It’s early August and the Fillmore is naked. Only two of the nightclub’s four chandeliers are hanging, and the murals celebrating its namesake’s hippie heritage have yet to be painted on the blank orange walls. That doesn’t matter to Bruce Lee, president of Lee Development Group, who is beaming on the concrete stage. Lee has spent nearly a decade trying to bring a music hall near the intersection of Colesville Road and Georgia Avenue in Silver Spring—and what he calls the “Mercedes of music” is almost here.

When Mary J. Blige takes this same stage on Thursday night as the Fillmore Silver Spring’s opening act, Lee’s quest will be complete. “This project took two governors, two county executives, three economic development people, and two county councils to complete,” he says during a hard-hat tour of the space. The opening also required a one-of-a-kind, no-bid deal with Montgomery County and Live Nation Entertainment, the world’s largest concert promoter and parent company of Ticketmaster.

The Fillmore, which holds up to 2,000 people, has the potential to reshape the D.C.-area music scene. It could draw fans away from long-dominant venues like 9:30 Club and Black Cat, shifting dollars and buzz to the suburbs. Unlike other industries, more competition in the live music world can actually drive prices up as clubs throw money at the limited number of bands who can fill large rooms. The new entrant could cause a domino effect: Smaller clubs lose some of their acts to bigger stages, and a $15 show could easily become $20 with prices rising across the board.

And unlike most venues, the Fillmore has the support of a public company with deep pockets. Last year, Live Nation generated more than $5 billion in revenue. In the first half of 2011, the Beverly Hills, Calif.-based live events business grew its share of tickets sold for the top 100 concert tours from 41 percent to 48 percent. If the Fillmore succeeds—and that’s a huge if—Live Nation will have pulled off something that it and its corporate predecessors have never done: successfully running a nightclub in the D.C. market. Fortunately for Live Nation, it got a lot of help from Montgomery County.

Downtown Silver Spring’s revival wasn’t enough to activate the north side of Colesville Road. Montgomery County wanted that to change. In 2002, then-County Executive Douglas Duncan approached the Birchmere about opening another location in the old J.C. Penney building, owned by Lee Development. The Alexandria, Va., cabaret-style hall, which seats 500, has hosted major blues, folk, and jazz acts since 1966. The owners seemed like a good fit to operate a suburban venue. Duncan wanted the Birchmere to run an 800-seat music hall in Silver Spring for a sweet deal: The state of Maryland and the county would each contribute $4 million to the project. Lee Development would donate the land in exchange for the county’s approval to develop the surrounding site. All the Birchmere had to do was invest $1 million.

But the Birchmere negotiations dragged on, and power changed hands. Isiah “Ike” Leggett was elected county executive in 2006, and the county’s talks with the Birchmere broke down in the summer of 2007. Lee says Leggett wanted a bigger venue than Duncan’s Birchmere proposal. Montgomery County officials also wanted to seek another company to operate the venue because years of talks hadn’t led to any progress, says Diane Schwartz Jones, the county’s assistant chief administrative officer. The Birchmere owners want to put the whole thing behind them, and declined to discuss exactly why the deal fell through. “The Birchmere wishes Live Nation the best of luck,” says Jim Matthews, a Birchmere partner.

With the Birchmere gone, Lee pressed ahead. When he heard that attempts to bring a House of Blues in downtown D.C. in 2006 had failed, he contacted Live Nation to see if they were interested in a Silver Spring project. “They were like, ‘Where’s Silver Spring?’” he says. But Live Nation executives visited the site, and they liked its Metro accessibility, ample parking, and proximity to D.C.

Meanwhile, Seth Hurwitz, co-owner of 9:30 Club, decided his promotion company, It’s My Party Inc., could run the proposed venue. He says he didn’t express interest sooner than 2007 because he felt the Birchmere would be well-suited for the project. Now that they were out of the picture, a letter outlining Hurwitz’s intentions was hand-delivered to Leggett on Sept. 24, 2007. But Hurwitz was too late. The county and Live Nation signed a non-binding letter of intent for the site on Sept. 18 of that year. The deal was similar to the one offered to the Birchmere, but Live Nation was not required to invest money in the construction of the nightclub.

Lee says Hurwitz had showed no interest in the site until “the eleventh hour.” After Leggett rejected his proposal, Hurwitz aggressively lobbied the county council and state lawmakers. He argued that his Bethesda, Md.-based company would supply acts tailored to a local audience better than Live Nation, would pay double the monthly rent of $7,500 that Live Nation would pay, and would split naming rights royalties with Montgomery County. Alternatively, I.M.P. offered to build the music hall without a subsidy in exchange for full ownership. The county denied all Hurwitz’s advances and, ultimately, the council approved the project in October 2008. Hurwitz sued county and state officials when costs for the project rose from $8 million to $11.2 million, alleging that the bonds they issued for the Fillmore were illegal, but a judge dismissed his lawsuit in March.

Lee Development, also the general contractor for the project, turned over the completed building to Montgomery County last month. The county chipped in more money for the Fillmore by diverting funds from parks-and-rec projects that came in under budget. Live Nation covered the rest of the cost; under the terms of the lease, that money is considered pre-payment of rent. So, Live Nation may not have to pay rent again until 2017 (though the county won’t know the exact figures until October, when it has a full accounting of the company’s contributions to the project). Regardless of the rent payments, the nightclub is expected to bring the county about $200,000 and the state nearly $900,000 in annual tax revenue, Schwartz Jones says.

For his part, Lee says he’s delighted with the end result. The Fillmore is built so it could easily be connected to a new hotel and office complex, and he has about 15 years to decide just when to build such a site. The county must grant him approval for these projects—or pay him nearly $44.4 million to get out of their agreement. Lee is waiting for the real estate market to improve before he finalizes his plans, but thinks the Fillmore will be a great amenity for guests of the proposed hotel and office building. I ask him what kind of hotel he’d like to put there. His answer isn’t very rock ‘n’ roll: a Residence Inn by Marriott.

Live Nation Entertainment is premised on the notion that the music business can be tamed. Concert promotion and talent management is rampant with small-time operators that can be acquired or crushed by a savvy corporate player armed with spreadsheets, scientific management techniques, and strategic access to the capital markets. It’s artistry as algorithm: What works well in one market can be applied globally with efficiencies achieved and outsized profits earned. And Live Nation has scored impressive results with this philosophy. Since its spin-off from the radio empire Clear Channel Communications in 2005, Live Nation has grown annual revenue from $2.9 billion in 2005 to more than $5 billion last year. The company promoted more than 21,000 live music events with more than 2,300 artists in 2010. It struck multi-year business deals with Madonna, U2, and Jay-Z. It runs a talent management division with a stable of about 250 artists and has booking rights or investments in 128 venues, including the House of Blues and Fillmore chains in 17 cities. (For comparison, Anschutz Entertainment Group, the second-largest concert promoter after Live Nation, owns, operates, and consults with more than 100 venues worldwide.) In January 2010, Live Nation completed its merger with Ticketmaster, the world’s largest ticket sales and distribution company. In its most recent quarter, Live Nation reported a $13.3 million profit, ending two quarters of losses. The company beat analyst expectations partly due to better than expected revenue from its concert business, which rose 26 percent from the same quarter a year ago to $1.08 billion.

The Fillmore Silver Spring operation is a tiny cog in the Live Nation machine. The original Fillmore, which fostered the careers of the Grateful Dead, Janis Joplin, Jefferson Airplane, and others in the 1960s, came to Live Nation through a series of acquisitions after the death of its famous owner, Bill Graham, in a 1991 helicopter crash. Live Nation announced it would expand the Fillmore “brand” to more markets in 2007. It renovated Irving Plaza to create the Fillmore New York at Irving Plaza, the Theater of the Living Arts to establish the Fillmore Philadelphia, and turned Detroit’s State Theatre into the Fillmore Detroit. Each location featured chandeliers based on those at the San Francisco Fillmore and murals inspired by the original club’s trippy promotional posters.

Public reaction has been mixed. Live Nation had to restore the Fillmores in New York and Philadelphia to their old names after fans complained. But those were just bumps on the road. The Fillmore brand added a Charlotte location, the Jackie Gleason Theater in Miami, the Fillmore Auditorium in Denver, and now Silver Spring.

Live Nation classifies a venue the size of the Fillmore Silver Spring as a “music theater.” While the company does not break out the financial results of the Fillmore brand, it did say this about the 31 music theaters it owns or leases in last year’s annual report: “Because these venues have a smaller capacity than an amphitheater, they do not offer as much economic upside on a per-show basis. However, because music theaters can be used year-round, unlike most amphitheaters, they can generate annual profits similar to those of an amphitheater. Music theaters represent less risk to concert promoters because they have lower fixed costs associated with hosting a concert and may provide a more appropriately-sized venue for developing artists and more artists in general.” Um, rock on.

Nightclubs come and go, but the D.C. market has two venues that have outlasted waves of competition: 9:30 Club and Black Cat. 9:30, whose current space holds 1,200 people, has been in business since 1980 and is directly challenged by the Fillmore’s arrival. Black Cat opened in 1993 and can hold 700 on its main stage and 200 on its backstage downstairs.

Exactly how much competition those old standbys will face for booking from the Fillmore, though, isn’t clear. “Bands want to play at the 9:30 Club or the Black Cat. No band is saying, ‘Hey, I really want to play at the Fillmore Silver Spring,’” says Steve Lambert of Hood Booking, which promotes shows for the Rock & Roll Hotel, DC9, and Red Palace. 9:30 Club’s Hurwitz and Black Cat owner Dante Ferrando both say they are not concerned about the Fillmore. “I was afraid they were would be competition. After looking at their schedule, I’m not worried,” Hurwitz says. Hurwitz thinks 9:30 Club has a history and connection to fans that will be difficult for the Fillmore to replicate. “It’s intangibles that can’t be explained. They need to evolve organically. It’s not as simple as wall coverings, lighting fixtures, and fruit,” he says.

Look at the calendars of the Fillmore and 9:30 Club and certain things stand out. Acts at the Fillmore tend to cost more: You’re shelling out $89.50 for a ticket to see Mary J. Bilge on the Fillmore’s opening night, $69.50 for John Legend on Sept. 17, and $50 for Black Star on Sept. 18. Cheap Trick is not so cheap at $45 on Sept. 27. And none of these prices include a Ticketmaster service charge, which the venue will still apply even though the tickets are sold by a corporate cousin. On the same dates at 9:30 Club: The Low Anthem for $20 on Sept. 15, Atari Teenage Riot for $25 and Clap Your Hands Say Yeah for $25 on Sept. 17, Molotov for $25 on Sept. 18, and Matt Nathanson for $25 on Sept. 27. These prices don’t include the $6 per-ticket service fee and $4 processing charge if you buy 9:30 Club tickets online through Ticketfly.

Granted, these aren’t apples-to-apples comparisons. So, let’s look at two acts from the same genre going against each other on the same night. On Oct. 17, the Fillmore has Bush for $41.50, and tickets are still available. The 9:30 Club has a sold-out Smashing Pumpkins show, which cost $55 when tickets were on sale. Legal ticket-scalping sites, like StubHub, are selling Smashing Pumpkins tickets for about $100 now.

Hurwitz’s company and Live Nation have battled on other fronts beyond the aforementioned venues. Live Nation owns Nissan Pavilion and promotes shows at Verizon Center, Warner Theatre, Rams Head Live, and Lisner Auditorium, among other local venues. I.M.P. manages operations at Merriweather Post Pavilion and promotes events at Constitution Hall, the Music Center at Strathmore, and the Lyric Theatre and Meyerhoff Symphony Hall in Baltimore. (Hurwitz likes to point out that a promoter acquired by Clear Channel and later spun off to Live Nation failed at running the Bayou and Nation clubs in the District.) I.M.P. also filed an antitrust lawsuit against Live Nation, which is currently tied up in court.

While Hurwitz often portrays his disputes against Live Nation as a David-versus-Goliath struggle, he is downplaying his promotional skills. 9:30 Club won the “Nightclub of the Year” award in 2009 as voted by readers of Pollstar, a trade magazine that covers the concert touring industry. That’s particularly impressive when you consider that Pollstar’s readers are concentrated in the music industry hubs of Los Angeles, New York, and Nashville, says Gary Bongiovanni, Pollstar’s president and editor-in-chief. “It’s fairly rare for nightclubs like the 9:30 Club and the Black Cat to last as long as they have,” he says.

The addition of the Fillmore to the D.C. club scene could have a perverse effect on prices. “Counterintuitively, competition can lead to higher prices for the end users,” Bongiovanni says. It’s easy to scapegoat Ticketmaster or club owners for high-priced tickets, but the artists are really the ones with the leverage. They demand guarantees before promoters get paid. Since it’s harder for a musician to make a living from records and royalties in the age of digital music, more artists are demanding a bigger slice of the ticket money. It’s a tough calculation to make as an artist: Price tickets too high, and you’re playing to an empty house; too low, and you may have left money on the table during your 15 minutes of fame. If you have confidence and patience—say you’re an act like Mumford & Sons—you give your fans a break so you can attract repeat business show after show. If you’re a washed-up boomer act or a pop sensation, you grab the market by the neck and wring it for every last penny because you don’t know if this tour paycheck will be your last. Regardless, the rivalry among clubs for good acts could drive up prices. “More competition can easily turn a $15 show into a $20 show,” Ferrando says.

That calculus works differently in every city. In D.C., 9:30 Club has a reputation for not overpaying acts. “Seth Hurwitz knows how to say ‘no,’” Bongiovanni says. For its part, Live Nation wants to avoid cutting prices on its best seats. “The focus this year was to price the house right from the beginning, to drive higher revenue from the front and lower prices in the back to stimulate purchase. The key strategy to achieve this, No. 1, was no mass discounting,” Chief Executive Michael Rapino told analysts on a second-quarter conference call.

While Live Nation can use its industry muscle to bring big acts to its amphitheaters and stadiums, that kind of influence matters less on the club circuit, where it’s more about relationships. “The fact that Live Nation owns the club is irrelevant,” says Bob Lefsetz, author of The Lefsetz Letter email newsletter and a music industry gadfly. “If you have a hot act, people will see it in a barn.”

Live Nation is quick to emphasize how the Fillmore will develop local talent. Arich Berghammer, Live Nation’s executive vice president of clubs and theaters, tells me he’s open to having Ethiopian music at the Fillmore after discussing the lack of such shows with his cab driver during a recent trip to Silver Spring. Berghammer notes that Stephanie Steele, the Fillmore’s general manager, and Justin Kujawa, a Live Nation senior promoter, live in the neighborhood and will be responsive to the community’s tastes. Kujawa says the Fillmore is working with entertainment website and event planner Brightest Young Things to develop nights for local bands. “We want to do things in every genre,” Kujawa says. “We are trying to make everyone happy.”

The broad approach of the Fillmore may compete with I.M.P. bookings at D.A.R. Constitution Hall as well as 9:30 Club. Black Cat’s Ferrando says that Live Nation may take some acts that would play at 9:30 Club, which would then force 9:30 to compete with his club; he may end up booking an act that would otherwise play at Rock & Roll Hotel or Iota in Arlington, Va. “It could have a domino effect on bookings at all the other clubs,” he says. Hood Productions’ Lambert expects to feel a “pinch” from the Fillmore for the first six months, but says, “we’ll be fine.”

Staring out from the stage into the empty space of unfinished Fillmore, I imagine the screaming crowds. I try to picture the place packed to the rafters and how close fans on the balcony would be to the stage. What it would feel like taking the elevator from the spacious downstairs dressing rooms to the main stage. How fun it would be hanging out in the VIP lounge with its wavy mirrored accent wall. The outside of the club looks sharp at night, with the Fillmore marquee underlined by a red neon slash. A Lee Development official tells me they’ve set up lights in the three vertical vents on the right side of the hall’s façade to simulate an equalizer when the music is playing inside. It all sounds very cool.

But walk across Colesville Road, and you’re still in downtown Silver Spring. The nearby shopping center is a menagerie of chain restaurants from the sublime—Nando’s—to the pedestrian—Red Lobster—with 8,000 free parking spaces in the surrounding area. Surely Fillmore patrons and some acts will flock to these places after events, but it’s difficult to see them coming for the vibe. It’s a county, after all, that recently proposed a curfew for teens.

Will the location’s ambient tameness hurt a gorgeous theater that will still do great business with date-nighting parents or diehard fans shelling out big dollars for well-known acts? Probably not. But it also means there will always be a market for music on U or H streets, no matter who controls the spaces along those corridors. In the end, the Fillmore, which will surely please lots of concert-goers, may even end up pleasing D.C. club owners, too.

From Washington City Paper, September 16, 2011

Abbas Haider Ali wanted to put $25,000 into the stock market. But instead of transferring the money to a mutual fund, the Washington, D.C., technology executive decided to invest with a money manager whose every move he had been tracking for three months through a firm called Covestor. Once a day, the online service shows you the stock trades of more than 130 money managers, a mix of professionals and amateurs, even if you’re not a customer. If you find a manager you’re comfortable with, you can see his or her trades in real time and mirror them in your brokerage account.

Here’s how it works: You check out a manager’s holdings, moves and perform­ance on the mirroring service’s Web site. If you like what you see, you give the service permission to execute the same trades in your brokerage account in the same proportions that the manager makes. So if the manager puts 5% of his or her portfolio in, say, Netflix, the service will buy a 5% position for you in your account. For the privilege, you pay a fee of 0.5% to 2.3% per year on the amount of money you invest with the service to follow the manager. The size of the fee, which is split between the manager and the mirroring service, usually depends on the complexity of the investing style and the popularity of the manager you choose. By comparison, the average expense ratio for diversified U.S. stock funds is 1.35% annually.

Better Control

The mirroring firms say their services give ordinary investors more transparency and control than they would have with a traditional mutual fund. That’s because you can see every trade a manager makes in your brokerage account almost instantaneously, as opposed to waiting for a fund to issue its quarterly list of holdings. You can also create a list of stocks not to be purchased for your account, even if your manager buys them, or simply sell a stock at any time, even if the manager is hanging on to it.

Most clients of Covestor and its main rival, Wealthfront, are treading lightly. The average account balance for both is about $45,000. Ali was interested in Covestor because of the novelty of its approach to money management, and he wanted to see whether the manager performance posted on the site would hold up in his account. Ultimately, he gained the confidence to invest his money with the service because he was able to closely track his manager’s trades. “I used the most speculative money in my portfolio to see if this really works,” says Ali, who invested to mimic the trades of Vivian Lewis, editor of the newsletter Global Investing and a specialist in foreign stocks that pay large dividends.

Covestor and Wealthfront (formerly known as Ka-Ching) have been in the mirroring business since 2009 and are the largest players. Others with similar services are TD Ameritrade, which offers mirroring accounts through the AutoTrade service of its think­orswim online brokerage, and Ditto Trade, which launched a mirroring service in October.

In some ways, these services are similar to separately managed accounts, which have been a fixture in the investing world since the 1970s. SMAs are professionally managed products that brokerage firms offer to well-heeled investors. With SMAs, you own the securities directly, rather than shares of a fund, and you can check your holdings and trades in real time. But the minimum initial investment with an SMA is typically $100,000; you can open an account with Covestor or Wealthfront with just $10,000.

Both Covestor and Wealthfront are investment advisory firms registered with the Securities and Exchange Commission. If you want to invest with either one, you must open an account with an online broker, which takes custody of your money. To use Covestor, you open an account with Interactive Brokers. Wealthfront works with Interactive Brokers and Fidelity brokerage accounts. (The minimum to open a Wealthfront mirroring account at Fidelity is $25,000.) As registered advisers, Covestor and Wealthfront do background checks and verify the trading records of the managers they offer, and the sites are liable for their conduct.

Diverse Managers

At last report, Covestor had 178 investment options; 62 are managed by registered investment advisers and the rest are unregistered. “We don’t want to be overrun by professionals,” says Perry Blacher, Covestor’s chief executive. Among the unlicensed investors is Robert Freedland, an optical surgeon with a bent for value investing. Another unregistered manager, but one who is clearly no amateur, is Dan Plettner, a former closed-end-fund analyst at Morgan Stanley. He runs several portfolios that regularly appear on Covestor’s leader board. The only way most people can invest with Freedland and Plettner is through Covestor.

Nearly half of Covestor’s managers have trumped their chosen yardsticks, but most have less than two years’ worth of trades because the service started in 2009. With such short records, it’s difficult to tell whether the top performers are good or just lucky.

Wealthfront is shunning amateur managers. As of early June, it offered 41 registered advisers who have passed its selection process. The company scores its money managers on three factors: the returns they generate relative to the risks they take, how consistently they stick to their stated investing style, and their research process. Wealthfront says that an equally weighted index of their managers’ performance returned a cumulative 27.9%, net of fees, from October 19, 2009, through April 18, 2011. That is 4.5 percentage points better than the return of Standard & Poor’s 500-stock index. Wealthfront, however, does not show how the average client’s mirroring account has performed, as Covestor does. Nor does Wealthfront compare its managers’ results against the average performance of mutual fund managers with similar investing styles. It only lists the performances of benchmarks, such as the S&P 500, for comparison.

One of Wealthfront’s top-performing managers is Yale Bock, a retired teacher who operates a pawnshop in Las Vegas and runs money on the side. Over the past five years through June 1, according to Wealthfront, his portfolio earned an annualized 13.6%, compared with 0.8% annualized for the S&P 500. “My style is growth at a reasonable price, and I like to stick to my premise for buying a company,” says Bock, whose portfolio held just 13 stocks at last report. Bock joined Wealthfront in March 2010 and has attracted $1 million in assets through the Web site (his performance data predate his affiliation with Wealthfront).

Covestor and Wealthfront are tiny compared with traditional money managers. Covestor does not disclose the amount of assets under management, and Wealthfront has just $27 million, making it a speck in the asset-management world (by contrast, assets in U.S. mutual funds total $12.5 trillion, and separately managed accounts hold $536 billion). As far as investor Ali is concerned, though, small size has at least one advantage. “Every time I call Covestor, I speak to the same person and he knows me,” he says.

Mirroring services will remain investing sideshows until their managers generate longer records and demonstrate that they can perform better than traditional forms of active management. But you don’t have to pay anything to browse the marketplace of aspiring talent at the mirroring serv­ices. Covestor offers a trial account that lets you see how its service works, and you can review manager picks on Wealthfront’s Web site free. Because it’s so hard to find great investors, any service that broadens the pool of potential stars is a welcome development.

An Online Manager for Indexers

You don’t have to be a fan of active stock pickers to use an online money manager. Betterment is a brokerage that lets you transfer money with ease from an online savings account to preassembled portfolios consisting of low-cost index-based exchange-traded funds. Betterment’s fees range from 0.3% to 0.9% of assets, depending on the size of the account, and there is no minimum-investment requirement. The firm, which has $10 million in assets under management and more than 4,000 clients, uses six U.S. stock ETFs and two bond ETFs to construct its port­folios. The service is currently not available for retirement accounts. Betterment says it is working to correct that shortcoming, as well as to add overseas ETFs to its investing mix.

From Kiplinger’s Personal Finance magazine, August 2011

A few years ago, two Israeli professors looked at the World Cup and wondered if somewhere amid the collective angst of fans might lurk an investment opportunity. Guy Kaplanski and Haim Levy knew from research that bad results in important football matches could depress local stock market returns. As the number of losing countries increases during the tournament, they reasoned, the aggregate effect would drive down world stocks. The numbers showed they were right: Standard & Poor’s 500-stock index has lost about 2 per cent on average during World Cups since 1950. The so-called “World Cup effect”, in their words, “is very large and highly significant”.

Conventional economics tends to ignore the sports page. Economists assume people are rational and that stock prices efficiently reflect all the information available in the marketplace at the time of the investment. This may be a mathematically elegant thesis, but it is flawed. The so-called efficient market thesis has no way of pricing in the fear, greed, despair and triumph that chaperone investors through the trading day, affecting what they buy and sell.

In the late 1970s, economists and psychologists began to try and account for the emotions. They found that investors chase performance, obsess over irrelevant financial data, follow the herd, are overconfident in their stockpicking abilities and have little understanding about their successes or failures.

Today, behavioural finance plays the joker in the buttoned-down world of academic economics. Using surveys, experiments, real-world data and the occasional MRI scan, economic journals explain why men take more risks with their investments than women, how sunny weather can improve returns on a given day, and the role of sport in market returns.

Stockpickers are trying to trade on these insights, and not merely by hiring a woman who supports FC Barcelona, to balance their portfolios. Over the past few years, a slew of large American and European investment firms, including Allianz, Barclays, Bank Degroof, JP Morgan, and the LGT Group of Liechtenstein, have launched funds that trade on behavioural findings. In Mitsubishi UFJ Trust Bank of Tokyo announced in December that it wanted to add more behaviour-based investing to its asset management business. The financial crisis has only heightened skepticism about the idea of efficient markets. How can such unstable systems work rationally?

Many behavioural funds are black boxes, relying on sophisticated formulas to exploit weaknesses in investor behaviour. while a traditional fund may buy and hold a stock that managers think is undervalued, those at behavioural funds mine academic research to predict market movements. So behavioural financiers pay less attention to corporate earnings reports than to anomalies such as the “January effect” – the tendency of stock prices to rise in the first month of the year. The reason, they concluded, is that investors sell poor-performing stocks in December to generate tax losses. After the tax-related selling stops, prices are primed to rise the next month.

At this time of year, behavioural financiers are also tracking what they call “mental accounting” – the idea that investors do not treat all their assets equally, spending bonuses more riskily than money from a regular pay cheque. In Taiwan, employees are often given generous bonuses before Chinese New Year, mostly paid in January. Researchers found the demand for more volatile stocks on the Taiwan Stock Exchange increases in January, especially in years when bonus payments are larger. while each market has its nuances, similar behavioural effects have been observed in stock exchanges from Botswana to Vietnam.

The cutting edge of behavioural finance research is trying to move past reading investors’ minds and into those of corporate executives. Two Stanford University business professors, David Larckery and Anastasia Zakolyukina, studied thousands of earnings calls and identified the corporate suite’s version of a poker tell: untrustworthy executives tend to overuse words such as “we” and “our team” when talking about company performance. Honest ones tend to take ownership of their actions with words like “I”, “me” and “mine”. HoracioValeiras, chief investment officer of Allianz Global Investors, is trying to incorporate such findings into his firm’s behavioural formulas.

But as a group, behavioural funds have yet to live up to their hype. “The theory is more novel than the practice,” says Christopher Davis, an analyst with Morningstar, a mutual fund research firm. Studies of returns find that on average these funds do no better against their benchmarks than non-behavioural funds. Even more damning, a recent study by Alessandro Santoni and Arun Kelshiker of the Research Laboratory for Behavioural Finance discovered that behavioural funds tend to do worse in bear markets, the very time you would expect them to outperform given their insights into hysterias and panics.

For all its cocktail-party-friendly research, behavioural finance in practice may not be that much different to what investors have been doing for some time. Eric Schoenberg, a professor at Columbia Business School in New York and a psychologist who studies stock market bubbles, thinks behavioural finance can explain why investors act in bizarre ways, but it has limited predictive power. Traditional “value investors” have always been attuned to behaviour, says Schoenberg, Hunting for cheap stocks they think the market has undervalued because investors have overreacted to bad news.

As more investors are informed by behavioural finance, the power it has to generate profits will diminish. Yet economists and money managers will continue to probe the depths of our psyches looking for an edge. “Behavioural finance is becoming a worldwide phenomenon,” says Valeiras. “It’s early days and we have so much more to learn.”

Winning ways: behavioural finance pioneers

A €100 gain should be the same as a €200 gain followed by a €100 loss. But in 1979, psychologists Daniel Kahneman and Amos Tversky found that people took greater pleasure from a clear win than a similar result derived from a bittersweet experience. Their finding illuminated why investors sell winning stocks early and hold on to losers dearly. Their paper was the second most cited research in economics from 1975 to 2000 and spawned volumes about how we frame money decisions. Tversky went on to pioneer studies in cognitive science and died in 1996. Kahneman, now a professor emeritus at Princeton, won the 2002 Nobel Prize in economics.

From Monocle magazine, February 2011

Fifteen minutes should have been enough time to find a good seat. At a lot of bookstores, it would have been—especially when the main attraction was a former labor secretary’s book on income inequality. But Politics and Prose is not a lot of bookstores. So, with every chair occupied and every aisle clogged, I rubbernecked at Robert Reich from behind a column in the spirituality section.

What followed was a pretty typical P&P event: It opened with a long thank-you to the store’s owners, Carla Cohen and Barbara Meade, both 74; it continued into a fairly meaty reading; it ended with intelligent audience questions that crackled with a civic energy that is hard to find in Washington. It was pretty easy to get romantic about the whole scene: We were book people and our tribal council was a purple-awning storefront on Connecticut Avenue near the Maryland border. As the audience queued up to buy Reich’s book, I overheard a red-haired clerk tell a patron at the cash register that Supreme Court Associate Justice Elena Kagan recently bought a copy, too.

Blocks away, one of the tribal council’s founders had only a few weeks to live. Carla Cohen was suffering from cancer of the bile ducts, fading in and out of lucidity. In her last public appearance, she and Meade, her business partner of 26 years, accepted the Legacy Award from the New Atlantic Independent Booksellers Association on Sept 21. It was the first time the honor went to booksellers. All the previous winners were prominent authors, such as Joyce Carol Oates, Paul Auster, and Pete Hamill.

For devotees of the store, the folks who flock to its author events, join its book clubs, or just appreciate its stellar inventory and knowledgeable staff, concern for Cohen’s health was also tied up in worries about P&P’s future. In June, Cohen and Meade announced that they wanted to sell the store and retire. The news created a flurry of offers. But the glowing descriptions of the store in Washington Post and New York Times articles about the sale represented a mixed blessing: Cohen and Meade were surprised they had to fight the perception that the store was shutting down. One confused fan wrote on Politics and Prose’s Facebook page: “Have you read this article in Washington Post? Is the bookstore really closing?”

The store tried to head off these worries. “No, the bookstore is far from closing,” read its Facebook response. “Our fiscal year ended June 30th and we had record sales for the 2009-2010 year, up over last year by more then 7 percent. We are not yet accepting offers, but when we do, we are confident that we can find a buyer right in the P&P tradition.” By August, Cohen and Meade had released an open letter telling customers the sales process would take “at least nine months before changes were made.”

But even as management remained tight-lipped, the process of figuring out P&P’s future was taking shape. Cohen and Meade quietly brought in Rich Goldberg, a New York-based consultant whose parents live just over the D.C.-Maryland line in Chevy Chase, to help sell the store. To date, Goldberg says, the owners have received inquiries from about 50 interested parties. The field was narrowed to a dozen, but Goldberg, Meade and Cohen’s family won’t say who they are. The Times identified a group led by literary agent Raphael Sagalyn and Franklin Foer, editor of The New Republic, along with Jeffrey Goldberg, national correspondent for The Atlantic (and no relation to Rich Goldberg), and another party headed by Nicholas Kittrie, a law professor at American University, as prospective buyers. Neither will say whether they’ve made the cut. David Cohen, a former president of Common Cause, now controls his late wife’s stake in the store. Their son Aaron, an experienced Internet executive who has been involved in the sales of several companies, is advising. David Cohen describes the ideal new owners as “people who can move in multiple circles like Carla and Barbara. They were comfortable talking to publishers, comfortable talking to editors, comfortable talking to journalists and of course, comfortable with the customers.”

Cohen died Oct. 11. The owner search has been halted during the mourning. At her funeral on Oct. 13, her son Aaron told a capacity crowd at Tifereth Israel Synagogue that he’d promised his mother he would find owners worthy enough to continue her legacy. Now the search continues.

Who would want to buy a bookstore now? The printed word is supposed to be deteriorating like a sand castle in the digital ocean. First, Amazon devastated bookstore revenue with e-commerce. Then the company attacked actual books with its Kindle reading device. This past July, Amazon sold more e-books than hardcovers. The Barnes & Noble megachain—once the bête noire of indies like P&P—has put itself up for sale and converted its stores into showrooms for its Nook, a Kindle knockoff. Borders, the also-ran chain of bookstores, announced last week it has created a system to let anyone publish their own electronic book for $89.99 a pop. It too has an e-reader, the Kobo. All these trends spell even quicker doom for independent bookstores. Or so the story goes.

“Independent booksellers are not selling, they are liquidating,” says Jay Fishman, a business appraiser, bibliophile and Kindle enthusiast. He laments the closing of Ardmore Paperbook Bookstore a year ago, which was his favorite shop near Philadelphia. “An independent bookstore could be a lifestyle business, but it needs something—a knowledgeable staff, a theme, or events—or it is not surviving.”

Politics and Prose has all those attributes in abundance. Which explains the sort of literary exceptionalism that has at least some fans convinced that the store will never meet the same grim fate as former local rivals like Olsson’s or the Trover Shop. “We have built the community and the community has built us,” Carla Cohen used to say. That community, forged in significant part by the store’s once-novel, now-standard tactic of turning itself into a forum for author events and discussion groups, is valuable. Meade told the Times this summer that she thought Politics and Prose was worth “somewhere in the neighborhood of $2 million.” She now dismisses the remark as an “off-the-cuff” estimate. When you look at the numbers, you’ll see why.

So what is P&P really worth? I put the question to Jeff Jones, a business appraiser and broker from Houston. Jones had never heard of Politics and Prose, but has appraised at least 15 independent bookstores over his 40-year career—a significant figure, given that independent bookstores are rarely appraised or sold through brokers because they typically don’t generate enough revenue to attract serious investors. Jones was immediately suspicious. “You are lucky to get one bidder of a bookstore, let alone 50,” he says, noting the average bookstore does about $1 million in annual sales.

We did some back-of-the-envelope calculations for Politics and Prose. Our results represented an educated guess, at best: P&P is a closely held business and does not disclose all its financial information. Meade says Politics and Prose did more than $7 million in total sales for the past fiscal year, which ended in June. It’s conceivable that booksellers who are paragons of efficiency could pinch pennies enough to produce a gross profit margin of 15 percent, or $1.1 million per year if you round up. That’s a harder margin to maintain, though, when you’re paying salaries for the 55 experienced employees at Politics and Prose. Many bookstores sell for 15 percent of annual sales plus the value of their inventory as a rule of thumb, according to Jones. He estimates the inventory of a bookstore Politics and Prose’s size would range from $1.5 million to $1.8 million (large, specialized bookstores like P&P tend to keep more inventory around longer than the average indie bookseller). Under these projections, the store’s tangible assets may be worth nearly $3 million. No wonder Cohen and Meade received so many offers, probably for even less than the on-paper value of the business. People know a bargain when they see one.

Not everything is rosy. The business has some complicated real estate issues. The current lease at Politics and Prose expires in two years or so, Meade says. She is renegotiating now, but the current location, sandwiched between a CVS and a dry cleaner, offers no room to expand. Its café, meanwhile, is co-owned by James Alefantis and Javier Rivas. Alefantis also owns nearby restaurants Comet Ping Pong and Buck’s Fishing & Camping. Politics and Prose’s contract with Modern Times Coffeehouse expires in 2014. One of the top priorities of any new owners would be to figure out how to expand and work out an arrangement with the coffeeshop.

Accounting dorks call the price buyers pay for a business over and above the value of its tangible assets “goodwill.” It’s an inherently squishy concept. Under old English law, goodwill was defined as the chance customers will “return to the old stand,” says Fishman. By that definition, Politics and Prose has plenty of social street cred. The store spins a web that envelops the entire book world. To glimpse a fraction of its strands, scroll through the dozen of memorials to Carla posted on the store’s website. You’ll see tributes from successful novelists, such as Andrew Sean Greer, author of The Confessions of Max Tivoli, who took Carla’s daughter Eve to prom, and Geraldine Brooks, Pulitzer-prize winning author of March, as well as condolences from literary agents and sales reps from major publishing houses. “There are hundreds of writers who imagined Carla as their ideal reader,” bestselling D.C.-based journalist/author Ron Suskind told the crowd of 250 people at the 2010 Heschel Vision Awards on Oct. 24. “She is a tribal leader, like Abraham,” he said.

But the tricky thing about goodwill and the cachet Politics and Prose has is that, while it takes years to build, it can disappear quickly. A budget-minded reduction in payroll could bite into a store’s reputation for knowledgeable booksellers. A move to a Metro-friendly location—suggested by some as a way to compete with newcomers like 14th Street NW’s Busboys and Poets—could make the store less convenient for the Upper Northwest and Montgomery Country types whose Volvos regularly fill the current parking lot. Or new owners could just accidentally do something that telegraphs their inability to get it, whatever it is.

What no accountant will ever truly figure out is how much of the goodwill will leave with Meade and Cohen. Meade, for her part, plans to devote some time to passing the baton: She says she’ll work at the store for at least one year after the sale because many of the prospective buyers do not have direct experience in bookselling.

You can thank Ronald Reagan for Politics and Prose—or at least his election, which left Cohen out of a job as a federal housing official in 1981. Three years of soul-searching led her to launch a bookstore, but the passion for ideas was present at the beginning.

Growing up in Baltimore, the eldest of six children, Carla Furstenberg was opinionated. Her brother, Mark, a baker and former owner of Marvelous Market and Breadline D.C., remembers Carla sitting on top of the staircase as a child to listen to her father’s Americans for Democratic Action chapter meetings. She campaigned against Maryland’s loyalty oaths in 1952, at age 16, and marched in Birmingham, Ala., in 1965, at age 29. She met her future husband, David, at an Antioch College ADA meeting. The Cohens moved to Washington in 1963. Carla pushed for better urban-planning practices, first at the House Subcommittee on the City and later the Carter administration.

Carla didn’t limit her strong opinions to politics. Betsy Levin, a lifelong friend, recalled at Carla’s funeral that even as a kid, Carla had discerning tastes about literature, frowning on Betsy’s preference for comic books. Levin liked to think of Carla as an 18th century salon hostess because of all the stimulating seder dinners and holiday parties she threw in Washington. “Politics and Prose was her salon writ large,” she said.

Barbara Meade was the moon to Carla Cohen’s sun. Meade was an experienced bookseller by the time she was responded to Carla’s classified ad seeking a store manager. Whereas Cohen was brash and enthusiastic, Meade is thoughtful and reserved. The pair’s collaboration began in 1984 with a small shop on Connecticut Avenue in 1984 and a single part-time employee who worked the night shift. By 1989, Politics and Prose outgrew its space and relocated to its current address across the street. Police blocked off the thoroughfare as staff, friends and neighbors carried boxes of books to the new store. They added a café and doubled the store’s size during the 1990s. P&P expanded again in 2003 and now has 9,000 square feet of bookselling space, Meade says. (The average Barnes & Noble is 26,000.)

Only a few failures mark the store’s management record. Secondhand Prose, Politics and Prose’s used bookstore, lasted just two years. “We learned not to get involved in businesses we know nothing about,” Meade says. And a first attempt to sell the store so Cohen and Meade could retire famously went sour. In 2001, the pair hired Danny Gainsburg, who had owned a custom T-shirt business. Gainsburg bought a stake in the business, striking a deal to eventually take over the store. In the meantime, he would learn the ropes. But Cohen and Meade didn’t tell the staff, who bristled under Gainburg’s management style, that he was the heir apparent.

It’s a sign of the store’s iconic status that the ensuing meltdown was chronicled in The Wall Street Journal. The Journal reported that tensions boiled over when he kissed a staffer on the cheek on her birthday and she quit shortly thereafter. Cohen and Meade met with an organizational psychologist to work out the trauma, but staff would have none of it. They eventually bought back Gainburg’s stake. When I asked what lessons she learned from Gainburg mishap, Meade said “not to rush in.”

What P&P had figured out—better than the rest of the bookselling business—was that it’s not enough to just expect your inventory, and your staff, and your location in a book-reading ZIP code to create a community. When it first opened, Politics and Prose held five events per month. That figure doubled by 1989. But it was in 2002 that they hit what Meade calls “a tipping point.” Now the store hosts about 35 events each month. “The store has an event list of the most prominent authors of any independent bookstore in the country,” says Oren Teicher, chief executive of the American Booksellers Association. Politics and Prose holds about 400 events annually, including 50 kid-friendly ones.

The secret sauce is its mix of functions for big shots and lesser-known writers. For instance, this past month, National Book Award-winning biographer Ron Chernow and former Secretary of State Condoleezza Rice spoke at the store, as did novelists Myla Goldberg and Dinaw Mengestu. Plus, the store hosts 17 book groups on topics ranging from James Joyce to graphic novels. Each group meeting usually brings in two dozen readers, Meade says, who often peruse the shelves before and after.

It looked like I stumbled upon the most popular ornithological seminar ever. Clusters of college students and office workers were milling about at 6 p.m. Friday on the steps of George Washington University’s Lisner Auditorium, each carrying a tome with a blue bird on the cover. They had come early to grab a seat to hear Jonathan Franzen speak about his new book, Freedom. The talk was originally scheduled for Politics and Prose, but the staff changed the venue because of the expected crowds. More than 900 people turned out.

For authors, a nod from a place like P&P is a big deal. Writers who can’t gain an Oprah endorsement or Time magazine cover, like Franzen, have to rely on independent bookstores to generate interest. Novelist Wallace Stegner said Carla Cohen lifted his work to the national stage. Lucy Kogler, manager of Talking Leaves Books in Buffalo, N.Y., says she was a champion of first-time Abraham Verghese’s Cutting for Stone, well before the book captured critical acclaim.

But hosting and championing writers also pays off for stores. P&P’s ability to host the Franzen event—and sell 700 books as a result—represents a chunk of sales that your average shopping-mall bookstore, or Internet giant, doesn’t get. “Amazon and the Kindle don’t build community,” says Andy Shallal, owner of Busboys and Poets, the local chain of restaurants/bookstores.

It’s no wonder, then, that newer stores have sought to take P&P’s bread and butter—literature as spectacle—and render it even more spectacular, if not quite as literary. Shallal’s establishment near 14th and U streets NW, on a strip that is as hopping as upper Connecticut Avenue is sleepy, has a full-on restaurant, rather than a mere coffee shop. It hosts concerts and performances that draw a younger crowd than the generally gray-haired regulars at Politics and Prose. Busboys & Poets has a staff of five planners who schedule events at eight different spaces in three locations: the original 14th Street NW space, 5th and K streets NW, and one in Arlington’s Shirlington neighborhood. (Having been initially inspired by evocations of the African-American literary renaissance of the 1920s, Shallal is now planning a New York outpost in Harlem.) Unlike Politics and Prose, Busboys & Poets charges for many of its events, $4 a head on open-mic poetry night or, recently, $50 per person for a dance party celebrating a new book from Alice Walker and $70 per person if you wanted a signed copy. Bookselling is a smaller part of this mix. The bookstores in Shallal’s establishments are run by a non-profit, Teaching for Change. The book part of the business has been constant, but not growing, he says. Where Cohen used to speak reverentially about reading, Shallal thinks most of his customers don’t actually read what they buy. “They put them on a shelf. They just want a reminder of the experience,” he says.

All the same, Busboys and Poets may represent a vision of bookselling’s future. Since he opened his third Busboys and Poets in a Mount Vernon Triangle condo project in 2008, Shallal says he received about 20 offers from developers to operate at various other locations. Busboys & Poets has 800 square feet of bookselling space, which is less than one-tenth of Politics and Prose’s space, and offers some progressive titles you may not find at Politics and Prose. But it’s telling that Shallal talks about dining, an activity you can’t do electronically, when he celebrates the community that he’s brought together. “In Washington, you rarely see blacks and whites eating together,” he says. “Busboys & Poets has that.”

I went to the 14th Street NW Busboys and Poets on a Friday night in October for dinner. My table wedged between a white hipster couple and a group of four young African-American women in the back of the restaurant. The scene was diverse and vibrant, especially compared with the older, whiter crowd at Politics and Prose. But from the restaurant, you couldn’t tell Busboys & Poets had a bookstore. After dinner, I squeezed into the stacks to avoid the line of people waiting for a table. There were no handy staff recommendations posted under the books, like Politics and Prose has, and no quiet place to browse before buying. The book section felt like a kiosk.

Spectacle has always been a part of savvy bookselling. “It’s not like a book’s ending is any better if you buy it at Politics and Prose or pick it up off a skid at Costco,” says Teicher of the American Booksellers Association, justifying the need for stores to do more than sell books. He remembers that Politics and Prose used to hawk book-themed trips to customers. Other indies are hosting summer literary day camp for kids. Read All Over, a stage and independent bookstore in Fredericksburg, Va., recently had punk-rock bands perform in front of displays of the Curious George children’s book series and etiquette guides. “The event was a success,” says proprietor Paul Cymrot, who also owns used bookstore Riverby Books in Fredericksburg and Capitol Hill, which frequently has musicians play outside its storefronts.

Shallal is not interested in buying Politics and Prose. He hopes the new owners wouldn’t change a thing. “It’s an institution in this city and must be preserved,” he says.

Politics and Prose has planned a memorial for Carla Cohen on Nov. 21. But discussions about the store’s future have already started again. Meade and Goldberg huddled with Cohen’s husband and son on Oct. 22 to discuss what happens next. They agreed to schedule in-person meetings with the finalists and exchange financial information with them. “The earliest the process could be completed is the spring, but that is not a deadline,” David Cohen says. It’s harder to conduct the owner search during the holiday season, Aaron Cohen says, which is the busiest time for the store. “The sale is going to be successful,” Meade says. “But I don’t know the timeframe.”

So far, there’s little sign of an exodus. Veteran staffers, such as book buyer Mark LaFramboise, plan to stay at the store if the new owners want them. There are examples of independent bookstores that changed ownership and were updated in ways that clicked. Jeff Mayersohn and his wife, Linda Seamonson, bought the independent Harvard Book Store in Cambridge, Mass., from its long-time owner in 2008. They have increased sales by adding a delivery service that brings books to customers’ homes by bicycle, and a printing press that can create a paperback book from millions of on-demand titles in about 4 minutes; they’ll soon launch an image-heavy website that tries to recreate the store’s browsing experience online.

The day Carla Cohen died I went to Politics and Prose to see if there would be any mourners assembled. I wanted to witness how the community Carla had built would react to her loss. A laminated sign announcing her death was posted on the door. The store was quiet and cozy as about a dozen customers filtered through the shop that Monday, which was Columbus Day, a federal holiday. An old, balding man in a pink dress shirt was sleeping in the overstuffed chair by the art section. A display of books about Facebook and the power of social networks was showcased in the front window. A thirty-something blonde plucked down some cash for a novel she had pulled from shelf of staff recommendations. The clerk smiled, took her money and waved goodbye as she left.

From Washington City Paper, October 29, 2010

The college hunt is a parade of choices. Private or public. In-state or out-of-state. On-campus or off-campus housing. But when it comes to saving for school expenses, one choice is a clear winner — a 529 savings plan.

Taking advantage of one of these state-sponsored plans is a no-brainer. A 529 plan shields your investments from federal income taxes, gives grandparents an easy way to boost their grandkids’ college fund, and barely dents your chances for financial aid. And more than half the states sweeten the deal with a state income-tax deduction or credit. Investors have flocked to 529 savings plans. Assets grew from $11 billion in 2002 to $119 billion in 2009, and the average account balance is $12,000 — about one year’s tuition at a public university.

Take the tax break

You don’t have to invest in your state’s plan, but if your state gives you a tax break, it’s often best to stay close to home. Thirty-four states plus the District of Columbia offer state income-tax benefits for 529-plan contributions. Five states provide a tax benefit regardless of which state’s 529 plan you pick. Alabama uses a stick rather than a carrot: It doesn’t tax distributions from its own plan, but it levies a tax on distributions taken from other states’ plans. See our picks, state by state.

With any 529 plan, your savings grow free of federal income tax. Distributions escape federal income tax altogether if you use the money to pay for qualified educational expenses — mainly tuition, fees, books, and room and board (you can use 529 money in 2010 to pay for a computer, but that perk is set to expire at the end of the year).

The accounts are flexible. If Junior doesn’t want to go to college, you can transfer the funds to another family member and preserve the tax benefits. Or you can withdraw the money and pay income tax and a 10% penalty on the earnings. Unlike other education-savings programs, 529 plans allow families to participate regardless of income, and the states set a high ceiling on contributions (usually up to $300,000 per account).

Don’t worry that a 529 will cripple your chances for financial aid. The federal financial-aid formula counts 5.6% of parent-owned accounts as part of the expected contribution to college costs — a relatively painless hit compared with the 20% assessment on student savings.

Go the direct route

You can buy a 529 plan directly from each state or through an adviser. We prefer direct-sold plans because they don’t charge commissions or adviser fees like adviser-sold plans do. You’ll have to pay administration and investment-management fees with any 529 plan, however. Most states offer several investment tracks, which range from conservative to aggressive. More than 60% of investors put their 529 money on autopilot by choosing age-based portfolios, which automatically shift from stock funds to bond funds and cash as the student approaches college age.

Picking a plan is a bit more complicated if you live in a state that doesn’t offer a 529 tax break. Depending on what you’re looking for, go with one of five plans that rise to the top of our list:

Low fees. We like the index portfolios in the Illinois direct-sold Bright Start College Savings Plan. The portfolios, which include mostly Vanguard funds, charge rock-bottom fees, which range from 0.20% to 0.22%.

Ready-made portfolios. Ohio’s CollegeAdvantage 529 plan offers great choices from Vanguard, Pimco and GE Asset Management, as well as certificates of deposit from Fifth Third Bank.

Low risk. Savers who shy away from stocks should check out the Michigan Education Savings Program. It has an option that guarantees principal and doesn’t charge an annual fee.

Varied menu. Fund pickers can benefit from the direct-sold College Savings Plan of Nebraska, with its selection of 20 funds from American Century, Fidelity, Pimco and Vanguard. The wide assortment does come with higher fees; the most expensive fund option costs 1.64% annually.

Adviser-sold fund. If you feel more comfortable going this route, the Virginia CollegeAmerica plan is a standout among adviser-sold 529s.

The drawbacks

The plans do have a number of drawbacks, but there are ways around them. You can change your 529 investment choices only once a year, which can hurt (or help) if you’re tempted to tinker. One alternative is to go with a set-it-and-forget-it option, which does the tinkering for you.

Like just about every other investment, 529 plans took a big hit during the recent bear market because they turned out to be riskier than expected. As a result, a number of states, such as Colorado, Kansas, Utah and Wisconsin, have added bank CDs, FDIC-insured savings accounts, U.S. Treasuries and money-market funds to their investment lineups.

As for fees, expect them to fall as assets grow and managers vie to attract more customers. Last December, Fidelity cut management fees in half for its index portfolios and by one-third for its actively managed portfolios for five direct-sold 529 plans it runs. The Utah Educational Savings Plan, one of the lowest-cost 529 plans, reduced fees on some investment options in February.

From Kiplinger’s Personal Finance magazine, June 2010

Why tackle finance? Did the great drywall-hanging adventure not pan out?

We wanted to take personal finance away from being a job or a task and make it something that makes people think, Hey, I can do that. It’s one of the great things about games. When guests do well at our game, they’re motivated to go home and take on the real-world version.

How do you start The Great Piggy Bank Adventure?

The game is designed to be played by a family. First you set a goal. Then you get a piggy bank and step through a portal into a land populated with oversize piggy banks. Your piggy bank moves from the physical world to a virtual world at each of four stops, the first of which is a savings game. You use your piggy bank to collect as many coins as you can as they fall from the sky. The second stop is the inflation race. You pilot the piggy bank, which is in a hot-air balloon, away from the inflation monster.

Does the monster look like Ben Bernanke?

It actually looks remarkably like the Big Bad Wolf. If you’re caught, it will gobble up your coins and spit them out as smaller coins.

What happens next?

The third stop is about diversification, which is essentially a hide-and-seek game. You get a bunch of coins and your job is to stash them in different places. The more you spread out your coins, the less chance the inflation monster will get all of them. At the final stop your bank hops on a scale and tells you how well you did.

How successful is the game?

We believe an exhibit is successful if we start a conversation. With this exhibit, we were surprised by the number of families who went through it repeatedly. I just watched a mother with her 5-year-old daughter play the game for a third time. That’s a home run — when we can get a guest to delay doing all the other fun things in the park and do the exhibit again.

How long will the game be available?

We started working on the project with T. Rowe Price, its sponsor, in spring 2007. The exhibit opened in May 2009 and is on a three-year contract. But we expect it to last a long time because the topic is never outdated.

From Kiplinger’s Personal Finance magazine, May 2010

Admit it: You’ve been tempted. You’ve seen the infomercials for trading systems that will teach you how to master the markets. Sign up for a free seminar in your area and you’re on your way to wealth and freedom. Ordinary people just like you are earning thousands each month. Why not join the club?

With visions of early retirement dancing in my head, I decided to take the plunge, or at least the initial part of it. I would attend the free seminars of three big trading-education outfits: Online Trading Academy, BetterTrades and Profit Strategies. I wanted to see whether these outfits delivered on their promises to help people become successful traders. Here’s what I found.

“Respect your capital”

The first rule you learn at the Online Trading Academy (OTA) is not to trust Wall Street with your money. “Wall Street has trained us to be buy-and-hold investors,” the instructor, Chris, told me and the two other students attending the Power Trading Workshop at the company’s offices in Vienna, Va., a suburb of Washington, D.C. (OTA also has offices in the United Kingdom, Singapore and Dubai, as well as in 29 other cities in the U.S. and Canada.) This is a bad thing, Chris said, because the market goes up, down and sideways. And when it heads south, as it did during the 2007-09 bear market, buy-and-hold investors get crushed. OTA’s mission was to teach the likes of me how to make money regardless of what the market does.

How, you ask? Through the power of technical analysis. Technical analysts study past data — primarily a security’s price and trading volume — to predict the future. They look for patterns to find reliable signals of when to buy or sell financial instruments, such as stocks, options, futures and foreign currencies. The process involves studying a menagerie of indicators, such as candlestick charts, Bollinger bands and something called the stochastic oscillator. Technicians care little, if at all, about fundamental analysis — the examination of, say, a company’s earnings and balance sheet or of general economic conditions.

Technical analysis has both passionate critics and ardent adherents. For example, an October 2009 study by New Zealand’s Massey University found that of more than 5,000 strategies that employ technical analysis, none produced returns in the 49 countries where researchers tested the strategies beyond what you’d expect by chance. However, scores of traders, including billionaire Paul Tudor Jones, say the discipline helped them amass great fortunes. So I tried to keep an open mind.

But a debate about technical analysis was not part of the program at OTA. Instead, the seminar quickly evolved from a round of Wall Street bashing to a pitch to enroll in the company’s $4,990 Pro-Trader class. The seven-day course would show “how to treat your capital with respect,” Chris said. He added that some of the academy’s students had doubled their money in three months after taking the Pro-Trader class. Once I paid tuition, I could retake the course as often as I wanted. And if I used one of the six discount brokers that partnered with OTA, I would earn rebates on commissions up to the cost of the classes I took.

Overall, I left my free OTA seminar less than satisfied. I wanted to learn how to trade and all I got was a sales pitch. It was time to hit the road.

“Who likes money?”

I drove to the Hilton Airport Hotel in Norfolk, Va., to attend the Financial Freedom Expo, sponsored by BetterTrades. About 30 would-be zillionaires, mostly baby-boomers, sat in a cavernous ballroom. Men outnumbered women two to one.

BetterTrades’ presentation was the most lavish of the three seminars I attended. At the front of the room a large projection screen was draped in velvety purple curtains. Tables displaying neat rows of BetterTrades DVD box sets surrounded the screen. I felt like a contestant on The Price Is Right, especially after I met the expo leader, Steve, who was tall, tan and likable — just like the game show’s Bob Barker. Steve fired up the crowd with questions such as “Who likes money?” and “Who would like to make more?”

For Steve, successful trading was a matter of identifying support and resistance levels for a security. Look at a stock chart. If you draw a line that hits multiple points where the stock price bounces back from a low point, it is known as a support level. The line drawn on the chart that hits multiple points where the price peaks is known as a resistance level. Under technical analysis, a stock trader wants to buy at support (low) and sell at resistance (high). Sounds easy, but it’s difficult to know where the support and resistance levels are until after the fact.

With the class wrapping up, Steve had a special offer for me. For just $3,995, if I acted now, I could attend the two-day Market Essentials seminar coming to Norfolk. The first five people to sign up would get free bonus training materials. Steve said I had nothing to lose because if BetterTrades’ strategies did not earn me three times what I spent on tuition within six months, the company would refund my tuition or train me free of charge for up to a year until I mastered the program. (His offer did not take into account how much capital I would put up.)

Despite the guarantee, I wanted to know more about what I was going to learn in the class and what kind of return I could realistically expect to earn. Profit Strategies gave me a glimpse of what to expect.

“Work your tail off”

Profit Strategies (PS) takes the total-immersion approach to education, kind of like throwing you into the pool to force you to learn how to swim. That’s how I felt during PS’s free Active Investor Methods class at the Hilton Miami Airport. The two-day course, which had about 40 students, mixed beginners with trading veterans. We skipped the introductory material and jumped right into trading strategies.

The instructors, Mike and Jay, detailed several complicated systems. One moment we were discussing how to use a spike in a stock’s one-day trading volume to predict whether the price would rise. The next moment we were reviewing how to construct an “iron condor,” a strategy of buying and holding four different options with different strike prices. Between the presentations, Mike and Jay flogged PS’s eight-week courses on various trading systems, each of which cost $3,495. Students in the course would meet with the instructor online once a week for class and to review trades. “Only a limited number of seats left,” Jay said.

The audience had the opportunity to pepper Mike and Jay with questions. A newcomer asked them what kind of return one should expect to earn from trading. Mike said that a 5% monthly return sounded reasonable. That works out to 80% annualized.

All the seminars I attended were quick to point out that individual results will vary. And there’s the rub. Because the performance of individual traders is not public, you have no way of knowing how well these trading programs work. Sure, the seminars present testimonials from their top earners, but you don’t know how well the average student does. Studies show how tough it is to succeed at trading. In 1999, for example, at the height of the day-trading craze, the North American Securities Administrators Association studied the accounts of day traders. Only 11% consistently generated profits, and 70% sustained losses that wiped out their accounts. None of the seminar com-panies monitors the success rate of all their graduates. Says Judy Hackett, BetterTrades’ marketing chief: “We can only track the satisfaction of our customers, and we have lots of very happy customers.”

Students who have succeeded with these systems swear by them. Jeffery Kronenberg, a 30-year-old former life-insurance salesman, says he is able to support himself in New York City using the skills he learned at OTA. He has been a full-time trader since October 2009 after taking a class last May. “You have to work your tail off,” says Kronenberg, who typically gets up at 6:30 a.m. on trading days and works until the markets close at 4 p.m. “They will teach you, but you’ve got to really want it,” says Abba Genes, 26, of Mount Vernon, N.Y. He adds that the skills he acquired from BetterTrades allow him to earn about $1,000 a month to supplement his income as a concierge. Genes, who trades three hours a day in the morning, plans to become a full-time trader after he completes college. He says it took months before he learned how to generate trading profits. Meanwhile, big early losses nearly wiped out his account.

The seminar instructors I met said they made a good living from trading. But it’s impossible to know whether they are successful traders or just great salesmen. The trading-education industry does not have a good track record when it comes to sales practices. Seminar promoter Teach Me to Trade shut down in the U.S. after the Securities and Exchange Commission filed a 2008 complaint against two of its salespeople. The SEC alleged that in Teach Me to Trade seminars the pair claimed to be successful traders, but they actually earned their millions from commissions selling seminars rather than from trading. In December 2009, Investools paid $3 million to settle an SEC complaint that two of its salesmen misrepresented themselves at seminars as expert traders.

As I completed my journey, I couldn’t help but wonder why those who possess the magic formulas for successful trading would give away their secrets — even if they did earn $4,000 or so per customer. After all, if you can earn 80% a year, why would you run the risk of seeing the effectiveness of your strategy diminish as more and more people started using it (a common occurrence in investing)? That aside, what’s clear is that if you decide to learn how to trade from any of these companies, you will need to have faith that your instructors know what they are doing and that you can convert their knowledge into winning moves. The odds will be against you.

Why it’s hard to trade and win

High costs. Most trading programs charge more than $4,000 for their workshops and tutoring packages. In addition, trading generates a lot of commissions, usually $5 to $9 per stock trade at the typical discount broker.

Too much time. It can take years of practice to earn trading profits consistently. Even if you are not trading on a daily basis, you will have to dedicate several hours a week to studying charts and related data.

Potential losses. Trading can lead to huge investment losses. This isn’t for widows, orphans and those with weak stomachs.

Tough competition. Financial firms have better trading tools than you do. High-frequency trading systems utilized by professionals make it harder for individual traders to succeed.

From Kiplinger’s Personal Finance magazine, March 2010

Fox business network takes fluff to a whole new level, even by the standards of cable news. Watch the channel’s Happy Hour show and get business tips from the Mannheim Steamroller band’s Chip Davis from a bar in New York City’s Waldorf-Astoria hotel. Or listen as America’s Nightly Scoreboard rates the chances that a new book by comic Sacha Baron Cohen (better known as Borat) will succeed.

The sugar-sweet programming seems designed to make the “medicine” of real business news more palatable. Fox Business executives say the channel wants to broaden its audience beyond those viewers who would regularly watch CNBC and the geekier Bloomberg Television. But how are breathless interviews with British celebrity chef Nigella Lawson or the Naked Cowboy, a New York City street performer, any different than the pablum that permeates the rest of cable news?

Fox Business, which launched October 15, excels at promoting itself and the products of its parent company, News Corp. Money for Breakfast, the channel’s morning show, ran a sappy segment about how the New Orleans cop show K-Ville — which runs on the Fox network — has boosted the Big Easy’s economy. It’s as if you’re watching a commercial for business news instead of actual business news.

Frivolity often gets in the way of a good TV story. When U.S. Treasury secretary Henry Paulson gave a revealing speech about U.S.-China economic policy in October, CNBC and Bloomberg covered some of Paulson’s remarks live. Meanwhile, Fox Business ran a piece about the business of college football’s Bowl Championship Series.

Don’t expect Fox Business to revolutionize the format. On weekends, it’s the same old infomercials for get-rich-quick schemes and other junk you find on CNBC. “We decided we couldn’t boil the ocean,” says Kevin Magee, executive vice-president at Fox Business. “So we attacked Monday through Friday first.”

Yet watching Fox Business reveals at least one gem: The Dave Ramsey Show. Ramsey, already a popular author and radio-show host, prods his viewers to shed their debts and save more.

And Fox Business has a better stock ticker than its competitors. The ticker identifies the company, stock symbol, share price, gain or loss, and the sector of the economy to which the stock belongs. That makes it more useful than the whirl of data that blazes across the bottom of the screen on CNBC and Bloomberg.

In time, Fox Business may grow up. Many of CNBC’s best anchors were recruited from the ranks of the Wall Street Journal, and News Corp. was on course to complete the purchase of Dow Jones, the Journal’s parent company, in late 2007. But Fox Business doesn’t have carte-blanche access to Journal staffers until 2012 because of a preexisting pact between CNBC and Dow Jones. After the kinks are ironed out, let’s hope Dow Jones veterans can add a degree of class to a network that seems to think it can lure viewers only with fluff.

From Kiplinger’s Personal Finance magazine, January 2008

In a world filled with financial peril, two men think they can save you. One comes from the mean streets of midtown Manhattan, a survivor of the reality TV jungle. The other is a fighter from Hawaii, hardened in pits of real estate investing expos and public television pledge drives. Who are these self-proclaimed straight shooters? None other than mega-developer Donald Trump and entrepreneur Robert Kiyosaki (best known for his New York Times best seller Rich Dad Poor Dad.).

Together, this dynamic duo has collaborated on Why We Want You to Be Rich, out in bookstores Oct. 10. The book seeks to free you from the banality of middle-class financial life — and the folly of most personal-finance advice. Or so its authors would like you to believe.

The Donald needs no introduction. Kiyosaki’s success with Rich Dad Poor Dad has spawned a franchise of books, games and speaking engagements. He’s also made a PBS special, usually trotted out when public television stations need help from viewers like you.

Impressive resumes. Alas, unimpressive book. Why We Want You to Be Rich is a thinly veiled infomercial for more financial-advice products from Kiyosaki, Trump and their minions. They sell positive thinking and can-do haziness — specific details cost extra.

Why We Want You to Be Rich seeks first to scare you silly. The middle class, according to the authors, is shriveling, sapped by the falling value of the dollar, rising national debt, lower wages, higher oil prices and baby-boomer retirement. The upshot: America is headed for a two-class system. In the future, the rich will live above the fray of national collapse while the rest of us gnash our teeth.

What to do? Kiyosaki offers a “financial education.” Trump spins plenty of anecdotes and stories. But the result is more gristle and flab than real meat.

Forget mutual funds and modern portfolio theory, Kiyosaki argues for most of the book. Instead try investing in real estate, especially if you borrow money from the bank to do it. Just leverage your way to a portfolio of real estate and small businesses that will generate enough income to retire to Easy Street.

Still not sure how to do that? Well, buy more books and attend more conferences featuring — you guessed it — Kiyosaki and Trump.

If this book were a football broadcast, Kiyosaki would be the play-by-play announcer and Trump would do color. That is to say, the book is more Kiyosaki’s than Trump’s. At the end of each chapter, The Donald meditates on the wisdom Kiyosaki has set forth. Among his insights are that he enjoys golf, he was quite the baseball player in his youth and he likes to visit Los Angeles from time to time.

To be fair, the book’s introduction tells readers this is not a how-to book. A disclaimer on the cover would be more appropriate. Why We Want You to Be Rich pretends to explain why the rich are different and to outline the benefits of wealth. The Great Gatsby by F. Scott Fitzgerald does a better job. If you are genuinely interested in learning more about real estate investing, which is not for the faint of heart, check out Investing in Real Estate, by Andrew James McLean and Gary Eldred.

From Kiplinger.com