We Are Nowhere Near Bottom

Lots of housing data has come out lately, some of it is actually kind of positive.  Home sales were actually up this past month and the rate of price drops is slowing.  Hooray!

Not so fast.  I have no idea why anyone would honestly think that we are anywhere near a housing bottom.  We are at least a year if not more away from reaching a point where housing price declines reverse direction.  How do I know this?

• Just down the street from me there are some newly constructed 2 bedroom 2.5 bath townhomes. They were put on sale for around $500K.  They are not worth anywhere near that much money.  My girlfriend and I have joked ever since we saw it being constructed that they would never find anybody to buy at those prices.  Just today, I saw that they put up "For Rent" signs on these properties.  Clearly, no interest in these units.


• Prices just are not reasonable yet.  I picked up a real estate magazine to just see what prices are like around the area.  I also go to Redfin pretty often.  There are no decent homes available in the area for anything less than $600,000.  Still don't know how the average family is going to be able to afford that much especially given the current credit market.


• Economy is going to get worse, not better, in the short term.  Gas prices and inflation still haven't totally been translated to business problems.  They will soon.  This next quarter earnings announcement will just be the beginning of bad news.  Consumers are just now adjusting to higher gas prices and not being able to use their home equity as a piggy bank.

Every bust has a dead-cat bounce.  People who have been sitting on the sidelines suddenly see these new "deals" and come in.  However, this is only false demand.  Eventually fundamentals HAVE to catch up.  And there is no way that an average family in my area can afford a $600,000 house.

Don't Buy The Rally

Stocks rallied today boosted mostly by the positive new on GDP and the job number.  I don't have any faith in this rally.  I look around, and I see weakness all over the place.  I see weakness at work, hence the layoffs, and I work in a market segment that should be ahead of the economy.  I see weakness when I just pay attention to the things around me like people talking about how they are struggling, rising prices, or people I know out of a job.

I am still circling, trying to figure out how to deploy my cash that is sitting on the sidelines.  I am looking closely at the financials, which have rallied very strongly over the last and have made me less interested.  I even would like to look at a few select retailers.  Expectations in these two sectors are quite low, so there might only be upside.  However, I do believe that the worse for the economy is only ahead of us.

The housing market still has a ways to go down from here.  I look around where I live, Southern California, which is supposed to be the epicenter of the housing crash.  I still don't buy at these levels.  I've seen houses still trying to sell for MORE money then they sold just two years ago.  I have a strong desire to buy, the capital, and the income to be able to buy, and I still have no plans on buying.

Finding Good Interviewers Is Hard

Most people probably think going to an interview is hard.  For me, this has never been the case.  I've always been able to do well in interviews thanks to the fact I stick to my basic interview tips.

But the thing I'm finding to be very difficult is to find good interviewers.   I think most people are worse at being the interviewer than being on the other side of the desk.  What types of problems do I find?

• Not going to the interview prepared


• Not asking relevant questions


• Not reading the job description


• Having no goal in mind on what they want to discover about the candidate


• Being non-committal in their feedback (not able to give a strong hire or no hire)

I think the problem for most people is that most people are never trained in how to give a good interview.  People are just told to go to the interview and ask questions.  So they ask questions that are not very good or or so general that they provide very little value.  Questions like, "Are you a good listener?"  How is the candidate going to answer anything but "Yes!" to that?

I'm not saying everyone has to be a great interview.  People just should not be put in that situation if they are not prepared for it.  I blame the company more than I do the people giving these bad interviews.  What do you think? If you interview people, did you ever get any training?  If not, how did you learn to give interviews?

Sharing Meals

I try and find lots of ways to save money.  Some of them are pretty aggressive and probably unnecessary, like waiting five years to buy the the new HDTV.  Some of them are actually quite easy.  The simplest one I do is to share meals with my girlfriend whenever we go out.

It actually started really early for us, on our first date.  Funny enough, it was one of the things that attracted me to my girlfriend.  Not because she wanted to save money by sharing food (I'm not that cheap :)) but because I loved how comfortable she already was with me on our very first date.  Anyway, ever since our first date, we have made it a point to almost never order two entrees whenever we go out to a restauarant.

At first, I admit I felt a little guilty.  I didn't want to "cheat" the restauarant out of business by not ordering two meals.  I soon got over it.   I just had to look at it the other way.  Most restaurants give you WAY TOO MUCH food.  These meals can easily feed two people.  What was worse?  For me to "waste" money by buying food I didn't want, or for me to waste food by ordering something I wouldn't eat?   You just have to channel your mother telling you about the starving children in Africa.

This ends up being fantastic for two reasons.  Not only do I save money, but I end up not over-eating which has benefits all by itself.  As I've gotten older, I definitely can't eat like Michael Phelps anymore, so sharing the food ends up acting as portion control for me.  Just the other day, my girlfriend and I shared a hot dog and Coke at Costco.  Total cost $1.50.  That's crazy cheap for a meal for two.  Better yet, it prevented me from eating too much of something I really shouldn't be eating in the first place.  And the thing was, I wasn't hungry after eating my half of the hot dog.  I wasn't full either, but I find that I often only need to graze a little here and there to feel satieted for the day.

What do you think?  Is this a good idea, or am I just being cheap?

Ways to Spend Money Other Than on a Wedding

I was watching My Big Fat Greek Wedding on TV today with my girlfriend.  We have often talked about what we will eventually do when we get married.  None of the ideas involve having any sort of big standard wedding that we so often go to and that was depicted in the movie.  The money for the wedding will definitely be coming out of our own pockets, since neither of our families has the money for a big wedding anyway, and neither of us think the expense matches what you get out of it.

Instead, we will find some other way to spend the money.  The average cost of a wedding in the United States is around $30,000.  That's a lot of money.  When you factor in that a lot of people probably spend close to $0 on their wedding, what the heck are all the other people spending?  Weddings get expensive.  Weddings are stressful.  Weddings are hectic.  Weddings are not about the Bride and the Groom.  So to avoid all of that, we will probably take off and get married in Italy and start on our honeymoon.  So what will we do with the money?  Some ideas

• Spend more on the Honeymoon than we probably would have otherwise.  We will probably go longer, see more, and stay at nicer places than if we spent the money on the wedding


• Put it towards the house (if we don't already have one)


• Have a kick ass party for our friends when we get back

Any other ideas?

The Little Book That Builds Wealth

I'm trying to get back into the swing of reading. Of course, I naturally gravitate toward financial investment books.  As I've posted before in my blog about the best investment books to read, the best books are those you will actually pick up and finish.  I've been hard for time lately, so I decided to pick up another book in "The Little Book" series.

This time, I picked up The Little Book That Builds Wealth by Pat Dorsey.   You will notice that this is the same Pat Dorsey who wrote another one of my recommendations, The Five Rules for Successful Stock Investing.  I like his style of writing, even though some might find it dry.  I find it to be easily understandable for even the average person with little investing background.

The book focuses on the concepts of economic moats.   It is a concept used heavily by the likes of Warren Buffet as well as the company Pat Dorsey works for, Morningstar.  The idea is simple.  Those companies that have sustainable and strong competitive advantages, will in the end be worth more money than those that don't have such advantages.  Despite the rather simple concept, the book does spend some time trying to convince the reader why the concept is important.  It actually is something that needs to be explained, because it is a rule often ignored by so many (myself included).

For me personally, the most useful thing was not how to think about companies that I am looking to invest in.  It was most useful to me as a way to think about my own company.  It got be thinking about the industry I am in as well as my company's position in it.  The book made me think about ways I can help my company create a lasting economic moat or if it was a waste of time to even try given my industry's dynamic.  I actually recommend it highly to anyone who has major influence in a company and is looking to jump start ideas on how to create strong competitive advantages.

So overall I recommend the book.  Probably because it fits in so nicely with my own investment style.  Just take a look at my Shopping List (which I know needs to be slightly updated) .  Almost every single one of those picks are a wide moat company.  All of them were picked before I ever read this book.    Great minds just think alike.

Dealing with Layoffs

Before you freak out that I lost my job, I haven't.  My company however did just have a round of layoffs.  I've been part of a company that was a slowly sinking ships and went through many rounds of layoffs, so this is no big deal for me.  In fact, I'm not at all worried about my own job or the financial health of the company.  Perhaps that just comes with having seen much worse happen.

It is funny how companies react to layoffs.  There are many concerns that companies go through.  One of the toughest is dealing with those left behind.   You have to deal both with survivor's guilt and with survivors jumping ship.  Survivor's guilt is the reaction of those who are left behind.  There is a natural tendency to be sad for those who didn't make it but relieved that you were not affected.  This can actually have a singnificant psychological effect and hinder employees ability to work.

The second problem is a significant one.  People don't like being part of sinking ships.  Those that are most talented, and thus the least you can afford to lose, tend to start looking around for another job.  Dealing with this situation is extremely tricky and I'm not sure if there is a right way to do it.  Most companies will try to get employees to focus on the positives and start talking about all the initiatives that will bring the company back to the growth curve.  However, this can often feel like a sell job and smart people really don't like being "sold" to.

I believe the best way to handle this is to be short and breif.  Acklowledge the difficult situation, but then let each person deal with it in their own manner.  In these types of situation, there is often time a grasping for the right thing to say.  But therein lies the problem.  There really is no right thing to say.

Lucky for my company, I still have no plans to leave.  I actually don't mind dealing with difficult situations like this.  Sure, there is greater risk that I might someday lose my job and the company goes under.  But with greater risk comes greater rewards.  It's kind of like value investing.   The best time to get into a company is often when it is at it's lowest point so long as there is not a structural problem.  In such a situation, the only direction is up, and if you can be part of that, the rewards can be good.  It's probably one of the reasons I consider myself more a value investor than anything else.  It may also explain why I'm starting to think the market looks good in places given it has been so beat up in the last few weeks.

What Would You Be Doing If You Had Lots of Money

I was in a training class today, and we had to answer two questions as a means to introduce ourselves.

1. What did you want to be when you grew up  (NBA Baskeball Player, Astronaut)


2. What would you be doing now if you had all the money you wanted.

My answer was relatively boring.  I honestly don't think I would be doing things much differently.  I might be doing it with more style, but I think I would still be doing what I'm basically doing, leading technology teams.  I love working in technology.  I love the challenge of trying to solve a complex problem.  I love the strategy of trying to put together a winning formula of business and technology.  Now if I had all the money I wanted, I'm sure I would be running my own company rather than being a little bit further down the chain that I currently am (although I'm closer to the top, my boss' boss is the owner/founder, than I have ever been) but I would fundamentally still be doing what I'm doing now.

I also would probably be driving a nicer car, and probably writing this from the Bahamas in my yacht, but I honestly don't know if I would choose to do too much differently.  Perhaps I'm just one of the very few lucky people out there.  How about you, what would you be doing if money wasn't an issue?

My Strengths

I took a self-assessment at work the other day.  It was based on a book called Stregthsfinder 2.0.  The theory behind this book is that we often focus too much on our weaknesses.  The way we try to improve and get ahead is by working on your weaknesses until the are no longer your weakness rather than focusing on what we are good at and using that to our advantage and getting ahead.  It is a philosophy that I actually share and so I was interested to see what it would say are my strengths.

If you buy the book, you can take an online test to determine what your strengths are.  They ask you a lot of questions, and you are supposed to say whether you agree with one more than the other.  It was somewhat difficult because a lot of the comparisons were relatively close in meaning, but you had to try and pick one.  After taking the test, you are given five strengths.  These strengths are supposed to describe what you are good at and what you are interested in, and gives you a course of action to utilize this information in you work.  My results are as follows.

• Strategic - People who are especially talented in the Strategic theme create alternative ways to proceed. Faced with any given scenario, they can quickly spot the relevant patterns and issues.


• Significance - People who are especially talented in the Significance theme want to be very important in the eyes of others. They are independent and want to be recognized.


• Competition - People who are especially talented in the Competition theme measure their progress against the
  performance of others. They strive to win first place and revel in contests.


• Individualization - People who are especially talented in the Individualization theme are intrigued with the unique qualities of each person. They have a gift for figuring out how people who are different can work together productively.


• Futuristic  - People who are especially talented in the Futuristic theme are inspired by the future and what could be. They inspire others with their visions of the future.

For the most part, I agree with the results. I actually don't think I'm as competitive as I used to be, I had to win at EVERYTHING growing up, but it is still definitely part of my personality. But overall, it is pretty good. It does tell me that I'm probably in almost the right job, but not quite the perfect job.  My job, right now, tends to be a lot more tactical in nature and present focused rather than on the future.

So for those of you who know me, how close do you think this is?  Is it an accurate description of the type of strengths I exhibit?

What Type of Investor are You?

I've been out of the stock game a little longer than I have wanted to be due to competing priorities.  However, I've finally been able to put a lot of that under control and I am now looking around trying to figure out what I'm going to buy.  The hiatus I took was probably a good thing.  The market has been ugly for most investors.  Not only has it gone significantly down, but it is extremely volitile with up 2% days followed by down 3% days.  It's almost impossible to buy something and not feel a little uneasy.

Given the fact that I need to warm back up, I've given a lot of thought to the type of investor I am and the type I want to be.   At it's simplest level, most people probably fall into one of three categories.

1.  Index investor - This is the simplest type of investing and the one most appropriate for the majority of people.  The strategy is simple.  You don't have time to figure out which stocks to buy, so you buy them all.  It used to be that the best way to do this was to buy an index mutual fund that tracked the market.  The best of these were from the Vanguard Group founded by the index investor guru, John Bogle.  You can now do this almost as easily through various ETFs like the SPY which track the market but work like stocks.


2. Growth Investor - This is the type of investing most people think about when they think about getting rich with stocks.  Can you find the next Wal-Mart,  Microsoft, or Starbucks before anyone else?  This is the category of stocks with the most explosive upside potential.  You can find stocks that have returned 100x or even 1000x for their investors.  If you find one of these, you can be set for life.  This is the investment strategy of such notables as T. Rowe Price and Phil Fisher.  However, there is a catch.  Growth stocks, for all their explosive upside, also have explosive downside.   Sooner or later, too many people pile into a stock.  Eventually, the bottom falls out, and it is a free fall for these stocks.  If you get in at the top and don't get out fast enough, you are screwed.


3. Value Investor -  Who wouldn't want to pay $0.20 for a $1 bill?  This is the philosophy behind value investing.  Sounds easy right?  It isn't.  It is perhaps the hardest way to invest.  Why?  It's against human nature.  Buy low and sell high sounds easy in practice, but when the stock is running in the opposite direction you want it to, human nature makes you do things that don't make logical sense.  People like Warren Buffet make it look easy.  History has even shown that value investors outperform growth investors.  But its hard.  Take now for example.  Nobody wants to buy financials.  People are avoiding it like the plauge, and for good reason.  While they are beaten down, they can easily go further.  Worse, a lot of these companies will go to $0, wiping out your total investment.  But if you have the courage, and can find the right stock, the returns can be fantastic.

Now, I've liked to think of myself as a Value investor who occasionally looks for growth.  So far, my track record hasn't been the best.  In any case, I'm probably going to do a little bit of all three.  I recognize now that I don't spend the time I should pouring over the stocks like I should before I buy.  If I attempt to trade in this environment, I will get crushed, no doubt about that.  So for now, I'll probably look to play some ETFs and try and play the market.  Market still has a ways to go down, I have no doubt about that.  But picking bottoms is very hard, so it might be best to just pick a buying point and go in.

Giving a Compliment on Your Own Work

My organization is going through a very important change recently.  It was decided that the hiring practices for the technology organization were poor to say the least.  We did not have uniform job descriptions and the interviewing techniques left something to be desired.

I've been one of the people tapped to help bring us up to standard when it comes to these deficiencies.  I've had a lot of experience at other bigger companies and am considered the expert at my company in my specific dicipline (since I'm the only one here with my job).  I've been working with a consultant to come up with a job title and core competencies for my discipline.  I've also worked with her to come up with a list of standard interview questions that can be used by others so they know the types of questions they may want to ask when evaluating things like leadership, empathy, and dealing with ambiguity.

She sent me a list of questions to review and set up a meeting for us to discuss.  In the meeting, she asked me for my feedback on the questions.  I replied, "They are good.   In fact some of them are really good.  I think you did an excellent job coming up with questions that really get to the heart of the matter.  It's not easy coming up with quality behavioral interview questions."

It turned out that she based most of the questions on a list of interview questions that I sent her.  It was a list of interview questions that I personally used when evaluating candidates.  So in essense, I basically gave myself a pat on the back.

Listening to Others on the Job

I did something unusual for me, but I think it is something I'm growing into.  I was prepared to make an offer to a job candidate.  This job candidate had come in and done fine on all the questions I had asked and I believed the candidate was qualified to do the job.  However, other interviewers in the interview in the loop had mixed reviews.  Some were rather lukewarm on the candidate.  Some of this is no doubt due to the fact that some people on the interview loop can be quite hard to get a passing mark. However, I am one of those people who believe you have to make your own judgments about these things because you are, in the end, the person ultimately responsible.

After a lot of thinking, and  despite my own judgment, I passed on the candidate.   In the end, it came down to this.  It is a very important position and I need someone who is going to be a superstar in it.  Even if I think this person has the potential, I need other people to see it as well.  If a person doesn't shine with half the people they talk to, can they really be considered a superstar?  It is much harder to get rid of someone than it is to never hire the person in the first place, and making the wrong hire can damage an entire team.  So I erred on the side of caution despite the urgent need for the position to be filled.

So when is it a good idea to go against your own judgment and rely on the advice of others?  How can you ever know that this is what you should do?

Windfall Taxes and Stimulus Checks

I have voted in three elections.  Each time, I've voted for a Democrat.  This time, I really want to vote Democratic because I'm not a huge fan of McCain.  But boy is Barack Obama going to make it hard for me to vote for him.  His latest plan is to impose a "windfall" tax on big oil companies and use that as a means to pay for another stimulus check is just too much for the economist in me.   This plan calls for

Forcing big oil companies to take a reasonable share of their record breaking windfall
profits and use it to help struggling families with direct relief worth $500 for an
individual and $1,000 for a married couple. The relief would be delivered as quickly as
possible to help families cope with the rising price of gasoline, food and other necessities.
The rebates would be fully paid for with five years of a windfall profits tax on record oil
company profits. This relief would be a down payment on Obama’s long-term plan to
provide middle-class families with at least $1000 per year in permanent tax relief.

Let's just examine the very first sentence.   What on earth is a reasonable share?  How is this determined?  Don't these companies already pay a "reasonable" share to the government? Before I go further, quickly think in your mind what you think might be a reasonable share.  Reasonable to me is something that is small yet relatively harmless.  Something someone probably won't even miss if you take it.

So, given that lets look into this.  Corporate tax rates are 35% at the highest bracket.  So every dollar on the margin, oil companies are paying 35% of that to the government.  This is already the case TODAY.  So how much more is reasonable?  is 50% reasonable?  How about 60%?  Is it reasonable to change the rules of the game after the fact by requiring only certain companies to pay for money they have already made?

Now lets talk about the next part of the sentence,  "their record breaking windfall profits".   There is no denying it, Exxon Mobile certainly made a lot of money this past quarter.  They recorded over $11 Billion dollars in profit.  Is this the new benchmark?  Are we saying that there is a limit to how much money any one company can make?  I like rules that are consistent so that people know how to play the game.  Just taxing people because they make lots of money bothers me if they don't make the rules up front first.  So can we agree that any company that starts making this much money gets taxed at an obcenely high rate?  Is this even the right measure?  Why don't we tax Google while we are at it?  Do you realize their profit margin is almost 30%?  Compare this to Exxon Mobil's 10%, and Google looks outright obscene.  Shouldn't we tax Google too since they are doing so well?

But lets forget all of this.  Let's just focus on the plan itself.  Does it make economic sense?  No, it doesn't.  I've written before how the incidence of the tax is not at all related to who actually pays the tax.  This is true in this case.  Just because you levy a tax on Big Oil doesn't mean the oil companies are the ones hurt.  In fact, it is very likely they can pass this cost right back to the consumer in the form of higher gas prices.  We already know that people are willing to spend a lot of money on gas, and raising the price doesn't really seem to affect consumer behavior in commesurate levels.

OK, but it makes a little sense right? No, it doesn't.  Basic Econ 101 principle.  Supply and Demand.  Decrease supply or increase demand, and prices go up.  It works in reverse too.  Increase the price, and supply goes up and demand goes down.  So let's just look at what this plan would do.  First, it would tax the supply, thus reducing the profit of the big oil companies.  Putting a tax on supply causes the supply of that good to go down becasue the supplier has less incentive to produce more goods.  So we know supply will go down.  Now you take that money, and you give it to consumers.  They use it, like the plan states, to offset the cost of higher oil.  You are in fact now increasing demand for the good because instead of cutting back like they would have had to, consumers are now able to buy buy the gas they would not have otherwise been able to.  So we have now established that demand will increase.

So draw this on a supply and demand curve.   Supply goes down, demand goes up.  What do you get?  You get higher prices!  So explain to me again, how is this going to help me?  This is such a poorly thought out plan, I seriously don't know if I can get over it and vote for Barack Obama.  Since I don't know if I can vote for McCain, who the hell am I going to vote for?