I have been too harsh

I have been too harsh in a few recent posts. Specifically:

- "How to Promote an Online Business": I was a little too sharp with this PR man. He did raise some good questions in our phone conversation last week, and although the services he subsequently offered me weren't what I was looking for, our conversation did spur me to do some more research on topics he brought up. Also, I should remember that most business services vendors are geared toward big corporate clients instead of entrepreneurs, and for good reason. Entrepreneurs tend to be more results-oriented and tight-fisted, and less likely to be in business a few months from now. All good reasons to focus on selling to big corporate clients instead. Sorry, M.

- "Get Mad You Sons of Bitches" and "A Critique of Pointless Blogging". In both cases, I could have shared my criticisms and suggestions via e-mail first, or, just kept them to myself, I guess. There's an old saying about the folly of offering advice: wise men don't need it and fools won't head it. That saying is probably right about the folly of giving advice, but perhaps not precise enough in the reasons why offering advice is often folly. Neither of the subjects of those two posts were fools: Stearns has an MBA from a top-20 school (Georgetown) and Persky has a degree from MIT. Being intelligent, though, doesn't necessarily make you receptive to advice or criticism. You have to be ready to hear it. This I know from experience. I've had friends who meant well give me good advice in the past, and watch me ignore it because I simply wasn't ready to hear it. So it shouldn't be a surprise to me that Persky deleted my comments on his blog, and continues to paste in filler text without offering any of his own insight or other commentary, or links to the original sources.

Being unemployed and looking for work, as Persky and Stearns are, is, in a sense, a form of purgatory. A quote from a film comes to mind here [consider this a half-assed spoiler alert: the film, Jacob's Ladder, is nearly 20 years old, but if you haven't seen it by now stop reading here]. Before I get to that quote, take a minute and three quarters to watch the original trailer for the movie, to set the table for it:



OK, now here's the quote, from a character named Louis (played by Danny Aiello) who is the protagonist's (played by Tim Robbins) chiropractor/friend/guardian angel:

Louis: Eckhart saw Hell too. He said: The only thing that burns in Hell is the part of you that won't let go of life, your memories, your attachments. They burn them all away. But they're not punishing you, he said. They're freeing your soul. So, if you're frightened of dying and... and you're holding on, you'll see devils tearing your life away. But if you've made your peace, then the devils are really angels, freeing you from the earth.

Similarly, in a non-eschatological sense, sometimes the trappings and pretensions of your old life need to burn away before you can move on.

Sometimes You're lucky to have Your Business Idea Shot Down

Four or five years ago, I thought I had an interesting business idea: private unemployment insurance. Fortunately, before I spent any time or money pursuing this idea, I was promptly talked out of it in a conversation over dinner with reader S.L., who was kind enough to act as a sounding board. As a seasoned businessman and investor, he spotted the flaw instantly: adverse selection. The people most likely to get laid off would be the ones most likely to apply for private unemployment insurance, which would wreak havoc with your loss ratios.

Yesterday's New York Times featured an article by Ron Lieber ("Good Luck Getting Private Insurance for Unemployment") about an entrepreneur who wasn't lucky enough to run his idea by S.L. before starting his own private unemployment insurance business. The article mentions that this entrepreneur, an insurance industry veteran named John Hartline, started his business in the Spring of 2008, only to have his reinsurers cut him off a year later:

Mr. Hartline said his reinsurance provider, Munich American Reassurance, forced him to stop writing new policies in April of this year.

Why? It turns out that the biggest problem with private unemployment insurance is something that industry insiders refer to as adverse selection. That is a fancy way of saying that the people who take out this sort of policy are the ones most likely to need it.

S.L. could have told him that, and saved him a lot of money and time. Sometimes the best thing a trusted mentor can do is tell us when we have a bad idea.

Update:: Cheryl was nice enough to mention a previous post, "Hedging against Job Loss", in the comment thread of the NY Times article mentioned above.

Another Update: S.L. adds this comment via e-mail:

Munich Re-Insurance Co. is one of the oldest, largest Re-insurance operations in the world.

Amazed that Munich had to wait a year before they took action. Probably after experiencing large losses.

Hedging against Job Loss

You can't hedge against the idiosyncratic risk of losing your job, but you can hedge against rising unemployment nationally. The North American Derivatives Exchange (Nadex.com, formerly Hedgestreet.com) offers options on the unemployment rate and other economic events. I did a quick search to see if any financial writer had suggested these options as part of a strategy to hedge against the risk of unemployment. So far, I haven't found any.

I'm curious also about whether the managers of staffing firms have used these options. A number of publicly-traded staffing firms had significant amounts of net cash on their balance sheets last year; did any of them use some of that net cash to hedge against an increase in the unemployment rate? If they did, they'd have even more cash now.