Personal Finance Wisom from My Grandfather

When I was a kid, my grandfather - may he rest in peace - always wanted to give me money. Not a lot. Maybe $10 or $15 whenever I would come to visit - about once or twice a week. I wouldn't want to accept those gifts and politely refused them on a number of occasions. I just felt these gifts were too much like charity - I did not want his money and I didn't want him to think that I came to visit him and my grandmother so that I could get a gift. The money would have been nice, but I felt it was too similar to getting paid for visiting my family. It just didn't sit right.

Anyway, one day my grandfather told me a story which stuck with me since. Here it is:

A man goes to visit his good friend on Friday and asks: "can I borrow $100? I will pay you back on Sunday night." The friend is intrigued, but nonetheless lends his friend the money without any questions. As agreed the friend comes back on Sunday night and repays the loan. The same thing occurs again and again for several weeks and the loan is always re-paid on time and in full on Sunday night. Until one day when the man comes to ask for the weekend loan, the friend finally breaks down and asks "I'll lend you the money, no problem, but can you tell me why you need this money and how you always return in full when the weekend is over?" The man smiles and says "I don't actually use the money you lend me. I just keep it in my pocket. You walk differently and have more fun when you have money in your pocket..."

My grandfather simply wanted me to enjoy life and have fun. From that point on, I always accepted his generous gifts, happily. I loved my grandfather deeply, and his life story remains an inspiration and a lesson to me.

Even though it's a bout a completely different topic, I reminded of this story by the title of this post on blunt money.

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Pandering to New Recruits

Fortune ran an article yesterday titled How to Work Better with Gen Y. I read the thing and I felt as if I was reading a piece of science fiction. It's not that all of the advice in this article is wrong, some of it is probably pretty valid, it is simply that the underlying premise of this article is ridiculous. The article gives managers advice on how to work better with Gen Y employees, as if these creative geniuses were god's true gift to business.

Here is one particular quote from the article which made me groan:

"Managers often tell Tulgan that Gen Yers make a lot of requests and demands. "I tell them, 'They're doing you a favor by asking for things. Once you know what they want from you, you have the key to getting what you want from them.' "

I am OK if other managers want to take this route of coddling, asking nicely and pandering to problem employees, but I am not going to waste my time doing that. I am guessing most managers would not stand for that either. Here's something you need to understand about the work place - whether or not you are of Gen Y age:

We don't give a damn.

Yeah, it would be nice if every hire we made was a good one, but most of us experienced managers realize that a certain percentage of our hires simply don't work out. When we hire someone, we explain what we want and set expectations. We expect that there will be a learning curve. We also expect a lot of questions and some settling into a work rhythm. What we don't expect is attitude. We really don't. We expect new hires to be responsive, aggressive, eager to work hard, eager to succeed. If you come in, act high and mighty, make demands and think that I need to please you, you are going to be out on your ass pretty quickly. 

Business is not about being nice and making every hire a successful hire. It's about achieving results. My boss expects me to deliver on my targets and that's the only thing I care about. If you can help me do that, excellent. You have a job and I will help you build a career, grow your skills and I will fight for you tooth and nail within the organization. If you can't, I will simply cut my losses and hire someone else to do the job that needs to be done.

If the writers at Fortune wanted to write a useful article they would write something titled "How to Work Better with Gex X and Boomer Managers". Do you think that I am wrong?

Here are some other career related PF posts:

A great post by Cash Money Life talks about resigning your job on good terms. 

Hundred Goals has a post titled why social networking doesn't work. Boy, I am clear on the other side of that specific argument.

Wealth from the Bible has an insightful post titled Staff Meeting with God. It's a pun. It's a good post, even though I am a professed atheist. 

Bob's Occasional Musings posts about 7 reasons to make a career in the military. I served, and view it as an important part of my career.

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It's Just a Credit Card, Stupid!

The reactions I get from people when I pull out my American Express Blue credit card never cease to amaze me. Folks really like the way it looks and often people ask if they can see it up close. See, I don't get that - it's just a credit card. We use the Blue card because of the cash back rewards, and I couldn't care less about what it looks like. Anyway, a few weeks ago in the Wall Street Journal, I stumbled across a full page add for a new card: a black VISA card - I am not going to add a link to this page, because I don't want to encourage the lunacy I am about to tell you about. If you are really interested, look it up on Google.

The card, marketed as the "World's Most Prestigious Credit Card", is supposedly made of carbon graphite (WTF?), but wait, it gets better. Here is a quote from the card's website:

Black Card is not just another piece of plastic. Made with carbon,  it is the ultimate buying tool. The Black Card is not for everyone. In fact, it is limited to only 1% of U.S. residents to ensure the highest caliber of personal service is provided to every Card member.

What?! The ultimate buying tool?! Look, using a credit card is not brain surgery. It does not require specialized tools, any old piece of plastic will do just fine. You know, I think some stores even accept cash if you insist. Also notice the blatant attempt to market a credit card as a status symbol... you can only get it if you are in the top 1% of the US population... Give me a break...

The best part? An annual membership fee of $495... 

Here's my take: if you apply for the card you are a member of a very distinct group, but I don't think it's the same group you set out to join...

I think I'll stick with my no-fee 5% cash back Blue card, thank you very much...

Here are a few other credit card related posts from around the PF blogosphere:

Consumerism Commentary had a couple of posts recently about the new credit card bill going through congress.

American Consumer News published a post about the right ways to use credit cards.

The Dough Roller reviewed a new credit card by Citibank.

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The Economy: What to Expect

Everyone is wondering these days: are we done with this crazy downturn yet? Back in late December I wrote a post suggesting that the worst may be over for the economy. I think I may have been a month or two too early, but I think at this point it's clear that the economic world is not coming to an end. Nevertheless, things are still pretty darn bad. So what do I make of the economy? I am no economist, however, I am seeing a number of economic indicators finally turning positive. Let me share a few with you:

The Stock Market - this is obviously the most visible sign. As of April 25, the S&P 500 is up about 26% from its low of 676, which it hit on March 9. It may very well be that the stock market will return to a downward trend - in fact, after the amazing upward run over the past weeks, it would not surprise me to see short term declines, but I think that investors are realizing that the current valuations offer an amazing opportunity for anyone willing to take the volatility. 

More importantly, the stock market is a forward looking indicator - valuations are a function of what investors think corporate earnings are going to look like in the future. The recent run-up suggests that collectively market watchers are expecting earnings to improve, and that can only happen with an economic recovery.

The fear factor, as measured by the VIX Index, is also dramatically down. While still very elevated compared to historical levels, the VIX index is now around 37 compared to around 80 as recently as November. Sure, this could turn pretty quickly, but clearly, while agitated, investors are no longer terrified that the end is nigh...

International Trade - in the fall, international trade came to a screeching halt. In fact, there were stories in the press about container ships being sent to dry storage for the long term. International trade is nowhere near where it was in recent years, but the Baltic Dry Goods Index which tracks the cost of international shipping has been recovering recently. Once again, the world is not ending.

Lending Rates - it is now crystal clear that governments around the world will not let major banks fail. Bail out funds have been flowing like cheap wine and consequently, inter bank lending rates have dropped dramatically. Clearly, confidence in the banking system is much, much improved. Remember in October we were worried about the money markets? We have come far indeed. 

At the same time, mortgage rates are dirt cheap and folks have been re-financing their loans like there is no tomorrow. This in effect acts like a tax cut - lower monthly payments mean more disposable income for the long term.

Inventories - if you believe the stories in the financial press, companies have been slashing their inventories at remarkable rates to deal with expected consumer demand falling off a cliff. Well, for now at least, consumer demand has dropped less than expected, which means that inventories are pretty lean. If there is any uptick in demand, companies will need to increase production to service it. Unfortunately, I know of no public data source that would let me view this data directly.

Unemployment - yeah, well, that's where things get really painful. Take a look at this chart of US unemployment over the past 3 years. It's nasty out there. What's more, it's clearly going to get worse in the near term. However, from an economic perspective, unemployment is a lagging indicator. It typically starts to improve long after the economy itself is back on the mend.

In summary, I am a short and medium term optimist. I think that the government stimulus activities and aggressive handling of financial institutions is working. I think we can expect a recovery to begin sooner rather than later. My bet is on Q3 or Q4 this year. Still a few months away, but not that far in the future. In the long term, I am less optimistic - I think that the debt load and deficit are likely to wreak havoc on the US economy and on the stability of the Dollar. I have not quite formulated my strategy against this scenario, but I am seriously thinking about it.

I think we may be close to the end of this economic nightmare. Hang tough.

Here are some other posts about the economy from other PF bloggers:

Canadian Capitalist reviews a book that takes the exact opposite position to the one I voice above...

Weakonomics has a post about what happens when financial firms pay back TARP funds. He doesn't trust the government much...

My Two Dollars links to an interactive map of bail-out fund recepients.  California is well represented at #4...

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Emergency Room Visit Abroad...

Last week my family returned from a two week vacation in Israel. We had a nice time, but one night we had to rush to the emergency room with our three year old son who woke up and had difficulty breathing (all is well now, not to worry). What I want to share with you is this: although we had no local insurance, the entire visit cost us $140 and took less than two hours. Compare this to a similar trip we made about 4 years ago when my older son - two years old at the time -  fell in the bath and hit his head (again, all is wellnow). During that visit, we had full insurance coverage, and visited a well respected hospital - Stanford University Hospital, to be exact. That visit cost us hundreds of dollars out of pocket... and let me clarify, during both visits our sons received nothing more than an examination by an emergency room doctor.

I think something is very wrong here. Our health care system is plainly not working.

Israel has a national health care system, which is funded by a 5% employment tax. Health care services are provided by a number of privately owned health care groups, which compete amongst themselves for patients. Each citizen chooses one of these organizations and can then receive service only from his chosen group. Government mandates which services, drugs and treatments are covered by the national insurance and each provider must provide these as a minimum. Folks can also purchase supplementary insurance to cover items that are not covered by the main program. 

I don't know if this is a perfect system (probably not), but I think that there may be something for us to learn from this system.

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The Case for Legalizing Drugs

I am going to go out on a limb here and voice an opinion which I know to be highly unpopular. Some would even call it insane. Yet, I am not only going to voice it, I am going to get up on my soap box and scream it at the top of my lungs: we must legalize drugs. No, I am not just talking about marijuana, I am talking about all drugs. And no, I don't use drugs myself and I do think that they are horrible. I simply think that the so-called war on drugs is a futile undertaking that is doing tremendous harm to society. This is a clear case of the medicine being worse than the disease. I will try to condense my argument to a few important points:

Look, any moderately intelligent observer of the war on drugs has to admit that this is a losing battle. People are not using less drugs. We have thrown many millions of Americans in jail for drug offenses, ranging from possession to trafficking, and what do we have to show for it? The same level of drug use. Nope. Prohibition is not working and more importantly, it could not work. The reason for this is economic incentives - because drugs are illegal and therefore their supply is restricted, they generate incredibly high profits for those "entrepreneurs" willing to take the risk. In fact, the more successful we are in reducing the supply and availability of drugs, the higher the price they will fetch on the street (supply and demand, folks) and the more economic incentive will be created to sell them. This is a Sisyphean task that has no end and no purpose. Prohibition should be ended.

By prohibiting the sale and use of drugs we are in fact aiding criminals and terrorists around the world. The drug trade is financing everyone from the Al-Queda in Afghanistan to organized crime in the US and Mexico. Do you want to seriously undermine terrorism and crime? Destroy their financing by making drugs legal. Hell, no camel riding Taliban is able to produce drugs more efficiently than good ol' Phillip Morris (oh, sorry, they are called Alteria now... thank god they changed their name. I guess they no longer sell death in a box). 

But wait, aren't drugs dangerous for users? Yes, I suppose they are, but what do I care? If someone wants to make a conscious decision to risk their life, it's no business of the state to forbid them from doing so. Don't drugs promote crime? Absolutely, because they are illegal. If a junkie could buy cheap and legal drugs, there would be no reason for him to rob anyone. Just think back to prohibition - when alcohol was illegal in the US, people still found it pretty easy to come by, but its very prohibition caused organized crime to flourish.

Now let me make the economic case. I am not talking about permitting drugs so we can tax them. We can certainly do that, but that argument is cliche. I am talking about saving billions by not having to incarcerate millions of Americans for drug related offenses. I am talking about re-directing law enforcement efforts to important pursuits such as solving homicides and reducing violent crimes - who knows, maybe we could even (god forbid) reduce the size of our law enforcement agencies?

Finally, our past three presidents have publicly admitted to using drugs, so can one really claim that there is even a cultural taboo against using the stuff? If someone can become president after drug use, what justification is there for making possession and sale of drugs a crime?

Look at the end of the day, I guess I don't think it's the government's business what adults do in the privacy of their homes, so long as they don't hurt others. It is not government's business to protect our health from our own decisions, it's not their job judge our morals. So I say enough to this senseless, expensive and futile war on drugs.  You cannot beat the market, but if you declare war on it you can encourage crime and finance some pretty bad people. Let's give this thing a rest already.

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In Honor of Earth Day...

In honor of Earth Day which is happening today, I would like to bring up again the question of personal responsibility and personal action. A while back I posted an article and a calculator for figuring out how much money and how much carbon you can save by converting to a hybrid vehicle. My conclusion was that buying a hybrid car might not be the most cost effective solution if you want to save carbon (or money for that matter).

My opinion has remained largely unchanged, however, as my 12 year old Geo Prizm is moving towards the end of its useful life cycle, my thoughts have been wandering in the direction of a new car. No, not right now. In fact, probably not for another 2 or 3 years, however, when it's time for the good ol' Prizm to go the way of the dodo, I think I will buy a plug-in hybrid. I haven't done the calculations, heck I still don't know how much these machines will cost, but I think that some things should probably be above direct cost savings.

Anyway, for the time being, I am doing my best to drag the most gas mileage out of my little junker. These days I am getting between 30.5 and 31 miles per gallon out of it. Pretty impressive considering it's got about 120,000 miles on it.

Anyway, if you want to figure out how much carbon you could be saving by going hybrid, and how long it will take you to re-coup your car buying investment, take a look at this calculator that I had previously designed.

Other ways to reduce our environmental impact - my family has taken the following steps: we have swapped out pretty much all of our light bulbs to CFLs, we drink tap water rather than bottled water, we recycle aggressively. My wife has also recently bought re-usable shopping bags. Hey, why not reduce the amount of plastic a bit if we can? Also, Safeway gives us a 5 cent credit for each bag we bring from home. Whoopty dooo. Oh, one more cool thing: we have installed the Edison program on our computers at home to put them in stand-by mode when no-one is actually using them.

Here are some other fine posts that Celebrate Earth Day from around the personal finance blogosphere:

Get Rich Slowly has a post about saving money and the environment

Trent from the Simple Dollar offers lessons about fuel efficient driving

Brip Blap complains that Earth Day is nothing more than lip service to the environment

Cash Money Life has some recommendations about 5 ways to help the environment

Moolanomy has a post asking whether green and socially responsible mutual funds make sense

Money Smart Life has a post about saving the environment at work

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High Yield Stocks and Bonds: A Risky Game

These days it is very easy to find stocks that promise very high dividend yields and bonds that offer apparent sky high returns. Some of these stocks and bonds belong to some of the most prominent companies out there. For example, a quick search on MorningStar yielded the following stocks offering dramatic dividend payments: CitiGroup - 22%; GE - 10%; Pfiser - 8%; Wells Fargo - 6.5%. These are big names offering impressive yields. Are they a good investment?

I don't know the answer to that question, however, there are some key principles that should be considered in connection with such an investment decision. First up, let me say that as far as stocks are concerned - as opposed to bonds - I am of the opinion that dividends do not matter from an investment perspective. I have previously written extensively about the subject, and there is no point in repeating those arguments here. However, even if you believe that high dividends make a stock more valuable, there is good reason to view high yields with suspicion.

Risk / Reward Balance for Bonds - an iron clad law of investing is that higher returns inevitably come with higher risk. This makes sense when you think about it - why would you accept more risk unless someone offered to compensate you for that extra risk? This compensation is the return that you generate. With that in mind, it is pretty safe to assume that a bond that offers a high yield carries with it a high degree of risk.

Dividend Calculation for Stocks - the dividend yield on a stock is calculated by taking the dollar value of the dividend paid for each share, and dividing it by the price of that share. As an example, a stock priced at $100 and paying an annual dividend of $3 has a dividend yield of 3%. The dividend yield on that stock can increase in two ways: the company's board of directors can choose to pay shareholders a higher dividend - say increase the dividend from $3 to $6 thereby doubling the dividend yield to 6%. However, the dividend yield would also increase to 6% if the price of the underlying stock fell by 50% to $50. 

Most stocks that offer the insane dividend yields get there not by increasing their dividends, but by virtue of their stock falling off a proverbial cliff. Now, that in itself may not be a good enough reason to pass on those stocks if you think you know something that the rest of the investment community does not. However, in most cases, there is a good reason why investors show a lack of confidence in a stock by dumping it en masse.

Dividends Are Not Set in Stone - Finally, it is important to understand that there is nothing that prevents a company's board of directors from reducing that company's dividend at any point. In fact, it is a pretty safe bet that a company whose stock is getting crushed will cut its dividend yield: there is typically a sound business reason for a stock to tumble, and it usually involves business problems for the company. In such circumstances it is reasonable to expect a competent board of directors to cut dividends to conserve cash.

Bottom line - high yield seekers beware: high yields are often nothing more than a high risk mirage.

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Rebalancing My 401K

Planning for our retirement is very important to me and my wife and I have been religiously maxing out our 401K contributions every year. Since I joined my employer last April I have done nothing to re-balance my 401K investments, and as you can imagine, with all the market turmoil the asset allocation of my plan has gotten a bit out of whack. Yesterday I went on the Fidelity website to do some re-balancing.  

Re-balancing is a pretty simple process in which you bring your investments back into your desired asset allocation. Say you would like to have your assets invested 50% in stocks and 50% in bonds, but with stocks taking a major hit over the past couple of years your stock values fell by a half, while your bonds remain unchanged. While your overall portfolio has lost 25% of its value, stocks now account for only 25% of the remaining funds. When re-balancing you would sell some bonds and buy some stocks such that the new asset allocation matched your original investment targets of 50% in each asset class.

The idea behind re-balancing is the notion of "regression to the mean" - certain asset classes tend to yield certain returns over the long haul. If in a given year an asset class dramatically over performs or under performs, it is reasonable to expect that in the following years it will reverse the trend such that over the long term returns will roughly meet the historical average. When re-balancing you sell the assets that have done well and now account for a larger share of your portfolio than you intended, while buying some of the lagging asset classes that have done worse than they usually do. This serves two purposes: first, it ensures that your portfolio has the risk characteristics which you desire and second, it forces you to sell high and buy low. I have previously written a post on the subject of re-balancing if you are interested in more information (although my views on the subject have evolved somewhat since I wrote the post 2 years ago).

Anyway, Fidelity does a fairly good job of hiding its re-balancing services. However, it turns out that I did not need to manually re-balance the account. Fidelity offers an annual re-balancing option - although I would have preferred quarterly re-balancing. It also gives you the option of being alerted about imbalances in your asset allocation on a quarterly basis - however it will only alert you to substantial deviations in your relative asset balances, i.e. 10% or more. These re-balancing services are good enough for me. I signed up for annual re-balancing and it's nice to know that I no longer need to think about asset allocation in my 401K.

With that in mind, and following my post on the topic from yesterday, I am now going to start lobbying for a ROTH 401K plan to be adopted by my company and will also try to convince the powers that be to adopt childcare and medical flex accounts.

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Tax Injustices and Strange Rules

Why should your tax liability be dependant on something that your employer does or does not do? Basic fairness demands that your tax burden be dependent on your own specific circumstances, such as your income, your number of dependents etc. However, the tax code is riddled with examples where Uncle Sam reaches into your pocket to a different extent depending on the benefits that your employer provides. Here are some prime examples, but I am sure that there are many, many others:

Childcare Flex Accounts - childcare flex accounts allow you to reduce your tax liability, by paying with pre-tax money for childcare expenses, up to a limit specified in law (I believe it's $5,000). My previous employer offered childcare flex accounts, which I maxed out annually to great benefit. My current employer is not offering a childcare flex and consequently, even though we can get a deduction for childcare expenses, my accountant tells me that our tax liability was hundreds of dollars higher than it would have been had a flex account been in place.

Medical Flex Accounts - In my previous company I was able to deposit $1,500 annually in a medical flex account, leading to hundreds of dollars in tax savings on our medical expenses. Since my current employer does not offer this benefit, the only way we would have been able to deduct our medical expenses is if they had exceeded 7.5% of our adjusted gross income. Since - thankfully - our medical expenses do not reach that minimum, we end up paying considerably more in taxes.

401K vs. IRA - why is it that if your employer offers a 401K plan you can contribute $16,500 towards your retirement but can only contribute $5,000 to an IRA if your employer does not offer such a plan? What is the rationale for tax discrimination against people whose employer does not care about their retirement? Similarly, why is it that unemployed individuals are not permitted to contribute the full 401K allowable amount?

ROTH 401K vs. Regular 401K - does it make sense that if your employer offers a ROTH 401K option you are able to make a full $16,500 in after tax contributions to a ROTH account, regardless of your income, but you cannot contribute a single cent to a ROTH IRA account if your adjusted gross income is over $169,000 (for joint filers).

The tax code is riddled with asinine and capricious tax rules. It is time for Congress to take up serious tax reform and to do away with this injustice. The amounts you save for retirement or are able to deduct from your tax liability should have nothing to do with the benefits that your employer chooses to offer. The tax treatment of individuals should be equal and based on their own unique circumstances rather than on the decisions of their company's benefits administrators.

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We ARE Losing Something to Globalization

Globalization is not all good. Usually Money and Such is a strong advocate of international trade and of globalization - and that still absolutely remains the case, however, when discussing a subject it is important to understand the pros and cons and make a rational decision, and not simply take a dogmatic, blind position. So let's go ahead and look at a few aspects of globalization and I will clarify my position.

Loss of Diversity - I am writing these lines from London, where I am currently traveling on business. After my meetings were over this afternoon I started wandering around this gorgeous city, and I couldn't help but notice that the stores were all pretty much the same here as they are in the States. If you follow me on Twitter, you may have noticed that I had lunch at a Pizza Hut somewhere on Oxford street. I passed by GAP stores, Banana Republic stores, and an Apple store. McDonald's and Starbucks are all over the place. For the most part TV here is the same as it is in the States and most of the music I heard today was very familiar. I am in London now, but I had very similar experiences in Hong-Kong, Tel-Aviv and Barcelona in the past 12 months, and I am guessing the same could be said for many other cities around the globe. Clearly, cultural diversity is being lost due to globalization.

Specialization Leading Loss of Robustness - in ancient times, if a volcano destroyed Pompeii, there was zero impact on cities on the other side of the world. If something horrible happened to Shenzhen in China today, for example, the ramifications would echo around the world. It is no coincidence that the global economic crisis we are seeing today is truly global. Economies around the world are now so tightly interconnected, that a severe disruption in one place is virtually guaranteed to spread elsewhere.

Loss of National Sovereignty - the current economic crisis is a great example of how national governments are virtually powerless to regulate economic activity that spans the globe. Yes, you can prohibit a bank from doing something in your country, but that bank is simply going to do that same thing elsewhere around the planet. Environmentalists have been arguing for years that multinationals are skirting environmental regulations by relocating to countries with looser restrictions. There is no arguing that fact.

You could probably substantially expand this list, but I think that these three examples will suffice for my purposes. I understand that we are losing something by going global. Some of the things we are losing are probably precious and we should find a way to save them. However, it is important to recognize that with every change there comes some degree of loss. Good change is one in which the gains substantially outweigh the losses and I argue that this is clearly the case in globalization.

Certainly, we are losing some national sovereignty. I will argue that this is actually a good thing. When our imbecile of a former President banned federal funding for stem cell research, the research did not stop, it simply went abroad. Idiotic regulations can no longer stop progress. Yes, economic contagion can spread across borders, but by the same token, just as risk is shared internationally, so are gains. In addition, the interconnectedness of the global economy means that crop failure in one part of the world need not lead to famine and death in that country, since food can be easily imported. It's not just disasters that are shared, good fortune, aid and success also cross borders. Finally, while specialization has its risks, it clearly promots efficient allocation of capital and is making us collectively richer. Yes, globalization has its prices, but those prices are very much worth paying. Just ask the tens of millions of Chinese, Indians and yes, Americans, whose lives have been dramatically improved by global trade.

I am not blind to the costs globalization, however, I claim that they are worth paying. As always, it is a good idea to minimize the associated costs. Local culture and diversity should be promoted and protected (in reasonable, non-intrusive ways - I am not talking about French style quotas for content), regulations should be harmonized as much as possible across borders to minimize jurisdiction shopping by companies, and action should be taken to increase the system's robustness to severe disruption. However, at the end of the day, globalization is a good thing. We should adapt, adjust and welcome it, rather than launch a futile fight against it.

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My Career - Part V - the Future

This is the fifth and final part in my series of posts describing my career story. You can find the earlier posts in the series here. I will break this post into two parts. In the first, I'll share something with you about my career plans, in the second I want to share some of the career insights I have gained over the years. This post may be interesting for you even if you did not read the other posts in the series.


My Career Plans -


I really enjoy my current position as a VP at a small manufacturer of telecommunications equipment. Assuming I don't screw up big time and lose my job and that the company doesn't go out of business, I intend to stay with the company for the next several years. In my current position I have tremendous exposure to senior executives, both in and out of my industry. This is a phenomenal networking platform on which to build my next career steps.

As the company grows, I will also likely be asked to build my team. I have managed teams in the past and have even built them from scratch, and it is always a challenge I look forward to. My motto: make fewer mistakes every time... :-)


Someone once asked me if I am ready to become CEO of a company. The simple truth is that I am not. I lack the seasoning, experience, and let's face it, some critical skills needed to run an organization. Having said this, I am actively preparing myself to take that role some day. Will it be in the next 5 years? I don't think this is likely. However, in the next 7 to 10 years, it's possible. This is my ultimate career goal: I would like to run a technology company and take it from early stage to acquisition or IPO. To achieve this goal I need to build a reputation, gain executive experience in my industry, develop the connections with people who may offer me such a position, and most importantly gain the skills necessary to succeed in such a position if I am given the opportunity. Sounds ambitious to you? It certainly does to me. Dauntingly so. However, what's the point in having an ultimate career goal if it's not an ambitious one?


My Career Insights -


If you have been reading my career story over the past week, you know that it has been a really strange one. I went from being a lawyer to being an executive, to starting my own business, and back up the corporate ladder. It's been quite a ride. One of the things that are very clear to me is that you have to expect set-backs in your career. When they happen, roll with them, knowing that they are temporary.


The other thing I learned is that you have to do something you like. On paper, owning my own business seemed like a great idea. I did OK running that little venture, but I really didn't like the lifestyle. It is OK to admit that something is not working out, and when you do that, the right thing to do is to move on. At the time I was ashamed of having admitted defeat. Now, I am thankful for having had the courage to move on.


People are the most important thing to consider in deciding whether to take a position or whether to pass on one. Is there someone that you can learn from? Are the people ethical? Will they back you up when it's go-time? Will they play fair with you? If you don't think you will get fair treatment, get the hell out. You don't have to do it immediately, but start looking asap.


Finally, a career is a very long thing. There is a lot of room for making mistakes AND for correcting these mistakes. Very few mistakes are career enders. A lay-off is a temporary bump. A bad boss is a minor detour. Careers - like investment results - are measured in decades, not quarters or even years.

At the end of the day, it's all about doing what you want to be doing.


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My Career - Part IV - Getting on the Right Track

This is part IV in a series of posts describing the many twists and turns that my career has taken over the years. You can find the previous posts in my career story here.

My previous post in the series ended somewhere in August 2004. At the time I realized that my career was headed in the wrong direction - I was running my own consulting business, working alone from home and slowly gaining customers. Revenue was increasing every month but was still MUCH lower than I could be making by taking a full time job. More importantly, I realized that working on my own, as a business owner, simply wasn't working. This was not the right kind of life for me. So, in the summer of 2004 I decided to find a full time job.

It took me very little time to find a job. In less than three weeks I accepted a full time, junior business development position with a promising enterprise software company, with some big name investors and what seemed like a very strong management team. I started this job with a heavy heart. Going to work that first day felt humiliating. I felt that I had failed in my career decisions, that my shutting down my business was a black mark against me and that I had accepted a job which was too junior for me. It was difficult for me to remember that this was all my decision and that going down the previous path made me unhappy. It was probably the hardest period in my career, but it didn't last.

The thing about taking a job that's too junior for you is that you can blow the doors off everyone's expectations. Given that the job was junior, I negotiated hard for performance based compensation. My targets were set pretty aggressively - or so my management thought. My goal was to get our company engaged with some of the biggest companies in the country - revenues of $1B or more - and to do so at the VP level or above. I could do this in my sleep. By the end of 2004 I had discussions going with 17 different companies with those specifications, beating out my target by several hundred percent, and generating substantial bonuses in the process. My management was impressed. What do you think was their response to this impressive performance? When the year ended they restructured my compensation package and re-set the bar so high, that there would be no way for me to repeat my performance from the previous year. Gee, thanks. Here's a way to reward your star performers: pay them less...

That stunt so enraged me that I immediately started looking for another job. However, this time I was determined to make the right move. I started networking aggressively - mostly with old colleagues and friends from business school. In February 2005 an old friend called me up and offered to introduce me to the President of a telecommunications company that just acquired a competitor in the Bay Area and decided to relocate its headquarters there. My chemistry with this executive was superb, and within weeks I had a job offer - a position created especially for me. In negotiating this job offer I pressed hard on one main point: the title. Maybe this was an overreaction to my previous negotiations strategy of focusing on compensation only to have my compensation essentially reduced because I performed too well. At this new company I focused on clearly defining my responsibilities and on ensuring that I received a Director title. This proved to be a very good decision and it opened the door to a series of compensation increases in the years that followed, and ultimately to my current executive position.

I worked in that company for three years. I enjoyed my work tremendously and found an industry that I loved. I did well in my position and was given more and more responsibility. Not everything was golden. At one point my group was assigned to a new and wholly unqualified boss, who made my work day a little less fun. However, there is no doubt that this was finally a position and a company that took my career in the direction that I wanted it to go. 

After three years of service, it became clear that my opportunities for advancement in this company were limited. My company was an international, publicly traded company whose HQ was abroad. The US organization was a relatively small and unimportant one and to advance my career I would have to move to another country. This is not something that I wanted to do and it was time to move on. I started discretely pinging my network about opportunities - without sending a single resume to anyone - and within a month or two I got an offer to join my current company as an executive.

My current job is challenging, exciting and fun. I have a great deal of responsibility, I am still in the same industry where I spent the previous three years, and I think the company’s prospects are good ones. My current company is a 35 person start-up. It is financed by venture capital funds and is just about to bring its first product to market. I think we have a decent shot at making it, although in this economic climate, nothing is certain.

In my next and final post in the series, I will share some of my career plans and some of my hopes for the road ahead. However, if history is any indication, my career five years down the road will be dramatically different from what I envision. I guess that's all part of the fun.

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My Career - Part III - Adventures in Self Employment

This is part III of a five part series describing my career story, including the many twists and turns I have taken on my road to my current position. I have made my share of mistakes and occasionally some good decisions which all got me to where I am today. The post today is about my adventures in self employment, which took place in the first few years after I graduated from business school.

In part II of this series I wrote about how my career decisions during business school left me working for a small and under-capitalized start-up in Denver, Colorado. The CEO of this company trusted and respected me. I earned this respect by getting the company its first multi-million dollar deal during my summer internship the prior year. Within a month of starting full time employment with the company I was promoted to Chicago Branch Manager, and shortly thereafter I was promoted to VP of Operations and joined the company's management team. As part of that latter promotion I was also responsible for managing about 80% of the company's staff. Talk about inflating your ego. There I was, just a few months out of business school, running a 50 person team. Of course, I was woefully under prepared for this role. I had never managed a budget before or a team of that size and complexity. I made some pretty big rookie errors. However, the nature of the company was such that I was actually more qualified than most members of the executive staff. Yes, that IS bad. 

Within months, it became apparent to me that the company was going to run out of cash. We had a couple of incredibly large contracts for a company our size but we did not have enough working capital to deliver on our commitments. You see, working capital is the money that you need to spend to deliver goods and services. Unless your customers pay up front, you use your working capital before your customers actually pay you. We had clearly grown beyond our ability to finance our operations. I raised the alarm, and pushed aggressively for a resolution, but in the summer of 2002 it became clear that I was fighting the tide. I resigned and later found out that two months later, the company had to let go of about 70% of its employees.

I am not proud of my track record in this company, but this was one of my most important learning experiences: I learned to accept the limits of my skills and experience. I learned I needed to be forceful and vocal when I spotted a critical problem. I also learned that the most important thing about a company is its management team - if the management team is not qualified for its job, the company will fail. Always.

Now, I was unemployed. I also had a newborn son, and was facing the dismal prospect of looking for a position in Silicon Valley, in the middle of the dotcom bust. This was not good. I also learned that MBAs have a pretty short expiration date - while you are being recruited at a top business school, you are king of the hill. Companies chase you down and throw offers and signing bonuses in your direction (for the most part). Looking for a job as a newly minted MBA? Not so good. After a few months on the job hunt I was discouraged. I was getting no-where and getting stressed. I was starting to doubt my decision to resign my former position. I was even entertaining going back to being a lawyer... but only briefly. That profession was simply wrong for me.

Instead, I decided to open my own business. My reasoning went as follows: I know how to do deals, big and small. In my previous company I was able to get a multi-million dollar deal signed within months. I could repeat the process as a consultant. I would hire out my services to a certain kind of high-tech company and help them find their first customers, for a small monthly fee and a large success based fee. I ran my business for about 2 years. My revenue increased every single month of this two year period, but still, my overall income was much smaller than what I could be making as a full time employee and the hours were a bitch. More importantly, I realized another something about myself: I hate working on my own. I need the company of co-workers, team members and managers to feel happy. Working alone from my home office was not working for me.

Once again, it was time to make a change. This time I would finally find myself headed on the right track, although it certainly did not feel that way when I started down that road.

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