Advice for the Masses

It is rare that advice should be given to the masses.  Mint.com a great site, came out with top 10 financial rules to live by.  Listed below with caveat.

1) Save at least 10% of your income - Makes no mention to how much you make surely a person with 20k/yr salary will have a different strategy than someone making 80k a year.
2) Have at least three months of living expenses in an emergency fund. - Do you have kids or single makes a difference plus *why not front load your Roth IRA contributions in the year so you can take out if you need if... wait they tell you not to every withdraw out of a retirement account.

3) Get a life insurance policy worth at least 6 times your household income. - See #2, there could be other vehicles of protecting those left behind than traditional life insurance.

4) Use the 20/4/10 rule when buying a vehicle. - Ok wTF came up with this the car sales people?

5) Save 20 times your gross income for a comfortable retirement. - How old are you 25 or 55? What if you spend your money now like a drunken sailor?

6) Put down 20% on a house and don’t borrow more than two times your income. - This one is not too bad but its the same as #4.

7) Subtract your age from 100 to determine what percentage of your portfolio should be in stocks. - What if I don't plan to retire when I'm 70 and what if my health sucks that I will die when I'm 65?

8) Pay off highest interest rate debt first. - Yes but what if the asset with that dept was making positive cash flow?

9) Max the match on your 401(k). - Its free money yes but its often comes with hidden fees and the crappiest investment options.
10) Don’t take out more in student loans than you expect to make your first year on the job. - If everyone followed this then no one would go to school.

Also some thoughts about the web app Mint.com.  

Mint is not for everyone. It can take too much time. It focuses on Accounting before and typically there is little energy to focus on behavior.

Quote

“Whenever you find yourself on the side of the majority, it is time to pause and reflect.”

― Mark Twain

Mountain Biking Theory / Mariners Game

How do you tell if a girl likes you?  Ask her to go mountain biking.  No girl likes mountain biking its dirty, dangerous, and a little extreme.  If she says yes she likes you.

Still not convinced?  Ask her to a baseball game... A Mariners baseball game in fact.

Can you be the best at all these jobs

In a NBA basketball team there are 2 guards - 2 forwards - and a center.  Behind the scenes in the franchise there are countless of people who make help make the product.  Micheal Jordan was quite exceptional and probably the best guard/forward and even center that ever played the game.  Today he is the Charlotte Bobcats' Owner/GM and the team sucks. I'm not going to make a strong argument for specializing and utilizing your skills the best way possible because we have heard that one before.  Here are some businesses and some of the sub jobs of each.

Farming:

Seed procurement, soil prepping, planting, watering infrastructure, watering, fertilizer procurement, fertilizing, harvesting, marketing.

Real Estate:

Bird dogging, whole seller, real estate agent, home inspecting, mortgage broker, hard money lender, lawyer, tax accountant, property management, contractor, landscaper, locksmith, electrician, windows guy, escrow, title company, insurance agent, mentor, administration, banker.

It is through my experience that for the franchise/business to be successful you need to have some sort of competitive advantage in one or a few of the sub jobs.  You can even quantify this by beating the market 3-6+% in a category for example if you are good at taxes you have the ability to save taxes and augment you future buying power by 3 or more percent.  If you are good at installing roofs you can save yourself a lot when its time to redo your roof every 20 years.

Is it more effective to play all the positions or spend your time creating a team of consistent 1% out performers?

You don't win a Roto Fantasy sports league by winning all the categories nor not being last in any one.  You win with the sum of all the parts.

The Three Tiers of Consumers

The Suckers: These people are those who will pay whatever the sticker price is for anything. Big name brand companies charge top dollar on the lazy consumer.  Examples of this are ADT, Chase Bank/Bank of America, Chase Bank/Bank of America mortgages, State Farm insurance, your local Globo gym.  For companies such as these their business model works... They are usually owned by old wealthy individuals that employ manuscript reading sales people that is based off of shear traffic through front door due to brand recognition.  It is so unfortunate that large companies can cherry pick the easy consumer.  Please note that many times service rendered is great but at a high profit margin.

 

The 2nd tiers:  These are the people who you tell them that its 20% off they go crazy and buy for example the "Groupon" effect.  As explained in a previous post a 15 dollar coupon for 30 dollars is not a good deal when the meal costs 50 dollars, especially when the food is mediocre, and especially if you should have had a meal at home.  Another example of a vendor is Geiko...

"Geiko, saved me a bunch at my car insurance." Yes but that's because State Farm was taking a crazy about of profits.  If I was given a discount so easily then wasen’t the product or service was too expensive to begin with?

The savvy consumers: These people buy only after 1) an analysis if the product/service is even needed and 2) a methodical shopping process where alternatives are competitively bid and then negotiated on final price.  Their vendors are usually smaller, organically grown companies that still believe in the benevolent world.  These companies leans operations to provide optimal value consisting of exceptional product at reasonable price.  Examples of these companies are Simplisafe and boutique real estate service companies.

Its not how much we make but its also about how much we save.  Spending money is necessity without it the economy would not work.  But to give your hard earned dollar to a lazy company is not right.  It is easy to complain about these predator or parasitic companies but we need to vote with our dollars and give them to those to deserve them.

RS Means = Really Shitty Averages

The estimations in the RS Means book (cost and time estimations for just about every construction related task) are in my opinion optimal times. People are not machines and construction is done by the operator in the backhoe who is taking vacation in two weeks, the carpenter who is going through divorce, and the electrician who sprained his ankle playing basketball. I know there is some buffer built into the RS Mean to account for the human factor but in a shorter non-steady state project the variability is so large. As a construction supervisor I can attest that the human factor is the biggest factor in my project and this can be contributed to the morality of the crew. In all honesty and seriousness a pallet of Gatorade and morning doughnuts does more to increase my team's productivity than a 3rd backhoe or favorable weather conditions. In the field everyday it is a battle to meet production goals but it is amazing how goals are set and how they are achieved at year end. At my company the annual goals are increased by 3% every year where does this come from?

Instead of setting goals/expectations maybe we should not have minimum requirements. People have a way of just getting by and doing the minimum, if there were no goals perhaps we would exceed the current production rates??? Google hires the best and brightest (who are self motivated and over achieve) and they do not have the minimum expectation culture... perhaps this free reign equates to better results.

It's Ok to be different Part II

Piggybacking on the words of Kathryn Schulz, we don't need to be right at everything. In elementary school, the kid who's paper was marked up by the teacher was thought as the dumb kid/the kid always making trouble/the douche who forgets their homework… so now today

we associate those who are wrong as extremely negative (or at the deepest personal level we denounce the person as a "fucking idiot") and therefore the best practice is to never make mistakes.

To apply this idea to a different topic lets think about those folks who were always correct... The straight A/workaholic/just freaking smart dude. Post college they tended to be doctors or lawyers but perhaps they themselves needed to take more chances and make mistakes? Maybe the path not taken would have produced a career platform that would have exponentially magnified the individual’s talents into a greater good for society... It is good to fail, hit the wall, and be directed in a different direction.

Like Lance Armstrong who only won the tour de France after he had cancer... the surviving & overcoming & risk taking acts as a catalyst for accomplishing great and extraordinary feats.

I Dont Want to Hear Your Problems

Derek Sivers suggests: “Keep Your Goals to Yourself!”

The Paradox of Choice

More value in Barry Schwartz: The paradox of choice.

The Consequences of more choices:

Paralysis - example... with every 10 added mutual funds to an employers' 401k plan participation went down 2% and why would you not grab free money?

Less Satisfaction - "the secret to life is low expectations" -Charlie Munger


I am by no means an Apple fan but does a good job of limiting the buyers remorse as oppose to dell. Looks like Apple did their HW on the 6 +/- 2 law? Or was does Apple identity built on that stupid typography class Steve Jobs dicked around at while at College.

The Inverse Relationship Between Performance and Rewards

Lot of value in the first half of this Daniel Pink on the surprising science of motivation 18 min video ...you with probably watch the rest.

As long as the task involved only mechanical skill (monkey work), bonuses worked as they would be expected: the higher the pay, the better the performance." But once the task called for "even rudimentary cognitive skill," a larger reward "led to poorer performance."..."Higher incentives led to poorer performance." Source: MIT, US Fed Reservel, Really smart folks

Additional viewing of the carrot and the stick: Alan Watts: Music and Life

It's so cold... so cold... so cold

When I was young lag, before I hit a golf shot off the tee I visualized the meanest slice in hopes that when I would hit it for real I would be “given a second chance/mulligan” and in terms of probability just like flipping a coin more likely of not hitting that slice into the adjacent fairway. Needless to say I was not a very good golfer.

This transitions into a true story.

A Railway employee in Russia accidentally locks himself in a refrigerator car. He was unable to escape and couldn’t attract the attention of those outside so he reside himself to his fate. As he felt his body becoming numb he recorded the story of his approaching his dead on sentences scribbled on the wall of the car.

“I’m becoming colder” he wrote
“Still colder now”
“Nothing to do but wait”
“I’m slowly freezing to dead”
“Half a sleep now I can hardly write”
And finally… “these maybe my last words”

And they were… For when the car was opened they found him dead yet the temperature of the car was only 56 degrees. The freezing apparatus had been out of order. There was no physical reason for his death. There was plenty of air, he hadn’t suffocated. He was the victim of his own illusion. His conclusions were all wrong. He was so sure he knew. The power of the mind of over the body can produce an effect almost magical.

The Marshmallow Test

In the 1970s, a psychologist named Walter Mischel did an experiment at Stanford coined the Marshmallow test that demonstrated the human tendencies of self control. Mischel sat a four year old at a table and he made them a deal that they could eat a marshmallow now or wait to get another marshmallow as a reward. This test was supervised and in most cases the subject decided to wait.

Then Mischel leaves the room for 20 minutes. In these series of tests few of the kids were able to hold out for 15 minutes and most could not last 1 minute. The most successful at resisting temptation used many extreme means such as covering ones eyes or looking somewhere else.

Basically people's will power suck unless they are held accountable by someone else.
Also it is noteworthy to point out the fact that it was completely logical to wait so you would be rewarded with 2 instead of just 1 marshmallow. When we all understand the benefits of compounding interest how can we expect people to resist temptation of spending?

Here is a link of a recreation of the experiment

And I am not condoling doing this test on anyone's child.

Monkey Soup

Here is a true story... somewhere in south Africa there exists a native tribe that uses a bottle to trap monkeys to eat. Long story short, monkey comes to bottle with a kumquat inside which the monkey loves... monkey sticks hand inside for the kumquat. As the monkey clenches he can't take his hand out of the bottle... silly monkey... Remember the native tribe dude he comes along with a club and BAMMO! Monkey Soup. The monkey wanted the kumquat and he obviously wanted to survive till the weekend, yet he did not release the kumquat.

Point of the story is don't be like the monkey you can't have both things. You must choose. In the gym you can't get Jay Cutler big and Brad Pitt ripped... you have to pick one. The saying "you can't ride two horses at once". Ride that first horse and kick it to side when it gets tired and then ride the other one.

The Iguana Principal

The Iguana Principal is a social phenomenon that explains many irrational behaviors.

Picture a cold-blooded reptile, such as an Iguana sitting on a 205 degree rock in the middle of Death Valley, California.

Now if you or I sat down on that rock we would say "F that was really hot that's miserable". The iguana is Content as can be. We ask mr Iguana "wouldn't you rather be surfing and sipping Coronas on a beach in Santa Barbara?" The iguana has a look of confusion, the iguana knows no else other than the smoldering hot rock. At the end of the day the Iguana remains in the shit situation.

Are you like mr. Iguana?

Point of the example is that people become acclimated and become tempered to their situations. Other examples of this is "Ignorance is bliss" or the "Lobster in the pot of an increasing temperature until it boils".