Rhody Trader

Vincent Fernando at The Business Insider did a post comparing the current economic situation to that of the early 1980s. The upshot of the post is that when one looks at inflation, unemployment, and interest rates as they are now and as they were then things don’t look quite so bad right now.

Actually, from my perspective things now remind me more of the early 90s. That was the time of the RTC after all those thrifts were shut down across the country. In Rhode Island the governor shut down all the credit unions on New Years day 1990, which really did a number on the state economy for a couple of years. I was only a kid in the early 1980s, but I do remember it wasn’t a great time. The cities were in rough shape. I think anyone who was in NYC at the time would agree.

Seperate, former colleague Jamie Coleman at ForexLive posted  a fun look at the yen situation. The Japanese have always stood ready and willing to intervene in the currency markets, either directly or verbally. That, at times, creates some very interesting press and market action – as it did last night.

Last week it was reported that Dan Brown’s latest novel, Lost Symbol, had sold more than 1 million copies in its first day. Of course that will have included pre-order sales. CNBC just reported that in the first week the book sold a record 2 million copies. I am not included in that group myself. I’ve read both of Brown’s prior two books. Not sure yet whether I’ll read this one as well. I’m generally not the sort who feels the need to go out and get hold of a copy right away and Brown didn’t blow me away with the other novels in any case – not that they were bad, mind you.

But that’s beside the point. Let me just say that my eyes lit up at the number since I’m developing my own novel. It’s one which will share a genre and some other broad elements with Brown’s work, which means it will likely appeal to a similar market – a big one from the looks of it.

I’ve been taking in some of the reaction to the announcement from Rupert Murdoch that soon there will be a charge for use of News Corp websites. There are definitely those out there slamming the idea, like the Australian site Crikey. They basically take the view that if Murdoch does this he will basically hand over market share to his competitors who don’t (also referring to his miserable track record when it comes to online things – like My Space). Daily Kos suggests this move could actually hasten the death of the old print and broadcast media model, upon which News Corp was founded, of course. Responders to an LA Times blog entry on the subject were strongly vocal from several different angles.

I personally am not sure how it’s going to fall out. This could actually work quite well, but only if other media companies follow along. If News Corp is just hanging out there by itself while others are able to carry on with a free model then it could get absolutely buried by the competition. There is inevitably going to be a consumer backlash when the charges start to hit. If they have a choice they’ll go elsewhere, but if not it will just be a lot of sound and fury with no meaningful impact.

I’m not one of those who thinks everything on the internet should be free. It takes time and effort to create the content. It’s only fair folks get compensated for that work.

The problem is most people don’t think in terms of value. I see it in new traders. They are always looking to get something for free. They fail, however, to account for the time it takes them to aquire the free stuff which could be had more quickly and easily for a nominal price. They also fail to take into account the fact that free can also come with a lower quality of product (see When Free Isn’t and Paying Makes Much More Sense). More experienced traders (and business people in general) will understand the value/cost trade-off and make decisions in that way.

The head of my business unit expressed the view that this move by News Corp could help to tier content, especially in an area like ours dealing with markets and analysis. He  specifically offered up as example of the free level a trader who has a thousand people reading his stuff, but has no professional background and no real understanding of the markets. Naturally, not every trading blogger falls into that category, but his point is fair enough.

I see two potential influencing factors here. One is the fact that there’s only so much advertising money and there’s a rapidly increasing number of places it can get spent online. Economists would probably say that some kind of equilibrium will be found where the competition for advertising dollars will make it a challenge to really get ahead with that as a primary income source – at least at certain levels.

The other factor is that there are many other non-direct-profit motives for providing free content online. That means there is an on-going conflict between those who want to charge and those willing to give it away. The ability of those looking to charge to create value (at least the perception of it, anyway) beyond what can be had for free is what will decide the outcome.

Joe Weisenthal claims in his Clusterstock entry that Harvard Business School is Teaching Dangerous Nonsense About Leverage. It’s basically a little add-on commentary to a post by my corporate compadre Felix Salmon on his Reuters blog. Felix, and Joe by extension, are going after the Harvard folks for this statement:

It would not be rational for a public company to be funded only by equity. It’s too inefficient. Debt is a lower cost source of funds and allows a higher return to the equity investors by leveraging their money…

While I think there are plenty of reasons for bashing Harvard (I used to coach for Brown, so they are fair game as far as I’m concerned ), it’s definitely harsh to go at them for this, which basically just comes from well known financial theory. Certainly, it’s not confined to that Cambridge campus. My former professor, Dr. Gordon Dash, offered up the following in response:

That is traditional thinking at its best about lowever the avg cost of capital. Of course, what is not mentioned is HOW these folks estimate the cost of equity — well it is by the use of the old CAPM and its reliance on the linear relationship between risk and return. It might just be that the firm is so saddled with high-priced equity that it would not make sense to take on any other form of capital expansion without first reducing the risk adjusted cost of equity.

As much as the old methods of financial analysis have come under sharp criticism, there is definitely the question of cost of capital which needs addressing, and that’s something Felix and Joe have ignored. They’ve just harped on the “debt is bad” theme. I understand it given what we’ve gone through, but it risks swinging things in the whole opposite direction, which isn’t any better.

The bottom line is that each company should be making decision about their capital structure that make sense for their particular situation, maximizing the return of their shareholder’s investment, but with a reasonable risk profile.

JD at Get Rich Slowly posted  The Pros and Cons of Self-Employment recently and it got me thinking about my own experiences as an entrepreneur. It started in earnest back when I was coaching collegiate volleyball. That was a great job for many reasons, one of which was having a high flexible schedule allowing me to do some interesting things.  I’ve kept it up in different ways since then.

I guess you could say I started with launching a club volleyball program, though while that was certainly a business from the perspective of management and marketing and all that, it was never something intended to make money. The first real money making venture was the development of a training aid which came to be called the Precision Passer. Basically, it’s a target which hangs on the volleyball net (as you can see in the picture) that players use to catch the the ball in their ball-handling drills. They’ve been sold all over the US and to a few other countries as well.

Going through the process of developing and then marketing the Precision Passer was a great learning experience. There was prototyping to be done and a patent to file when it was ready. There was production to arrange and fund. There was a marketing strategy to develop and a fulfillment processes to put in place. In some ways there was success. In other ways there was failure.

Although the products are considerably different, the lessons I learned building the Precision Passer business, and running the volleyball club program, helped a lot when my book came out. Of course Wiley deals with the production and distribution of The Essentials of Trading, but a great deal of the marketing and promotion has fallen to the team of  me, myself, and I.

There’s no doubt in my mind that I will continue in an entrepreneurial manner for many years to come, if for no other reason than because I have varied interests and like having side projects. The one thing I would say about it, though, is that running a business is much more involved and complex than most folks ever thing about ahead of time. As one book I read said quite well, most people who quit their jobs to start a business find themselves with a job that’s much bigger than the one they’ve left.