Quantifying Bond Investing Risk

Bond investing continues to be an important component of well-diversified investment portfolios. However, like with any investing approach, problems lurk beneath the surface, possibly affecting returns and jeopardizing financial objectives. There are multiple sources which list out the key bond investing risks; the issue becomes how to quantify these risks.

First let's review key bond investing risks:

1. Interest Rate Risk

One of the primary perils in bond investing is interest rate risk. Bonds and interest rates share an inverse relationship - when interest rates rise, bond prices tend to fall, and vice versa. Over the past months we have been seeing this risk in action. As interest rates have risen above 5%; the value of existing bonds and bond index funds have dropped. Many times this has led to a portfolio loss as the drop in value exceeds any interest provided during the time period.

2. Credit Risk

Credit risk represents the possibility that the issuer of a bond might default on payments. Bonds issued by entities with lower credit ratings typically offer higher yields to compensate for the increased risk. However, this higher yield comes with a greater chance of default. It's essential for investors to conduct thorough research on an issuer's creditworthiness and diversify their bond holdings to mitigate the impact of potential defaults. Simply selecting bonds or bond mutal funds with the highest yields in an attempt to keep ahead of inflation is not a good strategy. Additionally, there is also an associated risk of rating downgrades for bonds that an investor is holding.

3. Inflation Risk

The buying power of future cash flows from fixed-income instruments such as bonds is eroded by inflation. While bonds provide a set interest rate, the buying power of these payments declines as inflation rises. Investing in long-term fixed-rate bonds can be particularly dangerous during inflationary periods since they lock in lower yields that may not keep pace with rising inflation.

4. Liquidity Risk

Liquidity risk pertains to the ease of buying or selling an asset without causing significant price changes. Some bonds, especially those issued by smaller entities or are thinly traded, might suffer from liquidity issues in market transactions. Especially in times of market stress or economic turmoil, liquidity can dry up.

5. Duration Risk

Duration risk assesses a bond's susceptibility to interest rate changes. Longer-term bonds are more vulnerable to interest rate variations, magnifying the impact of rate changes on their pricing. Longer-term bonds often offer higher yields, but they expose investors to greater volatility.

Other Risks

Other potential risks include reinvestment risk and callable bonds. Potentially an investor may have to reinvest at a lower rate than what the funds were previously earning. This is especially pertinent when a bond is callable and is called early -- which makes the event unexpected in terms of needing to scramble reinvest the funds at the current market bond interest rates.

Resources For Quantifying Bond Investing Risk

The question become how do you quantify bond risks. Quantifying bond investing risk involves a multifaceted approach, considering interest rate movements, credit quality, inflation, liquidity, and more. Utilizing online resources, understanding key metrics like duration, credit ratings, and yields, and employing risk management tools for your overall bond portfolio are crucial.

There is a need to evaluate at both individual bonds as well as your complete bond portfolio when evaluating your risk and exposure in the bond market.

The most useful resource as a starting point are available spreadsheets which focus on Bond Duration and Convexity. A bond's convexity measures the sensitivity of a bond's duration to changes in yield (the Price/Yield) relationship.

There are also bond spreadsheets available for download which focus on all aspects of a bond portfolio including maturity, type, credit quality, market yield curve to arrive at an overview of your bond holdings.

There are numerous resources which outline how to calculate yield and other bond attributes in Excel if you desire to roll your own spreadsheet including calculating PV (Present Value).

The intent of the above information is to provide pointers to possible resources. Fortunately for retail investors there are numerous tools, videos (YouTube, etc.) and website resources available to assist in learning about quantifying bond investing risk. At minimum you should use both a tool for evaluating individual bonds and a tool for evaluating your overall bond holding risk in your portfolio.

Unlocking Financial Success with CD Laddering

A significant concern in recent years is how to invest the fixed income component of your portfolio. Depending on your age, risk acceptance, and investment objectives, most people have 20% to 60% of their portfolio in fixed income investments such as bonds. 

Unfortunately, bonds have been doing terribly over recent years in a rising interest rate environment. For example, the S&P U.S. Aggregate Bond Index is down 4.8% over the past three years; this is painful when investors were getting a mere 3 or 4% yield on bonds during this overall period.   This leaves investors seeking an alternative investment to meet their fixed income objectives.

The best alternative is using CD Ladders.  It is not known where interest rates are going; however, the best bet from most market analysts is interest rates will continue to increase over the short term. 

Using a 2 year CD Ladder is a good method to ride out the short-term interest rate changes using a safe FDIC insured investment while also beating the rate of inflation.

Understanding CD Laddering

CD laddering is a strategy that involves spreading your savings across a series of CDs with varying maturity dates. The idea is to create a staggered or "ladder" structure, which allows you to access a portion of your funds at regular intervals while taking advantage of higher interest rates offered by longer-term CDs. As a the shorter team CDs mature; you will roll them into longer-team (the full-term time horizon for the ladder) CDs. Typically most investors consider a CD Ladder with a two year time frame as short-term time horizon, and a CD Ladder with a five year time frame as long-term.

There are numerous websites (including NerdWallet) which describe how to configure a CD Ladder in detail – plus many videos on YouTube.

Basic Description: How CD Laddering Works

1. Divide Your Savings: Typically you will split your savings into equal parts, but unequal parts may be used based on your investment objectives and views on the interest rate environment. These will be allocated to different CDs, each with a different maturity date.  
2. Choose CD Terms: Select CDs with varying term lengths, such as 3 months, 6 months, 9 months, 1 year, 18 months, 2 years, and so on.  For example, a 2 year CD ladder may include dividing your investments into 5 parts with 6 month, 9 month, 12 month, 18 month, and 2 year maturities.
3. Open the CDs: Purchase the CDs with your allocated funds. As each CD matures, typically you will reinvest it into a longer-term CD set at the full time horizon of the ladder (e.g. two year, five year).

Benefits of CD Laddering

CD laddering offers several advantages that make it an appealing savings strategy:

1. Liquidity: With staggered maturity dates, you have access to your funds at regular intervals. This liquidity can be crucial for unexpected expenses or to take advantage of investment opportunities if you decide not to simply rollover the money to a longer maturity CD.
2. Higher Returns: Longer-term CDs typically offer higher interest rates than shorter-term ones – but this is not currently true where the max yield seems to be at the 12 or 15 month benchmark generally. CD laddering allows you to capture these higher rates across a set time horizon while still being flexible.
3. Risk Mitigation: CDs are generally low-risk investments, making them a secure choice for your savings. Most are FDIC insured – even when they are brokered via Schwab or Fidelity.  A CD Ladder is much less risky than a bond fund or ETF.
4. Consistent Income: With regular CD maturation, you can create a reliable income stream if needed. For those of us who are retired this can be particularly valuable for providing a steady income str.
5. Savings Discipline: CD laddering encourages disciplined savings and investing, as you consistently reinvest or based on your needs access your funds according to your ladder's schedule.

A couple additional thoughts

• Consider setting your CDs for automatic renewal.  Most banks and brokerages allow this.  You can normally also select your re-investment maturity time period (e.g. rolling a 6 month CD upon maturity into a 2 year CD).
• Understand the penalties for early withdrawal.  Usually you will lose all or some of the interest you would have earned on the CD.

Rather than opening accounts at multiple banks in an attempt to get the best yields for different CD maturities and having to keep track of everything; there is a much better alternative.  Both Schwab and Fidelity offer FDIC insured brokered CDs from banks. You can search in their portals for the best yields for each maturity for new brokered CDs and perform all of your purchases in a single website. This makes tracking and following your CD ladder much easier; I also find that I get better yields since you can find the top yield across the U.S. when doing your purchase.

There are also numerous CD Ladder spreadsheets available online for download.  I am using the ExcelGeek's CD Ladder Spreadsheet to structure my 2 year CD Ladder strategy.  This spreadsheet can be downloaded as a zip file from - http://www.mdmproofing.com/iym/files/CD_Ladder.zip

There are also CD Ladder Calculator websites available online including -this one from Excel Bank - https://www.excel.bank/calculator/cd-ladder

 

 Interesting insights on Millennials wanting to retire at 50.

 https://www.userwalls.news/n/millennials-retire-50-afford-matter-3860838/

 

NYT - They All Retired Before They Hit 40. Then This Happened

The New York Times outlines the impact of the COVID-19 market crash on FIRE plans. Most FIRE plans made assumptions about strong, consistent market returns each & every year.  Nearly none of the FIRE strategies model scenarios where the market falls 30% and does not recover for a significant period of time.  Due to this many FIRE "retirements" are now in the flusher as well as suffering from travel restrictions to low cost areas to live (“geographic arbitrage).

As stated earlier - "The primary failure of FIRE is that it does not plan for low, medium, and high scenarios in regards to market returns and inflation."

NYT - They All Retired Before They Hit 40. Then This Happened
https://www.nytimes.com/2020/04/02/style/fire-movement-stock-market-coronavirus.html

Pouring Ice on FIRE

Over the past couple years there has been endless promotion of FIRE (Financial Independence, Retiring Early).  Many of the advocates outline how saving hard while minimizing expenses will allow you to retire early - often while you are only in your 30s. YouTube videos and media provide all the basic math showing stock market investments over a decade followed by a 4% withdrawal rate.

There are many positive concepts promoted by the FIRE movement including notions of minimizing debt, not buying new cars, investing in 401Ks and being frugal.  Some of these are generic ideas which make common sense for every generation.  Many of these concepts are covered in my "So You Want To Be a Millionaire" article from 2008 -- well before the FIRE movement appeared.

The primary short-coming of FIRE is that it does not consider all the possible events and complex (and likely) future scenarios.  In other words it is a simple "answer" for a "complex" problem.

Most FIRE promotional material do not account for the following:

• Medical Insurance costs when no longer covered by your employer.
• Medical Costs for serious illness (even when you have insurance it can be expensive)
• Losing a partner (divorce or death)
• Having Children (cost over $300,000 to raise each)
• Marriage (many FIRE proposals assume you will forever be single)
• Location issues (not being happy about where you moved for a low-cost lifestyle)
• Social Security - not getting significant payments due to not working 35 years

There has been a slew of recent articles that covered some of the FIRE drawbacks (and benefits) including the question of what to do after "retiring". A few articles are provided below:

• These people left their jobs behind to retire early — then life got in the way. Here’s how they coped with FIRE plans gone wrong
• I followed the path to FIRE — and learned that early retirement is the wrong goal
• 5 Myths About FIRE And Early Retirement That Just Won't Die
• 5 Things To Take From The FIRE Movement (Even If You Don’t Want To Retire Early)

The real problem with FIRE is that it does not take into account all the possible future scenarios.  What happens if inflation greatly increases? (Most millennials have never experienced this). What is the consumer index on many core consumer  items goes up greatly?  What happens if the stock market greatly under-performs? 

Most FIRE articles assume that the stock market will continue to perform well over a decade period before you start withdrawing money.  What happens if the market sinks for a decade?  The primary failure of FIRE is that it does not plan for low, medium, and high scenarios in regards to market returns and inflation.  Most FIRE planning scenarios are too simplistic; at minimum you should create a spreadsheet with assumptions about market returns, savings rate, inflation, and your expenses.  This spreadsheet should be easily alterable so that you can plan a low, medium, and high scenario for review.  Plan across all possible scenarios.

Most FIRE scenarios assume a fixed 4% withdrawal rate.  Withdrawal rates are a complex problem without a single fixed answer.  Individuals must take a look at withdrawals in more detail.  One good source of information is - The Ultimate Guide to Safe Withdrawal Rates – Part 19: Equity Glidepaths in Retirement

One other item to note is that many FIRE plans promote saving with 401Ks and IRAs.  Using 401Ks is important to get an employer match (effectively free money). The one detail that FIRE articles fail to usually mention is that while 401Ks / IRAs are tax-protected -- there are significant penalties for early withdrawal. Usually you will not be able to withdraw this money (without penalties) until long after you retired early.

While I agree with many of the investing and savings concepts driving the FIRE movement, there is a need to pour some ICE on FIRE due to the lack of effective scenario planning and the failure to account for common life events.

Welcome to 2020

The new decade has kicked off. Many economic headwinds remain in place including China tariffs, the U.S. manufacturing slowdown, an election year, and economic policy uncertainty.  A new heightened concern with events involving Iran in the Middle East is an addition to the list.

Despite the long bull run and macro-economic concerns that may tip over the stock indexes; the investment focus of Financial Insight will remain on long term planning for your personal economic future and how to ride out the market roller-coaster.

Over the upcoming weeks there will be articles that focus on:

• Retirement Planning
• 401K Diversification
• FIRE (Financial Independence, Retire Early)
• Stock Selection
• Social Security Guidance

There has been a continual set of articles in the mainstream media in recent days that has greatly amused me.  The media has bombarded us with assertions implying that it is critical that you write "2020" as the year rather than "20" - otherwise scammers will take advantage of you on monetary instruments such as checks. Even misinformed police departments have joined in the fray. Several outlets provided an example of a scammer turning a check with "20" on it to "2017".  I don't see how altering the date on a check (or other instrument) to "2017" will aid a scammer.  Most likely it will only make the check non-despositable due to not being cashed for three years. Most checks are good for a mere 6 months.

The 401K Diversification Article You MUST Read Today

My earlier Portfolio Diversification – 401K article provides an in-depth example of designing a diversified portfolio. I would urge everyone to read this previous comprehensive article today. It covers:

• MPT (Modern Portfolio Theory)
• Typical funds in corporate 401K plans
• Hard truths about size
• Active funds vrs. index funds
• Fund selection
• Risk Tolerance
• Portfolios by Age and Risk Tolerance
• Re-balancing
• 401k and Diversification Resources

How has my 401K performed?

It has been over a decade since the 401K Portfolio Diversification post; in this time I have regularly re-balanced the 401k account and adjusted it as my age increased.   My 401K has performed in-line with the the market indexes and expectations. In areas where active funds were used rather than index funds; actively-managed Small Cap Funds (SSMVX and successors) have out performed the indexes. Actively-managed Bond Funds and Foreign Stock funds generally have under-performed their indexes.  The under-performance of Bond funds was impacted by the low interest rate environment.

I stuck with my 401K portfolio and am generally pleased with the results over time.

The Repo Market

What is the Repo Market?  No, it is not the guy coming to repossess your automobile for those overdue payments.

The Repo Market is where over $3 Trillion in debt is financed each day worldwide. Repo is short for repurchase agreements.  Most transactions are effectively collateralized overnight short-term loans.

The U.S. Fed uses the Repo Market to temporarily extend credit in tight markets. 

Back on September 16th the federal Repo offering froze up, creating panic and fear. There was a mismatch in cash flowing out with securities coming in; this created a crunch for those needing cash driving up interest rates to above 10% which were normally at 2%.

To address the problem the U.S. Fed load out $75 Billion a day in cash over 4 days until the markets settled down.

Many, including the Fed, concluded in the immediate aftermath that two transitory events collided: investors used repo to finance the purchase of a large batch of newly auctioned Treasuries at the same time that quarterly corporate tax payments drained liquidity from that market.  This combination of newly auctioned Treasuries and quarterly corporate tax payments is occurring this week again leading to a microscope being applied to the Repo market.

The BIS (Bank for International Settlements) issued a report outlining broader concerns about the U.S. Repo Market - September stress in dollar repo markets: passing or structural?

Four banks (Citigroup, JPMorgan Chase, Bank of America, and Wells Fargo) that dominate the U.S Fed Repo market hold about 25% of the reserves in the U.S. banking system, but 50% of the Treasuries. This creates a concentration that is apt for problems. 

There are many financial pundits and media outlets outlining fears that the Fed Repo crisis may be a bigger issue in December, and the September events were only a preview.

In the recent weekend the U.S. Fed has added billions in liquidity in an attempt to forestall any potential crisis. CNBC and other outlets covered the Feds weekend purchase operations in depth. The New York Fed issued an unusual statement about repurchase operations. 

How will the situation shake out this week in December and in the upcoming year? Only time will tell.  It appears the U.S. Fed is attempting to get ahead of the situation by providing more cash liquidity before critical junctures.

In Retrospective - 130/30 Funds

Back in 2007, 130/30 Funds were hyped as the next great thing in the market. As the market tumbled a dozen years ago the concept of a fund that would generate profits in both rising and falling markets was a sales pitch that hit appealed to the pain investors were encountering at this time.

Multiple mutual fund families immediately offered 130/30 Funds mirroring hedge funds. The mutual funds launched marketing campaigns in 2007 worked to draw in investors based on downside fear - many remembering the 2000/2001 decline. Some ads implied investors would profit greatly in both rising and falling markets.

As outlined earlier, 130/30 funds allow managers to short-sell up to 30% of their portfolios, and use the proceeds to buy an extra 30% long. The funds both use leverage and short-selling.

Now over a decade later - how have 130/30 Funds fared?   Back at that time I was very skeptical of 130/30 Funds. The results demonstrate I was quite right to question these 130/30 Funds as nothing more than a marketing gimmick with the intent of generating out sized fees for financial institutions.

Since 2008 the financial press has covered the decline of 130/30 Funds.   However now in 2019 as we seem to be approaching a market peak new 130/30 Funds are now again being offered.  One example is JPM and UBS unveil 130/30 funds.

A long list of media has demonstrated the gimmicks and decline of 130/30 Funds as they greatly under-performed the related index put forward by Andrew Lo of the Massachusetts Institute of Technology and Pankaj Patel of Credit Suisse and merely served as a payday for money managers.  A sampling of media 130/30 Fund articles include:

The decline, fall and afterlife of 130/30
https://www.ft.com/content/fdbf6284-b724-11e2-841e-00144feabdc0

130/30 Funds: 130% Gimmick/30% Good Idea
https://www.morningstar.com/articles/287506/13030-funds-130-gimmick30-good-ideak/30% Good Idea

130/30 Mutual Funds: Don’t Believe the Hype
https://investorsolutions.com/2012/09/28/13030-mutual-funds-dont-believe-the-hype-3/

A Hot Fund Design Turns Cold
https://www.wsj.com/articles/SB10001424052748704388504575419642095323262


Now that 130/30 Funds are being pushed by brokerages again, don't fall for the hype. Stick with your long term investment plan with proper diversification, low fees, and a long term view.

How to get Rich in the Stock Market

There has been all sorts of media, companies and individuals pushing methods of "getting rich in the stock market".  The proposed strategies range from stock picking to trading, all the way out to using esoteric long/short hedging strategies with options & futures.

The reality is that there is only one guaranteed method to get rich in the stock market. It involves time, diversification, low-cost funds, continuous investment, and patience.

1) Time
The first factor is time; you will need to be focused on the long term.  Success in the stock market is not based on the next quarter or year, but the expectation for results over long periods of time akin to decades.

2) Diversification
It is important to be properly diversified based on your investment objectives, accepted risk tolerance, and time frames.  You should be diversified across domestic stocks, international stocks, growth/income, and company size.  The is also need for a balance between stocks, bonds, and other investments based on your age and objectives. There are many articles available that discuss proper diversification including - Why Diversification Is Important in Investing.

My earlier thoughts on 401K diversification can be found here - https://www.gregboop.com/2007/02/portfolio-diversification-401k.html

3) Low-cost Funds
Investment costs such as mutual fund fees can eat into a good portion of your returns over time.  Funds with high fees don't offer better returns over time than index funds -- in fact many times their returns are worse than index funds.  It is best to find mutual funds that mirror indexes offered from funds families such an Vanguard, Fidelity, and Schwab. Mutual Fund marketing fees, front end load fees, back end load fee and other assorted fees merely make financial people rich -- they don't help you are all. 

4) Continuous Investment
The market goes through many cycles.  By investing regularly - for example adding money each paycheck to a 401K or IRA - you are riding the cycle.  When the market pulls back you are buying more at lower cost; when the market rises you are making solid returns on what you have purchased over time.   Continuous investment provides a safety cushion for market cycles; it is a much better strategy than simply purchasing funds at one point in time.   If you buy at the peak with all of your cash it is a harder climb to get solid investment returns.

5) Patience
Be willing to hold on an ride out market cycles.  Do not panic when the market goes down.  Do not take a lot of money out simply because the market is up (trying to time the market).  You need to have a long term view and be patient.  Getting "rich" in the stock market is a long term "play" not something that happens by next year.

Even the AARP is wondering "How much longer will Social Security be around?"

While the media continues to spew headlines proclaiming the death of pension plans   ('It's really over': Corporate pensions head for extinction as nature of retirement plans changes)- an event for most corporations which occurred over two decades ago; there is minimal mainstream press over the risk of depending on Social Security in retirement and what planning actions you should take.

There have been numerous articles outlining how the system will run through its reserve assets by 2035 and will need to reduce payments if nothing is done (AARP: How much longer will Social Security be around?) and multiple politicians running for office in 2020 have proposed plans for "saving" social security.  The bottom line is there has been no action in Washington D.C. for two decades.  Either there must be a increase in the portion of salary taxed and/or for an increase in the ceiling on the amount of salary that is taxed.

This lack of political action, of course, has left the Social Security system in a unfortunate position where it will not be able to fulfill its obligations starting in 2035 (according to the 2019 Trustee Report). "OASI would be able to pay 77% of promised benefits when funds are depleted in 2034" according to USA Today What happens when Social Security goes broke?

The action needed in your retirement planning

The bottom line is that with no mechanism to rescue Social Security in place you should be expecting payment cuts of 23% in whatever payments you expect out of Social Security out in 2035 Your retirement planning should include this expectation plus the assumption of no cost of living increases.

Any retirement plan evaluating cash flow in your later years should have this assumption in place as one of the scenarios to be evaluated.

Trimming Underperforming Stocks from your Portfolio

A majority of the stocks in my portfolio have done well over time. There are a few under-performers in the mix; I have admittedly been lax about trimming them and trading them out over the years.  There are the usual rash of rationalizations I make; they will come back or they represent a particular diversification that is desired.

One stock I failed to trim for over a decade now is Gannett Co., Inc. (GCI).  I purchased GCI in Dec 2007 at the upper 30s in price; now it is at a mere 6 bucks.

Gannett does represent a particular niche in my portfolio.  It is in a tax protected account with a diversified portfolio of stocks focused on strong dividend yield using stocks that allow dividend re-investment into more shares.

Gannett is in a tough industry that has been steadily declining; newspaper publishing.  Back in 2007 there was still a glimmer of hope that newspapers would adapt in a digital world and come back - not so much anymore a dozen years later.

Still GCI represents a diversification point in my portfolio; it is the only individual stock that covers paper-based media.   It still has a a strong dividend yield; with the stock price down at $5.97 the forward yield is an astounding 23.38% (based on $1.52 yield).  However even with this yield the drop in stock price over time nearly wipes out the yield returns - when calculating quarter by quarter.

On top of this back in mid-November shareholders of Gannett Co. Inc. (NYSE: GCI) signed off on a roughly $1.2 billion proposal for the McLean company to be acquired by the parent company of rival GateHouse Media.  I doubt that the new company will still offer very high dividend yield; this further drives the plan to bail out of paper media stock and rotate into another sector.

The time has come to trim GCI and a few other under performers that I have held onto for more than a decade. My New Year's resolution will be to do this in January... or is this just a way of procrastinating and putting this off for yet another month.

One interesting point will be to compare my portfolio of dividend focused stocks to a mutual fund (or index) that follows the same strategy and see how the performance compares over a decade.  Have I beat the indexes with my stock-picking or not -- this will be an upcoming subject next year when I finally rotate out of the under-performers.

An Explanation of the Business/Consumer Cycle

Gummy Stuff Archive of Financial Spreadsheets and Tutorials

Gummy Stuff is a large number of financial spreadsheets and tutorials created by Peter Ponzo after he retired from the University of Waterloo.

An archive of the information he created can be found at - https://www.financialwisdomforum.org/gummy-stuff/gummy_stuff.htm
 
A modern version of his tutorial list can be found at - https://www.financialwisdomforum.org/gummy-stuff-tutorials/

Gummy Stuff is a great resource for financial information and valuable spreadsheet resource.  It is all free!  I urge people to check it out.

Retirement Calculators

I have finally reached the point in life where I am looking for retirement calculators.  Maybe this is just wishful thinking because there is someway to go before I am eligible for social security.

Along the way I have been searching for online retirement calculators and articles.  I have created a spreadsheet for savings, investments, and spending by year -- which at some point when its perfected I will post.

In the meantime I found a good article which references several good on-line retirement calculators.

5 Excellent Retirement Calculators (And All Are Free)

https://www.forbes.com/sites/robertberger/2015/07/12/5-excellent-retirement-calculators-and-all-are-free/#7631ca374d1c

An uphill struggle for Ford in China

Even as the trade standoff heats up Ford is not giving up in its efforts in the Chinese market. Over the past decades the market has been a tough nut for the U.S. automakers to crack.  Despite all of this Ford is still pushing forward but never gaining more than a 5% market share.

Ford’s battle to turn around its China business

https://www.cnbc.com/2019/12/03/fords-battle-to-turn-around-its-china-business.html

Cyber Monday looking up

Cyber Monday surges to $9.4B in sales

 https://www.foxbusiness.com/retail/cyber-monday-sales-record

Tariffs now appear to be a significant headwind for the economy and market

How the market sell-off could get much worse: ‘Better put on your helmet’

https://www.cnbc.com/2019/12/03/how-the-market-sell-off-could-get-worse-better-put-on-your-helmet.html 

D-Wave - Has the future of quantum computing arrived?

"D-Wave, the company that built the thing, calls it the world's first quantum computer."

Google’s Quantum Computer Proven To Be Real Thing (Almost)

It appears that quantum computing is making great strides. Will these devices be common in the next 20 years?  Imagine the computing power offered for commercial, financial, and military applications by these systems.

The importance of retention - Verizon Wireless

Follow-up:

Today I was contacted by a very polite and helpful lady from the Verizon Wireless executive office. She apologized for the issues I experienced and provided a $100 credit to our account.  This quick response is excellent in view that the new iPhone is expected to arrive tomorrow.  I would like to thank Verizon Wireless for coming through - I guess my value as a customer is not a mere 5 bucks but 100%.  I will have to eat my words (or spend the $5 on a happy meal).

Let me say that I always have had a good experience with Verizon Wireless voice and data service. When visiting Verizon stores - the service has always been great. Our family has had a few billing and broken phone bumps along the way - but things always were worked out with Verizon.  In this particular situation we were racing against the clock because the phone was shortly going to be delivered and potentially declined. Let me mention that I am not a customer that calls up and complains very often.  Many times Verizon probably goes for a couple of years without hearing from us.

Several people submitted blog comments that I am not going to publish. Most were very negative. Please let me say that I do not view large phone and cable companies as "evil". They are large entities that sometimes make mistakes (I make mistakes also). However they have many people who work in these large firms - just like you and me - who are doing their best with a large workload. Many times they endure issues common inside large entities while striving to help us.

Someone asked if I regret going public. Well, a little bit - I would prefer my public commentary to be focused on finance and technology summaries rather than my customer service issues.  However in this case, I think the blog post was helpful in solving the problem.

Another asked if I was a little harsh - yeah maybe a bit. Would it have been better possibly to focus on retention formula math, market segmentation/cross-over, and next best action - turning this into business process management essay? It would be an educational post but I am not quite sure how effective it would be in directly resolving my particular issue.

Once again - Thank you to the folks at Verizon for addressing my problem.



--------------------------------- Original Post --------------------------------------------------

Many times I wonder if large companies value the retention of high value customers. My recent experience with Verizon Wireless demonstrates that they don't.  I have been a Verizon Wireless customer since the early 90s through all the mergers (Alltel, 360 Comm, etc.). As a family account spending over $6K per year with international travel, etc. - we have got to be in the top 1% of non-business accounts for revenue. From any "Customer Lifetime Value" perspective, our account should be ranked near the top.

What does this mean to Verizon in terms of customer retention?  Nothing 

Sadly, I am in the technology side of business that is focused on helping large corporations retain and service their customers.  I know all cell phone companies have the tools I have implemented. Regrettably and obviously they are not using the functionality in making decisions.

I have endured a lot of issues with cell phone service over the years and previously politely & privately worked things out -- and never gone public with phone service complaints, but this is the straw that is breaking the camel's back for our family. Let me explain the situation and get people's feedback:

Our family plans to upgrade my wife's old non-smart phone to an iPhone 5.  There are many links online to Verizon offering an upgrade of existing customers from a 'dumb phone' to an iPhone 5 for $100 instead of the normal iPhone price of $200. We went online and attempted to fulfill the deal at the Verizon Wireless website but the only the full price is shown. We started a Verizon support chat session that confirmed the deal exists. The rep told us to buy the phone and call customer support to get the discount.  Immediately we called the customer support center, and they confirmed the deal existed and initially stated they would fulfill the deal.  After a long period time they came back and said the computer would not fulfill the deal.  At this point we told Verizon to cancel the phone order since the phone is offered for $150 at other retailers such as Best Buy. The phone rep confirmed the order was cancelled and stated the account would be credited $5 for our trouble. (5 bucks when spending $500 per month is meaningless BTW).

Several hours later we get an email stating the phone has shipped and charged the full price. We call into Verizon and they state that we are being charged for the phone and the only way to remedy the situation was to reject the delivery of the phone when the package service drops it off.

After this I posted to Facebook and Twitter expressing my disappointment.  During the exchange I have sent Verizon chat log confirming the $100 iPhone upgrade - which appears to only have served to get the chat  representative in trouble rather than having Verizon honor their commitments.

I will note that this is only the second time I have gone public with a customer service situation (the previous time was with Lowe's who resolved the situation immediately to my complete satisfaction). The only response from Verizon was a phone call from a social media representative confirming they would not honor the $100 iPhone deal.  Despite multiple calls to the support center - no supervisor has ever called back despite commitments that this would occur.

Let me explain what the social media representative's call should have been all about - "We are very sorry for the trouble. This one time we will give you a $100 credit for your experience. Please tell everyone how Verizon came through and set the situation right". This would have been an example of a company coming through to 'save' a situation and make a vocal high value customer happy - and may have generated a positive social networking response. Instead the call was simply to tell us that Verizon would not honor the commitment and that somehow we were in the wrong.

From a broader perspective if Verizon had immediately stated "sorry we cannot honor the $100 iPhone 5 pricing" instead of confirming the deal in both a chat log and on a phone call - then I could have just walked away and not ordered the phone. However after spending hours on the phone and having the phone shipped out despite cancelling the order - I am completely unhappy. Now Verizon is facing a customer retention issue and the reality that a large number of people will hear this story.... which at this point does not have a positive outcome.

I am not a customer who only spends a small amount on cell phone services each year; nor am I requesting anything ridiculous. I am only asking that Verizon steps up and honors its commitment for the $100 price before the phone arrives - otherwise I will need to be here to reject delivery (costing a day of work).

Any type of retention tool would demonstrate that for $100 I am a long term customer worth keeping and that the cost of widespread exposure on social media merits honoring the commitment.

Please let me say that I greatly respect the work that call center and chat representatives do - they have a very difficult job and I am always very polite (and I urge others always to be polite).  I question however a corporate bureaucracy that does not value the retention of high value customers and does not provide the tools to representatives to identify and retain these customers.

What is the upside to all of this?  At least I know now exactly what a loyal twenty-year high-revenue customer is worth to Verizon. I am worth 5 bucks. Not 10 bucks. Not 100 bucks. I'm worth less to Verizon than a drink at Starbucks or a meal at McDonalds.