Where’s your loyalty?

September 21, 2011

Mike Brown, who coached the Cleveland Cavaliers for 5 years. He won 272 games, lost 138, and in 2009-10 led Cleveland to the best record in the league. Dan Gilbert rewarded him for his loyalty with a pink slip. (Or maybe Gilbert fired Brown for carrying a purse, which we would enthusiastically support.)

We love to rail against corporate slavery here, the explicit message being that if you really enjoy your job and concomitant station in life, have at it. But you probably don’t, and instead of whining about it you should take a chance. Or just wait a few decades and regret it, but it’s up to you.

Here, we’ll let commenter Monica explain it:

As a former hourly employee of a business that made it nearly impossible to leave on time, didn’t pay overtime wages, and expected work to be done at home, this article reminded me of why I took a risk and quit. I swallowed my pride, didn’t complain, and stuck it out to help my family. I have a strong work ethic and would never consider giving less than 100% at my job. After four years of dedication, excellent work and client reviews and awards, I received… wait for it.. a card and a cupcake when I left. I think many people find that companies are far less invested in their employees and seem less inclined to reward them for good work and loyalty. It is a shame because recognition and appreciation encourage employee productivity and longevity. Just my opinion…

People confuse “loyalty” with “honor”. They’re not synonyms. Honor means that you owe your employer whatever you agreed to as conditions of the job. Don’t cut out at 4:30 if the workday ends at 5:00.

If the workday starts at 9 and you get there at 8:15 in the hopes that someone influential notices, what have you proven? Here, we’ll do it in the form of a patented Control Your Cash multiple-choice test:

__That they should think of you the next time a promotion comes up.
__That they can throw extra work at you, maybe so much so that they can even save themselves the trouble of hiring an additional person.

As for loyalty, that’s a faithfulness you have to a family, a spouse, a country. Those are entities that you (presumably) share a goal with. Loyalty to an employer is a falsehood. Among other reasons, because you have different goals:

Your goal is to facilitate your career: your employer’s is not. Your employer’s goal is to turn as big a profit as possible. The two goals might overlap somewhat, but that’s not your employer’s concern.

Employers know this. They understand that it’s human nature to not question authority. This doesn’t mean you shouldn’t question your elected representatives (which, many of us seem to forget, are our employees.) Far from it. It means you should question your employer if you’re expected to do something beyond what you’ve agreed to. And that you shouldn’t succumb to pressure to do otherwise.

Telling most people to stand up for themselves is like telling a newborn baby to go to the store and run some errands, but we’ll continue.

We’ve had a year to put the following illustration of this in perspective. Last July, after 7 years of Hall of Fame-worthy play as a Cleveland Cavalier, a young multimillionaire named LeBron James exercised his ***RIGHT *** to file for free agency. The terms of his employment explicitly allowed this. He owed it to himself to exercise this right. Not doing so would be like taking only 2 weeks of vacation despite being allowed 3.

Even if you’re not a basketball fan, you probably know what happened next. James signed with a conference rival, and became as hated in Cleveland as Benjamin Netanyahu is in Gaza.

Millions characterized James leaving town as “betrayal.” You know, because wanting to find a new basketball team to play for is the equivalent of condemning The Savior of Mankind to a grisly death for 30 pieces of silver.

James irreparably severed his relationship with the idiot basketball fans of Cleveland, but that’s not the point. We can’t expect them to act rationally, and besides, they had no skin in this game. James’s employer/employee relationship, on the other hand, went to strange new places.

His now-former employer, billionaire Dan Gilbert, violated the Universal Boss Code. In a stunning display of childishness he exposed his feelings and let the world know that in his eyes, James’s only value as a human was in the difference he made to his, Gilbert’s, bottom line. For good measure, Gilbert added “selfish”, “heartless”, “callous”, and “cowardly” to his list of adjectives. Gilbert went way past infantile, reducing the prices of James-themed merchandise to $17.41 (in pennies, the year of Benedict Arnold’s birth.)

James earned $62 million in salary during his tenure under Gilbert, which means Gilbert must have profited by at least that much by having James around.

Substitute your own name for James’s above, your employer’s for Gilbert’s, and whatever you’ve earned for James’s salary (if it’s at least $62 million, kudos.)

Clearly whatever profits Gilbert was enjoying by keeping James around were worth holding onto. Otherwise Gilbert wouldn’t have worked so hard to keep James in Cleveland, and reacted so impetuously when James exposed a crucial truth: there are limits to a boss’s power. A smart employee can transcend those limits. This particular boss was willing to embarrass himself, in order to keep a valuable employee who understood his own worth in the marketplace. You can expect your own employer to harbor similar feelings if you start being cognizant of your own worth.

If you do, your employer will have to pay you more, accommodate your wishes, make your life a little easier. No employer will do this willingly, and most will start the negotiations by belittling you and making you doubt yourself. The idea of a self-aware employee scares most employers more than an audit does.

Did James sign elsewhere specifically to irk Gilbert? No, that was an ancillary benefit.

Presumably, you have at least a few professional non-monetary goals. James did, and like most pro athletes his include a world championship. He was already making huge money, and would continue to regardless of where he signed. Therefore, other aspects of his job became important. Exercising his right to free agency (which, by the way, you have too), he chose to work for an employer who lured him away by:

  • conducting operations in a beautiful city with a perfect climate, as opposed to the rusty chill of Cleveland
  • taking the idea of winning a championship seriously, by assembling a roster that didn’t consist of 11 stiffs.

James might have won a title in Cleveland had he stuck around long enough. But he came as close to winning one in his first year in Miami as he did in 7 years in Cleveland, advancing to the NBA Finals and taking it to 6 games. And he didn’t freeze half the year while doing it.

Meanwhile, James’s former team set a record by losing 26 consecutive games. James’s departure cost the Cavaliers an additional loss every other game. Maybe the Miami Heat got a bargain.

An elite financial engine like LeBron James can find himself a better situation. There’s no reason you can’t too.

**This article is featured in the Best of Money Carnival #122**

**This article is featured in the Totally Money Blog Carnival Celebrity Roast Edition**

Filed Under: Capitalism, Entrepreneurship, Finance Tagged With: , , , , ,

Control Everything But Your Cash

August 24, 2011

We're running out of metaphors

There’s an argument for being contrarian, and a solid one. A true contrarian would have emerged from the recent housing crisis not only unscathed, but rich. In its simplest incarnation, contrarianism means exactly what it sounds like: buy when everyone else is selling, and vice versa.

The reason this doesn’t work when you follow it to the letter is that it means you would have sold Google stock when the rest of the world was pushing it up from $100 to $579; and you would have bought GM stock when everyone else was jumping off, anywhere from $72 down to its eventual delisting. Over the course of the stock market’s history, you would have lost money.

A popular hypothesis is that of the “permanent bull market”, which states that any downturn in the market, however long, is but temporary. Accounting for inflation, the Dow is well ahead of where it was when it started and it always will be over any given period if you just wait long enough. Therefore, just wait long enough.

The problem is that humans have life expectancies on the order of only a few boom-and-bust cycles. Generalities don’t really help when formulating an investment strategy. Yes, you can figure out which stocks to buy by analyzing fundamentals – in fact, we recommend it because we can get you started for a mere $3.50 – but even that implies that there’s a future worth investing in.

Not to go completely nihilistic on you, but ask yourself the following questions. Seriously. Don’t just read them, think about the answers.

  1. Is there a particular number the Dow could rise to that would give you confidence in the American economy?
  2. If so, what’s that number?
  3. When do you realistically think we’ll get there?
  4. (And did you factor in inflation?)

I recently asked the president of a publicly traded foreign company this very set of questions. Conducted orally, so he couldn’t see which one was coming next. Here were his answers:

  1. Yes
  2. 13,000
  3. (hesitating) 2013? Maybe 2014.
  4. (more hesitation)

Crossing your fingers and trying to convince yourself that things can only get better is better than being pessimistic, it would seem, but eventually you have to start quantifying things and weighing your situation against inflexible time horizons. Us each getting a year older every 12 months is the only constant. What the economy does is, of course, variable.

The following are not opinions:

America’s credit rating now at its lowest level ever, on par with Belgium’s.

If the Greek or Irish economy tanks, the damage can be somewhat contained. Not so for the country with by far the world’s largest GDP.

With a few notable exceptions, no member of either party in the United States government’s legislative or executive branches is remotely serious about reducing its size (and therefore reducing the size of its current and future obligations.)

Those same government functionaries have all but stated that their goal is to eliminate risk, which is a functional impossibility. Of course, the buzzwords they use are far more benign (“keep Americans in their homes”, “make the rich pay their fair share”, “put America back to work” et al.)

People are at least finally learning how to save.
(Ha! Just kidding. It’s true that that’s not an opinion, but it is a falsehood. People are borrowing more than they have in years.)

——–

The consensus opinion among the populace seems to be to wait and see. But an enterprising contrarian can’t decide to simply do the opposite of nothing.

At Control Your Cash we try to keep away from giving specific investment advice. Not because we’re not professionals, but because our M.O. has always been to teach people to fish. That being said, it’s time to champion hard assets.

Real estate is finite. With a growing population, it would seem that real estate’s value will always increase in the broadest of terms. (People need to live and conduct business somewhere.) Gold and other precious metals are finite, at least until alchemy makes a comeback.

“But technically, everything is finite”, you argue. Which would be true if we’re restricting our discussion to the tangible. But there is literally no limit to the money a worrisome government can create. If you don’t believe that, or think it’s an overreaction, go ask a Zimbabwean. Or a Weimar-era German, if there are any left.

Inflation isn’t just a devaluing of the currency. It’s a way to punish the poor at the expense of the rich (because rich people, almost by definition, keep a smaller ratio of their wealth in cash than poor people do. Rich folks can buy assets and hold onto them. Those whose wealth consists primarily of cash aren’t just too tempted to spend it, they’re too subject to the machinations of a market that conducts business in weakening dollars.)

Sooner or later, a government with overwhelming obligations and too many creditors will have no choice but to employ the nuclear option: if you owe lots of dollars, it makes sense to make each dollar you owe worth less. If you can do it, that is. You can’t. Governments can. And shortly, will.

**This article is featured in the Yakezie Carnival-September 11th, 10th Anniversary Edition**

Filed Under: Bad Examples, Capitalism, Consumer Debt, Net Worth, Personal Finance Tagged With: , , , ,

Too big to fail. Too small to succeed.

August 12, 2011

A new adjective to describe the size of our government: gynecomastic.

Stock recommendation coming. But first, a rationale.

You might have noticed that there’s no disclaimer on ControlYourCash.com, the absence of which is yet another feature that sets us apart from almost every other personal finance blog.

There are at least 2 reasons for this. We never included a disclaimer because if you’re stupid enough to lose money on an investment just because we recommended it, that’s your problem, not ours, and we’re willing to argue that in a court of law should it come to that.

We hate the very fact that we had to mention that, which indirectly explains our other reason for the lack of a disclaimer. If we were to act out of defensiveness, submitting to the framework devised by the lawyers who run our nation, that would make us complicit in the problem. It’s the same reason why every time either of us checks into a hotel room, the first thing we do is take a pair of nail clippers and remove that sticker on the blow dryer that tells you not to immerse it in water. Along with the smaller sticker that proclaims that the state of California has determined that the cord is poisonous, therefore you should wash your hands after using it. That we’ve attributed the power of reason to a fictitious political entity, and that most people don’t seem to notice or mind, augurs horribly for the future of a nation in decline and an ostensibly free people.

So here’s the aforementioned stock recommendation. Well, more of an industry class recommendation. Stay the hell away from community banks and invest in the big ones. Because not only are the latter “too big to fail”, but their being too big to fail necessitates that the former must be too small to succeed.

Main Street Bank is, soon to be was, a small commercial and personal lender in the suburbs of Houston. Main Street is a modest little $45 million business (modest as bank sizes go) that’s about to go out of business.

The company’s financials are fine. It’s not being swallowed by a corporate raider and chopped up asset by asset. It didn’t lend more than it could afford to, nor is it the victim of executive malfeasance.

Does Main Street have a lot of bad loans? No. Main Street’s default rate is 31% below average. (That is, better than average, because defaults are bad and you want the numbers to be low.)

Main Street’s business largely consists of lending money to independent businesspeople who use the loans to buy equipment. The equipment ideally enables them to sell more of whatever it is they sell, or do so more efficiently, thus resulting in increased profits, which means the bank gets its loans paid back and everyone’s more successful than they were before the arrangement began.

Unless, of course, the federal government orders Main Street to stop lending so much. Not unlike the absurd CAFE standards for fuel economy, the government has decided what Main Street’s portfolio should consist of. 90% of Main Street’s loans go out to small businesses. The feds have determined that 70% of that outstanding money ought to be loaned out elsewhere.

Title IX is a federal mandate that require colleges to offer as many women’s sports as they do men’s. Ignoring that men like sports more than women do, the inevitable result is that most colleges just end up dropping enough men’s programs to get the numbers to match. In much the same way, Main Street honored the Federal Deposit Insurance Corporation’s orders by lending out less money. One fewer lender in the neighborhood means less choice for the suburban Houston small-business owner, which means the remaining lenders can raise rates and high-five over the handicapping of a competitor. Meanwhile, Citibank not only could “borrow” $45 billion from taxpayers, but practically had that loan forced on it by a complicit executive branch.

If you’re an investor, what are you going to invest in? Main Street was closely held by its founders and not open to independent shareholders, but the principle is the same for dozens of other banks. Given the choice between a bank ordered to shrink by the federal government, and another one ordered to grow by same, an investment in which has bigger potential?

Main Street’s CEO put it best:

“The regulatory environment makes it very difficult to do what we do.”

First, again we’re attributing human failures to institutions. It’s the regulators, actual people in the employ of the government, who are making it difficult for Main Street Bank to accept deposits and lend out money. And ultimately forced it to return its banking charter.
Given how many politicians of both parties have uninspiringly described the ongoing interminable financial crisis as benefiting “Wall Street over Main Street”, well, today’s story about a dying bank is ironic on a level that even a congressman should be able to understand.

Thanks to Robin Sidel of The Wall Street Journal for basically doing all the prep for us.

**This article is featured in the Carnival of Personal Finance #323-Better Late than Never Edition**

Filed Under: Capitalism, Economics, Entrepreneurship, Investments Tagged With: , , , ,
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