The Amateur Financier

Ah, entertainment.  It’s what keeps us entertained and amused in between work and our other required duties.  It brings a smile to our day and a song (or four) to our hearts, to say nothing of that one you just can’t get out of your head.  The world would be a lot a duller if we lacked for entertainment, that goes almost without saying (although I’ll say it anyway).  That’s why it’s such a shame that many forms of entertainment are facing near extinction.

Wait, What?

To understand what I’m rambling about, we’re going to have to take a trip back in time to cover a concept I’ve mentioned already, the Superstar Effect.  Go on, click the link and read up.  I’ll wait.

Look, there's a seat open over there on that bench

If you read through the article (or just assumed I’d include a reminder about the content, which I’m about to do…), you’ll recall that the Superstar Effect is the economic concept that explains how movie stars, musicians, authors and other performers can become, well, superstars.  In a nutshell, the nature of their work and the existence of recording and duplication devices means that it is possible for everyone to enjoy the songs of Katy Perry or the movies of Rupert Everett without the performers having to put any additional work into new performances.  Whether Ms. Perry’s newest CD sells three copies or three million, she’s put the same amount of work into it, and it requires no more time for her to increase her sales.  (Although, if she sells only three copies, her recording company will probably want her to do *something* to try to drive sales.)

Where’s the problem?  Well, easy mass-distribution can be a double-edged sword.  While it makes it easier for record labels, movie producers and book publishers to spread the work of their performers and potentially generate large profits as a result, it also makes it easier for people to make illicit copies and spread books, music, and movies without paying the performers.  The wide-use of personal computers and related devices means that there’s little trouble with acquiring almost any form of media you’d like; without too much difficulty, I’m certain that anyone reading this could easily acquire an illicit copy of any movie, book, or song that they could want.  (Please don’t take this as an invitation to go off and start downloading things illegally; I was making a point, not a suggestion.)

With all of this happening, more than a few commentators have commented on what the future of entertainment will look like.  The views vary from the enforcement of artificial scarcity to keep entertainment companies in business to distopian visions of worlds where nobody has any entertainment.  But I’m actually surprisingly optimistic about what the future of entertainment holds, thanks to

Fanfiction!

Fanfiction, (and related media like fanzines and fanart) in case you’ve managed to cruise the internet without running into any of it, is pretty simple in concept: it’s stories (fiction) that is written by fans of a particular series, book, or movie.  Essentially, fans of say, Star Trek decided that if the TV producers are going to be so unkind as to cancel the series after three seasons, by goodness, they’re going to write stories of their own and share them with fellow fans.

Just as with the pirating of media, the dawning of the internet and other technology has made it much easier to share these stories with other people.  I would likely have never learned about fanfiction if it were not possible for me to check some out from the comfort of my desk.  In fact, if you’d like to see what I’m talking about, you can check out Fanfiction.net,* one of the biggest and most popular fanfiction sites on the web.

*WARNING: Before you start reading, a warning about what you are likely to encounter, so you don’t have a reason to come back and complain that I didn’t give you a proper heads up.  Most fanfiction tends to be written by women, particularly teenage and preteen girls, and as you might expect, is thus usually focused on romantic (and sexual) pairings between characters in a given series (and sometimes between series).  In particular, fanfiction writers are fans of slash pairings, pairings of two (or more…) male characters.  (Remember that mention of Star Trek fanfiction earlier?  Some of the first ‘modern’ fanfiction was stories of Kirk and Spock doing things that Kirk normally did with green women…)  Just a fair warning about what you are likely to find if you do much fanfiction reading.

What Does This Mean About The Future of Entertainment?

Alright, so I’ve amused you, possibly disturbed you, and possibly convinced you to write fanfiction of your own.  But we still haven’t spent too much time considering just what this means for entertainment in general.  So, here it is: people like to create, and they like it when other people enjoy their creations.  Fanfiction writers aren’t doing it to make money (and in fact, depending on how vigorous the copyright holders are about enforcing those copyrights, potentially risk fines or even jail for their stories), they just want to share stories with other people involving the characters, places, and stories that they enjoy, frequently while writing under a pseudonym.

This is why I’m confident that entertainment will continue; there is a strong instinct in humans to share stories and keep our fellow humans entertained.  Now, this is not to say that entertainment will continue to be the mammoth industry that it has become; there’s a good chance that the possibility of piracy will keep entertainment from being nearly as profitable as it has been in the past, and we might, in fact, be in the waning days of giant movie budgets and massive music video performances.  But I’m sure that we’ll continue to find ways to amuse ourselves, and each other.

I’m going to go a little off the topic of money here, to discuss one of my other pet topics, that is, education. If you’ve paid any attention to the American media over the past few weeks, you’re probably aware that one major topic in our national conversation has been Amy Chua, author of ‘Battle Hymn of the Tiger Mother‘, about how she raised her daughters to be highly successful using the same methods as her Chinese immigrant parents.  (In spite of the fact that Ms. Chua maintains that she did not write the book as a ‘How-To’ guide.)

Those same methods are why the book is getting so much attention (and causing so much controversy).  In contrast to our ‘Western’ method of giving children a great deal of freedom, allowing them to grow and explore without any pressure (a ‘kids will be kids’ approach, if you will), Chua stressed discipline and high achievement to her children.  She (and the other Chinese parents after whom she monitored her approach) would withhold praise, use insults when her daughters didn’t achieve the desired results, and maintain practice schedules that would strike most Western parents as closer to torture than tough love.  As a reviewer for Slate noted, while discussing a passage where Chua talked about forcing her younger daughter to practice violin for hours, not stopping for breaks, food, or even to use the bathroom, “It’s appalling.” And for most of us in the West, it certainly seems to be.

"Tigers" and "Mothers" are not usually a good combination

If it were just a book about tough love child-rearing experiences, though, the book probably wouldn’t be getting nearly the amount of attention it has.  One of the major causes for so many people discussing this Battle Hymn is the achievements that Chua’s daughters have accomplished.  Her elder daughter, a piano prodigy, played at Carnegie Hall…at the age of 14.  Her younger daughter, even though she eventually stopped playing the violin, currently spends many hours training at tennis.  By almost any standard, they are highly successful, very devoted to improving themselves and more accomplished as teenagers than many of us in the West are by the time we’ve hit middle age.

Welcoming the Tiger

And therein lies the draw.  Even reading and hearing about these accomplishments second hand, it gets you thinking about how you were raised.  “If,” you think, “I had parents who pushed me as hard as Chua and her husband pushed their daughters, what could I have accomplished?  Becoming a famous musician, developing into a great athlete, getting into a prestigious school?  Who knows what I could have done?”

If you have children, or eventually intend to have children, your thoughts probably go to them before too long, as well as your own parenting style.  You think about their future, what they could accomplish, and how to help them achieve those accomplishments.  If you start thinking that being a ‘Tiger Parent’ will help them get there, perhaps you head out to get this book for tips, regardless of whether it is technical a parenting manual.

All of this doesn’t even touch on the fact that, if all Chinese parents treat their children (and their children’s achievements), then you think about the billion plus residents of China proper, and how their economy seems to gaining more and more steam as the West seems to be continuing a downfall.  Are we on a decline that can’t be reversed until we practice REALLY tough love with our children?

Fighting the Tiger

Of course, such a provocative book is sure to draw counterarguments, both from people who experienced the ‘Tiger’ method first hand, and those who take a view on the American economy and think that a nation of highly focused workers might not be in our best interest.  In the former category, you have Christina H, a writer for Cracked.com (and a Chinese American who apparently experienced this type of parenting), who notes that there are flaws in the Chinese method, as there are flaws in the American method, and that opting for one to cover up the flaws of the other isn’t a good strategy.

On the broader subject of American competitiveness, there’s another article on Slate about American society, China, and parenting.  The point made there is that different countries have different skills; China focuses on high precision tasks that require tight concentration, while America is the land of big thoughts and bright ideas.  The idea there is that by allowing children more freedom than a Tiger style of parenting permits, you can develop their imagination and allow them to form those deep thoughts and bright ideas to potentially change the world.

Where I Stand

So, where do I stand on how I’ll raise my children when I have them in a few years (God willing)?  I’m torn, as I often am.  On one hand, I see the advantages to having such a disciplined, focused parenting style and trying to make your children continually improve themselves; on the other, I realize that there are advantages to allowing a child time to think, and dream, and enjoy themselves.

My solution comes from the realization that it doesn’t have to be all of one or the other.  I don’t have to choose between pushing my children to be their best and improve themselves in some way OR letting them have an unstructured, imagination filled childhood.  What I hope to be able to do is help to encourage them to build up their skills, preferably finding something that can teach them discipline and focus, but allow them time to be kids, and run, play, and imagine at the same time.  Given that my future wife is an artist, perhaps we can help them to develop artistic skills, as that strikes me as a task that requires both imagination and (as I can tell you from experience) lots of practice to build up your skills.

Regardless of how much of a Tiger couple we decide to be, I’m sure that our children will end up doing well, as long as we support and encourage them.

What do you think of the Tiger Mom concept?

I’ve been thinking lately (as I sometimes am known to do) about how different people go through life.  Now, there are technically as many different lifestyles as there are people who have ever lived on this planet, since nobody’s life is exactly the same as anyone else’s.  But there are certain commonalities amongst groups of people who share the same geographic region, time period, or personality traits.

It’s that last aspect I’ve been considering.  I’m an amateur psychologist of sorts (an OFFICIAL amateur psychologist; I have a Psych minor and everything), and considering how people think is one of my hobbies.  I had a mini revelation lately (and make no claims of originality; I’m sure someone has had these thoughts before), that people fall into three basic types when it comes to their work styles: leaders, followers, and for lack of a better, semi-alliterative term, loners.  Let’s take a closer look at each of them:

Leaders

Personality Traits: Confident, self assured, able to take control of a situation.  Tend to be good with big-picture tasks, focusing on everything that needs to be done and creating plans to finish the tasks required.  Ideally, they enjoy helping those who work under them and guiding the processes involved in fulfilling the needed tasks.  (There are, as I’m sure you are aware, plenty of ‘leaders’ who simply enjoy bossing other people around, but I’m trying to focus on the positive personality traits they possess.)

Ideal Job If You Are a Leader: Something where you are in control, giving directions to others.  There are a range of leadership positions in most companies today, all of which have varying degrees of leadership and involved.  Depending on how much responsibility you can tolerate and how much freedom you want, you might be fine with a lower level supervisory job, or you might need to become the head of a major company before you’re satisfied.

How to Get There: There are plenty of ways to get a leadership position.  Traditionally, the approach was to start at the bottom rung of a company or other organization and slowly work your way up the corporate ladder until you reached a position with an appropriate level of responsibility.  Nowadays, you’d like be best served with a MBA or other education specifically to help you get a boost up to a position of power and responsibility.

If you’re looking to be the head honcho, going the entrepreneur route and starting your own business is probably the best route; although it will take a while to grow it to the level of a Fortune 500 company (if it gets there at all), it’ll probably be more enjoyable for you to build the company up, rather than working for someone else in the hopes that you reach the top someday.

Followers

Personality Traits: Ah, followers, perhaps the most diverse (and definitely the largest) group of people in this particular division.  Generally distinguished from leaders by their lack of desire to, well, lead, and from loners by their desire to be in a corporation or other group larger than themselves.  Given the range of tasks they take on, it’s hard to pin down the traits of the typical follower.

Ideal Job If You Are a Follower: Given the number of people who follow someone else’s leadership in some aspect of their job, it’s hard to pin down particular jobs.  Since the most defining aspect of a follower is having someone else making the higher level decisions, any job where you can come in, get an assignment, work on it (doing work you enjoy, of course), turn in your results, and go home would fit; given the sheer range of such jobs that exist, it’s hard to get too much more specific.

How to Get There: In modern society, unless your ideal job involves fast food, you’ll likely need an Associate’s degree or higher to reach your goals.  Find an area where you have some talent and interest in working, get a good education, and find a company or other organization where you can put your skills to work and you should end up somewhere you enjoy.

(If I can put in a plug for my own area of education, there’s always a need for intelligent, hardworking people in the Science, Technology, Engineering, and Mathematical fields (aka the STEM fields); while it’s no guarantee of employment (and certainly not a promise that you’ll enjoy the work), it does offer plenty of opportunity.)

Loners

Personality Traits: Loners tend to be loners; that much should be obvious.  In general, they prefer to do work that neither requires them to take orders, nor to direct other people.  While it make sound a bit anti-social (and certainly, people who are genuinely antisocial will tend towards being loners), remember that we’re talking work preferences, not personality; it’s possible to a ‘lone wolf’ worker while still having lots of friend and family you spend time with when your work is done.

Ideal Job If You Are a Loner: Just about any job where you can be your own boss.  Given the modern trend toward increasing use of technology, a large number of such positions can be found via the Internet, from blogger to internet marketer.  You might also consider starting your own business in the real world; there are any number of positions that can be done by individuals without the need for a boss, company or coworkers.

How to Get There: The advantage of trying to get job working by (and for) yourself is there are essentially no formal qualifications.  The disadvantage is that, for many people, it is difficult to get started, breaking out of the mold of follower (or sometimes, leader) to go it alone.  More than a few diabolical figures take advantage of that difficulty and try to bilk would-be loners.  (I subscribe to more than a few mailing lists directed toward people who want to work from home, out of curiousity; I recently had to clear it out and delete more than two thousand emails I had gotten in the course of about two months.)

If you do want to make a living for yourself on your own, it’s important to be careful about what you opt to do and who you choose to trust.  As a decent rule of thumb, I would be wary about spending any money to get help or advice.  There are plenty of free resources online for most legitimate opportunities, frequently provided by people who have already succeeded in such attempts (and want to share their experiences for the joy of sharing).  If you’re expected to shell out cash before even learning how you’re expected to make money, then run, don’t walk, in the opposite direction (or close the window, if you are online.

Combinations and Conclusions

Now, as with any such division of people, not every one is going to fall neatly and cleanly into just one of these categories; many, if not most, people will fall into more than one grouping.  Some leaders have loner tendencies, some followers also desire some responsibilities of leadership, and some loners want someone else to lead them now and then (I fall into that last category).  And of course, there’s some people who have traits of all three groups.

There’s nothing wrong with any of this; again, this whole list (and my thoughts on the subject) was just an attempt to think out loud, trying to organize and clarify my thoughts.  Hopefully, you found it entertaining (and a little helpful) yourself.

What category (or categories) do you fall into?  Any suggestions for your fellow leaders, followers, or loners on how to get what they want out of life?

One of the advantages of being a chemist (besides the incredible attractiveness that is associated with guys who study science) is the interesting perspective it provides you on things completely unrelated to science.  I suppose that happens with every profession, of course; whether you are a butcher, a baker, or a candlestick maker, you tend to apply your personal knowledge and experiences to the world around you, including your finances.  What your profession teaches you about the world, you’ll tend to apply to your money as well.

A Chemist, doing Chemist-type things

Which brings us back to the thought at hand: chemistry.  One of the main considerations in chemistry is the concept of limiting reagents. Not to get too deep into the finer points of chemistry, a limiting reagent is the species that reacts which limits how much of the product(s) can be generated.  Determining the limiting reagent enables you to figure out how much of the product(s) that can be made (and when you’re in lab, determining how much of the product(s) you’ve been able to make).

That short little paragraph might not be enough to explain the concept (which is usually the subject of a solid lecture or two in a general chemistry class), so let’s consider a more familiar example: a fire.  To have a fire, you need three things: an ignition source (such as a spark or a match), something combustible to burn (wood, oil, a candle, whatever), and oxygen.  In most situations, the oxygen is effectively unlimited (even a huge fire can’t consume more than a tiny, tiny portion of the oxygen that makes up 24% of the atmosphere) while the combustible material is limited.  The amount of fire you can generate is limited by how much material you have to burn.

The Limiting Reagents When Investing

All of this got me thinking about investing, and what limits the amount of money you can earn throughout your investment career.  It occurred to me that what limits your investment returns varies throughout your lifetime.

• When you are young: Your investment returns are primarily limited by how much money you invest.  The difference between investing $4000 per year and $5000 a year when you have only $10,000 set aside will make a big difference in how much money you’ll have in the future.
• When you are older: As you age, though, the amount of money you invest starts to become less important; the impact on your net worth between investing $4000 and $5000 is much less pronounced when you have a net worth of $500,000.  Instead, the amount of profit you generate is much more dependent on how much of a return your investments generate; the difference between a 8% return ($40,000 on our $500,000 example) and a  6% return ($30,000) can make a big difference in your final net worth.  (Particularly when the miracle of compound interest starts to kick in.

When exactly does the change over occur, from greater dependence on amount of money invested to greater dependence on investment return?  Well, there’s no exact dividing line; as your investments keep growing, the amount your future net worth grows will start to rely more and more on investment returns.  Assuming most of your investments are in stocks and that said stocks return about 10% each year, investment returns will generate more income when your total amount invested is ten times your yearly investment amount.  So, if you’re putting aside $5000 a year, your investment return will exceed that amount when you have $50,000 in your account (or around that amount).

The Lessons to Be Drawn

While thinking about all this, a few lessons occurred to me.  First, when you’re younger, the most important thing to how your net worth grows is how much you invest, not the return you earn.  It’s better to get started with your investment as soon as possible, rather than obsessing about finding just the perfect investment.  When you are starting out, worrying too much about your investment choices will just delay your net worth’s growth.

Next, as you grow older, the importance of a solid returning investment grows and grows.  While it is tempting to hide your money in safe investments and not take on any risk, keeping your money growing requires taking on a certain amount of risk.  Keep a portion of your money in safe investments (to protect yourself from declines in value) but remember that you need to keep growing your money as well.

The last, and most important lesson that I’ve drawn from this line of thinking, is that there are lessons that can be learned about managing your financing all around you.  Applying what you learn throughout your life to your money and personal financial management can yield lots of interesting insights.

What sort of lessons has your job taught you?