Charities With Integrity
A reader wonders just how straight are the charities chosen for the Foolanthropy drive this year? Good question. We checked them out before we selected them to make sure that these were lean, mean, poverty-fighting machines. Speaking of poverty, a reader asks if puts are a way to buy stock so you can sell it after it goes down. Well, sort of.
By Barbara Eisner Bayer (TMF Venus) and Ann Coleman (TMF AnnC)
December 19, 2000
["Ask a Fool" is a fun way to address the general investing questions our Foolish Four readers have always come to this area for. We'd love for you to submit questions for the column (click the bylines for email), but if you want an actual answer anytime soon, we suggest you pop over to the Ask a Foolish Question discussion board and post there as well. Although we are soliciting questions of general interest to answer here, we can't answer them via email. That's private investing advice, a big no-no.]
Q: I read with interest your column on Foolanthropy. Ever since the United Way mismanagement story hit the news, I'm skeptical of large organizations that profess to exist merely to help the poor, helpless, and downtrodden. (The United Way paid some scoundrel $300,000 per annum and lots of perks, including flying to France on the Concorde SST! That really fried me. He was also setting up his relatives in business to provide services to the UW.)
If you can provide info on the finances of the organizations you selected for Foolanthropy, particularly what percentage of the donations reach the needy, I will be grateful to you.
A: Once burned, twice shy, eh? We feel the same way. We checked out our charities very carefully. Some of them even offered to pass all or a higher percentage than usual of Fool-donated dollars directly on to their recipients. We like that, but we don't expect our charities to be miracle workers. They have legitimate real-world expenses. But even if they are giving us a special "deal," we wanted to be sure that they are efficient with ALL of the money that they receive. It wouldn't do to donate to someone who puts all of our money into the field but uses other donations on junkets and Champagne-and-caviar fundraising galas!
All of our charities make their finances fairly transparent on their websites. In addition, they are happy to mail out annual reports or additional information to whomever asks. But let's satisfy your concerns right now so that you can still donate (if you choose) to this year's Foolanthropy drive (note the convenient link).
There is no one organization that we could find that rates all charities. Those that do often use a standard like that of the American Institute of Philanthropy, which gives a charity a top rating if it maintains open financial documentation and applies "75% or more towards program cost while generally spending $25 or less to raise $100."
Our groups generally exceed that standard, and most are incredibly efficient with their administrative money. For example, Lifewater raised $66 for every dollar spent on fundraising. The chart below shows how much of each charity's budget goes directly to their program work. (The balance goes for administration and fundraising expenses.) We also list the top salary paid. If the organization is treating Foolanthropy dollars differently, the percentage of Foolanthropy dollars going to program work is in parentheses.
Total Salary
Programs Top Salary /Employees
Am's 2nd Har. 99%*(100%**) $202,000 $5.3 mil./79
Ashoka 80+%(100%**) $80,000 $2 mil./200
Lifewater 83% (100%**) $36,000*** $78,000/10
Heifer Project 75% (100%**) $100,500 $4.1 mil/205
Grameen Bank 85% (90%**) $65,250 $304,500/13
*Includes both cash and food donations. 71% of cash goes to programs.
**After subtracting credit card expenses
***Salary for top engineer. CEO /chief fund raiser receives no salary. Engineers may have outside consulting contracts as well.
Q: How do "puts" work? From what I understand, puts involve buying shares of a company stock at a certain price with the hopes of the stock going down so that you can sell it when the stock goes low? Am I on the right track?
A: You're on a sort of parallel track. Most people don't buy stock hoping it will go down so that they can sell it. It's hard to make money that way. But if you buy a put option, you can make money when a stock goes down. You don't buy the shares, though. Instead, buying a put contract gives you the right to sell 100 shares before a certain date at a certain price called the strike price. If the stock goes below the strike price, you can buy shares on the open market at the lower price, then sell them under your put contract for the higher price. Sounds great, doesn't it? Especially in this market.
Let's make sure we've got the concept straight.
Pretend it's last year and 1995 Ford Explorers are selling for $12,000. You enter into a contract with someone to sell him a Ford Explorer for $10,000 sometime within the next three months. Maybe you own a 1995 Ford Explore and maybe you don't. That isn't important because you aren't obligated to sell him the car, but he is obligated to buy one from you if you decide you want to sell one. That's because you paid him $500 for the right to sell to him when you bought the put. The other guy thinks he's got a great deal. He gets $500 up front, and he gets an Explorer well below the going market price if you decide to exercise your put option. If you don't exercise your option, he gets to keep the $500 bucks. You, meanwhile, have heard rumors....
A huge recall hits and the price of Ford Explorers drop. You pick one up for $8,000; but the guy you contracted with has to pay you $10,000 for it, despite the fact that he could easily buy one now for $8,000. After subtracting the $500 you paid for the put option, you pocket $1500. Good deal for you, rotten deal for the guy who sold you the put. Them's the breaks. �
That's the rosy scenario, for you the put buyer, anyway. Here's how it works more often. You hear rumors and buy the which expires in three months. Ford stonewalls for a while and the price of Explorers drifts down but never goes below $10,000... until the recall is announced the day after your contract to sell the car expires. You paid $500 for a right to sell something, but never was able to buy it for less than you would make on the sale. The guy who sold you the put has your $500 and didn't have to do anything.
When we translate this into the world of stocks, most of the activity involves trading put options back and forth with very few traders actually planning to selling the stock itself at the lower price. They are just interested in buying and selling the right. The price of the put fluctuates depending on how much time is left before it expires and the price of the underlying stock.
If all this sounds terribly complicated, you still have no idea just how complicated it can get! We don't think much of options except as tools for very experienced and sophisticated investors. Experienced option traders can make a nice living off the likes of us.
