Ask Uncle Bill

Nature Abhors A Vacuum

Program Note:   Carnival of Investing is up at Free Money Finance http://www.freemoneyfinance.com/2006/04/carnival_of_inv.html

Take a look.

I sang the praises of Forbes magazine last week but there is one edition I ignore--The Richest People In The World. 

Rich people don't fascinate me because I'm not going to be one and most of them made their money the hard way--they inherited it.  Or they made it in Singapore real estate.  Boring to me.  Also I can't fathom having a billion dollars.  It looks so small, a personal fortune of $1.2 billion.  That's it?  A measly $1.2 billion?

But I decided to experiment this year and see if I could find a billionaire I could like.  A guy or gal to sit down with, have a beer, shoot the breeze.  AND I found him.  James Dyson, the inventor of the Dyson vacuum cleaner.

First, I like inventors.  I was fascinated with Thomas Edison as a kid.  But having no talent for inventing things I dropped it.  Second, Dyson lived off his wife, an art teacher, while he came up with his first invention.  That takes real confidence because most men feel this need to plunge in and provide and thus end up in dead end jobs and tons of debt.  Old James sat back and took his time while the wife brought home the paycheck.  And I bet she doesn't regret it.  Third, he looks at the world in kind of a weird way like taking a product virtually unchanged since the Egyptians were building pyramids and making it better.

Because James Dyson's first invention was the wheelbarrow.  I mean I like the vacuum cleaner and glad it made it on 'Friends' and 'Will and Grace' but a wheelbarrow.  How cool is that?  And he got the idea from something that was bothering him which leads us to the old saying 'Necessity is the mother of invention.' 

The story is that James and his wife bought an old house and started fixing it up.  Been there.  And, of course, James got a wheelbarrow.  James is probably kind of uncoordinated because a wheelbarrow is a bit tricky but most people get the hang of it pretty quickly and just learn to live with the tire tracks and the occasional over turned load of cement or dirt or rocks.  Like I said the thing is basically unchanged since the days of the pharaohs.  But not good enough for James.  He didn't like that rut stuff or turning over stuff one bit and solved the problem by replacing the rubber wheel with a big plastic ball.  And he made the barrow part out of plastic instead of metal so concrete wouldn't stick.  And, of course, I said and millions of others said "Why didn't I think of that?"

Well, we didn't and it didn't seem to matter because the world ignored James.  Who needs a new wheelbarrow?  said the UK equivalent of Home Depot, Lowes and Garden Ridge.  Ho hum.  This is nothing new, it happens all the time.  You guys may be too young for Cabbage Patch dolls but it was a huge hit 25 years ago for some toy company but it wasn't for our toy company because our toy company turned it down.  Along with every other toy company in the Western world except for one.  And remember that guy at Decca records that turned down the Beatles.

James really has a great wife because then she footed the bill for newpaper ads, really cheesy ads, to sell the wheelbarrow directly to consumers.  Either she is great or was on drugs as you can hear the conversation.  James says "Let's take all our savings and borrow against the house and borrow from Mom and Dad and put ads in newspapers to sell wheelbarrows."  James wife says "Wonderful, dear, even after being turned down by every retail outlet in the British Empire I think it's a great idea."  She didn't even ask about how to put a wheelbarrow in the mail.  I would have. 

And James and Mrs. Dyson made a fortune.  Which led to another problem.  It seems making wheelbarrows creates a lot dust so James invented, all together now, a vacuum cleaner.

One thing leads to another.  If James and the wife hadn't bought the crummy old house and James hadn't gone nuts flipping the wheelbarrow he wouldn't have built a new one and created a lot of dust and then had to invent a vacuum cleaner.  And he wouldn't be on Forbes list of The Richest People In The World. 

So get out there and start doing stuff and getting one thing to lead to another. 

The whole story can be found at http://workingfromhome.allinfoabout.com/dyson_pt1.html

Let The Games Begin--No, Not Those Games, The Tax Games-Part II

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How about a little Olympics on the tax issue?  Does the United States win the gold medal for having the lowest tax rates on dividends and capital gains?  Or does it face rough sledding against those other Olympic countries?  But we have to win because we have such a high deficit and low rates and the wealthy are, well, wealthy.  As George Tenet, ex-head of the CIA, would say, "Slam dunk."

After a five minute review of Google and figuring out some dirty calculations the United States Downhill Tax Team comes in (flourish of trumpets here) DEAD LAST.  Yikes.  Against who?  Not just against those typical tax havens like Luxembourg and Monaco but against those red-blooded tax cutters--Germany, Switzerland (no real surprise here), Japan, Canada and, gasp, France.  FRANCE?  Yes, with apologies to John Kerry, France. 

I'm hoping that there is some tax attorney sitting out there with insomnia that can back this up but my cursory review shows that:

In Germany the taxpayer gets a euro for euro tax CREDIT for half of the tax due on capital gains and dividends.  So if your ordinary tax rate is 25%, the rate on capital gains and dividends is 12.5%.  Ditto for Canada on dividends paid by Canadian companies.

For Switzerland I couldn't find a capital gain tax or tax on dividends but Swiss tax law is kind of goofy so I may have missed something but considering that Switzerland is a country where tax evasion is NOT illegal, I can't see much of a tax on anything.

Japan, depending on how you do the calculation could tie for no medal with the US as they tax capital gains at 10% and dividends at 20%.  So if you have dividends and capital gains at 50/50 you have a tax rate of 15%.

But I'm going to give the gold medal for tax cuts to FRANCE.  16% tax on Capital Gains and 11% for Dividends. 

If the Democrats want to change the rates on capital gains and dividends, then it is ok with me.  I just demand they adopt the French model. 

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Fast Freddy

(This blog is turning into another mini-series, this one on the joys(?) and perils of real estate investing.  I repeat, that anyone can make money at real estate BUT it is not painless and not easy.  To go to the beginning, scroll down to the January 30th blog.)

Went to the closing, signed a bunch of forms, and wrote very large checks to the realtor and for last years taxes.  But told myself I had followed the rules--fixed the house, interviewed realtors, put the house on the market, found a qualified(?) buyer, and paid a bunch of money at closing.  And was helping a young couple get a start in life.  As a friend put it, let no good deed go unpunished.

But I was feeling pretty good about myself and sat back and waited for that first payment...and waited.  One problem surfaced immediately--Freddy and Celia didn't have a phone, or at least not one they told me about.  Called the realtor.  He would try Freddy's dad.  Gave me the number as well and the number for Celia's parents.  Called both and got Spanish only speakers or so they said.  (Phone tricks are something I've dealt with for years.  I was in international finance and we had a controller in Brazil that often got phone problems when asked difficult questions.  It was only after we had become friends that he admitted to crumbling typing paper next to the phone when things got too hot for him.  Try it, it sounds exactly like a cell phone breaking up.)  Celia finally called and said could I come by and they would have the money for the first payment.  Didn't like it but ok.

This happened a couple of times and finally said, no more nice guy, mail the money order.  Worked a couple of times, then more phone calls, then nothing, then a summons from the city to clean up the backyard.  Called the city, said I didn't own the property but, just out of curiousity, what was in the backyard?  A junkyard, the city said.  Oh, great.

Then payments on schedule for a couple of months and then nothing.  I started to dread the first of the month--would they or wouldn't they?  Called the realtor and he called around and found out that Freddy was having cash flow problems because Freddy was in jail.  Wonderful.  Seems Freddy was having a mid-life crisis early, brought down by the burden of the wive and two kids.  Fooling arund with some buddies he got busted for something and discovered it's hard to paint houses when you are locked up.

By now about a year has gone by and I'm getting a little curious about whether they had paid property taxes.  Stupid me, of course not.  And they were in arrears and incurring late charges of about $100 a month.  Note:  The city is not a friendly creditor, don't get late on your tax payments. 

I hit the ceiling and then cooled off and then did the smart thing--I abdicated.  Called a lawyer I knew casually, how much to foreclose?  $400 plus fees of around $100.  Go for it.  He said the process would take about three months.  What?  That's the way it goes.  Ok, get cutting.

And I thought of Bill Smithburg.  Smithburg was chairman and CEO of the Quaker Oats Company when I worked there early in my career.  Bill was a hero for having the 'vision' to buy Gatorade and turn it into a powerhouse.  A few years later he was vilified and canned for buying a tea company that I can't even remember the name of right now. 

I remember Bill for sending out a memo to finance saying, roughly, don't bring me small projects or acquisitions.  Bill figured out that you spend the same amount of time on a little project as a big project, sometimes more.  I finally figured out that Freddy and Celia were  a small problem that was taking up way too much management time and effort so I flipped it to the lawyer and said, call me when this mess is over.

Sound cruel?  Perhaps.  But I would soon find out that Freddy was really a nasty little person.

Teaching An Old Dog New Tricks

Probably shouldn't start off a new personal finance blog with a story about a dog but there is a moral to the story.  Here's the set-up.

Marc, the human in the picture on the left, is my son and wanted a dog.  But not just any dog.  He wanted a bull terrier which most people recognize as the Target dog but Marc recognizes as the dog Patton had in World War II.  Marc is a lieutenant in the Air Force so military stuff, including Patton's dog, rates pretty high in his world.

Marc is stationed at Barksdale AFB in Louisiana and was in an apartment which is bad for a dog.  But Marc moved in with Ty (a fellow B-52 navigator) when Ty bought a house, a house with a fenced backyard.  So condition number 1 met.

Then to the breed.  A brief study showed an independent (read: runs away), loyal (read: will kill anything that comes close) and doesn't mix well with other pets (read: the cat is lunch.)  Not good but Marc persevered.

Cost--a bull terrier puppy goes for around $2,000.  Ouch.

Solution--Marc went to the web page for the Bull Terrier Breeders Association or something like that and found they had dogs for an adoption for a fee of $300.  At this I jumped in and pointed out that the dogs are up for adoption for a reason--they did something wrong like run away or kill the cat.  Marc persevered and filled out a form that ran about three pages, sent it in and promptly got turned down.  Seems the association had some bad luck with the 'military' and would not place a dog in a 'military environment' whatever that means.  Marc asked the obvious, "Can they do that?"  Maybe not legally but they did.

I was ready to give up but not Marc.  Back to the web and found a site for a breeder near here with a prize winning dog he was looking to sell for $600 on the condition the dog be neutered.  Not good news for the dog but Marc didn't want to breed the dog so ok with Marc.  Marc was home for Christmas vacation, he called the owner and we drove an hour and a half into west Texas looking for the place.  Got lost three times but finally found the farm and rundown farmhouse.   

Not exactly where we thought you would find a Westminister show dog but there he was along with about six or seven brothers, half brothers, sisters, half sisters, etc.  Out came James, the breeder, dressed in overalls and with a voice ravaged by 30 years of cigarettes and a throat cancer operation.  Turns out that James is a modern day Jeb Clampett, being a former dairy farmer that gave up on cows after oil was discovered on his farm.  Bored and looking for something to do he fell in love with Spuds McKenzie, the Bud Lite dog.

For those too young to remember  the late '80s, Budweiser's ad agency dreamt up Spuds, a party dog that drank Bud Lite and attracted good looking women.  Spuds was a hit leading to Spuds stuffed animals, Spuds lamps and Spuds just about everything else.  The only thing Spuds didn't do was increase sales so Spuds was soon out on the street.  First rule of good advertising--if it doesn't move the product it ain't good advertising.  James became a Spuds devotee and bought his first Spuds.  This brought him into contact with the Breeder's Association ("bunch of whackos" according to James' wife) which treated James like dirt which inspired him only more to breed the perfect Bull Terrier. 

Enter Buck, the third James dog, whose real name is Naraja.  Seems James is a big Dallas Mavericks fan and the Mavericks had, for a short while, a player of Mexican (I'm not making this up) descent named Naraja so the dog was named Naraja.  Naraja, the dog not the basketball player, was almost the perfect bull terrier except for an ear that flopped down at the worst times, like judging time at the Westminster dog show and so he had to go after siring a bunch of other terriers and reaching retirement age of five years old.  And Marc decided that he would retire the name Naraja so Naraja became Buck named after General Buck Turgidson, the George C. Scott character in the movie Dr. Strangelove. 

After about an hour of talking to James about everything from the Breeder's Association to the oil bidness to the Mavericks it was time to negotiate.  I decided to head toward the barn and leave it up to Marc and James.  As I was exiting, Marc asked James how firm was the $600 price.  "Ah, hell, you can have 'em."  I stopped in mid-step.  Turned around and Marc was speechless.  James continued in a voice sounding like it was coming out of a gravel pit, "I just want him to have a good home and not go into some damn puppy mill and you look ok being military and all, so shit, you can have him."  To Buck's relief, James also waived the neutering requirement.

Marc's mom and I picked Buck up a week later and drove him to his new home.  And the guys at Budweiser had one thing right--the dog is a chick magnet.  We got stopped three times in the Petsmart parking lot.  And he is a gentleman--no running away or eating the cat.  Champions are brought up to be manhandled at dog shows since the judges do this to test the temperment according to James.

So what does the tale of Buck have to do with getting rich?  It wasn't Marc saving $2,000 or $600 by getting Buck for free.  It's all about not giving up and trying new ways to solve the problem and also getting a little mad and stubborn.  Most people give up trying after being told no and give up on  new approaches and that's why they don't get rich.  It's easier to take the easy way out, forget about saving and forget about finding that investment that will make them rich over time.  The path of least resistence is the easiest path but it's not the path to success. 

Here are specifics of the dog story and finance.

1)  Marc knew exactly what he wanted.

2)  He researched the market.

3)  He went the conventional route (the Association) but when turned down he found an alternate market ie., James.

4)  He got a little mad and a little stubborn.

5)  He found James and he got what he wanted for nothing.

We are not going to always get what we want for nothing but we can get them cheap if we follow the techniques Marc used.   

For more on perseverence see Category 6-Winning At Renting and Category 9-Buying A House for 30% Off.