Author: Mr. Cheap

Categories
Business Ideas

The Too Slow Edition

When I start writing up a wacky business idea, one of the things I do is a quick search to see if someone has already done something similar.  I don’t spend hours on it, but I’ll look for 5 or 10 minutes.  In many ways it’s surprisingly rare to find someone is already doing what I’d thought of (I gues word spreads fast these days).

Presented, for your consideration, are three ideas that I had which turned out had already been thought up by other people when I went looking for them.

Electric Hookahs

Hookahs are pipes for smoking tobacco (a special variety called “shisha”) which involves filtering the smoke through water:  remember the caterpillar in Alice in Wonderland?  It’s really bad for you (smoking a hookah for 1 hour is about the equivalent of smoking a pack of cigarettes), but it’s also quite nice :-).  When you set up a hookah, you typically use charchol to heat the tobacco.  There’s a whole ritual to it, where you load a special bowl with the shisha, cover it with foil (with as small as possible holes placed it in), and put the burning coals on top of the foil.  By inhaling on the pipe, you pull air in, past the tabocco being burned by the coal, and into the pipe (through the water and into your lungs).

The idea for this is to remove the charcoal by adding a fine element that rests above the shisha and burns it in the same way the coal does (but without getting ash everywhere and having to deal with hot coals).  Some may argue that this isn’t proper, while others may say this is taking the hookah into the 20th century.

Either way, it’s been done.  I even found a student at my university who has designed one.

An Academic Proofreading Marketplace

English is the language of academic discourse.  In the past, French and Latin have been used, but now it’s English.  If you want to have your ideas noticed, the top venues (conferences and journals) operate in English.  Increasingly, strong universities will teach in English, even if it isn’t the native language of the country the school is located in.

This obviously puts non-native English speakers at a disadvantage.  I’ve read a number of papers (published and unpublished) where the ideas were hidden by the awkward choices of spelling and grammar.

There are student “proof reading” services, which either help students who aren’t native English speakers or do the homework for lazy students everywhere, but this idea is to focus on academics, and provide a writing service catering to professors.  They’d be connected with native speakers working in the same area as them (so they can accurately express the ideas).  I did this (face-to-face) when I was abroad for computer science professors and found there was a lot of interest in it.

It’s already being done in the way I envisioned (at places like this) .  I still think extensions on this idea are possible (like a site that places a premium on reliability and the pedigree of it’s proofreaders or a service that would send an in-person proof-reader to a foreign department on an on-going basis).

Zero Calorie Foods

It always seemed weird to me that there’s SO many choices for diet beverages, but no options for “diet food” (e.g. 0 calorie food).  I get that food has to be made out of SOMETHING, and typically this something has calories.  I’m not talking about so-called “negative calorie foods” (which are incorrectly believed to require more calories to digest than they possess) but instead something like diet soda, with ZERO calories.  It may not be the most appetizing idea, but imagine taking some diet drink, then thickening it with an inorganic agent like melamine (the ingredient that Chinese company added to the baby milk that killed a bunch of infants).  Except, you know, make sure whatever you use doesn’t kill people…

Even if the first version was basically zero-calorie Jello people would eat it.  Over time more appetizing versions could be developed.  There are people who would worry about the long term health consequences (just like some people worry about with diet drinks) and there are people who would refuse to eat something so unnatural (just as there are people who refuse to drink diet drinks), but I think there’d be a massive market that would be willing to give it a try.

A friend told me they saw “zero calorie jam” at the grocery store which intrigued me.  I went looking, but didn’t find it (in any grocery stores or on-line).  I’m assuming they saw “no sugar added” jam and misremembered.  Unfortunately (for me), even if there isn’t zero-calorie jam on our shelves  it already exists in Japan and some Kansas state researchers were working on it 7 years ago (so I’m sure if there’s any way to do it they’ve figured it out by now).

Categories
Opinion

Working With Canadians

Stuff White People Like is an amusing blog that mocks the cultural norms of the “educated elite”, a group that often denies having any such norms (yet, we clearly do).  Similarly, Canadians both deny having a culture (some Canadians, without a trace of humour, claim they don’t have an accent) and hold particularly trivial things up as examples of “Canadian culture” (hockey, poutine, Anne of Green Gables and other such nonsense).

I’m not trying to provide the definitive guide, but thought I’d try to draw a rough sketch of Canadians, and some of our typical values and behaviours.  The target audience for this being someone who has recently moved to Canada, is working with a Canadian organization, or is trying to make sense of a new Canadian ex-pat in their country or company.

Please feel free to argue with any of my assertions or add any more.  As a Canadian it can be difficult to step outside of myself, so some of my own issues may creep in here.

American

Canadians often define ourselves in terms of how we are different from Americans.  A famous beer commercial aired years ago which basically consisted of detailing minor ways that Canadians are different from Americans.  The irony of all this is our cultures are VERY similar.  If you take someone from Northern New York State or Minnesota they’re probably going to be more similar to a Canadian than to a Texan.  Anything you’re unsure about Canadians, just treat us like an American and you’re on pretty safe ground.

Politeness

Canadians are known for being polite.  Once while traveling in England my family had a good laugh when a tour guide characterized Canadians as “Americans with manners” (see first point).  The plus of this is that Canadians you’re interacting with SHOULD usually be polite to you.  The downside is that we can be touchy about behaviour we perceive as rude (joking around with or teasing a Canadians isn’t something to rush into).

Littering

When I worked down in San Francisco I was walking along the street with a Palestinian co-worker and I saw a man drop his fast-food cup in the gutter.  After I’d been ranting about it for 2 or 3 minutes my co-worker started chuckling.  “It’s really obnoxious to litter like that, eh?” I asked.  To which he responded “No, it’s just that a couple other Canadians I’ve worked with would flip out if they saw anyone littering too”.

I’m not sure if this is just a special case of politeness, but littering is a hot-button with a number of Canadians, so if you do it, don’t do it in front of us.  One of my friends’ father is about the calmest, nicest man you could possibly imagine and he almost got in a fist-fight when he saw a guy littering on the street.

Friendliness

I think many people are taken aback at how nice and friendly Canadians can be.  If you start at a new company or community, people will go out of their way to make you feel welcome and help you establish yourself.  I think it can be overwhelming for people at first (they think we’re after something), but I think it comes from seeing ourselves as nice, friendly people and trying to live up to that self-image.

Standoffishness

As much as we can be friendly, we don’t make friends quickly.  A number of my friends have commented that they came to Canada, someone was super friendly to them so they assume they’re buddies.  They ask the person out for a beer one night and the person blows them off (“no thanks, I’m going home to watch 24”).  One man tried his damnedest to get me to go see the new Star Trek movie with him and it freaked me out.  I ran into him at a university event and we had a nice chat I guess, then he REALLY wanted to be my friend.  Mutual friends told me they told him that you can’t come on strong like that with Canadians.  We tend to ease slowly into friendships.

One friend told me if someone in her home country was as nice to her as most Canadians are, it would mean they really want to be her friend, so she always finds it off-putting dealing with hyper-friendly Canadians who keep rebuking her friendship overtures.

Gluttony

Canadians like to eat.  It can be a bit nauseating to new arrivals how much energy we put into thinking about our next meal (and often the amount of food we put away).  We’re similar with Americans for this, so probably they wouldn’t be taken aback, but I think many new arrivals from other areas are (rightfully) grossed out by it.

It makes us pretty easy to please.  If you have a meeting with Canadians, put out a tray of snacks (cookies or something) and we’ll probably get pretty excited.

Diversity

This is another double edged sword.  The stereotype of a group of rednecks sitting around talking about “them” is pretty horrifying to most Canadians (and we do have an incredibly diverse population).  I think if someone were wandering around making sexist, homophobic or racist comments, they’d get called on it by other Canadians pretty regularly.  We like to think of ourselves as being a tolerant nation.

The other side of it is that often those attitudes are present, just concealed.  One friend-of-a-friend who worked in Asia was upset by the blantant racism she encountered (she’s black).  One time she had a job interview scheduled, told the person on the phone that she’s black, and the person then told her not to bother coming in.  In spite of this (and as painful as it was for her), she said she prefered it in some ways to Canada.  She said in Canada she never knew if race was a part of how people saw her or treated her (even people she’d known for years), and she at least liked that it was out in the open when she was in Asia.

So I’ll turn the post over to our readers at this point (Canadians and non-Canadians hopefully both have a perspective on this).  Any of these you agree with?  People who have moved to Canada, was it a big adjustment adapting to our norms?  Any big points I’ve missed that you’d add?

Categories
Opinion

Grey

When I was growing up, the 80’s cartoons each had standard issue goods guys and bad guys.  Autobots battled Decepticons, G.I. Joes battled Cobra, and He-Man battled Skeletor.  I think I outgrew cartoons (at least this style of animation) when the villains’ consistent focus on “evilness” began to ring false.  The most extreme case of this would be Beastly on Care Bears who would cackle “I’m *SO* bad!”  In real life “villain” is often a matter of perspective, and no one thinks of themselves as evil.  We’re all the “good guy” in our own story (even when we play the villain in someone else’s).

I’m not entirely sure why we feel this is a good way to structure conflicts when we present them to children.  Clearly it becomes an easy framework to convey values to children.  If we feel generosity is a valuable trait, then we assign it to the Care Bears (and show No Heart being stingy) and it is clearly conveyed to them which is the better trait.  I think it can lead to a variety of problems with viewing the world as black and white as adults, however I’m not sure that early socialization is really to blame (Xenophobia seems to come quite naturally to the human race and I suspect “black and white” thinking derives quite naturally from an “us and them” world view).

This kind of thinking creeps into personal finance in two ways.  First, there is a tendency to break people into two groups:  those providing good information and those providing bad information.  I wrote a pretty scathing review of “Rich Dad, Poor Dad” by Robert T. Kiyosaki, so people might be inclined to think I disagree with everything he writes.  I find some of his material incorrect, some of it poorly presented, and some of it worthwhile.  Trying to sort these out isn’t worth the benefit, so I recommend steering clear of his books.  He suggests joining MLM as a way to learn how to sell, which isn’t AWFUL advice (I think it might be the only worthwhile reason to get involved with “network marketing”).  Conversely, I like most of what John Reed has to say about real estate, investing and life.  One big idea that he pushes in a number of books and articles is the “unlimited downside” of toxic contamination as a risk in real estate investing.  I agree that it’s a concern (and agree with him that it does give you an unlimited downside) however I disagree with his conclusion that it means you should avoid buy & hold real estate strategies.

This sort of thing can creep in to blogging.  Long term readers will have a mental image of Mike and myself, and I can pretty much guarantee we don’t match it in real life (Guiness416 and Preet have both met us after reading the blog, please feel free to comment).  One reader was briefly very enthusiastic about the blog (she wrote me an e-mail comparing some of what I’d written to Shakespeare and the Dalai Lama).  Later she discovered I invest in tobacco stock and told me off.  I’m not as good *OR* as bad as she thinks I am.  A while back OperaBob took exception to a comment about the DRiP Investing Resource Center.  It seemed to me what he couldn’t wrap his head around is that I said good things and bad things about the community he’s a part of.   His community isn’t all good (or all bad):  nothing is.

Our infamous real estate agents posts have similarly been interpreted as us saying agents are bad, which we never said in the posts or comments (and, in fact, we repeatedly point out parts of the process where the agent is useful).  However, because we don’t  agree that agents are absolutely good in every way, some people interpret this as meaning we think they are all absolutely bad.

The second way this creeps into personal finance is people who want to view investments as “good” or “bad”.  In my recent post “Beginning Investment Strategies to Avoid” Mark Wolfinger left a comment disputing characterizing stock options as a zero sum game.  Mark’s comments were interesting (he certainly knows more about options than I do), and presented situations where stock options could be used effectively, however that wasn’t what I discussed in the article.  In that post I said that stock options were a) not for beginners and b) a zero-sum game.  This was taken as saying options are “bad”, which wasn’t at all what I wrote (or meant).

We sometimes get commenters who want to figure out which is the “right” investment strategy.  Cory recently commented on one of my posts that GICs have outperformed stocks over the last 10 years (I’m not 100% sure I even buy this, it’s probably ignoring dividend reinvestment, but let’s accept it at face value for the purpose of this post).  There’s another chestnut showing that you’d be better off buying beer, drinking them, then returning the cans for a refund instead of investing in the stock market.  These are true, for what they are, but they’re absolutely useless unless we have a time machine.  I don’t care whether GICs outperformed stocks over the last 10 years, I want to know if they will over the NEXT 10 years (and no one can know that).

There are people who have made fortunes with Multi-Level Marketting (probably by starting them), there are people who have lost big in passive investing.  Some have lost “safe” money when banks collapse, and others who have never lost a dime but have danced through one risky investment after another.  There are no absolutes (in investing or in life), and you’re wasting your time and money if you go looking for them.

Categories
Book Review

Book Review: Better

I recently finished Atul Gawande’s “Better” and found it interesting and relevant to the personal finance world.

Dr. Gawande is a practising surgeon and in this book discusses how to improve (get “better”) as an individual, organization and industry.  He uses medicine as the domain of discussion, but manages to generalize his insights to universal ideas and approaches (or at least presents them clearly enough that it’s easy to “translate” them to your own life).

The book is made up of three parts (diligence, doing right and ingenuity) each of which is broken into 3 chapters.  Each chapter explores a different domain in medicine and illustrates where the field could do better and an example of a practitioner who is doing so.

As an example, the first chapter talks about how infections spread WITHIN hospitals, and how often doctors unintentionally spread these infections (going from patient to patient without properly sanitizing in between).  He discusses this from a historical perspective (when the first doctor realized that washing up before surgery was important) and how it’s still a problem today.  He discusses how many times they’ve tried different approaches to get hospital staff to be more diligent about hand washing and how each approach has failed.  The approach that SEEMS to have worked was undertaken at a Pittsburgh veterans hospital.  Inspired by research into malnutrition in developing regions, instead of dictating a new “approach” to sanitation at the hospital, they began organizing groups where they would ASK the hospital staff how they could reduce infections, identify employees who had been most successful at avoiding infections and helped them communicate good ideas to the rest of the staff, published the best and posted the results on a month-to-month basis.  They’ve managed to get the MRSA wound infections (the one responsible for most deaths in hospitals) down to 0.

Extrapolating an idea like this to an organization (or family) that keeps struggling with a well defined problem would be fairly straightforward.  Talk to the people involved and ask them why a problem keeps happening.  Ask them for suggestions on how to improve it.  Publish the results.  Repeat until you hit the desired outcome.

The other 8 chapters are along the same lines, talking about:  fighting infectious diseases, how mobile military surgical units work, patient nudity during examinations, malpractice lawsuits, doctor’s salaries, medical personnel involved with executions, when to let a patient die, the benefits  (and drawbacks) of using a metric to measure your success, where you are on the bell curve of performance (and how to move toward the higher end), and how to not use difficulties as an excuse to not perform (and instead work around them).

I was particularly impressed by the author’s willingness to acknowledge the other side of issues (such patients suing their doctors or participating in executions).  He was able to state his opinion, yet still express the other viewpoints in a respectful manner, admitting which arguments did support the other side.  His suggestions, taking these into account seemed very well thought out and reasonable.

One thing he doesn’t discuss is when it makes sense to focus on improvement.  With medicine as your domain, HOPEFULLY the view is that it’s always good to be better (people’s lives are at stake after all).  If you look at his ideas in the context of your own life, it’s a judgement call when its worth focusing on getting better and when it isn’t.  As an example, Mike is good at what he does for a living, but it isn’t the core of his identity.  If he was going to focus on “improving” his career it’s going to come at the expense of his homelife or his blogging empire.  He has the three balanced in a way that works for him, and most of the ideas from this book would only be relevant if he was trying to shift his focus more heavily to one area (e.g. say he wanted to pull back to part time at work and spend more time blogging).  There is a cost to improvement (which the author acknowledges in passing, but dismisses as the stakes in medicine are so high).

I would certainly recommend this book, both as an interesting read and as something that might give you ideas on how to get better at something that is important to you.  Where Malcom Gladwell’s Outliers focuses on performance from a high level perspective (put 10,000 hours into something and you’ll get good at it), this book focuses on a similar issue but close up to the problems and dealing with immediate concerns.

Categories
Frugal

Extreme Cheap: The Cheapest Family in America

I’ve done a number of posts on extremely cheap individuals (Daniel Suelo, Charles Long, Don Schrader) and groups (Freegans) but have always had a soft spot for stories about the Economides (self-professed to be “America’s Cheapest Family”).

While they certainly aren’t shy about self-promotion, I think they’ve actually built a unique lifestyle that works for their entire family (at least they seem to all be in it together when the TV cameras are rolling).  Basing their philosophy around tips like “Don’t go to the grocery store often”, “Leave the kids at home” and “Slice your own luncheon meat” (for grocery shopping), they’ve raised a family of 7 on $350 / month of groceries.  They also managed to pay off their first house in 9 years (while earning an average income of $35k), so they’re definitely living on the cheap.

I mentioned in a comment on my Charles Long post that I’d worry about putting my children through a lifestyle like this.  By the time your kids have really made up their mind whether this is ok or not (once they’d seen how differently their friends live), they’d probably already feel scarred for life if they were unhappy about it.  In interviews the kids seemed fine and happy with the lifestyle.  Their daughter fielded questions about this in one interview and said that she wears brand named clothes she got at the thrift store and drives a fixed up used truck that she loves.  The one part that bothers me is one of their few splurges is for professional hair styling for the mother.  If I was in their shoes I’d focus on “we’re all in this together” and either everyone in the family who wants a store haircut get one or none of them do (“sorry honey, your mother needs to look as good as possible, but you can go to the prom with a brush cut”).  Who knows though, maybe the mother is the only one able to cut hair and no one else has ever been interested in learning in order to cut hers.

I think it’s really cool that this family has been able to turn their frugal philosophy into a “family business” of spreading the gospel (through their website and newsletter). Much as with Charles Long, I get the feeling that by choosing not to chase the “consumer dream” they’re able to focus on spending time with one another and what they really value (beyond “stuff”).

Videos

[youtube http://www.youtube.com/watch?v=cKJTxuzvkXw&hl=en&fs=1&]

[youtube http://www.youtube.com/watch?v=MdN5jDkH7iA&hl=en&fs=1&]

[youtube http://www.youtube.com/watch?v=p5O8ZzJfro4&color1=0xb1b1b1&color2=0xcfcfcf&hl=en&feature=player_embedded&fs=1]

[youtube http://www.youtube.com/watch?v=V2Ixduy9VKc&color1=0xb1b1b1&color2=0xcfcfcf&hl=en&feature=player_embedded&fs=1]

Would you want to be a part of a family like this?  How would you handle it if part of the family wanted to live this way and part didn’t?

Categories
Real Estate

Finding and Selecting a Tenant

I’ve had a draft of this post sitting in the Four Pillars draft queue for over a month, and after a recent question by JN it seemed time to finish it and post it.  While I hope it gives a decent overview of finding, selecting and finalizing a tenancy for a rental property, please keep in mind that I’ve only actually gone through this process once.  The tenants have stayed for 3 years (but I can’t stand on my results), and I put quite a bit of effort into figuring out each stage in the process (reading, talking to other landlords, going through the proper procedures, etc).  A previous post on this topic was part of my “Getting Started With Investment Real Estate” series.

Philosophy on Renting

Before you even start trying to rent out your property you must know yourself and what you’re looking for.  Do you need to get a tenant (any tenant) in the property as soon as possible?  Do you want to focus on finding the best tenant possible, even if it takes longer to fill the unit or leads to a lower rent?  Do you want to maximize the income from the unit?  Do you want to minimize the bother your tenant causes?  Your answers to these questions will affect how you go about the process of finding a tenant.

For the record, my belief (which underlies my suggestions in this post) is that no tenant is better than a bad tenant (and I’d rather minimize bother than maximize income).

Advertising

The first step in getting tenants into an empty unit is to let people know that it’s available.  If you have the time and inclination, I would first try to advertise through every available free channel (e.g. Craigslist, Kijiji, posters in the neighbourhood).  If you aren’t getting a large number of responses (at least 10+) you need to crank up your advertising immediately and maybe consider paying to post in the local newspapers or paid internet postings (such as ViewIt in Toronto).

I provide as much information as possible in the advertisement to help people make their decisions.  I put together a website for the unit (which I referenced in each ad), which had pictures, maps of the area, and lists of local amenities.

Rent

Determining what is market rate for a unit is tough.  If more than half of the people showing up to view the apartment choose not to fill out your application then your rent is too high.  Lower it.  Keep lowering it until you get half the people to fill out your application.  If someone takes an application to fill out at home or says they’ll contact you later, they’re just being polite, they aren’t interested. If everyone is filling out an application than your rent is too low.  I’m not 100% sure the best course of action in that situation (I’d probably pick the best person, and be upfront with them that I know they’re getting a good deal and warn them that the rent will be increased at the end of the lease).

Showings

A large number of people won’t show up for appointments.  If they find another place or something comes up, for whatever reason they don’t bother to let a potential landlord know.  I suspect tenants view it as one situation they’re in control and can safely stick it to a landlord.  When I was renting my unit I’d rush over to show it whenever was convenient for the people who called.  Next time I’m doing it I’m going to plan all the showings at one time (maybe on a Saturday afternoon) and make them 20 minutes apart.  I’ll take the name of anyone who can’t make the showing and offer to contact them if it doesn’t rent.

I walk around and point out the nice features of the apartment and answer questions.  If there’s something that’s a negative about the unit I don’t point it out, but I certainly acknowledge it if the tenant inquires (such as no security guard, no air conditioner, or no dishwasher).

Application

If you do a Google search for rental application or ask any friends who invest in real estate for a copy of their rental application you should be fine.  First and foremost you don’t want any illegal questions on your form.  The purpose of the form isn’t really to get the answers (although they might rule out some applicants).

If someone has a convoluted explanation for why they can’t tell you their current landlord or why they don’t have a current employer I’d probably drop them as an applicant.  There may be good reasons why they are in the situation they’re in, but don’t spend your time trying to assess their unique challenges.

Check out anything they’ve listed and see if you can verify it (I was able to tie a woman’s “current landlord’s” phone number to her father’s consulting firm with Google).  If they’ve lied on the application, reject them.

Contact current and previous landlords.  If they’ve ever had problems collecting rent reject that applicant.

Keep the form.  Sometimes if you run into problems later their “personal references” will be a way to track down a tenant or may help you with other problems.

Credit Check

In Ontario you can do this with Rent Check Credit Bureau.  They’re expensive for only one unit though ($20 per check and a $100 annual membership fee or something like that). You can avoid the membership fee if you join the landlord self-help center for $25.

You want to look for delinquent payments (if they aren’t paying other people on time, why will they pay you in a timely manner?).

If there’s problems with the credit check, reject them and move on to the next applicant.  If you run out of applicants, advertise again and show it to some more people (perhaps lowering the rent if you’re having trouble getting enough applicants to find a good one).

Lease & Keys

At this point you have a tenant, fill out a lease (you can sometimes buy one at a bookstore, get one from a landlord’s association, or ask for one from a friend who rents properties), get first and last months rent (and damage deposit if local laws allow).

Let the other applicants know that you’ve rented to someone else.

I don’t claim this is gospel, and if anyone with more experience disagrees with anything I’ve written, please comment below.  Also comment on any alternative approaches you’ve had success or failure with.

Categories
Book Review

Book Review: Sway

sway“Sway” by the brothers Ori and Rom Brafman is about “the irresistible pull of irrational behavior”.  It was passed along to me after a friend enjoyed it and thought I would as well (which I did).  It’s a fast, easy read in the style of a Malcolm Gladwell book or Freakonomics.  The authors talk about the many reasons why we do irrational things, from both anecdotal and research-based perspectives.

As an example of the type of ideas it covers, they consider NBA draft picks.  While it isn’t a perfect system (Michael Jordan, considered by some to be the best basketball player of all time, was the 3rd pick in his draft year), drafting players is an important part of putting together a competitive team.  Researchers found that players’ draft selection order pick was the variable most responsible for their court play time.  So even if one player objectively outplayed another, if the weaker player was picked earlier in the draft they tended to get more time playing (and also tended to have a longer career).  They call this diagnosis bias, where we find it hard to shake an initial assessment of a person or situation, even after we get objective evidence that we were mistaken.  The halo effect is another description of the same phenomena.

The rest of the book is set up in a similar way.  There’s an engaging story (such as a plane crash, cultural effects on “Who wants to be a millionaire?” or Ferris Bueller), they point out the irrationality of the behaviour in the scenario, cite research into that area, and sometimes offer a counter to it.

One of the suggestions that seemed very reasonable to me is a better approach to hiring employees.  They make a convincing case that the unstructured interview (where the hiring manager chats with the potential employee to figure out if they’d be a good fit at the company) is a very bad way to evaluate if someone will be a good employee or not.  They suggest that instead you select your employees using aptitude tests.  For those who are most successful, use the “interview” to sell them on the company (and get them to agree to come work for you).

In Malcolm Gladwell’s books he fits interesting tidbits into a larger model he develops over the course of the book.  In Freakonomics they jump around unconnected, but interesting, facts and domains.  This book, in between the two, wasn’t executed as well.  While each element was connected to irrational behavior, it was hard to connect the ideas beyond that (and anyone could fill a book with anecdotes about irrational behaviour).  I kept hoping there’d be a higher level insight that evolved, but there wasn’t.

At the beginning of each chapter they give an obfuscated summary of the ideas to be presented (e.g. the preface was “Little house on the Tel Aviv prairie -> Asbestos and open-heart surgery -> Ignoring the O-ring -> Diagnosing the wrong patient -> Where psychology and business collide”).  I thought this was a clever way to capture the reader’s attention (and you had an “a-ha” moment when you got to that part and understood what “Little house on the Tel Aviv prairie meant”).  I wondered if maybe the authors mapped out the book using bullet points for the ideas then decided to keep their framework to hook the reader.

There are certainly elements of this book that are very relevant to personal finance.  For example, it talks in one place about continuing to hold a stock as it drops to $0.  However, I’d recommend this more as a pleasure read than something that will make you a better investor.

Categories
Investing

Beginning Investment Strategies to Avoid

On Tuesday I posted about Beginning Investment Strategies to Consider, and as promised, in this post I’ll detail investing strategies I think beginner investors should avoid.

There are countless people who want to get your money for a “can’t lose” investment.  I’ll try to talk about general “warning signs”, but inherently this is a topic that you can’t give a definitive list of what to avoid.

Zero Sum Investments

Gold, Forex, commodity, options and futures trading all have the characteristic they are zero-sum games (as wikipedia says, “a participant’s gain or loss is exactly balanced by the losses or gains of the other participant(s)”).  This means that to make money you have to be better than the average participant.  By definition, as a beginner investor you’ll very likely perform worse then average, so the people trying to involve you in these markets want to make money by either a) selling you a strategy, b) charging you for participating, or c) taking advantage of you and making money off of you.

Buying Trading Strategies

Some individuals will sell you a trading strategy for a zero sum investment, or even for other markets (particularly real estate or equities).  Usually there’s a good story behind what they’re selling, and they’ll talk about how they’ve made lots of money doing it.

There’s a saying at the horse racing track that “those who know, don’t talk and those who talk, don’t know”.  The idea behind this is if someone really had valuable information about an upcoming race, their best strategy would be to place a bet themselves and not tell anyone (since more people following the same betting approach will adjust the odds and make them less money).  The same is true for other investments.  If more money is chasing the same strategy, it becomes less lucrative for everyone participating.  This has happened with house flipping.  So many people are pursuing properties that are in need of cosmetic renovations that the price has been bid up to the point where it’s no longer a good way to make money.

If someone is selling their investment strategy instead of just following it themselves, that tells you something important:  they feel they can make more money selling it than following it.

Individual Bonds or Stocks

Evaluating the purchase of individual bonds or stocks requires a complex understanding of the market and the company’s place in it.  While knowledgeable investors can and do make money off of these, for the majority of investors (and especially beginning investors), ETFs or Index funds that track entire markets (or segments within them) are a far better choice.

Real Estate

We’ve posted on real estate investing extensively, and I certainly think it’s an interesting investment vehicle.  HOWEVER, I disagree with those who feel that it’s easy or simple.  Beginners can be eaten alive by “professional tenants” (deadbeats who work rental laws to avoid paying rent) or unintentionally running afoul of local rental laws.

Again, people do make money in real estate.  John T. Reed feels that to be competent in real estate requires mastering:

  • the real estate law of your state (or province in our case)
  • federal income tax law
  • property management
  • real estate finance
  • real estate leasing
  • real estate sales
  • real estate appraisal
  • construction (in some strategies)
  • securities law (in some strategies)

How many beginning investors are going to have ANY understanding of these areas?

Multi-Level Marketing (aka Pyramid schemes)

You’ll know you’re in MLM territory any time you hear a friend, family member or acquaintance start talking to you about a “business opportunity” or how to make money “selling to yourself”.  While some “investment gurus” will advocate these as a way to learn how to sell, as an investment they’re pretty miserable.  Any money you do make will probably be from friends who want to help you out (and view buying from you as a donation to the cause) rather than a true investment return.

Lazy Man and Money posted about Montavie (and was promptly sued), so that should tell you the kind of company behind these “investments”.

Innovative Investment Vehicles

It’s always tempting to get in on the ground floor of something new, and I put a little cash into peer-to-peer lending.  For the most part, I think the danger of something new far out-weighs any benefit from being one of the first people involved.  If it’s a worthwhile new market, very smart people will quickly move into it and being there ahead of them by a few months probably has limited value.  In the far more likely case that it isn’t worthwhile, it’ll be easy to lose any money you’ve put into it.

How to Gain the Experience to Invest in These?

While I feel that some of these investments areas are inherently flawed and should be avoided by everyone, some are worthwhile for knowledgable investors and a valid question might be how will I become an expert if I avoid them?

Some would advocate learning about them wthout any money on the line (e.g. trading stocks in “dummy” accounts without real cash in them).  Personally I don’t think you’d get much out of the experience if real cash wasn’t on the line.  One way to learn about these areas is to put a small amount of your investment dollars into them, keep the investment small, and learn as you try to grow it.  This could mean buying an older condo instead of a new 12 unit apartment building, buying $200 / month in stock usuing DRiPs instead of sinking a $100K inheritence into Nortel stock or putting 5% of your portfolio into futures trading (and refusing to add more money to it, you only reinvest your earnings).