New Career and Lifestyle

My new routine:

  • Get up whenever (9 am, 10 am, noon, 1 pm)
  • Start coding
  • Eat periodically
  • Test code
  • Research specialized mathematics
  • Write notes, largely mathematical and/or statistical
  • Do other non-technical business stuff
  • Keep coding
  • Go to bed whenever (midnight, 1 am, 2 am, 4 am!)

A few realizations:

  • Coding seldom feels like work.  I like/love it!
  • No one I know understands what I’m working on
    • Generalized risk-model portfolio optimization
    • Concurrent multi-risk model optimization
    • Convex and non-convex optimization
  • The rare person who might understand likely works for the competition
  • Math is fucking cool!
  • My health is important.  I must exercise and eat right to fulfill my life goals.

In addition to kick-ass software development, I have adopted a fitness and “diet” lifestyle with help from my personal trainer and my wife.  For April I will be working out approximately 6 hours/week.  My current break-even (basal+) metabolic rate with 4 hours/week strength training is about 2400 kCal/day.  Under the new regime, I should lose 4-5 pounds of mostly fat in April. Then I will go back to a build and bulk phase were my weight stays constant, but my muscle/fat ratio increases.

My body-fat-percentage goal is about 14-15%.  My max bench press is currently 210 pounds, but I’d really like to hit 225-250.  I also wish to maintain symmetry… I want my other  keep my other strength progressions roughly proportional to my bench press progress.

4 to 7 hours per week of fitness training is my goal.  I find most work outs somewhat unpleasant, but not all.  However, I like the results.  The hardest part of my new lifestyle is the workouts.  The second hardest part is the “diet”… six balanced meals a day. Luckily, my work (a new career in financial software) is mostly joyful.

This is far better than 50+ hours a week in unsatisfying work in my previous career. All in all the change is wonderful, so far.

High-Tech Portfolios

When I think about the phrase “high-tech portfolio”, I don’t think tech stocks.  Instead I think about using technology to build a smarter portfolio.   Most actively-managed portfolios are constructed, in full or part, using 50-year-old “modern portfolio theory” methods.  I’m working to change this by bringing superior portfolio technology to market.

So, while writing for this financial blog remains a passion of mine, I will likely be spending much more time refining software and building a financial software business.  Much of that effort will be off-line at first.  Occasionally, however, I will provide business and software updates on the Sigma1 Financial Software Blog.

Developing portfolio-optimization software combines two of my long-term passions:  software development and finance.

Rest assured, that I will keep this blog up and going.  I think it contains some hidden gems that are worth discovering.  I will also continue to blog here when inspiration strikes.

Financial Blog Year in Review

I’m starting to look back on 2011 numbers for the Balhiser Investing Blog.  The first thing that caught my attention is this investing blog has been visited by all 50 states except Wyoming.  Thanks all other 49 states for taking a browse.

I’ve been reviewing which topics and blogs have been the most popular.  Computing beta was the most popular topic, followed by my CBOE visit, then financial baseball.  Popular searches were what CPI stands for, bitcoin inflation, entrepreneur jobs, possible investments and living below your means.

Some analytics stats are better than last year, some are worse.  The most improved stat was time per visit which is up 70% to 2 minutes and 6 seconds per visit.

Finally, the financial blog has passed 150 blog posts.  This blog post will be #156.

Advertising and Promoting a Small Business

{EAV_BLOG_VER:520117bfcf76c4b9}   See the odd characters at the start of this blog post?  They are just part of my effort to build my small business.  The allow another website, in this case Empire Avenue to verify that I own this finance blog.  Promoting and growing a small business is a marathon.  That’s why I’m thinking of starting yet another venture, websqurl.com, to help bloggers and small businesses build their web presence in a very “white-hat” way.

Sorry for this bit of shameless promotion.  I’ll be right back to real finance blog posts soon.  Ya know… personal finance, ETFs, savings, investing… that kind of stuff.

9.2% Unemployment, not just for Europe

Not hiring 2011 When did I wake up in Europe? I want to go home, to the USA that I remember.  9.2% unemployment is for France and Italy.  I’ve been to these countries — nice places to visit — but not to work hard and get ahead.  High unemployment is cultural, normal, systematic.

Is Germany the new USA?  It’s the only European country doing well.  Germany has pride and strength of purpose.  Germany has its fiscal house together.

Is the USA becoming the next France?  Jobs for government workers, modest jobs security for those with jobs, and very few prospects for the unemployed and for recent college graduates.

The fixes for our current economic mess are not rocket science.  I agree with Bill Clinton’s recent comments… the corporate tax rate needs to be reduced.  The U.S. government needs to reduce the self-employment tax that is a huge drain on U.S. small businesses.  Congress and the Administration need to encourage, rather than stymie, domestic oil and natural gas production.  Finally,  an intervention is needed to halt Washington’s latest spending bender.  Washington has been drunk behind the wheel of a massive M1 tank, trying to drive the economy, whilst drifting lane to lane and taking out the odd car here and there.   That tank, fueled by 14+ trillion of debt, is about to find the price of fuel is about to rise.

Now is not the time for platitudes, or experiments.  Now is the time for prudent action.

I am sad that the Space Shuttle is being retired.  Such action is merely a symbol of where the US Government, en masse, sees the USA heading.  This need not be the case.  The US, as a whole, has all that we need to succeed.  We are are free, independent, creative, and motivated.   The US has shown repeatedly the resilience to challenge adversity and thrive.  Why so few lawmakers can see this — communicate this — is baffling to me.  Are they simply economically ignorant?  Or indifferent?

Until some economically sane action emerges from Washington, I am hedging my personal finances.  I’m positioning against the real possibility of long-term, government-sponsored inflation.  I’m factoring in the likelihood of the government CPI (CPI-U Urban Consumer Price Index)  understating true inflation and overstating the real US GDP.

There is a chance, a glimmer of a chance, that the current debt ceiling negotiations will lead to economically sound changes.  I think the chances of that are less than 20%.  I will watch closely and act accordingly.

Entrepreneur in Training

Small Biz Business PlanWalking to the Rockies game yesterday, I was struck by the bustling entrepreneurial spirit on display.  From the myriad pop-up game-day parking lots (ranging from $25 – $40 per spot), to the ticket sellers (“I buy tickets”, means “I sell tickets”), to the independent street vendors outside the ballpark marketing peanuts and beverages for half the in-ballpark price.

I have been an entrepreneur in training for most of my life.  For much of that time I didn’t associate the term entrepreneur with what I was doing, nor would I have been able to spell it.  Yet there were several entrepreneurial things I did even before graduating from high school.

  • Ran a paper-route (at age 12)
  • Door-to-door newspaper sales.  To get more revenue and “signing bonuses”
  • Picked up odd jobs to make a few bucks.  Jobs like fence painting, baby sitting & lawn mowing
  • Traded collectible cards… for fun and for profit
  • Built a “sluice-box” and panned for gold

In college I did even more.  I was trading and auctioning collectible cards via Usenet and the Web… in addition to trading face-to-face.  I found that trading up (trading several lower-value cards for one or two high-value cards) was my most lucrative strategy for making money.  I had to give up my personal collector’s mindset; to be willing to break up my collections when good deals became available.    I learned to put together targeted, marketable, ready-to-use (turnkey) sets in order persuade folks to part with one of their rare, sought-after cards.  As I got more market savvy, I learned to trade high convenience for high value.  This helped hone my fledgling negotiation skills.

I built up a reputation as a trustworthy vendor/trader who represented the quality of my cards honestly, who mailed them promptly, and packaged them carefully so they arrived in good condition.  I was doing this before anyone ever heard of eBay.

In college, I developed a software product called Visual Math 3D.  Looking through my notes, the proposed company structure was:

EngimaSoft, a division of Paradigm Software, a branch of Millennium Corp.

No shortage of boldness there!  I see now that others have grabbed most of these names.  Good for them, they are good names.

Visual Math 3D had a logo and marketing pitch for the cover of the box.  Unfortunately, I had too much school work (and school play) to bring the software to market.  Had I been more business-savvy at the time I would have brought in one or two partners to help market the product.  Who knows… it could have grown into a competitor of Mathematica, AutoCAD, or Excel — it had aspects of all three.

I continue to be an entrepreneur in training.  I’ve learned a few things.

  1. Business cards:  I have business cards now! :)
  2. Smile, listen, and mingle.
  3. Listen to feedback.
  4. Keep your sales pitch short, then converse like a real human being, not a sales droid.
  5. Market both yourself and your company/venture.  Online and offline.
  6. Market to people who are actually interested.  Don’t waste time selling ice to Eskimos.
  7. Advertising.  A necessary evil.  Yes, you will likely have to part with some capital to grab the right people’s attention in a positive way.
  8. Branding.  Logos, tag lines, style.  Done right branding creates a sense of professionalism, familiarity, and trust.

Financially my most successful ventures have not been lofty, swing-for-the-fences efforts.  Balhiser LLC’s rental property has earned over $10,000 and prospects remain good.   The Sigma1 proprietary-trading group is currently up $2700, but markets are fickle.  My card trading activities netted about $1200 over 4 years.  My paper route earned about $1100 over 1.5 years.

Except for the rental property business, all my business ventures have been self financed and operated on shoe-string budgets.  They have also been part-time, night and weekend activities.  I have a full-time career in engineering, and while my employer hasn’t given me the golden handcuffs yet, I do wear a nice silver pair.  Thus entrepreneurship will continue to be a part-time activity

My entrepreneurial successes have been modest, yet I am undaunted (at least most of the time).  Today I am a minor league entrepreneur.   I believe that within the next ten years I am likely to make it to the majors, because I have good ideas, tenacity, and passion.  Luckily I know several successful entrepreneurs, and I listen to and learn from them.  They encourage and inspire me when I need a little emotional support.

Entrepreneurship is not for everyone.  It is difficult, if not impossible, to teach in a classroom; entrepreneurship must be experienced.  It can be fraught with setbacks and dead ends.  Passion can turn lead to burnout and frustration.  Yet entrepreneurship can be exhilarating, stimulating, empowering, fulfilling and fun.

Entrepreneurs continue to drive the US economy.   The best, most concise, most creative ideas come from entrepreneurs .  Entrepreneurs also deliver mundane, but necessary goods and services ranging from car washes, to restaurants, street-side baseball snacks,  and rental properties.

The entrepreneurial spirit is alive and well in the US.   Recessions wipe out jobs, and some of the unemployed try out an entrepreneurial path.  While many fail, some succeed.  Some that succeed thrive, and build the businesses of tomorrow.  These people create not only jobs for themselves, they create jobs for others.  They drive innovation and keep America competitive.

I am not expert on entrepreneurship, but I am an entrepreneur.  I work with other entrepreneurs and admire their spirit.  While Washington pays lip-service to entrepreneurs, it seems to be ignoring the obstacles it puts into place, impeding entrepreneurs:

  • Self-employment taxes.  Small business pays Social Security and Medicare twice on every dollar earned.  Even on the very first dollar.
  • Employment and payroll rules and regulations.  The red tape is one reason I hesitate to hire any employees.
  • Regulations.  The only reason my hedge fund is not open to the public (at least to select accredited investors) is the mountain of regulatory requirements.

Even against daunting odds and government red tape, entrepreneurs find a way.  There are many who let red tape and taxes cause them either not enter the entrepreneurial game or quit it out of frustration.  This is a shame, and a loss for the US economy.  There are those who give up one entrepreneurial path (their first) choice, to pursue an alternate entrepreneurial path.  This, too is a loss, but perhaps not a severe.  Finally, there are some small businesses that simply stop growing… not from lack of opportunity, but to avoid the deep, sticky, red tape of employment law.

Right now I’m the category of entrepreneurs who are forgoing (for now) my first venture: the Sigma1 Hedge Fund, and pursuing my secondary venture — financial blogging.  I have a couple accredited investors willing to invest with me, but I have told them for now to put that on hold.

It’s not that financial blogging is not enjoyable, it’s simply far more difficult to make reasonable profits from a finance blog.   Given a choice, I’d rather make $250,000/year from blogging than managing a hedge fund.  It’s much more likely that managing a hedge fund has a greater chance of making that kind of money.  That, dear readers, is why blogging is my second choice for a business undertaking.

Entrepreneurs, I’d love to hear your stories.  How you succeeded, how you failed, what you learned?  Has government (federal, state, local) red tape gotten in your way?  Have you found ways to succeed in spite of all that?

Financial Diversions: The Business of Blogging

When it comes to business and finance I have two things in common with Lady Gaga and Frank Sinatra; I have my own style, and I do it my way.  I blog about finance for several reasons: my readers, as a financial journal, to clarify financial ideas and strategies, and as a business venture.  Today I explore the business of financial blogging.

The business plan for the Balhiser Financial Blog consists of three main phases:

  1. Build an audience of financially-minded readers and investors.
  2. When readership is sufficiently high, sell ads on the site.
  3. Write one or more financial books, published electronically, and sell for a modest price (say $2.99).

Currently, I’m focused on phase 1, audience building.  As I blogged in May the Balhiser Finance Blog has had over 58,000 unique visitors and counting.  Had the blog been running ads, the finance blog may have earned about 500 dollars in revenue.  Clearly the blog is a small business. This estimate is based on an earlier time, when web traffic was lower, and the blog accumulated just over 15 dollars in revenue.  These low numbers persuaded me to postpone running ads until traffic increased.

So I looked at my traffic using Google Analytics (a great and free tool).  Comparing this month’s traffic with last month’s showed visits up 89%, page views up 182% and average time on site up 273%. Comparing to 12 months ago visits are up 4,400% and page views are up 9,380%.  Yay!  While the Balhiser Investing Blog is a small business, it’s a growing small business.

I know a lot of web professionals, who give me all sorts of advice on growing blog readership.  The common themes, ideas, and rules that have worked best for my blog:

  1. Blog frequently
  2. Know your audience
  3. Write good content

I have amended rule #3 to “Write interesting content.”  Following rule #2, this means writing content that the blog’s audience finds interesting.  Three way of finding what’s interesting to the blog’s audience are:

  1. Most-read posts
  2. What search keywords bring the most visitors?
  3. Comments from readers

What’s humbling for me is that the blog articles I consider my very best work are seldom the most popular.  My most recent surprise was the popularity of the post Financial Baseball which sought to explain the mortgage mess around synthetic CDOs using an analogy to fantasy baseball.  Based on the positive response I penned the article Financial Baseball and the Finance of Baseball discussing what I’d consider if I was in a position to buy an MLB franchise.  Sorry readers, neither of these blog posts would make my personal “Best financial articles of this decade” list.  I’m glad many of you enjoyed reading them.

Occasionally a financial topic that I am passionate about also gets great readership.  That happened with the blog article CPI Really Stands for… which talked about the Consumer Price Index (CPI).  Consequently, I plan to write more blog articles about the CPI, the definition of CPI, the shortcomings of the current CPI, and alternative price measures to the CPI.

Some advertising and media pros have suggested that I add more news and web trending topics, relating them back to finance.  Such as how Rep. Antony Weiner’s situation will effect the House and pending financial legislation, or how a divorce could effect Rep. Weiner’s finances.  There are practically an “infiniti” of trends if one follows Google Trends:  blogging about the financial impact of Gabrielle Giffords’ tragic injury and the roll of short-term disability insurance, blogging about how trendy celebrities like Colin Farrell, Ice T, and Jessica Simpson make and invest (or lose) their money, even talking about the finance of NASCAR versus Formula 1 (perhaps the most expensive sports enterprise on the planet).  Actually, I kind of like the NASCAR v. F1 idea… it could be fun to research.

Mostly I’ll stick with the 3 tried-and-true rules above.   If and when my audience grows an additional 10-20 times, I’ll probably start running ads again (even though they can be a bit annoying).  And I’ll keep on blogging.

More Hypothetical Proprietary Fund Ideas

While the Σ1 Fund is currently a real 100% privately-held investment vehicle, all language and speculative plans about its future are currently (9/28/2010) STRICTLY THEORETICAL.  There is currently no SOLICITATION or even OPPORTUNITY for anyone other than Balhiser LLC shareholder(s) to invest in the fund.  Further, there is currently no SOLICITATION nor OPPORTUNITY to invest in Balhiser LLC at present. Thus the HYPOTHETICAL and SPECULATIVE language is merely just words at this point and time.  It is entirely possible that outside investors NEVER be given the opportunity to invest.

I’m wondering… should I revise my $10K minimum investment.  Perhaps $5K-$9K with a ~2% up-front load ($5000 yields $4900 of principal, $5000 yields $5100).  Increments above $5K are $1K with an up/down choice.  Increments are also $1K for investments over $10K.  Additional subsequent investments for current investors are $2K minimum with $1K increments.  Withdrawals minimums are $5K or %100 plus optional $1K increments.  Additional fund investments are subject to the same early withdrawal penalties as initial investments.  ALL requested redemptions are FIFO by default.

Distributions (realized capital gains, dividends, etc) are annual.  How they are distributed is TDB.  My initial inclination is that there is an ex-dividend date on the last trading day of each month, and dividend income is distributed in proportion to #months held * #shares.  Distributions are re-invested by default. Non-reinvested distributions are held in a non-interest-bearing manner until $500 is reached, upon which the total distribution will be paid in full by ACH or check.  Non-reinvested dividends may be paid, upon request, before the $500 minimum is reached, but a distribution-collection fee of $50 will be assessed.  For shareholders with >= $100K NAV none of these distribution restrictions or fees apply.

75% of redemption fees will be paid to Balhiser LLC, the remaining 25% will be paid to the Fund.

Requirements for potential investors:

  • Minimum of 5 years experience investing in stocks, bonds, ETFs, and/or mutual funds.
  • Acknowledgment that this is an investment of at-risk capital that may be subject to forced liquidation without notice during volatile and illiquid market conditions. This could result in severe or even total loss of investment.
  • Acknowledgment that options WILL be part of the Fund’s holdings/obligations.  While the primary target use of options is “covered-call” writing the notion of “covered” is not strict.  The fund may consider an RNM (Russel 2000 mini call option contract) to be “covered” by ownership of “an appropriate amount” of SPY (S&P500 ETF) shares.
  • Acknowledgment that ETF futures contracts may part of the Fund’s holdings/obligations.
  • Signed (and notarized) legal waiver that specifies that in exchange for participating in this fund, fund participant, fund participant beneficiaries and/or heirs, agree to hold legally blameless the fund manager and Balhiser LLC  for losses sustained by the Fund.
  • Solid familiarity with E-mail and the Internet and Internet-based “paperless” documents and communication.

In exchange for these concessions, the fund manager agrees to the following “skin-in-the-game” and transparency conditions:

  • So long as fund assets (or total net unredeemed funds invested) exceed $50K, the fund manager and/or Balhiser LLC will maintain a minimum of $25K invested in the Fund.
  • So long as fund assets exceed $50K, the fund manager and/or Balhiser LLC will reinvest all fund net distributions and net fund management proceeds into the Fund.
  • So long as FE>$50K. Fund manager and/or Balhiser LLC will be subject to same fees, terms, and conditions as all other investors PLUS will have to provide an ADDITIONAL 60-day advance notice to all fund shareholders (via email or other means) prior to any sale of holdings in the Fund.
  • 100% of Balhiser LLC/fund manager redemption fees (fees incurred for “personal” withdrawals) will be paid to the Fund.
  • End-of-month NAV reports will be delivered by email to shareholders. (delivered within 5 business days)
  • Subject to NDA: Unaudited Annual Report detailing complete fund holdings (delivered within 20 business days). Disclosure to CPA is permitted.
  • Subject to NDA: Upon request unaudited inter-year report (delivered within 30 business days). A $250 fee applies.  Disclosure to CPA is permitted.  Fee is waived once per year for investors with >= $100,000 invested in the Fund.

Base Management Fee Rates (similar, but not identical, to an expense ratio)

  • 7.8 basis points per month (0.078%) of previous close-of-month fund NAV.
    [~0.95% in simple interest, or ~0.9772% compounded annually]
  • Base management fee reduced by:
    • 10% for investors with >=    $50,000 NAV (or $50K net unredeemed investments).
    • 25% for investors with >=   $100,000 NAV (or $100K net unredeemed investments).
    • 33% for investors with >=   $250,000 NAV (or $250K net unredeemed investments).
    • 50% for investors with >= $1,000,000 NAV (or $1M net unredeemed investments).

Balhiser LLC Financial Handbook

Even though it is very unlikely that Balhiser LLC will do any hiring in 2010, it makes sense to lay out a rough sketch of expectations and policies.   In many ways I’d like to follow the HP Way as outlined in David Packard’s excellent book.  So here is a first pass.

Balhiser LLC is:

  • A for-profit financial company seeking to produce long-term returns for its shareholders.
  • A company where every employee is a shareholder.
  • An innovative, conservatively-managed company that values bold ideas and prudent actions.
  • As true of a meritocracy as humanly possible.

While I as president retain final say-so, salary and other financial information will be governed as follows (as permitted by law):

  • Transparency.  All employees and stockholders will have access to the company’s financial books.  This includes salary, other compensation, and ownership information.
  • Employees will play a key role in hiring their co-workers.
  • Employees will, as much as possible, have say-so on who is on their project team.
  • Friendly competition between project teams is encouraged.
  • Competition between project team members is generally discouraged.  Teamwork is strongly encouraged.
  • Salary and compensation adjustments will be based on the following (in descending order of precedence):
    • Company performance
    • Project performance
    • Individual performance
  • Company performance is #1 because without reasonable performance the wants of the shareholders and employees simply cannot be met.
  • Project performance is #2.
  • Individual performance is #3 because:
    • It is often difficult to measure objectively.
    • Competition between individuals for salary, position, etc is frequently at odds with teamwork.
    • Time spent on “getting credit” and “looking good” is time wasted.  What matters  is enjoying work, finding solutions, and making money.
  • In the long term individual performance is still rewarded because:
    • The teams with the strongest individual performers will tend to be more successful.
    • The importance of project team success will result in high-performers being highly sought-after.
    • Long-term low performance that is detrimental to the team is unlikely to be tolerated by the team.

As a final bit here is what currently constitutes Balhiser LLC:

Business:

  • Invests company resources to make cash-flow and profit.
  • Financial commentary and general (not-individualized) investment advice.
  • Financing long-term investments and constructing a long-term financial portfolio with a strong balance sheet.

Assets:

  • An investment property (that is currently generating positive cash-flow).
  • A business checking account.
  • A handful of websites/domains.
  • Over 75 articles on various financial topics.
  • A computer, and other office equipment.
  • A modest collection of accounts receivable.

Disclaimer:    The Crazy Ivan Account (CIA) is not a Balhiser LLC asset.  Commentary about the CIA is.