All posts by steve@kerrzone.com

Random thoughts – keeping you on your toes

Investment Basics

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Investing –  expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture.

Whatever you are using as an investment vehicle (stocks, bonds, mutual funds , etf’s, property or a business to name a number of the most common vehicles) the process and the principles are the same.

House Flipping

While watching a TV show about house flipping the other day it occured to me how walking through the process (step by step ) would be a great way to illustrate the common generic investment practices.

These practices can be leveraged to make positive investments consistently.  That is regardless of the investment vehicle.  Whatever you are expending your money on for investment purposes, these things apply.

The Investment Process

1) Decide what to buy  –  In the case of house flipping, you are seeking a property.  Before selecting a house you need to understand your goals.  Are you seeking to buy, repair and sell in a short time (active investing) or buy and wait for the price to rise while doing nothing (passive investing) or rent and earn income while expecting the price to remaim at least flat (income investing).  Or some combination of these?

2) Monitor, hold improve or get out – For a house flip of course adding more money to make the investment attractive is obviously the object of this step.  For financial investments this may involve actively participating as a shareholder, attending meetings, voting questioning company management and so on.  Or if this was a passive investment or income investment this could mean waiting, watching, costs being ready for the next step ( or a quick exit if losses loom)

While repairing the house unexpected problems may cause you to dump the reno plans (its getting too costly) take a loss or smaller profit than your goal because it seems safer than getting in deeper and loosing more.  Similar logic can be applied to your financial investment

3) Sell for profit – In the case of flipping, you put the home on the market for more than you paid plus reno costs.  For financial products ask more than you paid plus costs (fees, taxes, etc.).   In the case of income investing you might never get to this step, as long as you have an income stream with little cost to maintain, why bother.

Random thoughts – keeping you on your toes

Listen to the Music #8

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On Oct 25th I started a post series that would be about the 37 live rock concerts I have attended in my life so far.

Over time, I am listing the next three best.  Seven posts so far covered the top twenty one (listed below), today’s covers Twenty-two to twenty-four.

Just a reminder; 1) Paul McCartney, 2) Led Zeppelin, 3) Elton John 4)Alice Cooper 5) Al Stewart 6) Queen 7) Bee Gees 8) Deep Purple 9) James Taylor 10)Blue Oyster Cult, 11)Johnny Winter, 12) Uriah Heep 13) The Monkees. 14) 1910 Fruitgum Company 15) Allman Brothers Band 16) Kansas  17) Styx  18) Wishbone Ash 19) Trooper 20) Brave Belt 21) Nazareth

And today’s list

22) BTO – Bachman Turber Overdrive consisted of Randy Bachman, former Guess Who lead guitarist, his friend Fred Turner on bass and vocals and two of Randy’s brothers on rhythm guitar and drums.  Just loud, hard rock with a power beat and simple but snappy lyrics.  I mentioned in a previous post how I had seen the precursor band (Brave Belt) So of course I had to see the group they had matured into , and I was not disappointed.

23) Peter Gabriel – Starting out as vocalist for Genesis, Peter gained great fame before a solo career that went to even greater heights.  I saw him in Toronto on his “Shock the Monkey” tour.  He was at peak popularity and it was a stupendous show with wild effects and brilliant showmanship.

24) Bad Company – built on the distinctive blues vocals of Paul Rodgers this was a fabulous show by a typical late sixties, early seventies rock act.  The show was about the music, not posturing and the music was great.

Random thoughts – keeping you on your toes

Experience Matters

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I had an interesting discussion today which touched on the topic of experience.  Education, personal skills/ ability and your experience make up your capability quotient.

Experience Required

Doctors, lawyers, plumbers, painters heavy equipment operators, pilots are professions that all require both education and experience  before you are deemed a professional that can stand alone.

Accountants often require three years of apprenticeship experience before being certified so these experience period can cover a significant time frame.

A Japanese sushi chef studies for up to eight years before being certified to prepare poison blowfish (fugu fish).  The certification process is quite stringent, you need to prepare and eat a fugu – if you live you pass.

Why Internships

It’s clear (based on experience) that in order to do many jobs safely you not only need to know how (training) and have the personal ability (skill) but to do it right some experience is critical.

The higher the risk associated with errors in execution (e.g., airline pilot) the greater the experience requirement before turning someone loose on their own.

Leadership and Experience

Good effective leadership requires training, skill and experience.  This goes against the argument that leaders are born.  Some aspects and underpinnings of leadership skills can be inherited but training and experience cannot.

Does this mean I cannot be a great leader without experience; my opinion is definately yes.  Can I be a leader without experience, of course but great leaders are experienced.

That is you are not born into it, you must develop the capabilities over time.

Random thoughts – keeping you on your toes

Good Experience/Bad Experience

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I recieved some interesting feedback yesterday on my post about the value of experience.  I had seemed to imply all experience was good.

Most of us have had bad experiences (think about Ryan Lochte’s recent Brazilian experience for example) and do agree experience can be percieved as being positive, negative, good or bad.

Life Lessons

I would argue though that in the context of life lessons, any experience, regardless of how it is percieved by the recipient, is valuable and sets the frame for growth, increased competency and ultimately success.

In the context of life lessons or even just professional activities experiences lay the ground work for us to choose to repeat or avoid actions based on past results (i.e., the experience)

Avoid Bad Experiences

The feedback I recieved suggested experience in and of itself does not have value and some experiences were to be avoided (e.g., a car accident).

In the context of capability to perform certain tasks (e.g. a medical operation) I would argue having the benefit of performing surgery in addtion to training and skills derived from practice positions me to be a better practitioner than someone without that experience.

Does this mean I would strive to avoid the experience of an unsuccessful surgey with a resulting fatality, of course.  However, if I did encounter that situation I would use the experience to advantage,

The knowledge of what went wrong and possibly how to a avoid a reoccurrence is golden. A bad experience can ultimately be leveraged for good.

My thought is that while the experience itself could be classified as negative, unpleasent, not to be repeated; in terms of the triumverate of attributes that forge sucessful results (education, ability and experience) all types of experiences are needed

Random thoughts – keeping you on your toes

How to stop Firefighting

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My post on Saturdays  used the analogy of firefighting to help explain the concept of urgency and importance as it relates to your priorities. Urgent/ Important represented the equivalent of fire fighting.

On the other hand Important/ Not Urgent activities are often subject to procrastination, they get a default priority. That is we’ll  get to them when we get to them, the motivation to do the task is not obvious.

How focusing on important not urgent makes a diiference

Consider the fire-persons ( formerly known as firemen) sitting around the fire house waiting for an alarm.

Actively promoting fire prevention awareness to the community is important.  Fire prevention training , while important is not urgent (obviously not as urgent as fighting an active fire).  However, fire prevention reduces fires and so there is less firefighting.

Effective fire prevention results in less fires, leading to less fire fighting, so more time for important activities like fire prevention.   It’s a positive upward spiral – focusing on the important not urgent reduces the important – urgent (i.e., less firefighting).

Less firefighting means less of the damage that is typically associated with fires.

A Real Life Example

Without providing details, in order to protect the innocent, here’s a real example of this I recently observed.

An organization I am familiar with recently completed some major technology changes.  Not unexpectedly this created many fires.  The majority of the resources focused on putting out the fires.  And, immediately as one fire was out three more sprung up in it’s place.

The fire fighters were clearly getting exhausted.  The good news, and point of the story a small group of leaders in the organization took it upon themselves to identify the root causes, craft short, medium and long term strategies to address these along with specific action plans.

While creating the strategies did not appear urgent, nor provide immediate satisfaction, the key  outcome  of the strategic planning was a structured and methodical approach to issue management.  Within two months, no more fires.  Fires which might have continued for another 6 months or a year otherwise.

 

Random thoughts – keeping you on your toes

Prioritizing Your Time

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Fighting fires often becomes the default prioritization process.  This applies both personally and organizationally.  It is easy to divert your effort to the fire or even just wait for fires before acting.

The urgent/important model

image

In the four quadrents above, the urgent ones relate to fire fighting (i.e., fighting the fire is urgent).  The upper left activities are  probably justified in receiving attention, they are an important task.

The lower left quadrent is the problem.  Here we tend to spend time due to a false priority.  It is really not important to a accomplish ( e.g., a completely safe fire in pit with minimal danger of spreading)

We might waste our time watching the safe fire in the pit because we have been asked to (i.e., given our priority) even though we know it is not a valuable or important task (i.e., unlikely anything worthwhile will come of it).

Important – Not Urgent

Spending time on important things although there are not urgent is extremely valuable.   Typically these activities lay the strategic foundations for success.

The impact of completing important activities might not be immediate but over the long term it has a powerful effect (thats why they are classified important)

Impact of Spending time on Not Important – Urgent

It takes a lot of will power to focus on tasks that are not urgent and when there are urgent – not important tasks available, these often take priority because it is easier to do so.

Procrastination is a well known human trait and urgent not important things support this undesirable behavior when considered against the important tasks – they are typically harder so why bother.

A word of Warning/ A word of Advice

Stay out of the bottom right quadrent.  If you are in paid employment, people who spend too much time doing unimportant activities no one cares about are terminated. (Although some sneak by for years)

Spend as much time as you can in the upper right quadrent as these activites will lead to both a strong feeling of personal accomplishment and great success.  Unfortunately like the way to attaining many good things, it is the harder route.

Random thoughts – keeping you on your toes

Libraries and Technology – part 2

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I received some feedback about yesterdays musing on libraries .  It was noted that reasearch libraries are quite different from regular libraries with unique collections of material some of which is not available on the internet.

Horrors.  I was crushed – decimated.  Could it be there were topics and information not available on the internet.   I cannot believe it.

When machines like IBM’s Big Blue which was able to win at Jeopardy, beating the best human contestants of all time,  then I know this cannot be true

Big Blue  wins because it has internet access and so knows everything.  This machine accesses and searches the internet in ways humans never could.

This includes information from Research libraries.  Basically these institutions have automated at least a synopsis of their collections.  And Big Blue can get it.

Remember HAL

The super computer from the movie “2001, A Space Odyssey ” was called HAL.  This was an all knowing artificially intelligent machine and humans were no match for it.

This futuristic tale is not so far fetched and we are fast approaching the day when HAL like computing devices will exist.  The internet will be their library and librarians are not required.

Hold on, don’t Panic

My tongue is firmly planted in my cheek as I craft this post.

The point about Research libraries is surely well taken.  That being said though, things are changing and I do predict a time when the machines dominate, humans become subservient and all information is available on the internet.

And not only that but it will be accurate and we can rely on it.  Googles always right, isn’t it?

 

Random thoughts – keeping you on your toes

The Shelf Life of Libraries

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Libraries are an organized collection of documents.  From the first libraries , collections of clay tablets, to todays institutions (which include multiple forms of media from, books and magazines to microfilm ) the key functions have been aquisition and organization.

While the functional activities of today’s libraries have expanded and the processes and methodology changed a lot over the years, the two main activities remain aquisition and organization.

And then came the internet

“I am the internet, I used to be the library.”  This whimsical quote, probably meant for amusement, is actually quite accurate.  The internet is largely a vast organized collection of media.

Albeit in digital format, the material on the internet is searchable more quickly and efficiently than even the most organized of libraries.

And What Becomes of the Library?

As a place to gather, read and draw on the expert knowledge of the librarian, libraries probably have a continued use – although in essence the modern version of this is probably the internet cafe.

So are libraries doomed.? Where will they go, what will become of them?   In the short term hard copy books will persist but as the digital generation takes over it is concievable the question; what is a book? may be asked by a population that is no longer familiar with that media.

And why do I ask?

This question arose for me  during one of my U of A campus walks on which I counted seven physical library buildings.  With the libraries on other campuses I believe the total is eleven buildings, full of paper.

I am puzzled as I have no need for a physical library myself , virtual digital collections of media -ebooks and such I get, but a library building with books, why?

Hence my rumination here.  Obviously the libraries are not vacant and as I walk by people are streaming in and out.  Haven’t these people heard of the internet.  Or maybe they are looking for the pokemon that are hiding there.

 

Random thoughts – keeping you on your toes

Self Serve Investing

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In an opinion column in the Globe and Mail the other day, it was suggested a lone retail investor would not be able to analyze and select equities any better than a professional investment analyst/ portfolio manager

The key arguments are:

  • whether a buy or sell side analyst they generally have years of training, personal experience and can draw on the experience of their colleagues
  • the analysts generally focus on one or two equities or at very least concentrate on a single sector
  • their day to day focus is to study the data and draw conclusions/make recommendations with associated documented rationale

The conclusion of the opinion piece was individuals who wanted to manage their own investments should buy ETF’s (exchange traded funds) which are generally low commission and linked to an index, commodity or hedge strategies (to name some of the top associations)

That is, you can’t beat the experts when it comes to buying individual equities so go with group think.   This thinking does not conform to my own opinion .

Worth the Effort?

As I have noted before it’s your money and you have the most to lose or gain.  Making a bet on a fund is just that, gambling.  Relying on an investment advisor or portfolio manager who are  basing their recommendations on others work (the analysts) requires a lot of trust and faith.

Spending the time to do careful research, arriving at my own conclusions is extremely effective for me. Firstly I see the value in spending the effort personally.

More importantly though whether I gain or lose I took the risk, I made the decision and win or lose I can own it ( after all, it is mine to own).

Of course if things are not working I can always switch my strategy.  Fortunately, for me, with over 20 years of equity investing I am averaging over 15% a year. ( And that is without funds -yuck).

Random thoughts – keeping you on your toes

Say what you do and Do what you can!

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My own personal integrity value is “Say what you do and do what you say”. Of course this is not always possible but as a guiding framework it influences my behaviour.

Simply put, I arrive on time, show up if I accepted a meeting and complete a task I committed to.  In some cases I have to communicate a change in committment with an explanation but I never just let a thing slide, once committed to.

A diifferent approach

Personal values are just that, personal.  However,  we do judge others by their values and typically our own expectations for behavior are influenced by our own value set.

I have recently came to the conclusion that a group I am familiar with practices the integrity value with a twist.  They say what they do, but only do what they can.

In essence, the completion of whatever is commited to is limited by desire, ability and attitude.  If we can do it, without too much effort or inconvenience, we will.

What is puzzling to me is the fact this team is surprised when others don’t always accept or even approve of this approach.  It is after all the cultural norm for that team; so it must be okay – right?

Interpreting the values behaviours

The group I refer to has adopted integrity as a value.  But, the behaviour associated with this value is linked to individual motivation, as I have described above , so I question the value.

That is, regardless of what was agreed (the say what you do part), personal motivation and committment drive the result, and if it falls short, that’s okay.

Unfortunately, with my own personal filters, this seems to be an off kilter approach.  It does work for the team though and interestingly they seem very comfortable with this.