Author: A.T.

I recently had occasion to ogle a business plan for what may wind up being a major Internet player in a few years. It’s smart and backed by people with proven track records, and there were the obligatory pie-in-the-sky, worst-case/best-case projections.

After all, what can we know about the future?

And this being a fairly complicated business, with all kinds of variables, there were a lot of different worst/best possibilities, all multiplying together to various potential profit outcomes.

Why am I telling you this?

Because while I was mostly struck with an enormous feeling of “why didn’t I think of this great business, I was also struck by something else:

Every variable had a worst/best scenario but one. That one — an “Internet price-earnings ratio of 75.”

In other words, it was anybody’s guess whether this company would be making $2 million or $50 million — who could say? But at least one thing was clear. Whatever profit it made, the stock market would presumably multiply it by 75 in deciding how high to bid the shares.

And of course this may be true. Indeed, these days, for anything vaguely related to technology or innovation of any kind, 75 is a fairly chintzy multiple.

I would just like to point out for you youngsters in the crowd that once upon a time a multiple of 75, even for an exciting, fast-growing company with great prospects, could not be taken for granted. Maybe that will be the case again some day, though I hope not. This is much more fun.

And while it lasts, it does have one highly positive effect, even if most of these valuations are absurd: it fairly sucks money into new ventures and innovation, which bodes well for America and the world.

You’re probably too young to remember what Europe was like after the War, or even in the Sixties, when I first went, but it was the era of Europe on $5 a Day. Now it’s like $40 for orange juice and a cup of coffee.

But in 1967 it was like Gulliver in the land of the Lilliputs. We and our giant wallets. I remember once in Tossa, Spain, getting a hotel room not far from the Mediterranean that was $4 a night — including breakfast and dinner. We felt rich as kings!

Now, I’m not saying the Bright-Life mail-order catalog fully duplicates the post-War Mediterranean experience, and I’m not vouching for the quality and durability of all its offerings. But talk about feeling rich! Or at least affluent. The Sharper Image catalog makes me feel poor. Neiman Marcus leaves me gasping. But this thing?

How about a 12-foot roll-out pre-seeded flower garden (“plant a beautiful row of flowers — automatically!”) for five bucks? Feeling rich? Take three for $13. Your choice: flowers or herbs. (The herb roll-out mat could save you quite a stitch in thyme.)

How about an electric hook-hanger of the type you may have seen advertised on late-night TV — hang pictures without having to bang nails into the wall, and remove the hooks if you change your mind without leaving a hole — not for the $29.95 price that two-A.M. cable-TV viewers have come to expect, but just $9.95?

How about the razor-blade hair trimmers I’ve plugged from time to time (“cuts any style — long or short hair — no skill required”) that can save you hundreds of dollars a year on haircuts. (You needn’t go to extremes and never get a real haircut. But what if you got them just once in a while and used this doohickey between times?) The cost of this particular tool was always an afterthought, as far as I was concerned — I think they were $12.95 or something, which you’d recoup the first time you used it. But they’re not $12.95 at Bright-Life. No way! Just $5.95, three for $14.

Miracle Scissors? Three for $13. A 10-in-1 Multi-Fishing Tool (screw-driver, tape measure, fish scaler, pliers, weight scale, line cutter, knife, bottle opener, hook disgorger)? I don’t even fish and I couldn’t resist this at $9.95.

Not to mention the World’s Lightest Shoes for Men (“like floating on clouds — as if your feet had wings”) at $25 for three pairs. Hey: I’m a guy who sometimes spends $25 for one pair of shoes.

Solar powered radios; $69 “giant” inflatable swimming pools; “vacuum-air, soft-suction blackhead removers” ($4.99); three dozen fake long-stemmed roses that last forever ($13). I am not a religious man, but I bought three Micro Bible Key Chains (“Entire New Testament, just 1-1/2′ x 1′ — always there to comfort you wherever you go”). At $5.95, how could they not make great gifts?

I didn’t buy everything in the catalog, but for the price of a couple of things from Sharper Image, I could have. Many of the items might only have made good joke presents (the Exotic Balancing Birds struck me as such an item). But hey! The call for a catalog is free (800-206-9849). And one man’s kitsch is another man’s car freshener.

[Along the same lines, you might want to request a Lillian Vernon catalog if you aren’t already on their list — 800-285-5555. I have half a dozen American-flag donut-shaped floats making my pool look tres Olympique and they haven’t sprung a leak yet. Cheap!]

Massachusetts Congressman Studds is leaving the House after 26 years. Voluntarily. (He won with 69% of the vote the last time out.)

His farewell non-fundraising letter contained much that was wise and classy (or maybe it was just such a joy to get a letter from a politician that didn’t ask for money), but I liked this best:

“If working with six Presidents has taught me anything about leadership, it is that the world is not divided into good and bad. Human nature is not that simple.

“We all have the capacity for insecurity, prejudice and fear. It is to the darker side that the demagogue plays.

“Each of us can also evince strength, tolerance and compassion, and it is on these ‘better angels of our nature’ that the leader calls.”

If any of you happens to have Jesse Helms’s e-mail address, could you forward this to him?

Tomorrow: Bright-Life Catalog

The thing is, you have to have money to make money and save money to have money. And to do that — get out of debt and save money — you have to live beneath your means.

One key element of this is to stop buying things out of obligation. Buy things because you need them (and shop around for the best buy), not because you think you ought to. Like the new car you buy because yours sort of stands out in the parking lot. Or the budget-busting +anniversary gift you buy because you think something less would send the wrong signal.

Someone should come up with a bumper sticker that says something like:

“Sure — but MY car isn’t financed!”

That’d shut ‘em right up. It would show you have a sense of humor, that you are aware your car is a bit of a clunker (kitsch is OK if you know it’s kitsch) . . . and it would suggest that maybe you have a longer-range goal in mind.

A $3 bumper sticker could save you $10,000!

As for the budget-busting anniversary gift, that’s where the frugal poesy comes in.

Instead of two tickets to the opera with a fancy dinner beforehand, all in a chauffeured limousine — a $400 anniversary evening on your MasterCard that adds 18% interest to the bill — how about the same opera on CD (which she or he can listen to over and over without having to dress up), a book about that opera, and this poem? (Here comes the poem.) Total cost: $40. (Forgive me if you already read this poem in PARADE. It’s the only poem I ever wrote, so I’m milking it for all it’s worth.)

If love were cash you’d have it all.
But resources right now are small.
I’ve promised that I will not borrow —
The greater gifts to give tomorrow.

Better still, some frugal poesy of your own.

Tomorrow: Gerry Studds

Did you read Geraldine Fabrikant’s profile of SunAmerica Chairman Eli Broad (rhymes with road) a few weeks ago? Man’s built a heck of a company, heck of an art collection. But what really got me, near the end, was where she reported on his recent purchase of a Roy Lichtenstein for $2.4 million with his American Express card — so he could get the miles.

Now that’s what I call rich.

(Is it possible you have an American Express card and haven’t made the single call it takes to sign up for the Membership Miles program? Gad zooks! You are throwing money out the window! Call them at once — 800-297-3276. You can also use that number to see how many miles you’ve accumulated and check to be sure they have your correct frequent-flier numbers. You can’t yet do this via their web site, but it has some interesting features anyway, in case you want to check it out — www.americanexpress.com).

Tomorrow: Frugal Poesy

So here is this company that does . . . well, something, my broker’s not sure quite what, but it’s got a sexy symbol — DNA — and it had risen from just under 4 a year ago to 28 last month and 55 a few days ago. I had never heard of this New York Stock Exchange-traded company and neither had my broker. So now he gets a call from a client who wants to buy some. (It’s 77 when he gets the call, up from a low of 64 earlier in the day.)

“What?!” says my broker.

No, he’s not crazy, he says. He wants to buy this stock for his mother.

“Are you crazy?” asks my broker.

No, the guy is perfectly serious. Someone in his office bought 20,000 shares last week at 55. It’s a great stock. It goes up.

There seem to be a lot of stocks like that this year.

Does this make anybody nervous besides me?

My broker said, sorry, he wouldn’t buy DNA at 77 for this guy’s mom. His policy, in fact, is not to be stocks like this for anyone’s mom. Why? Part looking out for their interests, to be sure. But, he laughs, “they’re no lose stocks for these people! Stock goes up, they have a profit! Stock goes down, they’re in court in a wheelchair and respirator saying I recommended it.”

By the end of the day last week when he told me this story (Thursday), DNA had closed at 66-and-change. By the time you read this, it’s likely to be someplace between 40 and 100.

Typically, rising interest rates and pervasive speculation spell trouble in the stock market. Then again, who’s to say the upward climb in rates isn’t over and about to reverse? Or that the speculative frenzy is anywhere near peaking? Or even that DNA isn’t worth far more than 77? Heck, I don’t even know what they do (well, actually, they seem to be a holding company that invests in other companies) — and neither do at least some of the people buying their stock.

About the scariest, most dangerous thing you can do is short stocks. So please don’t take what follows as a recommendation that you do so.

But it’s hard to watch Iomega or Presstek or quite a few others bound up six points a day without at least thinking about it. Iomega’s low last year was 1-1/16 and it’s low this year was 11-3/8, and when Barron’s or somebody suggested it was wildly overpriced a week or two ago it was 43 and a few days later when I inquired about shorting it, it was 59 and the next day it was 66.

That’s not a bad run, from 1 to 66. With about 60 million shares outstanding, it means the company is selling for nearly $4 billion, all told. Some careful analysts, looking at the sales and earnings prospects for this company, doubt it is worth that much.

However . . . “nothing goes up forever” — though technically true — are famous last words to any number of bankrupt short-sellers. Still, at 66, surely Iomega is in the “blow-off” stage of this craziness, no?

I have no idea, but it certainly seems that way. Likewise Presstek, which Barron’s has been knocking for years. Someday, all printers may use the Presstek process (just as all computers may use Iomega disk drives). But in the meantime, Presstek earns just a few cents a share, yet sells at 114, up from a 1995 low of 21. Or wait: 114 was last month. Monday it was 149.

Usually, these things turn out to be manias or short squeezes (meaning that the short-sellers are forced or panicked into buying back the shares they shorted, which drives the price even higher, panicking or forcing still more shorts to cover their positions) . . . and eventually the stock drops back to earth.

But there are two problems in trying to buck the crowd and profit from the madness by shorting Iomega at 66 or Presstek at 149. The first problem is that the stocks may go to 350 before falling back to earth, if they ever do. It’s very hard to spot the top. The second problem is that you can’t short them now, at these prices, even if you wanted to.

Try it. (Well, don’t you try it, but I tried it.) At 50 I’m sure you could short all the Presstek you wanted. At 100, you still could short it (and would by now have lost $4,900 on paper for every 100 shares you sold short). But try to short it here at 149, when it’s really really overpriced (maybe — what do I know about printing?), and your broker will tell you, Sorry. I can’t borrow it.

[In order to short a stock, your broker has to be able to borrow the shares from someone who’s long (who owns it) and then sell those shares for you, with you hoping to buy them back at a lower price and “return” them.]

There are already so many people short these stocks (and in agony), you can’t short them.

You could buy puts instead, which is usually smarter anyway (well, less dumb). Buying puts limits your risk to whatever you pay for the put. You will generally lose the money you bet, but no more. Imagine, by contrast, having shorted 1000 Presstek at 30. No cash would have been required, if your brokerage account balances were of sufficient size — no money down! — but you would right now be sitting with a $119,000 loss. Whereas if you had bought 10 puts way back when Presstek was 30 last year, it might have cost you just $5,000, say (depending on the strike price and term of the put) to “control” those same 1,000 shares and profit from their fall. Better to lose $5,000 than $119,000.

But puts on stocks like Presstek and Iomega aren’t cheap. And they expire. If you’re really sure a stock is going to fall sooner or later (does the word hubris come to mind?) but you’re not sure when, you will make more money going short.

I could go into a lot more detail on this, but the whole point of this comment, which I haven’t yet reached, was to explain how to “create” a short sale even when your broker tells you that you can’t, because he can’t borrow the shares.

Let me say again: I’m not recommending this! Most people who short stocks lose money; all lose sleep. It is very dangerous. No kidding.

But if you can’t short a stock because it’s so high everyone else has shorted it and there are no more shares to borrow (possibly a good time to BUY it, though grossly overpriced, with the thought that a lot of those short-sellers will eventually have to be come buyers, pushing the stock even higher in a final panic), here’s how to create a synthetic short:

You simply buy a put and sell a call, both with the same expiration date and strike price.

Take Presstek. When it was 140 (hours before it was 149, but how could you know?), you could have bought an October 150 put for $29 and sold an October 150 call for about $11. (Each option covers 100 shares, so the actual cost of the put would have been $2900, plus commission, and you would have received $1100, less commission, for selling the call.)

The net result of that would be roughly the same as if you had simply shorted 100 shares.

Look at the outcome at both extremes. First, assume Presstek dropped to zero by October. Shorting 100 shares of the stock at 140, you would have made about $14,000. Likewise, more or less, with this “synthetic short.” The October 150 put would have allowed you to sell 100 shares of Presstek to some pathetic, writhing put-seller for $15,000 — shares that cost you zero because Presstek was now zero. So you’d have a $15,000 profit . . . less the $2900 you paid for the put . . . plus the $1100 you would be allowed to keep for selling the call (no one is going to exercise a call that allows them to buy a stock for 150 when it’s worth zero). Net net: $13,200. That’s about the same as shorting 100 shares of the stock at 140 and seeing it fall to zero. (The $800 difference, roughly, is in the spreads between the bid and asked prices of the options.)

Now take the opposite extreme. Say that instead of dropping to zero by October, Presstek hit 500. If you had shorted 100 shares at 140, you’d be $36,000 in the hole. If you had created this “synthetic short,” buying a put and selling a call, you would also be about $36,000 in the hole (plus a bit more for the spreads). You would have lost the full $2900 on the put you bought, which would have expired worthless (there’s no value in the “right” to sell Presstek at 150 when it’s 500) . . . you would keep the $1100 you got for selling the call . . . but whoever bought that call from you would exercise it, forcing you to pay $50,000 to buy and deliver 100 shares of the stock to him in return for his measly $15,000.

Risky, risky, risky.

But kind of interesting, no?

Let’s review:

1. We have a tremendous dependence on foreign oil.

2. Our foreign-trade deficit remains huge.

3. Reducing the budget deficit is a major national priority, agreed to by both Democrats and Republicans.

4. The tax on gasoline is dramatically lower in the U.S. than almost anywhere else.

5. We’ve largely lost interest in fuel efficiency when buying a car.

Well, then, here’s an idea: let’s lower the gas tax! Specifically, let’s repeal the paltry 4.3-cent hike in the tax that was enacted in 1993.

In fact, of course, that 4.3-cent tax hike should have been higher — a dime the first year, say, rising an additional dime each year for a total of five. That would have solved much of the deficit problem (figure about $1 billion per penny) and encouraged people to “beat” the tax by moving on to more fuel-efficient cars when they next bought one — a win-win situation for everyone but Exxon and the Saudis.

It’s fundamental: you tax the things you want people to cut back on or conserve; you lower the tax on the things you want to encourage (like work and saving and investing). So hike the gas tax, lower the deficit and the income tax and maybe the capital gains tax.

That the Republicans would move to cut the gas tax in an election year is predictable but embarrassingly bad public policy. That the Democrats feel they have to play along is almost as bad.

Remember: this money isn’t “free.” Dick Armey suggests we can recoup it by cutting the money out of education for our kids.

Wouldn’t it be better to penalize the Saudis and other oil producers rather than our own children? To do that, you simply keep (or better still raise) the gas tax, and watch as, on the margin, people drive 2% more efficiently, if they want to, to compensate. Instead of a car that gets 20 miles to the gallon, they’d eventually drive one that gets 20.5 miles to the gallon instead. The Saudis would see their oil revenues decline, which is too bad for them, but the American family would get to drive the same distance at the same speed at the same fuel-cost per gallon.

True, people don’t trade cars every year. But this has been an ongoing process. Very few people drive cars that get 10 or 12 miles to the gallon as a generation ago was common. Adjusted for inflation, we pay less for gas to drive a mile than at almost any time in our history.

Is this really a time to cut money from education? Is the way to compete in the global economy to de-emphasize education and burn more gas? Dole and Armey apparently think so. And politics being politics, the Democrats may have to cave in and go right along.

I’m pleased to see IBM stock has tripled since Lew Gerstner took over. And I’m pleased to be typing this on one of my three IBM Thinkpads. (Don’t ask.)

IBM has done great things for this country and this world, and I’m happy about its resurgence.

But c’mon! The horror stories! Not that IBM is alone in this, but IBM really does seem to lag far behind all those wonderful New Hampshire mail-order places when it comes to customer service.

I say “New Hampshire” generically. Some are out West, I think, others in Lord knows where — it’s all 800-land to me. But the point is they have that nice small-town ethic and friendliness and, sure enough, whatever you order arrives, as promised, the next day.

Not IBM.

Take this Thinkpad. It’s sensational, but one of the reasons I bought it was the 28.8 internal modem. After I’d done all the paperwork and planned my life around its arrival, the dealer told me it would come with a 14.4 modem instead, for reasons too technical to recount, but if I wanted to go ahead with the purchase, I should know that a 28.8 “software patch” would be available in a few weeks from IBM. So I went ahead and bought it.

Weeks turned into months, but finally this past November 4th I called IBM and found a human (after much “press 1 for blah-blah, press 2 for blah-blah, press . . .”) who knew exactly what I was talking about. He told me I could get the patch free by downloading it from the bulletin board, or for $17 with a credit card if I wanted the disks. I opted for the disks and was told they would arrive in 7 to 10 days. I ordered an extra Thinkpad battery at the same time.

The extra battery came promptly but was for the wrong ThinkPad model. To get the right one, I had to buy it and wait for a credit on the first. (They wouldn’t trust me to just send it back while they were sending the correct one.)

But what of the software patch to double my modem speed to 28.8? Three months passed — forget “7 to 10 days” — with not a peep.

Eventually I called and, yes, they had a record of all this in their computer, but couldn’t explain why I hadn’t gotten my disks. They said they’d put the order through again. Did I want them to rush them? Rush-delivery would be only $8 more.

“Now hold on,” I said. “You’re telling me — who own three $5,000 Thinkpads — that although the disks you promised are now +3 months late, you can offer me rush delivery for just $8 more?”

“Yep.”

A New Hampshire outfit would have been falling all over itself with apologies and offers of free delivery. IBM had no mechanism to deviate from policy, nor training to recognize any reason to do so.

The disks eventually came — 17 of them, with not a word of instruction or documentation. Fifteen of the disks, I eventually realized, were irrelevant. I still don’t know what they’re for.

Good computers; lousy customer service — unless, perhaps, you’re a Fortune 500 company. You’re likely to get a lot better service from an outfit like PC Connection, in New Hampshire (800-243-8088).

Tomorrow: Gas Tax

I am not one of those who bash the U.S. Postal Service. First class mail is a bargain at 32 cents (although with e-mail and electronic bill-paying I use less and less of it). The postal carriers really do deliver in the worst kind of weather, and I don’t believe it for a minute when people tell me the check they sent must have been “lost in the mail.” Slowed down in the mail, perhaps. Mangled every once in a while. But lost? Virtually never, in my experience.

That said, I am looking at a preposterous U.S. Postal Service ad in the Wall Street Journal. Full page. It shows a +$12 FedEx Pak, a +$6 UPS 2nd Day Air Pak, and a +$3 Priority Mail envelope.

Down the left side of the page it lists some other advantages, besides the Postal Service’s lower price. The first: MORE AIRPLANES. “We use more airplanes than FedEx and UPS combined to make sure your priority package or envelope gets to its destination.”

And they have more trucks, and you don’t have to call for a pickup, and they deliver Saturdays at no extra charge . . .

This ad is 23 inches tall. Everything about it is nice and big and legible. Except the one footnote, one-sixteenth of an inch high. It says (if you squint) “Price comparisons are based on Priority Mail up to 2 lbs. versus 2-lb. published rates for UPS 2nd Day Air and FedEx 2Day. Priority Mail is delivered in a national average of 2-3 days, measured from Post Office to Post Office.”

In other words, this whole ad is a joke. Because Priority Mail is no faster or more reliable than First Class! Imagine if the FedEx ads said, “When you need to get it there in two or three days, positively, on average. Well, not there exactly; we’re measuring that from FedEx station to FedEx station. But certainly within 3 or 4 days most of the time and rarely more than a week or two.”

Because that’s what you get for $3 from Priority Mail.

The service may have improved, but back when the slogan was “two pounds, two days, two dollars and ninety cents,” I had one Priority Mail piece that took +two months to make it from Miami to New York. There was nothing unusual about the item. The address was correct; it hadn’t been mangled. It just took two months. (It was as light as a feather, containing nothing more than a $5,000 check. After a couple of weeks, we stopped payment and FedExed a replacement.) Two months is the record for me, but there have been others in the 7-to-10-day range.

And why not? Because if the national average is “two or three days,” you’re going to need a heck of a lot of horror stories to make up for the ones that actually get across town overnight. (In Miami, this happens with First Class mail much of the time.)

One day, with all those planes and trucks, perhaps they’ll have something worth advertising.

“We’ve gotten our act together,” such an ad would read, “and can now guarantee to deliver Priority Mail in one or two days ordinarily, but three without fail.” Something like that might be worth paying for. But until then, it’s First Class for anything that isn’t time-critical; FedEx or UPS for everything else.

And lest you think I’m complaining only about a government-sector behemoth . . .

Tomorrow: IBM: Room for Improvement