Business is life

I've decided now is a good time to put a little more money to work. After 12 months of upward market movements, which I largely attribute to the effects of global stimulus, it appears some of the reality of the long-term impact of our 'recession' is sinking in. Against this, I see one bet that makes a whole lot of sense, and that's a bet against US treasuries.

First of all, a short market recap. Last year, I felt the S&P was overvalued anywhere above 9k, and bet against this. Clearly I was wrong. The momentum of massive global stimulus efforts propelled the economy and GDP forward, and I mistakenly assumed people would discount for this. I'm somewhat vindicated in this most recent pullback, and I wouldn't be surprised to see it move further. The effects of stimulus are clearly wearing off, and the big question mark is how much ground the economy has covered on its own since then. Doesn't look like consumers have retrenched enough and debt levels are still relatively high...plus, the funny money is already back to work with the masters of the universe hiring.

In fact, if things get dimmer, some more stimulus may be in order. But against the recent European meltdown (Greece et al..), governments are starting to turn hawkish. So that first stimulus is probably all we'll get, and the market will have to stand on its own. Earnings were better than I expected this year, but I wouldn't be surprised if they level off or even move backwards into the 2nd half of this year. Sticking with 9k as fair value but not gonna bet any more one way or another.

I'm not satisfied, though, with my 1.3% savings rate. Unfortunately good investments escaped me as the world partook in another year of irrational behavior, but lately, I've had a keen eye towards Treasury yields. In case you haven't noticed, 10 year bonds are now at at their lowest levels since April 09, in the very worst of market fears. Bond investors never really bought in to the whole market rally, as the appetite for bonds remained strangely high all year. Now that fears are gripping again, bond yields have been plummeting.

Seems quite odd to think. though, that yields should be even lower than in the depths of financial crisis, when the world collapsing seemed a likelihood?

Thus, my hypothesis. I'm basing my investment on some basic logic:

1) Bond yields have a lower limit. 30 year bonds got down to a little below 3% yield last January. I'd call this a reasonable lower cap, since again, it was a pretty severe crisis back then. They are a 4% today.
2) The government spending spree is either going to lead to inflation, if the market picks up, or fiscal crisis, which is actually likelier if the market goes down. As Europe recently exhibited, fiscal crisis is not out of the picture - and for yields to go up, all it takes is for people to get a little nervous.

So I figure that bond yields going up at some point is more predictable than the market going up, because either deficit hawks or nervous investors could make this a good bet for me even if economic recovery doesn't.

I'm targeting 10% of my portfolio and averaging in over 4 weeks.

A day in the life of an analyst

I spent a large portion of my life believing that I would be an entrepreneur. It took me four companies to realize that I wanted it for all the wrong reasons, and two years to get my career back on track. In retrospect, I do wish that someone could have sat me down and given me the gritty truth of it, because I believe now that accepting this truth is a key part of being successful as an entrepreneur. If reading this article depresses you, you should probably not be in the start-up world. But if it inspires you, well...you might just be ready to take the dive.

As far as I can see, there is exactly one reason to be an entrepreneur, which is fairly simple and straightforward. However, there are a whole bunch of misdirected motivations, many of which are far more nuanced. Unfortunately, young people seem very easily swayed by this breed, just as I was. Considering I'm far more familiar with this set, let's start there.

The most common horrible reasons to be an entrepreneur

1) I want to be an entrepreneur to get rich

Perhaps the most insidious and common reason to dive into a start-up. You see the glorious young guns like Zuckerberg and Brin, and that seems pretty good to you. Every pre-IPO employee at Google ended up rich, so it's not like you even need to be a founder. Here's why this is straight dumb:

A) For every one Google, there are tens of thousands of start-ups that fail.

Even VCs do not expect more than 1 in 10 of their companies to succeed, and for every one venture funded company there are another 100 that couldn't get funding or never made it past the angel round. Take your pick along the spectrum, and you have at best a 10% chance of even getting paid a thing for your stock, never mind a fortune.

B) Even if you are part of the 1 in 10,000 legitimate ideas that work, you probably won't get very much from it.

People seem to grossly understand dilution. If you join a company early, by the time you get through funding (IF you get through funding), you will probably have 70-80% less stock than you did when you started. If you join a company after its already funded, you will probably get some fraction of a percent. If, amazingly, you end up with a $100M sale, you can do the math and figure out that it's still probably only worth a few hundred grand. Now discount that by the chance whatever you are doing actually works.

If you happen to be lucky enough to have a higher % ownership, you probably had to take some big risks with your own life and money to get there.

Now, divide whatever payout you got by the 4 years of work it took and get the true value of your efforts. Optimistically I'd peg it at 30-40K annually, and you'd still be one of the lucky ones.

C) You will be paid less at a start-up

A start-up, by definition, should be scrappy. Everyone takes a hit for the team. Expect somewhere between a 25% and 50% paycut from whatever you would do instead.

Nevermind benefits or stability.

D) The rest of the world does not give a shit about your start-up when it fails

That's putting it delicately. Coming out of the entrepreneurial world, it can be a pretty harsh wake-up call when absolutely no one cares. Your experience doesn't count. In any corporate job, you will be placed based on your experience before your start-up. If you had no experience prior, welcome to entry-level work, where you are now years behind your cohort.

Think this is unfair? I've got more bad news. It's not. Your start-up skills are likely specialized and very specific to your company. None of this overlaps with what you need to get ahead in the corporate world. At best you are an engineer, in which case you have a little more flexibility than the rest of us.

Bottom line: you are paying money to work at a start-up.

2) I want to work at a start-up because it is easier and less stressful than the corporate world

Wow, I can't believe I thought this, ever.

A) A start-up is the most demanding lifestyle outside of banking

When I was in the Valley, we worked 6 days a week from 9am - 12am, or about 90 hours a week. We had no money to invest in anything or get more resources. Everyone knows they are screwed if this thing doesn't work. Nobody has done what you are doing before, so you have to figure it all out by yourself. It would be easy for some larger player to do what you are doing faster and better. You get no guidance, no mentor, and no support. If you fail you have no one to blame but yourself.

B) The corporate world is not necessarily hard

At its core, big business is about doing what has already worked really, really well. Any profession is mainly repetition, from consulting to banking to medicine. You are paid more if you have endurance, if you can learn, and have even a modicum of creativity. Once you figure it out, succeeding in the corporate world is not nearly as difficult as truly innovating, and not nearly as risky. This is why most people do it.

3) I want to be an entrepreneur because I want to live more flexibly and have a more fruitful personal life

See above. On my end, it seriously threatened my relationship with my girlfriend, and there is a reason that people with a family don't do this.

If your start-up gives you the flexibility to have this personal life, I have some other news for you: your start-up will probably fail.

Just to be comprehensive, here are a few other myths that are effectively dispelled above:

- I want to be famous (you won't be)
- I want to jump-start my career
- I never want to go corporate (it's called supporting a family)
- I want to be in control (whoever funds you is in control)
- So on and so forth

To re-emphasize, to be an entrepreneur, you will accept a significant lifetime risk-adjusted pay cut, work harder, be more stressed, and have no life outside of work.

So why the hell DO people do it?

Easy. Because you want a challenge. You don't want to do the same thing over and over again no matter how much you might get paid. Buying stuff is overrated. Dealing with people's drama bores you. Life in general, even, bores you. You want to do something that actually matters. You want inspiration. You are a workaholic anyway, and when you aren't working you are seeking a challenge. You know you could make a good deal of money doing something not that hard, and you don't care.

Even if you are massively successful and sell your start-up, you will just do it again. The very fact that you won't stop working is what will make you successful as an entrepreneur.

Me, one day I realized I thought my start-up was bringing me somewhere instead of being the goal itself. There were much easier and more consistent ways to get where I actually wanted to go, which involved strong relationships with family and friends, a stable income, and a knowledge set that I could leverage in more places than just the start-up world.

The day I'm willing to give all that up is the day I'll know I'm ready again, but next time, it will be for the right reasons.

This is a commercial that has really stuck with me:



In particular, this quote, I think, is brilliant:

"I get an idea to do something, I like to take the first step. If that feels good I take another step. To do good you actually have to do something."

It's such a simple concept, yet the older I get, the more it seems like this is actually one of the most difficult ideals to consistently practice. But for sure one of the most important. I know, at first you think, what are you talking about, we all are constantly doing something.

But are you?

What we are all doing is constantly going through the motions. Usually, no matter where you are working, it becomes something of a routine after you've done it for a while. Especially against the recent recession most of us have to work long hours, and even when we don't, it's hard not to feel drained at the end of the day anyway. How easy is it to turn on the tv, maybe cook some food, veg out for a while and then pass out? Or maybe grab a beer with some friends. On a good night maybe you even hit the gym.

But none of this qualifies. When I say, "do something", I mean something new. Something different. A real action on an idea. Real progress on an aspiration. It can even be something for work, but it has to be something beyond your normal scope of responsibility. Test a theory, run an analysis, and more importantly, do it because you want to do it. Do that part of work that inspires you. And if there is no part, then start doing what does inspire you. It doesn't have to be everything. Just something. Anything.

It's sad to realize the amount of time we had in high school and in college, to do ANYTHING, and yet we had so little concept of what that meant. Innovation and new product development isn't outside the reach of anyone....it's just that horrible inertia of starting some kind of substantial new project against our daily responsibilities. When we are younger we tend to just look at those older and think, one day. But all along it is just taking one step, whether you are 15 or 45. And then one more.

I consider this blog to be something. But I have 3 or 4 other pet ideas that are always floating around in my head at any given moment. All it takes is 30 minutes one night to take the first step. I best not disappoint.

So after the, 'the world is going to end because europe will fail' market contagion, we are saved yet again with a massive, $700B euro bail out. In the US, we transferred public debt for private debt. In Europe, they are transferring failing countries' debt for stable countries' debt. Hooray, and market futures are already bouncing.

And don't worry, no one did anything silly like force a country (ahem, Greece) to get its budget under control, figure out how to draw these countries out of recession with crazy things like "GDP", or think about how this mess actually happened instead of how more debt can get us out of it.

My real take? Like usual, governments are buying time. More and more time. Time isn't a bad thing. But no one is buying solutions.

I continue to watch. And wait. Bubbles bubbles everywhere. Should we all be so surprised that we may not be ready to party like it's 2007?

Markets were down almost 900 points, but then recovered to down 260 or though now. But why??

I tried to figure it out, and the details on marketwatch are still so..vague. It said:

"You can go back to Goldman Sachs Friday when the market sold off. Since then the market has been prone to headline risk and looking for a reason to sell off," said Jay Suskind, senior vice president at Duncan-Williams.

"Is the market now seeing Greece and Europe as the canary in the coal mine for us? We all know we have budget and deficit issues," Suskind said.

Okay, but we have known about the Greek crisis for months. Was the announced bailout package really that bad that now we expect global fallout?


I think something odd is clearly afoot. There is no reason the market should go down 700 points and then back up in a couple of hours. Not enough substantial changed in that time span.

However, from a higher level, it is interesting that government default fears are so quickly coming to the forefront. My main question (and I'm still short the market) since last year has been how the market could rebound so quickly without truly fixing its initial problems. Its initial problems being excessive debt, resulting in the inflation of some kind of asset price.

What I haven't been able to figure out is which asset price was being pumped, since housing continues to fall. I know China has big housing issues, but all the global liquidity couldn't be going there. So where has all the government money been going? It seems one clear answer is...back into government bonds. Greek bonds were way overbought, enabling the country to get into way too much debt. So are the other PIGS about to suffer a government crisis as well?

Or is the asset bubble building elsewhere too?

UPDATE: Seems like a tech error has to be involved....but still no one is focusing on why the market tanked in the first place. If we don't hear of some major governmental crisis tomorrow that is under wraps right now, I wouldn't be surprised if the market bounces back big time.

I've been in management consultant for about a year and a half now, and one of the surprising observations I've had is how much value can be generated from the simple willingness to do real work. Head down, grind it out, patience enduring, plain-old work. What's surprising is that this work is rarely difficult, in the sense that almost anyone could understand it at its conceptual level. It's only challenging in the sense that it's not fun, and it takes a lot of time. And while almost anyone could do it, I find that most will avoid it at all costs. Yet it's a quality that's invaluable to building a successful business.

What I'm talking about here are the relatively simple deliverables that any big idea breaks down into. Usually people are excited to sit down for an hour and brainstorm solutions. This is often the most fun part of any task - tackling a problem from a very high level, without any limitations on the feasibility of suggestions or the difficulty of implementation. I like to call this the "talking heads" phase, as people seem to appear out of nowhere to voice an opinion and show off their creative prowess. Once the big ideas are whittled down to the few that actually make sense though, and the project actually needs to get done, it can be pretty hard to find volunteers. This is unfortunate, as at the end of the day, the "getting done" part is what actually adds value.

This has been true at all companies I've been at, whether big or small. In one great example, a firm was initiating a major technological overhaul of its operations in an attempt to decrease the costs of serving its customers. At the onset, there were a million ideas, from a customized user portal with online account management to novel new forms of online services, like live chat and social media. The whole company was abuzz with thoughts on how to change the future. It was fun, it was inspiring, butit was unfortunately very very difficult to implement.

What needed to happen next was the development of a business case for every one of those ideas. This meant interviews with key stakeholders and experts, market research, informational sessions with suppliers, and a million other steps that goes into requirement building and total cost estimations. On the revenue side, there needed to be a full market sizing and customer profiling. The grit and grind of project management.

But no one wanted to do this. Everyone just wanted to get started with their own big next idea. It wasn't that they weren't capable, or that there weren't enough resources. It was that the work was a boring, slogging grind. Plus, when you look closely enough at something, it usually never looks as good as it did in your mind. So rather than hammer out the requirements, everyone just, well, started buying new stuff.

10 months later, and the project was 300% over budget, and a large number of the initial ideas were determined to be non-crucial to the project.

What's fascinating is that this was nothing more than a question of will. Not wits, not creativity, not natural talent. Pure unadulterated will. Whether it's your own pet project or a $300m overhaul, the ability to fight through the hard stuff can be the difference between success and failure.

If you have the determination to execute on an idea, no matter what your natural ability, you can be invaluable to your company.