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Notes From My Journal

Does the SEC Really Give a Crap About Small Investors?

Delray Beach, FL– “The private markets are awash in capital these days,” Jay Clayton, Chairman of the SEC, told entrepreneurs and business-school students in Nashville recently. “The question is, who is participating?”

For decades, regulators have walled off most private deals from smaller investors. Because of the added risk of private investing, they must meet stringent income and net-worth requirements to participate. As a result, small investors never had access to companies like Uber Technologies and Airbnb.

Mr. Clayton wants to change that.

“This is good news,” TM said in a memo to my partners. “And it would be no small potatoes as it would open a big line of biz. Early Seeds.”

TM was talking about the opportunity for businesses like ours, publishers of investment advice, to sell more newsletters and other advisory services focusing on this newly opened and quite exciting topic.

Here’s what I think: Yes, it will be good for financial publishers like us. And it will be great for financial advisors and brokers and all the guys with suits that live off Wall Street. But it will not be good for ordinary investors, particularly the elderly and vulnerable. This change will make the sum of them poorer. And I’m pretty sure Mr. Clayton knows that.

 

From My “Work-in-Progress” Basket

A Serious Answer to a Dumb Question

 “What habit made the biggest difference in your life with the least effort?”

This is the sort of question you see on Quora – ultimately dumb but superficially interesting. I rarely open the links because I know the answers will likely be as silly as the questions.

That’s what happened when I saw this one.

But then I thought: If I am taking questions from an audience and someone asks this one, how would I answer it? I couldn’t dismiss it as a stupid. What would I say?

Hmmm… the audience is waiting. Clock is ticking…

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Sympathetic and Vulnerable in the Windy City

What the hell, I thought. Let’s try a yellow cab. Surely they’ve improved by now…We arrived in Chicago a bit after midnight last night. Having taken an Uber Black from Newport Beach to LAX four hours before, I was tempted to indulge in the luxury again. I would be guaranteed a spotlessly clean, late model luxury car driven by a well-dressed, English speaking person aiming to please. But we were on the arrivals level and the Ubers and other “shared transport” were upstairs at arrivals and knowing that K always prefers to go economy, we opted to walk straight out and see how the taxi situation looked.

It looked good in the sense that the line was short. Our driver was from India or Pakistan. His hair was a wild, black garden. His eyes were burning coal. His smile was demonic. His car was filthy. I remembered: I cannot change this man or his taxi. But I can change the way I was about to think of it: aggrieved – personally and politically, Instead I saw him as a comic book character and indeed that was what he became. Yes, there was the terrorist sounding language and conversations with one of his friends on speaker. But no, he didn’t drive like a maniac. We arrived at our hotel quickly and safely. He removed our luggage from the trunk and wished us a good stay in Chicago. I almost hugged him.

Overbooked

The Park Hyatt Hotel had overbooked its capacity by ten rooms. That meant ten guests had to be “relocated.” Since we were so late in arriving, we were among the bounced. I’d been bounced by airlines before, but never by a hotel. (Except for that horrendous experience of having my entire party of 25 bounced in London thirty plus years ago) I was surprised, nearly shocked, sort of insulted and could feel something angry brewing as the reality of K’s announcement found its way into my dulled consciousness.

“They are overbooked,” she said for the second time. “We can’t stay here.”

The hotel receptionist, a stout black man whose suit barely contained his weight, was nervous and apologetic. It was as if this was his first time sending guests into the dark. Perhaps because of that or perhaps because of the “choice” I’d made with our taxi driver, I remained calm – even cordial – and felt good about it and almost instantly. The receptionist, this man who worked two jobs to support six children (in my mind) was the one that was upset. And yet he was not the perpetrator of our difficultly. In having to deal with disgruntled guests, he was as much a victim as we were. He too had a choice. He could have been distant or defiant or defensively surly, as employees often are in these sorts of difficult situations. But he chose to be sympathetic and vulnerable. I felt bad for him. I liked him. I loved him. He offered to pay for a cab to take us to the Conrad, six blocks away, where he had booked a room. We decided to walk. (I had a stub I thought I’d enjoy smoking.) As we were walking out he put a ten-dollar bill in my hand. An avuncular gesture. Touching. I accepted it.

To Tip or Not to Tip

Speaking of Uber, one of the several things I most liked about it was that there was no tipping. You didn’t have to go through the mental crush of feeling obliged to tip someone that had just put your life at risk, cranking the car back and forth in dangerous traffic while gabbing obliviously to some other taxi driver in the city. With Uber, the tip was automatically included in the charge. I liked it that way.

About a year ago, amidst reports that Uber drivers were poorly paid, a friend told me he was tipping Uber drivers cash to compensate for their measly earning. I told him I thought that was a terrible idea. I loved the no-cash-needed benefit of Uber. If he and others began shelling out cash it would soon come to be expected and then the benefit I liked would be gone.

The folks at Uber may have anticipated my worry and responded to it because the next thing I knew I was being given the opportunity to tip the driver afterwards with the electronic receipt. Those I’ve seen give three modest choices: a dollar, three dollars and five dollars.

It seems like a good solution. The amounts are small. The action is discrete (the driver doesn’t know) and the cashless ride is preserved. As to the assertions that UberX drivers make little money: I have mixed feelings. On the one hand, their compensation is low because the fares are so cheap and the fares are so cheap because of free market compensation. None is forced to drive. Many are students or people otherwise employed that like the chance to pick up some extra dollars during their down time. On the other hand, most of the drivers I chat with (and I chat with most of them) turn out to be likeable people and I don’t like thinking that they’re barely covering gas and equipment costs with the fare I’m giving. My solution? Most of the time I take Uber Black, which is expensive – like 3 to 5 times the cost of Uber X – so I don’t have to worry that these drivers are poorly paid. And when I do occasionally take an Uber X I hit that tip option. Like almost everything else in life, I can’t be ideologically consistent on this point. If I take the time to think of it I end up making a business decision, which is almost always a compromise.

Making money passively…very passively

Got this message today from my brother Justin: “On April 24th we closed on the sale of the “Seabird,” our 12-unit apartment building 99 yards from the wide white-sand beach in Pompano Beach. We bought the property from a bank in 2011 for $515,000. We put a few hundred thousand in it over the years, but much of that was from cash flow. So our sale price of $1.325 million still netted us very healthy capital gains. Specifically we’re distributing just shy of $770,000, including just over $667,000 in capital gains.” Justin has been building a very impressive real estate portfolio since he quit working for me in 2009 and went out on his own to make his fortune in real estate. I’ve been investing with him since then and it’s been the best passive real estate experience I’ve ever had – and not just in terms of ROI, but promises kept and communication.

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