August 13, 2007

Now Send the Man His Tchotchkes

SO THIS WEEK'S EDITION of the Carnival of the Capitalists is up, and lo! my post on the Chinese saber-rattling over the yuan's value was not only included, but listed as one of the carnival's "Top Picks for the Time-Challenged." Yeah. The Rant would like to thank Mr Mike DeWitt, of the Spooky Action blog, for hosting this week's carnival and appreciates his kind words.

Of course, the Carnival of the Capitalists has myriad posts about finance matters and here are some of my favorites:

MAN GETS STOCK CERTIFICATES in mail by mistake. Man sees if he can get free tchotchke (specifically, a mug with the logo of the corporation in question) as consideration for doing the right thing and mailing them back. This request seems reasonable enough, but even more reasonable when one considers the certificates were worth EIGHTY MILLION DOLLARS.

I don't know about you, but if I was an executive at ShoreTel, one of those Internet telephony providers, I'd send the guy one of every goddam tchotchke the company has. Since the company is an Internet telephony provider, it is reasonable to assume the company has an entire warehouse set aside for storing the myriad pens, mouse pads, bath towels, plastic cups, coffee mugs, key chains and other crap emblazoned with its logo. ShoreTel should do the right thing and send him a nice care package full of company crap, because while there was practically no chance the man could actually have cashed in on the stock certificates, his action undoubtedly saved them bunches of headaches.

Especially considering he sent them via FedEx back to the transfer agent. FedExes aren't cheap, you know.

As it happens, several years ago -- when I was living in Los Angeles -- I got a wad of stock certificates delivered in the mail. They had been intended for my neighbor, but the mailman had screwed up and put them in my box instead. Naturally, I returned them. I did not, however, ask the natural question -- "What the hell were you thinking having the stock certificates sent in the mail, in this day and age?"

I remain hopeful that someday, someone will accidentally send me a cache of bearer bonds. That's not because I would, say, take the bonds and flee to central Mexico and live like a king on the proceeds, but because I am sure the rightful owner of the bonds would reward me handsomely for doing the right thing, which I would of course do anyway. Hey, I once turned in a $100 bill I mistakenly got from a self-service grocery store checkout station; I would do the same if vast wealth were to suddenly but erroneously appear in my hands.

GENERAL MOTORS is ending its sponsorship with the U.S. Olympic Team. The SportsBiz blog argues the move is a result of the automaker's financial troubles. I would argue the move is a result of the fact that most people who actively watch the Olympics drive Japanese cars.

IF YOU'RE NOT PLANNING to make any decisions, stop following your stocks day in and day out, argues Warren Wong at Interpersonal Development. Well, I wholeheartedly agree with that -- God bless it, the market was down again today! Oh, for crying out loud!

PERSONAL FINANCE TIPS from The Beatles -- because really, when you get right down to it, that "all you need is love" idea was rather bolshy.

Lastly, The Rant would note with disapproval one post included on the CotC list, which argues that small investors ought leave buy-and-hold strategies to the billionaires. The key quote in Michael K. Dawson's argument is this: "Has buy and hold worked for anyone other than Warren Buffett? I abandoned it after almost being wiped out during the internet implosion."

Without getting into the details of it, I can assure Mr Dawson that not only has buy-and-hold worked for me, but it has worked for several people I know. A big advantage of that strategy is that it defers capital gains taxes, and that alone explains why Mr Buffett is worth tens of billions of dollars as opposed to a few billion. Plus, if you reap significant gains in a stock, it makes sense to hold on to it despite downturns because selling will mean a huge tax bill that wipes out a good fraction of any gain one would otherwise book.

For instance, let's say an investor buys 100 shares of Stock A at $10 per share. After seven years, Stock A has appreciated to $100 per share. That's a profit of $9,000. But since long-term capital gains would mean taxes of at least 15 pc (and likely more, depending on where one lives), the tax bill means it makes more sense to hold on during downturns. If we assume taxes on a sale would eat up 20 pc of the gain, selling the stock at $100 per share equals an effective net price of just $82 per share. If the stock goes down 15 points in a bad week, selling still might not be the best move, because you'd get still hit with a pretty big tax bill.

Of course, that's not to say there isn't a proper time and place to sell any particular equity. But as one commenter at Mr Dawson's site pointed out, buy-and-hold works when the company is a value proposition. It does not work so well if one is screwing around with If you're engaged in outright speculation in those types of stocks, of course you should sell if the waters look choppy ahead. But there's a difference between investing and speculating and I'm not entirely sure Mr Dawson has got the memo on that yet.

Before I close, I would also note Mr Dawson quoted some CNBC talking head who "suggests selling until you can sleep." Folks, investing is not something one ought do with scared money, and neither is speculating on the market. If your stock market losses are causing you sleepless nights, you should reanalyze your financial position and see if there aren't ways you can bolster your core holdings to help you sleep better. Perhaps that means paying down that home equity loan or putting more of your savings in cash. You see, despite what the philosophers say, you can put a price on having a good night's sleep.

Posted by Benjamin Kepple at August 13, 2007 09:17 PM | TrackBack
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