The DVR (TIVO)

The DVR (digital video recorder) is an absolute must-have, life-altering product. It is really just the VCR gone digital, but so much better.

• there are no tapes. everything is saved on your hard-drive, i.e. cable box.
• it is completely user friendly, controlled by the remote.
• it allows one to pause and rewind live tv - great for the spousal interruption/nag.
• it is "smart". you easily program it to record shows automatically.
• best of all, fast forwarding allows for quicker and commercial free viewing.

It all started with TIVO, but then the cable companies all went out and developed their own dvr boxes. I have Time Warner's, it holds 20 hours of programming and costs maybe $9 bucks a month. I am pretty sure that the othe cable companies will be offering dvrs soon, if they don't already. Comcast will actually offer TIVO boxes by 2006.

Personally I would probably pay $90 a month for the dvr, it is worth that much. Let me explain via today's dvr usage.

• This morning I taped The Wiggles for my son - there is no guarantee that he is ready to watch it at 9 am. In fact that show is taped automatically for me everyday.
• I catch the tail end of a CNBC guest's commentary, I rewind and hear his whole statement.
• I tape Pardon the Interruption daily. It is a great show that many can't watch because it is on at the most inconvenient time of 5:30 pm. Since they list upcoming segments on the margin of the show, with the dvr it is easy to watch only the subjects of my interest. Also, my wife hates the show (too much screaming) and I can only watch it when she is out/busy.
• I taped the Celtics/Mavericks game. The dvr cuts my viewing time on pro basketball from 2.5 hours a game to no more than 1 hour. NFL games get cut down from 3 hours to less than an hour when I skip the commercials and the huddles. Golf viewers also benefit greatly from dvr fast-forwarding.
• I also taped tonight, Lost (a tremendous serial thriller) and Law&Order. Then later on at night I tape Bill O'Reilly. I always watch O'Reilly the next day and it usually takes no more than 15 minutes after I skip over the segments on Michael Jackson, Laci Peterson, etc.

I could go on and on about the dvr's benefits. I never miss ER by going out on a Thursday. I never have to choose between 2 different shows on simultaneously. I always have stuff to watch late at night when there is seemingly nothing on. And don't underestimate the pause button for when the phone rings or dinner is ready.

For some people, the dvr makes them watch more tv, and others will end up watching less. But everyone who has it watches tv more efficiently. The dvr's real benefit is as an unbelievable timesaver. I don't want to hear any excuses - get the dvr. It will alter your life.

What is 9 bucks a month? 2 Starbucks lattes?

"Intellectual Property Rights"

Let me just state emphatically upfront that I don't believe in intellectual property rights - at least most of the time.

The record companies got Napster shut down and now are entangled with Grokster.com, a company that gives away peer-to-peer file sharing software. Thankfully, it looks like the record companies are going to lose, as they should.

Sticking to the subject of music, I never understood the concept of music as intellectual property. They sell you a cd or a song, and then they want to regulate what you do with it. It sounds more like renting than buying. Are we really dealing with "intellectual property rights" or "the rights of record companies to maintain a profitable business"? If the record companies want to control the content they sell, then they should develop new technologies that will allow them to do so. (The IPOD is such an example, although its popularity won't last long at 99 cents a song.)

Where there is a stupid concept, such as "intellectual property rights", there is sure to be stupid, if not comical, reasoning.

A lot of people have said to me, including a close family member, that file sharing is "illegal", and that seemingly determines their entire stance on the issue. I laugh at that, because last I checked, breaking the speed limit was illegal too. At least no one has ever been killed as a result of "illegal" file sharing.

Without intellectual property rights, no one will produce content - another laugher. How many dvd's did Shakespeare sell? Who produced Mozart? Was it Geffen Records? Or Jay-Z?

All of this illegal downloading will cause artists to starve !!!!!!!!! I thought "starving artist" was a redundancy even before music went MP3.

The internet is disruptive technology. It has destroyed, created, or transformed almost every industry in the economy. Why should pop singers be insulated? If they need to make more money, then maybe they should do something radical - like go on tour.

Mutual Funds

It absolutely astounds me how few people have a clue about mutual funds. Most people rely on them for the bulk of their retirement income and yet are widely ignorant as to the basic facts of mutual funds. I have had this conversation countless times, with highly educated people no less:

Which funds do you own? Are you in index funds? What percent is in stocks? Are these no-load funds? What are the expense ratios on these funds?

Uh, em.... I am balanced. I have growth funds and value funds. I have long term stuff. I have blue chip stocks. As to the particulars, ... I really don't know.

I would estimate confidently that 90% of people, mis-invest, if I can coin a new word.

The absolute biggest mistake is owning mutual funds when you don't have to, say in a normal taxable account. In this case, one should generally own unit investment trusts or exchange traded funds. Of course your friendly broker will never recommend this because he will make zero money off of that transaction.

Yes the ETFs and UITs are mostly broader indices, but also include some industry specific indices. The reason I steer people towards the indices is simple - historical evidence. Ask any investor their time horizon and most will reply 20+ years. Research has shown that over one 25 year period, only 6 out of 10,000 or so (I think the number is higher) mutual funds outperformed the broader market. I don't know about you, but I lack the intellectual arrogance to think that I can pick the handful of funds that will outperform the market.

Why do mutual funds underperform? Excessive trading? Higher costs? Who knows and who cares. Just stick with the broader indices for the most part. At another date I will get more specific about portfolio allocation.

Question: In my retirement account, they only allow me to own mutual funds. What do I do here?

Just go with the broadest fund or two that they offer. A common mistake is to allocate to 5 or more funds, say a biotech fund, an energy fund, financials,..... Do not do this. All you are going to do is create a quasi index fund. The same goes with trying to diversify through value, growth, technology, and income funds. It is a poor substitute for just buying one broader fund by itself. Why doesn't this achieve diversification? - because these separate funds are all represented in the S&P 500. I remember a few years ago reading that Cisco was owned by 75% of mutual funds. It was considered a growth stock, an internet stock, a telecom stock, a large cap stock, etc. Imagine owning Cisco in all of your mutual funds as it dropped from 70 to 10. Many people did. (Of course they enjoyed the ride up until March of 2000.)

Lastly, if owning a bunch of mutual funds is financially equivalent to investing in the broader indices, what is the difference then?

The difference is the forementioned underperformance and FEES (or expense ratio). Consider the example below. In this hypothetical situation, a person puts away $10,000 per year into the market for 21 years.

Estimated average annual mkt return and resulting account value after 21 years.

7% -------------- $480,057

8% -------------- $544,568

9% -------------- $618,733

10% -------------- $704,027

11% -------------- $802,143

12% -------------- $915,026

Now back to the FEES. The Vanguard 500 index fund has a total expense ratio of .18% while many mutual funds have expense ratios of 1% and higher. Consider that the market annually yields around 10%, the historical average, it is easy to see that this investor will lose $85,000 (difference between 10% and 9% above) if they are paying 1% more in annual fees than the hypothetical Vanguard index investor.

Selling your house

Finally, a friend of mine took my advice and sold his house without a broker. He sold his house in 3 days for 500k, and saved himself around 30 grand by selling it himself. Last I checked, that is a lot of money.

The 5-6% "standard" real estate commission is one of the biggest sucker plays in our economy. Most people don't even realize that the commission is negotiable - it is not "standard" as agents will glibly claim. I guess the average person is preyed upon by this scam because how often does he actually sell a house? Perhaps only once so far in their life.

My standing advice is to always try to sell your own house, at least for a few weeks. The thing about real estate agents is that when the market is good, you don't need them, and when it is bad, they can't help you.

The whole real estate commission haggling reminds me of diamond ring appraisal at Macy's. Their jeweler will appraise your ring and his charge will be 1% of whatever he appraises it at!!!!!!

A dopey guy I know, took his fiancee's ring there, got it appraised at $15,000 and was ecstatic because he only paid $9,000 for it. For his ecstasy, he was charged $150. I guess a good transaction is not when everybody wins, but rather when everybody thinks they've won.

I would almost bet my life that that ring is not worth more than $7,500. HAHA.

Rising Gas

With oil hitting 57$ a barrel, gas prices have been percolating up to $3 a gallon in Malibu, California. It is worth noting that the national average at this time is lower, $2.10 a gallon. Gas is always higher in California because they have stricter environmental regulations on gasoline that differ from surrounding states. So when california gas stations raise prices, it is almost impossible for gas to pass over the borders and push prices back to national levels. Should anyone feel bad for Californians? I don't think so. The electorate voted in these self-taxing regulations.

CBS highlighted the pain of escalating gas prices through this poor soul below.



According to CBS, this man is "forced by economics to drive up to five hours a day" to his job in Malibu since he supposedly "can't afford to move closer to work" and "can't work closer to home," so he "sleeps overnight on a cot in his office."

HAHA. That is one cheap bastard. Is it really "economics" or some type of cerebral deficiency that forces this man to presumably commute 2.5 hours each way to work?

Piling on Harvard

Some entrepreneurial Harvard undergrad started a room cleaning business called Dormaid. However, Dormaid was lambasted by the Harvard Crimson (student newspaper):

"....is a cleaning service that allows students to avoid the perennial problem of dingy, smutty, questionably-habitable rooms. But as appealing as the thought of a perpetually tidy room may be, (independent of family visits), Dormaid could potentially mess up as many rooms as it cleans. By creating yet another differential between the haves and have-nots on campus, Dormaid threatens our student unity."

"There are already plenty of services at Harvard that sharpen the differences between socioeconomic classes......some students pick up clean and neatly-folded clothes in crackling plastic bags. The less well-off among us, however, make semi-weekly journeys to the basement with bulging mesh laundry bags and quarters in hand. These differences extend to the social sphere as well—to final clubs composed predominately of wealthy young men, or to basic activities, like eating out, that some students cannot afford to enjoy..."

I had to underline the funniest part. I never realized that by dining out I was actually offending the famished poor. But wait a minute, I thought the poor in this country were obese? But I digress, that is a ripe subject for another time.

Back to Dormaid. One blogger wrote,

"Oh, those silly little Harvard liberals. Now they want to play communist make-believe! Isn't that cute?",

followed by,

"Well kids, if you're ever in need of student unity, just remember that you're all a bunch of f*cking nerds. That should help."

That may be a little harsh, but it is definitely hilarious.

Worldcom, etc.

Bernard Ebbers was convicted last week and is almost definitely going to jail for a long time. The real problem with the Worldcom debacle is not the lost money or lost jobs. The real problem is how economic illiterates, be they politicians or pundits, interpret such events. They constantly highlight the Enrons, Worldcoms, etc .... as examples of corporate treachery. In this they are correct, these companies were clearly complete frauds. Where the econo-illits drop the ball is on inference. By one count, there are 14,000 publicly traded companies. To use 10 (at best) bad apples to indict the other 13,990 corporate citizens is logically vacant, to say the least.

Yet this is what happens on a daily basis, and the ramifications have not been good. Sarbanes-Oxley, the rotten fruit of the econo-illits, has added billions in annual legal costs to public companies. So while politicians and lawyers delight at having added another legal hurdle to our already overly regulated and litigated economy - once again the average American loses. Along with the higher legal costs of compliance, fewer talented executives want to run public companies, many public companies are going private, and fewer promising companies will wish to go public.

I don't see how fewer public companies with weaker managerial talent is at all good for the average American investor.

10 offenders out of 14,000 - I would say that the free market was already doing a good job of sniffing out frauds.

Bankruptcy Reform Bill

Almost passing under the radar this week is a bankruptcy reform bill in Washington. I am not on top of the details of it, but I am pretty sure that it makes it tougher for individuals to file bankruptcy, and has been derided as a gift to the credit card issuers. In a very entertaining rant, Ted Kennedy decries that this bill will increase the credit card industry's profits from 30 billion up to 35 billion dollars per year.

As I prefaced above, I don't know anything about the bill, but I am quite knowledgeable about asinine economic theories. For the sake of argument, I will assume that Ted is absolutely right, that this bill is a windfall for the credit card industry. SO WHAT !!!!!!!!!!!!!!

Five billion more in annual profit for widely held public companies? What is wrong with that? Applying a market multiple of 15 to the increase in annual industry earnings, equates to a 75 billion dollar increase in shareholder equity. Who wins here? How about the over 50% of households that own equities and the 100% of pension funds that own them. And these credit card companies, flush with more money, maybe they will hire more people and/or raise the wages of their employees. Is this what Ted is against?

I have read that bloggers on both the left and the right concur that this is a bad bill, I just hope they have better reasons than the simpleton Ted Kennedy.

What would Ted tax if there was no profits or income?

Hello and Welcome

There are many blogs in cyberspace now. It costs nothing and almost anyone can start one. When pressed to name my blog, I settled on Marginalizing Morons. It is alliterative, somewhat catchy, but by no means topically exclusive. This blog will have no boundaries. I will endeavor to be both informative and very funny, an unnecessarily rare combo. When I am wrong, I will admit it. And when I am not funny, you don't have to laugh. I am thick-skinned and love a good dialogue. So please feel free to comment, criticize, or even agree.