Map: It Really is a Global Recession...

Moody's has released this map showing the impact of the global recession. Click on each of the countries to get more interesting snippets of information.

It looks like almost the entire world is in the grip of this economic downturn. Who's still doing well? China, Syria, Lebanon, Egypt... all the good guys... well, to be quite honest there are also a few democracies that are doing OK: India and Panama, being the two that I can spot off-hand.

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Health Care: The Dirty War

The battle over the President's health care initiative is gaining momentum. I have previously aligned myself with the forces calling for a drastic reform of the US health care system, and if anything, I think that the bills currently making their way through Congress don't go nearly far enough. However, those who profit from the status quo are clearly mounting a counter-offensive in an effort to kill health care reform yet again.

Last week, a colleague sent me this link, purportedly an official Congressional chart showing the structure of the health care organization after the proposed reform. If you open the link you'll be shocked and amazed at what appears to be a byzantine maze of bureaucracy. Perfect. This is exactly what the powers behind this document want you to think. However if you look carefully, you will see that this is not an unbiased document, it is, in fact, a biased piece of propaganda, a weapon, if you will, in the dirty war for the future of health care in this country.

This document, while apparently stored on a legitimate Congressional server, was prepared by the Republican Staff of the Joint Economic Committee (see lower left hand corner of the document) and was submitted by Kevin Brady , Republican Congressman of Texas who, according to the Washington Post, has voted with his party 94.5% of the time in the current Congress.

Well, some of my colleagues took this document - which is intentionally designed to look confusing and intimidating - to be the actual proposal put before Congress. If the chart is so confusing, goes the rhetoric, how can the actual plan be any better?

Here is my take. I am not versed in the full details of the bills that are now circulating through Congress, but what I do know is that if you resort of misinformation or misdirection to drive your point home, something is truly wrong here. It may very well be that Congressman Brady has some productive points to contribute to the discussion. Hell, he may even have the holy grail of health care which he can deliver to Congress to the sound of grand applause by the American people. If so, let him be constructive. However, from reading the papers and watching the talk shows, it seems to me that Republicans are simply doing their utmost to scuttle the President's health care reform, regardless of the consequences to the American people. Forget about being constructive. Forget about finding a solution to a critical problem effecting all of our lives. All that seems to matter to them is the chance to deliver what they think will be a critical blow to the President's political standing.

I think enough is enough. Health care must be reformed. We all know it. Even those moneyed interests who stand to gain from maintaining the status quo (only they are cynically pushing for their short term financial interest, rather than for the long term betterment of society). If you have valid points to make, make them. Come to the table and argue for the type of change you would like to see, but enough with the scare tactics, misdirection and politics already. We need leadership, not idiocy.

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The Inflation or Deflation Song... Literally...

I saw this first on the Finance Professor blog. Very funny. I am squarely in the inflation camp myself. I swear this guy sounds like Kermit the frog when sings. Not green though...

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Guest Post: We’re All Better Off As a Result of the Stock Crash

This is a guest post by Rob Bennett of A Rich Life:

You’re a 55-year-old investor. You hope to be able to retire when you turn 65. You were on track to just barely meet your goal until last September. But you recently lost one-third of your life savings in the huge price crash. This is a true disaster. You are feeling depressed.

You shouldn’t be. The truth is -- this isn’t a disaster at all. We’re all better off as a result of the stock crash. We just don’t know it because of the way we have grown used to thinking about stock investing during the Passive Investing Era.

I have a calculator at my web site called “The Investment Strategy Tester.” It permits investors to create any of thousands of possible investment scenarios and compare the long-term results that are likely to follow from them, presuming that stocks perform in the future somewhat as they always have in the past. I recently compared two scenarios to see what the effect of the price crash has been on someone in the circumstances of the investor described at the opening of this blog entry.

The first scenario I created was of an investor with a $100,000 portfolio and a 70 percent stock allocation at a time when the P/E10 value is at 14 (a fair value P/E10 level, where we are today). The second scenario was of an investor with a $150,000 portfolio and a 70 percent stock allocation at a time when the P/E10 value is at 32 (an exceedingly high P/E10 level, the sort of valuation level that applied for much of the time from the mid-1990s through the first part of 2008).

Guess which investor is likely to have a higher portfolio at the end of 10 years? It’s the investor with $100,000 in his account at a time when prices are reasonable. If you have one-third less in your portfolio today than you had pre-crash, you have a better chance of meeting your retirement goal in 10 years than you possessed pre-crash.

Considered in isolation, it is of course a bad thing for you to lose one-third of your life savings. But the loss of your retirement money isn't something that happened in isolation. It happened as a consequence of a huge price drop. The price drop is a great development for everyone alive in the United States today. It makes it possible for stocks to provide appealing long-term returns once again, something that hadn’t been possible for more than 10 years prior to the crash. We’ve got stocks back! The stock crash is the reason!

I think it is important that we get the word out to people about how stocks really work. There have been three earlier times in history when we went to the sorts of price levels that applied pre-crash. On each of those three occasions, we ultimately saw price drops of far greater size than those we have yet experienced this time, price drops that took us to valuation levels one-half of those that apply today. It’s not economic realities that caused those price drops, it’s the emotional letdown that follows when large numbers of investors come to believe that prices don’t matter all that much and then learn the hard way that that is never so in the real world.

Job #1 today is to restore confidence in the market. We do that by shooting straight with people. We do that by letting people know that the price crash was a good thing for all of us.

But why would everyone not be spreading this happy news? Doesn’t everyone want to restore confidence in the markets?

In theory, yes. But the unfortunate reality is that the vast majority of big-name experts has been advising us for years to invest passively, not to change our stock allocations in response to big price changes. That never works. That always brings on disaster sooner or later. Letting people know that they are in better circumstances today than they were in before the crash causes people to ask dangerous questions about the true effect of valuations on long-term returns. The reality is that the effect is huge. The reality is that we should have been paying attention to valuations all along and that we never would have seen prices go to the levels they went to if we had been doing so.

The widespread advocacy of Passive Investing has put us in a pickle. We need to assure people to persuade them to stay invested in stocks. But we cannot assure them without letting them know how important valuations are to determining long-term returns. And doing that means undermining the argument for Passive Investing, the model for understanding how stock investing works that most experts have been promoting big time for three decades now.

The full reality is that you are not better off today in one important sense. You would be better off if you appreciated the realities and if most other investors did so too and if you could engage in conversations with them about how stock investing works and be reassured by those conversations. However, the odds are that you are not going to be able to participate in such conversations; there’s a lot of institutional opposition to getting the word out on the effect of valuations. If the word does not get out, we will likely see yet another big price crash in the years ahead. And then we will all be cooked. Even those not invested in stocks at all will lose if the economy goes into a major depression.

Investors are emotional to begin with. Advocacy of Passive Investing makes them ten times more emotional than they would otherwise be. People are filled with doom and gloom today even though these are the best days to invest in stocks that we have seen in a long, long time. I believe that we need to move to a new model, one that helps us all understand that stocks are like anything else that can be bought and sold -- they offer a great value proposition when sold at good prices and a poor one when sold at bad prices.

The price crash made stock prices good again. I think we all should be celebrating. I think it’s a darn shame that most of us are not. I think it’s the fault of the Passive Investing model that we are not. I hope that the long term effect of the price crash is going to be to prompt us to become excited about the development of a more realistic and effective model.

Rob Bennett writes the “A Rich Life” blog. His “The Investment Strategy Tester” shows investors how they can recover all of their recent stock losses by converting from the Passive Investing strategy to a valuation-informed strategy.

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You Gotta Know Who to Divorce...

Last week I met an old colleague and friend for dinner. This guy moved from California to Florida with his family, but subsequently he and his wife started what is turning out to be a fairly messy divorce. This story would have little to do with a personal finance blog, except for the fact that my friend recently discovered that his soon to be ex-wife has been collecting rent paid on the couple's California house, but has not been paying the mortgage on it. Apparently this has been going on for about five months. The house is now in foreclosure proceedings and my friend's credit is shot.

Of course, if he was half way responsible, my friend would be checking to make sure all was going well with the couple's various financial assets, if for no other reason than to make sure that nothing untoward was going on in the midst of a nasty divorce. But, that's who my friend is. He is a very lively, slightly less than responsible, very fun kind of guy. He is a "big picture guy" and this type of thing is too detail oriented for him.

My friend is taking this all with amazing calm and composure. Certainly more composure than I would exhibit under the circumstances. He is very much aware that his credit is essentially ruined, but doesn't feel like there is much sense in going crazy. He is now trying to work with the lenders to avert foreclosure...

It just goes to show you, you need to know who to divorce.

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More Thoughts About Buying a House

Last week I wrote that my wife and I have started contemplating the possibility of buying our own house. Over the past week we have continued with that thought process, and while we have not made up our minds yet, I think that the probability is now higher than it previously was. We continued to look at houses, and found a few that seemed both decent and within our price range. We also discussed the idea of buying a house with some friends who have recently bought their first house and they have been very helpful in getting us to think about additional aspects of this project.

Turns out that the searching for a house thing is pretty darn complicated: deciding on a price range, seeing all the different places, researching school districts, new vs. old, big vs. small, within walking distance of parks or stores, thinking about flood zones and earthquake prone areas (this is California, after all)... we haven't even started to look into the whole mortgage thing. The decisions seem endless and, unfortunately, as a couple, my wife and I are procrastinators when faced with choices that seem monumental. I gotta tell you - this process seems pretty intimidating to me right now.

I have decided to break down the process into small, bite sized chunks. I am starting by buying a couple of books on the topic of buying a first house. After I have read them, we'll get together with the broker that our friends recommended and I guess we'll take it from there. Fun stuff.

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Lying Resumes and Other Stories

Last week I wrote about how I am interviewing new marketing contractors to join my team. The interviews are progressing well and in fact I made an offer to one candidate. The interesting thing is that things did not unfold as I had expected. I received about 50 applications for the position (a sign of the times, no doubt), spoke to about 6 people over the phone and invited 3 individuals to interview in person for the position.

The morning of the interviews I briefed the interviewing team, showing them each candidate’s work portfolio and sharing their resume. On paper I had already made my choice – I had a stellar candidate all lined up, with an amazing portfolio of work, a strong resume and experience in my industry. It was as good as it gets. As far as I was concerned, this person would get the job if she could simply pull off a decent interview.

She blew it big time. Three of us interviewed each candidate and all three of us left the interview feeling like there was no way we could work with this person. My ever eloquent VP of Sales told me that he ended the interview so he would not have to smack this person in the face. What was the problem? A very high-strung, passive aggressive interviewee. All of us felt as if this candidate was looking down her nose at us. Making faces and disapproving noises at our previous decisions and proposed strategy. Now, there is nothing wrong with criticism, so long as it’s constructive, and so long as you have taken the time to learn the lay-of the land before making sweeping pronouncements.

I was simply turned off. I asked for this person’s hourly rate, and instead of quoting it to me, a five minute discussion ensued. I asked the candidate how she would go about building a plan of action if she got the job, and she started interrogating me, forcing me to re-state the question three times to get even a semblance of an answer. She also took the time to explain to every member of the interviewing team what the problem was with our offices’ air-conditioning system. I feel blessed. We were able to avoid a train wreck that would have cost me months of delays and thousands of dollars.

This is proof positive, if you needed it, that you can never trust a person’s resume or portfolio on their own. A phone screening does not give you a good enough sense of someone’s personality. Nothing can replace a nice, long, painful interview to illustrate exactly what you’re dealing with. God bless the interview.

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Outsourcing: What's Good for Your Business May be Good for You

Outsourcing. That's how businesses save money by focusing on what they do best, while letting others do work that is not core to their main line of business. Well, what is good for businesses is just as good for individuals. I have had a draft post about this topic queued up for a long time, but last weekend I saw this post from Lazy Man which gave me the push I needed to complete the post. The argument is a simple one: do what you do best and let others handle the rest for a fee. I completely agree.

If anything, I don't outsource enough. I use a tax advisor to do our taxes, I take my car to a shop to get the oil changed and to the cleaners to get washed, and I have no intention of ever trying to mess around with our house's electricity or plumbing. However, I deal with computer problems on my own, and we clean and garden (not very successfully) by ourselves.

Whenever we do things ourselves, the motive is financial, but you have to ask yourself whether that's smart. Unlike Lazy Man, I don't really have a job that pays me by the hour and it's not like I would work an hour more if somebody took over my chores. However, the rationale remains intact even if we use the extra time we save to simply relax. I think it makes sense to pay someone so you can have a bit more quality time to use as you wish (if you can afford to do so).

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Not All Money is the Same

If you have been following me on Twitter you’d know that I attended a Cold Play concert earlier this week – Monday night to be exact. There’s something really cool about going out on a weekday, especially because I had to take-off from work much earlier than I would normally have left and we had the in-laws baby sit the kids for us. However the topic of this post is not the fun that my wife and I had – although the show was a blast – the topic of this post is the fact that the value of money changes with context.

You know for a fact that everything you can buy at a concert is going to be overpriced to a ridiculous degree, however I did not bat an eye when I paid $13 for a diet coke and some garlic fries. A glass of beer? $9. Really, really crappy pizza? $8 please. No problem at all sir, here’s the cash. However, I sometimes take minutes to figure out whether I should spend 99 cents on a cool iPhone application or to buy a new song. Why is that? It’s all about the context in which I am asked to spend the money. This is not a rational thing, after all, money is money regardless of how you spend it. What changes is my mindset. When I go out, or go on vacation my mission is to have a good time – I come prepared to spend the money. I throw frugality to the wind and laugh in the face of waste. Stupid? Yeah, maybe, but it’s a fact.

But there is some good news – on the way out of the concert we each got a free Cold Play CD. Very cool. My wife gave hers to the in-laws as a thank you gift and then quickly adopted mine. Justice.

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Thinking of Buying a House

My wife and I are thinking of buying a house. We are both in our late thirties and have never owned our home. I don't believe that a house is a good investment, and since we didn't know for sure we were going to be staying in California, we were never in a rush to buy a house. Now that our kids are growing up and our rented place is getting too small for our needs, we are seriously thinking about getting our own place.

Buying a house in our town is out of the question. There is no way we can afford to buy here - at least, there is no way we can afford to buy anything that could be considered decent. We have started to look in towns that are somewhat more affordable, and this weekend we went to several open houses, a few of which seemed very nice and were within our budget.

I think there are a couple of good reasons to buy a house at this point in time. For one, real estate prices have come down substantially - although not in our town. Mortgage rates are reasonable (check out this calculator), the government is offering some great tax incentives for buying and, perhaps most importantly, I think that in the coming years we will face some inflation - meaning that mortgage debt may diminish in real value as the value of money decreases.

Nevertheless, the decision is not clear cut for us. There is one major factor acting against us: employment. My wife is currently not employed, and getting a new position may take many months. In addition, my own company is not the perfect image of stability. I work for a start-up, and while my company is doing well, you never know how things will work out when you depend on outside funding to keep your business going.

We're going to take it nice and slow. We'll look for something we really like that fits our budget, educate ourselves on what it means to buy and own a house, and make sure we have the right advisers to assist us. If the stars align, we may even own a house by the end of the year.

I like the sound of that. :-)

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Hiring in a Down Market: a Personal Perspective

My company is one of those rare beasts: a corporation that is hiring in the middle of this nasty downturn. Yes, there are jobs out there even in the middle of the recession. This puts us in the enviable position of being able to hire top notch people being released by other companies. Last week I started looking for a part time marketing contractor to join my team - I did not have to advertise the position, I merely had to reach out to my network, and within a day I received over 50 e-mail applications. Here are some of my random thoughts regarding this whole episode:

No Advertising - note that I did not advertise my open position. If you were looking for it on Monster or any of the other job sites you were out of luck. To know about this position you had to have been told by someone who heard about it from me. Once again, the critical nature of networking is demonstrated.

Unqualified Applicants - even though I avoided the job sites, expressly to avoid a flood of e-mails from unqualified applicants, at least 50% of the applications I received were from unqualified people. Either they were in completely different professions but wanted to take a wild shot, or they lived in another state (even though I expressly stated this was an on site position for local candidates only). Folks like that waste my time and theirs. It's very easy for me to hit the delete key, it's harder for them to write a cover letter.

Calling Helps - as I mentioned I received many applications, and didn't have a chance to read all of them in detail. However, four of the applicants called me on the phone and left me voicemail. I called back three of them. At first, I was irritated to get the calls, but a well targeted and thought out message got me to give these candidates' applications a more through review. I invited one to interview in person.

SOME, Calling Helps - some people make mistakes when trying to get a job. When one guy called, I was actually at my desk and happened to pick up the phone. This person greeted me with a "Hi Shadox" (well, he actually used my first name), and waited for me to respond. This immediately got on my nerves. You have to understand that every executive in this country gets many, many calls a day from vendors trying to sell you anything you can think of. If you got me over the phone, you have about 5 seconds to get my attention and make your case (and that's on a good day). Someone who calls me by my first name and waits to receive a happy greeting back (who I don't already know), is in for some hostile treatment. I told the guy to e-mail me his resume, but I didn't give it a second glance. If you do take the risky move of calling the hiring manager out of the blue, be sure you have a very concise and clear pitch if you do happen to get him or her over the phone. And for God's sake, be polite.

Watch What You Write - I am hiring a marketing person. Here's the worst mistake a marketing person can make in a job application: spelling errors. Is this the level of attention I can expect from this person when he writes copy for my marketing materials? That's simply not acceptable and it's not a recoverable error for this type of position. Now, if I were hiring a mechanic, maybe it's not a big deal, but a marketing person? That person will be looking for a job for a little while longer.

Here's another one: you are interviewing for a marketing position but your rambling cover letter is a full length document. You just told me all I needed to know. If you can't pitch yourself coherently, how will you pitch my company?

Show Me, Don't Tell Me - talk is really cheap. If you are looking for a position in which you can demonstrate your proficiency in your very application, do so. Folks that sent me samples of their work immediately got a call from me (that is, if their work was half way decent). That's the difference between talking about what you do, and showing me that you can do it well.

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Good Service is Alive at Netflix!

Everyone is talking about how customer service is horrible wherever you look these days and it pretty much is - just look at my recent experiences with airlines and credit cards, others have problems with moving companies and don't even bring up the topic of hospitals around me. Well, it turns out there's a shining ray of hope. Last weekend I had a a good customer service experience and from an American company no less. That company is Netflix.

Yes, Netflix, that company that sends you DVDs in the mail. We find their service is great value for money and while we have been members for over 5 years, with the exception of one lost disc and one broken disc we've never had any service issues. In each of those rare cases, the problem was rectified with a brief and painless visit to the Netflix website.

Well, last weekend I ran into a little bit of a problem getting an instant movie stream to work on my laptop (the company let's you watch their online movie collection, free of charge, as part of your regular subscription). I called the company's customer service number to ask for some help, fully expecting the horrible customer service experience we have all come to expect from American companies. No such thing. The experience was positively awesome.

First of all, finding the customer service number was a breeze. The website also told me the expected wait time (under 1 minute). I called the number expecting a crappy voice menu that would take forever to navigate through. Again, no such thing. A human picked up within seconds, with no sign of a voice menu. How unexpected and how wonderful! But wait, there's so much more!

The customer service agent on the other end of the line had an American accent! Wow. Americans working a customer service line? The conversation was pleasant, the customer agent helpful, they answered all my questions and even provided some answers to questions I didn't ask. At one point my Internet router was acting up and I wasn't getting an Internet connection, so I asked the agent if I could call back in a few minutes. She proceeded to explain that they were there 24x7... not 8 to 5 EST, not work days, 7 days a week, 24 hours a day. An American company... can you believe it?

After my Internet service got back online I called Netflix' service line again, and again was answered in a matter of seconds by a live American human, who proceeded to make quick work of my problem, while at the same time not reading from ANY script (or at least not seeming to read from any script). He was intelligent, informed and pleasant.

Well it looks like there is still hope for customer service in America. Netflix: I was already a fan, but now I am a bigger one. You have made a loyal customer happy and more loyal. Hey look, you even got this free advertising post from a cynical ol' blogger like me...

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One Line Answers to Personal Finance Questions

Every once in a while I go through the search terms that people use to get to Money and Such. Most are typical personal finance terms such as 401K or investing in stocks, but some are really good questions while others are truly bizarre. When the mood strikes - and it just did - I like to take some of these search terms and give one line answers in response. Not all the answers below are what you would call serious. Hopefully you can figure out which ones are which...

Here goes:

"Do you pay money for old furniture?" - Some people pay LOTS of money, especially if the furniture is REALLY old. They call them "antiques"... go figure.

"How safe is the stock market?" - It's not, but it's probably your best shot at a decent return over the long term (as in DECADES).

"Why is money worst?" - Sprechen ze english?

"When is the best time to quit a job?" - Tuesdays after tea time are generally considered appropriate. Wednesdays between 2 AM and 4 AM are generally frowned upon.

"Should executive salaries be capped?" - No, executive salaries should not be capped. Only populist law makers consider this a smart move.

"Saving is bad" - Definitely. In Bizarro world! Oh, hold on, are we talking about endangered species here?

"My assistant is making more money than me. How can I make more?" - Seriously? I would say you have a good case for asking for a raise...

"Is this a good time to re-balance my 401k?" - There's no such thing as a good or bad time, just be sure you re-balance according to a predefined schedule and don't time the market.

"Is the iPhone worth the monthly bill?" - HELL YA! It's the best phone I ever had.

"How much should I waste in rent?" - As little as possible...

"Sentence to ask for raise" - "Could I have more money, please?"

"Can money buy happiness?" - Some people think so.

"Do I need an automatic re-balance in my 401K?" - you don't need it, you can re-balance manually, but automatic is nicer. It's the memory thing, you see.

"Working in a law firm sucks" - Oh, yes it does. From experience. I also find that working in a law firm tends to put you in contact with a lot of difficult people.

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A Few Thoughts About Health Care Reform

Here are a few random thoughts about health care reform:

First, we absolutely require health care reform. This is not a nice to have, it's not about a long term wish list, we absolutely must have health care reform. It's the smart economic move. It's also a moral imperative.

Now let me tell you something about public health care. There's a lot of fear mongering going on these days about how bad public health care and "rationing" are. I would like to call bulls*** on that. The system we have in the US today can hardly be called a system. It's complex and it is unjust, but perhaps worst of all it's wasteful. Our system forces us to resort to all kinds of strategies for saving some money on medicines and treatment while ensuring that billions go to waste on needless administrative costs. Have you received a bill from a hospital recently? You are practically expected to haggle, much like you are in a rug store or a used car dealership.

I was born and raised in Israel, a state which offers a public health care system and in which each and every individual has health insurance. The health care in that country is no worse than the health care we get here. In fact, in many respects the health care system and the service to individuals is far superior to our experience in this country. I recently went back to visit my old homeland and had a first hand experience with the health care system. Comparing that experience to a previous visit to the emergency room in one of the top hospitals in the US, the service and quality of care we got abroad was superior. Hands down.

Last week I watched Nobel Prize winning economist Paul Krugman being interviewed by Charlie Rose on PBS. Here's an interesting statistic: according to Krugman about 60% of dollars spent on health care in this country are already spent by the government, between Medicare, Medicaid and the VA. Think about that the next time health care lobbyists try to sell you horror stories about how the country will go to the dogs if we adopt a public health care model.

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Starting Your Career: Big vs. Small Companies

I work in a start-up, employing about 50 people in all, and have tended to work for smaller companies throughout my career. In spite of my own entrepreneurial tendencies and inclination to work in smaller companies, I believe that most people would probably be better off starting their careers in a larger organization before taking the small company route. So before you sit down to write a resume and send it to potential employers, take quick stock of my reasons below:

Training - to be frank, in a small company people expect you to pull your own weight from day one. Small organizations have very little inclination or resources to train employees for their roles or to invest in their professional development. Hey, it's not a good thing, it's simply reality. Small organizations are too busy surviving. In every small organization I ever worked, I felt like I was riding a bullet train, with work continuing around the clock and even on weekends. Training? Forget about it.

By contrast, large organizations are more inclined to take the long view and spend more on employee training and professional growth. They hold employee orientations, send team members to professional training seminars and often appoint more experienced employees to mentor new ones. The environment of a large organization tends to be more nurturing and tolerant of newer employees and their potential early stumbles.

Experience - you have to give it large organizations, they have perfected many practices that small organizations can only dream of. In everything from quality control, to manufacturing practices to analytics and beyond, large organizations have the edge on their small brethren. For someone starting their career, a good foundation in best practices is critical. Such a foundation would serve you well if you ever decided to move to a smaller organization to which you could bring these skills. Having such a solid foundation would be equally useful if you decide to start your own business.

Depth vs. Breadth - one of the reasons I like working for a small organization is that I get a lot of variety in my work. My core job is business development, but I also do a great deal of strategy & marketing. If I want to get involved in a new area, it's very easy for me to pick a project and get started. However, I believe that for someone starting their career, building a deep foundation of functional expertise is the way to go. Working for a small organization one tends to become a jack of all trades, while in a large organization where responsibilities are more carefully defined you get to become a master of one functional area. Diversification is excellent, but in my opinion it should come a bit further down the road. Also be aware that in a small organization you may be the only person with your job description. If you are just starting out and you are the only marketing or purchasing guy on staff, who will you learn from? How will you grow your skills except for through trial and error?

Having said all this, under current economic conditions most people can't be picky about which job they take. If you get an offer, be grateful and take it. Forget about small or large. If you're unemployed, you might want to take a look at this survival guide.

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Mail Fraud - a Colleague Foils an Attempt

All those scams that you read about online apparently actually happen to some people. Yeah, we all get those Nigerian scam e-mails, but I don't often come across folks that have first hand experience of attempted mail fraud. Well, last week my office manager (let's call her Helen) told me about the following dilemma:

She has been selling some baseball cards on eBay in recent months (I don't know if this is a temporary shtick or a real side business, apparently everyone has a side business these days, except for me), and one of her buyers sent her a cashier's check as payment for his purchases. The check was for a total of $1,200 while the purchase price was under $200. The purchaser asked Helen to cash the check, keep the full purchase price, plus a fee for inconvenience and to send the rest to a person he designated. This was accompanied by an elaborate apology and by a seemingly rational explanation about why this was necessary.

Most of you probably recognize this as a well known scam. The short version of it is this: the seller cashes the check, which appears to clear, and sends the extra money to the designated party. After a few days the seller's bank discovers that the check is fraudulent and claims the money back from the seller. The seller has a crappy day and learns to be more suspicious of strangers.

Helen, being a smart individual, figured that something was wrong here, but was trying to understand what that was exactly. She was also trying to decide what to do next. Here is what Craig's List suggests you do to avoid getting scammed and to report attempted fraud. Needless to say, that the cashier's check was never cashed and a formal complaint was filed with eBay (where it was promptly sucked into a black hole, probably never to be heard from again).

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Lower Cost vs. Lower Price

Back in 2002 we bought a computer. Seven years later, that computer is approaching the end of its life - still, almost everyone will agree that 7 years for any piece of consumer electronics is pretty incredible. The longevity of the computer is a testament to the value of a simple consumer principle: don't go for the cheapest option, or for the product in the fanciest package, go for the most cost effective option. In business we call this the Lowest Total Cost of Ownership.

Here are the different components which together make up the total cost of ownership of any item:

Purchase Price - in many cases the purchase price is the highest component in the total cost of ownership equation, which is why many people are tempted to buy the item with the lowest price.

Maintenance Costs - when buying a car, many people consider the cost to maintain that car over its expected life time. How expensive is the regularly scheduled maintenance? How complicated is the car to maintain? What happens if something goes wrong? This is where issues such as reliability and serviceability come into play. The thing is, the exact same principle applies when buying a computer, a new refrigerator or pretty much any other item you can imagine.

Operating Costs - a car consumes gasoline, a computer runs on electricity, a pony consumes food and needs to be housed in a stable. The cost of operating an item frequently greatly outweighs the cost of buying it. For example, buying a hot tub may not be that expensive, but over time heating and cleaning costs can really add up. Operating costs are often a category in which smart consumers can generate the bulk of their savings.

Salvage Value - salvage value = resale value. Even when you no longer want a product, it may still retain some residual value. Used cars can be sold, but even if no one will buy your car, you may still be able to donate it for the value of a deduction, or sell it for scrap. Some items hold their value better than others. While consumer electronics are notorious for losing their value quickly, you are more likely to be able to sell a used iPod than you are to sell a used no-name MP3 player.

Replacement or Obsolescence Cost - this is where we saved big on our computer. When buying our computer we bought a near top-of-the-line machine, rather than a discount model. Yes, we could have purchased a computer for 30% less, maybe even more, but we would have needed to replace it within two or three years. By paying a bit more, we were able to get much more value out of the system.

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Insanely High Public Pensions

Last week I came across this article in the WSJ which talks about the insanely high public sector pensions that some individuals are receiving. Here is a brief excerpt from the article:

"Those named are former public employees and their dependents who receive an annual pension of more than $100,000. Atop one list is a former city administrator from the small Southern California town of Vernon, whose annual pension is $499,674.84."

How insane is that? By comparison, the President receives an annual salary of $400K. Look, I am all in favor of people saving for retirement and having a decent pension after many years of loyal service. I think this is entirely justifiable. However, How is it possible or even legal for government agencies and public sector entities to pay such ridiculously high pensions? More interestingly, how is it even fiscally possible for a tiny town like Vernon, CA to support (never mind justify) such an obscenely high pension? According to Wikipedia that town had a population of 91 in the 2000 census. What is going on here?

Leaving aside the town of Vernon for a second, I did some research online to find the database of high pensions mentioned in the WSJ article and here it is. This list contains over 5,000 names of individuals who receive public pensions of over $100K annually, but it only includes individuals from California. How widespread is this phenomenon? Can it be justified that former public "servants" receive such huge pensions, backed by tax payer dollars, while the rest of us are expected to do our best and come up with whatever retirement savings we can scrape together, with or without a company match? Incidentally, do you think that these folks' pensions were reduced when the markets tumbled and the rest of us lost much of our retirement savings?

In California, $100K may not be excessive given the very high cost of living, and especially when such pensions are paid to high ranking former public servants, but some of the examples on that website are dramatically higher. How about some oversight? How about some sanity? Next time you are worried about your retirement savings, maybe you should consider working for the government... The rest of us will pick up the tab.

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