Why Angular Beats Well-Rounded

It’s appropriate, especially given that this is the time of the year when high school seniors are opening acceptance packets and rejection letters from universities all around the world, to discuss the age old dilemma that many college applicants face: whether to be angular or well-rounded. Certainly it was the raging debate my high school classmates had when trying to sell themselves to colleges. They competed with each other for the most extracurricular activities (speech and debate, business club, sports, volunteering, music, arts, etc.) It became an arms race so ridiculous that we joked that to get into Stanford or the Ivy League, one had to be the captain of multiple sports teams, in student government, get > 4.0 GPA, have perfect SATs, and possess a “major” life accomplishment such as curing a major disease, starting a philanthropic organization, or winning one of the math/science Olympiads.

While being a modern Renaissance man (or woman) can be great for getting into these schools, and it certainly does make for a more interesting person, it’s not a guarantee for finding employment. Employers are looking more for an expert in a particular area, or at most someone with two related and complementary skills.

Just think of it from this approach. If you’re an employer looking at a candidate who has decent skills in finance, accounting, foreign affairs/diplomacy, programming, and photography, you may actually not want to hire that person. One worry is that by spreading him/her self out too thinly, the applicant may not truly be an “expert” in one particular area. Most jobs are defined by boundaries, specificity, and depth (you’re *just* going to crunch numbers), and while breadth is helpful in the upper echelons of management and for insightful business strategists, very rarely do companies recognize that and actually try to hire for those spots. More likely they luck onto a candidate with that vision from hires for other positions. Furthermore, companies like cheap worker drones that fit into narrow holes. A candidate with a diverse skill set is more likely to get bored, leave, or demand higher pay.

Therefore, it’s ok to have side dalliances and hobbies, but if you want to be a top worker bee and advance in a career, you’d better have a profession. Take for example the story of Urs Holzle. He was a pure computer scientist, and as such was able to push the boundaries of his own field, get hired at Google in a senior scientist position, and make bucketloads of money. If he had spent less time in his craft and more in say learning the violin to become “well-rounded” he may not have been as successful as he was.

As a last counterpoint, for those already on the well-rounded pathway, while you may not be the ideal workers, you are excellent entrepreneurs, possessing as you do the strategic thinking capabilities to integrate multiple fields and sense opportunities. Also important in the early days of a startup with limited manpower is the ability to fill and manage multiple business roles.

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Broke at Half A Million

Marketwatch ran an article about how one can still be broke despite earning half a million a year. Preposterous, you say? They do show the breakdown of sample spending for the rich family compared to an average family with $80,000 in yearly income.

Let’s break this down in an itemized manner:

  1. 401k contributions: a good thing, especially given the tax bracket
  2. Taxes: unavoidable, but the rich family should be looking to diversify more into legal tax shelters like mortgage interest deductions and maximizing HSAs
  3. Child care: I can’t explain this discrepancy. Does the wealthy family choose to use a premium service as opposed to the McDonalds of child care? Does that really provide any benefit? Both families have the same number of kids, so there’s no reason for spending to be any different. And besides, those in the know opt for live in Hispanic au-pairs so their kids can get a head start in life
  4. Food: both families eat way too much. I spend $40 per week on groceries (that includes household items like detergent) for myself. Multiply that by 4 gives you $8480 for a whole year. Even if you spend a bit more on eating out, you will still may just top out at what the average family spends. What does the rich family get by spending more? More calories? Whole grain organic quinoa?
  5. Housing: this is a big opportunity to cut back by living in a smaller house for less. A bigger house just adds to the housework, not necessarily truly improving happiness. Likewise, this allows for a corresponding reduction in property tax and insurance
  6. Gas: no reason that this needs to be different between the two families
  7. Life insurance: just self-insure by saving more. This is one of the biggest cons out there
  8. Clothes: do you really need to wear better clothes than the average family? If anything, standing out more in this era of Occupy Wall Street just makes you more of a target
  9. Children’s lessons: I’ll admit, probably a good investment. If anything, Asian families in the Bay Area spend much more in this category
  10. Charity: cut back on this, especially if you’re living on the edge
  11. Debt repayment: probably unavoidable, but you can save on this by studying overseas or in state schools
  12. Miscellaneous: I don’t even know what this means

Notice how I didn’t include vacations on this list? Generally, I will allow one budget busting “splurge”, either in clothing, house, car, or vacations. Among those, the one that gives the most lasting happiness is vacations.

 

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Advice for a Young Investor

Warren Buffett says that today’s crop of babies are the luckiest ever. This may be true in some respects – technological advancements have certainly improved the quality of life. Today’s commoners live a life undreamed of by previous monarchs. However, in other respects, young people today have it harder than ever.

Take for instance public comments Morningstar’s advice to a young investor:

Check out the vesting options on your match in the 401K before you let that match influence what you do. My own Millennial daughter has worked at 3 places now with generous matches on paper. She has yet to get any of her matches to vest because they all have 3 year cliff vesting. She got laid off (in one case just before 3 years) before any of her matches vested.

and

That should be a wake-up call to today’s 20/30-somethings. Were those terminations part of some evil, greedy attempt to cut corporate costs? Just the fact there was a long “cliff” should say something: corporate America is desperate to wash its hands of any responsibility for their employees’ retirement.

That means: save, save, save your money. Retirement is in your hands, more than ever! Each dollar wasted on alcohol, pot, tattoos, new cell phones every year, data plans, new cars, bar tabs, trips to Mexico, music festivals, is actually ***two or three*** dollars you won’t have for retirement.

That’s the time value of money. Blowing money on toys and “experiences” early on in life, is what’s killing the retirements of many a baby-boomer today. Forcing older boomers to reverse-mortgage their homes for money to live on.
Don’t repeat your parents’ mistakes.

With how perilously insecure jobs are today, it’s more important than ever for young people to have multiple income streams. This means side gigs (e.g. Uber, independent tutoring, Etsy), monetizing resources (e.g. Airbnb), investment income (rental, stocks, bonds), and entrepreneurship (low cost digital startups). Without a diversified stream such as the above, we will fall prey to the whims of an unscrupulous employer who can can us at a moment’s notice in the name of cost savings.

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Follow Your Passions, After Your Career

The story of the Hong Kong banker who quit his job to work in humanitarian aid is truly inspiring and definitely relatable.

One question that Asian children (probably others as well, but I’m speaking from experience here) agonize over when growing up is whether to pursue something profitable (often at the behest of their parents), or something that they’re truly passionate about. It’s rare that these intersect, unless your passion is money. Many times, these kids get so immersed into their studies in school that they don’t even find their passion until much later in life. Then they are filled with regret and resentment.

My approach is to have the best of both worlds. Grind through school in your 20s and get out into a great career. Work overtime and make tons of money early. Guaranteed high income fields like banking and medicine are very suitable for this. The reason is that it’s easier to learn new things quickly when we’re still young. Also, money earned when young is more valuable because it has time to compound.

Do this when you’re young enough and you can emerge in your mid 30s with enough money to retire and live purely off your investments. Then it’s time to find and focus on your passion. I suggest at this point some combination of travel, volunteering, philanthropy, teaching/mentoring, and entrepreneurship. More details on this to come in my upcoming book on happiness.

Doing the opposite by finding your passion when young generally means you have a brief happy time in your adolescence, but at the cost of potential financial destitution in mid life. You also lose out on important things like compounded savings and moving up the career ladder. This can make you profoundly unhappy. One caveat remains. This option may be a good choice that maximizes happiness if you know you’ll die young.

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NYT Discovers What the Rest of Us Already Know

NYT publishes an article on the superstar effect, only this time applied to firms and not individuals. Let’s take a look.

For much of the last century it seemed that the slice of the total economic pie going to workers was — like the speed of light — constant. No matter what the economy’s makeup, labor could collectively depend on taking home roughly two-thirds of the country’s total output as compensation for its efforts. Workers’ unchanging share, the economist John Maynard Keynes declared in 1939, was “one of the most surprising, yet best-established, facts in the whole range of economic statistics.”

But in recent decades, that steady share — which includes everything from the chief executive’s bonuses and stock options to the parking-lot attendant’s minimum wage and tips — started to flutter. In the 2000s, it slipped significantly. Although the numbers have inched up in the last couple of years, labor’s portion has not risen above 59 percent since before the recession.

The decline has coincided with a slowdown in overall growth as well as a stark leap in inequality. “Labor is getting a shrinking slice of a pie that’s not growing very much,” David Autor, an economist at M.I.T., said. It is a development that is upending political establishments and economic policies in the United States and abroad.

Some economists argue that technological advancements are to blame as employers have replaced workers with machines. Others point to trade powered by cheap foreign labor, a view championed by President Trump that particularly resonated among voters. 

Alternate culprits include tax policies that treat investment income more favorably than wages; flagging skills and education that have rendered workers less productive or unsuited to an information- and service-based economy; or a weakening of labor unions that has chipped away at workers’ bargaining power and protections.

(…)

The article goes into superstar firms briefly.

The idea of superstars vacuuming up a majority of goodies is perhaps more obvious on the individual level. Because of technology like cable and satellite television and the internet, music luminaries like Beyoncé and Taylor Swift or sports phenoms like LeBron James or Cristiano Ronaldo can reach a much larger audience and gain a greater proportion of the revenue generated.

Writing about the advent of superstars in the modern era, the economist Sherwin Rosen noted in 1981 that there was “a strong tendency for both market size and reward to be skewed toward the most talented people in the activity.”

What was once true of pop stars can now be seen in more mundane industries. “Over the past several decades, only the highest earners have seen steady wage gains,” a report from the president’s Council of Economic Advisers concluded late last year. “For most workers, wage growth has been sluggish and has failed to keep pace with gains in productivity.”

This is more interesting. He cites the Sherwin Rosen paper that I reference in my book. The examples cited also are entertainment (media and sports) sensations, with an indirect contribution from technology making it easier to share that with a wider audience, allowing superstars to take more and more of the overall spending pie on entertainmment. That’s exactly what I wrote in my book.

It feels good to be vindicated.

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Does Hard Work Pay Off?

I’m doing a bit of reading these days, and several passages from selected works stand out to me as epiphanies into the easy road of life.

Consider two siblings. The older brother works hard, studies, keeps his head down, gets good grades, graduates with a degree in engineering or accounting, and goes on to a satisfying middle class life with a steady job and income stream.

The younger brother hangs out with his friends, gets mediocre grades, and goes to a typical state school. There, he makes friends and through them joins a startup and eventually strikes it rich and makes it on boards of major corporations.

What is the difference between the two? A healthy dose of luck and circumstance to be sure, but there’s a fundamental philosophic difference between their approaches. The older brother tries to do things through the “official” recognized paths. The younger brother tried to find short cuts in life. In today’s world, there’s a lot of room for backdoor negotiations in smoke filled rooms, nepotism, and corruption. Going through the hush hush unofficial pathway can lead to greater riches for a lower price.

Take for example this passage from the book Hillbilly Elegy that I’m reading now:

It was pretty clear that there was some mysterious force at work, and I had just tapped into it for the first time. I had always thought that when you need a job, you look online for job postings. And then you submit a dozen resumes. And then you hope that someone calls you back. if you’re lucky, maybe a friend puts your resume at the top of the pile. if you’re qualified for a very high-demand profession, like accounting, maybe the job search comes a bit easier. But the rules are basically the same.

The problem is, virtually everyone who plays by those rules fails. That week of interviews showed me that successful people are playing an entirely different game. They don’t flood the job market with resumes, hoping that some employer will grace them with an interview. They network. They email a friend of a friend to make sure their name gets the look it deserves. They have their uncles call old college buddies. They have their school’s career service office set up interviews months in advance on their behalf. They have parents tell them how to dress, what to say,and whom to schmooze.

In the modern world, it’s not about how much you know, but who you know. The best jobs are usually not posted, or if they are it’s just for theater. The company probably has already identified an internal candidate or a friend of a friend for the spot. It sucks for those of us who bury our heads in the books and stay on the straight and narrow, but at least we now know what to change to be successful.

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Follow Your [Profitable] Dreams, Redux

Short post here. In my last post, I mentioned that the best path that balances all factors contributing to happiness is to work hard in one’s 20s in a high paying job, then quit after becoming financially independent/self-sufficient to focus purely on one’s hobbies/passions without any financial constraints.

One of my favourite singers, Antje Duvekot, is doing this in her own life. She admittedly toured quite frequently when she was younger, only to tire of the road and long for a more settled existence. You can read her interview, which is quoted here:

You haven’t been touring as much lately.  Does that feel strange to you?  Or do you find that it’s helped bring some sense of normalcy to your life?

Well, I’m a lot poorer because of it. But a lot happier. I now live in Boston. I take Spanish classes, volunteer at an adult education center, lead the music program at the humanist hub, see friends, neighbors. My home is now not just another strange place I pass through on my way to another tour on my way to encounter more strangers (albeit with a better bed and no check-out time in the morning). It is now actually a place to me. There are no words for how important it is to human mental health to be able to build something in one place. Being perma-transient sucks balls. Plus the shows I play now feel wonderful. I am more present and playing for people feels more deliberate, like a true privilege, rather than a permanent state of refugee status. Not to be melodramatic or anything, lol. For melodrama see track 5 on the new record “Caffeinated Warriors,” about my growing hate-affair with the road. That being said, I am still touring a good amount, but I go out for a few days and come home, and I don’t do more than one away-tour a month with additional drivable shows sprinkled in. It’s been good for me and I think good for my art as well.

Later on in your career, making the tradeoff of sacrificing income for increased free time, hobbies, travel, and friends becomes worthwhile. It’s a lot easier if we’ve saved sufficiently ahead of time when young, to allow compounding to work its magic. This is precisely why I’m operating on a career taper, starting out at 1.3x full time and reducing my workload by one tenth every year until 0.5 (half time), and then working ad hoc at that point.

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Musings on Lucrative Traditional (and Untraditional) Jobs

Shifting gears now, I will now raise some recent examples of lucrative traditional jobs and how eye-popping their pay can be. Yes, I’ll be using some real world numbers here.

  1. Uber drivers: This article show the reality of how workers from all over rush to SF to earn the Bay Area premium (as a freelance taxi driver) which comes out to about $7 per 12 minutes, before expenses, which is much more than what someone unskilled can make in the Central Valley or Sacramento. What is striking is that they can make as much as $1500 per day, as the article states, though it’s work working hard and being opportunistic in monitoring for surge pricing. At the same time, they need to keep their expenses low by
  2. Temp workers: Don’t think of these guys as just lowly paid undocumented immigrants. Some of the most lucrative positions out there can be found by filling in as short-term workers, especially if you have specialized skills. But there are some out there that don’t neen need skills, just willingess to work in “undesirable” areas. Examples of this include a friend of a friend who went to Alaska to work in the canneries as a regular laborer. Hours were long and the environment was unforgiving (if pristine). He worked hard (16 hour days and a dangerous line of work) but took home $50,000 in 3 months. My book has other examples of geographic arbitrage opportunities like this. I’ll keep an eye out for more “gold rush boom” opportunities that arise and let you know on this blog.
  3. Nurses: You can get one of these degrees after just 2 years at a community college, so it’s an insanely accessible career path. You need to learn some protocols and get some practice, but at the end of the day it doesn’t involve deep cognitive processing. Things also get easier with practice and longevity, making life and work easier with time. There’s also great career stability and a nationwide shortage. Oh, and the schedule (3 shifts per week) can’t be beat. Just today I learned that the pay starts at about $60-70 per hour and you can get 2.5x base pay for working “unseasonable hours” like weekends, holidays, nights, and as emergency call up.
  4. Corrections officers: Thanks to unions, the prison system in California is generously funded. Despite a declining prison population, you can get a very generous pay and pension package in corrections. The promotional website boasts six figure salaries starting out (after accounting for overtime and vacation/night pay), with a monthly stipend during your cadet training years. There’s even a controversial article on WSJ about whether being a prison guard is better than getting a degree from Harvard. Sure, if you go to work right away and keep your job without getting laid off. My perspective is that a Harvard degree gives you more flexibility and opens doors to more types of jobs, including more interesting and cognitive based ones that are more resistant to automation and outsourcing.
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Business Principle – Make Lives Easier, Simpler

Sometimes on here I’ll post interesting business ideas I have, right down to the specifics. At other times I’ll speak more on general principles guiding a successful business.

Let’s start by identifying a need. One thing I’ve always needed since I was young is a way to save interesting articles online for posterity and re-reading later on. I was a big reader and when news and blogs emerged online, I wanted to save things before they got deleted or moved behind a paywall. In other words, I was practicing something similar to scrapbooking, which was a great childhood hobby for many people in the previous generation.

Now for someone who is technical, it’s easy for me to save documents as html files or print via chrome as a pdf, create a series of folders, and organize things the way I like. It’s so quick and easy for me that it’s hard to fathom that the same is not intuitive for people who are not so technical. This represents a larger global need but not a personal need, and it’s hard to be a successful visionary creating something that you personally don’t need.

In this example, someone can start a company letting people easily pin photos or essays or articles onto their own free personable shareable scrapbook. It’s called pinterest.

The principle here is to meet a need (especially old hobbies in a changing world) and to make life easier and more convenient for all involved, but especially the non-experts.

What would be something analogous yet uninvented? In my own field of health care, there’s a need for the medically illiterate to help them manage their medicines. What about a personal pill tracker that synchronizes with your medical chart at the doctor’s office and give you timely reminders to take your medicines on your phone, as well as information about why you’re taking a certain medication and side effects or precautions to watch out for? Google is already attempting something with its own Google Health initiative, which syncs nicely with its Android devices.

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The Superstar Effect

From this:

the entire gain in the U.S. stock market since 1926 is attributable to the best-performing four percent of listed stocks.

It’s stating nothing more than what we know. If only a few “superstar” stocks drive the majority of earning (and some like ADP and Altria spin off many other successful companies), it’s all the more reason to diversify. If we just pick a few stocks, what are the chances we’ll have a proportional amount of those mega winner 4% stocks? Not good, despite how great a stock picker you think you are. Just look at my thought experiment for details. After all, if Harvard’s endowment could hire the best and brightest and still underperform the market, despite their pedigree and venture into “alternative investments”, how well can you as an individual do?

In other news, there is a similar superstar effect in the labour market.

The recent fall of labor’s share of GDP in numerous countries is well-documented, but its causes are poorly understood. We sketch a “superstar firm” model where industries are increasingly characterized by “winner take most” competition, leading a small number of highly profitable (and low labor share) firms to command growing market share.

The winners are disruptive because they are more efficient, able to do more with fewer workers. This is not much solace to those displaced as a result of old firms going under.

To survive in this world, we need to learn the skills of superstars. Stay in the few remaining jobs that remain, save and invest like crazy, and start our own businesses. That’s the key to success. My book is your guide to this.

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