Miscellaneous Essays

Cellphone Rudeness

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I was waiting in line at my neighborhood bookstore when I became aware of a struggle going on behind me.

“I thought I told you to turn that thing off,” snapped a woman in gray slacks. She was scolding her son, whose cellphone was ringing. I hadn’t even noticed the sound – a sad testament to how cellphones have become woven into the tapestry of everyday life.

The kid – high school age, scuffed sneakers and baggy jeans – started fumbling around in his backpack, trying to find the offending item.

“Out!” his mother commanded. “Go wait in the car.” She practically threw her keys at the boy, who slunk out the door.

To my surprise, the woman turned to me and apologized. “I don’t mean to yell. I’m just so fed up with cellphones!”

The woman – who introduced herself as Beth – explained that she teaches math at a local community college. And, she told me, she is constantly reprimanding her students for paying more attention to their cellphones than to their work.

“This morning,” she said, “one student actually answered her phone to tell the caller that she was in the middle of a calculus test! And even if they turn off the ringers, they still text one another.”

The blatant use of cellphones, anywhere and any time, has become commonly accepted behavior.

Perhaps that’s why Beth’s students seem to be unaware of what they are doing. And while I’ve never personally experienced such an egregious display of rudeness, I have noticed that most people have few to no manners when it comes to their mobile phones.

It’s the damnedest thing. You are having a conversation with someone, their cellphone starts ringing, and – without even excusing themselves – they pick it up and start talking to someone else. You stand there, feeling like a fool … and wait.

Cellphone calls routinely disrupt personal conversations, business conversations, meetings, speeches, ceremonies, and even religious services. The only attempts made to curtail this modern menace are in theaters and concert halls – as if entertainment were the only thing more important than instant communication.

In the old days, we followed an informal set of rules. The first rule was universal: Except in dire emergencies, ongoing conversations should not be interrupted. If you wanted to say something, you would wait your turn. There was also a rule that related to the intensity of the conversation: The more serious it was, the stricter the prohibitions against butting in. And, finally, there was an acknowledged hierarchy: Children deferred to adults, students to teachers, employees to their bosses, and so on.

Call it respect … call it courtesy … all that is out the window. Any conversation, regardless of how important, intimate, or urgent, is now brought to a screeching halt the moment someone’s phone goes off.

Of course, I am something of a hypocrite when it comes to most causes I advocate – and this one is no exception. Although I feel mistreated when someone I’m speaking with answers his cellphone, I have the strongest urge to answer mine whenever and wherever it rings.

Most of the time, I’m happy to say, I resist the temptation. My phone is set to vibrate before it starts ringing. So if it starts vibrating during a conversation, I reach into my pocket and cancel the call.

But few people have any sense of manners when it comes to their cellphones. Which is why I’d like to offer you six rules for polite cellphone use:

1. If you must be available to callers, put your phone on vibrate. Leave the room to talk if an important call comes in.

2. Never talk on the phone while conducting business face to face with someone else.

3. If the lights are out, turn off your phone. Audiences in playhouses, theaters, cinemas, and observatories want to concentrate on what they’re watching/listening to.

4. Keep your voice down. No need for everyone in the room to hear what you’re saying.

5. Do not discuss private business or personal matters in the presence of other people. Put the caller on hold and move to an isolated area. Or reschedule the conversation.

6. Don’t bring your cellphone to job interviews, weddings, funerals, church, business meetings, presentations, court, museums, or the library.

Follow these suggestions and your friends and colleagues will appreciate your full attention. Your fellow theater-goers will appreciate your silence. And you and your dinner companion will enjoy an uninterrupted meal.

Miscellaneous Essays

The Broken Window Fallacy

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This interview was originally published in the October 4th issue of The Palm Beach Letter.

Tim Mittelstaedt: Let’s talk about books. What is the best book on economics or investing you’ve ever read?

Mark: Gee, I haven’t read all that many. But I’d have to say that the book that had the greatest impact on my thinking was Henry Hazlitt’s Economics in One Lesson.

Tim: A classic. How did that affect you?

Mark: It was one of those “eureka!” moments. It was like coming up from a murky basement into a bright room. The book gave me a clear, common-sense explanation of why things were the way they were. I could finally see the fallacies that supported so much stupidity that passed for economic science.

Tim: Such as?

Mark: Such as why public works are so often wasteful, why government credit diverts production, why technological advances are good, not bad, for employment, why spread-the-work schemes inevitably fail, why government price fixing and tariffs make us poorer, etc.

Tim: So what is the most important thing you got from reading Economics in One Lesson?

Mark: That you can’t understand any economic policy unless you look at the whole picture. It’s not enough to see the immediate, localized consequences of any public action. You must see its long-term effect on the entire economic community. Hazlitt says that nine tenths of the economic fallacies that politicians use do so much harm because they ignore this lesson. After reading the book, I can’t help but agree.

Tim: That’s a little abstract. Can you explain?

Mark: Hazlitt explains it beautifully in the second chapter, entitled “The Broken Window.” It goes like this: A hoodlum throws a rock through a baker’s plate glass window. A crowd gathers and talks about what a shame it is. But someone suggests that it is actually a blessing. He points out that the $250 the baker must pay for a new window will make the glazier $250 richer. And the glazier will use that $250 to spend with other merchants. The smashed window, according to this theory, will go on providing money and employment in ever-widening circles.

The logic is that the hoodlum who threw the brick was not a menace at all, but a public benefactor. The crowd agrees.

Tim: It does seem like a compelling argument.

Mark: It does. Yet, it’s a logical fallacy.

Tim: So what’s the fallacy?

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Miscellaneous Essays

Achieve More With a Mentor

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This essay was originally published on January 14th, 2006 for Early To Rise 

“It can be no dishonor to learn from others when they speak good sense.”

– Sophocles

A man looks back on his life and says, “I wish I knew then what I know now.”

It can take a decade or more to become the successful person you want to be, but you can shorten your learning curve – even drastically curtail it – by using a mentor.

With the advice, experience, and support of an experienced person in your field, you can avoid the most common mistakes you are likely to make. You overcome the stickiest problems and find shortcuts to success.

It doesn’t really matter where you are along your career path, getting yourself a good mentor will be enormously valuable for you.

A survey commissioned by the Elliot Leadership Institute at Johnson & Wales University confirms this. For this particular study, researchers surveyed senior executives and middle managers in the food service and hospitality industry about leadership competencies. What they discovered was that leaders who had been mentored felt the experience invaluable. They said their mentors helped them build all kinds of leadership skills, including decision-making, strategic thinking, planning, coaching, and effectively managing others.

In Early to Rise, I’ve often talked about the mentors in my own business life. From Leo, my first post-college boss, I learned the importance of persistence and dogged determination. Leo once had me call Honda Motors more than 100 times to convince them to give us a new engine after the one we had died (from lack of oil). We hadn’t a single, sensible argument in our favor, but that didn’t stop Leo from pushing me. Finally, after I got all the way to the top, the Honda executive leadership decided they had wasted too much time on us and gave in. I didn’t feel good about getting something we didn’t deserve, but I never forgot that lesson in persistence.

From Joel, my second major mentor, I learned a great deal. The first lesson he taught me – by firing the lady who wanted to get me fired – was that a good leader needs to surround himself with the strongest people he can find. Another lesson I learned soon thereafter had to do with the fundamental nature of business.

“Until you make a sale,” Joel explained patiently, “nothing else happens.”

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Miscellaneous Essays

How a $10 Bill Made Me Richer Than All My Friends

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Of the hundreds of wealth-building strategies I have tried over the years, the very best one was also the simplest. It is this: make sure you get a little bit richer every day.This thought occurred to me almost thirty years ago. I had recently decided to become rich, and that decision had me reading and thinking about wealth building day and night.

I was bathing my brain in the elixir of clever ideas. It was very stimulating. I had daily fantasies of getting rich in all sorts of fancy ways. But deep down inside, I knew that these complicated strategies were not for me. When it came to making money, I was extremely risk averse. In the race to a multimillion-dollar retirement, I was a tortoise not a hare.

At the time, I had a net worth of zero and an annual salary of $35,000 a year. With three small children and my wife in college, our expenses were gobbling up every nickel of my after-tax income. And so my first wealth-building goal was small: I would get richer by just $10 a day.

I knew that I would eventually raise the ante, but I wondered, “How much money would I acquire in, say, forty years by just putting an extra $10 aside every day in a bank account earning 5% a year?”

I did the numbers and was happy with the answer: almost half-a-million dollars.

My total capital invested would be $149,650. The simple interest would total $156,950, and the compounded interest would amount to $182,061, for a total of $488,661.

Then I wondered, “What would happen if I put away $15 a day?” That came to $719,604.

And then I asked, “What would my retirement fund grow to at 8%?” That came to $1,620,592!

You can imagine my excitement. And so I made this wealth-building commandment number one: get a little bit richer every day.

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Miscellaneous Essays

Motivation

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I was once characterized by a book reviewer as a “motivational writer.” Apparently he felt that this moniker debased me. It didn’t.

I am very happy that my writing sometimes has the effect of motivating people. I find it hard to understand what is wrong with that. If he meant to imply that my work doesn’t have substance he should have said so. But I don’t think he dared say that because the book he was reviewing was about building businesses — and that is something I know a great deal more about than the average reader of that book, including him.

Still, a lot of folks have the idea that motivating people is somehow less legitimate than, say, just providing them with information. The thinking seems to go something like this: “Don’t try to excite me. Don’t try to get me moving. Just tell me the facts.”

But knowing the facts is only 20 percent of success. Testing the facts by putting them into action is 80 percent.

I can’t say for sure when motivation started creeping into my writing. But it was at least 20 years ago — well before I started writing books about marketing and business. I think it began when I became a consultant and realized that I couldn’t force my clients to execute my ideas. If I wanted them to follow my suggestions, I would have to take the extra step of motivating them to do it.

When I make presentations to a group, I try to motivate my audience to take the action I want them to take by using the persuasive techniques that I teach marketers to use in selling products. For one thing, I express the value of my ideas in terms of how the people I’m speaking to (not me or anyone else) will benefit from them.

I also sell one idea at a time. I have learned that if I try to do more, they (and I) will come away with nothing.

Whenever possible, I present my ideas through stories — because stories, more than any other information-sharing technique, have the power to inspire.

And I provide proof to support the claims I make. Tangible, relevant, and impressive proof.

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Miscellaneous Essays

Mark Ford on Why You Shouldn’t Hire Friends or Family

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This interview was originally published in the May 23rd, 2011 edition of The Palm Beach Letter

The interview was conducted by Tom Dyson, publisher of the same publication.

Tom: I’d like to talk about a topic I’ve been thinking about lately—going into business with family and friends. What’s your view of nepotism?

Mark: Actually, it’s funny you asked that. Just last night I had dinner with an old friend. Our sons were best friends when they were young. A few years ago, his son went to work for him. Now, at twenty-eight, he’s president of the company, and he’s making big money. My friend asked me if any of my kids were working for me.

I told him that my first two sons are making their own ways in the world. But my third son, who’s graduating college this year, has expressed an interest in the family businesses.

“He wants to follow in his dad’s footsteps?” my friend asked.

“Not exactly,” I replied. “He just wants to step into my shoes.”

He laughed.

“But that would be great, wouldn’t it?” he said.

I wasn’t sure how I felt. What I want most for my children is for them to be independent and kind. Working for my business—is that independent?

Tom: I guess that depends if he has a real job.

Mark: Exactly. The last thing you’d want—for your kid or your business—is to pressure your son into the business. Nor do you want to offer him a secure way of receiving income.

Tom: Is that what your friend did?

Mark: Not at all. His son is the real deal. He’s really running the business. And it makes his father proud. Having his son work for him has allowed my friend to take on a secondary role in his business. He is able to work less and spend more time traveling.

Tom: That’s a good thing.

Mark: Yes, that’s a good thing. But in my experience, it happens rarely. More frequently the child is over-promoted, and it causes problems. Sometimes it wrecks the business. Sometimes it wrecks the relationship.

Tom: So how does one prevent that?

Mark: By following three rules: make sure they start at the bottom, let them earn their own promotions, and never let them work directly for you.

Tom: I get the first two. But why wouldn’t you want your child working directly for you?

Mark: I’ve hired friends and family before. When I followed all three rules it worked out fine. It was clean. But I’ve also broken the third rule and had them report to me. Half the time that got messy.

Tom: How so?

Mark: In a few cases, they disappointed me, and that lowered my estimation of them. Other times, I disappointed them—usually because they thought I was being especially tough on them (which was probably true). That lowered their estimation of me.

My personal relationships are more important to me than my business relationships. Having a friend or family member report to you risks ruining you personal relationships. I won’t do it anymore.

Tom: You said that half the time having friends and relatives working for you didn’t work out, and you explained why. What about the other half?

Mark: The other half worked out very well. And I’m happy for that. But I’m not willing to risk my personal relationships based on a 50/50 chance.

Tom: I noticed that the last film you produced listed no fewer than four of your family members on the credits.

Mark: (Cough, cough) You got me there.

Tom: Do I smell a bit of hypocrisy here?

Mark: If it were not for hypocrisy, I’d have no good advice to give at all.

Tom: Seriously…

Mark: It so happens that four of my siblings and two of my children have experience in the movie business. It was a low-budget ($500,000) movie. They were willing to work cheap. Nepotism, in this case, was good for the balance sheet. And strictly speaking, they didn’t report to me.

Tom: No?

Mark: (Cough, cough) Can we get on to another question?

Tom: What about the idea of creating a family business? What’s wrong with creating a business that you can leave to your heirs?

Mark: In theory, nothing. If you build an enduring business, it is natural to want to make it available to your offspring. But history shows us that, for the most part, one’s children will destroy the business. And if they don’t, their children certainly will.

Tom: That’s very cynical.

Mark: That’s history. Look at all the mega-businesses built during the industrial revolution. How many of them still have family members at the helm?

Tom: I can think of only one. Ford Motor Company.

Mark: Me too. The truth is, I like the idea of one of my kids taking over one of my businesses. But he’s got to earn it based on his accomplishments, not on his blood.

Tom: What about the equity in your business? What do you think about leaving that to your children?

Mark: Now you are talking about inheritance. That’s another big subject.

Tom: One we can talk about in depth another day. But give me a hint. Do you intend to leave any of your businesses to your kids?

Mark: Well, I can’t talk about that honestly. My wife and I have told our boys that they won’t inherit a nickel from us. We’ve told them they have to make their own way in the world.

Tom: So you are lying to them?

Mark: You seem to be exposing parts of my personality I would rather leave hidden. What are you, my publisher or my shrink?

Tom: Okay. You’ve said enough for today. We’ll talk about inheritances next time.

Mark: So long as the interview is published posthumously.

Miscellaneous Essays

Teach Your Children Well: How to Develop Successful Kids

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When I was a young father, I wanted my young children to be very good at everything they did. I wanted them to be very good students, very good athletes, very good thinkers, etc.

Although they never took a great deal of interest in sports, they did well enough in school and became bright and athletic thinkers.

By the time they had become young men, my desire for them to excel at everything had evaporated. And in its place was something else: pride and satisfaction in knowing that they had become independent and kind.

Many parents, I believe, experience the same shift. When their children are small, they want to see them excel because they believe that childhood performance is an indicator of future success. But as time passes, they come to have a more realistic view of maturation.

One of the most important recognitions is that the most important stages of childhood development are all marked by the need to separate in some way from the parents.

This makes perfect sense when you consider us as creatures of evolution. When our children are helpless, our instinct is to nurture and protect them. As they grow older, they acquire habits (biting the nipples that feed them, breaking free of the hand that holds them, discovering music their parents abhor, etc.) that promote independence.

This is as it should be. A mentally healthy parent learns to accept and eventually desire his children’s independence.  

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Miscellaneous Essays

Dealing With Debt

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A dream:

You are on a beach of golden sand. You have a large bucket, large enough to carry a million dollars’ worth of golden sand. You put a scoop of sand in the bucket. Then another. With each scoop, you feel richer. But then you notice something. The bucket isn’t getting fuller. There is a hole in the bottom, out of which sand is escaping.

You work faster, hoping to fill the bucket by adding more sand quickly. Yet, as fast as you fill it, the sand escapes. Still you move faster, and still the bucket will not fill. In fact, the level of sand in the bucket is getting lower!

This is the problem with trying to get richer through debt. Debt allows you to have things that you can’t afford. But there is a cost to it. And sometimes the cost is very high—so high that, no matter how hard you work, the wealth you hoped to acquire disappears.

At some rudimentary level, we all understand that debt is dangerous. But in our daily lives, many of us view it as a necessity. We buy homes with it. And cars. And boats, and toys, and vacations. Some use debt to buy the basics: clothes, food, and furniture.

Debt is not necessary. It is a luxury. Sometimes debt is useful. Sometimes it is wasteful. But debt is always dangerous.

I had my first serious run-in with debt when I was thirty years old. My wife K and I were renting a condominium in Washington, D.C. Our landlady came to us with an exciting opportunity: We could buy the condo for $60,000 with no money down. For just a hundred dollars a month more than what we were already paying for rent, we would be paying a mortgage. It sounded like a great deal, so we took it.

What we bought was a negatively amortizing mortgage with a three-year term and an 11% interest rate. What that meant was, every three years we were paying $19,800 in debt service and another $3,000 in closing costs.

We didn’t realize what was going on because our monthly payments were only $550. I was too foolish then to ever ask myself, “What is the cost of this debt?”

I tried to find another bank to take me out of this scam but none would. The mortgage we had signed was not backed by the government (Freddie Mac/Fannie May), which meant that no other bank would touch it.

It was like the dream with the leaking sand. Our golden condominium was nothing but fool’s gold.

And we were the fools. I wasn’t able to get us out of that deal until years later when I was wealthy enough to pay off the mortgage. Even after calculating the rental value of living in that condo, the deal cost me more than $30,000, and I had nothing to show for it.

I learned that when banks make it easy to borrow money, it’s not because you are a nice, deserving person. I learned that if you can get a loan despite poor credit (as ours was at the time), there is usually a scam involved. It also taught me to always ask the two critical questions about debt, “How much will it cost?” And, “Can I afford it?”

It was an expensive lesson. But the lesson seemed cheap thirty years later when, in 2005, the real estate market bubbled out of the pot. I sold my speculative properties and got out of the market. I made and saved millions, while my friends who ignored my warnings got killed.

Debt is unnecessary and it is dangerous.

It is unnecessary because there are always less expensive ways of getting what you want. And it is dangerous because it can sometimes be very expensive.

Let me give you two examples.

Let’s say that, like most Americans, you are in the habit of buying things with credit cards. After a while, you notice that you have accumulated $30,000 in total debt. You decide to cut up your cards and repay your debt. You can devote $400 a month to paying it back. How long will it take, and how much will it cost you?

The answer may surprise you. It will take you ten years to pay off the credit card debt. And your total payments will be $47,428. Of that, $13,278 will have been in interest payments.

Or let’s take a $150,000 home on which you take a $120,000 loan with a 6.5% interest rate. The mortgage payments are $914 a month, which you can afford. But how much will that house really cost you? Including interest payments? You will end up paying $329,303 for that house. Almost half of that—$153,050—will have been to interest payments.

The commercial community (bankers and manufacturers) doesn’t want you to be afraid of debt. And neither does the government, as I explain in the box. These institutions want you to like debt. They want you to use it. They want you to go into debt because it is good for them.

When you take out a mortgage to buy a home, or sign a lease on a car, or use credit cards to pay for your lifestyle expenses, the commercial community profits. The manufacturers make money on products you may or may not need. And the banks make money on your debt.

The mainstream financial media rarely talks about the dangers of debt. That’s because they make their profits from the financial institutions and manufacturers whose advertisements support their publications.

And the government actually encourages its citizens to take on debt. This was the recommended strategy for getting us out of the Great Recession that the (second) Bush administration (and the Federal Reserve) advocated and it’s the same scheme that Obama’s people are advocating today.

Debt is like a cancer. It lurks within. It guts your wealth, while you are paying attention to other, seemingly more important things. Then one day, it breaks through and gives you a fever. You call in the doctors and they cut you open, only to have them find the mess that is your financial body. The doctors then sew you up and walk away.

Here’s what you should know about debt:

As a general rule, you should live without it. You should find other, less expensive ways to acquire the things you need.

There are some cases where debt makes sense. I’ll talk about that at the end of this essay. But let’s look at what you should not do.

Unless you are wealthy, don’t lease your car. Buy it. Buy the car you can afford, not the car you believe will make you happy. Any non-appreciating asset (such as a car) will never make you happy if you have to pay its debt service. I didn’t buy my first luxury car until I was a multimillionaire.

Don’t buy anything with a credit card. Keep only one credit card for renting cars. Use a debit card to buy clothes and groceries. If you don’t have enough money in your bank account to use your debit card on a purchase, don’t buy it. If you don’t have enough money in the bank to buy something, it means you can’t afford it.

If you can’t afford the debt on your house, sell it (if you can) and buy something cheaper. In any case, start paying off the principle balance of your house (the amount you owe, not the interest you will owe) as fast as you can. Make it a goal to own your house free and clear as soon as possible.

If you have debt, pay it off as fast as you can, but not before you have filled up your bucket for emergency savings. By emergency savings, I mean money you will need to pay your bills if you lose your job. Six months’ income is what some financial advisors recommend. I’d recommend a year. It may take you that long to replace your lost income.

Pay off your debt even if the interest rate is low. In theory, you should put your extra money elsewhere if you can earn more on it than you are paying in interest. If, for example, you can get 4% in municipal bonds and you have a student loan at 2%, it makes more sense to buy municipals bonds and pay your student loan off slowly. But in reality, the extra 2% you are earning on the spread is not worth the risk in carrying the debt.

When I started earning money, the first thing I did was get rid of that terrible loan on the condominium I told you about earlier. The next thing I did was pay off the mortgage I took on a home. I paid it off in two or three years, even though it was a thirty-year mortgage. I loved the idea of owning my home free and clear. So I put every extra dollar I had toward paying down that mortgage. The bank didn’t like it, but the day I tore up that montage…I felt like I had been emancipated from financial slavery.

If you are troubled by debt, know this: you can get out of it just as I did.

When you are debt free, you can begin to use debt strategically. But to do so, you must always ask two critical questions: How much will it cost? Can I afford it?

Buying cash-flow real estate properties is one such example. Real estate values in many markets today are as low as they’ve been in ten or twenty years. And mortgage rates, at 3%-5% for people with good credit, are very low. This makes sense.

It may also make sense to take on debt to finance a business. But again, you have to be very careful. You must be sure that the return you are getting on your debt is guaranteed to be considerably higher than the cost of the debt.

But I don’t want to leave you with a happy feeling about debt. Debt is unnecessary. And it is dangerous. So get rid of it as fast as you can.

Miscellaneous Essays

How the “Big White Lie” of Investing Almost Cost Me My Retirement

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Originally published in the October 2011 issue of “The Palm Beach Letter“

I consider myself to be an expert of sorts on retirement. Not because I’ve studied the subject, but because I’ve retired three times.

Yes, I’m a three-time failure at retiring. But I’ve learned from my mistakes. Today, I’d like to tell you about the worst mistake retirees make.

It’s a very common mistake. Yet, I’ve never heard it mentioned by retirement experts. Nor have I read a word about it in retirement books. The biggest mistake retired people make is giving up all their active income.

When I say active income, I mean the money you make through your labor or through a business you own. Passive income refers to the income you get from social security, a pension, or from a retirement account. You can increase your active income by working more. But the only way you can increase your passive income is by getting higher rates of return on your investment (ROI).

When you give up your active income, two bad things happen:

First, your connection to your active income is cut off. With every month that passes, it becomes more difficult to get it back.

Second, your ability to make smart investment decisions drops because of your dependence on passive income.

Retirement is a wonderful idea: put a portion of your income into an investment account for forty years, and then withdraw from it for the rest of your life. Once you retire, you won’t have to work anymore. Instead, you will fill your days with fun activities: traveling, golfing, going to the movies, and visiting the kids and grandkids.

It’s a great idea. But it never actually worked.

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