This weekend my wife and I were traveling home from the tour of our backup hospital for the birth of our son when we stumbled across this little gem of a story from the folks at NPR. It was about two budding entrepreneurs who, (*enter deep and ominous voice*) in the midst of these very serious and very deep economic problems (*end deep and ominous voice*), have found the strength to begin a business together: Lucky Worms and Monster Worms.
Enzo and Otto Fiore, age 6 and 4 respectively, represent something at the very center of the spirit that will help America weather the storm of irresponsible people not being able to pay back their home loans – resourcefulness and ingenuity. And being ridiculously awesome. Can’t forget that.
Case in point: advertising. Instead of trying to hype their product with celebrity endorsements from the likes of Sponge Bob Square Pants or Dora the Explorer they keep it real and go with a simple roadside sign that reads:
People and gentlemen, please buy our worms … here
I think the ellipse might not really be there on the actual sign, but I couldn’t tell from the way Otto Fiore read the sign to the reporter. Speaking of the reporter and Otto reading, this is a story that you really need to listen to in order to get the full power and gestalt of what is being communicated. Trust me, you will thank me later.
You can find the link to the summary of the story here, Worm Obsession Prompts Money-Making Scheme. Simply click on the listen now button under the title.
Done listening? Good. Here are the main things that I saw grownups like me can learn from these two pillars of American entrepreneurship:
Pick Something You Love
These boys have a serious obsession with worms. When asked by the reporter why they started a worm business Enzo recalls this story:
Well, because Otto really like worms. One day, he liked worms so much that he decided to put worms in his pants … with ICE!
I could figuratively taste the satisfaction these kids get from their work through the grainy speakers of my 1995 Toyota Corolla when I heard that, and I wastn’t even on LSD.
Application: If you can’t see yourself putting your business down your pants … with ice, then you probably don’t love your business enough to make any real money on it.
Use Your Natural Skills And Affections
Worms are deceptively quick, squirming and worming their way back into freshly disturbed earth faster than Richard Simmons make me cringe. It takes a steady hand, a quick wit, and a heavy dose of flashlight-wielding little boy euphoria to catch ‘em and that is exactly what Enzo and Otto are equipped with. You don’t have to goad them into this euphoria, they were made for it.
Application: If you aren’t wired for your business then you might make money on it, but you won’t LOVE it enough to stick it down your pants with a few ice cubes for good measure, which is the whole point running your own business anyway.
Start Off With The Things Around You
Can you turn things from your back yard into $114 with nothing but your hands? If you answered no then you have one of two problems: you aren’t resourceful enough or you suck. If we are both honest about it, it is probably the second one.
Often times it takes a lot of effort, capital, and time to start a business from scratch, but if you are already doing the thing with the things around you, the next step to starting a business around that thing isn’t that great a leap.
An example of this might be trying to make money online. You are already on the internet a lot, you might even have a blog about something near and dear to you heart – lets say “farcical aquatic ceremonies” – that you have some marginal success with. You slap some adsense on that puppy and wham!, you just earned your first $0.03. It is just a matter of time before you quit your day job and work on the internet full-time.
Application: Stop sucking and use the resources around you (whether it be land you own, the local library, or an old skill that you have neglected, or the internet) and actually be able to do something that people need. Before you know it a business may be born.
Use Your Connections or Fail
Even with a huge love for your business and the skills to match you are not guaranteed success. You have to leverage the people you know into buying your product or service. If I was a betting man, and I am, I would bet $50 million that the bulk of the kids business comes from people that they know or that their parents know. The rest comes from referrals from these same people. Without customers you will always fail.
Application: Be ready to sell your soul to market your product. You key weapons must be fear, surprise, ruthless efficiency, and an almost fanatical devotion to the Pope. Or just really good connections.
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I am always a fan of learning from kids and this is no exception. They are often full of exuberance and free from some of the false constraints we have grown accustom to in our own growing up. If I find myself in a creative or intellectual rut, there is nothing better than spending an hour with a kid building a fort or telling stories. It just makes sense to me that kids can teach us a lot, even about businesses and entrepreneurship, if we are willing to listen.
Do you know any entrepreneurial kids that we grownups can learn from? What lessons have you learned about turning what you love into something that makes money?
If you haven’t been living in a hole for the past few weeks then you have probably seen what has been happening to the stock market. It has been falling deeply into oblivion, wiping out trillions from retirement systems and equity accounts nation (and world) wide. Since the beginning of the year, the Dow Jones Industrial, Nasdaq Composite, and S&P 500 have all suffered losses in excess of 35%, with especially heavy losses occurring at the beginning of this month (Oct 2008). With such steep losses affecting our investments, is this the time to dollar cost average into the declining market to capitalize on its future growth?
Before I get into answering this question about dollar cost averaging I feel like I need to make a little disclaimer about myself: I am not an investment guru. I have a grand total of $0.00 in any self directed online investment portfolio and don’t see myself investing any money for at least a couple years. I would that it would be different, but my current financial situation has kind of excluded me from this type of wealth building activity.
Now I do have a 401(k) with an employer match, but my contribution is so piddly that it doesn’t really amount to anything. I mostly do it for the employer match – which is 50% – since that pretty much destroys any rate of return I could get by putting that money into a savings account. I wish I could get even more from my employer in this way, but I actually have to use that money to eat and stuff.
But enough about me and my total lack of any authority on investing topics and back to this issue of dollar cost averaging in a declining market.
In case you have gotten this far and don’t know what dollar cost averaging is, it is an investment strategy that attempts to minimize the timing risks associated with investing a lump sum of money by spreading that risk over many smaller investments over a given period of time. The idea is that by betting small and betting often dollar cost averaging will lock an investor into some favorable timing conditions, such as when prices are at a cyclical low. That way, when the price of the stock eventually goes up you will be poised to take advantage of the fact that some of your buying occurred at cyclical low points.
If this still isn’t making sense, check out my post on the basics of dollar cost averaging for a much more detailed explanation and pretty pictures.
Dollar Cost Averaging When The Market Looks Bad
I think that the real question that I am asking about dollar cost averaging is this, “Is DCA a good way to mitigate risk during a declining market?” I think the answer to this question is a resounding NO!
There are two main reasons that I think this way. The first is this: I don’t think pumping money into a declining market over time is a good way to mitigate your timing risks because the market is declining. The chances are that all your bets are going to be bad at this point in time. You only really suffer timing risks when markets are trading in a relatively lateral fashion or when a massive drop in the market occurs unexpectedly, not when they are on a steady decline. A series of pictures might be useful here to help us better understand what I mean.
The above graph in an example of when the market traded within a certain band over a given period of time. The specific stock in question is Coca Cola (COKE) and is historical data from 2001. As you can see there was little overall change in the price of the stock from the beginning of the year to the end of it (a total change of $0.02 from the opening price on 1/2/2001 to its closing price on 12/31/01). For the sake of this example I will compare investing $12,000 with the lump sum investing strategy with what the outcome would be if I dollar cost averaged that $12,000 in $1,000 increments on the first day of every month.
If I invested all my money at the beginning of the time period represented in the above graph then I would have ended up $6.34 (0.05%) ahead after 1 year. If I had dollar cost averaged into the market at this time, then I would have ended down $272.53 (-2.27%) over the exact same period of time. The reason for this difference is that with each purchase of stocks using DCA locked in at a different price. Some of the stock purchases would have been at a better price than my first one while others might have been worse than the first because of the cyclical nature of this trading cycle. By increasing the number of bets (trades) made, dollar cost averaging attempted to spread my risk over many different purchases. Instead of helping improve my returns, though, it actually ended up hurting me.
In this particular lateral market conditions dollar cost averaging appears to provide a sub optimal return on investment. I should have put all my money in at the beginning. This isn’t that case in all circumstances, as the example in my original post about dollar cost averaging pointed out. But in this case, DCA loses pretty badly to lump sum investing.
Now that we have seen how this investing strategy works in a lateral market, what about dollar cost averaging in a declining market?
This is a graph of the S&P 500 over the past year. If this does not represent a declining market, I don’t know what does. If I had invested a lump sum of money, lets say $12,000, at the beginning of this decline into a lost cost index fund that tried to mimic the returns of the S&P 500, I would have suffered a loss of $4,724.40 (-39.37%) – and assumes an expense ratio of 0%. If I had dollar cost averaged in this market I would have lost less than that, but I still would have lost $4019.11 (-33.49%) if I had invested $1,000 on the first trading day of every month. If I had held onto my money and kept it in a low yielding savings account it would have grown by $18. It is pretty rare when a savings account will beat returns in the stock market, but a serious decline like this is one of those instances.
Dollar cost averaging money into a market like this will only result in one outcome – poor returns.
Do Not Dollar Cost Average Into A Declining Market
Before, I mentioned that there were two reasons that I though dollar cost averaging into a declining market was a bad idea. The first was that it doesn’t make sense to make bets (trades) that you know are going to be bad (because the stock market will continue to fall). If you think the market (or a specific stock) has farther to fall you are best served by keeping your money out of buying new stocks all together. Why lock in at a price that you think will continue to drop? It just doesn’t make any sense and was the point that I made above with all those pretty graphs and stunningly awesome commentary.
The second reason is very much like the first, but slightly different: why invest money in a stock market that you think you will lose value over the course of the next couple months when you can get sure money by putting it into a high yield savings account? You should go with the sure-thing money all the way because you saddle yourself with losses when you buy into something that you think has yet to reach its bottom. Why not save the money until you are certain that the decline has stopped?
This makes much more sense to me. My solution to the current conditions would be to stop any scheduled stock purchasing plan that buys stocks on set time intervals (like dollar cost averaging) and instead sock that money away into a high yielding savings account until you think that the market has hit bottom, leveled out, or started rising again. I’d bet you $10 if we met in person that the return would be better on your money than if you continued to dollar cost average while the market is in decline.
As of writing this post, I have been bike commuting exclusively now since the beginning of September. I have not been able to ride every day during that time frame because I was sick for about a week in early October (and my wife made me drive) and we house sat for friends who live much farther away from my work than we do on two separate occasions in September, but I would say that I have ridden to work 8 out of every 10 working days in the past two months. For me that means I have commuted by bike about 770 miles. I like this a lot.
The most obvious benefit that biking has provided is improved overall fitness and energy level. I have gotten far more exercise these past two months than I have gotten since my wrestling days in college where we had three hour practices in which I would lose 8 lbs of sweat. I know that this is kind of gross, but I feel a little sense of pride knowing that I could do something like that. I don’t sweat nearly that much anymore, but at least I’ve started sweating again.
In addition to improving my health, bike commuting is also turning out to be a very frugal mode of transportation. When you add everything up that I have spent so far, the total comes to a measly $270.58 – and this includes the purchase of the commuter bike! If we ignore the miles that I rode in August, this computes to a per mile cost of $0.35. This figure is only going to get better as I begin to put more and more miles on the bike.
For example, if I don’t spend another dime on bike related purchases, I will see my cost per mile drop after 60 more working days (approximately 3 months) to $0.13 a mile. To put $0.13 into perspective, this is the same as getting 25 mpg on a car at the current cost of gas in San Diego ($3.19). I think that this is fairly respectable.
Unfortunately, I will probably spend some money on bike related purchases over the next 60 days. I think I could really benefit from making the switch to clipless. This means that I need to go out and buy some bike shoes with the cleat that I need for the pedals on my bike. Walking around bike shops in my area the cheapest I have seen a shoe for is around $100, but I think I saw some on Amazon once for $40. I also might need to get more patches for leaky tubes – but I am hoping that isn’t the case since I ditched my WalMart tire and tubes for ones I bought at a bike shop. Don’t ask me why I bought a tire and tube at WalMart, I obviously wasn’t thinking straight.
Even if I spend $140 over the next 60 bike commuting days I will still see my cost per mile drop to $0.20 a mile. This is the equivalent to 16 mpg.
When you consider all the other costs associated with driving a car (such as the initial purchase price, insurance, repairs, regular maintenance, tires, etc.) I think that bike commuting probably blows it out of the water. I mean it already is on par with the cost per mile of just gasoline! I plan on bike commuting for many more moons and perhaps I’ll do a more indepth cost analysis between it and driving a car. That may really blow my mind.
This is a serious question that I want to know the answer to. Can I make money online? I’m sure that we have all heard the hype about making money online and come to the conclusion that if there is any money to be made it certainly isn’t by us. Instead of being a nay-sayer and self-doubter, I am really trying to give this business venture a go and see what happens.
There were a couple of factors that led me to pursue this type of business to supplement my income. The first is that the internet is everywhere. I could make money in San Diego, California just as easily as I can make it Lexington, Kentucky or Shashemene, Ethiopia. As long as my computer can get onto the internet I can make money on it. This fits in with my goal to develop portable infrastructure for my family, providing money that will follow me wherever I go.
This is not the case with a standard brick and mortar business. If I invested lots of time in getting some type of small business going here in San Diego I would suffer a complete loss when I move in the next year or so. My time spent on the business would give me much needed experience, but once I moved all my clients and built up infrastructure would be lost. I didn’t want to go through that. I wanted to be mobile, portable, and profitable. I thought I might be able to get that in an online business.
The other reason that I wanted to try my hand at making money online is that I wanted to at least be at home around my wife and soon to be born son when working my “second job.” For some reason, I like being in the same room with people that I love even if we aren’t really talking or doing something together. Since I love my wife and my soon to be born son, I figured that it would be better to be home where they can see me and I can sneak away from work for five minutes to kiss my wife, give her a hug, and tell her how much I love her. After working all day at the button factory I need this type of contact with the wife. It is important to me and a traditional “second job” just couldn’t give me that.
I also think that there is money to be made in the online world. There are people making it hand over fist and I figure that I could at least make something if I put my mind to it. I work relatively hard, am fairly coachable, and I can write English sentences. Those are fairly decent abilities and I think they could help me make some money online.
So can I make money online? The short answer to this question is yes. So far I have made over $250 since I started blogging in December 2007. This is not a lot of money, but it is something. I guess the real question that I am asking of myself is, “Can I make a significant amount of money online?” That is a question that has yet to be answered.
But to be fair to myself and the process I really didn’t start to know the first thing about how to make money online until sometime near the end of May 2008. Of the $250 I have earned 93% of it was earned after this date.
My Making Money Online Journey
In December 2007 I started looking for a useful hobby that might happen to lend itself to making an extra buck here and there. I briefly considered getting in to baking, but that never really panned out. My wife is already really good at baking so duplicating our efforts there was probably not the best idea anyway. Sometimes I still wish I could make cookies that soccer moms will pay me hundreds of dollars to bake for their kids, but I have given up on that dream … for now.
After a few days putzing around the internet I stumbled upon personal finance blogs. A light went on in my head – my wife likes blogging and thinks it is fun … I like thinking about personal finance stuff … why not join the two together and maybe make some money online while picking up a new hobby?
My Family’s Money was born shortly after. My first contribution to the internet happened on December 14th, 2008. I talked about how I want gold. Good times, good times.
My experience with this blog has been pretty fun and a few months later I decided I wanted to host my blog on my own server rather than on Blogger like I was doing. I went with DreamHost because some other blogs I read used it. It has worked fine for me.
The fact that I went with DreamHost is important to my making money online story – they offered a free domain with the hosting package I went with. I had already bought myfamilysmoney.com through another registrar, so I had a free domain just waiting for me to use.
Then I found Courtney Tuttle and his blog about internet marketing. He used to talk about a way to target specific search traffic with an entire blog. He used to say that you could optimize an entire site for a long tail keyword term like “It’s time to kick ass and chew bubble gum, and I’m all out of gum.” He also said that by using Adsense you could turn that traffic into money.
Since My Family’s Money wasn’t really making any money, I decided I would use my free domain name and give this whole targeted site a try. I started my first site like that at the end of May 2008 and right now I am projecting to make around $70-80 this month on it. Not terribly awesome, but that is $70-80 more than I had last month.
I have to admit that I still have a ton to learn. I try to read a little each day and do a little work each day to make my sites better – both in terms of the content they provide and the experience that I give my users. I want them leaving happy and getting to the place that I, advertisers, and they want to go. I figure by making everyone happy I can make money online for a long time to come.
There are some real resources out there that will teach you how to make money online. I have been pretty skeptical about who I will listen too and what products I will invest money into. Of all the sites I have read, there are a few that have really helped me understand how to run this type of business. They are:
If you are asking yourself if you can make money online then I highly recommend that you take a look at these guy’s sites. What little I know I have learned from them and I could really do to learn some more.
The question remains, can I make money online?