From: owner-persfin-digest@lists.xmission.com (persfin-digest) To: persfin-digest@lists.xmission.com Subject: persfin-digest V5 #45 Reply-To: persfin Sender: owner-persfin-digest@lists.xmission.com Errors-To: owner-persfin-digest@lists.xmission.com Precedence: bulk X-No-Archive: yes persfin-digest Wednesday, August 26 1998 Volume 05 : Number 045 In this issue of the Personal Finance Digest: Re: Montgomery Wards legal plan Re: Investing purchase of one share WILLS, WON'TS AND TRUSTS Income tax on investments Re: Investing Bridge Loan - How Do They Work? Company slow rolling over retirment account Re: Asset Allocation , part 3: it's a TIME thing Re: Asset Allocation , part 2 market makers Joint Term Life insurance The messages posted to the Persfin-Digest are opinions and are not intended to substitute for qualified professional advice. Subscribers should seek the services of qualified professionals for such advice. The publisher, Internet provider, and Digest contributors cannot be held responsible for any loss incurred as a result of the application of any of the information provided here. To ask questions or provide answers, send your email to "persfin-digest@lists.xmission.com". Also, you can "reply" to the persfin-digest and your email tool should fill in the same address. However, if you "reply", be sure to edit the subject field in your email to reflect your topic. Copyright (c) 1998, Jeff Salisbury POSTED SUBSCRIPTION FEE: $20/year. Payment is optional. You will not be billed. The Digest is available to all subscribers, whether or not they pay. I do not discriminate either in favor of paying subscribers or against nonpaying subscribers. If you feel that the information presented here is worth the fee, and you feel comfortable paying it, send cash, check, or money order (U.S. funds), payable to "Jeff Salisbury", to: Jeff Salisbury 65 North 1300 East Logan, Utah 84321 Payment will be acknowledged by e-mail if you include an e-mail address. Subscribe: e-mail majordomo@xmission.com, text: subscribe persfin-digest Unsubscribe: e-mail majordomo@xmission.net, text: unsubscribe persfin-digest ---------------------------------------------------------------------- Date: Tue, 18 Aug 1998 14:15:39 EDT From: Subject: Re: Montgomery Wards legal plan <> To be free, a problem or service has to be resolved with no more than 3 visits. Or with three letters written on your behalf, or three phone calls. A will is accomplished with just one or two visits, so it's free. For more complicated problems, you get a discounted hourly rate. I don't know what's involved with a living trust; I never looked into it. Business legal advice and services aren't covered, just personal. - - ------------------------------ Date: Tue, 18 Aug 1998 14:24:12 -0400 From: Subject: Re: Investing Randy (& Readers) >Date: Sat, 15 Aug 1998 22:02:26 -0400 >From: Randy Barnes >Subject: Re: Asset Allocation , part 3: it's a TIME thing >You can beat the market by investing in a handfull of the top companies >that will still be around 10 years from now. Avoid companies that the >average person has never heard of. The names in our account include >Dell, AOL, Home Depot, Safeway etc.. Buy big companies that are really >live and kicking. Fortunately there are as many different methods of investing as there are investment opportunities. I found myself disagreeing with both you and Steven Foulks. I do not purchase Blue Chips, nor do I purchase top companies and hold them for long periods of time. I also do not believe in the notion that the market is purely efficient. Do you realize that there are many people who bought into a two-bit company years ago called Microsoft who have since not regretted their investment ? Market efficiency is a phenomenon that seems to hold at the macro level. This includes all activity over infinitely long periods of time (more specifically, a total economic cycle), across all participants in the market (traders, consumers, news media, foreign countries, exchange rates, etc.), and among all economic systems that have first round, second round, or tertiary influence. For the individual investor, the market is *far* from efficient. Case in point - you can open a margin account and trade securities during the normal market hours. You could, alternatively, establish a Level II margin account (NASDAQ), enabling you to trade on the fringe (before/after market open) of those hours. As a daytrader, I have seen more colleagues earn abnormal gains during pre-market trading than proponents of "market efficiency" would have you believe. >> strategy. I never look at annual reports, investment news letters, etc. >> Rather than wasting hours analyzing knee deep out dated investment crap, I >> enjoy life. My returns have been better that the market, because I >> generally chose blue chip stocks, not because I "time" the market, or know >> how to pick winners. I buy stocks when I have money and would only sell >> stocks if I needed money. If I spend an hour a month thinking about my >> investments, that would be an unusual event. >> [snip] >> Steven M. Foulks, CPA, CFP, PhD >> >Really, I am pleased that someone gets it. Your point about hold >forever is the key. Your strategy IS THE strategy for beating the >market. The average person CAN do this. This is not as risky over a 10 >year time frame as owning a bunch of stock funds. The efficient market >will make your little account of top companies outperform the overall >market by some amount, which will translate into a more comfortable stay >in the nursing home. Marketing and management costs will not be a drag >on an account like this. I have to disagree with you. BOTH of you. The majority of my securities are never held for more than a week. Most of them are held for only a few hours. By using my trading methodology, I turned $6k into $23k in under a month. It's a simple one, too, that limits your exposure to broad market, macroeconomic, and microeconomic effects. After all, the idea *is* to buy low, sell high. I *do* read annual reports, newsletters, and whatever else I can get my hands on. There is a wealth of information buried in annual reports that financial analysis can pull out. Especially for you investors who are in it for the long-term ! For example, how is your target security faring against its competitors with regard to revenues, expenditures, R&D ? Is it plowing earnings back into solid capital investment or pissing too much away to shareholders ? Is it making poor M&A decisions (i.e., acquiring a business unit in which it has no core competency or is not a component of vertical/horizontal integration) ? >Another way to beat the market is follow a simple strategy, and let your >portfolio autopilot for a long time period. My favorite is what I call >the Fab 4, actually a version of the Foolish four, called "RP", whatever >this means. Currently the 4 stocks are IP, GM, CAT, CHV. This is the >surest, safest, easiest way to a million that I've ever seen. Check the >numbers on this. The last 37 years are proof enough for me. >http://www.fool.com/DDow/1998/DDow980213.htm I would no more allow my portfolio to autopilot any more than I would allow my career to autopilot. The problem with most investors is that they do not understand the market microstructure. Why do experts like to brainwash those who are less sophisticated with notions that the market is efficient ? I imagine because it is easy to grasp, has an element of truth, and is the foundation for many laws governing the market. After all, who wants to believe that others are making a profit on information not readily available to everyone the broad market ? Investing your hard-earned money into stocks or mutual funds and not thinking about it for more than an hour a month is BAD ! You *always* have to look for opportunities and do not make the mistake of investing all of your wealth into a single investment type. Diversification outside of the stock market is preferable. Buy some land or apartment units. It's not difficult to research and locate opportunities for abnormal gains on a daily basis. I typically utilize both long positions and short positions. The important thing is to do your research, understand how the market operates mechanically, be able to execute trades quickly, and in a high volume of shares. My stock trades are done on highly volatile securities, preferably those with frequent $0.25 intraday price volatility or more. Purchasing 100 shares is practically worthless, considering you can purchase 10,000 shares and earn $1k if the price moves only 10 cents up or down; depending, of course, whether you are holding a short or long position. It's also a matter of utilizing common sense. Last fall there was a security, Biospherics Inc. (BINC), that I was selling short around 7 7/16 and buying to cover around 7 1/4 during the first and second weeks of September. As soon as I would cover my short I would take a long position and ride it back as close to 8 as I could. You can see by the 2-year chart http://www.bigcharts.com/quickchart/quickchart.asp?sid=0&o_symb=binc&symb=b inc&time=9 that this security was volatile and had a large volume of trading activity during certain periods. Efficient ? Or an abnormal opportunity ? Another example is a bank stock, Essex Bancorp (ESX), that ran up over $8 per share from around it's average of $2 per share. The CEO in an interview could not explain the run up in price, nor could the market. I was able to sell 3,000 shares short at $5 per share and cover at $2 1/4. My gain on that transaction was slightly less than $8,200 after fees with a holding period of less than two weeks. Those are just two examples of many. >Thanks again for your insight and extremely valuable information. I >hope that a few lurkers on this list see the light and realize just how >easy building wealth really is. Buy the market in the S&P index, or just >a small group of the best BIG companies, and let time do it's thing. >- - Randy Barnes, >Regular Guy >PS, If you think you not average enough to beat the market then ride >over to the library and read What Works on Wall Street, by James >O'Shaughnessy. His new one (title unknown)is a top seller right now and >is probably a good choice too. Having read/skimmed this you'll be far >above average and have better knowledge than anyone that ever attempts >to "sell" you investments. True, it's not difficult to build wealth. The important thing is to find a method with which you are comfortable and will permit you to have little trouble sleeping at night. I also recommend enhancing your (the readers) education in finance and the market microstructure at a reputable business school (Carnegie Mellon Univ (http://www.gsia.cmu.edu), Wharton(www.wharton.edu), etc.) where you have access to the world's top researchers. The *worst* mistake anyone can make is to not invest at all. - --mk - ---------------------------------------------------------------- The information transmitted is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer. - - ------------------------------ Date: Tue, 18 Aug 1998 14:46:34 -0400 From: Bertrand Horwitz Subject: purchase of one share I wish to purchase one share to give to a child as a birthday present. Where is the least expensive place that this can be done? - - ------------------------------ Date: Tue, 18 Aug 1998 16:31:38 EDT From: Subject: WILLS, WON'TS AND TRUSTS Wife and I just got thru second round of wills. This one required a trust for a disabled son. These things aren't a hundred or two each anymore. On subject of insurance. I have dropped all mine except one paid up policy and a free one that followed me into retirement. Adding coverage of a years pay would cost over 2k a year and would go to uncle sam as the unified credit isn't big enough. Group policies are difficult to have ownership in someone elses name. To me insurance is not required when everything is paid for and significant assets are in place. Pensions pay costs, income from investments pays for travel and other needs. A reserve for medical expenses can't require too much over basic medicarea/HMO complete coverage. I would love to be able to tax shelter a couple K a year each in a MSA for nursing/home care expenses later on. Not yet on horizion. Jointly owned property is a big bugaboo too. The passage to the survivor is OK and tax exempt, but the wasted credit of the first death is gone forever. Divided ownership and establishment of a Trust bypass and or revocable living trusts get around this mess. And make the lawyers rich!! But it avoids the 37 to 55% estate taxes. My assets seem to be increasing faster than the unified credit. Another problem for those (not me) who have expensive houses and a big loan. It is valued in the estate at the house value and not net of loan. A real bummer. Dunno if same for investment accounts with margin loans, but I'd bet it similar. duke - - ------------------------------ Date: Tue, 18 Aug 1998 15:03:17 -0500 From: Jerry Conley Subject: Income tax on investments I am trying to project the taxes I will have to pay on the gains from my investments once I begin to draw on them during retirement. I have some after tax investments that are not tax-deferred and I have some investments in IRA & 403(b) that are deferred. Presuming that I have no income and begin to live off of my investments, that all of my investments are long-term, that I am married filing jointly, and that my tax bracket is 15%, what will I pay in taxes on $36,000 from my tax-deferred withdrawals? And at what tax % rate? In comparison, what if that $36,000 comes from after tax investments with a basis of say $10,000? Another question would be will the tax rate be different on the withdrawal of tax-deferred investments if other income pushes the income above the 15% rate level? I am trying to figure out which investments I should tap into first, the after-tax or the tax-deferred. Thanks in advance for any help you can give. Jerry Conley - - ------------------------------ Date: Tue, 18 Aug 1998 20:06:02 -0400 From: "Louis J. Schwarz, CFP, RFC" Subject: Re: Investing > Date: Mon, 17 Aug 1998 15:52:05 -0600 > From: jeff@scrooge.csd.sdl.usu.edu (Jeff Salisbury) > Subject: Re: Asset Allocation , part 2 > > Steve, > > I too, am a buy and hold advocate. However, being a CFP, what do you do for, > or recommend for your clients? Mutual funds? Or, a portfolio of stocks? How > do you choose a mutual fund or stock since you indicate that you don't do much > research? > The bottomline is the "lifetime" discipline method! If investors do not want to read news, they better do DCA (Dollar Cost Averaging) methods with several mutual funds outright their working years. If investors do not want to trade from time to time, they better invest at least 75 percent of unneeded money in several stocks selected from the publicized list of 100 best stocks and use their DRIPs (Dividend Reinvestment Program) during their "buy and hold" years. Perhaps by the time they retire, they will receive nice bigger dividends. If investors want to make advantages of making possible better gains, they should have stayed to the discipline method (can be anything but must be consistent) such as if the price of conservative stock drops ten percent, sell it, so forth for moderate stock (15 or 20%) and for aggressive (25 or 30%). They should be patient at least 12 months for each investment for sake of maximum 20% taxable long term gain unless the unexpected event warrants for the immediate sale. I, as the CFP, merely make the financial independence projections at the suggested rate of return, including the factors on inflation and taxation. If the total investment portfolio meets the given rate or better, I will be happy because my clients are happy too - regardless of such unexpected high rate of return currently. Of course, all CFPs must do due dilgence on selecting any investment to be sure each does meet the client's specific goals and objectives. So they must do some research or review on investments before recommending to clients. - -- $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Louis J. Schwarz, CFP,RFC TTY: 301 587 5996 Schwarz Financial Concepts FAX: 301 587 5997 814 Thayer Avenue, Suite 301 Voice: 800 735 2258 Silver Spring, MD 20910-4500 Email: louis@moneysigns.com WWW: http://www.moneysigns.com - - ------------------------------ Date: Tue, 18 Aug 1998 23:17:11 -0800 From: Mark Orr Subject: Bridge Loan - How Do They Work? We are in the process of relocating from WashDC to VA Beach due to new job assignment. I've told about something called a "bridge loan" which provides a short term loan mechanism to put a contract on the new house prior to settling on the old house. Once the old house completes settlement, I believe the bridge loan then gets closed-out and proceeds from sale used to establish a longer term mortgage on new house via bank. Can anyone on the list provide more information on exactly how these type of loans work and are there any downsides I should be concerned about (e.g., higher interest rates, potential financial impacts resulting from carrying two loans if settlement difficulties are encountered, etc.). - -- Cheers, Mark Orr mailto:markorr@vais.net - - ------------------------------ Date: Wed, 19 Aug 1998 07:08:34 -0700 From: mwyman@juno.com (Mike M Wyman) Subject: Company slow rolling over retirment account Three years ago I left Company A to work for Company B, but left my 403-b account intact at Company A. Now, I'm trying to roll over my 403-b account to the new company, and I need the money fairly quickly, so I can borrow against it for a new home. The problem is, Company A seems to be dragging their feet. It's been over 2 months since I first requested the rollover, and repeated phone calls keep ending with empty promises. Is there a limit to the time they can keep my money? _____________________________________________________________________ You don't need to buy Internet access to use free Internet e-mail. Get completely free e-mail from Juno at http://www.juno.com Or call Juno at (800) 654-JUNO [654-5866] - - ------------------------------ Date: Wed, 19 Aug 1998 11:17:47 -0400 From: "Steve Foulks" Subject: Re: Asset Allocation , part 3: it's a TIME thing Randy Barnes said: >First you say the average person cannot beat the market, then you say you do. Are you not average? ;-) I would say that as a stock picker I am certainly average (after all I spend little time at it) and my above average return is due a lot to luck. When I started my PhD program in 1990, I decided to move my Keogh plan assets from mutual funds to individual stocks. I had a feeling (hunch) that computers were going a big market world wide in the future. I thought of 4 stocks - Intel, Microsoft, Motorola, Apple. Since I was using Wintel machines ( my first supplied by my employer) and I really enjoyed the advantage that my computer gave me, I split my money equally between Intel and Microsoft. Those two investments have made my returns "above average". Was it superior picking skills - no, it was luck. My employer could have bought me a Mac and I probably would have went with Apple / Motorola. >Really, I am pleased that someone gets it. Your point about hold forever is the key. Your strategy IS THE strategy for beating the market. I wish I could say that I developed my strategy because I was born with infinite investment wisdom, but in fact I probably made the same mistakes that every other investor has made. I used fundamental and technical analysis, and when I first started investing, I invested on "hot tips" from my broker. The key for me was going to The University of Chicago and getting my MBA with a concentration accounting/finance and learning about empirical testing of investment methods. Prior to the 1960's investment strategies were based upon "arm chair" philosophizing (i.e., if the head a Wall Street brokerage firm's research staff said you should chart stock price movements and analyze them in a certain way you would make money, then the average investor would say this guy must know what he is talking about, so they would buy his advice, etc.) In the 1960's with the advent of high powered computers and stock price data tapes academics began to analyze these arm chair philosophers' techniques and found that when you applied all of the various strategies that you investment returns were no better than throwing 30 or darts at the WSJ stock listings and buying and holding those stocks. In fact this method gave superior returns because you avoid transaction costs (brokerage fees, time wasted on stock research which could be spent earning more wages, etc.). It was at this time that I quit giving money to brokers, quit listening to them and starting keeping money for myself. Something else happened early on in my investment career that made me change my investment strategy. I worked for a big CPA firm as a specialist in the brokerage industry. One of our clients was a trust set up a wealthy individual to sponsor medical research. It was at this time that the IRS imposed a tax on certain tax exempt trusts. One of the things that we had to do was establish a basis for all stock owned by the trust to calculate any gains or losses, should they sell the stock. The trust's philosophy was to buy and hold stock in top quality companies. Some of these stocks had a cost basis of 10 cents a share, but were worth $60 to a $100 a share when I did my work. I thought to myself, why am I buying these "fly by night" stocks on the recommendation of a broker, Barron's, etc.? Since that time I have only bought stock in real quality companies. They don't go up 1000% a year, but over the long haul, they make you wealthy. Most investors are encouraged to be greedy by their brokers. They want to buy those stocks that give 1000% annual returns (I would like to also). I have learned that only occurs by chance and chasing that dream enriches others at your expense. I hope others will seriously think like you and I do and begin to keep their own money and profits rather than giving it to others! - - ------------------------------ Date: Wed, 19 Aug 1998 11:17:47 -0400 From: "Steve Foulks" Subject: Re: Asset Allocation , part 2 From: jeff@scrooge.csd.sdl.usu.edu (Jeff Salisbury) Jeff Salisbury wrote: >Steve, >I too, am a buy and hold advocate. However, being a CFP, what do you do for, >or recommend for your clients? Mutual funds? Or, a portfolio of stocks? How >do you choose a mutual fund or stock since you indicate that you don't do much >research? For beginners with little money I urge them to buy cheap index funds (like the Vanguard S & P 500 fund, CREF Equity index fund) and hold them and also to acquire stock in top quality companies and to hold them forever, using dividend reinvestment plan and additional stock purchase plans. In picking a stock I use the following philosophy: Does the company make a good product and will people still want it 50 years from now? On that basis I pick companies like Coca cola, WalMart, Exxon, etc. As wealth increases, I urge people to drop mutual funds and create their own diversified portfolio of stock and bonds, thus cutting out the middle man (mutual funds) altogether. Steven M. Foulks, CPA, CFP, PhD Northern Michigan University - - ------------------------------ Date: Thu, 20 Aug 1998 00:00:27 EDT From: Subject: market makers I have a basic Wall St question: I know there are "market makers" for each stock but am curious- is there a person or computer somewhere that actually adjusts stock prices in real time based on demand? What types of criteria do they use? Is it based on precise formulas or just a feeling that "demand is growing and I should raise the price"? When you see footage of the exchange floors, are the guys in the middle of the crowds the market makers? - - ------------------------------ Date: Wed, 26 Aug 1998 10:53:46 -0700 From: sprasad@cauvery.Eng.Sun.COM (Shankar Prasad) Subject: Joint Term Life insurance Hi I have been considering buying separate 20-year level term policies for myself and my wife. Someone mentioned that JOINT policies are available. I am wondering whether there is any type of joint (level term) life insurance policy which will pay death benefits when the FIRST person dies, and preferably continues with some residual coverage for the SECOND one. This would be a FIRST-to-DIE-with-survivor coverage type of policy, if such a beast exists. Using such a joint policy might mean lower premiums than two separate individual policies. Does anyone have any experience or opinions on the effectiveness of such policies ? Are there any insurance companies which offer such policies ? I have looked at www.insure.com, but cannot find any background material on such joint policies. Any other websites which might cover the specifics and pros/cons ? - -- Regards Shankar Prasad sprasad@eng.sun.com - - ------------------------------ End of persfin-digest V5 #45 **************************** - To unsubscribe to persfin-digest, send an email to "majordomo@xmission.com" with "unsubscribe persfin-digest" in the body of the message. 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