Finance

Out Liars

/ Sex Health Money Death / 13 Comments

Anyone can do it. The American Dream. The glory of Britain’s new meritocracy. Isn’t it all true? One of the perils of reading the financial press, or exposing your brain to any of the mainstream media, is that you begin to believe the hype (and the misery, as The Escape Artist points out this week in his blog). When it comes to business, the message is that you too could become the next Alan Sugar, Duncan Bannatyne, Michelle Mohan. You could build a business from scratch into a multi-million concern. They’ve done it, you could too. What’s stopping you?

The Barely Acceptable Face of Capitalism

The Barely Acceptable Face of Capitalism

I was recently flicking through the pages of Moneyweek when I saw a profile of “The Reluctant Barista Who Made a Million”, Sahar Hashemi, co founder of Coffee Republic. It wasn’t quite a “rags to riches” tale, signified by the fact that she attended City of London School for Girls, but I read on. Seemingly, she’d  had the idea for her coffee shop on returning  from a trip to New York (as you do) and was unable to source the skinny lattes she enjoyed so much in the Big Apple.

So she set up a coffee shop, and quickly opened more with the funding help of an “angel investor”. Seemingly the banks wouldn’t lend the money needed to fund the expansion. No wonder the banks passed on the opportunity. Coffee shops are notorious business quicksand for anyone trying to make a buck. Just take a quick look at any local businesses for sale in your area. The money you can make from even a relatively successful one isn’t good. The money you can make from fifteen, in London, in the right areas, well, that’s a different story.

So who was the “angel investor”, I wondered? I nipped onto Google to find out, largely because I was beginning to smell a rat. My friends run a coffee shop. It does okay, but it’s only borderline profitable and they work like demons to keep it going. Would an angel investor step in to help them with a £600,000 injection for expansion? My arse they would.

My quick Google search revealed nothing, so my suspicions heightened. Who did she know? An old school friend, perhaps? A friend of the family? A helpful business associate from mummy and daddy’s network? Where were the connections that brought about a 600k investment? In a coffee shop?

Sahar Hashemi is now an OBE and is held up as an example of British entrepreneurship. I don’t really want to knock what she has achieved because she’s clearly good at what she does. So are many of us though, but not all of us get the breaks. I hadn’t heard of her before I read this article, but I had heard of Alan Sugar, Duncan Bannatyne and Michelle Mohan, people who really did build businesses from nothing, with no connections other than to hard graft. Why have I heard of them and not Sahar Hashemi?  Perhaps it’s because these are the aspirational role models the media like us to focus on, to show us that “Anyone can do it” in modern Britain. Yes, true, in the same way that anyone can win the lottery. Mind you, if you can buy six hundred thousand tickets, instead of one, you have a better chance.

The media don’t want the masses to focus on the real back story to a lot of business success. Networking. Connections. The right schools. Who you know, rather than what you know. Why? Because many of the owners, proprietors and directors are from that background themselves. They’re happy to let one or two “normals” slip through the net to keep up the pretence that we’re a meritocracy, as long as the majority of the ranks of highly well paid executives are peopled by their own.

If you’re interested in looking further into this, try reading “The Establishment” by Owen Jones. No, I can’t be bothered with his left-wing posturing either, but his book gives you a glimpse into how the real world often works in Britain today.

The other big factors influencing success is being surrounded by some great people, being in the right place at the right time and having some lucky breaks. There are very few entrepreneurs, however, willing to champion these factors as explanations for their success. Generally, it’s all down to them. Malcolm Gladwell wrote a book exposing the fallacy of individual entrepreneurial flair, “Outliers“, which is great if only because ego-mad entrepreneurs hate its conclusions (for example, read Peter Thiel’s book “Zero to One”. It’s clear that Thiel hates to think his success as a Silicon Valley Billionaire can be down to anything other than his own greatness, and he takes a few paragraphs to have a proper go at Gladwell’s book.)

The more we question and poke what the media tells us about “business success” the better and more realistic we will become. “Anyone can do it”, maybe, but the more information you have about the real world and how it really works, the better chance you’ll have.

EBITDA

/ Sex Health Money Death / 9 Comments

Why is it, to normal people (or to me at least) that financial terms seem to be so obscure and intimidating? Acronyms are everywhere. Just off the top of my head, and while my memory of excruciating corporate Board meetings hasn’t yet faded, may I list in no particular order, EBITDA, ROI, ROCE, POR, SKU, NSV, NNSV ….. and so on. Then there’s Cash Flow versus Free Cash Flow, I’ll talk gross margins but you’ll talk net (nett?), or net net (nett nett?) and how are you defining “profit” anyway? Even relatively simple terms, like does a “creditor” owe you money or is it the “debtor” that does, can make me question the fundamentals. I could go on, but already I’m losing the will to live.

The Depreciated Macbook Heading to ebay

The one concept that I liked, and used in my own finances, was depreciation. The way I used it was like this: I bought an Apple Macbook for £1,000 cash. I decided it would last me five years, so each month I “depreciated” it by direct debiting £20 a month into a savings account and forgetting about it. Five years later, I had accumulated the cash pile to buy a brand new Macbook (and I flogged the old one on ebay as a bonus).

It almost goes without saying that the trick to using positive depreciation is to have the cash to make the capital investment first. So saving money is the priority.

I could well have done with being educated this way instead of how I actually was – borrow the money and pay it off with a “Hire Purchase” agreement. As I write the term “Hire Purchase”, I’m struck by the sneaky wording. It actually sounds like quite a positive thing. Much better than “Stinking Debt Repayment” or something similar.

It took me the best part of thirty years to learn about the real difference between credit and debt. I think this is because that my first experience of Hire Purchase was a positive one. Without it, I would never have been able to buy my first racing bike, a Raleigh Shadow, purchased from Halfords when I was fifteen years old. It cost seventy five quid, a figure well beyond me and my folks at the time. It was with a sense of awe that I discovered Halfords would let me buy the bike “today” and pay it off later at the sum of £1.25 a week, which I earned delivering papers. It’s hard to describe how this option suddenly transformed my view of how people could afford things. “Debt” wasn’t one of the words that occurred to me. All I was focused on was the fact that I could have the bike now, right now, the object of my heart’s desire that had seemed an impossibility before.

In fact, thinking about it, there was a positive aspect to the debt – I took it without question that I must pay it off. This underlined to me that I would need to work and keep my job in order to pay back Halfords who I actually felt quite grateful to for giving me this option. I’d put the cart before the horse, of course, and had been encouraged to do it, but that’s not how I viewed it at the time.

I was also lucky in that I didn’t have much else to spend the money on at that age. I do remember that the weekly payments took the majority of my earnings and that I actually had to visit the Halfords shop every Saturday to make them. I had a little card that was filled in and signed by the shop assistant each week when I made a payment. (Ye Gods, even to me that sounds like Victorian Times compared to our computerised era. It was only the Seventies!)

Anyway, at least in those simpler days I had only that one financial acronym to deal with, “HP”, and I understood the deal. If only I could say the same with confidence today.

Dark Anxiety

/ Sex Health Money Death / 12 Comments

Why is it oldies drive really slowly and carefully? Surely they have less to lose? They’ve had a good innings, so why not enjoy what’s left, careen around town like Lewis Hamilton while snorting crystal meth and burning rubber at the traffic lights?

But, it’s true, the older you get, the more cautious you become. Like approaching the edge of a high diving board you know you are going to have to jump from, you begin to walk a bit slower, trying to find an alternative to making that leap. Just a few more minutes, please, while I enjoy the view from up here!

dark anxiety

Self Generated IFA

As I grow older, I notice that I am becoming increasingly risk averse and more prone to seeing shadows where before the road ahead was bathed in sunshine. It’s rather annoying, and fetters my decision making as doubt clouds my outlook. In many of the FIRE blogs, I see us talk a lot about goals and objectives, plotting our future direction and trying to get the best odds to favour us. Behind us rides dark anxiety, the risk of loss. Unfortunately, over time, he’s gaining ground.

About fifteen years ago, I bought around ten grand’s worth of shares in Scottish Telecom (renamed Thus in those trendy dot com years). I did this based on the recommendation of a consultant I knew who was working there. “You can’t lose on them Jim, it is buying money”, he told me. Two years down the line and I had lost nearly every penny. At the time, I shrugged ruefully and put it down to experience. I’d just have to save the cash and try again because the next bet might quadruple my money. Nothing ventured, nothing gained.

I know this to be true, because that’s what I was writing in my diary at the time. I was charging forward into the future, confident that things would turn out right in the long run.

I look back on those years now in sheer horror. What was I thinking?!! If I had only stuck that ten grand in an index fund, it would now be worth…no, I can’t face it! And Thus was only one bad bet I made. I lost cash on quite a few others too.

At the same time as I work through my contemporary horror, I do admire and respect that attitude and confidence I had, underpinned by the time horizon I was working to. Retirement was so far away I could afford to make some mistakes and I wasn’t frightened or intimidated by the future. These days even passive investing looks extremely risky. My index funds, since the start of the year have lost….oh, you don’t want to know. I don’t want to know! If only I had converted some of them to cash, like I thought about at the turn of the year.  Maybe just ninety five percent of them, something like that. The other five percent, I could have risked.

I jest, of course. I accept that risk generally equals reward and that’s the deal we’ve signed up to. None of us, aiming for FIRE, are going to be able to do it by stuffing our cash under the mattress. Unfortunately, none of us can advise anyone else on what constitutes a risky approach to generate the best return, because the infuriating answer to that question is “It depends”, closely followed by “It’s up to you”.

So if I could hop Back to the Future to 1999, what would I tell myself to do with that ten grand? You know, I can’t help but think I’d tell myself to Damn the Torpedoes and have a punt. Despite those financial setbacks, I did learn from the experience: I subsequently read up more on investment strategies, I learned about asset allocation, and I realised that I wasn’t the type of person to gamble on individual shares. I became a better investor (for me) perhaps more quickly than I would otherwise have done – and finding out more about yourself is the one Never Ending Lesson on the road to FIRE.

Spending Capital

/ Sex Health Money Death / 9 Comments

One of my favourite financial journalists is Merryn Somerset Webb who writes the editorial for Money Week magazine. This week, she stated the following:

“It is hard wired into the UK financial brain, rightly or wrongly, that capital must not be spent – only income can be spent.”

She’s right, but I need to adjust this wiring. Although I’m not a big fan of being as transparent on my finances as some of my fellow bloggers seem to be – and I kind of admire them for it – I will make this admission: in order to retire early with the lifestyle I want, I need to pretty much burn up my capital reserves between now and 65. (At 65, a combination of a generous defined benefit pension scheme, my other half’s DB pensions and state pensions all kick in. I also think my expenditure will be way lower as I head into my late sixties. No more cocaine parties at that age.)  

So, I’m looking at spending, over the next fifteen years, what some other people may call their “life savings”. Well, if they are “life savings” shouldn’t they be used to enjoy life? I’m heading off on holiday soon and am resisting trying to bite my lip over the money I’ll be spending. Shouldn’t I be sitting hoarding that cash as a protection against potential future penury? Accumulating the interest?

I heard Dave Ramsey on a podcast the other day advise a caller as to how to build his savings to a point that he’d accumulate over five million dollars in his bank. At that point, the caller would be 85 years old. Well, I hope he farging enjoys it at that age. He can buy a gold plated zimmer frame. More likely, as an American, he can continue handing it over to medical companies to manage his incontinence. I mean, come on, what exactly are we saving for? Repeat, You can’t take it with you. Yes, you can give it to your heir(s), but is that sensible for them, never mind you? My wife and I will inherit pretty much zero financially from our parents and so what? You could argue that this knowledge spurred us on to make a financially secure life for ourselves. Having our parents around was all the “reward” we needed from them. We’ve made our own way financially in life, and so should our offspring.

This financial bravado takes me only so far, all the same, because I AM as hard wired against spending my capital as much as the next miser. It’s hard to change the habits of a lifetime and, even when I don’t know exactly what I’m saving for, I still like to save! The pain of cashing in investments just to live from month to month is almost physical. As I push the heavily reluctant mouse to click “Sell” on the Fidelity web page, it takes a massive effort of will to do it. I hate the thought of doing this going forward on a monthly basis, I really hate it. In fact, I hate it so much, I spend a lot of retirement time figuring out how to go back to work and earn money! Even though, rationally and logically, I don’t think I actually need to. But my hard wiring seems to be a lot more hard wired than I thought.

Spending Your Pennies

/ Sex Health Money Death / 11 Comments

I noticed this advert on Twitter this morning and it struck me that there are several leitmotif images about retirement that many companies reach for when trying to attract prospective pensioners with their cash.

Did You Pack the Preparation H?

Two Portaloos Ahoy!

Firstly, there’s the inevitable scene on the beach. After all, that’s where all pensioners want to go. In real life, you tend to see them huddled in their cars at the coast, sitting staring silently out at the horizon instead of running laughing along the sands. They have a flask of tea and a tupperware box with a cheese sandwich in it, instead of just exiting the champagne and seafood bar, as the pictured couple might just have done.

Blue, almost cloudless skies (there have to be some clouds, this is old age and retirement we’re talking about) frame the scene, but it’s difficult to tell if this is Corfu or Cornwall. It’s certainly not Cromarty, where the rain would be lashing in horizontally from the sea. The Blackpool Tower is also noticeable by its absence, so draw your own conclusions and paste your own geographic dreams onto the beach

The second thing that makes me question if this is a typically British retirement couple is that they look quite cheerful. Nay, joyful. You wonder what news they’ve just received? Is it that David Cameron has blown up the Channel Tunnel? Is it that their forty year old son has finally moved out their home? Or perhaps they’ve discovered they won’t have to contribute to their grandchildren’s school fees? Whatever, it’s clearly news that would cheer up a middle class couple who have a private (Charles Stanley) pension to live on. A state pensioner can forget the beach, unless they’re trolling it with a metal detector hoping they might find a pound coin.

In many of these ads, women take predominance, underling the position that old men are basically pretty useless. The pressure seems to be placed more on the woman to make the most of retirement – it’s the globetrotting grannies and the skydiving seventy year old great aunts that we tend to read about in the papers. The woman will take the lead, the man is in the background. Old blokes as pensioner role models? Not in the adverts, unless they’re pottering around the garden or selling constipation relief. I feel that men only have themselves to blame for this and that we need to take a more positive and energetic approach to our retirement instead of seeing Victor Meldrew as an aspirational figure.

Where is the mobility scooter in this picture, you may ask? I did. Last time I was at the coast, I made a mental note to look into which companies built these things so I could invest in their shares. They were everywhere. I’m not sure I can recall seeing an advert for a mobility scooter though. Bad health is a difficult sell and, if you have your pension with Charles Stanley, that’s clearly not going to be YOUR future.

What else is missing? The Portaloo, of course. For an elderly couple to be having this much fun on a beach, there has to be a vacant toilet somewhere just off camera. To paraphrase for a pensioner, if you can see a loo it means you’re about to pee, if you can’t, you’re peeing.

All in all, the above advert is, for me, an absolute incentive to retire as early as possible. The time to be running joyfully along the sands with a big smile on your face is now, while you still can.