Data, Data, Everywhere, but Not a Thought to Think.

We live in a data-rich, analysis-poor world.

What do I mean by that?

TEDtalk-type folks tell us we create more data every moment than we know what to do with, that the data created in just the last 10 years overwhelms the data generated in the previous millennia of human existence.

The goal of thinking people, therefore, is not data-creation or even data-collection, but rather data-analysis.  How do we separate the signal from the noise?  How do we discover and connect disparate pieces of data to form a coherent narrative?  We have all this information, but what does it all mean?

Information, and revenue, collected by Bankers-Anonymous.com

You probably don’t know this already, so let me blow the lid off of a rich vein of data currently being collected by Bankers Anonymous, largely under the radar.

For your convenience, I’ve linked all my book reviews – positive and negative – to pages where you can buy those books on Amazon.com.

At the same time, when you do buy something from Amazon.com after clicking through Bankers-Anonymous, I receive a small percentage of the sales revenue as an advertising affiliate of Amazon.com.

In the past year Bankers Anonymous readers have purchased 160 items with a total retail value of $2,403.72.  As a result, in the past year of running Bankers Anonymous, I have earned $145.28 from referral fees.[1]

This information is not meant as disclosure – although you might as well know – and not even to encourage you to buy things on Amazon.com via Bankers Anonymous as a way of showing your appreciation for my attempts to amuse and inform – although you might as well do that too.

Instead, this means that after a year of tracking Bankers Anonymous readers’ purchases online, I can now definitively describe the profile of a B$A reader.

The Bankers Anonymous reader profile, based on your purchases

Based on my analysis of the rich vein of Amazon data, I’ll tell you what kind of person you are: Bald and nerdy.

Only one reader made a beauty product purchase in the past year.  That beauty need?  Baldness.

Amazon data shows a B$A reader purchased a 3-month supply of easy-to-use foam Rogaine for Men, Hair Regrowth Treatment, 5% Minoxidil Topical Aerosol.

So with that one purchase – 100% of the beauty purchases over the past year – I can definitively say that baldness is the silent aesthetic tragedy that stalks Bankers-Anonymous readers.

How do I deduce the nerdy part?

By far the biggest set of purchases made by readers are finance books, including a book on math for science and business that I reviewed last month.

The nerdiness doesn’t end there but is amplified by other purchases, such as one for doing magic tricks with math, interpreting financial statements, and how to do Jiu-Jitsu.  Seriously, a book on Jiu-Jitsu?
[2]  Are you getting the picture here?[3]

But that’s not the final set of data; the sartorial choices of Bankers Anonymous readers seals the deal.

One reader bought a pair of men’s Dockers, flat front pant.  Another reader (maybe the same one?) purchased Calvin Klein 3-Pack Boxer Briefs.  Most importantly, I’ve collected referral fees for three separate purchases of Gold Toe Men’s Canterbury Over the Calf Dress Sock, Navy, 3-Pack, Sock size 10-13.

It turns out my Bankers Anonymous readers are exactly like me, but somehow out there in the world.  I can’t express how comforting this is.

Anyway, here’s my promise to you, the Amazon.com-purchasing readers of Bankers Anonymous.  If you keep clicking through and buying stuff to generate the data, I will continue to analyze the data and reflect back who you are, exactly, in the months and years to come.[4]

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What housing is and is not

Housing, in a personal investment sense, is a confusing combination of necessity, consumption, and investment.  Separating and naming these functions can clarify for you exactly what you’re looking for in a house.

Your house is your roof and shelter from the earthly elements first, as well as the place where you lay your head at night, and where you store some physical possessions. The portion of payments you make for a roof and shelter rank in priority just below payments you make to acquire water and food on a regular – ideally daily – basis.

In that sense your house is a necessity.

To the extent your payments for a roof and shelter provides a personal feeling of comfort, luxury, prestige, identity, and aesthetic personality, then part of your house payments go toward consumption. 

You want these things, but you don’t need these things in a fundamental survival-type way.[1] 

In the meantime, you can have all of these necessity and consumption functions from housing without ‘owning’ the roof, without ‘owning’ and shelter.  What I mean is you can rent and fully satisfy the first two uses of housing.

Owning a home is not a requirement of happiness or middle-class achievement.  It should not be a substitute for the “American Dream,” or fulfilling your wildest childhood fantasies of belonging to some social group.

If you do choose the path of home ownership, your house may also serve as an investment. 

What does the Financial Infotainment Industrial Complex have to do with this?

If housing is partly an investment, then know that the Financial Infotainment Industrial Complex is seeking to mold your thoughts.

The nexus of the real estate and lending businesses – a powerful branch of the Financial Infotainment Industrial Complex – would have you conflate the necessity, consumption, and investment functions into fuzzy thinking.

I’m not saying housing is not a great investment – of course it is.  I’m just advocating for a clear-headedness about what we’re doing when you choose ownership over rental.  A clear-headedness not overly determined by powerful forces shaping your thoughts.

If all goes well for you, and housing inflation continues at a regular clip throughout the period of your home ownership, that fuzzy thinking will work out just fine for you.  But I want to take a moment to ponder what you’re really doing when you launch into the investment side of housing.

Housing as an investment

The good news

First, there’s no other investment vehicle which has done so much to foster middle class savings and wealth accumulation as home ownership.

With 4 to 1 leverage,[2] housing inflation, affordable and forced monthly payments, income tax breaks for mortgage interest, and generous tax exemptions for capital gains – I mean, this is one big, fat, middle-class birthday present for people who invested in housing over a long-term period of time, say, any time in the last 100 years.

To repeat: Nothing (nothing!) combines so many advantageous factors for middle class wealth accumulation.

The bad news

On the other hand, housing as an investment periodically punishes the individual, a municipality, or an entire country for over-exposure to housing and its parallel ill, over-indedebtedness.  Just ask your foreclosed ex-neighbor, the City of Detroit, or, for example, the entire Spanish nation.

So, yeah, there are risks. 

I plan to review some of the risks, and opportunities, in the next post.

See subsequent post “On Housing Part II – Risks and Opportunities”

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The air is just different owning business equity rather than earning a fixed income with a salary.  Can you smell it?

I left Goldman in 2004 and have been downwardly mobile, career-wise, ever since. 

I’ve also never been happier.

I’ve written before that one of the keys to feeling and being wealthy is do something that you love and that you would do regardless of the compensation. 

Now, I can’t prove the following statements, but I believe them to be true:

Working for yourself, in a business you founded, makes it much more likely that you’ll do something you love. 

Working for someone else, for a salary, makes it much more likely that you’ll be asked to come in on Saturdays to work on the TPS reports.   And, um, Yeeeeahhh, that’d be great.

It’s weird to say this, but it’s true:  Doing the TPS reports for your own business doesn’t feel that bad.  Even on Saturdays, it’s kinda fun.

Doing the TPS reports on a Saturday for someone else, however, encourages the kind of anomic existentialism that puts you in deep communion with the overwhelming sadness of the universe.

In life, there’s no getting away from the TPS reports on Saturdays, there’s only a choice about how it will feel.  One of my main arguments for starting your own business is that it feels different.

And now for some less important, but still relevant, arguments in favor of entrepreneurship.

Taxes

The tax code was written by and for business owners,[1] not by or for salaried employees.  So if you’re ever curious why taxes for salaried employees seem unfair, whereas businesses seem to pay less in taxes, that’s why.

Retirement

Did you know you can save about 3 times more per year in tax-advantaged retirement accounts if you’re a business owner than you can as a white-collar employee earning a salary, with a 401K plan?  It’s true.  But don’t just trust me, look it up on The Google.  The Google never lies.

More importantly, many successful business people want to control the timing and conditions of their own retirement, on their own terms. 

When you do someone else’s TPS reports, the company gets to ‘retire’ you when they choose.  When you do your own, you choose. 

Not everyone wants to work forever, but for those people who do, business ownership gives you the control and options.

Please see previous post on Entrepreneurship Part I – The difference between equity and fixed income

And Entrepreneurship Part II – Lessons from finance

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This is a continuation of a theme started earlier, in this post On Entrepreneurship, Part I

Founding an investment firm

A friend from college once explained to me that, growing up, he didn’t realize his family was wealthy.  His dad worked at an investment firm, and they had a comfortable lifestyle, but my friend noted no major extravagances about their life.

One day his father told him that he had in fact founded the investment company where he worked, and that while the salary he’d drawn for the past thirty years had made them comfortable, their family’s real net worth, as he approached retirement, was something much more significant.

The key, his dad explained, was that unlike other dads who worked for a salary and then retired after a few decades, he had, by contrast, built up something very valuable at the end – his equity in the firm he founded.  He sold the majority of his investment business to a European bank for a considerable sum, which overwhelmed the regular salary he’d drawn over the years.  Being an owner made all the difference.

Suddenly my friend realized his family was more than just comfortable, it was inter-generationally wealthy.

The Goldman IPO

In my own life, I joined Goldman Sachs shortly before the firm went public via an IPO.  This event made hardly any difference to my career or net worth.  As an analyst with very little service to the firm at the time, I hardly rated any notable equity gift.

For people with longer service at the firm, however the lesson of the IPO – in particular the difference between fixed income and equity – couldn’t have been any starker. 

Managing Directors, the penultimate ‘rank’ at the firm, could expect a low seven-figure payout through the IPO award of stock and stock options.  That was nice, and I’d be the last one to ever feel bad for a Managing Director at Goldman. 

Partners, the highest rank at Goldman, owned the firm before the IPO.  I estimate Partners generally received a payout 30 times higher than Managing Directors at the IPO.  Amazing to me.

The Managing Director IPO amount was cool and comfortable, but probably didn’t change everything about the person’s life.  The 30-times-higher partner payout, represented blow-your-doors-off-never-work-again type money.  All because the partners owned equity, and the MD’s didn’t.

Managing Directors and Partners did the same jobs, worked themselves to the bone the same way, dedicated their every waking breath to advancing the firm, and had distinguished themselves at the top of the financial pyramid.  Usually the biggest difference between an MD today and Partner tomorrow was time – the Partners had typically joined the firm a couple of years earlier.

Although the Goldman IPO represented the extreme example of salary vs. ownership in my own life, I have come to think that that ratio holds true elsewhere as well.

My best guess is that the difference between fixed income and equity, when it comes to getting rewarded financially after a lifetime of building equity, is about 30 times higher.

You know those charts showing the difference between fixed income and equity returns over the long run?   I’m talking about charts where the returns from fixed income assets show a modest, steady rise due to moderate compounding effects, while the equity chart shows a rocky, but ultimately asymptotic upward turn?

Those charts show the difference in investment returns from bonds vs. stocks.  And also the returns from working for a salary vs. owning and building a successful business.

I’m not insisting you be profit-oriented.  But if you are profit-oriented, you need to figure out a way to own your own business.  For the same amount of work, the financial payout is 30 times higher at the end of your career.

Caveats, qualifiers, clarifications on the for-profit life vs. other choices

Not everyone wants to work for profit, and I think that’s just fine.  Great even. 

Many people prefer to create beauty in the world, or to contribute to better understanding in human relationships, or to encourage the care and feeding of the soul.

Others seek to push the envelope on human knowledge, or to sculpt young minds, or to comfort the grieved or heal the stricken.

Others, perhaps a majority of the human race, just want to take in enough money on a weekly basis to allow some leisure time for beer, ice cream, and football.

I applaud you if you seek any of these things.

All of these goals, in their own way, are as valid, or more valid, than maximizing your pile of money.

So when I write about the advantages of entrepreneurship for maximizing personal profits, I’m addressing the profit-oriented person right now.

If you do plan to work on increasing your personal pile of money, you cannot afford to work for a salary, for someone else, on a fixed income.  You need to start building equity, like, right now.

See previous post on Entrepreneurship Part I – Equity is Ownership, Fixed income is Salary

and subsequent post on Entrepreneurship Part III – More differences between ownership and salary

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A salary is Fixed Income

Earning a salary, working for someone else, is earning ‘fixed income,’ which means you hope it comes close to covering your lifestyle expenses.  Like all fixed income, however, it will be limited.  In the case of your salary, the limitation of your fixed income comes not from prevailing interest rates, but rather from the environment and decisions of people you work for.

Did your company do well this year?  Did your boss decide you are one of her key employees?  Does your company expect to still need your labor and time in another year, or three?  

If you can say yes to all three, then you can continue to earn your fixed income, otherwise known as a salary.  You cannot reasonably expect, however, anything above the minimum that your boss and company guesstimate will be enough to keep you around for as long as they need you.[1]

Business ownership is Equity

Owning and building a business feels completely different.

Owning and building a business is earning ‘equity.’

Equity typically pays less in dividends than does fixed income.   It also pays less often. 

Worse, equity has a nasty habit of losing value periodically.  Equity regularly goes to zero in value, which, if it’s your company, means you lost your investment and your business and your income all at the same time. 

It’s also potentially more costly emotionally to lose your business equity than to lose the fixed income of your salary.  Despite this terrible feeling – I’m speaking from experience here — here’s the surprising part of my strongly held belief:

Everyone in the for-profit world should aspire to build and run his or her own business.

On entrepreneurship vs. working for a salary, my own journey

During most of my college years I did not imagine a life in business, working for profit.  Truth be told, I dismissed working for profit, in my self-righteous college-kid way, as unworthy of serious consideration.

After a few years of actually working for a living, however, I realized I enjoyed it much more than I had imagined I would.  It felt ‘real’ in a way that pure academia did not.  The teamwork involved in the companies I worked for, producing a service for which customers happily paid significant sums, seemed ‘real’ as well, in a way that was new and surprising to me.

Once I decided making money was one of my goals, the next decision about working for a living became whether to work for myself or to work for someone else.

Although I enjoyed working in the for-profit world, I got it into my head that I would rather own my own business rather than work for a salary for someone else.

Please see next post on Entrepreneurship Part II – Ownership vs. Salary: lessons from finance

And Entrepreneurship Part III – Air, Taxes, Retirement

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