Author: Mr. Cheap

Categories
Announcements

Four Pillars Sale: Another Perspective

After Mike’s post announcing the sale of 4P, there was some confusion in the comments. After we got an e-mail recently asking Mike how life is “san Mr. Cheap” (which I thought was ice cold, I’m not DEAD! 😉 I figured it might be worth taking another stab at explaining what happened. Keep in mind, this is my perspective on things. Mike’s may differ, although I hope he’ll put any clarifications in the comments (in his version I’m probably less muscular and don’t save him and his family from a mugger using nothing but Kung-Fu and the power of my brain).

When we originally joined forces, Mike was far more enthusiastic about monetizing the blog than I was, so I was happy to let him handle that element of the site. After a year (and reading all the comments about what a good deal I was getting) Mike got to the point where he wasn’t enjoying posting & promoting enough to justify splitting the revenue with a partner (while doing all the promotion). The blog was under-monetized, but understandably it wasn’t appealing to do 100% of the work for 50% of the benefit.

We discussed a few options how to equalized things, but in the end figured that having one of us buy the other out made the most sense. After tossing around a few ideas, we eventually settled on a “Shotgun offer“, where Mike would determine a price, and I would decide whether I wanted to buy it for that, or sell it for that. This is kind of like when Mom makes one sibling cut a piece of cake in half, and the other pick which half they want: its a built in way of making sure a fair price is determined (since the person setting the price doesn’t know if they’re buying for that or selling for that). We had discussed this in the past and decided this would be what we’d do if one of us wanted to leave in the future.

Mike named a price (he’d prefer to keep that part private), and I decided I’d rather have the cash and lose half the blog instead of paying the cash and getting the whole thing. The cash went straight into GE stock (Mike told me not to spend it all in one place, which I did unfortunately :-). We had previously discussed what would happen after the deal, and Mike had offered to pay me to keep writing for the blog (at $20 / post, which is less than I make programming or TAing, but is a fair price for something I enjoy doing – so I’m making a cool $20 bill writing this up!). We’ve agreed that if he gets sick of me, he can fire me, and if I want to leave at some point, that’s ok too. Plus, I now have to call Mike “boss”, as in “Sure thing, boss!”  He calls me “kid” now too.

As Mike mentioned, there will be some layout changes as he tweaks the monetization (which shouldn’t affect RSS readers), and his posting has dropped off a bit (he’s not going to try to maintain the 2.5 post / week rate unless he’s in the mood to write).

Categories
Business Ideas

Create a Movie or TV Show

Mystery Science Theater 3000 was a pretty funny show on a while back that consisted of bad b-movies (science -fiction and horror for the most part) and three characters mocking the movie while it played. The original creators worked on the show after hours at the cable studio they worked at (as that was the only way they could have access to the expensive equipment used to create it). They didn’t have a large audience, but the people who liked it were fanatical fans (a cult hit if you will, or exploiting the long tail).

With constantly dropping prices for video equipment (like all technology), it’s become possible for amateurs to make professional quality video content. In 1994 Kevin Smith made “Clerks” using cash advances from a bunch of credit cards, and things have gotten even cheaper since then. I used to pitch ideas to a friend who worked in the film/TV industry and he eventually asked me why I didn’t just make them myself (and assured me it wasn’t too involved to learn how to operate a camera and edit footage).

Horror movies, in particular, have a rabid fan base that will see every zombie movie (for example), even if it’s acknowledged to be awful. My friend claims its almost impossible to lose money making a horror movie. One idea I’ve had is about a guy who starts dating this woman. She goes along with things, but is completely detached about the relationship. Eventually they move in together (she likes him well enough, but remains ambivalent about the whole thing), and one night he catches her turning into a wolf. After confronting her the next morning, she’s nonchalant about the whole thing admitting “yeah, I turn into a wolf three nights a month on the full moon, what’s the big deal?”. The guy decides he loves her so much he’s going to make it work. At a later date he clues in that when his girlfriend is a wolf, she’s having an affair with the landlord’s German Sheppard, and what’s more, the guard dog realizes that the wolf he’s been having fun with 3 nights a month turns into a woman and is having an affair with the guy upstairs. For the rest of the movie, the dog and the guy try a variety of plots to kill each other (e.g. the guy tries to poison the dog, the dog gets off his leash but pretends to still be tied up and attacks him, etc). I’m not sure how to end it (maybe the woman dumps them both and leaves with a male werewolf).

I don’t know how you go about distribution and whatnot, but I’m sure that’s the sort of thing you could figure out buying someone in the biz lunch and picking their brain.

In terms of TV shows, two ideas I’ve had is to make a Canadian show focusing on a fly-in-fishcamp in Northern Ontario. Each week (episode) would have new American tourists showing up at the lodge, and the comedy would come from the interactions between the Canadians working at the lodge (a variety of fishing bums, university students, whatever), the native fishing guides and the Americans. My brother worked at a fly in fish camp and has a ton of amusing stories about his experiences, which is what led to this idea (and what I’d use to develop individual episodes). Corner Gas and Little Mosque on the Prairie are so bad, I can’t see how this WOULDN’T get on the air in Canada…

Another TV type idea would be a reality TV show built around programmers (think “The Apprentice” or “Hell’s Kitchen” with computer nerds). You’d get some tech celebrity (like Linus Torvalds or Steve Wozniak) to host it, and offer a team lead position at Google, computer systems, and a bunch of gadgets as the prizes, and distribute it on-line (maybe get corporate sponsorship to make money). Challenges would be group and individual and would be tech related (e.g. fix a broken server, code a Pac-Man clone, elicit requirements and develop a website for a client, etc). Geeks could watch it with their girlfriends (or boyfriend if you’re SquawkFox) and they can finally get some idea of what we do for living (in a highly dramatized version)

For this post, or any other of the wacky business ideas I post, obviously I’m releasing any ownership claims I may have over these ideas. If you like something I post and feel like you can make money from it, please feel free to do so! Let me know when you’re opening and we’ll do a post on it to give you some free advertising.

Categories
Book Review

Book Review: Stocks for the Long Run

Today is Remembrance Day.  Regardless of what you think of the military, foreign policy, and violence in general, I think its a wonderful chance to reflect on the young men (and women) who have risked, and sometimes lost, their lives in service to their countries.

There are a few books on finance that are must reads.  “Stocks for the Long Run” by Jeremy J. Siegel is one of them.  I had flipped through it a year or so ago, and recently took it out from the library and read it cover-to-cover.  Somewhat like William Bernstein’s “Four Pillars of Investing” (the namesake of this blog), I think these are books that you can re-read, and get more out of, as you learn and understand more about investing.

Dr. Siegel starts his book with a discussion of stocks vs. bonds.  Apparently in the past there would be constant fluctuations between which was better to invest in, but since the majority of the world has adopted monetary policies that lead to inflation, over the long run equities destroy bonds (he devotes a couple dozen pages to present a very convincing case of this).

He then discusses short vs long term investing, arguing that its hard or impossible to predict short term price movements, but far easier to count on healthy returns over long periods (hence the title).  Touching on risk and return and taxation, he basically advocates investing in stock indexes (which he explains in detail).  He also discuses large vs small cap stocks (investing in large vs. small companies), value vs. growth stocks, IPOs, dividends (and yields), options, volatility, and behavioral finance.

He dives into the basics of stocks ownership, what some of the key metrics mean, and what drives value for the company and shareholders.

Dealing with more current events, he talks about terrorism, the aging population, bubbles (such as the Nifty Fifty and the tech boom), and global investing.  The Nifty Fifty was a bubble where the public figured the top companies in the American economy were worth owning at any price, and bid them up to what are viewed as insane prices, around a 50 Price / Earnings ratio (basically it would take 50 years for the company to earn as much per share as investors were paying for them, Ben Graham suggests a P/E above 16 is overpriced).  He makes the interesting case that the Nifty Fifty were actually fairly priced at the height of the bubble and would have been a good investment if held.

He destroys the idea of gold as an investment (his chapter on it is like watching Mike Tyson pummel Steve Urkel into a pulp), gives a solid overview of the business cycle, and talks about how news and world events move markets (and that you’re not going to be able to stay ahead of the legions of people reacting to this news).

He admits that there *is* some weak evidence supporting technical analysis (but seems almost embarrassed to make the admission), along with calendar anomalies (such as the January / October effects, and the distribution of market movements over the week and over the month).  While he acknowledges that the data supports these effects, he cautions that they may disappear as they become more widely known.

Like Bernstein, he concludes with a  couple of chapters on how to use the information in the rest of the book to construct a solid portfolio, addressing money managers, mutual fund performance and the danger, to themselves, of investors who learn a little bit about investing then make big bets.

While I wouldn’t give this book to a friend as their first introduction to investing (it might be a little daunting to work through), I think it basically falls in the “must read” category for anyone who considers themselves a DIY investor.

If you’re wondering what the good doctor would say about current market conditions, the Canadian Capitalist helpfully provided a link to this article recently.

Categories
Investing

Does Passive Income Really Exist?

I love the idea of passive income.  Some magic is performed, and a steady stream of money comes into your life every month.  A Google search on this site with the term “passive income” turns up 55 hits, so its definitely a popular topic.  As much as I think passive investing in index funds is pretty tough to beat, real estate and dividend paying blue chip stocks that offer regular cash payments are pretty enticing.

Mike has made the point that there isn’t a big difference between being sent some money every month or redeeming a small portion of a stock portfolio as needed.

People will sometimes suggest things like writing a book or writing a song as a way to generate royalties which becomes a “passive” income stream.  While collecting the royalty checks is passive and easy, writing a book sure wouldn’t be (especially if it was any good).  Taking a risk that the public will like your work, investing all the labour upfront, then getting paid out over time seems like reasonable trade-offs for the income stream.  Why is this better than working hard at a 9-5 job and collecting a check for your efforts?  Both seem like reasonable compensation for the amount of work, risk and delay of payment involved.

Often passive income streams are proposed that aren’t very passive, such as real estate or starting a business.  I don’t buy the suggestion that a property management company or hiring employees will make these totally passive.  I’d say with either of these options you’re sacrificing income to DECREASE the amount of labour you need to invest (which is ok, but its just a trade off like any other, nothing magical).  If you turn over the company ENTIRELY to other people to run, I think you’re sending your risk into low Earth orbit.

Paul Graham proposes the idea that startup companies condense a lifetime worth of labour into a couple of years (and pay accordingly). While this isn’t a passive investment (usually founders sell their company and walk away with a big check rather than getting monthly payments for life), it does seem like a reasonable way to spend a couple of years if you have a good idea and are confident in your ability to build a company that could be sold.  It would be possible to live off the the proceeds of the sale for the rest of your life.  Similarly someone could sell the rights to a book or song, and then live off that money.  How is this getting paid upfront worse than an income stream?

GICs (or CDs for our American readers) pay money over time, but these are rarely recommended as a passive investment.  The higher returns from what is usually considered passive income seem to me to mostly be a risk premium.

Choosing the right combination of length and amount of investment, amount of risk tolerated and labour invested seems to me to be considerations all investors make, from Donald Trump to whether you want to work at the McDonald’s or at your friends new car detailing business.

Is there an important aspect of passive investing or income streams that I’m missing?

Categories
Opinion

How to Have an Adult Conversation

Some time back Ben Stein, who I think is great for the most part, wrote an article on “How to have a business conversation“.  I’ve had this post bouncing around in my head for a while and after a weekend where I got rammed from *behind* by a woman with a stroller (who then muttered “watch where you’re walking” at me) and sat through a dinner party with some boorish socialists, it seemed like the time for a post about civil interactions.

Obviously learning how to politely interact with those around you is a necessary skill for urban living in general, but even more so for anyone who cares about their career or who is investing in anything that requires working with other people.

An apocryphal quote (attributed to everyone from ancient Babylonians to Socrates) I’ve always found amusing is:

“The children now love luxury. They have bad manners, contempt for authority, they show disrespect to their elders…. They no longer rise when elders enter the room. They contradict their parents, chatter before company, gobble up dainties at the table, cross their legs, and are tyrants over their teachers.”

My favourite version ended with “The world shall surely end soon.”  Part of why I enjoy it is that, much like rants about manners, everyone seems to think that TODAY’S children are unruly, and TODAY’S manners are horrid, but the truth of the matter is probably that children are as they’ve always been, and manners are as they’ve always been (we probably have nostalgia for a past that never existed).

With respect to Mr. Stein, I’d love to elaborate on a few of his points, then add a few of my own.

2. Establish common ground & 3. Say kind, generous things to your conversation partner.

At the university I often meet people from all walks of life (especially other cultures).  Having something polite to say about their culture, even if its superficial like how much you like Pad Thai, is a great way to get the ball rolling, put them at ease and open the conversation for other topics.

Its a VERY dangerous area to make criticisms of their culture.  If you tend to be a negative person and this is what you’re most comfortable doing, criticize your OWN culture.  I met an Iranian man a while back. who since we’ve become very friendly but he opened with telling me everything bad about Canada.  I was able to agree with him on most issues (and throw in a few shots at Canada myself), but I walked away thinking he’s got to annoy some people if that’s his opening line.

4. Keep your comments brief & 10. Make whatever points you need to make in a hurry, and then leave.

I’ve had fellow students come to my office and ask me really inane questions about a class we’re both in.  I often get the feeling they’re just looking for an excuse to chat and be my friend.  While I love someone wanting to be my friend (clearly they have great taste in people), it gets awkward when they just stand around smiling after I tell them I don’t know what the marking scheme is going to be for the next assignment.  This may be more common in computer science departments than elsewhere…

11.  No one needs to “earn” your respect.

I don’t encounter this as much as when I was younger, so hopefully people outgrow this attitude.  I’ve had a number of people behave quite rudely to me, with the outlook that I have to “prove” to them I’m worth being polite to.  At one job interview, the guy who ran the place was behaving very badly towards me.  Once his head techie and I got bantering about editors and software development methodologies his demeanor clearly started to change.  By that point I had seen how rude he was and didn’t want to spend my days with the S.O.B.

Similarly, don’t count on an age difference or a perceived status difference to talk down to people.  The time for that is far in the past, and its going to bite you if you try to pull it these days.

12.  Interested is interesting

This is related to a few of Mr. Stein’s points, but I honestly find people fascinating.  Often when I meet someone, I’ll find something about them quite interesting (their job, where they’re from, or an unusual experience they’ve recently had) and pump them for information.  Luckily I must come across as sincere since people seem to like being interviewed rather than finding it creepy.

This weekend I met a guy who had backpacked around Iceland and talked to him extensively about that trip, met another guy from Iran who had spent his high school years growing up in the Canadian prairies (we violated a couple of Ben Stein’s rules by discussing different view on religion within a family, how the climate has changed for Canadian immigrants from the middle east since 9/11 and overt vs. covert racism) and talked to a lesbian couple about raising a son with 4 mothers (the original couple broke up and both of his mom’s now have new partners).  I figure he’s going to have a few sessions worth of things to say if he’s ever in therapy and get’s asked to “tell me about your mother” :-).

I think the people around us all have interesting things going on in their lives, and they usually love to tell you about it.

13. Have a conversation, don’t look for a 1 person audience

I struggle with this myself sometimes.  My friends assure me that I include other people in conversations, but I can certainly be a chatterbox if a topic comes up I’m interested in.  If you’ve been talking for a couple of minutes and the other person hasn’t said anything meaningful, its well worth getting them involved in the conversation again.  Ask an open ended question (“So what were the biggest difference between Iceland and Canada?”) and let them talk for a couple of minutes.

14.  In a group setting, avoid “in jokes” or topics that are only interesting to a subset of the group

A good friend of mine and I constantly make obscure Star Wars references to each other.  The best was when a friend of ours was talking about her younger sister not being able to handle babysitting, he said (in perfect Yoda inflections):  “Not ready for the burden was she” (to which I laughed hysterically for about 15 seconds).  This is pretty rude of us, and we should knock it off.

At the dinner party I heard a 10 minute story which basically amounted to getting better seats at a Madonna concert.  Wow, thanks for stealing a bit of my life that I’ll never get back.

What tips would you have for connecting with people you’re meeting for the first time, in a business or personal setting?

Categories
Real Estate

Tenants over Dividends

The Moneygardener recently wrote an interesting post why he likes to invest in dividend paying stocks instead of investing in real estate (I’d link to the post, but I’ve been getting 404 errors from his site for the last 2 days). As someone who has invested in both, there’s truth to each point he makes (I agree with all of them), but there’s also another side to the issue.

Presented, for your consideration, some reasons why you might want to invest in real estate instead of equities (text in italics are the original points made by MoneyGardener):

No pesky rent cheques to cash. My dividends flow electronically into my brokerage account without hassle, fees, or paper (eco friendly too).

  • Pesky rent cheques to cash.  Dividends may trickle in (or be re-invested in your DRIP), but there’s nothing like walking to the bank with cold hard cash or a stack of cheques in hand

If given the choice I’d rather not receive phone calls at 4am from tenants with plumbing issues. To date I have not received one phone call from any of the companies that I own.

  • Given the choice, I’d like to have the opportunity to know about problems with my investment, have the chance to fix them, and to be able to plan to avoid them in the future.  With companies I buy common stock for, I don’t know about problems until the over-paid management team has already made short-sighted decisions to maximize the value of their stock options

Why chase people for rent cheques or listen to a hard luck story about why it’s late? Clorox (CLX) is never late with their quarterly dividend, and they don’t complain.
People break leases and decide to move out occasionally, taking your future monthly rent with them. Stocks never go away unless you want them to. They can also be acquired in which case their value spikes.

  • When a company cuts or suspends it dividend, there’s nothing I can do about it.  My entire investment can disappear, leaving me with no recourse, no future income AND the loss of my principal.  If a tenant doesn’t pay me, I have a wide range of options for collecting ranging from nagging him to evicting him.  Buildings rarely vanish, and even if its destroyed, the land its built on will still remain (along with a juicy insurance settlement).

I like the word ‘DIVIDEND’ better than the word ‘RENT’….it just sounds cooler and more profitable.

  • Rent sounds a lot cooler when you’re collecting it than when you’re paying it!

Owning stocks I can diversify across industries and geographies. Owning an 18 unit apartment building in Windsor, Ontario, I can not.

  • With real estate, I can learn the local market and exploit inefficiencies, buying property that no one else is interested in (and getting an appropriately good deal).  With the amount of information available to stock buyers, the market efficiently prices them, making it hard for me to get a good deal.  I will always have to bid against other people interested in buying.

My stocks do not require maintenance that involves getting my hands dirty or paying someone else to dirty theirs.

  • I can get my hands dirty, and increase the value of what I own by investing my labour in it.

Stocks are liquid. It would take me about 10 minutes to sell every stock that I own in an emergency. It could take years to sell real estate in a poor market.

  • Real estate is illiquid.  Because I’m not getting it appraised every 10 seconds of the day, I won’t get panicked when real estate prices go down.  I won’t even know about it unless I try to sell.  I can easily sit back and be a long term investor without distractions.

I don’t have to decide by what percentage to increase the rent, the companies that I own decide that for me.

  • I get to decide by what percentage to increase the rent, instead of companies deciding that for me.

Again, to reiterate, I’m a dividend investor (I don’t want the Dividend Addicts coming after me with pitchforks).  I like stable blue chips that regularly pay an increasing dividend.  I just don’t think that there’s an investment that’s absolutely better than others (or else everyone would just buy the better one).

And as a little bonus (so there’s no hard feelings from the Gardener), I’ll switch sides and gives three more points in favour of dividend investing:

  • When I invest in stocks my transaction costs are tiny (a fraction of a percent for a large buy).  With real estate, about 7% is paid in fees (legal + agents) every time it changes hands.  These expenses scale with the size of the purchase, whereas they are proportionately lower for stock transactions.
  • With real estate you have to check on your investments periodically, even for the best run properties with property management in place.  With stock, I can go and sail around the world, content that they’ll operate as well with me absent as they would if I was checking them every day.
  • Discount stock brokers rarely cheat clients, property management companies are notorious for underhanded behaviour.

What are your reasons for investing in real estate or dividend paying stock?

Categories
Announcements

Wacky Business Idea #14: Barcode.com

Of all the business ideas that I’ve had bouncing around in my head, I think this is the #2 best idea (I’ll either finish this series with my best idea or keep it for myself. I don’t think this is the most popular “theme” we post on, so I’ll probably end it after the 20 ideas I originally mentioned).

Barcodes have become increasingly pervasive since their introduction in 1974 (the first item with a barcode purchased was a pack of chewing gum). They’ve been a boon for retailers, as it lets them easily tie in their inventory to their point-of-sale. Every time an item is sold, they can electronically remove it from inventory, instead of having the cashiers manually track it or doing inventory regularly (both would be very labour intensive).

My idea is to subvert a bit of the power of barcodes back to the consumer side of the equation. Imagine a website where it starts with a very simple interface, something like Google. You can type in a barcode off of any product that you purchase. After typing it in, there is extensive information about the produce, such as its manufacturer (and contact info for them), a forum for discussing it, similar products, nutritional info, or anything else people want to track. Inexpensive barcode scanners could be ordered from the site for people who are regularly using it.

Special interest groups could provide an “overlay” of the data, where people who join their group get information about the products. Vegetarians might flag products based on whether they’re Lacto-vegetarianism, ovo-vegetarianism, lacto-ovo-vegetarianism, Semi-vegetarianism or pescetarianism. This would help vegetarians who recently adopted a new philosophy about eating to determine which of their staples are safe to continue to consume (and perhaps find alternatives to favourites). A kosher overlay could help people who have recently adopted an orthodox Jewish diet to evaluate their diet (or maybe help young Jews leaving home stay kosher once they’re buying for themselves), if they were too lazy to look for the kosher symbol on foods they buy. It could even be used for groups who want to boycott companies that support particular causes the consumers are opposed to or who do business with sweatshops.

More sophisticated applications could be built on top of the barcode platform as it gets more data, such as a diet site that will import all the information about what you’ve eaten and track all your daily consumption (of calories, fat, vitamins and whatnot) for anything you input with a barcode and an amount.

Whenever a user looks for information that isn’t in the database, it would then encourage them to find out the information and enter it (and allow other people to fix incorrect information that had been entered).

In terms of a business model, money could either be made by advertising to users (whom the system would know very well once they’ve entered barcodes of what they regularly purchase), selling their user data (with their permission of course), or selling to a larger company (such as Google) once your user base was large enough.

Something that is a very, very early idea of this can be seen here (I was going to incorporate the data he freely provides when I was thinking about building this). I actually had a friend who got pretty excited about this idea and wanted to invest in it, but I could never get my act together to do more than make a few simple mock ups and fairly trivial versions of the site (similar in functionality to the site linked to). Money isn’t need to build something like this, just a developer who is willing to keep banging out code.

Categories
Personal Finance

Falling Canadian Dollar

The Canadian dollar has been plunging recently.  I’m not into Forex trading (its a zero-sum game, so with transaction fees and other savvy people in the marketplace, I don’t see it as a reliable investment), but currency exchange rates affect many Canadians.

Years ago I lived in the US and the Canadian dollar was worth about $0.60 US.  Things seemed much cheaper whenever I’d visit Canada (I remember being shocked at how much more DVDs cost up here after I’d factored in the exchange rate).  When we briefly had the dollar worth more than the American dollar (and while it was around parity), it was a strange feeling being able to purchase more for a Canadian dollar (or to be able to convert equally).  I think a lot of ex-pat Canadian tech workers were shocked at their American salaries, in part because they were very nice after being exchanged into Canadian dollars.

For importers, they now have to pay a lot more when they buy abroad.  This will eventually start translating into higher prices on goods brought into Canada (books, most manufactured goods, etc).  With the lower Canadian dollar, exporters will now be able to make more for everything they sell abroad, so this is good news for Canadian manufacturers and anyone selling resources outside of Canada.

Tourism will get more expensive when we travel outside of Canada, but tourists COMING to Canada will get a better deal (so hopefully this segment of the economy will improve).

Those of us who own American stocks: we’ve just got a nice boost to our portfolio value.  From both the new, higher exchange rate if we sell and on any dividends paid (in American currency).  Telly is going to laughing more than any of us, as she lives in Canada but works in the US (good trick right now if you can manage it).

For purchases WITHIN Canada (say buying a meal at a restaurant that uses locally produced ingredients or buying a Canadian newspaper), nothing should really change.

Has the drop in the Canadian dollar affected you?  Are you going to be living life any differently, within the next 6 months say, because of the change?