Ryan's Thoughts

In Honduras

2008-08-04T14:42:00.001-07:00

First vacation since starting working. I really don't need a vacation since all the traveling feels like lots of vacations, but here I am nonetheless. I'm traveling with Eric. His sister is getting married this weekend in Belize, so we figured we'd travel for a week before since we're already in this part of the world.

I miss traveling though. Sat next to a girl on the plane and ended up hanging out with her brother that night in San Pedro Sula. Then Saturday night in a town called La Ceiba. Now we're in Roatan, which is a popular island with really good scuba and snorkeling.

The big bummer has been that American Airlines blows and lost my bag. I had a flight from Dallas to Miami on Friday with a 2 hour layover. Two hours would be sufficient if it weren't for a plane change, gate change, and then the fuel truck "not being able to find us" in Dallas. So we arrived in Miami 15 minutes before takeoff. I narrowly made the plane, but my luggage didn't. Then the next day my luggage was supposed to arrive but it didn't. So in theory my luggage will magically show up at my hotel, but I doubt it.

The funny part is that I almost blame myself for checking a bag at all. Did I really need athletic shoes? But anyway maybe I've just been doing too much consulting. Airlines have such bad customer service.

Anyway so I finished the hotel project, and I'll find out what I'm doing next soon hopefully. Currently signed up for a training in Austria at the end of the month but those often get pushed around.

On another note, I realize I haven't been using this very often, and a friend has convinced me to try twitter. Twitter is basically micro-blogging. If you're on Facebook, it's like status updates. Blogging takes a long time and there's been such a proliferation of blogs it almost makes sense to make the posts smaller. So they have a max of 140 characters. Anyway I'll probably start messing around on there soon, at www.twitter.com/ryanmjohnson.

Anyway back to the beach!

A movie other than Office Space with a consultant

2008-07-22T00:25:00.001-07:00

Saw the new Batman movie today. For me it lived up to the hype.

I saw it with my team of consultants here in Nashville. So of course we all laughed when one of the characters turns out to be a consultant. In one of the scenes, Bruce Wayne's company is possibly going to buy a Chinese company, and a consultant talks about the "due diligence".

We do that! Due diligence is basically just what it is in the movie - when you're going to buy a company, you want to make sure it's a good deal and the numbers are as advertised. Of course we also do every other aspect of management consulting - strategy, operations, organization, marketing, etc, and for every type of institution and across the world.

The hardest part of my job is explaining what I do for a living. Most people just don't get. But now at least I have something to point people to other than the Bobs.

Working at a convention center hotel chain this month

2008-07-01T17:10:00.000-07:00

So I'll get to see wonders like these...
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Unions

2008-06-26T16:46:00.000-07:00

These stickers are all over the place....no matter their managers see them as well. Railroads - the last bastion of strong unions.
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Hotel adventures

2008-06-25T16:59:00.001-07:00

This week my room is adjacent to a small conference room. I'm sitting here doing some work and there's a Mary Kaye presentation from an energetic young lady. She went on for awhile and then said "let me tell you a bit about myself....have you seen the movie Annapolis? That's where I went."

A female Annapolis grad who then went into grass-roots makeup sales in Galesburg, Illinois?

5 Years Ago Today

2008-06-24T21:24:00.001-07:00

Eric and I completed the purchase of our first house. I can't believe how fast time flies. I can't believe what a good idea it was.

Leading up to that day, a couple of night-owl freshman working out at 3am each day in Yuma Hall bored and with scholarship money to burn just churned ideas in their heads. Somehow they settled on buying a student rental. They drove around the neighborhood each night looking for signs, trying to figure out the market. Somehow they stumbled on 1004 E. Mitchell St. A cute little house. Yellow stucco, red rocks, oleanders and a goldfish pond. Simple, and as we would learn, a diamond in the rough.

That house cost $111,500. It was 4 bedrooms, 3 bathrooms, 1.5 miles to campus. Mortgage payment: $580/month. Rent: $1400/mo. Screamingly profitable, but we didn't know it at the time- we were too busy worrying about what could go wrong (and when the roof leaked that fall, we learned our first lesson - that what can go wrong, will).

The whole real estate world was a mystery. We were cautious, skeptical. I would bombard anyone we dealt with with a hundred questions until we knew every detail, every exception, every rule. How do mortgages work? How does closing work? What are the important laws? Property taxes, zoning, permits, construction, landlording.

My level of handiness started with "what's a Phillips-head?". But we somehow managed to make improvements that summer and our first four tenants moved in that fall.

We kept talking about real estate. The process was fairly straightforward. And replicable. And we loved doing it. That winter we purchased our 2nd over winter break. I went abroad that spring, 2004. We purchased 3 more while I was gone (I knew that power of attorney I setup before I left would come in handy). Financing at the time was easy (the subprime crisis was no surprise if you dealt with real estate professionals in late 2004/2005).

And the math really added up at the time. $870 mortgage, $1450 rent. $800 mortgage, $1200 rent (even if the Rugby team that rented the latter burned down a tree, built a golf-club shrine, and put couches on the roof).

After we had our 5 was the scariest time for us. We had invested basically all of our money, and fast. We had leveraged to our heads. If the market turned, we would have had major problems. Little did we know that our main criterion for what to purchase - a house for which rents are comfortably more than the mortgage payment - ensured they were good decisions. This would become our guiding strategy, but at the time it was just risk aversion.

Spring and summer 2005, the housing market was at it's apex. This was a critical time for us for two reasons. The first was that we finally felt confident enough in our knowledge to make things happen. The other is that our houses had gone up so much that it made sense to sell them. We figured that first house was then worth about $205,000. Though our mortgage payment was still $580, when you considered the cash on the table, it made sense to take it and try to do something else. We put three houses up for sale, and within days a buyer bought all three in one fell swoop. The Mitchell house, $220,000.

We quickly went into a 6 month frenzy of deals, buying and selling because we had figured how to arbitrage the market. We had 10 different houses by then. But as the market reached a peak, we sold and sold until by my last semester, we had only the house I lived in.

House prices had peaked, and there just weren't any more Mitchells out there. We each invested our profits in stocks and we were happy with that.

Our college time was coming to an end, and real estate had been one of the best parts. We both got a deep understanding of how to run a business. I'm shocked at how applicable that experience was to everyday decisions. So many decisions that I think through I think back to those houses.

Eric graduated three semesters before me, and started a real estate related startup for which he was named one of Business Week's top 25 entrepreneurs under 25. I stayed until fall 2006, and right after I graduated something happened that brought us back in the game. We found another Mitchell. Not as profitable as Mitchell, but a solid, underpriced, profitable rental. The kind of no-compromises property that would throw off increasing rental income over time. The kind that was so hard to find at the right price. The kind you would buy even if, as we had believed since 2005, prices would stay flat for 5 years (a prediction that now seems overly optimistic!).

So we were back at 2 houses, but Mitchells were still hard to find. As where in 2004 we found dozens of houses every month we would buy if we could, in 2007 we found fewer than a dozen a month that even merited taking a second glance at the listing. But we found 6 houses together for cheap, the result of a doctor's hasty divorce settlement and our ability to make a big down payment, and were really back into it. Another (our closest ever to campus), then another (our first duplex), and now maybe two more. So who knew we would be back. We don't even live in Arizona any more, yet we still enjoy it enough and believe in it enough to make the effort to keep it up. Learning how to interface with property managers helps (and both of us are convinced we could start the best property management company ever).

I love our rentals. I developed a deep passion for all aspects of them. I love fixing them up. I love finding tenants (and have made multiple friends that way). I love all the things I learned along the way. The good lessons and the hard lessons. I've been to court to evict a tenant, made my first contracting mistake, hired my first lawyer ($1500 to fix said contracting mistake).

Who knows where we'll be at in 5 years. He's a serial entrepreneuer, I'm a nomadic consultant. But regardless we can trace our experiences back to those nocturnal workout sessions. If you ever get that bug in you to make something happen and it makes sense like buying that first house on Mitchell, do it.

Addendum: That first mortgage: 4.25%, 5/1 ARM mortgage, meaning the rate was fixed for 5 years. Can you believe that that rate would only today be going higher?

Welcome to Galesburg, Illinois

2008-06-17T19:04:00.001-07:00

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Railroads: obsessed with safety

2008-06-16T12:07:00.001-07:00

Bag fee - not so bad

2008-06-06T17:27:00.000-07:00

Recently American Airlines' announcement of a $15 bag fee for most passengers set off quite a news storm. Seems people are pretty ticked off about something they think should be free.

I am a big fan of the idea. There are two reasons this is a good thing.

First, airlines are losing money hand over fist. If they don't raise fares and all of that, they'll be out of business soon. Complaining when they do simply misunderstands basic economics.

But the bag fee is a good thing in and of itself. Checking bags and putting them on the bottom of the plane is a costly endeavor. Airlines pay for it and have simply built the costs into the price of tickets for years. The problem is that since it never cost anything, people could check a bag for free, even though it increased costs for the airlines. Sometimes, people would check multiple bags. Ever gone on an LA to anywhere-in-Latin-America flight?

This means that all passengers are splitting the costs for the passengers that check bags.

Now, with those that check bags paying, the airline will not have to increase fares as much for the other passengers.

And now that I am quickly becoming a seasoned traveler (I already have enough points to get about 8 free tickets), I am learning it's really not that hard to pack it on a carry-on.

So while it's a general bummer that airlines have to charge more, be grateful that American, which is based out of Dallas by the way, at least got the bag charge right.

Expect other airlines to follow soon, and embrace it.

this is great news

2008-06-01T00:44:00.001-07:00

http://money.cnn.com/2008/05/27/real_estate/realtor_settlement.ap/index.htm?section=money_topstories

Luck

2008-05-27T08:00:00.001-07:00

As I was about to board my flight last night from Dallas to Kansas City to start the work week, Southwest made an announcement that they needed someone to give up their seat. They were offering $200 plus the value of the ticket, $160, plus they would put you on the first flight in the morning.

Since I could easily just go home and get on the flight the next morning (the flight I would take anyway if I didn't want to avoid getting up at 4 a.m.), I jumped all over that. One more free trip somewhere to use next time I'm staffed in Dallas and can't leverage my weekend flights.

So they gave me the voucher. Sweet. Easy $360.

Then right after they gave me the voucher, they noticed there were a few no shows for the flight.

"We might still be able to get you on this," they said.

"Will I still get the voucher?" I wanted to know.

"Of course"

Easiest $360 ever.

Am I risk-averse?

2008-05-25T15:58:00.001-07:00

"The School System sought to create a risk averse set of professionals (i.e doctors, lawyers, dentists, bankers) and paid little attention to encouraging "creative" types."

Here:

Assuming he would put big consulting on that list, he's saying I'm risk averse. Compare that to my good friend and business partner Eric. He's in a very high risk profession, running a start up. Startups typically either flame-out or hit it big.

What is the most desirable? You certainly look at some of the big successful people that are influential thinkers, have made a lot of money, or have had a big impact on something and think that would be great. You don't, of course, hear about all of the people that tried to get there and didn't get anywhere.

I've been trying to decide where I want my life to lead. I think I'd ideally like a little bit of both. Perhaps doing big consulting now is to build a network, get a lot of valuable skills, and have it lead to more opportunities later. Who's to say that I can't then transition into something more "risky"?

Interestingly, the person who wrote the quote at the beginning of this said that professors count as a high-risk job. I'm not sure how I feel about that. He's specifically an econ professor. Aren't all people who get a PhD in econ going to do relatively well anyways?

When academics get far too specific

2008-05-20T20:18:00.000-07:00

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I was there

2008-05-19T22:16:00.000-07:00

Here's a story about the irony of Bill Gates and Sue Decker at the Berkshire annual meeting. He's talking about this moment, when I snapped a picture of Gates.

If Bill Gates and Sue Decker were involved in the minute-by-minute details of Microsoft’s bid for Yahoo—and Steve Ballmer’s subsequent withdrawal of that bid, announced an hour and a half after their paths more or less crossed in the Qwest exhibition hall—it didn’t show at the Berkshire meeting.

The most bizarre part of my impending birthday

2008-05-14T22:13:00.001-07:00

I am flying to Tucson tomorrow to go to my sister's graduation. Typically you have to be 25 to be able to rent car (without paying a huge surcharge).

If I will turn 25 in the middle of my 3 day rental, does that count?

I honestly want to call Hertz to ask that right now as I'm looking into renting a car.

Also, I signed up for a bank account last Saturday and was informed that I could qualify for the no-fee "college checking" because I wasn't 25 yet. Clutch.

Buying opportunity?

2008-05-14T21:12:00.000-07:00

Remember as Berkshire Hathaway B shares were approaching (and eventually passed) $5000, and I lamented that I hadn't bought more

And conversely, although it is so exciting to see Berkshire Hathaway (B shares) above $4900 each, I wish they would go down, a lot, so I could buy more.

(Here)

Well they're around $4100 now. I'm back to buying more. You might look into it yourself. Note that it is considered a financial stock, yet it's total write downs in the crisis - $0.

Interesting sentence

2008-05-11T18:14:00.001-07:00

The single easiest thing a consumer can do about climate change is to eat less beef.

From this article about Taco Bell and Fiji Water trying to be green conscious

Natural Gas boom in Ft. Worth

2008-05-11T17:53:00.001-07:00

Fort Worth, which is adjacent to Dallas and forms the other big piece of the DFW metroplex, is now feeling very good about itself because it sits on the nation's largest natural gas field. This article gives more background.

The upside is palpable around town. Once-struggling oilmen and big landowners are suddenly flush with gas money, while thousands of average homeowners are now collecting modest monthly royalty checks. According to an industry-funded study, an estimated 84,000 jobs have been created throughout the region by the drilling boom. "It's created a new wealth in our city," declares Fort Worth Mayor Mike Moncrief. "It's inoculated our economy. We find ourselves being an island in a sea of recession around us."

What would you ask Warren Buffett with one question?

2008-05-04T23:01:00.000-07:00

Just got back after a weekend in Omaha for the Berkshire Hathaway annual meeting. What a weekend. I've wanted to go for so long, and being in Kansas City it was just the perfect time to go. My friend Jessica met up with me and enjoyed it just as much as I did.

Hearing Buffett and Munger answer question for six hours made the whole trip worth it, but the best part - Jessica and I both got to ask him a question - in a packed arena and with 31,000 people there.

Now I've always dreamed of getting to ask him a question. I'd been thinking about it for a long time. But the more I thought about it, the harder it became. I read everything he says that I can get my hands on. It's the most bankable financial advice I've ever found. So I feel like I have a good idea of how he's going to respond to things.

I sat there in agony as the people before me (my question was 30th of the roughly 65 questions) asked some terrible questions.

"How can I grow my small business?", "How can I find good managers?", "What do you look for in a successor?", "What should I teach my class?". These among many others drove me crazy because he's answered them before and they come at the expense of much better questions. Also, people made their questions way too long. It drives me crazy when people are supposedly asking a question but really just want to say something. A few times Buffett politely cut people off to say, "is there a question?" Nobody wants to hear you talk, we all came here to hear Buffett people.

What I really wanted him to talk about was what he thinks about world trends and business trends. The closer those can be linked to actionable advice the better. But people weren't asking the right questions.

He invests $5+ billion in railroads and not one question? His earnings fall 2/3 the day before and nobody asks about it?

He'll let you ask about anything other than what they're buying and selling. No pre-screening, no other rules. It's quite an offer. I could list 50 questions I wanted to ask.

I thought about the time when one of my favorite bloggers Tyler Cowen offered to answer any single question for people that bought his book. At the time I thought that would be a good time to ask something personal because that's the only chance I would ever get. But I didn't particularly like my response. I realize I would have gotten a much better response had I just asked a basic open ended question about something I was curious about but which he hadn't addressed before.

Also, I wanted to ask my friend Jeff. He ended up suggesting something that I really liked and modified only slightly.

What did I finally settle on?

"Hi, I'm Ryan Johnson from Arizona. What do you think about the current food shortages in the world and what trends do you see in the next decade or two?

Notes on the actual question: a) it was one of those times when you're just completely in the moment. It felt like it was going so fast and so slow at the same time. Like I could think about three other things and still say my question clearly. b) they had a feedback speaker next to me so help correct for some of the delay between speaking and hearing it on the soundsystem. Now I know why at concerts there are always speakers pointed right at the band. c) my question was short and simple, just like it should be, and two people thanked me for my simple question immediately afterward. d) we were supposed to say our name and hometown. I spent a solid 10 minutes deciding where to say I was from. Dallas? No way. Phoenix? I haven't lived there in 6 years. Tucson? That's not quite right. I finally settled on just Arizona. I suppose I'll probably answer that way until at least age 30.

So that was the high of my trip. I'll probably never speak to nearly that many people again and my idol was listening to me and only me for those 5 seconds. The low: only Charlie Munger answered the question. Buffett had commented on nearly every question before me, but because it was 2 questions before lunch, they were hurrying along. Munger said some things about it and called corn ethanol "stunningly stupid" and then there was a pause and when Buffett would usually have chimed in, he said simply, "how about mic 6". I was bummed.

But you can't win them all. Jessica would have a question after lunch, and we had an hour to think about it. We came up with the following.

"In light of your involvement in the Wrigley deal, how do you evaluate brand equity and how does it go into your valuation of a company?"

Pretty good question, right? Well two questions before her, someone else brought up brands (albeit with a poorly-worded, rambling question) and basically killed that idea.

So we were deciding between asking about two industries we really wanted to hear about, railroads and coal. Me being at a railroad now and understanding the logic of buying railroad stocks very well, we decided whatever he would say would be already known. Better to ask about coal.

"What future trends do you see for the coal industry? Does the lower cost outweigh the environmental effects of its use?"

That got one of my favorite responses of the day. Buffett talked about how in the short term, we'll probably increase it's use. He said people might not realize how much coal we use in this country. I can't remember exactly what he said but I'm sure it'll be on some websites soon and I'll link them then. Then Munger said something really insightful. He talked about how the conventional wisdom on the environmental impact of coal may be misguided. He says he actually thinks we should use coal before we use oil. He said it's much cleaner than it was not too long ago and is getting cleaner, plus it has no other uses, unlike oil, which is an input for so many other things we need.

So that question turned out to be a winner. I've been thinking about what question I would ask if I had another chance. I'll let you know in a year, because I'll do whatever I can to go to the meeting again.

Bill Gates!

2008-05-03T14:55:00.000-07:00

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Warrenstock!

2008-05-03T13:07:00.000-07:00

Finally fulfilled my goal of going to see Buffett at the annual meeting.
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Kansas

2008-05-02T20:13:00.001-07:00

In Kansas, they have a lot of tornado warnings, but last night's brought a chuckle.

I was listening to a hip hop station when the emergency broadcaster came on. They must use the same fuzzy recording they used 50 years ago.

As it ended, the music came back on. The song- "party like a rockstar".

It was like that part in independence day when the world was coming to an end but they're just dancing on the roof.
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More evidence you should just eat food with vitamins rather than take supplements

2008-04-27T11:48:00.001-07:00

For example, observational studies of people who eat foods rich in antioxidants like vitamins A and E and beta-carotene have suggested these substances improve health. But well-designed clinical trials found increased death rates among people who take them as supplements. And while low vitamin C doses can suppress harmful free radicals, very high doses promote their formation. The initial promise that vitamin E could protect against heart attacks and cancer failed to stand up to scientific scrutiny, which instead found that it increased the risk of heart failure.

Here

Predictions I have

2008-04-25T13:52:00.001-07:00

....the new 3G iPhone is going to be a complete game changer and everyone will want to have one.

I have spent the last 4 months using nothing but a 3G Verizon Aircard to access my internet. It's a device that slips into the side of my computer. It has a phone number, but it's not a phone. Instead, it connects to Verizon's network to access the Internet.

While it's not as fast as a home cable modem connection, it's plenty fast. You Tube videos, no problem. Do I get impatient with download speeds? No. Only when you need to download a 200MB file do you even notice.

When they put one of these in the iPhone, people will HAVE to have one. Combine that with all of the new programs that are being developed for it, and the sky's the limit.

The wildcard is GPS. I wouldn't be surprised if the new iPhone's GPS is a breakthrough for a phone. Combine 3G internet and a solid GPS, and it will be the killer device.

I might even prefer it over my Blackberry.....

Note: I don't just predict these things out of thin air. When I need to know what's going to happen, I go to MacRumors.

Most overrated game show ever?

2008-04-20T16:27:00.000-07:00

People love Deal or No Deal. I don't know why. Granted it's suspenseful as someone makes or loses thousands in mere seconds. But what I can't stand is that there is an illusion of skill to the game.

The game of odds, hosted by Howie Mandel, calls for a contestant to predict the amount of cash contained in any of 26 sealed briefcases. The top prize for guessing correctly is $1 million.

Predict? Picking the boxes is completely random. It pains me to see contestants agonizing over which box to pick. They're all the same. If you're picking based on anything other than which briefcase girl you like the most, you're wasting your time.

And the offers are similarly uninteresting to me. They're always just slightly higher or lower than the expected value (or average value) of the briefcases left. When you decide to accept or reject the offer, you're really just deciding if you like a guaranteed payout or you like a high variance payout.

Anyway the fact that they turn that spectacle into a half hour or an hour is simply painful to me.