Bad Owners

© 2010 Brooke Allen
brooke@brookeallen.com www.BrookeAllen.com

Originally published in International Family Magazine


Shareholders have a problem – themselves.

My friend asked me when his mutual funds would rebound, and I asked him why he cares. He said, “Because if they are not going to rebound, I am going to sell.”

I asked him what he would do if he found a fly in his soup. “I’d want to talk to the waiter.” And if the waiter said it wasn’t his problem? “Then I would want to speak to the chef.” And if the chef said he couldn’t do anything about it? “I’d demand to speak to the manager.” And if the manager did nothing? “I’d want to speak to the owner.”

My friend would want to talk to the owner about the fly, but I would want to talk to the owner about what it means to be an owner.

Over the decades, as a trader and market maker, I’ve been the shareholder of record for billions of shares of common stock, and I have started a few corporations under my own name. While legally, the two forms of ownership are the same, there is a world of difference.

As owner, I know that the customer is a king who can fire me for any reason or no reason, yet my creditors and vendors must still be paid and the taxman must get his due. My employees must keep the customers happy, and my managers must keep the employees happy. I must not only keep an eye on the till, I must save for the rainy day. And when it pours, I will need to dip into those savings to keep the operation running while the customers stay at home. If I want everyone to be loyal to me during good times, I must be loyal to them all the time. I had better believe in my product, or I shall find all this hard to do and sleep soundly, too.

As owner, I must put the interests of all those with claims senior to mine ahead of my own, and only afterward will I receive what is left over. I must bear risk when it needs to be borne, and I can’t bail just because I don’t like watching my net worth decline. I must be responsible and not self-centered. (And, if I have deep pockets, I can afford to be.) After all this, a sane market might reward me for being responsible, fearless, and not greedy, but only if I actually am. Still, there are no guarantees, for time and chance happeneth to us all.

I asked my friend why he owns stocks, and he said, “Because, in the long run, stocks perform best so that is where I keep my retirement savings.” I’ve been to business school too, and I’ve heard this claim before, but for the life of me, I can’t think of a reason it must be true. Besides, stocks represent ownership, and an investment in ownership is different from saving. Savings are what the owner liquidates to keep the company going during hard times. If the owner liquidates his firm to protect his savings, the business is in trouble.

I asked my friend if he is an owner of General Motors and, upon reflection, he realized that he is through his various funds. I asked if he drives a GM car, and he said he thought their products were terrible.

Imagine my friend complains about the fly to the restaurant manager, who researches the situation, and announces that, in fact, my friend is one of the owners; apparently my friend’s broker had purchased stock in the restaurant. When asked what he will do, my friend says, “I will sell my ownership immediately.” If my friend, who only cares about return on his investment, sells to someone with a passion for good food, and a respect for the customer, then that restaurant may one day be a place where you and I would like to eat. Until then, we best stay away. Likewise, we best avoid GM cars until its owners care more about their products (and us) than their portfolio.

You might want to test the thesis that a diversified portfolio of common shares does, in fact, perform well in the long run, in which case you should buy, hold, and see what happens. But, be aware that market prices are determined by the fear and greed of your fellow shareholders, and little else.

But, if you want to be rewarded for being an owner in more than name only, you must be in a position to act like one: be fearless and put the interests of the customers above your own.

Don’t assume I’m talking about others. If you have money in the stock market, I’m talking about you, my friend.

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Your Education is Your Most Valuable Asset, not Your Schooling

© 2008 Brooke Allen
brooke@brookeallen.com www.BrookeAllen.com
Originally published in International Family Magazine

My mother was born in West Virginia and that made her an American citizen by birth. Her father was a naturalized German-American, and her mother was a native Italian. Her parents decided to raise her in Florence, Italy.

When it became clear that the Fascists were going down a path of no return, my mother and her father decided they had to get out of Italy. They flew to Lisbon on the last airplane to leave Rome before the airport was shut, and they crossed the Atlantic on the last passenger ship before German U-Boats began sinking them. They arrived in New York with little more than their clothes. My grandmother stayed behind in Florence, and she never saw her husband again.

A few days before I left for college, my father told me, “Your education is your most valuable asset.” I was seventeen, and I thought everything my father said was stupid, so I challenged him, “How can that be?”

He said, “Because your education is the only thing they can’t take from you at the border.”

You see, besides her clothes, my mother brought something else with her when she arrived in New York. She was fluent in Italian, French, German, Spanish, and English. She was good enough at math and science to enter university as a Physics major.

She was educated – and the Fascists could not take that away.

Your Education is Your Most Valuable Asset.

Mr. Rieur

© 2007 Brooke Allen
brooke@brookeallen.com www.BrookeAllen.com
Originally published in International Family Magazine

RieurIFM-1024x716LevelAdjusted
Mr. Rieur in 2007 at 89 in front of some of the 79,662 photos that he took on his world-wide travels that are now archived at the Consortium Library Library in Anchorage, Alaska.

You most want to be like the person you most admire. That is why, ever since 1963 when I had Mr. Rieur for the sixth grade I have wanted to be a teacher.

His classroom was unlike any other I’d seen before; across the inner wall were terrariums and fish tanks. In the back was a cabinet with his lab equipment and chemical supplies. The ledge by the window was lined with books.

He taught geography with slides and stories of his adventures visiting the places in our syllabus. We saw him standing at the Parthenon as it appeared in our book and then he showed us what Athens looked like from that spot. He taught how to live in the world and love its inhabitants.

We constructed the various types of fire extinguishers described in our science text. Then we used them to put out the fires we would set in the trash can behind the school. Our English assignment was to write a report about the experience.

It seemed like everything was connected to everything else and learning how things worked was fun; about the most fun you could imagine.

Since that time I’ve felt I couldn’t just live a life but I also had to pay attention; not because in the end there will be a test but because someday I’ll be called upon to teach others.

Those who can do, please teach.

P. S. On September 29, 2007, Mr. Rieur celebrates his 90th birthday. Please wish him well.

College Thinking

© 2007 Brooke Allen
brooke@brookeallen.com www.BrookeAllen.com
Originally published in International Family Magazine

Colleges have become marketing experts. They work very hard at convincing you to send them your child and your money. You have to do the work yourself to find out why you shouldn’t send them either.

“Admissions.”

“Hello, is this (name of a liberal arts college in the Midwest)?”[1]

“Yes it is.”

“Are you an admissions officer?”

“Yes I am.”

“I am calling regarding my son. He has been admitted to your institution and he’s trying to decide if he wants to go. He isn’t here now so do you mind if I record this conversation for him?”

“Not at all.”

“Great. My son is a very good student but he is not yet ready to narrow his interests. He feels that a liberal arts college might be just the thing for him, at least as an undergraduate.”

“We fit the bill.”

“Personally, there is only one thing that I’m hoping he gets out of college more than anything else.”

“What’s that?”

“I would love it if he learns how to think.”

“Excellent. We’re in agreement. More than anything else, that is what we’re all about.”

“I’d like him to learn how to tackle problems with insight and creativity.”

“We agree.”

“I’d like him to respect authority and yet feel comfortable questioning it.”

“Perfect.”

“I’d like him to develop his people skills and to become responsible.”

“Couldn’t agree more.”

“I’d like him to learn to make his own decisions without requiring the approval of his peers.”

“We teach independence and responsibility by example. The college puts a great deal of trust in its faculty, staff and students to make decisions on their own.”

“I’d hope that he’ll find a place that facilitates this process rather than gets in the way.”

“That describes us to a T.”

“Good. Now, I have a question. Do you require that freshmen live on campus?”

“Actually, we require all students to live on campus their first two years.”

“No exceptions.”

“Well, we do make rare exceptions for hardship.”

“Do you mean, as in a case where we live in town but we don’t have enough money to pay for tuition and room and board? However, we could swing it if he lives at home.”

“We feel very strongly about this. We’ve found it is important for freshmen to develop strong relationships with other freshmen and these relationships are solidified in their second year. So, in the case of financial need we’d give him enough aid so that he could live on campus.”

“Like a grant?”

“Or a loan.”

“Ok, so you feel it is so important you would have him to go into debt. Now, imagine that the fact is that he has inherited a house right in town. It has four bedrooms and it has a market value of $160,000. Your college costs $47,000 a year all in. Since he has clear title, I doubt he’d qualify for a grant based on financial need. Are you saying you’d force him to sell the house and still go into debt so he could give you the money and live on campus when he’d rather take roommates and live in his house?”

“No. That would certainly qualify for an exemption. He could have seven other roommates since the town zones houses that way for students. He could collect enough rent from his roommates to pay all his other expenses.”

“That’s what it seems like. Rather than liquidate the house and give you all his money he could graduate from college with an education and a house free and clear.”

“Correct. And managing a property like that will certainly teach him responsibility. I’m sure I could get an exemption for him.”

“And seven other students.”

“What do you mean?”

“Well, you want him to live with other freshmen. You said so yourself.”

“That could be a challenge, but I’m confident we could do it.”

“Excellent.”

“I’ll form a committee right away.”

“Great. We’ll call a realtor.”

“What!?”

“He doesn’t own the house yet, but there are some excellent properties just steps from your main gate.”

“Wait a minute. This is totally different. What are you trying to do?”

“I’m trying to teach him how to think.”

“What you’re teaching him boarders on the criminal.”

“No, I’m teaching him how to tackle problems with insight and creativity.”

“But we have rules for a reason.”

“Is the reason you have rules to avoid thinking? The only difference between my son and the boy you would exempt from the rules is that my mother has not yet bought my son the house.”

“You’re teaching him how to trick people. If he thinks like you do then he will not be welcome here.”

“That’s what it seems like.”

 

Some colleges don’t want you thinking the way they don’t.


[1] This conversation is completely fictional and any resemblance to any real conversations I might have had with small liberal arts colleges in the Midwest is purely coincidental.

Tricky Economics

© 2006 Brooke Allen
brooke@brookeallen.com www.BrookeAllen.com
Originally published in International Family Magazine

We once attended a “Tricky Tray” fundraiser. It offered some excellent economics lessons. If you haven’t experienced one of these is, I’ll explain.

“Tricky” means what you expect and “Tray” comes from both the French word “très”, which means “very”, and the Spanish “tres” which means “three”.

A Tricky Tray is a very tricky device for separating you from your money three ways.

1) You pay $40 for a meal worth about $7.49.

2) You donate a prize that is supposed to cost about $20 but since it will bear you name, and since you don’t want to appear cheap, you will spend about twice this amount.

3) You must buy at least 10 tickets for $1 apiece that you will use to bid on the prizes. However, everyone else buys five times this number to increase their likelihood of winning something, so you will too just to stay even.

If everyone spends more to increase their chances, then everyone is worse off. The cost to achieve the same chance of winning goes up. This nicely illustrates the relationship between inflation and money supply.

If everyone has the same chance of winning a prize as everyone else, and if the number of prizes exactly equals the number of attendees, and if the average value of a prize is $40, then each participant should expect to win something worth about $40. This nicely illustrates the concept of expected value. As everyone contributes a $40 gift to join the game, they should all break even.

People then spend money for the tickets to underwrite a process that simply keeps people from going home with what they came with; sort of like the way Wall Street charges you a fee to sell one stock and buy another.

The average person paid $40 for their meal, $40 for the gift that they brought, $50 for the tickets with which to win other people’s tickets. Therefore, the average person received $7.49 in certain value and an average expected value of $40 in prizes, but with a large variance in outcomes. You can see how this could lead into a discussion of risk/reward ratios and breakeven analysis. It could lead to that discussion, but it won’t. Not now.

Anyway, it was all for a good cause. At least we assumed that it was.

In our case, we came with prizes that cost us $20 each (though not evidently so). We followed instructions precisely, and did not care who thinks we are cheap.

We bought the minimum number of tickets because: 1) we are not gamblers, 2) since we already had everything that we needed, we did not need anything else, 3) we already had a house stuffed with things we did not need, the only thing that this might suggest is that we could use a bigger house – however we didn’t expect to find a house among the donated gifts), and 4) we had no desire to collect other people’s ideas of things we did not need.

Eve and I separated upon arrival.

With my ten tickets I proceeded to win five prizes. This was more than nearly everyone else. Let me explain how I did it

A ballroom had dozens of tables holding hundreds of gifts. Next to each was a brown paper bag of the size that typically holds a flattened PBJ sandwich under an apple and a milk carton. You were to inspect each prize and decide if you wanted a chance at winning it. If it interested you, you’d drop half of your numbered ticket into the bag. During dinner, each bag would be shaken and winners called out.

Those are the physical and mechanical aspects of the Tricky Tray.

It was worth observing the behavior of participants.

The whole endeavor was clearly a female thing. Men were in tow, but they weren’t digging it. Of a few hundred items, less than a dozen might possibly appeal to someone with a Y chromosome. Even then, they were a woman’s concept of what a man might want.

A typical exchange in front of a variable speed drill:

She (all a titter): “Oh honey, I’m putting a ticket in this bag just for you. You could use it.” It was hard to force the slip into the bag since every woman in the room had used a few percent of her tickets on one of the man-prizes as a gesture of fairness.

He: “I don’t want another drill. I already have one.”

She: “But you can always use another drill.”

He: “How?”

She: “What if the one you have breaks?”

He: “Then I will buy another one.”

She: “But you could have this one.”

He: “If the one I have breaks, then I will want to chose the one I buy to replace it.”

Dinner began at 8:00 P.M. by which time the inspection of the prizes was to be completed.

By 7:45 the room had emptied, but for me.

On a first pass I inspected each bag. Some of the bags were overflowing, many had dozens of tickets, some had fewer than five; a few were empty.

On a second pass, each empty bag got one of my tickets. The remaining tickets went into bags with little competition.

Of course I won lots of prizes. Some folk with over 100 tickets won nothing.

During dinner, half my numbers were called. The women at my dinner table became upset with me. (The men couldn’t care less.)

Was I cheating? Several people suspected as much, until they began to inspect my winnings.

She: “No wonder you won so much; you bid on the stuff nobody wants.”

Me: “I want these things.”

She: “What on earth are you going to do with a shelf of children’s books?”

Me: “I have children.”

She: “Or those reference books?”

Me: “I can use the atlas, the dictionary, the pocket encyclopedia and the almanac. The only thing I have already is the thesaurus and so I’ll give that away.”

She: “OK, but a basket of pet toys? What are you going to do with them? You don’t have any pets.”

Me: “Yes, but I have friends who do. These will make fine presents.”

Priscilla put her finger on it. “None of the things you’ve won are any fun. I saw your bucket with the mop and the cleaning supplies. Are you crazy?”

“I saw that one too.” Suzanne laughed, “Who on earth would donate such crap? There was a really cute pair of earrings nearby. I wanted them so bad. Brooke, why didn’t you try to win those?”

I blushed, “I don’t wear earrings. Besides, that bag was full.”

She: “You could give them away. They would make a better gift than pet toys.” There was obvious contempt in her voice.

Me: “So, if you won those earrings, would you wear them or give them away as a gift?”

A pause.

She: “Well, actually I probably would pawn them off on somebody. They aren’t exactly my style.”

Me: “Good. This will illustrate the point. Let’s look into my cleaning bucket. How much would you normally pay for all this stuff? Bucket, mop, spare mop head, brush, floor cleaner, tile cleaner, window cleaner, pot scrubbers, pumice, natural sponge… the bucket was brimming.”

She: “More than $30.” There was lots of nodding indicated consensus. “But I could buy that stuff any time.”

Me: “Exactly. You have and you will again as you use it up and so will I. So this prize, that not one other person wanted, will save me at least $30.”

She: “Soooo…What’s the point?”

Me: “How much do those earrings cost? They look like costume jewelry.”

She: “I know exactly. I’ve seen them at the drugstore for $19.95. They have a hundreds on display.”

Me: “Now, if I wanted to give you a pair of earrings, I could take you to the store and let you pick exactly the ones you want. If I did this with the money I saved from taking the cleaning supplies that nobody wanted, I’d still have $10 left over.”

Everyone agreed that the real point of the evening was to enjoy oneself. Somehow, for them, my approach didn’t cut it.

Funny, I was having a blast.

The laugher, shaking of heads, and derisive comments lead me to believe I had not trained any competitors for next time.

You need not have fun nor make economic decisions the same way as everyone else.

Everyone Knows Father Moran

fathermoran© 2006 Brooke Allen
brooke@brookeallen.com www.BrookeAllen.com
Originally published in International Family Magazine

As a young amateur radio operator (ham call sign: N2BA), one of the more interesting people I spoke with on short-wave was Father Moran (ham call sign: 9N1MM). He was born in Chicago in 1906. In 1929 he moved to India. In 1949 he made his first trip to Nepal, which had just opened its borders to foreigners. In 1951 he established a boy’s school a short distance outside of Katmandu and later he was instrumental in setting up additional schools for both boys and girls.

For many years he was the only licensed amateur radio operator in Nepal, and perhaps the most famous in the world (with the possible exception of the late King Hussein of Jordan, call: JY1). I had heard of him from my high school chemistry teacher even before I passed my first ham license exam in 1966. It wasn’t until the early 1970’s that I was finally able to crack the inevitable “pile-up” Father Moran would generate whenever he’d appear on the short-wave bands.[1]

In 1979 a friend from work and I decided to take a week off and fly around the world.[2] I decided that it would be my goal to meet Father Moran in person. My friend Jack, (ham call: K2BMI), had met Father Moran a few years earlier on a similar trek.

I asked Jack, “How do I find Father Moran?”

He said, “When you arrive in Katmandu stop anyone and ask, ‘Where is Father Moran?’ Everyone in Nepal knows Father Moran.”

On the other side of Immigration at the airport in Katmandu was a card table to which was taped a hand lettered sign. “Tourist Information.” Behind the table sat a young woman.

I asked, “Where is Father Moran?”

“Ah.” She nodded, and began to unfold a map. She inspected it carefully and then drew a small “X” alongside a road outside of the city.

“Is that where Father Moran has his school?”

“No. That is where you stand at two o’clock this afternoon. It’s Monday and Father Moran goes shopping on Mondays. He will come by this road at a little after two and you just wave him down. He will be driving a blue Volkswagen Beetle. He will take you home.”

“What?” I was flabbergasted. “I don’t want to see him right now. Could you tell me how to find his school on my own?”

“Well, how long will you be in Nepal?”

“Four days.”

“OK. You will want to hire a taxi for your time here. It’s the best way. Just don’t pay more than $20 a day.” She smiled, “Ask your driver to take you to Father Moran. Everyone knows Father Moran.”

Our driver would arrive at the hotel at 5:00 AM and sleep in his taxi until we would wake him and ask to be shown around.

Wednesday morning I asked, “Do you know Father Moran?”

“Of course; everyone knows Father Moran.”

At his school in Godavari, I gave Father Moran the gift I’d brought from the States; a pair of 12JB6 final amplifier tubes for his Drake transmitter. They tend to burn out and they weren’t to be found anywhere in Nepal.

He let me operate his radio and then he invited me to join him for lunch with the other priests.

He asked me to sign his guest book. This was a standard hotel registry with space for perhaps 1,000 entries. I was to sign volume 6. It appeared that my trek was not unique. He had met Edmund Hillary who he helped in becoming oriented to the country before his climb of Everest. Queen Elizabeth II had visited along with King Juan Carlos of Spain (ham call: EA0JC). The entire crew of an Apollo mission visited to present him with a photo of Nepal taken from space. There were thousands of entries from people famous and unknown.

Father Moran died in 1992 after 40 years in Nepal. He seldom left the country that he loved.

If you meet someone from Nepal ask them if they know Father Moran. I know the answer. “Of course; everyone knows Father Moran.” If they are over the age of 30, they have probably met him in person.

You can travel the world to find worthy people, or you can be a worthy person and the world will travel to find you.


How to Leave a Legacy

In June of 2006 I was attending a hedge fund conference outside of London. I would have an entire Sunday, and two weeknights with little to do. I found a group of people on the Internet (www.hospitalityclub.org) who were dedicated to acting as hosts to travelers, providing everything from simple conversation to free accommodations.

I began writing to members with interesting profiles, asking if they might join me for a meal or a drink.

One member, Hem, was from Nepal so I wrote to ask him if he knew Father Moran.

Yes. I know Father Moran. I was a student there in St. Xavier’s School in Godavari, Kathmandu.

Let me know about the suitable time to meet up.

Thanks,

Hem

Even though he died 13 years earlier, everyone still remembers Father Moran.[3] At lunch in London, Hem brought a photograph of his grammar school graduation. There, in the upper left corner stood Father Moran.

It was clear from our brief conversations that Hem was well educated and had good values and habits.

Father Moran’s legacy was fondly remembered for he had done something in common with many other great people.

If you want to be remembered by people, teach them something. If you are really ambitious, start a school.


[1] A “pile-up” is ham slang for a large number of people calling simultaneously.

[2] No, we weren’t rich. We both worked for an airline and we could fly at greatly reduced fares.

[3] You might argue that you’ve never even heard of Father Moran, but by now you have.