Sunday, November 30, 2008

Capitalism at Work

THIS is what capitalism looks like. Not the pseudo-capitalism, Gordon Gekko wanna-be greed driven shite that has overtaken the Western world for the last few decades.

I honestly believe that if more company owners and managers behaved in the fashion described in this article, unions would not have the kind of traction that they do (did?). Capitalism shouldn't be about maximizing profit at any and all costs. It should be about creating a win for everyone - employees (probably more so employees than anyone), customers (strong second), management, and the community (indirectly through the already named constituencies as well as through direct involvement of the corporation).

I have nothing against unions, personally, but I don't believe in them. I also get that unions derive their leverage from their role as self-appointed defenders of the common man. Unions would largely be unnecessary if the "leaders" of corporations weren't always trying to fuck over their employees (among others). Management creates an adversarial environment and then wonders why the unions are so hostile toward them. How stupid do you have to be? If managements spent more time attempting to share the company's success with all involved in creating that success -- serving the employees, customers, vendors and families -- they'd probably not have to worry about unionization creeping into their workforces. If they spent as much time and energy on enriching those same customers, employees, vendors, et. al, I think a lot of wasted time and energy could be directed into profitable ventures.

(I admit to oversimplifying a bit, but probably not too much. "Getting over" is a human trait. It transcends cultures, nationalities, race, gender, and every other division you can think of. However, it doesn't work, as Nas reminds us. So why bother trying to "get over on someone" if its not a long term strategy for real success?)

Historically, tech companies have been the embodiment of this ideal (more so than old line industrials, anyway). The technology industry has a reputation as a meritocracy, which encourages people to give their all in the (deserved) expectation that they will be compensated commensurately with their contribution. That ideal IS the very definition of service. While the tech industry doesn't get it perfect, they are still much closer than more established industries. This probably explains the lack of presence of unions within technology companies to a large degree (although not exclusively).

Anyway, just something for all of you to think about. I'm feeling the spirit of Earl Nightingale wash over me these days, but the more I think about "The Strangest Secret", the more I see that Earl was spot on. Take care of others, and you will be taken care of. Universal, karmic law.

Just too bad that Ken Lay and the rest of those Enron cocksuckers didn't get their just desserts -- violent anal rape -- in prison. Well, you can't win 'em all!

Wednesday, November 26, 2008

Saving and Investing Seminar at Howard University on Wednesday

Yours truly has been invited to speak at Howard University next week. Specifically, for the Saving and Investing Seminar being presented by the Student Council of the College of Engineering, Architecture and Computer Sciences (CEACS). (Don't blame me. I didn't make up the name.) The president of the student council is one of my former "students" from my technical advisory days, so I guess he trusts me with the minds of his peers.


I have to admit to having a very palpable feeling of fear at the thought of speaking before a group of college students. This is a bit weird, as I have done these types of engagements in the past (just with smaller groups). I guess the fear has to do with being tapped as some sort of "expert" on finance topics. While I appreciate that, I am just feeling a bit nervous about the whole thing, as this is the first time that I have been asked to speak.

Don't misunderstand. I love sharing what I do know. I like helping people prepare for all of the potential issues that may arise. I want to help people move to a position where they don't have to worry about money. Simple math shows that speaking to a group is way more effective at spreading my message (me - message?) than individual consultations. So this would seem to be a natural progression for me. Still, I am (slightly) worried.

I do look forward to this event though. Personally, I take the fear as a signal that I should do this, that it is to be embraced and not avoided. That mantra has been serving me well this year. We'll see how it works out in this instance as well. So if you happen to be in the DC metro area next Wednesday around 7:00 PM, drop by the Lewis K. Downing School of Engineering building at Howard University to hear what I have to say. There will be a special guest as well, in the form of the estimable Ginger from Girls Just Wanna Have Funds. So if saving, investing, (personal) finance, and other such subjects appeal to you, you are welcome to come hear what we have to say. Make sure to introduce yourself as well. I know I personally like to know who is deriving benefit from this blog, and what I can do to increase its value to everyone.


The 51% Solution

This is what it comes down to in investing -- being right just a bit more often than being wrong, and when we're right, pressing our advantage. Easy in theory, but extremely complex and nuanced in practice.

A big point that many professional traders emphasize is that the greater your advantage (and we're talking in basis points here, realistically - 5+ bps - against your opponents), the more you need to press. Even Charlie Munger will tell you that when an opportunity comes along, you need to put as much weight behind that trade as possible. (See #6 from the following list of his rules for investment success, about asset allocation.)

Ask John Paulson.

Ratings Agencies: A New Model

One of the fundamental breakdowns of this credit crisis was in the ratings agencies (technically, the Nationally Recognized Statistical Rating Organizations - NRSROs).

This article over on the Financial Times gives a nice overview of the growth of Moody's and the NRSROs, especially in the structured finance arena. You should check it out, twice if you're not really a follower of the market.

The big takeaway from this whole crisis, on the NRSRO side, is that the appropriate compensation model for the NRSROs is for their customers to be the buyers of bonds and other credit products. Additionally, they should probably be private versus public organizations, much like SC Johnson. Many firms are public that have no good reason to be. I am all for public markets, but when a firm serves such a large public role, being publicly traded is probably a handicap as opposed to a benefit. Adding a touch of the Google internal stock market is probably a good idea for these private firms, but their shares do not need to trade on public markets. I really don't get this desire for firms to be public, except if they are struggling. Maybe all those LBO targets are on to something? (About being private, anyway. It sure isn't their business processes.)

As for the point of credit buyers paying the ratings firms, this is ideal because they are the ones who ultimately will benefit from the research. The current structure invites severe moral hazard. The FT articles mentions that the complexity of rated products forced growth in the size of Moody's in order to rate these large entities and the esoteric products coming into the credit market. Well, maybe scale was required, but the flip side of the subscription model is that if a corporation will not allow the NRSRO to rate its product -- if the corporation willfully decreases transparency into its credit quality -- then a suitable discount must be applied in the market to compensate for the lack of information. This is the ONLY model that makes sense. Without the information, the opacity should force the market to discount the bonds, commercial paper, convertibles, or structured product being sold (or underwritten) by the corporation. That's not fair -- its just plain good sense and good business!

The final concern becomes the models themselves. As has been widely noted, the NY Times covered this recently. The models are just mathematical equations. They have no position on this subject; they are merely tools, and like any tool, they can be misused or misunderstood by those wielding them. Human frailty (and that damn good sense) come into play here again. The Times piece looks at how quickly humans were willing to set aside their reason in the pursuit of compensation, or assume that the real world was accurately reflected by the models.

The models were not then, and are not now, the problem. The problem is the gatekeepers wielding the models. Once a flaw - a programming bug, or worse, a design flaw - was found, anything rated with that software should have been re-rated. The decision to NOT re-rate those issues should be considered an act of negligence, possibly willful and criminal negligence. Models will evolve if their creators update them. Secondly, if any product has little to no history, then you cannot reasonably rate it based on historical performance of any other product.

So if you're out there in the credit market in any way, you owe it to yourself to do SOME credit analysis on any product you might buy. Whether we're talking bond funds, or direct investment in credit products, you have to understand what you're buying on some level. Credit analysis is more difficult than equity analysis. Such is life.

So to wrap this (very late) missive up, the ratings agencies can serve a useful function. However, their role of being public watchdogs, a la the press, must be honored. Otherwise, that role is better subsumed within a unified regulator (whenever the SEC and CFTC merge), and let's face it - we don't want that. This is something that is probably better suited to government functionally than most other tasks it takes on, but it still should be a market function. Government could provide credit research and publish it, for free even, but would that research be very good? Could it be subverted? A market system for credit research will go a longer way to promoting the transparency and lack of conflict that investors deserve. Adding that value should come with a price.

Wednesday, November 19, 2008

Selling Online Real Estate

Since my grandiose plans from about a year ago to turn some of the domains I own into businesses never came to fruition, I have decided to re-park them. Given the (somewhat) amazing response that has been generated with the currently parked domains, and the fact that the 4 domains I just listed were generating no income, it would be absurd to continue keeping them in reserve.

I currently have 7 domains listed, including one semi-premium domain (a .net) and a truly premium domain (a choice .com). We'll see how these do being parked. They performed fairly well up until de-listing them last summer, so I think this could be promising. Not lucrative, but at least they should cover their registration and other holding costs.

Until next time...

Thursday, November 13, 2008

Woo Hoo!

I just made $22.01 for July - October from parking some domains with Sedo. Very nice.

Wednesday, November 12, 2008

The Effective End of an Industry

It occurred to me yesterday that, as we approach the the $1,000,000,000,000 mark in losses from this mortgage induced economic and credit crisis, the size of the global hedge fund industry is estimated at somewhere between $1.5T and $2T in assets under management. (Or at least, it was prior to this crisis.)

So, if we really do hit $1.5T in losses as some of the extreme estimates have stated, we will have effectively wiped out the ENTIRE hedge fund industry. The ensuing liquidation will drive down prices on many financial assets, and drive quite a few people out of jobs.

Politicians really need to be careful what they wish for.

Tuesday, November 11, 2008

Quote of the Week

From Felix Salmon at Portfolio:

"If you want to save money, save money. Don't place too much trust in the market to make your money grow, since there's a good chance the market will end up moving in entirely the wrong direction."

Thursday, November 06, 2008

Paying Yourself First

So I finally received my Federal tax refund earlier this week. I think it actually came yesterday, IIRC. $2484. Not bad. So I deposited it along with $15 that I have saved in the last week.

(On an unrelated note, my personal saving has really declined recently. I haven't carried as much cash in the last few months, and in the interest of fitness, I have stopped eating as much junk food, especially from vending machines. So I guess the drop in cash saving is a positive sign. I did increase my automated saving recently, however, to $700 per pay period. That's effectively 30% of my monthly net income.)

Anyway, I decided to take a bit of time this morning to do some saving. Of the almost $2500 I deposited on Wednesday, $1250 was transferred to my brokerage account so that I can re-balance my Satellite Portfolio. Another $500 was transferred to my emergency savings account, which replaces $500 I transferred out a few weeks ago as an insurance policy on some upcoming spending. Depending on how my automated payments on my secondary credit card go, I may transfer another $500 over there and really be $500, not just at break even.


So $1750 has been allocated to savings of some sort out of almost $2500. I think that's respectable. The additional $500 may be icing or, even more likely, I will put it against my accumulated debt on my primary card. (The secondary card is now encased in ice. More on that in my October update.)

Whatever is left from the $2500 will be used to fund my snowboard. I estimate about $249 left over, all told.

The whole point here is that you must pay yourself first. It feels great, and that should be enough reason for anyone to do it. Second, you can't help others (if you are so inclined) if you yourself need help. Eliminating your debt, having your retirement saving locked up, having an investment program, and emergency savings is all about positioning yourself to do with your time - your life - that which is important to YOU. Money is the tool to that end. Whatever is left, and there should be something left, do with as you please. That's the payoff for successfully completing the other phases. Indeed, you need to build that into the overall picture so that you have a bit of motivation.

Its like working out. I work out to improve and show respect for my body. Your body is a loaner that is taken if you don't treat it right. However, we all have something we like which is diametrically opposed to a fitness goal. It may be food in general, or a specific cuisine, beer or other alcoholic beverages, or laziness. So you have to build your program to take these factors into account. Your financial program should never feel like punishment, otherwise you will subvert yourself in rebellion. That serves NO ONE, least of all YOU. Build in the slack. You should enjoy everything, both the act of saving and investing, accumulating and growing your wealth, along with the act of spending what you have accumulated on those things that are important to you. (Things that are NOT important to you should ruthlessly and efficiently be cut out of your life, with extreme prejudice.)

Also, every victory should be celebrated. Why? Because it represents CHOICE. A choice to do something that supports the achievement of your goal. (You do have written goals, with deadlines and implementation plans, right?) You have chosen your goal over other available options. Celebrate the process of moving closer to your goals all the time!

So how are you paying yourself first? And how are you rewarding yourself for doing so?

Saturday, November 01, 2008

Money Clubs

While I don't like the name (just a personal thing), this is a great idea for anyone having problems with their finances.

In order to achieve any goal, you must first gain clarity around that goal. That means the goal must be well defined, succinctly, measurable (e.g. quantifiable), achievable, and all that other good SMART stuff. As Napoleon Hill said, "A goal is a dream with a deadline". How important are your dreams to you?

You have to create an environment conducive to achieving the goal. That means creating support structures, as we like to say at Landmark Education. In the arena of money, creating a group like this is an ideal structure for the achievement of a financial goal (or goals). While the article does not go into heavy detail, the basics are there along with pointers to specific resources.

Those who follow me on Twitter know that I have an intense workout schedule, Monday through Friday, usually starting at 10:00 AM for an hour to 90 minutes. I also hired a personal trainer through my gym, to coach me on matters that I was unfamiliar with, and generally push me harder than I am inclined to push myself. (Even better, he has taught me HOW to push myself harder - safely - so I don't absolutely have to depend on him in perpetuity for that role.) These are all parts of the support structure I have created to achieve the fitness goals I have for the rest of my life.

The final piece, and the piece that this article is suggesting and encouraging, is creating a group of like minded individuals with similar goals. With these people, you share your successes and failures, coach each other, congratulate each other, and help each other grow toward the goal. My group takes the form of an e-mail list with about 9 of my really good friends around the country. And it works. By creating this group, not only have I enhanced my overall fitness, but I have people who will hold me accountable (along with my trainer) for doing so on an ongoing basis. I learn from these guys, I let them know how close I am to my 5 clearly defined goals (which I shared with them), and I share what I have found with them so they might benefit from my experience. I think we've created a supportive environment for all, and I love that. The same can be done with your financial goals, if you really want it.

The same concept applies in personal finance. If you're not where you want to be, and you're honestly committed to achieving a goal, then you NEED to do this! Period. It is one piece of the puzzle.

My only request is that you don't lie to yourself. In order to lie to others, you have to start by lying to yourself. Now, lying is a sign of disrespect for the person in its own right. (I'm not making judgments about anyone for doing so, but just consider that by itself.) However, by lying to yourself, you are showing your disrespect for YOURSELF (just as working in a job you hate and not working to create a job you love is disrespectful to your mind, or not exercising and eating poorly is disrespectful to your body). If you won't show yourself the respect of honesty -- no matter how bad it "looks" or "feels" to do so -- then no one else will, and rightfully so. You aren't deserving of respect from others beyond basic human respect for your existence.

The final consideration is that lying to yourself typically leads to wasting your time. There is no resource on this planet of more value than your time. EVERYONE gets the same 24 hours in a day, and what you create with that time is your choice. However, lying to yourself, for any and all reasons, will lead you down the path of pursuing activities that waste your time. Treasure your time, because it is the one resource you can NEVER get back.

So, on that note, go create your support structures. Start with a "money club". Please!? What's the worst that could happen?

NOTE: Whatever the voice in your head is saying in response to that question, I call BULLSHIT! Most bad things only happen in our minds, and we spend our lives avoiding theoretical bad shit. Go get a real world problem which exists in physical time and space, THEN we can talk.

I can't wait to hear about more of these popping up all over. Its so very overdue.

Okie, I go to sleep now. G'night all, and until next time...