Garage Door Opener Repair

I recently repaired my garage door opener for about $25, which saved me about $110 over the cost of a new one.   How can you repair things like this, and is it worthwhile?  The Internet makes this a lot easier.

As I noted in another post, we recently insulated our garage door.   So it was a big surprise when the automatic opener ceased to work.   At first we were concerned that the weight of the insulation had somehow broken it.  But as it turns out, the main bushing on the sprocket shaft had worn out over the years, cutting through the sprocket case and eventually snapping the shaft, as shown in the photo above (old sprocket and housing on the left).

This took several years to do, and a few years back, I remember the chain falling off the sprocket and wondering why this was happening.  I adjusted the chain and it worked fine - for a while - but the main shaft kept wearing down, over time, until it broke.


At first, I thought, "Well, just buy a new garage door opener, they are like $150 or so" and often this is the best thing to do - just replace everything.   Major appliances in the home last about 10-15 years, but this garage door opener was only about seven years old.    So it might be worth fixing.   Could it be repaired?  And could it be repaired cheaply?

I wrote down the model number and serial number and then went online.   While it is branded as a Sears Craftsman opener, it is made by Chamberlain and sold under a number of names.   But I thought I would try the Sears Parts Direct website first, as that is what came up when I typed in "Sears Parts 139.53615SR" into Google, the last bit being the Model Number.

The Sears Parts page had this diagram, which was helpful:

And under that, were a number of "repair kits" offered for sale, including this one:

A nice little kit, with the main shaft, worm gear and main gear, chain sprocket, and even the housing that had been eaten through by the shaft!  They even give you new grease!  The bad news, Sears wants $47 plus shipping for this part number 41C4220A.

But, that gives us a new lead, and a new Google Search, and plugging the kit number into Google finds this kit on Amazon for as little as $27 and on eBay for $26 including express shipping.   Two days later, the kit arrives.

I read also online, some discussion groups about this repair, and how this is a typical failure mode for these openers.   The unit is actually well designed, as it allows you to replace the "guts" of the transmission, quickly and easily, basically renewing the whole unit.   And that is one point about most machinery - they usually fail in the same modes, and you will find that whatever broke your machine also broke someone else's - and information on the repair is available online.

In the meantime, I cleaned the unit, removing old grease and getting it ready for the new part.  The main spiral gear showed no signs of wear, so I left it in place.   The new shaft and housing merely slid into place and was held in with three screws.  Apply the supplied grease and you are ready to go.

Well, not quite.  I had to figure out which position was "UP" and "DOWN" on the opener and then attach the chain and adjust the tension in the proper position.   Then, it was a matter of adjusting the limit switches so the door would fully open and fully close.   Total time, about an hour.  Total savings, about $110.

Ten or twenty years ago, without the Internet, this would not be possible to do.  I would have had to spend hours on the phone trying to track down these parts, if I could get them at all (most parts places back then would sell only "to the trade" and not to retail customers).   I would have ended up replacing the whole thing, or calling a repairman to have it fixed - at considerable expense.

And this same technique - Googling part numbers or model numbers - can help you find the parts for a number of things, including cars, at a low cost.  Moreover, you can find helpful instructions online on how to fix something, because, chances are, if your sprocket shaft broke, someone else's did as well.   Again, most machine fail in common failure modes, and your experience is not unique - someone else had the same problem before you.

Using this online part number search technique, I have been able to repair computers (memory, display card, hard drive), cars (various parts), appliances, and the like.   The Internet is actually useful for things beyond updating your "Status" on Facebook or Twitter.

This is not to say you should attempt such a repair.   If you are not handy with tools and can't figure out basic mechanical systems, then all the instructions in the world will be of little help.    But if you are handy and can fix things, well, you can live better, on less, and save a lot at the same time!

What Would A Landlord Do? (WWLD?)

If you are on a Condo Board, or even just maintaining your own home, one way to look at things is along the lines of What Would a Landlord Do?  WWLD can save you a lot of hassles and money.

I was on a site the other day which was devoted to Condo issues.  And the fellow who runs the site, I think, is shilling for some attorney that represents Condo boards.   It is hard to tell, as the links on the sidebar of the site go to different blogger sites and elsewhere.  It is confusing to navigate.

The stuff he was discussing was pretty much what I summed up in my article, "Never Buy A Condo!" which illustrates the pitfalls of Condo ownership.   And one article he had was about conversion of older apartment buildings to Condos, which creates problems, as they are often near the end of their design lives, and cause a lot of expenses for the new Condo owners.  And of course, new Condo construction quickly becomes old Condo construction, within a few years, so you are not immune from this effect if you buy a new Condo.

And Condo Boards, being amateurs at running huge buildings, are often flummoxed by their responsibilities.   The owners want to spend hardly anything to fix the place, and if there is even a dollar "surplus" in the bank account, they shout for lower condo fees.   And then owners demand that their petty grievances against other owners be aired, and that onerous social rules be enacted on door mats and Christmas wreaths, or whatever.

And as I noted in my article, sometimes it is better to live under the Dictatorship of a Landlord than under the Democracy of a Condo Board.  While Dictatorships can be nasty, when you are renting an apartment you always have the option of emigrating to some other place.   With a Condo, you are stuck, particularly if the actions of the other owners tends to cause prices to plummet.

It struck me, that, if you are on a Condo Board - or indeed, even if you own your own freestanding Real Estate, taking the view of a Landlord, at times, could be instructive.   Having to keep a close eye on the bottom line, Landlords typically don't waste a lot of time on tomfoolery, nor do they squander money on nonsense - or try to fix up a building near the end of its design life.

Thus, for example, you generally don't see Landlords getting into the middle of tenant disputes over whether Suzie can have a door mat or a Christmas wreath.  They usually say, "do what you want" and when their leases come up, evict both tenants as troublemakers.   While a Condo board can't generally evict people, they can choose not to get involved in owner disputes, or to spend time on silly rules about decorations.

On the other hand, I have seen Condos in Florida, where one owner decides to enclose his balcony to create more living space, petitioning the Condo Board for permission to do so.   While this might be a swell idea for him, what ends up happening is that the building looks like hell, as each owner decides to screen in, glass in, or leave alone, their balcony, with each owner choosing a separate contractor and design style.  The end result is an building that looks like a "balcony sampler" and is an eyesore.  A Landlord would not allow this.

And in most cases, these glassed-in balconies become huge energy sinks, as the heat from the sun turns them into furnaces.  The owners then each try different shading solutions, making the problem even worse.   The strain on the HVAC system is increased, and the cost of cooling goes up, a real problem in a building with a shared cooling system.  Let balconies be balconies.   If you want a larger apartment, go rent it (or buy it).

But that is a problem right there, as OWNERS, Condo people want to rip out and rebuild their places, which can have mixed results.

Or, for example, one owner wants Hurricane shutters, while another does not.  And each owner buys from a different source, which results in a "Hurricane Shutter Sampler" effect on a high-rise, which is ugly, to say the least.  A Landlord would pick all of one style and be done with it, and preserve the aesthetic of the building.
 
A Landlord keeps his eye on the ball - what is really important, not what is trivial.  And things like a roof that doesn't leak and pipes that don't burst are what are really key.  And this is where Landlords rule and Condo Boards suck.   The Landlord, being experienced and not wanting to lose money, realizes that patching a leaking roof is about the most expensive way to go about meeting your roofing needs.  Just replace it and be done with it.   But a vacillating Condo Board will approve patch after patch, on the grounds that they cannot "afford" a new roof.   So they kick the can down the road a ways, and end up costing everyone more money, plus the hassles of the continual leaks and associated damage.

Democracy tends to work this way, in general.

And when a building is totally shot, a Landlord will say it is time to call it a day, sell the building to a developer, who will tear it down and start over.   Why throw good money after bad?   A Condo Board will patch together an aging building forever, as getting a majority of people to agree to sell out is a nightmare.

So, my advice is this:   If you are on a Condo Board, and some issue comes up, ask yourself, What would a Landlord Do?   If the Condominium was a Rental Apartment Building instead of Condos, what would a responsible Landlord do in that situation?   They would do what was most cost-effective, in the long-run, not in the short-term.   And they would do what was the least hassle.   And in most cases, this is probably the correct answer, regardless of whatever issue is before you.

Now, if you are a homeowner, the same advice probably applies.   If you were renting out your home, how would you maintain it, and how would you take care of it?   You would want reliable appliances and infrastructure - durable and useful, without a lot of expensive frills.   You would want to get the most value for your investment.   And often that doesn't mean designer kitchens and baths and other fru-fru that adds little or nothing to the rental value or resale value.

And that also means, making a house less cluttered and crowded.   People tend to "fill up" houses with personal possessions, to the point where they are just chock full.   A less crowded environment is often more relaxing and enjoyable.

And while a Landlord wants to make a property look attractive to tenants, they do so by making it clean and neat looking on the outside, and not cluttered with solar powered lawn lights and cement lawn sculptures.

It is an interesting concept, and I am not sure it works in every situation.   However, it is an illuminating mental exercise to undertake.   And it may put your decision-making in perspective.


WWLD?

Hotmail, Yahoo, or Gmail?

Free web-based e-mail is available from a number of sources.   Which one is the best, though?

I have three e-mail addresses, one for Hotmail, one for Yahoo, and one for Gmail.  Why do I do this?   And why do I used web-based e-mail instead of email provided by my ISP?  Good questions.

Using ISP based "pop" mail is often difficult, or at least it was in the past.   You had to configure a POP server and use Microsoft Outlook to read your e-mails.   Outlook was particularly prone to worms and viruses, and if you clicked on one "rogue" e-mail, it would immediately hijack your account and send out SPAM to everyone on your e-mail list.   Fun.

The other problem with ISP-based e-mail is that your e-mail address is usually assigned (e.g., bell4627820@bellsouth or something like that) and it is an awkward address.   But more importantly, if you switch ISPs, then your e-mail address changes.   So if you decide that cable modem is a better deal than DSL, you have to notify everyone that your e-mail address has changed, which is a pain in the ass.

Or, if you move, you have to tell everyone your e-mail address has changed.   And for young people, in college or early in their careers, moving is a regular thing.   For me, moving from a Summer home to a Winter home meant that I would have to change e-mail addresses every six months, and that is not workable.   Or, I would have to forward one to the other and then log into a POP account to access one.

Free, web-based e-mail is one answer.   You can sign on to Hotmail, Yahoo, or Gmail and set up an account in seconds.   Most accounts are free, although there are some restrictions.   If you stop using your account for more than say, 90 days, it may be erased.   But most provide copious storage, allow you to upload documents and photos, and also allow you to save e-mails into various folders.  I use a separate folder for each client, which makes it easy to find correspondence between clients and myself.

I initially started with Hotmail, a Microsoft Product.   It worked OK, but they did one of those periodic changes to the look that annoys me so much.   Sometimes they just change how it looks.  Other times they try to change the very nature of e-mail, by using, for example, "conversations" which really sucked.

I tried Yahoo, and the look and feel was very similar to Hotmail.   Perhaps they are using the same software, or perhaps the HTML coders just copy each other, I do not know.  Either way, they are very much the same.  I also tried Gmail, a Google Product, and found it to be very user-friendly, although some features, like the virtual hard drive, only work with their browser, Google Chrome, which I do not like at all (too clunky), even though, initially, I was enthusiastic about it.

Why have all three addresses?   Triple redundancy.   I use e-mail for my business, and I can't afford to miss e-mails.   How could this happen?   Well, many years ago, I got a notice from AOL that all e-mails sent by me to AOL accounts would be blocked, as AOL was receiving "lots of SPAM" from Hotmail.  Not SPAM from ME, of course, just from "some Hotmail Accounts."  So AOL's big idea was to just shut down all e-mails from Hotmail.

This was back when people actually used AOL, and this meant I could not contact a lot of customers.   That was when I set up the Yahoo account.   I called Hotmail, but they said there was nothing they could do.   A month later, the ban was lifted.  A year later, no one was using AOL.   I think AOL's strategy backfired, as its users decided to migrate away from a platform that arbitrarily blocked entire ranges of e-mail addresses.

And perhaps AOL was trying to encourage Hotmail users to migrate to AOL.   Whatever the cause of this little tiff, it backfired in a big way, I think.

I also receive e-mails from the Patent Office, and they allow me to receive e-mails at up to three addresses.   So when I get a communication from them, I usually get three copies.

Rather than log into three e-mail accounts, I set up two of the accounts to forward to the third.   This makes it easier to just read one e-mail account, while still having three active addresses.

So which one is better?  Some folks have analyzed this based on "features" like storage space and the like.  But I think that misses the point.   All three services, even if used in the free mode, provide more than enough storage for even the heaviest of users.   So, saying that one service gives 1 GB of storage and another gives 2 GB is sort of missing the point.   Most people won't use all that storage - I certainly haven't, in several years of use, sending many e-mails with 10 MB attachments or more (attachment limitations were a problem early on, but most now allow for very large attachments of 10-20MB or more).

So, who is the winner based on ease of use?  I hate to say it, but Gmail wins, hands down.   I recently switched back to Hotmail as my primary source, and had my Gmail and Yahoo accounts forwarded there.  I had forgotten how clunky and slow the Hotmail interface is.   When you click on something, it "waits" before it shows the next screen, which can result in bad things happening, like you erasing all your e-mails, as you click on an icon on a screen that has not yet loaded.

Another example of this slowness is that when you create a new message, it shows up in your "Drafts" folder.   But even after you send the message, it appears here for about 10 seconds longer.   So you send a message, and then see "Drafts(1)" on the left, and think, "Did that message actually send or not?" and you click on Drafts.  By the time you do, the phantom draft is gone.   Not a big deal, but a sign of a slow server, poor HTML coding, or something.   Yahoo and Gmail don't have these problems.

Also, the document upload feature seems to take longer and also bombs out, periodically.    And worst of all, it is paranoid about SPAM, without actually giving you a way to filter it.   If a message looks "suspicious" to MSN, they won't display the images and links.   Sometimes there is a message allowing you to "safe" an address, sometimes not.  And it gets tiring having to click on "show message" all the time, from the same person, again and again.

And if you want to filter or block e-mails, it is a lot harder to do.  Gmail has a link for "filter messages like these" and with a few clicks of a mouse, you can make sure that campaign messages from Newt Gingrich will futhermore go directly into TRASH.   With Hotmail, you have to manually create filters.

So why did I go back to Hotmail?  The only disturbing thing about Gmail is this whole new "privacy policy" deal.   I am not concerned about privacy per se, only that it is annoying that their computers are reading my e-mails and looking for text keywords, and then SPAMMING me with ads based on those e-mails.   The ads are often irrelevant, as I noted before.   They are also annoying, and most of all, CREEPY.

When a client e-mails me about a toothbrush invention and I start seeing ads on other google sites for toothbrushes, it kind of creeps me out.  So while I like the "look and feel" of Gmail (provided they stop changing the look and feel every ten minutes, as they are proposing to do with Blogger), there are some downsides as well.

Perhaps someday I will  migrate to another e-mail platform, perhaps even a PAID one, that avoids these sidebar ads - or worse, putting ad taglines in your e-mails proper, as some providers do.
 

G

House Slave?

Do you own your house, or does it own you?

I mowed the lawn today, a chore I have detested since I was a kid.  At least I am down to about 1/4 acres these days, as opposed to the five we mowed in New York.   My neighbor loves mowing his lawn and spends countless hours on it, as well as other home repair and improvement projects.   Others, well, they either hire someone, or like me, can't really afford to do that (although we think we can) and do it ourselves and hate it.

A house is a place to live, yet so much of what people do with houses has more to do with status than anything else.  We all want our houses to be showplaces, to impress people with their size, their appointments, their decor, and of course, the landscaping.   When you think of someone rich and famous, you don't think of the fancy cars they own (unless it is Jay Leno) but of the impressive mansion they live in.   It is one of the most prominent displays of status and wealth in our society.

And while Jed Clampett can hire someone to mow his lawn and trim the topiaries, for most of us, home care devolves into an endless stream of expensive, thankless tasks.

Compounding this problem is the temptation to "accessorize" your house, after a trip to the lawn and garden section of Home Depot or Lowes.   Suddenly, we decide we need to chotchke up our front lawn, with stuff that requires constant maintenance - flower beds that need to be weeded, plantings that need to be pruned, beds of mulch that need constant renewal, gravel paths that grow weeds and scatter gravel everywhere.   That sort of thing.

Yes, it is fun to do this stuff, and when we bought our house in Virginia, we kind of went overboard with it.   We bought nearly every damn thing Lowe's had to sell, from a drip irrigation system, to a raised-bed garden, to  Koi pond, to a swimming pool, to a hot tub, a deck, a "Florida room" and of course, garden benches, bird baths, tiki torches, and other junk (no cement donkey towing a cart of flowers, thankfully).

And while it was fun, we burned through a mound of money, one credit card charge at a time.  And the end result all tasted the same to the bulldozer that drove through it the day after we sold the place.   But in addition to the vast quantity of cash, was the vast quantity of time it consumed.   And with each additional "thing" we added, it was like that guy on the Ed Sullivan show who was spinning plates on sticks.   We would install a new thing, only to find a previous "project" needed attention, repair, renewal, or outright overhaul.

It became an endless amount of work.   And moreover, we found we could never leave home - ever, ever again.   Even a one-week vacation would result in coming back to knee-high lawn and weeds that had a head-start that would take a month to pull.   It was really beautiful, but it owned us, not vice-versa.

One year, a hurricane struck, knocking down trees and making a general mess of everything.   We lacked the energy to restore it all.  It started to look a little shabby around the edges.

When the developer knocked on the door and offered us a wheelbarrow full of cash, we said "YES" in a hurry.

Lesson learned - never be a slave to a house.   A house is a place to live, period.  And if you accessorize it to the point where you constantly have to work on it, are squandering huge sums or money, or - worst of all - are heavily in debt because of it, then it ends up "owning" you, and you become a slave to it.

(And no, over-accessorizing your home won't make it more valuable to a buyer.   You can spend thousands - even tens of thousands of dollars trying to make the "perfect lawn", but it won't increase the value of your home by more than a few hundred dollars.   And speaking of which, if you are selling your house, the best way to enhance the curb appeal is just to do that sort of work at the last minute - making everything look fresh and new.   Expenses incurred in selling a home are actually tax-deductible, where as expenses in maintaining a home are just expenses.)


But there are other ways to be a house-slave as well.  For example, buying more house than you can comfortably afford, so that you end up financially stressed to make mortgage payments, to the point where you cannot afford to go anywhere or do anything, other than sit at home in your overpriced box, and lord over your domain.

Less is More.  And in this day and age, where the taxing authorities are nailing us through property taxes, owning less house is starting to make more and more sense.   Sure, you won't be impressing anyone with your fabulous "look at me!" home.   But is status worth bankrupting yourself over?

I don't think it is.

Should You Challenge Your Tax Assessment?

Your County Appraisers Office has data online that shows the tax valuation for all properties in your County (or other jurisdiction).   Check the assessment of comparable homes before challenging your assessment.

I got a piece of junk mail the other day from a company offering to challenge my property tax assessment.   They told me horror stories about how high my taxes were going to go, if I didn't challenge the assessment right away.  And they helpfully offered to do this for me, using a sliding scale of fees.

This tipped me off right away that the company was probably a fraud.   Whenever a company's fees become incredibly elastic, there is probably a scam afoot.   Invention brokers work the same way, offering to Patent and "market your invention" for $15,000 and 5% of royalties, or 10,000 and 10% of royalties, or $5,000 and 20% of royalties.

Of course, the royalties never materialize, and they keep the money.   Yet you would be surprised how many inventors opt for the $15,000 ripoff as opposed to the $5,000 ripoff.

This reassessment company had the same gag - $200 and 25% of the savings in taxes, $100 and 50% of the savings in taxes, or $50 and 75% of the savings in taxes.   If you think about it, if they were legitimate, you would go with the last option, as it would give them the incentive to go for the highest decrease possible.   But I strongly suspect that if you send these people $50, $100, or even $200, you would get nothing.

And the next week, my assessment came in the mail, and since the market is down, my assessment dropped and my taxes dropped by $250 anyway - without their "help."

But it raises the question - should you challenge your tax assessment on your house?

Well, you can, and you can do this yourself, without hiring some company.   But don't get all excited - chances are, you are not going to get a lot lopped off your tax bill, if anything.  You may actually get your tax bill increased if the assessor looks too closely at your "improvements" - somethings it is better to say nothing, if your assessment seems reasonable.

To begin with, call your County or other tax authority (City, Village, Town) and find out when it is possible to challenge the assessment.   In many Counties, they have a period where you can bring challenges.  Once that period expires, you may still be able to challenge the assessment, but only after the tax is paid, and in court, which may be a lot more expensive.   So be sure to find out when these windows occur, and mark them on your calendar.

Next, check the assessments of comparable properties in your area.   If you live in a subdivision, chances are, finding a comparable is no big deal.   And what your neighbors pay in taxes is a matter of public record.

When I was in my 30's, in my second home, I was outraged to get an increased assessment.   I called the County to find out the procedure to challenge the assessment.   The helpful County employee told me that I should check assessments of neighboring properties before I flew off the handle.

"How do I do that?" I asked.

"Give me an address, and I'll tell you their assessment and tax bill, and even whether they paid it on time!"

I was flabbergasted, assuming this was some sort of "private" information - but of course it is not.  How much you paid for your house, how much you borrowed on your mortgage, and whether you are delinquent on your property taxes, are all matters of public record.   Again, self-proclaimed "Privacy Advocates" have their head up their arse.  Much of your life is public record - get over it.

I quickly gave her the addresses of some similar homes on our street.  And she was right - most of them were assessed at the same rate as my house, if not higher.   In fact, the abandoned house across the street had the highest assessment of any house in the neighborhood.   So I took her advice and kept my mouth shut.  I had one of the lowest tax bills on our street.

Today, this data is available online, usually, and you can log into your County's website, and print out a plat of any property (the tax map) and also look up the assessed value, the owner of record, etc.   The picture above is an example from the  Lee County, Florida, Assessor's Office, and is an example of a pretty well run site (click to enlarge).

How well this works, varies from jurisdiction to jurisdiction.   In our County, for example, I can look up the tax information, the ownership information, and the date sold.   But the mortgage information and tax stamps (which would tell me the purchase price) require access to another database, or appearing at the County Courthouse in person.  Similarly, in the example above, the links to copies of deeds are disconnected - you have to go to the Courthouse to get copies of those.

If everyone else's house seems to be assessed at the same rate as yours, chances are, you are not going to get very far with a challenge.   But in cases where you think your house is over-assessed (such as the man with the abandoned house across the street from me, who never challenged his assessment!) you could get a reduction.

In some areas, houses are not very similar, and assessing homes is a nightmare.   In the rural area of Central New York where we lived, the assessor was not a popular person - and they had a thankless job.   No two houses were alike, in terms of construction, location, view, lakefront, or whatever.   Trying to come up with numbers for the tax base was difficult, to say the least. 

And, as in most jurisdictions, out-of-towners and absentee landlords usually get it stuck to them, big time.  And yes, in rural counties, there may be corruption and a little back-slapping.   The locals elect the assessor, and he/she makes sure the locals have low assessments and the out-of-towners and summer people are socked with high assessments.   Act shocked.

Should you hire a lawyer to challenge the assessment?  Or some sort of company, like the one that advertised to me in the mail?   I am not sure.   If you can clearly show your house is assessed at a rate higher than comparable homes, then it should be an easy case to make before the County (or village, or town or city) assessment board.   But some folks do hire attorneys to represent them, particularly when dealing with larger properties.

Property taxes are a recurring expense, and thus if your assessment goes up, this means your taxes will likely go up as well - for every year going forward, until you decide to sell and move.  So even a "small" increase in taxes is worth challenging, as it can add up to thousands of dollars, over time.

On the other hand, in some jurisdictions, taxes are just insane.  In New York and New Jersey, for example, people pay thousands, even tens of thousands of dollars a year in property taxes.    There is really no way to cut these bills dramatically, other than to move to a lower-tax State (as I did).  You can challenge the assessment, but the millage rate (the tax rate on the assessed value) is not something you challenge, other than at the ballot box.

* * *

NOTE:  It goes without saying that assessed values are not indicative of market values, at least for most markets.   Some jurisdictions have attempted to use "full market value" in their assessment calculations.   Others attempt to do so, but then end up falling behind, as market values outstrip the assessor's ability to recalculate everyone's property values.   Other jurisdictions assign an nominal "assessed value" which may be a percentage of market value, or just may be a made-up number that is only relevant in terms of how it compares to other properties in your area.

I have seen people online say dumb things like, "I paid $250,000 for my condo, and I just got my tax assessment, and it says the property is only worth $50,000!  Where did all the money go?"   And that statement is wrong on a number of levels....

Hit "DONE" with ATM

Some Banks are going to a new system whereby you get your card back before your start your transaction.   If you don't hit "DONE" when you are finished, the next person coming to the ATM can take up to $700 out of your account.  Fun.

I hate to rag on Bank of America some more, but they really are starting to get on my nerves.

The other day, I went to a drive-up ATM to deposit a check (how quaint, checks, I know, but it allows my clients to "play the float" for a week, so they still write them).  The lady ahead of me was in a hurry and she drove off.   When I pulled up, the ATM said, "Do you want another transaction?" and when I hit "NO" it gave me her ATM card.

I tried to chase her down on foot, but she drove off like her car was on fire (which is typical driving technique around here).  So I went into the bank and gave the card to a teller.  I'm a nice guy.  I could have stolen money from her account.   But then again, I probably would have gotten caught.   And anyway, would I want someone to do that to me?

Apparently, this happens a lot, so Bank of America decided to reprogram the ATMs so that you put your card in first, then it is returned to you.   THEN you enter your PIN and do your transactions.   I guess the thought was, no one will forget their ATM card this way.

The problem is, of course, that when you are done with your transactions, the machine is still logged in under your account.   If you take your receipt and walk away, without hitting "DONE" you leave yourself open to theft.

A thief - or even the next person in line, could  just hit "NEW TRANSACTION" and then "WITHDRAWAL" and then "$700" and take that amount of money out of your account.   Would the bank cover this?   Hard to say.   After all, you did leave the darn thing wide open!    But even if they did, this money would likely take days to be reimbursed, and in the interim, you would be socked with bounce fees.

The problem with this "solution" to the card problem is that it requires that you re-program your brain.   If you have been using an ATM for a couple of decades, you might get into a pattern of habit that is hard to break.

And yes, this happened to me, when I made a deposit at the ATM today.   And the nice girl in line behind me said, "You didn't hit DONE!"  which was very nice - and honest of her.  So I went back and hit it.

But it made me realize the vulnerability here.   When there is a line at the ATM, you feel rushed, and thus when that receipt pops out, your mind says "DONE" even if you are still logged in.

Of course, the actual physical use of cards will, in a few years, sound quaint.  I am sure by then, with RFID tagging technology and smart phones, you will just wave your phone in front of the ATM and get cash, and as soon as you are out of range, it will log you out automatically.   But perhaps by then, making "deposits" and "withdrawals" will be as archaic as the magnetically-encoded card.

Institutional Investors

What are Institutional Investors?  What does it mean when a stock is owned by Institutional Investors?  Or if they have no Institutional Investors?

What are Institutional Investors?  

Types of typical investors include banks, insurance companies, retirement or pension funds, hedge funds, investment advisers and mutual funds. Their role in the economy is to act as highly specialized investors on behalf of others. For instance, an ordinary person will have a pension from his employer. The employer gives that person's pension contributions to a fund. The fund will buy shares in a company, or some other financial product. Funds are useful because they will hold a broad portfolio of investments in many companies. This spreads risk, so if one company fails, it will be only a small part of the whole fund's investment.

What got my curiosity up on this, is that the stock charts for Facebook show 0% Institutional Investors, whereas other "dot com" stocks like Linked-In show 51%, Groupon 43%, ZipCar, 50%, etc.

It is possible that the Facebook offering, being so new, has not had a chance for such investors to make themselves known, and this ratio calculated?  Or, does it mean the institional investors fled the scene, early on?  It is hard to tell.   If the latter, it is a disturbing sign.

Indeed, it appears that many sales of stock are not really consummated.   In a neat trick of flim-flammery, Morgan Stanley is allowed to consummate trades made by early (non-institutional) investors at $38 a share last week, by buying shares on the open market later on, at $32 a share.   If you sold your Facebook shares then, chances are, Morgan Stanley bought them at $32 and then handed them back to you, to sell back to them, in an endless loop.   Bottom line, they keep six bucks.

Here's how Morgan likely booked a profit on Facebook's fall: Investment bankers typically sell 15% more shares in an IPO than they actually have. For Facebook, the difference was about 63 million shares. How can they do that? Included in every IPO deal is an agreement that gives underwriters the ability to buy more stock from the company at a slight discount to the IPO price. So if the price rises after the offering, the underwriters can buy the shares from the company that they have promised to other investors, but don't actually have, and book a small profit. That's what typically happens.


But, as we all know, that's not what happened in Facebook's IPO. The stock dropped. As a result, the underwriters were able to pick up shares they didn't have in the market, rather than buying them from the company, at lower and lower prices. In effect, the underwriters were short the stock. And like all short trades, the lower the price you buy the stock back at, the more profit you make. Morgan, as the lead underwriter on the deal, sold the majority of Facebook's shares, so it booked the majority of the trading profit.

How much did Morgan make? From the outside, it's impossible to know. Facebook's shares hit $31 on Tuesday. If Morgan and the other underwriters bought back every share they had sold at that price, the Wall Street banks would have pocketed nearly $450 million. And that's on top of the roughly $170 million they split in underwriting fees on the deal.

Huh?  How is that even legal?  If you buy a share at $38, you bought it at $38.  But no, you actually bought "phantom" shares, that the seller then can buy on the open market, or from the company, at a discount, in either incidence, at a later date.   Heads they win, tails, you lose.

What did I say about not playing games where you cannot possibly win?

It appears some Institutional Investors bought into Facebook early - but perhaps have sold out already

Knight, which competes with Citadel in the wholesale market-making business, disclosed Wednesday its losses stemming from the Nadsaq glitches would be $30 million to $35 million. Citadel's own losses are of a similar magnitude, according to people familiar with the matter. Analysts have estimated total losses to Wall Street firms from the botched Facebook IPO at around $100 million. 

Hmmmm...  Is the reason Facebook is shown as "0%" Institutional Owned because they all sold out, early on?    Beats me.


But the more I read about this, the more convinced I am that this game is rigged.   And an individual trading stocks is just going to get creamed in the market, if he is not careful.  When insiders own more than 50% of a company, you have no voice in what goes on.  When a few Institutional Investors own most of the stock, you have no say as to what goes on.


Being a minority shareholder (and by that, I don't mean you are Black or Latino) really sucks.  You basically get the shaft, nearly every time.

Bank of America Manipulating Customers?

Bank of America wants to rid itself of its expensive Real Estate and pare down the number of tellers.  They are manipulating customers in order to do this.

I have written extensively about Bank of America in the past.  Until this morning, I was a shareholder.  Bank of America is like having a needy friend.   They can be a great friend, at times, but other times, they seem to take up a lot of your time and make you jump through hoops.   And lately, it seems this is getting worse and worse.

In my posting, Big Bank, Little Bank?  I mentioned that while small banks are "down-home friendly!" they often are not very user-friendly.  Clunky websites, few in-network ATMs you can use, and sometimes some pretty bad customer service.   Large banks, like BoA, on the other hand, have a network of ATMs throughout the country, and your cash is only a few moment's drive or walk away, if you need access to it.   If you travel, as I do, having a big bank is handy, as it helps you avoid ATM fees.

No one should pay ATM fees, or any banking fees, if they can help it.   There are banks out there today that offer fee-free checking and savings accounts, so why pay a fee, just to use your money?  Now, granted, banks incur expenses for certain things - usually things that involve tellers having to do real work.   Labor is their largest cost, right after their Real Estate costs.  So things like bounced checks and the like do incur fees.    And "maintenance fees" for dormant accounts are a way of cleaning out abandoned accounts from their books - most banks have these, nowadays.  So there are fees you may have to pay - if you don't watch your money carefully.   But if you play the game right, it should be fee-free.

Now, granted, it is possible to pay cash for everything and thus avoid any banking fees.  But there are a lot of places that just don't take cash, and despite the urban folklore you may have heard, no one is required to (the phrase "legal tender for all debts, public and private" only means that cash may be used to pay debts, not that anyone is required to accept it.)   Some folks try to "work around" banks by using prepaid debit cards or prepaid credit cards.   But these are very expensive alternatives, and being afraid of banks is no answer to the problem.

And in addition to ATMs, banks today offer one of the greatest services ever - paying bills electronically.   Writing checks is not only time-consuming and risky - it is expensive as well.   As I noted in that earlier posting, you save 44 cents or more when you pay a bill online, as opposed to writing paper checks and mailing them.   This is a service that puts money in your pocket, and with most banks, it is FREE.

So, big banks are great, right?   Well, yes and no.   They have real overhead, and many are struggling on a day-to-day basis, mostly due to unrelated losses in Real Estate loans and other shenanigans.   So many are looking to alternative revenue sources to improve their bottom line.  Bank of America floated the idea of a $5 a month ATM card fee, but was shouted down resoundingly.  So today, they are scrambling to find other sources of income.

They already charge a staggering $12 just to receive a wire transfer, which is sort of ridiculous.  In Europe, wire transfers are used in the same way we use electronic bill pay - you can send someone even a dollar this way, with little effort.   In the US, however, wire transfers are viewed as a way of transferring house payoffs, lottery winnings, and other "big tickets" from one person to another, securely.  So charging $12 to receive $500,000 doesn't seem like a big deal.    But when I receive $500 from a client in Europe, it is a big deal, and a big pain in the ass.

And of course, they charge pretty hefty fees for bouncing checks and "going over" your credit limit on credit cards.   The latter, of course, is an "opt-in" feature - you have to ask for "overlimit protection" which nicks you with a $30 fee if you go over your limit.  They cover the charge, and charge you a lot.   If you are astute, you would "opt out" of this "feature" as it doesn't help your bottom line at all.

Bank of America has been caught in a particularly nasty debacle, in that they bought Countrywide Mortgage at the height of the Real Estate Boom, and apparently didn't realize they were buying a steaming pile of turd at the time (or did they?).  So, as you can imaging, BoA is fishing around for ways to cut costs and improve the bottom line.

One way to do this, is to reduce the number of employees - the tellers - and the related hardware and Real Estate.   Bank of America is saddled with huge buildings in most towns and cities, which are usually quite identifiable as "Bank of America" buildings.   Paying tellers to work there is expensive, as you have to pay their salaries and benefits and health care, and retirement, not to mention that 9% matching Social Security and Medicare taxes, unemployment insurance, workman's comp, and the like.

So, many banks are experimenting with virtual banking - using ATMs to not only withdraw money, but handle deposits.  If you think about it, there is no reason why the dreary job of "Bank Teller" couldn't be automated like anything else.   And the technology works pretty well.   Checks are scanned in, read, and then automatically deposited.   In this era of Check-21, physical checks are not moved about anymore anyway, but rather are shredded and their electronic counterparts retained.   And some banks, like Citibank, are trying to sell this "virtual" account deal, to people like me, even though they have no branches in my area, just ATMs.

And the interesting thing is, if you do go into a physical bank these days, and see who is in line with the teller, you will see there are two kinds of customers, generally.   First, there are the local merchants, with a wad of money and checks from their businesses, making a deposit.   These are profitable customers for the bank, as they usually have commercial accounts that charge monthly fees.   And chances are, they have pretty good bank balances and maybe a line of credit or business loan as well.

But for many of this first group, a night deposit slot may be all they need.   Take the money and checks, put it in the night deposit, and the bank can process the deposit at its leisure the next day.

The second type of customer are poor people.   These are the folks who want to "cash a check" or withdraw $25 from Savings.   They have low balances and end up costing the bank more money than the bank can make from interest on their meager deposits.   Wealthier folks use checks, credit cards, debit cards, or the ATM outside.   It is only the very poor who try to use a savings account as a checking account, making multiple deposits and withdrawals per month.

So, you can see that tellers are not only expensive, but that for the most part, the only people using them are the customers who make the least amount of money for the bank.

Now, I know what you are going to say.  Suppose there is a "problem" with your account?   You want to talk to someone in person!  Right Away!   But of course, this "person" isn't available until 9:00 or 10:00 AM, and then only if you drive to the bank and then stand in line and explain your story.   And even then, you are referred to the bank manager, forced to wait in line outside her office, and then you have to explain your story again, at which point she calls someone in customer service and starts the process all over.   You might as well cut to the chase and just call customer service yourself.

So, it would seem that the Banks have an interest in you using the ATM for all of your transactions, to use the computer to get your balance and your statements online.  To use the call-in customer service, instead of a teller.  And for the most part, people use these modern conveniences - people such as myself, who have not set foot in a bank lobby in years.

But how do you go about making people do this?  That is an interesting conundrum.   A year or so ago, I received pleas from Citibank to open a virtual-type account, promising me a $100 bonus if I signed up.   Since there are no offices in my town, all my banking would have to be through their Automated Teller Machine.  It was a tempting offer.  The carrot is an effective tool.

So is the stick.

My account with BoA was opened in 2005 in New York State.   In the seven years I have had the account, I have never paid a monthly service charge - and why should I?  Other banks offer charge-free accounts.   They did have $3 a month service charge for savings accounts, unless you transferred a minimum $25 to savings every month.  But that was easy to set up using automatic online-transfers.  So for seven years, I have never paid a service charge to use this account.

That is, until this morning.

Logging onto my account, I was chagrined to see "Monthly Service Fee, $12" on my account.   So, as you might imagine, I lit up the phone lines to customer service.   And the story I got was, well, a load of horse shit.

The person answer the phone tried to tell me that this was the regular monthly service fee - you know, the one I pay every month.   I explained that I have never paid such a fee in seven years.  She countered that unless I had automatic deposit of at least $250 a month, or a minimum balance of $1500 at all times, the service fee applied.   I explained that I have never, in seven years, had automatic deposit, as I am self-employed, and moreover, my balance has gone below $1500 on numerous occasions without such a fee being applied.

At that point, she kept repeating herself, so I asked to speak to a supervisor.

The supervisor, after many keystrokes, claimed that my monthly fee was "waived" for the first seven years, and that his "waiver" had expired.   Again, horse hockey.   When I opened the account, there was no "service fee" discussed or waived.  BoA is changing the rules of the game, in the middle of the game.

That was the windup, here was the pitch:   The helpful service person said that, since I use the ATM and online services anyway, I could "convert" my account to a virtual type "eAccount" and avoid the fee in the future.  Interesting gambit.

The virtual account is the same as my existing account, except that I cannot use the teller at the bank for any transactions - deposits, withdrawals, check cashing, etc.   And that was the real deal behind this whole poorly thought-out charade - to get me to transfer my account to this "eAccount" status.

Naturally, I agreed to this, and as she "converted" my account (and refunded the $12 fee), I went online and dumped my Bank of America stock.  Why?  These are the actions of a desperate company, in my opinion.

Converting the account gives me time to think about where I will be transferring my business to.   BoA has been a good ride, but this just strikes me as crass manipulation.

And coming right after a very suspicious "theft" of my debit card, it makes me feel as though I am a cow being lead to the slaughterhouse.   As you recall, I had no problems with my debit card, but for some reason BoA decided I needed a "new" card, which they sent me without my request.  Almost immediately, this new card was stolen, and fraudulent charges made.   While the charges were reversed, it was not without a lot of hassle - and a dozen phone calls as well.   And of course, every step of the way, a helpful BoA employee would remind me of how convenient and easy this would have been with a BoA credit card.   It makes one wonder, after all, with the recent cut to debit card fees, whether this was by accident or design.

But of course, I don't believe in conspiracy theories.

Is this new "eAccount" a good deal?  Maybe, maybe not.   The point is, the way this was forced upon me was sort of crass.  And this lame excuse that my account had some sort of "special waiver" that mysteriously expired this month was, well, lame.   And I am curious as to how many other people out there got a similar surprise charge to their account this month?

But what really is interesting, is that BoA really isn't "saving" any money by steering me to this type of account.  I haven't seen the inside of a BoA branch in over a year, if that.   So it is not me that is tying up the tellers and using up that valuable face-time.  

But I suppose there are a lot of other customers out there - the kind that like that "face to face" with the teller - who will see a $12 fee on their paper statement (which they get by mail) and say, "Well, whaddya know about that?" and then put the statement on the coffee table and turn on Reality TeeVee and order a take-out pizza and forget all about it.    And I suspect that includes more than few million people, which represents a lot of "found money" for Bank of America.

But to me, it is a violation of trust.   I no longer trust this Bank as working in my best interests.   I feel I have to watch these people like a hawk.  It is like having a cousin who steals things from you.   As long as you beat the shit out of them every so often, they keep their mitts out of your wallet.   But eventually, you get tired of beating them.   And frankly, it is just easier to avoid time-consuming folks like that.

And that is what Bank of America has become - a time-bandit needy friend.

My Short Life With the Big Firm

For a very brief time, I worked at a law firm that did Venture Capital Placement and IPOs.  It was an eye-opener.

Sometimes, I think I am not very bright.   After all, I don't understand things that other people seem to think are really smart deals.   For example, when I was in Ft. Lauderdale in the 2000's, everyone was buying Real Estate and jacking prices through the roof.  On paper, everyone was a Millionaire.   But it troubled me that it seemed like a Ponzi Scheme - no one actually had money, other than borrowed money based on inflated Real Estate Values.

So I cashed out my investments and got out of the game.  I didn't understand why the market went berserk, and why this would be sustainable.   And smart people told me I was an idiot, and gave me lengthy explanations as to why it was a rational market and I was the fool.   And after 20 minutes of such explanations, I was no more the wiser.  So I must have been the idiot, right?

Well, maybe I was just an idiot savant.   As it turned out, my "smart" friends are all broke, upside-down on houses, facing bankruptcy or eviction, and I am living in a house that is paid for.  Who's the fool now?

The same thing happened when I took a job with a big law firm that did IPO and Capital Placement.  There were lots of companies in Silicon Valley, and even back East, that wanted to go public or find investors.  And our firm did a lot of this work, and tried to act as hip and cool as the Silicon Valley outfits that were our clients.

I couldn't understand why this was such a big deal and how people, other than the Lawyers, made money.  We would find some small start-up company that had two computer geeks and an idea, and then "place" Venture Capital with them.  During the "closing" we would celebrate with Champagne, and as one partner told me, "Get them to sign off on the bills, before they sobered up."

Why?  Because the next day, they would sober up and realize they sold off 95% of their company for a few million dollars, the lion's share of which went to our legal fees.  The people who started the company had little incentive at that point to make it succeed.   And the VC firms often ended up with little to show for all their cash.   I could not understand why this was a good thing for anyone involved, other than the partners at the law firm.

IPOs made even less sense back then.   In that "dot com" boom era, companies would do Initial Public Offerings, where blocks of shares would be "subscribed" to friends of the Wall Street Bankers at IPO prices.  So, for example, XYZTECH company would "go public" at an IPO share price of $15.   The subscribers would then buy their shares at $15 and immediately resell them for $30, making a 100% profit in a matter of minutes.

And everyone would cheer what a wonderful IPO it was! 

But again, being stupid, I would ask stupid questions.  "If the stock was worth $30, why not price it at the IPO at $30?   The company would realize twice as much money from the IPO instead of just handing over half the cash to some insiders who happen to be friends of the Underwriters?"

And one of the Partners at the firm would shush me and tell me I was an idiot.

But it is a valid question and illustrates how these IPOs were raw deals for small investors.  Because it was the small investor who was buying at $30, not understanding anything about the business, the P/E ratio, profits, or whatever.   They were buying stocks like some folks buy tickets at the horse track - with dreams of avarice, hoping a long-shot will come in, and prehaps liking the name of the horse.   But long-shots rarely do come in.

The real answer to the question is, of course, that people on the inside get to cash out.   That is who is making money.  And the underwriting firm and the lawyers.   By underwriting the IPO, a sure stock price is determined.   And thus, the stage is set for a little pump-and-dump deal, where the stock is hyped in a "roadshow" for weeks, and talked about on the financial channels (throw a few shares at the host, he won't mind!).  Yea, you are giving half your equity from the IPO away, but those two geeks with an idea can now sell their insider shares, and cash out and become real Billionaires with real money, not just hyped-up stock that is really worth nothing.  The Ferrari dealer won't take "dot com" stock in payment.

But needless to say, asking too many pointed questions at a Big Law Firm is not going to make you popular, and I left after only a few months.   They paid a lot of money, but it wasn't worth the hassle.

That was a decade ago.  Today, IPOs are taking a different tack.   They are being offered at initial offering prices, going up slightly in value, and then tanking - for the long-term.  We are seeing this with Facebook, and also with other recent IPOs, such as Zynga, Zipcar, Groupon, and others.  Why is this?

Well, as one commentator notes, the Facebook IPO was a "Brilliant Disaster" in that, while the stock price did not shoot through the stratosphere, the original investors and employees of Facebook who sold their stocks (such as Zuckerberg himself) still cashed out at the top price.  Much of what was sold during that first day were shares owned by insiders, not just the initial subscribers.   So the subscribers may have gotten a screw-job on this, but that means more money for the insiders - and more money for the company.   If they had priced the stock at $19 and let it balloon to $38, they would have lost out on half their dough.

So, perhaps he is right - this "botched" IPO made a ton of dough for Facebook, and a ton of dough for the founders and the early investors (including Microsoft).   But the folks who bought at the IPO price got screwed.   No more doubling-your-money in 10 minutes.   No free lunch.   In fact, they probably stand to lose half their investment, if not more, if they hang on.

But this illustrates why most sound financial advisers say to stay away from IPOs.   Like Commodities trading (and BTW, Gold is a COMMODITY), or Derivatives, they are volatile markets were fortunes are made, and LOST, overnight.   Leave these risky bets to the experts - you as the small investor will inevitably be the chump that the big boys make their money from.

And it illustrates too, the old adage, "Never Invest In Something You Don't Understand."   Or perhaps, it illustrates what this old adage really means.   If you think you are "too stupid" to figure out why the Facebook IPO was such a good deal, maybe you are not stupid at all, but just asking too many pointed questions that people can't answer, without resorting to a lot of hand-waving and smoke and mirrors.

Play dumb.  Sometimes it can be very profitable.  The most fundamental questions are the most revealing.  And when people can't answer them to your satisfaction, you are not an idiot, chances are, they are just trying to deceive you.

Dictating Rates of Return

When someone promises a "guaranteed high rate of return" it probably is a con.  Some people think they can dictate to the market, their rates of return.   It can't be done.

I ran into a fellow the other day and we were talking about investments.  I sort of ran though my investment philosophy - to invest for the long haul, cut expenses, live within your means, put a little bit aside over a long period of time - that sort of thing.

He replied, "Well, that is all very well and fine, but I have to catch up on my retirement savings, so I need to invest in something that will give me a high rate of return!"

This sort of floored me, as it seems, from his perspective, that investments came in different flavors, just like at Baskin Robbins, and you could just choose to get a high rate of return.

It is sort of like how some people think the President sets gasoline prices (which this fellow thought as well, he wasn't particularly bright).   Every morning, the President gets up and decides how much gas will be.  Obama picks $3.89 a gallon.   Newt Gingrich tells us he would select $2.50.

Of course, this sort of thinking is idiocy.  If you really could set gasoline prices, why not pick the lowest one?  And if you could really just dial-in your rate of return, why on Earth would anyone pick low rates of return, when higher rates are there for the picking?

And the answer is, of course, that there are no investments with guaranteed high rates of return.   The rate of return is directly proportional to risk.  And when an investment does yield a high rate of return, it is likely because it is risky - and may yield no rate of return in the future, or go broke.

But all that was lost on my friend.   He needed a high rate of return, and he was going to dictate to the market what rate he would get.   A nice theory, but flawed in so many ways.  And yes, I believe he was one of those followers of "visualization" theory - in other words, not all there.

I tried to let him down gently, but he would have none of that.   What was sad was that he had failed to plan for retirement, mostly though making bad investments in other get-rich-quick schemes.   At this point in his life, he felt backed into a corner.   It was too late to adopt a safe and sane strategy of investment.  Rather, he had to double-down his bet, he thought, so that he could cash in on some long-shot.

It was sad to watch, because you know how it is going to play out - he will end up broke and wonder what happened to all his money.

And what happened to all his money?   There is an army of people out there who make money from people like him - raging true believers, who are willing to invest in any "sure thing" that they hear about on the web, or on a sign on a lamp post.  They listen to the financial channels, they sign up for advice from the clown-suit people, they buy Facebook stock.

Maybe it is too late for him to fully fund a comfortable retirement.   But it isn't too late for him to get out of debt, put aside a little money, so he can make the best of a bad situation.   But alas, his plight is that of many poor people - money passes through their hands like so much water - not understood and completely mystifying as to where it went.

All you can do is look away from the horror.

It's a Simple Little System!

When someone tries to sell you a "system" - watch out!
Chances are, it isn't a "Trustful place for Trustful Invest" - whatever that means.

A friend of mine who worked at the Patent Office used to spend every spare moment at the track, betting on horses.   He was convinced that he could come up with a "system" for winning at the track, and even paid money for "tip sheets" and "systems" from other people.   Needless to say, he never really got ahead.

The problem with horse racing - and markets - is that they are chaotic systems that, while they have predictable aspects, do not have predictable outcomes.   There is no "system" for picking, consistently, winning horses.  There is no "system" for picking, consistently, winning stocks.  Anyone who tries to sell you such a system is basically lying to you - to get you to buy their system which is the only one "sure bet" in any casino.

Unfortunately, the vast majority of human beings need a savior - a charismatic figure, whether it is Warren Buffet, or Glenn Beck.  And they listen, with baited breath, for the latest pronouncement from these oracles of wisdom.

The problem with these gurus, is, of course, that they are not immune from failure.  And just because they have a track record of success, does not mean they always will.   And more importantly, as an individual, you need to save for retirement and not speculate in the market.   But most people prefer to do the latter, as it is more "interesting" than boring saving.

So they sign on for systems - and the people selling them will show them backward-looking data that shows that their system has amazing results.    But the problem with backward-looking data, is that it is only helpful for people owning a working time machine.   You need forward-looking data - and that simply doesn't exist.

So, for example, Joe Blow, who is touted as a Guru of the "Investment Portfolio System" is touted as have a great rate of return since 1985.   But then again, anyone who invested in any diversified portfolio since 1985 did pretty well.   The question is, moving forward, does his system make sense?

And if you look at his "system" since 1970, maybe it is a disaster, or just did OK.  You can pick starting and endpoints on a graph and make yourself look like a genius.

For example, I made a 1700% rate of return on AVIS stock since February 2009.  I must be an investment genius, right?  And if you invest in AVIS stock, you will see a 1700% rate of return as well, right?


Wrong.  Trends don't go on forever, and in fact, once something trends in one direction, you can pretty much bet it will trend the other way, at least for a time.   But when trends turn directions is tough thing to call - I called the Real Estate Bubble two years before it happened, and "missed out" on cashing in at the ultimate peak.   However, if I had called it two years too late, I would have been far worse off.

You can't time the market.  You can't use a "system" to do so.   All you can do is try to diversify your investments among a number of types, accounts, and companies - and even diversify within these.  (And no, putting your money into four things is not diversifying).

The best you can hope for is a reasonable rate of return.

Gambling your retirement, your future, and your ability to buy yourself out of hock, on some "system" touted by fanatics and salespeople, is just a sure-fire recipe for failure.   No one sells the goose that lays the golden egg.  If there was a sure-fire system to make money, why on Earth would anyone ever, ever tell anyone else, particularly YOU, about it?


They would not.

It's all in the S-1

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form S-1

REGISTRATION STATEMENT

Under

The Securities Act of 1933

Facebook, Inc.

(Exact name of Registrant as specified in its charter)

Form S-1 is the registration form an IPO has to file with the Securities and Exchange Commission (SEC).   In that form, a company has to list "risk factors". Few people bother to read these forms, before investing.

The following is an excerpt from Facebook's form S-1.   Note that they are no longer claiming a Billion active users, or even 900 Million active users, but 845 Million active users - which I presume includes me - and I no longer use the site, although I have yet to close my account.

Note that while a lot of the risk factors are "what if" scenarios (which are rapidly becoming "what is" scenarios), the preamble mentions risk factors that are inevitable - namely that as the user base grows, the increase in growth rate will stagnate.  (I have underlined this portion).  This is a predictable mathematical scenario, as you cannot increase your growth rate indefinitely.  Like any pyramid scheme, it eventually unwinds.

Facebook may settle down to a much smaller, but still-profitable company, with a reasonable stock price and P/E ratio, much as other IPO companies have done.   At $6 a share, it would be rationally priced.   At $30 a share (today's opening price) it would have to increase profits by a factor of five to six.

Anyway, the following is an interesting piece of reading, in retrospect:

Risks Related to Our Business and Industry

If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, financial results, and business may be significantly harmed.

The size of our user base and our users’ level of engagement are critical to our success. We had 845 million monthly active users (MAUs) as of December 31, 2011. Our financial performance has been and will continue to be significantly determined by our success in adding, retaining, and engaging active users. We anticipate that our active user growth rate will decline over time as the size of our active user base increases, and as we achieve higher market penetration rates. To the extent our active user growth rate slows, our business performance will become increasingly dependent on our ability to increase levels of user engagement in current and new markets. If people do not perceive our products to be useful, reliable, and trustworthy, we may not be able to attract or retain users or otherwise maintain or increase the frequency and duration of their engagement. A number of other social networking companies that achieved early popularity have since seen their active user bases or levels of engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our active user base or engagement levels. A decrease in user retention, growth, or engagement could render Facebook less attractive to developers and advertisers, which may have a material and adverse impact on our revenue, business, financial condition, and results of operations. Any number of factors could potentially negatively affect user retention, growth, and engagement, including if:

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users increasingly engage with competing products;

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we fail to introduce new and improved products or if we introduce new products or services that are not favorably received;

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we are unable to successfully balance our efforts to provide a compelling user experience with the decisions we make with respect to the frequency, prominence, and size of ads and other commercial content that we display;

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we are unable to continue to develop products for mobile devices that users find engaging, that work with a variety of mobile operating systems and networks, and that achieve a high level of market acceptance;

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there are changes in user sentiment about the quality or usefulness of our products or concerns related to privacy and sharing, safety, security, or other factors;

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we are unable to manage and prioritize information to ensure users are presented with content that is interesting, useful, and relevant to them;

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there are adverse changes in our products that are mandated by legislation, regulatory authorities, or litigation, including settlements or consent decrees;

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technical or other problems prevent us from delivering our products in a rapid and reliable manner or otherwise affect the user experience;

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we adopt policies or procedures related to areas such as sharing or user data that are perceived negatively by our users or the general public;

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we fail to provide adequate customer service to users, developers, or advertisers;

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we, our Platform developers, or other companies in our industry are the subject of adverse media reports or other negative publicity; or

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our current or future products, such as the Facebook Platform, reduce user activity on Facebook by making it easier for our users to interact and share on third-party websites.

If we are unable to maintain and increase our user base and user engagement, our revenue, financial results, and future growth potential may be adversely affected.

We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business.

The substantial majority of our revenue is currently generated from third parties advertising on Facebook. In 2009, 2010, and 2011, advertising accounted for 98%, 95%, and 85%, respectively, of our revenue. As is common in the industry, our advertisers typically do not have long-term advertising commitments with us. Many of our advertisers spend only a relatively small portion of their overall advertising budget with us. In addition, advertisers may view some of our products, such as sponsored stories and ads with social context, as experimental and unproven. Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads and other commercial content in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return relative to other alternatives. Our advertising revenue could be adversely affected by a number of other factors, including:

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decreases in user engagement, including time spent on Facebook;

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increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content;

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product changes or inventory management decisions we may make that reduce the size, frequency, or relative prominence of ads and other commercial content displayed on Facebook;

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our inability to improve our analytics and measurement solutions that demonstrate the value of our ads and other commercial content;

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decisions by advertisers to use our free products, such as Facebook Pages, instead of advertising on Facebook;

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loss of advertising market share to our competitors;

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adverse legal developments relating to advertising, including legislative and regulatory developments and developments in litigation;

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adverse media reports or other negative publicity involving us, our Platform developers, or other companies in our industry;

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our inability to create new products that sustain or increase the value of our ads and other commercial content;

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the degree to which users opt out of social ads or otherwise limit the potential audience of commercial content;

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changes in the way online advertising is priced;

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the impact of new technologies that could block or obscure the display of our ads and other commercial content; and

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the impact of macroeconomic conditions and conditions in the advertising industry in general.

The occurrence of any of these or other factors could result in a reduction in demand for our ads and other commercial content, which may reduce the prices we receive for our ads and other commercial content, or cause advertisers to stop advertising with us altogether, either of which would negatively affect our revenue and financial results.