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Feeling Gloomy About the Future?

Here Are 1O Bits of Good News 

The news media understands that bad news sells better than good. So it’s not surprising that if you allow yourself more than, say, 30 minutes a day reading newspapers or on social media, you’ll develop a very pessimistic view of the future.

Whenever I’m feeling that way, I spend an hour or two searching for good news. And guess what? There’s plenty of it.

Here’s a sample of what I discovered after rolling out of bed on the wrong side this morning:

  1. The number of cigarettes being smoked in the UK fell by nearly a quarter between 2011 and 2018. This means that 1.4 billion fewer cigarettes are being smoked every year.
  2. For the first time, humans have achieved direct brain-to-brain communication through non-invasive electroencephalographs (EEGs). The “BrainNet” system achieved over 80%accuracy.
  3. Saudi Arabia, traditionally one of the world’s most misogynistic countries, has granted women the right to travel overseas without male permission. Women can also now register births, marriages, and divorces; be issued official family documents, and be guardians to minor children.
  4. Engineers from MIT accidentally developed a material 10 times blacker than anything in existence. And in case you’re wondering, it may actually have a practical use. As pointed out by Brian Wardle, one of the developers, “There are optical and space-science applications for very black materials, and of course, artists have been interested in black, going back well before the Renaissance.”
  5. The poverty rate in the United States has reached its lowest point since 2001. There were 1.4 million fewer people living in poverty in 2018 than in 2017.
  6. Starting next summer in San Diego, Uber Eats will be delivering dinner for two via drone.
  7. California has done away with private prisons. This is a major victory for criminal justice reform because it removes the profit motive from incarceration.
  8. A year ago, Chile began a campaign to ban plastic straws. Since then, 200 million fewer plastic straws have been delivered to shops and restaurants.
  9. MediView XR recently raised $4.5 million to further develop its Extended Reality Surgical Navigation system. The system gives surgeons a form of “x-ray vision” when conducting cancer ablations and biopsies.
  10. The Chinese city of Handa has deployed a team of traffic robots to help police with road patrol, vehicle management, and accident warnings.
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“Uber Is Going to Zero and Their VC Backers Know It” 

In a previous post, I wrote about the possible demise of Uber. In this essay on, Matt Ward presents a similar view, comparing the deep “moat” AirBnB has against its competition with the shallow “puddle” that surrounds Uber.

The important lesson here is the idea I mentioned in my essay: User-built networks – like AirBnB –  get more valuable (and less vulnerable to competition) as they grow because they provide customers with more of what they want: reach. But company-built networks like Uber have no advantage over upstarts because, as Ward points out, they are essentially in a marketplace of local commerce catering to customers that have no loyalty.


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“You ain’t got to wait on a cab no more; just call your Uber, and it pulls up.”

– Trip Lee


Uber: A Great Idea, a Bad Strategy, a Cheapskate Market 

For as long as I can remember, taxi service in the Big Apple has been horrendous.

The taxis are generally filthy on the outside and dingy on the inside. Legroom is cramped because the drivers favor driving hood-style, with the seat pushed as far back as possible. Half of them speak very little English. And few of them have any idea about how best to get you where you are going.

I can put up with all that. But I don’t like feeling that my life is in peril because of the reckless way they drive.

I was in New York City several times in 2009 when Uber was launched. The cars were new and spotlessly clean. The drivers were nicely dressed, courteous, and helpful. They spoke fluent English and took you quickly and comfortably to your destination, relying on Google Maps and/or Ways. Plus, they offered limousine-styled amenities, such as tissues and chewing gum.

And there was more…

Using Uber, you didn’t have to deal with cash or credit cards or feel compelled to leave an undeserved tip. Arriving at your destination, you simply thanked the driver and hopped out. If you forgot something in the car, it could be quickly located and returned to you.

Another thing… you didn’t have to worry about your driver mugging you. You knew that he’d been through some sort of vetting process. And besides, there was accountability: Your ride was electronically recorded, and (afterwards) you could anonymously rate his service.

Great Expectations 

My early experiences made me a big fan and a loyal customer. I recommended Uber to everyone, and I stayed with them when other personal transportation services popped up.

I liked Uber for ideological reasons, as well. As a free-market believer, I loved the idea that Uber was opening up thousands of jobs for people that needed to make more money. I loved the fact that they were for the most part unregulated, supporting my view that regulation usually increases costs while simultaneously decreasing quality. And I felt certain that Uber’s high standard of service would, through competition, improve the quality of service throughout the entire taxi industry.

Such were my hopes…

Recent Reality 

Things have changed since those halcyon days.

If you use Uber Black, you will get limousine-quality service today. But you will be paying limousine prices, which is typically two or three times the cost of the basic Uber X service.

If you opt for Uber X, which competes price-wise with taxis, you may have a different experience.

Case in point: K and I were going from the Baccarat Hotel on West 53rdto LaGuardia at 8:30 in the morning. She called for an Uber X and we waited six minutes for it to arrive. Meanwhile, a dozen available taxicabs drove by. Okay, fine.

The car arrived – a small black Honda with dents along the passenger side doors. The driver pulled up in front of the hotel and idled there, while he seemed to be finishing some sort of video game on his iPhone. The hotel’s valet had to knock on the window to alert him of our presence.

The interior of the car was… not filthy, but miles from clean. The driver had a thick mustache and an equally thick accent. We exchanged pleasantries, and I, having the sniffles, asked for a tissue. He didn’t have one. K asked if he had a URL plug-in. He said it wasn’t working.

He drove maniacally, gunning the engine when traffic opened up and slamming on the brakes just before crashing into the car ahead. He cut right and left to gain a few feet, as if he were rushing us to a hospital.

“There’s no hurry,” I said at one point. But he wasn’t paying attention. He was busy screaming out his window at the other drivers with whom he was engaged in some insane life-and-death contest.

And then, to our astonishment, he missed the exit to the airport, even though his GPS was telling him to take it. I brought this to his attention, and he told me that the GPS was wrong. That it’s frequently wrong, and that he knew a faster way.

Five minutes later, he handed me his phone and asked me to locate the airport for him. I’m not kidding.

I did a little online research and found that I wasn’t alone in thinking that Uber’s “quality of service” was slipping. There were dozens of complaints.

What Went Wrong? 

The decline could be linked to driver compensation.

Uber’s amazing early growth spawned lots of copycats that were competing on price. (Lyft, Zipcar, Getaround, Car2Go, Zimride, etc.) But rather than building a protective moat for itself around its initially good service, management apparently decided to enter into and dominate the competition by offering cheaper services and cheaper fares for Uber X, which was, by far, its primary service.

Initially, Uber X cars were smaller, less expensive vehicles – but they were clean and the service was great. And they were cheap. Significantly cheaper than taxis. I remember thinking that the fares were barely enough to cover gas and maintenance. I estimated that if the driver was making minimum wage he would be lucky.

I expected Uber X fares to rise as Uber’s popularity spread and the company enjoyed its market dominance. They didn’t. In fact, they seemed to be getting cheaper.

And then there’s this…

Uber has done an amazing job of growing its business and its revenues. As of 2019, it was operating in 785 cosmopolitan areas and servicing 110 million users worldwide. In the USA alone, it has a 69.0% market share in the personal transportation industry.And that’s to say nothing of its ventures into other industries – such as food delivery, where it has gobbled up a 25% market share.

Revenues are impressive – moving up to the billions in recent years. But as for profits… there aren’t any.

Uber isn’t profitable. It never was. Its business strategy was always about gaining market share (which it did) and then going public and getting a huge market valuation. The idea is to use all those billions not only to build the business but also to pay off the founders and the early employees that were promised stock shares in lieu of large salaries.

This is the strategy of “Unicorn” companies – businesses that aim to transform the world with “destructive” (i.e., radically innovative) technologies, using investor funds to keep getting bigger until one day they can figure out how to make a profit.

Before Uber’s IPO (initial public offering), market pundits were projecting a valuation of $120 billion. Does that seem crazy? A business whose revenues are $3 billion a year being worth 40 times sales?

Well, that’s what the experts were saying.

But after the IPO, prices dropped pretty quickly – by 15% within days. This happened at the heels of Uber’s most recent quarterly report, where the company posted losses of $5.2.billion.

You read that right. $5.2 billion!

And here’s the kicker: Almost $4 billion of that went to “stock-based compensation expenses” – stock option payoffs to founders and early employees. Another $400 million to $500 million will be shelled out in the third quarter.

Facing continued losses, Uber’s COO and CMO stepped down and its marketing department headcount was reduced by a third.

 How Did It Happen? 

My early admiration and hope for Uber has been dimmed if not dashed.

I blame what’s happened on three things:

First, Uber was launched as a gain-market-share-now, make-profits-later enterprise. It was a strategy that worked very well for Google and Apple and even Amazon, but failed to work for countless, now nameless, start-ups. A strategy that ate up billions of hard-earned investment dollars, making millions of foolish investors poorer.

Second, Uber’s decision to enter into a price war with other unprofitable companies was not, in retrospect, a wise one. In maintaining its market dominance, profitability – and perhaps even the hope of profitability – went down the drain.

And the third reason, which I suspect is what forced Uber to get into the price war, was that it discovered there was no significant market for the kind of high-quality service they had been offering: reliable transportation in clean cars driven by courteous drivers.

I blame that on the American consumer. I don’t know why, but when it comes to transport Americans (and maybe the rest of the world) have only one criterion: cost. Nothing else – comfort, ease, courtesy, or even safety – seems to matter. The company that offers the cheapest fares gets the lion’s share of the market.

We saw this happen in the aviation industry decades ago. When carriers came along and started offering fares that were sometimes half or a third of what conventional carriers were charging, the big players jumped into the fray and began offering discounts of their own. These discounts were irregular and often deceptive, but they were sufficient to keep the planes full, at least for a while.

Then some of the big guys dropped out, unable to stay profitable. And the rest of them started cutting back on amenities and then services and then legroom. The luxury service that was de rigueurin the early 1980s when I started flying no longer exists except in first-class international travel. Passengers may gripe about how the quality has deteriorated – but when it comes time to book that flight from LaGuardia to Fort Lauderdale, they are going to take the one with the cheapest fare.

I’m all for cheaper fares and crappier service for those that want it. But why can’t we have quality for those that are willing to pay more?

We have it with hotels. We have it with restaurants. We have it in just about every retail and consumer business I can think of. But with airlines and personal transportation services, it’s bad and getting worse.

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How much do Uber drivers make? A report published by the Economic Policy Institute in 2018 found that it’s far less than you might think: an average of $9.21 an hour.

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halcyon days (noun) 

In Greek mythology, the halcyon (HAL-see-un) bird was said to calm the wind and the waves. The phrase “halcyon days” refers to a tranquil period of happiness, success, and prosperity, especially in the past. As I used it today: “My early experiences [with Uber] made me a big fan and a loyal customer…. Things have changed since those halcyon days.”

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Cathay by Ezra Pound

Ezra Pound was one of my favorite poets in college and even in graduate school. I loved his imagist poems and “Hugh Selwyn Mauberley” and was awed by “The Cantos.” But the poems that broke my heart were the 15 classical Chinese poems that he translated for this collection (published in 1915).

Pound could not read Chinese fluently, so based his translations on the notes of Ernest Fenollosa, an American who had studied Chinese under a Japanese teacher. For me, that’s not a problem. For me, the poems in Cathayare Pound’s.

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An email from NA:

I’ve been reading your [essays] for a good while now. Not all of it applies to me, but I read it all nonetheless.

 I’ve always been confident in my capabilities and those of my fabulous husband,… 18 months ago, we left an uber-cushy expat job in Asia to partner in some new ventures in order to provide a legacy for our three kids, then all under 3.

 It’s tough going… but we’re not going to give up.

Your nuggets of information and inspiration always seem to say just what we need to hear, to suggest a different way of considering things, or riding out the storm.

 So, thank you.

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Are You Ready for the Next Stock Market Meltdown?

How comfortable do you feel about your stock portfolio?

A few weeks ago, Bill Bonner posted a warning on his blog – an essay titled “We’re Raising the Crash Flag.”

Bill has always understood economics better than I do. He’s intellectually attracted to big ideas and “connecting the dots,” as he puts it. I like to think of myself as his Charlie Munger, but I’m not sure I am. I am familiar with Buffett’s ideas. I have no idea what Charlie thinks.

In any case, my aim in understanding economics is lower than Bill’s. I don’t really care to understand how it works at a deep level. I just want to understand enough to avoid making stupid mistakes.

On a micro level, avoiding mistakes in the market is not that difficult. Buy mostly large, profitable companies that have a long-term history of paying dividends. And don’t speculate.

But on a macro level, avoiding mistakes is a bit more difficult.

When the economy goes bad (and all economies sooner or later go bad), the stock market goes bad too. And it can stay bad for an awfully long time.

So even if you own only good companies, you can see the value of your stock portfolio tank severely every now and then – and in rarer cases, stay down for years and years.

In my lifetime as an investor, I’ve seen several serious bear markets. Had I been able to predict them, I would surely have cashed out my stocks and moved into cash and gold. Which is what Bill does.

But since I’ve never had a crystal ball, I’ve never tried to time the market. And while that was not as profitable as it would have been to correctly play the future, it was, in retrospect, a lot better than pulling out.

There are lots of studies proving just about every imaginable thesis on investing. I’ve looked at enough of them to know that if it were possible to time the markets, it would take someone much smarter than I.

So my strategy has always been to buy great stocks and hold on to them. And when the crashes come, to buy more of them when their prices are, by value standards, historically cheap.

That said, it worries me when Bill puts out a warning about an imminent market crash. If he’s right – and eventually, he certainly will be right – it means that I’m going to see my stock portfolio descend by millions and millions of dollars.

That won’t be a good feeling. And I can understand that if I converted my stocks to cash today and a market collapse occurred next week, I’d feel very good about that decision.

But I don’t know for certain that the market will crash any time soon. So for the time being, my strategy is going to be as follows:

Avoid speculative stocks.

There are all sorts of reasons to a believer that certain speculative stocks might prevail in the coming years – e.g., Uber. But as of right now, the company is unprofitable. And that means, in my simple way of looking at it, that it is a speculation. If I’m going to speculate, I’d rather invest money in a fledgling business in an industry I know (such as direct response marketing) or in a business I can have some control over (as a founder, for example) than in a company like Uber, about which I know only what I read in the financial press.

Hold tight with my buy-up-to parameters.

My rule for buying stock is based on a simple metric: 10- to 20-year historical price-to-earnings ratio. When the stock market is generally overpriced, these ratios are very high. It becomes difficult if not impossible to buy stock in businesses, regardless of how great I think a particular business’s prospects are.

I just met with Dominick, my advisor at Raymond James, to go over the P/E ratios of my core stocks (the Legacy Portfolio), and only a handful were priced “right” according to the formula we follow. I was not disappointed. On the contrary, I was pleased. It meant that the cash I have been accumulating from dividends and from my active income will be put into cash and income-producing real estate, assets that should maintain their value or appreciate even if the market drops by 50%.

Buy gold?

The last time Bill sent out a warning like this (it was prior to the 2008 crash), I started to buy gold. I bought a good deal of it at an average price of less than $500. That was a good contrarian move, and I have Bill to thank for it. But the amount of gold coins I own now is more than sufficient for “survival” purposes. And since gold is not a business and does not produce income, I won’t treat it like an investment. I have enough. I won’t buy more.

Stockpile cash.

Dominick agrees with me that Bill’s thinking, on a macro-economic level, is sound. He gave me reasons why his company believes that we are still in a long-term secular bull market that will endure, with ups and downs, for many years – so long as interest rates stay low. And we both think (as Bill has pointed out) that the Fed is going to do everything it can to keep rates as low as they possibly can.

Of course, Trump’s crazy trade-war strategy is not good for the economy and it is very dangerous for the stock market. If all things were equal, he would settle his dispute with China quickly to bring back a sense of optimism to Wall Street. But I don’t think he cares as much about that as he does getting reelected. And since he’s already been saying that the Fed will be responsible for any future financial collapse, he has something he can talk about if it happens.

Meanwhile, the idiocy of the trade war is beyond the intellectual scope of his core supporters. So he might continue with it through the next elections. And if he does, we might see another collapse of as much as 50%. If that happens, I told Dominick, all of our Legacy Stocks should be trading at prices that are historically super-cheap. And if they get there, I’ll have a stockpile of cash ready for buying.

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Four Proven Ways That Employees Can Get Big Raises and Retire Rich

It’s commonly said that you can’t get rich working for someone else. That the only way to achieve financial independence is to own your own business.

This idea feels true when you are stuck in a thankless job, working long hours for mediocre pay. But it’s nonsense.

It’s perfectly possible to become wealthy as an employee. You’ve just got to (a) be working for the right kind of company, (b) chart a course for yourself that takes you from ordinary to valuable and from valuable to invaluable, and (c) make sure you get the compensation you deserve.

I know this to be true for three reasons: I did it myself. I mentored at least a dozen employees that did the same thing. And I looked at a foot-high stack of research on highly paid employees that confirmed my experience.

(In this essay, I’ll outline the principal ideas I’ve developed on this subject. I’ll present them just as I presented them to those I’ve mentored: as observations and advice. Sometime later this year, if I can get someone to help me, I’ll expand this essay into a book. But what you are about to read should get you going and keep you moving in the right direction, if you are interested.)

Nothing I’m about to suggest will be especially difficult. It will take time. And commitment. And the willingness to do some things that you are not doing now. But there will be no big scary leaps required of you. Begin where you are now, with the skills and knowledge you currently have. Then move forward, taking small, sensible steps, acquiring the skills and knowledge you currently lack.

There are 5 stages to this journey:

  1. Make sure you are working for the right company.
  2. Become extraordinary at what you do.
  3. Develop additional, financially valuable skills.
  4. Expand your reach so that your business can’t do without you.
  5. Move from employee to stakeholder.

Work for a Business That’s Right for You

There are basically three kinds of businesses that can provide the environment you are looking for, where you can become rich.

Big corporations

Big corporations will pay you serious money if you are at the top of their food chain. A senior vice president of a billion-dollar business can easily make $350,000-$750,000.

It’s not difficult to accumulate an eight-figure net worth if you get yourself promoted into one of those highly paid jobs quickly. But the competition will be strong. You will be competing with dozens (if not hundreds) of very smart, very hardworking, very ambitious young people. You will have to be not only outstanding at your job and then move yourself strategically towards the money side of the business, you will also have to be politically shrewd. Because all big companies suffer from some amount of corporate politics. And even if you have what it takes to rise to the top, it will likely take 10-20 years.

Financial service businesses

Brokerages, banks, and insurance companies are particularly good places for ambitious people that want to get rich as employees because they are designed to motivate and reward their employees with commissions and bonuses. And if you are with the right company, those commissions and bonuses can be huge.

There are probably a thousand such businesses in the USA that are happy to pay their best people $250,000 to $1 million or more – if they can perform. Career paths at this level include portfolio managers, marketers, and salespeople.

Becoming a high-earning portfolio manager is a matter of knowledge, skill, and luck. If you are highly intelligent, mathematically oriented, and mentally disciplined, this could be an exciting and rewarding path for you. But be prepared for the emotional challenges. It is difficult to keep an investment portfolio’s performance above the pack. When the performance is up there, you are a superstar. When it drops below – and eventually it will – you will be a pariah.

A less demanding (in my view) career path is to become a broker – starting out working under another broker, developing leads and then signing up your own accounts, and then eventually having a team of junior marketers and junior salespeople working for you. Brokering is 80% salesmanship, 10% customer management, and 10% knowing what you are doing. To succeed as a broker, you need to be very good at all three.

Small companies with big potential

The third type of business that offers employees the potential to become rich is the small, entrepreneurial company with big growth potential.

This was my choice as a young man, and I don’t regret it. Starting out with a small company, especially if you are young, gives you a fast track to making big money that you won’t get in a big corporate environment. You are not competing against dozens of hyper-smart and uber-ambitious colleagues. And there is no formal corporate ladder to climb.

With small businesses, it’s generally easier to take on more responsibility. It’s also much more likely that you will be working directly with the founder, who will be very conscious of everything you are doing to make him or her rich.

Plus, working for a small business gives you a much greater ability to shape the corporate culture so that you can become not just wealthy but also proud of what you do.

Becoming a Valuable Employee

Whatever type of company you choose, your journey to wealth begins by establishing yourself as a valuable employee.

Most employees go through their lives working for businesses they care nothing much about, dealing with problems they’d rather not face and getting paid very ordinary wages. They would like to earn more. They may even be willing to do more. But their ambitions are sporadic and fleeting. Most of the time, they are simply showing up.

Such employees are never going to get substantial raises. They can expect their salary to rise very slowly and very gradually. From 1984-2017, for example, the average salary rose by around 3.5%, according to the Average Wage Index.

As an ordinary employee, that’s what you should expect. But getting a 3.5% increase every year will never get you rich. It’s barely enough to keep up with inflation.

Becoming a valuable employee, however, puts you on a different trajectory. Extraordinary employees can – and often do – get raises that begin at twice the 3.5% average and often jump by 10% yearly with periodic leaps of 25% or more.

That sort of arithmetic is why most college-educated employees starting out today can expect to quadruple or quintuple their salaries over a career span of about 20 years, whereas top-performing employees can easily double or triple that.

A valuable employee, earning only a minimum increase of 7% a year, will see his compensation grow from $50,000 to $193,000 in 20 years. At 10%, he will see his compensation break into the quarter-million-dollar range.

There are basically four ways to distinguish yourself as a valuable employee and see your compensation accelerate at a faster pace:   READ MORE

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