interview Archives - Bankers Anonymous

December 9, 2021December 9, 2021

New Podcast By Me

I’ve long nurtured a plan to do an interview style podcast for people in business. Its finally happening with the good folks of Texas Public Radio.

It will be on all the usual podcast channels. Here’s a link to the page on Texas Public Radio‘s website, but again, you can go to Apple Podcast or Stitcher or whatever and smash that “subscribe” button.

My hope is that these characters will be interesting to people who wouldn’t normally flip through the business section of the newspaper.

I’m not interested in a “Here’s my success, try to emulate me!” type of conversation. I’m interested in talking about surprising origin-stories, near-death-of-business stories, and just unexpected wisdom in common hours.

By the way, if you’re in Texas and I should be interviewing you for this show, please drop me a line!

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April 7, 2016

Five Good Questions for A Finance Columnist

Jake Taylor interviewed Wall Street Journal columnist Jason Zweig, who recently published The Devil’s Financial Dictionary and asked him “Five Good Questions”

Q1: What inspired him to write this book?

Zweig says he needed something to update on his website that didn’t give readers an ‘action-item’ in response to market conditions, since that doesn’t tend to be terribly useful.

So instead of a ‘buy this’ or ‘sell this’ Zweig just started posting a humorous definition or two to have fresh blog material. After a while of doing that, he had material for a book.

Frankly I’m jealous of that Zweig came up with that plan. Blog freshness ain’t easy.

Q2: Taylor asked Zweig to explore the linkages between ‘Market Panic’ and The Greek God ‘Pan’

Zweig mentions the obvious link, with Pan as the ‘trickster.’

More interesting, he recalls that Pan is a fertility god, and suggests that the market destruction of a Panic also creates opportunity for growth, at lower prices. That’s a theme with which I concur.

Q3. Where does Zweig see his preferred investment style on the intersecting continuum of: “Diversification” vs. “High Concentration,” as well as maybe the alternate intersecting axis of “Be fully Invested Always” vs. “Stay in cash and opportunistic”

Zweig splits the Solomanaic baby, describing himself as preferring a mostly (70%?) diversified Total Stock Index, plus 10% cash, plus 20% concentrated positions, while also saying he’s highly restricted in what he can do in practice, because of his role at the Wall Street Journal.

Personally, I advocate the “100% diversified, 100% be fully invested” corner of the XY Axis.

Q4: Are the markets legalized gambling? Or do they serve a purpose of allocating capital?

Zweig answers that investors who figure out their own game are not subject to somebody else’s casino’s rules.

I have my own take on this question, which I wrote about here.

Q5: What quality should people cultivate be a good investor?

Zwieg’s answer is that investing success could plausibly derive from three sources

Outwork everyone
Be smarter
Have emotional intelligence, self-knowledge and self-control

Of these, Zwieg says, the third is probably the most useful. Especially if this leads to cultivating patience.

I have answered this one in my own way, by saying that controlling your own investing behavior matters more than anything.

Near the end of the interview, Zweig quotes from his The Devil’s Financial Dictionary with two paired definitions:

Long Term – (adj) “On Wall Street a phrase used to describe a period that begins approximately 30 seconds from now and ends, at most, a few weeks from now.”

Short Term – (adj) “On Wall Street, 30 seconds or less. As opposed to Long Term, which is 30 seconds or more.”

Anyway, it all made me want to order The Devil’s Financial Dictionary, so I did.

Please see related posts:

Volatility in Stocks is a Good Thing

How To Invest

Are Stocks Like A Casino?

Behavior Matters More Than Anything

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February 26, 2015October 25, 2018

Interview with Mint.com – I Give ALL The Answers

Finance website Mint.com asked me some good questions for their blog. You can visit them there or enjoy the repost below.

As a former Wall Street insider, what do you think is the average person’s largest misconception about investing?

The average person thinks that what Wall Street does is so complex that it requires extremely bright specialists to handle the complex needs of individuals. And the average person thinks implicitly that complexity and special skills naturally justify high fees.

And while it is true that many to most people on Wall Street are bright and there are complex things happening there, all that intellect and complexity is irrelevant for the vast majority of individuals. For most Americans, including high net worth individuals, a very simple and inexpensive approach will serve them best.

If you had the ability to get every person in the United States to adhere to three financial principles, what would those be? Why?

Great question. More than principles, I would go with three financial attitudes. Those would be:

a) Optimism – You kind of have to trust that markets are going to work out fine in the long run, even when the short run and medium run look extremely frightening.

b) Skepticism – Most financial solutions you get pitched with constantly are irrelevant or overly costly.

c) Modesty – Be realistic and modest about your own ability to ‘beat the pros,’ and realistic and modest about the ability of professionals you hire to ‘beat the pros.’ Also, modesty about attributing one’s investment success can avoid mistakes due to excessive confidence.

How does life change when one has more financial literacy? What does it take to be financially literate? How illiterate are most people?

Financial literacy is a process that most people need to engage in, but a process for which there are too few guides. Most of our parents don’t know how to help. Certainly our teachers and professors are mostly unhelpful guides. Most of the ‘experts’ in the media are in fact salespeople in one form or another, so while they can tell you the positive features of what they sell, most are unhelpful in helping us sort out our different options in a suitably skeptical way.

Most well-educated people that I know are very uncertain what to do when it comes to financial decisions. Or worse, they have high certainty, but wrong ideas. Both versions of financial illiteracy can be very costly.

Financial literacy obtained in one’s early twenties, I think, would make the average, middle-class person $1 million richer at the end of their life. That’s the premise of my book. (More on that later, see below, the end of this post.)¹

For higher earners, the benefits of financial literacy will be many multiples of that.

Investment is something that many people want to do, but don’t seem to fully take advantage of. What are some of the best practices one can employ to become better at investing?

The four biggest determinant of investment results are:

Time (longer is better)
Asset allocation (risky is better, and for non-experts/non-insiders, diversified is better)
Costs (lower is better)
Tax advantages (zero, low, or deferred taxes are better)

A powerful way to combine those four advantages – one that anyone can do but not enough of us do – would be to fund your (tax advantaged) retirement accounts (like an IRA or 401(k)), and purchase risky (100% equity) low-cost (probably index) mutual funds while still in your twenties.

A 22 year-old who does that for the next ten years is guaranteed wealth in his or her old age. In fact, it is impossible not to end up wealthy if a 22 year-old does that for ten years in a row.

If you’re not 22 right now, you won’t have as much time – which is a shame – but it’s probably still worth doing all the steps that I described above at any age.

The absence of 50 years of investment growth makes a wealthy old age still likely, but just less guaranteed.

Another important best practice is to employ automatic deduction as your main weapon to fund retirement and investment accounts. By that I mean you have to set up a system with your brokerage firm that automatically transfers money from your paycheck or your checking account every month (or every two weeks, or whatever) into your retirement and investment accounts.

The weird secret is that basically nobody has enough money left over at the end of the month or year for investing. But if we take that money out in small increments through automatic deductions, somehow we find we do have the money. This is one of those weird psychological tricks that make the difference between being wealthy or not being wealthy in our old age.

There seems to be a battle among many individuals who struggle with paying down debt and trying to save. What kind of advice can you give them?

If we have trouble paying down debt and saving, then we have to employ a series of Jedi mind tricks to get it done. Those Jedi mind tricks could involve three methods: a) automatic deduction b) budgeting, and c) radical transparency.

a) Automatic deduction, which I mentioned above, is probably the most powerful of these. You have to figure out a way to get your money out-of-sight, out-of-mind before you spend it. If you’re in debt, that means setting up automatic payments toward your high interest debt. If you’re trying to save or invest, that means setting up automatic payments out of your checking account and into a hard-to-reach savings vehicle or brokerage account.

b) Budgeting, which I hate to do – along with 99% of the rest of the planet – is not for me a long-term sustainable solution in itself. But over the short-term, it can actually help you alter your behavior when you start to write down every single freaking, nitpicky little transaction. The act of recording all transactions – even just for a couple of weeks or a month – I believe could change your behavior. That’s because you realize just how many non-essentials you purchase. It gets annoying writing down that packet of tic-tacs, and the latte, and the iTunes download, but then you realize you made $173.52 in non-essential purchases last month. And if you could dedicate the $173 extra to debt payments per month, you might actually be able to get rid your debt in this lifetime.

c) Radical transparency means announcing to your group of friends, or a single friend, or a debt-counseling group, your intention to get debt free in a set amount of time. Then you commit to regular (daily?) updates to your support person. The publically-stated intention, along with the support you will get from the group, may be the Jedi mind trick you need to actually kill your debt. There’s something powerful that AA members have figured out, which is that if you admit your powerlessness, and then you ask for help from an understanding group, you may be able to achieve the previously impossible-seeming task.

What do you think are some of the biggest challenges regarding debt (getting out of it, staying out of it, paying it off, etc)?

Debt exists in that psychological area of shame in which, like a cat with a broken leg, we want to hide our injury from others. We don’t want to admit our debts to others, and we don’t want to ask for help. We may even engage in self-destructive behavior – “Hey, let me buy this lunch for everyone!” – in order to hide our shame.

People stuck with excessive debt probably also have a fatalistic approach; they may believe that it’s not possible to reduce or manage their debt, so why even try? For people for whom this sounds familiar, I’d recommend a classic from the 1930s called The Richest Man in Babylon.

It may seem cheesy at first to the modern reader, but I think it effectively captures the psychology of a debtor’s resistance to getting out of debt. The book also has extremely practical steps toward becoming debt-free and then building wealth.

You say on your site that politicians are able to take advantage of citizens because those citizens are not as aware of financial matters as they should be. Please provide an example of this and how financial literacy can help fix this problem.

‘Taking advantage of’ is too strong a phrase. But I think citizens cannot properly police their officials if they don’t understand concepts like compound interest, which affects the future growth of government debt, public pension obligations, and Medicare and Social Security obligations.

Young people entering the professional world oftentimes come into adulthood with debt from student loans. What advice would you offer to these individuals?

The best situation would be to minimize student loan debt up front, but I suppose that line of thinking would get us talking about unlocked barn doors and horses that have already left the premises. It’s at least worth mentioning, however, that borrowing big sums of money to get a name-brand educational degree may not make as much financial sense as loading up on credits on the cheaper side (e.g. two years of community college, then transfer) before purchasing an expensive educational certificate.

Once you have a pile of student loan debt, I think the situation has to be tackled with optimism (student debt can be paid off) but realism (you may not be able to pursue your artist’s dream right now).

Stealing a page from the aforementioned The Richest Man in Babylon, I would suggest students do NOT forget to start an investment account. The author of that book has an interesting formula that, while it may not work for everyone, at least has the virtue of simplicity.

It goes like this:

1. Arrange your lifestyle such that you can live off of 70% of your take-home pay on a monthly basis. (I know, I know, this seems impossible. But still, it’s probably your only chance ever of making it all work out in the long run. Basically, yes, we’re talking about rice & beans, a subpar vehicle, and an apartment in a rougher neighborhood than you would prefer.)

2. Dedicate the next 20% of your take-home pay to paying off your debts.

3. Dedicate the final 10% of your take home pay to investments. In the beginning, this should to be channeled to an Individual IRA or 401(k).

When indebted, it seems like step #3 is an impossible kick-in-the-pants suggestion, because there’s no extra money to make this happen. The problem with skipping step #3, however, is that a student-loan-burdened individual will never get around to starting investing, until age 40. By then, it’s almost twenty years too late to get started.

So as impossible as it may seem, my advice for the student-loan-indebted recent graduate is to follow all three of the steps above. 70% for living expenses, 20% for debts, 10% for investments. Wash, rinse, repeat, every month. Rice and beans will suck for a while. But wealth will follow.

What are your thoughts on retirement and preparing for retirement? What about those who have already retired and are scared of outliving their money?

For people who are already putting away money in their tax-advantaged retirement accounts (IRAs and 401(k)s), the most important decision is probably their allocation to risky assets (like stocks) vs. non-risky assets (like bonds). The mistake most people make, in my opinion, is to dedicate too much money to the non-risky category.

This mistake is exacerbated by 98.75% of all investment advisors who tell their clients to invest in a mix of 60% stocks and 40% bonds. This piece of advice – which I strongly disagree with – serves the investment advisor well because you will not panic when the market crashes, and therefore you are less likely to fire your investment advisor for losing you money.

I think this advice serves the individual less well, since most people would end up far wealthier in the long run if they invested a higher percentage of their assets in the risky category.

My further thought process, which owes a heavy debt to the amazing book Simple Wealth, Inevitable Wealth by Nick Murray, goes like this:
a) Retirement accounts, by definition, are long-term investments. Even if you’re already retired, you need retirement money to last many years – often a few decades.

b) The longer your time horizon, the higher the probability that risky (like stocks) beats non-risky (like bonds).

c) Using the historical experience of the last 100 years, we can say the following: with a five-year horizon, stocks beat bonds 70% of the time. With a 10-year horizon, stocks beat bonds 80% of the time. With a 15-year horizon, stocks beat bonds 90% of the time. With a 20-year horizon, stocks beat bonds 99+% of the time.

d) Because most retirement money is invested for the longest time period, by allocating your retirement money to bonds you are basically saying that you believe that history is no guide at all, “it’s different this time,” and that odds-be-damned, you want to make a very low probability bet. That’s fine, and that’s what 98.75% of investment advisors tell you to do, but personally I think that’s a crying shame and a terrible choice, as well as a way to reduce your wealth in your retirement.

e) Although risky assets (like stocks) are extremely volatile in the short and medium run, a longer investment time horizon (plus automatic deduction dollar-cost averaging!) makes equity volatility less of a risk and more of an opportunity.

f) The real risk of investing your retirement money is actually with bonds, an allocation to which – for many people – will cause them to outlive their retirement funds. After taxes and inflation, bonds lose purchasing power. I understand this is contrary to conventional wisdom and contrary to what 98.75% of all investment advisors say, but that doesn’t make it any less true. Again, for a more articulate presentation of these ideas a) through f), I highly recommend Nick Murray’s Simple Wealth, Inevitable Wealth.

By the way, I’m not an investment advisor, so I suffer exactly zero consequences for people taking my advice on this topic or not. And that’s precisely why I have credibility on the issue. I’m not worried about being fired as somebody’s investment advisor when the market crashes.

And by the way, the market will definitely crash. I don’t know when, or by how much, but it will crash multiple times over the course of your investing lifetime. The key, however, is to not panic, and instead keep on doing what you were doing. Ideally, this means automatic deduction investing, so that you can dollar-cost average your stock investments at more advantageous prices when the market crashes.

Please share anything additional that you would like individuals to know about Bankers Anonymous.

I’m passionate about teaching finance. I’m on a mission!

My book The Financial Rules For New College Graduates: Invest Before Paying Off Debt And Other Tips Your Professors Didn’t Teach You is for the smart college graduate just starting out trying to navigate the highly consequential financial choices regarding car loans, debt, savings, home-ownership v. renting, insurance, entrepreneurship … even philanthropy and retirement planning.

Please see related posts:

Book Review: The Richest Man In Babylon, by George Clason

Book Review: Simple Wealth, Inevitable Wealth by Nick Murray

Book Review: The Automatic Millionaire by David Bach

How To Be A Money Saving Jedi

Stocks vs. Bonds: The Probabilistic Answer

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When this post first came out in 2015 I hadn’t written my book, but I very much wanted to. The book came out in 2018, and if you liked this post you should, well, buy it! ↩

December 20, 2012November 14, 2016

Interview Part II: Frack Jobs – Plentiful but Rough

Podcast: Play in new window | Download

In this interview Bryant talks about the difficulty of employing oilfield workers, who often look for trouble.

Bryant: Hello, my name is Bryant, and I presently work for a company that develops and operates frac-sand silo terminals in the Eagle-Ford shale.

Bryant and I spoke about his views working on the fracking world in an earlier podcast but we also spoke extensively about the impact of the Natural Gas Revolution on jobs in South Texas. The first point is that there are a ton of jobs created. The second is that it turns out the work-force can be pretty rough.

Bryant: The extracting of natural gas from the earth does create a lot of jobs, which is something that obviously this country is starving for at this time. You know people tell me, “I don’t want to work as a rig hand.” No, I’m talking complete cities are developing because of this stuff. An oilfield comes in first: you need restaurants, you need hotels, you need rent-a-cars. You start to develop quite a bit of economy — you have an economy wherever this stuff really starts to kick off, and I think that’s good. You need welders. You start to then develop actual skilled workers.

Michael: I went on the site of this company and everything was provided seemingly by something else. There were the Schlumberger signs, the Halliburton signs, the guys guarding the entrance to the ranch that they were drilling on. There was the catering guys. This is being done in an area where it’s basically raw ranchland for a hundred years, and they have to basically import services for everything. It was kind of amazing.

Bryant: Everything, generators, electricians — any time I have an issue with my silos and I need an electrician, it’s not easy. If you need a skilled worker in some of these areas they’re very difficult to come by. Like I said, labor, that’s why the Eagle Ford is so attractive. You’ve got San Antonio, Houston, you’ve got major cities that people are leaving and flocking to these smaller towns, really in the middle of nowhere, and providing all the services needed.

This stuff, fracking, it employs a lot of people that may not have education. It employs a lot of people that have a lot of mouths to feed, that may not have really the education to go and get an office job. I think that’s really important for the world. A lot of people don’t have the opportunities to get the job they really desire. They just need a paycheck. This really helps. I would hate to see all these towns I deal with, all those people not working. We’d have a serious problem on our hands. I mean by just violence, and upset people.

Michael: You and I talked about your earlier job in the Eagle Ford that was with a buddy of yours…Can you just describe for me the part about what it’s like to manage a bunch of guys in an oilfield work environment, and how different it was from what you’d expected, or where you come from?

Bryant: It’s tough. It’s probably the hardest part of my job still to this day. I came from working before I moved to Texas to work in this industry I worked for the publishing industry in New York City for five years. I was constantly surrounded by people that probably like to read a lot of books and keep up with current events, etc. I came into an industry where not a lot of the workers on the ground have college educations.

Michael: What about high-school educations?

Bryant: Not a lot of them have high-school education as well, so it’s very difficult, at least for me just to bridge that gap between office work and someone that’s been driving a truck for their whole lives, and who don’t really understand why there are procedures that can’t be broken, and why there are rules that need to be maintained. They just seem to care about it’s my truck, I want my money, and that’s it or I don’t want to work today because I didn’t get a good night’s sleep last night.

So, it is very difficult. I hate to use the word unruly, but you come across a lot of people that they sometimes don’t really care as much as you’d like them to. Now it also is very difficult in that a lot of these towns you get fired or you quit from one place, you just walk across the street and they’ll hire you immediately to do the same thing you were just doing. There’s such a need for drivers and people with experience. Workers know this. So, they know if they don’t show up because they went out and they blew their check and got drunk, and just didn’t wake up, and they come in two days later and you fire them, they’re just going to walk across the street and get fifteen, twenty dollars an hour doing the same exact thing for somebody else.

That environment is difficult. A lot of companies are trying to adapt, trying to have the medical insurance and 401(k), trying to maybe have a little signing bonus. You have to do things to keep good workers because it’s very competitive. But it is very difficult to manage people in the oilfields sometimes. They can be a little rough around the edges, but that’s why I think managing in this industry actually pays pretty well. It’s not an easy task.

Michael: I’m afraid you don’t have enough tattoos to be running this kind of crew.

Bryant: I definitely change my attitude a bit, depending on who I’m with. If I’m not in the field, you kind of change a little bit. You try to blend in a little more and probably in the vocabulary. I use a lot more oilfield jargon than when I’m probably doing a sales call or some kind of meeting at a corporate level. So again, I think that’s what makes it a fun job for me. You’re constantly a chameleon and you’re in between two different worlds all the time.

A lot of these guys can be pretty irresponsible. They make really good money, so a lot of times they come from places where they don’t make — they come from poorer backgrounds and all of a sudden you’re making twenty, twenty-five bucks an hour, you’re clocking twenty, thirty hours of OT because it is twenty-four hour drilling. This stuff never stops, so you’re making a lot of money. You probably didn’t learn money management much and kind of start getting into trouble.

Michael: Is there trouble to be had in South Texas?

Bryant: Oh yeah, there’s always trouble. I’ve never actually been up to North Dakota. They say it’s like stepping onto the moon, it’s so barren. I do know people that have been up there and they said, “Honestly, you get to some of these places, and the only thing there is, is like a barbecue joint, a trailer park, and a prostitution house. That’s all you need is drinks, and money, and women, and these guys probably stay pretty happy for a while.” There is trouble. There is a lot of trouble.

I used to actually give out paychecks on Mondays instead of Fridays because workers tended not to show up on Saturday. They’d get their money on Friday, they’d go and get drunk, and I’d get a call maybe somebody was in jail, or somebody was drunk, and I really had to just change my rules. I said everyone gets paid on Monday. You don’t go out and get in as much trouble on a weekday. Yeah, there’s a lot of trouble.

Bryant and I spoke of the difficulty of managing the low-end of the labor market, but then he described the other end of the labor market, the scientists and engineers providing the brainpower for the shale play. As much as the story job-wise is mostly positive, I couldn’t help but think of the idea that we’re in the role of a 3^rd world country…we provide the low-end cheap labor, and the rest of the world provides the brains.

Bryant: I’m going to tie this into politics a little bit, but you meet all these engineers for the big three: Halliburton, Schlumberger, and Baker, and not a lot of them are from the U.S. You meet a lot of them from India. You know, Asian and South American. It’s crazy. You actually sometimes walk into these offices and it’s like the United Nations. It’s people from all over the world, which is great, I’m all for it, but I think it shows that we are slipping more and more, like everyone has been saying, in our math skills, in our education, period. We have a great technology but we’re not really creating people or educating people to do it. We’re kind of letting it get away.

Michael: So, the high-end intellectual jobs, the engineering jobs, the people inventing this stuff or figuring it out are not necessarily trained here. They train somewhere else and then they get here.

Bryant: This is definitely the testing ground. The U.S. is where it’s happening, but a lot of those times it’s being created by an engineer that’s not from here. You’re getting people from other countries that are seeing an opportunity to come into the industry and make some money. The industry is eating them up. The industry has money to pay for the best, so they’re buying the best minds they can buy to make their work more efficient so they can make more money.

Please also listen to Part I: Fracking and Regrets

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November 29, 2012February 13, 2013

Interview Part I: Fracking and Regrets

Podcast: Play in new window | Download

$Bryant interview frac map$ I had a conversation with a friend who ships trainloads of ‘frack-sand’ into the Eagle Ford shale in South Texas. We talked about the Natural Gas Revolution, as well as the surprising and possibly regretful turn his life has taken, far from working in book publishing in Brooklyn.

Bryant: Hello, my name is Bryant, and I presently work for a company that develops and operates frack-sand silo terminals in the Eagle Ford shale.

Horizontal fracking or hydraulic fracturing is a new technology. It’s been around probably — I would say since about 2007, but obviously now it’s really picking up. What it is, is instead of drilling and fracturing the earth, only in a vertical manner you drill vertical and horizontal and you fracture along the horizontal, through the shale.

Michael: When you and I were having a beer with a mutual friend of ours, he was describing basically oil and gas trapped in small little bubbles of rock that you can’t, with conventional drilling, get at. But you sort of smash it up with this horizontal drilling by shooting water and sand and chemicals, and it smashes up the rock and then the oil and gas flows. Is that basically still the right, accurate description?

Bryant: Yeah, that’s exactly right. First you drill it, and then — which means you just basically drill a hole and then you pull out all the drill pipe, and you go in with the fracking equipment. They call it the gun. The gun then blows off, which shoots shrapnel in all directions. After that, you pull that out. You then pump millions of pounds of water at a very high pressure, which then opens up the routes that the shrapnel first created to get to those pockets, and then you pump millions of pounds of frack sand, chemicals, and guar. It almost creates a slurry that helps keep those routes open so the oil and gas can actually flow out of the well.

Michael: To go back to the original description, your link in this chain is that you move huge amounts of sand from northern United States into South Texas?

Bryant: Yes, right now we’re averaging about 35,000 tons a month, which is about 70 million pounds so it’s quite a bit. It’s about 350 rail cars a month. Each one holds 200 thousand pounds.

Michael: 350 rail cars, so you basically take over an entire train, you fill it up with sand. It leaves Wisconsin, or where is this coming from?

Bryant: The mines are all located in the north, mainly Wisconsin, Minnesota. Apparently it has to be portions of the earth that were covered over during the Ice Age, and therefore have been untouched for a very long time, and the earth is very, very hard. This sand can basically deal with very high pressure.^{^[1]}

Michael: Referring to Eagle Ford. I know what it is because I live in South Texas, as do you, but basically this is a giant area covering a huge number of counties under which they’ve discovered there’s all this oil and gas trapped in previously undrillable area in the shale formation.

Bryant: The Eagle Ford Shale actually is a formation that spans from Laredo, obviously it continues into Mexico, I’m only giving you the American formation. Starts in the Laredo, Carrizo, Cotulla area, spans northeast right under San Antonio, up through Cuero and Kennedy, really very key spots. That’s actually where the first well was ever drilled, but that’s really the formation of it.^{^[2]}

What makes it the best play really in the world right now is the economics of the play. So, all the infrastructure is in place to bring in high volumes of sand, high volumes of water, high volumes of guar from India coming into the Port of Houston, Port of Corpus Christi. You’ve got chemicals; you’ve got bauxite coming in as another form of I guess sand or proppant from South America. So, you have infrastructure in for high volume of rail and barges, etc. There is a large amount of workforce. You have a lot of people looking to work. You have infrastructure, and then probably the most important is it doesn’t cost a lot of money to then get the product to refineries because you have all the refineries located on the Gulf Coast, so your margins to get it to market are a lot higher when you’re in the Eagle Ford. That’s really what makes it the most attractive play right now in the world.

Michael: I went down to Eagle Ford to tour it. I asked one of the guys down there; I said, “How long is this thing going to go for? How many years do we have for drilling?” He said, “What we’re looking at is probably fifteen more years of heavy drilling and fracking operations.” Is that what people talk about when you’re there?

Bryant: It fluctuates all the time. When this first started a couple years ago, you know, it was twenty to thirty years. Now they’re saying yeah, about fifteen. I read an article the other day it’s sixteen. That seems to be the consensus.

Michael: Then I asked him, “So if we’ve got natural gas reserves that are now available in the U.S. that we never thought were available because this stuff was trapped inside the rock, and now it’s being released from the rock, how long do we have great reserves of natural gas?” He said, “About ninety years-worth is of the known or probable, available natural gas.” Ninety years worth in the United States, does that sound right? Is that what people talk about?^{^[3]}

Bryant: I wouldn’t doubt it. The Marcellus Shale which encompasses a lot of up-state New York, Pennsylvania, even creeps its way into Ohio and down into West Virginia – the Marcellus Shale they say hasn’t even been fully, surveyed. They’re saying that shale alone if developed would become the largest gas shale in the world. So yeah, I believe that’s probably pretty accurate.

Michael: So if we’ve got ninety years — here’s where I go with that. When I think about what is going to be sources of energy for, say, the rest of my lifetime, your lifetime, pretty much what that tells me is that extraction of carbons from the earth is going to be cheap for the rest of our lives, and renewables that from a political standpoint I may prefer that we use solar power or wind power because it just seems cleaner and better for the earth, but that’s probably not going to be viable when compared to natural gas, for the rest of our lives.^{^[4]} This is sort of what I take away from it when somebody says yeah, we’ve got about ninety years worth of really cheap gas we can access. I don’t know if you have any thoughts about that.

Bryant: I do. I’m originally from the Northeast, so I work in an industry that is frowned upon by a lot of people in the northeast. So a lot of my friends will tell me, “Why are you involved in something when you could be involved in solar power or something greener?”

Michael: When I told the woman who looks after my kid a couple days a week that I’d been down to see a fracking site, she said, “Fracking, isn’t that illegal?” Do you get a hard time from people, from your old world about fracking itself?

Bryant: I do. I get a horrible time. I even hate myself sometimes. If you were to tell me ten years ago that I would have been doing business with Halliburton, I would have denied it, but I’m now in that world. I attend a lot of conferences where you look around and it’s just not the type of people I thought I’d be hanging out with all the time. Basically it’s all about fifty, sixty, or forty or fifty-year old white men that have just been raised in the oil field in some form. I like art and things like that. So it is a little crazy, and I do get a lot of flack from them, but I always do welcome a debate.

Michael: Do you have any thoughts you care to share about where you see yourself in five years, either how you’re going to make your fortune as an oil guy or not, and another would be whether you have any kind of personal regrets about starting out in the publishing industry and ending up as an oil guy.

Bryant: Yeah I think I’ll probably answer the second question first because it will lead to the first one. Obviously when you’re young and in college, you’re a real idealist. I was really into writing and reading and if I could do it all over again I probably would have focused my energies more on a lifestyle where I could have lived off of some kind of art or humanities. But life is not — I don’t think college really prepares you as well for reality, at least in my opinion.

Personally, I would have preferred to not have taken this route, but I’m not ashamed in what I work in. I do find it fascinating. It is something that moves on a global scale, which I think is very interesting.

In this business you’re constantly meeting people with money and with ideas and with connections. I hope to one day be able to capitalize on my knowledge and my connections, but I actually prefer to go somewhere else in the world. I wouldn’t mind getting involved in South America.

I think the way it’s going to happen in the rest of the world is actually a little more interesting because they’re going to have all the little problems that we’ve already solved here a long time ago. And problem solving is actually kind of a fun part of the job. The rest of the world really doesn’t have the infrastructure that we have here for moving equipment and materials. I think that would be even interesting to do. I don’t have to necessarily get involved in drilling or trading. It could be as simple as logistics. Things like that are actually — I think there’s room for it in the future, and hopefully five years from now I’ll have some options to do that.

Next up in Interview Part II – Bryant and I talk about the Eagle Ford labor market.

[1] I described a fracking site in this posting.

[2] And the Eagle Ford shale play has really changed the look of South Texas. It’s kind of a Mad Max Bizarro world down there.

[3] In other words, this Natural Gas Revolution is huge. As further described here.

[4] I talk about the implications of this in this posting here.

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November 7, 2012March 13, 2013

Interview Part I: Pawn Shop Owner on the Unbanked

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Where can you still find great customer service in financial services? The Pawn Shop!

Michael: Hello, my name is Mike, and I used to be a banker.

Shirley: My name is Shirley, and I’m a long-time pawn-shop owner.

One of the themes of the Post-2008 Crisis world is how much people don’t like their banks.

I had a conversation with my friend Shirley who runs a financial services company whose practices are older than traditional banking – she runs a pawn shop.

While I was a banker, I never stepped inside a pawn shop – but I wanted to learn what their role is in the financial services business for the anti-banking crowd as well as the un-banked crowd. I found out that business is quite good in the niche her pawn shop fills. In addition she relayed an ironic an illustrative experience she had with her own business’ bank.

But first off, business has been really booming during the Great Recession.

Shirley: One thing that has really transformed our business is the high gold prices. But that’s one of the reasons we’ve seen such great success over the last few years, is those high gold prices.

A little gold ring that maybe at one time was worth thirty dollars is now worth a hundred dollars, so that really has transformed it for us. The other thing is the technology and the way that our business is run is really different than what it used to be, because we’re all run on the cloud. It’s very fast, and we can store a lot of information.

Shirley explained to me the advantage her pawn shop holds over traditional banks, including clarity of service, personal touch, and the ability to do small scale lending.

Michael: Do you think banks are missing something that they ought to be doing to get the customers or they just — they’re in a different sort of business, that they wouldn’t want your customers? It sounds like they can’t do what you can do.

Shirley: The banks — to do a loan like we do, it’s very labor intensive. We have to have storage space. We have to have customers entering all of the data of every single loan that’s being done. So for example we do almost a hundred loans a day, which the average loan being around ninety dollars, so it’s a very expensive loan to do in terms of labor. So certainly the banks can’t handle that. They wouldn’t have anywhere to put the items. You wouldn’t want one of your bank tellers lifting and moving and taking things through a warehouse. Definitely, we have a niche market. But I also think the banks are not interested in doing such short-term, small loans for that reason; it’s just too expensive.

Michael: I don’t know if you listened to a radio program of not that long ago, maybe six months ago, and I think it was a design program. But it basically talked about if you were an alien and you showed up and walked into a bank lobby where there’s no signage, there’s no menu, there’s no description of what they’re doing there, and you don’t know that they give loans. You don’t know what they do; it’s a very mysterious thing the way a traditional bank lobby is set up.

I’ve often thought about that. This radio show was about why in fact check cashing and payday lenders tell you, are a more inviting place for certain types of customers who don’t want to walk into a place where everybody is sitting behind a desk and there’s no menu, there’s no signage, there’s no description of what they do; whereas in contrast, your average check-cashing place, and there may be an analogy to what you all do at the pawnshop, it’s kind of clear. This is what we do and here’s how you engage in our financial service; whereas at the bank it’s totally unclear and off-putting, almost by either purposeful design of by mistaken design. This show is saying this is a terrible way for people to design it. I wonder if you have any comment about that, when you think about contrasting what you do versus what a bank does?

Shirley: That’s interesting. I haven’t really thought of that, but I think that’s exactly right. It is confusing when you go to a bank. It’s even confusing for somebody like me who’s been a traditional bank customer for a long time. If you have a question, even just about products they offer, you don’t really know who to ask. I had not thought of that before.

Yes, I think it’s much more clear in our industry. A person walks in and first of all they’re approached right away by an employee, at least in our store they are: “How can I help you?”

And the person says, “I need a loan.” “Okay, well let me help you with that.” It’s much easier, I think, than to walk into a place and you don’t know if you’re supposed to stand in line or do you go to the teller and say, “I need a loan”? Like “Oh, that’s not how it works.”

Michael: You can’t just walk up to the teller and say, “I want a loan, give me money.” They’ll just look at you like you’re an alien.

Shirley: Of course, and I hadn’t really thought about that, but that’s exactly right. Usually the person says, “I just need money to make this bill,” or “I just need enough money for gas until the end of the week.” So the customer usually comes in and tells you fairly specifically what it is that their needs are.

At a bank, of course you wouldn’t offer that service if a person came in and said, “I just need this small thing.” A bank can’t provide that. They’re not designed to provide that.

We are, more than any other industry, I think highly customer-service related because every time a person comes in the store they have to interact with an employee. That’s not true of most of the places that you go. Even when you shop at H.E.B, you don’t even have to see a teller anymore. You can scan your stuff and walk out. You never talk to anybody.

Shirley sees the pawn shop as a friendlier place to get financial services, but recently got a severe brush-off from her own bank. Her family has run this business for fifty years, but her big bank, (Ahem, Wells Farg0) neither valued her deposits, nor responded when she needed a loan to expand.

Shirley: Yes, and not only did they not necessarily want to lend to us, but they also didn’t want to take our deposits. I went through that a couple of years ago, when they wouldn’t even take our deposits. I said, “We don’t do check cashing, so really we just need a place to hold the money while we then turn it around and lend it to the customers.” They didn’t even want to serve us in that regard because there was such a negative connotation about the things that we do.

In my situation I often felt like the banks were — first of all they don’t really like to lend to us because we’re a pawnshop, just in general. I don’t think they necessarily, not because we compete with them, but either they throw us in there with the bail bondsman.

In fact, the unfortunate thing is these large banks they come into the community and they sort of give the impression they’re going to help the customers or they’re going to service the customers. But when it really comes down to it, they don’t have the authority to do anything. Then it really delays the process a lot because they have to send it to somebody in Tennessee to approve. Even a small loan, when I tried to buy a house in the neighborhood, it was a sixty-eight thousand dollar loan. It took ninety days and had to get approved from somewhere in Tennessee.

You’re right here across the street from me.

Michael: Right, “Come walk with me to what I’m buying.” “No we can’t do that. Tennessee has to weigh in here.”

In the end Shirley resolved her deposit and lending problem with a local bank, who actually took the time to understand her business.

Shirley: We did ultimately go to a local banker. We had tried the larger banks: Wells Fargo, BBVA/Compass and those where we had deposits for many years. But ultimately, it’s only the local bankers that do take the time to build a relationship to understand what we’re doing, and really to work in a way that you understand exactly how much this is going to cost, and what the fees are, and how this is going to be mutually beneficial for everybody. We did go through a local bank. Do you want me to say who the bank is?

Michael: No, it’s up to you. Or, whatever you want to say.

Shirley: Because, it’s has been, it’s actually been a very positive relationship once we got in touch with Broadway Bank, and they were the ones who really took the time. It’s been two years that we’ve been working on this project, and Broadway Bank has sort of held my hand along the way, reminding me to get the documents in, and ultimately we go with a small-business loan.

I’ve been saying for years that banks don’t really lend to small businesses – with the exception of real estate developers – because they’re not willing to take the time to understand individual businesses. They’re not normally willing to actually do what Shirley says her pawn shop does with her customers: figure out their need, and offer customized solutions. I was pleased to hear Shirley got something she’s been offering to her customers for fifty years.

Shirley: I think people are really still dying for human interaction, in most transactions. So, that’s where I think the pawn industry is still very customer-service oriented. It’s still very friendly. That’s what I would like for people to know.

Please Also See Interview Part II: Pawn Shop Owner Fights The Good Fight

Please also see subsequent Video: Pawn Shop owner turns Politico!

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