Author: A.T.

A long, long time ago, when you were very young, I began buying shares of Coastal Caribbean Corp., traded — no less — on the Boston Stock Exchange. (I know. You didn’t realize Boston had a stock exchange. Well it does. And unlike the Cincinnati exchange, which is in Chicago, the Boston exchange is in Boston.)

These purchases fell under the rubric of “do as I say, not as I do,” since the last thing any sane person would have done then (or would be doing now) is to buy shares of Coastal Caribbean. It is a company that doesn’t do anything. All it has is leases to drill for oil and gas under about a billion acres of land off the West Coast of Florida, where you’re not allowed to drill, and under things like the Everglades, where you’re not allowed to drill, either. And it has a couple of big lawsuits, one against the State of Florida for not allowing it to drill, another against some giant companies for an ancient dispute over something or other I vaguely recall relates to fertilizer. (Oops—I just checked. They lost that one.)

So this is basically me violating all my rules of sensible investing. It’s a pure speculation, a gamble that one day . . . one day . . . ONE GLORIOUS DAY! . . . my ship will come in. It’s kind of like a rich man’s lottery ticket, except I’m not so rich (and certainly wasn’t when I started buying this junk), and the odds aren’t necessarily bad, as they are in the lottery. They may be bad, but that’s not a clear mathematical fact.

The stock does have two things going for it. First, no one follows it, and the only story I remember seeing about it was an A-head a few years back in The Wall Street Journal making fun of it. (The A-head is what the Journal calls that middle column reserved for stories about animals and people who can twist their noses into funny shapes.) I forget how long ago this story was, maybe five years, but it featured the company’s president (one of a total of two employees, if I remember right, the other being his secretary) canoeing down some nearly-dry mosquito-plagued Florida “river” trying to establish, for the purposes of one of its lawsuits, that it was “navigable.” Because if it was, then that would prove . . . something. And the Journal sent a guy to record the folly. I just remember that it was a funny story, the basic slant of which was that, even at whatever lofty price it had by then climbed to — possibly even a dollar — the stock was a joke.

I had begun buying it at 37.5 cents about 20 years ago. Sure, it wasn’t General Electric. But with the money I had 20 years ago, I could only buy 7 shares of General Electric. I could buy 1,000 shares of Coastal Caribbean. At some point Coastal Caribbean got up to 75 cents and I cashed out.

Then in 1991 I noticed it back around 37.5 cents and, now a little less poor, bought 10,000 shares. And then 25,000 more in 1992 at fifty cents. And 20,000 more in 1993 at 43.75 cents (“seven-sixteenths”). I know you’re not supposed to fall in love with your stock (“because it doesn’t know you love it,” as Adam Smith long ago explained). But imagine being able to say you own 55,000 shares of something! Picture Treat Williams in The Phantom when he gets to hold that third magic skull. “I LOVE THIS,” he roars with exultation.

And the thing was, while I knew it was a wild speculation, there was a second thing Coastal had going for it. The first, as I say, was that no one paid any attention to it (or else laughed). The second was impatience. Most people are impatient. If you tell them that there’s some stock that’s 50 cents now and has almost no prospect of going anywhere soon . . . but that in ten years a lawsuit might finally be resolved that could make the stock $8 . . . they will (perhaps quite sensibly) roll their eyes and buy something else. “Remind me in nine years,” they will say. Never mind that if the stock actually were $8 a share ten years later, that would have represented a 32% compounded annual rate of return.

So where logic or math might ascribe a higher value, the demand for stocks that require great patience falls short of their supply. Hence, it might be argued, those stocks are sometimes cheap.

Not for a minute, of course, am I suggesting this stock is headed for $8, let alone in 10 years. Sure, the Alaskan Indians got their billion-dollar settlement, or whatever it was; but wasn’t it like 100 years in the making? It’s been 20 years since I first bought Coastal Caribbean, and after the first 17 of those 20, as I say, it was about the same three-eighths or seven-sixteenths of a dollar as when I first stumbled onto it.

In a sense, the market was valuing the stock higher and higher, because over those years the company would periodically sell more shares to raise the money to pay the president and buy him that canoe and, mainly, to pay the lawyers. So the company was divided into more and more shares (currently 40 million or so) each of which was still commanding nearly half a buck apiece.

Now may be a great time to sell, because it’s over two bucks a share. Indeed, last year for a minute it got up over three, and on the way up (or was it down?) I unloaded some at 2-5/8.

But this long, long story is just a set-up to tell you about “rights” and “rights offerings.” Come back tomorrow and I’ll tell you how they work and describe the joys of oversubscription.

Yesterday I described a $5,000 life insurance policy from Mutual of Omaha that might appeal to an ailing senior citizen of limited financial means. It was hardly the “great news” the letter proclaimed had befallen me (I had been pre-approved!), but neither was it the worst mail-order insurance deal I’ve seen.

(Flight insurance offers, for example, are geared to pay out something under a dime in benefits for each dollar of premium collected. And flight insurance is normally superfluous anyway. You’ve got your regular life insurance, I hope; you may have additional insurance from the credit card with which you purchased the ticket; and you’ve got a big lawsuit against the airline or aircraft manufacturer for allowing the unscheduled landing. Why buy even more coverage, especially when it costs a dollar for each nickel’s-worth of expected benefits?)

Anyway, that was yesterday. Today I want to describe the other Mutual of Omaha offer I received. This one, which arrived the same day, was billed merely as “good news,” not great — namely, that I’d been pre-approved for a policy guaranteeing my heirs of $60,000 if I should die as the result of a “covered accident.”

Heck. Sounded pretty great to me!

Granted, it wasn’t really $60,000. It was $25,000 at death plus $500 a month for five years plus a final $5,000. To Mutual of Omaha, if they can earn 10% a year on their investments, that makes their true pay-out more like $52,000. But what do you want for $4.95 a month?

(And that rate is GUARANTEED not to rise. Unless it rises. They make a big deal out of the fact that they can’t single you out and raise YOUR rate. But they can raise EVERYBODY’S rates any time they need to.)

Granted, too, the policy excludes suicide and death in the military or a declared or undeclared war, or while piloting a plane or committing a felony — stuff like that.

But what impressed me, especially if it’s fairly calculated, is that right there in the fine print is a disclosure of “the odds.” According to the offer, they expect to pay out in benefits 59% of the money they collect in premiums. Well, 59.02% to be misleadingly precise.

My guess is that this does not take into account “the time value of money” — i.e., gives no weight to the important notion that they will have use of the premiums for quite a while, on average, before they have to pay the money out. I’d also guess they’re being conservative in the assumptions underlying this calculation (since they have no incentive not to). So maybe the true odds are for a pay-out more like 40% or 50% of collected premiums.

Still, their disclosure tells you more or less what you need to know, and they should be applauded for making it (or the regulators should be applauded for requiring it). First, it tells you that this policy is far better than those flight-insurance policies geared to pay out less than ten cents for every dollar in premiums. Second that the pay-out’s no worse than the lottery (except that to get your money you have to be dead). Third, that you’d be far better off putting your money in the bank, where the pay-out is more than $1 for every dollar you put in.

If you need life insurance, you’ll do better buying a policy that covers any kind of death, not just accidental death.

If you do buy a policy like this, be sure to let your heirs KNOW, so they can collect. And from then on, when they serve you food, have them taste it first.

Monday: Easy Money: The Right to Oversubscribe – Part I

Most of my days are pretty good, knock wood. I am a lucky man. But imagine what a good day it was recently when I got not one but two “Pre-Approved” offers from Mutual of Omaha.

The first was described as “good news!” and concerned an accidental death policy for which I had been preapproved. (Anyone who does not subscribe to Modern Motorcycle or Skydiving!, I suspect, is pre-approved.) I’ll tell you about it tomorrow.

The second, for which I had also been approved, was described as “great news!” To wit:

“Here’s great news! If you’re a woman age 50 to 75 [I am not] or a man age 50 to 72 [nope] you can choose from four valuable life insurance plans.”

What makes this such good news is that no matter how ill you are, you qualify for this insurance — up to $5,000.

Granted, like most life insurance policies, it doesn’t cover suicide for the first two years (lest, realizing how little $5,000 is really going to mean to your heirs, you become depressed and shoot yourself). And granted, there are no benefits if you should die of natural causes during the first two years (lest this offer be a magnet to the terminally ill). Your heirs would simply get a refund of the premiums you paid (plus 25% the first year, 100% the second).

But beyond that, if you keel, they pay.

And all it costs you is $336 a year if you’re a 62-year-old male (to take one example) or $186 if you’re a 52-year-old woman (to take another).

Not to be patronizing about this. There clearly are people for whom $5,000 (or even the $2,000 minimum policy, which costs a 75-year-old woman $232.80 a year) really matters. It could be the difference between a “proper” burial and something less.

But according to the Life Expectancy module in Managing Your Money (DOS V12), a 62-year-old male who smokes and never exercises and is in “fair” health with “worrisome” finances (or else why would he even be considering this offer?), with “mixed” family longevity, who never wears seat belts when driving, is still likely to live another 15 years.

So if he pays $336 a year that could otherwise earn him, say, 6% in some long-term CD, he would after 15 years have forfeited what could otherwise have grown to be $7,820.

In truth, it’s not a bad deal for such a pint-size policy. But it’s not bad for Mutual of Omaha, either. While YOU might be able to earn only 6%, Mutual of Omaha might expect to earn 9% or more — meaning that to them, after 15 years (but before marketing costs and overhead), your premiums would have swelled not just to $7,820 but to $9,865.

And yes, some of the people who sign up for this stuff will NOT be smokers, and WILL wear their seat belts and take daily walks. Managing Your Money puts the life expectancy of a 62-year-old male like that at 24 years, which means $25,800 for Mutual of Omaha (less marketing costs and overhead), of which they’d pay your heirs $5,000.

Bottom line: if you feel you need life insurance and can’t afford to buy in larger, more economical amounts, this life policy is actually not too bad for someone in poor health or with a family history of dying young.

Otherwise, you should be able to get more coverage for the same money. Or you might simply want to take your chances and just set aside the same money every month in a savings account. Odds are, your heirs will wind up with a lot more when you’re gone . . . and you retain the flexibility of being able to spend that money on yourself, if they should predecease you or wear out their welcome.

Tomorrow: More Good News

CONSUMERWORLD! Just click here and you’re at a wonderfully simple, well-organized jumping-off point to just about everything. Eleven hundred websites, linking to thousands more.

I have made this my new “Home Page,” for when AT&T Worldnet first logs me on to the Internet, because from here I can get so many places so easily.

Want to buy some ballpoint pens? Click SHOP TIL YOU DROP, as I just did, then select Office Max (the Staples site is there, too, but currently “under construction”) . . . I found exactly the brand I wanted. UPS delivered them a few days later.

Want to list your house for sale, or take a look at others’ listings? You’ll find a link to the For Sale By Owner site in the SHOP TIL YOU DROP section, also. So far, there aren’t many listings. But heck, Century 21 is still four years off!

While I was writing this I remembered a novel someone urged me to buy. Corelli something-or-other. Don’t know the author or publisher or title. A few clicks, Corelli’s Mandolin! A few more clicks and a credit card and I’ll have it next week (or overnight if I want to pay extra).

Want to select a CD? Buy a car? Browse the L.L. Bean or Sharper Image or Computer Express or International Male catalogs? Brookstone? FAO Schwartz? North Carolina Furniture? Tupperware? It’s all here. And that’s just SHOP TIL YOU DROP!

The CONSUMER AGENCIES button opens a gateway to everything from the +Better Business Bureau to the Environmental Protection Agency to your own state’s consumer protection agency to the U.S. Postal Service . . . but organized in a very friendly, not-overwhelming way.

The CONSUMER RESOURCES button takes you to a zillion interesting things . . . which take you to a zillion more. For example, one of the many CONSUMER RESOURCES “directories” is the Advertising directory from the University of Texas. Click that and you get an index of dozens of topics, from +Actors and Models to Outdoor Signs (click to find a company that will make or display one for you) to Consumer Psychology to Tobacco Advertising to dozens of others. And this is just one tiny piece of the CONSUMER RESOURCES button of CONSUMERWORLD.

The COMPANY CONNECTION takes you to an alphabetical list from American Airlines and Burpee (“answers all your gardening questions”) on through Walgreens, Weight Watchers and Whirlpool. Some sites, needless to say, are more exciting or useful than others. But what a handy way to shoot to whichever one you want.

And that still leaves three or four other buttons to explore — TRAVEL AND LEISURE, MONEY AND CREDIT, BARGAINS, INTERNET WONDERS (including, from New Zealand, the world’s first automatic wedding speech writer).

Really, the thing is misnamed. It’s not CONSUMERWORLD. It’s: THE WHOLE WORLD. And my new home page.

I was re-reading 30 Simple Things You Can Do to Save Energy, by the Earth-Works Group, authors, also, of 50 Simple Things You Can Do to Save the Earth.

Did you know:

• A microwave is a lot more energy efficient than a regular oven at cooking small things, but less efficient for big things like a turkey? So just forget about that old-fashioned microwave Thanksgiving you had planned.

• “Long-life” incandescent bulbs are actually less efficient than regular ones. It’s the newer, much more expensive compact fluourescents that are so great for the environment. And they really do work. I use them in places that don’t need bright light but are left on a lot. (No point putting one in a closet. The $15 cost of the bulb, which will last three centuries if you only use it a few minutes a day, is wasted.) I have one outside my door, left on all night every night. A low wattage is plenty bright at night. The bulbs use only about 25% as much energy as regular ones of the same brightness, and last 10 times as long.

• You don’t need to leave your air conditioner on all day to have a cool house when you get home.” Just have it switch on half an hour ahead of time. “Put a timer on your room air conditioner,” advises 30 Simple Things, “or use a programmable thermostat on your central unit.

• A full refrigerator is more efficient, because food retains cold better than air does. (If you plan to defrost something for tomorrow, stick it in the refrigerator now, rather than on the counter tomorrow . . . the frozen item will help cool the refrigerator as it thaws.)

• There are 20 million waterbeds in the U.S. (No! could that be true? and 20 million pairs of bell bottom pants?). Heating them takes a lot of energy (as does bouncing around on them, if I recall correctly). If you have one of these things, make your bed! Leaving them uncovered, says the book, lets the heat dissipate.

• Pool blankets cut pool-heater energy consumption by 40% to 70%.

• Spark-ignition gas stoves can save 40% over the ones where the pilot light runs all the time. I got the handyman to turn off the pilot-light valve in my old stove, and, lacking “spark ignition,” resort to what’s known in pyrotechnical circles as “a match.” Of course, I suppose it takes some energy to manufacture a match . . .

• Reversible ceiling fans provide a “wind chill” in the summer and recycle hot air back down toward your toes in the winter. Just don’t install them in low-ceilinged rooms. Thwock. Thwock. Thwock.

Why didn’t I think of that!

I was probably one of the very first to buy a book via the Internet and an outfit called “Amazon.com.” And the minute I did, I just knew this one would be a keeper.

It’s annoying, because when I have an insight like that (which is rare), I’d like to profit from it. Buy the stock or something. (Sorry. It’s a private company.)

But at least it became a convenient way for me to buy books . . . and also, in my job, a convenient reference tool even if I had nothing to buy. (Such and such author going to be at dinner tonight? Hmm — check out the books she’s written by looking them up on Amazon.com.)

Then a couple of months ago the Wall Street Journal wrote all this up and their Internet server has been scuttling around the dance floor like a whirling dervish (this is the sum total of my understanding of how these things work).

But my guess is, even if you read the Journal story, you may not have tried it.

Well, click here and, if you are a book-buyer, go through the process of setting up an account. Thereafter, if you choose to buy anything, it’s really easy — and often discounted by more than enough to cover the shipping cost.

The “search” options are flexible and easy to get the hang of. You’ll get your choice of hardcover or paperback when both are available, your choice of shipping methods, free gift wrap — I mean, they are really doing this thing right.

You won’t be able to sit and read, and maybe meet a fellow book lover, as you can at Barnes & Noble superstores. But for many purposes, Amazon.com is really handy.

So how DO we profit from this? I’m not sure we can. (Well, we can always enjoy the books, of course.)

I guess Amazon.com is good for the book publishing industry, who will sell more books and bad for the traditional bookstores. But I don’t think the effect on any of them is reason enough to go long or short.

I do own some FedEx stock, because I think the Internet means millions and millions of extra shipments of books and everything else that you current carry home from a store but one day will arrive at your door via FedEx. I’d own UPS too, if it were public.

I wouldn’t short the bookstore chains because I’m not sure it’s a zero-sum game. Yes, people have only so much time to read books. But buying a book doesn’t mean you have to read it. I don’t get to read even a fraction of all the books I buy. So to a certain extent, Amazon.com will surely steal business from the chains. But lounging around a Barnes & Noble superstore is becoming quite a popular form of entertainment of a Friday evening, too, so I wouldn’t bet against them any time soon.

I predict a new word. I should probably try to trademark it or something and not just predict it, or get the 800 rights (1-800-CLICKLE), but here it is anyway:

Clickle.

Because isn’t that what everyone’s working to come up with on the Internet — some way to charge a dime or a nickel or perhaps even just a penny or two for access to a particular page? You’d come to a page, which would show a dialog “access costs a penny” and you could either click to proceed, to go back — or to proceed and “don’t slow me down with this message again unless you raise your price.”

What does it cost to see one of these pages? Just a clickle. Sort of a high-tech cross between trifle and nickel. The universal monetary unit of the Internet.

And although to any given user a clickle’d be just a few cents or a nickel, the accumulated clickle trickle could become a flood. For it would come not just from U.S. nickels, but from Russian rubles, Arabian rials, Israeli shekels and Polynesian pickles (or whatever the Balinese call their loose change).

I know an access charge will make people stickle. But you watch. When a simple click’ll get them where they want to go, they’ll soon be dropping clickles without a second thought. You mark my word.

(The implications are not all bad, incidentally. Say its five years from now, when TV and the Internet are all integrated somehow. There’s a show like Fox’s Profit you really enjoy, but that has to be dropped for insufficient ratings. Aha! What if they could keep it going by supplementing ad dollars with clickles? I, for one, would gladly have dropped a few clickles to see another episode.)

Here’s a really neat use of the web. Click here and three minutes from now you will have a choice of four or five competitive life insurance quotes.

If you’ve been putting off buying coverage, fiddling with this site could help get you moving.

If you have coverage, but never really shopped for it competitively, this site could save you a bundle.

If you already have whole life or variable life or one of those other savings-plan types of life insurance, don’t drop it — you’ve already paid the steep up-front sales charges and so forth.

But if you need more, or you haven’t yet got the coverage you need, “term” insurance is the way to go. Term insurance is just plain vanilla insurance: if you die, they pay.

If you have no dependents, you probably don’t need life insurance at all!

Here’s a smart tip from my friend Jane Bryant Quinn’s Newsweek column:

If you put less than 20% down on your house, you probably had to buy mortgage insurance. But did you know that, once your equity in the home reaches 20% (through appreciation and/or your payments), you may be able to stop paying that premium?

Different lenders have different policies, and an appraisal fee will probably be required. But if you’re currently paying mortgage-insurance premiums and think you may qualify to stop, check with your lender. It could put you hundreds of dollars a year ahead.

(Thanks, Jane.)

Some of you buy mutual funds via your stockbroker or discount broker. This can be very convenient. It also means — if you have a “margin account” — that you can borrow against them, just as you can borrow against the value of a stock.

The advantages of margin loans: (1) low interest, often below prime; (2) it’s deductible against investment income (dividends and interest and, in some circumstances, capital gains).

Why pay 18% on a credit card or 10% on a car loan, non-deductibly, when you can pay perhaps 8% for a margin loan, which in your bracket may really be only 4% or 5%?

But what if you don’t have a brokerage account? What if you just own mutual funds directly? Now comes Fidelity AccessLine (SM), which basically offers to put your Fidelity funds into a Fidelity brokerage account so you can borrow against them.

As borrowing goes, it’s cheap and easy. No appraisal fees, no points to pay, no lawyers to hire or “closings” to attend. Just write a check against your account.

Three caveats:

1. If you have no investment income — perhaps because all your dough is in mutual funds that invest in nondividend-paying growth stocks — the margin interest won’t be deductible. You’ll have to carry it forward to a year when you do have investment income against which to deduct it.

2. If you are audited, you may be challenged on your margin-interest deduction if you were not careful in how you drew down these funds. The IRS looks to see the use of borrowed funds to determine tax-deductibility. Margin interest is normally deductible; but if you moved your funds into a Fidelity brokerage account and then wrote a $199,999.95 check against them directly payable to Captain Tom’s Yacht Dealership — or even just a $19,995 check to the local Ford dealership — the IRS might argue that the interest incurred on this loan was not deductible investment interest, but rather nondeductible personal interest. You might be better off switching $250,000 — or $25,000 — from your margin account to your cash account, and then, perhaps a few days later, writing a check for the specific cost of the yacht or Mustang.

I’m not advocating you do anything illegal or cheat Uncle Sam in any way. The rules on this are so grey, it’s anybody’s guess. As a practical matter, you’re likely to be OK.

3. Even at a low rate, and tax-deductible, borrowing is risky. It only makes sense to borrow at, say, 5% after tax, if you have a way to earn 6% after tax. And remember that the interest rate on your margin loan may shoot up — it’s completely variable — and that if it does, chances are good the value of your mutual fund shares will fall (because rising interest rates often mean falling share prices).

Borrowing against your mutual funds to pay off high-interest debt or even to buy a car or make some other investment can certainly make sense. It’s a way to get cash without, for example, selling mutual fund shares and, possibly, incurring heavy capital gains taxes.

But do it with care. You worked hard to build up those mutual fund balances. It would be a shame to hop on the debt treadmill and find yourself going backwards.

One thing I certainly wouldn’t recommend, let alone with the market as high as it is, is borrowing against your mutual fund shares to buy more shares. In hindsight, that could have paid off big the last couple of years — borrowing at 5% after tax to earn perhaps 30% a year in capital gains. Wow. But leverage works both ways. What if you did the same thing now and fund shares fell 30%? In that case, you wouldn’t just lose 30%. You would lose 60% (if you had doubled up on your initial investment) plus the interest, to boot. Oops.