Foo Bar and Grill

In a follow-up to the Silicon Valley discussion, I've been cruising around various entrepreneur blogs. One thing that I detect is an assumption that all ventures that make heavy use of the web are "high technology companies".

As a hardcore techie, I'm somewhat annoyed by this idea. As technologies go, the web is fairly mature, and much web infrastructure is based on even more antique technologies like client-server SQL databases (little real changes in the past quarter century), Linux or Windows (both fairly mature in their recent incarnations, and, with Linux, little different in practice than the BSD Unix I used at Berkeley in the early 1980s), and various scripting languages (PHP, Perl, Java, Python, C# and the various .Netisms, etc) that arose in the 1990s. Very few newer web companies, including most "Web 2.0" companies, are doing anything more technically interesting than IT-level back-office application work. The applications themselves are obviously new and involve many technical challenges, but these companies usually aren't creating any primary-level technologies that can be heavily leveraged for IP or barriers-to-competition purposes. Their differentiators are in new business and marketing approaches, not in technology.

This relates back to the "Silicon Valley question". Silicon Valley has a vast pool of advanced tech talent, but it is expensive and probably best deployed in primary technology startups versus web application startups.

That said, there are many other reasons to do a startup in the Valley other than its technologists, especially its startup culture and other professionals with startup experience. But someone doing a startup needs to consider whether their company is truly a technology company or an application company? If they don't, their investors will...

This speech by Whole Foods founder John Mackey is very important if you're someone with libertarian sympathies. He points out one of the biggest weaknesses of libertarian approaches and libertarian "marketing": its lack of passion and emotion. These are owned by the Left, and this is why the Left, despite losing every argument again and again, still exists as a vital force in the world.

I watched the Oscars - well, popped in occasionally while my wife watched as I was busy debugging - and endured Al Gore's attempts at jokes, and global warming, all the time. I suspect their ratings will be even lower this year than last.

Now, I own a rather vast DVD collection, but there's pretty much no movies in the Oscar list that I've cared about since The Lord of the Rings series finished its run. The only Oscar-nominated movie I saw in a theater was Cars, which didn't win in Best Animation.

My advice to Hollywood: quit making "important" movies and concentrate on making "good" ones. Leave the Gulfstream squishy-left politics at home, and make movies that specialize in people doing interesting things, and you may get me to get off my duff and go to a theater. Hit me over the head with anti-American leftoid politics, or celebrations of Communist murderers, and I won't even watch it when the movie comes up in free movies-on-demand. Explorations of the awfulness of war can work, but if the message is "we should all love each other and make policy based on John Lennon quotes", I'll pass.

Oh, and real people watch movies. Art-house snobs watch "films".

And here's one movie I'll watch...

A common lazy writing technique, similar in spirit to "only a fraction", is adding "North" to America when someone wants to make a point about the US. This allows the person to sound "international" or "politically correct". But last I checked, Mexico is in North America as well, but their point is rarely something applicable to Mexico.

Entries in the Pet Peeve File:

Expressions I don't like
The Number 23

Last year was the first year I had my taxes done by a CPA. He charged $850, and came highly recommended. But he didn't know about self-employed 401Ks, so I had to teach him about how to do ours, and he was rather impatient with my wife when she asked questions. So, we decided to give tax software another try.

We went with Turbotax Home & Business, which we downloaded and used. It was far cheaper than the CPA and did all the same stuff; the general numbers are the same as last year, and it didn't give my wife an attitude. I was careful to use the same structure as he did regarding things like depreciation so we have proper continuity, so I did "leverage" his work a bit...

The software was straightforward, if you were patient with it and followed its steps in order. I got everything inputted and it happily calculated my taxes and set up the forms, and things went reasonably, although I was worried for awhile that I wouldn't find where it handled SE401Ks. It does, and even has a "401K maximizer" feature, but you have to wait until the right part of the "interview".

My only complaint about "interview-style" tax software is there's no way to get help on "if I have Situation X, where and when do I deal with it?" You have to wait until the part of the interview which covers that step, and infer that Situation X applies in that case. In this case, the software handled self-employed 401Ks perfectly, but I didn't see that part until after I completed inputting my wife's business tax numbers for her Schedule C. (This makes tax sense since you don't know how much to use for the "employer's share" of the SE401K until you know your profit after expenses and depreciation.)

The help available in the software directs you to IRS info, which is helpful if it's a tax question, but not so helpful if your question is related to the structure of the software itself.

But in general, it was a good experience. I'm not sure I'll still be able to use tax software next year as we'll probably have some income property by then, but I like knowing what's going on with my taxes, so I'll keep doing them if I can.

Over at Chris Yeh's blog, there's an interesting discussion about startups and Silicon Valley.

I'll be the first to admit that Silicon Valley has a lot of negatives: real-estate is ferociously expensive, and if McMansion living is your thing, you won't do it here unless you hit a serious home-run. By American standards, it's fairly crowded (although having lived in Beijing and Shanghai, I always laugh when people complain about the crowds here), and most people here aren't "well-rooted", so the sense of community can be rather lacking. (Another of my wierdnesses is I'm a rare native son of the Valley, born in San Jose.)

But Silicon Valley has been counted out after many busts, and has come back every time; even as a kid in the early 1980s, I remember hand-wringing articles in the San Jose Mercury about whether the Valley can get its mojo back. But it somehow always does: in addition to "natural" and obvious strengths such as good weather and top universities, a big and usually overlooked strength of the Valley is a large number of people who've spent much of their careers in startups, and are professionally and personally accustomed to dealing with startup ups and downs. These people make up the early startup team and help to get it from vision to early funding, and if they do well and have a bit of luck, to the stage of being a profitable company doing something useful in the world.

I'm one of those people. I've done two of my own startups, extensively consulted for another, and been an early-stage employee in three others over the years. My "startup niche" is what I call "Number Two in Engineering": I'm the guy hired after the VP-Eng or CTO, whose job is to get the early coding done, set up initial engineering processes such as version control, QA, and release management, early IT stuff (which I get out of as quickly as possible), hiring early team members, etc. I'm not a "suit guy" who talks to VCs or hangs out in strategy meetings; I'm more of a "sergeant" who "faces inward" to get the product up and shipping. My particular technical specialty is complex data management on small systems and devices.

Would I move to Colorado, Boise, or wherever? Maybe if the price was right, and I was convinced it was a can't-miss opportunity. But probably not. Since most startups fail, I'd be wondering about my next gig, which would be far easier to find here in the Valley than elsewhere. The chance to own a big house, likely for a relatively short time, wouldn't be worth the price of uprooting myself professionally, so I'll stick around...

Over at The Economist blog, the various blog posters are in a tizzy over global warming, and seeming American non-action. They're realizing that it'll be truly hard to get Americans to buy into an approach that favors grand policies, vast bureaucracies, new "Pigovian" taxes, and lots of pain.

But, as we say in software, that's a feature, not a bug! If AGW is truly real, and climate mitigation policies can be shown to have a chance of dealing with it, and it doesn't cripple the American economy or damage American power, steps to deal with it can probably be done. But otherwise, why bother? And such extraordinary claims will require extraordinary proof at every level - and not just the "precautionary principle" hand-wave.

As I've mentioned, I'm generally skeptical but willing to consider "two-fers" that reduce CO2 emissions while accomplishing other useful goals such as reducing dependence on foreign oil and "real" pollution. But I'm not interested in bankrupting the country to do it, or in donning a hair-shirt while China and India get a free pass.

And there's no way I'm interested in the UN or any other collection of transnationals imposing "tax harmonization" on us, for whatever purpose; this wonderful idea was floated in the 1990s to supposedly "help Africa", and has returned in the guise of various "green taxes". The "need" keeps changing, but the "cure" stays the same: magic taxes going to mysterious transnational entities that supposedly will do Great Things.

One aside: US CO2 emission change performance during the Bush administration has been surprisingly good - in fact, better than much of Europe during that time.

or Happy (Chinese) New Year! We had several guests over for a party, featuring homemade jiaozi and other dishes, both Chinese and American. After the food, we did what is a tradition in any household with someone from China: we watched a five hour variety show. The show is done in Mandarin, so my very bad Mandarin was given a workout. My wife and our Chinese friends were happily watching the show, or ignoring it and chatting, for the duration.

The show itself is always interesting; this is the seventh year I've watched it. It has various comedy acts, song and dance numbers, pop singers, "ethnic solidarity" numbers (with at least one skit featuring happy Tibetans - oddly, the Dalai Lama wasn't invited), with a fair bit of red flag-waving.

Some interesting aspects of the show: they clearly spare no expense, and there are probably several thousand people on stage at one point or another. This year, they had big rear-projection TVs that allowed for "live" sets with running water, etc. My wife said this show was particularly conservative, although there was one interesting departure: a group of peasant kids whose parents work in the city lectured the crowd on the need to improve the schools available to them.**

This show is also interesting for its politics. The audience shots are obviously done for political reasons, and occasionally some Big Guy will be shown. However, this year, no leader got a special front-row seat.

One odd thing: this is probably the only show of this kind where the live audience is actually smaller than the number of performers. I've seen Vegas lounge acts with bigger crowds. It was odd seeing a huge song and dance number with dozens of beautifully dressed performers finish and hear what sounded like ten people clapping in the distance. But the performers are well aware that a billion-plus people are watching them on TV; a good performance by a rising pop star can make a career.

Happy Year of the Pig!

**An aside: China has an odd arrangement where one needs a residency permit to live in a city. Getting these is complex and often involves bribery or other - expensive - trickery, and many people, especially peasant workers working in big Chinese cities don't have them. This creates a sort of "illegal immigrant" problem in China, with lots of workers working off the books.

The pay is far better than it would be in the countryside, but not having a residency permit means the peasant kids can't enroll in the city schools. There are unofficial private schools where peasant kids go - if their parents pay - but these are very low quality. The kids in the show were attracting attention to their school situation, clearly showing a sort of "officially approved" dissent.

I've spent my career in technology, and have worked on things that became major open-source projects and commercial software products that many tens of millions of people (indirectly) use daily. This is Very Cool, and I'm always happy to think that over the years, billions of people have used stuff I wrote or helped to write in one way or another to do something that improved their lives in some trivial way.

That said, I realize that I'm something of a Luddite in my personal life.

1. I don't love cellphones, PDAs, etc.

The only reason I have one at all is because I worked in a startup that sold them! My cellphone is pretty much always off unless I need to make a call, expect one, or need my car towed. As for PDAs or other "things that beep" that people tend to carry on their person, I could do without them, even though my software is used in several PDAs.

As far as I'm concerned, email is more than enough "personal connectivity" for me.

2. I have several computers, but they run Windows 2000 or Linux.

Windows XP, much less Vista, is not getting anywhere near any machine of mine. When I need to use Windows, Win2K is adequate to surf the Web or play most games, and I use Linux for serious work.

And before Macophiles attack, I'm not getting one. I'm frankly too cheap, and have never gone for the "insidery cool" Apple marketing.

3. I'm not a big fan of social networking websites.

I'm well aware of them, but why do I care about a zillion people I don't know? Blogs are different - I'm not a link whore, but writing in my blog satisfies the dreaded "pundit itch" that must be dealt with. I also don't use most other "let's get connected" stuff like instant messaging (probably for the same reason I don't like cellphones).

The only social networking site I pay much attention to is LinkedIn.

4. I pretty much ignore all music tech.

No Ipod, no music downloading, etc. I listen to music occasionally, but not while driving - oddly, I'm far less distracted by talk radio than by music while driving - and I mostly listen to classical or "classic rock". The most high-tech music playing device I own is a dusty ten year old boom-box in my office that has a CD from Wagner's Ring cycle in it at the moment.

Tech things I do own: a fairly good TV and home theater setup; not top-of-the-line, but fun for watching movies and sports.

Like most people, I hate being wrong. Last spring, I figured that the market was due for a big correction, so I sold out my index funds and put them into boring (but decent) money-market funds that paid about 4.5% at the time. That was a big whoops: the market, after a small drop that made me briefly feel like a genius, took off and hasn't stopped climbing. Part of me figured there'd be a couple more big hurricanes and gas-price scares; I made good money the year before by taking some contrary positions post-Katrina when MSM Chicken Littles were talking about $7 gas.

The only good thing that happened in 2006 was a big Microsoft play that worked out: I bought a bunch at 22 and sold at 28. (It would have been nice to ride it to 31, but MSFT never stays above 30 for long, and often doesn't get that far.) That, along with partnership income, made my overall portfolio show about a 9% gain for the year; under the S&P gain, but not that awful.

So now I'm stuck with a bunch of cash, and need to figure out what to do with it. Jumping into the market right now seems rather stupid, given that it's hanging around record highs, but there aren't any obvious bargains at the moment. I don't love the 5%-ish it's earning, but I'll keep my powder dry.

I left this comment on this discussion thread on Winds of Change.

For my part, the AGW fight reminds me of another recent episode: the Internet stock bubble of the late 1990s. You've got the following:

1. Something that is poorly understood by most, but will Change the World in unpredictable ways (although unpredictably good in the case of the Net, unpredictably bad in the case of GW).

2. A sense that there's trillions of dollars at stake.

3. Lots of turbulence on all sides. Business models, government forms, and whole economic and political systems are seen as threatened.

4. Those who "get it" versus those troglodytes who just aren't hip to the whole thing, and ask unpleasant questions such as "can anyone see how this will actually make money" or "what about that whole Maunder Minimum thing"...

5. Obvious historic precedents: the railroad and telegraph boom of the mid 19th century, the Tulip Bubble, and with AGW, the climate-cooling scare in the 1970s, the Club of Rome, and the whole litany of bigthink disasters dating back to Malthus. And "advocates" claim that "this time, it's different".

6. Celebrity promotion and media advocacy. Being hip with AGW is cool and trendy, while being a skeptic is just so Big Oil. Al Gore as the new Maria Bartiromo.

Like anyone who owns a house these days and has an internet connection, I can't help to bird-dog the real-estate sites to see what the world thinks my house is worth. Prices have definitely dropped, and things are far "cooler" overall than they were about 18 months ago. But the market is still moving: the local MLS website shows many houses in contract, and a small development of new houses just sold out a few blocks away; construction on these houses finished a couple weeks ago.

It helps that the development is probably the only set of new single-family houses that will exist within an easy bike-ride to Google HQ, unless the area around Shoreline Park is rezoned to allow residential and some old office parks are torn down. (Even then, I can't see single-family properties being built there; it would almost certainly be condos.)

We also saw a small apartment complex go for sale a few blocks away at what looked to be a bargain price for Mountain View: about 1.6M for a 1/4 acre with ten apts. (We've been investigating investing in apts for awhile, although they're generally far too expensive to buy for cashflow in this area.) But at that price, it would cashflow positive with 30% down commercial financing as apts, and the apts could be condo-ized and sold for at least $350K each. This math occurred to faster people than us; we called the agent and he said there were 15 offers on the place. According to him, it was going to go for well above the asking price.

We declined to get in the offer queue...

While I'm not a "personal finance" blogger per se, several personal finance blogs are places I frequently visit. One ongoing topic on those blogs is how to account for residential real estate in one's net worth calculations.

This is an area where personal finance meets High Finance, and where lots of fancy financial concepts hit personal reality. The choices vary greatly, from using a relatively conservative approach of going with your real-estate tax assessment, to bird-dogging comparables and using Zillow estimates to track your house price as if it's a stock.

Personally, I don't like using highly volatile measures to account for real property in the net worth statement, so we use a conservative approach: we use the appraised value of our house as of our last refinance. In the net worth spreadsheet, we regard "equity" as the difference between the appraised value and our mortgage principal. This ignores unrealized costs like the cost of selling the house, but this refi was several years ago and our house has appreciated enough since then (even accounting for recent price drops) that there's definitely enough "headroom" in our actual equity to cover this sort of thing.

This approach has the advantage that we capture monthly mortgage principal paydown, but other than that the real-estate part of our net worth stays fixed. This means the main contributor to our net worth changes is investment appreciation and savings.

When you leave one company for another, one important choice is what to do with your old 401K. Should you roll it over into a some sort of IRA (either Traditional or Roth) or should you roll it into your new employer's 401K?

Personally, I've always rolled old 401Ks into IRAs, and never understood why anyone would roll an old 401K into a new 401K. As far as I can tell, the only reasons to roll an old 401K into a new 401K (versus into an IRA) are the following:

1. Laziness - you only want one retirement fund. But at a minimum, you should have a 401K and a Roth IRA.
2. Many 401Ks have loan features, which aren't available in IRAs.
3. The 401K has superior investment options that aren't available in the open market.
4. You want to avoid trading fees.

Point 1 is acceptable, but should be recognized as laziness, and not a truly valid "reason".

Point 2 is OK, but dangerous - 401K loans are a good way to get yourself into trouble.

Point 3 is valid, but extremely rare. Pretty much all employer 401K plans invest in publicly available mutual funds; if you like the fund, you can find out its symbol and invest in it directly in your IRA if you so prefer.

Point 4 is probably the most valid, but this can also be avoided by parking your IRA at Vanguard or some other good mutual fund company, where you can invest and trade in the company's funds for free.

The reasons for rolling a 401K into a traditional IRA include the following:

1. You can invest in any stock, mutual fund, or any other investment available in the market. In an employer 401K, you're limited to the portfolio they make available.

2. You can Roth-ize the rollover when convenient.

3. Your rollover money is not encumbered by your employer's financial issues. This actually became an issue for me once: I didn't bother to roll over an old 401K, and my old employer croaked and went Chapter 7. My 401K was held up in the bankruptcy court for awhile. I got it all out, but it was scary.

The premise of the movie The Number 23 is that 2 divided by 3 produces the digits 666, or the mark of the beast. The problem is that, skipping the decimal point issue, it's actually .667 when correctly represented using three decimal places. One would think that after all these years, the devil would be better at math...

Jane Galt posted a link to an interesting paper called Why People Are Irrational about Politics. It's interesting, not only for its comments, but for its own biases:

o The political universe is filled with "problems" that lend themselves to "solutions". (The Technocratic Bias)

o These "problems" can be studied, and "solutions" can be identified, by "studies", which, if done carefully, can reveal objective truth.

o All that matters is data and analysis. If only people would set aside their own experiences and histories - which are what ultimately inform their political beliefs - the truth will out. The problem here is that many political beliefs and positions are informed not just by "biases" (which are held to be a Bad Thing and invalid), but by wisdom and experience.

For example, I don't believe that a vast global treaty infrastructure will help to reduce CO2 emissions because they've been ineffective in everything else they've tried, particularly if large numbers of countries are involved. All the arguments about why it's important to reduce CO2 emissions won't help convince me that such a thing will actually work, if only we "tried hard enough".

o There are two sides to every issue. There are as many "sides" as there are people looking at a problem - sometimes more; I know I'm on many sides sometimes :)

o Irrationality is "wrong". It isn't wrong, it's just irrational, unless you think rationalism is the sole description of "truth".

My overall take on global warming is basically similar to instapundit's.

On carbon taxes: Lots of economists love the idea of carbon taxes, or at least higher gasoline taxes, but these sorts of "Pigovian taxes" are awful for the working poor. About the only way I'd ever support such a tax is if it's revenue-neutral and the tax is paid for by a front-loaded elimination of the "worker's share" of social security and Medicare taxes, up to the "revenue neutral" point. This would give the working poor a 7% raise without cost to their employers, and give them a chance to deal with the increase in the cost of living that these sorts of taxes would impose on them.

Some argue that the poor can always ride the bus, or move closer to work, but moving costs significant money, and many working poor don't have steady employment so it often isn't clear where they will work over time. They also often work several part-time jobs and need reliable transportation to get between them, so depending on public transit is difficult.

There are two general types of insurance:

o Wealth preservation insurance. This is a hedge against big, unknown expenses like getting sued or enormous medical bills.

o Cashflow preservation insurance. This is a hedge against "bump in the road" issues like car repairs or replacement of electronics or appliances.

Life insurance is the ultimate form of wealth preservation insurance: the point of it is to "capture" at least some part of the aggregate earning power of the insured if they die untimely.

Other examples of wealth preservation insurance are auto liability insurance, homeowner's insurance, or high-deductible "health savings account" health insurance. An example of cash flow preservation insurance is pretty much all auto insurance other than liability; the amount it will pay is bounded by the replacement cost (or sometimes the new price) of the car. "Combination" insurance would be most employer-based health insurance.

We're big savers, so we run with "wealth preservation" insurance and figure that cashflow preservation will be managed by emergency fund savings. Following this logic, we never buy extended warrantees on electronics or appliances, and have high deductibles on everything that permits deductibles.

Typically, wealth preservation insurance is cheap compared with cashflow insurance, so this is a reasonable strategy for us, and shows how having an emergency fund can save money in other ways than needing to use debt to cover cashflow hiccoughs.

We just redid our car insurance, dropping our older car to "liability only", and getting our insurance agent to otherwise knock a hundred bux off of the quote for insurance renewal. These two actions saved us about $250 for six months.

This was an interesting exercise, and it appears that insurance companies do the same "trick" that magazines and other "subscriber-oriented" businesses: have low "teaser" rates for new customers, probably subsidized by higher "sucker" rates for ongoing customers. You can get a discount off the "sucker" rate by making a fuss, but otherwise, it'll go up silently.