Importance of having ideas

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I’m coming to grips with the fact that I’m a somewhat unpleasant person. I don’t really like vacations, for instance. They seem like stressful work to me. I can’t stand beaches and to drive for hours to have a meal with family members just doesn’t seem like such a hot idea.

Also I don’t like animals. I went to Petco with my kids and found the experience thoroughly disgusting. There were ferrets in cages and the place smelled. My kids were dying to get Rats magazine with “150 full colour pictures”. Who would write for such a magazine? What do they say at cocktail parties?

I love my kids but when it comes to helping them get up in the morning and feeding them etc, I’ll pass. That’s hard work. What I like to do is get up really early and take my waiter’s pad to the local café. I bought 500 waiter’s pads for 25 cents each online. Waiter pads are excellent for listing things and fit right in your pocket. I get a coffee, read my NY Post – er, Financial Times – and list ideas. I’ve been doing this every day without fail since mid-2002.

The ideas can be for anything: investments, trading systems, businesses, books, articles. Ideas for other people can be a good excuse to contact them, particularly if you don’t know them. I don’t hold back. It’s critical to exercise the “idea muscle” or it atrophies and take months, maybe years, of therapy to get strong again.

I started doing this in 2002 because I wanted to trade for a hedge fund and I also wanted to write. But when I wrote to hedge funds or publications I got zero response in spite of my resume as a fund manager, venture capitalist and entrepreneur.

So instead of asking for something I gave something instead. I wrote 20 e-mails to fund managers and publications, giving ideas for trading systems and articles. I received two responses. One was from Jim Cramer asking me if I wanted to write for thestreet.com.

I had written to him about something I called “preferred arbitrage”, the idea that there were preferred stocks at that time yielding 15 per cent-plus that were just as volatile as the underlying common stock. You could go long Duke Energy preferred, for instance, and short Duke and lock in the 15 per cent yield. I ended up writing about this for thestreet.com, which led to this column at the FT.

I wrote to a fund manager based in Connecticut with a system for trading futures when things were particularly volatile. He allocated some money for me and the trading system did very well. I started a fund of funds.

Two weeks ago I wrote an article here suggesting four new business ideas. It doesn’t matter whether they are good or bad ideas. I don’t care if anyone takes my ideas. It’s just important to keep having ideas. Here are a few more.

In the business model Red Hat applied to the Linux operating system, they said: Let’s make Linux enterprise friendly, even though it is a free operating system made by hundreds of random hackers. We’ll give it away but bundle in a service contract that includes maintenance and upgrades. Brilliant. Over the past 12 months it had almost $200m in cash flows.

So here’s the new idea. Most start-up internet companies, including one I started, Stockpickr.com, use free database software MySQL and PHP, a free programming language, to prototype and develop their applications quickly. (You can build a duplicate YouTube with them in three weeks.)

But PHP/MySQL is far from enterprise friendly. So let’s do with PHP/MySQL what Red Hat did for Linux. Make it enterprise-friendly and bundle in maintenance. If you make a small dent in Oracle and SAP (not that hard to do), it’s a multibillion-dollar company.

Here’s another one. It may be a bad idea – who knows? Nobody has ever created a national chain of falafel fast-food outlets. In New York city there are lines down the block for good falafel. But they are usually small, family-run places, very crowded and uncomfortable.

Give falafel the McDonald’s treatment, make each outlet the same, focus on the vegetables and the health aspects, streamline the process, give everyone uniforms, play top 20 music. Then take it national. You’ll have the Jamba Juice of falafel.

As an aside, I used to play chess in Washington Square Park with a guy who went by the name Falafel because that’s all he ate. He lived in a homeless shelter and always had grass in his hair. We would play for 50 cents a game.

Finally, he switched to backgammon and within two years became one of the best backgammon gamblers in the world, building up about $800,000 in winnings.

Falafel then lost it all gambling on sports in Las Vegas and now is in Iceland in a year-long “big backgammon game” where he’s slowly rebuilding his bankroll. But that’s another story.

james@formulacapital.com

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