“Your health is the most important thing.” Uh-huh.

July 15, 2011

Every d-bag in this picture (the "d" stands for "dirt") thinks he or she is rich.

A few weeks ago, the popular personal finance meta-blog Yakezie held a contest for students, asking them to define richness and answer related questions. Even though our studyin’ days are long in the past, we decided to write an essay anyway and modify it for you folks. If this doesn’t spur some comments, nothing G-rated will.

Do you think becoming rich is easy or hard in America?  Please explain your viewpoint.  
What is rich to you?  Is it a dollar amount in the bank, a lifestyle, or perhaps even a state of mind?  
The United States is the richest country in the world.  Will there always be poverty?

In the fashion of a corporate customer service department, let’s answer these questions in the order in which they were received.

Becoming rich in America is easy – maybe not easy in absolute terms, but the qualifier “in America” implies that we’re to compare getting rich here relative to getting rich elsewhere.

In the vast majority of the world, getting “rich” means capitalizing on influence and heredity. The most motivated, diligent, dedicated Kyrgyz camel tender or Mozambican copper miner can’t get rich in any meaningful way that we in the Western world understand the term. The opportunities for entrepreneurship just don’t exist elsewhere, for the most part.  The opportunities for joining the governmental apparatus and perpetuating it abound, however. (But only if you’re connected.) And while the United States still has its share of nepotism, red tape, political maneuvering and corruption, it’s nothing compared to what goes on in the rest of the world.

Your humble blogger has a slightly different perspective, having been born and raised elsewhere and only arriving in the United States at the age of 25. When I did I had no money, nor did I have any connections – unless you count the hotel waiter I’d met in Miami a couple years earlier who let me crash on his couch when I first emigrated*. My dreams were modest, but they were distinctively American: make enough to achieve financial independence, ideally on my own and without having a boss breathing down my neck.

So what is rich to us? You’re not going to hear us give some bromide about it being health and good friends, or any of that crap. This isn’t a box of Kashi cereal. If non-monetary criteria are what make people rich, then everyone’s rich, and therefore no one’s rich because “richness” loses its meaning.

“Rich” as we define it means not having to worry about worrying about money. It means having assets that routinely outpace liabilities. Beyond a certain level of subsistence, that’s all anyone can hope for. If you gross $100,000 a year, spend money on everything you could possibly want and need and have $20,000 remaining at the end of the year, and can apply that to the following year’s assets, you’re rich. If you make $5 million and have a $6 million hooker-and-heroin habit, you’re poor.

Will there always be poverty? Again, it makes all the difference in the world whether we’re talking in absolute or relative terms. Our poorest acquaintance lives far more lavishly than John D. Rockefeller ever dreamed of. She can communicate across the world instantaneously. She can control the temperature of her dwelling with the press of a button. She can travel at speeds that the richest people of previous generations couldn’t fathom. For pennies a day, she can ensure that her teeth will stay strong and not fall out of her head. She can eat thousands of calories daily without having to spend time doing the backbreaking labor of growing the food herself. Or even cooking that much of it.

So yes, there will always be “poverty” in the sense that someone will be at the bottom – even though that bottom has risen throughout the history of civilization and will continue to. Is that a bad thing? Not if the alternative to having some at the bottom is to have everyone at the bottom. It’s important to remember that everything is transitory. The vast majority of people in the lowest quintile of income don’t stay there long: it’s more a function of the point a “poor” person’s at in his or her life – just out of school for instance, or unmarried and pregnant with one’s sixth baby – rather than a permanent condition of status. Both Control Your Cash principals were poor by any modern definition at 19. And are probably rich by most people’s definition a couple of decades later. We wouldn’t have changed any of it to have lived under circumstances where the opportunity to fail and be poor wasn’t available.

*No, it wasn’t the follow-up to a torrid homosexual tryst. Just because a guy sets foot in Miami doesn’t mean he’s gay. You people are perverts.

**This article is featured in the Yakezie Carnival-Best of Yazekie this Week**

**This article is also featured in the Baby Boomers Blog Carnival One Hundred-second Edition**

Filed Under: Economics, Healthy Living, Making Smart Choices, Personal Finance Tagged With: , , , , ,

Your Smart Car isn’t saving the world

June 22, 2011

Gas prices too high? Congress will solve the problem, by forcing those greedy car manufacturers (who are in bed with Big Oil, you know) to increase their average gas mileage.

 

 

 

This model of Hummer actually gets NEGATIVE miles per gallon.

Gas prices low? That means people with low-mileage cars will drive more than they otherwise would, polluting our rivers (I think. Rivers might have something to do with it. Okay, oceans then) and keeping us ever more dependent on foreign oil. Which means it’s time for some intervention. Like legislating higher gas mileage.

Gas prices at their historical average? Well, there’s probably something nefarious about that, too.

Let’s go to the helpful folks at AAA for some numbers. AAA, the organization that will replace your flat tire (something any human should be able to do), bring you gas (if you’re dumb enough to run out, which should be practically impossible), give you maps (obsolete c. 2007) and send that godawful monthly magazine with prissy stories about the charming new vineyard taking root (haw!) in Sonoma County. “They make a Cabernet that is to die for. Best enjoyed with roasted squab. Tastings and tours daily.”

Take most of what AAA says with skepticism – they’d have you believe that checking your email at a stoplight is the equivalent of driving over the double yellow with a Stolichnaya bottle balanced on your knee – but we’ll use their estimates.

They claim the average American drives 13,500 miles a year. Meanwhile, the Corporate Average Fuel Economy standards mandated by federal bureaucrats and legislators require the average passenger car get 30.2 miles per gallon.

(Why they don’t simply legislate that the average car get 10,000 miles per gallon, run on kitchen waste and not be allowed to get into accidents is anyone’s guess.)

Back in the real world, that 30.2 figure is for the current model year. Of course, most of us drive cars from previous years. The mandated average has been constant at 27.5 for the previous two decades, so it’s safe to use that as our bellwether.

That means, grossly simplifying things, that the average driver should use about 447 gallons a year. There are around 250 million cars in the U.S., so that’s 2.7 billion barrels of oil we use every year, you filthy mechanized polluter.

A couple of qualifiers, first being the absurdity of mandating technological “advancement”:

Miles per gallon is easy to measure. Other, more important characteristics of a vehicle – like its ability to withstand fires or protect its occupants in collisions – aren’t so simple to quantify. Nor are they the concern of the particular bureaucrats who implement CAFE standards. Our political betters are collectively self-aware enough to know that they can’t set standards for two disparate variables simultaneously – cars should have at least gas mileage x while having fire retardation y – but that doesn’t stop them from measuring the one variable and enforcing an arbitrary, largely unforceable minimum.

Setting that minimum is a politically palatable way of what can only be described as fixing the market. The result is that auto manufacturers are forbidden from selling as many of their low-mileage vehicles as buyers want. Instead, said manufacturers can only sell a given number relative to the number of high-mileage cars they can sell. Otherwise, the average gas mileage of the cars they sell would decrease. Simply because people, for whatever reason, like to buy cars that burn a lot of gas.

It should be obvious that it’s not the flagrant gas-burning that people like for its own sake.

Honda makes a powerful if unglamorous SUV (the Pilot) that’s strong enough to tow 4500 pounds and roomy enough to carry 87 cubic feet of cargo. Which necessitates it getting 18 miles a gallon. The CAFE standard for “light trucks” is 20.7 mpg, which means Honda has to sell enough 36-mile-a-gallon Civics to raise its corporate mpg average, regardless of what the car-buying public wants (or would want, without government functionaries forcing Honda to meet 3rd-party standards, rather than maximize profit.)

Average fuel economy standards are a joke, created by politicians of both parties to feel good about themselves. If Congress wanted to truly “reduce our dependence on foreign oil*”, they’d order us to drive motorcycles.

The sad part is that more than a few dumb voters nod their heads and reelect these idiots, confident that legislating science is a) possible and b) worthwhile.

When you’re looking at buying a car, obviously you should think about how much you’ll spend on gas. But don’t make it your only criterion. By the way, our book Control Your Cash: Making Money Make Sense devotes an entire chapter to it. Which you can download free.

*Apparently, it’s perfectly fine to depend on foreign food, manufactured goods, software, banking, and cobalt, though. Only oil is sacred.

**This article is featured in the Carnival of Personal Finance #316-Family Edition**

Filed Under: Bad Examples, Economics, Healthy Living, Making Smart Choices Tagged With: , , , ,

LinkedIn’s chart is already a bell curve

May 30, 2011

LinkedIn's current financial statements

A scant 12 days ago, LinkedIn went public. Its shares opened at $80, peaked at $115 later that day, and currently sit around $88. An initial public offering is always cause to celebrate, particularly in this, the much-ballyhooed case of Facebook’s uptight older sibling who wears golf shirts on weekends and enjoys Steely Dan.

(Part of our resistance to media bombast is waiting for things to settle. Everyone wrote about LinkedIn the day it debuted. Our contrarian nature requires us to wait a few days, and approach things with less emotion and more rationality.)

Given the number of shares LinkedIn is issuing, that makes the company worth up to $8.7 billion. It’s not IBM, but it’s not the neighborhood taqueria either. And as of two Thursdays ago, you too can own a piece of…well, of what?

Never mind. It’s an IPO! Get on board before it’s too late! This is where millionaires are made!

When Union Pacific went public, it didn’t lead the business news. (Then again, it was 1897. The only things most Americans were investing in were feed and tack.) Same deal with Southwest Airlines, decades later. Only in today’s exciting, futuristic Business 2.0/e-commerce/new economy do IPOs come with a ruffle and a flourish.

But why?

People like hype.

Look, the Control Your Cash principals both have LinkedIn accounts. We even update them semi-regularly. It’s fun to enter the name of someone you just met or don’t know and find that you either share an acquaintance or are 1 or 2 degrees removed from doing so.

What about LinkedIn’s intended purpose? Does anyone hire someone based on a LinkedIn profile? Let us know if you indeed got a job or got an employee that way. If an applicant maintains a LinkedIn profile, it tells an employer one thing: this person knows how to navigate the one social media site that doesn’t let you post embarrassing photos and incriminating comments.

LinkedIn won’t change the world. It’s been around for 8 years and would have started doing so by now. We’re not saying it’s a bad service. We use it often enough to wonder how it generated $161.4 million in revenue last year.

For us, once we’d set up our LinkedIn accounts, they served primarily as a way of updating the more shadowed corners of our email contact lists without us having to do the work ourselves. The thought sequence goes like this: “Oh yeah, Person X, whom I haven’t thought about in 4 years. I wonder if she’s still at Company Y?” If Person X updates her profile – which most users don’t seem to – we can find her new workplace without asking her directly and running the risk of a drawn-out conversation.

Is that revolutionary? Is it even necessary? Is the likelihood of building a business relationship with someone you barely keep in contact with – or with that person’s contacts, or those contacts’ contacts – worth $85 on average? (That’s the share price divided by the number of users.)

If you want to collect contacts, LinkedIn doesn’t seem to offer anything that Facebook doesn’t. Sure, the former looks more businesslike and is less detailed. But if you’re looking for information about a contact or potential contact, wouldn’t you want the opposite?

LinkedIn was forthright in the S-1 filing it was required to submit to the Securities & Exchange Commission before trading. That filing tells us how many members LinkedIn has and how they’re broken down by country. But here’s what we’d really like to know:

How many LinkedIn members have so much spare cash lying around that they’re willing to pay at least $240 a year to use its premium service? LinkedIn doesn’t run ads, making this its only stream of revenue.

LinkedIn Premium comes in three tiers: $240, $480 or $900 annually ($300, $600, or $1200 respectively if you pay by the month.)
For this you can find out who perved your profile, save profiles in folders, and let people contact you without knowing you. That last feature is something we’d pay to avoid, but whatever.
Plus with a premium membership you get a SPECIAL GOLD BADGE on your profile, instead of a blue one.
Seriously, they consider that a selling point.

The answer to all mankind's troubles

 

Facebook is free, right?

An unsightly blight on the universe

Sure, $900 is far less than a headhunter charges. But again – what legitimate business decisionmaker uses LinkedIn to supplant headhunting? That’s not a rhetorical question.

——-

Are all IPOs a rip? No, but most are. Think about it: you’re buying what’s supposed to be an asset – a tiny fraction of a business – at the time when that business is making a point of availing itself to as many potential investors as possible. When increasing demand chases a finite supply, what happens to prices? Yes, they rise.

Of course, LinkedIn’s share price could ultimately rise in the longer term because the service itself will turn out to be not only good, but significantly better than it was when LinkedIn was a private company.

How likely is that?

The LinkedIn IPO runs counter to everything we preach in our obscenely cheap new ebook, The Unglamorous Secret To Riches. We tell you to look at a company’s financial statements to find value. LinkedIn, seeing as it’s a brand new public company, has no usable financial statements to speak of. It only has this, which is the letter “B” in International Signal Code.

(Only the sailors in the audience will get that.)

Everyone – landlubber and yachtsman, rookie investor and veteran – can get something of value from our $3.50 ebook (free, if you buy it with our big book.) Pick up The Unglamorous Secret to Riches, put easily readable advice into practice today, and invest in something of substance. While avoiding the noisy glitz of well-publicized IPOs.

**This article is featured in the Carnival of Personal Finance Summer Edition**

Filed Under: Economics, Investments Tagged With: ,
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