A Monster Load of bad publicity for Publicity Monster

As you would have seen from my collectible coin scam and questionable art investment with a guaranteed return post is that I actually quite enjoy busting what I think are questionable or downright dodgy business practices.  When I was reading the newspaper last week I came across a journalist who looked like he had done the same thing.  While I get 3000 - 4000 page views a month on this site (as at August 2012) this journalist wrote for Fairfax Media, one of the biggest publishing houses in Australia and the expose was therefore that much bigger.

The company that was being called out for it's business practices was Publicity Monster, an Australian company which offers search engine optimisation (SEO) services to businesses in Australia.  I will say up front that I have never had any dealings with this company - everything I write here I have sourced from information posted on the Internet by other providers and I will be linking to those sites.  I do not know whether this company is a bad operator but I would recommend reading the independent reviews of them on the Internet before doing business with them.

I first came across this company when I was reading this article ).  This article claims that Publicity Monster

• Does not deliver on the promises they make
• Threatens customers who complain with legal action
• [Edit]: For the removal of doubt I mean that the article suggests that they threaten, with legal action, customers who complain online
• Does not honour its money back guarantee
• [Edit]: I have since been informed that they do honour the money back guarantee but that the opportunity to apply for such the refund only exists within a very narrow timeframe (90 - 100 days)
• Harasses customers demanding payment
• Threatened to sue Fairfax Media for printing the article about them

Now I honestly thought that this had to be an exaggeration - a journalist who was trying to make a name for himself by doing a hatchet job on a company...no company could be THAT bad.  But then I made it to the Whirlpool forum where LOTS of customers had voiced their dissatisfaction with Publicity Monster - see the link here. It really is worth reading those posts to see the stuff that the people on that forum have dug up on this company (which includes using pictures of missing persons to give false reviews - note once again that these are again claims made by Whirlpool posters - but they provide plenty of evidence to back up many of their claims)

For a company that is all about publicity - Publicity Monster seems to be getting an awful lot of bad publicity.  Actually I found it a little bit suspect that traditional 'ratings sites' such as True Local had either reviews with half a star or ones with five stars.  I've never seen a discrepancy like that unless someone is playing games with the ratings site.

Lessons for those (like me) who are looking to start an only business

Simplify your investment process: Make relative investment​s not absolute ones

Investing in the share market is all about opportunity costs (actually when it comes down to it - everything in life is about opportunity costs).  Because we only have a finite amount of money we have to make a decision about which stocks to invest in if we want to obtain a superior return or whether to invest in index funds which mean that we will never outperform or under perform.

 

This decision becomes much more complex once we start assessing whether or not to invest in the share market after all.  The range of possibilities and the things you need to think about once you start considering whether your money would be better in the bank, in fixed interest securities, in non conventional investments (such as precious metals, collectible items etc) or whether you should just spend it on consumer items.

 

I think that once you broaden your decision making to this level the decision becomes impossible

 

Given the inherent uncertainties associated with almost all investment decisions when we get overloaded with choice we tend not to make any choice at all.  This is most definitely not the best outcome for our financial well being.

 

...So what is the solution?

 

The solution is not something new or innovative.  It is something that people have been doing for hundreds of years. 

1. Set a specific amount of money that you will save every month (I do this with my savings goals - sometimes this is called 'paying yourself first')
2. Split that amount of money between the investments YOU want to invest in (for example $xxx to shares, $xxx to the bank etc)

Once you have done this you no longer have the problem of deciding what class of assets you should invest in!  The decision is already made by your plan.  That is the beauty of this system.

 

Note that this does not make the decision process 'easy'...just easier than it was...

 

You should keep in mind that you still need to decide what shares to invest in which is often a complex enough decision - but it is much easier than the one mentioned before.  It is possible to make this easier by

1. Investing only in index funds 
• You set up a savings plan every month and every month this amount gets invested in index funds
2. Invest a certain amount each month into certain categories of shares. 
• This takes the splitting the investment money to next level.  You allocate a certain amount that will be invested in defensive stocks, growth stocks, dividend stocks etc and then the decision becomes in this category what stocks do you want to invest in?

I do not go to the level that point 2 suggests because I do not have the cash required to make cost effective purchases (in terms of trading costs - even with my cheap brokerage) on a monthly basis if I split the amount I am investing too far.  I allocate a certain amount to shares and try and invest this regularly every month in a share which I think is showing good value.

 

...the moral of the story is to make relative decisions - not absolute ones

 

What I mean by this is that you should be deciding between shares or between bank accounts or between alternative investments not deciding which of these classes of investments you should be putting your money into each month.  The relative decision is complex enough without adding an absolute decision which I think would paralyse most of us because of the number of choices and inherent uncertainty

Dirty Letter from Hancock Prospectin​g should have you questionin​g Gina Rinehart's motivations

The increasingly bitter war for Fairfax media took another turn when Gina Rinehart's Hancock Prospecting sent a letter to ALL shareholders of Fairfax which outlined their case for change and what they wanted to achieve.  Normally it is clear why the person agitating for change is doing so

• Often it is a large activist fund manager who has taken a position and who wants the board to change direction so that their bet pays off
• Other times it is a shareholder who is trying to push a particular agenda - I did a post on these types of people later

With Gina Rinehart (Australia's richest person and the richest woman in the world) it is hard to say.  There has been much speculation including

• Wanting to influence journalistic content so she appears more favourably in the news (this is widely speculated in the media and investment community)
• An activist shareholder trying to enhance the value of their shareholding (what Rinehart is trying to portray herself as)

So here is a brief outline of what she wants for her 15% shareholding in the company

• 3 board seats (2 for her and an 'experienced independent director') out of a board of 12
• KPI's for the chairman personally including increasing the share price from the current value of ~$0.52 to $0.87 prior to the AGM which is only a few months away.  If these are not met they ask that the Chairman resign
• The ability of directors to comment publicly on the state of the company.  Currently only the Chairman and the Managing Director are allowed to make public statements about the company
• Want to be able to share board minutes and materials with outside parties

Why I think her requests are ridiculous

If Gina Rinehart wants control of Fairfax she should make a bid

• Although the letter says that she does not want control of Fairfax, having 25% of directors in her pocket before any contentious issues arise puts her in a very powerful negotiating position
• If Gina Rinehart wants to control Fairfax she should make a public market bid.  That would be one way of making sure the share price reaches $0.87 before the AGM.  She however is trying to gain effective control of the company without doing this

Asking for a Chairman of a company to resign if the share price does not reach a certain level is ridiculous

• While the Chairman has a fair amount of influence over the company, it really is the management team which determines how well the company is doing
• Final responsibility should and does lie with the Managing Director and the Chairman however they can no more control the share price than they can people's opinon of the company.  Even if they turn operating performance around there is no guarantee that the share price will move at all
• This is purely playing on small shareholders' dissatisfaction with the share price performance. 

Wants directors to be able to publicly comment on the state of the company

• I think requiring all media communications to go through the Chairman is a perfectly acceptable way of operating - it helps the company keep it's message on track.  If there are disagreements the relevant directors should resign and then they are free to speak publicly
• Gina Rinehart does not want this because in the event she does get her directors nominated to the board, she is probably going to try and make a public case for all the people who do not agree with her to be kicked off the Fairfax board (thus getting back to the effective control point)

Want to be able to share board conversations and minutes with external parties

• This is just ridiculous.  The way they phrase their argument is that it allows directors to get independent advice.  HOWEVER what it would allow is for directors to share the information with the public, with the media or with anyone else which would destroy the company's ability to keep their business dealings private

Why I think Gina Rinehart should NOT get a seat on the Fairfax board

She will not sign the editorial charter of independence

• In the letter the shareholders she says that the disagreements with the current board were never about the charter of Independence.  If this is the case surely it would be much better for her to sign the charter once and for all
• HOWEVER she has refused to do this indicating that her intentions are to control the news and influence public opinion to her point of view

Gina Rinehart has no experience running a publishing company nor of turning ailing companies (like Fairfax) around

Investing in Real Estate with family members or friends

Investing in real estate in some countries (such as Australia) are seen as the 'easiest' way to make money and so everyone clamours to get into the real estate market.  However saving for a deposit is one of the hardest parts about entering the property market and so people who are looking to get on this supposed gravy train look to go with other people to get into the market quicker.

Although there are some positives to investing with others, especially with family, in my opinion these are largely outweighed by the negative factors.  I have listed both the pros and the cons of investing with family or friends and things you should consider before you invest.

Benefits of investing in property with family members or others

There are a few clear benefits to investing with others.  These include

• As mentioned above it is easier to enter the property market if you are not saving on your own for a deposit.  Banks are also more willing to lend you money as they have two incomes as security
• It reduces your exposure in any given investment
• One of the biggest downsides of property investment is that because of the prices of houses it is hard to spread your risk because the capital requirement for each property is so high
• When you invest with others your effective risk and capital contribution is much lower
• Provides a fall back in the event one of you get sick or lose your job
• If you get sick or lose your job, your mortgage still has to be paid and your property still generates expenses. 
• Having more than one person means that in the event one of you get sick the other can still take over the responsibilities

Cons of investing in property with family members or others

I think the cons far outweigh the benefits when it comes to investing with others.  While I have outlined almost all of the benefits of investing with others above below are just a few of the cons of investing with family members or others

• You are completely liable for any liabilities at the property
• This means that if the person you are investing in is unable to pay their share or refuses to for any reason you are liable for the full amount
• People always say 'this can't happen to me' and you often have a high degree of trust between yourself and family members or close friends but sometimes their inability to pay is not their fault - they may lose their job or have an accident.  The bank does not care about this and they will come after you.
• You may not have the same investment philosophy or time horizon
• When you own a property on your own you control everything including when maintenance gets done, when you sell, if and when you refinance.
• It is very rare that two people are in exactly the same financial situation at all times and so there can be conflict over what is to be done with the property (i.e. they want to sell at any price and you want to hold on to the property because you think the price will increase)
• There are serious legal implications for buying properties with others
• In common law countries (Australia / UK / Canada), properties are general bought under one of two types of title - tenants in common or joint tenancy
• Under joint tenancy if one person dies their interest in the property automatically goes to the other owner
• Under tenants in common the person that dies can will their share away to someone else
• How do you split the profits / benefits if one person has contributed more than the other?
• This can be a very touchy subject especially if one person has contributed more OR if one person was contributing while the other was out of a job and vice versa
• What happens if you have an argument?

Donating to Charity - Check the expense ratios

We all want to make sure that the money we donate to charity gets used in the right way and actually gets to the people who need it the most.  However if you do not research how much a charity actually spends on charitable work, a significant portion of your money could be going to administration costs to keep the charities' staff employed.

You should always therefore look at what the expense breakdown of the charity is

Charities will typically provide (somewhere on their website or promotional material) a breakdown of how their funds are spent.  You need to be comfortable with the level of their administration costs because even though they may have the most grand vision, if the money is not getting to the people they want to help then it is not doing any good.

Where can I find the expense breakdown?

There are several sources that you can use to find the expense breakdown

1. The charity's promotional materials
• Most charities will quite openly state what their expense breakdown is and what they spend their money on
• If you cannot find it anywhere on the charities website or in their promotional materials then STAY AWAY.  All honest charities should be providing this publicly.  The last thing you want to be doing is handing your money over to a scam
• This is probably the best way to check if you know what charity you want to donate to
2. There are many sites on the Internet which summarises the expense breakdowns
• The Internet is a great resource for seeing expenditure summaries
• If you are not sure what charity you want to donate to there are many great websites which summarise what the charity does and what it spends it's money on
• An example of a good site is http://www.charitynavigator.org for US based charities (this is particularly for searching for a charity based on an area you want to support)
• Note that I would avoid sites that charge charities for a 'premium listing' but do little to provide the donors with information about the charity - in particular those that do little to describe and evaluate what the charity does and it's openness. 
• One I personally was NOT a fan of was (http://www.australiancharityguide.com/)

What should I look out for in the expense breakdown?

There is no bright line when it comes to how much a charity should be spending on certain activities but you should be aware of how your money is being spent.  Areas to keep an eye on include

What is the difference between ESG and Ethical Investing?

This post will deal with the difference between ESG (which stands for Environmental, Social and Governance) and ethical investing.  They are actually very separate ideas although people tend to use them interchangeably.

At a high level the difference comes down to the following

• ESG is a positive screen for companies which consider the environment, their social obligations and promote good governance
• Ethical Investing is a negative screen which eliminates investments based on certain criteria (common examples include no gambling, tobacco, mining etc)

What is ESG?

When you invest using ESG you are investing in firms which operate in the 'best possible way'.  It can therefore be though of as a 'positive screen' for those firms and investments which operate in ways which

• Minimise damage to the Environment
• Promote Social well being
• Are proactive about good Governance

Note that every investor that considers ESG will place a different emphasis on ESG considerations.  Further when considering ESG factors one can either look for firms that avoid the bad outcome or promote the good outcome.  For example:

• Some investors will look for firms which minimise damage to the environment while others will look for firms which actively promote environmental well being
• Some investors will look for firms that do not cause social harm while others will look for firms which promote social values
• Some investors will look for companies which do not have any glaring governance issues while others are particularly concerned about good governance

If you are particularly concerned about ESG and are looking for a fund that invests using ESG principles have a look at the language in their documentation to see where on the scale they are.  Some funds are primarily value funds who see the downside for firms not investing in ESG principles while others truly believe that investing in ESG conscious firms will result in higher long run returns. 

What is Ethical Investing?

Ethical investing, quite simply is investing only in those companies which meet a strict criteria for investment.  It is often considered a 'negative screen' because there is a very definite idea of what sort of companies should not be included. 

The type of investments chosen will depend on the criteria used.  There are several common types of ethical funds / approaches including

• Christian funds which only invest on a biblical basis and excludes investments in things like weapons manufacturers among others
• Islamic funds which do not invest in companies involved in usury or alcohol among others
• Environmental funds which do not invest in mining operations etc

There is no real limit to the number of ways that ethical funds can be cut.  In fact most of us probably have some things we would never invest in because we do not feel comfortable doing so and so in our own way we have an ethical criteria for investment

What is the difference between ESG Investing and Ethical Investing?
 

The Big Short by Michael Lewis

The Big Short by Michael Lewis, author of Liar’s Poker, is a well researched, although obviously biased, look at sub-prime debt crisis and the factors that led up to it.  The book has been on several best sellers lists and for good reason – it is the best book that I have read on the topic and is interesting even if you do not know anything about CDO’s, subprime debt, the US housing market and all the other factors that led to the crisis.

Although the book primarily focuses on the hedge funds (including a fund that was seeded by Joel Greenblatt, author of You Can Be a Stock Market Genius which was been previously reviewed on this site) that saw the crisis coming and made significant money out of it, Lewis also looks at the other players in the market including the buyers of the mortgage backed securities, the buyers of the credit default instruments, the investment banks that were pedalling the goods to everyone and the ratings agencies who were probably the reason that the whole thing came undone.

The strength in The Big Short is on Lewis’ ability to distil quite complex products and topics down to rather simple explanations of how they work and the relative pros and cons of either side of holding the product.  Also I liked how Lewis broadly arranged his books into time periods and then looked at that particular time period from every angle (i.e. pre-crisis when no one realised there was a problem, when people started to realise the issues, when the crisis became public knowledge etc)

As a last point of note, when I read this book I read it from the perspective of an investor (as that is what I do for a living).  However I was chatting about it to investment bankers who really focussed on the failings of their business model and incentives.  Again when chatting about it to those who have nothing to do with the financial industry the focus was on how the system failed.  There are so many different ways to interpret the lessons from this book and it all depends on the perspective you are reading it from.

Pros