How to get me to work for you – 2/6/2017
Last night the Pats completed the biggest (by far) comeback in super bowl history to defeat the Falcons 34-28 in overtime.
Noted Pats fan Mark Wahlberg famously left the stadium in a huff following a poor showing in the first half, and I have to admit, even I wavered on watching much of the second half in lieu of playing video games.
Though I’m sure you’ll read and hear a thousand explanations for the Falcons rise and subsequent collapse this week, it is worth noting that the Patriots eventual surge to greatness came as it nearly doubled the Falcons offensive plays and came despite numerous mistakes in the first half.
Saving for retirement is similar.
How about that for a transition?
For many people, 401K plans are approached with derision. Yes, they often come with matches from employers and yes, they are a great way to entertain the concept I call forced savings.
But, even I have written about their pitfalls and most people are content to blindly pick a few funds and let it sit.
This is similar to the Falcons. They get out to a great start with the employer match and maybe even make a good return.
Over time, however, fees erode the match and the lack of options pigeonholes them into poor performing funds.
Over the past few years, I have analyzed many 401K plans (at least 13) for friends and family and recommended which fund or funds for them to invest in. The process is fairly simple, I look for the cheapest funds based on fees, try to get good past performance and then figure out a proper asset allocation to reduce risk.
This approach can be enough. But for people who don’t care to take the time to analyze each fund, they are offered or to figure out how to weigh different asset classes I have a solution.
I have created a new Fiverr gig to apply the methods I have developed to analyze 401K offerings. For $5 I will analyze up to five fund options. Each additional five also costs $5. And for $10 I will create a sample asset allocation.
IPOing and Income Growing – 2/13/2017
Last week Snap (the parent company of Snapchat) filed to go public in March.
As per usual with technology stocks, Snap will likely be tremendously overvalued when it begins trading. The company has been rumored to be seeking a $25B valuation at its IPO – over 60x its sales of $400mm.
Facebook IPOed at about 13x sales and Twitter IPOed at about 4x sales for comparison.
Facebook and Twitter IPOed long ago by tech industry standards, so how does the Snap valuation compare to the current Facebook and Twitter valuations? Facebook currently trades for $209/user, Twitter trades for $34/user and Snap’s IPO will price it at $158/user.
Facebook has revolutionized the online advertising industry and is one of the better managed companies in the country. Snapchat is much closer to Twitter as far as where it sits in its corporate lifecycle.
In addition to the valuation madness, the company will debut with a complicated share structure that gives its CEO total control over all aspects of the company with little to no checks and balances.
This structure can work well with a visionary CEO, but there is not enough evidence to date that Evan Spiegel is that to justify pricing the stock this high with this structure.
So where are investors to turn?
Traditionally, investors seeking safe haven in stocks turn to dividends. The dividend produces a floor for a potential drop in the stock prices and companies focusing on paying and growing a dividend are usually mature and not focused on risky growth initiatives.
Unfortunately, the mass investment in dividend and low volatility stocks with passive investing strategies has driven their prices up to unsustainable levels.
Let me know what you think.
Building Your Way to $60 Billion – 2/21/2017
My fiancee and I recently watched the new HBO documentary on Warren Buffett.
Nothing like a documentary on an investor to make your weekend exciting.
Buffett was surprisingly open with the documentary (considering he once blackballed a biographer for revealing too much) and the documentary did well to illuminate some of the inner workings of Buffett’s day-to-day.
Much of the documentary focuses on the dramatic aspects of Buffett’s life: like nominally having two wives in two states at one time, being best friends with Bill Gates and the hit to Berkshire’s reputation when Solomon Brothers went haywire in the early 90’s.
Thankfully, there is also a tangible investigation into Buffett’s success. Starting out with his special situation based ‘Cigar Butt’ investing with his original partnership, moving into control investments and finally into focusing on quality.
Insurance float (utilizing insurance premiums as investment dry powder) and compound interest also had their say.
It is interesting to note the impact compound interest had on Buffet’s net worth and his (relatively) slow start.
Buffett’s net worth today is somewhere around $60B. Where would you guess it was when he was 30? (~55 years ago)
It must be at least a $1B, right? Multiplying your net worth by 60x is hard even over 55 years.
It was, surprisingly, just $1 million.
In fact, Buffett didn’t reach $1 billion until his mid-50’s.
This is the impact of compound interest. As Buffet grew, acquiring cash generators and float generators, each additional investment provided the fuel for the next.
I’ve kept that in mind over the past month or so. The newsletter today has just over 30 subscribers. Daily page views on the website range between 10-15.
I’m sure you’ve noticed that the depth and tone of the newsletter have changed – hopefully for the better.
I have also focused on bringing my thoughts to more readers through Quora over the past month.
Hopefully, some compound interest (and a liberal dose of inflation) will get us to $1 million by 30. At least to $1 billion by 55.
Wantrepreneurs – 2/27/2017
Just under three years ago, around when my first book was published, a coworker shared an article with me about a high school student who had created a programming course on Udemy that became so popular he was making thousands of dollars each month with it.
We often shared similar articles and she knew all about my book and the website I built for it.
Over the next few months, I wrote a newsletter every once in a while, watched my non-existing book sales with distress and mostly daydreamed about what my website could be. Every once in a while she would ask for an update on the site or when my course would be coming out and I would sheepishly come up with one excuse or another.
I need to get more newsletter subscribers first.
My cat’s been sick.
I’m working on the outline.
I need to get my next book published first.
The Packers lost.
Regardless of what the excuse of the day was the end result was the same: no material progress being made.
Eventually, I finished writing the second book and soon after changed jobs.
The new job was another great excuse to not work and I took advantage of it with gusto.
This phenomenon has been billed wantrepreneurship.
There are thousands of people milling about in their average jobs daydreaming about the online business they could start one day. They just need to get that one break to make it happen.
They listen to James Altucher podcasts, read cheap or free online marketing eBooks, subscribe to Youtube channels about Kindle book keywords and never DO anything.
Sure, there’s reasons for the endless procrastination. Keeping a website constantly updated is hard and no one is going to do the work for you. Driving traffic is almost impossible when you’re beginning and each day of 6 views, all from family members, rots away motivation just a little more.
I’ve seen this phenomenon in other areas of life too.
I can’t count how many times I’ve spent hours talking about how muni bonds or some option strategy works with someone – only to get them to the point of starting a brokerage account and then fail.
Change is hard and uncertainty can be terrifying.
The good news is it really does just take on break. For me, it was the second book.
Since that book came out, I haven’t missed a weekly newsletter I planned to send out. I’ve experimented with different newsletters formats, written a second book, developed and kept multiple portfolios updated and most importantly, more than doubled the number of subscribers to this newsletter.
I’ve even started work on my first course – stay tuned over the coming weeks for more info about it.
Coincidentally enough, the catalyst for that second book was a Udemy course on publishing Kindle eBooks.
Until the afternoon of March 1, Udemy has a sitewide $10 per course sale.
You can learn about publishing eBooks like I did. Learn about building your personal brand from today’s foremost internet marketing expert. Or even learn to invest from six Hedge Fund gurus who MBA students pay thousands to learn from.
Breakthrough your procrastination today.
Invest in real estate, hotels, casinos, and golf courses.
Write a book about how good you are at it.
Get on a TV show about being a good businessman.
Have extreme political opinions that appeal to a lot of people and constantly express them on twitter.
Run for president.
Here are a few quick things you can do:
- Create “forced savings” where the money is transferred out of your account or out of your paycheck into a savings account before you can even see it. This way you won’t have the emotional attachment to it or want to spend it right away.
- Use to save money each month without even having to set up a transfer. They use an algorithm to figure out when you won’t need the cash and automatically transfer it to savings.
- Figure out what your big variable expenses are (things like movies, eating out, golf, etc.) and manage them by only spending cash on them and only allowing yourself a set amount of cash per week – I use $40 in cash per week and if I hit that amount I can’t spend more.
- Create an account with or and go through 6–12 months of you checking account and credit card transactions to see if you have any recurring payments you can get rid of.
If you like these fun strategies like this I wrote a book with more ideas:
A company I worked with spent about 20 years of its existence making run of the mill widgets and then China got into the market.
Within five years, half of its domestic competitors had gone bankrupt and its revenue had been cut by 80%.
It diversified into more specialty widgets and rebuilds – basically areas where mass production wasn’t a factor and shipping cost was.
The company’s market share in the original product actually went up when China originally entered the market as it outlasted its competitors and many customers wanted a “Made in America” product. However, it eventually determined the best course of its business was to pivot, purposely drop its market share in one area and beef up another product line.
John Mihaljevic has a good course on Udemy:and good Youtube channel:
is more about getting an i banking job but it has a bunch of good financial modeling stuff.
The Khan Academy has a load of.
Finally, the most renowned value expert is likely Aswath Damodaran at NYU, all his.
I can sort of relate to this with aI put together for value investing.
The checklist is great to a point for traditional fundamental analysis on growing companies with good brands.
It fails when I try to apply it to any investment with hair – because they, by definition, will fail many checklist items.
You could work around this by programming the AI to have a checklist for any conceivable situation, but the end point is uncertainty.
Where value investors outperform is when they are more certain than the market.
Over time the AI would price out the traditional value plays – the stocks that are in all of the passive ETFs right now.
There would still be investments with a ton of uncertainty where humans could move in and use their subjective judgment to make money where the AI didn’t see value.