The 401k

Ah, the first decision you’re going to have to make – how much of your paycheck do you want to allocate into your 401k? The most important thing to know about a 401k is that any money you contribute is “pre-tax”, meaning that it is taken out of your paycheck before taxes are calculated. This is the first way a 401k gives you “free” money – you’re able to sock it away before the government takes a cut. The second way a 401k gives you free money is an employer match. Policies vary among companies, but most offer a match of some kind, up to a certain percentage of your salary. Always, always contribute enough to your 401k to receive the full matching amount that your employer offers – this is literally money in your pocket as an incentive to save. After you’ve received the full employer match, it’s my advice that you don’t contribute anything further to your 401k right now. I’ll explain why in a minute.

Once you’ve got some money in your 401k, you’ll be asked what type of fund you wish to invest it in. You’ll have a lot of options, but your best bet is to select a “target retirement fund”. Add 40 years to the current date, and that’s roughly the year you should hope to retire. These target retirement funds will automatically keep you in equities while you’re young for maximum return, while gradually shifting to bonds for income and protection as you age. Set it and forget it. One thing to be sure of: make sure your 401k is invested in a broad-based fund, not exclusively in the stock of your employer. That’s a lot of eggs in one basket – just ask anyone that spent their career at Wachovia or Bear Stearns.

The Roth IRA

So now you’ve saved a few percent of your paycheck in your 401k (just enough to receive your employer match), but you still have some extra cash remaining that you can afford to lock away for retirement. Your next option is an account called a Roth IRA. Contributions to a Roth IRA are “post-tax”, meaning they come out of your wallet after you’ve already paid income taxes to the government. However, the big benefit to a Roth IRA is that once you’ve contributed, your money grows tax free, forever. That means when you retire, you can withdraw the full amount without paying a dime of taxes on the money you contributed OR on your capital gains. That means you never pay any taxes on all the compounded interest your money made you over the years. And after 40 years of compounding, that’s significant.

You can open a Roth IRA with nearly any investment company (Fidelity, Charles Schwab, TradeKing, and many more), though it may be easiest to use whichever company your employer uses to administer your 401k. There are two major rules regarding Roth IRAs – 1.) You may contribute a maximum of $5,000 each year. You can do this all at once or over the course of the year, but your total contributions may not exceed $5,000. And 2.) You may only contribute to a Roth IRA if you make less than $105,000/year. While this may not be an issue for you now, it hopefully will be in the future, so get those contributions in while you can so they can grow tax-free over the course of your career.

In order to contribute to your Roth IRA, write yourself a check and mail it to your investment company; they will deposit it in an account in your name. The best way to do this is to mail in a check for $416.66 each month ($5,000/12). This will help you in your budgeting, and also keep you disciplined.

Your Checking Account

Speaking of writing checks, now that you’ve contributed to your 401k and Roth IRA, it’s time to make sure you have some “walking around money”. For that, you’ll need a checking account. A checking account provides you with quick, easy access to your money through ATMs, checks, and a debit card. This is the money you’ll use to pay your rent, cover your tab at happy hour, and buy that electric guitar you’ve always wanted.

You can get a checking account from any bank in the country, but far and away the best choice is Charles Schwab Investor Checking. Their two most attractive account features are 0.5% interest (compared with 0% at most banks) and unlimited, free use of any ATM in the world. I can’t stress this second point enough – no more wandering around town to find a specific bank’s ATM, no more paying a $3 “convenience fee” at the gas station. It’s all free, anywhere, all the time. I want mention that I’m not paid by Schwab and that’s not a referral link. I just think they’re awesome (and have been a customer for 4 years myself).

Once you’ve got your checking account open, set up direct deposit with your employer. They’ll drop your paychecks directly into your checking account, and you won’t need to worry about cashing checks every 2 weeks.

So now that the money is streaming in, should you just let it pile up in your checking account? My advice is to keep about $5,000 in your checking account for day-to-day use and personal spending, and get the rest out of there so it’s mentally earmarked for saving or a rainy day. So where should you put any left over money after your 401k and Roth IRA are maxed out, and you have $5,000 in your checking account?

Investing in Mutual Funds and Stocks

If you still have money left over, it’s time to think about investing in individual stocks or mutual funds. Lots of people that are smarter than me (and many who are not) have written miles of text on which stocks and funds you should and shouldn’t buy (caveat investor), so I’ll avoid telling you what to buy and focus on how you buy it.

You’ll need a brokerage account. As with your checking account, there are countless firms that can give you what you need here, but be aware of fees. If you’re only investing a few thousand dollars, commissions can significantly eat into your profits. That’s why I want to make another recommendation – use TradeKing as your broker. Commissions are only $4.95 per trade (the lowest I’ve found anywhere), and they’ll let you trade stocks, options, and mutual funds. Again, they’re not paying me a dime – I just genuinely think they’re the best option.

Once you transfer some money into your brokerage account, it’s time to buy some stocks. Pick up the Wall Street Journal, read the news, and educate yourself – this is a good chance for you to start to learn about investing while the stakes are relatively low. Think long term – remember, you’re investing not trading. Be aware of capital gains tax laws – any profits from a position you hold for under 1 year are taxed as normal income at your normal tax rate (which could be as high as 30%). But if you hold a position for longer than a year, you pay only the long term capital gains rate of between 0% and 15% (depending on your tax bracket). So keep that in mind when you’re tempted to trade quickly in and out of stocks.

If you don’t have the time, knowledge, or inclination to pick individual stocks, you can use your TradeKing account to purchase nearly any of Vanguard’s 100+ index funds – all you need are their tickers, which you can find and research on Vanguard’s site here. While everyone’s investment objectives are different, if you want a set it and forget it index fund, take a look at VEIPX, VDEQX, VWINX, or VGSTX.

In Summary

So there you have it – a complete blueprint to getting organized financially in the real world. Let’s sum up the structure we’ve set up for you:

• 401k Contribution — Enough to receive your full employer match, no more (every paycheck)
• Roth IRA — $5,000 per year (one $416.66 contribution each month)
• Checking Account — Consistent $5,000 balance for every day expenses, direct deposit, free ATM use
• Brokerage Account — Any additional savings are invested in stocks or mutual funds for the long term

If you’re able to follow the blueprint I’ve laid out above, you will not only be able to sleep well at night knowing you’re doing the right things with your money, but also will have set yourself up with a framework to save responsibly over time and build wealth in the long term.

I also follow several Tumblr blogs, and occasionally publish some content of my own (shorter form than this blog, more thought out than Twitter). I really enjoy Tumblr because it makes publishing quick, easy, and beautiful. As a whole, Tumblr is a very slick way to publish and interact with other people’s content, but it’s a walled garden. Essentially, the Tumblr dashboard is a really pretty, social RSS reader – that only allows me to subscribe to a certain subset of blogs. There is no way to follow non-Tumblr blogs inside of Tumblr, so it only works as a centralized content hub if everyone publishes their content on Tumblr. Sure, each Tumblr blog has an RSS feed available, but Tumblr’s dashboard provides enough nifty social features and UI polish that I enjoy reading Tumblr blogs far more in the dashboard than in an RSS reader. So I continue to login to Tumblr – both to publish content and follow my friends.

And now we come to Facebook. Probably the most widely used sharing platform of all, my Facebook stream is chock full of status updates, vacation photos, relationship changes, and shared links from all the people I actually know in real life. This stream is obviously very valuable and very personal, so a quick check to Facebook is definitely a part of my daily routine.

So now I’m in trouble – I have three separate “streams” that I need to check to follow my friends (Twitter, Tumblr, Facebook) and I still have no way to follow anyone that creates using other platforms like WordPress, Blogger, or Posterous. So if you’re on one of those platforms, my only option is to stick your RSS feed into Google Reader. Before I know it, I’ve got a Google Reader account that is just as populated as my other streams.

So now, I have a stream of people on Twitter, a separate subset on Tumblr, my friends on Facebook, and I’m back to using Google Reader for everything else. I have to check 4 different places to follow all the content that is produced by my friends. Having to check all these separate streams is really asinine. Isn’t this the problem RSS was designed to fix?

In is book, Cialdini (formerly a nationally renowned professor of marketing at Arizona State University) describes Six Principles of Influence which encompass every negotiation tactic and act of persuasion utilized in board rooms, living rooms and farmers markets the world over. That is to say, these are the six “puppet strings” that all of us tug at to gain compliance from those around us. They are vastly and widely applicable, from business negotiations to marketing to disagreements with your spouse. If you look closely, you’ll notice that all of us employ them every day to achieve our goals and influence those around us. Many of them are particularly applicable to entrepreneurs, so I’ve attempted to crystallize the essence of the six principles and share them below.

Cialdini’s Six Principles of Influence

1. Reciprocity: The concept of reciprocation is pervasive in our society. It’s one of our established social rules – if someone does us a favor, we do them one in return. If someone invites us to a party, we put them on the list for our next gathering. It is a fundamental principle that has been ingrained in all of us since the earliest days of human society. It is the concept of reciprocity that allowed our ancestors to freely share food, skills, and protection with confidence that the resources would be returned in kind. The shared web of interdependency and obligation allowed for the division of labor and specialization of skills – reciprocity was truly an evolutionary advantage.

   Accordingly, it’s no surprise that our modern culture has socialized us all to carry a sense of indebtedness to those that help us first – the “Golden Rule”, Karma, and “Pay It Forward” are all reciprocal social concepts that are instilled in all of us from a very young age. We assign harshly negative labels to those that do not follow the cultural norm – mooch, freeloader, leech. It is no wonder that whenever another person does us a favor, we feel obligated to respond in kind. And so, our natural reactions can become a powerful influencer when exploited. Let me give an example.

   I experienced the reciprocity principle first hand this winter on a ski trop to Breckenridge. Our group pulled into the parking lot and began to unpack our equipment. As we did, a man approached and made a show of welcoming us to the mountain and complimenting our gear. He then handed out “free” Breckenridge wool hats to each one of us. After receiving our thanks, he quickly followed up the gifts with a request for a $10 donation to a charity he was representing. Three of the five in our group immediately ponied up, and the man went on to the next unsuspecting car. I later asked my friend what charity the man was representing. His response – “No idea, but hey – free hat!”

   The above is a perfect example of reciprocity in action – my friends felt compelled to donate to the man’s charity because they had first received the “free” hats, regardless of the nature of the charity’s work or whether they even needed or wanted a hat.

2. Consistency: The consistency principle states that “Once we have made a choice or taken a stand, we will encounter personal and interpersonal pressures to behave consistently with that commitment. Those pressures will cause us to respond in ways that justify our earlier decision.” In layman’s terms, this means that once we have made a small commitment or statement (especially publicly), it becomes part of our self-identity. For example, if I can get you to make the statement “I love discovering new music” (and who doesn’t), you’ll be more than twice as likely to pull out your wallet when I then ask if you’ll buy my band’s CD. Because not buying the CD would be inconsistent with your previous assertion that you enjoy new music (a feeling known as cognitive dissonance), you feel compelled to purchase the album.

3. Social Proof: Of all the six principles, I believe we experience and are influenced by social proof most strongly and most often. Social proof refers to the phenomenon that we are far more likely to do or believe something if we have seen others like us do or believe it first. Cialdini cities several studies in the book, including one that analyzed reclusive pre-school children. Researchers showed each reclusive child videos of other children their age observing a social activity, then actively joining into the activity. At recess the next day, the formerly isolated children immediately began to interact with their peers at a level equal to that of normal children in their schools. The principle of social proof illustrates that we often copy behaviors simply because if many others are doing something, we believe it must be the correct thing to do. The children in the experiment perceived that being social was the “normal” thing to do, and which gave them the courage to alter their own behavior. The principle of social proof is applicable to far more than elementary school behavior, and there are further examples in the book that examine social proof as an explanation for buying decisions, mass suicide, and traffic jams.

   Entrepreneurs also run head-long into the social proof principle when raising capital for the first time. Many venture firms are reluctant to invest until they hear that others have invested as well. If you’re able to secure a commitment from a big name VC firm like Sequoia or Khosla, you’ll probably not have much difficulty filling out the rest of your funding round. This is due to the principle of social proof – if others are willing to invest, it must be a good deal. Similarly, when you go to raise a second round of capital, any new investors will want to see participation from the firms that initially invested in your Series A. After all, if your original investors are unwilling to commit further capital, why should anyone new invest? This is often called “The VC Signaling Effect”, and has been discussed in depth by both Chris Dixon and Mark Suster.

4. Authority: This one is fairly self explanatory – if someone in a position of authority commands you to perform a task, you are likely to comply. This was proved out in the now infamous and controversial Milgram Experiment. You can read the link for further detail, but essentially Milgram proved that despite moral objections and severe emotional distress, subjects were still willing to administer what they thought to be lethal electric shocks to others when commanded by someone in a position of authority. Milgram used his studies to explain the brutal actions of certain German soldiers during the Holocaust, committed despite stated strong moral objection by the soldiers themselves.

5. Liking: This one seems obvious, but it’s very true – we tend to comply with requests from people who we like (friends, family, etc). Tupperware Corporation has exploited the liking principle to great success; each day thousands of people invite their friends over for tea and finger food, only to eventually ask them to purchase some Tupperware at the end of the party. By relying on the obligation we all feel toward those we like, Tupperware has built one of the largest direct sales organizations in history. In fact, Tupperware no longer sells in retail stores at all, relying almost solely on parties and the liking principle to generate over $2 billion in revenue each year.

   However, it’s not only your friends and relatives that can exploit the liking principle. The liking principle also encompasses arguably the most powerful persuasion method of all – attraction. An attractive, flirty stranger can create the same persuasive “liking” effect that your best childhood friends enjoy. That’s the reason nearly every pitchman, model, and TV commercial family is good looking, and all those Bud Light commercials feature women in bikinis. The more attractive the person trying to gain our compliance is, the stronger “liking” that they create, and better chance they have of persuading us. “Liking” is the principle that explains what Hollywood has known to be true for years – sex sells.

6. Scarcity: “Hurry, supplies are limited! This deal won’t last! Call now!”

   How many times have you seen slogans like those above plastered on store windows or shouted by TV infomercial salesmen? Probably more than you can count, and it’s because of the scarcity principle. We are far more likely to agree to a request if we believe (falsely or correctly) that we will not have another chance in the future. Fear of losing an opportunity can be a very powerful motivator. It is generally true that things which are difficult to obtain are better than things which are easy to obtain – thus we are subconsciously conditioned to use scarcity as a proxy for higher value. Cialdini mentions a used car salesman that always made sure more than one interested buyer was present whenever he was selling a car. The competition increased anxiety in both buyers and made the car seem that much more attractive, which without fail increased the price the salesman got for the car.

Cialdini’s book provides far more detail on the above principles than I have included here, including numerous studies and examples ripped straight from current events that illustrate each principle in action. I’d recommend Cialdini’s book to any entrepreneur, product manager, or marketer, as well as anyone looking to be more persuasive in general. It’s an absolutely fascinating read.

I saw a statistic the other day that by the end of 2010 China will have more mobile internet users than there will be people in the United States. That’s staggering. There are countless companies with tons of VC hype and astronomical valuations climbing all over each other to try to capture even a sliver of the ~90mm user U.S. mobile internet market. And yet there is a Chinese market that is orders of magnitude larger and remains relatively unaddressed by America’s top online properties.

For example – Facebook has experienced tremendous user growth outside of the United States, adding almost 10 million global users in March 2010 alone. Below you’ll see a top 10 table of Facebook’s growth by country in March – millions of users were added in Asian countries like Indonesia and the Philippines, and according to Facebook nearly all of those new users access the service exclusively on mobile devices (wow). And yet despite the obvious resonance with Asian consumers, Facebook remains conspicuously absent from China due to a near total blockage by the Chinese government.

Not to say there aren’t very significant and well established Chinese social networking players (including Tencent Inc., which is debatably the largest social network in the world) but I just find the under representation and seeming indifference of so many American Web 2.0 properties to be surprising. So many of today’s startups seem laser focused on attacking the United States mobile market, and are at the same time so haphazard in their Chinese strategy.

I do understand that there are significant regulatory and cultural hurdles to clear when moving a U.S.-based service into the Chinese market. In addition to censorship and restrictions on foreign business ownership, there is no guarantee that a product that has been successful in the United States will resonate with Chinese consumers. Many of today’s social media and self publishing centric products and services simply aren’t workable in a country that does not allow the free flow of information or exchange of ideas that we enjoy here in America.

It seems that the swell of Chinese internet users (on mobile devices especially) are like a tsunami being held back by poor access to broadband and isolated by the dam of government censorship. Though there are millions of users already climbing over and around the dam (with things like proxy servers and other methods of circumventing the “Great Firewall of China”), I expect that the real wave will come over the next several years as the government finds it increasingly difficult to censor its citizens, and increased broadband penetration plugs more and more Chinese into the web. As China comes online in a bigger and bigger way, it’s going to be harder than ever for American startups and social media players to compete without confronting the tsunami head on.

Deceptive Infographic #1: The Heathcare Vote

The first infographic I want to highlight comes from the otherwise excellent Political Math Blog. The diagram aims to portray the House of Representatives vote split for the recently passed healthcare reform legislation in comparison with the vote splits for other major social reform. It is an interesting diagram because it illustrates how objective information can be displayed in a manner that influences your perception of the data.

In the first three vote blocks, the dividing line between “Yay” and “Nay” is drawn down the middle of the “split” party, indicating that there are party members on both sides of the debate. However, in the final vote block on heathcare reform, the creator of this diagram has specifically arranged the colors such that the Yay/Nay dividing line runs directly between the parties, with the dissenting Democrats hidden off to the right side. This increases the contrast between the parties, and makes the Heathcare Reform vote appear more partisan and divisive than it actually was.

When viewing an infographic (or any seemingly “objective” data), make sure you consider whether or not the designer is trying to “lead” you toward drawing a specific conclusion or feeling a certain way by presenting the data in a certain manner.

Deceptive Infographic #2: Household Income vs. Debt

I originally found the next graphic on Digg, where people were whipping themselves into an outrage about how unfair life is, how capitalism is broken, and how America is headed to hell in a handbasket. Except this graphic is totally flawed (click for a full size version).

The graphic compares the trend in average household income (the green bar) with the trend in total household debt (the red bar), and reaches the “nightmare” conclusion that the latter is quickly outpacing the former. The problem in this graphic is that comparing annual income to total debt is apples to oranges. Suppose I make $50,000 a year and owe $250,000 on my mortgage. Is this necessarily a Bad Thing? No. Here’s why:

This comparison completely neglects the other side of the household balance sheet – assets. You borrowed $250,000 on that mortgage to buy the house, so you also own an asset (the home) worth $250,000 (putting aside the housing crash for a second). You also have likely saved some of your income each year, which is building up as an asset in your bank account. Both of these assets can be liquidated to eliminate the debt. The debt is only dangerous if it is not matched by an asset of equal or greater value.

In addition, the diagram assumes you never use any of the income you earn in the time between each bar (several years) to pay down any of the debt, yet you continue to borrow. If that’s the case, the prison is of your own making. I could go all day, but the bottom line is, this is a completely flawed comparison. Debt is not inherently a Bad Thing. Irresponsible debt (debt that is not counterbalanced by assets) is a Bad Thing.

The lesson here is that you should pay attention to context and the validity of comparisons before drawing conclusions, especially when data visualization is involved.

In Summary

Infographics are incredibly useful for conveying a lot of data at a glace, and draw the eye with bright colors and interesting shapes. Often an infographic is the best way to communicate data to a relatively unsophisticated or novice audience. However, when you come across a flashy data visualization, sure the author didn’t create it to tell a specific story. Always take some time to envision the data behind the chart – would the data table create the same reaction that the infographic elicits?

Update: Here is a great infographic that was sent over to me today by my friend Vanessa – it depicts the magnitude of the recent Deep Water Horizon oil spill that occurred last week in the Gulf of Mexico. It does an excellent job putting the magnitude of the spill in context with other well known spills (Exxon Valdez, Amoco Caldiz) and also illustrating just how much oil was spilled relative to the world’s daily consumption. Check it out. Even better, they make the underlying data available here.

Even after the American West had been developed, the United States has remained the epicenter of the world’s economic growth and a proverbial “land of milk and honey” for immigrants from across the globe. The best and brightest students from countries the world over aspired to one day travel to America to make their fortunes and pursue the “American Dream” – and countless many have done just that. However, while the western world has been the place to be for the past 150 years, I’m beginning to think that the next 150 may see a stark reversal of the compass needle.

Take a look at the picture that accompanies this post (click for a striking full size version). That’s Shenzhen, China – the biggest place you’ve never heard of. With some 14 million residents, it’s far bigger than New York City and remains the fastest growing city in China. Not only is Shenzhen exploding, it’s young, smart, and hungry. It’s estimated that 20% of China’s PhDs work in Shenzhen, and the average age of its citizens is less than 30. Thanks to billions in foreign investment, it’s young and educated population, and its status as the first of China’s Special Economic Zones, Shenzhen is also the #1 export center in China, accounting for 22% of the country’s total. All of this is particularly striking when you realize that less than 30 years ago, Shenzhen was nothing more than a sleepy fishing village with a population of 30,000 (that all of this growth has coincided exactly with the establishment of the special economic zone and a capitalist economy is best left for a separate discussion). Shenzhen has also developed as a manufacturing powerhouse, and is the origin of nearly every shiny consumer gadget you own with “Made in China” stamped on the bottom. And if you’re reading this on a Mac, iPhone, iPad, Thinkpad, Dell, Kindle, or HP (among many others), that includes the hardware your browser is running on right now.

John Biggs from CrunchGear spent several weeks in Shenzhen and wrote an excellent series entitled “CrunchGear in China: Where Tech Sausage is Made”, which explores the massive consumer goods (mostly electronics) manufacturing industry that has catapulted Shenzhen to prosperity and global prominence. CrunchGear paints an incredible portrait of the Chinese culture and the efficiency with which they conduct their manufacturing. If you have some time to read through them, they provide some awesome perspective on the seething, dirty, and ruthlessly effective economic powerhouse that’s growing up in the East. The articles are here: Introduction, China the Factory, Getting from There to Here, The Ex-Pats, Shanzhai.

So for all the reasons laid out above (and even more that I’ll elaborate on in a future post), I see the East as having many of the same characteristics that made the American Wild West so appealing – rapid development, a population boom, and a modernizing economy. And although the modern day Chinese gold rush has already begun, I can’t help but think there is still a vast opportunity in East Asia for those willing to make the leap and “grow up with the world”.

The contrast is clear – the front page from 1941 is extremely text heavy, with only a single graphic and no photographs. The newspaper from 2001 is dominated by dramatic full color photographs, and text occupies less than 50% of the page. The photographs draw the reader in and convey much more emotion than the text alone. An interesting contrast, and a testament to both improved printing technology and our increasingly visual nature.

But the trend doesn’t stop with newspapers. I’m writing this post in the midst of “iPad mania” – Apple’s much anticipated tablet computer will be released in just 48 hours. I think that much of the hype around the iPad is due to the fact that so much of the experience Apple has designed is centered around consuming rich media – movies, comics, photos, and video. Even the vanilla e-book as been re-imagined – one of the launch titles is an illustrated guide to the periodic table, aptly titled The Elements. Instead of simply text and pictures, The Elements contains three dimensional samples and photos of each element: a nugget of gold (Au), an ingot of coal (C), a manganese crystal (Mn). You can touch and rotate them with your fingers. Tap to stream related videos from the internet or pull up the current market price of silver. What was once words on a page is now alive with information and rich media.

This kind of rich, visual media is definitely going to revolutionize not only textbooks, but literature of all types. Imagine a medical journal with anatomy models that rotate and zoom, or engineering manuals with diagrams that explode to show each and every part inside a car engine. As we discover ways to communicate more and more information visually instead of simply through text, I think the future is going to be a very exciting place to be.

A study by Microsoft showed just how lethal interruptions are to productivity. The researchers taped 29 hours of people working in a typical office, and found that they were interrupted on average four times each hour. Sounds like a day at most offices. Here’s the kicker – 40% of the time, the person did not resume the task they were working on before the interruption. The more complex the task, the less likely the person was to resume working on it after an interruption. That means most of us are getting derailed from our work four times each hour, maybe more if you work in a high email traffic office.

So how do we get back on track? The answer lies in a concept called the “Urgent vs. Important Matrix“, which I was reminded of (and inspired to write this post) when I read fellow Coloradan Devin Reams‘ excellent post entitled “Instant Email is Good for Nobody” (agreed). Most of us have grown up considering “urgent” and “important” to be the same thing, but that is not always the case. An issue can be both urgent and important (a heart attack), urgent but not important (a telemarketer is calling), important but not urgent (that big project you’re working on), or neither (surfing the web). As such, we need to develop the ability to quickly identify urgent and important interruptions that need to be dealt with right now, and file the rest away to be dispatched at regular intervals when they will not interrupt us from the tasks we are focused on completing. Be particularly wary of “urgent but not important” tasks – these often masquerade as top priority items and steal attention they don’t deserve.

In Tim Ferriss’ fantastic “4-Hour Workweek” he discusses his method for handling email interruptions. Tim checks email once at 11am and once at 4pm – that’s it. It’s called batching, and it helps not only to reduce interruptions, but also decreases the time spent switching between tasks (28% of your day, according to the Microsoft study).

Since I’ve left banking and been working with Hosting.com, I’ve tried to turn over a new leaf in email management. I’m no Tim Ferriss, but I try to only check emails once an hour and I completely turn off the alerts on my iPhone during things like dinner, movies, and social time with friends. Not only has it made me more productive, it’s drastically reduced my stress level. Additionally, people learn that email is not a viable option for getting ahold of me instantly. If something is both urgent and important, I get phone calls, which are totally fine and welcomed. My boss operates on the same principle, and it actually creates a great work dynamic in our office – urgent/important things get personal phone calls or face to face conversations, while non-urgent items get dropped in our email boxes for handling at the appropriate time. We both know that if our phone is ringing, the other has considered both the importance and urgency of the task before dialing the number. If you can get everyone in an office or on a team working under this principle, it really does dramatically increase efficiency and decrease stress – I highly recommend it.

As we sat alternating rounds at one of our old haunts, he described to me a renewed outlook he had developed over the past several months of particularly long hours at work. He had come to the realization that in addition to professional success, personal zest for life was an equal contributing factor to one’s happiness. Accordingly, he resolved to inject some life back into his waking hours, and that began with a definition of what living meant.

When he sat down to define the things that made him happy, it became apparent that so many of us think that happiness is defined by “having”. That is to say having a 56″ TV, having a nice car, having an arbitrarily high account balance. What my friend realized is that “having” is a poor substitute for “doing”. Thinking back, I realized he was right. The happiest times in my life have not stemmed from things I had, but from things I did. The state championship my senior year of high school. The spontaneous overnight drive with roommates to Florida for a weekend in college. A wild weekend in New York City with my brother and a close friend. Experiences pay dividends far richer than possessions.

So, rather than medicating with shiny toys, my friend resolved to spend his money “having” remarkable experiences with friends. He told me he sat down to write out 30 things he wanted to experience while he was still young and relatively unencumbered by family, mortgage, and age. We made plans to accomplish at least three of them in 2010 together. His list is titled “30 by 30″, and these are the things he wrote down.

1. Travel to Las Vegas and witness a title fight from the good seats.
2. Learn guitar well enough to play cover songs for tips one night in a bar.
3. Ski the back bowls at Vail without falling.
4. Headline the local paper just once, for something positive.
5. Get lost for a summer weekend in the Rockies with only a tent, sleeping bag and camping stove.
6. Chop down a tree for firewood.
7. Soak up the tropical weather and several mojitos in Miami.
8. Learn mixed martial arts.
9. See the Sox play at Fenway, curse at visiting team with local Bostonians.
10. Travel through Europe for several weeks without a defined itinerary.
11. Become “first name basis” friendly with a celebrity I admire.
12. Climb to the peak of a mountain tall enough to be an accomplishment (more than a day hike).
13. Attend a Hollywood party – with an invitation.
14. Pick up a girl who is way out of my league.
15. Rent a Ferrari and drive the Northern California coast.
16. Learn to snowboard.
17. Live like a king for a week in Buenos Aires.
18. Become a recognized expert in a topic of my choosing, however narrow.
19. Grow a real, outdoorsman-caliber beard.
20. Sail for a week in the Bahamas, on a rented boat, without a guide.
21. Become a good enough sailor to achieve #20.
22. Attend a party at a rooftop bar with a view in New York City.
23. Climb to the top of the Eiffel Tower.
24. Experience the neon and culture shock in Tokyo.
25. Become a regular at a local bar. Enjoy free drinks.
26. Beat one of the old men in the park at chess.

See the following bands live, from up close:

27. Billy Joel.
28. Journey.
29. John Mayer.
30. The Goo Goo Dolls.

An ambitious list for sure, and one that will probably not end up fully marked off by his 30th birthday. However, if even half of the items do get accomplished, they should provide some excellent fodder for reminiscing next time we share a pint at Christmas. To those following along at home – what things would you put on your “30 by 30″ list? If you’re over 30, what are some things you still want to experience before retirement (i.e. things you don’t want to put off)?

Also, if this is a topic that interests you, make sure to read Paul Graham’s essay “Stuff” which discusses the “over-stuffing” of America. Take the money you would spend on “stuff” and spend it on something that’s actually going to increase your happiness level – life experience.

I went into finance after college because I recognized that while I had some hands-on entrepreneurial experience building a startup company, I still had a lot of learning to do when it came to the way larger established companies were run, financed, and sold. If I wanted to grow into a successful investor or to repeat my entrepreneurial success on a larger scale, I needed develop my financial skills and experience a variety of industries and companies. I got all of this experience and more during my time working with the many bright people at Edgeview Partners. Having a ringside seat next to our partners and clients gave me a great appreciation for all the considerations and work that go into corporate finance and dealmaking. In addition to intense hands on financial experience I got, the many late nights hardened and groomed a messy college senior into a stronger, more polished young adult.

However, in time, I realized that I really missed being around technology every day and working with a team to grow a business. Additionally, many of the most talented entrepreneurs and investors I’ve met and spoken with are also great operators, and I knew that I still had a lot to learn in that regard. I wanted to get back to growing a company. Last year’s turmoil and uncertainty in the financial industry provided the final push that I needed to break out of my routine, take some risks, and seek out something new. I connected with a long-time family friend who was able to point me to what would turn out to be the perfect combination of all the things I was looking for – Hosting.com in Denver, Colorado.

When I arrived in Denver to interview, I spent the entire cab ride from the airport to Hosting.com headquarters with my face pressed against the back window – the snow-capped Rockies, brown high plains, and expansive western sky were an arresting contrast to the rolling green hills of Charlotte. I met with several executives, and after a few hours discussing the job, my qualifications, and the quarterback woes of the Buffalo Bills, I knew Hosting.com was a place I could come to make a difference, gain some hands on experience in a growing company with great people, and (maybe most importantly) to get excited about work everyday.

Today, I’ve been here for just over three months, and each day has been interesting and educational. Hosting.com has been a great fit for me because it provides an opportunity to combine the financial and deal-related skills I learned in investment banking with my entrepreneurial drive and interest in technology. It’s also been extremely refreshing to “get on the bandwagon” after so much transactional work and actually focus on the long term success of the company. Everything I’m working on is directly focused on scaling our business, improving efficiency, or serving customers – it’s great to be able to get involved on an operational level. Being on the inside of a world-class datacenter/hosting company has given me a new appreciation for the massive network infrastructure that runs our modern internet. It’s also exciting to be on the cutting edge of much of the cloud computing architecture that will run the internet of tomorrow.

All in all, it’s been a great move for me, and I’m very glad to be back in the technology industry and back in a hands-on role. Wearing jeans to work isn’t too bad either.

PS – I’ve also made a commitment to update this blog more frequently in 2010 now that I’ve got a little bit more time available to write. You’ll still see plenty of posts in the “Finance and Economics” category, but also expect some more fleshed out content under “Technology” as I try to write more about cloud computing, applications, and internet infrastructure in general.

I strongly disagree with this argument, and the general one that just because Chrysler is not public, it is less deserving of a bailout than Ford and GM. You may be surprised at the actual ownership of Ford and GM – the majority of their shares are held by investment houses similar to Cerberus.71% of Ford’s outstanding equity is institutionally owned, and in addition, 40% of its voting rights are controlled by the Ford family. GM is 78% institutionally owned.

Also, why is the public not aghast that Ford and GM cannot raise additional equity from their existing shareholders? If Ford and GM cannot float additional equity on the public market, why should the taxpayer invest? The answer is that none of the Big 3 can raise additional equity because their market cost of capital is astronomical. This is why the government has to step in – neither the private nor public markets are willing to make any sort of further bet on these companies.

In addition, Cerberus has agreed to forfeit any profit it may make on its Chrysler investment if it receives government money. Ford and GM’s public shareholders have clearly made no such promise.

To be clear – I am in no way in favor of a bailout for any of the Big 3. These are sick companies, and they need to die. However, discriminating against Chrysler because they are privately held is really inappropriate.

Barack Obama is coming to Wake Forest tomorrow. Limited tickets were available for free on a first come, first serve basis to the student body. Unfortunately, I wasn’t quick enough, and didn’t get a ticket, and neither did my two roommates. After four years at Wake, I’ve missed the chance to see a number of big name political speakers, and I wanted to make sure I got to see at least one before graduation.

I tried emailing my fraternity’s listserv to see if anyone had any extra tickets they weren’t using – no luck. I emailed the president of the campus College Democrats – no tickets left, the event is sold out. However, I was determined to get a ticket, so I turned to the best medium I knew to contact as many college students as possible – Facebook.

At 11pm tonight, approximately 10 hours before the doors were scheduled to open for Obama’s speech, I created a Facebook ad offering $25 to anyone with extra tickets. I was easily able to target it to all students at Wake Forest (though I could have customized it further – by interests, class year, major, and many other criteria). I chose to pay per click, and set a maximum budget of $5. After I pressed “Create my ad”, it was a matter of minutes before Facebook had shown my ad over 6,000 times. Within the hour, I received messages from 4 separate people offering to sell me their tickets. The entire thing cost me $4.97 – that’s only about 8/100ths of a cent per impression. (As a side note – this is incredibly low as far as online advertising goes – a problem for Facebook that has been mentioned before as one of their biggest weaknesses)

Tomorrow morning both of my roommates and I will see Barack Obama speak in a sold out coliseum that I didn’t even have tickets to until less than 10 hours before the event.

Now that’s the power of the internet and social networks – and it’s those kinds of results and precise targeting that make Facebook worth $15 billion (though I do think that’s a bit high, considering their monetization difficulties).

I was forwarded the following parable, written by David R. Kamerschen, Ph.D. Professor of Economics at the University of Georgia entitled “Barstool Economics”. I think that while it is a bit simplistic, it is definitely timely and interesting.

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until on day, the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.” Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

“I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man – “but he got $10!” “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than I!”

“That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two, the wealthy get all the breaks?”

“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier or not reinvest in the community.

Just some food for thought…

But how did we get here? Why are people defaulting on their mortgage payments? And what effect does this have on the markets and economy?

The explanation begins with a description of a special kind of loan employed by many homeowners with less than perfect credit, or those that may be borrowing more than they can afford – an adjustable rate mortgage (ARM). These mortgages often come with a low introductory “teaser rate” that makes the loan seem cheap. However, after a certain period of time, the loan’s interest rate “resets” to a much higher rate (often higher than the borrower can afford to pay).

So why would a borrower agree to an adjustable rate mortgage, knowing that the higher rate is more than they are able to afford? Many times, these loans are made to people with poor credit, and are the only kind of loan they can get. They’ll often take a short-term view and sign the loan, hoping to be able to refinance before the higher interest rate takes effect.

Another major contributing factor has been the United States housing bubble. In 2005, home prices were higher than they’d ever been, and seemed to have nowhere to go but up, having experienced price appreciation of 10% or more in each of the previous 4 years. Real estate was the hot, “sure thing” investment. Home buyers had no problem signing an ARM, because they assumed that as the price of their home continued to rise, they could either refinance or flip the house before the higher interest rates kicked in.

Just one problem – bubbles burst. By 2006, housing prices had peaked. Throughout the year, they corrected downward, and by the end of the year, had experienced double digit declines in some markets.

By this time, all those ARMs signed in 2005 are beginning to “reset” to much higher interest rates – often more than doubling peoples monthly payments. Faced with payments far too high for their budgets, people normally would sell the house and “buyout” the mortgage with the proceeds. However, real estate prices are substantially lower than they were in 2005 – meaning that selling the home would not net nearly enough to cover the amount of the mortgage it was purchased with (at inflated 2005 prices). So, unable to meet their monthly payments, and unable to sell their homes for enough to buyout their mortgages, this leaves the homeowners only one option – default.

When homeowners default on their loans, banks do the only thing they can to recover their money – seize the property pledged as collateral (the home). However, this does not solve the problem. Now the bank is stuck with a home that is a.) very illiquid, and b.) still not worth enough to cover the amount of the loan. So, the bank does the only thing it can – sells the house at auction, usually for a price far lower than what it is worth, in order to recover some of its money. This has the side effect of increasing the supply of houses on the market, which further depresses home prices, creating a vicious cycle.

Though banks have lost millions of dollars in the above manner, it pales in comparison to the billions lost in mortgage backed securities. What is a mortgage backed security? Once a bank has made thousands of mortgage loans, they often package up all the loans together and sell them to investors as bonds. Initially, everyone on Wall Street thought that these bonds were very safe investments (AAA rated, the highest possible) with very little risk of default. After all, home prices were on the rise, and the banks could always seize the valuable real estate collateral if people defaulted. Investors bought these mortgage backed securities by the billions of dollars. Soon however, the forces detailed above began to take effect. Real estate prices began to fall, and homeowners began to default in larger than expected numbers. Quickly, these mortgage backed securities didn’t look quite so safe any more.

As uncertainty about borrowers ability to repay spread across Wall Street, ratings agencies began to downgrade groups of mortgage backed securities (to AA or even lower) – officially indicating that they were now perceived as more risky by the investment community. On Wall Street, when all other things are unchanged, a safe investment is preferred to a risky one. Thus, the newly downgraded mortgage bonds suddenly fetched much less on the open market. Overnight, a bank that thought it was holding $100 billion in safe assets found that those same assets could only be sold for $75 billion – if they could find a buyer at all. As fears spread about just how risky these mortgage bonds might actually be, no investors wanted to touch them until the risks became clear. Because of this, the market for mortgage bonds dried up rapidly, casting the true value of the bonds into even further doubt – after all, if you can’t find a buyer for something, is it really worth anything at all?

So, in summary:

• The real estate bubble is bursting
• Homeowners across the country are stuck with mortgages they cannot afford
• Many are losing their homes as they cannot make their payments
• Banks have lost billions of dollars through defaults and writedowns on mortgage backed securities

I hope I’ve done a decent job of laying out the reasons behind the current crisis, as well as explaining to the uninitiated how they interacted to cause a large amount of pain for homeowners, mortgage lenders, and investors. Next time, I’ll stray from the purely objective and give my opinions on the predicament of homeowners (they’re getting what they deserve), as well as my thoughts on the proposed “bailout” plans by the leading presidential candidates (unfair, economically unsound, and socialist). Stay tuned.

Enter Highrise. I spent two hours one day typing all those contacts into Highrise. Now I can search by name, by company, or even by industry (I’ve tagged all my contacts with the industry they work in). Highrise also keeps track of every email I’ve ever exchanged with that contact, as well as any notes that I’ve added to help me remember who they are (“John loves the Giants” or “Steve has red hair and looks like Ron Howard”). In fact, my story and use case has been featured on the 37Signals Product Blog.

I became so dependent on having my Highrise contacts that I soon realized the biggest shortcoming of the application: no mobile version. Luckily, Highrise has a robust API, so I was able to program exactly the mobile version that I needed to get my Highrise contacts onto my cell phone.

The result is WhoBook MOBI. It’s built specifically for Blackberry and older mobile phones with WAP-based browsers, and provides read-only access to your Highrise contacts. Simply search for their name, and you’ll get back their contact information (with one-click dialing on the phone numbers) as well as any notes you’ve written about them. In addition to the mobile web interface, WhoBook MOBI also has SMS support – send a text to 41411 in the form “WHOBOOK john” and you’ll receive a text back with John’s phone number(s).

WhoBook MOBI is free, unlike some other websites out there that do similar things. I’m also pretty sure that it’s the only way to access your Highrise contacts via SMS that exists. If you find it useful or have any feature requests, I’d really appreciate any feedback at feedback@whobook.mobi or in the comments here.

UPDATE 4/11/2010: Since I wrote this post, 37Signals has released an iPhone app for Highrise. The official app works great for those with iPhones, but if you’re in the 90% of mobile phone users who don’t own an iPhone, there is still no official Highrise mobile app for you. That’s where WhoBook MOBI comes in – it’s entirely text-based and optimized for the basic WAP browsing available on old school Blackberries and “regular” mobile phones. I’ve just done a scrub of the codebase and added a few new features, so check out WhoBook MOBI if you’re not a member of the iPhone crowd and want to access your Highrise contacts on the go.