Friday, December 30, 2005

Million Dollar Idea #1 - Pixels for Sale

This is post #1 in the series Million Dollar Ideas. The structure of this post is explained here.

Idea:Sell pixels on your website
Value of Idea: $1,000,000 - 5 years hosting (likely free) - Taxes (likely around 30%) = $700,000
Time to Million: 6 Months
Replicable: Not really, but it has been tried dozens of times. Replication potential in Niche content areas, other geographic regions, and especially other major languages (spanish and chinese come to mind).
Sustainable: Yes and no. You can pull this stunt once, but after that it is hard to create another million dollar page. It is a one-time stunt.
Passive: Yes.
Extendible: No.

Why it Works:
This is a fascinating example of how one person can create $1,000,000 in wealth for themselves by creating value for other people in a new and previously un-recognized manner.

This site serves as a coordinator for two groups: 1) people looking for something on the internet and 2) sites trying to get traffic.

What the creator of this site has done is solve a connection problem. There are millions of poeple who are just surfing the net looking for some form of interesting stimulation without caring what it is. There are also countless millions of sites out there providing entertaing or somehow valueable products that these people would like. They connect procrastinators with websites.

Users: If there were a random button that people could push to get an interesting site, many would. This website functions as a novel approach to creating a random button.

Advertisers: On the other side of the coin, the internet is largely a numbers game. The more people who visit your site, the more people who are likely to find your content interesting and do something that will make you money (buy a product, join a community, further click on your ads). In the physical world the addage "Location Location Location" came from this fact: the more people who walk past your storefront --> more people comming in --> more people buying things.

This site's value derives from the fact that they connect people who are just looking for something to do with sites that just want traffic.

The major obstacle to implementation here is a coordination problem. If there are enough random sights, then people will come. If there are enough sites, then sites will advertise.

I am not 100% clear on how this site overcame that problem, but somehow they did. Once they reached critical mass on one side, they then got critical mass on the other and the site became self perpetuating.

Congratulations to the owner of this site. You became a millionaire by having a great idea that nobody else before you saw.
It is a rare mind indeed that can render the hitherto non-existent blindingly obvious. The cry 'I could have thought of that' is a very popular and misleading one, for the fact is that they didn't, and a very significant and revealing fact it is too.
Douglas Adams

Million Dollar Ideas - Structure Explained

This is going to be the structure of my posts in my Million Dollar Ideas series.

I'm going to be evaluating these ideas and structuring the posts as such:

Idea - brief synopsis of what the person has done.
Value of Idea - brief calculation of what the net increase in wealth of the idea was. Roughly speaking this is their profit = revenue - costs.
Time to Million - how long did it take this idea to make its first million. The faster the idea makes it to a million, the more effective it was.
Replicable - Can you take this idea and use it for your own? If so, in what instances? For example, a patented product can't be replicated. A service in a narrow geographic area can be replicated in another area.
Sustainable - Will this idea continue to produce money and value into the future? Or, is it a flash in the pan that is going to wither away? Put another way, this section answers two questions: Will the idea be able to be maintained? And, will the idea continue to throw off profit into the future?
Passive - Does this idea require a large amount of continued maintainance once it gets off the ground? Patenting and licensing something is passive. Creating a company you maintain is not. This section measures how much of your time, capital, and energy would be required to continue opperating this idea (if it is sustainable)
Extendible - Can you use this idea as a jumping off point to launch other ideas? Basically, once you create a brand around this idea can you extend that brand to other related products? Put another way, will implementing this idea make implementing other profitable ideas in the future easier?

Why it works - This is where I analyze the idea. The forces that lead to its profitability, the needs it fulfilles, who it creates value for, etc. This section will cover economics of the idea, strategic implementation, etc.

Furthermore, these ideas are measured in impact to the individual. If 2 guys make $2 million from an idea, that counts. If 20 people make $1,000,000 jointly, that doesn't. There will be a focus on ideas that one person can implement and less on ideas that require an extensive business to create (more books and patents. less google and ebay).

Wednesday, December 28, 2005

Why it's called $.02 worth

Have you ever wondered why it is called $.02 worth? When somebody says "it's only my 2 cents worth but..." why do they start off like that?

There are some histories out there that claim that this goes back to when pitching in $.02 was the ante for poker. Well, they are wrong.

$.02 worth comes from the fact that most people who publish opinion blogs on the internet and use google adsense get approximately $.02 per day. (I have yet to reach this threshold on this humble blog. I am currently grossing a mindblowing $.01. On a good day.)

Some general principles of economics state that people are paid in direct accord with the value of their contribution to society. I tend to agree with this statement. Therefore, thanks to google adsense, I can tell that I have added $.02 in value to society today. (today has been a banner day)

And my ex girlfriends called me worthless. Ha - now i can prove them wrong.

Assuming no growth in income or readership, and a 4% decrease in the value of money due to time and assuming 3% inflation (yielding an 7% discount rate), I can further tell that as it stands today my opinions on this blog will be worth $104.28 for all of eternity. And those are real dollars.

$.02 * 365 = $7.3
$7.3 / .07 = $104.28571428571428571428571428571 (round that down to .28, carry the four, I'm worth a hundred bucks!)

Now, all I have to do is live for eternity and I'll realize that.

So, what this definitively shows is that my opinions are not worthless. They have scant value, yes. But a complete lack of value, no. Well maybe the blog in general has value, I can't say that this post has a whole hell of a lot of merit. Significantly less than $.02 at any rate.

Carnivals for week of 12/25/2005

Since it has been a long Christmas weekend I have not been blogging much, nor have I submitted as many articles as I normally would tothe carnivals. But none-the-less, they have continued on their merry way and most of them are up now:

Finance and Investing:

Thursday, December 22, 2005

End of year stock-cleaning - could this method avoid the wash-sale rule?

There is only one week left to make stock-trades that will effect your 2005 taxes (although oddly there are still months to make 2005 contributions to IRAs), so this means that it might be a good time to start selling off a few loosers to offset capital gains.

But what to do if you have a stock that is loosing for the year, but that you really like and think is being overly punished by the market? Whatever you do, don't sell to take the tax-loss and then buy within 30 days - that type of transaction is called a wash sale and will negate any tax-losses you take. Also, if you re-establish a substantially similar position (buy a call option, sell a deep-in-the-money put option), you'll also trigger a wash sale (according to this article).

But what if you write an at-the money put? Would that still trigger the wash-sale rule? Take Avaya (AV) for instance. It is currently trading at $10.7, down from around $16 earlier this year (52 week high, 17.74 on Jan 5, 200). You could sell a $10 strike february 05 put for around $.25. To do this you would tie up $1,000 per contract for two months for each $25 you get in options premium so in many cases this needs to be a volume strategy.

Now,there are a few potential outcomes from this, but basically you have - option expires worthless, option gets exercised. Either way, you don't care. You like the stock, but sold it for tax reasons which means you are both willing to own it and willing to sell it.

If it expires worthless, you've just realized a gain on capital at risk of 2.5% for 2 months - about 15-16% anualized return. I'd take that.

If you get excercised into the option you now have a basis in the stock of $9.75, lower than the $10.7 you sold it for today. This is a stock you liked at $10.7, so chances are you'll like it even more 2 months from now for $9.75.

The red-herring is fees. That $25 you get could be more than eaten away if you only sold 1 contract - at my brokerage about $15 to write the contract leaving you with only $10 on $1,000 or 1% (8% or so anually). And, if you get exercised into the stock you'll likely have another $20 or so in fees thereby bringing your basis up to at least $10.05. Still less than $10.7, and still possibly getting you past the wash-sale rule. This math changes substantially in more volitile stocks (where the options are going to command a higher premium), or if you are selling more than 1 contract (with etrade each additional contract costs $3).

This shouldn't be illegal, and it shouldn't be a wash sale becasue you are closing a long position and opening a short position. But, I'm no investment tax expert. If you are, can you lend anyinsight into if this is legal or not?

Wednesday, December 21, 2005

Donations vs. Advertising - is clicking in our own self interest?

Many of you have already likely heard that Wikipedia is asking for $500,000 in donations in its year end fund drive. They have already raised $74,000 and are bringing in about $12,500 a day. No doubt contributors are thinking "I love this service, of course i'll donate, plus it's tax deductable." But why are people so willing to donate to wikipedia? And, on the flip-side of the content coin, why are so many people opposed to adds?

I have a sneaking suspiccion that a large part of the reason people donate so much to wikipedia is that they don't have advertising. Why is that? Why do we have good feelings towards sites that don't show us adds? Why do we have negative feelings towards sights showing adds, even when it is done tastefully and we really like what the add is selling?

People are willing to Donate their own money to wikipedia at a rate of about $.40 CPM (or $.004 per page view)* but they get offended by publishers saying, essentially, "click on this, it will cost you nothing but a few minutes and it is likely something you are already interested in and may want to buy" by putting up advertising.

We're willing to part with our own money to support a site we like via donations, but get offended at the proposal of taking money from advertisers and giving it to publishers when we see advertising.

I suppose that the optimal plea on a website would be something like a left column which says: "Like our site? Donate to us" and a paypal donate button followed by "Or, support us by visiting a sponsor if you see something that interests you." Based on the social norm of reciprocity, and what can be seen happening over at wikipedia, I think this would lead to an increadible increase in clickthroughs (if you haven't listened to The Power of Persuasion yet, you should - what I learned from that $2.95 and 1 hour will add a cool $3 or 4 million to my earnings in my life). Would this be against the adsense terms of service?

This also suggests an interesting self-interested action on websites we like. If it is a site whose content you value, and which doesn't throw offensive adds in your face, then it is in your best interest to briefly glance at the adds and click if there is something you find interesting. This is the exact opposite of what most experienced web readers do. We look past adds, parse them out, avoid them like the plague. Why? If we like the site, we can 'donate' for free by visiting a few sponsors. We can be "adsense patrons" of any site we like, and it doesn't cost us a dime.

NOTE: I am not asking you to click on my ads. I am only proposing, for discussion, that instead of parsing out ads, we should make an effort to look for them on sites we enjoy. Hypothetical argument, please don't throw me out of adsense. I couldn't live without that $.03 a day ($.04 on a good day).

* Wikipedia figures assume 1 million visits per day, 5 page views per visit, and $12,500 a day in donations. Stats from,, and

Million Dollar Ideas - A new series

I have decided to start a new series on this site that I am calling Million Dollar Ideas. This series is going to highlight a number of ideas which people turned into businesses or patents which then grossed about a million dollars or more.

Premises from which I will be working:
  • You get money in this world by creating value. The more value you create, the more money you make. Therefore, these ideas all created at least $1 Million in value for other people.
  • You often get money in this world by solving problems (another way of saying almost the same thing). Therefore, many of these ideas solved large problems resulting in at least a $1 Million increase in value for other people.
  • You get money in this world by turning ideas into reality. All successful businesses were once ideas, all patents were once ideas, all music started as an idea. Many of us have $1 Million ideas but fail to act on them. The idea is a necessary but not a sufficient condition. You've got to implement the idea for it to actually be worth something.
Why am I writing this series? I wish I could say it was altruistic, but I am doing it mostly for my own benefit. I want to analyze ideas that have been successfully turned into $1 Million or more. Because I'm going to follow in these people's footsteps eventually, and studying what they did will likely yield some nuggets of wisdom which will help me turn a few of my ideas into $1.43 Million (read about the goal, and the plan). Slaving and saving away won't get me there in the timeframe I want to get there (though it works for people following David Bach's approach) so the only means I have left is to turn some of my ideas into $1.43 million realities.

Beyond just studying what these people have done, I am writing these posts for two more reasons. The first is again self-centered; writing about a topic forces me to clarify my thinking and to perform more stringent analysis. Secondly, I think that what I learn will also be valuable to others. The upshot is that I understand more and hopefully create some interesting content to read.

If you run across any Million Dollar Ideas you would like me to include in the series, just leave a comment below to let me know.

Update: I cover the structure of these posts here.

Million Dollar Idea #1 - Pixels for Sale.

---warning, self analysis and planning below ---

I won't be sharing many of my ideas in public just yet, unless I am looking for a partner (like in this post, sadly nobody has responded yet). I keep a journal of ideas I have. Most of them are ideas for products or businesses that I would like to see started. I notice a problem that I think could be solved profitably a 3 or 4 times a week. Of those, I'd say I 2 or 3 ideas are good enough and stay with me long enough make the journal every month. Of the ideas in the journal, I have acted on 4 of them and made preliminary inroads to act on 2 others.

Saying I have 16 ideas a month, 2 of which are good enough to write down - that gives 24 potential ideas a year. I make preliminary inroads on maybe 3 or 4 of those a year, and follow through to complete and establish 1 or 2 of those ideas. Thus far, however, the majority of this work was done during my days at University and therefore I have no profitable businesses to show for it, but there are a number of ongoing organizations from my days at school.

On average, 1 in 10 businesses fails. Now that I'm out in the real world, if I can put 1 or 2 ideas into action each year - call it an average of 1.5. And I make the 10% success bogey, then it will take 10 $1 million ideas for me to read my goal of $1.43 Million at age thirty. (1.5 * 7 *.1 = 1.05 successful ideas). But, given my current rate of idea success and these assumptions, to get that 1 success is going to require 1,344 sparks of thought (at 16 per month).

This Week's Carnivals

It's now Wednesday, and that means that the blog carnivals I watch and contribute to have now all posted.

Monday's Carnivals:
Tuesday's Carnivals:
Wednesday's Carnivals:

Thanks to: Political Calculations, MightyBargainHunter, Coyote Blog, You Need A Budget, Ravenwood, and Red Guy in a Blue State for hosting this weeks carnivals.

Monday, December 19, 2005

Carnival of Investing - Issue #1

Ladies and Gentlemen, welcome to the first-ever Carnival of Investing. We had some great submissions from across the blogosphere offering advice and insight into a wide breadth of investing topics. The purpose of this carnival is to gather the best the web has to offer on investing and to hopefully expose you to some bloggers you didn't already know about. Without further ado, let the carnival begin:

We had 4 entries about getting started in investing:

Asset Allocation:

Index Funds:



Economic Indicators:

In terms of Levity:

Thanks to everyone who submitted articles for the inaugural edition. Next week will be hosted by AllThingsFinancial. You can find the submit form here and guidelines are always available here.

Sunday, December 18, 2005

Cut your spending on books - Get them for free

Between and, I spend more than I would like to publicly admit on books each month. I can rationalize to myself that they are investments and not expenses, but the return of most of them (career books aside) is usually intangible at best. With the internet and the blogosphere I can satiate a large amount of my addiction to new information each month for free, but finding a real book (few hundred pages, professionally edited, etc.) for free on the internet has proven quite hard up until now.

But that's all in the process of changing. Two new services are looking to partially surplant Amazon and Audible (at lesat for books in the public domain), and they are doing so for free.

Project Gutenberg has a library of 17,000 ebooks, most of which are classics such as T.S. Elliot, and Shakespeare which can be downloaded for free. They even have a decent selection of human read and computer read audio books.

LibriVox is a newcomer with an ever expanding library of audiobooks. Their selection is still less extensive than Project Gutenberg's, but their site design and ability to download via podcasts makes them a bit easier to use. They are new and growing and I'm looking at them to eventually dominate the free public domain audiobook space.

These two services have their limitations (mainly that they are limited to public domain books), but 17,000 books at Project Gutenberg is more than enough to provide a small library of entertainment. And you can't beat the price - 100% free.

Wednesday, December 14, 2005

A free investing education

I have two words that I wish I could hear every day "free education." Aren't those two words just musical? At once they say "won't cost a thing today" and "will help you earn more/be more fulfilled tomorrow." Couple the words "free education" with "investing" and I'm so happy I don't know what to do (other than take a few deep breaths and stop dancing on the chair because it might break).

Well, in a brilliant move, the morningstar company has decided to make my day. They have an incredibly comprehensive and well designed investing classroom that is not only free, but in which you can earn points to more free stuff (like a premium membership = free stock and mutual fund research valued at $100 a year). This is better than free education, it is "paid to learn."

All you have to do is go to the Morningstar Investing Classroom and start taking their bite-sized courses. No previous experience or knowledge of investing is required.

If you're more interested in getting more meal-sized advice, head over to for a comprehensive well written investing education by some of the leading professors and practitioners in the field.

Another excellent learn to invest website is which has articles targeted at beginners, experienced investors, active traders, and retirement. In comparison to MorningStar's curriculum, this is more of an 'a la carte' menu where you can choose individual articles on a topic as opposed to full courses. They also have one of the best investing glossaries i've found anywhere. (Thanks to Loi Tran of Investing Guide for pointing out a glaring omission).

Once you've completed a few sections on the Morningstar and PathtoInvesting sites, you'll be ready to head over to's Apprenticed Investor for beginning investing advice that has more attitude (and less coherence).

MSN Money also has a number of good articles on basic investing and money management, but they are organized in such a convoluted fashion that they are more of a (poorly organized) magazine while these are more textbooks.

An open question to end this post: Where did you first begin to get your investing education, and what were some early mistakes you wish you had avoided? Post your answers in the comments below.

Let's Get Real

I have a few very odd pet peeves (the word "pet peeves" being the largest), and one of them is articles that either confuse or fail to distinguish between real and nominal terms. Skip to the end of this post, or skip it entirely if you already understand real vs. nominal.

What does real and nominal mean? Well, it is simple but a bit complicated to explain, so I'll use a few examples.
  1. Real dollars: Lets say a bottle of coke costed $.10 in 1920 and a the same size bottle of coke cost $1.00 in 2005. Thus, the (nominal) price of a coke went up 10 fold in 85 years. Adjusted for inflation that can of coke cost $.97 2005 dollars in 1920 and $1.00 2005 dollars in 2005. That is to say, in this example over 85 years the price of coke has risen only 3 cents. Thus we can get to the definition of real dollars as "dollars adjusted for the change in purchasing power due to inflation," or perhaps more easily understood "the prices that would be if there were no inflation." ( inflation numbers from this table)
  2. Real interest: In one year your bank deposits are earning 10% interest. The government conducts an agressive anti-inflation campaign and a few years later you're only getting 5%. In which period were you better off? The answer depends on if the rates I have given are real (adjusted for inflation) or nominal (in units of that year). Lets say that the rates are nominal and that inflation in the first year was 7% and in the second it was 2%. What then is your real rate of interest? It turns out, it was 3% both times because Real interest rate = nominal interest rate - inflation rate.
Any time you are talking about "inflation adjusted" prices or interest rates you are by definition talking about "real" prices. Non-inflation adjusted prices are nominal prices (which means nothing more than "prices in name").

If you are going to take only one thing away from a basic economics course, an understanding of real and nominal rates comes second only to supply and demand. Think about this, understand it, love it. It is one of those concepts that will completely change the way you view the world once you have mastered it (and it will allow you to read through the bullshit of half the news articles you read).

What has me thinking about this is a set of "the sky is falling" articles I have been reading recently about how our generation is "the most indebted" generation. In all of these articles I am seeing nominal numbers used to 'prove' that we are worse off than our parents.

Now, don't get me wrong, student loan debt isn't pretty. But, I can't help but think that the situation might not be as bad as everyone (the, sky, is, falling!) is saying it is. So, consider this a primer for a post I'll be putting up this weekend where I'm going to run the numbers and see if we're worse off than our parents. I'll admit that my initial hunch is that all of this "the most indebted generation" talk is a bunch of bullshit, but we'll see what the numbers tell me once I've run them. But then again, I do have a bit of skin in the game in us being called the "I want now" generation.

Free money for opening online savings accounts

There are a number of banks out there who will give you money just for opening an account with them, and this fact has made its way all across cyberspace. Most of the ones I know of (ING Direct and Virtual Bank) are "refer a friend and they get $xx, you get $yy" deals.

Why do they do this? Because it costs them advertising money to get new customers, and by paying you and a friend to do the advertising for them they only have to pay when a new account is created.

It is amazing how so many "anonymous" bloggers will fall hand over foot to tell you their identity for a $10 referral bonus. Well, not me. I have accounts at ING and Virtual Bank, but I'm sure as hell not telling you my name. That's private information.

But, in case you would like to get a $25 sign up bonus from ING Direct, or a $20 bonus from Virtual Bank, or even a $10 "unofficial" bonus from Emigrant Direct, here are links to other bloggers who will willingly send you the links to sign up:

ING Direct - Get $25 (they get $10) when you fund your account with the $250 minimum. Currently Yielding 3.75%:

Virtual Bank eMoney Market - Get $20 (they get $20) when you fund your acocunt with the $100 minimum. Not sure how long you have to maintain that balance. Currently yielding 3.55%.

Emigrant Direct - unofficial $10 Bonus (of his $20 commission) is offered by (that's right, you guessed it) My Money Blog with an insanely low minimum of $1. Currently yielding 4%

rumored - HSBC Direct - $25
when you sign up with the code Start. I tried this, but missed the place to put the code in so I don't know if this works or not. Also currently yielding 4%

If you are also selling your soul...err... Referring people and I have left you off the list email me at

Monday, December 12, 2005

Step right up, 5 steps for Financial Success

I just read an article on that outlined John Templeton's 5 steps for financial success (billionaire mutual fund magnate, eccentric - wikipedia entry). We can't all expatriate to the Bahamas to avoid taxes like he did (although from what I hear Thailand is still an option), but in these general rules taken from his life there was some sound advice.

To paraphrase:
  1. Take calculated risks.
  2. Save now, spend later.
  3. Be a patient value investor.
  4. Take a free market fundamentals view of value.
  5. Minimize your taxes.
I don't know much about this guy, but I like the simple elegance of these five rules. I'm not adding much original analysis here, so if you want to read them in more depth check out the article, or this other one (written by the same author)

Want your own Hedge Funds? New company shows you how... Scary

That just appeared on my feedburner in gmail. It has gotten to the point where someone is offering an internet "how to" on starting a hedge fund. The scariest thing is not that this service exists, it is that they are advertising using google adwords. I mean, how wide of a net do you want to cast with a service like this?

If this isn't the last straw in getting hedge funds regulated by the SEC, it will be when one of their clients with absolutely no experience in investing loses about 500 million of dollars.

I almost think this is a joke.

Check it out:

Sunday, December 11, 2005

The Carnival of Investing

Now that there are Carnivals for Capitalists, Personal Finance, Debt Reduction, and Frugal Living; I was thinking to myself today that if there were two more out there Investing and Money, I would be happy as a clam.

Therefore, I am announcing The Carnival of Investing (think booming announcer voice). Stocks, bonds, mutual funds, money markets, options, alternative investments: predictions, strategies, scams, stories, starting out, books, a little bit of levity, and more. Erudite analysis and a minimum of pedantic blather. All this, centered around the topic of Investing.

Submission Guidelines:
Submissions are due Sunday at 4pm Eastern Time. You may submit one self written article and one article from the web each week.

For Blog Entries:
Simply write as you normally would and then either use a submit form (at conservative cat or or send the following information to investingcarnival NOSPAM (at)

Please include the following:
  • Your name or pen name
  • The name of your blog
  • The title of your post
  • The topic of your post - whatever categories you like so long as they are about investing
  • The permanent link to your post
  • A brief summary of the article you have written
As always a link back to that week's carnival is appreciated.

For articles on the web:
If you find a worthwhile article on the net. You can submit it to the carnival regardless of whether you have written a post about it. Any article you submit must be open to the public (no WSJ premium content). To do so please include the following:
  • Your name or pen name
  • The title of the article you are referencing
  • The topic of the article - whatever categories you like so long as they are about investing
  • A link to the article
  • A brief summary of the article
  • If you have written a post about it, include your analysis.

Hosting Guidelines:
As is common practice, anyone who participates in the carnival is eligible to host. If you would like to host, write to with the subject line "Hosting Carnival of Investing." Once you are on the list you have to wait until the date of your hosting to sign up again (so that others can have a chance to sign up). PLEASE include the most recent carnival you submitted to so I can verify your eligibility to host without searching through the archives.

The carnival should be posted by 9am Eastern Time on Mondays so that we can get a full weeks worth of procrastination out of the posts. Hosts are asked to put blog articles above web articles and to clearly differentiate between the two. Of course, a link back here is always appreciated.

We'll see how having both blog posts and web articles in a carnival goes. If it isn't working out, then they will be removed. I have the domain reserved and if this catches any momentum all things pertaining to the Carnival of Investing will be moved over there.

DateHost BlogCarnival Link
Dec. 19th, 2005Retire at 30 Carnival #1
Dec. 27th, 2005AllThingsFinancial Carnival #2
Jan. 3rd, 2005ConsumerismCommentary Carnival #3
Jan. 9th, 2006Free Money Finance Carnival #4
Jan. 16th, 2006The Real Returns Carnival #5
Jan. 23rd, 2006Blueprint for Financial ProsperityCarnival #6
Jan. 30th, 2006Canadian Capitalist Carnival #7
Feb. 6th, 2006Wealth Junkie Carnival #8
Feb. 13th, 2006Trader Mike Carnival #9
Feb. 20th, 2006MyMoneyBlog Carnival #10
Feb. 27th, 2006Retire at 30 Carnival #11
Mar. 6th, 2006Personal Finance Advice Carnival #12
Mar. 13th, 2006InvestorGeeks Carnival #13
Mar. 20th, 2006Neo's Nest Egg Carnival #14
Mar. 27th, 2006Fat Pitch FinancialsCarnival #15
April 3rd, 2006Free Money FinanceCarnival #16
April 10th, 2006A Financial Revolution Carnival #17
April 17th, 2006Blueprint for Financial ProsperityCarnival #18
April 24th, 2006Kirby on Finance Carnival #19
May 1st, 2006Canadian CapitalistCarnival #20
May 8th, 2006Retire at 30 Carnival #21
May 15th, 2006InvestorGeeksCarnival #22
May 22nd, 2006Mighty Bargain HunterCarnival #23
May 29th, 2006FinamdomCarnival #24
June 5th, 2006Carnival #25
Future datesas yet undetermined

To ensure that these don't get lost, as soon as a new carnival is up the old carnival post will be copied into an archive that I will maintain here and then eventually on the site.

New Blog Carnival - Festival of Frugality

Jim over at Blueprint for Financial Prosperity has just launched a new blog carnival that focuses on frugality and frugal living.

He says:
There is a wealth of information out there in the realm of frugality and I’m surprised that no one had thought to start running a weekly Carnival (in this case, a Festival because we can all enjoy a bit of alliteration) to spotlight the excellent ideas that are floating around out there to help squeeze a few extra pennies, nickels, dimes, or quarters out of every dollar. There are a couple of money-related Carnivals out there but none that focus on figuring out how to get that little extra out of life.
Well said and I couldn't agree more. I'm looking forward to seeing what kind of advice makes its way out of this new weekly event.

(A Blog Carnival is a collection of blog posts about a certain subject that is usually collected and posted weekly. The Frugality Carnival collects posts about Frugal Living, the Personal Finance Carnival collects posts about Personal Finance, etc. An attempt to have a list of all carnivals can be found at Thanks to Shad for setting a new record for shortest wait for a comment on this blog - about 2 minutes.)

Saturday, December 10, 2005

The Richest Man in Babylon – Outstanding Book

I just finished reading (err… listening to) Richest Man in Babylon (audio download, audio cd) and it is an incredibly worthwhile piece of media (I learned a lot + I was entertained, and it was the perfect length - see this post). The book is written mostly as a narrative fable with the financial advice brilliantly, seamlessly, and entertainingly woven into the narrative. As for the audio version, the narrator was perfect with a low and somewhat husky voice that evoked auditory images of ancient Babylonia. This is the best financial book I think I have ever read – informative, interesting, entertaining, useful, all in all great.

Some highlights (I’m paraphrasing since I listened to it):
  • Babylonian advice for becoming wealthy: Save 1/10 of all you earn. As is repeated ad nauseam in the book “1/10 of all you earn is yours to keep.” Live on the other 9/10.
  • Apparently, without knowing it, I have been proposing a Babylonian scheme for debt repayment (see this post): Save 1/10 of all you earn. Use 2/10 of all you earn to repay your debt. Live on the other 7/10.
  • Babylonian advice about housing: If you can realistically turn one of your expenses into an investment – do it.
  • Babylonian advice about work: Work is your greatest friend and ally in building wealth, don’t be afraid of it. Also, doing work well is good for the soul.

There are only two places where I felt the book fell short.
  1. Its investment advice (remember this book was written in the 1930s). While the advice was sound, I think it was a bit too conservative for modern long term investors.
  2. It highlighted savings, time, hard work, and planning as great creators of wealth, but fell short of any analysis of the degree to which people working for you create wealth for you.

The book briefly discussed whether everyone could be wealthy, but I found the response to be unfulfilling. I am left pondering whether it is possible for everyone to be wealthy or if wealth as opposed to an objective standard of living is a relative distinction where only a certain number of people are ever able to be wealthy

End thought: This is an amazing book. I can recommend it to anyone without reservation; it is a well told story with rock solid financial advice.

or audio version

Friday, December 09, 2005

Christmas gift advice?

Does anybody know of a good place where I can buy financially solvent christmas gifts? I'm looking for a service to buy a few shares or fractional of stock to give as gifts. I hate stuff, and I would not wish getting a present of stuff on anyone who I love.

I know that does this, but (using kenneth cole as an example) the $27 share of stock (trading at 26.49 as of close today) plus frame and transfer fee adds up to $110. That's not a great deal, and certainly no way to help my loved ones build wealth.

So, any ideas?

Thursday, December 08, 2005

Budgeting Made Easy 1 of 4: Electronically Pay Yourself First

This is the first of a 4 part follow-up to my post on Budgeting Made Easy. In these four posts I'm going to explain the four steps in more depth, and explain the rational behind each of them.

Ok, here we go. Step 1: Electronically Pay Yourself First.

Pay yourself first is one of the most common mantras out there in the world of personal finance. It says make sure that saving is the first thing you do each time you get a paycheck. I think it works so well because our spending habits are like goldfish, they expand to fit the size of any wallet. If we have money we spend it, if we pay ourselves first we don't have the money to spend.

Back in my parent's day this meant that the first check you write each month went to their IRA (or at least it was supposed to). But now, through the miracle of modern banking, you can set up automatic savings to come out either directly from your paycheck or directly out of your checking account as soon as the check is deposited.

This is perhaps the greatest tool for building financial wealth I can imagine. At once you save time, remove the temptation to overspend, and increase your investment portfolio.

Following that, automatically pay your other bills too. It will end up paying you back over the long run when you don't miss a payment triggering late fees and hurting your credit score.

If you take this a step further and establish a separate account for food, gas, and other essentials then you know that whatever money is left is fun money (the reverse also works: set up a fun money account and only pay for entertaining, entertainment, and fun with that money).

Automatic Transfers/Payments are a great tool for automatically organizing your finances. There is no limit to the number of automatic transfers you can set up (unless your bank is stingier than mine) and most banks will do them for free (it is cheaper for them to send an electronic signal than to process a check).

I know this post isn't rocket science, but think about how long it would take to set up autopay for all of your bills and yourself. Then think about how much time it takes to pay bills: write checks, buy stamps, worry about getting it done on time... The only way someone as scatter brained as me is able to get their finances in control is by automating them. I'd rather spend those two hours a month doing something else.

Step 1 summarized: Pay yourself first. Invest that money. Auto Pay Your Bills. Have fun with the rest.

Budgeting Made Easy Series:
Budgeting Made Easy Overview
Budgeting Made Easy 1 - Electronically Pay Yourself First
Budgeting made Easy 2 - Buy Quicken

Wednesday, December 07, 2005

We're the "I want now" generation... and proud too?

Flexo over at Consumerism Commentary has just put up a post entitled "Getting Rich is Simple" where he links to this MSN article explaining how you can turn Discipline + Time into $1 Million.

The line that struck me was the same one flexo centered on:
If you count yourself a member of the “I want it now” generation, the idea of waiting 20 or 30 years to get rich probably sounds like a dumb idea.
The value of $1 Million in 30 years aside (as flexo points out its around $500,000 after inflation), what really struck me is that my generation is the "I want now" generation. This got me thinking, if my generation is fueled by the credo "I want now," is my investment plan "I want now" as well? I mean, $1.43 Million in 7 years is only about 2,500 days different from overnight, right?

Of course I want $1 Million tomorrow, but I think the insidious nature of the "I want now" generation is not our lack of patience but in our general lack of planning. If out of impatience we are taking more risks starting internet companies investing in the most volitile parts of the stock market and staying up nights working on building our net worth, then I think that a little impatience is good. According to Adam Smith, intelligent laziness is the driver of innovation; innovation is the driver of productivity; and productivity is the driver of prosperity.

But, what is really dangerous is not that we are impatient and lazy, but that many among us are not intelligently lazy or are lazy in the wrong way. Everybody would like $1 Million tomorrow, but how many people look at the world around them and ask what problems they could fix to create $1 Million in value? Instead many of us in our 20s are going out running up $200 bar bills (guilty myself on occasion) and racking up huge credit card debts. We have developed as a generation a convenient approach to financial planning: dont. We don't plan because we're going to get a great job, a killer raise, our stock options are going to be worth $1,000,000 alone, the $1,000 a year we do manage to save is going to return 35% a year like it did in the late 90's, we'll be the next brad pit, we're going to write the great american novel, our blog is going to bring in 6 figures a year (laughing). We don't have to work for it, no. It is our birthright.

Our generation has the oddest combination of unbridled optimism plus a complete lack of direction in how we're going to achieve our birthright of greatness and wealth. The problem is not our optimism, it is our lack of a plan or any active forward motion.

There are two kinds of lazy people in this world: The dumb lazy, and the intelligent lazy. The dumb lazy are too lazy to even figure out how they could be even lazier in the future. They get by doing the minimum amount of work to get by. The smart lazy look at hard work as the greatest producer of the ability to be lazy that exists. What the smart lazy have figured out is that by working hard now they can be lazy latter, and that over their lifetime they are going to have to do less work as a result.

The problem as I see it is not that people are being lazy, but that they aren't fully committed to being lazy. If they were, they would work hard.

If you are reading this blog, chances are you are already financially quite savvy or on your way to becoming so. So I present an open question to my readers: How do you encourage people who aren't already working on a plan to do so?

Christmas up 6.1%

According to PNC's CPI calculations for 2005 (That is, Christmas Price Index), this is on track to be the most expensive christmas in the past 21 years by 6.1%. The cost of purchasing the 78 items listed in the song "The Twelve Days of Christmas" rose this year to $18,348 fueled by increases in the price of Geese, Swans, Gold, and Pear Trees. Analysts have commented that scarcity wrought by the avian flu as well as high energy cost in transporting the birds are the fundamental drivers of the increase.

More information on this can be found at PNC's website:

Thanks to Neo for tipping me off to this underwatched but crutial economic indicator.

Tuesday, December 06, 2005

Start saving before paying off debt

Ready for more contrarian debt advice? The first thing you should do when you are trying to get debt free is save money in a retirement account. I know this is antithetical to common advice in this area, but hear me out.
  1. As soon as you pay off $1,000 on your high rate credit card, you can re-charge that $1,000 fairly easily. But if on the other hand you had put that $1,000 in an IRA your credit card would still be maxed, but you would have a stable increase in your net worth that you couldn't blow at the mall (at least until you are 59 1/2). The good thing about being maxed on your credit cards is you can't spend any more money with them.
  2. If you end up declaring bankruptcy in a few years, assets in 401(k) and IRA plans are generally protected from your creditors. (source)
  3. Growing your assets becomes addictive. As soon as you have some assets growing, making them grow more is a very addictive hobby. I have $4k in my Roth IRA right now which I contributed in the past few months. Over that period of time I have been carrying a $5K credit card debt. Personally speaking, having $4k in my retirement account motivates me to be frugal more than only having $1k in credit card debt would. If I only had $1k on my cc I'd likely go out and "reward" myself for doing such a good job paying it down.
  4. The most important step in growing your net worth to $1,000,000 is to start investing now. Read Eight Steps to Seven Figures: The Investment Strategies of Everyday Millionaires and How You Can Become Wealthy Too (audio) if you don't believe me.
I think it is a fairly safe bet that most people whose stated goal is "get out of debt" aren't stating their full goal. "Get out of debt" is just one step in what I imagine is the real goal - financial independence. Get out of debt pretty generally means 1) Get out of Debt 2) Stay out of debt and 3) be financially well off. So, if there is a three part goal, why only focus on one part? Especially if focusing on other parts of the goal will likely help you reach your end goal faster (if increase your rate of achieving your proximate goal of being debt free).

The best analogy I can give for this is weight loss. If you start a weight loss plan by cutting calories your chances for success are low. But, if you start trying to get into shape by learning a new and fun sport - for me it is skiing - then your chances of then eating right and ending up both fitter and skinnier is much greater. The same with debt reduction. If you only go about the boring, long, monotonous part of financial independence the temptation to splurge to reward yourself for your good behavior and ruin the whole plan is quite high. But if you find something rewarding which also helps you to repay your debt, then I know I at least would have a higher probability of success.

If you were the kind of person who could myopically attack debt day in and day out without a shred of additional motivation, then I think it is highly unlikely that you would have much debt to get out of in the first place.

The first step in winning the battle with debt is understanding yourself. If you know there is a likelihood you will run up the credit card again in a few months, then your first step to financial independence should be to save, not to repay.

UPDATE: After reading Richest Man in Babylon (audio download, auido cd) I wrote this post, and the plan I'm setting forth here is very similar to the get out of debt proposed in the book: Save 1/10 of all you earn, then use 2/10 of all you earn to repay your debts. Live off the rest.

Monday, December 05, 2005

December 2005 Update - ($13,728 +n/a)

Here we go, first public update of my personal financial situation. There are no changes to discuss since this is the baseline period.

My net worth is either $13,728 or -11,771 depending on if my stock in Company 1 is valued at face value or worthless. Preffered stock consists of money that I have contributed to the company as well as deffered salary for the work I have done. I also own a number of shares of the common stock, but still don't feel confortable giving them a value at this point.

As you can see from my credit card debt and student loans, I am about typical in terms of debt load for a recent college graduate.

Credit Card balance is largely because I have been working for a deffered salary for the past 6 months.

I have borrowed the formatting style of MM at Thanks for creating such an easy to read display.

Carnivals for week of 12/5/2005

It's monday, and you know what that means. Blog Carnivals! Or at least the ones that focus on responsible money and investing. The new blog carnivals I follow or contributed to for this week are:
Ah, the endless procrastination that can be found on blog carnivals in cyberspace.

Get Audible - Turn dead time into productive time

I love Audible. Why? Because Audible + iPod+ Transit Time = more time to learn new things. With Audible, I turn all of my dead time into either productive or leisure time. With audible, it is like I have a 26 hour day.

I first subscribed to Audible in my senior year of college. I was hunting for jobs and reading the Wallstreet Journal every day. Then I found out that you could have the Wallstreet Journal audio version delivered to your Ipod every morning at 5am. I bought an Ipod and signed up for audible. Back then, between walking to and from class, catching the odd meal alone, and going to and from activities I spent about 1.5 to 2 hours a day in transit - read bored. With audible, suddenly I was spending 1.5 to 2 hours a day educating myself about business without sacrificing one iota of time from a very busy schedule.

Now, I am addicted. I listen to the news as I walk to work. I read up on brain chemistry or investing strategies while I am at the supermarket. And I listen to executive briefings from the Stanford channel (60 minutes each) on my lunch hour. I would sooner give up my cell phone than my premium listener subscription to audible. (although coffee still beats audible)

I subscribe to their premium listener service. I get two books and one periodical each month for $20. Many of the books would cost me $20 alone to purchase on Amazon (Ben Graham's Intelligent Investor for example). Perhaps a better example is that I often get the audio version of the Harvard Business Review each month as part of the subscription (printed version costs more than $20).

So with audible I get both 1) more time in my week to read/listen to books and 2) the same books for less than it would cost me at the bookstore. We're living in a world where knowledge is king, where knowledge work is becoming the rule rather than the exception. In such a world, those who succeed are those who can take in and process the most information in the shortest period of time. I am a slow reader, so is an essential part of my strategy for success.

If you are interested in trying it out for free, click here or on the image below

Three FREE Audiobooks RISK-FREE from Audible

Disclosure: If you sign up for audible by clicking on that link, then I may get a commission.
Further Disclosure: Audible has not requested or endorsed this post. I would recommend their products just as highly if I didn't get a cent. If you don't believe me, try them and see. It is the only product i have ever used that gave me a 26 hour day.

Sunday, December 04, 2005

Don't Repay Your Student Loans

Or rather, take as long as humanly possible to repay them. The government gives huge subsidies to most student loans and you can use the difference between the rate paid to student loans and the rate of return available in the market to your advantage.

I have about $15,000 in student loans that I am paying a 3.43% interest rate on (thats a little more than inflation). I have elected to use the graduated repayment plan so I can accelerate contributions to my ROTH IRA. This means that my monthly payments are $75 instead of $105 (rounded). I then have an auto transfer for the other $70 directly into my IRA for a total of $840 a year. Using this method, I only have to come up with $3,260 to max out my yearly contributions.

If I am able to get greater than a 3.43% return on that money, I will be money ahead at the end of repaying my loans. Although this plan will take me 5 more years to repay my loans, I will still pay the same monthly amount and quite likely end up with a few thousand dollars at the end.

This holds true even if i put the extra money into a taxed account and use the accumulated money to pay the last 5 years of my debts. For instance, at 30% taxes with 50% portfolio turnover each year and a return rate of 5% and withdrawing the money to repay the student loans in years 10-15, you would have $639.75 in additional money at the end of the 15 years while having the exact same monthly decrease in available cash (Paycheck - Student Loan - Money put into brokerage account). If you earned the historical average 10% by investing in stocks and moved the money into more conservative investments yielding 5% in years 10 to 15 you would have $2,900 at the end of the time.

Still assuming a taxed account, if you forgot about that money and didn't use it to pay the monthly amounts in years 11-15 but still didn't put any more into the account in years 11 to 15 and got 10% yearly returns, then you would end up with $15,272 at the end of 15 years. In an untaxed account that amount would be $17,861.

However you cut it - $639.75 for almost no risk; $2,900 for market matching returns; or $17,861 if you keep paying loans out of your paycheck - if you are self disciplined enough to set up an automatic payment then you are better off taking as long as possible to repay your student loans. It all goes back to opportunity cost, and the government has quite nicely given us all a subsidized opportunity in this case.

You can run these calculations for yourself by downloading the excel file I have created here. Be honest with yourself, however. If you aren't self disciplined enough to transfer the money every month, then you aren't necessarily going to be money ahead using this strategy.

Friday, December 02, 2005

Theory of Media Worth & Blog Quality

This is my humble theory of media value:

Amount Learned + Amount of Entertained
--------------------------------------------------------- = Worth Index
Time Spent

Put another way this is just Utility/Time = Worth. But in media, I think there are two distinct factors of utility - learning and entertainment. I make no claim to be the first person to notice or pontificate about this relationship. I am sure that someone has already demonstrated and done more to prove the theorem than I could.

I think that this equation applies to all kinds of media from television to movies to blogs to classes in school.

For instance: The piece of media I have consumed recently with the highest worth index is an audio briefing from The Stanford Channel on The Power of Persuasion. The briefing took 60 minutes and covered in scientific and entertaining detail those factors social, and psychological which will get people to say yes to a request. It was grounded in scientific research, it was applicable to my life, and it was very entertaining and witty.

Perhaps someone out there has better programming skills than I do and could help create a vote counter for blogs. It would be a small applet you put in the bottom of a blog post that asks four questions:

  1. How long was this blog entry: 1) Too long, 2) Just Right 3) Too Short
  2. How entertaining was this entry: 1) Incredibly 2) Very 3) Somewhat 2) Not Very 1) Not At All
  3. How informative/educational was this entry: 1) Incredibly 2) Very 3) Somewhat 2) Not Very 1) Not At All
  4. Were there factual errors in this post: 1) Yes 2) No (if yes, ask them to explain)

Then the votes would be tallied and shown on the blog post, as well as tracked on a central website where you could go to to find which blogs in the blogosphere are the most entertaining or useful.

Somebody? Anybody? email me at