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Category: Financial Opinions

Are Software Companies Safe from Present Economic Conditions & COVID-19?

What’s happening right now due to coronavirus is a supply-chain crisis. Businesses have buyers but are running out of goods to sell. Once the business profitability is affected due to decline in sales, they will let go some of their employees. This could affect purchasing power of some of the people creating a demand-side crisis.

The pandemic could also affect demand as more and more people stay at home to avoid the disease, they would be spending lesser money on certain products. In addition, their purchasing power could also be affected by additional health related bills. If COVID-19 lasts long enough, which at the moment it is showing signs of, there will be both supply-side and demand-side disruptions.

To improve the situation, Fed has cut down the interest rates. The goal is to sustain the economy by offering cheaper credit to businesses. But I’m wondering how can a supply-side disruption be fixed with cheaper credit. Moreover, cheaper credit could help larger businesses but small and medium sized businesses are likely to suffer the most.

While it is obvious that trade and e-commerce are largely affected, are software companies safe? Some of them might be but I do not believe that they will not have a cascading affect on them. After all, many software businesses are intended to solve real-world problems.

In my industry for example, many software businesses are Shopify apps or WordPress plugins. Shopify store owners use those apps to improve their selling experience. But if there are no sales, or no revenue, the store owners will obviously stop using those apps until situation changes.

Softwares that have nothing to do with commerce, may be relying on advertising as a source of revenue, or may be assisting industries that depend on advertising revenue. They aren’t safe either. Once the commerce is disrupted, the advertising is meant to be disturbed too. In my own case, my e-commerce stores are affected due to supply-chain crisis, but I’m also not spending on Facebook and Instagram ads to drive sales which means the advertising industry is taking the hit too.

As a publisher, I also have data to support this argument as CPMs are going down across the board. So any software business which is dependent on advertising or support customers who drive revenue from advertising will see disruption too.

All other kind of softwares may be safe from this cascading affect, but will still be dealing with users with lower purchasing power.

While pure software businesses are much better off than other businesses, I wouldn’t say that they will not be affected. However, it is still a better time to be running a software business than any kind of traditional business.

How I Found Success On Airbnb As A Host in Pakistan

I haven’t frequently hosted properties on Airbnb in Pakistan but I listed one property in 2018 that I rented to sublet just for learning purposes and found success with it.

While there could be many tricks and hacks you may use to find success on Airbnb, my personal favorite is simply a pricing hack that I’ll share later in this post.

I think everyone agrees that the core success of any property comes from how good the property is, and what is the value for money. So you certainly cant discount that advice. Your property photography needs to be really good for the whole thing to look good and your pricing needs to be competitive with what others are offering in the neighborhood.

The second most important thing for your Airbnb listing is your landing page. It should be super informative. There’s little need for you to get creative, just look at the highest rated properties, and try to copy everything that they’ve done on their landing pages. Try to provide as much information as other top properties have done. If you don’t find anything extra ordinary in the neighborhood, explore properties in other countries such as US and UK and find the best parts for your sales pitch.

The third thing, that I was able to really make money from, is simply a pricing hack. When you search a property, Airbnb displays the base fare on the front-page. If you have ever booked a property, you may have noticed how your $50/night and 10 nights never add up to become $500. Instead, you’re always paying $750 or something. This happens because when you open the property, the pricing now includes price per number of guests staying, weekend pricing, cleaning fee, airbnb service fee etc.

Since I was only interested in rentals that were at least a week long, I set the minimum length as 7 days, and took advantage of the weekend pricing. I set the base pricing as $50 or about 20% lower than my competition. By doing so, Airbnb not only ranked me higher than my competition but I also looked more interesting and generated a higher clickthrough rate from my audience. My weekend pricing was twice as high ($100) as my base-fare and since the rentals were always week long, there was no way to avoid weekend pricing.

In the end, my pricing structure would sell 5 nights for $50/night, and 2 nights for $100/night cumulatively giving me $450/week or an average nightly rate of $65/night.

After taking the final pricing into account, I costed about the same as my competition, but appeared 20% cheaper, appeared higher in airbnb search ranks, and had a better click-through.

This is just one of the many ways you can take advantage of the Airbnb pricing system to generate higher revenue and occupancy rates than the rest of the neighborhood.

PS: This was only an experiment that I ran a couple of times and not something that I presently do.

Asset Allocation of Your Investments

As you start to build some wealth, you’re presented with a new set of challenges. You’d ideally want your money to work for you and make money in return and you’d at the very least like to preserve your wealth with respect to purchasing power i-e fighting inflation.

Asset allocation is a strange topic for me because I’ve received all sorts of advice here. The advice, however, varied the most depending on the wealth of the person giving the advice.

As a general rule, the richer you are, the more conservative you’re with your allocation. Really wealthy people put a large amount of money at work, for low-risk returns, generating a decent chunk of cash. While up and coming investors and younger folks are aggressive and put a large portion of their wealth to generate high-risk above average returns.

I’m not going to give specific wealth advice, but personally I design my allocation such that 10% of my investments can make up to a maximum of 90% of my returns and 90% of my investments can potentially make 10% of the returns for me.

It is also why I really like crypto class of assets and I think every person should experiment with 5-10% of their wealth for trying to achieve really parabolic results. While the rest of the wealth should be allocated in safer assets such as equities, bonds, real-estate etc.

For equities, I like to build lazy portfolios with 70% sub-allocation for US indexes, 20% for other developed-world indexes, and 10% for the emerging economies.

And like everyone else, a major chunk has to get into real-estate which is not only safe in the most cases, but helps with both capital gains and recurring income.

The Invisible Indexes Everyone Should Be Paying Attention To

A few weeks ago, I spoke of the benefits of building lazy portfolios that you can do so by buying certain indexes. That seems to be a good strategy at least while the over-all market is growing and not going through the bearish sentiment.

There are other types of indexes that we often can’t see. They are hidden in plain-sight and I think we all should be paying attention to them.

Yesterday, Saad RT’d this. And I couldn’t agree more. Both with the original tweet and Saad’s comments.

Stripe is a really great company and despite being a fintech company, it’s really open and inclusive. Fintech companies are driven by mega regulations and can struggle with innovation. And considering that, Stripe’s openness is a surprise for me.

Off to the original tweet, Stripe is not just innovative and inclusive, it’s also an index. It’s an index of all internet commerce companies collectively powered by Stripe. Have a look at how Stripe has grown over time

Shopify could also be an index like that. And as investors we should be paying attention to these indexes.

In the crypto sphere, Coinbase could be an index. However, since only private investors could participate in Coinbase’s growth and the IPO hasn’t happened yet, the retail investors can not buy that index yet. But there’s 1 crypto index, that you could still be buying, at your own risk of course. A few years ago I tweeted about it

$BNB is a native token of Binance which is one of the largest crypto exchanges in the world. And despite what direction crypto markets move in, Binance always makes a profit. And as $BNB holder, you can be party to that.

At the time of my tweet, the total market capitalization of all crypto assets collectively valued at $381 billion dollars. Today the collective market cap is $216 billion dollars which is almost 45% lower.

Combined market-cap of all crypto-assets on 13th March 2018.

BNB’s market cap at the time of my tweet was $814 million dollars. Today the market-cap stands at $2.2 billion dollars. BNB has posted growth of 2.7x despite the over-all performance of the crypto-market.

$BNB’s market-cap on 13th March 2018.

So watching out for these proxy indexes can be a relatively safer way to grow your investments.

Disclaimer: The information provided is for informational purposes only. It should not be considered legal or financial advice. To the maximum extent permitted by law, I disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

The Money Trap That Majority Of The World Population Falls For

There is a money trap. Almost everyone I know falls for it. Most people are so deep in this trap, they are in complete denial. They think it’s not a trap but a safety net. This trap apparently gives them stability and peace of mind.

I’m talking about traditional employment. People like traditional employment because it gives them a false sense of security. I say false sense of security because no employer will keep you hired if you’re no longer profitable for him. So in essence, his business risks do not just apply to him, but to you as well. But since it works best in the favor of employers, they love to sell this false sense of security. I think it’s a trap. You think it’s a safety net.

The second reason people resort to traditional employment is because of instant gratification. You get paid really soon. In comparison, if you choose to be self-employed or a consultant or a freelancer or a business owner, your pay-day may vary.

Lets explain this further.

This is because of the principal called time value of money. Money in your hand today is more valuable than promise of money to be given to you tomorrow. You can spend the money in your hand today. You can’t spend the promise of money. So naturally everyone is attracted to the money that you can get now.

However, there is a reward for waiting which is generally much larger than the combined money you’d have made with your instant monthly payments. And most people are so consumed by small, scheduled payments, they are unable to see the bigger picture.

I don’t expect all of you to become entrepreneurs or business owners. You could be self-employed or a freelancer or a consultant. You still get hired, but at your own terms and with a bigger pay-check as long as you’re willing to display some patience.

Three Types of Founders & Financial Planning

I think I can categorize founders into three types when it comes to their financial management with regards to running a business.

The fist type of founders, and I think these are found in most abundance, do not really like to make projections and plan finances. They are extravagant with their expenses and while many times they are really good at generating revenue and achieving growth, they are still often seen in debt, or raising more funds, or struggling in general most months than they are not, despite the high amount of revenue. I’d say it’s a miracle if any of these founders and their companies survive in the long-term. The only reason they may is because their business model is extra ordinarily profitable and can afford a lot of money wastage.

The second type of founders like to make too much projections, and cut cost everywhere. They believe in MVPs and lean-startup models. They don’t spend money on creating features that someone may or may not use. They test everything with a small amount of people using unscalable methods to generate data. Their future scaling decisions are also data driven. They sometimes cut so much costs that they are often seen working long hours. They also struggle with hiring and team building because of their lower cost mentality.

The third type of founders are somewhere in between. They appreciate projections and financial planning. They love MVPs and lean-startup models. But they spend a large amount of money in building team, delegating tasks, and also on R&D which eventually results a lot of times in wasted features and money. But they do it because in the long-term it’s worth it.

In Pakistan, most of the founders I’ve met are the first type while I feel most founders should aspire to become the third type of founders.

Why Credit Cards Are Good, And Especially For Internet Marketing

As I’ve written before, real wealth is built when your money is compounded. Similarly, wealth can never be built if you’re in debt because your debt is also compounded. I wanted to begin this blog post by highlighting the obvious and that is that you should never get into any kind of debt including credit card debt.

But the problem is not with your credit card but your spending habits. And with the right spending habits, credit card is your friend and not your foe.

In 2016, when we launched our dropshipping business, we did a massive spend on Facebook advertising. We were maxing out 4 credit cards daily and were clearing the credit card bills daily as well. We could have used our debit cards too, except that they don’t come with loyalty points, cashbacks, airline miles converting into free tickets, free fuel, chargeback privileges, and theft protection.

The key is that you must always use your credit cards like debit cards and never go in debt. You should always clear your bills timely, and never spend money that you don’t have. I advise you to enable “auto-pay” when getting your credit cards and link it to your current/checkings account.

Here’s a proof of me redeeming points for fuel just 2 weeks ago.

Not using credit cards is like leaving free money on the table. And not using them right, is like giving away your future money as well.

The Fundamental Error We Make When Planning For Retirement

The key to retirement is understanding a fundamental concept called savings rate. A lot of people only focus on the savings, and not the savings rate. Let me explain to you why the savings rate is more important than the savings.

A friend of mine was saving $200 every month while he was making north of $1000. A few years later, his business really took off and now he was saving $300 every month while making nearly $3000. While he was making progress in saving more money, he thought that he was going to retire much earlier now. But that isn’t true. He actually delayed his retirement. Sounds strange, right? Let me explain.

His savings rate before was 20% of his income and a few years later despite increasing the savings amount, he reduced his savings rate to 10%. The reason why this matters is because his expenses have gone up considerably. While his savings have gone up by $100 each month, his expenses have gone up by $1900 per month.

Now that his new lifestyle requires much more money to maintain, and assuming that he doesn’t want to downgrade his lifestyle once he retires, his savings will now support him for considerably lesser time period. And hence he will have to work for a longer time period now before he can retire.

Here’s a retirement calculator for people in Pakistan.

Lazy Portfolios; Simplest Way to Invest In Stocks

Stocks are often misunderstood, especially in Pakistan. I haven’t met many people who are comfortable investing in them. Stocks make Pakistanis so uncomfortable that less than 1% Pakistanis invest in stocks compared to over 50% Americans.

Personally, I also never understood stocks until recently when I realized how easily Americans are pouring in part of their earnings every month in stocks without having to pick and choose, re-balance, trade etc. They would simply build what is known as a “Lazy Portfolio”.

Lazy portfolio generally comprises of 2-3 funds. But it can even have as little as 1.

There are 2 reasons in my opinion why this kind of investment works.

Firstly, you pay close to nothing in management fee. Such funds have low operating costs as there is no human intervention and the fund only tracks a particular index such as the S&P500 Index. You buy one fund, and your money goes into 500 largest publicly traded US companies automatically in the same ratio as their market capitalization.

Secondly, since you’re not picking stocks yourself, you’re not exposed to the risk of each individual company. Instead your only bet is that collectively largest 500 publicly traded US companies will be larger in size tomorrow than they were yesterday.

To learn, what basket options you can buy, check out this. To learn more about investing in stocks, read this and this.

Disclaimer: The information provided is for informational purposes only. It should not be considered legal or financial advice. To the maximum extent permitted by law, I disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

How Can You Be Wealthy?

Each person looks at this term differently. Probably for some, it means being able to afford Lamborghinis without a second thought. Or being able to stay in presidential suite in Las Vegas. Not for me. I don’t think of wealth like that. Because if you do think of it like that, then there’s always going to be someone ahead of you, there are always going to be things you can’t afford and this is a never ending cycle.

I define wealthy differently. For me, it’s the ability to pay all your bills on an automated basis, without working. In bills I generally include the unavoidable bills including rent, utilities, grocery, school, medical etc and some leeway for vacations, gifts, shopping etc.

I recommend you to find this numerical figure. It’s extremely important to do so. For example, you have calculated that your annual expense end to end is Rs 2 million. This means Rs 165,000 per month or approximately $1079 per month. If you can create a way to generate Rs 165,000 a month without working, you’re wealthy. You are financially free. You can actually retire, regardless of your age.

The second step is finding a way to acquire assets that generate $1079 a month. The mistake that most people make is they don’t wait to spend on luxuries. I want to spend on luxuries too, and I feel everyone should be able to do it. But not without following the right framework.

The right framework requires earning money, saving it, acquiring assets, generating income and spending that income. What most people do is earn money and spend it. Doing what most people do is a perfect way to work until you die. Doing what I recommend you to do is a perfect setup to retire between 5-15 years.

To generate $1079 per month, you can acquire (or build) SaaS/Blog/App for $32,370 (at 30X monthly multiple). If you’re more into “real assets” you can acquire property that does 5% per year for $258,960 or you could invest in stocks that generate annualized average 8% per year by investing $161,850 in stocks. Or you could do a mix of these things by diversifying and invest a total of $100,000 to generate $1079 per month.

It may sound tough, but it really isn’t. Especially if you’re young and have the ability to save more. All you have to do is have a clear goal: A) the numerical figure that you need every month, and B) the numerical figure required to invest to generate ‘A’ every month. Once you have these numbers, you need to see how much can you save each month, and calculate the number of months it’s going to take you to save until you’ve hit ‘B’. By doing so, you’ll have a set date for you to become wealthy.

I recommend you to read the book “Rich Dad, Poor Dad” by Robert Kiyosaki. It’s not the best finance book to read, but it is the best first finance book you should read.