Stock-option plans underestimated?

Many professional investors fear that corporate earnings seriously underestimate the costs of employee stock-option plans. If options had been expensed using what's known as the Black Scholes valuation method, the S&P 500's 2001 earnings would have been 20 percent lower, according to Bear Stearns. For 20 of the index's members, including Schwab, Merrill Lynch and Disney, expensing options would have made the difference between a profitable year and a losing one.

-- Speaking of questionable numbers, Olstein Financial Alert Fund has made an average 11.27 percent annually for its investors over the past decade by avoiding them. As its name implies, the fund emphasizes truth in accounting, delving deep into corporate finances and buying only those stocks selling for at least 20 percent to 30 percent less than what their "real" worth implies. Olstein also prohibits managers and analysts from investing in individual securities or other funds. Recent favorite stocks: Merrill Lynch, LSI Logic, JC Penney, Brunswick, Chubb, OfficeMax, Arkansas Best.

-- Approximately 7.2 million RVs now travel U.S. roads, up from 5 million in 1980. RV ownership peaks among people 55 to 64 years old. With the size of that group expected to rise 45 percent over the next decade, compared to 8 percent for the general population, RV makers are hitting a demographic sweet spot, says Kiplinger's Personal Finance magazine (1729 H St., NW, Washington, DC 20006). Kiplinger's particularly likes the stocks of Winnebago Industries and Monaco Coach, the industry's two pure plays. Both have declined recently on fears of a lingering recession.

-- Searching the world for low-priced but high-quality companies, Van Kampen Global Franchise Fund has more than 15,000 stocks to choose from. It favors those with strong brands or other assets that rivals can't match -- like these four, which sell on U.S. exchanges as American Depositary Receipts: British American Tobacco, the world's second biggest cigarette maker; Cadbury Schweppes, the London- based candy and beverage titan; Group Danone, the French food conglomerate; and Reed Elsevier, the Anglo-Dutch publishing giant.

-- For investors in the 27 percent tax bracket, municipal bonds look like a great deal now. The average intermediate-term muni fund recently yielded 3.7 percent, equivalent to 5.1 percent for investors in the 27 percent bracket, and 6 percent for those in the 35 percent bracket. By contrast, comparable taxable bond funds yielded just 4.7 percent. "Investors looking to fill out their fixed income allocations should look seriously at munis," says Scott Barry of Morningstar.

-- According to a recent Roper ASW poll, real estate trumps rich relatives as the dream path to prosperity for wealthy Americans. When asked: "What's the best way to get rich?" those who are already rich responded as follows: invest in real estate, 19 percent; get a professional degree, 15 percent; inherit money, 14 percent; invest in stocks/mutual funds, 12 percent; start a business, 12 percent.

Site of the Week: Seewww.financeware.com for a free site that measures the likely success of any financial plan, based on personal financial information (including savings and investments, salary, rate of savings, etc.). Probability analysis is used to measure the likelihood of meeting your retirement goals.

Investor's Notebook is a digest of investment opinion from the world's leading financial advisers. It does not recommend any specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.

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