Author: A.T.

And I’ve done a lot of stupid ones. But there it was 1992, the President had just been elected, and names were being bandied about for various positions. One was Robert Rubin for Secretary of the Treasury.

A Wall Streeter I respected — I will never say who — told me he thought Rubin would be a disaster; and fearing (stupidly) that the Arkansans might not be Wall Street savvy, I felt the need to drop a note to Bruce Lindsey, who was handling much of the appointment process, and pass that opinion along. Not that I had ever met Bruce Lindsey, let alone Robert Rubin.

The main thing, of course, is that my note had no impact, so no harm was done. But I feel like a complete idiot, because after four years in the job, Treasury Secretary Rubin has been acclaimed worldwide with near unanimity as a superb choice.

Tomorrow: Why Clinton Didn’t Name ME Treasury Secretary

Ah, the exuberance. We all crave attention, and in business, attention means dollars. Hence the millions of press releases that go out each year. But is there no way to send them a little more intelligently?

PARADE is a weekly Sunday supplement that goes to 40 million households. Once or twice a year, I get to write for it and so have somehow been designated by the Mailing List People to be PARADE’s business editor.

Those of you who see PARADE may agree with me that it’s excellent — far better than the gossipy recipe sheet one might expect. But it has no “business department.”

Nonetheless, I get small boatloads of press releases, virtually none of which could possibly, conceivably, be of even the remotest interest to PARADE.

I have tried in years past to get off some of these lists, but it’s impossible. Public relations people feel they have achieved something by getting their press releases into the maximum number of mail rooms.

You never know (they must figure) — perhaps PARADE will break with its normal format and run a story on this item, which I believe qualifies as the dumbest press release I got in all of 1996. It seems that TV station WTXF, the Fox affiliate in Philadelphia, has acquired a new helicopter, complete with a gyro-stabilized camera. The station plans to concentrate its use of this new equipment on traffic news. The GyroCam has “a Fujinon 36x zoom lens with a 2x extender (yielding an equivalent zoom ration [sic] of 72:1).”

Now there’s something PARADE might want to do a story on. And if not PARADE, surely Reader’s Digest, Seventeen, Rolling Stone, or Prevention, along with the hundreds of others to whom this no doubt was sent. How about The Harvard Business Review or Sports Illustrated?

“For Immediate Release.” What could these people possibly be thinking?

(To learn more about the lens ratio, or perhaps to schedule an interview with the pilot, contact Sharla or Lisa at 215-627-0801.)

Tomorrow: The Stupidest Thing I Ever Did

From Valliappa Lakshmanan: “I bought some shares in an Israeli conglomerate (ELBTF) for $12. It recently spun off two companies that trade for about $7 and $4. The original company trades at around $2. I want to retain the spin-offs but sell ELBTF. Now, the question: What is the cost basis for my ELBTF shares? $12? Can I claim $10 in capital losses this year if I sell only the ELBTF shares? (I know the piper has to be paid some time and that the cost basis will then be $0 for the other two shares.) Is my understanding correct or does the IRS have some complicated formula for arriving at the cost basis of my shares?”

Are you serious? Our IRS?

No, you can’t take a whopping loss — or any loss — because you didn’t have one. Basically, you are required to adjust the basis of all three securities (all three of which, incidentally, were acquired, for tax purposes, the date you bought the ELBTF — the clock doesn’t start ticking all over again).

Sometimes the company will send an accountant’s opinion on how you should apportion the original cost. But unless we’re talking about tens of thousands of shares, I wouldn’t be concerned with that. In your case, you paid $12; and when the company issued these new shares, the market valued the resulting three pieces at $13. Just take the proportions the market assigned — seven-thirteenths, four-thirteenths and two-thirteenths — and apply them to your original $12 cost. In other words, 2/13 of your original $12 cost is your new cost basis for the ELBTF shares — $1.85. If you sell them at $2, you have a slight gain, not a loss.

(Technically, the proportions should be based on the prices of the three securities the day the two new ones were spun off, not the day you wrote me your message. But it doesn’t sound as if it will be much different.)

From Steven Kutz: “My grandfather has given me some stocks (five different ones), and when I asked him what he bought them at, he said he’s had them for a long time, and they’ve split, etc., so he doesn’t know what they were bought at. He said that I should just use the price of the stocks when he gave them to me as their costs. But that means that no one will pay for a gain if, say, one of them has gone from ten dollars (what he bought it at) to sixty dollars (what it was when he gave it to me). Can I do what he suggests? If no, and he doesn’t give me the price he bought them at, what should I do about the tax basis when I sell them?”

Good question. And, no, you can’t just use as your “basis” the prices of the stocks as of the date he gave them to you. You’re quite right about that. Only if he had died and willed them to you could the basis have been “stepped up.” The good news is that he’s alive and well. The bad news is that the IRS will expect you to make reasonable efforts to use the proper cost basis.

If you were given actual stock certificates, you will see on each the date of transfer, and you can get the price (adjusted for splits) as of that date. Otherwise, ask your grandfather to take a guess as to when he acquired them — he’s likely at least to know the decade, and his broker is likely to know what year his account was established (if he purchased the stocks through that broker). Unless we’re talking about big numbers, I wouldn’t spend a LOT of time on this, but you should at least come up with some vague notion — 1950? 1965? 1980? Pick a date, any date, and make a note in your records that this is your best guess.

Then, either by calling each of the five companies, and their shareholder relations departments, or by some other clever method, you can come up with a price for that date. (ValueLine, in the library, will show prices, and splits, going back 15 years, if it’s one of the 2000 stocks they cover . . . and if you then find a ValueLine from 1981, you could go back yet another 15 years.)

When you sell the stocks, use the date you chose as the “acquisition date” you report and, if you want to be really correct about it, include a note explaining the problem and why you chose the date you did. But — especially if you’ve gone about this in good faith — I wouldn’t raise that flag. I’d just declare my gain, using my good faith best guess, and pay tax on it. It’s highly unlikely you’d ever have to explain any of this to the IRS.

“Nobody ever made a greater mistake than he who did nothing because he could only do a little.” — Edmund Burke

Happy New Year.

OVERDRESSED TO BE A PROGRAMMER

“I know that when I stick on a jacket and tie, my sense of seriousness and self worth change instantly. I’m not describing it very well, but I think you know the feeling.”

To which Michael Simpson (and a couple of others of you, in much the same vein) responded: “This made me laugh. In the programming profession, it is quite the opposite. The worse you dress, the more you make. I limit myself to T-shirts and jeans. But at Emerald Systems, their star programmer programs buck naked. (Behind a closed door.) When I was at Jostens, one highly paid consultant ran around in cutoff shorts and no shoes or socks. Regular bathing seems to be optional for programmers. Our self-worth is tied up entirely by how well we code. Dressing down seems to be a message to management that we are so good, we can do what we want. We seem to be correct. Want to destroy a good programmer, put him in a tie. Maybe it cuts off the blood flow to the brain?”

PIGGY WARBURG

Recently I quoted a fund-raising letter written during the depression by Paul Felix Warburg. This made my friend Dave Davis curious, and he came back from the library with all manner of stuff about the man, my favorite bit of which — from THE WARBURGS by Ron Chernow — follows:

“The third Warburg son, Paul Felix–invariably known by his nickname, Piggy–was . . . the family clown. . . . Although Piggy never graduated from college, Felix [his dad] had great affection for this incorrigible, madcap boy. When he left school, Felix got him a humble job with the B&O Railroad in Baltimore and used to write him letters that began with ‘Dear Railroad Magnate.’ While working on the railroad, Piggy met another rich young man who persuaded him to invest in his new business and Felix reacted angrily. ‘I love you dearly,’ he told his son, ‘but if you’re so irresponsible with money as all that, I’m going to put you on an allowance.’ The friend was William F. Paley and the investment was the nascent CBS.”

THE RICH ARE INVOLUNTARILY GENEROUS

I pointed out that at all income levels, on average, people give away about 3% of their income. But the rich are different from you and me, because on an after-tax basis (because they itemize their deductions and give appreciated securities), they give less money (on a percentage basis).

From Brian Annis: “Considering that the government FORCES someone with a higher income to give more of it to the needy, is it really fair to knock the rich for not giving more voluntarily? After all, a dollar received via the IRS is worth just as much to the recipient as one that has passed through the United Way. In fact, the contribution received from a rich person may have been given with a greater spirit of charity than a “voluntary” one coerced from someone else by an employer, church, etc. The only difference is really in the degree of choice about who the recipient is.”

That is definitely one way to look at it. Indeed, on that basis you could argue that only the poor should give much, since they are getting a relatively free ride off rich people’s taxes. The rich have more than done their duty just by paying tax.

But all this assumes that giving money, if one could afford to, is naturally something one would want not to do. Yet when you look at all that needs doing in the world, and how tantalizingly close we are as a species to making this thing work (or else having it all blow up in our faces), it turns out that for many people who see what’s going on, there’s nothing they’d rather do than be able to help. (Was Scrooge really happier before he started giving?)

The family that gets by on $30,000 a year yet gives $900 (3%) is perhaps giving 50% of its discretionary income (after basics like taxes, food and shelter). The family that gets by on $500,000 a year yet gives $15,000 (3%) is giving perhaps 4% of its discretionary income. If such a family went nuts and gave $90,000 to the causes it believed in — roughly 10% after tax — it would still not feel much of a pinch.

Let me be clear: I’m not saying anybody need give a penny if he/she doesn’t want to. I just think those who can afford to but don’t are missing out on one of money’s greatest luxuries.

Yes, the prudent and convenient thing for most people is to do their stock-market investing via no-load, low-expense mutual funds. But does that mean we all do? Hardly.

Herewith, direct from someone who has actually walked past the Ed Sullivan Theater in midtown Manhattan . . . The Top 10 Reasons NOT to Buy Mutual Funds:

10. Just not as darn much FUN as picking stocks yourself.

9. Lust for control. Well, I’ll admit it: control is a big thing with me.

8. Tax timing. With a mutual fund, your taxable gains and losses are realized largely by the fund manager. (YOU only get into the act if you choose to cash out of the fund itself.) On your own, you can arrange to take losses for tax purposes and let your winners grow untaxed and/or wait until gains go long-term. Not that this matters in a tax-sheltered account, or that you should ever let the tax tail wag the investment-decision dog — but still.

7. Can’t give appreciated securities. If you give to charity, there’s a big tax advantage in giving appreciated securities you’ve held more than a year. Say your mutual fund is sitting on a stock — Intel, perhaps — that’s up ten-fold . . . but it’s mixed in with all its other more mediocre holdings, and your fund shares themselves are up only modestly (or maybe they’re down). There’s no way to pull out just the Intel shares to give away.

6. Have to pay a management fee. Own a stock directly, and you get all its dividends and appreciation for yourself. Own it through a mutual fund, and the managers take a slice.

5. Have to pay administration fees. But at least the managers might be doing some useful research or making some savvy decisions. On top of their slice, you’re also socked for your share of the cost of printing up all those prospectuses and quarterly statements and answering the 800-number — all that stuff. It’s a drag on performance, plain and simple.

4. Loads. Most people still buy load funds — funds that charge a commission, either up-front, as a surrender fee, or via an annual “12b-1” sales fee. Yet another drag on performance.

3. Miss out on tiny stocks too small for funds. Few mutual funds can invest in small companies. For one thing, it’s just not worth their time. For another, buying — and eventually selling — $1 million worth of some small, illiquid company is bound to drive the price up (and then down), making it very expensive to get in and out. But some of the best, albeit riskiest, opportunities lie in these “micro-caps.” The little guy, with his/her 100-share or 500-share stake, can move in and out with relative ease.

2. Don’t get to vote on stuff. If you own shares through a mutual fund, you don’t get all those annual reports, you don’t get to approve the auditors or vote to toss out the board. (Not that any boards ever ARE tossed out — personally, I just toss out the proxies.)

And the number one reason not to invest via mutual funds . . . a little number one music please, Paul:

1. Not invited to the annual meetings!

So Grandpa, who gave you $100 on your first Christmas, $200 the second, and so forth (God bless Gramps), just gave you $3,800 yesterday, and you’re wondering how to invest it. The first $1,800 you’re going to use to pay off your credit cards — not having to pay 18% interest is like earning 18% tax-free, risk-free. But what to do with the remainder?

Earlier this month someone asked my opinion of the New Perspective fund. I knocked it for its load, and a couple of other things, without offering much of an alternative. So, OK. Here’s an alternative:

“The relatively new T. Rowe Price Global Stock Fund has all of the advantages of New Perspective with none of the disadvantages,” writes my friend Less Antman. “It invests in large companies all over the world, and has the traditional Price respect for low expenses. It is managed by the same Martin Wade team that has been running International Stock to the top of the Forbes list for 7 years running (not that the Forbes list has done any better at predicting the future than anyone else).”

I realize, however, that many of you prefer to throw most of the darts yourself. Me, too. When there’s such a strong argument that it’s best to invest through mutual funds, why “do it yourself?”

Come back tomorrow for the answer. (And please put in a good word for me with your grandfather.)

Tomorrow: The Top Ten Reasons NOT to Buy Mutual Funds

Now here’s a curious thing. Trial lawyers, it’s well known, care more than almost anyone else about pain and suffering. They spend their days feeling the pain of people crushed in car crashes, maimed by callous manufacturers, poisoned by reckless food and drug makers.

The greedy car makers may not care, the greedy hospitals may not care, and the greedy insurance companies certainly don’t care — but the trial lawyers care deeply, deeply, deeply. And I want you to know, it’s not the money they care about.

When a trial lawyer says he feels your pain, he doesn’t mean he feels excited by the 33% plus expenses he’ll get from the settlement, or the 40% or 50% he’ll get if it goes to trial. Sure, he likes the money. He never said he didn’t. But that’s not why he chose personal injury law. He went into this field because he cares about people.

Indeed, when the right to sue for pain and suffering is threatened, trial lawyers put up their own hard-earned dollars, fighting for victims everywhere — like Henry Fonda in The Grapes of Wrath. In California, they put up millions last March to preserve the current auto insurance system. Yes, California lawyers (on both sides) make $2.5 billion a year from that system, but that’s not why the trial lawyers fought to preserve it. As they told us over and over again, it was because they care about the little guy’s pain and suffering.

(Seriously, many trial lawyers do take great satisfaction in fighting for justice for the little guy. One need only read Jonathan Harr’s gripping A CIVIL ACTION to see that side of the story.)

So here’s what’s curious:

In California and Arizona last month, there were ballot propositions to allow medical use of marijuana to relieve the pain and suffering, and nausea, experienced by cancer patients and many others.

Perhaps you saw the related segment on 60 Minutes. It raised the whole issue of whether people should be kept in terrible pain rather than prescribe currently illegal drugs to relieve it. One car-crash victim on the 60 Minutes segment was in such agony after the state medical board cut off his painkillers that he made a videotape explaining he would rather die as a result — and killed himself the next day.

Pain and suffering is real.

Yes, there were reasons a thoughtful and compassionate person could oppose the marijuana initiatives (e.g., California’s required no written prescription). But a lot of thoughtful and compassionate people supported them, too. Key backers included international financier George Soros and auto insurance CEO Peter Lewis, who put up $500,000 each. And a majority of voters in both states voted YES. Both initiatives passed.

So you’re thinking, hey: maybe an auto insurance executive put up half a mil for this, but the guys who must really have ponied up big are the trial lawyers. After all, they have a track record of enormous generosity to politicians and ballot initiatives they support, and they really care about pain and suffering.

So how much did trial lawyers contribute to the California and Arizona campaigns to legalize medicinal use of marijuana to ease that pain?

That’s right: Not a penny.

Maybe Christmas Eve would be a good time for trial lawyers to undergo a Scrooge-like conversion and consider policy issues based not on what’s in it for them, but what’s best for those who are most seriously injured.

Well, I can dream, can’t I? It’s Christmas!

And may yours be merry and meaningful.

From Nallu: “I am trying to establish or start a college fund for my 5-year-old daughter. I would like to know if there are any funds or stocks which I can count on 15% to 20% annual return. Thanks in advance. Nallu Reddy.”

No.

There are lots of stocks and funds that have produced that kind of return in the past, but that’s no guarantee they can keep it up. Indeed, to a certain extent it may even suggest lower-than-average returns in the decade to come, as the overall market reverts back to its very-long-term trend (if it does).

That’s not to say a few funds and many stocks won’t grow at 15% or 20% a year by the time baby Helen (I’m just guessing) enters Vassar. They probably will. But only with hindsight can we know which they’ll be.

So your use of the phrase “count on” is kind of the deal breaker.

Typically, you’d be wiser to expect — and even then not count on — more like 9% or 10% pre-tax from dividends and appreciation.

Sorry.

Silver lining: you’re a step ahead just to be thinking about this and to be starting now to save for your daughter’s education. And if you DO earn the kind of return you seek, as you certainly might, then you’ll just have that much more for some other worthwhile purpose — like a baby brother.