Who likes making money? Payback, RoI, IRR explained…

What’s a payback period? How does it compare to Return on Investment and Internal Rate of Return?

A good question. A payback period is the time it takes for the benefit of a project (cost savings or increased revenue) to pay back the initial capital of the project. For example, you have a project that costs $2,000 and takes a year to complete. After it is completed it saves you $1,000 yearly (no end date in this example). That means the project will take 2 years to be paid back after the project’s completion ($2000/($1000/year) = 2).

So how does this compare to Return on Investment (RoI)? Simple ROI = (Gains or savings – investment costs) / Investment Costs. It does not take time into account. For instance, with the above example, after 3 years the RoI is ($3000-$2000)/$2000 = 50% but after 10 years the ROI is ($10,000-$2,000)/$2000 = 400% – so the RoI keeps escalating toward infinity over time… not very useful. Internal Rate of Return (IRR) however, is!

IRR is a compounding rate of return. I won’t go into the calculation but the above example has a ~50% IRR. Since it’s compounding we can use the “rule of 72” to figure out what this really means. The rule of 72 tells us how many years it takes to double the cumulative benefit. So 72/50= 1.44 years. So at 1.44 years the gain/savings is $1,440. At 2.88 years it is $2,880. At year 5.76 it is $5,760. And so on…

HockyStickGraph

At left is the compounding “hockey stick” graph. This is the hockey stick graph for my “rewirement” strategy (9% compounded yearly) – coincidently this is the same strategy that I coach about. It’s the only buy and hold strategy that works in an up or down market, has over 150 years of market data behind it, is the laziest DIY strategy and that most anyone can do (assuming you understand addition, subtraction, multiplication and division).

A slow start initially and then ZOOM! upward. Compounding in action!

If you are interested in this strategy, I read about it in a book that is freely downloadable on the internet or you can get the book from a library or a used bookstore:

“The Single Best Investment: Creating Wealth with Dividend Growth by Lowell Miller”
http://www.mhinvest.com/files/pdf/SBI_Single_Best_Investment_Miller.pdf

I liked reading it but many people tell me it’s boring… I guess I get excited enough about making money to read it through. What I coach in is the “how to” part; complementary to the book (or for people who don’t want to read it and want the summary). People are fully coached in approximately 2-4 hours depending on the person (2 hour basic course plus additional time as needed). However, I love to support “do it yourselfers”, and if you are one, you can probably figure out the “how to” part using Mr. Miller’s book with some invested time. However, if you want a jump start, please let me know!

I actually asked Mr. Miller if it was ok if I coached people using his book as the basis. He said “sure!”. You have to wonder… this strategy 100% works; always! Mr. Miller has published two versions of his book over the last decade+ before finally allowing people to read it for free on the internet. Clearly, people aren’t using it en masse. Every single person I have coached says “Why doesn’t everyone do this? It’s so easy!” and “I wish I had done this X years earlier.”  No one has ever told me “this is a waste of time”. Mr. Miller is a fund manager – which the book basically discourages using. And even after Mr. Miller tells his clients not to use him and how to do it themselves, they still want Mr. Miller to manage their money.  Such a strange world we live in!

Note: I owe recognizing the strength of this strategy as I read that book to my knowledge of IRR and payback periods. Good things to know!

Many Protests Are NOT Evidence Based

protestThis very articulate oil industry worker explains why anti-oil protests do not make sense in a surprisingly matter of fact and well delivered way.

https://youtu.be/qwCZB97E45M

Personally, I have trouble with being pure black and white / “anti-anything” these days; there is so much misinformation, especially from protest groups. In my youth I got keyed up by all the rhetoric like everyone else but then I learned that most of these people are so widely misinformed that it’s just dangerous to believe them. A film that highlighted this for me was the documentary “Pandora’s Promise”; in it, many key environmentalist figures question some environmental stances as non-evidence based.

https://en.wikipedia.org/wiki/Pandora%27s_Promise

RioTel Celebrates 17 Years in Business

Karin Williams shares her founding story. Karin has been my primary and enduring mentor since starting my own business and her wisdom has rung true more times than I can count. Her brand of honest, respectful business conduct I truly cherish as I have found that it’s in less abundance than I had hoped. Congratulations Karin for navigating RioTel through 17 years. A true accomplishment!

https://www.linkedin.com/pulse/my-founder-story-circa-1999-karin-williams

Robocall Spam – Finally some movement in 2015

phoneHow come robocalls (telephone spam) is not being significantly curtailed?

The big telecom companies have been hiding behind excuses for years but those excuses are no longer holding water. With email systems doing it regularly, we know better; These excuses do not hold water anymore.

Consumers Union has taken a stand and is making progress. An update email from Consumers Union USA dated Dec 22, 2015:

“Last year at this time, hardly anyone believed robocalls could be stopped.

The Do Not Call list wasn’t working. Scammers quickly disappeared and reopened shop before the cops could find them. And your phone company just ignored you when you asked for help.

But together, with you, we changed all that.

After our campaign launched in February, the FCC and nearly every state Attorney General followed Consumers Union’s lead and told the phone companies to block these calls. Members of Congress introduced legislation. And presidential candidates even talk about this on the campaign trail.

Now, we are bringing Verizon, AT&T and Century Link to the negotiating table in the New Year. We will be representing your demands for free tools to block robocalls before they reach your phone – and we won’t back down!

When we started this campaign, everyone thought we were nuts. It was such a perplexing problem that regulators, who tried for years to stop robocalls, even held a contest looking for solutions. And the giant phone companies didn’t want to act, hiding behind the claim that they didn’t have the legal authority to block these calls.

But you told us robocalls were ruining your quality of life. And for others, your bank accounts. Some $350 million is stolen each year from consumers – mainly the elderly who take these calls and are quickly duped.

It’s been a long haul, but together we’ve made huge progress. Once thought an impossible problem, our research has found several solutions that will dramatically reduce robocalls. Now we’re headed to the major phone companies demanding they implement these solutions for you!


Thank you,
Tim Marvin, Consumers Union
Policy and Action from Consumer Reports”

Automated Vehicles & Canada

What could automated vehicles do for Canadians and the economy? The Conference Board of Canada takes a look (infographic):
http://www.conferenceboard.ca/infographics/automated-vehicles.aspx

Access the full report here:
http://www.conferenceboard.ca/e-library/abstract.aspx?did=6744
Click the button at right labelled “access document”; it requires an account to be created.

Study shows that those who drive over 10 hours a week are 3 times more likely to cede control to autonomous vehicles and that confident, aggressive drivers are least likely to surrender control:

http://www.ucalgary.ca/utoday/issue/2017-06-23/drivers-cautious-curious-over-automated-cars-first-canadian-study-shows

The Anti-Store

Finally! The NPR Planet Money episode on Price Club / Costco. Why they purposely make shopping harder and why people love it. The quotes in this podcast are priceless; from the founder himself “I was adamant that we would not have signs telling people where things were because that would make it likely that they would wander through all the aisles and find other things to buy.”

http://www.npr.org/sections/money/2015/09/25/443519599/episode-653-the-anti-store

Here’s something I don’t understand about people shopping at Costco. Clearly Costco is not a “quick stop” experience. There are no express cashiers! So why do people still insist on going to Costco to buy a single item???

Image of Costco patron buying only two items (that’s my stuff on the left) on Oct 30, 2015 – bananas and bread?:

CostcoShopJustTwoItems

Planet Money Podcasts for the Canadian Federal Election (#elxn41)

Can politicians “create jobs”? How do they balance the interests of so many stakeholders in a trade deal? What could a “carbon tax” look like? What if politicians only did “what is right” instead of promising things to buy votes? (No-Brainer Economic platform)

Some podcasts from Planet Money that help educate voters and are appropriate for the Canadian federal election.

How Do You Create A Job?
http://www.npr.org/blogs/money/2011/04/05/135151990/the-tuesday-podcast-how-do-you-create-a-job

Trade Deal Confidential – Behind the scenes of the Trans-Pacific Partnership (TPP)
http://www.npr.org/sections/money/2015/06/26/417851577/episode-635-trade-deal-confidential

The One-Page Plan To Fix Global Warming
http://www.npr.org/blogs/money/2013/07/12/201502003/episode-472-the-one-page-plan-to-fix-global-warming

The No-Brainer Economic Platform
http://www.npr.org/blogs/money/2012/07/18/156928675/episode-387-the-no-brainer-economic-platform

The Fastest Growing, Least Popular Airline In America

NPR Planet Money explores our preferences, specifically the difference between what people say and what people do. Economists call this “stated preferences” (What they say they want) vs “revealed preferences” (what people actually choose). Bargain basement airlines are a perfect example as heard in this podcast.

http://www.npr.org/blogs/money/2014/02/14/276973956/episode-517-the-fastest-growing-least-popular-airline-in-america

Do we need gigabit broadband? Do we need fiber?

Do we need it now? No. This question deflects from the true purpose of this infrastructure upgrade. A plant cannot grow without first planting the seed. So let me explain why the world needs fiber and gigabit.

The main issue is about an end-of-life asset (copper) versus a 100-year or more asset (single mode fiber, SMF). There is no theoretical speed limit for SMF (at least not yet). Therefore, once installed, there will not be a need to dig it up or do anything special other than replace the fiber transceivers on each end. Copper, on the other hand, is at the end of its useful life. Small incremental improvements are being made but we can see the end of copper in our lifetime. New cable installations are now almost exclusively SMF.

Here’s the bandwidth side; the side everyone seems to focus on. Don’t think of technology as it is known today. And remember that when companies put fiber in the ground, they are thinking very long term. First off, think video. Don’t think about anything else. None of it generates traffic like video does. Video killed the internet star. (thanks Netflix, thanks YouTube)

Here’s the best example of the future. Think “telepresence”. Telepresence is immersive video calls – not the un-immersive video calls we’re all used to now. You actually feel like you are there with the person. I’ve personally experienced telepresence. And since then I experience intense disappointment at launching typical internet video. I’m spoiled now.  The question is, will telepresence become inexpensive enough to be used in everyday contexts? Does the earth revolve around the sun?

Think of what telepresence might mean for medicine (“house calls”) or business meetings (way less airline travel) or the environment (with so many less flights!).

What does telepresence mean in terms of bandwidth? Telepresence is 20mbps per session for HD (1080p). Ultra HD (4K) is something like 6x that requirement or 120mbps. Compare that to today’s video streams for Netflix which is 2Mbps HD & 12Mbps for UltraHD (4K).

Now think about multiple people in a household launching simultaneous telepresence sessions. The gigabit threshold is now being pushed! Now think about aggregate “highway” for just the block you live in. How much will multiple households push? LOTS!  How much will the city generate? (expletive amount!)  How much will the country generate? (GAH!) How much will the world generate!? (Ahhhhh!!!!)

Should we start preparing for this now? Or wait until this happens and then wait another 5-10 years while every road and sidewalk to be dug up at the same time? And complain about it the whole time? (how we can’t move with so much construction)

I know what I prefer. I prefer telecom companies to start being proactive right now. And it would be great if my house has access to fiber. Even if I don’t need it right now.

And let’s put the internet in context. The internet and bandwidth to that internet is the “railroad” of our era. Our very way of life now depends on it. The UN has recognized that democracy depends on internet speed and has started a commission on broadband. Every single first world nation and many hundreds of nations have federal funding to build broadband infrastructure. The technology that rides on top the internet has the ability to help catapult so many game changers that many unsolvable world problems might become solvable.

And all this technology rides on a nation’s, a household’s ability to access it (broadband).

There, does that put Gigabit and fiber in context?

More on telepresence:

https://en.wikipedia.org/wiki/Telepresence