Saturday, January 31, 2015

Why I am Still Bearish on Apple

Apple is a one-trick pony, and that trick may get stale over time.

If you read the idiot news, you may be thinking that Apple did really well last quarter.   And it did, selling more iPhones than ever before, mostly because they made them slightly larger (Malibu Stacey has a New Hat!). 

And if you listen to the media, you might be lead to believe that Apple has the majority share of the smart phone market, at least in the US, perhaps the world.  Because that is all the media ever talks about - Apple.

But you'd be wrong about that.   Very wrong.


A few years back, I noted before that Apple had about 30% of the market in the USA to Android's 50% (a 2:1 advantage).  Since then, Apple has picked up some market share in the US, but this appears to be at the expense of Blackberry, not Android.   Android still holds steady in the US at over 50%, while Apple has bumped up to 40%.  Meanwhile, the Windows phone appears to have gone nowhere.

These numbers, of course are based on industry sales numbers - generated by computers which track sales.   Other folks use "surveys" such as this one from Raymond James - which shows that Apple users outnumber Android users.  This survey illustrates two things - first, that surveys are inherently flawed, as they are based on limited data pools and voluntary consumer responses, and second that Raymond James is probably not a great place to invest with, if this is how they analyze a market - with surveys.   Surveys are fine and all, but not when hard numbers are available.

But what is more disturbing than this lopsided market share is that Apple, the company, is really a one-trick pony.   The iPhone accounts for about 85% of Apple profits, and that is mostly because Apple charges (and gets) a premium price for the product.  And according to some folks, while Apple has a tiny market share, it takes in the lion's share of the overall profits in the smart phone industry.   Samsung makes much smaller profits on its smart phones, and thus concentrates on the lower end of the market.

But what would happen to Apple if they could no longer get these wild prices for what is quickly becoming a commodity item?   Will consumers continue to pay 2x to 3x for a smart phone, just to have the Apple logo on it?

Bad things could happen, and very quickly, if the cache of the Apple logo wore off anytime soon.   

And what product would Apple introduce to re-ignite the fire?  Apple Watch?  Apple Pay?

Samsung has already come out with three smart phone watches, and people have responded by, well, yawning.   While a nice toy, they are very expensive and have limited functions as the screens are so small and there is little room inside for hardware.   These physical limitations are very hard to overcome.  They are less a replacement for a smart phone than an accessory for someone who already has one.

Apple Pay is a neat idea, but the retail industry abhors a monopoly, and already the largest retailers in the country has taken a pass on the idea of handing over huge sums of money to Apple.   What the retailers want is something cheaper than Visa and Mastercard, not more expensive.

And since Apple only has a minority share of the overall market, places like Wal-Mart can afford to say "no" to Apple pay.

In other words, despite this good news for Apple, the company is still highly leveraged as a one-trick pony, like most tech companies.   So long as they can keep selling overpriced phones to an already saturated smart phone market, they can keep succeeding.   But as conquest sales become harder and harder to come by, this may be a difficult chore.

But beyond all that, buying the stock now still does not make any sense.  Yes, Apple finally agreed to pay a paltry dividend.   But that is not enough reason to buy the stock.   And unfortunately, the price of the stock remains high - but doesn't appear to have any headroom to go higher.   Unless you believe that the graph shown above will reverse, and Apple will go from 11% of the market back to over 20%, profitability isn't going to go up.   And the only way Apple could gain such a market share would be to lower prices, which in turn, would cut profitability.

And Apple's stock price has been a bit of a roller-coaster as of late, peaking at over $100 a share in 2012, only to drop to almost $50 a share in 2013 - and then back up to almost $120 a share today.   Once again, if we only had a working time machine, we could have doubled our money since last year.   But, of course, that does not mean it is a good buy today.   With a P/E ratio of 15.54 it is not an overpriced stock - based on current earnings.  But again, we have to hope this one product continues to sell, and continues to sell at a price far higher than the competition, in a market saturated with smart phones

So you see the corner Apple has painted itself into.   And sadly, they went out and built a huge white-elephant campus, based on the idea that today's profit levels will continue indefinitely.  If profit margins slim down, things could snowball out of hand in a real hurry.

Of course, Apple will stick around, but I don't see a lot of headroom here for the stock to go up much further.   Flashy headlines about "record profits" are fine and all, but they don't address the underlying weaknesses in the company.  Record sales today are fine - does that mean there will be record sales tomorrow?  Or does everyone who has one, already have one.

That and I doubt Samsung and the rest of the Android market will sit idly by in the meantime.   The cell phone business is murder in terms of competition.   Ask Nokia, Motorola, Ericsson, and Blackberry.   They'll tell you all about it - and each at one time was at the top of the heap.

Of course, you never know about these things.  BMW continues to be the most profitable car company on the planet, because people will pay twice as much for a BMW car - mostly for that little blue-and-white roundel on the hood.   Americans love status symbols, and they love to display them.  Apple sells a lot of product based on its logo alone.

But I think long-term, in the electronics business, devices start out hot and end up as commodity items.  Televisions, stereos computers, telephones, laptops, video games - you name it.  They were all once "hot" products in the market, and then they come down radically in price as they become more like commodity items.  We've seen this in every other electronic device, and there is no reason cell phones should be any exception to the rule.   Eventually the market becomes saturated with the devices, and then you can compete only on price, for the replacement market.

Long-term, this does not bode well for Apple.

Pay Off Debt or Invest? What's the Difference?

Should you use money to pay off debts or invest?   Put another way, should you borrow money to buy a car, if you can pay cash for it?

Recently we replaced the X5 with an inexpensive Japanese pickup truck.  The question came up, should we finance the truck or pay cash?  And it is a question that comes up a lot.   A lot of salesmen use arguments like "opportunity cost" to sell you on the idea of getting a car loan.   And for most people, these are just comforting arguments, as they never have had (and never will have) enough money in the bank to pay cash for a hamburger, much less a car.   So they borrow money and feel better about themselves because the salesman made some argument about opportunity cost or some such nonsense.

But it begs the question, is it smarter to borrow or to pay cash?  Can we crank some numbers to illustrate this?

We'll assume the vehicle costs $25,000 which is a nice round number and about what a typical middle-class car costs these days.   And let's assume a realistic loan interest rate of 4.5% because nobody gets those come-on rates.  Or if they do, they forgo the rebates that just pad the price of the loan.   No, really, people don't get this.  A friend tells me they are "giving away cars" at the car dealership, because he got "0% interest!" on his car loan.  But he walked away from a $2500 rebate, so really, he didn't come out ahead, did he?  And the loan has to be paid back of course, and so no, the dealer isn't "giving away cars" or anything else for that matter.

But getting back to our example, let's assume the buyer also has exactly $25,000 in savings that they could spend on the truck and that this savings earns 4.5% interest to make things even.   That makes things nice and easy to calculate.  Using a mortgage amortization program and a compound interest calculator, we can crank some numbers:

Car loan: $25,000 @ 4.5% for five years.
Payment: $466.08 per month ($5592.96/yr)
Total Paid:  $27964.53
Total Interest Paid: $2,964.53

Investment:  $25,000 @4.5% for five years.
Yield, after Five Years: $31,154.55
Total Interest Earned:  $6,154.55
Difference: $3190.02

So, the person who takes the loan pays $2,964.53 in interest, but also earns $6154.55 in interest on their savings!   Now at first, you might say, "Well, clearly taking out a car loan is a better deal!   You pay $2964.53 in interest, but the money you keep in the bank earns $6154.55 in interest!  You come out ahead by $3190.02!!"

And there is a nugget of truth in that.  But there are two observations to be made here.  First, note that the loan interest is less than the earnings interest, even though the two principal amounts are the same.  We have a declining balance on the loan, while the "investment" stays level at $25,000, so the earnings are higher.  Just an interesting observation that doesn't affect our calculations.   It illustrates why money saved earns more interest than is paid in money borrowed, though.

However, what we are not factoring in is the $466.08 a month that we would have as excess income if we did not take out a loan and paid cash instead.  We could spend this, of course, but to compare apples to apples we should assume it is invested as well, at the same interest rate of 4.5%.

Again, our compound interest calculator yields some interesting numbers.  If we invest $5592.96 every year, for five years, at 4.5% interest, we end up with $31,974.35 which is essentially the same number as earned by our $25,000 for five years.  What is going on here?  Why are they nearly equal?  Well, the total of the $466.08 payments (equal to the loan payments), even at zero percent interest, will total $27,964.53 after five years.  Throw in interest on top of that and you get, well, the same damn numbers keep coming up.

Investment:  $5592.96/yr for five years @ 4.5%
Total Paid:  $27964.53
Total after five years:  $31,974,35
Total Interest Earned:  $4009.82

This is where it gets tricky.   If the interest earned on those monthly payments invested in lieu of loan payments is only $4009.82, then you come out $2144.73 behind the guy who got the loan, right?

Wrong.  This is akin to the "Missing Dollar Problem" involving three people at a hotel and the shenanigans they play with their money.
"Three men go into a motel. The desk clerk said the room was $30, so each man paid $10 and went to the room. A while later, the desk clerk realized the room was only $25, so he sent the bellboy to the three guys' room with $5. On the way, the bellboy couldn't figure out how to split $5 evenly between three men, so he gave each man $1 and kept the other $2 for himself.

This meant that the 3 men each paid $9 for the room, which is a total of $27. Add to that the $2 the bellboy kept and the total is $29. Where is the other dollar?"
This seems like an unsolvable problem, until you realize they are comparing apples and oranges - money paid to imaginary discounts.  "This meant that the 3 men each paid $9 for the room, which is a total of $27" is the key.  They didn't pay $27, they paid $25, and the bellhop swiped $2 from them.   $25 + $2 = $27.  The error arises because the final question is posed to add up the wrong numbers.   If you look at it another way, the room was $25, plus the $3 in change, plus the $2 stolen, equals the original $30.   By adding the $27 (which is the amount of the room plus the amount stolen) PLUS the amount stolen AGAIN, you come up with a fictitious $29 number.  The correct calculation is $27 (the cost of the room plus the amount stolen) plus $3 (change) equals $30 (the amount originally paid).

So you see, it is easy to subtract one thing from another and come up with some very, very wrong answers.

In most wealth calculations, the best way to figure this out is by NET WORTH calculations.   At the end of the day, how does this affect your overall net worth?   If you try to isolate one interest payment and compare it to another interest earning you are adding the bellboy's theft in twice.   You compare apples and oranges and get confused.

So let's calculate how these transactions affect overall NET WORTH after five years and the loan is paid off or the equivalent amount of the loan is invested.

The loan person, at the end of five years, owns the vehicle outright, has $25,000 in the bank, plus $6154.44 in interest, but has paid $2964.52 in interest on the loan.   Let's assume the vehicle is worth $12,500 (50% depreciation after five years) and calculate their net worth:

1.  Savings Balance:  $31,154.55  ($25,000 invested at 4.5% for five years)
2.  Vehicle Value:      $12,500.00
NET WORTH:           $43,654.55

Total Paid over five years:  $27,964.53 (Principal and Interest on Loan)
Now , for if the cash person took that loan payment amount every month and invested it at 4.5% interest,would they have ended up "paying" $2144.73 in lost interest they would have made on that $25,000 in cash, if they had left it in the bank?  As we can see, once we do this in terms of overall NET WORTH, the "missing dollar" mysteriously disappears:

1.  Savings Balance:  $31,974.35  ($466.08 invested monthly at 4.5% for five years)
2.  Vehicle Value:      $12,500.00
NET WORTH:           $44,474.35

Total Paid over five years:  $27964.53 (Money invested in lieu of loan payments)

So you see, the "cash sale" person actually comes out ahead slightly ($819.80) after five years, having made the same monthly payment, but put into savings, than the loan person.   In other words, it is a wash.

Or put another way, if we assume the cash buyer comes out "$2144.72 behind the guy who got the loan" and we add in the loan interest not paid of $2964.93, you come up with a difference of.... $820.21 in favor of the cash payer - or the same amount as in our Net Worth calculations.   The Net Worth calculations are, however, easier to visualize and easier to do - you just look at how much money you have laying on the table at the end of the day, instead of adding bellhop's tips twice or whatever.

However,  I did previously say "there were two observations to be made here" and the second one is that comparing loan interest to investment interest is comparing apples to oranges.   Simply stated, there is no investment out there that is going to provide you with 4.5% interest completely and utterly risk-free.   Treasury bills, for five years, are paying maybe 2% interest, if that (I'll let you know at the end of the auction on February 3rd).   That is about the best "comparable" to loan interest not paid.   And as you can see, loan interest trumps T-bills by 2:1.

If we assume a T-Bill earning 2% interest, the numbers change like this:

Loan: Savings Balance:  $27,602.02  ($25,000 invested at 2% for five years)

Cash.  Savings Balance:  $29,688.11  ($466.08 invested monthly at 2% for five years)

Ouch.   You see, once you really start comparing Apples to Apples (secure investments to secure investments) the numbers for "paying cash" (or paying off debt) zoom way ahead.

The car salesmen and investment advisers cook the books a bit by saying things like, "Well, you could make 7-10% in the stock market with that money, and that beats the loan rate by double!"   And that may be true - or may not.  The point is, you are risking money, and with risk comes potential reward - and also the potential for utter failure.  You could lose your entire principal in a stock investment.   The loan not taken out (or paid off early) is  a 100% sure thing investment that can never be worth less than what you paid.  In fact, it is worth more - it is worth the interest not paid on that loan.

Now, of course, there are other factors that are of a more personal nature to consider.   Like I said, most salary slaves have no cash, so they borrow money because they think they have no other choice.  Of course, if they saved up money, they could earn interest on those savings and end up paying less in terms of actual cash put aside, than the loan person.

For retirees with an IRA, there are other complications.   If you don't have $25,000 in an after-tax account, you might have to take money out of a pre-tax IRA account, which would push you into the next tax bracket - say from 15% to 25%.   This means an additional $2,500 in Federal taxes to pay.  And this illustrates why, when you are retired, you should take out money from your IRA, even if you don't need it, if you can take out money without bumping yourself into the next bracket.   That money could then be set aside for big-ticket purchases.

But all that aside, paying cash usually comes out ahead over borrowing money.   You make more over time, and it is the most 100% safe "investment" you can make, with no risk of losing money, and no risk to your credit rating, either.

NOTE:  This analysis works for paying off existing debts or paying off or paying down mortgages as well.  However, there are "other factors" at work here as well.   For example, if you aggressively pay down your mortgage, that is a fine thing.  But if you fail to build up any savings at all, and you lose your job, you may find it hard to make the mortgage payment at all, and end up in foreclosure.

Thus, a balanced approach to savings and debt may make more sense - particularly when you are young and can afford to gamble (literally) on long-term high-yield investments.

But for old farts like me, it makes little sense to gamble on a possible return on the stock market, when I can get a guaranteed rate of return in paying off debt.

Friday, January 30, 2015

Old Folks' Homes

Why do old people seem so stingy?

Living here on retirement island, you see a lot of interesting things - or see things in a new light.   One interesting thing of note is how old people tend not to upgrade or modernize their homes.  Most of the houses here were built in the early 1970's, and when an oldster passes on and the house goes on the market, it often is in original condition with the avocado green appliances and wall ovens in the kitchen, and the baby-blue or pink tile in the bath.  Sometimes they have the original green shag carpeting and "paneling" in the "den".

My Dad, when he bought his last house (in every sense of the word) didn't change a damn thing.   He left the ugly wallpaper the previous owners (also old people) had chosen, and even the ugly curtains they left behind.   He didn't bother upgrading the kitchen, which had an enormous Amana "wind-up" microwave.   I am sure that thing leaked microwaves like mad, and with his pacemaker, he must have danced a jig in the kitchen every time he made popcorn.

But his attitude was, "Hey, everything works, why change it?"  - and given his tastes in home decor, that probably was the right approach.

Our generation is a little different.    A friend of mine in Florida bought a nice home there for nearly $800,000.   The previous owners had just updated the kitchen with new cabinets, granite counter-tops, and brand-new black appliances.   They decided to tear it all out and start over.  She didn't like the wood they chose for the cabinets, the color of the granite, and she wanted stainless steel appliances.   So a wrecking crew came in and smashed the countertops with sledgehammers and tore out brand new cabinets and took it all to the dump.

Our generation is a little different?   Our generation is a LOT different.   Our generation is insane.   And the experience of my friend in Florida is not an anomaly.   We have other friends who did similar things to their kitchens - tore out perfectly good cabinets to replace them with very similar cabinets.   One friend did a job that really changed nothing (but at the same time changing everything) and I made the mistake of failing to notice the $40,000 "improvement" they had made.   To me, the cabinets and appliances and counter-tops looked not that different than what they had before.   And I failed to understand why they remodeled until they mentioned that a neighbor across the street just had their kitchen remodeled.  Keeping up with the Joneses - Status rears its ugly head once again.

But once you retire on a fixed income (such as social security or a pension) or on your savings (410(k) and/or IRA) or a combination of both, you start to understand why old people think they way they do.   Throwing money at a house, you realize - after owning several - really doesn't do much for you.   It adds little or nothing to the resale value of the house - maybe a fraction of what you spent.   After five or ten years, the "value" of a new kitchen or bath largely evaporates.   It is now just another old kitchen and old bath.

As a retiree, you have to insure that you will have enough money to last the rest of your life, so suddenly the idea of dropping $30,000 to $50,000 on a kitchen remodel seems kind of foolhardy.  Moreover, you realize that this may be the last house you own and when you leave, it will be feet-first, or to a retirement home or assisted living.

But mostly, I think, you realize that a house is just a "thing" and not an end in and of itself.   How nice your bathroom or kitchen is (or, the new thing, laundry room) does not reflect on who you are or what your real values or worth is.   In fact, that sort of behavior starts to seem horrifically repellant.   Yes, it is nice to have a comfortable, safe place to live that is not a maintenance and cleaning nightmare.   But the need or want for a "look at me!" home starts to fade, really fast, particularly when you have to pay taxes on "look at me!" and clean all those bedrooms and baths, just from the dust that accumulates.

Of course, eventually, houses need to be remodeled.   And at this point in time, we are seeing a lot of residents leaving the island here, feet-first.   The houses are being snapped up by some investors or vacation home buyers, and being remodeled and re-done - some rationally, some irrationally.   We bought our home after a local Real Estate Agent bought it (in very bad shape), gutted it, and remodeled it.   Finally, I thought, a house I don't have to work on! 

Others are buying and remodeling homes for their own retirement plans - often spending enormous sums in the process.   A nice couple down the road spent $500,000 on a home here (which is at the high-end of the market) and then threw at least another $100,000 to $150,000 at it.   They won't be able to get that kind of money out of it for quite a few years.   So I hope they plan on retiring here for a long, long, while.

Still others have bought homes, remodeled them and decided to use them as vacation homes, coming down to visit for a few weeks a year.   While this is a nice luxury to have, it is a staggeringly expensive luxury.   For the costs involved, you could stay at a first-class resort and have room service every day.   Vacation homes are a dodgy "investment" unless you can rent them out with regularity and flog the snot out of them.   But then, they get worn out pretty well and if you plan on retiring there, you'll end up having to blow out and remodel the whole place, top to bottom.

But I understand now, why old people don't bother wasting money "improving" their homes and why they hang on to older cars instead of constantly trading-in every few years.   It costs a lot less money to live this way, once you decide that you really don't care what other people think of your bathroom or what car you drive.

And right there is a little nugget of truth that perhaps someone in their 30's should think about (but of course, will not).   Live like a retiree and maybe someday you will be able to afford to be one.

Thursday, January 29, 2015

Pattern Recognition and the Human Brain

Our minds are programmed to detect patterns.  Sometimes this part of the brain goes haywire.

The anti-vaxxers are at it again.  The doctor who came up with the idea that vaccines cause autism has had his license revoked and his "paper" was withdrawn from publication.   But they are still at it, convinced that since their kid showed signs of autism at around the same age they got their first vaccines, there must be a connection.  Confusing correlation with causation.

Vaccines are given at about the age when the first signs of autism become apparent.   There is correlation, but not causation.

And this is sad, too.  I remember growing up, there was one girl in our class who had those leg braces from Polio.   She was like the last person on Earth to have the disease.   Well, she was, until now.  A debilitating disease, conquered in the 1950's, coming back today.  It is sad.

What causes people to believe shit like these crazy vaccine theories?   Well, in part, I think it is a part of the human brain run amok.   People look for patterns that aren't there, and they find them anyway, and like a virus, they infect other people's brains - and thanks to the Internet, it is a lot easier to do this.  

And it is an odd thing, too.   It seems that most of these conspiracy theories are designed to tear down our Western civilization.   Everything from the miracle of modern vaccines to the moon landing, to 911, was faked - and the real culprits are a shadowy group of malefactors.   So why bother saving Western culture?  Hello Sharia law!  Bring on the Caliphate!  We clearly don't deserve to live!

What got me started on this was someone posted a picture online of their wife, holding a cigarette.  In the flash of the camera, the smoke from the cigarette forms swirls, and the author swears he sees the ghost of a horseman in the photo.  "What do you think?" he says.

What I think is that the human mind is programmed to look for patterns, even when there are none.  And one of those patterns we are especially programmed to look for is human faces.   So we see "faces" on Mars, or in "ghost pictures" (which has created a whole industry of "ghost hunters") and we see Jesus' face in a taco or a cheese sandwich - because our minds are predisposed to look for faces.

At least most of us are.  It is a survival instinct.   Oddly enough, some folks have a rare condition where the part of the brain that does facial recognition is broken or absent.   They literally cannot recognize faces of people whether they met them only a few moments before or knew them their whole lives.  There is a whole part of the brain devoted to facial recognition - and when it doesn't work, well, it is hard on the human.

The above photo is from A Beautiful Mind about the mathematician John Nash, another one of those troubled geniuses like Alan Turning, who was not appreciated in his own era, and of course, a little crazy.  Mathematics requires a lot of pattern recognition.   Solving mathematical problems requires that the brain be especially trained to seek out patterns where no one else sees them.   Nash had a finely tuned sense of pattern recognition, but he went off the rails at times, finding patterns (and conspiracy theories) where there were none.

And you see the same thing with conspiracy theorists.  These are not stupid people, but often very smart ones.  The problem is, one part of their brain - the part that seeks out patterns - has run amok, most likely out of sheer boredom.   These are usually people who are underachievers - people with a lot of smarts and a lot of time on their hands.   Not being sufficiently challenged in life, work, or school, their brains go looking for trouble and usually find it.

What's the harm in it?  Well, your kid getting polio for one.  That and making a lot of  other horrible decision in life - decisions that will affect you negatively.   If you buy into all these financial conspiracy theories, well, you'll likely end up buying gold and canned goods and ammo on the off chance that Armageddon will happen soon - instead of funding your retirement.  Or maybe you will just go "all in" and kill yourself and your kids, thinking that the end times are coming (But aha!  Jesus doesn't let suicides into heaven, so you're screwed!).

On the mild side, conspiracy theories will just mark you as a loser and an unpleasant person to be around.  If you start boring people about the trilateral commission and the Illuminati, people will edge away from you.   And in no time, you will be a loner conspiracy theorist and before long, you are living in a cabin and making pipe bombs and wondering how you got to this point.

As I noted before, you have to work at mental hygiene and one sure way to improve your own mental health is to just say "no" to conspiracy theories.  John Nash was able to do this, and walk away from the nonsense that was taking over his life.

If there is a conspiracy, there is likely one in the way these are being spread.   Again, as I noted above, nearly every conspiracy theory out there is predicated on some basic principles - (1) There is a secret group of people controlling everything and taking away all "your" money, (2) Every accomplishment of Western Civilization is a fraud, including your liberty and freedom, and (3)  The United States is behind all these nefarious machinations and is a bad evil corrupt government that should be abolished.

Now, think about this rationally for a minute.   While we do have our flaws and our freedoms are not absolute, life in the United States is some of the best living on the planet.   Oh sure, Sweden has a better welfare system.  But it also has 70% tax rates.   All in all, we do pretty good here - and have accomplished amazing things, in terms of technology and wealth.  And yes, we landed on the moon.  And invented the telephone and the electric light and a host of other things.   We are a pretty good country - particularly compared to most others.

Now think of who would benefit from getting Americans to think their system was pretty crummy, corrupt, venal, and evil?    It ain't hard to understand - anyone who competes with the US.  Which is why Russian troll farms (among others) spread this sort of nonsense.

And speaking of conspiracies, these same folks who will look for imagined flaws in our society are the first to decry the "myth" of any communist conspiracy in the past.   But the realities of the cold war have shown us otherwise - all the major players on the world stage spread disinformation.  And yea, we do it, too.  We've been able to change governments, such as in Nicaragua, just by getting leaders to panic and think they are about to be overthrown.  Before you buy into a conspiracy theory, think about who benefits from it.  That alone might tell you who is really behind it, other than the guy selling you the book.

And then there are the various Islamic terrorist groups, whose stated goal is to take over the world.   We are told time and time again that this is not a conspiracy, even though they proudly put up websites that set forth, in explicit detail, what it is they are setting out to do.

No, there is no Islamic conspiracy.  There was no Communist conspiracy.   But the moon landing?  Fake, fake, fake, fake!

You see how ridiculous this is - and how it plays into the hands of our opponents.  Why are people so willing to believe that the United States is always a bad actor in any scenario, and that other countries are always innocent?  It is an odd pattern - that people will run-down their own country, which has given them so much, and root for a country that would take away everything they have, if it had a chance.

Now before you start, I am not saying there is some evil conspiracy to undermine the United States, only that people who dislike us or who are opposed to us, will use such conspiracy nonsense to run us down, when they can.  The first step to destroying any country or civilization is to get their own citizens to believe it isn't worth saving.   This was what brought down Rome.

Maybe that explains who spreads these theories.  But why do other people believe in such conspiracy theories?   Why does a bored housewife suddenly decide that  her children don't need vaccinations or some basement stoner decide that aliens are being held hostage in Area 51?

Again, we have smart minds being underutilized.   The bored suburban housewife is arguably more dangerous than any terrorist Al Qaeda can set forth.   They will start up committees and send out petitions if you so much as fart in church.   I've seen this firsthand - busybody syndrome.   Smart people with not enough to do.  They are very, very dangerous.

And ditto for the stoner.   Smart kids whose minds are numbed by marijuana.  They always end up "starting something" with neighbors, co-workers, bosses, girlfriends, or parents.   And of course, they are on the verge of solving all the world's great conspiracies - except the one that keeps them from getting a job, of course.

I mentioned before how my stoner brother got caught up in this "Alien" nonsense when he was a teenaged stoner.  He read a book, smoked a lot of pot, and was convinced that aliens built the pyramids.   Any evidence to the contrary was deemed "forged" or just dismissed out of hand.   That is how pattern recognition works - you look for the pattern and disregard contrary data.  And while he was able to see this complex patter of conspiracy, he could not see that his belief in aliens and his difficulties in getting and keeping a job (or a spouse), were in fact, related.

What is odd to me, is that while people will look for complicated conspiracies that have far-out connections and bizarre links, but then ignore the simple patterns in their own lives.   Again, this may be the pattern recognition part of the brain run amok, and perhaps marijuana (and paranoia) feed into this form of mental illness.

So the conspiracy buff thinks the government is bugging his toilet, but doesn't see that the "special offer!" from the Cable company is a ripoff.   No, in fact he likes that special offer!  He is getting a good deal!  His only complaint about the cable company is that they keep watching him through his televsion.  He really wishes they would stop doing that.

The real conspiracy to pluck dollars from your wallet is not tied up with the Federal Reserve, the Trilateral Commission, the Illuminati, banking cartels, or any of that conspiracy theory bullshit nonsense.  The real conspiracy is the one right in front of your face - the blaring ads touting "good deals!" with fine print, selling you a ton of junk you really don't need but decide you have to have and once you decide that, not only do they not have to take your money away, you give it to them willingly with your blubbering thanks.

The mind is a great pattern recognition machine - designed to seek out and recognize remarkably complex patterns from what appear to be random bits of data.   Sadly, it seems that many folks find illusory patterns in these random bits, and disregard as "too obvious" the bold patterns that are readily apparent in their everyday lives.

And maybe this is why a lot of really smart people end up not doing well financially, if not ending up mentally ill.   We decry a lot of businessmen and entrepreneurs of the world who make millions if not billions of dollars, even though they are not very smart or sophisticated people.  How do those dummies succeed where we fail?

Simple:  They are not so smart that they get distracted by illusory patterns.  By seeing less and focusing more, they can keep their eyes on the real data - profits and losses - and not be distracted by noise and smoke.

Sometimes being a genius can be a distinct disadvantage!

Tuesday, January 27, 2015

Do You Need a Maid?

 Do you really need a maid?  Chances are, no, you don't.

For over a decade we had a maid, and it was an interesting experience.  After watching the video above (and many other Consuela Videos like it) it brought back memories of the frustration and expense of having a maid in our home.

It sounds logical at first.   You are both working high-pressure jobs that require 10 hour days and are both making "big money" - so why not have a maid come in a couple times a week, you know, to do the major cleaning and laundry and such?  After all, we can afford it, right?

Maybe.  Of course, I also had an office building that needed to be cleaned, so I justified the expense as just an extension of that.   But like so much else, it was just justification.

What it really got down to was, Status.   Yea, it was cool to have a maid, to say that you had "help" like you were a rich person, even if you really were not.

Yes, it does take time to do laundry, to cook your own food, to clean your own bathroom, to make your own bed.   But having a maid doesn't really save all that much time, and it does cost a lot of money.

And what do you do with all this time you saved?  Work more, or just watch TV and goof off?

The maid scenario falls into that same old deal that is so tempting when you are making (what you think is) "big money".   You are a young hotshot attorney or real estate agent, bringing in the big bucks, why not pay someone $10 an hour to clean your bathroom?  That's an hour you could spend on legal work or selling real estate, right?

Wrong.   Having a maid doesn't "Free Up" more productive time, it just allows you more goof-off time, so you goof-off more - probably sitting in front of the television and getting fat.

Then there are the problems with having a maid.  We had two originally, each one coming one day a week.  Both were from Latin American countries.   We had to let one go when she asked us if we could borrow $5,000.   Never a good idea to give the keys to your home to someone who is desperate for money.

Our other maid was loyal and stayed with us for years.   The problem was, she was very helpless in life and would come to us with a lot of her personal problems.   We ended up renting her an apartment, as she had trouble with her landlord.  She lived there for 18 years.

One day, she came to me with a mailing that she was sure was a deportation notice.   On the cover was the smiling face of Ed McMahon, announcing that she had already won the Publisher's Clearing House Sweepstakes!   I explained to her that no, the INS wasn't after her, than since she had a green card, they could not deport her, and moreover, she hadn't won the Sweepstakes, either.

And while that is a funny example, many others were not.  She would get phone calls, in Spanish, from people claiming to be from the Police, threatening her if she did not pay them money.   There is an entire industry of Latin American people exploiting their own, based on poor language skills, fear of the police, fear of deportation, and fear of authority.   Bottom line, of course, is fear.

So it was an emotional drag also, to be her employer, as we felt ourselves being drawn further and further into her life, and when we did, we were kind of appalled at how hard a life she had.  People like to beat up on immigrants these days, and it is a shame, as they have a hard enough time as it is - and are usually beaten up, often literally, by their own kind.

We sold the office building, we sold the house, and when we bought the lake house, we briefly had some cleaning staff come in to help.   But we finally let them go when one of the ladies brought her deathly thin husband along to "help" and we realized he was a meth fiend.   We also realized that now that we were both working part-time and semi-retired, it was kind of obscene to have cleaning help when we were perfectly capable of doing it ourselves.

And it is funny, too, I find that doing laundry, running the vacuum, and putting things away, makes me feel better about myself and also provides with me physical activitity to do during the day.   How many people have a maid and a gardener and a lawn service and then pay someone to tell them how to exercise?

It kind of makes no sense.   And how much did we spend?   I can't rightly say, but it was hundreds of dollars a month, I am sure - which is thousands of dollars a year.  We spent money on a maid and then refinanced the house to pay off credit card debts - and never made the connection between the two (or the six cars parked in the driveway).

It was sad, it was difficult, and it was expensive.   Oh, and she liked to break things.   We went through three vacuum cleaners, including an Electrolux.   She felt that the best way to unplug the vacuum cleaner was to yank the cord from across the room.  And for some reason she felt she had to smash the vacuum head into the furniture - scarring furniture and smashing the vacuum in the process.

And no piece of tchotchke was safe.   Small precious items would be found in a tiny pile of pieces or in a plastic bag.   I would glue some back together, only to see them broken again.   And articles would be moved around the room in an attempt at Mexican Feng Shui.  Ceramic elephants, apparently, had to face a certain direction.   And cardinals!  They were good luck (but most likely to be broken).

Other friends of mine also had maids.  And some of these friends were housewives who did not even have part-time jobs.   They needed a maid to "help around the house a bit" - a gambit my mother also used back in the day.   The problem was (and is) what do these bored housewives do with all this free time?   Sit around and feel useless and sorry for themselves, is what.

She called Mark, "Mr. Mike".

Recurring Monthly Expenses & The Subscription Model.

People spend hundreds of dollars a month on television, cell phones, and internet services, that often detract from their lives, not add to them.  Moreover, these expenses end up swallowing up a huge portion of discretionary spending.

I was talking with a friend the other day, and they were complaining that the cable company "ripped them off".   They were paying $160+ a month for combined Internet, Cable, and Cable telephone service.   The company raised the rate to a staggering $183 a month, and my friend decided to cancel the service.

However, they had set up the service to charge to their credit card (negative option) so the company kept charging them.   They finally got the company to stop charging (they think) and are trying to get a refund on the service.  Good luck with that.

Why did they charge their cable bill to the credit card?  To get the free miles, of course!   More faux financial acumen at work.  You step into a nasty negative-option trap to get a few pennies back a month.  It ain't worth it.   You can't spend your way to wealth!

I mentioned, offhand that I pay $45 a month for AT&T Uverse internet service, and about $20 a year for NetTalk phone service (which I have renewed until 2019).    With $100 a year each for two GoPhone cell phones, this comes to about $760 a year for telecommunications services.   Fairly cheap.

My friend is paying $80 a month for cell phone service, or a total of $2880 a year for telecommunications services, including the $160 cable bill.   Nearly three grand a year to yak on the phone and watch commercials on television.  That to me is a lot of money.   And my friend is always complaining about being broke all the time.  It comes to about 6.5% of their pre-tax income.  It is an alarming amount of money to spend on telecommunications, in my book.

The amount I spend would be about 1.7% of their pre-tax income - and looking at expenses as a percentage of annual income is another good way to spot excess spending - bearing in mind that of all those 1%'s you have to spend, you only get 100 of them, and frankly, most are spoken for by real needs and expenses like taxes, savings, food, and shelter.

And you know what?  Frankly, I think $760 a year is too much to spend.   I continually look for ways to cut this cost further, if I can.  And my communications costs are largely tax deductible as part of my business, too.

It is sad, but most salary slaves squander away a lifetime of earnings this way - one monthly payment at a time.   They convince themselves that they "need" certain things and that they "have to have" them and moreover are "getting a great deal" by "bundling" services together.   But as you can see, the bundle is still very, very expensive and it is faux financial acumen at its worst to think this is how one gets ahead in life.

"But I have to have my television!" they cry.   Well, actually not.   But you know, if you buy a $50 antenna at Radio Shack you can connect your television to it and find out that, thanks the the FCC caving into broadcasters, you can now get as many as a dozen channels even in a market with only four television networks.   And many of these channels are the same basic cable crap you were formerly paying for.  FREE off the air television, and much of it in HD, too.

But better yet, is to just do without.   You know that whole sacrificing thing - getting ahead in life by deciding that no, you don't need to be treated today for being a special person.   In fact, spoiling yourself is not going to accomplish anything except make you a lazy whiny American, and we have enough of those, thank you.

How do you avoid this subscription trap?   Well, to begin with, look at things in terms of annual cost instead of monthly payment.   The local cable company wanted nearly two grand for cable, phone, and internet - and over three grand with the price increase.  My friend was paying another grand for phone service.   Since when did talking on the phone cost a thousand dollars?   Since people decided that they "had to have" a cell phone and were willing to pay anything to get one.

Another way, as noted above, is to look at the cost in terms of percentage of annual income.  Again, you get only 100 of these percentage points, and if you are paying 5% or more of your income to watch television, that is an staggeringly large amount of money.

What my friends are paying just to watch television and yak on the phone (and worse, text) is enough to make a car payment on a fairly nice used car.   Should television cost as much as a car?   I for one don't think so.

But for many folks, this simply isn't an option.   They believe that life requires texting, and thus they cannot live without constantly being in contact with other people, if only to say the most trivial things.  They have to watch their "sports channels" as they "live for football!"   I really feel sorry for such folks, if that is the highlight of their lives - watching other people actually do things.

Do I lead a deprived life by not having cable TV or a smart phone?   Hardly.   In fact, my quality of life is better as a result of it.  I read more, have real conversations with people, and don't interrupt folks every five minutes to answer texts.

You can live better by living on less.  $2000 a year is a lot of money particularly for people who claim to be broke all the time.

NOTE:  If you go on vacation for more than a month or so, most cable providers and internet service providers will put your service on "vacation hold" while you are gone - at a far reduced rate.   But pulling the plug from the almighty TeeVee is really a better option.

Sunday, January 25, 2015

Why are Facebook People So Gullible?

Facebook is the AOL of the Internet.

Hoaxes, rumors, cons, and outright lies seem to spread fastest through social media, such as Facebook and Twitter.   And it is not hard to fathom why.   People using these sites are the consumers of the Internet.   They have no idea how to code HTML or how the Internet even works.   They just want to go to a fun interface that is ridiculously easy to use, and then upload photos and rumors.

To be sure, people have been gullible on the Internet for ages.   But the level of gullibility really correlates to the level of engagement with the Internet and indeed, their own computers.   In the early days of "online" computing, we all dialed up to our local ISP to get online and send e-mails, monitor discussion groups, and explore this new "World Wide Web" thing.

Back then, AOL had its own version of the Internet, and a portal through which AOL users could escape the wading pool of AOL and dive into the deep end of the real Internet.   And once they got out the wading pool, well, they were out of their element.   People called them AOLamers back then, as they were, well, pretty clueless about everything.   The Internet was a place for computer geeks, and people who took the easy route of using AOL were viewed as lazy and superficial.

Today, we see the same thing.   People use a cell phone or pad device to access Facebook (which to them, IS the Internet!) really have no clue how their devices work, how the Internet works, or what is truth and what is fiction.   The great unwashed masses (GUM) are now on the Internet, and it isn't a good thing, trust me.

When the Internet was dominated by computer geeks, there were issues, to be sure.   But computer geeks at least had some level of education and some level of intelligence.   Now, well, they let just anyone on, and the most clueless people are drawn to the easiest-to-use interfaces like Facebook.

Facebook's interface is stupefyingly easy to use.  You set up an account, upload some photos from your smart phone and Wa-La (as they would say) you have a Facebook page.  The interface is so dumbed-down a child could use it.

And I guess that is why I quickly tired of Facebook.   It is a piano with four keys.   You think you are being smart, clever, and original, but really you are just copying what everyone else is doing.

And Facebook is noticing this.   As I noted in an earlier post, the demographic shift of Facebook is alarming - for Facebook.   Not only are they not gaining younger users - they are losing them.  And at the same time, they are gaining older users - way older users - the over-55 set.   In other words, befuddled grandma's (the gender demographic also leans female, 55-45%).

Facebook is getting the reputation as the haven for hysterical old women who spread "Wal-Mart Slasher" scare stories, faster than the speed of light.

Snopes has nearly thrown up their hands in disgust  -  the speed and level at which urban legends are spreading on Facebook is overpowering their abilities to debunk them.   Log onto Snopes these days and you may see ten new entries of new urban legends - and almost all of them are "trending on social media" which means Facebook.

Facebook is trying to stem the tide.  They have tweaked their algorithms yet again in an attempt to quash "fake news" and urban legends from your Facebook news feed.  The problem is, does that smack of censorship?   There are people who believe that vaccines are a deadly hoax or that there are aliens in Area 51.   How far do you go to monitor people's beliefs and correct them?

And what about satirical news sites like The Onion?   Facebook proposes labeling those "satire" as the old fuddy-duddies on Facebook have never heard of The Onion and don't get something is satire unless you label it as such.

So, I am not sure Facebook's latest efforts will work.   You see, spreading rumors and fake news is what people like about Facebook.  The vast majority of the GUM like to spread these sort of stupid Wal-Mart Slasher stories, so they can say they are "in the know" and feel important, much as Grandpa likes to forward you e-mails with "interesting stories" in them.

The reason people like to "like" bullshit stories on Facebook are the same reasons oldsters like to forward chain e-mails.

Granted, e-mail had this same problem, not too long ago.  People were forwarding chain e-mails to their friends, and SPAMMERS were sending SPAM.   "Social Engineering" techniques were used to scam people into giving up their usernames and passwords (Yahoo! seeming to be the worst of these - the new AOL?).    E-mail providers quickly realized they had a problem on their hands.   Eliminate SPAM or die.

So algorithms today tend to filter out SPAM more effectively - perhaps too much so.   When Grandad does a mass-forward, it ends up in the SPAM box, simply because it is addressed to 30 people.   But the solution worked - SPAM is down a lot on e-mail these days.   And folks quickly realized that no one appreciates those mass-forwarded e-mails, rumors, and other junk that it is tempting to forward.

Facebook, well, that is just ALL forwarded SPAM.   In fact, the e-mail aspect of Facebook is difficult to use (perhaps by design).  E-mail has evolved into a more serious business conduit for important things.   Facebook is, well, computer entertainment for the plebes.

It remains to be seen if this new algorithm solves the fake news problem on Facebook.   I suspect it will backfire, as angry Facebookers decry the "censorship" of their favorite fake news stories.

Originally Published 01/25/2015  Updated 12/17/2016

Kollege Part XXXIV (Part Deux)

College has morphed from academic study to an excuse to party for four years.   Why is this?

As I noted in a previous post, something happened to "college" over the last few decades, to make it, well, different than the "college" experience that many of us had back in the 1960's, 1970's, and even 1980's.   College has largely become more expensive, more irrelevant, more dangerous, and more, well, more of everything bad that college was.

Many people today probably would be better off not going to college than going.   Concentrating on a career or trade early in life (as I did) ends up being a better way to focus your abilities and get ahead, than simply "growing up" for another four years in an environment that encourages young people to, well, act like children.
An article in the news a while back, illustrates yet more reasons not to feel sorry for college students with staggering student loan debts.  At UVA, they've found the body of a student that went missing a few months back.   She was 18 years old and everyone said what a great student and athlete she was, etc. etc. etc.

She was last seen leaving a bar at 2:00 AM being following by a man the Police now think killed her.

I'm not playing "blame the victim" here.  If I left a bar at 2:00 AM, drunk out of my mind, and someone clocked me over the head and took my wallet, you'd have little sympathy for me.   After all, I was being irresponsible by putting myself in a situation where I could be easily victimized.

An 18-year-old girl, leaving a bar at 2:00 AM, miles from campus, by herself?   Even stone cold sober, this is not a smart thing to do.   And with the drinking age now 21, what is an 18-year-old doing in a bar in the first place?  Isn't she supposed to be in college?  Isn't the drinking age 21 now?

This isn't sexist advice:  Ladies, there are men out there who prey upon women.   You might want to watch out for them.   Just as anyone wouldn't think about walking through a bad part of town late at night, one should never leave a bar alone at 2:00 AM.   You have to look out for yourself.

And hey, there are men who prey upon men:  Just to take your wallet, or just to clock you over the head for the fun of it.   And yea, I've been there so I know of where I speak.   Walking alone in bad neighborhoods late at night is just a bad idea for anyone of any race, gender, or whatever.

But getting back to the point - why was this young woman who was supposed to be getting a college education, hanging out, underage in a bar?   Isn't the point of college to get an education?   Shouldn't she have been studying her coursework and calling it an early night?

I know what some of you are going to say.  "Well, didn't you hang out in bars when you were in college?"   Short answer: NO.  First, the drinking age had been raised to 21 (which was really unfair, as I was "legal" to drink just months before) so no bars would admit me.   Second, there were few bars in Flint, Michigan, that I would want to "hang out" in.   Yes, I did go to some fraternity parties and got caught up in "partying".   See my posting about dropping out of college.

That's the whole point.  If you want to "party" in college, expect to waste a college career.  Again, I know this from experience.

When I went back to college, I realized that I had wasted a great opportunity first time around.  And this time around, I had to work my way through.  So I ended up delivering the pizzas to the partiers, instead of ordering them.  And yea, I took their tip money, too.   Even though they probably needed it more than I did.  After all, I wasn't the one graduating with student loan debt, they were.

Irony alert:  I wonder how many college grads who can't find jobs and are saddled with student loan debt, are now reduced to delivering pizzas, and thinking back how it was just a few years before when they were ordering the pies and tipping the delivery driver.  I am sure there is more than one!

And back at the shop, I served pizza slices to drunken undergraduates at 2AM.  2 AM is what we call "closing time" - and if you find yourself leaving bars at closing time, I might suggest that you re-think where your life is headed.   Sadly, many 18-year-olds, liberated from parental authority, end up doing dumb things like this - partying instead of studying.  Most just flunk out.  Few pay for it with their lives.

But partying seems to be the name of the game these days, in college.  In Keene, New Hampshire, college students once again trashed the town during the annual pumpkin festival.  If this were an isolated incident (or even the first occurrence in this town!) it would not bear comment.  However, it is one of a series of festivals or post-game celebrations that in recent years have turned into beer-fueled destructive riots.  Kids it seems, have a lot of time on their hands, in college.

And that is the dirty little secret of college.   While guys like me had to hump with two jobs and Calculus to study, many other have an awful lot of time on their hands and courses that are anything but hard.   One way to reduce the amount of nonsense going on in college these days would simply be to increase the amount of coursework.   But since students don't like that, it isn't about to happen.  The college installs a new climbing wall in the student center, instead.

These college riots have little or no cause, other than to cause mass destruction.   Yes, other socioeconomic groups have been known to riot on occasion.   But usually these are the side-effects of some sort of protest gone awry.   What are these college kids protesting?  Not enough beer?

And ironically, it is these white fraternity brothers who would be the first to condemn blacks for rioting in response to an incident of Police Brutality or the like.   "Those stupid N-words," they would say, "always busting up their own neighborhood!  Say, did you get the Molotov cocktails ready for this years P-fest?"  Irony is lost on them.  A lot of things are.  Fraternities suck.

Speaking of which:  Ladies, if you don't want to be date-raped, you might want to avoid fraternity parties.  Not a year goes by where we don't hear about at least once incident on campus where a young girl is violated at a fraternity party.  Just don't go.  You are in college to get an education.  And fraternity brothers are generally self-centered jerks.  The kind of guys who think women should be drugged and raped.  You know, nice fellows you'd like to bring home to Mom and Dad.  Sociopaths.

Sadly, college has become the new high school, and that is scary for a number of reasons.   First, High School sucks - it is a popularity contest, not an educational institution.  Morphing college into high school creates whole new problems.  Since kids are now alone and unsupervised, their worst instincts are now completely unfettered.   And since college is so staggeringly expensive, this four years of partying ends up costing them dearly - effectively mortgaging the rest of their lives.

Yes, kids partied and protested in years gone by.   Well, maybe not so much before the 1960's, when college was not viewed as a right, but a privilege.   In the 1960's, at least, the protesting was ostensibly about issues - the Vietnam War, for example (although most protesters probably had a deferment and were in little danger of being drafted).  And yea, there was a lot of "free love" and partying going on - and some were showing up just for the party.  But a lot of others were not protesting (which is not talked about) and were pretty serious about their educations.

I talked before about my Brother, who partied his way through college in the late 1970's, proud of the fact he was spending the then-astounding sum of $40,000 of Dad's Money and taking "gut courses" like "Drugs in Perspective" and "WW II in films".   (A typical "school day" consisted of getting stoned and watching old John Wayne movies - at least he trained well for his career path as a chronic stoner).

But at the time (1980), he was more the exception than the rule.   And at the time, parents could "afford" to send their kids to college and college wasn't so staggeringly expensive.   Today, the rules have changed, and yet today, people take college even less seriously than before.   College tuition rates have gone up at 2-3 times the rate of inflation for decades, which means the real cost of college has increased dramatically since my brother majored in Bong Science.

The job market has also changed dramatically since those days.   Well, actually not that dramatically.  My brother found it hard to get a job with a low grade average and a transcript that had "party boy" written all over it.   Majors in nebulous things like "communications" or "anthropology" or "psychology" generally don't lead to jobs, unless you are one of the very lucky few, or are prepared to go to graduate school.

Today, the situation is worse.  Gone for good are the days when a Liberal Arts degree was enough to get you an entry-level white-collar job in Corporate America.   Corporations have shed millions of jobs over the years, as computers and automation replace both blue- and white-collar workers.   In order to find a job, you have to have skills that plug-in to our new, technological society.

This does not mean you need to know how to code, or design semiconductor circuits, only that your skill sets be relevant to our world today, not the world of 60 years ago.   And to graduate without any skill sets whatsoever?   Well, you can occupy Wall Street all you want, it ain't going to change the fact that there is no job opening for you - and that you wasted $80,000 in student loans on four years of partying, that you must now pay for for the rest of your life.

But again, as I noted before, the system is stacked against students.   We ask them to make decisions that will affect the rest of their lives, at the age of 18.   We entice them to colleges that look like "fun" by installing rock-climbing walls and offering gut courses.   We feed them normative cues that are completely skewed.  And since they are young and naive, they bite on them, big time.   Teenagers are the most suggestible lot out there - which is why we draft them to fight our wars (old people would balk).

President Obama has suggested that we make Community College free.  I am not sure how this will help anything, other than to devalue (further) the worth of a Community College diploma.   College has to be made more relevant to the real world, and not just some abstract exercise in academia.

Regardless of what area you study in, getting real experience in the world is going to be more helpful to you in the long run, than sitting in classes listening to professors blather on.   It is a shame that more schools don't offer more "hands on" courses and engage businesses and industry to offer internships and other job experiences which could really enhance a student's understanding of a field - and perhaps persuade them not to go into that field.

I was fortunate that the fields I chose to study, someone was willing to hire me, pay me, and then pay for my education in that field.   In Engineering, that is still true today.   In the law business, perhaps less so.   In many other fields (bullshit degrees) there is no one willing to sponsor an intern or a co-op student for the very simple reason that there is no business in that business.    The sad fact of the matter is, the vast majority of college students are graduating with degrees that mean absolutely nothing to them, or the job market.

College is basically broken.

Friday, January 23, 2015

What the Heck Happened to Fidelity?

Fidelity is starting to act like Motley Fool and this is not a good thing.

We have been with Fidelity for over 20 years.  And for over 20 years, we've never really noticed they were there.  Like most young adults, we started the account on advice of a parent, as we figured "old people" (e.g., people my age today) know what they are doing when it comes to retirement.

So for nearly three decades, we have put money into Fidelity accounts and watched them grow.   They would send us quarterly reports and we would be pleased to see, most of the time, the amount this month was greater than last month.  And that is, largely, how you should invest.   In your earning years, put money away, into a panoply of things, and leave it alone and let it grow.   A big mistake is to try to "leverage" your savings by investing in "hot stock picks" or gold, or whatever they are hyping on the television.

But about four years ago, Fidelity started to change.  We started getting more mail from them - junk mail.  They sent us a mailing telling us they had set up an "office" in nearby Jacksonville and that we should meet with an "adviser" there.

So, I figured that free financial advice was never too bad a thing, (what was I thinking?)  and we went.   Nice fancy offices, that of course are paid for by me and every other Fidelity investor.   Funny thing, though, financial advisers never want you to think that.  No, no, this is their crib, and you are lucky to be allowed into it!

That was the first thing the adviser told us, that in order to be eligible to hear his words of wisdom, we really should have more money invested with Fidelity, to be a "premier" member or whatnot.   The man, selling status, once again, I see.  But he would stoop to our level to talk to us, out of the goodness of his heart.

And mostly, he talked about himself, and the more he talked, the less I thought I would get any valuable information from him.   He was a young guy in his 30's, with a mortgage, car payments, smart phones, and a cable bill  - no doubt raking in a six-figure salary and then spending every penny of it.  At least he was saving in his 401(k) plan.   But his advice was geared toward the debt generation - people making salaries and then spending in monthly tidbits.

"You shouldn't pay off your mortgage!" he told us, "I could do much better for you in the market!"   That may be true (or sometimes not true) but the point is, in order to carry that mortgage, I would have to cough up a couple of grand a month.   Now, I suppose I could have invested that money with him, and if the rate of return exceeded 5.6% then I would come out ahead and be able to pay the mortgage.   But getting a reliable rate of return like that is hard to do.   Yes, you can make 10% in the market - maybe more, if you risk your capital.  But if the account did not generate more than 5.6% then I wouldn't have enough to pay the mortgage every month, unless I started dipping into the capital, which in turn would mean next month's return would be lower, and so on, until I lost my house.

As a 55-year-old facing retirement, I can't afford to risk $400,000 on a scheme like that, on the premise that I might make a little more money before I retire.  From his perspective - as a 35 year-old with a huge paycheck more than covers the mortgage and he needs a tax deduction to offset his taxes - such a scheme makes more sense.  Hey, worst case scenario, he loses it all and starts all over again.   A lot easier to do at age 35 than at age 55.  He really had no clue, however, what it was like to get old.

His other piece of wisdom was to move funds from other companies to Fidelity.   This is obviously self-serving.  Funny thing, State Farm suggested the same thing, even telling us to cash in life insurance and sell funds and buy new ones with high loads.   At least Fidelity didn't go that far!

As a general rule, I can safely say that any investment adviser is going to advise you to move funds to his company, invest with his company, and do other actions which generate income for the company, points for him, or in some cases, even commissions.  Very few investment adviser will say, "Gee, your portfolio looks great, I wouldn't change a thing!" - and by very few I mean none, whatsoever.

And I wonder if he was being pressured by management - "You there, call clients and start hawking funds!  Get them to move funds around, churn accounts!  Generate commissions!  Get to Work!"  But while he did suggest I move my money around into different accounts, at least they didn't have loads, as my Northwestern agent suggested.   I have come to the conclusion that unless you are utterly clueless about money that an investment adviser is not really necessary  Most young people have a 401(k) that allows them to choose from one of four or five funds.     You can roll this over into an IRA when you leave and even put it with the same company in the same funds.   But other than picking which funds, I think jumping from fund to fund or churning your account is really not a good idea.

But then the junk mail really started coming.   We got these "Fidelity Adviser" letters and e-mails, as well as some sort of "analysis" with pie-charts that really wasn't very illuminating.   Four pages of garbage with no real conclusions or insights.  '"10% of your porfolio is in large cap stocks!" (or whatever)   What does this mean to the average investor who doesn't know what "large cap" even means?   Is 10% too much or too little?  And for my age and retirement plans, how does this factor in?  Pie charts can be utterly useless, as Mint has demonstrated.

We got invitations to online conference calls to discuss our investments.   Did we really need to do this?    For most small investors, swapping funds and jerking your money around is usually the worst thing you can do.   If you have a well-balanced portfolio, this should not be necessary - at all.

But when push came to shove, I asked him, "Well, do you think we need to change the mix of our portfolio at all?"   And he thought about this and said, "Well, your portfolio is a bit on the low-risk side.   Mark's is a bit more tilted toward risk.  Yours should be directed more toward riskier and higher-rate-of-return investments, and Mark's toward safer investments."

I thought about this and replied, "Well, I'm 55, so a lower-risk portfolio makes more sense, doesn't it?  And Mark is 50, so a higher-risk portfolio makes more sense, doesn't it?  And if you average the two portfolios together, it pretty much is the mix you say we should have, right?"

And this stumped him for a minute, and he said, "Well, yea, I guess you are right."

So I am not sure this adviser had much in the way of great advice to give me.   I had 100 questions to ask, but all I got were vague answers.   You see, investment advisers (like insurance agents) are trained to be evasive, as they don't want to be seen as promising anything.

For example, I asked him about annuities, as a friend of mine was into them (I am not so sure they are a great thing, but a I was curious).   What I got from him was that yes, annuities exist, and yes, you can buy one.   No real analysis or discussion or certainly not the answer I was looking for, which was either, "Yes, this might be a good adjunct to your retirement plans to provide a guaranteed fixed income in addition to your other assets" or "No, these are a rip-off, I would avoid them at all costs."

Well, at least he didn't try to sell me one, I guess.  But it leaves me right back where I started, which is having to research the snot out of everything and then come to my own conclusions.   My 30-year track record of investing has taught me one thing - advice from investment advisers has often been the worst advise I have gotten, and it is usually, if not always, self-serving.   I won't go so far as to call them all crooks, but you have to realize they are in business to make a living, and most make a living by selling things on commission.

The other thing that was a bit disturbing is that he sort of pooh-poohed by own investments.  I have a small account of dividend-paying stocks.    When I compare the rates of return of my own stock picks to that of Fidelity mutual funds, I find that I am cleaning Fidelity's clock by nearly 3-1, and this is with a portfolio of relatively boring blue-chip dividend-paying stocks that are considered low risk.  In the last year, the stock market has done well.  My Fidelity funds are doing maybe 8% and my own picks, 18%.  I need an adviser for this?  A mutual fund?

We recently inherited an IRA and we needed to roll it over into Mark's account as an IRA to avoid taxes.  From Publication 590 of the IRS:
"However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary.   Like the original owner, you generally will not owe tax on the assets in the IRA until you receive distributions from it. You must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries."
 So, this has to be handled just so, to avoid paying a huge chunk in taxes.  You know, the sort of thing you want your investment adviser to help you with.

The Fidelity agent who handled the deceased's IRA told use to set up a new account and to go online to do this.   I was a little concerned as I didn't want to have yet another account separate from the original accounts.  Mark wanted our "adviser" in Florida to handle it.

So I called him and..... nothing.  No returned call, no e-mail, nothing.   In fact, it is hard to get in touch with people there, directly.  E-mails go through a central clearing house, and phone calls require a five-digit extension that is routed to voice mail.  So I called and left a message.  I e-mailed and left a message.  I gave account numbers, the phone number of the man handling the deceased's account.

Nothing.  No return calls, no guidance, no coordination.  No help.   This big glass-box office and all these people and they do.... nothing.   So what's the point?

I finally called the guy in Maine handling the deceased's account and after a few weeks, he called back.   We were able to set up the account, which so far has a balance of zero.   We'll see if the proceeds transfer or not.

The second thing was that we had sold a house in Florida and now had a six-figure amount to invest in Fidelity.  I wanted to ask our "adviser" where we should invest this money.   Again, phone calls, e-mails, and no response.

But meanwhile, the junk mail continues to flow in, now peppered with credit-card offers.   Do these people really have my back?  And what on God's earth is going on here?

I log onto their website, which is OK, but like most financial websites, obsesses about stock price and neglects dividends and income.  At least on eTrade I could get a printout of my dividend and interest income and a forecast of income for the next year.   On Fidelity, to see my dividend and interest income, I have to either download monthly "statements" (in an unreadable and confusing format) or just look at the cash balance in my account and guess where the money came from.

But as bad as that site was, Fidelity decides to come up with a "New Exciting Website Experience!" - with all sorts of flashy graphics and nonsense which I am sure loaded really quickly on the developer's computer.   Sadly, on mine, it crashes, even using a UVERSE connection.   On a laptop at an Internet Cafe?   Well forget about it.

And this new website, now in Beta, will be shoved down our throats this spring.   "But wait!" you say, "Maybe the new website will have all sorts of new information you can use!"   And if that were the case, I would be cheering it on.   But from what I can see, when I can get it to load (load site, get coffee, take a dump, come back, it might be up) it is the same data as before, but now made to look more like a Facebook page.   In other words, Fidelity is going all Social Media, now that the trend has already peaked.  And quite frankly, I would not trust my money to a social media page.

Investment houses are based on trust.   You hand them the fruits of decades of hard labor, and they hand you sheets of paper with numbers on them, that say you have so much money.   Banks work the same way.  And that is why both try to use names which sound strong and trustworthy (say, for example, Fidelity).   No one names their brokerage "Joe's Fly-by-Night".   And it is why banks have vault-like buildings that give the impression of safety and permanence.   And yea, a lot of this is illusory, as we discovered about six years ago.   Banks and brokerage houses can fly away with the wind on a moment's notice.

What has changed at Fidelity is not something I can point to and say, "There, right there, it is, that ONE THING that seems to be different!"   Rather, it is a cumulative number of small annoying changes that cause me to lose faith in Fidelity as being vault-like or safe:

1. Junk Mail
2. Junk e-mail
3. Useless reports with pie charts that mean nothing.
4. Indecipherable monthly statements.
5. Investment advisers who don't advise and don't help and don't answer calls or e-mails.
7. A new website that is all flash and just trash.
8. The rates of return are not all that great.
9. A feeling in the pit of my stomach that someone at the top, who is being paid seven figures, is deciding on these changes and they are not going to be in my best interests.
And that right there is the problem.  You see, money saved in mutual fund accounts, or in stock trading accounts, is not guaranteed, or insured by the FDIC.   You can lose it all - every damn penny of it - if the market goes down or if the trading house turns out to be fraudulently operated.  And as a plebe, you have no way of telling the good places from the badi.

Employees of Enron put all their 401(k) into company stock.  The President of the company exhorted employees to "invest it all" in company stock, just weeks before the company collapsed - and even though he knew the place was insolvent.   Moreover, investment advisers were touting the stock and high-priced accounting firms were certifying the books as accurate.
Sure, a few people sounded the alarm.  And if you were "in the know" at the time, maybe you got out.  But most of us don't have all day to search out data on investments and figure out whether company X is going belly-up.

And this is why I say diversification is the key.  Not only to have a panoply of different investments, but to have them spread out over a number of different brokerages and agencies.    It doesn't really help to have a "diversified portfolio" but have it all with one company.  That is not diversification.

Because when it comes down to it, there are no shares of stock or mutual funds sitting in the Scrooge McDuck Money Vault, with your name scrawled on them in Crayon.   Your "investment" is just a number stored in a computer, and represents an equity that the firm may or may not hold or hold blocks of.  Of course, if a brokerage goes bankrupt, you may be protected by the SIPC, but then again, maybe not.  And the SIPC only protects you up to $500,000, which is another reason not to put "all your eggs in one basket".

So, I decided to pull my individually-owned stocks from Fidelity.  $6.95 trades sounds attractive, but free trades at Merrill Edge sounds even better.  And I am glad I did this in 2014, as starting this year, you are allowed only one IRA rollover per yearOtherwise, the amount rolled over is considered a distribution (why this is, is beyond me, other than some wily fellow was rolling over money a number of times and then cashing it out and not paying taxes, leaving a difficult trail for the IRS to follow).

And as for the house money and other inheritances, I think I will re-open my Vanguard account and perhaps roll over some money into that in 2015.  The low management fees and higher rates of return are indeed attractive.

And we'll see if they send me junk mail and Credit Card offers....