Beginning Investing

7 hard earned lessons to use

There are all sorts of people who want to give you investment advice, aka sell you something. Why? So they can earn a commission or profit from you investing with them.

Experienced in life and a former business owner/appraiser. Have nothing to sell you and not giving hot stock tips. Frankly happy to be a full time employee now, but would like to start a second business.

Do Not consider myself a great investor, definitely am Not a day trader and my predictions are average. Have learned from hard knocks.

These are good advice and rules I have learned over the years:

1) Spend Much Less than You Make

Wealthy people often lived for free or on 10% of earnings to save enough to start a business. They did this for years to get started. The wealthiest people I know often drive old cars and wear clothes too long. They only owe on their business assets, and their home may even be paid off.

2) Have a Rainy Day Fund

You don’t know when you or family will be ill, have a major repair to your home or car, be laid off, fired or the business shuts down. Have paid 6 months of bills from savings to get through. Have enough for 1 year’s worth of bills outside my retirement accounts.

3) Start Investing Small

Put money in the company 401K, especially if offered matching funds. I started at 8% on my current job and increased the percentage with every raise. If had more income would save more.

Second don’t buy one investment with all your money. Only invest some on each idea. Often start with a third and see if it is working.

4) Learn Value before You Buy

My best investment has been my house. Being a real estate professional identified good neighborhoods first, then found houses to look at. Originally wanted a 2 - 4 family house to live in, but prices were much higher than the cash flow justified.  Was cheaper to buy a single family house.

Bought at the bottom of the real estate market when few would consider buying, and bought a working short sale 10% under market value. Yes it took 6 months to close. But bought for 2/3 of original owner’s price.

My house is worth 60% more 4 years later.

5) Diversify Investments

Have good savings in cash at bank. Much more in 401K, and equity in my home. Have paid off 30% of the mortgage in 4 years. Goal is to pay off mortgage before retirement.

Am not adverse to holding cash. Especially when stocks, bonds and real estate seem over priced. Can be patient until a new opportunity shows up.

Cash is a safe refuge when the market is going down for an extended period. There will always be recessions in normal economies.

Am willing to sell and sit out the drop until the market starts rising again. Just don’t stay out forever. Look for the opportunity to get back in.

6) Do Not Pile in Late to a Trend

There have been good ideas I have missed. However did not compound the problem by buying at a high prices hoping some fool comes along to pay more. Would wait for a pullback and buy at a better price. Or would just wait for the next opportunity.

The secret to successful investing is buying at the right price. Not necessarily when everyone else thinks it is a good idea.

Beware the phases “This time it is different” (it is not) and “_____ always goes up” (no, they drop too). One investment made by my advisor is a non-dividend stock that is actually losing money. The commodity is way under trend and the company is doing a good job improving productivity. The market is too busy overpaying for dividend stocks to see the value. My advisor wants to be positioned for the future recovery and is looking for the opposite of the late trend.

7) Educate Yourself

Best investment is good books and classes. Pay to take classes out of my pocket to further my career and knowledge. Does not have to be for a degree either.

Find people or groups who invest in what you are interested in. You can learn a lot from like minded people.

These tips are not all you need to know. In fact am still learning, and hope you can teach me something too. However they will make the rough seas of investing smoother if you are humble enough to apply them.

Simplify to be Productive

Work often expands to the time available. This is urgent! Can you fit this is? The tyranny of the To Do list. This is not where you want to spend your time.

Don’t make yourself busy. Look for what would make a difference. Improvements, new products, new services and innovations. Schedule time for the big projects.

The secret is to minimize unimportant work, and focus on work that benefits the customer in the long term.

Spotting Dying Businesses

Do you want to know if your company is dying? Yes for two reasons:

One, you can intervene in the issue and improve your teams results. This puts you in a leader’s role with the resulting salary.

Two, you can be the first to find a new company to work with.  There are advantages knowing what you have to do and having enough time to start the process before you lose your salary, or experience the heartbreak of closing a company.

What are symptoms of a dying company?

1. Not Knowing Who the Customer Is

Big companies love processes. They are good because processes build quality controls and guarantee stable returns on effort. However your customer is not your co-worker who gets handed the work after you are done. He is a partner in satisfying the real customer who chooses and pays for your product & services.

Successful companies fall in love with their customers and dive deeply into their customer’s businesses. That way the company is focus outward, not inward.

2. Not Staying Up with the Times

Stable companies often have the belief their customers won’t change. They have always bought from us and will not leave. That is not true.

Customers retire, go out of business, or die. Businesses are run by people, and people always change.

Second technology changes. Eastman Kodak did not want to kill the film business, which brought in fortunes. The marketing failure was not realizing they could make more profits licensing their technology. Do you realize they could have had a Kodak Camera in every cell phone?

3. Not Creating New Products & Services

Unless 10% to 25% of your sales are new products and services less than 5 years old, your future is looking bleak. Mature products have to fund new investments to stay successful. What percentage of your sales are new products?

4. Illegal Business Practices
Bernie Madoff Ponzi schemes.  Double sets of accounting books. Inside trading. Bribes. Stealing secrets. Drug habits.

Any one of these practices can result in jail time, customers abandoning you, and being unemployable. Time to find new work now, even with a pay cut.

Check on a regular cycle how you and your company are doing. The only constant in life is change. Make sure you are doing everything you can to adapt and thrive.

Risk is Your Business

"Risk is Our Business." - James T. Kirk

https://www.youtube.com/watch?v=toG6aSQFF7Y

Risk is your business too. To create wealth you have to take advantage of opportunities. That involves risk, making decisions, executing plans and seeing the results.

Customer complaints, reviews and returns are obvious expectations in retail world. Have plans how to nicely handle these requests. Even Costco did have to limit returns to one year to control costs.

Quality Issues. Nothing is ever made perfectly. Have processes and procedures to repair or dispose of defective parts or units. Often cheaper to scrap and make new units than to repair.

Planning. New products, services and improvements just don’t happen. Ideas are created. Opinions sought. Market research is done. Product costs are estimated. Advertising is created. People get trained in usage and to answer customer questions.

Risk Mitigation. If you are developing new technology or software, it is common to test concepts, test prototypes, test subsystems, test systems, and test the first production units. You want to minimize surprises and maximize sales.

Savings. To invest most businesses must have saved money from operations, and borrowed more from investor’s savings. Savings are used to create growth.

Insurance. Everyone needs insurance to spread risk. Insurance companies often help with prevention, and then help when losses occur. Have you updated and expanded your coverage as your wealth grows. You will need more insurance.

Risk acceptance. Not everything can be anticipated. Surprises happen, shipments get lost, equipment breaks, people sue without reason and Murphy’s Law applies. Businesses have to accept a certain percentage of losses.

Life Risks. We fall in love, have children and grow older and wiser. Friend and family age and have illnesses. There is no life without risks.  Go out and live your life today. Live long and prosper.

Conceptualization The Most Important Skill

 Business (and life) is hard. Conditions are always changing. New customers have new needs and desires. Competition is always getting better and offering lower prices. Keeping your job requires flexibility, intelligence, persistence, quality work and caring. Knowing what needs to be done next is key to your success.

Abstract thinking is called Conceptualization. Defining conceptualization is subject to disagreement by experts and there is no degree in it. Probably because the uses vary depending on need.  Meridian Webster defines conceptualization “to form (an idea, picture, etc.) of something in your mind.” Math is a form of conceptualization.

Seeing what needs to be done next (planning) and problem solving are where you will see conceptualization applied. My usage has been developed through process planning, project management, and new product development. Visualizing 3D plus motion helped my engineering career.

Conceptualization is understanding how pieces fit together in a whole big picture. Then by manipulating the pieces you can optimize or improve the whole. Steve Jobs is famous for his visualization of how the future of technology should work and integrating existing technologies for the benefit of users.

Because the brain both thinks visually and in language, this is hard to teach. Different techniques have been developed to help us organize work for efficiency. Storyboards, Mind mapping, 5S, Lean, WIP boards, spreadsheets and project management all relate to conceptualization. Depending on your profession there are others you can use.

The best way to develop your skills is to apply them to your work. Albert Einstein called Imagination more important than knowledge. Users of conceptualization are found everywhere and often do not have the right degree. Presenting this skill through resumes is often unappreciated.

Yahoo Finance: “This one uberskill will always keep you employed”

http://finance.yahoo.com/news/this-one-uberskill-will-always-keep-you-employed-172655122.html

“the ability to see how the elements of an abstract whole fit together and to identify problems that need to be addressed before others do.”

Do You Know Your Thinking?

The challenge we all have is we attempt to understand the world by looking for similar knowledge or events that we can build on. Words build on words you know. This works well for hunter-gathers who need to find food and avoid predators. However we have several weaknesses and biases in our thinking.

We interpret information in a way that confirms our pre-conceived notions. This is known as confirmation bias (us thinking how smart we are). If it doesn't fit or we don't understand we will ignore it. Needless to say we aren’t always that smart. Look at the low success rate of predictions.

“Thinking Fast and Slow” talks about how much energy it takes to think deeply. Our mind saves effort by learning rules of thumb and routines to make decisions automatically. Have you ever gotten to work and not remembered how you got there? Unless you had a close call or an emotional event most of the trip is ignored.

Emotions control our decisions. Ray Gery teaches ,“What we think about determines how we feel. How we feel determines what we say or don’t say and what we do or don’t do.” Often we make the decision and then think of way to justify our decision.

As humans we do not easily understand the very complex subjects like the Europe’s economy and how to fix it. We simplify, ignore what we don’t know, and come up with a few fixes that we hope will help. Heard we are probably wrong more than half the time, yet we really like to be right.

What is the first step to better thinking? Humility. Realize you need input from other people.

Second realize it is a thinking moment, and take your time to really understand as much as you can. Detail as much data as possible. Data driving decisions are more likely successful.

Keep learning every day. That way you are prepared when you really need to learn something important.

We can do better, we owe it to ourselves and the world.

The Liar’s Club: Concealing Rework in Concurrent Development

MIT posted this interesting article about the issue of hidden rework in the development cycle. Your project can crash with surprise delays that destroy delivering on time, much less on budget.

http://web.mit.edu/jsterman/www/Liar's_club.html

Firms seeking competitive advantage to increase market share, profit, and growth have turned to concurrent development to speed the introduction of new products and beat their competitors to market. However like any other improvement process there are weakness and difficulties. Human nature does not want to be the bearer of bad news, and the managerial attention does not always help resolve the issue.

The F-35 is an example of concurrent development. While it looks like the development is now progressing well, the program looks like a money pit. The idea was instead of doing all the development on test planes, they could start production while still testing and writing the software necessary. Several years into the program design changes are still being made which require existing models to be changed, and the software is years behind schedule. The software on this program is critical to be able to use all the technology and weapons available.

The cost of the F-35 was getting close to breaking the Air Force budget before recently turning the program around. Some critic wondered if the day would ever come. (Don’t ask my thoughts on building one airplane to fill the needs of 3+ airplanes though) 

Did work with a smaller company that successfully implemented concurrent engineering in their development cycle. Why did it work? Reality was included with the plan, and being flexible enough to realize meeting schedule with an inferior product was worse than redesigning the product again.

On our first project we were working on the development schedule. The initial proposal was the standard design, prototype, testing, order machines & tooling, then start production. I asked, “Has any design worked the first time after testing?” The answer was no one could remember that happening. We need to plan for at least one redesign after testing and have a contingency plan for a second redesign. Including normal contingencies with average lead times in standard planning processes made the concurrent engineering process work. We used it both for new product development and product line extensions.

Back to fudging and hiding rework during development. This is a dangerous practice that can come back to hurt the team and the company. The natural tendency this setback is a small problem, and management does not need to know. What you don’t realize is your sponsor and other leaders may have more resources available that can speed up the redesigning and keep your project on schedule. Second the later a problem comes to the surface, the bigger the consequences for everyone involved.

Worked for a company that taught about Malpractice and the dangers to your career and the business. They made a video and repeated it yearly. Such danger for fudging, and little reward for doing it. We had one customer, the US Navy, and could have lost the business without their trust.

Leadership is doing the real work of getting things out of the way of your teams so your people succeed. Leaders have to make sure teams know they have your support to be comfortable to innovate. Besides only about 40% of software development project complete all features, on time, and within budget. Projects failing should not be a crisis but a normal situation to be handled calmly.

The quote jumped out at me ‘‘... don’t tell someone you have a problem unless you have the solution. You’re supposed to solve it—and then tell them.’’ This thought limits the chance to get more suggestions, ideas and develop more alternatives.

Found it helped if I showed up with the bad news, with some suggestions of my own or my teams, and was prepared for getting feedback & suggestions. More productive engagement came from being prepared and open. Make sure you are ready to deliver bad news and have leaders engaged when necessary.