It's a Saturday night and since I have no plans, I thought I might as well try to be productive. So I created a capital preservation investment portfolio for myself.
I recently came into a bit of money. Since I'm trying to be a serial entrepreneur, I will most likely find myself joblessly working on a project for months in the next 3 to 5 years. So, this money will have to sustain me in such times. The number one goal of this investment portfolio is that the capital must be preserved. I'm tolerant of risk in most situations, but this money must be kept away from risk. The second goal is to beat inflation, which is currently running at 4%. Lastly, the investment must have high liquidity, so I can depend on it when I need it.
This basically narrows the investment strategy to be moderately conservative and allocated among a few different mutual funds. So this is what I ended up with:
20% in large cap funds divided between index funds and actively managed funds, with slight skew towards the actively managed ones given the volatile nature of the markets in the short term.
2% in small cap, basically picking the one with best returns.
8% in international stock. In this case, I favored an emerging market fund that is relatively safe with huge historical returns.
60% in fixed income mutual funds, all of them tax-free municipal bonds. They are spread out between short, intermediate, and long term, all with very low risk.
2% in specialty funds. In this case, I picked commodities since demand driven inflation is unlikely to go away in the future, this seems a pretty safe bet with lots of potential.
8% in cash instruments such as CDs.
I used a variety of sources for my research. Google finance and Yahoo! Finance were very helpful. Also, I used the investment research tools provided by both Scottrade and Charles Schwab, which gave a bit more information. The real danger is aways information overload when picking mutual funds, but after a while, it's all just a crap shoot anyways. I favored no-load no-fee funds with above average 3 to 5 year historical returns, with relatively low expenses and favorable tax treatments. I ended up with 9 funds, which I will buy first thing Monday morning.
Now that was the first part of my evening. I'm still deciding what to do for the second...
I just felt like I had to rant about this. Recently, Google announced that they're going to give a free phone number to every homeless person in San Francisco, through their GrandCentral service. Now, I happen to have a GrandCentral number, you can try it: 415-683-1096, and I haven't really used it very much. I was going to print it on my business card, but I don't have any... yet.
But let's go back to the homeless question for just a second. Of all the things to give to homeless people, a phone number? I'm not a homeless expert, but I would have thought that the homeless would prioritize some other things above a phone number, such as money, canned soup, raincoat, or maybe a home? And the best part is that the numbers are free to start with. So it's not even a tax write-off.
Okay, let's brainstorm about all the things a homeless person can do with this GrandCentral number. When (and IF) someone calls, they can have it ring their cellphone, office phone, and home phone all at the same time. Assume said homeless person has a cellphone, an office phone, and a home phone (but not a home, by definition). They can give the same number to all the girls they meet but have the call directed to different phones depending on who is calling. Assume, of course, said homeless person can meet girls and give girls numbers without being pepper-sprayed, and actually have those girls call them (something even I can't completely master, shockingly). Or maybe they can use it to switch phones in the middle of a conversation, say when their cellphone runs out of battery and they have to switch to the phone in the police station all without breaking the "1 phone call" rule.
Yeah, I know I'm going to hell. But I'll probably meet the lot of them there too.
Let's face it. This give a free free phone number to the homeless is just a big publicity stunt. They even got my Mayor to praise it to the press. Is google really that desperate to get into the phone business?
I got hit pretty hard by a virus this week, and pretty much spent all weekend at home sipping hot drinks and self-medicating. But it afforded me some time to catch up on my readings, which I have totally neglected due to my hectic schedule. I finally got a chance to finish Dot.con : How America Lost Its Mind and Money in the Internet Era by John Cassidy.
I highly recommend this book to anyone who's interested in a comprehensive, narrative-rich, abet rear-view-mirrored, look on the Internet bubble. I just missed the internet bubble as I spent most of the 1990s in a small town in Canada, and got to college just as the bubble collapsed. But since I live within throwing distance to Silicon Valley, and depend on the Internet for my livelihood (more or less), the bubble is a topic that comes back over and over.
What's most interesting to me is how long the bubble lasted. From the IPO of Netscape to the collapse of the NASDAQ on Black Friday, the bubble lasted 5 years. Even the deflation of the bubble took a long time, it wasn't until September 11th that shocked everyone out of the dream that was eternal prosperity. Cassidy attributed the bubble to a number of things, some economical, some geopolitical, but ultimately on human weakness. Americans, from bankers, to reporters, to housewives all believed (or did their best to pretend to believe) that a fundamental change has occurred that basically allowed growth to sustain indefinitely. This created a snowball effect that drowned out everything, including reason and moderation.
My observation from this is that America is a place where your intelligence is somehow positively correlated with how much money you've made. The voices of moderation during the late 1990s were ignored, because they didn't make as much money. Those who reused to invest in Internet stock, were dinosaurs and just didn't "get it". Those who predicted yet higher stock prices were proven right, time and time again. But after the collapse, those who did make it out with money looked so smart, and those who didn't (and since there were so many of them), if not stupid, then just plain unlucky. I don't think anything has changed since then. If Web 2.0 is a bubble, then the same thing will happen. Those who emerge with profits will be smart regardless. Greedy, maybe, but then America never punishes people for being greedy. Not that I necessarily agree with this view, but it's an observation of the way things are.
Anyways, the long aside, aside, I highly recommend this book, if you haven't read it already. This is actually the first book I finished this year (and it's almost March), so I'm off to my next reading assignment.
Tonight I just read that Hot or Not sold for $20 Million. This is after the founders, James Hong and Jim Young, cashed out $20 million plus in the 7+ years that Hot or Not has been operating. Since they took no investment, it was pure profit. Quite a nice win, I would say.
Who would've thought, a totally stupid application that appeals to nothing but human vanity, would be so viral, so lucrative, and last so long. This website, not only is it totally unproductive to human progress, probably crushed the dreams and self-esteem of millions of people around the world. I remembered two years ago, I went to a recruiting event at Berkeley, and stopped by the Hot or Not table. I got my picture taken by them (I was naive and young then), but I swore I would never lend my talent to such a retarded endeavor. I have come a long way since.
NOT.
All the tongue in cheek aside, I feel like that my journey in entrepreneurship has been remarkably similar to that of James and Jim. I went to my bookshelf and dusted off my copy of Founders at Work by Jessica Livingston (of Y Combinator fame) and read the chapter where the author interviews James Hong. Here's an excerpt, in response to the question of what he would tell someone in his shoes before he started Hot or Not, James said:
There's kind of a backwards logic that says: when you are young you should learn from people who are experienced, so later on, if you want to do a startup, you can take the risk. And that's a myth that was created from school... Experience will come when you face certain problems and live through them. And the best way to do that is to put yourself squarely in the path of those problems.
This certainly sounds familiar. And later, what he said about the thing that drives entrepreneurs, resonated so perfectly with me, I could've swore I might have said the exact same thing had I been asked. He said:
[I] think a lot of what drives entrepreneurs in the kind of legacy they are going to leave. They want to make a mark in the world and feel like their life mattered. Entrepreneurs are the kind of people who love ideas and want to build things, and add value to the world.
I'm still not sure what kind of legacy he's going to leave with Hot or Not, but I'm confident he's working on it (now that he has plenty of time and money on his hands).
Everyone in Silicon Valley and surrounding hills have seen Richter Scales's first bubble video until it was taken down by a DCMA notice. I'm pleased that a slightly modified version has been reposted. I just can't get enough of this video. It's just too fun.
I missed the first bubble and I can tell you, living in the second bubble is pretty awesome. Everyone is swarming into facebook apps, social networks, mobile devices (again), online videos and everything is funded by advertising (again). We've advanced so much, yet so little. There is something to be said about the excitement and gold-rush mentality. And you know what, it seems to me people this time around have a sense of humor about it.
And yes... it is fun. Whether you participate in the bubble, or not, we should all stop wearing shirts that makes us look like a line of ants.
When I was 9 years old, I dreamed of being a fighter pilot (I still do). As I got older, I dreamed of other things. But ever since my junior year of college, all I dreamed of is to be an entrepreneur. I wondered what it would be like to start something that would change the world and being my own boss. That dream has finally transitioned into reality.
Being an entrepreneur is a bit strange. It's not a job. People don't go around with business cards that say Entrepreneur on it, and even if they do, it really doesn't mean anything. And it's also not a very good career. Most successful entrepreneurs move on to different things and those who stay don't become more successful with time (more on that later). It's hard to explain to average people what we do, even those who can spell the word correctly. Do you not have a job? We hear that a lot.
To me, entrepreneurship is a lifestyle. It's all encompassing. We're doing our startup the right way. My co-founders and I live together, work together, exercise together and play together. This is a total immersion and requires complete commitment from us. Life can be hard sometimes. We work a lot and there's lots of tough decisions to make. We're always strapped for cash and there's never enough time. But paradoxically, it's fun, much more so than any job out there.
Recently, I've come to realize that as entrepreneurs, we're not judged by our failures. Of course, other people may judge us by our failures, but their opinions don't count for much. The important thing is that we don't judge ourselves and other entrepreneurs by those failures. We may criticize the idea, the technology, or the execution, but failures, that's just part of the learning experience.
A few days ago, I read a very good article on tech crunch. It basically questions the successes of so-called serial entrepreneurs. It turns out, serial entrepreneurs are only marginally more successful than first-time entrepreneurs. Even more interesting, very few (if any) of these experienced entrepreneurs hit it big the second time around. It's almost like a curse.
Anyways, achieving your dreams is important, and finally finding your passion is pretty cool. The thing with living your dreams is that you never know when you might wake up from it. But since I'm still young, time is on my side.
Imagine for a moment, that you're a poor farmer in Uganda, with a wife and 3 kids. What do you think would help you more: a personal loan of $400 to buy seeds and fertilizers or a $40 million dollar infrastructure project that builds a highway to the capital city? Perhaps in the long run, you would need a highway. But what good is a highway, or a hydroelectric dam if you can't even feed your children?
I have always been a fan of micro-finance, and last year, the Nobel committee agreed with me. People have been talking about eradicating world poverty for decades, yet this goal seems to be as far away now as it was then, and possibly further. I believe it's impossible to save the world using a top-down approach. Therefore we're left with the bottom-up solution. Lend, not give, individuals capital to create local businesses. Improve lives of the individual farmers, merchants and artisans first, and once enough wealth has been built from at bottom, would there be need for infrastructure. You know, the whole teach them to fish philosophy.
So, today, I joined Kiva, a site where people like you and me can participate in the economic cycle of micro-financing. People from developed countries lend $25 at a time to individuals in developing countries. You can check out my profile and see the people that I'm helping. It's really cool... and guess what? I can expect to get my money back. This whole space of social entrepreneurship is not only red hot right now, it's downright sexy.
Maybe someday I'll be a social entrepreneur too. But right now, I'm content just to help people by lending $25 at a time.
Yesterday my team, the San Antonio Spurs, finished their domination of the Cleveland Cavaliers to win the 2007 NBA Championships. This makes it 4 in the past 8 years (1999, 2003, 2005 and 2007). Afterwards, there's much chatter about if the Spurs can be regarded as a dynasty.
One camp says that the Spurs can't be considered a dynasty yet because they've never won back to back and lack a towering figure. Others say that they should be given their due because it's unfair to compare them to other teams in previous generations. But everyone is missing the point.
We live in a society where modesty is not a virtue. The Spurs, by any measure, are a modest group. They value substance over style. So much so, they are considered boring. They and their coach all reject the notion of dynasty. I think the significance of this is lost on most people. While self promotion is not a bad thing, professional sports today is filled with big egos. In the end, basketball is a team sport. This final series demonstrated that a team full of good players will rout a team with one great player. Tim Duncan is a good player to be sure, but he's an even better leader. He takes new players under his wing; he embodies the ethos of the team; he rallies the gang when they're behind; and he gives credit where credit is due. In the end, this leadership style drives results... consistent results. Maybe it's time that this society as a whole re-examine the virtue of modesty. Or at the very least, the virtue of under-promising and over-performing.
The same can be applied to businesses. Too often, businesses are evaluated on the single man at the top, the CEO. People get excited about the promises made, but pay less attention to the actual results. In the long run, great companies are made because of good leadership and consistent results. Bill Gates, as smart as he is, succeeded only because he had a great team to go with his vision. Serge and Larry can only do what they did because they hired the brightest people in the world and embodied the values of their company. It's the team that makes or breaks the company. I think many companies today will learn this the hard way.
Unfortunately for the Spurs, the America of today is more entertained by personal antics than by goal performances. Paris Hilton gets more attention than the Spurs. People long for a hero to worship instead of an ideal to follow. Probably because the former uses less brain power than the latter. If this doesn't signal the beginning of the downfall of a civilization, then what does?
Today I went to a talk at the Haas school where the guest speaker was Mark Kvamme of Sequoia Capital. Sequoia is one of the most successful VC firms in the valley, and Mark claimed that around 12% of the NASDAQ were part of Sequoia's portfolio (that's pretty impressive).
Mark started off telling us the story of how his son told him that there weren't any good comedy sites on the internet. So he went and ended up spending $17,000 and helped to start funnyordie.com with Will Ferrell. In doing so, he shared three key insights into building internet sites today and they are:
People only use 3 to 5 sites regularly (people are mostly looking for entertainment).
Sites need to be constantly changing (which can be done with zero cost using user generated content).
No property on the internet is protected (not even Google).
From what he's describing, the internet has become a hits-based business. Basically a new website can shoot up in popularity in no time (ie. 100 uniques to 100,000 uniques in 72 hours). But if this is true, then the corollary is also true: a website can fade out of existence just as fast. Also, the cost of building websites is essentially zero, because everything can be done via managed services. Everything else is just an idea and passionate people. Which brings us to his best insight.
Build what you would use yourself.
Yahoo was built to be used by Jerry and David to keep track of the websites on the internet. Google was built because Larry and Sergey wanted to index the entire web. Youtube was built because the founders wanted to have an easy way to share videos on the internet. In all these cases, the builders were the target audience. This makes a lot of sense and a good friend of mine shared the exact same views with me a few months ago. And yes... my friends are just as smart.
Mark proceeded to bemoan the fact that venture capital is tough business. The problem is that there's too much money in it right now. In his words: venture capital is not an asset class; it's a cottage industry. Although the average rate of return last year was a whopping 44%, if you remove 10 funds from a pool of over 600, the return drops to around 20%. Take another 10 out, and suddenly VCs perform worse than the S&P500. Bottom line is that only the very best make any money, and it's only getting harder.
All together it was a very cool talk, full of interesting tidbits. And I'll end with an little anecdote Mark told us. A person asked the question how much equity do they (Sequoia) usually take during an investment. The answer was between 20% to 40%. Mark claimed that all the investments where they took more than 40% all had been failures. But their best investment of all time, they only took on 9% of a start up. That startup was Google.
Today in my business class, we had a guest speaker in the form of Michael Marks, currently with KKR (which is the largest LBO firm in the universe). But Michael is most famous for being the CEO of Flextronics who grew the company from less than $100 million in revenue in 1993 to almost $15 billion in revenue in 2004. The really cool thing about Michael is that he's not only a top notch business guy, but he's a real operator. He ran factories and learned all about manufacturing while doing so.
His powerpoint-less talk was extremely entertaining. He started by telling us the story of Crocks, the plastic shoe company, which he is on the board. Shoes... boring... you'd think. But no! Michael told us how a bunch of ex-flextronics guys used manufacturing techniques that is common to making electronics but was unheard of in the apparels business. This company now has a market cap of over $2 billion! And how the lawyer who originally drew up the company structure was offered 10% of the company in exchange for his services, but refused and instead opted for cash payment instead. Probably the worst decision of his life... but entertaining.
Then Michael moved on to talk about the LBO market and the various intricacies of raising money and doing deals. I've found the LBO business to be fasinating ever since I read Barbarians at the Gate (one of my all time favorite books), which Michael eluded to during his talk. He said he's really impressed by the analytic guys at KKR, who are like 26 years old and get paid $1 million a year. Basically their analysis is so good, after they do due diligence, they will know more about a company than the company's executives. But he did say that there are some negative aspects of the LBO business. Since there is so much money sloshing around, it attracts a lot of people who love money and have egos that goes with it. Which is not all that surprising.
LBO is big business right now and getting bigger. Just today, the IMF issued warnings about private equity, specifically LBOs. Because so much of the money is debt, when a few big deals go bad, it has serious potential for bringing down banks which will have dire consequences. This is definitely something that I'll be keeping my eyes on in the next few years.
