Fall 2009: Stock Market Likely to Decline

If you have exposure to the stock market, you may want to dial it back to a money market fund or cash. Both the S&P 500 and the NASDAQ composite indexes pierced below important levels of support today. (their 50-day moving averages) This often happens when the market is going to decline for a period of time.

All in all, not a terrible run since March when the market turned positive: a 58% increase for the NASDAQ and a 45% increase for the S&P 500.

Several companies declined sharply this week after reporting earnings that just barely missed estimates. Some declined even though they beat their earnings estimates. This is typical behavior when the market is turning south, when even good news is not enough to keep stocks moving up.

I have sold all the stocks in my personal portfolio and am looking now for opportunities to make money on declines.

Remember - don't blame the government or your retirement plan company if you fail to keep an eye on your nest egg!

Not-As-Bad No Substitute for Good

After leaving my full-time job in September, my inital inclination was to immediately relocate to a faster growing city. This notion was influenced by two major hypotheses: 1) If I start a business, I want to do it in a market with plenty of demand for my products or services. 2) If I invest in real estate, I want to buy in areas where the rents will produce great cash flow even after paying for the mortgage, taxes, and repairs. Orlando has a lot going for it, but it's been hit pretty badly by our current recession. No. I reasoned that since I had nothing tying me to Orlando, I should select the best US metro area I could find, start from scratch there, and allow its rising tide to lift my boat as well.

A funny thing happened on the way to relocation-ville. As I researched cities according to their US Census Bureau growth statistics and monthly unemployment rates, I got a bit sidetracked from my primary criteria by the noise of the data. At first Atlanta looked attractive due to its high population growth from 2000 to 2008. When I discovered it had a higher unemployment rate than the national average, however, its luster faded. More recently, Austin, TX seemed promising due to its combination of high population growth and lower unemployment rate.

But digging deeper into Austin's data has revealed that while unemployment is lower there, it is still increasing on a monthly basis. "Slower slowing" is not the criterion I started with. I require growth. Data published on USA Today's website from Moody's economy.com shows that it may be well into 2011 before Austin or, indeed, any sizeable US city shows significant jobs growth. This correlates pretty well with our last recession: the market topped in 2000, it bottomed in 2003, and jobs began to return about 18 months later. In the current recession, the stock market topped at the end of 2007, hit bottom in March of 2009 and here we are, waiting for the jobs to show up again.

Let me mention why this is so important. Jobs are what fuel the kind of population increases that are attractive to real estate investors. As jobs grow and populations rise, people become willing to pay the kind of rental rates that can cover mortgage payments, taxes, and repair bills. Ultimately it is the prosperity of an environment like this that creates healthy growth in property values, since more and more people go for the dream of owning a home. On the other hand, when an area is simply losing jobs more slowly than others, you end up with less people in the area than there are rental units. Now your rental property is compared to others solely based on price and nobody wins in that environment.

My strategy remains the same. I will ultimately relocate to a major US metro area based on its growth in population and jobs. However, I'm not going to try to guess in advance which city that will be. I'm going to keep my finger on the pulse of the monthly data and allow candidate cities to emerge in their own sweet time. The second halves of recessions are like that: months and months of seeming inactivity, and then, POW, the heavens seem to open, corporate budgets are expanded, and jobs look like they're falling out of the sky.

A final note. I may yet relocate in the near term. But if I do, it will likely be because there was a better reason to hang out somewhere else during this current non-growth period of time than here in Orlando. I'll keep you posted.

View From the Ground: Atlanta

They say the three keys to business success are, "Location, location, location." Atlanta, Georgia has been showing up on a lot of "Top 10" lists lately, for entrepreneurship, lifestyle, growth, etc. Annual data from the US Census bureau shows that it is certainly one of the fastest growing metro areas in the country. I decided to take action and travel to Atlanta myself to get a first-hand glimpse of the city and the surrounding areas. I've just completed four days there and my impressions are very favorable.

There are a number of neighborhoods like Decatur, Virginia Highlands, and, yes, even the downtown district where shops and restaurants are convenient to the walking public. This feature appeals to me as a businessman because it fosters that viral, word-of-mouth buzz that's just harder to attract if you're located in a strip mall. However, strip malls have their place too. In the numerous and prospering suburban communities along what's being called the "I-85 Corridor" to northwest of the city, I observed a great deal of business demand in the form of full shopping center parking lots and decent waiting lines in front of midrange to upscale restaurants.

While in Atlanta, I scored a meeting with the Vice President of Economic Development at the Atlanta Chamber of Commerce and he supplied me with key information on everything from business licensing to demographic trends to commercial real estate resources.

All in all, a successful trip - I came away with a great picture of what Atlanta can offer in terms of retail business demand and growth trends. Incidentally, the people of the city were friendly and helpful, regardless of which neighborhood I visited. Whether or not Atlanta is my future destination remains to be seen. There are a couple of other promising metro markets I plan on visiting before making my decision.

Cutting the Employment Cord

Yesterday was my last official day at EA Orlando, two weeks after I gave them notice. There was nothing wrong with the company or the position. It's just that I felt like I was going to burst unless I put myself "out there" and took a chance at creating a business of my own. I am fortunate to have money saved up so I could live on it for a few years (with a fairly tight budget) if I needed to.

I'm doing research on a handful of opportunities, all of them original business ideas. One of them is to emulate Fred DeLuca's (the founder of Subway Sandwiches) success by starting a fast food concept that can be refined into a system at one store, expanded locally, and later developed into a franchise opportunity. Another idea is to take my considerable expertise and create a new technology product or service - this would take more time but would have the potential for a much bigger payoff. You know me, I want it all - perhaps I can start the fast food shop, get it rolling with a good management team and then focus on developing the technology product.

Every job I've ever worked has been trouble simply because when I see ways for a company's processes to be improved I don't keep my mouth shut. On the contrary, I've been the epitome of the boy who called out, "The Emperor is naked!" It is only fair to the fine men and women who have had the challenge of trying to manage me that I remove myself from the employee pool and take a shot at being the Emperor. Interestingly - my way has worked out well when I've worked at startup companies where it's fine to chit-chat with the President and the Chief Technology Officer. I guess I just don't "get" turf wars and office politics - it all seems like a bunch of unnecessary friction that slows down the process of innovation and continuous improvement. I understand that there are many people who do "get" these things and who are willing to work around them in exchange for stable employment. I am very glad for such people - after all, my future companies are going to need managers and employees too.

In a way, it all boils down to this: Although I have finally come to accept that I cannot escape structure, I don't have to spend my life struggling against somebody else's structure. I have the option of creating my own structure - one that pleases me, one that I can live with and thrive in.

Well That Was A Short Nap

The stock market has come roaring back in the last couple of trading sessions from a mild downturn that only lasted about a month. Now, one or two up days does not a trend make. However, the volume of trade and the percent increase in the general indexes makes it pretty clear (to me, at least) that this is the beginning of something interesting.

I've re-entered the market with positions in travel, retail, rental car, and (I can't get over them) Chinese online gaming stocks. If you have been sitting on the sidelines with your retirement funds, I'd definitely encourage you to speak with a personal finance professional about re-entering the market at this time.

No-load index mutual funds for the S&P 500 and NASDAQ might be relatively stress-free candidates if you agree with me and wish to participate in the market's apparent upturn.

Disclaimer: I am not a personal finance professional and this information does not constitute an offer to sell investment products. These opinions are my own. You are responsible for your own decisions - Hell, I have trouble keeping my own shoelaces tied!

Locking In the Gains of 1H 2009

I sold all of my stock holdings this week since my instincts tell me the market has decided to take a breather. The major indexes were down more that one percent two days in a row recently. (although on tame volume) The market has had a nice run up since mid-March, it's about time for it to digest its gains.

Here's how I did in this period: Shanda Interactive (SNDA) +24%, Net Ease (NTES) +34%, Chanyou (CYOU) +72%. (you read that right, seventy-two percent)

I'm half tempted to dig into my savings, fire my employer, and strike out on my own to seek fame and fortune. But I've gained just enough maturity to realize this would be a reaction based on the hubris of my recent market success. That success is about five percent due to my brains, ten percent due to my bravery in the shadow of difficult economic times, and eighty-five percent due to the fact that a rising tide raises all boats. The key was to get into the market when I did and let it do the magic it does when it is in an upswing. The brains part was noticing that Asian gaming stocks were some of the darlings of the spring rally.

Hubris-avoidance aside, I'm enjoying my day job. I look forward to the process of developing the online game that my team is creating. I intend to achieve the kind of satisfaction that only comes from collaborating with others to accomplish a challenging goal. It is not without relevance that the salary I'm drawing will help me save up additional capital so that I'm better prepared for my eventual - inevitable - enterpreneurial siezure. (as Michael Gerber calls it in his famous "E-Myth" books

Remebering June 4, 1989

Twenty years ago this week, hundreds of Chinese pro-democracy student demonstrators paid the ultimate price for their courage to stand up against the corruption and repression of their government. I haven't often reflected on the events of that magical summer which heralded the end of world Communism. But all it took was a photo in the news this week of that solitary Chinese student standing peacefully yet defiantly in front of a column of tanks to bring back a rush of deep emotions. My guts wrenched, my lungs heaved, my tears flowed, and I was 21 again - full of idealism and belief in the ultimate triumph of what is good. Connected, in some mysterious way, with my brothers and sisters from that time in Warsaw, and Bucharest, and East Berlin, and Beijing, and Moscow.

It is, frankly, irrelevant to ask whether the Tianenman Square massacre "accomplished" anything useful. Pundits will debate whether or not it was a wake-up call to the leadership of the Chinese communist party, or whether it helped lead to the years of economic prosperity that many more Chinese citizens now enjoy. What it means to me is that our species occasionally surprises itself in bright, shining moments when nothing matters to us more than the freedom of the human spirit. We cast off the conniving, calculating, resignation we feign (in order to "get by" in modern society) for something far greater and worthier. We put everything the world has told us is valuable at risk in order to win a prize that is impossible to justify or even quantify with mere numbers or arguments.

As Jim Reeves used to sing, "Life goes on and this old world just keeps on turning." There are jobs to do and spouses to love and kids to raise and bills to pay. These incredible events rise and fall and rise again when they are called for. But I was quite surprised by how viscerally and profoundly I could feel the emotions of my 21 year-old self. Perhaps you will experience this some day. When you do, do yourself a favor and feel it fully. Let the tears flow and the lungs heave. It is good practice for keeping the human spirit free.