What’s Left of the Firm Foundation?

What’s Left of the Firm Foundation?

A renowned rabbi, whose fame for adjudicating disputes had earned him the reputation of a modern-day Solomon, was asked to settle a long-standing argument between two philosophers. The rabbi listened intently as the first disputant vigorously presented the case. The rabbi reflected on the argument and finally pronounced, “Yes, you are correct.”

Then the second philosopher presented his case with equal vigor and persuasion ad argued eloquently that the first philosopher could not be correct. The rabbi nodded his approval and indicated, “You are correct.” A bystander, somewhat confused by this performance, accosted the rabbi to complain, “You told both philosophers they were right, but their arguments were totally contradictory. They both can’t be correct.” The rabbi needed only a moment to formulate his response: “Yes, you are indeed correct.”

In adjudicating the dispute between the firm-foundation theorists and those who take a castle-in-the-aire view of the stock market, we can feel like the accommodating rabbi. It seems clear that so-called fundamental considerations do have a profound influence on market prices. We have seen that price-earnings multiples in the market are influenced by expected growth, dividend payouts, risk, and the rate of interest. Higher anticipations of earnings growth and higher dividend payouts tend to increase price-earnings multiples. Higher risk and higher interest rates tend to pull them down. There is a logic to the stock market, just as the firm foundationists assert.

Beauty is everywhere a welcome guest (Johann Wolfgang von Goethe)

Thus, when all is said and done, it appears that there is a yardstick for value, but one that is a most flexible and undependable instrument. To change the metaphor, stock prices are in a sense anchored to certain “fundamentals” but the anchor is easily pulled up and then dropped in another place. For the standards of value, we have found, are not the fixed and immutable standards that characterize the laws of physics, but rather the more flexible and fickle relationships that are consistent with a marketplace heavily influenced by mass psychology.

Not only does the market change the values it puts on the various fundamental determinants of stock prices, but the most important of these fundamentals are themselves liable to change depending on the state of market psychology. Stocks are bought on expectations – not on facts.

The most important fundamental influence on stock prices is the level and duration of the future growth of corporate earnings and dividends. But, as I pointed out earlier, future earnings growth is not easily estimated, even by market professionals. In times of great optimism it is very easy for investors to convince themselves that their favorite corporations can enjoy substantial and persistent growth over an extended period of time. By raising his estimates of growth, even the most sober firm-foundation theorist can convince himself to pay any price whatever for a share.

During periods of extreme pessimism, many security analysts will not project any growth that is not “visible” to them over the very short run and hence will estimate only the most modest of growth rates for the corporations they follow. But if expected growth rates themselves and the price the market is willing to pay for this growth can both change rapidly on the basis of market psychology, then it is clear that the concept of a firm intrinsic value for shares must be an elusive will-o’-the-wisp. As an old Wall Street proverb runs: No price is too high for a bull or too low for a bear.

Dreams of castles in the air, of getting rich quick, may therefore play an important role in determining actual stock prices. And even investors who believe in the firm-foundation theory might buy a security on the anticipation that eventually the average opinion would expect a larger growth rate for the stock in the future. After all, investors who want to reap extraordinary profits may find that the most profitable course of action is to beat the gun and anticipate future changes in the intrinsic value of shares.

Still, this analysis suggests that the stock market will not be a perpetual tulip-bulb craze. The existence of some generally accepted principles of valuation does serve as a kind of balance wheel. For the castle-in-the-air investor might well consider that if prices get too far out of line with normal valuation standards, the average opinion may soon expect that others will anticipate a reaction. To be sure, these standards of value are extremely loose ones and difficult to estimate. But sooner or later in a skyrocketing market, some investors may begin to compare the growth rates that are implicit in current prices with more reasonable and dispassionate estimates or the growth likely to be achieved.

It seems eminently sensible to me that both views of security pricing tell us something about actual market behavior. But the important investment question is how you can use the theories to develop practically useful investment strategies

Barbie - Exposition

Exposition of Barbies

The largest permanent exhibit of Barbie dolls in the world.

This is not Barbie the way you remember her. This is haute couture on display, a gathering of the world's most elite designers. This is Barbie seen at her fashionable best, a stunningly beautiful collection stylishly modeled by the 11 1/2-inch fashion icon.

Barbie Expo is not for the little girl you once were; it's for the very grown-up, sophisticated fashionista you've become, for the connoisseur of haute couture and lover of all things beautiful that you are today.

Over 5000 square feet of display area. A must destination for Barbie fans of all ages.

Barbies by leading fashion design houses: Giorgio Armani, Versace, Calvin Klein, Christian Dior, Christian Louboutin, Diane Von Furstenberg, Bob Mackie, Herve Leger, Givenchy, Oscar de la Renta, Burberry.

Entertainment Industry Barbies: Marylin Monroe, Audrey Hepburn, Elizabeth Taylor, Beyonce, Barbra Streisand, Lucille Ball, Jennifer Lopez, Heidi Klum, Cyndi Lauper, Cher.

Barbie as a character from: The Hunger Games, The Wizard of Oz, The Twilight Zone, Pirates of the Caribbean, Grease, Titanic, My Fair Lady, Gone with the Wind, Legally Blonde.

Personality Barbies: Kate Middleton, Coco Chanel, Grace Kelly, Cleopatra.

... And custom made one-of-a-kind Barbies. You too can be a limited-edition Barbie doll. Take your photo in a realistic looking full-size Barbie box.

All the pictures have been taken by Elena.

Barbie greeting the visitors of the exhibit.

Kate Spade

Barbie of Stephen Burrows

Kimore Lee Simmons

William and Kate

Peacock

A noble lady

Visitors from the Northern Kingdom

Romantic Interlude

Lady in blue

An Azteque princess

Whispering wind.

Goddess of the Galaxy

Tango

Penelope Cruz Barbie.

When Home Is the Schoolhouse

When Home Is the Schoolhouse

Families dissatisfied with public schooling are doing it themselves

Until recently home schooling was almost exclusively the refuge of born-again Christian families dissatisfied with the moral education that their children were receiving in the public schools. Of the estimated half-million students whose families are engaged in home schooling today. Christian fundamentalists still account for a large majority. But many of the newest converts to home schooling are motivated less by religious concerns than by the belief that they can do better than the public schools are developing their children's academic skills.

Fueling the move toward home schooling, whose ranks are growing at a rate of approximately 15 percent a year, has been the pronounced change in legal attitude on the part of the states. A decade ago very few states permitted home schooling even when a parent was certified as a teacher. Today every state allows home schooling in some form, although the amount of education required of a parent shouldering the teacher's role, the type of instructional materials that a family is expected to use, and the question of whether students have to take standardized tests differs from state to state.

Several important objections to home schooling have also been muted in recent months by the boom in personal computers and online information retrieval services. Families that may have felt hindered once because they lacked access to a library, specialized teachers, or the stimulation of other students, can now partake of all these things via the Internet or one of the commercial online services.

Gibberish and studies. Photo by Elena

Educational services on the Internet allow students to engage in electronic discussions of what they're studying with others nationalwide. Home schoolers in Texas tap into the Texas Education Network, an online service that makes available research materials and facilitates consultations with up to 30 thousand Texas educators. One service known as Homer allows students to take courses and have their reports graded online. Many excellent software programs also have appeared to help teach reading, math, foreign languages, and typing.

Some families have even found a way to ensure that their home schoolers aren't shut out of the extracurricular activities that they would otherwise participate in at school. In many communities around the country, home school support groups are banding together to sponsor field trips and organize after-school sports leagues for their children. Some school districts have even begun to open up their extracurricular programs to home schoolers. 

Advocates of home schooling point to several studies suggesting that home school students outperform their public school counterparts in standardized achievement tests. The fact that many colleges now allow home schoolers applying for admissions to submit “portfolios” of their work in lieu of academic transcripts has also helped the movement. Unless public schools can regain the confidence of the communities they serve, that trend is sure to increase.

What's hidden under the rug?

What's hidden under the rug?

Some dealers lie like, well, a rug, so count the knots – and your change.

Whether you are looking for basic wall-to-wall carpeting or a fancy oriental masterpiece, picking a good carpet can be a tough job. But you don't need the wisdom of Confucius or the patience of Job – just a little knowledge of what to look for:

Wall-to-wall carpets

The first decision is whether to choose wool or a synthetic. Wool is durable and takes color well, but it costs a lot more. Polyester carpeting used to flatten out with time, but the fibers have been improved and it now hold up pretty well.

The amount of yarn used to make the carpeting is another indication of quality – the more yarn that is used, the more durable the carpet will be. High traffic areas require a carpet with at least 50 ounces of yarn per square yard. Fibers that have been woven in will last longer than punched-in fibers. Finally, stain protection that has been built in to the carpet is preferable to protection that is sprayed on later.

Oriental Carpets

They are handmade, usually from wool or silk, in Iran, Pakistan, China, India, and Turkey, among other countries. Prices have dropped about 20 percent over the past ten years, so unless you're buying ancient or rare oriental rugs, which can cost $100,000 or even more, you can expect to pay a few hundred dollars for a small area rug and several thousand for a room-size rug. Iranian rugs are typically the priciest, partly because of their scarcity since the embargo and sanctions on Iranian goods.

Handmade oriental carpets are almost always better investments than machine-made area rugs. They outlast machine-made carpets by many years yet don't cost considerably more. The number of knots per square inch is the usual measure of quality: 100 knots per square inch for a good rug, 300 knots for a better rug, and 600 or more for an exceptional rug. But counting knots can be deceiving. Some rugs, such as lesser grade Pakistani Bokharas, appear to have twice as many knots because the pile yarn is wrapped around the foundation twice.

Wool quality also is important. To test it, scratch the pile. If the rug sheds excessively, don't buy it. Imagine what foot traffic and vacuum cleaning will do to it.

Farrah Fawcett sitting on the rug. Photo by Elena.

Out, out damned spot!

Consumer Report says these homemade brews will remove stains. For all, first blot spill, then place dry paper towels on the spot. Stand on them a minute, then apply the appropriate series of potions, blotting after each application. End with a cold water rinse and final blotting.

Pasta sauce or salad dressing:

1 tsp of dishwashing liquid to 1 cup of water.

or

1 tbs of ammonia to ½ cup of water.

Red wine:

1 tsp of dishwashing liquid to 1 cup of water.

or

1 par vinegar to 2 parts water.

or

1 tbs of ammonia to ½ cup of water.

Kool-Aid:

1 tsp of dishwashing liquid to 1 cup of water.

or

1 tbs of ammonia to ½ cup of water.

or

1 part vinegar to 2 parts water.

Unidentified spill:

Soak with a dry-cleaning solvent

or

1 tsp of dishwashing liquid to 1 cup of water.

A Tightwad Tells All

A Tightwad Tells All

Some penny-pinching advice we’ve included at no extra charge

Tightwads believe you can reach financial goals by saving more, not earning more. Amy Dacyczyn has made a personal crusade of finding ways to recycle milk jugs, bread tabs, brown paper bags, egg cartons, you name it. Dacyczyn, editor of The Tightwad Gazette II (Villard Books, 1995), says recycling aluminium foil won’t cut it, but attention to the thousands of ways we spend money can make a huge difference. Here, Dacyzczyn offers her philosophy of thightwaddery and some dollar-saving tips.

What is a tightwad?

A tightwad uses unconventional methods to save money. We push the normal limits to make things last longer. We reuse things in unusual wasys. We experiment to find new, cheaper ways to do almost anything.

What’s the first step toward becoming a thightwad?

Record your spending habits for three months. Write down everything from the morgage payment in the candy bar at the checkout counter. The expenses will be either essential or optional, like coffee, candy and soda. The point of the list is to give a clear picture of where your money is going and where you can best cut back.

What’s next?

Keep what I call a price book. It helps me save more time and money than anything else I do. My price book is a small looseleaf binder. Each page contains prices for one items, in alphabetical order – apple juice, bananas, etc. Include the store name, the brand, the item size, the price, and the unit price. You can get prices from sale flyers, from grocery slips, and from comparison shopping trips. The time investment will pay off because you will get a feeling of control over your budget.

A Tightwad Tells All. Photo by Elena

Does it pay to clip coupons?

There’s been a lot of misleading information in the media that leads people to believe coupons are more useful than they truly are. But you can save some money by using coupons correctly. Compare the price you pay after the coupons with alternative products, and with other options such as making the same item from scratch or not buying it at all, if it’s not essential. To slash your grocery bill further eliminate convenience foods, especially those packaged in single-serving containers. Eat fewer expensive-meat meals; casseroles, stews, and stir-fry meaks are more economical. Start a garden and preseerve garden surplus by home canning and freezing.

Does bulk-buying really save money?

The average family can save at least $50 a month bu buying in bulk. But bulk buying isn’t just for big families. Simply put, buy enough to get you to the next sale or enough until it’s convenient for you to shop there again. Know your prices. Generally the leader sale items on the cover and the back of sale flyers beat wholesale prices.

What are some frugal gifts you can give the kids and still keep them happy?

Kids generally don’t appreciate only home-made presents, but I like to give at least one to each of my children at Christmas. You can easily make bean bags with pieces of durable fabric and dried beans. Then doctorate them with bric-a-brac. For the young child who likes to empty Mom’s purse, fill a thrift-shop purse with a ring of old keyes, wallet with play paper money, old credit cards, an empty compact, etc.

Are there ways to save on pet care?

A good dry pet food is generally nutritionally the same as a good canned food. Dry food is the thghtwad choice, because it is cheaper. Don’t attept to economize by buying low-quality food, though. Treating a common ailment like pancreatitis, caused by feeding your dog too many fatty table scraps, can cost much, not to mention the discomfort to your dog.

How can a tightwad save on utility bills?

Use small appliances, if possible. In recipes, a slow cooker use about one-fourth the energy of the oven. The microwave uses less than one-tenth the energy of a conventional oven. Low-flow showeer heads are great energy savers. They use less water and they have an on/off switch so that you can turn off the water when lathering.

How do thrift shops compare to garage sales?

You’ll pay more for clothes at thrift shops than garage sales, but the selection is better. Consignement shops have the best selection, although you’ll pay double the thrift shop prices. When you look at used clothing, just think of it as a new item that’s been washed 10 times.

What are your thoughts on trash picking?

You can call it treasure hunting. In fact, many usable items are discarded for want of a screw.

What must be a few of my favorite tips for saving money?

• To reuse wrapping paper, put a bow on the spot where the old tape left a hole. Alternative wrapping can be made from Sunday paper comics, wallpaper, old maps, department store bags and so on.
• Hold a smorgasbord night. Thaw a variety of leftovers, line up the family and have them choose. Kids love this chance to escape the you-get-what-you-get philosophy.
• For urban families, a rooftop, fire escape, balcony, or a patio are all good places to garden. Almost any vegetable can be grown in a container. Apple boxes, bushed baskets – even laundry baskets with trash-bag liners make good containers. You can often get a good five-gallon plastic bucket for free from a health food store or Dunkin’ Donuts, for example.

Ten Painless Ways to Save $100 This Year

Here are Amy Dacyczyn’s penny-pinching suggestions, good all year round:

• Purchase ten articles of clothing at thrift shops and yard sales instead of paying department store prices.
• Hang four loads of laundry per week instead of using your dryers.
• Once a month make a pizza from scratch instead of having one delivered.
• Go for a walk instead of chatting, you’ll save some money.
• Reduce your soda consumption by four cans per week.
• Bake one batch of bread (two loaves) per week.
• Save money on children’s birthday parties by making homemade decorations, cake, wrapping paper, and one present.
• Reduce your smoking drastically or at least by three cigarettes per day (well, it would be better if you give up smoking altogether. Thus you’ll save even more).
• Reduce your whole milk consumption by four gallons per week, substituting dry milk in cooking, homemade cocoa mix, and in half-and-half for drinking.
• Pack four inexpensive school lunches a week.

Life and death. Illustration by Elena.