Author: A.T.

If you have an IRA, you will be able to make your 1997 contribution as late as April 15 next year, just as you always could. My advice: do this as soon as you can. The earlier you fund any kind of IRA, the longer your money has to work for you.

For your 1998 contribution, and from then on, you will have a choice: Continue with your old IRA, as before, or set up a new one, called a Roth IRA, after William Roth, the senior senator from Delaware, who hatched it. In that case, the old one would continue to grow, but from then on you could split your maximum $2,000 contribution each year over the two of them any way you wanted.

If you have no IRA currently, this is a good time to consider whether you should start one — of either variety. (Or perhaps start yet another new kind of IRA, the education IRA, where the “R” stands not for retirement but for Education. But the limits and laws on that are independent of those for the two retirement IRAs, so let’s just ignore that for now.) Both are great, and there’s no telling for sure which will be better for most people, so don’t let indecision keep you from contributing to one of them. The examples that follow should give you a pretty good idea how to think about this.

The basic difference between the traditional IRA and the new Roth IRA is simple. With the traditional IRA, you get a tax break for your contribution today, but pay taxes on everything you withdraw. With the Roth IRA, you get no tax break now, but so long as it’s been in existence for at least 5 years, every penny you withdraw after age 59-1/2 (and even before 59-1/2 in limited circumstances, such as purchase of a first home) will be tax-free.

Advantages of the Roth IRA:

• Withdrawals are completely tax-free.

• Easier to qualify to contribute to it (see tomorrow’s comment: Who Qualifies).

• You can continue to contribute even after age 70-1/2, if you have earned income, and you need not begin withdrawing money until you’re good and ready — and then, according to any schedule you please. (With a traditional IRA, you must begin withdrawing by April 1 of the year after you reached 70-1/2, and minimums are prescribed by law.) For someone who’s going to live to 100 or beyond, and who may not need the cash right now — or may not even be retired at 70-1/2 (Ronald Reagan certainly wasn’t) — this is welcome flexibility.

Disadvantage of the Roth IRA:

• You don’t get a tax deduction (technically, an “adjustment,” which lowers your taxable income whether you itemize or not) for your contribution.

Basically, which IRA to contribute to in any given year depends on your assumptions about tax rates. If all income were always taxed the same, then a Roth IRA would always make more sense than a traditional one. To see why, let’s pretend all income were always taxed at 50% and all investments grew at 10% a year. Neither is true, but it makes the math easy.

You could put $2,000 into a traditional IRA and get $1,000 “back” in the sense that doing so would lower your tax bill by $1,000.

So now you have both the $2,000 in the IRA and the $1,000 you got back via the tax break, and both are growing at 10% a year . . . except wait! The $1,000 is growing in a regular, taxable account someplace, so it’s really only growing at 5% a year after tax.

After one year, the $2,000 has grown to $2,200 and the tax if you withdrew it would be $1,100. Right? Fifty percent of $2,200. The $1,000 “tax break” money, meanwhile, would have grown at 5% after tax to $1,050 — $50 short of what you need to pay the $1,100 tax. And year after year it gets worse. What you can earn on your “tax break” money, because it’s subject to tax, is always likely to fall short of the rate at which your IRA — and thus your tax bill when you withdraw it — is likely to grow.

Now, you might say: well, what if I could earn 15% on that $1,000 tax break money instead of 10%? And I’d say two things: First, 15% is still only 7.5% after tax in this silly example, so you’d still fall short. Second: if it’s so easy to earn 15% outside of an IRA, why wouldn’t you be earning it inside the IRA as well?

In other words, however fast or slow you can make your money grow, it will always grow faster tax-free than taxable. The “tax break” you get from the traditional IRA will either be frittered away (in which case you really come out behind), or else it will be invested subject to tax, which over the long run will almost surely amount to less than if it had been invested free of tax.

In the real world, though, tax rates are not all the same, and that’s where it gets tricky. Here are two general rules:

• The lower your tax bracket today, the more likely a Roth IRA will be to your advantage.

• The younger you are, the more likely a Roth IRA will be to your advantage.

Say you’re 24, that you qualify to contribute $2,000 to an IRA, and that you can compound your IRA money over a lifetime at 9%. You don’t plan to withdraw the money until age 70. (In the real world, of course, there would be other $2,000s from other years, and you wouldn’t withdraw all the money at once. But let’s just follow this one $2,000 chunk.)

If you are in the 15% bracket today, because you’re a 24-year-old starting out, and you expect to be in more like the 35% bracket when you retire, then the case for the Roth IRA is overwhelming. By foregoing a tiny tax break today — $300 in the case of 15% on a $2,000 contribution — you would save $37,000 in taxes when you went to withdraw that $2,000 — now grown to $105,000 — at age 70. For $300 today to be worth so much — $37,000 — 46 years from now is for it to compound at 11%; i.e., if you had chosen the traditional IRA and gotten your $300 tax break, you’d have had to find a way to make that $300 grow at 11% a year after tax just to break even versus the Roth IRA. And trust me: It is very hard to grow money at 11% after tax. (If it is easy for you, then surely you could also have been growing the IRA at 11% also — in which case your $2,000 would have grown to $243,000 instead of $105,000, and the 35% tax would be $85,000 instead of $37,000, and your pathetic little $300 would have had to grow at 13% after tax, not 11%, to keep pace.)

So if you’re in a low tax bracket now with the prospect of a higher one when you retire, it’s a no-brainer.

But what if you are in the 35% bracket now, between federal and local income taxes, and expect to be in the 15% bracket in retirement? In that case, taking the deduction now would save $700 on your taxes today (35% of the $2,000 contribution). When you withdraw that $2,000 at age 70, it will again have grown to $105,000 using the 9% assumption. Paying 15% of that in tax will cost you $16,000. So which is better: $700 now or $16,000 in 46 years? Well, that $700 would have to grow at 7%, after tax, for it to produce $16,000 after 46 years. So you have to think what you’d do with that $700 today. If you’d spend it on a new suit, forget it! You don’t need a new suit. Or, if you do, you can get a perfectly good one for a heck of a lot less than $700. In any event, a new suit is not going to produce $16,000 for you by the time you turn 70. But even if you were very disciplined and earmarked that $700 specifically to grow to pay taxes on your traditional IRA, the fact is, it’s not easy to beat 7% after taxes over a long period of time. So even in this scenario, the Roth IRA doesn’t look bad.

Now what if we kept everything the same as above but made you 64 instead of 24? You’re still in the 35% bracket, but expect to be in the 15% bracket when you withdraw the money at age 70 (because you’ll be retiring, moving to a no-income-tax state, and getting by on a very low taxable income). In this case, it would be smart to use the traditional IRA rather than a Roth IRA. Why? You save $700 on your 1998 taxes, and six years later, when you withdraw your $3,354 (it’s grown by 9% a year), your tax on it at 15% will only be $503. That $700, meanwhile, has grown to around $1,100 if its growth was subject to just 15% in taxes (or even less if it was all capital gain and thus entirely shielded from tax, and subject to a very light tax when the gain was realized). So why give up what could be $1,100 to save $503 in taxes? You’ve shifted income that would otherwise have been taxed at 35% into income taxed at 15%.

Even if you were 44, given these same assumptions, the Roth IRA doesn’t look great. By age 70, the $2,000 has grown to $18,800 so the 15% tax you avoid is worth $2,800. The $700 you could have saved today with the tax break from the traditional IRA would have had to grow, after tax, at just 5.5% to match that same value. And if you could have found some nice growth stock that rose at 9% a year, you’d be sitting with $6,579, and very nearly that much even after you paid some tiny long-term capital gain tax on it when you sold it. Still: the Roth IRA does at least relieve you of the concern that tax rates will be a lot higher when you withdraw the money. And it also provides you the flexibility and easier accounting referred to above.

It’s easy to see that the Roth IRA will not always make sense. The lower you expect your tax bracket to be at retirement, the less enticing it is. Still, there sure is something nice about “paying” a few hundred bucks (by not getting the tax break) in order to know your $2,000 will grow completely tax-free for decades to come.

Nuances:

• Note the distinction between your marginal tax bracket and your average tax rate. If I pay zero tax on my first $10,000 of income, 15% on my next $10,000, and 35% on my third $10,000 — to take a simple hypothetical example — then my marginal tax bracket is 35%, because on the last dollars I earn, I’m paying 35% in tax. But all told, I’ve earned $30,000 on which my total tax was $5,000, so my average tax rate is 16.7% ($5,000 divided by $30,000). See the difference?

• In most financial decisions — should I buy $25,000 of taxable or tax-free bonds? what does this $1,000 gift to the Salvation Army really cost me after tax? — it’s the marginal tax bracket you should look at. What’s under consideration are relatively few dollars at the margin of your finances: a little more taxable interest income, perhaps; a little more in the way of itemized deductions. And indeed, when you look at the impact of the $2,000 IRA contributions many of us make each year, it’s the marginal tax rate that determines just how big a break we get.

• But when the dollars grow large . . . when it’s not just a small difference at the margin of your finances but a huge chunk of your income that’s at stake, as a $105,000 withdrawal from your retirement plan is likely to seem large 46 years from now . . . you should think more in terms of what you expect your average tax rate to be by then. Sure, some of that $105,000 will be taxed at the top bracket. But much of it may be taxed at a lower bracket or not taxed at all. So even if you expect today’s brackets to remain unchanged (for 46 years? hah!), your average tax rate on withdrawals from your IRA may be a lot lower.

• This distinction further moderates one’s enthusiasm for the Roth IRA. For people with relatively little taxable income at retirement, the savings from the Roth IRA may be quite modest.

• Leave your riskiest investments outside the IRA (of whichever variety). You do that for three reasons. First, some risky investments bomb. Outside an IRA — but not inside — you can take a tax write-off on the clinkers. Second, on the risks that do pay off, taxes can be light anyway because of the favorable long-term capital gains treatment. Third, you’ll have the flexibility to do your charitable giving with appreciated securities instead of cash.

• Ain’t Congress grand? This is the perfect tax break. It actually gets people to pay more tax now, decreasing the deficit, by getting them to forego the traditional $2,000 IRA adjustment . . . and shifts the cost decades into the future, when there will be that much less income available to be taxed . . . leading one to wonder whether tax brackets in the distant future, on the money that is available to be taxed, will be so low after all. This is an argument for choosing the Roth IRA. But . . .

• What if Congress one day abolishes the income tax altogether in favor of, say, a national sales tax? Well then, the traditional IRA might prove to have been the wiser choice after all. You got the tax deduction now and had no tax due on the withdrawals. Personally, I don’t see it happening. But there are going to be an awful lot of retiree voters in a few decades. Maybe they’ll get Congress to abolish the tax on all retirement income.

• What if, strapped for funds, Congress finds some back-door way to tax Roth IRA withdrawals — say, by adding that income into the mix in calculating some modified Alternative Minimum Tax? Well, then, again the Roth folks would have gotten the shaft. They’d have foregone today’s tax break, yet been hit up for taxes tomorrow anyway. I don’t think this is likely either.

For most people, especially today’s low-bracket taxpayers — as well as those likely to spend rather than invest their tax breaks — the Roth IRA is likely to be a good deal.

Tomorrow: Who Does Qualify — and Should You Switch?

Do you know how to run a successful horse insurance business? That is, a life insurance business that insures the lives of horses? The key is to look not into the mouths of the horses, but into, as it were, the mouths of the owners. It turns out that for the most part, horses live more or less normal horsy lives. What you’ve got to watch out for is owners of questionable character. Sometimes, if the horse hasn’t been winning, there’s a fire or an accident. Awful but true.

It was from that simple insight — underwrite the owners, not the horses — that a friend of mine managed to cut rates significantly for the morally sound owners, win much of their business a decade ago, and make himself rich.

Where else can you go for useful advice like this?

Tomorrow: The Roth IRA

Recently I told you about the arrest of two of my employees for cleaning up our little neighborhood. We’d been doing it for quite some time at no cost to the city of Miami. But on Columbus Day, not knowing about the arrangement we had with the local authorities, a police officer arrested my guys, handcuffed them and threw them in jail for felony dumping.

When we left the story, my guys had insisted on pleading not guilty (since they were) even though it meant risking their chance to gain citizenship. Several of you responded very graciously with offers of help, but none was needed.

The good news is that the case was dismissed, we avoided having to pay a $500 fine, and no one has a felony on his record. Our costs amount to little more than $3,000 ($1,000 for the bail bondsman, $1,500 for the lawyer, $160 for our impounded trust, two days’ work lost times two employees and their manager), plus of course the intangibles of the fear and frustration.

Chastened, we are now allowed to go back to our volunteer cleanup efforts.

I had assumed the story would end there. But we made one pretty serious mistake. My manager, Sal, in fighting this, angered the arresting officer by questioning his actions, both at the time and then as the case proceeded.

I don’t want to anger him, so I will call the arresting officer “AO” (for “arresting officer”).

AO, in fairness, knew none of the background of our commitment to the neighborhood. Most people dumping stuff in Miami are doing so to avoid the cost of hauling it off legally. And most people don’t clean the streets of debris on a volunteer basis. We believe AO should have given us the benefit of the doubt, since Sal identified himself as a C.O.P. (citizen on patrol, a group that volunteers its services to assist the police). But no one likes his authority questioned, and one thing led to another.

So here was AO, losing face. The arrest he made was being thrown out, and he was being criticized by us, and perhaps by some of the police we normally work with and to whom we had appealed for help.

Put yourself in his shoes. He wanted to prove we were bad guys after all, or at least cause us some trouble for causing him some trouble. (Though would it be too infantile to point out, as my brother and I used to from the back seat of the station wagon, that “He started it!”?)

In the course of the first arrest, he had determined that one of our two guys — not the one driving — had a suspended driver’s license. (It had been suspended a couple of years earlier for driving under the influence. This is a serious offense, obviously. But all had been well since then, and he would have had his license back had he been able to afford the insurance on his own car.) So on Veterans Day — maybe I should call him Cop Holiday — AO waited and watched until my guy did something very dumb that he was not authorized to do: he drove the truck a half mile from his place to the job site instead of being driven by one of our other guys or riding a bike.

AO pulled him over on the pretext of the crack in our truck’s windshield and the tape on one of the brake lights (though I don’t see why any pretext was needed, since he knew my guy had a suspended license) and “discovered” that he was driving with a suspended license.

Apparently, there is a relatively small fine for doing this, but the AO has the discretion to give a ticket or, in addition, to make an arrest. In this case, of course, he made the arrest. When Sal arrived to try to help, Sal was also arrested for “knowingly permitting an unauthorized driver to drive his vehicle.” This, too, carries a fairly trivial fine but also gives the officer discretion, never mind that Sal maintains, and I believe him, that our guy was not authorized to drive the truck and was cutting a corner.

So my guy and Sal were handcuffed, booked, fingerprinted, and tossed in jail, with the prospect of getting out in a couple of days or else, again, posting bail. Five hours in jail, in a cell with people accused of domestic violence, and another $1,000 for the bail bondsman and another $160 to retrieve the impounded truck, they were out. Presumably, with another set of legal fees my guy will be allowed to pay the fine for driving with a suspended license and Sal will either pay his fine or else we’ll pay a lawyer to help us insist that Sal really hadn’t authorized our guy to drive it until he had his license.

Sal is taking all this well. He has been advised by friends in the police department that there are basically only two choices if a police officer has it in for you: move to another city, or else apologize and completely submit to the police officer on everything, right or wrong. He doesn’t want to move to another city and has invested too much of his life in trying to improve this neighborhood, so his current intention is to go with Plan B.

Yesterday I conveyed Dave Davis’ findings that golfing can be hazardous to your health. I don’t doubt him on this, exactly, though it does remind me of the line that saccharine, as it turns out, — so long maligned — is really only hazardous to your lab rat’s health.

Today I want to tell you the real reason I personally will never play golf again. My apologies to those of you who have already read this: it is lifted from My Vast Fortune. But it comes after the auto insurance reform section, so even if you have gone out and purchased the book (bless your heart), you may have it by your bedstand with a bookmark someplace between the fascinating details of failed auto insurance reform in Hawaii and the fascinating details of failed auto insurance reform in California or Massachusetts. You got bogged down, in other words, like a golfer in the rough.

Anyway, here’s the story. A couple of years ago, I was invited to go golfing with Warren Buffett. Sort of.

More accurately, I was golfing at the invitation of my discount broker. It was the first time in my life I had ever golfed, and the first time in anybody’s life that they’d gone golfing with a discount broker. But this was a special case, and I learned a few things.

The first thing I learned, I guess, was “never go golfing for the first time in your life.” Not that this hadn’t occurred to me in advance.

“I’m sorry,” I said when I was invited. “I’d really love to come, but I can’t.”

“Why not?” asked my host, marveling that I would turn down a chance to hobnob with Buffett and 98 other CEOs, senators, governors and the like.

“I don’t play golf,” I explained.

“Don’t worry! We’re all terrible,” he said.

He meant they had high handicaps, and this was for charity, the Emmy Gifford Children’s Theater, and all in good fun.

“You don’t understand,” I said. “I mean I have literally never played golf in my life. Well, a little miniature golf.”

I play Scrabble. (So does Warren Buffett. I have never played him directly, but for a while there we were both playing Monty, a computerized game, on which he managed to rack up a 687-point score. I know, because he sent me a Polaroid. To save time, he reported, he’d have his secretary keep starting new games until Monty dealt him a seven-letter word.)

“No problem,” my host assured me. And we went back and forth about five times, over a period of several weeks, until against my better judgment, and admittedly eager to make the trip, I gave in.

I could tell these were going to be a score of fearsome foursomes assembling in Omaha, in pedigree if not handicap. Some of them might be lousy golfers, but all, from the sound of it, promised to be heavy hitters. Discount brokers getting no respect, I was the heaviest hitter they could get.

“Buy me the most expensive pair of golf pants you can find,” I e-mailed my secretary. (Back then I had a secretary.)

“Who IS this?” she e-mailed back. (Little as I am known as a golfer, I am that much less well known to be a big spender. But now was not the time to send her rooting around the aisles of K-Mart for golf pants.)

“And a belt and a shirt,” I e-mailed back.

Never mind that these items came to $343.27. Green pants do not a golfer make. Though I sure look like a golfer, leaning on my club next to Warren. I hadn’t needed to buy golf shoes, because one of the little party favors everyone got was a brand new pair (which I now use to tenderize ostrich fillets). We also got our pictures taken. For anyone who still has never heard of Warren Buffett — amazingly, there still are such people — he’s frequently on the cover of business magazines. Stock in his company trades on the New York Stock Exchange around $45,000 a share. Buffett’s a genius, but I’ve always felt the stock’s been a little ahead of itself. I first advised people to buy Berkshire-Hathaway — but only after it fell back a bit — when the stock was $300 a share. It never fell back. I advised much the same thing at $3,000 and then at $30,000. Instead of owning, say, 25 shares I could have purchased for $7,500, and having now $1,075,000 worth, I have a collection of his brilliant annual reports, the Polaroid of his Scrabble game, and this framed photo of him and me leaning on our golf clubs.

During the 18 holes, I asked penetrating questions of my host, the then-president of Accutrade, my Omaha-based discount broker, such as: “Wouldn’t it be a lot easier and more efficient if there were just one bag of clubs on the cart for all four of us?” His eyes widened imperceptibly. “People,” he pointed out slowly, once he began to believe I wasn’t kidding, “come in different heights.”

Oh, I blushed, catching on.

He was stuck with me, because all this had been his bright idea. But the other two members of the foursome, a former senator and a real estate mogul, had a slightly harder time dealing with me, I think (though not nearly so hard a time as our caddie, who emerged from the afternoon scraped, muddy and exhausted), and I was feeling really lousy — until we hit on the idea of playing for money. For me, this made it fun, and improved my concentration. My host and I played “scrambler” — going to whichever of our shots was the better and playing the next one from there — to their “best ball.” If one of them shot a six and the other a five on a particular hole (am I saying this right?), they’d get credit for the five. But sometimes we did better, because usually we just went to my host’s ball, but every once in a while he blew one and I actually got us a little further in the right direction. We had them down $75 at one point.

The real saving grace was that, this event having taken over the entire course for the day, each foursome was quite separate from the others. The only witnesses to my shame were my partners — one of whose fault all this was in the first place — and the caddie. So it was bad, but it could have been worse.

Back in the clubhouse, where all the foursomes converged, everyone was jovially asking everyone else how they had played. The first couple of times I shuffled my feet and stammered something sheepish. Then, I figured, screw it.

“How’d you do, young fella?” some billionaire asked me.

“Best damn golf I ever played.”

“Really?” he said, a bit taken aback.

“Yep,” I said, firmly. “I played the best damn golf of my life today.”

Well, I did.

But this being the kind of line one can get away with only once, it was also the last damn game of golf I ever played.

[Adapted from My Vast Fortune, ©1997 Andrew Tobias.]

When most people think danger, they don’t think golf. They think hang gliding or bullfighting or roller-blading. (If you’re over 40, trust me: roller-blading’s a killer. It turns your wrists into micro-surgeons’ country club memberships.) Golf seems, at first blush, entirely harmless. Yet I had always thought there was something a little sinister about this seemingly sunny game, not least because I could never get my ball past the windmill and into the cup. Well, leave it to faithful reader Dave Davis to come up with the startling details.

“Did you know,” he wrote me recently, “that rabbits dug the first holes in golf?”

This was not one of the startling details. But it caught my attention and I read on:

“More importantly, golf courses — despite their manicured good looks — are among the most toxic environments in the United States. They use more pesticides and other chemicals per acre than farmers do. The high incidence of breast cancer on Long Island — also known as “Lawn Island” — has been linked (no pun intended) to the large number of golf courses there. Can’t imagine why people are attracted to such a deadly sport.”

Encouragingly, Dave reports, there’s a small “green” movement to persuade country clubs to go organic. “But there’s enormous resistance because people want to play on courses like those they see on television. Interestingly enough, the venerable St. Andrews in Scotland, where golf originated, is an organic course.”

I will never play golf again. But the reason for that — which I will reveal tomorrow — has nothing to do with Dave’s concern.

Inasmuch as I have been flogging my book so mercilessly, a sense of fair play compels me to acknowledge the rotten review it got in Business Week. Yes, there have been some very flattering reviews, but it is of course the rotten review any self-respecting author focuses on and obsesses over (while denying that he’s read it).

Business Week, after praising some of my earlier work — uh, oh — said I had become quite “windy.” (Got to admit there’s some truth to that.) Yet in the next paragraph, it characterizes my style as “breezy.” Now I ask you, Business Week, which is it? Windy or breezy? Slow going or zippy?

On top of that, Business Week — are you sitting down? — found an error in the book. The passage reads:

I graduated, went to work at New York, at $18,000 a year, and made it a practice never to take cabs or do anything else that could stand in the way of my saving money.

OK, I was still sending $16 or $18 a month to a foster child someplace — I may have been up to two of them by then — and I was sending my $25 to Public Citizen and Common Cause and subscribing to Mother Jones and all that, but basically I was one of the cheapest guys on the face of the planet.

I was 25.

Aha! How could he have been subscribing to Mother Jones when he was 25, Business Week trumped, when the first issue of that magazine would not debut for another four years?!

Business Week is completely right about this. I would have been 29 when I first subscribed, not 25. I must have been subscribing to New Times or whatever else was Mother Jones‘s leftist equivalent at the time.

“A nit?” Business Week then goes on to ask itself. “Perhaps.” But, given my breezy style, it makes one wonder how much of the rest of the book can be trusted.

This is the only error Business Week points out. (In a 207-page book, there must be others, though the only one I’m aware of to date is on page 102, where the initials HRC should be HCN.)

As you can imagine, being at least as petty and thin-skinned as the next guy, I set about looking through Business Week to see whether, given this drizzly review, it might not contain an error. Almost immediately, I noticed that in its story ranking the business schools, Harvard was rated 4th in one table — but 44th in another!

A nit? Perhaps. But given the gusty blizzard of tables and statistics in Business Week, if one can so quickly find a gross error, might one not wonder whether anything in Business Week — indeed, anything published by McGraw Hill generally — can be trusted?

Thank you for letting me vent. I have not canceled my Business Week subscription, and neither should you.

Not long ago, in a comment titled The Latest Twist in Slum Evictions, I got to whine and moan about how hard it is to be a well-intentioned slumlord. Today, on the theory that we all enjoy seeing a good train wreck, I thought another such vignette might brighten your day.

When I first started investing in and trying to fix up my little chunk of the slum, garbage was everywhere — in particular a vacant lot everyone had come to use as a dump. I bought that lot (giving me the right to pay taxes on it) and turned it into an attractive plot of grass and trees.

Another thing we started doing a couple of years ago was to try to pick up the loose garbage and palm fronds and old tires and whatever else was floating around the neighborhood. The city garbage people won’t pick this stuff up unless it’s specifically bagged and in the right place — and they’re not too keen on lingering in our neighborhood anyway. So on Monday mornings, one of our guys drives the pickup slowly up and down this small area as one or two others lope beside it tossing stuff in. Then we dump it all in front of yet another vacant lot in a spot worked out with our “NET” officers — the Neighborhood Enhancement Team for our area — shortly before the big garbage truck comes around noon to haul it all away.

We don’t get paid to do this, and the stuff we’re collecting isn’t, for the most part, from our buildings — we pay a private hauler to come empty our dumpsters — but it’s a very nice thing to be able to keep the area clean, and doesn’t take a lot of time. Lope, toss, dump.

This past Columbus Day Monday our guys did their lope, toss, dump as usual, when, to their surprise, a police officer emerged from the bushes and arrested them for illegal dumping.

(I should note that the bigger problem in the neighborhood is crack dealing. This is a problem the police only very occasionally make any pretense of confronting. They’re understaffed, overworked, and if the truth be told, arresting crack dealers is hard and sometimes dangerous work. There may even be payoffs involved somehow, though I would personally be shocked if it turned out the Miami police or city government were in any way corrupt.)

Luis and Tino, our employees, were just doing their job. They beeped Sal, my manager, who came rushing over to try to explain the lope/toss/dump arrangement we had worked out with the NET office.

Sal is, among other things, a C.O.P. — short for “Citizens On Patrol” — which is to say he volunteers for a program the Miami police encourage that trains citizens to work with the police in spotting problems, riding with them occasionally in police cars and so on and, just generally, being allies.

Arriving at the scene, Sal identified himself as a C.O.P. and tried to explain. He mentioned the names of two or three police officers we work with — all of whom, it being Columbus Day, were unavailable.

As Sal recounts it, the arresting officer would have none of this. He basically barked at him to shut up. One more word and he would be arrested as well.

After all, we were talking a felony here. Palm fronds and assorted trash had been gathered and dumped. What’s more, the officer told Sal, we were operating an illegal vehicle. There was a crack in the windshield and a piece of tape on one of the brake lights. (It is, as Sal explained, a hard-working truck.)

The truck was impounded. It cost us $160 to get it back.

Meanwhile, Luis and Tino, really nice, hard-working people, with really nice families, were handcuffed — handcuffed! — and taken to jail. Sal reached me and we both reached one of the police sergeants we’ve worked with, who said he’d try to help; but by five that evening, when our guys were still in jail, we simply paid the $1,000 non-refundable bail fee to get them out.

A preliminary court date was set for this past Monday. We were given a choice: plead guilty and have each guy accept a $250 fine, or plead not guilty and risk, if they lost, never being allowed to obtain U.S. citizenship. I wasn’t party to this difficult decision, but they chose to plead not guilty. A new court date is scheduled for a couple of weeks from now.

Assuming it’s all dropped — I can’t imagine two guys could really be convicted of a felony simply for doing their job, especially when that job is cleaning up the neighborhood — it will have cost us about $3,000 in cash (including legal fees), plus a good deal of lost time.

In an ideal world, the N.E.T. office would have given us some sort of official written authorization to dump in that spot Monday mornings, a copy of which each of our people would carry in his wallet. But it was never that formal, and I guess it had never occurred to us it could be a felony to clean up the neighborhood. A misdemeanor, perhaps — but a felony?

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Click here to find out how I got into this mess in the first place. [Warning: this is a trick click, and takes you directly to my shelf at the on-line bookstore.]

From Chuck: “What do you mean ‘people who have no business being in the market’? I just got into it via inherited stocks. Should I get out? How can I go from being someone who shouldn’t be in the market to one that’s acceptable? If in fact I’m unacceptable!”

A hundred brokerage firms will find you more than acceptable. But if you just inherited stocks, you’re one of the lucky ones who can sell at a big profit without triggering capital gains tax (the “cost-basis” for your stocks rises to their price at the date of death), and you should ask yourself (a) whether you feel competent to evaluate the prospects of the companies you own and then (b) whether their stock prices under-reflect, fairly reflect, or exaggerate those prospects; i.e., a company can be swell and still have its stock be too expensive to make it a good buy.

What many do is leave this job to no-load mutual fund managers — though choosing a mutual fund that will do well for you is no slam dunk, either. (This is why some people choose index funds, knowing that they won’t hit a homer but that because of the very low expenses and tax-turnover, they will do better than 80% of their friends’ and neighbors’ mutual funds over the long run.)

The dilemma for Aaron (yesterday’s comment) and Chuck and the rest of us is that, on the one hand, it’s true that over the long run, stocks in this country have always outperformed “safer” investments. And it’s true that almost no one is able to time the market successfully, hopping out when it’s up, hopping back in after it’s dropped. And it’s true that this is an exciting, hopeful time for capitalists around the world, with great technological advance, freer trade, and potentially more than a billion new participants in markets from Russia to China to Africa.

Great. But — on the other hand — does that mean people should only buy stocks, and at any price? Take Coke. A great product, a great company. But a great stock? I argued no, last May. And then again in June, when the stock had hit 70.

If you already owned Coke in a taxable account, then selling it at 60 or 70 and realizing a huge taxable gain might not have made sense. But buying it at those prices made even less sense to me. And that would be true of lots of other stocks, even today with the market down a little from its record highs.

If you don’t feel that you can judge what a stock “should” sell for, maybe you shouldn’t be in the market, or at least not calling the shots yourself. (And in my experience, most people will do better in mutual funds than having a buddy who’s a full-priced stockbroker do the stock picking for them.) It’s like being plunked down, you know not where, in a home that seems quite nice. But you don’t know the neighborhood, or even what city you’re in, and so you don’t know whether $129,000 is a fair price, or $189,000, or $259,000 or — if it’s in Greenwich or Bel Air — $899,000. You’d have no business buying the home without knowing what it was worth.

Monday: Felony Dumping

From Aaron: “You say you ‘weren’t feeling very bad’ about Monday’s 554-point drop in the stock market ‘because some people who have no business being in the market might be sufficiently scared by this mild jolt to get out ….’ Could you explain what you mean by ‘people who have no business being in the market’? I think everyone feels this way from time to time: ‘Do I really belong in the stock market?’ — particularly after days like that.”

I meant: Novices lured to the market because it got so expensive and who will get scared and disgusted and sell out if it tanks. Lambs to slaughter.

Versus, say, those who are in for a lifetime of steady investing, and who seek companies and/or mutual funds that represent value. My hope was that latecomers attracted by a lively game of musical chairs — and especially those who may have borrowed against their homes or credit cards to play — would get scared off before the music really stops, should that happen.

I’m not predicting collapse any more than I could have predicted a tripling of the Dow when President Clinton was elected. But ‘irrational exuberance’ has a way of hurting the irrationally exuberant more than it hurts those who’ve been around the block a few times.

Joe Cherner, the former bond-trader whiz who’s devoted the last decade of his life to helping the world’s public spaces go smoke-free, finds spam — the unsolicited junk e-mail most of us get — almost as annoying as smoke.

He proposes the following simple solution:

1. Anyone could send spam, but it would all have to have the words “Unsolicited Mail” in the subject heading.

2. E-mail providers would provide users — you and me — with a filter option to refuse mail with “Unsolicited Mail” in the subject heading.

3. “Unsolicited Mail” would be further broken down into categories: “Unsolicited Mail-Products,” “Unsolicited Mail-Services,” “Unsolicited Mail-Pornography,” “Unsolicited Mail-Make Money,” and “Unsolicited Mail-Advocacy.”

4. Unsolicited Mail could be further broken down into sub-categories so people interested in motorcycles can receive spam about motorcycles without receiving other spam.

• A typical spam subject heading would look like this: “Unsolicited Mail Products: Computer Software.”

The e-mail filter choices we’d have would allow us to accept all unsolicited mail, none of it, or some of it, tailored to our interests; e.g., no pornography or make-money spams, but products and services and advocacy. And within products, only spams about motorcycles and stereo equipment. Or within advocacy, only those on issues of . . . well, in Joe’s case, smoking.

Incidentally, I know the heir to the Spam fortune — the physical Spam that you eat — and he is as nice a guy, and as generous, as they come. Who knows? If cigars, which are disgusting and bad for you, can make a comeback, maybe Spam — which is far less disgusting and may not be bad for you at all — is poised for resurgence, too. Can’t you just see Schwarzenegger on the cover of Canned Meat Aficionadogrinning over a tin of Spam?

Anyway, isn’t Joe’s idea a good one? What are we missing here?