All posts by steve@kerrzone.com

Random thoughts – keeping you on your toes

The Price of Goods in US and Canada

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Nothing new in today’s post for most people.  On the weekend I had my own personal first experience with the difference in price in Canada and the US for an identical product.

My wife and I our buying a new dishwasher and started the search on-line.  We decided to buy a Bosch dishwasher.  They are well known as one of the premier manufacturers of the quietest dishwashers, also high quality and long lasting.  After identifying the model we wanted on the Best Buy web site, it was off to the Best Buy store to complete the purchase, and arrange for delivery, disposal of the old machine and installation.

At the store we learned our search of the web had been the US site of Best Buy in error and the exact same model was $900 in the US and $1800 in Canada.   Even with the exchange rate at $0.72 CDN per US $1.00 the overall cost would have been $1250.00.  So basically the same product would cost $550 (60%) more in Canada.

Who gets the price difference?

This is an interesting question for me.  Does Bosch make an extra $550 ($400 US) or is it absorbed by duty (so much for the North American Free Trade Agreement) or possibly a combination of both.

At first I wondered if this had something to do with the fact the Bosch is manufactured in the US.  On exploring this a little more it appears not necessarily to be the case as we discovered when exploring the price of a Meile.

In the end we decided on a Meile dishwasher, these are made in Germany and so whether sold in the US or Canada the shipping distance is similar.   The US price for the model we chose was $900 ($1250 Cdn) while the Canadian price is $1550.  Not as big a difference as the Bosch but still a discrepancy.

Volume lowers costs?

I am wondering how much of this is related to volume sales.  Intuitively bulk purchases are cheaper, you save at Costco for just reason and so, I guess, if you are supplying dishwashers to a country ten times the population (US vs. Canada) you experience a much higher sales volume, offsetting your cost and thus letting you lower the price and still make the same margin.

Ultimately though if Canadians will pay the higher prices, than the manufacturers are going to charge them.  Cest la vie!

Random thoughts – keeping you on your toes

Pushing the Hot Button

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A colleague once shared with me a personal philosophy, ” Don’t worry when people you work with kid around with you and give you a hard time, when they stop is the time to worry.

Most of us have a hot button that set’s off an emotional response (usually founded on frustration or anger).  The real trick is being aware your button is being pushed and using filters (shields up) to deflect and avoid just reacting.

How does it make you feel?

I have rarely encountered anyone;  whom on reacting to a push of their hot button later did not regret how they responded.   This is a good cautionary note and can be a bit of motivation to hold off responding in the moment.   That is, thinking about the consequences and how you will feel afterwards.

SELF AWARENESS

One of the behaviors often listed as a foundation of emotional intelligence is self awareness.  This refers to the practice of understanding how you feel, how others behaviors are impacting you and how yours are impacting them.  Using a real time application of this knowledge guides your responses.  Those with a high level of self awareness can as a rule make every personal encounter fruitful and achieve the objective of realizing their goals (what they want to get out of the conversation)  while enabling the other party to achieve their goal.  Win – win.

Collecting Stamps

As you progress through your day, events place a conceptual stamp on your back.  In simple terms it is a happy face or a frown.  You spilled your morning cup of coffee – frown.  It was a spill onto a shirt you hated and wanted to dispose of anyway – happy face.  These events occur throughout your day and generally one kind of stamp overcomes the other.  That is, at any given point in your day you may have collected more happy faces or more frowns.

As you might guess the predominant number of stamps can impact how you feel – happy or depressed.  This can impact how well you are able to deflect having your hot button pushed – regardless of how self aware you are.    One suggestion to mitigate the negative impacts of too many frowns is to pause when you realize the accumulation has occurred and just pull the frown stamps off.  It really is no value to carry them around.    Actually when relaxing at home after a day at work, often unconsciously we simply spend time dumping our negative stamps.   This could be by having a drink, listening to a fine piece of music, joking with your partner (if you have one) or any of numerous other techniques.

Summing Up!

Attempt to be aware when your hot button is being pushed and act positively for all concerned.  As your day progresses pull off negative (frown) stamps and discard them.  Try not to pass them to someone else – that’s the worst.

Random thoughts – keeping you on your toes

Using Controls to Manage Risk

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The concept of using control processes to manage risk is really common, sort of intuitive.   You will remember from childhood how you were schooled in checking in both directions before crossing the street (well most of us do).

This is a control process.  For the expenditure of a little effort, that is moving your neck to the left and then to the right (or vice-versa) you reduce the risk of being hit by a car.

Over the years, I have found there is a tendency to put more rigid  controls in place (more costly, more effort) than needed for the same resulting reduction in risk.

For example consider three houses in a row.  The first house has no specific burglar protection (relying on neighborhood watch), the second home has a dog and the third a fully monitored alarm.   The control practice (alarm, dog, rely on neighborhood watch) is designed to increase the likelihood of detection/reaction to a robbery and thus will decrease the likelihood of being robbed or the losses if a robbery occurs.  The cost rises with each control improvement.

Consider the burglar, it is kind of intuitive (all other things being equal) he/she is probably going to go after the house with no dog or alarm.  In this example (assuming a dog is cheaper than a fully monitored alarm) the middle house is getting the best risk reduction for the lowest cost – the best value.

What Level of Control is Appropriate?

Control assessment starts with risk assessment.  What is the likelihood and the impact if the risk occurs?  Intuitively it’s fairly obvious it’s probably a reasonable business decision for less likely low impact risks to be mitigated with less rigorous controls  (i.e, lower cost/effort )

How about an example?

Say your organization has a public web site and 10 people can access and change the content and publish the changes immediately.  The content is informational and while it impacts the organizations reputation there is no pricing, products for sale or legal agreements.  A person working for the organization is unlikely to post negative content and when they leave a good control is to make sure their access is removed immediately.

Now consider the content has financial implications or products/services are sold on-line, in this case the impact of a mistake or malicious manipulation of the content is greater and it might make sense to have a control such that no content changes are published unless approved by a second person.  Automating or manually implementing this control is more expensive but given the greater risk probably makes sense.

IN SUMMARY

It’s recommended careful analysis be undertaken when considering control implementation to ensure the level of control is balanced against the level of risk for both cost effectiveness and efficiency.

Random thoughts – keeping you on your toes

Free Will

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I had a conversation today that got me thinking about free will.  What is it, how do you exercise it and how is it different from personal accountability and being total free, topics I wrote a post about on Aug 24th.

The discussion that set me off was about a hypothetical case where a man entered a crowded auditorium, walked to center stage, dropped his pants  and defecated.   This was a conversation opener  as an extreme example of free will.  My initial response was if someone dressed up as batman, entered a crowded movie theater and shot several people dead is that an exercise of free will?

Respect Others!

Obviously society has placed constraints on behavior.  Killing others clearly does not fly as an expression of free will in any society around the world (although consequences of such expressions of “free will” vary depending on where, why, etc).  Defecating could be construed as a political act and might pass society’s muster.  This would depend on a number of things and in North America we use the legal system to help manage these decisions.

The concept of free will though is as bit different from the philosophy of total freedom I explored in my previous post (although related).   We do control how we think but personal accountability and societal constraints impact how we can express our free will within the context of those we live with.

What about seat belt laws?

In most provinces in Canada we are not free to travel in a car without wearing a seat-belt.  Of course we could express our free will and not wear the seat belt, taking the risk of consequences (probably a fine, maybe death).  The interesting question is whether a society has the right to impose on it’s members constraints like the requirement to wear a seat belt when traveling in a car  (The right to limit the act of murdering others seems pretty obvious, but forcing people to wear seat belts?)

Practicing Free Will – RULE OF THUMB

On Aug 13th I captured a basic  personal philosophy in my blog post Aspire Against All Odds  and I believe it is worth repeating in the context of this discussion.  The best way to determine how to practice free will could be as simple as the following:

I will live my life to maximize my personal pleasure as long as I don’t impede on the personal pleasure of others.

Random thoughts – keeping you on your toes

Do It Yourself (DYI) Investing

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With the advent of the ability to research and purchase financial investments online the need to use an investment banker or have a direct relationship with a broker has passed. (I am referring to Equity and Fixed Income investing in this post)

This post explores the two main options you have when selecting investments and making trades – that is adviser/broker or self serve (DYI).

Doing it on your Own

In the interest of full disclosure I will start by sharing that my wife and I manage our own investments and that is my bias.

Intuitively no one is better positioned to make risk based decisions than those impacted if the risk event occurs.  This is generally not a true statement for investment portfolios managed by a third party.

Along those same lines, when you are investing you are basically making a purchase.  That is shares, bonds, ETF’s, Mutual Funds, or Guaranteed Investment Certificates (most personal investments fall into one of these categories ) .  Would you let someone else decide what clothes you should wear, or car you should drive and buy it for you?   Some probably do listen to the advise of a fashionista or a car salesmen (Personally I am too self centered for that)  but most likely you make the ultimate purchase decision.

Caveat (Beware)

Investment purchases are most successful when researched.  There are a number of main styles of investing (value, marketing timing, day trading) and each is best practiced from a strong knowledge base.  That is not to say you cannot and would not be lucky, just the chance of success is higher when based on a careful consideration of pro’s/con’s, risks and future forecasts.   If you cannot do the research, than I would not suggest the DYI approach.

Using and Investment Adviser/ Broker

The number one item to understand fully when employing a third party to assist with your investing is just that –  this person is being employed by you and there will be compensation for them providing this service.

This is a really important point because there are lots of ways advisers get paid and the majority of them are not transparent.  Also there can be duplication of fees, maybe it does not sound ethical but hey, if you are willing to pay there is always someone willing to take your money.

I am not going into this in great detail but an example of one of the popular hidden fees is leading or trailing commissions on mutual funds.  The adviser that sells the funds makes his money from a commission from the fund, you don’t pay him directly,  so it looks free but really it’s far from it.   The double dip part of this scheme is you pay the funds management fee (what they charge you for running the fund) and you end up paying (in some way even if not directly) the funds salespersons commission.

Without getting into great detail using an investment adviser and purchasing a mutual fund or and ETF puzzles me a little too because the contents of these funds is not dictated by the investment adviser but by the fund manager.   So what value is the investment adviser telling you to buy the fund (probably the one they get the most commission on anyway – oh cynical me).

If you are not able to do the research (for whatever reason) using an adviser is probably the best viable option, however, I would strongly suggest that you make sure you fully understand how they are being compensated (face it no one works for free) and always make sure you are the one that makes the final purchase/sale decision even if you don’t do the research.  Trust no one but yourself.

Random thoughts – keeping you on your toes

Cassette Tape Story

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Yesterday I was listening to a cassette tape recording of a hip-hop group called the Tower of Power when something very interesting happened.  Here is the story.

The Background

The first popular and common way of distributing recorded music was through the use of vinyl records.  These were played back using a gramophone/phonograph/turntable/record player (basically all the same thing just with different names).

As recording techniques improved the music would be recorded onto magnetic tape.  Recording and playback was accomplished using large reel to reel tape recorders.  This was then transferred to vinyl records for distribution.

In the mid- sixties cassette tape recorders were developed.  These were relatively compact and could be cheaply produced and mass marketed.  They also allowed for home recording using a microphone attached or built into the recorder.  (Overtime, they also spawned several different playback device variations – boom boxes and the Sony Walkman being the main ones)

In the beginning of the nineteen seventies, music artists songs were being sold on both vinyl albums and cassette tapes ( and a variation on cassettes called 8 track tapes).

By the nineteen nineties a third major format had been developed and entered popular use, compact discs.  These could be recorded and played on computers and mainly just played back on compact disk players.  For a time compact disks (cd) became the predominant media for distributing recorded music.

Today CD’s, vinyl records and cassette tapes have largely been replaced by digital music distributed by online methods.   Although CD, vinyl are still produced and sold (vinyl mainly to avid collectors who believe the sound is better) cassette tapes have largely disappeared.

Hence this background, so those of you not familiar with cassette tapes would understand a little bit about them.

The Story

The Tower of Power focused on hip hop and funk genre of music in the early nineteen seventies migrating to disco in the back half of the decade and then falling from popularity.

When I purchased a used Toyota Corolla in 1980  it had a built in cassette tape player and the previous owner forgot his Tower of Power tape in the player.  So I acquired it.

Back in the early nineteen eighties, my youngest brother was babysitting our daughter one evening; she was probably between 9 and 16 months old at the time.  My brother was experimenting with getting our daughter to say “da da”.  He got so excited with his success he grabbed my Tower of Power tape (which was probably near at hand or even in the cassette recorder) and although it was a “pre-recorded” tape he proceeded to override that and record our daughter saying “da da” along with his encouraging words.

Yesterday I was relaxing in the “man cave” yesterday grooving to a little seventies funk by Tower of Power when suddenly the music was interrupted by my brothers recording.

Thanks bro!   The nostalgic surprise was cool but a pre-recorded tape – really – have you heard of blanks?  Now I remember why you weren’t asked to babysit much.

Random thoughts – keeping you on your toes

Street Dealing

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I had a fabulous nostalgic experience on my drive home from work today.

The back story

An ex-colleague of mine,  (and no he did not change employers because of me) is also an organo gold dealer.  Organo gold (the company)  “brings the treasures of the earth to the people of the world”.

In case you are wondering, the treasures of the earth are coffee, tea and nutraceuticals.  The premium black coffee is enhanced with ganoderma lucideum which is known as the supernatural mushroom.

Almost a year ago, he asked if I would like to try some of his good stuff (the organo gold not acapulco gold)  and I did.  It’s instant coffee and it was my intention to just try a cup or two and then politely exit stage left.  Surprise, surprise this was good stuff.  The magic mushrooms were not hallucinogenic but I do feel good.  I understand some mushrooms can be hallucinogenic , not from personal experience of course, people have told me that.

So I had to score some more, gave my dealer a call and so it began. First I was buying a box, than 2 at a time and on to 3 boxes at once.  I do drink about 10 cups a day, so got to feed the habit.

The Nostalgic Experience

I met my colleague for lunch yesterday and as has become habit, in his dealer role, he was going to slip me 90 packets (3 boxes).  Woe is me, he forgot the stuff.   We had a nice lunch and pleasant walk around the lovely campus of the University of Alberta (the co-eds have started to return, but who notices).  Anyway we made arrangements to complete the buy next week.

Today on my drive home I was stopped at a four way stop sign,  checked my rear view mirror and who is in the car behind me but my dealer.    I completed my left turn and pulled over to the side of the road and my dealer (I mean ex-colleague) with his moll sitting beside him (I mean wife) pulled in behind.  He showed me the stuff and as I pulled out my wallet to make the buy, he suggested we move off the road behind his car to make the exchange outside of prying eyes you know.  Meanwhile his wife kept lookout.

Now this was organo gold (it’s instant coffee) but it took me back 40 – 45 years when this could have been acapulco gold.  Not that I have any experience with that, but others have told me and I can imagine.

Anyway, I got the coffee, he got the money and no one got hurt.

And if you want some organo gold

Drop me a reply to this post with your e-mail and I will pass it to my dealer.  There is a link earlier in the post to the Organo Gold web site so you can read more about it if interested.

Random thoughts – keeping you on your toes

Timely Investing Thoughts

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Equity markets tanked on Monday of this week.  The typical labels describing the day have been coined; not necessarily the most imaginary but probably the most common is “Black Monday”.

I saw a great tweet on the topic from someone living in a third world country aimed at the first world nations  ” I feel really bad for you, having to sell one of your 4 TV’s”.

One of my favorite questions is about why people panic sell.  I actually doubt that the majority of the trades were anything but well planned profit taking.  Remember on any given day institutional and day trading initiate most of the trades (buy or sell) and well it’s possible fund managers/day traders are acting emotionally it is far more likely they are selling to realize profit with a plan to reinvest when the market settles, that is market timing approach versus value investing.  I am sure some panic selling occurs but my guess would be a very small percentage.

How would it work?

Say you bought 1500 shares of Bank of Montreal (BMO) at cost basis of $35 share.  On Aug 19th BMO was approximately $71.5 share.  If you sold on say Thursday as it started to drop at $70 you would have locked in $54,750 profit.  Whoo hoo!

If you bought those 1500 shares back on Monday at $66.18, (spending some of your profit) you would be up on paper today by      $7,860 as the value of the shares is back to $71.42, you would still have your 1500 BMO share and associated dividend flow while  retaining $5,730 cash profit which was removed to spend on something else.  (A nice dinner maybe).

RISK???

Yes, this profit taking has risk, however in the volatile market of the last couple of years, there are a number of large cap stocks for which this market timing practice has shown to be quite predictable  (in hindsight of course).

 

Random thoughts – keeping you on your toes

Risky Business

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Everything we do entails some risk.  When we describe an activity as “risky” we have usually done a quick intuitive analysis and concluded their is a high risk of something bad happening.  In our minds this activity becomes a risky business.

Today’s post I want to explore the basic concepts of risk.  The question is,  rather than gut feel is there a way to quantify risk (hopefully a simple way) and then based on that quantification determine what if anything to do about it.

The topic of risk analysis and risk management is complex and huge.  As usual today’s post is just   exploring the basic concepts. I will build on these in future posts.

What is a risk?

Just sitting on the couch reading a book entails a risk.  You could have a heart attack.  The large tree outside your house could fall over, break through your roof and crush you.   A flea could bite your ankle,  the flea could carry a disease and you could get very sick.  Of course the list goes on probably as long as my imagination.

So, what risks do we care about and want to protect against?

A basic risk quantification technique is to score the likelihood a risk event (the bad thing) will occur multiplied by the impact factor of the event.   Typically likelihood is rated on a scale from unlikely to very likely.  Impact is classified from low to high.

For a quick semi balanced subjective/objective score of a particular risk you could assign say unlikely = 1, likely = 3, very likely = 5.  On the impact side low = 1,  medium = 3 and high = 5.    Then just multiple the two factors to get an overall score that is indicative of the risk magnitude.   For example an unlikely risk with low impact  would be 1 x 1 = 1.   A very likely risk of high impact would be 5 x 5 = 25.  So your risk assessments using this simple tool would line up between 1 and 25.  You might say you would worry about those above 15.

The scoring concept described above is weighted toward the subjective and overall high level.  Much more complex weighting systems with more accurate metrics can be appropriate to use depending on the risks you are assessing but the basic concept of rating and assessing likelihood and impact stands.

Let’s try out the simple model

 Activity – importing goods into the Port of Vancouver

Risk Event – a pocket nuclear device is imported.

Considering the protections at the port, custom inspections, x-rays, radiation detection devices and guards together with the difficulty to build and transport such a device, I will rate this a 1 (unlikely).  The impact side gets a 5 (obviously I think) for an overall risk score of 1 x 5 = 5.

Now if the protections and other mitigations against likelihood did not exist or were not in place this could be rated a 3 (likely) or 5 (very likely) in which case the overall risk score would be 15 or 25.   Overtime this score can change; say a terrorist announces they are intent on importing such a device and working actively on it we might raise our likelihood rating.   Or we might improve our risk mitigation activities to reduce the likelihood in the face of the heightened threat.

And there you have it, a simple model!

There is a lot more to say about this model and how it can be used and applied in more real world situations (like your house burning down , a new purchase breaking down) and I will get into those in future posts.  The basis concept described here though applies throughout.

Random thoughts – keeping you on your toes

Rabbit, skunk, frog, raccoon, gopher, deer and more

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As I turned into my driveway today on my way home from work I noticed a large brown rabbit on the grass.   Rabbits have their eyes in the side of the head so they do not see things head-on but rather peripherally.  As soon as my car got parallel with the rabbit it took off, away from the car fortunately.   My wife said if the rabbit crossed the cars path and I hit it then we’d have rabbit stew.  Hmmm!

I have lived all my life (to date) in various large cities across Canada.  Each city I lived in was on the top ten list of Canadian cities by population.  The rabbit incident got me thinking about the wild animal populations in large urban cities.  This is really a great example of how humans can co-exist with wild life.

The cities I have lived in had populations of mice, rats, rabbits, skunks, frogs, raccoon, gophers, deer, squirrels and chipmunks living right in our neighborhoods, even our chimney’s, window wells, sheds and so on.

Once in Toronto a skunk fell into our basement window well.  These animals are pretty stupid, he could get in but not out.  As you can imagine I was adverse to reaching in to the window well and extracting the skunk.  Animal control constructed a ladder from some materials we had on hand and slid it into the well.  That night I watched through the window from inside the house as the skunk tried to figure out how the ladder worked – it actually was quite amusing.  Eventually he figured it out and escaped.

The gopher that fell into our window well in Edmonton was not so lucky.  We actually did not know he was there, or even how long he was there, and he just died in the window well.  I finally noticed his body and removed it.

Worse of all was the raccoon living in our chimney in our Toronto home.  We had to hire a professional pest control company to do the removal and her babies too.  They said they relocated them outside the city.  I wonder.

The balance that allows these animals to co-exist in our urban areas, that is lots of green spaces, our respect for wild life and strong animal protection laws are a credit to urban Canadians.  This is as it should be – well maybe not for mice and rats.

Apparently there are no rats in Alberta, Canada.  That’s good I guess.