I'll bet you $1 million you'll live until you're 100 years old

This bet is not valid for anyone who is already above the age of 60 or left-handed. 

Seriously though.  I will bet you a million bucks that barring you take your own life, or die in a drone strike, you will live to be 100.  In case you are wondering, the current American life expectancy is 79 years -- about 76 years for men and 81 years for women.  By the way, left-handed people supposedly have an average life expectancy about 9 years shorter.

Why would I make such a bet? First, I am convinced that by the time most of us are 100 years old $1 million will not be such a great sum. Extrapolating another 70 years of inflation at 5% and we get about $32,000 in today's greenbacks. 

More importantly, I think life expectancy is going to shoot up. If we believe in exponential growth we cannot discredit the possibility that advancements in medicine and technology can make lifespan go parabolic.

Here is the wiki timeline of medicine and medical technology (link):

Around 1900:  The X-ray gets invented as does aspirin...

50 years later we are using chemotherapy to fight cancer and curing polio...

25 years later we get insulin pumps, LASIK surgery, CT scans...

A few decades more and we have cracked DNA sequencing, created artificial muscles and today there are firms working on 3D bio-printing, which is like printing a new liver after you spend your life drinking bourbon...nice!!! (check out ticker: ONVO...the stock is up about 300% in the past 7 months)

It took us 75 years to go from X-rays to CT scans but only 10 years to go from robotic surgeries to bionic limbs controlled by brain waves. 

Think about what will happen in the next 50-100 years. It is going to be bigger than we can imagine.

The aide of technology and innovation in the medical field will result in the ability to keep our bodies around a lot longer.  Whether you end up looking like RoboCop or Tony Stark you better find something fun to do with all that time you have left on the clock.        

"Sup, chief!"

You know that annoying guy who doesn't know you that well but is trying to fast-forward the "bromance" by calling you "buddy"?  Oh, you do that? Me too...It's a bad habit and I'm trying to break it.  

Coming from the wrong person (for example, someone you don't know well at all) it may get interpreted as a bit annoying or even condescending. It can also be used as a filler when you forget a name and you know they remember yours. 

Here is a decent list of names worth avoiding if the context isn't right (hat tip to my fazbook friends):

Big guy

Boss

Brah

Bro

Bud

Buddy

Chief

Doctor

Dude

Fella

Guy

Homes

Homey

Hoss

Jefe

Kid

Mate

Pal

Player

Scout

Sir

Son

Sport

Tough guy

The Anger Gap

I feel like America is angrier than it used to be. People are upset about jobs, crony capitalism, the government, taxes, the list goes on and on. I was watching the documentary Detropia and a lot of the autoworkers were pissed at corporations for cutting pay and moving jobs to China or Mexico.  I don't mean to sound heartless but what did we expect? We kicked our feet up as a nation and got out innovated and underpriced. We got our collective lunch eaten.  

Speaking of lunch, a few years back I was having lunch with an uber smart guy who builds actuarial models for insurance companies. Somehow our conversation steered toward how a lot of Wall Streeters were angry their compensation dropped. The advent of technology in finance made a lot of people obsolete over the past decade.  

He drew a picture on a napkin that looked something like this: 

(Obviously he didn't have different color pens with him)

The thought is that when a new industry or business is discovered, it's easy to add a lot of value early on.  As time passes, competition grows and folks are forced to innovate. If you aren't the one innovating you might be seeing diminishing returns given the same inputs - creating a gap between expectation and experience.   

The gap between what we think should happen and what actually happens is the ANGER GAP. Trying harder or putting in more time only to get the same, or worse, results...sucks. 

To shrink the gap we either need to lower our expectations, or find new ways to add-value.  Neither is easy. No one likes to "CTRL + ALT + DEL" their expectations (part of the motivation to start this blog). Additionally, finding new ways of adding-value means getting out there and talking to customers, stakeholders, competitors. Figure out all the pain points in your industry and find ways to ease them through new products and services. You will be so busy doing this you won't have time to be angry.      

My Brush with Charles Ponzi

Everyone has heard of Bernie Madoff by now.  His crime was the most heinous in the history of finance. The fact is there are still thousands of Ponzi schemes happening around us and most victims do not even know what to look for.

I was introduced to an "investment opportunity" back in 2010.  A man from Detroit, living in Italy married to a famous actress, got in touch with me through some mutual acquaintances. 

I took his call, partly because he was from Detroit and I like to connect with people from my hood, and partly because I like to look at all sorts of ideas. I admit I probably donate too much of my time listening to would-be entrepreneurs but occasionally I meet great people that way. Something felt off about this guy and his partners so I indicated the investment opportunity was going to have to set sail without me.

Last week, I found out that the man I spoke with was sentenced to jail for 10 years for wire fraud and stealing money from investors in a Ponzi scheme (article).  

It motivated me to look back at my interactions with him to see what clues made me uncomfortable. Maybe some of these observations will help other targets avoid future Madoff-wannabees.

I have made plenty of bad investments in my life and the list will surely not be comprehensive, nor does it guarantee to be able to detect a fraud. These are just a few smell tests any fool can use to avoid parting with their money too quickly.  

1) Returns are not guaranteed. Promising financial benefit is not something any professional investment manager will do.  Especially in writing. He sent me this in one of his emails:      

"...if we can raise more funds we can really see the financial benefits from the product.  Let me know what you think..."  

2.) Outsized returns are LESS guaranteed.  The best and brightest in the finance space have averaged mid-single digit returns for investors over the past few years. Anyone who purports 10% returns per month should immediately get the Larry David squinty-eyed stare. 

3.) Look for "intense domain expertise." This guy was raising money for investment vehicles that were going to purchase raw emeralds in Africa, invest in gold mines in Laos, trade foreign currency markets through a Swiss entity, and buy Hong Kong stocks on the cheap. Sounds exciting, right? Sounds like bullshit to me. You cannot be a jack-of-all-trades in this industry anymore. 

4.) Investment managers cannot court you. Regulations prohibit investment managers from excessive spending on prospective investors. These guys offered to fly me out on a private jet to meet them in Rome or Switzerland (whichever was easier for me, of course). Come on! Even if it were legal, the amount of money in fees they were hoping to generate on my piddly investment wouldn't cover the cost of a trip to Europe. 

5.) "WHY ME?"  This is the most important question of all. You have to ask yourself "why is this  opportunity being presented to me?"  "How did I get so lucky to have stumbled across this brilliant idea that no one thought of before this shiny salesman brought it to me?"  You might be hearing the pitch because you don't and won't understand the investment.  It's the old "if you don't know who the sucker is, it's probably you" test.  

Through all the dumb things I have done in my life, I could have saved myself a lot of dough had I simply asked "why me?"  I knew little about the business or the industry I was being asked to invest in, but got involved anyway. Every time the outcome was identical:  a big fat doughnut.      

 

From I.B.G.Y.B.G. to I.B.H.Y.B.H.

I was 22 years old. I had my first job on a Wall St. derivatives desk. A large client calls us to do a 5 year OTC trade (for the non-wall st folk, these were customized over-the-counter transactions that the bank had to underwrite itself). As the trader and salesperson bickered back and forth about the "right price," they finally agreed at a level after one of them joked: "I.B.G.Y.B.G.?" They shared a laughed, nodded at each other, and went back to their desks.

 

 

Being the young eager grasshopper on the team, and frequently confused by the barrage of acronyms used by my colleagues, I asked what it meant:  

I'll Be Gone, You'll Be Gone.

Its common to job jump on the Street so long-dated trades had a high probability of maturing well after the salespeople and traders moved onto bigger better jobs at competing firms. The thought was why not just dump a bunch of trades onto the bank's balance sheet, collect a boatload of commissions, and let someone else figure it out later. By the time the trade had significant risk, it would be the mess of some other sorry sap.

I get the feeling the days of I.B.G.Y.B.G. are behind us.  Couple reasons:

-People are just not able to jump around as they did pre-2008.  Less opportunity to move means taking better care to bring quality business that won't blow up the firm.

-Wall St. compensation has shifted from less upfront cash bonuses, to more deferred stock bonuses that vest over the following 3-5 years.  

-Clients are gravitating toward more transparent and liquid transactions that are NOT over-the-counter. The counterparty risk of facing a bank is higher than facing a central clearing house (like the OCC).  Products that trade on exchanges are in demand as customers want to rely less on banks for liquidity and pricing.  This means less room for the I.B.G.Y.B.G trades as volumes increase in the highly competitive listed products that do not require a bank.

Converting employees to think about transactions from start to finish is important to ensure long-term success of an organization.  This holds true for all industries.  Salespeople who just want to close crappy business to pad numbers and make the quarter have misaligned incentives with stakeholders.  Employee compensation should be tied to the long-term profitability of the business motivating them to stick around.   

Cheers to making business more about I.B.H.Y.B.H:  I'll Be Here, You'll Be Here.     

Be Prepared...but not Too Prepared

Since entering the finance industry, I have heard just about every possible warning sign of what lies ahead for Americans and how to prepare for it.  Selling “fear” is a multi-billion dollar industry: insurance brokers, doctors, politicians, religious zealots, financial advisors, are among the people who have direct or indirect compensation related to scaring you into taking some kind of action.  


Think about it:

“You will lose your job and your house if you don’t throw that other guy out of office by voting for me.”

– handsome white-toothed smiling politician

 “You must have life insurance and disability insurance and property and casualty insurance and flood insurance and renters insurance and hurricane insurance and earthquake insurance and auto insurance and travel insurance and…”

-nebishy insurance broker

“If you don’t pray 15 times a day and give all your money to the (insert religion) you are going to hell.”

-some guy on the subway


I think you get the point.  In the context of the financial crisis, which is going on its 4^th year, I have found myself suggesting ways for people to prepare for an “event” that may or may not happen one day.  Generally I tell people they should own some physical gold or silver (somewhere between 1 and 20% of their investable assets depending on their level of bearishness) and go out and buy a gun.  Both seem reasonable enough as they will not break your bank.  They are just my versions of “insurance policies” which I hope to never use, but exercise our rights as Americans to bear arms and invest in real currency.    

If you listen to the interwebs you will hear suggestions of how to prepare, above and beyond the reach of the average American:  farmland (I suggested this too but now I look at prices and it is way less affordable today), pvc and vacuum sealed organic seeds (I own these and it makes me laugh), 100 gallon drums of water, solar panels, bullet warehouses, foreign passports and bank accounts, bomb shelters, fuel storage, 6 months non-perishable food, off-site hard drive storage, escape routes, blah blah blah.  I realize now that it is impossible to live a happy life while simultaneously consuming yourself by preparing for every possible outcome.  The truth is no one really knows how and when this will all shake out if it ever does.  The powers that be are called that for a reason and they control this mess…for now.

We would go broke and spend all of our waking time preparing for every possible future event given the millions of possible outcomes.  So rather than prepare for them all, we should just prepare for a few of them by taking actions that are reasonably priced and take a reasonable amount of time.  Everything else falls under the get educated category -  heed the fact that there is some probability that anything can happen. 

My business partner says that when he thinks about all the things he needs to do to protect his family, he gets on Amazon.com and starts clicking away at dry food and supplies and suddenly his cart is full of hundreds of items.  Then he realizes he could never be fully prepared and he needs to get back to what would really help them today…like earning a living to put food on the table and buying some diapers.   

This may sound like a 180 from my previous notions but it isn’t.  There is absolutely risk out there but being surrounded by quants all day I realize there is a difference between perceived probability and actual probability.  If we cannot even predict every fathomable outcome how could we possibly be expected to prepare for them?  I am finding that I would rather live happily than live in fear.  

I guess you could sum it up by saying “stay educated but keep on keepin’ on.” If some terrorist wants to blow up my local diner I don’t know that I can hedge this risk out of my life completely, so I am not going to let the thought of it ruin my day.  

India: The Numbers

I totally stole this idea from my friends Ted and Sarah, who have the best travel blog I have ever seen (LINK).  Below are some of the numbers from our stay in India.  India was excellent, action-packed, and provided us with a newfound perspective on South Asia.  To sum up India in a couple points: 1.) You cannot generalize India, it’s too diverse 2.) India is full of both positive and negative extremes 3.) Bring your patience or just stay home.

Time spent in India = 3 months

Cities/Towns/Villages Visited = 19

Nights slept in a hospital = 2

Illnesses defeated = 4

Money raised for Shanti Bhavan with YOUR help = $11,600 (as of May)

Laptops broken and replaced = 1

Flights taken = 7

Hours spent in a hired car (excluding taxi) = 34

Hours spent on a long distance bus = 19

Hours spent on a long distance train = 51 (4 journeys)

Longest taxi ride = 3 hours to go 30 km in Mumbai

Motorcycles hit = 1

Most expensive drink = $18 – Taj West End Bangalore

Cheapest drink = $1.00 – Bar in Hosur

Cheapest hotel = $30 – Mysore

Nights slept at friend’s house = 12 (thanks to Jay Lurie, Sumit and Linda Dutta)

Business meetings attended = 26

Michigan Wolverines met = 9 (Go BLUE!)

Tigers seen in the wild = 3

Elephants ridden = 2

Meals that contained beef = 0

Days rained on the mainland = 2 out of 87

Opportunities in India = Countless

We are planning to do a Best of Pics, Best of Panoramics, and Best of Videos as soon as we get them all sorted out…Stay tuned!