Expanding the Vorpal Charter

I've been making a few changes to the Vorpal Trade blog, including changing graphics, coloring, and the description. When I started this blog several years ago I intended to comment on investing and equity trading primarily. Over time, I am finding that I'm writing a lot more about economics and frugality, especially as they relate to our current and future economic states. I see a lot of traction in writing about this, but as I do so I also see that a lot of these topics involve what my university referred to as "the humanities": psychology, economics, history, politics, and anthropology. These are intimately connected with business and the marketplace, and of course, government decisions that impact the economy.

So rather than re-title or create a new blog, I am going to purposely blur the charter, as reflected in the new subtitle Art, science, and economics of the human condition. I think that the net effect will be that I am covering the same material, but in much greater depth.

It should also be more fun. I will be adding some reviews of literature, music, and other arts, and with luck these articles will also come full circle and lead to new insights in business, investing, and economics.

Was Solyndra a Victim of its own Affluence?

I wish I had published this sooner, because the evidence is already coming out in various articles in the media. Better later than never.

The issue is Solyndra's rapid downfall. The scandal is the company's bankruptcy very shortly after taking a $535 million loan from the U.S. Government. It has been raided by the FBI. The media coverage has strongly implied that the company must have misused the money for it to run out so soon.

When all of the factors are in, I would not be surprised if all of the official investigators will be stumped, because my guess is that Solyndra died from a lack of frugality. It isn't the kind of judgment that usually results from detective work, because the cause is too subtle for some to see.

Sometimes the worst thing to happen to small businesses is that they start out with too much money. If you have too much start money, you don't learn discipline. Then you spend it too fast, and when bad times come, and they always come when you are running any business, you have no skills to apply to the problem. I'd much rather invest in a business where I know that the founders went through some lean times at the beginning, scraping by and eking out a living by saving a nickel and a length of pipe. It isn't necessarily a matter of building character either. I am talking about discovering facts about the real world that will not be discovered until necessity forces you to learn the lesson.

From the very earliest news reports it smelled like Solyndra executives had never learned any lessons about frugality or how to run their business on less money. The most critical clue is the Government loan itself. $535 million is a lot of money for a new business to handle. And any company that spends it all at once, over the course of a year or two is almost certain to have wasted a lot of it.

I will skip commenting on the politics. Any investor, whether government, or private, should know about this learning dynamic of new businesses before putting in their money. The net effect here was to fuel the lack of discipline that seems to have been present at Solyndra.

Starting any new business is tough on the founder. I know that it doesn't seem like I am helping them when I suggest that they starve for funds in order to learn. In the long run, however, the winners among a group of starting businesses will be those who made the best use of limited capital and figured out how to cut their inputs and expenses. The customers benefit, the employees benefit, and the resulting mature, stable business is a much more attractive work of art.

Disrespect for the Penny

Today I saw a plastic tray in a trashcan. There were still cubes of pepper jack cheese and cheddar cheese, sliced apples, and a tub still half-filled with caramel. Perhaps there was a celebration, a baby shower, birthday, or impending wedding, and someone had bought the pre-made tray of cheese cubes and apple slices at a local grocery store or discount warehouse. I only saw the tray for a second, but there was clearly a fair amount of cheese and caramel still in the tray. Maybe even enough food and enough calories for one person's full day calorie needs. And this wasn't just mediocre survival food, this was cheese and fresh apples and caramel. Delicious stuff, and there it was, in the trashcan. It didn't look to me like it's time had expired or that it was left over from last month. No, it looked like it had been discarded simply because no one wanted to bother to save it for the next 12 hours, and had chucked it because it wasn't worth saving the $2 to $4 worth of food the tray still contained.

I also read an article today, Both Parties Misunderstand Taxes, Sacrifice. It was a viewpoint piece at Bloomberg by Stephen L. Carter. I won't say whether I agree or disagree with his point, because I only want to point out one statement:

"a 2 percent cut would save a mere $4 billion annually"

Here is a giant amount of money that is, nevertheless, deemed too small in the context of the debt debates. It certainly won't solve the country's debt problems at one stroke, but why doesn't it warrant more than the word "mere"?

These two events have something very much in common: Disrespect for the penny. People are used to ignoring pennies on the ground, because it costs more in time lost to pick up a penny than you gain from this found money. This attitude has been extended, unfortunately, to an attitude that prevails across America. This attitude is a "princess" attitude, in that the holder of the attitude believes that saving a small resource isn't worth the effort, because clearly that would be beneath them, as they are a, well, princess. And failing to worry about these small amounts therefore clearly shows how wealthy and worthy they are, how important they must be. It is almost as though the ability and willingness to discard small amounts of resource are badges of honor, or signs of royalty. Such attitudes are clear signals to the opposite sex of just how worthy a mate the wastrel must be, because they clearly aren't concerned about such as small loss.

The antidote to recession and economic malaise is eliminating this small but pernicious behavior. Because if everyone does it, then raising taxes and cuts in spending aren't the problem. WE are the problem. If no one saves these resources, and they add up quickly, then we will not be able to balance the budget even if a miracle occurs and the Republicans and Democrats were to unanimously agree. And if we choose to waste small amounts of resources because we are too important to worry about it, then we are exactly the kind of person who is destroying the United States, atom by atom, entitlement thought by entitlement thought, penny by penny.

Prosperity through investment

The prosperity of a country depends upon the collective ability of its citizens to tell the difference between an expenditure and an investment.

If the citizens are trained to expend without consequence, to lack skill at making small investments, and to discount or disparage the need to tell the difference between expense and capital outlays, then the country will gradually dissipate itself and never understand why it is suffering as it does so.

[Update on 11/1/11:

I really should have pointed out this article, which goes into more detail about what it means to make personal investments when spending money.]