Wednesday, November 30, 2016

Ho Ho Hokum

This would be considered so politically incorrect today.  But she does look good in it!

One of the great things about Netflix, is that for less than $10 a month, you can watch programs  - without commercials - and save over $100 a month over the cost of cable.  Not only that, Netflix doesn't induce the compulsive channel-surfing behavior that cable TV does.

If you are on Netflix, you no doubt are aware of the television series "Longmire" which has some good acting, some decent writing, but paper-thin plot lines.  Whatever, it is escapism.  And that is what entertainment is for.

One of the actors is the very underrated Lou Diamond Phillips, who is mostly fillipiino and one-eighth Cherokee (which Cher also claims to be, but in fact, she is Armenian).  Mr. Phillips is a great actor, but he is given the lamest sort of lines by the writers, who think for some reason that Indians can_not say contractions.  So instead of "don't" he says "do not".  As in "I do not think that is wise, Kemosabe!"

The show is basically a reboot of The Lone Ranger with Phillps playing the role of Tonto, updated for a new era.

But it begs the question.  Does it really matter if Mr. Phillips is of Indian ancestry or not?  Being born in the Philippines, I am not sure he has a deep connection with his Cherokee roots.   But apparently in our politically correct age, you have to at least allege such roots in order to wear a headdress or to play an Indian role.

I thought we had moved beyond that.

Crying Eyes Cody claimed to be part Indian, but was actually Sicilian.  Does it matter?
 
While racial stereotypes can no doubt be offensive, perhaps we take offense too seriously these days.  Every minority group is or was subject to some sort of stereotype humor.  Today, it is only "acceptable" if you are a member of that group.  So Jon Stewart can mock his own Jewishness, and it is OK.  He can also do gay jokes - so long as he is pretending to be gay.  It is, as I noted, the new blackface.

But what is behind all these "cultural" stereotypes, and do these cultural identities really mean anything, or are they are, in fact, partially made-up?

During the recent protests of the pipeline project in North Dakota, National People's Radio has been running appropriately somber pieces where Indians are interviewed - often invoking the great spirit or whatnot and basically feeding the white man that Indian mojo that we all love to lap up.

In case you were late for class, the narrative runs like this:  Indians are more spiritual and somehow better than us because they respected the land and wildlife more than we did.   Yet there is little evidence to point to this.  Native Americans or Indigenous Peoples or whatever - they are and were just like you and me.  They exploited the natural resources of a given area until the resources ran out, and then moved on.

And long before the white man committed cultural and actual genocide (the latter being a whole lot worse) on the Indian tribes, the Indians were slaughtering each other, with great regularity.  As in Western Society, going on the warpath was a form of population control.  They were not especially peace-loving people, despite how they are portrayed today.

When we showed up, our diseases and superior weaponry were no match for bows and arrows.   But many Indians adapted to this new environment - settling down to live in towns, farm, and try to become part of the new civilization that Europeans had brought to the Continent.   Sadly, racism and poor choices of allies sealed their fate.   When Indians in New York State sided with the French, they found themselves on the losing side of a European battle.  When many of them later sided with the British, they were trounced a second time.   After the end of the revolution, most of New York State was "cleared" of Indians in order to make room for new settlers - even though Indians had "settled" in towns and had built up farms just like white settlers.

Sadly, even as Indians tried to adapt to a new reality, the white folks weren't about to let them in to their little club.

What to do with Indians became a real problem.   Massacring them all was one solution - and one applied with regularity.  Putting the pitiful remnants of tribes into inhospitable reservations thousands of miles from their native homes was another. 

In later years, attempts were made to wipe out Indian culture itself, by snatching children from Indian tribes and sending them to boarding schools to learn English and Western culture.   Our politically-correct Canadian friends were even more aggressive about this than our ancestors were. "Kill the Indian, save the Man" was the motto.  The net result was an entire generation who had no idea of what their cultural values were, or even their own language.

In the intervening years, attempts have been made to reconstruct these cultures, from memories, documentation, and whatnot.   Indians today arguably have greater cultural values than in the near past.  However, some of this culture is created culture or reconstructed culture which is suspect.  For one Western tribe in Canada, cultural dances are being reconstructed from archival films.

And Indians are not alone in this.  Creating culture is a game any race can play.   When Israel was formed in 1949, Hebrew was chosen as the official language.  The problem was - and is - that Hebrew ceased to be used as a spoken language centuries ago.   While the pronunciation of some words was known, many others had to be reconstructed or invented.

Similarly, in Scotland and Wales, more people today are learning to speak their "native" languages than have in the past.  It is part of a cultural movement to distinguish and separate themselves from British culture.  The funny thing is, of course, that we are talking about regions or countries about the size of the State of New Jersey.  Of course, one could argue New Jersey has its own language and culture as well.

Black culture in America is wholly manufactured.  Yes, some traditions in black families do date to the days of slavery (Juneteenth being one of them).  Other cultural values, such as Kwanzaa or Ebonics were manufactured from whole cloth, or are of recent derivation.

White people are not immune from cultural manufacturing either.  The so-called "Patrician" accent made so famous in the movies of the 40's and by actresses like Katherine Hepburn, is not an accent based on any particular country or culture, but in fact is unique to upper class white Americans in a certain time period in history.  It was created - in part - by the movie industry itself.

Other white cultural values include affecting Scottish ancestry (wearing of kilts, plaids and whatnot) which is also popular in England, provided you are affecting only a partial Scottish ancestry and not claiming to be wholly Scots. 

Oddly enough, another white cultural value is to claim partial Indian ancestry (my Mother used to do this - it was likely false) as Iron Eyes Cody did.  I guess everyone wants to claim they have some deep spiritual connection to the land or whatnot.  And like with Scottish ancestry, it was cool to be partially Indian, but not wholly so, if you wanted to fit into white society.

And it goes without saying that every "ethnic" group in America will claim to be of true (fill-in-the-blank) ancestry for certain events or parties.   On St. Patrick's day, everyone with an Irish-sounding name will claim to be 100% from County Cork, even if they are sixth-generation American and interbred with five other ethnicities.  On Columbus day (before it became politically incorrect) we are all Italian, of course!

So what is the harm in all of this?  

Maybe nothing.  Maybe something.

It just seemed to me that a protest over the location of a pipeline should be based on the merits of the case, not on the ethnicities of the people involved, or whether certain ethnicities have a "more spiritual bond with the land" or whatnot, which is plainly false, if you've every driven through a reservation and seen all the shit on people's lawns - just like outside the reservation.

When I hear an Indian giving the white man that Indian mojo - speaking as if English were a foreign language and blathering on about the spirit of water and snow. I get the feeling we are being snookered here.  It is irrelevant to the underlying issue whether you think you have a more spiritual connection to the land than other people do.

And liberals, particularly on NPR, just eat this shit up.  They want to believe that ethnic groups are somehow more in touch with spirituality, religion, the land, emotions, or whatever.  They want to believe that city-dwelling folk are somehow out of touch with their spiritual side, and only someone growing up in poverty in a trailer park - either on or off the reservation - really understands spiritual matters.

It is a common trope on television and in the movies.  The poor are more noble than us and often have magical powers.   As I noted in an earlier posting, the movie The Green Mile is an example of this, where poor people have spiritual powers by dint of being poor.

I guess that is the booby prize for not being rich.

But sorry, I don't buy into this ho-ho-hokum.   Form as many drum circles as you want, it doesn't make the underlying facts any different.
 
A map of all the existing oil and gas pipelines in the USA.   I think the Indians are a little late to the game here.


Timing the Market - Revisited


How can I time the market?

Two e-mails from readers ask two different questions which are really the same question:  How can I time the market?

The first, from a reader in Canada, asks whether there will be a housing bubble in Toronto and whether it is a good time to buy or not.  I have had the same question (and detailed discussion) with a reader in Vancouver, where prices are even more dramatic.

Another reader writes that her retired father has all his investments in bonds as he thinks the market could crash.  Should she do the same thing at age 45?   Is the Trump "Bull" market bound to end up a "bullshit" market and crash?

Both questions ask the same thing - how can I time the market and do I have any insight as to when the market will crash or take off?

If I could answer the second question, I would be the richest man alive, as I could take one dollar and parlay it into billions within a decade.   Sadly, this is not possible, as I don't have a working time machine.  I cannot go back in time and make all those strategic trades and always come out ahead.

It just isn't possible.

Why is this?   Well for starters, it is true we all have inklings that markets will go up or down.   When the market crashed in February 2009, people were talking about it as early as August 2008.   Similarly, we all had inklings that the Real Estate market was overheated in 1989 and really overheated in 2008 - and knew this years in advance.   People have been talking about a real estate market in Canada for years now, but it has yet to pop.   Hey, we all expected Sears to be bankrupt by now, too.   It doesn't mean these things aren't going to happen, they just haven't happened yet.

We all knew the market was headed for the shitter in late 2008, but we didn't know three things:
1.  Exactly when this would happen

2.  How far the market would drop

3.  Which stocks or investments would be affected.
Since none of us had any of this data, most of us just "hung on" to our investments and rode out the storm.  Within a year, our losses from February were wiped out by gains.  Within two years, we were far ahead.  After eight years, well, it has been slow but steady growth.

Now in retrospect, I should have sold all my stocks in September of 2008 or earlier and bought gold and then sold the gold in March of 2009 and bought back the stocks.  I would be twice as wealthy as I am now.

But if the timing is off, well, you're sunk.   In March of 2009 an oldster came to our house for a party and he told me that he sold off all his stocks and bought government bonds "before it went down any further!"

But the problem was, he sold at the bottom of the market and he ended up buying back several months later when the market was almost 100% recovered.  By churning his account, he cut his retirement savings in half.

The reason the second reader's father has most of his investments in bonds (I assume government bonds) is that when you are retired it is a good idea to have your money in "safe" investment, so it doesn't tank like it did in 2008 and leave you penniless and eating cat food.

A rule of thumb that financial planners use is to use your age as a percentage of your "safe" investments.  At age 70, 70% of your investments should be in "safe" harbors such as government bonds or other things that should not go down in value.  At age 45, maybe only 45%, as your time-line is longer and you can "wait out" market disruptions and take advantage of long-term gains.   You can afford risk when you are younger, not so much as you age.

The timing problem is a little different in Real Estate.   When should you buy and when should you walk away from an overheated market?   As I told both my Canadian friends, it is a decision they and they alone have to make, as they are "on the ground" in their markets and can see what is going on firsthand.
The signs of a Real Estate Bubble are not too hard to find.  For me, it is a simple test.   If a house costs $1500 a month to rent and costs $3000 a month to buy, it is probably a better deal to rent, unless there is some sort of enormous tax savings or something.   When the bubble burst in the real estate market in the USA in 2008, it was costing two to four times as much to own a house (with a typical mortgage) than it was to rent it.

I sold out in 2005, mostly because all the properties I had bought had either doubled or tripled in price from where I bought at the bottom of the market in the mid-1990's.  I got scared and sold out.  The market continued on in Zombie mode for three more years, with all the people who had "held out" thinking (correctly) that it was a bubble market, then throwing in the towel and buying, saying, "Gee, I guess I better buy now before I am priced out of the market forever!" - a mantra their Real Estate agent told them.  They got screwed the worst.  There are still people today, nearly a decade later, making payments on underwater mortgages.  It is very sad.

The additional mantras being told in Canada right now are "There have never been bubbles in the Canadian housing market!" (not true) and "Canada is different!" (perhaps true, but not as different as you might think).

Would I buy a house in Vancouver or Toronto right now?   Personally, no.  I think I would rent until the market leveled out.  Owning a home is no special treat or privilege - it is just a thing you own, a complicated thing that requires a lot of maintenance and expensive repairs, that breaks down often.   People get emotionally attached to the idea of "home ownership" particularly if peer pressure is involved ("Suzy has a new town house with granite countertops and stainless steel appliances and a sun nook!  How come we can't have nice things like them?").

This graphic from a reader from an article about (aboot?) Toronto pricing trends sort of blows away the myth that "there have never been bubbles in Toronto Real Estate!"  Note the 1989 bubble, but the lack of a 2008 one.  Canada dodged a bullet then.   Are they due now?  Hard to say.  Click to enlarge

The reader also said that maybe since houses were too expensive they would buy a condo instead.  Ouch.  The problem with condos, as I noted in another posting, is that when the market see-saws from high to low, Condos tend to get hammered the most.   Agents sell them as an alternative to an expensive home - for only 2/3 to 3/4 the money!   But they are less than half the value of a free-standing home and worth less in the long run.

Condos are great, if you buy them cheaply (as I did) and then sell them for a lot of money (as I did with two, and will do with the third, once they tear down the building for high-rises).   Others are less fortunate.  There are some owners in our development who paid over $200,000 for their units a decade ago, and the current market value is $150,000 and the buyout price is not a lot more.  They are not happy about having to sell for less than their mortgage amount.

And the idea that renting is a bad thing is a flawed premise.  After the recession of 2008, rents did go up, although not as much as people like to say (except in places like downtown SF, NYC, etc.).   In response, well - you guessed it - builders started building new apartments (they are going up all over Florida) and the supply of rental properties has increased - meaning rents will stabilize.  The law of supply and demand cannot be denied for too long.

The idea that owning a home is "better" than renting as rents could spiral out of control is just as nonsensical as the "being priced out of the market" buying argument.   If no one can afford to rent or buy, prices will go down.   No one builds "unaffordable" housing.

Bear in mind also that low interest rates may be driving down the monthly costs and driving up prices.   But when happens if rates rise?  Insurance rises?  Condo fees rise?   Taxes rise?  That was the "perfect storm" we had in Florida in 2008, and the result was, prices plummeted.   And if you have to sell your house or condo at that point, too bad for you.   Often the "timing" of a sale is not something of your choosing, due to job changes or life changes.

But the bottom line is, I am not an advice columnist.   If you want to know if you are "approved" go talk to Sooze Orman (but I would take her advice with a grain of salt!).  Similarly, I am not sure I would follow the shouting guy for stock tips - or the dudes in the clown suits.

Diversify your investments.   Do the math.   Think logically, not emotionally.   Act rationally in an irrational world.  

If you apply these simple thoughts to complex situations, often the answer pops right out at you.

And then you can make your own decision.

How Much Will the Wall Cost?


What would a wall between the US and Mexico actually cost?

Our border with Mexico is about 2,000 miles long.  1989 to be exact, but we can round this off, I think.

How much would it cost to build a wall that long?

Well, let's assume we make it from cinder blocks, which are 8" tall and 16" long.  The cost $1.25 at Home Depot, but assuming we buy in bulk, we can round this off to a buck a block, I think.   Hey, this is a government contract we're talking about here.  Don't expect lowest possible costs!

The wall should be 20 feet high, I think, otherwise why bother?   And we would need a foundation or footing for the wall, at least a foot wide and three feet deep to provide support in the desert sand and help prevent people from tunneling through.

So the wall would need to be 30 blocks high.   And for 2000 miles of it, you'd need 237,600,000 blocks.  That's a quarter of a Billion dollars at a buck a block, just for the materials.

For our footer, well, we'd be looking at a cubic yard of concrete for every three feet of wall, based on our assumptions.  At $90 a cubic yard, factor in another $316,800,000 for concrete.   We're up to over half a Billion dollars here.

Of course, I have not factored in the cost of the cement to build the wall - to tie the blocks together.  After all, a stack of concrete blocks could just be pushed over, if there was no cement holding them together.

And maybe you'd need to fill that wall with concrete and rebar- or make if from concrete reinforced with rebar.  A hollow cinderblock wall could be punched through with a sledgehammer in a manner of minutes.

Say we wanted to make the wall solid concrete, a foot thick and 20 feet high.  A cubic yard is 27 cubic feet.   Throwing in our footings, we could round off to one cubic yard per linear foot of wall, or $90 a foot.  That brings our concrete cost to $950,400,000 or a cool Billion even.

This does not include rebar, of course.  Or concertina wire at the top.  Or the labor to build the wall.  Or the excess cost of shipping materials to some of the most remote spots in our country - as well as establishing work camps for all the laborers.  The exact cost is hard to calculate.

Fortunately, we do have some idea of costs of previous walls.   During the Bush era, 670 miles of wall was built at a cost of $2.4 billion.  Presuming we want to keep this part, the remaining part of the wall (1330 miles) would cost another 4.7 Billion, which I think you can easily round up to 5 Billion.  Factor in that the un-walled sections are in some of the most remote and difficult areas, and maybe 6 or 7 Billion is a better guess.  And there has been inflation since the Bush era.   Maybe $10 Billion?

Putting this in perspective, the F-35 program is expected to cost $1 Trillion (A thousand Billions), but that is over the lifetime of the fighter aircraft - each plane is about $85 million each.  So for the cost of about 60 F-35 joint strike fighters, you could build the wall, I guess.

The problem is, the wall, once built, isn't self-maintaining.   It would not deter people who are bent on a better life.   A simple ladder would be enough to breach it, unless it was patrolled day and night.

So the real cost is the hundreds, if not thousands, of border patrol guards you would have to hire, pay, and fund the retirement of, in order to keep the wall from being just a minor inconvenience for migrants.

Say each 100 miles of wall was patrolled by three guards in SUVs who worked in three shifts.   That would mean 60 guards in all.   Of course, 100 miles is a long way, and even at 50 mph, it would take two hours driving on dirt roads to patrol each section.   All the migrants would have to do is wait for the patrol to go by and they would be set.  So you would need at least twice that number, if not more.   Or electronic monitoring systems (even more expense) and a candre of guards to monitor those as well.  You see where this going - you can build a wall fairly cheaply, but to build an effective wall, you need a lot of manpower and equipment to patrol and maintain it.

You know, a few drones with infrared cameras might be a cheaper alternative.  Just saying.

Each of those guards will have to be paid, with taxes and overhead, about $100,000 a year, with benefits, as starting salaries are about $49,000 a year.  At 120 guards, we'd be looking at $12 million a year or so - plus the cost of their SUVs.

Now you understand why the border patrol union endorsed Trump - their dues income will be skyrocketing if this is implemented.

Good high-paying union jobs - isn't that what he promised?

Monday, November 28, 2016

Is Nestlé Stealing Our Water? Not Exactly...


For some reason, it is not OK for Nestlé to use tap water to make its products, but it is perfectly OK for Coca-Cola to do the same - or the local brewery.

In whiny on-line articles, left-wingers argue that Nestlé is "stealing water" from the American public.   These are the sort of articles than handed the Presidency to Donald Trump - they are mindless left-wing bullshit that makes Liberalism look bad.

And "Liberal" isn't a dirty word, but one has to wonder if some of the more extreme versions of it are not in fact financed by the far-right to discredit Liberalism in general.

Nestlé isn't in fact "stealing" water from anyone, but as the article cited above even admits, is buying water from a public water utility for 65 cents for every 470 gallons, and using it to make bottled water.   Some folks think this is outrageous - that every bottle of bottled water should come from some quaintly named spring high up in the Rocky Mountains.  But the reality of bottled water is, it is usually just tap water or well water, sent through a reverse-osmosis system (which purifies it to basically distilled water) with minerals added (because distilled water tastes like crap).

It is a manufactured product like any other beverage.   It is no different from Coca-Cola, who takes tap water (or well water), purifies it, adds High Fructose Corn Syrup and their "Secret Ingredients" and sells it back to the public at a profit.

Oh, and yes, Coca-Cola also takes tap water or well water and purifies it and sells it as bottled water (the Dasani brand), which for some reason is OK, but not OK for Nestlé.

Or take your local brewer.   They use enormous amounts of water, and in most local breweries, this is local municipal (tap) water that they buy, just like you and I do, for so many cents per thousand gallons.  For some reason, no one is protesting the local brewery or Coca-Cola bottling plant, but they are protesting Nestlé.

Or take your local chemical factory, or car assembly plant, or, well, just about any other industrial concern.   Odds are, they are using millions of gallons of water a year, which they buy from the local municipality, and for which they pay the going rates.   Is it an "outrage" they are using so much water?   Would you rather they close the factory and lay off all the workers?


Maybe what really angers these moonbats is the idea that companies are selling what once was free and an inalienable right - or so we thought, anyway.   When I was growing up in the 1960's, the only "bottled water" sold was maybe Perrier, and even that had to be obtained from some specialty store.   We made do with drinking fountains, which every business had at least one of.   A drink wasn't something you paid for, but something that you felt entitled to.

And America has some of the best drinking water in the world, believe it or not.  New York City has wonderful water - some of the best for any large city.   And pretty much free, too. 

The fad of "bottled water" took off in the late 1970's and early 1980's and it was a status thing, particularly among fitness buffs who would slake their thirst with designer labels and look down their noses at people slurping from the public fountain.  And over time, it took off, until the point where I found myself buying water at gas stations for $1.65 a bottle.  I put a stop to that pretty quickly.

When traveling, we do use "purified" bottled water in our camper on occasion.   When you travel, your intestines are not used to new bacteria, and the constant changing mix of local water can cause, well, problems.   "Montezuma's revenge" is not limited to Mexico, but to any water supply you are not familiar with or immune to.

But a case of bottled water at Wal-Mart is only about $3-$4, so it isn't going to break the bank.  Paying half as much for one bottle is.

But it seems the looney left is upset at Nestlé for a number of reasons.   There was the bru-ha-ha about Nestlé pushing infant formula to third world mothers as being "better" for babies.   That was the case in the USA in the 1930's and 1940's, when it was deemed "more hygenic" than breast feeding.   But a lot of people pushed back on this.  The La Leche league was formed to promote breast feeding.  And people like my Mother opted to breast feed, although I am not sure if it "healthy" for a baby to be breast feeding while Mom is sipping a martini.

The point is, people changed their habits, to the point where today it is more common to breast-feed than not, despite any "corporate influence" to the contrary.   We are in control of our own destiny, provided we choose not to be mindless drones who believe everything advertised on the TeeVee.

With bottled water, it gets down to choices.  And if you make your choices in life based on advertising slogans from international corporations, whose fault is it if these turn out to be bad choices?   Whether it is infant formula or bottled water, the choice of whether to consume is up to the consumer, ultimately.  My mother decided against infant formula.  I decided against bottled water.

But there are occasions where both infant formula and bottled water are useful products.  If you leave your baby with a sitter, she can't necessarily feed the kid breast milk, unless you left some in the fridge.  If you spend the weekend at Burning Man, you might want to bring a case of bottled water, or spend hours purifying water at home and putting it in containers - your choice.

But to say that bottling water is somehow inherently evil makes no sense.   What makes even less sense is to single out one company as being "bad" for doing this, while giving others a free pass.   And this is particularly egregious when other companies, such as Coca-Cola went out of their way to promote soft drinks and bottled water as alternatives to tap water.

Should we be shocked by this?  Should we be shocked that Coca-Cola wants us to, well, drink Coca-Cola?  What else are you outraged about?  That General Motors would rather you drive a Chevy than a bicycle?   You expect them to do otherwise?   Now who's being naive?

Bottling water is just another industrial process, no different than bottling soft drinks or making beer.  If you think this is an overpriced product then don't buy it - it is as simple as that.

But to say that a company is "stealing" water when they are actually paying for it is just utter nonsense.

And to target one company as being bad, while giving all others a free pass is just liberal gibberish.

It is all part of this mindless corporate-hate that seems to infect left-wing America, who loves to find any reason - real or imagined - to hate Wal-Mart, McDonald's, General Motors, or whoever is the whipping-boy du jour.   But don't look too closely in the back seat of their Chevy - you'll see old McDonald's wrappers obscured by a pile of Wal-Mart plastic shopping bags!

This is the sort of nonsense that the rest of America is fed up with.  By itself, it is not enough to sway an election, but in combination with a lot of other nonsense, it is enough for people to turn away from the Democratic party as being out of touch with reality.

P.S. - Note that the "meme" above quotes 400 million gallons of water, where the article cite claims 80 million gallons.  I suspect neither number is accurate - the Bureau of Specious Statistics strikes again!

UPDATE:  The outrage du jour about Nestlé has moved to Michigan, where a meme (always the best source of hard facts!) claims that Nestlé is stealing millions of gallons of groundwater for only $200 - the cost of a permit fee.   However, if Nestlé has a ground well, they can legally pump water from it, and Michigan is hardly going though a drought condition.

Moreover, again, we are not told why it is "outrageous" that Nestlé does this but not outrageous that Coca-Cola, local brewers, or even car factories in Michigan go through millions of gallons of water a year.

For some folks on the far left, they have a grudge against Nestlé.  Oh, wait.  Maybe this is part of an overall Union Propaganda Campaign?

I'm just guessing, but these horrific things that Nestlé is doing will suddenly be just fine, once the last plant is unionized.

"Nice bottling plant ya got here.  Shame if something happened to it......"











Is Global Warming a Hoax? No. Does the Media Exaggerate It? Yes.



While sea levels are rising, reports of Manhattan being flooded in a decade or two are a little overstated.

One of the contentious issues of the last election was global warming.  Just as most Republicans stopped denying global warming existed (and that the moon landing was faked) Donald Trump "went there" by tweeting that global warming was a hoax perpetuated by China to put us at a strategic disadvantage in global trade.

China, ironically, is the largest consumer of coal but also the largest producer of solar panels.   They are well aware of the dangers of smog and pollution, as their cities are choked with bad air.  Thus, while they are responsible for a huge portion of the CO2 problem in the atmosphere, they may be the first to help solve it, by making solar panels cheap and affordable.

But is global warming being used as a trade leverage?  Maybe.   In many climate agreements, third world or "developing" countries (including China and India) are or were given a pass on emissions standards on the grounds that they are still developing economically.  In a way, it gives them a free pass to pollute while we have to spend extra dollars to find new ways to eliminate pollution.

And despite claims that there are ways to eliminate CO2 emissions, it basically isn't possible to do.  When you combust anything you produce carbon dioxide.  That is the basic equation:  C + O2 => CO2 + energy.  There are few exceptions, such as Hydrogen, which if combusted efficiently, produces only water.   But the problem with hydrogen is that most of it is made from fossil fuels, as "splitting" it from water using electrolysis is costly in energy terms.

So there is no easy out on carbon dioxide, other than nuclear power, hydroelectric power, wind power, or solar power - each with its own problems and detractors (The Donald says wind turbines spoil the view from his golf course!).

In the past, I have done some work for NOAA and talked with some of the scientists there.  As an Engineer and Lawyer, trained to study "just the facts" I am convinced their methodology is accurate and their results are valid.   Human activity, which covers the planet, it slowly warming it.   We have an impact on our atmosphere, which is only a thin layer of gases covering the planet only a few miles thick.

But the media, as usual, wants a sensational story.   Telling people that water levels may rise, on average, an inch or so a decade, isn't selling newspapers or eyeballs.   Instead, you have to tell them that Pacific Islanders are up and moving already as their islands are already underwater!   For some reason, an island several feet above sea level is underwater due to a 1" rise in ocean levels.  Or maybe not precisely.  In order to capture attention, you have to tell them that their vacation homes will be gone tomorrow, along with every coastal city in existence.

It is a bit of exaggeration, and it doesn't help the global warming debate one iota.  Because when these exaggerated outcomes don't materialize then people may conclude that the whole thing was a hoax - which it wasn't.

The reality of rising sea levels is that sea levels are rising, but not as fast as the media says they are.


Global sea level has been rising at an increasing rate since the 20th century. Analysis of a global network of tide gauge records shows that sea level has been rising at the rate of about 0.6 inches per decade since 1900. Since 1992, satellite altimeters indicate that the rate of rise has increased to 1.2 inches per decade—a significantly larger rate than at any other time over the last 2000 years. In the next several decades, continued sea level rise and land subsidence will cause tidal flood frequencies to rapidly increase due to typical storm surges and high tides in many coastal regions. 
In other words, sea levels have been rising, but the rate of rise has nearly doubled.   In 100 years, at the present rate, levels may rise by a foot.

This may not sound like a lot, but for folks living only a few feet above sea level, this may mean that a super-high tide, accompanied by a storm surge, could flood their home, as opposed to merely crawling up the sidewalk.

And it makes a difference, too.  During the recent hurricane evacuation, we thought about this.  Even an inch of muddy salt water in your home can cost tens of thousands of dollars in damage.   Goodbye engineered hardwood floors and carpets, for starters.  If the water enters the walls and "wicks" up the insulation, it could mean re-sheetrocking your home.

We visited such a home in the Keys many years back, after a hurricane.  It was for sale and on a canal, and not more than a few feet above water level.  Inside the home, you could see where the homeowners had cut the sheet rock about a foot from the floor, patched it, and then put in new baseboard molding.  The problem was, when you entered the house, the smell of mildew hit you like a wave.  I am not sure the house was safe to live in!  And at the prices they wanted back then (pre-2008) it was certainly no bargain.

But in my lifetime, sea level rise isn't going to be much of an issue.  Yes, that sounds selfish, but that is just a statement of fact.  Another 4.5 inches over the next 30 years isn't going to make much of a difference to me.   For the next generation, maybe more so, and the generation after that, it may be a real issue.

But permanent sea level rises of 5-10 feet would be centuries away.  New York City isn't about to become the next Venice anytime soon.

But tell that to the New York Times.  Over the weekend they ran a fear piece that seashore properties are no longer selling as people are fleeing for higher ground.   A few skewed graphics (and scary hurricane photos) and some alarmist text (accompanied by conjecture) makes it seem like Miami beach is already under three feet of water.  This isn't the case.

The narrative is flawed, as are the statistics.  Consider this graphic and accompanying text:

 Look at the scales on this chart - they are non-linear.  Click to enlarge.

The premise is that people are "fleeing" coastal properties and that sales are plummeting.   But if you look at the scale of the graph, the most negative areas are minus 1% while the most positive are a whopping 64%.  For some reason, the extremes of the scale are clearly lopsided.

The article goes on to state that the cost of flood insurance is making it hard to sell some homes.   And this is true - for homes built on the ground in flood zones.   People who wisely built on stilts find their flood insurance premiums far less.

It also illustrates the folly of building a mansion in a flood zone.   In years gone by, people built modest homes or "camps" by the water.  If your beach shack on Cape Cod blew away in a storm, no one much really cared - you simply built a new one.   Today, people build expensive "look at me!" houses right on the water and wonder why they cost over $10,000 to insure.

The answer is, don't build a monument to yourself on the water.   Or, if you are like me, pay cash for a waterfront home.   Does this mean that prices are adjusted accordingly?   Well, sure.   But most retirement homes in Florida, historically, were never mortgaged.   As I noted many years back, the rationale for living in Florida has somewhat evaporated.

Back in the 1960's and 1970's, you could sell your home "up North" for a lot of money and for half as much, own a nice house near the beach in Florida, with low property taxes, low insurance, and no income tax.   Since you paid cash for the house, you weren't too concerned with flood insurance.

Today, if you sell your house "up North" you can expect to pay double for a comparable house in Florida - and pay sky-high property taxes, unless you move to an inland area such as The Villages, which may explain why that area is growing rapidly.

The rest of the article is full of pablum and emotional thinking.  One homeowner on the Outer Banks (which have been hammered by hurricanes long before the white man set foot in North America!) laments that his house will eventually be washed away and "my grandkids will never experience it!"   But of course in the same breath, he laments his flood insurance premiums - which means FEMA will build him a new house, on stilts, for his grandkids to enjoy.

The New York Times article is flawed in that it reports a trend that really isn't happening.  A 1% drop in sales in some selected areas is hardly indicative of an overall trend.   Emotional quotes and vague paragraphs about how banks "should study the phenomenon of global warming" really aren't much of a story, so much as they are conjecture and click-baiting.

We expect more from the grey lady - the "newspaper of record".

So is global warming a hoax?  No, of course not.  The climate is changing, and a lot of this is due to our activities in burning fossil fuels.   Will we all be wearing hip waders in 20 years?  No, it isn't changing quite that fast, but fast enough that in the next 100 years, the architecture and construction techniques used in coastal communities will undoubtedly change.

Whether New Yorkers will take boat taxis everywhere, remains to be seen.


















 

Sunday, November 27, 2016

Should You Build a Spec House? Probably Not.


Building a house "on spec" can be a very risky venture.   There are other, less-risky ways to invest in Real Estate.

I recently found a "draft" posting on blogger where a reader asked about partnerships.  The reader referenced a "Mr. Money Mustache" article which I found informative.  He built two "spec houses" with a partner and lost his shirt, partly due to the partner, but mostly because the market tanked in 2008 and they timed the market wrong.

We all want to paint ourselves as financial geniuses, when in reality, some of us just get lucky or just not step in the dogshit more often than others.  And I thought his posting was refreshing in that (a) he admitted stepping into a huge pile of dogshit (about $200,000 plus worth) and (b) he learned from the experience and moved on in life.

But it got me thinking, of all the mistakes he made (besides taking on a partner), the biggest one was to try, as an individual, to build a "Spec House".

What is a "Spec House" and why should you never, ever get involved in building one?   A Spec house is not a house built to specifications, but built on speculation - that someone will buy it.   In  a "hot" real estate market, you can build it and they will come.   In a normal market, you generally don't build houses unless someone orders one.

Why is building a "Spec House" a bad idea for an individual even in a hot market?   Well, for a lot less money and effort invested, I ended up making over a million dollars buying existing real estate at far, far less risk, while Mr. Mustache lost $200 grand working his ass off and risking everything he owned (and losing a lot in the process).

The problems with the spec house are numerous.  First of all, you are competing with seasoned home builders who are building dozens or even hundreds of houses at a time.   They have longstanding relationships with subcontractors, understand how much something is supposed to cost, and also have the staff and connections to make paperwork a breeze.  They buy 100 refrigerators at a time and get better prices on everything that you do.   They can make far more money than you can, as an individual building one or two houses.

Mark worked for one such builder, who built 50 townhomes.  Early on the project, the builder needed to raise cash to make a construction loan payment and offered us one of the townhomes for $180,000 if we could close in 15 days.   It would have been a good deal - a positive-cash-flow rental - but with over $1M in mortgage debt already, I was too scared.   And we could have flipped that house a year later for over $400,000.    I walked away as I thought it was too risky.

The point is, buying the completed home was a far less risky investment than building it.   The builder went on to make good money after that as the market took off and he sold the last unit before the crash.   But he was an experienced builder.  This is not to say all builders avoided that crash - the guy we sold our house to dilly-dallied for over a year before tearing it down and went bankrupt when the market crashed.

But for a solo individual, the costs involved in building a Spec House are far larger than for a big builder - and as result, your profit margins are lot less.  My brother-in-law built such a house - a two-story modular home with garage.   He spent quite a bit of money developing the lot, laying a foundation, having utilities run, a new driveway installed, and so forth.  Then the modules had to be delivered, assembled, and the interior finished.   And like Mr. Mustache, he finished it right as the market went flat, and sold it for about what he invested in it.

He has made a lot of money in Real Estate - before and since his spec house disaster.  And all of it was by buying existing homes and fixing them up or renting them.   The spec house - his only spec house - was a nightmare from the get-go.

My experience in Real Estate was much more cautious and less risky.   In addition to our primary residence, our first purchase was my office building.  It was a "no brainer" investment and a "nothing down" deal.   I was paying more in office rent at the time than the mortgage payment on the building.   Even then, I made calculation after calculation to make sure I could afford it.  I was -and am - risk-averse.   It turned out to be a good deal, paying $210,000 for the building and after using it for my own practice and renting it out for a decade (at a positive cash-flow) selling it for $680,000.

In the interim, we refinanced the place and using "cash out" bought a foreclosure duplex that needed some TLC but not any major work that would require building permits or hiring contractors.   We fixed the place up and rented it out, again for almost a decade, before selling it for three times the purchase price.

We also bought a condo for $38,000 and are still renting it out.  It is worth about $150,000 today and will be torn down in a few years to make room for a high-rise.   The buyout price may be even higher.

Now granted, our spectacular results were in part due to timing of the market.  We bought at a time when prices were low because the market was still recovering from the crash of 1989.  And one reason I was so risk-averse was because of that crash and its memory to me.

But even assuming that the market didn't go crazy in the 2000's, we still would have been OK.   Since each property had a positive cash-flow, we could have held on to them and made a nice profit each year and had a normal appreciation over time.   Thus, the risk we were subjecting ourselves to was very minimal.  The properties were always worth more than the mortgage balances (even if the market had crashed) and the rental income serviced the debts on the properties.   No risk whatsoever, really.

With a Spec House, on the other hand, you have to get a construction loan, which may have a pretty high interest rate.  You then have to ride herd on your contractors and make sure everything is done right and done at the right price.   And there are always fiascos - usually on a Friday evening - and cost overruns as a result.  You have a lot riding on getting it done right and fast and finding a buyer - who may or may not materialize.   There is no "easy money" in spec building, just ulcers.

Building a new house in general is a difficult proposition.  In normal markets, often a new house is worth less than the construction costs as individual home builders don't have the economies of scale of a professional home builder.  And like I said, with a new house, you have to put in everything from lawn to driveway to landscaping and water and septic and so forth - it all adds up to a lot of money and a lot of risk.

Mr. Mustache didn't say what he made on each house, but he sold one for $650,000 as I recall and the second sold for $450,000 at fire-sale prices which resulted in him losing all $200,000 he invested in the business.   Even if they sold both houses for $650,000, it seems to me that for the large amount of up-front cash invested, the return was not all that great, particularly given the amount of work and stress involved.

In other words, he would have been better off buying a rental property in Boulder (which his partner wisely did) and then renting it out at a small profit and then keeping it for a few years as a long-term investment.  With a few of those (and $200,000 pays the down payment on quite a few rental properties!) one could have quite a money-making machine over time - with hard work and careful attention to the bottom line.

Building a spec house is like buying-and-flipping - it is hard to make money on the margins of construction or remodeling, for the simple reason that you and I have to pay retail prices for the work and materials, while professionals pay wholesale.

This is not to say you should "invest" in Real Estate at all - at least not without doing the math.   One reason a lot of people lost their shirts in 2008 is that they bought properties and didn't even add up the monthly costs to see if the purchase was rational..  One friend of mine bought a condo in the same development as I did, paying over $100,000 for the same condo I paid $38,000 for.   He let it sit un-rented for six months.  "Oh, I'll get around to renting it, eventually" he said.  He was banking on "flipping" it for twice as much, which he may have been able to get away with, had he timed the market better.  As it was, he ended up going back to bankruptcy court for the third time in his life.

I was appalled at his attitude - and that of many of my peers.  Sure, I have regrets at not buying six more of those condos for $38,000 when I had the chance.   Or buying my neighbor's house when they let it go for the obscenely low price of $170,000.  Or that townhouse the builder offered us for $180,000.   Thanks to my time machine (which goes in one direction only - forward) I can see those were all good deals, retrospect.

But better to be conservative and make a little money over a longer period of time than to be aggressive and lose it all.

Investing in Real Estate isn't for everyone.  But I would suggest that it is a far less risky investment to buy an existing house than to build one.   Leave the spec houses to the speculators!

Partnerships?

Should you take on a partner?  Probably not!

A reader writes (a year ago!):
As usual, I've been reading with interest and joy your articles. However, recently I realized that there are some issues that you have not wrote about as much as others.

One of those is, for example, partnership. This came to my mind because I've been thinking about opportunities that emerge when people join forces (ok, money) on a business and how that could it work for me.

However, I've been reading some of my favourite writers about that issue and their view isn't very favourable. (I read two articles: Gabriel Zaid's El peor socio [The worst partner] and Mr. Money Mustache's big mistake. Both online, but the former in spanish only).

Anyway I will like to know about your experiences and thoughts about partnership. Maybe you could write about this theme sometime.

An Italian friend of mine runs a pizza restaurant in Florida.  He decided to expand to a new location near our home, which had us excited, as he had great pizza.   To do this, he took on a partner.   After a year of screwing around, in which the partner re-arranged the restaurant and re-painted the interior four times - without ever opening the doors for business, my friend finally got disgusted and bought them out.  The "partner" was supposed to bring all these business skills to the table, but in the end, never even bothered to apply for a liquor license.  He lost a lot of money by wasting a year building out the space, when he could have been open in three months.

"In Italy," he said, "We have a saying.   The best size for a partnership is an odd number of partners, less than three."

In other words, it was better to go it alone.

Partnerships are difficult arrangements at best.  The problem is, usually one person puts more effort into the partnership that another, and feels cheated because they get the same profit as the other partner.   Meanwhile, the lackadaisical partner gets the same profit with little or no effort.  And both parties feel cheated in the matter.  Even the lackadaisical partner will tell you he got "the short end of the stick."

The experience of Mr. Money Mustache happens more often than you think.   In fact, I would say it was typical.

Let me give you some real-life examples I know of to illustrate some problems with partnerships.


1.  Joe and Sam decide to start a cable television company in a small rural city in the midwest.   Each contributes $50,000 to cover the start-up costs and they get a franchise from the city.    Joe buys cable and runs buried lines through the city and suburbs and sets up headend units and handles all the paperwork.  Sam initially helps out, but loses interest in the venture and moves out of State.

Years go by  Joe and his three sons work like dogs to make the business a go.  It is hard, back-breaking work installing all that cable, but the company grows, and pretty soon they are hiring installers and have a fleet of trucks and start to make some real money.   Larger cable companies offer to buy them out.

Sam returns to the scene and now demands half of the proceeds of the cable company as he was a "50/50" partner in the deal.   Technically, he may be right, although their partnership agreement (if there even was one) was very vague.  Sam hires a broken-down lawyer to send a threatening letter to Joe.

Joe hires the largest law firm in his city and files suit against Sam.   Fortunately, Sam backs down and settles with Joe for a couple hundred thousand - a pretty good return on his investment, considering he did little in the way of real work.

The moral here is that partnership agreements can be sticky things.  Once you get into one, you are kind of stuck, as Joe was.  Joe couldn't just walk away from his cable company and lose his investment - and Sam knew that.  The Sam's of the world like to latch on to the Joe's of the world and demand half of everything just for showing up.

A more detailed partnership agreement ironically might have hurt more than helped.   After all, if it set forth explicit rights for both partners, Sam might have succeeded in his suit.


2.  Fred, Barney, Wilma, and Betty start a law firm.   They are all equal partners.  In the beginning it all goes pretty well, as each attorney has a small practice that is relatively the same size as the others.  By banding together, they each can market themselves as part of a larger firm and get more business.

Fred lands a big overseas client and starts doing pretty well.  He spends years flying overseas to meet with this client and has to hire a number of attorneys to handle the increasing amount of work.   Within a few years, more than half the firm's business originates with Fred.   Yet Fred has to split the firm profits equally with Barney, Wilma, and Betty.

The firm partnership agreement has one unique feature - the money that each partner attorney bills is earmarked for themselves.   Overall profits (from client reporting letters, associate attorneys, paralegals, copy fees) are divided equally among the partners.   So Fred has the clever idea that he should "pad" each bill to his client with an hour-and-a-half of his time, regardless of whether he worked on the case, and subtract the same amount from each associate.   This way he gets paid for "his" client's work.

Unfortunately, it is bill padding, which is illegal.  Worse yet, Fred put this in a memo to all his associates.   His partners were furious and his associates were none too happy.  One of them sends a copy of the memo to the State Bar, and an investigation ensues.

The firm breaks up - which works out better for Fred anyway.   He was getting screwed by his partners, some of whom were barely billing their take-home pay, much less making a profit for the firm.   Fred takes the best associates and his clients and moves to a new firm where an iron-clad partnership agreement (running over 200 pages) diverts more of the income from his client's work to him.

The remaining partners flounder.  Some find work at other firms.  Others retire.  A couple band together to form a new firm, but it doesn't go anywhere.   They realize now that Fred was the "whale" or "rainmaker" at the old firm, and that they should have reworked the partnership agreement rather than being greedy and taking all of Fred's money and forcing the breakup.

Of course, Fred's approach was equally as flawed.  He should have left the firm when he felt it was unfair to him, rather than trying back-door ways (illegal ways) of diverting cash.

Moral:  What starts out as a small enterprise where everyone is equal, can quickly morph into a larger enterprise where contributions by each partner are lopsided.   A partnership agreement should take into consideration that conditions can change.   And partners should realize that sticking together is probably a better idea than being greedy.  Alas, greed usually wins the day.


3.  Ricky decides to open his own law practice.   He has a couple of good clients and an office building, which he owns.  Business is doing well, and he is making a little money.  Ethel, who Rickey knew from a previous firm, comes in from out of town and tells Ricky she expects to be made full partner in the firm, right away.  Ricky balks.  He's invested hundreds of thousands of dollars in the firm, and thousands of man-hours.  Why should Ethel - who has no client base at all - get half of what he worked for?

Ethel's expectations are unrealistic - but they mirror the expectations of a lot of "salary slaves" who have no idea what a partnership means or how hard it is to run a business.  Ricky politely declines Ethel's offer and she now refuses to speak to him.

George, another old friend of Rickey's approaches him with a partnership proposition.   George has all sorts of "big connections" and big ideas and he will bring a lot to the table.  Again, he wants to be 50/50 partners in the deal (actually he wanted 60/40 in his favor, initially!).  When pressed for details about his big connections and big ideas, George gets awfully vague and says they are "confidential."

While George has nice expensive clothes and Italian loafers, Ricky realizes he is a bit of a con-man.  He is all talk and no action, which was why his last firm let him go.   Ricky politely refuses George's kind offer to take half his business.  George shows his true colors, letting loose a string of epithets and calling Ricky a "loser."

Moral:  Once you have established a business, there are all sorts of people who will invite themselves to be your "partner" and try to trick you into doing this, claiming they can increase the size of your business or whatnot.  The question you should ask yourself is, if they have so much freaking business and business sense, why don't they start their own enterprise?  And if you think about that question, the answer is pretty obvious.


4.  Jim and James decide to start a seed business.   They collect and sell seeds, and initially it seems to work out.  Jim has the seed know-how, James put up the capital.  Both think their contribution is greater than the other.

A big company offers to buy them out, and Jim refuses to sell, arguing that they will make more money in the long run if they stay independent.   James sees a very generous offer and that their seed business is somewhat marginal.  He would rather sell and take a nice profit.   However, since Jim refuses, they cannot sell the business to the big company.

And James was right.  The business was marginal and got even moreso after the big company went into direct competition with them.   Also, Jim made a lot of poor business decisions - overspending on things that were not necessary to the business - and did these behind James' back.

Within a couple of years, the business was broke and there was much acrimony as to whose fault it was.   James lost his investment.  Jim managed to make off with the seed stock and reopen a new business under a new name a year later.

Moral:  When everything is "50/50" it can be hard to get things done, as no one has a clear majority.  Two-person partnerships are a nightmare in this regard.   Three-person are no better, as it ends up being two-against-one, which sucks if you are the one.


5.  Ricky decides that being a solo practitioner is no real fun, but can't find someone to partner with who has serious business acumen and their own portable practice.  So he interviews with a number of firms to take on a partnership position.   Most of them require that he have at least a million dollars in "portable" business before they will consider taking him on.   They are no fools - they want a partner with a business of his own, not someone who is taking but not giving.

The partnership arrangements are, to say the least, bizarre.

Firm A has a partnership that decides at the end of each year, to sit down and allocate profits to each partner based on an agreement reached after a marathon session in the conference room.   These meetings are legend and often go on for 12-18 hours at a time.  They argue, shout, cajole, and even scream at one another, until bloody and battered, they reach an agreement on how to split the partnership proceeds.   Ricky thinks this is a ridiculous arrangement.

Firm B has an even weirder arrangement.   Every month they total the accounts received from clients and then divide it up by how much each attorney billed for that month.   If Ricky gets paid $100,000 from a client that month, but is on vacation most of the month, the majority of the proceeds would go to the other partners, who billed more that month.   Ricky thinks this is also a ludicrous arrangement, as the income from a client is paid to an attorney who never even worked for that client.   What's more, it is readily apparent that the system could be easily abused or skewed to rip off Ricky by simply padding their "billing" for that month.

Firm C has a detailed partnership agreement that goes on for pages, listing types and levels of partnership, how much each person is paid, what percentage of their billing they get, how much they contribute to overhead, and even how much they are credited for pro bono work or giving legal lectures.   It is a very well-crafted agreement, but even then, some partners grouse it favors the older partners (who get more shares in the profits) over the younger ones who are actually bringing in the lion's share of the money.

The list goes on and on.   Some firms, trying to be "fair" have detailed agreements that would take an army of lawyers to untangle - and they are updated each year, as some new inequity is discovered.

The moral here is, there is no 100% "fair" partnership agreement.  At best, they are a rough approximation of how much each person contributes to the overall success of the enterprise.  And even if there could be a 100% "fair" agreement, every partner would feel, no doubt, that they are contributing more and getting less.  This is just human nature.

This experience also illustrates that a partnership agreement can be almost anything you want it to be.  You can make it anything from a verbal "handshake" agreement to a detailed contract going on for hundreds of pages - or anything in-between.

* * * 

So why do people form partnerships, and are there alternatives?

There are a multitude of reasons to form partnerships.   For a small company staring out, the partnership may be a better alternative to hiring someone to work for you.   If you are starting out a small retail store or a small electronics firm, you and your partner may have to put in long hours with little or no pay before the enterprise takes off.  Eventually, if it does pay off, you both reap the rewards of the enterprise.

On the other hand, if you owned the business as a solo practitioner and then hired someone to do half the work, you would have to have a lot of capital to pay that person, including benefits and taxes, in order to attract someone with sufficient talent and hard work to make the enterprise succeed.  And no matter how much you pay them in salary, they aren't going to put as much effort into the enterprise as a partner would.  Moreover, the money you spend on paying them would be better spent on building the business.   So a partnership has advantages.

As I noted in the law firm example, a partnership allows you to sell yourself as part of a greater concern, which helps attract clients and helps expand your business.  You also have resources, such as associates and paralegals, which come in handy when you want to bring in more business.   Sadly, despite the fact that attorneys are quite adept and drawing up contracts for other people, they fall down flat when it comes to their own partnership agreements.   The "partnership track" at most firms is based more on a verbal or even implied understanding than any written agreement.  And when partnership agreements are in writing, they are often poorly and awkwardly drafted.   There is a reason law firms are constantly shedding members, dividing up, merging, or simply falling apart.  It is the nature of partnership.

There are of course, alternatives, such as subchapter-S corporations (a subchapter-C corp is usually only appropriate if you plan on going public).   Again, you can try to structure a Subchapter-S corp so that each person has shares in the corporation, and you can even allocate the number of shares and voting rights and whatnot based on seniority, amount billed, how much contributed, or whatever other metric you wish to use.

In fact, a shareholder model can work well in a number of ways.  As the firm expands, you can issue more shares (but may be limited in the maximum number or number of shareholders, by law) which effectively dilutes the interest of older "partners" who may be on their way out.   They can also sell their shares to other partners (but generally not out of the firm) as a means of cashing out of the business. 

In short, like with a partnership, a Subchapter-S corp can be structured nearly any way want it to.   And there are some other interesting aspects of it as well.   You may be shielded from liability for some acts and maybe even acts of other "partners".   One firm I know of comprises a partnership of Subchapter-S corporations, with each "partner" in the firm being his own corporation.  The theory is, I guess, to shield the partnership from the actions of one partner, if they are sued.   It gets pretty crazy.

Of course, solo proprietor is the other alternative - going it alone.   The best thing about being a sole practitioner or sole proprietor is that you don't have to have endless meetings to argue about every decision made.   You can make all your own decisions - right or wrong.  Sometimes it is nice to bounce ideas off others.  But in large firms, decision-making can get bogged down, as people become more risk-averse.

The other nice thing about "owning it all" is that if you do build up a large business, it is all yours.  And there are many large companies in the USA today which are either owned by one person or one family.   The Chamberlain garage door company, for example, it a privately held concern and makes more than half the garage door openers in the country.   A good thing to be born with "Chamberlain" on your birth certificate, no doubt!

One downside, though, is that it can be hard to "cash out" a solo owned company, unless you decide to go public.   If you leave the company to your children, you've basically created a partnership - often a nightmare partnership that mixes money with family issues - that cannot agree on anything and usually ends up wrecking the business you built up.  Howard Johnson's, the restaurant, was victim to this sort of thing.

In my own life, I have formed two subchapter-S corporations, but in one of them, I was the sole shareholder.  Mark was co-owner of Hollin Hall Holdings, our Real Estate venture (which was far more profitable than Mr. Money Mustache's nightmare scenario!)   But even then, sometimes we would grate on each other's nerves.   I recall one night sheet rocking a kitchen in a duplex and wondering where the hell Mark was?   Here I was doing all the work and he was home watching television.  Words were exchanged.

So even if you are family members or spouses, there may still be friction in a business partnership - in fact perhaps even more so, as you bring relationship baggage into it.

I think if you are going to form a partnership, you need to sit down and think carefully about how it should be structured.   And you need to put it in writing and in great detail.   Odds are, your partner may balk at some or all of the terms, which may tell you volumes about your partner.  And bear in mind that you may have to go to court to enforce such an agreement.  So even with an "iron-clad" agreement, a partnership can still be a nightmare.

In reading the Mr. Money Mustache article above, I was chilled by some of the passages.  I was fortunate to see the warning signs of glad-handing and big-talking would-be partners (usually coke or meth is involved with those sorts) and walked away from such deals.   I feel sorry for the guy - $200,000 in debt, while his "partner" is drawing a salary from the partnership.   If you are going to be drawing salaries, you might as well just hire someone.   Why he let him buy new appliances using company money is beyond me.   But like he says, he was young and trusting.

Maybe sometimes it is a good thing to come from a dysfunctional family and have trust issues.   You tend to be able to spot these sort of things a mile away.  My bullshit detector is well-honed.

Are there successful business partnerships?  Well, sure.  "Business Insider" lists a few, although some of them, such as Jobs and Wozniack, really stopped being partners early on into the gig.   And it is only the monstrous pile of money they made together that kept them "friends" if not business partners later on in life.  I guess if your company becomes wildly profitable, your partnership will succeed.  In other words, success breeds success.  When things go South or at least get stressful, harsh words can be exchanged.

And of course, most of these partnerships end up selling out and going public.   Not many of them last forever.

I guess my takeaway is that if someone proposes a partnership agreement to you, be wary, particularly if it looks like you are doing all the heavy lifting (i.e., providing the money) while the other person is bringing nebulous things to the table like "skills" or "contacts" or "business acumen".   If that person was really such a hot-shot, why would they want your money?   After all, they could just get a business loan or grow their business organically.

The answer is, sadly, that in many cases, there are crooked people out there who know how to fleece the inexperienced and unsuspecting.   They know there are folks with stars in their eyes about "starting their own business" and "being your own boss" - and such folks have money to invest, but perhaps less common sense.

All I can say is, be careful.