Monday, November 28, 2011

The Market of The Future: Celebrity Stock Exchanges

I must've been tired today, because I just woke up from a nap and I never nap. As I woke up, I reached for my Iphone to check the time and also checked the 'stocks''s down, and will be for awhile. I then check my and check my personal finances as I need to go grocery shopping in the next hour. I love Mint, its a like a personal income statement, balance sheet, and cash flow statement.

I then started to think about my entire financial picture: my cashflow, my debt, my net worth, and realized that you can look at your own financial picture the same way you analyze a company's. All the stuff I've read about company's delaying accounts payable to have working capital is nothing more than me delaying my rent until my next paycheck so I have more cash on hand. I then started thinking about my earnings growth potential, how much do I stand to earn over the next 5 years? 3 years? Tough to say, but I've got a couple things in the works that could add a growth, I'm like my own personal stock!

To which I started to really get thinking, that for the past hundred years, investors only had the options to invest in asset classes such as stocks, real estate, commodities, options, and hard assets to name a few. The prices of all of these asset classes is determined by what the market (society) deems them to be through the forces of supply and demand. The interesting thing is that if market participants (people) are really what gives all of these asset classes value, why can't I make in investment in the market participants (people!) directly?

If you really think about it, for hundreds of years both individuals and institutions have been able to 'buy' debt in individual people...this is exactly what happens when you take out a mortgage, essentially the bank is purchasing a bond in you personally so that you can raise capital to pursue your endeavor to purchase a house. This transaction gets puts on the liabilities side of your personal balance sheet. Yet we are missing a huge component to the personal balance sheet: Stockholder Equity, its critical in making the balance sheet balance (Liabilities + Stockholder Equity = Assets ). And as it stands right now, there is no market in which a person or institution can purchase equity in another individual person, and my question is why not? Personal debt instruments have been issuable for the hundreds of years, why can't personal equity be?

Think of it: a liquidable market in which you can buy equity in the endeavors of your favorite celebrities. A market where you can purchase equity in someone's future and get a return on that investment just like they are a corporation. Why not? After all when you look at the stock exchange, essentially what you are looking at are the celebrity companies of the investment world. In fact the very first publicly traded company, The Dutch East India Company, was successful in raising equity capital for the first time in history just by their notoriety alone: they were the most famous company at the time and its success served as a model for other corporations to follow.

How could this be done? Well the same way a corporation becomes publicly listed, you would need underwriters to determine the net worth of each individual and list them on an exchange. By starting with celebrities and the availability of real-time online trading, the market would essentially create itself (think of Twitter and Ashton Kutcher). The stock price of each celebrity would rise and fall not only with supply and demand but by their earnings potential. For example, there would be higher demand for stock in Kim Kardashian than Michael J. Fox, not only because she's more famous right now, but because of that her earnings potential would be perceived by the market as higher from endorsements, shows, and other income producing opportunities.

Think of all those gossip magazines out there could then actually be considered investment research, wow!

Eventually this could extend out to people who aren't celebrities, however the trading volume wouldn't be there (low demand). Essentially, family and friends would just be like penny stocks. That being said though, this creates a whole new industry in cheap personal underwriters: get your personal stock valued and listed for just $99.99! Ha!

All this isn't a matter of if, its just a matter of when it will happen, this market could easily sustain itself and because of that it will eventually manifest.

Wednesday, July 6, 2011

All Humans Are Value Seekers

Kind of broad statement, but it’s simple and it’s true so think about that for a second: All humans are value seekers. For the last few years I’ve kind of been obsessed with the concept of value. Value can mean all sorts of things and doesn’t necessarily have to pertain to money. That being said value as it pertains to money can provide us good direction in defining exactly what value is. Whether we are buying a house for less than what it’s worth, or a stock, or jewelry or whatever, it’s obvious that value plays a big part in our lives.

Then why is it so hard to define what the value of something is exactly? In real estate, how are houses typically valued? Comparables. That’s because value is so elusive that we have to look at things outside of something in order to determine how much it’s actually worth. Kind of crazy when you think about it right? We’re determining how valuable something is not by looking at the thing itself, but by looking at other things. It almost sounds a little insane, but that’s the nature of value, there's an essence of relativity.

Humans by nature are value seekers, meaning that they are constantly in pursuit of things they perceive to be worth in excess of the price paid for them. Why does someone pay $250,000 for a Ferrari? Because the person perceives that the value of that Ferrari ̶ the prestige, the glamour, the stares of hatred from passerbys ̶ is all worth much more than $250,000 because if it wasn’t they’d go buy something else. How many times have you saw something you liked, found out the price of it and said “Nah, that’s not worth it”? That’s this value-seeking concept at work.

As social animals, we tend to gravitate towards people that we perceive to have high value. Unconsciously, the reason why we befriend someone or start a relationship with someone is because we perceive that the value we can extract from that person is worth well in excess of the value we must give to that person in return. When do relationships end? When people feel like they are giving more than they are getting back.

But the biggest takeaway about value is that even though value is real, it’s still only a perception. It’s a perception with justifications, but just a perception nonetheless. Think about how that can work to your advantage in your life or in your career. The value of anything is defined only by our perception of it. How can we guarantee success in business or our career? It’s simple: give more than you ask for in compensation. 

The concept of giving really comes full circle here sociologically, in the fact that a person’s true value is determined exclusively by how much they give versus how much they ask for in return. That’s why 50/50 is a losing proposition in any relationship or business deal, the result is net-zero ̶ no value.

It’s a crazy concept that I’m still wrapping my head around myself, but undeniable at the same time…

Value = Perceived Worth – Price Paid

Tuesday, June 21, 2011

Why Certain Things Are Meant To Be

So being in sales, you start to really see many things in a different light, things like human behavior, persistence and success. In terms of success, there's a lot of advice out there that persistence is a key ingredient in success, and I believe it very much is. That being said, it is also the key ingredient in annoyance when on the receiving end...

There's all this focus on persistence when it comes to success whether it be in business or love or anything else with a goal attached. But if there's one thing I realized, persistence alone is not just some magic ingredient you throw into the pot and voila, ze soup she ez done! That's a very naive thought process and one that I myself have been guilty of in the past.

Probably the biggest factor in success is timing. Applied to sales you can have the right product, the right attitude, and the right everything, but if the customer cannot buy for a legitimate reason, then no amount of persistence is going to change that, instead you're just going to poison the prospect if you do persist (also guilty, hehe). Apply this to life and I believe this is really enough proof that some things are meant to be, and by necessity, some things are least for right now.

You can look at it spiritually if you want as well, but in terms of logic this supports that belief if you prefer to look at it that way. Just because you have the right ingredients, the right recipe, and the right oven temperature does not guarantee making a great cake anymore than increasing your odds guarantees success. It also takes that extra element of timing. When I did Judo many years ago, a black belt told me ever since becoming a black belt, it's not his throwing technique that he works on, its his timing...why do I throw, not how do I throw.

That being said, I do not endorse sitting on your ass when the going get's tough and saying "oh well I guess its just not meant to be." Timing is not an excuse for surrender, it's a fundamental truth for peace of mind. Whether something is meant to be or not is not for us decide, but a result of the present circumstances. Our job is to persist within reason, with peace of mind in the truth of "if not now, then later."

Thursday, June 2, 2011

One Year Investment Update

So one year is sometimes all it takes for an investment to blow out any return you could've possibly imagined. On Monday, made the following sales with a 1 year holding period to lock in long term capital gains tax rate...

United Healthcare
Buy: $26   Sell: $49   ROI: 47%

Wellpoint  (WLP)
Buy: $51   Sell: $76   ROI: 33%

Exxon Mobil   (XOM)
Buy: $58   Sell: $80   ROI: 38%

Energen Corp.   (EGN)
Buy: $50   Sell: $60   ROI: 17%

United Health Care and Wellpoint I bought during the whole Obama Care debacle when there was a lot of uncertainty as to how the bill would affect the healthcare companies. These were sort of no-brainer plays as both companies have the creme de la creme of healthcare services including Blue Cross Blue Shield. Just seemed obvious both were going to come out of all the uncertainty as winners still.

Exxon Mobil techinically was a two year holding period total, since my first position was made in 2009. However, when the BP oil spill hit, the whole damn oil industry got slammed in the market as being evil...that's like your neighbor destroying the sidewalk in front of his house and city hall punishing the whole neighborhood for it. I loaded up on more shares at a lower price when the stock fell off a cliff, which in turned lowered my average cost per share when it came back up. Goes to show you, a stock dropping can actually be a good thing if you've done your homework ;o)

Energen was a value play, I saw it as undervalued and decided to sell off because I wanted to increase cash due to better opportunities that are out there right now.

Tuesday, January 25, 2011

Why Groupon Can Actually Hurt Business

So I punched out some quick math today regarding Groupon and saw some pretty enlightening stuff. You may have noticed that Groupon has things such as $40 for $20 as promotional offers for restaurants and services. However, from the restaurant industry standpoint the increased volume doesn't necessarily equal a profitable endeavor.

Take a restaurant for example that has a profit margin of 10%, average for the industry. A sale of $40 would yield a profit of about $4 ($40 x 10%), meaning $36 of that $40 sale is going to pay for cost of food, rent, and all other costs associated with the restaurant's operations. If we suddenly drop that sale price to $20, each sale is now actually costing the restaurant $16 ($36-$20) instead of making them $4 in profit,  so we now have a cost per coupon of $16. Wow, very expensive!

Now we need to factor in the change in volume, for example, how much does it cost to feed 160 versus 80, because it isn't simply 80 x $36 or 160 x $36. There are economies of scale at work here. How much does it actually cost? I don't know, that would be on a case by case basis. However, I can imagine that the incremental change in volume needed in order to actually turn a profit on such an offer starting at a $16/coupon disadvantage would need to be tremendous.

Instead of looking at Groupon as a money making endeavor, it's probably best viewed as a marketing expense. At a cost of $16/coupon used, the restaurant exposes itself to new clientele that otherwise may not have come in the first place, in the hope that they can convert the discounted sale into a full priced sale sometime in the future. The present value of that future sale? Again on a case by case basis, but assuming the 10% profit margin, the sale would need to be higher than $160 (present value) on a group of the same size just to break even on the marketing investment.

But then again if Groupon is just a marketing expense now, why not use a service such as OpenTable that has a network marketing aspect, costs significantly less per cover, and actually contributes to the bottom line?

Wednesday, January 19, 2011

One Year Update on my "Home Depot, Your Next Great Investment" Post

Just wanted to give an update on one of my postings I wrote about a year ago on February 1st, 2010 regarding Home Depot as your next great investment. At the time of the posting, the price was at $28.01, almost a year later the stock is up to $36.02. If you had bought it at the time I recommended it and sold it today, you'd be looking at a 29% annual return on your investment, which is double the average return of the whole S&P 500 (~14%)

Technically, you'd want to wait until February 2nd to sell it, that way you would be taxed at the long term capital gain rate (I think its 10% right now?), rather than short term capital gain which would be taxed at your income bracket (probably 20-33%). 

Now if only we could get a 29% return on every investment, we'd all be millionaires in no time. ;o)

Tuesday, January 18, 2011

The Dilemma of Success: The Solution

So in my last post, I was discussing the inherent problems with being a person or an enterprise that is goal-oriented. In this post, I would like to present a solution that we can use as individuals or as companies that will allow us to not only reap the future benefits of being goal oriented, but also allow us to have the freedom and awareness to remain fluid in our approach. 

You may recognize this video, but take a look at it to remind yourself of what exactly was said:

Now when we finally made it to the moon, did we really gain anything from the actual event of man walking on the moon? No! The quality of life was not enhanced one iota for most people when Neil Armstrong set foot on the moon. Was it a pivotal moment in history? Yes, but it didn't really change the quality of everyday life for people in the slightest.

So what did we get from the moon? Well as a nation, we developed the ability perhaps for better space flight. The goal also forced scientists to come up with better more efficient ways to develop space shuttles and mission control. You could also say that it paved the way for better satellite communications and information technology as a whole. But did all that come from Neil bouncing around up there?? No, that was just the victory lap! That's the same thing as saying a football player spiking a ball in the end zone is the reason he scored a touchdown.

What I'm saying is this: a goal is ultimately just the finish line. The value is not in the goal itself but in the processes, beliefs, habits, and abilities obtained en route to that goal.

Anybody who has ever been successful at anything will tell you that the achievement of the goal is ultimately anti-climatic. Which leads us to ask, what is the point of sacrificing present alternatives or even contentment for a future anti-climatic moment? It just doesn't make sense.

That being said, we can still reap the progressive benefits of being goal-oriented without having to go through every day in a constant state of lack, whether you are talking about an individual or an organization.

Instead of just setting a goal and going for it, break it down into what processes you'll need to achieve that goal. What kind of habits will you need to get into? How do you need to think about it? What is the best way to approach it? Why do you want it in the first place? What skills will you need to master?

An example of the difference is this: let's say you want to make a million dollars in the next five years. You can either learn ways to make it or win some sort of sweepstakes, which one would be more valuable to you? Well, the future value of learning how to make it on your own far exceeds the winning of any sweepstakes because all things being equal, the processes, habits, skills, and approaches you've obtained along the way will probably allow you to do it again and again even further down the road. That is why there are so many turnaround stories of millionaires who lost it all then made it all back again because they had acquired the necessary processes to replicate their success many times over.

By being process oriented, rather than just goal oriented, we create a success engine more like a car rather than a pump-cart on a railroad track. Goals require us to push, processes only require us to steer. What would you rather do? :o)

Think processes and habits. Goals and objectives will change often, processes and habits will not.

Monday, January 17, 2011

The Dilemma of Success: The Catch 22 of Being Goal Oriented

I think we've all have heard of how being goal oriented is one of the habits of highly successful people and enterprises. I know we all can see how being goal-oriented makes logical sense as to why it can lead to success. However, there are some pretty non-obvious things about this mind frame that I'd like to point out.

When an individual or an enterprise becomes goal-oriented, they are essentially saying "Here is my goal. I chose this goal to enhance something to a state of betterment." Because of this, an acknowledged state of discontent is an absolute must. In other words, in order for a goal to become a goal, a person or enterprise has to be willing to admit to themselves that the current state of their objective is inadequate and warrants becoming better

Discontent is the fuel of the "goal-oriented locomotive". Without discontent, the engine does not function and the train doesn't move. The dilemma that this introduces is that being goal-oriented requires one to constantly be in a state of discontent. So my question to you is this: how do you think that mind frame affects the interpretation and experience of the present moment?

In my mind, I believe it seriously diminishes both the experience of the present moment and the value of present and future alternatives. A goal-oriented mind frame both has the advantages and disadvantages of hyper-focus. The advantages being the intensity of one's focus and the disadvantage being one's lack of awareness of equally valuable alternatives.

I think we are all familiar with the image of a ladder when it comes to success, however I feel that this image is inadequate and restrictive. The problem with a single ladder is that it restricts you to only two directions: up or down. Have you ever seen firefighters using only one ladder to put out a fire? Rarely, they usually use multiple ladders and even if they were were to use one, they'd move it around. Instead I think when it comes to success, you are better off thinking of it more like this:

Who would have known that you were already learning the principles of success when you were playing games as a child? Ha! This image is a lot more applicable to success because inevitably, success is rarely in a straight line (i.e up or down). You can ask any successful athlete or entrepreneur about this and they will agree. A setback isn't necessarily a step down but could also be one in a whole new promising direction, just like a promotion or an advancement could be a step ultimately in the wrong direction of where we want to be.

All that being said, the inherent value of being goal-oriented is undeniable when it comes to success, but it comes at the high cost of constant discontent. Is there any way we can have our metaphorical cake and eat it too?

Believe it or not there is, which I am going to discuss in my next posting...

Wednesday, January 12, 2011

To All The Mall Vendors Out There: Here's A Better Way To Sell Your Hair Curlers

I was in the mall the other day and started to notice the zigzag pattern I tend to walk when making my way through the mall. Its not because I can't walk in a straight line, its because a straight line in the mall is almost sure to be full of vendors trying to clear your face up, curl your hair, or even (I'm not making this one up...) sell you an oxygen mask...

There's nothing wrong with being a go-getter and having been in retail sales I know that vendors need to move their product. However, its an unwritten law of the universe that when you chase something, you ultimately end up driving it even further and further away. Hmmm...I think even I just realized something right there!

I can't count how many times I've seen and experienced mall vendors annoy, offend, and even intimidate passerbys in the mall. I guess what I'm trying to say is there is a better way to do it, mall vendors.
First of all, drop that default line, "Hey, can I ask you a question?" The answer will always be no. Why? Because you asking for value before you have given any. Instead, move away from your display, about 10 feet away and just smile and greet people, be a diplomat! Just say "Hi, how you doing?" and nod your head as they walk by. You'll actually start to see them slow down and perhaps look at your stand, some might even stop. Give it a try, you'll see it works...

Why does this work? Because you are doing a few subtle things. First, by greeting people and smiling, you are GIVING value first rather than asking them for it. Second, by putting distance between you and your display, you are allowing people to look at your products without fear of being 'sold'. And third, it will allow you to see who your customers really are as they slow down, because chances are while you were chasing someone who wasn't interested you might have missed someone who actually was.

As people stop, you can slowly move in from the side as they browse and ask a genuine question: "so what are you shopping for at the mall today?"...start a conversation and go from there.

Monday, January 3, 2011

For Steve: Why Restaurants Only Give You 2/3 of the Diet Coke

So I get this text from my friend Steve the other day: " should write an article about how ice is a scam. Restaurants put it in and it fills up a third of the volume, then you really only bought 2/3 of a soda." So Steve, this one's for you, here's the financial underwriting of restaurant cokes...

Let's say the restaurant sells 45 cokes a day (conservative for most) and it costs them 20 cents a coke, assuming of course they buy in bulk or are mixing their own syrup through the gun at the bar. That's 1,350 cokes a month, costing the restaurants $270. If they charge $1.75 for the coke, their coke revenue is $2,362.50 and their operating profit is $2,092.50.

This is assuming we live in a normal world where when you buy a coke at a restaurant they give you the whole coke, but we don't and they don't, they give you 2/3 of the coke and load the rest of the glass up with ice.

So therefore, though they are selling 1,350 "cokes" they are only 2/3 full, which means they only need to buy 891 of them. That costs them only $178.20 versus $270, saving $91.80 per month, which adds up to an annual savings of $1,101.60. That's ends up being probably more like $800 after taxes, which goes straight to their bottom line.

So how's an extra $800 sound, Steve?

A table on stage at Royale and you're paying? Well alright, I'm not gonna argue with you, just stop yelling at me about it, people are starting to stare...

Pharmaceuticals: Why Are You Even Bothering With Television Advertising?

So I think everybody has seen a commercial advertising a new prescription drug, whether its to quit smoking, birth control, or even those ridiculous Viagra commercials of men doing manly things like changing their oil or saddling up a horse...because real men own a horse, but can't get it up for the little lady.

Part of the requirements of the FDA for prescription drug advertisements on television is that all side effects of the drug must be disclosed in the commercial. But I think we all know the stereotype of how the side effects always seem worse than the original ailment.

I just saw a commercial for a new birth control, Mirena, and distinctly remember exclaiming out loud "Jeez!" One of the side effects included "pregnancy that may occur while on Mirena could cause death or loss of fertility." Which leads me to start to think, at what point does advertising actually start to hurt a product's sales rather than help it? It seems that there's a belief somewhere in the advertising world that any advertising is good advertising when this is clearly not the case. Case in point, girls would you be comfortable taking that pill everyday just knowing that one side effect, nevermind the string of other painful ones they also mention?

The whole point of advertising is to anchor a good feeling to your product in the eyes of your target market. This good feeling creates brand equity when your potential customer sees your product in the store or hears about it from their doctor because they have now become familiar with the product and feel comfortable about it.

If your target market walks away from your advertising scared and thinking "um, no thanks," have you really achieved your goal? Something is broken here...

Saturday, January 1, 2011

A Quick Note on New Year's

New Year's is a funny thing really. It's one of the only days out of the entire year where everyone is both positive and goal-oriented, hence New Year's resolutions. People are all amped up about the next year and all the things they want to do and accomplish. Then comes January 2nd and everybody has an excuse to go back into their foul grumpy moods because after all, New Year's was yesterday!

Why do we choose only to make resolutions on December 31st when there are 364 other just as valid days in a year? Why do we feel so positive one night out of the year when the only difference between that night and other nights is that we are watching a clock and counting backwards??

It seems like one of the best resolutions one could make this year is to treat every day like its New Year's. To be able to wake up and say "it's a brand new day, this one's going to be even better than the last" could give us so much psychological momentum, it would be amazing the experiences we'd have. To consistently start our days with a list of things to do and check them off as we go along could reinforce such a can-do attitude that all of a sudden that mountain of debt doesn't look so daunting, or that weight loss program too hard, or that promotion so far off as you thought!

New Year's isn't just an event, it's a state of mind we can have year round. So if I see you in June and I wish you a Happy New Year, you might not think I'm so crazy after all, right?

Ehh, let's not push it, John...