Tuesday, February 11, 2014

Wealthy Investors Have One Gigantic Advantage Over The Little Guy

By: Sam Ro

As much as we want to act rationally, our investment decisions are unfortunately impacted by our behavioral biases.
In other words, our brains are working against us.

Veteran market strategists Jeff Saut and Richard Russell note that the biases of wealthy investors differ from the biases of not-so-wealthy investors. And this helps the rich get richer and while the poor get poorer.

Specifically, the wealthy have the advantage of not needing more money. Whereas the little guy not only needs it, but he needs it fast.

Saut, the chief strategist at Raymond James, recently cited this passage from Russell's recent investment newsletter. First, here's Russell on the wealthy (emphasis added):

In the investment world wealthy investors have one major advantage over the little guy, the stock market amateur and the neophyte speculator. The advantage wealthy investors possess is they DON’T NEED THE MARKETS. I can’t begin to tell you what a huge difference that makes, both in one’s mental attitude and in the actual handling of one’s account. The wealthy investor doesn’t need the market because he already has all the income he needs. He has money coming in via bonds, T-bills, money market funds, real estate, and stocks. In other words, the wealthy investor never feels pressured to ‘make money’ in the market.

The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate. When great art or fine jewelry is on the ‘giveaway table,’ he buys them. In other words, the wealthy investor puts his money where the values are. And if there are no outstanding values, the wealthy investor waits. He can afford to wait. He has money coming in daily, weekly, monthly. In other words, he doesn’t need the market. He knows what he is looking for, and he doesn’t mind waiting weeks, months or years (they call it patience).

Here's Russell on the not-so-wealthy:

What about the little guy? This fellow always feels pressured to ‘make money’, to ‘force the market to do something for him.’ When this fellow isn’t buying stocks at 3% yields, he’s off to Vegas or Atlantic City trying to win at craps or he’s spending ten bucks a week on lottery tickets or he’s ‘investing’ in some crackpot real estate scheme with an outfit that his bowling buddy told him about. And because the little guy is forcing the market to do something for him, he’s a consistent and constant loser. The little guy doesn’t understand values so he always overpays. He loves to gamble, so he always has the odds against him. He doesn’t understand compounding and he doesn’t understand money. He’s the typical American and he’s perpetually in debt.

The little guy is in hock and he’s always sweating, sweating to make payments on his house, his refrigerator, his car or his lawnmower. He’s impatient, and he constantly feels pressured. He tells himself he has to make money fast. And he dreams of ‘big bucks’. In the end the little guy wastes his money on the market, he loses his money on gambling, and he dribbles it away on senseless schemes. In brief, this ‘money-nerd’ spends his life running up the down-escalator. Now here’s the ironic part of it. If, from the beginning, the little guy had adopted a strict policy of never spending more than his income, if he had taken that extra income and compounded it in safe, income-producing securities – in due time he’d have money coming in daily, weekly, and monthly – just like the rich guy. Then in due time he’d start acting and thinking like the rich guy. In short, the little guy would become a financial winner instead of a loser.

Russell's characterization of the "little guy" may seem unfair. Not all of us are drowning in debt. But dreams of bigger bucks fast seems pretty close to universal.

Saut extends Russell's discussion by beautifully articulating the madness of markets and investing:

In the world we live in, few look at risk. Most only look at reward. The few who do look at risk (the educated, the street savvy) make their money at the expense of the great unwashed majority who swallow the noise nonsense about getting rich quick. Investing is a get rich slowly process. You have to put your money at risk in the face of uncertainty. Emotions run rampant before the uncertainty of floating, fluctuating, often violent and volatile markets. Constantly discounting prices are fickle and full of surprises. Disorder is usually the norm.

Some stuff to remember as you make your next investment decision.

This is a repost of an article that appeared on Business Insider on February 11, 2014

Newslflash: Open Coffee KRK #29

Hi there, as always it was nice seeing so many of you gettting up early and coming to the Open Coffee. We had some magic and also tons of hiring annoucements, so if you’re looking for a new job, there’s plenty positions to choose from here in Kraków. Some people say there’s no job for young people in Poland. Instead of listening to such nonsense, just come to Open Coffee and see for yourself.
Kamil Stanuch is looking for a couple of developers to work at his Sigmapoint interactive agency. So if you have frontend, Python, or Java skills and want to participate in projects for Sigmapoint’s UK clients, don’t hesitate and get in touch with Kamil. They’re also always on the lookout for dev talent at Mawelous. And though they insist San Diego is better than Kraków, they’re actually pretty likeable and even willing to invest if you have a really good business idea. Additionally, Toolito is looking for a webdesigner, and Tyler Crowley wants to hire a good iOS developer. Generally speaking, it looks like everyone is hiring now!
Don’t want to discuss jobs anymore? No problem. You can just hang out with a couple of magicians on Sunday, during the KRK Magic meetup. Also, don’t forget to register for the OMGKRK bowling tournament. It’s happening on February 18th and is absolutely free courtesy of Krakowski Park Technologiczny. You just need to register.
For additional projects presented at the last Open Coffee, be sure to check Michał Stefanow’s ideas forLegal Screenshot, a new way to secure internet transactions. Maybe you’ll be able to help him push the project forward. Also keep an eye on the aDaSie team, which is gaining tractions with its social initiatives.
And on 27th of February clear your calendar for the next Startup Stage . This time it’s going to be about acceleration, and Innovation Nest invited people from TechStars, Startup WiseGuys and WARP, so it’s an opportunity that shouldn;t be missed.
That’s it, see you in a week in COLAB and in two weeks at Open Coffee KRK #29!
Wojciech Borowicz
This is a repost of the OpenCoffeeKRK blog from February 6, 2014

Thursday, February 6, 2014

Assault on California Power Station Raises Alarm on Potential for Terrorism

April Sniper Attack Knocked Out Substation, Raises Concern for Country's Power Grid

A sniper attack in April that knocked out an electrical substation near San Jose, Calif., has raised fears that the country's power grid is vulnerable to terrorism. WSJ's Rebecca Smith has the details. Photo: Talia Herman for The Wall Street Journal

SAN JOSE, Calif.—The attack began just before 1 a.m. on April 16 last year, when someone slipped into an underground vault not far from a busy freeway and cut telephone cables.
Within half an hour, snipers opened fire on a nearby electrical substation. Shooting for 19 minutes, they surgically knocked out 17 giant transformers that funnel power to Silicon Valley. A minute before a police car arrived, the shooters disappeared into the night.
To avoid a blackout, electric-grid officials rerouted power around the site and asked power plants in Silicon Valley to produce more electricity. But it took utility workers 27 days to make repairs and bring the substation back to life.
Nobody has been arrested or charged in the attack at PG&E Corp.'s Metcalf transmission substation. It is an incident of which few Americans are aware. But one former federal regulator is calling it a terrorist act that, if it were widely replicated across the country, could take down the U.S. electric grid and black out much of the country.
The attack was "the most significant incident of domestic terrorism involving the grid that has ever occurred" in the U.S., said Jon Wellinghoff, who was chairman of the Federal Energy Regulatory Commission at the time.
The Wall Street Journal assembled a chronology of the Metcalf attack from filings PG&E made to state and federal regulators; from other documents including a video released by the Santa Clara County Sheriff's Department; and from interviews, including with Mr. Wellinghoff.
The 64-year-old Nevadan, who was appointed to FERC in 2006 by President George W. Bush and stepped down in November, said he gave closed-door, high-level briefings to federal agencies, Congress and the White House last year. As months have passed without arrests, he said, he has grown increasingly concerned that an even larger attack could be in the works. He said he was going public about the incident out of concern that national security is at risk and critical electric-grid sites aren't adequately protected.
The Federal Bureau of Investigation doesn't think a terrorist organization caused the Metcalf attack, said a spokesman for the FBI in San Francisco. Investigators are "continuing to sift through the evidence," he said.
Some people in the utility industry share Mr. Wellinghoff's concerns, including a former official at PG&E, Metcalf's owner, who told an industry gathering in November he feared the incident could have been a dress rehearsal for a larger event.
"This wasn't an incident where Billy-Bob and Joe decided, after a few brewskis, to come in and shoot up a substation," Mark Johnson, retired vice president of transmission for PG&E, told the utility security conference, according to a video of his presentation. "This was an event that was well thought out, well planned and they targeted certain components." When reached, Mr. Johnson declined to comment further.
A spokesman for PG&E said the company takes all incidents seriously but declined to discuss the Metcalf event in detail for fear of giving information to potential copycats. "We won't speculate about the motives" of the attackers, added the spokesman, Brian Swanson. He said PG&E has increased security measures.

Utility executives and federal energy officials have long worried that the electric grid is vulnerable to sabotage. That is in part because the grid, which is really three systems serving different areas of the U.S., has failed when small problems such as trees hitting transmission lines created cascading blackouts. One in 2003 knocked out power to 50 million people in the Eastern U.S. and Canada for days.
Many of the system's most important components sit out in the open, often in remote locations, protected by little more than cameras and chain-link fences.
Transmission substations are critical links in the grid. They make it possible for electricity to move long distances, and serve as hubs for intersecting power lines.
Within a substation, transformers raise the voltage of electricity so it can travel hundreds of miles on high-voltage lines, or reduce voltages when electricity approaches its destination. The Metcalf substation functions as an off-ramp from power lines for electricity heading to homes and businesses in Silicon Valley.
The country's roughly 2,000 very large transformers are expensive to build, often costing millions of dollars each, and hard to replace. Each is custom made and weighs up to 500,000 pounds, and "I can only build 10 units a month," said Dennis Blake, general manager of Pennsylvania Transformer in Pittsburgh, one of seven U.S. manufacturers. The utility industry keeps some spares on hand.
A 2009 Energy Department report said that "physical damage of certain system components (e.g. extra-high-voltage transformers) on a large scale…could result in prolonged outages, as procurement cycles for these components range from months to years."
Mr. Wellinghoff said a FERC analysis found that if a surprisingly small number of U.S. substations were knocked out at once, that could destabilize the system enough to cause a blackout that could encompass most of the U.S.
Not everyone is so pessimistic. Gerry Cauley, chief executive of the North America Electric Reliability Corp., a standards-setting group that reports to FERC, said he thinks the grid is more resilient than Mr. Wellinghoff fears.
"I don't want to downplay the scenario he describes," Mr. Cauley said. "I'll agree it's possible from a technical assessment." But he said that even if several substations went down, the vast majority of people would have their power back in a few hours.
The utility industry has been focused on Internet attacks, worrying that hackers could take down the grid by disabling communications and important pieces of equipment. Companies have reported 13 cyber incidents in the past three years, according to a Wall Street Journal analysis of emergency reports utilities file with the federal government. There have been no reports of major outages linked to these events, although companies have generally declined to provide details.
"A lot of people in the electric industry have been distracted by cybersecurity threats," said Stephen Berberich, chief executive of the California Independent System Operator, which runs much of the high-voltage transmission system for the utilities. He said that physical attacks pose a "big, if not bigger" menace.
There were 274 significant instances of vandalism or deliberate damage in the three years, and more than 700 weather-related problems, according to the Journal's analysis.
Until the Metcalf incident, attacks on U.S. utility equipment were mostly linked to metal thieves, disgruntled employees or bored hunters, who sometimes took potshots at small transformers on utility poles to see what happens. (Answer: a small explosion followed by an outage.)
Last year, an Arkansas man was charged with multiple attacks on the power grid, including setting fire to a switching station. He has pleaded not guilty and is undergoing a psychiatric evaluation, according to federal court records.
Overseas, terrorist organizations were linked to 2,500 attacks on transmission lines or towers and at least 500 on substations from 1996 to 2006, according to a January report from the Electric Power Research Institute, an industry-funded research group, which cited State Department data.

An attack on a PG&E substation near San Jose, Calif., in April knocked out 17 transformers like this one. Talia Herman for The Wall Street Journal
To some, the Metcalf incident has lifted the discussion of serious U.S. grid attacks beyond the theoretical. "The breadth and depth of the attack was unprecedented" in the U.S., said Rich Lordan, senior technical executive for the Electric Power Research Institute. The motivation, he said, "appears to be preparation for an act of war."
The attack lasted slightly less than an hour, according to the chronology assembled by the Journal.
At 12:58 a.m., AT&T fiber-optic telecommunications cables were cut—in a way that made them hard to repair—in an underground vault near the substation, not far from U.S. Highway 101 just outside south San Jose. It would have taken more than one person to lift the metal vault cover, said people who visited the site.
Nine minutes later, some customers of Level 3 Communications, an Internet service provider, lost service. Cables in its vault near the Metcalf substation were also cut.
At 1:31 a.m., a surveillance camera pointed along a chain-link fence around the substation recorded a streak of light that investigators from the Santa Clara County Sheriff's office think was a signal from a waved flashlight. It was followed by the muzzle flash of rifles and sparks from bullets hitting the fence.
The substation's cameras weren't aimed outside its perimeter, where the attackers were. They shooters appear to have aimed at the transformers' oil-filled cooling systems. These began to bleed oil, but didn't explode, as the transformers probably would have done if hit in other areas.
About six minutes after the shooting started, PG&E confirms, it got an alarm from motion sensors at the substation, possibly from bullets grazing the fence, which is shown on video.
Four minutes later, at 1:41 a.m., the sheriff's department received a 911 call about gunfire, sent by an engineer at a nearby power plant that still had phone service.
Riddled with bullet holes, the transformers leaked 52,000 gallons of oil, then overheated. The first bank of them crashed at 1:45 a.m., at which time PG&E's control center about 90 miles north received an equipment-failure alarm.
Five minutes later, another apparent flashlight signal, caught on film, marked the end of the attack. More than 100 shell casings of the sort ejected by AK-47s were later found at the site.
At 1:51 a.m., law-enforcement officers arrived, but found everything quiet. Unable to get past the locked fence and seeing nothing suspicious, they left.
A PG&E worker, awakened by the utility's control center at 2:03 a.m., arrived at 3:15 a.m. to survey the damage.
Grid officials routed some power around the substation to keep the system stable and asked customers in Silicon Valley to conserve electricity.
In a news release, PG&E said the substation had been hit by vandals. It has since confirmed 17 transformers were knocked out.
Mr. Wellinghoff, then chairman of FERC, said that after he heard about the scope of the attack, he flew to California, bringing with him experts from the U.S. Navy's Dahlgren Surface Warfare Center in Virginia, which trains Navy SEALs. After walking the site with PG&E officials and FBI agents, Mr. Wellinghoff said, the military experts told him it looked like a professional job.
In addition to fingerprint-free shell casings, they pointed out small piles of rocks, which they said could have been left by an advance scout to tell the attackers where to get the best shots.
"They said it was a targeting package just like they would put together for an attack," Mr. Wellinghoff said.
Mr. Wellinghoff, now a law partner at Stoel Rives LLP in San Francisco, said he arranged a series of meetings in the following weeks to let other federal agencies, including the Department of Homeland Security, know what happened and to enlist their help. He held a closed-door meeting with utility executives in San Francisco in June and has distributed lists of things utilities should do to strengthen their defenses.
A spokesman for Homeland Security said it is up to utilities to protect the grid. The department's role in an emergency is to connect federal agencies and local police and facilitate information sharing, the spokesman said.
As word of the attack spread through the utility industry, some companies moved swiftly to review their security efforts. "We're looking at things differently now," said Michelle Campanella, an FBI veteran who is director of security for Consolidated Edison Inc. in New York. For example, she said, Con Ed changed the angles of some of its 1,200 security cameras "so we don't have any blind spots."
Some of the legislators Mr. Wellinghoff briefed are calling for action. Rep. Henry Waxman (D., Calif.) mentioned the incident at a FERC oversight hearing in December, saying he was concerned that no one in government can order utilities to improve grid protections or to take charge in an emergency.
As for Mr. Wellinghoff, he said he has made something of a hobby of visiting big substations to look over defenses and see whether he is questioned by security details or local police. He said he typically finds easy access to fence lines that are often close to important equipment.
"What keeps me awake at night is a physical attack that could take down the grid," he said. "This is a huge problem."

—Tom McGinty contributed to this article.
This is a repost of an article that appeared in the Wall Street Journal on February 4, 2014

Saturday, February 1, 2014

The NFL showing how to utilize iBeacons like the ones from Estimote

Another Super Bowl Ad Fest, This Time on the Cellphone


Want to see the Vince Lombardi Trophy that goes to the Super Bowl
winner? Take a left in 15 feet. Looking to buy some Super Bowl
merchandise? Try the fourth floor of Macy’s, straight ahead.
The Super Bowl remains the biggest mass-market advertising event
in the country. But this year, a new kind of advertising — personalized
and based on physical location down to a matter of feet — will greet
fans in Times Square and MetLife Stadium, where this weekend’s
championship game will be played.
At both locations, the National Football League has sprinkled tiny
wireless transmitters that can send finely tuned messages to
smartphones. It is the boldest test yet for a months-old technology that
could change how brands of all sorts market to their customers.
For now, the alerts are mostly limited to practical news (like the
nearest entry gate) or promoting in-store sales (say, for your favorite
chocolate) in the first wave of establishments using it. But already the
technology has privacy advocates and legal experts brimming with
concern about the implications. Smartphone users could potentially be
spammed with advertisements, they say, and a company that collects
the data might be inclined to sell it.
“When it rolls out, you will see all this utility for it,” said Ryan Calo,
an assistant professor of law at the University of Washington in Seattle.
“And at some point the economic incentives will come into play and it
won’t be pretty.”

The transmitters, often called beacons, will be in several hundred
stores and public areas in the coming months, including at two dozen
Major League Baseball stadiums and many Macy’s and American Eagle
Outfitters stores. Apple already has the devices in over 250 stores.
While location-based alerts and advertisements have long been a
feature of smartphones, the new technology requires less from users.
When Apple updated the software for iPhones several months ago, the
company included a new feature, iBeacons, that displays alerts even
when a user is not running an app.
That change has led to a surge in interest among brands.
Technology executives say Apple is further along with its version of the
technology, which is why most alerts of this kind are now sent to iPhone
users. But smartphones running Google’s Android operating system can
also be targeted.
Once users download a brand’s app and give permission to receive
alerts, they can get messages whenever their phone drifts within range
of one of these beacons. (Typically, users can stop the tracking and the
alerts by changing the app’s settings.)
For brands like Major League Baseball, which had more than 10
million users of its MLB.com At Bat app last year, the potential for
outreach is enormous. Brick-and-mortar stores are quickly warming to
the technology, too, thrilled by the prospect of being able to fine-tune
marketing messages and gather more data about customer behavior,
just as online competitors like Amazon have for years.
“The power of this is it really is able to connect the real world, the
brick-and-mortar world, with the virtual world with a level of
granularity that hasn’t existed before,” said Manish Jha, the N.F.L.’s
general manager of mobile.
When shoppers walk through the door of one of 100 American
Eagle stores installing the technology, they will receive a welcome message on their smartphones, notifications of discounts and product
recommendations. The precision of the technology will allow American
Eagle to show sale information for jeans only when a customer is in the
jeans department.

“It gives the retailer a chance to have a one-to-one dialogue directly
with the consumer,” said Alexis Rask, the chief revenue officer of
Shopkick, a start-up in Silicon Valley working with American Eagle and
other retailers like Macy’s to set up beacons in their stores.
Major League Baseball will have beacons installed throughout
Fenway Park in Boston, AT&T Park in San Francisco and about 20 other
stadiums in time for opening day this year. People with smartphones
and one of the two M.L.B. apps with beacon support will get buzzed
with greetings when they pass through turnstiles, messages about
nearby statues and other points of interest and reminders about how
many loyalty points they have from past purchases at the ballpark.
Robert Bowman, president and chief executive of MLB Advanced
Media, the Internet arm of Major League Baseball, said stadiums were
becoming “crucibles for technology.” But he said there was a bold line
between gentle marketing pitches and obnoxious upselling.
Where is that line?
“Welcome back, and last time you bought this jersey. This week, do
you want to buy this jersey?” Mr. Bowman said, composing an
unattractive smartphone advertisement on the fly. “To me, that’s crass
Other location-tracking technologies have helped people orient
themselves on maps by using the satellite-based GPS and Wi-Fi access
points. Those technologies, though, are not as precise as beacons at
detecting a user’s location. GPS signals also do not travel well indoors,
and beacons, many of which are battery-powered and use a technology
called Bluetooth low energy, are cheaper and easier to install than Wi-Fi
antennas. Qualcomm, for instance, makes beacons that cost $10 each
with batteries that last up to three years.
Privacy advocates say they are concerned that the proliferation of
beacons would add considerably to the vast amounts of data marketers are already gathering about consumers. While apps often indicate in
their terms of service how they use location data, many people ignore
the fine print of those agreements.

Marc Rotenberg, the executive director of the Electronic Privacy
Information Center, a nonprofit research and advocacy group, said
marketers could use the new location tracking tools in unexpected ways,
like mapping relationships for people who happen to visit the same
location repeatedly.
“Users will have no idea what information is collected or how it will
be used,” he said.
The companies installing the beacons say they will respect the
privacy of people who use the technology. Mr. Jha of the N.F.L., for
instance, said the league was not connecting personal and location data
with its Super Bowl experiment. Supporters say that most people will
find the technology has benefits, like discounts and helpful tips, worth
the trade-off of sharing data. In a test at a Miami Dolphins game at Sun
Life Stadium in Florida last month, Qualcomm used the technology to
alert fans about where to find the shortest concession lines.
And the companies say they realize they need to avoid sending
irrelevant or excessive alerts. Todd Dipaola, the chief executive of
InMarket, a company that has begun testing beacons inside grocery
stores in Cleveland, San Francisco and Seattle, said that approach
would not last long.
“There’s one penalty for annoying your consumer — that’s the death
penalty,” he said, and then described the process of deleting an app.
“They hold down the app, push the X and it’s gone.”

This is a repost of an article that appeared on the New York Times on January 30, 2014