I got a very interesting e-mail this morning… almost 1800 words. I wrote a 1700 word article earlier this week (probably my longest ever) and I can say that writing that much takes a long time.
The emailer, who I will call Buffy, has a friend, who I will call Faith, who had gotten involved in a multi-level marketing program - one that I had written about before MonaVie.
The story is something that I’ve heard a number of times… I even experienced it in college with Amway. Faith sets up a “business meeting” (or the less intimidating “tasting” in MonaVie vernacular) for her friend Buffy. This one consisted of 90% MonaVie distributors and 10% prospective members like Buffy. It’s in a small setting where the pressure of the numbers can really be felt. Buffy did some research, realized that the value in the MonaVie wasn’t there and decided not to join. I can’t blame her as I found $1200-$2400 a year for one person to drink juice too much for my wallet.
I’m only getting Buffy’s side of the story, but she says that that Faith is obsessed with MonaVie and has been completely transformed by the MonaVie culture. It seems that Faith has bought into the “get rich quick” dream. She’s not a distributor of the juice, but she’s a distributor of the business model and the dream of getting rich. The idea of getting rich quick is seductive. I can’t think of anyone who wouldn’t jump at that opportunity. The problem is that it’s not that simple. People don’t actually get rich (in the case of MonaVie some 95% of distributors struggle to make minimum wage as referenced in the comments of my link above). People instead spend their money for product and training materials to make others rich. While this is pyramid in nature, the “get rich quick” dream isn’t always sold that way. When I reviewed, Why Didn’t Anyone Teach Me This, I found that there were crazy claims of being able to make 30% on your investment if you paid $1000 for his system and seminars.
Faith has now paid for a couple of seminars, some training materials, and a lot of product. It’s making a signficant dent in her wallet. The last seminar she wasn’t sure how she could afford it, but somehow found a way to make it work. A few weeks later Faith scrapped up enough money to go to another seminar (the “Believe” seminar - a great name if you can’t sell your product on it’s own merits).
Buffy and Faith’s friendship is now strained. Faith thinks of Buffy as being unsupportive. I can see how she’d feel that way. When I wrote about MonaVie, many distributors came out and called me a negative thinker. I tried to explain that I’m thinking positively about their wallets and bank accounts. It didn’t seem to matter. You were either with MonaVie or not. Some describe it as cult-like.
This leaves Buffy in a no-win situation. If she tries to show her friend how MonaVie is making her poor, she’s unsupportive and her opinion will be discarded. She obviously can’t be supportive of MonaVie having seen what she has seen and read what she has read. It reminds me a lot of people that say, “You are in denial.” There’s no way to argue that one. If you try, you prove them right by denying their accusation.
I’ve spend the last few hours trying to think of how I can help Buffy get through to Faith. The best I can come up with is an intervention. I have no experience with them, and not a clue if they would work in this case or not. I’m hoping someone here will be an Angel and come up with a plan to put Faith on the right financial track.
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Posted by Lazy Man on October 24, 2008 in
Psychology
Why Didnt Anyone Teach Me This
It’s not often that I do a book review. Though it seems that at least once a month some author’s marketing team sends me a new book, I almost never get around to them. The biggest reason is that I’m an extremely slow reader and most books would take me 8 hours to read. If I then want to write about it, it’s going to be another 2-3 hours of gather notes, thoughts, and coming up with something interesting read. (And as many people have noted time and again on this site, I don’t spend the time to proofread).
When I found myself needing to see the doctor last week, I looked around for a book to take with me and David Newby’s Why Didn’t Anyone Teach Me This?
seemed like a perfect fit (that link may not be the actual book, but it’s mostly the same title from the same author, not sure why he added an extra word). It was 120 pages of big type - most people could probably read it in about an hour (or two hours if you are a slow reader like me).
I haven’t had a book bring out such strong emotions from me in some time (again this might be due to the relatively few books I read). I felt the book sent conflicting messages. The conflicts start at the cover. I don’t know if you can see the yellow star in the image, but it promises $3,197 in free bonuses with the purchase of the book. On the back cover it’s the author leaning on his Lamborghini. The sales pitch is strong from the outset. However the rest of the cover is pretty friendly, some books and an apply that apply to the teaching metaphor in the title.
I think the best way to go through this book is to break it down in the good and the bad:
Good
- Length of Book - I mentioned this on the outset, but it’s nice to pick up a nice short book and not have to invest a lot of time in it.
- Some Sound Financial Advice - (More on this later.)
- Charity - He mentions his favorite charity in the book and recommends giving to charity.
- Animals - No animals appear to have been harmed by the making of the book… unless you talk about tearing down the forest where they live for the paper. So umm, let’s scratch this one from the list.
Bad
- Length of Book - While I like something short, in the end you aren’t paying for a lot of original content or concepts. It’s really only 100 pages if you take out the blank pages between chapters. Each page a big quote box on it from the reading (like you would find in a newspaper). Between the quote box and the large font, I counted one page at 130 words. For reference the opening paragraph to this post is 100 words. At the end of each chapter is a review and there’s a three page spin on why he likes his charity. If you start trimming the fat, you could probably fit it in 30-40 pages of regular book type, and not change the content at all. If you wanted to edit the message a little, I could probably sum up the whole thing in one 500 word blog post. I may just try that in the future.
- Sales Pitch - There are a lot of scummy sales stuff in this book. The cover that mentions $3,197 in bonuses includes $3,000 in “coupons” for his “system” and seminars. Every time you think you are going to read something thought-provoking, you are left hanging as he tells you to look it up in another book or online class.
- Some Not-So-Sound Financial Advice - (More on this later.)
Good Financial tips in the book:
- Newby breaks down why many people won’t be able to retire (people don’t save enough).
- He writes about having a dream and identifying that dream (I replace “dream” with “goals” in my head, but mostly the same).
- Newby correctly states that few people have job security nowadays. His story about being a top performer at a company and getting laid off when the company got bought mirrors my own story. In fact it’s the idea of wanting to “layoff-proof” myself that made me start Lazy Man and Money to explore ideas on how to become financially independent.
- He has solid tip about coming up with an idea and licensing it out. He’s quick to say, “Don’t by factories employ people and all that. Just sell the license to someone else who will do the manufacturing and distribution for you. If you have an invention, this seems like a fine way to go.
- Newby wisely points out that people who make more money often have lifestyle inflation and spend more money. This is why many people who get raises often are left back where they started - with no savings. He calls this “Perkin’s Law” and defines it as “Expenses always rise to meet income.” I wrote about this phenomenon before, but it’s Parkinson’s Law. I could find no record of Perkin’s Law.
- He advocates saving, paying yourself first, paying down debt, even funding a “survival account” (i.e. emergency fund).
- Newby explains the rule of 72.
- He likes Roth IRAs (see below for more on this).
Bad Financial tips in the book:
- Newby goes into several pages of convincing you that you have to have change your thinking by developing a daily affirmation that invokes memories of Stuart Smalley. Of course if you think the daily affirmations are ridiculous, he might say that you are just not open-minded enough. I would use one his own arguments against him, “Do you think Donald Trump wakes up each day and tells himself these affirmations?”
- Newby recounts the story of his friend Bob who had to wait until his credit approved to buy properties. Meanwhile, he says that he bought 5 properties with “damaged credit.” Remember Casey Serin? Also, it’s worth noting David Newby doesn’t tell you how he got the money to buy 5 properties and/or how heavily leveraged he was. Without more information, I’m inclined to believe he got lucky while Casey Serin was unlucky. This is hardly good financial information to pass on.
- He claims that if Oprah, Larry Ellison, or Bill Gates went broke tomorrow, they wouldn’t stay broke because wealth attracts them and they have confidence. No… the reason why they wouldn’t grow broke is that they are famous, have great brand awareness, and exceptional contacts to other rich/famous people. I’ve heard Oprah speak and she will be the first to tell you she didn’t attract wealth at age 20. She didn’t even try to.
- He talks about “Leverage Masters”, a term for people who utilize other people’s assets to make money for themselves. He doesn’t explain how to become a leverage master… even in the section called “How to Become a Leverage Master.” Instead he says to learn the ways of Leverage Masters and act on them.Wait, learn and act are the keys to being successful at almost anything. What do I need to learn, well that’s the thing Newby doesn’t tell you.
- He explains that there’s a way to protect your assets so that you won’t have to pay someone if they win a law suit against you… and they’d still have to pay taxes on the winnings. This is one of the most irresponsible things I’ve read in any book. I don’t care if it’s technically legal, it’s immoral. By the way, we don’t know if it’s technically legal since he doesn’t explain how it’s possible in this book… you have to go sign up for one of his special reports.
- He says, “401Ks and IRAs are the WORST way to invest your money.” Newby says that those instruments are tax-deferred which is not as good as the tax-FREE way to invest with Roth IRAs. He’s clearly not the financial wiz as the difference between a 401K and a Roth IRA is when you pay the taxes. With a 401K, you get to invest a lot more at the beginning and watch it compound faster because it’s pre-tax money. With Roth IRAs, you pay the taxes up-front which results in it not compounding as fast. In the end, as long as the tax rate is the same when you pay them, the investments come out to be the same.
- Newby advocates investing in Universal Indexed Life Insurance. This is taken directly from Doug Andrew’s Missed Fortune
. I read another Doug Andrew book that mentioned this method, but it was complex and involved a lot of fees. It may be right for some people, but I’d need to look into it more. Oh, and Newby mispells Andrew’s name as Andrews… I bet Doug’s not all that happy.
- The Biggie - He advocated investing in real-estate backed investments. He doesn’t tell you what it is, except that it’s average a 30% gain over the last 29 years. Yes it’s hard to imagine any investment doing that over 29 years, but now that I think about it real estate has done well. Of course we’ve seen how it’s dropping now. Wages aren’t growing fast enough to support further growth in real estate, so this investment is ready for a collapse if it hasn’t already. If you want to know more about this investment, you need to buy his “system” or seminars - which will likely set you back thousands (especially because he’s giving out $1000 coupons).
So you can see that there is some definitely good financial advice in here. It just feels to me that he’s using that as a way to earn trust to get you to spend the big bucks on his programs. Upon 30 seconds of finishing the book, I tried to think of a proper way to sum it up. Many people familiar with the story of Superman are also familiar with Bizarro, a character like Superman with his speed and strength, but also the opposite of him in many ways (he lived on cube-shaped earth and his speech is often oddly arranged “backwards” sentences). I think David Newby is Bizarro Lazy Man (or depending on your point of view, I’m Bizarro David Newby).
In the end, it’s probably pretty obvious why Newby sells the book at TheCrapBook.com. I haven’t seen a domain so aptly named in a long time.
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Posted by Lazy Man on October 22, 2008 in
Book Review
Last week, Get Rich Slick asked the question, What Happened To All The Prosper.com Blogs? Two years ago, along with RateLadder, I probably wrote about Prosper more than most personal finance bloggers. So when RichSlick asks why the blogs have seemingly gone silent, I feel that I should stand up and answer.
Here are the 2 main reasons I think bloggers (myself included) aren’t writing about Prosper as much any more:
- It’s Getting Old - Peer-to-peer lending was a new asset class for the average investor. I think any time a new asset class comes around, people are going to want to write about it, dissect it, and analyze it. That’s been done over and over the last two years. Is there a new angle to write about? I’m out of things to write about unless they add new features like bidding though the API (something announced at the last Prosper Days, and I’m not sure if it’s being used by anyone or not).
- The Returns Aren’t Where I Thought They Be. When Prosper came out, I used the Experian default as my main guideline. It seems that Prosper loans default a lot more often. I don’t know if I was just not informed enough to realize that differences between the Experian data and the loans I chose to participate in. For instance, I know that the Experian data applies to debt-to-income ratios under 20%, but at the time I figured that 25% wasn’t too much different. And I didn’t look at other information like delinquencies as I didn’t know how to process it. I basically made the mistake that a lot of mortgage lenders did - I took on too much risk. Unfortunately, I wasn’t a lending professional and the government won’t bail me out.
Here are some other comments I wanted to get in, while on this topic:
- Tricky Math - The next day after asking the question, Get Rich Slick Fishes Through LendingStats To Learn About Prosper. He takes the top 10 lenders (by money invested in loans) and calculates that the estimated ROI at 1.518%. If you look at the page he uses, the 10th person is the worst lender of all… 15% worse than any of the other 25. If he had chosen the top 9 he would have had a 3.70% return. If he does the top 25 people the return jumps to 3.36%. If you take out the best and worst lender in that top 25, you have 3.94% return. (Note, I’m using a simple averge, not a weighted average because I’m Lazy). I’m not going to say that a 3.50% is great (I think you can do better at some banks), but it defintely beat my stock returns of late.
- People’s Rate of Returns May Look Worse Than They Are - Here’s where the data gets even trickier. Prosper is always changing and adding new features. When I made most of my bad loans, I didn’t have their tool that says, “People who made this bid on a loan like this have an estimated return of -10%.” That’s powerful stuff. It changes your lending practices. Also, people may change their lending practices as they learn. I didn’t know that delinquencies were that important when I started. A few bad loans in the beginning can really torpedo your overall returns. However, those bad loans become less “impactful” (is that a word?) over time. If you look at the top 10 lenders mentioned before, they typically were early adopters and likely victim to these bad decisions.
- What About Other Market Conditions? - People are likely going to pay off their mortgages before a peer-to-peer loan. After all, it’s their home! Yet we see that many people aren’t able to pay back their mortgages. It’s the worst it’s been in years. Perhaps judging Prosper’s performance now is like judging the stock market in 1929. If the economy gets back to normal, one could reasonably expect that fewer people would default on Prosper loans, right?
- Lending Club is Performing Great For Me - I have 60 loans with Lending Club. Of those 60, 6 have been fully repaid, 53 are still current, and one is 16-30 days late. (The late one has already repaid 20% of the loan, so if I eat that one it’s not bad). My weighted average interest rate on these 60 loans is 9.21%. While this is not Prosper, the concept is the same. It’s great… I love it… I’m making a lot of money… ;-).
I stand by what I’ve said over a year ago… You have to treat Prosper loans like bonds - and that’s essentially what they are, right? I don’t know anyone who invests in a diversified bond fund and says, “It’s great… I love it… I’m making a lot of money…” Instead, you are going to say, “I’m more diversified than I was. I recognize that investing isn’t about making a lot of money quickly. I love that I didn’t lose 30-40% of my money in the stock market.”
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Posted by Lazy Man on October 21, 2008 in
P2P Lending
Anytime the Red Sox season ends without a champagne shower, I get a little sad. I probably wouldn’t be as sad if they were a .500 team. It’s not often in your life, when your hometown team can contend at a high level for a number of years. When you find yourself in that situation (as the Red Sox are), you hope to make the most of it - rack up as many titles as you can.
On the other side of the coin, in 2004 I made an educated, non-financial, bet that the Devil Rays would compete at a top level in 2008. (Yes, they will always be the Devil Rays to me.) It wouldn’t feel weird to me if they won the World Series this year. In some ways, I feel like I’ve already been there and seen them do that. (And watch out for 2010, because I’m feeling the Devil Rays that year as well.)
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Posted by Lazy Man on October 20, 2008 in
Links
Last week, my wife said, “I think it’s about time that we got a second television in the apartment.” From time to time, I’ve been known to tune out what she’s saying, but this time my ears perked up. Hmm, I think I can sanction the purchase of a television.
Here are the problems the I had looking for television on short notice:
- I couldn’t use Craigslist to save half the money. This is my typical plan, but I had to strike while the iron was hot (i.e. my wife agreed to the television thing).
- I thought that Costco would have the best deal. It’s impossible to know what they have until you get there. Once there, I don’t have my computer to look up reviews online to see if it’s a good set.
I was going to make a somewhat major purchase a little blind. This always gives me an uneasy feeling. Our first stop was Costco. Oddly, they didn’t have many 32″ televisions in stock and not one of them was 1080P (1080 lines of progressive scan resolution - the best there is). If we were able to go larger we might have gotten a good deal, but our bedroom simply doesn’t have the room for anything bigger.
The next step was to go to Circuit City. Normally, I’d go to Best Buy, but there isn’t one close to my home. Happily, Circuit City had about 5 or 6 televisions that were 32″ and 1080P. The problem was that the 37″ Samsung was their special of the week and was actually cheaper than this 32" one.
. When the salesman came over I asked what was up with that? He said it was just the way it is.
Once again, I felt uneasy about the purchase. It kills me to pay more money and get less product., just because our apartment has a weird layout. I hemmed and hawed for at least 20 minutes over it. Finally, the salesman comes over and says that he can chop off $100 on the Sony XBR one. It would still be $100 more than the Samsung that I was looking at, but Sony XBRs are nice. A difficult decision just got worse.
I hem and haw for another 15 minutes. At this point, my wife is wandering the store and probably plotting my death. The salesman can’t even deal with me any more and went to help others. A new salesman sees me and asks if he can help. I tell him that the other salesman said he’d knock off $100 from the Sony XBR. This salesman then said something magical, “He must have been giving you the online price. Let me look that up.” I was quick to ask if he’d give me the online price on the Samsung 32″ as well. The other salesman didn’t offer that. This salesman said that he’d be happy to give us that price.
It turns out that the online price was $150 cheaper. That sealed the deal for me. I was comfortable with the purchase. Of course, it made me mad that they didn’t start with the online price. Oddly, just a couple of days later Circuit City would be running commercials saying that you’ll find the same price in the store as will online. Odd that this is considered a selling point - it should be automatic. When you think about it, it simply makes sense. Many stores have a buy online and pick up in the store… That’s essentially what this was.
The moral of the story here is to look out for weird pricing from the big chain stores. Perhaps print off a copy of the website and bring it with you to the store so that you can get that price.
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Posted by Lazy Man on October 17, 2008 in
Smart Purchases
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