Life is an Optimization Function

Wednesday morning, I got out of a meeting with an older gentleman that I consider an informal mentor (but that will be changing soon). I have never felt so inspired to write a blog post as I did after that meeting.

That's when I began writing this.

In the 40 minutes or so that we spoke, he told me about his experience with a small-ish tech company that he joined after leaving the bureaucratic, sclerotic company we both used to work for (and that I still work for). I asked him what he learned from his experience, at which point he described, with an accompanying drawing, his experience over the last few years. It would be an understatement to say that I was blown away! Although I knew the stuff he told me, and I've heard it before, I've never heard it presented the way he did.

During the conversation, my will-be mentor drew 3 horizontally oriented boxes, side by side, with a line of progression through the first 2 leading into the last. In the first he wrote "Workers", although the word "Labor" would fit just as well. 80% of people fall into this group - those who go to their jobs, make payments on a mortgage or rent, raise their children and generally are blissfully unaware of the other 2 groups.

In the middle box, he wrote "Wealthy". This group makes up approximately 15% of those involved in economic activity - corporate managers and the like. They have some money, and have generally enough to live the kind of life they want to live. Nothing wrong with that, or with the "Workers" for that matter. However, the third box is where he and I both aspire to end up - "Investors". Calculating their percentage of the population is left as an exercise to the reader.

From there, we discussed some of the things he saw while with this small-ish tech company as a member of the management team. Lessons learned. Relationships formed. How money works. How this opportunity has allowed him to move from the "Workers" group into the ranks of the "Wealthy"; unfortunately, it has taken him a far longer amount of time than he would have liked had he been aware of these distinctions sooner.

Its just staggering, in a beautiful way. I literally had flashbacks to "Wall Street" after walking out of his office.

As I made my way back to my car to leave, I realized that life is an optimization function. It really is about maximizing every opportunity, every moment, every minute, and that, as Bud Fox told us in Wall Street, "Well, life all comes down to a few moments. This is one of them." Optimizing every single opportunity that presents itself should be your goal. That's what I'll be working on in 2008. I have 2.5 years to accomplish my biggest goal. Playtime is over. I get it now.

"Money never sleeps." Neither will I.

Saw This Coming

Dammit!

I knew this would happen and I didn't write about it here!!! Damn damn damn!

I remember thinking about a week ago that Berkshire was in perfect position to move into the municipal bond insurance segment. It only made sense. Here's a company with $45B in cash that is looking for more cash generating businesses. Its primary line of business is insurance, specifically direct insurance on easily modeled quantities - autos (and now rental insurance, according to the Geico ads I heard on the radio recently), re-insurance, and probably some other things. No lives, no health, nothing with too many variables, as if there products Berkshire insures currently don't have enough variables already. So the question for me became when does Berkshire start insuring munis. The monolines are getting their asses kicked, he's got cash and is looking to both put what he has to use and generate more, and he already has the big brains on staff to model the products. It was a natural product line extension.

And here it is.

And you didn't hear it here first.

*sigh*

Lessons from "Wall Street"

Wow!

I apologize to all of my readers for not posting at all in the last month. I have no excuse for it. I failed to honor my word. In the future, starting 1 January 2008, I will have blogging formally integrated into my weekly schedule. I am planning 2, maybe 3, 90 minute sessions per week where I only work on getting caught up on my blog writing and reading.

So in the last month, I went out and picked up the twentieth anniversary edition DVD of Wall Street. The more I watch this movie (again), the more I love it. The special features really tie it all together and are great in their own right. However, at the core, the movie is still pure perfection, even 20 years later. (While I was 12 when it came out and first saw it on cable when I was 13, I was already into investing and finance as a hobby by the time I did.)

"And if you need a friend, get a dog." -- Gordon Gekko, Wall Street

I don't like dogs, but I have seriously been considering getting one. The urge gets stronger every time I hear that line. Why? Because I have a vision in my mind that grows clearer daily, a vision of where I plan to take my life. Every time I watch Wall Street, and that has been almost every day since 17 December, the vision solidifies a bit more. And it looks like it may require me to ditch some of the people in my life, which I don't really want to do, but they're no longer supportive of me or my goals. I do like friends and my inner circle will remain, I'm sure, but there will be a clearing for a pet (much like the WASPs Gekko mentions to Bud Fox in the sauna). I can feel it in my bones.

Now, I'm very clear that Gordon Gekko is "the bad guy". However, I think the movie is instructional in other ways, besides promoting unbridled greed. Commitment. Drive. Persistence. Pushing yourself beyond your perceived limits. Being prepared. Knowing exactly what your goal is. Basic ideas, but the very ideas I've been grappling with for the bulk of this calendar year. This is what I see when I watch this movie. These all transcend the notion of intent; how you direct this energy is your choice, but being successful in any arena requires directing that energy at some goal. This movie is a classic, and it gets better every time I watch it.

Anyway, its time for me to go. I'll have a new post tomorrow about a great meeting I had earlier today. This meeting re-inspired me with regard to my blogging. And like Wall Street, it has helped focus my mind on my goals. 2008 is right around the corner. Its time to get ready!

"Money never sleeps, pal." -- Gordon Gekko

Until next time...

An Insurance Man Builds a Lively Business in Death

So I just finished reading this piece in today's WSJ (online sub req'd). I've never followed the insurance industry that closely, except back in my Primerica Financial Services days (yes, yes) so I had no idea that viaticals had fallen off. This is an interesting concept, and it just goes to show that any stream of income -- no matter in which direction it moves -- can be securitized.

This does make me wonder how you assess the risk of a policy, or of a portfolio of policies. As the article states, the investor would prefer that the insured have a higher risk of immediate death. The closer the seller of the policy is to death, the more I could see the payout being. However, considering that the risk of death is likely based on health and well-being factors, I wonder how you get access to that information legally in this age of HIPAA, identity theft, and all the other perils associated with information access.

*shrug*

Still, it looks like just a matter of time until these things are packaged and re-sold, creating a secondary market for such policies. I guess you could tranche based on the likelihood of death, e.g. the type of illness, the organs affected, length of illness. I'm sure some math Ph.D.s somewhere will come up with models for all of that.

Financial innovation at its finest.

Personal Round-Up: November Edition Part II

Ahhh! Where were we?

Yes, I believe I was going to talk about real estate. Things have been markedly slow on the REI front, although I just got a lead on a nice deal around Baltimore that I have replied to. The price works, and I know I can get the financing even if I can't put any money down. Again, the importance of that clean credit cannot be stressed enough!

Anyway, the deal is a duplex which is being rented out for a decent (not great) amount. It should cash flow however, which is most critical. Both units are 1 bedroom/1 bathroom. I'm still gathering information since this just slid across my inbox earlier today, but so far, I'm such a "YES!" on this deal. I've e-mailed my contact with some questions and we'll see what the owner comes back with. I do like this deal a lot, but like any other deal, I'm not in love with it and I won't allow myself to fall in love with it.

Its funny though because the real estate partnership I am part of has been more active in the weeks since we agreed to turn down the LLC than in the months prior. WTF??? Isn't it supposed to be the other way around? Had this much energy and effort gone into things before, we probably wouldn't have decided to shut the operation down in the first place.

*shrug*

I've also had some interest in some of the domain names I have available for sale. Its slight, so I won't go into a huge amount of detail, but it looks like I may have found a potential partner to help me get some of these either sold or leased. We'll see what comes of that next week. This is the reason I don't like holidays -- it slows down the flow of business.

My modeling efforts have come to a bit of standstill over the last few days, but I'll get back to work on them starting tonight. I borrowed a model from RedBrick Partners for rental real estate cash flows, and that's my primary model right now. The model I have been developing takes a lot of cues from RedBrick's model, but adds some personal twists. I'd go so far as to say that it is far more conservative than RedBrick's model. That only makes sense, because the numbers should expose a deal as being a win or a loss. I really don't want to have to visit a property to make that determination, and so far, I think the RedBrick model is the best I have seen. Once I mix their methodology with my personal experience, I think I'll be able to achieve the kind of reliable value estimates that will give me a real advantage.

As for my equity valuation model, I am seriously behind on constructing that. Right now, it has a deep value bent to it, but I want to add some growth factors. I really have to do some digging at this point, some hardcore research, because CAN SLIM and other well known factors are only going to yield alternative betas at this point. I'm hunting for real alpha, not beta in alpha clothing. So this will be a bit of a back burner issue for now, while I sort out some other things. I guess I'll finally get a chance to play with Trade Strategist now though, as I start backtesting some proprietary factors. Woo hoo!! (Aside: I REALLY should have gone to the AlgoTrading conference last month! Damn! That's what I get for being reasonable.)

So the recent market action has been pretty painful. We've seen a lot of "buy the dips" days after the swoons, but I really think those BTD folks are setting themselves up to get hurt. I think Bonddad has pretty much summed that up perfectly. As I said in part I of this missive, unless you've found some hidden store of value somewhere, its probably best to just accumulate cash right now. You really have to wonder how brainwashed people are to continue buying in the current environment. More power to 'em. God bless 'em. I just don't have the same conviction about US equities right now. Since I do have a few international bond funds in my sights, I think I'll spend some time tonight and tomorrow reviewing their holdings to see which ones look to benefit from rate lowering by foreign central banks.

As for me, I have to admit I had a pretty good day today. (Saturday, 24 November.) I was able to clean up the whole apartment pretty much, get out and buy some necessities, update this blog, and a whole bunch of other little things that were waiting to get completed. Now, I'm going to bed. I've got to be at work in a few hours.

Until next time, gentle readers...

Personal Round-Up: November Edition

I apologize to all of you, my readers, for the HUGE gap in posting. I've been a bit off the grid, which sounds odd, I know, considering I work in the Internet business. I've just not had the chance to catch up, read, study, synthesize and think as I usually don't have time to. I really do it all for you, all 3 of you. Without you, there would be no me.

So let's get caught up generally. As noted previously, there is progress on the debt reduction. In this environment, with the markets taking the drubbing they are, and the dollar becoming ever more toilet paper-ish, that's a good thing. A little deflation is probably in order. Just a little though. I don't want deflation on the scale of Japan from '89 until 2002/2003. (Some, including yours truly, might say Japan has yet to really escape it.) I definitely won't be mad about 10% or more price cuts in my local RE market. You won't hear me complaining about share prices taking some downward action either. I think, over the short to intermediate time frame, the US economy is dynamic and resilient enough to survive and thrive. Taking a longer term stance, I plan to diversify my holdings into non-dollar denominated assets like any risk-adjusted, absolute return mandated manager. I've like Japan for a number of years, and I have some dollars there now; I think that will be increasing. Otherwise, I have to bump up my international and emerging market fixed income exposure to 5% as my asset allocation dictates. An additional 3.5% of emerging market equity exposure is lacking as well, so we'll turn the spigot on in those directions. Maybe I'll hold off a bit on FI though, until we start seeing a wee bit more stabilization in rate increases from foreign central banks. Yeah, that's the ticket.

I think I'm back down to a balance of $7200 on my AmEx. The only reason it is so high is because I just put $4000 into my car to replace the transmission, head lights and catalytic converter. Thankfully, all of that came out of my emergency funds. (Well, except maybe the headlights.) If you don't have such a fund, you're doing yourself an immense disservice and quite honestly, you're not managing your risk at all. I mean, that's pure neglect. Life happens. Some liquid funds (hopefully not in a money market account, as things are going these days) are order of the day, because you never know when $4000 worth of expenses will show up on your doorstep mere weeks from winter. If anything, I feel confident that my trusty 8 year old Honda Accord will survive the coming season now.

Now, I really have to get my daily expenses under control, especially food and snacks. I've been tracking my monthly expenses in Excel since last month. I used to do this more regularly, but it fell to the wayside with all the personal circumstances I have been dealing with this year. I figure doing this for the 4th quarter will really give me visibility into my problem areas, however, I know instinctively that food is kicking my ass. There is no good reason I should spend as much as I do, not even the fact that I don't cook. I think I use food for comfort as much as nutrition. Thank God I'm always moving and my metabolism is still high, otherwise I'd be 30 pounds heavier. Since food is my biggest financial weak spot, I'm going to have to start cooking though, and I really don't relish the thought. As I like to say, that's why I have money, so someone else can do it. I do what I'm good at, they do what they're good at, and everyone gets a fair exchange. It had been working for me...until now. We'll see how December looks, as I have to acquire some ski gear for my planned snowboarding expeditions. For now, I'm just going to keep an eye on the expenses, purchase frozen meals for work, and just stay present to my spending. Once the 4th quarter tally is in, I'll look at putting in place measures to rein in the food spending. Unless November is particularly horrible.

I figure that by the end of the year, I can get my AmEx balance down to $5K, which is roughly 1/3 of the high water mark this year. Again, since I only use the AmEx, I really am not worried about this too much. My other card is only to be used in case of emergency, when all else fails. Until such time, it will sit in the freezer, entombed in ice, and helping me build up actual credit history. I figure all of this should get my credit scores back in the 750+ range. (Only one of them is above 770 right now, and 1 is actually below 700.)

On the business front, I'll file Form TX next week, once things start opening up again after Thanksgiving. Form TX is the copyright submission form from the US Copyright Office. My partner and I are submitting our source code to this process, for legal protection. There will be more of this in the future, undoubtedly. I also received the trade name application back from Maryland, along with the check. Seems they were missing a signature. It would have been very helpful if they had bothered to tell me a signature (or 2) was (were) missing the day I hauled myself up to Baltimore to file it. Sometimes I wonder... Anyway, there is slow progress on the software front. Not quite as dynamic as we'd like, but we're getting there. Once Santa Season really kicks in, my partner, student that she is, will have more time to really hack out some code. Being a student is a HUGE drain on one's productivity. In the meantime, I have a base Apache 2.x build in place for our website, and since my partner is a Ruby on Rails fanatic, I have some work to do setting up our application server. we plan to launch our public alpha on 1 January 2008, so there is a bunch of work to do!

Thanks to the recent market action, there hasn't been much (forward) progress in the net worth department. Such is life. This is why we stay liquid, or at least keep our credit ratings solid. When the time comes to buy, we should have some powder at the ready (or at least be able to negotiate it on reasonable terms).

I've been having some ideas for little businesses to generate cash flow recently. I hate it when this happens. While I'm all for "getting a bigger plate" as my Landmark Education coaches are fond of saying, I haven't quite mastered it as yet. I am making progress. I'm using my calendar regularly, and scheduling almost every moment of my day. Now if I can just execute on getting more sleep, I think I'd have a huge breakthrough in my overall effectiveness. In the meantime, anyone out there have any experience in the bumper sticker business? I have some ideas for stickers, and I think I'll have my roommate do some mock-ups after Thanksgiving. On second thought, I *do* have Photoshop installed, and the holiday is tomorrow. I think its clear what I'll be working on this Thanksgiving while I await the feast my mother is preparing. Now I need to get my head around the business of making money with bumper stickers. There has to be a way to do it!

Ok, I think that's it for this post. Anyone who is still awake, look for part 2 coming soon. I'll talk about the real estate investing and take a closer look at the recent markets and news. Maybe I'll get into a brief discussion of my modeling efforts too.

Until part II...

Managing Risk I

You see how risk has become this objet de l'attention for me. It has been permeating all my discussions of investing, whether in capital markets or real estate. What are the risks? How do you model them? How do you price them? What potential blind spots are there?

For a while I've had an idea to model real estate risk, from an investor's perspective. I started working on the model - identifying factors, working to create initial values for them based on the limited data available from the few deals my partners and I had done, etc. It is still far from being complete, but it is coming along.

While thinking about this problem - modeling real estate investment risks - I started thinking about information markets and basic value investing. Essentially, you have to discount your price or present value (PV, for all the DCF wonks) by some (hopefully) standard amount for each factor where you have incomplete information. The amount of the discount should be roughly proportional to the completeness of the information you have about that factor.

In an information market, prices should (will?) be discounted by some amount based on the completeness of the information about the product. Real estate is no different from the stock market in this regard. We see this in the pricing of financial stocks, especially the bulge bracket IBs (Goldman, Morgan Stanley, etc.). The argument goes that since their operations and holdings are so opaque, the market applies a discount to their share prices for the uncertainty about how they make money, assets they carry on (and off) their books, etc. It makes total sense. If I can't tell what's going on with a house structurally (say, I purchased at an auction of some sort and was not allowed to have an inspection done, or there was no time for the inspection), then there should be some discount applied to the price due to that information shortfall.

Anyway, that's just a taste of an ongoing project of mine. I am working on learning how to model risk in various markets. If anyone has any suggestions, whether they are articles, books, or authors to read, classes to take, or any other ways to learn how to model, please let me know. I know that over time, my modeling will improve, but I am not above accelerating the process.

Until next time, because I think I have more to say on this and I just needed to get this one out the door...

Pricing Risk

I don't know who, among my readers, saw this article in the NY Times a few months ago. Most likely, all 3 of you. (What's up, G?!?!) I have to admit to being fascinated by this one. I haven't let it out of my browser since originally reading it, and I'm going to finish reading it now before I go to sleep. Risk management would appear to be the theme in my investing right now.

Driving & Investing Part II

I've previously written about this before, but it occurred to me recently, as I was weaving through traffic in Washington, DC, that I should elaborate on the similarities between good driving and good investing/trading. I've been working on this one, on and off, for months.

The key idea is probabilities.

Every maneuver I make, every lane change, everything is based on the probability of that maneuver benefiting me. Often (I would estimate 60 - 70% of the time), it does. The remainder of the time -- well, that's just the cost of doing business.

For example, we've got 4 lanes of road with 2 lanes in each direction. If I'm in the left lane with 5 people in front of me, there is at least a 1 in 5 chance (20%) chance that one of those people is turning left and will end up blocking the lane. That sucks. So I start looking for the tells - the brake lights, slowing traffic, people merging out to the right - that indicate that the probability has occurred or is occurring. Now, since I only have 2 lanes to work with, I have to also watch the right lane. The idea is that the right lane could have problems too, but are they as severe as the left lane's? If the right lane has a bus in it with an upcoming stop, there is a good chance (which I have no idea how to calculate) that the bus will stop. So now I am looking at the oncoming traffic, because if there is little or none, that guy turning left has a good chance of making his turn with little impact to me. Also, I'm looking for how much room that bus has to get out of the way (a shoulder or bus lane) giving me and others enough room to get around him when he stops.

Basically, I'm constantly calculating the probability of an event which impedes my forward progress. (Funny, just as I had started working on this piece again a few months ago, I noticed this post over at Accrued Interest. He then followed it up with this one which has more good stuff.) It all comes down to the probabilities of a given event occurring.

The markets generate enough data to make somewhat better (more accurate) predictions, but nothing is EVER identical so we have to discern patterns from the data to help estimate probabilities of various outcomes. It can be done, even on an ad hoc basis, I think, much like navigating road traffic.

I'll have more on this topic in the future, and I plan to get into specific scenarios and their "market equivalents". I need to start thinking like a trader in my trading; I already do it in my driving.

A Few Good Reads

While I know that most of my fanbase (ha!) has probably already dissected these pieces every which way already, I have to admit that they make for interesting reads and re-reads. I've kept them up in my browser persistently since stumbling upon them, and flip back to them regularly to look something up or just remind myself about the tendency of markets to strike when least expected. Minsky moments and all that.

First up is the Malcolm Gladwell piece on Nassim Nicholas Taleb entitled "Blowing Up". I know I don't need to introduce him to most of you. For the rest, well, that's what Google excels at. Start with his website.

Next we have the New Yorker's big spread on Victor Niederhoffer's return to and subsequent dismissal by the markets. Fascinating, in more ways than one. The Gladwell piece looks at Niederhoffer briefly as well, and if I can find it, I'll post the other article I read about him recently. Talk about overexposure.

Finally, The American's Hunt for Black October, seeking to expose the reasons for Black Monday, 1987. An interesting, if speculative, read. I love this kind of history stuff, and I'd rather learn from someone else's mistakes than make my own. I've got enough of those.

Honestly, while I like Taleb's approach to the market, and I respect his vigilance in preparing for a Black Swan event, there's something missing. It actually reminds me of how I drive, and I'll get another post up on how good driving and good investing rhyme in the near future. While we don't want to pick up nickles - or God forbid, pennies - in front of steamrollers, you can't just sit around waiting for Doomsday either. This, in the simplest of terms, is what I imagine doomed Empirica. Whether things are different now with his newest venture, we'll have to see. There has got to be some participation in the market besides collecting premiums on options, because the stability that would allow that to be a viable past-time can disappear in mere moments. Stability breeds instability, right? Or that stability may not generate enough returns to allow your capital base to last until the return of volatility. And what's plan B when instability rears its head?

Of course, you could probably make the argument that by operating in this way, Taleb is playing his intended course perfectly. In stability, clip your coupon (aka option premiums). When volatility returns, hopefully you're on the right side of the trade and that's where the strategy shines -- if you're nimble enough.

*shrug*

Net Worth Update

So I'm only up to USD $110,000 (rounding) once you factor in my now $11,000 of CC debt. Yeah, yeah, yeah, please spare the lectures on CC debt. Its been a long year. I won't be traveling anywhere -- not St. Thomas, not Trinidad, or anywhere else -- anytime soon. Nor will I be buying gifts of travel for anyone anytime soon either, as I did 3 times this year. To paraphrase myself, the CC debt has canceled Christmas. Oh well, I did it to myself and I'll have to dig myself out from under it. At least I can pay my rent with my card now, so I earn points for it. By the end of the week, I'll cover the November rent payment plus I'm adding about $2000 on top of it, maybe more. I should be down to less than $9000 on my card by this time next week. Progress IS being made.

I'm definitely not on track to meet the goal of 150K in net worth by year's end. I'll be higher than I was at the start of the year (win), but not at all close to where I want to be. While I could just pay off the entire balance by wiping out my online savings account, something tells me that's not a good idea. Since I'm in the same boat as Single Ma, getting 3 paychecks in November, I figure I'll get it down to at least $6000 by year end. I'm so glad to see myself write that since it will have fairly immediate impact on my credit scores. The last tri-merge I pulled had an Experian boot firmly up my ass, just when I was expecting all of my scores to be > 750. *sigh*

Anyway, just a bit of a follow up. I've been avoiding this post for a while, but fuck it, here it is. You can't say I didn't follow full disclosure.

Anyway, until next time...

Impending Doom

So there's all this coverage now about the next FOMC (that's Fed Open Mouth Committee) meeting this week and the expected rate cut.

Sheesh!

FWIW, I think the Fed will cut. Look at who the chairman is. 25 bps. But that's just a guess, not even a forecast. To paraphrase a friend of mine, when it comes to economics, I'm not even a dilettante.

However, what will this cut (and God forbid if it turns out to be a 50 bps cut), do to the USD? OMFG! I think we see oil at $100 if that happens, quite honestly. Not for any actual, real, fundamental reason. It really becomes a psychological move at that point, but I think it happens. At that point, things get ugly. I think you face the imminent move away from the greenback by everyone tired of paying more dollars for the same resources. Look, Kuwait already made the move. You know the Chinese have to be looking for the exit, and how to get out of it before anyone notices they left the party. Fuck, I'm trying to as well, quite honestly. The question really becomes who is the next to fall if we touch $100/barrel oil?

While there are arguments against this (WSJ.com sub req'd), and again, they involve psychology, they argue for an optimistic view versus a pessimistic one. In my experience, people are far more negative than positive, and I think the negative psychology on oil is becoming sticky. Look, real inflation is in the 6% - 7% range anyway, right? So how hard is it to believe that oil bounds up past $95 and continues, especially on a 25 bps rate cut? Sounds perfectly reasonable to me.

Until next time...

Back to Old Habits

Startups are like socialism -- they take up a hell of a lot of evenings. I'm remembering this after staying up for the last 10 hours hacking at software on my web server. This isn't the kind of thing I would normally engage in on a Friday evening, but my partner and I had our first meeting in months on Wednesday. One of the outcomes was an agreement to spend Fridays hacking on our startup - coding, installing and configuring software, designing architecture, writing business documents, completing paperwork. We're targeting January 2008 for our public alpha, after re-tooling to a different mobile platform.

As an aside, writing software for cell phones in the US sucks ass. There's no gracious way to describe the way the vampires in the mobile telephony industry have sucked the very life from the market. All the stuff we originally planned to do can be done easily on a regular phone in pretty much any country other than the US. Here, we're relegated to the ghettos of smartphones. Granted, our spirits were lifted - slightly - when Apple finally announced a real SDK (software development kit) for the iPhone. But the entire original plan has to put on hold to focus on Windows Mobile for the time being, and the iPhone eventually. Hey, smartphones are the wave of the future and all, but right now, there are more regular Motorolas, Samsungs, and Nokias in circulation than Windows Mobile devices and iPhones. Just another reason to leave this country, in my opinion; it not quite up there with the declining dollar, but the more I think about it...

Anyway, let me get back to figuring out why Apache 2.2.6 fails to compile with SSL support. I will admit I've missed just doing geek shit for the hell of it. The last 2 nights have brought back some serious memories, and given me a psychic boost as well. However, I do need to get some sleep sometime today! Doh!

Until next time...

Test Drive III: BMW 650i

I finally did it.

After thinking about it all summer long, I test drove a BMW 650i. Man, I don't know why I waited so long!

I made the arrangements last Thursday, driving up to Tischer BMW and sitting down with a sales guy for a few minutes. I just wanted to get everything in order so that I could come in on the morning of Saturday 20 October, do my drive, and bail. So all of that got worked out. Then I called on Friday to confirm that everything was in order. Since my sales guy - Andy - wasn't available, I spoke to Rick, the sales manager. Nice enough guy. He confirmed that the black on black 650i coupe with automatic transmission and the Sport package was going to be ready for 10 am today. Check.

(Before you purists go off, I think I said somewhere that I am still learning to drive stick, and I didn't feel like doing my first paddle shifter on a test drive in a $75,000 automobile. Get over it.)

So I roll up to Tischer today at 5 minutes after 10:00 am, and find my sales guy again. Good guy. West Indian. I want to say Trinidadian, but that's not relevant here. Andy gets the car prepped, takes my license to make a copy, and gives me the quick tour of the vehicle controls. My roommate came along for the ride, because experiences like this should be shared in my opinion. She played with iDrive; I played with the V-8.

So we meander out of the parking lot, and I immediately gun it. Schweet! Power on demand is a beautiful thing. So we jump on Route 29 north, merge into traffic, and once I get some open road I hit it again. I love the responsiveness of this car! So after crossing into Howard County, I find some open road on 29 and hit it. In no time, we're doing 111, and it feels like the world is standing still. I mean, you don't even notice the acceleration due to the amount of power available. Hitting 85 in this car damn near makes you feel like the engine is off. But now its time to reign it in a bit, because I'm coming on a new speed trap, so I ease down, come over the hill and...nothing...so I hit it again to merge back toward the right.

Coming up next is MD Route 32, which I jump on heading east, and pull over in a parking lot to trade seats with my roommate. After playing with the seating controls for about 10 minutes, she gets everything positioned just so and we're on the road again. Being her first time behind the wheel of a car with this much power, she's a bit intimidated. The necessary touch to do anything - activate turn signals, give the engine burst of gas - is so demure that even she is surprised. So we get back on to 32 east and she promptly tries to run a Honda Accord off the road. Fuck! After we get past that situation, she navigates us on to 95 South and heads for the left lane.

So after a nice leisurely jaunt down 95 at about 85 or so (which positively feels like the engine is turned off if not for the trees and other cars being passed), we get back on 495 and come off at New Hampshire Avenue to trade spots again. I take over and head up NH to some back roads. Too bad that all morning the roads were crowded with people. The best part was the Toyota Highlander who kept trying to keep up with me. I love fuckin' with these guys. Reel him in a bit, then gun it and embarrass him. I could do that all day, I swear! The same thing happened the first time I helmed this ship earlier in the morning. When will these guys learn!?!? It was like everyone thinks they're driving a frickin' Maserati when they see you coming, and wants to race. Guys, either I'm chillaxin', not thinking about your dumb ass, or I'm going to (and did) smoke you like a Cuban cigar. There's no middle ground, so get over yourselves.

Anyway, we take the back roads back to Tischer then drop the car off and leave. On the last leg, I activated Sport mode and all I can say about that is "Whoa!" With Sport mode on, the road feel is much more eagerly transmitted back to the car and the acceleration is ridiculous. Jumping into traffic in Sport mode was the one time I felt that the car slightly got away from me, but I recovered control immediately and took us back in.

Overall, I think we were out for about 45 or 50 minutes. A short and simple yet hugely worthwhile experience in The Ultimate Driving Machine. I think that description can safely be applied to the 650i, no holds barred.

I'll admit that the 650i was a hugely enjoyable drive. Not only was the giddy up flatly amazing, but its an extremely comfortable car. It is definitely pure GT driving fantasy. I can definitely see the 6 series as my everyday ride, just as long as I don't have to move passengers from point A to point B. Unless those fools fit in the trunk, there's no room for them. I'd hate to be the poor bastard rising in the limited back seat, my knees in my throat as the countryside roared past. There are worst places on Earth to be, but not too many, I imagine.

Anyway, until next time...

Ooooh! Guns, guns, guns!!

Well, not quite, but that's what it felt like Wednesday night at the first face-to-face meeting I've had with my real estate investing partners in some months.

What was the cause of all the tension? We decided to unwind the operation. After 22 months, a lot of learning, but not nearly the level of progress we had originally committed to, we're shutting it down. Its always an emotional experience to shut down a business. However, the commitment to the original goals, or even modified goals, wasn't there, or at least wasn't distributed evenly.

So why now? Why after 22 months, $11200 invested per person, lots of meetings and gas expenses, 4 properties and the headaches of being landlords, why shut it down now, when we're on the brink? In my opinion, because we've been on the brink for a long time, and in 6 months, we'll still be on the brink.

Last Saturday, at the regular meeting of DC REIA, the leader of the group, Sherman Ragland, said something I wish I'd heard 2 years ago. He said partner, but don't create partnerships. Meaning, find a partner to get the deal done but don't create a structure which marries you to a partner or a group of partners (like an LLC) until you actually have a working relationship with them. If the first, then second, then third project with those partners all work out, then maybe its time to consider formalizing it. Our mistake, as a group, was rushing into marriage, all in the name of being "legal". We see how well that worked out.

So thankfully, with all the heat of the meeting, no one got hurt, no chairs or other furniture were thrown or anything like that. (Although I was tempted.) So now we wind down the operation and we'll find and close our deals in our own independent ways. Its definitely for the better. 5 guys, all with engineering backgrounds, trying to pull together deals regularly...man, it was like herding cats.

Oh well. Time to move on now.

Man, You're the Sickest!

I just had to interject with this one. Does it have anything to do with alpha? No. Still fuggin' cool tho!

Middle Eastern Plays in Western Markets

My biggest question is how are the sovereign wealth funds and other middle eastern investors reconciling their religious principles against the fact that private equity investments involve the application non-trivial amounts of leverage? Owning non-controlling stakes in Carlyle or any other PE firm isn't going to position them to remake the business along Islamic finance lines. I doubt they would want to anyway (hopefully) seeing as how they are investing on the basis of the returns the firms have generated using levered tactics. If a private equity firm can't lever, is it a private equity firm anymore? I think not; now its just a mutual fund with worse overhead.

Weekend Update

Whew! What a weekend! I spent the last Friday through Sunday in the DC REIA Super Meeting which was a very worthwhile experience, at least for a real estate investor in the DC metro area. Lots of good information shared, and I didn't shell out any money for any additional educational programs. I have enough to work with at the present time. However, I'm starting to really "get" this real estate investing thing, to really see it as a part of my being and my life. Now if I could just get this one bloody deal closed!

I apologize to all my readers for the neglect. Things should be more sane this week since I won't be working tonight as I usually am. That will give me some time to clear out a great many outstanding items I have on my to do list.

Prime Brokerage Disintermediation

This is what I am talking about! I'm not the smartest guy on the planet, but this area -- prime brokerage -- looks so susceptible to being broken up. First, I can see an increase in credible competition to Goldman Sachs, Bear Stearns and Morgan Stanley. The credit crunch has shown that, as the big commercial banks with big balance sheets - Citi, BofA - have made inroads in this area. The European banks will be next. However, it will eventually become an issue of service optimization. Plus, there are the competition issues like front running that hedge funds just don't want to deal with. Services will probably peel off into independent providers; that's what makes sense to me.

Running in Place

I'm sure you noticed the little burst of activity there at the end of September. I assure you I wasn't painting the tape. (Ok, maybe a little bit.) I had a bunch of things I wanted to get out during September and I just sat down and forced them (or their remnants) out. Anyway, I hope they are at least enjoyable, given how dated they are. Still working on the CDS project, but I haven't had time to do the research I want to do on that one. (Or the real estate derivatives; I think there's more to explore there.)

Anyway, until next time...