tag:blogger.com,1999:blog-83293279172934442622024-03-16T02:16:22.974-07:00Someday Extraordinary . . .A hardnosed, in depth, and realistic look into the intricacies of success.-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.comBlogger41125tag:blogger.com,1999:blog-8329327917293444262.post-42667061125996924922019-08-16T20:08:00.000-07:002019-08-16T20:08:49.493-07:00Musings on Buying Businesses and Real EstateI've been an official business owner for about 2 years now and, wow!, have I learned a ton. My plan had been to buy businesses passively and let good managers run them well. Sometimes this seems to work and sometimes I find myself more involved than I ever imagined. I came up with this concept of buying businesses through my never ending study of Warren Buffett and his strategies in conjunction with a little research into private equity. I mean, those guys make a ton, so why can't I do the same, starting on a smaller scale??? <br />
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I'm a 42.5% owner in a moving and storage business, a 50% owner in a mixed use commercial/residential property, and a 51% owner of a <a href="http://www.coltschocolates.com/" target="_blank">chocolate company</a> in Nashville. I still believe this is the way to wealth, along with some solid investments in public companies along the way. My thoughts are, if these businesses can start kicking off excessive cash, that cash can either be reinvested back into the company if high return opportunities exist or the cash can be withdrawn and invested into public companies at decent rates of return. Over time, I would imagine this strategy would work out profitably.<br />
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So here are some musings on what I've learned so far:<br />
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I'm not a big fan of real estate. It's just a different game and seems to be a constant struggle to find good tenants. This, in my mind, defeats the purpose of passively investing in it. You can hire a company to manage the property, and they take 7% or more of your monthly income, which eats pretty quickly into your investment. Over time, real estate appears to under perform the stock market anyway. There's a game here where you can make a ton of money (just ask our POTUS!), but it's not for me. I don't enjoy it and it lacks excitement. And, most of all, I can imagine going into old age getting bored and tired of the same old.<br />
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I've also learned debt isn't always terrible, but it is usually bad. We've taken out a number of loans to keep our businesses afloat, including when purchasing the businesses. These loans handicap the businesses and the individuals involved. I agree, not all debt is bad, but if possible to pay cash, I'd highly recommend it. There's good debt and bad debt, as we all know, and we've taken out both. If you can borrow money at 6% and invest it at 20%, you've got a pretty good deal on your hands. But if things turn, you're still stuck paying this 6%, while possibly not being able to invest that money at a higher rate. In fact, you may be put in a scenario where you're forced to take out money at 20%-30% just to stay afloat. Good luck investing that profitably . . . but sometimes you've gotta do what you gotta do. If you can use cash and invest at that 20%, you're in good shape. <br />
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Also, I agree with Buffett (as usual) that good managers make the business. We've got an outstanding manager, who holds ownership, in the chocolate company. I've never met anyone who works as hard as she does and we simply lucked upon her. The company would be dead in the water if we didn't have the right person in charge. We've got a really hard worker and driven operator at the moving and storage business. He is a straight shooter and is decisive and I like him, as well. We knew him prior, but we still were lucky to convince him to run the operation.<br />
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On that note, I think more and more that it is important to surround yourself with people who make you better and leave less and less time for those who don't. I find that some people are fun, but I leave hanging out with them disappointed and unfulfilled. You don't gain anything from the time spent. Others, you want to keep talking with all night because you can almost feel yourself growing intellectually. You leave inspired. I think one of the goals in life is to make more time for those people. I'm not saying that you shouldn't hang out with the fun crowd every now and then to blow off steam, but I think you need to prioritize who you choose to spend your time with.<br />
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Those are the big generalizations at the moment. For me, if these investments don't pan out and I have to go back to the dreaded corporate world, I'll surely be disappointed but I'll be glad I tried something different that I truly enjoy. -DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com10tag:blogger.com,1999:blog-8329327917293444262.post-41176683129939054642019-08-14T19:06:00.000-07:002019-08-14T19:06:49.064-07:00Replicating Buffett<div style="text-align: left;">
<a href="https://content.thriveglobal.com/wp-content/uploads/2019/08/GettyImages-849890606.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img alt="Image result for warren buffett" border="0" height="222" src="https://content.thriveglobal.com/wp-content/uploads/2019/08/GettyImages-849890606.jpg" width="320" /></a>I've often wondered why Warren Buffett's formula for building wealth is so hard to replicate. I think a few things are at play that prevent the average investor from obtaining the sorts of returns Buffett has throughout his career:</div>
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Fear of uncertain outcomes<br />
A misunderstanding of Buffett's entire approach<br />
The wrong mindset and temperament<br />
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<b>Fear of uncertain outcomes: </b> Even though Buffett's approach to investing is tried and true, it's not certain that someone, following Buffett's approach to a tee, will have the same results. What if they enter the market right before a recession or crash and lose a large chunk of their net worth? Buffett has the confidence from years of experience on his side and he obviously has the means to wait out a dip in the market. In fact, these days, he looks forward to a dip. His Berkshire Hathaway has so much cash on hand right now that he'd love to put some of it to work in the market but equities have recently been out of his buying range. The hard part is waiting until the opportune time to place your bets. And even then, with a rather concentrated portfolio of your best picks, your portfolio will likely be much more volatile than Dow Jones or an index fund. Many people don't fare well with this sort of uncertainty.<br />
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This potential lack of a security net scares many potential investors off, as well, as they have families to take care of and other needs to be met. Society also tends to frown upon the guy who leaves a secure, high paying job, to pursue wealth in another venture. It appears irresponsible or greedy or lazy. However, those who do make the jump and do it properly tend to be rewarded. Read Charlie Munger's bio; he left a great career in law to pursue investing full time. <br />
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Taking the first step is also difficult. How do you know when to enter the market? This, I believe, can't be learned from the sidelines, but must be obtained from experience. But taking the first step in anything is difficult. We often don't embrace change, but change is necessary.<br />
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<b>A misunderstanding of Buffett's entire approach:</b> Many hear Buffett's name and think, "stock market genius". In reality, Buffett has many more layers than his stock picking prowess. He prefers to buy entire private businesses rather than parts of large companies via public trading. He also suggests avoiding excessive debt, but if you understand his approach, he uses significant amounts of borrowed money (insurance "float") to invest in other businesses. His debt is cheap or possibly free; "float" is the money his insurance companies collect as premiums that he can invest until a claim is placed and some money must be paid out to settle the claim. Therefore, if his insurance underwriting team writes profitable policies, the premiums he collects less the administrative expenses becomes additional profit that he can invest. He's basically being paid to borrow money! It's brilliant!<br />
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While Buffett's stock market record is absolutely incredible, he never would have been able to take advantage of Mr. Market to the extent that he has, had he not bought privately held businesses that kick off significant cash and provide investable income via insurance float. <b>This is why I believe there is only one Warren Buffett. </b>Buying a business is daunting. I know that from experience. And it takes a number of years for many businesses to reach their full potential or even turn a profit. This is such an important, yet under appreciated, aspect of Buffett's approach. I would venture to say that those who study Buffett's philosophy and follow his advice, rarely buy businesses. They are missing a key ingredient in duplicating Buffett's success. Others have had success in the market like Buffett. Read his, "The Superinvestors of Graham and Doddsville" article for evidence. But the magnitude of his accomplishments was made possible by the cash kicked off from his private businesses.<br />
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<b>The wrong mindset and temperament: </b>Buffett also ENJOYS the extreme long game, not because he has to, but it's simply his mindset. He wants to be able to sleep at night stress free; a portfolio manager doesn't have that luxury. Professional money managers can't touch Buffett because they need to keep up, year after year, with their colleagues and competitors. A portfolio manager can't tell his boss to give him 5 years before reviewing his performance. Buffett never had to answer to anyone but himself and his partners - and his partners had full faith in him. <br />
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Individual investors are in the same boat. They can't handle the ups and downs of the market and so they end up selling out at the wrong time. They don't focus on the long game. They don't have the confidence that things will work out.<br />
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Buffett is truly one of a kind and the goal doesn't need to be to attain greater wealth than him. If one can accomplish a tenth of what he has accomplished, they will find themselves very well off. To do that, you need to be comfortable with the uncertainty, understand the Oracle's entire approach, and keep a level head with a proper mindset.<br />
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<br />-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com7tag:blogger.com,1999:blog-8329327917293444262.post-77959201073449686262018-12-07T20:53:00.000-08:002018-12-07T20:53:17.770-08:00Winning or Losing by Saving???A few weeks ago, I came across this Instagram post from CNBC on a Grant Cardone quote. <br />
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<b>"You can skip spending $5 at Starbucks every day and save $10,000 over the next 5 years, but if you think $10,000 is going to change your life, you're not just broke, you're being stupid." - Grant Cardone</b></div>
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This thought has crossed my mind a number of times, especially after reading so many blogs on penny pinching. The argument against this is that it is a mindset. If you skip that $5 Starbucks every day, then you stop yourself from buying into that materialistic mindset - it's not just a cafe latte, it's a new Benz every 2 or 3 years. I get that. And you have to ask, "Where do you draw the line?" Maybe $10,000 won't make a huge difference in your life, but would an extra $50,000.</div>
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At the core, this has to come down to why a person partakes in a certain action. I buy Starbucks because I thoroughly enjoy coffee. I don't buy it every day, but if I feel like a caramel macchiato, I honestly have more second thoughts about the calorie intake than I do about my pocketbook. A Tesla Model X? I think it's simply a status symbol. I don't think I gain $50k more comfort out of driving one than I do my Grand Cherokee. I think that is the difference. </div>
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Warren Buffett buys himself a McDonald's breakfast for $3.17 or less every morning. While he is known to be frugal, he does so because it fits his lifestyle. He doesn't want more houses because he doesn't want more to maintain. That's how he lives. He could easily pare down his breakfast costs by purchasing Chex at the grocery store, but that's not what it's about. He was always more about capital growth via wise investments than saving a few extra bucks each year in hopes of retiring early.</div>
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And that's where I think so many people, young and old, have it wrong. I honestly believe the mindset this day and age is backwards. With people living longer and the cost of health care being astronomical, I think saving your way to retirement is a ridiculous concept. And that's true whether you're looking to retire early or you're counting down the years until you finish working a job you've held for 45 years. The point is, you better have one or more additional streams of income. </div>
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I wholeheartedly agree with Cardone. That $10,000 that you'd save over 5 years may be $80,000 over 40 years, but the argument remains. $80k isn't much over a working career. It's less than many make over the course of a year. Forget skipping that Starbucks - just work one more year and you're break even or maybe a bit ahead! </div>
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I think what Cardone is getting at by claiming those who abide by this rule are "stupid", is that you're looking at the world backwards. Spend your time looking for opportunities to grow your capital instead of clipping coupons. You'll come out WAY ahead!</div>
-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com10tag:blogger.com,1999:blog-8329327917293444262.post-80813216278412571612018-12-04T19:30:00.000-08:002018-12-04T19:30:52.665-08:00FIRE(D)!!!<div class="separator" style="clear: both; text-align: left;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqWJ90KkLiFnSSoHuypfFRRjDr36juzhFp_F0ucee3BQQ7srYH-vlYMSHYSNrsToIqeqOfEJ5AlClfYiv_fwHAXnd-iKDQwpMi_4YaxpqkzJEWe2PmXvMuCH5hBtkdPkChWqmRn3vURfKw/s1600/ef8e4fedc31404dbcf8de381dced16ef.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="550" data-original-width="467" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqWJ90KkLiFnSSoHuypfFRRjDr36juzhFp_F0ucee3BQQ7srYH-vlYMSHYSNrsToIqeqOfEJ5AlClfYiv_fwHAXnd-iKDQwpMi_4YaxpqkzJEWe2PmXvMuCH5hBtkdPkChWqmRn3vURfKw/s320/ef8e4fedc31404dbcf8de381dced16ef.jpg" width="271" /></a></div>
FIRE(D) - Financial Independence Retire Early (by Default???). So, I had planned on being out of the corporate workforce within two years to concentrate on my investments, property, and businesses. Well, that plan was just accelerated after I was let go from my position this past Friday, 11/30/2018, due to downsizing. So now, Decision Day approaches. Now, the fun begins . . .<br />
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Throw out every cliche, "When one door closes, another door opens", "It's not the end, it's the beginning", "Don't look back, look forward", etc., etc., etc. All motivational, but when you're faced with life altering decisions, words do little in the way of influencing your thought process. Pencil to paper, running the calculation over and over . . . can you make ends meet? The numbers can be massaged any way you want and you end up with a huge range of possibilities for the outcome. <br />
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The dilemma? If you miss your mark, you may not be back to square one, but you've definitely set yourself back a bit. You end up searching for a job back in corporate America, with a chunk of your savings eaten through. However, you gain invaluable experience. On the other hand, if things come together, you're home free - and two years before you had planned!!! Seems like a gamble I might be willing to take, but the big "if" is that "if" I end up back in corporate America at some point, man, it'll be devastating - not only to my bank account but also to my psyche and ego - and tough to bounce back from.<br />
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You can never time your life events perfectly in these situations, but I would have liked to have been a little closer than 2 years out from my intended target. The problem now is that my plan is in place, but if a few major things go wrong, the plan goes out the door. The contingency dries up and now your faced with a gap in employment, making the possibility of future employment just that much more difficult, if it becomes necessary.<br />
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I've bought two businesses and an investment property over the last couple of years. The property is being renovated, with it already cash flowing with the two commercial spaces leased, but with the four residential units under renovation. It'll be a cash cow, but still a couple of months out. The moving and storage business in California is coming out of the toughest year I think we'll face and we've made moves to improve business. The chocolate company in Nashville is taking off, but like the moving company, remains unproven.<br />
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My funds should take us through 2019. But then what? Will the businesses be doing well enough to support our lifestyle? The chocolate company could be huge and could far exceed expectations, with little chance of catastrophic failure. The property will kick off some cash, but not enough to be a salary replacement. It'll be a month by month decision.<br />
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And so, I'm faced with one of those rare life defining events that you simply CAN'T get wrong. Not in the sense that you have to make the absolute best decision, but in the sense that whatever decision you do make, there's not looking back. You HAVE to make it right. You can't spend any time dwelling on what could have been or else doubt creeps in which is the beginning of the end. <br />
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These decisions can't be avoided. They need to be faced. They define lives. The easy way out is to look for another job. It's secure and it might be smart, but it also prolongs the inevitable. Will you ever be ready to make that final jump? Maybe, maybe not - at least without a little push off the edge.<br />
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And so, the fun begins . . .-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com0tag:blogger.com,1999:blog-8329327917293444262.post-65595991806236113902018-11-19T12:21:00.003-08:002018-12-04T13:40:41.653-08:00Well, that was a quick 2.5 years . . . After a 2.5 year hiatus - and I'm not really sure if that was intentional or not - I decided it was time to post an update. Wow, a lot has happened with a few trips around the sun! Looking through past posts, I have mixed feelings. I can honestly say I'm proud of how much I've stayed the course, even without writing this blog to help keep me in line. However, I also remember why I think I stopped writing for a while. I think I wanted more out of my writing and I gave up trying to get there. That lack of fulfillment came maybe as I ran low on interesting material that I was passionate about writing or maybe as I felt my time was better spent on productive activities such as reading or researching ideas, rather than writing about dreams. Anyhow, I guess I got the bug again . . .<br />
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I had posted this on <a href="http://www.somedayextraordinary.com/2015/06/personal-goals-ultimate-tangible-and.html" target="_blank">June 23, 2015</a>:<br />
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My Goals:<br />
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<strong>SUCCESS = FREEDOM</strong><br />
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1) No regrets<br />
2) Maximize time with family and ensure happiness<br />
3) <strong><u>Financial Freedom by 1/1/2020</u></strong><br />
4) <strike>Relocate family and purchase home in Chicago area.</strike> Accomplished 3/31/2015<br />
5) <strike>Purchase/Open Business</strike> Accomplished 10/1/2017<br />
6) Travel as much as possible<br />
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*Doing all of this with integrity in a way that would make God proud and with the end result of leaving this world a better place than when I entered it.<br />
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The big one there is #5, because it's the most tangible. The others are the end, while #5 is the means of getting there. Well, in October 2017, I bought a moving and storage company in California with a buddy of mine! We found an owner who had been in business for 40 years or so and was ready to retire. We took out an SBA loan, put down a chunk of cash, and made the purchase. So check that one off the list. Then, in January 2017, my same buddy and I bought a mixed use property outside of Chicago, with 4 residential units above 2 commercial units. We are currently in the process of gutting and renovating all four residential units. The financials on this one are stellar; the previous owner was just ready to sell and move on. One man's trash is another man's treasure!<br />
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THEN, just a couple of months ago right after Labor Day, two other buddies of mine and I bought a somewhat small specialty chocolate maker in Nashville. We lucked out and found the perfect girl to run the operation and the sky is the limit on this one. The business was already selling to Fresh Market, Crate & Barrel, and a number of other high profile names. The previous owner simply didn't have the means or the energy to grow it beyond what she had already done. We are ecstatic!<br />
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So, while my blog hasn't been something I've been able to fit in as much as I probably should or I'd like, I've been able to stay true to pursuing my goal of financial freedom by 1/1/2020. While stressful at times balancing my "day job" with my extracurriculars, I'm happy to be making steps towards doing what I really want to be doing. I have refused to bury my dreams and have been proactive in pursuing them, which I believe is all anyone can ask for - the opportunity to pursue their true passions. I don't know if I'll meet my 2020 goal, but at least I can say I did everything in my power to make it a reality.<br />
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So back to writing. Again, I'm not sure of the next time I'll write. It's an outlet for me and always has been. However, It is a constant mental battle of spending time writing vs. engaging in an activity that might be a higher return on investment. There's something to be said about putting your thoughts down and formulating a well thought out idea - it can be therapeutic. But there's also something to be said about knowing your true priorities and having a feel for the value you gain from engaging in different activities. After all, that's the <a href="http://www.somedayextraordinary.com/2015/01/the-problem-with-self-help.html" target="_blank">problem with self help</a>, is it not? ;)<br />
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<br />-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com0tag:blogger.com,1999:blog-8329327917293444262.post-12243179045839552712016-02-11T11:27:00.001-08:002019-08-15T21:04:23.032-07:00Using Availability to Our Advantage<div class="separator" style="clear: both; text-align: center;">
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Marco Rubio has recently been taking a lot of heat for his <a href="https://youtu.be/SdY-t4MRqxw" target="_blank">robot-like performance</a> at the most recent Republican national debate. In case you somehow missed it, he repeated a stump line verbatim four times, completely out of context, in answering the moderator's questions. Governor Chris Christie lambasted him on national television, calling Rubio out for being the robotic politician that Washington manufactures. My initial thought, besides the feeling of embarrassment for him, was: How can he not know what he is doing? Why can't he stop himself from regurgitating the same canned line? <br />
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I think it comes down to the availability heuristic. From <a href="https://en.wikipedia.org/wiki/Availability_heuristic" target="_blank">Wikipedia</a>:<br />
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The <b>availability heuristic</b> is a mental shortcut that relies on immediate examples that come to a given person's mind when evaluating a specific topic, concept, method or decision. </blockquote>
Basically, your brain takes a shortcut and tells your mouth to spew the first thing that comes to mind; that is, the idea that is currently most available in your brain. While this heuristic typically serves your brain beneficially in most every day cases - who would enjoy conversing with someone who had to put 10 minutes of thought into each carefully chosen sentence? - it has a tendency to choke under pressure. <br />
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Put yourself in Rubio's shoes - or even Rick Perry, who <a href="https://youtu.be/-YdS7HGO_Ik" target="_blank">infamously forgot</a> the third government agency he would drop in order to cut federal spending at a debate during his 2012 presidential campaign. Or, think of when your boss walks in unexpectedly and peppers you with questions on progress or schedule or budget - items that maybe you hadn't thought about yet today as your mind was focused on resolving a more technical issue currently at hand. You freeze and spout out the first thing that somewhat coherently makes sense, even if it isn't 100% accurate. You may even repeat yourself a couple of times, using your line as filler material in hopes that a more lucid thought will quickly materialize.<br />
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Daniel Kahneman and Amos Tversky discuss this phenomena at depth and provide examples of the biases created from availability in their classic 1974 paper, "<a href="http://www.amazon.com/gp/product/0521284147/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0521284147&linkCode=as2&tag=somedayextrao-20&linkId=LTX5IHLSHJFNZC2Y" target="_blank">Judgment Under Uncertainty: Heuristics and Biases</a>" (pdf. version of original article <a href="https://psiexp.ss.uci.edu/research/teaching/Tversky_Kahneman_1974.pdf" target="_blank">here</a>). One such analogy illustrates how the risks of an expedition may be significantly overvalued if those risks are vivid and come to mind easily. How many people do you know who are afraid to swim in the ocean because of the possibility of a shark attack - which, based on historical evidence, is highly unlikely to occur? For whatever reason - be it Hollywood movies or the gruesome picture we imagine in our heads - the image is vivid and easily recallable, forcing us to put much more weight on the likelihood that it will occur than it actually deserves.<br />
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And it's not just in what we say and how we react to social situations. It is also in our private actions and decisions. Take your finances, for example. Say you began to invest in 2006 or so and, since then, you casually follow the overall stock market. You take a diversified, conservative investing approach - maybe a few blue chips, but mostly Vanguard funds, as your financial advisor recommends. 2008 comes along and wipes out 40% or more of your holdings. You panic, sell out, and lick your wounds. The market continues to drop and even though you know the market has historically produced positive returns since its inception, you stay on the sidelines, missing out on the eventual massive recovery. Why? Because the only thought, the available thought, in your mind is the vivid memory of your losses. You don't care what the experts say, you're not screwing around with stocks ever again. <br />
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The availability heuristic messes with our rational thought. Economists like to believe that humans are rational thinkers, but rational thinking is not innate. Everyone knew the 2008 market was going to correct - and correct it did! Those on the sidelines missed out on enormous gains. The <em>rational</em> move would have been to dig deep and invest more. A killing would've been had. But our mind isn't innately wired to think like that - but we can train it to. <br />
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Charlie Munger in his revised "<a href="http://www.hb.org/the-psychology-of-human-misjudgment-by-charles-t-munger/#18" target="_blank">Psychology of Human Misjudgment</a>", gives this gem of advice:<br />
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The great algorithm to remember in dealing with this tendency is simple: An idea or a feat is not worth more merely because it is easily available to you. </blockquote>
If we force ourselves to undervalue the first idea that pops into our minds, we can enable ourselves to make more rational decisions. The overwhelming affect of the 2008 crash left vivid memories in investors' brains and overshadowed the last 100 years of positive performance. Similar reactions took place in those who lived through the 1930's Great Depression. Story after story can be found of gun shy businessmen, bankers, and investors. Families put their money under their mattresses or in safes where it could never again be lost in the financial markets. We need to get beyond that train of thought and force rationality into our minds.<br />
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An even more interesting strategy is to force yourself to think rationally when you have time to do so. Read the thoughts of good decision makers. Read Warren Buffett's <a href="http://www.berkshirehathaway.com/letters/letters.html" target="_blank">letters to his shareholders</a> to get a sense of how he reaches rational business decisions. They are intriguing and can be applied to personal finance as well as large scale investment decisions. Read <a href="http://www.amazon.com/gp/product/0060555661/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0060555661&linkCode=as2&tag=somedayextrao-20&linkId=M7YNHXV3G542WNL7" target="_blank">Benjamin Graham</a> to understand how to rationally value a business or <a href="http://www.amazon.com/gp/product/0374533555/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0374533555&linkCode=as2&tag=somedayextrao-20&linkId=ECUML3HRTWO5H6PP" target="_blank">Kahneman</a> to understand the biases your mind subconsciously utilizes. Rubio and Perry could learn a thing or two from these guys, like don't count on canned answers, for one. Had they been comfortable within their respective platforms and spent their mental energy on thoroughly fleshing out their political positions, they wouldn't need to bank on recalling over-used speeches that have limited upside but large downside risk.<br />
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Your brain can be wired to make rational decisions - not by being an intuitively rational thinking machine - but by trickery; use your brain's instinctive mental shortcuts to your advantage. The more rationality you constantly feed your brain (via books, education, etc.), the more subconscious, rational decisions will be automatically made. <br />
<br />-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com0tag:blogger.com,1999:blog-8329327917293444262.post-4494959235943315142015-11-24T07:13:00.000-08:002015-11-24T07:13:21.938-08:00Streamline Your Mind<div class="separator" style="clear: both; text-align: center;">
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From successful businessmen to politicians and entrepreneurs to investors, a penchant for reading seems to be a common trait existent in many of the world's top leaders. From President Obama to former NFL quarterback Fran Tarkenton, many start their days <a href="http://www.businessinsider.com/what-successful-people-read-every-morning-2015-5" target="_blank">scouring</a> the local and national newspapers and favorite blogs. <br />
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"The Week" published a wonderful <a href="http://theweek.com/articles/460783/warren-buffett-formula-how-smarter" target="_blank">article</a> in 2013 describing Warren Buffett's and Charlie Munger's reading habits. Here's an excerpt:<br />
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Warren Buffett says, "I just sit in my office and read all day." </blockquote>
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What does that mean? He estimates that he spends 80 percent of his working day reading and thinking. </blockquote>
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"You could hardly find a partnership in which two people settle on reading more hours of the day than in ours," Charlie Munger commented. </blockquote>
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When asked how to get smarter, Buffett once held up stacks of paper and said he "read 500 pages like this every day. That's how knowledge builds up, like compound interest."<br />
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The article goes on to describe how possible Buffett successor, Todd Combs, has heeded his bosses advice and reads up to a thousand pages on some days! <a name='more'></a><br />
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Mr. Munger further describes how to properly read and gain the most from your efforts, "You have to have a temperament to grab ideas and do sensible things. Most people don't grab the right ideas or don't know what to do with them." This is opposed to skimming idly through your favorite sites, with no plan to take any action.<br />
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Buffett adds that neither of them read opinion pieces; they read to gather the facts, think, and form their own ideas and opinions. <br />
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The question becomes, how do you find time to read? The key is to make it a priority - as cliché as that sounds. If you can force yourself to wake up an hour early just to read, the magic of compounding knowledge will pay dividends down the road. Half hour commute? The Rolling Stones can wait. Get an audio book from your local library. Lunch break? Bring an apple and a sandwich and plow through 15 pages of "<a href="http://www.amazon.com/gp/product/1497644895/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=1497644895&linkCode=as2&tag=somedayextrao-20&linkId=WOW6YCXYO3NOYTXT" target="_blank">Business Adventures</a>" instead of running out to Chili's and chatting to coworkers about your half point fantasy football victory. Better for your budget, better for your health, and better for your mind.<br />
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But still, we all can't realistically spend the majority of our day reading like Berkshire's executives. No matter how much of a priority we make it in our lives, we have families and day jobs and other obligations. So, we need to make the most of the time we DO have to read. <br />
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Lucky for us, we live in the age of the internet and information is at our fingertips. Unlucky for us, our fingertips often type in "Facebook" or "Twitter" in the address bar (not saying relevant news isn't broadcast over these mediums, but from my experience, they typically act as time wasters). Have the discipline to type in "Bill Gates <a href="http://www.gatesnotes.com/Books" target="_blank">reading list</a>" and pick out one of his recommended reads. Or, better yet, type in "<a href="http://www.economist.com/" target="_blank">The Economist</a>" and educate yourself on the world around you. <br />
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We all have goals that we hope to accomplish. If you're limited on time, narrow down your preferred reading to literature that will enhance your knowledge in your field of interest. If you have additional free time, randomly select a book from Mr. Gates' list - I doubt you'll be disappointed and will likely come away with a new, more worldly, perspective.<br />
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With tablets and iTunes and <a href="https://www.amazon.com/" target="_blank">Amazon</a>, we really have no excuse not to continually educate ourselves about the world around us. We can't do everything, but reading allows us to learn from others' mistakes and experiences in abbreviated fashion. When you're lying in bed at night, think about what you've read throughout the day. This is your idea time; try to pull all of the different pieces of knowledge you've accumulated throughout the day into a coherent thought and decide if any action can be taken from your newly formed theories to bring you closer to your goals. That's how you create a well-informed opinion and construct an achievable action plan. Poof! You are now better prepared for the day ahead of you tomorrow! As Mr. Munger says, "Go to bed smarter than when you woke up."-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com1tag:blogger.com,1999:blog-8329327917293444262.post-32551765347820757092015-11-19T10:15:00.003-08:002015-11-19T10:20:34.212-08:00Confirmation Bia$<div class="separator" style="clear: both; text-align: center;">
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The recent attacks in Paris, I hope we can all agree, were tragic. As the friends and relatives of the victims continue to mourn, we turn on the news every morning to updates on the search for the suspected attackers. And, in the aftermath, social media fills up with opinions on the Syrian refugees immigrating to America in search of a better life and, more importantly, peace. Fear abounds as to whether potential terrorists will use the opportunity to enter the country and plot further attacks on our own soil. <br />
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Log in to Twitter or Instagram to find yourself inundated with fiery opinions and impassioned debates of commenters either siding for or against the 31 governors who have decided to not welcome Syrian refugees into their states. 58 comment responses later and nothing has been resolved. The end result: a lot of mud-slinging, anger-fueled rage, hot tempers, and little resolution. What we DON'T have is a significant amount of level-headed, clear minded, well reasoned discussion. How does this happen every time a new hot button issue arises? How do we not improve our ability to better resolve a discussion and not take the bait some attention seeking poster hangs out there in a Facebook rant? Why, after so many of these episodes, do we still constantly let our emotions impede our reasoning?<br />
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Well, one reason might be that social media provides a platform for this type of conversation - a back-and-forth exchange where one can take time to flesh out his argument, use a thesaurus to find a bigger, more complicated word, and dial up a Wikipedia article or two to find under-scrutinized pieces of information to back his side prior to hitting "reply". But the root of the problem goes deeper than that. We are pushed to partake in these disputes because of Confirmation Bias.<br />
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Confirmation Bias can be explained as our constant search for information that only backs our point of view. We become blind to information that doesn't back our opinion, regardless of the significance or validity of the information. It creates a self-perpetuating cycle: we search for information that provides support to our argument, the information reinforces our behavior, and so, with stronger conviction than ever, we act in a manner to ensure the intended outcome is in our favor. We read through the comments section of articles and Facebook discussions and focus only on the ones that we agree with. We can't help ourselves but to jump in.<br />
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While confirmation bias is easily identifiable as it rears its ugly head in emotionally charged discussions such as the Syrian refugee crisis mentioned above, it can often affect us on a daily basis in areas that we don't even recognize. <br />
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One example would be big purchases. Say you and your spouse are discussing the purchase of a a new car. You have your eyes set on a new Chevy Silverado but she has hers on a Ford Escape Hybrid. Rarely will a commonsensical discussion ensue:<br />
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You: But we'll be able to haul firewood and I can get a load of mulch to finally landscape the back yard.<br />
Her: The Escape gets better mileage.<br />
You: We can haul our future boat with the truck.<br />
Her: We can haul our future family in the SUV.<br />
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It's like neither one of you acknowledges the other's perspective, digging deep into your brain for the next one-upper. Don't you think respectfully listening and providing feedback - on the part of both parties - would be a better use of your time? You can hash out your differences and come to a reasonable compromise. Instead, usually one partner gives up and you end up with a vehicle bought out of frustration that one person always resents.<br />
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Confirmation bias can also be extremely harmful when it comes to our financial decisions.<br />
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For example, consider the stock picking world? I recently read an article about one of Seth Klarman's cohorts at the Baupost Group who is preparing to retire. He reiterated in the article that the thing he'll miss most is working with highly intelligent, hard working coworkers on a daily basis, and stating that what sets Baupost apart from the rest was the culture of teamwork. Baupost management knew that once a stock was recommended by one of the members of the research team, it may be a good time to hand off the recommendation to another team member for follow up, as confirmation bias would prevent the originator from considering new information that contradicted his original findings. Baupost has been highly successful, likely due to the acknowledgement and recognition of this bias. Researchers at other firms are often compensated for how their ideas shake out, creating a competitive environment where each individual researcher is wildly protective of his ideas.<br />
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While this phenomena occurs in competitive hedge fund offices, it can just as easily - maybe even more easily - occur on an individual basis. You heard about a new stock that should "skyrocket!" because your respected dentist buddy told you about it at a social gathering. Your research will likely consist of Google searches, "Will XXX skyrocket?" Ok, maybe not so dramatic, but you get the point - you definitely will not be searching for "XXX bankruptcy risk". No way! You might see something you don't agree with!<br />
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To improve decision making, we need to be aware of when this bias begins to manifest. Recognizing early on that we are not taking an even keel approach to a situation will allow us to properly react and head off a bad decision/outcome. We can take a step back and openly consider other perspectives that we might not have otherwise been privy to, had we been blinded by our own confirmation bias.-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com0tag:blogger.com,1999:blog-8329327917293444262.post-25835592047264270742015-11-13T12:10:00.001-08:002015-11-13T12:47:25.254-08:00Of Wrestling and Life<div class="separator" style="clear: both; text-align: center;">
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I am <u>extremely</u> biased, but I strongly believe wrestling is one of the toughest, most challenging, character building, and valuable activities that a person can participate in. Few other sports pit one competitor against another in an environment that requires as much mental preparation as full-body strength, endurance, and coordination. MMA may be one of the few exceptions.<br />
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I was fortunate enough to have had a semi-successful high school wrestling career - placing 8th my junior year and 3rd my senior year at the Indiana State Wrestling Tournament - before walking on to a Big Ten wrestling team. On the <a href="https://en.wikipedia.org/wiki/Nature_versus_nurture" target="_blank">nurture</a> side, outside of family influence, the sport probably did more to shape my life, my values, and my belief system than maybe any other external factor to this point. Wrestling involves many intricacies that can be applied to numerous - maybe most - obstacles encountered throughout a lifetime. With that, I have compiled a list of lessons wrestling can teach that apply to life in general:<br />
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<strong>1) GOAL SETTING</strong><br />
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So many people go through life without actually setting goals. I mean, really setting goals: writing them down, reviewing them daily, working each day towards accomplishing them, etc. Maybe people don't know the proper way to set goals and don't realize that wishing for something to happen is completely different than dedicating oneself to achieving a goal. Wrestling, as with any athletic or complex endeavor, teaches you to set tangible goals and provides ample opportunity to assess your progress along the way. You want to win your next tournament? Great. What are you going to do today to give yourself a better chance? <br />
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Before my senior year, I had set a goal to win the state tournament. While I never reached that achievement, I could look back on where I went wrong and learn and grow from my mistakes. I was able to make this analysis because I had defined a tangible goal and wrestling, with matches or tournaments once or twice per week, offered constant and nearly instantaneous feedback. Individual sports are great in this aspect. If you are the best player on a bad football team, it can be difficult to truly measure how you stack up against the competition. Not so in wrestling. You know very well and very quickly how your are progressing on your path to achieving your ultimate goal.<br />
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This goal-setting habit spilled over to my every day life, where I still try to set <a href="http://www.somedayextraordinary.com/2015/06/personal-goals-ultimate-tangible-and.html" target="_blank">tangible goals</a>. Much writing has been done about how one's mind subconsciously focuses the body toward what the brain is thinking about. If you have set goals for yourself and you constantly remind yourself of those goals, with the intent on working each day to make progress toward achievement, then you're chances for success will increase dramatically. I wasn't aware of the psychology behind the theory at the time, but I knew enough to recognize that without a set goal, my chances of winning each match would diminish. I still try to put my ultimate goals at the forefront of my thoughts each morning.<br />
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<strong>2) DISCIPLINE</strong><br />
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Wrestling offers a valuable and unique lesson into discipline. To excel in any athletic endeavor, hard work can not be avoided. However, with most sports, that discipline ends in the weight room, the practice field, and the film room. You are able to escape mentally in between practices and let your mind relax and recover. In wrestling, however, one is constantly reminded of what he chose to put his body through from the incessant hunger pangs. Whether you agree with it or not, cutting weight is a part of the sport. Wrestlers drop as much body weight as possible so they can compete in a lower weight division - not simply to be the bigger competitor in a weight class, but more so they are not overmatched at their natural weight by wrestlers with the same mentality.<br />
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Again, this type of discipline affects wrestlers long after their days of mat burn and ringworm are over. We learn sacrifice and mental toughness, developing the ability to block out distractions to maintain focus on the task at hand. <br />
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<strong>3) PREPARATION IS KEY</strong><br />
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Hard work pays off in all aspects of life. However, it is much more prevalent in individual sports than in most aspects of life. It's you and only you who determines the outcome of the match. If you put in the work, you will revel in the competition. If, in the back of your mind, you know that you could have done more, then you have left more room for uncertainty. It's not that if you work hard you can completely eliminate the uncertainty, but you can certainly minimize it. <br />
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In wrestling, any slack days, missed workouts, cutting lifts short, taking sets off, etc., will give a well prepared opponent an opportunity to pounce. Once you are a couple of rounds within the state tournament, every opponent is a capable opponent. Especially at the college level, the gap between the good and the average is minimal. The difference lies in the preparation. If you put in more time in the weight room, more time studying film, more time eating right and taking care of your body, more time on additional drills before or after practice, you may not be guaranteed a victory, but your chances are exponentially improved. You never know how your opponent is preparing, but you do know the more preparation you put in, the less chance you are being outworked. <br />
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In my junior year in the first round of state finals, I was matched up against a sophomore who sported a great record against some of the best competition in the state. Right out of the box, he ankle picked me for a takedown that I never saw coming. I was never a great technical wrestler, but I rarely met an opponent who outworked me. I prided myself on my endurance and strength - which gave me the ability to wear him down, comeback, and win the match. By the end of the match, he was gassed, as was I, but the conditioning work I had put in over the years pushed me to prevail.<br />
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Oftentimes, we find ourselves in life situations where an event or opportunity sneaks up on us. Maybe a job unexpectedly becomes available or maybe the CEO abruptly walks in and requests an immediate breakdown of how a project is going. Those who have conditioned their minds to continually seek improvement will create a larger separation between them and the also-rans. They won't need to scramble to escape a tough situation but, in fact, may be able to exploit the opportunity. Wrestling taught me that you can not predict everything that you will encounter in a lifetime, but with proper preparation, you can make the most of any situation.<br />
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<strong>4) MENTAL TOUGHNESS</strong><br />
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In wrestling, doubt exists in the mind as a void that can be filled with uncertainty. It allows the thought of failure to creep in. I had set a goal throughout my high school career to never lose to an underclassman. There's no excuse for that happening. I had had at least another year of experience at this level, which should allow me to prevail against a younger opponent. While I did accomplish this goal, I had failed to win the state tournament and I finished my senior year with two losses - one to the state champ and one to the state runner-up. Looking back, I didn't deserve to win those matches. I had let doubt creep in, letting my brain make excuses like, "they've been wrestling since they could walk and you've only been doing it since 7th grade, so you're expected to lose." I tried to block out that thinking, but once it finds its way into the mind, you're in trouble. <br />
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And it wasn't just me. I had a college teammate who had all of the talent in the world. He had won two state championships in one of the tougher known wrestling states. In college, he was able to reach All-American status three times, placing in the top three at the national championships each time. Successful career, huh? Sure, but to someone so close to being a national champion, it never really sits well. Now, it didn't surprise me much that he never got over that hump. He would constantly slack in the weight room and was sidelined by academic issues - a sure distraction from his task at hand. Do you think his opponents on the national level were ill conditioned or sidetracked? Doubtful.<br />
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Mental toughness ties in with preparation. The more prepared you are, the more mentally tough you'll be - and it will show at crunch time. You'll begin to eliminate doubt and replace it with the knowledge that no one has worked harder than you, therefore, no one deserves it more than you. That's another lesson that applies to every day life.<br />
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<strong>5) SELF CONFIDENCE</strong><br />
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High self esteem is an unavoidable byproduct of wrestling. As counter-intuitive as it may seem, even the grappler who rarely wins a bout will walk away from a wrestling career as a more confident person. After a loss, when your pride is shot, it takes just as much courage - and probably more - to pick yourself up, shake it off, and go back out for another match. I remember losing one match in a junior varsity tournament to a wrestler from my own school - the guy that was behind me on the depth chart! - whom I had never lost a match to. I was caught in a headlock and pinned. I thought my life had ended. I was never a good loser, but that one was especially tough. Later, you can look back on analyze your mistakes. You realize your world didn't come to an end and instead of sulking about an embarrassing loss, you realize that you can learn a lot from a situation like that. <br />
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If you've never done it, you'll never understand the courage it takes to put yourself out there - skin tight singlet and all - one on one against an opponent who has all intent on destroying you. At one of our matches against an opponent in our conference, the gym lights would be turned off and only a single light would shine above the varsity match. At semi-state, the same would occur, with the announcer rattling off the accolades of both opponents. The entire gym is quiet with the spectators' eyes set on you. There is no team or coach or excuse to hide behind. You don't have a choice at that point. But, you learn to live with it, and then, you learn to relish it.<br />
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Situations like these made me unafraid to put myself out there in the real world. Hey, if I can wear next-to-nothing in a test of strength and skill, with a good possibility that I may humiliate myself against another man in front of thousands of people, there really isn't much to be afraid of by volunteering to take on a project that might be beyond my current capabilities or applying for a job that I'm not quite qualified for. <br />
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Wrestling provides a stage to pit your abilities against an equal weighted opponent. Sure, it's only a sport, but it's a sport that requires much more than participation. It's a sport that teaches invaluable lessons on goal setting, preparation, discipline, mental toughness, and self confidence, that can be applied throughout life. Just as there has never been an undefeated wrestler, we all make mistakes in life. However, wrestling provides and develops the proper tools to navigate life's obstacles and come out on top.-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com0tag:blogger.com,1999:blog-8329327917293444262.post-69447816895003363762015-11-12T14:06:00.000-08:002015-11-12T14:08:06.334-08:00Instant Gratification in Poker and Investing<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitfHn6HRXZ4G6tntbMLBL2QuHheVJAiSbzW8sTQPTJT4ODY3nNU8B3zpvcxzUT-sJ2WB4xNeE2hW3OmsnJpQZ7YKCjPwNokr-AEArVZwjfMn6taAufPpk-5dFMm-24cY4AXJshrkCFR8lZ/s1600/untitled.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitfHn6HRXZ4G6tntbMLBL2QuHheVJAiSbzW8sTQPTJT4ODY3nNU8B3zpvcxzUT-sJ2WB4xNeE2hW3OmsnJpQZ7YKCjPwNokr-AEArVZwjfMn6taAufPpk-5dFMm-24cY4AXJshrkCFR8lZ/s1600/untitled.png" /></a></div>
Poker and investing are similar activities. Each a game of skill, where the end result doesn't necessarily reflect how well the game was played in the short term, but long term results are heavily influenced by constantly playing hands that offer positive expected value. In the short term, randomness plays an important and unavoidable role; in the long term, those vagaries flesh themselves out.<br />
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Poker player, value investor, and Seeking Alpha contributor, Bram de Haas participated in a brief <a href="http://seekingalpha.com/article/3679226-bram-de-haas-about-poker-investing-and-value" target="_blank">Seeking Alpha Q&A</a> session that highlighted many of the similarities. de Haas discusses that "one difference is that a hand of poker is settled in a matter of minutes or seconds . . . " while an investment can take years to come to fruition. Timeframe is a factor that needs to be considered with the investor that the poker shark can ignore. He further notes that he is less prone to judge his investments by their outcome as opposed to analyzing his application of value investment theories in reaching an investment decision. His goal, it seems, is mastery of the approach; the results will take care of themselves. His methods may need some tweaking every now and again, but he won't change course on a whim. Lessons derived from the RESULTS of an individual poker hand or an investment are meaningless. <br />
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Say, for example, in a hand of Texas Hold 'em, you hold a pair of kings, you push all of your chips in, then you get rivered (beaten by the last card flipped) by a long shot flush. Are you going to conclude, "Man, pocket kings just don't work for me, so I'm going to avoid playing them from now on"? Of course not. What if your investment in a mining company has a low price relative to its book value and earnings, revenues are increasing, and costs are decreasing, but then the commodity that the company mines falls out of favor globally and the company files for reorganization because it ceases to make money. Are you going to stop investing in low p/b and p/e stocks with increasing revenues and decreasing COGS? Probably not. <br />
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However, people make this jump and draw these types of ridiculous conclusions in both the game of poker and the investing world. They have to. Both are zero sum games. At a poker table of 6, where everyone buys in for $100, the total pot is $600. At the end of the night (barring re-buys), there is $600 still on the table, just distributed differently. Maybe Ron had a good night and is walking out with $300; maybe Wally, who seems to always come out ahead, walks out with $140. Maybe the other four players lose $40 each, but the cumulative total hasn't changed. The same occurs in the financial markets. Maybe Bill Ackman's Pershing Square loses $50 million on some investment that he went short on. Well, whoever (whether a single investor or multiple) took the other side of the bet and went long on the same investment is now, cumulatively, $50 million richer. <br />
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Numerous books have discussed the concept of how fund managers (and, investors in general), in aggregate, can not beat the overall market. Vanguard founder John Bogle in "<a href="http://www.amazon.com/gp/product/1119088364/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=1119088364&linkCode=as2&tag=somedayextrao-20&linkId=FGSQUPVMCA3GMPCL" target="_blank">John Bogle on Investing: The First 50 Years</a>" uses the same logic to promote investing in index funds. His point is that a low cost index fund will very nearly match the index it seeks to mirror, with only the minimal cost to run the fund as the difference. On the other hand, actively managed mutual funds have higher costs for marketing, management, and transactions, which sap overall investor returns. By the nature of the industry, fund managers can not, on average, do better than the overall market. Some may beat it, some may not, but on average, they MUST lose. ALL funds need to deduct the cost of managing a fund. So if the fund matches the market, the net return will be less than the market due to fund costs.<br />
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Back to poker. Let's say, you want to impress your friends so you hire a dealer for the night. He is paid a certain fee out of each hand dealt - maybe $0.50 per hand. Over the course of the night, maybe 100 hands are played; the dealer is paid $50. Now, instead of $600 on the table to be split among the participants, only $50 is left. On average, an average player MUST lose money. The expected value of all the wins and losses at the end of the night is no longer zero - it's negative! <br />
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The only winners, on average then, are the dealer and the fund manager, who both collect fees from the participants. So, why do we play? <br />
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It would be easy to say that poker and investing are both crapshoots - it's the luck of the draw where winners and losers are determined solely by randomness. But <a href="http://www.tilsonfunds.com/superinvestors.html" target="_blank">Warren Buffett</a> would argue otherwise:<br />
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<span style="font-family: "verdana";"><span style="font-size: x-small;">"I submit to you that there are ways of defining an origin other than geography. In addition to geographical origins, there can be what I call an </span><i><span style="font-size: x-small;">intellectual</span></i><span style="font-size: x-small;"> origin. I think you will find that a disproportionate number of successful coin-flippers in the investment world came from a very small intellectual village that could be called Graham-and-Doddsville. A concentration of winners that simply cannot be explained by chance can be traced to this particular intellectual village."</span></span> </blockquote>
So would Mike McDermott:<br />
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"Why do you think the same five guys make it to the final table of the World Series of Poker EVERY YEAR? What, are they the luckiest guys in Las Vegas?" </blockquote>
Ok, so a fiction story of Matt Damon taking KGB for tens of thousands of dollars might not be the best reference, but the fact remains that there are successful poker players who win consistently. And there are investors who beat the average market consistently. We see this and think we can do it, as well. That's why we play the game. But, what's the secret as to why your buddy Wally usually wins at poker and Buffett usually wins at stocks?<br />
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Well, since we can't rely on each individual event to provide accurate feedback, the goal needs to be to play the odds like an actuary and play the numbers like this <a href="http://nypost.com/2015/11/11/number-obsessed-average-joe-is-pokers-new-7-million-man/" target="_blank">guy just did</a>. We need to maintain a long term outlook and apply principles that have been proven effective historically. Lucky for us, we have large amounts of data and powerful computers that can retrieve and assess historical information, providing valuable insight to methods that work. Wally knows that maximizing profit by having the discipline to play only the best pairs of dealt cards is a superior strategy at the card table. Just as Mr. Buffett knows the value investing techniques of Ben Graham and his disciples will provide above average returns in investing.<br />
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de Haas states:<br />
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"You have to study theory, know your fundamentals and approach each problem with those tools."</blockquote>
It's too easy to become discouraged when faced with unexpected, unwanted events - a cold streak at the poker table, an investment gone bad, a rejection letter from an applied-to college, getting laid off from a job - and we change our way of going about our business; we revise the rules we play by on the fly. It's human nature and we need to fight that reactivity by setting ourselves up properly, mentally and emotionally, for when we encounter those events. Mentally, we need to have the proper foundation of knowledge in our field to recognize the path that most likely offers the advantageous outcome. Emotionally, we need to be aware of our cognitive biases and perceive when they are at work.<br />
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The thing to keep in mind is to maintain the discipline to stick with the fundamental theories that have been proven over the course of history to create the best opportunities for success in your chosen field. We, as a society, rely too heavily on instant gratification in our endeavors. We turn on the TV and listen to the pundits when it has been proven that experts are really <a href="http://www.newyorker.com/magazine/2005/12/05/everybodys-an-expert" target="_blank">no better</a> than the average Joe at predicting future events. On an individual basis, events may not go your way, but if you play the odds correctly with patience, discipline, and proper preparation, you should come out on top. -DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com2tag:blogger.com,1999:blog-8329327917293444262.post-27333378990787177362015-11-09T11:58:00.002-08:002015-11-11T05:53:37.566-08:00We Are Wimpy!<div class="separator" style="clear: both; text-align: center;">
<a href="https://www.pinterest.com/explore/inspirational-success-quotes/" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;" target="_blank"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNLpudVshmLYzOVhenLe8fOqfz__ivWPjQNjdAel4XKL87UOz7dKEDxRZPaM6BEGPzvvPqxX9iB3hlSbAUntpz0FHmopucwNMy2PTBA4K8D5dNjwzfudtBgMOoM0zpZdt17sV0a56yYay3/s320/success.jpg" width="213" /></a></div>
We, as a society, are wimpy. We become more and more sensitive to every news article or Twitter post that rubs us even slightly the wrong way. We turn to social media as an outlet and believe it exists only as a means for us to vent our perspective. If we don't like something, well, instead of doing something productive to change it, we voice our frustration in a Facebook rant. Seven likes later - there, you feel better. You DID do something about it. You just changed the world, didn't you? <br />
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I'm not blaming social media for the current state of our culture; it had to be expected as the world grew more connected. We all have a right to be heard - I'm not denying that - it's just that now we can easily access an audience for our tirades instead of chewing the ear of our significant other or neighbor or co-workers over the water cooler. In fact, I don't even mind the obsession our society has with "being heard" and "making a point". I think it even offers an advantage to the "doers" over the "talkers". <br />
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Why do the "talkers" do what they do (or, don't do what they could do?)? It starts young. Parents these days (man, I'm sounding old!) do everything in their power to ensure that their kids are comfortable, regardless of how much they are being set up to fail. Megan McArdle opens her book, "<a href="http://www.amazon.com/gp/product/0143126369/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0143126369&linkCode=as2&tag=somedayextrao-20&linkId=QQD3UGEDWN7QKLRZ" target="_blank">The Upside of Down</a>" with a discussion on how schools are set up to let children fail later in their lives. Parents side with their kids over teachers, grade averages are increasing - not due to smarter students, but out of convenience, multiple valedictorians are named in the same school - sometimes in the 30's and 40's - because "no one wants to make a distinction between the kids". In general, everyone gets a trophy for participating. <br />
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I know this because I grew up in the early stages of this cultural phenomenon. I was actually one of those valedictorians - one of twelve in my class. I freely admit that I was a typical Carol Dweck "<a href="http://www.somedayextraordinary.com/2015/10/entity-and-incremental-learning.html" target="_blank">entity learner</a>". The funny thing is, kids with an entitlement mindset - those who believe they are "smart" or "talented" or "athletically gifted" (or, you name the adjective that screams "innate ability") are the ones who fall harder than those who had to fight for everything in their lives. Many never recover. Ever wonder why there are so many rags to riches stories of entrepreneurs who went from homeless and living in a car to running multi-million or billion dollar businesses? It's because no one ever told them they were special. They found out from an early age that they needed to fight for something if they wanted it. They learned from their mistakes. They had not other choice.<br />
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I only wish I had discovered Dweck's work half a life ago. I wish I knew that failure is not a set back, but is really a necessary evil to progress. What I would give to be armed with this mindset growing up. But late is always better than never and there's no such thing as "too late". With this knowledge, we can turn the tables on the rest of society and separate ourselves from the pack. <br />
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McArdle goes on to cite Pastor Steven Furtick:<br />
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"The reason we struggle with insecurity is because we compare our behind-the-scenes with everyone else’s highlight reel."</blockquote>
I don't know much about Furtick, but I love this quote. We need to have thick skin. We need to be less sensitive. We need to avoid the temptation to waste our time complaining that <a href="http://www.today.com/money/war-christmas-starbucks-holiday-cups-causing-stir-t54686" target="_blank">Starbucks is ruining Christmas</a> and become productive. We can't be afraid of failure - the insecurity we feel is growth and progress. <br />
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McArdle includes a great discussion about how we only see and study the great work of Mark Twain in our literature classes. But what about Twain's bad work? Couldn't we learn a thing or two from that, as well? She talks of how writers compare their drafts to the finished Huck Finn product, realize their writing is nowhere near that good, and give up. We never see the thousands of hours of deliberate practice Twain put in to create the finished Huck Finn. That's what Furtick is talking about. But that feeling of insecurity is universal. Even the world class have experienced it at one point or another.<br />
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Kids are now becoming adults who feel that it is more important that they are heard than to accomplish something on their own. How does the quote go? "When the going gets tough, quit and complain about your boss in 140 characters or less and hopefully someone listens"? No . . . that's not it. It's not that today's workforce is lazy, it's just that they are used to having everything handed to them, then being patted on the back for a job well done. If a task is not laid out in a simple, step-by-step manner, they implode. They don't know how to act when faced with a challenge. They were never taught that tactic in their private college-prep schools. So, they conclude, something is wrong with the system, not with them as a person.<br />
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There seems to be less and less of the "doer" breed as a percentage of the now-entitled population than even 15 or so years ago. "Doing" still gets the job done, though. The more we live by that growth mindset and regard challenges as a learning opportunity to become better, the bigger our advantage becomes against the rest of the pack. Accept challenges with open arms. Set yourself up to succeed without fear of failure and you'll be amazed what you can learn!<br />
<br />-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com2tag:blogger.com,1999:blog-8329327917293444262.post-67043215742303758002015-11-06T07:18:00.001-08:002015-11-06T07:18:44.582-08:00Why Knowing it All Makes you Dumber . . . <div class="separator" style="clear: both; text-align: center;">
<a href="http://www.eremedia.com/tlnt/the-trick-in-dealing-with-annoying-workplace-know-it-alls/" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;" target="_blank"><img alt="http://www.eremedia.com/tlnt/the-trick-in-dealing-with-annoying-workplace-know-it-alls/" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhY341uv6skHIjT5qI8mPv8X-D1T3ROIGv1uLDX-gaJlgBAyqu07ogoFD6L0v4bZjqJE6d0g3qfUTvg9wUOnIszhw9rk5MLBrIj9OZGsq3XIgvJjP-aq2wP0j2njauI5yacmGuFljPsNtfv/s1600/know-it-all-300x223.png" /></a></div>
A difference exists between confidence and arrogance - between being well-informed and believing you have all the answers. Why are we so reluctant to say, "I don't know"? Or, "I'll have to check on that"? Instead, when pushed into a corner or pressed for more information, we succumb to a recency bias and blurt out anything we can recall on the topic at hand. Regardless of whether the information we are spouting is correct or not - we only say it because it is the most easily accessible information our brain can provide at the moment - we feel the need to sound informed. Or, more likely, we have a fear of being regarded as uninformed or, worse yet, unprepared. <br />
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Volunteering the most recent information that comes to mind may get us out of a temporary pickle, but it will catch up eventually. The problem is, once something comes out of our mouth, we own it; we tend to believe and defend it even more than before the statement was made. The vicious cycle continues with confirmation bias, where we now begin to search only for information that supports our position, building additional mental support for a stance that we were once not really sure we even agreed with.<a name='more'></a><br />
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The better option? Admit you don't know. A while ago, I had read Jim Paul's, "<a href="http://www.amazon.com/gp/product/0231164688/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0231164688&linkCode=as2&tag=somedayextrao-20&linkId=SL6H4CL5GGM3J2DT" target="_blank">What I Learned Losing A Million Dollars</a>". The book mainly revolves around commodities trading, but the psychological lessons can be applied to all walks of life. Paul writes of an analogy from Ayn Rand, which I had previously discussed in "<a href="http://www.somedayextraordinary.com/2015/05/silence-is-empowering.html" target="_blank">The Power of Silence</a>":<br />
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"Philosopher-novelist Ayn Rand was asked one time in a radio interview whether she thought gun-control laws violated the Second Amendment right to bear arms. 'I don't know,' she responded, 'I haven't thought about it.' And she said it in a manner as though it was the most natural thing in the world <em>not</em> to have an answer or opinion. Now here is one of the towering geniuses of the twentieth century and the architect of an entire philosophical system saying, 'I don't know.'"</blockquote>
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She didn't have a stance and she didn't feel the need to take an uniformed one to impress the interviewer and listeners. Wouldn't it be nice if our politicians would be so humble? When asked one of the bizarre questions candidates are likely to encounter throughout a presidential nomination run, wouldn't it be refreshing if one simply stated, "I currently don't have the resources to have an educated discussion on that topic right now. However, if I am elected to the White House, I will certainly surround myself with the most knowledgeable, well-informed scholars on the topic, so as to ensure a proper objective decision can be reached."<br />
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Another bias rears its ugly head post-event. The insecure fall victim to the hindsight bias - "I knew it all along." "Oh, that answer was obvious." Instead of using these experiences as a learning opportunity, we spend too much time justifying a stance that, in the scheme of things, is irrelevant. 10 minutes from now, who cares if you knew an answer? Does your street-cred really increase if you regurgitate some useless piece of information in front of your friends at happy hour? All it does is make you look ego-driven.<br />
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Avoid falling into the "Know it all trap" and the associated cognitive biases by avoiding personalizing situations. If you catch yourself reaching into the depths of your brain for facts to support something you think you believe, take a step back and ask questions instead. Stay objective. Learn something. It's not about showing that you know it all, it's about learning as much as you can. You'll be much more factually informed and better off in the long run!-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com54tag:blogger.com,1999:blog-8329327917293444262.post-64602259336754847802015-11-02T11:22:00.000-08:002015-11-04T13:28:06.713-08:00"Waiting for the Universe to Respond to What You've Been Manifesting"Over the weekend, I stumbled upon this picture on Instagram:<br />
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It was so ridiculous and pointless - just like most brain-drain social media posts, I suppose - but it was also one of those images that became stuck in my head. How often do you feel like this? I mean, REALLY feel like this? I've felt this way more lately than I can ever remember - and it's tough. Anxiety has got to be one of the most difficult emotions to suppress. If you're like me - and I'm assuming if you're reading this then we likely share number of similar characteristics - it is not in your nature to sit back and watch the world go by. You need to be doing something; you need to be planting some seed or nurturing one that you've previously sown. Sitting and watching is next to impossible. </div>
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Then, later last night, I was watching Shark Tank. A guy came on with an idea to sell coffee out of a "hot" refrigerator. The "refrigerator" keeps cans of coffee warm (you know, like those energy drink size cans of Starbucks you see at the 7-Eleven). But basically, it's a vending machine for coffee; the version below is for home use, but his larger models are to be placed in movie theatres or convenience stores, etc. </div>
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I actually kind of like the idea, but that is beside the point. HE HAD BEEN WORKING ON IT FOR 6 YEARS AND PUT IN AROUND $2 MILLION OF HIS OWN AND BORROWED MONEY TO DEVELOP IT! And it isn't even to market yet. Wow! He claims he came up with the idea from the Japanese and that it is a $14 billion industry. He has a few companies interested in testing it, but no current customers and none of the Sharks bit.</div>
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You've got a plan in place to reach your goal, you've executed or are in the process of executing it, and now you're wondering when the results will begin to reflect your effort. You go back over each and every step of your plan - fine tune your spreadsheets, edit your business plan for the 30th time, review your reach out attempts, etc. etc. etc. - and you just can't seem to find what it is that is keeping you and your idea from blossoming.</div>
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This episode, along with the sloth picture, had me thinking, "When do you give up?" and "How long do you wait?" and "What do you do while you're waiting?" I deemed the last question most important for a couple of reasons: 1) I figured "Good things come to those who wait" - but, more accurately:</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhgqDyrC2-az2M3bbJ3vrkYtGZqVW_VJn1rcxqxsR8IS9XS85L5SIqmmrJpD7vAXzGfJkDye-pNctWLGDe8S8G59Xs4vsuxGf1vUdQtlIDJ_hKgoamcf-QcTRXYdVmLVkV40dh6lb_l3Wsj/s1600/12279-Good-Things-Come-To-Those-Who-Wait.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="206" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhgqDyrC2-az2M3bbJ3vrkYtGZqVW_VJn1rcxqxsR8IS9XS85L5SIqmmrJpD7vAXzGfJkDye-pNctWLGDe8S8G59Xs4vsuxGf1vUdQtlIDJ_hKgoamcf-QcTRXYdVmLVkV40dh6lb_l3Wsj/s320/12279-Good-Things-Come-To-Those-Who-Wait.jpg" width="320" /></a></div>
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I firmly believe that you if you devote the <a href="http://www.somedayextraordinary.com/2015/10/the-role-of-talent-in-pursuit-of-goals.html" target="_blank">required amount of time and effort</a> to ANYTHING, your goal will be achieved - maybe in a different sense than what you had originally planned, but achieved nonetheless. And 2) Keeping busy keeps your mind off of the task that is causing you the heartburn. "A watched pot never boils!" (Full of the cliché cheesy quotes today . . . sorry!) </div>
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As for the first two questions, I am prepared to not give up and also to wait as long as possible for the world to catch up to my manifestation. So, then, how do you pass the time? The following is a list of ideas to help the restless 'you' survive the inevitable waiting period before your goals come to fruition:</div>
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<strong>1)</strong> <strong>Whatever you do, DO NOT let failure creep in.</strong> The Hotshots guy from above has been at it for 6 years. A couple of the Sharks were advising him to give up; others were supporting his tenacity and stamina. I think his waiting period may have come to an end. Even though he didn't reach a deal with the Sharks, he had the exposure of national television. That alone has been enough to create success stories out of failed Shark Tank campaigns. Your subconscious creates reality. If you allow even the faintest sense of failure to creep into your mind, your subconscious will pick it up and begin to create a reality around you that reflects it. Don't do it! Think positively and focus on your next step to achieving your goal. Take a look at Napoleon Hill's "<a href="http://www.amazon.com/gp/product/1585424331/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=1585424331&linkCode=as2&tag=somedayextrao-20&linkId=RX3AW2IZ7BOYY742" target="_blank">Think and Grow Rich</a>" for more on this concept.</div>
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<strong>2)</strong> <strong>Begin the search for your next seed.</strong> You've probably been so busy nurturing your one plant for so long that you haven't had time to step back and take a breather. Stop and smell the OTHER roses. You've done what you could at this point. While you'll always need to keep a close eye on all of your plants, they reach a point where they are basically self-sufficient. While you're waiting for it to bear fruit, you have time to begin a new journey. Step away for a bit and open your eyes to other opportunities. The time away will give you a chance to reflect on your journey and you might pick up on something that you had previously missed.</div>
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<strong>3) Keep Learning!</strong> Don't let this lull in activity deter you from expanding your knowledge on a topic. If you feel that you've done all you possibly can at this point to set up your future self, then pick up a book that you've yet to read or reread a classic. Few of us ever become experts in our field and our mind can only handle so much information at a time. You will surely learn something new or, at a minimum, gain a new perspective on an idea. This can help you circle back on your goal at hand and, if not improve on it, at least provide you with a point of view that you may not have previously been aware of.</div>
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<strong>4) Step away and relax.</strong> Take the family to the amusement park, visit an old friend, take your son fishing . . . do something - ANYTHING - that allows you to free your mind for a while. Sometimes we let our obsession with achievement take over and tunnel vision to rule our day to day lives. If you know you've done all you can do and all that is left is the waiting game, then why worry about it? If you've put in the proper effort, then why question what you've done? The stress will be only harmful. Going off the grid for a weekend, a week, or a month, will do wonders for your creativity and productivity and you'll return with a renewed sense of vigor. It's hard to pull away, but it is well worth it.</div>
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All in all, don't let the waiting be the endgame. Use that time as an opportunity to expand yourself as a person. Whether awaiting the outcome of a mortgage approval process for your vacation home, the SBA to analyze your business plan and assess whether to give you a loan, your application to Shark Tank to be reviewed, or your stock portfolio to appreciate, there are better ways to spend your time than mulling over what is already in the past.</div>
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-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com0tag:blogger.com,1999:blog-8329327917293444262.post-61215736245768415752015-10-22T09:41:00.000-07:002015-10-22T09:41:09.903-07:00Will vs. Living Trust - From a Stockholder's Standpoint<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQtOst1-FHG6M2Tm-KpvtXyd8To-6bs4-sBQKZ20Brb7l3tNkXdVrfYJ5i6Qaoyxl2pjKHAKzxswMbADqCw8gNL5-UWPpX0lmE-0g0Gwuwu_PkcIipxQmRlOedbGrDUjGfrN3jeg0HifxZ/s1600/tax-code-80cbb124b0294b50b7c5c69d449a72bd3327cdc2-s6-c10.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQtOst1-FHG6M2Tm-KpvtXyd8To-6bs4-sBQKZ20Brb7l3tNkXdVrfYJ5i6Qaoyxl2pjKHAKzxswMbADqCw8gNL5-UWPpX0lmE-0g0Gwuwu_PkcIipxQmRlOedbGrDUjGfrN3jeg0HifxZ/s320/tax-code-80cbb124b0294b50b7c5c69d449a72bd3327cdc2-s6-c10.jpg" width="320" /></a>Numerous articles have been published regarding the differences between wills and living trusts - I'm not going to recap that here. However, unfortunately, I have had to learn a thing or two about trusts in the aftermath of the passing of a relative. The trust does not involve me, but I have been privy to some of the details of the settlement of the trust and, as I am intrigued by anything markets/investing/stock trading, I picked up a few gems that could save a bundle of cash (for you or your heirs) if handled correctly. Keep in mind, I am not advocating that you set up one over the other; I am simply going to dissect the difference from a very specific perspective: the giving of stock to relatives in the event of a death.<br />
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A trust is set up by a living person who wants to place stipulations on how their estate is handled. For example, a trust can define the terms under which a child takes control of an asset - possibly stating that the child must turn 18 or earn a college degree. A trust does not require settlement through "probate", meaning it basically stays out of the courts. A will does enter probate (of course, there are some exceptions to the rule). Also, a trust is worthless until it is funded with assets. The trust and the assets may remain in control of the trustee until he/she passes away, then the beneficiary can take control of the assets. Those are basic differences - many more specific technical differences can be researched <a href="http://www.nolo.com/legal-encyclopedia/living-trust-v-will.html" target="_blank">here</a>.<br />
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So, say you have an elderly parent ('Dad') who owns a significant portion of stock in a company whose share price has appreciated considerably from when he initially bought it in 1981 for $5 per share. Dad chose to set up a trust when 'Mom' passed away in 1985 to ensure his estate was properly distributed when he was gone. Now, Dad passes away this year and his estate has been settled. You take control of your portion of the assets from the trust, including the stock, which is now selling for $50/share. Unaware of the intricacies of your father's portfolio, this news comes as quite a nice surprise. You have been running a little tight lately and so you sell your portion of the shares immediately for around $50 each. Since you took control of the stock at $50 and sold them at $50, you don't have to pay any capital gains tax, right? WRONG!<br />
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Your cost basis for the stock is what your father had paid for the stock - $5!!! You owe capital gains tax on your sale of (likely - depending on tax bracket) 15% on the $45 of appreciation ($50-$5 cost basis)!!! Wow! Say your cut was 5,000 shares = sale income of $250,000. $250,000 - $25,000 cost basis = capital gain of $225,000 . . . at 15%, you owe the government $33,750. Ouch!<br />
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So, was the trust a bad decision for your father? In this specific case, yes, since the beneficiaries are required to use the trustees cost basis for tax purposes. Had you inherited the stock vial a will disbursement and sold immediately? No capital gains tax. The IRS allows you to "step-up" your cost basis to the day that you inherit the stock (the day of the passing of the relative). <br />
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Another misconception is gift tax. Gift tax, if paid at all, is typically paid by the donor - not the beneficiary. A gift can be given up to the current annual limit of $14,000 per year without tax implications. Anything over $14k per year has to be reported to the IRS, but only for tracking purposes<br />
. Anything over that $14k goes towards your lifetime allowable limit of $5.43 million (for 2015). You only need to pay gift tax on an amount that exceeds the $5.43 million lifetime amount. So, in our example of the $250k of stock that was given to you, no gift tax would need to be paid.<br />
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Paying attention to the intricacies of the tax code in situations like this can save you a small fortune. Be sure to review the tax implications of a transaction before transacting to keep the tax man at bay!-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com0tag:blogger.com,1999:blog-8329327917293444262.post-87562171358646870712015-10-16T07:01:00.000-07:002015-10-19T13:58:17.846-07:00Investing in Others' Dreams<div class="separator" style="clear: both; text-align: center;">
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I recently have had the opportunity to invest in a small startup restaurant in my home town, the owner being a high school friend/acquaintance from years ago. He is only looking for a little startup capital - rent and labor in our town is so cheap; the downtown building he wants to lease/purchase will cost something like $700/month and it is in the heart of our town of 20,000 people. Our downtown used to be more vibrant. Or, at least, that's how I remember it growing up. We have an old courthouse in the center of town that gives the town character and a welcoming feel, our Fourth of July parade is packed every year, we have nice clean lakes that are great for boating and fishing, and the downtown area has potential if the right people were involved. The compassionate, nostalgic part of me wants to give him his money and hope he succeeds. The logical, business side of me says, "Restaurants fail. Bad investment" - even if it is a relatively small sum.<br />
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I've reviewed his numbers and questioned him on his breakdown of expenses - and, I'll admit, he's done a good job. The projected income statement is thorough and well thought through with a 5 year growth plan. He'd be willing to give me a 20% stake in the future profits for a small sum to help get him started. That's what intrigues me from a business standpoint. Small town restaurants can do well; there is little competition and it is not difficult to stand out. Surrounded by farmers makes fresh, organic ingredients accessible and, again, things are cheap. In a large city, rent is high, competition is fierce, and it is difficult to differentiate yourself from others. However, more affluent people live within a city than most small towns. Would the local people go to a place that serves grass fed beef and good craft beer? <br />
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On the other hand, he is excited. This would be about 80% investment in the person and 20% investment in the business with hopes of getting something out of it. He's passionate about his plan and, besides a little seed money, he really has nothing to lose. The experience is there; he's been in the industry ever since he started working and worked his way up starting as a dishwasher. I respect that.<br />
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I hate to see how my town has deteriorated throughout the years with few businesses moving in to replace those whose owner's have retired or moved on. I wish I could do more to help. Hope springs eternal and I have always been optimistic (maybe to a fault) that my town can turn things around. One of my main <a href="http://www.somedayextraordinary.com/2015/06/personal-goals-ultimate-tangible-and.html" target="_blank">goals</a> has been to leave this world a better place than when I entered it. A small investment like this would seem a step, albeit a small one, in the right direction. <br />
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I'm still not sure of what I'll choose to do. Making an investment based on good intention is a bit out of character for me as I tend to side with logic and reason over benevolence and altruism There are plenty of better things, financially speaking, to do with that money, but the opportunity yanks at the heartstrings. While investing in the restaurant may result in a small financial loss, it may very well turn out to be profitable for the soul!<br />
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What would you do? Have you ever invested in a person to help them follow their dreams? When torn between a possible financial loss and a good deed, what way do you lean?-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com5tag:blogger.com,1999:blog-8329327917293444262.post-4491887736387879552015-10-09T10:05:00.002-07:002015-10-09T10:05:51.274-07:00Entity and Incremental Learning<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: left; margin-right: 1em; text-align: left;"><tbody>
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<tr><td class="tr-caption" style="text-align: center;">From <a href="http://www.businessinsider.com/deepak-chopra-shares-11-simple-tricks-to-enhance-brain-power-2015-5" target="_blank">Business Insider</a></td></tr>
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I've been on a bit of a psychological kick lately digging into books like "<a href="http://www.amazon.com/gp/product/0061723762/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0061723762&linkCode=as2&tag=somedayextrao-20&linkId=GAWQNF3LMUXT2I47" target="_blank">Bounce</a>" and "<a href="http://www.amazon.com/gp/product/0374533555/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0374533555&linkCode=as2&tag=somedayextrao-20&linkId=VHS7XUAA5CQM2RP5" target="_blank">Thinking Fast and Slow</a>" - which is quickly becoming one of my favorites and, by far, one of the most informative I've ever come across. "Bounce" mentions some of the work of Carol Dweck, who was the author of "<a href="http://www.amazon.com/gp/product/0345472322/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0345472322&linkCode=as2&tag=somedayextrao-20&linkId=EX53KG2WTFFLGDOG" target="_blank">Mindset</a>", which contains some mind blowing information on how our minds work and how we can condition them to focus on success.<br />
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While her book was a great read, I had forgotten - or, more likely, didn't yet understand - how enlightening her concepts really were. That was until a couple of months ago. Not only did her writing continue to pop up in a number of books I had been reading, but my son was born. After seeing how fast little babies pick up new habits and how quickly they learn, I began to think about the best way to raise him from a psychological standpoint to empower him to live the best life he possibly can. I remembered Dweck and gave myself a refresher of her teachings, which took on an entirely different meaning than the first time I plowed through "Mindset". <br />
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One of the tenets of "Mindset" was the distinction between <em>entity</em> and <em>incremental</em> learning. Entity learning was the belief that brainpower and intelligence were innate and could not be improved. It gave the individual a sense of entitlement. On the opposite end of the spectrum was incremental learning: the belief that "the novice can become the master" (quoted from "<a href="http://www.amazon.com/gp/product/0743277465/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0743277465&linkCode=as2&tag=somedayextrao-20&linkId=AQVNV4ZV2VP3K3XN" target="_blank">The Art of Learning</a>"). Empowering! <a name='more'></a><br />
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Dweck ran a number of studies that proved her theory. In one such experiment, a group of fifth graders were given a set of problems. After they finished, half of the group was praised for their intelligence, while the rest of the group was praised for their hard work. They were offered another set of problems - some easy, some difficult. The students praised for their intelligence chose the easy problems, concerned that they had a reputation to uphold. The students praised for their hard work chose to take on the challenging problems. <br />
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Next, the students were given very difficult problems to work on. The "entity" learners quit quickly, but the "incremental" learners kept working, believing that there was something to be learned from this challenge. Finally, they were all given problems of relative ease, similar to the first problems they were given. Surprisingly, the "entity" learners did worse than the first time they worked the problems - their confidence was shot. The "incremental" learners still did well.<br />
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This is but one example of her experiments, but the evidence is overwhelming. This doesn't just apply to fifth graders or infants, but to each of us on a daily basis. What limits us in reaching our potential is an entity mindset. "Oh, he's smarter than me, which is why he got the promotion." "I just don't have the brainpower to do what she has done." "I'm just not a numbers guy; I couldn't have achieved such a thing." What? Why? Simply excuses. <br />
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Once we get rid of the excuses and realize what our brain is capable of - and embrace the incremental mindset - the sky is the limit. Failure is no longer a shot to our ego, but a learning opportunity. -DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com0tag:blogger.com,1999:blog-8329327917293444262.post-45509291272273360342015-10-02T06:25:00.001-07:002015-11-06T05:18:33.527-08:00Deliberate Practice in Pursuit of Goals<div class="separator" style="clear: both; text-align: center;">
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For years now, I've been enthused and passionate about investigating the role of talent in shaping the person we become in our lives. Books like "<a href="http://www.amazon.com/gp/product/1591842948/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=1591842948&linkCode=as2&tag=somedayextrao-20&linkId=AB7EPSDNIIDUWVYB" target="_blank">Talent is Overrated</a>" by Geoff Colvin, "<a href="http://www.amazon.com/gp/product/0316017930/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0316017930&linkCode=as2&tag=somedayextrao-20&linkId=EI6V6AEYTUTAM545" target="_blank">Outliers</a>" by Malcolm Gladwell, and "<a href="http://www.amazon.com/gp/product/0345472322/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0345472322&linkCode=as2&tag=somedayextrao-20&linkId=LPZ7WOLXYTJB6MLE" target="_blank">Mindset</a>" by Carol Dweck had huge impacts on shaping my perspective about innate abilities and showing evidence that we all truly have much more control over our lives than we initially assume. I have recently read "<a href="http://www.amazon.com/gp/product/0061723762/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0061723762&linkCode=as2&tag=somedayextrao-20&linkId=MMA7KX3PF6V2YZJX" target="_blank">Bounce</a>" by Matthew Syed, who was an Olympic table tennis player for Great Britain. He had won numerous European table tennis championships as well as Commonwealth Championships - but readily admits to choking in the 2000 Sydney Olympics. At that point, he began to investigate the intricacies of success, why some experts choke, and the role of genetics in shaping our talent. The book was phenomenal (I hope to do a write up on it soon). Syed knows a thing or two about success in athletics at the highest levels, which gives the book some validity over the others, who were written by psychologists and journalists. "Bounc" is like "Talent is Overrated", "Outliers", and "Mindset" on steroids (in fact, Syed even talks about steroid use in sports!).<br />
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Anyway, it was another eye opener into what we are truly capable of accomplishing with, as Colvin defines it, "deliberate practice". Deliberate practice can be thought of as hours of focused practice - not going to the driving range to hit golf balls, but going to the driving range, focusing on the grip for hundreds of swings, then focusing on the backswing for hundreds of swings, etc. Ideally, you'd be able to film yourself or receive immediate feedback so you can make minor adjustments. Watch this talk from Colvin. While this task is much different than perfecting a golf swing, the message remains unchanged:<br />
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Be sure to watch the entire video; the last 10 or 15 seconds are my favorite because they exemplify the public perception of "talent". "Oh, that guy was lucky to be born with a photographic memory, just like Tiger Woods was born with golf in his blood." Not true. In fact, Syed discusses Tiger's upbringing in detail in "Bounce", along with other star athletes like Roger Federer and Serena Williams (he has a penchant for tennis) and totally dismantles the "talent" theory for each of these people.</div>
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Colvin writes that there typically is not much difference between the job performance of those in a given career vs. those just starting out in a job, namely because those who have been there a while do not work deliberately to improve. We all know the feeling; we burn out in our job and view it as a means to an end. We are not passionate about it and, therefore, do not seek to continually improve. We do not seek out stretch roles that push us just beyond our current limitations. Rather, we work our required 8 or 10 hours, then go home. Want to separate yourself from your colleagues? Force yourself to expand your knowledge and abilities each and every day.</div>
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Syed talks about the use of deliberate practice in complex tasks, such as racket games, golf, etc., but not necessarily in tasks that measure a single dimensions, like sprinting or weightlifting. I think the goals most of us set for ourselves in our daily lives fall under the "complex tasks" category. Our goals should be something we are passionate about; something we find no trouble motivating ourselves to pursue. The hard part is to push yourself each day to become better: a better investor, a better husband, a better cyclist, a better writer, a better boss, a better businessman. Only then can we close in our actual potential.</div>
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-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com1tag:blogger.com,1999:blog-8329327917293444262.post-68723177823694159072015-09-24T11:49:00.002-07:002015-09-24T11:49:58.395-07:00Suggestion, Anchoring, and the Adjustment Heuristic<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiielxt5q3AsQVF6tMw_4rujXe7uVMWDn7rBo9ijBbf1O0T2gPRj15cCgm1sMJ9QcKwiHPNfRk8uJwh0rm3OAPh4KvxGvkaUoAVOm7DAvGzMXL3BV5s80fIwcRLTxyzPDPYprehnnDnetB3/s1600/LAM-BRAIN-POWER1.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiielxt5q3AsQVF6tMw_4rujXe7uVMWDn7rBo9ijBbf1O0T2gPRj15cCgm1sMJ9QcKwiHPNfRk8uJwh0rm3OAPh4KvxGvkaUoAVOm7DAvGzMXL3BV5s80fIwcRLTxyzPDPYprehnnDnetB3/s320/LAM-BRAIN-POWER1.jpg" width="320" /></a></div>
I've recently been reading (listening on audio!) through Daniel Kahneman's "<a href="http://www.amazon.com/gp/product/0374533555/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0374533555&linkCode=as2&tag=somedayextrao-20&linkId=DZFOBWSAJYGKOURI" target="_blank">Thinking Fast and Slow</a>" and one idea struck me that I haven't been able to get out of my head: Anchoring and the Adjustment Heuristic. Here is the Wikipedia definition:<br />
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<blockquote class="tr_bq">
<strong>Anchoring</strong> or <b>focalism</b> is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the "anchor") when making decisions. </blockquote>
Kahneman and Amos Tverskey Kahneman goes over numerous examples of this bias; one involved asking study participants if Gandhi was 144 years old when he died. While this question is obviously absurd, as 144 years is longer than anyone can live, it sets an "anchor" from which the participants "adjust" from. Participants adjust down from 144 to reach their answer. <br />
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In another example, real estate agents were given sufficient information to assess the value of a house. Within this information was the list price. Some agents were provided information with a very high list price while others were given a very low list price. The ones given the high list price produced a significantly higher value of the home than did those who were given the low list price. <a name='more'></a><br />
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The "anchoring index" is the ratio of the difference in anchor-adjusted answers (difference in values provided by the real estate agents) to the difference in the values of the anchor (the difference in the provided list prices). The anchoring index of the real estate agents was shown to only be slightly better than the estimates provided by business school students who had little or no real estate experience (41% vs. 48%). While the students admitted to basing their answer off of the list prices, the pride and ego of the real estate agents would not allow them to do so. They adamantly denied being influenced by the list prices.<br />
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So how does all of this affect each of us? Well, we can think of this affect in a number of ways and use it to our advantage. Think of goals that you set for yourself. Set high goals that are just out of reach. You subconsciously fool your mind into raising your effort to reach that goal. The higher the goal, the higher the "adjustment" you'll make for actual attainment. <br />
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The same goes for money, whether saving it or cutting costs. Set high goals for how much you want to save and set extraordinary amounts for how much you want to reduce your spending by. By doing so, your mind will subconsciously adjust to a higher (or lower) number than if you plan for "average", maximizing your actual results! The mind is a powerful thing!<br />
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-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com2tag:blogger.com,1999:blog-8329327917293444262.post-42449605461863676912015-09-21T11:09:00.000-07:002015-09-21T11:09:10.076-07:00Trips Over Gifts<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7pK61SEpG1Z7Ly_Q5X1_nJ23lEXN3ffQnl12Gnj_4D4wPEqwzfuUfw1Iyjv44eVvUDaCO9kQZsmkh_ZwUyoJn9lrxoF3lP0iuWRPMMXKNf_XDMhpfzkPtsW0Ljqp0m0dJaNe0AILnhpDo/s1600/Balloon.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="212" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7pK61SEpG1Z7Ly_Q5X1_nJ23lEXN3ffQnl12Gnj_4D4wPEqwzfuUfw1Iyjv44eVvUDaCO9kQZsmkh_ZwUyoJn9lrxoF3lP0iuWRPMMXKNf_XDMhpfzkPtsW0Ljqp0m0dJaNe0AILnhpDo/s320/Balloon.jpg" width="320" /></a></div>
My wife and I have an agreement: If at all possible, we don't buy each other gifts for birthdays or holidays, but instead use that money towards experiences. This agreement forces us to use our imaginations to come up with something fun to do for special occasions and compels us to step outside of our comfort zones to try new adventures. I'm not saying we haven't ever bought each other something, but the idea is that an experience, if at all possible, takes precedence over material goods. And they don't have to be huge, expensive experiences - just something thoughtful. A nice night downtown or a A few of my favorites have been:<br />
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-Hot air balloon ride in Asheville, NC. <br />
-Great American Beer Fest in Denver and offseason stay in Vail<br />
-Deep Sea Fishing in San Diego<br />
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Each of these coincided with a trip that we already had planned. With sites like Groupon and LivingSocial, these types of experiences can fit within a budget. I'm not going to try to tell you that they are cheap, because they aren't, but they also don't need to break the bank. There are many activities that can be enjoyed for much less than a gift would ever cost. <a name='more'></a><br />
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We happened to be in Colorado for a trip and decided to spend a couple of days in Vail during the offseason. With a gamble on <a href="http://hotwire.com/">Hotwire.com</a>, we had a couple of nights in a four start resort for the price of a Holiday Inn. The town was dead since ski season hadn't yet started, but the trees in the Rockies still had their orange leaves that late in the fall . . . it was beautiful! We had the hot tub, sauna, fire places, bar, etc. all to ourselves and I'd do it again in a heartbeat! Not to mention, all the top notch restaurants were advertising specials to lure any patrons they could during the down season.<br />
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I'll never be able to remember the gifts I've received from year to year for birthdays or Christmas, but I'll never forget when my wife reeled in the biggest fish in our boat in San Diego Bay. Isn't that what it's all about, anyway? I've never once looked back on one of these experiences and regretted it - no matter the cost. You can't put a price tag on those types of memories. <br />
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It's never been about what we have, but always been about what we do! <br />
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<br />-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com1tag:blogger.com,1999:blog-8329327917293444262.post-26759412579509044592015-09-16T06:00:00.002-07:002015-11-07T09:36:26.380-08:00Review: "Getting There" - Gillian Zoe Segal<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHdl27C579Tr9afvDAw-mlYob-mQBOzS2E4SmmxnP-DmK66XcG2XvRsnlvBhe7N38Uo7NCwXqX7jF6IPZTp8YFg9ixka0MU7UE3aJRn_QgtGlEBWqfWckbMMoWueYzgFUWHpbrCFeKEE6D/s1600/Getting+There.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHdl27C579Tr9afvDAw-mlYob-mQBOzS2E4SmmxnP-DmK66XcG2XvRsnlvBhe7N38Uo7NCwXqX7jF6IPZTp8YFg9ixka0MU7UE3aJRn_QgtGlEBWqfWckbMMoWueYzgFUWHpbrCFeKEE6D/s320/Getting+There.jpg" width="252" /></a></div>
"<a href="http://www.amazon.com/gp/product/1419715704/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=1419715704&linkCode=as2&tag=somedayextrao-20&linkId=IZIEBOMDSF43FGHR" target="_blank">Getting There</a>" may be my favorite book of 2015. Gillian Zoe Segal does a fantastic job compiling anecdotal stories of successful people from all walks of life. The book is structured such that each story is approximately 2-4 pages long, with some biographical information on the subject. Each section concludes with lessons, or "pearls", as Segal puts it, that the subject has picked up throughout their journey. Segal's background as a photographer is obvious with a beautiful portrait of each subject at the beginning of the respective chapter. The book in itself is a piece of art. <br />
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Her compilation spans the globe and covers subjects from all ends of the spectrum, from Wendy Kopp, founder of Teach for America, to Laird Hamilton, big wave surfer; from Nitin Nohria, Harvard Business School Dean, to Michael Bloomberg, former New York Mayor and founder of Bloomberg L.P.; and from investor Warren Buffett to Sam Adams brewer/founder, Jim Koch. Anderson Cooper shares his journey in journalism and discusses the sacrifices he made along the way to becoming a CNN news anchor and host of his own show. John Paul Dejoria discusses surviving off of 99 cent chips and chicken wings and a trucker's special breakfast, while living in his car and hustling his hair products.<br />
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I could not put this one down. These people may not have known what they wanted in life, but they didn't give up until they figured it out. Then, they didn't give up until they obtained it. Every single one of them refused to settle for status quo. Our lives would be much more fulfilling if we all would take that mindset. These people were not born great; many of them came from nothing, so they had nothing to lose. They all worked extremely hard and made early sacrifices on their way to where they are now.<br />
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The obstacles these people over came dwarf the "obstacles" most of us let get in our way from achieving our dreams. It really opens your mind up to what you can accomplish with the proper mind set and work ethic. If you can not find something you can relate to, something inspiring in this book, then it's your own fault. <br />
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<h3>
Favorite Passages:</h3>
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-"It's essential to strike the right balance between confidence and humility." -Wendy Kopp, founder of Teach for America, "Getting There"<br />
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-"My goals are constantly evolving so I never entirely achieve them. This is actually a good thing, because once you realize your goal, then where do you go? That's your crescendo. I've seen this happen to a lot of my friends. They set a goal to be World Champion of X, or even something far more modest, and then once they attain it, they live a life of disappointment. If you don't continually revise your goals, the only place you've got to go is down. So I keep thinking of ways to reinvent wave riding." -Laird Hamilton, Big Wave Surfer, "Getting There" I had written a little about this mindset <a href="http://www.somedayextraordinary.com/2015/08/beyond-goal.html" target="_blank">here</a>.</div>
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-"Think and question authority. Authority is a short-lived phenomenon. It's who is in charge now, but that doesn't mean that they are right." -Gary Hirshberg, Stonyfield Far Chairman and Co-Founder, "Getting There"</div>
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-"Brevity is the soul of wit. If you've got something to say, say it and stop talking. If you don't have anything to say, you're doing yourself and others a favor by keeping quiet. If you can't make a contribution, don't slow down the people who can." -Craig Newmark, Craigslist Founder, "Getting There"</div>
-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com2tag:blogger.com,1999:blog-8329327917293444262.post-1647643439340436082015-09-11T06:49:00.000-07:002015-09-11T07:08:46.449-07:00Shyp in Chicago!<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXZWqZ0goXxa1cgt9GmtR6kjfHnKtMW_uvIYF0B4x74V7h48MGsDv-abFuKbg_dBkm841nGFB5UR0Bv4t0GEoahOvBuUermdeGR0nkT08pDXC6HroCdTKc1XQCSK1NBJX38_pZmQlndEj-/s1600/shyp.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXZWqZ0goXxa1cgt9GmtR6kjfHnKtMW_uvIYF0B4x74V7h48MGsDv-abFuKbg_dBkm841nGFB5UR0Bv4t0GEoahOvBuUermdeGR0nkT08pDXC6HroCdTKc1XQCSK1NBJX38_pZmQlndEj-/s320/shyp.png" width="320" /></a></div>
Last night, I was fortunate enough to attend a "fireside chat" at the General Assembly in Chicago with Kevin Gibbons, CEO and Co-founder of Shyp, and Antonio Gracias, CEO of Valor Equity Partners and board member on Tesla. Mr. Gracias moderated the discussion and had some very interesting questions Mr. Gibbons. <br />
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In case you are unfamiliar, Shyp is a company designed to make shipping easier and "frictionless". You simply download the app, take a picture of the item you intend to ship with a pick up address, and a Shyp courier swings by (usually within 20 minutes) to pick up your package, wrap it, package it, and send it. <br />
<a name='more'></a>Obviously, there is a premium for the service ($5 per package), but depending on your situation, it could be well worth the inconvenience factor. <br />
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Shyp, which launched in San Francisco in 2013, is now also available in Miami, New York, Los Angeles and, as of yesterday, Chicago (beta testing). Mr. Gibbons has been an entrepreneur all his life, with a background in software engineering. Here are a few takeaways from last night's discussion:<br />
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-Process is key if you want uniformity throughout your company. Mr. Gibbons gave an example with Uber, where in some cities, the drivers ALWAYS call to see where you are, whereas in other cities, they go to the location submitted without a call. While this may seem trivial, Mr. Gibbons mentioned that the lack of consistency can be frustrating to the customer. In this day in age, it is all about convenience.<br />
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-Shyp recently decided to convert all of its drivers to W2 employees, meaning they are Shyp employees and not contracted out. This gives the company more control over pickups, allows for better training of drivers, and creates a more engaged workforce. He found that customers often had a number of questions for the drivers, and with the driver being a trained Shyp employee, the questions could be better answered. An engaged work force is more important than the possible additional cost of no contracting out the work.<br />
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-Managing growth is difficult. Mr. Gibbons believes that some people are meant to build something from nothing, while others are more suited to growing a company. While empathy is one of his strengths, parting ways with employees is a necessary evil for the success of a growing company. <br />
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-Attitude is everything. Mr. Gibbons states that an arrogant, know-it-all worker won't last long at Shyp, even if he/she is great at their job. It disturbs the peace and causes unnecessary distractions.<br />
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-Shyp acknowledges the importance of making profit, especially to investors who don't want to wait 5 years to see returns. While some companies will grow and grow and grow before ever seeing a dime, Shyp wants to prove its concept, make money, then grow. I found this to be an interesting strategy, as it conflicts with the hyper-growth culture of today's startups.<br />
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Mr. Gracias did a fantastic job moderating the discussion, while throwing in a story or two about his time spent with Elon Musk, a friend of his since the Paypal days. Mr. Gracias provided some insight from the investment perspective, as Valor Equity Partners is an investor in Shyp, and discussed what he looks for in companies he invests in. He mentioned that he honestly became an investor in Shyp from a recommendation from his buddy Tim Ferris, of <a href="http://www.amazon.com/gp/product/0307465357/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0307465357&linkCode=as2&tag=somedayextrao-20&linkId=IMLB2OOLBIWU3EH3" target="_blank">40-hour Workweek</a> fame. He was a true class act.<br />
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The discussion was highly informative and educational. I fully believe in surrounding yourself with high achievers, which will force you to up your game. It is difficult to track down people of this stature in general, so a free discussion like this is invaluable. I walked away truly inspired and recommend that anyone who has a chance to hear highly successful people hold a discussion in an intimate setting to seize the opportunity. -DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com0tag:blogger.com,1999:blog-8329327917293444262.post-67261843055949499542015-09-09T13:32:00.001-07:002015-09-09T13:32:38.114-07:00Lessons of an Investing Addict Part 3: Margin<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEimncbqAh848EMXVuzWK7Iy5NPvY-nrJDvtikLYsVlkYHaCgmVWL-0uYvJUL_qA3NoV5fh2JRR0ZbRvstCcK4TTOyxBXKw68LGck4195oHQVg7fHStZsTkrlVehdO49q9RqfdtVFaP1LY4H/s1600/Green-dollar-sign-1049894_21894036.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEimncbqAh848EMXVuzWK7Iy5NPvY-nrJDvtikLYsVlkYHaCgmVWL-0uYvJUL_qA3NoV5fh2JRR0ZbRvstCcK4TTOyxBXKw68LGck4195oHQVg7fHStZsTkrlVehdO49q9RqfdtVFaP1LY4H/s320/Green-dollar-sign-1049894_21894036.jpg" width="320" /></a>Using "margin" means borrowing money from your broker to purchase more stock than you could afford using only your available cash. Think of it like a credit card that you can only use to buy stock. In this case, there can be a tremendous upside to taking the risk of utilizing margin, but there is also a significant downside if the investment goes against you - even more of a downside than just the interest you pay on the borrowed money.<br />
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The Federal Government (Regulation T) allows you to borrow up to 50% of the initial purchase price of a position, called "initial margin". Beyond that requirement, brokerages require a minimum equity maintenance to be kept to minimize potential losses to you and to them. These minimum maintenance requirements can vary. <a name='more'></a>For example, some brokerages require a 50% equity maintenance on securities selling between $3 and $5 and 30% requirement for equities selling above $5. These rates are solely at the broker's discretion and some of them tend to be more upfront than others. (This is one of the reasons that I pulled most of my money out of Scottrade and switched to a different broker, as they revised their maintenance rates for individual stocks weekly, making it impossible to accurately manage an account).<br />
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If your equity falls below the minimum requirement, a margin call will be issued and you will either need to deposit more funds, deposit securities, or sell out some of your position to bring your equity above the maintenance requirement. Don't forget, you'll need to pay interest on the borrowed money! The interest rate is typically on a sliding scale where a lower rate is paid the more you borrow. The highest rate may be applied to loans less than $10,000 and currently sits between 7.5% and 8% (better than a credit card, but not by much!).<br />
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If all of this sounds confusing, it definitely can be - but I'll try to clarify with examples:<br />
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Let's say you have $10,000 to buy stock ABC at $7.50. However, you've done your homework and are confident in your investment. Since ABC is selling for above the $5 limit your broker set, you can borrow money on 50% margin to purchase additional stock, but you must maintain a 30% minimum equity. <br />
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So, you have $10,000 cash and you can borrow up to 50% of the total purchase price for the initial margin requirement; you can afford a $20,000 purchase ($10,000 cash, $10,000 borrowed that you are getting smacked with 8% annual interest on). For $7.50 per share, you can buy 2,667 shares of ABC. <br />
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Let's say you made a good call and ABC goes up to $10. You decide to sell out for $26,670. You still have to pay back the $10,000 that you borrowed, so you are left with $16,670, or $6,670 profit. Not bad! Say you hadn't borrowed any money and only bought what you could afford with cash. You would have been able to afford 1,333 shares and would have sold out for $13,333, or a $3,333 profit. Still not bad, but you would have doubled your profit had you borrowed the money! See why buying on margin is enticing?<br />
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Obviously, there's a downside risk, as well. Say ABC drops to $5.10. Your 2,667 shares are now worth only $13,602. But - OH NO - you still need to pay back the $10k you borrowed! Your equity out of the $13,602 is only $3,602 (since you still owe the borrowed $10k). But never fear . . . you are confident ABC will go back up. But wait! The phone is ringing! It's your broker telling you your equity of $3,602 is below the 30% requirement! ($3,602/$13,602 = 26.5% < 30% = $4,080). If you can't stomach it and entirely sell out at this point, you'd lose a staggering $6,398 (that's, $10,000 initial investment - $3,602 remaining equity)!<br />
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If you do hold on, you still need to meet the 30% margin call. You either need to deposit another $478 ($4,080-$3,602) into your account or you need to sell securities to bring your equity percentage back up. If you sell 313 shares to pay back some of the money you borrowed, your total account will drop to $12,005 (that is, $5.10 * 2,354 remaining shares) and your equity of $3,602 is back to the acceptable 30% range. You still owe ($10,000 - (313)($5.10)) = $8,404 of borrowed money. If you luck out and ABC appreciates back to $7.50/share, you would only have 2,354 shares left, for a total account value of $17,655! Once you pay back the remaining $8,404 of borrowed money, you STILL lose $751 (that's, $17,655-$8,404 borrowed = $9,251. $10,000 initial investment - $9,251 remaining = $751 loss AT THE PRICE OF YOUR INITIAL PURCHASE)! If ABC kept going down, this process would exacerbate, as you would reach this specific brokerage's 50% requirement for a stock below $5! And so on and so forth . . . <br />
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If you didn't borrow on margin, you wouldn't have had to sell out shares at $5.10 and you would break even if ABC reached $7.50 again. If you sold out at the $5.10 bottom, you'd lose $3,200; not insignificant, but only half of what you'd lose if you had sold out in the margin account.<br />
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Margin is risky, but offers higher rewards as a consequence. It is NOT recommended beginning investors. In fact, there are very few occasions where it IS recommended. For example, in situations where you plan to pay back the borrowed money in the short term, margin can be beneficial. Regardless of whether you plan to borrow the money in the short or long term, DO YOUR HOMEWORK! Think of it this way: Your investment must return 8% to just break even! It must return 16% to keep up with the market after subtracting out your interest rate! Ouch! I'm not saying that there aren't investments that offer the fantastic returns that would make this strategy viable, but they are few and far between. You REALLY need to know your investment inside and out. <br />
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-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com1tag:blogger.com,1999:blog-8329327917293444262.post-17529161126876733342015-09-04T06:28:00.000-07:002015-09-16T06:01:07.702-07:00Review: "Zen and the Art of Motorcycle Maintenance" - Robert M. Pirsig<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEicKG__nw4U53Eb_vhqCucrnkCytKuCKAMYMM6acikvZi1GY4QnWHGg5Q9rdcR9vQ_SNz-7sQfnVRyqbkmv5L6nJRkoEKcezfClz0iRy0tyH8i1WpzCme4ChcLI13ACKVWk4m313c9W85eO/s1600/Zen.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEicKG__nw4U53Eb_vhqCucrnkCytKuCKAMYMM6acikvZi1GY4QnWHGg5Q9rdcR9vQ_SNz-7sQfnVRyqbkmv5L6nJRkoEKcezfClz0iRy0tyH8i1WpzCme4ChcLI13ACKVWk4m313c9W85eO/s320/Zen.jpg" width="198" /></a>In one line, I'd summarize my thoughts on this book as, "Not worth my time" . . . or, more like, "What was that?" I definitely stepped outside my comfort zone on this one, as I usually gravitate towards finance, investing, and social psychology books. However, <a href="http://www.amazon.com/gp/product/0060589469/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0060589469&linkCode=as2&tag=somedayextrao-20&linkId=MVKP3HVKBBY6IUE3" target="_blank">Zen</a> showed up on a number of "must read" lists, so I figured I'd give it a shot. <br />
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The author of this book, Robert M. Pirsig, is much smarter than I'll ever be - I'll admit it. I struggled to follow some of the complex, abstract, and esoteric concepts described within and felt that a passing grade in an introductory course of Greek philosophy should be a pre-requisite to turning the first page.<br />
<a name='more'></a> I had no - and I mean ZERO - prior knowledge of the teachings of Socrates, Plato, and Aristotle. I had ZERO familiarity with the rhetoric vs. dialectic debate, that apparently has been ongoing for some 2,400 years. And I have ZERO intention of digging further into these subjects.<br />
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Most of all, I couldn't understand why the antagonist-turned-protagonist, Phaedrus, was so hung up on this thing called "Quality". Towards the end of the book, Phaedrus acknowledges that there is nowhere left to go, nothing left to do, and that this may have been all for not. My thoughts exactly! Why would someone waste so much time taking on such a monumental yet hopeless task as reversing Western thought - by sticking it to one arrogant professor? Phaedrus' obsession with developing his thesis, I'm sure, resonates within some specific groups, but just not for me. I was left wondering what he was hoping to accomplish, besides maybe notoriety. Did he really think Western civilization was going to about-face because he proved to himself that he had it figured out? Yes, he was definitely insane.<br />
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A buddy of mine summarized it accurately, in my opinion (paraphrased): "People read it as a sort of right of passage - to SAY they read it. It makes them feel smarter that they finished it." Dead on. Obviously, we're on the wrong side of this one, as the book has become a bestseller and "is generally regarded as an American cultural icon in literature" according to Wikipedia.<br />
<br />
I'm not a deep enough thinker for this book, I'll give you that. I understand that there is much more to the book than I give it credit for. For example, I understand that, at the time it was written (1970's), mental illness was a stigma - and, even though we've made progress as a society on that front, it still is to some extent. Zen brought it to the forefront. Also, it does provide some interesting discussion on technology and the art vs. science - but every time it seemed like it started coming together and something valuable was to be learned, Pirsig took off on another tangent on his Chautauqua and lost me. Oh well.<br />
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<h3>
Favorite Passages:</h3>
<span style="font-family: inherit;">-"</span><span class="ecxApple-style-span" style="color: #667799; font-family: Verdana, Arial, sans-serif; line-height: 16px;"><span style="color: black; font-family: inherit;">When analytic thought, the knife, is applied to experience, something is always killed in the process. That is fairly well understood, at least in the arts. Mark Twain's experience comes to mind, in which, after he had mastered the analytic knowledge needed to pilot the Mississippi River, he discovered the river had lost its beauty. Something is always killed. But what is less noticed in the arts - something is always created too. And instead of just dwelling on what is killed it's important also to see what's created and to see the process as a kind of death-birth continuity that is neither good nor bad, but just <i>is</i>."</span></span><br />
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<span class="ecxApple-style-span" style="line-height: 16px;"><span style="font-family: inherit;">-“You’ve got to live right, too. It’s the way you live that predisposes you to avoid the traps and see the right facts. You want to know how to paint a perfect painting? It’s easy. Make yourself perfect and then just paint naturally. That’s the way all the experts do it. The making of a painting or the fixing of a motorcycle isn’t separate from the rest of your existence. If you’re a sloppy thinker the six days of the week you aren’t working on your machine, what trap avoidances, what gimmicks, can make you all of a sudden sharp on the seventh? It all goes together.</span></span></div>
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</div>
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<span class="ecxApple-style-span" style="line-height: 16px;"><span style="font-family: inherit;">"But if you're a sloppy thinker six days a week and you really <em>try</em> to be sharp on the seventh, then maybe the next six days aren't going to be quite as sloppy as the preceding six. What I'm trying to come up with on these gumption traps, I guess, is shortcuts to living right.</span></span></div>
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</div>
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<span class="ecxApple-style-span" style="line-height: 16px;"><span style="font-family: inherit;">"The real cycle you're working in is a cycle called yourself. The machine that appears to be "out there" and the person that appears to be "in here" are not two separate things. They grow toward Qaulity or fall away from Quality together.”<a href="http://www.amazon.com/gp/product/0060589469/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0060589469&linkCode=as2&tag=somedayextrao-20&linkId=XIWLSTEZLCPRDZA3" target="_blank">http://www.amazon.com/gp/product/0060589469/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0060589469&linkCode=as2&tag=somedayextrao-20&linkId=XIWLSTEZLCPRDZA3</a></span> </span></div>
-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com0tag:blogger.com,1999:blog-8329327917293444262.post-65662538963269720262015-08-31T11:43:00.001-07:002015-08-31T11:43:42.949-07:00The Opportunity Cost of Fantasy Football<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiuYjj4Ox0x5TVUFR3ujTuOlVRYy1Pb9tMS5FoBgiYtUWlqH74wjR_-wl_xFiDpTXoXvLcwurYEXP0VwuyBZrTq5Zjqg-aeELMcEmA7tJO554EMqdZNcdeGtGoFjgOWuTt5fSPywYR5Ah17/s1600/ring.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiuYjj4Ox0x5TVUFR3ujTuOlVRYy1Pb9tMS5FoBgiYtUWlqH74wjR_-wl_xFiDpTXoXvLcwurYEXP0VwuyBZrTq5Zjqg-aeELMcEmA7tJO554EMqdZNcdeGtGoFjgOWuTt5fSPywYR5Ah17/s1600/ring.jpg" /></a></div>
I have recently been the recipient of verbal office jabs for my choice to abstain from Fantasy Football this year. My retort? The opportunity cost of drafting, managing, and discussing Fantasy Football does not warrant participation. I played last year. I enjoyed it. I enjoyed it a little too much, spending Sunday's refreshing my phone at the local B-Dubs, telling my wife I need some obscure receiver to catch at least 4 passes for me to lock in a playoff spot - as if to include her in my predicament. The end of the season was a welcome relief, maybe as much for me as it was for her. No matter how many times I have vowed to not let FF take over my life, I still found myself sucked into the office banter throughout the week and a zombie - a shell of my non-football self - on Sundays. I am STILL being sucked into the office conversations, and I'm not even playing this year! That's power of Fantasy Football!<br />
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What is the tradeoff for that time and stress? What am I missing out on? Am I getting more out of participating than I would from some other activity? What are the <strong>opportunity costs</strong>?<br />
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The concept of "opportunity cost" is often misunderstood, mainly due to the difficulty in quantifying it. <a href="http://www.investopedia.com/terms/o/opportunitycost.asp" target="_blank">Investopedia</a> defines opportunity cost as:<br />
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<blockquote class="tr_bq">
1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.</blockquote>
<blockquote class="tr_bq">
2. The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% - 2%).</blockquote>
From strictly a financial perspective, definition #2 works. But should opportunity costs be only quantified in terms of money lost? Not according to J. Money, who in this recent <a href="http://www.budgetsaresexy.com/2015/08/different-way-to-think-about-money/" target="_blank">post on his BudgetsAreSexy blog</a>, discusses the idea of viewing money as, " . . . only a *tool* to get us what we really want in life." Opportunity costs can be assessed not only monetarily, but in terms of "<a href="http://www.somedayextraordinary.com/2015/08/utility.html" target="_blank">utility</a>" - the toll an activity takes on a person vs. what they gain from choosing that activity over another. <br />
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<h3>
Sooooo, what does this have to do with my Week 1 lineup???</h3>
As our views of happiness and accomplishment and success and value evolve throughout our lives, quantifying in absolute terms the opportunity cost of choosing one option over another is implausible and impractical - and, nearly impossible from an accuracy standpoint. <strong>The solution is to think in terms of relativity</strong>. At any given time, we only have so many choices or decisions that need to be made. Once we set our own precedence on the direction we want to steer our lives, the amount of choices to be made can be reduced and decision making more efficient, leaving more time for productive thought. This brings us back to Fantasy Football. <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8THXye9_td7vKOHd4CsojszA2J7CHHpcEBQudWniPlslTHpp4qymlcrWJh1kns9PcGBeaLrB9cu9atOh2ZqGxkgFU6VRuqwaNhNn7hxLeOf0a36SddQwAsE5OaBelDjnAJLSZiOqZedWi/s1600/league153909_532_logo.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8THXye9_td7vKOHd4CsojszA2J7CHHpcEBQudWniPlslTHpp4qymlcrWJh1kns9PcGBeaLrB9cu9atOh2ZqGxkgFU6VRuqwaNhNn7hxLeOf0a36SddQwAsE5OaBelDjnAJLSZiOqZedWi/s320/league153909_532_logo.jpg" width="320" /></a></div>
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FF brings with it myriad choices on a daily basis. The sheer number of weekly temptations to participate in the office chitchat is mentally distracting enough, let alone forming an actual coherent argument to support your 1st round pick of Adrian Peterson. If you are more disciplined than I, you can filter out the office talk and efficiently manage your team, but likely at the risk of reducing your enjoyment in participating. Fantasy just becomes another task you need to manage.<br />
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A 2013 Forbes <a href="http://www.forbes.com/sites/briangoff/2013/08/20/the-70-billion-fantasy-football-market/" target="_blank">article</a> claims Fantasy Footballers spend an average of 3 hours per week managing their team. Based on my own empirical data, this has got to be a gross understatement, but let's go with it anyway for the sake of being conservative. 17 weeks, plus 1 week for draft = 18 weeks x 3 hours per week = 54 hours! <strong><u>That's over 2 full days!!!</u></strong> Spent on what? What do you gain from that expended time? Immediate gratification (on a good week)?<br />
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So, what value do you place on Fantasy Football <u>relative</u> to what you hope to accomplish in your life. What could you use those 2.25 days more constructively for? Well . . . <br />
<br />
-Listen to 7 or so audio books or read maybe 10-15 real books?<br />
-Write 18 or so blog posts?<br />
-Side jobs? Mowing 27 large yards? At $25/yard (cheap! I'd hire you!), that's $675 cash!<br />
-Honing a skill? Start a new hobby? Guitar maybe? 54 hours is A LOT of time to <br />
-Research other investment opportunities<br />
-<a href="http://www.somedayextraordinary.com/2015/08/the-economics-of-beer-better-to-buy-or.html" target="_blank">Brew beer</a>? ;)<br />
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And those are just the constructive ideas that came to mind within the first 2 minutes of thinking about it. How about the most important of all - additional family time? Those activities can improve your knowledge, your skillset, your finances, your LIFE.<br />
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I have constantly <a href="http://www.somedayextraordinary.com/2015/01/a-day-in-life-of-ambitious-al.html" target="_blank">preached</a> the importance of maximizing the time in your day and to focus as much of your <a href="http://www.somedayextraordinary.com/2015/01/8-minor-adjustments-to-reduce.html" target="_blank">energy</a> as possible on your goal at hand. Focus on production and <strong>utilizing your time to compound knowledge, skills, money - or, better yet, to improve yourself as a person</strong>. What do you hope your actions will result in? Ask that question of yourself before deciding to partake in an activity. By having a clear and specific goal in mind, you can easily make the choice that will benefit you in the long term as opposed to the instant gratification of boneless wings and first round draft picks!<br />
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<br />-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com14tag:blogger.com,1999:blog-8329327917293444262.post-68521441156816218142015-08-27T07:24:00.001-07:002015-08-31T07:46:56.999-07:00Beer Economics: To Brew or not to Brew . . . <div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEje0jW6tFmWspsaUWeEDdslvEHBtgxvL_rQYxmZDOFbFqL2qhWMOKYor6PWWf9nn6kKyhjSsM2zn__BpZ-FUBjrtN7VRTR0Y8qiWaL6fOfeM3XPtmTL3-w0IQ5k2h_CGXzutv0gw83qbUmg/s1600/beer.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEje0jW6tFmWspsaUWeEDdslvEHBtgxvL_rQYxmZDOFbFqL2qhWMOKYor6PWWf9nn6kKyhjSsM2zn__BpZ-FUBjrtN7VRTR0Y8qiWaL6fOfeM3XPtmTL3-w0IQ5k2h_CGXzutv0gw83qbUmg/s1600/beer.jpg" /></a></div>
We all have our "thing". The "thing" . . . you know, the one that you, savor extraordinaire, just won't budge on. It goes against every principle you try to uphold on a daily basis. It's material, it's expensive, it's unnecessary, but it's sooooooo good! Maybe it's coffee? No, you would never frequent <a href="http://www.amazon.com/gp/product/B004LL5O46/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B004LL5O46&linkCode=as2&tag=somedayextrao-20&linkId=IQUL3FFBH6SA3COK" target="_blank">Starbucks </a>each morning for a $5 Pumpkin Spice Latte with your name spelled incorrectly down the side - that would be asinine. But there are still ways to get your fix, to feed that craving, and conquer that one weakness for a reasonable price. Maybe when you're at the grocery store staring at that wall of Folgers and Maxwell House, maybe you can't help yourself but reach for a bag of <a href="http://www.amazon.com/gp/product/B004LL5O46/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B004LL5O46&linkCode=as2&tag=somedayextrao-20&linkId=IQUL3FFBH6SA3COK" target="_blank">Peet's</a> for only $1 more per bag, or 15 cents more per pot.<br />
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Mine? Mine is craft beer. My dad had been brewing beer long before it was hip. I sidestepped the Icehouse college phase. I never "moved up" to the expensive Coors Light. Nope, my first "bad" beer was <a href="http://www.amazon.com/gp/product/B00B87UNZQ/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B00B87UNZQ&linkCode=as2&tag=somedayextrao-20&linkId=2Y55L4JY2MO2NA7O" target="_blank">Sam Adam's</a>. At that point, I was doomed. It's a one way track. A guy can move from Iowa to California and he'll understand what he had been missing, but you can't expect a Californian to relocate from San Diego to Des Moines and survive. It's a step backwards, in his eyes. After my dad's craft beer, there was no turning back. <br />
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But craft beer exploded. Now, a six pack of <a href="http://www.amazon.com/gp/product/B00B6FN9TW/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B00B6FN9TW&linkCode=as2&tag=somedayextrao-20&linkId=CLI7WXNPL6BRKAZN" target="_blank">Lagunitas</a> Little Sumpin' Extra ale will set you back $9.99, if you're lucky, and that's before taxes. You want to buy <a href="http://www.amazon.com/gp/product/B00SIMQ64G/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B00SIMQ64G&linkCode=as2&tag=somedayextrao-20&linkId=FOUGDYZ2U3JRSJMX" target="_blank">Ballast Point Sculpin</a> in Chicago? How about $13 minimum?!<br />
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So what's a frugal guy to do? There was only one other option: Brew your own beer! <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidhM2fTvlpffhZP18LXpctVbEiSzQFAobO8vUJ8WYKpxyMHWHOBkyVGfGOdvFN6mmARU76kXAYJAxuGVa_wP_MynUaYSHVRWvYIEWmOqj32m_psv8nZW6edOgd__81n_L78Ewe2LEtgW-n/s1600/beer1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="280" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidhM2fTvlpffhZP18LXpctVbEiSzQFAobO8vUJ8WYKpxyMHWHOBkyVGfGOdvFN6mmARU76kXAYJAxuGVa_wP_MynUaYSHVRWvYIEWmOqj32m_psv8nZW6edOgd__81n_L78Ewe2LEtgW-n/s400/beer1.jpg" width="400" /></a></div>
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Let's put some numbers to it and see how it shakes out for a 5 gallon batch:<br />
<br />
You'll need equipment.<br />
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-Carboy for fermentation, bucket for priming and bottling, wire brush for cleaning, hydrometer for calculating alcohol content, bottle capper, sampler, sanitizer - all of this can be <a href="http://www.amazon.com/gp/product/B002BU7CVM/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B002BU7CVM&linkCode=as2&tag=somedayextrao-20&linkId=LSMOYH4DOIU3JEIC" target="_blank">bought</a> in a brew kit for around <strong>$91</strong>.<br />
-I like to "rack" to another carboy for secondary fermentation to separate out the wort (unfermented beer) from the sediment and add clarity. <a href="http://www.amazon.com/gp/product/B002BU7CVM/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B002BU7CVM&linkCode=as2&tag=somedayextrao-20&linkId=LSMOYH4DOIU3JEIC" target="_blank">Second carboy</a>: <strong>$23</strong>.<br />
-You'll need a burner to boil the wort. <a href="http://www.amazon.com/gp/product/B002BU7CVM/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B002BU7CVM&linkCode=as2&tag=somedayextrao-20&linkId=LSMOYH4DOIU3JEIC" target="_blank">Burner</a>: <strong>$50</strong>.<br />
-You'll need an oversized kettle to boil your wort on the burner. I prefer something over 10 gallons to prevent boil over. <a href="http://www.amazon.com/gp/product/B000VXHKMC/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B000VXHKMC&linkCode=as2&tag=somedayextrao-20&linkId=N4RZEBR6JJYNOFMC" target="_blank">Kettle</a>: <strong>$78</strong>. <br />
-Bottles. <a href="http://www.amazon.com/gp/product/B005E0NV1G/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B005E0NV1G&linkCode=as2&tag=somedayextrao-20&linkId=NA4FX2KJJYHL6NHK" target="_blank">22 oz.</a> 2 cases of 12 ea: <strong>$12</strong>.<br />
-Misc. airstops, bubblers, grain bags, hoses, etc.: <strong>$40</strong>.<br />
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<u>Total long term Assets</u>: <strong>$294</strong>. Let's capitalize this over 5 years on a straight line basis, for estimation sake and call it <strong>$58.80/year</strong> and, furthermore, let's say you brew 5 times per year = <strong><u>$11.76/brew</u></strong>. (Disclaimer: Brewing can be as technical or simple as you want. If you want to brew "all-grain", you will need some additional equipment. You can also buy high end burners, pots, etc., but the list above is enough to get started and will allow you to make some pretty good beer.)<br />
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Ingredients and Recurring Costs:<br />
<br />
-You can buy a clone kit from <a href="http://www.amazon.com/gp/product/B00WIKQYLO/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B00WIKQYLO&linkCode=as2&tag=somedayextrao-20&linkId=ANBG33D7F2V7LUGH" target="_blank">Northern Brewer</a> for around <strong>$40</strong> with shipping. This will include your extract (again, if you're brewing all grain, this list will vary - but extract kits make very good beer these days), specialty grains, and hops. Pre-packaged kits can range in price from $20 up to around $80 - it just all depends on your taste. A $40 kit is perfectly acceptable.<br />
-Add another <strong>$10</strong> for yeast and priming sugar to carbonate your beer.<br />
-I'm going to neglect water cost, assuming you can use your tap water. You can treat the water with different minerals and additives if you'd like or even use bottled water. That will obviously increase your cost.<br />
-Propane. Say a refill of a tank is $<strong>17 </strong>and we'll say 3 brews per tank = <strong>$4.25/brew</strong>.<br />
-Caps, additional sanitizer, clarifying agents (fish bladder, Irish moss) and other misc. recurring costs: Estimate at <strong>$3/brew</strong>.<br />
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<u>Total Short Term Assets</u>: <strong>$57.25/brew</strong>.<br />
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<u>Labor</u>: What do you value your time at? You could claim minimum wage of $7.25/hour. You could claim $0, simply because you view it as a hobby and enjoy spending your time brewing. You could say $40/hour, because maybe that's what you are paid at work. I enjoy brewing, but it is time consuming and I am making a sacrifice by spending all morning over a brew pot. I'll say <strong>$10/hour</strong>. Brewing an extract kit can take around 4 hours, then add another hour of bottling, cleaning, etc. = 5 hours $10/hour = <strong>$50/brew</strong>.<br />
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Overall cost per brew: $11.76 + $57.25 + $50.00 = <strong><u>$119.01/Brew</u></strong><br />
<strong><u></u></strong><br />
I have found that, with minimal spillage, I can brew around 23 - 22 oz. bottles per 5 gallon batch. (22 oz. bottles are used, so you don't have to fill as many bottles, which minimizes spillage). <br />
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So how does it all shake out? $119.01/brew/(23 bottles x 22 oz. per bottle) = <strong>$0.235oz</strong>. So, equating this to a standard 6 pack of 12 oz. bottles, you have $0.235 per oz x (6 bottles x 12 oz. per bottle) = <span style="font-size: large;"><strong><u>$16.93 per six pack</u>!</strong> </span><span style="font-size: small;">Wow! </span><br />
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Even if you love brewing and value your time at $0/hour, your six pack price is <u><strong>$9.82 per six</strong></u> - or just below a solid Lagunitas price. Best case scenario, if your equipment is still in working order after 5 years and you only have the ingredient costs, while valuing your time at $0, you only get down to <strong><u>$8.15 per sixer</u>. </strong>Time to shelf that brewing equipment and head to BevMo!<br />
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Guys, the lesson here is: You can now honestly tell your wife that you are taking the fiscally responsible approach by buying that Zombie Dust for $14/six!-DPhttp://www.blogger.com/profile/09151205771085890682noreply@blogger.com0