Even Investment Bankers Can Benefit From Niche Specializations

Today I came across another example of the benefits of keeping your business's focus simple and small.

It is a niche chemical investment banking firm called the Valence Group.

Normally, we think of investment banking as a business dominated by a few large Wall Street players. But, there are plenty of opportunities for smaller firms that specialize in a certain industry. In this way, they are sought after because, while they don't have the name and reputation of a large firm, they make up for it by knowing the nuances and leverages that come with having inside knowledge and experience.

Being an expert in a certain industry or type of company is especially valuable in tasks such as chemical m&a advisory. In fact, industrial expertise is so important and valuable in mergers and acquisitions that a "judo" move occurs. Instead of being opposed by the force of a Wall Street giant, the Valence Group is asked to partner with them in chemical mergers and acquisitions deals, and thus gets to tap into their power and reputation.

Why Do I Write About Simplicity, Zen, and Taoism on A Financial Blog?

It might seem strange that someone who likes simplicity and Eastern philosophy would write about them on a business/financial blog.

After all, doesn't business have to do with serious, bottom line math? Isn't Zen and Taoism associated with '60's style hippies and non-capitalist, non profit peace and love?

Actually, Eastern philosophy and thought is rooted in the everyday world - in mundane matters such as commerce. Eastern religions such as Buddhism do not see worship as something you only do once a week in a church or temple. Instead, you "worship" and server the Universe through your daily life and work.

Personally, I feel that any success I have achieved has been because of my passion for simplicity, minimalism, zen, and Taoism. Incorporating elements from each of them into my way of thinking was as valuable (if not more) than any computer, mathematical, or financial training I've ever had.

I've learned the power of "The Middle Way" (rather than sticking to an extreme viewpoint), analog thinking (as opposed to win/lose zero sum games), present moment awareness, the power of concentration, and "resetting" or letting go.

Example of A Niche Business - Foreign Exchange Mitigation

As a regular subject in my blog, I like to describe on-line businesses that operate in interesting niches.

Today, I'm writing about a currency broker called foreign-currency-uk.com.

Instead of operating like a normal, "dime a dozen" currency exchange, which coverts any major currencies, and depends on volumes of activity, this company has positioned itself as a higher margin consulting service with higher margins.

They provide foreign currency exchange only into British Pounds and specialize in helping individuals buying real estate in the U.K., as well as businesses that regularly make international money transfers to the United Kingdom.

By specializing in only this one currency and country, they can focus on becoming a deep expert on all applicable laws, method of operations, and tricks of the trade for Pound conversion. This company can then offer value-added service to its customers to distinguish it from a regular currency exchange.

Gambler's Fallacy Part 1 - Casinos

The "gambler's fallacy" occurs in games of chance when a streak of one type of result happens, and the gambler then bets on the reverse. For example, supposed you were betting on coin flips and you waited until 10 heads in a row came up. You then bet on tails, because it's "due" to come up.

This is a fallacy because each flip in independent of one another. The chance of a tail coming up after 10 heads is still 50%. This same line of thinking is false in casino games such as baccarat or roulette. If a long string of black occurs, red is not more likely to come up.

Some gamblers will argue that, if there is no regression to the mean, how can the long term odds (50% in a coin toss) be so stable? In other words, say 100 tails in a row come up, how can the results regress back to 50/50 without a long streak of heads?

But you don't need a run of the other result. Suppose 100 tails in a row came up. If, as an example, the next 1000 flips alternate between head and tail, then the results become 600 tails, 500 heads. The odds have regressed toward the normal 50-50 without a corresponding run of heads.

Niche Specialization Thinking Can Help options brokers and Their Clients

Most entrepreneurs and small businesses operate inside a niche. They can't operate and diversify across different markets like large companies, but they fail to really take advantage of being "limited" to one area.

"Niche specialization thinking" is a term I use to describe those who do take advantage. They realize that single tasking, and focusing on one small area, allows them to achieve advantages of depth.

I saw an example of such a business in an option broker called MyTrack.com.

Most options brokers do not realize that they can use their years of experience and knowledge to offer a big advantage to their customers (options traders) over larger brokerage firms who offer options as a sideline to mainstream stock, bond, and fund investing.

MyTrack.com, on the other hand, used their expertise and accumulated years of data to offer analysis and convenient order placement for complex options trade and spreads.

For example, they are the only options trading broker that I know of that designed automated routines for easily placing complex options spreads such as butterflies, condors, etc.

Also, because options trades are short term and require active monitoring, MyTrack.com's trading interface is non-browser and was designed for both computer and mobile device access.

Many other options trading brokerage houses don't offer options traders tools and user interfaces that differ much from their standard stock trading screens.

The 401k Backlash

In the last year or so, I have seen a lot of articles bashing the 401k.

This is interesting because the 401k seemed to be sacrosanct. All through the 1990's and into the 2000's, financial planners and the financial media drilled into our heads about how important it was to save for retirement, and a 401k was great because you "paid yourself first", got the power of tax deferral and, perhaps, got a company match.

But, many 401k plans have drawbacks - the main ones being that the fund choices tend to be poor. This is because the funds don't have to sell themselves to the individual investors. Instead, they just have to sell themselves to the investors' employers.

For the employers, their money and retirement are not on the line, and administering the company's 401k plan is not a core function of the business.

Personally, I think that you should only use a 401k plan if your company matches - and then only put in enough to get the maximum match.

You are better off putting the rest of your investments into Roth IRAs and/or taxable accounts where you can get long term capital gains - which can be canceled through capital loss harvesting (which is explained on page 28 of my book Stock Trading Riches).

Online Bankruptcy Courses

These days, with the bad economy and aftermath of the housing crash, a lot of people are having trouble paying their bills and the bankruptcy rate has sourced.

As a silver lining, this has generated employment opportunities for people who can handle bankruptcies, as well as credit counseling.

A website called StartFreshToday.com is taking advantage of this need for bankruptcy and credit counseling courses.

They teach a bankruptcy class online - a lot of their students are lawyers interested in bankruptcy and people interesting in getting becoming certified credit counselors.

The online bankruptcy course also attracts people who are interested in learning about the process - possibly people who have credit problems and just want to learn how to help themselves.

Steve Jobs Stepping Down From Apple - Sad End of an Era

Last week, Steve Jobs announced that he was stepping down as CEO of Apple Computer.

I felt sad when I heard the news because of his recent history of pancreatic cancer and having a liver transplant. If he stays alive, and can contribute as chairman of Apple, then it is ok. But, I'm worried that he might be terminal. I hope I'm wrong.

Apple ran into trouble after Jobs left the first time. But, because of that experience, I have heard that Jobs has gone out of his way to imprint his philosophy into the company.

I really admire Steve Jobs - he has two great qualities for success:

1. He can anticipate what people will want.

2. He practices zen minimalist design - The key isn't what the device does, it's what it doesn't do.

This last quality is especially at risk, now that Jobs has stepped down. It's hard to consistently exercise restraint, and push back on engineers, sales people, and marketers who want to cram in the latest and greatest features found in competitor's products.

Apple under Jobs didn't invent the mp3 music player or the smart phone - but they conquered these markets by concentrating on a few essential requirements and perfected them. These self-imposed limits benefited the consumer by making the devices simple and robust to operate.

Apple's products compared to the competitors' are like haiku vs. serious prose. They touch you like a light breeze and then leave you free, instead of enveloping you.

There's no straining or effort required to integrate Apple's products into your life.