Buying a Home in Time for the Tax Credit

November 15, 2009

So, normally this time of year, home buying slows considerably in any year, since most people in the United States are focused on holiday spending and holiday activities. However, that might not be the case this year, as the first-time home buyer tax credit has been expanded and extended by Congress.

In order to qualify, you have to have a contract in place by April 30, and the credit is up to $8,000 for true first time buyers and $6500 for repeat buyers.

From the WSJ:

To be considered a first-time home buyer, an individual must not have owned a home in the past three years. And to be eligible, existing homeowners need to have lived in the same principal residence for five consecutive years during the eight-year period that ends when the new home is purchased.


AC DC Tickets in San Jose

June 5, 2009

AC DC Tickets in San Jose

So AC/DC is coming to San Jose. Click here to see all of the cheapest AC DC tickets in San Jose at one time.

The band is currently pounding through Europe but soon will be in the U.S.. These guys are definitely one of the bands that still sounds strong and hasn’t lost their Hell raiser sensibilities.

Penske Knows What GM Doesn’t

June 5, 2009

Roger Penske, former race car driver and current mega businessman, has scored a killer deal and he knows it. Only four days after General Motors announced that the company was moving into bankruptcy, Penske Automotive swooped in an bought up the Saturn brand. There’s a lot to this deal, which I wanted to discuss, but there’s a lot more to learn from this deal.

First, let’s talk about the speed at which this occurred. It’s possible (and highly likely) that GM and Penske had been in talks before this week’s announcement. That means that there’s a good chance that when the Obama administration descended on GM, they came in understanding that GM is not well-run, is bloated and needed to get smaller, all things which GM should have already figured out, but didn’t.

Penske scooped up Saturn within days because the brand is worth a fortune and he knows how to use it. This means that GM labored on the Saturn brand for 19 years and never turned a profit on something that will probably be profitable for Penske right away. Does that put how badly run GM has been into perspective? It should.

Second, Penske isn’t completely going into the car building business. He’s going to outsource care manufacturing back to GM, and several other manufacturers. This takes business leverage to a fantastic level. See, here’s where Penske understands how great this opportunity is. He can buy a car company without actually paying to build factories, create a brand name, go into engineering or anything. Sure, his company will get into some of that, but what they are really doing initially is just deciding what should be built and how to sell it. Genius.

This should show why nobody should be crying for GM. It’s terrible that unemployment is so bad now in Michigan and most of the people who worked for GM are absolutely not at fault. But it also shows how the Obama administration knows more about how to run a business than GM, and that’s not good for a car manufacturer.

John Stewart vs. Jim Cramer

March 13, 2009

This is too good not to share. First, let me say that I like Cramer…most of the time. But I also know that Cramer is a guy whose business experience is entirely in the trading world, and on his show he not only yells advice to individual investors on stock purchases, he also often says completely inaccurate things about business and political policy.

Cramer is a guy who I lump in as ‘group think smart’. He knows all the conventional ‘echo chamber’ wisdom of Wall Street, which means nothing in the real world of business.

Anyway, here’s the story and video of Cramer as he appears on the Jon Stewart show:

After a video introduction that mocked the anticipation of the interview, Stewart began hammering Cramer on his poorly timed financial advice. It only got worse for poor Jim, who looked like a deer in headlights.

More on the disconnect between Wall Street and ‘Real Business’

March 10, 2009

So there’s a disconnect, or rather, a difference of opinion about what makes capitalism work. One one hand you have businesses that run their entire business on credit and/or investor cash. On the other hand, you have businesses that run off of sales of goods and profit margins.

Allow me to elaborate.

Despite what Dave Ramsey says, not all credit is evil. Let’s say you start a business baking delicious brownies in your oven at home. You sell these brownies at a stand each weekend at a local flea market. It’s a pretty consistent side business, where you buy $100 worth of groceries, make several dozen brownies and sell most of them each weekend, and for sake of argument, let’s say your weekly profit is about $100.

But then one day, someone tries your brownies at your stand, loves them and offers to put them in their 20 grocery stores right away. Great, huh? Your little $400 a month business just turned into an actual company. Instead of selling a few dozen brownies a week, you can sell dozens every day.


Except that the initial ingredients and packaging for the brownies for this huge order is far more than $100. Let’s say the initial order is two dozen per store, and each store anticipates ordering three times a week AND the store wants 30 days to pay for the brownies. You need somewhere in the neighborhood of $1,500 or more per week just to make this deal work. So your expenses just went from $400 a month to $6,000, and you’ll probably need to lay out somewhere around $30,000 before you see a dime of profit.

Where is the cash going to come from to make this deal work?

This is the basic concept behind how businesses can use credit to grow. They borrow the money for goods (or use credit terms like Net 30, which means the payment for the products isn’t due for 30 days), sell the goods before the bill is due and then pay the bill out of the profits. This is how places like Wal-Mart and Home Depot operate. It allows businesses to sell as much as they can without outlaying all of the cash at once. This is a simplified explanation, but that’s basically it.

Now, let’s talk about another type of business run on credit. This can take many forms, but the most glaring is the ‘dot-com’ mentality of financing a company and trying to buy into a market. Let’s say that instead of baking brownies and selling them on the weekends, you come up with a great idea to allow people to order brownies from bakeries all over the world from a new website. In order to do this, you need accountants, programmers, and marketing people. In order to pay for all of those people, you need investors and hopefully credit from banks. So investors want to see corporate officers, financing, etc. (more money you’ll need). And in order for all of this to pay off, you have to make big media buys to grab ‘brand recognition’. I’m going to skip over a lot of nonsense that happens in these ‘businesses’, but basically, it boils down to millions of dollars being spent without any, or much revenue. What’s worse is that usually the people who run these businesses have never actually, well, made a profit. Their mentality is that they will burn through cash until the company becomes so big and has so much market share it will become profitable. Or, the idea is that if the company seems viable enough, some other bigger company will buy it and everyone will cash out.

So when the credit markets recently dried up, it hammered these propped up businesses that had no idea how to, well, actually be in business. It’s easy to spend money, but hard to make a profit with good, remarkable products and services. Wal-Mart’s sales might have dropped but nobody is pulling Wal-Mart’s Net 30 agreements. Wal-Mart will still be able to put products on the shelves.

One of the issues I have with the second business model is that it creates an environment of so-called business ‘experts’ who litter the airwaves of CNBC and Fox Business who have never actually made a profit in anything. They drive expensive cars paid for with venture capital, fly to business conferences and symposiums for ‘group think’ and talk about government fiscal policy like they are economists.

It’s not that a real business can’t be started purely on credit, but almost all of these businesses crash and burn, and a lot of these ‘business people’ who were driving their credit-based companies into complete financial ruin get high paying jobs in real companies – like banks – and proceed to make the same choices they did before. Of course they wouldn’t learn from their mistakes – from their perspective, they haven’t made any mistakes. It doesn’t matter that their brownie-ordering web based site never made a dime of profit, all that matters is that they made $350,000 for three years before selling the company to a big food conglomerate and cashed out for $3,000,000.

So, here’s where we are, today. Who are you going to listen to?

The Economy, Fear, and what you need to do

March 8, 2009

I know a lot of people are scared – or worse – with the economy in such bad shape. It’s the topic of conversation everywhere you go, on every show, in every news story.

With so much depressing and scary information being thrown at us all day, every day, it’s important to step back and really try to remain balanced and understand what information we should be paying attention to and which information we should ignore.

First, turn off CNBC. These guys are NOT the people who will be able to tell you anything sensible about the economy. Most of the people on CNBC are NOT reporters, have NEVER owned any kind of real business, and over the past ten years have been wrong on almost every count about the economy. The reality is, the Dow Jones Industrial average is not the best indicator of the economy, and hedge fund managers aren’t the best people to tell you how the economy is going to do. Over the past year alone, CNBC has told viewers at least four times that the economy was about to rebound, only to see the market go far lower. CNBC told viewers that Lehman Brothers was sound, that CitiBank was sound, they said AIG was solid and Merrill Lynch was top notch. If that’s not enough to convince any viewer that CNBC has no ability to advise people on their money, I’m not sure what more you need. In fact, over the past ten years, if you did exactly the OPPOSITE of everything CNBC advised you’d be fabulously wealthy.

Second, let’s talk about the Dow Jones average. I’ve said before that the DJIA isn’t much of an indicator. It only tracks 30 companies (with multipliers) out of thousands and while many people like to parrot the idea that the DJIA is forward looking, it’s become more and more obvious that it isn’t forward looking at all. It’s reactive, panicked, and wildly unstable. For years I made money in the stock market by following the idea that I would only buy companies with steady dividend growth, actual revenue and viable products. I don’t care what anyone says about any company that doesn’t pay a dividend or shows negative long term growth. I stay away from financial stocks and complex insurance stocks. And I keep my exposure in stocks to a minimum, but the stocks I’ve purchased over the years, I’ve held onto with the idea that in five years, or ten years, I will continue to see consistent growth. The Dow is wildly overly volatile on a daily basis, mostly because of multipliers. There are stocks in the DJIA that have such high multipliers that if the stock price rises a dollar, the DJIA goes up 30 POINTS. So let me sum up: if two stocks, just two, out of thousands and thousands of stocks, rise a dollar each, the DJIA could rise 60 points and people would act like it mattered. Forget the DJIA for the most part. It’s just one, mostly irrelevant, indicator of the overall economic picture. And that little DJIA ticker you see in the corner of news and financial channels? Useless.

Next, the reality: businesses have seen revenues plummet, and some businesses are looking at negative growth for 2009. I can say that my businesses are still on track for growth this year, but I personally know several business owners who can’t say the same. The worst hit are those related to real estate and construction. But amid this, I want to segregate the difference between negative growth and real losses, because it’s almost always reported as one and the same. It isn’t.

I think most of us understand the difference between profit and loss. I think we all understand the difference between revenue and profit. This is why I generally ignore the GDP as an indicator of economic soundness, but that’s a deep discussion for another day. So when you run a business, your first priority is to NOT run at a loss. It you aren’t running at a loss, then you try to grow your profits. I can have a profit drop in my business but that’s not the same thing as showing a loss. I can see more revenue but that’s not the same thing as showing a profit. Pretty clear to me, but CNBC doesn’t seem to understand any of this.

So, when a company like Microsoft makes an announcement of layoffs as they did recently, it often comes paired up with a statement about where they see their bottom line. Believe me when I tell you that companies come up with a lot of ways to explain their bottom line, but in this case, Microsoft was citing that their profit for the quarter had missed estimates and that’s why they were laying people off.

Now, let’s stop there for a second. Microsoft made 2% growth for the quarter. Hmm. So let me get this straight. You have 2% more sales and you announce massive layoffs? I would think that in an economy where your business is still growing while others are shrinking would be the best time to hire, because you can get good people that other companies are losing. I would think that other companies distress is your opportunity, and I would think that the billions of dollars in profit that your company is still bringing in – profit, not loss – would be enough to do that. Even if Microsoft thinks that revenue will shrink and wants to be proactive, I think that the war chest they have should be enough to let them hunker down and bring in the talented people that will help them pound the competitors as the economy rebounds. I’m not wanting to single out Microsoft for this, it’s just a really obvious example of a company reporting lower profits and layoffs in one breath and trying to make it sound like they are losing money like crazy.

I’ve got a lot more to say on this, but I think I’ve gone on long enough for now.

I make more than your broker

January 8, 2009

I once heard a great piece of advice which said that if you want to learn how to make more money, find someone making more money and do what they do. I might take it a step further and say ‘listen to what they tell you’.

I recall a recent story about a barber in town who owns not only his store but his entire city block. He built a multimillion dollar net worth by cutting hair and scaling out his profits into a real estate mini-empire. When his son became old enough and wanted to learn how to make money, his father, the barber, told him he would take him under his wing, show him how to run his real estate holdings and teach him how he grew a small start into a fortune.

But his son decided to go to college and study engineering because he ‘thought there might be money in it’.

The point of this is that since I’ve gotten a lucrative career and started and grown my business, I’ve learned something about people. Most of them have no idea what they are talking about when it comes to money or how to make money.

According to, the average stock broker with 5-9 years of experience makes a little under $52,000 a year. The average stock broker with 10-19 years of experience makes quite a bit more, almost $118,000 per year.

So I ask you, how much does your broker make? Do either of them trade stocks for a living? Even a successful stock broker who makes over $100k, if asked, would say their REAL advice to make money is ‘become a stock broker for other people and do it for at least 10 years’. Kind of different from what they tell you, isn’t it (‘invest in foreign markets!’)?

If not, why do you think they know how to make money in the stock market? Or how to invest to make money? They don’t, or they’d be doing that for themselves.

So, if you owned a small business, and it was making, say $1,000,000 in revenue per year, you’d be a great person to tell other people how to do just that. How do your grow from there? Building a business to even that size is really something, something ALMOST NO ONE HAS EVER DONE. How do you learn to grow from there?

The book store is full of books about investing written by people who have nothing in any market, anywhere. There are tons of business books by people who only worked as executives in existing companies. Honestly, these guys are NOT the guys you should be listening to. Those guys on CNBC? Almost none of them have a cent in the market. Remember that when they tell you what’s ‘good’ or ‘bad’ for the economy.