Archive for the ‘Wealth’ Category

Secret Simple.ology

Friday, April 18th, 2008

First there was The Secret that created a massive worldwide following in the area of success / destiny mashup. What used to be a series of isolated personal development movements can now be aggregated into a single offering for a much greater impact. It is happening on YouTube (who thought running into fences can be a national pastime by now?) and it is happening across all content types. The interesting thing is the massive co-authoring of these ideas (The Secret had dozens of virtual contributors) is becoming similar to the open source movement. So here comes yet another idea - Simple.ology that already has more online spinoffs than its Amazon sales would indicate. This time it is the linkage between personal improvement, Getting Things Done and wealth creation that brings three evergreen bestselling topics together.

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The value proposition of the story is attractive: Most people have great ideas but how do you actually follow up and deliver on your dreams and do it half the time… The online community has been very active on this ever since it came out in a book form. The book is great read despite the usual skepticism that creeps in when you are reminded of things. More than once. Persistently. We all know the basics:

  • Set goals you are passionate about
  • Take action every day towards them
  • Always do what you say you'll do

Maybe Simple.ology can motivate us to do more of what we know we should do.

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Weak Dollar Poorer Nation

Saturday, April 7th, 2007

Something unnatural happened in the Wealth of Nations. As an economist in school I learned that weak dollar helps exports, employment and growth. All in all if the dollar falls imported goods may be more expensive but everything else is supposed to be positive.

Some good old rules are getting broken…

  • Despite 12% drop in the dollar in the last 2 years and 46% drop in the last 5 against the Euro the US growth is behind that of Germany and even the EuroZone. They were supposed to be shrinking under the pressure of the cheap US exports… It turns out we are increasingly competing globally with companies that source products from the same place we do: China. And the Chinese currency is pegged to the dollar. The cheaper US exports get, the cheaper Chinese exports get…

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  • If we take two graduating buddies (Class of 2002) from the same midwest College split up and one lives in Germany the other one in Chicago the real cost of currency becomes real for them. If the two make the same money for the last 5 years what they made when they graduated… the German fellow would have over twice as much in dollars as his Chicago buddy by 2007 assuming they save at the same rate…
  • The Chicago house one of them bought that appreciated 50% in those 5 years would have been flat counted in Euros. The same house in Frankfurt appreciating 50% would have doubled in price if measured in dollars..

Maybe all in all it is a good thing considering someone has to buy up all the savings and assets we accumulate over the years as I wrote in my prior article… We expected Chinese investors but we may have to take some Euros as well…

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5 Things I Wish I Learned Earlier

Wednesday, April 4th, 2007

Brian Kim’s marketing-heavy website has a ton of great insights and content. One article in particular made me think about all the subjects we study in the quarter of a lifetime in our school systems and how they relate to what I do for a successful living.

In his article on the Top 5 Things That Should Be Taught In Every School there are great reminders of the basics:

  • Personal Finance
  • Effective Communication
  • Social Skills
  • Sales
  • Time Management

Looking back on an average day in the office those are really the key skills I use….

In my case the ultimate teachers became Tom Dorsey in Finance, Mahan Khalsa in Sales and David Allen and Tony Robbins in Time Management, Barbara Minto on Communication and Keith Farazzi on Social Skills.

And I barely remember the calculus, geography, physics and philosophy I took. Let alone early European literature.

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The Future That Has Happened

Monday, December 11th, 2006

A visionary presentation by Jeremy Seigel is always a treat if you like to guess where your money is going.
In our latest Greater Philadelphia Venture Group Luncheon he presented findings from his latest book, the Future for Investors.

Siegel, notorious for calling market tops and bottoms far in advance dedicated his speech less to the market but to wealth management. His insights were useful regardless what level your investments are.

A couple of highlights from Siegel:

  • Over the next 25-30 years there will be a tectonic shift in the ratio of working vs retired people in the US. The ratio will move from 5:1 to 2.5:1 in only 20 years. This will cause a massive shift in liquidity of assets. The relative diminishing income earning part of society will have less and less current income (in relative terms) to buy the assets of the increasing retiring baby boomer group.
  • Retiring baby boomers “cannot eat” their wealth - i.e. you have to sell your appreciated assets (real estate, securities, etc) in order to get current income for consumption. Unless there are sufficient buyers of these appreciated assets there can be a very significant correction (30-50%) of the value of these assets to find supply/demand equilibrium if only US buyers can buy these assets.
  • To dispose appreciated assets (real estate, businesses, investments) at highest value the buyers need to come from outside the US economy - primarily from large non-aging societies - India and China. A large majority of these assets will be acquired by Asian and Eastern European consumers and investors.
  • As a result there will be a shift in economic contribution with India, China controlling more of productive assets and over time eclipsing the size of the US economy. Today 7% of the capital is in the developing world, by 2050 67% of capital will be controlled by the current developing countries.
  • Unless these transfer of assets are enabled the baby boomers cannot dispose of their assets and will have to retire at a much higher age (if at all) probably pushing their mid-to late 70s.

So as a society either we work into old age or we yield our global capital leadership to the less demographically challenged emerging economies.

He also pointed out that currently stocks are better investments than debt or real estate - but the audience was already reallocating their portfolios to distant relatives in Beijing…

There is little for policy to influence these trends. As Siegel put it: “Demographics is the future that has happened”.

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Origin of Wealth - Pilot, Standardize, Scale

Tuesday, October 17th, 2006

A recent re-read of Eric Beinhocker’s tome Origin of Wealth reminded me of the essential lesson in innovation based business strategy, or in his view any business survival.

Beinhocker (who heads the economics think tank at McKinsey’s Global Institute) takes you through a wonderful historical journey to prove that businesses just like any organisms go through predictable evolutionary cycles:

  • Differentiate (by trying more effective ways)
  • Select (traits that work best)
  • Amplify (selected traits)

That is the gist of 540 pages of intense research and like anything profound - it is quite simple.

Most businesses (including our own) grows by trial and error innovating products or business models depending on our conviction of competitive advantage. Then we standardize on what seems to work best and scale it by adding resources (people, money) behind it.

The model of Pilot / Standardize / Scale has been an extremely rewarding strategy for us for many years to innovate new products, services and business models or sometimes all three. It is good to see that great minds confirm our efforts to, well, Differentiate.

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Can you really Prosper?

Wednesday, October 4th, 2006

As business models go Prosper is definitely one of the interesting combinations of risk management, money making, contribution, auctioning and social networking. You can sign up with them if you need a loan or if you have some money to lend. What is really fascinating how Prosper built in social networks to increase the trust levels of borrowers (lending to people in your local community, people from the same college, same background, same predicament).

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As a borrower you publish your profile and your elevator pitch on why you can be trusted and why your project is worth funding and why you are good for the debt. You can compel emotional support for caring for a loved one or spread the risk of building your next business.
If you have good credit the going rate is around 8% if your credit is really bad you should expect to pay above 26%. The rates seem to be in line with market rates for good borrowers and certainly beat credit card borrowing costs for many.

As a lender you get to spread your risk by syndicating loans with other lenders. You can pursue a pure capitalist agenda of maximizing profit (lending to a high risk venture @19% interest) or more of a social agenda and lending to the idealist building a daycare at 4%. You get to realize 8% and better with good borrowers at reasonable risk. Remember, you can spread your risk with many lenders and across multiple loans.

As any good market, borrowers can bid up interest rates they are willing to pay to attract lenders and lenders can bid rates down to get the borrower with the lowest risk.

Either way observing Prosper you can learn a lot in this petri dish of capital allocation on what people are compelled to invest in, take risks for and why. Market driven interest rates get set for various endeavors raging from social (paying for the wedding) to business turnarounds.
The rich data collected by Prosper would be fascinating research on how social networks get built around money.

As the business model goes, Prosper charges 1% one time closing fee to the Borrower and 0.5% annual servicing fee to the Lender. Lenders also get collection agency services at extra charge. All around a reasonable value proposition.

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Hey Brother, Can You Tell The Future?

Friday, September 29th, 2006

It is interesting that there is a perennial hope that someone (typically someone else) will have a better idea of what the future brings than us. Well that is the central theme behind the new wave of social networks of oracles.

It takes several forms, a recent favorite being the all-business, Bizpredict, where you can predict (not so distant) future business events like iPod generation 45 or whether mySpace is going to outshine Yahoo in traffic. At Bizpredict you are playing with, well, play-money.

If you want to put your money where your mouth is then you need to go to the new casino of fortunetellers, HedgeStreet. Here you can bet (I mean hedge) on various future predictions like where the housing prices are going next week or if oil is going to dip below $55 again. All in good fun. Especially while you are ahead.

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YouTube, Facebook and Shift in Boom Cycles

Thursday, September 21st, 2006

It is always fascinating when we can actually see the shift in boom cycles and the reallocation of capital on a massive scale.
At the same time that real estate and commodities are (let’s just say) taking a good, long breather, Web 2.0 business are starting their wave of exists. Whether it is the 42% growth in valuation for Facebook in one year or the billion dollar deals for networks Facebook and youTube - we can comfortably say that market confirmed the shift in boom cycles.

Wherever the smart money moves, economies move. I know we cannot compare the 7.2 trillion dollar (net) real estate market to a couple of feeble web deals (a billion here and there and soon it adds up to real money), but I am sure Mark Zuckerberg growth index just outpaced the real estate index. Welcome the new new economy.

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What it takes to win

Tuesday, September 12th, 2006

It is always interesting to watch how other succeed and discern the winning formula. Money magazine featured a couple of companies with great business models and had an ad-hoc myth busting exercise.

Myth 1: You’ve got to have incredible charisma
Myth 2: You must be able to see into the future
Myth 3: You’ve got to stick to your guns, no matter what
Myth 4: You need to take big risks
Myth 5: You need a burning desire to get rich.

It is almost never pure luck. It is almost always a great business model.

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Kiyosaki on PBS

Monday, July 24th, 2006

One of the all-time wealth education greats, Robert Kiyosaki was on PBS today. It reminded me of everything I observed in great entrepreneurs: communication skills, vision and sense of how to make money by creating high perceived value with their customers. While there is ongoing criticism of his methods and life story in the end people are still lining up to hear his advice and buy his books. Regardless of what you think of Kiyosaki you have to admit that there is difference between the employee mind and the entrepreneur mind.


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