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Allan Sloan

Morsels Learned in 2004: Talk Turkey, but With a Side of Humble Pie

By Allan Sloan
Tuesday, December 28, 2004; Page E03

One of the ways I try to keep myself intellectually honest is to sit down at the end of the year and review my own work, especially my mistakes. It's a humbling experience, particularly this year. I'm not talking about factual mistakes, which I correct as soon as possible. I'm talking about having the facts right but drawing the wrong conclusions from them.

My biggest mistake in judgment, as any number of my e-mail correspondents have pointed out with glee, is Google. I considered it overpriced when it came out at $85 and thought it would fall. Instead, it's doubled. I swung at Google three times, and I'm 0-for-3. What can I say, other than that the Red Sox were 0-for-85 before they won the World Series this year? I still wouldn't touch the stock, but if you ignored me, congrats. You're way ahead. Just don't forget to sell sometime.

_____Deals Archive_____
There's No Accounting for the New Social Security Plan (The Washington Post, Dec 14, 2004)
Better Marketing Won't Make Smarter Economics (The Washington Post, Dec 7, 2004)
Stock-Options Rule, Merck, AOL Ads: The Top Turkeys (The Washington Post, Nov 23, 2004)
More Columns by Sloan

I wrote a lighthearted column about what would happen when Warren Buffett's Berkshire Hathaway hit $100,000 a share. (I have a Berkshire stake in my 401(k) plan, as I disclosed at the time.) It didn't happen. I thought the stock would hit six digits because it was in the mid-$90,000s as Berkshire Hathaway's annual shareholder meeting approached, and the stock typically runs up after the meeting. This time, it didn't.

Both these mistakes come from ignoring one of my cardinal rules of business writing -- stay away from stock-picking. If we biz journalists were good stock pickers, we'd be rich enough to buy newspapers and magazines instead of working for them.

When I followed my own advice and stuck to generic issues, such as can't-miss topics like pricing of closed-end mutual funds and avoiding stocks of companies in Chapter 11 bankruptcy, I did okay. As I predicted, the fad of selling closed-end mutual funds to raise money for Wall Street private-equity houses faded rapidly, as investors caught on that it's ridiculous to pay a premium price for assets that will trade at a discount. In my tale about the bankruptcy of RCN Corp., a once-high-flying telecom company, I warned that stocks of bankrupts typically head for zero. That happened here, too -- when last I looked, RCN was around 2 cents. In both cases, fish in a barrel. The only kind of stock calls I should make.

I expected long-term interest rates to rise sharply this year, which they haven't. But wait, they will. As I've warned, the foreign lenders bankrolling our federal deficit have finally gotten reluctant to get low rates on Treasury securities whose value, in terms of the euro and the yen, is declining. I'm in the market for bonds -- I just turned 60 -- but I'm waiting for rates to rise.

I'd like to explain why I've written so much about topics I'd usually avoid: the national economy, the federal budget and our nation hocking itself to the eyeballs to foreign creditors to finance tax cuts and current consumption. I think that these things matter, for one thing. For another, it's important to cast a numerate eye on political topics, and the people who do that are in short supply.

I've been an economic patriot for most of my life, trying to buy American-made cars, buying U.S. stocks, refraining from speculating against the dollar. This year, I gave up, and for the first time put serious money (by my standards) into foreign stock funds. It's a bet against the dollar and, sorry to say, I've won it.

The big coming issue this year, of course, is Social Security. I won't use the word "reform," because reform means making things better, which is by no means assured in this case. For many people, Social Security is an abstraction. For me, it's far more. I consider Social Security a morality story with numbers, not a political story. We're messing with a program that's the main support of huge numbers of old and disabled people, and we ought to be damn careful with it.

You'd think the fact that stocks are lower than they were five years ago would make it clear that stocks are risky, but apparently that hasn't penetrated. Let's hope the debate focuses on the right thing -- making sure that people who've worked all their lives but couldn't save much can live out their final years with dignity -- rather than on whose plan will supposedly make you richer. The way to deal with Social Security's problems is with shared sacrifice, not trusting everyone's fate to the market by adopting investment plans. These plans, by the way, will work out better for higher-income people with investing experience than for lower-income people without such experience. And trust me: We higher-income types don't need any more gifts from the government.

But let's set our differences aside for now. A happy and healthy new year to you, your families and your investment accounts.

Sloan is Newsweek's Wall Street editor. His e-mail address is sloan@panix.com.

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