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My Childhood as a Renegade Entrepreneur – Article by Derek Magill

My Childhood as a Renegade Entrepreneur – Article by Derek Magill

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The New Renaissance HatDerek Magill
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For most of my life I wanted to be a businessman.

As early as preschool, I would insist on wearing only business attire to class every day. And by business attire, I mean I’d put on one of my father’s button-down shirts and tuck it in with a ridiculously oversized pair of slacks that my brother had worn.

When I got older this interest began to manifest itself in ways that caused conflict in class.

The Young Entrepreneur
In 4th grade, I made a little business out of reselling Livestrong wristbands after class. I made about $150 with this side business before the school told me I needed to stop. My classmates were disappointed because I was the only reliable source when it came to getting bands. Plus, I had recently started purchasing Freedom Bands, which were available in far more colors than the Livestrong yellow. Needless to say, my customers were always satisfied.

In 6th grade, I loaned a friend money for a cookie but insisted on there being a 25 cent interest fee tacked onto each day he failed to repay. It took him two weeks and he paid the amount he owed, plus interest, without complaint.

The school found out and my parents received a call home.

What I always found interesting was that there was never any sort of explanation offered as to why my behavior was “bad.” It was just simply against the rules.

My classmates loved my attempts at offering services, but there was always the ever-present, and often unseen, force of teachers and school administrators hovering nearby waiting to stop our transactions.

High School Antics
As the associated student body president, I was required to work in the student store. I developed a practice of accepting tips in the form of the spare change students didn’t want to carry around.

I had a jar on the counter, like any food establishment might, and I would casually suggest students leave their change after a purchase. This was an innocent, voluntary donation in which I’d make a little bit of money every day.

But of course, my teacher found out and her response was a swift write-up. Again, I was not told why my actions were wrong.

It’s Only Fair If Everyone Profits
One day, the administration decided to host a club fundraising festival where each club was allowed to sell one item purchased from a grocery store at lunch in order to raise funds for its club—the only time they ever broke the cafeteria monopoly.

I left campus to purchase 150 burgers from Wendy’s for $1 each. I then sold them for $5 per burger on campus, and gave away a free Arizona Iced tea with the burger, which undercut the two other vendors selling Arizona Iced tea.

We eclipsed the rest of the fundraising group that day by over 200 percent and the school accused us of cheating and being greedy.

They confiscated most of the funds and distributed it among the other students to make it more “fair.”

At last the truth had come out in full. It had taken almost eighteen years but I had the answer they had never given me before: my teachers hated the free market.

The administrators regarded commerce as dirty. They didn’t see the value I created for students who wanted something better than cafeteria food for lunch. They saw value that had been acquired at the expense of others.

As I look back now with more knowledge and experience, I’ve come to the conclusion that this experience was both beautiful and saddening.

As children, we are born capitalists. We have no deep philosophies or moralities but we organize ourselves naturally around mutual exchange because we recognize quickly that life gets better if we do.

We trade cards, toys, our lunches, and other things we value for the things our friends value and rarely do we have trouble working out disputes. We don’t do it because we care consciously about free markets — we don’t even know the concept. Nor do we need to. Markets don’t require everyone to know their importance consciously. They just require people to be left alone.

It takes a lot of schooling to kill these natural inclinations towards freedom. Teachers and administrators stop these interactions on the playground, and in the classroom they teach material that distorts and obfuscates the truth. The process of schooling is the process of taking our innate tendencies towards liberty and destroying them.

As my friend Isaac Morehouse wrote in a comment when I shared this story on Facebook:

Is it any wonder why Ayn Rand is making such a resurgence among high school students?

Derek Magill is a college dropout, marketer, business strategist and career expert. He is currently the Director of Marketing at Praxis and has consulted with companies such as Voice & Exit, the Foundation for Economic Education, Glockstore, Colliers International, Daily Caller, and Undertech.

Derek is the author of How to Get Any Job You Want.

This article was originally published on FEE.org. Read the original article.

3 Stock-Market Tips from an Economist – Article by Robert P. Murphy

3 Stock-Market Tips from an Economist – Article by Robert P. Murphy

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The New Renaissance Hat
Robert P. Murphy
September 11, 2015
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Recent volatility has Americans talking about the stock market — and getting a lot of things wrong in the process. Let’s discuss some general principles to help clear things up.

(Let me say up front that I won’t be disclosing which stocks are going to go up next month. Even if I knew, it would ruin my advantage to tell everybody.)

1. Money doesn’t go “into” or “out of” the stock market in the way most people think.

On NPR’s Marketplace, after the recent big selloff, host Kai Ryssdal said, “That money has to go somewhere, right?”

This language is misleading. Let me illustrate with a simple example.

Suppose there are 100 people who each own 1,000 shares of ABC stock. Currently, ABC has a share price of $5. Thus, the community collectively owns $500,000 worth of ABC stock. Further, suppose that each person has $200 in a checking account at the local bank. Thus, the community owns $20,000 worth of checking account balances at the bank.

Now, Alice decides she wants to increase her holdings of cash and reduce her holdings of ABC stock. So she sells a single share to Bob, who buys it for $4. There is no other market action.

In this scenario, when the share price drops from $5 to $4, the community suddenly owns only $400,000 worth of ABC stock. And yet, there is no flow of $100,000 someplace else — certainly not into the local bank. It still has exactly $20,000 in various checking accounts. All that happened is Alice’s account went up by $4 while Bob’s went down by $4.

2. Simple strategies can’t be guaranteed to make money.

Suppose your brother-in-law says: “I’ve got a great stock tip! I found this company, Acme, that makes fireworks. Let’s wait until the end of June, and then load up on as many shares as we can. Once the company reports its sales for July, we’ll make a fortune because of the holiday numbers.”

Clearly, your brother-in-law would be speaking foolishness. Just about everybody knows that fireworks companies do a lot of business around July 4, and so the price of Acme stock in late June would already reflect that obvious information.

More generally, the different versions of the efficient market hypothesis (EMH) claim — with varying degrees of strength — that an investor can’t “beat the market” without access to private information. The reason is that any publicly available information is already incorporated into the current stock price.

Not all economists agree with the EMH, especially the stronger versions of it. If two investors have different theories of how the economy works, then to them, the same “information” regarding Federal Reserve intentions may imply different forecasts, leading one to feel bullish while the other is bearish. Yet, even this discussion shows that it can’t be obvious that a stock price will move in a certain direction. If it were, then the first traders to notice the mispricing would pounce, arbitraging the discrepancy into oblivion.

3. An investor’s “track record” can be misleading because of risk and luck.

Suppose hedge fund A earns 10 percent three years in a row, while hedge fund Bearns only 4 percent those same three years in a row. Can we conclude that fundA’s management is more competent?

No, not unless we get more information. It could be that fund A is highly leveraged (meaning that it borrowed money and used it to buy assets), while fund B invests only the owners’ equity. Even if A and B have the same portfolios, A will outperform so long as the portfolio has a positive return.

However, in this scenario, fund A has taken on more risk. If the assets in the portfolio happen to go down in market value, then fund A loses a bigger proportion of its capital than fund B.

More generally, a fund manager could have a great year simply because of (what we consider to be) dumb luck. For example, suppose there are 500 different fund managers, and each picks a single stock from the S&P 500 to exclude from their portfolio; they own appropriately weighted amounts of the remaining 499 stocks. Further, suppose that each manager picks his pariah company by throwing a dart at the stock listing taped to his conference room wall.

If the dart throws are random over the possible stocks, then we expect one manager to exclude the worst-performing stock, another to exclude the second worst-performing stock, and so on. In any event, we can be very confident that of the 500 fund managers, at least many dozens of them will beat the S&P 500 with their own truncated version of it, and the same number will underperform it.

Would we conclude that the managers with excess returns were more skilled at analyzing companies, or had better money-management protocols in place at their firms? Of course not. In this example, they just got lucky. What relevance our hypothetical scenario has for the real world of investments is not as clear, but the tale at least demonstrates that past performance alone does not necessarily indicate skill or predict future performance.

Studying economics won’t show you how to become rich, but it will spare you from making a fool of yourself at the next cocktail party.

Robert P. Murphy has a PhD in economics from NYU. He is the author of The Politically Incorrect Guide to Capitalism, The Politically Incorrect Guide to The Great Depression and the New Deal, and  Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015).

This article was originally published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.