Wednesday, November 25, 2009

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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Tuesday, November 24, 2009

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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Monday, November 23, 2009

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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Monday, November 16, 2009

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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Tuesday, November 10, 2009

The Best Job You Can Apply For

The best job you can apply for is one that doesn't exist yet. Many people looking for a job make the bad mistake of basing their hunt on job postings. This is a great strategy if you want to minimize your chances for landing a job and to maximize the number of interviews you get without actually getting a job offer. Think about it: if you see a job posting, thousands of other candidates are seeing the very same posting. In these days of high unemployment, you know that each job posting garners dozens or even hundreds of applications, many of these by well qualified candidates. Your application, if it is seen at all, is considered among many others and should you be lucky enough to get invited to interview for the position, you will be one of several candidates, each striving to be the last one standing at the end of the process. Too many steps. Unattractive odds.

There is a better way. How about a job that is tailor-made just for you? Seems like too much to ask for in an economy where jobs are scarce? Well, I got news for you. This is a tried and true strategy that works a lot more often than you think. In fact, this strategy worked for me twice in my career - my current job and my last one. Unfortunately, getting such a job involves the "N word". That's right, networking. I know everyone says it's necessary, and pretty much everyone hates doing it, but this is a special kind of networking, it's networking at the top.

Here is how it goes:

Step I - pick an industry or market
Step II - make sure you understand it well (ideally, this is a market you already know)
Step III - network your way into meeting CEOs in this industry
Step IV - make your pitch

Of course, the trick is step III - CEOs are busy people and are not sitting around waiting for your call. In fact, the only viable way to meet a CEO is to be introduced to one through a mutual acquaintance. That's where the whole networking thing comes in. Don't even think about cold calling or spamming. That's not going to get you hired.

Why a CEO? The good thing about a CEO is that he has no boss (technically it's the board of directors, but they don't deal with such things). If he likes you, he may very well create a position for you where none existed previously. Presto, a position out of thin air. What's more, the position is yours. You don't need to interview against hoards of qualified applicants. Another possible outcome is that the CEO will refer you to a member of his staff to interview with them. That's what happened to me in my previous job. After meeting with the business unit CEO for a networking meeting, he liked me enough to recommend me to his VP of Marketing. A recommendation from the CEO is almost as good as an offer letter... almost...

By the way, before the angry comments start flying my way, I am not against applying for jobs you find on the Internet. Someone has to be getting all those jobs, right? All I am saying is that this is a very competitive and impersonal process and that many applicants (myself included) feel that it's difficult to shine or stand out from the crowd in an e-mail application. I have never gotten a job from an online post. Your results may vary.

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Thursday, November 05, 2009

Efficiency and Effectiveness in Hunting for a Job

Alpaca is still looking for a job - it's been a few months now, which is not surprising in these economically challenging times. On Tuesday I met for breakfast with an old friend who works for a venture capital firm. We were chatting about our families and I mentioned Alpaca's job hunt. My friend immediately asked what kind of job she was looking for, and after I explained he asked me to forward her resume to him by email. I did, and a few hours later he sent an e-mail introducing Alpaca to all the partners in his well respected VC firm. Later that day, one of the partners sent Alpaca an e-mail. Yesterday they spoke on the phone and a few hours later he introduced her by e-mail to the CEO of one of their portfolio companies that had recently raised funds and that was looking for help on the marketing side. I don't know if this will end in anything concrete, but it's definitely a step in the right direction, yes?

Saying that networking is the key to finding a job is an old cliche, but that doesn't make it any less true. Which belatedly brings me to the topic of this post: in business school I took a class in building distribution channels. The professor explained that making your sales targets is largely the function of two parameters: (i) the efficiency of your sales channel; and (ii) its effectiveness. Efficiency is the number of customer contacts you make - or how many sales calls you make. Your effectiveness is a measure of how successful you are in converting each customer contact. Calculating your success is a simple multiplication exercise: how many customer contacts you have, multiplied by your success rate with each contact.

Today it struck me that success in a job search is subject to the exact same performance metrics. Your success is a combination of the number of job interviews you land (or the number of random networking contacts you make), and of your ability to convert those interviews (or random networking contacts) into job offers.

The implication for this is simple: you just need to be out there and meet with as many people as possible. Even if you are a particularly poor batter, if you take enough swings sooner or later you will hit a home run. The important thing is to keep swinging no matter how many times you miss the ball.

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