May

4

Where do you think they will get money from?

May 4, 2008 | 1 Comment

Banks have not been doing well lately.  They got caught into a sub-prime mess of their own co-creation (the American Consumer, and overseas mortgage backed investors being their accomplices).  They have also co-created a secondary mess: credit cards.

In the Old Days banks got money from charging Interest.  In the 90’s and 2000’s they got money by charging fees.  Closing fees in the case of mortgages, and credit card fees in the case of consumer credit.  Interests where extremely low during those years, and they continue to be low now.

Congress  has decided to grant a double whammy to the banks: now they want to take away their remaining steady source of income, the fees to unsuspecting customers who borrow more than they should. (Thanks to Five Cent Nickel for pointing out.)  All of this is very well intentioned, but in the end I do not think it will help people as much as Congress thinks.

You see, taking away a source of income to banks at a time when they have not done so well can only make them act in desperation.  They need to save themselves.  One thing they could do is raise interests: not necessarily helping the American Consumer either.  Maybe even slowing down the economy in the process.

Some people imagine big corporations as an evil thing.  Government intervention hurts corporations.  What they do not see is that hurting them hurts four groups of people:

  • Investors: Who get discouraged to invest in the company and sell.
  • Executives: Who get fired when Investors get discouraged.
  • Employees: Who also get fired when company does not do well, or in an effort to calm Investor’s wrath.
  • Consumers: Who need to be charged more or in different ways to be able to cover the extra expenses (or lack of revenue) caused by government intervention.

Which group do you think suffers the most of the government action consequences?

May

2

Make Sure You Can Own A Home

May 2, 2008 | 2 Comments

Make Sure You Can Own A Home
…. even if you do not want one now.
I am a big advocate of home ownership. In the US, around 70% of the families own their residence, and for a reason: it is the easier step towards financial independence. I have even advocated my tenants to buy a residence – not the best business strategy, I must stay: I have lost two tenants to home-ownership. I am not the only one advocating homeownership: Uncle Sam does, in the way of a better tax refund for most homeowners, due to the interest and real estate tax itemized deductions.

For as many home owning benefits as there are, I still get excuses from friends, family and coworkers that haven’t purchased their own home. Some of them say they don’t want to tie themselves to a property yet – too young they say. Others say that the real estate markets have peaked and there is some kind of end of the world bubble bursting ahead. And there are those who have destroyed their credit and are rebuilding it before they can buy one.

At this particular point in history I have people who suggest that the current Mortgage crisis shows that it isn’t a good time to buy a home. (I believe there couldn’t be a better time, but that is beyond the scope of this article).

Whichever the reason for not buying a home, if you do not have a home you must make sure you can buy one!

This means that you should be building up your investments so that you can put a sizable down payment (20%) on the purchase of a home when the time is right. You should also be taking care of your credit so that it costs you the absolute minimum to purchase the property.

Not having your own dwelling may or may not be the right action at every particular point in your life. Not trying hard enough to have the means to acquire a property is one of the most financially irresponsible things someone can do.

If you had been saving already, even if you hadn’t bought one because they where too expensive, you may have been ready to buy one now that they have dropped a bit in price. If you think they will drop a bit more, then save harder, as that will mean that you will be able to buy an even better/nicer/bigger home.

Other article from the Original Blog Where These Where Posted: the Anes Weblog:   Why Buy a Home - 5 Good Reasons.

    May

    2

    $5 Gas? We Asked For It.

    May 2, 2008 | 1 Comment

    Gas ContainerBack when I was a kid, I read in a school textbook that we only had about 20 years more of oil. They where wrong. But at the same time, they pointed out one fact: Oil was getting scarcer, and scarce things tend to cost more — especially if people start using more of them.

    We should open our history books and remember a few decisions we have taken, consciously, that have increased the likelihood of an oil price increase:

    • SUVs - Nuff Said.
    • Cozy Homes - The other day a bunch of people looked funny when I was telling them about how cold are the nights in Bogota, Colombia. They thought that everyone in the world had a heating system that kept their homes at a confy 72F degrees. No, this is not the case. Most areas in the world where the temperature do not fall below freezing do not have a heating system. You just use more blankets! Turn the thermostat down! [to 65F]– Jimmy Carter (BTW, Sweaters and Jackets can look nice.)
    • Nuclear Plants - We haven’t built ‘em. In 1979 people got scared with the Three Mile Island incident. France has most of their power from them (those green, tree huggers know exactly how to produce green energy - they even make tons of Euros out of it).
    • Artic Refuge Drilling - We haven’t done it. Clinton Vetoed. Bush couldn’t get Congress to pass anything he said (independent of the validity of it).
    • E85 - Why don’t we have a tax credit for people buying flexible fuel vehicles? We had it for hybrids. BTW, why don’t we expand the one on hybrids as well - maybe increase it only for U.S. produced hybrids so that we can help the auto workers at the same time and please both parties.
    • Stop Buying Trinkets - Every time you buy a trinket from China (or other country), you send money overseas. The trade balance gets against us — more dollars in circulation than the world needs — lowering our currency and increasing the price of oil.

    Who knows what the future will hold? But following the1973 and 1979 oil crisis, we got the 1980’s Oil Glut - incredibly low prices that got ourselves comfortably seated in greenhouse gas emitting SUVs. Maybe the same thing will happen in a few years. Not counting on it, yet.

    (Weblog originally posted on the Anes Weblog.  Also related to the post:  I Want Expensive Gas.)

    May

    2

    Real Shareholder Activism - Where is It Now?

    May 2, 2008 | Leave a Comment

    Back in 2000, when we discovered many of the Executives (CEO, CFO, CIO, CxO) where either directly cooking the books or looking the other way when their subordinates did so to please them, many shareholders felt they needed to take more control over the companies where they invested.

    Generally, shareholders can exercise some control over the companies they own at the annual shareholders meeting. They do not even have to be there to have a petition voted on. They only need to raise a motion that is seconded by another shareholder before the deadline for the proxy voting ballot printing, and their petition is in. They can petition anything, within reason. You can request governance, transparency, limit compensation, change auditors, or anything else you may want.  I tend to be in favor of many of these.

    I did liked many of the proposals I saw back in the 2000 era. Most of them where for the benefit of the shareholders. They where raised by people who cared about the company earnings because their financial stability depends on them.

    Then, there are the hippie activist shareholders. Those who buy just a few shares — enough to raise motions that are against the shareholder’s interests. Motions that are not sincerely entered with the purpose of making more money, but to limit the ability of this company to make more money. Examples of these proposals are those seeking human rights, greener performance, and socialist inspired employee compensation.  I usually reject these proposals on proxy ballots.

    Nothing wrong against those ideas. But if you raise them, be sincere: hold the stock! Hold it because you mean to see the company grow with your ideals.

    Sure, you can argue you may want to own Exxon on the long term and change its course into a greener company. If you do, I would expect you to increase your position as time goes on. Not to buy 100 shares that you sell just after the shareholder meeting (probably having earnings on top of that).

    I wish I saw more of the company growth oriented proposals and less of the hypocritical ones.

    May

    1

    Be Open About Your Financial Mistakes

    May 1, 2008 | 3 Comments

    The Simple Wealth had an article published on the Carnival Ethics, Values and Personal Finance of that reminds us of remembering our past financial mistakes.

    It is important to learn from mistakes.  In a society where talking about money is taboo, talking about financial mistakes seems to be ever more taboo.  When you do not recognize, remember and meditate on the things you have done wrong, you do not get to learn from them and make mental connections that will prevent you from doing them again in the future.

    Some of my financial mistakes:

    Poorly Diversified: Too many bank stocks at the wrong time.  Should I say more.  Cost of mistake: over a hundred thousand dollars.  (Most of it recovered by now, using even riskier trading techniques.)

    Buying a fixer-upper for rental: Not that fixer-uppers are bad.  They are great if you are handy and if you will live on them (and can live with the inconveniences until you fix them).  They are terrible when you do not live on them — since you will have to rush to fix them before you can place tenants on them.  If you are not a good handyman then it will also cost a lot of money: on people you have to hire to do the job in a hurry.  Cost of mistake:  tens of thousands of dollars.

    Buying The Latest Gizmos: Sometimes you just want the latest technical gizmo or toy.  I have been pursuing the dream of ultra portable computing since I was in college - yes, more than 15 years ago.  I have purchased ultra modern writing tablet computers 10 years before Bill Gates declared them for the mainstream (and today, five years later, they are still not used in the mainstream).  I have purchased several PDAs that promise extreme connectivity options, ability to carry your presentations and spreadsheets, and play music, tv, and all that stuff.  Never fully satisfied with them.   Intel is pushing the concept of ultra-portable now.  Maybe we are ready now.  Maybe we are still not ready.  Maybe I should wait for second generation devices now.  Cost of mistakes: thousands of dollars, some of them to my dear parents who had to fund a portion of these mistakes when I was back at home.

    Fake Collectibles:  When someone advertises a new product or release of a new product as a collectible, do not believe them.  Well, you can collect anything you want, even stones picked from every river you visit or snapshots of every friend you have.  But valuable collectibles can’t be declared to have a collectible value until people start paying more than their intrinsic value for them on a secondary market.  I made this mistake once, in conjunction with my family.  Some silver (gold plated) replicas of famous stamps that was supposed to be a collectible edition.  Cost of mistake:  a couple thousand dollars.  Their current value:  about a fifth of that if you think about how much silver has appreciated.  One of these days I will frame them — as a reminder of what not to do.


    SC work at home business is getting popular among people in the past few years. make money at home is a dream for several individuals but now financial market offers services that can be used to finance it. One option is to get owner loan or use real estate for this purpose. Mortgage finance can be used to finance a startup home business. mortgage calculator and second mortgage is available to secure better deals for loans. Credit card is also a form of loan that they can get but is very primitive one.

    Apr

    30

    Charge Heavily For What You Know

    April 30, 2008 | Leave a Comment

    Charge Heavily For What You Know
    …but give away what you do not know.

    Often I am in a situation where I am called to provide advice and a satisfactory outcome to a situation where the Client doesn’t have the time or expertise to complete a task. I happily do the work: in my opinion faster and better than the employees of my Clients, or even other Consultants that my Clients may decide to hire. In some situations I know I am venturing in areas where I do not have too much expertise, but I can still learn how to accomplish the task during the performance of Services. In those times, I am very sincere with the Client: I state what I do not know, I offer to work with them to learn how to do it and I only charge for the actual accomplishment of the task, not for the time spent learning how to perform it.

    This certainly allows for fixed price engagements (my favorites) to become opportunities for extended self-education – without having to drive to your local University for it. I also allows for you to take projects larger than the ones you would have taken: since you can still act professionally and charge only for what you know and do.

    On Time and Materials Projects (Hourly/Daily rate) this causes an interesting situation: It reduces the billable hours. How do we compensate for that? Higher rates.

    Higher rates are what a Consultant should try to accomplish. Maintaining higher rates shows that you are highly valued resource within your field; not to mention the potential gain. As the value of your services increases, your rates should increase as well. But you can’t increase rates unless you show value: and someone learning during the course of their services puts that person closer to the “Temporary or Hourly Worker” title than the “Consultant” title. A Consultant is, after all, someone with deep knowledge and expertise in one area – not someone who wants to learn how to perform in that area.

    Let me illustrate what I mean:

    • An 80 hour gig at $100/hr grosses you $8,000.
    • An 80 hour gig where you spend 20 hours learning (free) and 60 performing or advising at a rate of $130/hr gives you $7,800. But from that moment onward, the performance of the services you just learned how to perform a task worth $130/hr, while your current client is not a penny poorer.

    You see. I do not like hourly rates. But if you must use them (some companies insist), then you should avoid falling into the “Temporary or Hourly Worker”. This is just one way of doing so.

    Charge Heavily for What You Know and give away the hours you spend learning to perform a task.  It is a great differentiator.

    Apr

    30

    Creating a Market For Consultants

    April 30, 2008 | Leave a Comment

    I am currently offering services that are in higher demand than the available offer. That is fortunate for me, as you might expect that the law of Offer and Demand will be in my favor. In reality the macroeconomics law helps – but only if you can put it in a macro economy. When you put it in a micro-economy (that is, when the Consultants offering my services are so few), it doesn’t work as well.I have decided that I want to create a Market for my services. It is common for entrepreneurs to convince Clients that there is a need for their products or services so that by generating Customers you can pair them up with the Offerings and builds the Market. I am in a situation where I want to build the Market in just the opposite way: I know there are potential Customers – I just want to build or help build the resources these customers want to buy: the Consultant’s time.

    You see, I am only one person. I would be extremely happy if I could work about a hundred and fifty days of the year at a fairly high rate: that will give me enough to live and save, while providing a high quality of life. However, I know that there are projects that could potentially cover several times that number of days, thousands of days.

    Here comes the dilemma:

    • If I do not help my Clients they may have to replace the technologies they use – reducing the need of my services and eventually shrinking the market.
    • If I help all of them I do not have a life – way too much work, working nights and weekends.

    Now, if I could only find a way to build a market. Train consultants to perform the services I perform: even if they take most or all the compensation for the services they deliver. When the market is in such a high demand for my services and at the same time is on such a high risk of collapsing I think that having other consultants in the market can only help me. These are just a few of the ways in which it can help me:

    • Customers can rely on me. A Client may call me first to try to get my time. I can choose to work the gig if I am available and interested. If not, I can refer them to those people that are most capable (in my opinion). Either way the Client is happy: either they get my quality, or they get someone that is better than average – recommended by me.
    • I can work on more complex stuff. Junior consultants can take the run of the mill engagements while they train themselves into more complex activities. They create a Customer base that already sees the value of the kind of services offered. At some point they will want even more value: the kind of value that only an experienced Consultant can provide. There I come, with a value priced offering – at a higher rate than the unproven idea of installing and configuring the solution.
    • I differentiate myself. My brother tells me I am his best brother – it may be because I am the only one. Albeit funny, it is not particularly flattering: anyone can earn the 1st price on a race where only one person runs. By the same token, it is not possible to establish that I am the best (and most valuable and expensive) Consultant unless there are other comparison points.

    How do I create the market? Any ideas?

    Apr

    26

    Life Settlements

    April 26, 2008 | Leave a Comment

    Shawn Cornett spammed me the other day with the idea of “Life Settlements“.  You see, some Spam comments are actually great - and I thank Shawn for it (and for that, the double link back to his website). These comments give me topics to write on my blog.  I like them.

    Life Settlements are “financial transaction in which a policy owner possessing an unneeded or unwanted life insurance policy sells the policy to a third party for more than the cash value offered by the life insurance company. The purchaser becomes the new beneficiary of the policy at maturation and is responsible for all subsequent premium payments.” (Wikipedia)

    I sincerely think they are a great idea if you end up at old age with a policy you should not have bought in the first place.  (Do not buy Permanent Life Insurance)  Dead people do not need money.  The only people who may need money are the policy holder dependents.  Once these people are not dependents any more (the kids grow up, the spouse starts receiving Social Security or have some networth of their own), there is no need for the money to be given by the Life Insurance Policy.

    This is also the main reason why you should only buy Term Life Insurance for the years where your family is more exposed, while you save money (The Difference Between the Term premium and the premium for fancier insurance) for those years when your family will be less exposed and they will be better served by a regular inheritance of real money you have saved (asuming you want to leave them something).

    Remember that no one gives you something for nothing.  Life Settlements are giving you less money than your heirs would have received.  Sure, you can enjoy the money now!  But the purpose of the policy was not to enjoy money, it was to help those who may depend on you.  If they do not depend on you, why did you held the policy for so long?  Buy Term.  Also, the so called Permanent Life Insurance are giving you some extra benefits, including the possibility of cash value and tax deffered appreciation - but again, someone is getting a hefty premium in exchange for this benefit - do not think they do this out of being nice. 

    Buy Term if You Must.

    Some further reading:

    Apr

    25

    CDC Says Smoking Hurts Productivity

    April 25, 2008 | 1 Comment

    “CDC: Smoking hurt productivity.
    Early deaths caused by smoking cost the nation about $92 billion in
    lost productivity from 1997 to 2001…  Smoking reduces life
    expectancy an average of about 14 years by way of lung cancer, heart
    disease, and other illness….”      Found in USA Today, Friday 1st of
    July 2005.

    Statistics are just that… statistics.  But more, and more frequently I do see this type of article on the news. The reality is that less than perfect health habits are costing ourselves and our nation dearly.  I will leave economists the task of figuring out how much it costs our economy, and I will concentrate on how it affects us.

    • I believe that if you do not have to worry about bad health you can worry more about succeeding in your career or your financial goals.  Even if you do not care too much about those goals, you may at least worry about you and your family’s happiness more.
    • I also believe that a physically fit person is more agile and gets tired less.  This means more time to conduct revenue generating activities, or at least family fun and experience sharing with friends.

    Being healthy must have some impact in your happiness and in your finances.   I can think about a few (listed below), can you think about more?

    • Keep your weight at the current level and you do not have to buy new clothes.
    • Stop smoking and you may be saving around $5 a day, or $1500 a year (around 4% of the pre-tax typical US family income).
    • Play a sport with friends (like basketball, tennis, volleyball, soccer) — it may be less expensive than meeting for dinner at an expensive restaurant. 
    • Invite friends for dinner at home - you will be able to share the same amount of time, or even more, but you can make sure the food is slightly healthier.
    • Less smoking breaks, more career advancing time.  Use the 15 minutes to interact with your co-workers rather than smoking in the cold snow or rain.  (granted, you can also network with other smokers, but you may be missing some people).
    • Coach your kids soccer team (or be a scout leader, or some other active youth organization).  It will be an active way of enjoying family time, meeting your child friend’s parents (networking and knowing where your kid may be after the game). 
    • Take a walk around the block with your family after finishing dinner.  (It may be better than the latest reality TV show and may allow you to ask them about how they are doing at school and work).
    • Do your own gardening/yard work, it will provide a bit of exercise and a bit of savings.
    • If you live in a city, walk to work - again, a bit of exercise, and a bit of savings.
    • Brown bag your lunch and walk into a local park to eat it.  Healthier, and gives you an excuse to get outside and enjoy the sunny day. 

    Marlborough Man 1973
    BTW, Budgetting Babe inspired me about preparing lists of ideas.  She has very good saving ideas on her site.  This article has been reprinted from the Anes Weblog.  Originally published on 07-01-2005.

    Apr

    24

    Avoid Working for Your Moral Opposite

    April 24, 2008 | 1 Comment

    I once worked for Raytheon – a very big U.S. Defense contractor. They produce anything that goes boom or anything that helps find out where to blow things up. They also have a commercial branch but it exists only to keep them going in between big defense contracts. Yet, at that time many of my workmates expressed moral oppositions to war and destruction. I can only guess that they didn’t really meant what they where saying, as they where very happy with their paychecks – even when it was lower than the industry standard, and there where plenty of jobs for their careers available in the market. I left that company long ago. Not because of any conscience issues but because of pay.

    Then again, many years later I did make a mistake of joining a company which was morally opposite to my beliefs: they advocated using government money to give highly subsidized extremely-high speed internet (Faster than Verizon FIOS) and high definition video (HDTV) to people who have not worked hard enough to earn it (and pay for it). Just the thought of it made me want to puke. Yet, I rationalized myself into taking the job thinking it was a great advancement and learning opportunity. I tried to convince myself that I was just doing technology, and technology had no morals by itself. The company is great, the people are even better. But it was not something I could feel proud of. Needless to say, I didn’t stay for long there. I was so wrong, so terribly wrong – just as wrong as the hippies who criticize their U.S. Defense employer.

    You see, morals are interesting and not all of them are created equal. People have some moral values that are not so strong, and they have others that are at the core of themselves. When your employer opposes your not-so-strong moral values, you can probably learn to live with them – maybe that is what happened to my defense contractor friends who stayed long in a company that opposed what I think are their not-so-strong values. When your employer just goes straight for the opposite of your core self, you are not only selling your time and effort to the highest bidder: you are selling your soul – and that will probably hurt.

    You know what your strongest values are. You can easily find them out when you hear or see someone doing something opposite to them. You feel uncomfortable in some way. Maybe your face gets red – not of shame, but of anger. Maybe your stomach fells different. Maybe you get depressed. Maybe you blurt out things you do not want to say. At a minimum it is difficult to agree with the actions you just saw or the words you just heard.

    In a job situation this will eventually translate into poor job performance and poor relations with your peers and superiors. This situation doesn’t lead to higher salaries, promotions, or advancement.

    Find a place where you can put your heart into the job you are doing. If you have to spend 8 or 10 or 12 hours a day doing something, you better have fun, enjoy it, feel good about what you are doing and have a chance to advance the career into a more profitable one.


     

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