When Not to Do It Yourself

If I had a hammer

When not to do it yourself :

A thrifty homeowner decides to save money by refinishing hos living room floors himself. He rents a sanding machine. He starts the job. He blows a fuse. As he troops back upstairs after flipping the switch, the newly activated sander grinds a hole through his floor.

The story will serve as fair warning for do-it-yourselfers who want to do it all. There are times when you just have to call a professional. Many people should know. Here are lists of jobs you could do yourselves and jobs for which you should seek professional help:

Do-it-yourself jobs:

Job with inexpensive tools and materials, such as indoor painting.

Grunt work jobs, which involve more sweat than materials, like removing paint, wallpaper, or tiles.

Jobs that require few skills, such as patching wall holes, caulking windows, and yard work.

Jobs to hire out

• Electoral, plumbing, and foundation work that must pass building codes – a licensed professionals will know local requirements.
• Projects with expensive building materials, such as hand-painted tile or high-end carpeting.
• Dangerous jobs, such as installing a new roof.

Walls of New York City. Photo by Elena.

From Klutz to Carpenter

Do-it-yourself kits are economical, easy, and the quality can surprise

In olden times, master cabinetmakers would spend months crafting chairs, desks, bureaus, and sideboards to grace the homes of their well-heeled clients. But today's resourceful furniture makers are pushing furniture that you can assemble by yourself, sometimes in just a few minutes

Furniture-by-the-kit has come a long way. Sure, some ready-to-assemle (RTA, for short), kits still can drive you crazy as you sort screws, nuts, and grommets in various teacups.But with the best kits, the assembly agony is mercifully brief, and the chair doesn't wobble when you're done.

Thanks to modern machinery, the pieces can be as well constructed as any in your home. Even a klutz will be able to assemble most items, though sometimes it will take some doing and some help. Most of the items today are ingenious in their use of sophisticated technology and bold in their insistence on top-quality materials.

Although we can hail the designs as nearly idiot-proof, the instructions are not always as clear as they could have been. Assembly time take usually from 2 to 35 minutes.

Kits generally include any special tools that you may need, glue, sandpaper, and stain. Prices are reasonable about one-third the cost of a comparable finished product. Many companies will sell you their finished pieces for about double the price. But think of the satisfaction you'll get if you put the item together with your own hands. 

Around the House

Around the House

Making Your House a Home

Most popular alterations from coast to coast

You bought the place, but it needs work. Where should you start? Every house is different, of course, but some remodeling projects offer a better payback than others. Each year many publications, such as Remodeling Magazine, put some of the most popular home improvement projects to the test, asking real estate agents in dozens of cities how much the project would add in the first year to a mid-priced house in an established neighborhood. The results are instructive: Buyers will pay for state-of-the-art kitchens, luxurious master bed and bath suites, family rooms, and extra bedrooms.

Here's a region-by-region breakdown of the projects. Actual prices can always vary widely depending on material, labor costs and design.

Minor kitchen remodeling

Project description: Refinish cabinets; install new energy-efficient oven and cook top, new laminate counter tops and cabinet hardware, new wall coverings, and resilient flooring; and repaint the entire room.

Major Kitchen Remodeling

Project description: Update an outmodel 200-square-foot kitchen with design and installation of a functional layout of new mid-priced cabinets, laminate countertops, energy-efficient oven, cook top and ventilation system microwave, dishwasher, garbage disposal, and custom lighting. Add new resilient flooring, wall coverings, and ceiling treatments. Kitchn features 30 lineal feet of cabinets and counter-top space, including a 3-by-5-foot island.

Remember that during their first year in a new house, homeowners spend thousands of dollars on furniture and accessories. Some big-ticket items include the following: bedroom furniture, living room furniture, washer, dryer, television, lawn mower and more. Photo by Elena.

Bathroom Addition

Project description: Add a second full bath bath to a house with one or one-and-a-half baths. The 6-by-8-foot bath is within the existing floor plan and in an inconspicuous spot that is convenient to the bedrooms. Include cultured marble vanity top, molded sink, standard bathtub with shower, low-profile toilet, lighting, mirrored medicine cabinet, linen storage, and ceramic floor tile, Walls in the tub/shower area get ceramic tile, with vinyl wallpaper elsewhere.

Bathroom Remodel

Project description: Update an existing 5-by-9-foot bathroom that is at least 25 years old with a new standard-size tub, a new commode, and a new sold-surface vanity counter with molded sinks. Also install new lighting, mirrored medicine cabinets, and ceramic floor tiles. The walls in the tub/shower area get ceramic tile, with vinyl wallpaper covering all other walls.

Family Room Addition

Project desription : In a style and location that is appropriate to the existing house, andd a 16-by-25-foot, light-filled room on a new crawl space foundation with woodjoist floor framing. On exterior, match wood siding and fiberglass roof shingles on original house. Include drywall interior and batt insulation, 120 square feet of glass doors and windows, and hardwood tongue-and-groove flooring. Tie the entire addition into the existing heating and cooling system.

Sun Space Addition

Project description: Add a 12-by-16-foot living space off the kitchen, dining room, or living room. Custom build on site including foundation. Walls and ceilings are mostly insulated glass, tinted or shaded if necessary for climate. Half the windows are for ventilation. Includes ceiling fan and tile floor. Ties into existing heating and cooling.

Master Suite

Project description: In a house with two or three bedrooms, add over a crawl space a 24-by-16-foot master bedroom with a walk-in closet, dressing area, master bath, whirlpool tub, separate ceramic tile shower, and a double-bowl vanity. Bedroom floor is carpeted: floor in bath is ceramic tile.

Exterior Remodeling

Project description: Replace 16 existing single-pane 3-by-5-foot windows with energy-efficient vinyl or vinyl-clad aluminum double-paned windows,; cover 1,250 square feet of existing siding with new vinyl siding, including 200 lineal feet of trim. Apply 15 squares of new roofing over single layer of old roofing.

Deck Addition

Project description: Add a 16-by-20-foot deck of pressure-treated pine supported by 4-by-4 posts set into concrete footings. Include a built-in bench, railings, and planter, also of pressure-treated pine.

Attic Bedroom

Project description: In a house with two or three bedrooms, convert unfinished space in attic into a 15-by-15-foot bedroom and a 5-by-7-foot bathroom with a shower. Add four new windows, oriented to capture views and a 15-foot shed dormer. Insulate and finish ceilings and walls. Carpet unfinished floor. Add separate forced-air heating and air conditioning. Retain existing stairs.

Home Office Addition

Project description: Convert existing 12-by-12-foot room into home office, install custom cabinets configured for desk, computer work station, overhead storage, and 20 feet of plastic laminate desk. Rewire room electronic equipment, telephone lines. Include drywall interior and level-loop carpeting.

Two-Story Addition

Project description: Over a crawl space add a 24-by-16-foot, two-story wing with a first-floor family room and a second-floor bedroom and full bath. Features prefab fireplace in the family room, carpeted floors, 11 windows, drywall, and atrium-style exterior door. The 5-by-8-foot bathroom has a fiber-glass bath/shower, standard-grade commode, ceramic tile flooring, and mirrored medicine cabinet; walls are papered.

Two Important Caveats

Two Important Caveats

The four valuation rules imply that a security’s firm-foundation value (and its price-earnings multiple) will be higher the larger the company’s growth rate and the longer its duration; the larger the dividend payout for the firm; the less risky the company’s stock; and the lower the general level of interest rates.

As indicated earlier, economists have taken rules such as these and expressed in a mathematical formula the exact price (present value) at which shares should sell. In principle, such theories are very useful in suggesting a rational basis for stock prices and in giving investors some standard of value. Of course, the rules must be compared with the facts to see if they conform at all to reality, and I will get to that in a moment. But before we even think of using and testing these rules in a very precise way, there are two important caveats to bear in mind.

Caveat 1: Expectations about the future cannot be proven in the present.

Remember, not even Jean Dixon can accurately predict all of the future. Yet some people have absolute faith in security analysts’ estimates of the long-term growth prospects of a company and the duration of that growth.

Predicting future earnings and dividends is a most hazardous occupation. It requires not only the knowledge and skill of an economist, but also the acumen of a psychologist. On top of that, it is extremely difficult to be objective; wild optimism and extreme pessimism constantly battle for top place.During the early 1960s, when the economy and the world situation were relatively stable, investors and no trouble convincing themselves that the coming decade would be soaring and prosperous. As a result, very high growth rates were projected for a large number of corporations. Years later, in 1980, the economy was suffering from severe “stagflation” and an unstable international situation. The best that investors could do that year was to project modest growth rates for most corporations.

The decline of literature indicates the decline of a nation (Johann Wolfgang von Goethe)

The point to remember is that no matter what formula you use for predicting the future, it always rests in part on the indeterminate premise. Although many Wall Streeters claim to see into the future, they are just as fallible as the rest of us. As Samuel Goldwyn once said, “Forecasts are difficult to make – particularly those about the future.”

Caveat 2: Precise figures cannot be calculated from undetermined data. It stands to reason that you can’t obtain precise figures by using indefinite factors. Yet to achieve desired ends, investors and security analysts do this all the time. Here’s how it’s done.

Take a company that you’ve heard lots of good things about. You study the company’s prospects, and suppose you conclude that it can maintain a high growth rate for a long period. How long? Well, why not ten years?

You then calculate what the stock should be “worth” on the basis of the current dividend payout, the expected future growth rate of dividends, and the general level of interest rates, perhaps making an allowance for the riskiness of the shares (if you actually want to do the calculation, just write out your estimates for the future flow of dividends expected, get hold of a vest-pocket calculator, and perform the whole operation while riding into work on the train). It turns out to your chagrin that the price the stock is worth is just slightly less than its present market price.

You now have two alternatives. You could regard the stock as overpriced and refuse to buy it, or you could say, “Perhaps this stock could maintain a high growth rate for eleven years rather than ten. After all, the ten was only a guess in the first place, so why not eleven years?” And so you go back to your calculator and lo and behold you now come up with a worth for the shares that is larger than the current market price. Armed with this “precise” knowledge, you make your sound purchase.

The reason the game worked is that the longer one projects growth, the greater is the stream of future dividends. Thus, the present value of a share is at the discretion of the calculator. If eleven years was not enough to do the trick, twelve or thirteen might well have sufficed. There is always some combination of growth rate and growth period that will produce any specific price. In this sense it is intrinsically impossible, given human nature, to calculate the intrinsic value of a share.

J. Peter Williamson, author of an excellent textbook for financial analysts entitled Investments, provides another example. In the book, Williamson estimated the present (or firm-foundation) value of IBM shares by using the same general principle of valuation I have described above; that is, by estimating how fast IBM’s dividends would grow and for how long. Williamson first made the sensible assumption that IBM would grow at a fairly high rate for some number of years before falling into a much smaller mature growth rate. In 1968, when he made his estimate, IBM was selling at $320 per share.

“I began by forecasting growth in earnings per share at 16%. This was a little under the average for the previous ten years… I forecast at 16% growth rate for 10 years, followed by indefinite growth at 2%. When I put all these numbers into the formula I got an intrinsic value of $172.94, about half of the current market value.”

Since the intrinsic value of IBM stock were so far apart, Williamson decided that perhaps his estimates of the future might not be accurate. He experimented further:

“It doesn’t really seem sensible to predict only 10 years of above average growth for IBM, so I extended my 16% growth forecast to 20 years. Now the intrinsic value came to $432.66, well above the market.”

Had Williamson opted for thirty years of above-average growth, he would be projecting IBM to generate a future sales volume about one-half the then current U.S. National income. With all due respect to IBM, such a growth rate did not seem possible. In fact, during the last five years of the 1980s IBM did not enjoy any earnings growth at all.

The point to remember from such examples is that the mathematical precision of the firm-foundation value formulas is based on treacherous ground: forecasting the future. The major fundamentals for these calculations are never known with certainty: they are only relatively crude estimates – perhaps one should say guesses – about what might happen in the future. And depending on what guesses you make, you can convince yourself to pay any price you want to for a stock.

There is a fundamental indeterminateness about the value of common shares even in principle. God Almighty does not know the proper price-earnings multiple for a common stock.

Burton G. Malkiel. A Random Walk Down Wall Street, including a life-cycle guide to personal investing. First edition, 1973, by W.W. Norton and company, Inc.

Hemline Indicator

The Hemline Indicator

Not content with price movements, some technical analysts have broadened their investigations to include other movements as well. One of the most charming of these schemes has been called by Ira Cobleigh the Bull Markets and bare knees theory. Check the hemlines of women’s dresses in any given year and you’ll have an idea of the level of stock prices. There does seem to be a loose tendency for bull markets to be associated with bare knees, and depressed markets to be associated with bear markets for girl watchers.

For example, in the late nineteenth and early part of the twentieth centuries, the stock market was rather dull, and so were hemlines. But then came rising hemlines and the great bull market of the twenties, to be followed by long skirts and the crash of the thirties.

Unfortunately, things do not work out as well in the post World War II period. The market declined sharply during the summer of 1946, well in advance of the introduction of the New Look featuring longer skirt lengths in 1947. Similarly, the sharp stock-market decline that began at the end of 1968 preceded the introduction of the midi-skirt, which was high fashion in 1969 and especially in 1970.

How did the theory work out during the crash of 1987? You might think the hemline indicator failed, as after all, in the spring of 1987, when designers began shipping their fall lines, very short skirts were decreed as the fashion for the time. But along about the beginning of October, when the first chill winds began blowing across the country, a strange thing happened: Most women decided that mini-skirts were not for them. As women went back to long skirts, designers quickly followed suit. “Short skirts now look ridiculous to me,” declared Bill Blass. The rest is stock-market history. Now we know the real culprit for the stock-market crash of 1987.

But don’t get too optimistic about using the hemline indicator to give you a leg up on market timing. There is a problem for those who seriously would try to project these relationships into the future. While there is no theoretical ceiling on stock prices, there obviously is a ceiling on dress heights. Perhaps the advent of fanny-high micro-mini-skirts and hot pants during the early 1970s indicated that this stock-market theory had gone about as far as it could.

Burton G. Malkiel. A Random Walk Down Wall Street, including a life-cycle guide to personal investing. First edition, 1973, by W.W. Norton and company, Inc.

The Hemline Indicator. Photo by Elena.

Technical Market Gurus

Technical Market Gurus

Joseph Granville was one of the most widely followed forecasters of the early 1980s. His record had been good for a time in the late 1970s, and at his heyday he had the power to move markets. At 6:30 pm on January 6, 1981, Granville sent word to his 3,000 investor-subscribers around the world. “Sell the market – sell everything.”

The next morning brokerage houses were deluged with sell orders, and the Dow Jones industrial average dropped 24 points, representing some $40 billion inn paper losses, three times the dollar amount lost on Black Thursday inn 1929. Granville’s buy recommendation the the previous April had sent the Dow up 30 points in ne day and his sell signal in September 1981 touched off near panic on world financial markets. Thins of the ego satisfaction. Public adulation for Granville resembled that accorded rock stars. His traveling seminars were always oversubscribed. Asked at one seminar how he stayed close to the market when traveling, he dropped his pants to reveal various stock quotes printed on his shorts. When Joseph Granville talked, investors really did listen – at least for a while.

Unfortunately for Granville, his forecast accuracy during the 1980s left much to be desired. The Granville market letter warned of stock-market disaster throughout the early 1980s. Indeed, with the Dow Jones industrial average at 800, Granville told subscribers we were in a stock-market crash. He opined that investors should not only sell all their stock, but sell short as well, to take advantage of the coming financial Armageddon. The market responded by rising to the 1,200 level. “The bull market has been a bubble,” Granville remarked in 1984, continuing to warn a somewhat smaller number of listeners that the crash was near at hand. Granville’s followers missed the spectacular bull market of the 1980s. His reputation as a seer and a mover of markets had been severely tarnished.

Black Lake, Evergreen Bricks, Toronto. Photo by Elena

During the 1980s, Granville was succeeded as the most influential market guru by Robert Prechter. Prechter became interested in the parallels between social psychology and the stock market while a Yale undergraduate. After college, while Granville was making his reputation, Prechter spent four years playing drums in a rock band, after which he joined Merrill Lynch as a junior technical analyst. There Prechter stumbled upon the work of an obscure accountant, R. N. Elliott, who had devised an arcane theory which he modestly entitled the “Elliott wave theory.” Elliott’s premise was that there were predictable waves of investor psychology and that they steered the market with natural ebbs and flows. By watching them, Elliott believed one could call major shifts in the market. Prechter was so excited about this discovery that he quit Merrill Lynch in 1979 to write an investor newsletter from the unlikely location of Ganiesville, Georgia.

Prechter’s initial predictions were uncannily accurate. Early in the 1980s he predicted a major bull market with the Dow expected to rise to 3,600, after an interim stop at 2,700. Just when Granville’s predictions were shown to be egregiously wrong, Prechter was the hero of the day by keeping his followers fully invested through October 1987.

The situation then becomes murky. To Prechter’s credit he said, on Octber 5, 1987, there was “a 50/50 risk of a 10% decline” in the market, when the Dow was still selling above 2,600, and he advised traders and short-term investors to sell.

Institutional investors were advised, however, to hang on for the ultimate target of 3,686. After the crash, with the Dow near 2,000, Pretcher turned bearish and recommended holding Treasury bills. Prechter opined “the great bull market is probably over” and the Dow would eventually plunge below 400 in the early 1990s. By not advising repurchase, Pretcher missed out on a blue chip stock rally, which two years later pushed the average to nearly 2,000. This was a mortal sin for a guru.

Pretcher was succeeded by Elain Garzarelli, en executive vice-president of the investment firm os Shearson, Lehman, Hutton. Garzarelli was not a one-indicator woman. She plunged into the ocean of financial data and used no fewer than thirteen different indicators to predict the course of the market. Garzarelli always lied to study vital details. As a child, she would get animal organs from the local butcher and dissect them.

Garzarelly was the Roger Babson of the 1987 crash. Turning bearish in August, she was recommending by September 1 that her clients get completely out of the stock market. By October 11 she was almost certain that a crash was imminent. Two days later, in a forecast almost frighteningly prescient, she told USA Today that a drop of more than 500 points in the Dow Jones averages was coming. Within a week, her predictions were realized.

But the crash was Garzarelli’s last hurrah. Just as the media were coronating her as the Guru of Black Monday, and as adulatory articles appeared in magazines from Cosmopolitan to Fortune, she drowned in her prescience – or her notoriety. After the crash she said she wouldn’t touch the market and predicted that the Dow would fall another 200 to 400 points. Thus, Garzarelli missed the bounce-back in the market and the funds she managed underperformed the indices badly during 1988. In explaining her lack of consistency, she gave the time-honored explanation of technicians: “I failed to believe my own charts.”

The moral to the story is obvious. With large numbers of people predicting the market, there will always be some who have called the last turn of even the last few turns, but none will be consistently accurate. To paraphrase the biblical warning, “He who looks back at the predictions of market gurus dies of remorse”.

Burton G. Malkiel. A Random Walk Down Wall Street, including a life-cycle guide to personal investing. First edition, 1973, by W.W. Norton and company, Inc.