Yet another Radical Personal Finance podcast with Nords

[Nords]

BrooklynGuy mentioned this the last time I was on RPF, so let me save someone else the effort of posting about it.

Thanks to our own Joshua (7Years) for inviting me back to talk about angel investing and (separate topic) about renting versus owning your residence.

http://radicalpersonalfinance.com/209-the-insider-secrets-of-angel-investing-or-what-angel-investing-is-really-like-interview-with-doug-nordman-and-should-i-rent-or-buy/

When's the last time you read a post or heard a podcast on angel investing?  It seems to be a niche topic.  Joshua let me talk through what I've learned from the last seven years.  I wanted to understand angel investing now (while I'm "younger") so that I'd be immunized against the temptation when I'm 82 years old.  And, no, I haven't struck it rich-- yet-- but it's been tremendously educational.  I highly recommend this podcast for: (1) people who want to pick their own stocks and (2) entrepreneurs who want to raise seed money for their startup.

We spend the back half of the podcast talking about home ownership.  This comes up a lot among my military readers who are just itchin' to own a home while they're on active duty.  The same logic (and tools) work for civilians too.

The show notes list three more books on angel investing and startups.  We also mention Jane Hodges' excellent analysis of home ownership, "Rent vs Own" (http://the-military-guide.com/2013/07/01/book-review-rent-vs-own/).

If you're wondering whether you should guest on Radical Personal Finance, let me assure you that Joshua's editing makes you sound a lot smarter...

[arebelspy]

Cool, thanks for letting us know Doug.

If you're wondering whether you should guest on Radical Personal Finance, let me assure you that Joshua's editing makes you sound a lot smarter...

Is that new?  AFAIK, there was no editing on my episodes.

[deborah]

Cool, thanks for letting us know Doug.

If you're wondering whether you should guest on Radical Personal Finance, let me assure you that Joshua's editing makes you sound a lot smarter...

Is that new?  AFAIK, there was no editing on my episodes.

Maybe your episodes were so good they didn't need any editing. Or maybe you were short and succinct. Or maybe you didn't notice the editing?

[arebelspy]

No, because I listened to many episodes where he mentioned things about how he rambles too much, editing would be good, editing is too time consuming, etc.  But I no longer listen to that podcast. So I'm wondering if that's new, or if Nords was joking with that comment. :)

[Nords]

So I'm wondering if that's new, or if Nords was joking with that comment. :)

I was mostly joking, but we did seem surprisingly articulate.  I didn't even think to ask how much he edits.  Given the probabilities (brilliance, short & succinct, or good editing) I'm going to go with the simplest choice.

Usually podcasts are like forum threads-- you try to stay on topic but everyone wanders down side trails until someone remembers what we're supposed to be discussing.  And when there are more than two people then it can be chaos.  Luckily a podcast host can edit out the diversions and stay on the path.

I still struggle to listen to podcasts, even when I'm on exercise equipment.  I much prefer a good set of show notes (which Joshua does, with links to the references) or even a transcript.  Transcripts are finally starting to get enough demand to be cheaper/faster, so podcasts are that much closer to their goal of reaching two different audiences at the same time.  But I usually listen to podcasts from people I know well or when I'm curious what someone's voice sounds like.

[brooklynguy]

Nords, thanks for the heads-up (and for doing the interview!).  I listened to the first 20 minutes (I'm saving the rest for in-flight listening on an upcoming trip) and it's really great stuff so far.

[yandz]

I listened while walking to and from work yesterday. Really enjoyed the conversation - I always appreciate your perspective on things, Nords.

[FOBStash]

Nords and Joshua -- thanks for this. I appreciate the patience and long term view on investing. I'm getting a bit frustrated with trying to get a rental in a hcol area and your metaphor on investing and a bus was really helpful for me to chill out and put things in perspective.

[Nords]

Nords, thanks for the heads-up (and for doing the interview!).  I listened to the first 20 minutes (I'm saving the rest for in-flight listening on an upcoming trip) and it's really great stuff so far.

I listened while walking to and from work yesterday. Really enjoyed the conversation - I always appreciate your perspective on things, Nords.

Nords and Joshua -- thanks for this. I appreciate the patience and long term view on investing. I'm getting a bit frustrated with trying to get a rental in a hcol area and your metaphor on investing and a bus was really helpful for me to chill out and put things in perspective.

Thanks, everyone!

Yay - Another Nords pod cast. Really enjoyed his last one with Joshua and looking forward to this one - especially the buy vs. own talk as that is an issue I struggle with.

I focus mostly on the active-duty part of that decision, and you already know I favor renting for that.

When leaving active duty, ownership is a highly individual decision.  For example we bought our "dream house" in a nice neighborhood with great schools on a huge lot (huge for Hawaii, anyway).  15 years later it's still a nice neighborhood but we're empty-nesters rattling around in a bigger home than we need, and in 15-20 more years we'll be struggling with the yardwork.  (All of these issues have solutions, and we're not planning to move.)  Ownership was a great deal when we bought (at 65 cents on the dollar) but today it's problematic.  We also don't see the value in downsizing or renting.  Yet.

Meanwhile our tenants have rented (or lived in base housing) for over 35 years.  (Yes, over three decades of active duty and military retirement.)  They have never owned their home.  We've only raised their rent 3.5% over the last five years, but when these tenants leave (August 2016?) we're raising the new rent by at least 10%.  They're going to have a very interesting time figuring out what they want in a home and whether they still want to be renters.  We're faced with our own landlord decision again (sell or re-rent?) and a huge DIY sweat-equity list.  (Repaint, new toilets, new water heater, new... the list keeps getting longer.)  We could cash out, pay a huge dumpster-load of taxes, and put the remainder into the rest of our asset allocation.  But this rental property is much better for aging in place, and we're already familiar with everything.  I think we're going to keep the place and do the landlord work.

When you're an owner, you have both more control and more burdens.  When you're a renter, you have little control and a lot more flexibility/mobility.  When you have school-age kids, the neighborhood/school district tend to drive the decision toward ownership and longer-term control.  But what if you decide to homeschool, or if the school/neighborhood go downhill?

If there are no school decisions then it's probably best to rent for as long as it takes to find an outstanding value-priced property.

Yet ownership is a very emotional decision too.  I grumble about the weeding and pruning around our home every day, but then I can look downhill almost 10 miles to Pearl Harbor and southwest almost all the way to Ewa Beach.  I won't have those views if I choose to age in place in our rental property. 

[clifp]

Really good podcast.  Of course I enjoyed the Angel part. What was the name of the books, besides Rob Robinsons?

[Nords]

Really good podcast.  Of course I enjoyed the Angel part. What was the name of the books, besides Rob Robinsons?

Thanks!  I was afraid that I'd overlook something about angel investing-- let me know what you'd add.

(For those who haven't heard the story, Clif introduced me to Hawaii Angels in 2007 and pointed out that some investments could be offset by tax credits.  It's all his fault.) 

The books are Scott Shane's "The Illusions of Entrepreneurship" and "Fool’s Gold?: The Truth Behind Angel Investing in America".  I also mentioned Jane Hodges' "Rent Versus Own".

[forummm]

Enjoyed the podcast. I thought it was funny that I was taking advice on angel investing from someone who's only had failures so far :) No offense meant--just irony. But it's clear that you really knew a lot about it. And I appreciated that you were very up front about your track record. And you could have some big success with the ones that are still chugging along but haven't paid out yet.

Thanks for sharing your experience and lessons learned.

[clifp]

Enjoyed the podcast. I thought it was funny that I was taking advice on angel investing from someone who's only had failures so far :) No offense meant--just irony. But it's clear that you really knew a lot about it. And I appreciated that you were very up front about your track record. And you could have some big success with the ones that are still chugging along but haven't paid out yet.

Thanks for sharing your experience and lessons learned.

I've been at a couple years longer than Nords,. I've had one unqualified success, a couple of investment that were part of a fund of Angel investment that did ok. Well over 50% that are either out of business or the walking dead. Plus a fair number that jury is still out on. We have a few common investments but mostly different ones, I'm not as optimistic about the prospects of my companies.   Interesting note I had an opportunity to cash out of my one winner, I would have made a modest profit on all of my Angel investing if I had done so. (I didn't and reinvested the dividends in my shares, yes the possibility that it is a Ponzi scheme entered my mind) .  I love gambling.

The Angel Capital Association collects pretty good data on Angel group, Hawaii Angels is very much an average organization in terms of the amount we have invested, size of deals, etc.  We are below average in returns, because the few monster hits skew the averages for all Angel groups.

I very much enjoy the intellectual stimulation that it involves, and the psychic of helping smart young entrepreneur achieve their dream is fun, very much like Shark Tank. . I also think the more types of investments you the better investor you become. Having real estate investment make more conscious of the valuations of both fixed income and equities. Angel investing gives you a first hand look at the difficulties of not only business in general, but also establish business entering new markets, and developing new products. Peer to Peer lending makes more keenly aware of credit ratings etc.

[forummm]

Enjoyed the podcast. I thought it was funny that I was taking advice on angel investing from someone who's only had failures so far :) No offense meant--just irony. But it's clear that you really knew a lot about it. And I appreciated that you were very up front about your track record. And you could have some big success with the ones that are still chugging along but haven't paid out yet.

Thanks for sharing your experience and lessons learned.

I've been at a couple years longer than Nords,. I've had one unqualified success, a couple of investment that were part of a fund of Angel investment that did ok. Well over 50% that are either out of business or the walking dead. Plus a fair number that jury is still out on. We have a few common investments but mostly different ones, I'm not as optimistic about the prospects of my companies.   Interesting note I had an opportunity to cash out of my one winner, I would have made a modest profit on all of my Angel investing if I had done so. (I didn't and reinvested the dividends in my shares, yes the possibility that it is a Ponzi scheme entered my mind) .  I love gambling.

The Angel Capital Association collects pretty good data on Angel group, Hawaii Angels is very much an average organization in terms of the amount we have invested, size of deals, etc.  We are below average in returns, because the few monster hits skew the averages for all Angel groups.

I very much enjoy the intellectual stimulation that it involves, and the psychic of helping smart young entrepreneur achieve their dream is fun, very much like Shark Tank. . I also think the more types of investments you the better investor you become. Having real estate investment make more conscious of the valuations of both fixed income and equities. Angel investing gives you a first hand look at the difficulties of not only business in general, but also establish business entering new markets, and developing new products. Peer to Peer lending makes more keenly aware of credit ratings etc.

Yeah it sounded like Nords was really enjoying the experience of it. Sounds like a fun thing to do when retired and having more time. Maybe I should move out to Hawaii some day for the investing and learning to surf :)

[Nords]

Enjoyed the podcast. I thought it was funny that I was taking advice on angel investing from someone who's only had failures so far :) No offense meant--just irony. But it's clear that you really knew a lot about it. And I appreciated that you were very up front about your track record. And you could have some big success with the ones that are still chugging along but haven't paid out yet.

Thanks for sharing your experience and lessons learned.

You're welcome!  Nobody talks about this subject, but it's an important part of building wealth (and preserving it).

I'll plagiarize Will Rogers:  "Invest only in startups that go up.  If they don't go up, then don't invest."  However the advice from failures is much more detailed.

I keep a file on the companies that I would have invested in if I hadn't already made my two investments for that year.  (I invested in one of them a year later.)  I also keep a file on the companies that looked tempting but still had a significant weakness.  I review those files every year but find that I wouldn't have changed my mind.  Maybe it's confirmation bias, or perhaps it's just the way I filter my decisions.  I'm getting better at it.

Everyone knows a startup that was acquired within 18 months, but the median exit is about eight years.  Some sectors (like SaaS) are faster and some (med tech, FDA drug trials) are slower.  Some tech that would have been a startup five years ago (3D rendering, smartphone apps) is now cheap enough to do with funds from founders, family, & friends.  Several years ago I had a chance to invest in a movie for $3M but I passed.  Last year the producer figured out a way to do it on Kickstarter for under $500K. 

Another approach is "index investing" in an accelerator.  Blue Startups (BlueStartups.com) raises funds from angel investors and gets matching funds from the state.   They invest $70K in each of their startups (for equity) plus $200K of in-kind services and 3-6 months of mentoring.  However the fund is expected to last for at least 10 years, has a small management fee, and might only liquidate when the last startup of that cohort has had an exit (or shut down).  There are thousands of accelerators across the country, ideally each focusing on their local area and industry sectors.  As far as I know, Blue Startups is the only accelerator where the investors go surfing with the founders.

In the podcast I mentioned Innovasc as my second investment (late 2008).  They put out a press release last month:
http://www.intactvascular.com/intact-vascular-secures-38-9-million-in-series-b-financing-to-accelerate-development-of-endovascular-dissection-repair-technology
That puts the company firmly in the category of "everything has to go wrong to fail", but in 2010 the founder was scrounging loose change out of the sofa cushions and barely staying alive for over two years of cardiac research on $600K.  Today, as soon as they add the FDA's 510K certification to their European CE, they're an acquisition target.  When the company started, they expected to build a better cardiac stent.  But in the last seven years, "peripheral artery disease" (diabetes, obesity) has grown faster than cardiac disease and is a much bigger market for their tiny little "Tack" stent.  Personally I'm hoping that a European multi-national medtech will start a bidding war later this year...

Every time that I think I'm jealous of Clif's unqualified success in his company, I look back at my due-diligence notes on that founder's business plan (especially the political risk in two foreign countries) and run away screaming.  But the founder writes investor letters that read like Buffett, and he's churning out money faster than a U.S. Treasury printing press.

Another Hawaii Angels investment (before our time) involved a chemist creating a better coating for french fries.  Nine years later, much to everyone's surprise, it has turned out to be a magic chemical for extracting oil from shale fields.  Everyone knew the chemist was bright enough (and diligent enough) to succeed, but there's not much overlap between those two research areas.

Next time you're in Hawaii we'll bring you to a Hawaii Angels lunch (2nd Friday of most months).  I'd be happy to give a surfing lesson, too.

[clifp]

Every time that I think I'm jealous of Clif's unqualified success, I look back at my due-diligence notes on that business plan (especially the political risk in two foreign countries) and run away screaming.  But the founder writes investor letters that read like Buffett, and he's churning out money faster than a U.S. Treasury printing press

Here is another thing I've learned from Angel investor investor communication matters.   In the pre internet days I used to read annual report before I bought the company and than a least 2 years afterwards. Not that I have to take the time to find them on the net I don't.  I still read Berkshire and I feel that anybody who has any interest in investing should do the same.  There are also companies like Realty income, (O) which do a terrific job,and I always enjoyed Caterpillar (CAT) but I sold it a few years ago.

I think there is a correlation between communication and they likelihood of being successful.  My theory is it takes discipline for a CEO to do a painful activity to get the quarterly or least semi-annual investor update out in at timely fashion with good quality. Discipline is an important but often rare trait among entrepreneurs.

 I was friends with editor of Intel's annual report, when Andy Grove was CEO. She complained but also admired how hands on Andy was in preparing it.   "He corrects my grammar, I've got an English degree from good school, and was editor of school paper, English is his 2nd language yet he is right most of the time." So if Andy Grove and Warren Buffett consider something important enough to be personally involved then you'd be foolish to not follow their lead.

[forummm]

Love the Hawaiian hospitality! Thanks!