The Mouse, Bird, and Fox

A haughty bird spotted a mouse crawling through the field. 

The bird landed next to the mouse and said: "Oh, poor mouse! A hungry fox prowls this field!  What are you going to do if he sees you?"

The mouse answered: "I have but one option - I will run away."

The bird boasted: "I know several ways to escape the fox!"

Just then, the fox arrived!  The mouse ran away and the fox ate the bird while it tried to figure out which escape method to use.

Moral: It pays to keep things simple and your options limited.

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Trump Mortgage Boss Inflated His Resume?

According to a story on CNNMoney.com, the man that Donald Trump hired to run Trump Mortgage inflated his resume.

Well, I think that is being a little bit charitable. If a guy lies about a degree or exagerates one job, that is inflating his resume. This is a joke.

According to the article, the guy's bio said:

1. He was a "a top executive at one of Wall Street's most prestigious investment banks."

2. He was an "established leader" at one of New York's leading mortgage boutiques.

3. He had 15 years of experience in the financial industry.


But the article said that these turned out to be false. Turns out:

1. It looks like he was a broker at Dean Witter Reynolds for 3 months (and a registered broker for a few days).

2. He was a loan originator at GuardHill Financial for 2 years.

3. Besides his job at Dean Witter, he was a daytrader for 2 years.

It looks like his main work experience was running a nutritional suppliments business. This kind of stuff reminds me of someone working a multi-level marketing (MLM) company.

What really surprises me is how someone like this ends up connecting with someone like Donald Trump, and becomes head of something visible, like "Trump Mortgage".

I don't think he will be the head for too much longer ;-)

It seems like, with the success of "The Apprentice", Donald Trump is actively trying to reach middle-class individuals, through things like books, Trump University, and now Trump Mortgage. But he is getting hooked up with the get-rich-quick crowd.

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Marketing By Providing Free Useful Information

One of the ways to market your business on the internet is to give away free information. The interesting thing is that this aspect of marketing can become viral.

For example, Geico.com - the car insurance company - created the GEICO teen safe driving Web site, which is located at http://www.geico.com/auto/safety.

This site contains a whole library of safe teen driving information, tips, and brochures. GEICO provides the materials at no cost to families, driving classes, law enforcement officials and state agencies.

Now, the viral marketing aspect comes into this because sites that resale Geico insurance, such as CarInsurance.com, can publish a link to this free library and offer the information of its existence as their free information.

This way, people can use their site to link to the Geico information and, while at their site, hopefully request a car insurance rate quote from them and, maybe, buy car insurance through their site.

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Stony Field Farms

Yahoo has a story on Gary Hirschberg and his Stony Field Farms.

Back in the early '80's, he and his partner were running a farm school in New Hampshire. They were struggling for money, and then decided to sell the organic yogurt that they were producing.

They intially got funding from an order of nuns, who saw that ther business would give a boost to the local dairy farmers.

Today, they are the world's leading organic yogurt maker, and now are 2.5 times the size (in sales) of Kraft's yogurt business.

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Innovative Marketing Though DVDs

The new DVD formats - Blu Ray and HD DVD - are being promoted for high definition video and enhanced audio.

However, they also allow studios to cram in more interactive features - including games, picture-in-picture commentaries and Web links. The studios are hoping that, by branding some of these features, they can tap additional sources of revenue.

In one of the first experiments, Progressive Direct (which sells car insurance via free car insurance quotes on the web) teamed up with Universal to create a "crash calculator" for the HD DVD version of "The Fast and the Furious: Tokyo Drift."

When the calculator (labeled "Progressive Direct: Insurance Damage Estimates.") is activated, it displays a running total of the damage done to vehicles as they crash on screen - i.e. Roof repair: $209, taillights: $451, fender: $618, etc.

Some analysts doubt that these things will be big sources of revenue, at least for now: HD and blur-ray disk releases are limited, and these features have to be searched for a turned on by the user.

In the case of the "Fast and Furious", no money changed hands. In return for Universal including the feature, Progressive created a website and contests to promote the movie and Disk.

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"Horizontal Double Dummy" Tax Loophole

Forbes magazine has an interesting article on how Tom Siebel avoided $58 million in taxes when he sold his company, Siebel Systems, to Oracle.

Normally, the way to avoid taxes in a merger is if the buyout consists of at least 40% stock. But Oracle did not want to issue that many shares.

The solution was to use a legal entity called the "horizontal double dummy". This technique was first used by Unilever in 1978. A tax expert said, "Back in 1978, this was the tax equivalent of inventing penicillin".

The way the Oracle-Siebel thing worked is that a holding company called Ozark Holdings was set up. Ozark then created two subsidiaries (the "dummys").

Oracle merged with one of the dummy subsidiaries in a 100% stock deal, so Oracle stock was swapped for Ozark stock. At the same time, Siebel systems merged with the other subsidiary - this deal was 30% stock / 70% cash.

At that point, Ozark owned both companies. Finally, the subsidiaries were dissolved, and Ozark Holdings was renamed Oracle.

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Trump's Tampa Tower Project

In the last few years, due to his renewed celebrity with the Apprentice, Donald Trump has been franchising his name (along with some consulting) to other developers for projects around the country.

This is smart on his part because, in this way, he can make good money with less risk than if he did the projects on his own.

However, there have been problems and delays with Trump Tower Tampa.

So, Donald Trump spent months trying to buy out the developer, Tamps-based SimDag LLC.

Now, however, an Orlando-based private equity firm, Mirabilis Ventures, outbid him, and got the 52-story condo tower for $260 million.

As part of the takeover, Mirabilis is aquiring the SimDag personnel, and say that they look forward to working with Trump.

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Top 10 Real Estate Books of 2006

Syndicated real estate columnist Robert Bruss recently published his list of the 10 best real estate books of 2006:

1. Trump-Style Negotiation by George Ross

2. The Automatic Millionaire Homeowner by David Bach

3. Buy Even Lower by Scott Frank and Andy Heller

4. Real Estate Debt Can Make You Rich by Steve Dexter

5. Bubbles, Booms and Busts: Make Money in Any Real Estate Market
     by Blanche Evans

6. Success as a Real Estate Agent for Dummies by Dirk Zeller

7. Everything You Need to Know Before Buying a CoOp, Condo,
    or Townhouse by Ken Roth

8. Who Says You Can't Buy a Home! by David Reed

9. Confessions of a Real Estate Entrepreneur by James A. Randel

10. The Reverse Mortgage Advantage by Warren Boroson

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0% Interest Gotchas

Car companies had a lot of success with 0% financing deals and, this holiday season, a lot of merchants are using them to attract customers.

I saw an article in the Chicago Tribune that had a couple of warnings about these deals:

1. You need to read the fine print. In a lot of cases, if you don't pay off the loan completely by the end of the 0% financing period, you could get hit with retroactive interest.

For example, you buy $5,000 worth of furniture on Dec.1, and the retailer offers no interest for 12 months. By Nov. 30 of the next year, you have paid off all but $200. You now get hit with backdated interest on the whole $5,000.

2. You may need to open a store credit card to get the 0% deal. This could hurt your credit score in two ways. First, by having too many credit cards. Secondly, the merchant might open your account with a credit limit almost equal to your purchase. Experts say you want to keep your balances at or below 35% of your limit.

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The 12 Days of Indian Christmas

Check out this video - its funny:

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Speaking of James Bond...

Here is a cool marketing campaign. A Jewish Dating site is using a "James Bond 007 La Femme Nikita Style Video" to create a viral marketing campaign for their site.



This is an example of "thinking outside the box" to differentiate yourself in the over-saturated internet. This kind of creative marketing actually enriches the viewer, even if they don't use your product or service. So, it creates brand-awareness.

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Best and Worst James Bond Theme Songs

The readers of the Chicago Tribune recently voted on the best and worst James Bond theme songs. Here are the results (song, artist, % vote):

Best
-----
1. "Live and Let Die", Paul McCartney & Wings, 29.6%

2. "Goldfinger", Shirley Bassey, 24%

3. "Nobody Does It Better (Spy Who Loved Me)", Carley Simon, 20.9%

4. "A View To A Kill", Duran Duran, 8.4%

5. "For Your Eyes Only", Sheena Easton, 6%


Worst
-----
1. "Die Another Day", Madonna, 25,1%

2. "The Living Daylights", A-ha, 16.1%

3. "All-Time High (Octopussy)", Rita Coolidge, 15.1%

4. "The World is Not Enough", Garbage, 8.5%

5. "Thunderball", Tom Jones, 7.7%

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Applying the Internet to Buying Real Estate

Usually, when buying a home, you usually look around yourself, or go to a real estate agent.

A Texas-based real estate agency, AlCan Realty Partners, LLC., has created a website for Dallas Real Estate, called homebuyer-rebate.com, that gives buyers a third option.

This option is for resourceful buyers who are willing to do the legwork on their own. If the buyer searches the MLS listings online (thru their website or realtor.com), and/or finds properties by driving around, the buyer can then come to the real estate company with a final list of properties.

The agency will then provide the full realtor service from making the offer thru closing. At closing, the realtor will credit you with half their commission (typically 1.5%), which you can then use towards closing costs.

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Be The Perfect Boss

Dynamics of Software Development by Jim McCarthy and Michele McCarthy  Microsoft Press

#55: Be the perfect boss.

What is a perfect boss,^[1] and what do you do if you want to be one?

A perfect boss doesn’t take care of those who work for him. He is much more effective than that. Some bosses act on the impulse to play the parent to subordinates. They cannot resist the temptation to respond to childishness with “parentness.” When the perfect boss encounters immature behaviors among his subordinates—behavior that simply begs for a parent’s touch from his boss’s hand—he just will not give in. He understands a simple, sad truth: a parent’s touch will forever stay missing if it was missing when it was originally needed. A boss’s touch won’t help. So, wisely, he declines to provide that which will never satisfy.

Instead, he pretends that only the adults come to work. He views his relationship with his subordinates as one of respect, and as one of businessperson to businessperson. Securing the services on which he depends is far too important to be left to the needs of the unsatisfied children lurking within his staff. He must discharge his responsibilities after all, and it is this that ultimately provides the livelihood of all the team. To do this most effectively, he has found it best not to reward the immature aspects of our nature with attention of any kind. He acts as if the dark aspects of the children within us don’t even work for him.

What he does do is conduct business. The perfect boss treats those who work for him as if they were his most important suppliers. Which, of course, they are. Their supply of services is his biggest personal dependency. In addition to the timely pay for acceptable services he offers, he imposes a few additional conditions on you, if you are one of his subordinates:

• What actions you take, you believe in.
• What commitments you make, you keep.
• What resources you have, you use.
• What words you say, you believe to be true.
• What you create, you intend to be great.

He occasionally gives you written assignments. These are your purchase orders, really. A good thing. And, if asked, he helps your team secure resources. He also seeks accurate status from you frequently and efficiently, and he stays out of your team’s content. He knows that if he buys something from experts, he is wise to let them deliver it on their own. That way, it will be to the experts’ standards.

He requires that the team credibly believe itself to be doing something great and also insists that all involved relentlessly pursue—and always adopt—what they think is the best available idea.

He requires that his team members accept their assignments explicitly, believing them to be the best possible assignments. Of course, they have the chance to improve the assignments, if possible, in collaboration with him before they accept.

The perfect boss always refuses to serve as a parent or judge among immature subordinates in conflict. He also knows that no good ever came of listening to one person complain about another who is not in the room, so he won’t allow that.

He never allows people to say, “People say…” If unidentified “people” have something to say, they can come say it. He doesn’t believe in the self-appointed representation of selves not one’s own. And if people think they ought to report to him what “people think…” they will be dismissed out of hand for not thinking.

The perfect boss pays vastly more attention to insuring the productivity, managing the satisfaction, and tending to the well-being of those subordinates who get the best results than he does to those who are dramatically inclined, results-poor, and/or costly to employ. He pays the most attention to those who behave the best. That last sentence is worth saying twice: He pays the most attention to those who behave the best.

The perfect boss is compassionate and wise. One sure sign that this is so is that, one way or another, people who are mostly pained about their job (and this is especially true of any whose pain spills over onto others) will not suffer long in his domain.

When review time comes, the perfect boss assesses his satisfaction with your work. Then he summarizes it with an unambiguous grade. Plus, he says what you did to earn that grade and tells you precisely what you would have to do additionally to gain the maximum grade. He adjusts your pay, states any new requirements regarding your future results, and does both directly in relation to the grade he has decided on for you.

The good thing about this process is it is perfectly subjective and fair. Since your boss as an individual is clearly your most important customer, fairness and your desire for truth ultimately require his naked, subjective judgment.

And, of course, the one task that the perfect boss never overlooks is to regularly and without interruption arrange that the agreed sums of money be paid to you for the services you choose to render him.

And that is all the perfect boss does.

^[1]I’m using the masculine pronoun in this part of the book for notational convenience. No preference for the masculine is intended; in fact, if “he” were a “she,” perfection might well be nearer at hand. Were it not for the grammatical difficulty of repetitively stating “he or she,” and/or the excessive emphasis of the unadorned “she,” the text would be written differently and this footnote would be unnecessary.

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Enjoy Marketing!

A professor at IIM was explaining marketing concepts:

1. You see a gorgeous girl at a party. You go up to her and say: "I am very rich. Marry me!" - That's Direct Marketing.

2. You're at a party with a bunch of friends and see a gorgeous girl.
One of your friends goes up to her and pointing at you says: "He's very rich.Marry him." -That's Advertising.

3. You see a gorgeous girl at a party. You go up to her and get her
telephone number. The next day, you call and say: "Hi, I'm very rich.
Marry me." - That's Telemarketing.

4. You're at a party and see gorgeous girl. You get up and straighten your tie, you walk up to her and pour her a drink, you open the door (of the car)for her, pick up her bag after she drops it, offer her ride and then say:"By the way, I'm rich. Will you marry me?" - That's Public Relations.

5. You're at a party and see gorgeous girl. She walks up to you and
says:"You are very rich! Can you marry ! me?" - That's Brand Recognition.
6. You see a gorgeous girl at a party. You go up to her and say: "I am very rich. Marry me!" She gives you a nice hard slap on your face.-That's Customer Feedback.

7. You see a gorgeous girl at a party. You go up to her and say: "I am very rich. Marry me!" And she introduces you to her husband. - That's demand and supply gap.

8. You see a gorgeous girl at a party. You go up to her and before you say anything, another person come and tell her: "I'm rich. Will you marry me?" and she goes with him - That's competition eating into your market share.

9. You see and gorgeous girl at a party. You go up to her and before you say: "I'm rich Marry me!" your wife arrives. - That's restriction for entering new markets.

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Judge Says Burrito Is Not A Sandwich

Here is an interesting example of the law and business - a judge had to decide if a burrito could legally be considered a sandwich - for the purposes of a contract.

It turns out that Panera Bread Company had one of its restaurants in the White City Shopping Center, in Shrewsbury, Mass.  Panera's lease contains a clause that prevents the shopping center from renting space to another sandwich shop.

When a Qdoba Mexican Grill wanted to open, Panera tried to stop them by invoking the clause.

Panera argued that a flour tortilla is bread, and anything with bread and filling is a sandwich.

Qdoba (owned by Jack in the Box) called food experts to testify that a burrito is not a sandwich.

Finally, the judge, citing Webster's Dictionary, a chef, and former high-ranking federal agriculture official, ruled that Qdoba's offerings are not sandwiches.

He ruled that a sandwich is two slices of bread - not something made from one tortilla.

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Venture Capital Fundraising in 2006

It looks like venture capital fundraising this year will surpass last year, even though some people think the market is saturated.

For the first 9 months of this year, $19.7 billion was raised. For the first 9 months of last year, $16.7 billion was raised. This data comes from Dow Jones subsidiary VentureOne.

$25 billion was raised for all of 2005. The most since $49.7 billion was raised in 2001.

The interesting thing is that the increase has been from existing funds getting bigger, rather than new funds. 22% of the money raised this year went to funds of $500 million or larger. Last year, 8% of the money went to funds that big.

The percentage of capital going to funds less than $100 million is 29.2% this year, down from $44.2% last year, which was already the lowest percentage since 1992.

What this tells me is that venture funding is being concentrated in fewer firms. This may mean that the money may fund mediocre, copy cat, "playing it safe" companies.

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Enron Trial Winner

Well, the Enron Trial is over, and we know that Jeffrey Skilling was a loser.

Ken Lay was a winner(?). Winner, because his conviction was dismissed (since he died before exhausting his appeals) and so his heirs will get to keep his money. The question mark is because, of course, he is dead.

The clear winner, however, is the Federal prosecuter in the case, 39 year old Sean Berkowitz, a Chicago native. As soon as he won the convictions, he became "hot", and set off a recruiting war among top corporate law firms.

The Los Angeles law firm of Latham and Watkins won out. Berkowitz will be their newest partner in their Chicago office. In 2005, the average partner compensation was $1.4 million.

His two predecessor Directors of the Enron Task Force also left the government for private law firms.

When the government's best prosecutors of white collar crime are hired away by corporate law firms, it means that these talented people will now be defending the next wave of corporate execs.

Is the public a short-term winner and long-term loser?

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Fiscal Disaster for the U.S.?

I read in the Chicago Tribune that David M. Walker has been going around the country lecturing about the dangers of the current U.S. financial policy.  To keep his discussions non-partisan, he has been taking along experts from both the left and the right.

Walker is the comptroller general of the United States - he runs the Government Accountablility Office (GAO), which reports to congress.

He and other experts fear that, in the long run, the fiscal policies of the U.S. will lead to a lot of problems, but politicians aren't discussing them, because the subject "is short on political theatrics and long on complicated economics, scary graphs, and very big numbers."

Basically, from 2001 till now, the deficit has grown in dollar terms, but not relative to the economy.  However, they think that is about to change because of the combination of the Baby Boomers retiring and new entitlements for Social Security, Medicare, and Medicaid.

They predict that the deficit may swell from $8.5 trillion to $45 trillion in the next 20 years.  If this happens, then the interest payments on the debt would eat up all the tax revenues collected today.

Bottom line: eventual benefit cuts, and higher taxes, plus the anger of future generations.

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U.S. Coporations and Mexican Hiring Standards

I was reading in the Chicago Tribune that in Mexico, where jobs are scarce, anti-discrimination laws aren't enforced.  So, companies can get away with things such as asking personal questions at job interviews, or requesting a photo with a resume.  Mexicans are passed over for things like skin tone, weight, sex, martial status, and even where they live.

But, it isn't just the local companies who are doing it.  U.S.-based companies are also taking advantage.  The article said major U.S. corporations are engaging in hiring practices in Mexico that violate U.S. policies, and the companies' own diversity practices.

The article gave the example of Lear, a Michigan-based auto supplier.  Its ad for a secretary in its Mexican office included "female...aged 20 to 28...preferably single...with excellent presentation."

It also gave the example of a Chicago-based law firm that advertised for a male lawyer in its Monterray office.

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Federal Sales Tax

I really think that the federal goverment should replace the income tax with a sales tax. This will make things simple, free up time, and make government less intrusive in our lives. It will also encourage earning, saving, and investing.

Here is how the system could work:

1. The government would set one rate (i.e. 17%).

2. The government would decide how much spending should be exempt from taxes (i.e. $10,000 per adult, $5,000 per child, so $30,000 for a family of four).

3. At the beginning of the year, the government would mail checks or direct deposit to everyone with social security numbers. (i.e. $10,000 x .17 = $1,700 for adults, $5,000 x .17 = $850 for kids, so $5,100 for a family of four).

4. Whenever someone buys something from a store, sales tax would be collected.

5. Since most states already collect sales tax, the government could contract with the states to handle the federal tax collection as well. The states could be allowed to keep say, .2%, for the trouble. For non-sales tax states, the federal government would probably collect it.


The exemptions will make the sales tax fair to low income families. The tax rate will show everyone how much government is costing us.

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Frugality

Before I got married, I wasn't frugal. In fact, I spent a lot: eating out, traveling, etc. However, I had an modest townhouse in a well-developed suburb of Chicago, where the property tax was relatively low.

Then, I got married and my wife is sort of the opposite. She likes to travel once in a while, but she doesn't like to eat out often, or spend money on experiences. Her main expense priority is having a nice house, and spending money on the house.

We bought a nice, large, relatively new house, at the outskirts of the Chicago area - where suburbia meets farmland, and the farmland is losing. The disadvantage is higher taxes due to demand for infrastructure creation. Our property taxes were high when we bought the house, but still went up 23.6% last year, due to an exploding demand for schools. This means that my mortgage payment (principle + interest + taxes) is about 3 times what it would be at the townhouse.

Now that we have a 15 month old son, we really don't go out to restaurants,
movies, or travel too much. My wife stays at home, so she tries to cook most meals, to keep us healthy.

So I realized that we are pretty frugal. The three of us live in a large house, live off one paycheck, and still save a lot.

But, I just went thru some numbers and realized that wow! We ARE pretty frugal (except for the house):

1. My net pay is my gross minus insurance, taxes, 401K, and commuter (train) benefit.

2. 45% of my net pay (34% of my gross) goes to the mortgage.

3. I then save 21.6% of my net pay (this is in addition to my 401K, which is accounted for).

4. So, we live on 33.4% of my net pay (25% of my gross)!!!

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Interesting But Dangerous Lawsuit Against Microsoft

One of the last Microsoft lawsuits remaining is a 6-year old class action lawsuit in Iowa.

 

In this suit, the plaintiff lawyers want Microsoft to pay "pain and suffering" to consumers for "lost innovation" in the marketplace.

 

Basically, they are saying that Microsoft crushed competitors with better products, and so they created an inferior computing environment.

 

Its been proven that Microsoft abused its monopoly power, but this lawsuit should be dismissed.  If the plaintiffs win, it would set a very dangerous precedence.

 

Its one thing to rule based on facts, like Microsoft did something specific to a certain company.  In fact, most of the lawsuits that Microsoft settled were about Microsoft overcharging for specific products or services.

 

But its downright dangerous if a judge or jury gets to decide historical "what ifs", and what a marketplace "should be".  This would be a form of "central planning" in hindsight.

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How Siebel Avoided Taxes When Selling To Oracle

Forbes magazine has an interesting article on how Tom Siebel avoided $58 million in taxes when he sold his company, Siebel Systems, to Oracle.

 

Normally, the way to avoid taxes in a merger is if the buyout consists of at least 40% stock.  But Oracle did not want to issue that many shares.

 

The solution was to use a legal entity called the "horizontal double dummy".  This technique was first used by Unilever in 1978.  A tax expert said, "Back in 1978, this was the tax equivalent of inventing penicillin".

 

The way the Oracle-Siebel thing worked is that a holding company called Ozark Holdings was set up.  Ozark then created two subsidiaries (the "dummys").

 

Oracle merged with one of the dummy subsidiaries in a 100% stock deal, so Oracle stock was swapped for Ozark stock.  At the same time, Siebel systems merged with the other subsidiary - this deal was 30% stock / 70% cash.

 

At that point, Ozark owned both companies.  Finally, the subsidiaries were dissolved, and Ozark Holdings was renamed Oracle.

 

 

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Net Neutrality

Net Neutrality is a big issue in Washington. 

 

Basically, the telcos and cable companies, like AT&T, want to be able to charge companies like Yahoo or Google a fee for routing their traffic over their lines.  In return, they would offer more high speed.

 

So, for example, if you get your internet from AT&T, and then go to Yahoo's home page, you would get a faster speed, but Yahoo would get charged.

 

The web sites (Google, Yahoo, etc) oppose this and have pushed lawmakers to adopt a net neutrality law, which says that the internet providers have to charge the same price, no matter what web site you go to.

 

So, the telcos/cable companies are lobbying against net neutrality, while the web sites, and a lot of internet users, are pushing for it.

 

Republicans are tending to side with the cable/telcos, while Democrats are siding with the internet companies.

 

So far, the telecos/cables have kept net neutrality out of two bills, but Forbes magazine views the politicians as the real winners  - they have incentive to drag it out and collect lobbying fees from both sides.

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Joseph Schumpeter

Joseph Schumpeter was an Austrian economist who believed in entrepreneuralism, and that it was the cause of society's innovation and technology, by upending the status quo.

 

He coined the term "creative destruction".

 

Rich Karlgaard, the Forbes publisher, wrote a commentary on him.

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Chris Botti

I read an article in Forbes about Chris Botti.  His studio, based in Evanston, Illinois (near Chicago), designs/restores/preserves stained glass, mosaic, marble, paintings, and sculptures.

 

For example, he was hired to reconstruct the stained glass ceiling over the skylight at the Plaza Hotel in New York.

 

His studio has its roots going back to 1600's Italy.  His father's family started a studio in 1684, and his mother's family started theirs in the 1780's.   The families moved their studios to New York in 1923, and 1864, respectively.  The studios got merged in 1948, when Botti's parents married.

 

The interesting thing is that he has to bid on projects, just like architects or construction, except that, since the art is one of a kind, it is tricky to judge the labor costs, material costs, etc., and then stay on budget.

 

The article says that, if he bids well, he can net 3% - 5% pretax.

 

The article goes on to describe some other projects of his.

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Entrepreneur of the Week

Yahoo has a story on Gary Hirschberg and his Stony Field Farms.

 

Back in the early '80's, he and his partner were running a farm school in New Hampshire.  They were struggling for money, and then decided to sell the organic yogurt that they were producing.

 

They intially got funding from an order of nuns, who saw that ther business would give a boost to the local dairy farmers.

 

Today, they are the world's leading organic yogurt maker, and now are 2.5 times the size (in sales) of Kraft's yogurt business.

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6 Interesting Trends for Retirement Spots

Today Yahoo had an article about the top retirement spots for today's retirees.

 

It looks like retirees today are considering more options than just moving to Florida to golf. 

 

They listed 6 interesting trends:

 

1. Small Towns - living in a friendly small town like Mt. Airy, NC.

 

2. Downtowns - living in places like Chicago, where they can do activities and use public transportation.

 

3. Mixed-use Developments - these are "live-work-play" projects with housing, businesses, and activities together - they bridge city and suburban life.

 

4. Hobby Farms - small scale "lifestyle" farms that are mainly run for pleasure.

 

5. Co-housing - a concept borrowed from Denmark, where people own condos, but have a common "central house" for a taste of commune living.

 

6. Rail Trails - thousands of miles of old railway lines are being paved into hiking/biking/walking trails, to allow retirees to have an active life.

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Ruby on Rails

David Heinemeier Hansson doesn't think of himself as a programmer.  But, in his native Denmark, he dabbled with PHP, which is a web language.

 

He later moved to Chicago, where he was asked to devleop a web application.  He decided that, instead of PHP, he would try Ruby.

 

Well, he fell in love with Ruby because he thought it was simple, minimal, and beautiful.  He then went on to develop a toolbox for Ruby, which he called Ruby for Rails.  He and his company released it as open-source, and now he is hailed as a big celebrity.

 

Ruby on Rails should further feed the cheap revolution.  It allows small teams to create quick web applications.  It should help small companies compete against the likes of IBM, Oracle, and Microsoft.

 

For example, after Hurricane Katrina, a small team from Earthlink used Ruby on Rails to set up a website for survivors to re-connect.  It was up and running in less than one day.

 

 

 

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Rolling Stones and Taxes

If the Rolling Stones were ever an anti-establishment Age of Aquarius type band, they are certainly not that now.  They are a big, savvy business.

 

The Daily Telegraph did a story earlier this year that Keith Richards, Mick Jagger, and Charlie Watts paid only 1.6% tax on earnings over $120 million.  They did this thru tax shelters and offshore trusts.

 

Turns out they belong to Rolling Stones, Inc., which is a private corporation managed by a Netherlands financial house.  Recently, their finances were made public by Dutch law, because they were doing their wills.  Richards is worth $345 million and Jagger is worth $390 million.

 

Keith Richards explained to an interviewer that all their business activities are based on tax laws.  For example, they do all their rehersals for North American tours in Canada, not the U.S.

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My Stock Trading System

I became a very successful trader after I developed my trading system, which is based on constant value investing.

I have made a double digit annual return for years now.

My complete system, along with information on possible variations, effects of commissions, and beneficial tax strategies, are detailed in my book, Stock Trading Riches, which is available on Amazon.com.

You can read more information about my book (including testimonials) here.

Remember that this is my system for implementing constant value investing. Here, I explain how my system answers the Questions for Building a Trading System. Future posts will give ideas about even more variations.

I only invest in stocks, ETF's, or closed-end funds.

I don't want you to just follow my system - I want you to start thinking critically, and develop your own system, that you feel comfortable with.

My system is like zen or tao. The market fluctuates and I am at peace with whatever it does. The system has no optimized parameters - it simply uses the formula for each stock to see how many shares it should own NOW. It makes no assumptions about the future or remembers the past.

I am "one with the market" in the present moment, and buy low - sell high.

Here is an example with Amazon.com yearly prices. Just imagine having a whole portfolio, where you buy some stocks at the top, some in the middle, and some at the bottom, all feeding and pumping cash, as the markets cycle over years!

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New Ford CEO Highest Paid

Alan Mulally, who was hired away from Boeing to become the new Ford CEO, may become the highest paid executive in the auto industry. 

 

Ford filed a document with the SEC that states that Mulally will recieve a $2 million base salary, a $7.5 million signing bonus, and $11 million to offset bonuses, stocks, etc. he gave up at Boeing.

 

He will also get restricted stock and options that could push his total compensation to $35 million for the year.

 

Morale is low among Ford employees, so some think that the United Auto Workers will complain.

 

Compensation experts, however, doubt that Ford could have lured any big stars without a package like this.

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Sonic Drive-ins Coming to Chicago

Sonic, the Drive-in restaurant chain with 3,000 restaurants, mostly in the South and Southwest.  Is planning to enter the Chicago area.

 

Sonic brings back the old "Happy Days" era, with 1950's style drive-ins, where roller skating carhops deliver food to your car.

 

Some think that, as Sonic expands to the Northern United States, it could be a serious challenger for McDonalds.

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United Airlines Double Boarding

United Airlines is going to experiment with a dual boarding ramp at its Denver hub.

 

The idea is that the bridge will be Y-shaped.  Once customers enter the bridge, they can go down two ways: One doorway will connect to the front door of the plane, while the other ramp connects to the back door.

 

This way, passengers in both the front and back of the plane can board simultaneously.

 

United is saying that this move is about improving customer service, but it is probably aimed at reducing turn-around time.  Airlines always want to cut down on the time it takes to board an aircraft, so they can sneak in one extraround-trip flight a day.

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Chicago is Hotest Hotel Market

The Chicago hotel market is the hottest in the U.S. 

 

This is because Chicago hotel prices, which were underpriced compared to other big cities, are appreciating rapidly.  This is causing investors, who recently bought properties, to become "unintentional flippers", because they are hitting their return requirements years earlier than they expected.

 

For example, JER Partners recently agreed to sell the Westin O'Hare in Rosemont (near O'Hare airport) to Ashford Hospitality for $125 million.  JER had bought the Westin 11 months earlier for $106 million.

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Ford to Sell Aston Martin?

Ford is exploring the sale of luxury car maker Aston Martin. 

 

This sale would make sense because Ford needs to concentrate on its turn-around plan, and Aston Martin does not share and platforms with other Ford cars.  Also, it has its own designers and dealer networks.

 

The only downside is that new technology tends to trickle down from high luxury brands.  So, Ford may be cutting off future reasearch and development.

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GM Warranties

It looks like GM will offer 5 year, 100,000 miles warranties on their 2007 models.

 

I guess, instead of financial incentives like 0% financing, they want to try to increase sales by showing that they believe in the quality of their cars.

This is a good move to try because, even though most studies have shown that Ford, GM, and Chrysler have increased the quality of their vehicles in the last 2 decades, the public's perception is that Japanese and German cars are still more reliable.

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Ousted CEO Pay

Unlike when regular employees get fired, CEO's who are forced out seem to get rewarded well.

 

Roger Deromedi, former CEO of Chicago-based Kraft, was let go with $14 million.  His co-CEO, Betsy Holden got $12 million.

This doesn't include their restricted stocks and options.

 

Other former CEO's, like HP's Fiorina, got more.

 

I think this shows that CEO's know how to negotiate their packages when they are first hired. 

 

Also, corporate boards want to hire someone Wall Street and funds will respect, so they have to offer competitive packages to attract the short list of "stars" in the marketplace.

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Interview with Guy Kawasaki

The writer of a Swiss blog on start-ups and innovation recently visited Silicon Valley. While there, he got to conduct a breakfast interview with Guy Kawasaki, the former Apple Fellow and start-up guru, who is now a managing director of venture capital firm "Garage Technology Ventures".

Kawasaki is famous for speaking about technology innovation, risk taking, and starting tech businesses. He was the marketer of the original Apple Macintosh.

Kawasaki is big on promoting the idea of evangelism for hi-tech companies - i.e. creating passionate users who become advocates for your product.



You can click here on Podcast: #7 with Guy Kawasaki to hear the podcast of this interview.

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Illinois Electricity Deregulation and Auction - Bad for Consumers?

My home state of Illinois is de-regulating its electricity.

 

The 10 year rate freeze on the price that utilities can charge customers is ending, and the utilities, such as ComEd in Chicago,  will now purchase power at an annual auction.

 

The auction will be conducted over the internet, in a "descending clock" format.  This means that the utilites will get bidders offering more electricity than they need, and will keep lowering the price until enough bidders drop out, and the electricity being offered meets their needs.

 

No matter what else happens, everybody agrees that Illinois electricity rates will increase because of the ending of the price freeze. 

 

The controversy, however, is over whether the auction will keep the increase down, or whether consumers will pay needlessly to enrich Wall Street companies like JPMorgan Chase.

 

Excelon (the parent of ComEd) owns nuclear reactors and is the largest generator of electricity in Illinois.  Under the terms of the auction, Excelon can only sell a limited amount of electricity.  These rules were designed so that the auction would be competitive, and drive down prices.

 

Critics say the competition is an illusion because the auction is open to anyone, even if they cannot generate electricity on their own.  So, they think that firms like JP Morgan and Shell will buy cheap electricity from Excelon and re-sell the power at a mark-up during the auction.

 

New Jersey started using the same type of auction in 2002, and electricity prices have increased 100%.  State officials say that bidding by financial companies hasn't caused any problems, and that the prices would have gone higher without the auction.

 

The critics think it will be cheaper to scrap the auction and have Excelon sell its power directly.

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Now What Are the Bad-Boy Hedge Funds Up To?

According to an article I read in the Chicago Tribune, hedge funds have found a new trick - shaking down companies that are late with filing their earnings reports.

 

These days, because of Sabranes-Oxley and the recent SEC investigations into back-dated options, a lot more companies are filing late.

 

In many cases, the bonds of these companies have covenants, buried in the fine print, which state that a bond-holder can technically demand payment if the filing is late.

 

The hedge funds pore through the companies' bond prospectuses, find these loopholes, buy the companies' bonds, and then try to enforce the clauses.

 

Since the companies can't easily raise new money (because they haven't filed an earnings report) to pay off the bonds, they might agree to a "special fee" to the bond-holders to not enforce the clauses.

 

You have to admire hedge funds - they are willing to read thru pages and pages of boring legalese, just to find an edge to agressively exploit.

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Small Business and the Export-Import Bank

The Export-Import Bank, is a federal agency that is responsible for increasing America's exports.  It helps companies get bank loans and uses tax money to help U.S. businesses compete with heavily subsidized foreign competitors.

 

However, critics think that the bank has neglected small businesses that want to export abroad, and have focussed on big deals, like helping Boeing sell airplanes.

 

Congress is now thinking about creating a small business division inside the bank, to handle loans up to $10 million.

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Coke Plant Opens In Afghanistan

A new $25 million Coca-cola plant opened in Kabul.  Some in Afghanistan say that hospitals, etc, are needed more, but the president of Afghanistan praised the investment, because he thinks economic growth and jobs are the keys to rebuilding Afghanistan.

 

I actually think that economic development and jobs are keys to combatting radicalism and terrorism all over the Middle East, and in Africa. 

 

I think that terrorist groups will have a tougher time recruiting young people who feel that they have an economic future.

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Real Estate Futures and Options

According to the Chicago Tribune, the Chicago Mercantile exchange will start offering futures and options contracts on commerical real estate.

 

The purpose of futures contracts are for businesses in an industry to pass on market risk to speculators, who try to make a profit on the fluctuations.

 

So, for example, businesses that buy or sell gold could buy or sell gold futures/options to try to lock in a stable price over a certain time period.

 

Southwest Airlines used futures/options hedging with oil to control its fuel costs.

 

I think it will take time to see if real estate futures and options grow into an active market.

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Retirement Living

John Erickson founded Erickson Retirement Communities.

Like Tom Scott of Plum TV, Erickson spotted a niche TV market - in this case that seniors watch a lot of TV and networks cater to younger tastes.

So, Erickson created Retirement Living, which is a niche channel on some Comcast Cable systems, that provides informational programs for seniors.

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Plum TV

Tom Scott founded Nantucket nectars by selling home-made juice to vacationers in Nantucket harbor.  In 1997, he sold the company to Ocean Spray for $70 million.

 

Then, he realized that there was a niche in the TV market of upscale vacation destinations, because of vacation home owners with time on their hands.

 

So, he founded Plum TV, which broadcasts local news, events, and business programming in places like Nantucket, the Hampton's, Martha's Vineyard, Vail, and Aspen.

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Six Simple Steps For Lottery Winners

Its very hard for people to spend wisely when they recieve a windfall.

 

This article in the Chicago Tribune spotlights a September 11 widow who blew most of her $5 million death benefit on designer clothes, shoes, trips, and gifts.

 

It also offers six tips for lottery winners, and others who have recieved windfalls:

 

1. Don't do anything with the money for 3-6 months.

 

2. Develop relationships with professionals who can help you with things such as taxes, fiancial and estate planning, and insurance.

 

3. Dream a little.  Indulge a little bit, and select meaningful long-term goals.

 

4. Make a plan.  Treat the money with the same respect you would treat a paycheck.

 

5. Enjoy the money in moderation.  Before buying a BMW, rent one for a few weeks to see if the thrill wears off.

 

6. Give. Share money wisely with family members and/or charities.

 

 

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Congress to Change Company Stock Options Deductions?

It looks like Congress is also getting alarmed at the recent scandal of companies timing the stock options of executives.

 

Congress may try to reduce or eliminate the tax deduction for corporate stock options.

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Abbott Lab's New Drug-Coated Stent

According to this article in the Chicago Tribune,  Abbott Laboratory's new drug-coated stent, Xience, which goes on sale in Europe next month, did better in a trial than the current market leader, Boston Scientific Corp's Taxus.

 

Stents are wire mesh devices that are used to unblock clogged arteries.  Stents are now being drug-coated, because uncoated stents sometimes close in patients.

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Cartoon Characters on Fruit and Vegetable Packaging

According to this article in the Chicago Tribune,  fruit and vegetable growers are starting to license cartoon characters, such as Mickey Mouse, SpongeBob, and Dora the Explorer.

 

Disney and Imagination Farms have struck a deal to market fruits and vegetables under the "Disney Garden" brand.

 

This type of branding has become appealing to entertainment companies because they want to associate their cartoon characters with health-consiousness.

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Forbes 400 List

Forbes magazine published their annual list of the 400 richest Americans.

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Sheldon Adelson, Steve Wynn, and Macau

Macau, a tiny peninsula and 2 islands off of China, was controlled by the Portuguese, but handed back to China in 1999.  It is 1/6 the size of Washington, DC. and is the only place in China that allows casinos.

 

Sheldon Adelson, the casino billionaire who controls Las Vegas Sands Corp., figured that Macau would take off, and so he opened up the Sands Macau Casino in 2004.

 

His bet paid off.  Macau may unseat Las Vegas as the gambling capital of the world.  Adelson spent $265 million on the casino, and he recouped his investment in one year.  Adelson is now the third richest American on the Forbes 400 list.

 

Adelson's Las Vegas rival, Steve Wynn (number 107 on the Forbes 400), is now opening up his own casino in Macao.

 

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Present Moment Goal Setting

We have dreams that will be achieved some day, in the future.  There is nothing wrong with having dreams.  In fact, they are good because they give meaning and focus to your life.

 

However, they are not enough to motivate you on a day to day basis.

 

You may then think the answer is conventional goal setting. This helps - however, the goals are still in time.  Goals can have timetables of 6 months, or a year, or a decade - but they are still not going to happen today.

 

Instead, I have found that a better, more effortless way to achieve success is to have present-moment goals - which are aligned with your longer-term dreams, and achieved in minutes.

 

For example, if you have a desire for financial independence, you can have a present moment goal of not impulse buying.  Any time you then pass a department store, for example, your goal is invoked, and has a lifespan of minutes.  Either it is achieved, or it ends without being achieved.

 

Now, this may sound like semantics.  You may think I am simply taking what would be a step in a long-term goal, and calling it a "present moment goal".  But, it is more than semantics - its a complete mindset shift. 

 

Your mind needs to think of these as separate, independent, and complete goals by themselves.  This way, you will measure progress in the moment.  If you pass by a store twice, and impulse buy once, you are not 50% successful.  These were independent goals.  You should not link them. 

 

Another example is weight-loss.  I lost 30 pounds, and have kept it off for 4 years, because I didn't set a goal of losing 30 pounds.  I set present-moment goals.  For example, at every meal, I set a goal to not overeat.   I will achieve it or I won't.   Either way, I will set the goal again later in the day, and the "score" is 0-0.

 

Another example could be a sport, like football.  If you are a player, you shouldn't care if its practice, or a regular season game, or the super bowl.  Don't care about the score or the standings.  Just set a goal of making the play ahead of you.  If you achieve it, great!  Now, set a new goal of the next play.  As long as your present-moment goal is aligned with your bigger dream, the longer-term things will happen.

 

Golfers who want to sink a putt from 50 feet don't aim at the hole.  They learn to aim at a point on the ground just a few feet ahead of the ball, on the line they want.

 

To sum it up: switch the focus from big dreams to small concrete steps in the right direction.

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Financial and Branding Lessons from Tyra Banks

The Forbes Magazine's "Celebrity 100" issue listed and profiled the 100 top celebrities that they ranked by a combination of yearly earnings and influence (i.e. number of news stories about them).  Unfortunately, they no longer provide free access to back articles from the magazine, so I can't give a link directly to the story.

 

Among the celebrities profiled was Tyra Banks, who was #84 on the list.  It was interesting to read how she has leveraged her intitial modelling success into other ventures, thereby building her brand, and avoiding the limited career lifespan of modeling.

 

Banks began modeling at 15, and retired last year at 32.  She is now the star, co-producer, and co-owner of the show "America's Next Top Model" (ANTM), which is a big hit with the 18-34 female demographic.  Soon, she will have her own talk show, and has other ventures in the pipeline.  She looks towards Oprah Winfrey and Martha Stewart as her inspirations to building a franchise.

 

Here are some lessons that I think both businesses and individuals can learn from this story:

 

Don't be satisfied with success just in your intial field. At her modeling peak, Banks was earning $50,000 a day.  She could have just coasted along.  However, she says she always had aspirations beyond what she calls the typical model's "booking mentality" - i.e. just tell the model where to show up, and she does the job.

 

Don't give up if your first efforts at branching out don't meet with success.  While still modeling, Banks tried acting and singing.  Though these were not big successes, she made producing connections that paid off when she pitched the idea for ANTM.  Today, she is using her ANTM experience to venture back into combination acting/producing roles.

 

Be professional. When she first formed her production company, she called it "Ty Ty Baby", which was her childhood nickname.  She since renamed it to the more professional sounding "Bankable Productions".

 

Educate yourself in new areas.  When a businessman asked Banks budgetary questions about ANTM, and she could not answer, she decided to learn about finance.

To learn about talk shows, she did a 2 year apprenticeship on the Oprah Winfrey show.

 

Learn from failed investments.  Banks lost $100,000 on an internet investment with rap mogul Russell Simmons.  However, she said that "she would do it again", and is now working on creating an internet community with others.

 

Find good partners and stick with them.  Banks' new talk show will be in partnership with the veteran reality producer who co-owns ANTM with her.  She has used the same Merrill Lynch money manager since she was 19.

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Should You Have a Mortgage In Retirement?

I recently read an article in the Chicago Tribune about a new theory from the Journal of Financial Planning.

According to the theory, to achieve a comfortable retirement, you should not only be mortgage-free by age 65, but you should have a reduced debt level by 45.

The recommendation is to have a debt-to-income ratio of 1 at the age of 45, and then gradually reduce it to 0 by age 65.

A ratio of 1 would mean that, if you earned $100,000/year, your total debt (including mortgage, credit cards, car loans, etc.) should not exceed $100,000.



The Tribune article interviewed a financial planner who agreed with the advice - he says he tells clients that their home is "an asset, not an investment". The reason for this is that investment dollars are for living off of during retirement, but it is unrealistic to expect people to sell their house for retirement and move somewhere cheap.

I think this is pretty good advice. I think mortgage debt is something to avoid in retirement because a mortgage payment is fixed, while your retirement income, unless it is 100% social security and/or a fixed pension, will fluctuate with the market.

Also, I think it is unrealistic to expect people to downsize in retirement. My parents and my wife's parents, who are all retired, are proof of this.

We both tell our parents that they would be more comfortable downsizing to a smaller house or condo, but they are set in their ways, and attached to their homes.

The fact that they are mortgage free really helps their finances.

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How My Trading System Answers the Questions For Building A Trading system

Now, I will discuss how my system answers the "Questions to Build a Trading System".

My complete system, along with information on possible variations, effects of commissions, and beneficial tax strategies, are detailed in my book, Stock Trading Riches, which is available on Amazon.com.

You can read more about my book (including testimonials) here.

As I mentioned, these questions need to be answered in order to develop a complete system around constant value investing:

1. Lump Sum or Periodic Investment - My system is designed for periodic investment - I try to buy 1 stock per month. I can always skip a month, or make a large lump sum contribution.

2. cash - I don't keep any percentage of the monthly contribution in cash. As cash builds up through sales, I cap it at 30% of the portfolio value, and then start using the cash to add new positions.

3. Running Out of Cash - If January is coming around, and it looks like I will be short cash for rebalancing, I will save my contributions from the months just before and after to rebalance stocks. If there was a 1920's-type crash, I could always sell some of my positions to rebalance the stocks that I felt most confident about.

4. Investment Choices - I use the newspaper, Forbes magazine, Yahoo, and MSN to find growth stocks that I think will prosper in the future.

5. Control Value(s) - I have one control value, which I apply separately to each stock. My basic rules do not systematically increase or decrease the control value. I might manually change it if my financial picture changed drastically.

6. growth - The control value never changes, so the amount in each individual stock will not grow. But the portfolio will grow, through contributions and a cap on the cash percentage. So, I will have an ever increasing number of stocks.

7. risk - My system assumes risk is controlled because the portfolio is diversified. Also, between rebalancings, any stock can be replaced by another, as long the same dollar amount is bought.

8. Rebalance Frequency - A potential rebalance on each stock is done yearly, in January. However, a rebalancing only occurs if the stock has gone up or down by at least 10%.

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Frugality

Before I got married, I wasn't frugal. In fact, I spent a lot: eating out, traveling, etc. However, I had an modest townhouse in a well-developed suburb of Chicago, where the property tax was relatively low.

Then, I got married and my wife is sort of the opposite. She likes to travel once in a while, but she doesn't like to eat out often, or spend money on experiences. Her main expense priority is having a nice house, and spending money on the house.

We bought a nice, large, relatively new house, at the outskirts of the Chicago area - where suburbia meets farmland, and the farmland is losing. The disadvantage is higher taxes due to demand for infrastructure creation. Our property taxes were high when we bought the house, but still went up 23.6% last year, due to an exploding demand for schools. This means that my mortgage payment (principle + interest + taxes) is about 3 times what it would be at the townhouse.

Now that we have a 1 year old son, we really don't go out to restaurants,
movies, or travel too much. My wife stays at home, so she tries to cook most meals, to keep us healthy.

So I realized that we are pretty frugal. The three of us live in a large house, live off one paycheck, and still save a lot.

But, I just went thru some numbers and realized that wow! We ARE pretty frugal (except for the house):

1. My net pay is my gross minus insurance, taxes, 401K, and commuter (train) benefit.

2. 45% of my net pay (34% of my gross) go to the mortgage.

3. I then save 21.6% of my net pay (this is in addition to my 401K, which is accounted for).

4. So, we live on 33.4% of my net pay (25% of my gross)!!!

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The Sales Tax - Conclusions

I think that a Federal sales tax, possibly combined with one or two of the supplemental taxes, would greatly simplify people's lives and reduce the time spent on tax compliance. It would reduce government's entanglements into people's privacy, and allow citizens to see the cost of government more transparently.

However, as I put in the title of the first sales tax post, this is an Ideal.

Besides "making" things simple, I also thing its important to "do" things simply, step by step.

Next, I will discuss what can be done now to move our tax system towards simplicity, without rocking the boat too much.

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Practical Way to Simplify The Federal Tax Today

As a first step, we should eliminate all deductions, except for: charity, mortgage, property taxes, and local taxes.

This does not sound like much, but it is a baby step in the right direction. The trend in congress is to ever complicate the tax code. Achieving any simplification is a step in the right direction.

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The Sales Tax - Arguments, Hurdles, Supplements

Most arguments against a sales tax is that the tax rate would have to be set high to replace the income tax, and that the tax would be regressive (affect lower income people more).

You can read the first part of this essay here.

I would say that:

1. Having to set a high rate is not really a bad thing. The rate would show, transparently and in real-time, the true cost of government. It would provide an incentive to cut down government and make it more efficient, in order to lower the rate.

2. The regressiveness is removed by the rebate. Using my rebate example numbers, all adults would get a tax rebate on the first $10,000 they spent. For someone making $15,000 a year, this means they would not be taxed for the bulk of their purchases. Bill Gates would also get his rebate but, assuming he spent millions of dollars, he would have to pay sales tax on the bulk of his spending.

The interesting thing would be that people who spent less than the amount to be rebated would make money.


Hurdles
--------
There are some hurdles to overcome. The main hurdle would be that the 16th amendment authorizes an income tax. So, a constitutional amendment would have to be passed to replace the income tax with a sales tax.

The other issue is that money also has to be collected for social security and medicare. This may be a lot to collect out of sales taxes.


Supplements
-----------
Two ideas to supplement the sales tax, while still being simpler and less intrusive, with respect to the current federal income tax:

1. Tax pollution and/or hydrocarbons (link to global warming). Environmental policy will be covered in other posts.

2. Keep the capital gains tax but make it flat (one rate for long and short term gains), and give it a high exemption (i.e. $500,000). This way, the average family will be taxed on spending and not on saving.

You can read the conclusion of this essay here.

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Ideal Tax Simplicity - The Sales Tax

The simplest and least intrusive tax is a sales tax. The federal goverment should replace the income tax with a sales tax.

Here is how the system could work:

1. The government would set one rate (i.e. 17%).

2. The government would decide how much spending should be exempt from taxes (i.e. $10,000 per adult, $5,000 per child, so $30,000 for a family of four).

3. At the beginning of the year, the government would mail checks or direct deposit to everyone with social security numbers. (i.e. $10,000 x .17 = $1,700 for adults, $5,000 x .17 = $850 for kids, so $5,100 for a family of four).

4. Whenever someone buys something from a store, sales tax would be collected.

5. Since most states already collect sales tax, the government could contract with the states to handle the federal tax collection as well. The states could be allowed to keep say, .2%, for the trouble. For non-sales tax states, the federal government would probably collect it.

You can read the next part of this essay here.

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My Stock Trading System

I became a very successful trader after I developed my trading system, which is based on constant value investing.

I have made a double digit annual return for years now.

My complete system, along with information on possible variations, effects of commissions, and beneficial tax strategies, are detailed in my book, Stock Trading Riches, which is available on Amazon.com.

You can read more about my book (including testimonials) here.

Remember that this is my system for implementing constant value investing. Here is a post where I explain how my system answers the "Questions for Building a Trading System". Future posts will give ideas about even more variations.

I only invest in stocks, ETF's, or closed-end funds.

I don't want you to just follow my system - I want you to start thinking critically, and develop your own system, that you feel comfortable with.

My system is like zen or tao. The market fluctuates and I am at peace with whatever it does. The system has no optimized parameters - it simply uses the formula for each stock to see how many shares it should own NOW. It makes no assumptions about the future or remembers the past.

I am "one with the market" in the present moment, and buy low - sell high.

Here is an example with Amazon.com yearly prices. Just imagine having a whole portfolio, where you buy some stocks at the top, some in the middle, and some at the bottom, all feeding and pumping cash, as the markets cycle over years!

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Computer Programs for Constant Value Investing

On my unix blog, I posted a script for applying constant value investing to a text file of prices.

There is both an awk version and a perl version.

To run the awk version on windows, you will need to download a free copy of gawk.

These scripts are included in my book, Stock Trading Riches, which is available on Amazon.com, and explains my successful trading system.

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Example of Constant Value Investing

Here is an example of constant value investing, as applied to Amazon.com (AMZN) yearly prices. The prices were obtained from Barchart.com, which is on my list of links.

Constant value is the basic principle behind my successful stock trading system, which I describe in my book, Stock Trading Riches, which is available on Amazon.com.

To show an example of how constant value investing self-corrects a case of bad timing, we will start with January 2000, at the peak of the internet bubble.

Here, then, are the yearly January 31 closing prices:

2000	64.56
2001	17.31
2002	14.19
2003	21.85
2004	50.40
2005	43.22
2006	44.82

Now, let us pretend that we bought $2000 worth of AMZN at the end of January, 2000 (ouch!). Then, we rebalanced back to $2000 at the end of each January by dividing 2000 by the current share price, to find out how many shares we need to own. We added new cash for purchases when necessary.

Here is the table:

price	shares	cash pool	total value	amount invested
64.56	30	63.2	2000	2000
17.31	115	0	1990.65	3408.15
14.19	140	0	1986.6	3762.9
21.85	91	1070.65	3059	3762.9
50.40	39	3691.45	5657.05	3762.9
43.22	46	3388.91	5377.03	3762.9
44.82	44	3478.55	5450.63	3762.9

At the end of January 2006, we had invested $3762.90 and had a total value (stock plus cash) of $5450.63. This is +44.85%

Buy and hold, on the other hand, would be down 30.5% (44.82/64.56)

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Lichello's Aim System

 I previously mentioned how my trading system is build around constant value investing.  Another system that is based on this technique is Robert Lichello's AIM system.


Here, I will discuss how Robert Lichello's AIM system answers the "Questions to Build a Constant Value Trading System".

These questions need to be answered in order to develop a complete system around constant value investing. 

Here is how Lichello's AIM system answers the questions:

1. Lump Sum or Periodic Investment - AIM was meant to be a lump sum system where you would invest, for example $5,000 or $10,000. However, you could invest more money once in a while by adjusting the control.

2. cash - In the case of AIM, Lichello initially recommended a 50-50 split between stock and cash. Later, he increased it to 2/3 stock, 1/3 cash. In the latest edition of his book, he recommended 80% stock, 20% cash. Lichello did not propose a way of handling excess cash. The cash would just build up in your account.

3. Running Out of Cash - Lichello does not really deal with this, except that he mentioned that you can add more cash if you have it.

4. Investment Choices - Lichello did not give much guidance in this area.

5. Control Value(s) - Lichello advocated one control value for the portfolio. His control value would increase by half of any amount added if value dropped, and it would increase by the full amount of any new money added.

6. growth - AIM makes no provisions for growth. Excess cash simply accumulates and the control only increases on buys.

7. risk - AIM assumes risk is controlled because the portfolio is diversified. Also, between rebalancings, any stock can be replaced by another, as long the same dollar amount is bought.

8. Rebalance Frequency - A potential rebalance is done monthly or quarterly. However, a SAFE value is then calculated (equal to 10% of the stock value). Rebalancing only occurs if, and to the extent, that the difference exceeds SAFE. For example, assume the control is $10,000, and the stock value is $12,000. SAFE is then $1200. Since $2,000 is greater than $1200, a sale will take place, but only for $800.

If you are interested in learning further about Lichello's AIM system , you can buy it at Amazon.com.

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Constant Value Investing

The basic principle behind Lichello's AIM method (from his book) and my trading system is constant value investing.

The complete rules of my successful stock trading system, including variations and ideas on minimizing commissions and taxes, are described in my book, Stock Trading Riches, which is available on Amazon.com.

At its most basic, constant value investing is to buy a certain dollar's worth of a stock or fund, and then rebalance back to the same value on a periodic basis.

For example, let's assume that you buy $10,000 of mutual fund ABC. One year later, the fund is up 12% and your stake is worth $11,200. You would then sell $1,200 worth of the fund and would have $10,000 in the fund and $1,200 in cash.

Now let's assume that, after another year, the fund is down 8%, and you now have $9200 worth of ABC. You would now take $800 from your $1,200 pool of cash and invest it in ABC. Now, you have $10,000 in ABC and $400 cash, for a total of $10,400.

If you would have just held your initial $10,000 in ABC, it would now be worth $10,304 (all stock, no cash). In this case, the difference is only $96 but, over longer periods, and wider swings, the cash really starts to build.

If you are doing constant value investing with a stock or exchange traded fund, you cannot buy or sell in exact dollar amounts. Instead, you divide the constant amount by the latest share price and then round this result to find the number of shares you need to own. Then you buy or sell shares to reach this amount.

For example, let us say that you want to maintain $10,000 in stock XYZ. At first, it is trading at $20/share, so you buy 10000/20 = 500 shares. If it then trades at $35.46/share, you now want 10000/35.46 = 282 shares (rounded). You would then sell 218 shares (500 - 282).

Here is an example of constant value investing, as applied to Amazon.com (AMZN) yearly prices.



Remember that there will not be a western surety company there to insure you if the cops are questing you. So keep your 5th amendment in mind!

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Welcome, Part 4 - Trading Success On My Own Terms

It wasn't easy to stick to my new system at first. It works with mutual funds, ETF's, and stocks, but not futures. It may work with options, especially leaps, but I haven't tested it.

So, when I first started trading my system, I was constantly battling my own mind, which kept saying that my system is too simple, not lucrative enough. "I need to adopt it to futures. I need to make it work with options, then I'll be all set! I could get rich faster if I just do this, or do that..."

I really had to change my thought patterns. Instead of greed or return, I had to focus on the process. I came to appreciate the simpleness and elegance of my system, and its Taoist nature. More importantly than results, I came to have a system that I believed in, trusted. I felt it embodied Eastern spiritual principles. Practicing it felt like a form of meditation.

I now feel at peace as a trader. On the money level, I feel like I have a system with a risk-reward profile I am happy with. On the intellectual level, I feel that I am on solid economic ground: buying low, selling high, and fulfilling the proper role of a speculator: sopping up excess supply, and feeding excess demand to help regulate a free market. On a spiritual level, I feel like I am "going with the flow".

The ideas I want to explore in this blog are (from least to most important):
1. Share my system and the ideas behind it.
2. Encourage traders/investors to define their own success and systems.
3. Combine 2 with a proper mindset, to develop their own confidence and trust.

The hardest thing is for a trader to develop enough confidence and realistic expectations to be able to resist the urge to tinker.

In order to share my system with others, I published a book detailing the complete rules of my successful stock trading system, including variations and ideas on minimizing commissions and taxes: Stock Trading Riches, which is available on Amazon.com.

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Welcome, Part 3 - Down to Earth and Start from Scratch

However, after all was said and done, I broke even on my trading, and was down commisions + the training materials, plus had racked up a lot of credit card debt.

I came to my senses. I took a multi-year break from all trading, and worked on paying off my credit cards. During this time, I gave away all my trading books, and started a long self-evaluation process.

Instead of external techniques (moving averages, RSI, trend-following, charts, etc.), I focused on internal thought patterns.

I ended up building my system around a 19th century Wall Street investment technique called constant value investing.

Please click here for part 4.

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Welcome, Part 2 - Giving in to Greed

Then, I got on all the "right" mailing lists, and the junk mail spiral began! I started to get all the get-rich-quick offers such as options, futures, MLM plans, real estate courses, etc.

I ended up buying one real estate course (and not doing anything with it)and a mail order distributor business (which lost me money). However, what really attracted me were options and futures!

I was doing ok in stocks. I was making less than I should have, mostly because I kept spending money on courses, and switching from one system to another. I then added stock options, and my results became more volatile.

Then, after resisting for a year or so, I took the plunge in futures. I started with a full service broker that an exchange referred me to. I opened up an account and he proceeded to churn my account, while charging high commissions!

He overtraded and, in less than a week, I owed more than twice I had put in! I paid the money and left him (today I would have taken him to arbitration). I figured that I, a novice, could be better than him.

Over the next several years, I plunged seriously into futures trading. I spent money on courses, books, videos, and a couple of seminars.

I was also spending extravagantly in general (i.e. eating out at the best restaurants, flying first class, etc) because I thought that, between programming and trading, I'd make lots of money :-) See part 3

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Welcome from a Born-Again Simpleton

Let me introduce myself to you. My name is Praveen and I'm a born again simpleton ;-).

I believe in a slow, humble, simple, methodical, one-step-at-a-time approach to life. I always had this approach with programming, but now enthusiastically embrace this principle in trading.

This wasn't the case when I first started investing 16 years ago. I started humbly enough with mutual funds, but then moved to stocks and started to read books on trading and investing... go to part2

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