After taking some finance courses from accounting through derivatives pricing it seems like the same thing holds in finance. Mathematical models of finance are all well and good (actually, most have crippling limitations that a lot of people choose to ignore), but when it comes to practicing finance, what you really need to understand are transaction costs, taxes, and regulation.

As a concrete example, check out this part of an April speech by the current Director at our SEC who regulates mutual funds, including money market funds. Money market funds try to keep their price (like a stock price) at a constant $1.00 per share. When the fund earns money, investors either get a cash payout or more shares and the value of each share stays the same. They try really hard never to lose money. However, the fund’s price obviously fluctuates a little as the bonds and other investments they hold change. They’re not required to tell you this until the change is greater than 0.5% (i.e. the value becomes closer to $1.01 or $.99 than to $1.00).

Andrew J. Donohue, Director, Division of Investment Management, U.S. Securities and Exchange Commission (April 2, 2009):

[T]his lack of sensitivity to volatility affords investors, particularly large investors, the opportunity to take advantage of the fund and its other shareholders. An example might be helpful here. Assume a money market fund has a loss on investments of 0.40% so that its NAV is now $0.9960, which is $1.00 and within the one-half percent deviation permitted under current rules. If investors who own 25% of the fund redeem at $1.00, the NAV is now $0.9947 or $0.99 per share. Sophisticated investors know this dynamic and will redeem their shares in the fund quickly, leaving the loss for the remaining shareholders. What had been a loss of 40 cents on $100.00 for remaining shareholders is now $1.00 on $100.00 because they did not abandon the fund quickly enough. I question whether this is appropriate and whether it increases the possibility and probability of a run on a money fund.

… As with the previous example, an investor purchasing at $1.00 when the NAV was $0.996 had no way to know that he (she) was at risk of losing 1% in one day merely because of redemptions by others or other minor valuation moves.

I think it’s funny that the proposed solution to this problem is to change the target value of money market funds to $10.00 instead of $1.00. This would probably be “good enough” because if someone abusing the system could only make 0.05% (vs 0.5% currently), it usually wouldn’t be profitable after considering transaction costs. But really, are these people using computers so old that they can’t just add more decimal places to $1.00? My guess is there’s some rule that says something like “only price changes of more than 1/2 cent must be reported to investors,” and this amount happens to be 0.5% of $1 (deemed “too insensitive”) and 0.05% of $10 (deemed “acceptable”).

Regulation is goofy.

When and why do you use Google, and what does it get you?

To find a home page of a site you’re already aware of — I don’t remember the exact URL of John Gruber’s markdown site, but I can find it in two clicks with a Google search. It’s not long before Mac and Windows will allow you to do this with one click (50% better). We all use Google for this today, but who really needs Google for this?

To find a person. The first few results are always Facebook, LinkedIn, WhitePages, and ZoomInfo. I can search those sites myself, thank you. Again, Google is only serving to save me 1 or 2 clicks today. Their service is easily replaceable by better-integrated interfaces like QuickSilver.

To research a technical topic. Today the only useful result is Wikipedia, and its content is becoming more and more incomplete and unprofessional (un-useful) every day. This used to be a core strength of web search engines — one of the original missing features of the internet, which they solved — but they all seem to have lost it, partly because experts don’t make webpages anymore and partly because the search engines have abandoned any desire to focus on serving a technical audience. I think the only audience that matters online in the long term is the technical audience, because today’s techies define tomorrow’s mass-market. Google Scholar and Google Search are opposite poles (both useless) of the service we need. This is technically feasible but completely un-implemented right now as far as I know, though I know a startup looking at business services. As an aside, I think PageRank is responsible for this mess.

To look up something in pop culture. At their current pace, this is probably the only place where Google’s general search will still be relevant in 5 years, which is sad for Google because MS, Time Warner, News Corp, and anyone else can do this just as well. This “lowest common denominator” search is not distinguished, interesting, or profitable. The only explanation for why Google has gone this way is relentless pursuit of growth (measured indiscriminately). Let’s hope they can spin out enough interesting side-products to remain somewhere near the cutting edge (or hope not, depending on who you root for).

Google Search is dead. Google will make plenty of money from organizing others’ advertisements for a while to come. “Internet Portal” has always been one of the most fickle and unreliable businesses to stake a claim in, and this is effectively where Google Search is. Now that I think about it I’m convinced that in the next 5 years “Portal/Search” belongs to the operating system developers (Apple, MS), and not internet companies — because operating systems own the first click, and that’s all it ought to take to find anything. Google won’t have a say unless they can get Chrome to replace the Finder/Explorer, which they want to, but I don’t think they can do that soon enough. Perhaps Facebook could get a niche foothold in if they can broaden their service enough to include static information as well as social info.

Rise Against – Appeal to Reason
Somehow these guys keep getting better. It’s hard to argue whether this album sells out more or less than Siren Song… did, but both are effective and I think this album returns them to slightly harder (while still extraordinarily well-produced) punk rock hooks. Infectious, and despite how catchy it is, you can’t quite label it pop-punk.

Hilltop Hoods – The Hard Road
Australia has a hip-hop scene. I discovered “Recapturing the Vibe” on the trailer to Poor Boyz’ latest ski film and there are a number of other standouts on the album (Stopping All Stations, What a Great Night). Also checkout Nosebleed Section on their Calling album. They rip the mic and they tell good stories. Oh, and they have funny accents.

E.S. Posthumus – Unearthed
Ever watched a movie trailer that had a symphonic score but with a techno beat to make it harder-hitting? It turns out all of those trailers feature one of 3 or 4 songs by E.S. Posthumus. Really good mood music, depending of course on your mood ;)

My new Apple USB keyboard doesn’t have a Help key. Man, I hated that key. No other key always makes an annoying window pop up when you accidentally tap it. An awful window that, in MS Word at least, can’t be closed by keystroke. Grr. Thank you, new keyboard.

We had a great Halloween party last night. Having a bartender for a roommate is not only convenient and enjoyable, it can make you cool by association. Phil, you’re the man, and a very scary clown.

I was stunned. I’ve always thought I’m good at appreciating little things, but this kid kicked my butt. It’s been a long time since observing gravity has filled me with a sense of wonder.

Room for improvement…

The second thing was discussing arguments for vegetarianism with two friends from college during a roadtrip (courtesy The Omnivore’s Dilemma, which I’m seriously considering reading now). This was the first time I’ve thought critically about a moral issue since I started my job (other than very specific health benefits questions). That also stunned me.

Now that I have a transition and a pause, I think I need to plan a way to continue some reflection and self-critique during my next period of career-submersion — the next one may be a lot longer than 18 months.

The part that Park City didn’t cover at all when I moved here was friends. Every time I’d log in to Facebook to keep track of people who didn’t live near me, isolation confronted me on every friend’s profile that showed “Salt Lake City (1)”, usually preceded by “Claremont (349)” or “New York (112)” or similar. “Yes, Tom,” said Facebook, “you’re the only fool known to you or any of your friends to be living in Utah. That (1) is You.”

When I moved here my plan was basically “Apply to grad school, work butt off for 9 months, snowboard, and leave for graduate school when the startup fails.” I reasoned that the unlimited outdoor and exercise stimulants available and the exciting and all-consuming work, combined with some trips to the West Coast would keep me pretty happy for 9 months. It really did, but my startup didn’t fail on schedule and now I’ve been here 18 months. The startup still hasn’t failed (quite the contrary) but I’m running out of time for grad school so I am leaving in one more month. The weird thing is, I have friends here. I’m not really sure when that happened or what I did to deserve it.

It’s pretty cool though.

It made me realize how great business is. For a liberal arts grad it can be scary that there are no guarantees that we get to keep our lifestyle. The U.S. does provide Welfare, but most of us would consider anything that doesn’t pay at least $25,000 and also make a noticeably positive impact on the world as failure. But it’s liberating to know that in the world, there is a higher grade than an “A.” You can do absolutely as well as you can do, and you can apply any skills you can muster. On a philosophical level, I’ve always loved the quote (from a song)

I don’t need to hear your answer.
I just need to you feel like there are no boundaries at all.

What you or I do or say or decide today or tomorrow is pretty much OK with me. What matters is that we have faith that anything is possible.

In college when I felt stressed I used to drive up to the mountains overlooking Los Angeles and just stare at the city. I could draw a line in the cityscape between Los Angeles County and San Bernardino County. The line makes tremendous difference to anyone who lives there and wants buy a house, send their kids to school, talk to their neighbors, or find a job.

But the line is not real. It’s a man-made fiction that has a profound immediate impact on many but, at the same time, is trampled every day by the bustling activity of the life around it. Government has some influence based on how the highways are routed and lines on maps, but the fact that houses extend for 100 miles in nearly every direction from LA is due not to the WPA but to 20 million individual people building their lives. I love LA despite despite how disgusting it can be because it creates dreams and gives rise to so much that would seem impossible.

It is easy to see from the perspective of the mountains, above the smog, far from classes, and amid the scent of desert sage which I will always love.

Here’s the so-simple-it’s-revolutionary kicker — they completely disclose their agreements with the third-party providers. “If you sign up for this thing, they pay us the first month’s revenue.” I can judge for myself whether I’m being spammed by unscrupulous profit-hungry jerks or whether I think the offer is “fair.” In many cases, I could even circumvent the referral and get the exact same service/product without giving my hosting company the kickback.

This is the information age, right? How come when I place a Google ad I’m not told what the clickthrough will cost? How come when I go to the doctor I can’t see a list of prices? Or when I get my car serviced?

It should only be a matter of time before everything is price-transparent. That will be good for everyone except scammers.

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On the drive to the theater, Ben asked if I had seen the trailer for it. I hadn’t. I handed him my iPhone and he downloaded the trailer through iPhone’s YouTube support as we were driving. I watched if after I stopped driving as we walked to the theater. When I got there I texted the friends we were meeting to tell them where we were sitting.

After the movie we looked for a place to eat. I didn’t realize Google Maps for iPhone would search for local businesses just by typing in a keyword when the map is viewing the area you want to search (duh). No matter, iPhone has a real web browser, so I pulled up CitySearch. I found a Pizza Hut and clicked the phone number on the web page to dial and order our pizza. The pizza was ready when we arrived.

I could get used to this. I hope Thomas Gabriel doesn’t mess it up.

So nobody ever told you, baby
how it was going to be
So what’ll happen to you, baby
guess we’ll have to wait and see…

I was amused when my roommate, friend, and co-worker Ben Dilts decided upon being hired as the second employee at our company that his appropriate title was “Only Technology Officer”… as opposed to CTO.

I’m now Only Operations Officer. and about 6 other titles. The problem is, unlike most companies with only a handful of employees, we’re legit. Today I met with an executive vice president from one of the 50 largest companies in the U.S. I would guess this dude legitimately makes 10 times my salary. The deals I’m working on are unreal. Great for my career, but the next couple weeks are going to be the biggest challenge of my life so far.

Wish me luck :)