Monthly Archives: May 2014

Leave the Ivy League Grads Alone

Radio Derb 5/31/2014

Derb’s erudition and clever one-liners cannot salvage what otherwise tends to be a slow and boring podcast. The problem with the topical news format is the news is either boring or has already been covered in every conceivable angle by other pundits by the time Derb gets to it. While Derb can be funny, he’s not in the league of professional comics and he doesn’t have a staff of writers; so given the material and the radio medium, there isn’t much to work with. It’s not an insult at Derb, but maybe he needs to find a way to speed up the delivery or maybe change the content to be less about the news and more about whatever is on his mind. Maybe have callers or guests.

At the end of the podcast he takes a jab at Ivy League graduates

Today’s Ivy League students are tomorrow’s highest income earners and society’s future business, technology and economic leaders. They create the cool technologies and apps that millions of Americans use today, while getting instantly wealthy in the process. Going to a no-name college or no college is a track for mediocrity, unless you otherwise have superior intellect and work ethic to compensate. Like their war on the 1% and finance, Liberals are waging war against the elite of higher education because higher education is contributing to wealth inequality, reminiscent of how the far-left communist leaders of the last century persecuted the intelligentsia. Liberals want America to be poor and dumb. They are blaming colleges, employers and student loan issuers for the bad choices of students that didn’t choose high enough paying majors or get into good enough school. Derb cites a study that most Ivy League students identify as liberal, but the ideological mix is about the same as found in most colleges; secondly, people without a high school education more likely identify as liberal whereas those with some college or a degree are more likely to identify as conservative:

This could explain how the populist, anti-establishment left is not as entrenched in higher education as some conservatives may want to believe, nor are democrats the smarter and more educated political party that they purport to be.

As explained in Is College a Scam?, getting into an elite college is valuable not for the degree, but because it signals to employers that the applicant has superior cognitive abilities, because elite colleges, unlike the vast majority of colleges, specifically screen for the best and brightest among a very large and growing applicant pool. The is the anathema of the left because they want to believe everyone is equal when that’s just not the case. Some people are better adapted for success in today’s economic environment and therefore become wealthy while others fail to participate in the recovery and stay poor or just get by.

The problem is people like John Derbyshire that otherwise identify as conservative joining the ‘woe is me, let’s blame the elite’ chorus of the left.

Weak GDP? No Problem

U.S. economy shrank at 1% annual pace in 1Q

Daniel Gross, correctly, disabuses the fear of a double dip recession

Economic data is, by in large, worthless in terms of investing and forecasting. It’s backward looking and tells you nothing about future data. If you base your investing decisions on economic data, you will sell at the bottom and buy at the top, guaranteed. It’s just ambient noise that can be ignored, like radio static or the humm of fluorescent lights. The left get hung up over GDP and job creation, but to Wall St. those things aren’t important, especially not since 2009. Wall St. would rather have less job creation and weaker GDP growth in exchange for more accommodating fed policy, and that has pretty much been the story of this bull market.

Changes in private inventories reduced economic growth by 1.62 percent in the first quarter. But the good news is that personal consumption expenditures rose 3.3 percent from the fourth quarter of 2013 to the first quarter of 2014. Wall St. cares more about consumer spending than inventories. Also in the first quarter of 2011, the economy shrank at a 1.3 percent annual rate, but there was no recession and the stock market is up a massive 40% since then, again showing that the connection between GDP growth and equities is tenuous at best. Thanks to a myriad of factors such as the indefatigable consumer and super-effective fed policy, we live an age of long business cycles. The last two economic expansions lasted 73 months and 120 months, respectively. Within those long stretches of growth, there were quarters when the economy grew rapidly and quarters in which it shrank or flat-lined. What matters is that the economy is growing, and to Wall St., a little bit of growth, non-existent bond inflation and forever accommodating fed policy is all that’s needed to levitate stocks.

The left wishes that the consumer would be maxed out to agree with their ‘we are doomed’ narrative, but that’s never going to happen. The left has been front-running the demise of the consumer since 2009, to no avail. Wages are sticky and consumers can draw capital from rising real estate and credit cards, and even when they are fearful of being fired or lacking in confidence, they still keep spending. The left wants pain at the pump to hurt the economy ,so that they can blame speculators. But even if speculators are contributing to rising commodity and energy prices, it’s not hurting profits and earnings so the left’s desired result – a recession – is averted, yet again. $120 oil and $4.5 gas will hurt democrats in the midterms, but not the economy. Stocks will surge in anticipation of massive losses for the democrats, which could explain the current rally now. I, for one, hope pain at the pump gets worse so that libs lose. But higher gas and energy prices will contribute to consumer spending. As shown below, falling energy prices contributed to the weak GDP reading:

A Huge Bull Market

This stock market is incapable of going lower. This bull market may last for 20 years without a single 20% correction – a possibility given the endless liquidity, technological progress, blowout profits & earnings, globalization and the usual factors that have shown no signs of slowing.

Additionally, this is the second greatest bull market in the past half century in terms of gains and duration, surpassed only by the 1990-1997 one. To put that in perspective, in the last 18 months alone, the S&P 500 gained almost 66% of the entire 2002-2007 bull market, as denoted by the orange boxes:

Even more impressive, the total gains in the S&P 500 from the March 2009 lows – about 1200 points – is about the same number of points gained between 1995-2000, or what most people would consider to be the greatest economic boom ever:

But we’re actually in a greater economic boom than in the 90′s, even though to most Americans it feels like we’re still in recession. Maybe instead of an economic boom, a more accurate term would be a ‘wealth creation boom’, because GDP is still mediocre. The present macroeconomic backdrop is more conducive to further gains in the stock market than probably any prior decade in recent American history. Unlike in the late 90′s, valuations are still low and interest rates are never going up again. We have huge globalization, an emergent middle class of over 6 billion consumers, and technological progress that in the 90′s was only in its infancy. Multinationals and drug companies have more cash than they know what to do with, so they are merging and buying back stock. We have Facebook, Netflix, Twitter, Snapchat, and other companies changing the world and making their founders and investors obscenely wealthy in a very short period of time. A wealth creation boom that makes the robber barons and railroad tycoons of the 20′s look like pikers by comparison. Without equivocation, we’re in a new gilded age, but it won’t end in crisis or depression. Nope. It will keep going beyond anyone’s wildest expectations. People gaze in awe at the edifices erected as ostentatious displays of wealth and grandeur, like the Pyramids of Giza or the the Hearst Castle, but in space.

Ignore the News and Keep Buying Stocks on the Dips

The Fly Writes:

For the better part of 5 years now, the stock market has been rising, fueled by Federal Reserve asset purchases AND corporate profits. Our largest corporations have performed coups abroad, taken over whole cities, established governments, without firing a single shot. From my vantage point, from any vantage point, I’d say there is money to be made from all of this modern day colonialism.

Couldn’t have said it better myself, except for the part about colonialism, which doesn’t make sense because foreign policy under Obama has generally been non-interventionist. Maybe ‘gilded age’ or ‘wealth boom’ would be more accurate.

In agreement with our predictions in 2011, we’re still in a great moderation – a period of unprecedented wealth creation and economic growth that will continue, uninterrupted, for many, many more years to come. Economic historians will view the banking problem of 2008 as a turning point for when the American economy finally threw off the shackles of interest rate hikes and under-productivity, in much the same way creating the federal reserve and then much later ending the gold standard helped the economy by turning the boom/bust cycle into mostly a boom cycle with very brief busts. People, especially smart people, are getting richer than ever. Never before as it been easier to get rich with stocks and real estate. Thank the fed for that, along with the U.S. consumer.

The doom and gloom media wants you to be poor, for you to sell your stocks too soon and cower in fear. Ignore the media. Throw away your newspaper. Turn off your TV & radio. Click your browser’s back button or close the window on that minutia-filled news site. Here’s the rule of thumb: 99% of the time, what is supposed to be a crisis is just hot air. The media’s modus operandi is to take these embers (China/Japan,Crimea, Russia, Thailand) and try to fan them into a full-blown crisis for ratings. It’s all crap. A fishing boat is sunk and the market rallies anyway. European elections went without a hitch.; the right guys won. If you give the media the attention it seeks, it will deplete you of the time and energy for more productive and enjoyable tasks. Think about that person you know that oblivious to the news. Is he racked with anxiety about not being fully informed, or is he enjoying life? To some, this philosophy may seem provincial and narrow-minded, but it’s really about time management. Do you really have the time to worry about everything is going on in the world when you have absolutely no control over its outcome?

But what about slow economic growth? The left has been sounding the false alarm about the alleged crisis of slow growth since 2009.No one cares about slow growth. Wall St. would rather have slow growth than too much growth and fed tightening. What matters is that profits & earnings keep being blowout. Here are some facts to consider: U.S. GDP growth is still greater than that of Europe, and secondly, GDP growth has returned to pre-2008 levels.

Racial Matters

From Ta-Nehisi Coates’ Reparations article:

Reparations—by which I mean the full acceptance of our collective biography and its consequences—is the price we must pay to see ourselves squarely

Isn’t that the function of MLK day, the Civil Rights Act, and black history month?

Furthermore, black people get monetary reparations through record entitlement spending and government employment. Nearly 21 percent of the nation’s working black adults hold government jobs, as compared to 17 percent of white workers.

The real estate angle is to deflect attention from his otherwise untenable thesis. There exist laws that prohibit housing discrimination under the 1968 Fair Housing Act. He mentions that the Fair Housing Act could be threatened, but the problem is he’s invoking the slippery slope fallacy.

He’s created this abstract definition of reparations that makes any discussion on a singular premise impossible. Like OWS, he has no concrete demands and is otherwise just making noise for clicks and page views. If that was his goal, he succeeded.

Since we already touched the metaphorical stove in discussing contentious subjects such as race, why not go all the way. From iSteve How white are blacks? How black are whites?

The left doesn’t necessarily deny that biological race or taxonomy exists; instead, they deny that some people are biologically better adapted for modern society than others. By ‘some people’ we don’t necessarily mean a particular race, but anyone. By adaptation to modern society, we mean IQ, critical thinking, and other skills and traits that have become invaluable in today’s super-competitive economic environment, which we call the smartist era.

The Daily View: Crony Capitalism, Fallacy of Composition, and Compromise

From The American Conservative: The Tricky Politics of Fighting Crony Capitalism

For a website with the title Conservative, it sure seems to advocate a lot of liberal positions on issues ranging from domestic spying, foreign policy and crony capitalism. Liberalism is a bigger threat than crony capitalism. One could make the argument that crony capitalism, if used to promote pro-growth policy, represents a near optimal transfer of capital that otherwise wouldn’t occur. Consider Tesla, for example, that was given a $500 million loan and is now worth over $30 billion, having replayed the loan in 2013. That’s a pretty damn good ROI and an example of how crony capitalism can create wealth. Defense contracts have helped keep America safe since 911. These liberals masquerading as conservatives want to keep America’s borders secure with fences and guards but it’s digital networks porous by neutering the NSA and the homeland security. Just as terrorists can physically cross a border, they can also communicate and recruit through the phone and internet. Even Murray Rothbard, Ayn Rand and Milton Friedman understood the need for a strong police and military, ‘The only proper purpose of a government is to protect man’s rights.’

From Captain Capitalism: How Liberals and Leftists Inability to Adhere to Math and Logic Proves They Are Mentally Damaged

We agree about liberals being stupid. Most liberals pass air from ear to ear, but regarding the debt, the U.S. is not a household. To make such an analogy is called the fallacy of composition. The U.S. government, unlike a household, is perpetual. It can keep rolling its debt indefinitely, unlike an individual whose debt is discharged upon death. The GOP of today is making the mistake of echoing the antiestablishmentism of the 60′s counterculture ‘new left’, except the ‘man’ is the federal reserve and the NSA. We’re pragmatists and utilitarians, meaning we support policy that enables flouring on an economic and personal level (Eudaimonia). In agreement with conservative thought, we believe in personal responsibility instead of blaming the the rich, student loan companies, the fed, congress, or whatever. The problem is now some conservative and libertarian types are now blaming the fed, just like liberals blame the rich. But it’s still playing the blame game. Like the left, they are attacking wealth creation, except not by wanting to raise taxes or impose regulation, but by ending the fed programs such as QE that has proven so successful in creating wealth in the stock market, web 2.0, and the real estate boom. ‘Ending the fed’, jacking up interest rates to 5% or abruptly ending QE will cause the same wealth destruction – if not more – than raising taxes. So even though you call yourself a conservative or libertarian, your policy will have the same effect of hurting the 1% – the most productive and important members of society. The GOP didn’t used to be so pessimistic and angry about the economy, higher education, the American dream, or the youth. As we wrote last week, the GOP must return to the pro-growth policy and optimism that lead to the election of Reagan and Bush and abandon this recent obsession with deficits, the fed, NSA, etc.

Dear Stupid Students, America Can’t Afford Your Stupidity

In the second video, he’s correct about how it behooves the borrower to take personal responsibility as well as the necessity of reading the fine print and understanding compound interest and other financial terms before signing for a loan. We disagree in trying to draw parallels between student loan bailouts and bank bailouts; while we agree that student loan borrowers don’t deserve a bailout, Wall St. did because they create more economic value and there is much greater systemic risk in letting key financial institutions drown than individual borrowers. It may not seem fair to pick winners and losers, but it’s price to pay to have a huge economic recovery and a huge bull market. Governing is about compromise and trade-offs. Sometimes the best solution is the one that makes no one happy.

The Daily View: Debt, The Intelligentsia, Economic Compromise, Praise for the Do-Nothing Congress

Foreign Holdings of U.S. Treasuries

This is why the debt binge is sustainable and why bonds and stocks are rallying together. Part of what makes America exceptional is not just its superior economy or superior military, but the great demand for its debt, especially compared to other countries. The left wants a debt crisis, but it refuses to happen.

America Dumbs Down: A rising tide of anti-intellectual thinking

America dumbing down? Hardly. IQ and being smart is more important than ever. Try telling someone they are dumb and watch them become offended.

Smart people are among the most important and respected people in the world. They have the most Karma on Reddit, the most points on sites like Stack Exchange, the highest reputation on forums, and most views on YouTube for technical, artsy, or philosophical subjects. They have the credentials – SAT scores and degrees – to lend their expertise in a variety of fields and are showered with accolades for their selflessness and fastidiousness. For example, recently on Reddit someone asked how many photons would reach Mars from a flashlight beamed from earth. The number one reply with the solution got a staggering 3800 up-votes- more than any post I’ve seen, including posts by A-list celebrities and for a topic that is rather esoteric even by Reddit standards. That should give you an idea of how much intelligence is prized in the smartist era – an era of forever rising stock prices, a greater moderation, and people getting richer than ever. On average, the cognitive elite are rewarded with the highest of wages, despite occasionally complaining about their intellectual gifts being unappreciated by society or underutilized by their employers. They use words like consanguineous in casual conversation. Smart people are displacing ‘old money’ on the Forbes 400 list, getting their web 2.0 companies valued or acquired for billions of dollars, watching their stocks and real estate zoom into the stratosphere – even as real wages for most people haven’t budged. A meritocracy optimized by Bay Area tech scene or the financial cognoscenti of New York, where erudition, wealth and the specter of all-knowing omnipotence is valued.

What sociologists call cultural capital has been surpassed by intellectual or cognitive capital. Digital capital as measured by points, reputation, karma is redeemable in the offline world in the form of a job, promotion or designated authority status. The distinction between your online and offline presence is becoming blurred, where what you do online affects the real world, sometimes with devastating consequences.

Poll: 47% of Unemployed Have ‘Completely Given Up’ Looking for a Job

They give up because it may be rational, in economic terms, to collect benefits such as social security, disability and welfare. Work isn’t free in terms of opportunity costs, loss of benefits, and actual expenses like gas and daycare.

This economic boom underscores the importance of tradeoffs and compromise – lower wages for bigger profits, less employment for lower interest rates. Consider the trolley car thought experiment; metaphorically speaking, most of us are fat men that need to lay down on the tracks – either forcibly or at our own volition – for the good of the economy, by accepting lower wages and less benefits. Job loss is one of those things that makes our economy more dynamic compared to Europe or Japan.

Politics Is More Broken Than Ever—Political Scientists Need to Admit It

Let’s give the do-nothing congress a round of applause. It’s good that politics is broken. That limits the damage that liberals can do. History shows that when politics works too well terrible things can happen. The best government is one where pro-growth policy and free market capitalism is maintained, but neither side can quite get what they want. A low congressional approval rating is paradoxically a bullish economic indicator. Congress does a good job during crisis such as ordering air strikes on Afghanistan after 911, the establishment of the dept. of homeland security, swearing in of Beranke, Robberts, Petraeus and Alito, passing the Bush tax cuts, passing TARP, but otherwise should do as little as possible. Liberals want congress to pass policy that will hurt economic growth and make America less safe.

Is College a Scam?

From Ep. 21 College is a Scam

With just a five percent acceptance rate and a policy of only admitting the best and the brightest, getting into Harvard (or any Ivy League school) signals to employers that the applicant has above average to genius level intellect; no diploma is necessary to prove his or her intellectual worthiness. A high SAT or IQ score will also suffice. Then it’s not surprising that someone such as Bill Gates that goes to Harvard but doesn’t finish would be as successful – if not more – than someone with a degree by virtue of being smart enough to get into Harvard. Let’s cut to the chase: James Altucher is a genius, having scored high enough on the SAT at the age of 13 to be admitted to a special program as well as in 1995 learning Perl in just a single afternoon to set up a website for a client. For someone without his level of giftedness, college may be necessary to distinguish oneself from other applicants in what has become a permanently hyper-competitive economic environment.

James repeatedly mentions a $200-300 thousand figure for individual student loan debt when, in fact, the actual number is on average just $24,000. That’s still a lot – or enough to buy a decent car- but unlike a car, the value of of a degree only appreciates due to inflation. It’s slightly disingenuous that he doesn’t cite the more typical numbers, but chooses only the highest possible tuition to make his point more valid.

There’s evidence that an expensive STEM degree – in particular computer science – from an elite college is worth the money. However, James mentions that his computer science degree didn’t help at HBO, but did he consider that being accepted to Cornell and then the equally prestigious Carnegie Mellon computer science program was a contributing factor in getting the job? Getting into Cornell was no small feat and signaled to HBO that James had superior learning abilities, even if his coding wasn’t yet up to par. Being smart – as James obviously is – isn’t about what you know, but how you learn. Smart people learn faster and more efficiently than everyone else, retaining more of what they read and applying it to quickly draw abstract relations between disparate pieces of data.

The problem is James believes his success story is within reach of anyone that forgoes college when, in actuality, intellect is a bigger contributing factor for success than whether or not one has four extra years by not going to college. We would like to see the story of someone with only average intelligence not going to college and becoming as successful as James. They’re probably many instances, but not as high of a percentage as those with James’ level of intelligence. Maybe James is subtly implying that if you’re smart enough to get into a top college then reconsider if you should attend, which is a possibly good idea, but this is only applicable to the very small percentage of students that are smart and determined enough to get into a prestigious college. But for everyone else, the outcome is probably murkier.

Addresing the Problem of Entitlement Spending

With few exceptions, risk-taking, being smart, hard-work, and creativity is a path to prosperity in today’s super-competitive economy and unbridled plutolatry, more so than any prior decade. Stocks will keep going up and people will keep getting richer than ever even if many, on a personal level, are unable to participate in the economic recovery. There are record valuations for 2-3 year old tech companies, record high S&P 500, and record foodstamp rolls.

The question that inevitably arises when discussing the trend low labor force participation and the welfare of our economy ,is what fate will befall the millions that are permanently left behind, unable to thrive in the smartist era? But perhaps a more pragmatic question is, what should we do to solve the underlying problem, besides to keep throwing money at it? There exist substantial welfare programs for these underachievers in the form of medicare, free emergency room treatment, social security, disability and food stamps – to name a few, but is it fair to foist upon the productive members of society the burden of those who don’t contribute, especially as entitlement spending is obviously out of control? At some point, enough is enough.

To account for population growth, we see the proportion of citizens on benefits is rising:

By 2050, U.S. population is expected to swell to 500 million. Extrapolating future trends from the past, that could mean 200-300 million Americans will be on some sort of federal welfare, possibly more as jobs become increasingly technical and ordinary Americans are unable to meet the cognitive demands of employment.

The typical liberal solution is to enlarge the welfare state. Other solutions include more spending on education and job training, but then we run into the IQ gap; as technology keeps advancing and lower-skilled work becomes automated, the minium intelligence required to perform entry level work will keep rising.

There’s a positive correlation between SAT and IQ scores and income; thus, differences in economic outcomes can be attributable to IQ, which numerous studies suggest is herretible. From Wikipedia:

Various studies have found the heritability of IQ to be between 0.7 and 0.8 in adults and 0.45 in childhood in the United States.[4][7][15] It may seem reasonable to expect that genetic influences on traits like IQ should become less important as one gains experiences with age. However, that the opposite occurs is well documented. Heritability measures in infancy are as low as 0.2, around 0.4 in middle childhood, and as high as 0.8 in adulthood.[8][16] One proposed explanation is that people with different genes tend to seek out different environments that reinforce the effects of those genes.[7]

A 1994 review in Behavior Genetics based on identical/fraternal twin studies found that heritability is as high as 0.80 in general cognitive ability but it also varies based on the trait, with .60 for verbal tests, .50 for spatial and speed-of-processing tests, and only .40 for memory tests.[4]

In 2006, The New York Times Magazine listed about three quarters as a figure held by the majority of studies,[17] while a 2004 meta-analysis of reports in Current Directions in Psychological Science gave an overall estimate of around .85 for 18-year-olds and older.[8]

The liberal approach of throwing money at the problem is wrong for a couple reason: it doesn’t address the growing population of welfare recipients; in fact, it encourages more people to go on welfare; secondly, it fails to address the role of IQ in the acquisition of skills. No amount of money spend on education, training, and job programs will help if those whom it is intended for are not smart enough to benefit. Furthermore, welfare spending has only continued to grow, despite efforts such as 1964 War on Poverty, Reagan’s 1981 attempts to slash welfare, and Clinton’s 1996 welfare reform:

This means our current approach to poverty is ineffective. Steven Pinker eloquently summaries the flaws of the ‘blank slate’ approach to wealth inequality and poverty:

“By far the dominant cultural syndrome is that children are blank slates and that culture and parenting inscribe it,” and he noted that concept’s own acceptance in the cultural mainstream. “You’ll read hundreds of articles on economic inequality in the Times, the New Yorker, and so on, and never will there be even a mention of the possibility that smarter, more ambitious, or more disciplined people might be more successful.”

Due to the heritability of IQ and possibly other traits such as ambition and discipline, perhaps eugenics could reduce future poverty and future entitlement spending through the promotion of higher reproduction of people with desired a high-IQ (positive eugenics), and reduced reproduction of people with a lower-IQ (negative eugenics).

Unfortunately among academics and the media, the discussion of race and IQ has been relegated to the fringe, let alone any discussion of policy that incorporates elements of biological/genetic determinism. As quoted by Andrew Sullivan:

It’s been strangled by p.c. egalitarianism. The reason is the resilience of racial differences in IQ in the data, perhaps most definitively proven by UC Berkeley psychologist Arthur Jensen:…

The right response to unsettling data is to probe, experiment and attempt to disprove them – not to run away in racial panic. But the deeper problem is that the racial aspects of IQ have prevented non-racial research into intelligence, and how best to encourage, study and understand it.

Denial of biological determinism and IQ has stultified research that could help solve the very economic problems the left insists are urgent.

The Problem With Small Business

The Slow Death of American Entrepreneurship

No kidding. More people are realizing entrepreneurship is a big money pit due to the high failure rate, as well as a multitude of other factors such as competition, high borrowing costs and endless regulation.

Why does small biz suck and large cap rule?

1. Uncompetitive borrowing rates for small biz versus large caps.
2. Bailouts and rescue programs for large caps and too big to fail. For example, General Electric Co. borrowed $16 billion through a Federal Reserve Board rescue program in the fall of 2008.
3. Weak dollar fed policy and proliferate government spending for programs like homeland security, war, and infrastructure that benefit large companies such as LLL communications, Halliburton, Raytheon & Caterpillar.
4. Globalization, free trade agreements great for S&P 500 companies
5. Price advantage. Discounters like Wall-mart (WMT), Family Dollar (FDO) and Costco provide a much better value for cash-strapped consumers than expensive mom & pop stores. Its common sense…why pay more for less?

The way you get rich is to buy and hold the S&P 500, buy Bay Area real estate, build a website that goes viral, become an early employee or early investor of a company that becomes very valuable.

Picking the winning companies is easy if you know what to look for. In this blog, we predicted Facebook, AirBNB, Snapchat, Pnterest would become more valuable, which indeed they did. It’s as simple as looking for a company with a lot of growth, a wide moat, and in a hot sector. The mistake a lot of VC firms make is investing in something that is new and edgy, like a watch or a lame phone app that has no users, instead of the already valuable stuff that has gained traction such as Snapchat. At least in the later case you have a near 100% chance of doubling your money on buyout or IPO instead of a 99% chance of failure and maybe a .001% chance of having the next Facebook. The expected value of the later is higher, too.

Entrepreneurship has a higher ROI if you chose a business that has low start-up costs and expenses, is in a hot sector such as web 2.0, and viral potential such as apps and websites, versus businesses with a lot of overhead like restaurants and retail.