Net Worth And Lipidity

August 17, 2012

“2 more reps, and I’ll let you think there’s a chance that someone like me would ever ask you out.”

 

We recently discovered this awful place called Planet Fitness, which demonstrates how financial objectives can sometimes get in the way of more important ones. (Yes, we just admitted that some things are more important than money. Not many, mind you.)

We’ll get to the personal finance aspect of this in a second, but first the non-financial parts. Planet Fitness is a gym chain that, while we weren’t looking, opened up over 500 locations across the country (including 3 in our hometown, no less.) The chain recently entered into a sponsorship deal with NBC, where it’ll serve as the home gym for some show about fat people trying to get thin.

Last month we wrote about free riding, and how the unmotivated members of a gym chain (or any other membership business) subsidize the frequent users. Planet Fitness found a way to get even more money out of the clichéd husky bunch who sign up for gym memberships every January 1 and then disappear. Those folks were great for an annual shot of revenue, but there had to be some method of getting them to come back throughout the year without having them run the risk of improving their bodies even slightly.

Planet Fitness’s secret? Pizza! And candy! We are so, so not joking. Get a load of this, and if you think it’s an Onion News Network parody, you wouldn’t be the first:

 

 

Here’s a partial transcript (FF to :45):

Member: One of the best parts about the gym is the Tootsie Rolls.

Manager, who looks like he could use a real gym himself: …Let (members) know that fitness doesn’t have to be this serious thing, “Oh my God, I’m going to the gym, like, I’m going to have to work out, it’s going to be awful”, like, you can come, you can have fun, you can reward yourself for what you’re doing here.

Yes, because that’s how fitness works. Expending sufficient anaerobic and aerobic effort entitles the subject to consume fuel that makes it harder to further expend said effort. That’s why Usain Bolt has 4 chins and a belly, because after he works out he “reward(s) himself for what (he’s) doing”.

At Planet Fitness, if you do a set of exercises to failure (the only non-pharmaceutical way to tear muscle so it can build back stronger) and drop your weights to the ground, or make the guttural noises that naturally accompany exerting one’s body and recalibrating its limits, doing so will set off an alarm on the gym floor. (Again, you think we’re lying. 5:10 on the video.) The alarm sounds like an air raid siren, is 8000 times more annoying than any grunt could be, and of course is designed to get the attention of the other members who are meandering through their low-impact visits.

Which would be reprehensible on its own, but it’s made far worse given the perfect irony that Planet Fitness bills itself as a (and has even registered the trademark of) Judgement Free Zone®.

This is utter genius. Planet Fitness took a bogeyman – the nonexistent catcalls fat people suffer at the hands of healthy people in real gyms – and turned it into cash. That’s in addition to the other ludicrous things those fat people believe about fitness, including and not limited to:

  • Getting fit is easy and fun
  • Quantification means nothing. If you think you’re fit, you are. (It almost goes without saying that Planet Fitness doesn’t have scales, which is like a doctor’s office not having blood pressure monitors.)
  • A gym that offers its customers pizza and Tootsie Rolls, and doesn’t even charge them extra for it, is sincere about getting its fat members to lose weight.

Planet Fitness’s target audience is convinced that legitimate gyms have created a culture of intimidation. In these members’ solipsistic minds, should any of them walk into a gym where strong and healthy people are working out, those same people will stop what they’re working on to point at and make fun of the pasty and flabby newcomers. (Doubling down on the irony, Planet Fitness offers tanning booths.)

The truth, of course, is that the pasty and flabby newcomers – Planet Fitness’ bagels and butter, as it were – create any culture of intimidation themselves. When they’re surrounded by beautiful people who have worked to sculpt firm physiques, they feel inferior. The Control Your Cash principals have spent much of their adult lives in gyms, and have yet to see anything similar to a reenactment of the Charles Atlas sand-kicking scene. Quite the contrary, in fact. For the most part, the most diligent gym members are only too happy to share their routines with aspirants.

But lies are more palatable than the truth, even without a schmearof cream cheese. Marlboros really are light. Corona really will turn your life into a beach. Lucky Charms really can be part of a complete breakfast. Planet Fitness has exploited this defect in the human mind, this wanting so badly to believe, to the tune of millions of dollars.

A membership is $10 a month (with a $29 signup fee), but that restricts you to a single location. A perversely motivated member could attempt to make it back in pizza. $20 a month ($39 signup fee) lets you travel. These memberships are quoted monthly but assessed annually. Activate 2 alarms, and you risk forfeiting your membership. Cancellation fees start at $58. You have to cancel in person or by certified mail, which for most fat people is going to be more embarrassing than passively authorizing another series of credit card payments.

If you want to be part of the exploitation, buying a franchise requires $500,000 in liquid assets and $1.5 million net worth.

“You get what you pay for” is an ancient observation, but it always fits. If you’re weak (in multiple senses of the word), Planet Fitness will gladly take your money and perpetuate the belief that lets you think you’re doing something tangible for your body while paying for the privilege. Other gyms will give you a venue in which to actually improve/maintain your body. Or if you’re the New Year’s Resolution type, a venue in which to subsidize the folks referenced in the previous sentence.

Exploiting the poor, gutless, naïve, gullible, stupid and self-defeating is part of the human condition. It will never change, and only a fool would think otherwise. Does that mean you have to either exploit or be exploited? Not directly. You don’t have to peddle snake oil, but you don’t have to buy it either. That being said, if other people are going to buy it, you can use that to your advantage. (See our comment about buying Altria stock.) Thus it goes for something as tangential to personal finance as personal fitness. Find out where the dumb people are throwing away their money (at Gold’s, 24 Hour Fitness et al.) and ride on their back fat.

Filed Under: Bad Examples, Healthy Living Tagged With: , , , , , ,

You, CFA

August 1, 2012

If you don’t handle your retirement, he might do it for you. IS THAT WHAT YOU WANT?

You can do this.

Fund managers have to be conservative, by definition. Even the smallest fund has tens of millions of OPM (Other people’s money. What are you, 80?) under its control. A fund manager has far less margin for error than does a private investor, at least professionally. If you maintain your own portfolio, and it loses 40% of its value in a given year, that’ll affect you and a handful of others. Do so as a fund manager, and your career will be dead on impact. (Actually, that’s not true. You’d be fired way before you lost 40%.) Imagine the looks of horror and sotto voce comments at the Wharton class of ’07 reunion. (And yes, plenty of fund managers are indeed that young.) You wouldn’t dare show your face. “Is that Spencer? Wasn’t he on the fast track at Vanguard? I heard he’s working in the suburbs now. Had to cut his cocaine use back to weekends only. Poor bastard.”

Fund management, for the most part, is regression to the mean. The same funds hold the same damn stocks, over and over again. Some funds are required to hold the stocks of companies that have reached a certain size. Make the Wilshire 5000, and that automatically qualifies you to be in somebody’s fund. Join the Dow (and someone soon will, to replace recently departed Kraft), and the same thing happens.

This is perverse. The tail is wagging the dog, for lack of a more original phrase. A fund doesn’t take on a new component because the fund manager sees something he likes and discreetly buys a position before someone else can. Funds take on new components because they have to. Or because everyone else is doing it.

Furthermore, fund managers aren’t just sheep. By and large, they’re hypocrites and liars. (Yes, we know. Welcome to the human species.)

Joe Light recently wrote in The Wall Street Journal that Facebook didn’t just seduce ordinary investors suffering from Streisand Syndrome. The professionals got sucked in, too. Big names. Fidelity. JPMorgan. The most successful website since Google (by number of users, anyway) went public, and did so in at least a couple of senses of the phrase. Everyone was talking about it and familiar with the story of its origin (thanks to a timely and critically acclaimed big-budget movie), and few institutional investors had the fortitude to say “no”. Or even say, “Can we take a look at the company’s financials?”

160 mutual funds bought Facebook. These included Fidelity’s Dividend Growth Fund.

Read that last sentence again. Facebook doesn’t pay a dividend.

The JPMorgan Intrepid Value Fund presumably invests in value stocks. An unproven IPO (that ended up losing 1/3 of its market cap out of the gate) doesn’t fit anyone’s definition of a “value” stock.

The managers of these funds didn’t answer the allegations of impropriety. Neither did any company spokespeople. And for the sake of consistency, we’ll end this paragraph in italics, too.

So why the hell were these funds, with their objectives included in their titles, buying a stock that had nothing to do with those objectives?

Again, defense. Say Facebook did what its devotees wanted, and exploded out of the gate. The punishment, professional and otherwise, for being the manager who could’ve bought Facebook but didn’t is overwhelming.

You can complain about how the financiers are screwing the little guy, Wall Street over Main Street, etc. if it makes you feel good. Or you can go David and aim for their heads.

Being small and nimble, i.e. an individual investor, gives you advantages that no fund manager can ever enjoy. Why?

  • You don’t have to answer to anyone.
  • You can take calculated, intelligent risks. Ones where you’ve weighed the potential downside and have decided you can live with it. Professional fund managers can do that too, to some extent, but when they do it it’s no bold move. It’s a piddling activity whose downside is mitigated by there being so many components to their funds. Hundreds of funds owned General Motors stock when it got delisted and the company eventually went bankrupt. No manager who bought GM lost his job, at least not for buying GM.
  • Your objectives are clearer. You’re there to make money. To maximize return by finding value and exploiting it.
    Is a fund manager there to make money? Yes, but not as unambiguously as you are. A fund manager makes a cut, yes, and also makes a salary. Thanks to that salary, the fund manager is operating under the same directive that most people do – I must preserve my job at all costs. The higher the salary, the more tightly someone will hold onto that job and the less they’ll to do risk getting fired. Playing not to lose isn’t just acceptable, from a fund manager’s perspective, it’s good business sense. At least as far as longevity is concerned.

Yes, selecting investments (it’s not “picking stocks”, thank you very much) is hard. It’s not an intellectual exercise along the lines of solving one of Hilbert’s Problems, but it’s hard in that it requires discipline. The same intestinal fortitude that gets your heart in shape or your lungs tobacco-free, can get you rich. Here’s how to start.

Filed Under: Estate Planning, Finance, Healthy Living, Investments, Making Smart Choices Tagged With: , , , ,

Be a Free Rider

July 18, 2012

It’s only riding a bike upright that you never forget. Riding one this way requires constant mental application every time.

 

Several years ago, your humble, previously fit blogger was testing only one of his body’s limits – its circumference. Tired of being a corpulent pile, he stumbled across a 2-week free membership at the now-defunct World Gym and proceeded to pay for an annual membership once the free one expired.

Months later, left town for a week. Returned home, and went to the gym only to see the parking lot empty and the doors padlocked. Outside were representatives from a competing chain, Gold’s Gym, selling memberships. They offered literally the deal of a lifetime – $99 a year, forever. The agreement was half a page long. Its only catch, if you can call it that, was that the rate would vanish upon cancellation. Quit and attempt to rejoin, and you’d pay whatever the going rate would then be.

$99 a year to maintain, if not improve, this new lighter and stronger body? They could have quadrupled their bid and it still would have been a bargain. Once you’ve exited the ranks of the disgusting pantloads, it requires little encouragement to remain on the outside.

And Gold’s has had a loyal member ever since, The End.

Yes, but that doesn’t explain the financial benefits of the decision to join Gold’s, which are still accruing.

Gold’s won out over 24 Hour Fitness and some local chains for several reasons. Gold’s has 750 locations around the world, perfect for a hopeless vagabond. Most of them stay open all night.

Paying for the privilege of an organized place in which to lift, stretch and run? Some people will do so for the intended purpose. Others, a number we’ll quantify later, join gyms for a different reason. It’s so they can say they joined a gym. Now, they can employ a new set of pronouns. They can tell friends and acquaintances about “my” gym, as if it’s LA’s Wild Card and they’re Manny Pacquiao.

If you’re going to work out once or twice a week, you might as well not bother. 5 times a week is somewhat standard, and there’s no reason why daily isn’t doable. It’s a habit, no different in form than smoking cigarettes or eating breakfast.

Allow a liberal 30 days a year for traveling and other unavailability, and that means 335 workouts annually. 30¢ a visit. In some jurisdictions, that’s cheaper than one of the aforementioned cigarettes. Subtract the cost of soap and water for a shower and, at least for this member, Gold’s is making negligible money on the deal.

Gold’s has been around for almost 50 years, and we already told you how many locations it has. The company is not run by idiots. How can they afford to lose money on their best customers?

Because this blogger is not one of their best customers, but rather one of their very, very worst. Someone who goes into a standard retail outlet 335 times a year and buys something on each visit is a “good” customer. Someone who pays a flat fee and then gets as much use out of the facility as possible is a different type of consumer, taking advantage of a different business model.

But in the whole, the subscription-based model works. It has to. It would be impractical and unworkable for Gold’s to charge per visit. Doing so would discourage the infrequent visitors, and the frequent ones even more so.

During one year’s reupping of the annual membership, the manager marveled at its low rate. (That original member agreement has since been scanned and preserved for posterity’s sake.) Sensing an opportunity to gain some asymmetrical knowledge, and noticing that there was nobody around, it came time for a discreet question. What ratio of members actually use their memberships? His answer could not have been pithier:

This location has 8000 members, 85% of whom I never see.

Of course it’s a cliché, the fat person who activates a gym membership on January 1 and disappears on January 9, but it’s nevertheless valid. Not only is it a cliché, it’s a demonstration of how easy it is to be a free rider if you’re just the least bit conscientious.

The average membership at said gym is around $300 annually. From the perspective of management (and of the 15% of members who actually use the place), the absent 85% are by far Gold’s’ best customers. They’re pure profit. And for the high-frequency members, pure subsidy.

God bless all 6800 of those negligent members’ rotund posteriors. Without them, in order for Gold’s to generate the same revenue, the gym would have to charge each of the rest of us $2000 a year.

So on some level, we’re not talking about being a free rider. We’re talking about being a +$1901-a-year rider, thanks to a bunch of people who make financial decisions with their emotions:

“I have to get into shape. A gym membership will do the trick.”

 

“I need to shed those holiday* pounds.”

 

“That pregnancy weight just won’t go away.” (Note: complainant’s youngest child is now 11.)

 

“I want to look good for my cousin’s wedding this fall.”

That last one takes the cake, not necessarily literally. If you want to look good for anything other than its own sake, or for the feeling of well-being that accompanies it, save yourself the bother. If your body’s composition needs to change, that change should be permanent. And that should be obvious.

This is a personal finance site, not a fitness one, but the lesson remains. Let other people pay your way, if you can.

It follows that you should never be on the other side of that transaction. A $35,000 golf club membership that you use 4 times a year is ludicrous. Your fellow members, the retirees and men of leisure who play hundreds of rounds a year, appreciate your largesse. Even though they probably don’t know that it’s you who’s being so generous.

Buy assets. Sell liabilities. A fixed cost that you’re never going to use is not an asset. Personal finance is agonizingly simple sometimes. Once again, why isn’t everyone rich?

 

*By the way, you can’t attribute a starting date to a particular pound. If you’re fat around Christmas, you will be fat the following July. And probably the previous one. The very act of seeking a scapegoat, however impersonal (“holiday” pounds, as if Christ’s appearance in a manger is responsible for you swallowing that deep fried onion whole), nullifies your commitment and betrays you as insincere. In a similar vein, you don’t have “wedding” debt nor “vacation” debt nor “furnished the new house” debt. You just have debt. Debt that you chose to incur, and that your creditors are entitled to.

 

Filed Under: Healthy Living, Making Smart Choices Tagged With: , , , ,
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