SUNDAY, SEPTEMBER 26, 2010 PERSONAL FINANCE


Ingredients for success: Passion and foresight


Kate Carrara of Philadelphia, the self-


proclaimed “Cupcake Lady,” sold her house and car and gave up a well-paying job to start Buttercream, amobile cupcake shop.


grandfather’s a lawyer. So I went to law school and spent six years working as a trial lawyer for my family’s firm. Then I did coding for two years at another law firm, which was insanely boring. But I was also planningmy cupcake business and trying out cupcake recipes onmy co-workers.


W


When did youmake the switch? I quitmy job in July 2009 after I saw that someone in New York City had opened a cupcake truck, which I thought was a great idea. I realized I had to do this in Philadelphia or someone else would.


TIM GRAJEK FOR THE WASHINGTON POST How to outsmart your biases BY BOB FRICK The notion that we’re hard-wired tomake poor


decisions is a central tenet of investor psychology. Of course, some of us are wired better than others.Warren Buffett, for example, seems to have emerged fromthe womb ready to go, like the Aztec god Huitzilopochtli. But instead of springing to life fully grown and armed to the teeth, Buffett, froman early age, worked, saved and obsessively counted stuff (including golf balls he’d steal fromthe local Sears). The question is, howmuch of our investing


behavior is predetermined? Can we change our behavior? And, if so, how? The answer to the first question: about a third. A recent study, “Nature or Nurture:What Determines Investor Behavior,” examined the investing habits of identical and fraternal twins. It showed that genetics accounted for a third of such keymeasures as how willing we are to invest in the stockmarket and how we allocate our funds. Upbringing had some influence on how the subjects handled money, the study also showed, but experiences withmoney outside the family quickly trumped parental influences. So although nature and nurture are both


significant, they don’t necessarily control our destiny as investors.What’smore important is to recognize that it’s human nature to fall prey to our biases, which include overconfidence, short- termthinking and inertia. Problemis, we have a blind spot when it comes to these biases—we usually don’t recognize themin ourselves. And until we do, we can’t address them. Thatmakes blind-spot bias themother of all psychological investing problems.


Navigating blind spots Emily Pronin, a professor of psychology at


Princeton University, says we fall victimto BSB even when we’re shown incontrovertible evidence that it exists. “I spend a whole lecture describing blind-spot bias, and I givemy students lots of examples of biases,” says Pronin —say, believing you’re smarter than the average person, ormore altruistic than others, ormore socially desirable than average. A few days later, she says, a graduate student fromanother class asks the same students howmuch they show bias relative to others in the class. “And they still tend to say they’re free fromthe bias,” Pronin says. Pronin says people deny that they suffer from


these issues because they occur subconsciously. “In order to determine whether they are biased,” she writes, “people generally look to their consciousmotives rather than to their actions.”


So when a bias occurs subconsciously, people don’t notice it. To liberate us fromBSB, Pronin came up with


a simple solution: She had students read an article, titled “Unaware of Our Unawareness,” that convincingly lays out the case that our subconscious can influence our attitudes and behavior. After reading the article, the people in one group didn’t show the usual tendency to deny their biases. Those who skipped the article did. Once you admit to your investing biases, you


can begin to overcome them. But don’t expect to rewire yourself. “You can improve, you can becomemore self-aware, but you can’t change who you are in ameaningful way,” says Frank Murtha, a behavioral-finance consultant with MarketPsych, which offers psychological-training services to traders andmoneymanagers. Becomingmore self-aware involves several


steps. Among other things,Murtha and his Market-Psych partner, Richard Peterson, have developed a quiz to help figure out when you’re acting impulsively regarding your investments and when you’re being consistent. Their book, “MarketPsych: How toManage Fear and Build Your Investor Identity,” can help you learn to identify and control your biases. Plus, it’s a fun read.


—Kiplinger’s Personal Finance


What are your costs? For the first year of operation, start-up costs were about $50,000. The truck alone was $20,000, and the vendor’s license was about $5,000. The rest depends on rent and salaries. I have five employees, whomI have to pay a good wage.


How did you raise themoney?My husband and I took out loans and sold a piece of the business to a family friend.We also had to live offmy husband’s salary after I quitmy job, so we downsized everything we could. I soldmy diamond engagement ring.My husband and I went fromliving in a three-bedroomhome with two cars to a small apartment with one car.


Howmany cupcakes do you sell a day?We aim for 500. It’s a little slower in the summer, when the students are away.


And what do you pay for ingredients? Our baking costs are not that high—we’re not talking oysters here. For $500, I can bake 2,000 cupcakes.We sell themfor $2 each.


Is the business profitable? In the first year, we made $100,000, but we’re putting a lot of that back into the business now. I’mstarting to look into retail and wholesale outlets. I’d like to open some kiosks.


Do you have any regrets? Sometimes when I have friends over tomy apartment now, I’ll see themglancing around discreetly, as if they’re looking for something. I have to ask them, “You’re just here for the cupcakes, aren’t you?”


— As told to Caitlin Dewey, Kiplinger’s Personal Finance


6


bad joke. But it’s a real product, one forwhichVerizonWireless charges $199.99. This device, Samsung’s


A


Fascinate, is the latest—and the worst—example of an ugly trend among smartphones running Google’sAndroid operating system. Instead of being content to sell


an attractive, open alternative to Apple’ s iPhone,wireless carriers have decided they’d rather treat the screens ofAndroid phones as billboard space to be sold to the highest bidder. Anyonewho’s spent an hour


on a newlaptop deleting desktop shortcuts, uninstalling trial applications and peeling off stickers should knowthis concept. Butwhile some PC manufacturers have realized that customers hate getting a computer full of “crapware,” the carriers refuse to learn fromtheir example—and on anAndroid


“Google phone” hand-


cuffed toMicrosoft’s Bing search engine sounds like a


ROB PEGORARO Fast Forward


phone, the effects aremuch worse. The extra applications that a


carrier installs not only clutter the screen, they also eat up precious systemmemory that would be better used on programs you actuallywant.And because carriers implant these add-ons in a protected area of the phone’s storage, you can’t uninstall them. Carriers have abused their


privileges toweld on such extras as $10/month navigation tools that duplicatewhatGoogle’s own map software does for free; a movie player for a little-used online service fromthe newly


HELP FILE


Q: I’mabout to get anewcar and want aGPSdevice. ShouldI buy anin-dashnavigationsystem, a stand-aloneGPS receiver or a GPS-enabledsmartphone?


A:Whenmywife andI bought a newcar five years ago,wepaida premiumfor integrated navigation. Iwouldnotdo that today;most built-insystems cost toomuch, lack real-time traffic data andcharge toomuchfor updates. Iwouldn’t buy a separateGPS


unit, either; I alreadypaidfor a smartphone that cando its job. The cheapest andbestphone-


baseddirections—providedyou havewireless coverage—come fromtheGoogleMaps software onmostAndroiddevices,which accepts voice input,provides accurate turn-by-turndirections andmonitors traffic reports. Google’s softwarewon’twork


inregions starvedofmobile bandwidth.But thatmightnot matter: If you’redriving ina remote area, lookuphuman- verifieddirections inadvance insteadof trusting computer guidance. (Onski trips toWest Virginia, our car’sGPSdevice


suggests thatwe takemountain roads closedinthewinter.) Googlehas yet toupdate the


iPhone’sMapsprogramto add turn-by-by-turndirections. Instead, you’llhave topay extra for apps fromsuchvendors as NavigonandTomTom.These programshave beenupgraded fromthemediocre releases I testedlast summer—andsince they store theirmaps onthe iPhone, theydon’tneedwireless service towork. Add-onnavigationprograms


are also available forBlackBerry andother smartphones.Or you canuse carrier-providedservices, althoughmost cost$10amonth. Withany smartphone


solution, you’llneeda car charger. Also,don’t leave evidence of your GPSuse inthe car, lest somebody try to break in.But youknewthat already, right?


Rob Pegoraro attempts to untangle computing conundrums and errant electronics eachweek. Send questions to TheWashington Post, 115015th St.NW,Washington,D.C. 20071 or robp@washpost.com. Visit voices.washingtonpost.com/fasterfo rwardfor his Faster Forward blog.


bankrupt Blockbuster’s; NASCARand football applications; demos of various games; and advertisements for their services that eat up space in the notification bar at the top of the screen. AT&T, Sprint, T-Mobile and


VerizonWireless all offer the same excuse: They’re trying to make the phone “experience” better. But they fail to explain why they don’t let customers decline this help. With the Fascinate, however,


Verizon has outdone themall. Not only does this slimdevice arrivewith a cartload ofVerizon apps bolted on, but its search button comes locked to Bing, and it leaves outGoogleMaps in favor ofMicrosoft’s inferior alternative. Your onlywarning of these


dramatic changes is the absence ofGoogle’s logo fromthe box and the back of the phone. AVerizon spokeswomanwrote


that “by adding this option to our Android portfolio,we are giving


customersmore choice.” Stillmore “choice”will come


later this yearwhen the company (having already coaxed Skype into offering itsAndroid Internet calling application only for Verizon users) launches its own, separateAndroid app store— even though there’s already a well-stocked, open and compatibleAndroidMarket. This arrogant control-freakery


iswhat I fearedwhenGoogle announcedAndroid in 2007: Carriers have exploitedAndroid’s openness to treat their customers like their servants. Don’t expect liberation from


Google. The company gave up on theNexusOne, its attempt to sell anAndroid phone independently of carriers. And althoughVerizon’s


Fascinate seems to have exceeded whatever rules govern the use of theGoogle logo, the company imposes fewrequirements on access toAndroidMarket—the one part ofAndroid it controls.A “CompatibilityDefinition” file


More from Kiplinger Go to www.kiplinger.com for more analysis.


hat did you do before you sold cupcakes? Everyone inmy family is a lawyer—my father’s a lawyer;my


KLMNO


EZ EE


G3


Verizon’s Fascinate reaches new lows among smartphones run amok


allows phone vendors towrite their own replacements for all of its 16 defined core applications. WhenGooglewrote this


document, it apparently forgot that thewireless carriers have no taste. What about simply leaning on


these firms?AlthoughGoogle has no problemthrowing itsweight around in some areas—the location-service provider SkyhookWireless is suing the company for forcing carriers to drop its own offering—it thinks itwould be unfair to push carriers to sell clean versions of theirAndroid phones. Chief executive Eric Schmidt recently told reporters that such amove would violate “the principle of open source.” But ifGoogle chooses to be


spineless, some of its users have not.Android’s open-source roots —it’s based on the Linux operating system—made it easy forAndroid experts to figure out howto unlock, or “root,” their phones and then remove


unwanted apps. This step has gotten a little simpler over time, as I discoveredwhen I rooted an Android phone a fewdays ago. Android developers have since


moved on to cooking up their own “ROMs,” bundles of the core Android systemand related applications.Adventurous users can use this to replace all of their phones’ existing software—often gaining a healthy performance improvement in the process. These things aren’t easy to do


andwill void a phone’swarranty. But thatmight seema fair price to be free of amarketing department’s idea of howyour phone shouldwork. It’swonderful thatAndroid’s


open-source core has let users take action. It’s pathetic that the arrogance of the carriers has left themno other option. robp@washpost.com


Livingwith technology, or trying to? Readmore at voices.washingtonpost. com/fasterforward.


UMUC 411 TEST-DRIVE ONLINE LEARNING BEFORE YOUENROLL.


Discoverhow convenient—and user-friendly—learning canbe. Sign up forUMUC 411, afree, one-week online orientation from University of Maryland University College (UMUC). You’ll be abletochat with faculty, advisorsand other prospectivestudents. Youcan even complete some practice assignments, so you can see for yourself how online learning works. Visit UMUC 411 today, and find out how we can help you balance your education with work and familylife.


Enroll now. Copyright©2010 University of Maryland University College •Experienceonline learning beforeyou enroll


•Chat with representatives from Career Services, Information and Library Services and Financial Aid


•Find out howsimpleitistotrack and organize your academic information online with the MyUMUC student portal


800-888-UMUC • umuc.edu/experiencenow


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100  |  Page 101  |  Page 102  |  Page 103  |  Page 104  |  Page 105  |  Page 106  |  Page 107  |  Page 108  |  Page 109  |  Page 110  |  Page 111  |  Page 112  |  Page 113  |  Page 114  |  Page 115  |  Page 116  |  Page 117  |  Page 118  |  Page 119  |  Page 120  |  Page 121  |  Page 122  |  Page 123  |  Page 124  |  Page 125  |  Page 126  |  Page 127  |  Page 128  |  Page 129  |  Page 130  |  Page 131  |  Page 132  |  Page 133  |  Page 134  |  Page 135  |  Page 136  |  Page 137  |  Page 138  |  Page 139  |  Page 140  |  Page 141  |  Page 142  |  Page 143  |  Page 144  |  Page 145  |  Page 146  |  Page 147  |  Page 148  |  Page 149  |  Page 150  |  Page 151  |  Page 152  |  Page 153  |  Page 154  |  Page 155  |  Page 156  |  Page 157  |  Page 158  |  Page 159  |  Page 160  |  Page 161  |  Page 162  |  Page 163  |  Page 164  |  Page 165  |  Page 166  |  Page 167  |  Page 168  |  Page 169  |  Page 170  |  Page 171  |  Page 172  |  Page 173  |  Page 174