Previous Columns
8:30 AM EST Friday, February 2, 2007: Thinking of taxes and returns. When I first sold my business, a money manager explained how I would live the rest of my life paying few taxes. This interested me since living in New York City means beyond ridiculous taxes. His idea: he'd invest all my money in equities (i.e. the stockmarket). Every year, my portfolio would grow by 10% (as if by magic and clockwork.) I'd sell enough of the gains to pay my living expenses. Hence I wouldn't pay taxes on ordinary income. That would cut my rate down from over 40% to under 27% -- 15% for the Feds and 12% for New York State and City.

It didn't quite work out that serendipitously. The stockmarket crashed, losing some of my principal before I caught it, panicked, went to cash, re-grouped and learned the benefits of diversification.

I'm now smarter. It's absolutely critical to look at after-tax returns. For example, if you earn 12% interest on something, that's really only 6.6% after taxes. Suddenly a great 12% investment looks pretty awful (and risky). Now triple tax-free muni bonds begin to look interesting.

Mull on this.

Nice email from a reader. Good thinking:

Kudos on another wonderful column today! As you Aussies say, it was Ace. .

Hedge funds were mentioned today in the column and I find that world interesting. I know 6 major hedge fund operators and, in my experience, they are emotionally detached (semi-retired) and “content” with their past earnings. It seems that the majority of HF executives rely on “past performance” and are self-proclaimed demigods in financial circles. They “made their money” during a Bull market when it was relatively easy to earn 40% for your investors if you had a diverse portfolio of shorts, longs, private equity, and stock de jours (day trading).

Now, with a volatile market on Wall St., an extremely competitive/deep Private Equity market, and no real “easy money” to be made, the Hedge Fund executives seem happy to let their analysts/traders run a fund that earns 2-8%, which translates to a 20% profit to the managing partners, and nets the individual investor 0-2% after fees. I find it hard to see a compelling reason to invest with Hedge Funds as a result. In the old days, they had leverage to “influence” markets or companies and were able to provide economies of scale in the capital markets. The only funds I would invest in are those with active managing partners/executives who have personal scratch in the game with a 10% minimum on total assets. Hence, they are financially/emotionally invested and feel the pain of poor decisions (one of the only ways to keep a greedy HF exec engaged). My take on the world of hedge funds in the 2007 era.

With all of that said, you are spot on when you encourage readers to STAY LIQUID. I’m running my money like a entrepreneurial business owner:
1. I keep cash on hand for any unforeseen short term issues
2. I look for opportunities that reward the ability to move quickly/earn instant equity/take advantage of a fire sale/etc.
3. I Manage current investments under asset
4. I Wait for market corrections/or short term opportunities in certain markets: residential real estate in Texas, Commercial Real Estate in NY, Northern California, Dallas, mining stocks in Australia, etc. -- areas I know something about.
5. I Workout, enjoy life, be happy with what I have, tell my wife that I love her everyday.
6. I plan to see Federer at Indian Wells in March and would love it if you could make it out. Until we speak again!

My friends are bubbling with new ventures: I'm being bombarded with new startups to invest in. It's a heady time. The BIG motivators:

1. Outsourcing. You can run a $20 million company now with ten people. It's amazing.
2. The Internet. You sleep. Your Internet site brings you orders and money.
3. The public's changing tastes. They're changing faster. Don't believe? Go into your local high-end supermarket (e.g. Whole Foods) and see what they're selling in the way of bottled drinks. 99% didn't exist 3 years ago.
4. The wealth. I'm staggered at what people will spend large amount of money on. Never underestimate what they'll pay. I suspect people believe it's worth what they paid. People pay hundreds of dollars for jeans. For jeans!

My son, Michael, is 24. He's bubbling with entrepreneurial ideas -- most of which seem fantastic. My due diligence doesn't keep up with his imagination. Ask your kids what their friends do and spend money on. It's not your father's world out there.

Take a deep breath: My friend calls in panic. His Outlook is running SLOOOOW. His life is on Outlook. His life is ended.

Not yet. Three hours later he has a reprieve. First, the background:

1. PCs are not mainframe computers. They can do some things simultaneously -- but not MANY things. Load them up. They will eventually grind to a halt. Moderation in all things computing is good.

2. The two biggest constraints are memory and hard disk. My friend has only one gigabyte of RAM memory on his big desktop. I have three gigabytes on my baby laptop. Memory makes a BIG difference and costs little. Get more.

3. Software that runs "in the background" slows your computer down. As time passes, you tend to load more and more software onto your baby machine. It seems great at the time. BUT much of your new software has a great idea: It's faster for you if you pre-load the software, keep a little running all the time -- so when you actually come to start the software, it loads fast and runs fast. Good idea. Except when everybody has the same idea.

For an inkling of the work you're making your baby computer do, look down on the bottom right hand side of your screen. See all those little funny icons on what Microsoft calls your task bar. They're all the software your computer is running. You don't need to burden your baby computer for 90% of those icons, because you're not using 90% of them all time. You need to remove these icons. Go to Run and run MSCONFIG. Go to the Startup tab and uncheck all the software you clearly don't need running -- Start with all the Apple, iTunes, QuickTime, Adobe and RealPlayer stuff. Note you're not deleting it. All you're doing is stopping it loading next time you start your overburdened PC.

To Outlook: Understand it's a poorly-designed baby program, created as an afterthought by Microsoft who needed something new in a new version of Office a long time ago. Microsoft, in its wildest and wettest dreams, never anticipated Outlook's success. It's designed badly. The more stuff you leave in Outlook, the slower it will run -- until one day it will die. Keys:

1. Delete what you can.
2. Save elsewhere what you need. Don't leave multi-megabyte files in Outlook. Save them to your hard disk. Get them out of Outlook.
3. Archive all your Sent items and your old Inbox items. You'll still be able to find them when you need them. But you won't load them every time you start Outlook.
4. Scanpst.exe is hidden on your hard disk. It's also called the Inbox Repair Tool. You need to run it against Outlook.pst -- the file containing all your Outlook stuff. By now, your Outlook database is riddled with errors. Time to run Scanpst.
5. Then it's time to Compact your Outlook.pst file. Here's how: Right click on Personal Folders. Left click on Properties. Click on Advanced. Hit Compact. Go have dinner.

You'll need to do all this several times because your Outlook stuff is a total mess -- trust me. Figure two to three hours. It will start speeding up.

If you're diligent, you'll Delete, Archive, Repair and Compact regularly -- like once a week.

If you don't understand all this, send me an email. I have something written out in more detail.

Priorities at the land Down Under: Australia's federal government will show another surplus for its financial year to June 30, 2007, the government has just reported. It will be smaller than forecast. The reasons: lower receipts from taxation as a result of recent tax cuts and higher payments on education grants. It's nice to see a government acting responsibly.

Classic lawyer story, part 12:
A Mafia Godfather finds out that his bookkeeper has cheated him out of ten million bucks. His bookkeeper is deaf. That was the reason he got the job in the first place. It was assumed that a deaf bookkeeper would not hear anything that he might have to testify about in court.

When the Godfather goes to confront the bookkeeper about his missing $10 million, he brings along his attorney, who knows sign language.

The Godfather tells the lawyer "Ask him where the 10 million bucks he embezzled from me is.

The attorney, using sign language, asks the bookkeeper.

The bookkeeper signs back: "I don't know what you are talking about."

The attorney tells the Godfather:

"He says he doesn't know what you're talking about."

The Godfather pulls out a pistol, puts it to the bookkeeper's temple and says, "Ask him again!"

The attorney signs to the bookkeeper: "He'll kill you if you don't tell him!"

The bookkeeper signs back: "OK! You win! The money is in a brown briefcase, buried behind the shed in my cousin Enzo's backyard in Queens!"

The Godfather asks the attorney: "Well, what'd he say?"

The attorney replies: "He says you don't have the balls to pull the trigger."

Reverse logic, part 4:
Two guys were discussing popular family trends on sex, marriage, and values. Stu said, "I didn't sleep with my wife before we got married, did you?"

Leroy replied, "I'm not sure. What was her maiden name?"

Where brains come from:
A little boy went up to his father and asked: "Dad, where did all of my intelligence come from?" The father replied. "Well, son, you must have got it from your mother, cause I still have mine"

The medical diagnosis:
A doctor examined a woman, took the husband aside, and said, "I don't like the looks of your wife at all."

"Me neither doc," said the husband. "But she's a great cook and really good with the kids."

... That's sufficient tasteless jokes for today. See you Monday. Have a great weekend. Hug the kids, the grandkids and the wife. And for your sake, get some serious exercise.

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
Go back.