What Would Be The Purpose of a Maximum Wage?


There was an interesting oped in Yahoo Finance proposing the need for a maximum wage.  See the original story here.   The idea is that certain salaries are too high and that it would be in the best interest of the country if salaries were limited to a certain amount.  Some figures proposed in the article were 100 or 200 times the Federal minimum wage.

What is most interesting are the reasons given for why this is needed.  These are, as quoted from the piece:

1) “The U.S. is evolving into an oligarchy in which wealthy elites exercise far more power over the political process than ordinary citizens.”

2) “Democratic citizenship depends on a certain commonality of shared experience and power across regions and races and classes.”  “…  it becomes close to impossible when the super-rich use their incomparable wealth, power, and influence to insulate themselves from meritocratic checks of the market as well as government oversight and regulation, ensuring that they acquire ever-greater wealth, power, and influence over time.”

3) “An added benefit of tying maximum pay to the minimum wage is that it would give the super-rich an incentive to back (or at least to stop opposing) a minimum wage hike. Now there’s a way to inspire democratic fellow-feeling across classes!”

The first reason seems to indicate that the wealthy have more power in politics than ordinary citizens.  Certainly those who are wealthy are able to contribute more to candidates or even run campaign ads directly for candidates or for their political causes.  Still, a lot of the issue stems from the average citizen not taking responsibility for self-education on issues and events.  Beyond the television news and newspapers, there are commentary shows with both left-leaning and right-leaning perspectives.  There are also editorial boards with left leaning (the New York Times) and right leaning (the Wall Street Journal) pages.  These venues allow individuals to hear both sides of the issues if they choose to take advantage.  There is also the internet which allows easy research into the facts behind issues.  An individual who takes any time at all to keep informed would not be affected by political ads.  Also, does it really make a great deal of difference whether an individual is making $3 M per year or $10 M per year on their ability to use their wealth to support their political views to the extent they can?

The second reason seems to say both that rich people won’t be able to relate the common class, and therefore not be able to make an informed Democratic choice, and that they can be above the law because of their wealth.  Again, while the wealthy may have money, they still have the same number of votes as a common citizen would.  It is up to the common citizens to ensure that they put individuals into office that will enforce the needed regulations fairly regardless of the wealth of the individuals running the companies.  Realize also that we are not a Democracy where the citizens get together and vote directly on the laws.  Instead we are a Republic where the citizens elected representatives to make laws and do the business of government for them.

The third reason misunderstands the reason for the opposition to increases in the minimum wage.  The opposition is based on simple economics, understanding that someone cannot make more in salary than they produce in goods and services for their employer.  The people arguing against a minimum wage increase don’t do so to try to keep more for themselves – they know that their salaries are a drop in the bucket when compared to personnel and operating expenses of their companies.  It is because they know that raising the minimum wage would price many people out of the market, resulting in less economic output (since people who were earning $7.25 per hour would now be sitting at home earning and producing nothing), which in turn would hurt both the people working for their company and the profits of their company.  The less production there is, the less wealth there is to go around.  It isn’t a zero-sum game where when the CEO gets more and the workers get less.

One odd thing to note is that the author appears to equate “Democracy” with Socialism in the second and third reason.  Democracy means that there is an equal vote among people, not that there is an equal sharing of resources.  This reminds one of the use of the word “Democracy” to describe Socialist dictatorships that are anything but Democracies or Republics such as the People’s Republic of China.

Thinly veiled in this article is the real reason for calling for a maximum wage.  It is a combination of personal envyon the part of the authors and a desire to stoke envy in order to gain power.  The authors know that there are a lot more workers than there are ultra-wealthy and they hope they can get the workers to vote those on their side of the political aisle into power by using jealousy and envy.

Let me say that I do think many CEO salaries and bonuses are ridiculous.  This really isn’t something that affects the salaries of workers at the company or our Republic, however.  It is the owners of the companies – the share holders, who are being effected as their companies are being looted through collusion by executive pay boards that have gotten way out-of-hand.  They don’t need a law or a government entity to rein in executive pay, however.  They have the power to do so themselves through shareholder propositions and by putting a lower price on companies that overpay their CEOs versus those that do not.

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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Where to Invest $5,000. Some Great Stocks Under $50 per Share


Scanning through Value Line today, I didn’t find any stocks that just made me want to rush out and buy, but I did find some interesting picks.  Some stocks are pricey ($75 and up), meaning it would take at least $7500 to buy 100 shares, which is about the point where you get a reasonable percentage for the commission.  Here are some of the stocks I found and why I found them attractive:

Apartment Investment and Management Company (AIV):   Apartment Investment and Management Company, aka Aimco, is an REIT that invests in apartment buildings.  They currently own 265 apartment buildings, which includes 67,977 apartments.  If you bought into this REIT, you could become a landlord without getting calls in the middle of the night to fix the heater.  The REIT doesn’t offer a lot of appreciation potential, meaning that the price will probably stay fairly stable and isn’t expected to increase much, but it currently has a 3.5% payout to owners.  If held for a long time, it is likely they would increase their payout, resulting in both an increase in the percentage an investor would get for the initial investment and a move up in price.  This would be a good investment for an income account such as for a retiree who wanted current income, or maybe an educational IRA with only a few more years before the money will be needed.

Dow Chemical (DOW):  Dow offers both price appreciation potential and a nice, 3% dividend. Value Line sees possible earnings increases of over 14% over the next five years, which in turn will provide price increases in the 7-12% range.  The dividend is also expected to increase by about 10% per year, which will help move the price upwards.  This is a more risky play than the Aimco since the is has traditionally been difficult to predict the company’s earnings.  While Dow is a strong company that can weather some bad times, the stock might decline a bit if earnings disappoint.

BJ’s Restaurants (BJRI):  As a disclaimer, I own several shares of BJ’s and have for a few years.  Still, there is a reason I own so many shares – I think the company has a lot of long-term growth potential.  The microbrew beer and gourmet pizza chain has some very popular and profitable restaurants out west, but they have yet to really enter the eastern market.  I expect them to meet up with Old Chicago Pizza somewhere in the midwest, at which point there’ll be a brawl for domination.  I like that they have a very successful concept and that they have a lot of room to expand.  As regular blog readers will know, I’m looking for stocks that I can buy and forget about for several years while they grow and grow.

Value Line doesn’t expect them to perform much better than the market over the next year – they have a Timeliness Ranking of 3, which is average for the market.  Still, they have a prediction of 16% annualized earnings growth over the next five years and an annualized rate of return of between 22 and 35% because the shares are so depressed in price.  This is a stock that will require patience, however, since it may sit for a while before the spark finally catches and it goes up in price.

Pier One Imports (PIR):  This stock has had disappointing numbers lately.  The reason offered by management is that the snow (where is all of this global warming when you need it?) kept a lot of shoppers home during critical weekends.  Value Line has therefore trimmed their earnings estimates.  Still, they are expecting 13% earnings growth annualized over the next five years and, more exultingly, 36% annualized dividend growth over the same period.  With a 25% Return on Equity, the company must be doing something right.  Again, this may be a stock that doesn’t do much for a while, but you can be collecting the 1.2% dividend while you wait.  If the dividends do grow as expected, you’ll see the price move up accordingly.  Annualized returns of 7-20% are expected here.  Once again, I hold an interest in this company.

Greenbrier (GBX):  Another company I’ve been looking to acquire an interest in is Greenbrier Companies, Incorporated.  This is a company that designs, makes, and repairs railroad freight cars.  Railroad is booming right now – they are the third timeliest industry group in the Value Line universe of stocks.  The energy boom is causing all sorts of oil shipments, and Greenbrier is supplying the cars for moving that black gold down from the drilling fields to the refineries.  This is not a great long-term play – 3-5 year price appreciation potential is relatively flat and they don’t pay a dividend.  The stock has been going up recently, however, and it may well continue to do so for a while.  For those who are momentum investors, it might be worth taking a ride on this train.  Just be ready to jump off – this isn’t something you want to hold once the momentum turns the other way.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

A Better Way to Help the Unfortunate


Part of the reason for trying to become financially independent is to be able to help the unfortunate.  It is great to be able to help a neighbor after a house fire, a family whose breadwinner loses a job, a single mother with the modest income, or an alcoholic on the streets recover and get back into society.  Bad things do happen to people.  Also,  sometimes bad choices leave people in great need.  It is important for a society to provide at least a basic level of support for those who cannot take care of themselves and help those who made bad choices turn their lives around.

Public welfare provided through the government, however, has been a dismal failure in the United States.  Despite the introduction of various social programs by Franklin Roosevelt as part of the New Deal in the 1930′s and the expansion of programs under Lyndon B Johnson in the War on Poverty in the 1960′s, there remain many people in poverty.  In fact, social programs can make the problem worse by encouraging people to not work and not better themselves.  As a result there are millions of people who could make a contribution to society but choose not to.  They never get the experience of doing things for other people.  Nothing is expected of them.

Part of the problem is that benefits are centrally controlled and given out by individuals who have little incentive to prevent fraud and waste.  While there are diligent individuals working in welfare offices, the rules and difficulty changing anything make it easy to just ignore signs of fraud or just not investigate too deeply.  When rules are made to combat fraud by central planners, those committing the fraud find ways around the rules while those in legitimate need find it more difficult.

Like many things, distributed, local control would be far more effective.  Local offices would know what was needed in their area, could get to know the people seeking benefits and help them get to the point where they would no longer need hand-outs, and could do a better job of identifying those who were just taking advantage of the system.  They would also be more likely to design programs that really helped people, such as training programs, rather than just hand out checks and debit cards.

If giving were localized, instead of having funds taken by force by the government and then centrally managed, donors would find the programs that were effective and support them and not support those that were ineffective or fraudulent.  It is different when you see your own money being used.  People wouldn’t accept lavish offices or wasteful spending by the charities.  Local giving would also eliminate a lot of government administrative personnel that central control requires.

So here’s the idea to make it happen:  Make charitable contributions for charities that cover specific needs (such as food, clothing, shelter, and job training) tax credits, such that each dollar donated would result in one dollar less in taxes owed, up to 10% of one’s income.  The government would then reduce the amount of welfare provided based on the money that is donated to charities that meet the same function.  For example, if money is donated to food pantries in an area, the government would reduce or eliminate the provision of food stamps in that area.  If money were donated to a group that provides housing assistance for low-income renters, federal housing payments would be reduced, and so on.

Because individuals would be paying the money to taxes anyway if they did not donate, and because many individuals like to have control over where their money goes and to have the money used locally, it is likely that most required charity would be met without any government money being needed.  Because there was less money being paid to people to administer the charity (particularly high level, highly paid individuals), and because there would likely be less fraud with local control, the amount of money going to help people would increase while the amount paid by donors would be less than they were paying in taxes.

So what do you think?  Would this be a better way?  How would we get it started?

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Does Your Smart Phone Control Your Life?


Are They Growing Up While You're on Your Phone?

Are They Growing Up While You’re on Your Phone?

I captured the image to the left at a playground near a beautiful lake the other day.  Devoid of cell phone, I noticed the beautiful water, the birds in the trees, and watched my daughter playing in the sand thinking that there are not going to be many more years before she’ll be done with playgrounds and be off with friends.  A mother was also there with her two children, but she was oblivious to everything, instead being intently focused on her smart phone.

A similar scene is going on all over America and doubtlessly all over the world.  A mother looking at something probably unimportant on a smart phone while her children play and grow up.  Sure she’s outside in a beautiful area, but she might as well be sitting on her couch or at her desk at the office because he attention is focused entirely on her device.

In France a law has actually been passed that restricts how late a boss can send emails and texts or call employees about work.  This was done to avoid the increasingly common practice of texting employees at home or wherever they are.  This action, coupled with the employees feeling the need to respond (it’ll just take a moment), destroys the home/work balance that is really important for individuals and families.  Employees have gone from working eight to ten hours a day (ok, six to seven hours in France) and then spending the rest of the time in their day with their families to being always on call, being regularly interrupted for things that could wait until the next day.  This is particularly bad for salesmen and product support employees since customers expect to be able to reach people at any time and often call personal cell phones at all hours.

In the old days only missile silo commanders needed to leave a number where they could be reached at all times.  Now this is true of middle managers and even rank-and-file employees.  It also used to be that people would get called at home when there was a pressing need, but this was rare and only done when really necessary.  Also, because most people would leave work at about the same time, there was rarely a reason to call.  Now everyone has a cell phone with access to work emails, so some dash off an email or text to other employees during evenings or weekends.

Meal times were also held sacred.  Now, due to the prevalence of cell phones, calling at all hours for any reason is considered just fine.  Also, rather than not calling during traditional meal times for fear of interrupting another’s dinner, many people call others while they themselves are eating.  Go into any restaurant and you’ll see many people ignoring their dinner companions while they text or talk on the phone.

There are some instances where people are required (or strongly encouraged) by their employer to carry a cell phone and be always reachable.  Often, however, this is self-imposed.  People are constantly checking any text that comes in, having feeds from Twitter and FaceBook, and always answering the phone no matter what they are doing.  (In fact, when I talked to this mom briefly after I took the picture, in the three minutes during which we talked she replied to two texts and took a phone call.)  Behavioural scientists have shown that this is in fact an addictive behaviour with individuals showing signs of withdrawal such as nervousness, irritability, and depression when they are without their mobile devices; hence the nickname, CrackBerry.

Personally I don’t carry a cell phone.  I normally meet with a great deal fo surprise when I tell people this.  There are a variety of reasons, however.  The first is that when I am away from my desk and out of the house, there are very few times that I want people to call me.  I am normally busy driving or doing something and don’t want to be pulled away from it to take a call.  Sure I could turn off the ringer or let it go to voicemail, but people are expecting to be able to always reach everyone all of the time, so I’m sure doing so would offend some people.

The second is that I really don’t see the need for the expense.  There are never any calls that just can’t wait until I get home, and up until recently pay phones were widely available for the few times a year when I wanted to make a call when I was out.  Even now, with payphones disappearing due to lack of business, I can still generally borrow a cell phone for the rare times when I need one.  I just don’t see paying a thousand dollars a year or more for the few times a year I need to make a call when away from a phone.

The final reason is that I know I would become addicted just like everyone else.  At work I can’t help but check and reply to emails when they come in regardless of what I’m doing.  With this blog I stop and check for comments and views each time I pass the computer, even though I rarely get comments.  I just know that if I had a cell phone I would be staring at the screen just like the mother in the photo.

As I’ve tried to explain to my son, there is just something about being where you are.  When I’m in the park, I want to be fully in the park.  When I’m at home with my wife, I want to be fully there.  When I see friends, I want to be fully with them.  When I’m camping, I want to be cut off from the outside world.  I don’t want to be there but be worrying about things at home or making plans for the next week.  I don’t even want to be catching up with a friend.

Below is what I was witnessing while the mother was looking at her smart phone screen.  Besides missing out on time with her son, she was missing out on this beautiful sunset that would end a day that would never come again.  Happily soon after this she put away her phone and walked down by the lake with her son.  Perhaps with a lot of personal control, people can carry a cell phone and yet not have it control their lives.  Then again, casual smokers exist, but they are rare.

 

 

What Else She Was Missing

What Else She Was Missing

 

Tax Day Again. Ready for the Fair Tax Yet?


So today is tax day in America yet again.  Sometime in the last few months you probably had to gather your receipts, W-2 forms, and 1099′s.  You had to buy some tax software or set up a meeting with an accountant.  Either way, you were out at least $100 because the forms are too complicated to someone to just fill out.  You then spent several hours away from your family filling in information.  You probably also had to call various places for receipts, send money or letters of authorization to transfer money into IRAs and HSAs before the deadline.  You then needed to go to the post office and stand in line to send in your forms, or sent them in electronically despite warnings from the IRS that many tax returns are being stolen each year when filed electronically and the information used for identity theft.  You do all this because the law says you need to in order to pay your taxes.

If you’re like most people, you probably also got a big refund check back.  You may look forward to receiving that check, and maybe you use it to pay down a credit card bill or just blow it on something, but realize that is your money that the government had all year long without paying you a dime of interest.  Maybe you paid credit card interest all year because Uncle Sam was holding onto that money.  At 15% per year, that’s $600 per year you are losing if your refund is $4,000.  Even at $2000 per year, that’s $300 you are losing.

There is a better way and it’s called the Fair Tax.    With the Fair Tax you would receive your entire paycheck each month with no deductions taken out so your paycheck would be at least 20% bigger.  You wouldn’t pay a dime in taxes until you bought a new item, at which point you would pay a sales tax.  That would be the end of your obligation as far as taxes went.  You wouldn’t need to save any receipts.  You wouldn’t need to file anything.  You would pay at the cash register and then go on with your life.

One argument against a sales tax is that it is regressive since people who make less spend a higher percentage of their income.  This is also addressed in the Fair Tax with a prefund.  Each year (or each month) everyone who works would get a deposit in their accounts from the government to cover a portion of the sales tax they pay.  Fo example, if the Fair Tax is 20% and you wanted to make sure no one who made less that $30,000 paid anything in taxes, you would issue a prefund of $600 per year to everyone.  Then the prefund would cover the taxes on the first $30,000 you spent.  Only those spending more than $30,000 per year would then be paying taxes.  You could set the prefund as high or as low as you wished depending on how much you needed to collect in taxes and at what income threshold you wished people to start paying taxes.

Another argument is that people don’t want to be paying a 20% sales tax (an estimate for the sales tax that would be needed to raise the same amount of money as is currently raised through the payroll taxes and income tax).  Realize first of all that you are already paying 12% or more of your income out before you get your check.  Including the employer match for Social Security and Medicare, you are paying around 20%.  This is not just on the money you spend, but also on the money you save.  It is also expected that because retailers will no longer need to spend as much money on tax planning, and because they would no longer pay income tax on their earnings, that prices would fall, perhaps by enough to cover most, if not all, of the sales tax.  It is very likely that the government will be raising the same amount in taxes while you are paying a lower percentage of your (increased) income in taxes.

If this sounds great to you, go to www.fairtax.org. learn more, and learn how you can help get the Fair Tax passed.  Let’s have 2013 be the last year you need to spend time away from your family filling out forms.

To ask a question, email vtsioriginal@yahoo.com or leave the question in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Should You Return a Mistaken Tip? Probably.


OLYMPUS DIGITAL CAMERA

I’m not sure how to react to this story.  A waitress at an IHOP in Virginia was fired when a customer mistakenly (he said) gave her a $200 tip and she refused to return it when asked by her management several days later.  You can read the whole story here.  Note that it appears that after the story broke the restaurant agreed to give her the job back.

In the story the credit card receipt clearly shows a $200 tip.  If it had just said 200, or $200, I could have believed that the customer forgot the decimal point.  The receipt, however, says $200.00.  The receipt is not totaled, but still I think the intent to leave a $200 tip is pretty clear.  I suspect the gentleman got home and his wife west ballistic after finding out about the tip.  At that point I suspect the customer called the store and said he meant to leave a $2.00 tip.

On the customer’s side, whether it was a mistake or not, I think he should have just left the tip as it was.  If he had realized the mistake immediately, or perhaps soon after he left the restaurant, that would be one thing.  If the waitress had already taken the tip home and perhaps paid for a bill or bought something with the money, that’s another story.  Keep in mind that it was only $200.  A lot of money, but probably not a life’s savings.  Perhaps the customer could have eaten at home for the next week or couple of months to make up for the big tip.

Perhaps it would also make up for some poor tips he’d left in the past.  A $2.00 tip on a $25 bill is pretty skimpy.  If the service was adequate he should have left at least $3.50 or $4.00.

The question then becomes, should the waitress have agreed to return the tip when asked?  I would say yes, probably.  If the tip was genuinely a mistake, or giving the tip actually produced some sort of hardship for the customer, the right thing to do would probably to have given the tip back.  Note that doing so would probably have caused the waitress’ tips to increase when word got out about her being so obliging.

Then again, I could be swayed the other way.  It wouldn’t be workable if everyone could come back and ask for a tip back days after it was given.  I also don’t think the waitress is morally obligated to give it back since I think it was given freely.

So what do you think?  Should she return the tip?  Should she do so, but should IHOP give her a spot bonus for doing so?  Do you give $2.00 tips on $25 purchases?  What do you think is a proper tip?

To ask a question, email vtsioriginal@yahoo.com or leave the question in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

 

Don’t Panick!


In Hitchhiker’s Guide to the Galaxy, each celestial hitchhiker would carry a guide with him or her.  Emblazoned on the cover of that book were the words, “Don’t Panic.”  Perhaps investors who have been watching the market fall over the last couple of days should take the same advice.

It is actually at times such as this a good idea to just sit pat and relax.  In fact, it is after the large market drops that there is a potential to make the biggest gains.  One could have made a huge return on stocks from 2009 until 2013.  Likewise, there were huge gains to be made from 2003-2005, 1992-1996, and 1980-1984.  Buying in after the stock market crash of the 1930′s would have been a great idea, as would buying after the crash in 1987.  Many times stocks will recover to their previous highs within a year or two after a downturn,

Unfortunately, most investors do just the opposite.  When stocks go up, they rush in to buy.  When they go down, they sell in a panic.  In fact, there are people who look at what retail investors are doing and sell when they start to buy stocks and buy when they start to sell.

This doesn’t mean, however, that you should make a huge purchase of a stock just because it has declined a few points.  Just because stocks have gone down a little doesn’t mean that they won’t go lower.  The act of trying to buy a stock as it declines in value is called “trying to catch a falling knife.”  Many people who try this trick soon find that just because a stock seems cheap compared to where it was recently doesn’t mean that it can’t go lower.  Sometimes stocks were way overvalued and have quite a way to fall before being reasonably valued again.  Sometimes they also become very undervalued and stay that way for longer than you would think.

The best thing to do if you have some cash on the sidelines is to buy in slowly.  Make a small purchase, wait a few days or a few weeks, and then buy a little more.  Do this each time there is another decline.  While you may not buy shares at the lowest possible price, at least you’ll be paying less than you would have a few days ago.  By purchasing in installments you won’t have the psychological effect of taking a loss and starting to wonder if you made a mistake in buying the shares.  Many people who see a stock continue to fall panick and sell out right before the stock was about to rebound.  If you keep some cash on the sideline, you will be hoping for the shares to go lower since that means you can buy some shares at a lower price.

It is also a great time to save up some cash from your job and buy some additional shares as you can.  Perhaps also put some money into your IRA for next year (or put some money into your IRA for this year if you haven’t already.

Just remember to not panick. If you find yourself worried, there is nothing wrong with just ignoring the market for a few weeks.  Things will be just fine.

To ask a question, email vtsioriginal@yahoo.com or leave the question in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.