Monday, June 30, 2008

The World's Worst Mutual Funds

I was perusing E*trade's mutual fund screener the other day - I don't know why, since I always invest in index funds anyway - but all of a sudden I was struck by an irresistible urge to search for some really horrible funds. I mean, I wanted to find some mutual funds that belong in the mutual fund hall of shame or some investor horror movie. I am talking Horrible with a capital H.

To participate in my experiment, funds had to meet several key criteria: an expense ratio above 2%; three year annual returns below -5%; and performance relative to their peer group that placed them at the bottom 20%. For good measure, I also specified that the funds screened had to carry a load... wow, that's pretty bad. Just to finish off the picture, I insisted that each fund carry a Morning Star rating of 1 star.

Would you invest in such funds? Well, apparently some people would. My search criteria yielded 175 results. I did not stop there. I then sorted the resulting list by expense ratios. The fund that rose to the top (or the bottom, really) was American Growth B (MUTF:AMRBX ). Here are the performance characteristics of this amazing fund according to E*trade: since inception in 1996 the fund returned -5.51% annually (yes, that's a negative 5.5%)... the fund charges a 5% load and has an expense ratio of 4.39%. Do people invest in this fund? Not many, but apparently some people just love pain... the fund manages about $5M in assets (the good news is that at this performance level the assets under management keep diminishing on a daily basis, but not for the right reason).

To be perfectly fair, the fund received a major blow following the dotcom bubble, and it did have positive (if meagre) returns over the past 5 years (2.34%), but how can fund management justify expense ratios of over 4.4% AND a load of 5% with such horrendous performance? If I were managing that fund, I would give up my keys to the executive suite, crawl under a suitably shaped rock and make sounds like a particularly small ant.

Just for the hell of it, I decided to run another experiment. My goal: to find the fund with the worst 10 year performance. Boy, did I find it. Here it is, ladies and gentlemen, the fund that would completely cripple your portfolio if you were unlucky enough to put your money into it: VAN WAGONER EMERGING GROWTH (VWEGX). This fund, which was started in 1995, has average annualized returns over 10 years of.... wait for it... -9.34% (yes, MINUS 9.3%). This is compared to an E*trade reported category average of 5.99%. You gotta give this guy some credit - it takes some major talent to blow it this big. Oh yeah, one more thing: this fund carries a gross expense ratio of no less than 5.88%. Truly, we have a hall of famer on our hands here.

That's right people, there is a sucker born every minute.

Thursday, June 26, 2008

Foreign Workers Wanted!

The NY Times ran an article the other day, comparing various U.S. metro areas by the number of high-tech jobs that they offer. Turns out that New York is number one in the nation and Silicon Valley is number... five... To be honest, I don't really know the high-tech market in New York, but I have a sneaking suspicion that there is something fishy about the count.

Never mind that, what I really wanted to write about is the section in the article that deals with the fact that the U.S. may be losing its high-tech edge due to the very tough restrictions on getting H1B visas that allow foreign citizens to come and work in the U.S. and student visas that allow some of the best and brightest from around the globe to come here and join the U.S. economy.

I can absolutely, positively, and from personal experience tell you that this is exactly right. Let me share this example with you. My company has been desperately searching for engineers with some unique talents. We require these individuals to complete the development of our product, after a key person left our company to launch his own start-up. Money is not an issue - we are willing to offer extremely good pay for the right individuals, it's just that these folks are very specialized and very tough to lure away once you do find them. For months, we have been unable to find these key engineers in the U.S. We have found a number of them internationally, but have been unable to offer them a job in this country because of visa restrictions. So what do you think we are planning to do? In a few weeks I will be traveling to Israel to interview some key personnel. We are seriously considering opening up a development center in that country.

Now, if anybody can explain to me how forcing us to open a development center overseas helps the U.S. economy, I will be much obliged. We would like to hire American, but can't. We would like to hire international professionals to join our office in California, but are prohibited by law. The U.S. government is basically forcing our hand - it is making us relocate some of our business overseas. This is not some hypothetical story about some company I heard of. This is a decision that my CEO and I have been struggling with for months.

In my mind, this is a clear case of Washington idiocy, that in the name of saving American jobs is costing American jobs, big time. How does this help anybody?

Wednesday, June 25, 2008

Good News on the Jobs Front

Yesterday we had a double good news day on the jobs front. As I previously wrote, my wife recently lost her job. Yesterday, she accepted an offer to join a venture backed, fast growing, profitable, private start-up. These are all the adjectives you want attached to the term "start-up". This is very cool indeed. The position itself is pretty similar to her previous position, and I think that the growth opportunities in this new role are phenomenal. It took two months but she is back in the game. Start date to be determined shortly.

On another front altogether, my CEO called me into his office late in the afternoon and without pomp and circumstance handed me an envelope. When I opened it, in his presence, the letter congratulated me on my formal promotion to Vice President in the company, and stated that the Board's compensation committee will take up the matter of my increased compensation in its next scheduled meeting (July 23). As my regular readers will remember, I just started with my company three months ago, and while I was previously a member of the executive staff and reported to the CEO, I was not awarded the title of VP. This latest announcement is a very solid pat on the back and a vote of confidence in my agenda and performance.

Now that's what I call a good day.

Wednesday, June 11, 2008

Oil Price Speculation? So What?

These days its very fashionable to scream "foul play" whenever the price of crude oil (or other commodities) comes up in conversation. The Commodities Futures Trading Commission last week announced that it is probing possible manipulation of energy commodity prices. Does this mean that the dramatic run up in oil prices is simply the result of evil speculators holding us all to ransom?

Don't you believe it for a second. Here is reality. For sure, folks are trying to protect their portfolios against run away commodity price increases by investing in commodities, including oil. I have, in fact, contemplated doing the same myself in past (and even wrote a couple of pieces on the subject). However, such moves by investors cannot be causing the price increases we have been seeing. Why? The answer is very simple. Nobody is actually taking any oil off the market.

Investors like myself have absolutely no intention of taking possession of actual barrels of crude. For one thing, I know that my wife would take a dim view of my trying to store the filthy stuff in our closets, and our storage space by the car port is filled with all manner of other junk. When simpletons like me invest in commodities, we do so through taking a position in the futures market. However, we better sell the stuff before it's time to take delivery of the actual commodity or else that whole spouse thing comes into play. So what do we do? We sell, and by selling we return the commodity back into the market. If you (reasonably) claim that purchases of crude futures make the price go up, you must accept that selling those same positions makes the price go back down. So, how exactly are speculators causing the commodity price inflation?

Another take on the subject from a "slightly" more reliable source than your humble blogger, comes from a story titled "Recoil" published by The Economist on May 31 (BTW, I highly recommend that magazine to anyone interested in economics, business or world affairs):

"Stuck for answers, politicians have been looking for scapegoats. Top of the list are the speculators profiting from other people's hardship. Some $260 billion is invested in commodity funds, 20 times the level of 2003. Surely all that hot money has supercharged the demand for oil? But that is plain wrong. Such speculators do not own real oil. Every barrel they buy in the futures markets they sell back again before the contract ends. That may raise the price of “paper barrels”, but not of the black stuff refiners turn into petrol. It is true that high futures prices could lead someone to hoard oil today in the hope of a higher price tomorrow. But inventories are not especially full just now and there are few signs of hoarding.

If the speculators are not to blame, what about the oil companies, which have failed to increase output in spite of record profits? Profiteering, say some. However, that accusation doesn't stand up to much scrutiny either. The oil price is set in a market. For Shell, Exxon et al to hoard oil underground would be to leave billions of dollars of investment languishing unused."

Where does all this leave us? With no simple answers. It appears that we need to either get used to the high price of oil or - gasp - learn to do without or with less... rejoice! Economics may save our planet from CO2 poisoning yet!

By the way, the argument presented above is probably not as valid for speculation in some other commodities, specifically precious metals. The reason for this is that there are mutual funds that actually take such precious metals permanently off the market by storing them for safe keeping as actual gold and silver bars on behalf of their customers. The difference? I suspect it has something to do with the volume required for storage and the ease of maintenance.

Tuesday, June 10, 2008

Live from Asia...

Shadox is coming to you this week live from Asia. Hong-Kong and Taipei, to be exact. I made the 14 hour trans-pacific crossing from San-Francisco yesterday, arriving in Hong-Kong around 6PM.

My hotel is really fancy and located about 5 minutes from the airport. From my 17th floor window I have a nice view of the mountains and what appear to be high-priced, high-rise apartment buildings. The hotel is connected to a large shopping mall, so after checking in and taking a very much needed shower, I went to check out the mall. What can I tell you, I am not one to go to sleep when I get to a new city, and in any case going to sleep would probably have earned me a nasty case of jet-lag.

So, what can one learn by strolling around a Hong-Kong mall? For one thing, this specific HK mall is just like any mall in any major city in the U.S. Shops ranged from Calvin-Klein to Lenscrafters. Apparently, children here are also big fans of Thomas the Tank Engine, and nag their parents for happy meals from McDonald's. Clearly, this single mall is not a representative sample of Hong-Kong, but I have a strong hunch that the rest of this city, like most other major cosmopolitan cities around the globe is being taken over by the American shopping mono-culture. If that's the case, that's a pity. What can I tell you, if you are going to travel to the other side of the world, it would be nice if things looked a little different than they do back in California...

Tomorrow I will be crossing over into main land China (Shenzhen, to be exact), and maybe things there look different. We'll see. Still, travelling internationally is always a blast for me.

The thing I noticed is that prices at this particular mall are pretty expensive. Said Thomas the Tank Engine toys cost as much as they do in the U.S., brand name clothing is at least as expensive, but food seemed to cost less than it does back home. I didn't check the cost of a Big Mac - but that would be an interesting comparison (per the famous Economist price index). The decline in the value of the Dollar is apparently not a factor here. The exchange rate chart I found on Yahoo! shows that the Hong-Kong Dollar has been largely unchanged against the greenback over the past few years. Well, at least our national currency is holding firm against one currency - is the HKD pegged to the Dollar or something?

Unfortunately, I will not get a chance to see much beyond what I have already seen of Hong-Kong. My business meetings start at 10:00 AM tomorrow and last throughout the day and into dinner. Wednesday morning I am off to Taiwan for my next set of meetings. Such is the life of the traveling business executive... doomed to see the world through conference room windows and business dinners. Well, it's still worth it, and don't let anyone tell you otherwise.

Monday, June 09, 2008

Getting Noticed by Employers

The other day I read this pretty old post on Skyler Reep's Blog - whose punch line was that your resume was the most important thing that was going to get you noticed by employers. I think that this is a misguided notion that is mostly believed by folks in HR or those candidates that still think that responding to a job posting on Monster is a serious way to look for a job.

Do you want to get noticed by employers? Well, let me share with you an executive perspective on recruiting. I DON'T care what paper your resume is written on. I couldn't care LESS about whether you put education first or last on your resume. Whether or not you have an "objective" listed at the top of your resume means diddly squat to me. What do I care about? I care that you are the person that my organization must hire to succeed. In fact, that is pretty much the only thing I care about.

If you are out looking for a job, you need to understand one very important thing. HR is your enemy not your friend. If you are responding to a job posting on a company website or on a jobs website, in all likelihood your resume will first go to a gatekeeper. That person is probably inundated by resumes - much as Skyler describes. If you need to try to impress the gatekeeper, or someone that fits the description that Skyler paints, then you will most likely have to resort to the tricks and tips that Skyler talks about. However, let me share a little secret with you. Gatekeepers are simply swimming in resumes, especially in tough economic times. I still remember an episode during the dot com bust when I advertised 6 open positions and our HR team was flooded by 1200 resumes. How useful do you think Skyler's tips will be in getting your resume noticed among 1200 others? Probably not that useful.

This is where I finally get to my point. If you want to get a job you need to outflank the enemy. You need to get directly to the hiring manager, and here is the absolutely best way to do it: get a personal reference. The best way to get an interview for a position you are interested in, is to get your resume personally handed to the hiring manager by someone they trust. If a trusted friend or colleague tells me I should interview someone for a job opening, the risk that I will decline is very small.

How do you get to the hiring manager? Networking. Yes, I know, folks hate to hear that word, but if you want to get hired (not to mention advance your career in the long run), networking is something that you have to master. Using sites such as LinkedIn is a simple method of finding people you know in organizations you are targeting.

I left a comment with the general message of this post on Skyler's blog, to which he responded by saying that he is a hiring manager and that every applicant, even his brother, must follow the rules in applying to a position. Well, more power to him. Personally, if I run across a good candidate (even if I bump into one on the street), I bring them in to interview. I am not looking for folks that are good at following rules or filling out web forms. I am looking for folks I can trust and that will make a difference to my organization. I don't know what to tell you except for: try what Skyler and I each suggests and let me know which strategy is more successful.

Thursday, June 05, 2008

Investing Basics: Stocks

The following is a guest post by Dan Carleton, who is not officially a blogger yet, but is thinking about starting a personal finance blog focused on the very basics of finance. I am always looking for new guest writers, so if you are interested in writing a guest post for Money and Such, take a look at these guidelines and drop me a line with your proposed post. And now, without further delay, the actual post:

Investing Basics: Stocks

This is the first post in what will hopefully become a series of helpful and simple articles that will decode finance babble. I’m of the thinking that most things in finance and investing can be explained with basic terminology. My general approach is to assume my reader knows little to nothing about the topic of the day. The goal, then, is to provide a base knowledge from which one can work.

Everyone should know enough about finance to ensure that they’re not getting ripped off. If you went to a mechanic, and he told you that your burned-out headlight would cost $250 to replace because he needed to disassemble the front end to get at it, you should know enough to have some red flags go up.

Investing is no different.

Today, let’s talk about stocks.


A stock is a security that gives financial ownership in a corporation.


If you watch any business-oriented television shows, you would think that stocks were the pieces in a complicated game where neurotic and fickle investors slowly morph into bipolar disasters (BIAS ALERT: I think that day trading is a waste of time and energy, but I’ll save that for another post). Surprisingly, stocks are much simpler than you’d think.

There are two major types of stocks: common and preferred. Common is the type that you care about. Those are the stocks that everyone talks about, and they will be our focus. Pretend like preferred stocks don’t even exist. Most investors already shun them like the Puritans shunned Hester in The Scarlet Letter. So, don’t feel bad for doing the same.

Only corporations that have chosen to “go public” and have cleared all the legal hurdles can issue stock. Going public means that a company is selling ownership via stocks to whomever feels like buying it. Unless you’re a finance junkie, save yourself the time and energy and don’t dive into this idea any deeper. Your head will start hurting very quickly.

Corporations choose to issue stock for one basic reason: they want your cash, and they want it now. They have some project that they want to fund, and want you to be the wealthy benefactor. These projects might include expanding production facilities, buying a competitor, or giving a CEO a really nice year-end bonus.

If you’re wondering why a company would issue stock as opposed to borrowing money through bonds, you’re thinking along the lines of every single CEO out there. And, to be terribly honest, some of them aren’t even sure which is better.

Here’s the simple answer: sometimes stocks are better, and sometimes bonds are better. It depends on market conditions, the company’s current state of affairs, and to some extent, personal preferences. There is no across-the-board correct answer on this one, just like most things in finance.

Macroeconomic Ties

The economy’s main effect on a stock is on the price. Any economic news that has any direct or indirect relation to the corporation in question will probably affect the stock price.

Think of it this way: if a company is expected to perform better in the future for any reason, then the stock price should generally go up. Better future performance can happen for a lot of reasons: the company could, for example, be selling more of its products; they could be bringing out new technology that makes them bigger, better, faster, and/or stronger than their competition; or, the economic gods could be smiling on them.

Let’s use a few well-known companies to illustrate this. Ford Motor is losing vast amounts of money. Just hemorrhaging their cash. They aren’t selling cars, other companies are taking their place in the market, the benefits they owe to retirees are killing them, and they are having problems borrowing money because they are a big risk.

Their stock price is plummeting, down 75% in the last 10 years.

Guess what Toyota’s stock has done over that same time period. If you said that it’s gone up 98%, you are correct.

There are plenty of other reasons why stocks move. Think of oil companies. With the price of oil increasing, oil company stocks have generally gone up, as well. Why? Because with little effort of their own, a company’s products can now be sold at a ridiculously higher price than in the past (thanks to supply and demand). Higher prices mean more money coming in to the company, which means more profits for the owners, which, you guessed it, means that the stock price goes up.

Get it? Company doing well for whatever reason or economic gods being happy means stock goes up; company doing badly or economy working against company means stock price goes down.

No one consistently and accurately predicts all of the possible movements in a stock’s price. Not even the supposed experts. Use their opinions as guidance, not sacred scripture.

Comments are always welcome.

Editor’s Note: for the sake of clarification, all companies issue stock to their share holders. The main difference between a privately held company and a publicly traded company is that the shares of a publicly traded company can be offered to the public at large and may be bought and sold with few restrictions.

Companies go public for many other reasons in addition to raising cash. Three other common reasons are: (i) providing an “exit” or liquidity event for their original investors, shareholders and employees; (ii) the “prestige” or becoming publicly traded assists companies in obtaining more business; and (iii) publicly traded stock is “currency” with which companies are able to acquire other companies without spending actual cash. There are many other reasons for companies to go public.

Wednesday, June 04, 2008

Blogging for Money: Don't Hold Your Breath

Last weekend I read this post from Mrs. Micah about how starting a blog won't make you rich. I wanted to put in my two cents on the subject. Money and Such has been around for about a year and three months. Last month the blog generated $9.78 in ad revenue. This is about enough to buy lunch in a fast food restaurant, and also about the average ad revenue generated on this site every month.

Frankly, I don't really care, because I am not in it for the money. For me, this is not a business, it's a hobby. I enjoy writing about personal finance and reading my readers' comments (of which there are way too few, by the way). I also don't run Money and Such as a business. Over the past year, I have received several requests from companies interested in advertising on this blog - I have turned them all down, because taking paid advertisements just seemed too much of a hassle (from a tax perspective among other things).

I also don't bother much with trading links with other blogs or trying smart ways to generate more traffic, such as joining a blog network. It's not that I am intentionally avoiding this, it's simply that the primary goal of this blog was never to become a massively popular website. Don't get me wrong, I enjoy looking at Sitemeter to see the number of my daily visitors. I do this practically every day. When the number of my RSS subscribers surpassed 200 a few weeks ago, I let out a little w00t of joy. However, mostly I write for the sake of writing and the idea that a few of my posts are actually useful to folks. I would probably continue writing even if I thought that my posts were of no use to anyone.

For the vast majority of bloggers, blogging is a hobby and will always remain one. The benefit of this hobby is that if you are lucky you will actually make some money rather than spend money on it.

As is the case with all hobbies, you should only practice blogging as long as its fun or serves some other purpose. Last week, one of my favorite personal finance bloggers, Lazy Man, wrote a post about blogging fatigue and how he was thinking about throwing in the towel on his blog. Ultimately he decided to stick with it for now. I guess he's just having fun. So am I. But if you are thinking of starting a blog to make money, you should probably just get a part time job instead.

Tuesday, June 03, 2008

Success at the Gas Pump

I recently wrote a post about my new driving habits and how they were saving me a couple of bucks at the pump. To be perfectly honest a few bucks is all I am actually saving, but my real concern is reducing my CO2 emissions. I have decided to try to reduce them as much as I can (without going crazy).

Last week when it was time for my bi-weekly re-fueling (the benefits of driving a small car and a short commute), I found out that my efforts were being rewarded. My most recent fuel economy: 31.5 miles per gallon. This translates to savings of 3.7 gallons or about $15 per month at $4.11 per gallon of regular compared to my previous fuel economy of about 27 MPG. Nice. This translates into CO2 emissions reductions of 844 pound per year. Wow.

The funny thing about this whole thing is that when you start trying to maximize your fuel mileage, it actually becomes fun trying to beat your "old record". Some of the techniques that got me this far: no idling; smooth and slow acceleration; minimizing needless breaking. I still haven't gotten around to tossing all the junk from my trunk. I am guessing that will be worth maybe an extra 0.5 per gallon?

Thinking of switching to a hybrid, check out this calculator to see if you can justify it financially.

Monday, June 02, 2008

Avoiding Dead End Career Paths

Welcome MSN Smart Spending Blog readers. If you enjoy this article, please consider signing up for the Money and Such free RSS feed.

Last weekend I had a long phone conversation with a close friend of mine who is stuck in a career rut. This is someone I went to high-school with and when he called on Saturday to wish me a happy birthday (37 years old, thank you very much), we started talking about this and that and eventually ended up discussing his career conundrum.

This is someone who has a Computer Science degree from a respected school. He is a smart, dedicated worker, extremely talented and very nice to boot. An all round great guy. However, this is someone who for years has made one bad career move after another. I am not quite sure where it all started, but for the past five years it has been clear to me that my friend's career is not headed in the right direction. For the sake of clarity, by "right direction" I mean the direction my friend wants his career to go.

What went wrong? Well, I think it all started when my friend lost his job in a tough market and took a job that felt wrong to him, but would help pay the bills. The position was more or less a field service engineer for a sophisticated satellite communications system. What's wrong with that, you ask? Nothing. It was a well paying job with a good company. The only problem was that this position did not take my friend in the direction he wanted to go. The position led to two other well-paying, but similar positions in other respected companies. My friend really wants to land a product management position, but can't get anyone to give him a break. He feels pigeon-holed and at age 37 is about ready to hit the reset button on his career and take a low level programming position just to escape what he sees as a dead-end job.

So, once again, this time more deeply, what went wrong? In my mind, the main thing that went wrong is the fact that my friend did not have a well thought out career plan. If your ultimate career goal is to become a marketing executive, taking a job as a car mechanic is probably not the right path. Similarly, if you want to end up a reporter, you should probably not take a computer programming job. My friend wanted a product management job but took a starting position that typically leads to service and operations roles.

Sure there are exceptions to the rule, but generally speaking if you tell me what you are doing today, I will have a decent chance of guessing what you will be doing a few years down the line. Since my friend's goal was a product management position, he should never have taken a field engineering position, or if he had to do so due to economic circumstances, he should have continued looking for a new job. Alternatively, he could have taken the engineering position with a large company that has a reputation for assisting its employees to develop their careers and that offers job function mobility.

If you know your ultimate career goal, but are not sure what the path to get there might be, here are a few tips for finding out where you need to start:

(1) LinkedIn - LinkedIn is a great career research tool. Log in and search for people with the title that you aspire to. You will find some truly impressive people on that site, and many of them have their full career path laid out for you right there. Learn from those who have already walked the path.

(2) GigZig - this is essentially a career crystal ball. You type in your current or planned position, and the site spits out a list of some of the most likely positions you can expect to hold five years down the line. Alternatively. you can plug in your target position in five years, and the site will tell what position you should be looking for right now. Neat, no?

(3) Old Fashioned Talking - if you are serious about achieving your career goals, talk to some folks who currently hold your dream positions. Ask them how they got there. While you are at it, this is also a great networking opportunity. People love to talk about how they succeeded.

The best piece of career advice I can give you is this: always consider how the job you are about to accept positions you with respect to your long term career objectives. While it's OK to make some career detours (I've certainly made some of those, but more about that in a future post), always take such decisions in a deliberate and calculated manner, knowing full well that you are making a decision that may impact the course of your entire professional future. No pressure there... :-)