From Siu: "I have seen a couple of cases so far this year that were related to my question. I will use the most recent one as an example. OmniHealth is being acquired by some company announced on 10/17/97 for $35/share cash. Why is Omni’s price still around $31? This puzzles me."
A: It’s because some people must fear the deal might fall through, in which case the stock could fall back to where it was. Incidentally, I think you may mean OmniCare, not OmniHealth. Last I checked, no one was offering to buy it for $35.
Greg in California: I’m new to investing but I understand that the firm of Salomon Bros has been in the bond business for a long time? and provides services to a lot of institutional clients? Their newest funds for individual investors are relatively new so it’s hard to track them for any length of time. My question is: Is Salomon Bros the gurus of the bond world? do they have a reputation I’m not aware of? Their bond funds are sure expensive. Thanks.
A: The only thing Salomon may be more expert in than bonds is making money for themselves. No harm in that, but I would advise going with very inexpensive funds (or, when it comes to U.S. Treasury bonds, the program known as Treasury Direct — call 800-943-6864 at any time of day or night, listen to the end of the recording, and then enter your zip code when prompted to get a local phone number to call during business hours for details).
From Kiruba: "I am an engineering student working on a graduate degree. I don’t know much about investing in the stock market but am thinking about investing some money in it. I have some (very dumb??) questions and wonder if you can help me with them.
1) When I buy and sell shares, do I pay tax only on the profit I make?
A: You pay ordinary income tax on any dividends the shares may pay you. You pay capital gains tax on any profits you realize when you sell. (The profit is figured after deducting brokerage commissions.) If you hold the shares a year or less, the capital gains rate is no different from your ordinary income rate. Lower rates kick in at the one-year-and-a-day mark (i.e., if you bought April 3, 1997, you must wait until April 4, 1998 to sell), the 18-month-and-a-day mark, and, beginning for most people with shares purchased after 2000, the 5-year-and-a-day mark. Note that losses offset gains — you only pay taxes each year on your net gains. And should you have net losses — up to $3,000 can be written off against your taxable income each year, with the remainder "carried forward" to offset gains in future years.
2) If I want to invest in foreign markets, say Hong Kong or Bombay, can I still go through American brokers like Ameritrade if I am scared of trusting my money with foreign brokers?
A: Different brokers have different capabilities when it comes to buying foreign shares. Call and ask. But all can buy US-traded foreign securities, as well as US-traded "country funds" that invest in a basket of stocks in, say, Chile or India or France. And from the sound of it, until you get more money and experience (and maybe even then), this would be a wiser course anyway.
3) As an amateur investor am I at a disadvantage because I don’t get to know of things going on till I see them on the news?
A: Yes and no. Certainly, common sense suggests that it should help to be experienced, knowledgeable and "plugged in" to the business world. You are none of these yet. Then again, studies show that a monkey throwing darts tends to do better than most pros (because the monkey is not saddled with sales commissions, fees, expenses or taxes — he’s normally a hypothetical monkey). So if you’re careful and sensible and patient, you may not be at as much of a disadvantage as you might think. Still, inexperience can’t be a plus. Your main job isn’t to try to outsmart the pros competing with you in the market. It’s to develop the habit of investing something every month, and patiently building your stake.
Quote of the Day
It was never my thinking that made me my money. It was my sitting.~Jesse Livermore
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