Author: A.T.

For those who’d like to outperform Wall Street, low-expense index funds usually do the trick. They simply mirror the stock averages, minus a tiny expense charge — and are thus like betting on an average horse ridden by a 20-pound jockey. Your friends are betting on actively managed funds that hope to beat the market by knowing which stocks will do best, yet are ridden by 150-pound jockeys (i.e., higher expenses), making it hard for all but the most spirited to outperform your average nag.

But now comes for your consideration a “stock,” for all practical purposes, traded on the American Stock Exchange (symbol: SPY) that does much the same thing. Ridden by a 19-pound jockey, each share represents one-tenth of a unit of the Standard & Poor’s 500 average. Called Standard & Poor’s Depository Receipts — SPDRs, or spiders for short — they represent tiny shares in all 500 stocks in the average, weighted proportionately. So if the S&P is 750, each SPY share will be selling for almost exactly $75.

The disadvantage of trading SPY is that although the annual expense ratio is very low — just nineteen hundredths of one percent — there is a brokerage commission to pay when you buy or sell, as with any stock — which there is not with, say, the Vanguard Index Trust. (So if you trade SPY, it makes sense to do so with a deep discount broker, where the commission is trivial.)

The advantage over an index fund is that you can buy or sell with a quick phone call, as you would any stock; and if you think the market is headed down, you can short SPY — you can’t short most mutual funds — and do so without worrying about “the uptick rule” that normally governs short sales. (Normally, you can’t short an exchange-listed stock on the way down — “no fair piling on, guys” is the rough reasoning behind the rule — you have to wait for an “uptick;” that is, until the stock price has bounced up a notch. But the uptick rule is waived with SPY because it’s not a real stock.)

Also, Vanguard restricts the number of times you can move money in and out of its fund each year. You can buy and sell SPY all day long.

And with index funds, your order is executed at that day’s closing price. With SPY, you can set limit orders and know exactly the price you will pay. Or, if you sense the market is going to tank, you can get that morning’s price rather than the price at the end of the day.

So if you were thinking about shifting some money into “passive management” but prefer electronic trading, say, to filling out mutual fund forms, here’s a way to do it.

Please note, I am not saying the Standard & Poor’s 500 Index is a bargain here. I don’t pretend to know which way it’s headed (but it’s no bargain). I’m just saying this is a handy and efficient way to “buy the market” when you do think it’s headed up, or to short it — if you’re very brave, very rich, and very careful — if you think it’s headed down. (One problem with shorting: the market’s long-term upward trend — if only for inflation — is against you. Another: you can hold a short for a year or ten, and it’s still taxed as a short-term capital gain if you make money.)

• If your tastes run to smaller stocks, check out the American Stock Exchange’s “MidCap 400 SPDRs” — the same deal, only based on one-fifth the current price of the Standard & Poor’s MidCap 400 Index. MidCap stands for “companies with medium-sized capitalizations” and “capitalization” means the overall value of the company — the total number of shares the pie is divided into, times the price of each slice. A company with 500 million shares outstanding at $70 each is capitalized at $35 billion. Big. But a company with 40 million shares at $20 each — $800 million — might find itself in the MidCap Index. The symbol for this one: MDY.

• If it’s non-U.S. exposure you seek, then the acronym is not SPDRs, it’s WEBS — World Equity Benchmark Shares. Ask your broker.

I had always thought that an offshore rig sorted of floated around and could be moved when a well dried up. Not Irene. As described yesterday, she sits 4.5 miles off the California Coast, somewhere between Lompoc Penitentiary and Santa Barbara.

I had also thought a rig had some sort of anchoring columns at the corners, and then a pipe more or less in the middle going down through the ocean floor deep into the oil formation, from whence flowed the oil. And maybe that’s vaguely how Irene started out. But in the 11 or so years since, she’s grown to include 28 wells. They all go straight down to the ocean floor just a few yards from each other, but then, under the sea floor, they angle down and out in different directions. This is very weird, if you ask me — how do they get a mile-long drill bit to go around corners? But even though we saw not a drop of oil, smelled not a whiff of gas, in the hour we were Irene’s visitors, about 3,000 barrels of “natural resources” had flowed from beneath the ocean floor, through these various pipes up to the rig, and then through a pipeline to the mainland for processing (through more pipes) and then through more pipes to trucks to tanks to hoses to nozzles to YOUR GAS TANK.

About 80,000 barrels a day through Irene alone, consisting of oil, gas, water and assorted other junk, netting about 12,000 barrels of oil (half a million gallons). At $20 a barrel (to take a round number), that would be close to a quarter million dollars a day, close to $100 million a year. No wonder someone had invested $160 million in Irene.

Of course, the costs of operating Irene, and retrieving the occasional hard hat blown overboard, are not insignificant. But standing there above the Pacific, contemplating it all, looking at the barnacles and rust (painting goes on constantly), it was fascinating to try to connect the real (an unseen steady stream of dirty gasses and oil and water, including the occasional release of deadly hydrogen sulfide) with the financial (footnotes and discounted cash flows and oil futures). The steady flow that leads from under the ocean to your gas tank (and then into the atmosphere) . . . and to the $15.60 dividend check perhaps you get every quarter.

OK, OK, I’m getting carried away. But I was like a third-grader out on a field trip to the Wonder Bread bakery. A lot of us never see much of the real world. (I was sixteen before I saw my first real cow.)

When the wells flowing into Irene are depleted, new ones will be drilled. So far, none reaches more than a mile or so toward shore, so as not to trespass within 3 miles of the coastline and, thus, into California State waters. But if a deal can be struck with the state, drill bits will one day pass that imaginary line beneath the ocean floor, and new reservoirs will feed Irene.

“What about an earthquake? What about a big wave?” I asked, worrying that the folks who built Irene might not have thought of these risks before putting $160 million into the enterprise. I should probably be more worried if I caught a whiff of rotten eggs, our safety officer, Jeff, cheerfully advised — that would be a hydrogen sulfide release. A tiny concentration would quickly kill us, which is why the sensors all over Irene would wail hysterically at the first sign of keeling canaries (as I understood the technology) to warn the crew. Within moments (holding our breath), we were to locate one of the five-minute air packs placed all over Irene, don it, move “upwind” (the wind itself would quickly disperse any hydrogen sulfide emissions), and then into one of the 52-person orange safety bubbles suspended like Christmas tree ornaments from Irene’s main deck. Fortunately, there were no such emissions while we were visiting. They are quite rare.

We finished our filming, boarded our helicopter, and flew back to Santa Barbara (Goodnight, Irene!), consuming another 70 gallons or so of jet fuel in the process — about 12 seconds’ work for Irene, if I calculate it correctly.

Will any of this make me a better investor? Savvier about picking oil stocks? I think not. But it did remind me that someplace beyond all the Value Line rankings and p/e ratios, there is actual steel and mud and guys getting lowered in twin-engine motorboats in rough seas to retrieve a hard hat that’s blown overboard.

And all of this — not to mention the computer consoles in the control room that monitor it, or the 10 phone lines the crew have available to call their sweethearts from the rig just as easily as you or I would call home — has been invented in the last 150 years.

Can you imagine what the next 150 will be like?

The reason to chopper out to Platform Irene, four and a half miles off the Santa Barbara coast, in 37-mile-per-hour winds, was to film more of our interview with Peter Bernstein, as described yesterday.

The theme of this particular segment was “risk” — investing entails risk — and so we wanted a metaphor. Drilling for oil is risky. Choppers are risky. Thirty-seven-mile-an-hour winds, I kept pointing out to no avail, are risky.

The helicopter was a $7 million job owned by a subcontractor to the oil company. If you ask me, it looked pretty humble for $7 million. We were advised to be careful of the sliding-door railings — “don’t screw up the door, please” was more or less the instruction — because the door cost $130,000.

Two pilots, two engines, room for 12 passengers (we were 11, but with a fair amount of camera gear as well). First we were told to provide our weight — “This is not the time to lie!” I kept advising everyone, nervously. Then each of us was issued a Mae West, I think they were called, in the unlikely event of a mayday, like the ones they show you every time you take off on a regular jet, only this time I paid close attention. We also got headphones to drown out the noise.

Off we went from the Santa Barbara airport, a few miles out to sea and 35 miles up the California coast to Irene, cruising at just under 140 knots, which is to say about 175 miles an hour. Whoa, is that coastline beautiful! And what perspective it gives to see all this from the air. The first balloonists must have experienced an incredible thrill, centuries ago, seeing everything from above for the first time. And unlike them, we could steer.

Irene is the northernmost of a chain of offshore rigs that sit about 4.5 miles out to sea. It was built around 1986 on a square-mile federal lease that cost $40 million. (Don’t hold me to every detail of this, but I think I got it straight.) It cost maybe $120 million to build, although it is a fairly small rig. It sits in 285 feet of water and can sleep more than 50 people. Most of them share common quarters, but the foreman and the one female on board have private rooms. (“Is she the accountant or a roustabout?” I asked. “A roustabout,” I was told, “and you don’t want to mess with her — she can heft three guys over the side of this thing.”) They work two shifts, 12 hours on, 12 hours off, seven days straight, then seven days off. When no drilling is going on, the maintenance crew is about 20. From sea level to the top of the drilling derrick: 310 feet, like a 31-story building.

We touched down on the bull’s-eye of the helipad.

“Please be real careful about loose papers or anything else,” we were told before we were allowed to deplane (dechop?). “It’s really windy out there, and if anything blows over, we have to go get it.”

There is a full-time environmental and safety compliance officer on the rig, and he seems to take all this rather seriously. In all the years Irene has been out there, only a few people have fallen overboard, and no one has been lost. There were two roustabout corpses on the metal floor on one of the levels, but I was relieved to see they had been constructed as a joke from a variety of rig-based parts — fire extinguisher arms, steel pipe legs, safety goggles, boots, and so on. Very lifelike, but no actual ex-human components.

We were all issued hard hats and safety goggles, and when our sound man’s hard hat blew over the side, three guys in orange heavy-weather gear had to climb into a twin-engine motor boat, lowered a couple of hundred feet down to the swells and white caps below. They retrieved the hat (“waste not, want not,” I was thinking, but actually this was part of the environmental discipline: zero tolerance for debris) and a few minutes later, we watched as they were winched back up, dripping boat and all, by a single strand of cable, drenched from the sea, but triumphant.

After a safety briefing, we were given full run of the place. It’s a lot of see-through iron stairs, descending down to the lowest level platform, which on a really rough day the seas wash over. Sea lions were cavorting amongst the forest of vertical pipes rising from the ocean floor.

It was really neat. And to think: all that money flowing silently through those pipes. Irene’s a wealthy woman.

Tomorrow: Goodnight, Irene

Choppered out to an oil rig in the Santa Barbara Channel yesterday — Platform Irene. As I don’t do all that much choppering, and had previously seen oil rigs only in annual reports (usually next to an inset map of Bahrain or Indonesia), it was a day that kept me wide awake.

The day began at the home of Peter Bernstein, author of the recent Against the Gods: the Remarkable Story of Risk, which I enthusiastically recommend (as do some much weightier names than mine . . . “I speak carefully: no one should miss it” — John Kenneth Galbraith).

Peter is 78 and looks very much like my late Uncle Charlie. Uncle Charlie — Charles Previn — conducted the orchestra at Radio City Music Hall for decades, before I was born, and can be easily found in the credits of 30-odd old movies as music director (where would we be without Cinemania and its filmographies?). In addition to being my uncle (my mother’s mother’s brother), Charlie was the uncle of an even better known musical Previn — the jazz pianist and conductor Andre Previn. (According to my birth certificate and passport, I am Andrew Previn Tobias. But occasional fawning letters to the maestro over the years, accompanied by signed books and good wishes, have never produced a response — I’ve never met my second cousin.) Uncle Charlie was crazy about me, when I was a teenager, and I was pretty crazy about him. So I had a feeling I was going to like Peter Bernstein.

He and his wife Barbara winter in Santa Barbara. Taking over his house that morning were a film crew, directors, producers and gaffers (complete with eight rolls of various tape, hence, it suddenly dawned on me: “gaffers tape”) — we were interviewing him for a PBS series scheduled to air this fall. My part may be uninspired at best (“so Peter — is it possible to beat the market?”), but the lighting will be incredible. They typically spend two hours readying the set before we even sit down to talk. Our director, who calls “action” (but sometimes lets me do it when I see the red lights on both cameras and both cameramen have said “speed”), is a charming white-haired Brit, Michael Gill, who has something like 200 PBS and BBC documentaries under his belt, including Alistair Cooke’s Civilization. Michael has met Eisenhower, DeGaulle, and Chou En Lai, among others, and though he describes himself as being “deaf as a post” (“what was it like meeting Chou En Lai,” I asked him at one point over dinner; “mmm, yes,” he replied, “and the potatoes are quite nice, also”), he is in fact sharp as a tack on that post. Still, he is more the director emeritus, leaving a great deal of the work to the dynamo behind this whole project, Eugene Shirley, who was now introducing me to Peter Bernstein, who looked like my Uncle Charlie, and whom I was quite sure I would like.

But that wasn’t the half of it. It turned out that Peter and I had actually gone to the same New York high school, Horace Mann, a few decades apart and that we had even had some of the same teachers. Mr. Metcalf, an old guy who could sling chalk with deadly aim when he taught me Latin, had been Peter’s young Latin teacher. Al Baruth, who had terrified me as he neared retirement, had dazzled Peter in his prime. And then, it seems, we had both gone on to the same college. But here’s what really dropped my jaw (other than the fact that Peter could remember it): Peter had evidently met my dad.

“Was your father’s name Seth, by any chance?” he asked. Why, yes indeed it was. “I thought that might be your father. I didn’t really know him, but in 1949, when I had come out of the Army, I was working for the Modern Industrial Bank — it’s not around anymore — and it had never advertised but was considering taking some radio ads, and I remember this nice young guy, Seth Tobias, coming in from an ad agency — I can’t remember the name — ”

“Emil Mogul Company?”

“Yes! That’s it! And he sang this jingle he had written for the bank.”

“My father sang you a jingle?”

I, of course, remembered none of this, as I would have been two at the time. Only later did I begin singing my dad’s jingles (Ronzoni sono buoni, means Ronzoni is so good, it’s clearly understood, Ronzoni is so good. Macaroni or spaghetti, better buy Ronzoni. Ronzoni sono buoni means . . . Ronzoni is so good!) and, in particular, his bank jingles (Reuben, Reuben I been thinkin’, how the dollar bill’s been shrinkin’, something-something-rhymes-with-plank, in the Lincoln Savings Bank).

Anyway, I much enjoyed meeting Peter Bernstein. Two hours under the hot lights would follow, during which I learned, among other things, how his father had sold his successful car-sponge-and-shammy business in 1929 and — in order to diversify — invested the proceeds in a variety of stocks. Oops.

But enough family history (though I have a hunch that sooner or later I will discover we are somehow related on my Previn side). Thank you for indulging me. If I’ve waxed a little windy, it may be because it was windy out there at sea.

It was Peter’s wife, Barbara, who suggested choppering out to the rig.

Tomorrow: Landing on Irene

Junk mailers do us a service by indicating right on the outside of the envelope that what they are sending is junk and can be thrown directly into the trash. They do it by stamping their envelopes with legends like this one I just got from the Discover card: Important: Please open at once. DO NOT DISCARD.

What this tells you, of course, is that the contents are not at all important, that you would be a fool to waste your time opening it, and that by rearranging the words slightly, as if they were magnetic refrigerator-door words (have you seen those?), they would say: Important: Please DO NOT open. DISCARD at once.

If you had any doubt about Discover’s true meaning here, it evaporates with a glance to the upper right corner of the envelope, wherein rests the phrase bulk rate. Bulk . . . bunk . . . junk . . . these are all words from the same linguistic family, derived from some of the earliest cave language. Thunk — the sound of a rock hitting the cave’s dirt floor — is their precursor.

I’m pretty sure the United States Postal Service forbids bulk mailings that are in any meaningful way personalized — as, for example, a mailing of renewal credit cards. Those have to go out first class. Bills go out first class. Refund checks go out first class. Junk goes out bulk rate, and hits your door every morning with a loud thunk.

So naturally, for the purposes of this comment, I had to break all the laws of my nature and open this particular mailing piece to prove my point. And inside, to my astonishment, was a genuine, negotiable check for $4,380.22.

No, of course not. Inside were four Discover Card Checks “just for [me].” I was encouraged to “use them to make purchases, pay bills or get cash advances — up to [my] available credit line.”

And cash advances, I was prominently reminded, “are interest-free,” although there’s “a small transaction fee.*” The footnote disclosed that this fee was 2.5%, which works out to a rate of just 30% a year (ignoring the effects of compounding), assuming I pay it back within a month. If I don’t pay it back within the grace period, then the normal 19.8% kicks in.

Why pay cash when you can use these checks for just an immediate 2.5% surcharge, plus ongoing interest if I carried a balance at 19.8% a year?

The phrase interest-free is italicized and used a second time in this very brief letter, which ends: “So remember, with your Discover Card and Discover Card Checks, you’re always in the money.”

This is America, land of P.T. Barnum, where there’s a sucker born every day. So I guess the fact that they’re lying to us — clearly, this is NOT an “important” missive that need be opened at once — and the fact that they’re trying to fool stupid people into thinking that a 2.5% transaction fee (disclosed only in the footnote) is a good deal because it’s not called interest (though it works out to a 30% annual rate) — should not in any way lessen our esteem for Sears.

The fact is, “everybody does it.”

But that’s why smart people save a lot of time and money glancing at the top right-hand corner. If there’s cave language, out it goes. Thwap, is the sound a properly flicked bulk-rate envelope makes against the side of the trash.

“Mr. T: I have before me an application for a mutual fund. It says, ‘Neither the Fund nor its transfer agent will be liable for any loss or expense for acting upon written, telephone or computer on-line access instructions reasonably believed to be genuine and in accordance with the procedures described in the Prospectus.’ In these days of identity theft and computers loaded with personal information about individuals, it doesn’t seem smart to sign such an application. What do you think?” — Bruce

Well, Bruce, far be it from me to say it is smart and then have you be the one guy in a million (or some large number, anyway) who gets shafted and has to see whether boilerplates like that would stand up in court. I forwarded your query to Fidelity for their opinion, and here’s what I got back:

“The SEC permits fund companies to disclaim liabilities [this way]. But if the fund company elects to do so (as Fidelity does), disclosure is required. At Fidelity, we allow telephone exchange transactions and we disclaim liability for this in both fund prospectuses and account applications. We would be happy to send these documents to you if you’d like to see them. We believe that we have reasonable procedures in place designed to verify the identity of a caller. He or she must provide certain personal information in order to access his/her account. If the investor prefers not to have the ability to exchange over the telephone, he/she can call Fidelity to block this service.”

There’s no question, an awful lot of trust is involved in today’s modern financial world. We take it on faith that our banks and brokerage firms won’t somehow scramble all their records, and ours. We take it on faith that a company that pays no dividends will nonetheless be perceived by others to have value, because it one day could pay dividends (or buy back its stock), and that it is thus prudent to part with our hard-earned money for an electronic blip representing our tiny share of ownership in those nonexistent dividends. We take it on faith that a $20 bill is as good as the gold in Fort Knox that no longer stands behind it.

My own feeling is that if you deal with reputable companies, keep your receipts and statements (and check them for accuracy promptly as they arrive in the mail), you have little to worry about. It’s highly unlikely someone would go in and start switching your money from one mutual fund to another — to what end? Of course, the real concern is that they might move the money from your account to theirs. But in that case, in addition to having the broker or mutual fund to go after, there would be a criminal case against whoever got your money. And if someone is intent on stealing from you, they can probably mail in a forged, notarized document instructing withdrawal of your funds just about as easily as they can commit fraud over the phone.

According to the latest issue of SmokeFree Air, here are some sample tobacco taxes around the world:

The table is a little misleading, because it shows only U.S. federal tax. For the comparison to be fair, you would add state taxes, which range from 2.5 cents in Virginia (for a total there of 26.5 cents) to a more typical 20 to 45 cents in states like California, Colorado, Florida, Illinois, Iowa, Ohio, Pennsylvania, Texas and many others, up to the top tier — Connecticut, New York, Arizona, Hawaii, Rhode Island, the District of Columbia, Oregon, Michigan, Massachusetts, and Washington — which range, in ascending order, from 50 cents up to a whopping 82 cents (for a total tax of $1.06).

Cigarette taxes hit hardest those with the least money — children and low-income adults. Studies have shown that high prices lower smoking among kids. And while one recoils at tax hikes on the poor, this one is a little different. Not only can anyone avoid it — hard as it is to overcome the addiction, it can be done — there are two rewards for doing so. First, longer life and better health. Second, significant financial savings, because not only are you avoiding the tax, you’re avoiding the underlying cost of the cigarettes themselves. For a typical smoker, that might come to $700 a year.

Just as the tax falls most heavily on the poor, so would those savings bring them the most benefit. Seven hundred bucks doesn’t mean much to somebody earning $80,000 a year, but it sure can make a difference to someone at the minimum wage earning $10,000.

So if we were to raise our federal tobacco tax — perhaps to help rescue Medicare — the poor would be most likely to quit as a result, reaping the most significant gains.

A tax hike, though it would reduce consumption, would still raise money. A simple example shows why. Say we added $1 to the federal tax. If consumption fell by a third, the government would be collecting five times as much federal tax on two-thirds as many packs, which works out to about 350% as much as now. If this helped save Medicare, helped keep kids from becoming smokers, and helped low-income people, especially, to live longer, healthier lives and save money, it might not be the worst tax hike we ever imposed.

Not long ago I reported on the census of 1790. I noted that the census takers highlighted counties where there were more women than men. What struck me was how few such counties there were, considering that the men were frequently doing things like dying in the Revolutionary War. Mostly it was the other way around — more men than women. (I was also struck by the number of slaves in places like Yonkers and Vermont.)

As usual, your comments were a good deal more interesting and insightful than mine.

Mike Schiffer writes: “You should consider just how many women used to die in childbirth. Prior to antisepsis — and by this period, with doctors going straight from doing autopsies to delivering babies without washing — each pregnancy was a life-threatening condition. And without contraception, women tended to go through many of them. War and revolution were dangerous, but they were temporary conditions. Bearing six or eight or ten children more than evened the odds of dying before one’s time.”

And from Jay McInnis: “I may be able to shed some light on what life was like back then. I live in a small town (Francestown, N.H., incorporated 1796, I think). In the town history there is an excerpt from a local farmer’s diary. He describes how, during a cold snap in the winter, he stayed up all night going from room to room keeping the fires in his fireplaces going. This in addition to his regular chores during the day. I know from other sources that the typical house back then required about 16 to 18 cords of wood each winter, so this was no small task. As if that weren’t bad enough, all those fireplaces would only keep those drafty, uninsulated houses about 10 to 20 degrees above outside ambient temperature. (For you city folks, a cord is a volume of wood 4’x4’x8′. I think it weighs about a ton.)

“Two points to all this: 1.) Anybody who got what we would consider a minor illness under these conditions would probably be looking at a visit from the Grim Reaper. This would doubtless account for some of the population fluctuations you noticed, and 2.) A workload like this must have made the owning of slaves or indentured servants very tempting to those who could afford them (the rich folks needed to get that 16 – 18 cords in too!).

“Another thing you notice in the old town cemeteries is that a man is often buried alongside three or four or more wives. The reason is that the childbirth mortality (and infant mortality) back in those days was staggering. So the men would periodically go off to wars or other adventures, and get themselves killed, leading to a surplus of women. The surviving men would come back, make whoopee with the wives who would then die in childbirth, leading to a surplus of men (who presumably would become surly and start another war).

“Kinda makes you glad you live in the late Twentieth Century, doesn’t it.”

Sure does.

“I’ve been given the hard sell by a Honolulu financial advisor on a limited partnership in Low Income Housing Tax Credits (section 42 federal tax code). He claims this investment to be the greatest tax credits since the invention of electricity. Do you agree, or is this another repackaged 70’s style shelter with no merit? I’m told that for a $10,000 investment into a Low Income Housing Tax Credit limited partnership, I can get a $1300 tax credit per year for 10 years. Return of principle is in doubt as the property may be worthless at the end of the holding period. The financial advisor pushing this tells me not to be concerned about that because the ‘internal rate of return’ is great. All I know is that if my $10,000 disappears all I have is a $3000 return after 10 years. Is internal rate of return a good measure of an investment?” — Carl Paradise

I’m no expert in this and haven’t seen your particular deal, let alone the real estate in question (have you?), but let’s start with the easy part — the math. And the first thing to say here is that, yes, internal rate of return is a good measure of an investment. In fact, properly calculated, it is the only proper measure. (It’s kind of like asking: “Is height a good measure of how tall someone is?” Except you need a financial calculator, not just a tape measure, to determine it.)

So what is the internal rate of return on this investment?

If you wind up losing the $10,000, then to have received 10 annual $1,300 “payments” by way of tax credit is to have “earned” almost exactly 5% a year on your money. If you get the $10K back at the end of the 10 years, but no more, your internal rate of return jumps to 13% a year. And of course if the value of this real estate zoomed — which it may not because it is low-income housing with, I presume, rent caps — then your return would be even higher.

The tax credits, I’m told, are real — this isn’t some wild bull semen tax shelter from the Seventies. (In the Seventies, the top federal tax bracket was 70%, so people would jump at anything.) But there may be other ramifications and pitfalls that make the worst case worse than the aforementioned 5%. One, I suppose: the possibility that you might not need a tax credit some year, rendering it valueless. Another: the possibility that you’ll spend a little extra time and money each year on tax preparation. The biggest: If the general partner should fail to perform as required by the law that set all this up, it’s possible that the tax credits would be disallowed or even “recaptured” (meaning you have to pay them back, with interest and penalties).

Not to deal your financial advisor out of the $700 or $800 he might get from each $10,000 you invest in this . . . it could work out just fine. But if it makes you at all nervous, I wouldn’t do it.

I’m going to Hong Kong next week, which is a big deal to me — I’m not one of those guys who’s constantly jetting off for a quick trip to Japan or Brunei. Getting my airline ticket just now reminded me of two things.

First, of course: King Kong. I know there’s no relation, and that King Kong was fiction, while Hong Kong is very real, and home to the most expensive real estate in the world. (Funny what the threat of a little Communist takeover will do to prices. Boy, were the naysayers wrong, at least so far.) What I love most about King Kong is the time I spent with producer Dino DeLaurentiis as he filmed the remake, which he billed as — and to me it was the ultimate lesson in chutzpah — “the most original motion picture event of all time.” Hey, listen: the best defense is a strong offense.

The second thing this airline ticket reminded me of: Australia, the closest I think I’ve ever been to Hong Kong (although these things are deceptive — did you know Bermuda is closer to Boston than New York?). It was a long time ago, and my baby cousin was running a good chunk of Pan Am. (Pan Am cratered, but not my baby cousin. He went on to run Hyatt’s marketing, then United Airlines’, then captained a cruise line, now runs Vail Resorts. His name is Adam Aron. He was close to taking a top spot with Ramada Inns once when he realized that his name, backwards, spelled: No Ramada.)

The point is, Adam called one day out of the blue, when I was a lowly financial writer (much as I am now) and asked, with the kind of tone in his voice one would use when one had a royal straight flush, so confident was he of success: “How would you like a first-class round-trip ticket to Australia on Pan American World Airways, plus a week at a luxury hotel in return for making a breakfast speech?”

I didn’t think of this as a negotiation — this was my baby cousin, whom I love dearly.

“Gosh,” I said honestly, being less than the intrepid adventurer. “I don’t know anybody in Australia.” I wasn’t declining, by any means, just mulling over what it would be like to go half way around the world alone.

“OK,” said my cousin, before I really had a chance to decide, “how about two first-class round-trip tickets?”

“Now you’re talking.” I said happily. But it gets even a little better.

As the date of the trip and my breakfast speech approached, Adam called to say that my visit was generating a good bit of enthusiasm (either things were very dull Down Under, or else they were confusing me with someone else) and to ask whether, on top of the breakfast speech, I’d be willing to have lunch that same day with Pan Am’s Sydney station manager and a couple dozen of the airline’s best customers.

Obviously, I had to say yes. But . . . well, I’m a little shy by nature (no, really), and my idea had been to do this one breakfast speech and then go off and see kangaroos. So I paused a split second.

Had I said “yeah, sure” and sighed a bit, that would have been that. Instead, I sighed a bit first. Then, just as the “yeah, sure” was forming on my lips — the back of my tongue was already touching the roof of my mouth — Adam said, “OK, I’ll throw in a first-class round-trip U.S. ticket.”

Which goes to show two things. First, Pan Am had a lot of empty seats back then, so the cost of all this to the airline was maybe $300 in extra meals and fuel. My speeches may not be great, but if George Bush is worth $80,000 on the lecture circuit, I’m worth $300. Second, the smartest thing you can do in a negotiation is often to keep your mouth shut. A kiss may be just a kiss, but a sigh — well, a sigh can be worth $2,200.