Monday, June 29, 2009

Travel Protection Insurance - What a Scam...

It's summer and many of us are planning trips and vacations. As we are making our plans, and trying to find the best possible deals on those vacations, some of us may be tempted to purchase travel protection insurance. Such insurance is supposed to refund the cost of travel if you are unable to go on your vacation for a reason which is covered by the plan. Before you are tempted to purchase such insurance, check out this article in the NY Times describing one couple's experience in trying to claim the supposed benefit offered by their travel protection plan. Here is a brief excerpt:
"All told, my parents paid Vantage $9,688 for the trip and an additional $978 for the travel protection. One month before the planned departure, my father suffered a heart attack. My mother canceled the trip and requested a refund.

However, Vantage Travel responded by sending my parents vouchers for credit for future travel with Vantage. Apparently, in one of the many mailings there was fine print indicating that the “refund” would be in the form of credit."
I think that there are two issues here. First, the specific case being discussed in the article is borderline fraud - in fact, as described in the article the company was making an effort to mislead its customers without actually going on the record with anything that customers could use to sue them. The second issue is the value of travel protection. Even if it worked exactly as expected, why buy insurance for something which is not critical? In addition, the couple in the article paid an extra 10% of the total cost of the trip to cover the travel protection... that's simply preposterous in my opinion.

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Friday, June 26, 2009

Should Bonuses Be "Fair"?

Earlier this week I had a meeting with some of my fellow executives in which we discussed awarding bonuses to company employees for achieving important company milestones. We started to argue about how such bonuses should be paid. Should they be awarded to those individuals who truly did an amazing job and performed above and beyond the call of duty? Should they be distributed equally among the entire team according to seniority level? There were three of us in the room and I quickly found myself arguing a 2:1 minority position.

My take is that bonuses should be awarded to those who truly over performed. I think that we need to differentiate between those who merely perform and those that outshine the rest of the pack. In every organization there are a few individuals who carry more than their fair share of the load. These stars should be publicly recognized and lavishly compensated. They are the example for the rest of the team. My colleagues believed that differentiating in this fashion would lead to frustration and discontent among those individuals who would not receive a bonus. They think that the bonuses should be paid as a reward to the entire team on a job well done, not to reward individuals.

My colleagues' position should be divided into two parts. First let's look at the discontentment argument. My problem with this argument is that it can easily be reversed. In my opinion, if we gave our star performers the same treatment as everyone else, THEY would be demotivated. Why work harder if you get the same treatment as everyone else? In addition, as long as the criteria for awarding the bonuses are clear and fair, and everyone knows that they too could achieve the same rewards by executing to those standards, what is there to complain about? My point is that business should be a meritocracy, not a commune. Yes, as heartless as some think it sounds, some people do deserve more than others because they give more to the organization. What's wrong with that?

The second argument made by my colleagues is a bit tougher to deal with. They claim that the team as a whole should be recognized for the achievement and that this would encourage team work and limit political behavior. Possibly that's true. However, I think that we can recognize the team's overall performance by giving some kind of group award, such as having a big party, giving each team member a small token of appreciation (a bottle of wine? a certificate to Amazon?) or having a fun event. That does not mean that the bonus pool needs to be "fairly" shared...

By the way, just so that I am not suspected of ulterior motives, no-one is talking of giving a bonus to the executive team. In fact, our bonuses this year were eliminated in recognition of the economic environment, while the rest of the team received their bonuses as scheduled.

I would love to know what the rest of you are thinking about this issue, but I can't promise to change my mind.

Incidentally, check out the Money Hacks Carnival at Blogging Banks.

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Thursday, June 25, 2009

Why I Want to Be Rich

I read a post on the Simple Dollar about the connection between money and power. Trent was making the point that many people want to be wealthy to gain respect and influence. That's obviously true, but my reasons are different. To me wealth equals freedom. It's not so much that I want to buy stuff, or own things or spend my money like a drunken sailor. There are certainly things that I would buy or do if I had the money to do so (buying a trip to the international space station is probably the most expensive of these), but my real drive to wealth comes from insecurity.

I am worried. I am worried that I will one day lose my job and won't be able to get another. I am worried that I will not be able to provide for my family. I am worried that my kids will have to support me in old age. I am worried that one of my family members will become chronically ill and that my medical insurance will not be sufficient to treat them. I am simply worried. Wealth would create security and remove these concerns.

It's not that I walk around constantly obsessing about these things. I consider myself a well adjusted human being. I am simply very cognizant of the fact that bad things happen to good people, and if bad things happen to me or to my family, I want to have the resources to deal with them. Wealth for me represents freedom from worry. Peace of mind.

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Wednesday, June 24, 2009

The Tangible (but Limited) Benefits of Positive Thinking

We are going through a very exciting and nerve wracking time at work these days. My company, which is a technology start-up, is about to launch its first commercial product in just a few short days. This is a high-stakes and highly emotional time for us. Our ability to raise more funds and to survive in a very tough market are at stake. When you are so involved in "the game" it's tough to maintain your long term perspective and to identify the long term positive trends. The progress you are making is only visible if you compare your current position to where you were several months prior. On a day to day basis, it's tough to avoid getting on a roller coaster of hopes and disappointments as potential deadly challenges appear and are overcome.

I believe in the power of positive thinking. No, I am not one of those starry eyed individuals who believe in the power of holistic medicine or in faith healing. I am squarely on the side of science and atheism. However, it is clear to me that in an organization there is such a thing as momentum. Momentum is a self reinforcing trend whereby success breeds success and failure leads to more failure. I am not sure what the mechanism whereby positive feelings lead to positive results are, but I feel strongly that it has a lot to do with motivation.

When people see the rest of the team is feeling positive, or when they feel that things are going well, they recognize that they are part of something good and that success is within their grasp. They are motivated to try a little harder to achieve that success. The same is true in the reverse case - if people believe they are going to fail, they have no motivation to work hard. Why should they? Whatever they do, they can't succeed... failure is then sure to follow.

Last year we had a little bit of negative momentum going in the organization. One part of it was a leadership problem. The other was a lack of focus. Over the past several months, momentum has decidedly shifted to the positive due to some good management decisions and a little bit of luck. Our team is energized and confident. Yes, you can still hear the odd negative voice out there, but overall it is clear to the team that things are moving in the right direction. Which brings me to my "No Bad News Friday" initiative. I started this as a joke, after a week of technical set-backs. In a meeting with some of the engineers where many of our technical challenges were discussed, I said "fine, but since tomorrow is No Bad New Friday, I expect some positive results". Call it a coincidence, and it certainly was a coincidence, but that Friday we had some very encouraging developments.

Since that time, everyone in the office is talking about No Bad News Friday. I am not superstitious enough to believe that anything real is happening here, but I do know that the overall sense, attitude and motivation of the team is improving. There is nothing wrong with encouraging people to feel good about themselves and about what they are doing, provided that you don't stick your head in the sand and refuse to deal with reality as it is. Having said that, there is nothing wrong with pushing bad news to Monday... :-)

Take a look at a few other career related posts from around the PF world:

Debbie of American Consumer News has a post about how to avoid lay-offs. One of her tips: pretend like you just got your job and need to impress people.

Boston Gal offers a glimpse into the world of the unemployed. It's rough out there. No doubt.

Jim of Bargaineering offered a post about the top paying companies. Interested, but I am wondering if those averages aren't skewed by a a relatively small number of highly paid individuals.

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Tuesday, June 23, 2009

Don't Kid Yourself: We Are NOT More Frugal

There is much talk these days about the American Consumer's new found frugality. Turn on the news, open a newspaper or browse the money sites online and everyone is saying that frugal is now fashionable and that over spending is "so 2007". For example, in this month's edition of Money Magazine the Editor's Note includes the following:
"...For one, the American consumer will no longer support global growth on his debt burdened shoulders..."
I don't buy it.

True, folks are spending less and saving more these days - the savings rate hit 5.7% in April according to the Federal Reserve Bank of St. Louis. However, looking at the data more carefully shows the personal savings rate almost always spikes in recessions, only to fall back down once the economy recovers. What makes us think that this time will be any different? Yes, this time the spike in the personal savings rate appears sharper than usual. However, I believe that this sharper spike is a response to what is turning out to be a very deep recession which is stoking people's justified fears about losing their jobs.

Once the economy recovers, I am willing to bet our compatriots will fall back into their free wheeling, crazy spending ways.

This leads me to another point. Have you noticed how easy it is for people to assume that things are permanent? People's ability and willingness to adjust their baseline and to assume that whatever is now happening is the new reality which will last forever is asstounding to me. When the stock market or real estate prices go up, people assume that the good times are here to stay - "it's a new economy". When the markets decline, people flee for the hill with shouts of "the sky is falling" echoing through the wilderness. It is a flaw of human psychology - our memories are short and our tendency to extrapolate is over developed.

Recognizing this, I try to avoid thinking too highly of my own abilities to spot a pattern, and try to make as few predictions as I can (especially about the future, to borrow a phrase).

Here are a few other posts that deal with the topic of frugality:

Trent of a Simple Money explained that cutting spending is not the same as saving. You also need to make sure the money is not wasted on some other unnecessary activity.

Frugal Dad makes the point that eating out is not always a waste of money.

Blunt Money has a post about spending $900 in unplanned expenses this month. Nothing wrong with spending the cash if you have it. Just make sure you don't rob your future self of a decent standard of living to pay for a higher standard of living than you can afford today.

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Monday, June 22, 2009

$25 Give Away: Announcing the Winner!

The first ever Money and Such give away contest came to a close last night. After cleaning up entries which were not valid, only 14 eligible entries remained. At that point I put them all in an excel file in the order in which they were entered, and gave each a serial number. The random number generator from did the rest, and named the winner:

It gives me great pleasure to announce the winner of the contest is Frugal Zeitgeist, a long time reader of Money and Such, and a talented blogger (also supposedly she spent the weekend in the Hamptons according to her blog - good for her). Frugal, hopefully this makes for a good start to your week.

Thank you all for participating. I hope you enjoy my blog.

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Sunday, June 21, 2009

Last Chance to Win $25

There is still time to enter into the first ever Money and Such giveaway for $25. The deadline for entries is 5 PM PT today and the winner will be announced tomorrow. So far there are more or less a dozen valid entries, so chances are pretty decent.

To read the rules and to place your entry follow this link.

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Friday, June 19, 2009

The Labor Market from a Personal Perspective

In recent weeks a number of people close to me have lost their jobs. While the job market is in shambles, these folks are out there trying to find their next position. Some are also thinking about some creative alternatives. Here are a few examples:

I have previously mentioned that my wife's consulting contract is now over and she is looking for a new full time marketing position. She has had a few phone interviews over the past couple of weeks, but no concrete progress as of yet. We are prepared for a long and arduous search process, but she is doing all the right things to try to move things along. The leads she has been able to generate so far, have mostly come from within her network. She has also applied for a number of jobs she found online and - amazingly to me - has gotten a few call backs from what I normally consider a black hole method.

One of my oldest friends has recently lost his technology job. We were both in the same industry, so I am doing my best to help him find a new position. However, since we live in different parts of the world, my ability to assist is fairly limited. He has been searching for a job primarily through headhunters, so far with very few results. He is getting both discouraged and bored. To pass the time he has undertaken a personal project of transferring all the family videos to DVD. I offered to connect him with my father, who has some industry contacts that might be useful, but he politely declined. I am not exactly sure why. I think that given his job search strategy his job search will be a very long one.

Another one of my friends lost his job just two weeks ago. He is now pursuing a dual approach of looking for a new position, while also thinking about starting a business in his area of expertise. I think that this type of strategy is pretty common out there these days. I also think that one of the lasting effects of this nasty recession will be a plethora of new businesses and a spike in innovation.

My CEO recently fired our VP of Sales. He was nominally let go for performance reasons, but my thinking is that he was let go because he was not an integral member of the team. He never fit in with the rest of the management team, and never built the strong alliances that make one successful at work. I also think that my CEO let him go for political reasons, but I will not get into that in this post. I have been trying to help my former colleague find a new job, by connecting him with headhunters and potential employers.

Finally, a good friend of mine from business school was let go from Citigroup a few months ago, in one of their massive lay-off waves. He did not give up. Seeing the writing on the wall for his group months in advance, he started networking within the organization. Even though he was let go on paper, he never actually left the organization since he was immediately snapped-up by a different group in the company. The down side? I spoke to my friend last week and he tells me that the job he is doing is substantially below his skill level and well below the position he previously held with the organization. Nevertheless, he is not bitter. He is happy to be working gainfully throughout this downturn, while many others in his industry are out looking for a job.

The job market is really crappy these days, but as you can see from the examples I outlined above, different people are reacting in different ways. Some are getting frustrated and giving up, while others are re-doubling their efforts and looking to the future. I know which camp I am in.

Here are a few other posts about the downturn and about how people are handling it:

All Financial Matters wrote this brief post introducing Kiplinger's economic recovery index. Interesting. I have my own metrics which I consider - including LIBOR rates, TED spread, unemployment, treasury yields, international shipping rates and commodity prices.

Investoralist is looking at the crisis and its impact on China.

Spilling Buckets has a post about how the Buy American provisions in the federal stimulus package are bad for our economy. I completely agree. In fact, I have an interesting personal story to tell about these Buy American provisions. Look for a post in the coming days.

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Wednesday, June 17, 2009

The (New) Case for Economic Trouble

My regular readers know that I have been pretty optimistic about the near to mid term prospects for the economy, for the past few months. See for example this article I wrote in February before the stock market rally began, and this article I wrote in late April. However, over the past few weeks, I have begun to get nervous again. It's not that I think we are headed for a "great depression" style economic calamity as was a distinct possibility late year, but I think that significant headwinds are once again gathering for the economy. Here are a few indicators that I find disconcerting:

10 Year Bond Yields - with the government issuing prodigious amounts of debt, the yield on the 10 year treasury note has moved up from a low of about 2% late last year to about 4% currently (see chart). People are nervous that the government is selling so much debt that it will have to offer very generous interest rates to make people buy that debt. Why should you care? If treasury yields continue to go up, interest rates will go up in the rest of the economy as well. This will make borrowing money more expensive, and could potentially stifle the recovery before it has a chance to take hold. A concrete example: over the past few weeks, mortgage rates have shot up. This is bound to put new pressure on home sales and prices. This will also prevent some homeowners from refinancing their mortgages, which in turn will mean that they have less money to spend or invest.

Dollar Weakness - the government's massive spending and bailout programs (which probably saved us from complete economic collapse) are leading foreign governments to doubt our currency's role as the world's premier reserve currency. Countries like China and Russia are talking about selling some of their dollar denominated assets, or at least slowing down purchases of such assets. This increases the chance for a further dramatic decline in the value of the dollar. In the short term, a decline in the value of the dollar will make our exports more competitive and may actually improve the odds of recovery, however this same decline also decreases our purchasing power and lowers our standard of living. In addition...

Commodity Price Increases - commodities are often traded in dollars and a decline in the value of the dollar often leads to an increase in commodity prices. Oil is the example which is easiest for most of us to notice. As of my writing these lines, oil trades at $72 per barrel, up from a low of about $37 early this year (see chart). The US uses about 7.5 billion barrels of oil per year, meaning that the $45 per barrel increase from this year's lows will cost us an extra $337 billion this year alone (assuming prices for the year average about $72 per barrel). This is like a massive tax increase, money out of our pockets that we cannot spend or invest. This amount is equal to approximately HALF of the federal government stimulus plan...

Surge in the Stock Markets - I have now stopped putting new money into the stock market. I have been putting more money into stocks ever since this crisis began, but no more. With the Dow up about 37% from its lows in March (as of Friday), I just feel that we have come too far, too fast. Yes, things are looking better, and I don't think depression is in the cards anymore, but I also don't think that the economy is a picture of health. If stocks return to a downward trend, consumer confidence may tank again too.

Consumer Frugality - there has been much talk about the new found American consumer frugality. Certainly Americans have been reducing their debt load, however according to this article and chart, when measured as a percentage of net worth, consumer debt is at incredibly high levels. In fact, when measured in this context, Americans' debt load has gotten worse, not better. Can overextended consumers pull the economy out of recession? Good question.

Still - many metrics continue to improve, including the TED spread, LIBOR rates, international shipping rates and international trade. Signals continue to be mixed, and this is clearly still a very challenging time for the economy. I don't think we are quite out of the woods yet, but it's better to be in the woods than to be falling off a cliff... :-)

Here are some other posts about the economy which you might enjoy:

All financial matters also asks whether we can really have a recovery when people have so much debt. Yup. That's my question too.

The Weakonomist has a detailed post looking at the pros and cons of universal health care in the US. For me, that's not even a question. I think market based health care is an idea that has been thoroughly discredited.

Bad Money Advice takes on another favorite topic of mine: the government taking over the car industry. What a nightmare...

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Tuesday, June 16, 2009

Welcoming My Newest Sponsor

I would like to welcome a new sponsor for Money and Such. You may have noticed the widget in the sidebar of this blog advertising a company called Regus . My relationship with them goes back several years, to my first executive position.

Back in 2002 I ran operations for a start-up company based out of Denver. My operations were distributed around the country in a way that made it unreasonably expensive to rent an office in each location. That's how I first came across Regus. The company offers high-end offices for rent in a multitude of cities around the country and around the world. I rented two offices from them - one in Chicago (my office had a panoramic view of the runways at O'Hare International Airport - no view is more exciting than watching passenger jets take off at a rate of 1 per minute...) and the other in Dallas.

The offices were high end and the service was great. My customers never knew that our company was small and had highly limited resources. I was able to host them in style.

When Regus contacted me about advertising on Money and Such, I was happy to oblige, since I personally used and appreciated their services.

Anyway, that's the back story behind my new sponsors. Take a look at their services, they know what they are doing.

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Monday, June 15, 2009

When People Take Advantage

Since I moved to my current job over a year ago, I brought three people from my old company to my new one. These are all highly talented, skilled people that I enjoy working with. So far, they have all been very successful in our new company. Recently I tried for number four and so far, things are NOT turning out as well as I had hoped. In fact, results have been dismal.

This most recent person I brought over to my company, Rick, was VP in my previous company. He left that company about 6 months before I did, after getting into some serious disagreements with my former CEO. Nevertheless, he is a very talented individual who added a lot of value to my previous company and I enjoyed working with. I always thought that he got a raw deal when he was let go.

About six weeks ago, when it became apparent that I needed a consultant to assist me in some key projects, I reached out to my network, and it turned out that Rick was available. Since I knew him well, respected his abilities and thought that he would be perfect for the job, I brought him over for a three-month full time consulting stint. My hope was that during this period he would gain a lot of exposure to my CEO, who would then offer him a full time executive position.

Rick's responsibilities and tasks were well defined. I spent a decent amount of time with him, teaching him about our products, introducing him to key people around the company and clearly explaining the results that I needed. On several occasions I asked him whether he understood his role and whether he needed any further guidance or assistance from me. Each time he responded that he had everything under control.

Three weeks into his consulting gig with us, he is failing miserably. And what's worse, he is acting as if he doesn't give a damn. He shows up to work at 10 AM and leaves at 4 PM. One day last week he didn't even bother to show up until noon and when I called him to find out what's going on he explained that he had some errands to run.

In my line of work it's not all black and white. I am VP of Business Development and Marketing for my organization, and I hired Rick to do some business development work for me. This kind of work is all about results, it's not about the time you put into it. For all I care, he could spend three hours a week working and spend the rest at the beach, if he got me the results that I am looking for. You also need to understand that I am not a micro-manager. I am the kind of executive who explains the mission and checks in twice a week to make sure that all is going according to plan. I don't have the time to do anything else, even if I was so inclined. As long as you accomplish the task, you do not need to see me or talk to me more than those two times a week. Until last week, it looked like Rick was on shaky ground, but I decided to give him the benefit of the doubt. Last Friday, I received Rick's weekly written report, and things are not going well. In fact, it looks like there are not that many things GOING at all.

It's time to take action.

On Monday I will meet with Rick and explain to him that his performance is not to my liking. I will lay down the law and explain when I expect him to be in the office and what the results I am looking for are, on a daily basis. I will also explain that if things don't work out for me and VERY quickly, his contract will be terminated.

I don't like it when people think that just because they know me they can cheat me out of what I am entitled to receive. I also don't like it when they interpret flexibility and latitude as a license to slack.

It all comes down to this: if you report to me, your performance reflects on mine, and I will not accept anything short of excellence. Friends or no friends.

I will keep you all posted.

By the way, the worst job in the world apparently has nothing to do with working for me. Meanwhile Money Smart Life talks about a different kind of scam...

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Saturday, June 13, 2009

$25 Give Away Reminder

With only a week to go in the first ever Money and Such contest, so far I only have about a dozen valid entries. If you're interested, take a look at the rules and submit a quick entry. The prize is $25 and the odds are looking pretty good right now.

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Friday, June 12, 2009

Gambling Your Finances

We all like to think that our lives are well planned and well thought out. I certainly like to think that I do everything in my power to mitigate the risks and protect myself and my family against the vicissitudes of modern life. From time to time we all make major life decisions which potentially have major financial implications. However, as we make these life changing moves, we rarely consider or care about the financial impact of those decisions. Here are a few examples:

Having Kids - when my wife and I were thinking about starting a family, my main concern was whether I was ready for what everyone described as a major life change. I didn't really consider the financial implications. We have three healthy and fun loving boys - a major expense, but one that we are well equipped to handle. Some of my friends are not as fortunate. One of my friends has a child with down syndrome, another has a child with a mild form of autism, and many others that I know have a kids with a variety of other challenges. When you are planning to have a child, you rarely consider that you are also taking a financial gamble.

Getting Married - talk about taking a financial gamble. Never mind the fact that a large percentage of marriages end divorce, entitling your spouse to half of what you jointly own. The bigger gamble is the fact that from the minute you get married, your financial fate is essentially in the hands of another human being. Their bad financial decisions will reflect poorly on you. Your financial plans may not suit them. That's a big bet you are taking. Luckily, someone else is taking that bet with you. I am fortunate in that my wife and I see eye to eye on most financial decisions. We are both careful with our money and both take our credit and spending decisions very seriously. Having lived with my wife for a few years before we got married, I knew exactly what I was signing up for.

Switching Jobs - now that's one where the financial implications are very clear, and most people switch jobs primarily for financial reasons. However, even where the primary motivation for the decision is financial, I find that many people don't consider the possible implications of their decision. For example, I often meet individuals that take a job that pays more in the short term but that does not offer promising career prospects. There is also considerable risk in the very act of switching a job - e.g. there is always the risk that you will not get along with the new boss. Regardless of how well you think you understand the opportunity, you must recognize that you are taking a risk.

Getting an Education - yes, yes, getting an education is not only about improving your career prospects, and I agree that studying philosophy may be good for the soul, but I find it difficult to understand folks that choose an undergrad major (for example) without due consideration for the financial implications and career implications of their decisions. True, you may be able to find a job outside of your chosen field of study, but you must recognize that there is some level of risk here.

Now here is my point. I am not advocating that decisions must always be made for financial reasons. That would make for a very dull and sad life. However, what I am saying is that many times our decisions have very large potential financial implications which we choose to ignore.

When I moved to my current job in March 2008, I was very conscious that I was placing a financial bet. So far, I seem to be winning this bet. Back in 1999, I was very aware that by going to business school I was placing a bet on the health of the economy two years later. I lost that bet, at least in the short term, with the dot com crash. When we decided to have kids I was aware of the financial implications of having a healthy child, but did not even want to contemplate what having a child with special needs would to do our life, never mind to our finances. We all make financial gambles, more often than we would like to admit.

May your gambles pay off more often than not.

Here are a few other interesting posts about financial gambles that I spotted around the web:

My blogger friend Frugal recently wrote about a financial gamble that paid off. OK, it wasn't really a financial gamble, but she got some money in an unexpected way. It's nice when nice things happen.

Brip Blap talks about the differences between his old neighborhood and his new and about how taking some financial gambles and starting a business may have a nice pay-out.

Talk about the financial gamble of having kids. Clever Dude has a post (and video) about a man who is completely disregarding the cost of childcare. Some people should not be allowed to have kids.

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Wednesday, June 10, 2009

What's Wrong with Bond Ratings

There has been much talk in recent months about how bond rating agencies are at least partially to blame for the economic crisis. The argument is that these agencies have granted AAA bond ratings to bonds that belong on the junk pile, thus encouraging folks to take risks that they really should have avoided and inflating asset prices to unreasonable levels. Maybe that argument is sound and maybe it isn't, however there is something clearly wrong with the way bond ratings work and here it is: bond ratings are paid for by the sellers of bonds...

Yup, that's right. The good people who rate bonds get paid by the very people who stand to gain most from a favorable bond rating. This is so absurd that it boggles the mind and it goes back to my own thesis about the cause of the economic crisis: misaligned financial incentives. If you are buying a house, would you consider having the seller pick and pay for the home inspector? If you intend to sue someone, would you feel your interests are served if the defendant chooses the judge and pays for his salary? How about when you buy a used car. Would you feel comfortable taking the recommendation of the seller's mechanic? I sure wouldn't.

And yet, bond rating agencies are paid by the very people whose bonds they are required to rate. Since bond issuers get to pick their own rating agency, do you think rating agencies would risk losing business by protecting the interests of bond buyers rather than the interests of the ones who pay their bills? I don't think so.

Now here's where it gets REALLY fun. Last week I was listening to an NPR radio news item and heard the head of this or that rating agency describe his bond ratings as "the world's shortest editorial", thereby trying to invoke the first amendment and turn his agency's ratings into protected speech... how about that for a good deal? Give bullsh** recommendations, get paid princely sums for your supposedly objective statements, and make sure that investors who relied upon your due diligence cannot sue because all you did was express an opinion which is protected by the constitution... give me a break.

I'll get off my soap box now, but here's one good way in which the risk for future financial crises can be diminished: align the economic interests of all participants in the market. Make sure that the ones who are supposed to be honest brokers are indeed honest brokers, and those that are supposed to be neutral evaluators do not have a financial stake in the end result. It just seems like common sense, no?

As a complete aside, the same case can be made against political contributions by corporations, institutions and large private donors. While our politicians have an economic interest in listening to the special interests who fund their campaigns, we will never be able to get decent work out of Congress.

Here are a couple of other interesting posts about the economy:

All Financial Matters brings up a timely item: how can the administration tell how many jobs it is saving through the stimulus spending, if any? Yeah well, it can't. It's all about political parties and pundits playing the political game and looking for an edge. The better question to ask is, "are they doing the right thing". By and large, I think that the answer is "yes".

Frugal of My First Million has a gloomy view of the economy and complains about financial institutions paying back TARP money to escape government regulation of their compensation plans. I don't share his opinion about the banks. I think they are in a hurry to get out of TARP because Congress has changed the rules on them after they got into the program. And please remember that the government literally FORCED some of these institutions to take TARP money. On the other hand, it's too true that many of these institutions would have failed without the government. It's a difficult problem, but I for one think that the faster the government gets out of private sector business ownership, the better...

Finally, check out this post from Weakonomics about how credit card companies make money.

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Monday, June 08, 2009

Career Clinic #3: $25 Give Away

It has been a few weeks since I last ran a career clinic, and it is my pleasure to use this opportunity for the first ever Money and Such giveaway. I am hereby announcing a $25 cash prize giveaway. Here are the rules -

To participate in the contest, leave a one line comment on this post - no more than 10 words - by 5:00 PM Pacific Time on June 21, 2009. Your comment needs to include a useful piece of career advice. The winner will be determined by random drawing, and will be announced on Monday, June 22 on this blog. The winner must then contact me within 3 days. If the winner does not contact me, I will select and announce a new winner. The prize will be paid using PayPal.

Late addition: per reader questions, only one entry per person please. Also, please make sure there is a way for me to contact you - if you have your own blog and your contact info is on your blog, that should be fine, if not, please leave an e-mail address with your comment. Something like "shadox1 at the domain name google dot com" should be good enough to avoid spammers.

By the way, if you leave a comment, your chances of success are probably pretty high, given that I don't think I have ever received more than a dozen comments on any post I wrote here. I do hope to break that record...

To start things off, here is my own one line piece of career advice:

Careers can last for decades, build yours patiently.

And now, here are a few good career related posts that I noticed over the past week.

The Simple Dollar looked at the basic building blocks of a career. It's an excellent post and I couldn't agree more. I will take the article a step further - contrary to Trent's position in the post, pretty much everything you do is another "brick" in your career wall - it's just a matter of finding out how to apply what you are doing day to day to your career story. I am wondering if Trent was thinking of Pink Floyd when he wrote that post.

Julie of Wise Bread explains how online job boards can be used effectively. Here's is my suggestion: find a posting online, and then instead of applying on the site, find a way to get introduced to the hiring manager through a mutual connection. LinkedIn is my favorite method for getting that introduction.

Mrs. Micah offers advice for freelancers on how to charge customers for tasks that seem simple. Her point: you should charge your customers based on the value that you create, not the amount of time you spend doing the work. I am reminded of a story about a patient that complained to his dentist that he was being charged hundreds of dollars for having a tooth removed - a task that took only minutes. The dentist responded that if the patient preferred, the dentist could achieve the same result over several hours... it's all about the end result...

Free Money Finance talks about 20 things that you can do to nail an interview. It's a good list, but personally, I am not a big believer in thank you notes. Never read or responded to one that was sent to me. Of course, it could be that I am an exception. Probably couldn't hurt.

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Friday, June 05, 2009

The Reward of Diligent Investing

This bear market has been brutal, but those of us who have continued to invest through the worst of the market have been seeing some pretty impressive gains. I am glad to report that we fall into this category.

Yesterday I did my usual Quicken review of our portfolio and was happy do discover that my 401K is now at break even point. I joined my company in March 2008 and joined the 401K plan in May (I still maxed out my contributions for the year, don't worry). While my early stock investments in the plan are still down about thirty percent, the positions that have been purchased since November are all now above water. The combined result is break even.

I have written repeatedly about the fact that we have been putting more money into the stock market on a monthly basis throughout the crisis. My review of the portfolio revealed, for example, that a position we purchased in Vanguard's Total International Stock Index fund in March is now 38% above it's purchase price. Naturally, our portfolio as a whole is still very much down and will likely take years to recover, however the stock positions that we have been buying through the worst of the downturn are helping our overall portfolio to recover much faster.

Incidentally, I have now stopped our monthly mutual fund purchases (with the exception of my 401K contributions). For one, I feel that the stock market has been rising too quickly over the past couple of months. I don't think it's as huge a bargain as it was just a few months ago. I do believe that we are going into a recovery and that the stock market rally is for real, however I think that the current rally may be a bit over done in the short term. If this sounds a bit like market timing, you may be on to something, but the current aggressive skywards move makes me really nervous and I am going with my gut. I prefer to buy stocks on the way down... Another reason for my halting our new purchases is that I would like to keep a larger cash position on hand. I think we may be getting to the point where buying a house is something we would want to entertain, and if that is the case, I would like to have the cash to move forward while limiting our dependence on the short term performance of the stock market.

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Wednesday, June 03, 2009

Your #1 Career Tool

This may be a bit of a cliche, but it also happens to be completely true. Your ability to communicate is your #1 career tool. And no, I am not talking about that throw-away phrase people often put on their resumes or include in job descriptions: "excellent communicator" - that phrase has no real meaning. I am talking about specific skills and abilities that together mean that you are able to get your point across and get others to deliver what you need.

Work place communications are comprised of several sub-categories. I am not going to talk about all of them in one short blog post, but let me highlight a few of the important ones for you.

Learn to Speak in Public - Being able to speak well in front of a crowd is a vital skill for anyone who wants to develop their career beyond the realm of their own private cubicle. I am not just talking about giving speeches and presentations at professional conferences, I am also talking about delivering a coherent and well presented proposal to a room full of your colleagues, and a range of situations between those two extremes.

I don't frequently experience stage fright, and while it would be inaccurate to say that I am completely immune to it, it is not something that I feel acutely. However, I have seen many others get tongue tied, flustered or simply ramble on incessantly when they are placed in front of a live audience. Not good.

I am not going to go into an entire lecture here about how to be an effective public speaker, but I will say this: if it doesn't come naturally to you, then it's all about the practice. If you are uncomfortable speaking in front of people I would strongly recommend taking that challenge head on. Joining Toastmasters could be a good place to start.

Make Judicious Use of E-mail - a frequent method of modern corporate communications, e-mail is one of the most abused tools known to mankind. There are two pieces of personal philosophy I would like to share regarding e-mail: first, if you have any doubt don't send the damn e-mail. If you constantly hit the "reply all" button (which should be banned, by the way), you are not a good communicator, regardless of the content of your e-mail. Also, becoming a corporate spammer is not a good strategy for getting your point across. Send fewer e-mails and make them count. Second, get to the point. Corporate communications is not about showing everyone what a hard worker you are or how good a writer you are, it's about getting people the information that they need and doing so fast. Think about that before you hit the send button.

Give the Information that is Requested - you know how when you ask some people what time it is, they explain the history of watchmaking? There are three specific individuals in my company that fall into this category. One of them is a senior executive. Folks, this is not helpful. Here is my suggestion: if you are asked a yes or no question, the first word that should come out of your mouth is EITHER a "yes" OR a "no". If you then want to add more information, do so parsimoniously. If you are asked an open ended question, start with the basics. I may ask follow-on questions if I need more information, but don't force feed me raw data please. It's not helpful.

Make a Personal Connection - by far the most important type of business world communications are personal interactions. Whether you are holding a face to face discussion with your boss, or you are delivering a performance review to one of your team members, it's all about making a personal connection. In this type of setting there is one rule that I hold above all else: sincerity. There is nothing worse than coming off as phony.

Each one of these could be - and actually is - the subject of many books and articles, and perhaps I will tackle some of these in more detail at a later date, but for now this will do. Short and sweet.

On an unrelated note, later this week I will announce the first give-away / competition in Money and Such history. It will be career related, and I think it will be fun. Stay tuned.

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Tuesday, June 02, 2009

Productivity & the Financial Industry

Last night I watched a recorded episode of Real Time with Bill Maher and I heard a casually tossed comment that I hear all too many times these days. I am paraphrasing here, but Maher's position was that the financial industry is not productive - it doesn't create anything - it simply moves money around. Shuffling papers, if you will. To be honest, I think that this statement says more about Maher's ignorance than it does about the financial industry. However, let me go on the record with my own position on the subject.

The Crucial Role of the Financial Industry - ready? Here it is. The financial industry fills a critical and highly productive role in a capitalist economy: that role is resource allocation. Banks and other financial institutions may not build houses or churn out new cars, ships or jets, but they are the ones who allocate resources to all other industries. They are the ones that look at countless project proposals and decide whether or not each of these projects is worth the financial risk. In fact, financial institutions are the beating heart of capitalism. They are the crucial link between those who have money and those who need to borrow it.

Now, that's not to say that the financial sector did not grow overly large and bloated, and this has nothing to do with whether some insanely bad decisions were made (enough bad decisions were made to power a mid-sized African country for 300 years), all I am saying is that a healthy financial industry is vital to capitalism and anyone that doesn't recognize that simple truth needs to augment their financial and economic education.

Here are a few posts about the economy from other members of the PF community:

Consumerism Commentary explains what the GM bankruptcy means for you. For me it just means that the government is throwing yet another $30B of tax payer dollars at a company that should probably go extinct.

My Wealth Builder talks about government assistance as the new welfare program. Right on. See my point above.

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Monday, June 01, 2009

Financial Plan & Wishes: Birthday Edition

Yesterday was my 38th birthday, and that gives me a good opportunity to take stock of our financial position and to talk a bit about my birthday financial wish list. So where are we financially? Well, our financial position is sound. Nothing spectacular, but we are certainly on the right track:

Income: Our primary source of income is my job as an executive at a venture backed start-up. Until last week my wife had a part time marketing job with a different tech-company, but that is now over, and she is looking for the next opportunity. My job is secure for the most part, however my company is not itself a very stable organization. It will need to raise more money by the end of the year in order to survive. I am very optimistic that this will happen, but there are no guarantees.

Spending: Every month we make more than we spend, although with my wife's part time contract coming to an end last week, that may be tough to stick to for the next few month, until she finds a new position. For the time being we are not going to cut down on our expenses, although if things really get bad, we can always pull our three kids out of day care. This will reduce our expenses by 30% at a stroke... we live a very modest lifestyle, living in a rented townhouse and driving modest (read: old) cars. Our spending level is sustainable.

Savings: our savings are in surprisingly good shape. The stock market meltdown hurt like a bitch, but as of last week our net worth was down only 13% or so from its peak. Put that down to a well diversified portfolio which did not exceed our risk tolerance. This allowed me to stand my ground in the face of market losses and to increase our stock positions again starting last summer. Many of these purchases are still under water, but some are already showing impressive gains. Over the long run, I think that the market positions we have taken over the last 12 months will be some of the best investments we will ever make.

Debt: we have none. Nor do we ever plan to have any, unless we decide to buy a house and need a mortgage. I believe in self-financing anything you want to buy. "If you can't pay for it, don't buy it" is my motto.

I think we are in good shape financially.

My birthday personal finance wishes:

Retirement: I hope to retire in about 20 years - that will make me 58 years young. I can see a couple of scenarios for achieving this goal, although I will be honest and say that these are not fully baked. The most likely option is that my wife and I both work for the next couple of decades, we diligently save as much money as we can, we invest our savings and at the end of that period have enough to at least semi retire - i.e. hopefully I will be able to work a couple of days a week in consulting or advisory roles. The other possibility is the "Lottery" option. My wife and I both work in the high-tech industry. All it would take is for one of the companies we work for to go public or to be acquired for a substantial amount, and our stock options would be worth a sizable amount of money. It's possible, but we're not counting on it.

Career: my career is by far our biggest financial asset right now. Since my wife has been working part time (6 months or so) my salary has accounted for about 75% of our gross income. Hopefully, this will come back into balance as my wife finds a full time job. Regardless, I am an ambitious guy - for me it's not just about the salary - it's about getting to the top and about being the best at what I do. One day, I would like to be CEO of a tech firm - call it 5 to 10 years from today.

Stability: as my 38th birthday comes to a close, one of my biggest financial wishes is for... boredom. I hope our financial lives move forward without too much drama. I hope I never have to report any major upheavals in our economic condition on this blog. Let there just be a slow, steady and diligent progression towards financial independence.

Happy birthday to me...

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