Author: A.T.

The market capitalization of the Coca Cola Company (KO) flirts with $150 billion as we speak. (You don’t think we’re speaking? Can you honestly say you didn’t utter an audible "wow" when you read that last sentence? So did I. We’re speaking.) The market capitalization of all the publicly traded companies in Russia is about $50 billion.

I’m not saying you should sell Coke if you own it in a taxable account — though you might want to write some covered calls against it.

And I’m not saying you should invest in Russia (although I’m happy to have said it in the past, when it was even dramatically cheaper than today).

But looking at the two side by side makes you wonder. Even with a billion additional consumers being added to the planet every dozen years — most of whom will be born craving Coke, one presumes — could Coke really be a bargain at $150 billion? Could Russian stocks, while obviously very risky, not still represent an interesting speculation?

Larry Johnson sent this April 15:

“This being ‘tax day,’ I think we as investors should start a new tradition: Just as the Irish were green on St. Patrick’s Day, we Americans should start wearing black on April 15th to represent our mourning for the American taxpayer. I think the only thing the Clintonians despise more than the military, are those of us that work for a living or have the insight to be called ‘investors.’ Not only have we elected them, we re-elected them. They are only a reflection of what America has become. We can only blame ourselves. Sad, sad, sad. God, we need a revival!”

I wrote back: “Thanks, Larry. Having grown up in the Eisenhower days, when the top federal rate was 90%, and then the Nixon and Ford days, when it was 70%, I don’t know that we should hate President Clinton for taking it back up to 39.6%.

“Remember, he has shrunk the federal payroll and the federal deficit far more than Reagan/Bush, who expanded both. And it hasn’t been THAT bad a half-decade for investors since Clinton was elected (Dow more than double?).

“Go a little easy on the old folks, for whom a good chunk of the tax revenue is collected; and on the Army (and the debt for our prior buildup to win the cold war), which is not unimportant; and even on poor kids, who get another chunk of your tax dollar. No really successful society manages without a public sector and a fairly high tax burden to finance it — and to share some of the spoils of its success.

“Hope this doesn’t make you too angry.”

To which Larry replied:

“Naw!!! Too thick skinned for that! All I know is that I’ve been working my butt off (after it was nearly shot off!!!) full time since I got out of college in 1972 and that I’ve paid my FICA out every single year, a couple years I had it paid out before tax day!! (which we both know I’ll never see that money again). I would rather just walk down the street from the office and hand the cash to the first street drunk or bag lady I run into than be forced into the system we have now. On top of that, up until the Clintonians landed on the planet and gave us the biggest tax increase in the history of mankind, I’ve always managed to eke out a refund for the same number of exemptions. Now, I’d have to lie to do it (which I refuse to do). However, you are right in what you say. They really put it to us for quite a few of those years. This is the greatest nation on earth and it does allow us to be able to go to college, work, invest, etc. For that, I’ve fought and killed and will always be thankful for the privileges this country affords me. But it breaks my heart to see what’s happening here, and when you’ve got a joker like this in charge one really has to wonder. Like I said, it appears the very things that make America great, they despise: entrepreneurship, investors, and the military. Unfortunately, I have very strong roots in all three and make no apologies for it and never will. America is still the greatest in spite of the aliens we now have in charge. I have almost reached the point where I’m about to give up climbing any higher on the corporate ladder route as there is really no incentive left for me to do it. Why should I work so hard only to pay more taxes and everybody else’s bills? I’m seriously thinking of turning a particular hobby of mine into a profession (most of the startup costs have already been incurred). I know it will pay a whole lot less, but the stress of the high paying corporate management job (not to mention the potential heart attack, high blood pressure, short life) will be history. Plus, by using my business, I’d get to pay a whole lot less in taxes, be happier in what I’m doing and probably live longer to enjoy life to boot. Life is too short to have to become a slave to a system that tries to kill you before you can enjoy it. Hang in there, Andy. You have a certain sense of humor that really makes my day. Don’t worry about making me angry….as long as you’re not shooting mortar shells or bullets at me or trying to tax me to death, you’d have to go a long, long ways to the left. Even then, I’d defend your right to your opinion.”

How can you not like this guy? We’ve probably never voted the same on anything in our lives, but he is obviously the salt of the Earth.

I won’t take your time rebutting his comments, except to say I suspect the President appreciates investors, entrepreneurs and the American military a lot more than Larry thinks. And that Larry will get some Social Security, even if not quite the good deal we’ve been giving our parents and grandparents. (Compared with what they paid in, our grandparents have made out very, very well.)

As for quitting the rat race, if Larry is sure his hobby will support him in the basics, it sounds like a great idea. Happiness doesn’t correlate directly with Adjusted Gross Income!

If you want to know what makes America great — well, you already know, but if you enjoy being reminded — don’t forget to watch Ellen on ABC tonight at 9 (8 Central).

In what other largely-white country would the most highly paid ($80 million a year?), best respected talk show host (now that Phil is off the air, there’s not even any contest) — Oprah Winfrey, an African-American — be guest-starring on a sitcom in which the lead character, Ellen Morgan, played by Ellen DeGeneres, comes out as a lesbian?

“Yep, I’m gay,” read the cover of Time a couple of weeks ago, with Ellen’s photo.

The point is — obviously — that in America, every good citizen is respected regardless of . . . well, everything. Not that it always works that way in practice, but almost everyone agrees it should. Equal rights and fair play.

The other thing that’s great about America is its ability to change. Until recently, many people thought being gay was (a) a choice and (b) a very bad one. Like choosing to be an idiot or choosing to have everyone despise you. This wasn’t tremendously logical (who would choose to be despised?). Nor did it resonate with most people’s personal experience (most people did not remember a time when they were overwhelmingly attracted to people of their own sex but chose instead to be attracted to the opposite sex).

But taboos run deep.

Anyway, this being America, in a few short years there’s been a tremendous shift in public opinion, not entirely unlike the shift in thinking about equal rights for women. IBM has joined the growing ranks of major corporations adding “sexual orientation” to the explicit list of grounds on which they are committed not to discriminate and providing spousal benefits for same-sex partners.

Of course, much of the country still needs time to get comfortable with this — and should not be too harshly criticized or mocked for that. It’s a lot for some people to get used to — especially those who don’t realize that some of the people they already know and like happen to be gay (like Ellen). As one letter to the editor of the Tampa Tribune put it — speaking for many:

“This country continues to spiral downward in moral decay, each day getting worse and worse. Who cares if Ellen is coming out of her little closet? I for one do not and do not want my family seeing all about the so-called alternative lifestyle on TV. People have to take a stand. My family will not watch it, and I’m willing to say many more households will not.” — Johnny Johnson

Or this, to the same paper:

“Ellen” will be aired during the ‘family hour.’ This is not a family show! According to the media, we are supposed to accept same-sex lifestyles, and if we don’t, we are considered ‘homophobic.’ I do not enjoy being in the company of homosexuals, nor do I want them around my children. At one time my views would have been acceptable – even the norm – but now I am considered intolerant and homophobic. I also do not want my children around a pedophile, and yet I have read that it is a tendency that these people are ‘born with.’ Does this make me a ‘pedophilaphobic’? Thank you, Chrysler, for taking a stand and not sponsoring ‘Ellen’! –Cheryl A. Wonderly, Clearwater

It’s not hard to sympathize with Cheryl, but it’s also not hard to see how, with time, she will come around. For one thing, someone is bound to point out to her — be it Ellen or Oprah or Reader’s Digest, or whoever — that pedophilia is repugnant because when a grown man preys on a little girl or boy, he’s clearly doing something terrible to that child. No one is likely ever to ask Cheryl to be respectful of pedophiles, let alone want them around her children. But where is the inherent harm in two adults loving and caring for each other? Who is the injured party there? Most child molesters are heterosexual, yet surely Cheryl wouldn’t object to her children being around heterosexuals, just because some exceptionally tiny proportion of them are pedophiles.

If former Alabama Governor George Wallace can have come around the way he did with blacks, it’s going to be a relative piece of cake for Cheryl to watch Ellen one day and, despite herself, start to laugh . . . and even like her again. Of course, it may be a rerun by that time, but Rome wasn’t built in a day.

Enough. Being gay myself, I can get very boring on this topic — but not Ellen. Apparently, it’s a very funny episode. ABC. Tonight. Nine o’clock.

“As one who has so often recited the mantra ‘you can’t time the market,’ how do you justify your April 17 column? Isn’t the right answer that, especially for a retirement account (depending on the age of the investor), one should stay the course — perhaps adding, as you suggest, real estate to the portfolio but definitely NOT moving to money market vehicles in a futile attempt to time some future market rebound?”

I guess the short answer is that there are exceptions to every rule. (And “especially for a retirement account” the exception is easier to invoke, because it entails no tax penalty.)

If everybody put all his/her money into the market, and Social Security put its trust fund into the market, and the Chinese realized the way to get rich was by investing in the U.S. market, and the Dow hit 30,000 by next June — surely even then all of us who have said “don’t time the market” would agree that it’s time to lighten up.

So then the question becomes: when do you draw the line? The reader said he wanted to be out of the market, and I neither encouraged nor discouraged that, just tried to respond to his question about where to put the money.

But the kind of reader with a question like that may be just the kind of reader who very likely SHOULD get out. Staying the course is only good advice for people who really will (and, at these levels, perhaps not good advice, in tax-sheltered accounts, even for them). There are millions of relative newcomers to the market who’ve gotten used to its amazing performance over the last decade and a half. Let’s say I had discouraged this fellow — “Don’t sell!” — and let’s say we have a “regression to the mean,” where after 15 years of way-above average performance, the Dow dropped 40% and stayed there for a few years, putting it back in line with its historical long-term growth.

I’m not predicting that. I’m really not. But it’s certainly not out of the question. Do you think people like the reader in question would just patiently hold on an extra ten years? All my experience tells me that, typically, he would not; he would sell at the bottom . . . and be really, really angry I had talked him out of selling.

I did advise in PARADE several weeks ago (when the Dow was over 7,000) that those who have profits that can be taken without tax consequences in retirement plans might want to move half their holdings into short- to intermediate-term Treasuries and/or international equities.

I don’t usually do that — you’re right. But all I can do is offer my best judgment. If I’m wrong, it won’t be the first time!

Yesterday, I described the thrill of riding as the only passenger in a Gulfstream II that comfortably seats a dozen — making excuses right and left, as any liberal would, for the inequality and wastefulness of it all.

Some of you will doubtless write in that I’m a fool to buy into any of that liberal guilt nonsense; others will say that I am a sell-out to the aristocracy and that with the cost of the fuel for that trip alone we could have built a school in Somalia or freed seven Tibetan monks by bribing some prison guards.

I leave you to fight among yourselves. I had a great time.

(My actual feeling is that you’re both right — to a point — and that the “truth” lies, as it so frequently does, someplace in between.)

But as a board member of Zero Population Growth, I do think about some of these larger issues. (ZPG, I hasten to stress, as I have before, advocates voluntary ways to find a sustainable balance between the earth’s population and the environment.)

Clearly, if what it takes to be happy is your own jet, we’re in big trouble. In an ideal world of 10 billion happy people (because if we reach the “replacement rate” of 2.1 children per woman tomorrow, the earth’s population won’t level out anywhere near today’s 6 billion), that would mean 10 billion private jets flying around. Not gonna work.

Even if we figured that just one in 500 people would have one — the reward for being at the tippy-top of the pyramid — that would still mean 20 million private jets flying around. Not likely.

But let’s switch from jets to lobster. I’m not sure how many lobster there are in the sea, and I recognize that with proper techniques we may be able to farm them like chickens. (I would also point out that though high in cholesterol, it’s the good cholesterol. And that you’re really missing something if you don’t eat the green stuff. [Andrew Tobias and your Internet service provider assume no liability for any green stuff you may eat or any adverse consequences suffered therefrom. This is Mr. Tobias’ personal commentary and does not constitute a recommendation of any kind.]) Still, if you figured that each of the earth’s future 10 billion would eat 3 lobsters a year on average, that would be 30 billion lobsters a year we’d need to harvest from the sea. Can we do that without wiping out the species?

Obviously, life would go on even without lobster, and no one says everyone has to have access to lobster — or fresh air or clean water. Or even that, if everything works out right, we can’t develop the technology and political harmony to provide virtually unlimited lobster — and clean air and clean water — to tens or even hundreds of billions of people.

Still, my instinct is that adding a new China every 14 years, as we are now doing, makes improving the average person’s quality of life a more difficult task than it would otherwise be.

And what if we switch from jets and lobsters to wonders? Just as every Muslim hopes to visit Mecca at least once in his or her lifetime, would it not be reasonable to envision a happy time when everyone on the planet gets to see Yellowstone National Park, or Mount Kilimanjaro, once? If the average visit were just a day (I think it’s longer), then that’s 10 billion visits to be spread over 75 years (the average lifespan of those 10 billion visitors, say), or about 350,000 visitors a day to each place. If you figure the average visit to such unique attractions would be two days, then figure you’ll be enjoying these great natural wonders with 699,999 fellow visitors. Want to go only on Spring Break? More crowded still.

At the Pyramids, where we’ll assume people stay just half a day, that would still be 4,000 tour buses arriving twice a day, parking discreetly off to the side someplace so as not to be noticed. Have you ever seen 4,000 buses? Hard to hide. (And to keep this schedule, a new bus would have to arrive every 5 seconds.)

Of course, with virtual reality, people will be able to “visit” the Pyramids and just about anything else without actually having to visit them. And one can even now “climb” Mt. Kilimanjaro, after a fashion, watching a travel tape while working the Stairmaster.

Nor need one actually visit these places in any event to have a happy, comfortable life. Like so many simple pleasures from “the good old days,” to which, on balance, most of us would not like to return — churning your own butter, writing a letter in longhand with quill pen by candlelight — it may be that “real” tourism will in the future be reserved for a tiny proportion of the population, while the masses have it created for them (wonderfully) by the Discovery Channel and more and more Disney theme parks, with those wonderfully convivial thirty-minute lines to take the four-minute ride up the “Amazon.” (Don’t hold me to any of the specifics, I haven’t been to Disney World in a long time — and I still can’t get that cloying “It’s a Small World” theme song out of my head.)

But in a sense it is a small world. And these are the kinds of crazy things liberals (and many conservatives and virtually all conservationists) think about as the population grows. Can we physically feed and clothe and house 10 billion people if we can feed, clothe and house 6 billion? Sure we can. Twenty billion, 40 billion. Whatever.

But are we that generous that we want to share the planet with so many more people?

Surely if we got word there were 200 billion humans in a far off galaxy, who, for whatever reason, wanted to emigrate to Earth, we wouldn’t say, “Come on down! Our earth is your earth!” Naturally, we’d love to have their ambassador and their hockey team . . . maybe even 100 million tourists coming for a few weeks at a time (again, Disney would thrive). We’d be tickled pink at the notion that not only is there intelligent life in the universe, it turns out to be just like us. But a billion of them coming to stay every dozen years?

If I were a lobster, it would make me very nervous. Even as a human, I’m not unconcerned.

I had my fiftieth birthday Sunday, which was a little silly because in reality I’m only 37. But I felt that if everyone wanted to go to the trouble of throwing me a big surprise party and being even nicer to me than usual, who was I to look 100 gift horses in the mouth?

I am lucky to have friends of many stripes, ages, ethnicities, sexual orientations, financial strata and the like, so it was a pretty great mix, which I stress because otherwise what I’m about to describe might make it sound as if I’ve got a lot of super-rich corporate mogul friends, when in fact I’ve got just two or three. My poor friends, who vastly predominate, are rich in other ways.

But they don’t have planes.

And the point of today’s comment is to tell you that one of my super-rich friends — who does have a plane — said, when we were finishing up our visit in Washington (and knowing I was headed up to New York): “Why don’t you take the plane? It has to go up to New York anyway.”

(It had to go up to New York anyway to pick up a lovely woman friend of his who would otherwise have had to make her way down to Washington on the shuttle.)

Now, because he is someone really terrific whom I’ve loved a long time, I have also long given him the benefit of my financial guidance (notwithstanding the fact that he could buy or sell me 100 times over), which is why, I feel sure, his plane is only a G-2. (That’s Gulfstream II, to you.) It is my good influence, I feel sure, that has kept him, thus far, from adding his name to the waiting list of people down for G-5’s, which cost something like $29 million each “green” (unfinished inside), plus perhaps another $6 million to fix up. By sticking with his trusty old G-2, which nonetheless dwarfed all the other jets at the Signature terminal at National Airport as I climbed on board, I figure he’s saving $20 million-plus, at the sacrifice of just a little fuel efficiency, seating capacity and range. But sacrifices, I keep telling him, build character.

Anyway, the point of all this is to tell you (other than the fact that I’m 37, not 50, no matter what you may have heard) what’s so special about riding in a private jet.

I had never quite put my finger on it before.

I had ridden in private jets several times before, but generally where I was just a passenger. This time, I was the only passenger (with two pilots up front and a steward to see to my needs). It was my plane. King for a day. (Well, 48 minutes. “Can’t you go via Chicago or something?” I begged.)

It was exhilarating, to say the least. Kind of like having your living room be able to fly at Mach 0.8. (And, yes, horribly wasteful, in the largest sense, but not waste of my doing, since the plane was going to New York anyway, and since it may have been my seat on the Delta shuttle which, by my not taking it, kept Delta from having to add an extra section — a whole extra Boeing 737 — to transport the one passenger whom they might otherwise have had to accommodate with an extra flight.) And I finally realized what it is that’s so special about having your own jet.

I had never quite focused on it before, perhaps because in most of my few previous such adventures I had gotten to the plane way early (I can’t help myself) and then waited for the Big Shot, whoever he was, to arrive.

What’s so special about having your own private jet?

It’s not that you don’t have to empty your pockets before passing through a metal detector or show photo I.D. (“you do?” asked my friend, incredulous, when I explained how airline security had tightened since last he’d patronized a commercial airline). It’s not even that there’s no chance your bags will be lost, or long in coming off the plane. It’s not that the food is better, though it is. (“Even better,” I should say. By and large, I like airline food.) No, what is so special is that, just like in the movies, you get on the plane, sit down, and within about 10 seconds, the door closes, the engines start — with all those thousands of horses galloping around inside — and there is that wonderful noise that, from inside the plane, sounds like the quiet whisper of pure power.

(Again, no value judgments here. I realize this image will appeal more to conservatives and libertarians than to liberals. Still, no one could fail to be excited. It’s just that the liberal’s excitement is tinged with guilt.)

But think about it. Even in first class on the classiest airline in the world, you get on the plane, you sit down, and you wait. Half an hour later (if you arrive at the airport as early as I always do) — at the soonest — the engines start.

I like that half hour, too, although most of it is spent hoping no one comes to take the middle seat. I like almost everything about flying so long as I can get an aisle or an upgrade to first. But the notion that this huge, sleek multi-million-dollar machine was sitting on the runway, waiting for me . . . and that when I sat down, the engines — nnnnnnyyyyyyyyyyeeeeeEEEEEEEEEEE!!! — would go wild . . . .

OK, you get the picture. I have just two more things to say. Three. Well, four.

1. The coffee was amazing. French-pressed decaf. A short circuit in the microwave used to boil the water caused the thing to explode before we took off, permeating the cabin with burnt plastic fumes, but no lasting harm was done, and it added to the excitement.

2. Corporate chieftains, it’s become widely agreed, are in many instances now grotesquely overcompensated. My suggestion: Forget stock options and multi-million-dollar pay packages. Pay them all a million dollars, tops, but let them keep their planes. Not one of them would quit. These things are just too great.

3. Even a liberal is allowed to enjoy a G-2 every 37 years without guilt.

4. Thank you!

Tomorrow: Nervous Lobsters

Michael Simpson writes to offer a few sensible “on the other hands” with respect to my thumbs down on Visa and MasterCard debit cards (the kind that suck cash out of your checking account the instant you use them).

“The first point is about float. I certainly understand that time is money. However, 99.9% of the American public would not know what to with the money for the 45 days of float on a credit card. Most people lack planning and discipline. They make the charges and they still spend the money in their bank account. With the money coming out of your bank account, it is gone along with the temptation to spend it on something else.”

Good point.

“The second point. What are you doing with $18,320 in a checking account anyway? [I had used the example of someone who, through fraud, had had $18,320 sucked out of his checking account.] There are many places where that money would be better placed. I rarely have more than $600 in my checking account at any one time. Money comes in, I pay my bills and make additions to my investments. This minimizes the draw down a thief could make on your account. I also think overdraft isn’t that great idea.”

Well, that was $320 in the checking account and an $18,000 credit line on overdrafts. I agree that using overdraft privileges is a bad idea, because you immediately begin racking up (typically) 18% nondeductible interest. But I’ve always enjoyed having them. Still, you make a second good point.

“The third point. Even if a thief is making little purchases, an individual should still be diligent in looking at charges. I could certainly see this as a problem when you are married and share a checking account. That is why my wife and I have separate accounts.”

Ah. But do you see any contradiction between your first point, in which you said that most people lack discipline, and this one, where you say that all it takes to spot unauthorized charges is a little diligence? And what of married couples who do share checking accounts — the majority I should think?

“The last point in favor of the cards. My wife and I went to Europe and were able to get up to $1000 a day in cash advances at Western Union on the ‘Visa’ card. There were no charges because Visa was picking up the tab. No fee charges whatsoever! If you use the ATMs over there, you are limited to about $300 a day and are charged fees. We could have used a credit card, but we were over there for three months. We would not had an easy means of getting the credit card bills paid. We paid the credit cards off before we left and had the mortgage and car payments paid by my parents. The utilities were also pre paid. My company was paying my paychecks directly into my account here at home. The card gave us significantly better access to our cash.”

Well, that’s a good point, too. (See below.) You have come close to convincing me . . . but nothing would make me give up my frequent flier miles. The credit cards I use all give me float, a little more protection against fraud, and frequent flier miles.

*

“I agree that there are risks to the debit card,” writes Swastik Lahiri, “but I have found one useful feature that makes the debit card worthwhile over the traditional ATM card. I love to travel, and when I graduated from college I went backpacking thru Europe with only a few articles of clothing, a Eurail Pass, some traveler’s checks, a VISA card, an ATM card, and my Let’s Go Europe book. I was able to use my ATM card in London and Holland, so I thought I would start using my traveler’s checks so that I wouldn’t have to worry about carrying them around. I figured I could use my ATM anywhere. By the time I got to Spain, I had exhausted my checks and went to use my ATM. To my surprise I could not find a single ATM machine that accepted my card. I had to use VISA to get a cash advance, but I only took out a little bit thinking that once I got back to France I would be able to use my ATM again.

“Well, I couldn’t use my ATM in France either, not even in Paris! To make matters worse I ran out of money (except for my checking account which the ATM accessed) and I missed the last train-hovercraft of the day back to London. I ended up sleeping at the train platform in Paris waiting for the next train scheduled to depart 12 hours later. Except for being woken up and told to move every couple of hours by the police it wasn’t too bad.

“Once I got back to London everything was fine, I was able to use my ATM and I got back to the US without any other hassles. But if my ATM back then had been a VISA debit card (as it is now), I could have used it to get cash advances in Spain and France where my ATM didn’t work. Furthermore I wouldn’t have been charged the cash advance fees (2%) and the interest (18%) which starts accruing immediately on cash advances.

“With my new ATM (VISA debit card) I really don’t need to carry traveler’s checks anymore. I went to India this Christmas with only my VISA card and my VISA debit card. I didn’t have any problems getting money whenever I needed. The ATM machines wouldn’t take the card but the banks were happy to give me a cash advance against my debit card. I still use my VISA card to get the 30+ days of free money plus I get miles on American Airlines so that I can continue to travel often, but I have really come to love my VISA debit card (aka VISA check card).”

And love conquers all.

*

Finally, this from Robert D: “I am confused about your April 1 column panning debit cards. I understand your points; but a while ago you seemed to be positively jubilant about Citizen’s Trust’s E*Fund Money Market account with its high interest rate, free checking and . . . Debit card (which rebates 1% of purchases). I have been amazed at how aggressive banks have become in showering everyone (including recent bankruptees — which seems most suspicious and ill advised) with credit cards. I am trying to winnow down my collection of credit cards to one or two and I had planned on having the E*Fund card be part of the set. I mean, if they are going to pay me 1% of what I charge and 6% on everything I don’t spend, that has got to be a good deal, right??”

The 1% you speak of isn’t rebated direct to you. The E*Fund is a money market fund that allows you to write checks against it — and pays a higher rate of interest than most money market funds because it does offer the debit card. The more its participants use it, the better the yield the fund is able to pay all its shareholders. But no one says you have to use it to get the same yield everyone else does. You could cut it into credit-card linguini the moment it arrives. So the fund is good, but as I think I mentioned in that column, I would continue to use my frequent-flier-mileage cards.

“I became an investor (as opposed to a saver) 12-15 years ago.” writes Jim Taylor. “I keep reading advice columns that talk about keeping equity investments in non-retirement accounts and income investments in retirement accounts. The logic given is that in a retirement account you lose the capital gains tax break when you withdraw. Has anyone actually run the numbers on this? It seems to me that the higher historical returns for equities would offset the tax disadvantage. My gut feeling is that taxes push people’s hot buttons. It seems that the more money people have, the more they will go out of their way to reduce or avoid taxes….even if it means they get less after-tax income.”

Well, you’re right and wrong in my view. First, of course, it’s quite true that people have lost a fortune, over the years, trying to avoid taxes. So it’s certainly possible to go overboard with this.

On the other hand, Warren Buffett would be worth barely $2 billion today — if that — instead of his current $15 billion and change, had he racked up exactly the same compounded return, only exposed the gains to taxation once a year rather than buying and holding. So there is definitely something to be said for taking taxes into account in your investment strategy.

Beyond that, the answer to your question is very easy and very hard. The easy part is doing the numbers. The hard part is knowing what assumptions to use. What’s your tax bracket now — and what do you think it will be when you’re 60 and 70 and 80 and 90? How heavily will capital gains be taxed? What rate of return will you earn on equities going forward?

If you could make 25% a year on equities over the long haul, then the tax-sheltered account would fare magnificently. You’d be right: Forget what those dumb columnists tell you. Buy and sell all you like under the tax shelter of an IRA, avoiding any tax until you withdraw the money, racking up spectacular returns along the way. Why settle for 8% in your IRA when you can get 25%? Or even 10%? (Except that if the 8% is safe and the 10% isn’t, maybe the 8% is not so bad after all?)

Here’s the thing. If you plan to have any high-income producing assets, whether high-rated corporate bonds or REITs or utility stocks — then the columnists are right. Those are best kept in the retirement account, by and large, because you defer the income tax and get the government’s share of the income working for you, too.

Equities, meanwhile — especially the riskier ones and nondividend payers — should be held in your own account, because they are already tax-deferred. Their appreciation is not taxed unless you sell them (see Warren Buffett, above). What’s more, if you do have big gains, they will likely benefit from a capital gains tax break when you finally sell them. Within a retirement plan, by contrast, they will eventually convert to higher-taxed ordinary income as you withdraw the money.

What’s more what’s more: if you’re the charitable type, you can use highly appreciated securities to your advantage tax-wise — if you own them in your own name but not in a retirement account. And what’s more what’s more what’s more: those stocks that crash and burn (and we all have some) can provide a tax benefit in your own account. In a retirement account, it’s wasted.

So.

If you had to put 100% of your money one place or the other, it could make sense to put it all in a tax-sheltered account. But for those of us lucky enough to own securities both in retirement plans and directly, taxes make the following proposition very fair, in my view: keep your riskier securities in your own name and your safer, higher-yielding ones in the tax-deferred account.

Or as the sailors say, navigating those buoys: High of Flight: Own Outright. Safe Old Nerd: Tax-Deferred. (Well, something like that.)

A Harvard B-School alum visited recently and mesmerized me with stories of some of the many businesses he’s started in the last 30-odd years. One is a pizza parlor in Yaroslavl.

Yaroslavl is about four hours north of Moscow — a city of 600,000 people, a rough-and-tumble economy. (Competition isn’t waged with price wars, but wars. One Yaroslavl store was bombed four times in a single year, my friend says; fortunately it was not his store.)

If you go to Yaroslavl, you shouldn’t have trouble finding his pizza place. For one thing, he’s sublet part of it to a Ben & Jerry’s. So just look for a Ben & Jerry’s. (The U.S. government provided some financial encouragement for Ben & Jerry to build an ice cream plant north of St. Petersburg — which is to say, if I remember my geography, — the North Pole. Having more capacity than the local area could consume, it sought outlets in places like Yaroslavl.) Another way to find my friend’s pizza place in Yaroslavl is that it’s the ONLY pizza place in Yaroslavl.

Let me leave you hunting the streets of Yaroslavl looking for Ben & Jerry’s for a minute while I tell you about the plan to buy a dacha. Back in 1994, my friend toyed with buying a dacha. A dacha is like an American “country place,” except, typically, without electricity or plumbing. (Khrushchev’s had both, but I’m talking about the typical dacha.) Ah, but if there are a few square meters to grow vegetables! (And how better to fertilize them than through a lack of plumbing?)

Not that this Harvard MBA needed a place to grow vegetables. Ultimately he got himself an apartment instead. But he liked the idea of owning a dacha, and particularly liked one he found for $1,500. (Remember: this was Russia in 1994. Everything’s more expensive now.) The place needed a LOT of work, so he contacted a local fellow and asked what it would cost to do everything.

The Russian sized up the job, sized up my friend, sized up his own situation, and said, “Not counting materials, I will do the job for a case of vodka.”

This is supposedly a true story. And when you consider that a whole house/shack was being offered for $1,500, perhaps the estimated labor cost was more or less in line.

Anyway, my friend’s next question, naturally enough, was: “How much for the materials?”

The man started pacing the place again, measuring things, adding things up. Finally he returned to my friend. “For another case of vodka,” he said, “I will steal them.”

And that might have been the end of it. We could all have visited my friend in the renovated dacha that $1,500 and two cases of vodka bought. But the deal, even if he would have gone through with it on this basis, fell through. The dacha, it seems, was owned by an elderly woman with mental problems who was in a sanitarium. Her children were hoping to sell it off and raise some cash. It turned out that the woman’s doctor had different ideas. Russian doctors get paid almost nothing. But like many Russians, they find ways to make ends meet. This particular doctor had persuaded the woman to convey the deed to her dacha to him, in return for which he would provide medical care for the rest of her life.

So my friend didn’t get the dacha. Meanwhile, the pizza business has become impossible. In the early days, a few years ago, before the government got its hooks into everything, he was getting huge bags of ruble dividends. (Pizza proved popular in Yaroslavl. Once he managed to locate four metric tons of tomato sauce and had taught a local farmer to make good cheese, it was a piece of cake.) But local taxes have been raised to the point that you can’t make any money without cheating the tax man, which my friend won’t do. He’s selling out to his Russian employees for a pittance. He took those rubles to GUM, which stands for gosudarstveniy universalniy magazin, which means Government Universal Store — the giant department store in Red Square, opposite the Kremlin and catty-corner to St. Basil’s. And where you or I might have gone crazy in GUM buying Russian dolls-with-dolls-within-dolls (matryuzhki), he used his rubles to buy stock in GUM itself. GUM stock back then was 1-1/2 bid, 2-1/2 asked, and you could buy shares right there in the store. My friend bought quite a bit of GUM at 2-1/2. Not long ago, it was $28.

So he got squeezed out of the pizza business before making much dough, but with his pizza-purchased investment in GUM up 11-fold, all was not a total loss.

My friend hasn’t been back to Russia in some time. Instead of a dacha in Yaroslavl, he’s building a 200-year-old house in Vermont. The way you do this, he explains, is by traipsing around New England (and as far as Pennsylvania, to date), hunting for bits and pieces of early American homes. When complete, his new old home will be substantially more comfortable than a Yaroslavl dacha, a great deal more expensive, and a hop and a schuss from Stowe.

I’ve been sitting on this message from a young Motorola engineer for nine months now. If he’s right, you’ve just saved yourself nine months’ of waiting. Even if he’s wrong, it’s still an interesting message:

I am writing in response to your comment regarding selling a loser stock. I have recently encountered just such a situation. I work in the semiconductor business and I strongly believe in the future of the industry so I try to look for battered semiconductor related stocks. That is not hard to find these days. Two months ago I found what looked to me like the perfect stock, IDTI. They are an excellent company with several semiconductor products. Yet many people consider them to be strictly a memory maker, since they derive a large portion of their revenues from SRAMs. The company was trading in the $15 dollar range, up from $11 a month before but down from highs in the $30 just six months before. Looking at the quarterly reports the company has a book value of ~$9 per share with over $4 per share in CASH. I thought the downside risk was small, while the upside potential for the long term, as well as the short term was huge.

With that in mind I bought 400 shares at $14 3/4. During that time memory prices continued to decline along with the book-to-bill ratio. Thus semiconductor stocks began to fall. I took advantage of that by buying 290 more shares at $13 1/2. Unfortunately, soon after, IDTI warned analysts that they were not going to meet expectations though they still expected to make 15-21 cents per share. The reaction was merciless. The stock plummeted to $10 per share, it has recovered somewhat to $11 today. However I was wondering what I should do. I still believe in the long term prospects of the semiconductor industry, and particularly IDTI. I wasn’t going to sell my shares for $11 today when I thought I got a bargain at ~$15 a month ago. I don’t need the money any time soon so I am content in waiting until it recovers which I believe should happen in a year, maybe two. Yet I really want to take advantage of the incredible bargain that is available today. Unfortunately, I don’t have the cash to buy any more shares today. So I thought that perhaps options could play a role.

My strategy is as follows: Write (sell) a put at a strike price of $10. Collect the premium. In nine months when it expires if the stock is worth more than $10 my options will not get exercised, and I will have profited the premium (without having put any money down). However, if it is worth $10 or less and I get exercised I will purchase the stock at $10. As long as it happens a few months from now I will have the money to invest, but if it gets exercised before then I would have to dip into my savings in order to cover the option. The benefit in getting exercised is that I will have done nine months from now (ideally, if it gets exercised, it will be in nine months) what I wish I could do today: buy IDTI at $10 per share.

The only problem with my strategy is that my broker won’t let me write a put unless I have $10,000 in my account. Since I only have $5,000 in the account, I need to double my money before I can execute my plan. If that happens, then IDTI would have to have gone up, since it is a bulk of my assets, thus it wouldn’t be the bargain that it is today; consequently, I wouldn’t want to pursue the option strategy anymore. Regards, Swastik.

Got all that? Here we are nine months later, and IDTI is 10-1/8, last I checked. (In the intervening months, it dipped to 7 and a fraction and got somewhere north of 11 for awhile.) Had Swastik been allowed to execute his “put” strategy — taking in a couple of hundred dollars in return for agreeing to buy 100 shares of IDTI at $10, should the price drop below 10 — he would most likely have gotten to keep that couple of hundred bucks. At expiration, IDTI was above the $10 strike price of the puts, so the owner of the put would not have wanted to sell IDTI shares to Swastik at 10.

But just because it would have worked out OK, with hindsight, doesn’t mean his strategy was a particularly good one. His income from the puts, had he been able to sell them, would have been completely taxable; so after tax and commission, he might have gotten $120 for taking this risk. But what if at the end of the nine months IDTI had been at 7, as it was mid-term? Then he would have been forced to buy the shares at 10 and immediately suffer a paper loss of $300. (At that point, a day or two before the puts were likely to be exercised, it might have been smarter to buy them back on the open market to establish an immediate tax loss, while buying the actual shares of IDTI separately, at 7, for a hoped-for eventual long-term capital gain.)

I like a stock that’s down from 30 to 10. I know nothing about IDTI beyond what Swastik has told me, but — being underweighted in technology stocks and unable to resist a gamble — I bought a few shares. If it looked good to Swastik at 14 3/4 nine months ago, I’ve saved 30% (sale! all merchandise reduced 30%!) and skipped nine months of misery.

I certainly don’t recommend your doing likewise. No, you should wait another nine months and buy a little at 7. That way, you’ll get a further 30% knocked off the price and skip a further nine months of misery.