Tuesday, January 31, 2012

Big Hands Aren't a Problem But They Can Get You Off

Two hours in, from the top of the trail
A Mitt being in the news reminds me:

Ever since I've taken up hiking, I've noticed a tingling in the hands for hikes lasting two hours or longer. Yesterday, after a two-month hiatus, I went out for three hours--a little over nine miles--and my mitts became noticeably swollen. The fluid retention ("edema") subsided shortly after returning to the car.

Per the Mayo Clinic:
Hand swelling during exercise is a fairly common problem. The cause isn't completely clear, but hand swelling appears to be a result of the way your body and blood vessels respond to the increased energy demands of your muscles during exercise.
Hmm..maybe this is further evidence that the defendant in a famous trial was innocent. The hands of the killer, perhaps swollen from physical activity, presumably fit the bloody glove left at the scene. But in the courtroom the unswollen hands of the defendant, who had been seated for hours, were too big for the glove.

Monday, January 30, 2012

Another Reason to Wear Cotton

Another reason to wear cotton:
Microscopic plastic debris from washing clothes is accumulating in the marine environment and could be entering the food chain, a study has warned [snip]

"Once the plastics had been eaten, it transferred from [the animals'] stomachs to their circulation system and actually accumulated in their cells," [UCSB ecologist Mark Browne] told BBC News.
Advocates of the precautionary principle, which requires safety to be proven before products or activities are permitted [the precautionary principle is anathema to those who worry about government over-reach], may call for a ban on synthetic clothing materials or new methods of washing clothes.

We are still in the early stages of determining whether this phenomenon is yet one more danger we must worry about. But it's clear that any solution, if one becomes necessary, will be very expensive.

Sunday, January 29, 2012


The cold vanished overnight. It was warm enough to amble about in T-shirt and shorts. Along the levee bikers and bladers whizzed by, forcing pedestrians to scurry onto the ice plant for self-preservation.

Sprinklers have been switched on. The ground has dried out after last week's storms.

Ducks and geese leave signs of their presence everywhere. Wildlife is beautiful at a distance or in the abstract.

The afternoon sun tinges the houses gold. The grey chill returns tomorrow. No matter, let tomorrow take care of itself.

Saturday, January 28, 2012

Capital Gains

The lower tax rate on long-term capital gains has entered the national conversation. Last year Warren Buffett called for higher taxes on the "mega-rich."
The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes.....The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 [with the most reported income] was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains.
Mitt Romney's tax returns showed that the bulk of his income is also derived from capital gains, and the argument raged anew. President Obama staked out his position in the State of the Union address:
Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households. Right now, Warren Buffett pays a lower tax rate than his secretary....But in return, we need to change our tax code so that people like me, and an awful lot of members of Congress, pay our fair share of taxes....Tax reform should follow the Buffett Rule. If you make more than $1 million a year, you should not pay less than 30 percent in taxes.
The taxation of capital gains raises issues of public policy (e.g., incentives for business investment, differential treatment of capital versus labor) and fairness (e.g., tax-rate progressivity, taxing the same income twice).

Clarity of the debate isn't helped by the inclusion of payroll taxes, which are a combination of tax, medical insurance, and savings plan, like an IRA or 401(k), for which one receives benefits later. There are even problems if we limit the discussion to the pure Federal income tax, where partisans either through ignorance or willful mischaracterization confuse marginal tax rates with effective rates. For example, in 2011 a family of four with no itemized deductions would pay Federal Taxes of $10,656 (14.5%) on Adjusted Gross Income of $100,000:

Adjusted Gross Income  $100,000
Standard Deduction      (11,600)
Exemptions  (4x$3,700)  (14,800)

Taxable Income          $73,600

Tax per Tax Tables      $10,656

The family's tax bracket is 25%--that is, the next dollar of income is taxed 25 cents--but its effective rate is 14.5%, which is lower than Mitt Romney and Warren Buffett's effective rate, excluding payroll taxes.

However this discussion plays out, one thing is certain: it's better for everyone, rich or poor, to have capital gains than not. My January 7th portfolio is performing extraordinarily well, thanks to Netflix. If these prices persist or even continue to rise during the next year, we'll have a nice long-term gain that we'll be happy to pay taxes on.

Friday, January 27, 2012

One Debate I Found Worthwhile

Robert Hegyes, who played Juan Epstein on the mid-1970's TV series Welcome Back, Kotter, is dead. The mean streets of New York City were already a cliché when the show came out in 1975. (The audience had been primed by such cultural landmarks as the 1961 Oscar-winning film, West Side Story, and 1965's best-selling Up the Down Staircase, about the trials of an inner-city schoolteacher.)

"Kotter" depicted in broad strokes how the lower-class kids of Brooklyn came together under the tutelage of wise schoolteacher Gabe Kotter, played by Gabe Kaplan. Robert Hegyes' Juan Epstein was the "Puerto Rican Jew," a strange-sounding hybrid that is still funny 30 years later. WBK wasn't a top-flight comedy in the class of "All in the Family" or "The Mary Tyler Moore Show", but its ensemble cast was worth a half-hour of our time 35 years ago.

The "debate" from episode 1 is more worthwhile than some of the debates we've been watching lately.

Thursday, January 26, 2012

Good Start to the Year

There were 80 of us in the Jury Assembly Room yesterday morning. 55 names, none of them mine, were called; they shuffled upstairs to be interviewed by the judge. We had to wait another hour to see if the remaining 25 were needed for another case. No, we were dismissed before 11 a.m. Yes, I was willing to do my civic duty but didn't need to, reviving a distant memory of the happy feelings from receiving a high draft number.

This week two of the stocks that I own (and recommended on January 7th) reported much better-than-expected earnings. The share prices of both Apple and Netflix have risen, along with my mood.

The Year of the Dragon has gotten off to a good start. I suppose that it could have been even better had the Niners beaten the Giants and made it to the Super Bowl. But let's be honest--San Francisco over-achieved this year and was not as balanced as New York. Incidentally, the Chinese zodiacal magic evened out at the game: both 49er Kyle Williams, who made the critical fumble, and Giant Jacquian Williams, who caused it, were born in the Year of the Dragon.

He's No Marshmallow

Sta Puft vs Newt: from Huffington Post
During my weaker moments my reptilian brain would like to see Newt Gingrich become President. Newt would take a meat axe, not a scalpel, to our bloated government and strike fear into the hearts of America's enemies!

The main problem is, of course, that he would take a meat axe, not a scalpel, to our bloated government and strike fear into the hearts of America's enemies.

If nothing else, President Gingrich would single-handedly revive the comedy business. Whether because of political sympathy or political correctness, comics have toned down their jokes about government, despite a flood of material in the post-Bush era. I miss the edginess and vicious personal attacks. C'mon guys, root for Newt, your inner Lenny Bruce is dying to get out. © 2012 Stephen Yuen

Wednesday, January 25, 2012

How to Overpromise and Underdeliver

State of the Union, 2/24/09, the promise of 3,500,000 jobs:
Over the next 2 years, this plan will save or create 3.5 million jobs [bold added]. More than 90 percent of these jobs will be in the private sector: jobs rebuilding our roads and bridges, constructing wind turbines and solar panels, laying broadband and expanding mass transit.
State of the Union, 1/24/12, the delivery of minus 1,000,000 jobs:
In the six months before I took office, we lost nearly 4 million jobs. And we lost another 4 million [bold added] before our policies were in full effect. Those are the facts. But so are these: In the last 22 months, businesses have created more than 3 million jobs[bold added].
By the way, how did those solar panels work out?

[Update - 1/26/12: ABC News performs a fact-check of the President's State of the Union Address. (Some Republicans might say that is news in itself, but, as I tell the kids, you can't change the mistakes of the past, just try to do better in the future.) My interpretation of ABC's analysis: every jobs number was under- or over-stated to cast the President's policies in the best possible light.]

Tuesday, January 24, 2012

How to Underpromise and Overdeliver

Apple's earnings per share for the quarter ended December 31, 2011:
Company forecast $ 9.30
Analyst forecast $10.08
Actual results   $13.87
From the NY Times:
“It almost defies words in terms of the strength across all products,” said Toni Sacconaghi, an analyst at Sanford C. Bernstein & Company. “Everything about it eclipsed even the wildest expectations of analysts."

Mitt Romney's Taxes: Quick Take

Mitt and Ann Romney have released their tax return for 2010 and a detailed estimate of their 2011 taxes. Here's my 30-minute take on a 200-page document (obviously I might have missed a few items).

Their annual Adjusted Gross Income--approximately $20 million--puts them in the same league as top entertainers and athletes.

The Romneys donate over $3 million per year to charity, well above the Biblical standard of the tithe, and also pay a little over $3 million per year in Federal taxes.

More than half their income is derived from long-term capital gains. Long-term status inures to assets held over one year and is subject to a reduced tax rate, the source of recent political controversy. Whatever one's position on capital gains tax rates, there is much to admire in how the Romneys have arranged their financial affairs.

Because of the one-year-or-more holding period requirement, one may well conclude that the Romneys are not short-term traders and recipients of privileged information, unlike other politicians and their staffs. Furthermore, their investments have not been sure things: the gains in 2010 were partially offset by a $4 million capital-loss carryforward, which means that the Romneys suffered significant losses in previous years.

Nearly all of the gains are pass-throughs from family trusts, and more than half of those amounts are in "blind" trusts over which the beneficiaries have no control. The Romneys will therefore not profit directly from information Mitt may obtain or decisions he may make, except for changes in the tax law under a Romney administration.

In 2010 there was a so-called 83(b) election, which is generally used to afford capital gains treatment to investments in startup companies.

I like that the super-wealthy Romneys: 1) continue to make investments subject to real risk (no crony-capitalism guarantees against loss); 2) wall-off the bulk of their investments from a temptation to use political influence; 3) donate a sizable amount to charity.

I'll likely take a closer look if he becomes the Republican nominee.

Monday, January 23, 2012

Monday Morning Quarterback

With little experience he was given tremendous responsibility. In the national spotlight he made disastrous decisions at critical junctures. While his teammates tried to bear some of the blame, it was plain to everyone he was in over his head and, really, the ballgame was lost because of him. Those who should have known better were enamored by his enthusiasm, energy, and youth and should never have allowed him such leeway after the first fumble. Maybe they'll all remember this lesson the next time, if there is one.

Kyle Williams' two fumbles cost the 49ers ten points in their 20-17 loss. (CNNSI photo)

Happy New Year

Per the Associated Press:
The Year of the Dragon begins Monday [today], and the Chinese believe that babies born in this iteration of the 12-year Zodiac cycle are gifted with prodigious quantities of luck and strength. In ancient times the dragon was a symbol reserved for the Chinese emperor, and it is considered to be an extremely auspicious sign.
Chinese couples are freezing and unfreezing ova or undergoing other fertility treatments just so they can have a dragon baby.

"Prodigious quantities of luck and strength"?! I'm a dragon baby...so what happened?

Happy New Year!

Sunday, January 22, 2012

Joe Paterno, R.I.P.

When one-of-a-kind leaders are debilitated by disease or age, it's often said that "we'd rather have 10% of X than 100% of anybody else." Organizations accommodate the long journey into night by delegating many of the leader's routine responsibilities and husbanding his flagging energy for the tasks that make him unique. We've seen this gradual, sad transition occur in organizations as disparate as Apple Computer, the Roman Catholic Church, and Penn State University.

We can see why Penn State left Joe Paterno at the helm of its football program. The Paterno name conferred a broad range of benefits--competing for desirable recruits, higher alumni donations, and more publicity, to name but a few. Evil entered into these happy arrangements, and tragedy resulted.

Child sexual abuse is a horrible crime that destroys lives. You or I, dear reader, would surely have done more than pass along the allegations about one of our subordinates to university officials. But if I were an 80-year-old executive, I'd need a great deal of proof before I blew up an organization that appeared to be running smoothly. (It also may be that Joe Paterno, like many in his generation, did not appreciate the heinousness or prevalence of child sexual abuse.)

The scandal ruined the lives of the young victims, but it also ruined the life of a good and decent man who could not see the evil rising in his midst. R.I.P.

Saturday, January 21, 2012

Google - More Questions Than Answers

After enduring years of volatility I sold my position in Google at $520 last May. (I regretfully concluded that I didn't understand the company's strategy at a fundamental level--not that they were wrong, I just didn't understand it.)

Google then released a test version of Google+, its social-network answer to Facebook, and the stock soared past $650. My second-guessing was magnified when Mad Money maven Jim Cramer touted Google as the only company that was a leading player in all three Internet markets-of-the-future: cloud, social, and mobile (Apple doesn't have a major social-networking presence).

Last week Google released quarterly earnings that fell short of analysts' expectations, and the stock plunged $53.58 to $585.99 on Friday. It may look cheap to some investors, but that price is still substantially higher than the point at which I sold it. More importantly, the past year has not added to my enlightenment. I still don't understand the company, so for the time being I'm not getting back in, despite the delicious lunch Google serves at the shareholders' meeting.

Even after its plunge, GOOG has performed better than the averages since May.

[Update - 1/25/2012: the WSJ publishes more information about the $500 million forfeiture that Google paid to avoid prosecution for aiding the sale of illegal pharmaceuticals. It's not new news, but the questions about GOOG's management can only get louder.]

Friday, January 20, 2012

Biennial Lunch

I met up with T at the same place, the Sunflower Restaurant, nearly two years after our last get-together. (The Sunflower, BTW, was very crowded at noon on a weekday--quality cuisine, not expensive, highly recommended.)

Not much has changed. T is a part-time consultant and keeps up with developments in the accounting field--he is one of the best accounting technicians I know outside of the Big Four and Norwalk--but his primary focus has been raising his three-year-old daughter while his wife works full-time. T is in the enviable position of knowing that he can find a full-time job if he wants one; few of us are that confident in our own marketability.

T advised on the most expeditious approach to reactivate my CPA; there are relatively inexpensive online accounting courses that will enable me to accumulate the requisite number of continuing education credits by the end of 2012. Certificate reactivation, like physical fitness, will be more a matter of discipline than native ability. Sigh, the flesh is weak.

We couldn't linger too long because T had to pick up his daughter from the sitter. He gave me her picture, after which I understood why he's in no hurry to re-enter the rat race. © 2012 Stephen Yuen

Two years ago

Wednesday, January 18, 2012

Slightly Out of Context

The New York Giants will play the San Francisco 49ers on Sunday for the right to go to the Super Bowl.

An unexpected quote from the New York Giants' backup quarterback regarding San Francisco quarterback Alex Smith: "I'm rooting for him."

[Related - Vice President Joe Biden's attempt to rev up a San Francisco crowd on Wednesday: "the Giants are on their way to the Super Bowl."]

Tuesday, January 17, 2012

The Way to a Man's Brain

Per the WSJ:
A growing body of research shows the gut affects bodily functions far beyond digestion. Studies have shown intriguing links from the gut's health to bone formation, learning and memory and even conditions including Parkinson's disease.
Scientists have unearthed connections from the gut to the brain that have not heretofore been obvious:
Low serotonin levels in the brain are known to affect mood and sleep. Several common antidepressants work by raising levels of serotonin in the brain. Yet about 95% of the serotonin in the body is made in the gut, not in the brain.
In a study of 23 autistic children and nine typically developing kids, a bacterium unique to the intestines of those with autism called Sutterella was discovered.
To these unscientific eyes the relationship between autism and digestion is a far more promising line of study than the pseudo-science that attributed autism to vaccinations.

Monday, January 16, 2012

The Dutch Goose

I worked on Sand Hill Road before it became Sand Hill Road, home to the richest venture capitalists on the planet. The Dutch Goose, just down the hill on Alameda de las Pulgas, was one of our favorite lunchtime hangouts. It served juicy burgers and pastrami sandwiches that had to be eaten carefully to avoid getting spots on our ties (yes, children, we wore ties every day 30 years ago).

The Goose had the latest videogames; my proficiency improved to the point that a quarter was all that was needed to play for half an hour on Asteroids, Missile Command, or Donkey Kong. After I took a job in the East Bay, I never returned to the Dutch Goose....until today.

A couple of friends from the old days wanted to talk about a startup idea, and the Dutch Goose was really the only suitable venue for our reunion. I was late because I got lost. Office buildings, shops, and street lights had sprung up around the restaurant. The old dirt parking area was long gone. I was lucky to get a space within half a block.

Past the gate the restaurant had been built out into the outdoor space. The formerly empty patio was now filled with tables. Flat-screen TVs were mounted in each room. A new pool table had been set up outside the lavatories. Despite the modern appurtenances, the heart of the Goose--the weathered wooden tables, the salt- and fat-filled cuisine, the ancient videogames, and the broad selection of beer on tap--remains intact.

We dispensed quickly with the business discussion and reminisced for the next two hours. I tried my hand at Missile Command, scoring 8,000 when I used to break 100,000 regularly. After the second beer, I called it quits. Being aware of one's limits is the only way I'll be around for the next Goose reunion, hopefully less than 30 years from now. © 2012 Stephen Yuen

Sunday, January 15, 2012

Reducing Accounting "Shenanigans"

We can't change human nature, but we can organize ourselves not only to prevent malfeasance but also to make it easier to adhere to ethical standards in situations that aren't black and white. The accounting profession is currently discussing whether to impose term limits on the auditor-client relationship.

The statement of the problem:
Auditors work for the same company for so long that instead of being independent, they end up co-dependent.
The most common objection to term limits:
Rotating audit firms every few years would raise costs, reduce the familiarity of accountants with a company's books and impair the quality of audits.
Given the complexity of modern information systems, there's some truth in the argument against auditors' term limits. However, this is one instance where the greater cost to society may be in the audit failure of a "too-big-to-fail" institution, versus the higher cost of individual audits spread across the universe of public companies.

The WSJ writer also calls for restrictions on the revolving door between audit personnel and their clients. I've witnessed many instances of companies hiring accounting talent from their CPA firms. (I've never seen it done for nefarious purposes; if one works with someone who is likeable and smart, why waste time going through hundreds of resumes and dozens of interviews?)

But if you're going to impose the revolving-door rule on auditors and their clients, create one as well for government employees and lobbying firms. In the latter case the damage to the budget and society has been obvious.

Saturday, January 14, 2012

They Call Him Mr. Smith

Alex Smith has disappointed 49er fans since he was drafted in 2005. High expectations followed him, as they follow all number-one picks. However, the 49ers' won-loss record and Alex Smith's individual performance had never risen above the mediocre through 2010.

Alex Smith really never had a fair shake. He sat out the equivalent of two full seasons due to injury, and because the 49ers constantly turned over their coaching staff, he had to learn a new system every year. But even the most forgiving and optimistic fans---those who hoped that under new coach Jim Harbaugh Alex Smith might lead the Niners to a 9-7 record and first place in a weak division--did not realistically hope for the actual outcome:

I know I didn't. And I also doubt that anyone predicted that Alex Smith would out-duel the great Saints quarterback Drew Brees in the playoffs or that the Niners would be hosting the NFC championship game on January 22, 2012.

At this stage it is no longer sufficient that Mr. Smith not make mistakes. The 49ers will need an outstanding performance from him to extend their season.

Friday, January 13, 2012

$10,000 Portfolio: First-Week Checkpoint

Our portfolio of four stocks is up 4.92% after one week, greatly outperforming the Dow (0.5%) and NASDAQ (1.36%). It's way too early to come to any conclusions--we need at least six months to a year of seasoning--but the results so far can't hurt. Apple seems to be the only disappointment, but I remain confident because of potential good news concerning new products (iPhone 5, iPad 3, and iTV) and unconfirmed reports of high sales volumes in the most recent quarter.

Thursday, January 12, 2012

Microsoft Office: Hard to Carry, Hard to Displace

At work I'm a heavy user of Microsoft's Office suite, particularly Excel. I will use word-processing and presentation programs other than Word and PowerPoint, but some of my Excel workbooks have man-months invested in their design, programming, and data tables. Spreadsheet competitors claim 100% compatibility with Excel, but I have not risked a switch. I would be betting my livelihood on their claims that functions and macros work perfectly on their product.

The iPad is a convenient reading, viewing, and game-playing device. Microsoft Office on the iPad would be welcome because I much prefer carrying the lightweight iPad to heavier laptops.

OnLive has released a cloud-based "full featured" version of Office that will work on the iPad. Per the WSJ's Walt Mossberg:
I found OnLive Desktop to be a notable technical achievement, but it has so many caveats that it's best for folks who absolutely, positively need to use the full, genuine versions of the three big Office productivity programs on their iPads.
Some of the drawbacks are: the user must be connected to the Cloud, the iPad's virtual keypad won't work (nor will an attached mouse), and documents must be transferred directly to or from OnLive, not through other avenues like e-mail.

So we're not there yet. Until Microsoft releases Office for the iPad, I'll continue to schlep around a laptop.

Wednesday, January 11, 2012

World Unfamiliar

The incoming e-mail had the subject line "Bravangelism,"--was it about Brad and Angelina, a new car, or apocalyptic fiction?--so I clicked on it out of curiosity.

The pictures and subject matter were perfectly fine--"G"-rated by Bay Area standards--but I did wince at the attempted contraction of bra and evangelism.

I've been on the Title Nine mailing list ever since I made an online purchase a couple of Christmases ago (no, the purchase wasn't for moi). Their sales pitches are replete with images of athletic, fun-loving, but not model-thin women. It's a window to a world with which I am unfamiliar.

By all reports T9 is a successful, growing business, but "bravangelism"?--get me rewrite!

Tuesday, January 10, 2012

Desired Demographic

At 8 a.m. it's standing room only at the Los Altos Starbucks. The tables are crowded with talking, texting, and tweeting teens from the nearby Catholic high school. Their clothes and comportment, plus allowances that permit $4 morning beverages, betray their upper-middle-class status.

At other Starbucks locations that I've frequented the line consists of commuters looking for their morning fix and retirees intending to relax with a paper and coffee in comfy chairs. In Los Altos there are no seat cushions. Customers have to step gingerly over the backpacks strewn across the floor. Despite the discomfort to older customers, most businesses would kill for this demographic.

Monday, January 09, 2012

No Bubble Here

At Foothill College the parking lot was packed with cars. Despite rising tuition community college in California is more of a bargain than ever. At $24 per unit, a typical Associates certificate, such as Business Administration, with a 90-unit requirement would cost $2,160. (Including other fees raises the total two-year cost to about $2,500.)

Should the student wish to continue on to a four-year degree, seven University of California  campuses will guarantee acceptance and accept transfers of credits if the student has a minimum GPA of 2.8 to 3.5, depending on the campus.

Community colleges may lack the luster of four-year institutions, but at least their graduates won't be groaning under a load of debt. Lines of cars and long waiting lists confirm that thousands of students have come to that realization.

Sunday, January 08, 2012

Tebow Time

Tim Tebow does "Tebowing", photo from popdust2.

Tim Tebow--devout Christian, volunteer, role model, and, by the way, the starting quarterback for the Denver Broncos--threw an 80-yard touchdown pass in the first play of overtime today to lead his team to a 29-23 win over the favored Pittsburgh Steelers. The suddenness of this play capped an exciting playoff game in which Tim Tebow made other spectacular throws. Respect for the Bronco passing game and for Tim Tebow as a bona fide NFL quarterback is growing. [Update - 1/10: the WSJ shows 
where the Steeler defense went wrong.]

With signal callers Aaron Rodgers, Drew Brees, and Tom Brady all having MVP-caliber seasons (Green Bay's Rodgers is the favorite), the NFL's biggest story revolves around a former third-string quarterback whose unconventional throwing motion and inexperience with the pro-style passing attack led many to predict that he would never make it in the NFL. But it's his unabashed religiosity that has caused Tim Tebow to become an involuntary lightning rod for America's culture wars. (It only added to the legend that he passed for 316 yards, as in John 3:16, the passage that summarizes the essence of the Christian faith.)

Tim Tebow's one-knee genuflection has inspired imitation from fans who have posted their own poses on the web. Even an NFL player got into the act: earlier this season Detroit Lions defensive back Stephen Tulloch assumed the stance after sacking the Denver quarterback. This weekend the Lions were bounced from the playoffs by the Saints, while the Broncos move on to the next round at New England. There might be a little karma at work, although Tim Tebow wouldn't use that word.

Stephen Tulloch "Tebows"  in the Lions' 45-10 shellacking of the Broncos .

Saturday, January 07, 2012

How I Would Invest $10,000

There's a good reason why I don't manage investments for a living--or even manage them gratis for friends and family. If there were losses I would feel guilty, and the stress would keep me up nights. Losses in my own portfolio are disappointing, of course, but would not cause as much mental anquish.

Nevertheless, because people do occasionally ask me for an opinion, here's how I would invest $10,000 in the stock market, assuming at least a two-year investment horizon. And yes, I do own these equities. Herewith the abbreviated reasons why these stocks may show above-average appreciation in the year ahead.

Apple is the second most valuable company in the world behind Exxon-Mobil. Yet, given it's historical and near-term projected earnings growth, Apple is significantly undervalued. The PEG ratio (price-earnings ratio divided by earnings growth rate) is a yardstick that many analysts use. If the ratio is less than one (for example a 20 PE divided by a 20% growth rate), then a stock is usually viewed as underpriced. Apple's PEG is 0.6.

Deere is the world's largest manufacturer of farm equipment. As economies improve, the megatrend of higher food production coupled with population movement away from the farm should raise the demand for Deere products. However, it should be noted that the debt to equity ratio of nearly 4 to 1 ($27 billion versus $7 billion) makes Deere a risky proposition if interest rates rise or its debt has to be rolled over in a period of tight liquidity. Meanwhile, the dividend yield of 2% is a source of comfort.

Freeport-McMoRan Copper & Gold Inc. engages in the mining of gold, copper, silver, molybdenum, and cobalt. The appreciation in gold we all know about, but, as the second largest producer of copper, FCX is well-positioned to capitalize on a global economic recovery. Analysts have been targeting a share price of at least $50. Don't buy this stock if you think we are still in recession because in that case copper prices and earnings will soften---in fact you should not make new investments in the stock market at all (that's not my opinion, but I've been wrong before).

Buying Netflix is a gamble, not to mince words. Netflix made a number of well-publicized disastrous moves last year in an effort to manage the transition from DVD rental to direct streaming of video entertainment. In the most recent quarter Netflix lost subscribers, and its share price fell from $304.79 to $62.37--nearly 80%--in a few months. Netflix still has downside, especially since owners of content are negotiating much tougher contracts, but I believe it has enormous potential to piggyback on the growth of Apple's iPad, Amazon's Kindle, and other mobile devices. Besides, at current prices the entire company is valued at $4.5 billion, a relatively inexpensive target for a company looking to acquire 20 million paying customers.

We'll check back in a few months to see how these companies are doing.

Friday, January 06, 2012


Today, January 6th, Epiphany, marks the official end of the Christmas season. Not too long ago Catholics, Episcopalians, and other Christians observed not only the twelve days of Christmas but also the eight days of Epiphany. ("The Octave of Epiphany" sounds like the title of Dan Brown's next book.) In the Internet age we can barely concentrate twelve minutes, much less eight or twelve days, on any endeavor.

Epiphany is not one of the three major feasts (Christmas, Easter, and Pentecost) of Christianity, but it is sufficiently important that some churches are named after it. Over 30 years ago we were married at one Church of the Epiphany. We attended another for 15 years.

The original meaning of "Epiphany" was religious--the manifestation of the Divine (Jesus) to the Gentiles (Magi)--but it has come to mean the revelation of an essential, not necessarily religious, truth. Like other words where the meaning is subtle and the use is infrequent, it is apt to be cheapened through over-application, as in, "when I heard the politician's speech/saw the movie/heard the song, I had an epiphany." Let's hope that, like a well-crafted tool, "epiphany" is used when the circumstance is exactly right.

Thursday, January 05, 2012

The Lord of the Flies Was, Appropriately, a Pig's Head

...there are no rules. There is also no code of honor, no professional etiquette, no regard for human decency.

"I used to go to a pretty dark place, and there wasn't much that was off limits."

Sometimes, no one can hear you scream.
Where the primal, the id, and the bestial hold sway...the Pile.

Wednesday, January 04, 2012

In Other Words Don't Worry, Be Happy

Let us enter the New Year cheerfully. Let us resolve to look on the bright side, to make the best of whatever may befall, to maintain faith that doing the right thing will ultimately bring victory. Let us cultivate sunniness, resist sourness. We can better wrestle with difficulties, obstacles, problems in a spirit of buoyancy than in an abject, morose mood. How much more the radiant mortal gets out of life and puts into life than the downcast, long-faced self-pitying being!
---B. C. Forbes (1937)
It can be refreshing to dip into essays and literature from the pre-World War II era. Although they did go on (and on), writers knew how to turn a phrase, e.g., "spirit of buoyancy", "abject, morose mood." Nowadays we don't have the time or patience to indulge that style, either as readers or writers. More's the pity.

Tuesday, January 03, 2012

Are We Better Off Than We Were Ten Years Ago?

Good line:
Ten years ago the USA had Steve Jobs, Bob Hope, and Johnny Cash. Now we have no Jobs, no Hope, and no Cash.

Monday, January 02, 2012

No Worries

For the past several Christmases I've left a bottle of scotch on the doorstep of an 80+-year-old gentlemen with whom I've done business. His nephew called (I don't know about you, but whenever caller ID reveals a call to be from the relative of an elderly person, I answer with trepidation) to say that J has been having health problems and has been staying in an assisted living facility for several months.

However, the good news is that J. has recovered sufficiently to move back home. He also wanted to thank me for the bottle.

Me: "I guess scotch wasn't a good idea, given his health."

Nephew: "Are you kidding? It's the best gift you could have given him. He and I have already had a taste." Yes, that's the J I've always known.

Comments: 1) It's often surprising (good or bad) how a gift will be received; 2) I hope I live long enough so that I'll enjoy certain activities without caring about their effect on my health.

Sunday, January 01, 2012

The Future Will Arrive Soon Enough

Calendar from timeanddate.com
2012 is a leap year and presidential election year. The year has 53 Sundays, which disadvantages churchgoers who have made weekly, instead of annual or monthly pledges. On the other hand, they'll be getting their money's worth from an extra worship service.

2012 is the last year of the century in which the numbers will line up identically for the time and date, i.e., 12:12 p.m. on 12/12/12. If one believes in the Mayan prediction of doomsday, it could be the last year, ever.

2012 has five months that have five Sundays (in most years there are four). Because we have signed up to serve lunch at the senior center on fifth Sundays, volunteers will be working a little harder this year. Most of them will cheerfully consider it not so much a burden, but an extra opportunity to serve.

The politically passionate eagerly anticipate the start of the election season, while football fanatics can't wait for the playoffs. The future, which often disappoints, will arrive soon enough.

Savor the journey and the anticipation, not the goal itself.
"Heard melodies are sweet, but those unheard Are sweeter" - Keats