Excel Basics Video #1: Introduction for Small Business Owners

Lately I’ve been working with Accion Texas, a regional micro lender organization, to produce educational videos for entrepreneurs.  Below is an introduction to the first series of six videos, which covers the first steps in using Excel, such as how to open up a workbook, how to begin to format a worksheet, and how to program simple math in your spreadsheet.

The next series of videos – still to be produced – will be on how a small business owner can use Excel to tracks costs and revenues, and how to model future growth.

I’ll be posting the basic introductory series of six videos here in the next few days and weeks.

Eventually I hope to work my way up to showing how Excel helps us calculate key personal finance topics, such as modeling a home loan or car loan, calculating compound interest, and discounted cash flows.

One of the advantages of this very basic series is that – for anyone who has never used Excel but wants to learn those advanced skills – here’s a way to jump on the surfboard while the waves still move very slowly.

Please see related Posts:

Excel Basics Video #1 – Introduction to Excel for Small Business

Excel Basics Video #2 – Opening up a Workbook

Excel Basics Video #3 – Arithmetic & Formatting

Excel Basics Video #4 – Sums and Averages

Excel Basics Video #5 – Formatting Cells

Excel Basics Video #6 – Autofill

 

 

Excel_Icon

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Book Review: Investing Demystified by Lars Kroijer


Can we invest our own personal portfolio in a sophisticated way, to maximize our risk-adjusted returns, without incurring high costs or having to be financial experts ourselves?

In his book Investing Demystified: How To Invest Without Speculation And Sleepless Nights, Lars Kroijer says yes.

Kroijer was a hedge fund manager who argues forcefully against hedge funds, because of their high costs as well as because most active managers claim an ‘edge’ on markets which they are unlikely to really have.

A priest’s guide to atheism

As he says in his introduction, the irony of his position is not lost on him.  It “may seem like a priest writing the guide to atheism.”

As “Anonymous Banker” of course I am personally all in favor of finance folks criticizing, from their experience, the financial industry’s areas of high cost/low value-added.

We need the Lars Kroijers of the world to tell us that “simple is better,” “low cost is better,” “retail investors should avoid complex financial products,” and a better solution exists.

The author says that he designed his book as the grey Volkswagen, rather than the red Ferrari, of investing.[1]

Volkswagen_style_investing
Sensible, unsexy, rational: The Volkswagen way to invest

 

 

60-Second Version of Investing Demystified.

Kroijer helpfully offers a “60-second version” of his book – the 4 take-aways to remember:

  1. We as individuals do not have an ‘edge’ in financial markets.  We should invest accordingly.
  2. We can construct a cheap and simple optimized portfolio using world-equity tracking indexes and the highest-rated government bonds.  We can then choose whether to add a level of complexity by deciding about a) What % of the portfolio should be in our ‘risky’ equities bucket, and b) Whether adding some corporate bonds or risky governments bonds also makes sense
  3. We need to think carefully about personal a) risk appetite b) Tax consequences c) non-investment assets and liabilities such as real estate, income, and debt
  4. We should pay attention to investment and transaction costs as these matter a whole lot in the long run

I like Kroijer’s 4 lessons because they are correct, simple, easy-to-remember guides to personal portfolio construction that eschew hype.  His VW will get you from here to there with minimal cost, minimal risk, and maximum performance.

I also like that Kroijer’s personal background and professional experience make his advice free of national bias.  What he says about personal portfolio construction applies equally to a Belgian, a Brazilian or a Bostonian.

International perspective advantage

One advantage Kroijer brings to the typical discussion of optimal, low-cost, low-maintenance personal investing is that he’s a Dane by birth, a Londoner by choice and profession, and a citizen of the world.  As a result, he solves the personal portfolio puzzle differently than your average American who has a US-centric view of the investing universe.  He’s unmoored from a parochial investment approach.

This matters because:

  • Your dominant currency may not be the US Dollar.
  • Your tax regime may not be the US tax regime.
  • Riskless bonds in your portfolio may not necessarily come denominated in your home currency, or from your own national government.
  • The best, low-cost diversified mutual fund from Kroijer’s perspective is not a Russell 5000 index tracker therefore, but rather a whole-world equity market tracker.  Only through a ‘whole-world’ index tracker, Kroijer argues, can you achieve the optimal point of an efficient frontier portfolio.

Recommendation

I would recommend this book to a friend who has a traditional “Left Brain” orientation with an accounting, engineering, or mathematical background, but who may never have studied personal finance up to this point.  For that person, Kroijer’s vocabulary and engagement with portfolio theory will be quite gentle, because Kroijer never actually goes too far with technical explanations.

For the creative or non-technically inclined, however, Kroijer’s grey Volkswagen approach – and especially the peeks under the hood at the financial theory – may leave them a bit cold.

The practical, diffident, Dane isn’t flashy, and he isn’t trying to entertain.  He’s just rational, right, and could help you get wealthy.

Please see related post:

Lars Kroijer on agnosticism over ‘edge’

Audio interview with Lars Kroijer Part I – On Global Diversification

and related post: Audio interview with Lars Kroijer Part II – On having an ‘edge’ in markets

and an Amazon link to his other book, Money Mavericks, Confessions of a Hedge Fund Manager

Please also see related post: all Bankers Anonymous book reviews in one place.

 


[1] The jacket cover confirms his sensible/boring/diffident approach, as the grey cover with block letters is unconvincingly enlivened with awkward rainbow-colored arrows all pointing in the same direction.  It’s not the red Ferrari of jacket covers either.

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Rage Against the Machine – Oil & Gas News Coverage Version

Morning News Rant

Do you find yourself eating your morning granola, hunched over the financial news, stopping in the middle of a paragraph, feeling your eyes glaze over as your BS-meter tilts red in 0.6 seconds, and then looking up at the window to start mumbling like a deranged person to yourself about the absurdity of that business story?

Reading the newspaper and getting upset
Grumpy investor reading the news!

You do?

What a coincidence, because so do I!  That’s so weird!  It’s like we’re twins!

Well, ok, not so weird, because you read Bankers Anonymous and you understand that’s one of our conditions – the daily, and perhaps hourly frustration with the Financial Infotainment Industrial Complex’s faulty depiction of events that affect our lives.

Why do I bring up our common condition today?

I’ll tell you why.

Oil and Gas Drilling
The Natural Gas Revolution in South Texas

I live in South Texas, where the development of fracking fields is in the process of revolutionizing energy production in the US.  I believe the consequences of this process, for everything from renewable energy, to regional job creation, to potential environment liability, to geopolitical and Middle Eastern politics cannot be exaggerated.

As a result, I read what I can about business developments in my regional back yard, both in the local paper – The San Antonio Express News – and the Wall Street Journal.

The local paper’s coverage has its flaws[1], but I want to pick a fight with a story today in the Wall Street Journal.  I have found that of the two papers, only the Wall Street Journal covers the Eagle Ford Shale stories from the perspective of national and international public and private equity firms, and I appreciate this, since it’s missing from my local paper.

I should also say my following rant pertains not particularly to the oil and gas or fracking industry, but rather practically any industry covered by the Financial Infotainment Industrial Complex.

The part of the story where my BS-meter hit red

The WSJ story describes the sale of Texas shale-driller GeoSouthern Energy Corp to Devon Energy Corp for $6 Billion, the largest acquisition of the year in the US in the oil and gas industry.  (Pretty important news, which at least 24 hours after the announcement, the local paper still hasn’t touched.  But I digress.)

What gets my goat is a quote buried in the middle of the story by “Wells Fargo energy analyst” David Tameron.  Tameron says:

If you are private[2] right now and you can sell yourself, you do.  If I’m a buyer and there are a lot of people who want out the door, it’s a good time to be buying.

 

Maybe this quote was taken out of context, and if so, I apologize to David Tameron, Wells Fargo energy analyst, for what I’m about to say.

My interpretation of Tameron

I interpret Tameron’s statement as:

“If you’re selling an oil drilling company, it’s a good time to do that.  Also, if you’re buying an oil drilling company, it’s a good time to do that.”

This is an absurd ‘analysis,’ by David Tameron, Wells Fargo Energy Analyst.

Tameron’s statement goes unchallenged by the Wall Street Journal as the self-serving, churn-inducing statement that it really is.

In the real investing world – not currently occupied by either David Tameron, Wells Fargo Energy Analyst, or the Wall Street Journal reporter on this story – there are attractive times to invest $6 Billion in an oil and gas drilling company, and there are less attractive times.

Most of the time, for real investors, we can not be sure whether it’s an attractive time, or not, to be making a $6 Billion investment in an oil and gas drilling company.  Because it really depends on a lot of unknowable future factors, not least of which are the future input costs and output costs for oil and gas, both of which are volatile.

Some time in the future, we may eventually know whether it was a good time to be a buyer of GeoSouthern Energy Corp for $6 Billion, or not.  The answer may even change a few times in the future, again, because markets fluctuate.

From an investor’s perspective

What I do know, however, is that it’s not simultaneously a good time to buy and a good time to sell.

Wait, I need to be more specific.  For investors in the transaction, it is not simultaneously both a good time to buy and a good time to sell.  From an investor’s perspective, it will end up being a good time for one side, and a bad time for another side, some time in the future.

From the brokers’ and the Financial Infotainment Industrial Complex’s perspective

But the investor’s perspective is not shared by brokers or the Financial Infotainment Industrial Complex.

For financial intermediaries (brokers) who buy and sell companies – or stocks, or bonds, or currencies, or real estate – its always simultaneously a good time to buy and sell the same thing, since this is how they make money.

And for members of the Financial Infotainment Industrial Complex, of which the Wall Street Journal is among the most important and sophisticated, it’s always simultaneously a good time to buy and to sell.  Because transactions create events, which in turn gives them something for them to talk about.  They are not investors but rather cheerleaders.

This Eagle Ford Shale example this morning – like the several or dozens of financial transactions a day we vaguely witness passing through the peripheral transom of our financial mindshare – just reminded me of the different incentives we have when compared to the united front of brokers and the Financial Infotainment Industrial Complex.

The Financial Infotainment Industrial Complex needs to churn a story every day, that’s how they get revenue.

And brokers – represented in this example by David Tameran, Wells Fargo energy analyst – need to try to churn a transaction every day.

As consumers (victims?) of the Financial Infotainment Industrial Complex we get hit with somebody else’s strong bias – the need to constantly churn transactions.

The truth that this does not help us think straight about investing – in fact it undermines our ability to think about investing – is rarely mentioned.

You and me, I guess we know this.  We are, somewhat, occasionally, immune.  But what about the rest of the folks out there, fed the disturbingly wrong, the self-servingly biased line, that it’s always simultaneously a good time to be buying and selling?

Sigh.  Time to finish my granola.



[1] Fine, since you asked, what’s wrong with the local paper?  The local paper only covers the Eagle Ford Shale with three themes. A) Fracking = Lots of Jobs!  B) We need to invest in the roads in south Texas that are being hurt by super-heavy truck traffic!  C) There are plucky wild-catters trying to make money here.  Of these, stories A and B are true as they go, and C is absolutely, totally, and completely misleading, since wildcatters comprise approximately 0.0001% of the activity in the Eagle Ford.  As far as the other potential stories of the Eagle Ford, the local paper does not cover them.  These might include: a) Environmental impacts b) The national and international businesses doing deals in South Texas, and their relationship to high-profile public and private equity firms c) Technological innovation in the fracking process in the past 10 years and d) the revolutionary impact of 90 years’ worth of affordable energy on our lives as well as on the renewable energy business.

[2] “private” in this sense meaning the fact that GeoSouthern Energy Corp is owned privately, it has no public shares outstanding.

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The Allowance Experiment, Completed!

bank of dadLast night completed Day 30 of the “Allowance Experiment,” in which I offered my eldest daughter a daily payment calculated as 10% of her allowance savings, compounding daily.  On day 1, she began with an initial grub stake of $1.  She received $0.10 on day 2 (10% of $1) and $0.11 on day 3 (10% of $1.10), and so on.

By Day 30, however, due to the magic of compounding, the daily payment grew to a substantial $1.44.  At the end of 30 days, she had $15.86 in the money jar.  That’s a pretty good sum for an 8 year old, because she can buy any ice cream her little heart desires, and $15.86 is also approximately 1/1000th of the way to obtaining an American Girl Doll.[1]

With this kind of experiment, one must stop after about a month.  Otherwise – because compound interest turns money into kudzu crossed with HGH crossed with a mutant Godzilla[2] – by 6 months of this I would end up paying her $2.1 million per day, and she would have over $25 million in her jar.  At which point obviously I’d be asking her for a daily allowance.

Plus with $25 million in the bank she could afford to purchase approximately 2 American Girl Dolls at the same time.[3]

Unexpected benefits

As I wrote before, one of the beneficial side effects of the allowance experiment – because I required her to do the daily interim calculations of 10%, plus adding up the totals in the jar – was appropriately difficult math for a 3rd grader.  This is smart parenting.

If her math errors worked in my favor, well that's just good banking practice
If her math errors worked in my favor, well that’s just good banking practice

You know what else is smart parenting?  When she messed up the calculations.  For example, when the 10% number she calculated ended up larger than it should have been, I immediately pointed out her error and asked her to try again.  I was not about to pay any more than I had to.

But what about when she messed up the calculations and it worked in my favor?  What about when she asked me to pay less in compound interest than I should?

Well, let me just say that all’s fair in love, war, banking, and parenting.  I mean, you can take the Dad out of Goldman Sachs, but you can’t expect to take Goldman Sachs out of the Dad, now can you?

Plus, as (my guide to all good parenting practices) Jack Handey points out, kids like to be tricked.[4]

The main point, accomplished

All jokes aside, the point of this experiment was not so much to induce savings or to teach basic math, but to viscerally illustrate the powerful force of compound interest.

I asked her if she understood the way in which money grew at an accelerating pace with regular 10% compounding.  She responded with a wide-eyed, “Yes, it gets really big.”

Good girl, my work is done here.

Please see related posts:

Daddy Can I have an Allowance?

The Allowance Experiment Gets Better

Daughter’s First Stock Investment

Book Review of Andrew Tobias’ The Only Investment Guide You’ll Ever Need

 


[1] That last number is just a price estimate based on gut feeling.  I haven’t looked it up.

[2] “Kudzu crossed with HGH crossed with a mutant Godzilla” is the name of my new favorite funk band.  Also, I’m going to copyright it as a title for my book on compound interest, so don’t even think of copying it.

[3] Again, all prices are just estimates.

[4] From the parenting guru himself: ‘One thing kids like is to be tricked.  For instance, I was going to take my little nephew to Disneyland, but instead I drove him to an old burned-out warehouse.  “Oh, no,” I said.   “Disneyland burned down.”  He cried and cried, but I think that deep down, he though it was a pretty good joke.  I started to drive over to the real Disneyland, but it was getting pretty late.’

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Ask an Ex-Banker: Is This The Greatest Wealth-Making Opportunity Of All Time?

Souvenir Penny MachineAndrew, in Baltimore, writes in with a sure-fire way to earn 1%, risk-free, for 10 seconds of ‘work.’

I’m almost afraid to let out his secret, as mobs will soon descend on the City of Baltimore’ inner harbor Aquarium to attempt to reproduce this sure-fire money-making process.

But, I owe it to Bankers Anonymous readers to try to enrich them as well.

(Be sure to sign up for my daily newsletter for similar wealth-building tricks.  For just $999.99 per month, you can learn all the techniques.  Up next month: Bitcoins.)

 

Dear Bankers Anonymous,

I am a long-time reader, first-time letter writer. I’d like to get your advice regarding a great wealth-creation opportunity that I stumbled upon.

While at the National Aquarium in Baltimore, my son asked me for a penny to put into one of those souvenir penny press machines. Conveniently, next to the penny press machine, there is a change machine. However, this is a not a typical change machine. In this particular change machine, you receive 4 quarters and one shiny penny for each dollar bill you insert. The penny is free!

baltimore aquarium pennies
The original intended use for Andrew’s serendipitously discovered ‘perpetual money machine.’

This may not sound like much, but it amounts to a risk-free 1% return for 10 seconds of “work.” I immediately realized that there was a tremendous opportunity here. I returned the next day with $200 in crisp bills.

After just 30 minutes I was able to able to convert the 200 ones into 800 quarters and 200 pennies- $202.

I realized that I could repeat this process for the remaining 8 hours that the aquarium was open and walk out with more than $234! In order to do so, I just needed to convert my $202 in change ($201 after I bought a Fresca) back into one dollar bills. Unfortunately, changing the coins back into bills was not easy to do at the aquarium. The cashier at the gift shop seemed unhappy when I gave her my coins and asked for 201 one dollar bills. Her manager explained that “We’re not a bank.”

(Of course not! What bank would pay 1% every half hour!  Duh!)

Eventually, we agreed that I could use the change machine but that the gift shop or cafeteria would not change my coins for bills.  I am unable to lug 50 pounds of coins around, especially because just 30 minutes of the repetitive motion of inserting the one dollar bill into the machine exacerbated my carpal tunnel syndrome in my wrist.  Another alternative is that I could purchase one of these machines for my home.

Note: Not the actual Fresca bought by reader Andrew
Note: Not the actual Fresca bought by reader Andrew with his newly-made riches

I have a few questions for you:

1) In consideration of the above challenges, how could I scale this operation up?

2) Perhaps I should try this same strategy, but with bitcoins?

3) What are bitcoins?

Thanks, Andrew

Dear Andrew in Baltimore,

This is the most brilliant money-making strategy of all time.  As an initial investment to scale-up your strategy, I have ordered from China 50 of these special “extra-penny” change machines for my basement.  I’m going to set them up to work constantly in parallel, churning out 1% return on my dollars every few seconds, relentlessly.  Those bitcoin miners haven’t seen anything like this!

Regards,
The Banker

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What Should I Think About The Twitter IPO?

How to think about the Twitter IPO
How to think about the Twitter IPO

What should I think about the Twitter IPO?

Mostly you should think about Las Vegas, Nevada, as a number of important analogies apply here.[1]

First – The Poker Table

You know the rule that if you’re sitting at the poker table, and you’re not sure who the sucker is, then it must be you?

That’s you, the retail buyer, in any IPO.

Why do I say that?  How do I know that?

Buying an IPO as a retail investor - You do not have pocket Aces
Buying an IPO as a retail investor – You do not have pocket Aces

The people who have the most information about Twitter are the insiders in the business.  They are the founders and the earliest private equity investors, and they know this business inside and out.  They have lived and breathed this company since its existence.  You have not.

The next most knowledgeable people are the bankers and financiers, who evaluate newish companies, in emerging industries, with swiftly changing technologies, and uncertain cashflows, for a living.  They live and breathe stories and companies like Twitter, which you do not.

Now, at the poker table, the insiders and the bankers know their own cards, and they also know your cards, as well as the next few cards coming up on the flop, the turn, and the river.  Nine out of the ten folks at the table in this transaction know more than you do.  Interestingly, they are extraordinary friendly and welcoming of you at their poker table.

You should not be thinking “Huh, this Twitter IPO looks like an Ace – Seven off-suit.  If I can hit another Ace as a table card, I might do pretty well at this table with these so-called pros.  That would be sweet!”

No.  Instead, you should be thinking: ”My what big eyes they have,” and “My, what large teeth they have.”

Remember this: The insiders – the most knowledgeable people – with the help of their bankers – the next most knowledgeable people – are all selling their ownership in this company.  They are indicating, in the clearest terms possible, that they believe the company is more valuable right now than it will be in the near future.[2]

Do you doubt this?  If the insiders believed – on a probabilistic basis – that the company will be worth significantly more 1 to 5 years from now, they would not be selling their ownership.  They would wait for it to become more valuable.  These are all rational, smart, people.

You, on the other hand, are the easy mark.  Have a seat.  Come play poker with me.

Second – Extraordinary Payouts

“But,” you are quick to think, “I’m pretty sure from watching TV that there’s a lot of money being made somewhere in this IPO.  Isn’t that what it’s all about?”

Yes, this is true.

State lotteries display big winners in their advertisements, and at press conferences.  Casinos make sure to tout all the big jackpots their customers have made in slots, or poker tournaments, or on their easy roulette wheels and craps table.

Everybody loves those goofy oversized checks
Everybody loves those goofy oversized checks

And those winners are real people, with real payouts.

But that is not your role, as a retail investor, in an IPO.  You do not get that goofy oversized check.

The people with the big payouts from the Twitter IPO are the insiders, the founders, the executives, and the early private equity backers of Twitter.  The IPO represents a giant payout for them.

The massive payouts to insiders give the Financial Infotainment Industrial Complex the equivalent of that goofy oversized check to breathlessly illustrate a big transaction like Twitter’s IPO.

Remember, that payout is real, but it’s not for you.

Third – The Flashing Lights, Whistles and Bells

If you have walked the floor of any casino, the flashing lights and whistles and beeping buffeted you.  These sounds and lights provide an untrustworthy signal that “Wow, somebody is making money here!”

The Financial Infotainment Industrial Complex goes into high gear with an IPO like Twitter’s to provide the flashing lights and beeping and sound of coins dropping incessantly.

Their goal – as always in all of this – is to capture newsstand sales, Nielson ratings, page views, and click-throughs, with emotionally gripping, eye-catching, events.[3]  The Twitter IPO provides just such an event.

A flashy score for a small group of entrepreneurs and investors is that opportunity for the clink-clank-clink-clink of Triple Cherries, just as you slip past, flushed with heightened oxygen levels, trying to navigate the purposefully crooked casino floor, on your way to the restroom.

This is not how to think about an IPO outcome for you
This is not how to think about an IPO outcome for you

 

In sum, try to buy a piece of the casino, but do not gamble

Unless you are an insider in some way to the Twitterverse, you have no business participating in the Twitter IPO, or practically any IPO for that matter.

Don’t get me wrong: Investing in public companies – with a long time horizon – is a fabulous opportunity.  I even took all of my 8 year-old daughter’s savings and invested them in the stock market to teach her about this opportunity.

To extend the casino analogy even further, long-term stock ownership is like owning a piece of the casino.  You may have short-term ups and downs, but in the long run the odds will work out in your favor because you have house-odds, and you will build wealth, almost inevitably.

And also, please don’t get me wrong about Twitter.  I’m agnostic about Twitter as an investment opportunity.  I would describe every other highly-discussed IPO similarly.[4]  I assume mutual funds that I own will end up purchasing some Twitter shares, and I’m perfectly fine with that, over the long run, and in a diversified portfolio.

I love public stock ownership, and I’m happy for the few folks for whom this Twitter IPO will be a meaningful event.

But the point here is that Twitter’s IPO is, and should be, entirely irrelevant to the rest of us and our financial lives.  But the casino makes it hard for us to ignore it as we should.



[1] Really, this applies to any IPO. I don’t mean to pick on Twitter, except I’m fairly sick of hearing about it and its IPO should be totally irrelevant to all but a few dozen people on this planet.

[2] Warren Buffett on IPOs “It’s almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors).”

[3] If you have not walked the floor of a casino because you prefer to stay home and knit tea cozies, that’s cool.  I admire you.  Let me give you another analogy for the relationship between us and the Financial Infotainment Industrial Complex.  We are the kittens.  They hold the ball of string.

[4] The last high profile IPO I wrote about, Facebook, I got to combine a favorite Wall Street phrase with a favorite classic rock lyric.  And I was just as jaded about IPOs.

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