The Korean Hell

I read this morning an interesting article on the state of life for young people in South Korea. Man, was it depressing. In short, if you think your life is bad, you don’t even compare with what these kids have to go through. Here are some quotes:

Hwang often goes to work on a Monday morning with her suitcase, not leaving again until Thursday night. She eats at her office, takes a shower at her office, sleeps in bunk beds at her office. “If I finish work at 9 p.m., that’s a short day,” she said.

Paychecks come irregularly — or not at all, if the show gets axed — and because she doesn’t have a contract, Hwang wonders when she goes to sleep each night whether she’ll still have a job in the morning. She can make this life work only by living at home with her parents — when she goes home, that is.

“If you have enough money, South Korea is a great place to live. But if you don’t . . .” she trails off.

My old professor in business school once told me, “No one works harder than Americans. People always think it’s the Japanese, but no, it’s Americans. Koreans come close though.” In many respects, Korea is similar to America with cultural expectations about work and a paucity of days off. Just listen to how tough parents are with their kids:

Most frustrating of all, many young people say, is that their parents, who worked long hours to build the “Korean dream,” think the answer is just to put in more effort.

“My parents think I don’t try hard enough,” said Yeo Jung-hoon, 31, who used to work for an environmental nongovernmental organization but now runs a Facebook group called the “Union of Unskilled Workers.”

My book on happiness is still being written, but this focus on work at the expense of sanity and family is not sustainable. People are miserable! And the work doesn’t even pay that much either. What’s the solution to all of this? Read my book on wealth, start your own business, acquire a a large nest egg, and get the hell out of Korea.


Inspiring Business Ideas – Nursing Homes

This post is part of a series of business ideas that come to me in the course of everyday life. Some of them are in areas I have experience and expertise in, while others will be more off-the-wall. I will comment briefly on the skeleton structure, how to get started, overall viability, and projected payoff. If you like it, feel free to take it and run with it.


America is aging. During the last recession, health care remained a sanctuary from the oasis of layoffs in part because it was one of the few sectors of the economy that was growing. Even today, the mixture of jobs continues to shift. A whopping one out of every nine workers now works in health care. Is that necessarily such a bad thing to be demonized by politicians? Shouldn’t we celebrate that we have a growing sector providing good employment to many of our citizens?

In this realm there are opportunities for the bold. We focused on some solid career choices in health care in my book, but this post is about opportunity for entrepreneurs to make a difference – to innovate, make a difference in everyday people’s lives, and to make a profit at the same time.

As people naturally age, they acquire more chronic diseases that require more contact with the health care system. People can become weakened after a major surgery, fall, fracture, or even serious infection that they need significant time to rehab and acquire enough strength to perform basic life functions. At other times, especially in end-stage cases of chronic organ failure (such as heart/lung/kidney/liver disease), they can become so disabled that they require around the clock cares, administration of complex medications, or even become dependent on all sorts of machines (dialysis, ventilator) for life support. Their medical needs are so complex and debilitating that they are beyond the ability of most families to manage at home. This is where the nursing home steps in. In the short-term, nursing home provide places for residents to rehab from a major hospitalization or medical event, while they require increased support and supervision not available at home (skilled option). For others who can afford it, nursing homes can also be places where they live permanently (residential option).

We’ve already established that there is significant demand for nursing homes. In fact, there are not enough of them out there to provide for even the short-term needs of people needing to rehab. Consequently, many hospitals struggle to place their patients, even encouraging some of the borderline cases to rehab at home to avoid a prolonged wait in the hospital. Some of the nursing homes I’ve toured and worked in are quite dilapidated – shared rooms, moldy furniture, the smell of urine all over the floors. Such is the durability and intensity of the demand that these businesses are able to stay profitable despite how little effort they put in to entice and please their customers.

The revenue stream is extremely stable. Medicare (almost all nursing home customers are Medicare-eligible) and certainly most private insurance have benefits that cover the cost of short-term rehab stays after a major medical event. It’s easy to meet criteria. An elderly individual who isn’t very active and who doesn’t have enough support at home (e.g. an elderly spouse with his or her own medical needs and absent children who can’t or don’t want to serve as caregivers) can become deconditioned enough from a routine hospitalization to warrant a brief rehab stay for physical therapy. I emphasize again – most of the time, these benefits are 80-100% covered in a tapering fashion up to 180 days per year, with variation on the duration and degree of support depending on the exact medical plan.

There is a degree of wiggle room on payments as well. Normally, each nursing home can count on approximately $5,000-$12,000 per patient per month for care, depending on the payer. For a difficult patient (no family, drug abuse, history of confusion or violence), nursing homes can refuse to accept a transfer, holding out and negotiating with a hospital for a supplemental bonus payment, which I’ve seen as high as $20,000 extra per month. Depending on the size of the facility and the number of patients at any given time, that’s substantial and stable monthly revenue.

Expenses are higher than for my preferred small scale digital entrepreneurism given facility, equipment, and labour costs, but they’re still quite manageable. To be qualified as a nursing home, there needs to be a supervising physician, NPs or PAs to do the initial intake evaluation and overnight coverage, a team of nurses and LVNs, therapists to assist in rehab, and a pharmacy to dispense medications. Labour expenses will therefore form the bulk of one’s costs.

How can you make your own niche and stand out? Having a good payer mix is critical. It’s far better to have a Medicare patient at a SNF than a Medicaid one, given an almost doubling of payment per patient per day. This means basing the nursing home in a posh area where the demographics are favourable. If one is willing, there may be room in the market for ultra upscale residential (custodial, not skilled) nursing home facilities catering only to very wealthy completely private payers. Like in most industries, it pays to be on the higher end. Another important factor is keeping expenses low. California for example has higher wages for nurses, therapists, and pharmacists compared to other states, without a corresponding boost in pay.

Be careful about cutting expenses to the bone, as the federal government is attuned to how profitable nursing homes are and is targeting long-term care facilities with its scrutinizing gaze, appraising for quality, safety, and fraud.

In short, demographics are favourable. Profits are high and expenses are manageable. Upfront start up costs are high given the initial investment needed in the facility and personnel, but once up and running, a nursing home can be consistently profitable.


When Housing Becomes Unaffordable

A friend recently sent me an article detailing how Seattle has a major homeless problem (with the accompanying scourges of drug use, violence, and property crimes). It’s definitely sad to see. I’m intimately familiar with the growing 21th century phenomenon of unaffordable housing, having grown up in the SF Bay Area, which dealt with these issues decades before Seattle (and Portland). Realistically, I anticipate that the forces driving unaffordability will only get worse over time. Real estate in downtown cores of desirable cities, like Seattle, San Francisco, Vancouver, and London, is priced as an investment asset rather than a place for locals to live. There’s just no way middle class workers can compete with large pensions, hedge funds, sovereign wealth funds, and billionaire tycoons for property.

What can we do? Certainly economists have developed ways to combat homelessness through subsidies and affordable housing mandates. Others seek to curb foreign investment in housing or extract large taxes from absentee/nonresident homeowners. Those strategies will only go so far if we don’t address the fundamental issues of inequality. There’s simply too much wealth sloshing around looking for things to invest in. Nevertheless, I try to stay away from politics on this blog, instead preferring to approach things from an microeconomic perspective. As individuals, we’re unlikely to have much effect on changing things at a larger systems level, so all we can do is adapt, adjust, and try to survive.

How can we do that? Check out my book on wealth for tips on how to make enough money to buy that expensive house, how to structure the mortgage, as well as learn lifehacking tricks for how to compensate for expensive housing.


Illustrating Why Not to Pick Stocks

If you’ve read my book on wealth, you know that I highly discourage trying to time the stock market or to cherrypick which stock to buy. In today’s stock market, we have another great example of why. The market overall has been wobbly, with a few stocks (Facebook, Google, Amazon) shooting into the stratosphere and the rest of the market essentially in recession-level pricing (especially the energy and industrial sectors). This is great if you have concentrated your wealth correctly in those few stocks that are doing well, but most people didn’t guess right and are instead dealing with huge portfolio losses.

Let’s illustrate this point with a simple example. Assume a stock market with four different stocks.

  • A has dropped by 20% in the past year
  • B has dropped by 25% in the past year
  • C has gained by 150% in the past year
  • D has dropped by 10% in the past year

Assuming that each stock is weighted equally in the market, this means that the entire stock market as a whole has increased by 23.75%, all on the back of stock C.

Now we have fifteen different people each with a different approach to the stock market, scattered on the spectrum between concentration and diversification. We also list their gains. For math/stats geeks, we are essentially enumerating all the possible combinations of choosing among four options.

  • Person 1 concentrates all wealth in stock A (-20%)
  • Person 2 concentrates all wealth in stock B (-25%)
  • Person 3 concentrates all wealth in stock C (+150%)
  • Person 4 concentrates all wealth in stock D (-10%)
  • Person 5 buys two stocks (A and B) (-22.5%)
  • Person 6 buys two stocks (A and C) (+65%)
  • Person 7 buys two stocks (A and D) (-15%)
  • Person 8 buys two stocks (B and C) (+62.5%)
  • Person 9 buys two stocks (B and D) (-17.5%)
  • Person 10 buys two stocks (C and D)  (+70%)
  • Person 11 buys three stocks (A, B, and C) (+35%)
  • Person 12 buys three stocks (A, B, and D) (-18.33%)
  • Person 13 buys three stocks (A, C, and D) (+40%)
  • Person 14 buys three stocks (B, C, and D) (+38.34%)
  • Person 15 is the closet indexer and buys all four stocks equally (+23.75%)

In short, the more stocks you buy, the closer you get to the index average and thus are more likely to get a positive return. The fewer stocks you buy, the greater the chances of scoring a home run hit, but with a greater chance of losing money as well. The effect is magnified even more when only 3/500 stocks in the S&P index are outperforming the index. This example illustrates the value of diversification. In a world where most of the gains come from a few stocks, and where most of the gains come on a few days, missing out on those days or those stocks can be catastrophic for the overall portfolio. This should serve as yet another point in why low-cost index funds, with their instant diversification, are the only correct way to invest in the market.


Turbocharge Your Retirement with the “Backdoor” Roth

For those of you who have read my guide to wealth, you’ll remember that one of my points of emphasis is to save for retirement. Tax-deferred (traditional) and tax-free (Roth) 401k and IRA accounts allow us to minimize the taxes we pay in a legal manner. This allows our earnings to compound and grow faster than they would in a taxable brokerage account. Of the two, I like the Roth as it takes away all future tax headache as everything inside is tax exempt forever! It also has many advantages when drawing down (no required distributions) and as part of an estate package (automatic step up in basis).

Unfortunately, the government recognizes that the Roth IRA offers such good benefits that it has built in strict income eligibility thresholds. Singles making more than about $130,000, and married folks making more than about $190,000 can’t put anything into a Roth IRA. A Roth 401k remains a (great) option, but not all employers offer it.

For those who don’t qualify or are otherwise prohibited from contributing to a Roth IRA, we need to go in through the back door. Here are the step by step instructions:

  1. Open a traditional IRA
  2. Make a nondeductible (after-tax) contribution of $5,000 or $6,500 (depending on age), but don’t buy anything with the money yet
  3. Immediately convert the account into a Roth IRA
  4. Invest the money

Voila. Absolutely no difference in the end between this and a direct Roth IRA contribution. The back door approach exploits the loophole that tradition -> Roth IRA conversions don’t have the same income eligibility limits that Roth IRA contributions do. Now anyone without regard for income can take advantage of the great features of the Roth IRA.

Should you take advantage of this? The general rules of traditional vs Roth apply. If you plan on becoming wealthy in the future with the help of my book, you will have plenty of income-generating assets. Having as much of your wealth sheltered from tax in Roth IRAs helps to optimize your tax situation in that setting.

Keep in mind one big gotcha. If you have a large traditional IRA with a mix of deductible and nondeductible contributions, the “pro-rata” rule comes into effect. This means that you can’t just choose to convert only the nondeductible portion. If you have a $10,000 IRA with half of it as deductible (pre-tax) and the other half nondeductible (after-tax), a conversion of $5,000 will incur tax on $2,500. The best workaround is to keep the size of the IRA small and convert all of your contributions each year, or suck it up and convert the whole IRA.

Keep in mind that the pro-rata rule doesn’t apply to our 401k investments. This may be one situation where it’s advantageous to hold off on rolling over the 401k to an IRA when we change jobs.