The way to help small businesses is NOT to give them tax cuts – what good’s a tax cut when you’re making no profit to be taxed ON? I refer you back to my five questions on tax cuts.

But yesterday the Obama Administration did three things concrete things that WILL help small business:

  • It waived the fees small businesses have to pay to take out SBA loans.
  • It raised the Federal guarantee on such loans from 75% and 85% to 90%, which will encourage more lending (yet still leave the lender on the hook for significant scratch).
  • It set aside $15 billion of TARP money to buy securitized SBA loans, until private investors regain their appetite, so that the banks can sell them and, with the proceeds, make new small business loans.

That money will be ready to start buying 7A loan securitizations by the end of this month – any minute now – and 504 loan securitizations by mid-May.

To take just one concrete example of how constructive this is: I have an investment in a private company that has <>profitable orders it can’t fill. It lacks the working capital to pay suppliers, shippers, and so on. It may have to close and lay everyone off. But with an SBA loan, it would be able to keep people employed filling the orders, remain in business, and continue to grow.

Now, because of the Administration’s swift action, it has a better chance of getting an SBA loan.

Compare that with telling the owners of this company that they will get a tax break on their nonexistent profits. I think the Obama approach makes more sense.


Basically, I don’t buy it. But here it is, from my pal Chris Brown.

As you know, most responsible financial advisors suggest that for that portion of your money you want in the stock market, low-expense “index” mutual funds are the best way to go. They’re like horses with 20-pound jockeys (fees, typically, of 20 hundredths of one percent) running against actively managed mutual funds with 200-pound jockeys (fees, transactional costs that weigh down fund performance, and tax inefficiency).

Chris says the paradox is that, with so much money now being indexed, stock prices have become less efficient . . . not enough active investors bidding up or down the price of the truly desirable or undesirable companies . . . with the result that there’s more room for the savvy stock picker who does his homework to make outsized gains.

I doubt that’s true – or that it’s true by enough to give most people, or even most professional mutual fund managers, an edge. (And year after year, the subpar performance of professional mutual fund managers proves me right.)

Then again, I do believe there will always be special opportunities, and exceptionally bright, hard-working, psychologically-well-wired investors – like Chris – who will be favored to outpace the crowd.

But remember: they are few in number (not everyone can be way above average); and when you and I try our hands at this game, we are competing with them.

Footnotes: Chris cites the example of the Harvard endowment. But Harvard recently lost perhaps 30% of its endowment, maybe more. So the performance numbers he points to may have changed. And he cites the example of a very smart (I hope) Class A/Class B arbitrage he put on; which I do think is an example of the way really smart, diligent folks can find opportunities in the market . . .

. . . which is why I put a little of my own money with Chris

. . . and why I sometimes pass on what I think are smart ideas (generally from people smarter than me)

. . . some of which turn out well (Nitromed puts made us five or ten times our money, as did Aldabra warrants) and some of which turn out to be unmitigated disasters (FMD leaps painfully to mind).

And speaking of how miserably sorry I am for money you lost in FMD or WM or TXCO or anything else . . .


Dan: “You sure have a lot to say. Stocks you now fancy, the budget, politics and an ever expanding list you know equally nothing about. While you offer new companies for your readers to invest in you rarely speak about your many bad choices. Is FMD a buy at .78? What about all those dolts who follow your glib none-sense blindly? Don’t you owe them some honestly. You never print negative responses to your poorly informed blather. You should probably stick with comments on the gay world or politics. On second thought, forget politics you really don’t know much about that subject either.”

☞ The subject heading for Dan’s email was “coward.” I wrote back to say I was sorry about the money I assumed he’d lost on FMD, and could he provide his last name for posting with his comment. He then wrote back to say he had not lost money in FMD – that he actually read this page for its coverage of some stock (BOREF? GLDD?) he does own (coverage he called “even-handed”) – and declined to reveal his last name.


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