Sunday, June 25, 2017

Food Stamp Challenge?


What is the food stamp challenge and why is it bullshit?


The food stamp challenge is when people who are not on food stamps try to eat on a food stamp budget, using the maximum amount allocated for one person in their area.  Most report they can eat well on this budget, but regret not being able to go out to eat and socialize.  Yes, it sucks to be poor, it's suppose to, but more on that later.

This food stamp challenge, however, neglects one aspect of food stamps - it was not designed to replace the family food budget but rather supplement it.   That is why the amount you get for food stamps (SNAP) is based on income.   It isn't like people who make more money eat less but rather need less subsidy to buy food.

These sort of "challenges" illustrate how folks don't understand how the program works or why.   They take the "food stamp challenge" and then claim they "can't live on food stamps alone!" but of course, no one was ever expected to.

In order to get food stamps in most States, you first have to have a job.  So this presupposes you have other sources of income than food stamps.  So no one ever expected people to live on food stamps because they largely don't.

Compounding this are people who set out to prove something and that something being that the United States is a horrible place that lets people starve.   So instead of buying staple items with food stamps, they buy gourmet foods and then argue that "you can't live on this".   Gwyneth Paltrow, now a hack actress of a comic-book movie series - who also sells questionable body products and vitamins - apparently tried this "challenge" and came home with not enough food for a week, but some nice fresh limes for a gin-and-tonic.

The entire point of food stamps or indeed any government assistance isn't to live comfortably but to survive.    It is a base existence that sucks, and it should suck, because you should be motivated to do better in life.   Get a better job, get a raise, pay attention in school, spend your money wisely, don't take on onerous financial obligations - and so forth.

Granted, there will always be people who cannot rise above this base level of existence.  But if you read the stories about the folks who end up this way, you usually see, somewhere along the way, they made some shitty choices in life, usually starting out by denigrating their educational opportunities, teen pregnancy, delinquency, drug use, and so forth - all things our society are supposed to discourage.  If we make being poor comfortable, then there is little reason to not be poor, and in fact, a very good reason for the near-poor to simply give up and sink back into poverty, as quite frankly, it ends up being more comfortable and a lot less work.

And there is no incentive not to make poor choices in life.  Indeed, some argue that our present system encourages poor choices by rewarding bad behavior.   When Mark worked at Sheets and Things, one of his associates explained how ADC works.  "You want to have at least three kids," she said, "otherwise it doesn't really pay off!"   Basically, there was enough "overhead" in the money given to her to support her children, that if she skimmed a little off the top, she could live comfortably, provided she had a part-time job to qualify her for SNAP as well.

People really do make these sorts of calculations with government benefit programs and if you doubt me, go to The Villages and ask the retirees there the best way to collect on Social Security - they will have it down to a spread-sheet.  That's the crowd who invented "file and suspend" and ruined the party for the rest of us.  So optimizing government swag is a game people play at all income levels - it ain't just a poverty thing!

Again, a lot of folks collect "assistance" in many forms - subsidized housing, food stamps, TANF, ADC, subsidized bus fare, obamaphones, Obamcare, unemployment, and so forth, and then work at least one job part-time (to qualify for Food Stamps) at least part of the year, and maybe work other jobs under the table and thus end up making out better than some full-time employees.   And please don't tell me this doesn't happen, as I know people who play this game, personally.

What is odd about the food stamp challenge is that the people doing it are not people who are on food stamps, but celebrities and middle-to-upper class people who are of a liberal bent and usually are setting out to "prove" something, namely that our society is rotten to the core and the only solution is massive government intervention and redistribution of wealth.

And it is odd that people feel this way - people whose wealth will be the first to be redistributed, if such a takeover were to occur.   If you look at the history of communist countries, you see that this theory of government usually means a lower lifestyle for everyone, except for those at the very top of the pyramid.  The dictator and his cronies make a lot of money and live lavish lifestyles.  The very poor might be brought up a notch or two.  The middle-class is forced to pay for it all, of course.

It is odd, but revolutions are not started by the very poor - indeed they are not smart enough nor do they have the inclination or time (hence they are very poor).   Rather, it is the disaffected children of the middle-class who set out to "help those less fortunate them themselves" and in the process, perhaps, become the new commissar and end up running things.

The rest of the middle-class followers of such movements are little more than useful idiots who go along with the idea that their wealth should be taken away by the government and given to someone else, because likely they have a nagging feeling that they don't deserve such wealth, and in many cases, they likely don't.   And maybe this explains a lot of self-destructive financial behaviors by the middle-class - they squander their wealth because of low-self-esteem and other mental health issues.

The truth of the matter is that we have the world's wealthiest country and largest economy (or maybe second-largest at worst) not because of socialism, but in spite of it.   Capitalism - the incentive-based economy - is what drives people to succeed and drives them to wealth, as the Chinese discovered when they embraced capitalism themselves.

Countries that rely on dictators, single-commodity economies, or socialistic fantasies, often end up falling down the economic ladder.  And it is a shame to see this happen in the UK, which will find itself in dire straits before too long.  Once London is no longer the center of commercial activity in Europe (and "the city" moves to Paris or Brussels) all the Brits will be able to do is argue over which (hopefully) non-flammable "social housing" unit they want to live in.

Yes, incendiary public housing.   One reason why we've torn most of our public housing projects down over the years, even if they were made of brick.

You see, as bad as people want to make the United States out to be - as some sort of heartless workhouse for the poor, we actually have a very nice standard of living, better than 90% of the rest of the world, and even the very poor in our country are wealthier than at least half the planet.   We have a lot of social safety nets, which taken in combination, provide quite a lot of support for the "less fortunate" or even those making lousy lifestyle choices.

Picking apart one program that is only one component of this safety net, and arguing that by itself, it won't support a "family of four" is utter nonsense.

What's The Deal With Cloud Computing?


More and more companies are trying to push us into the "Cloud" - is this a good deal for ordinary consumers?   Probably not, and it is just one battle in a war than has been raging for decades.


A reader writes asking whether cloud computing is the wave of the future. It may very well be, but is also the wave of the past.  I have written about "The Cloud" before, and whether or not it was secure.  Before we begin, I should note that the term "Cloud" is one of those words like "Blockchain" - a trendy, hip buzzword to use to mean almost anything you want it to mean - and to bamboozle investors at the same time.   If you feel dumb by asking what it actually means, well, they have got you right there.   In reality, none of this "tech" stuff is really terribly as complicated as it seems, but buzzwords make it seem moreso - and worth investing in.

But the concept of the "cloud" is arguably nothing new.  Prior to the introduction of the personal computer, if you wanted to use a computer you had to go to the Great Hall of Computers and pay homage to the computer geeks and temple acolytes who manned the punch cards at the IBM Mainframe and beg them their indulgence to run your program for you.  The computer was big, the computer was blue, and it cost an enormous amount of money and made an enormous amount of profits for IBM.

The computer Revolution started in the early 1970s with mini-mainframes such as the PDP-8 and PDP-11 coming to the fore, allowing many small companies to operate and own their own computers without having to deal with IBM.  But even those computers were cantankerous and difficult and required someone to write software for them.

The personal computer revolution started toward the end of the 1970's.  As I noted before there was a motley collection of different types of PCs being used.  The dominant type seem to be CPM based systems (e.g., Mostek) which were still rather expensive.  Apple burst onto the scene with its Apple II computer which was less expensive than existing personal computers and cheap enough for home hobbyists to buy.  However, it was the development of the IBM-PC which established the standardized architecture for the personal computer which we still largely used today.

The real revolution of the personal computer wasn't its size or cost or even computing power, it was the idea that you can own a computer and own your software and not have to continually pay leasing fees or maintenance fees to IBM or other large computer companies or maintain an army of computer programmers and geeks to maintain massive machines.  You could buy a personal computer and buy software that would perform word processing tasks and basic accounting tasks and own the whole damn thing outright.

And in the beginning, all is well for the personal computer business, as the market was going like gangbusters as few people have them and everyone wanted one.  IBM slowly faded from the scene, even after their attempts at making a personal computer, because the generic third-party computers were far cheaper.

Companies like Microsoft made a lot of money because they kept selling copies of DOS to all these people who were buying new computers. Other companies such as Lotus 1-2-3 sold spreadsheet software and WordPerfect sold its word processing software.  However, there was very little in the way of copy protection back then, people freely exchanged software with one another, even at the Patent Office.

Both Microsoft and Apple realized they had to come up with a new "must have" product to force people to upgrade to a new operating system and new computer - as the market was becoming saturated with DOS machines.  Ahhh.... those were the days, when you bought a new computer and it actually was faster and ran better than the previous one, and you actually had more usable storage as well, as filed didn't come encrusted with "metadata" that took them from kilobytes to megabytes.

And thus Windows was born.  Once Windows became established, people had to chuck their old DOS-based PCS and DOS programs.  Microsoft also expanded into other areas including word processing, with Word replacing WordPerfect in a massive sea change in the industry.

But Microsoft was stuck with the same problem. Once people bought a copy of their software, they were kind of set for life unless it was a compelling need to upgrade, and most upgrades were not very compelling. People felt they could skip one or two or even three upgrade cycles without too much damage to their business.

Microsoft attempted to force upgrades on people, for example making Windows 10 entirely different from Windows 7 by using touch screen technology - and forcing people to load it on their computer using the "Windows Update" feature.  Once installed, all the old programs would no longer work, forcing people to buy new copies - or lease copies - of their software.  They also created the new .docx format for Word documents forcing people to upgrade to a new version of Word - version which relies on subscriptions rather than purchasing.

If you look at the history of the PC, you'll see that there has been an internal tension since its creation, between the decentralization of the computer versus de-centralization.  And people have tried to take the PC and re-centralize it since it was born.  The idea is to destroy the people's PC revolution and replace it with a corporate architecture instead.

I first ran into this at a law firm I worked at, where we used a "Thin Client" network to prepare our documents and accounting.  We had a massive server with a RAID drive array comprising a number of parallel hard drives.  Each one of the computers used by the attorneys and secretaries contained only a floppy drive and access all data and programs was from the network.

It all would work fine unless the drive array failed.  And you can guess what happened next.  Our IT person ran into trouble with the backup software and for several weeks stopped backing up the drive array because they had interface difficulties with the backup tape system.  Then the drive array crashed, and there was no way to restore it.  The array was removed and sent to remote data processing center to recover our data and reformat the drive array or replace it.  In the meantime, we're all stuck with basically the equivalent of an IBM XT with a single floppy drive.

I quickly made copies of floppy disks with a basic features of DOS on them as well as the basic features of WordPerfect (without the dictionary and thesaurus). This would all fit on one 720K floppy, and I handed this out to the secretaries who were somewhat disappointed as they felt this was a great opportunity to take a week-long vacation while still getting paid.  They were able to boot up their computers create documents and print them.  And since most of our physical file folders contained a floppy disk with all the documents for that file, we were able to access existing files in most cases.

That experience with "Thin Client" illustrated why centralizing all your data at one source is sometimes fraught with peril.  And it also Illustrated that IT professionals are something of an oxymoron.  The best and brightest computer geeks don't work as IT people in a law firm other small company.  This experience will be repeated later on another law firm, where our IT professional downloaded a virus into the company server and crashed the entire system for several days.

Cloud computing takes this "thin client model" to the next level - putting data and programs on the Internet, instead of a local server.  It also is nothing new, as it's been around for years and is only just now taking off, mostly for financial reasons not technical ones.  The idea is really simple - put all your data and operating programs on the internet and then access them through any type of device.

There are many advantages to this architecture.  For starters, you can be device agnostic in that any device that interfaces with the internet can operate these programs and access data usually through a web browser or app or some other interface.  Thus, you can access your data from a smartphone tablet or laptop or PC or even a Mac or iPhone.  You are less bound to formats and brand-names and operating systems.

Second, your data is always backed up on the Internet so you don't have to worry about losing data - at least in theory - and your data is accessible anywhere.  The only downside to this is if the server holding your data in the cloud crashes and the people who are managing your data for you don't have it properly backed up or their backup server crashes, well, you are up the creek.

A third advantage, which is particularly useful for small companies, is that it takes a lot of your IT work and puts it up onto the cloud.  Your application software that you use is constantly being updated and revised by the cloud provider, so you don't have to worry about reinstalling software, updating software, and otherwise revising or re-configuring it.  Your IT professional (if you even have one) need worry only about the computers being plugged in and operating.  The rest is offloaded to a remote location.

Of course, all of this comes at a cost - and that's the reason why cloud computing has become more popular as of late - with the companies that provide it.  The idea is that instead of buying software and owning it and operating independently of any computer company, you instead rent your software and data space from a company like Google or Microsoft and pay them a monthly fee for the privilege of using your own computer.

Again, for a large corporation, this may pass the cost-benefit test.  The cost of maintaining your own IT department, purchasing copies of software and installing the software and backing up your data may be rather steep.  Not only that, but traditionally purchased software was amoritized over a number of years, where is cloud computing charges can be expensed out for taxes - although today I imagine software is a expensed out as much anything else.

For most corporations, anything that is outside their primary area of expertise is just a drag on the company and it distraction from the business at hand.  If you are making widgets you want to concentrate on making widgets as cheaply and fast as possible.  You don't want to concentrate on operating a computer network or upgrading software or doing any of those sort of things, as they are just overhead items and distractions.

So yes, for large corporations or even small companies, maybe this cloud computing idea makes sense.  Rather buy a copy of Word, you just rent it online and your rent your space in the cloud to store all your documents.  Basically you're taking your company server and pushing it up onto the internet and letting somebody else deal with it.

For the individual, however, it may not be such a great deal.  For example, I run Windows 7 on my computers, which seems to be very stable and copies the software can be purchased inexpensively on the internet - even legitimate copies.  Also data storage is not really an issue as I have over three terabytes of storage space, which is not expensive to buy.  A one terabyte hard drive, on once an unthinkable amount of data (at least when I was a kid) is now only about $100 or so.  Most of the three terabytes of data storage I have is duplicate, triplicate, quadruplicate, or more copies of my work data as well as videos, photographs, and music files.  have more storage space than I know what to do with.  I'm not sure that putting it on the cloud would be of any use to me.

There is also the issue of security.  I have patent files for clients some of them dealing with very high technology applications.  If I put these up on the cloud, for example on Google Drive, what guarantee do I have that someone cannot have access to these files or read them?  In fact, it may be possible that Google does look at some of this data for keywords to determine what I'm interested in an order to advertise to me (they just stopped doing this today, with our e-mails!).  For a small users like myself, they offer free drive space in the cloud and they must have to pay for that space somehow.  Google is an advertising company that sells demographic data.   Nothing is free.

Whenever some tech company or online website offers you something for free bear in mind it isn't really free.  Nothing is free.  They are trying to make money off you somehow, usually by advertising to you and harvesting your demographic data.   They also hope you will pay for a premium subscription service as well.   Such as.... cloud computing.

Of course, the software companies are now pushing this technology on the people whether they want it or not.  If you want to buy a copy of Microsoft Word, they would rather you rent a copy in the cloud rather than purchase the software as we did in the past.  Similarlyy when you open a document on your smartphone or even on the internet, Google helpfully offers to open it in the cloud for you and store it there.  Even Adobe is apparently getting into the racket, renting out software rather than selling it, and making this appear to be the only option that people have.  You actually can still buy a copy of the software for over $400, but at that price, most people chose to rent, instead.

For the software companies, it is a dream scenario.  As you can imagine it's very frustrating if you work at a software company and you write a really good piece of software that is so good that people feel no need to replace it.  Once everybody has a copy, your sales plummet and in fact it gets more and more expensive to do business as people are calling up with customer service issues but are not buying new copies.  You can actually end up losing money over time supporting older software. This is why Microsoft and others cut off support after limited number of years, increasingly a very, very limited number of years.

But with cloud computing, if you're renting the software to people, your income stream is based on the number of users, rather than the numbers of copies sold.  So if you have a user who uses your software for 10 years you collect 10 years worth of revenue from him.  Under the old model, you sold him a copy of the software and you collected from him once.   Many users might use the software for ten years or more - or sell it to a 3rd party when they upgrade - a revenue stream you don't get to see.

I'm still using word 2000 which is now a feisty 17 years old.  It still prepares basic business letters other documents perfectly fine, though.  And that's the problem.  There really is no reason to upgrade to new software when the old software works just fine.  Bill Gates despises me.

So is this cloud computing the "Next Big Thing"?  I'm not so sure.  I think for a lot of enterprise solutions, big companies, and even medium size and small companies, the idea of renting software may be appealing.  So long as there is competition in the marketplace, prices will remain competitive.  However since Microsoft Word sort of dominates the market for word processing, they can basically charge whatever they want for their software and people likely won't switch to other alternatives.

Open Office will work with Microsoft documents, although my understanding it that the company "supporting" it  has been sold once already.  I went to download a copy recently, and it tried to download a lot of additional junkware along with a copy of Open Office.  I don't actually use the program so much as I use it to open docx documents and quickly convert them to .doc documents and then edit those in Word 2000.

I suppose many younger people today probably think this cloud computing is a really cool deal, is it floats a lot of the data and software requirements into the cloud and, of course, is trendy and new.  However coming from the era where I learned to program Fortran on IBM Punch Cards and dicked around with Digital PDP-8's and PDP-11s in high school, the liberation of the personal computer has a profound and deep meaning for me.

When the personal computer came out, it was a very liberating experience.  For the first time in my life I owned a computer lock, stock and barrel.  It was mine, I didn't permission to use it, and I didn't have to pay anybody to program it for me.  It was the anti-mainframe computer in an IBM era, and none of us in that era were very fond of IBM and its monopoly practices.  We wanted to liberate the computer for everyone and break free of any monopolistic bonds or corporate oppression.

Perhaps the younger generation today doesn't feel that way, having not gone through that experience. Today they grow up with a plethora of computing devices including a smartphone which is almost placed in their hand at birth.  They give little thought to the companies that control these devices, how they control our data, and how they harvest our data and use it to manipulate and control us.

Maybe to them, cloud computing seems like an interesting thing that has some practical advantages over traditional methods. To me it seems like another opportunity for Microsoft and Apple and Google to put their hand on my wallet or at the very least listen in to my conversations and data and use that to market and manipulate me.

This is why I'm glad going to be retiring from the patent business.   Very soon now I will no longer need to use any of this software, other than occasionally crank up my ancient version of Word to generate a document or use my equally ancient version of QuickBooks to balance my checkbook.  And as my life and finances get simpler and simpler over time, my need to use these things may be less and less.

But for younger people, it is still a conundrum.  Do you pay Microsoft $10 a month in order to use Word (or wherever it is they charge)?  Or do you bite the bullet and use some other alternative software - or is there any alternative software?

Like I said there are alternatives out there that are often free or inexpensive.  OpenOffice can be downloaded and it will perform most of the functions of Microsoft Office at no charge.  This has require a modicum of talent for you to install the software however.  Adobe Acrobat 8 Professional is available online freely and performs most of the functions of Adobe Acrobat.   There are also free 3rd party readers and the like which can be used (Adobe Reader has turned into a computer locking turd of a program in its last iteration).

Older versions of QuickBooks work very well, although they're not compatible with newer versions if you're interfacing with your accountant (and why this is so, well, you guess).  From what I understand QuickBooks is also gone to a subscription model, at least for the "enterprise" version, with everything in the cloud, asking you to pay a certain amount per month rather than a fee for one-time purchase of the software.

As for cloud storage, I have experimented with both Google and Microsoft Hotmail storage features, with some success.  However I was never comfortable with where my data was located or how the data was uploaded and stored.  It seem like a pretty clunky solution to a problem that was really not very well defined.

The big problem I think for the individual is subscription fatigue.  If you were paying so many dollars a month for Microsoft Word, so many for Adobe, so many for QuickBooks, eventually the subscription costs add up to tens of dollars or maybe even hundreds of dollars a month, which is an awful lot of money.  It's like having another cable and cell phone bill on top of your cable and cell phone bill.  People go broke not with huge purchases but a little bit at a time.  And for the middle class American, so many "small" subscription fees and designer coffees chisel away at our wealth.

But I suppose, if these companies get too greedy with their subscription fees, someone will come along with an alternative and offered to the public for less money.  But we'll have to wait and see.  No doubt these companies will try to use proprietary formats, patents and other intellectual property, as well as other means to try to lock in their clients to their particular play pen or ecosystem, much as Apple tries to lock their customers in today.

For myself, I'm not so sure I'm eager to get involved in cloud computing.

And oh by the way, I forgot to mention the most obvious flaw with cloud computing:  What happens when you are outside the range of internet service?  Not only will your applications not work, you won't have access to your data.  Your smartphone, tablet, and laptop will turn into bricks, much as the "Thin Client" computers did at the law firm, when their server crashed.

Saturday, June 24, 2017

Talking About Money - and Death

It is important to talk about money, although most people refuse to do so.


A friend recently took me to task, as she said, "All you ever talk about is money and death!"   And to some extent, she is right.   We live on a retirement island, and many of our friends are in their 70's, 80's and 90's.  Every day, the ambulance goes by, and like nervous cattle in the feed lot, we wonder, who it was this time, to leave the island feet-first.   Or who is found living in their own squalor, to be shuffled off to assisted living - their obituary being casually read many months or even years later.

Some think this is morbid.   And it is, but it is also liberating.   Once you realize that your life is finite, you are freed from tyranny.   What do I mean by this?   Well, my friend is caught up in the rat-race of the big city - much as we were - not realizing that 5/8ths of her life has expired, and maybe 3/8ths remains - the last 1/8th being anything but a picnic.   If you see this, you realize that life is very short and should be enjoyed to the fullest.   If you want to do something with your life, do it now, because there won't be many tomorrows left.

When you are working and living in the city, or worse yet, the suburbs with all the other cubicle dwellers, you may be lead to believe that what is important in life is what is on TV, what happened at the office today, or what your kid brought home from school.   It is easy to live too much in the here and now and not realize that this piece of artwork that is your life will eventually be finished, whether you like it or not.

So many people in the US are not prepared for the inevitable.   They lurch toward retirement, laid off at an early age, without enough money to pay for their own upkeep.   It seems like a logical thing that you would want to be able to support yourself in your old age, when your body and mind start to fail - and it happens sooner than you think.   Oh, sure, we can "keep active" in our 70's and 80's.   It doesn't mean we can keep working, unless we own the company and they can't fire us.

It is a logical thing.   People think emotionally.   And for many people, so long as their parents are alive, they kid themselves into thinking that I don't need to save up for old age as I'm still a kid!   There will be plenty of time "later on" for that sort of nonsense.   Might as well enjoy ourselves today!  Let's get a Starbucks and go off to Whole Foods!

And yes, that was me, 20 years ago, when I lived in the big city and had the high-paying job.  We spent money and didn't even look at prices of things.   If we wanted to go out to eat at a restaurant, we never thought about the cost of whether we could afford it.

Now, being retired, and early-retired at that, we have to think about how much money we have left and how much things cost.   To my friend, this is buzz-kill.   Why not just go and have fun?   But the reality is, if you think that way in retirement, you'll end up broke.   So you look for ways to have fun on a budget.   There is a happy hour the retirees go to with $3 drinks and $5 appetizers.   It is as much fun as the fancy hotel with the $10 drinks and the $18 appetizers.   But you feel better about yourself the next day.

"But I have plenty of money!" you say.  And lottery winners say the same thing - and end up broke as well.   Even Billionaires have to have a budget and watch their money.   In fact, how do you think they became billionaires in the first place?  Not by spending willy-nilly.

Many if not most people don't like to talk about money, and this leads to a lot of trouble.   For example, we all assume the "other guy" is making more than us and we resent it.   But the "other guy" maybe heavily in debt - mortgaging his future to put on the appearance of being wealthy.   And if he knew how much you made and vice-versa, maybe he wouldn't feel the need to "keep up" with his neighbors in spending.   Of course, this often backfires, in companies where everyone's pay scale is known to everyone else - people resent those they feel are "overpaid".

And it would be helpful if people weren't ashamed to admit when they are snookered in a deal.   The crooked players in the marketplace succeed in life because they know that most folks won't own up to being conned or taken advantage of, unless of course, they want to play the victim card, and hope someone starts a gofundme page for them.

But my friend is right, once you are retired, you think more about money, as you don't have an unlimited potential to earn it.   That paycheck isn't coming in every month, so you have to think carefully about where it goes. 

And since you are looking at the second half, or even the final quarter of your life (and since life is non-linear), you think about what you want to do before the final checkout.   A year for me is less than 1/50th of my life.  When I was 10 years old, it was 1/10th.   Time is not only running out, it flashes by faster and faster as I go.

You can say that is morbid or sad or depressing or whatever.   That doesn't change the fact that it just is.    Your life is finite whether you want it to be or not.   So make the most of it, and don't delude yourself that your life or your checking account balance is endless.

What Ever Happened To Virtual Reality?

Why is this not a "thing" already?  South Park already did an episode about it back in 2014!  Maybe because it won't become a thing - or not much of one.
 
What are the most interesting things about investing over the last 20 years or so has been the rise of the "Next Big Thing!"   It seems that people these days are no longer content to invest in companies that make profits and pay dividends.  Rather they feel the need to get in on the ground floor on something hot and make themselves billionaires.

Maybe it is started with Microsoft back in 1980 or so.  As I noted before, Bill Gates signed a very lucrative contract with IBM and essentially transferred the entire wealth of International Business Machines Incorporated to that of Microsoft.  IBM went from the 600 lb gorilla of the computer world to a small enterprise software company.  Microsoft ended up becoming one of the most valuable computer companies on the planet if not the most valuable, all based on one product, an operating system.  And not a very good operating system, either.

The mythology quickly spread that if you only had known in advance this was going to become a big thing and had invested on the ground floor like Paul Allen did, you could end up the richest man in the world. From Rags to Riches nearly overnight.  Well, maybe not overnight, but over a period of years.  But the reality of this was, no one could have foreseen that this license agreement would be so lucrative, particularly in the years before the IBM PC when Microsoft was just a marginal player in the software Marketplace.

In other words, it is a bullshit story, and people like to show pictures of shaggy-haired Microsoft employees circa 1978 with the caption, "Would you have invested?" - the underlying premise being that you should invest in whatever the latest half-assed thing is coming down the pike.    But that would be a false analogy.   Even the people who invested in Microsoft back then had no idea that this IBM contract would turn out to be such a lucrative deal.   Never confuse getting lucky with being brilliant!

But in the last 10 to 20 years or so, it seems like this get-rich-quick mentality has taken hold in the tech world.  If only we had known the smartphone was coming out, we could all have bought Apple stock when it was cheap.   If we all had invested in this Facebook thing we all would be billionaires.  And so on and so forth.  However, what this neglects to mention is that many of these companies really aren't making much of a profit and some in fact are just hemorrhaging cash.  Of the bunch only Apple seems to have a rational P/E ratio and is cranking out profits and dividends on a regular basis.  And Facebook?  Only the insiders are profiting in a real way.   People who bought the stock retail might be doing "OK" but are not becoming wildly rich.

We've trained a lot of investors to act like Pavlovian dogs, drooling for the "Next Big Thing" -  the next big tech breakthrough, the next must-have handheld appliance or device, or whatever.  As I noted before, Motley Fool was hyping 3D printing as the next big thing.  And it turned out that 3D printing was just a thing.  It's an interesting thing, it's a thing that's been around for a very long time in the form of urethane printers, but is now gone more mainstream.  But it wasn't a sea change or a new paradigm and it didn't "Put China Out Of Business" or any of the other claims were made by the hypsters and the hucksters.

The Apple Watch was promised to be the "Next Big Thing!" but never really went anywhere. Wearable computing was supposed to be the must-have appliance for everyone.  Everyone would have to have a Fitbit and so on and so forth.  It didn't quite work out that way, although quite a few products were sold.

People thought that if Apple made a lot of money selling one product then they would make a lot of money selling other products.   They didn't learn the lesson from Microsoft that a lot of these tech companies are Johnny One-Notes, and fail miserably in any area outside their core competency.  And I suspect you will see this happen again, as some computer company or cell phone company starts to believe they can build self-driving cars.

The "Internet of Things" we were told was going to be the Next Big Thing.  All of us were going to buy a "Nest" thermostat so we can control our house temperature from our smartphone, or open our garage door, turn lights on and off, or look into our refrigerator to see whether we had any food, or all sorts of things which sounded really cool, but most people didn't want to actually pay for.   Most folks, like myself, thought their thermostat worked OK, and didn't really need to access it from a smart phone or have it hacked by Russians.   When I go away, a neighbor stops by and checks on the house - a lot cheaper and easier than dicking around with WiFi enabled appliances.

The difference between the smartphone and the smart refrigerator is that the smartphone became a must-have appliance for nearly every American and sales skyrocketed.  Not so many people need a refrigerator with a camera in it.  In fact most people just want the simple plain refrigerator.

And the problem with smart phones is, well, they are a commodity item now, sold on price, not exclusivity.   You pay more for data access than you do for the device - and even data plans are dropping in price.   There is no real headroom left on smart phones, just as PC prices (and profit margins) came crashing down once everyone had one.    When an item becomes a commodity, prices plummet - which is why the car business is murder and has tight margins.

Virtual Reality was touted as the Next Big Thing after all these other Next Big Things, and it seems to be stalling as well.  Oculus Rift made a very loud announcement about their VR headset and then delayed quite a long time and introducing it.  Once it was introduced, sales were less than expected and there were some management troubles at the company.  Worst yet, other companies were producing VR headsets that are basically just headpieces that mount on the standard smartphone, undercutting the cost of the standalone Oculus Rift.

Facebook bought Oculus Rift and Zuckerberg claims it will be "The Next Big Thing!"   But I suspect like Microsoft's forays into smart phones, gaming, MP3 players, and so forth, it may end up being a distraction for the company more than anything.

Unlike a smartphone, a virtual reality headset really isn't a must-have item.  And in fact a lot of people just really don't want it, or are just not interested in it, or just really don't even know it exists. Sure, it generated a lot of buzz with online gamers and whatnot who would enjoy the alternative reality aspect of it.  But the rest of us are not so interested in walking around with something clamped onto our head.  Most of us feel we spend way too much time using smartphones, tablets, and computers as it is, and would rather experience more reality than virtual reality.

Compounding this are some technical glitches with the VR headsets.  Unless the frame rates can keep up with reality, when the user moves his head the image on the VR headset is slightly delayed due to the processing time needed to render the images, as well as inaccuracy in the headset tracking position software.  As a result, the user's inner ear signals to the brain and the visual signals from the eye are offset. This produces a condition very much akin to sea sickness - actually the same condition -  where your inner ear is giving you one message (rocking motion) but since you're inside a ship it appears the walls and ceiling are stationary.  Power-vomiting can ensue.  This is not a good selling point.

Some are arguing that augmented reality is the wave of the future.  I find this very interesting is I recall that IBM used to run a series of ads more than two decades ago that showed a guy sitting on a park bench with some sort of Google Glass type of device on his head and he was manipulating a spreadsheet by reaching out into space.  He could see the numbers overlaid over reality, an augmented reality application decades ahead of its implementation.  It was sort of like those AT&T ads from the past promising all sorts of great things in the future.   Many of them came true, too - just not from AT&T, who turned out to just be an ISP.

Augmented reality promises to reduce or eliminate the "Vomit Comet" aspect of virtual reality, but obviously cannot deliver on the ultimate virtual reality experience.  Of the two, I will put my money on augmented reality, particularly if they can make that Google glass thing kind of work.  But it seems that since Google Glass (another Next Big Thing) failed miserably in the marketplace nobody has been interested in eyeglass wearable computing.  In fact the entire wearable computing things seem to sort of flop too.

This is not to say that any of these things I mentioned above won't eventually become successful, as they will.  It's just really hard to predict when they will become successful and how.

So how do you pick the right horse?  The answer is you can't.  Sometimes it's just best to sit on the sidelines and watch these things play out rather than try to jump in, particularly jumping in too soon before the market has settled out and the weaker players have gone bankrupt.

You don't have to run in every race.  You don't have to invest in everything that comes down the pike. It's better to run in races you think you can win and overall have a winning record, then to try to do everything and lose more often than you gain.

Leave the "Next Big Thing" to the Venture capitalists and people who can afford to lose Millions and Billions.

Friday, June 23, 2017

How Leveraging Crashes Markets


With leverage, a small action can cause a huge reaction, particularly when it comes to finances.
 
As I noted in an earlier post, one of these new crypto-currencies crashed the other night when somebody tried to withdraw millions of dollars all at once. The currency has since recovered somewhat, but it illustrates how these currencies can be very volatile, especially if they are not widely exchanged.  Volatility rarely works to the advantage of the small investor.

When the individual tried to cash in a huge chunk of this new crypto-currency, there weren't enough buyers interested in purchasing the currency and the price dropped precipitously.  The law of supply and demand kicks in.  However that alone doesn't explain why the price dropped so suddenly.

Many people had invested in this currency instead of using it as a trading or exchange medium.  And often these investments were leveraged, based on futures-type options.  Thus, if the price dropped below a certain level, their investment was set-up to automatically sell once it reached that price level. The same thing can happen with ordinary stocks and bonds, as people trade on their future value.  They are forced to cash-in to protect themselves, as they are investing using borrowed shares.

When the market crash of 2009 occurred, a very similar thing happened. Stocks across the board went down in value after repeated bad financial news was received. Once the stock prices reached certain threshold points, automatic trades were triggered which flooded the market with even more of these stocks.  As a result, supply exceeded demand which depressed price even further which triggered even more automated sell-offs.

I mentioned before that trading futures is sort of like trading the derivative of the stock price, and in fact these types of contracts are often called derivatives.  If you never took Calculus, I can try to explain it in very simple terms.  Think of three forms of physical measurement, distance, speed, and acceleration.

Speed or velocity is the first derivative of distance over time, dx/dt where x is distance and t is time. Acceleration is the change in velocity over time or dv/dt or the second derivative of distance.  In calculus, we can integrate these values to determine their underlying data values.  Thus, for example you can use an accelerator to find your position by double integrating acceleration, although it is very tricky to do. That's how an inertial navigation system works, although today we tend to use GPS more.

But as you can see, the more levels of derivation involved, the flakier the data can become, and the more wild the swings in value that can occur.  Let's say, for example if you're driving your car, the measured distance you travel and any given moment doesn't change very rapidly.  But your velocity can change very suddenly if you floor the gas pedal or slam on the brakes.  Similarly your rate of acceleration can change dramatically as well - even more so - in a matter of seconds, rather than minutes or hours.

The same is true for derivative investments, which is why most people say these should be left to experts and people with deep pockets.    Over a year, a stock price might not change too much.   But it may change in small amounts very rapidly in a short period of time.   These can trigger a sell-off in the market, if automated trades take over.   This in turn, could tank the stock price, or the crypto-currency price, for a very short period of time.  As the example from a few days ago illustrates, the price recovered very quickly, but not before a lot of these margin traders lost their shirts when their shares will sold off when certain trigger points were reached.

The problem for derivative traders is that you can lose more than you invested.   For you and me, the stock or bond investor (not "trader") the most we can lose is what we have in the game.   I put $5000 into GM stock and lost it all.

That's bad.   But suppose I spend $5000 betting on the price of GM stock?  I could lose my $5000 and end up owing $50,000 to make up for the shares I thought would go down in price, but instead went up.   You can literally bankrupt yourself overnight this way.

It is, quite frankly, like borrowing money to invest, only worse.  At least with that half-assed scheme, the total amount you can lose is what you borrowed.   With derivatives, the sky can be the limit.

So not only are these a shitty investment - or at least a wildly risky one - for the small investor, they do on occasion bite us all on the ass when too many people are speculating on stock prices rather than investing in companies.   When a market moves from "investment" to "trading" too far, it can become wildly unstable.  And instability rarely benefits the small investor!

Barriers To Entry, Again


Some businesses are easy to get into, but very competitive.  Others are very, very hard to get into, without a lot of capital, or an original idea.

Several articles recently appearing in the news illustrate why some of these start-up companies might not be such a great investments.  People are all agog about Uber as being the next big thing in ride-sharing and saying that it will take over the world.  However there are a number of competitors to that service including many in foreign countries that we don't hear about here in the USA.  In addition, many car makers are promising to build autonomous self-driving cars and offer them in a ride sharing type environment.  Nissan/Renault is the latest car maker to throw their hat in the ring.

What happens when there are five or more ride-sharing companies out there?  There are little or no barriers to entry in this business, and it is doubtful that Uber can protect their business model through patents or other means of monopolization.  Uber has aggressively tried to dominate market share, which is the model used by many companies, particularly the dot-com kind.  The theory is, if you go big quickly, you will take over so much of the market that other competitors will be pushed out or wil not even bother trying to move into your space.

And maybe for a company like Amazon, which has extensive physical infrastructure including warehouses and processing centers, as well as banks of computers and ordering software, going big make sense.  It prevents others from trying to enter the space, as the amount of capital they would need to compete with Amazon would be difficult.  However, Amazon still has to deal with Walmart which is number two in online sales, and number one in brick and mortar.   And as it has turned out, going big in brick and mortar has prevented others from entering Walmart's space, and one by one they've taken out other brick-and-mortar retailers.

But ride-sharing?  That's more of just an app.  A teenager could come up with the software over a long weekend.  And car companies are probably more likely to be able to develop self-driving cars than the dot.com company that Uber is.  Uber for some strange reason is trying to develop self-driving car technology even as a host of other companies are already doing this. Since they don't have automobile production capabilities, they will have to partner with an automaker to produce self-driving cars.  And since most automakers already have their self-driving technology divisions under way, it is remains to be seen whether any of them would want to partner with Uber.

First to Market is often last in the marketplace.  Uber made a big splash with ride sharing technology. However the next level, perhaps with self-driving cars, might belong to a different competitor. The first company to make it big in any business usually ends up going by the wayside very quickly.  This is a long-standing and predictable pattern.  We don't fly on de Havilland aircraft anymore, we fly on Boeings.

Similarly, we are hearing more and more about other forms of crypto-currency these days.  I've counted at least five or six different crypto-currencies being hyped by the financial media.  Some are even claiming that Bitcoin is now a thing of the past, although I think that might be a bit premature. The question arises, if there are five or six or eight dozen different crypto-currencies, which one do you use? And maybe when there are so many of these currencies - and problems with some of them - people will start to lose confidence in the entire concept.

Again, the barriers to entry for crypto-currency are not very high.  No one is even really sure who came up with the Bitcoin concept and developed the Bitcoin mining technique that is used for the crypto-currency.  This would suggest that almost anybody could come up with a similar currency without too much effort.

As more and more people try to get into this business, you can end up developing all of these currencies and also causing people to lose faith in them, as some of them no doubt will fail.   If there are 100 crypto-currencies out there, it will cause trouble for many or most.

Barriers to entry in the marketplace serve to keep out competitors, which can sometimes be a good thing or a bad thing.  For example a valid patent or other intellectual property portfolio can be used to prevent others from moving into your business space, at least for someone limited period of time. This at least allows you, in theory, to develop your business and achieve market share while forcing competitors to catch up to play catch-up.

In other industries which require a large amount of technical expertise and capital equipment provide steep barriers to entry for new competitors.  The car making business is very difficult to break into, as Elon Musk is finding out.  Building an automobile which will meet Federal safety standards, emission standards, and gas mileage regulations is very, very difficult.  Moreover, since automobiles are dangerous, it is inevitable you eventually be sued by someone who gets into an accident in one of your cars.  If your company is very thinly financed, you cannot survive such a suit, particularly if dozens, hundreds, or thousands are hurt due to a defect.  The car business is a classic case of go big or go home.  Small competitors just not going to make it in that business, or if they do it's a Herculean effort.

So what does this all mean?   Well, if someone tells you the "next big thing!" is some form of crypto-currency or some sort of "app" or website, ask yourself if low barriers to entry will fail to prevent others from moving into this space if the product or service starts becoming successful.    If something is wildly profitable, others will copy the idea, and unless they can keep competitors out, they first to market may be forced out - particularly if the competitors have deeper pockets and are better capitalized.

Similarly, when someone announces a new "investment" like the Elio 3-wheeled car or the Tesla electric car, you have to ask yourself whether the company in question has the capital to dive into the very capital-intensive automobile production business.  Tesla has done OK so far with limited production (by automotive standards) of its roadster, model-S and model-X (the latter having some teething problems as it is unnecessarily complex - the "gull wing" doors remind me too much of the Bricklin and the DeLorean).   But the mass-production of the model-3 is taking a lot of capital and is turning into a real struggle for them, and the market for such cars may be limited.   The first-adopter and hobbyists will all buy them - and then what?

Then what is the fact that ever major car company on the planet, who is far better capitalized that Tesla, already has an electric car or one in the works.   Nissan just introduced Leaf 2, and GM has its Bolt.   Oh, don't be confused by "market cap" articles which say Tesla is worth more than Ford.   I've already debunked that notion.   "Market Cap" doesn't represent how much capital a car company has at its disposal, but rather how much the stock is worth, in theory.   For companies like Tesla, it represents how much the founders can cash out of the deal, if they had to.

I am not "anti-Tesla" or "anti-electric car" - only trying to be realistic, here.   One massive recall and safety problem could bankrupt Tesla.   Ford and GM are able to digest things like exploding gas tanks and ignition keys that shut off - and hundreds of similar issues.  Tesla may succeed - it may be the rare start-up car company that takes off and stands on its own.   But the track record for such companies is spotty.   I think down the road, some other car company that wants to jump into the electric car business may buy Tesla, if Tesla hits a rough spot.   How do you think GM was formed in the first place?   Consolidation is the name of the game in the car business.

As for Elio - well, they need a staggering amount of money to even start building an assembly line in their factory, and they are hundreds of millions in debt.   It won't be until the wreckage settles to the ground that we find out what crashed that Hindenburg.

Crypto-currency is all the rage (keep chanting:  Blockchain!  Blockchain!  Blockchain! - even if you have no clue what it means).   But I suspect that a stable crypto-currency may be a perpetual oxymoron.  And I more than think the articles for and against particular currencies, in the financial press, are just attempts to affect the markets for these currencies - for the personal profit of the author or someone out there.   Who knows?  Maybe this "Elysium" currency will replace Bitcoin - illustrating that first to market is often last in the marketplace.

We'll have to wait and see - on the sidelines.


Thursday, June 22, 2017

Profit Taking


Sometimes it is OK to sell something that is doing well.

I sold half my interest in Berkshire-Hathaway today.   50 whole shares of class-B, as I am a big-time investor.  I bought this stock a couple of years back for $8000 and it remained flat for a while.  Today it is worth $16,000.   So I did OK.   I am selling half of it to lock in my gains.

The temptation is, of course, to say, "Keep it!  It will double again in value soon!" and that is the logic many people use to "ride it all the way down" with a stock.   But I have qualms about the "Oracle of Omaha" for a number of reasons.

First of all, he is getting old and will die some day, and no apparent successor is in the wings.  There was one, but he got bounced.   And when Buffet dies, well, the stock will take a nose-dive until the succession thing settles.  He could die tomorrow, for all we know.  It may rebound, of course, but be prepared for a bumpy ride.

Second, was a piece in the news that Buffet is investing in troubled Canadian mortgage company.  If you've been astute, you've heard the rumblings about how the Canadian real estate market is getting overheated and the denials from everyone that it is a bubble.   Having been down this road before, one sure sign of a bubble is articles (usually from Real Estate agents) saying it isn't a bubble.

People also like to say, "Well, if it is a bubble, why doesn't it burst?"   Bubbles are elastic, and they tend to overshoot a market due to hysteresis.  Hence they are bubbles.  If housing prices tracked reality in real-time, there were never, ever be bubbles - nor in the stock market.   People get ahead of themselves.

I got out of the Real Estate business in the USA in 2005.  The bubble didn't burst until 2008.   My timing was off, but better two years early than two years too late.    What kept the bubble going was funnier and funnier loans, culminating in the "payment optional" buydown ARM liar's loans that went toxic in a matter of months.   The low payments made the houses "affordable" but the terms of the loan insured eventual default.

Time will tell whether this company Buffet is investing in is the next Countrywide.  You remember Countrywide.  Bank of America thought it was "smart" to buy that troubled mortgage company (are there any other kind besides troubled?).   It blew up in their face and nearly bankrupted BoA.  It also gave them a black eye as people blamed the bank for the shitty loans than Countrywide made.   If anything, Bank of America was another victim in this scenario - being sold a bill of goods like the rest of us.

Funny thing is, the financial press is silent on why this Canadian company is "troubled: because they misreported some issues about mortgage fraud.    I have written about this before, and most people don't get it, so I wrote about it again.  It is not fraud against the borrower, but against the bank.   So $2 Billion in bad loans are made, the criminals paid by the loans (sellers of homes with padded prices) take the money and run.  The bank is stuck with a home worth less than half the value of the loan.  This to me is another sure sign of a bubble-in-the making.  It is Ft. Lauderdale, 2008 all over again.

By the way, the complexities of mortgage fraud and people's unwillingness to learn about it and unwillingness to even understand it when explained to them is why I say never invest in something you don't understand.   And we don't understand much in this world, as the press reports things at an 8th grade level, if that.   Details are deemed "boring" and "messy" and will turn off readers and viewers.   You still sure you want to get your info from the financial press?

But the third reason is profit-taking.   It is OK if you've made a lot of money in something to sell it.   When I made a staggering sum (for my investment) in AVIS, I quickly sold half of it.  And indeed, over time, the stock has dropped somewhat (from a high of a 7000% gain to "only" 2400% today).   When my friend's bank stock doubled in value - I sold half of it.   And when it doubled in value again - and again, and again, each time I sold half.

Should I have kept that stock and earned even more profits?  Well, if I had a time machine, I could go back and do that.   But the time machine conundrum again - using backward-looking statistics to invest is a really shitty idea.  Coulda, woulda, shoulda is a horrible way to invest.  "I could have made a lot of money if I had held on!  Next time I'm keeping that stock!"

But next time, the stock tanks.  History doesn't repeat itself - exactly, anyway.

This leads to the fourth reason - diversifying.   If I sell half this stock, I can invest in something else.   By doing so, I end up with a portfolio of different stocks over time.  And in fact, this account started with about four or five stocks and and has expanded to about 30 or so.   I used dividends to invest in different stocks (or bonds) over time, or I take profits and use the money to invest in different stocks (or bonds) over time.  I am less dependent on any one stock or bond or other investment going South as a result.

Security is more important than wild profits, particularly as you get older and older.   As a 20-something maybe I could afford to hold on to this stock and see where it goes.  As someone who is pushing 60, I need the money to live on, not gamble on.   So I take profits, invest in other things, and slowly over time move money into safer and safer harbors.

This insures that my retirement is secure and I won't run out of money.

Of course, if I was a stockbroker and gambling with someone else's money that would be a different story!

Manipulated Markets


One problem for the small investor is that big investors can manipulate markets and screw you.

A reader writes in response to a previous posting that many believe the collapse of the "urethra" crypto-currency market was the result of manipulation.   Of course, you invest in something called "urethra" you should expect to be pissed on, right?

The problem is, as I noted in that posting, that as a new currency that is not widely traded, it is easier to manipulate the price.   A sudden large sale depresses prices and you could then go in and snap up the stuff for far less than market value, since other holders sales (which are borrowed shares) are triggered by automated sell orders.   And as for your million-dollar sale, you don't have to worry, as you are buying your own crypto-currency back at the lower price.   You lose nothing.  At least in theory.

Manipulating markets isn't easy to do, even if you are mega-rich.  The Hunt Brothers tried this back in the 1970's with silver - trying to corner the market and drive up prices.  They drove up prices for a while, but then it all collapsed and they went bankrupt and no one felt sorry for them.  And other people have tried this with stocks, copper, and other commodities and investments - and in many cases, also lost their shirts.

The problem is, not only do these people lose their shirts, many small investors lose their shirts as well.   Since the market values are manipulated, unless you buy before they try to corner the market, and sell before it collapses (you need a time machine, once again) you risk losing a lot of money.   And typically what the clueless small investor does is buy after the financial media reports the price is going up when it is too late to get on the bandwagon.  They hang on until after it collapses and lose everything - or at least a lot.

Like Homer Simpson in the video above, you don't want to be holding pumpkin futures on November 1st.   But most of us are like Homer Simpson - we don't really understand the markets or why something is going up in value or down.   We hear about people who make money in the market, but no one talks about their losses.  Heard anyone admit to buying gold at $1800 an ounce?  Someone did.  It is like gamblers - they remember the big wins, but forget all those small (or not-so-small) losses.

Rather than trying to ride these waves of speculation a more sure thing is to invest in a company that actually does things - creates wealth - and makes a profit and pays dividends and then use time to make money for you.   Speculating on a company that is showing little or no profit on the premise that someday it might is just gambling.   Speculating on minerals or other commodities on the premise that the price might go up just because it you think it should is just gambling as well.

Dividend stocks overall tend to do better than non-dividend stocks.  One earns income, the other is often mere speculation.

Time has shown that dividend stocks tend to out-perform speculative stocks as a whole - which is not to say that just any old stock that pays a dividend is a good investment - you still have to crank the numbers.  And there other things to invest in besides stocks - bonds, government bonds, real estate, whatever.   The idea that you can "time the market" or get a "hot tip" and make it big is an illusion - usually an illusion fueled by people who want to take your money away from you.

The guy promoting the stock on the television or in the financial pages already bought his shares.   Once you buy, and drive the price up, he sells.   And apparently, this is perfectly legal, provided he doesn't lie about the company.  He's just sharing what he thinks is a good investment, right?  Caveat Emptor.

But this effect of cornering the market also illustrates why you don't want to be a minority investor in a thinly traded stock.   Say, for example, you buy stock in a company where 51% of the stock is owned by family members of the founder, or investment bankers, while only a small minority is owned by chumps like you.   They can control the company and make decisions - and manipulate the price of the stock as well.

Small family-owned companies are the worst, as they will pad the payroll with their relatives and take money out of the company and leave you with nothing.   Oh, yea, they have a fiduciary duty and all, but all that leaves you with is the right to sue.

IPO stocks are not much better.  Many of these famous dot-com IPOs of recent years sold off only 5-10% of the company.  Some even were so ballsy as to limit voting rights of IPO shareholders.   You are feasting on the crumbs at the table here, while the founders gorge themselves on roast beef.

"But Bob!" people say, "All those other people are getting rich!  I want to get rich too!"   But you won't get rich playing their game.   They make money selling this crap to chumpsters like you and me.   And they hype, in the financial pages, just enough stories about Johnny Lunchbucket striking it rich to get you to think, "Gee, that could be me!"

Casinos use the same strategy.   So do personal injury law firms.   So do a lot of rip-offs in the world.  Ever seen a billboard for a payday loan place, with the lady with the fan of $20 bills?   This, too, could be you!   No one talks about or advertises the down side.

Gambling is not Investing.   If you want to "Strike it rich!" then good luck.   But this blog is not for you.   Because that kind of mentality is the exact opposite of what I believe in.

And no, I'm not about to change my mind.

The Secret to Investing is.... No Secret.

Succeeding as a small investor means only that you should avoid swimming with the sharks.


Lots of people want to believe in the tooth fairy.  They desperately want to believe in something-for-nothing or easy riches and wealth.   After all, they read about "rich people" in the paper all the time, and surely they didn't work to get wealthy, right?  Movies reinforce this mentality - that in order to succeed in life, you have to cheat or do something underhanded.   And sadly, this mentality takes hold in American's minds.

And hucksters galore will sell you "the money system" or a seminar or something, because the rubes think there is a "secret" to wealth and that you can buy this secret.   But they never bother to figure out that if there was such a secret, no one would tell it to you or sell it to you, because, well, then it ain't a secret.

But there is no secret.   Yea, some people get lucky and make millions or billions.  Some work hard and get lucky and make millions or billions.  Most people who are "wealthy" worked hard, saved money, invested it in rational things, and did well over time.   Little people who get crushed by our financial system are the ones that gamble - literally in casinos, or figuratively in sketchy "investments."

The "secret" to getting ahead is not really a secret.  Spend less, save more.  Invest in rational, normal things.  Stay away from futures trading, commodities trading, dot.com stocks, IPOs, or any other huckster-type deal that is promoted on the Tee-Vee or worse yet, the Internet.   Diversify your portfolio so if one investment goes bad (and more than one will!) you are not wiped out financially. 

This is simple, basic advice that all the rational actors in the marketplace give free of charge.  Most folks take it - those folks you think of as "rich" follow this advice.   Others don't and get fleeced.

In this special report from Reuters, they mention offhand, the experience of this one farmer:
In three years of managing investments for North Dakota farmer Richard Haus, Long Island stock broker Mike McMahon and his colleagues charged their client $267,567 in fees and interest - while losing him $261,441 on the trades, Haus said.
McMahon and others at National Securities Corporation, for instance, bought or sold between 200 and 900 shares of Apple stock for Haus nine times in about a year - racking up $27,000 in fees, according to a 2015 complaint Haus filed with the Financial Industry Regulatory Authority (FINRA). 
Haus alerted the regulator to what he called improper “churning” of his account to harvest excessive fees. But the allegation could hardly have come as a surprise to FINRA, the industry’s self-regulating body, which is charged by Congress with protecting investors from unscrupulous brokers.
The story was about unscrupulous brokers.   But they don't bother to go into too much detail as to why a farmer from the mid-west is losing a half-million dollars in trading fees and churning.   That's more money that most Americans hope to save up for their entire lives.   The answer is, of course, that the "brokerage" likely cold-called this guy and told him they could make him tons of money.   And he didn't bother to investigate this too much or think to himself, "Gee, if these guys can make lots of money investing, why don't they invest their own money?  Why are they calling me?"

And they were calling him because they likely can't make a lot of money investing, but rather they make a lot of money churning other people's accounts.   And shitty deals like this abound in our free-market economy.   People tout gold bars on Fox News (I saw it in a bar last night - sound off, thank God).   People push dot.com and IPO stocks on the financial channels.   The shouting guy is still on the air even though he has been repeatedly exposed as a charlatan.

And yet, every day, another small-time "investor" jumps into the deep end of the shark tank and ends up as chum.   Why?  Because they don't know where to invest their money, so they look around and think about what could be the next big thing.   They want to "win" at all costs - in a game where they don't even know the rules.

And I say this from experience, as when I was younger, I thought, "Yea, I want to make big money in the stock market!" and proceeded to lose my shirt.   It was only a few thousand dollars, but it was an expensive tuition for a lesson well-learned.   I stopped looking for "the next big thing!" or the "big stock tip!" and started thinking about more prosaic, steady investments that earned profits and paid dividends, and over time went up in value almost uniformly.

You see, as small investors, we'd like to "win" of course, but we can't afford to lose.   Maybe a Billionaire venture capitalists can afford to throw a few million or hundred million at some "start up" company and hope to hit it big.   They don't have to worry about retiring on catfood.   We do.   We cannot afford to "lose it all" and start over.

Have I taken some big risks that paid off?   Yes, but in small amounts.   $750 invested in Avis on a whim went up several thousand percent.   If I had invested my entire portfolio, I would be a multi-millionaire.   I could not afford to invest my entire portfolio in a company that could have just as likely gone bankrupt.   I invested in a bank started by some friends.   That more than quintupled in value.  I did not invest much - not more than I could afford to lose.

I also did dumb things like buy GM stock before it went bankrupt, or Martha Stewart, thinking a cookbook and television show was a "media empire".   It was not.

I also learned that trying to time the market was nearly impossible.   Unless you have your hand on the pulse of something, it is very damn hard, using the same data everyone else is getting to understand whether a stock is going to go up or down.   Taking someone else's advice in this, is even worse.  I got out of Real Estate in time, only because I was immersed in that market and saw that it was going crazy.   People who didn't understand real estate kept buying, right up to the very end. 

Never invest in things you don't understand.  And when someone tries to sell you an investment and you are skeptical and don't "get it" maybe you should back away.  When the person trying to sell you such a turd condescendingly tells you that you just don't appreciate how it works, run away.

You are going to make money on some investments and lose money on others.   Overall, after 30-40 years, you will do OK.   If you try to "hit the jackpot" you likely will lose everything you've worked for.   You might as well just go to the casino and gamble - at least they give you free drinks there. 

Stay in the shallow end.  The water is just fine.