A New Job for Alpaca

After about 7 months of unemployment - and just after she received her final unemployment check - Alpaca has landed a new job. I sort of let the cat out of the bag in a twitter posting last week, but now it's official, today she received and signed the offer. This is a very welcome development. The current job market is nothing short of demoralizing for job seekers. Jobs are few and far between, but at least in our case the story has a happy ending.

A few interesting pieces of information to share about this new job. First, the compensation package is a good one. Alpaca's salary will actually be about 10% higher than in her last full time position (which was over a year ago). Given the rotten job market, I was mentally bracing for a pay cut.

The company she will be joining is a public one, and they offer a range of benefits, including an employee stock purchase plan (ESPP). For those who are unfamiliar with the term, an ESPP is a program by which employees can purchase company stock for a discount - typically 15% - without any obligation to hold onto the stock. Previously when Alpaca participated in such plans, we sold the shares immediately after they were purchased, in essence getting a 15% boost on the amount invested. I am all for immediate and guaranteed returns... who isn't? We plan to use the same strategy.

Also, while my start-up offers medical coverage for my family, the cost of this coverage to me is about $200 per pay period or $400 a month. Being able to remove Alpaca from this plan will save us some cash, and depending on the cost of insuring the kids through Alpaca's company, there may be some additional savings possible.

Another interesting thing about this job: Alpaca landed it through... wait for it... an online job posting. No networking involved whatsoever. After all my talk and preaching about networking, it turns out that the lowly and much maligned online job board can actually help you land a job. Who would have thunk it? To be fair, Alpaca did a lot of networking, and even I was able to land a hand on a small number of occasions, helping her get some interviews. In the end, the swing that connected was a random job post response. It just goes to show you, in your search for a job you have to fire with every gun in your arsenal, and not rule out any options in advance.

Alpaca's first day of work is this Thursday. She is reporting a lot of nervousness about getting back to work and about having to prove herself in a brand new place. I can report that my stress level has gone down dramatically. While my company is financially solid for a few more months, we are a start-up, and are always reliant on fund raising to finance our operations. There are never guarantees that our investors will pony up the cash. Now, at least, the prospect of both my wife and I being unemployed simultaneously, seems to be more remote. Happy, happy, joy, joy!

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Taking the Initiative After a Lay-Off

A few weeks ago I wrote about how I "almost lost my job", when my old position in the company I left 18 months ago was eliminated and my replacement, who also happened to be a good friend, was let-go. After I published that post, I was able to help my friend get a temporary job with my own company - one advantage of being an executive. My friend has been doing a very good job in this temporary position and there is now talk of potentially hiring him for a full time job. Nevertheless, my friend isn't waiting around or counting on good fortune to work-out for him. He actually started a side business, which I think is quite brilliant. This business has the potential for growing within a matter of months to become my friend's full time job.

My friend is using his career set-back as an opportunity to move in a direction he's wanted to pursue for a long time, but never actually had the time or the drive to follow. Good for him!

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House Appraisals: How They Get It Wrong

When we were making our ill-fated attempt to buy a house a couple of months ago, as part of our mortgage application process we had our target house appraised. The appraisal came in about $40K higher than the sale purchase price on which my wife and I agreed with the seller. How strange is that?

Unlike the stock market, where all transaction prices are immediately made known to the public at large, real estate is one of those inefficient markets, where prices are not immediately apparent. To add complexity, prices are very much location based, such that identical houses can fetch wildly different prices only a few miles from each other. In addition, months can pass between similar transactions in a close enough location. With all this in mind, a real estate appraisal strikes me more as black magic or art, than science. Yet, the appraiser provides a POINT appraisal. He doesn't say "the house is worth between 0.9X and 1.1X", he says, "the house is worth x". An exact dollar figure... pseudo-scientific accuracy... delightful.

Clearly the bank needs an appraisal to make sure that buyer and seller aren't in cahoots (yeah, I said it) to defraud the bank. Buyer and seller could, for example, agree on a much higher purchase price than the true market price and then take the money and run, leaving the bank to hold a crappy asset.

With all of that in mind, it seems to me that the best way to determine the market value of a house is to look at... the price the buyer and the seller have actually agreed upon. Our appraiser gave the house a value that was $40K above the agreed upon price. If this appraisal was true, would the seller have been willing to sell the house to us for a lower price? Wouldn't other buyers have come in to give a better offer? Clearly the seller agreed to take that price because he couldn't get anyone to bite at a higher price.

It seems to me that appraisers should focus primarily on two things: (i) is the sale an arms-length transaction, i.e. are the buyer and seller each truly trying to get the best price that they can for the house (each from their own perspective) or are there some unique circumstances (fraud, family connection etc.); and (ii) is there something that makes the property uniquely valuable to the buyer to make him willing to pay more than others would for the same house (e.g. maybe the house belonged to his great-grandfather). Unless something fishy is going on, the sale price IS the market value for the house.

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The News Driven Economy

In recent months the economic situation has gotten decidedly better. Volatility in the market - as measured by the VIX index for example - has decreased considerably, nevertheless the economic headlines are still screaming at full blast. It's as if the news outlets are run by vocal manic-depressives. One day the recovery winds are blowing strong, the next day hopes are dashed and everyone is supposedly heading for the hills.

The best examples of manic-depressive economic news reporting can be seen on days when the stock market starts low and ends high, or vice-versa. I typically check the CNNMoney website a couple of time throughout the day, and often find that the very same news is interpreted in opposite directions depending on which way the stock market is heading at that very moment. The lack of consistency as the headline is changed but the story itself includes only minor corrections is amusing.

These days I am reading The Black Swan, by Nassim Taleb. A thought provoking and interesting read, even if it's written in a somewhat self important and needlessly complex way. It looks like I am not the only one who is bothered by these inconsistencies in the economic reporting. Taleb has been tracking them for years. In his book he gives the following example from reporting by Bloomberg news, relating to the capture of Saddam Hussein in 2003:

"US Treasuries rise; Hussein capture may not curb terrorism"

Followed 30 minutes later by:

"U.S. Treasuries fall; Hussein capture boosts allure of risky assets"

The same fact interpreted in exactly the opposite way, depending on the movement of the markets (in this case treasury prices).

Taleb ascribes these inconsistencies to the fact that people demand an explanation or narrative to facts, and to the news outlets' wanting to deliver what their customers want, even if they don't actually have anything to deliver. That's probably true, but I think that no less of an explanation is the fact that drama and crisis increase viewership & circulation. How many people would tune in to hear that just another random day went by?

Be that as it may, this rampant inconsistency and tendency towards drama makes financial news a particularly poor source on which to base economic and investment decisions, and it's not limited only to electronic media, these tendencies pervade printed financial media as well. The media tends to report that things are really awesome when they are merely OK, and tends to report catastrophes and when reality calls for some mild showers. That also happens to be true for Weather Channel reporting, but that's a topic for another day...

This is yet another reason, if you needed it, to have your own well thought-out economic and financial plan, and to stick to it.

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Spending My Bonus: It's Tech Time!

I have made my big bonus decision. A few weeks ago I wrote about how I got an unexpected bonus and was trying to make up my mind about what to do with the windfall. The decision has been made: an upgrade to our computer and home theater system.

As a first step, we bought a fully loaded new PC: quad-core Intel processor, 9 GB of memory, a 1.5 TB disk, 2.7 inch monitor and a bunch of software. $2200 from Costco, all in. Really, really expensive, yes, but given that our previous computer lasted for 8 years, and that we hope to get the same mileage from this machine, that's not a completely reckless decision. This computer will also play an important part in the next phase of the plan: connecting our TV to the Internet.

For months I have been plotting a wireless assault combining TV, media server, computer & Netflix. Netflix now has a massive collection of movies and shows that can be instantly streamed over the Internet. The only problem: connecting the TV to the Internet has been a challenge. It turns out that this can be done in several different ways: certain TiVo machines, Blue Ray players and XBox consoles can be wireless connected to the Internet, and be used to stream content to the TV. That's the sole missing component in my scheme to upgrade our home entertainment system. I'll probably pick the TiVo or XBox and my master plan shall be complete! Muahhh-ha-ha-ha-ha..... Wow, that's almost as good as taking over the world...

One other nice thing about our new fancy computer is that it has a built-in TV tuner and DVR which I intend to connect to Comcast cable. That way our 1.5TB hard disk will become a massive new DVR.

A final note on the new computer: this is a Windows 7 machine and so far I like this new operating system. Some problems with software that's not yet compatible with the new operating system, but generally speaking, Microsoft did a good job making sure that accessories and most software install and operate smoothly. Very nice. Ironically, the only problem we experienced with migrating to the new machine has been with Apple... migrating my iTunes, iPod and iPhone to the new computer has involved days and days of work. Because the old computer crashed and we had no access to the old copy of iTunes, I had to recover my music from our home back-up. This process resulted in the loss of all my playlists, song ratings and customizations. As I said, it took me DAYS of work to recover, and all this while my iPhone retained a PERFECT record of all my data that could have been easily recovered and migrated to the new computer if Apple cared at all about it's customers. I love Apple's products, but abhor the company and it's philosophy. What a pointless nightmare.

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