It’s called rebalancing. Let’s say you $100,000 to invest. You put it in ten diverse ETFs or mutual funds. At the end of the year you sell the bits over $10,000 and invest the money in the funds which are below $10,000. You rebalance your portfolio. This works because you can’t predict.
Here are two charts. The first shows Vanguarad ETFs over one year — ranked by performance.
The second chart shows average returns over 5 years. Interesting?
Note: The funds are almost all different. Mull on this. More tomorrow.
When you sell your company, don’t be stupid. Check. check. check. The story: James and Janet Baker sold their voice recognition company called Dragon to Lernout & Hauspie for $580 million in stock. They used Goldman Sachs as their i-banker. It turned out Lenout was a fraud and the stock went down the gurgler. It went bankrupt. The Bakers sued Goldman for negligence. The court sided with Goldman, saying they weren’t hired for that purpose. The court was right. You can read the entire gruesome story here.
There’s a huge lesson. You hire an i-banker to get you the highest price. That’s their job. You don’t hire them …
+ To check out your buyer.
+ To give you tax advice.
+ To give you advice on how to invest your proceeds.
+ To decide whether you take cash or shares.
These are all your decisions. You need to take care of them.
I speak from experience. I opted for cash, not shares — though the share deal was worth 23% more. That was good. But we should have employed a separate tax attorney, but didn’t. Mistake #1. We should have employed a financial advisor on what to do with the money. We didn’t. Mistake #2.
The fact that I’m still liquid is a testimony to good luck.
In short, selling your company needs real. thought and planning. There’s no one around who will tell you what I just told you. Clip these words and keep them handy.
Update mid morning. My friend the retired investment banker writes:
When you hire an investment banker you should negotiate obtaining a fairness opinion on what the buyer’s shares are worth. This opinion will give you a better idea as to whether you should accept cash or stock in that a stock sale can have the benefit of deferring capital gains taxes. However, it is the seller’s assessment of the stock market outlook that can be the determining factor.
I love crowdfunding. You get your money and you don’t have to give up 1% of equity. You typically deliver product you will make once you get the funding. If you get too much funding you don’t have to give it back. Here’s an email I received this morning.
Hello Harry45,
We want to let you know that the funding campaign, StickNFind- Bluetooth Powered ultra small Location Stickers has completed funding. They raised $930,995 of their $70,000 goal, thanks to your contribution.
StickNFind Technologies should be in touch shortly with an update on the campaign and to fulfill any perks you are owed. As always, if you have any questions about your contribution or perks, check out our Contributor Happiness page here.
Cheers,
The Indiegogo Team
Be careful with those high-caffeine energy drinks. Caffeine is not good for you in large doses. A bunch people have died after drinking them. The FDA is investigating 13 deaths. Do not drink 5-hour Energy:
In 2011, more than 13,000 emergency room visits in 2009 were associated with energy drinks. Yes, it’s that bad. For more, click here. See also the latest issue of Wired Magazine.
If you don’t get enough sleep, your memory worsens. Especially as you get older., I believe in napping — at least twice a day. Twenty minutes make a huge difference. When I had a real office, I used to keep two pillows in my desk’s filing drawer and crawl under my desk to sleep. Muriel used to tell callers “He’s in a meeting.” All of them knew that meant I was sleeping and would call back them in 20 minutes.
Great quotes:
If you want a friend (on Wall Street), get a dog. — Carl Icahn
Carl Icahn does not have a good reputation. He’s not a handshake guy. Bill Ackman
Ackman is a liar. — Carl Icahn
It takes being a billionaire to have no dignity. Jim Cramer
Harry Newton, who will record favorite author Nassim Taleb who’ll be on CNBC at 1 PM today. Taleb is famous for the black swan and his latest book, Fooled by Randomness. Click here. He’s one of the brightest people on the planet. His books are not easy to read.
Secret Lives of the Super Rich is on CNBC tonight 9 PM. Here are some of the most expensive, ugliest apartments you ever saw. There’s one for $95 million. The furniture gives bad taste a whole new meaning.
Thanks for the Rebalancing Chart, Harry. Its so simple which is why every Scarecrow (you remember Harry, the one without a Brain from the Wizard of Oz) Advisor on Wall Street prints this out every December 31st. And that is precisely why they all end up with mediocrity at the end of the day. Just like the foolishness that you should have fixed income correlating to your age in years. Harry, there are three major Asset Classes: Cash, Fixed Income and Stocks. THe key to success, and not mediocrity, is to make a Guess (that is an educated hypothesis based upon all the data available) as to which Class likely to do better on a go-forward and then doing something not so simple, finding the Best stocks or fixed income (or do nothing ie cash) to fill out the Portfolio. Simple? Hardly. THe “Guess” and the data are constantly changing; the “Best Investable” is a function of finding Value and selling Over-Value. Do the hard work, and youll do better than most of the Balanced Funds and Hedgies out there, with a lot less Risk (adjusted). And if you have an Advisor, who doesnt “Guess” so good, there are only about ten thousand who would love to have a shot, within two blocks of Rock Center. As you say somewhere else in your column: If you want a friend on Wall Street, get a puppy. You want performance, find someone who shares that metric. There is another saying: Stupid is as stupid does, Sir”.
So, if one is a salaried or hourly employee, how exactly does one take a nap in the office? This is not a trick question.
Lunch time.
Arrange it with your boss. Work an hour longer…There are ways.
Thanks much Harry. Your insight is golden to the younger.
Harry’s advice is critical. The biggest mistake anyone can make selling their company, or as a large stockholder in the sale of a company, even an entrepreneurial one, is not fully understanding how big the greedy hand of the government is. It doesn’t take much to find you’re sharing well over 50% of your hard earned, high risk work with that slimy bugger. There’s a reason so many are leaving my current home state Calif. for tax free Florida, Nevada, Texas and such, but Uncle Sam still sates his endless appetite taking his “fair share”. You don’t have to be “rich” to have a need to understand this thoroughly. Political pigs.
Zicam Cold Remedy Nasal Swabs are under thumb of the FDA for no other reason then they advertised on the Rush Limbaugh show. Current and future advertisers take note……this same type of thing has happened before with Limbaugh advertisers.
That’s total bullshit. Anyway, they’re no longer being marketed, as I mention in the article.
Hi Harry-
Any luck with the chairs at Christie’s on Friday?
Steve H.
Tomorrow I’ll tell all.
So after the first yr , your next 5 yrs will be better than the listed 5 consecutive avg because you “wrote off” one bad year, and since all were positive , your return should be happier.