The Prospecting Professor

The Golden Spike

It was on this day, May 10, 1869 at Promontory, Utah...that the greatest event in the history of transportation on this continent occurred...as the Union Pacific tracks joined those of the Central Pacific Railroad.

The impetus for the completion of the transcontinental railroad was provided by the energy and enterprise of four California entrepreneurs: Leland Stanford, Collis P. Huntington, Charles Crocker, and Mark Hopkins...or the "Big Four" as they came to be known.

The connection of the Central Pacific and the Union Pacific bridged the 2000 miles from the Missouri to the 'Golden State.' and the four to six months time taken by overland pioneers was reduced to six days.

While the "Big Four" provided the vision and the money to the Transcontinental Railroad, it was the Chinese who lent their sweat, toil, and blood. Beginning with the Gold Rush, the Chinese saw California as the opportunity to escape the grinding poverty of their homeland. Paying $40 cash, thousands were packed into ships for the voyage to "Golden Mountain." Lying on their sides beneath the decks, in 18 inches of space, mortality ran as high as 25% on some of the ships.

By 1865, about 50,000 Chinese had arrived at "Golden Mountain." They could not vote, become citizens, own property...and lived in segregated communities. After the Central Pacific began building the Transcontinental Railroad eastward from Sacramento, the demand for Chinese laborers increased still further. Central Pacific hired all of the available Chinese workers in the state, and sent agents to Canton, Hong Kong, and Macao to find more willing immigrants.

For those of you who have ever driven I-80 over Donner Pass in the Sierra Nevadas, you will be familiar with the solid granite outcroppings of this fantastic mountain range. Imagine attempting to claw a railroad over this redoubtable terrain. The Chinese did. After the Cornish Miners who were imported by the Central Pacific gave up, the Chinese used pick, shovel, and black powder to progress at 8 inches per day. The Chinese worked 24 hours a day, 7 days a week, from both ends of the Sierras. The winters were some of the worst on record, with over 40 feet of snow at the higher elevations. The Chinese had to dig tunnels from their huts to the work tunnels. Many didn't see daylight for months.

The World Grows Smaller. The completion of the Transcontinental Railroad linked East and West, opened up vast areas to settlement, and provided easy access to new markets. The railroad ensured a production boom, as industry mined the vast resources of the middle and western continent for use in production. The railroad was America's first technology corridor.

Warren Buffett and Emotions

"Pessimism is the most common cause of low prices. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer."...Warren Buffett

Investing decisions that are driven by normal human behavior can have a deleterious effect upon long-term wealth accumulation. Many investors, even the most savvy, allow their emotions to get in the way of rational investment decision-making. Our emotions have the nasty habit of encouraging investors to buy and sell at the wrong time...causing us to buy high and sell low...which is the reverse of what should be done.

Three Common Behavioral Issues. 1. Herd Mentality reflects the natural tendency to do what is currently popular, e.g. buy securities AFTER the market has risen, or sell securities AFTER significant declines. Herding is defined as a group of investors following each other into (or out of) the same securities over a period of time. 2. Regret Aversion is the avoidance of the pain of regret associated with bad decisions. This trait causes investors to hold onto losing positions too long...or to avoid the markets during periods of depressed prices, at exactly the right time to invest more. 3. Mental Accounting is used by investors to build portfolios as separate accounts, and to disregard the correlations among assets. Investors do not evaluate investments based on the contribution to the overall portfolio return and total risk, but only upon the recent performance of the asset layer.

For long-term wealth-accumulation, investors are encouraged to think counter-intuitively. Contrarian investing and portfolio rebalancing are the most effective manifestations of counter-intuitive investment thought.

Speaking of rebalancing, in the May issue of "Financial Planning," there is an interesting article that discusses a new software program that performs sophisticated rebalancing techniques...that enhance portfolio returns even beyond what 'normal' rebalancing accomplishes.

Expert vs. Advisor

David Maister is a native of Great Britain, holds degrees from the University of Birmingham, the London School of Economics and a doctorate in Business Administration from the Harvard Business School. In 2002, he was identified as one of the top 40 business thinkers in the world. He is also a frequent writer, and in the April edition of "Law Practice Today" he compares and contrasts being an "expert" vs an "advisor."

Expert

• Job is the right-to-solve clients problems through the application of technical and professional skill.
• Takes responsibility away from client and acts as if he/she is "in charge" until the project is done.

Advisor

• Rather than being "right," the advisor's job is to be helpful...providing guidance, input, and counseling to the client's own though and decision-making process.
• Client retains control and responsibility. Advisor is subordinate to client.

As Mr. Maister points out, neither role is inherently better. The only mistake is to pretend. An expert who wants to be an expert is going to be miserably poor at pretending to be an advisor, and is going to resent the client throughout the time that they work together.

What do clients want? Of course, each client is different. I tend to think that the majority of clients today are looking for a trusted advisor. Fewer are looking for experts. I also wonder if their isn't a generational dynamic here too. From my experience, members of the GI Generation, and older...are more willing to accept, and seek, the expert. However, I think that Baby Boomers want more control...and are less willing to cede responsibility to anyone.

"Salespeople are data pigs."

"Salespeople are data pigs,"...so says Jim Fowler, the founder of Jigsaw Data Corp., the online contact management service.

Are you in sales? Do you prospect? Have you heard of Jigsaw Data? Well, you have now.

Jigsaw Data is Dun & Bradstreet Reports meets Wikipedia, and was designed for the salesperson who 'dials for dollars.' Here's how it works. Operating on a point system, as a user you begin with 200 points. For every business contact that you provide the Jigsaw database of 2.75 million people (as of April of 2006), you accrue 10 points.  However, if you provide bad or inaccurate information, your account is debited 10 points. Members can also challenge bad contacts, and earn points by exposing the outdated information. Those who deliberately input bad info, or include personal e-mail addresses or cell numbers...are 86'ed. Jigsaw has 52,000 members, is adding 10,000 contacts to the database daily, and is growing exponentially.

Members pay $25 per month to access 25 contacts, and corporate users can spend $10,000 of more for unlimited access. About 80% of subscribers pay, and the rest add in so many new names that they accrue excess points, which they can sell to other members for cash.

A few years ago, Jim Fowler was a snowboard-addict who owned a small ski area in Northern Idaho, called Lookout Pass. There, he met Rick Magnuson, an Idaho native who became Jigsaw's angel investor by providing $750,000 in venture capital seed money. Today, Jim Fowler and Jigsaw are headquartered in San Mateo, CA...with $12 million in new funding, and a desire to "map every business organization on the planet."

Says Mr. Fowler, "People think the hardest part of sales is cold calling. It's not. It's finding the right people to call."

Fowler hopes that Jigsaw is the missing piece of the sales puzzle.

A CPA Dialogue

Financial advisors who attempt to network with accountants, with the motivation of gaining referrals, has become a cliche...because so many advisors have made a run at this approach. Moreover, many larger accounting firms are adding a financial advisory practice...which has brought many CPAs in direct competition with financial advisors.

Yet, here's a thought as to how you can begin a different dialogue with your accountant acquaintances.

In the April issue of the Journal of Accountancy is an interesting article entitled, "How to Start Your Own Practice." The author directs this piece to accountants who are contemplating making a break from their larger firm...by hanging out their own shingle. His advice: It has never been a more propitious time to go 'solo.'

Why not use this article as a 'conversation starter' with your accountant friends? They may have considered doing this...or not. Either way, you are likely to spawn an interesting discussion.

Your Empire State Building 'Elevator Speech'

75 years ago today, May 1, 1931...President Herbert Hoover flipped on the lights to the Empire State Building.

At 102 stories, the building reigned as the world's tallest skyscraper until 1974. The building's construction was completed in an unbelievably short period of time...one year and 45 days. Upon completion, in the midst of the Depression, it was viewed as a real-estate failure due to the low occupancy rates. Today, it has become an icon of all things New York.

Your Elevator Speech. It takes about 60 seconds to go from the Art Deco ground floor lobby, to the 86th Observatory Floor of the Empire State Building. If it takes this long to deliver your Elevator Speech, your listening victim will have exited on the 43rd floor, or will be very tempted to climb over the restraining wire on the Observation Deck...and jump.

The central goal of your Elevator Speech is positively, absolutely NOT to tell a stranger everything about you and your business in 60 seconds or less. The ultimate goal is to say something startling, intriguing, or memorable that prompts the prospect to lean in and say, "Wait...tell me more about what you just said."

The ultimate goal is to say something memorable, and different. The ultimate goal is to spark a dialogue.

I've listened to hundreds, if not thousands, of Elevator Speeches from financial advisors in my day. Sadly, few stand out. Mediocrity and sameness rules. Everything sounds more or less the same.

The biggest mistake that I hear is that advisors tend to emphasize the features of their practice that make them 'better.' However, in the choice between different or better, different is better than 'better.' People remember different.

The other mistakes that advisors make is to pack their Elevator Speech with boring detail. Few prospects care much about the mundane specifics of what your practice is about. Ditch the detail. Say something snappy and memorable.

Speaking of memorable, check out this remarkable photo, shot by Lewis Hine during construction of the Empire State Building, of a steel-worker hundreds of feet above the corner of Fifth Avenue and 34th Street.

I get the willies just seeing this picture. How could they even do this?

Happy Arbor Day!

Arbor Day was the brainchild of J. Sterling Morton, a native of Detroit who moved to the Nebraska Territory in 1854. Disturbed by the treeless plain that he had immigrated to, he became an enthusiastic advocate of planting trees, shrubs and flowers. As the editor of Nebraska's first newspaper, he had the forum to spread his agricultural evangelism.

Over the years, Morton's infectious enthusiasm for tree-planting was adopted by his fellow Nebraskans. In 1885, Arbor Day was declared a legal holiday for the state. Today, Arbor Day is celebrated by states and countries throughout the world...and the most common date for the state observances in the last Friday in April.

As a resident of Minnesota, The Prospecting Professor has a special affinity for trees. It is not widely known that, at one time, white pine forests covered 70% of the state. The white pine of the Upper Mississippi was a magnificent tree. Sometimes it stood in the forest 200 feet high with a diameter of 5 feet. The largest, and most famous, white pine in the state was the 'Cass Lake Pine', which was 425 years old, and yielded 6300 board feet of timber.

No other soft wood had as many desirable qualities as the white pine. It was strong, slow to decay, light in weight, odorless, and easy to cut. It seasoned well and had strong resistance to weather, and time.

In the 1850s, the lumber interests moved into Minnesota...after they had their way with Wisconsin and Michigan. Going to work, the timber interests became devastatingly effective in the de-nuding of the white pine forests. Within 60 years, most of the white pines were gone. Today, just 3% of the original white pine forests are still standing.

Networking Ideas That Celebrate Arbor Day

1. Proclaim Arbor Day. Does your town or community celebrate Arbor Day? Find out if they do. If not, get involved and organize your own Arbor Day. Here's the template for the official Arbor Day proclamation.
2. Plant a Tree in Memory or Celebration. One acre of forest generates 4 tons of oxygen, and absorbs 6 tons of carbon dioxide, annually. Over the course of 50 years, a single tree can generate $31,250 of oxygen, provide $62,000 worth of air pollution control, recycle $37,500 worth of water, and control $31,500 worth of soil erosion. Plant a tree to celebrate: a wedding, a Bar Mitzvah, a graduation..or to celebrate the memory of a Special Person.
3. Volunteer Tree Planting. Join an organization that is re-planting trees in your state.

Drip Marketing

Hank Paulson is the Chairman and CEO of Goldman Sachs. Although he has never, ever used e-mail, he is an inveterate user of the phone...on average he has many hundreds of phone conversations daily. In a recent interview in Fortune, he revealed some of his work methods and successes.

"When I got back to the office in January, I called 60 CEOs in the first week to wish them happy New Year. I had never done that before, but it was great. I asked them about their business and their relationship with Goldman."

Goldman Sachs is one of the world's most prominent investment banks, with $43 billion in revenues and 22,000+ employees. Although it is shocking that he has never used e-mail, it is heartening to see that simple, "staying-in-touch" phone calls are used by CEOs who make $30.1 million annually (his 2005 income).

Getting Referrals

Miriam Lawrence, of Automatic Referrals, has a good post on how to get "back-door" referrals. In the same vein, here is a note that can be used...whereby your client can contact a potential referred prospect.

This note can be especially effective using email. Here is how it might work. The client sends an email to the referred prospect...and copies you on the email. You wait a few days, no longer than a week, and contact the referred person by email directly, asking them if you might call them on the phone. In this conversation, you will make initial introductions and set up a face-to-face meeting.

Here's the body of the note:

Dear Prospect:

This is just a note to introduce Miriam Lawrence who will be getting in touch with you soon.

Miriam has done some work for me in the investment and insurance areas.

Certainly, neither Miriam nor I are assuming that you would be in the market for her services; however, I felt very positive about my experience with her, so I  would like to introduce the two of you.

Probably, like  me, you are not eager to talk to another person in this business, but in this case it might be well worth your time to make an exception.

Best regards,

Of course, this doesn't always work. Emails are very easy to ignore...especially when the referred prospect is a busy-type who might be getting 100+ emails daily already. In that case, a handwritten note may be more memorable and effective.

How many handwritten letters did you get today?

StoryTelling...the Whole Foods Way

In Robert McKee's brilliant book, "Story," he describes the desire for story:

"The world now consumes films, novels, theater, and television in such quantities and with such ravenous hunger that the story art's have become humanity's prime source of inspiration, as it seeks to order chaos and gain insight to life. Our appetite for story is a reflection of the profound human need to grasp the patterns of living, not merely as an intellectual exercise, but within a very personal, emotional experience."

John Mackey, the founder of Whole Foods, tells good stories. He got his start in 1978. He was 25 years old, and was a college dropout...three different times. He had an idea to begin a health-food-store-restaurant, and borrowed $45,000 from friends and family to begin his innovative concept.

He's been successful. Over the past five years, Whole Foods stock (WFMI) has increased by 539%...and recently Wal-Mart announced their own push into organic foods.

The growth of Whole Foods has been imbued with the power of story. As one walks around the perimeter of the store, you will see the many story examples of the organic suppliers and farmers who have partnered with Whole Foods over the years.

The story of Rosie the organic, free-range chicken is one such story example. Displayed on a bed of ice, at more than twice the cost of a regular non-organic bird, Rosie's life story is told in an accompanying brochure. Spending her life in a custom ranch house in California's wine country, exercising in an airy, sunlit building on an earthen floor, Rosie has been raised on a diet of golden corn...without the benefit of antibiotics or growth hormones.

The reality of Rosie's life is not the same as presented in this wistful tale. As UC-Berkeley journalism professor, Michael Pollan, describes in his new book, "The Omnivore's Dilemma,"...Rosie's concept of "free-range" is most likely to be different than the image shared by many consumers.

Rosie was raised in a barracks the size of a football field, along with 20,000 or so of her fellow chickens. For the first five weeks of here life, Rosie is not "free-range"...her movement is restricted to within her compound. At 5 weeks, two smaller doors are opened at either ends of the building...that allow egress to the outside. If Rosie and her feathery friends choose to venture outside, they would find 15-foot strips of grass on either side of the building...where they could cavort and cluck, and do the other things that chickens do.

In real-life, Rosie never dares to go outside, nor do any of  her friends. Outside is a completely foreign concept to her...besides all of her food and water is inside anyway. Her masters are equally fearful of the outside and glad that Rosie shares their mindset. Without antibiotics, Rosie is very susceptible to disease, as well as all pathogens that the outside would expose her to. As Michael Pollan describes it, the last weeks of Rosie's life is not so much "free-range" as it is "vacation option."

At 7 weeks, Rosie is "processed."

The End!