TSC Staff
TheStreet.com publishes selected emails received by the publication and its staff members. To send an email intended for publication in this section, write to twocents@thestreet.com and include your full name and city. Letters may be edited for length, style, clarity and accuracy.
Re: SEC May Give Board Rebels Some HelpA Simple Solution for Exec Salaries
Editors, The biggest problem with corporate governance is the compensation given to the CEO and his cronies. I doubt that allowing shareholders to nominate board members will rectify that, particularly when the CEO has a substantial share of the company. The solution is simple. The salaries of the CEO and Chairman should be determined by the shareholders. Once a year, the shareholders will vote on either an increase or decrease of 30% for these positions. The final compensation will be determined proportionately by the vote. If the vote for an increase is x and decrease is y the compensation will be increased by 30% * (x-y)/(x+y). In addition, the shareholder could split his vote. For example, if he wanted the salary to remain the same, he could vote half his shares for an increase, and half for a decrease. The compensation committee could offer advice to the shareholders, and would be responsible for determining the form of the final package. Ideally, any shares held by the chairman and CEO should not be eligible for the vote. Sincerely, Stephen Cohen, Ma'aleh Adumim, Israel, (Received Oct. 7, 2003)Putting RealNetworks on the Radar
Re: RealNetworks Eyes the Tube Warily Editors, Sorry for the late comments on this article, but I've just discovered an interesting bit of news that may be relevant. RealNetworks owns the international Internet rights to Rugby World Cup 2003, getting underway Oct. 10. They are offering live audio and 24-hour delayed full video of all matches of this year's tournament. They don't seem to be pushing it on their U.S.-based Web site, but the $25USD subscription is easy to sign up for through rugbyworldcup.com, the tournament's official website. While this isn't going to send RWNK through the roof, I find it interesting on two fronts. First, Rugby World Cup is the third-largest international sporting event after the FIFA World Cup and the Olympics. This to me shows a willingness by RealNetworks to see the entire world as a potential market, and not just the United States. Second, and most compelling for me as a U.S.-based Rugby fan, RealOne will be the only way to get live coverage into our homes for the majority of the games for Rugby World Cup. Additionally, while a few games will be available on pay-per-view television, most will be shown on a three-day-delay basis; meaning, our first chance to watch most games at home will be through RealOne. I'm going to go out on a limb here and say it will be a long time before TiVo and digital television are going to matter much in the area of televised international sport. On the other hand, I know I can watch, usually after only a 24-hour delay, Rugby matches from the World Cup and Zurich Premiership (English domestic league), soccer matches from the FA Barclaycard English Premier League and Aussie rules matches from the Australian Football League, all over the Internet. And that's just covering sports I'm personally interested in. It seems very likely that much more is available. Granted, RealNetworks doesn't have the exclusive rights on all of these, but it seems to me that Internet broadcasters have carved out a niche for themselves that, for the time being, is immune to competition from U.S. domestic television. Maybe it means nothing. But maybe it can grow from here. There are sure to be some sort of Internet rights awarded for the Athens Olympics. We may finally have the choice between watching NBC's blathering idiots sandwiched between commercials for "very special episodes of Friends," and actual coverage of the games over the Internet. Perhaps there is a time in the not-too-distant future where an Internet broadcaster might make a competitive bid to the U.S. sports market. Disney's commitment to broadcasting the NHL has waned since they bought the basketball rights, and FOX already tried and failed with hockey. What if RealOne became the exclusive U.S. broadcaster for the NHL? This could be a very interesting avenue of entry for Internet broadcasting. I'm much more interested in Internet broadcasting as a sports fan than as an investor right now. But the discovery of Rugby World Cup PLUS on RealOne has at least put RNWK back on my radar. Kind regards, Mike Brothers, Pacifica, Calif., (Received Oct. 2, 2003)The End of AOL
Re: AOL Sees Subscriber Losses Slowing Editors, George Mannes' article on AOL speaks to the possibility of a continued slowdown in subscribers. However, I think AOL's condition is much more grave. Though chairman Logan says "the company needs a few more months to improve its forecast of how bad the falloff will be," I'm afraid the damage is done. As an AOL customer since 1999, who has succumbed to price increases and continued spam, I recently became fed up and switched to high-speed cable from my monopoly provider Comcast (don't get me started on their unethical practices in my area). My connection is faster and I can think of no reason why I would need AOL (with the exception of having to change my email address). The other reason I switched was spam, which will not go away, regardless of AOL 9.0. Spam and high-speed cable will be AOL's downfall. Because I have complained to AOL about spam, they have given me six months of AOL for free vs. dropping me as a reoccurring customer. After Charter and Adelphia's questionable accounting practices with regard to subscriber count and revenue associations over the past few years, I can't help but be suspicious of what AOL is going to do to improve forecasts. Unless my AOL email account serves me coffee and hunts down spam abusers and publicly humiliates them, I can't imagine why I would pay 24 bucks a month. AOL's customer base will continue to erode and I can't see any reason for AOL to existence in the current environment. I'm sure I'm not alone. David Hill, Los Angeles, Calif., (Received Oct 2, 2003) Disclosure: David Hill has no positions in AOL.Proposed Education Initiative
Re: Meet the Biggest Threat to Your 401(k) Plan: You Dear Stephen: I appreciate your article on an informative basis. However, I am annoyed by the condescension and arrogance of these so-called money management professionals; particularly in regards to the movement of taking the control of 401(k) out of the hands of individuals. That was what FDR did when he instituted the social security tax. Its intent was to offset retirement needs for the financially illiterate investing American public. Unfortunately, it doesn't appear to be working very well. It doesn't take an expert to see how the social security system has not lived up to its promises. Moreover, even though I am one of the millions of individual investors that lost substantial amounts from my own portfolio of investments when the bubble burst, I certainly did much better than the so-called professionals. Many (if not most) of these are quite incompetent themselves. Just look at the benefits of index funds over managed funds. The problem, as you have pointed out in your article, is ignorance. There is no solution to ignorance when people refuse to educate themselves in the subjects that matter most to their well-being. My proposal would be to make the educational process more widely available and mandatory to children in high school. That way, there would be more exposure for these kids to realize the consequences of their upcoming responsibilities toward themselves and society as a whole. Those people who take an initiative to educate themselves, no matter what their socioeconomic status, will always do better than those who prefer to let others make their decisions for them. I don't need or want another tax system that is sold under the guise of better (or more prudent) retirement investment management. Best regards, Vince Dayton, Bothell, Washington, (Received Sept. 26, 2003)Flextronics' Verdict Illustrates Problems in the Business Environment
Re: Flextronics' Billion-Dollar Bolt from the Blue The recent $931 million jury verdict against Flextronics (FLEX:Nasdaq) in a suit over a $2 million business dispute is a perfect illustration of the current business environment in California and elsewhere. Clueless juries doling out these ridiculous awards is a major problem for American business. Why would anyone undertake a contract worth about $20 million in revenue over several years knowing they had this type of risk. It is clear by the verdict that no one on that jury has ever risked any capital in a business venture or has any understanding of business risk. Something has to be done to curb these appalling decisions. I can only hope that Flextronics has legal remedies remaining to right this travesty. Joseph Feeley CPA, Linwood Investment Advisors Inc., Feeley, Bonaventura & Hyzy CPA's P.C., Williamsville, New York (Received Sept. 25, 2003)Sony's Product Poses No Threat to TiVo
Re: TiVo Tumbles as Questions Roll In George, In your article dated today, you wrote: "Separately, investors puzzled over Sony's Tuesday press release about the Clie Pega-VR100K, which poses the latest in a long line of threats to TiVo's TV-recorder box. Sony's device, connected to a TV or cable box via coaxial cable, records more than four hours of television on memory stick cards. The recorded videos can be viewed on a TV, PC or a Clie handheld device. The box will cost $300, Sony said." This is not a TiVo-like device at all. It is designed for people to take video, place it on memory sticks and play it back on a PDA or laptop. The resolution is horrible in comparison to standard TV, the frame rate is slow and it has none of the features of a TiVo unit. It poses no threat, nor is it designed to compete against TiVo. If investors are confused by this it is only because they don't take more than a minute to do any research on the technology they are investing in or against. I guess the same holds true for reporters as well. Disclaimer: I am neither long nor short TIVO. I am a rabid fan of their technology. Sincerely, Jason Flora, Fairfield, Iowa (Received Sept. 25, 2003)Record Industry Picks Up Where Parents Left Off
Re: Record Industry Takes the Offensive Mr. Mannes: It galls me to no end how people who steal other people's property can resort to rationalizing their crime. There is no difference between a 14-year old who steals a CD from a record store and another 14-year old who illegally downloads a CD from an illegal file sharing website. I know in America we have lost our moral compass as our President and Congress continue to resort to boldfaced lies about Iraq, tax cuts, etc., but in the end, right is right and wrong is wrong. In our corporations, we continue to see countless executives loot companies for their own personal gain. Stealing copyrighted material off illegal websites is wrong. It is stealing. If the record industry decides to slap the cuffs on thousands of 14-year olds, good! If the parents are sent to jail as well, good! If the parents have to pay thousands of dollars in compensation to the record companies, even better! As a content creator of books and software, I have absolutely no sympathy for these thieves. They steal from legitimate artists who in some cases have worked their entire lives to be able to master their craft. It is only a small wonder that our children are so easily led into drugs and other criminal behavior. They start out by stealing copyrighted material off the Net. From there on, anything goes. It's perfectly alright. Everyone's doing it! It is up to the parents to teach these children right from wrong. Obviously that has not occured. So now, it is time for the record industry to teach these common thieves right from wrong. Thank You, Geoffrey Lenart, Ventura, Calif., (Received Sept. 9, 2003)Janus' Sour Saga
Re: Janus' $150 Billion Problem Dear Mr. Schurr: Thank you for your excellent and very well-written article on Janus. I am one of those who has stood with this company through the years. I have the Janus Fund and Janus 20 fund earmarked for my two children's college education. Additionally, I have 120 shares of company stock. I think I will dump out of the stock for sure and the mutual funds soon -- I note both Janus and 20 were down slightly Thursday in an "up" market. On top of this latest outrage is the company's non-responsive attitude. They are apparently failing to talk to the media and the statements they have released are a joke. I "love" Whiston's line, "I realize that these allegations may be troubling." May be? The only successful strategy they could have at this point is to be as transparent as possible. I doubt they will pursue that strategy, and instead will obfuscate, delay and cover up. These are lessons I won't be teaching my kids, no matter how bitter the taste left by this firm. Sincerely, Bill George, senior counsel, KPC Communications, Granite Bay, Calif., (Received Sept. 04, 2003)Rethink TiVo
Re: The Five Dumbest Things on Wall Street This Week Dear Mr. Mannes: In your latest column, although I think your point is well taken, I really do think you are enormously wrong where TiVo is concerned. It is true that the stock fell from an unrealistically high altitude, but so did nearly every stock on every exchange, especially new and emerging companies such as TiVo. That was then, this is now, and do you really want to sell the same story today that would have been far more timely three or four years ago? Hindsight is 20/20, but foresight is a more valuable commodity. Are you saying that you think TiVo is still an also ran, a cool demo headed for a fall? If you are, then I think you should pause, no pun intended, and re-evaluate your take on TiVo. Why do I say this and dare contradict you? Apple, for example, was one such wow stock in the beginning, and although it has seen better days as far as market share, it changed the way people worked with computers, created an entire small desktop-publishing market and spurred the development of the home-computer industry. I think TiVo stands a very good chance of likewise changing or creating a new paradigm in television viewing that will not only impact the way consumers engage their entertainment options, but will ultimately change the way networks schedule programming and the way advertisers cater to an audience who can pick and choose whether or not to watch their commercials. TiVo, more than HDTV, is the single most significant change in home entertainment since television was first developed. I am an old curmudgeon, probably older than you are, and I have taken more than my fair share of hits on speculative stocks. I have also reaped the rewards of recognizing the few amazing companies out there with more than promises, but truly revolutionary or evolutionary ideas -- TiVo, in my book, is one of those companies. If someone liked it at $70 a share, they should love it at $10 a share, with growing subscriber momentum and increasing revenues. Thank you for entertaining my reaction to your article. Sincerely, Vincent Sullivan, Santa Cruz, Calif., (Received Sept. 02, 2003)The Proof Is in the Patent
Re: The Five Dumbest Things on Wall Street This Week Dear Mr. Mannes: I write regarding the Gillette patent-suit item in your Five Dumbest Things on Wall Street column. I can shed some light on your question about the distinction between four- and three-bladed razors as it relates to the Gillette patent and its potential infringement. Most patent claims (which define the property rights of the patentee) are structured to describe only the minimum elements required to identify an infringing item; additional elements found in the infringing item do not distinguish it. Thus, a four-bladed razor (and even the 50-bladed razor you contemplate) can still infringe the Gillette patent if at least three of the blades meet the requirements of the claims of the patent. Also, I should point out that just because the current Gillette product only has three blades, there is no reason the patent cannot include claims to four or more blades; there is no required correspondence between the patent claims and the patentee's product. This is apparent, as the patentee is not required to make a product of any type. I hope this helps. ... Meanwhile, I too fear the trend of razor-blade multiplicity that you note. I can only hope that thoughtful legislation will intercede or some new technology (something using a laser would be cool) will obsolesce the razor blade before someone creates a razor with enough blades to destroy us all. Sincerely, Bradley K. Lortz, Patent Attorney, Gates & Cooper LLP, Los Angeles, Calif. (Received Aug. 15, 2003)Mark Cuban Invites Short-Selling Charter
Re: Subs Sinking Faster at Charter George, Enjoy the column. Please tell your short-seller that I am asking that he short more. As much as he can possibly afford. Ask him to borrow some money and short more. Tell him to make up bad stories, too. Anything that invites more short-selling is good news for my investment. And remember another thing. In an HD world, all analog subs will have to go away eventually. There ain't going to be analog cable in the not-too-distant future. All that bandwidth will need to be reclaimed for other applications. Mark Cuban, president of HDNet, a high-definition television programming service, and owner of the NBA's Dallas Mavericks (Received Aug. 8, 2003) Editor's note: Cuban held a 6.5% stake in Charter as of May 19, 2003.At Bristol-Myers, It's Not All About the Hype
Re: The Five Dumbest Things on Wall Street This Week Editors, Bristol-Myers (BMY:NYSE), rather than placing an expensive advertisement of their product, decided to use their name and prestige to raise money to fight cancer. As a penalty for your "dumb" reaction to this act of charity, you can now assume the responsibility to monitor the finances of the event and if they do as others have done, blow the whistle. If not -- apologize. Dean Winkjer, Foundation Manager, The Fred and Clara Eckert Foundation for Children, Williston, N.D. (received Aug. 1, 2003)What's Dumber Than Tax Cuts? Tax Increases!
Re: The Five Dumbest Things on Wall Street This Week Dear George: I am a loyal reader and I love this feature. Agreed: The Bush administration has not been an advocate for smaller or more limited government. They are spending like crazy. Hear me out on this, though. I strongly disagree that tax cuts are a dumb idea. We hear a lot about the states' tough financial position, but state spending is up 40% in the past 10 years, with taxes to match. And no matter how much they spend, the big-government folks say it's never enough and they want to raise taxes in a tough economy. Talk about dumb. I know, it's sad, but the only reliable way we have found to limit federal spending is to cut taxes and then grow the economy (or at least limit further declines in growth). Higher taxes never generate the projected revenues because people and businesses change their behavior based on the new taxes. If you raise taxes by 25%, you won't get 25% more revenue! And just as a price cut spurs shoppers (look at Wal-Mart), tax cuts spur economic growth and investment. And I'm not talking about those phony tax credits that are just welfare checks administered by IRS. Obviously, we need a combination of fiscal restraint and a far simpler (and lower) tax burden. I would welcome an article on the insanely complex tax code and what it is costing individuals and businesses to comply, as well as what it is costing the government to administer. I think we can both agree that those who wrote the 16th Amendment never could have imagined that the income tax would look like this. And the payroll tax to fund Social Security "insurance" should be judicially declared the fraud that it is. Thanks for considering my comments. ... Brian Greene, Decatur, Ga. (Received July 24, 2003)Inside Sellers Just 'Taking Some Money Off the Table'
Re: Tech Insiders Voting With Their Wallets Dear Editors: As a retired executive from a highly cyclical business (technology consulting), I would like to share a thought with you regarding the psychology of insider selling. When you have a lot of options and those options have been under water for a fair period of time, it is only prudent to take a bit off the table and diversify when the opportunity presents itself. In many instances it has nothing to do with confidence in the company, it is merely a matter of "taking some money off the table." These folks have seen their net worth tumble like a rock rolling down hill for three years. I am certain many sat at their desks and said, "If I had it to do over again I would have sold a bit regularly on the way up and if I get the opportunity to do so in the future, I will." These executives are after all, people like you and me who have bills to pay, families to care for and a future to plan for. Bottom line, I am not troubled by this. I think we are looking at a dam that has burst and a more normal pattern will emerge over the course of the next six-to-18 months. Larry Stanczak, Bradenton, Fla. (Received July 11, 2003)Investors Do Not Understand Apple
Re: Apple Hits a High, but Fails to Convince Big Investors Dear Editors, The article on the lack of interest by investors in Apple Computer stock again illustrates the general disdain the investment community has had for the value of the company, and this will probably not change. The analyst quoted in the article hits the nail on the head: "It's been a value stock for a long time. I think we made the decision a long time back on sticking with winners." (Meaning that Apple is not now, nor has it been a winner.) Good thing for Apple that the issue is largely irrelevant: The company long ago has written off the investment community for substantial capital and rarely seeks anything from them except that the stock price not get pushed lower than the value of the billions of dollars the company has in the bank. In fact, one of the reasons for stockpiling such large cash and investment reserves was so that Apple management could free itself from having to fend off takeover speculation and problems caused by unrealistic stock valuations. Unrealistic stock valuations? Yes. Cash reserves of $4.5 billion as of first-quarter 2003 alone means that over $12 of each share represents cash. It was less than a month ago the stock was trading in the $13 range -- putting the real value of the company at less than $1 per share. This, despite the fact that buildings, inventory on hand and other items claimed by the company were worth substantially more than $1 per share -- effectively, investors valued the company's IP, talent and everything else at a negative. Further reinforcing the evidence that investors just don't understand the company is the fact that the stock increased substantially on news of the success of the iTunes music service. If they investigated this model at all, they would see that with current iTunes margins, and even counting on the unlikely scenario of iTunes dominating the paid-music download market, the amount of revenues this would generate for the company would be quite small in comparison to what they currently take in now. The online music store was absolutely the wrong reason to increase the value of the stock by so much. I expect the general investment community's lack of both understanding and interest in Apple Computer to continue well into the future, but as long as it does not interfere with operations, this will not really matter to the company. Sincerely, Andy Blair, Ottawa, Canada (Received June 26, 2003)Apple Is the Last Hope for Competition
Dear K.C., I read your Apple article with great intent. It is true, any investor that can invest in a legal monopoly will keep his/her money on the Microsoft-side of the street. As you in the Street know, you do not enjoy a legal monopoly and have to work hard for your earnings. Apple is the only hope of any competition left in the computing world, because it responds to any computing need. Linux is not quite ready for primetime and will have plenty of difficulties over the next few months with its lawsuits. I think Apple is on the verge of a major gain in the U.S. and Europe, where market share means profits. Gartner constantly measures the whole world. I, frankly, don't see the big advantage of having market share in Africa, South America or much of Asia. So, according to analysts, everyone should throw in the towel and bet on the one-horse race that is Microsoft. This is capitalism's greatest weakness: It allows a monopolist to reign supreme with no restrictions. And MSFT will take its pound of flesh from its investors one day, too. "Averagisme" does not beget leadership. In the meantime, if investors think that sustained competition is of greater long-term value than profits, Apple is a very good place, indeed, to invest. Between the two, Apple is the true innovator, it has produced more new technological advances across several industries than Microsoft has in the last few years and has given hope to the individual consumer that computing at home does not have to be a chore. It remains to be seen, however, whether those that play in the "average" space can make that big step to upgrade their digital lifestyles to something of higher quality. Thanks, Mike Lindley, Couzeix, France (Received June 26,2003)'Where's the Beef' in the Freddie Mac Investigation?
Re: The Risks of Fleeing to Safety Dear Street, I spent 11 years working for Freddie Mac (FRE:NYSE) in the accounting and financial analysis arena and was a practicing CPA. I have watched from the sidelines for years as legislators have taken aim at Freddie and Fannie (FNM:NYSE) in their continuous efforts to derail these publicly traded giants. I am a patient person, but by now I have to ask, "Where's the beef?" After all the heavy-handed government suggestions about what would make these agencies better, all that was accomplished was keeping a lid on the stock price. Since Monday's announcement about upper-management changes, I am still asking, "Where's the beef?" In the Enron, MCI WorldCom and Tyco scandals, there was solid information that actually sounded like, and was, fraudulent and scandalous. For the Freddie Mac roast all I have seen are phrases like "growing scandal over Freddie Mac's derivatives portfolio." It is my understanding that all that is in question is smoothing derivative income between periods. I can tell you that the systems and controls in place, and the amount of diversification in Freddie Mac's portfolio would not allow for the kind of destruction that was seen in these other companies. I would predict a restatement of income in the 1% to 2% range for any given period. Why? Freddie Mac is so giant that it would take a great deal to make a material difference in their income. I watched Leland Brendsel and David Glenn in action for years and they are responsible for so much good that occurred at Freddie Mac, including programs for low- to middle-income homeowners. These guys were good to the core, but ask yourself what all the legislative and regulatory hype has produced. If the legislators and oversight committees are going to raise public concern over these agencies, then I certainly hope there is a tangible reason in the near future. Their only accomplishment-to-date is deflation of the stock price and wishy-washy dialogue from people that barely understand how Freddie Mac operates Sincerely, Tom Ealy, Dallas (Received June 17, 2003)
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