Oct 11

Creative Problem Solving: Creative Thinking II

This posting is the second in my Creative Thinking Series and follows “Sane People with Insane Ideas: Creative Thinking I”. In the first post, I discussed having the courage to allow yourself to think creatively. Thinking creatively requires you to imagine an alternative path; a third path besides the two Frost wrote about diverging in a yellow wood. Its not about the road less traveled by, its about the road not even conceptualized yet. The road Frost didn’t even think about. Choosing either of Frost’s paths just lead to ordinary ends. To be extraordinary you must create your own path. In this post you will read about the importance of creative problem solving and its implications.

Thinking photo via Flickr by Victor Perez. Creative Commons License

Being creative takes practice. In fact you should practice creativity regularly. Pick something you like to do and do it daily. If you like writing, write daily. If you like painting, paint daily. Play a video game that allows you to create something from scratch. You use it or lose it. One of the most “interesting” blogs I read, Altucher Confidential by James Altucher as recently compiled some advice on this front.  Check out his “Nine Ways To Light Your Creativity ON FIRE.”

Its very important to have this tool ready to innovate or create when needed.  I say “needed” because life doesn’t throw you softballs for you to just stand around and blast out of the park. Life throws curve balls and damn good major-league-type curve balls at that. When you don’t get curve balls, you get 95 mph fastballs. You have to have the ability to develop creative solutions at a moments notice. Your ability to innovate will be the most important tool in your arsenal to solve your life’s problems and business problems.

Creativity is prevalent in successful businesses. Henry Ford developed the assembly line and reinvented the way automobiles were built. Mass production changed the world and is still the standard method of producing anything. Apple Computer, which I have written about the post “Steve Jobs – Evil, Genius or Evil Genius?”, is constantly creating new and exciting products that work together as a system.  More on Apple later. It is well written that most successful products solve a problem that no one else has solved yet.

Outhouse in the Woods photo via Flickr by Anthony van Dyck Creative Commons License

The first and most vital step in creative problem solving is recognizing the problem. Before the invention of the flushing toilet, people thought they had solved this smelly problem by simply moving the throne to a separate building called the outhouse. In winter new problems were encountered as people needed to suit up just to read the newspaper… or anything else they wanted to do in the outhouse. People just accepted this as normal and this uncomfortable element of life continued on. Until one day, one guy said “hey, I am sick and tired of having to go out in the cold and dirty outhouse every time nature called.” and then the most important: “there has to be a better way.” And there was a better way. Now people all over the world can read their newspapers in the warmth of their own homes and they never have to use an out building again (unless they want to, I am not judging).

Every entrepreneur is in the creative problem-solving business first and foremost. Without this tool in their toolbox they would have no product or no product people would need. As a creative problem solver, you identify problems and then they move on to the next step, identifying the need. The need is the solution to the customer’s problem as defined by the companies product or solution. Its the sell. “You need my product because it solves this problem.” A need is vital and much more important than just a solution.  There could be many solutions to a problem but unless a company can “own” the solution, literally and figuratively there is no way to monetize it. Thus, a company must own a own a particular solution before it can sell the need to its customers.

Which brings me back to Apple. In the past I have compared Apple to drug dealers and now I make a new comparison. Apple is great because they do business like the mob. These outfits run a similar operation in that not only do they sell the “need” to the customer, they also have to sell the “problem they they invent” to the customer. This method is like creativity on steroids, here’s how it works.

Two thugs bust in to a convenience store and rough up the proprietor with a few punches and take the cash. Before the cops are called a couple of mob associates show up and tell the owner how bad the neighborhood is.  They tell him that if he paid the mob a small “protection fee” they would make all his troubles go away.  Then the mob pays off the first two thugs they hired and on to the next one. The mob makes their money by selling a solution to a problem that they created! Genius!

Apple operates in the same way. No they don’t hire thugs to rough up PC users when the new MAC is coming out, but what they do is create solutions to problems that they create. For example, Apple sold Ipods as a solution to the problem of a world without the ability to carry every song they own with they at all times. Back in the 90’s everyone was perfectly happy and content with their CD Walkman and the 3 CD’s we could manage to lug around with us. I have to admit it is pretty cool carrying 2000 songs with me as I go for a run though. Sometimes I can’t make up my mind between Dave Matthews or Metallica. Thank you Apple for not making me choose!

Excercise your creative muscle daily. You will need it when you least expect it just in your regular life let alone business. As an entrepreneur you are in the creative problem solving business. Try and develop solutions to problems that no one else labels as “problem” yet. Create a need that you can sell your customers by owning the solutions to those problems through patents or other means.

Always ask yourself if there is a better way!


Jul 11

The Debt Ceiling and Gridlock in DC

The gridlock in Washington, DC right now is not just on the beltway. It seems so simple right? Just set a new debt ceiling and the country will get back to stagnating between disaster and mediocrity. The reason for the drama being played is the exact same reason why DC can’t seem to get anything done and the exact same reason that we live in the best country in the world.

Capitol Hill. Photo by Wally Gobetz via flickr.com. Creative Commons License.

The forefathers that designed our system of government created so no one group could take control and lead the country in a direction that the citizens did not approve of. These complex checks and balances are currently being exposed for what they are; a way to force critical examination and debate of important issues. The system also can slow the decision-making process to a glacial pace.

A problem arises in times like these. When time is of the essense and the entire globe waits with baited breath to see if the economic sun will rise the next day. The government, doing exactly what it was designed to do, can actually bring an ecomonic apocolypse through inaction instead of action.  A scary thought to say the least.

I often wonder what the Founding Fathers would think of their creation after 200+ years. I hope they are proud. The United States is the best country with the most just goverment in the universe. I wrote an article about how great our country is called Is America Down and Out? Their creation is little changed in its core. I wonder if they would be shocked to see how large their little Federal Government has grown almost exclusively through loop holes and add-ons to legislation which created the vast assembly of agencies and departments.

I wonder if they would be embarrassed by the amount of debt their little Federal Government has borrowed. I would assume that they could not even comprehend the complexities of our financial system. These were people that took great pride in paying off their debts. In fact, I would assume that they never owed too much to anyone. They only bought what they could afford to buy. I think the Founding Fathers would spend hours scratching their heads as they attempted to figure out what the little Federal Government need to buy. In their time, the States were the most important governments and the Federal Government was set up to unify the States, to enforce property rights and a few other very specific purposes.

As the world waits to hear its fate, there are few certainties. We are frustrated with the partisan bickering coming out of Washington. Maybe our frustration is even moving towards anger at this point. I can tell you that your anger is not being directed in the right place. Just as you cannot fault a wild animal for attacking a hiker in the forest, you cannot be angry at the current US Government for arguing and banging heads with little or nothing to show for their efforts. This is exactly what Congress was formed to do. Instead, your anger should be directed at the polititians of the past who chose to borrow and chose results NOW, to pad their pockets and their legacies. Default or no default. This should serve as a wake-up call for every American. Borrowing now and leaving the next generation to figure it out isn’t the responsible action and has to stop. We should know because we ARE the next generation.


Jun 11

Is America Down and Out?

I have been hearing and reading a lot on America’s impending implosion. Talk of our own “lost decade” similar to Japan’s lost decade in the 90’s seems to be everywhere.  The markets can’t seem to pull out an up day let alone an up week. The unemployment rate is teetering on the line between bad and horrific. The housing market is just about to fall off a cliff. The United States government is broke. Rates can’t be lowered any further. Oh yeah, and we are STILL fighting so many wars costing us billions per day that I lost track. In fact, I am only reminded of these wars when the news reports more American casualties. Pessimism is running rampant and optimism is MIA.

So what should we do? Should we sell everything we own and then buy gold bullion? Maybe buy guns and stock up on canned goods – just to be extra prepared? Its times like these when you need to take a step back and slap yourself in the face or have a loved one do it for you (its better if you don’t see it coming). The answer is none of the above.

American Flag photo by Joel Mcgrath via Flickr Creative Commons

With all the negative headlines one cannot help but to feel badly. Feeling sorry for yourself is not going to make you money and put food on your table. In my opinion, as long as you have a balanced portfolio you should stay in stocks. This is not a time for gambling in the “next micorsoft” as they say, but rather it is a time for sure things. Put your money in the Cokes, Pepsis, P&Gs, Chevrons and the like. I am not a fan of any of the high-growth stocks at this point. I want slow-growing sure things that are paying me an acceptable return.  I also would not recommend buying any financial stocks, home builders or the big industrials. We can go either way here, you don’t want to be on the wrong side of a big market move holding Alcoa. Can these companies still go up? Sure. Do I know they are going up like I did in March of 2009? Not a chance. I have no clue, so I don’t want to own them.

Lets face it, you are most likely not going to be able to sell your house if there are 50 houses for sale on your block. Use common sense. So you hate he place, thats too bad. Put some money into it and make the best out of the situation. Refiance it if you are in an adjustable rate mortgage. What I am saying here is, cover your ass. Batten down your financial hatches and protect what you have.

You are in the best country in the world. If you think its bad here, throw a dart on a map of the world – you are better off than the country you hit. We have more opportunity here than anywhere else in the world. You can be born with nothing and rise to be the President of the United States or a Doctor or a Lawyer. When things start getting bad, I think of the World War II generation and how they are known as the “Greatest Generation.” They grew up during the great depression only to have to fight to free the globe from tyrannical rule as young adults. They came home and were happy to have any job and a small house to call their own. They worked hard and never complained. We need to stop complaining and start working hard.

WWII Kiss photo by So-What-85 via Flickr Creative Commons

America is not down and out. We are searching for our idenity and getting our feet back down to earth. There may be some financial hits taken, but we will be fine. We will pull ourselves up by the boot straps and go to work. We will be happy and content with what we have instead of longing for the extra things our neighbors have. If we do this, even if the economists show you  how we have had our own “lost decade”, we will all have gained something priceless – the pride in America that the Greatest Generation possessed.

WWII Vet photo by Scott Ableman via Flickr Creative Commons


Feb 11

How to Develop a High-Speed Rail Plan

In his first act as governor of Ohio, John Kasich commits political suicide.  Or perhaps not accepting the Federal Government’s $400M check for high-speed rail was he just crazy enough to be considered genius?  Now two more governors are on-board (pun intended) with Kasich essentially validating his sentiments and breathing life back into the Ohio governor’s political life.

The truth is that there has yet to be a compelling argument for the latest passenger rail project in the US – at least not in Ohio, Wisconsin or Florida. I am personally excited about the idea of hopping on a train and hopping off wherever I want to go. I have taken the Amtrak and Acela trains up and down the east coast many times – and it is absolutely wonderful! No airport security. No desolate drives to an airport far away from the city. I would jump in the middle of DC and jump of in the middle of Manhattan. It comes down to the numbers.

The numbers work on the east coast. The rail lines up and down the east coast are much faster than flying or driving. Figure in traffic and ridiculous security delays at all the airports; it is not inconceivable for a 50 minute flight to take a good 4 hours. You can take the regular Amtrak trains in just over 3 hours. If you opted for the Acela Express, your trip would be under 3 hours – all for less expense than flying. The rail lines are faster and cheaper than their main competitor on the east coast – flying.

The numbers don’t work in Ohio. The proposed rail lines would be much slower than just driving between Cleveland and Columbus for example. Once you figure in the time spent driving to the train station and parking, the slow speeds of the trains (topping out around 55 mph I believe) and then the cab ride to your destination because the stations are not centrally located you would have almost doubled the time spent had you just driven. In Ohio and Wisconsin the proposed high-speed rail lines would be relegated to shuffling college kids back to school after Thanksgiving – and that will cause the states to subsidize the failing projects.

In Ohio the passenger rail lines need to be faster and comparably priced than driving. A true high-speed rail which traveled over 150 mph would be a huge success and an important investment in the future of our country. Ideally, linking regional hubs such as Cleveland and Indianapolis to International hubs like Chicago and New York via true high-speed rail is much better use of this money – even if the first phase was only able to link Pittsburgh to New York. It’s the quality of the investment and not quantity of rail miles developed.


Jan 11

Inflation Nation: How to Protect Your Purchasing Power

Let’s paint a new picture of America. Your pay is the same. However, when you go on your weekly trip to the grocery store you see that there are no prices on milk. A guy over the loudspeaker announces that milk is now $6 per gallon. Strangely, a guy bought milk at the same location 4 hours earlier for $5.50 per gallon. You notice that it’s not just milk, there are no prices listed on any item and the guy over the loudspeaker keeps announcing the new prices of certain items. Are you in a bad dream? Perhaps. Or perhaps America is now experiencing something called hyperinflation.

Inflation is the devaluation of a population’s purchasing power over time. All those stories from your grandparents about how they used to get a loaf of bread for a nickel are examples of inflation in action (and you didn’t even know your grandma was an economist.) Hyperinflation is an extreme situation in which inflation is out of control and could even exceed 10% per day! Can you imagine filling your tank up at the beginning of your week and all of a sudden you read that gas is now $8.00 per gallon for the cheap stuff? Hyperinflation causes a general unrest in society, chaos in the streets and eventually even the collapse of governments – imagine the Katrina aftermath in New Orleans occurring coast to coast.

Hyperinflation in Action

Take for example, the famous case of Argentina in 1989 which is summarized amazingly well in the article by John Mauldin titled Catching Argentinian Disease. Mauldin states that the hyperinflation was set off by years of budget deficits and borrowing to fund the government. In1989, no one would lend to Argentina Anymore. As the government still needed to pay its obligations somehow, they fell back on the printing press to keep the government going. As Argentina printed more money to fund itself, the value of the currency plummeted – more supply yields a lower price. Therefore the purchasing power of anyone using the Argentine Peso was demolished. This means that anyone with a savings account denominated in the Argentine Peso was also hurt and their savings were effectively cut down to a fraction of what they had been.

Hyperinflation is an extreme example of inflation, but it illustrates the effects of many years of inflation succinctly. I don’t think the United States is headed for hyperinflation or chaos in the streets necessarily. I do believe that the U.S. government might be expecting inflation to occure and even possibly welcoming it.

The White House Economists and A Hidden Agenda

Many of the White House economists hail from the University of Chicago. White House Chief Economist, Austan D. Goolsbee, has been a professor at UC since 1995. In my opinion, the University of Chicago is the best school for economics in the world and the faculty there is world class. So why is the White House position currently that they see no signs of inflation? Shouldn’t we take the word of the world’s best and brightest economists?

I believe that there is an agenda that the White House has yet to admit to. After all the bailouts which began with the Bush administration and continued with the Obama administration, our national debt has soared. I suspect that the only way to get that debt under control is to inflate it away.

You read above how bad inflation is for savings accounts and purchasing, but we didn’t discuss debt. Inflation works backwards and is actually a good thing for your debt load. Your 100k in credit card debt? Inflated away. Your school loans? Inflated away. The national debt? Inflated away. The amount of the debt doesn’t change (unless it’s indexed to inflation.) Could this be in the plans of the White House? Is this the reason Obama’s top economists don’t see inflation? No one can know for sure. It’s definitely an option.

What Do We Know?

I don’t believe in taking other people’s word for things. I don’t just accept as truths what top economists from the University of Chicago have to say about inflation. Often I get in over my head as the complexities of the many moving parts of some economic concepts are still beyond my understanding (though I will always work to understand them better.) Let’s look for some signs about inflation.

The Proctor & Gamble Quarterly Report

On January 27, 2010, Proctor & Gamble released their quarterly report. The results disappointed as the company indicated that rising commodity prices are squeezing the margins of the company. This means that they are paying more for the raw materials they buy to produce deodorant, detergent and everything else, but haven’t passed those costs on to the consumer. Thus their profit margins are lower.

I can tell you that P&G is a great company with competent and rational management. I can also tell you that competent and rational managers will find a way to eventually pass those input costs on to their consumer. The issue at P&G is that they are a premium brand company. They charge more for the perception that they offer a better product – bottom line is there are cheaper competitors. If P&G just raised their prices without a well thought out strategy, they would lose customers to the competitors. These higher prices will hit the customer eventually.

Research During Your Normal Routine

I noticed a few things just heading to Target and CVS for my day-to-day purchases. The price of my deodorant and hair products have all gone up. Sometimes these changes masquerade as a “multi-pack” or even smaller container at the usual price. Pay attention! Inflation is already here and you need to make moves to ensure your savings and your Investments are protected. Inflation risk is the largest current danger to your portfolio (unless you are that bad at picking stocks – then you might me the largest danger.)

Ways To Combat Inflation

Real Estate

Putting your cash in real estate is one way to combat inflation. The theory here is that real estate will increase in value and give you some protection against the eroding dollar. The rate for a 30 year mortgage is at near record lows and may be a good time to explore a vacation home or an investment home. Also, you need to have realistic expectations regarding your return and your holding period. Please refer to my article The Death of the Starter Home.


When you hear people say that you “should be in gold” they are referring to a proxy for gold and not a basement full of gold bars or coins from an infomercial. A good proxy for gold is the ETF “GLD.” The reason you don’t want to own the actual gold bars is that it may be impractical, there are security issues and they may be hard to sell or illiquid. Owning the ETF is very liquid as you can buy and sell them through your regular brokerage account.


Treasury Inflation Protected Securities or TIPS are bonds offered through the U.S. Treasury and are indexed to the official inflation rate. Therefore, over and above your normal return on the bond, these beauties actually adjust their price to keep up with inflation. Add tips to your portfolio with another ETF: “TIP.”

Commodities and Their Proxies and Other Common Stocks

Adding commodities to your portfolio will also help you keep up with inflation. I like to add proxies for commodities by buying common stocks whose business is energy, mining or farming. I don’t recommend buying or trading futures contracts for the actual commodities. I think a non-professional will get luckyor eaten alive playing that game. Common stocks in general are usually recommended in a portfolio to combat inflation. Though this method is often argued that the common stock is not effective here because companies cannot pass on their costs dollar for dollar to the consumer. I agree in the short-term, but in the long-term they will pass everything on and prices for the consumer will rise.

Inflation is real and it’s already here. Although we probably will not experience the chaos of hyperinflation like Argentina and many other countries across the globe, the erosion of your savings and your retirement accounts due to the inflation will occur. You will not be able to buy what you used to be able to buy for the same amount of money. It would be a shame to sacrifice and save your entire life just to watch your purchasing power evaporate right before your eyes. I am going to go buy more Proctor & Gamble now.