The Art of the Deal by Donald J Trump

 Quotable quotes:

“real entrepreneurs all seemed to go to Wharton: Saul Steinberg, Leonard Lauder, Ron Perelman—the list goes on and on.”

“Somewhere out there are a few men with more innate talent at golf than Jack Nicklaus, or women with greater ability at tennis than Chris Evert or Martina Navratilova, but they will never lift a club or swing a racket and therefore will never find out how great they could have been. Instead, they’ll be content to sit and watch stars perform on television.”

“…my father was always very focused and very ambitious. Most of his co-workers were happy just to have a job. My father not only wanted to work, he also wanted to do well and to get ahead. Finally, my father just plain loved working. From as early as I can remember, my father would say to me, ‘The most important thing in life is to love what you’re doing, because that’s the only way you’ll ever be really good at it.’”

Tools of Titans by Tim Ferriss

 Some bits and pieces I found interesting in Ferriss' book:

“I always say that I’ll go first. . . . That means if I’m checking out at the store, I’ll say hello first. If I’m coming across somebody and make eye contact, I’ll smile first. [I wish] people would experiment with that in their life a little bit: Be first, because—not all times, but most times—it comes in your favor.

“If you run into an asshole in the morning, you ran into an asshole. If you run into assholes all day, you’re the asshole.”

‘Is that a dream, or a goal? Because a dream is something you fantasize about that will probably never happen. A goal is something you set a plan for, work toward, and achieve.

“What am I continuing to do myself that I’m not good at?” Improve it, eliminate it, or delegate

"You might need to CTFO (chill the fuck out) a few minutes a day before you BTFO (burn the fuck Out)"

“Far more money has been lost by investors trying to anticipate corrections, than has been lost in corrections themselves.’—Peter Lynch”

"In order to move fast, I expect you’ll make some foot faults. I’m okay with an error rate of 10 to 20%—times when I would have made a different decision in a given situation—if it means you can move fast."

The Personal MBA by Josh Kaufman

Just some noteworthy tidbits from the book:

 Consider the job you’re currently in. Chances are, you accepted that job because you were willing to take on certain responsibilities, and your employer was interested in having you do the work. You were interested in being paid a certain amount and your employer was willing to pay you at least that much. Your interests overlapped, which resulted in a job offer and a paid position at the company. That’s common ground.

Only four ways to increase revenue:

1. Increase # of customers served

2. Increase average transaction size

3. Increase frequency of transactions per customer

4. Raise prices

Delegating makes sense if the person you delegate to is 80% as good as you are (or better)

Disrupted by Dan Lyons

This is the story of a middle-aged man who loses his job as an editor of a prestigious print magazine, and takes a new job with a high tech startup, filled with twenty-something hirelings, and run by a megalomaniacal duo of entrepreneurs. Things go just about as one might expect, with a clash of cultures that a man in his 50s will not win, in the long haul. At least he got a semi-amusing book out of the deal.

Lyons' style reminds me a bit of Bill Bright, who has written a number of travel diaries. He doesn't seem to have a lot of respect for anyone he encounters, and his cynicism shines through, loud and clear.

Start Your Own Restaurant and More by Jacqueline Lynn

 My apologies to the author of this book, who did a marvelous job of describing and analyzing all phases of the process of starting a restaurant, from a pizza parlor to a bakery and more. I began reading it when I was considering buying a restaurant, but when that deal didn't happen, I lacked the motivation to motor my way on to the end of the book. If you're curious about such things as how many place settings of silverware you need per "top" in the dining room, and the ins and outs of choosing suppliers and determining staffing needs, this is an excellent resource.

The Ultimate Guide to Buying and Selling a Business by Ira Nottonson

 A very thorough treatment of the subject of buying and selling a business.

Sometimes, I even learn new terms.

 "Changing your profit and loss statement (P&L) from one used for tax purposes to one used for selling purposes is called reconstituting your P&L."

Note that this is not in any way a fraudulent procedure, but that there are certain legitimate deductions which are placed in a P&L for your tax returns which are not really "losses" from the point of view of the owner of a business, such as depreciation on real property and equipment, or the leasing of a business vehicle, among other things.

A good thing to remember about what the highest priority of a prospective business owner is and should be.

"Business-buying candidates are always looking for the largest income they an generate, which they usually equate with the largest investment they can handle."

On early negotiations, and the process of trying to put together a deal,

"Profit and loss statements, together with balance sheets and cash flow analyses, should not be necessary at this point (first meeting between buyer and seller). If you have a face-to-face conversation with the seller, you will resolve many questions."

This one I found interesting,

"Balloon payments were quite reasonable in real estate, because many people didn't live in the same house for more than five years. They normally sold their houses, which allowed them to pay the entire note before the balloon payment came due. In addition, the housing market is relatively stable and easily financed compared with the small business market."

Really? Ah...this was written in 2005 before the boom and crash of the U.S. real estate market.

Though very thorough, much of the information on franchising, business brokers, and the responsibilities of accounts and lawyers in the business acquisition process were sections I skimmed. The chapter on non compete and nondisclosure contracts was pretty interesting, however. I've signed some NDAs in my time, so it was good to get a professional's opinion on how these things are enforced, and stressed the importance of a good exit interview (of which I have never seen the point before) in setting expectations on that score for departing employees.

There's a good "wrap-up/review" section at the back of the book that reiterates some key concepts, such as the P&L statements, cash flow analyses on accrual and cash basis and other issues to consider when buying or selling a business.

Great resource for budding entrepreneurs.

The Curmudgeon's Guide to Getting Ahead by Charles Murray

 I think I finally figured out why I've enjoyed Charles Murray's earlier writings so much - it appears that I'm actually a curmudgeon! Now, my children could have told you that years ago, but Murray's guidelines contain things I think about nearly every day of my professional life, so my status is externally confirmed now.

Aside from tips to the younger generation about avoiding the entitlement mentality, using good manners, and avoiding questionable style choices, Murray communicates clearly about clear communication, and avoiding buzzwords and cliches, such as the ubiquitous "I'll be there for you." He translates that phrase, roughly, as "I hereby make a meaningless pretend commitment." and says a more appropriate answer might be "Who do you want me to kill?" I love it.

Of course, I have my own pet peeves when it comes to CorpSpeak (my new term for crazy things people who work in big corporations say). The first is, "I have (or don't have) visibility to that", which means that they are unaware or unable to access the item in question. Visibility is a noun which is properly used in a sentence such as, "Visibility is excellent today, luckily for our pilot - and the passengers." I'll share more with you when the time is right.

One of the grammatical errors he explains well is using "which" and "that" interchangeably. I'm probably guilty of this one quite often. "That introduces essential clauses while which introduces nonessential clauses." If the clause is not crucial to understanding the sentence, use which.

One of Murray's tips definitely identifies him as a curmudgeon of my generation, when it comes to writing.

"Edit the piece in hard copy before before sending out the final version." People of my generation grew up with, at best, electric typewriters, and we are unable to really visualize structure and perform edits without a hard copy to scribble on. I think that my children's generation, having used digital visual media their entire lives, may not have this problem, so it might not be the best tip for a newbie in the job force, but I completely can relate to it.

On editing, and how often new material will flow from your fingertips in the midst of an edit, quoting co-author Dick Herrnstein,

"I remember once when I noticed a rough transition between paragraphs. By the time I fixed it, I had seven new chapters."

I think this explains a lot about The Wheel of Time.

Perhaps his most important bit of advice for writers is simply, "Don't wait for the muse." When you have to write as part of your job, or you intend to write in  order to put a roof over your head and food on the table, you absolutely must set a time and a place for writing, and do it consistently and persistently every working day. If you wait for the muse to strike, it could be a long time before that happens, and it could also strike at a horribly inconvenient time, with no way to take a message when Calliope calls.

Murray also dispels the myth that you need to achieve great success at a young age, like Facebook's Zuckerberg. The median age at which artists and composers have created their greatest works is forty, while writers' greatest literature has been created at a median age of fifty. I guess there's hope for us middle-aged curmudgeons yet.

He also proposes several strategies to increase your personal resilience, so that you won't be overwhelmed when whirlwinds of change make life...interesting in the Chinese curse sense. One option is joining the military, which has a culture which is completely foreign to the one most people experience while growing up, and another is to "pick a place in a strange part of the world that you'd like to get to know, buy a one way airplane ticket, and go...stay for at least three years."

Something he said that you might want to think deeply upon,

"What I am about to say assumes that the purpose of a human life is not just to pass the time between birth and death as pleasantly as possible, with as little trouble as possible. Life should consist of something more than leisure and transient pleasures. Can we agree on that?"

I'm not so sure that we do, here in America today. They're giving us bread and circuses, and that which passes for meaningful is generally based on deception and manipulation. Think about it.

On value judgments (a curmudgeonly relic from a bygone era),

"I want to emphasize that being judgmental is not the same as being intolerant. It is appropriate to be tolerant of behaviors that you wouldn't engage in yourself, and even ones of which you disapprove but which you also judge to fall within the range of choices that people should be entitled to make in a free society. But you can't let your desire to be tolerant get in the way of your obligation to reach moral judgments. You need to think through your assessment of alternative codes of behavior, drawing upon as much accumulated human wisdom as you can about virtue and vice, and about the consequences of different behaviors for human flourishing. You not only need to do it; you must. The failure to do so doesn't define you as nonjudgmental. It defines you as lazy."

And again, on virtue,

"Lacking the cardinal virtues (courage, justice, wisdom, temperance), you can act in those other virtuous ways (being kind, compassionate, merciful, tolerant) haphazardly, and occasionally have the effect you wish, but you cannot consistently have the effect you wish, nor will you be able to bring yourself to behave in those other virtuous ways when the going gets rough. You will still mean well. You will still be nice. You won't be good."

An interesting thought,

"What was true in 1875 had been true throughout human history. Day to day, people didn't have any choice but to show up."

It was not possible to disengage from family, friends, vocation, community, or faith. You needed to be "present to win". After the invention of the phonograph and motion pictures, you could be entertained without showing up for a concert or play. After the introduction of commercial radio, then television, and now electronic media, it is possible to live a life completely alone, and never to directly engage with a living, breathing human.

This is the kind of pocket reference guide to life that ought to be on everyone's nightstand.

The Second Machine Age by Erik Brynjolfsson and Andrew McAfee

I'm thinking that I need to create a new label on this blog, called (tongue firmly in cheek) The PollyAnnas. Every so often I run across a book written by a group of optimists with a vision of the future so bright and cheerful that it blows out all of the cobwebs deposited by today's mainstream media. Unfortunately, they're few and far between. In fact, in the last three years, I've reviewed only two other PollyAnnas - Diamandis and Joffe.

This book starts out quite well, fulfilling my expectations in talking about the rapid pace of technological progress, how Moore's Law and the compounding effect of worldwide networking have given us so many everyday devices that once were the stuff only of science fiction, such as a driverless automobile, Star Trek-like communicators which we all carry around with us, amazing new social networks, and so forth. It begins to fizzle a bit in the middle of the book when the authors begin to talk about the social and economic effects of the new technology, as it rewards those people who are able to increase their productivity and skills by using computers and networks and apps, while it leaves others falling behind and losing their jobs to our new robot overlords (not quite literally...yet). The latter third of the book contains their prescriptions for individuals and government to follow going forward to alleviate the problems and to take advantage of the opportunities, which seems somewhat biased towards their somewhat Progressive take on things, so I just took it with a grain of salt and enjoyed a few of their wilder thoughts along the way.

In their discussion of how computers are terrible at pattern recognition, but good at following rules, known as algorithms, I found the following side note amusing:

"In the years leading up to the Great Recession that began in 2007, companies were giving mortgages to people with lower and lower credit scores, income, and wealth, and higher and higher debt levels. In other words, they either rewrote or ignored their previous mortgage approval algorithms. It wasn't that the old algorithms stopped working; it was that they stopped being used."

What a great description of the "algorithm" which precipitated the artificial bubble in housing prices and all of its unexpected consequences.

In an interesting illustration of how far we've come very rapidly:

"ASCI Red... was the worlds fastest supercomputer...in 1996. It cost $55 million to develop and its one hundred cabinets occupied nearly 1,600 square feet of floor space...Designed for calculation-intensive tasks like simulating nuclear tests, ASCI Red was the first computer to score above one teraflop...To reach this speed it used eight hundred kilowatts per hour...By 1997, it had reached 1.8 teraflops.

Nine years later another computer hit 1.8 teraflops. But instead of simulating nuclear explosions, it was devoted to drawing them in all their realistic, real-time, three-dimensional glory. It did this not for physicists, but for video game players. This computer was the Sony Playstation 3."

Ain't it great!

I discovered a new term, "network effect" - a situation where the value of a resource for each of its users with each additional user.

The authors talk about Waze, an application that works far better than most GPS mapping and direction-providing applications, which takes into account the information both automatically and manually fed into it by its users and their cell phones, providing the most efficient method of navigating from one point to another, based on traffic patterns, speeds traveled in real time, and so forth. It doesn't merely take you down the freeway to your destination, but will make use of side streets if traffic is less dense there on your morning commute, for example.

Other apps which obviously benefit from the network effect are social networks like Facebook, LinkedIn, and Twitter, which get more useful to all users as more users become connected.

Another new development which may be promising involves the Jeopardy playing computer, Watson. It is being reprogrammed with medical data which scientist hope will help doctors make better, quicker diagnoses. In one AI-related project, a computer was programmed to scan for cell patterns in cancer biopsies that might predict survivability rates. The program discovered three new patterns that pathologists had not previously used, which were good predictors.

The authors have an interesting theory:

"In the past couple of decades, we've seen changes in taax policy, greater overseas competition, ongoing government waste, and Wall Street shenanigans. But when we look at the data and research, we conclude that none of these are the primary driver of (income and wealth) inequality, Instead, the main driver is exponential, digital, and combinatorial change in the technology that undergirds our economic system. This conclusion is bolstered by the fact that similar tends are apparent in most advanced countries. For instance, in Sweden, Finland, and Germany, income inequality has actually grown more quickly over the past twenty to thirty years than in the United States."

"...technologies like big data and analytics, high-speed communications, and rapid prototyping have augmented the contributions made by more abstract and data-driven reasoning, and in turn have increased the value of people with the right engineering, creative, or design skills. The net effect has ben to decrease demand for less skilled labor while increasing the demand for skilled labor."

Another concept I wasn't familiar with was the idea of "winner-take-all" markets, which seem to be gradually taking hold of the world of business. With the removal of geographic barriers to marketing made possible by the worldwide web, it is possible for people to rapidly find the best product, app, or service, and to base their spending decision on the absolute best choice, rather than the merely relatively good choice. Competitors who don't have the best choice are rapidly eliminated from the market.

One of the keys to getting ahead in the future mentioned in the book by Brynjolfsson and McAfeee is going to be the ability to play well with robots. Those who are able to augment their skills by taking advantage of technology will do well, while those who do not will wither.

They mention an interesting avant-garde clothing manufacturer called Zara who determine which clothes they will create, and what to ship to individual stores by consulting their store managers about what will sell well in that location over the next few days.

"Managers figure this out not by consulting algorithms but instead by walking around the store, observing what shoppers (particularly the cool ones) are wearing..."

Which raises the question, "How do you know who's cool?" It's high school all over again, apparently.

Side note, in case you're occasional confused by the difference between tera, peta, and exabytes, here's a link to an exabyte definition on Wikipedia that helps a lot.

I found mildly amusing that researchers Ernest Pascarella and Patrick Terenzini summarized more than twenty years of research in their book How College Affects Students by telling us, "...our most fundamental recommendation to students and their parents: study hard, using technology and all other available resources to 'fill up your toolkit' and acquire skills and abilities that will be needed in the second machine age."

Ya think? How many tax dollars were spent on that grant, Captain Obvious?

In the midst of their policy recommendations to solve the problem of technical illiteracy among the unskilled (which, not surprisingly contains the first prescription "pay teachers more"), I found this one puzzling.

"We do not think the right policy would be to try to halt the march of technology, or to somehow disable the mix of exponential, digital, combinatorial innovation taking place at present."

Who in the world is saying that we should? Maybe a few Luddites in the hinterlands, but the rest of us, like Ken Jennings, are welcoming our new robot overlords.

One idea which they present is one I've seen in science fiction for a long time - the idea of a universal basic living stipend for all citizens. What I hadn't realized is that it was actually seriously considered and proposed during the Nixon administration, with the Family Assistance Plan.

"...it also faced a large and diverse group of opponents. Caseworkers and other administrators of existing welfare programs feared that their jobs would be eliminated under the new regime; some labor leaders thought it would erode support for minimum wage legislation; and many working Americans didn't like the idea of their tax dollars going to people who could work but chose not to."

La plus ca change, eh?

They list some ideas from a brainstorming session on better shaping the future. I particularly like #5.

"Start a 'made by humans' labeling movement, similar to those now in place for organic foods, or award credits for companies that employ humans, similar to the carbon offsets that can be purchased. If some consumers wanted to increase the demand for human workers, such labels or credits would let them do so."

Perhaps if we started a rumor that foods grown by robots caused birth defects or sexual impotence...

Best chuckle I had all day.

An interesting, occasionally thought-provoking read. I only wish it had spent more time on reporting about all the great things happening in high tech, and not so much politically pontificating.

One Smart Cookie by Debbi Fields

 When Debbi Fields was growing up, she had the feeling that all of her siblings were more special, more skilled, than she was, and it left her wanting to accomplish something that was truly her own. She had an underlying need to be a people pleaser, and she spent hours perfecting her own chocolate chip cookie recipe. As a young married woman, she would hand them out at social events to her husband, Randy's business associates, and eventually the crazy idea was born that maybe other people would pay good money to enjoy her cookies.

It wasn't easy, and convincing the bankers to loan them the money for Debbi's dream was tough, but she opened her first store in a shopping mall in Palo Alto in 1977 and her business eventually grew beyond her wildest dreams.

At one of Randy's meetings, she relates a story about a group of business executives who had asked ahead of time if Debbi was going to bake cookies for their meeting.

"Who better to ask? So I said to them, 'What would you think about my starting a business to sell these cookies to the public?'
'Bad idea,' they said, their mouths full of cookies, what had been a plateful only minutes earlier now reduced to crumbs they were artfully dabbing up with genteel thumbs. 'Never work,' they said. 'Forget it.'"

There are plenty of important points about customer service and business ethics one can learn from reading her book.

She worked at a Mervyn's as a teen, and was very well-liked and productive there. She says,
"At Mervyn's, I just kept pushing and striving, and they kept noticing. The more they acknowledged my efforts, the harder I tried to make things perfect. Some employees - I know from personal and sad experience - do not see the world in this way. I am making x amount per hour,  they figure, and therefore I will give them x percent of my effort. Why do people who think that way even bother to go to work in the first place?"

I always found that Debbi's philosophy of always working to make things better, of giving your entire effort, and not just the effort you feel your wage buys, to be very effective.

Like so many of us, Debbie was already experiencing, back in the 70s, the depersonalization of the shopping experience in the big box stores, and reminiscing fondly about spending time and money in an establishment where people really wanted to help you, and would likely know your name, and your family's history - not like the creepy big brother thing we've got going on now.

"...Randy's clients and my friends and both our families and lots of bankers were right in their belief that you didn't sell cookies in order to get rich. I didn't care about the money. It was an experience I wanted to create, some kind of gift to people - a lot of whom I felt were exactly like me, cheated of the emotional value of their money by big stores, fast food, systems without affection."

While still in her first location, Debby hired her first employee when she found someone at another business who "had a knack for engaging strangers in brief but delightful conversations".

"We had a terrific thing together, working side by side in the store. And as others joined us, they were brought into what amounted to a conspiracy to have a good time, to turn a job into play and make it at least a small joy to come to work every morning."

What a great corporate culture!

Debby relates to us a great governing principle, put simply, "The more we did for our customers, the more they did for us. I had always been taught that life was the other way around - that you had to make sure you got what was coming to you - but in practice the opposite was true."

In contrast to the way many franchises do business, Mrs. Fields doesn't just give employees the rote task of putting together a pre-portioned, bulk produced, assembly line style cookie.

"What we do is teach people all over the world, on four continents, how to be excellent, artful, instinctive bakers."

Her company's motto, "Good enough never is", encourages people to go above and beyond, to produce an excellent product, and never to settle for just good enough.

This book is chock full of not just chocolate chips, but tasty morsels of savvy business advice for anyone who really truly wants to chase their dreams of excellence.

The Only Investment Guide You'll Ever Need by Andrew Tobias

So, the funny thing about this book is that, despite the title, it exists in at least four or five editions, the first of which was written in 1978, and of which I own(ed) a copy. I remember reading it in the mid-80s, and thought it was great. The personal finance ideas that I was able to take away from it worked well - I think he was the first person who ever mentioned no-load mutual funds in anything I was reading. Of course, I could never find a financial planner that would sell me any, they always wanted to earn their commissions selling me front loaded, poorly performing funds.

When I saw this book was out again, in a 2010 edition, I thought it would be wonderful to read it, then re-read my old copy, and do a point by point comparison of the books, noting which strategies he had recommended earlier had worked and/or were still working. Alas! I was unable to find the old dusty tome in the stacks of boxes in my attic, but, Boy! if it ever turns up...

Tobias manages to cover just about every topic imaginable in the areas of personal finance and investment, and makes them all so clear and accessible. If you know nothing about money, this would be a good book to start with.

There's none of the get-rich-quick philosophy here - in fact, he makes fun of a lot of those types of "plans". He starts with the basics of budgeting and frugality - mentioning that, at least for most of us, it's easier to save a dollar than to earn an extra one, especially when taxes are taken into account. One of his favorite ways of beating inflation is to buy things that you are going to consume regularly by the case, at a cheaper price. I've tried to do that for years, only being limited by the size of my pantry.

I don't often find new, useful tax strategies at my age and given my fairly stable income and deductions, but he talked about one that got me to thinking a bit. If you're on the edge of being able to itemize your deductions vs. taking the standard deduction, he recommends that you try staggering your deductions on alternate tax years. For example, if you do a lot of charitable giving, but not quite enough to get you above the standard deduction, you can put all the money you intend to donate in one year into a savings account, then write a check to your favorite charity right after the 1st of the following year. During that year, you would contribute on a regular basis, and at the end of the year you would have twice as many charitable contributions to deduct as you had before in a single year, putting you over the threshold of the standard deduction. The charity ends up with the same amount in their coffers to work with, and you get a better tax deduction every other year.

This wouldn't work for me right now, but if I ever get the mortgage paid off, and lose that big interest deduction, it would definitely be worth considering.

In a bit of a triple whammy, he talks about using audible books as educational tools, shows how to get them to download for free, and how to listen to them as motivation while you're exercising. Mind, wallet, and body! Unfortunately for me, I hate listening to audible books. I'm so accustomed to hearing books in my head in my own voice, at my own pace (like Alvin and the Chipmunks fast), that it drives me crazy to listen to books on tape - they put me to sleep; a bad thing when you're driving across Nevada.

Tobias talks about going to the race track one time with his buddy, who was explaining to him how to handicap the races, place bets, and all of the minutiae. When he saw a horse that paid off at 30 to 1, he excitedly showed it to his friend, who gave him the standard speech about why those were sucker bets. He bet on the horse despite the odds, and it won the race! However, Tobias writes...

"The point of all this - and I think you know it instinctively but I'll spell it out anyway - is that if I had bet the full $100 on Willow, Willow would surely have lost. There is no way in the world that she would have won."

Ever looked back on a great investment you made and wish you'd bet the house on it? Remember Tobias and Willow.

One cardinal rule that he mentions about buying (anything really, but in stated in the section about the stock market) is one that all successful investors know by heart, but few are able to consistently follow, is "buy low and sell high". It's especially pertinent in times when prices are dropping like a rock, as in the most recent meltdown. People tend to bail out of the market at precisely the wrong time, when prices are low. It's nearly impossible to time the market, so as to always buy in the troughs and sell at the peaks, so the only thing that can save you is having a long term strategy and a plan in place for profit-taking.

Just a note, Tobias talks about Bill Gross, an expert bond trader, who has consistently predicted that the Dow is about to crash - for decades. Eventually, in every case, his prediction came true...but it always seems to come back. There are a number of contrarian investors, like Gross, and Peter Schiff, who make their reputations this way. It's not entirely a given, though, that following their advice will make you rich, it will merely make you right about once each decade.

As a systematic and periodic (think dollar cost averaging) investor, Tobias says:

"In truth, your fondest wish should be for a long and devastating bear market to begin right after you start your periodic investments. If you are a systematic investor, you should welcome declines with open arms and a checkbook. At the end of the day, when the market recovers, you'll be sitting pretty."

If you're properly diversified in the right type of equity funds, and your investment time horizon is long enough, you should never panic, just keep executing your plan over the long haul and ignore the noise of the media and all the pundits.

Tobias says, "Invest-don't speculate...Buy value and hold it. Don't switch in and out. Don't try to outsmart the market." Your profits can be eaten up rapidly by the double bite of sales charges and taxation.

I also found some justification for the choice I made about dividend reinvestment. I use a DRIP plan, where all of my dividends are reinvested immediately in the same stock. I pay no commissions on these purchases, and it continually compounds my returns. Tobias says, "for small investors it's (taking dividends in stock) actually quite a good deal - it makes more sense for substantial investors (not me) to take the cash and then decide on the optimum place to put it."

Written with a wry bit of humor and a comprehensive knowledge of finanical success, this one is a "must-read" for pretty much anyone. I highly recommend the book. I loved this edition just as much as the first.

Aftershock: Protect yourself and profit in the next global meltdown by David Wiedemer Phd et al ( 2011 )

Now for an unprecedented event on the Steel Bookshelf; I have a guest blogger today, my old friend John Mannschreck, whose opinion I highly respect. Without further ado, here's his review:

The author, David Weidemer holds a PhD in economics from the U of Wisconsin. He published a book, "America's Bubble Economy" in 2006 that was prescient in his prediction of both the housing and stock market crash of 2007-9.
In this follow up book, " Aftershock ", he describes six economic "bubbles" inflated chiefly by poor govt policy. Four of these, real estate, private debt, stocks and consumer spending already burst in 07- 09. The two final (and most egregious), the dollar and U.S. debt bubbles, are still inflating.

He logically explains the causes and consequences of rupturing each bubble . Recommendations are provided to protect your money and profit from the forthcoming calamity. (He's obviously making royalties from the book sale and he does have a website where I m sure other products are peddled, but I don t sense any extraordinary commercial bias.) The book itself is 352 pages, but only about one third is true "core" information. There is a fair amount of repetition, some self congratulation ( for his previous correct predictions ) and some rehashing of various classic economic theories.

Each bubble ( in a nutshell ) : The real estate bubble collapsed because, from 2001-2006, housing prices went up 80 % , but income increased only 2% and there was very little population growth. There was no solid economic underpinning for the increase. It was purely due to poor credit policy and wild speculation.
Private debt increased because of easy credit with lax lending standards leading to a " no risk" mentality from lenders and borrowers alike. Credit card, home equity loans, commercial real estate all boomed during this period and then burst when credit contracted.

The stock market increased in value 1200 % from 1980 - 2000 , but the growth in corporate earnings and GDP only grew 300 % during this same time, so there was no strong economic underpinning for this increase. It crashed in 2000 , partially recovered and crashed again in 2008. Since reflating in Mar 2009, stocks are up primarily due to massive money printing, rather than significant improvements in employment and private spending.

Consumer spending was fueled by easy credit including home equity loans ( the ultimate ATM ), consumer loans and credit cards. It crashed when credit dried up.
The dollar bubble, yet to burst, is being fueled by increased demand for dollar denominated assets without any true gains in productivity. This is particularly true for foreign investment. However, there has been a massive increase in M3 money supply over the past ten years (300 % over the last three years alone ! ) It is now becoming inflationary and will become much worse. The author predicts inflation increases of 10 % or more in 1 - 5 years. When that happens, the dollar will crater and the massive U.S. assets owned by foreigners including stocks, real estate, treasuries etc will also plummet. The massive and growing U.S. trade deficit will accelerate the dollar decline.
Govt debt is described as the biggest, baddest bubble of all. It is now nearing $ 15 trillion and we can t possibly pay it off. Historically, we have only paid interest on this debt, never principle. If interest rates rise above 10 % , as predicted, we won t even be able to service the debt. It will even exceed Medicare outlays. A technical default on this astronomical debt would be disastrous for our economy. An ENORMOUS increase in economic demand or productivity might save us, but an increase of this magnitude has never occurred and is highly implausible. This debt implosion is only a matter of time and the Chinese and Japanese willingness to buy our assets. We are completely beholden to them.

What to watch: He suggests monitoring foreign purchases of US treasuries. China holds over $3 trillion in US debt, but is slowing purchases of new treasuries. Any significant decrease is major potential trouble. Inflation increases which will lead to interest rate increases. A continued rise in the trade deficit which will deflate the dollar. Rise in gold prices which are proportional to loss in dollar confidence. Black Swan events such as pandemics, wars or major terrorist events.

What to do: He is not a salesman, so he isn't peddling any specific product, but merely recommends asset categories to place your money. To no surprise, his favorite is gold, despite it's incredible run up in recent years. Gold, unlike stocks, bonds and real estate, will increase with inflation and interest rate increases. The global gold market is a tiny fraction of large markets, so even a small shift from stocks, bonds and real estate to gold should send it much higher. Gold is the only hard acceptable currency alternative globally accepted. He does say that Gold is also in a bubble, however it won t burst for 5-10 years, well after all other assets have cratered in price, so there will be plenty of time to reallocate. He recommends buying physical gold online as opposed to gold ETFs . ( less prone to manipulative mischief) .

Other actions include: buy silver ( Not as desirable as gold, according to him, but it has also not experienced golds' meteoric run up, so it's better valued.), investment grade diamonds and sapphires, dollar bear funds that short the US dollar ( Ex . UDN ), and ETF s that short US Treasuries anticipating interest rate increases ( TBT,TBTF,RRPIX, RYJUX etc) .

He also recommends buying put stock options to put "floors" under the price of any stock you own, selling stocks in capital goods and consumer discretionary sectors, selling real estate NOW ( markedly increased 30 year mortgage rates will crater the housing market...again) Wait for the phenomenal bargains in 2- 5 years to repurchase these asset classes.

I know this as alarming for you as it was for me. The author freely admits, that he doesn't know when this catastrophe will occur. His best guess is 1-5 years from now. If I were to hazard a guess, I would say 2013. The federal govt has tremendous motivation to "keep this party going" in an election year and will do nothing about responsible spending cuts or decreasing foreign borrowing. This inaction, of course, will inflate the govt debt and dollar bubbles even further and make the day of reckoning that much worse. I fear for our beloved country. We are in uncharted waters and normal business cycles of expansion and contraction can no longer guide us.

BTW, there are other highly intellectual economists and pundits that have also been very prescient in their predictions that COMPLETELY agree with this author. Most of them are billionaires , so they do have some credibility. These include Peter Schiff , Jimmy Rogers and Bill Gross.

Free to Choose by Milton & Rose Friedman

Off and on, for most of my life, I've been involved in business of one sort or another, and always held on to some beliefs of "this is how things work, economically speaking". After reading Friedman's book, I think I must know how christians living behind the Iron Curtain must have felt when they first got their hands on a bible, after so many years. Friedman explains concisely and exactly so many of the things I've held to be true all these years.

Among other things, Friedman explains that information is conveyed in a free market economy by prices, and that anything which unnaturally interferes with those prices, such as government wage and price controls, disrupts the flow of information and warps the market, often in unforseen ways. I've often wondered why, when we have had a federal Department of Energy for most of my adult life, our energy policy has been so ineffective in reducing our dependency on foreign (read Middle Eastern) oil, and in keeping fuel prices affordable. When one looks at the types of actions taken by that agency, in light of their effects on the free market, it begins to make more sense.

Most of us have heard on the news about something called a "favorable balance of trade." It usually means that the United States is exporting more goods than it is importing, and that's supposed to be good for the country. Friedman explains, however, that such a perception is nearly backwards from reality.

"Our gain from foreign trade is what we import...The citizens of a nation benefit from getting as large a volume of imports as posible in return for its exports, or equivalently, from exporting as little as possible to pay for its imports."

"It is simply not true that high-wage American workers are, as a group, threatened by 'unfair' competition from low-wage foreign workers...That is simply market competition in practice, the major source of the high standard of life of the American worker."

Interestingly, given the reputed high productivity of Japanese firms these past few decades, Friedman notes:

"An early (in 1867) foreign resident in Japan wrote: 'Wealthy we do not think it will ever become. The advantages conferred by Nature, with exception of the climate, and the love of indolence and pleasure of the people themselves forbid it. The Japanese are a happy race, and being content with little are not likely to achieve much.'"

What other cultures are we underestimating in the same way today?

I particularly liked Gammon's Law - The more bureaucratic an organization, the greater the extent to which useless work tends to displace useful work.

He also (and this book was written 30 years ago) talks about the essentially fruitless policies of spending pursued by our government.

"...the Department of Health, Education and Welfare has been spending more and more of our money each year on health. The main effect has simply been to raise the costs of medical and health services without any corresponding improvement in the quality of medical care. Spending on education has been skyrocketing, yet by common consent the quality of education has been declining...Billions of dollars are being spent each year on welfare, yet at a time when the average standard of life of the American citizen is higher than it has ever been in history, the welfare rolls are growing."

Nothing has changed, aside from the fact that the dollar figures spent have ballooned out of control.

Our country was founded on the principle, among others, that all men are created with equal rights, and all should have an equal opportunity to pursue their dreams - equality of opportunity. More and more today, though, we see our government trying to ensure equality of "outcome" rather than simply assuring equal opportunity.

"Equality before God - personal equality - is important precisely because people are not identical. Their different values, their different tastes, their different capacities will lead them to want to lead very different lives. Personal equality requires respect for their right to do so, not the imposition on them of someone else's values or judgement."

Alexis de Tocqueville said that "There is... a manly and lawful passion for equality which incites men to wish all to be powerful and honored. This passion tends to elevate the humble to the rank of the great; but there also exists in the human heart a depraved taste for equality, which impels the weak to attempt to lower the powerful to their own level, and reduces men to prefer equality in slavery to inequality with freedom."

Tax the Rich, anyone? It's so horribly unfair that anyone should have "more than enough."

Friedman talks about how Great Britain, since just after WWII, set their domestic policy to try to achieve greater equality of outcome. Many laws have been passed to take from the rich and give to the poor, like Robin Hood of yore. Top tax rates reached 98% on property income and 83% on earned income, with high inheritance taxes as well (does this sound familiar?). State-provided benefits were greatly expanded.

"There has been a vast redistribution of wealth, but the end result is not an equitable distribution. Instead, new classes of privileged have been created to replace or supplement the old: the bureaucrats, secure in their jobs, protected against inflation both when they work and when they retire; the trade unions that profess to represent the most downtrodden workers but in fact consist of the highest paid laborers in the land - the aristocrats of the labor movement; and the new millionaires - people who have been cleverest at finding ways around the laws...who have found ways to avoid paying taxes on their income and to get their wealth overseas beyond the grasp of the tax collectors."

Do we think that following the same policies here will result in a different outcome? What's that definition of insanity again?

Friedman talks a bit about the history of the Interstate Commerce Commission, which was founded on the rhetoric of the reformers who wanted to prohibit unfair practices by the railroads in the 1870s. One shouldn't be surprised to find out that the commission was originally staffed by "experts" on the railroads, drawn from the ranks of railroad executives, and all it really managed to do was to stifle competition and guarantee uniform profits for the railroads, themselves. Later on, the ICC gained jurisdiction over the trucking industry that replaced the railroads, and has managed ever since to keep competition to a minimum there, as well, all ostensibly for the benefit of consumers, who can't be trusted to look out for themselves, of course.

He even (thirty years ago) talks about "alternate" fuels being subsidized by the Department of Energy.

"The threat of price control and regulation is the only important obstacle to the develop ent of alternative fuels by private enterprise...we the people shall pay for the energy we consume. And we shall pay far less in total, and have far more energy if we pay directly and are left free to choose for ourselves how to use energy than if we pay indirectly through taxes and inflation and are told by government bureaucrats how to use energy."

Another good thing to remember:

"...mistakes and accidents occur-government regulation doesn't prevent them. The difference is that a private firm that makes a serious blunder may go out of business. A government agency is likely to get a bigger budget."

Friedman talks about the true functions of unions and professional licensing organizations - to protect the established members of the profession and to limit the ranks of highly skilled workers, keeping wages artificially high - rather than benefitting the lowly laborer.  The Davis-Bacon Act, a federal law that, in effect, requires all businesses contracting for the government to hire only union laborers, practically ensures that all government projects will be completed overbudget and late - using YOUR tax dollars!

This book is jam-packed with great information. I think I'm going to have to pick up some more books by Friedman, to really soak this stuff up.

The Behavior Gap by Carl Richards

I used to stop in at The Behavior Gap blog every so often, and enjoy his cocktail napkin graphs or Venn diagrams illustrating some tidbit of financial wisdom, so I was excited to see that author Carl Richards had written a book, which turns out for the most part to be a compilation of many of the subjects he wrote about on his blog. Richards is a certified financial planner and runs a capital management company in Utah, as well as writing and speaking about money, so he definitely knows his subject, albeit with a twist most financial planners don't have.

The title of the book refers to the difference between the overall return on investments in the stock market and the actual return that the majority of investors get. When the market as a whole goes up, for example 10%, individual investors on average are only getting 6%, and Richards calls the difference, which is caused by irrational or emotional behavior on the part of investors, the Behavior Gap. The book attempts to help us to understand those incorrect behaviors and to quit losing money over them.

Of course, the most common mistake that people make, which I know I personally saw happening during the economic meltdown of 2008, is to buy high and sell low. When all the word on the street is exciting, and prices are going up up up! everyone wants to jump on the bandwagon and buy more stocks - at precisely the time when they should be wary, and should hold or sell, instead. Then, when the market begins its inevitable correction, people tend to be fearful and to sell everything they bought at high prices, locking in losses. When the market is down is the best time to buy, instead. However, it takes a cast iron will and a strong stomach to buck the trend and not follow the herd in these situations.

Another problem is overconfidence. In a bull market especially, investors are prone to thinking that their investment decisions are bulletproof, and will often make decisions about where to invest their money without enough analysis. Richards suggest three questions to ask yourself and to go over the answers with someone you trust before you make an investment decision, which he calls the OC (Overconfidence Conversation):
1. If I make this change, and I am right, what impact will it have on my life?
2. What impact will it have if I am wrong?
3. Have I been wrong before?
Question 3 seems a gimme, but...

I liked what he had to say about the Greater Fool of stock market lore. The most recent example was in the run up to the housing crisis recently, when it seemed everyone was speculating on the rapidly rising price of homes, either using their paper home equity as an ATM by taking out more and more loans, or buying up properties and hoping to sell them after a short period of time for a profit. I was watching all of this happening, as well as the mass migration of previously sane engineers, salesmen and others into the professions of real estate broker, mortgage broker and loan officer, and wondering how long it could go on; how people were affording homes that had skyrocketed in price past all sane loan and budget guidelines. It seems that, when you're doing something dumb, whether it's buying high priced real estate or beanie babies, the only way out is to hope someone else is dumber, and hope they'll come along and take your investment off your hands before the bubble bursts.

It's often difficult to ignore the noise, to hold a steady course with your financial plan (which Richards suggests creating with the help of a professional and then following no matter what Jim Cramer says), while the media is screaming about the end of the world or about old rules no longer applying. Richards says that people are often surprised, in conversations with him at social events, given his profession, at his lack of interest in what the stock market as a whole, or individual investments, are doing. If pressed, he tells them that he helps "people make smart decisions about money so they can build and protect their wealth over time" and that "the ability to build and protect wealth is often inversely related to knowing what's going on in the market." Very refreshing.

This book is a quick, accessible and interesting read. There are lots of his sketches, helping to make what seems complicated very simple, scattered throughout the book. Even if you know nothing about the stock market or about investing, it will all make perfect sense.

The Big Short by Michael Lewis

I'd have thought Michael Lewis was just a financial writer, as I ran across a reference to this book along with his book about the Wall Street junk bond scandals of the Eighties, Liar's Poker, but it turns out he does write other things, most notably the book adaptation of The Blind Side - a great tearjerker feel-good movie if ever there was one. He still has the chops to write about the seamy side of Wall Street though, and this provides a pretty good picture of what really led up to the huge financial collapse of 2008, from the point of view of some folks who actually saw the disaster coming, and placed their bets accordingly.

I learned quite a bit more about CDOs, tranches, and credit default swaps that I hadn't understood before. For a long time, bond investors were reluctant to invest in home mortgage loans. The problem with home loans, from an investment standpoint, had always been that people would refinance their homes whenever interest rates dropped. When the loans are paid off, the bonds are, in effect, "called", and the investor gets back his principal, which he now has to re-invest in the middle of a lower interest rate environment than before. In order to lure investors into bonds, the big investment banks, starting with Salomon Brothers, created giant pools of home loans divided into tranches, which behaved like the floors of a building.

The loans most likely to be paid off when interest rates dropped were put in the lowest floors of these structures, and people who invested in these lower tranches got a higher interest rate on their bonds to begin with, which would make up for the trouble and cost of re-investing when the loans got paid off. As the likelihood of a payoff decreased for the multiple tranches, lower interest rates were paid on the bonds. When these types of investments first appeared, investors were more worried about getting paid back too quickly, but not so much about losing their entire investment because the loans went bad.

As a result of the loosening of lending standards, and the political pressure brought to bear by the Community Reinvestment Act, banks and consumer finance businesses began to make more risky loans than had been the case in the past. One of the quotes from the book says it quite well, and may as well have been the motto of several recent administrations. "How do you make poor people feel wealthy when wages are stagnant? You give them cheap loans." What was called the subprime lending industry got started in the early 1990s, and really hit its stride around the turn of the century, as everyone jumped on the bandwagon.

I can recall during that time many of my coworkers who had gotten laid off going into business for themselves as mortgage brokers, real estate agents, or even financial planners. The market was booming, the bubble inflating, and the pigs were feeding at the trough all up and down the subprime pipeline. Ordinary people were using their houses as collateral to borrow far more than they could afford to pay back, and many of them were buying into the stock market bubble that was created by a ton of ready cash.

One of the really fascinating things about this book was that it shows numerous examples of the people who were in charge at the investment banks, and those who packaged and sold these CDOs, really had no idea how bad the underlying loans were, and how little it would take to collapse the house of cards. They all seemed to think, since it hadn't happened in 70 years, that housing prices could never decline. The folks who saw more clearly, and created their own hedge funds to bet against the subprime packed CDOs, understood that prices couldn't go up forever - the typical 3 to 1 ratio of median housing prices to median income had rapidly gone to 4 to 1 nationwide, and was as high as 10 to 1 in many metropolitan areas - and after some analysis, they discovered that it wouldn't take a price decrease, just for prices to level off would cause nearly all of these loans to begin defaulting.

I really had no idea just how crazy the lending practices had gotten, and one of the options I read about here just floored me. It was called a 100 percent floating rate negative-amortizing mortgage.  The borrower could choose not to make even the interest payment for a set period of time, and the interest would just be added to the principal of the loan, growing larger and larger until they either decided to pay or to default on the loan.

Something I've thought on occasion about the job of senior management was expressed quite eloquently by one of the hedge fund managers who had worked for Deutsche Bank. "Sentior management's job is to pay people. If they f**k a hundred guys out of a hundred grand each, that's ten million more for them. They have four categories: happy, satisfied, dissatisfied, disgusted. If they hit happy, they've screwed up: They never want you happy. On the other hand, they don't want you so disgusted you quit. The sweet spot is somewhere between dissatisfied and disgusted."

After reading this, I began to see the logic in which investment banks failed when things crashed, or had their stock prices decline horribly, mostly based on how many of these bonds backed by shaky loans they kept "in-house". Credit default swaps were invented as a kind of insurance on these investments. If you bought a CDS on a particular tranche (part of the big bond bundle), you paid a premium every year to keep it in force, and if the bonds went bad, you were paid the entire value of the bond. Since the premiums on a billion dollar bond might only be two million dollars a year (chuckles - only?), when these things began to default, it was a big payoff on the bet for the hedge fund guys who saw what was coming. Some of the investment banks also owned this "insurance" on the CDOs, and a large number of those policies were backed by...you guessed it...AIG. Who got 80 billion in TARP money?

After reading this, I still firmly believe that there's plenty of blame to go around. The number of "innocent" consumers who were possibly duped into taking out unpayable loans pales in comparison to all of the greed and incompetence displayed at all levels of this debacle, from the loan originators to the investment banks, to the ratings agencies, to the insurance companies who went along with the deals...It boggles the mind.

Chasing Goldman Sachs by Suzanne McGee

I read an interesting article in Rolling Stone magazine online a while back that laid out the role that the investment bank Goldman Sachs played in bringing the U.S. to its knees in financial crisis in 2008. Ms. McGee mentions that article later on in her book, and seems to take a less tinfoil hat view of what came to pass during the meltdown, referring to it at times as "the perfect storm."

One of the points I'd never really considered before was the idea that investment banks like Sachs, Morgan, Lehman Brothers, and Merrill Lynch actually fulfilled the role of being a financial utility, providing businesses with access to capital to operate and expand, among other things, much like AT&T provides communication services, or Edison provides power. People who operate utilities tend to run their businesses in a very stable, risk-averse manner, so as to ensure the availability of their crucial components in our economy, and up until around the 1980s, the investment banks operated in much the same way. The partners in those banks had their own fortunes invested in the business, and would think long and hard before putting too much of it at risk.

As the financial landscape changed over time, so too did the behavior of the investment banks. Because so much of their business has been woven tightly into our entire economic system, they really shouldn't have ever been allowed to escape the bounds of the Glass-Steagal act, which kept commercial and investment banking safely in their respective places.

If you're old enough to remember the dot-com boom of the 90s, you may recall that many of the people stepping up to talk about the New Economy from our government, the Federal Reserve, and investment banks believed that due to the highly technical nature of the internet based businesses, and that intellectual property greatly outweighing the "old" brick and mortar methods of placing value on a business, most of the old rules should no longer apply. In the end, gravity never fails, I'm afraid.

If you weren't involved in buying stocks like Google, Amazon, Pets.com and making a bundle getting in at the IPO and out within the week, you weren't as smart as Wall Street. Greenspan had a phrase for it, "irrational exuberance". As time went by, the investment banks became heavily involved in raising venture capital for anything related to computing and the internet, and putting together public stock offerings for many of these businesses, even before they had posted a single dollar's worth of profit. Goldman and friends became deal-makers and shakers, rather than stodgy old investment bankers, and the profits they made just lured them on to more and more irrational deals. The dot-com bubble came crashing down around us all a few short years later, and everyone vowed never to get taken in by a "bubble" again. How quickly they forgot.

The "bubble" that caused the financial meltdown, without delving too deeply into the financial and technical aspects of derivatives and CDOs, centered around the housing "bubble". Once again, people threw wisdom out the window and believed that things could only get better indefinitely. The government caused a part of the problem when it lowered restrictions on approving mortgages, creating the "subprime" market, and when it also lowered the amount of cash reserves that banks were required to have on hand to offset their in-house loans. The mortgage companies, brokers, and commercial banks were a huge part of the cause when they realized how much money was to be made by financing, re-financing, and re-packaging loans for people who could never have gotten a home loan in the past.

The poor, sweet, duped, innocent people, aka homebuyers, were also responsible for buying homes they knew in their hearts they couldn't afford, and racking up home equity debt by treating their properties like ATMs. And the investment banks couldn't resist taking advantage of the situation by taking those pesky loans off the hands of the loan makers and packaging them as collateralized debt obligations, which they sold off for huge fees to the people who run your pension plans. Ratings agencies, like Moody's, who tell you whether a bond or other investment is risky or not, jumped on the bandwagon, taking fees for classifying the required amount of these investments as AAA. Of course, just like playing blackjack in Reno, you can buy "insurance" to keep from going bust, and one of the biggest companies in that business, AIG, wrote a ton of policies that they conveniently didn't have the cash to back up.

When somebody finally realized that housing prices couldn't really truly go up and up and up forever (what in the world were you smoking, people?), the tinsel was off the tree, and some of the institutions involved began to take big write offs on their balance sheets. Due to the intertwined nature of all of the players in this game, the entire house of cards could have come tumbling down had not the government in its infinite wisdom consented to bail out - with YOUR money - those businesses deemed "too big to fail".

This is a really well written bit of history from Ms. McGee, and she does a great job of tarring all of the players with a big, wide brush, rather than just picking on one particular villain. Worth the read, especially for the cautionary attitude you should gain about that next "bubble" they claim will never come.

The Fair Tax Book by Neal Boortz

Review written in 2005
This book is an explanation, or perhaps an apologetic for, the passage of HR-25, the Fair Tax Act of 2005 (which I assume didn't pass). Boortz and his co-author, Congressman John Linder, describe our current mess of a Federal Income Tax system and their proposed solution, its repeal and the institution of a national sales tax.

Unlike most people, I'm well aware of just how much money gets sucked out of my paycheck every month by withholding taxes. I've tracked my income and expenses with personal financial software for about ten years now, and I get to see a graphical representation of just how much the government is confiscating. So, their revelations were no great surprise to me. What was more interesting was their description of some of the hidden costs of taxation, such as how corporations merely pass on the cost of their income taxes to the consumer, thus resulting in higher prices, and the impact of tax considerations on everyday decisions made by American business, as well as the financial and productivity costs of tax compliance.

There was a short section on IRS horror stories. I'm sure one could find many more in other books or publications.

Most of the book, however, is spent discussing the details and merits of their proposal. I'm including here, from the FAQs on their organizations web site, http://www.fairtax.org/, a thumbnail sketch of the plan:
"The FairTax plan is a comprehensive proposal that replaces all federal income and payroll taxes with an integrated approach including a progressive national retail sales tax, a rebate to ensure no American pays federal taxes up to the poverty level, dollar-for-dollar revenue neutrality, and the repeal of the 16th Amendment.

This nonpartisan legislation (HR 25/S 25) abolishes all federal personal, gift, estate, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes and replaces them all with one simple, visible, federal retail sales tax - collected by existing state sales tax authorities. The FairTax taxes us only on what we choose to spend, not on what we earn. It does not raise any more or less revenue; it is designed to be revenue neutral. So it is also cost neutral - the final cost for goods and services changes little under the FairTax. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system."

All in all, I think their proposal has some pretty strong merits. I did have some questions about the details of implementation, however. I also am somewhat pessimistic about the chances of ever enacting such a law, given the strong lobbying positions of the many special interests who feel that a "transparent" tax system is not in their favor.

If you want to do some serious thinking about taxes, read this book. I strongly suggest you visit the web site, too.

Gotcha Capitalism by Bob Sullivan

(Review written 6/6/08)
This is a pretty good book for people who don't pay a lot of attention to their bills and other financial matters to read to let them know how much money they may be losing to hidden fees by all the companies they deal with, but after five or six chapters, I haven't really found anything that surprised me, but I keep up on that sort of stuff as a hobby, anyway. I don't usually run my credit cards up over the limit, or pay any interest on them - I'm one of those consumers that cc issuers hate.

I also don't ever take money out of ATMs that aren't associated with my bank, so I don't get hit with those kinds of fees, and I haven't had to pay overdraft fees in the last thirty years, that I can recall. I just had a convo with my son about ATM fees the other day while he was home. Hope he took it to heart and starts planning his weekend outing budgets a little better, so he can quit throwing away money for nothing.

Title company fees seem to be pretty much unavoidable, and in my case, they're only likely to take place a couple of times in my entire lifetime - only time I had an issue with them was when I refinanced a home I'd already owned and paid for title insurance on a few years previously, and I'm thinking "why should I pay this again so soon?" It's a racket.

The chapter on mutual fund expense ratios, and kickbacks to HR folks and plan administrators wasn't a total surprise, but it's definitely irritating to think how much money they're scamming out of those of us who care enough to put away money for retirement. I'll need to review the mutual funds I'm in to see what their expense ratios are one of these days, and maybe make some adjustments. I'll keep y'all posted as I go along in this book. Looks like mostly good info.

Start Late, Finish Rich by David Bach

(Review written 7/11/07)
I'm in the middle of reading Start Late, Finish Rich, by David Bach. I ran across a reference to his book in the middle of a financial article I was reading online, and the local library had a copy, so I figured, what the heck?

Bach sounds like a cross between Carlton Sheets and Robert Schuller, alternately giving real life strategies for retiring wealthy, and spouting aphorisms and slogans guaranteed to get you pumped up about your future. This, I think, would be a fantastic book for someone who's just getting started out in the working world to read (as a matter of fact, I recommended it to my daughter), as the strategies apply equally well to those starting early and those starting late. I think the best piece of advice in here is along the lines of "don't beat yourself up over your past mistakes."

I find myself fairly often saying, "if only I'd have bought that stock I was going to" or "if only I'd have bought that piece of property just outside town" or "if only I'd have gone into business for myself without that bad partner." The point that Bach makes is that even if you've fouled up, financially, in the past, that doesn't preclude you from succeeding in the future, if you just get with the program once again. This also has applications for those who haven't necessarily messed up big time, but who may have gotten temporarily sidetracked by the vagaries of fortune - like being unemployed for two years ;-).

This book hasn't dropped any astounding revelations on me; I've been doing most of it for years. I guess I should find it reassuring that a guy who travels around the country doing financial planning seminars is telling me to do what I'm already doing, for the most part.

He talks a little bit about finding your "Latte Factor." This is a term for some area in your life that you can economize by eliminating that, e.g., daily latte, excessive dining out, unnecessary luxuries (aren't luxuries by definition unnecessary?), and then using the money you free up by quitting those habits to fund your retirement. There are a couple of problems with this approach for me.

First, I've already pretty much eliminated the lattes of life from my life. I don't go to Starbucks, I pack a sack lunch daily, only going out to lunch for special occasions, with friends. I don't even eat dinner out on a weekly basis, perhaps twice a month at most, unless I'm on the road and have no choice. I don't go out to see all the new movies at the theatres, just a couple of major blockbusters a year, the rest I rent at the video store, and if we average one movie a week, I'd be surprised. So there's not a lot of fat left in my life to trim is what I'm saying.

Second, the numbers he tosses around seem geared towards a really urban crowd. He talks about $17.50 for a martini, $7 for a pack of cigarettes, and so forth. Here in the rural West, $5 for a cocktail is considered exorbitant, and I don't think I've ever paid over $3 for a pack of smokes. So, it's a little tough to believe the resultant investment numbers, when the savings figures just aren't there.

However, for the vast majority of people out there, I think, this may be an eye-opener, to really take a look at how much money we all fritter away on entertainment, socializing, eating non-nutritious snack food, and so on. At the very least, one should always be aware of and question habitual expenses.

Once you've saved all this money, Bach suggests that the best place to invest it is in your employer-sponsored 401K plan. At the very least, of course, one should put enough money in the 401K at work to gain the employers matching funds - that's just FREE money. On top of that, you contribute to the plan with pre-tax dollars, so you have to work less hours to invest a given amount each month that you would if you used money Uncle Sam had already tapped. So, it ain't rocket science, but it's good solid practice. My wife and I have been doing this for years, and while there ain't millions in the accounts yet, it's surprising how much money one accumulates systematically, if you just leave it alone to grow. He doesn't say it, but I will, "NEVER EVER touch your 401K! until you're ready to retire." The IRS will get back at you, big time.

As far as what investments to pick within the umbrella of a tax-advantaged plan, he's got lots of options, but the big picture is diversification. One wants to have a little bit of everything in your portfolio. I'm not going to get into the strategies for doing that, just read the book. However, I was reassured to note that he strongly recommends being invested in one of the Asset Allocation mutual funds, which automatically balances and rebalances your money across a pre-selected range of sectors, and which in some cases can even be automatically adjusted towards a different mix the closer you get to retirement age. This just happens to be the type of funds my wife and I had recommended to us by both our financial planners a couple of years ago when we were rolling over money out of our 401K plans from previous employers to IRAs. In our 401Ks at our current employers, we like to play the market a bit, just for fun, and actually actively manage our funds, but the IRAs are on autopilot.

Which brings up something else he said that I thought was pretty cool. "Your investment strategy should be extremely boring." The exciting, flashy, type of investment that your buddy is going to tip you off to at a cocktail party isn't going to cut it for the long haul. You might pick up a good return in a short period, once, or twice, but over the long haul the best bet is to just steadily invest in a broad spectrum of stocks, bonds, etc. Dial it in and leave it alone, except to occasionally boost your contributions if you're not maxed out yet.

Where I'm not too sure if I agree with him here is in his percentages. For someone my age, he's saying I should be putting 25% of my pay in a retirement plan. I'm at around half of that right now, and I think that may be sufficient. Of course, I may have a slightly different set of priorities. I'd like to enjoy some of the fruits of success now, rather than later, and I'm more interested in putting some money in an investment account that I can tap on demand, without paying any tax penalties, at any time that I want. Trying to strike a balance between having a retirement somewhat dialed in, and having sufficient cash reserves on hand to take advantage of other investment opportunities or purchasing opportunities that arise without warning. For example, if you need to buy a new car anyway, you're better off paying cash for it than financing it, in my opinion (I think Bach would agree). And, if you have plenty of cash that's in a semi-liquid state, you can take advantage of truly good deals, someone else's desperation to sell, or whatever. If you don't have cash reserves, you pay RETAIL. But that's just my personal philosophy.

The one thing upon which he and I agree fully is that you should never carry credit card debt. Keep those cards paid off, or don't keep them at all. Credit cards can be handy tools, if used properly, and sometimes there are things you just can't do without them, like purchasing items online, booking an airline flight, or renting a car. They're also great for unexpected expenses or emergencies, giving you a bit of a grace period to free up assets that are perhaps not quite liquid.

He's got some good stuff in here, too, about generating additional income. The first way, of course, is to get a raise out of your employer, and he covers very briefly some strategies for doing just that. There's also a lot of information about starting your own business in your free time, either doing direct marketing, running an EBay store, buying a franchise, or getting into rental real estate.

Bach's got a pretty good section about buying real estate, which was interesting. The wife and I had a piece of rental property for a couple of years, and took advantage of the loophole that allows you to sell a house you've lived in for two of the last five years without paying any capital gains tax. Real estate seems to be the only place I've made any money with my investments over the years. The only thing is that I hate being in the landlord business. I might be able to get back into it if I could find a good property management company to look after things and who weren't too expensive, and who had a good track record for finding stable tenants quickly.

The final 1/3 of the book is a bit of a hodgepodge of philosophical things. One of the principals he gets into fairly deeply is the idea of being a giver, and the concept of a tithe. Now, I'm quite familiar with the concept of tithing, having been a fundamentalist type of christian for a number of years, and I fully believe that being a generous giver really unlocks the blessings that God has in store for believers.

That said, I'm not so sure that I see any scriptural basis for it to apply to unbelievers. Bach almost approaches this from the old "give to get" philosophy, and claims that it's some sort of immutable law of the universe, but I just can't justify it. Even for believers, sometimes the formula isn't all that straightforward, and we just continue to give when we don't feel all that blessed because we're commanded to do so. In my personal experience, it's always worked out well, and it even seems that the money in the budget stretches farther, the more I give back to God and his people.

In fact, I've had several conversations with my good friend Law and my wife and a few others about this subject. I get a little (the feeling is hard to describe, sort of irritated/amused/thinking "Well, duh!") bugged when people whine about being strapped for cash, and I see them throw a five dollar bill in the collection plate on Sunday, when I know their household income is probably close to six figures. I'm thinking to myself, "You'll always be strapped until you start giving freely and wholeheartedly." Oh, and "sacrificially." If it doesn't hurt a bit to give, you're not doing it right.

Anyway, Bach attempts to provide a bit of balance at the tag end of things by talking about how to live life fully and be happy and all that rainbow and unicorn stuff. That's the subject of a whole different type of book, in my opinion, but maybe he just doesn't want to be lumped in with greedy, money-grubbing, capitalist swine. As I heard from a multi-millionaire acquaintance one time, "You can be poor and happy, or rich and happy, and, having experienced both, it's far better to be rich." Probably not an original thought, but always relevant.

How to Profit from the Coming Devaluation by Harry Browne

(review written 9/25/08)
I can recall, over the last thirty or so years, having seen a book on my Mom's bookshelves in the living room called How to Profit from the Coming Devaluation. Forget the author's name (Harry Browne), but it was written in 1970. Not so coincidentally, Mom pulled it off the shelves and brought it along last weekend, and I found myself browsing through it a bit, just to see if it had any applications to our current "financial meltdown".

The author seems to have a pretty solid take on how the government manipulates the money supply in the U.S. to create inflation/growth, and to a certain extent what the effects of the inevitable deflation/devaluation are on our economy.

The boom and bust cycles of the last few recessionary periods that I'm able to remember are perfectly described in advance in this book. The only bone I have to pick with the author is that none of what he described in the way of truly serious consequences seems to have happened, such as massive rioting, total collapse of the banking system, and so forth, so I'm having a tough time taking his recommendations all that seriously. He'd predicted that these things would happen in the next couple of years - but they didn't. What do we do with false prophets?

Just a few of the things that he said to do:
1) Move away from metropolitan areas.
I've got no beef with this. I'd much rather live in a more rural area, just from a quality of life standpoint. Also, in the case of a natural disaster, such as we've seen with Katrina and Ike lately, one's dependence on infrastructure in rural areas doesn't seem to be quite as bad. Folks out in the country tend to have some foodstuffs stored up - probably home canned - and might have some livestock they can count on for food. Often, they have backup generators and/or kerosene lanterns and heaters, a fireplace and a large woodpile...you know the scenario.
There's no reason a person can't be prepared for a disaster in a metro area, but most folks just aren't. I always figured if we lost power for any length of time, we'd be ok, as I have propane stoves and heaters, kerosene lamps and heaters, and usually a fair amount of canned goods on hand. I should make it a habit to keep some fresh potable water around, too. I used to have it on hand in the drinking water tank of the camper all the time, but since I tore that apart and got rid of it, I haven't.
2) Keep a significant chunk of cash on hand, in case the banks close.
Sounds like a good idea, if one had a safe to keep it in. I think this one is somewhat outdated, with the amount of ATMs in existence. So, if the banks actually closed down nationwide and you weren't able to take your money out, there might be problems. But would the entire electronic banking system collapse at the same time. Would your currency be worth anything in the midst of something that catastrophic?
Which brings us to point 3:
3) Buy junk silver coins or silver bullion in case of a currency collapse.
This might be a pretty good idea, too. Silver will always have some intrinsic value and be useful in barter and trade, should our whole economy collapse. There's a problem with buying junk silver at this point that probably didn't exist back when he was writing - only 8 years past the removal of real silver from our silver coinage - silver coins have gotten to be very scarce. He talks about a premium of about 10% over the face value of the coins to buy junk (circulated) silver, but today $10 in face value coins is selling for $50! That's a crappy investment if I ever saw one. If you happen to have just snagged any real silver coins that came your way over the years and stuck them in your piggy bank, you probably got them for face value, and they're a good investment, but it would be rather impractical to do today.
On the subject of silver bullion. This is a commodity with a well-documented and widely agreed upon trade price, so it makes a certain amount of sense. It generally sells (and has sold) in minimum ten ounce bars, so it's a little more unwieldy for smaller purchases than coins would be. The spot price this morning, when I checked, was $13 per ounce. It fluctuates up and down with world markets, but it's easy enough to buy and to trade with others, I suppose.
4) Don't take on debt.
Good idea. No problems with that.
5) Don't invest in stocks, bonds, mutual funds, money markets...etc.
Diversification is key. Don't get yourself over committed in any one category.
6) Set up a Swiss bank account - in Swiss francs.
Would the modern equivalent of this be to set up a numbered account in the Cayman Islands in Euros? I don't know. Back when he suggested this, the government probably didn't automatically assume that those types of accounts were for nefarious purposes. I think at this point you might open yourself up to some unwanted scrutiny. Maybe if you opened the account while on vacation in the Bahamas?
Do Swiss francs still exist? Or were they devoured by the EU?
And how in the heck do you get your money out of a Swiss bank when civilization collapses?
Upon reflection this morning, there's not a lot of his plan I'm all that jazzed about implementing, even in the face of Wall Street's implosion. The money I'm putting into mutual funds is in the umbrella of 401K plans, with an unfortunately long time horizon before I can start to draw on it. Unless everything collapses, it should generate a decent return in that amount of time. If everything does collapse, I don't think anyone is going to be able to retire, anyway, we'll all be busy surviving. Unless I'm willing to cash it all out, take the tax penalty hit, and go live on a compound somewhere...
If the opportunity arises to buy silver cheaply, it might not hurt to have precious metals as a part of my overall portfolio, but I'm not gonna knock myself out trying to buy some now.
The thing that makes the most sense is to take the LDS church approach of stocking up a bit on canned goods in the pantry. We're in some high inflation times for groceries right now. If you buy things that will last indefinitely on the shelf at a sale price right now, you'll definitely save money in the next couple of years, as you won't have to pay immediately inflated prices. I may stock up a bit on some canned soups and vegetables, and maybe even some canned hams and things. This is not only a good "investment", but will come in handy if we ever have a flood, tornado, hurricane, earthquake, or whatever. I should also make sure my spare propane tanks are topped off at all times, and fill up my five gallon jug of kerosene. Maybe picking up a few more kerosene lanterns at an auction or yard sale wouldn't hurt, either. And, I should pick up a few cases of bottled water to stash in the basement, or work on bottling some of my own in old milk jugs (thoroughly washed), or in my five gallon camp containers. Nothing wrong with disaster preparedness, and if it saves a little money somewhere down the line, that's good, too.

Overall, this is a good book to get you thinking about being prepared for a worst case scenario. Fortunately, the worst case scenario really hasn't come to pass since the book was written, so take it all with a grain (or maybe a 25 lb bag) of salt.