If We’re Doing Too Many Posts About Whiny Babies, Please Let Us Know

December 28, 2011

We call it obsolescence, sister.

 

We don’t shill for corporate products here on Control Your Cash, excluding the wonderful sponsors whose ads you can scroll down and see. (That’s VRBO.com, everyone! For your next vacation, rent someone’s home and eliminate the middleman!)

And Amazon. Our relationship with the Kindle is equivalent to Peter King’s with Brett Favre, except Favre might return some of King’s calls. As far as we’re concerned, being able to carry your entire library around with you in a device that weighs a few ounces is more impressive than anything Pioneer 11 did or might be doing.

Sometime last year, your humble blogger and his smartphone were perusing the stacks at a Barnes & Noble when a certain book caught our attention. Well, not only can you can get Wi-Fi inside Barnes & Noble, the company brags about it. Which means you can access Amazon.com, which means you can patronize a bookstore’s competitor while in that bookstore, and start reading the competitor’s books right away. Barnes & Noble even gives you a chair if you want it. It’s like they’re trying to destroy shareholder value.

And that’s Barnes & Noble, the corporate behemoth that smaller bookstores used to regard as the epitome of evil. What about those mom-and-pop operations themselves?

Pulitzer laureate Richard Russo spent 12 years in college and somehow never learned a thing about economics. Earlier this month, he bitched in the New York Times about how Amazon itself is now encouraging its customers to do what we figured out (and anyone else could) all by ourselves:

Amazon was encouraging customers to go into brick-and-mortar bookstores on Saturday, and use its price-check app (which allows shoppers in physical stores to see, by scanning a bar code, if they can get a better price online) to earn a 5 percent credit on Amazon purchases.

…

I wondered what my writer friends made of all this, so I dashed off an e-mail to Scott Turow, the president of the Authors Guild, and cc’ed Stephen King, Dennis Lehane, Andre Dubus III, Anita Shreve, Tom Perrotta and Ann Patchett.

(pause)

(Sorry, we were busy returning e-mails from our good friends Queen Elizabeth, President Obama, Paul McCartney, Tom Cruise, LeBron James, Oprah, and Angelina Jolie. Where were we?)

Assuming Russo is telling the truth, Scott Turow has no understanding of law nor of modern life. Turow responded:

… it’s worth wondering whether it’s lawful for Amazon to encourage people to enter a store for the purpose of gathering pricing information for Amazon and buying from the Internet giant 

Not sure what statute Amazon would be violating there, unless they’re encouraging people to enter the stores and render the merchandise unsellable. But the brick-and-mortar bookstores are already doing that themselves, by pricing it too high. Russo continues, in his long-winded and quixotic manner:

A few miles down the road from where I live on the coast of Maine, a talented young bookseller named Lacy Simons recently opened a small bookshop called Hello Hello, and in her blog she wrote eloquently about her relationship to “everyone who comes in my store. If you let me, I’ll get to know you through your reading life and strive to find books that resonate with you. Amazon asks you to take advantage of my knowledge & my education (which I’m still paying for) and treat the space I rent, the heat & light I pay for, the insurance policies I need to be here, the sales tax I gather for the state, the gathering place I offer, the books and book culture I believe in so much that I’ve wagered everything on it” as if it were “a showroom for goods you can just get more cheaply through them.”

Opening a small bookshop in 2011 is like opening a Studebaker dealership in 1966. Or more aptly, a Borders store in 2011. Although we admire Ms. Simons for choosing a Gary dell’ Abate catchphrase for the name of her store.

Ms. Simons’s diatribe is why finance and economics courses should be required at every level of education. Hers is the same illogic echoed by so many of the Occupy Wall Street protestors: I invested in something (an impractical education, a business that can’t turn a profit), so regardless of that investment’s expected real-world return, if any, I demand a payout. Ms. Simons went to college (and financed her education, then took on still more debt before paying it off), and somehow Jeff Bezos and his silly computer engineering degree are “tak(ing) advantage” of her.

No successful businesswoman blames others for her own failure. Adapting to the reality of the market might not be fun, but it’s not like you have a choice in the matter. It’s like when Texas Instruments and their handheld calculators ran all the abacus makers out of business in the 1960s. Those people spent years learning how to put beads on strings in a wooden box, only to have TI, Casio and Sanyo “take advantage” of them. Didn’t the abacus makers have factories? And power bills? And insurance policies? So, so unfair.

As authors ourselves, we should mention that Amazon has been far friendlier to us than any retailer has ever been. We set up an account on Amazon, independent of our publisher, and now take home 70% of every book you buy. Meanwhile, trying to get our book on the shelves at local sellers was a gigantic pain. To do so you have to drive across town, hope you catch the appropriate store employee on the right day, and then, if she’s feeling particularly generous that day, she might offer to take 2 or 3 copies of your book and see if anyone buys them. Then, to find out if anyone does, you have to drive back and see for yourself (or call and waste some poor employee’s time.)

From the consumer’s perspective (and that’s a phrase many independent shopkeepers would have trouble understanding), which is easier:

a) Driving to a local store, stumbling across Control Your Cash: Making Money Make Sense by accident, thumbing through it and then buying it, or

b) Entering “personal finance” on Amazon.com, reading the reviews, then reading a sample, then having it wirelessly delivered in the time it takes you to wait in line at a retail store? For less than the retail store can sell it for? While giving the creator of the work a bigger cut than you give the middleman, if that’s the kind of thing that’s important to you?

It seems we’ve figured out why independent bookstores are doomed. Not just because their business model is obsolete, but the people running them are clueless.

**This article is featured in the Carnival of Personal Finance #342: Happy New Year Edition**

Filed Under: Bad Examples, Capitalism, Education Tagged With: , , , , ,

Beware of IPOs Wearing Bright Colors

December 16, 2011

Dolly was a sheep AND a clone. Sometimes, one visual metaphor can do the work of two.

 

This was the easiest bet on the board.

First, read this genius post that we wrote back in January. It’s about Groupon, the 2011 equivalent of Pets.com or Atari. Unfortunately, there’s no such thing as shorting the stock of a privately held company, or we’d soon be sipping mai tais on the Moon with all the money that we’d have made by predicting Groupon’s demise.

Groupon went public on November 4, finally trading on the New York Stock Exchange after a long courtship period as the new initial public offering darling of the decade. Like LeBron James’ The Decision, only if it was the precursor to a brief honeymoon, followed by an intractable period of anxious consumers waiting patiently and wondering if they’d ever see a return on their investment or if it would crater to zero.

(The 2011-12 NBA season, everyone!)

Six weeks in, Groupon has fallen 10% from its IPO value. The company’s market capitalization is $14.72 billion. That’s more than the market cap of Bed, Bath & Beyond, which is the largest retailer of its kind; a 40-year old company with 1000 stores that actually sells something tangible and turns a healthy profit.  Some Groupon stockholders are holding shares in the hopes that someone more naive will eventually take them off their hands. And presumably, some stockholders think Groupon will permanently increase in value and become a blue chip. These people are buffoons.

Groupon went from local (Chicago) player to international media subject last year. The company’s point of differentiation was groundbreaking, and it was hard to believe no one had thought of it before. Unfortunately for Groupon, plenty of people have thought of it since. You can’t patent the concept of temporary mass discounts, thus Groupon has watched its market share get eaten away by Living Social and other competitors; EverSave, GroupBuy, YourBestDeals, and more combinations of everyday words featuring medial capitals.

As if competition from other startups wasn’t enough, part of getting featured in the business media is having established companies take notice and then try to crush you like a bug. AmazonLocal and Google Offers joined the party in the last few months, as did similar sites from AT&T and American Express, each offering a service indistinguishable from Groupon’s. Unlike Groupon, the others can withstand heavy losses.

And lose they do. Last year Groupon took in $713 million in revenue, the most ever for a company so young. If you think that’s impressive, you’ll be equally impressed to discover that there’s a quantity called “expenses” that’s exactly as important as revenue is.

If you’re unfamiliar, which many people seem to be, here’s how Groupon works in two sentences. Its sales staff hits up a local business, promising it a minimum number of customers if the company temporarily offers a huge discount on some item (a “group coupon”, if you will.) Customers download the coupon from Groupon.com, the catch being that the promised minimum number of customers have to download the coupon or the discount won’t activate.

Sounds great in theory. Why doesn’t it work in practice?

To be kind, most of the businesses aren’t what you’d call sophisticated. Plenty of them refuse to do the math and end up giving away the store, and those are the ones for whom Groupon works best. (As for those businesses which Groupon doesn’t create any new customers for, if no one wants your discounted product via Groupon, at least it didn’t cost you anything to discover that.)

Continuing with our sexist observations, visit Groupon.com and see what most of the deals are for. Spa treatments. Hair coloring. Tapas.

(Aside: Here’s advice for anyone looking to enter the retail business. Sell a product that only men buy. Time is money, and you’ll reduce expenses on every sale. Men, or at least all the men you’d want to associate with, don’t bog down the process with an endless series of questions. They pays their money and they gets out. Meanwhile, most women can’t make it to the counter without seeing how long they can make the transaction last. “Is this low-fat?” “What’s your return policy?” “Didn’t you have this on sale last week?” “Was it made in a factory where they have peanuts?” “Are these ‘blood’ diamonds?” “Will this shrink if I put it in the dryer?” [Read the freaking label.])

What does a merchant learn by partnering with Groupon? More than anything else, where to find the price-sensitive buyers. Which is to say, the worst customers imaginable. The ones who will be loyal to your brand only if you continue to provide the best loss leaders.

Groupon is advertising, not sales. Not that there’s anything wrong with the former, but it should always be secondary to the latter. Remember that next time you invest in a company with negative earnings and a business model that’s easy to copy.

**This article is the pick of the week of the Top Personal Finance Posts of the Week – Merry Christmas Edition**

Filed Under: Capitalism, Education, Finance, Investments Tagged With: , , , , ,

Opportunity. It’s staring you in the face.

December 14, 2011

He keeps his phone on the belt loop of his khakis? Never would have guessed that.

 

Clark Howard, that empty golf shirt, recently rehashed his same old pablum into yet another book. Its banner reads, “It’s not what you earn, it’s what you save!” This is wrong on so many levels, but the main one is this: there’s a limit to how much you can save. There’s no limit to how much you can earn.

(NOTE for ladies and excessively cultured men: this post continues with a two-paragraph sports analogy. If you hate sports analogies, which Frank Luntz says you do, skip to the subsequent two paragraphs for a comparable analogy about…weight loss! Because everyone knows that women obsess about their weight. Hey, we’re just the messengers. Blame Luntz, the guy who says you’re easy to categorize.)

Most personal finance advice is the equivalent of a baseball manager who obsesses over pitching and defense to the exclusion and detriment of everything else. (Looking at you, Bud Black.) Each runner you allow on base could end up losing the game for you, therefore each is a problem that needs to be rectified. More important is the overarching meta-problem of reducing the number of baserunners you allow in the first place.

Nowhere in this development does anyone ask, “Wouldn’t it give us far more margin for error and make life a lot easier if we, I don’t know, scored some runs?”

Most obese people who make the requisite half-hearted public attempt to improve their bodies concentrate on one thing: minimizing intake. Minimizing for calories, or fat, or carbohydrates, some variable. If I only pare the volume that I swallow down to a workable size, I can turn from spherical into some more streamlined shape.

Again, it’s an obsession with the subtractive side of the ledger, rather than the additive side. The fat people who at least attempt to restrict their diets vastly outweigh (hey-oh!) the fat people who instead concentrate on building up – on powering their bodies by regularly lifting weights and doing cardiovascular exercise.

(Some of you are reading that last sentence and saying, “Well, of course the fat people who obsess on slimming outnumber the ones who focus on building muscle and thus increasing their metabolisms: eventually, the latter won’t be fat.”)

Exactly.

Same goes for your finances. The cacophony of people who can’t shut up about carpooling, repairing holes in clothes and making their own soap is deafening. The message is clear, if flawed: scrimp, or skimp, as much as possible. Do without. Justify every purchase you make. At the very least, you’ll overload yourself with doubt, and opt not to buy the item in question just so you can give your brain a rest.

Do that, and you’ll free up money to…pay your creditors with. Not that you shouldn’t pay your debts, but the goal with this method is zero, null, cipher, nought, ought. Getting out of the negative and staying there.

Here’s a truth that’s so self-evident, tens of millions of people either miss it or are too dumb to act on it: paying bills is a lot easier when you have more money.

Hey, thanks a lot, Control Your Cash. Is water wet?

Strictly for research purposes, we counted 628 coupons in our most recent Sunday paper. Looking at each one and determining whether it’s for something we’d be interested in would have taken about 37 minutes, extrapolating from the few coupons we looked at. It takes considerably longer to cut them out than it does to look at them, which would make this close to a 2-hour ritual every week.

Yet some people swear by it. You saved $47.11 on groceries? Good for you. Every little bit helps, presumably.

Instead of spending 104 hours a year whittling down your grocery bill, try something different. Spend half that much time researching rental properties. They’re there for the asking. Make an offer on a modest little townhome in a refined part of town. Or a 2-bedroom condo in a slightly worse part of town. Find office space in an industrial park – there’s tons of it, everywhere except North Dakota. Finance it and rent it out to someone. Make friends with a realtor and let her do all the legwork. They work on commission, and most are sufficiently motivated to help you find something.

Yes, we’re telling you to take on more debt. Leverageable debt. As we’ve demonstrated again and again, you aren’t going to build wealth on a salary.

Here’s an example. We visited the Multiple Listing Service site for Seattle, Sea.TheMLSOnline.com, and found 13 townhouses that sit on golf courses. The cheapest of these townhouses is a 2-bedroom number that’s listed at $145,000. In case you haven’t been paying attention the last 3 years, it’s something of a buyer’s market. By the way, this research took us less than a minute. If you’re committed to earning money, and willing to spend a little more time, and actually live in the city where you plan to invest, you can find opportunities like this everywhere.

This unit will close at something like $135,000. Thirty-year fixed-rate mortgages are going for around 3.96% right now. Put $27,000 down, and your monthly payments will be $513.12. If you can rent it out for a modest $970 a month, you’ll clear $5400 a year. That’s an enormous return. Yes, a property manager and a home repair warranty will eat up part of that, but you’ll build equity on an asset that will probably grow in value. After all, scarcity is everything: they can’t cram another townhouse onto the 14th fairway. Best of all, your eventual renters are probably comparison shopping for laundry detergent as we speak.

But you didn’t learn “landlordship” in high school or college. They don’t teach that. Instead they teach Scandinavian history and modern dance.

Opportunities are there. You don’t need anything more than middle-school mathematical and English proficiency to take advantage of them, either. Why aren’t you rich?

**This article is featured in the Best of Money Carnival #134, The Christmas Songs Edition**

Filed Under: Capitalism, Finance, Investments, Making Smart Choices Tagged With: , , , ,
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