Author: A.T.

Some of you have read the background of this already (hint, hint), about the fellow suing me for $4,000-plus for locking him out of his apartment and stealing his brand new TV and other valuable furniture. I’ve never met the man, whom I have called “Mr. B,” but if he’s correct — if we really did lock him out of his apartment, I would surely want to make it right with him.

Instead, I am convinced that my property manager is telling the truth. He says that when things weren’t working out, he offered Mr. B $150 or $200 to give us back the keys (thus saving us the cost and time of the eviction) … that Mr. B agreed … and that, offered a chance to take his stuff (most of which had been assembled from curbside cast-offs, including the TV that had no picture tube), he said he didn’t want any of that junk — and left.

Not a word of complaint until about nine months later when I was sued by Legal Services of Greater Miami. That was in December 1996.

It makes me a bit nuts to recount all the time and effort (and legal bills) that have gone into this so far. And yet if we just settle, what message does that send? “Just go to Legal Services and, worst case, you strike out. But it’s free (the taxpayer pays), and since you’re unemployed, whatever little time it takes you is not much of an inconvenience.”

I happen to support the concept of Legal Aid for the poor, but I also support the concept of calling someone before you file a lawsuit and the concept of “good judgment” when it comes to weighing which cases merit representation.

Anyway, after a time we got an offer asking us to settle for $1,250. And then it just sort of faded away. We figured Mr. B had lost interest.

But no, it’s back. Having already been deposed ourselves ages ago, we were now to take Mr. B’s deposition April 20, and so my lawyer prepared for it, and promptly at 9 a.m., he and my property manager and the court reporter and the lawyer for Legal Services were there waiting for Mr. B. When by 9:40 he hadn’t shown up, someone called his car service (he is eligible for free transportation), and somehow we got word that he hadn’t been feeling well and wasn’t coming, and we’d have to reschedule. Which we are now doing.

This cost Mr. B nothing. Not even a quarter to call and say he couldn’t come. It cost me my lawyer’s time, my property manager’s time, and the court reporter’s time.

Meanwhile, we have gotten a new offer to settle, this time for $900, under a statute I think actually makes a lot of sense, designed to encourage settlements. It says we don’t have to pay the proposed $900; but if this proceeds to trial and he actually is awarded at least that much (or maybe 75% that much, I can’t recall), I’m then liable, also, for Mr. B’s legal fees from the time of this offer on. In other words, I’d get a bill from Legal Services for representing Mr. B at trial. (There’s some question whether Legal Services actually filed this properly. But if they did, that’s the way it would work.)

It’s not a bad law, because if it were a case where I should have salted the ice on my stairs, and I’m just stalling … or I disagree about the degree of injury or something … well, this makes me think hard about stalling any longer.

But it isn’t that kind of case. (Fortunately, the stairs rarely ice up in Miami.) Mr. B paid us a few hundred bucks to live in our apartment for a few months. He proved an undesirable tenant from our point of view (believe me, we hate to lose even mediocre tenants); we offered him some cash to go; and he did. At least that’s what my property manager insists, and my big-hearted property manager is anything but tough on the tenants.

So we’ve said no to the $900, and that’s where it now stands. The net effect of Legal Services’ efforts in this case has been twofold:

• to drain what will be at least $5,000 from the “good guys” — money I initially offered to donate to the homeless organization of Legal Aid’s choice, so long as not a dime of it went to Mr. B;

• to increase homelessness.

Why has Legal Services’ actions increased homelessness? Because we’re now even warier than before about renting to someone without first and last month’s rent and decent references. Which leaves out every homeless or about-to-be-homeless person in Miami. We still try to help when we can but are now more likely than before to leave 15 or 20 apartments vacant rather than risk tenants who will pay $100 to move in and then destroy the apartment before finally being evicted, a three-month process that costs a minimum of $375 plus the lost rent and the damage.

Which is why our first attempt, before starting eviction, is to work out something friendly and voluntary as we did with Mr. B.

But Legal Services has taught us it’s even more expensive to give people a chance than we thought.

Perversely, one good way to help the homeless would be to enact laws making it easier to evict people in certain circumstances. Localities should pass ordinances that allow for a “starter lease” or some such. In English, Spanish and Creole — or whatever were appropriate in that locale — it would very clearly explain that, in return for being allowed to move into a $20,000 piece of property with little or no financial security and insufficient references, the landlord would be entitled to an accelerated eviction process if it didn’t work out. This would make it easier for landlords to take chances on people down on their luck or of questionable background, while leaving undisturbed the protections for ordinary tenants. And for those down on their luck who gradually were able to build a decent track record and/or a security deposit, the accelerated-eviction provision of the lease could, under certain conditions, automatically expire.

Don’t vote against funding for Legal Services; administered sensibly, it’s a program a compassionate society should have. But the people involved in this particular case have demonstrated poor judgment from day one.

Stay tuned.

From Matvey Shindel: “I have just received a proxy statement from a large corporation whose board of directors wants to triple the [authorized] number of [shares of] common stock. They want to have these shares ‘just in case’ for all sorts of things, from the employee savings plan to business expansion. I own a few shares of this company, and I am wondering whether issuing billions of additional shares would reduce the value of existing shares. Could you please comment on this? Spasibo.”

As you know, the board is seeking your permission not to split the pie into more, thinner slices right now, but rather the authority to do so in the future. Whether doing so in the future reduces the value of the existing shares naturally will depend on what they do with any newly issued shares. At one extreme, imagine that for just 10,000 low-priced shares, they were able to acquire an oilfield that turned out to be worth $50 billion once a few wells were drilled. Wow! Now imagine that they used 100 million shares to acquire the same land, but the geologist who recommended it had become confused by a USA Today article noting that bottled water today sells for more than gasoline and so had recommended purchase of what turned out to be a rich field of subterranean water.

If you think the management is smart – as I assume you do, or you wouldn’t hold the shares – then let them do what they think will build value. They may not be smart, but they certainly wouldn’t purposely try to lower the value of your shares, because that would lower the value of their stock options. (Nye za shto.*)

*Note to non-Russian speakers: Ya tridsat’ lyet uzhe staralsa uchit rooskii yazik, i yeshchaw nye mogoo! (Which may or may not mean: “I have for thirty years already been trying to learn the Russian language, and still I can’t.”)

From Jeff Schwarz: “While researching home equity loans for my mom, I noticed that banks advertise percentage rates for the loan and a different, higher number, for the Annual Percentage Rate. What is that? And what’s the difference (please don’t answer ‘About half a percent.’).”

There are a lot of ways of calculating interest, especially as it can be compounded annually (8% on $1,000 is $80 interest) or quarterly ($82.43) or monthly ($83) or daily ($83.28) or even “continuously” ($83.29). And most financial institutions use a 360-day year, but some might want to use 365 days. And in the old days, there were even more games that could be played to keep you from understanding – and being able to meaningfully compare – interest rates, whether you were borrowing or putting money in a savings account.

The Truth in Lending Act changed all that. I forget exactly what the rules are for calculating the Annual Percentage Rate, but the nice thing is: That’s not the point. The point is that you can rest assured it’s calculated the same way by everyone, so that you can confidently compare the APR.

Not clear on compounding? Well, the first part is easy: 8% compounded annually is clearly $80 on $1,000. But quarterly means you’d get $20 the first quarter and then earn 8% on $1,020 – not just $1,000 – in the second quarter, and thus earn $20.40. So the third quarter you’re earning interest on $1,040.40 – $20.81. Get it? And daily compounding gives you (or the lender) even a little more juice.

And while we’re on the general topic:

From Phil Martino: “I read one of your articles many years ago and have never forgotten it. It was the one about if you borrowed $1000 from a friend and paid him back at $100/month for 12 months, how much interest did you pay? I have asked dozens of people over the years that question. Like you said, a lot of intelligent people say 20%. It is a lesson I’ll remember for life. Thanks.”

Not quite clear why this has proved particularly helpful to Phil, except that it may have won him some barroom bets. The answer of course (drinks on me!) is that if you paid the full $1200 all at once at the end of the loan – returning the $1,000 and paying $200 interest for the right to have used $1,000 for a year – then you did indeed pay 20% interest. But the fact is, you borrowed $1,000 for just one month. Then, having repaid $100 (some of which was interest, some principle), you borrowed less than $1,000 – and less still each month that followed. So you paid $200 to borrow, on average, less than $1,000 for the year. In this case, the interest rate works out to about 35%.

Hard to calculate on your fingers and toes? Indeed. And that’s why the Truth in Lending Act and APR are so useful.

“Let me tell you about my dumb luck on Wall Street last summer,” writes one of your number by the name of Uvarov. “When [Ralph Lauren’s] Polo went public, I put in a stop order at $27, for 1,000 shares. [A.T.: He means a limit order, not a stop order.] If I couldn’t get the stock for $27 or less, I didn’t want it. I was going for a quick in-and-out IPO profit. Reckless, but I’d seen three other recent IPO’s I’d passed up…go uppppp.

“Well, after the favored clients at … [a broker other than the one that sponsors this comment] got the stock, it went to everyone else for more than $27. I thought, Oh, well, I didn’t get it for $27 or less. Such is life. And I thought that was that. What I didn’t realize was I had not put a deadline on my order!!!! [A.T.: He means he didn’t place a day order; he accidentally made it “good-til-canceled.”] And if you want to know what panic looks like, you should have seen me when I opened a statement from … [a broker other than the one that sponsors this comment] a week or two later stating I had bought a thousand shares of Polo at $27!!!!!!!! I meant for that order to be in only for the day of the IPO!!!! I thought that was understood!!!! And, of course, the reason I got Polo stock for $27 now was because the stock was going doowwwnnn. The statement was for a trade two days before. So I threw open my Wall Street Journal to see what Polo stock was trading for the day before. I expected to see it trading for $20, or something terrible … losing thousands of dollars through an accident – an oversight!!! But the stock was trading at $28!!!! But was it trading at $28 that day??? I called … [a broker other than the one that sponsors this comment]. It was trading at $28. (Whew!) I organized my information and called … [a broker other than the one that sponsors this comment] back a few minutes later and said I wanted to sell my 1,000 shares. The friendly girl said, ‘Okay, that’s 1,000 shares at $28 1/8.’ Those few minutes of organizing my info. meant over $100 difference in my favor. So I made a nice little profit for less than a week of holding the stock, all from a flub.

“Anyway, that is my Wall Street Adventure. Forrest Gump couldn’t have had dumber luck.”

A.T.: I’m thrilled for Uvarov and first to admit I’ve made a mistake or two in my own day. But I’m also worried for Uvarov, because he sounds as if he’s fairly new to all this. Buying an IPO the first day at way above the initial offering price just because IPOs seem to go up even more than that the first day – well, this obviously can work, and it’s obviously exciting, and the great thing about America is that you’re free to do it. And Uncle Sam is thrilled, because he’ll take a good chunk of the winnings if you do win, while strictly limiting any tax benefit if you lose.

But when I read this message, other than liking Uvarov immediately, the sense I had was, well, it’s just getting a little too easy.

From Paul Kroger: “I feel it may be misleading to compare P/E ratios today with historic levels. Current market P/E’s are often referred to with caution as being at ‘historically high levels.’ But, given an increasing number of people investing in stocks relative to historic levels, wouldn’t you expect this to occur? My impression is that the Conventional Wisdom has always attached a lot of risk to stocks, which kept many potential investors out of the game and handsomely rewarded those who dared play. Now we ‘Boomers’ have learned (or at least been led to believe) that the risk is short term, and that ‘in the long term stocks always provide the best return.’ All things being equal, as more investors buy into this idea (and there are a lot of us), wouldn’t you expect P/E’s to be bid up significantly from historic levels? Granted, P/E’s currently reflect an extremely optimistic outlook for earnings and are truly high by any measure. But I never hear anyone relate the increased number of equity investors to a general increase in market P/E’s.”

A.T.: I think you’ve asked a very good question.

The first point I might make is that in the second largest economy in the world, people save a lot more than we do here, relatively speaking, and they too face an aging population concerned about retirement – so their stock market must be booming, right? With all those savers shoveling in money? But the answer of course, as you know, is that the Japanese market is down 60% from its level nine years ago. (They’ve been saving, but not in Japanese stocks.)

But you’re right: So long as everyone believes stocks can only go up regardless of value … and that any dips will be shallow and short-lived … the market will keep going up, and any dips will be shallow and short-lived. P/Es can climb to the moon, at least for a while.

Still, think about what the P/E is. It’s the price you pay for a piece of the profit pie. If you buy a short-term Treasury these days, you pay $20 for $1 annual return. Totally safe. If you buy a stock at 20 times earnings, it’s the same deal – $1 of annual earnings – except you don’t actually get the dollar. You may get part of it as a dividend, but the rest will be reinvested on your behalf in hope of making the return itself – that annual dollar – grow.

In the old days, people walked around saying things like, “a bird in the hand” (by which they meant a dividend check that didn’t bounce) “is worth two in the bush” (by which they meant a share of accounting profits that are probably real but hard to spend when you get to the checkout counter at Costco).

Now of course we’re too smart to worry about dividends, which in taxable accounts must be shared with Uncle Sam; we just want stocks that go up.

Still, someone paying 28 times earnings for the average stock in the S&P 500 is saying: “Don’t give me $950 for every $10,000 I’ve saved up!” (e.g., the $950 one could earn by paying down his home equity loan) No, I’d rather have $357 (28 times $357 is $10,000). What’s more, don’t actually give me all that money, just maybe $150 or so. With the rest, do whatever you think is smartest.

Someone paying 50 times earnings for a growth stock is saying, “I’d rather earn 2% in a growing company than 9.5% by paying down my home equity loan.”

My guess is that, despite the good reasons one can marshal to pay 28 times earnings for some stocks, and even 50 times earnings for a few, the time will come when birds and hands and bushes reappear. If a recession ever surfaced, or even just the fear of one, appreciable numbers of investors might decide that 9.5% is better than sitting with stocks that pay little or nothing in dividends and could lose 10% or 30% in value (or possibly even more).

At which point, if fear reappears, as it periodically used to – be it this week or in the next century – stocks will lose 10% or 30% (or possibly even more) of their value.

And then the recession will end, greed will overtake fear, and stocks will begin climbing back.

Personally, I have no interest in accepting $200 or even $357 on each $10,000 I invest unless the circumstances are very special – as some are. I’d rather get $950 (9.5%) paying down my home equity loan. If fear ever reappeared, I’d be a more enthusiastic buyer.

So does this mean you should try to “time the market”? I suppose not – especially in a taxable account. “Everybody knows” that you can’t time the market and that missing just a few of the really great spurts in the market – which come at unpredictable times – robs you of much of the gain you might otherwise have had.

But all rules have exceptions, and when “everybody knows” something, their very knowing can make it no longer true.

Which is a very long-winded way of saying: Be careful.

CDs

I know cash has gone out of style — who wants something safe that pays you interest when you can have something that doubles and splits, doubles and splits, doubles and splits? But for that grandmother of yours who lived through the Depression and fails to understand, Bill Nagler offers this helpful link: “bankcd.com scans the nation’s banks for the best money market and CD rates,” he writes. “I picked up an extra .4% compared with what I was earning in the best money market fund Schwab offers.”

BOOKS

From Gilman Miller: “Thanks to your column I just ordered an in-stock out-of-print book from Powell’s online for $10. Amazon took a couple months to even find a copy of this book and then wanted $20 or $25 for it — too expensive.”

A.T.: Well, Amazon is pretty great, too. But the nice thing about www.powells.com is that you’ll often know right away if they have the book you want.

And from Alan Rogowsky: “Have you ever tried: www.bibliofind.com? It’s a network of booksellers around the world. I recently found some old sci-fi paperbacks (the ‘Pelbar Cycle’) WAY out of print that I had been looking for everywhere — at a bookseller in Nova Scotia! And you can COMPARISON shop on prices! Very cooool.”

ANAGRAMS

Gilbert Walker notes that, in rearranging the letters of my name, I missed this anagram: BIAS AND WROTE. Hmmm.

The Dow has about quadrupled in the last eight or nine years. The Nikkei Dow has been cut by almost two-thirds. A dollar in the Dow is now $4. A dollar in the Nikkei is now about 40 cents. There’s been, therefore, about a tenfold shift — U.S. stocks are now about ten times as expensive relative to Japanese stocks as they once were.

Of course, Japanese stocks were wildly — and I mean wildly — overpriced back then, when the Nikkei peaked at 40,000. A lot of the decline was warranted. Indeed, maybe it is still overvalued. But a tenfold relative shift is pretty big. Maybe Japan, which a decade ago appeared poised to rule the global economy, is not entirely done for. (Have you seen that amazing new handheld Sony video camera? The new 1.2-mile suspension bridge they just built that dwarfs by a factor of four our own Brooklyn Bridge?) And maybe the U.S. — which now appears to own the next millennium lock, stock, and barrel — could face competition. (Did you see the report recently on CBS that 80% of our high school kids now readily admit to cheating? Something like that. It was probably overblown, but awfully depressing.)

I had to laugh when, at the height of the Japanese insanity, they began making 100-year mortgage loans. (Truly – they did!) Today I see that here in the U.S., mortgage loans remain limited, so far as I know, to 30 years — but some lenders are advertising loans on up to 150% of the value of your home.

I’m not saying the U.S. stock market, though it sure seems overvalued, is remotely as overvalued as Japan was. (And for all I know, those 150% mortgages are only granted to people with trust funds. I haven’t researched the offers yet.)

Still, a tenfold shift in relative values is enough to get my attention. If 100% of your stock-market money is in U.S. stocks and none in Asia … or if you’re in the stock market on margin (or in the stock market but still have a car loan, say, which amounts to much the same thing) … maybe it’s a good time to reconsider your strategy.

You’ve got a policy with a $500 deductible, say, and you’ve just suffered an $800 loss. Any elementary school student can tell you that your net insurance recovery will therefore be … zero, if you’re smart. Why? Because the smart thing ordinarily would be not to make a claim. In the first place, you spare yourself the hassle. But mainly, you forego the possibility of losing your status as a preferred risk.

Regulations vary from state to state, and policies for dealing with such situations vary from insurer to insurer … so it may sometimes be fine to file such a claim. But it is a statistical fact that people who file a claim are more likely to file another one than people who haven’t — so insurers prefer customers who don’t file claims.

Clearly, it’s a matter of judgment. If you had a $500 deductible and a $520 loss, you surely wouldn’t file the claim. (Would you?) If you had a $500 deductible and a $6,000 loss, you almost surely would. (Wouldn’t you?) Where do you draw the line?

Your agent can give you good advice in this regard, if you buy auto insurance through an agent; and you may even get some helpful advice from your insurer’s phone reps if you buy insurance direct.

But this is one more reason to take large deductibles. The first reason: Why pay someone to take a risk you could afford to take yourself? Over a lifetime of self-insuring for such small risks, you’ll get to keep all the money that would otherwise go to insurance company overhead and profit. The second reason: It’s less hassle not to have to involve an insurer in the small stuff. The third reason: Why pay for coverage you might not even use in the first place?

Have you seen that PBS show they seem to run over and over where ordinary people have brought in an old duck decoy or weathervane they had up in the attic, and the Professional Appraiser tells them all the background on it they didn’t know … and the suspense is building … and somehow they even know the likely craftsman who made it, and that he was the great Nephew of Paul Revere or something … and the suspense is building … and then, finally, they reveal that this $15 flea market purchase would probably fetch at auction … the suspense is unbearable … about $4,500 to $6,500. Have you seen that show?

I’ve never seen it from the beginning, so I am not clear on who or what it all is, really. But it seems to be aired a lot.

Well, this column is, sadly, sort of the opposite of all that. It concerns a lovely woman who has an amazing trove of celebrity letters spanning decades, from the days when she and her late husband knew everybody. Many are just thank-you notes, some are gossip, but the crown jewel in the collection is a letter from Humphrey Bogart in 1954 saying some witty and earthy things I cannot repeat on a family web site.

She sent me a copy, knowing I might be interested in purchasing it.

“That’s a cool letter,” said the Beverly Hills expert I read it to over the phone, wondering what he thought it might be worth. “Well, whatever anyone wants to pay for it — it’s really kind of priceless. Bogart is very big.”

“Yeah?” Enough with the suspense-building. “What would you pay for it?” I asked.

“If I were in the right mood and I saw it someplace for $5,000, I’d buy it,” he said.

Which means he would then turn around and put it in his catalog for $10,000, or perhaps just call a client, offer it for $8,000, and take $6,500 — very likely receiving the $6,500, over the phone, on a credit card, even before paying the $5,000 to buy it. A very quick $1,500 return on a zero investment. Of course, he has rent, overhead, staff …

Anyway, that’s how the business works, and $5,000 seemed about the right ballpark to me, also.

But then I mentioned the letter was typewritten — which was so obvious to me, since I was looking right at it, that I had forgotten to tell him, whereas he had been assuming it was handwritten, as the three excellent Bogie’s he’d previously sold me over the years were.

That changed his tone real fast. He said if it was typed, it was almost surely dictated to his secretary — and that she signed most of his letters FOR him. I faxed him a copy, and he said it was her “Bogie,” not his — and consequently, in his mind, the letter was of essentially no value.

“Five hundred?” I asked him. “Not even that,” he said. “Nothing, really.”

This ended my interest in the letter. For the seller’s sake, I hope my expert is wrong. But it would appear this $6,500 early American duck may be just a $15 flea-market quacker. (Then again — like some stocks I know — it’s worth whatever anyone will pay for it, and not everyone would think to question the signature. The letter itself is clearly real.)

The three handwritten Bogart letters I’ve bought are:

• A short note to his press agent, Ken, handwritten, witty content.

• An angry 3-page handwritten to Jack Warner.

• A wonderful little handwritten note to actor Clifton Webb asking to borrow $200 so Mary and he — then aged 39, yet still no star — could pay the rent.

I like to think they’re all “right as rain,” as they say. But even then there are risks. A couple of years ago, the first of the three was stolen right off my wall.

Buyer beware.

IN RE TELEMARKETERS:

From Dan Saul: “I found your article on sales calls today very funny. After you are done seeing how long you can talk to the salesperson, however, there are a couple steps you can take to help decrease future calls.

“First, register for the do-not-call file of the Direct Marketing Association by sending your name, address and phone number to the:

Telephone Preference Service
Direct Marketing Association
P. O. Box 9014
Farmingdale, NY 11735-9014

“The list, which is available only for residential phone numbers, is updated four times a year and lets marketers know that you don’t want to be called. Once you register, your name will be kept on the list for five years. Unfortunately, however, telemarketers don’t need to check or honor this list.

“Second, if you still do get a call, notify the representative that you do not wish to receive any future telephone solicitations. By federal law the company must honor that request. Some states have stricter laws, so people who really want to stop phone calls should check with their local consumer authority.

“Hopefully these actions will free up your phone for calls from Elvis.”

A.T.: Thanks, Dan! (People have told me this really does cut down on the calls.)

From a dozen others: “What I do, when I get one of these calls, is ask the rep for her home phone number, and a convenient time for me to call her back.” A dozen others thank the rep for calling and immediately launch into a pitch for your product or charity.

IN RE PHOTOCOPYING THE CONTENTS OF YOUR WALLET:

From Winnie, Texas: “Our daughter is a freshman at Vassar College, a long way from Winnie, Texas, where her family lives. She lost her wallet several weeks ago, and we thought we had given her all the correct advice (cancel credit cards, call Social Security, etc.). But were we surprised when she received a letter from Blockbuster Video telling her she owed late fees of over $130! She argued them down to only paying $17 for the missing movie, but your advice is well taken. Who would remember little things like Video rental cards, when big things like American Express and Visa are uppermost in your memory of things to cancel?”

From Skip Eby: “I believe one key to a happy life is keeping things simple (the old KISS philosophy). One aspect of this is not keeping a lot of miscellaneous credit cards, etc. in my wallet. I find I get by quite nicely carrying only my drivers license, one credit card, commuter rail pass, and a telephone calling card in my wallet, along with a daily supply of cash. Copying the contents is a good idea, but combined with simplicity, even better.”