My Career - Part II - Business School Days

This week I am running a series titled my career in five posts. It describes the many twists and turns my career has taken over the years and my plans for the future. Today the topic is my business school days.

I started my MBA program, at a top notch business program, in the fall of 1999 just as the Internet bubble was reaching its frentic peak. Although my heart was in the right place, before starting my MBA I didn't really understand the process in which MBAs are evaluated and recruited into the work force. At the time, my career goal was to join a venture capital firm upon graduation, but I soon realized that given my law background and lack of technical expertise or connections to the industry landing such a job would be a pretty tough thing to do.

Instead, I decided to go for my number 2 option and join a high-tech firm. I interviewed with a number of firms - including the ill-fated Excite@Home which was a big name at the time - and received two offers for summer employment. One for a finance position at Intel in a New Mexico facility, the other for a non-descript summer internship with a minor dotcom venture that no one has heard of (and would never heard of in the future) in Denver, CO. Being that this was the dotcom bubble, guess where I went? Tiny start-up here I come... it was a great summer and I really enjoyed spending time in the Mile High City. It remains one of my favorite places in the country and I still have many friends  there.

After the summer, it was very clear that things were going south very quickly for the Internet industry. My friends that had graduated from business school in the summer of 2000 where bombarded by job offers. A close friend received no less than 7 offers for full time employment. My graduating class would face a very different employment environment. I decided to put the high-tech company goal on-hold and try to get a job with a consulting company instead. The process was a quick one and by January of 2001 I had accepted a full time position with Diamond Cluster - a Chicago based consulting firm that specialized in providing consulting services to high-tech firms. The job came with a $25,000 signing bonus and a $5,000 relocation package to anywhere in the country: they didn't care where I lived as long as I was willing to fly to a new city every week.

The job was supposed to start after graduation - in July 2001 - but as the year progressed, the dotcom bust turned into a nasty recession that took its toll primarily on the tech industry. In June my consulting firm called me up and asked to push my start date to September. Smelling a rat, I called up the company that had employed me over the summer the year before, and received from them an offer of full time employment the next day. I explained to them my commitment to join the consulting company in September but they were happy to have me non-the-less and I felt blessed.  

I was much luckier than many others in my graduating class. A friend relocated from California to New Jersey to join Lucent, only to receive a call two days prior to his start date telling him to not bother to come in. A friend accepted an offer with Intel only to be told the entire dision had been axed. Friend who accepted offers from Conagra, Mattel and a miriad of investment banks all had their job offers rescinded as the downturn intensified.

A few days after the terrorist attacks of September 11, I too received a call from Diamond-Cluster and told that my offer had been formally rescinded. However, I was allowed to keep my signing bonus and my relocation package. The easiest $30K I had ever made. I was also lucky enough to have a full time job with a small (although financially unstable company). My career was not going in the direction I had intended - but this was a problem for another day - for now, I was gainfully employed and enjoying my work.

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My Career - Part I - My Pre-MBA Career

This week I am running a series of posts to share my personal career story. It's a story with a lot of twists and turns and more than a few mistakes and falls. Ahhh, the benefit of 20:20 hind-sight. This is part I in the series and it deals with the early part of my career. For the sake of expediency, I will skip my first few jobs - the summer job in an electronics manufacturing plant, my time in the military - and jump directly to my decision to go to law school.

In my early twenties I decided that I wanted to become a lawyer. I didn't really know what I wanted to do with my life but I knew that getting into law school was a tough and prestigious thing to do and being a lawyer seemed so glamorous on TV... I made this career decision for all the wrong reasons and without truly understanding what being a lawyer was all about. Quite frankly, I only had a hazy idea about what it is that lawyers actually do when they get to work in the morning. 

While at law school I supported myself by working part time as a sales person selling security systems. Although I only did this for about two years, this was one of the formative periods in my career. I learned the art of the pitch. I learned tenacity and finesse. I learned that not all customers and not all sales people are ethical, and I learned that you can do well in sales without selling your soul. I think that everyone should try a sales job at least once in their career. Being a sales person tells you a lot about who you are and sharpens your skills like no other job I know. I was happy. I was making money, I was studying law, I was feeling very grown up, and there is no doubt that I was growing up fast. However, that did not stop me from getting off track.

When I signed up for law school, I had some vague notions about wanting to practice international law or maybe civil rights law, but those notions were quickly abandoned and I took a position with a top corporate law firm. My job included working on major transactions - mergers, acquisitions, venture capital investments. I excelled at my job, and only a few months into my first year in the firm, the partner I was working for allowed me lead my first deal - a venture capital investment for one of our clients (under the partner's close supervision, of course). I was extremely proud of my success. I also hated my job. I hated going to work every morning knowing I will be word-smithing a 100 page agreement all day. I hated the long hours. I hated the prospect of doing this for years until I became a partner, and then continuing to do pretty much the same thing for the rest of my working life. Nope. The legal world was not for me. Had I actually bothered to talk to a few practicing lawyers before jumping into law school, this would have been pretty obvious to me, but as I explained, I went to law school for all the wrong reasons.

Anyway, it was time to get out. I decided to go to business school. This time I was a bit more informed. Having had considerable exposure to a wide range of businesses and transactions as a lawyer, I was painfully aware that my business education was lacking. I also found myself much more interested in the business aspects of the deals I was working on than I was in my legal responsibilities in these same deals. It was time to make a move. And so, the legal chapter in my career was closed almost two years to the day after my first day at the law firm.

In retrospect, I am not sorry I went to law school. Although I have not practiced law for the past 10 years, I have put my legal background to good use and still do so on a daily basis when I negotiate business deals. I also find that I get a lot of respect from colleagues, business partners and potential employers when they find out about my law background. I gained very valuable education and skills in my brief foray into law (and I learned a lot of really great lawyer jokes), but that was not my original intention when I decided to get a law degree.

Anyway, a new and excellent chapter was about to begin, but although I had no inkling of it at the time, I was setting myself up for the first major failure in my career. It was time to go to business school.

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My Career: in Five Posts

Next week I will be running a series of posts in which I will share my personal career story. I have had a pretty varied and unusual career that took a number of twists and turns. I have made many mistake and have learned many important things about making career decisions and more importantly about how to be happy with who I am and what I do. I think that this will make for an interesting series of posts, but I will let you be the judge of that.


This series will be in four parts:
Part I - My pre-MBA career
Part II - My business school days
Part III - My adventures in self-employment
Part IV - Getting on the right track
Part V - My career plans


I am one of those people who always has a career plan. I have always been this way, or at least I have been this way as long as I can remember myself. The fact that I know what I want to do with my career doesn't mean that my plans are good ones or even that they are the right ones for me. This lesson took me several years to learn and I learned it the hard way.


So, tune in this Monday for the installment in this series.


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Yup... Populism is Alive and Well

I have been meaning to write about the AIG bonus debacle for a few days now, but while I have been working late to prepare for an important board meeting later this week, it seems like everybody and their brother has written a piece about the subject. Nevertheless, I wanted to use this opportunity to make a few comments about the intersection of politics, economics, populism and morality.

Passing the Buck - if there is anyone that can be blamed for the AIG bonus debacle, it's the government. Never mind all this crap about AIG having a legal obligation to pay the bonuses. That's a red herring. There was no legal obligation for the government to bail-out AIG and they could have conditioned any financial support on waiver of those bonuses. However....

Everyone Knows Better After the Fact - look, government agencies are under tremendous pressure here. They are not thinking of everything and can't be expected to think of everything. Anyone who has ever done a major deal knows that there is always something you wish you had done better in retrospect. And...

Are These Bonuses Really Wrong? Again, anyone that has been involved in a major acquisition, knows that it is very common to offer folks a retention bonus to keep them from bailing when you need them to wind down their projects in an organized fashion. I don't know if this is truly the case here, but there is a lot of evidence pointing to the bonuses being paid in this context.

Government Can Be Dangerous - if you think that Congress is watching out for you by trying to pass retroactive legislation to tax bonuses, think again. You may think that retroactive laws are good for clawing back ill gotten gains, but if Congress can enact retroactive laws, what's to stop them for making something you did last week a felony? Until time travel becomes a reality, retroactive laws should be unconstitutional . They are not only wrong and immoral, they simply makes no sense.

If I don't say it often enough, let me repeat this: my confidence in Congress is pretty close to zero.

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How to Hurt Your Career in One Simple Step

Recently my company had to release one of our software engineers. He was a nice enough guy, but he simply did not deliver the expected results. Under current market conditions, losing one's job is a serious setback and we recognize that, however, we are running a business not a charity organization. Anyway, two weeks ago this gentleman called my cell phone and asked for a 1:1 meeting, ostensibly to solicit career advice from me. Specifically, he said he wanted to consult with me on the idea of going to business school. Since I was planned to go on a business trip to DC that week, I suggested we would meet on that Friday, the day after I was scheduled to return from my trip. We set a time. We set a place. I was there at the appointed time. Guess who wasn't and who did not call to cancel or to apologize?

Look, I am not a proud man so this is not an ego thing for me. I also recognize that it's a hell of a thing to kick a man when he's down, but if you are going to network do it the right way. Not keeping your appointments with colleagues, never mind with executives from whom you might want to get a reference at some point, is really not a career advancing move.

I am now finding it just a little bit harder to sympathise with this guy. What say you?

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Reader Question: Selecting 401K Investments

Recently I received the following question from one of my long time readers:

"I have a question about how to select among the funds offered in a 401k/403b plan. My employer offers several funds for each fund category (international, large cap, mid cap, etc...). Every so often new funds are being introduced and I'm not sure whether the new fund would be a better one in that category than the one I have. So how does one choose? By always picking the lowest cost fund? By comparing the fund performances over the past 5 or 10 years? By comparing against an index? (and then which one?)

Florin"

First of all, I want to thank Florin for sending me the question. I love getting e-mail - questions, comments or ideas - from my readers. That's a large part of why I blog. I respond to each one of my readers (not so much to commercial solicitations), and if you send me a question and include your website, chances are I will respond to your question on this blog and include a link to your site. Anyway, I already responded to Florin via e-mail, but here is a more detailed answer to his question:

What Florin is facing is the reason that when we redesigned our 401K plan at my previous company our advisers advised us to select a relatively small number of funds, that covered the necessary asset classes. By his questions Florin is clearly a financially literate person, yet such decisions are not easy ones to make and many feel confused or overwhelmed by them. 

When selecting funds for my own 401K, I follow a pretty straight forward process that may work for others as well:

Decide on an asset allocation - simply described, an asset allocation is the mix of assets (stocks, bonds etc.) that you own. The way you allocate your assets should be based on two main factors: your investment horizon and your willingness to accept risk. Here is a more detailed post on asset allocation for additional background. 

When building my asset allocation plan I do so for my entire portfolio, not just for my 401K - taking into consideration all the different accounts and my wife and I own. It doesn't make sense to optimize my 401K allocation unless the strategy fits our portfolio as a whole. Generally speaking, I try to put my tax inefficient funds in a tax deferred account (e.g. REITs that keep throwing off dividends that would otherwise be taxed, can be sheltered by a 401K).

By the way, our own target asset allocation is approximately 45% US stocks, 30% international stocks, 15% bonds, and 8 - 10% real estate (through REITs). For reference, my wife and I are in our late thirties and are fairly tolerant of risk, i.e. we don't sell our equity positions in a down market...

Find Funds that Fit the Planned Asset Allocation - here's the trick: since we do our asset allocation across the entire portfolio, if I don't find a fund that I am happy with for a certain asset class in our 401K plan, I don't sweat it. I simply buy the appropriate fund in another one of our accounts and balance my 401K allocation appropriately. This is important because many 401K plans offer limited or unacceptable fund choices for one or more asset classes. 

Selecting Between Similar Funds -  If there are several funds in a given asset class, I typically choose between them according to the following priority: 

(i) index funds first - as I explained in my very first post on this blog, I am a big believer in index investing; 

(ii) comparing expense ratios - look, the expenses and fees that you pay for investing in a mutual fund may not always be the most important thing about investing, but I have found few exceptions; 

(iii) comparing morning star ratings - if we are talking index funds that's not relevant, but if an index is not an option, checking up on the fund rating is a good idea; 

Florin also asks a very prudent question: which index should you compare the performance of a fund against to determine the fund's success? 

Investors should understand that they can frequently gain a higher return by accepting a higher degree of risk (you can read about this in my advanced portfolio building series). So the fact that a certain fund generates a higher rate of return than a broad stock index does not necessarily mean that it is an appropriate investment for you or that it is actually out-performing the relevant index. To measure the true performance of a fund, measure it against the return of an index that more or less covers the same asset class. For example, a large cap fund can be measured against the S&P 500 while a fund investing in small caps would be better measured against the Russell 2000 index and a real estate fund may be better compared against Vanguards Total REIT index fund or similar real estate benchmark.

Finally, if you feel confused by the range of options offered by your 401K plan - there is nothing wrong with selecting a target date or lifestyle fund that will do the asset allocation for you.

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This is a guest post by Dana. Dana blogs at the Investoralist, where she discusses investing in today’s media-obsessed, amnesic and sound-bite driven world, and provides discussion based on a holistic look at the macro-investing environment. 

If you are interested in writing a guest post for Money and Such, please contact me at the address provided on the left column, or by leaving a comment anywhere on the site.

The path to financial success is steadier if you are able to assess yourself honestly.  For most people, putting their savings in high yield saving accounts, money market funds, bonds, or GICs with inflation protection are more than sufficient.  Clearly, the general public is not satisfied with this level of simplicity when it comes to money.  Pushed and prodded by greedy brokers, everyone from retired pensioners to starter families became deeply invested in this equity market.

In face of the market carnage, what do you need to know about yourself to ensure that you will invest wisely going forward?

Know your investment horizon.  A lot of people got into trouble because they failed to line up their assets and liabilities with respect to their investment horizon and financial obligations.  In banking, they call this liquidity matching.  Sure, in the long run, your money will go up in the market.  In the long run, we are all dead.  So if you don’t want to substitute impending retirement for a lifetime of involuntary employment, or have to tell your kids to hold off college for a couple of decades while the market recovers, then match your financial obligations with where your money’s going.

Know your risk tolerance.  What kind of market fluctuation would keep you up at night?  That’s the most unscientific, but gut-instinct question asked by investment advisors when assessing their client’s risk profile.  Then they slot you in a risk category. But it’s important to understand that your risk tolerance is precisely that, YOUR risk tolerance.  Not what your broker or investment representative tells you. You may fit into some broad categorization of risk adverseness based on your age, gender, investing experience or education.  But at the end of the day, do you know what constitutes a risky investment to you?  Who knows, maybe you like the thrills of seeing your portfolio moving up or down by 20% everyday.  But for the vast majority of us that can’t stomach that kind of roller coaster ride, consider the question truthfully.  Learn as much as you can about where your money is going, learn even more, then imagine what happens when you lose it all.   

Line up the cash flows of your career and your investing life.  Conventional wisdom suggests that entrepreneurs have riskier careers.  It’s not necessarily the career that is more volatile, but the cash flow. Small businesses will most likely experience more problems meeting their cash flow needs than their larger counterparts during a financial downturn.  For an entrepreneur, that means your business cash flows may be dropping at a time when you need it most – when cash flow is tight.  To protect yourself and not over-extend risks to both your asset base and cash flow situation, does it not make sense for an entrepreneur to be more conservative in his investing life?

Address the specificity of your situation. Nobody understands your financial needs more precisely than you.  You need to be clear on the specific goals that you have in mind, and guard against potential setbacks in life and career uncertainties that may require a safer portfolio.  If you have short-term cash flow needs, set that money aside somewhere safe.  If you have pressing medical needs or suspect that you do, if you have a wedding or kids on the way, all these have to be planned for.  Similarly, if you are looking at career changes or at starting a business, again, your risk tolerance will be different from that of the Joe average next door.

End of the day, there are two kinds of risks when it comes to investing.  One in lost opportunities, when you’re outside looking in, wishing you were in the market and riding an upward swing.  But the thing is, there are always more opportunities as long as you have capital and patience.  The other is when you’re in the market and looking out, wishing you were not invested because you’re losing money.  Most of us are probably pulling our hairs out because we’re in the latter group.  So when the next bull market beckons with its ever-so-seductive calls of high returns, pause, and have an honest question and answer session with yourself.

Editor's Note: I largely agree with Dana's main points, but I put the emphasis in slightly different places. You can read more on my views regarding asset allocation and building a portfolio that's right for you, in these previous posts.

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Stewart vs. Cramer - the Movie

I really dislike CNBC and always have. This is a group of folks that are trying to make a living - true - but in the name of profits they are misleading a substantial group of people into thinking that what they are doing is somehow connected to investment success or financial savvy, rather than being what it truly is: a particularly bizarre and shrill form of entertainment. 

Anyway, one person is finally calling these guys out: John Stewart. More and more this guy seems like the closest thing to a serious reporter that we have available to us... Anyway, while I am guessing most of my readers have already seen this clip, I think it is impressive enough to link to it on my blog as well. If you haven't seen it, it is a must see. Way to go John!

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No Such Thing as a New Economy... Ever

One of the hallmarks of a bubble is people talking about a new economy. The arguments typically go something like this: real estate prices or tech stocks or tulip bulbs or [INSERT NAME OF FASHIONABLE ASSET HERE] can continue to appreciate forever because we are living in whole new economy or the fundamentals have changed or demographic trends are different now or [INSERT SEEMINGLY RATIONAL EXCUSE HERE]. Well, that never ends well. There is no such thing as a new economy and there will never be one. The fundamental drivers of a free market economy are and will always be supply, demand, government regulation and human nature, especially as they all relate to financial incentives. Anyone who claims a new paradigm needs to provide bullet-proof evidence to support his claims.

So what am I doing talking about bubbles again when the economy is in the dumps? Well, for one thing I suspect that we are living through a bubble in government bond prices. People are so fearful of risk these days that they are flocking en mass to the perceived safety of US government debt. This seemingly insatiable demand has raised Treasury prices so high, that bond yields - the return you get on your investment - has declined to a tiny sliver of interest, and this is happening at precisely the time when government debt is  becoming more risky as the government piles-on ever more debt. This bubble too shall burst... but that's a topic for a more detailed post at some other time.

My main point for this post is different. Did you notice how everyone these days is talking about how we are living in a whole new era? About how people have become permanently frugal? About how the rules of capitalism are changing and about how capitalism as we know it may be coming to an end? This strikes me as nothing more than bubble talk in reverse. While no sane person can deny that these are tough economic times, it seems preposterous to claim that we are now living in a new, horrible economic reality that shall last forever. As if we have never been through a major economic crisis. As if the entire system is about to collapse or worse, as if the entire free market system was some sort of mirage or sophisticated ponzi scheme perpetrated by the evil people on wall street and in government for the sole purpose of fleecing the masses...

This, my friends, is nothing but bull, and the people that utter it deserve to be called out to defend their ludicrous statements. Better yet, time will prove the gross error of their delusion, and those of us that do not succumb to our fear and pull all our assets from the markets just to hide them under the matress, will reap the financial rewards of our prudence. What drives the free market system are very basic elements of human psychology. Those aren't changing any time soon, and as long as they persist the free market system will continue to be the best one that we have available to us - cycles of booms and busts and all. 

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The WSJ Spots Signs of Economic Stabilization

This weekend's main headline in the WSJ was about signs of stabilization in the economy. From the article:

"...Consumers are still cutting back, but not as steeply as they were, data showed this week. Many retailers have reduced inventories on their shelves to the point that any pickup in demand will force them to restock. Prices for copper and scrap steel are rising, a hint that manufacturers are buying again. Oil prices are up 23% in the past four weeks, a sign demand may be firming. Shipping rates, sensitive to goods moving across the oceans, turned up even as governments reported declining world trade for January."

The article is full of other anecdotal evidence for a stabilization in economic activity. Not yet an uptick, mind you, but a possible sign that the worst may be over. It may be too early to call a bottom, but as I wrote a couple of weeks ago things aren't as bad as they seem. Funny that I noted some of the same signs of an uptick noted by the WSJ. I have way fewer subscribers, but then subscribing to Money and Such is free...

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The Fairness of Getting a Raise

A reader recently asked me how to request a raise when you are making more money than others in your office. Before answering this question, I would like to point out that asking for a raise is not always a good idea, and that one should know one's market worth before trying to get an increase. If you decide to ask for a raise, there is such a thing as the correct way to ask for more money. Now that I have gotten this out of the way, let me address the specific question.

What others in your office make should have very little bearing on your ability to ask and to get a raise. Businesses should be run as meritocracies, with the best performing players receiving a disproportionate share of the rewards. More importantly, you need to understand that your compensation can lie anywhere on a range of values. The top end of this range is the value that you create for your organization. No sane employer will pay you more than the value you bring into the company. The low end of the range is the minimum amount for which you are willing to show up in the morning. Any value in between those two extremes is a possible and valid outcome for your compensation. Where you actually are on this range depends on a number of factors, including:

Your Negotiating Skills - if you don't ask for a raise, don't expect one. If you don't actively negotiate your pay and effectively make your case based on market data, don't expect your compensation to be on the high end of the scale.

Office Policy - some organisations have pretty inflexible payment structures. Government and unionized organizations are the best examples of this. Take for example most public school teachers - the best ones make the same amount as the worst ones, accounting for location and seniority. In fact, that's one of the things that is so wrong with our public education system. Since people are greatly motivated by financial incentives, the lack thereof leads to mediocrity and to poor performance. That's one of the reasons that I am very suspicious of labor unions.

Your Relative Performance - note that I am not talking about your absolute performance. I am talking about your job performance as it compares to the performance of your colleagues. You may be a perfectly competent physicist, but if your co-workers are Albert Einstein and Enrico Fermi, don't expect to be rewarded based on your performance... your boss always judges your performance compared to that of your peers.

Economic Environment - in a free economy, you are an economic asset and your price is set by supply and demand. In an economic downturn, with many competent people searching for work, your price diminishes, since you are potentially easier to replace.

In short, if you are paid more than your colleagues, but deliver outsized performance, if you can demonstrate your worth to your boss, and if your organization does not have an inflexible compensation policy, what your colleagues make should have little impact on your ability to negotiate better pay.

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Of Wild Fires and Recessions

Everywhere you look these days is economic doom and gloom: lay-offs, bankruptcies, foreclosures. However, it is important to understand that recessions are the way in which free market economies restructure themselves and prepare for the next phase of growth. It is actually a very dynamic, if painful process, by which available resources are reallocated more efficiently.

Take for example the construction industry. For years it was common wisdom that house prices are a one way ticket to riches. People everywhere invested in real estate not so that they could live in a house, but for the financial returns that they expected to generate from such an investment. Such influx of capital, drew ever increasing amounts of our economic resources. Since people act according to their economic incentives, more businesses got into real estate, more people became real estate brokers, more construction and financing jobs became available. In short - more economic resources were allocated to real estate than were needed to support the underlying economic need, i.e. houses for people to live in, as opposed to houses for investment purposes.

Once the real estate bubble burst, houses reverted to what they truly were: places to live in. With the disappearance of the financial incentives to invest in real estate,  all the jobs, money and business that were flowing into that market, are rapidly shifting out. Some are shifting by choice, and some are being forced out as overcapacity mercilessly cuts prices, financing and jobs.

The same process is occurring in many other industries. From manufacturing to airlines to finance and hospitality. The causes in each industry are different, but the effect is similar: capacity is being destroyed. While the situation looks bleak right now - the seeds for the next expansion are being sown as you read these lines. While many firms will go under and unemployment rises, the businesses that survive find themselves strengthen by reduced competition and by lower input costs, as materials, labor and equipment all become cheaper in a downturn. Workers will be cut from industries suffering from overcapacity and from under-performing firms, but will be hired by ones that are healthier. This transition will take time and will no doubt involve a great deal of heartache.

Much like a forest fire is scary and devastating but in the long run is critical to the health of the forest, recessions are the way in which market economies weed out the weak firms and restructure themselves, preparing the ground for a new economic crop. The job of government is to make this transition less difficult, not to stop it from occurring. As firefighters have come to recognize in recent years, the longer you delay a fire from burning the more devastating it becomes when it finally breaks out. The re-adjustment must be allowed to happen. Weak firms must be allowed to go under, over capacity needs to be cut and prices must be allowed to find their natural equilibrium. A controlled burn is better than a raging inferno, so I am not advocating the government not interfere. I am only saying, the government should be a vigilant fire marshall, minimizing the damage from the fire but above all considering the long term health of the forest.

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Calculator: Recovering from portfolio loss

These days you are no doubt wondering how long it will take your portfolio to recover from the massive losses you may have suffered in the big bear market of 2008 - 2009. I was wondering the same thing, so I created the nifty little calculator below to help me figure it out.

To use the calculator simply enter your original portfolio value, next use the sliders to put in the percent of your original portfolio value that was lost to the downturn, finally set the average annual return you expect your portfolio to generate from this point forward. The calculator will show you how many years it will take your portfolio to recover and will even show a little graph of your portfolio growth. Enjoy.

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Giving a Shot to the Twitter Thing

Although I am not quite sure what to make of it, I decided to run a little Twitter experiment. Over the next few weeks I will try to determine whether using Twitter enhances Money and Such and the way I reach out to my audience. Not quite sure what you can say in 140 characters, but I guess we'll find out together soon enough...

Let me know what you think. You can follow my Twitter posts here.

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Three Banks, Three Customer Service Stories

This weekend I was busy preparing my tax records so I can take them to my tax professional next week. I don't do my own taxes. For one thing I am intimidated by this whole process. For another, I don't really know how to tackle the subject and prefer to pay an expert to assist me. Call it paying for peace of mind. Anyway, some of our 1099s did not yet arrive, so I decided to go look for copies online. I had three missing 1099s to hunt down from HSBC, ING and E*Trade. 

ING made my life very simple. Logging into the account takes a second, and on the first screen there was a big button titled "Tax Forms Available Now". All I needed to do was click on that button and hit print. Done in 30 seconds.

HSBC was a nightmare. First of all, logging into the account is a pain - you need to enter two separate passwords, one using your keyboard, the other using a virtual keyboard on the screen. Idiocy. After searching the site for about 10 minutes, I still wasn't able to find the tax forms. I called the customer service number, and it took me about another 10 minutes to find my way through a byzantine maze of voice menus. After finally getting to an agent he explained to me that my troubles were because, when prompted, I entered my social security number first and my account number second. If I had done these in reverse order I would have been able to ask for an agent directly. WHAT?! Seriously? This is a known issue and rather than fix this they explain to me how to avoid their trap in the future?

I vented a little, and then asked the agent if there was an online copy of my 1099. He confirmed that there was a way to download the 1099 and directed me to my downloadable January account statement. Apparently, the 1099 is page 2 of that statement, but there is nothing on the website that tells you that this is the case.... way to hide it guys... would it kill you to put a little button on your website ING style? 

Anyway, E*Trade was a solid middle. I had to search around for about 3 minutes before finding out where the form could be downloaded. Not as easy as ING but certainly not close to the HSBC nightmare.

Here's a pointer: if you are going to put together a website or a voice menu, how about using it yourself first before inflicting it on your customers? Design and customer service really do matter.

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Easy Cases and Bad Laws

There is an old saying in the legal community: "hard cases make bad law", but maybe that saying should be changed to "easy cases make worse law". From time to time we hear about incidents so bizarre, absurd or ludicrous that their stupidity seems to cry out for government intervention. Such easy cases make really horrible laws. The case of the Octo-mom - the bizarre single mother, who after having six children gave birth to octuplets, by means of in-vitro fertilization. Listen, there is something plainly wrong with that woman, but you wouldn't see me writing about such tabloid fare if not for an even more preposterous person: Georgia State Senator Ralph Hudgens, who recently introduced a bill to regulate the number of embryos that may be implanted into a woman's womb. Seriously? 

That's what I call completely bogus legislation. The esteemed senator - and I use esteemed in loosest sense of the word - seems to think that there is a serious issue here that merits strict regulation. How many times, Mr. Senator, have we run into a problem of this nature that you decided that a law must be placed on the books to eliminate this public nuisance? Regulation is not free. It has a carrying cost. Government should not inflate the law books for the questionable benefit of preventing a rare and bizarre case. Does such questionable benefit justify replacing the judgement of medical professionals and their patients who desperately want to have a child? If something is wrong with the Octo-mom, we have such perfectly adequate institutions as child protective services and mental institutions. A law is most certainly not needed, just as one was not needed and was morally abhorrent in the case of Terry Schiavo. 

Of course in this specific case, I suspect that state senator Hudgens is riding the octo-mom horse to push a pro-life agenda. And that's the other thing that's bad about easy cases: it gives special interest groups a red-herring by which to further their pre-existing agenda. Nevertheless, I have no doubt that copy cat laws and regulations will now pop-up all over the country. Who can resist the lure of such easy cases?

Our self righteous legislators and government officials should mind their own business. Their role as legislators gives them no moral advantage or additional intelligence to make people's decisions for them. 'Nuff said.

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Why Reducing My Lunch Money Really Wouldn't Matter

For some people, saving small amounts of money on a daily basis can mean the difference between making ends meet and getting into financial trouble. My wife and I are lucky enough not to fall into that category. We lead a pretty modest life style, but I am not the type take a bagged lunch to work with me to try to save some cash. For one thing, lunch is my chance to get out of the office and actually see the sun - doesn't happen a lot these days. For another, spending social time with my friends and colleagues is both fun and productive for me.

But never mind all that - trying to cut out small amounts of money out of the budget simply doesn't make a lot of financial sense for us. Take for example the month of February: during the past month slightly over 90% of our spending was non-discretionary. About 50% of our non-discretionary spending went to childcare, 20% went to rent, and the rest was spent on utilities, medical expenses, groceries, fuel for the car - you get the picture. If we needed to drastically slash spending the only way for us to do so would be to rethink our childcare situation and to move to a less pricey neighborhood. Short of that, any changes we made would be cosmetic. Apparently, I am not the only one in this kind of situation. 

There are those who subscribe to the latte factor theory, believing that saving small amounts regularly eventually yields a big pile of cash. Maybe so. The theory is certainly tempting, and I too am fascinated by the prospect of riches with minimal effort - I have even created this nifty little latte factor calculator a while back to demonstrate the impact of such a saving strategy. However, I have now come to believe that small amounts have a way weaseling their way out of your wallet and never get to pile up and compound over time. Yes, it's probably possible to take some aggressive measures to eliminate such spending leakage, but for folks with our spending characteristics and income level, this hardly seems like the wise thing to do. I think we are better off holding off on buying a new car or buying a mcmansion if meaningful savings are our goal.

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Is Saving Money Bad for the Economy?

One of the things that I never understood about Keynsian economic theory is the issue of spending vs. saving. How's that for an obscure start to a blog post? These days you hear all about government economic stimuli and how the government needs to spend more money to offset declining spending in the private sector. Supposedly, us wretched members of the public are so concerned about our own economic fate that we are spending less and saving more (the savings rate hit 5% in January, up from virtually nil last summer). Government must pick up the slack and get the economy going again, or so the explanation goes. The theoretical economic basis for such government intervention was developed by influential 20th century economist John Maynard Keynes. 

However, I never understood how and why the fact that members of the public started saving more could be a bad thing. After all, when you save money it goes into a bank, which uses your money to lend to other people who in turn use the cash to invest or spend. Savings equal investment. Yes? I understood the supposed logic behind government stimulus, but I never understood why consumer retrenchment in the form of savings could actually cause an economic downturn.

Well, this weekend I listened to an episode of EconTalk which covered this exact question. This excellent weekly podcast consists of an hour long discussion between two economists, covering a different topic every week. It's an intelligent discussion - not exactly dumbed down, but the conversation is jargon free and largely accessible to anyone with even a basic grasp of subject matter. Consider it econ 101 on your iPod. Anyway, the episode I listened to covered the issue of Keynesian economics with guest Steve Fazzari (you can find it here). The host, Russ Roberts, asked Fazzari the question that has been on my mind all this time but which I never bothered to explore: how can it be that a higher rate of savings causes an economic slowdown? A 30 minute discussion ensued which essentially boiled down to this:

Consider John who eats out every work day at a local restaurant. If John decides to save more and bring a bagged lunch from home, he will reduce his spending by say, $5 a day. His savings will go up by $25 a week. However, the restaurant owner will see his income reduced by $25, and therefore will either need to reduce his own spending by $25 a week or else his savings will be reduced by the same amount. The fact that our protagonist decided to boost his savings by $25 did not raise the total savings in the economic system. All it did was move the savings from the restaurant owner to John. This is like conservation of energy applied to money... maybe we can call it conservation of savings? Since no more savings exist in the system, no more investment exists in the system. All that changed is that the restaurant owner is now seeing a lower income. Interesting...

I don't know if I fully grasp or buy this explanation, but I am very intrigued. I have been thinking about this idea for a couple of days, and it seems to hold water so far. I think I want to learn more about the subject.

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Don't Give Up on the Market Now... Unless...

One of my colleagues, a Ph.D. and senior executive in my company, told me yesterday that the economic situation has him so concerned that he is moving all his new contributions to his 401K to a stable, money market fund. He explained that he does not know what to do and is too stressed about the prospect of losing any more money. I can certainly understand the fear having lost about 22% of our stock portfolio's value since the year began two months ago. Nevertheless, what my colleague considers a defensive move is probably a bad financial error for the following two reasons:

Driving by Looking at the Rear View Mirror - if there was a right time to sell, it was probably before the economic meltdown began and stock prices went all to hell. Selling now is the equivalent of closing the barn doors after the cows have made their getaway. In fact, it's shutting the barn doors BECAUSE the cows have escaped. It makes no sense.

The Upside is Still There - I don't care what anyone says about the economic situation, this too shall pass. The stock market will not keep declining forever, and investing in stocks for the long term is a regular guy's best bet for ensuring his long term financial well being. Money markets may be stable, but they will certainly not beat inflation - the killer of financial security - over the long run.

Nonetheless, if you are so concerned about your finances that you are unable to sleep at night, are fighting over money or investment strategy with your spouse, or don't have a sound emergency fund to keep you afloat if you happen to lose your job or run into other trouble, even though this might not be the financially smart thing to do, you might be right to retreat to a safe haven anyway. In the end, its all about happiness. Money is not worth losing sleep over.

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Claiming My Niche: a Two Year Anniversary

The very first post on Money and Such was published on February 27, 2007 - two years already. Time flies when you are having fun... and what a couple of years to be writing about personal finance, am I right?

My first post was about my investment philosophy, i.e. buy-and-hold index investing. Over the past 18 months that was quite a painful philosophy to stick to, but we're staying the course believing that in spite of all the pain, and possibly because of it, this strategy will yield the desired results in the long run. If you're worried about the market just remember: "past performance is no indication of future results"...

Money and Such has not taken the world of personal finance blogging by storm, nor did I expect it to (although I might have secretly dreamed that it would). There are many personal finance bloggers out there and many of them crank out high quality materials and do a killer job of getting the word out about deals and bargains and are simply fun to read. Still, even though there are hundreds of personal finance bloggers out there, I believe that Money and Such fills a relatively under served niche in the blogospehre. The way I see it, most personal finance blogs focus primarily on the basics of educating the public on how to start taking better care of their personal finances. The topic is well covered by well informed, talented writers, whose blogs are far more popular than Money and Such will ever be.

At Money and Such, I write about the topics that are of interest to me, which tend to be slightly more complex than what I find on other personal finance blogs. Yes, I write about investing, but I try to tackle a little more advanced topics such as diversification strategies and the impact of dividends. I write about the economy and economic policy. I am not an economist, but I am a lawyer and MBA by training and my views are colored by my industry experience of what works and what doesn't. They are also colored by my bias against government intervention in the markets, except for by means of well crafted regulation - which is why I recently spoke out against government imposed salary caps. 

At least once a week I typically write a post about career planning - my career is important to me, and I devote a lot of time to thinking about it and analyzing it. I also try to observe the careers of those around me to learn what works and what doesn't. This type of observation led to such posts as the true value of two incomes and avoiding dead-end career paths. Oh yes, occasionally I have been known to go on a little rant that's completely off topic. That's one of the privileges of having your own blog... 

So what to expect from Money and Such? Pretty much more of the same. I like the way this blog has been evolving and the topic mix so far. I expect to continue posting 3 or 4 times a week. How long will Money and Such be around? Don't know. I fully expected it to disappear after a few months, but it sort of became a habit. It's still fun and it will keep going as long as it is.

With that little monologue, let me solicit your input. Any advice on where to take this blog? Things that you would like to see less or more of? New topics that you would like me to cover?Should I finally get my own domain name, and if so, how the hell do you set-up your own website? Let me know by jotting down a quick comment. Thanks for stopping by and please come back soon!

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