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

NFL owners and players are still trying to reach an agreement to end a lockout that began in March and threatens to push preseason off schedule; the standoff may end as soon as next week, just in time to avoid disrupting anyone’s fantasy football draft.

But neither side is sitting back and waiting for negotiations to end. The league and the players both enlisted lobbyists, created rapid-response operations, and used social media to gin up public support. The Players Association has courted Hollywood and brandished dubious studies about the economic effects of a lockout. The NFL has aggressively fact-checked its critics and NFL Commissioner Roger Goodell has reached out to fans with a series of town hall-style conference calls. In short, they’ve deployed tactics from D.C. that are more familiar to campaigns than the grinding labor talks of professional sports teams. An NFL deal may get done in New York, but the P.R. fight is all Washington.

Negotiations and court battles settled the NFL labor strifes of 1982 and 1987. But that hasn’t stopped the league and the Players Association from trying to win the hearts and minds of the fans this time. The league signed up Elmendorf Ryan, a Democratic-run lobbying firm founded by former veteran staffers of Senate Minority Leader Harry Reid and former House Majority Leader Dick Gephardt, as well as the Glover Park Group, founded by Clinton White House aides. The two firms represent some of the biggest corporate powerhouses in the country: UnitedHealth Group, Verizon, The Washington Post, and the Recording Industry Association of America.

The players, meanwhile, hired GOP-leaning lobby shop Fierce, Isakowitz & Blalock, which counts Apple, Facebook, and the hedge-fund industry’s trade group as its clients. The bipartisan public relations firm Singer Bonjean Strategies—run by Phil Singer, a veteran of Hillary Clinton and John Kerry’s presidential campaigns, and Ron Bonjean, a former top GOP aide on Capitol Hill—is working for them, too.

All that firepower, and all the billable hours involved, underscores football’s position as a big business that also just happens to entertain people every Sunday afternoon during the fall and winter. The league generated about $9.3 billion last year; no wonder the same K Street types who work for tech giants are involved now.

So far, you have to give an edge in this fight to the association. (After all, no one is wearing a Redskins jersey with Dan Snyder’s name on the back.) Still, “the public finds it hard to pick a side where you have a fight between billionaire owners and multi-millionaire players,” says Stephen Greyser, a Harvard Business School professor who focuses on sports business. “The fan base just wants both sides to come together and get a deal done.” In the meantime, the players and the owners are trying to win sympathy for their case, using strategies familiar to anyone who’s watched Beltway public affairs fights.

The Players Association’s NFLLockout.com plays to the crowd like a popular high-school quarterback. The site has more than 50,000 Facebook fans and nearly 8,000 Twitter followers, and it lets you fill out an online petition in support of the players. George Atallah, a P.R. guy whose last job was in Qorvis Communications’ D.C. office flacking for the Kingdom of Saudi Arabia, runs the association’s online outreach. He was the first hire when DeMaurice Smith took over as executive director of the Players Association in May 2009. Smith, a former lobbyist at Patton Boggs and member of President Barack Obama’s transition team, won his post in part by promising to boost the association’s advocacy efforts.

Unlike the owners, the players have access to star power that can woo fans. Videos on NFLLockout.com show players working out on their own because they can’t access their teams’ world-class facilities. But the online advocacy doesn’t end at the association’s website. Twenty NFL players partnered with the humor site Funny or Die to create “Field of Dreams 2: The NFL Lockout.” The video featured Taylor Lautner from the Twilight movies as a farmer who builds a football gridiron in an Iowa cornfield. Tony Gonzalez of the Atlanta Falcons, Ray Lewis of the Baltimore Ravens and Shawne Merriman of the Buffalo Bills are among players with speaking roles. Ray Liotta, who starred in Field of Dreams, plays NFL Commissioner Roger Goodell; Kevin Costner makes a cameo at the end of the video. Funny or Die says the video, which debuted on ESPN’s SportsCenter and was posted on numerous sports blogs, was its biggest production yet. The video was a touchdown for the players. “The players have done a good job early on portraying themselves as victims in the lockout, as guys who just want to play football,” says John Maroon, president of Columbia, Md.-based Maroon PR, which specializes in sports business, and who briefly served as vice president of communications for the Redskins in 1999.

The players want you to know the lockout isn’t only about their members, who make a median salary of $770,000, but the other poor folks who rely on football for their livelihoods. The labor dispute could devastate the economies of entire cities, according to a study commissioned by the association. The study, done by D.C.-based Edgewood Economics, found a season-long lockout would cause up to $160 million in economic damages for each NFL city. If that wasn’t enough evidence to win over the public, the association unveiled league documents it obtained from lawsuits, in a fashion befitting WikiLeaks. In a series of blog posts labeled “The Conspiracy File,” documents show that the league sought to make long-term business decisions that would “maximize revenue.” (Shocker.)

The league’s NFLLabor.com counterpunches with the earnestness of a student council president. The site details inaccuracies in Smith’s statements to the media, and even truth squads a talk he gave to MBA students at the University of Virginia in April. The website’s blog, like a stodgy campaign war room, attempts to poke holes in the association’s talking points. It criticized one of Atallah’s comments with a post headlined “There he goes again”—Ronald Reagan’s catch phrase from the 1980 presidential debate. (Oh, burn!) You can also find transcripts of the conference calls Goodell has done with fans from a half of dozen NFL teams. One fact sheet offers a critique from the Players Association’s economic impact study, which quotes from economists rightly pointing out that sports fans would simply spend their money elsewhere in the absence of a football season.

Owners and players have more than 9 billion reasons to strike a deal. Even a small hiccup in operations caused by a lockout will mean a smaller paycheck for everyone this season. Chances are the negotiations will lead to a resolution; the K Street gang is only there as a defensive measure if negotiations fail. “I think the owners and the players would prefer lawmakers stay out of the negotiations except to applaud once a deal is reached,” says Harvard’s Greyser. The NFL has more than tripled the money it spends on lobbyists, from $380,000 in 2006 to $1.45 million last year, according to data from the Center for Responsive Politics. Under Smith’s tenure, the players association spent $780,000 with Smith’s former employer, Patton Boggs, over the past two years, up from $100,000 in 2008 and 2007 with another lobbying firm.

The public spats between the owners and players have died down, with negotiations now in a critical phase. The 24-hour news cycle, and fans’ appetite for minutiae, has spread the message from the online operations of both the league and players, Maroon says. He thinks the players have stayed on point, which is impressive considering the numbers of strong personalities in their camp, and the league has opened up more about its position than in past disputes. “What the NFL and players association have done during the lockout will likely serve as a model for other sports leagues,” Maroon says.

Whether other sports learn from football’s lesson may be evident sooner, rather than later; the NBA is heading into a labor dispute, too. Pro sports isn’t just a game, after all.

From Washington City Paper, July 15, 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

Jeff Horton did a gut check. The 33-year-old information-technology manager had been dutifully making the monthly mortgage payments on his three-bedroom home and on a condo he rented out for investment income, both in the suburbs of Orlando. But he felt trapped. His properties were worth about half of the $395,000 he had paid for them at the top of the market. In September 2009, after months of soul searching, Horton joined the ranks of borrowers who practice “strategic” default: He stopped paying on both mortgages, even though he could afford them.

“I was raised Southern Baptist. The decision was a moral struggle,” says Horton. “My mom had a hard time dealing with it. But I didn’t want to be tied down for five or seven years waiting to break even.”

Breaking a deal. Some 1.65 million homeowners received default notices in the first half of 2010, according to RealtyTrac, an online marketplace of foreclosed properties. It’s impossible to tell how many of those defaults were strategic, but one recent study from credit bureau Experian and Oliver Wyman, a consulting firm, estimates that fewer than one-fourth of homeowner defaults are discretionary. Meanwhile, about 20% of mortgages, or roughly 15 million homeowners, are underwater — they owe more on their mortgages than their homes are worth — and are candidates for default, strategic or not.

Shame, guilt and the anxiety over a foreclosure’s consequences prevent more borrowers from taking the plunge, says Brent White, a law professor at the University of Arizona who has studied strategic default. Plus, as the housing market improves, the default numbers are declining. Homeowners who can’t keep up with payments can pursue a mortgage modification or, if that doesn’t work, a short sale (selling your home for less than you owe on the mortgage with the lender’s okay). Call your lender to negotiate, or go to makinghomeaffordable.gov. Horton says he tried to refinance, but the lender wasn’t interested because his properties had fallen so much in value.

But some view a home purchase as a business deal that you should be able to unwind should it go south. YouWalkAway.com, the San Diego firm that helped Horton with his default, has advised more than 5,000 borrowers about default since 2008. “We want to help our clients avoid bankruptcy, if possible,” says Jon Maddux, YouWalkAway’s co-founder. Maddux says he spends much of his time persuading his customers that they are not bad people for bailing on their mortgages. The site charges a flat fee of $1,000 or offers a trio of payment plans that start at $200 down and $30 per month. For the money, customers receive details on how the default process works and meet with a lawyer and an accountant to discuss legal and financial options.

The fallout. There are benefits to defaulting. While the bank pursues foreclosure, borrowers pay off other debts and save money as they live in their homes free. Horton is reducing his credit-card debt and paying down student loans, as well as contributing $200 more per month to his retirement plan. Given the backlog of underwater properties nationwide, the foreclosure process can take more than a year to complete. It took nearly a year after his last mortgage payment for Horton’s condo to be auctioned off, and as of early August he hadn’t heard from the bank about foreclosing on his home.

But walking away will make it harder to buy a home in the future. Under new rules, Fannie Mae, which backs loans from lenders, prohibits borrowers from receiving government-financed mortgages for at least seven years if they default when they can afford to pay. (You’ll have to wait three to five years after an involuntary foreclosure and two to four years after a short sale.) Defaulting also torpedoes your credit score — at least temporarily. You can expect a 100- to 150-point drop for the foreclosure and extra points subtracted for late payments. A foreclosure can stay on your credit report for up to seven years. But if a default is your only blemish, then you might revive your credit score in as little as two years. Horton says he has seen his credit score drop from 750 to 530 since he defaulted.

Not so fast. Depending on where you live, banks can also pursue a deficiency judgment — that is, they can come after you for the difference if your house is sold in foreclosure for less than the loan amount. About one-third of states prohibit or limit banks’ suing borrowers who walk away. These are known as nonrecourse states. Unfortunately for Horton, Florida isn’t one of them. He owes $140,000 on his condo, which he estimates is worth $50,000. And the home he purchased for $255,000 three years ago was recently appraised for $154,000. He is setting money aside for a settlement with the bank once his foreclosures are final. (Foreclosure laws vary widely by state; check out your state’s laws at www.foreclosurelaw.org.)

Banks have rarely sought deficiency judgments. The risk of a legal action is greater for borrowers who strategically default because they have more money to pay judgments. Yet only five out of more than 5,000 YouWalkAway clients have received judgments, Maddux says. Many others who live in states that allow judgments settle for 20 cents to 30 cents on the dollar. “You are more likely to be hit by a car than a deficiency judgment if you default,” Maddux says.

Banks have been reluctant to sue because it is difficult for lenders to pursue a judgment without spending a lot of time and money in legal fees, according to a recent Deutsche Bank study on strategic defaults. That may change once the economy fully recovers. In many states, a bank can sue to recoup its shortfall four to five years after a foreclosure.

Regardless, Horton is at peace with his default. Once the bank seizes his home, he may rent a house in his neighborhood for half the cost of his mortgage or travel the world with his girlfriend. “But I won’t buy another house anytime soon,” he says.

From Kiplinger’s Personal Finance magazine, October 2010

Some people have been stashing money in 529 college-savings plans since their kids were in diapers. But even if you procrastinated and your child is already enrolled in school, contributing to a 529 account could save you hundreds a year.

The tax perks vary from state to state. Twenty-six states and the District of Columbia offer a state income-tax deduction for contributions to 529 plans that they sponsor (see our map for all the states that offer tax breaks). Five states — Arizona, Kansas, Maine, Missouri and Pennsylvania — offer a state-tax deduction for contributions to any 529 plan. Indiana, Vermont and Utah offer a state-tax credit for contributions to their state-sponsored plans. (A tax credit is more valuable than a deduction because it reduces your taxes dollar for dollar.) In addition to the state-tax benefits, earnings on your plan investments are tax-free if they are used to pay qualified expenses, such as tuition, books and fees.

How much you will save by making last-minute contributions depends on your tax bracket and the plan’s contribution limit. But the savings can be substantial. For example, if you are in the top, 6.85% tax bracket in New York, you will save $685 per year by contributing the annual maximum of $10,000 for joint filers to the state’s 529 plan and then withdrawing an equal amount to pay for current college expenses.

Not all plans are as generous, however. Two states that offer state-tax deductions pose problems for last-minute contributors. Michigan provides a deduction for net contributions, meaning your contributions minus your withdrawals. So if you contributed to Michigan’s 529 this year, you would have to wait until 2011 to withdraw the money to get the full deduction. Montana recaptures any state-tax deduction on withdrawals made within three years of opening the account.

If you use this late-contribution strategy, park your investment in the 529 plan’s most conservative option to protect the money from stock-market volatility. Plus, conservative alternatives, such as CDs and money-market and stable-value funds, charge the lowest fees among investments on a plan’s menu.

From Kiplinger’s Personal Finance magazine, September 2010

ETFs trade like stocks and can behave like them, too. The fact that you can buy and sell ETFs just like stocks is advertised as one of their great benefits. But as the May 6 flash crash demonstrated, it can also be a serious disadvantage. On that tumultuous day, the share prices of many ETFs dropped to pennies in a matter of minutes even though their underlying assets were worth far more. Of the securities hardest hit by the mayhem, about 70% were ETFs. The exchanges later nullified trades executed at prices that were 60% or more below pre-crash levels. The best protection against future crashes is to use limit orders (see How to Buy and Sell an ETF).

ETFs can miss the mark. Most ETFs are designed to track a market measure, such as Standard & Poor’s 500-stock index. But even without the extraordinary circumstances of May 6, some ETFs fail to track their benchmarks as closely as they should. For example, iShares MSCI Emerging Markets Index (symbol EEM) is designed to follow the MSCI Emerging Markets index. Over the past year through May 31, the ETF gained 16.4%, but the index rose 22.7%. One reason for tracking errors is that funds charge expenses (0.72% annually in this case) while indexes don’t. But the way an ETF goes about trying to match its benchmark can also lead to unexpected results. While the emerging-markets index holds more than 850 stocks, the iShares ETF owns only 600, ignoring shares of some of the smaller companies. When small-company stocks in emerging markets rallied in the past year, iShares investors missed part of the gains.

ETF trading involves extra costs beyond commissions. Exchanges require buyers and sellers. When there is not enough of either, the gap grows between the price buyers are willing to pay for shares of an ETF and the price sellers are asking. This is called the bid-ask spread, and it costs you every time you trade. The spread for widely held ETFs, such as Vanguard Total Stock Market (VTI), is usually a mere penny. But spreads for newly issued or thinly traded ETFs — Market Vectors Vietnam (VNM) is one example — can be a nickel or more. In general, you should pass up ETFs with wide spreads. If you must own one, use limit orders when you buy and sell.

Share prices may be below or above an ETF’s net asset value. This situation is common for closed-end funds, the older cousins of ETFs. Most widely traded ETFs don’t have this problem because trading specialists swap shares for the fund’s underlying assets to get rid of discounts and reverse the process to eliminate premiums. But ETFs that are thinly traded or wildly popular can deviate from their NAVs. Don’t buy an ETF for a premium to NAV or sell one at a discount. You can get real-time NAVs on AOL, Yahoo and some other Web sites by adding “.iv” to an ETF’s symbol.

Beware leveraged ETFs. These ETFs attempt to double or triple the returns of their benchmarks for a single day. But leverage can lead to unexpected results for funds held over periods longer than a day. Suppose the S&P 500 climbs 10% on Monday, then drops 10% on Tuesday. A $100 investment in an S&P 500 ETF at the market’s open on Monday jumps to $110 by the end of the day, then sinks to $99 by the end of Tuesday. You’re out 1% over two days. But if you buy a double-leveraged ETF, you have more than doubled your loss. That value of your holding jumps to $120 on Monday, then tanks to $96 by the Tuesday close. Extend this kind of volatility over a long period and you can lose money even if the index goes up. You don’t need that kind of trouble.

From Kiplinger’s Personal Finance magazine, August 2010

It sounds like a contradiction: exchange-traded funds that buy and sell investments picked by managers instead of tracking an index. But more than two dozen actively managed ETFs are now available, and that’s just the beginning.

Firms large and small are getting on the bandwagon. Well-known ETF sponsors, such as iShares, PowerShares and WisdomTree, offer actively managed ETFs. Bond behemoth Pimco has three active bond ETFs, with more in the works. Prominent mutual fund companies, including John Hancock, Legg Mason and T. Rowe Price, have registered with regulators to develop such funds, holding open the possibility that some of the best and brightest minds in the fund industry may one day be picking stocks and bonds for ETFs.

For now, though, cash isn’t rushing in. As of June 1, 25 active ETFs held about $2.4 billion, about 0.3% of the $792 billion held in all ETFs. Bond and currency active ETFs, offered by Pimco and WisdomTree, respectively, are the largest active ETFs by asset size.

Regulatory hurdles could slow the rollout of more active ETFs. The Securities and Exchange Commission is reviewing new and pending applications for ETFs that use derivatives (investments whose results depend on the performance of other investments). AdvisorShares and Claymore Securities have already amended their filings to scrap the use of derivatives in active ETFs they plan to start. Still, Larry Petrone, director of research at Financial Research Corp., expects at least ten more active ETFs to launch this year, with funds investing in bonds, currencies and emerging-markets stocks likely to attract the most attention.

Hard to judge. Four funds from PowerShares that were launched in April 2008 have the longest records among actively managed ETFs. Active AlphaQ (symbol PQY), the best-performing of the three stock-oriented PowerShares active ETFs, lost an annualized 3.8% from inception through June 4, compared with an annualized loss of 8.1% for Standard & Poor’s 500-stock index. But that’s not enough time to judge whether the strategies employed by this or any other ETF can consistently top their benchmarks.

Like acrobats in Cirque du Soleil, active ETFs perform a difficult balancing act. All ETFs, including active ones, allow investors to redeem their shares in return for the assets ETFs hold. That mechanism is designed to prevent ETFs from trading at a premium or discount to their net asset values. Nevertheless, many active ETFs trade at a price noticeably different from their NAV. For example, the share price of RP Growth (RPX), an active ETF that invests in stocks of growing companies, regularly trades at a 1% premium to the value of the ETF’s holdings. Discounts and premiums usually develop when an ETF hasn’t attracted enough investors to trade away the discrepancies between the fund’s share price and its holdings.

Discounts and premiums aren’t the only issues to consider when buying active ETFs. Thinly traded active ETFs have wide spreads, which is the difference between the price to buy the fund and the price to sell it. The spreads, plus the brokerage commissions you pay, can add considerably to the cost of investing in active ETFs compared with investing in regular mutual funds.

Fees for active ETFs also vary dramatically. Dent Tactical (DENT), an active ETF that holds other ETFs and is run by managers who trade frequently, charges 1.56% in annual fees. By contrast, Pimco Enhanced Short Maturity Strategy (MINT) boasts a 0.35% expense ratio, which is only slightly higher than the average expense ratio of 0.23% for ETFs that concentrate on short-term U.S. bonds.

Actively managed ETFs have yet to prove their worth. However, we’d certainly be willing to consider them if some top-notch managers, such as those who run funds in the Kiplinger 25, get involved.

Three ways active ETFs could take off

1) Star managers are put in charge of ETFs. Imagine if Legg Mason created an ETF run by Bill Miller.

2) The first batch of actively managed ETFs puts up sparkling three-year results. That means good Morningstar ratings, which in turn attract more assets.

3) Regulators are quicker to give ETFs the green light. Delays in gaining approval from the Securities and Exchange Commission have slowed the development of active ETFs.

From Kiplinger’s Personal Finance magazine, August 2010

It’s easy to roll your eyes at socially responsible investing. Maybe it’s because the term suggests that other types of investing are, well, socially irresponsible. Look past its practitioners’ sense of moral superiority, however, and you’ll discover that some funds have more to offer than good intentions.

Traditionally, socially screened funds (our preferred, nonjudgmental term for the group) shunned stocks of companies involved in alcohol, tobacco, gaming and weapons. But as other funds that adhere to green and religious tenets have come into being over the past decade, screens have expanded to include such matters as corporate governance, environmental records and workplace standards. Some funds with a socially conservative bent will not invest in companies that make products that facilitate abortions.

In 2000, fewer than 75 socially screened funds existed. Today, more than 150 traditional, open-end funds and 17 exchange-traded funds employ various social screens. But socially screened funds are still a speck in the fund universe. As of April 30, investors had only about $55 billion in them, according to Morningstar. That figure represents roughly 0.5% of the fund industry. For perspective, Growth Fund of America — the largest U.S. stock fund — has $163 billion in assets. However, the Social Investment Forum says that in the U.S., socially screened portfolios — which include pension funds, endowments and foundations, as well as mutual funds — held $2.7 trillion at the end of 2007, the trade group’s most recent figure.
The costs of screening

To be sure, socially screened funds have high hurdles to clear. Small asset bases and the additional costs to screen companies on the basis of ethical, religious and political standards mean the funds tend to charge slightly higher operating expenses than conventional funds.

What a socially screened fund accepts and rejects can play a big role in shaping its portfolio. The funds tend to skimp on industrial and energy stocks, which often fail environmental tests. But health-care and technology stocks are common holdings because screening criteria often favor those sectors. This can lead to portfolios that differ substantially from their conventional peers. Some funds rely on “best in class” rankings to pick the most socially outstanding performer in each sector. That approach may increase diversification, but it will likely result in the inclusion of stocks that offend some investors. For example, TIAA-CREF Social Choice Equity holds McDonald’s (a target of the healthy-eating crowd) as well as several oil companies, which may offend environmentalists.

The inability to invest in the panoply of investment choices may explain why most socially screened funds have lagged in recent years. Over the past five and ten years through May 7, about 65% of these funds trailed the average return of their peers. Over the past three, a period that includes the performance of the rash of newer funds, 60% lagged their peers.

But investors don’t buy averages, they buy specific funds. Just like anything else in the fund business, choices matter. That’s why we selected seven outstanding socially screened funds that are worth considering. The list includes six no-load funds with solid records and strong management teams, and one ETF.

Following Islamic tenets

Amana Income (symbol AMANX) and Amana Growth (AMAGX) are not just top performers among religious funds; they also stack up with the best in their categories, socially oriented or not. Following Islamic principles, the funds spurn financial companies, pork producers and firms involved in pornography. They also adhere to the standard social screens that eliminate alcohol, gaming and tobacco firms.

The picky filters shielded the Amana funds from the brunt of the financial crisis but have been a drag on returns during the subsequent bull market. Over the past five years through May 7, Amana Income ranks in the top 1% among funds that invest in large, undervalued companies. But mainly because financial stocks have rallied so sharply, Amana Income lands in the bottom 7% of its category over the past year. It’s a similar situation with Amana Growth, which invests in large, growing companies.

Longtime manager Nicholas Kaiser, who runs both funds, likes companies that pay increasing dividends. Amana Income has long favored big drug companies, such as Johnson & Johnson, Pfizer and Abbott Laboratories. And technology giants, such as Apple, Cisco Systems and Oracle, play a major role in Amana Growth.

Big on alternative energy

Leslie Christian, lead manager of Portfolio 21 (PORTX), says she is serious about sustainability. By that, she means she wants companies that develop ecologically safe products using renewable energy and efficient manufacturing processes. “It’s something we must do as a society or we will die,” she says.

Portfolio 21 has a long list of no-nos. The fund does not invest in the types of stocks traditionally excluded from screened funds. It also shuns companies involved in nuclear power, a stance that even some environmentalists have begun to question, given clean-burning nuclear’s potential as a solution to the problem of global warming. Plus, Portfolio 21 vets com-panies on workplace issues, human rights, community involvement and product safety. Thankfully, the fund’s Web site (www.portfolio21.com) details the reasons stocks are rejected on social grounds. For instance, the fund’s managers last year rejected MasterCard because the company wouldn’t disclose how much energy its service centers use.

Christian scours the globe for stocks of large, growing companies that she thinks are reasonably priced. Google is a top holding, along with Nokia, the Finnish mobile-phone producer, and Vestas Wind Systems, a Danish supplier of wind turbines. Christian currently favors health-care stocks for their defensive qualities.

Christian’s tough rules mean the fund is typically light on energy and financial stocks. But the restrictive approach appears to have paid off. Over the past five years, Portfolio 21 returned an annualized 3.9%, an average of one percentage point per year more than the return for funds that invest in stocks globally.

Seeking cheap stocks

Bargain hunters are unusual among socially screened portfolios. Only 13% of such funds focus on stocks their managers think are undervalued. In this small club, Appleseed Fund (APPLX) is a standout.

Appleseed won’t invest in companies that generate revenue from alcohol, gambling, pornography, tobacco or weapons. The fund’s five co-managers want good companies that have been beaten down by a temporary problem and are poised for a rebound. “We like to buy straw hats in February and sell them in June,” says Josh Strauss, a co-manager. Above all, they are looking for a low share price relative to earnings, sales and other fundamental measures. And they invest in just about anything that they think is cheap. So they own giants, such as Coca-Cola, as well as K-Sea Transportation, a tugboat operator with a $160-million market capitalization. At last report, Appleseed also had 8% of its assets in an ETF that tracks the price of gold. Strauss sees gold as a hedge against the rampant inflation he expects in the coming years.

Appleseed, which started up in December 2006, has posted an impressive record in a short time. The fund gained an annualized 4.6% over the past three years, beating Standard & Poor’s 500-stock index by an average of 12 percentage points per year.

Examining the goods

Todd Ahlsten, manager of Parnassus Equity Income (PRBLX), dives deep into a company’s operations before and after he buys. He recently toured a coal-fired power plant to see how its owner — MDU Resources, a longtime holding — disposed of ash. He prefers to meet company executives and their suppliers, if he can. He views Parnassus’s rigorous screening process as an important step in dodging bad investments. “I spend most of my time working on how we can avoid losing money,” says Ahlsten.

Parnassus has delivered steady results with a relatively concentrated portfolio of about 40 stocks. Over the past five years, the fund returned an annualized 6.0%, which puts it in the top 1% of funds that invest in large companies with a blend of growth and value attributes.

Quality shines through in Parnassus’s portfolio. About 75% of its holdings pay dividends, and stocks of global powerhouses, such as Microsoft, Procter & Gamble and Johnson & Johnson, are among the fund’s top holdings. Parnassus rejects stocks of heavy polluters, as well as companies involved in alcohol, gaming, tobacco and weapons. The fund has significantly less exposure to energy stocks than the S&P 500, but it does hold Energen, which explores for energy and distributes natural gas.

Tracking an index

TIAA-CREF Social Choice Equity (TICRX) has been adept at following the broader market without sacrificing returns. The fund chooses about 1,000 stocks from the Russell 3000 index that score well based on five standards, including use of natural resources, labor relations and corporate governance. The usual suspects of alcohol, gaming and tobacco do not make the cut. Managers then actively weight those stocks within the portfolio to replicate the returns of the index, which tracks the 3,000 largest U.S. companies. Over the past five years, the fund returned an annualized 2.5%, beating its benchmark as well as the S&P 500 by an average of one percentage point per year.

With a 0.61% expense ratio, Social Choice Equity is not the cheapest socially screened index fund. Vanguard FTSE Social Index, which charges 0.29%, claims that title. However, in December 2005 Vanguard changed the socially screened index it sought to replicate from the Calvert Social index to the FTSE4Good U.S. Select index, and over the past five years the fund has lagged the S&P 500 by an average of one percentage point per year.

Going the ETF route

The choices among socially screened ETFs offer limited opportunities. Most of the funds track indexes that are too narrow to give your portfolio adequate diversification. But iShares KLD Select Social (KLD), which charges 0.50% annually, is worth a look. It moves almost completely in sync with the S&P 500, even though energy, utility and media stocks are underrepresented in the fund. Over the past five years, KLD returned an annualized 1.1%, beating the S&P 500 by an average of 0.1 percentage point per year.

From Kiplinger’s Personal Finance magazine, July 2010