Curious Mind

Should all Americans have universal health care?

2009-12-31T15:50:00.000-08:00

January 2010 - My new health insurance kicks in today. It looks much the same as last year's, which looked similar to the year before that. Other than price increases, of which I don't have the patience to calculate, my health care has had negligible change in the past 10 years.

This year I'll go to the same doctor, dentist, and pharmacy. Unless I slip and fall on the ice while shoveling, I'll probably use similar medical services as last year - a couple of checkups and some high blood pressure pills.

The question I've been asking lately is, should Americans have universal health care? This sounds selfish, but I'm comfortable with my coverage. Why should I support something that could alter my, and my family's, contentment with what we have? There is a good possibility universal coverage (or even the pending healthcare bill that won't include the public option) will cost me more.

While I haven't done the numbers, nor talked to someone who has, it's my assumption that one argument supporting universal coverage is based on economics. Huh? Next time you go to the doctor, look at your statement. On mine, it shows what the procedure costs, and then what my insurance paid for it. What your insurance pays is significantly less than retail. This is because the insurance providers work out "deals" with the doctors. Kind of like how my Apple Valley contemporaries and I get a discount at the local golf course. We're part of a group (in this case, we live in the same city) and one of the group's amenities is a discount on golf. Such a privilege.

My guess is that if you don't have insurance and need a medical procedure, you end up being charged retail. And my second guess is, if you don't have insurance, there is a good chance you can't afford retail. If you could, you would have purchased insurance. Who pays your bill when you can't? Either the tax payers, or more likely, those of us who have insurance.

The economics argument then has to be based on the assumption (and I consider this an assumption) that if we were all forced into "groups," the groups will collectively negotiate discounts and get us less expensive service. I'm not sure if this passes economic mustered, but I can't think of another reason why the proponents of universal care argue that covering everyone will lower costs.

But let's say that economics don't matter. Let's argue, for a moment, that healthcare is a obligation of the state. If you know me, you might be surprised that I feel everyone has the right to medical care when in need. I say surprised because I typically lean towards putting responsibility, including the responsibility to get yourself health insurance, on the person rather than the state.

As a youngster I went through three, very costly, medical procedures (not life threatening). Not just doctor appointments, but surgeries with lengthy hospital stays. Fortunately my parents were insured and were able to afford this. But what if they weren't? It is here where I'm of the belief that kids, and adults who can't afford it, should be treated. But how do we pay for this?

I don't know how to pay for healthcare. I don't know if working for a big company should allow you the right to buy affordable insurance. If I ever start my own company (or become a moderately successful writer), I don't know if I should be able to avoid coverage. The complexities and variables are too arcane for me to understand.

So where do I stand? As for the economic argument that universal coverage will lower overall costs, I'm not buying it. As for insurance being mandatory, I'm not sure if the state should mandate you purchase full medical insurance like I have. It feels too invasive. However, I would listen to an argument for having the state mandate "major" medical insurance. By "major" I mean coverage for things like heart attacks, cancer, life threatening accidents, etc,.

But if the state mandates this, I mandate that we can buy coverage outside of state lines. In Minnesota, you can only buy insurance from a Minnesota insurance company. This is nonsense. Someone should be able to buy medical insurance from a company in Wyoming, who is offering it cheaper.

Should you patent software?

2009-04-20T14:13:00.000-07:00

April 2009 - I’m of the belief that patents don't matter in software. Why? First of all, a patent by definition is exclusive rights to an idea or invention if, and only if, you fully explain how the idea or invention works and publicly disclose it. In software there are a million ways to solve the same problem. Why disclose something to the public and allow them to see how your idea works when they could simply take that idea and implement it in a different way?

Yes, the patent protects the idea or invention - rather than the specific implementation - however, try litigating something that looks and smells different, yet solves the same problem. That is, I think you'd have a hard time litigating parallel products, one written in Java and the other in .NET. You'd only win after five years of court and millions of dollars in court fees. And by that time, the idea or invention would be outdated. Which brings me to my second point.

Software is so dynamic, most technologies become extinct before their patent (usually 20 years) runs out. Gopher, a textual interface to the Web before the Web, started in 1991. What if it had a patent (maybe it did)? You mean to say I can't create a text based internet protocol that works well on green screens until 2011? Damn. I guess I'll have to wait until the patent runs out before I can develop a similar technology. Or, just use today's Web 2.0. Hum?

A better way to protect software is to copyright. A copyright protects you from users coping and pasting your software. You have it for 100 years (or something like that). Or, even better yet, if you have a sensitive software package, copyright it and then don't disclose it (just put the funny © symbol on it). Do what Coke does and lock the secret formula up in a vault.

What are the three phases of a new project?

2009-02-09T13:42:00.000-08:00

February 2009 - I'm of the belief there are three phases of a new project - Vanity, Humbleness, and Crisis. Let me explain.

A project starts in the Vanity phase. During Vanity, everyone is overly confident. It's believed the project will be a massive success and will solve all problems that have caused suffering and harm in the past. A common management saying is to "Break down the barriers - we're going to do things different." "Different" is what the project team infers as "better."

Verbose project team members dominate during the Vanity phase. Everyone has a voice and those that enjoy hearing themselves, take control and provide, what they call, "leadership." Myriad documents are produced laying out how the project will work and the problems it will solve. A common output is a Return on Investment (ROI). The ROI is what management will use to secure funding from upper management.

Often during the Vanity phase, new amenities like "free food" or "free pop" are offered as tokens. Off-sites are common. They make the layperson feel important. Moreover, closeness is important during this phase. It's thought that cramming more people into meetings is a benefit. Making people sit closer is seen as a way of promoting knowledge sharing.

The Vanity phase ends when the project requirements start to be realized. You know you're into the Humbleness phase when hard questions start being asked. For example, let's say you're developing a new pop can which provides a tighter seal than the current flip tops. The idea is to have end users open the can with their Boy Scout pocket knife. Sounds great until a layperson asks management how many people carry around pocket knives? At this point, everyone knows they are in the Humbleness phase. Off-sites will diminish and the thought of doing everything different (remember "different" means "better" for new projects) becomes less vogue. In fact, it's during this phase that the term "leverage" comes into play. Management might say "we need to leverage our existing resources."

Humbleness exists until upper management asks for a finite time-line of when the project will be finished. Crisis is next. It's at Crisis, people are finally held responsible. During Vanity there is absolutely no accountability. If a verbose idiot said something erroneous, they were simply brain storming. Back to the new pop can design; "I didn't really mean that a user needed a pocket knife to open the can. I was just tossing out ideas."

Another indicator that the Crisis phase is beginning is, consultants, and/or overly verbose individuals, start leaving the project or being asked to shut up. Crisis is the fun part. You get to see the big important people squirm in their seats. The verbose people are the best. If they are still on the project, their jubilant behavior is whittled to slivers. They sit in their cube, knowing they are overwhelmed with work, and stare into their computer hoping that someone would put an end to the misery.

The Crisis phase ends in one of two ways. The project is cancel by upper management or the project completes and a mediocre product is released to customers. If the product is a modest success, upper management funds phase two, but requests a new set of management. The new management is typically aware of the near failure and avoids and changes that might further damage the product and or their career. They move the project into maintenance mode and hire below average personal to fix bugs and make minor adjustments.

Should we have bailed out the U.S. car companies?

2009-01-01T10:13:00.000-08:00

January 2009 - My stance on the government bailing out companies is simple. If the company is failing because their products or business practices are inferior, let creative destruction destroy them.

However, if the company is at an unfair disadvantage due to government policy, then it's the government's job to ensure said company is compensated. Here is an example to help explain.

When I was a young man my family would go to the local Ben Franklin's and gawk at toys. They seemly had everything. Guns that looked like real guns (I was a big fan of "Cap Guns"). Dangerous, plastic knives. The ever-popular Green Machine Big Wheel. We never got half of the stuff we wanted, but it was fun to look.

As I got older, the annual slobber fest moved to Pamida. Pamida - Your Home Town Store - was like Ben Frankin's on steroids. The building was huge! Their toy isle was double that of a kid's imagination. After Pamida, we went to Shopko because Shopko was better than Pamida.

Albert Lea - the large town near my small town - no longer has a Ben Franklin's or Pamida. As a side note, I see they are both still in business which was a pleasant surprise while researching this piece. Shopko is still around, but has competition from Wal-Mart and Target.

Ben Frankin's and Pamida were run out of town because Shopko, Target and Wal-Mart offered more for less. That is, they offered more value. The people are better off now than they were before.

If the local government would have "bailed out" Ben Franklin or Pamida, Wal-Mart or Target would have stayed away. The poor kids would have been left with an isle or two of antiquated toys instead of dragging their parents across entire departments at the likes of Target. Wait, now that I'm a parent, maybe that wouldn't be half bad....

I think you probably get my point. Creative destruction - letting Ben Franklin and Pamida fail - allowed new, fresh, better companies to move in. And someday Shopko, Target and Wal-Mart will be challenged by newer, fresher, better competitors. With Amazon.com, they already are.

Back to the car companies. I bought a Honda because I feel Honda's quality and value are better than Ford's. It's my opinion, that U.S. car companies have failed to keep up with their International competitors. Honda engineers are producing a better product, and so it's my feeling that we should let the U.S. car companies go into bankruptcy. Moreover, instead of using the money to bailout corporations, government should give it to the employees to help retrain the millions of people affected.

This is easy for me to say as first, I don't work for the car companies. I'm sure if I was an engineer for Ford, I'd have different feelings. Second, I don't have enough information on the fairness of the environment. That is, is a Hyundai cheaper because the South Korean government pays Hyundai's medical bills? If so, then I'd be more understanding of a company bailout, rather than an employee bailout.

My gut feeling is that we have a combination of environment unfairness and inferior products. That is, International companies may be getting some added benefits from their government. And U.S. cars are probably slightly inferior, as a whole, to Honda, Toyota and Hyundai. Hopefully the government brain-trusts have looked at all the factors and bailed out the car companies based on unfairness. If not, then we've just chocked off creative destruction and we'll all be worse off for it.

How am I affected by the tax change to my ESPP?

2008-11-06T09:20:00.001-08:00

November 2008: A few months back a respected colleague of mine asked me to comment on the pending, now implemented, tax change to our Employee Stock Purchase Plan (ESPP). Consider this my response.

First let's understand the change. My company offers, as a benefit they proclaim, company stock at a 15% discount of the stock price. For example, if the stock is trading at $25 on the market, we can buy it for $21.25 (i.e. .85 * 25). You have to pre-allocate dollars from your paycheck and can only purchase at the market close of each quarter.

When you sell the stock you must pay income on the 15% the company gave you as a benefit. Before the tax change; if the stock sold for $25, I bought at $21.25 via the ESPP, then turned around and sold it for $25, I'd have to pay income taxes on $3.75.

Moreover, if the stock sold for $25, I bought at $21.25 via the ESPP, then kept it, I wouldn't have to pay any income on the potential gain until I sold it. As a side note, this is what I've done and thus never claimed any income. I'm actually far in the hole and would be able to claim a loss of income if I sold the &%$#@ shares today, Yes, I'm a bit miffed over the ordeal.

This approach is simple and straightforward. However, we all know that it's in our best interest to make taxes complicated and thus, the company ESPP has changed its policy on when income is realized.

After the tax change, income is realized whether you sell or keep the stock. Using the $25 example again; if the stock sold for $25, I bought at $21.25 via the ESPP, then turned around and sold it for $25 OR kept it, I pay income tax on $3.75.

My thoughts on this are twofold. First of all, it complicates your tax situation. You could buy at $21.25, pay income on $3.75 in year 1, then sell for $20 in year 2 and deduct $3.75 in income losses and $1.25 in capital gain losses (if the government differentiates the two) from year 2's taxes. I hope my broker keeps track of this for me, as I won't be smart enough to.

My second though is, you're losing the time value of money. You're paying taxes on $3.75 today, however $3.75 in year one is only worth $3.68 in year 2 (assuming 2% inflation). That sucks.

Overall, the change complicates your taxes and screws you on the time value of money. One should only expect that from big companies and government.

How did we get in this financial disaster?

2008-10-02T11:57:00.001-07:00

October 2008 - A number of you have asked me to opine on the pending financial disaster we're going through. So far my only response has been to not worry about it and just make sure you continue buying stocks. Today as I sit here writing this blog entry, I continue to feel that most of us should buy stock and continue on with our lives. We're in it for the long hall and eventually things will turn around.

I thought it would be good this month to take a look and try to explain, in simple terms, how we got in this mess. I won't try to explain it all as to be honest, I don't really understand all of it. However, I think I understand the basics. Here it goes.

Let's say both Person A and Person B take out $100 mortgages, respectively, to finance a new home. The bank's appraisal agrees that both homes are worth $100 and gives Person A and Person B each a loan. At this point the bank basically owns both houses and expects monthly payments.

The first year goes well for both the home owners and bank. After one year, Person A and Person B have paid off $5 and only owe the bank $95. However, the second year the real-estate market takes a turn for the worse, and both homes drop in value by 10%. That is, now both homes are worth only $90 each. Yet, Person A and Person B owe $95.

This creates a situation where the bank needs $95 in payments for an asset that is worth $90. To complicate matters, both Person A and Person B lose their jobs and are unable to pay their mortgage. Now the bank owns the assets. They paid $100, got $5 in payments, but own houses worth $90 each. Economically, this is considered bad. Unfortunately it only gets worse.

When a bank sells a mortgage (NOTE: I'm using the term bank as an all inclusive term for the mortgage industry) they toss them together and divide up trillions of dollars in mortgages and sell the pieces as securities to investors. Who buys these securities? Those of us looking for a "low risk" investment (e.g. money market funds).

What we have now is banks trying to sell a security, banked by bad mortgages, which nobody knows who much the security is worth. In the example above, is the security worth $200? No, the asset dropped by 10%. Is it worth $180 then? Who knows, the real-estate market could be down another 10% next year and %10 the year after. This uncertainty causes banks to seize up. Investors won't buy securities as they don't know what they're worth. Moreover, banks don't want to lend to other banks as they don't know what the other banks hold in assets. And vice versa.

The mortgage disaster has created fear and thus created a liquidity crisis. People are fearful and money exchange has come to a halt. And when people get fearful and money stops exchanging, bad, bad things happen.

Should I drop Frontier all together?

2008-09-01T08:00:00.000-07:00

September 2008 - Below is a complaint letter I sent to Frontier's Management in regards to a recent sales experience I had with them. What do you think I should have done? Left well enough alone and stuck with digital service? Called to revert my services? Cancel Frontier all together and go with Charter phone?

Good afternoon,

My name is Mac Noland and I'm a customer of yours in Apple Valley, MN. A few weeks back a young man showed up at our door on a sunny Saturday afternoon informing us, in so many words, that Frontier may be doing some digging near our house to install new "digital equipment," or something along that line. I cordially thanked him for the heads-up. He then took out a long list of names and said that he could also sign us up for digital service. Being we're not really interested in the digital features (e.g. call waiting) I thanked him again and tried to shake hands.

Not taking my hint, he said that our current phone bill was around $27 dollars. I don't pay out bills, but I remember my wife telling me the monthly charge was around $28 so I figured he was right. He stated; the new digital service was only $24.99 so it would actually be cheaper. My goodness, that does sound like a good deal. So I signed up right away. He then went into internet service at which point I became skeptical (as I usually am) and said that was quite enough. The digital phone would be enough for us today.

Two nights ago, my wife opened our Frontier bill and to my surprise started asking me pointed questions about what I had signed us up for. Our bill went from around $28 to over $40. I looked at the charges and other than around $5 in setup fees, I couldn't find any mistakes. Sure enough, the charge for our new service was $24.99. I then started to read the entire thing (which I've never done) and found that in addition to our $24.99, we are charged around $10 in taxes, and such.

I took all this information and forged my way to the basement where I keep all the old bills. There starring at me was our previous Frontier bill. I opened it up right away and found that, we also paid around $10 in taxes. What was different though, is the price of the service. It was only $17 (or so).

Honestly, I should have done more research before I signed up. It's my fault. However, my entire complaint here is that your service/sales person sold me on the fact that the digital service, and all its amenities, are less expensive than my current services. In fact, they are not.

We actually really liked the digital services. In fact, I had a note to call back about the internet services as I think my cable company is being a bit aggressive with their charges. But instead, I called back two nights ago and reverted my services to what I had before. It's not the dollar about - I'd actually be happy to pay the extra money for call waiting, caller ID, etc. But the young man's disingenuousness upset me. So much, that I decided to revert our services.

If you'd like to talk in person about my complaint I'm more than willing. You can use this email address or look my number up and call me. Again, it's not the dollar amount. It's that your service/sales person was not genuine. And that is frustrating.

Should I use Windows Movie Maker?

2008-07-30T10:14:00.000-07:00

August 2008 - My wife rarely reads this blog so I’m not concerned about her finding out. However, if you do run into her, try to keep this our little secret.

We have our five year wedding anniversary coming up in about a week. I've never considered myself a great gift buyer (she took back the mother's day gift I gave her and last year's Christmas gifts) so I decided to dust off my creative energy and make something.

The thoughts are to produce one of those photo videos, with music, that shows us before our son, our son, dad with son, mom with son and then our family. It's kind of like those videos you see at weddings where tender music plays while old, sometimes embarrassing, pictures of the groom and bride transition through. We had one and paid (as in dollars) dearly for it.

My dad, who is an Microsoft curriculum instructor at a community college, is a big fan of Microsoft's Movie Maker. I once asked him how he produces his videos and he pontificated for a good half hour about how Movie Maker can do just about everything, including wash his car. Given his backing, I thought we'd give it a try.

Things started off well. I did a short proof of concept (POC) with one Johnny Cash song and about ten pictures that I had locally on my PC. Using Movie Maker, I was able to put the POC together in about fifteen minutes. Thinking I had everything mastered, I started with the gift.

I have about 110 pictures that I imported and started to work with. I dragged them here and there to make sure they were sorted just the way I wanted them. After about an hour, I decided to add some music and then preview it. Seemed to work well except the music was a bit too long. This is where the problems started.

The first problem I had was you can't change the duration of a picture which is added to your timeline. The default is 5 seconds, but if you wanted to make it say 6 seconds (to match up the duration with your song length), you can't. The only way you can do this is delete the picture, change the default duration and then re-add it. Movie Maker is free (or at least priced in the purchase of your OS) so I didn't complain too much. However, when I highlighted the picture to remove and replace it, Movie Maker froze up. This is after an hour of adjusting pictures and not saving. ;)

Now you're probably thinking that I'm an insouciant idiot for not saving my project. I'll give you that. But, it is my belief that software should not just "hang." I shut down all other applications and waited over an hour. Nothing. Thinking that Movie Maker might have saved a temporary copy of the project for me (like Word does), I ended the Movie Maker process and started to sweat.

From what I can tell Movie Maker was able to recover some of my changes, but I can't verify how many. 110 pictures is hard to keep track of, but I did notice a few were out of place. For the next fifteen minutes I started to adjust the pictures again. Low and behold, once again Movie Maker froze on me. Luckily this time I had saved a copy every five minutes.

This entire process went on for about two days (not contiguous of course). I found myself saving the ignominious Movie Maker file after every change I made. It was getting ridiculous.

Oddly, the fact that I had to save the file so often wasn't the turning point in my relationship with Movie Maker. It was the fact you can't change the duration for added pictures. This small, missed feature is at the nexus of my frustration. And given I was adjusting songs (with different lengths) at the same time, I was pulling my hair out.

It was at this point I decided to change vendors and look for a more robust commercial product. Remembering that Adobe had a number of "creative" tools, I checked out their site and found Adobe Photoshop Elements 6.0. I wasn't prepared to pay the $100 purchase price, but I did find a 30 day evaluation. And it was probably the best decision I've ever made.

Not only does Elements provide a far better user experience, you can easily change the picture duration!!! And even better, you can click a button that says something along the line of "Match duration with song length" which automatically adjusts your video slide show. The duration for 110 pictures over three songs is 5.3 seconds (transitions are two seconds). Instead of adding/removing pictures in Movie Maker, all you do is click a button in Elements.

My conclusion is, that I should never use Movie Maker again and buy Adobe Elements. I see Adobe had a video editing software as well called Adobe Premiere Elements 4.0. The best price I've found is from Amazon.

Should I sod or seed my lawn?

2008-07-07T08:32:00.000-07:00

July 2008 - For the past month and a half, my wife and I have been working on installing a new concrete patio. While we still have a few things to wait on, finally our hard work has paid off. To be 100% honest, we did outsource a significant part of the construction, but there is work involved in that and I'm counting it.

The majority of our "real work" was tearing out the old wooden deck and landscaping around the new, stamped concrete, patio. Tearing out the deck took, what I would consider, little intellectual thought. The landscaping on the other hand, was both a cerebral and manual challenge.

We have a slight water problem in our basement. When it rains hard, or if snow starts to melt too quick, we end up with water pooled against the back of the house. Even though our basement is poured (rather than blocked), water finds its way in quickly. We only get "seepage," but any water in the basement stinks. Being we were getting a new patio, we thought it would be a good time to use some creative landscaping to help circumvent the water problem.

After pilling two cubic yards of black dirt, we ended up with a small hill separating our lawn from the neighbor's. The goal is for water to hit the hill, then flow either down the West side or South side of the house. In years past it traveled right up to the house with little to stop it.

Now to my point. The new hill, and the area surrounding the patio, needed grass. My wife, who is a fan of alacrity, wanted to sod it. She felt that sod would be the quickest way to get the project finished. Not to her surprise, I took a contrary point of view and felt seeding it would be best. Why you may ask? First of all, when I put the two cubic yards of dirt in, I was very careful to control my depth in relation to the new patio. I wanted the grass height to be short of the patio instead of overhanging it. Second, I was concerned about economics. That is, I had it in my mind that sod was far too expensive. But was it?

Seeing my lawn cost $85 dollars. That's $12 for three pounds of seed, $13 for fertilizer and $50 for an erosion mat. An erosion mat is that green mesh that you put down over seed to keep rain from washing the seed away. The new hill desperately needed one.

Sod at the local Bachman's in Apple Valley is $5 for a 2.5 x 6 foot role. I figure the area we wanted to cover is 250 square feet. Meaning I'd need about 15 rolls for a total of $75. I'm thinking that since my car is pretty small and my wife's is new, we'd need delivery. While I didn't check on prices, let's assume divert is $25 (they are right down the road).

My calculations leave me with seed costing $85 and sod costing $100. Though the numbers are closer that I thought, I went with seed. Today, after learning some of the benefits of sod (better for erosion areas), I may have went with sod. However, the seed was cheater and easier to plant. And if it wasn't for the erosion mat, seeding would have been a no brainier for my small section.

After the grass is in, or if it is washed away and we decide to sod, I'll provide everyone an update on where we're at.

What do you learn in a macro-economics class?

2008-06-03T19:14:00.000-07:00

June 2008 - This last semester I finished up with my first, and probably last, macro economics course. The professor was a bit absentminded and self-absorbed, but I learned some interesting information. In case you don't have plans to take a graduate macro course, which I can understand, let's see if I can give you a quick run down. It might save you money and time.

The course started off with a review of the Federal Reserve System. All you need to remember here is that there are 12 members of the Federal Open Market Committee. Eight of them are permanent, while the other four rotate. Ben S. Bernanke is the Chairman. If you wish to sound knowledgeable at cocktail hour, he's the only one you need to remember.

The goals of the Fed are simple. They want to keep unemployment low (less than 5% works), keep inflation low (around 2%) and keep moderate short-term interest rates. How do they do this? The current approach is to expand or contract the money supply. The Fed controls the money supply by setting the Fed Funds rate, which is the interest rate banks charge other banks for borrowing money. Or setting the Discount rate, which is the interest rate the Fed charges banks for borrowing money. After learning what the U.S. Fed does, you may study the Bank of Japan and European Central Bank. The operate similarly, with slightly more emphasis on inflation (i.e. price stability).

Next on the syllabus is growth. That is, why and how do countries grow. It's become common thought that growth is good. And for the most part, macro economic data show that a people's quality of life increases as they become wealthier. Date show money does buy happiness.

Growth is complicated, so any good macro class will simplify it. We studied labor policies, inflation and fiscal policy. Think of labor policies as how hard it is to hire and fire people. The data show that on average, gross domestic product (GDP) grows faster if companies can fire people without too much hassle. A harsh reality, but true. Inflation is pretty straight forward. Countries with hyper-inflation (e.g. Argentina) have difficulty growing because inflation strains the economy. The exchange of currency becomes inefficient. Lastly is fiscal policy, which may be the most important aspect of responsible government. If a country wants to growth their GDP, they can't spend, spend, spend. Countries need a stable balance sheet to be successful. That's why the pundits are concerned about the U.S. right now. We've got a lot of debt and seem to be increasing it.

After growth is business cycles. What's more important, aggregate demand or aggregate supply? They are both equally important. Aggregate demand is the total demand for all goods and services. As a country grows, demand increases. Aggregate supply is the total supply of all goods and services. Aggregate demand and supply balance each other in a sense. If the demand curve increases, prices will increase until the supply curve adjusts back to the steady state. If that is confusing, which it may be, here is an example. If everyone started drinking Summit beer (a reasonable presumption), the demand of Summit would increase. In the short-term the price of Summit would increase. But eventually the smart suites at Summit will increase supply, thus pushing the price back to the steady state. And if they don’t, brewers like Surly will increase supply to fill the void.

The last major macro subject we studied was exchange rates. If you've never dealt with exchange rates, get ready to be royally confused. Just kidding. Once you get a handle on them, they are not so intimidating. Just think of exchange rates as this; given one U.S. dollar, how many Euros would you be given today? As of this writing, you'd get 65 cents. Last year you'd get 75 cents. The dollar has depreciated against the Euro by 10 cents (13.5% if you're wondering). Help on exchange rates can be found at www.x-rates.com. Punch in some random numbers against the dollar and see how far it has fallen in recent years. This is why your foreign funds have been doing so well!

A macro class will go into greater detail than I have in this short write-up. However, these are the basic subjects you'll cover and I'm not charging you $900 dollars a credit.

Why are my international investments doing so well?

2008-05-02T07:42:00.000-07:00

May 2008 - Do you ever wonder why, lately, your foreign investments seem to grow at 20-30% while your domestic ones grow closer to 10%? For example my American European Pacific Growth Fund has an annualized three year return of almost 20%. On the contrary, my Growth Fund of America fund has a three year annualized return of 12.47%. Are the international companies that much better than American ones? No. Have international companies found unexplored markets with endless growth? No. So what is happening?

While a youngster in college, I joined a large group of friends that went to spring break in Mexico. I actually did it three times, and only remember bits and pieces of each of them. If you throw out drinking and socializing with friends and new friends, exchanging money was my favorite activity. For some reason I really enjoyed walking up to the exchange window and cashing in my U.S. dollars or Travelers Checks for paper with a picture of some Mexican nobles.

Back then I could get eight Mexican pesos for a dollar. That would buy you three to four beers on the beach, if I remember right. I just checked and today you get 10.5. That is, the dollar as appreciated 24% against the peso since my college days.

Now, let's say that I met a seemingly successful business woman or man in Mexico and invested one dollar in their company, or in other words bought one share of stock for eight pesos. And for simplicity, let's say that things didn’t turn out as expected with the business and they only covered their expenses for the past ten (or so) years. That is, my eight pesos have just been setting there not gaining any equity leaving my stock worth eight pesos. Having enough with that investment, today I decide to take my eight pesos back. Well guess what, the eight pesos they give me now is only worth 76 cents. Hey, I just lost 24 cents on this investment, yet my stock price did not change?

Let's take this example and reverse it. Say I'm a Mexican and went to Minnesota for spring break (yes that would be crazy) and made a similar investment. That is, I purchased a one dollar stock for eight pesos. And now ten years later, I wanted to sell my one dollar stock and get my pesos back. Since the dollar had appreciated 24% against the peso, when I sell my one dollar stock I get 10.5 pesos back. Hey, I just made a 24% return!

This simple example explains why my (and your) foreign investments have been doing so well. The dollar has been depreciating the past few years, which made foreign returns look bigger than they actually were.

Should we continue to invest internationally? I argue that you should be globally diversified, meaning you should continue to invest a portion of your assets globally. However, remember that some day the dollar may appreciate again and you could end up taking a major hit. Keep that in mind before you toss all your savings into an international investment.

How do you create a round-robin schedule?

2008-03-27T19:31:00.001-07:00

April 2008 - This year we've added two more teams, for a total of ten, to the golf league I run. Being our regular season is fourteen weeks, putting together a round-robin schedule in the past for eight teams was pretty easy. Each team plays each other twice. Now that we have ten teams, cramming us all in fourteen weeks is a bit more difficult.

I spent a few hours trying to figure out how to setup a round robin schedule. After frustrating the hell out of myself, I broke down and asked Wikipedia. The first search I ran, gave me the algorithm that I needed.

Thinking back on it, it's actually pretty simply. I started by creating a spread-sheet and matched up 1-2, 3-4, etc. Then I simply held the "1" team constant, and used the algorithm to rotate each team around in a circle. It looked something like this as I went through.

Week1

01	02
03	04
05	06
07	08
09	10

Week2

01	03
05	02
08	04
09	06
10	08

If you do this nine times, each team of the ten will play each other. When you do it the tenth time, you'll find yourself back at the beginning. Finding this exercise fun, I simply followed the algorithm a total of fourteen times to give us our regular season. That means each team will play each other once. Then you'll play five other teams twice. Not ideal, but it works.

Once I had the schedule in place, I had to assign team names to 1, 2, 3, etc. I thought about drawing numbers out of hat like last year, but my wife was uninterested in helping me out and when trying a sample drawing with my seven-month-old son, he started to eat the numbers. Being I've spent a significant amount of my career and education working with technology, I fired up the spread-sheet program again and used a random number generator to rank the teams. Mentally Handicap came in at the lowest (0.378373293) which made them team "1". Brad Smith's new team, Missing Links, was the highest (9.788895237) and thus was the "10" team.

At this point I needed a cold beverage to celebrate. As I cracked a cold Surly, my wife said "why does the "1" team always golf first?" She had a point; our tee-times needed to be ranked. To do this I went back to the random number generator and created a ranking for each week. The lowest random number got the first tee-time (3:44) while the highest got the last (4:48). Now you'd think that a random number generator would equally space each team so we don't have the same teams always teeing off at the same time. Apparently this is tougher than expected though so I had to manually adjust five to six times so that we didn't have Noonan! teeing off at 3:44 every week.

After ranking the tee-times, I started sipping on my Surly, admired the creation and started thinking about all the shots I plan on shanking. Happy golf season!

What causes inflation?

2008-03-03T07:54:00.001-08:00

March 2008 - This morning I heard a local bread baker say their flower prices have went from nine dollars a bag (not sure how big the bag is) to twenty nine dollars a bag in the past year. This confirms my local pizza guy's claim when he said their food costs have doubled in the past year. So this got me wondering, what causes these prices to inflate?

Appropriately enough, I'm taking a class called World Economy from the University of Minnesota. The first section covered how the Federal Reserve Board works. The second section is on inflation. Could my registration in this class be fate?

From what we've learned, inflation is when the value of a monetary representation (e.g. dollar) looses purchasing power. Remember that age old saying "a dollar today is worth more than a dollar tomorrow?" It's kind of annoying, but all too true. Every day, money looses value due to inflation. The percentage that is lost, fluctuates. Let's look at why.

Governments love to spend money. Defense, welfare presidential parties; they call cost money and someone has to pay for them. Similar to a fiscally responsible person or family, a fiscally responsible government will spend only what it can afford. We all know that the government is hardly ever fiscally responsible though, and so they have a propensity to run deficits.

Once a government has a deficit they have to pay for it. This can only be done on two ways; raise taxes or print money. Everyone knows how political raising taxes is. Many of us Republicans will vote a person out of office for even thinking of such a thing. And though I don't agree with the Republicans all the time, raising taxes will harm growth.

The other way to pay for a deficit is to print money. Basically this means increasing the money supply. Wouldn't it be nice if it was that easy? Just print money and everything is kosher again. Bills are paid and we can start spending once again. Sound too good to be true? It is.

When the money supply is increased, the value of existing money goes down. That's a fundamental of economics. Supply goes up, price goes down. Money is no different.

So where does this leave us? The U.S. government is running a deficient right now. In the long-term we can pay for this by raising taxes or printing more money. In the short term, we're paying by borrowing. Borrowing will only last so long. At some point, we'll need to pay.

Since raising taxes is so political, the only way to deal with our growing deficit is to increase the money supply. Meaning that our free government's free spending will eventually lead to higher inflation. Looks like that pizza guy down the road might have to raise prices even more in the near future.

What interest rate does the fed cut?

2008-02-02T11:45:00.000-08:00

February 2008 - Most of you have heard that the "Federal Reserve Bank (I'll use fed from here on) cut interest rates by 50 basis points" this past week. What the heck does that mean? Hopefully I can provide some clear insight for you.

First of all, there is not one interest rate. There are two. The discount rate and the Fed Funds rate, respectively. Both are different. And how the fed adjusts them is very different. Let's start with the discount rate which is easier to understand.

In this example you're a bank. You lend money to your mom, dad and lazy brother (if you're wondering, none of my brothers are lazy in reality). Mom and dad pay back their loan, but your lazy brother defaults. As it turns out, the asset backing the loan (e.g. house) has depreciated. Meaning you, as the bank, paid more for what you're getting in return after your lazy brother files for bankruptcy. Remind you of the current subprime mortgage issue? It should.

The bad loan made to your lazy brother puts you in a crisis. You just lost a ton of money and now to stay on your feet, you need to take a loan out yourself. This is where the fed comes to your rescue.

We all need banks. Even banks need banks. And when a bank needs to get a loan from their bank (i.e. the fed), they can loan money from the fed at the discount rate. That is, the discount rate is the interest rate banks get charged for borrowing money from the fed. Wouldn't it be nice to have a line of credit from the fed!

Now the Fed Funds rate is a bit different. The Fed Funds rate is simply the interest rate that banks charge other banks. Remember that lazy brother that put your bank in a crisis? Well to cover your losses, you could borrow the money from another bank instead of the fed. In fact, in recent history, borrowing money from the fed has been a sign of weakness. Thus, most banks prefer to lend from their contemporaries instead of crawling into the fed and talking to Bernanke.

The fed does not set the Fed Funds rate, but they do strongly influence it. This gets a bit complicated, so I'll try to keep it real simple. Remember supply and demand from college? Supply goes up, prices go down. Supply goes down, prices go up. Keep this in mind as you follow me.

If the fed purchases Treasury Bills from the market the amount of money available is increased. That is, the money supply goes up. As the money supply goes up, interest rates go down. The inverses is also true. If the fed sells Treasure Bills, they collect the money thus reducing the money supply. Reducing the supply of money, makes prices go up. That is, the interest rate goes up.

Understanding the Fed Funds rate is confusing, I totally admit. Even after taking almost three years of business classes, I'm not 100% sure I even understand it. But don't worry. You don't really need to understand all this. And if you don't, you're in good company as most people simply know that if the fed raises or lowers some interest rate, their interest rates (e.g. car, CD, money market) will most likely go up or down as well.

Here we have it. Next time the fed decides to cut an interest rate, first find out which one, and second remember back to my blog when we opened this conversation.

What are financial "options" and why do I care?

2008-01-02T12:45:00.000-08:00

If you take a second level finance course in college you're probably going to run across discussing financial options. And if you're like me, you're going to be flustered, to say the least.

There are a myriad of sites and books on options. They are all full of confusing information. But you've got to struggle through them as they are actually quite important. Now that I've scared you, let me take a shot at explaining finance options and why you should care about them.

There are two types, call and put and they are related to a stock. Morningstar has a number of Google call and put options you can buy and sell just like stock. Today we'll just be discussing buying as it's much similar to understand. If I get time in the future I'll discuss selling, but to be honest, once you understanding buying you might be able to figure out selling on your own.

If you buy a call option (again just like stock) you have the right to buy stock at the option's exercise price. For example, let's say you buy a call option with an exercise price of $10. When the call option expires (i.e. when you get buy it), you have the right to buy the stock at $10. If the stock is currently trading at $15, then you exercise the call option (i.e. you buy the stock for $10) and make $5. If the stock is currently trading at $5, then you don't exercise the option (i.e. you don’t buy the stock for $10) and you simply walk away. Easy right!

Now let's switch to puts. If you buy a put, you have the right to sell the stock at the option's exercise price. Let's stick with our $10 option. If the stock is worth $5, then you'd exercise the options and sell your stock for $10. You're in the money and just made $5! However, if the stock is worth $15, then you don't want to sell it for $10 as you'd be losing money. The stock is worth $15 on the market!

Basically it comes down to this: If you think the stock is going to go up, buy a call. If you think the stock is going to go down, buy a put.

So why do we have options and what can they do for us? Honestly, to the average investor, they don't do anything for us. However, indirectly they help us as our investments (e.g. mutual funds) use them all the time. One example is to hedge a stock to protect it from losing too much value. Or worst, all it's value.

Let's say you buy a stock for $10. Because you have a mob of angry investors that have trusted you with their money, you can't afford to have the stock go under $5. If it does, they loose their retirement and you lose your job. So what do you do? You buy a put option that allows you to sell the stock at $5 no matter how low it goes. For example, if the stock goes to $0, you can still sell it for $5. Buying the put is simply insurance on the stock.

I hope these two simple call and put options help you get started understanding this arcane subject. If your ebullient curiosity is asking for more, Yahoo has a nice site for learning more about options. Enjoy!

Should I buy an extended warrantee?

2007-12-03T10:47:00.000-08:00

December 2007 - So we bought a new car. Because we have an expanding family we decided to purchase a mid-size SUV. There are a number of offerings, but for safety, reliability, warrantee, size and cost, we felt the Hyundai Santa Fe was the best option.

Notice that I said warrantee in the sentence above. Hyundai comes with a standard 100,000 mile "powertrain" and 60,000 mile "bumber-to-bumber" warrantee. From what I found, most car companies offer much less than Hyundai. Typically something like 50,000 mile powertrain and 36,000 bumper-to-bumper. I found Hyundai's offering to be very nice as if something happens with the transmission on mile 99,999 I don't have to worry about it.

I wrote about my experience in Denny Hecker Finance a few weeks ago. During our taped conversation, the finance manager tried to sell me an extended warrantee. That is, bumper-to-bumper coverage for over 60,000 miles or powertrain coverage for over 100,000 miles. To be honest, I can't remember the exact details. They're immaterial though.

Extended warrantees are nothing more than insurance. While some insurance (e.g. health) is good, some (e.g. legal) is bad. If you'd like to rid yourself of all risk, then you might want to buy an extended warrantee. That way if something ever goes wrong, you can drop it off and it's fixed. On the other hand, if you're comfortable with some risk, they are a rip-off. And I mean rip-off! Let me explain.

To calculate the price of an extended warrantee all you need to do is take the probability of something happening (P) multiplied by the cost (C) of fixing that something. For example, if you think there is a 10% chance that your axel will fall off during mile 100,001 and the cost of fixing that axel is $2,000, then the cost is $200 (i.e. P(C) or 10% * $2,000).

Now I hate to break it to you, but you're not getting an extended warrantee for that kind of money. I don't know what the exact costs are, but I think mine was something like $1,000. I figure there is a 10% chance of something major happing to my car after warrantee, so it would take a $10,000 repair bill to make the extended warrantee worth it. Thus, it's a rip-off for me.

In addition, the car dealership will want to finance the extended warrantee for you. As they say "it will only raise your monthly payment a few dollars." Isn't it sad how we value things by our "monthly payment?" Anyway, extended warrantees are bad, financing them is worse!

So here you have it. If you'd like to rid yourself of all risk, buy an extended warrantee. On the other hand, if you're comfortable with a bit of risk in your life (and you should be), then skip the extended warrantee like we did. Just make sure you don't bring up the "probability" discussion I described above. It has a propensity to confuse finance managers.

What kind of car should we buy?

2007-11-02T13:57:00.000-07:00

November 2007 - November snuck up on me. I was going to write about how much a baby costs (yes again), but I'm still confused. Maybe another month will help me figure it out. Anyway, we actually have something else, equally exciting, going on. We're buying a new car!

Yes the old 1998 Mustang has finally had it. To be honest, it's actually in good shape, but getting a baby seat out of the back is like trying to move shit with a plastic show shovel. Plus mom thinks a rear wheel drive, sports car nonetheless, is not the best to transport kids. What gives?

We decided that a van was too much right now. A car is too small. A midsized SUV seems to be just about right for a family of three. Big enough for fitting baby, baby stuff, mom, mom stuff and dad's golf clubs. Not in that order of course.

We've looked at the Hyundai Santa Fe, Toyota 4Runnder, and Honda Pilot. All are very nice and would provide ample space for us. The Toyota is probably our favorite but at $28,000 it's a hefty price. At least for us it is. The Honda is about the same in both space and price. Both are very nice vehicles. The Hyundai is a bit smaller, but only around $22,000. Also a very nice vehicle.

I tell people I'm not into new cars, but two of the three cars I've bought have been new. The first one was used only because I made $4.25 an hour bagging groceries. So while I'll tell you I'm not into new cars, we'll probably buy a new car.

With a present value of $28,000 (Toyota or Honda), interest rate of 6% (yearly) for five years, we'd pay around $522 a month. That's about $9,500 in interest paid. With a present value of $22,000 (Hyundai), interest rate of 6% (yearly) for five years, we'd pay about $425 a month. That lowers our total interest payment to just over $7,500. Hyundai is cheaper.

Money is not everything though. Safety is important. All three say they have top notch safety records. They all have side impact air bags, some kind of stability controller, and brake technology that rivals everyone and all (so they say). I consider them all very safe.

Other things have value as well. Size, tires, engine, off-road experience. They all add up. When we broke it down though, we don't really need a lot of the things a more expensive vehicle offers. We don't need the DVD player. We don't need three rows of seats. We don't need a V8 with tow package. We just need a simple reliable mid-size that offers a good value with a great safety record. Thus we are leaning towards buying the Hyundai. The Hyundai also has a great warrantee. I'm not a big warrantee guy, but if you can give me one for free (at least for no additional cost, as you can't discount your car if you don’t buy it), I'll take it.

So there we have it. As of today, November 2nd, 2007, we are leaning towards a 2007 Hyundai Santa Fe. See you around town!

How much did this baby cost us?

2007-10-01T13:06:00.000-07:00

October 2007 - After recently having a baby, I made every attempt possible to figure out our hospital bills. I knew we wouldn't have to pay for them, but I wanted to get an idea of what it costs to have a baby these days. Unfortunately, I failed as I'm totally confused by what is a bill, what isn't a bill, what's paid for, what isn't paid for, and so on.

We've literally received five to six letters in the mail from our health care provider, all with different charges and totals. We even got a letter from our pediatrician stating we owed them almost $800. I quickly called our provider and they assured me, we can ignore that bill. As a side note, when ever I get a large bill - like my tuition bill for the fall - I plan on calling my provider to see if they can magically make it go away like they do with baby bills.

Continuing on. My wife has pretty good insurance. For around $140 a month, she pays a $20 co-pay and a $250 deductible for hospital stays. Not too bad. As of right now - two months after having the baby - we've had to pay a $250 deductible for my wife and a $250 deductible for my son which was expected given her insurance coverage. I'd argue that is a pretty good deal for 10 - 15 pre-sessions with her doctor and a five day stay in the hospital. Not to mention, they had to perform "major surgery" to deliver the little bugger.

The real costs are obviously much higher and once I get them figured out (if I ever do), I'll post the results. I'd expect them to be anywhere between $10,000 and $30,000. Why such a wide spread you ask? It's because I've yet to understand what is a bill or charge verses what is a bunch of needless line items that mean nothing. Once I figure that out, I'll take a deep breath and send a nice Holiday card to my healthcare provider.

How much training do we need at work?

2007-08-31T13:48:00.000-07:00

September 2007 - One of the most asked questions by perspective employees is how much on-the-job training is available. Employers know top candidates want training and have a full pocket full of answers ranging from management to technical training. Some companies (including mine) even offer foreign language training. "Me llamo Mac!" How much do we really need though?

When an employee first starts there is a need for human resource and job specific training. I'll give everyone that. Here is where it gets sticky in my mind. In addition, there is often a need to send employees for new technology training.

From all the training I've been in, I've observed a large percentage of individuals treating training like a vacation away from the office. Sure, we all need time away, but that's why we get personal days. When a company is paying for us to become subject matter experts, they don't expect us to take off early, show up late, or spend the entire time instant messaging our wife. These are all observations I've made in my most recent off-site training.

So here is my solution. Train everyone on human resource and job specific tasks. Then reward people with off-site training who you know will treat training like any day in the office. Sending the average employee is often a mistake as your $3000 in training fees and $1500 in travel expenses will be wasted.

When the below-average-employee asks why you didn't send them or why they've not had any training opportunities in the past year, tell them the truth. You're not going to send people who won't respect the opportunity and apply the knowledge they learned. This solves two problems; first your being candid with employees who need to improve their performance. Second, you're not wasting $4500 on some slug to spend time telling his wife how much he loves her, over, and over, and over again.

The savvy below-average-employee will become upset. They'll argue their lack of performance is due to, non other than, lack of training. Don't fall into their trap. Before sending them off-site make them improve their performance and prove they are worth of additional training. Training is a privilege that not everyone deserves. Make sure you reward your best employees and not waste money on people who don't deserve it.

How can I make more money?

2007-08-01T07:45:00.000-07:00

August 2007 - I had a thought the other day. Every person will hit their maximum "individual contributor" earning potential. I'm nearing mine. I'm actually not that concerned about it as for now I'm pretty happy as an individual contributor, but it was just something that popped in my head while walking around the block and trying to figure out how my neighbors all have nice cars and new pools.

By my definition an individual contributor is a person who is not acting as a supervisor for anything or anyone. Two examples are a ditch digger and a seasoned software engineer.

A ditch digger will eventually max out their output and what they are paid for digging ditches. They can dig more ditches by digging them faster, but even then there is a maximum number of ditches ditch diggers can dig. Similarly a software engineer will eventually max out their output and reach an upper limit of what employers and/or customers are willing to pay for their services. They can work extra long hours, take additional training and moonlight for small shops in their spare time, but like a ditch digger, there is a max to their output. So how do they make more money?

Now I'm not saying the individual needs more money or even wants more money. My question is simply, if the individual wants to stay within their current employment, how can they increase their compensation. From my perspective, the only way is to take a percentage of compensation from someone or something that you're supervising. Basically have something or someone work for you.

Back to our ditch digger. If the ditch digger wants to make more money, he needs to either use technology and supervise an automated process that digs ditches. Or hire another ditch digger, supervise them, and take a percentage of the junior ditch digger's compensation.

A software engineer can either develop software to solve problems for her, or hire other software engineers to work under her so she can take a percentage of their compensation. For any of you who are in corporate America, this is how it works. I work for my boss and my boss is compensated based on his output plus a percentage of my output. Done right, it works well as everyone needs someone to hold them accountable. Done wrong, and supervisors can get away with doing very little while making lots of money.

In a way what I've described is a pyramid scam. You work for me and I make money off of you. Then you get people to work for you so that I make money off of you, plus the people working under you. Throw in a few more layers and as long as you don't get any cantankerous employees, you're doing just fine for yourself.

So there it is, to get the nice car, pool and house you need to run a pyramid scam. The good thing is any organization in the world provides the needed infrastructure. Then again if you're like me, you may be happy with what you produce as an individual contributor and what you're paid for it. Money's not everything!

What drug coverage should we get our son?

2007-07-03T12:35:00.000-07:00

July 2007 - It's time to decide what health care option our new addition will need when he arrives. If you're like me, picking healthcare is more difficult than splitting an atom. From what they tell us, my company has made things "easier" but it's still something you need to spend time on to figure out.

My wife pays $135 a month for coverage. For her donation, she gets a $20 co-pay, a $250 deductible, %100 coinsurance (what ever that is), and drug coverage at $10/%30/%30. That is $10 for a 30 day supply of generic drugs (e.g. high blood pressure medicine); %30 of a 30 day supply of retail generic formula with a $50 max; and %30 of a 30 day supply of retail nonformula (i.e. all other drugs you may need) with a $50 max.

I pay $104 a month for coverage. I get a $20 co-pay, a $500 deductible, %100 coinsurance, and drug coverage at $10/$30/$60. That is $10 for a 30 day supply of generic drugs (e.g. high blood pressure medicine); $30 for a 30 day supply of retail generic formula; and $30 for a 30 day supply of retail nonformula. As you can see, her plan has less risk, which works out since she had an emergency room visit (x-ray on her foot) a few months back.

Our dilemma is whether to add the baby to my plan, her plan, or go with a combined family plan. Adding the baby to her plan will increase her monthly expense to $284 a month. With her plan we will pay a $250 deductible for the baby's birth and have the best drug coverage the company offers. If he needs drugs (who doesn't these days) we'll only pay %30 of the price up to $50.

Adding the baby to my plan increases my monthly charge to $224. With my plan we pay a $500 deductible when he arrives and have the second best drug coverage we offer. Compared to my wife's plan we save $60 a month, but must pay an extra $250 (my deductible less her deductible) when he's born. Luckily after four months we would break even on the deductible which is to our advantage. But if he needs drug coverage, we'd end up paying $30 a month (or retail price if the drug is less than $30) which could eat into our savings if drug prices are less than $100.

If we went with the family plan and used my wife's plan as the basis, we'd pay $448. If we used mine as the base, we'd pay $358. With my plan we'd have to pay a $750 deductible ($1000 less $250 that she all already paid for the x-ray), which is no good. With my wife's plan we'd only pay $250 ($500 less $250 that she all already paid for the x-ray), but we'd have too much coverage for me.

We decided to put the baby on my wife's coverage which costs her $284 and I decided to keep my own coverage which is $104. This gives us a total cost of $388.29, which is not the lowest option but does ensure mom and baby have the best coverage available (remove all risk), which makes both mom and dad happy.

Is a parenting/birthing class worth $100?

2007-06-05T15:54:00.001-07:00

June 2007 – My wife and I are expecting our first child in two months. Fifty one days to be exact, not that I’m counting. We both went to college and have been working professionals for around ten years. During this time we’ve taken on a number of leadership roles, implemented important projects, and slowly increased our responsibilities. For example I’m working on a half million dollar project to implement Team Foundation Server and my wife is a team lead with ten or so reports. We’ve felt pretty prepared for our new addition. That was until we attended our parenting/birthing class this past Saturday.

From what my wife tells me, we paid $100 for an eight hour session. Notice how I say “we” as it’s now in vogue for both the mother and father to be pregnant. Anyway, we arrived Saturday morning with four dollar lattes in hand. She had a small half-café, skim, vanilla and I had large, extra-caffeine, whole milk with vanilla. I’d needed all the caffeine and sugar I could get for the next eight hours.

The session started off with a short introduction by our two trainers and then the obligatory “get to know your neighbor” handshake with the couples around us. The couple next to me seemed nice. This was their first child together and they seemed overly excited as Tony keep a close eye on his wife’s every need. Tony had familiarity with the area as they lived just a few blocks from the hospital. I thought this would come in handy at lunch time, but as it turned out next on our agenda was lunch locations and McDonald’s was our only option.

After going through the basics of the day, the trainers moved into a few group questions to warm everyone up. At this point I lost interest and started to daze off and wonder why we spent $100 to sit in a room on a nice sunny day in June. Right before our first break, which was well needed given I had a large coffee and half of the room was pregnant, we watched a video showing an actual child birth. I remember seeing something like this in eight grade health, but this video was far more traumatic for me. It’s probably because in two months that dad in the video will be me! From that point on I paid attention like a kid does to his Game Boy.

I won’t get into all the details, but our favorite speaker was the pediatrician. He came in and gave us a forty-five minute explanation on what we need to do once the baby arrives. Apparently that is important. We covered how to look for jaundice, how many times a baby should pee/poop, what supplements we can use to help brain development, what kind of car seat to buy, if we should gather stem cells from the placenta. My note pad was almost completely full after this guy finished.

It was at this point that I felt overwhelmed. Here we are educated and grown adults with absolutely no clue on how to give birth to this kid or get them in the car seat to bring home. How in the hell are we going to do this I thought? And to be honest, I’m still not 100% sure.

The rest of the afternoon was filled with some breathing exercises and a “birthing ball,” which is no more than one of those big rubber balls old people roll around on at the health club. As you can imagine, I couldn’t help myself but try to dribble it.

In conclusion, was the parenting/birthing class worth $100? Yes, it was worth every penny. I’d recommend it to all parents to be and make sure you try to dribble the birthing ball for me.

How can large companies continue to grow?

2007-05-07T19:52:00.000-07:00

May 2007 – This month’s post is a bit late (and short) as I’ve been working on a final paper for my international business class. We’re studding international companies like GE, IBM, and Exxon. It simply amazes me how large these companies are. In fact I’m so amazed by their size, I wrote about how large companies can grow for my mid-term.

Imagine this; GE had $160 billion dollars in sales last year. The pesty shareholders, which is a group I consider myself part if, demands companies like GE grow at double-digits. Double-digit revenue growth, double-digit earnings growth, double-digit this, double-digit that, and so on. We want almost $17 billion in new sales next year or about the same as Kenya’s gross domestic product. Yes that’s right! GE needs to grow sales this year that are valued the same as Kenya’s total value of goods and services. Exxon’s story is even more impressive (or overwhelming). Exxon needs to find $44 billion in new sales this year. That’s about the same as Slovakia’s gross domestic product. Amazing!

So how do these companies continue to grow at these rates? To be honest I don’t know. There’s probably not one single reason these companies continue to find and expand businesses at double-digits. That being said, I’m pretty sure there is one defining attribute; great people. And if I was to copy one thing these companies did, I’d hire great people.

A few years back I read Jim Collin’s book “Good to Great.” I’ve read a lot of business books and from what I can remember, most of them are pretty boring. Not “Good to Great” though. It’s by far the best business book I’ve ever read, and I’d be so bold to say it’s one of my top ten books of all time. Mr. Collin’s is in pretty good company given I’ve read almost all of Bill Bryson’s books, who may be the greatest writer who ever lived. Any way, my favorite chapter in “Good to Great” is the section on getting the wrong people off the bus and the right people on the bus. I’m guessing GE and Exxon have the right people on the bus, which helps them define where they need to drive to find all these new sales. The top notch talent they have are able to help the company continue to grow the businesses at these incredible rates.

In conclusion, if you’re looking to grow your large conglomerate at double-digit rates, make sure you start buy hiring great people who hire great people. If you can do this, coming up with new sales ($17 billion) that surpasses the gross domestic product of 83 countries (as of 2006) is trivial.

Should you write a book?

2007-03-30T14:14:00.000-07:00

April 2007 - I'm thinking of writing a book. If you're my wife and reading this posting please settle down as I don't plan on quitting my day job. In all seriousness I'd like to someday take all the thoughts bouncing around in my head and put them to paper. Would anyone read it? I'd like to think so, but honestly it's more of a hobby than anything.

But let's say someone did like the book and wanted to buy it. How much would it sell for? And more importantly how much would I make from that sale? I'd like to think that if the book sold for $24.99, I'd get at least 75% of that. If you're a publisher you're starting to laugh off your chair. After a bit of research I can understand why. The writers of fine literature are paid for their work, but certainly not at the insane rate I'd like to see. So how much do writers make?

From what I can gather authors are paid in a number of ways, but all income is centered are around royalties. For a break down of retail, per book, and wholesale royalties see Stephen Nelson's posting (http://www.thewritersplace.com/writestuff/modules.php?name=News&file=article&sid=28). For the purpose of this discussion, let's just assume my prestigious publishing house is using retail royalty payments. Retail royalty rates can range from low single digit percentages (e.g. with my luck 5% or lower) to lower double digits for well known authors (e.g. maybe 15-20% for Stephen King).

Using 5% and a book price of $24.99, each book sold earns me $1.25 in profit. Alright! Didn’t Dan Brown's Da Vinci Code sell over 20 million copies? I'm guessing he quit his day job. Realistically though, I'm guessing my first book won't be nearly as popular so let's say I'm able to sell 1000 copies to threatened friends and family members. While $1,250 is nothing to write home about, it's a start. How much is this an hour though?

If you don't count my long "deep thought" walks, I estimate writing a book would take me 1000 hours. This might be high or low, but since I've never written a book before I don't have anything to base it on. Dividing my estimated income by the total number of hours, I make $1.25 an hour. That is slightly less than I made pumping gas as a 15-year-old.

So it looks like I'm not going to be rich. Back to my question; Should you write a book? Yes and No. If you're planning on quitting your day job to start writing, make sure you're ready to move in with your parents. I talked it over with my wife and this is not an option. If you're planning on writing the book for nothing more than a hobby, then write away. If you make $1.25 and hour then great for you. At least you're published!

Should I upgrade my health club membership?

2007-03-01T18:18:00.000-08:00

March 2007 - In November of 1998 a good friend and I drug ourselves into Life Time Fitness for a membership sales pitch. It was an easy sale for the testosterone filled bulky back sales rep we talked with. In addition to looking forward to a good game of racket ball, my friend and I were young college grads who weren’t afraid to surround ourselves with pleasant looking gales. The salesman knew this and proceeded to tour us through the aerobics room (twice) and sealed the deal. Once members, we found that although there were plenty of well shaped females, there was plenty of competition from better trained and wealthier men.

The first month’s membership bill showed up on my credit card bill for $33.50. I remember thinking that $402 a year ($33.50 * 12 months) for weights and a Stairmaster is ridicules. That was until I watched the repairman open up an out-of-service stepper and found out how difficult it is to fix one of those buggers. There were chains, gears, and wires that could confuse Einstein. The assurance that I never had to fix an electronic bike, treadmill, or wax a basketball floor made the $402 worth every penny.

Much to the dismay of my bill paying wife, over the course of the next nine years I’ve watched the $33.50 monthly fee turn into $53.00. That’s a 58% increase in just over nine years. According to my finance professor, 58% in nine years is slightly more than inflation (at 3% inflation, $33.50 is $43.71). Is the $53.00 we pay today still worth a membership?

I typically get to the club eight times a month which means each trip costs me (actually my wife) almost $7. Typically I use the elliptical machine, racket ball courts, treadmill, some weights (light ones I might add), lockers, and occasionally the cheesy stationary bike. In addition, I watch their TV, weigh myself once a week, and shower periodically. For the most part, I’m willing to pay $7 a trip for these services.

Just down the road from us, Life Time Fitness is building a new 150,000 square foot club that dwarfs the modest establishment I typically patronize. Always one interested in new retail, I inquired about the new club and found my $53.00 was a mere drop in the bucket for what an upgraded sports membership at the new club costs. Apparently the Fitness Membership I carry isn’t sufficient. In reality a sports membership is only $10 more ($63.00), but for a guy who brags about saving 10 cents at the coffee shop for getting the trivia question correct, $10 is a big deal.

Among a new construction scent and automatic paper towel dispensers, the new club includes an outdoor water park, complete spa and salon, and poolside bistro. I hear they also have tennis courts, but didn’t see that posted on their website. So back to our original question, should I upgrade my membership so I can attend the new club?

Although I’m sure some will find the added amenities worth an extra $10 monthly, I’m sticking with my Fitness Membership. The current stopping grounds provide the necessary resources to keep me just within the boundaries of average fitness. This all being said; since I had to park in a different zip code recently, I’m hopeful a majority of people disagree with my opinion and flock to Lakeville and enjoy the zero depth entry pool. That way the economical folks can enjoy less traffic at our current club. Good luck with your own assessment!

Which gas option should I use?

2007-01-31T17:17:00.000-08:00

February 2007 - In retrospect the question of which gas option you should purchase while renting a car in Hawaii is painfully obvious. However, when suffering from jet lag and caring for a hungry, tired, and not to mention pregnant wife, making such a decision is overwhelming to say the least. A few weeks ago, Mrs. No and I headed off to the south pacific in search for rest and relaxation. We started off with a day and a half in Oahu and then jetted off to the Big Island.

The Big Island is an amazing rock out in the middle of the ocean. More impressive than its rich array of volcanic activity and wild life is the kind and speedy service offered by the rent-a-car companies. While I don’t rent a car very often (I dislike cars in general and when on vacation like them even less) when I do, it’s typically an hour of unfriendly, slow, and egregiously overpriced displeasure. Our experience was different than normal though. On the Big Island our vendor Dollar Rent-a-Car, which I found out upon arrival didn’t offer any “dollar” cars, provided the type of service only expected at the finest of steak houses. The shuttle service was prompt, rental line short, and service representative pleasant.

Before signing three sections and initialing another five, the smiling representative asked me which gas option I’d like. She pointed across a lively waiting area to a small sign stating “A – $2.95 per gallon, B – $4.25 per gallon, C – $3.15 per gallon.” Below each lettered section contained unreadable small print which I found out later explained the difference between the options in gory detail. Now remember I’m tired and caring for Mrs. No, who is in little mood for me to crunch numbers like I typically do with presented with financial options. So with little haste, I picked letter “A” and signed my life way.

As it turned out, “A” was the right choice for us. In the small writing below “A,” Dollar explains they’ll sell you a tank of gas for a 15-20 cent discount per gallon if you purchase the tank ahead of time. What they don’t explain in writing, but will when you ask them, is that there are no refunds. You pay the same whether you use one gallon or the entire tank. Our “economy” class car held around 13.9 gallons. With option “A” we drove around the entire island and broke even after using 12.9 gallons. Drivers who use more than 12.9 gallons, come out ahead.

Option “B” is a rip off for most of us. “B” says use as much gas as you’d like and just bring back the car. Then we’ll fill it up for you for a modest 35% markup over retail. There are only two times you should use “B.” You’re late for a flight or using an expense account for a company that just pissed you off. Use option “C” when you plan on using less than a tank of gas. For example on Maui we used option “C” and saved around $12 verses option “A.” That’s because we spent most of our time in Maui laying on the beech and reading fine literature.

You should wonder why option “A” turned out to be the right choice for us on the Big Island. Mathematically both option “A” and “C” turned out the same as both cost us around $41 (give or take a few cents). Time is money though and option “C” would require an inconvenient stop at the gas station before a 9AM flight. Mrs. No likes to arrive at the airport with days to spare, so any amount of time saved sooths her nerves and lengthens my beauty sleep. All other variables equal, the time saved using option “A” worked best for us. Happy travels!

How much do Christmas lights cost to run?

2006-12-29T13:13:00.000-08:00

January 2007 - When asked, my wife refers to me as an “interesting” person as apposed to odd, nerdy or weird. And so when presented with an idea that gives most people a loss of words or a feeling of social unrest (e.g. my three year light bulb experiment in the garage which I share with all house visitors), she usually shakes it off as just part of my “interesting” character. That has recently came to an end though, as on the morning of December 2nd I informed her we’re conducting a month long study on how much our Christmas lights cost to operate.

Every fall I drag myself out to the garage and spend a good portion of the morning and afternoon untangling a series of Christmas lights that have mysteriously found themselves in a rat’s nest. It’s simply amazing how Christmas lights can spend all year tangling themselves without me even knowing. After a bit of emotional counseling and a frank discussion with my inner self, I spread them out and dangle them haphazardly from my shingles using duck tape.

My light collection is made up of thirty to forty feet of “icicle” lights consisting of around 1330 bulbs. As a side note, these lights are the ones where if one simple bulb burns out, the rest of the string finds itself in the dark. Ironically, these are the ones I always end of hanging on the tall dangerous part of the roof. We then have 120 smaller lights that are used to string around a bush or two. In all, we have around 1450 candescent light bulbs hanging from various spots.

The study was conducted as so. On select nights when the temperature was going to be consistent for two consecutive nights, I shut my Christmas lights off early and took a meter reading at 10PM and 7AM the following morning (night one). The following night I did the exact same thing with the exception of leaving my Christmas lights on all night (night two). Assuming all other variables are consistent (e.g. furnace fan run rate or the number of times my wife turns on the light for a bathroom run), the difference between night one and night two should give us the amount of kilowatt hours it takes to run our Christmas lights. This figure divided by the number of hours (i.e. 9 hours) gives us the kilowatt hours needed to run these crafty little buggers per hour.

And so the results are in. Night one consistently shows we use three kilowatt hours of electricity to run the house. This is primarily due to our furnace fan, the running fan in the bedroom (i.e. the noise maker), and my wife’s annoying alarm clock, which by the way goes off every nine minutes between 6 and 7AM. Night two consistently shows we use seven kilowatt hours (the arithmetic mean is actually 7.33) to run the house with the Christmas lights flaring all night. For those of you who are math deficient (like me), the difference is four kilowatt hours. Meaning it takes four kilowatt hours of electricity to run our 1450 Christmas light bulbs for nine hours or close to .444 kilowatt hours per hour. Looking at my last electric bill we pay $.0725 per kilowatt hour meaning our total cost for an hour of Christmas lights is a little over three cents.

So what does this mean? Honestly it really means nothing other than if you hang Christmas lights and leave them on four hours every day in December, you can expect to pay three to four dollars extra on your electric bill. Even a fiscal conservative like me can handle the expense for a little seasonal excitement in the neighborhood. Happy holidays!

How can I apply my new MBA skills?

2006-11-30T14:57:00.000-08:00

December 2006 - Regular readers of my column (which by the looks of it are few and far between) may notice that I’m currently getting a masters degree in business administration from a fairly respected local university. Recently I just finished up with one of the tougher courses called “Data and Statistical Analysis for Managers.” As a side note, one would think “for Managers” in the title would make the class a bit less intensive and compared to a PHD class it might be. That being said, for the average student, which is a group I include myself in, the class is pretty challenging so beware.

While I faired alright on the homework and exams, the true question in my mind is how can I apply these new concepts to my job? This question only makes sense as my employer paid the outrageous price of tuition. Now I’m not proud of it nor tell even my dearest friends, but I’m pretty close to an expert on the format of a seven step hypothesis test. How in the world does this help me as a software engineer though? Let me try to explain how we’ve taken a simple concept from my statistics course work and tried to apply it to work.

I’m leading up a project for migrating our source code repository from a fragile, debilitating, and antiquated system to a new (hopefully robust) tool set. One of the outcomes of this effort is the migration of years of change history that is a critical part of source control management. While the migration tool we’re using is “suppose” to flag us with migration errors, there always is a chance where we could run into a migration error which never got caught (if you’re wondering, I’m a skeptic of most things). Here is a question that I often hear upper management asking us worker bees before pushing a button that could potentially bring the company and all it’s stakeholders to our knees, which this migration could easily do. “How confident are you everything is correct?” Never being an overconfident engineer, I’ve always said “we’re as confident as we can be with the information at hand.” As one can guess this never goes over very well as from what they tell me, it’s not quantifiable. The follow-up questions are always based around confidence numbers (e.g. 90% or 99.99% confident) of which I have no clue how to talk my way out of.

As luck would have it, in my difficult “for Managers” statistics class, levels of significance and confidence intervals were discussed on week four. After scouring my notes, we’re thinking we can use some of the techniques learned to “quantify” how confident we are (or are not) to impress upper management. How though you might ask? While we’ve not started the migration yet, after a “successful” migration we plan on taking a random sampling of source files in the new system and comparing the history with the original source file history in the old system. The result will give us a proportion of the file history that was fully migrated verses the total number of files in the sample. Based on the arbitrary assumption that 95% of all the history is migrated (we simply picked 95% as we’re comfortable losing 5% of history during the migration), we can in return run a proportion z-test using a specified value of alpha (i.e. .05) and figure out the probability of migrating 95% of all our history. The specified value of alpha will give us our level of confidence.

Now I have no grand elusions of impressing upper management with our results. If anything, I’m sure the question will come up as why we spent so much time on this migration and totally forget the fact that we did the migration, saved close to 95% of the history dating back from the early stone ages, and quantified our confidence. Putting upper management aside, the true outcome is that we’ve taken a very important (and difficult I might add) concept from our learning (which upper management paid for) and used it to quantify our confidence level. When upper management then asks, how confident are we that the new system will work and contains all the history we’ve created for the past 10,000 years, we can simply say “at the .05 level of significance (alpha is .05) we’re confident (or not confident) we’ve migrated 95% the history to the new system.” In addition to comforting upper management, this experiment will actually comfort us as well and since we’re ultimately responsible this is probably a good idea. So we’ll see how it turns out.

And the interesting thing is after we’re done with this experiment I’ll be on to my next class (business ethics) learning some new exciting things to annoy upper management with! Shouldn’t they be so lucky to pay me for this!

Do stock prices matter?

2006-11-04T19:16:00.000-08:00

November 2006 - I make no secrets about my love for the morning business section in the local fish wrap (i.e. newspaper) or my unsuccessful run at stock price speculation. My stock picking is so bad of late my colleagues and friends have found investing against me to be quite profitable. This all being said, the curious mind does know one thing for sure; no mater what the list price is, stock prices do not matter. Let me explain.

A few years back while waiting in line for an overpriced latte, I overhead a young man brag to a half listening acquaintance that a stock (of which I’ve never heard of) just split and he was taking his wife out for dinner to celebrate. Being anti-cerebral at the time, I cordially congratulated the gentlemen under my breath and wished to someday be as lucky as he apparently just was.

Five or so years after this experience, I was fortunate to struggle through my first financial accounting course and during an especially arduous homework assignment found that a stock split has no, let me repeat no, economic affect on the stock. Every company issuing stock has a market value, which is simply the total number of issued shares of stock multiplied by the price of the stock. For example, at the time of this writing Google (GOOG) has a market cap of around $143 billion and is trading at $471 a share. This means Google has roughly a little over 300,000 outstanding shares.

A student loan ridden, large mortgage owner, future family man like me has little expendable cash lying around, but if I did I could probably afford ten shares of Google. Let’s say after breaking open my piggy bank and purchasing ten shares of Google, Google decides to split its stock two for one (i.e. two shares for every one share). The result is 600,000 outstanding shares trading at $235.50 and instead of only having ten shares, this curious mind has twenty! Hurray, right?

Now I grew up directly across the street from a corn field in the middle of the upper Midwest and have never once been praised for abnormal intellect. But, I was taught (in the first grade I believe) that ten multiplied by $471 is $4,710 and oddly enough equal to twenty multiplied by $235.50. Consequently, while I may feel wealthy having doubled my stock holdings in Google, in reality I’ve gained absolutely nothing in economic terms.

Of course if you don’t take my word for it, just ask Mr. Warren Buffet whose company “Berkshire Hathaway” was trading (at the time of this writing) for around $105,000 a share. Warren (as I like to call him in person conversing over a Coke) has never split his company’s stock. While I don’t know the exact reasons why, I’m pretty sure he sees a split as needless as I and avoids dealing with superfluous details as such.

In conclusion, do stock prices matter? No, market capitalization matters and your percentage ownership of it. Stock prices are simply arbitrary numbers which can be manipulated to any value wanted.

Who should get an MBA?

2006-10-02T19:17:00.000-07:00

October 2006 – Should you get a MBA is a question that I often hear debated within my group of young professional friends. My answer to this question can be broken down into two types of people, those who want to climb the proverbial corporate ladder and those that simply want to learn more about business.

Some folks, would like to continue their career progression by moving from individual contributor, to lead, to manager, to director, to senior director, to vice president, to senior vice president, to executive vice president, to senior executive vice president, to president, to chief officer, etcetera. Alright enough, you get my point. This is all fine and dandy and if one has these aspirations, you should quickly sign up for the biggest named business program within reason and get the sheep skin. With all those steps you need to differentiate yourself more than a sharp suite and years-and-years of brown nosing offer. As long as you get a grade that secures the tuition reimbursement, don’t be overly concerned with your studies. That’s not to say sleep through class, but fully understanding random variable probability won’t make or break your career path. In other words, slide through school with as little exertion and purpose needed.

Some other people simply would like to learn more about business and apply the MBA concepts learned to their current job, hobbies, and home finances. These people are getting the degree for a slightly different reason as they don’t care about corporate advancement but simply care about learning something new that could help them and their employer. If corporate advancement is presented and the opportunity fits the person’s goals, then so be it. If not, no big deal. These people have more of an interest in the subject mater, as climbing some ladder offers little incentive. The motivation is learning something new and trying to apply the new found knowledge to situations they’re in. For example, when studding statistics the second type of person might take the new found standard deviation calculation and try to apply it to defect data and show wheter the application is under statistical control. This is in comparison to the first person, who’s only exposure to implementing a business school concept is negotiating a promotion.

In conclusion, the curious mind recommends that if you’re interested in getting an MBA, make sure your motivation is modeled after the second person and not the first. An education’s primary purpose is to educate, not hand out paper used to get your next promotion.

Should I franchise?

2006-09-10T18:56:00.000-07:00

September 2006 - I often spend time debating subjects around starting my own business and in doing so bombard by lovely wife and gracious family members with a myriad of ideas and topics of discussion. During our conversations the computer software business always floats around the top of the idea pool because of its strong market and high potential for good margins. Look at how successful Microsoft and Apple are. Additional banters study and discuss the aging demographics. Why not some sort of high technology product that solves all sorts of age related health problems with a simple electronic gadget you swallow after morning bran flakes? Local medical companies like Medtronic, St. Jude, and Boston Scientific seem to be doing quit well. And on and on the rhetoric goes. Ah the sleepless nights such entrepreneurial aspirations have caused me.

Everything seems so simple, but here is the one problem I run into. Money! Sure there are the made for movie stories about the young professional from MIT who started a high tech software company living on nothing but Mountain Due, Doritos, and Dungeon and Dragons. They go on to great fame, wealth, and retirement at age 30. Here’s the deal though, those stories are so few and far between we’re only blessed to hear about them every so often. So what’s a married, suburban living, 30-year-old soon to be MBA graduate do if they want to start a business yet keep a marriage in tack and pay the cable bill on time? My thoughts are to open a franchise.

Now I’d surmise the ardent entrepreneurial is laughing and ready to poke fun at the franchise idea. Candidly the idea of a franchise is not romantic to me either. “Welcome to McDonald’s may I take your order?” or singing the Coldstone chant do not have savvy rings to them. But here’s the deal; a family man of my nature, who enjoys the pleasantries of our home, can’t afford to take a “swing for the fence” risk right away. In other words I’d be willing to forfeit my beat up old car during bankruptcy proceedings, but certainly not our home or my golf clubs. Consequently, aspiring entrepreneurs in my situation need to take calculated risks which I’m hoping a franchise provides.

I’m not sure of the success rate of franchises, but I don’t see many Subways going out of business in my neighborhood. That being said the local Quiznos just recently had its third grand opening and the corner Burger King’s boarded up windows are an eye-sore. While I have no evidence to prove my hypothesis, I’m willing the bet the failure of these entities was more management than business model. And it’s the management where I see well educated, humble, and hard working entrepreneurs succeeding. In conclusion; if you’re a married, suburban living, family man like this curious mind is, then carefully choosing and running a good franchise is a great opportunity to practice the entrepreneurial spirit you so longingly lay awake and dream about.

Is investing in ethanol a good idea?

2006-08-04T13:33:00.000-07:00

August 2006 - Ethanol is a subject of interest for me lately. As an amateur environmentalist, callow investor, and day time engineer, implementing a renewable energy source like ethanol is quit intriguing. Being the skeptic I often am though, I’m wondering whether ethanol is a good investment. Now by saying “investment” I actually mean two things, namely financial and environmental. Let me try to explain.

Looking at the financial aspects of ethanol, one could argue the optimism is flourishing. Big hitter Bill Gates supposedly bought a large piece of Pacific Ethanol Inc. If so, with the stock being up around 80% since January things are looking fairly positive out West. Even Archer Daniels Midland Company from Illinois is doing quit fine with their ethanol efforts. In addition, while visiting my home town “Hayward Kafe” which is smack dab in the middle of the Midwest, I’ve noticed a few more farmers purchasing high priced café lattes. This leads me to believe even the stoic conservative Norwegian community is excited about the possibilities of Ethanol.

All in all I would have to agree with the optimism ethanol gives our pocket books. Vinod Khosla states in his Google Tech Talk “Biofuels: Think Outside the Barrel” that it only costs car companies an extra $30 to make a car flex-fuel. Watching the myriad truck commercials filling up petroleum hogs with corn stocks leads me to believe car companies are on board. While filling a 17 miles-per-gallon gas guzzler on a recent trip to South Dakota, I noticed numerous E85 filling stations. With the delivery infrastructure in place, car companies on board, and the number of ethanol plants popping up all over, I recommend investing in ethanol. And if you don’t like investing in ethanol, I’d recommend looking into corn commodities. As a capitalist I like the competition presented when corn grown to produce ethanol competes with corn grown to increase the average American’s waist line!

From an environmental point of view, I also like what ethanol offers. In MIT’s August 2006 “Technology Review” Jamie Shreeve states in his “Redesigning Life to Make Ethanol” that burning ethanol adds little carbon dioxide back into the atmosphere due to the fact that any carbon dioxide given off is consumed by the plants growing to produce the next drop of ethanol. Ah what a wonder nature is! It cleans itself like a cat! Of course this is in contrast to fossil fuels, which most likely contribute to those annoying toxic air warnings our local bureaucrats warn us about on beautiful sunny days.

Lastly, if you think I’m totally crazy about liking ethanol from both a financial and environmental point of view then let me try this. Even if ethanol is not the silver bullet for renewable energy, at least it’s starting debate and stirring emotion. As one of my trusted acquaintance eloquently stated, ethanol is a gateway source to alternative thinking. It’s starting more dinner discussion about bio-diesel, wind power, and hybrid cars. If the only thing that ever comes of ethanol is pontification and heated debate about renewable energy sources, I’ll consider ethanol a success and worthy of the investment.

Should I pay off my debt?

2006-07-10T09:12:00.000-07:00

July 2006 - The curious mind (i.e. me) likes to engage in a myriad of good conversations and one of our favorite subjects is economics. Often when discussing economics the curious mind debates whether personal debt is good or bad. Today’s discussion regards risk and leverage in simple terms.

Let’s start the debate with a simple example. Say we buy a house for $250,000 and get a 30 year fixed interest rate of 6%. The monthly payment is around $1,500 a month of which a surprisingly large amount is used for interest during the first ten to fifteen years of the loan. Over the life of the loan we pay almost $290,000 in just interest, which gives us indigestion just thinking about such a nightmare.

All the interest is causing loss of sleep so instead of paying $1,500 a month, why not pay $2,000 a month and pay off the loan early? Just think of it, pay off the loan in say 15-17 years instead of 30 and save thousands of dollars (close to half) in interest! But does paying off the loan make sound economic sense? As with most things, it depends.

Financial pundits have a concept called financial leverage, which terms the simple idea that borrowing money at a low interest (e.g. 6%) rate and investing it in something returning a higher interest rate (e.g. 10%) is advantageous. The borrower in this example is rewarded or punished in regards to the difference (i.e. risk) between the rates. Let’s apply this little concept called leverage to our agonizing $250,000 home loan with a 6% interest rate.

The lender is borrowing you $250,000 at 6%. Over the course of time history shows the S&P 500 stock market index returns close to 10%. Remember that $500 extra you were going to pay on your mortgage? Instead of doing so, some would argue to take on additional “risk” and “leverage” yourself by investing it in another investment (e.g. stock/bond markets, rental units, or those old baseball cards in your basement). If the return you receive on your investment is over 6%, even though you’d pay more in interest (possibly double), oddly enough you will come out ahead in economic terms. On the contrary, if the return received falls below 6%, your leverage works against you and punishes your pocket book for the risk.

So when asking “Should I pay off my debt?” first compare the borrowing rate verses the expected return rate. Secondly ask how much leverage and risk your stomach can handle. If you’re willing to leverage yourself, stretch that 6% mortgage as long as you can. If you don’t like risk, pay off that debt as soon as you can and enjoy the lack of debt payments.