: The bills come; I pay them in full via CheckFree.

But this morning I got my GM Gold card statement. I had signed up for one of these cards thinking I might someday buy a new GM vehicle, despite my preference for used ones, and that accumulating up to $1,000 a year in 5% “rebates” on everything I charged could be pretty good. No annual fee. Already awash in frequent flier miles. What’s to lose.

The previous month’s bill had been $55.93. (When I tell you to live beneath your means, I’m not kidding.) For whatever reason, it had taken me 29 days from the end of the billing cycle instead of 25 to get them the money.

Because I’m a good customer, I guess, the computer printed a notice asking me to be more careful in the future, but waiving the finance charge. (“In the future, you will incur purchase periodic finance charges if we do not receive your payment within 25 days after the close of the billing cycle.”) Fair enough. And thanks. It’s not that the interest on $55.93 at 18.9% would amount to a lot — 88 cents. But then you get all bollixed up, because when you pay the $55.93 in full, expecting to be free of interest charges in the future, you find the next month you were 88 cents short, and so are accruing interest on the $22,000 Home Entertainment Center you just purchased, and — well, you’ve been there, right? It’s a nightmare.

So it was nice of the computer to waive the 88 cents.

What did catch my eye, however, was the $20 late charge. “Please note,” the computer printed on my bill: “A late fee was assessed because your payment this month was received more than 25 days after the close of the billing cycle. In the future, please allow time for your payment to reach us within 25 days after the close of your billing cycle. Thank you for using the GM card.”

I tried to calculate the interest rate $20 represents on 4 days of a $55 debt, but my calculator exploded.

Now, I can see a $50 fee when you change a non-refundable airline ticket. There are a lot of reasons for it (one: a human has to spend some time trying to find you a seat on a different flight) and they clearly warn you about it in advance. Happy to pay it.

I can see a $25 ticket for overstaying one’s allotted time at a parking meter or a $150 fine for speeding (though to be effective on the rich without being draconian on the poor, I’d rather see speeding fines somehow geared not just to the degree of recklessness but also to the ability to pay).

But this? This is a little scuzzy. I turned over the bill and hunted through the light gray fine print that summarizes the terms of the card. No mention of $20 late fees. Gee, I thought. How fortunate I am that they didn’t levy a secret $50 or $500 late fee.

I called the 800-number, branched through the branching, listened to the music, gave out my card number, mom’s maiden name, all that — not because it was a good use of time, but because really: $20 on a $55.93 debt? — and I got Sean.

You’ll just have to trust me when I tell you I was reasonably well-behaved. I wasn’t nice. I’m not saying I was nice. But I wasn’t awful either. (And I know, because sometimes in these situations I have been awful, and I always hate myself for it afterward — so I try to keep from getting that way.)

“Help me understand why there would be a $20 charge for being a few days late on a $55 balance,” I said, after briefly explaining the situation. “That would seem to work out to, like, a bazillion percent interest. And help me get the charge reversed.”

Yes, I should have said, “please” and I should have been meek. But surely these folks have encountered worse than what I had just dished out.

“Are you asking me or telling me?” was Sean’s response.

“Huh?” I said.

I had just assumed he would run through the “soothe the customer and gain goodwill for GM by canceling the late fee” script and I’d be on my way.

“Are you asking me or telling me?” he repeated.

“‘Help me’ is what I said. Is that asking or telling? I guess it’s however you received it.”

Again, I was neither nice (nice would have been, “Gee, did that come off wrong? I’m sorry. I just need your help.”) nor awful. I was just nonplused. Not only was I being charged $20 for being “bad,” I wasn’t asking for help nicely enough — bad again. We can’t get on to the substance of my customer service inquiry until I improve my attitude. I’ve obviously got a lot to learn about how to be a good GM customer.

“Look,” I said. “I think we’ve gotten off on the wrong foot. Is there someone else I could talk with about this and just start fresh?”

Sean seemed to find that acceptable and put me back on with the music. After a couple of minutes — a long time to be stewing over being dressed down by the customer service rep, especially when you don’t know it will be only a two-minute wait, you’re just in limbo, and what a waste of time this is for $20 (not to sound grand about it, but you do know I have a vast fortune) — Mr. Morrow came on the line.

Mr. Morrow, handled it much better, as most customer service supervisors do. He let me vent a little, then explained that they used to waive the late fee when people called, but all the card companies were tightening up on this (oh, yeah? in some sort of collusion outlawed by anti-trust?) and, while he sympathized, if I checked the terms of my agreement I’d see this $20 was part of the deal.

“Well, you know,” I said, “I looked at the fine print on the back of my statement and I didn’t see anything about a $20 late fee.”

Mr. Morrow was surprised by this. I read him each of the section headings, offering to read the full text. He said, well, it may not be in the lengthy fine print summary but it is in the original fine print agreement. He offered to send a copy.

I was all set to cancel my card, but realized I would probably lose the considerable credit I had built up toward a new GM car, should I ever buy one. (Does not apply to Saturn, reads some other fine print.) (Can no longer rack up as much in credits as before, reads a later amendment.) So, after Mr. Morrow assured me there was no annual fee and that I need not ever use it again to keep it in force, I pledged to pay the $20 promptly but never to use the card again. I realized he didn’t set the policy, I explained, but suggested that he might want to volunteer in the next department meeting that this is pretty dumb. It’s a low-road way to make $20, and, in my case at least, will cost GM a lot more than $20 in goodwill.

Yet one more reason to buy a used car.

Thank you for letting me vent. Does turning the $20 into the subject of this comment make it a deductible business expense?

(Nah.)

PS – Don’t let this trivial episode cause you to sell your GM stock. A lot of people smarter about these things than me seem to feel GM stock is in the early stages of a gradual upswing. Having bought a little myself, I hope they’re right.

Recently, I answered a question from Pieter Lessing about stop-loss orders. If you don’t know what they are, or are interested in revivifying comic book characters, check it out. Today, for those of you just joining us (this is actually my 420th “comment” on the Ceres — now Ameritrade — web site), let me reprise the rest of Lessing on losses. He writes:

Could you comment on STOP LOSS ORDERS AS PART OF AN OVERALL INVESTMENT STRATEGY? I have stop loss orders on most of my equity positions (approximately 20% below the current trading price) for the following reasons:

a) To lock in a profit, once I have one. I finally decided that buying a stock at $18, see it zoom to $40, then down to $7 in less than a year is dumb, not to mention painful. To have sold at $32 ($40 minus 20%) would have been just fine. It would have worked in this case, because the climb up to $40 never had dips as big as 20% along the way.

b) Protect against catastrophe. I travel internationally, and am out of touch w/ quotes & brokers for weeks at a time. If the big one hits while I don’t have access to my account, I have a theoretical limit to my loss. (I realize that I may lose more than 20% if the dive is REAL fast, but since I’ve made quite a bit more than that in most of my positions, I’m willing to accept that.) If the Dow zips down to 2,000 in an hour, I figure we have bigger problems to face anyway. However, if it takes a few days to get down to 2,000, I would be in an all cash situation, buying like crazy!

c) Set the limit of loss when buying a new highly speculative stock. (Sure, it may triple after first going down 20%, but it can also keep on going down.) Preservation of capital.

PS: Just like any other investment strategy (or Vegas gambling system), the above does have its weaker points (tax implications, commissions, etc.)

PPS: I prefer the above to selling calls (or buying puts) — lower maintenance.

Pieter goes on to say that he’s not dogmatic about that 20% number. He may set his stops looser, allowing for even more of a dip, if he thinks the stock is very volatile and/or if he has a really big profit in it.

So what do I think? I think, mainly, that for Pieter this is a good strategy. It gives him peace of mind. Indeed, for anyone lucky enough to have gotten into this market in the last few years and doubled or tripled his or her money, it’s something to consider. The benefits, as Pieter has listed them, are clear. (But for the record, the Dow can’t drop to 2000 in a day, for two reasons. First, as I’m sure Pieter knows, there are “circuit breakers” that kick in at various stages to keep the market from falling off a cliff. Second, at least two Dow components, Coke and GE, only go up.)

But the negatives of this strategy keep me personally from using stops very often.

If you’re speculating in stocks because they may go up, this is a strategy to consider. If you’re buying them to get a stake — perhaps at what you consider a bargain price — in a company you want to own, whose profits you want to share, and in whose growth you want to participate, then this is not such a good strategy. It means that you will frequently find yourself selling stocks you thought were worth owning at one price for no reason other than they are now 20% cheaper (if you set your stop at a 20% loss).

When a sale is triggered, you have that 20-plus percent loss (plus, because it’s not unlikely that, as the stock is dropping, your sell order will fetch a still lower price). You incur a brokerage commission (happily, this has become all but trivial). You eat the “spread” between bid and asked prices (not so trivial on some stocks). And, if it’s a stock in which you have a profit in a taxable account, you give up a chunk to Uncle Sam.

Granted, if you’re holding a stock at $150 a share for which you paid $28, it’s not too terrible a prospect. You may think of this as play money to begin with. (You know how magnanimous you get at Monopoly when you have hotels every place and there’s no way you won’t win? How when your cash is piling up and you land on someone else’s pathetic little property, with $23 rent, you flip them a hundred and tell them to keep the change? That’s what’s going on here.)

And then there’s the conundrum of just how tight to set your stops. The tighter you set them, the less you’ll lose on any given position — but the more you may lose in the long run, as you are whipsawed out of stocks that are basically headed up, but dip occasionally by enough to trigger the stop.

A final conundrum is whether to place a straight “stop” or a “stop limit” order. With a stop, when your stock trades at $25 (or wherever you set your stop), your broker will automatically enter a market order to sell your shares. In a thinly-traded stock dropping fast (in part because you are not the only guy who’s been setting stops), that could mean getting your order filled not at $25 or $24-3/4 but $16. Literally. It can happen.

To protect against this, you can enter a “stop limit” order — to sell if the stock trades at $25, but only if you can get at least $24, say.

That way, you know for sure the worst price you’ll get is $24, which is a big plus . . . except that it also may defeat the whole purpose of the stop in the first place. Because if this is the next Bre-X and you want out at any price, there you will likely sit with the stock at $2, wishing you had set no limit and gotten “just” $16.

There’s no free lunch.

On balance, and though it will vary tremendously from investor to investor, stops probably cost stock-market investors more than they save them. But that is simply the price you pay for peace of mind.

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Where stops do make lots of sense is in commodities speculation, where you can actually lose more than your entire stake, and where your reason for buying coffee futures wasn’t that you actually wanted to own a few tons of coffee, just that you thought the price might go up. Commodities speculation is an idiotic enterprise for lay investors like you or me, but downright suicidal without stops. (And I am so sick of all the innuendo and misinformation about Hillary Clinton’s commodities adventure, I’d like to stop your snickering right now. The full story is laid out in great detail in Jim Stewart’s Blood Sport, and it turns out that — other than handling the public relations aspects of the episode very badly — she did nothing wrong. I’ll bet not one American in 100 knows that.)

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Notes to newcomers:

• Unlike this one, most of the “comments” you’ll find here are relatively short. (One was a single word.)

• Many are on ridiculous topics like the nutritional value of ostrich meat or the top 10 ways to know you’re dating a consultant or the top 10 reasons not to buy mutual funds (even though I’m a strong believer in low-expense no-load mutual funds) or — especially — the top ten reasons to buy my new book.

• I really do read and greatly appreciate your feedback, both pro and con. (Be sure to let me know if you would rather I not use your name if I quote you here.)

• The archives don’t get go back more than a week because, while one or two may have the shelf life of a fruitcake, most are — at best — a croissant to accompany your morning coffee.