Dec 19, 2018

Revitalizing a Rural Economy

Much has been written about the problems of our economically distressed rural areas. The reality is that many of the reasons these communities were developed - agriculture, mining, forestry - although still important industries, have dramatically reduced their need for labor. 

I grew up in Ishpeming, a small city nestled in the gorgeous Upper Peninsula of Michigan, surrounded by amazing waters and forests, with four striking seasons that rotate from beautiful summers and falls to frigid cold and endless snow. It was once booming with its numerous mines.

But I've spent decades watching this wonderful city deteriorate economically, and I understand why: The same mining industry that brought my relatives here from Finland and Sweden now operates on less than a quarter of the labor required to produce the same amount of iron ore.

However, I am very familiar with one idea for helping many of these rural areas, and that is the domestic version of offshore software development. It goes by various names, including onshoring, domestically sourced IT, domestic outsourcing and rural outsourcing. Regardless of name, it's a relatively easy concept that works.

Unlike most jobs from a few generations back, software development does not require people to work in proximity to each other. For a variety of reasons, the cost of living in rural areas can be half or less that of an urban area. 

Somewhat surprisingly, it is not difficult to find highly skilled technical people like myself who are very happy to leave an urban life behind and live in a rural community. Economically, this is a win-win for clients and communities. Not surprisingly, this concept is catching on across the United States.

So how is this done? The simplest way is already widely done across the country, and that is securing a telecommuting arrangement with an employer and moving to wherever you want, provided it has high-speed internet access. With a phone and a laptop, you have most of what you need to work.

However, few will take this risk, and need a more structured environment to make this change. This essentially is a company that finds clients that accept remote software development and software engineers to work for them. 

Getting from a single telecommuter working out of a spare bedroom to a large organization with dozens or even hundreds of highly skilled technical people earning high salaries in rural areas takes more than a few steps. Let me share my experiences in this area.

The initial problem, as in many startups, is getting launched. The first decision is where to locate. This may be easy because, like me, you may have once lived in a rural area that has broad appeal to many, such as a tourist destination. You probably need some sort of small urban anchor that can provide families with the basics of modern life, such as retail, services, education and healthcare.

So how to start? My standard answer for several young techies wanting to jump start their moribund metro life in a Dilbert cube is to rent a large home in one of these areas, and all live and work in one place. That is, return to their college dorm days.

Most likely at least a couple will be able to get their current employer to agree to let them continue their employment as telecommuters. However it is done, the idea is to accept a period of hard work and low income, not so unusual with a new business.

From here, it's critical to name yourself, put together a marketing plan, keep expenses and rates low, and build a foundation to survive in the somewhat turbulent world of consulting. Marketing starts with a website and a LinkedIn company page. 

Then move onto Twitter, Glassdoor, Indeed, Facebook and other social connections. I suggest you don't end the day without someone posting something somewhere that has your name and what you do on it. Monitor and grow connections to your LinkedIn company page. This is all critical even when everyone is working "60-hour" work weeks because eventually you will need more clients and workers.

A word on expenses. Your competitive advantage will always be price, so never abandon this. Make sure any potential client knows that you are "30-50% off metro rates," and make sure that you really are. Otherwise, you are just another bunch of techie prima donnas who at best are somewhat better than the millions of other IT workers that are much more accessible than you are working from some mountain hut. 

And don't fool yourself into believing you can be just as effective working remotely. All things being equal, it is almost always an advantage to have people working in proximity to others. Both communication and relationships are easier and better. But organizations will often gladly put up with your work-style inconveniences if they can significantly cut their costs.

The concept of offshoring originated outsourcing the Y2K fix to cheaper emerging markets such as India. These countries have remained strong competitors in US software development, and rural outsourcing will continue to compete with them. To some degree, you will always find your pricing sandwiched somewhere between them and Silicon Valley.

But foreign resources have several of their own problems, such as language, culture and time-zone barriers, plus sometimes legal issues with foreign services. These all present opportunities for the rural outsourcing firm.

One misconception of low-cost rural organizations is that people are glad to give up the financial rewards of urban life in order to life a substandard life in a rural environment. This simply need not be true. Even with significantly lower rates, employees working in a rural environment, from a cost-of-living perspective, can easily earn as much or more than high priced urban areas.

From the start, it is important to structure your environment so that it works regardless of location. Connect everyone electronically via cloud services, including your phone system, email, documentation, company systems and software development tools. Everyone should be able to move to another location and your company should function well.

These disciplines will ensure that you are as virtual as possible, so that people and clients can literally be just about anywhere and your operation runs as seamlessly as possible. These steps will all help compensate for your big negative: You are geographically located in an inconvenient area.

If you start with a couple of developers supporting a couple of clients, it doesn't take much for you to need more help. This can be tricky but eventually you will learn that there is a strong cadre of people that are very interested in migrating out of a city. Online advertising, a LinkedIn company page and social networking are critical in getting these connections developed before you need additional workers.

You will find that hiring into a rural community is very different than normal hiring. Your pool of resources is probably not nearby. Further, your first challenge is less about finding a specific skill and more about finding an individual who wants nothing more than to live in an area like yours. And to make things more difficult, these individuals may not even be aware of the opportunities you offer.

Therefore, posting ads and searching online databases probably is not going to help you much. Instead, you need to get your name out into areas where individuals you seek may live, realizing that these individuals may not have even considered the opportunities that you are offering. You also may find yourself hiring great raw material that you then train into your particular technical skill-set.

But once you develop a network to proper areas, you will find people who already understand that urban salaries can become play money when a basic house with barely a yard sells for a million dollars. They are looking for a sense of security and a set of basic benefits, such as access to healthcare, paid time off and a 401K. But otherwise, you may not need to sell yourselves as much as you think.

Since your costs will be significantly lower than what your clients normally pay, if you market yourself properly, there is almost unlimited work available in software development, and your growth will probably be limited most by your ability to secure resources. That is why recruitment is so important from the start - by the time you need the people, you may not be able to find them. But eventually you well may be able to build an organization with scores or even hundreds of software developers.

Once a structure for formal telecommuting is in place, the same model can work in other IT areas besides software development. We have expanded into business analysis, quality assurance and project management. Other avenues to consider are database and system administration, plus other areas outside of technology, such as engineering, that can also be done using the same concepts.

And because you have establish an environment that works regardless of location, you may find yourself able to hire people that telecommute from other low-cost areas. We have had people working remotely for us in six different states from coast-to-coast. Depending on the area, they may be seeds to a whole new set of resources.

If you have any questions or are interested in additional information or help in engaging in this area, feel free to contact me via this site; or Twitter, LinkedIn or Google via JonJosephA.

Sep 16, 2018

A Low Cost Investor

We hear repeatedly that the best returns are generally found with lower cost firms and financial instruments. Over twenty years ago, I accepted this mantra and opened an account with Charles Schwab. I was intrigued by their low cost indexed mutual funds, the vast amount of information they then would mail me, and their mostly zero account fees.

Fast forward and now there are multiple brokerage firms, including Schwab, that often charge nothing for maintaining an account, close to nothing for an exchange traded fund and often nothing for a trade. 
They charge me nothing for my bank account, nothing for my American Express Credit card (with a 1% cash refund) and nothing for new checks. All fees for cash withdrawals from any ATM world wide are refunded. They also charge nothing to trade and hold US Treasuries.

One day I realized that I could put all of my wife's and my money into a couple of low-cost stock and bond ETFs, and a basket of individual stocks and Treasuries, and it would incur very close to zero fees forever.

We now have most of our life's savings with Schwab, and I have wondered to myself, if they charge so little, how does a firm like Schwab make its money from me? So I walked through all of our Schwab accounts and their transactions from the past twelve months. Here is what I found. 

First, Schwab probably does not make much money from us. Much of our money is in very low cost ETFs, plus some international and bond funds that charge a little more. All of our funds in total have an annual fee of about .12%. I also made 6 trades during the year at $5 apiece.

Second, they do get some significant money from us through their bank. We averaged a bank cash balance of $6,000, which they loan out to others and pay us almost nothing in interest. We also have a home equity line of credit that incurs about $2,000 a year in interest.

Further, our overdraft account ran up $200 in interest. Although we get cash back on our credit card, Schwab has surely received something back from the tens of thousands of dollars we charge on it.

I reviewed Schwab's 10-K report and found that they make half of their money from their banking operations, which is consistent with where they make their money from us. The rest comes primarily from asset management and brokerage administrative fees, their next source of money from us. Finally, less than 10% of their revenue is from trading, where we provide them almost no revenue.

Being one of the lowest cost operators in the industry has made Schwab one of the largest brokerage firms and banks in the country. And they did it primarily by providing great products and services at a very low cost.

So, no, Schwab does not receive a lot of revenue from our investments, but at the same time, it doesn't cost them much to hold them. Low-cost, online investing is primarily a rich set of software that automates what was once a labor-intensive manual process. 

When I sign onto their website to either get information or to transfer money in or out of accounts, funds or financial instruments, this all happens electronically. The incremental costs for any of these actions are close to zero, regardless of how much money is transacted. Software doesn't operate differently whether transacting $100 or $100,000. Once software is running, your investments are reduced to bits on a disk that are either on or off.

What does it mean for my wife and me? It means that we retain nearly all of our investments and their gains, one of the most important figures to consider when investing. Compare this with many funds and services that normally charge 1-2% of your investments, regardless of how they perform, and hedge funds that normally charge 20% of gains.

Low-cost, online brokerage and banking services are one of the great wins available to all from the past couple of decades of technological advances, and make available to the lowliest investor amazing opportunities at close to zero cost. Yes, it's for real. And it works.

Jul 16, 2018

A Brief History of the Metric System

From Quartz Obsession, Jul 14, 2018

1215: The Magna Carta declares that there should be national standards for the measurement of wine, beer, and cloth.
1678: Anglican clergyman and philosopher John Wilkins publishes An Essay towards a Real Character, and a Philosophical Language, which proposes a universal language and system of measurement, based on units of 10.
1790: The National Assembly of France drafts a committee to establish a new standard for weights and measures that would be valid “for all people, for all time,” in the words of mathematician (and revolutionary) Marquis de Condorcet.
1799: The distance of the meter—named after metron, the Greek word for measure—is fixed at 1/10,000,000 of the length between the North Pole and the Equator, arrived at after two French surveyors spent six years measuring the distance between Dunkirk and Barcelona, which was used to calculate the longer distance. A platinum bar officially one meter long is cast.
1840: The metric system becomes compulsory in France.
1875: Seventeen nations (including the US) sign the Treaty of the Meter, creating international bodies to standardize weights and measurements worldwide, according to the metric system.
1975: US president Gerald Ford signs the Metric Conversion Act, declaring the metric system the preferred (but voluntary) system and establishing the US Metric Board, to speed America’s conversion.
1982: US president Ronald Reagan dismantles the Metric Board.
1999: Mars Climate Orbiter, a $328 million satellite, disintegrates over Mars because software produced by Lockheed Martin, the contractor, generated numbers in the English system instead of the metric system, as specified by its agreement with NASA.

Jun 12, 2018

An Amateur Investor's Worst Investments

Jason Zweig recently wrote, "If I had to write one sentence that is true always and everywhere, it would be this: Smart investors did stupid things again today." He was referring to Michael Batnick's new book, "Big Mistakes: The Best Investors and Their Worst Investments."

 Mr. Zweig then reminds us that making mistakes with your money is normal, human and hard to avoid. I will add that making mistakes in life is normal, human and impossible to avoid.

So I asked myself, what stupid money mistakes have I - an amateur investor - made? Here they are.

While vacationing in Alaska with our family a dozen years ago, I learned about the Pebble Project across the bay from Homer, Alaska. It's a mostly uninhabited area of Alaskan tundra that claims to be the "most significant undeveloped copper and gold resource in the world." Northern Dynasty (NAK) is the Canadian firm that owns the rights to its minerals.

Copper is critical for electrical wiring and eventually we'll need this copper, I argued. I purchased a significant amount of its stock over several years, not appreciating that the Obama administration could block the mine, which it did. The stock eventually dropped to 32 cents/share, about where it is today. I've lost 75% of my money while the S&P 500 has more than doubled (including dividends). The mine may still be developed but this was a bad investment.

I purchased USG Corporation (USG) fully aware of its asbestos liabilities, believing that a strong balance sheet could beat the courts. The courts won and in twelve months I lost 80% of this investment. Ironically, one of my first stocks I purchased was Manville Corporation, where I also lost most of my money due to the same asbestos lawsuit.

In 2007, when the real estate collapse was in full swing, I purchased Thornburg Mortgage REIT, seeing it as an opportunity to buy low. Six months later I got out after losing 86% of my investment. It soon went to zero. I didn't appreciate the severity of the coming Great Recession.

For years, I have had a probably unfounded belief that Mexico is a great investment. My argument goes something like this: they have a capitalist and growing economy, a functioning democracy, a young population and a northern neighbor that likes to spend money. They also live mostly outside the commodity/manufacturing yin-yang between Brazil and China.

Over the past dozen years, I've invested in a dozen Mexican companies and still have six of them. They have not done well and a few have been disasters, including Cemex (CX) and Empresas ICA.

Maybe I shouldn't trust places like Mexico but I seek some risky investments, believing they can also give great returns. And if the investments are uncorrelated, in total they needn't be that volatile. I have a similar faith in Russia and India. I may struggle with them but not much more than I do financial organizations, cash, bonds and China. And I often struggle with indexes, too.

My all-time failure is Peabody Coal. At the right price, I saw them as the no-brainer company that sells virtually unlimited cheap energy to a world that seeks a modern life. Eventually their stock reached a good price and I bought it three times on its way to zero. I missed the impact of shale natural gas, which mostly did them in. Peabody (BTU) has never stopped mining coal and remains the world's largest private coal producer.

Losses hang in the air much longer than the quiet gains of, for example, US broad index funds that have gone up four times in less than ten years. Looking through two decades for the big misses, I am surprised how few I have had. Not because I'm cautious or lucky but because in the long haul, most investments work out fine, some better, some worse.

If you avoid fees and trading, stay close to a set allocation, keep your eye on the big picture and largely ignore the sometimes painful noise underneath the covers, investing should work fine, even for an amateur.

Finally, note that big investment mistakes can be papered over with big wins. That's not so true in life where a big mistake can have serious consequences. This is largely why your emotions that are so useful in most of your life are often not of much help with investing.

May 8, 2018

A Church in Finland

For Christmas, my wife bought me a subscription to My maternal grandparents were born in Finland and my paternal great-grandparents in Sweden. So I set off to learn a little more about where I came from. I didn't expect this to be the start of a Great Adventure that will not end.

It didn't take me long to find several Swedish 5th great-grandparents, including Nils Jonsson, born in 1691 in Ostra Boda, Sweden. At the other end, I also located several distant cousins in the U.S., many that I remember from when I was young, a flash back to a world so long ago.
Old Church of Isokyro

But I wasn't prepared for what I found in Finland. My maternal grandparents immigrated separately to the Upper Peninsula of Michigan around 1902 when they were about 20. They married and brought up ten kids in the hovels of Ishpeming, my hometown. My grandfather and later my uncles worked underground in the iron ore mines. 

I heard endless stories of life without plumbing or central heat, sleeping three in a bed, living off poached fish and deer. But even with the deprivations, they all made it to adulthood, all held reasonable jobs, all married and only one divorced. Together they had 27 kids, nearly half of whom completed bachelor degrees. Not bad for grandparents who never spoke English.

I found 2nd great-grandparents from my grandfather's side. I discovered that he wasn't born John Wuorenmaa, as I had I always known him. He was born Juho Kustaa Vuorenmaa and anglicized it when he arrived in the U.S., a common immigrant practice.

On my grandmother's side, though, I discovered 34 great-grandparents going back twelve generations to the 16th century. For those twelve generations, they mostly lived and died in and around Isokyro, a small village thirty miles inland from Vaasa on the west coast of Finland, on the Kyronjoki River. It's not far from where my grandfather and his family lived in Kauhava. I suspect the records of these twelve generations (and more) come from the Old Church of Isokyro, a massive grey stone church built in the early 1500s that is still standing. 

At this time, Finland was governed by Sweden. Presumably my relatives were peasants living generation after generation in the same small area, probably engaged in farming and fishing, with not much changing through dozens of decades. Eventually, Russia took control from Sweden and before Finland was freed to be their own country, my grandparents had relocated to the U.S. 

This was part of mass migrations from this area due to a lack of jobs and Russia's repressive attempts at Russification of Finland. Still today, 16% of the Upper Peninsula is Finnish, with some small townships approaching 50%. I've heard that the U.P. has the largest concentration of Finnish people outside of Finland. Ironically, two generations later, I immigrated to Minnesota due to a similar lack of jobs.

Most of my life, I've heard about premodern life without medicine, electricity and cars. But now it's more than some esoteric discussion. I have the names, birth and death dates, and towns across centuries where half of my DNA comes from. Maria Bertilintytär ("Bertil's daughter") Kiikka was born June 1, 1725 in Isokyro before the U.S. was established, and died there at age 74 on March 16, 1800. 

Which was another shocking revelation. Yes, many died before reaching adulthood but if you survived long enough to procreate, at least my relatives lived to a median age of 64. Contrary to impressions given by life expectancy data, centuries ago even peasants apparently did not normally die of old age at forty and some lived to eighty.

Walking through generations of my ancestry, I'm struck by some aspects of life. First, people are born and die at a time and a place, and they are given a name that remains a fact regardless of whether it is changed (which they are for more reasons than marriage). Second, marriage and children helps in giving one a place in life's book, which is the closest to immortality many of us will get. 

Finally, most of the rest of our lives - our thoughts, work, accumulations, successes and failures - are lost behind the amazing fact that we have been part of a DNA chain that's still alive. My wife and our three kids are by far the highest priorities in my life. As they should be.

Also, when I envision the life a dozen generations of my ancestors lived in Finland over hundreds of years, I'm also aware of some similarities. By choice, I live in a geography and climate that is very similar to where they lived. By choice, I live in a smaller urban area and we have a vacation home in a small rural community north of here.

We have a garden with asparagus, lettuce, beets and peas. We regularly hike in the surrounding boreal forests and I still occasionally hunt and fish. And although we have central heat, Internet and SUVs, we live a somewhat minimalist life focused on experiences, nature, relationships and simpler pleasures. Finally, like my ancestors, we are involved in a church that, unfortunately, will probably not be around in half a millennium. 

So where next? I'm not done flushing out my maternal grandparents. I'm trying to solve why one lineage in this same area ends so abruptly (I suspect an incorrect name translation). Then I intend to do the same look at my Swedish lineage. A cursory look through my wife's relatives gets me back at least two centuries into Norway, Ukraine, Switzerland and England. When I'm comfortable with my findings, I will share them with any of our relatives that care to look, and I may even pay a professional to review it.

And I finally have something on my bucket list: I am going to visit Isokyro and its medieval church.

Mar 7, 2018

A Health Care Directive

Recently, I reviewed our wills that we had written years ago. Our kids have moved out and we are fifteen years older than when we wrote them. Our wills also include health care directives. I was intrigued rereading what I wrote so long ago. I stand by it still and here I share with you its key elements (with a few insignificant edits). I suggest you have one done and file it with your primary health care facility.

“Whenever I am unable to decide or speak for myself, my health care agent has the power to make any and all health care decisions for me, including the power to give, refuse or withdraw consent to any care, treatment, service or procedures, including deciding whether to stop or not start health care that is keeping me or might keep me alive.

“Ultimately, I am interested in my life continuing provided there is a reasonable probability that I will eventually return to leading a somewhat normal and productive life. But I am not interested in expensive or painful procedures that have little probability of returning me to a degree of normalcy. I am also concerned the impact my living or dying has on my wife and my children, and what their wishes may be. The critical point is that I do not want money and energy spent to keep me merely alive. I have loved my life but I have little fear of dying. I am primarily afraid of physical and emotional pain, and I do not want my last act on earth to be spending mine or my wife’s or anyone else’s money to keep me alive only for the sake of being alive. I especially do not want to be a burden to my family, financially, emotionally or otherwise.

“I have little tolerance for pain and do not want it, whether physical or emotional. An example of emotional pain would include consciousness but inability to communicate or move. Another would be living permanently in a group facility such as a nursing home.

“I do not believe that allowing death by omission is wrong. You are free to let me die or even help me die if that is appropriate.

“My life would no longer be worth living if I were an emotional or financial drain on my wife, children or society; if I could not live a reasonably productive life; if I could not basically take care of myself; if I were to spend the remainder of my life in a nursing facility; or if I were unconscious with little expectation of returning to a somewhat productive life.

“Standard medical treatments may be used to try to improve my medical condition or to prolong my life but they should be stopped if they do not help.

“If I had a reasonable chance of recovery where I return to being a somewhat normal and productive person, I would want reasonable efforts made to recover me. But if recovery means, for example, permanent blindness, loss of arms, permanent pain and other major disabilities, I do not want efforts made to prolong my life.

“If I were dying, I would want all efforts made to minimize pain and no efforts made to prolong my life. If I were permanently unconscious or otherwise completely dependent on others for my care, I would want to die as soon as possible.”

“I would like to die at home. I remember when our dog, Sam, was dying. Rather than putting him alone into a sterile medical facility full of tubes in an effort to extend his life a few days or weeks or months, he laid in the family room with us until he couldn’t eat or drink. Then we brought him to the vet where he was euthanized while my wife held him. I only wish that you treat me as well as she treated Sam.”