Fail Early, Fail Often!

Never fear failure!  It is your best friend and your best learning opportunity.  People who never experience failure usually end up failing epically.  Because they fear small failure, they court large failure.

Failure.  We fear it.  And as I have noted time and time again in this blog, fear is not an emotion to be trusted.  Fear causes us to do stupid things, like freeze, when we should run, or to buy gold instead of investing for the future.

But fear of failure is a particularly dangerous fear, and most people are staggeringly afraid of failure.

In school, you see this all the time.  The smart-alecky kids who sat in the back of the class and snickered when you got the wrong answer - and then mocked you when you got it right.  They never raised their hands, of course, out of fear - fear of giving the wrong answer and being embarrassed for a moment or two.

So they squandered their education by spending more time grooming their image for a group of peers they would know for a few scant years, instead of trying to learn something that would last them a lifetime.

We see it in business all the time, too.  I mentioned before the young hot-shot Real Estate lawyer in Virginia who seemed to do no wrong.  He came from the "right" family, went to the "right" schools, got top grades, joined the "right" firm and gradually worked his way up - starting his own law firm which became wildly successful.

Then the unthinkable happened - a Real Estate investment scheme of his started to unravel.  Rather than take a loss of a million dollars, which by then he could easily afford to do (although it would have set him back a few years) he decided instead to "borrow" money from client fund accounts - after all, he was the Golden Boy and could not fail!  But of course, this just took a small failure and amplified it many times.

By the time the scheme was uncovered, tens of millions of dollars were lost - and most of it client funds.  Not only did his business collapse, but he lost his job, his law license, his law firm, and was sued and sent to jail to boot.  And all to avoid a small failure - he created a huge one.

The Enron collapse is another example, I think, where fear of failure was at work.  People want to blame greed for the collapse of Enron, but I think it was fear that was the real cause.  The company could do no wrong - everyone was a Golden Boy and had learned how to defy the laws of economic gravity.  So when failure - a small failure - became evident, rather than take it on the chin, see the stock price tumble a bit, and then slowly recover, they decided to do some very bad things instead, so they would not fail.  But of course, all this did was take a small failure and snowball it into the largest corporate meltdown in recent history - well at least until very recent history.

Fear, and Greed - perhaps they are second cousins.

Never fear Failure.  Embrace it.  Like pain, it is a gift from God - an instructional gift, although we sometimes fail to see the merits of it.


Failure teaches us much.  But you have to be receptive to its lessons.

1.  Life goes on after failure:  This is an important lesson to learn early on.  You can get an F on your report card and still graduate.  And you can flunk out of college and still be successful (ask Bill Gates).  You can even go back to college - and graduate with honors.  Anything is possible, and in fact, most things are.  If you view failure as the end of  everything, well, then you've let failure win.

2.  Fear of Failure is worse than failure itself:  The anxiety of failure can be stifling and paralyzing.  People literally "freeze up" out of fear of doing wrong or failing.  And we know what happens to deer who freeze in the headlights - they get run over.  Once you fail badly, you realize it isn't so bad, and that the fear of failure often causes people to fail - or perform far below capacity.

3.  Failure is Instructive:  Failed a test?  Company go out of business?  Prototype exploded on the test stand?  Failure teaches us everything we know.  We learn little from success and a lot from failure.  Every failure burns into your memory and thus reinforces lessons that we often don't want to learn.  Once you examine your failures (as opposed to putting them out of your mind, the way our society preaches) you can extract much valuable data that will make you far more successful the next time around.

4.  Failure is the Norm:  Most of us fail at most everything we do.  Human Beings, by my estimation, operate at an efficiency level of about 2-4% on good days.  Most of what all of us attempt to do, on a daily basis, doesn't work out.  Think about it for a minute.  Baseball is a great analogy, and a good metaphor for life.  Most batters have very low averages - and even the best are struck out.  Rarely does a pitcher pitch a "perfect game" - we just aren't that perfect.  And you can lose game after game and still make it into the playoffs - and win the World Series.  Yes, even after failing - a lot!

Over the years, I have failed - epically and on multiple occasions.  I have flunked courses, flunked tests, and even was thrown out of school.  I flunked out of college.  I flunked numerous courses in college and even one in law school.  But I did pass the Bar Exam on the first try.  Many don't of course.  And some of our best lawyers today had to take it twice or even three times.

Failing early was a gift for me.  I wasn't afraid after failing.  My fear was gone.  I had seen what happens when you fail, and realized that it wasn't such a bad outcome.  What's the worst that could happen?  You try again.

Playing it safe to avoid failure, on the other hand, is just a slow-motion form of failure that takes years, if not decades to come to fruition.  Too late, the folks who play it safe realize that by avoiding even the smallest risks in life, they courted a huge failure over time.

I failed early, failed often.  So I wasn't afraid to start my own law practice.  What's the worst that could happen?  I'd end up working for some other schmuck - just as I was before.  And I wasn't afraid to invest in Real Estate - what was the worst that could happen?  I'd end up with some properties that were worth what I paid for them and were earning a few hundred dollars each.

And so on down the line.  By failing early and realizing that failure wasn't such a big deal, I was able to take risks.


Dumb-ass High School coaches (and yes, I am being redundant here, the cream of humanity usually applies for, and gets that job) say stupid things like "Failure is not an option!" when in fact is usually is not only an option, but a predictable outcome.  In every football game, there will be one winner and one loser - it is pre-ordained.  Failure is a clear option for at least one team.

By saying destructive things like that, it only serves to paralyze the players into thinking "I cannot make even one single mistake - I have to be perfect in every move" and as a result, they will play tight and stiff, and not loose, and as a result lose.  And when they lose, they will not be able to learn from failure as they should, but instead feel that failure is somehow a part of them - something they did wrong.  And as such, they will be even worse off at the next game, not only not having learned from their mistakes, but playing even worse as a result - being even more afraid of making mistakes and having even more low self-esteem.

And that sort of thinking is why you read in the papers nearly every day, about some troubled teen or adult, who, having experienced failure for the first time in their lives, freaks out and jumps off a bridge, such as at Cornell.  Or how some adolescent slowly loses his mind because he can't envision the transition between childhood and adulthood because of the sheer fear of failing at it (helped no doubt, by helpful parents who say things like "failure is not an option").

Killing yourself because you lost a job, a house, a car, a boyfriend, or flunked out of college, is rather stupid.  Life goes on, and often better than before.  In fact, usually so.  Failure ain't the end of the world, unless you decide to make it that.

For me?  Failure and I are old friends, along with our chum, pain.  You learn a lot from these two, if you do not fear them and do not turn away from them.

Failure Early, Fail Often.  Failure is ALWAYS an option!  Sometimes, in retrospect, the best option.

Works for me!

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Mullethead on the Beach

I saw a guy who looked almost just like this on the Beach in the Bahamas.   He had the most wicked mullet I have ever seen - it went all the way down to his ass.  He was holding forth on his debt-laden lifestyle.  Listen....

So there we are, on the beach at the utterly tacky and over-the-top Atlantis resort.  It was like visiting Branson, or Disney, or Vegas - it was so over the top you could appreciate it at two levels - face value or irony factor.  We did both.

But, hey, a beach is a beach, even if there is someone shouting, "You want coco drink, Mon?" every five minutes.  But before we moved to a more remote and nicer beach, we were parked behind a family of four who talked very loudly, and at length, about their personal finances.

I felt like someone slowing down to rubberneck at a bloody scooter accident in Nassau (and yea, we saw that, too).  But I had to listen, it was so, well, intriguing and illuminating, if not simultaneously repulsive and scary.

The fellow in question went on about all the stuff he had bought - Jet Skis, four-wheelers, hobby cars, bass boat - and how he built a pole barn to store it all.  "Hell, we hardly even use half of it, anymore" he said.  He also said, "Heck, I'll be retired or dead before I get them all paid off!"

And then here was the kicker, he fessed up to having over $19,000 in credit card debt as well.  Ouch.

And yet here he was, taking a cruise, which would have cost him and the wife a minimum of $1200, not including Mullet Pomade.

It was an interesting experience, as it confirmed to me that debt really is the American way of life, and some folks are so blase about being in debt - for staggering amounts - and mostly for trivial things, like internal-combustion engine powered toys, meals at chain restaurants, and yes a Bahamas cruise (which I am sure he tacked onto his $19,000 credit card debt).

And I know this as I did some of this sort of idiocy in my life as well.  Gee, we paid down the VISA bill $2500, what can we buy now?  That sort of thing.

And what is sad about it, is that this sort of chronic debt condition forces you to work harder than you need to, and get less money in the process.  That $10,000 Jet Ski languishing in the pole barn will cost $15,000 with interest, over time.  Those $10.99 Nachos at ChiChi's will cost $30 with interest, when paid for with a credit card with a revolving debt amount carried over months, rolled over to other cards, and then rolled into a home equity loan.  Spending 30 years on something you pooped out in a day seems kind of like a waste to me.

So how could our friend mullet get out of this mess and live a better life?  Well, to begin with, he would want to do so - the hardest part of getting out of debt is choosing to do so - realizing that money can't buy happiness, but it can buy all the misery you can stand.

And it is a decision that most folks never make.  They don't want to be seen as "giving up" on their hobby vehicles, which, having depreciated rapidly (and which are likely broken beyond repair) aren't worth much in resale, "so I might as well keep them!".  And they don't want to be laughed at by their friends and neighbors (they think) for being "poor" by not having "things" when in fact they are poor because they have them.

Having a pole barn full of expensive junk that you never use makes no sense.  Going on a cruise vacation and putting it all on an already overburdened credit card makes no sense at all.  Sell off the junk, pay down the debt.  Cut back on expenses and stop taking cruises until you can pay for them in cash.  And stop wasting even a dollar on a mullet - it looks like crap.

Harsh advice?  Well, yes.  But it is advice I took myself.  We sold off all the "stuff" and paid off all our debts.  And yes, we even cut our own hair now, which sounds stupid until you realize that at $20 a haircut, you are talking about hundreds of dollars a year in savings, which is not trivial.

I felt bad for mullet-man, as he clearly wasn't happy about his debt load and what it was doing to him - hanging over his future like some melting icicle.  But I doubt he will do much to cure the situation himself.  It is far easier to blame Obama or the "big corporations" for your troubles that to look inward and say "Gee, I really screwed the pooch, here, and I need to change things in my life."

A haircut is a good start.  A rechargeable Braun is on sale for $18.95 at Bed, Bath, & Beyond.

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First to Market is Often Last in the Marketplace!

The de Havilland Comet was the first commercial jetliner to market.  It was a colossal failure.  First to market is often last in the marketplace.

The de Havilland Comet is famous for being the first commercial jetliner to make it to the marketplace.  It was quite an accomplishment for postwar Britain.  But it is also infamous as an example of how being first to market can mean catastrophic failure, both for the product and the company.

The Comet was perhaps rushed too quickly to market, as the British needed something to leapfrog the Americans after the war.  And the widespread use of pressurized fuselages was not something that was fully understood.  As it turned out, stress cracks developed at the sharp corners of various windows (including a navigator's skylight, a quaint anachronism of the era) caused by metal fatigue.  After a certain number of landing and takeoff cycles, the metal would crack and fail catastrophically, with the internal cabin pressure literally blowing the plane apart.

The entire fleet was grounded, and every Engineering effort was put into finding out what went wrong.  By the time they found out, it was too late - the reputation of the plane was besmirched for life.  The British Government purchased a number of planes as submarine chasers (the aptly named Nimrod) but de Havilland never recovered its amazing lead in the international commercial jet business.

It is interesting to speculate what would have happened if the flaws in the Comet were caught early.  I suspect de Havilland would still have lost ground, just not as spectacularly.  Boeing bided its time and used government money to develop a line of bombers and tankers, and then adapted this technology to its jetliners - already proven by millions of hours of testing for military applications.  Boeing didn't make the same mistakes de Havilland did.  And moreover, its design was more useful, in that the engine location in the de Havilland (buried in the wing root) was a maintenance nightmare, compared to the easily removable wing pod mounts used by Boeing.  The 707 and 707 Intercontinental ushered in the era of Jet travel, and the Dehavilland Comet is only an odd footnote to the era.

Being first to market has a lot of risks, and historically, the first to market is often last in the marketplace.  You spend a ton of money on ground-breaking R&D, only to have your competitors piggy-back off those efforts, for free.  Boeing learned a lot from Dehavilland - a lot of what wouldn't work!  In addition, since de Havilland pioneered a lot of technology, Boeing could save some money in development by not "reinventing the wheel".

Not only that, your efforts end up establishing the marketplace, so that customers are used to and appreciate the product - and thus create demand.  The general public loved the Comet when it first came out, which, other than its tendency to blow up in mid-air and kill everyone, was a fine product.  Just that one small flaw.  But people liked jet travel - the speed, the smooth quiet ride, the pressurized cabins.  The wanted to fly jets - just safe jets.  Boeing stepped in with a product that filled a public demand that de Havilland created, in part.

And off course, if you are second to market, you can see the various flaws in your competitor's products and come out with a better product.  In addition to not crashing, the Boeing 707, as noted above, was a product that was more maintenance-friendly to airlines, as engines could be changed out quickly, even at remote airports.  In the early days of jet travel, when engines did not last as long as they do today, this was a big savings.  Boeing also realized that the small size and limited range of the Comet made them less economical and not able to cover many overseas routes.  So they designed their plane to be a truly intercontinental-capable aircraft.  Even if the Comets had not crashed, it is clear that the Boeing design would have garnered more market share in the long run.

And Boeing probably realized that being first to market was fraught with hazard, based on its own experiences.  Boeing's first venture into an all-aluminum commercial airliner, the twin engine 247 was a commercial flop.  It was too small, too expensive, and the wing spar went right through the cabin, forcing passengers to step over it and making cargo loading difficult.   Rival Douglas, with its wildly successful DC-3 was late to market, but provided a plane with the range, the load capacity, and a flat cargo floor than the 247 lacked.  The 247 sold few copies.  DC-3's are still flying commercially, today.  So likely Boeing realized that trying to beat de Havilland to market was not worthwhile - let the Brits take the limelight - and the risks involved.  Come in second with a better product, and end up taking over the market someone else created.

Of course, this rule of thumb has its exceptions - but mostly exceptions based on poor management, poor product design, and poor marketing.  The Apple iPod, for example, remains the most popular MP3 music player format, mostly because it has the most number of accessories made for it.  But as a product, it could stand a lot of improvement.  The interface, while fine for a 1 GB model, falls down when you have 80 GB of music - 10,000 songs or more.  You just can't find anything.  And the iTunes software is clunky and hard to use on a PC platform.

Microsoft had an opportunity with its "Zune" player, but failed to take advantage of the second-to-market phenomenon.  Instead of correcting the deficiencies in the Apple product - offering a better product at a better price and then taking market share - Microsoft created a new product entirely and ended up being "first to market" with something else entirely.  The Zune was not a replacement for the iPod, but something else entirely - something that required you to rent your music, not buy it.  And not surprisingly, consumers stayed away in droves, confused as to what the product was, or even how to use it.  Apple won that round, but only because of Microsoft's typical ineptness and clumsy marketing efforts (and blatent attempts to scour money from consumer's pockets).

But Apple has also seen the first-to-market effect work against it.  The much-vaunted iPhone has done well, but due to a poor choice in wireless providers, had a limited market.  Google saw some flaws in how the iPhone was marketed and also in how apps were sold and distributed.  The Droid has taken a larger market share than the iPhone, Apple-branded "coolness" factor notwithstanding.  Consumers, it turns out, were brand agnostic, particularly when Apple limited itself to one of the less popular wireless networks.  Consumers didn't want to change carriers just to change phones.

Too late, Apple is moving the iPhone to other wireless carrier platforms.  But it remains to be seen if this will save the iPhone.  The Droid has garnered a lot of followers, and thus has a large support infrastructure of apps and the like.  And as well, the Droid is more phone-like than the iPhone, with a removable battery, for example, that can be replaced when it fails.  Consumers are not fond of devices that have to be shipped back to the manufacturer when the battery dies.  The "sealed box" technique of Apple is its Achilles heel.

You can see this effect in a number of tech sectors, including the Internet.  MySpace was all the rage only a few years ago, with every tech trends reporter talking about "MySpace This" and "MySpace That" - and hyping the social network as "the next big thing".  Then, for some reason, latecomer Facebook became more popular than MySpace.  How?

MySpace made a lot of mistakes early on - trying to hard to market to their clients in a very clumsy and apparent way.  They made everyone have a mandatory "friend" named "Tom" (one of the founders) who would write on your "wall" every day, promoting a product or a new band.  And you couldn't delete "Tom" if you wanted to, he was your default friend - a walking and talking commerical.

I walked away from MySpace at that point, and since then, they have been desperately working and re-working the site, changing it almost daily, trying to recapture the heat.  But with each change, they annoy more and more users.  Facebook offered a simple format, and for the most part, left it alone.  Adding games that appealed to the compulsive-addictive behavior in computer users increased revenues and interest sharply.  But while Facebook has "succeeded" in terms of popularity, it has yet to succeed in terms of making any serious amount of money.  How much they have made (if anything) is a mystery, as they are being very mysterious about their finances.  Needless to say, most people don't keep wild profits a secret, so we can assume that they are hiding bad news.

In the auto world, the first-to-market phenomenon takes place as well.  Honda was first-to-market with its two-seat Insight, which had astounding gas mileage, but was not a very practical car.  Toyota came out later with the Prius, which did not get the hyper-mileage of the Insight, but was more of a practical, everyday car that could seat four.  Which company today is known as the Hybrid car company?

And just as Microsoft botched their second-to-market opportunity with the Zune, GM seems poised to do the same with the Volt.  Attempting to leapfrog the competition, GM is offering a series-hybrid, where a gas engine charges the batteries, but does not drive the wheels (as in a parallel-hybrid, such as the Prius).  Not only is the technology unproven, the EPA is assigning the Volt a paltry 37 mpg in gas-only mode (the Prius beats 50 mpg in gas-only mode, its only mode at the present time).

As with the Zune, GM is coming to market with something that is not quite the same thing as the competitor's product - in this case, offering a plug-in Hybrid as opposed to the Prius gas-only Hybrid.  And Toyota appears poised to piggyback off of GM's efforts by introducing a plug-in Prius, after GM's introduction of the Volt.  Toyota will learn from GM's failures, to be sure.

And GM has tried this "leapfrog" technique in the past, usually with disastrous outcomes.  The Vega had a novel high-tectate silica engine, that relied on etching the cylinder walls to expose silica bits for long engine life.  The engine ended up being taller and heavier than anticipated (due to an excessively long stroke) and when fitted with a steel cylinder head, tended to warp when overheated.  It was an utter disaster and a black eye to GM's reputation.

Years later, another automaker started using the same technology, with few problems.  That automaker?  BMW.  Being first-to-market is not a good idea in many cases!

So what does this have to do with finances?  Well, for starters, when you hear about a startling new breakthrough in technology, don't run off to your broker to buy stock right away.  Chances are, the company that creates a new type of technology will end up dropping the ball or spending an inordinate amount of money on R&D and thus have high products costs - costs that will be undercut by the second-to-market competitor.

Of course, this is why we have a Patent system in this country (or had one) so that people would spend the money on R&D and have a "safe" market to recover those costs in.  Polaroid spend countless millions developing its instant camera, which was sold at premium prices.  Kodak jumped into the market with its own knock-off product, and it sold like hotcakes - until Polaroid sued them for Patent Infringement - and won.

Today, obtaining and enforcing Patents is far more difficult, and as a result, there is less incentive to be "first to market" with any product.  You are safer watching the competition rush to market, stumble, and then be there with your own product, which corrects the flaws inherent in of any new technology.

First to market is often last in the marketplace!

UPDATE:  February 5, 2011:

I noticed this SLATE entry recently, that discussed the fate of TiVo back in 2002.  Slate refers to the phenomenon I refer to as "first mover disadvantage".

TiVo pioneered the use of the hard drive storage device for TV viewing.  But they charged a $12.95 a month usage fee to use it, which was sort of a bummer idea of the subscription model (why do I need to pay a monthly fee to use a machine again?).

The problem was (and is) that the cable and satellite TV people started putting hard drives (which are a cheap, a terabyte is now $99 at Staples) into their set-top boxes, essentially providing TiVo capability for free, as part of a cable-TV or satellite-TV package.  Um, why do we need TiVo again?

First to market is often last in the marketplace!

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Killing Yourself Over Money - Stupid!

Money is just an idea.  Killing yourself over an idea is silly.

Tragic news in the paper the other day.  Some lady decides to shoot all her kids, and then herself, and then set the house on fire.  The back story is that she and her Husband are getting a divorce and they were having money troubles.  In recent years, there have been a number of similar stories - about people killing themselves, or trying to kill themselves, because they are facing foreclosure or bankruptcy.

How Silly.

Life goes on, after bankruptcy, after divorce, after foreclosure.  And not only is it a very shallow thing to kill yourself over something as stupid as money, it is a very rude thing to kill your children over this - after all, their lives would have been affected far less by your financial problems that yours.

Why do people do things like this?  Well, they see no other way out, and they put too much of an importance in their lives on money.  As I noted in another posting, Money is the greatest invention of mankind, but it can be powerful and dangerous.  It is an idea, plain and simple - an idea of what things are worth.

And when you put too much importance into this idea - when you make it the centerpiece of your life, well, then losing it seems like losing your life.

Money is a useful tool, yes.  But an end in and of itself?  No.

It is important to disassociate yourself from your money.  As human beings, we lived for eons without money and never worried about it.  We worried about predators, starvation, war, and the like.  But we didn't worry about having our caves foreclosed upon.

It is important to manage money properly.  But don't confuse money and material things with life itself.

You are not your bank balance!

You are not your credit score!

You are not your credit card debt!

You are not the car you drive, the boat you own, or the motorcycle you ride.

You are not your house.  You are not granite counter-tops.

In short, you are not the material.  Even the bodies we inhabit are mere material things that will vanish in short order, once we are gone.  And often even they are more enduring that the money and things we leave behind.

It is sad when I read these stories about people jumping off buildings because they lost money, or killing themselves over a foreclosed home.  It is sad not just because these people died, but because they died for nothing - or worse than nothing, they died for something illusory and transitory - the material.

But these types of events illustrate how American has become beholden to the material - how the media hypes the material as the end-all to life and how most Americans buy into this without thinking.  A house in the suburbs and a shiny new car is life to most people these days.  So losing that literally means they have nothing to live for.  And that is sad.

As I have discovered in this blog, you can live on not a lot of money and live quite well.  In fact, how well you live and how much money you have are often unrelated things.  Gaudy and tacky millionaires and billionaires may have more "things" in their lives, but are rarely happy - and often these people are in debt up to their eyeballs like Michael Jackson.

There's a cautionary tale if ever there was one.  Was he a happy person with all that money?  I think not.

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The Savings from Living on Less

A vacation home on a lake!  How marvelous!  How Expensive! It was fun while it lasted.

Living the Vida Loca was a lot of fun, for a while.  But like a lot of folks my age, I found out that having a "nice lifestyle" while fun, was costing a lot of money.  And it was costs that I didn't really realize until I stopped paying them.  I am still adjusting to the idea that I don't need to be running like a hamster on a wheel all the time, just to stay in one place.

Selling off a lot of "things" I thought I had to have, and learning to live on less and be debt-free is turning out to be far more relaxing.

So what are the savings?  Just off the top of my head, I can come up with:

Interest Not Paid:  $18,000 per year

Property Taxes, New York:  $6,500 per year

Boating Costs (Riparian Day 3):  $5000 per year*

Boating Costs (Riparian Day 2): $2000 per year*

Cars: (BMW Concertibles, Pickup truck, Jeep): $3000 per year*

Lawn Care (5 acres of lawn): $500 per year

Utilities, New York:  $2000 per year**

House Maintenance, New York, $2000 per year***

Total:  $39,000 per year.

*storage, insurance, gas, repairs
** adjusting for increased costs in Georgia
*** includes gardening, improvements, service contracts, winterizing


Hoochie-Mama!  That's a lot of dough.  Now consider this, in order to make the same amount of income, with taxes, I would easily have to increase my income by at least 50% or more.  So, in other words, a savings of nearly $40,000 per year ends up being equivalent of getting a raise of $60,000 a year - more than most people make.

Ouch.  Yea, having a lot of toys was nice.  But Geez Louise, it was breaking my back!

Not working is better than working hard so you can own stuff.

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Outdoor Lighting And Parasitic Draw

Many folks put commercial lighting fixtures like this on their homes, drawing 300 Watts or more, and creating an ugly ambient lighting effect.

As I noted in an earlier posting, my neighbor and I were comparing utility bills and noted that his is nearly double mine.  Keeping the thermostat to reasonable levels and wearing appropriate clothing is one way to save energy.  Many folks, particularly women (due to traditional modes of dress) insist on wearing skimpy clothes in the winter and then turning the heat all the way up to compensate.   It is a lot cheaper and easier to wear warm clothing and turn the thermostat down.  Choices you make affect your cost of living.

Outdoor lighting is another area where your personal choices affect your cost of living, in particular, your utility bills.  For some reason, many folks like to illuminate their house like a gas station, often incorporating commercial halide or sodium vapor lamps, often on the order of 300 Watts or more.  Or, they use a number of 75 watt "floodlights" around the house to keep everything illuminated.

This type of lighting is ugly, to be sure, and attracts hoards of insects on a summer night, usually creating a mess of dead bugs around the fixtures (and cobwebs from opportunistic spiders).  Since the lighting is so unflattering, glaring, and blinding, and because it attracts bugs, most people do not want to sit outside under such lights, and as a result, the lights illuminate nothing.

Walkway lighting, spot-lighting (so-called "vanity lighting" which illuminates the showplace mini-mansion) are also becoming popular as well.  Many folks use one or more of these various types of lighting on the grounds that they make it "easier for guests" at night, or to "deter crime".  However, I think for the most part, these are just obnoxious light pollution and a waste of energy and money.

How much money?  Well let's assume for a typical trailer home having a 300 Watt sodium vapor lamp, or a house with four 75 Watt floodlights, or a typical mini-mansion with low-voltage "eave" lighting, walkway lighting, and "vanity" lighting (as well as the ubiquitous post lamp) totaling 300 Watts, the lighting is programmed to go on from dusk to dawn, or about 12 hours a day on average.

This works out to 3600 Watt-Hours of electricity per day, or 3.6KW-Hours per day.  For an average of 10 cents a KiloWatt-Hour, this comes to 36 cents per day, which doesn't sound like a lot of money.  By multiply this by 365 days in the year, and that 300 Watts of lighting is costing you $131.40 a year - enough for dinner for two at a nice restaurant.

And of course, in many homes, the wattage is much higher - some neighbors have elaborate post lamps (with multiple bulbs) entry way chandeliers,  garage wall sconces, walkway lighting with dozens of lamps, spots, and other fixtures, all totaling 1000 Watts - or more.

Such parasitic electrical loads add up, over time, to the point where your electrical bill edges ever upward.  Like with any other type of budget - be it the Federal Government, your Household Budget, or your Electric Bill, cost escalation occurs in small increments, and savings take a lot of work to scrutinize small costs and savings.  So while a post lamp might not seem like a big energy user, if it just sitting there burning your money and not doing anything in return, what is the point?

I think a better approach, if you are concerned about crime or want safety lighting, are motion-sensor lamps.  These can be purchased for less than the cost of an ugly halide light fixture, can provide focused light, and turn on only when needed - and turn on automatically when you need them.

Traditional outside lights come on only when you switch them on, so when you need light, you have to go inside and turn on a light.  It is far easier to have the light come on automatically when you are outside.  For example, in our home in Virginia, we had one of these on the far side of the garage, and it would come on whenever I went out there at night to get firewood.  It not only saved electricity, but was more convenient.

You can also add these types of motion sensors to light switches in the home.  I recently put one of these in the laundry room (six 40-watt florescent fixtures, or 240 Watts).  The switch was in an awkward location, and we got tired of stumbling around out there.  Worse yet, because of the awkward location, we kept leaving the light on by mistake, which burned electricity and also was a nuisance (we kept having to go there and turn it off, as the florescent fixtures would interfere with the radio).  A simple $8 motion-sensor switch solves the problem, saves electricity, and makes life easier.  Savings?  Maybe about $25 a year, based on two-and a half hours a day of lighting savings.

Not much?  Well, multiply that by the lights "left on" in your house than no one is using, and you could literally save hundreds of dollars a year - enough to pay the utility bill for one month.

So, we don't leave outside lights on, like our neighbor.  If we are expecting company, we put on the porch light.  When they leave, we turn it off.  Our house goes dark as a pocket, while our neighbor's looks like a Casino - all night long.  And yet, he complains about high utility bills.

It is an interesting exercise, and of course, the next step is to look at all those wall-pack transformers we have in our lives.  Owning things ends up costing money, and if you can own less, you pay less and and live more.  Stay Tuned!

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Memory does not survive a Generation?

Collective Human Memory seems to span only the last 20 years.

When I talk with people about the recent Real Estate collapse, I usually mention the previous collapse of 1989.  And usually I am met with blank stares.

"Really?" they say, "There was a Real Estate collapse back in 1989?"

And then they usually accuse me of making it up.

Now, if the person I am talking to is like 30 years old, I guess I can excuse them, as they were only about 10 years old then, and might not remember it.  But many people well over 40 seem to have forgotten that housing prices in many parts of the country dropped by 20-50% or more, and that there was a wave of foreclosures that took nearly five years to complete.  People lost their homes or lost tens of thousands of dollars.  And much of it was due to "funny money" toxic ARM loans.  Back in 1989.  Seriously.

Similarly, few people remember the "S&L" crises of the 1980's and the "Resolution Trust Authority" taking over these uninsured institutions and oftentimes many people (such as my Sister) losing their deposits.  Banks going under?  It's never happened before, right?

Very few people, it seems, remember "Even and Odd gas days" - and when I tell someone under 40 that back in the 1970's, you could only buy gas on a even day if you had an even license plate number, and on an odd day if you had an odd license plate number, well, they look at you like you are from Mars.

These are, of course, the same people who bought 8 MPG pickup trucks with "Hemi" engines and then acted all surprised when gas shot up to $5 a gallon.  Gee, we've never seen that before!  Um, except like four times previously, going all the way back to 1973.

Few people even remember the "dot com" bubble of 1995, and are instead, at the present time, hyping the snot out of "dot com" stocks again and bidding up prices.  "Profits are a thing of the past!" they say, the echo of the "new paradigm" ringing down through the ages - well, at least from 15 years ago.

Who today remembers the "Gold Krugerrand" craze of the late 1970's and early 1980's?  Everyone was going to buy gold coins, because the economy was in the tank!  Better buy GOLD baby!  Because when it all falls apart, that's all that will be worth anything!  Those folks quietly lost their shirts in the 1980s and many are still "underwater" on their 1982 "investment" in Gold.

Human memory, or at least collective human memory, seems to be a very transitory thing.  You can sell snake oil to the townspeople only hours after they've tarred and feathered the last fellow who came into town selling the exact same thing.  "Gee, that snake-oil sure do sound fine!" they say, brushing loose feathers from their jacket, "but where have I heard that before?"

Benie Madoff is only the latest in a long, long, line of flim-flam artists - Ponzi men - who pay off investors with proceeds from new investments.  It's not like we've never heard of the scheme before - we even named it after the first guy caught doing it - Charles Ponzi.  But there they are, the scared investors, with eyes like deer-in-the-headlights.  "Who knew such a thing could happen?" they say, "After all, it's never happened before!"

Those who do not learn from history are doomed to repeat it.  Perhaps this is part of our human nature, to make the same mistakes, over and over again, until we die, like Sisyphus pushing his rock up the mountain, only to see it roll down, again and again.

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The Year of the Living Dead - 2011

There are many companies and individuals who are zombies right now..

The stock market is up!  Consumer confidence is on the rise!  Claims for unemployment benefits are down!  And long-term forecasts are looking up!  Get ready for more bad news!

Bad news?  Yup.  2011 will be the year of the Zombie.

I thought about this today, as a hotel here on the island "suddenly" went belly-up.  Suddenly is an odd phrase, as it has been doing a slow-motion death over the last four years.  While it was a moderately successful hotel, they decided, at the height of the boom market, to expensively remodel the entire hotel and re-make it as a "Hotel Condo".

The tore apart the various buildings, installing tile roofs and tearing out floor joists (!!) to move walls around.  It was more than a cosmetic rehab.  And then, in 2008, the market collapsed and suddenly, the workmen weren't showing up anymore, and most of the units were in a state of half-completion.

In the two years since then, most of us haven't given it much thought.  The hotel still continues to run, and some units were sold off to investors.  Most of us just presumed they would finish construction later on.  But in this market, where would you get the money?  And who would buy a Hotel/Condo unit for the prices they were asking?  And of course the answers should have been clear.

The place was a zombie.   You've heard the phrase before, "He's already dead, he just doesn't know it, yet".  And that applied to that hotel, and to a whole host of companies, stores, chains, and even individuals - who are upside down, have declining businesses, and are running short on operating capital.  And it is only a matter of time before "suddenly" they close their doors for good, leaving us all to wonder "why didn't we see this coming?"

A lot of folks with upside houses, cars, boats, and condos will finally throw in the towel this year, realizing that prices aren't going to bounce back any time soon - and they might as well quit now than try to "hang on".  Throw in a backlog of foreclosures from the robo-signing "controversy" and you've got a lot of foreclosures for 2011 - perhaps more than in 2010.  And of course, this means more properties on the market, which means housing prices will stay flat or depress slightly.

And then there are the corporations, like Sears, and Radio Shack, I spoke of earlier.  Or Blockbuster, for that matter.  We have a lot of retail space that was built in the last decade, just as more and more people are shopping on line and consuming less, as our demographics age.  Expect some of these companies to go away in 2011, which will mean layoffs or at least downsizing.

The bad news isn't over, by a long shot.

But as each zombie out there takes a shotgun blast to the head, it means the economy is moving back toward recovery.  Unless you are a zombie, this is good news.  And even for zombies, there is a hope of a second life.

After the "dot com" bust, we saw a lot of server and fiber optic capacity sit around unused.  Many companies found they could start up inexpensively by snapping up this equipment, used, for pennies on the dollar.  Suddenly, business plans that were too costly to implement, worked.  And a boom in the tech sector resulted.

Similarly, a glut of low-priced housing and retail space will mean good news for people looking for a place to live or businesses looking to open.  Want to start a company?  Open it in Las Vegas.  Not only is there a lot of space available, your workers can buy a house or condo for less than the construction cost.  A low cost of living means lower wages go further.  And I'll bet the Greater Las Vegas Area Chamber of Commerce will help you get some tax incentives to move there.

And so on down the line.  One person's misfortune is at least an opportunity for another.  I bought Real Estate in the 1990's that was depressed from the crash of 1989.  Houses were selling for prices so low that they generated positive income on the first month's rent check!   And yet, many people, not seeing opportunity (because they watch TeeVee and get all the wrong information) shied away.

Today, we see the same trend.  Fear and Greed.  Greed lead them all to invest in Real Estate and Stocks.  Fear caused them to "cash out" at the nadir and invest in Gold - where they are again getting greedy and will again lose their shirts.

Meanwhile, quietly and without fanfare, the truly smart investors are doing the math, whether it is on a spreadsheet on a computer or on the back of an envelope in the front seat of their pickup truck, and realizing that there are opportunities out there - just not in flashy and heavily hyped things.

The zombies will die off this year - and the bad news will probably frighten people out of the market, meaning some dips in the Dow over the year.   But long-term, zombies need to die, if we are to expand the economy.  Like any plant, pruning is needed to make it grow back, stronger and more vibrant than ever.

Update July 2013:   2013 will be the year of the living dead for many - or the year these zombies are finally put down.   While foreclosures are down, many folks are just now realizing that they can't afford their homes, after running through their 401(k) money to try to hang on to them.   They should have quit years ago.   And many companies, such as Radio Shack, Sears, J.C. Penny, and the like still soldier on, with no apparent means of support.   It will be interesting to see how long they hold out.

Blockbuster is gone, as is Borders.  Barns & Noble has thrown in the towel with its e-reader.  But then again, perhaps the whole e-reader marketplace is doomed, now that everyone (it seems) is buying pad devices (not me, yet).

Detroit finally threw in the towel, today.  It has been on life support for several years, with a staggering debt load, and no way to service it.  A shrinking population and a staggering pension liability started the death spiral.  Cutting city services meant only that more and more people fled the city, leaving fewer and fewer people behind to shoulder the overhead.   Sounds like what might happen in Central New York, as property taxes skyrocket, essential services are cut, and people flee.

As I noted before, I was still buying foreclosure properties in 1995, a full SIX YEARS after the 1989 Real Estate meltdown.   Our present meltdown was in 2008, so that means, if history is any guide, that we will see foreclosures well into 2014.

The market is turning around, to be sure.  But that is cold comfort to those "zombies" out there, who hoped against hope to "hold on" and "ride it out" and are finding out just now, that they should have just thrown in the towel early on.

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Bored with Facebook

Facebook is boring!

I have stopped using Facebook.  Not dramatically, like some of these drama majors, who declare that such-and-such a change in Facebook is pissed them off so much that they are "closing their accounts for good!" and then, two weeks later, mysteriously re-appearing on Facebook.

No, rather, I just found myself using it less and less.  I would spend an hour on it a day, then a half hour, then 15 minutes, then 5 minutes, then every other day, then "oh, hey, I haven't checked my Facebook page in a week" kind of deal.  SO I just don't go on it much anymore.  And when I do go on, I generally stay on for a matter of seconds and then leave.

Why is this?

Well, it is boring, plain and simple.  There is no "there" there.  If you look at Facebook from a rational perspective, there are two basic pages - your "feed" and your "profile".  It is like playing a piano with only four keys.

You can play a lot with your profile, adding pictures, likes, groups, and information, so that people visiting your "page" can learn a lot about you.  As one friend put it, it is a lot of braggadocio most of the time, as most of us put a positive "spin" on our lives.  We write down that we "recently graduated from a nationally acclaimed program!" but fail to mention it was of the 12-step variety.

The "new" profile page makes it harder to control this part of your facebook exposure, as it, by default, shows all your profile pictures, even if you are not using some of them anymore.  And this is one problem with Facebook, is that they keep tweaking it to keep up interest, when in fact, it is just annoying.  You get your profile to look like you want it, and then they decide to reformat everyone's profile page and yours looks like shit.  Want to spend another day fixing it?  I don't.

And of course, they keep making it harder to manage your "apps" and "likes" which allow 3rd parties access to your juicy demographic data.  Many of these "likes" were the subject of clickjack attacks which Facebook was very lackadaisical about policing - after all, when harvesting data from your client base is your business model, you can't very well criticize others for doing the same!

The other page is the "feed" page, which has little Twitter-like snippets from your friends of what they are doing, what apps they "like" (basically avowals of loyalty to various branding schemes of our corporate overlords) and the tiny minutiae of their daily lives.  This is disturbing on two levels.

First, one reason I am friends with a lot of these people is that I don't know what they are doing on a minute-by-minute basis.  Facebook removes all the mystery from a relationship, and leaves you with little to talk about in real life.  You meet a friend and talk about something you recently did - and then quickly realize they already read about it on your "feed".

Second, there are a lot of people who you have as "Facebook friends" who are not real friends in real life, in the sense you see them more than once a year - if ever.  And knowing what they made for dinner is really irrelevant.  You get tired of hearing what some high school chum is doing this very minute, and you realize that it is information that is just background noise - information that has the appearance of value but is not inherently "signal" in the Electrical Engineering sense.

And as I noted, a lot of these Facebook posts are just "Joe likes Olive Garden!" which is sort of just an advertisement - and Gee, we don't get enough advertisements in our lives without making ourselves into them ourselves.  And Gee, we don't make ourselves into corporate shills enough already, do we?

So, what else is there to DO on Facebook?  Well, one of the guilty pleasures of Facebook is what I call "spelunking" the database - looking through records of friends of friends, or searching by name, to find Facebook pages of people you haven't seen in a long time, or old friends, family members, or even enemies.

The problem here is twofold.  First, once you have exhausted the names of everyone in your High School Yearbook, you basically run out of something to do here.  Second, as I have noted before Everyone's Facebook Page Looks the Same.  Sad, but true, your facebook page, with pictures of your kids and pets, your likes and dislikes, pictures of you "getting wild" on vacation or at the holiday Christmas Party look JUST LIKE EVERYONE ELSE'S.

You might find some long lost friend on Facebook, but learn very little of who they are or what they are doing from a Facebook page.  If you are curious as to what ever happened to that High School Cheerleader you used to date, just pick the Facebook page of someone who looks like her, about the same age as she would be today - you'll get as much hard data as you would from the real thing.   Self-reported data is always suspect!

And that is the part of Facebook that is utterly depressing.  We all like to think we are dramatic individuals, unlike any other person, when in fact, we are just like each other.  All Facebook Profile Pages Look Alike!

As I have noted before, Facebook is like a piano with four keys.  You can play only a limited number of tunes on it, and while you may think you are being "original" in your playing of it, in fact, you are playing the tune they have herded you to play.  It is like being on a "Reality TV" show - they don't give you lines to say, but they tell you what to do, nevertheless.

In fact, it is a bit disturbing and fascist, if you think about it - your life is reduced to the same set of parameters as everyone else's.  There is no room for creativity or differentiation, other than selecting from a limited number of known options.  It is not like creating your own web page in HTML, where you can select format, content, and even music and video.  It is just filling out a form basically.  A glorified form, but a form, nevertheless.  A person's life, reduced to an IBM punch-card.

So after a while, even those of us with long attention spans lose interest.  What is there to do?  Post pictures?  Done that.  Look at a long-lost friend's home page?  Done that.  Post your latest status to the "wall"?  Done that.  Read what restaurant or corporation your "friends" like?  Done that.  Waste countless hours playing an online game like "Farmville"?  Uh, no thanks.  Not interested.  Clicked on one of their helpful ads for crazy Internet rip-offs?  Not interested either.

The problem with Facebook is the same problem MySpace had, and Friendster had before it, and even Classmates had.  You need to change the site to create new levels of interest, but at the same time, change pisses off a lot of users.    There needs to be a raison d'etre for the site, once you've gotten bored with all the three things to do on it.

And I am not sure there is anything you can add to this to make it compelling again to a user, once they are bored.

Like Myspace and AOL before it, they will claim to have hundreds of millions of "active users" and continue to soldier on.  But the key will be, moving forward, as to whether those users are as active as they once were, or whether, like Twitter, they have hit a wall in terms of growth and use of the service.

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Two Choices

Note: I am re-posting this entry as it may have been lost during the holidays when it originally appeared.

You can take one of two paths in life.  The path of self-actualization and action, or the path of passive acceptance and inaction.  The second path is the one touted by the media today as the "American Dream"  -  of having everything handed to you on a platter and then whining when it isn't any good.  But there is another way to live, and it is far better than the dreck that is being offered up as " living"  these days.

To many people, the strategic thinking of Al Qaeda seems bizarre.  Flying planes into the twin towers and the Pentagon (as well as the attempt on the Capitol) wouldn't bring America to its knees, but instead provoke a long a bloody war that would keep them on the run for years to come and polarize politics in the Middle East.  Did they really think we were so weak as to just collapse because a few buildings are destroyed and a few thousand people killed?

Perhaps they did.  Americans today have a reputation of being whining crybabies who throw a hissy fit if their Vente Latte isn't hot enough, or their Happy Meal isn't Supersized.  We are overfed, overpaid, underworked, staggeringly obese and very lazy - for the most part.  Or at least, that is the image we project to the rest of the world.

And yet, there is a nugget of truth to this characterization - and it illustrates the divide in this country today.  A large portion of our population - perhaps the majority - suffers from depression, feels they are entitled, believes themselves to be victims of one sort or another, and rarely looks at their own actions as the cause of their own woes.

Are they shutting down the factory and laying everyone off?   Must be the fault of "greedy" management who insists that the plant be profitable!  After all, it can't be the fault of the "workers" who have been on strike for four years, and when they do show up for work, insist on a salary of $60,000 a year plus full health coverage, for basic unskilled work - which they don't even do very well.  No, no, it is the company's fault and don't even suggest that the union could have a hand in this.

Or perhaps, if you are "conservative" you can blame all your woes on the government for "taxing you to death" - never mind that you enjoy some of the lowest tax rates on the planet.  The shouting guy on TeeVee told you it is not your fault - and that is what you wanted to hear.  It is weak thinking at its worst.

You have two choices in life.  Two.  Just two.  You can be lazy and blame all your woes on everyone else and never take responsibility for anything and then sit around and whine about it all, or you can take action in your life - make the best of a bad situation (and realize your situation, from a global perspective, is anything but bad) and take responsibility for your life - including responsibility for your own mistakes.

And people in this country fall into these two groups - not "Conservative" or "Liberal" - as both ends of the political spectrum harbor their share of whiners and complainers.  In fact, I would say that the division, if you were to demarcate it politically, was more of the Center versus the extremes.

People in the Center just want to do their work, get along, and move on with life, realizing their own mistakes and taking responsibility for them.  The folks on the far Left want to blame "the big corporations" for their misfortune in life, while those on the far Right want to blame "the big government" for their personal problems.  And no doubt, you've met species of both and been buttonholed by them and bored for hours about how there are "more important issues at stake here" than their getting off their ass and getting a job.

So you have two choices.  You can spend the rest of your life blaming your problems on others - externalizing, if you will, and of course never getting anywhere.  People who follow this first path are often characterized by:

• Weak thinking
• Victim mentality
• Blaming others for woes
• Inaction
• Not making decisions
• Depression
• Self-destructive behavior
• Taking the easy way out
• Comparing yourself to others
• Obsession with Politics
• Looking for happiness externally

But of course, you do have a second choice.  It is a harder path, but it is the only path to wealth and happiness.  Complainers and whiners never, ever win.  At most they might get a prescription to anti-depressants or medical marijuana.  But being depressed all the time - is that winning?  There is a second way - a path of self-actualization and self-awareness, as well as taking responsibility for your own life.  People who follow this second path are characterized by:

• Taking action
• Taking responsibility for bad decisions in the past
• Making plans
• Doing difficult things
• Making sacrifices
• Learning to live without
• Being grateful for what you have
• Looking at the world view, rather than the local view
• Living according to your own standards
• Looking inwardly for happiness

When I was younger, I took the first path.  Why?  Well, I came from a family of whiners and complainers - people who believed that "but for" the grand conspiracy or the politics of the day, they would be rich and never have to work.  People who fell for weak thinking and blame-shifting.  Corporations were always evil, bosses always assholes, and work was for chumps.  That sort of thing.  When you go through life thinking the deck is stacked against you - so why bother trying - well, then you've stacked the deck against yourself.

I also followed this first path because it was the one the media likes to harp on.  Why?  Because victims make excellent consumers.  So long as you view yourself as a passive participant in life, you will end up getting the worst sort of bargains imaginable - buying everything on credit and paying the highest prices for every sort of goods.  And rather than really figure out how money works and work on a plan to accumulate wealth, depressed people just say "Fuck it, let's buy a brand new car, we deserve it!" and squander away yet more cash.

The media, particularly the TeeVee, pounds into your head every day that you are a victim of one sort of another, and moreover you should focus your energies on being outraged over it all.  It doesn't matter if it is the far left claiming that the "Evil Corporations" are taking over the world, or the far right claiming Obama is turning us into a socialist state.  The point is, you are supposed to be outraged over it all, and the reason you are unemployed is due to the government, not your lack of skills, lack of dedication to hard work, or your unwillingness to move to an area where there are in fact, jobs.

What got me off the first path and onto the second?  I got tired of being a victim, I guess.  It took decades, but I began to realize that the path of dependency and perpetual debt was not a natural way to live, but an artificial construct being forced upon me.  Well, not necessarily forced, but sold to me, baited with sweet lies of "have it all now" and "blame someone else".

I swallowed the bait, hook, line and sinker, because weak thinking is fun, sort of.  You are never wrong, just a victim of someone's machinations.  It is comforting, in a way, and you do get the instant gratification of owning lots of consumer goods - at least for a while.

It started to dawn on me that, as my income rose, I was merely swimming in place - never getting substantially ahead of myself.  That the way of living sold to me by the TeeVee was to spend my money in increasingly larger and larger amounts, in monthly payments, rather than try to accumulate wealth.  And moreover, society at large promoted this same image.  There was a virtual competition, among my neighbors and peers, to show off the latest and fanciest of gadgets, possessions, and cars, usually financed on time.  Debt, it would seem, was our perpetual friend.

How many tens, if not hundreds of thousands of dollars have I spent over the years on interest payments?  Interest that, for the most part, was not necessary to my living my life.  Interest payments so I could "have it all now" rather than save for later.

And whose fault was this?  Mine and mine alone.  While I might "blame" the TeeVee and our society for selling us a false religion, the responsibility for buying it lies solely with the purchaser.  Caveat Emptor, no warranties expressed or implied.  And sorry, no returns or exchanges allowed!

Turning away from the noise and chatter of the mass-media, and in particular the false religion sold on TeeVee (even the real religions sold on TeeVee are false religions!) was the answer - looking within for answers instead of looking outward.  Taking the second path is not easy, as everyone from the media, to your friends, your neighbors, your family, and even your spouse, will say you are insane for not wanting to be a victim or be hopelessly in debt.

Everyone, it seems, says that being in debt is good.  Everyone, it seems, wants to tell you that you are a victim.  Everyone, it seems, is wrong.

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My 20 years with Fidelity

We have been investing with Fidelity Investments for over 20 years now.  For the most part, it has been a positive experience, but our relationship may be taking a new, positive turn in the near future.

After writing My 20 Years with State Farm and My 20 Years with Northwestern, I suppose it is only fair to examine our financial relationship with Fidelity Investments.

We had a Fidelity account set up by Mark's Father, with a small amount in it, in the Equity Income Mutual Fund.  Over the years, we have added to it, rolling over various 401(k) plans and making additional contributions.  It has done well - more than doubling in value (120%) even after the recent downturn in the economy.

We had a Fidelity Trading Account, but abandoned that because the cost of trades was too high.  We have since opened trading accounts with E*Trade and Ameritrade.   Fidelity now offers trading accounts with much lower fees - fees that in some cases are lower than E*Trade and Ameritrade. 

I had a Fidelity Account as well - invested in the lesser performing Equity Income 2 (which still did well).  I thought about starting a self-directed IRA with E*Trade, as we had a lot of money in Fidelity, and I was nervous that these mutual funds were a pig-in-a-poke.

So I asked Fidelity to roll over about half my account to an E*Trade self-directed IRA.  For some reason, they rolled over the whole amount.  When I called them about this, the person answering the phone was like "Oh, my bad.  Have them send the money back or something!"

I took this as a sign and didn't send the money back.  Since rolling it over to E*Trade, I have increased the value of the account by nearly 50%, so I've OK as a "stock picker" but it still makes me nervous.

So my feelings about Fidelity were a mixed bag.

We got one of these form letters in the mail from Fidelity, offering to review our investment portfolio, which by now is a fairly substantial amount, for middle-class Americans.  I took them up on this and met with a representative in the Jacksonville Office.

They claim not to be on commission, and generally their funds are low, in terms of loads and fees.  The agent pointed out that the American funds that my Northwestern Agent sold me (emphasis on the word "sold") have very high fees.  So we may roll those over to Fidelity.

By the way, my Northwestern Agent is a real piece of work.  I thought this guy was watching my back, but it appears he was just watching his bottom line.  I was on Facebook the other day, and Facebook suggested I "friend" him (can you "enemy" someone on Facebook?  I think that would be a great app).

Anyway, I clicked on his profile and under "favorite television shows" he had listed "Fox News".

Fox News.  What a freaking idiot.  I mean, all television news is idiotic to begin with, but Fox?  Only morons would watch that drivel.  I mean, really.  Sheesh!

Anyway, this guy at Northwestern put me into American funds, which have a staggering 5.5% load (or higher), which over time, can really put a dent in your earnings.

And funny thing, too, when I started in those funds, I specifically remember asking him about load, and I don't recall him saying anything about 5.5% in fees (the selling agent, it turns out, gets about half of those fees!).

Overall, the agent at Fidelity gave me some good advice - about the 4% rule, annuities, how much I will need to retire - all those questions I have been trying to answer!

Do I trust him?  Well, trust has to be earned, and after my disastrous experiences with the "financial advisers" at Northwestern and State Farm, I am a little gun-shy, to say the least.

And of course, his advice is to move my money to Fidelity - but not all of it, like the greedy little piggies at State Farm wanted me to do.

But I am cautiously optimistic that maybe I have found someone who is pretty much a straight-shooter.

We'll see.  Stay Tuned.


UPDATE:  February 20, 2011

We rolled over our American Funds SEP plan to Fidelity.  Thanks to a recent spike in the market, both funds nearly instantly increased in value by 5%, which is a good sign.

Fidelity's website, by the way, is fairly user-friendly and clear.  As with all my accounts, I try to check it on a regular basis.

I have to say, the agent at Fidelity was friendly, informative, and helpful.  And he is not on commission, so I didn't have to fork over 5% of my money to him for the privilege of doing business with Fidelity.

I only wished the agents at Northwestern and State Farm were as direct - and didn't have a hand in my wallet.

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The Political Junkie

Political Junkies on both the Left and Right love discussing Sarah Palin endlessly.  What outrageous thing did she say today?  But in Reality Land, most normal people see that she is little more than a media star at this point, and not a political star.  Political Junkies cannot distinguish between the two, of course.

Political Junkies - they annoy the snot out of you.  You try to have a conversation with someone and in a matter of minutes, they twist it around to their personal political beliefs, usually odious ones from the far right or far left.  It sort of goes like this:

You:  "Kinda cold out today, eh?"

Them:  "Certainly is!  And those Liberals think we have Global Warming!  It's like I heard Rush Limbaugh say the other day, blah, blah, blah, blah, blah.."

You try changing the conversation, but it never works.  Everything is either Obama's fault (if they are Righties) or the fault of the "Evil Corporations and Wall Street Fat-Cats" (if they are Lefties).

So what's wrong with folks like that?  After all, isn't everyone entitled to their opinion?

Well, Yes and No.  The problem with the Political Junkie is that they take a good thing too far.  And as a result, they end up alienating friends and family, co-workers, and employers.   And since they blame their personal problems on politics, they fail to take action in their lives which would save them money and advance their own lives.  They sacrifice their own lives on the altar of politics, to little or no effect.

How do you spot the political junkie?  Here are some indicia:

1.  At parties, they spend most of their time talking politics.

2.  They have one or more bumper stickers on the back of their car, usually with cute catchy slogans, often mocking the opposition  (e.g., "Fire Nancy Pelosi" or "Fight for a Livable Wage!", etc.).

3.  They spend hours watching political talk shows and listening to political radio shows.

4.  They blame their personal woes on political movements.

5.  They spend a lot of time mocking the opposition; much of their "deep political thought" amounts to little more than broad stereotypes about the opposition or name-calling.

6.  They talk only to people who agree with them and assume that everyone agrees with them.  When they encounter someone with a differing opinion, they do not discuss the issues, but usually start a fight or walk off.

7.  They view anyone with an opposing political view as an enemy - personal, or of the country.

8.  They view the world as two opposing political views - one good, one ridiculously bad.

Note that I am not being kind to either "side" on this "debate".  People who spend all day long listening to right-wing talk radio are wasting their time as much as far-lefties and their crackpot world views.

How is this sort of behavior harmful to an individual?  Well, to begin with, it drives away friends and family.  But more importantly, it makes it harder to get a job.  When you start bringing up your crazy conspiracy theories or political views during a job interview (and I've seen it happen) employers edge away.  They don't want to hire someone who seems like a sure candidate for "bring your gun to work day."

And yes, this extreme sort of political obsession is really a form of mental illness - from mild to wild.  Crazy people often obsess about politics, and the people who push this sort of obsession are a little crazy themselves, whether mild (Keith Olbermann) or wild (Glenn Beck).  And yes, disturbed people often latch on to this heated form of political "debate" and end up acting out the violent fantasies promulgated by their proponents.

Worst yet, these sort of political obsessives end up making a lot of really bad financial decisions.  For example, as I noted before, one of them I knew got sucked into this tax protesting gig, and like Wesley Snipes, ended up in some serious legal trouble.   But before they finally caught up with him, all you could hear from him was "I don't have to pay taxes" and "It's all a big conspiracy."  A better approach, in my mind, would be to take all that emotional energy and put it into managing your own affairs, working harder, and saving money.  Death and Taxes are inevitable, no matter how many seminars you attend or kits you buy.

But that is the problem with the political junkie.  They are the quintessential weak thinkers - people who think that Congress can repeal the law of gravity or pass a law making Pi equal to three.  These are the sorts of people who believe Huey Long when he claimed that Government can make "every man a King" without work, without productivity - through sheer magic.

And this sort of weak thinking exists on both sides of the political spectrum.  Lefties think we can just pass a law and make everyone rich - that by handing out cash to the "poor" we will make them "rich" and solve social problems.  And many of them harbor neo-Communist or neo-Socialist beliefs, than if only the government took over industries and ran everything, we would be living in a Socialist paradise.  And yet, they ignore the ample evidence to the contrary.

On the right, the belief is that the Government is the source of all our troubles, and if it were only abolished, the benevolent Corporations would create an unheard-of prosperity in the US, making us all billionaires.  And we'd be free to discriminate against Blacks and Gays and chase our Secretaries around the desk, just like the "Good Old Days".

But of course, what both sides fail to see, with their Utopian blinders on, is that while they are pining for a future world that will likely never come to fruition, we are already living in a world that is, well, pretty darn nice.

Yes, our country has its share of troubles now and again - always has, always will.  If you get your world-view from TeeVee, you'd think we were teetering on the brink of collapse.  Funny thing, though, the TeeVee has been selling that story since I was born.  Either we are taking a good long time to collapse or maybe the TeeVee is lying?  I am inclined to think the latter.

You can obsess about politics and how awful things are because we don't live in a "perfect world".  But as I have noted again, Life is Not an Optimized Event, and we, as humans, operate at an efficiency level in the single digits - on a good day.  You can wail and moan about how perfect things would be, "if only" we could balance the budget or vote the other party out of office, or cut welfare spending, or tax those evil corporations, or whatever.  But here's a reality check:  The art of politics is the art of compromise - getting done what you CAN get done, not holding out for all-or-nothing.

The only political movements that claimed to get all-or-nothing end up failing miserably.  Fascism and Communism never worked simply because there was no opposition to compromise with - to steer policy on a more neutral course.  You have to be careful what you wish for - an extremist solution usually never works.

For example, some people on the Far Right say we should abolish welfare and get all those "Welfare Queens" off the rolls.  Welfare Reform is a good idea, to be sure.  But abolishing it?  Think of the millions of people put out on the street with nothing - it would be like living in a third world country.  And guess what?  Those millions of people would find ways to make money - usually involving taking some of yours, in one way or another.

Many on the Far Left want to eliminate our Capitalist system, arguing that it is unfair to "the workers" who labor all day long so that "fat cats" can obtain their evil "profits".  Yet, time and time again, attempts at nationalizing industries or centralizing planning have been shown to be a disaster.  With no motivation to succeed, people simply don't work as hard at anything.  And the results can be devastating - from long-term recession to mass starvation.

It is clear that if either extreme "won" any political victory, the loser will be not the opposing party, but the great majority of the American people.  Political stalemate, in many regards, is the best solution in most cases.  And America has been a political stalemate for much of its 200+ year history - and worked out just fine.

So don't worry about politics so much.  Your vote counts, to be sure.  The money you donate to a candidate counts even more.  But boring people at cocktail parties with your odious political views really accomplishes nothing.

Put that energy to better use.  If you think your personal woes are due to "Obama" then you need perhaps to balance your checkbook more often and consider your personal situation in terms of how you are culpable for how you got here.  Because we all make mistakes in life, and it is easier to pawn them off on distant national figures.  But that is just weak thinking at its worst.

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Another Dot Com Bubble?

Are we headed for another Dot Com Bubble?  Yup.

We are heading for another Dot Com Bubble.  Why is this?  A number of factors.

1.  People are coming off a bad Real Estate market, as in 1989, and looking for places to invest money to get a quick rate of return, and dot com stocks look attractive, as they did in 1995.

2.  Human memory seems to last only about a generation - 15-20 years, so no one alive today, except me, apparently, remembers the Real Estate crash of '89 or the dot com bubble of '95.

3.  Companies that have not made dollar one, such as Facebook or Groupon, are being hyped with enormous price numbers.

4.  No one seems to remember that any of these dot com models can be readily copied - there are low barriers to entry.

5.  The death of Business Method Patents means that the few pioneers in this industry won't be able to protect their innovations if they are copied.

6.  Technology copies are cash-rich and buying up other companies in the hopes of making more.  And this is driving up prices for many tech companies as well as dot com companies.

The idiot media is hyping the snot out of these companies - Facebook, Twitter, etc. without bothering to do the fundamentals on them.  Twitter, while making a lot of news, has a very small subscriber base, which has stalled.  It turns out that only a very few people in the world want to post short messages on when the last time they wiped their ass was.

Similarly, Facebook is getting a lot of attention because someone made a movie about the founder - Zucker-whatever-his-name-is, who didn't really so much invent social networking, as steal some ideas from others and get really, really lucky (and never confuse brilliance with luck!).

As this site noted, concerns about social media sites go back for years.  Many proliferated, few survived.

But does that mean the survivors are immune from market forces?  That fads can't die out and go away?

For me personally, facebook is becoming less and less interesting and more and more frustrating.  The "new" design is harder to maneuver and harder to edit.  And more and more, they want "apps" to be allowed to access your page - and make it harder for you to get rid of them.  Facebook's slow response to the recent clickjacking attacks and other issues with hijacked accounts illustrates how poorly staffed they are and how little they invest in real technology.  As I noted before, they haven't even properly policed their own domain name - a first step for any "grownup" web site.

Of course, the bubble won't burst just yet.  Let it simmer for a few years.  More hype, more planted stories - more spectacular IPOs in the offing.  Just as your average Joe gets in, the bottom will fall out, you can bank on it. 

Poor suckers - they'll probably buy in just as the gold bubble collapses - looking for a place to "make back" their losses....

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The 4% Rule for Retirement

How Much Money Should You Withdraw From Your Retirement Funds?

When you retire, presumably in your 60's, you may have Social Security to rely on (hopefully) and your savings.  Perhaps a lucky few will have a defined pension - but those folks are few and far between.

But the question remains, for most retirees, how much money should you withdraw from your retirement account, without running it dry too fast?

Traditionally, most financial advisers have relied upon the 4% rule - withdraw no more than 4% of the initial balance of your account every year:

The way the 4% rule works is that you start by taking 4% out of your portfolio in the first year – this includes dividends, interest, withdrawals. The next year you take out the same figure you took out the first year plus inflation. So if you start by taking $40,000 out and then inflation is 3% then the second year you take out $40,000 + 3% ($1200) = $41,200. Every year after that you adjust the previous year’s withdrawal amount by the inflation rate.

Some folks have criticized this rule as too outmoded or inflexible.   Specifically, some believe that such a plan could end up with a retiree spending too much money too quickly, and end up broke in their waning years.

Frankly, this is a tough nut to crack, as predicting how much you should spend is tough.

Ideally, you should spend your last penny as you take your last breath (screw heirs!) and thus optimize the enjoyment of your income and investments.  But since we can't predict with certainty our life expectancy, this makes the equation impossible to solve, as the one variable (life expectancy) is undefined.

One way around this might be a life annuity, which is why these investment vehicles are becoming popular among people without defined-pension benefits.  But as an investment vehicle, annuities do have some pitfalls as well.  Putting all your money into an annuity, life or otherwise, is probably not a good idea.

Note also, when we talk about the 4% rule, we are not referring to the mandatory minimum withdrawal required for 401(k) and IRA plans.  In order to insure that some taxes are paid on these plans, you do have to withdraw a certain amount every year, once you retire. However, there is no requirement that you spend this money, of course.

And of course, if you have enough money socked away in retirement funds, it is possible this will never be an issue - you can live off the interest or earnings, if you have enough cash, and never touch your principle.  Your heirs will love you for it as well.

On the other hand, if you end up going into assisted living later on in life, most of that money will be sucked up by those expenses.  Many folks play games in this regard, trying to foist off assets to children and other relatives, so as to appear "poor" and thus qualify for Medicaid, to pay for nursing home care.  And in a way, it is one of those middle-class cheating games that many Americans play - people who can "afford" the cost of care, but would rather get someone else to pay for it, so they can leave some dynastic wealth to their children.  And of course, the children, recipients of such largess, will complain about their increased taxes used to pay for all those "other people" on Medicaid.

But getting back to personal finances, how much should you take out every year, and moreover, how much will you need to retire in the first place?

If we assume that a retirement portfolio contains $500,000 in investments, balanced between stocks, bonds, and CDs, etc. in a manner than balances risk and security based on age, let's assume a rate of return starting perhaps at 10% per year at age 65 and then declining by 0.5% every year, as investments are rebalanced away from income and risk and toward security.

Further, let's assume the rate of inflation remains relatively flat (let's hope) at 2% per year.  If we take out 4% initially, that will be $20,000 the first year.  With a 10% rate of return, the account actually increases in value to $530,000 the next year.  But the next year, we withdraw $20,400 to account for inflation.  If we go down the line, the results look something like this:

Year      Balance     Withdrawn     Return     Earnings   
01       500,000          20,000             10%       50,000
02       530,000          20,400             9.5%      50,350      
03       559,950          20,808             9.0%      47,596
04       586,738          21,224             8.5%      49,873
05       615,387          21,648             8.0%      49,231
06       642,970          22,081             7.5%      48,223                 
07       669,112          22,522             7.0%      46,838
08       693,428          22,972             6.5%      45,073
09       715,070          23,431             6.0%       42,904
10       734,543          23,900             5.5%       36,727
11       747,370          24,378             5.0%       37,369
12       760,361          25,353             4.5%        32,416
13       769,224          25,860             3.5%        26,923
14        770,287         26,377             3.0%        23,109
15       767,019          26,904             2.5%        19,175
16       759,290          27,443             2.0%        15,186
17        746,485         27,992             1.5%        11,197
18        729,690         28,552             1.0%          7,297
19        708,435         29,122             0.5%          3,542
20        682,855         29,705             0.0%                 0




The balance on the account will continue to rise until the amount earned is less than the amount withdrawn, at which point, the account will slowly decrease in value every year, until it reaches zero.
This could take 25 years or more, depending on the assumptions you make about inflation and rate of return on investment.  At zero inflation and zero rate of return, the 4% rule will drain an account in 25 years.  In the scenario above, it could take far longer.

It is an interesting equation, and I would enjoy plotting out several scenarios graphically, if I had the time to do so.

Of course, returns on investment will never drop entirely to zero, as in the example.  A retiree can always afford to put some investments into more volatile and higher-return investments.  And even "safe" investments like government bonds, will pay a  yield of a few percent.  The 0.25% savings accounts of today are a strange anomaly, not a new norm.

If you can withdraw 4% from your account and get a 5% rate of return on the balance, in theory, you could never run out of money.  But of course, the amount you withdraw may be based more on your lifestyle "needs" and less on what you have available or what would be prudent.

And one problem many Seniors had during the recent meltdown was that they were overly invested in high-yield, high-risk stocks.  They were enjoying 10-20% rates of return for several years (and withdrawing nearly as much) and now are finding their principle was cut back severely.  As I noted  before, some panicked and sold - putting it all into lower yield investments too late, thus locking in their losses.  Others "doubled down" and went for higher yield, higher risk investments, which was an equally disastrous idea.  A better approach, I think, is to have a diversified portfolio, with the investments gravitating toward "safe" harbors as you get older.  One way to accomplish this is to use money that you are forced to withdraw from your IRA and put it into bonds or money market funds, so as you get older, more and more of your money will be safe from an economic meltdown.

Of course, this is all based on a number of assumptions that might not pan out.  Given those numbers, it appears that the amount withdrawn will not exceed the income earned for many, many years.  But all you have to do is play with rate of inflation and the rate of return, and you could end up draining a retirement account dry in less than a decade.

For example, if inflation rises to double-digit levels again, many retirees might end up broke, long before they die.  An unlikely scenario?  The Fed is trying to crank inflation right now, to stimulate the economy.  The problem is, they are likely to over-crank this, and due to the thermostat (hysteresis) effect,  overshoot their inflation goals, much as we did in the 1970's and early 1980's.

And the problem is - the rate of inflation and the rate of return are not variables entirely within your control.  So in essence, you are trying to solve an equation with three unknowns - your life expectancy, the rate of inflation, and the rate of return on your investments.

In short, it is an equation you cannot solve with any accuracy.  No wonder some folks like the assurance of a life annuity!

But the annuity companies do have to solve this equation in order to price your annuity.  How do they do it?  Well Actuarial Tables are a first step - they can average the experiences of a number of customers together and know, on average, how long most of them will live, and also understand the bell-curve distribution of how many will live beyond that age, or die beforehand.

They also are more likely to take greater risks in investment than you and me, as they can afford to lose more than we, as individuals, can.  As for inflation, they can factor this in, of course, but it is an area where they are risk-taking.  If they guess right, they make a lot of money.  If they guess wrong, they make less.  If they really screw up, they go bankrupt, and you have to hope your annuity is insured by the State.

And the problem is, people are living longer and longer these days - and retiring earlier.  You may end up forced into retirement in your 50's and live well into your 80's.  This could mean a retirement of 30-40 years or more.  If your savings are structured for 25 years, you may run the well dry at the time in your life you need money the most.

I am not sure there is an easy answer to all of this - which is why I am trying to figure this out now, at age 50, rather than waiting until 65 and then saying "Gee, how much money do I have and do I have enough to retire?"

The only conclusions I can draw are this:

1.  Structure your life so you can live on very little money:  Avoid financial commitments like expensive houses, cars, boats, and the like with high tax, storage, maintenance, and repair bills.  Retirement is no time be squandering $10,000 a year on motorized vehicles.

2.  Live on the Interest:  If you can live on the interest of your investments and not touch the principle, the better off you will be, as at least in theory, you could survive forever on that income (unless conditions change, which they will).

3. Work Part-Time:  If your lifestyle is simplified, a part-time job may be all you need to support yourself in later life, which can allow you to delay tapping into those retirement funds for as long as possible.

I wish I had a better answer.  When I was younger, I thought the 401(k) and IRA were a great concept.  Now that I am nearing retirement age, the defined pension benefits seem like a swell deal.

Of course, few people get these nowadays, and in some cases (such as in Illinois) the cost of pensions for government workers are sinking the State budget, as it turns out the State never set aside the money for those pensions.  And I suspect, we will see a lot of private pension funds collapse in the next few decades, as more and more people retire, and it turns out the funds were not properly administered.

So maybe an IRA ain't so bad after all....

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