Don’t go after large areas. Don’t try to figure out if Merck‘s pipeline is better than Pfizer’s. It’s too hard. Go to where there are market inefficiencies. You need an edge. To succeed, you need to go where the competition is low.

More here.

In 1999, UC-Davis civil engineer David Phillips was grocery shopping when he noticed something peculiar. Healthy Choice Foods was offering frequent-flyer miles to customers who bought its products. But a 25-cent pudding would bring 100 miles — the reward was worth more than the product itself.

Recognizing a good thing, Phillips bought 12,150 servings of pudding for $3,140, claiming he was stocking up for Y2K. Then he enlisted the Salvation Army to help him peel off the UPC codes, in exchange for donating the pudding.

He mailed his submission to Healthy Choice, and to their credit they awarded him 1.25 million frequent-flyer miles, enough for 31 round trips to Europe, 42 to Hawaii, 21 to Australia, or 50 anywhere in the United States.

There’s no downside. Phillips also got Aadvantage Gold status for life with American Airlines, which brings a special reservations number, priority boarding, upgrades, and bonus miles. And he got an $815 tax writeoff for donating the pudding.

Lifted wholesale from Futility Closet.

You now need to spend £4.5k per year to make the card pay. This is quite difficult if you play multiple cards off against each other, especially given that AmEx are probably the least widely accepted (after Diners’ Club?). I think that these changes will lose them a lot of smarter customers: good for them, bad for me. Note also the new £20 dormancy charge. Putting the card in the back of the wallet is not an option.

The interesting question in this case is:

Suppose you made a million dollars last year and put all but $50,000 of it in a shoebox. Now imagine you lose the box. What good did the $950,000 do you?

I have spent only ten minutes thinking about this, but I would evaluate access to cash as having ‘real option value’. In other words, the value of the shoebox is the value of the options it gives you: to retire, to start a new business, to travel the world.

This real option value will vary from person to person. $950k won’t increase the real options available to Bill Gates, but it would make much more of a difference to the options open to me (even at $1.70 to £1). Therefore, I figure that the value of money to an individual will vary in real option terms.

Real options will have value, even unexercised. That’s why people pay more for flexible travel tickets. As such, the money in the box has value… up to the point you lose it. Afterwards, no value. However, I don’t think the eventual loss of the box means that it was never worth anything. Okay so the money was sitting in the box, but it wasn’t doing nothing. Even in the box, it was storing value and holding open potential options – that is the unglamourous job of money. Its loss matters.

An idle thought: apart from the vulgarity, would there be any disadvantage to allowing advertising on banknotes, and might this note help government fund printing them? Advertisements could be restricted to a small, standard area, so as nobody could be in any doubt as to them corrupting the general recognition of the note, and the frequency with which such advertisements changed may even prevent fraud, by forcing fraudsters to change their designs regularly. I know that in many places (like Scotland and Hong Kong) private banks issue notes bearing their logos – so why not go all the way?

Lately, we have encountered substantial obstacles that may affect the
repayment performance of Mifex and its entrepreneurs on the Kiva
website…
In the microfinance industry Mifex is a very young organization. We were
amongst the first institutions to use Kiva for financing and we have
heavily relied on Kiva funds to start our organization. Although Kiva
and the great lenders that support the site have helped our institution
form a strong base for growth, we have recently encountered substantial
obstacles…

A shortage of capital, combined with escalating default rates, has put a
heavy strain on our operation. Many of our clients are also having a
very difficult time making their repayments due to the persistent rains
during the first half of the year. These factors have caused Mifex to
accumulate a debt to Kiva lenders that we cannot pay without putting in
danger the sustainability of our organization.

My thoughts? A shame, but not a tragedy. Investing in any asset class attracts risk. I accepted this risk when I signed up. I reinvest my recouped loans from Kiva into other Kiva businesses, so the main effect of bad debt is the reduce the capital I make available to other entrepreneurs. However, I wonder to what extent I would be this relaxed about bad debt through on a system such as Zopa, where I loan money on commercial terms. I’d like to think that I would be able to put that in perspective as well – but something tells me that my disappointment (and annoyance?) may be greater.

1. Pay less [primarily commissions, fees, etc.]
2. Diversify more [between asset classes and within them, remembering that indexes are not diverse]
3. Be contrarian

These may be my financial New Year’s resolutions.