On July 27 and July 29, we talked about Asian-Americans, pointing out that they are, as an identity group, the richest and most successful ex-patriots in the world. Comprised of at least a half-dozen ethnicities and nationalities, the common denominator of their success, we concluded, lies in their culture. They place a high value on hard work, continuous education, and saving.

 Today, we continue to explore successful identity groups around the globe and ask: “What do they know that we don’t?”

Is Sweden a Good Model for America?

Is Democratic Socialism Where We Want to Go? 

“If we heard that somebody starved to death in Sweden, we would be shocked.” – P.J. O’Rourke

I like Bernie Sanders.

I know very little about him other than he came from a working-class neighborhood in Brooklyn, spent his life as a crusader for blue collar America, worked his way up Vermont’s quirky political ladder to state senator, and ran twice for president as a “Democratic Socialist.”

I’m a free market Capitalist. And yet, whenever I catch a glimpse of Bernie on YouTube, I find myself smiling and thinking, “I like this guy.”

He reminds me of LF, a high school friend that drifted away from his privileged, upper-middle-class background and devoted his life to advocating for labor and the poor. I don’t agree with all of LF’s causes, but I write him a check every time he asks for one because he is earnest, humble, and plainspoken. Pretty much the opposite of most politicians.

I also like Sweden. It is a beautiful, civilized country, populated mostly with handsome, civilized people that are industrious, generous, courteous, and well-behaved. (I’m not sure how much they have contributed to the global scene over the years. There’s ABBA and Yngwie Malmsteen… but they’ve also given us Ikea and Skype.)

So you might think that if I like Bernie and Sweden individually, I should like Bernie-on-Sweden even more. But I don’t. Bernie’s idea of what Sweden is and represents – either out of naivete, ignorance, or deceit – is wrong.

Bernie’s Romanticized Idea of Sweden 

In 2015, when Bernie ran for president against Hillary Clinton, he presented himself as a Democratic Socialist. He called his vision for America a “political revolution,” and made it his goal to dismantle the current economic system and replace it with one like the Nordic Model of Sweden (and Norway and Finland).

He pointed out, correctly, that in Sweden – a country with 1/40th the GDP of the US – citizens and residents have access to publicly funded healthcare and education, as well as other welfare policies that do not exist at all or to the same degree for Americans.

For example, denizens of Sweden enjoy the following:

* subsidized doctor and dental care and free public hospital treatment

* subsidized prescription drugs and free life-saving drugs

* free maternity clinics, abortions, and sterilizations

* sickness and injury compensation for workers

* one-year paid leave for parents

* subsidized childcare and nursery school

* unemployment insurance that pays about 80% of previous income

* old-age pensions paid for by taxes and employer contributions

* full or partial disability pensions

* special payments to handicapped persons who are working or in school

* surviving spouse and orphan pensions

* housing subsidies for poor families and elderly pensioners

In the five years that have elapsed since Bernie started pushing the Nordic Model, it has been endorsed by many other politicians on the outer edges of the Democratic party. Just the other day, at the Democratic convention, AOC made the same point when she nominated him for president. She even suggested that her Green New Deal was based on the Nordic Model.

AOC can be forgiven for her ignorance of Sweden’s economy. She’s a sociologist, comfortable speaking with conviction about all sorts of topics about which she knows little or nothing. But Bernie should know better.

The Myth 

In recent years, many Americans have come to believe, as Bernie does, that America would be a better country if it eschewed Capitalism and moved towards Socialism. And since the Democratic debates, Bernie’s idea that Sweden is a model for modern, progressive, and prosperous Socialism has become widespread, too.

There are, no doubt, aspects of Swedish welfare that, on the surface, are very appealing. Universal access to healthcare and education are among them. A safety net for the sick, the disabled, and the poor could be added to the list.

But what Bernie and his followers don’t understand – or understand but don’t acknowledge – is that none of these social benefits are in any way free. And the way they are paid for in Sweden is very different from the way such services are paid for in the US.

In fact, to adopt the Swedish model in the US, we would have to dismantle both our welfare system and our tax system and replace them with structures that left-leaning politicians, media pundits, and even academics would consider to be anti-progressive, pro-Capitalist, anti-regulation, and systematically racist.

The Green New Deal is for raising taxes on the wealthy, increasing government spending, expanding government regulation, abolishing the voucher system for schooling, and nuclear power as an alternative to fossil fuels as an energy source.

So, what, exactly, is the Nordic Model? And if Sweden is an exemplum of it, how, exactly, does its economy work?

You may be surprised to learn that among Swedish economists, political scientists, or even political leaders, there is no argument…

 Sweden is not a Socialist country.

 Nor does it have a Socialist economy.

It’s not even close.

Sweden has a free-market, open-trade, Capitalist economy that is, in many ways, freer, less burdened by regulation, more friendly to business, and kinder to the top 1% than the US.

Sweden has more free trade, a less-regulated product market, no property taxes, no gift or inheritance taxes, no requirements for occupational licensing, no minimum wage laws, lower corporate tax rates, and generally less government participation in the economy. (Needless to say, it’s a very friendly place for billionaires. In fact, Sweden has more billionaires per capita than any nation on earth.)

But with all that economic freedom, Swedes enjoy high living standards and low poverty.

And perhaps most amazing of all: Sweden is doing all of it without printing fake dollars and robbing from its children’s futures.

How does Sweden do it? How does it provide so many social benefits for its population and yet remain prosperous? And what can we learn from its success?

I spent the last several nights researching the answers to those questions. The answers I found made me realize that Bernie has the right idea. Sweden does present a model for a better, safer, and kinder future for America. But the chances of that happening are next to none.

And that’s because of the big mess we’ve gotten ourselves into – mostly because of the very policies that the Green New Deal supporters are promoting.

But I’m getting ahead of myself. I want to share the results of my nocturnal studies with you: the reasons that Sweden is able to have one of the world’s most comprehensive social welfare systems without turning into a dreary, second-world Socialist country or an imploding  third-world country like Venezuela.

It’s an enlightening picture. We’ll look at it on Monday.

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Note: The following essay is an excerpt from the upcoming new and revised edition of Ready, Fire, Aim. 

Don’t Get Stuck at a Measly Million Dollars in Revenues 

 “Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.” – Peter Drucker

Businesses are often compared to machines, with structures and frameworks, designs and templates, and cogs and wheels. In my experience, they’re more like organisms that grow in organic ways.

In infancy and childhood, growth is fragile and must be both nurtured and protected. In adolescence, growth is rapid and must be guided and sometimes restrained. In maturity, growth slows and must again be stimulated to avoid senescence.

Today, let’s talk about how to “parent” your start-up through its childhood, as it moves from a solid mom-and-pop operation to a serious small business with big business potential. The key to doing that, as I said in my August 5 essay, is to develop a company culture of innovation and speed.

Innovation is about introducing new products to your market: both front-end (less expensive introductory products to attract new customers) and back-end (more expensive and more narrowly focused products to encourage existing customers to buy more).

But innovation is also about creating new and better levels of servicing your customers. And it’s about developing new internal systems and strategies to keep all the new products and services at pace with the ballooning production demand.

In Stage One (the infancy of your business), the primary goal is to sell a single product so successfully that it provides the cash flow you need to expand. This is done by constant testing in the most efficient ways possible until you can discover your optimum selling strategy (OSS) in the market you have chosen to compete in. To succeed in Stage One, the entrepreneur’s primary focus must be on testing and selling. The culture to support that needs to be relentless and myopic. Everything other than making that OSS work must be treated as a secondary task.

In Stage Two (childhood), your main goal is to dramatically increase cash flow by creating and selling more products. These include one or two more front-end products, plus six or eight back-end products.

That’s not easy to do. Getting a single lead product to work can take one or several years. Successfully developing and selling eight to ten more products in the same amount of time can be done, but it requires rethinking your business almost from scratch.

For one thing, you can’t do it alone.  You will need to surround yourself with a small team of very smart, very motivated, very hardworking people. You will have to work with them as a team. And you will have to persuade them to hire their own smart, motivated, and hardworking people to support them.

You’ll need brilliance too. You’ll need at least one person that is brilliant at conceiving of new products. You will need another who is brilliant at selling them, another that can intuit who should do what task and according to what time schedule, and someone else with a deep commitment to your customers who will constantly remind the team of the “why.” And you’ll need a drill sergeant that is not afraid to put lots of pressure on everyone to move things along at a breakneck pace.

Six brilliant teammates? Does that sound unreasonable?

It should, because it is. Taking a business from $1 million to more than $10 million in three to four years is an unreasonable goal. And yet, as a Stage Two business leader, it should be your goal. The opportunity to grow so much so fast isn’t always there in the lifespan of a business, but it is almost always there at Stage Two. So you have to seize the day. Unless you have that unreasonable goal – and make it everyone’s goal – the chances that your business will one day break through the $10 million barrier and into Stage Three become almost nonexistent.

So, you need a superstar team of six amazing people – each with a different skillset. What if you don’t have six superstars with those skills?

There is only one answer: You have to play those roles yourself.

Not to worry, though. If you led your business through Stage One, you’ve probably been plying several (or even all) of those roles already.

I’ve been involved in more start-ups than I can count. In almost every one, I was the SOB that pushed the team to work harder than the team members wanted to work. But I was also frequently the product developer, the marketer, and the customer ombudsman. Any entrepreneur or start-up CEO worth his salt can play two or three roles at a time. And do a good job with them. But you can’t do that forever. As the business grows and revenues double and then double again, you will need great people to take over some of those roles for you.

If, when you enter Stage Two, you realize that there is no one on your team that can rise to the level of taking over some of these roles for you, you’ve already made a terrible mistake. If you work 18 hours a day, you may be able to push your business to grow for a while. But that growth will be stunted compared to what your company could do with a superstar team to help you.

And it’s not just the superstar leaders that have to buy into the new culture of innovation and speed. It’s a job that the entire workforce must embrace. Make all of your employees understand that, from now on, change will be their constant companion. Every day, there will be new problems. Every week, new challenges. Every month, they will have to come up with new systems and solutions. And every six months to a year, you will all have to get together and change the way the business works in some fundamental way.

Be sure they understand that all of that change will bring stress – and that if they want to grow along with the business, they have to learn to tolerate stress and embrace change.

And don’t think that you can grow a culture of innovation and speed by making speeches and putting up signs and offering recognition to employees now and then. You have to lead by example. That means coming in earlier than anyone else and leaving later. It means openly encouraging new ideas and insisting on responsive and speedy execution of the objectives you agree on. And as problems mount, you must keep your cool. Identify mistakes quickly, but don’t berate mistake makers. Ask them for solutions. And hold them responsible for putting them into place immediately. Adopt the maxim of accelerated but intelligent failure.

A company in fast growth will make mistakes. The trick is to make them quickly, keep the damage minimal, and learn from them so they are not repeated.

Teach your employees to share what they have learned. Let them know that errors and failures are inevitable for a growing company. Challenge them to be open about problems and challenges and to communicate with one another.

When you come upon an employee that seems committed to second guessing every new idea and is reluctant to move forward, get rid of him or her as soon as you possibly can.

Being a leader of innovation means showing your employees that change is stressful, but it can be fun. Teach them the difference between stress that comes from self-imposed challenges and stress that comes from doubt and resentment. Make sure they understand that although they may not cause every problem they encounter, they are at least partially responsible for solving them.

And be respectful of the online workers that do not have the fun of choosing their own challenges. Insist that all your company managers respect the work that these implementers do. When something works well, be sure they share in the praise and the compensation, if there is any.

Never allow your business to become divided between innovators and implementers. (If you do, you may discover that too many good ideas are subverted by accidents, unexpected obstacles, and competing obligations.)

In short, take the lead in preaching and practicing innovation and speed, and make every employee a part of the company’s commitment to those values.

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“Years ago,” AS said, “when we were in Myrtle Beach, I asked you how many real friends you had in Florida. You asked me to define friend. I said, ‘Someone you could ask to pick you up at the airport.’”

I asked AS if sending a car service would count.

“No,” he said. And then he told me a funny story about being stranded at an airport in Cleveland after the ride he’d counted on didn’t show up.

Friendship: Who… What… Why… and How?

“A rich life includes at least two sorts of friendships – friends that are there for you in sickness and those that are there with you in health. Some friends play both roles but many just one.” – Michael Masterson

I’m a big fan of Seneca. But when it comes to friendship, I find his definition overly strict. In a letter to Lucilius, titled “On Philosophy and Friendship,” he says that relationships based on one party’s hope to benefit from the other should not be considered true friendships.

For Seneca, a true friend is someone that is loyal, trustworthy, and worthy. His standards for loyalty and trustworthiness are high. A loyal friend will follow you into damnation. A trustworthy friend will take a bullet for you. In that letter, he doesn’t say what he means by “worthy.” I suppose he means someone of good moral character, someone you admire.

Although I think I understand his reasoning, Seneca’s Draconian requirements for friendship seem unrealistic and contradictory. They are the epitome of selfish benefit.

Aristotle had a more nuanced view. He allowed for three kinds of friendships: those based on usefulness, those based on pleasure, and those based on a mutual appreciation of values.

The first two, Aristotle calls “accidental” friendships – those that aren’t necessarily chosen by you. Your teachers, for example. Your students and your colleagues. Aristotle points out, quite correctly in my experience, that such accidental friendships are often limited in depth and ephemeral. They are only as deep as they need to be. And they last only as long as they are mutually useful.

But Aristotle claims that there is another kind of friendship: friendships based on virtue. And by virtue, he usually means good character and behavior consistent with good character. I believe this is similar to what Seneca means by worthy.

Aristotle says that these sorts of friendships are more valuable than accidental friendships because they are deeper and more durable. And the relationship tends to improve both parties equally.

My own view of friendship is close to Aristotle’s.

For me, friendships of utility would include the myriad casual friendships we have with random people that are “useful” in our lives. I mentioned teachers and students and colleagues above, but they also include your barber, your fitness instructor, your doorman, and the kid that mows your lawn. Most commonly today, however, friendships of utility are business-related.

Friendships of pleasure would include anybody and everybody that lights you up when you are with them. On first reflection, these may seem the shallowest and least worthy. But if you could add up all the moments of pleasure they give you, you might feel, as I do, that “fun” friends are very valuable indeed.

As for purposeful (non-accidental) friendships, these are, for most people, few and far between. They are those rare relationships you have with people whose intelligence advances your thinking, whose wit charms your emotions, whose behavior stimulates your admiration, and whose love and appreciation for life inspires you to be better than you are.

That’s a big order.

As for loyalty, that is an important virtue that can improve any friendship. But it’s not limited to purposeful friendships. Friends that are fun and useful can also be loyal to you, as you can be to them. Loyalty is especially important in business and in mentorship relationships because it is essential to the bargain: I am useful to you when you have little or nothing. You give back to me when you can.

Loyalty also enhances friendships based on pleasure. The person with the cheerful word at the lodge or at a family reunion is also, often, the person that will think to stop by and say hello when you are down and out.

As to trustworthiness – that’s tricky. I do think that trust is an essential component of any good relationship, but I also think that too many people don’t understand how it works.

When a friend disappoints you because they won’t pick you up at the airport, they may be breaking a trust. Or not.

Trust makes sense only when it is based on the person’s proven character and behavior. When you tell an alcoholic that he broke your trust by drinking – even if he promised not to drink – you are damaging the relationship by expecting from him that which cannot be reasonably expected.

When your friendship is contingent on the other person being something other than what he already is when you form the friendship, you are imposing on the relationship an unrealistic expectation that will end up hurting you both.

This, to me, is the biggest secret of having and keeping friends: Always trust that, despite time and circumstances, they will remain pretty much just as they were when you met them.

I don’t know when I figured this out, but I can say that it has made me happy in just about all of my friendships. I have many fun friends, for instance, that wouldn’t pick me up at the airport if I begged them to. That doesn’t bother me at all. And I have friends that will come to my aid any time I am in trouble, but as for fun – well, that’s not what we do.

I have friends I see once a week and friends I see once a decade. I don’t feel that any of my friendships are more or less worthy than the rest. By expecting nothing but what each one brought initially and naturally to the relationship, I am satisfied nearly 100% of the time.

So if you were to ask me whether one friend or another is a better friend to me, I wouldn’t know how to respond. Except to say that they are all perfect just the way they are.

For practical advice on how to make and keep friends, I couldn’t do better than the rules set down by Dale Carnegie in his book How to Win Friends and Influence People:

1. Become genuinely interested in other people.

“You can make more friends in two months by being interested in them, than in two years by making them interested in you.”

2. Smile.

Happiness does not depend on outside circumstances, but rather on inward attitudes. Smiles are free to give and have an amazing ability to make others feel good.

3. Remember that a person’s name is, to that person, the sweetest and most important sound in any language.

People love their names so much that they will often donate large amounts of money just to have a building named after themselves. We make people feel extremely valued and important just by remembering their names.

4. Be a good listener. Encourage others to talk about themselves.

The easiest way to become a good conversationalist is to become a good listener. To be a good listener, we must actually care about what people have to say.

5. Talk in terms of the other person’s interests.

The royal road to a person’s heart is to talk about the things he or she treasures most. When we talk to people about what they are interested in, they feel valued and value us in return.

6. Make the other person feel important – and do it sincerely.

The golden rule is to treat other people the way we would like to be treated. We love to feel important and so does everyone else. People will talk to us for hours if we allow them to talk about themselves. If we can make people feel important in a sincere and appreciative way, we will win all the friends we could ever dream of.

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“Collette said hope costs nothing. But it does. It costs the time you spend hoping.” – Michael Masterson

The Corona Economy: How Bad Is It… Really? 

It’s time for another look at our Corona Economy. Time to assess the amazing amount of economic damage the shutdown has caused and make some guesses about how long, how bad, and how widespread the coming recession will be.

Recession? What? You think that things are under control? You feel confident that the economy will bounce back once we get this virus thing out of the way?

This is the way I see it…

The US economy is shrinking.

In my May 1 blog post, I noted that since the Corona Crisis began, our national production was down $10 trillion. That’s $10 trillion that was lost forever. No matter what happens in the future, that loss cannot be erased. In the three months since then, GDP has continued to shrink. In the second quarter alone, it fell by 10%. That’s higher than any 3-month period in the history of our country.

Unemployment is still crazy high. 

The unemployment rate has gone down considerably since it peaked this spring, with jobless claims down from nearly 7 million in the third week of March to 1.2 million last week. Overall, the official unemployment rate has dropped from about 13% in April to 10.2% today.

Of course, the official unemployment rates are entirely bogus. They don’t count people who are unemployed and not looking for work. This number was about 6 million before the $600 giveaways. It’s probably 10 million now. Plus, the official rates don’t include part-time workers that want, but can’t find, full-time jobs. And on top of that are the problems with the way workers are classified. The most egregious: Those on furlough are counted as working, rather than as unemployed.

If you add back in those purposeful and possibly accidental errors, the actual unemployment rate is probably about 16%, which would make current levels higher than at any time since the Great Depression.

200,000+ businesses have been closed for good. 

According to a study by the University of Illinois, Harvard Business School, Harvard University, and the University of Chicago, more than 100,000 small businesses had shut down permanently from March to the beginning of May. In June and July, another 100,000 may have been shuttered.

“We are going to see a level of bankruptcy activity that nobody in business has seen in their lifetime,” James Hammond, chief executive of New Generation Research told The Washington Post. “This will hit everyone, but it will be harder for small businesses since they don’t have a lot of spare cash.”

And Mark Zandi, chief economist at Moody’s Analytics, predicts that total failures for small businesses this year will pass 1 million.

It goes without saying that the closing of hundreds of thousands of small businesses will have a domino effect on hundreds of thousands more, the little shops and restaurants that survive on the patronage of these small businesses in small communities around the country.

Entire industries have been decimated. 

Travel bans have gutted the transportation industry, drastically cutting not just airline revenues but train travel, bus travel, and car travel. Uber and other such businesses are down more than 75% since last year.

The near halt in travel has sent oil prices tumbling, putting thousands of businesses that support oil and gas distribution out of business and millions more Americans out of work.

In the retail sector, it’s not just small shops and restaurants that have been forced into bankruptcy, it’s beauty shops and fitness studios and day care centers. The list goes on and on.

But things don’t seem so bad… right? 

I know. The unemployed have been getting federal paychecks. Businesses are getting billions in loans. And the stock market has been charging along.

That don’t change the facts.

When I last wrote about this (May 1), I noted that the numbers then were worse than they were at the nadir of the Great Recession of 2007-2009. And that even though the Great Recession officially ended in June of 2009, the growth of the GDP afterwards was anemic. Well… except for a modest improvement in the phony unemployment rate, all the key economic health indicators have only gotten worse.

Remember how difficult it was to make ends meet from 2009 to about 2016? It could be worse this time.

What about the bailout? Shouldn’t that help? 

The coronavirus scared the hell out of millions of Americans, with studies predicting mortality rates of 6% and 3 million dead before the end of the year.

It was a national health emergency that could have united the country. Instead, it morphed into a ludicrous political drama, with the Democrats accusing the Republicans of being heartless and incompetent, and the Republicans accusing the Democrats of exaggerating the danger to tank the economy and bring Trump’s ratings down.

When it came time to pass an economic stimulus bill, partisan politics continued. The first round of bailouts cost US taxpayers $2.4 trillion that the Treasury had to borrow. And that was on top of $2.2 trillion approved to cover the budget deficit. The current package will add another $1 trillion to $3 trillion to that, bringing the total national debt to $25 trillion or more.

That – spending trillions of dollars we don’t have – has been the government’s solution to an economic disaster that is as bad as any we’ve had since the Great Depression.

Let’s stop here and remind ourselves that debt and spending have been the primary causes of every economic disaster the US economy – and, for that matter, every economy – has ever had.

If your kid were in debt because of a gambling habit and told you he was going to get himself square by borrowing money from a loan shark, would you think that was a good idea?

So that’s the real problem. We may never know how necessary it was to shut down the economy, but the solution to the economic damage it did has been a borrowing spree greater than ever in our history (and in the entire world).

And nobody in Washington thinks there is the slightest thing wrong! The old debate about responsible spending and balancing the budget has gone out the window. Those free checks from the government have bought the hearts and minds of the entire electorate. We may be doing something we’ll regret later, the most conservative say, but what the hell! Let’s print more trillions and wish for the best!

What to expect. What to do. 

If you believe the stock market is the economy, I don’t know what to tell you. There are good reasons to believe stocks will continue to move up. The biggest reason is all these trillions of free dollars.

I have converted about 75% of my stocks into cash for reasons I explained on July 24. As I said then, my decision wasn’t based on any certainty that the market is going to crash, but on the possibility that it might.

If you understand that the stock market is not the measure of the wealth of the US but the measure of only the wealthiest 10%, you should be very concerned about all this debt and continued spending. You should be worried that sooner or later the bill will come due. And the only feasible way that the government can manage that debt is by allowing for an extended period of “moderate” inflation – low enough that the Treasury can pay the interest on its debt, but high enough that it can erode the value of that debt. And what that means is stagflation: years and years of increasing prices without any significant economic growth.

Unless you are already wealthy, this means that you will get a lot poorer over the next 5 or 10 or even 15 years.

There are things you can do to protect yourself and profit. I’ll tell you about it in my next essay on the Corona Economy.

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The Innovation Myth

Innovation has nothing to do with how many R&D dollars you have…. It’s not about money. It’s about the people you have, how you’re led, and how much you get it.” – Steve Jobs

One of the great myths in business is that the first to the finish line is the one that gets the biggest prize. “Get this product out before the competition,” say marketing and product development executives, “or we will fail.”

The evidence does not support that rationale. The first product to market isn’t always the winner. Best sellers usually come later, in the second wave. Often these second-wave winners are knock-offs of first-generation products reinvented by Fortune 500 companies.

Of course, there are times when a small company’s timing and product mesh together perfectly and it captures not only the lead position but also the dominant position in the industry for some time. But that is rare.

Taking first place should not be the entrepreneur’s primary objective. The smart businessperson understands that long-term growth is built on multiple front-runners, none of which need to be number one.

Look back at any of history’s most popular products, from Apple’s iPods to Hublot’s Big Bang watches, and you will find that the innovations they represent were already being developed in slightly different ways by other, competing companies at about the same time. (In Apple’s case, it was portable, personalized record collections. In Hublot’s, sports watches made of high-tech metals.)

Malcolm Gladwell Got It Right 

Instead of looking to be first in the market with a new product, business leaders should aim at producing products that capture the imagination of prospective buyers – versions of existing products that have features and benefits that catch fire.

Malcolm Gladwell explained this beautifully and persuasively in The Tipping Point, his breakthrough book about social and commercial trends. Of all the marketing ideas I have heard over the years, this one has been one of the most useful to me.

It has helped me understand, in a very clear way, why some of my seemingly great ideas worked so well and why some of them were shocking failures.

It makes such complete sense because it corresponds to what every good marketer learns sooner or later: You can’t dictate to the market; you must let the market tell you what to do. All of the very successful product launches I’ve been associated with were – I realize now – evolutionary, not revolutionary processes. And all of the big failures – the product launches that lost millions – were brand-new ideas that the market had, until that point, shown no interest in.

Tipping-point products are hard to come by, but they can grow your business by leaps and bounds. They will bring you new customers at double or triple or quadruple the rate you could get by marketing ordinary things.

I’m not dismissing ordinary products entirely. In fact, in my experience, the tipping-point phenomenon follows the Pareto Principle. Eighty percent of your sales will come from ordinary products. But if you want to grow your company, you have to be able to produce at least one tipping-point product out of every five.

How do you do that?

A Lesson I Learned the Hard Way 

Early in my career in the information publishing business, I developed a product and a promotional plan that was a big success. It broke all sorts of marketing records for our company, earned tens of millions of dollars, and made me feel like I had figured the business out.

My boss gave me a sign that read “Marketing Genius.” I loved that sign. And for a while, I believed it.

If I had created one breakthrough product, I could create another one and then a third, and the sky would be the limit. All I had to do was tap into the marketing genius that was located somewhere between my ears.

I’m sure I don’t have to tell you what happened. My record in the years that followed my annus mirabilis was piebald. I had a fair number of hits, but they were mostly doubles and triples. And I had strike-outs too. What was going on?

It took me several years to realize that the great success I had with that first product launch was due to much more than me. First, it was, like all marketing coups, a combination of just the right product at just the right time. And second, it wasn’t the child of my sole genius. My boss and a marketing consultant critiqued both the concept and copy through five or six heavily blue-lined drafts.

Nowadays, I don’t even try to fly solo. I know I’ll get much better results much faster by working with a creative team. If I get an idea showering in the morning, I’ll have a “what-do-you-think” memo out by the end of the day. And that’s just to get the engine running. I am as anxious as ever to move things along, but I know that I’ll end up with a better result if I shape my idea with the help of others.

A Simple Formula for Creative Brainstorming 

I’ve developed a formula for creative brainstorming. I can’t say that I have ever seen it proved out in research, but it works for me.

1. Early Thinking

You need a minimum of three people to brainstorm. Two works better than one, but three works much better than two. The problem with two is that you often find the discussion getting into a rut. You say one thing. Your brainstorming partner says something else. You repeat your position. She repeats hers. Eventually, the conversation stalls. With three people, this seldom happens. I’m not sure why exactly. It may be that the third person represents an audience. Even if only two people are talking, having someone there to listen – even if that third person is not normally involved in brainstorming – forces you to be at your best, to work hard to present your ideas in their strongest form.

2. Getting Ready 

During the initial stages of product development, I usually limit the team to three: me and two smart people that I trust. But nowadays, working with a much larger business, it’s sometimes necessary to expand the team at certain times and for certain reasons. Most of the time, when I expand the launch team, it is after the product and the marketing plan are 90% figured out and ready to be put into action.

In The Tipping Point, Malcolm Gladwell argued that there is a limit to the number of people that can efficiently work together. That limit is six or seven. My preference is six. Since our meetings at this point are more about execution than innovation, I want the people in charge of execution to be there. But since the product is only 90% figured out (Ready… Fire… Aim), some further brainstorming is always done. Often with very good results.

3. Playing Chess 

Brainstorming is like chess. A game can take a year, a day, or just a half hour. And when it goes on too long, it can be frustrating. I have attended countless full-day and multi-day and even two- or three-day creative sessions that, in my opinion, could have been done in half the time. (I’ve always been impatient: “Okay. Great idea. Can we have it done tomorrow?”) But experience has taught me the wisdom of slowing down, so I resist the urge to set the project timer to warp speed.

However, when it feels like I am wading through the muddy waters of Lethargy Lake, I do everything I can to speed things up. And that usually works. Because if brainstorming is like chess, it’s also like basketball. After a long and sometimes fun game of back-and-forth, everything important happens in the last quarter.

4. Clarity and Purpose 

The best way to brainstorm efficiently is to be clear about what you want to accomplish at each session. Avoid the temptation to cover too many topics in one meeting. Six half-hour meetings spaced a day or two apart are likely to be 1000% more effective than one six-hour meeting because of all the chewing-it-over time participants will have.

Set the meeting’s objectives in writing, in the form of an agenda, with a time limit for each topic and for the meeting overall. I know that this is the kind of “anal thinking” that rankles some people – especially “creative” types. I used to feel that way. Nowadays, I’m all for restrictions. To me, time and topic limitations make good thinking great.

5. The Feeling

Most good product and promotional ideas don’t work. That’s a fact of business life. When I think about the hundreds of ideas I’ve brainstormed, I can retrospectively divide them into two groups: those ideas that the team was super-excited about and those that elicited a generally positive but not enthusiastic response.

About half of those that we were hyped about worked, and some of them worked very well. Only a small fraction of those that we felt moderately good about worked.

And that’s why, over the years, I developed a standard for new product and marketing ideas – an emotional standard: We don’t launch this thing unless and until we are all super-excited about it and super-sure that it will work.

That may seem like too high a standard. But it isn’t if you have the right people in the room.

6. The Right People in the Room 

When it’s time to “Fire” the launch of your new product or advertising campaign, you will have to include all sorts of good and thoughtful managers in the process. But during the brainstorming sessions – and especially the early ones – you must limit the participants to those people that are not just smart but enthusiastically committed to helping you grow the business. They should be ambitious. They will likely be competitive. Some will be contrarians. But they must be, absolutely must be, people with the brain power and the heart power to make a good idea a great one.

7. From Each According to His Brain 

Creative sessions work best when everyone contributes. But that will never happen if your creative team is divided into the smart people and the rest. The usual situation is that preference is given to the marketers and product people because it’s their job, normally, to come up with ideas. But if that were true, you wouldn’t need brainstorming sessions at all. You are all there for a reason – to generate fresh ideas. And they will come faster and be judged more fairly if everyone on the team feels like he has an equal right to be there.

8. Don’t Comment… Contribute 

It may seem counterintuitive, but the best way to encourage a free flow of ideas is to establish and maintain strict rules about the flow of communication.

The number one reason brainstorming sessions break down is because of intellectual laziness. It’s very hard to come up with a novel idea. It’s very easy to criticize one. To limit negative comments and diversionary conversations, I sometimes impose the following rules:

* Specific suggestions only. Nobody is allowed to speak in generalities or make general comments. They waste time, confuse people, and give rise to long-winded discussions.

* No specific criticism. When an idea is suggested, I will take a poll to see how many people in the group like it – but I don’t allow any specific criticism of the idea. Just tell me whether you like it or not and move on. We don’t have time to hear why.

* Be positive. I try to say something positive about every idea that is contributed, even the weak ones. If an idea gets a mediocre reception, I ask, “How could we make that better?” rather than “Here’s what’s wrong with that.”

* Encourage the meek and cut the windbags short. To keep up a steady generation of ideas, you have to be willing to control the conversation. The moment someone begins to pontificate – and you will know the second that happens – derail his speech by asking a question. Encourage the wallflowers to speak by prodding them with questions and complimenting their answers. Get the group working toward the goal of coming up with new ideas by reminding them of it over and over.

9. A Culture of Innovation 

I’ve been talking here about brainstorming new product and marketing ideas, but brainstorming is just one part of a much larger process. You can have the best creative team in the industry and come up with a dozen great ideas every week, but if your business can’t implement them well and quickly, it may do you no good.

Ultimately, you need an entire workforce of creative people in order to be an innovative company. And that includes everyone from the receptionist to the people in the warehouse to the customer service people, and so on. To grow your company, you need to develop a company culture of innovation and speed. (I will talk more about how to achieve that in my next essay on innovation.)

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“I collect human relationships very much the way others collect fine art.” – Jerzy Kosinski

Collecting Art: The Six Lessons I Had to Learn*  

If done correctly, a first-class art collection will serve as a secondary investment portfolio to fund your retirement, protect you from inflation, insure you against economic or political instability, and provide a lasting legacy for your heirs or a charity of your choice.

My education in buying the right kind of art – art that makes sense as an investment – began when I was lucky enough to wander into an art gallery owned by Bernard Lewin. I didn’t know it when I met him, and he never mentioned it, but he was the most important broker of Mexican art in the world at that time.

I spent a lot of time browsing in his gallery and asking a lot of questions… all of which he answered simply and clearly. With his help, I learned some very important lessons and made what turned out to be some very profitable decisions.

Lesson #1: Don’t Buy on Impulse 

“Fall in love, but don’t buy on impulse.” This was the first big lesson that I learned from Mr. Lewin. This advice, which I barely understood at the time, proved to be invaluable over the years.

The point is, first impressions can be deceiving. You can’t know whether a particular piece will “hold up” (sustain your interest) unless you’ve looked at it at least several times and have thought about it in between.

Lesson #2: Not All Art Is Created Equal 

Some art is, indeed, relatively worthless – just “pictures that you hang on a wall,” as Sid, my surrogate Jewish uncle used to say. Some, like antique paintings and sculpture, has definite and assessable value. And some, fine art, can be an immensely good investment.

When talking to new collectors, I suggest thinking about art in terms of four broad categories: decorator art, commercial art, amateur art, and investment-grade art. (Note: These are my own categories. They are not used across the industry.)

Decorator Art is art (paintings, drawings, photographs, sculpture, prints, and so on) that is created strictly as decoration. The images and colors are often “made to match” (i.e., chosen to blend with or complement the overall interior design of a particular space). It’s the kind of art you see in chain restaurants and budget hotels.

Commercial Art is, in my mind, a touch above decorator art and is meant to appeal to a slightly more sophisticated buyer. It is produced by artists that have developed a competency in their craft and is marketed by dealers for the general public. In other words, it is made to sell well and quickly in the kind of galleries you find in upscale shopping malls, resorts, and cruise ships.

The quality of commercial art varies widely, from pretty good to very bad. And even the best pieces have modest to no investment potential because of the way they are made and sold. The most popular images are replicated by the hundreds or even thousands, and have little value for serious collectors and museums.

Amateur Art is art produced by artists who don’t make a substantial living from their work and are rarely represented by dealers. It is the art that is produced by students and spouses and retirees for the fun of making it. In terms of quantity, amateur art is by far the largest category. You can find it in attics, basements, yard sales, and flea markets – and also in many small galleries and antique shops.

The quality of amateur art ranges from very good to very bad. Good pieces that are old (100 years or more) can be sold as antiques – and as antiques, they will have lasting value. But if it is not antique, amateur art is not good for investment because it is, by definition, produced by “unknowns.” As a result, it is unlikely to appreciate much (if at all) over the long run.

Investment-Grade Art is art that is likely to appreciate in value.

What makes a piece “Investment-Grade”?

For most people, art is all about beauty. But if you think about the history of art, you will recognize that a piece that sells for tens of millions of dollars today isn’t valuable because it’s more beautiful than similar works. It’s valuable because, for whatever reason, the artist who produced it made his way into the small galleries, then the better galleries, then the smaller museums, then the bigger museums, and finally into books on art history.

So, if you think about future historical value, rather than aesthetics, when you buy art, you will have a much better chance of developing a valuable collection. And predicting what will be historically valuable in the future is much easier than predicting what will be considered beautiful in the future.

You do it by asking yourself the following sort of questions when you consider making a purchase:

* How respectable are the critics who support this artist?

* What art-world big shots are buying his work?

* What museums are buying his work?

* What media/images/techniques of his are most sought after?

Now when I happened into Mr. Lewin’s gallery years ago, I did not have this perspective. Nor had I spent much time wondering why some art becomes more valuable over time. I was lucky that my interest in collecting art was stimulated by a gallery owner who happened to be selling investment-grade art. Had I walked into a different gallery, I might have ended up as a different kind of investor than the successful one I’ve become.

Lesson #3: Buy Only Investment-Grade Art 

The first pieces I bought from Mr. Lewin have appreciated considerably over the years. I haven’t done the math, but my guess is that I’ve realized an annualized return of more than 8%.

Considering the fact that I knew so little about collecting at the time, I’m very happy with that. So, the third lesson I have for you is this: If you want to build a financially valuable art collection, you must limit yourself to investment-grade art.

You may think that you don’t have the money for that. In fact, you probably do. One of the first pieces that I bought from Mr. Lewin was a pencil sketch by Rufino Tamayo, the great Mexican master. It cost me $750 – equivalent to about $1000 today.

You couldn’t buy that drawing today for $1000. (It is worth more than 10 times that.) But for $1000, you can find plenty of good pencil drawings by other artists whose works are in museums. And you can buy their pastels and gouaches for a bit more.

Lesson #4: Buy Unique Pieces by Established Artists 

After helping me narrow down my choices to four investment-grade works that I could afford, Mr. Lewin surprised me by telling me that he’d be happy to buy them back in the future. (This is something I’d never heard a salesman say.)

He explained that I was buying pieces that had a very high chance of appreciating nicely. He had no doubt that I could sell any of them back to him for a profit… and that he, in turn, could eventually sell them for even more.

“You see,” he said, “you are buying original pieces by established masters.”

He picked up the Tamayo sketch. Pencil on rough paper. Hardly a masterpiece, but still one of a kind.

“For the same price,” he said, pointing to a print leaning against the wall, “you could buy that limited edition print of one of Tamayo’s paintings. But,” he said, holding the sketch up to the light, “there is one – and only one – of these. And there are 199 additional versions of the print. Which do you think will be worth more in the future?”

Lesson #5: Buy the Best Pieces You Can Afford… Then Trade Up 

Another one of my early purchases from Mr. Lewin was a watercolor  by José Clemente Orozco. It wasn’t the best Orozco Mr. Lewin had in his gallery, but it was better than some, and it was the best I could afford. I paid $18,000 for it, and it’s recently been appraised at between $125,000 and $150,000.

Fact is, better-quality pieces tend to appreciate more and faster than inferior ones. So, had I bought a lesser Orozco, I suspect I might not have gotten that same return. And that brings me to the second part of this lesson…

As you develop your collection, gradually sell off the mediocre pieces and use the proceeds to buy better ones that are likely to give you a higher ROI. (This, by the way, is the same strategy I use with my real estate properties.)

To develop the sort of collection I want, I need at least two or three major pieces by each of the Central American masters that I’m now focused on. Right now, for example, I have about 15 works by the great El Salvador master Carlos Cañas. Half of them are fairly minor works – smallish drawings or pastels on paper. A few are good, medium-sized paintings. And two are masterpieces, the sort of paintings that the Museum of Modern Art would display to show Cañas’s genius.

I’m happy to sell all of my mediocre Cañas pieces and a few of his good ones. But I will never sell the two masterpieces. I intend to enjoy them – and watch their values rise – as long as I live.

One Final Lesson…

If you do an internet search for “art investing,” you will find many articles and essays by dealers that eschew buying art as an investment. Instead, they say, you should “just buy what you like.”

This is not good advice… for several reasons.

First, it is illogical. It presumes that there is a difference between an art object that you like and one that has investment potential.

Second, it is harmful to the novice collector. It presumes that the art you are likely to “like” as a novice investor will continue to please you after you’ve been at the game for some time. And that is not, usually, what happens. Novice collectors like art that they see as “beautiful.” But what is beautiful to the inexperienced eye often looks derivative and obvious to the experienced eye.

You might, for example, absolutely love the $5000 Peter Max you bought when you were on that Caribbean cruise. But 10 years later, you may be embarrassed to have that thing on your wall. And then when you discover that you can get – at best – only $2000 for it (after 10 years), you’ll feel doubly duped.

Third, the statement itself is disingenuous. Dealers usually throw it in as a sort of disclaimer after pitching you on a particular commercial-grade artist or work of art. It translates to: “If this doesn’t appreciate as I’ve led you to believe, don’t complain. At least you like it.”

So why are all those “experts” telling you to buy what you like?

Here’s the thing about buying what you like: Tastes mature. The more exposure you have to art, the more sophisticated your tastes will become. Your goal as an art collector is to buy pieces that you like now and will likely still like in 10-20 years. And guess what? Most investment-grade art has that durability.

* This series of essays gives you an advance look at a new book that I’m working on, based on my experiences over the past 40+ years as a collector and investor in fine art.  

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How to Buy Gold Bullion Coins:

A Quick Guide for Beginners 

“We desire gold not for its true value but for the glittering illusion of value it gives.” – Michael Masterson

Suddenly, everyone wants to buy gold!

I’ve been reading about gold for 40 years and writing about it for the last 20. During that time, gold’s popularity among investors has gone up and down in longish waves. Recently, the tide has been rising like a tsunami.

To answer all the questions I’ve been getting on gold, I’ve put together the following Q&A. It’s meant for tyros, but there may be information here that will surprise experienced coin buyers.

One caveat: The market is hot right now – which means that prices are high. Keep that in mind when you read the following and when you make your decisions.

Q: What is gold bullion?

A: Gold bullion is gold in the form of bars, ingots, or coins. In terms of purity, gold bullion can be 22 karats (91.7% gold) or 24 karats (99.9% gold). The value of gold bullion generally tracks the spot price of gold, plus a “premium” (additional charge) that covers the cost of minting, storage, distribution, and sales commission.

Q: What is the “spot price” of gold?

A: The spot price is what it cost to buy at any given minute. It goes up and down, like virtually every commodity, due to speculation in the markets, currency values, current events, and other factors. Although the spot price is very exact (down to the penny) and tracked to the second, it is a theoretical number in the sense that it represents the cost of gold without a premium. And there is almost always a premium, even between dealers. Still, it is a very useful metric because it tells you, as a buyer, how much of a premium you are paying for the coins you buy.

Q: What is a gold bullion coin?

A: It is a coin made by a private or public mint that is either 22 or 24 karats. Bullion coins are usually distinguished from numismatic coins.

Q: What is a numismatic coin?

A: It is a coin that is limited in supply and bought for its rarity and beauty, like fine art. Rare coins can make good investments. What I like about rare coins is that if you buy a bad one – a common coin in poor condition – it will still be worth at least the spot price of gold. But if you buy a truly rare coin in mint condition, it can eventually have a value that is 10 to 100 times the spot price of gold.

Q: Bullion coins vs. numismatic coins: Which type should I buy?

A: If you are buying gold coins as a hedge against inflation or as insurance against the collapse of the dollar, you should definitely buy bullion coins, not numismatics. If you are buying gold coins as an investment, you should consider numismatics. You can, of course, buy both kinds of coins – at a ratio of maybe 60/40 or 80/20 bullion to numismatics. If you do buy rare coins, it is very important to buy from a trusted source. (See more on that at the end.)

Q: Are there different kinds of bullion coins?

A: Yes, there are hundreds – probably thousands – of uniquely different bullion coins. But for beginners, it’s smart to group them in two categories: those minted by governments and those minted by private companies.

Q: So which kind should I buy?

A: For beginners… government-minted bullion coins – for several reasons: (1) They are minted in larger quantities, which makes them more liquid than privately minted coins. (2) The premiums (cost above the spot price of gold) are easy to track and therefore it’s easier to avoid overpaying for them. (3) They come with the inherent (and, in some cases, stated) backing of the government that mints them.

Q: Which government-minted coins do you recommend?

A: Most people buy bullion coins that are minted by the country they live in. Thus, most Americans buy American Eagles and American Buffalos. Most Britains buy British Sovereigns. And most Canadians buy Canadian Maple Leafs. But many experienced coin buyers like South African Krugerrands. My own stash of gold bullion coins is 50% American Eagles, 40% South African Krugerrands, and 10% Canadian Maple Leafs. I feel comfortable recommending all three.

Q: What are the differences between those three – the pros and cons?

A: The first difference is the purity of the gold. American Eagles and Krugerrands are 22 karat, which means they are about 92% (91.67%) pure gold. Canadian Maple Leafs and American Buffalos are 24 karat, which means they are 99.9% pure gold.

The second difference is the amount of gold. Maple Leafs and Buffalos are more pure, but Krugerrands and American Eagles are slightly bigger and weigh slightly more than their 24 karat cousins. That difference equalizes the difference. In other words, the amount of gold is the same (1 troy ounce) for all four coins.

The third and most important difference is the liquidity of a particular coin – how easy it is to buy and sell. Like every other asset class, the liquidity of gold coins depends on how many are available in a given market.

Of the four, American Eagles are by far the most liquid. About 80% of the gold bullion in circulation in the US is in the form of the American Eagle. It is also the most-traded coin in the world. Krugerrands come in second. More than 50 million ounces of gold Krugerrands have been sold since production began in 1967. Maple Leafs come in third, with about 20 million in circulation. And Buffalos come in way behind with only about 2.5 million in circulation.

In terms of liquidity, I think Eagles, Krugerrands, and Maple Leafs are all a safe bet. Buffalos are safe, but I would not recommend them for beginners.

Q: Are there any other differences that I should be aware of?

A: There are a few that could be important.

Maple Leafs and Buffalos, being 24 karat, are softer than American Eagles and Krugerrands. That makes them more prone to bending and scratching. But condition is not a consideration in terms of tracking to the spot price of gold. They are all equal in this regard.

Another difference is the question of government backing as legal tender. As legal tender, the government that issues the coin guarantees that it can be used to settle a debt or meet a financial obligation. All four of these coins are guaranteed as legal tender.

Two final differences relate to investing and privacy. The American Eagle is an approved investment vehicle for Individual Retirement Accounts (IRAs). It is also exempt from the IRS’s Form 1099-B reporting requirements, which means your buys and sells are not publicly recorded.

My bottom line on these differences: All four of these coins are suitable as a chaos hedge and/or insurance against the collapse of the dollar. In terms of gold content and government backing, all four are equal. The small circulation of the Buffalo puts it fourth on my personal preference list. And the IRA and privacy advantages of the American Eagle put it at the top.

Q: I heard that Krugerrands are illegal for US citizens. Is that true?

A: No longer. They were banned in 1985 as a strategy to push South Africa to end apartheid. The ban was lifted in 1991.

Q: Are there denominations of bullion coins like there are with dollars?

A: Yes. Eagles, Buffalos, Maple Leafs, and Krugerrands all come in 4 sizes: 1-ounce, 1/2-ounce, 1/4-ounce, and 1/10-ounce denominations.

Q: What denomination should I buy?

A: That depends on your budget and your purpose. In general, the smaller the denomination, the greater, in percentage terms, the premium. This is not unfair. Think of the premium as the cost of minting, storage, distribution, and sales. Those fixed costs are the same regardless of the size of the coin. So it stands to reason that the smaller coins will tend to have relatively higher premiums.

If your objective is to minimize the premium you will pay, you should buy the largest denomination you feel comfortable buying. However, there is an interesting argument for buying the smaller denominations: In a scenario of total economic collapse, gold (and silver) will become the currency of choice. In that situation, having smaller coins will make trading them for things that you need much easier.

Q: I’ve seen bullion coins. Some of them have dollar amounts printed on them. For example, the American Eagle has $50 on it. Does that mean the coin is really worth only $50?

A: Not really. What you’re looking at is the face value of the coins. In theory, face value is what the coin would be worth as legal tender. And if you were concerned about that, Krugerrands would be your choice since they have no face value and the South African government’s guarantee behind them is correlated to the spot price of gold. But in practice, the value of all bullion coins is correlated to the spot price. This is not an issue I’m worried about.

Q: Can I buy bullion coins directly from the US and Canadian mints?

A: No. You have to buy them from a registered, private dealer – and each government publishes a list of those dealers. There was a time when you could buy American bullion coins from US banks, but that is no longer true.

Q: What about dealers that sell online? Is it safe to buy from them? Or is it better to go with a local dealer?

A: It is usually just as safe to buy from a well-established dealer online (or by phone) as it is to buy directly from a local dealer – and there are some distinct advantages. When you buy directly, you get immediate possession, you have no shipping or insurance fees, and you have more privacy. On the other hand, the selection is likely to be more limited than it is with an online dealer. Plus, the price you pay will usually be slightly higher (because of the extra costs involved in retail business) and liquidity will be less for large buybacks.

Q: What about the coins that I see advertised on TV and in newspapers. Are those dealers safe sources?

A: Sometimes yes. Sometimes no. But considering the cost of that sort of advertising, the possibility of paying more than you should is something to consider. So long as you compare the price of the coin to the spot price of gold, you can figure out if you are being overcharged. A problem with some of these dealers is that they have very persuasive salespeople that will try to get you to buy other types of gold coins with prices that are much higher than the spot price. The bottom line in buying gold bullion coins is the premium: how much the dealer is charging you above the spot price. Know the spot price. Demand a fair premium.

Q: So what is a fair premium for a gold bullion coin?

A: When I was buying gold coins, from 2002 through 2004, the spot price of gold was low (in the $400s) and the premiums were low – about 3% for 1-ounce coins and 5% to 6% for 1/2-ounce coins. Today, the spot price of gold is nearly $2000 and the premiums are about twice what they were back then. Amaru, our crack researcher, did a survey recently and found that even the most competitive dealers are charging 6% premiums for 1-ounce coins and 12+% for half-ounce coins.

Q: So, historically speaking, both the spot price of gold and the premiums are high. Is that fair?

A: The spot price is absolutely fair. It reflects supply and demand in a free market. The premiums are also fair in the sense that dealers have the right to charge what they want. They aren’t holding a gun to your head. But if you know the spot price and do a bit of shopping on the premiums, you should be okay.

Q: Should those high prices dissuade me from buying coins?

A: No. If you think of gold as an inflation hedge and/or as insurance against economic Armageddon, the premiums are reasonable. The one-time premiums you pay for almost any other form of insurance are typically in these ranges – and for life insurance, sometimes higher.

If you are buying bullion coins for investment purposes, a premium of 6% or 10% is relatively high. It means that the spot price for gold will have to go up $120 to $200 an ounce before you make your first percent of profit.

Of course, if the spot price of gold goes to $10,000, as some are predicting, current prices and premiums will seem cheap.

I didn’t buy gold as an investment and I’m not starting now. But I certainly understand the reasons why you might want to. If you do decide to buy bullion for investment purposes, consider this: Krugerrands or Maple Leafs have, on average, premiums that are significantly lower than Eagles. If, instead of paying a $120 premium for a 1-ounce Eagle you could buy a 1-ounce Krugerrand or Maple Leaf for a premium of only $80, why wouldn’t you do it?

Q: One last question: Are there any dealers that you can personally recommend?

A: I can recommend two companies: David Hall Rare Coins (my personal dealer), and APMEX (recommended to me by Tom Dyson).

David Hall Rare Coins – These are my go-to people because I’ve known them for 30 years and trust them 100%. The owners are David Hall and Van Simmons. They specialize in high quality rare coins, but they will sell you bullion coins at competitive prices. If you are interested, contact Van Simmons at Van@Davidhall.com or call 800-759-7575.

APMEX – Founded in 1999, APMEX (American Precious Metals Exchange) is one of the largest online bullion dealers in the country, with over $11 billion in transactions. Based out of Oklahoma City, APMEX sells gold, silver, platinum, and palladium products and also buys gold and silver from customers. Their prices are competitive and transparent (no hidden fees beyond shipping/item costs).

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In the mid 1990s, when I began consulting with Agora, the business had its headquarters in a mostly black Baltimore neighborhood. It was about a mile from the inner harbor, where I had an apartment on the sixth floor of a new, rather luxurious, building. On pleasant days, I’d walk to work, always stopping for breakfast at a little market about a block from my office that was run by a family of Koreans.

There was nothing about the place that was exceptional. The lighting was poor and the aisles were narrow. But the shelves were overflowing with every sort of consumable you could possibly need. And it had a counter that was just long enough to accommodate four stools. The only way you could not have a clear picture of what I’m describing is if you have never been to any large- or mid-sized city in the USA.

The family that owned it – the parents must have been in their late fifties – had three teenage daughters. The parents worked from opening to closing. The girls worked after school and on weekends. They were not, by American standards, friendly. But because I wanted to get to know them a little, I gradually and gently pushed against their modest formality.

The parents were immigrants. They spoke just enough English to communicate with their customers. The children had been born in the US. They were intelligent, hardworking, and extraordinarily respectful of their parents. All three of them were accepted – on scholarship – into good local colleges. The family was, in other words, an Asian-American cliché.

What struck me at the time was how the family managed the girls’ education. While the eldest was in college, the other two continued working at the family business. When the eldest graduated, she went back to work and the second daughter went to college. When the second daughter graduated, she went back to work and the third daughter went to college.

I asked the girls if they thought it was fair – if they thought they should have been able to go off and start their own careers (and lives) once they had a diploma. They had no idea what I was talking about. My question made no sense to them.

Asians in America, Part II:

Why Are They So Successful? 

“Immigrants have been coming to our shores for generations to live the dream that is America. [We] have seen time and again that that dream is achievable.” – Nikki Haley

On Monday, I talked about the amazing success Asian immigrants have had in America. In terms of wealth, health, education, and optimism, they outrank every other racial group, including White Americans.

Why is that? Why is it that Asian-Americans, themselves victims of bias and discrimination, have achieved so much?

One factor may be that so many of them are first- and second-generation immigrants. There is a theory that immigrants are by nature an above-average group – more ambitious and enterprising than their countrymen that choose to stay home. So this could well be a key reason why Asians have done so well in the US.

But there are other reasons, too. If you spend even a single day researching Asians in America, you will discover that, despite the differences among them, they share some cultural characteristics. Specifically, they have a belief in and a commitment to:

1. Hard work – and not just hard work but working harder than their peers.
2. Education – and not just getting good grades but being better educated than their peers.
3. Family values – a respect for the nuclear family and parental authority.

Hard Work 

Asian-Americans have a pervasive belief in the rewards of hard work. In a recent poll, 69% said they believed that “anyone can get ahead if he or she is willing to work hard.” More importantly, 93% described themselves and members of their country of origin as “very hard working.”

But do Asian-Americans actually outwork other races?

According to the Bureau of Labor Statistics, Asian-Americans work about the same number of hours as every other racial group. Here is the data:

* White Americans – 38.9 hours per week (on average)

* African-Americans – 38.7 hours per week

* Asian-Americans – 38.9 hours per week

* Hispanic-Americans – 38.2 hours per week

As you can see, the differences in terms of hours worked are very small.

But as I said on Monday, there are some stark differences when you look at unemployment figures. Asian-Americans – at an astonishing  3% – have the lowest unemployment rate of any racial group.

That could indicate not just a commitment to work but also a shame in not working – two very different values.

Education 

Asian-Americans place a high value on education. And they work as hard as, or harder than, any other racial or ethnic group in America at educating themselves and their children.

As I pointed out on Monday:

* 87% of Asians aged 25 and older are high school graduates.

* 53% have a bachelor’s degree or higher.

* 23.6% have a graduate or professional degree.

And they’re great students.

There have been many studies done on why Asian-Americans do so well in school.

In one, a meta study of two national surveys that followed about 5000 students from kindergarten through high school, researchers were looking for evidence to explain the superior academic performance of the Asian-Americans. They had theorized that it had something to do with their innate cognitive ability – but that’s not what they found. Instead, it seemed to be due to a high-effort mentality instilled in the children by their parents. Asian-Americans, the researchers said, view education as a primary means for upward mobility – and they exert considerable pressure on their children to succeed.

Family Values

Compared to other racial groups, Asian-Americans place a higher value on family, marriage, and parental fealty.

Consider this:

* According to a Pew Research Center study, the majority of Asian-American adults list having a successful marriage and being a good parent as two of the most important things in life.

* Asian-Americans are more likely than other racial groups to live in a multi-generational household. Some 28% live with at least two adult generations under the same roof.

* 84% of Asian-American children (17 or younger) belong to a household with two parents. This compares to 68% of all American children. And only 16% of Asian-American newborns have an unmarried mother, compared to the national average of 40%.

* Asian-Americans have a strong sense of respect for their parents. About two-thirds say that parents should have a lot of or some influence in choosing their children’s profession (66%) and spouse (61%).

This is at least partly influenced by philosophical and religious teachings. Filial piety is an important element in Buddhism, Korean Confucianism, Taoism, and in Japanese and Vietnamese cultures.

* And here’s something I found noteworthy: In a recent study, 62% of Asians said that they believe American parents do not pressure their children enough.

Hard to Argue

Those are the facts.

What’s interesting is that this amazing story of Asian-American success in the US is not being told and celebrated. It is being ignored and even disputed because it suggests that a major thesis of identity theorists – that systemic racism is the cause of income, wealth, and education inequality in America – may be wrong. It also suggest that the solution to financial, social, and educational inequalities may not be as easy as making political, regulatory, or economic changes.

I’ll come back to this and related “identity” questions in future essays.

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“When feelings are strong, reason declines and facts get distorted in a miasma of context.” – Michael Masterson

Asians in America, Part I:

Why Are They So Successful? 

Let’s take a break from identity politics. Let’s talk about Asian-Americans!

Just kidding. But the facts are noteworthy.

According to a recent Pew Research Center survey, Asian-Americans are the highest-income and best-educated racial group in the US. They are also “more satisfied than the general public with their lives, finances, and the direction of the country.”

A century ago, most Asians in America were overwhelmingly low-skilled, low-wage laborers that lived in crowded “ethnic enclaves.” Today’s Asian-Americans have improved the quality of their lives in just about every way that quality of life can be measured.

But what may be the most impressive fact is this: These accomplishments were achieved by a group that is primarily immigrant. (Among all Asians in the US, nearly 6 in 10 were foreign-born in 2015, according to the Census Bureau.)

If you were interested in the subject of “How to Succeed as a Minority in America,” the history of Asian-Americans would be something you’d want to study.

So let’s take a look.

A Short but Impressive History of Asians in America

Asians began immigrating to the US about 150 years ago. As you might imagine, they were subject to a good deal of social discrimination. They were also the victims of systemic race-based laws and policies – e.g., the Chinese Exclusion Act of 1882, the Immigration Act of 1917, and the National Origins Act of 1924. And let us not forget about the internment of 120,000 Japanese-Americans, without due process, during WWII.

In 1965, the federal government passed the Immigration and Nationality Act, which led to large-scale immigration from countries in the Far East, Southeast Asia, and the Indian subcontinent. Each group had its own unique culture. Yet they all shared certain traits that allowed them to make immediate and significant progress – progress that began with the first generation and accelerated with the second and now the third.

Today, just 55 years later, Asian-Americans are at the top in every category of “achievement” I could find. Let’s look at five of them: education, income, wealth, unemployment, and health.

Education 

According to a recent Pew Research Center study:

* 87% of Asians aged 25 and older are high school graduates.

* 53% have a bachelor’s degree or higher.

* 23.6% have a graduate or professional degree.

Income 

In 2018, the median annual household income for Asian-Americans was higher than that of every other racial group. It breaks down as follows:

* Asian-Americans – $87,194

* White Americans – $70,642

* Hispanic-Americans – $51,450

* African-Americans – $41,692

Wealth

Asian-Americans are the wealthiest racial group in the US. In 2013, they ranked second (behind White Americans) in terms of median net worth. In 2020, just seven years later, they are at the top of the list.

Unemployment

Asian-Americans have the lowest unemployment rate across all racial groups. I couldn’t find post-Corona Crisis numbers, but last year it was an astonishing 3%.

Health 

Again, Asian-Americans are at the top. According to the most recent data from the CDC:

* Only 8.3% of Asian-Americans were reported to be in fair or poor health.

* Only 12.5% of Asian-American men and 4% of Asian-American women smoke.

* Only 11.7% of Asian-American men and 13.6% of Asian-American women are obese.

Surprising Data 

Before I did the research, I would have guessed that Asian-Americans are less obese than other racial groups in the US. And I might have guessed that they are less likely to be unemployed. But I would not have guessed that they have more education and rank higher in terms of income and net worth than any other racial group (including White Americans).

And remember, we’re talking about people that make up only about 5% of the US population and are mostly first- and second-generation immigrants!

At a time when attention is so focused on inequality in the US, you’d think that the story of Asian-Americans would be a much-discussed subject. You’d think that scholars and politicians and anyone else concerned with income inequality, wealth inequality, education inequality, and health inequality would be looking to them for ideas about solving the gaps that exist between the races.

You’d think. But it ain’t happening. In fact, in academia and the mainstream media, the topic is absolutely taboo.

But I find it interesting. And if you do too, you’ll want to read Wednesday’s blog. In Part II of this essay, we will take a look at the values, beliefs, and habits that have allowed Asian-Americans to have such remarkable success, despite the many obstacles they’ve had to overcome.

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Update on My Investment Portfolio:

Why I’ve Just Sold Most of My Stocks 

“Be fearful when others are greedy, and be greedy when others are fearful.” – Warren Buffett

I’ve just sold about 75% of my stock portfolio. I’ll tell you why…

The Economic Outlook Is Scary

At a macro level, our economy is fragile. For one thing, the US has never been in so much debt. The national debt has been growing pretty much non-stop for 20 years, but it accelerated significantly under Obama and Trump. It is currently $26 trillion. That is 107% of our GDP. The last time the debt-to-GDP ratio was that high was in 1948, at the end of WWII.

And then there is our consumer debt: the debt private citizens carry on mortgages, loans, and credit cards. That hit $14 trillion in March, a record high, surpassing by almost $1 trillion the record set at the height of the 2008 financial crisis.

This level of debt is scary. But what’s scarier is that there are only two or three elected officials left that believe in balanced books and sound money.

The business outlook is bleak. Since January, US GDP has dropped nearly $3 trillion, from $21.8 trillion to $19.2 trillion. Thousands of small and medium businesses, employing millions of medium- and low-skill workers, have been shut down. The economists I trust are prognosticating that as many as half of them are closed for good.

By these and many other metrics, the US economy today resembles that of the economy after the real estate bubble collapsed in 2008, except for debt, which is worse. Given that, it seems reasonable to believe that we are looking at an attenuated recession and a feeble recovery.

Longtime readers know that I don’t buy or sell stocks based on macro analysis. But I don’t ignore it either.

The Upcoming Election

This is the main reason I converted 75% of my stock portfolio to cash.

The pollsters and their pundits are predicting that Trump will be ousted in November and the Democrats will sweep the House and perhaps even the Senate. The Democratic agenda is for higher social spending, $500+ billion on infrastructure, and higher taxes for businesses and high-income earners. But I’m even more concerned with the talk about eliminating the cap on the Social Security tax.

Wall Street doesn’t respond well to the threat of higher taxes. So as we approach the November elections, if it looks like Biden will be elected and the Democrats will win both houses of Congress, it’s very likely that we’ll see a big drop in stock prices. A 30% to 50% drop wouldn’t surprise me.

So those are the three reasons I decided to sell most of my stock portfolio: I have a continuing concern about US debt, a suspicion that we have entered into another extended recession, and a strong hunch that if it becomes apparent that the Blues will dominate the November elections, the stock market will take a dive.

Longtime readers will rightly be surprised to know that I’ve sold off 75% of my stock holdings. They will remind me that my investment philosophy has always been to buy world-dominating companies and hold them long-term. They will further remind me that as recently as April 6, I repeated that viewpoint in explaining why I did not sell any of my stocks as the markets were tumbling from the Corona Crisis.

Yes, I’m violating that rule now. Let me take you through my thinking process…

I “lost” millions in March and April. The loss was just on paper, but it still didn’t feel good. Because I didn’t panic and didn’t sell then, I was able to see the market climb back up this “wall of worry.” And now I’ve regained (again, on paper) all that I had lost.

The balance of my stock portfolio is at an all-time high. But there is a fair chance that the market will take a dive sometime between now and November. And if it does, it could be, as I said, a steep dive – 30% to 50%.

So I did what I sometimes do when I’m in a confusing situation like this. I interviewed the three parts of my brain.

First, I asked my limbic brain, the part that’s in charge of my emotions: “How would you feel if that happened?”

And Limbic Brain answered: “Like horse shit. Like a fool. But I would blame-hate you for keeping our money in the market.”

Then I asked my reptilian brain, the part that’s in charge of my instincts: “What would you do if Limbic Brain felt like that?”

And Reptilian Brain answered: “I would definitely panic. I would be afraid the market would drop even further. I would take flight. I would tell Limbic Brain to sell everything – all of our stocks – immediately and eat the loss.”

And finally I asked my rational brain: “What do you think of all this?”

And Rational Brain said: “Normally, I’d tell you to ignore Limbic Brain. I’d say that Reptilian Brain is bluffing. But in this case, why take the chance?”

“What do you mean?” I asked.

Turning to Limbic Brain and Reptilian Brain, Rational Brain said: You have told us how badly you would react if our portfolio dropped again by 30% to 50%. How good would you feel if we held on to our stocks till November and they went up in value?”

“Like by how much?” they asked.

“Say, 10% to 15%,” Rational Brain said. “Which, I might remind you, would be an unprecedented three-month climb, considering where they are now.”

Limbic Brain and Reptilian Brain went into the corner, as they always do when confronted by Rational Brain, and conferred. After a few minutes, they emerged.

“So how would you feel about our making another 10% to 15% on top of our current gains?” Rational Brain asked.

Limbic Brain shrugged. Reptilian Brain, lacking shoulders, said, “Meh.”

Rational Brain turned back to me. “As you can see,” he said, “my less intelligent but immensely muscle-bound siblings don’t really care if our stock portfolio goes up. But they really, really are going to go nuts if it goes down again.”

“Yes, I can see that,” I said.

Rational Brain leaned forward and stared into my eyes. “You know what you should do,” he intoned. “Sell all or most of your stocks right now and wait until November. You will be giving up the unlikely possibility of getting modestly richer over the next three months. But you will be safe from the more likely possibility of becoming considerably poorer.”

“That makes sense,” I said to Rational Brain.

He winked. “That’s what I’m here for.”

And that’s why I sold 75% of my stock holdings. If you are having some of the same concerns regarding your investments, conduct an interview. Your brain parts are yours, formed by your own knowledge and experience. See what they have to say. And then do what your Rational Brain advises.

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