Author: A.T.

This is no time to be shy. I’m offering you a chance to visit yourself upon 41 million households. You’ll get calls from people you haven’t seen since high school! You could get modeling offers, movie deals, marriage proposals.

And how will all this happen?

I’m doing a story on credit cards for PARADE, the Sunday supplement that appears in newspapers throughout the country, and I need some real people (not to say average people: you are way above average) to bring it to life.

So would you do me a favor?

1. E-mail me your own credit card story … even if it’s bland. When did you get your first, how do you use them now, what’s your philosophy about them, how many do you have, did you ever have/overcome a problem with them … whatever. I’ll assume that if you e-mail me, I can use your name and where you’re from (so please let me know your full name and where you’re from) unless you indicate otherwise. It would help also to know your age and occupation.

• Note: I’m not just looking for unusual stories. I need some very run-of-the-mill, typical examples, too. So just because you don’t have 48 cards, or never started a $100 million business by borrowing to the max against your Visa card, doesn’t mean it wouldn’t be a great help to me to have you respond. (But if you do have 48 cards, I’ll naturally want to hear that, too.)

2. Let me know if you’d be willing to have PARADE use your photo with the story. They have good photographers. You’d look great.

Thanks for your help!

I’m writing this one a few days in advance, so for all I know the market’s been just jolly as you read this. But it doesn’t feel jolly today. Sure, the Dow’s down only 3% or 4%, but any number of smaller stocks are down 30% and 50% and more over the last few weeks. So for those few of you who may not own shares in Berkshire Hathaway or see Warren Buffett’s annual shareholders’ letter some other way (to my everlasting regret, I see them some other way — the press list) I thought that I would pull out a quote that seems apt … and could seem apter and apter if things don’t go well.

“[W]hen you read a headline that says, ‘Investors lose as market falls,'” advises Buffett, “edit it in your mind to ‘Disinvestors lose as market falls — but investors gain.’ Though writers often forget this truism, there is a buyer for every seller and what hurts one necessarily helps the other. (As they say in golf matches: ‘Every putt makes someone happy.’)”

Especially if you’re young and adding to your investments each year rather than drawing upon them — investing rather than disinvesting — then a falling market is a wonderful thing.

Of course, this presupposes the notion you are trying to buy companies that you actually believe will make a lot of money (profits) over the years to come, rather than merely buying stocks you hope will go up.

If you’re not young and in or entering your disinvesting years, then market declines are bad news. And we may not have seen the last of this one.

From Aaron L.: “The short version of the question is: Is it possible to inflate the price of a stock by placing limit buy orders at a price above the stock’s market price? The long version: There is a fairly thinly traded stock I watch (average trading volume: 2,500 shares a day). Its price fluctuates only slightly from time to time. Let’s say I buy 5,000 shares. Then let’s say I offer to buy some more (100) at a higher price. I do this several times (perhaps from different accounts) to try to make the appearance of general interest in the stock at the higher price and eventually have the appearance of interest turn into actual interest in trading at that level, so it becomes a so-called “base” price level for the stock. Then I sell my shares and make a killing. This seems an obvious sort of gambit, especially on a stock where the trading volume is small, so there must be a reason this would generally fail. Any thoughts on the subject?”

A.T.: Yeah, I have two main thoughts:

• There are SEC regulations against deliberate manipulation. If caught, you could be in hot water. Realistically, you would not get caught; but that’s partly because …

• It wouldn’t work. Normally, what you propose is called “painting the tape,” where a lot of little trades are done (though not necessarily above the current price range), to suggest, by the unusual activity, that “something must be up.” If nothing else, it’s a form of advertising — everyone watching the ticker sees this symbol they don’t recognize going by over and over, so curious investors around the world may take a look to see what the darn thing is. But a few 100-share trades are hardly going to arouse a lot of interest.

Consider: If the stock trades 2,500 shares a day, buying 100 shares here or there won’t move the price. And what if you really get into this and made 50 little trades of 100 and 200 shares each, accumulating 7,500 more shares, say, and edging the price up 3/8 in the process? Guess what: when you went to sell what are now your 12,500 shares (or whatever), you’d likely knock the price back down by even more than you edged it up.

Yes, there are ways to manipulate the market — some of the folks on various Internet sites passing on rumors may actually be starting those rumors in hopes of hyping the holdings they itch to sell.

But homework and patience will ultimately serve you far better as an investor than trying to find a legal scheme for beating the system that no one ever thought of before — or an illegal one you won’t be caught at.

But you knew that.

1. After 500 years of 3% inflation, $100,000 will be worth 4 cents.

2. “The guy who invented playing cards was brilliant. But the guy who invented chips was a genius.” – Ricky Jay (himself a genius)

3. Spending tens of thousands of dollars on a person’s last few months of life is compassionate – but spending. Spending tens of thousands of dollars to improve a person’s first few years of life is also compassionate – but investing.

4. “A man who says he is willing to meet you half way is usually a poor judge of distance.” – Anonymous

5. “This fishing tackle manufacturer I knew had all these flashy green and purple lures. I asked, ‘Do fish take these?'” “‘Charlie,’ he said, ‘I don’t sell these lures to fish.'” – Berkshire Hathaway’s Charles T. Munger, as quoted in Fortune

6. THE LIMITS OF EXPERTISE: “Years ago my father was told the refrigerator was broken beyond repair. After the repairman left, my father kicked it, it started, and worked fine for eight years.” – my friend Mary O’Neil

In answer to my call for suggestions on sensible ways to invest in Japan, Neile Weissman wrote: “Try Tokio Marine & Fire Insurance ADRs — symbol TKIOY. TKIOY is an old line, well capitalized company that itself owns a diversified portfolio of Japanese stocks. Trading in the low 50s, it’s at a 25% discount to its underlying securities. Their website: http://www.tokiomarine.co.jp/index-e.html. Mutual funds that hold this security are deep value players like Sogen International and Third Avenue Value. One of Third Avenue’s past reports had an extensive write-up of TKIOY (visit www.mjwhitman.com).”

To balance Tokio Marine’s mostly blue-chip holdings, Neile suggests the Warburg Pincus Japan OTC fund. “The guy who had been running the better-performing Warburg Pincus Japan Growth also took over this one.”

Recently, I wondered what would happen to MSFT when it had to start paying real wages rather than rely so heavily on stock options to keep its people happy.

My musings elicited this interesting message from the ether:

“I am not a fan of Microsoft and I hate Bill Gates, partly because I do not have money like him and partly his philosophy about selling software does not match with mine. However, I am long his stock, because he is a savvy CEO and the world demands his products. I think his stock will do good in the long run. However, I do not agree with your projection of labor cost etc. Following are my reasons.

1. Just like when the US was a powerhouse in small scale industries in 70s and early 80s and now the whole industry is shifted to Asia and Latin America, software industry will follow it. It is a matter of when, not if. It could be 20 years, 50 years or whatever. Already you can see it. Microsoft has only 3 offices (R&D) in the world. 1. Redmond, WA; 2. Israel; and 3. Hydrabad (India) – will be operational by December 98. Microsoft does not believe in opening many offices and the fact that they have considered India as their only major offshore software development center is significant. Recent Bill Gates visit to India signifies his commitment.

2. Almost all software companies worth their salt have some of their operations offshore (somehow they like to use this word). One big reason is that U.S. universities are not churning out enough graduates to keep up with the growth worldwide.

3. American graduates cost more, demand more, and prefer to (or I should say forced to) move around. That creates a drag on product development.

4. India has state subsidized (almost 50-95% of education cost. I am a great beneficiary of this subsidy and always grateful to the government) and very good education system and relatively stable job environment. Graduates cost less than 5 to 20% of cost of US graduates and the number of universities and institutes are almost equal to US. The engineering and science graduates pool is almost 2 to 4 times of the size of US graduates. Naturally, demand and supply works here and wages are rising about 20% a year for last 10 years. Microsoft entry would ignite this competition.

5. Most companies offer restrictive (cannot sell before 5 year or 10 years) stock options to their overseas employees in US$. That alone is a significant attraction to most potential employees. How else they can get almost sure chance to become millionaire (in local currency, $1=Rs 40)? I know some of my friends, who did become millionaire by exercising stock options.

6. Internet, satellite telecom and government support do play a big role. The world is so close. When I was in India recently, I was able to read your page, trade stocks and be in touch with my office, just as I would staying in US. This was not possible even 3 years ago.

“Bottom line is, these technological advances will accelerate the migration of software jobs and will keep the production cost in check (in today’s dollars). Just think about it, your clothes, cars, shoes are much cheaper today (please include inflation in your calculation) than they were 50 years ago.

“However, I do worry about unexpected things which no one has control of it. Would next CEO will be as lucky or smart or savvy as Bill? How about something like Internet, which Bill miscalculated badly. Would next president of US or justice dept. go after Microsoft big time. I do not know and frankly nobody does…So keep investing in profitable growth companies…and pray for higher stock prices.”

A.T.: I pray for higher productivity, continued technological breakthroughs, good health, and auto insurance reform. I do not pray for higher stock prices. They’re already awfully high. Better to let earnings catch up for a while.

But his message is interesting. When I was growing up, India was a distant abstraction. One day soon, my late-night customer service query may be handled (at noon, India time) by a customer service rep in New Delhi. Small world, indeed.

Yesterday, I made a comment suggesting that libertarianism (the Ayn Rand school) goes too far. Today, I offer Jay’s comment on what happens when the pendulum swings too much in the other direction:

From Jay S.: “You recently wrote: In this country, given our resources, capital and technology, we’d need relatively few people just to feed, clothe and house us. A true observation, as far as it goes. Being as I live in a country that is 30-50% poorer materially than the US — Italy — I’ve noticed one other major factor in addition to resources, capital and technology that contributes to the wealth of the average American (and which is completely missing in most of the rest of the world): a political-social culture of productivity and personal responsibility.

“Here, between government regulation, stifling taxation, and a socialist mindset that causes the average person to regard a job as a fundamental human right which the government owes him regardless of his personal productivity, the output per person is far less than in the US. Throw in the wasted human labor, such as the army of guys who push the buttons in self-service elevators because they have jobs protected by powerful unions and everyone thinks it would be cruel to make them hunt for an actual job, and the end result is that everyone is poorer, even with abundant resources, capital, and technology.”

A.T.: A happy balance between unfettered libertarianism and stifling paternalism may be the best bet — and perhaps not so far from where America is today.

Many of the smartest people I know are libertarians. They basically want the government to get out of the way, both in the boardroom and in the bedroom, and leave it all to Ayn Rand.

I have never met a libertarian of average intelligence. They are always way smart, way capable. The kind of people who would for the most part succeed excellently in a libertarian world — or any other.

The one flaw in libertarianism, as best I can dope it out, is its silence on the matter of those who, for whatever reason, especially reasons beyond their reach, are born or rendered too weak or intellectually limited to hold their own. They need society’s protection/assistance/special care … and this sometimes requires the presence of government.

I asked one of you, Chris Selland, about this a while back, when we were e-discussing it, and he wisely replied:

"What do Libertarians say about those who can’t compete with Libertarians? They pretend they don’t exist. Which is why I can’t call myself a true Libertarian. I just believe, to pirate a phrase from Bill Weld, that the social safety net should be a trampoline, not a hammock."

In other words, Atlas just shrugged, but Bill Weld and Chris and others are willing to lend a hand.

Monday: The Trouble with Socialism

MERGER MANIA

From Toby Gottfried: “It seems that every week we hear about ‘the largest corporate merger ever.’ (Or, if need be, ‘the largest in industry X’ or ‘the nth largest.’) And each time the executives trumpet the efficiencies and wonderful prospects. Well, it seems to me that the logical conclusion of all this is to just merge everything into one company. We could call it ‘the company.’ Or ‘the government.’ Oh wait. They tried that in Russia. It didn’t work.”

APR vs APY

From T.S.: “I had to put in my two cents worth and remind everyone that you CANNOT earn an APR on a deposit account! APR – annual percentage rate – refers strictly to loans. Deposit accounts are stated as APY – annual percentage yield. Of course, no one intelligent enough to shop APY versus nominal rate will be foolish enough to put money in an account (with the possible exception of CDs) that is quoted as APY. (Hint: get a good mutual fund money market account instead!)

ATCALL

From Victor Smith: “Thank you for ATCALL. I have been a long time user of AT&T having been a stockholder in years gone past. After reading your commentary on Ameritrade I got a postcard from AT&T announcing HIGHER rates starting June 1. I’m not taking it any more! I called ATCALL at the 800-411-9696 and am now going to be switched to them within ten working days. My local phone company will charge me $5 for the switch but ATCALL will give me $5 credit so it cost nothing to switch plus I now will get 10 cents a minute anytime any day. This will be great because we’ve got six kids and grand kids and Nannie is a great talker!”

A.T.: And now you can get 9-cent-a-minute calling through a deal America Online has arranged. But if you use AOL, you certainly know about it – talk about “in your face” advertising.